Nuclear Utility Technology & Environmental Corporation Inc v Australian Broadcasting Corporation; on the application of Bayliss v Australian Broadcasting Corporation [2009] NSWSC 78 (26 February 2009)

Last Updated: 27 February 2009

NEW SOUTH WALES SUPREME COURT

CITATION:
Nuclear Utility Technology & Environmental Corporation Inc v Australian Broadcasting Corporation; on the application of Bayliss v Australian Broadcasting Corporation [2009] NSWSC 78


JURISDICTION:
Common Law

FILE NUMBER(S):
20087/06

HEARING DATE(S):
12/08/2008; 14/8/2008

JUDGMENT DATE:
26 February 2009

PARTIES:
Nuclear Utility Technology & Environmental Corporation Inc (Plaintiff)
Rex Allan Bayliss (Applicant on contempt application)
Australian Broadcasting Corporation (Defendant/Respondent)

JUDGMENT OF:
McCallum J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr G Curtin / Ms Y Cachia (Applicant on contempt application)
Mr J Sheahan SC / Mr A T S Dawson (Defendant/Respondent)

SOLICITORS:
Middletons (Applicant on contempt application)
ABC Legal Services (Defendant/Respondent)


CATCHWORDS:
COMMON LAW
criminal contempt
threats by solicitors to seek personal orders against opposing solicitor for costs thrown away and retainer costs
costs threats mixed with settlement offers
loss of client legal privilege
whether reasonable grounds for concluding privileged communications made in furtherance of alleged contempt
propriety of threatening to seek costs against opposing solicitor before conclusion of proceedings
COMMON LAW
inherent jurisdiction to punish summarily for contempt out of court
summary procedure
whether defendant should be directed to disclose evidence in advance of hearing

LEGISLATION CITED:
Civil Procedure Act 2005
Criminal Procedure Act 1986
Defamation Act 1974
Evidence Act 1995
Legal Profession Act 1987
Supreme Court Act
Supreme Court Rules
Uniform Civil Procedure Rules

CATEGORY:
Procedural and other rulings

CASES CITED:
Athens v Randwick City Council [2005] NSWCA 317; 64 NSWLR 58
Attorney-General (UK) v Times Newspapers Ltd [1974] AC 273
Bhagat v Global Custodians Ltd [2002] NSWCA 160
Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3; (1997) 188 CLR 501
DPP (Cth) v Sexton [2008] NSWSC 352
EPA v Caltex (1993) 178 CLR
Farahbakht v Midas Australia Pty Ltd [2006] NSWSC 1322
Fraser v R (No 2) (1985) 1 NSWLR 680
Harry Bagg’s Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421
Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147
James v Robinson (1963) 109 CLR 593
John Fairfax & Sons Pty Ltd v McRae (1954-1955) 93 CLR 351
Kang v Kwan [2001] NSWSC 698
Lemoto v Able Technical Pty Limited [2005] NSWCA 153; (2005) 63 NSWLR 300
Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155
Lewis v Nortex [2002] NSWSC 1245
Nuclear Utility Technology & Environmental Corporation Inc v Australian Broadcasting Corporation [2008] NSWSC 841
Orchard v South Eastern Electricity Board [1987] 1 QB 565
Re Colina & Anor; Ex Parte Torney [1999] HCA 57; (1999) 200 CLR 386
Witham v Holloway (1995) 183 CLR 525
Zemanek v Commonwealth Bank of Australia [1997] FCA 1016
Zimmerman Holdings Pty Ltd v Wales [2002] NSWSC 447

TEXTS CITED:
Arlidge, Eady & Smith on Contempt
Miller, Contempt of Court, 3rd Ed

DECISION:
The orders that I propose are:
1. I note that I am not satisfied that there are reasonable grounds for finding that the ABC has committed the offence of contempt.
2. I direct the ABC to inform Mr Bayliss within 14 days of any claim of client legal privilege in respect of any document sought in his notice to produce dated 14 August 2008.
3. I dismiss the application by Mr Bayliss for a direction requiring the ABC to file and serve affidavits and written submissions in respect of the contempt application.



JUDGMENT:

- 28 -

IN THE SUPREME COURT

OF NEW SOUTH WALES

COMMON LAW DIVISION

McCALLUM J

26 FEBRUARY 2009

20087/06 Nuclear Utility Technology & Environmental Corporation Inc v Australian Broadcasting Corporation; on the application of Bayliss v Australian Broadcasting Corporation

JUDGMENT

1 HER HONOUR: A Delaware company (known as Nu-Tec) and two of its directors sued the Australian Broadcasting Corporation for defamation in respect of two television programmes broadcast in 2005. The claim suffered a setback when the ABC discovered that Nu-Tec had been a “void” corporation under Delaware law since before the broadcast of the matters complained of. The apparent consequence was that it had no legal ability to retain lawyers or commence proceedings, and was perhaps not capable of being defamed. Those matters had obvious implications for the solicitor on the record for the plaintiffs, Mr Rex Bayliss.

2 The problem was compounded when the proceedings came on for trial. The trial was aborted when counsel for the plaintiffs made incorrect and inconsistent statements to the Court which created confusion as to whether the corporate plaintiff was indeed the company incorporated in Delaware, where its status was described as void, or a company of the same name incorporated in Nevada. Two days after the hearing, Mr Bayliss confirmed that the corporate plaintiff was, and always had been, the Delaware company.

3 The ABC seized on those issues and made a series of offers to settle the proceedings out of court. Those offers were made in conjunction with robust warnings directed to Mr Bayliss as to the risk of personal costs orders being made against him if the proceedings continued. At the same time, a number of applications were made to the Court for costs orders against Mr Bayliss in respect of the corporate plaintiff’s claim and the aborted trial.

4 Mr Bayliss has now ceased to act for the plaintiffs and has moved to have the ABC punished for contempt. He contends that the ABC’s conduct was an interference with the due course of justice because it was inherently likely to bring improper pressure to bear on him and ultimately prevent him from continuing to act for the plaintiffs in the proceedings.

