Court of Appeal Supreme Court New South Wales

• Medium Neutral Citation: Gattellaro v Spencer and ors [2011] NSWCA 415
• Hearing dates: 17 November 2011
• Decision date: 20 December 2011
• Before: Beazley JA at [1]; Young JA at [111]; Sackville AJA at [112]

Decision

The appeal is dismissed with costs.

[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: NEGLIGENCE - duty of care - solicitors - whether breach of professional duty - failure to convey offer of settlement to appellant - causation - whether trial judge's conclusion on causation was correct; LEGAL PROFESSION - solicitors - advocate's immunity - question not arising where breach of duty and causation not established
• Legislation Cited: Contracts Review Act 1980; Real Property Act 1900
• Cases Cited: Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447; D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1; Garcia v National Australia Bank Ltd [1998] HCA 48; 194 CLR 395; Gattellaro & Anor v Westpac Banking Corporation [2001] NSWCA 76; Gattellaro v Westpac Banking Corporation [2004] HCA 6; (2004) 204 ALR 258; Marston v Charles H Griffith & Co Pty Ltd (1982) 3 NSWLR 294; Westpac Bankings Corporation v Gattellaro [2000] NSWSC 775
• Category: Principal judgment
• Parties: Yolanda Gattellaro (Appellant; Keith Spencer (First Respondent); William Whitby (Second Respondent); David J Adams (Third Respondent)
• Representation: D W Elliott; G J Smith (Appellant); P Morris (Respondents); Julie A Orsini (Appellant); Yeldham Price Obrien Lusk (Respondents)
• File Number(s): 2005/269546

Decision under appeal

• Citation: Gattellaro v Spencer [2010] NSWSC 1122
• Date of Decision: 2010-10-06 00:00:00
• Before: Hislop J
• File Number(s): 2005/269546

HEADNOTE

[This headnote is not to be read as part of the judgment]

The appellant and her husband executed two mortgages, the first in 1977 and the second in 1986, in favour of Westpac, over their family home. Both mortgages were all monies first and third party mortgages. The 1986 mortgage was entered into for the purposes of securing the consolidated indebtedness of the appellant and her husband and their construction company, Falgat Constructions Pty Limited (Falgat). Notwithstanding the entry into the 1986 mortgage, the 1977 mortgage was never discharged. In 1985, the appellant also executed a guarantee of the debts of Falgat, in favour of Westpac.

In 1989 Westpac sought repayment of the outstanding indebtedness under the loan facility provided in 1986. It subsequently commenced proceedings seeking a writ of possession of the family home and judgment for a money sum. There then followed protracted litigation, which ended unsuccessfully for the appellant and her husband in the High Court in 2004.

The appellant subsequently sued her solicitors for breach of their professional duty to her, including for failing to convey to her an offer of settlement, made by Westpac, approximately five weeks prior to the hearing of the appeal in the High Court. If accepted, the offer would have resulted in the appellant retaining a portion of the value of her jointly owned home. However, that value was lost to her upon the dismissal of the appeal to the High Court.

The trial judge held that the respondents owed the appellant a duty of care to convey the offer within the time that it was open for acceptance. Without formally determining breach, his Honour held that the appellant had not proved that her loss was caused by any breach of duty, as she would not have accepted the offer in any event.

The appellant appealed from his Honour's verdict for the respondents. The appellant's challenge to his Honour's finding on causation was put at the forefront of her appeal. There were also challenges relating to the breach of duty and advocate's immunity.

Held per Beazley JA (Young JA and Sackville AJA agreeing) dismissing the appeal:

(1) The appellant did not establish that the only finding that was open to his Honour on the evidence was that she would have accepted the offer of settlement had the respondents conveyed this to her.

(2) In the circumstances, it was not erroneous for his Honour to conclude that the appellant would have settled without the appellant's husband agreeing to that course.

(3) His Honour's conclusion in respect of causation was correct.

(4) The appellant's appeal to the High Court was not always hopeless. As the appellant's challenge relating to duty was based upon the respondent's failure to advise her that the appeal to the High Court was always hopeless, that challenge failed.

(5) A consideration of the advocate's immunity issue, in circumstances where the appellant had not made out her cause of action, was unnecessary.

Orders

Appeal dismissed with costs.

Judgment

1 BEAZLEY JA : On 6 October 2010, Hislop J dismissed a claim for damages, brought by the appellant, Mrs Gattellaro, against the respondents, for breach of their professional duty of care to her whilst acting as her solicitors, in proceedings brought by the Westpac Banking Corporation (Westpac) for a writ of possession of her home at Chiswick that she owned jointly with her husband, Mr Gattellaro (the Westpac proceedings) and for judgment in the sum of $197,378.09.

2 His Honour held that the respondents owed a duty of care to Mrs Gattellaro to communicate an offer of settlement made by Westpac shortly before the hearing of her appeal to the High Court in the Westpac proceedings. The offer was that the proceedings be settled by the payment by Mrs Gattellaro to Westpac of the sum of $650,000. That sum was inclusive of costs. Mrs Gattellaro's appeal was dismissed by the High Court.

3 However, his Honour held that the loss claimed by Mrs Gattellaro, namely, the benefit of the settlement which would have resulted in her retaining the value of a portion of her interest in the Chiswick property, was not caused by any breach of the respondents' duty of care, as Mrs Gattellaro would not have accepted the offer. His Honour also held that the respondents' conduct was protected by the principle of advocate's immunity: see D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1. Accordingly, his Honour dismissed the proceedings with costs.

4 Mrs Gattellaro has appealed from his Honour's verdict for the respondents. In her notice of appeal, she has raised challenges to his Honour's findings in respect of duty of care, breach, causation and advocate's immunity. However, in her written submissions, Mrs Gattellaro's challenge to his Honour's finding on causation was put at the forefront of her appeal. Accordingly, these reasons focus, in the first instance, on that issue.

