Aldag v Eistis

[2008] NSWDC 157

Reported Decision: 7 DCLR (NSW) 253

District Court

CITATION:	Aldag v Eistis [2008] NSWDC 157
HEARING DATE(S):	6 and 7 August 2008
JUDGMENT DATE:	7 August 2008
JURISDICTION:	Civil
JUDGMENT OF:	Gibson DCJ
DECISION:	1. Notice of Motion dismissed. 2. Costs reserved. 3. Liberty to apply re costs. 4. Exhibits retained until further order.
CATCHWORDS:	COSTS - personal liability of legal practitioner for costs - personal injury claim brought unsuccessfully - whether sufficient material for solicitor to reasonably believe on provable facts and a reasonably arguable view of the law that the claim had reasonable prospects of success - investigations to ascertain party's involvement - purpose of costs order against legal practitioner
LEGISLATION CITED:	Civil Liability Act 2002 (NSW) Civil Procedure Act 2005 (NSW), s 99 Legal Profession Act 1987 (NSW) Legal Profession Act 2004 (NSW), ss 345 and 348
CASES CITED:	Arundel Chiropractic Centre Pty Ltd v Deputy Commissioner of Taxation [2001] HCA 26; (2001) 47 ATR 1 Briginshaw v Briginshaw (1938) 60 CLR 336 Bryan v Maloney (1995) 182 CLR 609 De Sousa v Minister for Immigration (1993) 41 FCR 544 Deputy Commissioner of Taxation v Levick [1999] FCA 1580; (1999) 168 ALR 383 Eurobodalla Shire Council v Wells [2006] NSWCA 5 Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134 Fowler, Corbett and Jessop t/as Haydon Fowler Corbett Jessop v Toro Constructions Pty Ltd [2008] NSWCA 178 General Steel Industries v Commissioner for Railways (1964) 112 CLR 125 Gitsham v Suncorp Metway Insurance Ltd [2002] QCA 416 Guiney v Australand Holdings Ltd & Ors; Castlehaven Sales No 2 (trading as Castlehaven Realtors & Ors v Guiney & Ors [2008] NSWCA 44 Harley v McDonald [2001] UKPC 18; [2001] 2 AC 678 Ideal Waterproofing Pty Limited v Buildcorp Australia Pty Ltd [2006] NSWSC 155 Jones v Bartlett (2000) 205 CLR 166 Kumar v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCA 18; (2004) 133 FCR 582 Lemoto v Able Technical Pty Ltd [2005] NSWCA 153 Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155 Levick v Deputy Commissioner of Taxation; cf Steindl Nominees P/L v Laghaifar [2003] QCA 157; [2003] 2 Qd R 683 Medcalf v Mardell [2002] UKHL 27; [2003] 1 AC 120 Money Tree Management Service Pty Ltd v Deputy Commissioner of Taxation (No 3) [2000] SASC 286 Myers v Elman [1940] AC 282; [1939] 4 All ER 484; (1939) 109 LJKB 105; (1939) 162 LT 113; (1939) 56 TLR 177 New South Wales Department of Housing v Hume (2007) Aust Torts Reports 81-879 Orchard v South Eastern Electricity Board [1987] QB 565; [1987] 1 All ER 95; [1987] 2 WLR 102 Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289 RDCW Diamond (Pty) Limited v Da Gloria [2007] NSWSC 1325 Re Bendeich (1994) 126 ALR 643 Ridehalgh v Horsefield [1994] Ch 205 Voli v Inglewood Shire Council (1963) 110 CLR 74 White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 Whyked Pty Limited v Yahoo!7 Pty Limited [2008] NSWSC 477 Woolcock Street Investments Pty Ltd v CDG Pty Ltd and Anor (2004) 216 CLR 515 Woollahra Municipal Council v Sved (1996) 40 NSWLR 101
PARTIES:	Applicant: Jody Aldag Respondent: Spiro Eistis
FILE NUMBER(S):	1187 of 2007
COUNSEL:	Applicant: Mr P Jones Respondent: Mr J Downing
SOLICITORS:	Applicant: Matthews Dooley & Gibson Respondent: Middletons