5 Three preliminary issues have arisen in respect of the contempt motion. The first is whether the ABC should be required to produce documents in response to a notice to produce issued by Mr Bayliss. Mr Bayliss acknowledges that the notice seeks documents which would ordinarily be protected by client legal privilege but contends that no privilege attaches to the communications in question because they were made in furtherance of the contempt: see s 125 Evidence Act 1995.

6 The second issue is whether the ABC should be directed to file and serve the affidavits upon which it intends to rely in advance of the hearing of the contempt application. This issue arises because the contempt alleged is criminal contempt. The third issue is whether the ABC should be directed to provide written submissions in advance of the hearing.

Background

7 It is appropriate to record the procedural context in which the present issues arise. The matters complained of were broadcast on 21 and 22 March 2005. The proceedings were commenced on 17 March 2006. A trial pursuant to s 7A of the Defamation Act 1974 commenced with a jury on 24 October 2007. That trial was aborted due to confusion as to the identity and status of the corporate plaintiff arising from statements made to the Court by counsel for the plaintiffs, Mr Dibb.

8 The doubt regarding Nu-Tec’s corporate status prompted the ABC to file a notice of motion in Court on 24 October 2007 (the ABC’s first motion) seeking separate trial of the question of Nu-Tec’s standing to maintain the proceedings. The motion sought an order that the proceedings brought by Nu-Tec be dismissed and an order that the ABC’s costs of the proceedings brought by Nu-Tec be paid by Mr Bayliss on an indemnity basis. The basis for seeking those costs against Mr Bayliss was that he had no retainer from Nu-Tec (since it had no legal power to commence and maintain the proceedings).

9 The plaintiffs were not ready to meet those issues. Mr Dibb sought time to obtain instructions and investigate whether the Delaware corporation did indeed have power or standing to bring the proceedings. The jury was discharged and the hearing vacated.

10 On 18 March 2008, the ABC filed a notice of motion seeking orders that the plaintiffs and Mr Bayliss pay its costs thrown away by reason of the vacation of the s 7A trial, payable forthwith and, alternatively, an order that the plaintiffs pay those costs and that Mr Bayliss indemnify the ABC in respect of the payment of those costs.

11 The separate trial of the question whether Nu-Tec had standing to maintain the proceedings came before me for hearing on 28 April 2008. The ABC argued that, by operation of Delaware law, Nu-Tec’s charter became void on 1 March 2005 (before publication of the matters complained of) for non-payment of franchise taxes. The ABC contended that, as a result, all powers conferred by law on the company were inoperative and that accordingly it had no power to sue.

12 At the outset of that hearing, Mr Dibb sought an adjournment on the basis that Mr Bayliss had been hampered in his preparation for the hearing by the existence of the allegations that he may be personally liable for costs. Mr Bayliss was separately represented on that occasion and did not join in the application. I refused to grant the adjournment. Mr Curtin, who appeared for Mr Bayliss, then made an application under r 7.29 of the Uniform Civil Procedure Rules for an order either dispensing with the obligation to serve notice on the plaintiffs of his intention to file a notice of ceasing to act, or abridging the time for service of that notice. I refused that application.

13 Mr Curtin also filed a notice of motion for orders that the ABC’s motion seeking the costs of the aborted trial from Mr Bayliss be struck out and that the ABC be permanently restrained from seeking the orders sought or its costs referred to in that motion. The motion also sought an order that the ABC be permanently restrained from seeking the costs of the proceedings commenced at the suit of Nu-Tec. Mr Curtin did not contend, however, that I should not proceed to determine the question of Nu-Tec’s power to sue.

14 On 1 May 2008, I held in favour of the ABC on the question of Nu-Tec’s standing and dismissed the proceedings brought by it: Nuclear Utility Technology & Environmental Corporation Inc v Australian Broadcasting Corporation [2008] NSWSC 841.

15 On 29 May 2008, Mr Bayliss filed a notice of ceasing to act for each of the three plaintiffs. He says that he ceased to act because of the conflict of interest between him and his clients arising out of the ABC’s present applications for costs. The two directors have not appeared since.

16 In light of my decision given on 1 May 2008, the ABC replaced its motion dated 18 March 2008 with a notice of motion filed in court on 13 June 2008 consolidating all of its applications against Mr Bayliss, the two directors and Nu-Tec for the costs of the proceedings brought by Nu-Tec and the costs thrown away by reason of the vacation of the s 7A trial (the ABC’s second motion).

17 At that point, the competing positions of the ABC and Mr Bayliss were as follows. The ABC contended that both Mr Bayliss and the plaintiffs were liable for the costs of the proceedings brought by Nu-Tec and the costs thrown away by reason of the aborted s 7A trial. It sought payment of those costs forthwith, assessable on an indemnity basis. Mr Bayliss contended that the very making of those applications against him placed him in an untenable position, ought not to have been made or foreshadowed until the conclusion of the proceedings at the suit of the remaining plaintiffs (the two directors) and should, by reason of its having been made prior to the conclusion of the proceedings, be permanently stayed.

18 It was common ground that I should determine Mr Bayliss’ application first and a timetable was fixed for the preparation for hearing of his motion. The orders made included directions requiring the ABC to file and serve affidavits and submissions. However, on 25 June 2008, Mr Bayliss filed a notice of motion seeking to have the ABC punished for contempt of court. The notice of motion annexed a statement of charge as required by Part 55 rule 7 of the Supreme Court Rules. Eleven discrete charges were identified.

19 Mr Bayliss alleges that the conduct complained of constitutes an interference with the due administration of justice, which is a criminal contempt. The relief sought in the contempt motion includes orders of the kind sought in Mr Bayliss’ earlier motion filed in Court on 28 April 2008 (that the ABC’s motion be struck out and that the ABC be permanently restrained from seeking the orders sought or the ABC’s costs referred to in its motion). That relief is now sought as the appropriate punishment for the alleged criminal contempt (cf Part 55 rule 13 SCR). Alternatively, it is sought as the appropriate remedial order to be made if the Court is not satisfied of the contempt, but is satisfied that the threat of a personal costs order ought not to have been deployed until after the conclusion of the hearing of the proceedings.

