Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales v Public Sector Management Office and anor [2004] NSWIRComm 209 (9 September 2004)

Last Updated: 9 September 2004

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION : Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales v Public Sector Management Office and anor [2004] NSWIRComm 209

FILE NUMBER(S): 6627

HEARING DATE(S): 21/07/2004, 22/07/2004

DECISION DATE: 09/09/2004

PARTIES:

APPLICANT

Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales

FIRST RESPONDENT

Public Sector Management Office

SECOND RESPONDENT

Legal Aid Commission

JUDGMENT OF: Marks J

LEGAL REPRESENTATIVES

APPLICANT

Mr M Gibian of counsel

Solicitor: Mr A Howell

Jones Staff and Co

RESPONDENT

Mr S E J Prince of counsel

Solicitor: Ms L Brooker

Legal Aid Commission

CASES CITED: Adamson v Jarvis (1824-34) All ER Rep 120

Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621

in Council of Civil Service Unions v Minister for Civil Service (1985) 1 AC 374

Han v Minister for Immigration and Multicultural Affairs (1999) FCA 422

Knaggs v J A Westaway & Sons Pty Ltd (1996) 40 NSWLR 476

MacDonald Pty Ltd v Hamence (1984) 53 ALR 136

Minister for Arts, Heritage and Environment v Peko-Wallsend Ltd (1987) 15 FCR 274.

Minister for Immigration and Ethnic Affairs v Conyngham (1986) ALR 441

Pupazzoni v Freemantle Fisherman's Co-operative Society Ltd [1981] AILR 168 (SC WA)

Re Famatina Development Corporation Ltd [1914] 2 Ch 271

Robinswood Pty Ltd v Federal Commissioner of Taxation (1998) 39 ATR 305

Stoddart v Able Technical Pty Ltd and anor (unreported, 19 May 2004, file number 2001/13332)

Taranto (1980) Pty Ltd v Madigan (1988) 15 ALD 1

LEGISLATION CITED: Administrative Decisions Tribunal Act 1997

District Court Act s 148E

Employees Liability Act 1991 s 5

Industrial Relations Act 1996 s 10

Legal Profession Act 1987 ss 198M 198M(1)(a) 198L

Legal Aid Commission Act 1979 s 47

JUDGMENT:

- 30 -

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

CORAM: MARKS J

Thursday 9 September 2004

Matter No IRC 6627 of 2003

PUBLIC SERVICE ASSOCIATION AND PROFESSIONAL OFFICERS' ASSOCIATION AMALGAMATED UNION OF NEW SOUTH WALES v The LEGAL AID COMMISSION OF NEW SOUTH WALES/PUBLIC SECTOR MANAGEMENT OFFICE AND ANOR

Application under s 130 of the Industrial Relations Act 1996

JUDGMENT

[2004] NSWIRComm 209

1 These proceedings were initiated by means of a dispute notification concerning the circumstances of Mr Michael Sergent, a solicitor employed by the Legal Aid Commission of New South Wales at its Wollongong Office. Mr Sergent was acting for some plaintiffs in proceedings in the District Court. He was threatened by solicitors for the Commonwealth of Australia, which is the defendant in those proceedings. The threat was that the Commonwealth would make an application for a personal costs order against Mr Sergent if the plaintiff's claim failed. The dispute notification complained that Mr Sergent had sought an indemnity against any personal costs order that might be made against him. Although an application for indemnity would be supported by the Legal Aid Commission, application would not be made until after proceedings for a personal costs order had been commenced or were "imminent". The dispute notification complained that Mr Sergent was "left in an intolerable situation" and asked that an award be made by this Commission to provide indemnity for solicitors employed by the Legal Aid Commission against any costs orders made against them personally.

2 The proceedings were the subject of conciliation by a member of this Commission which was unsuccessful. The arbitrated proceedings were constituted by an application for the making of an award to be entitled "Legal Aid Commission (indemnification of employed solicitors) Award". The application sought that the following conditions be provided by such an award, namely:

"1. A solicitor employed by the Legal Aid Commission shall be indemnified by the Legal Aid Commission with respect to the whole of any order made against the solicitor pursuant to s 198M of the Legal Profession Act 1987 in any matter, except where the conduct of the solicitor giving rise to the making of an order:

(i) constitutes "serious and wilful misconduct" as that phrase is construed under s 5 of the Employees Liability Act 1991; or

(ii) did not occur in the course of and did not arise out of the solicitor's employment.

2. This award shall apply to the employment of solicitors by the Legal Aid Commission in New South Wales. It shall commence on and from [date of filing dispute notification] and have a nominal term or three years."

3 The grounds, reasons and particulars relied upon by the applicant Union were as follows:

"1. Under s 198M of the Legal Profession Act 1987, where it appears to a court, in relation to proceedings taken on a claim for damages, that a barrister or solicitor has provided legal services to a party without reasonable prospects of success, the court may order that the solicitor or barrister repay costs ordered against the party to which legal services have been provided, or indemnify a party other than the party to which legal services have been provided against its costs.

2. Solicitors employed by the Legal Aid Commission are required, as part of their employment, to supply legal services to parties as directed by their managers from time to time, including in relation to claims for damages. It is not necessarily for such solicitors to determine whether such claims have reasonable prospects of success.

3. There is in any event usually an inherent degree of uncertainty involved in assessing whether a particular claim for damages has reasonable prospects of success.

4. Solicitors employed by the Legal Aid Commission may be exposed to orders under s 198M of the Legal Profession Act in circumstances where they have not been negligent or been guilty of any professional misconduct or unprofessional conduct.

5. The financial consequences of a costs order being made against an employed solicitor of the Legal Aid Commission are potentially ruinous.

6. One solicitor employed by the Legal Aid Commission, Mr Michael Sergent, has already been threatened by the solicitors for a party against which he is acting in a claim for damages that an order under s 198M of the Legal Profession Act will be sought against him personally should the claim not succeed. This has caused him considerable worry and distress.