Factual background

5 Mrs Gattellaro and her husband were the joint proprietors of their home in Chiswick. They were also the directors of a company, Falgat Constructions Pty Limited (Falgat), through which Mr Gattellaro carried out his building construction business. Falgat had for many years carried out major renovation works on properties purchased in the joint names of Mrs Gattellaro and Mr Gattellaro, which were then resold at a profit. Falgat also engaged in the business of building houses and home units.

6 In 1977, Mrs Gattellaro and Mr Gattellaro executed a mortgage in favour of the Commercial Bank of Australia (the CBA) over the Chiswick property to secure the personal indebtedness of Mrs Gattellaro and Mr Gattellaro to the CBA (the 1977 mortgage). The 1977 mortgage contained " an all monies clause " for past and future indebtedness and was a first and third party mortgage in the following terms:

"That the Mortgagor will pay to the Bank on demand in respect of any loans advances payments or credits which are or may hereafter be made or given either to the Mortgagor (alone or jointly as aforesaid) and/or the Debtor (alone or jointly as aforesaid) or to any other person or persons for the accommodation or at the request or by the authority of the Mortgagor or the repayment of which the Mortgagor and/or the Debtor may have guaranteed or may hereafter guarantee ..."

The " Mortgagor " in this clause was a reference to both Mrs Gattellaro and Mr Gattellaro.

7 In 1982, pursuant to a statutory novation, Westpac was substituted for CBA as the mortgagee.

8 In the mid-1980s, Mrs Gattellaro and Mr Gattellaro were unable to sell certain of the properties they had purchased for renovation and were also unable to sell some of the home units which had been built by Falgat. In 1985, Westpac sought to have Falgat's indebtedness guaranteed by Mrs Gattellaro and Mr Gattellaro (the 1985 guarantee). At the time that Westpac first brought its possession proceedings against the Gattellaros, there was an issue as to whether the 1985 guarantee had been executed by either or both of them. I will return to this question later.

9 As at June 1986, Falgat was indebted to Westpac in a sum of approximately $195,000 and the Gattellaros were indebted to Westpac in the sum of approximately $187,000. The combined indebtedness of the Gattellaros was still secured by the 1977 mortgage. On 2 June 1986, the indebtedness of Falgat and the Gattellaros with Westpac was consolidated. A bill acceptance line of credit in the sum of $450,000 in favour of the Gattellaros was issued and applied to the discharge of the existing indebtedness of Falgat and the Gattellaros. As part of this rearrangement, the Gattellaros entered into a new mortgage with Westpac, securing the bill line of credit (the 1986 Mortgage). However, the 1977 mortgage remained undischarged.

10 Over the succeeding years, the indebtedness under the line of credit was significantly reduced. However, in January 1989, Westpac sought repayment of the outstanding indebtedness by serving a notice pursuant to the Real Property Act 1900, s 57(2)(b) on Mrs Gattellaro and Mr Gattellaro. They refused to pay, as they claimed that in 1977, CBA had failed to credit $30,000 to their account and in 1980, had improperly debited the account with the sum of $42,873.99. They contended that this amount, together with interest, exceeded the sum claimed by Westpac.

11 In February 1989, Mr Gattellaro retained the respondents on behalf of himself and Mrs Gattellaro to act for them in respect of the dispute with Westpac.

The litigation history between the parties

12 On 30 May 1990, Westpac brought proceedings against the Gattellaros seeking an order that a writ of possession issue for the Chiswick property and judgment for the outstanding amount it claimed to be due in the sum of $197,378.09 (the Westpac proceedings).

13 In their filed defence, Mrs Gattellaro and Mr Gattellaro admitted the 1986 mortgage but denied they were indebted to Westpac, relying upon the errors relating to the sums of $30,000 and $42,873.99 referred to above. The Gattellaros also cross-claimed against Westpac, seeking to set off those sums against the monies claimed by Westpac.

14 Mrs Gattellaro and Mr Gattellaro subsequently amended the cross-claim, seeking relief pursuant to the Contracts Review Act 1980 in respect of the 1986 mortgage, on the basis that they had been given no explanation that, as well as securing their own indebtedness, the 1986 mortgage also secured Falgat's indebtedness to Westpac, when that indebtedness had previously been unsecured. Relief was also sought under the Trade Practices Act 1974, however, no issue arises on the appeal as to that claim.

15 Westpac filed a defence to the amended cross-claim in which it relied upon the 1977 mortgage and the 1985 guarantee as an answer to the Contracts Review Act claim. Its pleaded defence was in the following terms:

"10. In further answer to the allegation made in the Claim to the effect that prior to 2 June 1986 the moneys advanced by the Bank to Falgat Constructions Pty Limited ('Falgat') had been unsecured, the Bank:

(a) denies the allegation;

(b) says that by ...('the 1977 mortgage') the cross-claimants mortgaged the [Chiswick] property to the Bank (by its predecessor the Commercial Bank of Australia Limited) to secure, among other things, all moneys that the cross-claimants, or either of them, had then guaranteed to the Bank ..or thereafter guaranteed to the Bank ...

(c) says that by a guarantee made in or about November 1985 the first cross-claimant guaranteed to the Bank payment of all moneys owing to the Bank by Falgat."

16 In the particulars to para (c) of the defence, Westpac stated that it was not able to produce a copy of the guarantee, but stated that its existence could be inferred from various entries made in the Bank's diary. No reply was filed to the amended defence and issue was joined on the pleadings. Westpac's position, therefore, was that Falgat's indebtedness was secured by the 1985 guarantee; that the obligations under the 1985 guarantee were secured by the 1977 mortgage; and that the 1977 mortgage made Mrs Gattellaro liable for that indebtedness. It followed from this that the 1986 mortgage was not unjust, because it did not make the Gattellaros liable for any of Falgat's indebtedness for which they were not previously liable and did not make their home security for any indebtedness for which it was not previously security.

17 A number of offers of settlement were made by the parties prior to the hearing before Hulme J. None of the offers resulted in a settlement of the claim and the matter proceeded to a hearing.