20 The ABC submitted that, in those circumstances, the contempt motion would require the Court to hear a criminal proceeding and a civil proceeding simultaneously. It was submitted that such an approach would be contrary to authority and a misuse of the Court’s processes.

21 Mr Bayliss acceded to that submission and consented to have the hearing of the alleged criminal contempt separated from the hearing of the relief sought on a civil basis. It was common ground that the contempt application should be determined before any other outstanding issue in the proceedings.

Notice to Produce

22 The Notice to Produce, in broad summary, seeks production of documents recording “legal or other advice” received by the ABC from its lawyers and instructions given by the ABC to its lawyers in relation to the settlement negotiations and costs applications said to constitute the contempt. As I have noted, Mr Bayliss acknowledges that, were it not for the matters raised by him, the ABC would be entitled to claim client legal privilege in respect of at least some of those documents. However, he contends that the privilege is lost under s 125 of the Evidence Act because the communications were made in furtherance of the commission of the offence of contempt.

23 Subsection (2) of s 125 provides:

“(2) For the purposes of this section, if the commission of the fraud, offence or act, or the abuse of power, is a fact in issue and there are reasonable grounds for finding that:

(a) the fraud, offence or act, or the abuse of power, was committed, and

(b) a communication was made or document prepared in furtherance of the commission of the fraud, offence or act or the abuse of power,

the court may find that the communication was so made or the document so prepared.”

24 The issue for my determination is whether there are reasonable grounds for finding that the ABC has committed the offence of contempt of court. The parties have agreed that, if that element is satisfied, the Court should then inspect the documents, or representative samples of them, so as to determine whether there are reasonable grounds for finding as to each that it amounts to a communication made or a document prepared in furtherance of the commission of that offence.

25 It is well established that what is required in order to displace a claim of client legal privilege on the grounds of misconduct is a clear statement of the offence alleged and some prima facie evidence that it has some foundation in fact: see Commissioner of Australian Federal Police v Propend Finance Pty Ltd [1997] HCA 3; (1997) 188 CLR 501 at 556.6 per McHugh J; Zemanek v Commonwealth Bank of Australia [1997] FCA 1016 at 5 per Hill J; Kang v Kwan [2001] NSWSC 698 at [36] - [37] per Santow J; Lewis v Nortex [2002] NSWSC 1245 at [8] per Hamilton J.

26 Mr Bayliss bears the onus of proving that the privilege does not apply to the documents sought. The evidence does not have to prove that the communication was made in furtherance of the commission of an offence, but it must establish a prima facie case that the communication was so made: Propend at 556.6 per McHugh J. In the present case, there is no dispute as to the sufficiency of the evidence. The area of contest is the legal question whether there are reasonable grounds for concluding that the conduct complained of amounts to contempt.

Evidence of contempt

27 Mr Bayliss swore an affidavit setting out the conversations and other conduct of which he complains. Much of that was evidence of settlement negotiations but it was not objected to by the ABC (cf s 131 Evidence Act).

28 The issue of Nu-Tec’s power to sue was first raised in the proceedings in July 2007. The ABC sought production of Nu-Tec’s incorporation records after becoming aware that Nu-Tec was not a registered foreign corporation in Australia. It appears that the records produced disclosed that Nu-Tec was incorporated in Delaware and that its status as a corporation was described as “void”. In due course the ABC obtained a copy of a certificate from the Secretary of State of Delaware certifying that Nu-Tec was “no longer in existence and good standing under the laws of the state of Delaware having become inoperative and void the first day of March AD 2005 for non-payment of taxes”.

29 On 2 October 2007, over three weeks before the date fixed for the s 7A hearing, the ABC sent Mr Bayliss a copy of the certificate and expressed its view that Nu-Tec did not have standing to issue or pursue the proceedings against the ABC. The letter also contended that Mr Bayliss could not have any valid retainer in relation to Nu-Tec. The letter put Mr Bayliss on notice that if he was unable to establish that he held a valid retainer, the ABC would apply for indemnity costs against his firm. On a without prejudice basis, the ABC offered to settle the proceedings on the basis that judgment be entered for the ABC in relation to the claims of each of the plaintiffs with no order as to costs. That offer was open for acceptance until 4pm on 5 October 2007. The letter concluded by inviting Mr Bayliss to explain the true position if it was thought that the ABC was mistaken as to its understanding of Nu-Tec’s status. Mr Bayliss did not respond to that letter.

30 On 9 October 2007 the ABC served an offer of compromise under Part 20 of the UCPR on the same terms. That offer was open for acceptance until 5pm on 17 October 2007, after which only four working days remained until the trial was due to begin.

31 Mr Bayliss does not allege that there was any impropriety in those offers. The first charge of contempt identified in the statement of charge arises from a telephone call made to Mr Bayliss on 12 October 2007 by Mr Stephen Collins, head of the ABC’s legal department, and Mr Joe Patterson, a lawyer employed by the ABC. The evidence of Mr Bayliss was that they had the following conversation:

“ABC Lawyers: Can we resolve this matter? The first plaintiff has no standing to bring these proceedings and should withdraw immediately. If you proceed and the Court finds the company to be non-existent you run the risk that costs orders could be made against your firm. We have been upfront about what we have discovered. If you discontinue now the ABC will not press for such costs orders against your firm, but if you press on we will seek such costs orders.

Mr Bayliss: I am awaiting instructions.

ABC Lawyers: We are concerned about your position.”

32 Mr Bayliss was very troubled by that conversation. He construed it as an attempt to exert pressure on him personally to bring about a resolution of the proceedings.