7. It is unreasonable and unfair that a solicitor should be potentially liable for an order under s 198M of the Legal Profession Act in relation to legal services which the solicitor has been authorised and required to provide by the employer as part of his or her employment.

8. The award provision sought by the applicant would constitute a fair and reasonable condition of employment under s 10 of the Industrial Relations Act 1996.

9. The award sought ought to be made upon the grounds and reasons set out above, or upon such other grounds as seem appropriate to the Commission".

4 The making of the award was resisted by the Legal Aid Commission on a number of grounds including public policy considerations and the fact that it was unnecessary that any award be made.

5 In order to deal with the proceedings it is necessary to set out some factual matters established from the documentary and oral evidence given in the proceedings, and also to deal with a number of questions of law.

6 Mr Sergent was admitted as a solicitor of the Supreme Court of New South Wales on 6 November 1987. He has been employed by the Legal Aid Commission of New South Wales ("the Commission") since April 1996. The Commission is constituted by the Legal Aid Commission Act 1979. Its principal function is said by s 10 of the Act to "provide legal aid and other legal services" in accordance with the Act. There can be no doubt that the Commission performs an important function in connection with the administration of justice in New South Wales. Legal assistance is provided directly by solicitors who are employees of the Commission and, in addition, arrangements are made by the Commission for assistance to be granted by using private practitioners. Applicants for legal aid are subject to both a means test and a merit test.

7 The merit test is described in a policy document issued by the Commission; a copy of which has become evidence in these proceedings is dated July 2003. The merit test differs depending upon whether the legal assistance is required in connection with "Commonwealth matters" or "State matters". In both sets of matters one of the policy considerations to be applied is whether the applicant for legal aid has reasonable prospects of success in the proceedings. This is to be balanced against considerations covering the appropriateness in the circumstances of spending limited public legal aid funds. It is not necessary to discuss in any detail various types of matters which are both in the Commonwealth and State law areas, save to remark that they are extensive.

8 Of importance, however, in the context of these proceedings is the fact that legal aid may be granted for test cases and public interest cases under the State guidelines. In addition, legal aid is available "for public interest and environment matters where the activity or proposed undertaking raises a matter of substantial public concern about the environment".

9 Legal aid is available on a contributory and non-contributory basis.

10 In practice, a decision as to whether legal aid is to be granted in particular circumstances is made by the solicitor to whom the matter is allocated within a particular office. In each office there is a structure allowing for supervision by senior solicitors of solicitors with lesser seniority.

11 Mr Sergent gave evidence of having been involved in a number of high profile cases on behalf of legally aided clients.

12 The particular proceedings which have given rise to this dispute notification were commenced in the District Court of New South Wales on behalf of persons to whom legal aid had been granted. Prior to the statement of claim being issued on behalf of those persons Mr Sergent had obtained advice from a barrister that there were reasonable prospects of success and he was of the same opinion. At the time that the proceedings were filed in the District Court a certificate was issued under s 198L of the Legal Profession Act 1987. That certificate was issued in the name of the solicitor on the record, who was then Mr Richard Funston, whom I understand was then the Deputy Chief Executive Officer, Legal, of the Commission. The certificate was signed by Mr Sergent on behalf of Mr Funston. Mr Sergent's name appears prominently on the certificate. The certificate was to the effect that "there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim in these proceedings has reasonable prospects of success". Although signed by Mr Sergent on behalf of Mr Funston, the certificate was actually given by Mr Sergent.

13 The defendant in the proceedings was named as the Commonwealth of Australia.

14 The summons was filed in the District Court on 18 July 2002. On 29 August 2002 Mr Sergent wrote to solicitors then acting for the defendant advising that the plaintiffs were legally assisted persons and drawing the attention of those solicitors to the provisions of s 47 of the Legal Aid Commission Act 1979. Section 47 provides that where costs are awarded against a legally assisted person, the Commission is to pay the whole of those costs and the legally assisted person is not liable for the payment of the whole or any part of those costs (with certain exceptions which are not, presently, relevant) but that the maximum amount that the Commission shall be liable to pay is $5,000 (again with certain exceptions). It will be readily appreciated that the effect of s 47 would be to limit the Commonwealth of Australia's right to claim costs, if the plaintiffs lost the proceedings in the District Court, to $5,000.

15 By letter dated 29 August 2002 addressed to Mr Sergent, Minter Ellison, solicitors, under the hand of Mr Tony O'Reilly, partner, said that they had been instructed to act on behalf of the Commonwealth of Australia in the proceedings. By letter dated 3 October 2003, again addressed to Mr Sergent, and headed "without prejudice except as to costs", Minter Ellison under the hand of Mr O'Reilly said in part:

"In your letter to our client dated 29 August 2002 you referred to s 47 of the Legal Aid Commission Act 1979 (NSW). Having regard to the matters set out above, on the basis of provable facts and on any view of the law, in our view your clients' case does not have reasonable prospects of success. Accordingly, both you and your counsel may be liable to an order under s 198M(1)(a) of the Legal Professional Act to pay our clients' costs of the proceedings on an indemnity basis. There is nothing in the Legal Aid Commission Act to insulate you or your counsel from such an order. In the event that your clients' claim fails, we put you on notice that we are instructed to seek an order against both you and your counsel that our client be indemnified in respect of its costs".

16 I observe, for present purposes, that s 198M of the Legal Profession Act allows a Court in certain circumstances to direct that a solicitor or barrister who has "provided legal services to a party without reasonable prospects of success" to order that the solicitor or barrister repay costs of a party to whom those services were provided which that party might be ordered to pay to any other party, and to make an order directing the solicitor or barrister to indemnify any other party against the whole or any part of the costs payable by the party indemnified. I shall return in detail to the provisions of s 198M later in these reasons for judgment. It is sufficient to note for present purposes that there is an entitlement to seek an order for costs in circumstances where a solicitor or barrister has provided legal services to a party without reasonable prospects of success.

