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  • Unreported Judgment

Geor v Delaney

 

[2009] QSC 15

SUPREME COURT OF QUEENSLAND

 

 

CITATION:

Geor  v Delany; Ryan v Delaney [2009] QSC 15

PARTIES:

GEOR
(applicant)
v
DELANEY
(respondent)

and

RYAN
(applicant)
v
DELANEY
(respondent)

FILE NO/S:

9127 of 1999

10564 of 1999

DIVISION:

Trial

PROCEEDING:

Application

ORIGINATING COURT:

Supreme Court

DELIVERED ON:

11 February 2009

DELIVERED AT:

Brisbane

HEARING DATE:

11 February 2009

JUDGE:

Fryberg J

ORDER:

  1. In 9127 of 1999, application dismissed with costs to be assessed.
  2. In 10564 of 1999, application dismissed with costs to be assessed.

CATCHWORDS:

Bankruptcy – Discharge of bankrupt – Effect of discharge – General principles –Claims of tort pursuant to a contract provable in bankruptcy

 

Procedure – Supreme Court procedure – Queensland – Procedure under rules of court – Time – Delay since last proceeding – Particular instances – Non-diligence by both parties

 

Bankruptcy Act, s 82(2), s 117, s153
Uniform Civil Procedure Rules 1999, r 389(2)

 

Coventry v Charter Pacific Corporation Limited (2005) 227 CLR 234; [2005] HCA 67, considered
Lovell v Penkin[2008] FCA 637, considered
Tyler v Custom Credit Corporation Ltd [2000] QCA 178, followed

NOTE: Law Society v Shah [2007] EWHC 2841 (Ch) was not drawn to the attention of the Court

COUNSEL:

P Hackett for both applicants
S Couper QC for both respondents

SOLICITORS:

Queensland Law Group (formerly Baker Johnson Lawyers) for both applicants
Minter Ellison for both respondents


SUPREME COURT OF QUEENSLAND

 

CIVIL JURISDICTION

 

FRYBERG J

 

 

No 9127 of 1999

 

PHILLIP FREDERICK GEOR

Plaintiff

 

and

 

 

GEOFFREY WILLIAM DELANEY 

 

 

No. 10564 of 1999

 

JOHN RYAN                              

Respondent

 

 

 

 

Plaintiff

and

 

GEOFFREY WILLIAM DELANEYRespondent

 

 

BRISBANE

 

..DATE 11/02/2009

 

 

ORDER

 


HIS HONOUR:  This case shows that the fall out from the mortgage investment schemes run by solicitors in this State during the 1990s continues.

 

The defendant in each of the matters presently before me is Geoffrey William Delaney.  He was a solicitor carrying on a practice at the Gold Coast, and he participated in the organisation of private mortgage loans through his practice.

 

The loan with which the present proceedings are concerned is one which was made to Club Capricorn Lifestyle Village Pty. Ltd., on the 24th of December, 1997.

 

The plaintiff in each of the proceedings before me was one of 16 contributors to the loan.  A year after the loan was made the borrower defaulted.  The loan had been secured on land.  The secured property was sold and the sale settled in November 2002.  It failed to recover the amount of the loan, and each of the plaintiffs claims to have sustained a loss.  They claim that loss occurred through the negligence and breach of contract of Mr Delaney or those for whom he was responsible.

 

Separate proceedings on that basis have been commenced by each of the investors variously in the Magistrates Court, the District Court and this Court.

 

The solicitors acting for all but one of the plaintiffs are the Queensland Law Group, formerly known as Baker Johnson. 

 

The evidence shows that the proceedings were commenced against Mr Delaney by Mr Ryan on 29 November, 1999, and by Mr Geor on 1 December 1999.

 

The plaintiffs now seek leave to proceed under Rule 389(2) of the Uniform Civil Procedure Rules because no steps have been taken in the proceedings for at least two years.