33 The second charge of contempt arises from a letter dated 16 October 2007 from Mr Collins to Mr Bayliss in the following terms:

“We have put you on notice that the first plaintiff has no corporeal existence and did not have the ability to issue proceedings when these proceedings were commenced. The first plaintiff also did not have the power to engage solicitors to act on its behalf and is therefore unlikely that your firm has or ever had a valid retainer.

We have been open about these matters and have given your clients the opportunity to withdraw this proceeding on the basis that judgment be entered for the defendant with no order as to costs. That offer will expire on 17 October 2007 at 5.00pm.

We put you on notice that, in the event our offer is not accepted, the ABC will make an application for indemnity costs of the proceedings against your firm personally, should it be found that the first plaintiff does not have the capacity to bring these proceedings.”

34 Mr Bayliss said he read that letter as an attempt by the ABC to influence any advice he gave to his clients in relation to the offer of settlement. He said that the offer created a potential conflict of interest and put him under “some personal pressure” in acting for the plaintiffs.

35 Later in the day on 16 October Mr Patterson called Mr Bayliss and they had the following conversation:

“Mr Patterson: Have you got instructions to our faxed letter of 16 October?

Mr Bayliss: No I’m still waiting to hear from Counsel and my clients.

Mr Patterson: Don’t forget the offer expires tomorrow.”

36 That conversation is the basis for the third charge of contempt. Mr Bayliss found the conversation threatening in the context of the letter and the earlier conversation. He said that he received instructions from his clients in respect of the letter of 16 October and that, “consistent with those instructions, [he] did not contact the ABC prior to the expiry of the offer”.

37 At the hearing on 24 October 2007, counsel for the plaintiffs, Mr Dibb, initially stated to the Court that the first plaintiff was not incorporated in the state of Delaware but was in fact a corporation of the same name incorporated in the state of Nevada. He subsequently stated to the Court that there was uncertainty as to whether the first plaintiff was the entity incorporated in Delaware or the entity incorporated in Nevada. During the discussion of that issue in the absence of the jury, the ABC filed its motion seeking a separate hearing of the question of Nu-Tec’s power to sue. The fourth charge of contempt is based on the third prayer for relief in that motion, which seeks an order that the ABC’s costs of the proceedings brought by Nu-Tec be paid by Mr Bayliss on an indemnity basis.

38 On the evening of the aborted trial, another lawyer employed by the ABC, Mr Jonathan Duhs, wrote to Mr Bayliss informing him that the ABC had incurred very considerable costs which it thought would be payable on an indemnity basis. The letter continued:

“Further, if the first plaintiff is [the Delaware company] we will be seeking those costs from your firm on the basis that your firm cannot have a valid retainer from that corporation and because that corporation has no standing to bring and maintain the proceedings. Alternatively, if you assert that the first plaintiff is [the Nevada company] - which we do not accept is the case - we will be seeking those costs from that corporation and/or your firm on the basis that the ABC understood that the first plaintiff was the company registered in Delaware because of the representations made to it by you on behalf of your clients during the course of the proceedings. You should be aware that in the circumstances the ABC has every intention of executing whatever costs are made in its favour in relation to this matter.”

39 The letter concluded with a “final attempt to settle the proceedings” on the basis of judgment for the ABC and deeds of release from both the Delaware company and the Nevada company. The offer was silent as to legal costs. It was expressed to be open for acceptance until 5.00pm on Friday 26 October 2007. Mr Bayliss felt threatened by that letter and perceived the threats in respect of costs orders against him, coupled with the offer of settlement, as an attempt to influence his advice to his clients in relation to the offer.

40 In a further letter dated 26 October 2007, Mr Duhs reminded Mr Bayliss that the ABC’s offer expired that day. Mr Bayliss replied seeking clarification as to the position in respect of legal costs. By separate letter, he confirmed that the corporate plaintiff “is and has always been [the Delaware company].” Mr Duhs confirmed by telephone that the offer was on the basis that there be no order as to costs. He expressed the view that it was a generous offer in the circumstances. Mr Bayliss responded that it was not very attractive to them. Later that day, Mr Duhs called Mr Bayliss to say that the offer was extended to be open until midnight. Mr Bayliss responded that there was nothing he could do about the offer at that hour. The two letters and two phone calls by Mr Duhs are relied upon by Mr Bayliss as the basis for the fifth charge of contempt.

41 The sixth and seventh charges of contempt rest on two further letters from Mr Collins to Mr Bayliss. On 29 October 2007, Mr Collins wrote to Mr Bayliss asking him to explain, in light of his confirmation that the corporate plaintiff was the void Delaware company, the basis on which he claimed to have a retainer to act for that company. Mr Bayliss does not appear to have responded to that request at any stage. The letter concluded with an open offer to settle the proceedings on the basis that the two directors’ claims be dismissed, that the motion to dismiss Nu-Tec’s claim proceed unopposed, that the directors pay $15,000 towards the ABC’s costs and that Mr Bayliss’ firm agree to pay the costs of the entire action on an indemnity basis in the event that the directors defaulted in payment of the $15,000. The offer was expressed to remain open until noon the following day.

42 After that offer lapsed without response, Mr Collins made a further offer on 30 October 2007 on the same terms, except that the amount sought from the directors was $25,000. Mr Bayliss said those offers put him under further personal pressure, since they involved him as a party to the proposed settlement. He felt that the ABC was trying to target him personally to exert pressure on him. He does not appear to have responded to the offers.

43 There was no further correspondence until 13 March 2008 when the ABC wrote to Mr Bayliss asking whether he and his clients would agree to pay the ABC’s costs thrown away by reason of the vacation of the s 7A trial, on an indemnity basis, payable forthwith and on the basis that they were jointly and severally liable. The letter foreshadowed an application to the Court in the absence of agreement. Mr Bayliss felt further pressure under that threat to act other than objectively in his clients’ interests. He said that, “whereas the status of the first plaintiff might have been resolved if the relevant taxes had been paid, this threatened costs order was not defendable on the same ground”. That letter is the foundation for the eighth charge of contempt in the statement of charge.