Introduction

1. Stavros Koutzoumis was the plaintiff in proceedings commenced on 23 March 2007 against Jody Aldag (“the applicant”) for damages for negligence. There was a four day trial. Judge Kearns, in an ex tempore judgment dated 26 February 2008, entered judgment in favour of the applicant. Stavros Koutzoumis was ordered to pay the applicant’s costs, including costs on an indemnity basis from 21 December 2007. The applicant now seeks an order that pursuant to s 348 Legal Profession Act 2004 (NSW) the plaintiff’s solicitor, Spiro Eistis (“ the respondent”) indemnify the applicant for the whole of the costs payable by the applicant.

2. This application was heard by me on 6 August. By reason of the amount of documentation and the need for cross-examination, it took the whole day to hear. It was a matter of concern for both parties that the costs of this application be kept within a reasonable framework.

3. In Lemoto v Able Technical Pty Ltd [2005] NSWCA 153 McColl JA at [92(g)] stresses that the procedure to be followed in determining applications for wasted costs must be as fair, simple and summary as fairness permits and that hearings:

“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”.


4. This relates not only to the “sparing exercise of the jurisdiction” (at [93]) but also to the way in which such hearings are heard by the court. This point has been made even more strongly by Basten JA (with whom McColl JA and Young CJ in Eq agreed) in Fowler, Corbett and Jessop t/as Haydon Fowler Corbett Jessop v Toro Constructions Pty Ltd [2008] NSWCA 178 at [19]. This decision was handed down on the same day I heard this application, and I drew it to the attention of the parties after the hearing, by email, and have received further submissions from the applicant in reply. I have endeavoured to deal with this application in accordance with McColl JA’s proposed time frame by providing this judgment as quickly as possible to the parties, although this may result in some informality in its contents.

5. I inquired of the parties why this application had not been brought before the trial judge. The parties have informed me that the trial judge, when asked to hear this motion, indicated it was not necessary for it to be listed before him, and considered he had expressed views which precluded him from hearing the application.

The circumstances in which proceedings were commenced

6. The respondent has been employed since 1989 in a series of legal firms specialising in personal injury. In 2000 he was made an associate at Ron Kramer & Associates. He estimates he has acted for plaintiffs in approximately 300 – 400 personal injury matters at this firm. His involvement related to all parts of preparation from taking instructions to instructing counsel at the hearing.

7. The respondent was appointed a District Court Arbitrator by the Chief Judge of the District Court of New South Wales in 2001 and held this position until 2004. He heard and determined a wide variety of matters, according to paragraph 8 of his affidavit.

8. The respondent’s employer received instructions on or about 10 June 2005 when Australian Injury Helpline referred the plaintiff for advice to the firm’s principal. If the referral was accepted by the firm, a referral fee was paid.

9. On 21 June 2005 the respondent had an interview with the plaintiff. As the plaintiff has not waived legal professional privilege he was not able to give evidence of what his instructions were concerning the accident. (Objections were taken to this and to the material set out in paragraphs 23, 24 and 92(b), (c) and (f) in this regard. I deferred ruling on this because of the time constraints on this issue but invited counsel for the applicant to cross-examine on the basis that this material would be admitted into evidence, not because I had a concluded view, but because if I erred in excluding it, any appeal court would be able to look at the material elicited rather than referring the matter for re-hearing. I made this ruling by reason of the recommendations of McColl JA in Lemoto at [92(g)] that hearings of this sort should be as simple, fair and flexible as possible. My ruling that this evidence is admissible is set out below).

10. The respondent considered that the plaintiff’s cause of action would lie either against the Department of Housing, the current owner, or the builder. He set about determining the issue of the correct defendant in a prompt and diligent fashion. He first dealt with the Department of Housing. When advised by their lawyers that they had only owned the property for two weeks, having regard to the fact that there was nothing obvious that would have alerted them to the danger, he determined that the claim against the Department would not be successful and did not pursue it.