17 It should be observed, as was commonly acknowledged in these proceedings, that there was no forensic advantage to the Commonwealth of Australia, through its solicitors, Minter Ellison, in threatening to make an application under s 198M against Mr Sergent and against any barrister involved in the proceedings. Such a threat could have no impact upon the plaintiffs in the proceedings because they were indemnified and protected from any costs order by reason of s 47 of the Legal Aid Commission Act. Accordingly, the only conceivable justification for the making of that threat by Minter Ellison, which it did so specifically on instructions, was to attempt to intimidate and bully Mr Sergent and any barrister involved in the proceedings in some way. Conceivably this might be directed towards a re-examination of an opinion previously expressed, a withdrawal of legal aid, or some endeavour by Mr Sergent or the barrister to persuade the plaintiffs to settle or to discontinue the proceedings.

18 If the letter was written with the attempt to intimidate Mr Sergent and any barrister involved in the proceedings, it was successful. The barrister returned his brief and declined to act further in the proceedings. This caused the proceedings to be adjourned. Mr Sergent was constrained to seek advice from the Legal Aid Commission as to whether he would be indemnified against any order made against him under s 198M. The inability of the Legal Aid Commission to satisfy Mr Sergent has been the catalyst for the initiation of these proceedings.

19 Whilst it is not relevant for me to come to any conclusion about the conduct of the Commonwealth of Australia, aided and abetted as it was by Minter Ellison, solicitors, or to characterise that conduct in any manner, it is, in my opinion, relevant to take into account that conduct of this kind is designed to and does impact adversely upon the ability of members of the legal profession to represent the interests of their clients in a manner which is appropriate to, and consistent with, the proper administration of justice in New South Wales. So much was acknowledged by the President of the Law Society of New South Wales in an announcement made to solicitors on 6 August 2004.

20 Correspondence between Mr Sergent and the Commission highlights the controversy between the parties to these proceedings concerning some form of indemnification available to Mr Sergent in the event that a costs order was made against him under s 198M.

21 I should state at the outset that the Commission, through its Chief Executive Officer, Mr Bill Grant, has expressed concern for, and sympathy with, Mr Sergent's position with respect to the threat which has been made against him. In a letter to the Director General of the Attorney-General's Department Mr Grant said that he was satisfied that the proceedings which had been commenced in the District Court had been commenced on the basis of counsel's advice as to the plaintiffs' prospect of success and that the conduct of the solicitor had therefore been reasonable. He indicated that he would support an application for assistance under certain guidelines, the nature of which I shall discuss shortly. Mr Grant has also written to the General Secretary of the Public Service Association of New South Wales confirming that he would support an application for assistance at an appropriate time, that he had initiated a review of internal issues and discussions and that he was "looking to identify measures the implementation of which will minimise the risk of personal cost orders being made". Mr Grant has also written to the First Assistant Secretary, Legal Services and Native Title Division, within the Commonwealth Attorney-General's Department indicating inter alia that what had occurred was "a highly undesirable practice. Attempts by solicitors to intimidate their opponents by the use of threats of this nature, with the objects of inducing them to advise their clients to cave in, represent an unacceptable means of seeking to achieve a desired outcome to litigation. Practitioners should be able to exercise their professional judgment as to the merits of their clients' cases objectively, dispassionately and with all the expertise at their disposal, free from distractions posed by the tactical use of threats to seek personal cost orders against them". After commenting that the "intimidatory threats" impacted adversely on the requirement of the Commonwealth to act as a model litigant, Mr Grant went on to say:

"Furthermore, such tactics also have the potential to damage the standing of the legal profession in the wider community. It is clearly undesirable that any public perception arise, no matter how erroneously, that the outcome of litigation, or the quality of legal services provided, can be influenced by the ability of one legal practitioner to intimidate another through the use of threats to attack the second practitioner's personal pecuniary circumstances."

22 It does not appear that Mr Grant received any response to that letter, or, at least, no such response has been submitted into evidence in these proceedings.

23 By letter dated 27 January 2004 Mr Grant also drew the attention of the President of the Law Society of New South Wales to the conduct of the solicitors acting for the Commonwealth in the context of threats to invoke s 198M of the Legal Profession Act. He referred to similar occasions on which threats of this kind had been made to solicitors employed by the Commission.

24 As I have said, there can be no doubt that the respondent to these proceedings has expressed support for the circumstances of Mr Sergent and, indeed, has to the extent of its current resources endeavoured to protect Mr Sergent. However, the PSA has submitted that what has been proposed by the Commission to date is insufficient to protect the industrial interests of its members, including, in particular, Mr Sergent.

25 As a result of the evidence given in the proceedings and the submissions made by the parties it is possible to identify the discrete issues which arise for determination by this Commission. Because the matter is finely balanced I propose to deal with each issue in some detail.

1. IS THE AWARD SOUGHT WITHIN JURISDICTION AND POWER?

26 This matter was not seriously in contention during the course of these proceedings. However it was conceded by the PSA that the award would not apply to all employees of the Commission because some were employed at a level that was not amenable to an award of this Commission. Apart from this matter, and apart from compliance with the provisions of the Industrial Relations Act generally (including s 14), I am satisfied that the award sought is with respect to a condition of employment and provided that it is "fair and reasonable" to do so, the award may otherwise be made.

2. DOES S.198M OF THE LEGAL PROFESSION ACT APPLY TO MR SERGENT?

27 It was submitted by the Commission that s 198M applied only to the solicitor on the record and not to Mr Sergent. The solicitor on the record for all proceedings in which solicitors employed by the Commission are acting directly for parties is currently Mr Steve O'Connor, the Deputy Chief Executive Officer. All solicitors employed by the Commission sign documents on his behalf in proceedings in criminal, family and civil law matters. The Commission submitted that, as properly construed, s 198M did not apply to employed solicitors. In making this submission the Commission relied on a judgment of the New South Wales Court of Appeal in Knaggs v J A Westaway & Sons Pty Ltd (1996) 40 NSWLR 476, to which I shall refer shortly.

