Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Liddy v Bazley [2013] NSWCA 319
• Hearing dates: 18 July 2013
• Decision date: 27 September 2013
• Before: Basten JA at [1]; Emmett JA at [73]; Leeming JA at [81]

Decision

(1) Allow the appeal and set aside the judgment and orders made in the District Court.

(2) In place thereof, order that -

(a) the plaintiff's claim be dismissed, and

(b) the plaintiff pay the defendants' costs of the trial.

(3) The respondent pay the appellants' costs of the appeal.

(4) The respondent have a certificate under the Suitors' Fund Act 1951 (NSW) with respect to the costs of the appeal.

[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: TORTS - professional negligence - breach of duty - solicitors instructed to make work injury damages claim - instructions given long after expiry of limitation period - failure to give advice and prosecute claim; TORTS - professional negligence - causation - failure to address as element of cause of action likely instructions based on legal advice as to comparative value of compensation entitlements and damages; TORTS - professional negligence - damages - assessment of likely recovery at notional trial date - allowance for chance of not obtaining extension of time - notional advice as to comparative value of compensation entitlements and damages - value of medical benefits
• Legislation Cited: Victims Support and Rehabilitation Act 1996 (NSW), s 34; Workers Compensation Act 1987 (NSW), ss 151A, 151D, 151G, 151H, 151Z
• Cases Cited: Firth v Sutton [2010] NSWCA 90; Fox v Wood [1981] HCA 41; 148 CLR 438
• Category: Principal judgment
• Parties: James Gervase Liddy, Stephen Gerard Cahill, Raymond John McClenahan and Anthony Simic (Appellants); Michael Laurence Bazley (Respondent)
• Representation: Counsel: P Braham/P O'Dea (Appellants); T J Boyd/J D Cairn (Respondent)
• File Number(s): CA 2012/361667

Decision under appeal

• Jurisdiction: 9101
• Date of Decision: 2012-11-09 00:00:00
• Before: Williams DCJ
• File Number(s): DC 2010/71921

Judgment

1 BASTEN JA: On 13 December 1987 Mr Bazley (the respondent) was employed as a prison officer in the Department of Corrective Services, stationed at Parklea Prison. A number of prisoners engaged in a violent riot, in the course of which the respondent was physically assaulted and held hostage. Over the years which followed, the respondent suffered a number of workplace injuries and a deterioration in his mental health. It was not, however, until October 2004 that a psychiatrist gave a provisional diagnosis of post traumatic stress disorder resulting from the riot at Parklea Prison.

2 In August 2005 the respondent consulted the appellants, a firm of solicitors trading as Taylor and Scott, specialising in personal injury litigation. He sought advice and assistance, initially with a claim for workers' compensation payments and, subsequently, as to the viability of a claim for work injury damages resulting from the prison riot. The appellants arranged reinstatement of the respondent's workers' compensation payments in January 2006. In the course of 2006, advice was obtained from counsel with respect to a possible damages claim and he was referred for a psychiatric report, which was obtained in early 2007. However, thereafter, action with respect to possible proceedings for damages petered out. The respondent withdrew instructions in June 2009.

3 In March 2010 the respondent commenced proceedings in negligence against the appellants, based on their failure to pursue a work injury damages claim for him in 2007-2009. Those proceedings, having been transferred to the District Court, were determined by Williams DCJ on 31 August 2012. On that day, an interim judgment was delivered upholding the respondent's claim on liability. A further judgment, delivered on 9 November 2012 gave judgment for the respondent in the amount of $270,019. The appellants have appealed from that judgment and order.

4 The appellants submitted that the judgment below had gone astray in two main respects. First, the trial judge had failed to identify correctly the breach of duty by the appellants and its consequences. That is, accepting that the appellants were negligent in failing to prosecute the respondent's instructions, the first question was to identify the advice they would have given had they undertaken the necessary inquiries. Secondly, the appellants submitted that if the financial circumstances had been properly assessed, the trial judge would have concluded that the respondent would be better off receiving workers' compensation benefits and would not have pursued proceedings for damages.

5 These broadly stated propositions should be accepted. Accordingly, the appeal should be upheld and the judgment below set aside.

Legal principles

6 Where an injured party brings proceedings against his or her solicitor for failure to prosecute a viable cause of action, in accordance with instructions, it is important, for a number of reasons, to identify the point at which the breach of duty is said to have occurred. Further, where there has been a failure to take a particular step, it may be important to identify the factors which would have been addressed had that step been taken. In the case of an injury suffered at work, the instructions are likely, as in the present case, to encompass a claim for statutory compensation, as well as a claim for damages.

7 Claims for compensation and damages are interconnected. The particular advantages and disadvantages of proceeding with respect to one rather than the other, and the time at which a choice may need to be made, have varied over the years. Thus, although there was reference both at trial and in this Court to the judgment in Firth v Sutton [2010] NSWCA 90, the statements of principles in that case, recent though it is, involved a different statutory scheme from that applying in the present case. Further, in identifying the relevant statutory scheme, care must be taken to ensure that, with respect to an injury which occurred at some significant distance in the past, the correct statutory scheme is considered. In the present case, the injury occurred in 1987; the key advice was required in 2007. The parties agreed that the first step in bringing proceedings would have been to seek an extension of time (the limitation period having long since expired) and that, had the solicitor acted on instructions and with reasonable diligence, that application would have been made in about 2007. If proceedings had been commenced, the notional trial date was June 2008.

8 Although an injured party may express a desire to bring proceedings for damages, it cannot be assumed that instructions to take that step will ultimately be given until the necessary inquiries as to liability and potential loss have been made. Where a person is in receipt of workers' compensation payments (or is entitled to receive them) a competent legal practitioner, taking into account the extent of those entitlements and the limits on recovery of work injury damages, will need to make an assessment as to whether to advise the client to proceed. In order to prove loss, as explained by Allsop P in Firth v Sutton, it was necessary for the plaintiff "to show, on the balance of probabilities that, had [the solicitor] exercised due care in his handling of her matter, she would have elected not to take entitlements under the WC Act, but would have elected to pursue an action at common law": at [104].

