Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Pritchard v DJZ Constructions Pty Ltd & Ors; Gilles & Anor v DJZ Constructions Pty Ltd & Ors [2012] NSWCA 196
• Hearing dates: 21 and 22 February 2012
• Decision date: 28 June 2012
• Before: Bathurst CJ at [1]; Whealy JA at [106]; Barrett JA at [579]

Decision

1. Each appeal allowed in part.

2. In the event the parties are able to agree on orders to give affect to the conclusions reached in pars [101]-[102] of the Chief Justice's judgment, a draft form of orders should be delivered to the Chief Justice's Associate.

3. In the event the parties are unable to agree on the orders within 14 days, the proceedings are to be remitted to the trial judge for determination of the appropriate orders having regard to pars [101]-[102] of the Chief Justice's judgment.

4. The parties have liberty to file Notices of Motion seeking orders for costs of the appeal within 14 days of the date hereof.

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

• Catchwords: PROFESSIONS AND TRADES - legal practitioners - professional negligence - breach of retainer - scope of duty - proof of loss or damage - causation - assessment of damages - advocate's immunity.; GUARANTEE AND INDEMNITY - discharge of surety - where security given for guaranteed obligations - whether later covenant affects security so as to discharge guarantors.
• Legislation Cited: - Civil Liability Act 2002 (NSW) - Pt 1A, s 5B, s 5D, s 5E, s 5O, s 34, s 35; - Civil Procedure Act 2005 (NSW) - S 98; - Corporations Act 2001 (Cth) - s 232, s 1305(1); - Law Reform (Miscellaneous Provisions) Act 1946 (NSW) - s 5; - Trade Practices Act 1974 (Cth); - Uniform Civil Procedure Rules 2005 (NSW) - Pt 42
• Cases Cited: - Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420; - Al-Kandari v J R Brown & Co [1988] QB 665; - Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549; - Bennett v Minister of Community Welfare [1992] HCA 27; 176 CLR 408; - Bond v Hongkong Bank of Australia Limited (1991) 25 NSWLR 286; - Capital Brake Service Pty Ltd v Meagher [2003] NSWCA 225; - Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54;174 CLR 64; - Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1163; - Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370; - David v David [2009] NSWCA 8; (2009) Aust Torts Reports 91-993; - DJZ Constructions Pty Ltd v Pritchard [2010] NSWSC 1024; - DJZ Constructions Pty Ltd v Paul Pritchard [2010] NSWSC 1197; - DJZ Constructions Pty Ltd v Paul Pritchard [2010] NSWSC 1472; - Dominic v Riz [2009] NSWCA 216; - D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; 223 CLR 1; - Farrow Mortgage Services Pty Ltd (in liq) v Slade & Nelson (1996) 38 NSWLR 636; - FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 147; - Graham Barclay Oysters Pty Limited v Ryan [2002] HCA 54; 211 CLR 540; - Hall v van der Poel [2009] NSWCA 436; - Hancock v Williams (1942) 42 SR (NSW) 252; - James Hardie & Co Pty Ltd v Wyong Shire Council [2000] NSWCA 107; 48 NSWLR 679; - Heenan v Di Sisto [2008] NSWCA 25; - Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1; - Hill v Van Erp [1997] HCA 9; 188 CLR 159; - Holme v Brunskill (1877) 3 QBD 495; - House v R [1936] HCA 40; 55 CLR 499; - Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748; - Integrated Computer Services Pty Ltd v Digital Equipment Corp (Australia) Pty Ltd (1988) 5 BPR 11,110; - James v Surf Road Nominees Pty Ltd [2004] NSWCA 475; - Johnson v Perez [1988] HCA 64; 166 CLR 351; - Keefe v Marks (1989) 16 NSWLR 713; - Knight v FP Special Assets Ltd [1992] HCA 28; 174 CLR 178; - Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; 77 NSWLR 205; - Laresu Pty Ltd v Clark [2010] NSWCA 180; [2010] Aust Torts R 82-068; - Malec v JC Hutton Pty Ltd [1990] HCA 20; 169 CLR 638; - Moy v Pettman Smith [2005] UKHL 7; (2005) 1 WLR 581; - Murphy v Miller [1998] NSWCA 150 (BC9805397); - Mutual Life & Citizens Assurance Co Ltd v Evatt [1968] HCA 74; 122 CLR 556; - Nikolaou v Papasavas Phillips & Co (No 2) [1989] HCA 11; 166 CLR 394; - Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59; 157 CLR 149; - Perre v Apand Pty Ltd [1999] HCA 36; 198 CLR 180; - Polak v Everett (1876) 1 QBD 669; - Port Stephens Council v Theodorakakis [2006] NSWCA 70; - Reinhold v NSW Lotteries Corporation (No 2) [2008] NSWSC 187; - Roads and Traffic Authority (NSW) v Refrigerated Roadways Pty Ltd [2009] NSWCA 263 at [445]; 77 NSWLR 360; - Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332; - Strong v Woolworths Ltd [2012] HCA 5; 285 ALR 420; - Sussman and Anor v Symes and Ors (unrep 4 July 1994, McLelland CJ in Eq; - Sydney South West Area Health Service v MD [2009] NSWCA 343; - Sykes v Midland Bank Executor & Trustee Co Ltd [1970] 2 All ER 471; [1971] 1 QB 113; - Tabet v Gett [2010] HCA 12; 240 CLR 537; - Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165; - Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; 165 CLR 108; - Valstar v Silversmith [2009] NSWCA 80; - Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642; - Watkins v De Varda [2003] NSWCA 242; - WCW Pty Ltd v Bolster [1993] FCA (unrep) 06.01.1993; - Wilkinson v Daley [2004] NSWCA 331; - Williams v Frayne (1937) 58 CLR 710; - Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; 216 CLR 515; - Wynn v New South Wales Insurance Ministerial Corporation [1995] HCA 53; 184 CLR 485; - Young v Commissioner of Taxation [2010] NSWSC 288
• Texts Cited: - O'Donovan & Phillips - "The Modern Contract of Guarantee" - English Ed., 2010, p 500; - Rowlatt on Principle and Surety (4th Ed)
• Category: Principal judgment
• Parties: 2005/269375; Paul Pritchard t/as Pritchard Law Group (Appellant); DJZ Constructions Pty Ltd (First Respondent); Joseph John Gilles (Second Respondent); Gregory George Eliades (Third Respondent); David McGovern SC (Fourth Respondent); Vincent Palmieri (Fifth Respondent); Palmieri's Developments Pty Ltd (Sixth Respondent); 2005/269375-007; Joseph John Gilles (First Appellant); Gregory George Eliades (Second Appellant); DJZ Constructions Pty Ltd (First Respondent); Paul Pritchard t/as Paul Pritchard Law Group (Second Respondent); David McGovern SC (Third Respondent)
• Representation: A.J. McInerney, L.T. Livingston (05/269375: Appellant; 05/269375-007: 2nd Respondent); C.J. Birch SC, M.P. Cleary (05/269375: 1st, 5th & 6th Respondents; 05/269375-007: 1st Respondent); A. Bell SC, Ms K. Williams (05/269375: 2nd & 3rd Respondents; 05/269375-007: 1st & 2nd Appellants); S.W. Gibb SC (05/269375: 4th Respondent, 05/269375-007: 3rd Respondent); Yeldham Price O'Brien Lusk (05/269375: Appellant; 05/269375-007: 2nd Respondent); Pryor Tzannes & Wallis (05/269375: 1st, 5th & 6th Respondents; 05/269375-007: 1st Respondent); Sparke Helmore (05/269375: 2nd & 3rd Respondents; 05/269375-007: 1st & 2nd Appellants); McCabe Terrill (05/269375: 4th Respondent; 05/269375-007: 3rd Respondent)
• File Number(s): 2005/269375; 2005/269375-007

Decision under appeal

• Jurisdiction: 9111
• Citation: [2010] NSWSC 1024; [2010] NSWSC 1472
• Before: Schmidt J
• File Number(s): 2005/269375

Index

Bathurst CJ	[1]
The initial transaction and the original deed	[2]
The retainer of Mr Pritchard on behalf of DJZ on the original transaction	[7]
The February 2001 deed	[8]
The issues on these appeals arising out of the February 2001 deed	[18]
The August 2003 deed	[22]
The November 2003 sales agreement	[24]
Proceedings against the James guarantors	[26]
Giles Payne and Mr McGovern	[29]
A. The claim against Mr Pritchard arising out of the release of the James guarantors	[51]
1. Did the February 2001 deed operate to release the James guarantors?	[51]
2. Did Mr Pritchard owe a duty of care to warn DJZ of the risk that the entry into the February 2001 deed could have led to the James guarantors being released from liability?	[64]
3. Did Mr Pritchard breach his duty in failing to advise DJZ of the possibility that the February 2001 deed had the effect of releasing the James guarantors?	[73]
4. Causation	[77]
5. Liability in respect of the August 2003 deed	[83]
6. Liability in respect of the November 2003 deed	[84]
7. Damages for the loss of the James guarantees	[85]
8. Other issues	[89]
B. The claims against Mr Pritchard, Giles Payne and Mr McGovern in respect of the costs incurred by DJZ in the claims against the James guarantors	[90]
Other issues	[100]
C. Conclusion	[101]
Orders	[105]
Whealy JA	[106]
The complexity of the litigation	[114]
Parties to the litigation	[118]
Background - a brief statement	[121]
Court of Appeal's decision - factual overview	[142]
The primary judge's reasoning and overview of the facts	[150]
Advocate's immunity	[158]
Causation	[159]
The cross claims and DJZ's case against Giles Payne and McGovern SC	[173]
The case against Giles Payne	[174]
The case against Mr McGovern SC	[182]
Damages	[186]
The various appeals	[198]
Giles Payne's appeal	[201]
Other matters arising on the appeal	[203]
Discussion	[207]
Mr Pritchard	[214]
February 2001 Deed	[223]
Has it been shown that the February 2001 Deed released the James' interests?	[244]
August 2003 Deed	[261]
Causation	[280]
Would DJZ have heeded Mr Pritchard's advice?	[325]
The position of the Christians	[339]
Other issues	[347]
Advocate's immunity	[371]
Cross claim - grounds of appeal	[380]
Mr Pritchard's arguments on damages	[383]
Mr Palmieri and Palmieri Developments' liability to pay costs	[397]
The Giles Payne appeal	[400]
Appeal ground 2 - no encouragement to pursue the James proceedings	[450]
Appeal grounds 3 and 4 - causation	[451]
Appeal ground 5 - apportionment	[461]
Appeal ground 6 - costs of DJZ's claim against Giles Payne	[464]
Appeal ground 7 - costs of Mr Pritchard's cross claim against Giles Payne	[467]
Ground 8 - Mr Pritchard's costs of defending DJZ's claim	[473]
Mr McGovern SC's Notice of Contention	[483]
Mr McGovern's retainer - breach of duty	[502]
Leave to cross appeal	[554]
Damages	[570]
Costs	[575]
Barrett JA	[579]

Judgment

1 BATHURST CJ: The facts of this matter have been set out in detail by Whealy JA and I will not repeat them save to the extent necessary in this judgment.

The initial transaction and the original deed

2 The background of the proceedings is found first in an agreement reached on 1 July 1999 ("the original deed") to facilitate the acquisition of a real estate agency in the Sutherland Shire of Sydney owned by a company, Chris Burke & Co Pty Ltd, in its capacity as trustee of the Burke Unit Trust. The promoters of the venture were a Mr James and a Mr Christian. The vehicle used for the acquisition of the shares in Chris Burke & Co Pty Ltd and the units in the Burke Unit Trust was a company Surf Nominees Pty Ltd ("Surf") as trustee for the Surf Road Unit Trust ( "SRUT").

3 Messrs James and Christian were unable to fund the purchase themselves and, accordingly, obtained three outside investors to the project, D & A Mortimer Pty Ltd ("Mortimer"), WIT Investments Pty Ltd ("WIT") and the first respondent, DJZ Constructions Pty Ltd ("DJZ"), (collectively called "the investors"). The investors provided the sum of $400,000 to assist with the purchase. The payment obligations were secured by the original deed. The parties to the deed were the investors, a company James Christian Pty Ltd (described as "the Guarantor"), Mr and Mrs James and Mr and Mrs Christian (described in the deed as "the Indemnifying parties"), Cottenham Nominees Pty Ltd as trustee for the M & K Christian Family Trust and New South Head Road Nominees Pty Ltd as trustee for the Janet Margaret James Family Trust (described in the deed as "the unit holders"), and Surf Road Nominees Pty Ltd (described as "the Trustee"). The Schedule to the original deed stated that at the time of execution each of Cottenham Nominees Pty Ltd and New South Head Road Nominees Pty Ltd in their capacity as trustee of the respective trusts, held 13 ordinary units in the Surf Road Unit Trust (in fact these units appear to have been issued on 9 July 1999).

4 The original deed recited the loan of $400,000 made to enable the acquisition to take place and provided for the payment to the investors of what was described as a preferential dividend. Of relevance to the present proceedings are the provisions of cll 5, 6 and 8(2) which provided as follows:

"5.(1) The guarantor, unit holders and the indemnifying parties jointly and severally guarantee:

(a) payment of the IGM bank debt and the Surf Road bank debt;

(b) that the Trustee will pay the preferential distribution to the Investors.

(2) The Indemnifying parties, the guarantor and the unit holders jointly and severally indemnify the Investors for any loss or damage suffered by the Investors should the Indemnifying parties, the guarantor and the unit holders fail to ensure payment of the bank debts and the preferential distributions.

6. The unit holders shall deliver to the Investors' Solicitors Paul Prichard & Co of Suite 2 Bangor, Corner of Menai & Yala Roads Bangor NSW the Certificates for 26 Units in the Surf Road Unit Trust (all of which Units are hereinafter called 'the said Units') as soon as the said Units shall issue in the names of the unit holders to be held by the Investors as security for the obligations of the guarantor, the Indemnifying parties and the unit holders pursuant to Clause 5 hereof ('the obligations') and the unit holders hereby charge the said units with the due performance of the obligations and shall deposit with the Investors' Solicitors Transfers of the said units in blank in respect of the said units duly executed by the unit holders.

...

8.(2) The unit holder hereby charge the said units as foresaid as beneficial owner and sub-section 1(c) of Section 78 of the Conveyancing Act 1919 or any amendment thereof shall be read and construed as if after the words 'contrary to any provision in the conveyance' the words 'or if default be made in the observance or performance of any of the Covenants in the conveyance (namely, this Mortgage) contained or herein implied and on behalf of the Mortgagor (namely, the Investors) to be observed and performed' has been inserted."

5 It is evident from the provisions of cl 5 that the unit holders, in addition to the named guarantor and the named indemnifying parties, guaranteed payment of the preferential dividend and effectively the bank debts. For convenience in this judgment I will refer to Mr James, Mrs James and New South Head Road Nominees Pty Ltd collectively as "the James guarantors".

6 On 9 July 1999, 13 units were issued to each of New South Head Road Nominees Pty Ltd and Cottenham Nominees Pty Ltd, seven units were issued to DJZ, one unit to WIT and two units to Mortimer.

The retainer of Mr Pritchard on behalf of DJZ on the original transaction

7 DJZ was a company controlled by Mr Palmieri. The primary judge noted that the appellant in the first matter (Mr Pritchard) acknowledged that he had been instructed to act for DJZ in relation to the original deed (primary judgment [183]). Whealy JA also reached the same conclusion (judgment [226]). The conclusion of the primary judge on this issue was not challenged on appeal.

The February 2001 deed

8 The venture did not prosper and it was alleged that Mr James and Mr Christian had breached their duties as Directors of Surf Road Nominees and, at least in the case of Mr James, defrauded that company. To resolve these issues and to enable the operating companies to continue to trade, a further deed was entered into. It was common ground that this deed, although undated, was entered into in February 2001 ("the February 2001 deed"). Relevantly, the parties to that deed included DJZ, WIT, Cottenham Nominees Pty Ltd, Mr Christian (described in the deed as Michael), Mrs Christian (described in the deed as Katherine), Mr Palmieri, his wife Mrs Palmieri and Surf Road Nominees Pty Ltd. The James guarantors were not parties to this deed.

9 The deed recited the allegations of fraud made against Mr James and noted that similar allegations had been made against Mr Christian. It contained an acknowledgement that it was in the best interests of the shareholders in Surf Road Nominees Pty Ltd and the unit holders in the Surf Road Unit Trust to release Mr Christian from liability, stated that Mr Christian had disclosed his involvement, and that in consideration of certain payments set out in the deed the parties release Mr and Mrs Christian and Cottenham Nominees Pty Ltd from any liability in respect of the allegations of misconduct and impropriety made against them.

10 The deed also recited default made by the guarantors under the original deed and that the investors were entitled to sell the units in the Surf Road Unit Trust held by New South Head Road Nominees Pty Ltd and Cottenham Nominees Pty Ltd.

11 Recital M to the deed provided as follows:

"M. At the request of Michael, Katherine and Cottenham the parties hereto have agreed, upon the terms hereinafter appearing, to:

(i) to limit their claims against Michael, Katherine and Cottenham pursuant to the Guarantee provisions contained in the July 1999 Deed to $300,000.00; and

(ii) not to exercise any right of sale pursuant to the July 1999 Deed in respect of the Units in the SRUT Trust held by Cottenham."

12 The deed imposed by clauses 1, 2 and 3 an obligation on Mr and Mrs Christian and Cottenham Nominees Pty Ltd to pay $287,500 as a contribution to the capital of the Surf Road Unit Trust, for Mr Christian to realise certain assets and pay $105,000 of the proceeds to Mortimer, $20,000 to Mr Palmieri and pay any balance as further contribution to the capital of the Surf Road Unit Trust.

13 The crucial provisions of the February 2001 deed are cll 5, 6, 9 and 10:

"5. In consideration of the payments to be made pursuant to Clauses 1, 2 and 3 hereof, WIT, DJZ, Cottenham, Michael Christian and Silvano agree not to take any action to sell the thirteen (13) Units in the SRUT held by Cottenham and not to take any action against Michael, Katherine and/or Cottenham arising out of the breach of those parties or any one of them of their obligations pursuant to the July 1999 Deed except as hereinafter appears and the provisions of this Clause may be used as a bar to any proceedings by the aforementioned parties against Michael, Katherine and/or Cottenham but preserving always the rights hereinafter reserved.

6. In consideration of the payments being made to the SRUT pursuant to Clauses 1, 2 and 3 of this Deed:

(a) WIT, DJZ, Cottenham and Silvano agree to waive any right to receive a preferential distribution from the profits of the SRUT as provided in Clause 2 of the July 1999 Deed in respect of any payments guaranteed by Michael, Katherine and/or Cottenham in respect of the IGM bank debt and the Surf Road bank debt referred to in Clause 5(1)(a) of the July 1999 Deed; and

(b) WIT, DJZ, Cottenham, Silvano and SRN agree to limit any claim they or any of them may have against Michael, Katherine and Cottenham in relation to the Guarantee in respect of the Bank Loans referred to in Recital D and H, Clause 1 and Clause 5(i)(a) and the Second Schedule of the July 1999 Deed ('the Bank Loans) to a maximum of $300,000.00 plus bank interest accruing from the date of any default in relation to the said Guarantee by Michael, Katherine and/or Cottenham;

...

9. The portion of the Bank Loans guaranteed by Michael, Katherine and Cottenham must be paid out by these parties for the SRUT at the earlier of:-

(i) the sale or transfer of any Units in the SRUT of Michael, Katherine or Cottenham to a third party, being a party not presently a unit holder of SRUT; or

(ii) the death of Michael; or

(iii) the winding up of the SRUT.

10. If Michael, Katherine and Cottenham fail to expeditiously make the payments in the manner specified in Clauses 1, 2 and 3 hereof (delays beyond the reasonable control of Michael, Katherine and/or Cottenham shall not constitute a failure to act expeditiously on the part of Michael, Katherine and/or Cottenham for the purposes of this clause), WIT, DJZ or SRN shall be entitled to serve a written demand on either of Michael, Katherine or Cottenham requiring compliance with the outstanding obligation to pay within thirty (30) days after the date of service of such notice and if the default has not been rectified within this period then the releases, waivers and restraints contained in Clauses 4, 5 and 6 hereof shall be withdrawn and there shall be deemed to have been no variation of the obligations of Michael, Katherine and/or Cottenham pursuant to the July 1999 Deed."

14 It should be noted in that context that Mr and Mrs Christian and Cottenham Nominees and the James guarantors had jointly and severally guaranteed the payments referred to in cl 5 of the February 2001 deed.

15 The February 2001 deed also contemplated a reorganisation of the Surf Road Unit Trust following the sale of the units in New South Head Road Nominees Pty Ltd. The effect was that if the reorganisation took place DJZ would hold 17 units out of a total of 36 units on issue. In that context cl 15(a) of the deed provided as follows:

"15. The Unit Holders in the SRUT who are a party to this Deed, and SRN agree that:

(a) The Unit Holders of A Class Units shall be entitled to receive a preferential distribution as provided by the July 1999 Deed, as varied by this Deed up to such time as recovery actions against James and the Guarantors have been exhausted but the Unit Holders of A Class Units agree not to claim such a preferential distribution in the event that the recovery actions against James, James' wife and the James Trust are unsuccessful."

16 The significance of this is that it was plainly contemplated that proceedings would be taken by the investors against the James guarantors shortly after execution of the February 2001 deed.

17 Proceedings against the James guarantors under the guarantee were commenced on 8 August 2001. The proceedings were successful at first instance but the judgment of the primary judge was reversed on appeal (see [28] below).

The issues on these appeals arising out of the February 2001 deed

18 These issues may be summarised as follows:

(a) Was Mr Pritchard retained by DJZ to advise it in respect of the February 2001 deed?

(b) If there was no contractual retainer, did Mr Pritchard owe a duty of care to DJZ to advise it in respect of its entry into the February 2001 deed?

(c) Did the entry into the February 2001 deed have the effect of releasing the James guarantors from their obligations as guarantors under the original deed?

(d) Did Mr Pritchard breach his duty in failing to advise DJZ that this was the effect or possible effect of entry into the February 2001 deed?

19 The primary judge held that Mr Pritchard was neither retained nor owed a duty of care to DJZ in respect of the February 2001 deed (judgment [189]). In these circumstances she was not required to consider the other issues which had been raised. Nevertheless, she did find that the disposal of the Christians' Units breached "the implied obligation to maintain securities for the benefit of all guarantors" (judgment [212]). However, her Honour ultimately concluded that the relevant breach of duty only arose when Mr Pritchard came to advise on a November 2003 sales agreement.

20 The issue in these appeals arises in a somewhat unusual fashion. The primary judge found negligence in failing to advise that the November 2003 sales agreement would operate as a release of the James guarantors and that that was the effect of that agreement. On appeal, Mr Pritchard argued that if there was a release of the James guarantors, it occurred by virtue of the February 2001 deed, in respect of which he owed no duty to DJZ. Therefore, he submitted, even if he was negligent in November 2003, that negligence did not result in any loss to DJZ. DJZ by contrast contended that it had retained Mr Pritchard in respect of the February 2001 deed, and that if it had the effect of releasing the James guarantors the consequent loss which resulted was caused by the negligence of Mr Pritchard in failing to warn of this effect.

21 Whealy JA has concluded (at [242]) that in respect of the February 2001 deed there was an implied term in the retainer with the investors to advise DJZ, or else there was a continuation of the earlier retainer (the retainer in respect of the original deed) with an implied term to advise and warn that the guarantees were threatened by an arrangement with one of the guarantors. However, he concluded that any breach of that retainer had no causative effect because the February 2001 deed did not release the James guarantors.

The August 2003 deed

22 As I indicated, the proceedings against the James guarantors were commenced on 8 August 2001. As the primary judge observed ([171]) the claim brought against Mr Pritchard was based on the drafting of the February 2001 deed and the 2003 sales agreement, not the conduct of the litigation. However, because of the issues raised in Mr Pritchard's appeal against the findings made by the primary judge in respect of his claim against the second and third respondents (the partners of Giles Paine) and the fourth respondent (Mr McGovern SC) and the issues raised in the appeal brought by Giles Paine against DJZ, Mr Pritchard and Mr McGovern, it is necessary to say something about the August 2003 deed.

23 Whealy JA has summarised its contents at [262] of his judgment. He concluded, contrary to the finding of the primary judge (primary judgment [200]), that Mr Pritchard breached a duty owed to DJZ in failing to advise of the possibility that entry into the deed would release the James guarantors (judgment [277]-[278]). However, he found that as a matter of fact the deed never became operative ([308]-[309]).

The November 2003 sales agreement

24 The parties to this agreement were Chris Burke & Co Pty Ltd as vendor and Cottenham Nominees as purchaser. By the agreement Chris Burke & Co Pty Ltd agreed to sell its real estate agency business to Cottenham Nominees Pty Ltd. Mr Palmieri and DJZ guaranteed the obligations of the vendor whilst Mr and Mrs Christian guaranteed the obligations of the purchaser. Clause 25 of the agreement provided as follows:

"25. COURT CASE AGAINST TASS JAMES

25.1 The parties to the Agreement acknowledge New South Wales Supreme Court proceedings 50108 of 2001 ('Supreme Court proceedings') is on foot and involves the parties to the Agreement.

25.2 Subject to the Purchaser paying to Pritchard Law Group the sum of Fifty Two Thousand Dollars ($52,000.00) pursuant to Clause 9.1 and Schedule 11, the Vendor, Vincent Palmieri and Silvano Sicuro acknowledge and agree that they are liable and responsible for all fees, disbursements and any other monies past, present and future owing on any account in respect of the Supreme Court proceedings to the Vendor's Solicitor and any Counsel, Accountant or Expert retained by either or all of the Vendor, Vendor's Solicitor, Silvano Sicuro and Vincent Palmieri and that the Purchaser shall have no responsibility or liability for the payment of any such monies.

25.3 The Vendor, Silvano Sicuro, Vincent Palmieri and DJZ Constructions Pty Limited release the Purchaser, Michael Christian and Katherine Christian from any and all claims, debts, costs, damages, judgments, orders, awards or liabilities they may have or had against the Purchaser, Michael Christian or Katherine Christian arising directly or indirectly out of the Supreme Court proceedings subject to the Purchaser paying to Pritchard Law Group the sum of Fifty Two Thousand Dollars ($52,000.00) pursuant to Clause 9.1 and Schedule 11."

25 It was not disputed by any of the parties to the appeals that the November 2003 deed operated to discharge the James guarantors, nor did Mr Pritchard contend that he did not breach his duty in failing to advise of this possibility. The arguments of Mr Pritchard focused on issues of causation and damages including, as I have indicated, the argument that the guarantors had previously been released by virtue of the operation of the February 2001 deed.

Proceedings against the James guarantors

26 The proceedings against the James guarantors were successful at first instance. The only relevant issue on the appeal was the liability of Mrs James. Mr James was declared bankrupt following the decision at first instance and it appears to be common ground, subject to an overall settlement which occurred in 2005, that Mrs James was the only person who had capacity to meet any of the obligations under the guarantee.

27 The defence raised by the James guarantors both before the judge at first instance and the Court of Appeal focused on the November 2003 deed and not the February 2001 deed. Reliance was placed on cl 25 of the November 2003 deed as constituting a release of the co-guarantors of Mr and Mrs James, Mr and Mrs Christian, from their obligations under the guarantee, as a consequence of which the James guarantors were also released. No reliance was placed on the February 2001 deed.

28 The Court of Appeal upheld this contention but also expressed the view by way of dicta that the February 2001 deed had released the James guarantors: James v Surf Road Nominees Pty Ltd [2004] NSWCA 475. The Court's conclusion was as follows:

"[76] The effect of these provisions, in our opinion, was that the security was to be maintained and that there was no entitlement in the investors, who had the benefit of the security, to dispose of the security other than by way of exercise of their power of sale, or to come to any separate arrangement in respect of the security with one of the security owners to the exclusion of the other. There is nothing else in the provisions of the Deed, in my opinion, that leads to any other conclusion, so that there was, as a matter of construction, an implied covenant to maintain the security. The fact that cl.8 provided that the investors may exercise their power of sale in respect of 'the units or any of them' is simply a recognition that those with the benefit of the security needed only to sell so many of the units as were required to satisfy the loss: see Smith v. Wood at 25. That did not negate or give some different right to the investors other than the right to exercise the power of sale. The security was to be maintained for that purpose and that purpose only, unless and until the principal obligation under the Deed of Guarantee was satisfied.

[77] The investors however, dealt with the securities other than by way of exercise of their power of sale. In the February 2001 Deed, it was agreed that the investors would not exercise any right of sale pursuant to the Deed of Guarantee in respect of Cottenham's units in the Surf Road Unit Trust. In the 5 November 2003 Agreement, the investors agreed to the disposal of those units as part of the sale agreement and not by way of the exercise of the power of sale. There was thus a breach of the implied covenant to maintain the security. In my opinion, the breach first occurred under the terms of the February 2001 Deed, although Mrs. James did not rely upon that breach. But in any event, there was an independent breach arising out of the provisions of the 5 November 2003 Agreement.

...

[79] A creditor is entitled to exercise its rights under the guarantee against one, some or all of the guarantors, or it may have recourse to some or all of the security. A creditor may also exercise a combination of those rights. In doing so, the creditor does not and cannot affect the rights of the guarantors and/or sureties inter se. Those rights include the rights as between the guarantors to seek contribution from the other guarantors and the right of marshalling in respect of the securities. The fact that a creditor, pursuant to and in accordance with the contract of guarantee, exercises a right against one guarantor or one part of the security does not mean the remaining guarantors or the securities are thereby released. In this case, the dealing with the New South Head Road Nominees Units on 22 October 2002 was pursuant to the Deed of Guarantee. Thereafter, whilst the principal obligation remained outstanding, the investors were only entitled to deal with the Cottenham units under the Deed of Guarantee. The fact that they had exercised the power of sale in respect of the New South Head Road Nominees units and could do so in respect of the Cottenham units did not release them from the contractual obligation to maintain the security for the purposes of the Guarantee.

[80] The submission also overlooks the arrangement effected by the February 2001 Deed that the investors would not exercise the power of sale under cl.8 against Cottenham's units. On the respondents' approach, the investors could execute against the New South Head Road Nominees units. They could also come to a separate arrangement not to exercise the power of sale against Cottenham. They could then enter into a separate arrangement not to sue the Christians and as part of that arrangement take the Cottenham units, not in reduction of the guarantee obligations, but in part satisfaction of some other commercial transaction between the parties. The consequence of the foregoing would be that Mrs. James as a joint and several guarantor and New South Head Road Nominees as a joint surety would have no right of contribution and no right to have the securities marshalled. Such a result is contrary to law: see Smith v. Wood at pp. 21-22; Hancock v. Williams & Anor. at 256."

Giles Payne and Mr McGovern

29 Neither Giles Payne nor Mr McGovern advised on the entry into the February 2001 or November 2003 deeds. The basis on which the claims were made against them was that they should have advised DJZ that having regard to the effect of the February 2001 deed and in the case of Giles Payne, the November 2003 deed, the proceedings against the James guarantors would be unsuccessful and should be compromised. This led to claims being made against them as well as Mr Pritchard in respect of the costs incurred by DJZ in the conduct of the proceedings.

30 The primary judge found ([412]) that the costs of conducting the proceedings amounted to $489,022. The claim was for that amount plus interest. She concluded that having regard to the other issues raised in the proceedings, 60 percent of the costs were incurred in relation to the claim against Mrs James. Of those costs she concluded that any liability of Mr Pritchard or Giles Payne in respect of those costs should be reduced by 30 percent due to the contributory negligence of DJZ and that Giles Payne was responsible for 50 percent of the balance of the costs incurred after 12 January 2004 whilst Mr Pritchard was responsible for the balance. The primary judge held that Mr McGovern was not liable as his conduct was not causative of any loss.

31 Mr Pritchard has appealed against the orders of the primary judge in respect each of Giles Payne and Mr McGovern. The grounds of the appeal challenge the contention that the February 2001 deed had no causative effect on any loss suffered by DJZ. As a consequence it is contended that Giles Payne's liability in respect of costs should have commenced in May 2002 rather than 12 January 2004 and that Mr McGovern was liable to make contribution. He also contended that DJZ suffered no loss as the costs were paid by other companies associated with Mr Palmieri rather than DJZ.

32 Giles Payne has appealed against the findings of the primary judge on the grounds that it was no part of its retainer to advise DJZ on this issue and that any breach of retainer was not causative of any loss. It also appealed against certain costs orders made by the primary judge on the assumption that it was otherwise unsuccessful. It also contended that DJZ suffered no loss as the costs were paid by other companies associated with Mr Palmieri, rather than by DJZ.

33 Mr McGovern has cross-appealed on an order for costs made against him by the primary judge. By Notice of Contention Mr McGovern submitted that the primary judge's decision should be affirmed on the grounds that the proper application of s 5B, s 5D and s 5E of the Civil Liability Act 2002 would result in the finding that he was not negligent and there was a lack of causation between the alleged negligence and the loss incurred by DJZ.

34 Giles Payne was first instructed by Mr Palmieri in January 2002 in relation to a misleading and deceptive conduct claim anticipated against Mr James. In May 2002, Giles Payne received an unexecuted copy of the February 2001 deed and was advised that it had been entered into. The evidence of Mr Gilles, the second respondent and partner at Giles Payne, was that he did not consider the February 2001 deed in detail, because it did not appear to affect any right of Mr Palmieri to sue Mr James in respect of misrepresentations (primary judgment [297]), however he conceded under cross-examination that he had appreciated that the February 2001 deed varied rights and liabilities under the original deed, releasing the Christian interests from their guarantees. He said he did not give any consideration to the legal consequences of the February 2001 deed. The primary judge found:

"[299] It is apparent from the evidence of Mr Gilles and Ms Becker, that if there was any doubt as to the terms of the 2001 deed, a solicitor acting competently would have obtained a copy of the executed deed, given that by its terms, it varied the 1999 deed. The 1999 deed lay at the heart of the case being pursued in the Supreme Court proceedings. It was also relevant to the misrepresentation case which Mr Palmieri wanted to pursue, particularly in relation to the question of damages. In advising Mr Palmieri, it is unquestionable that consideration had to be given to the question of whether, and how, the 2001 deed varied the 1999 deed."

35 It is that finding which forms the basis of the contention raised by Mr Pritchard that the liability of Giles Payne arose in May 2002.

36 It should be noted that on 8 March 2002 Mr Pritchard forwarded to Giles Payne various documents including a copy of a brief to Mr Wales SC. The primary judge stated ([301]) the Mr Pritchard had raised a concern in the observations contained in the brief about the impact of the February 2001 deed. Those observations appear to have appended an unexecuted copy of the February 2001 deed, and refer to a "deal" with Michael Christian "whereby [Mr Palmieri and Mr Sicuro] agreed not to take any action against him or his company vehicle and Andy Mortimor's 2 units in the Trust were sold for the cost of his initial acquisition, one unit going to Michael Christian and the other going to Mr Sicuro" (Blue 3247), but otherwise do not raise concerns about the impact of the February 2001 deed. It does not appear that the opinion of Mr Wales was supplied to Giles Payne. That opinion expressed the view that the obligations of the James guarantor survived the release of the "Christian Family interests". His opinion contained the following comments:

"The Release of Mr and Mrs Christian

I have been briefed with a deed (my copy is unsigned and undated) in which makes provision for the release of Mr and Mrs Christian and the trustee of their family trust, Cottenham Nominees Pty Ltd.

In the deed, Mr James C, Mrs James C [sic] and Cottenham agree to pay $287,500 to the Trust and further to pay the proceeds of a particular sale in accordance with the Deed. In return, the other parties to the Deed release Mr Christian, Mrs Christian and Cottenham from all claims arising from Mr Christian's involvement as a director of various companies or as the recipient of funds improperly paid to Mr James C, Mrs James C [sic] or Cottenham from the assets of the Trust or the various companies controlled by the Trust. It is possible that this deed gives rise to arguments on behalf of Mr James against your clients.

The general principle is stated in the following terms in Rowlatt on Principal and Surety, 4th edition, page 184, as follows:

'If a surety, whose liability is an essential condition of the liability of another surety, signs the instrument, but is afterwards released, or becomes entitled to his discharge by virtue of any equitable principle, the other surety is discharged in the same way as if the first had never become bound.'

However, the same principle does not, so far as I am aware, apply to an indemnity, which is a different thing from a guarantee or surety. Clause 5(2) of the Deed of Guarantee provides that 'the indemnifying parties, the guarantor and the unit holders jointly and severally indemnify the Investors for any loss or damage suffered by the Investors should the Indemnifying parties, the guarantor and the unit holders fail to ensure payment of the bank debts and the preferential distributions.' It seems to me that this obligation survives any release of the Christian family interests."

37 On 20 December 2002 Giles Payne delivered a brief to Mr McGovern SC which included instructions to "consider all statements and all supporting documentation" and advise on the prospects of success of claims against the James Family in relation to misrepresentation and any other laws generally. The brief also included an undated unexecuted copy of the February 2001 deed and the pleadings in the Supreme Court proceedings then on foot. Although the defence of the James guarantors denied liability under the guarantee it did not specifically plead that the effect of the February 2001 deed was to release them from their obligations thereunder.

38 In March 2003 Mr McGovern advised that a misrepresentation claim may have prospects of success and should be pursued in the Supreme Court proceedings already on foot, and that DJZ should be separately represented in those proceedings.

39 In a conference on 3 March 2003 between Mr McGovern, Mr Gilles and Mr Palmieri, Mr Palmieri informed Mr Gilles and Mr McGovern that the senior counsel then representing him and the other investors in the proceedings, Mr Alexis SC, had advised that an offer for Mr James to settle on a "walk away basis" should be accepted. The advice was said to have been given on the basis that Mr James was a man of straw. By a letter of 25 March 2003 to Mr and Mrs Palmieri, Giles Payne advised that DJZ's interests were coming into direct conflict with those of the other investors and required separate representation in relation to both the proceedings and settlement negotiations. Giles Payne was instructed to act for DJZ in the Supreme Court proceedings (primary judgment [307]). This altered the nature of the retainer, however it was altered again later when it was decided DJZ would not be separately represented and Giles Payne ultimately never entered an appearance in the proceedings.

40 Mr McGovern was briefed to draft documentation necessary for an application for DJZ to be separately represented, and to pursue misleading and deceptive conduct claims. He advised in writing on 15 April 2003 that the Supreme Court proceedings relying upon the original deed offered the most reasonable prospects of success. A solicitor with Giles Payne, Ms Becker, who had carriage of the Supreme Court proceedings, gave evidence that she understood as of April 2003 that the February 2001 deed had varied the original deed as to the liabilities of the Christian interests (primary judgment [312]). At no point during this time does it appear that the solicitors at Giles Payne or Mr McGovern ever directly considered the impact of the February 2001 deed releases upon the rights of Mr Palmieri or DJZ under the original deed. Her honour the primary judge found:

"[315] ... I am satisfied that at a time when Giles Payne had accepted instructions to separately represent DJZ in the proceedings and was actively pursuing those instructions, that a solicitor acting competently would have ensured that the 2001 deed had not been overlooked by counsel advising on the matters dealt with by Mr McGovern in his written advice. Mr McGovern's omission of any reference to the 2001 deed on its face suggested that a deed which had varied the 1999 deed had been overlooked. A solicitor acting competently, having noticed the omission, would have raised it with counsel."

41 It was decided on 24 April 2003 that DJZ would not be separately represented from Mr Palmieri and the other investors in the proceedings, who were represented by Mr Pritchard, but that Giles Payne would remain on standby, ready to appear, should the need arise.

42 In September 2003, Mr Palmieri sought advice from Giles Payne as to whether, the investors having agreeing in the February 2001 deed not to sue Mr Christian, Mr James would be prevented from succeeding in his claim for contribution from Mr Christian. On 1 October 2003, Giles Payne provided a letter of advice concerning the effect of the February 2001 deed which did not raise the potential difficulties the deed posed for the ongoing litigation. Ms Becker, who drafted the advice, gave evidence that she understood at this point that all parties considered the release contained in the February 2001 deed was a covenant not to sue. She conceded that she did not consider whether the effect of the February 2001 deed could be to discharge the James guarantors from their obligations under the James guarantees. The primary judge also found that Mr Gilles did not consider this issue.

43 On 10 December 2003 Mr Alexis gave oral advice on the possibility that the effect of the February 2001 deed and the November 2003 sales agreement was to discharge the James guarantors from their obligations. The advice was confirmed in writing on 23 December 2003 at the time the proceedings were adjourned part heard before the trial judge. The advice which was delivered to Mr Pritchard contained the following comments:

"On 10 December, 2003 Ms Sainsbury and I conducted a telephone conference with you in relation to the undated Deed (identified as draft 4) and the Agreement for Sale of Business dated 5 November, 2003 an their provisions which may have the effect of releasing Mr and Mrs M. Christian and Cottenham Nominees Pty. Limited from liability as guarantors and indemnifying parties under the Deed of Guarantee and Indemnity dated 1 July, 1999 ('Deed') and thereby discharging the Defendants from the liability claimed against them pursuant to the Deed in the proceedings. Copies of these documents were furnished shortly before the telephone conference.

I note that the Defendants now rely on the undated Deed and the Agreement for Sale as discharging the liability of the Defendants under the Deed: refer to paragraph 5 (e) of the Defence to the Third Further Amended Summons filed in Court on 18 December, 2003.

I note also that your Mr Pritchard acknowledged during the telephone conference that he did not appreciate that the undated Deed and the Agreement for Sale could have this effect on the Defendants liability pursuant to the Deed and that Mr V. Palmieri had not been warned of this consequence before these documents were executed and performed.

To resolve the potential for a conflict of interest, I confirm that I advised Mr and Mrs Palmieri of the existence of a claim against the Pritchard Law Group, in the event of the Plaintiffs or any of them, failing in their claim against the Defendants pursuant to the Deed, on the basis of a finding that the liability of the Defendants was discharged by reason of the undated Deed and/or the Agreement for Sale."

44 Following receipt of this advice Mr Palmieri consulted Giles Payne. The primary judge found that Giles Payne was aware of Mr Alexis' advise about the problem with the Sale Agreement and Mr Pritchard's negligence but was not provided with his written advice. She also found that Giles Payne had received a copy of the 2003 Sales Agreement ([334]).

45 On 22 January 2004 an advice drafted by Ms Becker and settled by Mr Gilles was provided to Mr Palmieri. The letter provided what was described as an overview of the meetings and events which had occurred since 8 September 2003. On the question of whether or not to continue the proceedings the following advice was given:

"You attended our office on 12 January 2004 to discuss the progress of your matter and whether or not we thought you should proceed.

...

Our initial advice was that as you have brought that matter this far, at considerable expense, the expense may very well be thrown away if you were to settle on the terms suggested by James, which were far less favourable than what you require."

And:

"It seems to us that any decision made by you to continue the case will have to be made on the following basis:-

(1) Your own impression of how the case is proceeding, formed by the impressions of your counsel and the instructing solicitor from Paul Pritchard's office; and

(2) Whether or not you think Mr James is likely to agree to your minimum terms of settlement in this matter.

From what you have said, it does not appear that Mr James will agree to your minimum settlement conditions and as such your only other options would be:

(1) to agree to whatever settlement he proposes (subject to reasonable negotiation by your counsel); or

(2) continue with the case and take your chances with the judge.

At this stage, it appears that the bulk of the costs have been incurred by you and on balance, from a costs perspective, you may as well continue with the case."

46 As the primary judge found ([336]), the advice gave no consideration to any potential problems flowing from the February 2001 deed or the November 2003 Sales Agreement. Nor did it deal with the advice of Mr Alexis.

47 In this context the primary judge reached the following conclusions:

"[341] I am well satisfied that a solicitor acting competently in the circumstances would have given such advice. A solicitor has a duty to explain risks, even unusual ones, which are reasonably foreseeable (see Macindoe and Anor v Parbery). The reality was that the risks which Mr Alexis had identified as arising from the 2003 sale agreement were known to Gyles Payne [sic], but no consideration was given to them, or the consequences of DJZ not accepting the advice to settle the litigation. One obvious potential consequence related to any claim later made against Mr Pritchard. More directly, no advice was given as to the impact of the agreement on DJZ's prospects in the proceedings and whether, as a consequence, Mr Alexis' advice to settle the proceedings ought to be accepted.

...

[343] I am satisfied on the evidence that a solicitor acting competently, would have identified and advised on the potential problems on which the Court of Appeal's judgment eventually turned. Plainly there were differing views available as to the effect of what had been agreed. The evidence that Mr McGovern immediately appreciated the difficulty which the 2003 sales agreement gave rise to, when the matter was raised with him by Mr Fitzpatrick in December 2003, supports the conclusion that a solicitor acting competently would have identified and advanced on that issue. So does the view which those acting for the James' interests had come to; the view to which Mr Alexis came; and Mr Pritchard's concession that the problems with the 2001 deed and the 2003 agreement were ones which could have been dealt with in drafting the 2003 agreement, had he given the matter any thought. A similar concession was not made by Mr Gilles or Ms Becker as to their own failures. The problem was that like Mr Pritchard, Giles Payne also failed to give the effect of the 2001 deed and the 2003 sales agreement on the guarantees provided by the 1999 deed any thought, despite what they knew of Mr Alexis' advice.

...

[359] Had necessary consideration been given to the 2001 deed and the 2003 sales agreement, it is apparent that quite different advice would have been given by Giles Payne, to that which was given.

[360] ... there must have been a real prospect that [Mr Palmieri] would have accepted advice recommending a settlement, had both Mr Alexis and Giles Payne given DJZ advice as to the difficulties posed for the litigation by the 2001 deed and the 2003 agreement ..."

[361] ... I am satisfied that in advising on settlement in January 2004, Giles Payne was negligent and acted in breach of its retainer, by failing to consider and advise DJZ about the potential impact of the 2001 deed and the 2003 sales agreement on the case it was pursuing in the Supreme Court.

[362] But for the conclusions which I have reached in relation to the fact that the Court of Appeal's judgment did not turn on the 2001 deed, I would have concluded that Giles Payne was earlier partially responsible for the loss suffered by DJZ. ... Given the conclusions which I have reached, that Giles Payne were also responsible for the losses suffered by DJZ from 12 January 2004, in relation to the costs thereafter incurred, must be accepted. I assess their contribution at 50%."

48 The primary judge also found that a competent barrister in the position of Mr McGovern would have called for a complete copy of the February 2001 deed which he, Mr McGovern, conceded was relevant in advising on the misleading and deceptive conduct claims he was asked to consider ([364]). In relation to the advice given by him on 13 April 2003 the primary judge reached the following conclusions:

"[370] Mr McGovern's evidence was that before he provided this advice, he had closely considered the 1999 deed, noting both the guarantee and indemnity and had revisited certain relevant texts and authorities. He also noted that no one had pleaded that the defendants were relieved of their obligations under the 1999 deed, because of the entry into the 2001 deed. It followed, in his view, given affidavit evidence with which he was also briefed, that the claims advanced by the plaintiffs in the proceedings were reasonably arguable. In his opinion, without further amendment of the pleadings, no claim being advanced was doomed. The possibility of pleading amendment to rely on the 2001 deed, was not addressed.

...

[383] Mr McGovern did not consider or advise in relation to any available reliance on the 2001 deed, even though on his instructions a deed in those terms had been entered and it had been considered by Mr Pritchard, that the deed raised a potential problem. Nor did he consider what impact that might have had on the misrepresentation claim. The view which he reached was that the units must have been dealt with by some mechanism other than the 2001 deed, namely the 1999 deed. Neither this assumption, nor the 2001 deed itself, was mentioned at all in Mr McGovern's April advice, nor it would seem at the conference that day, as posing any potential problem, or requiring any further investigation or consideration. Mr McGovern did not even suggest that an executed version of the 2001 deed be obtained, or any other document by which the transaction which he assumed must have occurred by some other means, had been implemented. The advice which he gave Mr Palmieri in conference was directed simply to the operation of the 1999 deed."

49 In these circumstances the primary judge stated that had she concluded that the February 2001 deed had the effect of releasing the James guarantors from their obligations under the guarantee, then the loss suffered by DJZ would have been partly caused by the negligence of Mr McGovern.

50 It appears that prior to Christmas 2003 a solicitor, Mr Fitzpatrick, in the employ of Mr Pritchard asked Mr McGovern whether he would appear for DJZ and Mr Palmieri when the part heard Supreme Court proceedings resumed. Mr McGovern's evidence, accepted by the primary judge, was that Mr Fitzgerald stated that an agreement was entered into in November 2003 under which some of the guarantors were released from their obligations. Mr McGovern commented to Mr Fitzpatrick that that may have released the James guarantors from their obligations under the guarantee (primary judgment [384]).

A The claim against Mr Pritchard arising out of the release of the James guarantors

1 Did the February 2001 deed operate to release the James guarantors?

51 It is important in considering this issue to have regard to the precise effect of the February 2001 deed so far as it concerns Mr and Mrs Christian and Cottenham Nominees. That affect may be summarised as follows:

(a) Clauses 1, 2 and 3 provide for Mr and Mrs Christian to make certain payments (see [12] above). These payments were not payments in discharge of any obligations under the guarantees.

(b) Clause 5 contains an agreement by the investors not to enforce the securities given under the guarantees unless the payments in cll 1, 2 and 3 were not made or if the payment of $300,000 in respect of the bank loan guaranteed under the original deed was not made at the time specified in cl 9. This is the combined effect of cll 5, 6(b), 9 and 10.

(c) Clause 6(b) contains an agreement by the investors to limit their claims against Mr and Mrs Christian and Cottenham Nominees to a maximum of $300,000.

52 In this context it should be noted that the bank debt referred to in cl 5(a) of the original deed totalled $1.344 million.

53 Having regard to these provisions I am unable to agree with Whealy JA that the variation to the original deed made by the February 2001 deed did not operate to discharge the James guarantors.

54 The principles governing the circumstances in which a guarantor is discharged from its obligations as a result of a variation to the principal agreement are well established. In Holme v Brunskill (1878) 3 QBD 495, Cotton LJ stated the principle in the following terms (at 505):

"The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet, that if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court, will not, in an action against the surety, go into an inquiry as to the effect of the alteration, or allow the question, whether the surety is discharged or not, to be determined by the finding of a jury as to the materiality of the alteration or on the question whether it is to the prejudice of the surety, but will hold that in such a case the surety himself must be the sole judge whether or not he will consent to remain liable notwithstanding the alteration, and that if he has not so consented he will be discharged."

55 In Ankar Pty Limited v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549, the plurality made the following comments (at 558):

"Then it has been said that any departure by the creditor from the suretyship contract 'which is not obviously and without inquiry quite unsubstantial, will discharge the surety from liability, whether it injures him or not, for it constitutes an alteration in the surety's obligations': Halsbury's Laws of England, 4th ed., vol. 20, par. 259. The final clause in the passage quoted from Halsbury indicates that this proposition is founded not so much on cases dealing with a breach of a term in the suretyship contract, as on cases in which conduct on the part of the creditor materially altered the surety's obligations. Such an alteration takes place when the creditor agrees to a variation of the principal contract or to an extension of time within which the debtor may comply with that contract. The creditor's agreement with the debtor thereby alters the nature of the surety's obligations without the surety's consent."

After citing Holme v Brunskill supra, the plurality expressed the principle in the following terms (559):

"According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, e.g., a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety.

The foundation of the rule is that the creditor, by varying the principal contract or extending time, has altered the surety's rights without consulting it though the surety has an interest in the principal contract, and that the creditor cannot be permitted to do."

56 Their Honours also considered the question whether the equitable rule was subsumed in the general principles of the law of contract and made the following comments (at 561):

"However, the fundamental question still remains: Is the rule of strict construction, derived from the equitable rule which protects the surety from any alteration in its liability, subsumed in the general principles of the law of contract so that the surety may treat itself as discharged from liability if, but only if, the breach is such as to entitle the surety at law to rescind the contract? In truth there is no difference between the equitable rule and the legal rule, as Lord Selborne L.C. pointed out in In re Sherry: London & County Banking Co. v. Terry."

57 Ankar has been consistently applied in decisions of this Court: Corumo Holdings Pty Limited v C Itoh Limited (1991) 24 NSWLR 370 at 380, 382, 404; Bond v Hongkong Bank of Australia Limited (1991) 25 NSWLR 286 at 297, 307; Farrow Mortgage Services Pty Limited (In liquidation) v Slade and Nelson (1996) 38 NSWLR 636 at 649; Valstar v Silversmith [2009] NSWCA 80 at [29]-[30]. It forms the basis of the dicta of the Court in the guarantee proceedings to which I have referred above ([28]).

58 The obligation to maintain security is an incident of this principle. The obligation was explained by Blackburn J in Polak v Everett (1876) 1 QBD 669 in the following terms (at 673-674):

"It has been established for a very long time, beginning with Rees v. Berrington to the present day, without a single case going to the contrary, that on the principles of equity a surety is discharged when the creditor, without his assent, gives time to the principal debtor, because by so doing he deprives the surety of part of the right he would have had from the mere fact of entering into the suretyship, namely, to use the name of the creditor to sue the principal debtor, and if this right be suspended or a day or an hour, not injuring the surety to the value of one farthing, and even positively benefiting him, nevertheless, by the principles of equity, it is established that this discharges the surety altogether. The reason given for this, as stated in Samuell v. Howarth by Lord Eldon, is, because the creditor, by so giving time to the principal, has put it out of the power of the surety to consider whether he will have recourse to his remedy against the principal or not, and because he in fact cannot have the same remedy against the principal as he would have had under the original contract."

59 I have set out what I believe to be the effect of the February 2001 deed above. Clause 5 contains a covenant not to enforce the securities against Mr and Mrs Christian or Cottenham Nominees except if they fail to meet the payments due under the February 2001 deed. The effect would be that these securities would not be available to the James guarantors if they met their obligations under the guarantee and sought to be subrogated to the right of DJZ and the other investors under the mortgage. In these circumstances the effect, in my opinion, was to discharge the James guarantors. The consequences were stated by Dixon J in Williams v Frayne (1937) 58 CLR 710 as follows (at 738):

"If the guarantee is given upon a condition, whether express or implied from the circumstances, that a specific security shall be obtained, completed, protected, maintained or preserved, any failure in the performance of the condition operates to discharge the surety and the discharge is complete."

