Treadwell v Hickey [2010] NSWSC 1119 (1 October 2010)

Last Updated: 5 October 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Treadwell v Hickey [2010] NSWSC 1119


JURISDICTION:
Equity Division

FILE NUMBER(S):
2005/260900

HEARING DATE(S):
04/06/10, 18/06/10

JUDGMENT DATE:
1 October 2010

PARTIES:
Richard John Hickey - Applicant
Denis Fitzpatrick - First Respondent
Robin Ernest Treadwell - Second Respondent

JUDGMENT OF:
Barrett J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr A S Martin SC - Applicant (Mr R J Hickey)
Mr D R Pritchard SC/Ms S Callan - First Respondent (Mr D Fitzpatrick)

SOLICITORS:
McMahons Lawyers - Applicant
Fitzpatrick Solicitors - First Respondent



CATCHWORDS:
PROCEDURE - costs - where plaintiff unsuccessful in proceedings - order that plaintiff pay defendant's costs - subsequent application by defendant for order under s 348(1)(b) of Legal Profession Act 2003 or s 99(2)(c) of Civil Procedure Act 2005 that plaintiff's solicitor pay defendant's costs - whether solicitor acted for plaintiff "without reasonable prospects of success" - whether solicitor caused costs to be incurred "improperly or without reasonable cause" - neither allegation made out

LEGISLATION CITED:
Civil Procedure Act 2005, ss 98, 99
Corporations Act 2001 (Cth), ss 181, 182, 1317E
Legal Profession Act 2004, ss 345, 347, 348
Supreme Court Act 1981 (UK), s 51(6) and (7)

CATEGORY:
Principal judgment

CASES CITED:
Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225
Degiorgio v Dunn (No2) [2005] NSWSC 3; (2005) 62 NSWLR 284
European Hire Cars Pty Ltd v Beilby Poulden Costello [2009] NSWSC 526
Firth v Latham [2007] NSWCA 40
Harvey v McDonald [1999] 3 NZLR 545
Ideal Waterproofing Pty Ltd v Buildcorp Australia Pty Ltd [2006] NSWSC 155
Karwal v Skrzypczak [2007] NSWSC 931
Kelly v Jowett [2009] NSWCA 278
Lemoto v Able Technical Pty Ltd [2005] NSWCA 153; (2005) 63 NSWLR 300
Oshlack v Richmond River Council [1998] HCA 11 ; (1998) 193 CLR 72
Re the Black Stump Enterprises Pty Ltd (No 2) [2006] NSWCA 60
Ridehalgh v Horsefield [1994] Ch 205
Tarabay v Bechara [2010] NSWSC 202
Treadwell v Hickey [2009] NSWSC 1395
Whyked Pty Ltd v Yahoo!7 Pty Ltd [2008] NSWSC 477

TEXTS CITED:
Dal Pont: Lawyers’ Professional Responsibility in Australia and New Zealand (2nd ed.) at 375

DECISION:
The amended notice of motion filed on 4 June 2010 is dismissed. The applicant under the amended notice of motion will pay the costs of the respondents of and incidental to the amended notice of motion.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


BARRETT J

FRIDAY 1 OCTOBER 2010

2005/260900 ROBIN ERNEST TREADWELL v RICHARD JOHN HICKEY

JUDGMENT

1 On 16 December 2009 I dismissed all claims made by Mr Treadwell against Mr Hickey and ordering that Mr Treadwell pay Mr Hickey’s costs of the proceedings: see Treadwell v Hickey [2009] NSWSC 1395. Mr Fitzpatrick was Mr Treadwell’s solicitor in the proceedings.

2 By an amended notice of motion filed on 4 June 2010 and naming Mr Fitzpatrick as first respondent and Mr Treadwell as second respondent, Mr Hickey seeks orders as follows:

“1. That pursuant to s 348(1)(b) of the Legal Profession Act 2004 and/or section 99(2)(c) of the Civil Procedure Act 2005 the first respondent pay the applicant’s costs of these proceedings or such costs as the Court sees fit on an indemnity basis:

1A. Alternatively, pursuant to s 348(1)(b) of the Legal Profession Act 2004 the First Respondent be directed to indemnify the applicant against the whole or part of the costs payable by him to his legal representatives in respect of and associated with these proceedings.

2. That pursuant to s 98 of the Civil Procedure Act 2005, Order 2 made on 16 December 2009 be varied by the addition of the words “on an indemnity basis”.

3. That pursuant to r 36.17 of the Uniform Civil Procedure Rules 2005, Orders 1 and 2 made on 16 December 2009 be amended by the substitution of “John” for “James” where appearing.

4. That the first and second respondents pay the applicant’s costs of this notice of motion.

5. Any further or other orders which the Court deems appropriate.”

3 Order 3 of the amended notice of motion was made on 4 June 2010.

Background

4 In order to understand the amended notice of motion it is necessary to refer briefly to the factual and procedural history. It was common ground in the proceedings that, in June 1998, Mr Hickey was retained by Mr Treadwell, on behalf of the companies in the Greenfold Group, to act as their accountant and to attend to their taxation and accountancy affairs.

5 Proceedings against Mr Hickey were commenced on 4 June 2003 by Greenfold Consulting Pty Ltd, Wenrob Pty Ltd and Mr Treadwell. Those proceedings were discontinued in March 2005. Mr Fitzpatrick had no involvement in relation to those proceedings.

6 Mr Fitzpatrick was first instructed by Mr Treadwell in April 2005. After receiving instructions and meeting with Mr Treadwell, Mr Fitzpatrick turned his attention to a quantity of documents concerning the 2003 proceedings. Greenfold Consulting assigned to Mr Treadwell its cause of action against Mr Hickey. Mr Fitzpatrick subsequently received instructions from Mr Treadwell to commence new proceedings against Mr Hickey.

7 The motion now before the court arises out of those new proceedings. They were commenced by the filing of a statement of claim on 10 August 2005. It was substantially similar to that filed in the 2003 proceedings. Mr Treadwell sought damages for breach of contract and negligence in relation to the provision of the services by Mr Hickey to the Greenfold Group. Each cause of action upon which Mr Treadwell sued as plaintiff in these proceedings was a cause of action that is said to have arisen originally in either Greenfold Staff Solutions Pty Ltd (“Staff”) or Greenfold Consulting Pty Ltd (“Consulting”). Mr Treadwell sued upon the several causes of action as assignee.

8 The statement of claim of 9 August 2005 alleged that the scope of Mr Hickey’s retainer included internal management responsibilities to the Greenfold Group and in particular financial management, and that Mr Hickey had breached these terms of his retainer causing companies in the Greenfold Group to suffer loss and damage.

9 After the filing of an amended statement of claim 0n 19 April 2007, Mr Fitzpatrick had to inspect and examine documents produced on discovery, documents produced in answer to subpoena, and the affidavit evidence served by Mr Hickey. As a consequence, a further amended statement of claim of 18 September 2009 was filed pursuant to leave granted on 16 September 2009.

10 Mr Fitzpatrick signed a certificate under s 347 of the Legal Profession Act 2004 in relation to each version of the statement of claim.

11 The trial commenced on 23 November 2009. The further amended statement of claim pleaded the terms of the retainer and the alleged breaches in detail. At trial, however, Mr Treadwell ultimately pressed only a relatively few alleged breaches of retainer (and corresponding negligence). The major points of difference between the parties concerning the retainer were, first, whether Mr Hickey undertook to deal comprehensively with statutory compliance issues, and second, as to the significance of Mr Hickey’s becoming a director of four of the Greenfold Group companies. Two additional claims were advanced by the plaintiff; the first concerned a laptop computer retained by Mr Hickey and the second, related to a loan of $24,000 to Mr Hickey.

12 At the conclusion of the hearing, judgment was reserved. On 16 December 2009, Mr Treadwell’s claims were dismissed. The court accepted the version of the retainer put forward by Mr Hickey, that it was a “standard accountant/client engagement”, as distinct from Mr Treadwell’s version which entailed total and comprehensive responsibility of Mr Hickey for all statutory compliance matters. In addition, the court found against Mr Treadwell in relation to the two discreet claims involving a laptop computer and a purported loan.

13 The decision was reached by reference to a number of factors: first, Mr Treadwell’s version of the retainer did not accord with the objective facts and contemporaneous documents; second, Mr Treadwell had failed to adduce evidence sufficient to support the contention that Mr Hickey was retained for reward to be a director; third, Mr Treadwell failed to make good allegations in respect of breaches of retainer in regard to payroll tax and business activity statements; fourth, Mr Treadwell failed to adduce evidence in regard to an agreement with respect to the laptop computer; fifth, s 553C of the Corporations Act 2001 operated in respect of the loan so as to extinguish the debt.

The matters for decision

14 In relation to Mr Treadwell, the order sought by Mr Hickey in these costs proceedings is that the costs order made on 16 December 2009 be varied so as to provide for an award of costs against the plaintiff on an indemnity basis.