9 The provisions governing claims for work injury damages were subject to extensive amendment in 2001. That legislation applied with respect to injuries received before the commencement of the amendments, where proceedings had not been commenced before the commencement date. Accordingly, the relevant provisions of the Workers Compensation Act 1987 (NSW) were those in force in 2007. On that basis, the appellants contended that the following matters were to be taken into account by a competent solicitor giving advice in 2007:

(1) proceedings for damages could not be commenced more than three years after the date of injury, without leave of the court - s 151D(2);

(2) the amounts recoverable were limited to past and future economic loss (including superannuation and tax on workers' compensation payments, pursuant to Fox v Wood [1981] HCA 41; 148 CLR 438) - s 151G;

(3) no damages were recoverable unless the injury resulted in at least 15% permanent impairment - s 151H;

(4) if the claim were successful, the plaintiff would lose his entitlement to further compensation payments and would be required to repay any compensation already received - s 151Z(1)(b);

(5) if the plaintiff had received compensation under the Victims Compensation Act 1987 (NSW), that amount would have to be repaid - Victims Support and Rehabilitation Act 1996 (NSW), s 34.

10 On the other side of the ledger, and of particular significance on the facts of the present case, an entitlement to workers' compensation included an entitlement to compensation for the cost of medical and hospital treatment for so long as that treatment was required.

Issues at trial

11 The trial judge identified the issues in the following terms:

"33 The issue is what damages flow from the breach of duty of care in the solicitors failing to advise the plaintiff of his full legal rights, so that he would be able to make an informed choice as to what right he wished to pursue. This is complicated in [work injury damages] claims because on the one hand, a person theoretically is covered for weekly payments until aged 66 and medical expenses potentially for life under the Workers Compensation Legislation, whereas if an election is made to pursue [work injury damages] entitlements a person loses the benefit of the statutory scheme.

34 A solicitor in providing advice to a client in those circumstances is obliged to set out the pros and cons of each case particularly as to how each course of action is likely to affect the plaintiff in monetary terms. Where the benefits of the [workers' compensation] entitlements are much the same as or more beneficial than the [work injury damages] entitlement, presumably a solicitor would not advise a person to pursue a [work injury damages] claim."

12 Apart from the reference to "an election", which harked back to the pre-2001 amendments, the approach adopted in those paragraphs was unimpeachable. (The provision for election which was to be found in s 151A prior to the amendments, is replaced by the terms of s 151Z(1), referred to above.)

13 The first hint of error arises from the following paragraph in the reasoning of the trial judge:

"35 Ultimately the choice is the client['s]. A client may go against advice or he or she might accept it. Where the difference between [workers' compensation] and [work injury damages] entitlements is substantial it is relatively easy to quantify the potential loss in not being allowed to have that choice."

14 The first two sentences are correct: the negligence led to a lost opportunity for choice. However, there is an elision between those two sentences and the next: the fact that an opportunity has been lost does not necessarily entail that a monetary loss has been suffered: Firth v Sutton at [103]. There is another finding to be made before undertaking quantification of any loss. What might be inferred from this elision is that the trial judge already had in mind that, on the evidence, the respondent was substantially worse off remaining on workers' compensation benefits. Alternatively, and in keeping with the respondent's submissions in this Court, he may have assumed that the loss of opportunity to make a choice was itself compensable. One or other of those assumptions appears to carry through into the subsequent discussion, which concluded at [41] with the following statement:

"The issues to be determined in this case seem to me to be (a) what was the plaintiff['s] prospect of success in running a [work injury damages] claim in 2008 and, more importantly, (b) if successful was he likely to have been substantially better off with such a verdict compared to what he would receive by remaining on [workers' compensation] payments, as has in fact been the situation since."

15 Again, as the appellants noted, this analysis omitted findings as to (i) what advice a competent solicitor would have given, (ii) what choice the respondent would have made, and (iii) whether, if he had chosen to proceed, he would have obtained damages in an amount exceeding the proper valuation of his statutory entitlements. Such omissions were erroneous. The same elision occurred, and the same statement of the correct approach was adopted, in Firth v Sutton at [138]-[140] (Allsop P). For the purpose of establishing what advice the respondent would have been given and the choice the respondent would have made, it is necessary to undertake a calculation of the value of the respective entitlements under the workers' compensation legislation and for work injury damages, at the time the advice should have been given.

16 The next step in the reasoning of the trial judge was to assess the liability of the employer (the State) in negligence. That exercise was undertaken at [45]-[56]. The trial judge concluded that he was "satisfied on balance that if the above referred to evidence was forthcoming at a hearing the plaintiff would succeed on liability and there would be no reduction for any contributory negligence": at [56]. However, dealing with the matter in that way failed to address the real question. The question to be addressed undoubtedly involved an assessment of the likelihood of success in the civil damages proceedings against the employer; however, it did not involve an assessment of that aspect on the balance of probabilities. Rather, once it was held that the respondent had reasonable prospects of success (absent which a competent solicitor would have advised against proceeding), it was necessary to make some estimate of the risks attendant on such proceedings.

17 There were two steps in that process of risk assessment. First, it was necessary to assess the risk of not obtaining leave to commence proceedings out of time. That risk was agreed between the parties at 25%. The trial judge adopted that calculation in his assessment. Secondly, there was a risk of failure, in part or in whole, in relation to the substantive claim. The appellants submitted that there were a range of factors which required some discount for that risk to be assessed by a competent solicitor in 2007/2008.

18 The trial judge did not attempt to assess damages for the purposes of identifying the hypothetical legal advice which should have been given in 2007/2008. He did, however, set out in detail the medical evidence which existed in 2007. He continued:

"100 One difficulty in all of this is that none of the medical evidence has been subjected to the sort of forensic examination as no doubt may have been the case if the matter had gone to trial in 2008.

