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Federal Court of Australia |
Last Updated: 13 December 2000
FEDERAL COURT OF AUSTRALIA
SUMMARY
In accordance with the practice of the Federal Court in certain cases of public interest, I have prepared this brief summary to accompany the Reasons for Judgment that are being delivered today. But the only authoritative pronouncement of my reasons is that contained in the full Reasons for Judgment. This summary is necessarily incomplete.
The issue presented for decision involves a tension between two important and valued features of the legal system. First, lawyers must be at liberty, without fear of intimidation, to undertake cases that appear to have little prospect of success. Second, lawyers must not commence a proceeding irresponsibly, in particular, without any, or any proper, consideration of the question whether the proceeding has any prospect of success at all.
The applicants sued Pasminco for, relevantly, injury to their health alleged to have been caused by noxious emissions from Pasminco's smelters at Cockle Creek in New South Wales and Port Pirie in South Australia. On 12 May 2000 I ordered that the application be dismissed as incompetent, because it was beyond this Court's jurisdiction. The reason was that the federal claim relied on to attract jurisdiction was "colourable", "not genuine" and designed to "fabricate" jurisdiction. The federal claim on which the applicants relied was that for the purposes of Part VA of the Trade Practices Act 1974, the noxious emissions were goods manufactured by Pasminco which Pasminco was supplying in trade or commerce, to the applicants who were injured in their health because the emissions had defects.
Pasminco seeks an order that the applicants' solicitors, as distinct from the applicants themselves, pay Pasminco's costs on an indemnity basis. The applicants' legal representatives formulated the Trade Practices Act claim. They have not filed affidavit evidence that they believed the claim had any chance of success or that they acted on the advice of counsel.
I have concluded that the solicitors should pay Pasminco's costs on an indemnity basis, for the reason that the solicitors gave no consideration, or no proper consideration, to the question whether the federal claim had any prospect of success at all. If they had done so, they would have appreciated that it had none.
"Indemnity costs" means costs actually incurred except costs unreasonably incurred or costs unreasonable in amount. In this respect, perhaps Pasminco's own position involves an inconsistency. Pasminco's submission, which I accepted, is that a mere reading of the applicants' pleading demonstrates that the federal claim was colourable. Yet in order to convince me of this, detailed written submissions were prepared, senior counsel from Sydney and junior counsel from Melbourne appeared, at least one representative of Pasminco's Melbourne solicitors attended court to instruct counsel, and three lever arch files of photocopied cases were provided to the Court. All this tends to suggest that the federal claim was not obviously and necessarily doomed to fail after all, or at least that Pasminco thought it was not. Yet it was plain to me on a mere reading of the statement of claim that it was.
The notion of indemnity costs may well exclude as excessive some of Pasminco's costs to which I have referred. In the circumstances I will keep the question of costs before me rather than make the usual order which would allow Pasminco to tax its costs at this stage. If the parties cannot agree on the amount of the costs to be paid by the applicants' solicitors, the matter may be restored on 24 hours' notice.
Although I am making an order that the applicants' solicitors pay Pasminco's costs, the circumstances are extraordinary and are of a kind unlikely to recur. Solicitors remain free to undertake risky litigation, whether of a class action kind or otherwise.
LINDGREN J
Cook v Pasminco Ltd (No 2) [2000] FCA 1819
PRACTICE AND PROCEDURE - costs - application previously dismissed as incompetent because federal claims doomed to fail and therefore Court lacked jurisdiction to hear and determine proceeding - consequential conclusion that federal claims fabricated in order that proceeding could be brought in Federal Court - respondents' motion for order that applicants' solicitors pay respondents' costs of proceeding on indemnity basis - whether such order should be made - relevance of various considerations - relevance of ground on which proceeding dismissed as incompetent - relevance of fact that solicitors had an "interest" in the litigation to the extent that if proceeding failed, they were not to be paid, and if it succeeded they were to be paid ordinary costs plus an "uplift" percentage - relevance of fact that the proceeding was a "representative" or "group" proceeding under Part IVA of Federal Court of Australia Act 1976 and that solicitors had publicised it and invited potential members of group to contact them - relevance of fact that of the four applicants/representative parties, one was an undischarged bankrupt and two were minors - relevance of fact that solicitors had taken initiative in "devising" and formulating the proceeding rather than in response to applicants' initiative in consulting them about a grievance.
PRACTICE AND PROCEDURE - legal professional privilege - costs agreement between solicitor and client - whether agreement satisfied the general law test of legal professional privilege.
Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178, referred to
Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224, referred to
De Sousa v Minister for Immigration, Local Government and Ethnic Affairs (1993) 41 FCR 544, referred to
Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 44 ATR 315 (FCA/FC), referred to
White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 (FCA/Goldberg J), referred to
Esso Australia Resources Ltd v Commissioner of Taxation [1999] HCA 67; (1999) 168 ALR 123 (HC), applied
ROSLYN GAY COOK & ORS v PASMINCO LIMITED & ORS
N 132 OF 2000
LINDGREN J
12 DECEMBER 2000
SYDNE
YIN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
1. Subject to order (2), the applicants' solicitors, Coleman & Greig, pay the respondents' costs of the proceeding on an indemnity basis, to the intent that those costs will be the respondents' costs actually incurred excluding costs unreasonably incurred and costs to the extent that they are unreasonable in amount.