15 For separate determination is the question whether an order pursuant to s 348(1)(b) of the Legal Profession Act or, alternatively, s 99(2)(c) of the Civil Procedure Act 2005 should be made against Mr Fitzpatrick.

The claim against the solicitor

16 The issue of whether a costs order should be made against Mr Fitzpatrick was the central issue in the costs argument before me. I shall address it first.

17 It is Mr Hickey’s contention that the case brought against him by Mr Treadwell was so lacking in merit and substance so as to be not fairly arguable and that Mr Fitzpatrick’s view about prospects of success did not have an objective foundation in the material available to him at the relevant time. Alternatively, it is submitted that if Mr Fitzpatrick did in fact believe that there was material which objectively justified proceeding with the case that belief fell outside the range of views which could be reasonably entertained.

18 The claim against Mr Fitzpatrick is made under s 348(1)(b) of the Legal Profession Act 2004 and s 99(2)(c) of the Civil Procedure Act 2005. Although the sections are framed differently and require separate consideration, there are a number of principles with equal application to each section.

19 In Lemoto v Able Technical Pty Ltd [2005] NSWCA 153; (2005) 63 NSWLR 300, McColl JA set out at [92] a number of guiding principles which the court will take into consideration when exercising a power to order a legal practitioner to pay the costs of proceedings in which the practitioner has represented a party:

“(a) The jurisdiction to order a legal practitioner to pay the costs of legal proceedings in respect of which he or she provided legal services must be exercised “with care and discretion and only in clear cases”: Ridehalgh (at 229); Re Bendeich (No 2) [1994] FCA 1504; (1994) 53 FCR 422; Deputy Commissioner of Taxation v Levick [1999] FCA 1580; (1999) 168 ALR 383 at 389 [11]; [1999] FCA 1580; 43 ATR 621 at 627 [11], per Hill J; Levick v Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155 at 166 [44]; Gitsham v Suncorp

Metway Insurance Ltd [2002] QCA 416 at [8], per White J (with whom Davies JA and Williams JA agreed); De Sousa v Minister for Immigration, Local Government and Ethnic Affairs [1993] FCA 146; (1993) 41 FCR 544; Money Tree Management Services Pty Ltd and Institute of Taxation Research v Deputy Commissioner of Taxation (No 3) [2000] SASC 286; (2000) 45 ATR 262;

(b) A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he or she acts for a party who pursues a claim or a defence which is plainly doomed to fail: Ridehalgh (at 233); Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 at 143 [56], per Lord Hobhouse of Woodborough; White Industries (Qld) Pty Ltd v Flower & Hart (a firm) [1998] FCA 806; (1998) 156 ALR 169; 29 ACSR 21 (affirmed on appeal; Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134); Levick v Commissioner of Taxation; cf Steindl Nominees Pty Ltd v Laghaifar [2003] QCA 157; [2003] 2 Qd R 683;

(c) the legal practitioner is not “the judge of the credibility of the witnesses or of the validity of the arguments”: Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289 at 297; [1951] WN 247 at 238; the legal practitioner is not “the ultimate judge, and if he reasonably decides to believe his client, criticism cannot be directed to him”: Myers v Elman (at 304) per Lord Atkin; Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation (2001) 179 ALR 406 at 413 [34]; 47 ATR 1 at 8 [34], per Callinan J;

(d) A judge considering making a wasted costs order arising out of an advocate's conduct of court proceedings must make full allowance for the exigencies of acting in that environment; only when, with all allowances made, a legal practitioner's conduct of court proceedings is quite plainly unjustifiable can it be appropriate to make a wasted costs order: Ridehalgh (at 236, 237);

(e) A legal practitioner against whom a claim for a costs order is made must have full and sufficient notice of the complaint and full and sufficient opportunity of answering it: Myers v Elman (at 318); Orchard v South Eastern Electricity Board (at 572); Ridehalgh (at 229);

(f) Where a legal practitioner's ability to rebut the complaint is

hampered by the duty of confidentiality to the client he or she should be given the benefit of the doubt: Orchard v South Eastern Electricity Board (at 572); Ridehalgh (at 229); in such circumstances “[t]he court should not make an order against a practitioner precluded by legal professional privilege from advancing his full answer to the complaint made against him without satisfying itself that it is in all the circumstances fair to do so”: Medcalf (at 134 [23]) per Lord Bingham of Cornhill;

(g) The procedure to be followed in determining applications for wasted costs must be fair and “as simple and summary as fairness [2005] NSWCA 153; (2005) 63 NSWLR 300 at 322 permits...[h]earings should be measured in hours, and not in days or weeks... Judges ... must be astute to control what threatens to become a new and costly form of satellite litigation”: Ridehalgh (at 238–239); Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678 at 703 [50]; Medcalf (at 136 [24]).”

The Legal Profession Act 2004

20 The relevant provisions of the Legal Profession Act 2004 are ss 345 and 348, contained in Pt 3.2, Division 10:

“345 Law practice not to act unless there are reasonable prospects of success

(1) A law practice must not provide legal services on a claim or defence of a claim for damages unless a legal practitioner associate responsible for the provision of the services concerned 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 associate 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 law practice or a legal practitioner associate of the practice may have to act in accordance with the instructions or wishes of the 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.”

348 Costs order against law practice acting without reasonable prospects of success

(1) If it appears to a court in which proceedings are taken on a claim for damages that a law practice 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 practice or of a legal practitioner associate of the practice responsible for providing the services:

(a) an order directing the practice or associate 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 practice or associate 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 law practice or legal practitioner associate of the practice is not entitled to demand, recover or accept from a client any part of the amount for which the practice or associate is directed to indemnify a party pursuant to an order under this section.”

“Reasonable prospects of success”

21 Under s 348(1), an order may be made against a legal practitioner if it appears to the court that the practitioner has provided legal services to a party to proceedings upon a claim for damages “without reasonable prospects of success”. The threshold question, whether the proceedings were “taken on a claim for damages” was not in issue as between the parties to this case.

22 The onus remains upon the costs applicant throughout to demonstrate that the legal practitioner had provided legal services without reasonable prospects of success: per McColl JA in Lemoto at [137].

23 The construction of the phrase “without reasonable prospects of success” has been considered in a number of cases. In Degiorgio v Dunn (No2) [2005] NSWSC 3; (2005) 62 NSWLR 284, I accepted at [26] that the predecessor statutory provision imposed upon legal practitioners a standard that is more demanding than that applicable in cases where, by reference to general law principles, a costs order is sought against a party’s lawyer. I expressed the view that “without reasonable prospects of success” means “so lacking in merit or substance as to be not fairly arguable”.

24 At [17] of the judgment, I said that one of the elements of the statutory standard imposed upon practitioners is that “the reasonable belief” as to the prospects of success “must have its objective foundation in material available to the practitioner at the relevant time”. This construction was subsequently approved by McColl JA in Lemoto at [131]-[132], the leading judgment in the area.

25 The authorities show that a costs order under s 348 of the Legal Profession Act is not to be lightly imposed upon a practitioner who has represented an unsuccessful party to a proceeding. Indeed there is a high threshold, which must be satisfied before the court will consider exercising its discretion to make such an order.

26 The language of the statutory formulation is permissive rather than mandatory. If it is shown that a law practice has provided legal services to a party without reasonable prospects of success a discretion as to the exercise of the power remains.

The Civil Procedure Act 2005

27 The relevant section, relied upon by Mr Hickey, is as follows:

“99 Liability of legal practitioner for unnecessary costs

(1) This section applies if it appears to the court that costs have been 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.

(2) After giving the legal practitioner a reasonable opportunity to be heard, the court may do any one or more of the following:

(a) it may, by order, disallow the whole or any part of the costs in the proceedings:

(i) in the case of a barrister, as between the barrister and the instructing solicitor, or as between the barrister and the client, as the case requires, or

(ii) in the case of a solicitor, as between the solicitor and the client,

(b) it may, by order, direct the legal practitioner:

(i) in the case of a barrister, to pay to the instructing solicitor or client, or both, the whole or any part of any costs that the instructing solicitor or client, or both, have been ordered to pay to any other person, whether or not the solicitor or client has paid those costs, or

(ii) in the case of a solicitor, to pay to the client the whole or any part of any costs that the client has been ordered to pay to any other person, whether or not the client has paid those costs,

(c) it may, by order, direct the legal practitioner to indemnify any party (other than the client) against costs payable by that party.

(3) Before making such an order, the court may refer the matter to a costs assessor (within the meaning of Part 3.2 of the Legal Profession Act 2004 ) for inquiry and report.

(4) The court may direct that notice of any proceedings or order under this section with respect to a legal practitioner be given:

(a) in the case of a barrister, to the instructing solicitor or client, or both, as the court may direct, or

(b) in the case of a solicitor, to the client.