101 However bearing in mind that the test is the balance of probabilities, I am satisfied on that level that there is a relationship between the injury sustained in the prison riot and his current psychiatric condition such that this condition would be compensable at common law. Having said that I have no doubt that this condition was exacerbated because of the Memtec injuries, but that such exacerbation was temporary, although he did receive a lump sum settlement that included a component for psychiatric injury....

102 It is of concern that when seen by Dr Burke in 2001 for his Memtec compensation claims, although Dr Burke refers to his employment as a corrective services officer, Mr Bazley did not mention, nor did Dr Burke elicit any psychological injury or upset referrable to that employment. Whilst doctors can get patient histories incorrect, there is not the slightest suggestion of any on-going problem resulting from that period of his life. Indeed the traumatic event is not even mentioned and the plaintiff's history to Dr Burke, as recorded by Dr Burke, is that the plaintiff left Corrective Services because his job had no future.

103 There is not an unreasonable argument [a not unreasonable argument?] that, having regard to Dr Morse's conclusion in his report of 5/9/88 and Dr Burke's views in 2001, the plaintiff's problems arising out of the 1987 riot had, by 2001, receded to the point that they were no longer an issue with him. That being said however, I note that his GP Dr Sheahan said in 1996 that the plaintiff has 'chronic mood decrease since problem at a gaol some years before'. On balance I am satisfied that the plaintiff would be able to make the link between the 1987 riot and his current mental health situation."

19 It is clear that these passages, dealt with under the heading "Causation", resulted in findings being made on the balance of probabilities. The trial judge then turned to an assessment of damages referring (irrelevantly for present purposes) to changes in workers' compensation legislation in 2012. He said that the case involved a "loss of chance" and that it was necessary to calculate "the plaintiff's entitlements and payments up until trial at the notional date in June 2008": at [121]. He continued at [123]:

"The defendant's calculations for probable earnings 1998-2008 allows for 20% overtime and that the plaintiff would have progressed to senior officer in 1992 and thereafter stayed at that level. The defendant applies a 50% discount to the years between 2000-30/6/2008 being the Notional Trial Date ..., to allow for the effects of the Memtec injuries. The defendant does not allow for any loss between March 1991 and February 1993 (calculated at $50,000) when the plaintiff suffered sarcoidosis and was otherwise unfit for work and in fact did not work. The defendant has not allowed any loss for 1999 the year the plaintiff suffered the fall at Memtec. The defendant then discounts the result by 20% for vicissitudes."

It is clear from these passages that, having determined causation on the balance of probabilities, and not being engaged in an assessment of damages for the purpose of advising the respondent in 2007/2008, the trial judge did not address the argument for the appellants that in giving advice, a competent solicitor would have made an allowance for the possibility that future economic loss would not have been recovered in full because of the difficulty of establishing that the Parklea riot was the sole cause of his ongoing disabilities.

Missing steps

(a) establishing negligence

20 First, as to liability, the events causing the injury occurred 20 years before the notional advice would have been given. Although, as the trial judge accepted, there was evidence upon which a finding could be based that the State was on notice of risks to staff employed at Parklea Prison, as a result of prior incidents in the gaol, there was little evidence as to what ought reasonably to have been done to diminish the safety risk and the likelihood of success in either avoiding or mitigating the circumstances which gave rise to the riot in December 1987.

(b) causation

21 Secondly, as to causation, the respondent might well have faced difficulties in attributing his mental ill health to the events of December 1987. Over the succeeding two decades, he suffered a number of injuries, and had been treated for anxiety and depression. The trial judge noted that he had been admitted to St John of God Hospital in March 2000, suffering a major depressive episode following an attempted suicide: at [8]. There followed a number of further admissions and clinical notes and reports, including a psychiatric report dated 17 April 2001 which referred to the respondent's work as a prison officer, without reference to the Parklea riot and identifying the cause of his major depression as ongoing pain and disability arising from work injuries incurred in 1999. The link with the Parklea riot was not made until a report from Dr Field, who saw him as an outpatient at St John of God Hospital in October 2004, some 17 years after the event. There was at least a significant possibility that a different and plausible view might have been expressed by other psychiatrists called by the defendant at the notional trial.

22 Further, the appellants submitted that the trial judge was in error in failing to make allowance for the chance that the respondent would not demonstrate that the whole of his injury resulted from the Parklea riot. The appellants submitted both at trial and in this Court that damages for future economic loss should have been discounted by 50% to take account of the difficulty in this respect. The trial judge accepted that a reduction should be made for part of the period relating to past economic loss to allow for the contribution of the injuries suffered when he fell whilst employed by a firm known as Memtec, in 1999. He stated at [124]:

"Whilst some allowance needs to be made for the Memtec injuries, to reduce that part of the claim by 50% is not in my view sustainable, having regard to the medical evidence and the overwhelming probability that the plaintiff's relatively minor physical injuries were exacerbated by his pre-existing psychiatric situation. I would allow a reduction of 25% being 50% for the first four years...."

23 Past economic loss was calculated over a period from December 1987 to June 2008 (the notional trial date): the calculations undertaken need not be revisited because they are not in dispute. With respect to future economic loss, the trial judge stated at [125]:

"The defendant also carries the 50% deduction for Memtec into its calculation of future economic loss. I do not agree that such a position [is] tenable."

24 Although the appellants dealt with this argument on the basis that it had been addressed by the trial judge (albeit in a manner with which they took issue) that was not so.

25 The appellants were correct in submitting that some discount should be allowed in this respect. Given the broad brush approach which would have been adopted by the reasonable solicitor, it is not necessary to set out the detail of the medical opinions on which the trial judge relied in reaching the assessment set out above. The discount factor proposed by the appellants is too high. It combines two elements: namely, the risk that the current disabilities would not be attributable wholly to the Parklea riot, combined with the uncertainty as to what proportion might be so attributed.

