J E Abel Real Estate Pty Ltd v Johnson [1999] VSC 378 (7 October 1999)

Last Updated: 20 October 1999

SUPREME COURT OF VICTORIA
CAUSES JURISDICTION	Do not Send for Reporting
	Not Restricted

No. 8050 of 1996

GRAEME BENNETT and KAREN BENNETT	Plaintiffs
v
LPC HOLDINGS PTY LTD (ACN 006 582 752) LYALL PATRICK COOPER J.E. ABEL REAL ESTATE PTY LTD	Defendants
W H E R E I N :
J.E. ABEL REAL ESTATE PTY LTD	is Applicant
- and -
CHRISTOPHER DONALD JOHNSON and DWYER MAHON & ROBERTSON	are Respondents

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JUDGE:	Ashley J
WHERE HELD:	Melbourne
DATE OF HEARING:	4 October 1999
DATE OF JUDGMENT:	7 October 1999
CASE MAY BE CITED AS:	J.E. Abel Real Estate Pty Ltd v Johnson & Anor
MEDIA NEUTRAL CITATION:	[1999] VSC 378

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COSTS - Application by successful party that counsel and/or solicitors pay its costs, payment to discharge the liability by the unsuccessful party under a costs order Supreme Court Act 1986, s.24 Supreme Court (General Civil Procedure) Rules 1996, R62.23.

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APPEARANCES:	Counsel	Solicitors
For the Applicant/ Defendant	Mr P.N. Vickery QC with Mr G.W. Robertson	Middletons Moore & Bevins
For the Second-named Respondent	Mr D.G. Collins	Tress Cocks & Maddox

HIS HONOUR:

1. The trial of this proceeding commenced on 20 August 1998.
2. On 15 September 1998, on a submission made by the third defendant without my requiring its election, I ruled that that defendant had no case to answer.
3. On 1 October 1998 I handed down reasons for judgment. The plaintiff succeeded against the first and second defendants.
4. That same day I heard argument generally about costs.
5. Counsel for the third defendant sought an order for costs in favour of his client against the plaintiffs, on a solicitor and client basis throughout; but otherwise from 25 September 1997, the date on which a Calderbank letter was sent to the plaintiffs. He said that the claim for solicitor/client costs from the inception of the proceeding was made "with difficulty".
6. In the event, I ordered that the plaintiffs pay the costs of the third defendant on a party-and-party basis up to and including 19 August 1998, and thereafter on a solicitor and client basis. I gave reasons for doing so.
7. Counsel for the third defendant did not suggest, at the time, that an order should be made against either the solicitors or counsel for the plaintiffs.
8. On 14 October 1998 the orders which I made on
9. 1 October 1998 were authenticated.
10. On 6 November 1998 counsel for the third defendant applied orally for orders that its costs be paid by the solicitors and/or counsel for the plaintiffs. The application was made without the plaintiffs being put on notice. Counsel and solicitors for the plaintiffs were on quite short notice. The application was adjourned to a date to be fixed.
11. On 3 December 1998, notwithstanding the application made and adjourned on 6 November 1998, the solicitors for the third defendant filed a summons for taxation of their client's costs - that is, further to my order of 1 October.
12. On 29 January 1999 the Taxing Master allowed costs and disbursements in the amount of $173,836.31. The untaxed bill had been in an amount of $238,966.30.
13. Demand having been made on the plaintiffs, and they having - not unsurprisingly - been unable to meet it, the third defendant then obtained a sequestration order against them. It was made on 5 May 1999.
14. The trustee in bankruptcy thereafter commenced a proceeding in the County Court against the accountant who had advised the plaintiffs when they acquired the motel. That proceeding was foreshadowed in an affidavit sworn on 4 December 1998 by Ms Nicole Wearne, the solicitor handling the matter for the third defendant. She deposed, inter alia, her belief that the plaintiffs did not have the means to meet the costs orders made against them, that she had been instructed by the professional indemnity insurer of the third defendant to immediately commence bankruptcy proceedings against them when the bill of costs was taxed, and that she had further been instructed by the insurer that it would finance an action by the plaintiffs' trustees in bankruptcy against the accountant to whom I referred a moment ago.
15. On 3 February 1999 I made orders for the conduct of the third defendant's application for costs against the plaintiffs' solicitors and counsel. I ordered, inter alia, that the third defendant file and serve any commencing document in respect of that application as it might be advised; and that the commencing document and any affidavits in support set out the facts and circumstances upon which the third defendant intended to rely.
16. On 26 February 1999 the solicitors for the third defendant filed a summons in which the plaintiffs' solicitors and counsel at trial were named as respondents and by which orders were sought as follows:

"A. An Order pursuant to section 24 of the Supreme Court Act 1986 and Rules 63.02 and 63.23 of the General Rules of Procedure in Civil Proceedings 1996 that by reason of the facts and circumstances set out in the Schedule of facts and circumstances annexed hereto the firm Dwyer Mahon and Robertson pay the Thirdnamed Defendant's costs of the proceedings on an indemnity basis from the date of issue of the Originating Process namely 6 December 1996 to judgment in the sum of $237,025.98 and that payment by the said firm operate to discharge the liability of the Plaintiffs to the Thirdnamed Defendant to pay the costs of the Thirdnamed Defendant on a party/party basis up to and including 19 August 1998, and thereafter on a solicitor/client basis which costs have been taxed in the sum of $173,836.31. Alternatively: B. An Order pursuant to section 24 of the Supreme Court Act 1986 and Rules 63.02 and 63.23 of the General Rules of Procedure in Civil Proceedings 1996 that by reason of the facts and circumstances set out in the Schedule of facts and circumstances annexed hereto the firm Dwyer Mahon and Robertson pay the Thirdnamed Defendant's costs of the proceedings on an indemnity basis from the date of issue of the Originating Process namely 6 December 1996 until 31 March 1998 in the sum of $48,642.11 and that thereafter the firm Dwyer Mahon and Robertson and Christopher Donald Johnson each pay the costs of the proceedings of the Thirdnamed Defendant in the sum of $188,383.87 and that payment by the said firm and Christopher Donald Johnson discharge the liability of the Plaintiffs to the Thirdnamed Defendant to pay the costs of the Thirdnamed Defendant on a party/party basis up to and including 19 August 1998 and thereafter on a solicitor/client basis which costs have been taxed in the sum of $173,836.31. Alternatively: C. An Order pursuant to section 24 of the Supreme Court Act 1986 and Rules 63.02 and 63.23 of the General Rules of Procedure in Civil Proceedings 1996 that by reason of the facts and circumstances set out in the Schedule of facts and circumstances annexed hereto the firm Dwyer Mahon and Robertson and Christopher Donald Johnson pay the Thirdnamed Defendant's costs of the application to amend the Plaintiffs' Statement of Claim on an indemnity basis from and including 26 August 1998 until 3 September 1998 inclusive and the costs of the Thirdnamed Defendant thrown away by reason of the amendments to the Plaintiffs' Statement of Claim in the sum of $50,015.00 and that payment of those costs by the said firm and Christopher Donald Johnson operate to discharge the liability of the Plaintiffs to the Thirdnamed Defendant to pay the costs of the Thirdnamed Defendant on a solicitor/client basis in respect of that period. D. An Order that Dwyer Mahon and Robertson and Christopher Donald Johnson pay the costs of this application on an indemnity basis".