Proceedings before Hulme J

18 The Westpac proceedings were heard by Hulme J in November 1999. His Honour delivered judgment on 11 August 2000: Westpac Bankings (sic) Corporation v Gattellaro [2000] NSWSC 775 in which he held that the Gattellaros' defences to Westpac's claim failed. In particular, he found that the 1986 mortgage was not unjust within the meaning of the Contracts Review Act . The result was that Westpac was entitled to an order for possession of the property and also judgment in the sum of $983,339.02 (Blue 389).

19 As his Honour had determined that the defences to Westpac's claim in respect of the 1986 mortgage failed, it was unnecessary for him to deal with the 1985 guarantee. However, he noted that two questions arose in respect of the 1985 guarantee: (i) whether there was any guarantee at all in circumstances where Westpac was not able to produce a copy; and (ii) whether the 1985 guarantee had been executed by Mr Gattellaro only or by both Mr Gattellaro and Mrs Gattellaro.

20 His Honour concluded, at [117], that although the document could not be found, Westpac had in its favour an executed, unlimited guarantee from Mr Gattellaro guaranteeing Falgat's liability. His Honour was not satisfied that Mrs Gattellaro had executed the guarantee.

Appeal to the Court of Appeal

21 The Gattellaros appealed: Gattellaro & Anor v Westpac Banking Corporation [2001] NSWCA 76 . On the appeal, the Gattellaros conceded that if there was a guarantee of Falgat's debts unlimited as to amount, and if their obligations under the terms of that guarantee were secured on their home by the 1977 mortgage, then the 1986 mortgage was not unjust, as it did not increase their existing obligations in respect of Falgat's indebtedness.

22 Giles JA (with whom Handley JA agreed) concluded that the 1985 guarantee had been given at least by Mr Gattellaro, unlimited as to amount and secured by the 1977 mortgage. His Honour found it unnecessary to decide whether Mrs Gattellaro had given the guarantee.

23 Giles JA considered that judicial notice could be taken of the fact that institutions such as Westpac used a standard form of guarantee. There was in evidence a form of guarantee, bearing a print date of 1 October 1984 that had been given at about the same time as the 1985 guarantee, by Mrs Gattellaro's brother, Mr Falcomata (the Falcomata guarantee). That form of guarantee provided, in cl 20, that the guarantee was binding on each signatory notwithstanding that one or more of the persons named as guarantor had not executed it.

24 His Honour concluded that the 1985 guarantee thereby contained a clause in the same terms as cl 20 in the Falcomata guarantee. Accordingly, his Honour rejected the argument that the guarantee given by Mr Gattellaro might not have become operative in the absence of Mrs Gattellaro's signature. For that reason, it was not necessary for his Honour to consider the claim that the 1986 mortgage was unjust.

25 Priestley JA, dissenting, considered that judicial notice could not be taken of the terms of the guarantee. His Honour was also of the view that Mrs Gattellaro had made out a case for relief under the Contracts Review Act , that the 1986 mortgage was unjust as against her, notwithstanding the adverse credit finding that Hulme J had made in respect of her evidence. However, his Honour considered that the adverse factual findings in relation to Mr Gattellaro's claim for relief in respect of the 1986 mortgage were supportable and should stand.

26 On 6 April 2001, the appeal was dismissed.

Application for special leave to appeal

27 Mrs Gattellaro sought special leave to appeal. Mr Gattellaro was subsequently joined as an applicant to the special leave application. On 14 February 2003, special leave to appeal to the High Court was granted to both Mrs Gattellaro and Mr Gattellaro.

28 The special leave application proceeded on the basis that Mr Gattellaro had signed the 1985 guarantee, notwithstanding that there was no copy of the guarantee in evidence. The principal argument that the Gattellaros advanced was that a surety was not bound by a guarantee which was intended to be given by more than one guarantor, but was not signed by the other guarantor(s): Marston v Charles H Griffith & Co Pty Ltd (1982) 3 NSWLR 294 at 300-301.

29 Westpac did not seriously defend the Court of Appeal's reasoning based on judicial notice and accepted that the principle in Marston v Charles H Griffith was correct. However, it contended that on the evidence inferences were available that the 1985 guarantee contained a clause in the terms of cl 20 of the Falcomata guarantee, to the effect that the guarantor was bound regardless whether it was signed by the intended co-guarantor.

30 Westpac did not contend that there would be no utility in the appeal if leave was granted. It also accepted that if the appeal succeeded, the matter would have to be remitted to the Court of Appeal for determination of the Contracts Review Act question.

The appeal to the High Court

31 The appeal to the High Court was heard on 19 June 2003.

32 On 11 February 2004 the High Court dismissed the appeal: Gattellaro v Westpac Banking Corporation [2004] HCA 6; (2004) 204 ALR 258. The arguments on the appeal and the circumstances in which the appeal was dismissed call for consideration as they are relevant to the issues raised on the present appeal.

33 In its notice of contention, filed on 17 March 2003, Westpac contended that no question of judicial notice arose and the decision of the Court of Appeal could be defended on other grounds. However, in its written submissions filed on 12 June 2003, Westpac abandoned any attempt to support the Court of Appeal's reasoning that judicial notice could be taken of Westpac's standard form of guarantee. Had that been the only legal position taken by Westpac, the Gattellaros were virtually assured of success on the appeal.

34 However, on the day before the hearing of the appeal, Westpac filed an amended notice of contention in which it raised an additional two matters. The first was that there was sufficient evidence, " albeit barely sufficient " evidence, to warrant a finding that the form of guarantee executed by Mr Gattellaro would have included a provision such as cl 20 of the Falcomata guarantee. That argument had been hinted at in the special leave application and to that extent was not entirely new. The plurality, at [28], rejected that argument.

35 The second additional matter raised in the amended notice of contention was that the Gattellaros bore the onus of establishing that Mr Gattellaro was relieved of his obligation under the guarantee (the onus issue). As will become apparent, the onus issue turned out to be fatal to Mrs Gattellaro's appeal.