26 At trial, the respondent relied upon an opinion provided by Mr Mark Daley, a barrister with extensive experience in workers' compensation claims and claims for work injury damages. His report was dated 19 April 2012. Mr Daley had and commented on a report by Mr Stanton of counsel, prepared for the appellants (although it was not tendered at the trial). Mr Daley was cross-examined at some length about how a reasonable solicitor would deal with the issues of causation: Tcpt, pp 66-69. The following evidence appeared at pp 68(45)-69(15):

"Q. And it would be suggested [to a court hearing the working injury damages claim] that the coincidence of the injury at Memtec with the plaintiff ceasing work was a factor that suggests that it was the Memtec injury and not the earlier Parklea prison riot which was the cause of his inability to work?

A. Most defendants would yes.

Q. And that's the sort of very real contest that one would expect to occur if the work injury damages claim had been run?

A. Yes.

Q. And it would in the mind of a reasonable solicitor giving advice in the middle of 2006 or 7 had been a significant factor influencing the content of that advice?

A. Yes.

Q. What you had done in your report following something Mr Stanton did was deal with this by deducting 20% of economic loss in a notional way to reflect the risks associated with Memtec?

A. Yes."

27 Mr Daley was not prepared to accept that this deduction was inadequate. However, it was clearly necessary to make some allowance for that risk and a 20% deduction should have been adopted.

28 The respondent did not deal with this point other than to say that it had been dealt with by the trial judge, referring to his finding that the exacerbation caused by the Memtec injuries was "temporary". However, the point of present relevance is that the trial judge did not deal with this issue for the purposes of identifying the hypothetical advice.

29 It is not necessary to consider the proper evaluation of these factors in detail: the appellants contended for an additional 15% discount to that allowed for the extension of time, thus requiring the total damages to be reduced by 40% in giving advice to the respondent as to his prospects in any proposed damages claim. The trial judge noted that the likelihood of success on liability "has not really been run as a live issue in these proceedings except to acknowledge that in litigation nothing is certain": at [56]. Accepting a degree of uncertainty, a discount should have been made in assessing the advice given in 2007/2008: the additional discount of 15% was within a reasonable range.

(c) degree of permanent impairment

30 Thirdly, and related to the previous point, there was a risk that the respondent would fail to establish an entitlement to any damages, by failing to establish to the satisfaction of an approved medical specialist under the scheme for assessing whole person impairment, that he had suffered a 15% permanent impairment by reason of his mental deterioration following the 1987 riot. Thus, even if a causal connection were established, it might have been necessary to disentangle the effects of the subsequent injuries, with the result that damages might have been reduced or might not have been available at all.

(d) nature of lost opportunity

31 Fourthly, the appellants noted that the approach adopted by the trial judge assumed the claim for damages had no value at the time the respondent terminated the appellants' retainer in June 2009. However, Mr Daley expressly addressed that point.

32 Mr Daley noted in his report that Mr Stanton (the appellants' legal expert who was not called) had opined that the prospects of obtaining an extension of time in 2007 were in the order of 75%: Report, par 99. However, he expressed the tentative view that a discount of 25% for the chance of not obtaining an extension of time was generous to the appellants: par 100. He continued at paragraphs 102-103:

"Prompt action however was required by the solicitors. The longer the delay after the solicitors were engaged the less likelihood that an order extending time would be made. Once the matter had been in the hands of the solicitors for four years to 2009 the prospects of obtaining an extension would be significantly reduced.

If the issue were open I would be inclined to reverse the opinions of Mr Stanton, that is my view would tend to be that there was only a 10% chance of an extension not being granted if the application was made promptly increasing by 25% (ie a total of 35%) or more if the application was left until 2009 to be made."

33 The appellants construed this view (which they did not challenge) as indicating an increase of 10% in the discount required for potential failure in obtaining an extension of time, over the period of their retainer. That submission should not, however, be accepted. First, it is clear that Mr Daley thought that the risk was significantly increased during the period of four years. From a lower starting point, he adopted an increase of 25%. Secondly, he treated the estimate as conservative, referring to "35% ... or more" as the risk by June 2009.

34 One possible explanation for the disparity between his approach and that of Mr Stanton (whose reasoning was not before the Court) may have been that Mr Daley was looking at an increase in risk over a four year period, whereas the agreement at trial was that the application for an extension of time would be made "as at 2007/2008", that is, no earlier than two years before instructions were withdrawn. In any event, these issues were not explored in cross-examination and Mr Daley's opinion should be accepted, with its latent ambiguity.

35 It follows, nevertheless, that the risk of not obtaining an extension of time may have increased by approximately 25%, due to the negligence of the appellants. If the respondent were being compensated for a loss of a chance, the loss was not simply the opportunity to bring a claim for work injury damages, the possibility remaining open when instructions were withdrawn, but the diminution in the chance of such proceedings being successful caused by the negligence of the appellants.

36 The trial judge did not address the issue in his principal judgment, although it had been squarely raised in the defence (par 16) in opening (Tcpt, pp 6-7), in closing submissions (Tcpt, p 114), although not in the appellants' written submissions at trial. The point was dealt with by the trial judge in his supplementary reasons at [162]. He stated:

"Part of the defendant[s'] damages schedules involves calculations of damages at a notional trial date of 30 June 2012, on the basis that Mr Bazley could have made an application for leave to commence proceedings through his current solicitors when he first consulted them in 2009. The defendant[s'] case is, in effect, that the loss sustained by Mr Bazley as a result of Taylor and Scott's negligence would be the difference, if any, between the two sets of calculations. The defendants suggest that in such a proceeding, the discount for the unlikelihood of success would only [increase] from 25% to 35%. Even if this were a proper approach, the risk in my view would rise substantially beyond 35% to what could only become a speculative assessment."

37 The appellants contended that the trial judge should have expressly accepted that this was the correct approach and, further, that his rejection of the assessment as "speculative" ignored the evidence of Mr Daley.