 

The various proceedings must have been complex to manage.  The plaintiffs' solicitors proposed to the defendant's solicitor that one of the cases be a test case.  That one was a case pending in the District Court on behalf of a Mr Lowndes.  The plaintiffs' solicitors proceeded until March 2006 on the basis that the defence had acceded to the proposal.  There was some ground for the plaintiffs' solicitors to have that belief.  In fact, however, no such agreement had ever been made, and this was made clear by the defendant's solicitors in March 2006.

 

The delay in the two actions presently before me, up until that time, is partially explained by the plaintiffs' solicitors devoting their energies to the Lowndes case, but that is only a partial explanation.  It is apparent from the material before me that there was delay in the Lowndes case as well.  However, in that case the plaintiff applied to Judge Brabazon on the 12th of March last year for a declaration that the plaintiffs' steps taken in the proceeding at a time when they were barred from taking steps by the Rules were effective.  The application was successful, and I am now told that that proceeding will go ahead. 

 

I think in the present case, the delay up to that time can be excused as sufficiently arising from the misapprehension to which I have referred.  Since the misapprehension was I think due to some extent to things done by the solicitors for the defendant, it seems to me that that delay ought not to impair a grant of leave.  The delay since is in a different category.It cannot be so readily excused.

 

The factors which should be taken into account were summarised in the Court of Appeal in Tyler v Custom Credit Corporation Ltd [2000] QCA 178.  They include whether the plaintiffs have explained the reasons for the delay.  The evidence before me contains no such explanation.

 

I am invited on behalf of the plaintiffs to infer that the delay was because of the negligence of the solicitors for the various plaintiffs.  The evidence on which that inference is invited is in the reasons of Judge Brabazon in the Lowndes case where his Honour, evaluating the Tyler considerations, found that the delay since mid 2006 was attributable to the plaintiffs' solicitors. 

 

In that case his Honour said:

 

"The delay is attributable to the plaintiffs' solicitors.  Mr Lowndes was not asked to swear an affidavit, and it seems, barely knows about this application.  There is nothing to suggest that he or the other investors have been personally at fault apart from allowing their solicitors to take a great deal of time.  There is no suggestion that impecuniosity has been responsible for the delay".

 

That is a very unsatisfactory way of proving that the solicitors have been negligent.  One might have thought that a professional person acting in the interests of his client would have made a proper admission or assertion of the cause of the delay, namely, his own lack of diligence, and placed it before me in evidence, specifically in relation to the present two cases.  That has not been done.  There is, however, nothing to suggest that the delay since then has been caused by anything else, and there is some evidence of conduct in this period reflective of a non-diligent solicitor.  I am prepared to infer that the delay is attributable to the solicitors. 

 

That, however, does not deal with the point raised on behalf of the defendants, that there is no evidence as to the position of the plaintiffs themselves.  Why did they not do something to hurry their solicitors up?  That is an unanswered question, and while the weight which would ordinarily be given to silence on that point is not as great in the present context, having regard to my finding about the solicitors, as it would be in a different context, it remains a factor to be taken into account.

 

Another important factor is the prospects of success which the plaintiffs have.  That, in the present case, is argued by the plaintiffs on the basis of the pleadings, and to some extent, on the basis of some of the evidence.

 

The statement of claim, and I take the statement of claim in Ryan as typical, is poorly drawn.  There is no point in analysing it and criticising it in the present context.  It is apparent, however that it pleads the case against the solicitor in both contract and tort, and alleges negligence in a number of particulars.

 

It alleges specifically that the solicitor, or his employee, failed to conduct searches of the proposed borrower and guarantor to ascertain their credit-worthiness and credit history, failed to conduct searches of the historical value of the property proposed to be security, failed to conduct searches to ascertain if there were any litigation involving the borrower and guarantor, failed to engage a registered valuer with sufficient skill and expertise to value the property, and it is implicit in the pleading that all of this was unreasonable.  There were other particulars as well.

 

The defendant admits that he did not conduct searches to ascertain the historical value of the property.  He asserts that that was not a breach of duty.  He asserts that he did obtain statements of assets and liabilities of the borrower and the guarantor but it is apparent that he obtained them from the borrower.