36 Notwithstanding that the onus issue had not previously been raised by Westpac, the High Court allowed Westpac to raise it on the appeal: it involved a pure question of law and was responsive to the Gattellaros' reliance upon the principle in Marston v Charles H Griffith that Mr Gattellaro was not bound by the 1985 guarantee in circumstances where Mrs Gattellaro was also an intended guarantor (the Marston contention).

37 The plurality held, at [39], that the Gattellaros bore the onus of establishing that Mrs Gattellaro was not an intended party to the 1985 guarantee. This was the first step in the eventual failure of the Gattellaros resistance to Westpac's claims against it. The next step occurred when the High Court decided that it would determine for itself the factual matters relating to that question and held that the Gattellaros had not adduced evidence, at trial, that Mrs Gattellaro was an intended co-surety of the 1985 guarantee.

38 The consequence was that the argument, that Mr Gattellaro was not bound by the 1985 guarantee, failed and the appeal was dismissed.

39 As the 1985 guarantee obliged Mr Gattellaro to pay the Westpac debts owed by Falgot, the 1977 mortgage applied, so that Mrs Gattellaro was personally liable under that mortgage for all monies for which Mr Gattellaro might be liable to Westpac. That liability was secured over the Gattellaros' home and Westpac maintained the orders that had been made in its favour by the trial judge.

40 In dismissing the appeal, the plurality observed that it was taking an unusual course. The Court noted, at [55], that special leave had been granted to test the correctness of the Court of Appeal's ruling that it could take judicial notice that banks, such as Westpac, used a standard form of guarantee and it could be inferred that Mrs Gattellaro had signed Westpac's standard form. The High Court said that that was a far-reaching proposition of great practical importance in the conduct of commercial litigation. The plurality noted, at [56], that Westpac did not, on the special leave application, expressly concede that the Court of Appeal had erred in its reliance on the judicial notice point.

41 The plurality commented, at [57], that, given the concession on this point on the appeal, the better course would have been to have allowed the appeal and to have remitted the notice of contention to the Court of Appeal for its determination. Their Honours also observed, at [58], that had Westpac conceded the judicial notice point on the special leave application, the Court could have allowed the appeal instanter and remitted the matter to the Court of Appeal. Had that occurred, their Honours commented that it was debatable whether the Court of Appeal would have allowed the onus point to have been raised.

42 However, their Honours expressed concern as to the expense and delay in the matter, the proceedings having commenced some 14 years earlier. They considered that the interests of justice were best served by the High Court itself determining the factual and procedural questions that arose in the matter, a course which it would not ordinarily take, but which it proceeded to take on this occasion.

43 Kirby J dissented. His Honour considered that Westpac bore the onus on the Marston contention. His Honour also observed that the onus point had been raised extremely belatedly. He considered that had the matter been remitted to the Court of Appeal, it was unlikely that the Court of Appeal would have allowed the question to be raised. His Honour also commented, at [76], that the course proposed by the plurality, of determining all of the factual and procedural issues in the case would alter the character and course of the case and, accordingly, was inappropriate. Kirby J, at [96], was also of the opinion that the Gattellaros, or Mrs Gattellaro at least, had an arguable defence under the Contracts Review Act .

The proceedings against the respondents for professional negligence

44 Mrs Gattellaro then commenced proceedings against the respondents. She alleged that the respondents owed her a duty to obtain instructions from her in respect of her defence in the Westpac proceedings and, based on those instructions, to advise her and to act in accordance with her instructions following any such advice.

45 Hislop J held, at [99], that the respondents owed Mrs Gattellaro a duty to take reasonable care to inform her, either directly or through Mr Gattellaro, or her son Anthony, of an offer of settlement made by Westpac on 15 May 2003, to settle the Westpac proceedings for the sum of $650,000. As his Honour observed at [97], that was the only offer made by Westpac after the High Court granted special leave to the Gattellaros to appeal from the decision of the Court of Appeal.

46 However, his Honour, concluded, at [108], that if there was a breach of that duty of care, it was not causative of loss to Mrs Gattellaro, as she would not have accepted the offer, nor made any counter-offer, either at all or at a level acceptable to Westpac. It is apparent from his Honour's language at [108] that he assumed breach for the purposes of determining causation.

Some further background to Westpac's offer of settlement

47 Before considering the issues on the appeal, it is necessary to understand the circumstances surrounding Westpac's offer of settlement prior to the hearing of the High Court appeal in the Westpac proceedings. As I have already indicated, there were a number of offers of settlement made both by Westpac and the Gattellaros prior to the hearing before Hulme J. The first of those offers was made by Mr Gattellaro in terms that there be a verdict for him in the sum of $50,000. Westpac responded with an offer that the Gattellaros pay to Westpac $288,000 inclusive of costs. There were further offers, the details of which are not presently relevant, other than to note that no offers of settlement were made following the judgment at first instance and the dismissal of the appeal by the Court of Appeal on 6 April 2001.

48 On 5 June 2001, two months after the Court of Appeal decision, Mrs Gattellaro and Mr Gattellaro were advised in conference with counsel and Mr Spencer, who was the respondent with the carriage of the matter, that the only person with any hope of success in the High Court was Mrs Gattellaro and that the best she could do was to save half the house. The Gattellaros were advised at that time that Mrs Gattellaro's prospects of success were " fair at best ". Mr Spencer's file note recorded that Mr Gattellaro left halfway through the conference. The file note also recorded:

"No money saved.

[Mrs Gattellaro] will borrow the money to buy out [Mr Gattellaro's] share."

49 On 6 June 2001, the respondents wrote to Westpac suggesting a settlement whereby the Gattellaros would pay Westpac an amount equal to one half of the value of their house, representing payment to Westpac of Mr Gattellaro's interest. The letter sought Westpac's advice as to whether they would agree to that proposal. The following day, the respondents wrote to the Gattellaros confirming that Westpac had applied for a writ of possession to issue and also confirming that they had submitted the offer to Westpac.