17. The amount claimed by paragraph A was later increased - see paragraph 30 of Ms Wearne's affidavit sworn 5 March 1999 - to $243,630.38; and the amount claimed by paragraph C was later adjusted to $52,665 to reflect what Ms Wearne described as an arithmetical error.
18. Attached to the summons was a "Schedule of Facts and Circumstances" which was to be relied upon in support of the application. That schedule was also one of the exhibits to an affidavit sworn by Ms Wearne on 5 March 1999. The document, of 37 pages plus annexures, was in part chronology, in part something after the style of a pleading, in part a recitation of fact, and in part Ms Wearne's opinion concerning the content of the plaintiffs' solicitors' file.
19. Further to my orders of 3 February 1999 other affidavits were filed: Of the plaintiffs, their solicitor, and counsel (not counsel who appeared at trial) who had advised the plaintiffs in March 1998.
20. When the application came on for hearing on 4 October 1999 counsel for the third defendant announced that a settlement had been reached with counsel who had appeared for the plaintiffs at trial. In due course I ascertained the details of the settlement.
21. Before considering the detail of the third defendant's claim I should refer to some other aspects of the substantive proceeding.
22. The writ was filed on 9 December 1996. Annexed thereto was a statement of claim drawn by counsel - not the counsel who first advised the plaintiffs, not the counsel who advised the plaintiffs in March 1998, not the counsel who appeared at trial.
23. The plaintiffs named in the writ were Mr and Mrs Bennett, the purchasers in May 1993 of a motel at Rye in Victoria. The defendants were LPC Holdings Pty Ltd, the vendor of the motel, Lyall Cooper, a director and the personification of LPC, and J.E. Abel Real Estate Pty Ltd, which had acted as the vendor's agent.
24. The plaintiffs' claim was plainly founded on a statutory basis against all defendants - that is, relying on s.52 of the Trade Practices Act 1974 (Commonwealth) and s.11 of the Fair Trading Act 1985. So far as the third defendant was concerned, the claim relied on ss.82(1) and 75B of the former Act, and the corresponding provisions of the State Act.
25. The plaintiffs' claim was also laid on a common law basis. The manner in which it did so excited little apparent interest until the trial was well under way - at which stage I raised the matter. In the period that the proceeding had by then been on foot the third defendant had relevantly pleaded to the allegations which raised the common law basis of claim; and had delivered a request for further and better particulars. The latter document had, inter alia, asked the plaintiffs to specify precisely the duty which the plaintiffs claimed the third defendant breached. The further and better particulars provided in response had said shortly that the duty arose "by reason of the relationship of proximity".
26. There, so far as the pleadings are concerned, the matter stood until 26 August 1998, the fifth day of trial, when I raised the question what claim at common law the plaintiffs intended to raise. By that time the case had been opened with glancing reference to the cause or causes of action raised by pertinent paragraphs of the statement of claim; and senior counsel for the third defendant had said, but not until the fourth day of the trial, that his client was there to fight the case on the pleadings.
27. The issue was then agitated on a series of occasions between 26 August and 3 September 1998. It is unnecessary to revisit the debates that took place. It is necessary to say that the plaintiffs' side - evidently counsel - had great difficulty in getting the statement of claim into a form that exposed the ways in which the plaintiffs wished to pursue their claim. Eventually that was done. On 3 September 1998 I granted the plaintiffs leave to amend their statement of claim to squarely raise allegations of deceit and negligence in addition to the statutory claims, having ruled in favour of permitting amendment along those lines the previous day.
28. It is ironic that the position adopted by the third defendant, when I first raised the issue now under discussion, was that "We have taken it that (relevant paragraphs of the statement of claim) don't raise deceit or fraud"; whereas on this application the defendant in substance says that an important reason why the plaintiffs' solicitors should be ordered to pay costs is that a groundless allegation of fraud was made and pursued against it from the outset. The position first adopted was used in submissions opposing the amendments which were eventually permitted.
29. In ruling that the plaintiffs should have leave to amend I commented that the sequence of events culminating in that grant did neither the plaintiffs nor the third defendant much credit. I agreed with the submission of counsel for the third defendant that the statement of claim in its original form had not pleaded deceit. I concluded that no facts had been alleged at the outset, vis-a-vis the third defendant, which permitted an inference that it had made false representations fraudulently - despite the allegation of that defendant's complicity in the statutory breach. I also concluded, having heard some days of evidence, that despite the serious nature of a plea of fraud, and despite the lateness of the application to amend, the plaintiffs should be permitted to raise that plea.
30. My ruling should not be thought to have implied that the plaintiffs had not vaguely hinted at fraudulent conduct on the part of the third defendant in the first version of their statement of claim. There was such a hint. But the pleading was quite incomplete.
31. The grant of leave on 2 September 1998 led to the delivery of yet another version of the statement of claim, which was debated on 3 September 1998. It was that version, further amended after submissions, upon which the plaintiffs finally relied.
32. On 3 September 1998, in granting leave to amend, I ordered that the plaintiffs pay the costs of the amendment thrown away - intendedly referring to the costs of the protracted pleadings debate which had taken place. I reserved the question of who should pay those costs. I observed that "It may be that the plaintiffs' practitioners would take the view that the plaintiffs themselves ought not bear that burden"; and that my prima facie view was that the plaintiffs should not have to do so.
33. The plaintiffs' claim against the third defendant at common law, as ultimately formulated, relied upon the certain fact that a Mr Serroni, an employee of the third defendant, had made certain communications with the plaintiffs and their accountant concerning the performance of the business. It contended that when the communications - that is, representations - were made,
34. Mr Serroni was seised of information concerning the vendor's business which told against the reliability of the information he was supplying. It contended, as a matter of inference, that the information was supplied by Mr Serroni he knowing that it was untrue, or careless whether it was true or false; or otherwise that it was supplied negligently in breach of the duty of care owed to the plaintiffs by the third defendant.
35. Eventually, as I said earlier, I ruled that the third defendant had no case to answer upon the allegations thus formulated. I did so despite having ruled that the plaintiffs should be permitted to late plead and rely upon a common law claim alleging fraud. My evaluation of all the evidence, aided by detailed submissions made both for the third defendant and the plaintiffs, in the end persuaded me that the plaintiffs' case against the third defendant must fail. I was unable to draw the inferences which the plaintiffs required, bearing in mind the burden borne by a plaintiff who alleges fraud. I should not repeat my analysis of the evidence, but refer to my ruling at transcript 836-851.
36. On 1 October 1998, when counsel for the third defendant applied for costs against the plaintiffs, each of the aspects of the proceedings to which I have referred was known to the third defendant and its legal advisers. Counsel told me that he had no instructions to bring an application of the kind presently before me. The state of knowledge of that defendant and its advisers was no different on 6 November 1998 when its counsel first ventilated the present application.
37. Notwithstanding the fact that the statement of claim, contrary to assertions made by the third defendant in its statement of facts and circumstances, did not plead deceit from the outset, the plaintiffs did allege complicity of the third defendant in a breach of s.52 of the Trade Practices Act (and of the corresponding Victorian provision). The meaning given to s.75B(1)(a) and (c) by Yorke & Anor v. Lucas [1985] HCA 65; (1985) 158 CLR 661, see particularly at pp.666, 667 and 670 per Mason, ACJ., and Wilson, Deane and Dawson, JJ., meant that the for the plaintiffs to succeed they needed to show that the third defendant knew the essential matters going to establish contravention of s.52 - critically, that particular representations were false; or, if and insofar as s.51A was in point, that there were no reasonable grounds for making them. Further, the statement of claim in its first form, though not pleading fraud, hinted at it - as I observed in argument during the trial, and as I noted a little earlier in these reasons. It follows, in my opinion, that the conduct of the plaintiffs' solicitors should be considered on the footing that from the outset the plaintiffs alleged dishonest conduct against the third defendant - Mr Serroni's alleged knowledge of pertinent matters being said to be the knowledge of that defendant.
38. Against the background that I have described it was submitted on behalf of the third defendant that the solicitors owed the court these duties:

"(a) To conduct the proceedings before the Court with due propriety; (b) Not to act so as to obstruct or defeat the administration of justice by the Court; and (c) Not to be a party to an abuse of the Court's process".

39. Counsel for the solicitors agreed that such duties were owed.
40. Then it was contended that the court is empowered to order that the solicitors for an unsuccessful party pay the costs of the successful party both by reason of its inherent jurisdiction and by the operation of R.63.23(1) of Chapter 1 of the Rules.
41. An inherent jurisdiction to make such a costs order has doubtless been recognised. The existence of R.63.23 is plain. In the present case nothing turns on the precise source of jurisdiction which the third defendant called in aid. Counsel for that party at the outset submitted that something less than conduct which would trigger the inherent jurisdiction fell within the purview of R.63.23. He fastened on the word "negligence" in the opening portion of paragraph (1). But later he abandoned that submission, and rightly so. It could not stand with the judgment of Batt, JA in Etna & Anor v. Arif & Ors, [1999] VSCA 99 at paragraphs 79-82.
42. Counsel for the third defendant also submitted that whilst his client would have to satisfy me of pertinent facts to the civil standard affected by the Briginshaw gloss where it called the inherent jurisdiction of the court in aid, that was not so insofar as at least parts of R.63.23 were invoked. He argued that the jurisdiction exercised by the court in the latter case was compensatory, not punitive or disciplinary. So far as it is presently relevant, I consider that there is nothing to the point. Batt, JA. pointed out in Etna at paragraph 82 that whilst an order under R.63.23(1) is clearly intended to compensate, the rule is supplementary to the jurisdiction of the court over solicitors, which has a disciplinary character. A finding against a solicitor of a breach of the Rule is a serious matter. That should be reflected in the court's approach to proof of breach. But in the present case the point matters not. My conclusion would not differ however I approached the burden borne by the third defendant.
43. It was next submitted for the third defendant that the solicitors breached their duty in four respects; and that in each of those cases the jurisdiction of the court to order costs against the solicitors was enlivened. So it was said that:

"The solicitors breached their duties to the Court in that they:

(a) commenced and continued litigation on behalf of Graeme Bennett and Karen Bennett ('the Plaintiffs') against the Thirdnamed Defendant, J.E. Abel Real Estate Pty Ltd in the knowledge that the Plaintiffs had no worthwhile prospects of success in that proceeding or in circumstances where, had the solicitors given reasonable attention to the relevant law and facts, they would have had such knowledge;

(b) commenced and continued the proceedings on behalf of the Plaintiffs against the Thirdnamed Defendant, not for the purpose of litigating the claims set out in the statement of claim or vindicating any right in law which the Plaintiffs had against the Thirdnamed Defendant, but, it may be inferred, for the collateral purpose of putting the Thirdnamed Defendant under pressure to compromise the claim;

(c) delivered a statement of claim at the outset of the proceedings and prosecuted a claim throughout the proceedings which included allegations of dishonesty and allegations of fraud (in substance if not by pleading) against the Thirdnamed Defendant in circumstances where there was no factual basis for making those allegations, and this ought to have been known to and appreciated by the solicitors;

(d) amended the statement of claim during the trial of the proceedings to more directly plead an allegation of fraud against the Thirdnamed Defendant in circumstances where there was no factual basis for making of such an allegation, and this was known to and appreciated by the solicitors".