11. On 4 November 2005 the respondent engaged an expert he had used in other cases, Mr Darryl Orec, to provide advice on the basis that he was experienced in the taking of floor slip resistance measurements. Mr Orec’s report of 4 December 2005 stated that his testing of the steps resulted in a co-efficient friction of 25, indicating a high contribution of floor surface to risk of slipping when wet.

12. Having obtained this report, the respondent then commenced proceedings on 22 February 2006 against the builder, Bellevale Homes. He believed that the builder had built not only the premises but also the steps. On 27 March 2006 the solicitors for Bellevale sent a floor plan diagram showing they did not construct the stairs. He undertook further inquiries by contacting Baulkham Hills Shire Council and issued a subpoena. Those documents were received on 1 May 2006. However, he was advised by the Council he should also look at the building contract as the stairs could be “extras”. Nevertheless, the respondent took the view there were no prospects of success and discontinued the proceedings against Bellevale. The solicitors for Bellevale indicated that they would seek costs (in a modest sum of around $500) from the plaintiff for this.

13. It was in these circumstances that the respondent consulted private investigators, Phoenix Global, who found the defendant and interviewed him. He received a report setting out confirmation that the applicant had constructed the steps, an assertion he was aware they were a bit slippery and, in a covering letter, the claim that the applicant had fallen on the steps himself. He also learned that the applicant refused to sign a statement on legal advice.

14. The respondent commenced proceedings in reliance upon these matters and also in reliance upon the medical reports he had received concerning the plaintiff’s injury and disabilities.

15. The first complaint is that the respondent should not have commenced proceedings with such hopeless evidence from the plaintiff. Considerable emphasis was placed, in the applicant’s submissions, upon the fact that the plaintiff gave varying descriptions of the circumstances of his accident to the doctors, and one of them has the wrong date for the accident. This is not uncommon in personal injury matters. All of the descriptions of the accident given to doctors and to the court refer to a fall on stairs. One of the reports gives a wrong date for the accident but the cleaning contract documents and the doctor the plaintiff saw shortly after the accident corroborate the date, and this evidence was accepted by the trial judge. In my view, the varying descriptions given by the doctors were not such as to alert the respondent to the hopelessness of the plaintiff’s claim. I have discussed this in more detail below, as well as the second complaint, which is that the respondent failed to obtain evidence essential for the claim to succeed.

16. The third complaint is the respondent brought a claim he ought to have known had no basis in law. In his evidence the respondent said that he researched the law prior to commencing proceedings and read Bryan v Maloney (1995) 182 CLR 609 which he considered to be applicable to the facts in these proceedings. He agreed in cross-examination he had not checked to see if this case had been overturned, doubted or discussed. I have dealt with this in more detail below.

17. The defence filed on 12 October 2007 contained a denial of breach of duty of care. The respondent took the view that, on the assumption that the applicant had laid the tiles and knew they were slippery, he owed a duty of care to a person such as the plaintiff, who in using the stairs might fall down and suffer injury.

18. There was an informal settlement conference prior to the hearing, a Calderbank offer was made, and a warning given during the settlement conference that breach of duty of care would be denied.

19. The hearing before the trial judge commenced on 20 February and concluded on 26 February 2008 when an ex tempore judgment was handed down. The reasons for the trial judge finding for the defendant are set out in more detail below.

20. Following the making of orders an application for indemnity costs was made and granted and Mr Jones, who appeared at the hearing, foreshadowed the application that he has brought before me for hearing.

21. The respondent in paragraph 119 of his affidavit deposes to having at all times “genuinely and honestly believed” that the plaintiff had reasonable prospects of success and that if he had thought otherwise he would not have continued to act.

22. I now turn to a consideration of the legislation governing such applications.

The legislation

23. Prior to the enactment of the Legal Profession Act 2004 (NSW), the legislative regime was as set out in Lemoto at paragraphs [15] – [19]. However, the principles remain the same. In the interests of brevity, I gratefully borrow McColl JA’s explanation of the construction of the Legal Profession Act 1987 (NSW) which empowers the court to make costs orders where a legal representative has provided legal services without reasonable prospects of success, noting that the same principles apply to provisions brought under the Legal Profession Act 2004.