44 Mr Bayliss replied, suggesting that it was premature to determine the costs question until “after the status of the first plaintiff has been resolved”. The ABC initially disagreed and stated that it intended to pursue the application. The ninth charge of contempt is that the ABC “refused Rex Bayliss’s suggestion that the adjournment costs application be determined after the status of the first plaintiff was resolved”.

45 The ABC proceeded to send Mr Bayliss the notice of motion dated 18 March 2008 and a supporting affidavit. The tenth charge of contempt is based on the claims against Mr Bayliss in that motion for the costs thrown away by the adjournment of the trial.

46 The ABC later conceded that the determination of the separate question as to the standing of the corporate plaintiff may obviate the need for a hearing of its application seeking the costs thrown away (since those costs would be part of the costs the ABC would claim if the Court dismissed Nu-Tec’s proceeding). The parties agreed that the separate question as to Nu-Tec’s standing should be heard before any issues as to costs. As already noted, after the separate question had been determined in favour of the ABC and the proceedings brought by Nu-Tec dismissed, the ABC consolidated all of its claims for costs in its second motion. The final charge of contempt is based on the relief sought against Mr Bayliss in the second motion.

Are there reasonable grounds for a finding of contempt?

47 Mr Curtin acknowledged that the costs applications made against Mr Bayliss by the ABC had a proper basis “in their genesis”. What was improper, he submitted, was the timing of the threats and the applications made, the vigour with which they were pursued, the tone of the communications and the mixing of the threatened costs applications with settlement offers.

48 As noted by Mr Curtin, contempt can be committed by a solicitor exerting improper pressure on an opponent, whether what is threatened is lawful or unlawful conduct: see Bhagat v Global Custodians Ltd [2002] NSWCA 160 at [35 ] - [37]. Mr Curtin submitted that the conduct of the ABC, although lawful, amounted to improper pressure. He noted that contempt may be established by a series of acts considered collectively as a course of conduct: see Farahbakht v Midas Australia Pty Ltd [2006] NSWSC 1322 at [24] per Brereton J.

49 However, the conduct of the ABC must also be considered in the context of the events to which it responded. It is necessary to have regard to all of the circumstances of the case in order to determine whether the pressure sought to be applied can be described as improper: see Bhagat at [38].

The timing of the costs applications against Mr Bayliss

50 Mr Curtin did not contend that the only proper time to make an application for a personal costs order against a legal practitioner is at the end of the substantive proceedings. However, he did submit that the authorities warn quite strongly against making an application before that time. He cited Orchard v South Eastern Electricity Board [1987] 1 QB 565 at 577G per Donaldson MR and at 580E per Dillon LJ; Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155 at [43] per Wilcox, Burchett and Tamberlin JJ and Lemoto v Able Technical Pty Limited [2005] NSWCA 153; (2005) 63 NSWLR 300 at [194].

51 Mr Curtin placed particular emphasis on the decision in Lemoto. He submitted that the Court of Appeal has said in that case that the most appropriate time to make an application for a personal costs order against a solicitor is after the conclusion of the substantive proceedings.

52 I do not discern from the decisions relied upon by Mr Curtin any general principle that it is inherently improper to make or foreshadow an application for costs against an opposing solicitor before the conclusion of proceedings. The particular remarks relied upon by him were obiter and were made in a different context.

53 In Orchard, the English Court of Appeal rejected an appeal seeking a costs order against a firm of solicitors that had acted for a legally aided plaintiff in a claim against the South Eastern Electricity Board. The plaintiff had alleged in the underlying proceedings that electricity escaping under his house had heated water in the earth so that it turned to steam and penetrated the house. The plaintiff’s complaints were described by the Court as “weird in the extreme” but had been supported by expert evidence: at 572.H and 573.F per Donaldson MR. The basis for the costs application was that it could be inferred that the solicitors had failed to comply with a statutory duty to inform the legal aid authorities of the circumstances and prospects for success of the plaintiff’s claim. It was in that context that Dillon LJ expressed concern at the prospect:

“that a practice should develop whereby solicitors for defendants endeavour to browbeat solicitors for legally aided plaintiffs into dropping their client’s cases - or into procuring revocation of the relevant legal aid certificates - by threats that the defendants will seek to hold the plaintiffs’ solicitors personally liable for the costs of the litigation” (at 580E).

His Lordship expressed the view that such conduct might be contempt of court (at 581A).

54 In Levick, the Full Court of the Federal Court of Australia upheld a costs order made against solicitors who had advanced points that were not seriously arguable. The Full Court shared the concerns expressed by Dillon LJ and Donaldson MR and stated its agreement with the view that “browbeating” solicitors with threats of personal costs orders might amount to contempt: see [35], [36] and [43]. The Court noted, however, that “it is equally important to uphold the right of a court to order a solicitor to pay costs wasted by the solicitor’s unreasonable conduct of a case”: at [44].

55 In Lemoto, the Court of Appeal set aside a costs order that had been made against a solicitor under s 198M of the Legal Profession Act 1987 for acting in proceedings that were without reasonable prospects of success. McColl JA observed at [194] that she also shared the concern expressed by Dillon LJ in Orchard, although her Honour did not expressly refer to the question whether such conduct might amount to contempt. In the passage at [193] relied upon by Mr Curtin, McColl JA said, by way of “general observation” about the Court’s jurisdiction under Division 5C of the Legal Profession Act:

“[T]here is a real risk if s 198M applications are made immediately after proceedings have concluded (which I accept is the most realistic time for any such application) that the client may be prejudiced if the legal practitioner ceases to act because of a perceived conflict of interest leaving the client unable to secure advice as to the prospects of a successful appeal from the person most familiar with the proceedings.”

Hodgson JA agreed with the orders proposed by McColl JA and “substantially agreed” with her Honour’s reasons. Ipp JA agreed with McColl JA and Hodgson JA.