38 The respondent defended the approach of the trial judge on two bases. First, he said that the issue was whether he had failed to mitigate his loss or damage. It is true that the failure to prosecute an application for leave to proceed out of time, in 2009, was identified as a particular of a failure to mitigate (defence, par 17), but, as noted above, it was also raised as the correct approach to assessing the loss of a chance (defence, par 16).

39 Secondly, the respondent submitted that there was no challenge to the finding that the risk would rise "substantially beyond 35%": at [162]. That was not so: the appellants' case was that the factual assessment ignored the evidence of Mr Daley.

40 Thirdly, the respondent detailed the dilatoriness of the appellants and the lack of explanation. However, this material was beside the point: negligence was admitted. If, as seems likely, the delay was caused by the appellants and not by the respondent, that may have assisted, and certainly would not have counted against, the chances of obtaining an extension of time in 2009. Finally, the respondent also relied upon the elements of ambiguity and uncertainty in Mr Daley's opinion, to which reference has been made above. He submitted that it would not have been reasonable to incur the expense attending an application for an extension of time, given the diminished likelihood of success by 2009.

41 The appellants are correct in principle in contending that the damages which flowed from their negligence should be assessed on the basis of the extent to which the respondent lost an opportunity to recover work injury damages. There was an absence of evidence for the proposition that by 2009 the risk of failure in seeking an extension of time was so great as to make any application unreasonable. On the basis that this was not a question of mitigation of loss, but an inherent element of the identification of the subject matter which had been lost, the onus was on the respondent to make good that proposition. That he did not do.

42 However, although the appellants' approach is correct in relation to the assessment of damages, it has no bearing on the first step in the process, namely the retrospective calculation of work injury damages which should have been undertaken by the appellants at the time they were obliged, acting reasonably, to advise the respondent as to his rights and entitlements under the two options.

Assessment of value of compensation benefits

(a) weekly benefits

43 Mr Daley accepted that an appropriate calculation of workers' compensation benefits required assessment of two elements, namely a capital sum on account of weekly entitlements and a further sum to reflect future medical expenses. There was, as might be expected, a significant level of agreement with Mr Stanton, in which respects Mr Daley was not challenged by the appellants. One element of agreement was the quantification of the weekly payments, although there was a difference in the final amount allowed due to the period over which payments were expected to accrue. The appellants accept Mr Daley's figure, which was an amount of $173,020.

(b) future medical benefits

44 The calculation of medical benefits was less straightforward. It depended upon assumptions as to the likely level of medical treatment for the respondent's psychiatric illness over the remainder of his life. To cater for discrepancies in the evidence, Mr Daley made three calculations based on different assumptions as to weekly expenditure. The amounts so calculated ranged from $128,800 to $154,105. The average rate was $161 per week. It followed that Mr Daley assessed the capital value of the workers' compensation benefits as falling between $301,820 and $327,125.

45 The appellants did not accept the calculation of medical benefits and cross-examined Mr Daley as to alternative assumptions. Noting that one calculation had been done on the basis of evidence provided in a report prepared by Dr Jungfer, consultant psychiatrist, in February 2007, they suggested that "a better way of calculating the cost of the then current level of treatment would be to look at the payments that were being made for that treatment by the Workers Compensation Insurer": Tcpt, 23/05/12, p 55(40). Mr Daley agreed. (The other calculations were done on the basis of material which arose in 2010-2011: Mr Daley agreed that those bases of calculation were inappropriate: Tcpt, p 56(15) and (30).) The cross-examination continued:

"Q. But it would significantly affect your opinion, wouldn't it, if you were told that in the 2007 financial year the average cost of medical treatment, including travel expenses, for the plaintiff was between $300 and $350 a week, it would cause you to revisit the assumptions in paragraph 43, wouldn't it?

A. Yes.

Q. And if you were told that in the twelve months to June 2008, that is in the presumptive period leading up to the notional trial, the cost of medical treatment for the plaintiff was in the order of $600 a week on average, that would cause you to reconsider the assumptions in paragraph 44, wouldn't it?

A. Yes.

Q. Because a reasonable solicitor in those circumstances would be concerned that his client was incurring weekly medical expenses of - on the assumption I'm asking you to make - about $600 a week, which he would lose as soon as the work injury damages case was decided, correct?

A. For the future, yes, and --

Q. Yes, for the future?

A. Yes.

Q. So that when the reasonable solicitor considered whether the work injury damages claim had any net value to the plaintiff, and performing the calculus that you have said ought to be performed, he would in, paragraph 43, use as a primary piece of material for predicting the future the cost that the plaintiff was actually incurring at that time, correct?

A. No. You would need to know whether that cost was likely to continue.

Q. You'd need to get a prognosis from a doctor?

A. That's right.

Q. But in the absence of a prognosis from a doctor at that time, and we don't have one in this case, your approach has been to look for information which would inform you of the costs that were in fact being incurred?

A. Yes.

Q. And if the costs that were in fact being incurred, in the period up to June 2008, were in the range of approximately $600 a week, you would be content to use that as an indicative measure in the place of an informed contemporaneous prognosis, correct?

A. No, I want to know from a doctor before I told a plaintiff that he had no right of action [what] his likely worker's compensation rights would be, and I wouldn't advise him on the strength of just the current medical expenses.

Q. If the current medical expenses were $600 a week, and the plaintiff's prognosis was that his current level of treatment would be likely to be required for the foreseeable future, and maybe for the rest of his life, then you would adopt $600 a week, or whatever the figure was, in place of the assumptions you've made in paragraph 43 of your statement?

A. Yes."

46 The appellant noted that between January 2006 and June 2008, the lowest average weekly payment for a six month period was $309. For the last two six month periods the average weekly payments were (July 2007-December 2007) $570 and (January 2008-June 2008) $628. Using an average of $600 per week, they calculated the value of the medical benefits at $535,360.