2. The applicants' solicitors, Coleman & Greig, pay the respondents' costs of the respondents' motion brought by notice of motion filed on 28 June 2000 on the usual party and party basis.
3. The respondents not be at liberty to tax the costs referred to in (1) or (2) without leave of the Court.
4. By 15 December 2000 the applicants and the respondents file and serve submissions as to the order for costs that should be made on the applicants' motion brought by notice of motion filed on 1 August 2000 seeking an order setting aside the respondents' subpoena for production issued on 13 July 2000 and addressed to Paul G Gambin of Coleman & Greig, Solicitors.
5. Coleman & Greig and the respondents have liberty to apply on 24 hours' notice.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
NEW SOUTH WALES DISTRICT REGISTRY |
JUDGE: |
LINDGREN J |
DATE: |
12 DECEMBER 2000 |
PLACE: |
SYDNEY |
INTRODUCTION
1 The issue presented for decision involves a tension between two important and valued features of the legal system. First, lawyers must be at liberty, without fear of intimidation, to undertake cases that appear to have little prospect of success. Second, lawyers must not commence a proceeding irresponsibly, in particular, without any, or any proper, consideration of the question whether the proceeding has any prospect of success at all.
2 On 12 May 2000 I ordered that the substantive application be dismissed as incompetent and that the proceeding be stood over to a date to be fixed for the hearing of submissions on costs. By notice of motion filed on 28 June 2000, the respondents (I will refer to them collectively and individually as "Pasminco") seek an order that the applicants' solicitors, Coleman & Greig ("the Solicitors"), pay Pasminco's costs of the proceeding on an indemnity basis. As well, Pasminco seeks an order that the Solicitors pay its costs of the motion.
BACKGROUND
3 My earlier reasons for judgment are now reported: Cook v Pasminco Ltd [2000] FCA 677; (2000) 99 FCR 548. The substantive proceeding was commenced on 18 February 2000. It was or purported to be a "representative" or "group" proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) ("the FCA Act"). The applicants sued Pasminco in negligence, in nuisance, and under ss 75AD and 75AG (within Part VA) of the Trade Practices Act 1974 (Cth) ("the TP Act"). The applicants alleged that they and the group members they represented had suffered in their health from noxious emissions from Pasminco's plants at Cockle Creek in New South Wales and at Port Pirie in South Australia (there was also a claim for damage to real estate - cf s 75AG of the TP Act).
4 The first applicant ("Ms Cook") and her young daughter, the second applicant, lived at Cockle Creek. The second applicant sued by her next friend, Ms Cook.
5 The third applicant and the eight-year-old fourth applicant lived at Port Pirie. The fourth applicant sued by his next friend, the third applicant.
6 The second and third respondents are wholly owned subsidiaries of the first respondent.
7 The applicants sought an injunction and damages.
8 The applicants pleaded that in the course of its business Pasminco wrongfully caused and permitted emissions of quantities of offensive, noxious and unwholesome smoke, fumes, vapours and gases, lead, sulphur-dioxide and other pollutants from the two plants. The only federal claims were those under Part VA of the TP Act. They were to the effect that in trade or commerce, Pasminco supplied goods manufactured by it which had a defect. Pasminco submitted that it could not arguably be found, as the applicants had pleaded, that the emissions constituted "goods", that they had been "manufactured" by Pasminco, that they had been "supplied" by Pasminco, that they had been supplied by Pasminco "in trade or commerce", or that they had a "defect". I accepted Pasminco's submissions in relation to "supply", "in trade or commerce" and "defect", and did not find it necessary to reach a final view in relation to "goods" or "manufactured".
9 I concluded that the federal claims were "doomed to fail", "quite hopeless" and "clearly untenable". On the basis of this finding I concluded that those claims also satisfied the descriptions "colourable", "not genuine" and "fabricated". Those terms were used in the authorities dealing with the question of the circumstances in which the existence of a federal claim will not suffice to support the accrued jurisdiction of the Court: I referred to the cases at par 12 of my earlier reasons for judgment. The result was that there was no federal matter on the basis of which the Court's accrued jurisdiction to hear and determine the claims of negligence and nuisance was attracted, and I dismissed the proceeding as incompetent.
10 Section 43 of the FCA Act empowers the Court to award costs. The power encompasses power to award costs against a non-party, such as the Solicitors; cf Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178; Caboolture Park Shopping Centre Pty Ltd (in liq) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224; De Sousa v Minister for Immigration, Local Government and Ethnic Affairs (1993) 41 FCR 544.
11 Three preliminary observations are called for. First, parts of Pasminco's submissions could be read as assuming that the applicants had no cause of action against Pasminco. But my decision was only that the proceeding, brought as it was in this Court, was doomed to fail for lack of any tenable federal claim. For all I know, the non-federal causes of action in negligence and nuisance may be soundly based on available evidence. (Apparently, immediately after I dismissed the proceeding, the applicants commenced a fresh proceeding against Pasminco, for negligence and nuisance only, in the Supreme Court of Victoria.) I should approach the costs issue before me on the footing that the applicants may well have been injured in their health as a result of tortious activities by Pasminco and may be entitled to recover damages from Pasminco accordingly, but that the Solicitors brought the proceeding in the wrong court in reliance on untenable causes of action under the TP Act.