50 On 2 July 2001, the respondents wrote to the Gattellaros following lengthy conferences with Mr Gattellaro on 27 and 28 June 2001. It is apparent from the file notes of the conferences that Mr Gattellaro was dissatisfied with the advice received in conference. In the letter of 2 July, the respondents explained that following the Court of Appeal decision, the only avenue available was an appeal to the High Court. The respondents reiterated counsel's advice given in conference that Mr Gattellaro had " zero prospects " on an appeal to the High Court. They confirmed that the best the Gattellaros could hope to achieve was to save Mrs Gattellaro's interest in the house. They pointed out that any application to stay execution of the orders of the Court of Appeal would not be successful because even if Mrs Gattellaro's appeal to the High Court was successful, the house would have to be sold unless the Gattellaros were in a position to buy out Mr Gattellaro's interest from Westpac.

51 In a letter dated 13 August 2001, the respondents informed the Gattellaros that even if Mrs Gattellaro was successful on the appeal to the High Court, it was impossible to predict what orders the Court would make other than the likelihood that she would recover her costs on a party/party basis.

52 The advice that Mr Gattellaro had no prospects of success was repeated in correspondence to him on 15 January 2002. In that letter, the respondents also referred to counsel's advice that Mrs Gattellaro's prospects of success in the High Court were in the vicinity of 50/50. This was again confirmed in correspondence of 5 February 2002 and in conference with counsel on 13 February 2002.

53 Between 22 April 2002 and the hearing of the appeal, offers of settlement were made variously by Westpac and Mrs Gattellaro as follows:

(1) On 29 April 2002 Westpac offered to accept a payment of $550,000 in settlement of the appeal.

(2) On 21 May 2002 the respondents wrote to Mrs Gattellaro and Mr Gattellaro providing a written advice concerning the offer of $550,000 and recommending acceptance and advising that her counsel agreed and warning her against making a counter-offer.

(3) It is conceded that such recommendation and advice as to settlement at $550,000 was correct.

(4) On 22 May 2002 Mrs Gattellaro rejected that advice and instructed the respondents to put a counter-offer of $400,000, which was rejected. No counter-offer was made.

(5) On 11 February 2003 Mrs Gattellaro offered to settle with Westpac by payment of $600,000.

(6) On 11 February 2003 Westpac rejected that offer.

(7) On 11 February 2003 Mrs Gattellaro offered $650,000.

(8) On 12 February 2003 this offer was rejected by Westpac.

54 The Gattellaro's offer of 11 February 2003 in the sum of $650,000 was the last offer before the hearing of the special leave application.

55 On 14 February 2003 the High Court granted special leave and the hearing was fixed for 19 June 2003.

56 On 15 May 2003, five weeks from the date fixed for hearing of the appeal to the High Court, Westpac offered to settle for $650,000. The offer was stated to be open until 5pm on 20 May 2003.

57 On 19 May 2003, the respondents sought counsel's advice concerning the offer. Counsel requested a break down of the figure and that was sought. In replying to the respondents' request, Westpac's solicitors advised that there were a number of ways of viewing their offer. However, an underlying assumption had been made that the value of the property was in the vicinity of $950,000 which, notionally, gave Mrs Gattellaro an equity in the value of $475,000. The letter continued:

"The offer of $650,000 therefore allows for liability on her part in the vicinity of 35%. Our client regards her prospects as somewhat less than that."

58 Westpac's solicitors also indicated that on their assessment, Westpac was only likely to recover about $650,000 if the property was sold, having regard to costs, interest and the like. Time for acceptance of the offer was extended to 12 noon, 21 May 2003.

59 The evidence established that the first occasion that the respondents endeavoured to contact either Mrs Gattellaro or Mr Gattellaro in respect of Westpac's offer made on 15 May 2003 was on 20 May 2003, after they had received the break down from Westpac's solicitor and further discussed the offer with counsel. However, Mr Spencer received no response to the telephone call he made to the Gattellaros' home on that day.

60 His Honour found that it was more likely than not that the offer was not in fact conveyed until after it had expired and that the communication was with the Gattellaros' son, Anthony.

The trial judge's reasons on causation

61 His Honour concluded that Mrs Gattellaro had not established that she would have accepted the Westpac offer, even if it had been conveyed in time for it to have been accepted. His Honour's finding was based upon her evidence in cross-examination, his assessment of her forensic position at the time the offer was made and Mrs Gattellaro's conduct in the period leading up to the appeal to the High Court. In addition, there was a file note which reflected Mr Gattellaro's attitude to the question of settlement at about this time. Each of these aspects of his Honour's reasoning needs to be considered.

62 The cross-examination which his Honour, at [108], considered was critical to his finding against Mrs Gattellaro on causation, was as follows:

"Q. You don't say 'we want to try again and settle now that we've won the special leave application.'?

A. No, we didn't want - we want to go to the end then. We thought we've come this far, we might as well go to the High Court.

...

Q. So they offer you $650,000?

A. Yes.

Q. You wanted to go on with the hearing?

A. Yes

Q. And you didn't want to pay them $650,000?

A. Yes."

(His Honour, at this point, observed that in re-examination, Mrs Gattellaro alleged confusion in giving this answer, but did not accept that this was the case.)

"Q. You've already told us you've got the message about this offer of 650.

A. Yes.

Q. And you've already told us you weren't interested in it.

A. At this point, yes.

Q. And you weren't interested in paying the bank $650,000 a month before the hearing?

A. No, he was prepared to pay the offer before.

Q. You told us that you had decided to let the court decide because--

A. At that stage, yes.

Q. This is four weeks before the hearing?

A. Yes.

Q. At that stage you just weren't interested in settling by paying $650,000?

A. Yes."

63 His Honour also observed, at [108], that Mrs Gattellaro made a number of counter-offers in response to Westpac's offers over the course of the litigation, before ultimately offering $650,000 in February 2003. His Honour considered that in making those offers she was in a position of perceived weakness, whereas, at the time that Westpac made its offer of $650,000 on 15 May 2003, her forensic position was much stronger, as she had obtained a grant of special leave.

64 His Honour considered that if Mrs Gattellaro had been interested in further pursuing the question of settlement, she would have contacted the respondents for advice or would have given instructions to make an offer during the period between the grant of special leave and the ultimate decision of the High Court. His Honour observed that Mrs Gattellaro did not make an offer or inquire about the making of a further offer during this period.