(5) The court may give ancillary directions to give full effect to an order under this section, including directions to a legal practitioner to provide a bill of costs in assessable form:

(a) to the court, or

(b) to a party to the proceedings, or

(c) in the case of a barrister, to the instructing solicitor or client, or both, or

(d) in the case of a solicitor, to the client.

(6) A party’s legal practitioner is not entitled to demand, recover or accept:

(a) in the case of a barrister, from the instructing solicitor or client, or

(b) in the case of a solicitor, from the client,

any part of the amount for which the legal practitioner is directed by the court to indemnify any party pursuant to an order referred to in subsection (2) (c).

(7) In this section, "client" includes former client”.

28 In Whyked Pty Ltd v Yahoo!7 Pty Ltd [2008] NSWSC 477 at [12], McDougall J, while noting that the general law provided valuable guidance as to the exercise of the discretion to award costs against a legal practitioner, held that the discretion must be exercised by reference to the statutory formulation of the power. His Honour remarked:

“Further, and more generally, it is necessary to bear in mind that the power to order costs against a legal practitioner is that now found in s 99 of the Civil Procedure Act, and to be exercised in accordance with the terms of that section. There is a danger in substituting analyses of, or glosses upon, the section for the language employed in it.”

29 The central concepts in s 99(1), namely “neglect”, “incompetence”, “misconduct”, “improperly” or “without reasonable cause” are not defined in the section or otherwise in the Civil Procedure Act.

30 The court’s power to make a costs order against a legal practitioner pursuant to s 99 was considered by Sully J in Ideal Waterproofing Pty Ltd v Buildcorp Australia Pty Ltd [2006] NSWSC 155. His Honour concluded at [17] that s 99 should be applied consistently with the principles stated in Ridehalgh v Horsefield [1994] Ch 205. This approach was subsequently supported by Windeyer J in Karwal v Skrzypczak [2007] NSWSC 931 at [9]; McDougall J in Whyked Pty Ltd v Yahoo!7 Pty Ltd [2008] NSWSC 477 at [17]-[19] and Bryson AJ in European Hire Cars Pty Ltd v Beilby Poulden Costello [2009] NSWSC 526 at [59].

31 Ridehalgh (above) concerned aspects of the proper construction and application of s 51(6) and (7) of the English Supreme Court Act 1981 (UK), provisions which generally correspond with the terms of s 99 of the Civil Procedure Act. The judgment of Bingham JR, Rose LJ and Waite LJ in Ridehalgh is particularly useful because of the consideration given to the meaning of “improper, “unreasonable” and “negligent” in respect to the jurisdiction to award costs against legal practitioners. Their Lordships said at 223-233:

“’Improper’ means what it has been understood to mean in this context for at least half a century. The adjective covers, but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty. It covers any significant breach of a substantial duty imposed by a relevant code of professional conduct. But it is not in our judgment limited to that. Conduct which would be regarded as improper according to the consensus of professional (including judicial) opinion can be fairly stigmatised as such whether or not it violates the letter of a professional code.

‘Unreasonable’ also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the event to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner's judgment, but it is not unreasonable.

The term ‘negligent’ was the most controversial of the three. It was argued that the Act of 1990, in this context as in others, used ‘negligent’ as a term of art involving the well known ingredients of duty, breach, causation and damage. Therefore, it was said, conduct cannot be regarded as negligent unless it involves an actionable breach of the legal representative's duty to his own client, to whom alone a duty is owed. We reject this approach. ...

But for whatever importance it may have, we are clear that ‘negligent’ should be understood in an untechnical way to denote failure to act with the competence reasonably to be expected of ordinary members of the profession.

In adopting an untechnical approach to the meaning of negligence in this context, we would however wish firmly to discountenance any suggestion that an applicant for a wasted costs order under this head need prove anything less than he would have to prove in an action for negligence: ‘advice, acts or omissions in the course of their professional work which no member of the profession who was reasonably well-informed and competent would have given or done or omitted to do’; an error ‘such as no reasonably well-informed and competent member of that profession could have made’: see Saif Ali v. Sydney Mitchell & Co. [1980] A.C. 198 , 218, 220, per Lord Diplock.

We were invited to give the three adjectives (improper, unreasonable and negligent) specific, self-contained meanings, so as to avoid overlap between the three. We do not read these very familiar expressions in that way. Conduct which is unreasonable may also be improper, and conduct which is negligent will very frequently be (if it is not by definition) unreasonable. We do not think any sharp differentiation between these expressions is useful or necessary or intended.”

32 The Court of Appeal said, in relation to the pursuit of a hopeless case:

“A legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he acts for a party who pursues a claim or a defence which is plainly doomed to fail ... It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it.”

33 Two additional principles were referred to by Sully J in Ideal Waterproofing. The first body of principle which his honour referred to was said to be taken from Dal Pont: Lawyers’ Professional Responsibility in Australia and New Zealand (2^nd ed.) at 375:

“Importantly, the jurisdiction to order costs against a lawyer personally is one to be exercised sparingly, ‘with care and discretion and only in clear cases’, especially where the order sought is one for indemnity costs. This is because, inter alia, it will often be difficult for a court to know all the details and circumstances of the lawyer’s instructions. There is no cause for the jurisdiction to be exercised merely because the litigation is decided adversely to the litigant, for otherwise ‘those seeking to advance legitimate claims, or pursue legitimate defences might well be deprived of legal representation and access to justice, in consequence, would be impeded’. Nor should the jurisdiction be attracted merely because of the lawyer’s bona fide mistake or error of judgment, or where the client has misled the lawyer as to the facts which would otherwise not have justified the action ... ... To attract this jurisdiction, the lawyer’s conduct must have involved a serious dereliction of duty or gross negligence.

34 The proposition that the jurisdiction is to be exercised with caution and sparingly cannot be contentious. Indeed it is the first principle referred to by McColl JA in [92] of Lemoto. The principle was held to be applicable to the s 99 jurisdiction in Kelly v Jowett [2009] NSWCA 278 at [60]. Also, in Whyked Pty Ltd McDougall J said:

“... the exercise of the power given by s 99 of the Civil Procedure Act should be undertaken in such a way as to deter legal practitioners from advancing difficult cases, or from accepting instructions from impecunious clients. As a matter of general policy, someone with a case that is not manifestly hopeless should not be denied the opportunity to litigate it”.

35 The second body of principle referred to by Sully J was taken from a decision of the Court of Appeal of New Zealand: Harvey v McDonald [1999] 3 NZLR 545 at [59], [60] and [61]:

“[59] An officer of the Court, whose role is to assist in the administration of justice, cannot properly perform that role if falling below minimum levels of competence and care. There is therefore a duty resting on such officers to achieve and maintain appropriate levels of competence and care. If in serious dereliction of such duty, the officer is properly amenable to the costs jurisdiction of the Court. This duty is reinforced by the fact that Parliament has decreed that practitioners, both barristers and solicitors, must perform at a certain level of competence and care, otherwise sanctions are available in terms of ss 106 and 112 of the Law Practitioners Act 1982. That level is prescribed by giving the disciplinary tribunals power to make orders if of opinion that the practitioner has been guilty of negligence or incompetence in a professional capacity, and that the negligence or incompetence has been of such a degree or so frequent as to reflect on the practitioner's fitness to practise as a barrister or solicitor or as to tend to bring the profession into disrepute.

[60] It is neither necessary nor desirable to attempt to define the level of incompetence or negligence at which the costs jurisdiction can be invoked beyond saying that such incompetence or negligence must amount to a serious dereliction of duty to the Court. There is no necessary correspondence between the level at which disciplinary sanctions are possible under the Law Practitioners Act 1982 and the level required to constitute a serious dereliction of duty to the Court. It can be said, however, that the levels will often coincide, and incompetence or negligence falling short of a disciplinary level under the Act, will not ordinarily amount to a serious dereliction of duty to the Court.

[61] The English ‘wasted costs’ legislation gives the Court jurisdiction if the legal representative has acted ‘improperly, unreasonably, or negligently’. The United Kingdom Parliament has determined that standard to be appropriate, but in terms of the inherent jurisdiction of the High Court in New Zealand we do not consider the standard should ordinarily be set lower than that adopted by our Parliament for the purposes of the Law Practitioners Act 1982. For this Court to adopt the United Kingdom approach would come close to legislating ...”

36 The applicability of any “test of serious dereliction” was questioned both by Windeyer J in Karwal and McDougall J in Whyked Pty Ltd. As stated at paragraph [31] above, the statutory formulation must be adhered to. It is for that reason that I agree that any “test of serious dereliction” is irrelevant when considering exercising the statutory jurisdiction.