44. Counsel for the solicitors denied that there had been any such breach. He did not argue against the proposition that the plaintiffs should not have to bear the burden of the costs thrown away by reason of the lengthy amendment process. But he submitted that counsel, not the solicitors, should bear that burden. It was an unstated corollary that if the amount accepted by the third defendant in settlement of its claim fell short of the amount of costs thrown away, that was a matter between the third defendant and the former counsel for the plaintiffs.
45. Authorities have developed the framework of the inherent jurisdiction of the court to order that costs be paid by the solicitors for an unsuccessful party; and they have fleshed out the jurisdiction conferred by the Rules. The argument advanced for the third defendant, identifying the four supposed breaches, drew particularly on the judgment of Goldberg, J. in White Industries (Queensland) Pty Ltd v. Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169 (reported on appeal as Flower and Hart (a firm) v. White Industries (Queensland) Pty Ltd [1999] FCA 773; (1999) 163 ALR 744). According to the third defendant's submissions, White Industries stands for the propositions that the jurisdiction to order costs against an unsuccessful party's solicitors may arise -

"(a) when they have unreasonably initiated or continued an action when it had no or substantially no prospects of success. Unreasonableness in this circumstance may arise where there is a serious dereliction of duty or misconduct. A serious dereliction of duty or misconduct may arise where there has been a failure to give reasonable or proper attention to the relevant law and facts in circumstances where, if such attention had been given, it would have been apparent that there were no worthwhile prospects of success. See: Flower and Hart per Goldberg, J. at pp.229-238; (b) when the conduct of a solicitor amounts to an abuse of process of the Court. This may arise where proceedings are 'brought not to vindicate a legal right but for some other purpose'. See: Flower and Hart, per Goldberg, J. at pp.239-241; Flower and Hart (Full Court) at p.759. (c) when a solicitor delivers (or amends) a statement of claim alleging fraud (or it is contended, related allegations of dishonesty) when there was no factual basis for making the allegation. See: Flower and Hart per Goldberg, J. at pp.241-242".

46. In my opinion the reasons for judgment of Goldberg, J., consistent with other authorities, support the second and third of the propositions. They give general support for the first of them. There is, as his Honour observed, a tension between the bald proposition that commencing or maintaining proceedings with no or no substantial prospect of success enlivens the pertinent jurisdiction, and the important right of a person to have his or her case conducted in a court irrespective of the legal adviser's views about its prospects of success. It is with that tension that the courts have struggled in dealing with individual instances. The cases referred to by Goldberg, J. at 156 ALR 231-235 involved, I think it may be fairly said, extreme circumstances. Certainly it could not be said to flow from those authorities that the jurisdiction would be enlivened simply because a weak case was lost; the more so where the weakness of the case became apparent with the benefit of hindsight.
47. His Honour eventually put the matter in terms more limited than those contended for by the third defendant. He said this (at 236):

"The authorities do not support the proposition that simply instituting or maintaining a proceeding on behalf of a client which has no or substantially no prospect of success will invoke the jurisdiction. There must be something more, namely, carrying on that conduct unreasonably. It is not clear what is encompassed by 'unreasonably' initiating or continuing proceedings if they have no or substantially no chance of success. It seems to me that it involves some deliberate or conscious decision taken by reference to circumstances unrelated to the prospects of success with either a recognition that there is no chance of success but an intention to use the proceeding for an ulterior purpose or with a disregard of any proper consideration of the prospects of success".