65 Finally, his Honour referred to Mr Gattellaro's attitude to settlement, evidenced in a file note made by Mr Spencer, dated 30 May 2003, which recorded:

"Sol other side offered $650,000 inclusive

He not interested 'No way'. They pay me. I have proof 11/2 M. Found docs on Petersham."

66 Having rejected Mrs Gattellaro's claim, his Honour also considered that the respondents' conduct was protected by the principle of advocate's immunity: see D'Orta-Ekenaike v Victoria Legal Aid .

The appeal from Hislop J

The causation finding

67 On the appeal in relation to his Honour's causation finding, Mrs Gattellaro's argument focused upon the following specific matters: that the respondents had been negligent in failing to advise her as to her prospects on the appeal to the High Court and " thereby fuelled her false hopes "; failing to challenge the 1977 mortgage by filing a reply to Westpac's defence to the cross-claim; failing to raise the Marston contention at trial; failing to inform her that an offer of settlement had been made by Westpac; and failing to obtain her instructions in response to the offer of settlement.

68 It should be noted that these allegations were made in the wider context of Mrs Gattellaro's pleaded case in which she contended that the respondents had failed to obtain instructions from her directly at any time during the course of acting for her in the period 1989-1999; and that during that period, the respondents, without her express authority, acted on instructions from Mr Gattellaro in respect of matters that solely related to her interests.

69 Notwithstanding the focus of the argument on the matters referred to above, the appellant's written submissions were confined to a challenge to his Honour's causation finding.

70 Mrs Gattellaro submitted that a proper understanding of the causation issue involved a consideration of the advice that had been given to her in relation to the prospects of success in the High Court, as opposed to what a realistic assessment of those prospects were, as well as a consideration of the various offers that had been made during the course of the litigation.

71 Mrs Gattellaro submitted that given that in practical terms the prospects of success in the High Court were nil, Westpac's final offer of settlement was particularly significant. Mrs Gattellaro also submitted that there was further significance in the offer as it was the first time that she and Westpac had reached the same position on an offer of settlement, that is, a payment of $650,000 to buy out Mr Gattellaro's interest in the Chiswick property.

Arguments on the appeal

72 In her written submissions on the appeal, Mrs Gattellaro addressed the three matters that were the basis upon which Hislop J concluded that she had not established her loss was caused by any breach by the respondents of their duty of care to her. Those three matters were: (a) her evidence in cross-examination; (b) the fact that her earlier offer to Westpac was made at a time when she was in a weaker forensic position than she was when Westpac made the identical offer, as special leave had been granted at that time; and (c) that Mr Gattellaro was implacably opposed to settlement, as evidenced by the file note of 30 May 2003.

73 Mrs Gattellaro submitted as follows:

As to (a): Her evidence in cross-examination as to her attitude to settlement in May 2003 was informed by the respondents' negligent advice as to her prospects of success on the appeal in the High Court and the utility of that appeal (the cross-examination issue).

As to (b): The grant of special leave was equivocal and did not indicate any greater likelihood of ultimate success. Accordingly, her position of " perceived weakness " had not changed by the grant of special leave (the futility issue).

As to (c): Mrs Gattellaro's position as to settlement should not have been tied to Mr Gattellaro's attitude as to settlement (Mr Gattellaro's attitude to settlement).

As to (a): the cross-examination issue

74 Mrs Gattellaro pointed out that the respondents had not cross-examined her to the effect that she would not have accepted the offer, had it been conveyed to her. She contended that in that circumstance, his Honour could not, and should not, have found that she would not have accepted the offer.

75 The substratum of this submission was that the appeal to the High Court was always futile and that her prospects were nil. That was also the underpinning of the submissions relating to the special leave issue and is appropriately dealt with in that context.

76 The cross-examination of Mrs Gattellaro upon which his Honour based his decision has to be considered in the context of the evidence as a whole and needs to be understood in the context of what Mrs Gattellaro had to establish in order to prove that her loss was caused by the respondents' breach of duty.

77 In his affidavit sworn 30 July 2008, Mr Spencer referred to the letter of offer dated 15 May 2003 and to the steps he took in contacting counsel and obtaining a break down of the offered sum from Westpac. He also referred to his attempt to contact the Gattellaros by phone and to the file note he made of his a conversation with Anthony Gattellaro, which recorded the following:

"To Gattellaro

N/a Anthony

Dad's in hospital again. Got to have a balloon put in.

SB Bank had made an offer of $650,000 but not open for long - ran past [Mr McVay] but then couldn't get answer to your place. Didn't think parents would be interested at that figure.'

'No, that's right.'"

78 Mr Spencer said that he believed the conversation occurred on 20 May 2003. However, his Honour found that it was made after that date and probably after the offer had expired, because there was no evidence that that Mr Gattellaro was in hospital on either of those dates.

79 Mrs Gattellaro responded to this evidence in her affidavit dated 9 October 2008, in which she said:

"88. ... I have never been personally informed of this offer or its expiry. I was unaware that Mr Spencer spoke with Anthony about this offer after it had expired or at any time. I do not understand why this offer was not put to me by Mr Spencer when my last instructions to Mr Spencer was to offer the same amount to the bank. Given my instructions to offer $650,000.00, Mr Spencer was incorrect in assuming that the offer would not be accepted. Mr Spencer should have contacted me personally about this offer to ensure that I was fully aware of it and was able to instruct him regarding it."

80 Mrs Gattellaro did not say in this affidavit, or at any time in her evidence, that she would have accepted the offer had it been conveyed to her. Rather, as is apparent from the evidence to which his Honour referred: see above at [62], her evidence was that at the time the offer was made, she was not interested in paying $650,000 to Westpac.

81 Mrs Gattellaro sought to counter this evidentiary omission by contending that the respondents should have cross-examined her as to whether she would have accepted the offer had it been conveyed to her. She submitted that the respondents bore the onus of establishing that she would not have accepted the offer as she had directly challenged Mr Spencer's affidavit evidence to which reference has just been made. The submission has no validity. If it was Mrs Gattellaro's case that she would have accepted the offer, she bore the onus of proving that matter.