28 It is first necessary to consider the provisions of s 198M. They form part of Division 5C of Part 11 of the Legal Profession Act, the provisions of that Division being as follows:

Division 5C

Costs in civil claims where no reasonable prospects of success

s 198J

Solicitor or barrister not to act unless there are reasonable prospects of success

(1) A solicitor or barrister must not provide legal services on a claim or defence of a claim for damages unless the solicitor or barrister reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.

(2) A fact is "provable" only if the solicitor or barrister reasonably believes that the material then available to him or her provides a proper basis for alleging that fact.

(3) This Division applies despite any obligation that a solicitor or barrister may have to act in accordance with the instructions or wishes of his or her client.

(4) A claim has reasonable prospects of success if there are reasonable prospects of damages being recovered on the claim. A defence has reasonable prospects of success if there are reasonable prospects of the defence defeating the claim or leading to a reduction in the damages recovered on the claim.

(5) Provision of legal services in contravention of this section constitutes for the purposes of this Division the provision of legal services "without reasonable prospects of success" .

s 198K

Preliminary legal work not affected

This Division does not apply to legal services provided as a preliminary matter for the purpose of a proper and reasonable consideration of whether a claim or defence has reasonable prospects of success.

s 198L

Restrictions on commencing proceedings without reasonable prospects of success

(1) The provision of legal services without reasonable prospects of success does not constitute an offence but is capable of being professional misconduct or unsatisfactory professional conduct.

(2) A solicitor or barrister cannot file originating process or a defence on a claim for damages unless the solicitor or barrister certifies that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.

(3) Originating process or a defence on a claim for damages is not to be accepted for lodgement unless accompanied by the certification required by this section. Rules of court may make provision for or with respect to the form of that certification.

s 198M

Costs order against solicitor or barrister who acts without reasonable prospects of success

(1) If it appears to a court in which proceedings are taken on a claim for damages that a solicitor or barrister has provided legal services to a party without reasonable prospects of success, the court may of its own motion or on the application of any party to the proceedings make either or both of the following orders in respect of the solicitor or barrister who provided the services:

(a) an order directing the solicitor or barrister to repay to the party to whom the services were provided the whole or any part of the costs that the party has been ordered to pay to any other party,

(b) an order directing the solicitor or barrister to indemnify any party other than the party to whom the services were provided against the whole or any part of the costs payable by the party indemnified.

(2) The Supreme Court may on the application of any party to proceedings on a claim for damages make any order that the court in which proceedings on the claim are taken could make under this section.

(3) An application for an order under this section cannot be made after a final determination has been made under this Part by a costs assessor of the costs payable as a result of an order made by the court in which the proceedings on the claim concerned were taken.

(4) A solicitor or barrister is not entitled to demand, recover or accept from his or her client any part of the amount for which the solicitor or barrister is directed to indemnify a party pursuant to an order under this section.

198N

Onus on solicitor or barrister to show facts provided reasonable prospects of success

(1) If the court ( "the trial court" ) hearing proceedings on a claim for damages finds that the facts established by the evidence before the court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Division that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success.

(2) If the Supreme Court (when the Supreme Court is not the trial court) is satisfied, either as a result of a finding of the trial court or otherwise on the basis of the judgment of the trial court, that the facts established by the evidence before the trial court do not form a basis for a reasonable belief that the claim or the defence had reasonable prospects of success, there is a presumption for the purposes of this Division that legal services provided on the claim or the defence (as appropriate) were provided without reasonable prospects of success.

(3) A presumption arising under this section is rebuttable and a solicitor or barrister who seeks to rebut it bears the onus of establishing that at the time legal services were provided there were provable facts (as provided by section 198J) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success.

(4) A solicitor or barrister may, for the purpose of establishing that at the time legal services were provided there were provable facts (as provided by section 198J) that provided a basis for a reasonable belief that the claim or the defence on which they were provided had reasonable prospects of success, produce information or a document despite any duty of confidentiality in respect of a communication between the solicitor or barrister and a client, but only if:

(a) the client is the client to whom the legal services were provided or consents to its disclosure, or

(b) the court is satisfied that it is necessary for the solicitor or barrister to do so in order to rebut a presumption arising under this section.

29 There seems nothing within the Act itself that involves any differential approach to legal practitioners who are solicitors and employees rather than legal practitioners who are solicitors and principals. There is nothing within the definitions section (s 3) to this effect, nor do the provisions of Part 10, which deal with complaints and discipline, so differentiate.

30 Part 11 is entitled "Legal Fees and Other Costs". It requires the giving of information by a barrister or solicitor to a client as to the basis for, and the nature of, costs to be charged for legal services. There is provision for the making of cost agreements, the assessment of costs and a process for the settling of disputes about costs. There is consistently a reference within the provisions of Part 11 to the costs of legal services to be provided to the client by a barrister or solicitor. I set out by way of example the provisions of s 175:

s175 Obligation to disclose to clients basis of costs

(1) A barrister or solicitor must disclose to a client in accordance with this Division the basis of the costs of legal services to be provided to the client by the barrister or solicitor.

(2) The following matters are to be disclosed to the client:

(a) the amount of the costs, if known,

(b) if the amount of the costs is not known, the basis of calculating the costs,

(c) the billing arrangements,

(d) the client’s rights under Division 6 in relation to a review of costs,

(e) the client’s rights under Division 4 to receive a bill of costs,

(f) any other matter required to be disclosed by the regulations.

(3) The disclosure to a client is not required to be made by a barrister or solicitor who is retained on behalf of the client by another barrister or solicitor. However, the disclosure to the client is to include the costs of the barrister or solicitor so retained.

31 I observe that s 175 is directed to the cost of legal services to be provided by the barrister or solicitor to the client, but not to the recipient of the costs. Accordingly, s 175 is capable of being construed to require an employed solicitor to disclose to a client the basis of the costs of the legal service to be provided by that employed solicitor.

32 However, this begs the question as to whether a client can be a client of an employed solicitor for the purpose of the Legal Profession Act, whilst concurrently a client of the employer.