47 What was missing from that calculation was evidence that medical expenses in the future would continue to accrue at that rate, rather than being incurred at a higher or lower level. The evidence of Mr Daley supported the view that, in the absence of any medical evidence suggesting a likely change in the prognosis, it was acceptable to assess the value of the workers' compensation benefits according to the average of recent payments, although he clearly believed some prognosis should be obtained. For the respondent to obtain a lower figure, it was a matter for him to present evidence in support of such an inference. In the absence of such evidence, a figure in the order of $535,000 was an appropriate estimate of the value of the medical benefits, for the purpose of explaining to the client the risks of abandoning the statutory scheme.

48 In written submissions, counsel for the respondent did not descend to the detail of the calculations, but merely asserted that no reasonably competent solicitor "would simply convert actual payments to a weekly sum and then put that weekly sum on the tables for the future". It is necessary, as the respondent correctly submitted, to take account of the reason for such treatment as had in fact occurred and "evidence of the need for future treatment". The appellants' approach, it was submitted, ignored the evidence of Dr Jungfer as to reasonable future needs.

49 In terms of approach, these submissions may be accepted. The reliance on Dr Jungfer, however, does not assist. She stated that the respondent "requires ongoing psychiatric treatment and it is my opinion that in view of the chronicity of symptoms he is likely to require lifelong therapy": Report, 16 February 2007, par 1.3. She also referred to the respondent's statements that "his symptoms have deteriorated over time" and that he had become "less capable of coping": par 16.1. The report did not provide evidence to support a diminution in the need for treatment in the future.

50 In these circumstances, one would expect a reasonably competent solicitor to be cautious in advising a client to proceed with work injury damages. A person with a chronic medical condition requiring expensive lifelong therapy, who will recover nothing on that account as part of work injury damages, would be ill-advised to abandon the security of workers' compensation benefits without the expectation of significant financial security through other elements of an award of damages.

(c) past weekly entitlements

51 The appellants raised other challenges to the calculation by the trial judge of the respondent's workers' compensation benefits. However, those calculations were undertaken for the purpose of assessing the damages recoverable from the appellants, not for the purpose of the advice which should have been given by the appellants in 2007/2008. However, there was one additional factor which the appellants contend should have been taken into account, but was not. To explain how the matter was dealt with at trial requires reference to a procedural step.

52 The primary judgment was delivered on 31 August 2012. Having determined that damages were payable and having dealt with matters of principle, with some indication as to how he would calculate the relevant amounts, the trial judge stood the matter over to allow the parties to prepare a schedule of damages. In the event that there was disagreement, he gave leave to relist the matter "to deal with any mathematical errors or agreed errors in regard to figures upon which any calculation has been made": at [149]. With respect to the calculation of future economic loss, the trial judge noted that the defendants continued to insist that a discount of 20% (rather than the 15% allowed) should have been adopted: at [153]. He declined to entertain that submission on the basis that the point had already been determined and the further hearing had been allowed to correct errors of calculation only: at [153]. However, other arguments were dealt with on the merits. One such proposition was that in calculating the value of weekly compensation payments, allowance should have been made for an entitlement for past payments for the period 2001-2006 which could have been, but were not, sought by the appellants when they obtained reinstatement of the workers' compensation payments in January 2006. The amount calculated by the appellants (at a rate which included payments for two dependants, being his children) was said to total $102,050, although, as recalculated for the purpose of submissions to this Court, the amount was $93,800. The trial judge dismissed this claim in his supplementary judgment as not supported by the evidence - at [165] - and, it appears, on the basis that it had not been raised during the hearing: at [166]. The appellants contend, however, that there was evidence to support the availability of such an entitlement, which should have been accepted. There is also no doubt that such a claim was included in the calculation of the value of the workers' compensation entitlements in written submissions before the trial judge: pars 47-48.

53 The evidence, extracted from Mr Daley in cross-examination, was that, having obtained a reinstatement of his compensation payments from June 2006, based on the disability flowing from the Parklea riots, he would have been entitled to claim back payments so long as he had given notice of injury as soon as reasonably practicable and made the claim within six months thereof: Tcpt, p 58(35). Mr Daley agreed that he had satisfied those conditions and thereafter could recover back payments, although if he had done so and then recovered work injury damages, he would have had to repay the workers' compensation payments.

54 The fact that there was evidence to support an entitlement to an additional amount by way of workers' compensation, did not mean that the availability of such an entitlement was properly to be taken into account in assessing the advice to be given in 2007/2008. There was no explanation as to why the back payment had not been sought, in circumstances where it was the appellants who had failed to seek such a payment. It does not lie easily in their mouths to assert, as a ground for resisting liability for negligence, the availability of another claim which they did not pursue on the respondent's behalf.

55 It should not affect the hypothetical advice which should have been given in 2007/2008.

Hypothetical legal advice - 2007/2008

56 In assessing what advice would have been given to the respondent prior to the notional trial date in June 2008, a broad brush approach is required, although some matters would have been capable of more precise evaluation than others. There were in effect five factors to be taken into account, namely:

(a) damages for past economic loss (including superannuation);

(b) damages for future economic loss (including superannuation);

(c) a component for tax on workers' compensation payments;

(c) discounting for various uncertainties, and

(d) reduction by way of payments which would need to be made from the hypothetical judgment.

57 The first issue was straightforward: the trial judge assessed past economic loss in an amount of approximately $350,000, as at the notional trial date. The appellants did not take issue with this figure. It could appropriately be adopted as an element in the calculation forming part of the hypothetical advice. With respect to future economic loss (including superannuation) the trial judge reached a figure of approximately $530,000. The amount for tax on workers' compensation payments was $15,500 and a figure in that order should also be included. The total amount by way of damages is, in round figures, $900,000.