82 Mrs Gattellaro also submitted that his Honour should have drawn an inference that she would have accepted the offer. Mrs Gattellaro submitted that as the evidence revealed, she had listened to advice during the course of the proceedings and had acted accordingly. She relied in particular on the evidence that had listened to advice and made the offer of $650,000 in February 2003.

83 This submission is correct, so far as it goes. However, it does not take account of Mrs Gattellaro's evidence that in May 2003, she was not interested in settlement. Her evidence in this regard was that " he was prepared to pay the offer before ", but at that stage she was prepared to let the court decide.

84 It is not apparent whether the statement recorded in the transcript: " he was prepared to pay the offer before " is an error of transcription. If it is an accurate record of what Mrs Gattellaro said, it is evidence that her intentions were affected and possibly dominated by Mr Gattellaro's wishes. That was certainly the understanding of the trial judge. If it is not an accurate record, and her evidence was, " I was prepared to pay the offer before ", but at that stage, four weeks before the hearing, she " just wasn't interested in settling ", it is a clear refutation of the submission now put on her behalf.

85 Should there be any doubt as to Mrs Gattellaro's intentions as at May/June 2003, she had made it crystal clear in the following cross-examination that immediately preceded that upon which his Honour relied. (The reference to the date 14 February is the date on which special leave was granted.)

"Q. So that really, that 14 February was a big winning day for you and for [Mr Gattellaro], a cause for celebration.

A. We thought it was.

...

Q. You see, you win the special leave application and then you and [Mr Gattellaro] don't say anything about settlement to the solicitors. You don't say 'we want to settle'. You don't say 'we want to not take the risk of going to the High Court.'

A. No, no.

Q. You don't say 'we want to try again and settle now that we've won the special leave application.'

A. No, we didn't want - we want to go to the end then. We thought we've come this far, we might as well go to the High Court."

86 In my opinion, Mrs Gattellaro has not established that the only finding that was open to his Honour on the evidence was that she would have accepted the offer of settlement. However, that conclusion is conditional, as Mrs Gattellaro contended that the evidence she gave in respect of settlement was given in circumstances where she had not been advised that the appeal to the High Court was hopeless and therefore futile. On her argument, the grant of special leave did not enhance her forensic position at all.

As to (b): the futility issue

87 Mrs Gattellaro submitted that her prospects of success in the High Court were nil, for the following reasons:

"a. Whatever the outcome in respect to the challenge to the 1986 Mortgage, if Mr Gattellaro was found liable under the 1985 Guarantee, as he had in fact been found at trial, and on each appeal, both he and Mrs Gattellaro were caught by the 1977 Mortgage 'all monies' clause.

b. Given that the Marston contention had not been formally pleaded below, and in the absence of any affidavit evidence as to its ventilation in proceedings, it was inevitable that, as found by Hulme J and confirmed by the NSWCA, Mr Gattellaro was liable under the 1985 Guarantee, and Mrs Gattellaro under the 1977 and/or 1986 mortgages.

c. Even if the Marston defence had been made out, Mrs Gattellaro would still be liable under the 1986 Mortgage and/or the unchallenged 1977 mortgage."

88 Mrs Gattellaro complained that the trial judge had failed to deal with that issue and invited this Court to make that finding. In advancing this submission, Mrs Gattellaro relied upon the matters which, in the result, led to the dismissal of her appeal to the High Court.

89 The circumstances surrounding the grant of leave and the High Court's reasons for dismissing the appeal have already been dealt with. In summary: Westpac conceded on the special leave application that the appeal was not futile if leave was granted; Westpac changed its case the day before the hearing of the appeal and, somewhat unusually, the High Court allowed it to do so.

90 The plurality in the High Court stated, at [57], that given Westpac's abandonment of the judicial notice point, the " better course would have been to allow the appeal and remit the Notice of Contention to the Court of Appeal ". Again, somewhat unusually, the High Court did not follow that course.

91 Had the matter been remitted to the Court of Appeal, there was a real question as to whether the onus point would have been allowed to have been raised. The plurality considered that it was debatable whether the onus issue would be allowed to be raised on remitter to the Court of Appeal and Kirby J doubted that it would be allowed to be raised.

92 It also needs to be noted that, to the extent that there had been any appellate comment upon Mrs Gattellaro's Contract Review Act claim, it was indicative of a prospect of success on that claim. Priestley JA considered that Mrs Gattellaro had made out a case that the 1986 mortgage was unenforceable against her in so far as it secured Falgat's indebtedness. In the High Court, Kirby J, at [97], considered that there was an arguable defence under the Contracts Review Act and, at the least, Mrs Gattellaro had suffered an arguable disadvantage.

93 Having regard to those matters, it could not be said that the appeal to the High Court was always hopeless. It is also to be kept in mind that the decision in Marston stood for a previously untested principle and one which was in conflict with leading texts of the day. The decision in Marston did not itself deal with the question of onus and the onus issue was not raised until the eve of the appeal. Although the onus issue was decided against the Gattellaros, that was by no means a certain outcome.

94 In my opinion, Mrs Gattellaro was appropriately advised that her prospects of success in the High Court were no more that 50/50. She had been consistently advised to settle because her prospects were not higher than that.

95 There is a further problem. It would appear from his Honour's judgment that Mrs Gattellaro did not rely on the hopelessness of the appeal in the court below. Although para (13) of the further amended statement of claim alleged that:

" ... [the respondents] failed to provide proper advice in relation to the result of [the appellant's] Appeal in the High Court of Australia"

his Honour did not identify that as an issue argued before him. This is apparent from the primary judgment, where his Honour said:

"53 Counsel for the plaintiff identified the issues which were ultimately pressed on behalf of the plaintiff. They were:

(a) the defendants negligently failed to differentiate and identify the plaintiff's instructions and to act on those instructions;

(b) the defendants were negligent in not advising the plaintiff that she should have met the bank's claim and stood over or set to one side for later development the claim by Mr Gattellaro for failure to properly debit his accounts and the like;

(c) the defendants were negligent in that a Marston defence and/or an Amadio defence (in respect of the 1977 mortgage) was not pleaded, was not developed in the evidence and there was no explanation to the plaintiff about it;

(d) the defendants were negligent in failing to advise in respect of the bank's offer of $650,000, and other offers on the way through."