24. Section 348 Legal Profession Act provides as follows:



“ 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.”


25. Section 345, which imposes a continuing obligation on legal practitioners, provides:

“ 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.”


The principles to be applied to applications for orders for costs against legal practitioners

26. The onus of proof lies on the applicant ( Fowler at [22]) and bearing in mind the grave consequences of a finding, which is akin to unprofessional conduct, the burden of proof should be to the Briginshaw standard ( Briginshaw v Briginshaw (1938) 60 CLR 336): Ideal Waterproofing Pty Limited v Buildcorp Australia Pty Ltd [2006] NSWSC 155 at [25]).

27. In Lemoto v Able Technical Pty Ltd & 2 Ors [2005] NSWCA 153 at [92], McColl JA summarised the principles so clearly and simply that I need only repeat them:

“[92] The new Division 5C should be construed against the background of the following principles which can be gleaned from the English and Australian authorities which have considered the power to order legal practitioners to pay the costs of proceedings in which they have represented parties:

(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 (1994) 53 FCR 422; Deputy Commissioner of Taxation v Levick [1999] FCA 1580; (1999) 168 ALR 383 per Hill J at [11]; Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155 at [44]; Gitsham v Suncorp Metway Insurance Ltd [2002] QCA 416 at [8] per White J (with whom Davies and Williams JJA agreed); De Sousa v Minister for Immigration (1993) 41 FCR 544; Money Tree Management Service Pty Ltd v Deputy Commissioner of Taxation(No 3) [2000] SASC 286;

(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 [56] per Lord Hobhouse; White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 (affirmed on appeal, Flower & Hart (a firm) v White Industries (Qld) Pty Ltd [1999] FCA 773; (1999) 87 FCR 134); Levick v Deputy Commissioner of Taxation ; cf Steindl Nominees P/L 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 the validity of the argument”: Tombling v Universal Bulb Co Ltd [1951] 2 TLR 289 at 297; 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] HCA 26; (2001) 47 ATR 1 at [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 [23] per Lord Bingham);

(g) The procedure to be followed in determining applications for wasted costs must be fair and “as simple and summary as fairness 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 [24]).”


28. McColl JA notes at [113] that cases in which practitioners have been ordered to pay the other party’s legal costs bear out the “plainly unarguable” and “futility” test.

29. McColl JA then discusses the purposes of the provisions of the Legal Profession Act there in issue and their promulgation through the vehicle of the Civil Liability Act 2002:

“[123] The grave consequences to which Div 5C exposes a legal practitioner and his or her client indicates that ‘[t]he construction of the section and the application of the jurisdiction should ... be no wider than is clearly required by the statute’: cf Medcalf (at 143 [56]) per Lord Hobhouse of Woodborough.

[124] There are some general observations which can be made. First, Div 5C represents a departure from the historical basis upon which legal practitioners could be exposed to personal costs orders. A legal practitioner is now required to ensure that a claim, or a defence to a claim, for damages has ‘reasonable prospects of success’ and, to that extent, to become a judge of the client's cause. The legislature has endorsed the proposition that it is not in the public interest, nor a function of the due administration of justice, for legal practitioners to provide legal services in circumstances which involve representing clients who wish to pursue or defend claims for damages which have no reasonable prospects of success.

[125] Secondly, Div 5C requires the legal practitioner to evaluate the client's case with an eye to his or her potential exposure to a personal costs order as well as the disciplinary consequences which may flow from a finding that he or she has contravened s 198J: see s 198L. The potential for a conflict of interest is manifest as, too, is the deterrent effect on legal practitioners. Division 5C is capable of visiting severe consequences both against the legal practitioner and the client potentially deprived of legal representation to pursue his or her claim for damages.