12 The second preliminary observation is that the form of representative proceeding provided by Part IVA of the FCA Act must be accepted as part of the legal landscape. Yet in certain respects Pasminco's submissions could be understood as not accepting this, for example, by not accepting that the procedure is intended to promote and facilitate the bringing in one proceeding of numerous small claims that would or might not otherwise be brought at all.
13 The third preliminary observation is that Pasminco very properly moved without delay for dismissal of the proceeding. I understand senior counsel for Pasminco to accept that if I order the Solicitors to pay Pasminco's costs, those costs would not include the costs of preparing to litigate the substantive issues relating to liability. In substance, the costs would be limited to the costs of the argument on the issues of law raised by Pasminco's motion. Those issues concerned the construction of ss 75AD and 75AG of the TP Act and their application to the facts as pleaded. In substance, Pasminco seeks to make the Solicitors liable for Pasminco's costs of resisting untenable claims under the TP Act.
14 Pasminco submits that the following four main considerations, individually and collectively, warrant the making of the order they seek against the Solicitors:
(a) that the Solicitors (allegedly) chose an undischarged bankrupt to be an applicant;(b) the Solicitors' conduct in publicising and promoting the proceeding as a group proceeding;
(c) the Solicitors' pecuniary interest in the proceeding;
(d) the ground on which the proceeding was dismissed as incompetent.
15 I will address, in turn, these four considerations.
(a) That the Solicitors (allegedly) chose an undischarged bankrupt to be an applicant
16 Subsection 43(1A) of the FCA Act has the effect that a costs order in favour of Pasminco cannot be made against the group members represented by the applicants: the order can be made only against the representative parties.
17 Ms Cook became a bankrupt on 28 May 1998 and has remained a bankrupt since that date. Accordingly, she was a bankrupt at the time of the commencement of the proceeding on 18 February 2000. The second and fourth applicants are minors and they will not be ordered to pay costs. The third and fourth applicants were added as applicants on 6 April 2000. Accordingly, the third respondent may not be liable for costs incurred by Pasminco prior to that date.
18 Pasminco's solicitors became aware of Ms Cook's bankruptcy on 8 May 2000, the motion for summary dismissal was heard on 9 May 2000, and the order of dismissal was made on 12 May 2000.
19 Pasminco asks me to infer that the Solicitors "chose" Ms Cook to be a representative party because she would be unable to satisfy any order for costs that might be made in Pasminco's favour.
20 There was evidence that John Makris, a solicitor employed by the Solicitors, while having a "weekend break" in the Hunter Valley, New South Wales, became interested in "a story in a local newspaper" about a large company which was said to have been emitting into the environment toxins which affected people's health. After Mr Makris "spotted" the possibility of a class action, he wrote an article which appeared in a Newcastle newspaper about pollution from Pasminco's smelter at Cockle Creek. Subsequently, a meeting was held of interested persons.
21 In the course of cross-examining Paul Gary Gambin, a partner in the Solicitors' firm, in response to objection to a particular question, senior counsel for Pasminco said that he wished to ask a series of questions directed to showing that in the course, or as a result, of discussions between the Solicitors and at least Ms Cook, a tactical decision was taken by the Solicitors and Ms Cook (or her and other clients) that the proceeding would be launched in her name. Counsel who appeared for the Solicitors (he also appeared for the applicants) objected. I indicated that I would disallow the proposed line of questioning on the ground that the evidence sought to be elicited was the subject of legal professional privilege. It would have been possible for Mr Gambin to be asked simply whether he knew, at the time of the commencement of the proceeding, that Ms Cook was an undischarged bankrupt, but no doubt the view was taken that a positive answer to this question alone would be an inadequate basis to support an inference that the Solicitors had deliberately "chosen" or "procured" an undischarged bankrupt to be a representative party with a particular end in view.
22 Pasminco also relies on the Solicitors' non-responsiveness in relation to the present question when it was raised with them. On 24 May 2000 Pasminco's solicitors wrote to the Solicitors a letter which included the following:
"Before issuing the Federal Court proceedings, did you make any, and if so what, enquiries of the First and Third Applicants as to their ability to meet orders for costs? If enquiries were made as to their ability to meet costs, what were you told?Related to this issue, please let us have copies of any material you provided to the Applicants and/or class members which address their exposure to adverse cost orders. Further, please let us have copies of any retainer/fee agreement in relation to the Federal Court proceedings between your firm and each of the Applicants and between your firm and any class member."
23 The Solicitors replied to the effect that they saw no basis on which Pasminco was entitled to the information sought.
24 On 9 June, Pasminco's solicitors responded, referring to their client's intention of filing a notice of motion seeking an order that the Solicitors pay its costs on an indemnity basis, and they referred to the Solicitors'
"selection of an undischarged bankrupt as First Applicant; as Tutor for the Second Applicant; and as a representative, given the immunity against liability for costs which section 43(1A) of the Federal Court of Australia Act confers on the group she represented".
25 On 15 June 2000 the Solicitors replied in general terms but did not deal specifically with the allegation that they had chosen an undischarged bankrupt to be an applicant.
