The guarantee proceedings
The first appellant and Ms Lord (guarantors) had guaranteed payment of the liabilities of a company to a bank. The company defaulted on its obligations to the bank, and the bank commenced proceedings against the company and the guarantors (guarantee proceedings). The respondent, Jackson Lalic Lawyers Pty Limited (Jackson Lalic Lawyers), were retained by the guarantors and the company to act for them in relation to the guarantee proceedings. The second appellant was a party to the High Court of Australia (the High Court) proceedings by virtue of an assignment to him by the first appellant’s trustee in bankruptcy of the first appellant’s rights against Jackson Lalic Lawyers.
The amount of the company’s debt to the bank was $3.4 million. The guarantors’ liability under the guarantee was limited to $1.5 million. On the opening day of the trial, on the advice of Jackson Lalic Lawyers, the guarantors and the company agreed to settle the guarantee proceedings on terms that verdict and judgment would be entered for the bank against the guarantors and the company for almost $3.4 million, and that the bank would not seek to enforce payment of that judgment amount if the guarantors paid to the bank the sum of $1.75 million before a specified date. The consent orders entered by the Supreme Court of New South Wales (the Supreme Court) included verdict and judgment for the bank in the amount of approximately $3.4 million and noted the conditional non-enforcement agreement between the parties which was not itself embodied in an order of the SupremeÊCourt.
The guarantors breached the non-enforcement agreement by failing to pay the sum of $1.75 million before the specified date. As a result, the guarantors and company had a verdict and judgment entered against them for almost $3.4 million pursuant to the consent orders.
The negligence proceedings
The guarantors then sued Jackson Lalic Lawyers alleging that it was negligent in advising them to consent to judgment being entered in the terms of the consent orders and in failing to advise them as to the effect of the consent orders. Jackson Lalic Lawyers asserted that it was immune from suit by virtue of the advocate’s immunity.
In the Supreme Court, Schmidt J ordered that the immunity question be determined separately from the negligence proceedings.
The primary judge, Harrison J, declined to answer the separate question on the basis that, without further evidence in relation to Jackson Lalic Lawyers’ alleged negligence, his Honour could only form a view about the application of the advocate’s immunity on a hypothetical basis. However, his Honour’s preliminary conclusion was that the losses claimed by the appellants were within the scope of the advocate’s immunity.
The New South Wales Court of Appeal granted leave to appeal and held that Jackson Lalic Lawyers was immune from suit because the advice provided fell within the categories of work done out of court affecting the conduct of the case in court ie the advice led to the litigation being settled. Further, the negligence proceedings would necessarily involve a re-agitation of the issues raised in the guarantee proceedings which would offend the principle of finality of litigation.
By grant of special leave, the appellants appealed to the High Court. The issue here was whether the advocate’s immunity extended to apply to negligently advised or effected settlement where there had been no judicial determination of the claim on the merits. The appellants contended that the advocate’s immunity principles as set out in D’Orta-Ekenaike v Victoria Legal Aid (2005) 223 CLR 1 (D’Orta) did not support the argument that the immunity extends to negligent advice which leads to the settlement of a case by agreement between the parties. The appellants also submitted that the High Court should exercise its authority to reconsider its previous decisions in Giannarelli v Wraith (1988) 165 CLR 543 (Giannarelli) and D’Orta and that the immunity should be abolished.
The Law Society of New South Wales (the Law Society) sought leave to intervene. That leave was granted on the condition that the Law Society pays the costs of the parties occasioned by the intervention.
Immunity not abolished
The High Court unanimously declined to reconsider its previous decisions on the advocate’s immunity, which confirmed that the immunity extends to ‘work done out of court which leads to a decision affecting the conduct of the case in court’. The majority of the High Court stated that to overturn Giannarelli and D’Orta would generate a legitimate sense of injustice in those who have not pursued claims or have compromised or lost cases by reference to the state of the law as settled by these authorities during the years when they have stood as authoritative statements of the law. Therefore, in light of the interests of continuity and consistency in the interpretation of the law, the High Court declined to reconsider Giannarelli and D’Orta and stated that an alteration of the law of this kind is best left to the legislature.
The majority also held that the common law of Australia, as expounded in D’Orta and Giannarelli, reflects the priority accorded by the High Court to the values of certainty and finality in the administration of justice as it affects the public life of the community. As such, contrary to the appellants’ argument for abolition of the immunity, there is a clear basis in principle for the existence of the immunity.