The plaintiff’s claims

37 The central controversy in the substantive proceedings was about the scope of the retainer. Mr Treadwell, in his further amended statement of claim at paragraphs 11(a) to (v), pleaded the terms of the retainer in detail. It was Mr Treadwell’s contention that Mr Hickey was retained and employed for reward as an accountant, taxation adviser and director of the companies; furthermore, that the retainer could be distinguished from the ordinary client/accountant relationship because it incorporated extensive responsibilities and duties owed to the client by the accountant, including internal management functions. Mr Treadwell claimed damages for the loss resulting from alleged breaches of the pleaded retainer. It was alleged that the terms of the retainer were both express, as a result of oral conversations between Mr Hickey and Mr Treadwell, and implied, as a result of the professional relationship between the Greenfold Group and Mr Hickey.

38 In addition, it was alleged at paragraphs 17 to 19 that Mr Hickey owed a duty to exercise reasonable care, skill and diligence in his capacity as accountant, taxation adviser and company director. The duties owed in respect of each position held were then particularised in paragraphs 20 to 22.

39 The claims about the laptop computer and the loan were pleaded in paragraphs 31 to 38 of the further amended statement of claim.

40 The allegations concerning breaches of the retainer and negligence were comprehensively detailed at paragraphs 47 to 49 and 51.

41 In addition, Mr Treadwell (as assignee) pleaded a cause of action involving breaches of directors’ duties pursuant to ss 181 and 182 of the Corporations Act 2001.

The hearing

42 The trial occupied four hearing days. During that time both Mr Treadwell and Mr Hickey gave evidence and were cross-examined. The testimony of the natural person protagonists was of central importance because the pleaded retainer was said to come largely from conversations between them.

43 On the morning of the fourth day of the trial, the 26 November 2009, at the conclusion of the defendant’s case the following interchange occurred:

“ROGERS: I have no case in reply, your Honour. I can either give oral submissions - I should say to your Honour I did start doing an outline of submissions which was not wholly successful or wholly completed. It's a matter for your Honour but if you would like me to complete it at lunchtime and give it to your Honour at 2 o'clock but if you want me to continue speaking I am happy to do that.

HIS HONOUR: What I particularly need from you, looking at the statement of claim, is submissions about paragraph 11 which sets out in subparagraphs (a) to (v) which must be 20 odd paragraphs the terms of the retainer and the particulars are the terms were express and implied. To the extent that they are express they were made orally in conversations between Hickey and Treadwell in about June 1998. To the extent that they are implied they arise from the professional nature of the relationship et cetera. I need you to give me chapter and verse on how every one of those terms comes to be applicable as between these parties and I need that by reference to the evidence.

ROGERS: I can tell your Honour that would be a task beyond me on my feet.

HIS HONOUR: I also need the same in relation to the breaches, paragraph 47. We have got pages and pages of breaches and I need you to give me by reference to the evidence exactly how each breach occurred.

ROGERS: May it please the court.

HIS HONOUR: So when can you do that? I mean you should be able to do it now, shouldn't you? I mean that's the case that's been run.

ROGERS: I think that's right. I can't, your Honour. I say that with some shy coyness. I simply cannot give your Honour those cross-references.

HIS HONOUR: How are you proposing to make the submissions? How are you going to make the positive case that's pleaded?

ROGERS: I will not be able to make out a case that each of the matters alleged were failures on the part of Mr Hickey. The case--

HIS HONOUR: So is the case really narrower now than the pleaded case or smaller?

ROGERS: It is in substance. “

44 Counsel for Mr Treadwell then proceeded to outline the claims in respect of the loan to Mr Hickey and in relation to the laptop computer. It is fair to say that counsel then had difficulties enunciating the other claims still relied upon by Mr Treadwell. Counsel went on to make submissions in relation to an alleged failure on Mr Hickey’s part to maintain books and a claim in paragraph 64(d) of the pleading for a declaration under s 1317E of the Corporations Act for breach of director’s duties. In relation to the alleged failure to maintain books, it was admitted that such a claim was not pleaded and thus fell outside the scope of the proceedings. In relation to the s 1317E matter, counsel accepted that again there was no express pleading in support of the relief claimed.

45 The following interchange occurred thereafter:

“ROGERS: Your Honour I have no other matters to put.

HIS HONOUR: So this case has now resolved itself into three claims. One is a debt claim to the effect that Mr Hickey owes a debt to Staff Solutions of $20,600 as pleaded in paragraphs 31 to 33 and 44 of the statement of claim. Second, there is a debt claim related to the purchase of a computer at paragraphs 35 to 38 in the statement of claim and that's it, isn't it?

ROGERS: In substance, yes.

MARTIN: Your Honour, could I just make this point, this is the first we have heard of the plaintiff abandoning the substantial number of claims against my client at 10 minutes past 10 on day 4 of these proceedings, your Honour. No doubt the transcript will record what I am saying but this we submit is just quite extraordinary that my client has been put to the cost and expense of a case that has been effectively on foot since 2003, your Honour, and now at the heel of the hunt, after the evidence has closed, most of the case has been abandoned against him.

Particularly in the light of serious allegations of professional negligence and misconduct, being a breach of his retainer and duty of care and, your Honour, I simply ask for it to be recorded because it will be the subject of a further application I suspect later on.

HIS HONOUR: Is there any merit in my leaving the two of you to talk for a while, now that we have got to this point?

MARTIN: I doubt it, your Honour.

HIS HONOUR: I would like to do that, just for a few minutes. I will go off the bench. Let me know when you are ready.

SHORT ADJOURNMENT

ROGERS: Your Honour, the only thing I can report is that my instructing solicitor doesn't accept the analysis I have brought to your Honour in relation to the evidence certainly and arguably the pleadings. My application is that we be given some time in order for my instructing solicitor to straighten me out as to why I am wrong, if that be the case. I say no more than that, your Honour.

HIS HONOUR: So what sort of time are you talking about?

ROGERS: I would prefer until tomorrow morning, if your Honour would give me that much liberty?

HIS HONOUR: Mr Martin?

MARTIN: We would oppose that application, your Honour. The evidence has closed in this case. My friend has had the benefit of a great deal of yesterday after the evidence was closed to ascertain precisely what his position is in relation to his case, to obtain instructions. We are here on the final day ready to address your Honour, to deal with the evidence and the case as pleaded.

HIS HONOUR: Yes, we are going to press on Mr Rogers. I don't know what case you are making now.”

46 At this point in time, counsel for Mr Treadwell, apparently on the instruction of Mr Fitzpatrick, withdrew his complete abandonment of the remainder of the claims and renewed a number of allegations of breach of retainer which are set out in the principal judgment as follows:

“(a) failure to prepare payroll tax returns for Staff and Consulting (further amended statement of claim, paras 47(c) and 48(c));

(b) failure to prepare business activity statements for Staff for periods ending 30 June 2001, 31 July 2001 and 31 August 2001 (further amended statement of claim, paras 47(d)(i)(5), (6) and (7));

(c) failure to prepare business activity statements for Holdings for the period ending 30 June 2001 (further amended statement of claim para 47(d)(iv)(3));

(d) failure to prepare and lodge any business activity statements for Consulting from May 2001 (further amended statement of claim, para 47(d)(xi));

(e) failure to bring to Mr Treadwell’s attention the obligation of Staff to pay payroll tax (further amended statement of claim, para 47(o)).”

47 The case then proceeded on this basis with counsel for Mr Hickey limiting his closing submissions to the case actually put to the court.

The defendant’s contentions against the solicitor

48 As previously mentioned (see paragraph [17] above), Mr Hickey’s primary submission is that Mr Treadwell’s case against him was so lacking in merit or substance as to be not fairly arguable. Accordingly, it is said that Mr Fitzpatrick’s stated belief about prospects of success did not have its “objective foundation” in material available to him at the relevant time. Alternatively, it is argued that if Mr Fitzpatrick did believe that there was material which “objectively justified” proceeding with the case, such a belief fell outside the range of views which could be reasonably entertained.

49 Mr Martin SC, for Mr Hickey, submitted that Mr Fitzpatrick, when giving the certificates in the statements of claim, did not turn his mind to the material which existed to support each of the allegations of material fact. He then went on to submit that there was no evidence, directly or inferentially, to support the terms of the retainer as outlined in the final pleading, the further amended statement of claim. The fundamental allegation levelled at Mr Fitzpatrick is that there was not sufficient evidence before him to support the pleaded causes of action in contract and negligence.

50 Alternatively, counsel for Mr Hickey advanced the contention that even if Mr Fitzpatrick did believe that there was a sound evidentiary basis to the causes of action, this belief was unreasonably based and could not be objectively held.