 

He asserts that he made inquiries of another firm of solicitors who advised that the borrower and the guarantor were not in default in respect of obligations under other arrangements, but on the evidence before me, that assertion is denied by the solicitors to whom the alleged inquiry was made and the defendant's file contains no evidence of any such inquiry, nor does it contain any evidence of reasonable attempts to ascertain value, apart from getting a valuation assigned by the borrower.

 

The defence admits that he did not conduct any searches to ascertain if there was any litigation involving the borrower or the guarantor.  I will not go into it further.  That is sufficient to show, I think, that the defence sounds very thin.

 

The case is not one where there has been disobedience of Court orders or directions.  Rather, it is one where both sides have allowed the matter to proceed at a slow pace.

 

One factor which was urged on behalf of the applicants was that, in any event since Judge Brabazon has given leave in one case, the issues are going to have to be litigated so that there will be no difference, apart from the number of claims, to the position of the defendant in the present case if leave is granted.

 

That is, perhaps, a factor but it is countered on behalf of the defendant by an argument that the plaintiff's case in Lowndes is, in any event, doomed to failure, perhaps because leave to proceed against a bankrupt was not obtained and in any case because the bankrupt has been discharged.  I shall return to the latter question later in these reasons.

For the defendant, it was submitted that delay by the solicitor was not to be visited upon the defendant.  I do not think that is a correct statement of principle.  What occurs is that a court, in assessing the grant of leave, considers whether to allow an action to proceed more favourably when delay occurs by the fault of the plaintiff's solicitors than when the delay occurs by the fault of the plaintiff personally.

 

In the present case the faults of the plaintiff's solicitors should not be visited upon the plaintiff.  That does not mean that the application should proceed, of course.  It simply means that one factor which otherwise would weigh against the plaintiff is not given as much weight.

 

The question of prejudice is probably one of the most important issues.  In the present case, the main prejudice asserted on the part of the defendant is that an important witness, Mr Moore, is unwell and is suffering a progressive, medical condition which means that his memory is now poor.

 

That is a significant factor and it was one which was central to the judgment of Justice Daubney in another matter against the same defendant albeit not in respect, apparently, of the same scheme as I have before me in these proceedings.

 

However, the weight which, ordinarily, would attend this factor and which must be exacerbated by the very substantial delay which has occurred in the matter, is diminished by the fact that the defendant or his solicitors were in the position to obtain a signed statement from Mr Moore (an employee) at a very early stage of proceedings.

 

The evidence is that their file does not contain a signed statement.  It is silent on whether the file contains an unsigned statement and I have no reason to doubt that they did, in the course of undertaking a prudent investigation of the matter, obtain at an early stage from Mr Moore information which he was able to give about the proceedings.

 

The magnitude of the disadvantage which they will suffer in any litigation is, therefore, diminished.  They are perhaps unable to call evidence from Mr Moore on a number of important dealings which he had with the plaintiffs because of his lack of memory, but they are not in a position where they have no knowledge of what went on.  I am prepared to infer that, in all probability, they have been well aware of that, from their investigations at an early stage.

 

That is not to minimise the disadvantage which Mr Moore's deteriorating memory will cause to them.

 

All these matters must be weighed in the balance.  If these were the only matters which were relevant, I would be persuaded by a small margin that leave to proceed should be granted.  But they are not the only matters.

 

There is one other aspect which affects the prospects of success and which, it seems to me, is critical.  That is the fact that the defendant was made bankrupt in 2001 and was discharged from bankruptcy three years later.

 

The plaintiffs urge that the legal consequence of this presents a difficult question and that I should not undertake to decide it, but should leave it for trial.  However, it has been argued before me.  It is, I think, important and in a case of professional negligence which will be difficult to run in any event, and rendered more so by the delay and the other factors to which I have referred, I do not think I should leave the matter untouched.

 

The issue is not one which is pleaded but no point is taken about that.  It is that the defendant has a complete defence to the proceedings pursuant to section 153 of the Bankruptcy Act.

 

That section provides:

 

" 153 Effect of discharge

 

(1)  Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.

 

Note: the operation of this section in relation to accumulated HEC debts and semester debts under the Higher Education Funding Act 1988 is affected by section 106YA of that Act.