Extending the immunity to settlements
Having determined that the immunity should not be abolished, a 5:22 majority of the High Court nevertheless allowed the appeal and held that the advocate’s immunity from suit does not extend to negligent advice given by a lawyer which leads to the settlement of a case by agreement between the parties embodied in consent orders. Specifically, the majority held that Jackson Lalic Lawyers was not immune from suit, because the advice to settle the proceedings was not intimately connected with the conduct of the case in court in that it did not contribute to a judicial determination of issues in the case. This conclusion was not affected by the circumstance that the parties’ settlement agreement was embodied in consent orders.
The majority held that it was the participation of the advocate as an officer of the court in the quelling of controversies by the exercise of judicial power which attracts the immunity. As such, the immunity does not extend to acts or advice of the advocate which do not move litigation towards a determination by a court. The majority stated that in particular, the immunity does not extend to advice that leads to a settlement agreed between the parties, which was the case here, even if the parties’ settlement agreement was embodied in consent orders entered by a court.
As the basis of the immunity is the protection of the finality and certainty of judicial determinations, the ‘intimate connection’ between the advocate’s work and ‘the conduct of the case in court’ must be such that the work affects the way the case is to be conducted so as to affect its outcome by judicial decision. The notion of an ‘intimate connection’ between the work, the subject of the claim by the disappointed client and the conduct of the case is concerned only with work by the advocate that bears upon the judge’s determination of the case. The majority held that although the settlement was embodied in consent orders, the terms of the settlement agreement were determined by the parties without any determination by the Supreme Court or exercise of judicial power. As such, the advocate’s immunity does not extend to Jackson Lalic Lawyers’ allegedly negligent settlement advice.
The majority held that to accept that the immunity extends to advice which leads to a settlement of litigation is to decouple the immunity from the protection of the exercise of judicial power against collateral attack. Such an extension would undermine the notion of equality before the law by enlarging the circumstances in which lawyers may be unaccountable to their clients.
Nettle and Gordon JJ delivered the dissenting judgment. Gordon J held that the appeal should be dismissed because there was a final quelling of the controversy between the parties by the exercise of judicial power, evidenced by the consent orders entered by the Supreme Court, which made a conclusive, binding and enforceable judgment or order, such that the immunity applies. There was a final outcome, with the consent orders using the words ‘verdict’ and ‘judgment’ for the bank against the guarantors and the company, and the entry of verdict and judgment by admission or consent is as much the exercise of judicial power as entry of judgment after trial. Further, attempts to set aside the judgment against the guarantors and the company had failed. As such, based on the structure of the consent orders, the reasons why the consent orders were structured in the manner they were and the significant consequences of the consent orders being entered, Gordon J formed the view that the claim against Jackson Lalic Lawyers was an impermissible challenge to finality, which the immunity seeks to prevent.
Nettle J agreed with Gordon J. Nettle J held that where a matter was settled out of court on terms providing for the court to make an order by consent that determines the rights and liabilities of the parties, the settlement plainly does move the litigation toward a determination by the court such that the immunity is attracted.
The High Court has once again upheld the advocate’s immunity and affirmed that the immunity extends to ‘work done out of court which leads to a decision affecting the conduct of the case in court’. Interestingly, the High Court has chosen not to follow the footsteps of the House of Lords in the United Kingdom and courts in other legal systems to abolish the advocate’s immunity. The High Court has confirmed that the principle of the finality of litigation justifies the existence of the immunity.
The High Court has narrowed the scope of the immunity by deciding that the immunity does not extend to negligent advice which leads to settlement of a claim in civil proceedings, particularly in circumstances where the parties’ settlement agreement was embodied in consent orders. This exposes the legal profession to greater liability when providing advice to clients to settle litigation. It remains open to argue that in those cases where settlement requires the resolution of issues by the exercise of judicial power, such as the statutory requirement that representative proceedings may not be settled without the approval of the court, the immunity would arguably apply since there is a final quelling of the controversy between the parties by the exercise of judicial power. However, this High Court decision leaves no doubt that the advocate’s immunity does not extend to negligent advice given by a lawyer which leads to the settlement of a case by agreement between the parties, even if the settlement terms are embodied in consent orders.