33 Similar issues arise in connection with s 184, dealing with costs agreements, which is in the following terms:

s 184 Agreements about costs

(1) An agreement as to the costs of the provision of legal services may be made with a client by:

(a) the barrister or solicitor who is retained by the client to provide the services, or

(b) the barrister or solicitor retained on behalf of the client by another barrister or solicitor.

(2) An agreement as to the costs of the provision of legal services may also be made between the barrister or solicitor providing the services and another barrister or solicitor who retained that barrister or solicitor on behalf of the client.

(3) An agreement under this section is called a "costs agreement" .

(4) A costs agreement is void if it is not in writing or evidenced in writing.

(5) A costs agreement may form part of a contract for the provision of legal services.

(6) A costs agreement may consist of a written offer that is accepted in writing or by other conduct. A disclosure in accordance with Division 2 under section 175 or 176 may constitute an offer for the purposes of this subsection.

34 One might anticipate that a costs agreement would generally be made between a client and the principal of the legal practice providing the legal services, rather than with an employed solicitor. There was no evidence or information provided about these circumstances and, in all probability, it would be futile and inappropriate to examine this matter on the basis of conjecture.

35 In the same way, s 199 does not assist. Its provisions are as follows:

s 199 Applications by clients for assessment of costs in bills

(1) A client who is given a bill of costs may apply to the Manager, Costs Assessment for an assessment of the whole of, or any part of, those costs.

(2) An application relating to a bill of costs may be made even if the costs have been wholly or partly paid. If the costs have been wholly or partly paid, the application is to be made within the period prescribed by the regulations for the purposes of this subsection.

(3) If any costs have been paid without a bill of costs, the client may nevertheless apply for an assessment. For that purpose the request for payment by the barrister or solicitor is taken to be the bill of costs.

(4) In this section, "client" includes:

(a) any person who is a party to a costs agreement relating to legal services for which the bill of costs is given (other than the barrister or solicitor who gave the bill or provided the services), and

(b) any person, being a lessee under a lease, who is given a bill of costs, concerning legal services relating to the preparation of that lease, by a barrister or solicitor acting on behalf of the lessor, and

(c) any person, being a mortgagor under a mortgage, who is given a bill of costs, concerning legal services relating to the preparation of that mortgage, by a barrister or solicitor acting on behalf of the mortgagee.

36 Section 202(1) contains greater particularity. It is in the following terms:

s 202 Application for assessment of party/party costs

(1) A person who has paid or is liable to pay, or who is entitled to receive or who has received, costs as a result of an order for the payment of an unspecified amount of costs made by a court or a tribunal may apply to the Manager, Costs Assessment for an assessment of the whole of, or any part of, those costs.

37 There is reference here to a person who is entitled to receive costs. I assume that that is a reference to the person to whom costs are payable which, in usual circumstances, will be the principals of the practice rather than an employed solicitor.

38 These provisions may be contrasted with the language used in s 198J(1), the provisions of which have been set out earlier. This prohibits the provision of legal services on a claim or defence of a claim for damages by a solicitor or barrister unless there is a reasonable belief as to certain matters. There is reference also in s 198M to the provision of legal services. This raises the question as to whether legal services can only be provided by the principal of a legal practice or whether legal services can, for the purpose of Division 5C, be provided by an employed solicitor. Although s 198M(1) is directed to the provision of legal services, s 198M(4) refers to the demand, recovery or acceptance by a solicitor or barrister of an amount which would otherwise be payable for or by way of indemnity from the client of the solicitor or barrister. Again, in terms of solicitors, this raises the question as to whether a client may be concurrently a client of an employed solicitor as well as a client of the principals of the legal practice.

39 The only decided case on s 198M of the Legal Profession Act to which I was referred is a judgment of his Honour Judge C Phegan in the District Court of New South Wales in Stoddart v Able Technical Pty Ltd and anor (unreported, 19 May 2004, file number 2001/13332). Whilst his Honour canvassed the difficulties which may be encountered by a Court in dealing with applications made for an order under s 198M, his Honour was not called upon to determine the particular issue with which I am confronted in these proceedings, namely whether s 198M can apply to an employed solicitor.

40 The Commission relied on the Court of Appeal judgment in Knaggs to which I have earlier referred. Those proceedings concerned the interpretation of s 148E of the District Court Act which was in the following terms:

148E Liability of legal practitioners for clients’ costs in certain cases

(1) The Court may, at any stage of an action, make one or more of the following orders in respect of a legal practitioner whose serious neglect, serious incompetence or serious misconduct delays, or contributes to delaying, the action:

(a) disallow the whole or any part of the costs between the legal practitioner and his or her client,

(b) direct the legal practitioner to repay to his or her client the whole or any part of the costs which the client has been ordered to pay to any other party,

(c) direct the legal practitioner to indemnify any party other than his or her client against the whole or any part of the costs payable by the party indemnified.

(2) The Court may refer the matter to a costs assessor under the Legal Profession Act 1987 for inquiry and report before making such an order.

(3) The Court may order that notice of such an order against a legal practitioner is to be given to the legal practitioner’s client in a specified manner.

(4) A legal practitioner is not entitled to demand, recover or accept from his or her client any part of the amount for which the legal practitioner is directed by the Court to indemnify a party pursuant to such an order.

(5) Nothing in this section limits the generality of section 148B or any other provision of this Act.

41 A judge of the District Court had ordered an employed solicitor personally to indemnify a client with respect to costs which the client was otherwise required to pay to another party in the proceedings. On appeal it was held that the reference to s 148E of the District Court Act to a solicitor was a reference to a solicitor who was a principal and not to an employed solicitor. The judgment of the Court was delivered by Simos A-JA, with whom Giles and Abadee A-JJA agreed. His Honour emphasised that the District Court was a statutory court, had no inherent jurisdiction to exercise disciplinary powers with respect to solicitors and that s 148E should be construed accordingly. That is, because the emphasis was on costs between a legal practitioner and a client and a relationship of solicitor and client could only be created between the client and the principal, it followed that no question arose of any costs between an employed solicitor and a client. On this basis s 148E was to be construed as applying to principals only and as not applying to employees.