26 The Solicitors have not filed affidavit evidence addressing the present issue.
27 In the absence of any evidence at all as to how Ms Cook came to be an applicant, I do not draw the inference that the Solicitors chose or procured her to be an applicant because of her status as an undischarged bankrupt.
28 If I had drawn that inference, several questions would have arisen. First, there would have been a question as to precisely what moved them to choose her. Was it the desire to have as representative party a person on whom an adverse costs order would have the least effect, or a spiteful desire to see Pasminco unable to recover on such an order? Surely the former, rather than the latter, even though there would have been no difference in result from Pasminco's perspective.
29 But faced with a number of potential representative parties, solicitors are not obliged to make a choice in the interests of the prospective respondent. No doubt a variety of factors may lead to one person rather than another becoming representative party, such as the proximity of the person to the solicitors' office; ease of communication between the solicitors and the person; degree of interest and involvement; likely performance as a witness; the facts of the individual cases.
30 Assume now that one prospective representative party is a person whose means appear to be sufficient to meet, wholly or partially, an adverse costs order, while another is almost insolvent. Solicitors are not subject to any legal or ethical obligation to choose the former. Certainly they could not be criticised for choosing the latter. It might even be suggested (I express no view) that they owe a duty to the former to choose the latter, unless other factors suggest a different choice!
31 Now is there a relevant difference for present purposes between the almost insolvent person just referred to and an undischarged bankrupt, such as Ms Cook? I think not. There is excluded from the property divisible amongst the creditors of a bankrupt any right of the bankrupt to recover damages or compensation for personal injury done to the bankrupt, and any damages or compensation recovered by the bankrupt in respect of such an injury: Bankruptcy Act 1966 (Cth), par 116(2)(g). That right does not form part of the property of the bankrupt that vests in the trustee in bankruptcy: see Bankruptcy Act 1966 (Cth), subs 58(1) and definition of "the property of the bankrupt" in subs 5(1) of that Act. Accordingly, Ms Cook was entitled in her own name in an ordinary action to sue Pasminco for damages for personal injury. If she had done so, Pasminco would have been in a position akin to that in which it now finds itself, that is, it would have been faced with a claim by a person unable to satisfy an adverse costs order.
32 As between Pasminco and group members who are not representative parties and who would have been able to satisfy, wholly or partially, a costs order in favour of Pasminco, the position would have been otherwise. Those group members would have been advantaged, and Pasminco commensurately disadvantaged, by the representative nature of the present proceeding as compared with their respective positions in an ordinary proceeding brought by them against Pasminco. But I do not accept the submission which I think Pasminco is obliged to make, that is, that the Solicitors should have chosen as representative party someone other than the bankrupt Ms Cook with the objective of ensuring that the balance of advantages and disadvantages of the representative proceeding device was tilted more favourably to Pasminco than to such group members.
33 For the above reasons, there is no substance in the submission that Ms Cook's status as an undischarged bankrupt favours the making of an order that the Solicitors pay Pasminco's costs.
(b) The Solicitors' conduct in publicising and promoting the proceeding as a group proceeding
34 I accept, as Pasminco submits, that the present case is not the ordinary one in which a person who has, or believes he or she has, a grievance, takes the initiative of consulting solicitors, then instructs them, on advice, to commence a proceeding. Rather, the proceeding was conceived of by the Solicitors. They became aware of what they perceived to be the existence, or possible existence, of causes of action in residents of Cockle Creek and Port Pirie. I accept that they "formulated and developed" the proceeding as a representative or group proceeding and that they publicised it and sought out potential group members. There are in evidence numerous newspaper extracts extending over a period commencing on 29 February 2000 (the application which commenced this proceeding was filed on 18 February 2000 and Pasminco's motion for summary dismissal was heard on 9 May 2000) in which publicity was given to the proceeding. The Solicitors publicised a toll-free telephone number through which interested persons were able to make enquiries.
35 In cross-examination, Mr Gambin conceded that he thought it was a good thing for the Solicitors to gain exposure so that contact could be made with individuals who might be interested in becoming group members. His cross-examination included the following:
"What you are saying ... was that you wished to publicise the fact of the litigation against Pasminco so that more potential members of the class came forward?--That's correct, yes....
Mr Gambin, may I suggest to you a reason why you wanted to publicise the no win no fee aspect of your arrangements with the plaintiffs [sic - applicants], it was because that would encourage other members of the class to come forward and join the litigation, wouldn't it?--Well, yes, I would agree with that statement, yes."
36 I do not find the present consideration persuasive. As ever, I must assume that Pasminco may well be liable in negligence or nuisance or both to persons who lived at Cockle Creek and Port Pirie or owned homes there (equally, Pasminco may not be liable - there has simply been no exploration of the issue). I must also assume that a purpose of Part IVA of the FCA Act is to provide a means by which enforcement of the legal rights of such persons is to be facilitated. Against this background, and having regard to the fact that restraints relating to professional conduct of former times do not stand in the way, the conduct of solicitors in at least making known to the general public that a group proceeding is contemplated or is on foot and inviting interested persons to contact them seems to be quite acceptable. (I would expect solicitors to publicise proceedings in appropriately restrained, measured and moderate terms.)