58 The figure for future economic loss should be reduced by 20% to allow for the difficulties with causation; it would then amount to some $425,000 and the total would be $800,000. A further discount is to be applied to allow for the risk that the respondent would not have been granted an extension of time within which to bring the proceedings. That risk was agreed at 25%. After making that allowance, the total figure is reduced to $600,000.

59 From that hypothetical award it is necessary to deduct some amount for unrecoverable solicitor and client costs (say $50,000) and repayment of victim's compensation (approximately $50,000). There would be an addition by way of interest on the judgment. On a somewhat higher award the trial judge allowed $130,000 for interest: this figure should be reduced to approximately $100,000, balancing out the repayments and deductions. Accordingly, one would be left with an award in the order of $600,000. However, it would be necessary to take account of repayments of compensation, being both weekly payments and medical benefits reinstated in January 2006, to the notional trial date in June 2008.

60 On the other side of the balance, the respondent should have been advised of the likely value of his workers' compensation benefits, which would cease once damages were paid and, to the extent that payments had been made attributable to the Parklea riot injury, repayment would be required of that amount.

61 For this purpose, the amount for past workers' compensation (not claimed or recovered) can be left out of the equation. The assessment of weekly benefits, capitalised at the notional trial date, was, according to Mr Daley, $173,000. The calculation of medical benefits, again capitalised at June 2008 and calculated over the respondent's life at the rate of $600 per week, would amount to $525,000. The workers' compensation benefits would thus be assessed, in round terms, as worth approximately $700,000 to the respondent, as compared with work injury damages of less than $600,000. It must be accepted that a competent and responsible solicitor, making this assessment, would advise a client in the position of the respondent in 2008 not to take proceedings for work injury damages.

The respondent's instructions

62 It is then necessary to ask whether the respondent could satisfy the court that he would have undergone the stresses and uncertainty accompanying litigation for work injury damages with the real possibility that he would end up $100,000 worse off, in the long term. Given the assumption that the respondent's mental health in 2008 was extremely poor, and likely to remain so in the foreseeable future, it could not be assumed as more probable than not that he would pursue litigation if properly advised as to the matters set out above.

63 The first contact between the respondent and the appellants appears to have been in 1989, when they made a claim for him before the Victims Compensation Tribunal. The next contact was on 5 August 2005 when he telephoned to inquire whether the appellants could assist with a negligence claim. A conference was arranged for 23 August 2005. A partner in the firm took a statement from him on that date. The statement concluded, "I wish you to investigate a workers compensation claim on my behalf". Thereafter, the correspondence with the respondent was headed "Your workers compensation claim" and the letter setting out the instructions, dated 26 August 2005, noted that the work was "to investigate and if appropriate to pursue an action in respect of your work injury in the Workers' Compensation Commission". The possibility of pursuing a common law claim was also referred to under the heading "Common law costs", but the basis of the retainer clearly did not, at that stage, include a common law claim. No retainer specifying the costs arrangements in relation to damages proceedings was identified.

64 The respondent submitted that, having received advice from counsel in July 2006, he gave instructions to proceed with the damages claim, instructions which were not, through the negligence of the solicitors, prosecuted. In his statement (which became Ex A in the proceedings) he said at [30]:

"I recall the barrister saying to me something along the lines of 'Your case is out of time but we should make an application for leave, even though your case is out time. You have a good explanation for the delay and you should have reasonable prospects of getting leave.' I recall saying to them 'I would like something done' and asking them to proceed with my claim. A lot of the conversation was between the barrister and the solicitor, but I do remember being encouraged that something should be done for me. On leaving the meeting I was told that both of them would pursue my claim. I recall discussion about me having to attend a medical examination by a psychiatrist."

65 The respondent was not cross-examined on this passage. However, even read in isolation, the passage does not involve unequivocal instructions to commence proceedings: indeed, it accepts that leave would be required to commence proceedings and that other steps would need to be taken before that occurred, including obtaining a further psychiatric report. Three days after the conference the barrister, Mr Romaniuk, wrote to Taylor and Scott referring to the conference and noting that "[t]he purpose of the conference was to give preliminary consideration to the Plaintiff's claim for work injury damages ..." (emphasis added). He expressed the view that there was, "[a]t this stage ... a sufficient basis to justify further investigation and prosecution of the Plaintiff's potential work injury damages claim". The letter then addressed the limitation issue, noting the need for medicolegal reports, proposing an application for preliminary discovery in relation to "liability materials" and noting the need to comply with relevant procedural requirements. Counsel anticipated that the next step would be for him to settle a notice of motion and affidavit in support of an application for preliminary discovery.

66 On 15 August 2006 Taylor and Scott wrote to the respondent advising him that they were obtaining medical reports and arranging for him to be examined by a psychiatrist, Dr Jungfer. On 12 September Taylor and Scott again wrote to the respondent advising that a consultation had been arranged for 6 February 2007. On 5 October 2006 the solicitors supplied Mr Romaniuk with a set of 36 documents, including medical reports and tax returns.

67 Most of the steps taken in the remainder of 2007 by the solicitors were concerned with the compensation claim. On 24 February 2008 there was a file note in relation to a conference with the respondent on 6 February, noting that he was undertaking an in-house PTSD program for three and a half weeks. On 17 March 2008 a letter was sent to him arranging a conference at the solicitor's offices for 28 March. The last two documents on the file were notes from the respondent to Taylor and Scott attaching WorkCover certificates and claims for expenses and asking about a conference with Mr Romaniuk; the notes were dated 14 April and 14 July 2008. There appears to have been no further contact before June 2009, when the respondent's new solicitor wrote to Taylor and Scott seeking the files.