.....

 

(5)Where a bankrupt has been discharged from a bankruptcy, all proceedings taken in or in respect of the bankruptcy shall be deemed to have been validly taken."

It seems, on the face of things, that if the present claim was provable in Mr Delaney's bankruptcy, that that section provides a complete defence and I do not think that the applicants contended otherwise.

 

The argument has revolved around whether the claim is one provable in the bankruptcy.  That question, in term, depends on section 82(2) of the Bankruptcy Act which provides:

 

"Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy."

 

The applicants submit that the present are claims which arise otherwise than by reason of a contract, promise or breach of trust and therefore, were not provable in the bankruptcy.

 

The leading case on the question is the decision of the High Court in Coventry v Charter Pacific Corporation Limited (2005) 227 CLR 234. 

 

The High Court held that the claim against Andrew Coventry was one which was not provable in bankruptcy, according to the submission for the plaintiffs in the present case, because the damage that was suffered by the plaintiff in that case arose from a third party contract, not from the very contract made between the plaintiff and the defendant.

 

It was submitted in effect that the present situation presented a tripartite case similar to that of Coventry rather than a bilateral case within the meaning of the distinction referred to at paragraph 68 of the reasons for judgment in Coventry.  The submission fixed upon the fact that the misleading and deceptive conduct in the Coventry case induced the plaintiff to make a contract with a third party.

 

The defendant, however, submits that that does not correctly reflect the thrust of the reasoning in Coventry.  The defendant submits that the emphasis in the judgment of the High Court was upon the existence of mutuality as the reason for determining whether a claim should fall within the exception in section 82(2) or within the body of the rule in that section.

 

He submitted that the bilateral and tripartite distinction referred to in Coventry referred to whether the plaintiff's damage arose in the context of the defendant being a party to a contract with the plaintiff or not being a party to a contract with the plaintiff.  The latter was the situation in Coventry but it is not the situation in the present case.  In the present case it is clear that the plaintiffs were parties on their own allegations to contracts with the defendant.

 

It is true, as the High Court wrote at paragraph 66, that framing a claim as a claim in tort does not conclude the question whether the demand arises by reason of a contract or promise.  It seems to me that one must look to see whether, on the facts, the contract does arise by reason of a contract and that, where a contract exists between the plaintiff and the defendant at the time of the alleged negligence and the negligence is such as to give rise to the type of mutuality referred to in the judgment of the High Court, the claim is to be characterised as one which arises by reason of a contract.

 

I was referred also to the decision of Justice McKerracher in Lovell v. Penkin [2008] FCA 637.  That decision does not stand in the way of the conclusion which I have just expressed.  On the contrary I think it supports it.

 

I accept the submission made on behalf of the defendant and in view of the time will not attempt to analyse the decision in Coventry in any greater detail.  In the present case the circumstances I conclude gave rise to a provable debt and therefore section 153 gives rise to a  complete defence.

 

I have not ignored arguments addressed to me in relation to section 117 and I acknowledge that the decision which I have reached gives rise to some anomalies in relation to that section.  However, it seems to me that, whichever way one decides the point, that section will produce some anomalies.

 

When I take this conclusion into account as another factor in deciding whether to grant the present applications I come to the conclusion that I should not grant the applications.  While I would do so, as I have said, but for this conclusion, I do not think the parties should be obliged to undertake the sort of expensive litigation which the cases propose when they are doomed to failure.

 

The argument that the matter will proceed in the Lowndes case in any event, which would otherwise have considerable force, loses that force if my decision in relation to the bankruptcy point is correct.  That is further reason why the applications should be dismissed.  That is the order.

 

...

 

 

HIS HONOUR:  In each case the application is dismissed with costs to be assessed.

Close

Editorial Notes

  • Published Case Name:

    Geor v Delaney; Ryan v Delaney

  • Shortened Case Name:

    Geor v Delaney

  • MNC:

    [2009] QSC 15

  • Court:

    QSC

  • Judge(s):

    Fryberg J

  • Date:

    11 Feb 2009

Litigation History

No Litigation History

Appeal Status

No Status