60 In the present case Mr and Mrs Christian and Cottenham Nominees Pty Ltd were jointly and severally liable to the James guarantors and the other parties referred to in cl 5(1) of the original deed. Clause 6 of that deed imposed an obligation on each of Cottenham Nominees Pty Ltd and New South Head Road Nominees Pty Ltd to deliver their units to be held as security whilst the effect of cl 8(2) was to charge those units in support of the guaranteed obligations. In these circumstances there was an implied obligation to maintain the units as security. An agreement not to take any action to enforce the security, in my opinion, amounts to a failure not to maintain the security in breach of the implied obligation. That was the view expressed by the Court of Appeal in the proceedings brought against the James guarantors: James v Surf Road Nominees Pty Ltd supra at [77] (see [28] above).

61 It was suggested that these principles do not apply because the security had no value, and that this was evidenced by the recitals to the February 2001 deed. Recital K of the February 2001 deed states: "As a result of the alleged fraudulent behaviour of James the net asset value of the SRUT is minimal, or it is possible that the Units therein have a nil value". The possibility that the security required to be maintained was at a particular point in time of no value does not mean that there was not an obligation to maintain it. (See the passages from Holme v Brunskill and Ankar Pty Ltd v National Westminster Finance (Australia) Limited cited at [55]-[56] above.)

62 Although I accept that standing alone the balance of cl 5 may be construed as a covenant not to sue and hence not operate as a discharge of the debt: Hancock v Williams (1942) 42 SR (NSW) 252, it must be read in the context of cl 6(b) of the February 2001 deed which limits the right of the recovery of the bank debt to $300,000. This, in my opinion, in the context of a joint and several guarantee, constitutes a material variation of the contract such as to discharge the James guarantors. In this regard cl 10 of the February 2001 deed recognises the fact that this has been a variation of the obligations of Mr and Mrs Christian and Cottenham Nominees Pty Ltd, as does Recital M to that deed.

63 It follows, in my opinion, that the effect of the February 2001 deed was to release the James guarantors for liability under the guarantee.

2 Did Mr Pritchard owe a duty of care to warn DJZ of the risk that entry into the February 2001 deed could have led to the James guarantors being released from liability?

64 Whealy JA in his judgment ([241]-[243]) has held that there was either an implied term of the retainer with the directors of the investor companies to advise and warn DJZ of the risk or there was a continuation of the earlier retainer with an implied term to advise and warn that the guarantees were threatened by an arrangement with one of the guarantors.

65 I am unable to agree that Mr Pritchard could be found liable on the basis of the implied retainer found by Whealy JA. If the relevant retainer was with the directors, it was not one on which DJZ could sue. It was not argued that it was the beneficiary of the contractual rights conferred on the directors by virtue of the retainer: Trident General Insurance Co Limited v McNiece Bros Pty Limited [1988] HCA 44; (1988) 165 CLR 108 at 121-122, 135, 148-149, or was otherwise entitled to sue on the contract. Further, it seems to me that at least as a matter of contract the retainer in respect of the original deed which had concluded some 18 months earlier could not be held as a matter of contract to extend to advising DJZ on the February 2001 deed.

66 That is not the end of the matter. In my opinion Mr Pritchard owed DJZ a duty of care in tort to advise it of the risk of the loss of the benefit of the James guarantees. As I have indicated, proceedings against the James interests were in contemplation at the time the February 2001 deed was executed (see [16]-[17] above). In these circumstances, it would be reasonably foreseeable to a competent solicitor in the position of Mr Pritchard that entry into a deed which would operate as a release of the James guarantors would cause loss to DJZ. In that regard I agree with what was said by Whealy JA at [241].

67 Reasonable foreseeability of course is not enough to impose a duty in the present case. However, as with the beneficiary in Hill v Van Erp [1997] HCA 9; (1997) 188 CLR 159, DJZ was vulnerable in the sense that it was unable to protect itself from the consequences of Mr Pritchard's want of reasonable care: Perre v Apand Pty Limited [1999] HCA 36; (1999) 198 CLR 180 at [118]; Graham Barclay Oysters Pty Limited v Ryan [2002] HCA 54; (2002) 211 CLR 540 at [84], [149]; Woolcock Street Investments Pty Limited v CDG Pty Limited [2004] HCA 16; (2004) 216 CLR 515 at [80].

68 Although Mr Pritchard in his written submissions referred to the possibility of there being inconsistent obligations, this does not negate the existence of the duty: Watkins v De Varda [2003] NSWCA 242 at [147], particularly having regard to the fact that each of the relevant parties to the February 2001 deed had proceedings against the James guarantors squarely in mind. Further, no suggestion was made that DJZ or Mr Palmieri should seek separate advice from the other parties to the deed.

69 Imposing a duty of this nature on Mr Pritchard does not lead to indeterminate liability or interfere in any way with the autonomy of Mr Pritchard in performing his functions under the contractual arrangement he had with the directors. In these circumstances and in circumstances where a competent solicitor would have foreseen the risk, in my opinion, Mr Pritchard owed DJZ a duty to advise it of the risk that the entry into the February 2001 deed posed to the James guarantees.

70 This is not a case involving what has been described as a penumbral duty, namely, a duty to advise a client in respect of matters arising outside the scope of a retainer: Waimond Pty Limited v Byrne (1989) 18 NSWLR 642 discussed in Heydon v NRMA Limited [2000] HCA 374; (2000) 51 NSWLR 1, Kowalczuk v Accom Finance Pty Limited [2008] NSWCA 343; (2008) 77 NSWLR 205, David v David [2009] NSWCA 8 and Dominic v Riz [2009] NSWCA 216. Rather, the issue in the present case is whether a duty can be owed to a third party in circumstances where a similar contractual retainer exists between solicitor and client. In my opinion, it can: Hill v Van Erp supra particularly at 233-234; Al-Kandari v J R Brown & Co [1988] QB 665 at 675; Watkins v De Varda supra at [147]. Such duty was owed in the present case.

71 Thus far I have dealt with the matter without reference to the Civil Liability Act 2002. However, for the reasons I have given above, the risk in my opinion was foreseeable, not insignificant, and a reasonable person in the position of Mr Pritchard would have taken precautions to avoid the risk, namely, by warning DJZ that entry into the February 2001 deed could operate as a release of the guarantors.

72 So far as s 5B(2) is concerned, there was, in my view, every probability that the harm would occur if the care was not taken, the release of the James guarantors was serious and the burden of taking precautions by giving a warning relatively insignificant. Further, there is social utility in ensuring that legal practitioners act competently.

3 Did Mr Pritchard breach his duty in failing to advise DJZ of the possibility that the February 2001 deed had the effect of releasing the James guarantors?

73 Whealy JA (at [240]-[243]) has concluded that Mr Pritchard breached his duty in failing to advise that the release of the James guarantors was a possible effect of the February 2001 deed. I agree with him but would add the following.

74 It is contended by Mr Pritchard that there was no expert evidence to support the proposition that a solicitor, as a matter of proper practice, would advise of the risk. I agree that such evidence would have been both relevant and admissible particularly having regard to the provisions of s 5O of the Civil Liability Act 2002. However, the absence of evidence does not preclude a finding of negligence. As was pointed out in Waimond v Byrne supra at 654, in those circumstances it falls to the Court to provide its definition of the scope of the duty of care: see also Hayden v NRMA supra at [143]-[155].

75 Further, it was contended by Mr Pritchard that the issue of breach of duty was not put to him in respect of the February 2001 deed. I do not agree. He was cross-examined extensively as to whether he was retained by DJZ and acknowledged that DJZ had no other solicitor (T 264-268). He conceded he did not turn his mind to the question of whether the February 2001 deed could have had the effect of releasing the James parties (T 271). He conceded that it was present in his mind in January 2001 that an action against the James guarantors was a matter upon which he may have had to give advice in the near future (T 272). He admitted he knew that the February 2001 deed varied some of the provisions of the original deed (T 275). He conceded that at the time the proceedings against the James guarantors were commenced, it was his responsibility to advise if there was anything in the February 2001 deed that might affect their prospects of success (T 275). He admitted in the context of the later deeds when he accepted he was acting for DJZ that he had a duty to advise if there was anything in the August 2003 deed that might affect the plaintiff's prospects of success (T 276).

76 In these circumstances, in my view, where the question of Mr Pritchard's liability in respect of the February 2001 deed was in issue, the matters relevant to that issue were sufficiently put to him.

4 Causation

77 Whealy JA has analysed the question of causation extensively in his judgment ([280]-[324]). He identified (at [296]) two questions that needed to be answered on the balance of probabilities, first, whether but for the negligence of Mr Pritchard the releases would not have occurred and, second, whether DJZ would have sought to act on non-negligent advice and change the terms of the deed. He concluded that if those questions were answered in the affirmative, the measure of damages being the prospect of avoiding the loss could be assessed by reference to the possibilities.

78 Although I agree generally with the analysis of Whealy JA, it seems to me that it was necessary for DJZ to establish on the balance of probabilities first that but for the negligence of Mr Pritchard there would have been an opportunity to have the February 2001 deed amended to avoid the consequence of the release of the James guarantors. That is in effect the approach Whealy JA took to the first question posed by him, notwithstanding his formulation of it (see [319] of his judgment). Subject to that I agree with his analysis on what he described as the first question in pars [307]-314] of his judgment.

79 The second matter required to be established on the balance of probabilities is whether Mr Pritchard would have sought to take advantage of the opportunity and sought to amend the deed to avoid the consequence of the James guarantors being released. Whealy JA has analysed this in pars [325]-[336] of his judgment. I agree with that analysis so far as it relates to the November 2003 deed.

80 Whealy JA has concluded that his analysis was also appropriate to the February 2001 deed if contrary to his views it was causative of the loss ([243]). I agree but would add the following comments.

81 To avoid the loss of the James guarantees, two matters had to be attended to. First, the securities had to be maintained. That was in the interests of DJZ and there was no reason for it to object. Second, the February 2001 deed had to be drafted in such a way to avoid the consequences that it did not constitute a material variation of the contract of guarantee. This could have been achieved by a covenant not to sue conditional upon Mr and Mrs Christian and Cottenham Nominees Pty Ltd making the payments in cll 1, 2 and 3 of the February 2001 deed and paying $300,000 to the banks referred to in the February 2001 deed if and when demand was made for that amount or if the circumstances referred to in cl 9 of the original deed occurred. That would not affect the guarantors' right to contribution and would not adversely affect the position of DJZ. There seems to me to be no real reason to suggest that DJZ would not have taken the opportunity to have the February 2001 deed amended particularly when an action on the James guarantees was in contemplation.

82 In these circumstances, the negligence of Mr Pritchard in relation to the February 2001 deed did cause DJZ to suffer loss.

5 Liability in respect of the August 2003 deed

83 I agree with the conclusions of Whealy JA ([261]-[279]) as to Mr Pritchard's negligence in respect of the August 2003 deed. I also agree with his conclusion ([308]-[309]) that this negligence had no causative effect.

6 Liability in respect of the November 2003 deed

84 Had I not been of the view that the right to proceed against the James guarantors had been lost as a result of the entry into the February 2001 deed, I would have concluded for the reasons given by Whealy JA, that the November 2003 deed operated as a release of the guarantors, that Mr Pritchard was negligent in failing to advise that this was the possible effect and would have agreed with his Honour's conclusions on causation.

7 Damages for the loss of the James guarantees

85 The first issue in considering the quantum of such damages was whether or not Mr and Mrs Christian and Cottenham Nominees would have entered into a deed of the nature of that to which I referred above. Whealy JA has analysed this issue in relation to the November 2003 deed ([339]-[346]) and I agree with that analysis.

86 For similar reasons I conclude that the probability of Mr and Mrs Christian and Cottenham Nominees Pty Ltd entering into a deed containing a covenant not to sue rather than a release would be around 80 percent. I do not think that any additional discount should be given in relation to the prospect of Mr and Mrs Christian and Cottenham Nominees not agreeing to the maintenance of the securities. This is for two reasons. First, they joined in a deed stating that the securities were of little value (Recital K to the February 2001 deed) and, second, there was in any event an obligation in the deed to ultimately restructure the Surf Road Unit Trust such that Cottenham Nominees Pty Ltd would hold 12 out of 36 units.

87 In these circumstances I agree with Whealy JA that a discount of 20 percent should be allowed for the possibility that Mr and Mrs Christian and Cottenham Nominees Pty Ltd would have declined to enter into a deed which would not have the consequence of releasing the James guarantors.

88 The primary judge found that the total liability of Mr Pritchard in respect of the loss of the James guarantees totalled $542,882.13 (judgment of Whealy JA at [187]). Taking into account the discount for the possibility that Mr and Mrs Christian and Cottenham Nominees Pty Ltd would not sign the deed and that full recovery from Mrs James would not be possible, Whealy JA has discounted those damages by 30 percent ([570]-[571]) and substituted an amount of $380.017. I agree with this ultimate conclusion although I have reached it by a somewhat different route.

8 Other issues

89 The other issues raised in this aspect of the Pritchard appeal may be summarised as follows:

(a) The effect of the settlement which took place in 2005. I agree with Whealy JA ([369]) for the reasons given by him that it was not necessary to take this settlement into account in assessing damages.

(b) Advocates immunity. I agree with the analysis of Whealy JA ([371]-[379]). Further, there does not appear to me to be any basis for concluding that Mr Pritchard was entitled to such immunity at the time of the February 2001 deed.

B The claims against Mr Pritchard, Giles Payne and Mr McGovern in respect of the costs incurred by DJZ in the claims against the James guarantors

90 As I pointed out in par [30] above, the primary judge found that the costs of conducting the proceedings amounted to $489,022. She concluded that 60 percent of the costs were incurred in relation to the claims against Mrs James and that any liability of Mr Pritchard or Giles Payne in respect of the costs should be reduced by 30 percent due to the contributing negligence of DJZ. No appeal has been brought from those conclusions.

91 She also concluded that in respect of the balance of the costs, Mr Pritchard was liable for them up to 12 January 2004 and thereafter he and Giles Payne were each liable for 50 percent. Each of Mr Pritchard and Giles Payne appealed against this assessment. The grounds are summarised in pars [31] and [32] of this judgment. As I indicated in par [33], Mr McGovern has cross-appealed on an order for costs made against him by the primary judge and by Notice of Contention submitted that the primary judge's decision in his favour should be affirmed on the basis that he was not negligent and there was a lack of causation between the negligence alleged against him and the loss incurred.

92 Whealy JA has concluded that Mr Pritchard's appeal on this aspect of the matter should be rejected. I agree for the reasons given by Whealy JA that Mr Pritchard should be liable by way of damages for the whole of the costs incurred in prosecuting the proceedings against the James guarantors during the period that he was the sole tortfeasor and 50 percent during the period he was a concurrent tortfeasor. However, I have concluded that Giles Payne was liable from an earlier period than that determined by the primary judge and Whealy JA and that Mr McGovern was partially liable for the loss sustained. In those circumstances, there will be an adjustment to the liability of Mr Pritchard for this head of damage.

93 I have set out the facts and conclusions of the primary judge relating to the claim against Giles Payne in pars [34]-[47] above. Whealy JA has set out the facts in more detail in his judgment ([400]-[439]). His Honour has accepted the factual findings of the trial judge and concluded that at each stage of the Giles Payne retainer there was a continuing obligation to draw to the attention of DJZ the potential problem represented by the February 2001 deed ([441]). I agree with this conclusion and with his Honour's reasons for arriving at it. In particular, in my opinion, the effect of the February 2001 deed and the impact it had on the proceedings against the James guarantors should have been drawn to the attention of DJZ in May 2002 when Mr Gilles received the February 2001 deed. I agree with Whealy JA (at [448]) that the risk posed was not insignificant.

94 The primary judge took the view that DJZ would have accepted advice to settle the proceedings had the advice emanated from all of its legal advisers ([360]) and that but for her conclusion that the Court of Appeal's judgment did not relate to the February 2001 deed, Giles Payne would have been partly responsible from an earlier date than that found by her. Whealy JA agrees with her conclusion ([454]). I also agree that it was open for the trial judge to find that DJZ would have accepted earlier advice to settle the proceedings had such advice been given. Where I differ from the primary judge and Whealy JA is that the February 2001 deed itself released the James guarantors and that that was the advice that should have been given by Giles Payne.

95 In that context it seems to me that had Giles Payne raised the issue in May 2002 with the other legal advisers of DJZ, unanimous advice as to the difficulties involved in the proceedings would have been given and advice to settle the proceedings would have been accepted. In those circumstances, the failure to advise caused loss. Further, there does not seem to me to be any reason not to infer that the James interests would not be agreeable to settle proceedings on the basis that each party bear their own costs at an earlier stage in the proceedings when they had made such an offer at least by March 2003.

96 So far as apportionment between Mr Pritchard and Giles Payne is concerned, it seems to me that Mr Pritchard was solely liable for the loss suffered under this head of damage up to 30 May 2002 and thereafter liability for such damage, subject to the position of Mr McGovern, should be apportioned equally between them. By 30 May 2002 Mr Gilles should have had the opportunity to consider the February 2001 deed and raise the problems it occasioned for the claims against the James guarantors. I regard equal apportionment as appropriate from that date because although Mr Pritchard had the conduct of the proceedings on behalf of DJZ, by March 2003 Giles Payne had been specifically retained to protect DJZ's interests in the proceedings in a context where Mr Alexis had advised that "a walk away" offer from Mr James had been made and should be accepted. I also regard it as appropriate having regard to the specific advice given by Giles Payne on 22 January 2004 in which notwithstanding Giles Payne's knowledge of the advice of Mr Alexis, that firm failed to raise any issue about the problems caused by each of the February 2001 and November 2003 deeds.

97 The primary judge found that Mr McGovern breached the duty owed by him to DJZ and that had the February 2001 deed had any causative effect he would have been partially responsible for the loss. By his Notice of Contention Mr McGovern raised the issue of negligence, breach of duty and causation. The matters raised have been dealt with by Whealy JA in his judgment ([502]-[553]) and subject to one qualification I agree with his reasons for rejecting those submissions.

98 The qualification is this. I do not believe Mr McGovern came under any obligation to consider the effect of the February 2001 deed until he gave his advice in April 2003, consequent upon him being retained to draft documentation necessary for DJZ to be separately represented in the proceedings. At that time in advising that proceedings based on the original deed offered the most reasonable prospects of success, he came under an obligation to consider the effect of the February 2001 deed on that advice. However, his earlier retainer to advise on the prospects of success of the misleading and deceptive conduct claims did not extend to that issue: Heydon v NRMA Ltd supra at [309], [364].

99 The failure by Mr McGovern to advert to the difficulty in his advice of 15 April 2003 meant that he was partially responsible for the loss under this head of damage from that date. However, he was involved to a far more limited extent than Mr Pritchard and Giles Payne and his liability was proportionally less. Further, in December 2003, he informed Mr Fitzpatrick of the potential difficulty to the proceedings occasioned by the entry into the November 2003 deed. In those circumstances, it is my view that Mr McGovern should be held liable for 10 percent of the damage suffered by DJZ under this head from 15 April 2003 while each of Mr Pritchard and Giles Payne should be liable for 45 percent of the loss from that date.

Other issues

100 I agree with Whealy JA in relation to the other issues raised in respect of this head of damage.

C Conclusion

101 In the result, in my opinion, the liability of Mr Pritchard for the loss of the benefit of the James guarantee should be reduced to the figure of $380,017 as concluded by Whealy JA.

102 So far as the liability in respect to the costs incurred in the prosecution of the James proceedings, DJZ is entitled to damages measured by reference to 60 percent of the total costs less a discount of 30 percent thereof as a result of the contributory negligence of DJZ. To the extent the damage related to costs incurred up to 30 May 2002, the whole of the damage should be borne by Mr Pritchard. To the extent the damage was suffered between 30 May 2002 and 15 April 2003, it should be borne equally by Mr Pritchard and Giles Payne and thereafter 45 percent each by Mr Pritchard and Giles Payne and 10 percent by Mr McGovern. If the parties are unable to agree on the quantum in accordance with that conclusion, the matter should be remitted to the trial judge for determination.

103 Due to the limited success each of the appellants had in the appeal, it seems to me that the orders for costs made by the primary judge should not be disturbed.

104 So far as the costs of the appeal are concerned, no order for costs of the appeal should be made at this stage but each party should be given leave to file a motion seeking such costs orders as they may be advised. Any such motion should be filed within 14 days and will be listed before the Registrar of the Court of Appeal for directions as to their disposal.

Orders

105 In these circumstances I would make the following orders:

1 Each appeal allowed in part.

2 In the event the parties are able to agree on orders to give affect to the conclusions reached in pars [101]-[102] of this judgment, a draft form of orders should be delivered to my Associate.

3 In the event the parties are unable to agree on the orders within 14 days, the proceedings are to be remitted to the trial judge for determination of the appropriate orders having regard to pars [101]-[102] of this judgment.

4 The parties have liberty to file Notices of Motion seeking orders for costs of the appeal within 14 days of the date hereof.

106 WHEALY JA: There are two appeals before the Court. The first is brought by a solicitor, Paul Pritchard ("Mr Pritchard"). He was the unsuccessful defendant in an action brought against him by DJZ Constructions Pty Ltd ("DJZ"), his former client. The primary judge (Schmidt J) found, inter alia, that Mr Pritchard had acted negligently and in breach of his retainer in failing to advise the plaintiff as to the impact a certain commercial sales agreement ("the November 2003 agreement") had on DJZ's then current proceedings against certain of his commercial co-venturers. Mr Pritchard had acted for DJZ in relation to the transaction involving the creation and settlement of the November 2003 agreement.

107 Her Honour found that, consistently with the decision of this Court from which DJZ's many claims against Mr Pritchard arose (James v Surf Road Nominees Pty Ltd [2004] NSWCA 475), the November 2003 agreement had removed the foundation for the respondent's breach of guarantee case against the co-venturers and resulted in the defeat of those proceedings. The first appeal challenges a number of the primary judge's findings and conclusions. It seeks predominantly to overturn those findings and conclusions and to have DJZ's claim against its former solicitor dismissed.

108 DJZ had, during 2002 to 2004, utilised the services of a second firm of solicitors, Messrs Gilles and Eliades, trading as Giles Payne & Co ("Giles Payne"). They are the appellants in the second appeal. They too, in somewhat unusual circumstances, were successfully sued by DJZ for negligence and breach of retainer, although the damages and costs awarded against them were of a relatively limited nature.

109 The unusual circumstances to which I have made reference were these: in the current proceedings before the primary judge, at a time when DJZ's director (Mr Palmieri) had been giving evidence, Mr Pritchard raised, by way of an amended defence, allegations against the firm of Giles Payne and a senior counsel retained by it, Mr David McGovern SC. Later in the proceedings, Mr Pritchard brought a cross claim against Giles Payne and against Mr McGovern seeking contribution and indemnity from them as co-wrongdoers.

110 DJZ eventually joined these three persons as defendants in the action against Mr Pritchard, although at all times DJZ maintained that its primary case was against Mr Pritchard. It was, according to DJZ's arguments, he who had caused its loss. The partners of Giles Payne and Mr McGovern were, so far as the respondent was concerned, joined as defendants to the extent only that Mr Pritchard might establish, as he ultimately did, that they were co-wrongdoers.

111 The unusual circumstances I have described had an unexpected impact on the conduct of the proceedings before the primary judge. Mr McGovern SC had been at the time appearing for DJZ and Giles Payne were the plaintiff's solicitors instructing him as counsel for DJZ. Mr McGovern, quite properly, withdrew from the proceedings and ultimately Giles Payne did so as well. Newly retained senior counsel and solicitors took over the conduct of DJZ's case. Eventually, separate representation was provided for the barrister and solicitors who had been obliged to withdraw from the proceedings, but who were now parties to it.

112 As I have said, the primary judge ultimately found that the partners of Giles Payne were joint tortfeasors, within the meaning of s 5 of the Law Reform (Miscellaneous Provisions) Act 1946, and concurrent wrongdoers within the meaning of s 34 of the Civil Liability Act 2002. Her Honour found that certain parts of the losses which DJZ had suffered were reasonably foreseeable and caused by Giles Payne breaching the duty of care it owed to its former client. Her Honour gave consideration to a just contribution, having regard to the damage suffered by DJZ as a result of the negligence of Giles Payne, and by way of comparison, to Mr Pritchard's responsibility for the damages which flowed from his negligence. Her Honour assessed this ambit of responsibility by determining that Giles Payne should be responsible to contribute half of 70% of the losses incurred by DJZ from 12 January 2004 (the other 30% having been deducted by reason of DJZ's contributory negligence). Mr Pritchard was responsible for the balance.

113 The primary judge also concluded that Mr McGovern SC had breached his duty of care to DJZ. However, she came to a different conclusion as to his liability for any of DJZ's damages, with the result that no contribution order was to be made against him. The cross claim against Mr McGovern was dismissed and costs, including indemnity costs, were awarded in his favour. Ultimately, DJZ was ordered to pay Mr McGovern's costs in relation to the unsuccessful claim it had brought against him.

The complexity of the litigation

114 It will be apparent from what follows that this was, and remains, a most complex piece of litigation. The hearing before the primary judge represented a complicated corollary to extensive litigation before Einstein J in 2003 and 2004 and later, as I have said, to an appeal to this Court from Einstein J's decision. The issues before the primary judge involved strongly contested allegations of negligence against not one, but two, well regarded firms of solicitors concerning their respective roles in relatively complicated commercial transactions that in turn encircled, but were not part of, the equity court litigation. They involved serious allegations of negligence against an experienced and able senior counsel. There were a number of attempts to settle or mediate the proceedings, but these were ultimately unsuccessful.

115 The proceedings before the primary judge initially took twelve days to complete. Three of those days were devoted to the delivery of oral submissions. There were compendious written submissions and written material placed before the primary judge as well. Following the initial judgment (which was some 128 pages in length), there were two further contested hearings requiring the delivery of extensive reserved judgments. The issues at trial traversed difficult areas of causation, liability and damages. It is not too extravagant to suggest that barely a litigious stone was left unturned throughout the proceedings.

116 The appeals have proved to be equally complex, lengthy and difficult. The written material filed for the parties exceeds 300 pages. In addition to the two appeals, there are various notices of contention and narratives of dispute, themselves raising factual issues of some complexity. There are two Red Books, one for each appeal. Where reference is made to the Red Book, it is a reference to the book filed in Mr Pritchard's appeal.

117 In view of these matters, I propose to provide, first, a dramatis personae of the relevant parties. Secondly, I will provide a brief background to the central events in the litigation. Thirdly, I shall examine in some detail the decision of the primary judge recording the various findings made and the reasons for those findings. Finally, before addressing the issues raised by the oral and written submissions, I shall give an overview of the various grounds of appeal and other associated matters. Fortunately, one major issue raised in the proceedings before the primary judge - that was resolved in favour of Mr Pritchard and against DJZ - has not been pursued in this appeal. It was, however, very much the minor of the two principal claims in DJZ's action against his former solicitor.

Parties to the litigation

118 Parties:

Mr Pritchard	"Pritchard"
DJZ Constructions Pty Ltd	"DJZ"
Vincent Palmieri	"Mr Palmieri"
Vincent Palmieri Palmieri's Developments	Jointly referred to as "the last respondents"
Joseph Gilles & Gregory Eliades	"Giles Payne"
David McGovern SC	"McGovern SC"

119 Other entities or persons:

Chris Burke & Co
Cottenham Nominees Pty Ltd	"Cottenham"
James Christian Pty Ltd	"James Christian" (a company vehicle for the joint interests of the James and Christian families)
Michael and Katherine Christian	"Mr and Mrs Christian
Enzo Pty Ltd
Tass James and Janet James	"Mr and Mrs James"
Liscott Investments Pty Ltd	"Liscott"
I.G. Martyn Real Estate	"IGM"
Andrew Mortimer	"Mr Mortimer"
D & A Mortimer Pty Ltd	"D & A Mortimer"
New South Head Road Nominees Pty Ltd	"New South"
Mr Osterberg
Surf Road Nominees Pty Ltd	"Surf Road Nominees"
Surf Road Unit Trust	"SRUT"
Terry Wilson	"Mr Wilson"
WIT Investments Pty Ltd	"WIT"

120 Representation in these appeals:

Paul Pritchard	A. McInerney, L. Livingston
DJZ, Palmieri, Palmieri's Dev.	C.J. Birch SC, M.P. Cleary
Joseph Gilles & Gregory Eliades	A. Bell SC, Ms K. Williams
David McGovern	S.W. Gibb SC

Background - a brief statement

121 Mr James and Mr Christian were licensed real estate agents. Although their company (James Christian Pty Ltd) was heavily indebted to Macquarie Bank, they decided to buy the largest and most successful real estate agency in the Sutherland Shire, the Chris Burke & Co business in Cronulla. The two men had previously operated a smaller business, I.G. Martyn Real Estate Pty Ltd in Cronulla.

122 Mr James was described as the driving force behind the proposed venture. He hoped to get the enterprise off the ground without putting any of his own money into the operation. On this basis, he ultimately persuaded Mr Palmieri, Andrew Mortimer and Terry Wilson to invest in the scheme. A complicated structure was established and the venture was implemented, presumably to the initial satisfaction of all the parties. Without descending at this stage into the detail, the structure resulted in Surf Road Nominees (the trustee of the SRUT) acquiring all the shares in Chris Burke & Co which remained the operating company, conducting (through Messrs James and Christian) the Cronulla real estate business. The profits of the business were to be channelled through Surf Road Nominees into the SRUT for distribution. The venture parties, including the three investors, held units in SRUT and shares in Surf Road Nominees.

123 Central to the arrangements was a Deed of Guarantee dated 1 July 1999. By its terms, Mr and Mrs James and Mr and Mrs Christian guaranteed (inter alia) the payment to the investors (including DJZ) of certain "preferential distributions". Mr Pritchard acted for Mr Palmieri and DJZ in relation to certain aspects of the transaction. It should be observed that Mr Palmieri and Mr James knew one another and were business associates in a number of other ventures on foot at the relevant time. For example, they had made a number of investments together relating to the purchase of real estate in the peninsula area generally.

124 By mid-December 2000, Mr Palmieri and Mr Mortimer had become concerned about the activities of Mr James in the Surf Road Unit Trust. They were having difficulties in getting information about the financial affairs of SRUT and the business. On 20 December 2000, Mr Pritchard was contacted by an accountant who had been requested to take some action in relation to SRUT. He informed Mr Pritchard that the company had not been paying its debts as and when they fell due.

125 On 15 January 2001, Mr Pritchard was informed that Mr James had been misappropriating funds for himself and his family since he had gone into the Chris Burke & Co venture. He was told by Mr Mortimer that Mr James was "out" and that he had been told that the company was being investigated. A business acquaintance of Mr Mortimer and Mr Palmieri, Silvano Sicuro, then became involved at the request of the investors to try to make some sense of the difficult situation which had developed.

126 It appears, against the flurry of activity then occurring in early 2001, a "deal" was done with Mr and Mrs Christian and Cottenham whereby the investors agreed not to take any action against the Christian interests in exchange for their promise to put in a considerable sum of money to assist in the continued operation of the business, and to prevent it from going into bankruptcy. Mr Mortimer's two units in SRUT were sold for the cost of his initial acquisition, one unit going to Cottenham, the Christian family company, and the other to DJZ as trustee for Mr Sicuro. The "deal" to which I have referred was embodied in a document which became known as the February 2001 Deed. It will be necessary to refer to its provisions in detail at a later point in these reasons.

127 Mr Ian Wales SC was briefed to advise Mr Pritchard and his clients, including DJZ, whether they would be able to initiate proceedings for a claim against Mr James for damages as a result of losses sustained by SRUT and its business entities as a result of his fraudulent misappropriation of funds and/or the failure to properly discharge his duties as a director. This was in June 2001. Prior to that, in May 2001, a notice of default under the 1999 Deed had been issued by DJZ, WIT and Cottenham to Cottenham as trustee for the Christian Family Trust and to New South Head Road Nominees as trustee for the James Family Trust. Cottenham's then solicitors (Dibbs Barker Gosling) disputed the validity of the notice of default served on Cottenham, and wrote placing reliance on the provisions of the subsequent February 2001 Deed as a protection to the Christians. The letter stated, in effect, that the actions contemplated by the notice of default (exercise of power of sale upon default) were not available as a consequence of the February 2001 Deed and the variation it had effected to the 1999 Deed.

128 I return then to the brief to advise given to Mr Wales SC in June 2001. On 13 July 2001, Mr Wales provided a memorandum of advice to Mr Pritchard. This included the following advice in relation to the February 2001 Deed:

"The release of Mr and Mrs Christian

I have been briefed with a Deed (my copy is unsigned and undated) which makes provision for the release of Mr and Mrs Christian and the trustee of their family trust, Cottenham Nominees Pty Ltd.

In the Deed, Mr James [sic, Christian], Mrs James [sic, Christian] and Cottenham agree to pay $287,500 to the Trust and further to pay the proceeds of a particular sale in accordance with the Deed. In return, the other parties to the Deed release Mr Christian, Mrs Christian and Cottenham from all claims arising from Mr Christian's involvement as a director of various companies or as the recipient of funds improperly to Mr James [sic,Christian], Mrs James [sic, Christian] or Cottenham from the assets of the Trust or the various companies controlled by the Trust. It is possible that this Deed gives rise to arguments on behalf of Mr James against your clients." (Emphasis added.)

129 Mr Wales then referred to the general principle as stated in Rowlatt on Principle and Surety (4th Ed), but noted that the same principle did not apply, so far as he was aware, to an indemnity as opposed to a guarantee. In that regard, Mr Wales made reference to clause 5(2) of the 1999 Deed of Guarantee which referred to an indemnity. Mr Wales thought that this obligation survived any release of the Christian family interests.

130 On 8 August 2001, Mr Pritchard filed a summons in Equity Division proceedings 50108 of 2001 ("Supreme Court proceedings") on behalf of Surf Road Nominees, Chris Burke & Co, IGM, WIT and DJZ. The proceedings were brought against Mr and Mrs James and New South Head Nominees. The relief sought included damages for breach by the James' interests of the guarantee contained in clause 5(1)(b) of the 1999 Deed.

131 Clause 5 of the 1999 Deed stated:

"(1) The guarantor, unit holders and the indemnifying parties jointly and severally guarantee:

(a) payment of the IGM bank debt and the Surf Road bank debt;

(b) that the trustee will pay the preferential distributions to the investors.

(2) The indemnifying parties, the guarantor and the unitholders jointly and severally indemnify the Investors for any loss or damage suffered by the Investors should the indemnifying parties, the guarantor and the unitholders fail to ensure payment of the bank debts and preferential distributions."

I shall return to the broader context of this clause at a later point in these reasons.

132 In general terms, and shed of any technicalities, the final form of the claims against the James' interests (as represented by later amendments to the Statement of Claim) might be briefly summarised as follows.

133 First, there was a claim by Surf Road Nominees that Mr and Mrs James and their trustee company were liable to Surf Road Nominees as the trustee for the debt referred to in paragraph 5(1)(a) of the 1999 Deed. Secondly, there was a claim by WIT and DJZ, the relevant investors, against Mr and Mrs James and the trustee company for the preferential distributions referred to in clause 5(1)(b). This was also a claim based on the guarantee in the Deed.

134 Thirdly, WIT and DJZ claimed that Mr and Mrs James and the trustee company were liable to them as investors for loss and damage arising as a consequence of failure to pay the IGM bank debt. The source of that claim was the indemnity referred to clause 5 (2) of the Deed. In addition, the summons sought a declaration that Mr James had misappropriated monies the property of Chris Burke & Co.

135 On 1 November 2001 the James' interests filed a defence to the summons, in which a number of denials were made. In answer to the claim, the James' interests maintained that, if there were any liability as between them and the plaintiffs in those proceedings, then any liability should be set off against the liability of the plaintiffs to the James arising out of the cross claim filed on the James' behalf on 22 November 2001. This cross claim named the plaintiffs as cross defendants. It also included as cross defendants Mr and Mrs Christian, Cottenham Nominees. Mr Palmieri, Mr Wilson and Mr Mortimer. (By this time, WIT had sold its one unit in the trust to Chris Burke & Co.)

136 The cross claim asserted that the affairs of Surf Road Nominees were being conducted in an oppressive manner and against the interests of the James' company and members of Surf Road Nominees as a whole, contrary to s 232 Corporations Act 2001 (Cth). A similar assertion was made in relation to the affairs of Chris Burke & Co. The claim sought, among other things, an order requiring a number of the cross defendants to buy out the interests of the James family in the venture.

137 Finally, there was an order sought that Mr and Mrs Christian and/or Cottenham Nominees indemnify and contribute to any liability that might be found to arise on the part of the cross claimants. Alternatively to this, damages were sought against the Christian interests.

138 The particulars supplied with the cross claim made it clear that the claim against the Christian interests was one for contribution to and/or indemnity for any liability because of the existence of the joint guarantee contained in the Deed of 1 July 1999. There was a later amendment by the cross claimants seeking an order that the units in SRUT held by New South Head Nominees be purchased by any or all of the six to eleventh cross defendants at a value to be determined by the Court. Later, in March 2002, Mr and Mrs Christian brought their own cross claim against Mr and Mrs James seeking to recover monies that had been paid by the Christians to the Australian Tax Office on behalf of Chris Burke & Co, IGM and James Christian.

139 Thus, it may be said at the end of 2001, and into the early part of 2002, that there was a litigious 'stand off' in relation to the competing claims made by the various parties. Broadly speaking, there were two aspects of the situation that provided an important background to the litigation. First, Mr Palmieri and Mr Sicuro were endeavouring to 'shore up' Chris Burke & Co and, to that extent, they were reliant upon the good will and participation of Mr Christian. Mr James had resigned, but it was clear that he would not go down without a fight.

140 The second matter was that, as the primary judge later found, Mr Palmieri had an overall interest in protecting his interests in the joint venture properties he had with Mr James. The protection of those interests plainly influenced his thinking to a considerable degree, as later events will show. On 21 January 2002, Mr Palmieri and his wife consulted Mr Gilles, a principal of the firm of Giles Payne & Co which had offices at Matraville and at Caringbah. This meeting was initially concerned with a possible claim to be brought by the Palmieri interests against the James' interests for misleading and deceptive conduct.

141 The primary judge accepted that one of the reasons Mr Palmieri retained Giles Payne as his second solicitor was to protect his interest in the joint venture properties. He had a concern that, if Mr James settled or lost the Supreme Court proceedings, the other investors might gain control of Mr James' interests in those properties: see primary judgment at [238], [244], [302] and [308].

Court of Appeal's decision - Factual overview

142 It is convenient now to turn to the Court of Appeal's judgment in James v Surf Road Nominees Pty Ltd. The decision (Beazley, Tobias and McColl JJA) was that of the Court. The judgment contains a helpful "factual overview". A number of these passages were set out, or summarised in part, by the primary judge. The selected passages begin at Red 100 [29] in the primary judge's decision, and are as follows:

"[6] The background to this matter is complicated and is set out in detail at [14] in the trial judge's reasons. The facts relevant to the issues on the appeal may be considered more briefly. Mr James and Mr Christian were real estate agents who, in about 1990, formed a company, James Christian Pty Ltd (James Christian) which carried on business as Raine & Horne Caringbah.

[7] In late 1996, James Christian Pty Ltd, purchased a small real estate agency, I.G. Martyn Real Estate Pty Ltd (I.G. Martyn), borrowing approximately $1 million from Macquarie Bank to fund the purchase. In 1999, Messrs. James and Christian decided to purchase a large real estate agency in Cronulla known as Chris Burke & Co Pty Ltd (Chris Burke & Co) for $1.7 million. At that time, James Christian was still indebted to Macquarie Bank for the moneys borrowed in 1996 to purchase I.G Martyn.

[8] As Messrs James and Christian were unable to finance the proposed purchase of Chris Burke & Co, they decided to seek the interest of other investors in the proposal. Three investors were attracted: Mr Palmieri, Mr Mortimer and Mr Wilson. These persons and/or their companies are referred to as the investors. An agreement was reached, whereby, through their various corporate entities, the investors would join with Messrs. James and Christian (who, with the investors, will be called the venture parties) to purchase the business of Chris Burke & Co through a new corporate vehicle, Surf Road Nominees. This will be referred to as the new venture. Messrs James and Christian were to contribute the assets of James Christian which, in essence, comprised the rent roll of I.G. Martyn, to the new venture. The investors were to contribute cash in amounts proportionate to the asset contribution of Messrs James and Christian.

[9] The legal structure of the new venture was somewhat complicated. In addition to the new company Surf Road Nominees, in which the venture parties held shares, a unit trust, the Surf Road Unit Trust, was established, Surf Road Nominees being the trustee. The venture parties also held units in the Surf Road Unit Trust.

[10] Surf Road Nominees acquired all the shares in Chris Burke & Co, which remained the operating company conducting the real estate businesses. Surf Road Nominees also held all the shares in I.G. Martyn. The intention was that any profits in Chris Burke & Co were to be funnelled into Surf Road Nominees and thence into the Surf Road Unit Trust for distribution.

[11] This exercise required that the business of I.G. Martyn be valued so as to determine the amount of cash contribution required by the investors. The existing debt of James Christian to Macquarie Bank was quarantined from the valuation exercise.

[12] The financial arrangements between James Christian, I.G. Martyn and the Macquarie Bank were also restructured. Under the new arrangements, I.G. Martyn took over responsibility for the $1 million debt owed by James Christian by way of a fully drawn advance facility granted on 25 June 1999 for the amount of the debt. The terms of the fully drawn advance required the payment of monthly instalments and the repayment of the outstanding balance on 30 June 2002. The advance was secured by fixed and floating charges over the assets of I.G. Martyn; James Christian and Surf Road Nominees in its own capacity and in its capacity as trustee for the Surf Road Unit Trust; and Chris Burke & Co in its own capacity and in its capacity as trustee for the Burke Unit Trust. In addition, personal guarantees were given by the James and the Christians and Deeds of Covenant and Indemnities entered into with the Surf Road Unit Trust and the Burke Unit Trust.

[13] Thirty-six units were issued in the Surf Road Unit Trust, valued at $110,000.00 per unit. That amount represented the amount to be contributed by the venture parties in cash or kind in accordance with their unit entitlements. The initial unit holdings, after one rearrangement not relevant for present purposes, were:

(i) New South Head Road Nominees Pty Ltd (New South Head Road Nominees) as trustee for the J. James Trust (Mrs James' trust) - 13 units.

(ii) Cottenham Nominees Pty Ltd (Cottenham) as trustee for the M & K Christian Family Trust - 13 units.

(iii) DJZ Constructions Pty Ltd (DJZ) - a Palmieri interest - 7 units.

(iv) WIT Investments Pty Ltd (WIT) - a Wilson interest - 1 unit.

(v) D & A Mortimer Pty Ltd (Mortimer) - a Mortimer interest - 2 units.

[14] The shareholding in Surf Road Nominees Pty Ltd was:

(i) Mr Wilson - 1 share.

(ii) Mr Christian - 6 shares.

(iii) Mr James - 6 shares.

(iv) Mrs Christian - 7 shares.

(v) Mrs James - 7 shares.

(vi) Mr Mortimer - 2 shares.

(vii) Mr Palmieri - 7 shares.

[15] The investors held A Class units which entitled them to preferential distributions from the Trust.

[16] At the time that the new venture was established, a Deed of Guarantee, dated 1 July 1999, was entered into between the parties. As already mentioned, the principal issue on the appeal is whether Mrs James remains liable under the Deed of Guarantee.

[17] Difficulties soon arose in the management of the business and Messrs James and Christian were accused of fraud and misappropriation. Mr James was dismissed as manager of Surf Road Nominees. In February 2001 the Christians and their family company, Cottenham, entered into a Deed (the February 2001 Deed) whereby any liability they might have under the Deed of Guarantee was varied. It appears that immediately prior to that agreement being entered into, Mortimer transferred its 2 units in the Trust: one to DJZ to hold as trustee for Silvano Sicuro (Sicuro) and the other to Cottenham. Sicuro had been brought in as a financial adviser when Palmieri, Wilson and Mortimer became concerned about the conduct of the business affairs of Surf Road Nominees. It was his investigations into the business' financial affairs that led to Mr James' dismissal.

[18] The February 2001 Deed was entered into with Surf Road Nominees, Chris Burke & Co, I.G. Martyn, WIT and Wilson, and DJZ and Palmieri. The absence of the Mortimer interest is explained by the transfer of its shares and units. The Deed recited that allegations of fraud and misappropriation had been made against Messrs James and Christian and that it would be in the best interests of the parties and the Surf Road Unit Trust if Mr Christian was given a release in relation to the allegations against him. The Deed also recited that the investors were entitled to exercise their power of sale under cl 8 of the Deed of Guarantee over the New South Head Road Nominees and Cottenham units in the Trust.

[19] It should be noted however that at that time the investors had not given a Notice of Default under the Deed of Guarantee to New South Head Road Nominees or Cottenham. That was not given until 4 May 2001 and was addressed to both.

[20] On 3 August 2001, Surf Road Nominees, Chris Burke & Co, I.G. Martyn, WIT and DJZ commenced the subject proceedings against Mr and Mrs James (the James) and New South Head Road Nominees seeking to enforce the Deed of Guarantee. Essentially three claims were made:

(i) Surf Road Nominees claimed that the James and New South Head Road Nominees were liable to Surf Road Nominees as trustee for the Surf Road Unit Trust for the Macquarie Bank debt of $1 million - see cl 5(1)(a) of the Deed of Guarantee;

(ii) WIT and DJZ claimed that the James and New South Head Road Nominees were liable to WIT and DJZ for the preferential distributions - see cl 5(1)(b) of the Deed of Guarantee;

(iii) WIT and DJZ claimed that the James and New South Head Road Nominees were liable to WIT and DJZ for the loss and damage suffered by them in consequence of the failure to ensure payment of the Macquarie Bank debt - cl 5(2) of the Deed of Guarantee.

[21] The monthly payments on the Macquarie Bank debt were not being met and the advance was not repaid in accordance with the provisions of the draw down facility. On 22 October 2002 the investors exercised the power of sale in respect of the New South Head Road Nominees units. In December 2002, Surf Road Nominees sold the rent roll of Chris Burke & Co and on 28 February 2003 it discharged the Macquarie Bank debt. The loss and damage thereby suffered by the investors from the failure to repay the Macquarie Bank debt crystallised at that time in the sum of approximately $1 million.

[22] Subsequently, on 5 November 2003, the Christians and Cottenham entered into another agreement (the 5 November 2003 Agreement) whereby Cottenham purchased the remaining real estate business of Chris Burke & Co Under cl 25 of the agreement, the Christians and Cottenham were given a "release" of any liability they might have to the investors to Surf Road Nominees and to others who were parties to the 5 November 2003 Agreement or referred to in it.

[23] The question, raised by the release issue and the security issue, as to whether Mrs James was discharged from liability under the Deed of Guarantee, requires consideration of the terms of the Deed of Guarantee, the February 2001 Deed and the 5 November 2003 Agreement.

The Deed of Guarantee

[24] There were five groups of parties to the Deed of Guarantee. The first group were the investors, that is, Mortimer, WIT and DJZ. The second party was James Christian (the guarantor). The third group comprised the James and the Christians (the indemnifying parties). The fourth group comprised Cottenham and New South Head Road Nominees (the unit holders). Surf Road Nominees (as Trustee) was the fifth party.

[25] The Deed of Guarantee had two essential purposes. First, it provided in cl 1 that James Christian would pay the Macquarie Bank debt notwithstanding that I.G. Martyn had taken over that liability pursuant to the June 1999 restructuring facility.

[26] Secondly, under cl 5, the James, the Christians, their companies and James Christian guaranteed: (a) James Christian's obligation under cl 1 to pay the Macquarie Bank debt; and (b) the payment of the preferential distributions. It also provided for an indemnity to the investors in respect of any loss that might result if James Christian did not pay the Macquarie Bank debt.

[27] As the question whether Mrs James has any liability under cl 5 is the central issue on the appeal, its terms should be set out in full.

'5 (1) The guarantor, unit holders and the indemnifying parties jointly and severally guarantee:

(a) payment of the [Macquarie] bank debt ...

(b) that the Trustee will pay the preferential distribution to the investors,

(2) The Indemnifying parties, the guarantor and the unit holders jointly and severally indemnify the investors for any loss or damage suffered by the investors should the Indemnifying parties, the guarantor and the unit holders fail to ensure payment of the [Macquarie Bank debt] ...'

[28] The trial judge construed cl 5(1) and cl 5(2) of the Deed of Guarantee as a promise by the guarantors to the new investors. That finding is not challenged.

[29] Clauses 6 and 8 are also relevant. Clause 6 provided for Cottenham and New South Head Road Nominees to deliver their certificates in the Surf Road Unit Trust to the solicitors for the investors by way of security for the obligations of the relevant parties under cl 5. Clause 8 provided a power of sale in the case of default.

The February 2001 Deed

[30] The parties to the February 2001 Deed were: WIT, Wilson, DJZ and Mr and Mrs Palmieri, Cottenham and the Christians, Surf Road Nominees, Chris Burke & Co, I.G. Martyn and Sicuro. The James and New South Head Road Nominees were not parties.

[31] The February 2001 Deed provided for certain payments to be made by the Christians and Cottenham by way of capital contribution to the Surf Road Unit Trust (cl 1 and cl 3). An amount was also to be paid to Mr Mortimer and an amount of $20,000.00 was to be paid to Palmieri (cl 3). Clause 4 provided that in consideration of the payments made to the Surf Road Unit Trust, the Christians and Cottenham were 'jointly and severally release[d] ... from any and all claims, actions, suits, demands, costs, damages and/or expenses which they ... may have had but for the execution of [the] Deed ... arising out of [Mr Christian's] involvement as a Director of [the businesses] and/or [arising out of their receipt] of funds improperly or unlawfully paid to them ... from Chris Burke & Co, I.G. Martyn or the [Surf Road Unit Trust]'.

[32] Clause 5 provided that no action would be taken to sell Cottenham's 13 units in the Surf Road Unit Trust. It was further agreed that no action would be taken 'against [the Christians and/or Cottenham] arising out of [breach] of ... their obligations pursuant to the ... 1999 Deed [of Guarantee] except as [provided in this Agreement] ... and the provisions of this Clause may be used as a bar to any proceedings by the aforementioned parties against [the Christians or Cottenhams] ...'.

[33] The exception referred to in cl 5 was provided for in cl 6. Under cl 6(a), WIT, DJZ, Cottenham and Sicuro agreed to waive any rights to receive a preferential distribution of the profits to which they were entitled under cl 2 of the Deed of Guarantee. Under cl 6(b), WIT, DJZ, Cottenham, Sicuro and Surf Road Nominees agreed to limit any claim they might have against the Christians or Cottenham under the Deed of Guarantee in respect of the Macquarie Bank debt to a maximum of $300,000.00.

5 November 2003 Agreement

[34] The parties to the 5 November 2003 Agreement were: Chris Burke & Co and Cottenham as vendor and purchaser respectively; Vincent Palmieri and DJZ Constructions Pty Ltd as vendor guarantors; and the Christians as purchaser guarantors. Under the agreement, Chris Burke & Co agreed to sell its business to Cottenham. Clause 25 of the Agreement provided:

'25. COURT CASE AGAINST TASS JAMES

25.1 The parties to the Agreement acknowledge New South Wales Supreme Court proceedings 50108 of 2001 ('Supreme Court proceedings') is on foot and involves the parties to the Agreement.

25.2 Subject to the Purchaser paying to Pritchard Law Group the sum of Fifty Two Thousand Dollars ($52,000.00) pursuant to Clause 9.1 and Schedule 11, the Vendor, Vincent Palmieri and Silvano Sicuro acknowledge and agree that they are liable and responsible for all fees, disbursements and any other monies past, present and future owing on any account in respect of the Supreme Court proceedings to the Vendor's Solicitor and any Counsel, Accountant or Expert retained by either or all of the Vendor, Vendor's Solicitor, Silvano Sicuro and Vincent Palmieri and that the Purchaser shall have no responsibility or liability for the payment of any such monies.

25.3 The Vendor, Silvano Sicuro, Vincent Palmieri and DJZ Constructions Pty Limited release the Purchaser, Michael Christian and Katherine Christian from any and all claims, debts, costs, damages, judgments, orders, awards or liabilities they may have or had against the Purchaser, Michael Christian or Katherine Christian arising directly or indirectly out of the Supreme Court proceedings subject to the Purchaser paying to Pritchard Law Group the sum of Fifty Two Thousand Dollars ($52,000.00) pursuant to Clause 9.1 and Schedule 11.' (emphasis added)

[35] The focus in this case is on the terms of cl 25. The Supreme Court proceedings referred to in cl 25.1 are the proceedings the subject of this appeal. The Christians and Cottenham were never defendants in those proceedings, although they were cross-defendants to the James' cross-claim. The status of Sicuro should also be noted. He was not named as a party to the Deed, although he signed it and undertook obligations under it. Presumably in those circumstances he is properly to be treated as a party to the Deed. He is not and never was a party to the proceedings.

[36] Clause 26 provided for a number of releases of different obligations between various of the parties to the 5 November 2003 Agreement. There was also a release of obligations between Sicuro, and a company, Liscott Investments Pty Ltd. Like Sicuro, Liscott Investments was not named as a party but signed the Agreement. The releases are not confined to matters arising out of the new venture, but include releases relating to other business arrangements. These comments are made by way of observation only. The importance of cl 26, however, is whether it aids in the construction of cl 25."

143 Before turning to the primary judge's summary of the factual situation as she saw it, I shall mention briefly the manner in which the Court of Appeal disposed of the appeal from Einstein J. For present purposes, there were two relevant issues. The first was whether Mrs James remained liable under the Deed of Guarantee having regard to the operation of clause 25 of the 5 November 2003 agreement. Einstein J had found that Mrs James remained liable on the basis that, upon its proper construction, clause 25 was not a release. Rather, it was a covenant not to sue the Christians under the Deed of Guarantee.