42 His Honour referred to a number of English and Australian authorities which discussed the liability of a principal for misconduct of an employee, including an employed solicitor. However it is not clear from those cases that an employed solicitor may not be exposed to the inherent jurisdiction of a Court to award costs by way of penal or compensatory orders in appropriate circumstances.

43 Mr S E J Prince, counsel for the respondent, undertook research covering provisions of the rules of the Supreme Court of New South Wales which allowed for cost orders to be made against solicitors personally together with comparable provisions applying in the United Kingdom and the USA. Despite Mr Prince's efforts in this regard, he was unable to locate any material which would provide any greater certainty with respect to the resolution of this issue.

44 Mr Prince referred me to a paper delivered to the New South Wales Bar Association on 20 July 2004 entitled "Reasonable Prospects of Success: New Part 11 Division 5C of the Legal Profession Act 1987 (NSW)" by Mr Nicholas Beaumont. That article contains many insightful observations about the manner in which s 198M might operate and as to the uncertainties which might attend its application. The observations of Mr Beaumont reinforce my own conclusions in this regard, to which I shall refer later in these reasons for judgment.

45 In the view that I take with respect to the disposition of these proceedings, it is not necessary that I express any concluded opinion as to whether a s 198M order can be made against a solicitor with conduct of a matter who is an employee and not a principal. It is sufficient for present purposes to observe that the matter is not clear-cut and that, therefore, there is potentially some exposure on the part of Mr Sergent and other solicitors employed by the Commission.

3. IS MR SERGENT UNDER REAL PRESSURE?

46 Whilst the respondent Commission did not seek to minimise the seriousness of the circumstances which have given rise to these proceedings, it was submitted that the application was premature and that the threat made by Minter Ellison on behalf of the Commonwealth should be seen in the context of constituting intimidatory and bullying tactics, but that there was no need for Mr Sergent to feel concerned unless and until the threat materialised in some more cogent form.

47 It was the evidence of Mr Sergent that he felt concern for himself and his family by reason of the threat made. It was the evidence of Mr Moratelli, a senior employed solicitor with the Commission working out of its Parramatta office, that other employed solicitors of the Commission had expressed concern at this development. Mr Moratelli was the PSA delegate within the Commission.

48 It is a fundamental principle of the administration of justice that legal practitioners should be entitled to represent clients in an appropriate manner unaffected by personal concerns and threats of the kind contained within the Minter Ellison letter written on the instructions of the Commonwealth of Australia. In my opinion the threat posed by the letter is of a character which would and did justify the reaction to which Mr Sergent deposed in evidence. The fact that the threat may be seen as being more than remote or fanciful is illustrated by the fact that the barrister previously briefed in the matter returned his brief and declined to act further for the plaintiffs. There is no suggestion that the barrister did so because of any doubts about the opinion previously expressed as to the likely prospects of success in the proceedings. The impression that I have gained from the evidence of Mr Sergent in this regard is that the brief was returned because of the nature of the threat.

49 It should also be observed that the application of s 198M may in certain circumstances be imprecise. In the case of a barrister, the instructing solicitor may not have furnished him or her with all of the factual material which might arguably be relevant to the giving of an opinion or may have furnished material which is factually incorrect, perhaps through no fault of the solicitor. In the case of a barrister, he or she might have had an imperfect understanding of the state of the law. The instructing solicitor may have commenced or defended proceedings on the basis of that imperfect advice. In either case a barrister or solicitor may arguably have provided legal services to a party without reasonable prospects of success. Yet it is possible that the more innocent of the barrister and solicitor in each case may nevertheless potentially be subjected to an order under s 198M. This is because the barrister may be held responsible to have ensured that all of the relevant factual material, or indeed all of the correct factual material, was provided by the instructing solicitor and the solicitor may be expected to have checked the legal basis for the imperfect advice given by the barrister. Accordingly, the point needs to be made that an assessment of the likely susceptibility to an order under s 198M may be attendant with the same imprecision which in most cases accompanies an assessment of the likely prospects of success of a claim or defence in legal proceedings. This is particularly so when, by reason of the processes involved in the conduct of litigation in the substantive proceedings, an adverse finding of facts may reverse the onus on the solicitor or barrister in accordance with the provisions of s 198N. All of this adds to the uncertainty which pervades the circumstances of Mr Sergent. But it does not remove that uncertainty.

50 I conclude, therefore, that the application is not premature in the sense that there is a justified basis for seeking protection against the impact of the threat made.

4. IS THE CURRENT INDEMNITY AVAILABLE ADEQUATE?

51 This involves an examination of the Premier's guidelines issued "for the provision of ex gratia assistance for legal representation for Ministers of the Crown, public officials and Crown employees". The guidelines, which, in their current form, have been in operation since 1999 became evidence in the proceedings. Evidence was also given about them by Ms Lida Kaban of the Attorney-General's Department of New South Wales, who is the Director, Community Relations Division of that department. Ms Kaban reports directly, inter alia, to the Director General. She is responsible for the division which processes applications for assistance pursuant to these guidelines.

52 It was the evidence of Ms Kaban that between January 2003 and 9 July 2004, 134 applications were made under the guidelines. Six were withdrawn and the balance were approved.

53 The guidelines allow application to be made for "ex gratia assistance" where legal proceedings have been "commenced, or are anticipated" against Minsters, public officials and other Crown employees" or where those persons are required to appear before coronal inquiries or hearings conducted by certain investigatory bodies. There are other circumstances in which applications may also be made.

54 Criteria for application involves a relationship between the applicant's official duties and a substantial and direct interest in the proceedings. The procedure for seeking assistance in the case of Crown employees is to make application to the relevant department head who refers applications "that are supported" to the Attorney-General's Department.