56 I do not think her Honour’s remarks were directed to the propriety of making an application before the conclusion of the proceedings. Her Honour simply recognised that, in practice, a successful party wishing to make such an application will usually make it immediately rather than holding off so as to enable his opponent to consider the merits of an appeal with an unclouded mind.

57 The concern expressed in Orchard recognises the peculiar difficulty of predicting the course of any litigation. A legal practitioner might responsibly and comfortably form the opinion that a case has reasonable prospects of success, but lack the will or the confidence to back that view with his own money. The vice warned against by Dillon LJ is the exploitation of such doubts to the detriment of financially weak clients.

58 A claim for “retainer costs” or other costs thrown away by past default is in a different category. As submitted by Mr Sheahan, who appeared with Mr Dawson for the ABC, seeking such costs does not put pressure on a lawyer to question his judgment and abandon the client but only to explain past conduct.

59 The ABC’s applications invoke s 99 of the Civil Procedure Act 2005, which provides for liability of legal practitioners for costs incurred:

“(a) by the serious neglect, serious incompetence or serious misconduct of a legal practitioner, or

(b) improperly, or without reasonable cause, in circumstances for which a legal practitioner is responsible.”

60 The Court’s power under s 99 is an important aid to the overriding purpose of the Act (s 56). It provides a sanction against solicitors whose conduct of the proceedings has caused a party to incur unnecessary costs, and a remedy for those who have incurred those costs. I do not accept that it is inherently improper to invoke that power while the proceedings remain on foot.

61 Of course, it does not necessarily follow that the threats and applications made by the ABC were not improper. The propriety and appropriate timing of such conduct will always depend on all of the circumstances of the case.

Conduct leading up to the s 7A hearing

62 The improper pressure in the present case is alleged to have commenced with the telephone call made by Mr Collins and Mr Patterson to Mr Bayliss on 12 October 2007. In that conversation, it was said that if the proceedings were discontinued, the ABC would not press for any personal costs order against Mr Bayliss but that if the case continued, an order would be sought. That threat was repeated in the letter dated 16 October 2007, with the added warning that the costs would be sought on an indemnity basis.

63 Mr Bayliss contends that those threats created a conflict between his interests and those of his clients and improperly placed him under pressure to prefer his own interests. Mr Curtin submitted that the position of the two individual plaintiffs was unrelated to that of the void company and that they should not have been linked in the settlement offer.

64 The ABC’s threat to press for a personal costs order against Mr Bayliss if the proceedings continued followed its discovery of what appeared to be cogent evidence that Nu-Tec was not a company duly incorporated with power to sue in its corporate name. If the ABC’s understanding was correct, it followed inexorably that Mr Bayliss did not have a valid retainer from one of the three plaintiffs. As submitted by the ABC, the usual order in such cases is that the solicitor must pay so much of the other party’s costs as are attributable to the company being made a party: Harry Bagg’s Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 at 430G per Powell J. That is not a legal rule, but “the outcome which would usually be produced in a sound exercise of discretion”: Zimmerman Holdings Pty Ltd v Wales [2002] NSWSC 447 at [10] per Bryson J, approved in Hillig v Darkinjung Pty Ltd (No 2) [2008] NSWCA 147 at [51] to [52] per McColl JA, Beazley and Giles JJA agreeing. I see no impropriety in making an application for such costs at the time when an order is sought dismissing the proceedings brought by the company.

65 Further, the ABC was entitled to assume that, since the other two plaintiffs claimed to be directors of Nu-Tec, they bore a measure of responsibility for the circumstances giving rise to the retainer issue: cf Harry Bagg’s at 431C. That proposition is ignored in Mr Bayliss’ contention that the position of the individuals should not have been linked in the settlement offer.

66 The ABC had sent Mr Bayliss a copy of the evidence it had obtained and had invited him to say whether it was mistaken in its understanding of Nu-Tec’s status. That correspondence had been met with a stony silence. The parties were hurtling towards a three-day jury trial. The ABC’s lawyers had identified an important threshold question that had the potential to throw the trial off the rails, but Mr Bayliss would not engage with them on that topic.

67 In those circumstances, although I accept that the reminder of the threat to pursue Mr Bayliss for costs was calculated to put pressure on him, I do not think it could reasonably be concluded that the pressure was improper. In my view, the ABC was entitled to be concerned about the apparent inattention within the plaintiffs’ camp to the issue it had raised. It was not improper to seek to sharpen Mr Bayliss’ focus by firmly reminding him of his responsibility to see that costs were not being improperly incurred.

68 I do not accept that the ABC created the conflict of interest. As submitted by Mr Sheahan, a solicitor is in a position of potential conflict as soon as there is a challenge to his retainer.

69 Mr Curtin contended that the terms of the conversation complained of made it explicitly clear to Mr Bayliss that his personal financial position would be improved if the plaintiffs accepted the offer of settlement. He submitted that it cannot be other than improper to exert pressure on a solicitor in relation to his private interests in order to achieve a settlement.

70 I do not accept that submission. Plainly, there could well be impropriety in exerting pressure on a solicitor in relation to personal interests that were entirely collateral to his conduct of the litigation, but I do not think the position can be stated so simply in respect of issues arising directly from the solicitor’s role in a case.

71 It is an inescapable feature of legal practice that the conduct of litigation touches the personal interests of the solicitor on the record. Mr Sheahan noted that conflicts of interest in relation to costs are endemic to most relationships between solicitor and client. He cited the obvious example that an early resolution of a claim deprives a solicitor of the fees he stood to earn during a contested hearing. For legal practitioners who accept instructions on a speculative basis, the conflict is even more acute. Section 56 of the Civil Procedure Act itself exerts pressure on a solicitor in relation to his private interests by demanding that he prefer the interests expressed in the overriding purpose.