144 The Court of Appeal did not agree with this conclusion. In their concluding remarks on the point, the Court said:

"[62] That leaves the final matter for consideration. At the time the 5 November 2003 Agreement was entered into, the present proceedings were on foot. This is expressly referred to in cl 25.1. Of the respondents who brought the proceedings, only two were parties to that Agreement: Chris Burke & Co and DJZ, although, we indicate later, they were the only parties who had any ongoing interest in matters arising out of the new venture. The fact that cl 25.1 expressly stated that the proceedings were on foot (and impliedly that they were to continue) indicates that those parties intended to reserve their rights against the co-guarantors; that is, against the James. That consideration has to be weighed against the fact that unless cl 25.3 is construed as a release, it has no work to do as the Christians already had the benefit of a limited covenant not to sue from all the respondents. An agreement will usually be construed so as to give it some operation. Having regard to the principles which govern in this area, and on slight balance, the Court considers that properly construed, cl 25.3 released the Christians from their obligations under the Deed of Guarantee. That being so, Mrs James was also released."

145 The second issue was described by the Court as "the security issue". This was the argument that, even if clause 25.3 were a covenant not to sue, the question remained whether Mrs James had been released because the investors failed to maintain the security and had dealt with it other than in accordance with the requirements of the 1999 Deed of Guarantee.

146 The Court noted that clause 6 of the Deed of Guarantee provided that "the unitholders shall deliver ... the certificates for 26 units in the Surf Road Unit Trust ... as security for the obligations [referred to in clause 5] and the unitholders hereby charge the said units with the due performance [clause 5] obligations". Clause 8(1) permitted the investors on default to sell "the said units or any of them". The Court concluded that these provisions provided for a single mortgage of the units in support of the joint and several obligations of, relevantly, the James and the Christians. The mortgage was effected by delivery of all the scrip. There was no provision for release of any of the scrip, and the only entitlement to deal with the scrip was upon default by exercise of the power of sale. That right was vested in the investors.

147 The Court concluded that the effect of these provisions was that the security was to be maintained and that there was no entitlement in the investors, who had the benefit of the security, to dispose of the security other than by way of exercise of their power of sale. This was described as an implied covenant to maintain the security.

148 The Court held (at [77]) that the investors had dealt with Cottenham's units other than by way of exercise of their power of sale. The Court's decision stated:

"In the February 2001 Deed, it was agreed that the investors would not exercise any right of sale pursuant to the Deed of Guarantee in respect of Cottenham's units in the Surf Road Unit Trust. In the 5 November 2003 Agreement, the investors agreed to the disposal of those units as part of the sale agreement and not by way of the exercise of the power of sale. There was thus a breach of the implied covenant to maintain the security. In my opinion, the breach first occurred under the terms of the February 2001 Deed, although Mrs James did not rely upon that breach. But in any event, there was an independent breach arising out of the provisions of the 5 November 2003 Agreement."

149 The Court stated its conclusion on the securities issue at [81]:

"It follows that by requiring that the Cottenham units be transferred as part of the sale of Chris Burke's real estate business under the 5 November 2003 Agreement, and not pursuant to the exercise of the power of sale under the Deed of Guarantee, Mrs James was completely discharged from her obligations under the Deed of Guarantee."

The primary judge's reasoning and overview of the facts

150 I turn now to examine the primary judge's reasoning, especially in the light of her view of the facts. The decision is a thorough and comprehensive one. However, I will selectively refer to those parts of her Honour's reasoning that deal with the principal liability issues arising in these appeals. It should be borne in mind, as I mentioned earlier, that there was a major issue in the proceedings before the primary judge that does not arise in these appeals. That was the issue as to whether Mr Pritchard had failed in his duty of care to DJZ in relation to the preparation of the 1999 Deed itself. I do not propose to make any reference to her Honour's ultimate findings in regard to that aspect of the claim which, as I have said, was in any event unsuccessful.

151 I shall first set out that aspect of her Honour's discussion where she provides an overview of the circumstances leading up to the commencement of the present proceedings. It appears between [30]-[58] of her decision (Red 105-111):

"[30] The evidence in these proceedings showed that Mr Palmieri had been discussing the possibility of investing in the real estate business with Mr James for some time before approaching Mr Pritchard. He initially took advice from Mr Osterberg, who counselled him against the investment.

[31] Mr Osterberg accompanied Mr Palmieri and Mr Pritchard to two meetings with Mr James and Mr Christian and other investors, where a presentation about the proposed venture was made by Mr Goman, an accountant of BDO Nelson Parkhill. Mr Palmieri believed that before or at the first meeting, Mr James gave him a draft of the 1999 deed. Mr Palmieri could not recollect any detail of what was discussed at this meeting, only that there was a general conversation about the proposed venture. Mr Pritchard recollected discussion of distributions and how A class shareholders such as Mr Palmieri were to receive dividends in preference to ordinary unit holders, to offset the repayment of their existing debts. He understood that Mr Osterberg was then advising Mr Palmieri on financial matters. He did not discuss the financial aspects of the transaction with Mr Palmieri, but appreciated the legal complexity of what was being proposed.

[32] The second meeting at BDO Nelson Parkhill took place some time in June 1999. It was also attended by Mr Christian and other investors, Mr Wilson, Mr Mortimer and by Mr Dennis Bowles, a solicitor acting for Mr James and Mr Christian. It was Mr Bowles who had drafted the 1999 deed. Documents were provided at these meetings dealing with structure, unit price and projected cash flows.

[33] The evidence showed that at the time of this meeting, Mr Palmieri had already decided to proceed with the investment. Mr Pritchard then had no formal instructions to act in relation to the venture. He had long acted for Mr Palmieri and had agreed to attend these meetings when approached by Mr Palmieri, even though he had not been instructed to act. His evidence was that he was conscious that Mr Palmieri would need legal advice about the venture, but he did not assume that it would be he who would be instructed. Nevertheless, he considered the concept which was being advanced at the meetings.

[34] Shortly afterwards Mr Pritchard was instructed to act in relation to the loan which was taken out in order to fund DJZ's participation in the venture. Later he was also instructed to act in respect of the venture itself. There was no costs agreement, but eventually Mr Pritchard charged for his attendance at the earlier meetings.

[35] On 30 June, Mr Pritchard attended to the settlement, when DJZ's investment in the venture was paid. The venture commenced on 1 July 1999, before the 1999 deed was executed by anyone. The investors did not execute the deed until late 1999 or early 2000.

[36] Before that execution Mr Pritchard was involved in a due diligence exercise, undertaken after he was provided with the deed which had been executed by the James and Christian interests in August. He reported to the investors on that exercise, by letter of 23 November 1999, when he also forwarded the executed deed for their execution, providing an explanation of what it provided for. ...

[37] It was Mr Palmieri's evidence that his reading, understanding and speaking of English was at that time limited and that it was his practice to have Mr Pritchard explain letters and documents to him. He did not, however, recall then discussing the 23 November letter, or the deed, or any other document relevant to the transaction with Mr Pritchard. ...

...

[40] A dispute arose about the management of the real estate business in late 2000, or early 2001. Mr Pritchard was then instructed to advise Mr Palmieri and other directors, when Mr James' misappropriation came to light. He acted in relation to the February 2001 deed, which was prepared by Pryor Tzannes and Wallis, who were acting for the Christian interests. Mr Pritchard also later acted for the investors in the proceedings brought in the Supreme Court, as well as in relation to an August 2003 deed and the November 2003 sale of the business to the Christians.

[41] Mr Palmieri, or entities associated with him, made a payment of $200,000 in 2002, in order that Macquarie Bank would not close the real estate business and call in its loan, as well as loaning the business other monies, in an endeavour to keep it afloat.

[42] It was in January 2002 that Mr Palmieri instructed Giles Payne to advise about a possible misrepresentation case, at a meeting with Mr Gilles at which Mr Osterberg was present. Mr Palmieri instructed that he been promised returns of $2,200 per unit per month as a return on his investment, which he was not receiving. Giles Payne initially advised in relation to whether Mr Palmieri had a claim against Mr James for misleading and deceptive conduct in relation to the real estate venture the subject of the Supreme Court litigation. It was also instructed in relation to a joint venture agreement between one of Mr Palmieri's other entities, Palmieri's Developments Pty Ltd, Mr James and James Christian Pty Ltd.

[43] In order to give advice Giles Payne obtained from Mr Pritchard copies of various documents, including the 1999 deed, an unexecuted, undated and incomplete version of the 2001 deed, which was understood however to have been entered by the parties, as well as pleadings and other documents in the Supreme Court proceedings. In December 2002, Mr McGovern was briefed with six volumes of documents to advise DJZ on bringing the misrepresentation claim and, if it were thought that there were reasonable prospects of success, drafting the necessary originating process.

[44] Mr Palmieri pursued this advice because he had come to have a concern that Mr James, with whom he had an interest in certain property, ("the joint venture property"), might seek to use that interest to further settlement negotiations in the ongoing Supreme Court proceedings. Mr Palmieri sought to preclude this possibility eventuating. He wanted to ensure that the other investors such as Mr Wilson, also plaintiffs in those proceedings, would not gain an interest in the joint venture property. Thus he sought independent advice from Giles Payne and Mr McGovern, as to other claims which might be pursued against Mr James.

[45] Consideration was given by Giles Payne and Mr McGovern as to whether a misrepresentation claim could be pursued; whether it could be pursued separately to the Supreme Court proceedings, or whether that might involve an abuse of process; whether there was a conflict between Mr Palmieri's interests and those of other investors; and whether DJZ should be separately represented in the ongoing Supreme Court proceedings. Mr Palmieri was advised in a conference with Mr McGovern and his solicitors in March 2003, that the misrepresentation claim should be brought in the Supreme Court proceedings.

[46] While Mr Gilles denied this, the evidence, including that given by Ms Becker, a solicitor employed by Giles Payne, also advising Mr Palmieri, as well as correspondence which Giles Payne sent Mr Palmieri, showed that Mr Palmieri then instructed Giles Payne to separately represent DJZ in the Supreme Court proceedings, in accordance with Mr McGovern's advice. Steps were taken by Giles Payne to act on these instructions, including obtaining a copy of pleadings and other documents filed in the Supreme Court proceedings; and seeking further advice from Mr McGovern.

[47] Amongst other things, by letter of 15 April 2003, Mr McGovern advised that:

'... the present Supreme Court proceedings, relying as they do upon the deed of 1 July 1999, offer the most reasonable prospect of being able to secure the reasonably arguable claims of Surf Road Nominees Pty Ltd and the investors.'

[48] After further consideration and advice from Mr McGovern, it was later decided that DJZ would not be separately represented in the Supreme Court proceedings, but that Giles Payne would keep a watching brief on the proceedings; it would continue to advise Mr Palmieri as the need arose; and would be ready to step in, if his interests required separate representation in the proceedings. That never eventuated. Advice was also given that a misrepresentation claim required further work to be undertaken, in order to determine the true value of the units acquired, by way of comparison to what had been represented by Mr James. This was discussed with Mr Palmieri at a meeting on 24 April with Mr Gilles and Ms Becker, attended by Mr Osterberg. That work was not pursued.

[49] Offers of settlement of the Supreme Court proceedings, made on a walk away basis, were rejected by Mr Palmieri, despite advice from Mr Alexis that they should be accepted. Mr Palmieri was concerned about Mr James' interests in the joint venture properties and wanted to ensure that any settlement be on the basis that Mr James gave up that interest. He also wanted to ensure that the other investors did not gain an interest in those properties, as the result of any settlement.

[50] Mr Palmieri took other steps to ensure that he gained control over the conduct of the 2003 proceedings, in which Mr Pritchard and Mr Alexis continued to act.

[51] In October 2003, Mr Pritchard acted on the sale of the real estate business to the Christian interests. Mr Palmieri initially approached Giles Payne to act on this transaction, but the firm declined the instructions, given the state of the relevant documentation. The vendor was Chris Burke & Co Pty Ltd. Mr Palmieri then instructed Mr Pritchard.

[52] The purchasers were represented by Dibbs Barker Gosling, who prepared the sale agreement. It was Mr Pritchard's written advice that this transaction was being pursued with such haste that there were commercial risks being taken, in not tying up a number of identified "loose ends", before settlement. The potential results were identified to include ongoing dispute and financial loss. Mr Palmieri gave written acknowledgement on behalf of Chris Burke & Co Pty Ltd and himself, of the advice given that the transaction should not be settled unless "all documentation to reduce liability on your part is in place". There was no advice given that the terms of the proposed sale agreement would jeopardise DJZ's further pursuit of the Supreme Court proceedings.

[53] Even though it had declined to act on the sale, Giles Payne continued to advise on matters which Mr Palmieri raised with them from time to time about the Supreme Court proceedings, including in relation to whether or not the 2003 proceedings should be settled, as Mr Alexis again advised in December 2003.

[54] By this time the James' interests had become aware of the 2003 sale agreement and had amended their defence to rely on that agreement and the 2001 deed. Mr Alexis advised DJZ that the matter should be settled and that it potentially had a claim against Mr Pritchard in relation to the sale agreement and should seek independent advice as to its position. Mr Palmieri sought Giles Payne's advice. The views which Giles Payne took differed to the advice given by Mr Alexis. Mr Palmieri decided to proceed.

[55] Mr Palmieri was then also given advice by Mr Pritchard and Mr Alexis about a misleading and deceptive conduct claim being pursued in the Supreme Court proceedings, which were then part heard, a possibility raised by Mr Fitzpatrick. They were provided with the statements Mr Palmieri, Mr Wilson, and Mr Christian had given Giles Payne. Mr Alexis advised against such a claim being pursued. That advice was accepted.

[56] The hearing concluded with DJZ succeeding before Einstein J. Mr James went into bankruptcy and Mrs James and other defendants appealed the decision. That appeal did not touch on orders made against Mr James. Further proceedings were then commenced in the Supreme Court by the James' interests, in relation to the joint venture property.

[57] After the Court of Appeal gave its judgment, upholding Mrs James' appeal, Mr Palmieri's interests entered into a settlement in relation to the first instance proceedings, (the orders made by Einstein J against Mr James not having been disturbed); the Court of Appeal proceedings; and the joint venture proceedings, amongst other things. Parties to that settlement included Mr James and his trustee in bankruptcy, as well as the parties to the various proceedings the subject of the settlement.

[58] DJZ then instructed Giles Payne and Mr McGovern to bring these proceedings, commenced in 2005."

152 The primary judge then turned to the issue as to whether, in the case against Mr Pritchard, breach of duty had been established in relation to either the 2001 Deed or the 2003 agreement. It is convenient to set out in brief fashion her Honour's conclusions in relation to the issue and the matters associated with it. First, her Honour found that the drafting of the 2001 Deed and the 2003 sales agreement were not part of the conduct of the litigation with the James' interests. Thus, advocate's immunity did not apply. Secondly, her Honour found that Mr Pritchard had not been acting for DJZ at the time the 2001 Deed was settled and executed. He had been retained by the directors of Surf Road Nominees, including Mr Palmieri, in their own right. Thirdly, her Honour found that Mr Pritchard failed in his duty of care later in 2001, after he had been retained by DJZ and when he received advice from Mr Wales SC. Notwithstanding, for reasons which her Honour gave later in her decision, she thought that nothing turned on this aspect of the negligent conduct of Mr Pritchard. It had no causative reach, she held, in relation to DJZ's ultimate loss. Finally, her Honour found that Mr Pritchard had been guilty of negligence and breach of retainer in relation to the 2003 sales agreement. As a consequence of this negligence, Mrs James had been released from liability as a guarantor. Ultimately, her Honour determined that this was causative of the loss sustained by DJZ, and that the loss crystallised when the Court of Appeal allowed the appeal from Einstein J.

153 Since all these matters are issues in these appeals, it will be necessary to examine her Honour's reasoning, as I have said, with some care. A convenient starting point is that aspect of her Honour's decision where she summarised her views about Mr Pritchard's negligence in relation to the 2001 Deed and the 2003 sales agreement (Red 146; primary judgment at [171]-[172]):

"[171] DJZ's claim is based on the drafting of the 2001 deed and the 2003 sale agreement, not the conduct of the litigation. On Mr Pritchard's own evidence he gave no consideration to what impact the 2003 sale agreement might have on the claims DJZ was advancing against Mr James and others in the proceedings commenced in the Supreme Court in August 2001, until the matter was raised with him by Mr Alexis in December 2003, after the James' interests amended their pleadings to rely on the sale agreement. The evidence, including evidence given by Mr Pritchard himself in cross examination, establishes that there were available steps which could have been taken to ensure that the drafting of the 2001 deed and the 2003 sale agreement did not give rise to the problems which led to the Court of Appeal's decision.

[172] The February 2001 deed was drafted before litigation was commenced and at a time when there is a question as to whether or not Mr Pritchard was acting for DJZ. There is no question that he was acting for DJZ when the litigation was commenced and when the 2003 sale agreement was later entered. The conclusion that Mr Pritchard breached his duty to DJZ in relation to the 2003 sale agreement is unavoidable."

154 Her Honour set out clause 25 in the November 2003 agreement, and clauses 4 and 5 in the earlier February 2001 Deed. She referred to the two reasons advanced by the Court of Appeal for upholding Mrs James' appeal from the decision of Einstein J. She then turned her attention to the issue as to whether Mr Pritchard had acted for DJZ in relation to the February 2001 Deed (Red 149-153; primary judgment at [180]-[192]):

"[180] Mr Pritchard denied any breach of duty to DJZ, with respect to the release contained in the 2001 Deed and argued that, in any event, no loss flowed, even if such a breach were established.

[181] It was DJZ's case that Mr Pritchard advised it in relation to this deed.

[182] I am satisfied that this case was not made out. Mr Palmieri was the controlling mind of DJZ, but he gave no evidence that he had retained Mr Pritchard to advise it on the terms of the 2001 deed. His evidence was that he could not even recall discussing the deed with Mr Pritchard, he received it from Mr Christian and signed it some time in February 2001. No evidence was called from Mrs Palmieri, also a party to the deed, to support the submission advanced against Mr Pritchard, that he was also retained to advise her in relation to this deed.

[183] Mr Pritchard accepted that while in 1999 he had not entered into a costs agreement with DJZ, he had been instructed to act for it by Mr Palmieri in relation to the real estate agency venture which became the subject of the 1999 deed. It was Mr Pritchard's case that in January 2001 he was again instructed, on this occasion to advise the directors of Surf Road Nominees Pty Ltd, including Mr Palmieri, in relation to various matters, including the 2001 deed. He did not receive instructions to act for DJZ until after the 2001 deed was executed.

[184] The evidence showed that Mr Palmieri approached Mr Pritchard in December 2000 about difficulties which had emerged in relation to Mr James misappropriating funds. In January 2001, Mr Pritchard entered a written retainer agreement with Mr Palmieri and other directors of Surf Road Nominees Pty Ltd, Mr Wilson, Mr Sicuro and Mr Christian. Mr Pritchard regarded the work which he undertook in relation to the February 2001 deed to have been the subject of this agreement. This 'non litigious costs agreement' was expressed to be in relation to:

1. The Work

To advise you from time to time and to work with you to resolve the difficulties presently being faced by Surf Road Nominees Pty Limited as trustee for the Surf Road Unit Trust and conduct of their business known as Chris Burke & Co Pty Limited as result of the activities of Tass James and generally.

[185] It was at this time that Mr James was removed from his role in the business by the directors. An arrangement was then made with Mr Christian to take over the management role Mr James had previously performed in the business. What was agreed with Mr Christian, Mrs Christian and the entities associated with them was reflected in the 2001 deed, prepared by their solicitors, Pryor Tzannes & Wallis and settled with Mr Pritchard. Mr Palmieri and Mrs Palmieri were also parties to the deed, as were Surf Road Nominees Pty Ltd, DJZ, Chris Burke & Co Pty Ltd, WIT Investments, Mr Wilson and Mr Sicuro. There were no other solicitors involved in the negotiations over the terms of the deed.

[186] Mr Pritchard's evidence was that he was not acting for Mrs Palmieri or for DJZ in relation to the February 2001 deed, even though they then had no solicitor separately acting for them, as far as he was aware. In cross examination, Mr Pritchard said that he made no assumptions in his dealings with Mr Palmieri. As far as he knew, DJZ could have been obtaining advice elsewhere, from Giles Payne, for example. He accepted, however, that if that had been the case, he would have expected Giles Payne to contact him about the terms of the deed.

[187] Mr Pritchard's case was that he later received instructions from DJZ in June 2001, when he entered into a costs agreement with it, other investors, Surf Road Nominees Pty Ltd, SRUT, Chris Burke & Co Pty Ltd and Mr Christian. The work covered by this agreement was:

1. The Work

To act for all parties to resolve the difficulties arising out of defaults by Tass James in his role as Director of Surf Road Nominees Pty Limited and Chris Burke & Co Pty Limited and as a participant in the management of the business conducted by the Surf Road Unit Trust and to attempt to obtain for you a transfer of the units held by New South Head Road Nominees Pty Limited in the Surf Road Unit Trust to other unit holders in the Unit Trust and to defend on your behalf any resistance to this step and to obtain the advice of Counsel generally and to take such steps as may be required to implement the advice of Counsel and in that regard, if so advised, to initiate proceedings against Tass James and New South Head Road Nominees Pty Limited and to negotiate a settlement, if possible appropriate to you and generally to act for you towards a satisfactory resolution of the difficulty.

[188] It was DJZ's case that it would be concluded from the evidence that there was an implied retainer between Mr Pritchard and DJZ and that he was representing all parties to the February 2001 deed, apart from the Christian interests (see Dean v Allin & Watts [2001] 1 Lloyd's Rep 249 at 256). It was argued that it would have been preposterous to think that DJZ or Mrs Palmieri could act for themselves. Mr Pritchard well knew that Mr Palmieri was DJZ's controlling mind and that he was not acting for him only in his personal capacity, in relation to the deed. It was also submitted that the January costs agreement did not cover the work performed in relation to the deed, given its terms.

[189] I cannot accept the case so advanced, given the work covered expressly by the January costs agreement and the absence of any evidence of DJZ or Mrs Palmieri instructing Mr Pritchard to act for them. The agreement reached with the Christians, in consequence of the dispute which had arisen with Mr James and the release, encompassed by the February deed, was unquestionably work of a kind contemplated by the express terms of the January retainer.

[190] The deed also had other parties, in addition to those who had retained Mr Pritchard in January. There was no evidence that Mr Pritchard took steps consistent with an understanding that he had a retainer for DJZ, or Mrs Palmieri, or any of the other parties to the deed, such as, for example, seeking payment from them for work undertaken in respect of the deed. The payments sought were in accordance with the written retainer. In March 2001, Mr Pritchard gave an extensive report to the directors of Surf Road Nominees Pty Ltd in relation to the work he had undertaken and what future actions they had to consider, enclosing an invoice for the work performed, including in relation to the February deed. Subsequently Mr Pritchard received a wider retainer, from DJZ and others, to pursue various matters, including the Supreme Court litigation later instigated against Mr James. That retainer was also reduced to writing.

[191] It was entirely consistent with the evidence of his approach to matters involving his business interests, that Mr Palmieri did not retain Mr Pritchard to advise DJZ, or indeed his wife, in relation to the matters covered by the January retainer, or the 2001 deed, given that he himself was already receiving advice from Mr Pritchard in his personal capacity. That Mr Palmieri was to Mr Pritchard's knowledge the controlling mind of DJZ and married to Mrs Palmieri, does not mean that Mr Pritchard was either obliged, or entitled to proceed on the basis that they had also retained him to act for them. The evidence does not support the existence of a contract whereby DJZ retained Mr Pritchard to advise it in relation to the matters dealt with in the 2001 deed. Nor does the evidence establish an implied retainer. That requires evidence permitting an intention to enter into such a contractual relationship to be imputed to both DJZ and Mr Pritchard. Such evidence is absent.

[192] Mr Pritchard did not receive instructions from DJZ until June 2001, when litigation was contemplated and the June retainer agreement was entered. It follows that this aspect of DJZ's case must fail. Mr Pritchard did not act for DJZ in respect of the 2001 deed and did not depart from competent professional practice, in failing to give it advice about the effect of the deed. There was no breach of retainer or negligence on Mr Pritchard's part in relation to the deed, as DJZ claimed."

155 Her Honour next referred to the advice given by Mr Wales SC to Mr Pritchard. She continued (at [194]-[196]):

[194] No advice was given to DJZ or Mr Palmieri that there was a possibility that the February 2001 deed might have brought about a release of the James' interests in relation to the matters intended to be pursued in the Supreme Court proceedings, either before or after Mr Wales was briefed to give this advice. The litigation was commenced in August.

[195] I have accepted that at the time that the deed was prepared, Mr Pritchard was not retained to advise DJZ. When the Supreme Court proceedings were commenced, however, he was acting for DJZ and it then plainly occurred to Mr Pritchard that the deed might pose a problem, hence the advice sought of Mr Wales. It was not, however, a problem to which he ever alerted DJZ.

[196] In cross examination, Mr Pritchard accepted that he was then obliged to advise DJZ of anything in the 2001 deed which might affect its prospects of success and that this was a continuing obligation. That obligation was plainly not met. Ultimately, for reasons which I will explain, given the course which the appeal proceedings took, nothing turns on this."

156 Her Honour then turned her attention to the August 2003 Deed (at [197]-[202]:

"[197] Mr Pritchard was also later obliged to consider the effect of the August 2003 deed and the later sale agreement on the proceedings DJZ was pursuing, when instructed to act for DJZ in relation to those transactions.

[198] By March 2003, Mr Palmieri found that he was being out voted by the other investors, as to the conduct of the Supreme Court proceedings. He sought control. In an August 2003 deed, Mr Palmieri bought out the interests of Mr and Mrs Christian and Cottenham in SRUT. Clause 2.7 included a release in their favour in relation to the proceedings.

[199] Mr Pritchard agreed that he was then obliged to advise DJZ and the other plaintiffs, if there was anything in the deed which might affect their prospects of success in the Supreme Court proceedings. Mr Pritchard did seek to raise a concern about this deed with Mr Palmieri and Mr Sicuro, but was instructed not to pursue this matter, as there was already a release agreed in the February 2001 deed.

[200] I take the view that no departure from competent practice was established in relation to this deed.

[201] Even if the conclusion were reached that there was any negligence or breach of retainer on Mr Pritchard's part, so far as DJZ was concerned, that this deed provides a complete answer to any breach of retainer by Mr Pritchard, in relation to the 2003 agreement, as was argued on his behalf, may not be accepted. This deed was never relied on by the James' interests, nor did the Court of Appeal's decision turn on its terms.

[202] That Mr Pritchard considered that the August 2003 deed might create difficulties for the litigation, but failed to consider or advise on terms in the 2003 sale agreement, which had the result that the James' appeal to the Court of Appeal succeeded, supports the conclusions which I have reached as to Mr Pritchard's negligence in relation to the drafting of that agreement."

157 Next her Honour considered the November 2003 agreement (Red 156-161; primary judgment at [203]-[221]):

"The 2003 agreement - negligence established

[203] Mr Pritchard acted for DJZ in relation to this agreement. Mr Palmieri had approached Giles Payne to act, but it refused to do so, given its concerns about matters such as the state of the business records and the haste with which the transaction was being pursued. Mr Palmieri then retained Mr Pritchard.

[204] In February 2001, he had advised the directors, including Mr Palmieri, that in the circumstances, Mr James had breached the 1999 deed, allowing the exercise of rights of sale under the deed, after giving notice. The guarantees had been given on a joint and several basis by the James and Christian interests. The 2001 deed was entered, but it was not until May 2001 that notices were given under the deed. The Christian's solicitors then disputed the exercise of that right of sale, given what had been agreed with them in the 2001 deed.

[205] In 2003, while the Supreme Court proceedings were on foot, it was agreed that the Christian interests would resign, would transfer their shares and unit holdings in SRUT and would be given a release. This was given effect by the 2003 sale agreement.

[206] The possibility that the February 2001 deed and the 2003 sale agreement might amount to a release was first raised with DJZ by Mr Alexis, after the James' interests amended their defence. In his letter of 23 December Mr Alexis noted that Mr Pritchard had acknowledged in their discussion that he had not appreciated that what had been agreed in the sale agreement and the 2001 deed could have affected the defendants' liability under the 1999 deed and that Mr Palmieri had not been warned of the consequences, before the documents were executed and performed. DJZ was then advised of the potential claim which lay against Mr Pritchard and that independent advice should be sought.

[207] In cross examination Mr Pritchard confirmed that he had never earlier turned his mind to the issue of whether the drafting of these documents and the steps taken in relation to the giving of notices under the 1999 deed could have affected a release, as the James' then claimed.

[208] The failure to raise this possibility with DJZ in February 2001 did not amount to a breach of retainer. Mr Pritchard was not then advising DJZ. It might have involved a breach of the retainer which he then had with Mr Palmieri, given Mr Pritchard's knowledge of Mr Palmieri's interest in DJZ, but that is not a claim advanced in this case.

[209] The failure to advise DJZ of the problem when the Supreme Court proceedings were commenced, is a different matter, as is Mr Pritchard's advice in relation to the 2003 sale agreement. To my mind there can be no question that Mr Pritchard's failure to consider and advise DJZ as to the effect of the sale agreement on DJZ's pursuit of its rights under the 1999 deed, involved a breach of his duty to DJZ.

[210] In cross examination, Mr Pritchard agreed that he was aware of the release contained in the 2003 agreement in favour of the Christian interests and that it was his obligation to be on the lookout for any terms which might adversely affect DJZ's interest in the Supreme Court proceedings. At the least he was obliged to provide a warning as to any risk, so that DJZ could obtain advice. He was not aware that DJZ was then already taking separate advice about the litigation from Giles Payne. It was not until December 2003, when Mr Alexis raised the potential claim which flowed against Mr Pritchard from this agreement, that DJZ was advised by Mr Pritchard to seek such separate advice.

[211] In the Court of Appeal, 'on slight balance' the conclusion reached was that there had been a release given by the sale agreement. As to security, it was observed that:

'77 The investors however, dealt with the securities other than by way of exercise of their power of sale. In the February 2001 Deed, it was agreed that the investors would not exercise any right of sale pursuant to the Deed of Guarantee in respect of Cottenham's units in the Surf Road Unit Trust. In the 5 November 2003 Agreement, the investors agreed to the disposal of those units as part of the sale agreement and not by way of the exercise of the power of sale. There was thus a breach of the implied covenant to maintain the security. In my opinion, the breach first occurred under the terms of the February 2001 Deed, although Mrs James did not rely upon that breach. But in any event, there was an independent breach arising out of the provisions of the 5 November 2003 Agreement.'

[212] These were matters which Mr Pritchard should have considered and advised DJZ about. He was required to use the knowledge which he actually possessed (see Windy Construction UK Ltd v Poole [1984] 2 Lloyds Rep 499 at 506-7.) Under the 1999 deed, all of the guarantors had charged their units with the performance of their obligations under the deed. The disposal of the Christian's units, other than in accordance with the terms of the 1999 deed, breached the implied obligation to maintain the securities for the benefit of all of the guarantors.

[213] The 1999 deed itself permitted the sale of the Christian's units in accordance with its terms, as Mr Pritchard had advised earlier in 2001. Why that course was not pursued, is not apparent, especially given the advice which he had earlier given in relation to the August 2003 deed, which became a schedule to the agreement. The release clauses were not in identical terms and the agreement also provided for the sale of the units. On his evidence, Mr Pritchard was well familiar with settling guarantees for his clients. He accepted that the principles concerning guarantees which came into operation and on which the Court of Appeal's judgment later turned were well known and that it was his responsibility to give them consideration (see Teachers Health Investments Pty Ltd v Julian [2001] NSWSC 231; ANZ ConvR 449 at [57]-[77]).

[214] That what resulted from the release given in the 2003 agreement on which the James' interests relied, was not beyond argument is apparent, given that Einstein J reached one view and the Court of Appeal another.

[215] So far as this claim is concerned, however, what must be considered is Mr Pritchard's evidence that he had not turned his mind to these questions at all, when acting in relation to the 2003 agreement and earlier when bringing the proceedings for DJZ, after the 2001 deed was entered. The result was that the risk of the James interests having been released from their guarantees was not considered, or addressed. Nor was the problem with the release of the security. There were ways in which the difficulties with the 2003 agreement which came to be further litigated on appeal might have been addressed. They included exercising the power of sale under the 1999 deed and utilising an express covenant not to sue, rather than providing a release. At the least, Mr Pritchard should have alerted DJZ to the risks which could arise from the course taken.

[216] While Mr Pritchard alerted DJZ in October 2003 to risks of not tying up various 'loose ends', before finalising the sale, he did not alert it to the much greater risk which the release posed to DJZ's pursuit of the ongoing litigation. In November, other risks were identified and raised, but not these ones. I am satisfied that in these circumstances, the negligence and breach of retainer alleged against Mr Pritchard in relation to the 2003 sale agreement were established.

[217] In the face of Mr Pritchard's own evidence, that Mr Wales gave the advice which he did in relation to the 2001 deed and that neither Giles Payne nor Mr McGovern identified the problems on which the Court of Appeal's judgment later turned in relation to the 2003 agreement, does not lead to the conclusion that there was no departure from competent professional practice in relation to the 2003 agreement. For reasons which will become apparent, there were other problems with the approach which Mr McGovern and Giles Payne adopted to the advice which they each gave DJZ. Mr Wales' advice ought to have alerted Mr Pritchard to the necessity to take care with the drafting of the 2003 sale agreement.

[218] For Mr Pritchard it was also argued that it was necessary to assess whether, if Mr Pritchard had turned his mind to these matters and had advised upon them, that Mr Palmieri would have accepted his advice, with the result that a different course would have been pursued by DJZ and accepted by the Christian interests (see WCW Pty Ltd v Bolster & Co [1993] FCA 2).

[219] In a case where there has been a complete failure to give consideration to obvious difficulties, I am not convinced that such considerations arise in the way argued. Even if they do, it is difficult to see that it may be concluded that readily available means by which the obvious and serious difficulties in question could have been dealt with, without apparent detriment to either DJZ or the Christians, would not have been taken. The approach taken by Mr Palmieri in relation to the August 2003 deed may not be overlooked, but the situation in respect of the 2003 sale agreement was quite a different one. That agreement could readily have been drafted on the basis of a covenant not to sue, rather than by way of a release and the discharge of the security could also have been avoided, by a sale under the 1999 deed. It was not suggested that any adverse consequences would have flown, had that been done. In those circumstances, had advice been given as to the risks posed by the course which was in fact adopted, it seems entirely likely that DJZ and the Christians would have pursued a course which avoided the risk of undermining the litigation, to DJZ's detriment and to the advantage of the James' interests. After all, the Christian interests were also resisting the James' interests in the litigation.

[220] The result was that the basis on which the 2003 agreement was drafted, on which the James interests successfully relied, removed the foundation for the case being advanced for DJZ, no matter what the earlier deeds had provided.

[221] On the evidence, I am satisfied that the negligence and breach of retainer alleged against Mr Pritchard in relation to the 2003 agreement was established. In the circumstances, a reasonably competent solicitor would have given the consideration which Mr Pritchard conceded he simply failed to give in relation to the matters from which DJZ's loss of the Court of Appeal proceedings later flowed. Such consideration concerned principles and matters with which he was well versed and ought to have considered."

Advocate's immunity

158 Her Honour gave consideration to the issue as to whether Mr Pritchard was entitled to rely on the advocate's immunity. Her Honour said (Red 161; primary judgment at [224]-[226]):

"[224] The documents gave effect to commercial arrangements necessitated by the business situation in which DJZ found itself and what Mr Palmieri perceived to be in his commercial interests, as well as those of DJZ. The 1999 deed dealt with the establishment of the real estate venture in which DJZ invested. The 2001 deed dealt with the commercial arrangements entered by a number of parties to the 1999 deed, including DJZ, in order to deal with the situation in which the real estate business became mired, which resulted in Mr James' expulsion from the business. It varied the 1999 deed. There was then no litigation on foot, but the deed limited the liability of various of the parties to the 1999 deed, litigation against Mr James then being contemplated. That litigation was commenced in August 2001, but the work undertaken in connection with the February 2001 deed, was plainly not concerned with the conduct of the litigation intended to be pursued against Mr James.

[225] The August 2003 deed and the November 2003 sale agreement resulted from Mr Palmieri's ongoing pursuit of his concern to protect his commercial interests in the joint venture properties, from being used by Mr James to settle the litigation, as well as the management of the ongoing commercial problems which the business was continuing to face.

[226] No convincing basis was established for concluding that the advocate's immunity could extend to the deeds and the sale agreement, in these circumstances. Mr Pritchard's own evidence, that he gave no consideration to what impact these transactions and the documents which gave effect to them, might have on the pursuit of the litigation, does not support a claim for advocate's immunity. The evidence that counsel briefed for DJZ in the litigation was also never consulted about what impact the 2003 agreement might have on the litigation, further confirms this conclusion. The impact of the terms of the deeds and the agreement on the litigation was unintended and not the result of decisions affecting the conduct of the case."

Causation

159 Having reached these conclusions, the primary judge examined three arguments that were said to be relevant to the issue of causation. These were, first, whether Mr Pritchard's negligence (in not advising DJZ when he was retained in relation to the commencement of proceedings against the James' interests) was causative of DJZ's loss, or whether that had been solely caused by his negligence in relation to the November 2003 agreement. Mr Pritchard argued that it was really the 2001 Deed which had caused the loss, and he had not been retained in relation to that Deed by DJZ. Hence he should not be held liable. There was a similar argument concerning the Deed apparently executed in August 2003.

160 The second argument was that the chain of causation had been broken in any event because Mr Palmieri did not accept his senior counsel Mr Alexis' advice to settle the litigation. This advice was given in December 2003 and Mr Palmieri, instead of accepting the advice, chose to continue with the litigation.

161 Thirdly, an alternative argument was advanced that, if the chain of causation was not broken, then at least it might be said that Mr Palmieri's rejection of Mr Alexis' advice as to the settlement of the matter raised the issue of contributory negligence on the part of DJZ.

162 As to the first argument, her Honour said:

"[232] Given the views which I earlier expressed, it may not be accepted that the true cause of the losses which DJZ seeks to recover, rested on the February 2001 deed. While I have concluded that Mr Pritchard was not then acting for DJZ, he did have a duty to advise it in relation to any difficulties which it might create, once instructed to advise and act for it in relation to the Supreme Court proceedings.

[233] Notwithstanding Mr Pritchard's failures in that respect, the 2001 deed was not the basis upon which the Court of Appeal reached its conclusions. It upheld Mrs James' appeal because of the views to which it came in relation to the 2003 sale agreement. That may not be overlooked, reflecting as it does the way in which Mrs James' case was conducted. Why reliance on the 2001 deed was not pressed, is not apparent. Perhaps there were concerns as to its efficacy or effect, given that it was a deed entered by only some of the parties to the 1999 deed, which purported to vary the rights and liabilities of the parties to that deed. It is unnecessary to speculate as to the reason for the approach adopted, or what might have resulted, had a different course been pursued.

[234] It follows that the view that it was the drafting of the February 2001 deed now urged for Mr Pritchard, that was the cause of DJZ's loss, may not be accepted. The 2003 agreement was the cause of the loss in issue, that being what the Court of Appeal's judgment turned on. As the High Court discussed in Tabet v Gett [2010] HCA 12; (2010) 265 ALR 227 at [66] and [69]:

'66 For the purposes of the law of negligence, 'damage' refers to some difference to the plaintiff. The difference must be detrimental. What must be demonstrated (in the sense that the tribunal of fact must be persuaded that it is more probable than not) is that a difference has been brought about and that the defendant's negligence was a cause of that difference. The comparison invoked by reference to 'difference' is between the relevant state of affairs as they existed after the negligent act or omission, and the state of affairs that would have existed had the negligent act or omission not occurred (Gregg v Scott [2005] 2 AC 176 at 181-182 [9]).

69 It may be that other cases in which it might be said that, as a result of medical negligence, a patient has lost 'the chance of a better medical outcome' (for example, a diminution in life expectancy) differ from the present case in significant respects. These are not matters that need be further examined in this case. It need only be observed that the language of loss of chance should not be permitted to obscure the need to identify whether a plaintiff has proved that the defendant's negligence was more probably than not a cause of damage (in the sense of detrimental difference). The language of possibilities (language that underlies the notion of loss of chance) should not be permitted to obscure the need to consider whether the possible adverse outcome has in fact come home, or will more probably than not do so.'

[235] In this case Mrs James successfully relied on the 2003 agreement to overturn the conclusions reached by Einstein J. In Bennett v Minister of Community Welfare [1992] HCA 27; (1992) 176 CLR 408, McHugh J discussed the principle that when separate and independent acts of negligence directly cause injury, each may be sued upon.

[236] Here Mr Pritchard was negligent in the work undertaken for DJZ in respect of the 2003 agreement, irrespective of any earlier negligence. It was the conclusions reached on the matters argued on appeal in respect of that agreement, which led to the loss of the orders made by Einstein J. That this was the cause of the damage now pursued by DJZ, so far as Mr Pritchard was concerned, must follow."

163 In relation to the second argument, her Honour first recounted the factual situation which led to the argument being advanced. As has been noted, DJZ's then senior counsel, Mr Alexis, had advised DJZ of the difficulties which arose from the 2001 Deed and the 2003 sales agreement, as well as other problems in the proceedings. It was for these reasons that Mr Alexis recommended that the case should be settled. Her Honour then outlined the rather complicated situation which had developed by that time:

"[238] By that time Mr Palmieri had long been taking advice from Giles Payne, because he was anxious to obtain a basis upon which he could protect his interests in the joint venture properties. He did not want an outcome whereby the other investors obtained an interest in the joint venture properties, as a consequence of a settlement of the proceedings with Mr James.

[239] Initially he sought to achieve this by pursuit of a misrepresentation case. He was anxious to ensure that Mr James not use his interest in those properties, in negotiations to settle DJZ's Supreme Court proceedings. On Mr Wilson's evidence, if DJZ had such a claim, so did the other investors, including him, but it appears that the existence of such a claim was not ever raised by Mr Palmieri with Mr Pritchard, who was acting for all of the investors, including DJZ, at least until after DJZ had acquired their interests in the litigation. It was after this time that Mr Pritchard raised the possibility of a misrepresentation case with Mr Palmieri, after Mr Alexis' December 2003 advice that the Supreme Court proceedings should be settled. That possibility was one raised with Mr Pritchard by Mr Fitzpatrick, who then had day to day carriage of the matter. It was not a claim for which Mr Pritchard could see a ready basis. Mr Alexis advised against the pursuit of such a claim, which in his view was inconsistent with the case being advanced by DJZ in the proceedings which were then part heard and to have no foundation, given the statements Mr Palmieri and others had made to Giles Payne about such representations, with which he was then briefed.

[240] By then, Mr Palmieri had taken steps to ensure that DJZ had control of the proceedings. Thereby, the risk that he was concerned about, other investors obtaining a share of the joint venture properties under a settlement with the James' interests, had been removed. Mr Palmieri had since pursued a settlement of the proceedings with the aim that Mr James would agree to relinquish his interest in the joint venture properties, but without success.

[241] That interest had arisen in circumstances, on Mr Palmieri's evidence, where Mr James, a real estate agent, had introduced him to the joint venture properties. In return for that introduction, he agreed to give Mr James an interest in the properties, which was never disclosed to the vendors of the properties.

[242] The settlement negotiations which Mr Alexis pursued on Mr Palmieri's instructions were put on a basis concerned to ensure that Mr James' interest in the joint venture properties was acquired. They foundered over how much Mr Palmieri was prepared to pay, in order to acquire that interest. Mr James was then seeking $1.4 million.

[243] Mr Palmieri had earlier been advised by Giles Payne and Mr McGovern, before he entered the 2003 sale agreement, that the claims being advanced in the Supreme Court proceedings were reasonably arguable. They had not identified that the 2001 deed posed any difficulty. He again sought advice from Giles Payne in January 2004, after rejecting the settlement Mr Alexis had recommended, given the problems he identified that the 2003 sale agreement and the 2001 deed could cause for the case DJZ was advancing. By then the James' interests were relying on those documents in their case.

[244] Mr Palmieri was then still concerned about the joint venture properties. He did not wish to agree to any settlement, unless Mr James agreed to relinquish his interest in those properties. He sought advice from Giles Payne, but did not apparently provide them with a copy of Mr Alexis' December 2003 written advice. Ms Becker was, however, aware of the views expressed.

[245] Giles Payne also gave written advice in January 2004, over a wide range of matters, including the pursuit of the Supreme Court proceedings and their settlement. The problem identified by Mr Alexis with the 2003 sale agreement was not dealt with by Giles Payne. It had refused to act in relation to that transaction, but was aware that Mr Pritchard had acted and that the sale had proceeded. It had also been asked to advise on a draft of the agreement, but had also declined to provide such advice.

[246] After reviewing parts of the transcript of the hearing before Einstein J, the matter then being part heard, Giles Payne gave a guarded advice that the matter appeared to be progressing reasonably and along expected lines, given what they had been instructed with, but that there were various risks; that considerable expense incurred might be thrown away, if the matter was not settled on terms acceptable to Mr Palmieri, as Mr James was suggesting; and that as the bulk of the costs had been incurred, Mr Palmieri might as well continue, given that it appeared that Mr James was not prepared to accept his minimum settlement conditions. While not stated in the letter, these conditions related to Mr James giving up his interest in the joint venture property.

[247] DJZ proceeded and succeeded before Einstein J. A judgment for $647,355 was made against Mr James in relation to misappropriation of monies, as well as other orders and costs. In May 2004, Mr James was made bankrupt. An appeal brought from the decision was not pursued by Mr James or by his trustee in bankruptcy.

[248] An appeal was pursued by Mrs James and the James corporate entity. In May 2004, Mr Pritchard gave DJZ written advice as to Mr Alexis' views of the risk of the appeal proceedings and the claim which it could bring against him in negligence. DJZ continued to instruct Mr Pritchard.

[249] Mrs James succeeded before the Court of Appeal. The judgment against Mr James was not disturbed. It was in January 2005 that further advice was sought from Giles Payne. It advised that it was not in a position to give the advice sought in the available timeframe, given that settlement was then imminent with Mrs James and other parties. Giles Payne noted Mr Alexis' advice that this might result in DJZ not being able to pursue any claim against Mr Pritchard.

[250] Against this background, it is apparent that had Mr Alexis' December 2003 advice been accepted, he having identified the problem which the 2003 agreement posed, the further costs of the litigation and more importantly, the cost of the appeal proceedings, would have been avoided. They are a large part of the losses which DJZ now pursues.

[251] Mr Palmieri rejected that advice, weighing in the balance his concern over his interest in the joint venture properties. He wanted to utilise the proceedings DJZ had brought, as a lever in the negotiations with Mr James over these properties, the James' interests having commenced proceedings over that interest. Mr Palmieri then also sought advice from Giles Payne about settlement. Its advice differed from that given by Mr Alexis. Plainly, Mr Palmieri made a commercial decision about these matters, given the legal advice which he had received from both Mr Alexis and Giles Payne. That his interests and those of DJZ did not coincide at this point, is evident.

[252] That situation in large part arose as the consequence of the 2003 agreement itself. That Mr Pritchard had not turned his mind at all to the release of the guarantee provided by the 1999 deed and the discharge of the security, is what resulted in the 2003 agreement being drafted as it was, with the conclusion which the Court of Appeal eventually reached, as to its effect upon the rights and liabilities created by the 1999 deed.

[253] That having occurred, may it now be concluded that Mr Palmieri not accepting Mr Alexis' advice, but choosing to pursue the litigation, broke the chain of causation, as was argued for Mr Pritchard?

[254] Had Mr Pritchard not been negligent, as he was in the drafting of the deed, the difficulty on which the Court of Appeal's decision turned would never have arisen. That problem was identified and DJZ was advised to settle, but for reasons connected with other commercial interests and having regard to the advice which he received from Giles Payne, Mr Palmieri did not settle the proceedings as Mr Alexis advised. That, in my view, cannot break the chain of causation as was argued. At that time Mr Palmieri was also concerned with the other claims being pursued in the proceedings, which included Mr James' substantial misappropriation from the business. His evidence when cross examined was that he did not know what he would have done had Giles Payne also advised him to settle in January 2004. These are all matters which go to contributory negligence and the matters argued on the cross claim."

164 In relation to the third matter, her Honour concluded that there had been contributory negligence on the part of DJZ. She said:

"[260] I am satisfied, in accordance with s 5R of the Civil Liability Act, that a person in DJZ's position, acting reasonably in the face of Mr Alexis' advice and knowing the difficulty which had arisen as the result of the 2001 deed and the 2003 agreement, would have accepted the advice given. Thereby the opportunity to pursue the proceedings would have been lost, but the costs incurred in the further pursuit of the litigation would have been avoided.

[261] Had Mr Alexis' advice been accepted, DJZ would have avoided a very substantial part of the losses here pursued. The impact of Giles Payne's advice may not be overlooked, but nor may DJZ's pursuit of Mr Palmieri's other interests, at the expense of its own. An assessment of DJZ's contribution requires a comparison to be made of the relative importance of the acts of the parties in causing the damage (see Podrebersek v Australian Iron & Steel Pty Ltd [1985] HCA 34; (1985) 54 ALR 529). DJZ contributed to the losses suffered after 18 December 2003, as the result of the costs incurred in the pursuit of the litigation. In accordance with s 35 of the Civil Liability Act, this must result in a reduction of that damage by 30%. This figure has regard to DJZ's negligence, as well as to the conclusions I have reached in relation to Mr Pritchard's and Giles Payne's contribution to the loss to which I will turn."

165 Mr Pritchard then raised three further issues, each of which he suggested should lead to a finding of no liability on his part. The first was that DJZ had failed to show that it had a prospect of enforcing the verdict which it had obtained against Mrs James. (There was no argument in relation to Mr James, because he had gone into bankruptcy and there were no prospects of any recovery from him.)

166 The second argument was that DJZ did not pay Mr Pritchard's fees and disbursements. They had been paid by Palmieri Developments Pty Ltd. Nor did it pay the sum agreed in the eventual settlement - the overall settlement - of the Court of Appeal proceedings. Palmieri Developments Pty Ltd later paid $400,000 of the payment agreed under this settlement and Enzo Pty Ltd paid the other $50,000. They were not parties to the settlement. The argument was advanced that there was no evidence of any loan agreement between the two Palmieri companies and DJZ in relation to all these amounts; especially the payment to the solicitor for his fees. Mr Pritchard argued, consequently, that DJZ had suffered no losses because the litigation had been funded by Mr Palmieri's other companies.

167 The third argument related to a further aspect of the overall settlement reached in December 2005. It was argued for Mr Pritchard that the result of the settlement arrived at was that DJZ could not prove that it had incurred any loss in relation to the orders made in favour of Mrs James in the Court of Appeal proceedings. The result was, so it was argued, that no order could be made in its favour against Mr Pritchard.

168 As to the first argument, her Honour accepted that the authorities allowed her to take "a broad brush" approach in relation to the resolution of DJZ's chances of recovery of damages from Mrs James: Murphy v Miller [1998] NSWCA 150 (BC9805397); Nikolaou v Papasavas Phillips & Co (No 2) [1989] HCA 11, (1989) 166 CLR 394. Her Honour said that, on the evidence in the case, she was satisfied that there were real prospects of recovery from Mrs James. She said:

"[266] The evidence established that Mrs James was a woman of some substance. She was a natural person, who had never been bankrupt. While there were liabilities to consider, she also had a 50% interest in a property at Rose Bay with Mr James, which was sold in January 2002 for over $3 million. She was one of two shareholders in a company which owned a unit sold in 2004 for $497,000. She also had a four sevenths interest in other property in the State acquired in 1994 and sold in 2009 for $725,000. This evidence does not leave open the conclusion urged."

169 In relation to the second argument, her Honour observed, at the outset, that, under the costs agreement with the solicitors, the costs liability had been that of DJZ. Mr Palmieri's evidence was that costs had been paid by Palmieri Developments Pty Ltd because DJZ itself had no assets or income. The only asset which DJZ had was its interest in the litigation. Mr Palmieri said it had always been his practice to draw funds from one of his companies for the benefit of his other companies. He never discussed these borrowings with his accountant, and they were not reflected in the relevant corporate records. However, he had always intended that if DJZ recovered the monies claimed in the Supreme Court proceedings, they would be used to repay the other companies.

170 The primary judge said that the evidence demonstrated that, while money used to pay what was agreed in the overall settlement was borrowed by other of Mr Palmieri's companies from third parties, those funds were then transferred to DJZ's cash management account. The $450,000 was then paid by DJZ by bank cheque. Her Honour found (at [272]-[273]):

"[272] I am satisfied that it must be inferred that the payments made resulted from an informal agreement or arrangement between the companies, Mr Palmieri being the controlling mind of each of them. The evidence in the case of the settlement moneys is stronger than that in relation to Mr Pritchard's fees, but the evidence permits the conclusion urged, namely that by his conduct Mr Palmieri intended that there be a loan between the companies. While the costs were paid direct by Palmieri's Developments Pty Ltd, rather than first being put into the hands of DJZ, that it was intended that the money be loaned rather than gifted to DJZ must be accepted in the face of Mr Palmieri's evidence.

[273] The result is that this part of Mr Pritchard's case must fail."

171 As to the third matter, her Honour usefully summarised the nature of the overall settlement in these terms (Red 176; primary judgment at [277]):

"Under the final settlement reached after the Court of Appeal's judgment and the commencement of the litigation over the joint venture properties, DJZ was required to make a payment to the James' interests in the sum of $450,000. In return the Palmieri interests received a release in relation to the costs of the Supreme Court and Court of Appeal proceedings ordered in favour of Mrs James and the $189,326, plus interest ordered to be paid to New South Head Road Nominees by it and WIT; the settlement of the proceedings brought by the James' interests in relation to the joint venture properties; and a release of any claimed interest in the joint venture properties. As a part of this agreement, Mr James was also released from bankruptcy, he owing a debt in relation to the orders made against him by Einstein J. His trustee was also a party to the agreement."