51 In support of these submissions the defendant relies on the following contentions:

“1. that there was no evidence adduced by the plaintiff, which supported the specific terms pleaded in paragraphs 11(a)-(v) of the further amended statement of claim;

2. that the evidence given by the plaintiff in regards a purported conversation he had with the defendant in May 1998 in regards BAS returns was inherently implausible;

3. that the plaintiff’s version of the terms of the retainer was inconsistent with contemporary documents in evidence;

4. that the employment of a part-time book-keeper for the Greenfold Group was inconsistent with the terms of the retainer as advanced by the plaintiff;

5. that there was no evidence adduced by the plaintiff in support of the allegiation that the defendant had been retained for reward to be a director of the Greenfold Group;

6. that there was no evidence adduced by the plaintiff that he had expressly instructed the defendant or his representative to prepare payroll tax returns;

7. that there was evidence that the plaintiff had failed, despite repeated requests, to provide to the defendant with sufficient information to prepare business activity statements for Staff;

8. that the plaintiff, although having pleaded 57 separate breaches of retainer and a further 57 breaches of his duty, at the conclusion ... sought to maintain only five breaches of retainer;

9. that there was no evidence adduced by the plaintiff, which would support any finding that the defendant owed to the plaintiff any duties of care as pleaded;

10. that the plaintiff failed to adduce evidence in support of the allegation that the defendant failed to bring to the plaintiff’s attention the obligation of staff to pay payroll tax;

11. that there was no evidence adduced by the plaintiff in support of the allegation that the defendant prepared false financial accounts for Staff for the years ending 30 June 2000 and 2001;

12. that there was no evidence from which an inference could be drawn that the defendant had agreed with Staff to pay for the laptop computer and

13. that the evidence did not justify a finding that Staff was insolvent at 30 June 2001 and at all times thereafter.”

The solicitor’s response - generally

52 Mr Fitzpatrick says that Mr Hickey fails to satisfy the evidentiary threshold both in respect of s 99 of the Civil Procedure Act and in relation to s 348 of the Legal Profession Act. In the alternative, it is said that, even if the court were to make a finding that the threshold had been met, that the court would not exercise its discretion to make the orders sought against Mr Fitzpatrick.

53 It is submitted on behalf of Mr Fitzpatrick that, at all times, he reasonably believed that Mr Treadwell had reasonable prospects of success, such belief being based upon his instructions, contemporaneous documents, provable facts and advice from counsel. Mr Fitzpatrick says that Mr Hickey’s case against him is predominantly based on hindsight and that the court should refrain from making a finding on such a basis. To support this claim, Mr Fitzpatrick drew attention to the repeated references throughout Mr Hickey’s submissions to the judgment of 16 December 2009. It is the submission of Mr Fitzpatrick that comfort cannot be sought from the fact that certain findings were made on the balance of probabilities.

54 In this respect, counsel for Mr Fitzpatrick sought to rely on the observations of Windeyer AJ in Tarabay v Bechara [2010] NSWSC 202 at [37]:

“In hindsight it seems at least, as the case was articulated, that it was unlikely to succeed but I am not satisfied that [the solicitor] did not have a firm belief that the claim was a claim which could be brought, particularly, as on the advice of Senior Counsel it was a claim properly made. It may well have been the position that at some stage further down the track it should have become clear that the case was quite unlikely to succeed particularly on the basis upon which it was ultimately put forward as set out earlier in this judgment. It has been said on many occasions the power to grant relief claimed here must be exercised with considerable caution and not with the benefit of hindsight. I have little doubt that even at the time the claim was brought it was a claim which was not likely to succeed but I cannot find that at the time it was brought without reasonable cause”.

55 Counsel for Mr Fitzpatrick submitted that the court must be careful not to base its decision upon hindsight when assessing the merits of a position taken in what ultimately becomes an unsuccessful case. Rather, it was submitted, the court must assess the conduct of a legal practitioner by reference to the circumstances and evidence which existed during the period of the retainer. Furthermore, it is said that there was no serious misconduct, incompetence or neglect present in these proceedings to justify the making of the order sought.

56 In answer to the allegations made against him, Mr Fitzpatrick swore and relied on a comprehensive affidavit. It is significant that Mr Fitzpatrick severed his connection with Mr Treadwell immediately the present claim was brought against him. That was the proper course to take. Mr Fitzpatrick has not sought Mr Treadwell’s permission to waive privilege because of his view that it would conflict with his duty to do so. Counsel for Mr Fitzpatrick drew attention to this circumstance and submitted, relying on Lemoto at [92], Ridehalgh at 229 and Re the Black Stump Enterprises Pty Ltd (No 2) [2006] NSWCA 60 at [10]- [12], that the continuation of client legal privilege created evidentiary difficulties for Mr Fitzpatrick which should be taken into account.

57 Mr Fitzpatrick’s position is that Mr Hickey’s application is misconceived and should be dismissed with costs. His counsel submitted that Mr Fitzpatrick was a truthful and credible witness and a man of integrity who carried out his professional duties and responsibilities with diligence and competence. In this regard he drew attention to Mr Fitzpatrick’s prior legal experience.

58 Mr Fitzpatrick qualified through the Solicitors Admission Board. He was admitted as a legal practitioner of this court on 6 June 1997. He completed a Masters of Law at the University of Sydney in 2000. Since admission, he has practised continuously, first as an employed solicitor with a number of different firms and second, from January 2005, as principal solicitor and sole director of Fitzpatrick Solicitors Pty Ltd.

59 The respondent’s son, Matthew Fitzpatrick, is also a solicitor. He is employed by the practice. There are no other solicitors in the practice. The principal focus of the practice is on litigation, in particular with respect to personal injury, family law, family provision, commercial disputes, bankruptcy and insolvency, professional negligence and defamation.

60 Counsel for Mr Fitzpatrick points to this experience in submitting that Mr Fitzpatrick was conscious of his professional obligations throughout his involvement with the present matter. It is submitted that he should not be criticised for accepting the version of events put forward by his client. The critical issue in the proceedings was the existence of a retainer between the plaintiff and defendant and the terms of that retainer. It is inherently likely, in cases in which an agreement is not reduced to writing, that different understandings, interpretations and constructions of the agreement will arise. To this end, Mr Fitzpatrick submits, contrary to the case as advanced by Mr Hickey, the fact that the court ultimately did not accept Mr Treadwell’s evidence does not provide a proper basis for any inference that Mr Fitzpatrick had no reasonable basis for belief as to the truth of the facts asserted by Mr Treadwell.

61 Mr Fitzpatrick says that the case is not one of failure to adduce evidence necessary to establish the plaintiffs’ cause of action but rather an example of evidence not being accepted by the court after a full hearing on the merits.

62 It is also said that Mr Fitzpatrick was diligent in respect of the performance of his obligations in that he instructed counsel, whom from previous experience he found to be competent. It was submitted on behalf of Mr Fitzpatrick that he did not simply relinquish control of proceedings to counsel but continued to exercise independent judgment and provide independent advice to Mr Treadwell and instructions to counsel. It was accepted however that Mr Fitzpatrick relied on counsel to a large extent in relation to the conduct of the trial, including objections to evidence, cross-examination and the admission of the plaintiff’s evidence.

63 Finally, Mr Fitzpatrick emphasises the fact that his conduct must be examined in the light of the dynamic nature of the litigation process. Reliance is placed on the observations of Hoeben J in Firth v Latham [2007] NSWCA 40 at [68]:

“Being mindful of the judicial restraint which needs to be exercised when applying these sections of the Legal Profession Act, the Act should not be interpreted as requiring that the evidence necessary to establish an arguable case at trial be available to a party before proceedings are commenced. Implicit in the concept of a continuing obligation on the part of a legal practitioner to comply with the sections is the proposition that the conduct of litigation is a dynamic process. Whether reasonable prospects of success exist could vary depending upon the results of inquiries and the collection of evidence. Accordingly, just because the plaintiff could not have satisfied s 43A Civil Liability Act when the trial commenced does not mean that the claim against the Council had no reasonable prospects of success when the Amended Statement of Claim was issued”.

The solicitor’s response to the specific allegations

64 The first claim made against Mr Fitzpatrick is that there was no evidence available to support the terms of the retainer as pleaded in paragraphs (a) to (v) of the further amended statement of claim. He disputes that. Counsel for Mr Fitzpatrick submitted that a distinction should be drawn between a case where certain evidence is rejected after an objection has been taken or had not been adduced at trial for forensic reasons and a case where evidence simply did not exist.

65 Counsel argued that these proceedings were of the first kind rather than the second. It is said that certain evidence was not before the court as a result of objections taken as to its admissibility and, in addition, that further evidence failed to be adduced at trial. The following sentence, in the affidavit of Richard Porter, which was excluded from evidence at the trial after objection taken by the defendant, was given as an example of this circumstance:

“Although the charging of an hourly rate is the predominant way that the Chartered Accountancy profession works, it is not uncommon that small clients are charged on a retainer basis. This normally occurs where the accountant is heavily involved in the administration and day-to-day affairs of the company and not purely performing accounting functions”.