96 Mrs Gattellaro did not submit to the Court that his Honour failed, in his identification of the issues, to include the issue relating to the hopelessness of the appeal. In my opinion, the Court should assume that that question in the way it is presently articulated was not agitated before the trial judge. This leads me to make two further observations. First, the pleaded case at para (13) does not allege the appeal was hopeless. Secondly, there was no cross-examination of the respondents on the question whether they knew, or ought to have known, that the appeal was hopeless.

97 In any event, in my opinion, the transcript of the special leave application and the High Court's judgment is sufficient to refute the submission.

As to (c): Mr Gattellaro's attitude

98 The evidence referred to above, particularly at [84], indicates the extent to which Mrs Gattellaro's attitude to the litigation was inextricably linked with her husband's. This is also apparent from the following cross-examination:

"Q. And even when [Mr Gattellaro] was sick with his heart trouble you were still talking to him when you were telling the solicitor to make an offer or reject an offer.

A. Yes.

Q. What you were doing, represented an agreement between you and [Mr Gattellaro] as to what you should do?

A. Yes.

...

Q. You told him then to resubmit the offer of $550,000?

A. Yes.

Q. And again, that's something you discussed with [Mr Gattellaro]?

A. I probably did.

Q. And after talking to [Mr Gattellaro] you agreed that you would make the offer of $550,000 again?

A. Yes."

99 There is one final matter. It appears that the offer of 15 May 2003 was made to both Mr and Mrs Gattellaro. Both had been granted special leave to appeal and both were appellants in the High Court. Although the thrust of the offer was to preserve a portion of the value of Mrs Gattellaro's interest in the property, it took account of Mr Gattellaro's alleged indebtedness under the 1985 guarantee.

100 If that is a correct understanding of the offer, as I think it is, then instructions had to be obtained from both Mr and Mrs Gattellaro. The respondents' file note of 30 May 2003 indicated that Mr Gattellaro remained an active participant in the settlement negotiations. It is apparent from the contents of that note that settlement was not on the Gattellaros' horizon at that point of time. Indeed, this evidence confirms Mrs Gattellaro's evidence in cross-examination and may well explain the omission in her evidence to which I have referred.

Conclusion on the causation issue

101 A finding of negligence requires a factual underpinning. Mrs Gattellaro never gave evidence that she would have accepted the offer of settlement. It may be inferred, for the reasons I have explained, that Mr Gattellaro would not have given instructions to settle.

102 If the question of the hopelessness of the appeal was in issue in the proceedings, there was an obligation on Mrs Gattellaro to give the respondents an opportunity to deal with it by way of cross-examination. She did not do so. In any event, for the reasons I have given, I do not consider that as at May 1993 when the offer was made, it could be said that the appeal to the High Court was, and always had been, hopeless.

103 Finally, in the circumstances, it was not erroneous for his Honour to conclude that Mrs Gattellaro would not have settled without Mr Gattellaro agreeing to that course. The evidence is clear that she would not have done so.

104 In my opinion, the appeal represented no more than a retrospective attempt to reconstruct a case of causal loss. That attempt failed.

105 Insofar as Mrs Gattellaro's challenge to duty and breach was concerned, the written submissions confined the challenge to a failure to find that there was a duty to advise her of the utility of her appeal to the High Court and a failure to find that that duty was breached. The only written submission advanced in support of these grounds was as follows:

"An ordinarily skilled solicitor would have realized, on the above analysis, that the entire Appeal process was pointless in the absence of a challenge to the 1977 mortgage and a challenge to the 1985 guarantee and Hislop J should have found in negligence against the Respondents for failing to advise acceptance."

106 The oral argument did not expose any additional matter that needs separate consideration. As the question of the utility of the appeal was one of the central arguments advanced on the causation issue and has been fully dealt with in that context, it is unnecessary to repeat what I have said there. The conclusion I reached as to the utility of the appeal equally applies to Mrs Gattellaro's challenge as to duty and breach.

Advocate's immunity

107 The conclusion I have reached on the causation issue makes it unnecessary to deal with the challenge to the trial judge's conclusion that the respondents' conduct was, in any event, protected by advocate's immunity. The appellant's submissions on this were scant. It is convenient to reproduce them here:

"66. To the extent that Hislop J may have found that the negligent advice as to prospects and failure to file a Reply to the Amended Defence raising the 1977 mortgage was covered by the advocate's immunity, that finding was an error.

67. The ventilation of these issues does not invovle any re-litigation of issues determined at trial by Hulme J and there is no basis for applying the immunity to a simple breach of duty. D'Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1.

68. Further, the negligent failure to advise complained of falls within established principles as set out in Giannarelli v Wraith (1988) 165 CLR 543."

108 For my part, I do not consider that it is appropriate to deal with that issue for the following reasons. First, Mrs Gattellaro did not challenge his Honour's conclusion that the 1977 mortage was not unconscionable: see Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447 and Garcia v National Australia Bank Ltd [1998] HCA 48; 194 CLR 395 . The immunity protects negligent conduct. A consideration of the immunity in circumstances where I have found that the respondents did not breach their duty of care, is, therefore, unnecessary.

109 Secondly, I am of the opinion that his Honour's conclusion in respect of causation is clearly correct. Although it is often appropriate to consider a particular matter against the possibility of error, I do not consider that this is such a case. Anything I said would be obiter.

Conclusion

110 It follows from what I have said that the appeal should be dismissed with costs.

111 YOUNG JA : I agree with Beazley JA.

112 SACKVILLE AJA : I agree with Beazley JA.

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Decision last updated: 20 December 2011