37 In any event, it is not clear to what extent the various newspaper reports resulted from approaches made by journalists as distinct from the taking of an initiative by or on behalf of the Solicitors. The evidence certainly does not establish that it was the Solicitors who were responsible for all of the newspaper reports in evidence before me.
38 For the above reasons, I am not persuaded by the fact that the Solicitors publicised the proceeding and invited prospective group members to contact them, to think that they should be ordered to pay Pasminco's costs.
(c) The Solicitors' pecuniary interest in the proceeding
39 A factor which may properly be taken into account in favour of the making of an order that a non-party pay costs is the fact that the non-party has an "interest" in the litigation or "stands to profit" from it. According to an article headed "Small firm takes on real heavyweight" in the Australian Financial Review of 22 September 2000 (page 20), the Solicitors were conducting the proceeding on a "no win, no fee" basis, and if it failed, the Solicitors, not the clients, would bear the costs. The article continued:
".... But with risk comes the potential for financial returns.If it wins, like most class action lawyers, it will charge the clients a normal fee plus a loading, which Mr Gambin said was flexible if the damages awarded to the clients were relatively small.
The standard loading will be based on the firm's normal fees and will be independent of any final damages awarded to the clients."
40 Pasminco issued a subpoena to Mr Gambin requiring him to produce documents including the Solicitors' retainer, fee or costs agreement. By notice of motion filed on 1 August 2000, the Solicitors moved to set aside the subpoena. On the hearing, however, the position was resolved between the parties as to all documents except the costs agreement. On the hearing the only issue debated was whether access to the costs agreement should be refused on the ground of legal professional privilege. I granted to counsel for Pasminco access to the costs agreement with the exception of certain parts, the purpose of which, it seemed to me, was to convey legal advice. I dismissed the Solicitors' motion but made it clear that I was reserving the question of costs. I said that I would give my reasons for my decision when delivering reasons on the disposal of Pasminco's motion.
41 The parties were agreed that the privilege question was governed by general law principles, not by s 118 or s 119 of the Evidence Act 1995 (Cth), since the question before me was whether the Court should allow inspection of the document, not whether it should be admitted into evidence: cf Northern Territory v GPAO [1999] HCA 8; (1998) 196 CLR 553 at 571; Esso Australia Resources Ltd v Commissioner of Taxation [1999] HCA 67; (1999) 168 ALR 123 (HC) at [3], [16]; Mann v Carnell [1999] HCA 66; (1999) 168 ALR 86 (HC) at [27].
42 The issue under the general law is whether the costs agreement between Ms Cook and the Solicitors was created for the dominant purpose of the giving or receiving of legal advice or the dominant purpose of use in existing or anticipated litigation: Esso Australia Resources Ltd v Commissioner of Taxation, above.
43 The parties' submissions addressed several issues with which I do not find it necessary to deal. With the parties' consent, I inspected the undated "Conditional Costs Agreement between Solicitor and Client" entered into by Ms Cook and the Solicitors. Generally, its nature is that of an agreement by Ms Cook to instruct the Solicitors to conduct a representative action in this Court seeking declarations and damages together with interest and costs, on behalf of all those persons in Australia who had been adversely affected by pollution by lead and other toxic substances emanating from Pasminco's lead smelters. The document is expressed as addressed to Ms Cook, e.g.,
"1. The work you require us to do is as follows: Take your instructions..."
and
"3A. We will charge you, subject to the successful outcome of the Work..."
44 The researches of counsel did not reveal any Australian case in which it had been determined whether a costs agreement, in a class action or otherwise, attracted legal professional privilege.
45 Pasminco refers to the following United States authorities which are against the existence of the privilege in respect of such a document: In re Grand Jury Matter No 91-01386, 969 F 2d 995 (1992) (USCA, 11th circuit); United States v Hodge 548 F 1347 (1977) (USCA, 9th circuit); In Re Osterhoudt No 83-5807, 722 F 2d 591 at 593, (1993) (USCA, 9th circuit); Vingelli v United States of America 992 F 2d 449 (1993) (USCA, 2nd circuit).
46 Claims of privilege have not been upheld in relation to a solicitors' trust account client ledger (Packer v Deputy Commissioner of Taxation [1985] 1 Qd R 275); solicitors' timesheets (R v Manchester Crown Court; ex parte Rogers [1999] 1 WLR 832); solicitors' conveyancing files (R v Crown Court at Inner London Sessions; ex parte Baines & Baines [1987] 3 All ER 1025) and memoranda of fees not revealing legal advice (Lake Cumberline Pty Ltd v Effem Foods Pty Ltd (1994) 126 ALR 58).
47 In my opinion, generally, an agreement between solicitors and their prospective client as to the terms of retainer of the solicitors does not attract either kind of legal professional privilege mentioned: the agreement is not created for the dominant purpose of the giving or receiving of legal advice or of being used in existing or anticipated legal proceedings. A costs agreement is a bundle of mutual and reciprocal commitments between intending solicitor and client. It is entered into by parties whose interests are, at the time, generally opposed. Generally speaking, the solicitors are entitled to negotiate the terms of the agreement in their own interests. Once it is appreciated that a costs agreement is an agreement between persons who are about to enter into the relationship of solicitor and client, there is no obvious reason why such an agreement, as a class of document, should be the subject of legal professional privilege.