72 The potential liability of a solicitor under s 99 is one of the many matters that may affect his personal interests. The solicitor on the record in proceedings governed by the Civil Procedure Act has a personal interest in maintaining that he has complied with the professional obligations recognised in that section. The potential conflict between that interest and the interests of the client is inescapable. It exists in every case as a result of the power recognised in s 99, not as a result of anything said by an opposing solicitor.

73 A recurring feature of the ABC’s settlement offers was that it was prepared to forego any entitlement to an order for costs against Mr Bayliss under s 99. That was a focal point of the conflict of interest faced by Mr Bayliss, but not its cause. When the offer was made, the events that would determine whether Mr Bayliss was vulnerable to be held liable under s 99 had already occurred and were known to Mr Bayliss and his clients but not to the ABC. The need for him and his clients, when considering the offer, to assess their respective responsibility for the problem that had arisen and the implications of those matters for the claim of each plaintiff was not a problem of the ABC’s making. As submitted by Mr Sheahan, it was part of Mr Bayliss’ professional responsibility to be able to deal with the conflict without sacrificing his clients’ interests.

74 The position would be different had the threats to seek a personal costs order been baseless. However, for the reasons I have indicated, I am satisfied that there was a proper basis for threatening such an application. I am not satisfied that there was any impropriety in the telephone call of 12 October 2007 or the letter dated 16 October 2007.

75 The third charge of contempt is based on the telephone call made by Mr Patterson on 16 October 2007 when he asked Mr Bayliss whether he had instructions in respect of the offer and reminded him that it expired the following day. On that issue, Mr Curtin adopted the statement of Lord Diplock in Attorney-General (UK) v Times Newspapers Ltd [1974] AC 273 at 311B that “parties to litigation are entitled to the same freedom from interference in negotiating the settlement of a civil action as they are from interference in the trial of it.”

76 I do not think that Mr Patterson’s call amounted to interference in the negotiation of the settlement. As submitted by Mr Sheahan, the call seems to have been completely innocuous. In my view, it was proper for Mr Patterson to follow up the issue of settlement when the time for intensive preparation for the trial was well upon them.

77 The fourth charge is based on the notice of motion filed in Court on 24 October 2007. Mr Curtin submitted that the third prayer for relief was calculated or inherently likely to bring about the result of preventing Mr Bayliss from acting for the plaintiffs as it gave rise to “a real sensible possibility of conflict” between his interests and those of his clients, and was at the very least inherently likely to interfere with his objectivity as their solicitor. For the reasons discussed above, I reject the notion that it was the ABC that created the conflict. In my view, it was not inappropriate for the ABC to make the application when it did. That there was a proper basis for the application was only confirmed by the events at the hearing on 24 October 2007.

The offers made after the hearing

78 Mr Bayliss’ complaint in respect of the several communications in the week following the hearing focussed on the persistence and threatening tone of that correspondence. The first is the letter sent by Mr Duhs on the evening of the trial. The propriety of sending a letter in those terms must be viewed in context. The section 7A hearing was, as Mr Sheahan put it, “forensic mayhem.” Making due allowance for the fact that Mr Bayliss is constrained from explaining how that occurred, the ABC was, on any view, entitled to be indignant at the events that had unfolded that day. Mr Duhs’ letter was, in my view, a fair statement of the position that had been reached as a result of those events. I see no impropriety whatsoever in the further letter sent on 26 October 2007, nor in the telephone conversations of that day.

79 As to the letters dated 29 October and 30 October 2007, Mr Curtin submitted that these were a continuation of the earlier process with the added vice of making Mr Bayliss a party to the proposed settlement agreement. As already noted, it is accepted that there was a proper basis for seeking costs against Mr Bayliss. The proposition appears to be that it was improper to seek to resolve all issues in the proceedings, including the claim against Mr Bayliss, in a single settlement offer.

80 Mr Sheahan submitted that the proposed term that would require Mr Bayliss to indemnify the ABC if the two directors failed to make their contribution to the costs was no more than a device calculated to ensure that he would insist that the money was available from his clients before completing the settlement.

81 In the context of what had gone before, that subtlety may have been lost on Mr Bayliss. In my view, the offers contained in those two letters placed excessive emphasis on Mr Bayliss’ exposure to liability for costs and were unfortunate in that respect. However, I do not think there are reasonable grounds for concluding that they amounted to contempt. No doubt, the terms of the offers reflected the ABC’s frustration at the shambolic events of the previous week and the plaintiffs’ silence in the face of its many offers. Mr Bayliss was an experienced litigator. There is no suggestion that he had any particular vulnerability: cf Bhagat at [49] per Spigelman CJ and at [54] per Ipp JA. The letters introduced no new conflict. In my view, the Court should be slow to treat a genuine offer to resolve all issues in legal proceedings as amounting to contempt of Court.

The application for costs thrown away

82 There was no further correspondence until March 2008 when the ABC asked Mr Bayliss to pay the costs of the adjourned s7A hearing. Mr Bayliss says that request was inherently likely to cause him to cease to act. However, as already noted, Mr Bayliss has accepted that there was a proper basis for the application. As I understand his position, the alleged impropriety lies in the timing.

83 For the reasons I have already given, I do not think it is inherently improper to seek costs under s 99 before the conclusion of the proceedings.

84 The statements by counsel for the plaintiffs that caused the trial to be vacated were made in the presence of Mr Bayliss and he had made no attempt to have them withdrawn. He had been on notice, since at least 2 October 2007, of the need for him to clarify the issue of Nu-Tec’s status prior to the hearing. There was plainly a proper basis for the ABC to seek its costs thrown away, before it incurred any further costs defending the claim, after it appeared that he had failed to do so.

85 The issue whether the application, having been made, should be entertained at that stage was a matter for the Court. The fact that Mr Bayliss says he acted at all times on advice and instructions which he is constrained from disclosing is a compelling consideration in favour of postponing the hearing of the application. In my view, however, there was no impropriety in making it. I do not think there is any substance in Mr Bayliss’ allegations of impropriety in respect of the ABC’s applications for the costs thrown away by the vacation of the trial.