66 Mr Fitzpatrick referred to the following grounds as being the foundation for his belief that his client had reasonable prospects of success: first, his instructions from Mr Treadwell as to the terms of the oral agreement; second, Mr Hickey’s shareholding in Greenfold Holdings Pty Ltd; third, the fact that Mr Hickey was jointly and severally liable under a guarantee to the ANZ Bank in respect of an overdraft facility; fourth, the business dispute between Mr Hickey and Mr Treadwell in mid 2000; fifth, Mr Fitzpatrick’s discussions with counsel and the fact that the statement of claim in the discontinued proceedings had been verified; sixth, a recorded statement given by Mr Treadwell to the police on 1 June 2005, which accorded with the pleadings; seventh, tax invoices issued by Mr Hickey to Greenfold Group; and, eighth, the response received by Mr Hickey after the allegations were advanced and the proceedings were threatened.

67 In relation to the second allegation, Mr Hickey placed particular emphasis on evidence given by Mr Treadwell in an affidavit of 20 November 2009 that in about May 1998 he had a conversation with Mr Hickey to the effect:

“I have no training in accounting compliance or in relation to BAS returns, payroll tax, group tax or superannuation. You can look after these”.

68 The court disbelieved this evidence, mainly because statutory requirements with respect to business activity statements were part of the goods and services tax reforms introduced with effect from 1 July 2000.

69 The affidavit of 20 November 2009, according to Mr Fitzpatrick, was drafted by counsel who advised Mr Treadwell and Mr Fitzpatrick that there were deficiencies as to form in relation to the principal affidavit of Mr Treadwell dated 5 March 2008. The paragraph in the November 2009 affidavit containing Mr Treadwell’s version of the conversation refers to [11] of the earlier affidavit which was in this form:

“I retained Hickey to do all Holdings’ accounting including preparing it’s Tax Returns and Financial Statements and also attending to all statutory compliance issues. Statutory compliance was very important to me. I did not know the requirements of State and Commonwealth taxation legislation nor of the requirements of company legislation. I relied on Hickey to deal with my obligations and Holdings obligations under those various legislative instruments”.

70 It is to be noted that the first and last sentences of this paragraph were objected to and rejected at the hearing. The later affidavit departed substantially from the earlier affidavit. Mr Fitzpatrick gave evidence regarding the creation of the later affidavit. He explained that Mr Rogers alone took instructions from Mr Treadwell and drafted and settled the November 2009 affidavit. He said that he was attending to other matters related to the proceedings and that it was his understanding that Mr Rogers’ intention was only to rectify form problems and not to adduce additional substantive content.

71 Further to this, Mr Fitzpatrick said that he did not read the content of the November 2009 affidavit before it was sworn by Mr Treadwell before him. I quote from Mr Fitzpatrick’s cross-examination:

“Q. Could you go to paragraph 104 of your affidavit please. You see there you state that ‘My instructions as at 5 March 2008 and 15 December 2008 would have allowed me to set out conversations to the effect that they were set out in Mr Treadwell's affidavit sworn 20 November 2009’. Do you see that?

A. Yes.

Q. That's a true statement?

A. Yes, that's a true statement but I must clarify to the effect of my intention in that statement was that Mr Treadwell's ability to recall conversations on

20 November 2009, in my view, was not better or worse than his ability to recall conversations of 5 March or before

5 March 2008. I may have expressed that in a way that I could have set out that exact same affidavit as at.

20 November. I didn't intend that. I merely intended to make reference to Mr Treadwell's knowledge of his memory was that it was similar around March '08, in November '09.

Q. Do you want to qualify in any way the first sentence you depose in paragraph 401?

A. Only the reference to BAS stats is something that would have led me to further discussions with Mr Treadwell.

Q. What do you mean reference to BAS statements? Are you saying it wasn't said to you or was said to you when you obtained instructions as at 5 March?

A. I don't wish to waive Mr Treadwell's privilege by giving part of the discussions, but I am aware of when BAS statements came in and if I had somebody tell me they came in at a much different time, that's something I would explore, but apart from that, the affidavit of 20 November accords with my instructions as at 5 March.”

72 Mr Fitzpatrick states that he formed a view, reasonably based, that Mr Treadwell was credible and reliable and likely to be accepted as a witness of truth by the court, with the result that his version of oral conversations would be accepted. Mr Fitzpatrick said in cross-examination that he came to this view as a result of the consistency of the instructions given to him and by the fact that Mr Treadwell in conferences did not show any evasiveness or hesitancy. Counsel for Mr Fitzpatrick submitted that he should not be criticised for having reasonably decided to believe his client despite the obvious problems with regards the temporal element of this evidence.

73 It is important to note that it was not until Mr Treadwell had been cross-examined extensively by counsel for Mr Hickey at trial that he conceded that this conversation, as it relates to business activity statements, could not have happened at that time. Mr Fitzpatrick acknowledged in his affidavit in response to the observation that Mr Treadwell had not performed well as a witness and that he was surprised by this.

74 There is however additional evidence as to whether Mr Hickey’s retainer included responsibilities for BAS returns relied upon by Mr Fitzpatrick to support the pleaded retainer, namely [7] of the statement given to the police on 1 June 2005, which states:

“The role of Richard Hickey’s company was to tend to all books and records and relevant statutory obligations concerning my company, the Greenfold Group. This included Superannuation, payroll and payroll tax, BAS returns and statutory PAYE reporting. These are all government requirements that my company had to oblige”.

75 The third criticism levelled at Mr Fitzpatrick is that Mr Treadwell’s version of the retainer was inconsistent with contemporaneous documents including numerous documents generated by Mr Hickey in relation to the Greenfold Group and the Australian Taxation Office. It is said that these documents should have indicated to Mr Fitzpatrick that his client’s version of the terms of the retainer was inherently implausible.

76 This criticism stems from paragraph [24] of the judgment:

“Mr Treadwell’s version is inconsistent with contemporary documents ... The letters are consistent with a situation in which an accountant advises his client on what should be done to meet a particular requirement and the client then has the task of doing whatever needs to be done.”

77 The contemporaneous documents had been discovered by Mr Treadwell in December 2007. Mr Fitzpatrick accepted in cross-examination that he did not personally inspect the documents discovered by Mr Hickey but rather delegated this task to his son, an employed solicitor. He then went on to state that he had had discussions with his son about the discovered documents but regarded the content of those discussions as privileged in favour of Mr Treadwell.

78 I pause at this point to note that no criticism can be levelled at Mr Fitzpatrick merely because he delegated this task to an employed solicitor. It cannot be doubted that in relation to a fairly complex piece of litigation a solicitor on the record must necessarily delegate some functions to other qualified professionals. As long as the solicitor on the record provides appropriate supervision to those professionals no adverse inference can be drawn.

79 Mr Fitzpatrick was taken to one example of inconsistent documents by counsel for Mr Hickey. The particular document requested information from Mr Treadwell in relation to group certificates. Mr Fitzpatrick gave evidence that he had no recollection of having read that letter before but that such a letter did not accord with his instructions from his client that Mr Hickey was responsible for financial management issues. Further to this he did not accept that the letter would cause him to question the truthfulness of Mr Treadwell’s instructions.

80 Mr Fitzpatrick gave evidence that he remained of the view that there were reasonable prospects of success and that nothing discovered undermined his view as to Mr Treadwell’s instructions concerning the scope of the retainer and the involvement of Mr Hickey in the business of the Greenfold Group.

81 Mr Fitzpatrick says in his affidavit of 2 June 2010 that his instructions were that the retainer extended to directorial and managerial duties as well as to accounting duties. He says that it was his belief that the letters dealing with the accounting aspects of the retainer did not negate the wider elements of the retainer as pleaded.

82 Similar evidence was given in respect of the subpoenaed material. The practice of Mr Fitzpatrick was to instruct his son to attend the registry to inspect the material after having had discussions with him as to what in particular he should look for. After inspecting the documents, Mr Matthew Fitzpatrick would prepare a memorandum for his father. Again Mr Fitzpatrick says that nothing in the subpoenaed material altered his view that there were reasonable prospects of success in this matter.

83 Mr Fitzpatrick maintains that he drew comfort from the fact that his client’s evidence and instructions were extensive, clear and consistent and were supported by the evidence of Ms O’Brien and documentary evidence such as the police statement, the tax invoice generated by Mr Hickey and the ANZ guarantee.

84 The fourth allegation levelled at Mr Fitzpatrick is that the employment of a part-time book-keeper by the Greenfold Group was inconsistent with the terms of the retainer advanced by the plaintiff in that, drawing from paragraph [24] of the judgment, had the retainer been as Mr Treadwell contends, he would have said that the relevant tasks were the responsibility of Mr Hickey.

85 Mr Hickey resigned as a director of the Greenfold Group in early August 2001. Mr Fitzpatrick gives evidence that he did not consider the subsequent hiring of Ms Ellis in December 2001 to be unusual in that he expected the alleged retainer would have come to an end at the time of Mr Hickey’s resignation as a director.