172 Her Honour accepted Mr Pritchard's arguments, it appears, that it had not been demonstrated that the settlement achieved was reasonable from the perspective of DJZ: see primary judgment at [286]-[287]. There was no finding that this had any impact on the chain of causation although it was a matter that influenced her Honour's conclusions as to item 3 of DJZ's damages claim. As will be seen later, this part of the claim was not allowed.

The cross claims and DJZ's case against Giles Payne and Mr McGovern SC

173 The primary judge examined these claims between [288]-[394] of her judgment: Red 179-210. I shall examine her Honour's findings in relation to the solicitors and barrister separately.

The case against Giles Payne

174 Her Honour began with an examination of the 'defence' advanced by Giles Payne in relation to the negligence and breach of contract action brought against it by DJZ and the cross claim by Mr Pritchard. This may be simply stated: Giles Payne's case was that, when first instructed by Mr Palmieri in January 2002, advice was sought in relation to a misleading and deceptive conduct claim anticipated to be brought against Mr James. Giles Payne maintained that there was evidence that Mr Palmieri had instructed them that he did not want their work to interfere with the proceedings "already on foot". It was argued that the sole focus of Giles Payne's work when initially instructed was the investigation and pursuit of a potential misleading and deceptive conduct claim. Giles Payne was not instructed to act for DJZ in the Supreme Court proceedings and Mr Palmieri never sought a second opinion on the conduct of the proceedings: Red 180; primary judgment at [292]. Essentially, Giles Payne contended that it had no instructions to consider the 2001 Deed.

175 The primary judge rejected this 'case' sought to be advanced by Giles Payne. She examined with some care the circumstances that evolved throughout 2002 and 2003. Her Honour noted that it was Mr Gilles' evidence that "from the outset he regarded the structure of the business to be complex, involving guarantees by the James and Christian interests for certain debts owed, as well as the sale and transfer of a number of units, since the establishment of the venture": Red 180; primary judgment at [294].

176 It appears that Mr Gilles first obtained relevant documents, including Mr Wales SC's brief, from Mr Pritchard in March 2002. Other documents were obtained by Mr Palmieri from Dennis Bowles, the solicitors for the Christian interests. The February 2001 Deed and Mr Wales' written advice about that Deed were not amongst those documents. In April 2002, Mr Gilles advised Mr Palmieri that he thought a misleading and deceptive conduct case had reasonable prospects of success. Mr Palmieri gave instructions to brief counsel and Mr Gilles then arranged to inspect the files that had been made available to him by Mr Pritchard and Mr Bowles. Further material was provided by Mr Palmieri, and through his accountant, Mr Osterberg. As to the situation which had developed, her Honour said (Red 181-182; primary judgment at [296]-[299]):

"[296] When Mr Gilles inspected Mr Pritchard's file, he obtained an unexecuted copy of the 2001 deed. Mr Pritchard advised that the deed had been entered. Mr Gilles also received instructions that the deed had been executed, but he never obtained an executed copy. In cross examination Ms Becker, a young solicitor who later came to have substantial carriage of the matter, also confirmed that she had been instructed by Mr Palmieri that the deed had been signed.

[297Mr Gilles' evidence was that he did not review the 2001 deed in any depth, because it did not appear to affect any right of Mr Palmieri to sue Mr James in respect of the misrepresentations which induced him to invest in the business. In cross examination he agreed, however, that on reading the deed he appreciated that it varied rights and liabilities under the 1999 deed, releasing the Christian interests from their guarantees. His evidence was that the importance of the deed, from his perspective, was that it allowed Mr Christian to assist in the case Mr Palmieri wished to bring. He did not give any consideration to the legal consequences of the deed, but he assumed that the unexecuted document which he briefed to Mr McGovern, was the document which was executed, although he was not certain.

[298] Giles Payne never obtained an executed copy of the 2001 deed until after these proceedings were commenced. For his part, Mr Gilles denied that if he had any doubt as to whether or not the 2001 deed had been executed and was binding, that he ought to have obtained a copy of it.

[299] It is apparent from the evidence of Mr Gilles and Ms Becker, that if there was any doubt as to the terms of the 2001 deed, a solicitor acting competently would have obtained a copy of the executed deed, given that by its terms, it varied the 1999 deed. The 1999 deed lay at the heart of the case being pursued in the Supreme Court proceedings. It was also relevant to the misrepresentation case which Mr Palmieri wanted to pursue, particularly in relation to the question of damages. In advising Mr Palmieri, it is unquestionable that consideration had to be given to the question of whether, and how, the 2001 deed varied the 1999 deed."

177 The next series of events reviewed by her Honour occupied the period between late 2002 and August 2003. During this period McGovern SC was briefed by Giles Payne to advise. It is necessary, in order to understand the sequence, to appreciate the involvement of McGovern SC during this period. It is therefore necessary to set out in full her Honour's recapitulation of the relevant events during this period. These commence at Red 182; primary judgment at [300]:

"[300] Mr Gilles and other employed solicitors worked on settling statements with Mr Palmieri, Mr Wilson, Mr Christian and Mr Osterberg and preparing counsel's brief. Mr McGovern was briefed to advise in December 2002. His instructions were to:

'(1) Consider all statements and all supporting documentation;

(2) Advise on the possibilities of success in an action against the James family or any of them for misleading or deceptive conduct pursuant to the Trade Practices Act;

(3) Advise on the prospects of success of and against the James family under any other laws in general;

(4) If Counsel considers that our client has reasonable prospects of success would Counsel please draft the appropriate originating process.'

[301] The brief included the pleadings in the Supreme Court proceedings; Mr Wales' brief from Mr Pritchard; and the undated and unexecuted copy of the 2001 deed, which Mr Gilles had obtained from Mr Pritchard. In Mr Pritchard's observations to Mr Wales, a concern about the impact of the 2001 deed was raised and advice sought.

[302] In January 2003, Mr Palmieri raised his concern about the possibility of losing the joint venture properties which he shared with Mr James, in any settlement of the Supreme Court proceedings. Mr Gilles discussed the effect of Mr James' bankruptcy with Mr McGovern in February and they met in conference on 28 February and then with Mr Palmieri on 3 March.

[303] By March 2003 it was known that it was Mr Alexis' advice that the Supreme Court proceedings should be settled on the basis that each side should bear their own costs. The evidence was that at this time Mr Palmieri's paramount concern was to protect his interests in the joint venture properties. An offer of settlement on a walk away basis was discussed at the 3 March meeting. Mr Palmieri had rejected that offer because of his concerns about the joint venture property.

[304] Mr Gilles had another conference with Mr McGovern and Mr Palmieri on 21 March, also attended by Ms Becker. Mr McGovern provided written advice in March and April 2003. His initial advice was that DJZ might have a misrepresentation claim; that it required further investigation; and that it should be pursued in the proceedings already on foot. He also advised that DJZ should be separately represented in those proceedings.

[305] Ms Becker's evidence was that at this time settlement negotiations were still on foot and that Mr Palmieri then sought advice as to how any settlement would impact on the joint venture properties. Mr Palmieri was DJZ's controlling mind. Ms Becker's evidence was that for practical purposes, no distinction was drawn between them, although it was kept in mind that a conflict of interest might arise between them, as well as with the other plaintiffs in the proceedings.

[306] While Ms Becker's evidence was that no actual conflict had arisen to this point between DJZ and other investors, by letter of 25 March, Giles Payne advised that DJZ's interests were coming into direct conflict with those of the other investors and required separate representation in relation to both the proceeding and settlement negotiations with the James' interests.

[307] Mr Gilles' evidence that Mr Palmieri did not respond, or provide the instructions sought, may not be accepted. Those instructions, to act for DJZ in the Supreme Court proceedings, were given by Mr Palmieri in writing and Ms Becker, who by then had primary conduct of the matter, acted to implement those instructions.

[308] Mr Palmieri's instructions to Giles Payne then were that he wanted to recover what he had invested in the real estate business and he did not want to lose the joint venture properties to the other investors, in any settlement of the Supreme Court proceedings. There was also consideration given to whether the SRUT was overvalued, a matter about which DJZ's interests and that of other investors were thought to potentially diverge.

[309] The nature of Giles Payne's retainer altered when instructed to represent DJZ in the proceedings. Giles Payne took various steps in pursuit of the new instructions it had received to represent DJZ in the proceedings, but finally never entered an appearance, because the nature of its retainer then altered again.

[310] Mr McGovern was briefed with further documents in relation to the 2001 proceedings. Ms Becker's evidence was that a forensic accountant's report was obtained on behalf of the investors, which addressed the value of the debt owed to them by the James and Christian interests. She understood that partly as a result of this report, Mr McGovern formed the view that a claim in respect of the over inflated value of the units, was in reality a part of the Trade Practice Act 1974 (Cth) claims and whether or not there was misleading and deceptive conduct, was tied up with the question of the valuation the units.

[311] Mr McGovern was then briefed to draft documentation necessary for an application for DJZ to be separately represented and to pursue misleading and deceptive conduct claims. There was another conference on 15 April, which Mr Gilles also attended. Afterwards Mr McGovern advised in writing, amongst other things:

'The present Supreme Court proceedings seek to obtain orders in reliance upon the guarantee and indemnity obligations contained in the deed. In conference Mr Palmieri indicated that if the two bank debts of $1,040,000 and $300,00 payable to Macquarie Bank had been honoured by James Christian Pty Ltd and in default by the indemnifying parties, DJZ would had had [sic] no complaint. In fact the present proceedings in substance seek orders requiring the discharge of those two debts and require the bringing into account of monies fraudulently misappropriated from Chris Burke Real Estate Pty Ltd [sic], bank interest and reimbursement of monies paid to Macquarie Bank under the loans that should have been paid by the guarantor or the indemnifying parties.

So understood it seems to me that the present Supreme Court proceedings, relying as they do upon the deed of 1 July 1999, offer the most reasonable prospect of being able to secure the reasonably arguable claims of Surf Road Nominees Pty Ltd and the investors. Essentially the deed of 1 July 1999 was intended to govern the relationship between the parties and to provide a mechanism for creating rights of guarantee and indemnity. Although there is some suggestion that the investors believe that they were guaranteed a monthly income of $2,000 by way of distribution from the Unit Trust, the terms of the Trust Deed do not enable that to be said to be a contractual promise. Relief might be available under the Trade Practices Act or the Fair Trading Act for misleading or deceptive conduct, but the usual rule is that the damages recoverable are 'detriment' damages. I [sic] other words one needs to ascertain how much worse off the investors were by reason of acquiring the units on the basis of the representation. That in turn would involve an analysis of whether or not the investors paid too much for the units in the Unit Trust. That would involve accounting and valuation evidence to determine the true value of the units in the Unit Trust on the assumption of actual return for a month rather than the fixed figure of $2,000 per month. I understand that my instructing solicitor will now obtain instructions from DJZ/ Mr Palmieri to investigate that aspect of the claim. The other reasonably arguable claims to which I have earlier referred and which derive from the Deed are already before the court.

I understand that Mr Palmieri and DJZ wish to obtain separate representation in the Supreme Court proceedings. Both the company and Mr Palmieri have been named as parties either on the claim or the cross claim and they are of course entitled to be separately represented. This may become important in the even that settlement negotiations occur.'

[312] Ms Becker's evidence was that she understood at this time that the 2001 deed had varied the 1999 deed as to the liabilities of the Christian interests. While she had not seen an executed copy of the 2001 deed, she assumed that it may have been enforceable. She understood that the deed contained a covenant not to sue, but could not remember whether that was a view which had been expressed by either Mr McGovern or Mr Gilles. The 2001 deed was not referred to in Mr McGovern's advice. There was no evidence that Mr McGovern's letter was provided to Mr Palmieri.

[313] Ms Becker could not remember herself raising the 2001 deed, with either Mr McGovern or Mr Gilles, at this time. She denied that in considering whether there was any inconsistency between the claimed misrepresentations and the 1999 deed, consideration had to be given to the way in which that deed was amended by the 2001 deed. She explained that this was because no view was ever formed that the version of the 2001 deed which they had was the form of the executed deed. In her view, the subsequent actions of the parties did not have a great significance to the precontract representations. Nor did the 2001 deed seem to be a focus or question in the ongoing proceedings and so, she did not take the deed further.

[314] For his part Mr Gilles also appreciated that no reference was made by Mr McGovern to the 2001 deed, but he raised no query about that with Mr McGovern. In cross examination, he accepted that he did not know whether Mr McGovern had considered the deed and agreed that it was possible that he had overlooked it. Mr Gilles denied, however, that a competent solicitor would have ensured that counsel had taken the 2001 deed into consideration in the advice he had given.

[315] I am not able to accept Mr Gilles' view. I am satisfied that at a time when Giles Payne had accepted instructions to separately represent DJZ in the proceedings and was actively pursuing those instructions, that a solicitor acting competently would have ensured that the 2001 deed had not been overlooked by counsel advising on the matters dealt with by Mr McGovern in his written advice. Mr McGovern's omission of any reference to the 2001 deed on its face suggested that a deed which had varied the 1999 deed had been overlooked. A solicitor acting competently, having noticed the omission, would have raised it with counsel.

[316] Mr Gilles' evidence was that he reviewed the letter and then spoke to Mr Palmieri and that if he had disagreed with anything which Mr McGovern had said, he would first have spoken to him. Mr Gilles' evidence was, nevertheless, that he never considered it to be part of his retainer or duty to reconsider the issues in the Supreme Court proceedings, or to provide any advice on the merits or prospects of success of the claims being there advanced.

[317] That evidence revealed the error into which Mr Gilles fell, given the way in which Giles Payne's retainer had altered, from that which it at first had from DJZ and how it then altered further.

[318] Ms Becker's evidence was that on about 24 April 2003 she further discussed with Mr McGovern the question of DJZ's separate representation in the proceedings. Mr Gilles then met again with Mr Palmieri and Ms Becker that day, when it was decided that DJZ would not be separately represented in the Supreme Court, but Giles Payne would remain on standby, ready to appear, if the need arose.

[319] It was agreed that there was no utility in pursuing separate representation for DJZ, thereby incurring additional costs and duplication of work, with no real advantage, given that Mr Pritchard was still representing the other investors. It was agreed that Giles Payne would keep a watching brief and would provide advice when it was sought by Mr Palmieri.

[320] Giles Payne subsequently advised Mr Palmieri on specific issues and developments in the proceedings before Einstein J, when raised by Mr Palmieri.

[321] It follows that not only was the 2001 deed relevant to the matters on which Giles Payne was initially instructed to advise, once Giles Payne accepted instructions to act for DJZ in the Supreme Court proceedings, it unquestionably had an obligation to consider the issues being pursued in those proceedings. Later, when accepting a watching brief and providing advice from time to time on issues which arose in those proceedings, Giles Payne also unquestionably had an obligation to consider what was being pursued in the proceedings, in the context of the specific issues about which advice was being sought. All of its advice had to be given in the context of instructions that the 1999 deed had been varied by the 2001 deed, but it appears that consideration to the terms and effect of that deed was never given."

178 Her Honour took up the situation as at September 2003 (Red 188-192; primary judgment at [323]-[338]):

"[323] In September Mr Palmieri was concerned about the distribution of any proceeds of the proceedings, if they were successful. Ms Becker's evidence was that she then considered that Giles Payne had instructions to protect Mr Palmieri's personal interests, particularly in relation to the joint venture properties. Mr Palmieri subsequently successfully pursued the aquisition of the interests of the other investors in the proceedings.

[324] Further advice was given by Giles Payne by letter of 1 October 2003 and on 22 January 2004. One of the issues on which Giles Payne advised was whether a release given by the plaintiff in favour of Mr Christian in the 2001 deed, was binding between Mr James and Mr Christian. Giles Payne still did not have an executed copy of the deed. Ms Becker understood that all parties in the proceedings considered that the release contained in this deed was a covenant not to sue. Despite the advice sought, she did not consider whether the effect of the 2001 deed could be to discharge the James' interests from any of their obligation under the 1999 deed. Nor did Mr Gilles, even though they were aware that from the outset, Mr Pritchard had sought advice from Mr Wales as to a potential difficulty with the deed in DJZ's pursuit of the proceedings. I am satisfied that a solicitor acting competently would have given consideration to this potential difficulty.

[325] In October Giles Payne was also instructed to advise on the effect of a cross claim brought by Mr and Mrs James and whether this would result in a reduction of damages in favour of the plaintiffs. It also advised about how any damages award should be distributed between the five plaintiffs. Written advice was given in October, which was settled by Mr Gilles, which advised that:

'The Deed of Release between Chris Burke & Co and Michael Christian operates to stop Chris Burke & Co from taking action against Michael Christian but on its face it does not act as a bar to Tass James and/or his family taking action to recover against Michael Christian. There is, however, some case law on the point of joint indemnities which clouds this assumption.

If an award of damages is made in your favour, the likelihood is that it would be made against Tass James and/or Janet James. The James' would then be required to pay Chris Burke & Co.

Any recovery by Tass against Michael would likely be the subject of a separate and distinct award as between Michael and Tass only.

The end result is that any claim Tass may have against Michael should not affect any award made in favour of Chris Burke & Co unless the Deed of Release given by you to Michael Christian and his interests is interpreted otherwise.'

[326] It was accepted for Giles Payne that even though it was not retained to advise DJZ about all of the matters in respect of which Mr Pritchard was acting, a duty to warn when facts came to their attention, which put them on notice that DJZ's interests were endangered or put at risk, did oblige them to speak, in order to draw DJZ's attention to the concern and the need to obtain further advice (see David v David at [76].) This depended on a real and foreseeable risk that the client will suffer economic loss, if the solicitor does not speak out and the client is vulnerable to suffering the loss, if the solicitor fails to do so. (Hawkins v Clayton [1988] HCA 15 ; 164 CLR 539; Waimond Pty Ltd v Byrne, Heydon v NRMA Ltd (1989) 18 NSWLR 642.)

[327] Given that Giles Payne still had no executed version of the 2001 deed and had never considered what impact it might have on the pursuit of DJZ's rights under the 1999 deed, the difficulty with the approach adopted to the advice given in October is apparent. Despite being aware of the potential difficulty with the 2001 deed, raised by Mr Pritchard with Mr Wales, when themselves asked to advise about that deed, the advice Giles Payne gave did not satisfy the obligation to warn DJZ about the potential difficulties which the 2001 deed posed for the ongoing litigation, even when instructed to give advice about the deed itself. Not even the problem on which Mr Wales had advised was adverted to. That Giles Payne ever gave that difficulty any consideration is not apparent.

[328] Mr Palmieri also then sought advice on the proposed sale of the business in October 2003. Giles Payne declined to act unless they were provided with the relevant documents. They were not provided and Mr Pritchard was instructed to act. The November 2003 sale agreement eventually resulted.

[329] Prior to this, Ms Becker had attended a meeting of Chris Burke & Co Pty Ltd directors with Mr Palmieri in October. She met with him beforehand to discuss Mr Palmieri's concern about the joint venture properties and how they might be affected by a dispute which had arisen with Mr Sicuro, one of the other investors, over money he was claiming he was owed. Mr Palmieri was then concerned that if Mr Pritchard was instructed to settle the proceedings, Mr James might use his interest in the properties in the settlement. Ms Becker attended the meeting in order to persuade other investors not to vote against Mr Palmieri.

[330] The meeting was heated, described by Ms Becker as having no order and no determination as to which company, trust or entities the meeting related to. Amongst other things, the sale of the business to the Christians was discussed. Ms Becker advised that before any sale, the company's business records needed to be brought up to date. Once that was done, Giles Payne could advise on a sale, but would need to be instructed with all of the documentation. The company's records were then in a state of disarray. Giles Payne finally refused to act because of the state of the company's records.

[331] Mr Palmieri then instructed Mr Prichard in relation to the sale. The draft sale agreement was reviewed by Ms Becker at the end of October. After considering the draft, she declined to advise, without the underpinning documentation being provided. The effect of this agreement was what was later relied on by Mr and Mrs James by way of amended defence in the Supreme Court proceedings.

[332] Those proceedings were initially heard from 15 to 19 December 2003. Further settlement negotiations pursued during the course of the hearing failed. On 18 December, Mr Alexis and Ms Sainsbury, then acting for DJZ in the litigation, advised about the possible effect of the 2001 deed and the 2003 sale agreement and that Mr Palmieri might have a claim against Mr Pritchard, if a defence by Mr and Mrs James, relying on the agreement succeeded. Mr Pritchard advised Mr Palmieri to seek independent advice.

[333] Mr Palmieri consulted Giles Payne. He sought advice about settlement of the proceedings on 12 January. A settlement on the walk away basis offered by Mr James had already been rejected, despite Mr Alexis' advice.

[334] Giles Payne were instructed with some parts of the transcript of the hearing, as well as advice Mr Pritchard had obtained from Watkins Tapsell about a possible Trade Practices Act claim. On Ms Becker's evidence, they were aware of Mr Alexis' advice about the problems with the sale agreement and Mr Pritchard's apparent negligence, but were not provided with a copy of Mr Alexis' written advice, which discussed the problems flowing from the 2001 deed and the 2003 sale agreement. Giles Payne had seen a draft of the 2003 sale agreement and had already advised on the 2001 deed. On their instructions, Mr Palmieri's desire to acquire Mr James' interests in the joint venture property, remained his driving concern, in any settlement of the proceedings.

[335] Ms Becker's notes show that difficulties caused by either the 2003 sales agreement or the 2001 deed were not discussed at the meeting on 12 January, when she met with Mr Gilles and Mr Palmieri, when the settlement of the proceedings was discussed. It was Ms Becker's evidence that she had not earlier given any detailed consideration to how the 2001 deed might have varied the rights and liabilities of the parties to the 1999 deed, but she agreed in cross examination that she had been asked to review that deed in September 2003, at a time when Mr James had filed a cross claim against Mr Christian. Mr Palmieri always referred to this deed as the covenant not to sue. His question in September had been whether, in the investors agreeing not to sue Mr Christian, Mr James would be stopped from recovering from Mr Christian.

[336] The 22 January letter was drafted by Ms Becker and settled with Mr Gilles. This advice gave no consideration to any potential problems flowing from the February 2001 deed, or the 2003 sale agreement. Nor did the letter deal with Mr Alexis' advice. While hedged with qualifications, the advice given was that DJZ should proceed.

[337] The letter noted that advice had been sought as to "whether or not we thought you should proceed". It was noted that "our initial advice was that you have brought that matter this far at considerable expense, the expense may very well be thrown away if you were to settle on the terms suggested by James, which were far less favourable than what you require". The worst and best case scenarios were outlined; observations were directed to what the transcript of the proceedings showed; and while it was said that comprehensive advice could not be given, it was observed that "it appears to us that your matter is progressing reasonably and along expected lines".

[338] Various observations were made as to Einstein J's apparent reactions to various evidence and how various witnesses held up to cross examination. It was then advised that:

'It seems to us that any decision made by you to continue the case will have to be made on the following basis:

(1) Your impression of how the case is proceeding, formed by the impressions of your counsel and the instructing solicitor from Paul Pritchard's office; and

(2) Whether or not you think Mr James is likely to agree to your minimum terms of settlement in this matter.

From what you have said, it does not appear that Mr James will agree to your minimum settlement conditions and as such your only other options would be:

(1) to agree to whatever settlement he proposes (subject to reasonable negotiation by your counsel); or

(2) continue with the case and take your chances with the judge.

At this state, it appears that the bulk of the costs have been incurred by you and on balance, from a costs perspective, you may as well continue with the case.'"

179 The primary judge then observed (at [339]) that, by this advice, Giles Payne "had encouraged DJZ to pursue the proceedings without advising as to the risk about which Mr Alexis had advised". It appears that the notes kept of this meeting showed that there was at the time consideration given to DJZ later pursuing an action in negligence against Mr Pritchard, if it failed in the case it was pursuing against the James parties. Her Honour also observed that advice was given later in January by Ms Becker as to a notice to produce. The effect of the documents sought on the guarantees in the 1999 Deed was raised for advice, but still no advice was given by Giles Payne that any potential difficulty was caused by what had been agreed.

180 Her Honour continued (Red 194-195; primary judgment at [341]-[343]):

"[341] I am well satisfied that a solicitor acting competently in the circumstances would have given such advice. A solicitor has a duty to explain risks, even unusual ones, which are reasonably foreseeable (see Macindoe v Parbery). The reality was that the risks which Mr Alexis had identified as arising from the 2003 sale agreement were known to Giles Payne, but no consideration was given to them, or the consequences of DJZ not accepting the advice to settle the litigation. One obvious potential consequence related to any claim later made against Mr Pritchard. More directly, no advice was given as to the impact of the agreement on DJZ's prospects in the proceedings and whether, as a consequence, Mr Alexis' advice to settle the proceedings ought to be accepted.

[342] Ms Becker explained that her principal concern then was that in selling the business and transferring shares and units, Mr almieri had no idea of what he had done, because he had no idea of the obligations that the business or the corporate entities surrounding it were going to be taking on or the rights they might be relinquishing. That concern was inconsistent with the advice given that the litigation should be pursued, contrary to the advice Mr Alexis had given. This was a concern which ought to have driven advice being given as to the effect of what had been agreed in the 2003 sale agreement upon the 1999 deed and the risks resulting from the rejection of Mr Alexis' advice.

[343] I am satisfied on the evidence that a solicitor acting competently, would have identified and advised on the potential problems on which the Court of Appeal's judgment eventually turned. Plainly there were differing views available as to the effect of what had been agreed. The evidence that Mr McGovern immediately appreciated the difficulty which the 2003 sales agreement gave rise to, when the matter was raised with him by Mr Fitzpatrick in December 2003, supports the conclusion that a solicitor acting competently would have identified and advanced on that issue. So does the view which those acting for the James' interests had come to; the view to which Mr Alexis came; and Mr Pritchard's concession that the problems with the 2001 deed and the 2003 agreement were ones which could have been dealt with in drafting the 2003 agreement, had he given the matter any thought. A similar concession was not made by Mr Gilles or Ms Becker as to their own failures. The problem was that like Mr Pritchard, Giles Payne also failed to give the effect of the 2001 deed and the 2003 sales agreement on the guarantees provided by the 1999 deed any thought, despite what they knew of Mr Alexis' advice."

181 Having made these findings of fact, her Honour considered the various arguments advanced by Giles Payne. Her Honour found that none were successful. Once again, it is necessary to set out her Honour's conclusions in full (Red 196-200; primary judgment at [349]-[362]):

"[349] Having accepted instructions from DJZ to represent it separately in the proceedings; subsequently to keep a watching brief on the matter; then to provide advice in relation to the 2001 deed; then to advise on the question of settlement, after the James' interests came to rely on the 2001 deed and the 2003 sales agreement, a duty to consider and advise DJZ of the risk that arose in the proceedings from that reliance, certainly arose.

I am unable to accept the submission that in the circumstances, there was nothing about the independent advice which Giles Payne was instructed to provide, which could have caused them to have "stumbled across" the problem which the Court of Appeal ultimately found.

[350] Giles Payne was content to be engaged for the very purpose of looking over the shoulders of the other legal advisers representing DJZ in the proceedings, in order to provide advice in relation to those proceedings when sought by Mr Palmieri and to stand by, ready to separately represent DJZ, if the need arose. In giving advice about what course should be taken by DJZ in the proceedings when it was sought from time to time, if it became apparent, or ought to have done, that DJZ was at risk, even because of matters going beyond the scope of its retainer, then Giles Payne was obliged to advise DJZ of that risk and if necessary, of the need to obtain further advice.

[351] On the evidence, advice about the risks posed by the terms of the 2001 deed and the 2003 agreement, ought plainly to have been given, particularly when advice about settlement was sought after Mr Alexis gave his advice in December 2003. While Giles Payne relied on Mr Palmieri's evidence, that he could not then remember seeking Giles Payne's advice about any settlement, the documentary evidence shows that such advice was sought and provided. Mr Palmieri's instructions to Mr Alexis and Giles Payne were the same, he wanted to achieve a position where the James interests gave up their claim in the joint venture properties.

[352] Undoubtedly what the standard of care required of Giles Payne, must be determined in the circumstances in which Mr Palmieri and DJZ came to instruct a second firm of solicitors to advise on the pursuit of the proceedings and its settlement. Given that DJZ was seeking Giles Payne's advice in circumstances where it was one of a number of plaintiffs in the proceedings, all being represented by Mr Pritchard, that DJZ was vulnerable, as discussed by the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; (2004) 216 CLR 515 at [23], must be accepted. DJZ was plainly not able to protect itself from any want of reasonable care by Giles Payne, in giving the advice sought of it.

[353] That it was likely that there was a conflict of interest between Mr Palmieri and DJZ at that point, was very apparent. That conflict was one which Giles Payne was alert to. Mr Palmieri instructed Giles Payne to provide its advice in relation to the settlement which Mr Alexis had urged, after the James' interests had placed reliance on the 2001 deed and the 2003 sales agreement to defend the claims DJZ was advancing in relation to the 1999 deed. Mr Palmieri instructed Giles Payne both as to his minimum terms and those of the James' interests and sought advice as to what he should do. That Giles Payne then failed in its duty of care in not considering and advising DJZ of the risks which the 2001 deed and the 2003 sales agreement posed to its claims, on which Mr Alexis' advice rested, must be accepted.

[354] On Mr Gilles and Ms Becker's evidence, no consideration was ever given to the effect of the 2001 deed or the 2003 sales agreement on the claims being advanced in the proceedings. Whether or not they had the James' amended defence was not entirely clear. What was clear was that given its retainer at the time, when giving advice on the settlement of the proceedings, it was fundamental that Giles Payne ensure that it was giving its advice in the context of the current pleadings. A solicitor acting competently in advising on settlement would have ensured that it had those pleadings.

[355] That the 2003 sales agreement had been entered was well known to Giles Payne, who had been asked, but had refused, to act in relation to the transaction, or to advise on a draft of that agreement, before it was entered. That they had seen Mr Alexis' December letter was not apparent, but it was Ms Becker's evidence that she was aware of what Mr Alexis had advised. That is consistent with the notes in evidence. A solicitor acting competently in the circumstances would have ensured that they had an understanding of the basis of on which that advice rested and would have addressed that matter in their own advice.

[356] The advice which Giles Payne gave was said not to be comprehensive, given that it had not been provided with sufficient information. Having accepted instructions to advise, however, in circumstances where it was known that Mr Palmieri had been repeatedly advised by Mr Alexis to settle, Giles Payne had to proceed in the context of the information which it did have, relevant to that advice. That required consideration to be given to the 2001 deed and the 2003 sales agreement. Giles Payne's failure in this regard was revealed by the evidence that when Mr McGovern was approached to act for DJZ in December 2003, when what had been agreed in the 2003 sales agreement was raised with him, he appreciated the potential problem and immediately commented on it, even though he could not accept the brief.

[357] Had there been any doubts as to what was driving Mr Alexis' advice, a solicitor acting competently ought to have sought instructions as to its basis. Those instructions could easily have been provided. Mr Palmieri had Mr Alexis' letter. Giles Payne could have spoken to Mr Alexis.

[358] In the circumstances in which Giles Payne accepted instructions to advise in relation to the settlement of the ongoing Supreme Court proceedings in January 2004, that a solicitor, acting competently, would not have considered whether that the 2001 deed and the 2003 the sale agreement posed difficulties for the litigation, or at least potential difficulties, may simply not be accepted.

[359] Had necessary consideration been given to the 2001 deed and the 2003 sales agreement, it is apparent that quite different advice would have been given by Giles Payne, to that which was given.

[360] Whether such advice would have been accepted by Mr Palmieri, given his aims in relation to the joint venture properties, is more difficult judge. Mr Palmieri's evidence that he was concerned both about DJZ's losses, which he was pursing in the litigation, as well as the joint venture properties, must be accepted. He said that he did not know what he would have done had Giles Payne advised him to settle. In that context, that there must have been a real prospect that he would have accepted advice recommending a settlement, had both Mr Alexis and Giles Payne given DJZ advice as to the difficulties posed for the litigation by the 2001 deed and the 2003 agreement, must be accepted. While Mr Palmieri was a businessman who was content to reject legal and other advice, when he judged it appropriate to do so, given his commercial interests, he was also an astute and successful businessman. I doubt that he would have rejected advice to settle, had all of his legal advisers joined in giving DJZ that advice.

[361] Giles Payne had no advocate's immunity from suit in the circumstances in which it was advising DJZ. It never took on the role of advocate. That situation does not support the submissions advanced for Giles Payne as to the limited role which it played in advising DJZ. It accepted instructions to provide advice in relation to ongoing proceedings in which other lawyers were already acting. That did not limit its responsibilities in relation to the advice given. I am satisfied that in advising on settlement in January 2004, Giles Payne was negligent and acted in breach of its retainer, by failing to consider and advise DJZ about the potential impact of the 2001 deed and the 2003 sales agreement on the case it was pursuing in the Supreme Court.

[362] But for the conclusions which I have reached in relation to the fact that the Court of Appeal's judgment did not turn on the 2001 deed, I would have concluded that Giles Payne was earlier partially responsible for the loss suffered by DJZ. Under s 35 of the Civil Liability Act consideration must be given to what is just, having regard to Giles Payne's responsibility for the damage suffered as the result of tis negligence, by way of comparison to Mr Pritchard's reasonability for the damages which flowed from his negligence. Given the conclusions which I have reached, that Giles Payne were also responsible for the losses suffered by DJZ from 12 January 2004, in relation to the costs thereafter incurred, must be accepted. I assess their contribution at 50%."

The case against Mr McGovern SC

182 A number of the necessary factual matters have already been mentioned. The primary judge summarised the paperwork which Mr Govern SC had been provided with as including the Supreme Court pleadings, Mr Wales' brief, and a copy of the 2001 Deed, wrongly described in the observations as being a deed entered in "July 2001". In fact, the document provided was unsigned and undated, bearing only a fax transmission header dated 13 July 2001. Other documents had been provided to senior counsel which suggested that such a deed had been entered, including the letter from Dibbs Barker which, on behalf of the Christians, disputed the purported exercise of the power of sale of the units referred to in the May 2001 notice. In light of this, her Honour observed:

"[364] When initially advising DJZ, Mr McGovern was considering a possible misleading and deceptive conduct claim in the context of the representations it was claimed had been made prior to the entry into the 1999 deed. He agreed in cross examination that he gave consideration to that claim, in the context of the terms of that deed and any subsequent events which could have had an impact on such a claim. That being so, it is apparent that the 2001 deed, which purported to vary the 1999 deed, including as to the guarantees provided by the Christians under the deed, was a necessary consideration. The effect of the payment of some $287,500 to SRUT by the Christian interests, by way of contribution to capital under the 2001 deed, as well as other aspects of the agreement there reached, also required consideration, particularly in relation to the question of damages.

[365] While the version of the 2001 deed with which Mr McGovern was briefed was incomplete, undated and unsigned, the submission that Mr McGovern had not been briefed with any February 2001 deed may not be accepted. If Mr McGovern had any doubts that a deed in the terms of the 2001 deed with which he was briefed had been entered, as he had been instructed, like Giles Payne, he should have sought a copy of the executed deed. Competent practice did not permit Mr McGovern to proceed on the basis of an assumption that such a deed had not been entered, or that a deed in different terms had been entered in 2001, given his instructions.

[366] The terms of Mr McGovern's brief are earlier set out. In his first advice he recommended that DJZ should be separately represented in ongoing proceedings. That advice was accepted. Mr McGovern also advised that there should be further investigation as to the value of the units. That was pursued. It was at this time that his retainer altered.

[367] Mr McGovern was then briefed to draft documentation necessary for DJZ to be separately represented in the ongoing proceedings and to pursue the misleading and deceptive conduct claim in those proceedings. He then asked for and was provided with a copy of the documents filed in the Supreme Court. He found that those claims relied on the 1999 deed. No defence or cross claim relied on the 2001 deed and there was no suggestion that it would be relied on. Mr McGovern later gave written advice in the terms earlier set out, including:

'So understood it seems to me that the present Supreme Court proceedings, relying as they do upon the deed of 1 July 1999, offer the most reasonable prospect of being able to secure the reasonably arguable claims of Surf Road Nominees Pty Ltd and the investors. Essentially the deed of 1 July 1999 was intended to govern the relationship between the parties and to provide a mechanism for creating rights of guarantee and indemnity.'

[368] Mr McGovern explained in his evidence that he gave this advice in order to reassure Mr Gilles and his clients that on the pleadings as they then stood, and on the evidence filed and served, DJZ had reasonable prospects of success. It was argued that this advice went beyond the scope of his retainer and that it was in any event, correct."

183 Her Honour took issue with the position taken by Mr McGovern in his evidence. She continued:

"[369] Even accepting that Mr McGovern had decided to provide advice which went beyond the scope of his retainer, which I do not, it is apparent that the 2001 deed was a necessary consideration in the advice which he gave, given Mr McGovern's instructions that the 1999 deed had been later varied by that deed, and what DJZ was pursing in the proceedings, which he advised had reasonable prospects of success. Any consideration of DJZ's prospects in the proceedings required a consideration of the impact, if any, of the 2001 deed. Having decided to offer this advice, Mr McGovern was required to exercise necessary skill and care in the advice which he gave.

[370] Mr McGovern's evidence was that before he provided this advice, he had closely considered the 1999 deed, noting both the guarantee and indemnity and had revisited certain relevant texts and authorities. He also noted that no one had pleaded that the defendants were relieved of their obligations under the 1999 deed, because of the entry into the 2001 deed. It followed, in his view, given affidavit evidence with which he was also briefed, that the claims advanced by the plaintiffs in the proceedings were reasonably arguable. In his opinion, without further amendment of the pleadings, no claim being advanced was doomed. The possibility of pleading amendment to rely on the 2001 deed, was not addressed.

[371] Mr McGovern explained that his view initially was that he needed to have some understanding of what had happened to the units in the unit trust, in order to consider the question of damages for the Trade Practices Act claim. The 2001 deed, which contained an agreement not to sell the units held by the Christian interests, did not marry up with the 1999 deed and a notice of the exercise of the right of sale provided by that deed given in May 2001. Mr McGovern's evidence was that the 2001 deed could be considered to be a covenant not to sell. He thus needed to understand what had happened.

[372] Mr McGovern was not certain whether he had read Mr Wales' advice about the 2001 deed, before he gave his own advice. He was briefed with Mr Wales' brief, which included observations from Mr Pritchard, calling for advice in relation to a potential difficulty created by the 2001 deed. Mr McGovern had read this brief.

[373] Mr McGovern's evidence was that he asked Mr Palmieri at their conference, if he could tell him anything about the deed which had been entered in 2001. Mr Palmieri could provide no useful information. Despite this, Mr McGovern suggested no further investigation to establish what had happened in relation to the 2001 deed, even though he considered that what had happened to the units held as security under the 1999 deed, to be relevant to the potential Trade Practices Act claim he was advising on. Had that investigation been suggested, Mr McGovern's instruction that the 2001 deed had been entered in the terms briefed would have been confirmed. Instead, Mr McGovern proceeded on the basis of certain incorrect assumptions.

[374] Mr Palmieri also told Mr McGovern that the Christians' units had been "taken", when asked about any sale of those units under the 1999 deed. From this, Mr McGovern assumed that the units had been sold as the result of the exercise of rights under the 1999 deed. This was despite the correspondence from the Christians' solicitors, disputing the right to sell, given the terms of the 2001 deed, with which he had been briefed.

[375] Mr Palmieri also said that Mr James' shares had been taken. Mr McGovern assumed from this that Mr Palmieri was referring to the units in the SRUT, which beneficially owned the business, because Mr James' company, New South Head Nominees Pty Ltd held units, not shares, in the Trust. Mr McGovern came to the conclusion that there had been a "wash sale" of the units in the Trust under cl 8 of the 1999 deed. This would not have involved any discharge of the James' interests. That is not, however, what had occurred.

[376] Mr McGovern's conclusions rested on Mr Palmieri's instructions at the meeting. His evidence was that Mr Palmieri did not then have any facility in reading English, but he was an experienced businessman. Mr McGovern did not show him the 2001 deed with which he had been briefed. When he asked him about any deed entered in 2001 and Mr Palmieri could provide him with no information, Mr McGovern then simply directed all of his further advice to the 1999 deed. Mr McGovern explained that he proceeded as he did, because he considered that as the pleadings in the Supreme Court made no reference to the 2001 deed, the exercise of the power of sale must have taken a different form. He concluded that whatever had happened in respect of the 2001 deed, it was of no consequence to what he had to advise on.

[377] It was argued that Mr McGovern was entitled to proceed on the reasonable belief to which he had come, given what Mr Palmieri had told him."

184 Her Honour stated (at [378]) that she was unable to accept the submission made on Mr McGovern's behalf. She took the view that the stated belief on Mr McGovern's part, resting as it did on the little Mr Palmieri had been able to tell him about what had happened in relation to a deed entered into 2001, was not a satisfactory basis upon which competent legal practice permitted such advice to be based. Her Honour continued:

"[379] Mr McGovern's evidence was that he himself did consider the law in relation to guarantees, when giving his final advice. When he gave his evidence, he had seen Mr Wales' advice in relation to the 2001 deed. When he first saw that advice is not clear, but it was apparent from that advice that Mr Wales had referred to a deed in the form of the 2001 deed with which Mr McGovern was briefed. Mr Wales seemingly had no difficulty in proceeding on the basis of an instruction that a deed in that form had been entered. Mr McGovern's evidence was that whenever he saw the advice, he agreed with it, but in his own advice he had made no mention of any risk that the 2001 deed could give rise to potential arguments, which could be used against DJZ in the proceedings on foot.

[380] Indeed, Mr McGovern's April advice made no reference at all to the February 2001 deed. The chronology which he had prepared for himself, as was his practice, also made no reference to this deed. His evidence was that it was his practice to exclude any undated document from such a chronology and to flag it in his brief. When he came to review the facts, he took account of such documents, in order to work out how, if at all, they might fit into the factual background.

[381] In so approaching his instructions and coming to the conclusions which he reached, Mr McGovern obviously erred. By its terms the 2001 deed had amended the 1999 deed. His instructions were that such a deed had been entered. The fact that Mr Palmieri could tell him nothing more about the deed entered in 2001, was not a sound basis for concluding that no such deed had been entered. Mr McGovern knew that the Christian's lawyers had asserted that there was no right of sale under the 1999 deed, given the terms of a 2001 deed and that Mr Wales had been asked to advise on a potential problem posed by such a deed. Yet Mr McGovern took the view that there was no necessity to further investigate whether his conclusion that there had been a sale effected under the 1999 deed was correct.

[382] Mr McGovern's advice, that there was no claim being advanced in the Supreme Court proceedings which was doomed to fail, rested on the fact that under the pleadings, no reliance was placed on the 2001 deed. An obvious explanation for the plaintiffs not referring to the deed, was the potential problems it might cause for their claims. An obvious explanation for the defendants not referring to it, was that they were not aware of its existence, not being parties to the deed.

[383] Mr McGovern did not consider or advise in relation to any available reliance on the 2001 deed, even though on his instructions a deed in those terms had been entered and it had been considered by Mr Pritchard, that the deed raised a potential problem. Nor did he consider what impact that might have had on the misrepresentation claim. The view which he reached was that the units must have been dealt with by some mechanism other than the 2001 deed, namely the 1999 deed. Neither this assumption, nor the 2001 deed itself, was mentioned at all in Mr McGovern's April advice, nor it would seem at the conference that day, as posing any potential problem, or requiring any further investigation or consideration. Mr McGovern did not even suggest that an executed version of the 2001 deed be obtained, or any other document by which the transaction which he assumed must have occurred by some other means, had been implemented. The advice which he gave Mr Palmieri in conference was directed simply to the operation of the 1999 deed.

[384] In December 2003, Mr McGovern was approached about appearing in the Supreme Court proceedings, by Mr Fitzpatrick, but he was not free to accept the brief. Mr Fitzpatrick then mentioned that an agreement had been entered in November, under which some of the guarantors under the deed of guarantee were released from their obligations. Mr McGovern's evidence was that he immediately commented that the agreement might work to release the defendants from their liability under the guarantee. Mr McGovern's consideration of the February 2001 deed, which raised a similar and other issues, was not earlier raised with Giles Payne and Mr Palmieri. It would seem that while Mr McGovern may have appreciated the problems which the 2001 deed potentially gave rise to, he made no mention of this in his earlier written advice, or in conference, because of the view to which he came, that no such deed had been entered."

185 Her Honour then dealt with Mr McGovern's explanation that when he wrote the advice in which he had commented on DJZ's prospects he had felt at liberty to mention any other matter which might be of potential benefit or comfort to DJZ. Her Honour, however, considered that, in the light of his instructions which required him to consider the 2001 Deed which had amended the 1999 Deed, he ought to have raised any potential difficulty as well. While she accepted that Mr McGovern's advice was not one dealing with the prospects of success of the claims which had already been advanced in the Supreme Court proceedings and were, rather, concerned with what was "reasonably arguable", she thought it his duty, if there were problems with the claims being advanced (because of the 2001 Deed) to have raised these problems with DJZ or the solicitors, whether or not "the defendants had yet relied on such problems". Her Honour said that if Mr McGovern had accepted that it would have been his duty to advise DJZ in the event he thought their claims were doomed to fail, he had an obligation as well to draw any other difficulty to their attention. Although Mr McGovern maintained in cross examination that the letter sent from the Christians' solicitors (in relation to the notice of default) did not require his attention because of Mr Palmieri's instructions, she thought that the fact that he had been briefed on the basis that a deed had been entered into in 2001 and the deed had been briefed to him, this view could not be accepted. Her Honour concluded:

"[388] Mr McGovern's cross examination showed that he had considered the terms of the 2001 deed, but he did not refer to it in his advice, or draw attention to any potential risk that it might have any impact on the case being advanced in the Supreme Court, because of the view which he reached that the Christians' units must have been dealt with by some mechanism other than the deed with which he had been briefed. Given the views which Mr McGovern proffered DJZ as to its 'reasonably arguable claims', there was, at the least, an obligation to explain the conclusion which he had reached. Had that occurred, his error in relation to the 2001 deed would have been revealed. On the evidence, Mr McGovern's view of the 2001 deed was quite different to the understanding of either Mr Gilles and Ms Becker.

[389] Mr McGovern expressed the view that his advice would not have differed, if he had been briefed with an executed version of the 2001 deed. This was because he did not perceive it as adverse, or materially so, to DJZ's prospects of success, because it was not being relied on in the proceedings and that he had no duty to speculate about defences which might or might not be relied on. The 1999 deed remained fully enforceable and the defendants had not been discharged.

[390] There is an obvious difficulty with that evidence. It was not a question of Mr McGovern speculating about possible defences not yet advanced, but advising about the claims being advanced by DJZ under the 1999 deed, given his instructions that it had been amended by the 2001 deed and whether, as he said in his advice, in that context the claims being advanced were "reasonably arguable". Mr McGovern did not give consideration to the 2001 deed, which competent legal practice required be given, if such advice was to be proffered. Nor did he give necessary consideration to the 2001 deed in the context of the misrepresentation case. Had he revealed the basis for his conclusions about the 2001 deed, his misunderstandings would have been revealed. Even if the advice which he gave went beyond his retainer, as was argued in submissions, that was not a licence to advise negligently.

[391] Mr McGovern's case was that even if he had given advice as to the problems posed by the 2001 deed, DJZ would have still pursued the litigation, given the concerns then driving Mr Palmieri. It followed that there was no casual link between the advice which Mr McGovern gave and any damages DJZ suffered.

[392] Undoubtedly, given Mr Palmieri's concerns about the joint venture properties, DJZ may still have continued with its pursuit of the proceedings, even despite the potential problem which the 2001 deed created. Having alerted DJZ to the problem created by 2001 deed, that Giles Payne would have given different advice to that given about the 2001 deed in October 2003 and the advice given about settlement in January 2004, after Mr Alexis recommended settlement in December 2003, is evident. I am unable to accept the arguments advanced in relation to causation.

[393] Mr McGovern gave no advice in relation to the 2003 agreement, although when approached by Mr Fitzpatrick, he then raised the potential problem created by the 2003 sales agreement.

[394] Given the views which I have reached in relation to the 2001 deed not having been the causative effect of any damage suffered by DJZ, given what the Court of Appeal's judgment turned on, it is not necessary to further consider whether any order should be made against Mr McGovern. Had I not reached that conclusion, plainly, he too, would have been found partially responsible for the damages suffered by DJZ."

Damages

186 The primary judge made her overall findings on damages at Red 226-230; primary judgment at [395]-[414].

187 There were four separate categories of damages to be considered. The first related to the claim against Mr Pritchard which had been unsuccessful and which was not pursued in these proceedings. The second claim related to the judgment order made by Einstein J in the sum of $355,870 plus interest. This was the amount his Honour had awarded in favour of DJZ. The primary judge found that DJZ had lost the benefit of these orders as a result of the Court of Appeal's conclusion that the 2003 sales agreement had discharged Mrs James' obligations as a guarantor. Her Honour indicated that, under this item, she was satisfied that the claim was established in the amount of $355,870 plus interest of $187,012, a total of $542,882.13.

188 Item 3 of the damages claim fell into a more complex area. Here, DJZ sought to recover some $419,850 as being owed in respect of Mrs James' costs of the Supreme Court and Court of Appeal proceedings. Ultimately, her Honour was not satisfied that DJZ had proved this head of damages principally because of the complication of the overall settlement achieved in 2005. This claim was not allowed and there has been no appeal brought by DJZ against her Honour's findings.

189 The final item claimed by DJZ related to DJZ's costs of the proceedings against Mr and Mrs James. This was a claim for some $489,022 plus interest, representing the amount DJZ was obliged to pay its solicitors. Her Honour held that part of this claim had been established. She accepted that the entirety of the claim included costs against Mr James, and to that extent the claim was disallowed. Her Honour said at [413]:

"The orders made against Mr James were not challenged on appeal, but formed a part of the settlement reached in 2005. What part of the costs claimed relate to Mr James, is not clear. No analysis was undertaken. I accept in the circumstances, that a broad brush approach to an assessment of these costs must be undertaken, as discussed by the High Court in Nikolau. The pursuit of the guarantees under the 1999 deed occupied a substantial part of the proceedings before the Court of Appeal, but a much lesser part of those before Einstein J, where a number of other matters were dealt with. I have assessed that 40% of the costs assessed in relation to the first instance proceedings related to the pursuit of Mr James. Accordingly, only 60% of those costs are recoverable as damages in these proceedings. The sum claimed must be adjusted to reflect that conclusion."

190 Finally, her Honour concluded that DJZ was responsible for 30% of the damages suffered after 18 December 2003 in relation to the costs incurred, and that Giles Payne was responsible for 50% of the balance of the costs incurred after 12 January 2004. Mr Pritchard was to be liable for the remaining balance. Her Honour directed the parties to produce short minutes of order to reflect the conclusions which she had reached.

191 Regrettably, this was not to be the end of the matter. On 23 September 2010, Mr Pritchard by a motion sought orders that the Court provide reasons as to a number of matters. In the alternative, he sought orders requiring the Court to correct, vary, recall or set aside certain paragraphs of the comprehensive judgment which had been delivered. The matters to which the motion was addressed primarily concerned the quantum of damages flowing from the conclusion that negligence and breach of retainer in relation to the 2003 sales agreement had been established against Mr Pritchard.

192 The motion was accompanied by a thirty-seven page submission prepared by Mr Pritchard's legal representatives. The nature of the arguments may be readily understood by reference to [5]-[7] of her Honour's decision given on 21 October 2010 (DJZ Constructions Pty Ltd v Paul Pritchard [2010] NSWSC 1197):

"[5] These arguments all concerned the damaged [sic] found to have resulted from Mr Pritchard's negligence in relation to a 2003 agreement. They were pressed for Mr Pritchard in various ways, by reference to a number of hypothetical situations and probabilistic judgments which it was submitted required determination, if the true value of any damage suffered as the result of the negligence found, was to be determined.

[6] The plaintiff's case was that there were limited circumstances in which orders of the kind here sought could be made by a court. The motion should be dismissed because what was sought went beyond what the applicable principles permitted. Mr Pritchard sought to re-argue aspects of the case in a fashion which misconceived the issues before the court at trial and sought reasons beyond that to which he was entitled.

[7] Mr Pritchard was not entitled to re-characterise the issues before the court or to raise fresh arguments to advance matters resolved by the earlier judgment. This was an attempt to characterise the claim as a loss of opportunity simpliciter, so that the entire claim should be treated as a mere opportunity capable of being valued on a discount below fifty per cent in accordance with principles in Malec v JC Hutton Pty Ltd (1990) 169 CLR 639 and Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332. The case DJZ had successfully pressed was that the orders made in its favour by Einstein J were valuable and it was the loss of those orders as the result of Mr Pritchard's earlier negligence, which resulted in the damage it pursued. DJZ had exercised its rights under the 1999 deed. The sole ground on which these rights had been found valueless and the orders made in its favour by Einstein J lost, was the result of Mr Pritchard's negligence. The hypothetical scenarios pressed for Mr Pritchard did not arise for consideration in those circumstances."

193 Ultimately, her Honour rejected the submissions which suggested that she had not given adequate reasons. Her Honour determined that the damages issue ought not be dealt with on the basis that the Court had been required to make an assessment of damages arising from a "lost opportunity". Her Honour accepted that a number of "possibilities" had arisen for determination in relation to the causation issue, but that they did not arise, generally speaking, in relation to the assessment of damages. Her Honour reviewed the arguments and set out her conclusions at [38]-[39]:

"[38] DJZ's case rested on what had, in fact, occurred in relation to the 2003 agreement and the consequence of reliance on that agreement before Einstein J and later in the Court of Appeal. That case succeeded. I accepted that the evidence established the prospect that the appeal would have failed, had Mr Pritchard not been negligent in drafting the 2003 agreement, taking the view that the result of this conclusion was that other probabilities and possibilities did not arise for consideration.

[39] In the written reply submission it was argued for Mr Pritchard that the court has not yet undertaken an assessment of damages by reference to 'the degree of possibilities and possibilities for the purpose of assessing damages'. Such an assessment was not undertaken because this aspect of Mr Pritchard's case failed. On the approach discussed by the High Court in Tabet v Gett [2010] HCA 12; (2010) 240 CLR 537, I accepted DJZ's case that the adverse outcome about which it complained had in fact come home, as the result of Mr Pritchard's negligence."