48 But as noted earlier, the present costs agreement is expressed in the form of statements by the Solicitors to Ms Cook, and some of those statements do constitute the giving of legal advice. For example, clause 4 commenced, "It is impossible for us to say, at the commencement of your claim, exactly...". Clause 13 commenced, "We have advised you that...".
49 It was for this reason that I did not allow access to clause 4 together with the annexure referred to in it, and the opening words of clause 13 (for reasons of confidentiality, access to the remainder of the document was confined to counsel until further order).
50 Pasminco submitted that if the costs agreement was the subject of legal professional privilege, the privilege had been waived. I have decided that only the passages just identified attracted the privilege. The conduct on which Pasminco relied as constituting waiver was that of Mr Gambin in describing to a journalist the basis on which the Solicitors had undertaken the case ("no win no fee", but the Solicitors' normal fees plus a loading if successful) for use by the journalist in an article she was writing about the proceeding. The journalist, Ms Cherelle Murphy, published this information in her article in the Australian Financial Review mentioned earlier. Senior counsel for Pasminco accepted that if a costs agreement contained legal advice, the waiver on which he relied would not operate in relation to the resulting privilege. That is the position here: there is no hint in the article of the matter the subject of the advice.
51 As this proceeding is now determined, I see no reason to vary the terms on which, on 16 October, I gave access in respect of the remainder of the costs agreement to counsel for Pasminco until further order.
52 I turn now to the terms on which the Solicitors were retained. These were, in substance, that if the client lost the case the Solicitors would not be entitled to charge the client fees, but that the client would pay a premium of 25 per cent on all charges and expenses incurred "at the successful completion of the matter".
53 Pasminco submits that this evidence shows that the Solicitors had a "financial interest" in the litigation for the purpose mentioned. I do not think there is substance in the submission. In a sense it is true that the Solicitors did have an interest in the outcome. But the fact that they were not to be paid at all if the proceeding failed was a quid pro quo of their right to receive the 25 per cent uplift factor if they succeeded. Not surprisingly, Pasminco did not adopt the position that there was no real chance of the proceeding's failing with the result that the quid pro quo was illusory.
54 Accepting that this kind of arrangement is permitted in order to facilitate the bringing of claims that might otherwise not be brought at all, I am not persuaded that it tells in favour of the making of an order for costs against the Solicitors. The Solicitors' position was far different from that of a non-party whose interest explains the bringing of a proceeding. Unlike such a person, the Solicitors were not to be entitled to the fruits of the proceeding or even to a proportion of them.
(d) The ground on which the proceeding was dismissed as incompetent
55 Cases to which I referred in my reasons for judgment of 12 May 2000 establish that the accrued jurisdiction of the Court will be attracted only if the federal claims are "genuinely made and not merely colourable" (Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd [1981] HCA 7; (1981) 148 CLR 457 at 498-499 (Gibbs J)) and that the accrued jurisdiction is not attracted where the federal claims are "colourable" and are made for the purpose of "fabricating jurisdiction" (Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212 (FC) at 219). I said I would conclude that the federal claims were not "genuinely made" and were "colourable" and "fabricated" if they were obviously doomed to fail, unless there was evidence to the contrary. There was no evidence to the contrary. The Solicitors did not, for example, adduce testimony of a belief that the federal claims had a chance of succeeding or that in commencing the proceeding they acted on the favourable advice of counsel. Rather, the Solicitors relied on three matters: the fact that ss 75AD and 75AG had not previously been judicially construed; the fact that the sections provided a régime of strict liability; and the fact that the applicants, through counsel, did in fact resist Pasminco's motion and make submissions in support of the existence of the causes of action under the sections. But I did not find those considerations of any cogency.
56 I concluded that the federal claims were indeed "doomed to fail", "quite hopeless" and "clearly untenable". In the absence of evidence suggesting otherwise, on that basis I also concluded that they merited the descriptions of "colourable", "not genuine" and "fabricated", with the result that the accrued jurisdiction was not attracted.
57 The relationship between the "doomed to fail" ("quite hopeless", "clearly untenable") test and the "not genuine" ("colourable", "fabricated") test had been discussed by Wilcox J in Fitzroy Motors Pty Ltd v Hyundai Automotive Distributors Australia Pty Ltd (1995) 133 ALR 445 (IRCA) at 450, and by Finkelstein J in WG & B Manufacturing Pty Ltd v Tesla Farad Pty Ltd [1999] FCA 1776, to both of which I referred in my earlier reasons (at [12]). In Fitzroy, Wilcox J stated (at 450):
"I think that the test adopted in Burgundy Royale was simply a test of genuineness; the primary claim must not be a sham claim for the purpose of fabricating a jurisdiction that would not otherwise exist. If the claim was unarguable, this would tend to suggest that it was not being genuinely made and that the purpose of the claim was to fabricate jurisdiction... [I]t is at least theoretically possible for there to be a case where the primary claim is unarguable, but the applicant persuades the court that the claim was not fabricated. In such a case, the court will not lack jurisdiction to determine the associated claim." (my emphasis)
58 In WG & B Manufacturing, Finkelstein J stated (at [11]):
"If the federal claim is colourable in the sense that it was made for the purpose of fabricating jurisdiction, of course the jurisdiction of the court is not enlivened: [his Honour referred to Fitzroy]. How is the genuineness of the claim to be determined? One way is to ask whether the federal claim is bound to fail, that is to say, to ask whether the claim is unarguable. If the federal claim is hopeless then it is difficult to see how an applicant could contend that it was pursuing the claim bona fide." (my emphasis)
59 Although they knew that by the present motion a costs order was being sought against them, the Solicitors still did not adduce evidence as to their state of mind in relation to the federal claims or as to the course of events which led to the inclusion of them. Again they did not lead evidence that any of them believed that the federal claims had a chance of succeeding or that they had obtained counsel's advice in favour of propounding them. I have no doubt that the federal claims were chosen and formulated by the Solicitors or by counsel or by both. Yet the TP Act remedies against the manufacturers of defective products would not naturally occur to the mind of a lawyer who was contemplating injury to health caused by exposure over a long period to smelter emissions: the natural legal home of facts of that kind is the tort of negligence or of nuisance.