55 The introduction to the guideline contains, inter alia, the following statement:

"It is emphasised that the assistance which may be provided is ex gratia, or discretionary, in nature and will not be provided as of right."

56 Finally, the guidelines state that an application for ex gratia assistance may be made by a:

"...public official where legal proceedings have commenced against them or are known to be imminent".

57 As I have previously indicated, the application made by Mr Sergent has the support of his departmental head but was not dealt with because it was not considered that the legal proceedings were "imminent". In supporting the application for the making of an award the PSA has emphasised the ex gratia or discretionary nature of the grant of assistance and the refusal to deal with the application at this stage even though Mr Sergent is of the opinion that there is a current threat which constitutes a contingent liability hanging over his head. In resisting the making of the award, the Commission asserts that it is almost certain that the application for assistance would be granted, although it is conceded that there can be no guarantee that this would occur. However, the Commission submits that Mr Sergent is in no worse position than a solicitor in private practice and that, in any event, Mr Sergent should not feel in any way threatened by the nature of the threat made.

58 The PSA introduced into evidence an affidavit of Mr Ronald Shorter, the General Manager, Claims, LawCover Pty Ltd, and Mr Shorter gave oral evidence. Annexed to Mr Shorter's affidavit was a pro forma copy of the Professional Indemnity Insurance Policy issued by LawCover Insurance Pty Ltd which affords a basic level of cover by means of the compulsory professional indemnity insurance which is required for solicitors who practise in New South Wales.

59 The LawCover policy indemnifies an insured against "civil liability" for a claim that arises from the insured's legal practice provided the claim is first made against the insured during the period of insurance. It is, therefore, a "claims made" policy.

60 The policy does not define "civil claim" but does exclude from cover inter alia a claim for the payment of a fine or civil penalty. "Claim" is defined by reference to "compensation or damages". My impression from the evidence of Mr Shorter was that there was an acceptance that a claim made against an insured under s 198M would be covered. Three notifications had been received with respect to claims under that section but no actual claim had yet been made for indemnification under the policy.

61 Whilst I am unsure as to whether liability to pay monies by reason of a court order under s 198M of the Legal Profession Act would constitute a "civil claim" for the purpose of the LawCover policy, it is not necessary that I determine this issue for the purpose of these proceedings. I observe that whether indemnification is granted does not depend upon any ex gratia determination of a discretionary kind being made. In addition, any adverse decision made by the insurer may be the subject of a challenge before a Court.

62 These circumstances are to be compared with the right of an applicant for ex gratia assistance under the Premier's guidelines to challenge a refusal to grant assistance. In written submissions Mr M Gibian of counsel for the PSA asserted that "it is unlikely that any determination made by the Attorney-General or Director General under the guidelines will be subject to judicial review in the Supreme Court". This was because there was no statutory foundation to the guidelines and hence the jurisdiction of the Administrative Decisions Tribunal could not be invoked under the Administrative Decisions Tribunal Act 1997. Reliance was placed on a series of cases demonstrating the reluctance of courts to review the validity of administrative acts on the basis of non-compliance with a non-statutory policy. This submission referred to Han v Minister for Immigration and Multicultural Affairs (1999) FCA 422, Minister for Immigration and Ethnic Affairs v Conyngham (1986) ALR 441 and Robinswood Pty Ltd v Federal Commissioner of Taxation (1998) 39 ATR 305. Reference was also made to the reluctance of courts to interfere with "administrative decisions made in the exercise of the general administrative powers and functions of government...". Examples included Taranto (1980) Pty Ltd v Madigan (1988) 15 ALD 1 and MacDonald Pty Ltd v Hamence (1984) 53 ALR 136. Finally, it was submitted that even if a decision of the Attorney-General or Director General under the guidelines was subject to judicial review, that review would be limited to questions concerning procedural fairness and adherence to the guidelines but would not extend to a review of the merits of any decision. In his submissions Mr Prince asserted that even though the Premier's guidelines have no statutory foundation: "They are a set of guidelines conditioning the Crown prerogative to grant ex gratia assistance to public offices". Mr Prince asserted that the exercise of the Crown prerogative was subject to the supervisory jurisdiction of the Courts and that, in the case of these guidelines, the appropriate jurisdiction was the Supreme Court of New South Wales. In support of these submissions Mr Prince relied on the decision of the House of Lords in Council of Civil Service Unions v Minister for Civil Service (1985) 1 AC 374, and the decision of the Full Court of the Federal Court of Australia in Minister for Arts, Heritage and Environment v Peko-Wallsend Ltd (1987) 15 FCR 274. It is not necessary for the disposal of these proceedings that I examine this matter in any detail. Its consideration arises in the context of an examination whether there is an appropriate review process which would inject some greater certainty into the application of the guidelines to an appropriate case by means of the comfort of a review process undertaken by a court. There is an obvious difference of approach to be discerned from the various speeches of their Lordships in CCSU. It is clear, however, that this case is not authority as to whether there is an inherent entitlement to judicial review of the direct exercise of a prerogative power of the Crown. Such a question was deliberately set aside for determination on another occasion. It is clear, however, that "an instruction given in the exercise of a delegated power conferred by the sovereign under the prerogative 'does not attract immunity from judicial review in the same way as the direct exercise of prerogative power may be so immune'." (per Lord Fraser at [397-8]). Lord Roskill spoke of three grounds for the exercise of judicial review concerning actions of the Executive. The first concerned an error of law such as the purported exercise of a power which was not possessed. The second is the unreasonable exercise of power, and the third is where there has been a failure to apply principles of natural justice. Lord Roskill preferred to describe this third situation in terms of "a duty to act fairly". His Lordship thought that that might be expressed in terms which would allow judicial review if it can be shown that "'a reasonable expectation' of some occurrence or action preceding the decision complained of and that that 'reasonable expectation' was not in the event fulfilled" (at [415] and see the discussion following). In Minister for Arts v Peko-Wallsend the court was not prepared to exclude judicial review of a decision of Cabinet of the Federal Government merely because it was a decision taken in the exercise of the prerogative powers of the Crown (see the discussion of Wilcox J at [298] and following). However it is clear that the court (whose principal judgment was that of Wilcox J) acknowledged the force of the decision of the House of Lords in CCSU to the effect that even though the power which was being exercised had its origins in the Royal prerogative this was not sufficient to exclude judicial review. Accordingly I agree with the submissions of Mr Prince in this regard.