86 Mr Fitzpatrick also drew attention to Ms Ellis’s evidence in cross-examination:

“I was employed to take the internal accounts, as you referred to them. I don’t have an opinion as to what they’re called. They were the records of the companies, and I prepared those accounts, because Richard Hickey was no longer doing that”.

87 Mr Fitzpatrick’s response to the fifth allegation (that there was no evidence adduced that Mr Hickey had been retained for reward to be a director of the Greenfold companies), is essentially the same as outlined at paragraphs [64] to [66] above, that there was evidence to support this pleading and that criticism cannot be levelled at him for having, reasonably, decided to believe his client.

88 Mr Hickey’s case was that he had only ever charged for professional accounting services and had not been rewarded for his directorship. Mr Fitzpatrick submitted a contrary inference was available from the invoice, mentioned at paragraph [66] above, which described the work done as “consulting and administration fees”. Furthermore, he says that Mr Hickey’s denial in cross-examination that he was a director for reward was unconvincing.

89 The sixth specific allegation by Mr Hickey is that there was no evidence adduced by Mr Treadwell that he had given express instructions to Mr Hickey in relation to the preparation of payroll tax returns.

90 Counsel for Mr Fitzpatrick submits that this assertion is misconceived and irrelevant in that there was never any real issue between the parties that direct instructions were given in this regard. Mr Fitzpatrick readily acknowledges that there was never any express instruction to Mr Hickey, however he argues that the real issue before the court was whether the preparation of payroll tax returns or at least a duty to advise that they should have been prepared was nonetheless within the terms of the retainer. Mr Fitzpatrick says that, based on his instructions, he believed that Mr Hickey’s retainer was all-encompassing and that responsibility for payroll tax could be implied without the need for an express instruction from Mr Treadwell.

91 In this regard he relied on the evidence previously mentioned concerning the terms of retainer advanced by Mr Treadwell. In addition, it is said that further evidence in support of this proposition was rejected on form grounds. It was Mr Fitzpatrick’s understanding that counsel was to address all form requirements in the 20 November 2009 affidavit; indeed that was the sole purpose of that affidavit.

92 An example may be quoted. Paragraph 38 of Mr Treadwell’s affidavit of 5 March 2008 was rejected on the basis of form. Furthermore, it is submitted that counsel on whom Mr Fitzpatrick relied failed to utilise the leave given by the court to adduce oral evidence. (again, paragraph 38 is an example).

93 The seventh allegation raised is based upon the evidence given by Mr Sweeney that the reason why business activity statements were not prepared was that Mr Treadwell had failed to give him the information necessary to complete the task. Mr Hickey notes that this evidence, which is inconsistent with Mr Treadwell’s case, was not challenged in cross-examination and that this reflects poorly on Mr Fitzpatrick’s conduct of the proceedings.

94 In response, counsel for Mr Fitzpatrick submits that Mr Fitzpatrick had expected that Mr Sweeney would be challenged in cross-examination upon this evidence and that the evidence did not accord with his instructions from Mr Treadwell. Furthermore in his affidavit in response to the motion, Mr Fitzpatrick says that the evidence given by Mr Sweeney in regard to lack of instructions was contradicted by the affidavit evidence of Ms O’Brien who he considered to be a reliable and credible witness.

95 The relevant evidence given by Ms O’Brien was in her affidavit of 15 December 2008:

“Once a month I gave Mr Sweeney records of payments including Cheque Butts, Bank Statements and Lists of Payments. Once a month he would come to my office and ask for some further information which I would supply promptly. He seldom asked for any information other than when he came to my office on those occasions. If Mr Sweeney did ask me for any information I always promptly attended to getting the information to him”.

96 The second sentence of this paragraph was objected to and rejected on the basis of form. Leave to adduce oral evidence, which was not utilised, was given in respect of this evidence. Under cross-examination Ms O’Brien eventually conceded that in some circumstances she was unable to provide the information directly and that she consulted Mr Treadwell about furnishing missing detail.

97 The eighth allegation by Mr Hickey is that the abandonment, on the fourth day, of the majority of breaches of retainer and duty pleaded, reflects poorly upon Mr Fitzpatrick. The response is that there was evidence and information available to Mr Fitzpatrick and upon which he relied to support his belief that there were reasonable prospects of success.

98 Mr Fitzpatrick highlights the dynamic nature of the litigation process and says that whether reasonable prospects of success exist will almost invariable be determined on the results of inquiries, the collection of evidence, the admission of evidence and the testing of that evidence. It is said that, as a result of this dynamic process, the fact that a number of claims were ultimately abandoned at trial does not mean that the claims had no reasonable prospects of success when pleaded.

99 Furthermore, it is clear from Mr Fitzpatrick’s affidavit evidence and his cross-examination that he had misgivings about the performance of counsel briefed for Mr Treadwell and that the misgivings related to the evidence adduced in support of the plaintiff’s case, the conduct of cross-examination of the defendant’s witnesses and, in particular, the final submissions to the court.

100 Cross-examination of Mr Fitzpatrick about the abandonment of part of the case was as follows:

“Q. I will take you back to. Top of page 202 you will see ultimately his Honour puts at line 6 "This case is... Mr Rogers said ‘in substance, yes’.

A. That is what Mr Roger said but it was without instructions from the plaintiff and without instructions from me and without my knowledge that he would say any of those things and I was more in surprise that he did and I still am.

Q. You say without any instructions from you?

A. Yes, all these inceptions [sic] --

...

Q. Just answer my questions. There was a short adjournment at line 36, was there not?

A. Yes.

Q. And then there was a reconsideration of the position and it ultimately culminated in the five breaches of the retainer of duty of care which is set out in paragraph 9 of his Honour's judgment, wasn't there, together with the loan case and the laptop computer case wasn't there?

A. Again, that's what Mrs Roger put.

Q. Those were in accordance with your instructions, weren't they?

A. I have no instructions from Mr Treadwell to disclose the contents of my conference with Mr Rogers during that adjournment.

Q. No, but what Mr Rogers did was in accordance with how you instructed him?

A. What Mr Rogers did is all that Mr Rogers would do.

...

Q. Are you saying it was not in accordance with your instructions?

A. I am saying I wanted more.

Q. Well, didn't you tell him that that was the only causes of action that could be pressed by the plaintiff?

A. No, I did not.

Q. You didn't?

A. I did not. I never gave Mr Rogers any such instructions, and I didn't agree with Mr Rogers narrowing it that way.

101 It is perhaps useful to repeat the statement made by Mr Rogers to the court after the short adjournment mentioned in this transcript extract:

“Your Honour, the only thing I can report is that my instructing solicitor doesn’t accept the analysis I have brought to your Honour in relation to the evidence certainly and arguable the pleadings. My application is that we be given some time in order for my instructing solicitor to straighten me out as to why I am wrong, if that be the case. I say no more than that, your Honour.”

102 The adjournment application was refused.

103 In relation to the ninth allegation (that there was no evidence to support the pleading in paragraphs 20 to 22 of the further amended statement of claim regarding the duties of care owed by Mr Hickey) and the tenth allegation (that there was no evidence to support the pleadings that Mr Hickey failed to bring Mr Treadwell’s attention to his obligations in respect of payroll tax) Mr Fitzpatrick repeats the submissions at paragraphs [64] to [66] above in relation to the first and sixth allegation.

104 In response to the eleventh allegation (that there was no evidence adduced by Mr Treadwell in support of the pleading that Mr Hickey had prepared false financial accounts for Staff) Mr Fitzpatrick contends that there was evidence sufficient to found the relevant causes of action.

105 In this respect Mr Fitzpatrick points to the financial statements for Staff for the year ended 30 June 2000, prepared by Mr Hickey, which include an expense of $6,090.00 for payroll tax and a proof of debt lodged by the office of state revenue in the liquidation of Staff for the amount of $326,102.29, which included a payroll tax liability (exclusive of interest) for the financial year ended 30 June 2000 of $141,286.69. It is Mr Fitzpatrick’s contention that the discrepancy between these two figures leads to an inference that the financial accounts as prepared by Mr Hickey were demonstrably false.

106 Mr Fitzpatrick acknowledges that this claim was abandoned but says first; that counsel abandoned the claim without instructions and second, that the abandonment does not of itself mean that at the time of verifying the pleadings there was not sufficient evidence available to reasonably believe that the claim had reasonable prospects of success.

107 The twelfth allegation relates to the laptop computer. It is again submitted by Mr Hickey that there was no evidence from which it could be inferred that he had agreed with Staff to pay for the laptop computer. Mr Fitzpatrick says that there was evidence and information available to him to be able to conclude that there were reasonable grounds to plead this cause of action. The documentary evidence relied upon by Mr Fitzpatrick included a cheque butt for the purchase of the laptop, a tax invoice dated 3 May 2000, a letter from Paul Bard dated 3 April 2002 and a letter from Smits Leslie dated 18 April 2002.