60 I can see no alternative to adhering to my conclusion on Pasminco's earlier motion for summary dismissal: that the federal claims were "colourable" and designed to "fabricate" jurisdiction. Relevantly for present purposes, I would add that they were so designed "by the Solicitors".
61 Against the above factual background, I turn to apply the relevant legal principles governing the circumstances in which a non-party may be ordered to pay costs. The discretion has been discussed in Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 ("Knight"); White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169 (FCA/Goldberg J) ("White Industries") at 229-231 (aff'd [1999] FCA 773; (1999) 87 FCR 134); and Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 44 ATR 315 (FCA/FC) ("Levick") at pars 43, 44, 45, 50.
62 In Knight, orders for costs were made against the receivers and managers of two companies. They had been appointed by two banks that held mortgage debentures. In causing the companies to litigate, the receivers and managers had, obviously, been acting for the benefit of the banks. The case was concerned with the jurisdiction of the court to order the receivers and managers, as distinct from the company and parties, to pay costs. Mason CJ and Deane J stated (at 192-193):
"For our part, we consider it appropriate to recognize a general category of case in which an order for costs should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation. Where the circumstances of a case fall within that category, an order for costs should be made against the non-party if the interests of justice require that it be made."
In the same case Dawson J stated (at 202):
"The cases therefore establish a long-asserted jurisdiction to award costs in appropriate cases against a person who is not a party to the proceedings where that person is the effective litigant standing behind an actual party or where there has been a contempt or abuse of the process of the court."
63 In White Industries, Goldberg J reviewed the authorities on the jurisdiction to order non-parties to pay costs. His Honour emphasised that in accordance with the authorities, something more than the hopelessness of a case is required. His Honour made this point as follows (at 231):
"I consider there are limitations on the proposition that commencing or maintaining proceedings which have no or substantially no prospects of success may result in a costs order being made against a practitioner. Something more must be added to the equation such as, for example, an ulterior purpose, abuse of process or a serious dereliction of duty." (my emphasis)
Later his Honour referred to De Sousa v Minister for Immigration, Local Government and Ethnic Affairs (1993) 41 FCR 544 in which French J ordered the applicant's solicitor to pay three-quarters of the respondent's costs on the basis that the application lodged by the solicitor on behalf of the applicant for a temporary entry permit
"...reflected a serious failure to give reasonable attention to the relevant law and facts as did the proceedings instituted in this court."
Again, Goldberg J thought that French J had founded upon unreasonableness in the initiation or continuance of an action which had no, or substantially no, chance of success, as conduct which attracted the exercise of the jurisdiction. His Honour continued (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.Expressing the principle this way accommodates the competing principle that a party is entitled to have a practitioner act for him or her even in an unmeritorious case." (my emphasis)
Goldberg J ordered Flower and Hart, the solicitors for the applicant in the proceeding, to pay the costs of the respondent (except those on its cross-claim) on an indemnity basis, characterising the commencement of the proceeding as "an unreasonable institution of a proceeding with no prospects of success" (at 251).
64 In Levick, a solicitor had, on behalf of a client presented with a creditor's petition by the Deputy Commissioner of Taxation, opposed the petition on various Constitutional grounds. On the hearing of the petition, counsel for the debtor was unable to advance any coherent argument to support those grounds and the primary Judge made an order for costs against the solicitor. A Full Court of this Court cautioned against a too ready making of orders that solicitors pay costs because of the importance in the administration of justice that lawyers be available to serve the interests of persons with weak cases. Wilcox, Burchett and Tamberlin JJ stated (at [44]):
"...unreasonable conduct must be more than acting on behalf of a client who has little or no prospect of success. There must be something akin to abuse of process; that is, using the proceeding for an ulterior purpose or without any, or any proper, consideration of the prospects of success." (my emphasis)
Their Honours noted that the primary Judge had inferred that the spurious arguments which had occupied the Court "clearly originated with the lawyers". Their Honours distinguished situations in which a difficult case is taken to a lawyer by a client who wishes it to be pursued in court and in which a lawyer must present, on instructions, a case which the lawyer regards as bound to fail. Their Honours said (at [45]):
"This is a case where the lawyers themselves thought up the `legal' points and advanced them on behalf of the client. It is unreasonable, in the sense of a dereliction of duty (to both the client and the court) for any lawyer to take that course without first being satisfied that the points are, at least, seriously arguable. We agree it was not necessary in the present case that the lawyers be satisfied that the points would succeed; but it was necessary they be satisfied there was a rational basis upon which they might succeed."