48. He restated his conclusions in arguably somewhat broader language at p.239.
49. There is, I respectfully consider, much to commend his Honour's formulation at p.236 as a means of resolving the tension between the competing considerations to which I referred a few moments ago. But I need not accept that formulation in order to dispose of the present matter. It is enough to say that the first proposition advanced for the third defendant must be given, at the least, cautious application, be applied only in a clear case, and not be applied simply because an examination of the minutiae of a solicitor's involvement in particular litigation, made with the benefit of hindsight, discloses some imperfection of understanding or application.
50. The question that must now be decided is whether the third defendant has made good any of its four attacks upon the solicitor's conduct in light of the relevant principles.
51. According to the argument advanced for the third defendant, the solicitors' file revealed that the solicitors never conscientiously considered whether there was evidence of the serious allegations that were made from the outset against it. Counsel (not counsel who drew the statement of claim) had advised in April 1995 that, "At this stage I would not recommend joining Serroni ... unless evidence comes to light that can be adduced to prove that he was more than merely a conduit for information provided by the Stellas and Cooper". Despite that advice, and despite there being no evidence against the third defendant when the proceeding was instituted, the third defendant was joined. Thereafter no evidence came to light. Nor did the solicitors take steps to obtain such evidence. The solicitors left evaluation of the third defendant's file to the plaintiffs' accountant. When "similar fact" evidence eventually came to light the question of its admissibility was not properly considered. No substantive evidence came to light in the period in which the proceeding was on foot before trial. The presence or absence of such evidence was not conscientiously considered. The statement of claim was amended during the trial even when the "similar fact" evidence had been ruled inadmissible. The affidavits of the particular solicitor involved, of Mr and Mrs Bennett, and of Mr Murley of counsel (who advised in March 1998) revealed that the solicitors were conscious throughout that "there was no or no sufficient evidence against the thirdnamed defendant or at least there was great risk of this being the case". The solicitors failed to exercise their own professional judgment. It should be inferred that the proceeding was brought and maintained against the third defendant for an ulterior motive - that is, to place pressure on the third defendant to compromise.
52. The propositions thus advanced for the most part relied on the summary of facts and circumstances annexed to the initiating summons and exhibited to Ms Wearne's affidavit. In many instances the summary stated baldly as facts what were in truth conclusions, opinions or matters of interpretation. A number of those conclusions, opinions or matters of interpretation were founded upon certain matters not being apparent on the face of the file; or upon correspondence failing to raise certain matters.
53. Counsel for the third defendant submitted that I should accept the accuracy of the statement of facts and circumstances, it not having been controverted by evidence adduced for the solicitors. I do not accept that submission. Affidavits put in evidence by the solicitors point to conclusions different to those reached by the author of the statement. Moreover, certain parts of the solicitors' file were exhibited to Ms Wearne's affidavit. It is for me to decide what conclusions should be drawn from the primary evidence adduced. I feel compelled to say, as a general observation, that the statement went well beyond a statement of facts and circumstances. It had the appearance, in part, of a polemic.
54. The affidavits of the solicitor, Mr and Mrs Bennett, and Mr Murley are in my opinion important in determining the circumstances in which the plaintiffs commenced and prosecuted their claim against the third defendant, and the solicitors' role in that course of action.
55. The solicitor, Mr Gregory Robertson, by his affidavit sworn 26 March 1999 deposes that he discussed with counsel who was retained to draw the statement of claim the issue of joinder of the third defendant. By that time he, Mr Robertson, had been instructed by Mr and Mrs Bennett that they suspected that the key figures on which they had relied had been falsified at Mr Serroni's instigation. They, the Bennetts, had given him reasons why they were of that mind.
56. Mr and Mrs Bennett, in their affidavits, have deposed that they were in fact of that mind; and why. The matters referred to by Mrs Bennett at paragraphs 7, 8, 11 and 12 of her affidavit sworn 23 March 1999 were for the most part matters which got into evidence at the trial; see also paragraph 4 of Mr Bennett's affidavit sworn 23 March 1999.
57. It is the fact that, in the end, I was not persuaded by the evidence that the inferences which the plaintiffs asked me to draw - reliant on matters conveyed to Mr Robertson at an early stage - could be drawn. But that was a conclusion after trial, with the benefit of evidence-in-chief and cross-examination, and with the benefit of extensive submissions.
58. Recognising that the statement of claim in its initial form did make serious allegations against the third defendant, I am quite unpersuaded that the solicitors commenced the litigation in the knowledge that the plaintiffs had no or no worthwhile prospects of success against the third defendant, or not having turned their minds to the pertinent facts or legal issues. Mr Robertson's affidavit tells to the contrary. Relevant instructions were taken. Counsel briefed to draw the statement of claim was provided with a copy of the earlier advice of other counsel which recommended against joinder of the third defendant on the then state of knowledge. (It also, contrarily, provisionally recommended the commencement of proceedings against an earlier operator of the motel). Mr Robertson discussed the issue of joinder of the third defendant with counsel briefed to draw the statement of claim. He conveyed pertinent instructions upon the matter to counsel. Counsel evidently formed the opinion that the material justified joinder of the third defendant as a defendant. Mr Robertson was not absolved from giving the issue his own thought simply because he engaged counsel. But he was entitled to take comfort from counsel's opinion, the issue having been agitated between the two of them.