194 Her Honour dismissed Mr Pritchard's motion with costs.

195 By a further motion filed 9 December 2010, Mr Pritchard sought orders staying the judgment pending the determination of an appeal. He also sought orders departing from the usual costs orders in a variety of ways and other consequential relief. The nature of this contest ultimately drew another lengthy decision from her Honour: DJZ Constructions Pty Ltd v Paul Pritchard [2010] NSWSC 1472. There is no need to go into the detail of it at this stage. Reference will be made to it where necessary in the context of the grounds of appeal.

196 Judgment and orders were given and entered on 9 March 2011. The principal orders were as follows:

"1. Judgment for the plaintiff against the first defendant in the sum of $743,780 being damages of $471,598.27 together with interest in the amount of $272,181.73.

2. Judgment for the plaintiff against the second and third defendants in the sum of $130,701.31 being damages of $95,676.50 together with interest in the amount of $35,024.81.

3. Judgment for the fourth defendant against the plaintiff.

4. Judgment for the cross claimant against the first and second cross defendants.

5. Judgment for the third cross defendant against the cross claimant."

197 There were then a lengthy series of orders for costs which reflected, inter alia, the contribution and apportionment conclusions reached in her Honour's primary judgment.

The various appeals

198 Mr Pritchard lodged an appeal on 5 April 2011. The appeal grounds were, in their detail, extensive. It will be sufficient, however, to summarise the essential nature of the grounds of appeal, as follows.

(1) The appellant claimed that there was no causal link between his negligence in relation to the November 2003 sales agreement and any alleged loss. This ground involved a reiteration of the multiplicity of arguments that had been advanced before the primary judge on the causation issue.

(2) It was alleged that the primary judge ought to have concluded that DJZ suffered no loss. This was because DJZ's legal costs had been funded by Mr Palmieri's other companies (and third parties), and previous legal liability in DJZ for such costs had been fully discharged by those payments.

(3) The primary judge had erred in law in concluding that there was an "implied loan" between DJZ and other companies controlled by Mr Palmieri in respect of DJZ's liability for its own legal costs in the Supreme Court proceedings and the appeal, and the legal costs of Mr and Mrs James.

(4) Mr Pritchard asserted that the primary judge erred in concluding that DJZ had proved the quantum of its loss. This was a reiteration of the arguments that the primary judge had failed to consider or assess the probabilities or possibilities for a commercial loss of opportunity.

(5) Mr Pritchard asserted that in respect of item 2 of DJZ's claim for damages, the primary judge erred in concluding that DJZ had proved that it suffered a loss as a consequence of the negligence as found, without identifying the relevant counter factual so as to determine the position in which DJZ would have been, had it received the advice of the hypothetical competent solicitor.

(6) Mr Pritchard asserted that in respect of item 4 of DJZ's claim for damages the primary judge erred in concluding that DJZ had proved the quantum of its loss.

(7) Mr Pritchard asserted that the work performed by Mr Pritchard in relation to the February 2001 Deed and the November 2003 sales agreement was work that fell within the scope of the advocate's immunity at common law.

199 Grounds 8 and 9 related respectively to the cross claims brought by Mr Pritchard against Giles Payne and McGovern SC. As to Ground 8, Mr Pritchard alleged that the primary judge erred in concluding that the February 2001 Deed had no causative effect on any loss suffered by DJZ. Consequently, Giles Payne ought to have been found liable by way of contribution or an indemnity for a proportion of DJZ's costs from in or about May 2002, rather than from 12 January 2004.

200 In relation to the cross claim against McGovern SC, Mr Pritchard repeated his claim that the primary judge had erred in concluding that the February 2001 Deed had no causative effect on any loss suffered by DJZ. Consequently, Mr McGovern SC ought to have been found liable by way of contribution or indemnity for part of the damages for which Mr Pritchard was found liable to DJZ.

Giles Payne's appeal

201 Giles Payne lodged a notice of appeal on 6 April 2011. Again, briefly summarised, the grounds of appeal were as follows.

(1) Giles Payne asserted that the primary judge had erred in finding that, when advising DJZ in relation to the James' proceedings in January 2004, it was within the scope of the Giles Payne retainer to consider the problems for the DJZ claim in the James proceedings arising from the February 2001 Deed and the November 2003 agreement. Further, it was asserted that Giles Payne had not been negligent and/or breached the retainer.

(2) The primary judge had erred in finding that, by its advice given to DJZ in January 2004, Giles Payne had "encouraged DJZ to continue the James proceedings".

(3) The primary judge had erred in finding that DJZ relied on the advice given by Giles Payne in relation to the James proceedings in January 2004. It asserted that DJZ's decision to continue the James proceedings was not related to the advice given by Giles Payne.

(4) The primary judge erred in finding that, if Giles Payne had advised DJZ in January 2004 not to continue the James proceedings, DJZ would have accepted that advice and could have settled the proceedings.

(5) Giles Payne asserted that the primary judge erred in finding that they were responsible for 50% of the costs of the James proceedings incurred by DJZ after 12 January 2004 (after deducting 30% for the contributory negligence of DJZ).

202 There were then a series of grounds of appeal related to the issue of costs in the event that this Court rejected the principal grounds of appeal 1 to 5. These were:

(6) Giles Payne asserted that the primary judge erred in ordering them to pay DJZ's costs of its claim against Giles Payne. This was on the basis, essentially, that DJZ had not "actively" brought its claim against Giles Payne, but had done so merely in consequence of the cross claim made by Mr Pritchard;

(7) the primary judge was said to have erred in her exercise of discretion by ordering Giles Payne to pay the whole of Mr Pritchard's costs of the cross claim against Giles Payne;

(8) the primary judge had erred in the exercise of her discretion in ordering Giles Payne to indemnify Mr Pritchard for 25% of the costs that Mr Pritchard had been ordered to pay DJZ.

Other matters arising on the appeal

203 Both Giles Payne and Mr McGovern SC resisted those grounds of appeal brought by Mr Pritchard in relation to the cross claims against them. In addition, Mr McGovern filed a notice of contention. Essentially, this asserted that the primary judge's decision should be affirmed on the grounds that the proper application of s 5B, s 5D and s 5E Civil Liability Act should have resulted in the finding that Mr McGovern was not negligent; and that the negligence pleaded against him did not cause the relevant harm to DJZ. There was also a schedule of factual errors filed, challenging a number of the findings of fact by the primary judge. Mr McGovern SC provided an extensive statement in narrative form challenging a number of findings by the primary judge and stating his contention for the findings that ought to have been made. Finally, on the hearing of this appeal, Mr McGovern sought leave to cross appeal in relation to a costs order made adversely to him.

204 Further, on 7 July 2011, Giles Payne filed an amended notice of contention. It contended that, in so far as the primary judge had determined that DJZ did not suffer loss as a result of any breach of retainer or negligence on the part of Giles Payne in failing to advise DJZ about the effect of the February 2001 Deed, that decision should be affirmed on the basis that there should have been a finding that Giles Payne did not act in breach of its retainer and/or negligently by failing to advise DJZ about the effect of that Deed on the claims made by DJZ in the James proceedings. There were other contentions as well. Essentially, Giles Payne's contentions were co-extensive with a number of its grounds of appeal.

205 Mr Pritchard filed an amended schedule of facts "incontrovertibly established": Annexure A of Appellant's Amended Submissions in Reply to the Submissions of Giles Payne. There were more than one hundred facts relied on for this purpose. In addition, there were, in a separate schedule, challenges to a number of the factual findings made by the primary judge.

206 Finally, it is necessary to mention that DJZ filed its own notice of contention dated 28 July 2011. This notice contended that her Honour's judgment and orders should be upheld on the following grounds:

"(1) that in regard to the February 2001 Deed executed by the first respondent, the appellant owed the first respondent a duty of care in regard to the agreement and was negligent in regard to that agreement in the same fashion as her Honour found the appellant negligent in his conduct regarding the November 2003 agreement;

(2) in regard to the August 2003 Deed executed by the first respondent, the appellant owed the first respondent a duty of care and was negligent in regard to that matter in the same fashion as her Honour found he was negligent in his conduct in regard to the November 2003 agreement;

(3) if, and to the extent, the Court should determine that any of the loss suffered by the first respondent was not caused by the appellant's conduct in regard to the November 2003 agreement, because of the execution by the respondent of both the February 2001 Deed and August 2003 Deed, then that loss was caused by the appellant through his negligence in regard to the February 2001 Deed and/or the August 2003 Deed."

Discussion

207 In O'Donovan & Phillips ("The Modern Contract of Guarantee") (English Ed., 2010) there are two propositions stated which are fundamental to the law of guarantee and suretyship. These may be broadly summarised as follows:

(a) the creditor has an express or implied obligation to maintain security it holds in respect of a guarantee. A breach of this obligation under contract law serves to wholly release the surety or sureties from his or their obligations under the guarantee;

(b) when the creditor releases one of two or more sureties who have contracted jointly and severally, the others are discharged. If there is no express or implied term that the co-guarantors shall remain parties to the agreement, the release of a co-guarantor will not discharge the other guarantors from all liability, but they will be released to the extent that their right of contribution has been taken away or prejudiced by the release.

208 These propositions, it might be thought, would be 'bread and butter' to most solicitors acting for clients in business transactions involving the acquisition of assets, the taking of subsequent loans and the creation of collateral obligations by way of guarantee or the giving of security. The issues in these appeals centre, to a large degree, upon a failure by solicitors to recognise these well known propositions. In the particular circumstances of the present proceedings, there is a significant focus on the failure of commercial lawyers to address or raise the two propositions with their clients during critical business negotiations. The consequences of those failures are at the heart of these appeals.

209 Mr Pritchard fairly and candidly conceded that he did not turn his mind to these principles when he was instructed to prepare the November 2003 sales agreement. It was also apparent that he did not turn his mind to these matters when the August 2003 Deed was prepared. Although he maintains that he was not retained to advise in relation to the February 2001 Deed, he certainly failed to turn his mind to the possible problems after he had received cogent advice from Mr Wales SC in June 2001. There is no dispute about that conclusion reached by the primary judge. It can safely be inferred that when the February 2001 Deed was prepared and settled, Mr Pritchard failed to appreciate that clause 5 of the Deed might possibly have rendered the guarantees in favour of DJZ (and the other investors) worthless.

210 Because of Mr Pritchard's proper concessions in this regard, his appeal turned principally upon a multiplicity of arguments suggesting that his negligence was not causative of any loss to DJZ. He maintains that it was not causative of the loss and there were, in any event, no damages sustained by his former client.

211 Mr Gilles, on the other hand, maintains that Giles Payne was not retained to advise on matters requiring the application of the two propositions I have stated. His arguments demand a finding that a limited view should be taken of his obligations as a solicitor in the position in which he found himself during the period 2002 to 2004.

212 Mr McGovern SC was, of course, fully familiar with the relevant principles of guarantee and suretyship. His case, however, rather aligned itself with that of Giles Payne. Mr McGovern contends a limited view should be taken of the scope of the obligations that were cast upon him as a commercial barrister in fulfilling the precise instructions contained in his brief. He maintains that he did so without negligence.

213 DJZ's case is essentially that the various defendants did not advert to these fundamental propositions of commercial law in carrying out their obligations to their client. DJZ repudiates the arguments that suggest that a narrow and restricted view should be placed on the retainers of the lawyers concerned. It argues that a clear duty of care was breached in each case, and that it suffered damage for which it should be compensated.

Mr Pritchard

214 It is convenient to start with Mr Pritchard's appeal. I should say immediately that I have come to the conclusion that his appeal should not succeed on the liability issues. I have also come to the conclusion that the contentions raised by DJZ should be upheld. I have, however, concluded that there is merit in certain aspects of the damages appeal. I have also determined that none of Mr Pritchard's challenges to factual findings have been, as a matter of substance, made good.

215 In relation to the individual points raised, I have concluded as follows.

216 First, I find that, contrary to the primary judge's findings, Mr Pritchard had a duty of care to advise DJZ in relation to the consequences or possible consequences of the February 2001 Deed. I am satisfied that there was either an implied continuation of his earlier retainer and, in that regard, an obligation to warn or advice in relation to the preparation of the February 2001 Deed; or an implied term in the retainer with the directors to advise each of them (in their capacity as directors of the investor companies) that the Deed put at risk the guarantees in the 1999 Deed. Mr Pritchard breached his retainer and was negligent in February 2001 in connection with the settlement and completion of the Deed.

217 Secondly, even if this finding were wrong, I have concluded that, in any event, the February 2001 Deed, in its relevant clauses, did not operate to release the Christians' obligations under the 1999 Deed of Guarantee. Nor has it been shown that the February 2001 Deed constituted a breach of any implied duty to maintain security so as to extinguish the James' obligations as guarantors.

218 Thirdly, I agree with the primary judge's findings that Mr Pritchard breached his retainer and was negligent in June 2001 (and following) in failing to advise DJZ of the possible consequences of the February 2001 Deed.

219 Fourthly, I have concluded, contrary to the primary judge's finding, that Mr Pritchard was similarly negligent and in breach of his retainer in relation to the August 2003 Deed. There is no dispute, of course, that he was negligent in relation to the November 2003 agreement, and the primary judge so held.

220 Fifthly, I have concluded that Mr Pritchard's negligence in relation to the November 2003 sales agreement was causative of the loss sustained by DJZ. The reasons for this conclusion differ, however, in a number of respects from the approach and methodology adopted by the primary judge.

221 Sixthly, I have concluded that none of the arguments advanced in support of Mr Pritchard's causation case ought override the primary judge's finding that loss was sustained as a consequence of Mr Pritchard's negligence. In particular, I find:

(a) the primary judge was entitled to conclude, on the balance of probabilities, that DJZ (through Mr Palmieri) would have accepted and acted upon proper and accurate legal advice, had it been given, in relation to the terms of the November 2003 sales agreement;

(b) that, whether or not the Christian interests would have agreed to enter into a modified or altered sales agreement, was not a causation issue but arose only as a matter to be considered on the assessment of damages;

(c) that, based on Mr Palmieri's evidence, which was rightly accepted on this point, the primary judge was entitled to find that there was an "implied loan" between DJZ and the other companies controlled by Mr Palmieri in respect of DJZ's liability for its legal costs in the Supreme Court proceedings and the appeal;

(d) whether DJZ had shown that it had a reasonable prospect of enforcing the verdict which it had obtained against Mrs James was not a causation issue but arose only as a matter to e considered on the assessment of damages;

(e) that the overall settlement in 2005 did not break the chain of causation so as to render Mr Pritchard not liable for the consequences of his negligence. Nor did this settlement bear upon the assessment of damages, other than as determined by the primary judge.

222 I will address the damages issue separately. In short, however, my conclusion is that the damages awarded should be reduced to reflect the proper evaluation of the contingent possibilities involved flowing from the loss of the opportunity to rely on the guarantees occasioned by Mr Pritchard's negligence.

February 2001 Deed

223 The first issue here is whether Mr Pritchard was, by implication or otherwise, acting pursuant to a retainer in favour of DJZ in relation to the February 2001 Deed; or whether he was in any event acting in breach of a duty of care in relation to DJZ when he failed to advert to the possible consequences of clause 5 of the Deed. His case was that he had been retained by the directors of Surf Road Nominees and that he was not acting for Mrs Palmieri or for DJZ in relation to the Deed. The primary judge accepted this and found that Mr Pritchard did not act for DJZ in respect of the 2001 Deed. Consequently, she held that there was no breach of retainer or negligence on Mr Pritchard's part in relation to the settlement and implementation of the Deed, as DJZ had claimed in its Fourth Amended Statement of Claim.

224 Her Honour's conclusions were reached, in part, because of the absence of evidence from Mr Palmieri that he had given specific instructions to Mr Pritchard to act for DJZ in relation to the February 2001 Deed. He had, it appears, little recollection of it. Her Honour's views were further coloured by the fact that there was a written retainer entered into in January 2001 with the directors, being Mr Palmieri, Mr Wilson, Mr Sicuro and Mr Christian. Her Honour thought that the scope of the work mentioned in the January retainer unquestionably encompassed the agreement reached with the Christians and the February Deed. Finally, her Honour noted that a letter of advice was provided by Mr Pritchard to the directors in March 2001 and, at the same time, he invoiced them for work, including the work undertaken in respect of the Deed.

225 While there is obviously force in the matters that influenced the primary judge's reasoning, there are a number of other matters which, to my mind, point towards the existence of a duty of care as pleaded by DJZ in its Amended Statement of Claim.

226 First, Mr Pritchard had, prior to July 1999, acted on many occasions for Mr Palmieri and his interests. Their business relationship went back to 1982. Mr Pritchard was ultimately retained by DJZ and the other investors in relation to significant features of the July 1999 Deed. (DJZ was incorporated specifically to play a role as the investor and borrower in the 1999 transaction.) There could be no doubt that it was an implied term of this retainer that Mr Pritchard was bound to protect DJZ's legal interests generally in relation to the work done in connection with the 1999 Deed and in relation to certain aspects of DJZ's investment in the venture. This obligation did not necessarily cease when the Deed was finally executed in early 2000.

227 Secondly, it is not without significance to note that Mr Pritchard's 1999 retainer was not in writing. Mr Pritchard did not argue that the absence of a written retainer diminished his obligations to DJZ in relation to work done in 1999 and early 2000. It is apparent that Mr Pritchard was accustomed to working for Mr Palmieri and his companies in this fashion.

228 Thirdly, the fact that there was a written January 2001 retainer with the directors did not necessarily preclude the existence of a duty of care as between Mr Pritchard and DJZ in relation to the February 2001 Deed. In particular, it did not preclude continuing obligations of a duty of care under the 1999 retainer arrangements. And its particular circumstances suggested rather than diminished an obligation on Mr Pritchard's part to advise DJZ through its director and controlling mind as to the possibility of any adverse outcome represented by the February 2001 Deed.

229 Fourthly, in these circumstances, it is necessary to examine with some care the situation which led to the creation of the directors' retainer and the events that then led to the preparation and execution of the February 2001 Deed. These matters are suggestive of a conclusion that is different from that reached by the primary judge.

230 I shall briefly state the sequence of events involving Mr Pritchard in late December 2000 following upon the emergence of the problems that had arisen regarding Mr James' activities in the Chris Burke business. It appears there was a conference on 7 December 2000 between Mr Pritchard, Mr Palmieri and Mr Mortimer at which concerns were expressed about Mr James' activities. Next, on 20 December 2000, Mr Pritchard was contacted by Michael Jones, an accountant, who had in turn been instructed by Mr Mortimer (and others) in relation to Surf Road Nominees. The concern was, the accountant reported, that the company had not been paying its debts as and when they fell due. On 15 January 2001, there was a phone conference between Mr Mortimer and Mr Pritchard, followed by a tele-conference between Mr Mortimer, Mr Palmieri and "another chap" (probably Mr Sicuro): Blue, Vol 1, 360. It was at this conference that Mr Mortimer informed Mr Pritchard that "they have in effect caught Tass James with his hand in the cookie jar". Mr Pritchard was told that PricewaterhouseCoopers was going to carry out an audit on the company and that the directors were looking to get "some kind of document" signed by both Mr James and Mr Christian transferring their assets to Chris Burke & Co in full and final satisfaction of any debts. Mr Pritchard cautioned about this.

231 It seems that there was then a conference before 24 January between Mr Pritchard, Mr Mortimer and Mr Sicuro. (It does not seem that Mr Palmieri was involved in this conference: Blue, Vol 1, 363.)

232 Mr Pritchard reported in writing to Mr Sicuro on 24 January 2001 that, on the face of it, Mr James "hasbreached [sic] the provisions of the Deed of Indemnity and Mortgage dated 1 July 1999, ... which ... guaranteed the payment of the bank debt due by James Christian Pty Limited and the payment of all dividends payable by the Trust, particularly those payable to the 'A' class unitholders". (This was the Deed involved in Mr Pritchard's earlier retainer with, inter alia, DJZ.) Mr Pritchard gave advice as to the procedure to be followed in relation to the exercise of a power of sale over the units in the trust then held by New South Head Road Nominees and Cottenham Nominees. He indicated that those units might then be sold and transferred into the names of willing buyers or any of the investors. He cautioned that there would probably be a substantial shortfall in respect of which the investors would be able to pursue Mr and Mrs James personally, as well as each of the other indemnifying parties.

233 On 25 January 2001, the "non-litigious cost agreement between solicitor and client" was executed between Mr Pritchard and Messrs Palmieri, Wilson, Sicuro and Christian. As I have said, Mr Pritchard was not averse to acting for Mr Palmieri and his companies without a written retainer; but the position was otherwise, for perhaps obvious reasons, in relation to this group of directors (which incidentally included Mr Palmieri).

234 It is to be noted that the retainer, although expressed in very wide terms, did not specifically encompass the ultimate transaction which was reflected in the February 2001 Deed. It is important to note, however, that Messrs Palmieri and Wilson were directors respectively of DJZ and WIT, two of the original investors under the 1999 Deed of Guarantee (the third, D & A Mortimer, had by now sold its units in the trust).

235 In January 2001, Mr James was excluded from the business. His relationship with the investors was extremely hostile after the failure of negotiations at meetings with him held on 13 and 24 January 2001. After that time, as Mr Palmieri conceded in cross examination (Black 153 [45]), the investors were concerned that capital would need to be invested to enable the SRUT to meet its debts. The directors, no doubt, had in mind Mr Pritchard's cautionary advice on that topic. It was in this context that a proposal was made that Mr and Mrs Christian and their companies make available $287,500 to the SRUT by way of capital injection. $105,000 of that would be used towards Cottenham Nominees purchasing Mr Mortimer's company's unit in the trust. Other amounts (from the capital injection) were to be used to meet debts owed to PricewaterhouseCoopers and to the Taxation Office. Mr Christian was to continue to run the agency. The capital injection was to be raised by the Christian interests following the sale of certain properties in which they had an interest in the Cronulla and Caringbah areas: Black 154 [5]-[45].

236 The transaction embodied in the February 2001 Deed involved the Christian interests, Surf Road Nominees and Chris Burke & Co. It also involved Mr Wilson and his company, IGM, Mr Sicuro, Mr and Mrs Palmieri and their company, DJZ Constructions. Mr Pritchard sought, during his cross examination, to insist that, although he was acting for Mr Palmieri in relation to the settlement of the Deed, he was not acting for DJZ, and that he was under no obligation to consider the interests of DJZ in relation to any matter arising under the Deed or the details of the transaction reflected by its terms: Black 262-263. I am unable to accept that this was so.

237 As I have already said, Mr Pritchard acted in various ways for DJZ concerning the 1999 investment and, in particular, he had acted for it in relation to the settlement of the 1999 Deed of Guarantee. Indeed, clause 6 of that Deed envisaged that the James and Christian interests would deliver up to Mr Pritchard the certificates for the twenty-six units in SRUT "to be held by the Investors as security for the obligations of the guarantor, the indemnifying parties and the unit holders pursuant to clause 5 ...". The James and Christian interests were also obliged to deposit with Mr Pritchard transfers of the said units in blank but duly executed.

238 It is necessary to set out the recitals to the 2001 Deed to fully understand why the interests of DJZ required protection and to appreciate the extent of Mr Pritchard's negligence in not foreseeing the possible consequences for DJZ (1 Blue, 435):

"A. SRN [Surf Road Nominees] is the Trustee of the Surf Road Unit Trust constituted by a Deed of Settlement dated 24 May 1999 ("SRUT") and WIT, DJZ, Cottenham and Silvano (Silvano as beneficiary of a Trust regarding a Unit held on its behalf by DJZ) are Unit Holders in the SRUT. Michael, Katherine, Mary, Vince, Cottenham and Silvano are shareholders in SRN

B. SRN holds all the issued:

(i) shares in Chris Burke & Co the Trustee of the Burke Unit Trust constituted by a Deed of Settlement dated 1 February 1994;

(ii) units in the Burke Unit Trust;

(iii) shares in I G Martyn;

and through this holding operates the real estate business known as Chris Burke & Co Pty Limited.

C. WIT, DJZ, Cottenham, Michael, Katherine and SRN were some of the parties to a Deed executed and dated 1 July 1999, a true copy of which is annexed and marked 'A' ('the July 1999 Deed') and they wish to vary the rights and liabilities of some of the parties pursuant to the July 1999 Deed as hereinafter appears.

D. Certain allegations have been made in respect of the conduct of a former director of SNR, Chris Burke & Co and I G Martyn, one Tass Alexander James ('James') being allegations of fraud, misappropriation of company funds, unauthorised dealings in company monies and breach of fiduciary obligations on the part of James.

E. Similar allegations have been made against Michael who is also a director of SRN, Chris Burke & Co and I G Martyn, Michael having been such a director during the period of the alleged misconduct on the part of James.

F. The Parties acknowledge that although no formal investigation has been performed in relation to the monies allegedly misappropriated from the SRUT and its companies SRN, Chris Burke & Co and I G Martyn, the Parties as Directors, Executive Officers or Shareholders of the SRUT, SRN, Chris Burke & Co and I G Martyn are satisfied that it would be in the best interests of themselves, the Trust and the companies to give a release to Michael regarding the allegations that have or may be made regarding his involvement in the Trust, the companies and the business operated by or through them.

G. The Parties acknowledge that without warranting its completeness or substantial completeness, Michael, Katherine and Cottenham have given a broad disclosure in relation to their alleged involvement in the matters referred to above, and in consideration for that disclosure and in consideration of the payment to be made by Michael, Katherine and Cottenham of the sums specified in Clauses 1, 2 and 3 hereof, the parties propose to release Michael, Katherine and Cottenham from any claims against them for alleged misconduct or impropriety as Executive Officers or Unit Holders of the SRUT, SRN, Chris Burke & Co and/or I G Martyn between 1 July 1999 and the date hereof.

H. Under the July 1999 Deed Michael, Katherine and Cottenham, with James, his wife and the Trustee for the Janet Margaret Jones Family Trust ('Guarantors') guaranteed to D & A Mortimer Pty Limited, WIT and DJZ, the following:

(i) the payment by James Christian Pty Limited of a debt of $1,044,000.00 owed by I G Martyn Real Estate Pty Limited to Macquarie Bank Limited; and

(ii) the payment of a loan by the SRUT in the sum of $300,000.00 from Macquarie Bank Limited;

collectively called 'Bank Loans'.

Further, the July 1999 Deed provided that the Bank Loans were fully collateralised as between the Bank, the Bank Borrowers and the Guarantors of such Bank Loans. The July 1999 Deed provided that the SRUT would make payments to the bank in respect of the Bank Loans and this would be offset by a preferential distribution to D & A Mortimer Pty Limited, WIT and DJZ ('Investors') all of which held A Class Units in the SRUT which entitled them to a preferential distribution equal to the amount of bank payments made by the SRUT in respect of the Bank Loans, prior to them and the other Unit Holders in the SRUT receiving any distribution from the profits of the SRUT.

I. Pursuant to the July 1999 Deed the Guarantors jointly and severally guaranteed to the Investors:

(a) payment of the debt of $1,044,000.00 and the Surf Road bank debt of $300,000.00; and

(b) that the Trustee of the SRUT would pay the preferential distribution to the investors D & A Mortimer Pty Limited, WIT and DJZ

and there has been default in respect of the payment of the aforementioned Bank Loans and the payment of the preferential distribution to the Investors.

J. The July 1999 Deed provides that in the event of default by the Guarantors the Investors were entitled to sell the Guarantors' Units in the SRUT and use the proceeds of such sale to reduce or satisfy the obligations of the Guarantors.

K. As a result of the alleged fraudulent behaviour of James the net asset value of the SRUT is minimal or, it is possible that the Units therein have a nil value. The Investors are entitled to sell the units in the SRUT held by New South Head Road Nominees Pty Limited as trustee for the Janet Margaret James Family Trust ('the James Trust') and to sell the units in the SRUT held by Cottenham.

L. D. & A. Mortimer Pty limited which was the holder of two A class Units in the SRUT sold one of those units to DJZ (to be held by DJZ in trust for Silvano) and sold the other A class Unit to Cottenham.

M. At the request of Michael, Katherine and Cottenham the parties hereto have agreed, upon the terms hereinafter appearing, to:

(i) to limit their claim against Michael, Katherine and Cottenham pursuant to the Guarantee provisions contained in the July 1999 Deed to $300,000.00; and

(ii) not to exercise any right of sale pursuant to the July 1999 Deed in respect of the Unites in the SRUT Trust held by Cottenham."

239 As the recitals in the February 2001 Deed demonstrate, especially Recital K, the behaviour of Mr James had plainly rendered the net asset value of the SRUT as "minimal". Further, the recital stated:

"It is possible that the units therein have a nil value."

Moreover, Mr Pritchard had given specific written advice to the directors in relation to Mr James' default under the guarantee, and in relation to the exercise of the power of sale of the units consequent upon default.

240 In those circumstances, it must have been quite apparent to Mr Pritchard that the guarantees in favour, inter alia, of DJZ were the only valuable asset remaining from the 1999 Deed of Guarantee. The ongoing relationship between himself and DJZ, in my view, meant that he was under a continuing duty of care to advise DJZ (just as he was obliged to inform Mr Palmieri) that the effect of the proposed transaction with the Christians in February 2001 (as reflected in the terms of the Deed) might have serious consequences that could potentially deprive DJZ (and the other investors) of their rights to proceed against the James' interests. That it could do so was readily apparent, not only from clause 5, but from the recitals overall. These should have set alarm bells ringing in Mr Pritchard's mind.

241 Mr McInerney, on behalf of Mr Pritchard, argued that the duty of care sought to be relied on was not part of DJZ's case at trial but, in my opinion, it fell precisely within the pleadings in DJZ's Fourth Amended Statement of Claim: Red 4, 9, 12 and 13.

242 On the issue as to whether a duty of care existed and was breached as between Mr Pritchard and DJZ, I would respectfully disagree with the conclusions reached by the primary judge. I would hold that there was either an implied term in the retainer with the directors of the investor companies to advise and warn, or there was the continuation of the earlier retainer with an implied term to advise and warn that the guarantees were threatened by an arrangement with one of the guarantors. In either situation there arose a duty of care to advise DJZ as to whether the February 2001 Deed might pose a serious risk to the right to commence and continue recovery action against the James' interests pursuant to the Deed of Guarantee. Mr Pritchard's failure to raise these matters with Mr Palmieri as the controlling mind of DJZ constituted a serious failure to fulfil his obligations towards DJZ. In my view, the circumstances, objectively viewed, pointed with unmistakeable clarity to a duty to exercise skill and care in the interests of DJZ. I have not the slightest doubt that Mr Pritchard, if he had brought to mind the relevant principles of guarantee and suretyship law, would have advised Mr Palmieri of the potential perils represented by the 2001 Deed. A reasonable solicitor in his position would have felt compelled to do so: Mutual Life & Citizens Assurance Co Ltd v Evatt [1968] HCA 74; 122 CLR 556 at 572; Watkins v De Varda [2003] NSWCA 242. The position of the directors therefore demanded that this be so.

243 Mr Pritchard raised an argument to suggest that, even if advised in a non-negligent fashion, Mr Palmieri, in the immediacy of the situation, would not have agreed to an amendment of the document. This is an argument that permeates the argument surrounding the later 2003 sales agreement. For reasons similar to those I give later, I would find (insofar as it is necessary to do so) that Mr Palmieri would have accepted non-negligent advice and acted in accordance with this advice. He would not have jeopardised the guarantees if another solution could be found in re-drafting the Deed.

Has it been shown that the February 2001 Deed released the James' interests?

244 I have determined that Mr Pritchard had a clear duty to warn and advise DJZ through Mr Palmieri that the terms of the February 2001 Deed may have had the possible consequence of releasing the James' interests. I shall now consider whether, in any event, that was the consequence of the two relevant clauses in the Deed.

245 Mr Pritchard has argued that the Court of Appeal "concluded" that, by reason of the February 2001 Deed, the James' interests were released from their guarantee in the 1 July 1999 Deed: James v Surf Road Nominees Pty Ltd at [77]. He argued that the Court of Appeal finding required the conclusion that "the foundation for the case being advanced by DJZ in the proceedings before Einstein J had already been removed prior to the November 2003 sale agreement".

246 It is clear, however, in my opinion, that the Court of Appeal did not make this finding. In an obiter observation (at [77]) the Court of Appeal referred to the part of clause 5 of the February 2001 Deed that contained the agreement "not to take any action to sell the thirteen units in the SRUT held by Cottenham" as a breach of the implied covenant to maintain the security. However, it is clear that the Court's ultimate conclusion on the securities issue (at [81]) focussed solely on the terms of the November 2003 sales agreement that allowed for the transfer of the Cottenham units otherwise than pursuant to the exercise of the power of sale under the 1999 Deed of Guarantee. It was this, in the view of the Court, that led to "Mrs James [being] completely discharged from her obligations under the Deed of Guarantee".

247 In relation to that part of clause 5 of the February 2001 Deed that prohibited any action being taken against Mr and Mrs Christian and Cottenham "arising out of a breach of those parties or any one of them of their obligations pursuant to the July 1999 Deed", there was no finding by the Court of Appeal that this had operated as a release. Indeed, the reference to this aspect of the Deed (at [59] in the Court of Appeal decision) makes it clear that the Court regarded it as no more than a covenant not to sue.

248 There was a reference, however, in the Court's decision (at [31]) to clause 4 of the February 2001 Deed. This had provided that the Christian interests were "jointly and severally release[d] from any and all claims, actions, suits, demands, costs, damages and/or expenses which they ... may have had but for the execution of [the] Deed ... arising out of [Mr Christian's] involvement as a director of [the businesses] and/or ... [arising out of their receipt] of funds improperly or unlawfully paid to them ... from Chris Burke & Co, I.G. Martyn or the [Surf Road Unit Trust]". There was no suggestion that this clause effected a release of the Christians' obligations as guarantors under the 1999 Deed of Guarantee. It was, it seems, concerned with a different topic altogether: see Recital F in the February 2001 Deed.

249 Before examining more closely the terms of clause 5, it is necessary to say something briefly about the way the James' interests treated the issue in the proceedings before Einstein J and the Court of Appeal. Prior to the November 2003 sales agreement, there was no aspect of the defence which had sought to rely on the February 2001 Deed as a release or as otherwise discharging the James' interests. The situation changed however on 10 December 2003. In the Amended Defence there was an unparticularised paragraph that suggested that "in failing to seek to enforce any rights they may have under Deed as against [the Christians] and/or agreeing with [the Christians] not to pursue any such rights under the Deed, the Plaintiffs have acted in a way so as to materially prejudice the position of the Defendants and any guarantee and/or indemnity created by the Deed is thereby discharged".

250 On 15 December 2003, Mr Newlinds SC (who was appearing for the James' interests) informed Einstein J that the amended defence would be particularised by, inter alia, reliance upon the release of Mr Christian from his joint and several obligations pursuant to the Guarantee. Further, that "there had been an acquiescence in Mr Christian selling his units in the Trust". (It does not appear that this was a reliance on the February 2001 Deed.) On 18 December, however, the James' interests filed a Further Amended Defence which specifically relied on the February 2001 Deed and the November 2003 sales agreement. These were pleaded as transactions which had led to the discharge of Mr and Mrs James as guarantors. The particulars made it clear that not only was a release alleged, but also reliance was to be placed on the sale by Cottenham Nominees of its unit in SRUT pursuant to the 5 November sales agreement: Blue 1489.

251 However, on 5 February 2004, Mr Newlinds SC confirmed to Einstein J that, having taken the opportunity to consider the terms of the February 2001 Deed more closely, he accepted that it did not have the effect of discharging the 1999 Guarantee. On the hearing of the Court of Appeal proceedings in June 2004, Mr Newlinds made it clear to the Court that the James' interests accepted that the relevant clause of the February 2001 Deed constituted a covenant not to sue, and did not operate as a release of the Christians. There was no reliance upon any aspect of the February 2001 Deed as breaching any implied covenant to maintain security.

252 In my opinion, the relevant clause - clause 5 - in the February 2001 Deed did not operate as a release and should properly be regarded as a covenant not to sue. In that respect, Mr Newlinds was correct in his analysis that it did not operate to discharge the obligations of the James under the 1999 Deed of Guarantee. The more troublesome question is whether the remaining part of clause 5 - providing that no action would be taken to sell Cottenham's thirteen units in the trust - constituted or brought about a release. Mr Newlinds did not regard it as having such an effect. Ultimately, I have concluded, despite the possibility of a respectable argument to the contrary, that it has not been shown to have had that consequence. My reasons may be stated briefly. First, I do not accept that the investors' undertaking to refrain from exercising a power of sale over the Cottenham units actually impaired the security. Secondly, I do not consider the clause constituted a breach of an implied covenant to maintain security. Thirdly, if I am wrong in this conclusion, and not withstanding that there was clearly an arrangement that advantaged the Christians' position, I do not consider it has been shown to have materially prejudiced the interests of the other guarantors: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549, at 557.

253 As this Court in its earlier decision recognised (at [79]):

"A creditor is entitled to exercise its rights under the guarantee against one, some or all of the guarantors, or it may have recourse to some or all of the security. The creditor may also exercise a combination of those rights. In doing so, the creditor does not and cannot affect the rights of the guarantors and/or sureties inter se. Those rights include the rights as between the guarantors to seek contribution from the other guarantors and the right of marshalling in respect of the securities. The fact that a creditor, pursuant to and in accordance with the contract of guarantee, exercises a right against one guarantor or one part of the security does not mean the remaining guarantors or the securities are thereby released."

254 It is clear that in a case of the kind considered by this Court in the preceding paragraph, the co-guarantor whose security interest is diminished in value is entitled to commence separate contribution proceedings against his co-guarantor: O'Donovan & Phillips at 500, [8-50]. It is for that reason that a prior breach of an implied covenant to maintain security discharges the co-guarantor. For example, in the present matter, the sale of the Cottenham units by virtue of the August 2000 sales agreement clearly prevented, or at least substantially hindered, the James' interests from seeking effective contribution and marshalling orders against the co-guarantor.

255 By contrast, the agreement in the February 2001 Deed not to exercise a right of sale in respect of Cottenham's units did not impair or in any real sense impinge upon the rights of the James' interests to seek contribution and marshalling against the Christian interests. Accordingly, it could not, in my opinion, be seen, strictly speaking, as a breach of an implied term to maintain security, and hence could not, on that account, have effected a discharge.

256 At issue, however, is a broader principle which states that, when conduct on the part of a creditor has the effect of altering the surety's rights, the surety is discharged unless the alteration is unsubstantial and not prejudicial to the surety. In such a situation, the creditor must show that the nature of the alteration can be beneficial to the surety, or that by its nature it cannot in any circumstances increase the surety's risk: Ankar at 559 per Mason ACJ, Wilson, Brennan and Dawson JJ. In Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370, Kirby P acknowledged (at 380-381) that the High Court had stated that the mere possibility of detriment was enough to bring about the discharge of surety. His Honour said, however:

"... I do not take the law as adopting such an artificial stance in an area of such practical commercial importance. The 'mere possibility of detriment' to which the High Court refers in Ankar (at 560) is a 'possibility of detriment' in the circumstances of the parties, It [sic] is not a possibility of detriment in circumstances other than those in which the parties find themselves. Thus one can put out of consideration speculation of windfall gains or hypothetical claims in subrogation."

257 And again, at 382, the learned President said:

"Although the majority in Ankar suggested (at 559) that courts are not permitted to inquire into the effect of the alteration as a matter of fact, those words should not be read at face value. What is 'beneficial to the surety' must be judged in the circumstances. Whether the risk has been increased or reduced requires an understanding of what the risk was in the first place. Similarly, the very use of the adjective 'unsubstantial' to characterise an alteration which will not attract the drastic consequence of the discharge of the surety, necessarily imports a judgment. In some cases, the 'unsubstantial' quality of the alteration will be manifest. In other cases it will be plain that the alteration is substantial, of no benefit to the surety and such as to increase the surety's risk. Between these extremes, there is room for a wide variety of cases which must be classified by courts using, as the tool of classification the evaluative adjective 'unsubstantial'.

The meaning of that word must be understood in the context, and for the purpose for which it is legally relevant. This is the discharge of a surety for a debtor's conduct which might affect the surety's liability. To allow a surety to walk away scot-free from its obligations because of an 'unsubstantial' variation in the liability of the principal debtor is so offensive to equity and the justice of the common law ... that mollifying relief from such consequences is afforded, where the alteration has been 'unsubstantial' and not such as to prejudice the surety."

258 My principal reasons for failing to be satisfied that the James' surety obligations were released are these: first, this is not a case in which the relevant parties are before the Court. Secondly, there is no ability to judge whether the circumstances may properly be said to point towards a detriment of any kind so far as the James are concerned. Thirdly, no submissions were made to that effect. Fourthly, such evidence as there is points in the opposite direction. Based on Einstein J's findings, it is clear that Mr James' activities were the central pivot in the decline of fortunes of the real estate business. Moreover, he was found to have wrongly misappropriated monies. The position as at February 2001 was that, as a consequence of Mr James' activities, the company was unable to pay its debts, the business was insolvent, and the value of the units in the trust was "minimal". The arrangements made with Mr Christian restored the company's ability to meet its obligations to creditors, kept the business on foot and eventually restored a value to the units, as the sales in October 2002 and later in 2003 demonstrated. Fifthly, I am not satisfied that any loss of subrogation rights, in a practical sense, actually occurred. Had the debt been repaid, the agreement not to move against the Christian units would, arguably, have become otiose and subrogating proceedings by the James would have become, in practical terms, available. Subsequent events, in any event, swiftly overtook the February 2001 arrangements, as the detailed factual findings made by Einstein J demonstrated. This must necessarily have impacted on the continued operation of clause 5 of the February 2001 Deed.

259 Finally, it must be said that no reliance was placed in this appeal on the principles stated in Ankar. No arguments were advanced on either side to assist this Court in its deliberations. A practical and realistic appraisal of the circumstances surrounding the execution of the February 2001 Deed, in so far as those circumstances can be gleaned, does not persuade me that a release was effected. Such a conclusion, to echo the remarks of Kirby P in Corumo, would be an unmeritorious one in all the circumstances.

260 The Court of Appeal, of course, did not suggest that the February 2001 Deed effected a release of the James' interest. In so far as there was a reference to "a breach" of the implied covenant in the Deed, I would respectfully reach a different conclusion, recognising of course that the remark was not necessary for the Court's decision and that it was made in a context where there had been no legal analysis or discussion of the matter.

August 2003 Deed

261 Was Mr Pritchard negligent in his conduct in regard to the August 2003 Deed? There was no doubt that Mr Pritchard was retained by DJZ in relation to the August 2003 Deed. Although the James' interests at no stage ever relied on this Deed as effecting a release there was, nonetheless, a possible argument that, by its terms, it did so. After all, the Deed allowed for an argument to be mounted that its provisions, if operative, contained a release of the Christian interests and, further, constituted a breach of the implied covenant to maintain security.

262 The Deed appears to have been executed on or about 7 August 2003. The parties included the Christians, Cottenham, Mr Palmieri, Mr Sicuro, DJZ, Mr Wilson, WIT, Chris Burke & Co, Surf Road Nominees and IGM. By this Deed, the Christian interests agreed to sell and transfer their units in the SRUT to Mr Palmieri and Mr Sicuro: clause 1.1. The Deed included a release from DJZ and others in favour of the Christian interests "from any and all claims arising out of debts owed by James Christian Pty Ltd, Chris Burke & Co Pty Ltd and from any and all debts, costs, damages, judgments or liabilities arising directly or indirectly from Supreme Court proceedings number 50108 of 2001": clause 2.7.

263 The Deed also provided for the resignation of Mr and Mrs Christian as director and secretary of Chris Burke & Co, Surf Road Nominees and IGM: clause 3.1. Provision was also made for their resignation as employees of Chris Burke & Co. The units were to be transferred either upon payment of the funds mentioned in clause 1.2(a) or on 1 September 2003.

264 As I shall discuss later, there is considerable uncertainty about the provenance of this Deed. The point presently under consideration arises, however, from a specific aspect of the Notice of Contention filed on behalf of DJZ. Her Honour had found, as will be recalled, that Mr Pritchard had agreed that he was obliged at the time to advise DJZ and the other plaintiff if there were anything in this Deed which might affect DJZ's prospects of success in the Supreme Court proceedings. Her Honour ultimately found that there was no departure from competent practice established in relation to this Deed. This finding seems to have been based wholly upon the fact that, when Mr Pritchard did seek to raise a concern about this Deed with Mr Palmieri and Mr Sicuro, he was instructed by them not to pursue the matter with the solicitors for the Christians: see primary judgment at [199].

265 An examination of the material before the primary judge shows, in my opinion, that this finding, with respect, cannot be maintained. I shall briefly state why this is so. Mr Pritchard prepared a fax to be sent to Dibbs Barker (the then solicitors for the Christian interests) on 4 July 2003. Dibbs Barker had earlier prepared and submitted to him as the solicitor for, inter alia, DJZ, the draft Deed. In his fax, Mr Pritchard raised a number of requisitions in relation to its terms.

266 The fax of 4 July 2003 identified, first, that there were a number of significant blanks and gaps in the draft Deed. For example, Mr Pritchard asked the solicitors for the Christian interests to specify the number and type of shares, and the number of units, held by the Christians. Secondly, there were a number of requisitions that suggested amendments in relation to the process of the proposed sale of the units by the Christians in Surf Road Nominees. There was no doubt that this was one of the principal outcomes sought to be achieved by the proposed Deed.

267 In relation to the "release" mentioned in clause 2.7, Mr Pritchard wrote:

"So that we can properly understand what the parties are releasing, Michael Christian, Katherine Christian and Cottenham Nominees Pty Ltd from in clause 2.7, please provide details of the known debts owed by James Christian Pty Ltd to Chris Burke & Co and for all and any debts, costs, damages, judgments or liabilities arising directly or indirectly from Supreme Court proceedings number 50108 of 2001. We have advised our clients against signing such a release until there is full disclosure by you and, then, the release should only relate to those issues disclosed."

268 Mr Pritchard's file note of 4 July 2003 shows that he then received a telephone call from Mr Sicuro. In this call, Mr Sicuro impressed upon Mr Pritchard the need for urgency in relation to the settlement of the Deed. Mr Pritchard protested and said: "I'm just trying to do my job properly as a solicitor should". Mr Sicuro said: "Michael Christian has said he's leaving on Monday anyway and if he leaves, we're obliged to pay him superannuation and other payments straight out. I reckon these would add up to about the money that we're paying him under this agreement, except under the agreement we get to spread the payment out". Mr Pritchard replied: "If you don't want me to raise certain issues, I want you to give me clear instructions". A short time later, a conference was arranged for Mr Sicuro and Mr Palmieri to attend on Mr Pritchard. During the conference there was discussion about a number of matters, including that part of Mr Pritchard's fax where he had made a requisition in relation to clause 2.7. The diary note continues:

"We had a discussion and on the basis that there already had been one Deed releasing Michael Christian from any claims, and also because, as far as they knew, he had signed a guarantee in relation to James Christian Pty Ltd. They instructed me not to send my query regarding Clause 2.7."

269 It appears the fax was then amended in accordance with these instructions and sent off that afternoon. Mr Pritchard was to contact Dibbs Barker on the following Monday. The fax, in its final form, still contained some sixteen requisitions, but not the one relating to the release.

270 On 18 July 2003, Dibbs Barker wrote to Mr Pritchard enclosing for his attention a revised draft of the Deed to be entered into between the parties. It was suggested that the amendments contained in the revised draft reflected the conversations held between the two solicitors on 10 July, and a further conversation which had taken place between Mr Christian and Mr Sicuro on 10 July 2003. Mr Pritchard and his clients were asked to "consider the further draft of the Deed".

271 There was further correspondence on 23 July 2003 from which it may be gleaned that further changes were to be made to the Deed. The letter from Dibbs Barker said:

"On the basis that all other changes are agreed, the matters to be completed are:

inserting details of the number of units held by each of Michael Christian, Katherine Christian and Cottenham Nominees and Surf Road Unit Trust. Please advise if you are aware of those details (Recitals C, F, H);

the break-up of the shares to be transferred to each of Silvano Sicuro and Vincent Palmieri in Surf Road Nominees Pty Ltd (clause 1.1(a));

the break-up of the shares to be transferred to each of Silvano Sicuro and Vincent Palmieri in Surf Road Unit Trust (clause 1.1(a));

the recipient of the transfer of the shares in IG Martyn Real Estate Pty Ltd (clause 1.1(b)(iii)(a));

dates for the Deeds of Guarantee with each of Vincent Palmieri and Terry Wilson (clause 2.1(a) and (b));

date of guarantee to National Australia Bank (clause 2.1(e))."

272 The letter concluded:

"Once you have had a chance to consider the matters raised in this letter and our letter dated 18 July 2003, please contact the writer to discuss arrangements for the exchange of executed Deeds, transfer of shares and units, and payment of $3,600."

273 The payment of $3,600 was a reference to the amount referred to in clause 1.1(a) whereby Mr Sicuro and Mr Palmieri covenanted and agreed to pay $3,600 to the Christian interests "being the purchase price for shares in Surf Road Nominees and units in the SRUT held by them". This amount was expressed to be the consideration for the transfer of those shares and units to Mr Sicuro and Mr Palmieri.

274 There is in evidence a further copy of a draft Deed which has an endorsement on it, presumably by Mr Pritchard: "copy of document given to Sil and Vince to get signed on 7/8/03". This copy has not been completed, in the sense that all of the "blanks" that were referred to in the previous correspondence between the two solicitors remain uncompleted. Clause 2.7 remained in its unamended original form.

275 The final letter from Dibbs Barker is dated 14 August 2003 and addressed to Mr Pritchard. This letter advises Mr Pritchard that Dibbs Barker was in possession of a Deed "in duplicate" executed by Michael Christian, Katherine Christian and Cottenham Nominees Pty Ltd. The letter requests Mr Pritchard to advise when he is in possession of the Deed "duly executed by the remaining parties". It requests Mr Pritchard to advise of his "intention regarding arrangements for exchange of Deeds, transfer of shares and units and payment of the $3,600.00".

276 At Blue 745, there is an undated and uncompleted form of the Deed which appears to have been executed by each of the parties. None of the clauses which were in blank, however, have been filled in or completed.

277 Whatever the provenance of the August 2003 Deed, whether it was completed and in fact acted on (a matter to which I shall return), it is clear that Mr Pritchard never turned his mind to, or gave any advice concerning, the critical question whether the release in the August 2003 Deed might have the effect of extinguishing the James' obligations under the 1999 Guarantee. It is clear that Mr Pritchard never gave any consideration to or advice concerning whether the direct sale of the units by the Christian interests to Mr Palmieri and Mr Sicuro might have the effect of breaching an implied covenant to maintain security, and hence be capable of extinguishing the James' obligations. While it is clear that Mr Palmieri and Mr Sicuro instructed Mr Pritchard not to send enquiries to the other side in regard to the requisition he had raised concerning clause 2.7 in his draft, it is equally clear that his draft requisition had nothing to do with the critical issue as to the possible catastrophic impact of the provisions of the Deed on the rights held by DJZ in relation to the guarantees. That was a topic to which Mr Pritchard simply never turned his attention.

278 Dr Birch, senior counsel for DJZ, rightly submitted that DJZ could have had no comprehension of the possible effect of these provisions without receiving proper advice, prior to its execution, as to their possible legal consequences. Mr Pritchard, as I have said, simply did not give that advice or turn his mind to that question. Where a solicitor learns of a matter that puts him on notice that the client's interests are in danger or at risk unless further steps beyond the limits of the retainer are carried out, there will be a duty on that solicitor to take the additional step of warning of those risks: David v David [2009] NSWCA 8; (2009) Aust Torts Reports 91-993 at [76] per Allsop P (Hodgson JA and Handley AJA); Dominic v Riz [2009] NSWCA 216; [2009] NSW ConvR 56-248 at [88]-[92] per Allsop P (McColl and Hodgson JJA agreeing).

279 In my opinion, DJZ has successfully made good its Notice of Contention in relation to the August 2003 Deed. Later, when examining the issue of causation, I will discuss whether the August 2003 Deed did, as claimed by Mr McInerney on behalf of Mr Pritchard, release the James from their obligations under the guarantee.

Causation

280 For several reasons, the causation issue is the most difficult in Mr Pritchard's appeal. These difficulties also resonate, however, in the Giles Payne appeal. It is apparent that the causation issue took the bulk of the time involved in submissions before the primary judge. This has proved to be the case, as well, on the hearing of these appeals. It must also be said that the submissions at trial were, with respect, not well focussed in a number of respects.

281 Mr McInerney's submissions, for example, treated almost every contingent possibility as part of the causation argument. Later, in the October motion before the primary judge, he sought to repeat these as matters requiring evaluation on the basis that each was part of the assessment of the quantum of loss. In addition, on both sides, there was little effective analysis of what was the central characteristic of DJZ's action.

282 Dr Birch, on the other hand, took what might be considered to be an over-simplified position. He argued, no doubt for good forensic reasons, that the case was simply about the loss of Einstein J's judgment, suggesting that it was Mr Pritchard's negligence in relation to the November 2003 sales agreement which had resulted in the reversal of that judgment. Consequently, he argued the solicitor's negligence caused that loss. In relation to damages, Dr Birch argued that the damages properly to be recovered "crystallised" by reference to Einstein J's assessment of loss at the moment the Court of Appeal reversed his findings as to the consequences of the November 2003 sales agreement. Giles Payne, for obvious reasons, was content to ride on Dr Birch's coattails in this regard. They recognised that their liability, if any, would be substantially diminished if it were the 2003 sales agreement that caused the loss, rather than the 2001 Deed.

283 It is clear that the restrictive forensic approaches taken by the parties failed to provide adequate and appropriate assistance to the primary judge. What was required was a focussed examination of the nature of the loss claimed by DJZ, and an examination of both causation and damages in the light of well established principles as to the onus and standard of proof in this type of litigation. Admittedly, these principles are not always easy to apply but, in the complexities of this case, they were essential to a correct outcome.