68 None of this material, viewed objectively, demonstrates any clear commitment to pursue proceedings for damages regardless of the advice which might be given; nor, it may be assumed, would solicitors have been willing to pursue a claim on a speculative basis, requiring the client to meet only the cost of disbursements as incurred, without first obtaining advice from counsel and clear instructions from the client. The trial judge noted that the solicitors were "negligent in not providing advice to the plaintiff and in not progressing the claim as he obviously wanted them to do": at [26]. In written submissions, the respondent contended that he had, at the conference on 20 July 2006 given "specific instructions to the solicitors to proceed": written submissions, par 6. So much may be accepted: in context, however, that meant no more than to take appropriate steps which would allow a full assessment to be made as to whether proceedings for damages should or should not be commenced. As noted above, it is more probable than not that a competent and responsible solicitor would have given advice not to proceed. There is nothing in the documentary record, or in the respondent's own evidence, to suggest that, if given a rational explanation to the effect that he would be better off financially not to take proceedings and would avoid the considerable stress of a contested trial, he would not have accepted the solicitors' advice. His mental health was precarious in 2007/2008.

69 The correct conclusion is that, absent the conceded breach of the duty of care, the respondent would not have brought proceedings for damages in respect of the Parklea riot. The claim against the appellants should therefore have been dismissed.

Damages

70 In the event that that conclusion were thought to be wrong, it would be necessary to calculate the damages to which he would be entitled as against the appellants. That calculation would involve various alterations to the sums set out above. For example, the estimate of the value of future workers' compensation benefits, as calculated at the date of the trial of the action against the solicitors, would need to be taken into account in diminution of the damages to be awarded, as would the amount already paid on account of workers' compensation, since June 2008. More significantly, assuming that the loss of the chance of obtaining an extension of time within which to bring proceedings increased by 25% due to the negligence of the appellants, the amount of economic loss recoverable would be 25% of the total, before reduction on account of repayments or other amounts unrecoverable or constituting foregone benefits.

71 The trial judge found that the total economic loss was $950,000 before discounts and deductions. Twenty-five percent of that amount would be in the order of $250,000. From that it would be necessary to deduct an amount of $290,000 for repayment of workers' compensation benefits, victim's compensation and social security payments. The trial judge also allowed a figure of $45,000 for unrecoverable solicitor and client costs. The allowance for retained workers' compensation rights was $220,000. From these broad calculations, it can readily be seen that the respondent suffered no loss. Indeed, that would be so even if the loss of the chance to obtain an extension of time rose to 35% by June 2009.

Orders

72 Accordingly, the Court should make the following orders:

(1) Allow the appeal and set aside the judgment and orders made in the District Court.

(2) In place thereof, order that -

(a) the plaintiff's claim be dismissed, and

(b) the plaintiff pay the defendants' costs of the trial.

(3) The respondent pay the appellants' costs of the appeal.

(4) The respondent have a certificate under the Suitors' Fund Act 1951 (NSW) with respect to the costs of the appeal.

73 EMMETT JA: This appeal is concerned with a claim by the respondent, Mr Michael Bazley, for damages against his solicitors (the Solicitors) for failing to commence proceedings on his behalf against his former employer, the Department of Corrective Services (the Department). Mr Bazley's claim against the Department, by whom he was employed as a prison officer, would have been for damages for work-related injuries sustained during a riot at Parklea prison in 1987. In 2006, the Solicitors obtained advice from counsel as to the possibility of Mr Bazley's claiming damages. While they took some steps in the pursuit of such a claim, they failed to commence any proceedings, and Mr Bazley withdrew his instructions in June 2009.

74 Mr Bazley then commenced proceedings against the Solicitors for damages based on their failure to commence and prosecute proceedings against the Department on his behalf. After a trial in the District Court, judgment was given for Mr Bazley against the Solicitors in the sum of $270,019, representing the value of the opportunity he lost by reason of not commencing proceedings. The Solicitors have appealed from that judgment.

75 The Solicitors accepted, both at first instance and on appeal, that they were in breach of their obligations to Mr Bazley in failing to commence proceedings. However, they contend that Mr Bazley suffered no loss as a result of their breach.

76 They contend that, had the primary judge correctly identified the advice that the Solicitors would have given to Mr Bazley, he would not have commenced proceedings at all. The relevant advice required a comparison between possible damages that Mr Bazley might recover in the hypothetical proceedings against the Department and his accrued workers' compensation benefits that would be lost if he obtained damages. The advice that should have been given to Mr Bazley was that he would have been better off receiving workers' compensation benefits rather than pursuing a claim for damages.

77 The correct advice that the Solicitors should have given to Mr Bazley was that his workers' compensation entitlement, properly assessed, would have a value in excess of $600,000, while the value of his claim against the Department in the hypothetical proceedings for work injury damages, properly assessed, would have a value of less than $600,000. It was not suggested that the Solicitors would have acted other than competently and responsibly in advising Mr Bazley. There is no reason to doubt that a competent and responsible solicitor, in the light of those assessments, would advise a client in Mr Bazley's position not to take proceedings against the Department.

78 I have had the advantage of reading in draft form the reasons of Basten JA for concluding that the appeal should be allowed. I agree with his Honour's reasons for that conclusion.

79 In particular, I agree with Basten JA's conclusion that it is more probable than not that Mr Bazley would not have pursed litigation if properly advised as to the risk of being worse off by more than $100,000. The material reviewed by Basten JA demonstrates that it is unlikely that Mr Bazley would have given instructions to pursue proceedings for damages in the face of the proper advice. Further, it is unlikely that the Solicitors would have been willing to pursue a claim on Mr Bazley's behalf on a speculative basis, requiring him to meet only the cost of disbursements as incurred, without obtaining advice from counsel and clear instructions from Mr Bazley.

80 I agree with Basten JA that there is nothing in the material or in Mr Bazley's evidence to suggest that, if given a rational explanation to the effect that he would be better off financially not to take proceedings, he would have given instructions contrary to the proper advice. I agree with his Honour's conclusion that Mr Bazley would not have commenced proceedings for damages. He therefore suffered no loss and the proceedings in the District Court should have been dismissed. I therefore agree with the orders proposed by Basten JA.

81 LEEMING JA: I agree with Basten JA.

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Decision last updated: 27 September 2013