86 A discrete complaint made by Mr Bayliss was that the application made by the notice of motion dated 18 March 2008 was unnecessary because the ABC had separately sought the costs of the proceedings commenced by Nu-Tec which would include the costs of the vacated trial. The ABC’s refusal to agree with the suggestion that the costs issues should be postponed until after the hearing of the separate question is relied on as a separate charge of contempt. In my view, that complaint reflects an unduly precious approach. If the ABC’s applications involved some duplication, or the solicitors disagreed as to the order in which they should be heard, those were issues of the kind that frequently arise in litigation and which solicitors must take in their stride. In my view, the contention that the ABC’s position on those issues was improper conduct amounting to contempt is completely unsustainable.

87 A further complaint made by Mr Bayliss is that the ABC was claiming the costs against Mr Bayliss and the two directors jointly and severally. Mr Curtin submitted that this was “an assertion that was wrong in law and therefore false”. I do not accept that submission. Whether or not there was any support in authority for the claim to have the costs payable jointly and severally, it cannot be said to have been improper to make the application.

88 I am not satisfied that there are reasonable grounds for concluding that any of the conduct complained of, considered either individually or as a course of conduct, amounted to contempt.

Should the ABC be directed to serve affidavits and written submissions in advance of the contempt hearing?

89 The ABC consented to the directions requiring it to file and serve affidavits and written submissions in respect of Mr Bayliss’ original motion. The question arises whether those directions remain appropriate in the face of his application to have the ABC punished for contempt.

90 Contempt out of court committed in connection with proceedings in the court is a common law offence punishable summarily by the court in its inherent jurisdiction: John Fairfax & Sons Pty Ltd v McRae (1954-1955) 93 CLR 351 at 360.9. The recognition of jurisdiction to deal summarily with contempts other than those in the face of the court is generally accepted as being based on historical error (discussed in Miller, Contempt of Court, 3rd Ed at 3.01 to 3.07 and Arlidge, Eady & Smith on Contempt at 1.51 to 1.56) but its existence is now beyond doubt: James v Robinson (1963) 109 CLR 593 at 600.7 to 602.1; Re Colina & Anor; Ex Parte Torney [1999] HCA 57; (1999) 200 CLR 386 at [12] – [14].

91 The summary jurisdiction to punish for contempt in this Court is governed by the Supreme Court Act and Part 55 of the Supreme Court Rules: Fraser v R (No 2) (1985) 1 NSWLR 680 at 692D per McHugh JA; DPP (Cth) v Sexton [2008] NSWSC 352 at [9] per Howie J. There are statutory provisions and rules that govern proceedings in which the Court is exercising its summary jurisdiction in proceedings “under any Act” (Part 5 of Chapter 4 of the Criminal Procedure Act 1986 and Part 75 SCR) but those provisions do not apply when the court is exercising its summary jurisdiction at common law: Sexton at [11].

92 There is no express rule as to whether affidavits should be served in advance of the hearing by a party against whom an application for punishment for contempt is made under Part 55. Rule 8 provides that the evidence in support of the charge shall be by affidavit, but is silent on the topic of evidence from the person against whom the application is brought.

93 In that context, the parties accepted that the question whether the ABC should be directed to serve affidavits in advance of the hearing is a matter within the discretion of the Court. In my judgment, the ABC should not be required to serve any material in advance of the trial in the present case. Mr Bayliss has, by his application, assumed the role of a prosecutor. The onus of proving the guilt of the ABC rests on him and never shifts to the ABC: EPA v Caltex (1993) 178 CLR 447 per McHugh J at [30].

94 Mr Curtin submitted that the days of trial by ambush are over, but it is not Mr Bayliss who is now on trial. The application, although brought only against the ABC, rests on allegations of improper conduct on the part of three legal practitioners employed by the ABC.

95 Mr Curtin relied on the decision of the Court of Appeal in Athens v Randwick City Council [2005] NSWCA 317; 64 NSWLR 58 where the Court noted that the procedure in contempt proceedings is not the same as in a criminal trial: at [62] and [89] (citing Witham v Holloway (1995) 183 CLR 525). The relevant passage in Witham appears at 534.6 per Brennan, Deane, Toohey and Gaudron JJ, where their Honours said:

“However, to say that proceedings for contempt are essentially criminal in nature is not to equate them with the trial of a criminal charge. There are clear procedural differences, the most obvious being that criminal charges ordinarily involve trial by jury, whereas charges of contempt do not.”

96 As I read that passage, their Honours were referring only to the distinction between trial on indictment and proceedings that are disposed of summarily.

97 In Athens, the Court held that it had been within the discretion of the trial Judge to refuse to entertain a “no case” submission in a contempt case at [90]. In that case, however, the contempt alleged was disobedience to an order of the Court. Those proceedings were accordingly properly described as civil proceedings, even though the criminal standard of proof applied.

98 The contempt alleged by Mr Bayliss against the ABC is a criminal contempt. If the disposal of that proceeding should be just and efficient, as contended by Mr Curtin, that should not be at the expense of according the ABC a fair process in accordance with the fundamental rules of the common law. I do not think the ABC should be compelled to disclose its evidence in defence of the charge.

99 In the circumstances, I will not direct the ABC to serve written submissions in advance of the hearing. It has already served detailed submissions on the legal question whether the conduct identified in the statement of charge amounts to contempt. Since the ABC is not to be directed to serve its evidence in advance of the hearing, there would in my view be no utility in its being directed to serve any further submissions.

100 The orders I propose are:

1. I note that I am not satisfied that there are reasonable grounds for finding that the ABC has committed the offence of contempt.

2. I direct the ABC to inform Mr Bayliss within 14 days of any claim of client legal privilege in respect of any document sought in his notice to produce dated 14 August 2008.

3. I dismiss the application by Mr Bayliss for a direction requiring the ABC to file and serve affidavits and written submissions in respect of the contempt application.

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LAST UPDATED:
26 February 2009