The Court concluded that while the jurisdiction to order costs against a solicitor in respect of an unsuccessful issue held to have been pursued in serious dereliction of the solicitor's duty ought to be exercised sparingly and with great caution, nonetheless it had been open to the primary Judge to take that course in the instant case. Whether he should do so was a question committed to the primary Judge's discretion and it was not demonstrated that the discretion had miscarried when he had ordered the solicitor to pay costs.
65 Unfortunately, in my opinion the conduct of the Solicitors in the present case warrants the award of an order that they pay Pasminco's costs on an indemnity basis. The reason is that on the evidence, including the lack of relevant evidence from them explaining the position, I infer that they commenced the proceeding in this Court based on the TP Act claims, without any or any proper consideration of the prospects of success of those claims. If the Solicitors had believed that those claims had had some prospects of success, they could not have been criticised for having launched the proceeding in this Court in order to obtain the advantages they apparently perceived in litigating here. But they were not entitled to commence the proceeding in this Court irresponsibly, recklessly as to whether the federal claims had any prospect of success. Yet it seems to me that this is precisely what they did. If they had responsibly considered the matter, they would have appreciated that the federal claims had no prospect of success at all.
66 In substance, the reasons I have given above for concluding that the Solicitors should pay Pasminco's costs are also my reasons for ordering that the costs be paid on an indemnity basis. In so far as it was brought under Part VA of the TP Act, the proceeding was not only untenable, but was brought irresponsibly without any, or any proper, consideration of the question whether it had any prospect of success; cf Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 400-401; Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234; Re Wilcox; ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151.
67 By "indemnity costs", I mean all of the costs actually incurred by Pasminco excepting costs unreasonably incurred or unreasonable in amount. This formula is to be applied in context. The context here was the limited one of establishing absence of jurisdiction on the basis of the applicants' pleading.
68 There are some unusual features of this case. In all the other cases concerning orders for costs against non-parties of which I am aware, what has been in issue is "litigating at all", whereas the present case is a "wrong court case". Pasminco acted properly in promptly bringing to the Court's attention what I have found to be its lack of jurisdiction. Yet Pasminco's position perhaps involves an inconsistency. It submitted that upon reading the applicants' pleading one sees immediately that the federal claims were "hopeless", "untenable" and "colourable". Yet in order to convince me of this, detailed written submissions were prepared, senior counsel from Sydney and junior counsel from Melbourne appeared, at least one representative of Pasminco's Melbourne solicitors attended court to instruct counsel, and three lever arch files of photocopied cases were provided to the Court. All this suggests that the TP Act claims were not obviously and necessarily doomed to fail, or at least that Pasminco thought that they were not. Yet it was plain to me on a mere reading of the statement of claim that they were.
69 In the context mentioned, the notion of indemnity costs may well exclude as excessive some of Pasminco's costs to which I referred. In the circumstances, I will keep the question of costs before me rather than make the usual order which would allow Pasminco to tax its costs at this stage in the usual way. If the parties cannot agree on the amount of the costs to be paid by the Solicitors, the matter may be restored on 24 hours' notice.
70 I turn next to the question of the costs of Pasminco's motion. Pasminco obtained the order it sought but the issue was arguable, and in fact the Solicitors succeeded, that is, Pasminco failed, on three of the four grounds argued. There will be the usual order for party and party costs on the motion. Because the costs of Pasminco's earlier motion for summary dismissal and of its present motion are interrelated, the same restraint on taxation will apply.
CONCLUSION
71 For the above reasons the Court's orders will be that:
1. Subject to order (2), the applicants' solicitors, Coleman & Greig, pay the respondents' costs of the proceeding on an indemnity basis, to the intent that those costs will be the respondents' costs actually incurred excluding costs unreasonably incurred and costs to the extent that they are unreasonable in amount.
2. The applicants' solicitors, Coleman & Greig, pay the respondents' costs of the respondents' motion brought by notice of motion filed on 28 June 2000 on the usual party and party basis.
3. The respondents not be at liberty to tax the costs referred to in (1) or (2) without leave of the Court.
4. By 15 December 2000 the applicants and the respondents file and serve submissions as to the order for costs that should be made on the applicants' motion brought by notice of motion filed on 1 August 2000 seeking an order setting aside the respondents' subpoena for production issued on 13 July 2000 and addressed to Paul G Gambin of Coleman & Greig, Solicitors.
5. Coleman & Greig and the respondents have liberty to apply on 24 hours' notice.
I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. |
Associate:
Dated: 12 December 2000
Counsel for the Applicants and for Coleman & Greig: |
Mr J E Rowe |
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Solicitor for the Applicants and for Coleman & Greig: |
Coleman & Greig |
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Counsel for the Respondents: |
Mr B R McClintock SC with Mr D J Batt |
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Solicitor for the Respondents: |
Arthur Robinson & Hedderwicks |
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Date of Hearing: |
16 October 2000 |
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Date of Judgment: |
12 December 2000 |
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