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Around The Firms
30 September, 2007  
Clutz appeals $5 million Darwin damages award

A big damages award award against Clayton Utz for rotten advice in a Northern Territory property transaction is the latest in a serious of troubles for the brassy law shop

imageClayton Utz has been ordered to pay damages of $5 million to a Darwin property developer arising from inadequate advice over the purchase of land at Lake Bennett.

Lake Bennett is a man made lake about seven kilometres off the Stuart Highway, 80 kilometres south of Darwin.

In March 1996 George Milatos consulted Nicholas Mitaros, then a partner of Clutz based in Darwin, requesting a due diligence search. Mitaros is now listed as a consultant to the firm and is one of the Northern Territory’s leading property lawyers.

Milatos wanted to purchase what was known as section 152 Hundred of Howard (now the Lake Burnett Wilderness Resort) and build cabins on the foreshore of the lake and develop the area as a resort.

The property was subject to recreational easements in favour of surrounding blocks of land giving the occupants of those properties unrestricted use of the lake.

These recreational easements were entirely inconsistent with George Milatos’ building and development plans.

imageNicholas Mitaros prepared an option to purchase but, according to the September 20 judgment of NT Supreme Court judge and Scottish dancing expert Sally Thomas (pic), he failed to advise his clients that the property was adversely affected by recreational easements.

George Milatos built a number of lakeside cabins to test the market. Subsequently he and his then wife Colleen, through their company City Developments Pty Ltd, exercised the option to purchase the land and a contract of sale was prepared.

In September 1996 Mitaros gave the file to Guy Riley, another partner at the time in Clutz’s Darwin office.

Riley assumed that the due diligence searches had been done. He was aware of the easements but thought they were more limited in their application and only provided access to the lake.

A week before contracts for the property were exchanged, solicitors for one of the easement holders wrote to Clutz saying their client proposed to assert a right to use the area to the full extent permitted under the existing easement.

“The easements clearly grant to our clients free, full and unrestricted access to any and all parts of section 152.”

The purchase could have been halted at that point. Instead, Riley assured Milatos not to worry – the problem could be adequately solved by proposed 10-metre access strips between the easements holders’ land and the lake.

imageIn September 1997 resort area was opened by the Attorney General Shane Stone (pic). Six months later, according to the first plaintiff, Stone gave some private undertakings that legislation would be brought in to improve the legal position of the Milatoses.

Shane Stone has told Justinian that he was not called to give evidence and denies the allegation.

The purchase price for the land was $630,000 and about a year after it was sold to City Developments Riley appears to have come to the realisation that the easements were much broader than merely easements for access.

By then Milatos had already built and sold cabins around the foreshore of the lake. According to Justice Thomas’ reasons for judgment, Riley did not advise Milatos and his wife that they may have a cause of action against Clayton Utz or that they should seek independent advice.

The recreational easements were also a problem in the sense that titles to the subdivided properties could not be issued without the consent of the easement holders, and that consent was not forthcoming. Not only that but consent of the easement holders was probably required at every stage of the development.

Later the plaintiffs unsuccessfully challenged the validity of the easements in the NT Supreme Court. The Court of Appeal confirmed the easements were good in law.

The whole project was thwarted until the passing of special legislation – the Lake Bennett (Land Title) Act 2005 NT. However, that was too late to save City Developments going into liquidation with debts of $2.9 million.

The Lake Bennett property could not attract buyers on the open market and eventually was brought by George Milatos’ brother Michael and his wife Pauline.

Colleen Milatos had put in an enormous amount of work on the resort and in 2002 she received a Brolga Award for Tourism Excellence.

Thomas concluded that the plaintiffs were entitled to damages for breach of s.52 of the Trade Practices Act and for breach of fiduciary duty for failure to provide appropriate advice after coming to the realisation that the previous advice had been incorrect.

imageThe judge also granted an extension of time to overcome the possibility of the claim being statute barred. In this context she referred to a memo Riley wrote to his colleague Mitaros (pic) in June 2000:

“The longer we muck around arguing about it, the more likely the Limitations Act is going to prevent George from taking any action against us in any event.”

In his evidence Riley acknowledged that he “regretted” this statement. He also disputed that he had admitted to his client that the firm had “fucked-up” and he had every right to sue them.

Damages were assessed at $4,920,523.27.

Clayton Utz issued a crisp little statement:

“An appeal has been lodged. The events the subject of the claim occurred 11 years ago and the people involved are no longer practising with the firm. The matter is being conducted by the firm’s insurers.”

It’s odd, because Nicholas Mitaros is still be to be found on Clutz’s web site giving areas of practice and expertise.

* * *

The Milatos case came hard on the heels of other bad news for Clutz.

imageAt the end of last month Justice Tony Templeman in the WA Supreme Court refused to reopen a default judgment that came about after Clutz failed to file a response in time to a $13 million claim brought by construction mogul Len Buckeridge’s (pic) BGC against Andrew Forrest’s Fortescue Metals.

BGC sued seeking fees of $12.36 million after Fortescue terminated an earthworks contract.

Clutz represented Fortescue. The firm faxed a notice of appearance to the court after hours on the day Fortescue was required to respond, with the wrong case number on the document.

The court awarded BGC $13.66 million by way of a default judgment. Templeman found that a deadline is a deadline and there was no reason to reopen the case.


* * *

imageThen there is the nasty matter of the Victorian DPP recommending that the Australian Crime Commission investigate Clayton Utz’s conduct in the Rolah McCabe tobacco litigation.

The Sunday Age reported last month that the outgoing DPP, Paul Coglan, in a letter to Attorney General Rob (Fuckin) Hulls (pic) referred to allegations of perjury and conspiracy to pervert the course of justice by “a number of parties involved with British American Tobacco”.

“In particular, the destruction of thousands of apparently relevant documents by British American Tobacco when litigation was apprehended in Australia may warrant national investigation.”

Coglan urged an inquiry into the conduct of “all product liability litigation in Australia brought against British American Tobacco Australia Services Ltd and its predecessor companies”.

Clayton Utz conducted its own internal inquiry into the way its partners behaved in the McCabe case.

imageThe McCabe interests are seeking to use these internal documents, which they say reveal an “iniquity”, to set aside the decision of the Victorian Court of Appeal that reversed the findings of Justice Geoffrey Eames.

Eames (pic) had struck out the tobacco company’s defence because crucial documents had been destroyed under the defendant’s “document retention policy”.

The BAT companies are sparing no expense in fighting to keep all incriminating material under wraps.

Clutz keeps trotting out the mantra that it was “exonerated” by the Victorian Court of Appeal.

Dare we ask – could these be merely an unfortunate series of mishaps or is the problem systemic?


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