59. Apart from the case of statutory breach raised against the third defendant from the outset, the statement of claim also raised (though in a pretty unsatisfactory way) a claim in common law negligence. I pointed out in ruling on the third defendant's no-case submission that, other problems for the plaintiffs apart, it was extremely doubtful whether the duty of care ultimately pleaded was one cast upon the third defendant. It may fairly be said that the common law negligence claim pleaded at the outset must have faced a similar problem. But in substance the same circumstances were pleaded under different legal banners. So to plead the claim could not have put the third defendant to additional work, even if it could be said that to plead the matter in common law negligence infringed the first proposition upon which the third defendant relied in the present application. The pleading in negligence might be thought to imply a weakness in the statutory breach claim; but that was a matter for advocacy.
60. I turn to consider the period between commencement of the proceeding and trial. In my opinion, very clearly it cannot be said that in this period Mr Robertson did not turn his mind to the question whether a case could be made out against the third defendant; and it cannot be said he did not follow the matter up with his clients and counsel. He conferred with Mrs Bennett after the third defendant had delivered its defence, and was advised of the possible existence of additional material indicating Mr Serroni in dishonest dealings (in fact this turned out to be a furphy). He conferred with counsel who had drawn the statement of claim, with his clients and with their accountant. He was evidently concerned whether the available evidence would enable the plaintiffs to make out a case against the third defendant. In the latter part of 1997 he briefed another counsel to attend a directions hearing, and thereafter discussed the situation with him. Counsel apparently expressed the view that he was not confident that the claim against the third defendant could be sustained. In early March 1998 Mr Robertson arranged for an experienced member of counsel to confer with his clients and advise. Mr Murley's advice, he having considered the available evidence (evidence summarised at paragraph 5 of his affidavit sworn 25 March 1999) was that the plaintiffs had a better than 50 per cent chance of success against the third defendant. Mr Murley advised, further, what additional evidence ought be obtained. It included what I have referred to earlier as the "similar fact" evidence. Mr Robertson did in fact follow up the suggested line of enquiry. A little later, counsel who appeared at trial was first briefed. He advised upon further evidence that might be sought pertinent to the claim against the third defendant. Again, Mr Robertson followed up that advice. The accountant who had prepared the s.52 statement in connection with the sale to the plaintiffs, an accountant whose business was conducted in the same building as was the business of the third defendant, was in due course subpoenaed. Having obtained the "similar fact" evidence, Mr Robertson was told by counsel briefed on the trial that there was an issue about its admissibility (that is, other than as an attack on credit). The issue of admissibility of evidence was one in respect of which counsel rather than Mr Robertson could have been expected to take the leading role.
61. There the matter rested when the trial eventually commenced in August 1998. Mr Robertson evidently had misgivings about the ability of the plaintiffs to prove their case against the third defendant. He had followed the matter up with his clients and with a number of counsel. He had taken steps to secure additional evidence. Experienced counsel had advised that the plaintiffs had a better than 50 per cent chance of succeeding against the third defendant. Another counsel had not been confident of the outcome. No counsel had suggested that the plaintiffs discontinue against the third defendant, even after the third defendant's Calderbank letter of 26 September 1997 by which the third defendant said that it would bear its own costs if the plaintiffs discontinued against it.
62. In the circumstances described, there is no foundation for reaching a conclusion adverse to the solicitors in respect of any of the three pre-trial breaches of duty alleged by the third defendant. That is so having treated the plaintiffs as making allegations akin to fraud in the statement of claim in its original form, and having then kept in mind the third proposition upon which the third defendant relied in support of this application.
63. I should say something discretely about the second alleged breach. It depended upon my drawing an inference of mala fides from the circumstance, as the third defendant contended, that the solicitors pursued a claim against the third defendant which they knew (or perhaps should have known) was hopeless. I do not accept the premise. So the inference could not be drawn. Mr Robertson was apparently told by counsel who drew the statement of claim that the third defendant was the only likely source by which a judgment could be satisfied. He may well have accepted the accuracy of that assessment. But, standing alone, it takes the third defendant nowhere.
64. I turn to the fourth alleged breach. Its thrust is that the solicitors were party to the amendment of the statement of claim during trial to quite directly allege fraud against the third defendant where they knew that there was no factual basis for making that allegation. I note, however, that by paragraph 9 of their full submissions (both full submissions and a summary which did not wholly coincide were provided) counsel for the third defendant contended for an alternative basis upon which the solicitors should be liable for costs; that is, by reason of time wasted by undue delay.
65. In my opinion there was undue delay in the statement of claim being put into its final form. It seems that I did not see all of the versions of the document that were produced. But the transcript of the trial shows clearly that versions which were produced were unsatisfactory. As between the plaintiffs and the third defendant, the latter was entitled to its costs, and that on an indemnity basis, in respect of the protracted amendment process. The circumstances were also such that the plaintiffs should not have had to bear that burden.