63 Even though I have concluded that the application of the guidelines is subject to judicial review, having regard to the discretionary nature of the guidelines and in particular the inability to obtain any degree of comfort that will have been applied until the making of an order under s198M is either imminent or has been undertaken, I am of the opinion that there is sufficient uncertainty surrounding the application of the indemnity created by the guidelines to justify the making of the award sought by the PSA.

5. DOES THE AWARD SOUGHT HAVE UTILITY?

64 It was the submission of the PSA that the award would provide "fair and reasonable conditions of employment" for solicitors employed by the Legal Aid Commission for the purposes of s 10 of the Industrial Relations Act. There was no serious issue in the course of the proceedings as to whether what was sought was a condition of employment. As I have previously stated, the principal condition was the granted indemnity by the Commission "with respect to the whole of any order made against the solicitor pursuant to s 198M of the Legal Profession Act 1987 in any matter, except where the conduct of the solicitor giving rise to the making of an order:

1. constitutes 'serious and wilful misconduct' as that phrase is construed under s 5 of the Employees Liability Act 1991; or

2. did not occur in the course of and did not arise out of the solicitor's employment."

65 The award sought is confined in its terms to liability arising under s 198M in the course of and arising out of the employment of the solicitor by the Commission. The only exclusion is one of serious and wilful misconduct.

66 The PSA fastened on the provisions of the Employees' Liability Act as reflecting the intention of the legislature to create a law requiring an employer to indemnify an employee for tortious liability. In general terms the exclusions which apply under s 5 of that Act are in the same terms as was sought to be applied by the PSA in these proceedings.

67 However, on one view of the matter, the making of such an award would not be necessary. That is because it is arguable that the Commission as an employer would be bound to indemnify employed solicitors in any event pursuant to the implied indemnity which exists in each and every contract of employment. When asked about the nature and extent of any such implied contractual term, counsel for both the PSA and the Commission denied its existence. However there is a line of authority cited by Macken et al in "Law of Employment", 5th ed, LawBook Co, Sydney, 2002, at p 129, which points to the contrary: Adamson v Jarvis [1824-34] All ER Rep 120; Re Famatina Development Corporation Ltd [1914] 2 Ch 271; Pupazzoni v Freemantle Fisherman's Co-operative Society Ltd [1981] AILR ¶168 (SC WA) all support "...the well settled rule that an agent had a right against his principal, founded upon an implied contract, to be indemnified against all losses and liabilities, and to be reimbursed all expenses incurred by him in the execution of his authority" per Lord Cozens_Hardy MR in Famatina at p 282. This implication may be limited by an express clause in the contract between the parties but, as per Pidgeon AJ in Pupazzoni, even such a clause would not allow "...rejecting expenditure reasonably and faithfully incurred". Moreover an employee can have no right to an indemnity if the wrong is intentionally and knowingly committed (Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621). However none of these limitations or exceptions would appear to apply here. I shall return to this matter shortly.

6. ARE THERE GROUNDS SUPPORTING THE MAKING OF AN AWARD?

68 The Commission submitted that it was not appropriate or necessary to make the award as sought by the PSA. It emphasised that a consideration of any liability that might be sheeted home to Mr Sergent by way of an order made under s 198M was premature in all the circumstances. It emphasised also the almost certain approval of ex gratia relief under the Premier's scheme.

69 As against the Commission's position, however, I take into consideration in particular the following matters:

1. A threat to invoke s 198M has been made by Minter Ellison, solicitors, on specific instructions of the Commonwealth of Australia. Such a threat cannot be intended to have been made lightly.

2. Mr Sergent has expressed genuine concern for his financial position and the financial circumstances of his family.

3. There can be no justification for the making of the threat by Minter Ellison as instructed by the Commonwealth of Australia other than to intimidate and bully Mr Sergent and counsel retained in the matter. This intention has been achieved in the case of counsel initially retained in the proceedings who has returned his brief.

4. It is in the public interest that solicitors and barristers should be entitled to practise their profession and represent their clients in proceedings before Courts of this State free of intimidatory and bullying threats of this kind. It is therefore in the public interest that they be afforded protection to an appropriate extent.

5. The Premier's guidelines create a scheme which is discretionary in application and there can be no guarantee that indemnity will be extended.

6. In these circumstances it is appropriate that solicitors employed by the Commission be extended indemnity so as to ensure, to the extent possible, that they are adequately protected from the circumstances exemplified by these proceedings.

70 This leaves for consideration only the question whether the implied indemnity which arguably exists in the contracts of employment of each and every solicitor employed by the Commission is sufficient to provide adequate protection for Mr Sergent and his fellow employed solicitors. As I indicated in paragraph 65 above, there appears to be a line of cases which would support such an implied term. In Adamson v Jarvis, Best CJ said:

"It has been stated at the Bar that this case is to be governed by the principles that regulate all laws of principal and agent. Agreed. Every man who employs another to do an act which the employer appears to have a right to authorise him to do undertakes to indemnify him for all such acts as would be lawful if the employer had the authority he pretends to have. A contrary doctrine would create great alarm". (at 122).

Such a statement would, it seems to me, prima facie apply to the circumstances revealed in these proceedings and would render unnecessary the making of an award. Because, however, neither party asserted that such an implied condition was contained within the relevant contracts of employment, I shall refrain from disposing of these proceedings to give each of the parties an opportunity of making submissions confined to the question whether at law an implied term of the kind to which I have referred does in fact exist and whether its provisions cover the circumstances of these proceedings.

71 The proceedings are stood over accordingly. Any submissions which either party wishes to make should be made in writing within one month of this date.

LAST UPDATED: 09/09/2004