284 In my opinion, what was in issue in the proceedings was DJZ's loss of an opportunity to recover against the James' interests the valuable rights it possessed, pursuant to the guarantees in the 1999 Deed. In commercial terms, the guarantees represented from the outset an inherently valuable right. That right, however, became realistically of value as soon as Mr James defaulted in his obligations. To that extent, the action differed from a mere chose in action such as the opportunity represented by a possible right of action maintained by, for example, a worker injured in an industrial accident. Where such a right has been lost by reason of a solicitor's negligence, a Court assessing damages in an action against the solicitor has to assess whether the action against the employer would have been successful or whether it would have failed; or to what extent it would have fallen in between success or failure. Here, the right, absent unusual circumstances, was bound to be realised in litigation.

285 DJZ's primary case was that Mr Pritchard's negligence in relation to the November 2003 sales agreement deprived it at that moment of the commercial opportunity represented by the existence of the guarantee. At one moment, the right of recovery against the James' interests was there. At the next moment, it was not. Thus, the case stood somewhere between the lost opportunity case represented by, for example, an industrial claim which has become statute barred by reason of the solicitor's negligence, and the case of a lost commercial opportunity, for example, the negligence situation of the plaintiff in Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 ("Sellars"). I shall turn now to discuss the principles established in that case.

286 In Sellars, the plaintiffs claimed damages for breach of s 52 of the Trade Practices Act 1974 (Cth) in circumstances where their opportunity to enter into a favourable commercial agreement had been sidetracked by the reprehensible conduct of other commercial interests. The action for damages for loss of the opportunity to enter into the first agreement, and to take advantage of the commercial opportunity that could or might have eventuated thereby, was central to the litigation. The relevant principles are set out by the High Court (Mason CJ, Dawson, Toohey and Gaudron JJ) at 355-356:

"... the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.

The conclusion which we have reached on this question finds support in other considerations. The approach results in fair compensation whereas the all or nothing outcome produced by the civil standard of proof would result in the vast majority of cases in over-compensation or under-compensation to an applicant who has been deprived of a commercial opportunity. Furthermore, it is an approach which conforms to the long-standing practice of taking into account contingencies in the assessment of damages." (Emphasis in original)

287 In recent times, the High Court has repeated the important distinction referred to in Sellars between the proof of causation in a lost opportunity case, and proof of the valuation or estimation of the loss consequent upon the causation finding.

288 In Tabet v Gett ([2010] HCA 12; 240 CLR 537), Kiefel J (with whose reasons Hayne, Crennan and Bell JJ agreed) said at [135]-[137]:

"[135] It is important to bear in mind, in connection with this aspect of the appellant's argument, the distinction between the loss or damage necessary to found an action in negligence, which is the injury itself and its foreseeable consequences, and damages, which are awarded as compensation for each item or aspect of the injury.

[136] Different standards apply to proof of damage from those that are involved in the assessment of damages. Sellars v Adelaide Petroleum NL confirms that the general standard of proof is to be maintained with respect to the issue of causation and whether the plaintiff has suffered loss or damage. In relation to the assessment of damages, as was said in Malec v J C Hutton Pty Ltd, 'the hypothetical may be conjectured.' The court may adjust its award to reflect the degree of probability of a loss eventuating. This follows from the requirement that the courts must do the best they can in estimating damages; mere difficulty in that regard is not permitted to render an award uncertain or impossible.

[137] Thus in the case of the loss of a commercial opportunity, the plaintiff must first establish the fact of the loss, for example by reference to the fact that it had a commercial interest of value which is no longer available to be pursued because of the defendant's negligence. The damages assessed of that loss, the estimation of its value, reflect the chance, often expressed in a percentage, that the opportunity would have been pursued to a successful outcome. The award is proportionate in that sense."

(Footnotes omitted; emphasis in original)

289 The critical question in the Pritchard appeal, therefore, is how the well established principles stated in Sellars are to be applied in a matter such as the present.

290 The first question that had to be asked was whether, on the assumption that Mr Pritchard had been negligent in his duty of care and/or in breach of his retainer in relation to the November 2003 sales agreement, this was causative of the release of the James' interests from their obligations as guarantors pursuant to the 1999 Deed.

291 This, in turn, required two further questions to be asked. First, whether assuming that Mr Pritchard had acted with reasonable care and in a non-negligent manner, the release would not have occurred. Secondly, whether DJZ, through Mr Palmieri, would have accepted the non-negligent advice and acted upon it. More precisely, would Mr Palmieri have refused to agree to the execution of the Deed in the terms in which it was originally framed? Would he have been prepared to enter into a revised agreement that did not contain the troublesome clauses? These were past hypothetical issues, but it was nonetheless necessary for them to be answered before the causation issue could be found in DJZ's favour: Heenan v Di Sisto [2008] NSWCA 25; [2008] Aust Torts Reports 81-941; Sykes v Midland Bank Executor & Trustee Co Ltd [1970] 2 All ER 471; [1971] 1 QB 113. (In negligence actions, resolution of the factual causation issue will normally require a hypothetical question to be asked, although in most negligence case the result is so obvious that the question is not separately raised or debated in the proceedings, e.g. a pedestrian run down by a motor vehicle.)

292 Importantly, as the principles to which I have referred demonstrate, the two hypothetical questions were to be determined in accordance with the civil standard of proof, namely, on the balance of probabilities. Of course, the Civil Liability Act 2002 had an important and critical part to play in the proceedings. Part 1A of the Civil Liability Act applied to this claim. The principles governing the determination of causation are set out in s 5D of the Act. Relevantly, that provision states:

"5D General principles

(1) A determination that negligence caused particular harm comprises the following elements:

(a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and

(b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability).

(2) In determining in an exceptional case, in accordance with established principles, whether negligence that cannot be established as a necessary condition of the occurrence of harm should be accepted as establishing factual causation, the court is to consider (amongst other relevant things) whether or not and why responsibility for the harm should be imposed on the negligent party."

293 As required by the statute, factual causation required proof that the defendant's negligence was a necessary condition of the occurrence of the particular harm: Strong v Woolworths Ltd [2012] HCA 5, at [18]-[20]. In determining liability for negligence, the plaintiff always bears the onus of proving on the balance of probabilities any fact relevant to the issue of causation: s 5E. The determination of factual causation under s 5D(1)(a) is a statutory statement of the "but for" test of causation: Adeels Palace Pty Ltd v Moubarak [2009] HCA 48; 239 CLR 420 at 443, [55].

294 As I have said, the primary judge was not overly assisted in relation to the causation issue. The parties had been required to provide the judge with a statement of issues and did so, ultimately, after a considerable degree of judicial urging. The particular issue was presented in these terms:

"16. Has DJZ suffered any loss as a consequence of the February 2001 Deed operating to release the James from their guarantee contained in clause 5 of the 1999 Deed.

...

22. Has DJZ suffered any loss as a consequence of either the 7 August 2003 Deed or the November 2003 agreement for sale operating to release the James from their guarantee contained in ... the 1 July 1999 Deed.

23. Was any loss of DJZ suffered not by reason of either the 7 August 2003 Deed or the November 2003 agreement for sale, but rather by reason of the February 2001 Deed."

295 These, of course, were relevant questions, but they rather obscured the necessary central analysis. This required that a pivotal question be asked: if Mr Pritchard had acted without negligence in relation to the November 2003 sales agreement, what would have been the position of the litigation thereafter in relation to the "hypothetical" proceedings against the James? By focussing on the actual proceedings and what did happen in the Court of Appeal consequent upon Einstein J's decision, the correct question, I would respectfully suggest, was not asked.

296 I return to the two principal questions I identified at [291] above. It was necessary to resolve these questions, as I have said, by the application of the civil standard of proof. First, whether, but for the negligence of Mr Pritchard, the release of the James' interests would not have occurred. Secondly, whether DJZ, through Mr Palmieri, would have accepted the non-negligent advice, refused to agree to the execution of the Deed as it had been originally framed, and agreed to the appropriate amendments.

297 Thus, the issue as to whether DJZ would have entered into a Deed in altered terms - one which contained an express covenant not to sue and which provided for the sale of the Christian units by way of an exercise of the 1999 Deed's power of sale - was a matter that went to causation. Accordingly, once these two questions were found in DJZ's favour, loss or damage so as to found the action in negligence would have been established: Tabet v Gett at [135]. By contrast, the question as to whether the Christian interests would have agreed to enter into a sales agreement in altered terms was a matter that went to assessment of damages. This question was not to be addressed by the civil standard of proof in recognition of the principles to which I have referred. It involved past hypothetical events (which would or might have happened) and accordingly the civil standard of proof was not applicable to the resolution of those questions. Damages had to be assessed according to the degree of probability that the events would have occurred, provided that the probability was not so low as to be speculative or so high as to be practically certain: Malec v JC Hutton Pty Ltd [1990] HCA 20; 169 CLR 638 at 643. The task of the Court in that regard was to assess the degree of probability that an event would have occurred, and adjust its award of damages to reflect that degree of probability.

298 There were, however, in the particular complexity of these proceedings, other issues raised on the causation and loss issues: had DJZ alienated its right of recovery for damages by entering into the 2005 overall settlement? Could DJZ maintain the quantum of its claim in light of the fact that its solicitor's costs had been paid by a related company, Palmieri Developments Pty Ltd, and not directly by DJZ? Had it been proven that Mrs James had sufficient assets or means to meet a judgment for recovery of the amount otherwise payable pursuant to the 1999 guarantees? These questions, with the exception of the last, were essentially in the nature of past historical issues rather than hypothetical. Thus, they too were to be resolved by the application of the civil standard.

299 As I have stated, the central causation issue, as to whether the loss of the right to proceed on the guarantees was caused by the 2003 sales agreement or by some earlier arrangement, was one which needed to be viewed through a hypothetical prism. Since it was, however, a causation issue, proof was required on the civil standard. It will be convenient to deal with this issue first before answering the specific questions I have posed.

300 Mr McInerney argued (both at trial and in these appeals) that, if Mr Pritchard acted negligently (or in breach of his retainer) in connection with the November 2003 sales agreement, his negligence did not thereby release the James' interests, because they had already been released by the February 2001 Deed and, if that were not so, by the August 2003 Deed. Applying the 'but for' test in this hypothetical prism, had Mr Pritchard acted in a non-negligent manner in relation to the November 2003 sales agreement, would the commercial opportunity represented by the rights under the guarantees have been preserved and recognised in a subsequent judgment? Mr McInerney argued that the answer to this question was 'no'. The reason he advanced was that each of the earlier Deeds had released the James' interests from their obligations under the 1999 guarantees.

301 The primary judge did not accept that the February 2001 Deed was the "true cause" of DJZ's loss: primary judgment at [232]. It was not, her Honour found, the basis upon which the Court of Appeal had reached its conclusions. The 2003 sales agreement was, she found, the cause of the loss, that being the factor upon which the Court of Appeal's judgment was based: primary judgment at [233]-[236]. Her Honour also placed reliance on observations by Hayne and Bell JJ in Tabet v Gett at [66] and [69]. Finally, her Honour made reference to the discussion by McHugh J in Bennett v Minister of Community Welfare [1992] HCA 27; 176 CLR 408), where his Honour had recognised that, where separate and independent acts of negligence directly cause injury, each may be sued upon. Her Honour concluded that Mr Pritchard had been negligent in the work undertaken for DJZ in respect of the 2003 agreement "irrespective of any earlier negligence". The cause of DJZ's damage was, accordingly, Mr Pritchard's negligence in relation to the 2003 agreement: primary judgment at [236].

302 The approach adopted by the primary judge, I would respectfully suggest, left the correct question unaddressed. The situation in the hypothetical trial had to be considered, although her Honour correctly recognised that the approach taken by defence counsel for the James at the trial before Einstein J was not altogether irrelevant. It was, however, instructive but not necessarily sufficient, in my opinion, to base a conclusion solely on what had actually happened. Although perhaps unlikely, counsel for the James in the hypothetical trial may have sought to place reliance on the earlier arrangements; that possibility could not be ignored.

303 Further, I do not consider that the remarks of Hayne and Bell JJ in Tabet v Gett, in their context, provided any assistance in the resolution of the problem. That case was concerned with a very different and unusual question, namely, whether damages should have been awarded for the loss of a chance of a better medical outcome in a medical negligence case. The question of law which the injured plaintiff had put in the High Court was as follows:

"Does the common law of negligence in Australia recognise a less than even chance of avoiding an adverse health outcome as an interest of value to a patient, the loss of which by reason of a doctor's negligence, can be compensated as damage suffered by that patient?"

304 The conclusion reached was as stated by Kiefel J at [152]:

"The appellant is unable to prove that it was probable that, had treatment by corticosteroids been undertaken earlier, the brain damage which occurred on 14 January 1991 would have been avoided. The evidence was insufficient to be persuasive. The requirement of causation is not overcome by redefining the mere possibility, that such damage as did occur might not eventuate, as a chance and then saying that it is lost when the damage actually occurs. Such a claim could only succeed if the standard of proof were lowered, which would require a fundamental change to the law of negligence. ... It would involve holding the respondent liable for damage which he almost certainly did not cause."

305 The remarks by Hayne and Bell JJ, on which the primary judge placed relevance, provided support for Kiefel J's conclusion that the appellant in that case had not demonstrated that the respondent's negligence was a cause of the damage. The full context is shown by the paragraphs which were not cited by the primary judge, namely, [67]-[68]:

"[67] In this case, saying that a chance of a better medical outcome was lost presupposes that it was not demonstrated that the respondent's negligence had caused any difference in the appellant's state of health. That is, it was not demonstrated that the respondent's negligence was probably a cause of any part of the appellant's brain damage.

[68] As Gummow ACJ explains, to accept that the appellant's loss of a chance of a better medical outcome was a form of actionable damage would shift the balance hitherto struck in the law of negligence between the competing interests of claimants and defendants. That step should not be taken. The respondent should not be held liable where what is said to have been lost was the possibility (as distinct from probability) that the brain damage suffered by the appellant would have been less severe than it was." (Emphasis in original)

306 While I am unable to agree that the primary judge's approach to the issue of causation was the one required by the principles to which I have made earlier reference, I nevertheless agree that the ultimate conclusion reached by her Honour was the correct one. I shall explain why this is so.

307 First, I am not satisfied, in any event, that upon a hypothetical trial either deed would have been found to have occasioned the release of the James' interests from their obligations pursuant to the guarantees. Further, even if this were not right, I would nonetheless be satisfied, for the reasons already given, that, at the actual trial, Mr Pritchard should have been held to have been in breach of his duty of care to DJZ in relation to the February 2001 Deed; and to have been negligent, or in breach of his retainer, in relation to the August 2003 Deed, contrary to the findings of the primary judge.

308 As to the first matter, I have earlier (at [252]-[258] above) explained why, in my opinion, it has not been shown that the February 2001 Deed operated as a release. In relation to the August 2003 Deed, as I will show, the evidence fails to demonstrate that it ever became operative.

309 The August 2003 Deed was, it seems, executed by the parties. However, it remained undated and in an incomplete state in a number of important respects. Moreover, there was no evidence that, as was contemplated, it was ever "exchanged" between the parties. Importantly, within a short time, its contemplated outcome was replaced by a completely different arrangement. The August "arrangement" had contemplated that the Christians would leave the business altogether. In early October, however, Mrs Christian informed Ms Becker that the Christians had now agreed to buy the business and operate it, not resign from it. The November 2003 sales agreement confirmed this arrangement and stated in clause 26.6 that the earlier "proposed" Deed had "not been completed". It stated: "the parties to this agreement shall have no rights or claims against other party as a result of the proposed Deed". Schedule 15 confirmed that the "proposed Deed" was the August 2003 Deed.

310 In any event if, as I have found, Mr Pritchard was negligent, and breached his duty of care and/or retainer, in relation to the earlier deeds, Mr McInerney's argument leads nowhere. It was always part of DJZ's pleaded case that Mr Pritchard had been negligent in relation to the earlier deeds, as well as the 2003 sales agreement. On the hypothetical assumption that he had not acted negligently in relation to the 2003 sales agreement, it would not have assisted his defence before the primary judge to establish that there was a release of the James' obligations by virtue of the earlier deeds. He would have remained nonetheless liable in negligence, even if that were the case.

311 Mr McInerney's criticisms of the primary judge's reasons fell into three groups. First, he complained that the primary judge had failed to make the findings required by s 5D Civil Liability Act. The immediate answer to this is that the only finding required on the facts of this case was one under s 5D(1). It is inherent in her Honour's findings that she determined that the solicitor's negligence was a necessary condition of the occurrence of the harm. It was not necessary for her Honour to make this finding expressly in terms of s 5D(1), but that was the clear effect and intention of her finding: Laresu Pty Ltd v Clark [2010] NSWCA 180; [2010] Aust Torts R 82-068 at [42]; Roads and Traffic Authority (NSW) v Refrigerated Roadways Pty Ltd [2009] NSWCA 263 at [445]; 77 NSWLR 360.

312 This was not a case, on its facts, that required any finding under s 5D(2). There was no suggestion that, if factual causation were established, there was any need to consider "scope of liability". I would reject this first criticism of the primary judge's reasons.

313 Secondly, Mr McInerney argued that the relevant loss was the cause of action that DJZ possessed to sue Mrs James under the guarantee provisions of the 1999 Deed. However, in my opinion, this is not an entirely accurate description. This was a loss of opportunity case and the loss was, as I have said earlier, the opportunity to realise the commercial benefit of the rights conferred under the guarantee. Barring the solicitor's negligence, there was no barrier to the realisation of that opportunity although, as Mr McInerney's submissions correctly recognised, there had to be an application of the "but for" test in the context of a hypothetical evaluation, as I have already explained.

314 Thirdly, Mr McInerney argued that the primary judge had failed to apply two necessary tests. The first was described as the WCW Pty Ltd v Bolster issue (this was a reference to a decision by the Full Court of the Federal Court of Australia, unrep., 6 January 1993, Einfeld, Foster and Drummond JJ).

315 The second necessary test, counsel argued, was to assess whether, on the balance of probabilities, in respect of the hypothetical trial of DJZ's cause of action against Mrs James there would have been success, failure or, if neither of these, an intermediate determination of the prospects of success. This was referred to as the Johnson v Perez issue: [1988] HCA 64; 166 CLR 351. Particular reliance was placed upon the remarks of Brennan J (dissenting) at 371-372.

316 In my opinion, neither of these suggested tests was of direct assistance in the present matter. They were, with respect, likely to confuse the correct approach, as I think they did. Indeed, the first "test" has been disproved by a decision of this Court: Heenan v Di Sisto per Giles JA at [34], with whom Mason P and Mathews AJA agreed.

317 WCW Pty Ltd v Bolster concerned an action against a solicitor for professional negligence. Mr Bolster had failed to advise a client of the desirability of taking certain warranties in a contract. The Full Court observed that:

"Before this particular case against the solicitor could have been established, the appellant would have had to prove first, that as a result of the solicitor's failure to give the advice, it lost an opportunity to seek warranties that would have provided it with protection in the events which have happened; secondly, that it would have accepted that advice; thirdly, that it would have required such warranties from the vendors; and fourthly, that either the vendors would have agreed to warranties in a form that would have given the appellant a right of action against them in the events which have now happened or, if they had refused to do so, that the appellant would not have signed the contract: see Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd (1984) 157 CLR 149 at 172-3. Even if a negligent failure to advise can be established, a failure to prove these matters does not merely deprive the appellant of an entitlement to limited damages for the loss of the chance of obtaining protective warranties; it means failure to establish the cause of action: ibid, at 173."

318 It is important to observe that in Sellars, the High Court declined to follow Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA) Pty Ltd [1984] HCA 59; 157 CLR 149). At 355, the plurality said:

"Notwithstanding the observations of this court in Norwest, we consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognised in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts."

319 As I have already pointed out, the plurality in Sellars confirmed that the general standard of proof in civil actions would ordinarily govern the issue of causation and the issue whether the applicant has sustained the loss or damage represented by the loss of the opportunity or chance. However, once it had been shown that some loss or damage had been sustained, in that the contravening conduct has caused the loss of a commercial opportunity which had some value, the value is then ascertained by reference to the degrees of probabilities or possibilities.

320 WCW Pty Ltd v Bolster, accordingly, had no role to play in the present matter.

321 As to the Johnson v Perez proposition, it needs to be borne in mind that this case (and the associated case of Nikolaou v Papasavas Phillips & Co) concerned the issue as to whether, in a case where a plaintiff had lost the benefit of an action he might successfully have brought but for the negligence of his solicitor in allowing its dismissal for want of prosecution (or because the action had become statute barred), the loss crystallises at the date of that dismissal, or at a later time. The former was held to be the relevant date by Wilson, Toohey and Gaudron JJ with Brennan and Deane JJ dissenting. It was a case, however, that concerned assessment of damages. It was not concerned with causation.

322 Mr McInerney placed reliance on remarks made by Brennan J at 173 in Johnson v Perez. These remarks were examined by the plurality in Sellars. While they were not disapproved, they were clearly not adopted: see plurality decision at 353-354. More significantly, Brennan J, in his own decision in Sellars, after a careful analysis of previous authorities, said at 368:

"Where a loss is alleged to be a lost opportunity to acquire a benefit, a plaintiff who bears the onus of proving that a loss was caused by the conduct of the defendant discharges that onus by establishing a chain of causation that continues up to the point when there is a substantial prospect of acquiring the benefit sought by the plaintiff. Up to that point, the plaintiff must establish both the historical facts and any necessary hypothesis on the balance of probabilities. A constant standard of proof applies to the finding that a loss has been suffered and to the finding that that loss was caused by the defendant's conduct, whether those findings depend on evidence of historical facts or on evidence giving rise to competing hypotheses. In any event, the standard is proof on the balance of probabilities.

Although the issue of a loss caused by the defendant's conduct must be established on the balance of probabilities, hypotheses and possibilities the fulfilment of which cannot be proved must be evaluated to determine the amount or value of the loss suffered. Proof on the balance of probabilities has no part to play in the evaluation of such hypotheses or possibilities: evaluation is a matter of informed estimation."

The distinction which the plurality had acknowledged in Sellars was, as can be seen, also embraced by Brennan J.

323 As I have earlier pointed out, Mr McInerney's submissions fell into the error of drawing, or failing to draw, an adequate distinction between the issue as to whether the solicitor's negligence caused a loss, and the secondary question as to how damages for the loss were to be estimated.

324 Thus, the primary question I posed - but for the negligence of Mr Pritchard, would the James' release from their obligations have occurred - must be answered, as it was by the primary judge, in favour of DJZ.

Would DJZ have heeded Mr Pritchard's advice?

325 I turn now to the second question which had to be addressed on the issue of causation. The answer to this question requires a past hypothetical analysis, but it is a causation issue and must be determined, for the reasons I have given, on the balance of probabilities. When the issue of causation turns on what the plaintiff would have done if properly advised by the negligent solicitor, there is no particular reason for departing from proof on the balance of probabilities, notwithstanding that the question is hypothetical: Sellars at 353; Heenan v Di Sisto at [32].

326 There are two aspects of the question: first, would Mr Palmieri have accepted the advice that entering into the sales agreement may have released the James' interests and declined to sign it? Secondly, would DJZ have been content to enter into an altered agreement that contained a covenant not to sue and which provided for the sale of the Christians' units by way of the exercise of the power of sale contained in the 1999 Deed? These were, if you like, two sides of the same coin; but the overall issue was a causation one and had to be proved on the balance of probabilities.

327 It will be recalled that the primary judge found that the November 2003 agreement could readily have been drafted on the basis of a covenant not to sue, rather than by way of a release. Further, that the discharge by reason of the security issue could also have been easily avoided by a sale under the 1999 Deed: Red 160; primary judgment at [219]. It was the view of the primary judge (at [219]) that both DJZ and the Christians would have pursued a course which avoided the risk of undermining the Equity litigation.

328 In my opinion, it was well open to the primary judge to conclude that Mr Palmieri would have accepted Mr Pritchard's advice if it had been given non-negligently. It was well open to her to conclude, as she did inferentially, that DJZ would not have entered into the sales agreement in its original form, had Mr Palmieri been advised that entry into the sales agreement in those terms would have extinguished the James' obligations as guarantors. Having reviewed the evidence for myself, and notwithstanding Mr McInerney's submissions, I would come to the same conclusion. I have earlier adverted to this issue in the context of the February 2001 Deed at [243] above. The position is, I think, even clearer in the case of the 2003 sales agreement.

329 It is clear that Mr Pritchard ought to have advised Mr Palmieri that entry into the 2003 sales agreement would be likely to be fatal to the claim against the James, in so far as it relied upon the 1999 guarantees. He ought to have pointed out the risk that a Court might conclude that the agreement effected a release of the James from their obligations under the guarantee. He ought to have advised that there was a high degree of certainty that a Court would find that the sale of the Christians' units, in the manner contemplated by the agreement, breached the implied covenant to maintain security in the 1999 Deed, and thereby would release the James from their obligations. In blunt terms, Mr Pritchard should have advised that the core of the action against the James might well collapse if the agreement were entered into in the terms as drafted by the Christians' solicitors.

330 Mr Pritchard, acting reasonably and competently in accordance with his professional obligations, ought to have advised Mr Palmieri that, if DJZ wished to proceed with the substantive arrangements reflected in the agreement, the draft document should be altered to ensure that it did not contain a release (but rather contained a covenant not to sue), and that the Christians' units be disposed of by way of exercise of the power of sale, as originally contemplated.

331 Mr McInerney did not really take issue with this. He argued, however, that Mr Palmieri was a businessman who had rejected professional advice in pursuing his commercial interests on numerous occasions before entering into the November 2003 sales agreement, and that this course of prior conduct should have been taken into account by the primary judge, and should be taken into account by this Court. He argued for a finding that, even if advised correctly and non-negligently by Mr Pritchard, Mr Palmieri would have rejected that advice. Mr McInerney relied on a number of examples where legal advice had been rejected by Mr Palmieri.

332 There is no need to examine each of these in great detail. Neither individually or collectively are they persuasive. The first related to the haste with which the 1999 Deed itself had been brought to practical completion, even though it had not been executed by all the parties. In my opinion, this has little bearing on the question. It occurred in an entirely different context. The second example was that, in March 2003, Mr Palmieri had rejected the advice of Mr Alexis SC to settle the Supreme Court proceedings on a "walk away" basis, with each party to pay its own costs. It is true that Mr Alexis did give this advice, but it was primarily upon the basis that Mr James was likely to turn out to be "a man of straw". Mr Palmieri was undoubtedly concerned to protect his interest in the joint venture properties, and this had clearly played a part in his decision to continue the Supreme Court proceedings. All this, however, in my opinion, says nothing about what he would have done if advised by Mr Pritchard in November 2003 that entry into the sales agreement in its original terms would have been, or may have been, fatal to his action against the James; and that, more importantly, the situation could be preserved by way of several relatively simple alterations to the terms of the proposed agreement. Agreement to these alterations, in my opinion, would not have endangered Mr Palmieri's collateral business interests. It would have protected them by keeping alive a central claim in the Equity litigation.

333 The third example relied on by Mr McInerney related to the instructions given by Mr Palmieri and Mr Sicuro in relation to the proposed August 2003 Deed. It will be recalled that they had instructed Mr Pritchard not to pursue a requisition he had proposed be raised as there was already a release in the February 2001 Deed. Once again, to my mind, this was not a persuasive example. As I have said earlier, had Mr Pritchard, as he ought to have done, drawn Mr Palmieri's attention to the fact that the August 2003 Deed had potentially fatal consequences for DJZ's claim against the James, the reaction would have been very different indeed. No such advice had been given in connection with the August 2003 Deed.

334 Mr McInerney's fourth example is that, on 3 November 2003, Mr Palmieri was advised by Mr Pritchard that the 2003 sale should not proceed until "other relevant and important matters were attended to". Mr Palmieri did not follow that advice. He was in a hurry to conclude the transaction. Once again, this was not a convincing example. It is not uncommon for businessmen, even experienced businessmen, to be impatient with lawyers and to "take a risk" in relation to proceeding with a transaction where all the final details and minutiae have not been worked out. That is very different from the rejection of legal advice that the substance of a valuable claim will be lost, whereas it may be preserved by relatively simple alterations to a draft document.

335 Mr McInerney made a broader point based on the primary judge's finding (at [285]) that, as he put it, the November 2003 sales agreement resulted in part from Mr Palmieri's ongoing pursuit of his concerns to protect his interest in the joint venture properties from the other investors. It also proceeded, it was said, in part from his desire to obtain control of the Supreme Court proceedings in order to further his own aim in the litigation, which was the acquisition of the James' interest in the joint venture properties.

336 In my opinion, these matters do not carry sufficient weight in the present context so as to lead to a conclusion different from that reached by the primary judge. While it is true that Mr Palmieri had an overall interest to oust Mr James from the joint venture properties and to make sure that he retained the ultimate benefit, the November 2003 sales agreement was, in part, a by-product of his falling out with Mr Sicuro and the commensurate interest the Christians had in running the real estate business. I do not consider that the evidence on this point demonstrates that Mr Palmieri's "joint venture" concerns would have been likely to preclude him from accepting Mr Pritchard's advice concerning the terms of the sales agreement, if that advice had been given in a non-negligent fashion. His evidence demonstrated that one of the reasons for the Equity proceedings was to recover what he had lost in the Cronulla venture.

337 Mr McInerney put forceful arguments before the primary judge to suggest it was more probable than not that Mr Palmieri, regardless of legal advice, would have caused DJZ to enter into the November 2003 sales agreement without amendment, and would have accepted the risk that the Supreme Court proceedings might ultimately go against him on the basis of the agreement. The primary judge rejected these arguments and, in my opinion, her Honour was correct in so doing. Dr Birch submitted that it would be "unthinkable" that, if properly advised, Mr Palmieri, who was an astute businessman, would have thrown away his strongest weapon against the James' interests, when that could have been avoided by making simple changes to the document to preserve his rights. I agree with this submission. These changes would not have altered Mr Palmieri's commercial objectives, nor diminished any control of the litigation he may have been pursuing. As I have said, they would have, compared to the alternative, enhanced his commercial position.

338 In his written submissions, Mr McInerney did raise one further matter on this point, namely, the fact that Mr Palmieri in December 2003 had rejected written advice from Mr Alexis SC who had recommended settlement of the Supreme Court proceedings. This situation arose well after entry into the November 2003 sales agreement, and while the proceedings were well under way before Einstein J. I do not consider that the particular circumstances surrounding Mr Palmieri's rejection of Mr Alexis' December 2003 advice throw any light on what might have happened back in October/November 2003 concerning the sales agreement. It will be necessary for me to return to this matter again when I consider certain aspects of the Giles Payne appeal. At that point, I will elaborate further on my reasons for this conclusion.

The position of the Christians

339 I turn then to the question as to whether or not the Christians would have been prepared to enter into an altered sales agreement in November 2003. As I have said, this is not a causation issue. Rather, it is one concerned with the assessment of damages. Assuming, on the evidence, that Mr Pritchard's negligence caused the loss of the opportunity, or the chance, of realising the commercial value of the guarantee that arose upon the default by the James' interests under the 1999 Deed, valuation of that loss required an assessment of the degree of the possibilities or probabilities that the Christians would have agreed to changes to the draft sales agreement and would have entered into it in its altered form. It is clear that the primary judge approached this issue by way of the civil standard of proof on the balance of probabilities. This was no doubt because of the insistence by Mr Pritchard that this was a causation issue and the blurring thereby of the distinction between causation and assessment. In any event, the matter must be resolved now by the approach endorsed by the High Court in Tabet.

340 The assessment of the degree of probability of the happening of a hypothetical event is not a process which ordinarily can be undertaken with anything approaching precision: Sussman and Anor v Symes and Ors (unrep. 4 July 1994, McLelland CJ in Eq) at [18]. The Christians were not witnesses in the case, but nevertheless the duty was cast upon the primary judge to do the best she could in the circumstances. That task now falls upon this Court.

341 In my opinion, there was a reasonably high percentage chance that the Christians would have entered into an altered sales agreement.

342 In his submissions, Mr McInerney claimed he had secured a valuable concession from Mr Palmieri in cross examination that suggested to the contrary. This was to the effect that the Christians had required a release to be included in the November 2003 sales agreement, and that this issue was the "sticking point" for Mr and Mrs Christian in the negotiation. Mr McInerney's complaint was that this evidence, which I shall set out, was not given weight by the primary judge and was not referred to in her reasons: Black 184-185:

"Q. You recall, don't you, that you signed the sale agreement on 5 November 2003 in respect of the purchase of Chris Burke and Company by Mr and Mrs Christian?

A. Yes.

Q. You understood that Mr and Mrs Christian, as it had always been their position, wanted to be released from any liability in court proceedings which had been commenced in August of 2001?

A. Yes, I would assume so.

Q. You understood that that was a matter of great importance to them and that they wouldn't have entered into the agreement of 5 November 2003 unless they had been given that release in respect of the court proceedings commenced in August of -

OBJECTION. Form (Birch)

Q. You understood that Mr and Mrs Christian wouldn't have entered into the agreement of 5 November 2003 unless they had been given the release which they had sought in respect to the court proceedings commenced in August 2001, correct?

A. Well, I don't know. I can't speak for them.

Q. But there had been negotiations between you and Mr Christian, hadn't there, in respect of the purchase of Chris Burke & Company, correct?

A. Yes.

Q. And there had been a deal done between you and Mr Christian, hadn't there, that he would pay some of the legal costs involved or incurred in the litigation which had been commenced in August of 2001?

A. I can't remember if he put any money towards the litigation.

Q. You recall, don't you, that as part of your negotiations with Mr Christian that the sticking point for him was that he wanted to be released from my [sic] liability from the court proceedings which had been commenced in August of 2001, correct?

A. Yes, I would assume that's what his intention was, yeah.

Q. You understood that was equally Mrs Christian's position, she had to be released otherwise she wouldn't enter into the deed?

A. I would presume so, yeah.

Q. The position is that in August of 2003 you'd already given Mr and Mrs Christian a release from any liability in the court proceedings which had been commenced in August of 2001, correct?

A. The 2003 deeds?

Q. The August 2003 deed, the one I showed you before lunch?

A. Yeah.

Q. You'd given the Christians a release in that deed, hadn't you?

A. I can't remember that, the time it was done."

343 In my opinion, this evidence was entitled to little weight for several reasons. First, the questions did not draw a distinction, as they needed to, between a release and a covenant not to sue. Indeed, it is unlikely that Mr Palmieri would have understood the fine distinction involved. Secondly, his answers indicated that he was simply making an assumption as to the matters that were being put to him. Thirdly, there was no reliable evidence that there had been discussions in which the Christians were insisting upon a release as opposed to a covenant not to sue. Fourthly, it was by no means clear that the provision contained in the November 2003 sales agreement was a release as opposed to a covenant not to sue. Einstein J thought it was not. The Court of Appeal only concluded that it was, "on slight balance".

344 In my opinion, no substantial reason has been advanced by this or any other argument to suggest that the Christians would not have been content with a transfer of the shares by way of the exercise of the power of sale in the 1999 Deed. No substantial matter has been advanced to suggest that they would have insisted upon a release as opposed to a covenant not to sue.

345 In relation to this last point, Mr McInerney argued that it would have been important for the Christians to have a release as it would have advanced their position in the Equity litigation. In that litigation, however, the Christians did not at any stage raise the issue of having received a release by virtue of the 2003 sales agreement. This, to my mind, is a significant point. The Christians did not offer any evidence at trial and, it appears, were content, for whatever reason, to sustain a judgment against them for contribution as sought by the James' interests: Einstein J judgment, Blue 4, 1605 and 1678.

346 Be that as it may, it could not be said, however, with complete certainty that the Christians would have entered into an altered sales agreement. As I have said, the percentage chance of them so doing was very high and I would estimate it at 80%.

Other issues

347 I turn to the other issues I have earlier identified. The first matter raised the issue as to whether DJZ would have succeeded in enforcing any judgment against Mrs James. The primary judge found that Mrs James was a woman of some substance. While there were liabilities to consider, the primary judge found that Mrs James had a 50% interest in a property at Rose Bay which was sold in January 2002 for over $3 million. She was one of two shareholders in a company which owned a unit sold in 2004 for just under half a million dollars. She also had a significant interest in other property acquired in 1994 and apparently sold in 2009 for $725,000. On the basis of this evidence, the primary judge accepted DJZ's arguments and rejected those advanced by Mr Pritchard.

348 At trial, Mr Pritchard's primary argument had been that this was a causation issue. In my opinion, it was not. It was a matter relating to assessment of damages. It was so treated by the plurality decision in Nikolaou v Papasavas Phillips & Co (No 2) at 404: see also Murphy v Miller where a similar approach was adopted.

349 Mr McInerney argued on appeal that the correct date for the resolution of the question was September 2005 at the earliest. This was, on the basis of his analysis, the time when the Court of Appeal orders were made following the successful appeal from Einstein J's decision. In my opinion, Mr McInerney has, with respect, fallen into the very error that he has asserted against the primary judge. What had to be done was to examine the question, focusing primarily upon the point of time where the negligence caused the loss. It was then necessary to ask whether, had the negligence not occurred, would the plaintiff have succeeded in obtaining a judgment and what was the capacity at that time for that judgment to be satisfied? There was no need for the time frame to be extended beyond the likely date of judgment and, in this case, that might properly have been regarded as early 2004. DJZ's evidence had examined the capacity of Mrs James to satisfy a judgment during that period. The primary judge was satisfied that, on this evidence, DJZ had a prospect of enforcing the verdict which it had obtained before Einstein J. Murphy v Miller supports the proposition that a "broad brush" approach is appropriate in resolving an issue as to the chances of recovery of damages in a situation such as the present: similarly in Wilkinson v Daley [2004] NSWCA 331 per Handley JA. Of course, allowance had to be made for the debit side of the ledger so far as that could be ascertained, but, once again, a broad brush approach was permissible.

350 The finding made by the primary judge that Mrs James was a woman of some substance was open to her and I would not, on the evidence, depart from it. However, it remained necessary to determine the percentage involved in the possible prospect of enforcing the judgment. It was not a matter of absolute certainty. Nevertheless, I would estimate the percentage as quite high. I would put the figure at 80%.

351 The second matter went to the assessment of damages but it was not a matter that involved a hypothetical exercise. It was argued by Mr Pritchard at trial that DJZ had suffered no losses because the litigation in which it was involved had always been funded by Mr Palmieri's other companies.

352 The primary judge did not accept that there had been no loss to DJZ. In relation to the fees paid to Mr Pritchard for his legal services, there was no doubt that these had been paid by Palmieri Developments. This was precisely because DJZ itself had no assets or income. Its only asset was its interest in the litigation against the James' interests.

353 The primary judge, however, accepted Mr Palmieri's evidence that it had always been his practice to draw funds from one of his companies for the benefit of his other companies. Mr Palmieri said that the payment of these funds was not always reflected in the relevant corporate records and that he acted in this way without discussing the borrowings with his accountant. Nevertheless, it was always his intention, he said, that if DJZ recovered the monies claimed in the Supreme Court proceedings, they would be used to repay the other companies: primary judgment at [269].

354 In the case of the monies for the overall settlement in 2005, the evidence was that Mr Palmieri's other companies borrowed substantial sums from third parties, but the funds were then transferred to DJZ's cash management account. The $450,000 involved in the overall settlement was in fact paid by DJZ by way of the issue of a bank cheque. That, by contrast, was not the methodology adopted in relation to the payment of Mr Pritchard's fees. In that situation, the money went directly from Palmieri Developments to DJZ's solicitor. Apart from the different procedure involved, Mr Palmieri's general evidence covered both situations.

355 The primary judge accepted that, in the light of the evidence given by Mr Palmieri and in the situation where he was the controlling mind of all three companies, and while he and his wife were the directors and only shareholders, it ought be concluded that there was an implied loan between the corporate entities: Young v Commissioner of Taxation [2010] NSWSC 288.

356 Mr Pritchard, in an extensive written submission, provided nine reasons as to why the primary judge had erred in relation to the "implied loan" finding. Essentially, however, the submissions come to this: first, there were no contemporaneous financial records of DJZ, or of any other of the entities controlled by Mr Palmieri, to support the existence of a loan at the time that the payments were made; secondly, Mr Palmieri's evidence was inadmissible in respect of, and could not be relevant to, let alone decisive of, the determination of the existence or terms of any contractual obligation of repayment. This had to be assessed objectively: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165, at [40]. Thirdly, reliance was also placed on s 1305(1) Corporations Act which provided for an evidentiary presumption as to matters recorded in the contemporaneous records; fourthly, Mr Palmieri's accountant (Mr Osterberg) was not called, and there was evidence, in any event, that supported an inference that the litigation by DJZ against the James' interests was for the benefit of Mr Palmieri and his other companies, rather than for the benefit of DJZ.

357 Mr Pritchard argued, in addition, that any previous liability of DJZ for legal costs was discharged in full by payment of those costs by third parties without DJZ incurring any liability of reimbursement to those third parties. Accordingly, no loss was suffered by DJZ on account of legal costs or disbursements. The consequence is, it was argued, that DJZ's claim for damages in item 4 should have been dismissed. It was, it will be recalled, a claim for $489,022 plus interest.

358 Dr Birch argued that the primary judge's finding, based on Mr Palmieri's evidence, that it was intended that the money be lent, rather than gifted to DJZ by Mr Palmieri's other companies, was a finding open to her on the evidence.

359 Dr Birch argued that, on the whole of the evidence, there could be discerned a tacit understanding or agreement between Mr Palmieri's companies that there should be a loan between the relevant parties: Integrated Computer Services Pty Ltd v Digital Equipment Corp (Australia) Pty Ltd (1988) 5 BPR 11,110.

360 In my opinion, the primary judge was correct in the finding she made. None of the arguments advanced by Mr Pritchard persuade me that a different conclusion should be reached.

361 First, it is clear that under the costs agreement with Mr Pritchard, DJZ was liable for the fees and disbursements properly charged by the solicitor. The fact that the costs agreement extended to other plaintiffs in the Equity litigation did not alter this fact. Secondly, it is clear that the evidence of Mr Palmieri that it was his practice to draw funds from one of his companies for the benefit of his other companies was admissible: Toll (FGCT) v Alphapharm concerned as it was with the construction of a written agreement, had, in my opinion, no bearing on the question of admissibility. It was Mr Palmieri's unassailed evidence that it was his intention that if DJZ recovered any monies from the litigation, they would be used to repay his companies. Thirdly, while it may be accepted that there was no contemporary documentation in the records of the various companies to suggest a loan, neither was there any documentation, or other evidence, to suggest that a gift had been intended.

362 Fourthly, in the case of the overall settlement in 2005, the monies paid to Mrs James were transferred firstly to DJZ's cash management account, and the $450,000 was paid, as I have said, by DJZ to Mrs James by bank cheque. Although this was not the situation in relation to the payment of fees to Mr Pritchard, and thereby the inference was lessened, the overall factual circumstances allowed for a finding that the same tacit arrangement underlay the payment of Mr Pritchard's legal fees and disbursements.

363 Mr Palmieri's evidence was both relevant and admissible to demonstrate that payment of the solicitor's costs and disbursements by Palmieri Developments was not intended to be a gift. There was no evidence to suggest that Mr Palmieri intended to breach his duties as a director by gifting company property, and not acting in the best interests of the company which loaned the money. The evidence was quite to the contrary.

364 Mr McInerney placed particular reliance on his cross examination at Black 184 and 217:

"Q. You never understood that there was any loan agreement between Palmieri Developments and DJZ in respect of monies paid to Chris Burke & Company by Palmieri Developments, did you?

A. There's no loan agreement, I don't think so.

Q. There's no documentation at all, is there, which indicates that there was any loan between Palmieri Developments and DJZ in respect of monies paid to Chris Burke & Company, is there?

A. No, the accountant does all the financial part of it and I'm sure it is in there somewhere on the financial statement. It can be proved that the money comes from my company to another. Palmieri Developments always had the finances of DJZ."

...

"Q. If I could ask for you to return to that MFI 12, please. Mr Palmieri, in your affidavit of 29 March 2010 you give some evidence about a view you held that amounts paid by Palmieri Developments were loans to DJZ, do you recall that evidence in your affidavit of 29 March 2010?

A. Sorry, what was the question?

Q. In your affidavit of 29 March 2010 you give some evidence about loans between Palmieri Developments and DJZ?

A. Yes.

Q. The truth is, isn't it, that at all relevant times from 1999 and thereafter the position is that there were no loans made by Palmieri Developments to DJZ in respect of legal fees, were there?

A. No, I can't remember loans, but Palmieri Developments always pay the bills for DJZ.

Q. It was never your understanding from 1999 onwards that amounts paid by Palmieri Developments were loans to DJZ, was it?

A. I can't remember if there was any loan agreements, I keep repeating DJZ has no assets.

Q. You agree, don't you, it was never your understanding that there was any loans between Palmieri Developments and DJZ in respect of payments made on account of legal fees, correct?

OBJECTION (BIRCH)

BIRCH: My friend has had his answer to that question.

McINERNEY: I don't know that he did answer it, with respect to my friend.

BIRCH: He answered as best as he can.

QUESTION ALLOWED

McINERNEY:

Q. It was never your understanding, was it Mr Palmieri, that amounts paid by Palmieri Developments to assist Chris Burke and company, and payments made to Mr Pritchard in respect of legal fees were loans made by Palmieri Developments to DJZ?

A. That has always been that way.

Q. Mr Palmieri, you know that's false, don't you?

A. You asked me the same question, all I'm telling you, this is accounting matters. I can't remember whether there are loans or whatever. All I'm saying is that every payment that DJZ made, the money came from Palmieri Developments. That's the best way I can answer your question."

365 Mr Palmieri firmly rejected the contentions put to him in cross examination that there were no loans made by Palmieri Developments to DJZ in respect of legal fees (Black 218, 24-28) and that Palmieri Developments paid legal fees to Mr Pritchard "because it was in [the interests of] Palmieri Developments that those court proceedings [commenced in August 2001 and the Court of Appeal proceedings] were prosecuted: Black 202. He insisted that Palmieri Developments "never had anything to do with the court proceedings".

366 It is clear that the answers on which Mr McInerney has placed reliance were little more than concessions that accepted, as plainly was the case, that there was no written loan agreement. The substance of the answers did not amount to a retreat from the essential case mounted on behalf of DJZ that the payments of legal fees and disbursements to Mr Pritchard arose by virtue of an arrangement in the nature of a loan, rather than by way of a gift.

367 The third matter related to the overall settlement reached on 21 December 2005. This settlement was fully reflected in the terms of the settlement deed itself. Under this deed, DJZ was required to make a payment to the James' interests in the sum of $450,000. In return the Palmieri interests received a release in relation to the costs of the Supreme Court and Court of Appeal proceedings ordered in favour of Mrs James; and a release in relation to an amount of $189,326 plus interest ordered to be paid to New South Head Nominees by DJZ and WIT. Settlement of the joint venture proceedings was effected and there was a release of any asserted interest by Mr James in the joint venture properties. Mr James himself was released from bankruptcy, owing a debt in relation to the orders made against him by Einstein J. His trustee in bankruptcy was a party to the arrangement.

368 Mr Pritchard argued that the primary judge had erred in failing to give proper consideration to whether, even if a hypothetical judgment would have been obtained in its favour and could have been enforced, there would have been, in any event, a compromise of the litigation between the Palmieri interests and the James' interests in respect of the Supreme Court proceedings and the joint venture proceedings. Mr Pritchard's point appears to be that the primary judge should have concluded that, following a hypothetical trial to enforce the guarantees against Mr and Mrs James, there would nonetheless still have been a compromise funded by DJZ to enable the Palmieri interests to acquire the James' interests in the joint venture properties, with the consequence that DJZ suffered no loss caused by Mr Pritchard's negligence.

369 The short answer to this point is that it is, in my opinion, an irrelevant consideration. It was necessary for the primary judge to consider what might have happened at a hypothetical trial if Mr Pritchard had not acted negligently, as I have found he did, throughout 2001 to 2004. It is clear, for the reasons I have given, that Mr Pritchard would have been held liable for his negligence in relation to the November 2003 sales agreement as he was. Since a trial actually took place in which the value of DJZ's loss was assessed, it was appropriate to use those findings as the measure against which, in the assessment of damages, the percentage of possibilities or probabilities was to be estimated. However, I am unable to see that any "causation" issue arose out of the ultimate compromise reflected in the overall 2005 settlement. In my opinion, there was no need for the judge to hypothesise about this, either on the causation issue or damages assessment. Had DJZ succeeded in the hypothetical trial and been likely to recover against Mrs James, it would have been immaterial if, at a later point of time, an overall settlement might have been reached which reflected the resolution of all disputes and claims between the various parties. There is no reason to suppose that, in such an exercise, DJZ would have done other than rely on its hypothetical judgment, and sought to reflect its full value in any negotiation with the James in December 2005.

370 The fact that, in reality, DJZ lost its valuable rights pursuant to the guarantees as a consequence of Mr Pritchard's negligence did not mean that the actual 2005 settlement reflecting, as it probably did, a diminution in the value of the guarantees in the final settlement impacted either on causation or damages.

Advocate's immunity

371 Mr Pritchard has argued that the rendering of his services in respect of the February 2001 Deed, the August 2003 Deed and the November 2003 sales agreement were protected by advocate's immunity. The primary judge (at [222]-[226]) had found to the contrary.

372 Mr McInerney on behalf of Mr Pritchard argued that the primary judge had conducted "an over-simplified analysis". Her Honour had characterised the February 2001 Deed and the November 2003 agreement as transactions giving effect to commercial arrangements necessitated by the business situation in which DJZ, Mr Palmieri and others found themselves. Mr McInerney argued that this was an incomplete "characterisation" of the effects of the Deeds and the agreement. He submitted that, when the documents were viewed in their commercial context, and by reference to the intentions of the parties to them, a different significance was demonstrated. Although the two Deeds and the sales agreement did not result in the compromise of the Supreme Court proceedings, it was argued that each was "directed at resolving a subsisting dispute between certain parties to that litigation".

373 Mr McInerney argued that the work performed by Mr Pritchard in respect of the 2003 documents led to decisions affecting the conduct of the Supreme Court proceedings, and was accordingly "intimately connected" with the conduct of the proceedings.

374 I am unable to accept these arguments. To succeed, Mr Pritchard had to establish that the work done out of Court was work "intimately connected with or ancillary to the conduct of a case in Court": Keefe v Marks (1989) 16 NSWLR 713 per Gleeson CJ (a decision which was approved by the High Court in D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; 223 CLR 1).

375 The February 2001 Deed was prepared at a time when there was no litigation on foot between any of the parties to the Deed, although litigation against Mr James was then in contemplation. The February 2001 Deed contained an agreement whereby the investors in SRUT agreed to limit the liability of the Christian interests under the 1 July 1999 Deed. Plainly, it had nothing to do with any work done in Court or work preparatory to work done in Court. Moreover, it could not be said to be intimately connected or ancillary to any work being done in Court.

376 The 2003 documents were prepared at a time when the Equity proceedings were pending in the Supreme Court. Under the arrangements contemplated by the 2003 Deed, the Christian interests agreed to transfer the Christian units in SRUT. There was a corresponding agreement by the other parties to release the Christian interests from, inter alia, guarantees given in respect of a loan previously obtained by DJZ and Palmieri Developments. The release referred to the litigation but was not otherwise connected to it.

377 The transaction contemplated by the November 2003 sales agreement was the sale by Chris Burke & Co of the real estate business to Cottenham Nominees for $300,000. This agreement had nothing to do with proceedings then pending in the NSW Supreme Court, other than the fact that the release of the Christians referred to the litigation. It could not be said to be "intimately connected" with any work in Court that was under way or contemplated. Mr Pritchard gave no evidence that would enable any finding to be made that the 2003 sales agreement was, in any real sense, connected to the litigation against the James. The situation was put beyond doubt by Mr Pritchard's own evidence that he gave no consideration to what impact the two Deeds and the sales agreement might have on the outstanding litigation: Black 270. Nothing in this agreement had any effect on the conduct of the trial or the matters pleaded, or the evidence that was led or the arguments put by the clients for whom Mr Pritchard acted.

378 Dr Birch is correct, when he points out that this Court's ultimate finding was that DJZ's rights under the 1999 guarantee were lost by reason of the entry by it and the Christians into the 2003 sales agreement. This loss occurred as a consequence of the operation of clause 25 in that agreement. The impact of this clause on the proceedings against the James was totally unintended and had nothing to do with any preliminary decision affecting the way the Equity proceedings were to be conducted. Nor did the August 2003 Deed have anything to do with any preliminary decision affecting the conduct of the James' litigation.

379 In my opinion, the primary judge was correct in relation to the conclusions she reached in rejecting the advocate's immunity argument advanced by Mr Pritchard.

Cross claim - grounds of appeal

380 A number of the conclusions I have reached have a significant impact on Mr Pritchard's grounds of appeal, in so far as they relate to the cross claim. These were the claims against Giles Payne and Mr McGovern SC. Essentially, Mr Pritchard's case was that the primary judge should have concluded that Giles Payne had been at an earlier time partially responsible for the loss suffered by DJZ. This argument centred on the causative effect of the February 2001 Deed. The argument proceeded that Giles Payne should have been liable, by way of contribution or indemnity, for a proportion of DJZ's costs from in or about May 2002, when Giles Payne first obtained an unexecuted copy of the February 2001 Deed and was informed that it had been signed. It was argued, it will be recalled, that this was the relevant date, not the later date relied on by the primary judge, namely, 12 January 2004.

381 In respect of Mr McGovern SC, and for the same reasons, the primary judge, it was argued, had erred in concluding that the February 2001 Deed had no causative effect on any loss suffered by DJZ. If this error were established, it was argued that Mr McGovern SC should be held liable by way of contribution or indemnity for a proportion of DJZ's costs from 15 April 2003, this being the time when he provided written advice to continue the Supreme Court proceedings, after having been briefed with an unexecuted copy of the February 2001 Deed and other material which suggested that such a Deed had been executed.