66. Paragraph 41 of Mr Robertson's affidavit shows the solicitors' role in what transpired. I think it would be quite unrealistic to fix the solicitors with a costs burden by reason of the delay that occurred. On the other hand, I consider that it would have been right to fix counsel with that burden. Any difficulties of pleading should not reasonably have taken anything like the time they did take to resolve; although in saying that I wish to make it clear that I am well-satisfied that counsel did in fact work very hard in an attempt to get the pleadings into order.
67. Then there is the question whether the solicitors should bear responsibility for being party to an amendment which (eventually) squarely alleged fraud. I do not consider that they should. It is true that, by the time I raised the pleading issue, counsel and the solicitors knew that the "similar fact" evidence had been excluded; and Mr Robertson has deposed that once that evidence was disallowed "the plaintiffs' case ... sustained a serious blow". But even assuming that this was his state of mind at the time, it is not to say that he believed, or should have believed, that a claim against the third defendant founded on fraudulent conduct by that defendant was hopeless. After lengthy debate I had by grant of leave authorised the plaintiffs to amend to allege fraud. The conclusion I ultimately reached could not, of course, cast light on Mr Robertson's state of mind at the relevant time.
68. Accepting that the solicitors could not abrogate their responsibility simply by leaving the matter up to counsel, they were entitled to draw comfort from the fact that, evidence being well-advanced, counsel evidently considered that a claim alleging fraud could legitimately be pursued. The fact that counsel, or his insurer, eventually reached a settlement with the third defendant, does not tell against his being of such a mind at the time. The settlement might be thought to reflect nothing more (if anything can be made of it) than recognition of some responsibility for the delay which occurred.
69. In the event, looking to the substance of the matter, the application by the third defendant fails against the solicitors. The consequence is, of course, that the plaintiffs remain liable to the third defendant for the most part of the costs order made against them. That is the unfortunate consequence borne by unsuccessful parties. The distressing fact that the plaintiffs have a judgment against the first and second defendants which is unlikely ever to be satisfied cannot, of course, be brought to account in determining the fate of the present application any more than can the bare circumstance that the plaintiffs face a costs order in favour of the third defendant.
70. It remains to address a few additional matters.
71. First, I have thus far assumed that it is open to the third defendant to bring the present application.
72. In my opinion it can be said generally that it is open to a successful party to bring an application of the present kind notwithstanding that such party already has an order for costs against the unsuccessful party. The jurisdiction of the court in such a case is explained by Caboolture Park Shopping Centre Pty Ltd (In Liquidation) v. White Industries (Queensland) Pty Ltd [1993] FCA 471; (1993) 117 ALR 253. Any order made would be that the solicitors pay the successful party's costs, and that payment operate to discharge the costs liability of the unsuccessful party.
73. In the present case, however, the third defendant taxed its costs, made demand on the plaintiffs, and then bankrupted them. A question arises whether the third defendant thereby elected to pursue the plaintiffs and only the plaintiffs in respect of their costs. I think that the answer to that question is no. Counsel for the solicitors did not contend to the contrary.
74. Second, there is a definite importance to finalising litigation. In the present case the third defendant knew the substance of the matters upon which it relied on the present application when it sought a costs order against the plaintiffs and not against the legal practitioners. Much was made of what was revealed by examination of the solicitors' file. I do not say that the examination was entirely unrewarding. But if there was anything to the present application, the matter was signposted by the time that the original costs application was made. The situation may be contrasted with that which arose in White Industries - see at 117 ALR 255. In circumstances where the third defendant then pursued the course that it did, not only of obtaining an order but taxing costs (itself a costly procedure) and bankrupting the plaintiffs, I think that there would have been good reason to refuse this application on a discretionary basis regardless of its merits otherwise.
75. Third, the third defendant stood by from the time when the proceeding was commenced until I raised the pleading issue on the fifth day of the trial. That was so despite the obvious problems with the pleading. Had the third defendant raised the issue, the plaintiffs would have been obliged to focus more closely on the allegations they sought to pursue; and not in the hothouse atmosphere of a trial. It may be that the plaintiffs would have sought to amend as they eventually did; that, however, is not certain. I consider that, if the third defendant had shown there was anything to the present application, the conduct to which I have just been referring might have been accounted pertinent to whether the application should in any event have been refused on a discretionary basis.
76. Fourth, the third defendant chose to settle with counsel for an amount which might be less than its entitlement to indemnity costs pertinent to the protracted amendment process. I say "might be less" because different figures were advanced in respect of those costs by the summons, by Ms Wearne's affidavit of 5 March 1999, and by counsel from the Bar table during argument. I note also that the taxed bill apparently disallowed some items of costs claimed in respect of the relevant period. It seems to me arguable that the plaintiffs should not be disadvantaged by the fact that the third defendant chose to settle with counsel for an amount which might be less than the costs in question; particularly when it should sensibly have appeared that counsel rather than the solicitors bore responsibility for the delay. I will hear counsel why the amount received by the third defendant pursuant to the settlement should not stand in discharge of the relevant liability of the plaintiffs.
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