108 The documentary evidence relied upon by Mr Fitzpatrick does not evidence an actual agreement between the parties in relation to the payment of the purchase price of the computer but rather evidences that the laptop was purchased by Mr Treadwell, an invoice was sent to Mr Hickey, who utilised the computer and had possession of it. It is clear that in regard to the actual agreement, Mr Fitzpatrick relied upon instructions from his client as a supplement to the documents.

109 Mr Fitzpatrick argues that it was not unreasonable for him to infer an agreement, absent evidence of an express agreement, to pay for the laptop given these circumstances particularly in light of the fact that Mr Hickey did not deny that he had received the invoice, retained possession of the laptop after his resignation as director and his evidence as to why he did not return the laptop was that he was never asked to return it.

110 The final allegation raised against Mr Fitzpatrick was that the evidence did not justify a finding that Staff was insolvent as at 30 June 2001 and at all times thereafter. Again this submission appears to be reliant upon a finding made in the judgment, at [70], which read as follows:

“This evidence does not justify a finding that Staff was insolvent at 30 June 2001 and at all times thereafter. The balance sheet alone is not evidence of inability to generate cash to cover the current liabilities. The views expressed by Mr Hickey about immediate cessation of trading do not prove insolvency (I interpolate here that I prefer Mr Hickey’s view of what he said: a recommendation to cease trading and prepare a cash flow projection is inherently more likely to have come from an accountant than is a blunt statement of need to “wind up”). And the solicitor’s recommendation in August 2001 that an administrator be appointed is, given the terms of s 436A of the Corporations Act, consistent with a view merely that the company was “likely to become insolvent at some future time”.”

111 The question of insolvency arose in relation to liability for a director’s loan which Mr Hickey alleged was set-off by amounts owing in relation to unpaid remuneration pursuant to s 553C of the Corporations Act 2001. Counsel for Mr Treadwell contended that s 533C did not operate because Mr Hickey had notice of the fact that the company was insolvent. In order to exclude the operation of s 533C it was necessary to prove insolvency.

112 It is Mr Fitzpatrick’s contention that there was some evidence as to insolvency and that his conduct should not be judged upon the court’s ultimate conclusion particularly in respect of determinations about solvency of a company on the basis of books and records, which are inherently difficult and problematic.

113 Additionally, Mr Fitzpatrick submits that the question of insolvency was a relatively minor issue in the proceedings being but one of three basis upon which Mr Treadwell denied set-off. The alternatives were that Mr Hickey’s retainer had been terminated upon his resignation in August 2001 or upon the principals of mutuality. The insolvency of Staff was put forward only as a third alternative means of seeking to defeat the defendants defence of set-off.
Assessment of the claim

114 This was not a case where proceedings were commenced in circumstances where they were doomed to fail. Mr Fitzpatrick relied to a large extent on his client’s evidence in relation to an oral agreement being accepted by the court. The respective versions of events were in conflict. It was inevitable that one version would have to be preferred by the court on the balance of probabilities. A party cannot be said to have commenced proceedings without reasonable cause simply because the party’s argument proved to be unsuccessful.

115 True it is that there were pieces of evidence available to Mr Fitzpatrick which were inconsistent with Mr Treadwell’s version of the retainer. However there were also pieces of evidence which adversely impacted upon the version of events put forward by Mr Hickey. The argument put forward by Mr Treadwell was not unworthy of consideration, it was not an application that should not have been brought.

116 The ultimate decision that Mr Treadwell’s case should fail was based upon the balance of probabilities having regard to submissions made on behalf of the parties and the totality of the evidence before the court, which in turn was the result of forensic decisions made by legal representatives, rulings as to the admissibility of evidence, matters elicited in cross-examination and impressions gained of witnesses who were cross-examined.

117 It is also relevant that the statement of claim in the discontinued proceedings had been prepared by other counsel and carried a certificate of reasonable prospects given by another solicitor. It pleaded a case materially similar to that in the statement of claim in these proceedings – indeed the only difference related to the subsequent assignment of the causes of action.

118 It was said by counsel for Mr Hickey that Mr Fitzpatrick had merely assumed that there was material to support the allegations of material fact. However Mr Fitzpatrick says, and I accept, that his instructions from Mr Treadwell and his inspection of the relevant documents convinced him on the basis of provable facts and a reasonably arguable view fo the law, that the claim against Mr Hickey had reasonable prospects of success at all material times. I also find that such a belief was within reason and based upon objective evidence.

119 It is likely that the catalyst for this application for a costs order pursuant to s 348 was the abandonment of a large proportion of Mr Treadwell’s case on the morning of the fourth day of the proceedings. It is relevant, however, that no summary dismissal or strike out applications had been made beforehand.

120 The evidence makes it clear that Mr Fitzpatrick was surprised and disappointed by the events of that morning. Mr Fitzpatrick, on his own account, relied to a large extent on counsel in the way the matter was run at trial, with particular reference to the conduct of cross-examination and final submissions. That was an entirely appropriate attitude for a solicitor to take. The performance of Mr Treadwell’s counsel, in the eyes of Mr Fitzpatrick, was poor and significantly weakened Mr Treadwell’s case. Mr Fitzpatrick took steps to address some of the problems and counsel sought an adjournment when it became clear that he was at cross- purposes with his instructing solicitor.

121 I am satisfied that, at the time the proceedings were commenced and at all material times thereafter, Mr Fitzpatrick was in a position where he held, on the basis of his own appraisal of matters, a genuine subjective opinion, based upon objective facts, that it was incorrect and inappropriate to regard Mr Treadwell’s case as so devoid of merit or substance as to be not fairly arguable. The fact that, as the hearing evolved, elements of the original pleaded case were abandoned does not entail that there was never reasonable prospects of success in regard to these claims. There were reasonable grounds on the objective evidence for the belief held by the solicitor.

The alternative claim against the solicitor

122 There is nothing in the present case to suggest that Mr Fitzpatrick commenced or continued these proceedings with a deliberate ulterior purpose or with disregard of any proper consideration of his professional duties in relation to prospects of success. The evidence given by Mr Fitzpatrick is that he was at all times conscious of his professional responsibilities both to his client and to the court and gave appropriate attention to these responsibilities.

123 In response to the motion seeking a costs order, Mr Fitzpatrick swore a detailed affidavit which set out his beliefs and thought processes throughout the proceedings and the items of evidence which he says supported such beliefs. Counsel for Mr Hickey, in closing submissions, described the process as very “unreal”, in essence artificial, and questioned, in the abstract, whether the material was actually represent in Mr Fitzpatrick’s mind at the relevant time and whether the evidence put forward was a fair indication as to the true state of affairs.

124 The jurisdiction under s 99 is enlivened where costs have been incurred as a result of serious neglect, serious incompetence or serious misconduct or costs have been incurred improperly, or without reasonable cause. As the authorities make clear, this is a high threshold to satisfy. It is not enough simply to question the actions taken and beliefs held by an instructing solicitor, the evidentiary burden must be satisfied. The defendant has failed to satisfy the burden in these proceedings.

125 The findings and conclusions already outlined in relation to the claim under s 348 of the Legal Procedure Act are sufficient to dispose of Mr Hickey’s claim against Mr Treadwell’s solicitor. This is because, on the view I take, supported by authority, the standard of conduct required by the forementioned provisions is more stringent, from the lawyers perspective, than that involved in the procedure contained in the Civil Procedure Act.

The claim against the plaintiff

126 In regards to Mr Treadwell, Mr Hickey seeks a variation of the order made on 16 December 2009 by the addition of the words “on an indemnity basis”.

127 Pursuant to s 98 of the Civil Procedure Act the court has a discretion as to whether a costs order, made against a party to the proceeding, should be awarded on the ordinary basis or on an indemnity basis.

128 The central question, upon any application for assessment of costs on the indemnity basis, is whether the party liable for costs was guilty of some misconduct or, as it was described by Gaudron J and Gummow J in Oshlack v Richmond River Council [1998] HCA 11 ; (1998) 193 CLR 72, “relevant delinquency”.

129 Mr Hickey relied on Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225 at 233-4 for the proposition that costs may be ordered on the indemnity basis where a party has maintained proceedings that it should have known had no real prospects of success.

130 Mr Hickey says that the jurisdiction is enlivened because Mr Treadwell brought and maintained proceedings that he should have known had no real prospects of success against Mr Hickey.

131 However in Colgate-Palmolive (above) Sheppard J held at 233 that:

“the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual case”.

132 Mr Hickey has failed to show relevant delinquency on the part of Mr Treadwell or wilful disregard of known facts. The particular facts and circumstances of the case do not warrant the imposition of such an order.

Disposition

133 The amended notice of motion filed on 4 June 2010 is dismissed. The applicant under the amended notice of motion will pay the costs of the respondents of and incidental to the amended notice of motion.

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LAST UPDATED:
1 October 2010