382 These two arguments are bound up with the Giles Payne appeal and aspects of Mr McGovern's contention. Those parties respectively deny that they were, in any event, negligent. I shall address the Giles Payne appeal and Mr McGovern's notice of contention shortly. However, on the assumption that each was negligent, I would nevertheless find that Mr Pritchard's grounds of appeal against them should fail. This is because of my conclusion that it has not been shown that the 2001 Deed was causative of the loss suffered by DJZ. The primary judge's conclusion in this regard was correct, albeit for different reasons than those upon which I have placed reliance. Since the conclusion her Honour reached was correct, it follows that the arguments based on the cross claim against Giles Payne and Mr McGovern SC in the Pritchard appeal, even if negligence be established, must fail.

Mr Pritchard's arguments on damages

383 In a general sense, I have accepted Mr Pritchard's arguments that there was error in the methodology used by the primary judge in assessing damages. I do not, however, accept all of the arguments advanced in this regard by Mr Pritchard. As I explained earlier ([284]), at issue here was the valuation of the lost opportunity to realise the valuable commercial opportunity represented by the guarantees in favour of DJZ, that opportunity having materialised upon default by Mr James. Having found that the opportunity or chance of realising the value of the guarantees was lost as a consequence of Mr Pritchard's negligence, it became necessary for the trial judge to assess damages in accordance with the established principles in Sellars. It was not necessary to conduct a trial within a trial, however, because a trial had been conducted and the value of the guarantees had been determined, as Dr Birch argued, by the judgments entered by Einstein J. The extent of the judgment orders, however, did not represent the amount that had to be awarded to DJZ in its actions for negligence against Mr Pritchard. The primary judge was entitled to take as a starting point the damages awarded by Einstein J. However, it was necessary to make an estimation of the possibilities or probabilities underlining the value of what was lost. That exercise would enable the Court to select, as best it could, a proportion of the Einstein J damages as the damages in the negligence action. Accordingly, it was necessary to assess the prospects that the Christians would have agreed to enter into an altered document and whether, upon the entry of judgment, Mrs James would have been in a position to meet such a judgment.

384 I have earlier stated my opinion that the primary judge was required to determine "by reference to the degree of probabilities or possibilities" where, in the spectrum of results, the plaintiff's prospects in those regards lay. In due course, I will return to apply those findings in a concrete manner to the finding made by the primary judge. It is clear that Mr Pritchard will have succeeded, at least to the extent of a reduction in the damages that he should pay.

385 I do not agree, however, that all the probabilities or possibilities relied upon by Mr Pritchard in his submissions fall for consideration. For example, I do not agree that, had non-negligent advice been given in relation to the 2003 sales agreement, there would have been, in a practical sense, any appeal to the Court of Appeal that needs to be considered as a contingency relevant to the assessment of damages. If Mr Pritchard had done his job correctly, Mrs James would have had, in practical terms, no defence to the claim made by DJZ under the 1999 Deed, other than her cross claim. This consideration applied to his negligence not only in relation to the 2003 documents, but also to the February 2001 Deed.

386 Mr Pritchard also repeated, in the context of assessment of damages rather than causation, his arguments about Mrs James' ability to pay out a judgment and the effect of the 2005 overall settlement. I have accepted the first of these two as a relevant matter on the assessment of damages, but I do not accept the second for reasons I have earlier outlined. It was neither relevant on causation or to the assessment of damages.

387 The final argument on damages was said to be a "failure to prove loss". In part, this was a repetition of the earlier argument that suggested that, in so far as the loss included the costs paid to Mr Pritchard, this had not been proved because they were paid by Palmieri Developments. I have dealt with that aspect already. There was a second argument, however, which suggested that those costs were not, however "wasted", based on the assumption that DJZ would have succeeded against Mrs James at the hypothetical trial. It was argued that the costs to DJZ of litigating its claims against Mrs James under the 1999 Deed would have been a necessary expense, in any event, to achieve a judgment against Mrs James.

388 It appears that there were three argument strands. First, Mr McInerney argued that DJZ would be entitled to damages against Mr Pritchard in respect of both items 2 and 4 only if the primary judge made findings that, absent Mr Pritchard's negligence, there was a 100% probability that (a) the cause of action to enforce the guarantee would have succeeded, (b) DJZ would have obtained a costs order against Mrs James and (c) the judgment and costs orders would have been enforced to their full extent against the available assets of Mrs James. Mr McInerney submitted that, since no findings of this kind were made, the award of damages in items 2 and 4 could not stand. My earlier conclusions as to the proper approach to be taken and its consequences in the circumstances of this case provide a complete answer to this submission.

389 Secondly, in relation to item 4, Mr McInerney submitted that the primary judge had erred in concluding that DJZ had proved its loss. Here, the claim was made on the premise that, but for Mr Pritchard's negligence in respect of the November 2003 sales agreement, DJZ would not have incurred those costs. The primary judge implicitly accepted that this was so and made an implicit finding that these costs were "wasted".

390 Mr McInerney submitted that this represented a double-recovery for DJZ in circumstances where the primary judge awarded damages in item 2 representing the value of the lost cause of action. By awarding damages for both item 2 and item 4, the primary judge erroneously overcompensated DJZ. DJZ recovered both the value of its lost cause of action and the amount of the costs it would have incurred in any event to obtain a judgment on that lost cause of action. It was submitted that, in these circumstances, the award of damages in item 4 should be set aside or that, alternatively, DJZ should be put to its election between those competing measures of loss.

391 Thirdly, it was argued that, if damages are to be awarded in respect of item 4, this should only be up to 7 August 2003. This was, in effect, a repetition of an earlier argument. Mr McInerney, in his written submissions, argued that, from that date, by reason of entry into the August 2003 Deed and without any breach of duty by Mr Pritchard, DJZ had discharged Mrs James from any liability as guarantor under the 1999 Deed. Consequently, the continuing legal expenditure was rendered wasted, not by reason of any negligence of Mr Pritchard, but because of DJZ's own conduct in entering into the August 2003 Deed.

392 I have earlier rejected similar arguments in relation to the August 2003 Deed and, for those reasons, which I will repeat, there is no substance in this third argument.

393 As to the second argument, I do not think that it can be accepted. If Mr Pritchard had not acted negligently then DJZ would have succeeded on the guarantee claim and would have been entitled to recover whatever costs were involved in making that claim. In a hypothetical situation (as in the real situation), there was no doubt that a costs order would have been (and was) appropriate. In the actual proceedings, there can be no doubt that costs were incurred, at least to a significant degree, in responding to the arguments raised by Mrs James regarding the release of her guarantee that had occurred as a consequence of Mr Pritchard's negligence. If Mr Pritchard had not been negligent, in the hypothetical trial the issue of the guarantee would have been, in costs terms, insignificant as compared to the situation in the actual trial.

394 In any event, the negligence of Mr Pritchard which led to the loss of the opportunity to realise the benefit of the guarantees led also to the loss of the costs order against Mrs James. The negligence extended to the loss of the opportunity of recovering those costs as well. DJZ was entitled to be put back in the financial position it would have occupied had negligence not occurred.

395 The primary judge approached this issue by examining the costs expended by DJZ in the first instance hearing before Einstein J. She did not award those costs in their totality. Her Honour made an assessment of the costs referable to the guarantee issue. The costs assessed were then further reduced for her Honour's finding of contributory negligence by DJZ in having continued with the guarantee action after advice as to the risks from Giles Payne. Her Honour then found Giles Payne to be responsible for 50% of the balance of those costs, because of their failure to advise DJZ of the risks of proceeding with the claim on the guarantee after the November 2003 agreement had been executed.

396 I am not prepared to find that her Honour erred in approaching the issue in the manner she did. I reject Mr Pritchard's arguments in relation to these matters.

Mr Palmieri and Palmieri Developments' liability to pay costs

397 Mr Pritchard has sought orders for costs against Palmieri Developments and Mr Palmieri relating to the costs of the appeal and of the trial below. Such an order could only arise for consideration if the appellant succeeded in its appeal and the Court were to make costs orders in favour of Mr Pritchard.

398 Dr Birch resisted these orders and, in fact, submitted that the primary judge had erred in concluding that there might be a proper basis for making costs orders against non-parties to the proceedings. As it happened, it became unnecessary for the primary judge to act on the conclusion she had reached. In any event, Dr Birch put a number of arguments to suggest that the criteria identified in Knight v FP Special Assets Ltd [1992] HCA 28; 174 CLR 178, for making such orders had been established: see also FPM Constructions Pty Ltd v Council of the City of Blue Mountains [2005] NSWCA 147.

399 I shall defer further consideration of this matter until after I have dealt with the Giles Payne appeal and the McGovern cross appeal, and after making ultimate findings on the damages issue. I shall also review, as necessary, the costs orders that were made.

The Giles Payne appeal

400 I have determined that the Giles Payne appeal should not succeed. I have also concluded that none of the challenges to the factual findings made by the primary judge have been established. The matters raised in the Notice of Contention are generally co-extensive with the grounds of the appeal. For that reason, none of the contentions can succeed.

401 The principal point argued by Giles Payne was that its retainer did not require it to consider and advise DJZ in respect of either the 2001 Deed or the 2003 sales agreement: Giles Payne appeal, ground 1. Its contractual task, it was asserted, related to the potential claim against Mr James concerning alleged misleading or deceptive representations that had induced Mr Palmieri and DJZ to enter into the 1999 transaction.

402 While it may be accepted that there is no such thing as a general retainer, the facts and circumstances surrounding the nature of the Giles Payne retainer, and the changes to it that eventuated, simply do not support its asserted position. In my opinion, the primary judge correctly concluded, after a careful and thorough analysis of those circumstances, that the solicitors had a contractual duty to advise DJZ concerning the two documents; and that, in relation to the 2003 sales agreement, the failure to advise DJZ that this document could have fatal consequences for its claim under the guarantees contributed to the wasted costs expended by DJZ in pursuing the claim.

403 While it may be accepted that the task initially set by the client required Giles Payne to focus its attention on the potential misleading or deceptive conduct case, it soon became apparent that it was necessary for it to consider the Supreme Court proceedings and the pivotal importance of the 1999 transaction, as evidenced by the various documents reflecting the investment venture in a number of its manifestations.

404 As early as 11 March 2002, Mr Gilles obtained from Mr Pritchard copies of the pleadings in the Supreme Court proceedings and, importantly, the brief which Mr Pritchard had provided to Mr Wales SC. Mr Gilles had, on or about 23 February 2002, written to Mr Pritchard requesting a number of documents, including a copy of the brief to Mr Wales. Mr Gilles was aware, in a general sense, of the complex nature of the structure that had been set up in 1999 as part of the investment transaction. Significantly, he knew from the outset (as his own affidavit indicated at paragraph 15) that the structure involved guarantees by Mr and Mrs James and Mr and Mrs Christian for the debts owed by IGM and James Christian. He also knew that there had been a number of transfers of units: Blue, 3013.

405 In May, Mr Gilles wrote to Mr and Mrs Palmieri confirming the instructions he had received to brief counsel to advise and draft a statement of claim in respect of the misleading and deceptive conduct of the James family, pursuant to the Deed dated 1 July 1999 "whereby Tass Alexander James, Janet Margaret James, Michael Christian and Katherine Christian were guarantors". Mr Gilles added:

"We believe that we should investigate all issues relating to the drafting of clause 4 of the Deed. To that end, we'll ask Denis Bowls and Paul Pritchard if they will let us look at their file relating to those negotiations."

406 On 8 May 2002, Mr Gilles attended Mr Pritchard's office. He spent a considerable time there inspecting a number of documents. These included an undated and unexecuted copy of the February 2001 Deed: Supplementary Blue, 33. Mr Gilles' file note indicates that the Deed "relating to the release of Michael Christian from the litigation" had, according to Paul Pritchard, been entered into. He made a note for himself: "Get a signed copy."

407 Mr Gilles also indicated in his file note that he had inspected a letter dated 23 November 1999 from Paul Pritchard to DJZ, WIT and D & A Mortimer. According to his note, this indicated "additional to the above there is a Deed whereby Mr and Mrs James, Mr and Mrs Christian, James Christian Pty Ltd and M & K Christian Family Trust and the Janet Margaret James Family Trust all guarantee the payment of the Macquarie Bank debt secured over the assets of the unit trust, and they also guarantee that the trustee will pay the preferential distribution to you".

408 Both and Mr Gilles and his legal assistant, Ms Becker (who later advised Mr Palmieri on certain aspects of the February 2001 Deed), understood that the February 2001 Deed had been executed and that it varied the rights and liabilities of the parties to the 1999 Deed. Although Mr Gilles had made a note to himself to obtain copies of the executed documents, it appears that he did not do so in the case of the February 2001 Deed.

409 In the period from May to September 2002, Giles Payne took draft statements from Mr Wilson, Mr Christian, Mr Palmieri and Mr Osterberg in support of the proposed Trade Practices claim. During September 2002, Giles Payne commenced preparing the brief to Mr McGovern SC. The brief was delivered on 20 December 2002. It comprised six volumes, including the pleadings in the Supreme Court, the brief which Mr Pritchard had provided Mr Wales SC, and an unexecuted and undated copy of the February 2001 Deed, incorrectly described in the observations as being a Deed entered into in July 2001.

410 There were a number of other significant documents included by Giles Payne in the brief to Mr McGovern SC. These included the notice of default dated 4 May 2001 which had been served on both the James and Christian interests. It was addressed to both Cottenham Nominees and New South Head Road Nominees. The notice asserted that default had occurred under the 1999 Deed, including default in relation to payment of the preferential distribution to the investors. It required the guarantors to make good the default and indicated that the investors would, failing remedy of the default, exercise their rights under clause 8 of the 1999 Deed to sell the unitholders' units in SRUT.

411 Also included was a copy of the letter which Mr Pritchard had received from Dibbs Barker dated 11 May 2001. Dibbs Barker was acting for Cottenham Nominees. Their letter referred to the notice of default served on Cottenham and stated:

"We advise that the rights and obligations contained in the Deed dated 1 July 1999 have been varied pursuant to a subsequent Deed."

The letter identified the Deed of Guarantee and advised Mr Pritchard that "the actions referred to in paragraph 5 of the notice of default are not available to your clients pursuant to this later Deed".

412 The brief also included a letter of 19 March 2001 which Mr Pritchard had written to the directors. This letter, in part, counselled the directors to consider the exercise of a power of sale arising under the Deed of 1 July 1999. It countenanced the sale of the units in SRUT held at that time by the James' interests. It cautioned against a sale, however, without taking reasonable precautions to ascertain the value of the units. This was to prevent any later challenge that might be made regarding the sale by the James interests. In the course of the letter, Mr Pritchard had stated (Blue, 496):

"Additional to the above, you should carry out a review of the payments made to A class unitholders and provide us with details of that. This will be needed to support a claim that the guaranteeing parties under 1 July 1999 Deed, namely James Christian Pty Limited, Tass James, Janet James and the Janet Margaret James Family Trust (Michael Christian, Katherine Christian and Cottenham Nominees Pty Limited having been released by the Deed recently being prepared by ourselves on your instructions) are in default." (My emphasis.)

413 The observations to the brief to Mr McGovern were, it seems, drafted by Ms Becker, but settled and approved by Mr Gilles. In those observations, Giles Payne had stated (Blue, 740-741):

"By Deed dated 1 July 1999, the representations made by Tass James and Michael Christian in respect of the investments to the other investors Mortimer, Wilson, Xerri and Palmieri was set out. The Deed appears to us not to be consistent with what our clients considered to be the case but it goes part of that way. It is upon this Deed that our client wishes to rely, together with the other representations made by Tass James and Michael Christian to bring proceedings against Tass James and his related companies and trusts."

414 The observations later state:

"As an aside, when it became apparent to the investors in Surf Road that the promised returns were not available, the investors as a group forced the resignation of Mr James and the co-operation of Michael Christian. Michael Christian entered into a Deed with the other investors to provide assistance in the pursuit of Tass James. This Deed is dated on or about July 2001 and is briefed."

(It is clear that this last reference was a mistake: the Deed referred to was the February 2001 Deed.)

415 Mr Gilles was cross examined about the February 2001 Deed and his understanding of its nature. At Black 309-310, the following appears:

"Q. At the time that you prepared these observations to Mr McGovern of senior counsel your instructions were that Mr Christian had entered into that deed in or about July 2001, correct?

A. I think it was. I thought they had released him so that he could co-operate. That's right.

Q. You consider that the document which is behind tab 36 of MFI 15 was an important document to draw to Mr McGovern's attention in your observations because it purports to vary the rights and the liabilities of some of the parties pursuant to the July 1999 deed, correct?

A. Well, the importance of it to me was that in looking at it from a misleading and deceptive conduct claim, Mr Christian was to give evidence for Palmieri against James consequent upon the deed being entered into. So he co-operated because he was released. He couldn't be sued himself.

Q. You understood that the release given to Mr Christian was over a release in the February - in the deed behind tab 36 which related to the July 1999 deed, correct?

A. Well, I looked at it from the point of view of the misleading and deceptive conduct claim and what I saw was a discount [sic] which was unsigned which I presume was signed because I formed that view that enabled Christian to give evidence for us and it should be something that McGovern should look at.

Q. The reason you formed that view was because you knew the document behind tab 36 had varied in some way to Mr Christian and Mrs Christian's obligations under the 1 July 1999 deed, correct?

A. No, the point of it for me was that Christian was now available to give evidence against James, whereas before he was not.

Q. You reached that conclusion after you appreciated the legal effect of the document behind tab 36, didn't you?

A. Well, no, because he told me - Vince told that they had released Michael.

Q. And that was confirmed on your reading of the document behind tab 36?

A. Yes.

Q. And at the time that you prepared the observations to Mr McGovern of senior counsel, which is behind tab 1 of MFI 14, you would have given careful consideration to the terms of the deed found behind tab 36 of volume 5 of his brief, correct?

A. In the context of what we were briefed to do, yes."

416 I have earlier referred to the fact that Mr Pritchard's observations to Mr Wales SC were included by Giles Payne in the brief to Mr McGovern. Mr Pritchard's instructions to his senior counsel in 2001 had stated (Blue, 3539):

"After a brief flurry of activity which included our clients referring the matter to PricewaterhouseCoopers, our clients informed us that because Andy Mortimer was 'acting like a madman', e.g. threatening to kill Tass James, they could not continue their attempted rescue operation of the Business with him so they had 'done the deal' with Michael Christian whereby they agreed not to take any action against him or his company vehicle ..."

417 By the end of 2003, it can be seen plainly from the foregoing that Giles Payne were in possession of sufficient material to alert them to the possibility that the February 2001 Deed had the potential to threaten DJZ's right of recovery against the James' interests pursuant to the guarantees. Indeed, the bulk of that material was included in the brief given to Mr McGovern SC. It is also plainly clear that neither Mr Gilles nor Ms Becker ever turned their minds to this particular problem. It is not too harsh a judgment I think, to say that, although Giles Payne was armed with sufficient material, it simply never occurred to those responsible that the well known principles of guaranty and suretyship, to which I have referred, may have come into play. Yet it was clear beyond doubt that this may have been the case.

418 This fundamentally careless approach to the known facts permeated through the instructions relating to the proposed misleading and deceptive conduct claim and flowed on to the broadening of instructions that occurred throughout 2003.

419 The evidence established that, by early 2003, there had been a number of discussions between Mr Gilles and Mr Palmieri in which the latter had expressed his concern about the possibility of losing the assets that he held jointly in the joint ventures with Mr James. It was clear that this was a matter that was a significant aspect of his desire to be represented by Giles Payne. Mr Palmieri gave evidence that he had raised with Giles Payne and Mr McGovern SC in about March 2003 his concerns about what might happen in the existing litigation in relation to the joint venture properties. One of his concerns was that Mr James might "do a deal" with the other investors in SRUT so that those other investors would acquire Mr James' interest in the joint venture properties: Black 162 [31]-[37].

420 Giles Payne was aware that in March 2003 Mr Palmieri had rejected the advice of Mr Alexis SC that the Supreme Court proceedings should be settled on terms that each party should "walk away" from the litigation, each party to bear its own costs. This offer of settlement was discussed during a conference on 3 March 2003 attended by Mr McGovern SC, Mr Gilles and Mr Palmieri.

421 It was clear beyond doubt therefore that, by March 2003, one of the aspects of the litigation being considered by Giles Payne and Mr McGovern SC related to Mr Palmieri's overall concern to protect his joint venture properties. Mr Gilles accepted that this was so: Black 317 [1]-[41].

422 At a conference on 21 March 2003 attended by Mr Gilles, Ms Becker and Mr Palmieri, Mr McGovern SC advised that it would be more appropriate for Mr Palmieri to bring the Trade Practices Act claim as part of the existing Supreme Court proceedings and that it might be wise for Mr Palmieri to retain separate representation in those proceedings. Giles Payne sent a carefully drafted letter to Mr and Mrs Palmieri on or about 25 March 2003 in which it confirmed the advice that had been given by Mr McGovern SC. The letter contained the following (Blue 779):

"The issues noted above raise a very real concern about a possible conflict of interest which the Pritchard Law Group may have in representing multiple plaintiffs in this action.

Particularly in light of Points (1) and (3) above, your interests are coming into direct conflict with those of the other plaintiffs, meaning that you require independent representation to adequately protect you not only as against Mr James but also in settlement process undertaken by your co-plaintiffs.

Strategically speaking it would also make good sense to employ separate legal representatives so as to effect a 'pincer' attack on the defendants, Mr James and his family. This means that you will, through your Counsel:

(a) have the opportunity to cross-examine Mr James if this matter goes to Court;

(b) have your interests protected in the event of any offer of settlement;

(c) have a choice as to whether to discontinue action against Mr James or not in the event that he does come up with a settlement proposal your co-plaintiffs are likely to accept."

423 Mr Palmieri counter-signed this letter by way of acceptance on 26 March 2003 and returned it to Giles Payne. Thereafter, the solicitors, albeit for a relatively brief period of time, acted on the basis that they were to represent DJZ in the existing Equity litigation. Ms Becker, who by then had primary conduct of the matter for Giles Payne, subject to Mr Gilles' supervision, moved to implement DJZ's instructions to act for it in the Supreme Court proceedings. This included, with Mr Palmieri's authority, obtaining copies of the pleadings and affidavits from the Court file, which Ms Becker did on or shortly after 27 March 2003. Mr Palmieri's instructions to Giles Payne were that he wanted to recover what he had invested in the real estate business and he did not want to lose the joint venture properties to the other investors in any settlement of the Supreme Court proceedings: Red 184.

424 On 28 March 2003, Giles Payne wrote to Mr McGovern SC confirming that they had been retained to act for DJZ and Mr Palmieri in the Supreme Court proceedings. The letter confirmed senior counsel's instructions to review the matter and draft any documentation necessary regarding that separate representation and any further claims to be brought on behalf of the clients. It appears that Mr McGovern SC set aside time on 31 March and 1 and 2 April 2003 for that purpose.

425 Ms Becker's evidence was that, at this time, Giles Payne was retained to represent Mr Palmieri in three separate actions: first, to separately represent Mr Palmieri and DJZ in the Supreme Court proceedings; secondly, to consider the claim against Mr James for misleading and deceptive conduct; and, thirdly, to consider a claim against Mr James regarding the inflated value of the shares: Black 396-397.

426 On or about 7 April 2003, Giles Payne provided to Mr McGovern SC copies of the pleadings and affidavits which had been filed in the Supreme Court proceedings. It will be necessary at a later stage to look more carefully at the situation in April, particularly concerning Mr McGovern SC's involvement. Put shortly, Mr McGovern SC spent considerable time examining all the material which he had been given, and then arranged for a conference which was held at his chambers on 15 April 2003. Mr Gilles, by this time, regarded Giles Payne's retainer as extending to whether, having regard to Mr Palmieri's concerns with respect to the properties he jointly owned with Mr James, his personal interests could be advanced by a Trade Practices claim, beyond the claims already on foot in the Supreme Court proceedings. Mr Gilles appreciated that this "necessarily involved a consideration, to some extent, of the claims being advanced on behalf of DJZ in the [existing] proceedings": Blue 3029.

427 On 15 April 2003, Mr McGovern SC provided written advice to Giles Payne which included the statement (referred to earlier) that:

"... the present Supreme Court proceedings, relying as they do upon the deed of 1 July 1999, offer the most reasonable prospect of being able to secure the reasonably arguable claims of Surf Road Nominees Pty Ltd and the investors."

428 As the primary judge noted, this advice made no mention of any risk that the 2001 Deed might give rise to potential arguments which could be used against DJZ in the existing proceedings. Indeed, it made no reference at all to the February 2001 Deed. Nor, it seems, did Giles Payne raise these possibilities with Mr McGovern SC.

429 By its pleading (First and Second Cross Defendants' Defence to Further Amended Cross Claim, para 12(a)), Giles Payne admitted that on 15 April 2003, or shortly thereafter, it communicated Mr McGovern SC's advice dated 15 April 2003 to Mr Palmieri. Ms Becker gave evidence that, at the meeting on 24 April 2003, Mr Gilles explained to Mr Palmieri, in some detail, Mr McGovern SC's letter of advice dated 15 April 2003. This was to ensure that Mr Palmieri understood the contents of that advice and that Mr Palmieri understood Mr Gilles' explanation: Black 462 line 43 - 463 line 7. In evidence, both Mr Gilles and Ms Becker said that they did not disagree with the advice provided by Mr McGovern.

430 On 24 April 2003, Mr Palmieri provided instructions that DJZ would not now be separately represented in the Supreme Court proceedings. Instead, Giles Payne was instructed to remain on standby, ready to appear if the need arose. They were to keep a "watching brief", and to provide advice when it was sought by Mr Palmieri.

431 It appears that the changed instructions occurred partly as a result of a discussion between Ms Becker and Mr McGovern SC. Senior counsel suggested two options to Ms Becker. The first was "to have someone who ... sits in the courtroom and watches". The second was to have someone appear in the proceedings, but whose task was only to watch until it was necessary to actively represent the clients in settlement negotiations. These options were discussed by Ms Becker with Mr Gilles and then by both of them with Mr Palmieri and Mr Xerri. The instructions given by the clients were consistent with the first option described by Mr McGovern SC: that is, Giles Payne was to sit in the courtroom, watch the hearing of the Supreme Court proceedings and to step in if "things were not going in our clients' favour": Blue 2724.

432 As it happened, Giles Payne did not keep a "watching brief" in this sense although this departure from the arrangement originally contemplated must have been apparent to Mr Palmieri, and sanctioned by him, when the proceedings ultimately came on for hearing. At the conference on 24 April 2003, Mr Gilles told Mr Palmieri (Blue 3031) that the firm would be "on standby" in case Mr Palmieri's interests conflicted with those of the other investors. It was clear, however, whatever the ambit of a watching brief, that Ms Becker was not required to attend any of the directions hearings or to do otherwise than to be available to give advice as and when required.

433 Between August 2003 and the end of the year, at least until the commencement of the proceedings before Einstein J, Ms Becker was, in fact, requested to give ad hoc advice from time to time to Mr Palmieri. On 4 September 2003, Mr Palmieri informed Ms Becker that the Equity proceedings had been set down for hearing in December 2003.

434 On 8 September 2003, Mr Palmieri attended a conference with Mr Gilles and Ms Becker. On this occasion, Mr Palmieri specifically asked Giles Payne to look at the February 2001 Deed and to consider whether or not it would prevent Mr James from succeeding on his cross claim for contribution against Mr Christian in the Supreme Court proceedings. Following this conference, Ms Becker prepared a draft letter to Mr Palmieri which was settled by Mr Gilles. One of the issues it addressed was the question whether the release given by DJZ in favour of Mr Christian in the February 2001 Deed was binding as between Mr James and Mr Christian. I have set out the terms of the letter of advice (at [73] above, pp 54-55). It confirmed that, in the writers' opinion, the February 2001 Deed operated to stop Chris Burke & Co from taking action against Michael Christian, but did not act as a bar to Tass James and his family recovering against Michael Christian. As the primary judge found, in providing this advice, neither Mr Gilles nor Ms Becker gave any consideration as to whether the effect of the 2001 Deed could be to discharge the James' interests from any of their obligations under the 1999 Deed.

435 On 7 October 2003, Ms Becker accompanied Mr Palmieri to a meeting with Mr Sicuro, Mr and Mrs Christian, Mr Wilson and an accountant. The purpose of Ms Becker's attendance was to protect Mr Palmieri's interests. It was at this time that there had been a falling out between Mr Palmieri and Mr Sicuro. These events presaged the transaction in which the Christians agreed to acquire the business of Chris Burke & Co. This was the transaction that was ultimately embodied in the November 2003 sales agreement. Ms Becker cautioned Mr Palmieri not to sign anything until Mr Gilles or she had looked at the documents: 2 Black 425 lines 8-11.

436 On 9 October 2003, Ms Becker attended a meeting with Mr Palmieri and Mr Christian. The purpose of the meeting was to discuss whether or not Ms Becker would prepare a deed for the sale of the business of Chris Burke & Co, and to discuss what the deed might contain. At this meeting there was a further discussion concerning the February 2001 Deed. By 10 October 2003 it seemed likely that Giles Payne would be acting for Mr Palmieri and his interests on the sale of Chris Burke & Co to the Christian interests. This situation altered, however, by 27 October 2003. Mr Palmieri brought a draft document, which Ms Becker understood was the agreement for the sale of the business. Ms Becker reviewed the contents of the document, but some time thereafter Giles Payne decided that it would not act for Mr Palmieri and DJZ in respect of the finalisation of the November 2003 sales agreement, because it considered that it had not been given all the relevant documents: Blue 3033 and 3050.

437 The Equity proceedings commenced before Einstein J on 15 December 2003. About ten days before that, Ms Becker had given Mr Palmieri certain advice in relation to various scenarios for a possible settlement of the proceedings. Notwithstanding the instructions previously given by Mr Palmieri in April 2003, Giles Payne did not in fact "sit in" on the proceedings and observe its progress. As was recited earlier, on 18 December 2003, during the course of the hearing before Einstein J, DJZ's counsel (Mr Alexis SC and Ms Sainsbury) advised about the possible effect of the February 2001 Deed and the November 2003 sales agreement. They informed the clients that Mr Palmieri might have a claim against Mr Pritchard if the James' defence succeeded. Mr Pritchard advised Mr Palmieri to seek independent advice.

438 In January 2004, while the Supreme Court proceedings had been adjourned part-heard, Mr Palmieri sought advice from Giles Payne as to whether or not the proceedings should be settled. Mr Gilles and Ms Becker met with Mr Palmieri on 12 January 2004 and discussed the possible outcome of the Supreme Court proceedings in a number of its manifestations. These included the possible terms of any settlement; whether and how Mr Palmieri's interests in the joint venture properties could be protected; whether or not the James family could access the properties owned by Mr Palmieri in which they had an interest and, at a general level, the plaintiff's prospects of success overall. However, it is clear that the difficulties caused by the either the February 2001 Deed or the November 2003 sales agreement were not discussed. The primary judge was highly critical of Giles Payne in this regard: primary judgment at [341].

439 Giles Payne gave its written advice to Mr Palmieri by letter dated 22 June 2004. The details of this have been set out earlier at [74]. The primary judge found that, by this advice, Giles Payne had encouraged DJZ to pursue the proceedings without advising as to the risk about which Mr Alexis had advised.

440 This recitation of the circumstances leading up to the January 2004 advice demonstrates compellingly why it is that Giles Payne cannot succeed in its attempt to limit its retainer obligations in the manner suggested by its primary argument. First, even on the case sought to be mounted by Giles Payne, it is clear that the 1999 Deed was pivotal to any possible claim under the Trade Practices Act, and that the possible release of the Christian interests (and any impairment to the securities arrangement) was relevant both to the relief that might be available and to damages. Further in that regard, the respective merits of bringing such a claim in the Supreme Court proceedings or independently, and the necessary inter-relationship between such claims, was clearly contemplated by early 2003. Secondly, the retainer was plainly altered and was enlarged to encompass a number of matters that went beyond the proposed misleading and deceptive conduct proceedings. This was quite apparent by the time the 25 March conference took place. Thirdly, by 26 March 2003, Giles Payne had been instructed to act for DJZ in the Equity proceedings, even though these instructions were altered by the end of April 2003. Fourthly, the obligation to keep a "watching brief" in relation to the Supreme Court proceedings maintained, to some degree, the enlarged ambit of the retainer. Finally, the instructions given in the period December and January 2003/2004 in relation to the advice sought by DJZ amply justified the primary judge's conclusions as to the scope of Giles Payne's retainer and its duty of care in connection with the provision of such advice.

441 In my opinion it may be safely said that, at each stage of the circumstances I have outlined, as the Giles Payne retainer enlarged and altered from time to time, there was a continuing obligation to draw to the clients' attention the potential or possible problems represented by the February 2001 Deed. Even more importantly, when the critical task arose (to advise DJZ on its prospects of success in the litigation and on settlement) in January 2004, there was a clear obligation imposed on Giles Payne to inform itself as to the precise contents of the Alexis advice, the pleadings and the terms of the 2003 sales agreement, before providing that advice.

442 It may be accepted that the "watching brief" instructions diminished somewhat as 2003 progressed. It may be accepted, for example, that Mr Palmieri did not require Giles Payne to attend any directions hearings and that the overall control of the litigation was in the hands of Mr Pritchard and his counsel of choice. It may also be accepted that Mr Palmieri's initial fears that control of the litigation would be wrested away from him by other investors had been resolved by his own actions in securing overall control of the proceedings. Nevertheless, Giles Payne continued to have a watching brief towards the end of 2003, even though Ms Becker was not required to be in attendance throughout the actual hearing.

443 It must be accepted that Ms Becker knew that the Christians were intending to buy the Chris Burke & Co business and that this transaction involved Mr Palmieri and DJZ. Ms Becker maintained that she did not read the draft agreement presented to her on 27 October by Mr Palmieri, but she accepted that she had later reviewed it, at least to the point where she formed the opinion that it was "too hard" for her to attend to. Ms Becker also knew of the general nature of the advice that had been given by Mr Alexis in December 2003. I agree with the primary judge that a simple enquiry of either Mr Pritchard or, through him, Mr Alexis, would have enabled Giles Payne to understand the full tenor of senior counsel's advice. It would have been a simple matter to obtain copies of the pleadings. There was no difficulty with obtaining a copy of the 2003 sales agreement in its final form.

444 The overwhelming inference is that Mr Gilles and Ms Becker were simply unaware or at least inadvertent as to the possible effect in law of the release of the Christian interests, or the sale of their units in SRUT.

445 While it may be accepted that the parameters of the retainer reflected in the provision of 22 January 2004 advice were not unlimited, it is equally clear that the advice gave no consideration to the problems that flowed from the November 2003 sales agreement, or to the contents of Mr Alexis' advice. I am unable to accept, for the reasons I have given, that Giles Payne discharged its retainer in this regard in a non-negligent fashion. I would respectfully suggest that it is impossible for Giles Payne to escape from the adverse conclusion reached by the primary judge by asserting that it did not have the sales agreement, the pleadings or the advice of Mr Alexis. A solicitor acting competently in the circumstances in which Giles Payne was placed in January 2004 would have ensured that he or she had an understanding of the basis of Mr Alexis' advice and would have addressed the questions required by their retainer with full regard to that advice and to the material on which it was based.

446 In any event, contrary to my conclusions, even if Giles Payne's retainer did not extend so far, Giles Payne was nevertheless in breach of its duty of care towards DJZ. Giles Payne had sufficient information before it in January 2004 to be on notice that DJZ's interests were endangered or at risk unless further steps (whether within or outside the limits of the retainer) were pursued. It was incumbent upon Giles Payne to bring these matters to the clients' attention and to advise of the need for further advice: Dominic v Riz at [90]-[91]; David v David at [76].

447 Giles Payne raised an argument that the primary judge's finding of negligence was contrary to s 5B Civil Liability Act. However, Giles Payne did not raise s 5B in its pleadings, its written submissions or otherwise in the court below. No such issue was raised by Giles Payne in the "Statement of Issues" prepared for the parties and placed before her Honour at the conclusion of the hearing.

448 Be that as it may, the risk was, on any view, was "not insignificant". The broader risk contended for (arising out of Mr Pritchard's claim against Giles Payne) was plainly significant, namely, inter alia, the loss by DJZ of its ability to realise the value of the guarantee claim against Mr and Mrs James. However, on the primary judge's findings it may be accepted that Giles Payne's negligence, in the overall apportionment of responsibility, was confined to causing the loss of DJZ's opportunity of settling the proceedings in January 2004. It may be accepted that that was the basis of her Honour's apportionment, although not precisely expressed in the reasons for judgment. This too, in my opinion, was a risk that might properly be categorised as "not insignificant". It must be accepted that it was a far less significant risk than that claimed by Mr Pritchard against Giles Payne, but it nevertheless remained a risk that, in my opinion, met the statutory description. It is clear that a "not insignificant" risk arose, that DJZ would continue with the action, if the solicitor chosen to give the second opinion negligently failed to give similar correct advice, namely, similar advice to that provided by the first opinion (i.e. that DJZ was likely to lose the proceedings).

449 The final point argued under this heading by Giles Payne was that it could only have taken precautions to avoid the relevant risk of harm to DJZ by undertaking a detailed independent analysis of the claims made in the James proceedings and the complex transactions giving rise to those claims: s 5B(2)(c). It was argued that this consideration should lead to a finding that Giles Payne was not negligent, even if it were found to owe a relevant duty of care. In my opinion, this submission should not be accepted. Mr Pritchard is correct in arguing that all that was required was a simple identification of the risk presented by the November 2003 sales agreement and the provision of accurate legal advice in that regard. While there was room for argument, it was not a matter of any complexity.

Appeal ground 2 - no encouragement to pursue the James proceedings

450 Essentially, this ground requires a close examination of the advice furnished on 22 January 2004. The primary judge gave the advice careful analysis and, in my opinion, there is no reason to find that her Honour fell into error in this regard. Despite the express limitations in the advice, there is no doubt that the essence of the advice sought was "whether or not we thought you should proceed". Giles Payne advised that "it appears to us that your matter is progressing reasonably and along expected lines", and that "on balance, from a costs perspective, you may as well continue with the case". In its terms, this advice plainly conveyed encouragement to DJZ to pursue the proceedings while at the same time completely failing to advert to the serious risk that the James' liabilities under the guarantees had been, or would be regarded as having been, discharged by the November 2003 agreement.

Appeal grounds 3 and 4 - causation

451 The primary judge had found that the 2001 Deed was not causative of DJZ's loss. I have accepted, albeit with some hesitancy, that this conclusion was correct. Further, I have determined that in a hypothetical action brought by DJZ against the James' interests, assuming that Mr Pritchard had not been negligent in connection with the 2003 sales agreement, the February 2001 Deed could not have been successfully relied upon, and that it has not been shown it provided a defence to the claims under the guarantees. Although Giles Payne had no connection whatsoever with the preparation of the August 2003 Deed, I have also found that this Deed was not operative and so could not have been relied upon as a defence in the hypothetical action to which I have made reference. Giles Payne argued the decisions taken by Mr Newlinds SC at the actual trial and appeal foreclosed, in any event, that these matters would have been relied on at the hypothetical trial. I doubt whether this is so but, in view of my conclusions, it is not necessary to express a concluded view. This means that, so far as Giles Payne is concerned, the narrow issue is whether the negligence of Giles Payne in connection with the advice it gave in December 2003/January 2004 caused or contributed to the loss of the opportunity to settle the proceedings with the James' interests. The primary judge's conclusions on this point were briefly but cogently expressed at [360] and referred to by me at [181] above.

452 Giles Payne argued that the primary judge's reasoning was "opaque". Secondly, it was argued that Mr Palmieri's evidence - that he did not know what he would have done even if Giles Payne had advised him, in January 2004 or at any other time, that the James proceedings were "hopeless" -required a contrary finding than that made by the primary judge. Giles Payne relied on the fact Mr Palmieri had rejected the strong advice given by Mr Alexis SC in his letter of 23 December 2003. It argued that "it is difficult to see how advice given by a firm of suburban solicitors who did not have carriage of the James proceedings could or would, on the balance of probabilities, have altered that position". There was a further argument advanced to the effect that Mr Palmieri knew that, if DJZ lost the James proceedings, it had a claim in negligence available against Mr Pritchard. It was submitted that the availability of this claim was, in effect, "an insurance policy" for Mr Palmieri's benefit and would have influenced his decision.

453 A final argument advanced was that the proposition accepted by the primary judge was "undermined" by the fact that DJZ amended its claim to sue Giles Payne directly only a matter of days prior to the end of the hearing (as a consequence of Mr Pritchard's amendment of his cross claim). It was further undermined by the admission made by DJZ at the time of serving the proposed amended claim that it did not "consider Giles Payne to be responsible for its losses". However, whatever the reason for DJZ treating Giles Payne and Mr McGovern "lightly" in the correspondence, the pleadings raised the legal issues fairly and squarely.

454 In my opinion, the primary judge was correct in the conclusion she reached. Once again, however, the correct analysis required identification of what was in issue. DJZ's case against Giles Payne was also a lost opportunity case. Here, however, the loss was a much more limited one than that involved in the action against Mr Pritchard. It was, as I have said, the loss of an opportunity to achieve a settlement of the claim against the James' interests. On the issue of causation it was necessary for DJZ to establish that, but for the negligence of Giles Payne, the opportunity to achieve a settlement would not have been lost. On the findings I have made, the negligence satisfied that test, as required by the Civil Liability Act. The second causation matter that DJZ had to establish was that it, through Mr Palmieri, would have accepted the non-negligent advice and acted upon it. Each of these matters had to be proved on the balance of probabilities. The primary judge accepted that proof to that extent had been achieved.

455 To a degree, her Honour was in a better position than this Court to make an assessment of Mr Palmieri and what it is he would have done, if both firms of solicitors and lawyers had told him that his case was hopeless and that there was every chance he would lose the action against Mr and Mrs James. In many respects, the primary judge was critical of the credit and general reliability of Mr Palmieri, but, in this one notable instance, she took the view that, as an astute businessman, he would have accepted the Giles Payne advice, if it represented the second opinion to that effect. Implicit in her Honour's finding is the fact that, as appears to be undoubtedly the case, Mr Palmieri placed special reliance on Giles Payne for advice. The evidence is redolent with illustrations of Mr Palmieri using the second firm of solicitors as a very valuable sounding board to protect his interests in circumstances where Mr Pritchard was otherwise acting.

456 Mr Palmieri's evidence upon which Giles Payne placed particular reliance in its submission was evidence that, if it were not adverse to his interests, would not have been admissible: s 5D(3)(b) Civil Liability Act. However, it was, at least to an extent, adverse to his interests; and it was in fact a question that was asked by Mr McInerney without objection. But I do not think that the answer required the primary judge to come to a different conclusion than she did. The question, after all, was a hypothetical one postulated upon the proposition that the particular advice was sought and given by Giles Payne. The question did not focus on what would have been the position if the advice represented the weight of a joint opinion from both sets of lawyers. In any event, the candid answer "I do not know what I would have done" did not prevent her Honour from coming to the view that Mr Palmieri subjectively would have accepted the advice, if it had been given correctly. None of the submissions made on behalf of Giles Payne on this point persuade me that her Honour made any error, and I would, for myself, agree with the conclusion she reached.

457 An additional argument, raised as an alternative by Giles Payne, was that a question arose as to whether or not DJZ could have settled those proceedings after 12 January 2004. Giles Payne argues that her Honour did not address this question explicitly and appears to have assumed simply that DJZ could have done so. It is asserted (correctly) that this assumption is implicit in her Honour's finding that Giles Payne should be held liable for a proportion of DJZ's costs incurred in continuing the James proceedings after 12 January 2004.

458 The argument raised here is a causation argument. It is expressed in terms that "there was no evidence to support the primary judge's assumption or implicit finding". Strictly speaking, however, this was not a causation issue. It may well have been that Giles Payne could have argued that, on the assessment of damages flowing from the loss of opportunity, a percentage finding needed to be made as to the possibility or probability that the James' interests would have been interested in settling the proceedings after 12 January 2004. That argument was not, however, raised by Giles Payne in their appeal or in their defence to the cross claim brought by Mr Pritchard. As I have pointed out, this was not a causation issue at all and the point may simply be disposed of on that basis.

459 However, I would consider that there was some evidence that would have enabled a finding (if it were necessary) that the James' interests would have entertained a counter-offer for settlement had Mr Palmieri decided to act upon correct advice given to him by Giles Payne. A "walk away" settlement had been offered by the James' interests, but DJZ and the other plaintiffs had rejected this offer on 18 December 2003. While it is true that that offer no longer remained open for acceptance after 18 December 2003, there was no reason to suppose that, had a similar proposal been counter-offered by DJZ in January 2004, the James would not have entertained it. There is at least a prospect or possibility that this would have been likely. After all, the alternative from the James' financial perspective could scarcely have been an alternative one. As the argument was not raised by Giles Payne as a damages issue, however, it may be put to one side.

460 There was a final causation argument raised that, even if it were open to the primary judge to make a finding of factual causation, her Honour erred in finding that it was appropriate for the scope of Giles Payne's liability to extend to DJZ's losses incurred in pursuing the James proceedings after 12 January 2004. This was not an argument put to the primary judge and it is not, in my opinion, an argument that has any substance to it. No argument was advanced to justify the conclusion urged.

Appeal ground 5 - apportionment

461 Giles Payne submitted that, in all the circumstances of the case, its responsibility for DJZ's loss represented by the costs incurred in the James proceedings after 12 January 2004 was significantly less than Mr Pritchard's responsibility in terms of "culpability". The argument centred upon s 35(1)(a) Civil Liability Act. This provides that the liability of a defendant, who is a concurrent wrongdoer in respect of an apportionable claim, is limited to "an amount reflecting that proportion of the damage or loss claimed that the Court considers just having regard to the extent of the defendant's responsibility for the damage or loss".

462 Giles Payne submits that the primary judge failed to undertake an evaluation in order to come to a discretionary conclusion about where the justice of the case lay: Reinhold v NSW Lotteries Corporation (No 2) [2008] NSWSC 187 at [42]. It is clear that her Honour exercised a discretionary judgment, basing her conclusion upon the whole of the circumstances underlying the nature of Giles Payne's retainer, its breach and the causation of loss. Her Honour, as a consequence, determined liability in an amount which her Honour plainly considered just, having regard to the extent of Giles Payne's responsibility for DJZ's loss.

463 Her Honour's decision was a discretionary judgment. In order to undermine it, it is necessary for Giles Payne to demonstrate an error of the kind identified in House v R [1936] HCA 40; 55 CLR 499, at 504-505. No such error has been demonstrated. It has not been shown that her Honour took a matter into account she should not have; it has not been demonstrated that her Honour failed to take into account a relevant matter. Her Honour's conclusion that Giles Payne's contribution to the loss suffered by DJZ from 12 January 2004 should be assessed at 50% was one that was open to her. It has not been shown to have been an unreasonable conclusion. No basis has been established for overturning the apportionment.

Appeal ground 6 - costs of DJZ's claim against Giles Payne

464 The primary judge ordered Giles Payne to pay DJZ's costs of its claim against Giles Payne. It was submitted that her Honour's order involved a denial of procedural fairness to Giles Payne; it involved a manifestly unreasonable exercise of the discretion under s 98 Civil Procedure Act, and it should be set aside. This argument repeats an underlying theme in a number of the submissions made by Giles Payne in its appeal. It centres upon the fact that DJZ joined Giles Payne as a defendant only on the contingency that Mr Pritchard might succeed in his cross claim, and that DJZ did not, in practical terms, maintain any independent claim for damages against Giles Payne, nor actively seek any finding of breach against it. However, as the primary judge correctly observed, given the nature of that which was revealed by the evidence as to matters of which DJZ could not have been aware, the position adopted by DJZ in the litigation towards Giles Payne "is of no real assistance to Giles Payne, in defending the case brought against it": primary judgment at [290]. While it may be accepted, as I have said earlier, that, for whatever reason, DJZ was reluctant to join the partners of Giles Payne as defendants, the fact is that it did so, and its pleadings entitled it to succeed against those defendants if the case were made out, and if it were established that certain parts of the losses which DJZ suffered were reasonably foreseeable and caused or contributed to by Giles Payne breaching its duty of care to DJZ. This was so even if, as happened, the necessary proof emerged from the forensic skill of Mr McInerney on behalf of Mr Pritchard, rather than activities emanating from DJZ's counsel who was content to remain quiescent. However, a consequence of the proof of the necessary matters was that DJZ's case, on the pleadings, was made out against Giles Payne. In those circumstances, there was no reason why costs should not follow the event. It appears there was a full argument on costs on 9 December 2010. Her Honour delivered her judgment in relation to various aspects of the costs issues on 17 December 2010: DJZ Constructions Pty Ltd v Paul Pritchard [2010] NSWSC 1472. The parties were agreed as to certain orders, but there remained considerable contention as to a number of outstanding orders, each of which had to be resolved by the primary judge. As to the costs between DJZ and Giles Payne, her Honour said:

"[29] DJZ succeeded in the case it brought against Giles Payne. It was submitted for DJZ however, that the claim advanced was a defensive one, in the event that the proportionality argument succeeded. DJZ had partial success, but sought no costs order in its favour, unless one was made against it in relation to Mr McGovern.

[30] For reasons which I will explain in relation to Mr McGovern, I take the view that there can here be no departure from the usual costs order against Giles Payne in favour of DJZ.

[31] For reasons which will become clear, I also take the view, however, that Giles Payne must bear the additional costs incurred by DJZ, as the result of having to engage new solicitors, when they had to withdraw. Those costs were the result of Giles Payne's failure to earlier identify its conflict. I will discuss this matter further below, but indicate at this stage that in my view, DJZ should not have to bear the costs resulting from Giles Payne's earlier failure to identify its conflict."

465 Her Honour then considered the costs situation as between DJZ and Mr McGovern. There is no need for me to set out in detail the various considerations that her Honour took into account. However, her conclusion was as follows:

"[34] I am all in favour of pragmatism and indeed urge it upon the parties, by making sensible accommodations with each other. I do not, however, see that it can provide a basis for departure from the ordinary approach flowing from s 98 of the Civil Procedure Act and the Court's Rules, even despite what s 56 of that Act provides.

[35] Nor do I see that justice requires that an order should be made requiring Mr Pritchard to indemnify DJZ against the result of this order, as DJZ also sought. It was DJZ which elected to take a defensive position, following the cross claim Mr Pritchard brought against Mr McGovern. I cannot see why it should be relieved of the consequences of that decision, other than in the respects I have earlier outlined."

466 I am unable to detect any error in her Honour's exercise of discretion in awarding the costs of DJZ's claim against Giles Payne. Nor am I able to detect that there has been a denial of procedural fairness.

Appeal ground 7 - costs of Mr Pritchard's cross claim against Giles Payne

467 The primary judge ordered Giles Payne to pay the whole of Mr Pritchard's costs of his cross claim against Giles Payne.

468 The complaint here is that Giles Payne was held liable in respect of only one component of the damages suffered by DJZ, namely, DJZ's costs of the James proceedings. Further, only 60% of those costs were held to be recoverable by DJZ as damages in these proceedings. Giles Payne was held to be liable only for 50% of such part of the remaining amount that represented costs incurred after 12 January 2004. The conclusion urged in this appeal is that the primary judge erred in applying the general rule that costs should follow the event. The discretionary exercise, it was argued, failed to take into account whether the limited measure of success achieved by Mr Pritchard against Giles Payne warranted a costs order of a more limited amount: s 98(4)(b) Civil Procedure Act.

469 The primary judge gave very careful consideration to this issue. In the costs argument before her, Giles Payne had submitted that it should be required to pay only 25% of Mr Pritchard's costs of the cross claim, to properly reflect the limited measure of the success achieved by Mr Pritchard on the cross claim. The primary judge identified the basis of this argument, namely, that this followed because Mr Pritchard had argued that Giles Payne had been the principal adviser in the litigation before Einstein J and should therefore bear a very significant proportion of any damages which DJZ suffered. Her Honour rejected this argument, stating:

"[49] I do not accept that submission. There was here no disentitling conduct on Mr Pritchard's part, such as the unreasonable pursuit of unmeritorious claims, or discreditable conduct in the proceedings. Mr Pritchard succeeded on the cross claim, contribution was assessed, with the result the orders made in recognition of Giles Payne's contribution to the damages DJZ incurred."

470 Her Honour then made detailed reference, first, to a discussion by Hammerschlag J in Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd [2008] NSWSC 1163. In that decision, Hammerschlag J had given consideration to Pt 42 r 42.1 UCPR which provided that costs were to follow the event unless "it appears to the Court that some other order should be made as to the whole or any part of the costs". Hammerschlag J had identified a number of examples of instances where the general rule might be displaced.

471 Secondly, her Honour took into account (as Hammerschlag J had done) a passage in Hughes v Western Australian Cricket Association (Inc) (1986) 8 ATPR 40-748. Toohey J had commented on the need to proceed cautiously where there was a suggestion that costs should be apportioned according to the success or failure of one party or the other on the various issues of fact or law which might have arisen in the course of a particular trial. Having considered these matters, her Honour said:

"I am satisfied that the just order in the circumstances of this case is that Giles Payne bear the costs of the cross claim brought against it, as agreed or assessed."

472 Once again, in my opinion, it has not been established that her Honour made any error in the exercise of her discretion.

Ground 8 - Mr Pritchard's costs of defending DJZ's claim

473 Giles Payne argued that s 5 of the Law Reform (Miscellaneous Provisions) Act should not have been applied by the primary judge in apportioning Mr Pritchard's costs of defending DJZ's claim. It was submitted that a defendant who has established an entitlement to contribution against a joint tortfeasor under s 5 is not entitled as of right to contribution to costs payable to the plaintiff (in addition to damages) and, further, that there was no proper basis to exercise discretion under s 98 Civil Procedure Act and Part 42 UCPR in respect of liability for costs (in addition to costs of the cross claim).

474 Before the primary judge, in relation to the cross claim, Giles Payne had argued that an order that it bear 25% of Mr Pritchard's costs of the cross claim, excluding those that related to Mr McGovern, would properly reflect the limited measure of success achieved by Mr Pritchard on the cross claim.

475 However, citing Hammerschlag J's discussion in Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd at [32], her Honour held at [51] (of the costs judgment, [2010] NSWSC 1472), that in relation to the cross claim, Giles Payne should pay costs, without apportionment. Her Honour was not satisfied that the circumstances of this case warranted a departure from the general rule that costs follow the event in respect of the cross claim.

476 As to the costs Mr Pritchard was ordered to pay DJZ, Mr Pritchard had sought an order that Giles Payne indemnify him proportionate to their responsibility for the loss DJZ suffered. This partial indemnity was sought by Mr Pritchard on the basis that Giles Payne was a joint tortfeasor under s 5 of the Law Reform (Miscellaneous Provisions) Act.

477 Schmidt J accepted that Giles Payne had been negligent and acted in breach of its retainer by failing to consider and advise DJZ about the potential impact of the 2001 Deed and, significantly, the 2003 sales agreement, on the case it was pursuing in the Supreme Court before Einstein J. At [55] (of the costs judgment), her Honour considered the observations of this Court in James Hardie & Co Pty Ltd v Wyong Shire Council [2000] NSWCA 107; 48 NSWLR 679, made by Handley JA at [23] and Giles JA at [40] and determined that it was just and equitable that the burden of DJZ's costs be shared between the tortfeasors. At [56], her Honour considered "a sensible order" in the circumstances to be that, up to the time that Giles Payne became a defendant in the proceedings, Giles Payne should indemnify Mr Pritchard for 25% of the costs he had been ordered to pay DJZ.

478 Importantly, the primary judge considered Giles Payne to be joint tortfeasors within the meaning of s 5 of the Law Reform Act and, also, concurrent wrongdoers within the meaning of s 34 of the Civil Liability Act. Pursuant to s 35 of the Civil Liability Act, her honour assessed Giles Payne as 50% responsible for losses suffered by DJZ from 12 January 2004 as a result of their negligence. This assessment was relevant to the contribution claimed by Mr Pritchard against Giles Payne. It proportionally allocated the liability as between Mr Pritchard and Giles Payne at 50%.

479 In terms of costs, by operation of s 5 of the Law Reform (Miscellaneous Provisions) Act, Giles Payne was then ordered to pay 25% of Mr Pritchard's costs up to the point at which they were joined to the proceedings as defendants to Mr Pritchard's cross claim. At that point, the partners became liable for costs in respect of the cross claim alone. In this way, s 5 was applicable as a question of discretion for the primary judge having regard to what was just and equitable for the purposes of contribution in respect of the cost of proceedings until such time as Giles Payne was joined.

480 In respect of the submission that Schmidt J had no proper basis to exercise discretion in apportionment of the costs Mr Pritchard incurred in defending proceedings against DJZ, this submission is to be rejected. Section 98 Civil Procedure Act confers a wide discretionary power on the Court to make orders as to costs, subject to the rules contained in Part 42 UCPR. Part 42 UCPR sets out the general rule that the proper exercise of the costs at discretion will normally require an order that the successful party's costs be paid by the unsuccessful party, at least to the extent to which their costs have been reasonably incurred in the conduct of the litigation. Relevantly, it also guides the exercise of discretion to depart from this general rule.

481 The doctrine of contribution, a longstanding rule of common law set out in s 5 of the Law Reform (Miscellaneous Provisions) Act, further conditions the discretion in respect of costs. In this regard, as the primary judge noted, the decision of the Court of Appeal in James Hardie, particularly Handley JA at [23], Giles JA at [40] (Heydon JA agreeing at [46]), makes clear that s 5(2) Law Reform (Miscellaneous Provisions) Act extends to permit contribution from joint tortfeasors in respect of both damages and costs. Even if, as Giles Payne submits, it is a judicial discretion and not an entitlement as of right, there is nothing to suggest this discretion was infected with error.

482 Having made an assessment as to Mr Pritchard and Giles Payne's relative responsibility in respect of losses sustained by DJZ arising from entry into the November 2003 sales agreement, and Giles Payne's failure to give non-negligent advice in December 2003/January 2004, a just and equitable apportionment of liability might properly involve proportionate responsibility for damages and costs. Any line drawn between damages and costs for this purpose would be artificial and contrary to the position of this Court in James Hardie.

Mr McGovern SC's Notice of Contention

483 Mr McGovern argued that, in reply to ground 9 of the Pritchard appeal, the primary judge's conclusion that the February 2001 Deed had not been causative of the loss of the value of the 1999 guarantees nor, in his case, contributed to any wasted costs, should be affirmed. I have earlier concluded that, in substance, this argument should be accepted, with the consequence that ground 9 of Mr Pritchard's appeal must fail, albeit for reasons other than those advanced by Mr Gibb SC on behalf of Mr McGovern.

484 Mr Gibb nevertheless sought to advance, by way of contention, a series of arguments to suggest that the primary judge should have held that there was no breach of a duty of care involving Mr McGovern's dealings with Mr Palmieri, DJZ and Giles Payne between December 2002 and May 2003. Mr Gibb argued that these matters of contention should, in addition to the matter relied on by the primary judge, have led to the dismissal of Mr Pritchard's cross claim against Mr McGovern.

485 The principal argument advanced by Mr Gibb in his contention was that the primary judge had erroneously taken an "unrestrained and unrestricted" view of the scope of Mr McGovern's retainer. Her Honour ought to have regarded the retainer as quite a limited one and found that Mr McGovern had fulfilled this limited retainer without negligence.

486 Mr Gibb also advanced a number of additional contentions to suggest that the primary judge had failed to address various provisions of the Civil Liability Act 2002. Finally there was a contention to suggest that, had Mr Palmieri's attention been drawn to the possibility that there were problems arising from the February 2001 Deed (contrary to Mr McGovern's assertion that there was no obligation on him to do so), DJZ would not have acted otherwise than to continue the proceedings instituted by Mr Pritchard on its behalf against the James' interests.

487 Before resolving these contentions, it is convenient to deal with Mr McGovern's challenges to factual findings made by the primary judge. These factual findings may be summarised as follows.

(a) Mr McGovern had been instructed that the 1999 Deed had been later varied or amended by the 2001 Deed.

(b) In Mr Pritchard's observations to Mr Wales, with which Mr McGovern had been briefed, concern had been raised about the impact of the 2001 Deed and advice had been sought in relation thereto.

(c) On Mr McGovern's instructions, a deed in the terms of the 2001 Deed had been entered into and it had been considered by Mr Pritchard that the Deed raised a potential problem.

(d) Mr McGovern did not consider that a deed in the form of the executed 2001 Deed had been entered into.

(e) The letter sent from the Christians' solicitors in May 2001 had relied on the 2001 Deed.

488 The first challenge, in my opinion, has not been made good. The fact that the 1999 Deed had been varied or amended by the 2001 Deed was, or should have been, apparent from the material briefed to Mr McGovern. For example, the letter of 11 May 2001 from Dibbs Barker stated that Cottenham and the Christians' obligations under the 1 July 1999 Deed "have been varied pursuant to a subsequent deed entered into by [the investors]". It asserted that the notice of default (a preliminary to the exercise of a power of sale) was not available to the investors as a consequence of the variation effected by the Deed. A cursory examination of the "unexecuted, uncompleted and undated deed" in Mr McGovern's brief would have made clear why it was that Dibbs Barker were making the claim they did. It was really no answer to that situation to say that Mr McGovern could not be certain that document 36 in his brief was the Deed referred to by Dibbs Barker in their letter of 11 May 2001.

489 The finding by her Honour is reinforced by the letter (also briefed to Mr McGovern) dated 19 March 2001 from Mr Pritchard to the directors of Surf Road Nominees. This referred to Mr Pritchard's involvement in the drafting of complex and comprehensive documents including "a general release offered by members and participants of the unit trust to Michael Christian, his wife and ... Cottenham Investments Pty Ltd". It also referred to the fact that the Cottenhams had been released "by the Deed recently prepared by ourselves on your instructions".

490 This letter provided to Mr McGovern information as to the date and content to the Deed which had varied (so far as the Christians were concerned) the obligations under the 1999 Deed.

491 If more were needed to justify the primary judge's finding, reference should also be made to the observations by Mr Pritchard in the brief to Mr Wales SC (which was also briefed to Mr McGovern) which referred to the "deal" done with Michael Christian whereby "they agreed not to take any action against him or his company vehicle". All these matters of instruction should have alerted Mr McGovern to the likelihood that the relevant Deed in the brief - although undated - as the operative instrument referred to in the material to which I have made reference. To that extent, her Honour's reference to Mr McGovern being "instructed" was not incorrect.

492 In relation to the second challenge, Mr Gibb pointed out that it did not appear that the 2001 Deed had been briefed to Mr Wales as part of his original brief. It was clear that he must have been given a copy of the Deed prior to giving his advice. The point made by Mr Gibb, however, was that it was incorrect for the primary judge to find that Mr Pritchard had "raised in his observations to Mr Wales" concern about the impact of the 2001 Deed. Strictly speaking, this may have been right. But the thrust of her Honour's remark was that advice had been sought by Mr Pritchard from Mr Wales, and that this must have related to the matter referred to by him in his observations: "they had done the deal with Michael Christian whereby they agreed not to take any action against him or his company vehicle". To the extent that the primary judge did not correctly record the precise sequence of events in relation to the briefing of Mr Wales SC, this could not have constituted a material error. It was correct as a matter of substance.

493 As to the third challenge, it appears that Mr Gilles did brief Mr McGovern with Mr Wales' brief, and with the uncompleted copy of the 2001 Deed. Consequently, material was provided to Mr McGovern which ought to have alerted him to the "release" issue raised by Mr Pritchard in his observations to Mr Wales SC.

494 In relation to the fourth challenge, Mr Gibb argued that it was wrong to find that "Mr McGovern did not consider that a deed in the form of the executed 2001 Deed had been entered into". Mr McGovern said that he had considered the outcome of such a Deed having been entered into. He maintained that he had not seen the Deed in its completed and executed form prior to 2009. He also maintained that he had never been instructed by Giles Payne that DJZ had become a party to or had executed the Deed.

495 However, this challenge proceeds on the basis of a reference to the primary judge's judgment which is taken out of context. At [365] (Red 201) her Honour was dealing with a submission that Mr McGovern had not been briefed "with any February 2001 Deed". The basis of this submission was, it seems, that the version which Mr McGovern had been given was "incomplete, undated and unsigned". Her Honour said that, if Mr McGovern had any doubt that a Deed in terms of the document briefed to him had been executed, he should have sought a copy of the executed Deed. It was in that circumstance that her Honour said:

"Competent practice did not permit Mr McGovern to proceed on the basis of an assumption that such a deed had not been entered, or that a deed in different terms had been entered in 2001, given his instructions."

496 Her Honour's remarks, when read in context, are not susceptible to the challenge that has been made.

497 The fifth challenge is also without substance. While it is true that the letter sent by Dibbs Barker in May 2001 did not identify a Deed by date, a cursory reading of the document in Mr McGovern's brief would have raised a practical inference that this was the Deed referred to in the letter from the solicitors. This is reinforced by further material in the brief to which I have made reference. Her Honour's conclusion was warranted and correct when read fairly.

498 The final challenge ("her Honour erred in finding that Mr McGovern maintained the letter sent from the Christians' solicitors did not require his attention") needs also to be examined in context. At [386], her Honour said:

"Mr McGovern accepted that it would have been his duty to advise DJZ, if he believed their claims were doomed to fail. Had any other difficulty come to his attention, his duty also required him to draw them to attention. In cross examination, Mr McGovern maintained that the letter sent from the Christians' solicitors, which relied on the 2001 deed, as removing the right to sell their units under the 1999 deed, did not require his attention, because of Mr Palmieri's instructions. Given that his written instructions were that a deed had been entered in 2001 and the deed with which he was briefed, had the effect claimed, that view may not be accepted." (Emphasis added.)

499 Mr McGovern was cross examined about his reaction to the Dibbs Barker letter of 11 May 2001 at 2 Black 545-547, and also at 560::

"Q. You should have said in this letter of advice if you had any concern with respect to the triggering of clauses 6 and 8 of the 1 July 1999 deed which you knew was an issue by your reading of the Dibbs Barker letter of 11 May 2001?

A. I didn't have any concerns on the basis of my instructions.

Q. It was an important matter to bring to the attention of Giles Payne and Mr Palmieri, wasn't it, that from the materials which you'd read, the solicitors for Cottenham were disputing the exercise of the power of sale under clauses 6 and 8 of the 1 July 1999 deed in reliance on a subsequent deed, correct?

A. I disagree.

Q. And it was an important matter to raise for the attention of Giles Payne and Mr Palmieri that the subsequent deed raised by Dibbs Barker in their letter of 11 May 2001 was described as having the same named parties as the deed found behind tab 36 of exhibit 20 of your brief at page 1409, correct?

A. I disagree.

Q. It was an important matter, wasn't it, in giving your letter of advice of 15 April 2003 to identify that instructions received from Mr Palmieri during the conference on 15 April 2003 were to the effect as set out in paragraph 75 to 78A of your affidavit, and to contrast those instructions with the material contained within your brief which related to the deed found behind tab 36 of exhibit 20, is that the case?

A. I disagree.

Q. Pardon?

A. I disagree.

Q. Why do you disagree, Mr McGovern?

A. Because I had already had a conference. The people were there at the conference. I expressed the sentiment that I did at page 67.5 and I had also asked for instructions about any deed that had been entered into with the investors in 2001, and therefore, because I was not doing anything other than looking at the Trade Practices claim and looking at the materials that were available to me for the purposes of that matter and other people were doing the other case, that's my explanation."

500 Earlier, at 547, Mr McGovern accepted that he had not asked Mr Palmieri to obtain a copy of the deed referred to in the Dibbs Barker letter of 11 May 2001. He said:

"I didn't make any request other than to seek the clarification which I had sought when I went to the meeting on 15 April to say: 'Can you tell me about any Deed that was entered into between the investors in 2001 ..."

501 These passages amply justify her Honour's statement. This final challenge must fail.

Mr McGovern's retainer - breach of duty

502 I return now to the principal argument advanced by Mr Gibb in support of Mr McGovern's Notice of Contention. The submissions may be summarised as these: first, the primary judge had failed to consider the various matters arising under s 5B Civil Liability Act, and, in particular, had failed to evaluate correctly having regard to the limited nature of Mr McGovern's retainer, the precautions that should have been taken against the risk of harm that was likely to occur, if such care were not taken.

503 Secondly, and centrally to the submissions, was the argument that the retainer was a limited one. It did not extend to advising DJZ on its prospects of success in the Equity proceedings. Further, that the advice given, such as it was, did not constitute advice to DJZ "to continue the Supreme Court proceedings".

504 Thirdly, Mr Gibb submitted, the information provided in conference by Mr Palmieri to Mr McGovern entitled senior counsel to advise on the basis of those instructions, and not beyond them.

505 Fourthly, Mr McGovern was not obliged to consider or take into account a possible defence that might be raised at some point in the future in the Equity proceedings, but which had not been taken at the time his advice was sought.

506 Fifthly, Mr McGovern had given consideration, in any event, to the Deed briefed to him - the February 2001 Deed, as it turned out - and had been correct to conclude that it did not pose a threat to the outcome of the Equity litigation. The proceedings were not "doomed to fail".

507 Finally, Mr Gibb returned to the s 5B issues and argued that, on proper analysis, negligence had not been demonstrated, having regard to those considerations. He urged that the issues should not be judged in hindsight, and that the standard to be applied should not be "over-exacting" or "too demanding": Moy v Pettman Smith [2005] UKHL 7; (2005) 1 WLR 581, at [19] per Lord Hope; Capital Brake Service Pty Ltd v Meagher [2003] NSWCA 225 at [30] per Ipp JA (Meagher and Beazley JJA agreeing).

508 Mr Gibb's first argument needs to be addressed against the background of the following circumstances. First, his client's pleading did not, contrary to proper authority, raise any issue under s 5B Civil Liability Act: Sydney South West Area Health Service v MD [2009] NSWCA 343 at [25], [51], [58]; 260 ALR 702; Hall v van der Poel [2009] NSWCA 436 at [50]; Port Stephens Council v Theodorakakis [2006] NSWCA 70 at [15].

509 Secondly, it does not seem that s 5B was raised as an issue for determination by the primary judge in the statement of issues eventually placed, by agreement between the parties, before her. However, accepting that the section was mentioned by Mr Gibb in his final submissions (albeit briefly), it is clear that an absence of reference to the provisions of the Civil Liability Act will not denote error where the reasons provided sufficiently demonstrate that the relevant matters have in fact been addressed and determined: Laresu Pty Ltd v Clark at [42]; Roads and Traffic Authority (NSW) v Refrigerated Roadways Pty Ltd at [445]. As I shall explain later, in my opinion, the reasons of the primary judge amply satisfied this criterion in the present matter.

510 I turn then to Mr Gibb's second argument. This may be best addressed, as counsel urged we do, against the background of the "case" sought to be raised by Mr McGovern in his carefully drawn affidavit.

511 It must be said that Mr McGovern's evidence (as appears from this affidavit) was not always consistent. In one respect, Mr McGovern suggested that he was under no obligation to give consideration to the "unexecuted, undated and incomplete deed" that had been briefed to him, precisely because it was incomplete: Mr McGovern's affidavit, at [16]-[18]: Blue, 2939. At [17] and [18] he said:

"[17] My habit or professional practice in 2000 and 2003 was, and still is, that I am conscientious about reading carefully all documents briefed to me. I have no doubt that, at various times by 15 April 2003, I read carefully all the documents in the brief ... I include the incomplete and undated copy of the deed in my brief.

[18] I do not recollect or believe that, 15 April 2003, Giles Payne or anyone else had ever provided me with an executed copy of any deed dated 1 February 2001 ... Giles Payne never instructed me the investors (including DJZ) had become parties to, or had executed, any 1 February 2001 Deed."

512 It will be recalled, however, that in the observations to the brief to Mr McGovern SC, Giles Payne had expressly stated that Mr Christian had "entered into" the Deed, which was described (incorrectly) as being dated on or about July 2001 and which was briefed (in fact, document 36, Vol 5 in the brief).

513 At other times in his affidavit, Mr McGovern appears to suggest that he may have given attention to the undated and incomplete deed. (I shall refer to it, as did the primary judge, as the February 2001 Deed in the present context.) For example, he said at paragraph 68 (Blue 2948):

"When I examined those pleadings, I noted that both the plaintiffs and the defendants (as cross claimants) relied on the 1 July 1999 Deed of Guarantee. I also noticed that no party had pleaded that, because of DJZ's (or any other investor's) entry into the 1 February 2001 Deed, or any like deed, the defendants were relieved from their obligations under the 1 July 1999 Deed of Guarantee."

514 Later, at paragraph 75, he referred to a conference on 15 April 2003 during which he had asked Mr Palmieri "can you tell me anything about any deed that you [meaning he and DJZ] and the other investors entered into with Mr Christian in 2001". In relation to this question, Mr McGovern explained that, in the observations contained in his brief from Giles Payne, there was a suggestion that such a deed was dated "in or about July 2001". He said that he was unable to elicit any useful information from Mr Palmieri when he asked this question.

515 At paragraphs 82 to 86, Mr McGovern said that he had noted "several material features" about the 2001 Deed. He referred to the recitals which suggested, inter alia, that the investors "were entitled to sell the units ... held by Cottenham". (He did not refer, however, to the covenant in favour of the Christians not to exercise the power of sale.)

516 At paragraph 91 of the affidavit (2 Blue 2953), he says, making an assumption that DJZ had been a party to the deed:

"So, I did not then regard such a deed as adverse, or materially so, to DJZ's prospects of success. The defendants have neither relied on it as a defence, nor foreshadowed relying on it. And I did not consider myself under a duty to speculate about further defences on which the defendants might or might not later rely. If the defendants amended to rely on further defences, DJZ was at liberty to obtain further advice about their impact, if any, on prospects of success. I was conscious of the terms of clause 6 of the incomplete and undated copy of the deed in my brief. However, my view was that the investors had reasonable prospects of making good the proposition, if there became a need, that it did not operate as a release. That is, the argument would be, it was, at most, merely a covenant not to sue."

517 It might be remarked that Mr McGovern did not mention to Mr Palmieri, DJZ or his solicitors that such a contention might arise, namely, that clause 6 might be construed as a release rather than a covenant not to sue. He did not mention the different consequences that might flow, depending on the interpretation given to the clause. It does not appear that he touched on the topic at all. Further, he did not mention, as I have said, the clause that operated in favour of the Christians to protect them from an adverse exercise of the power of sale of the units.

518 In fairness to Mr McGovern, it must be said that he may well have been confused, or at least distracted, by the conversation he records at paragraphs 76 to 81 of his affidavit: Blue, 2950-2951. In short, he had asked Mr Palmieri what had happened to the units, both those of the James and Christian interests, and he was told that "the Christian units had been taken". He was also told that Mr Christian agreed to pay $280,000, and that $280,000 was received from the Christians. This led Mr McGovern to write down in his notes: "Christian units taken and given value and value paid back. $280,000 from Christian". He said that he took Mr Palmieri to mean that the investors had exercised their rights under clause 8 of the 1999 Deed of Guarantee. However, he also understood from Mr Palmieri's remarks that Cottenham Nominees had agreed to pay $280,000 to get those units back. This was described as a "wash sale" by Mr McGovern, that is, a sale of securities generating a capital loss, and then a re-purchase of the same securities.

519 A further somewhat inconsistent position apparently taken by Mr McGovern appears from paragraph 57 of his affidavit where he stated that:

"... giving advice about the investors' prospect of success in the Supreme Court proceedings was not, as I saw it, one of them. It was beyond the scope of that brief or retainer."

However, Mr McGovern later appeared to accept that he, in fact, undertook in his letter of advice of 15 April 2003 the provision of advice on the prospects of success in the Supreme Court proceedings, although he qualified this by suggesting (at [90]) that the advice related to proceedings "as then constituted".

520 What then is to be made of all this? It is, in my opinion, inevitable that Mr McGovern himself recognised that the nature of his retainer had altered, and indeed widened, in the period between early March and late April 2003. Indeed, I would respectfully suggest that, by the time Mr McGovern gave his advice in conference on 21 March 2003, and his subsequent April written advice, he was in fact addressing, to some degree, the prospects of success in the Equity proceedings, while evaluating at the same time: (a) the wisdom of bringing an additional claim against Mr James in those proceedings and (b) the need or otherwise to have separate representation for DJZ in those proceedings, especially having regard to Mr Palmieri's concerns to protect his interest in the joint venture properties and his desire to keep those interests protected in any settlement negotiations.

521 In my opinion, the primary judge was correct in concluding that Mr McGovern's retainer was not confined at all times to considering a potential Trade Practices claim against the James' interests. Mr McGovern's letter of advice itself recognised this when he said:

"The present Supreme Court proceedings seek to obtain orders in reliance upon the guarantee and indemnity obligations contained in the Deed ...

So understood, it seems to me that the present Supreme Court proceedings, relying as they do upon the Deed of 1 July 1999, offer the most reasonable prospect of being able to secure the reasonably arguable claims of Surf Road Nominees Pty Ltd and the investors."

522 The advice referred to the possible availability of relief under the Trade Practices Act or the Fair Trading Act, noting that this would involve accounting and valuation evidence to determine the true value of the units in the Trust at the time of acquisition. Mr McGovern's advice continued:

"The other reasonably arguable claims to which I have earlier referred and which derive from the Deed are already before the Court."

523 It is clear that these statements, in their context and against the background of the earlier conferences, plainly constituted a measured suggestion that the Equity proceedings ought to be pursued in advancing DJZ's other "reasonably arguable claims", including the claims under the guarantees. In my opinion, the primary judge was also correct in concluding, even if (which her Honour did not accept) Mr McGovern had "decided to provide advice which went beyond the scope of his retainer", nonetheless the February Deed was a "necessary consideration" in the advice Mr McGovern in fact gave. Her Honour concluded (at [369]), again correctly, that "consideration of DJZ's prospects in the proceedings required a consideration of the impact, if any, of the 2001 Deed": Red 202.

524 It is clear from the terms of Mr McGovern's April advice that he saw the guarantee claims as "reasonably arguable". Having regard to the material briefed to him, however, the question arose whether he ought to have drawn the potential problems which might affect the guarantees to his clients' attention, or to his instructing solicitor's attention. Mr Gibb's arguments pose the important question whether, having regard to the facts of the matter, Mr McGovern's failure to raise the potential problems presented by the February 2001 Deed amounted to negligent performance of his retainer and/or his duty to take reasonable care in the performance of his professional obligations.

525 Mr Gibb has rightly cautioned that these matters should not be determined with the dubious wisdom of hindsight, and that the test to be applied should not be one that is unduly demanding.

526 It may be fairly said that the material briefed to Mr McGovern, though voluminous and compendious in nature, was not without its difficulties in relation to assigning significance to particular matters of detail. The "incomplete, unsigned and undated Deed" was one such example. It was wrongly placed in the brief (although that was a matter of little consequence), but it was described (wrongly) as being entered into "in July 2001". Mr McGovern was, however, a most meticulous practitioner and well experienced, it may be accepted, in marshalling complex and contradictory material. He said in his affidavit that it was his practice to read all the material briefed to him "with care", and there can be no doubt that he did so in the present matter. This is also apparent from the detailed chronology he prepared. It is apparent from the narrative notes he compiled for the benefit of his work generally, and for the purposes of advising in conference. Against this background, I consider that it was a regrettable oversight on his part - one which I infer would not normally have occurred in his usual diligent preparation of a matter - that he neglected to register the real significance - or at least the possible significance - of the material briefed to him.

527 I have earlier, in dealing with the Giles Payne Appeal, analysed a good deal of the material in the brief sent to Mr McGovern. There is no need for me to repeat it here.

528 However, the combined effect of the observations in the brief to Mr Wales, the observations in the Giles Payne brief, the Notice of Default dated 4 May 2011, the response of Dibbs Barker of 13 May 2011, and the letter from Mr Pritchard to the directors on 19 March 2011 ought to have alerted Mr McGovern to the potential risks. There was, in my view, an immediate need to ask himself these questions: first, was it the case (as he had been informed by the overall content of the material in his brief) that the Christians had been released by a deed "recently prepared" by Mr Pritchard, as referred to in his March letter? Secondly, was the so-called deed "executed in July 2001" that deed? There was an overwhelming inference from its content that it was in fact the relevant deed. If so, where could a copy of the executed original be found, and hence provided for further consideration?

529 Finally, if the deed briefed to Mr McGovern was not the deed which effected release, where was the "subsequent Deed" referred to in Mr Pritchard's letter and the Dibbs Barker letter sent in May 2001?

530 These questions, it seems to me, were relevant to the proposed Trade Practices claim in relation to damages, as the primary judge found, and, no doubt, in relation to the overall question of the appropriate relief to be sought in such a claim and the evidence necessary to support it. The questions were also relevant to the Supreme Court proceedings in which, by late March 2003, Giles Payne were to be involved as separately representing the interests of DJZ.

531 I am conscious that Mr McGovern SC in his affidavit maintained that he did give consideration to the Deed and to its possible effect on the outcome of the Equity proceedings, but to the extent that he may have done so, neither the deed nor the letter from Dibbs Barker are mentioned in the careful chronology he prepared. Nor did he raise it with the solicitors or Mr Palmieri in conference. Nor, for that matter, did his 15 April 2003 advice make any mention of the risk that the 2001 Deed could possibly give rise to potential arguments which might be used against DJZ in the Equity proceedings. The failure to attend to these matters was indicative of a failure to exercise reasonable care in the circumstances. I do not believe that the conclusion reached by the primary judge derived from an overly demanding test or the application of an unreasonable standard.

532 I turn then to Mr Gibb's third argument. Little assistance can be obtained from the brief exchange between Mr McGovern and Mr Palmieri in relation to his query concerning "any Deed that may have been entered into with Mr Christian in 2001". After all, Mr McGovern already had in his possession a considerable amount of documentary material, including the incomplete copy of the 2001 Deed itself, that informed him that the Christians had been released in some way from their obligations under the guarantee. However, Mr Palmieri's response to the question was virtually useless. Indeed, Mr McGovern said in his affidavit:

"I was unable to elicit from Mr Palmieri any useful information about it."

533 It was at this point, it seems to me, that Mr McGovern was obliged to inform both Mr Palmieri and Mr Gilles that the material in his possession pointed emphatically to some type of release, coupled with a promise not to take any action against the Cottenham units. However, Mr McGovern overlooked this, simply taking the view that he would query Mr Palmieri as to what had happened to the units in the SRUT.

534 As I have said, this questioning led to Mr Palmieri telling his counsel: "The Christian units had been taken", and that "the Christians agreed to pay $280,000".

535 He then asked questions about the James' units.

536 The problem with the line of reasoning adopted by Mr McGovern was that, in accepting Mr Palmieri's statement at face value (concerning the Cottenham units), Mr McGovern appears to have turned his back on the written material contained in his brief. That material (as I have identified it) was entirely inconsistent with an assertion that the Christian units had been sold pursuant to a power of sale. Indeed, it was inconsistent with an assertion that they had been sold or transferred by any means. Mr McGovern ought to have checked those matters there and then with his instructing solicitor, and obtained further information. That would have confirmed that the "instructions" given by Mr Palmieri were incorrect.

537 In my opinion, the information given to Mr McGovern by Mr Palmieri in conference did not operate to justify or excuse any failure to raise the issue of the potential problems inherent in the February 2001 Deed. The primary judge was right to so find.

538 Further, Mr Palmieri's "instructions" in relation to the sale of the Cottenham units highlighted the need for Mr McGovern to ascertain urgently whether the February 2001 Deed (a copy of which he had) had been executed and, if so, when; it highlighted the need to ascertain why there was a contradiction between Mr Palmieri's "instructions" and the documentary material held by counsel in his brief. The two could simply not stand together unless there was a significant explanation involved. If the Cottenham units had been sold, how did it happen; and how was it permitted in the light of an apparent agreement between the Christians and the investors that the power of sale would not be exercised against them?

539 The primary judge examined all these matters and concluded, as I do, that not only did they not provide assistance to Mr McGovern's case, they positively hindered it.

540 I turn then to the issue as to whether any obligation fell upon Mr McGovern, in all the circumstances, to raise the potential problems represented by the February 2001 Deed in circumstances where the Equity pleadings, at that time, did not rely upon the Deed.

541 In my opinion, a cursory examination of the February 2001 Deed would have thrown up the potential problem. It was not necessarily fatal to the Equity proceedings, but it clearly raised a matter of some consequence that an astute defence lawyer might seize upon. The issue had obviously shone a "red light" for Mr Wales SC, as later it was to do for Mr Alexis SC. Indeed, Mr McGovern himself, in late 2003, saw an immediate problem of this kind in the discussion he had with Mr Fitzpatrick regarding the November 2003 sales agreement. I do not consider, in the circumstances, that Mr McGovern could safely fulfil his retainer by adopting such a position. Each case must, of course, turn on its own circumstances. The facts here pointed inevitably, in my view, to the need for Mr McGovern to raise the potential problems represented by the February 2001 Deed. As I have mentioned earlier, Mr McGovern stated that he did not regard himself as under a duty to speculate about further defences on which the defendant might or might not rely. That was not the point. His obligation was to draw the problem to Mr Palmieri's attention, and to provide a suitable caution or warning in that regard to his instructing solicitors.

542 Mr McGovern claimed that "no reasonably competent lawyer would have advised discontinuance in the circumstances before me on 15 April 2003": Blue, 2953. This may be right. But there was nevertheless a duty to raise the issue, and that was so whether or not the defence had been propounded at that point of time. The pleaded allegation upheld by the primary judge was that Mr McGovern had breached his duty by failing to advise or warn DJZ of the effect of entry into the February 2001 Deed (or its possible effects). The overriding issue was whether Mr McGovern had failed to exercise reasonable care in all the circumstances. It was not reasonable for Mr McGovern to give the advice he did on 15 April 2003, advice which encouraged DJZ to pursue or at least maintain the Supreme Court proceedings on the basis that DJZ's claims were reasonably arguable, without raising the potential problems represented by the February 2001 Deed.

543 I return then to the final matter urged under this heading. This was a repetition of the first matter, namely, the asserted failure of the primary judge to take into account issues required to be evaluated under s 5B Civil Liability Act.

544 In my opinion, none of the matters relied on under this heading have been established. The correct question, which was addressed by the primary judge, was whether it was established on the balance of probabilities that a reasonable senior counsel in the position of Mr McGovern SC as at April 2003, acting competently, would have warned DJZ of the risk of loss with the consequent wastage of costs, by reason of the February 2001 Deed. Consequently, both the "risk of harm" and the "reasonable precautions to avoid risk of harm" were addressed, and found against Mr McGovern. Her Honour was satisfied that a requirement to identify the risk represented by the February 2001 Deed fell within the scope of senior counsel's retainer. Alternatively, she held that the February 2001 Deed was a necessary consideration in relation to that advice: Dominic v Riz at [90]; David v David at [76].

545 It must also be the case that the risk that DJZ might lose the litigation against the James' interests by reason of clauses 4 or 5 of the February 2001 Deed, and thereby waste money on costs in prosecuting the litigation, represented a "not insignificant" risk of harm. There was an obvious risk that the James' interests might become aware of the existence of the February 2001 Deed and seek to rely on it, as they did initially as at 18 December 2003. Equally, it seems to me that the primary judge correctly considered whether, in the circumstances, a reasonable person in the position of Mr McGovern would have taken the precaution of drawing the matter to his clients' attention. It is inherent in her Honour's findings that a reasonable senior counsel, in the position of Mr McGovern as at April 2003, would have alerted DJZ to the risk presented by the Deed. The risk, as I have said, was not insignificant and the precaution was a simple one, namely, a brief warning as to the existence of that risk and the consequences it might carry with it if relied on by the James' interests. If there had been (as there may well have been) a problem with the sufficiency of the instructions that Mr McGovern had received, it was a simple enough matter, as the primary judge found, to require that an executed version of the February 2001 Deed be obtained, or that any other document be obtained by which the true situation could be ascertained.

546 None of these matters were adverted to by Mr McGovern in his advice, nor his chronology, nor in the notes he took with such care.

547 Thus, it may also be stated that the burden of taking precautions to avoid the risk of harm was a very slight one indeed. It was not complex. Nor was it difficult. The burden involved was of little moment, when considered against the possibility and inherent seriousness of financial harm, if reasonable care were not exercised. As I have said, the question for determination was not whether Mr McGovern SC made an error that was obvious or blatant, but rather whether he failed to exercise reasonable care and skill in the provision of professional advice (Heydon v NRMA Ltd [2000] NSWCA 374; 51 NSWLR 1, at [146] per Malcolm AJA), or whether he failed to exercise the degree of skill and care that is to be expected of persons practising in his area of expertise: Heydon at [362] per McPherson AJA. It must be concluded that there was a reasonable probability that harm would occur if care were not taken. Thus the considerations in s 5B(2)(a) of the Civil Liability Act weighed in favour of a finding that a reasonable person in the position of Mr McGovern SC would have taken proper precautions against the risk of harm.

548 I do not consider that there was any other aspect of s 5B that her Honour ought to have considered. The fact that she did not express her findings in terms of s 5B did not, for the reasons I have already given, suggest error. Moreover, her Honour's findings in relation to Mr McGovern need to be seen in the light of the fact that she had, throughout a long and complex judgment, already dealt with a range of negligence issues when considering the case against both Mr Pritchard and Giles Payne. When her Honour's reasons are read fairly as a whole, and in the light of the manner in which Mr McGovern conducted his case, it is clear that, in substance, her Honour correctly analysed such of the considerations required by s 5B of the Act as were relevant to the issues, notwithstanding the absence of express reference to those provisions in her reasons for judgment.

549 There was one further liability matter argued by Mr Gibb. This related to causation. Mr Gibb argued that Mr Pritchard had not proved, that if Mr McGovern had advised DJZ that the Equity proceedings should not be pursued, DJZ would then have given up its claim on the guarantee and not wasted money on costs in those proceedings. Mr Gibb argued that Mr Pritchard had failed to prove, on the balance of probabilities, that had Mr McGovern warned DJZ as pleaded, this would have prevented DJZ incurring that loss. It is perhaps unnecessary to make a concluded finding on this point since I have earlier found that it has not been shown that the February 2001 Deed was causative of the loss.

550 However, the primary judge was satisfied that "there must have been a real prospect" that Mr Palmieri would have accepted advice recommending settlement, had both Mr Alexis SC and Giles Payne given advice concerning the difficulties posed for DJZ's litigation as at the end of 2003. The position as at the earlier period of time - April 2003 - was that Mr Palmieri had stated that the advice given to him by Mr McGovern was important in determining what action he should take in respect of the Supreme Court proceedings: Black, 200. In that regard, he stated that he followed not only Mr McGovern's advice but also the advice provided by Giles Payne. Mr Palmieri had said that when he was obtaining advice from Giles Payne, and Mr McGovern SC in March 2003, he placed trust and confidence in them as his legal advisers; and that he gave close consideration to Mr McGovern SC's written advice when it was given in April 2003: Black, 192. Consequently, there was a body of evidence before the primary judge which supported a finding that Mr McGovern SC's advice would have been heeded by Mr Palmieri.

551 Mr Gibb (as did Dr Bell on behalf of Giles Payne) placed reliance upon the statement made by Mr Palmieri in cross examination to the effect that, if Giles Payne had advised him that the Supreme Court proceedings were "hopeless", he did not know what he would have done. I have already dealt with this matter when evaluating one of the grounds of appeal relied upon by Giles Payne. In relation to the present submission, I would merely repeat that the primary judge was entitled to weigh this evidence against the other evidence and the probabilities, having regard to the commercial context, as her Honour did at [360].

552 In the circumstances, however, it is unnecessary for me to make any further comment about this particular argument.

553 I am satisfied that the contentions raised by Mr McGovern in his Notice of Contention should not be upheld.

Leave to cross appeal

554 There is one final matter urged by Mr Gibb on Mr McGovern's behalf. Mr Gibb sought leave to cross appeal against the costs order made against his client. There was no objection to leave being granted, and the only remaining issue is whether the order should be made.

555 The particular order about which complaint is made arose out of the primary judge's decision to order that Mr Pritchard pay 65% of DJZ's costs as agreed or assessed, subject, relevantly, "to orders 8 and 9".

556 Orders 8 and 9 were in these terms:

"[8] The costs incurred by the plaintiff as a result of having to engage new solicitors, occasioned by the withdrawal of the second and third defendants from representing it in these proceedings: ... are not to be included in the costs payable pursuant to order 7; and ... are to be paid by [Giles Payne] as agreed or assessed.

[9] The costs incurred by the plaintiff as a result of having to engage new senior counsel, occasioned by the withdrawal of [Mr McGovern] from representing it in these proceedings: ... are not included in the costs payable pursuant to order 7; and ... are to be paid by [Mr McGovern] as agreed or assessed."

557 Her Honour's reasoning that Mr Pritchard should pay 65% of DJZ's costs was, in part, based on the fact that DJZ had brought two claims and failed in one of them. It had, however, succeeded on the major claim, hence the proportion selected.

558 Her Honour took into account in reaching this decision that there had been cross claims brought by Mr Pritchard against both Giles Payne and Mr McGovern and that, as a consequence, DJZ had joined Giles Payne and Mr McGovern as defendants to their proceedings. The primary judge determined that, as DJZ had succeeded in its claim against Giles Payne, Giles Payne should pay the costs of DJZ but took the view that, in addition, Giles Payne should bear the additional costs incurred by DJZ as a result of having to engage new solicitors when they had to withdraw. The basis of this discretionary exercise was the failure on Giles Payne's part to identify its conflict at an earlier stage than the point in the trial when their possible negligence was raised by Mr Pritchard.

559 In relation to Mr McGovern, he succeeded against Mr Pritchard on the cross claim against him. In addition, he succeeded in defeating the claim brought against him by DJZ. This resulted in orders for costs in favour of Mr McGovern against DJZ, and against Mr Pritchard on an indemnity basis. However, as with Giles Payne, her Honour determined that Mr McGovern should bear the additional costs incurred by DJZ as a result of its having to engage new senior counsel when Mr McGovern had to withdraw from the proceedings. Her Honour added:

"In my view DJZ should not have to bear the costs resulting from Mr McGovern's failure to earlier identify his conflict."

560 Mr Gibb's complaint is, first, that his client was not given notice that he was likely to be the subject of a costs order made; and secondly that, in any event, the order made was not warranted.

561 In my opinion, there is no substance in the first point. As Mr Pritchard has correctly pointed out in his submissions, there was no denial of natural justice or procedural fairness in the circumstances where Mr Pritchard's motion of 25 November 2010 sought orders that the costs payable by Mr Pritchard to DJZ not include any fees incurred to, or charged by, Mr McGovern, and that DJZ not be entitled to recover such fees from Mr Pritchard. In addition, Mr Pritchard made detailed written submissions in support of those orders focussing on the nature of Mr McGovern's conflict of interest flowing from the findings made by the primary judge in her principal judgment.

562 It is clear that all other parties, including Mr McGovern, either filed written submissions on costs or at least had the opportunity to do so. The primary judge conducted a hearing in relation to these issues on 9 December 2010, at which Mr McGovern was represented by senior counsel and resisted orders in the terms sought by Mr Pritchard.

563 As it happened, the primary judge in her reasons for judgment given on 17 December 2010 declined to make an order against Mr McGovern of the breadth sought by Mr Pritchard. Instead, the primary judge concluded that it was appropriate to make a narrower order such that DJZ would not have to bear the costs resulting from the failure of Mr McGovern to earlier identify his conflict. It is necessary to recall that her Honour had made previous findings in her principal judgment which determined that Mr McGovern had failed in his duty to DJZ in failing to advise upon matters which were closely related to the matters which DJZ, when represented by Mr McGovern in the proceedings, alleged amounted to negligence on Mr Pritchard's part.

564 In relation to the second argument, Mr Gibb submitted that the orders were in fact made under s 99 Civil Procedure Act 2005. In so far as the order had been made against a lawyer in a civil case, there was no finding of a serious dereliction of duty, or of any of the matters required as a threshold to the application of s 99. Mr Gibb argued that findings of this kind were required before an order could be made under s 99 against a lawyer.

565 Further, Mr Gibb argued that, until Mr Pritchard sought to raise the new defence, there was no issue in the proceedings, and none foreshadowed, about whether the advice Mr McGovern had earlier given to DJZ had caused it harm. Thus, it was argued, there was no actual or potential conflict of interest until the matter was raised by Mr Pritchard.

566 In my opinion, Mr Gibb's second argument has not been made good. The primary judge did not make any order against Mr McGovern under s 99 Civil Procedure Act. I would accept, as Mr McInerney argued, that the order made arose under the Court's general discretion to order costs under s 98 of the Act. The order made against Mr McGovern was made in his capacity as a party to the proceedings, not in his capacity as a (former) legal representative of DJZ, although it recognised as a relevant discretionary matter the role he had earlier played.

567 Further, I do not consider that Mr Gibb's final point should succeed. I would respectfully suggest that it was based upon too narrow a premise. As stated, Mr Gibb argued that no potential conflict of interest could arise until the moment Mr Pritchard sought to raise a defence asserting negligence on the part of the barrister. In my opinion, Mr McGovern should have seen from the outset that, at the very least, he might be called as a witness in the proceedings or have been the subject of criticism. A potential for conflict clearly existed. There is no need for me to recount the circumstances that led to the 2001 Deed and Mr McGovern's role in relation to the advice he provided concerning the Supreme Court proceedings. These matters were inextricably interwoven with the issues which ultimately determined the Equity proceedings in favour of Mrs James. In my opinion, there was a basis for the orders made by the primary judge relating to Mr McGovern.

568 I am not satisfied that her Honour's discretion miscarried. Nor am I satisfied that the order she made was infected by appellable error of the kind identified in House v R.

569 I would propose that leave be granted but that the cross appeal be dismissed.

Damages

570 I have earlier held that Mr Pritchard's appeal against DJZ should succeed on a limited basis, namely, a reduction in the damages to be allowed by the primary judge for item 2 of the schedule of damages. Her Honour took as the measure of damages for this item the judgment sum of $355,870 ordered by Einstein J in favour of DJZ, plus interest of $187,012, a total of $542,882.13. I have, however, found that there were two probabilities of significance that had to be assessed. I determined that each probability should be assessed at 80%. The two probabilities should be combined in order to value the loss of the chance: Malec v JC Hutton Pty Ltd at 644-646. The result is a figure of 64%. While absolute mathematical precision is not required in the area of hypothetical evaluation, the ultimate question is the possibility or probability of DJZ recovering the Einstein J judgment from Mrs James with the evaluation of all relevant contingencies being taken into account in that regard: Malec at 640 per Brennan and Dawson JJ, later adopted in Wynn v New South Wales Insurance Ministerial Corporation [1995] HCA 53; 184 CLR 485, at 499. I would conclude, examining the question from a detached viewpoint, that the overall probability should be held to be 70%.

571 In respect of item 2, DJZ is entitled to recover 70% of $542,882.13, namely, $380,017 (rounded down).

572 Item 4 of the schedule of damages related to the costs of the proceedings against Mr and Mrs James. The base figure was $489,022 plus interest. The primary judge allowed a proportion of these - 60% - and then reduced the resultant figure by 30% to represent the area of DJZ's responsibility for the damages suffered after 18 December 2003 in relation to those costs. The figure thus produced was apportioned equally between Mr Pritchard and Giles Payne.

573 I have concluded that there was no error in relation to this aspect of the assessment of damages.

574 The parties will be required to bring in Short Minutes to reflect the final figure for damages in accordance with the findings I have made. There should be appropriate components of interest against each of the defendants found liable.

Costs

575 Mr Pritchard has failed in his appeal against DJZ, save and except for the reduction in damages. He has failed in his appeal against each of Giles Payne and Mr McGovern SC. Giles Payne has failed in its appeal against the primary judge's decision. None of the contentions - save for that raised by DJZ against Mr Pritchard - have been upheld. Broadly speaking, the challenges to factual findings by the primary judge have been unsuccessful. No basis has been established for disturbing the various costs orders made below, with the exception of the costs consequences that may flow from allowing the damages appeal in part.

576 The parties are urged to confer immediately to ascertain whether agreement can be reached in relation to the outstanding costs issue, and to prepare Short Minutes to reflect the ultimate costs position.

577 If agreement cannot be reached, written submissions should be lodged within forty-eight hours by each party in contest.

578 The final costs issue reserved related to the prospect that an order might be made against Mr Palmieri and Palmieri Developments Pty Ltd. In view of the findings I have reached, it is unnecessary to consider that matter further.

579 BARRETT JA: I have read in draft the judgments prepared by the Chief Justice and Whealy JA. Their Honours have reached different conclusions on three matters.

580 In the discussion that follows, I adopt abbreviations and definitions used by Whealy JA, including those in the dramatis personae at the start of his judgment.

581 I consider first the question whether the February 2001 Deed had the effect that New South and Mr and Mrs James were freed from the obligations they had assumed under the 1999 Deed of Guarantee.

582 By virtue of the 1999 Deed of Guarantee, D & A Mortimer, WIT and DJZ had the benefit of a charge (or, as it was when the deed was executed, an agreement to give a charge) over 26 units of the Surf Road Unit Trust, 13 held by Cottenham and 13 held by New South. Cottenham and New South each gave security over the units held separately by it. The three chargees (D & A Mortimer, WIT and DJZ) held the charge as security for moneys the payment of which was guaranteed by James Christian, Cottenham, New South, Mr and Mrs James and Mr and Mrs Christian, all of whom were accordingly subject to joint and several liability for those moneys.

583 The situation was thus one in which each of two of the entities subject to joint and several liability as guarantors - Cottenham and New South - made its own property available as security for the liability of all of the guaranteeing entities.

584 Clause 8 of the 1999 Deed of Guarantee conferred on the chargees a contractual power of sale in respect of the 26 units that were the charged property.

585 By clause 5 of the February 2001 Deed, two of the three entities by which the charge was held (WIT and DJZ) made a promise to other parties to that deed

"not to take any action to sell the thirteen (13) Units in the SRUT [Surf Road Unit Trust] held by Cottenham and not to take any action against Michael [Mr Christian], Katherine [Mrs Christian] and/or Cottenham arising out of the breach of those parties or any one of them of their obligations pursuant to the July 1999 Deed except as hereinafter appears ..."

586 The other parties to the February 2001 Deed (and accordingly the recipients of the promise of WIT and DJZ) included some but not all of the entities subject to the joint and several liability created by the 1999 Deed of Guarantee. Cottenham and Mr and Mrs Christian were parties but New South, James Christian and Mr and Mrs James were not. The effect and operation of clause 5 were therefore consented to by Cottenham and Mr and Mrs Christian but not by New South, James Christian and Mr and Mrs James.

587 By virtue of the first part of the extract from clause 5 I have quoted, WIT and DJZ put themselves into a position where they could be enjoined from exercising, "except as hereinafter appears", the contractual power of sale that the 1999 Deed of Guarantee made available in respect of the 13 trust units held by Cottenham. Because the power of sale belonged to all of D & A Mortimer, WIT and DJZ and was exercisable only by their concerted action, the promise made by two meant that the power could not be exercised otherwise than consistently with the clause 5 constraint.

588 Having regard to clause 10, The effect of the "except as hereinafter appears" qualification was that the constraint would cease to apply if Cottenham and Mr and Mrs Christian failed to make payments required by clauses 1, 2 and 3 of the February 2001 Deed itself - being, as Bathurst CJ points out, payments that would not operate in satisfaction of the joint and several liability for which the charge had been given.

589 It may be that the effect of the first part of the clause 5 promise - the part relating to exercise of the contractual power of sale - was not to bring about a release of the obligations of the non-assenting guarantors by operation of the general law principles to which Bathurst CJ and Whealy JA refer. I say this because unavailability to the chargees of the ability to realise and enforce the security by sale of 13 of the charged units in exercise of the contractual power would not affect the status and continuing effectiveness of the security as a security. It would only mean that realisation and enforcement had to be by way of resort to less efficient and more cumbersome remedies (that said, however, there would be a question whether the first part of the clause 5 promise would attract an unfavourable exercise of discretion by a court invited to make an order for sale, being the most efficacious of the curial remedies).

590 But clause 5 went further. It precluded "any action against" all or any of Cottenham and Mr and Mrs Christian "arising out of the breach of those parties or any one of them of their obligations pursuant to the July 1999 Deed except as hereinafter appears ...". WIT and DJZ thus created a situation in which they could be enjoined, during an indeterminate period, from every form of "action against" all or any of the named parties that breach of a provision of the 1999 Deed of Guarantee put at their disposal. All conceivable methods of enforcing the charge affecting the 13 trust units held by Cottenham - indeed, of obtaining satisfaction of any kind in consequence of breach of a provision of the 1999 Deed of Guarantee - were thus relinquished, in the sense that the exposure of WIT and DJZ to injunction to restrain their joining in any action to enforce the charge or obtain other satisfaction meant that the necessary concerted action of D & A Mortimer, WIT and DJZ could not be taken.

591 Bathurst CJ quotes the following observation of Dixon J in Williams v Frayne [1937] HCA 16; (1937) 58 CLR 710 at 738:

"If the guarantee is given upon a condition, whether express or implied from the circumstances, that a specific security shall be obtained, completed, protected, maintained or preserved, any failure in the performance of the condition operates to discharge the surety and the discharge is complete."

592 The joint and several nature of the liability undertaken by James Christian, Cottenham, New South, Mr and Mrs James and Mr and Mrs Christian through the 1999 Deed of Guarantee and the provisions of that deed with respect to the charge over the 26 trust units make it plain that each party who undertook the liability did so on an implied condition that the security constituted by the charge would be protected, maintained and preserved for the benefit of all of them. That condition was no longer satisfied once WIT and DJZ accepted the contractual constraints of clause 5 of the February 2001 Deed.

593 On the question whether the execution of the February 2001 Deed caused New South and Mr and Mrs James to be freed from the obligations they had assumed under the 1999 Deed of Guarantee, I have therefore reached a conclusion corresponding with that of Bathurst CJ. Those parties were no longer bound when the August 2003 Deed was executed.

594 I turn to the second matter. There is a difference of opinion between Bathurst CJ and Whealy JA as to the time at which Giles Payne failed in its duty to advise. I agree with Whealy JA that Giles Payne was under the continuing obligation referred to at [441] of his judgment, that is, an obligation to draw the attention of DJZ to the potential problem arising from the February 2001 Deed. And, having regard to what I consider to have been the true effect of the February 2001 Deed on the obligations created by the 1999 Deed of Guarantee, I agree with Bathurst CJ that it was therefore incumbent upon Giles Payne to give that advice as soon as it had received a copy of the February 2001 Deed and had had a reasonable opportunity to digest and understand its content - that is, in May 2002. In light of the finding of the primary judge (which, like both Bathurst CJ and Whealy JA, I consider to be correct) that such advice - and a recommendation to settle the proceedings accordingly - would have been accepted if given at that time, the breach of duty by Giles Payne must be seen as having occurred in May 2002, with consequences to which Bathurst CJ refers.

595 The third matter to which I desire to make particular reference is the source and precise nature of Mr Pritchard's duty to warn DJZ of the risk that the February 2001 Deed might have had the effect of releasing New South and Mr and Mrs James from their guarantee obligations. Because of the apparent absence of a retainer of Mr Pritchard by DJZ (as distinct from directors of that company), Bathurst CJ's analysis and conclusion (at [65] to [72]) are, in my respectful opinion, to be preferred; but I note that nothing of substance turns on the choice between the two possible analyses in this particular case.

596 In relation to the balance of the substantive issues arising, I agree with Whealy JA and with the additional comments of Bathurst CJ at [74], [75], [76], [81], [82], [86], [98] and [99] of his judgment. The result, in terms of damages and quantum should be as stated by Bathurst CJ at [101] and [102].

597 As to the costs orders made by the primary judge, the fact that the outcome on appeal is confined to a revision of quantum means that the "event", for cost purposes, remains. The costs orders made at first instance should therefore also remain. As to the costs of the appeals, I agree that the matter should be reserved for future submissions and decision.

598 The appropriate disposition overall is that proposed by the Chief Justice at [105].

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Decision last updated: 28 June 2012