[126] The legislature clearly intended Div 5C to have this chilling effect. It is timely, however, to recall the tensions to which the Court of Appeal referred in Ridehalgh (at 226). While the Div 5C jurisdiction should not be emasculated, the due administration of justice should not be impaired by a too liberal exercise of the new powers.

...

[139] One of the reasons the Div 5C jurisdiction should be exercised with caution is to ensure that the preparedness of the legal profession to represent litigants ‘should not be undermined either by creating conflicts of interest or by exposing the [legal profession] to pressures which will tend to deter them from representing certain clients or from doing so effectively’: cf Medcalf (at 141 [52]).

...

[141] An allied view is that the administration of justice may be better served by a party being legally represented notwithstanding that the party has a hopeless case. In Kumar v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCA 18; (2004) 133 FCR 582 at 587 [15], Mansfield J referred to ‘the public interest for the client to be represented’ even when a legal practitioner had advised that proceedings had no reasonable prospects of success on the basis that ‘[p]roceedings, even hopeless proceedings, are likely to be conducted more efficiently by a solicitor for a party than by a litigant in person’.

[142] Properly administered the Div 5C jurisdiction should not trespass upon the preparedness of legal practitioners to provide legal services in claims for damages as long as they have reasonable prospects of success. However, the purpose of Div 5C is plainly to deter the legal practitioner at the peril of a personal costs order, and possibly disciplinary proceedings, from representing a client whose prospects in pursuing or resisting a claim for damages he or she has formed the view have no reasonable prospects of success. There is no entitlement to legal representation in such cases. It is a matter for the client to determine whether to pursue the claim or defence without such services.” ( Lemoto , supra, per McColl JA.)”


30. In RDCW Diamond (Pty) Limited v Da Gloria [2007] NSWSC 1325 at [20]–[22] Rothman J noted:

“[20] Costs should not be awarded against a legal practitioner unless there has been real misbehaviour by the practitioner or the proceeding (including a defence) has been maintained without any or any substantial prospects of success in that the proceeding or defence was “futile” or “foredoomed to fail”.

[21] It is not, in those circumstances, for the legal practitioner to judge the credibility of the client. The practitioner is entitled, if not required, to take the client at face value. Further, a case that depends on altering or adapting the law (certainly on a logical or reasoned basis) is not futile or foredoomed. Practitioners are entitled, without penalty, to pursue for their clients novel issues of law based on an arguably available factual scenario.

[22] The desirability of having clients legally represented is a factor in the balance. However, the purpose of legal representation is to aid the administration of justice, not to frustrate it.”


31. These provisions were also considered by McDougall J in Whyked Pty Limited v Yahoo!7 Pty Limited [2008] NSWSC 477, where his Honour explained the policy as follows:

“[180] On the solicitor’s evidence – which, as I have said, I accept – he did not at any stage subjectively form the view that the proceedings reasonable prospects of success. A subjective view cannot be determinative. But one is then left to ask: what is there in the objective circumstances that should have brought this home to the solicitor?

[181] I do not think that there is anything. At least some of the complaints made by Yahoo are in my view wrong. As to other complaints: there were arguments in favour of the position that Whyked or the plaintiffs took, even if (in some cases) the solicitor did not appear to perceive those arguments.

[182] The solicitor was diligent in his performance of the retainer. He took and acted on the advice of counsel, whom he believed to be experienced and capable. In my view, it was open to him to do so, in circumstances where he did not just relinquish all responsibility to the barrister, but discussed the issues with the barrister either by telephone or through emails.

[183] The case sought to be advanced was a difficult one. It faced problems. But in my view, notwithstanding the fate that parts of it suffered, it cannot be characterised as hopeless. The real problem is that the plaintiffs lacked the resources to bring it, and made what I think was a mistaken tactical decision to frame it in such a way that an application for security for costs was bound to succeed and, having succeeded, was bound to have the practical effect of bringing the litigation to an end.

[184] I do not think that 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: see, in a different but analogous context, the well known decision in General Steel Industries v Commissioner for Railways (1964) 112 CLR 125.

[185] In theory, the courts are open to all. In practice, access to the courts is often dictated by the availability of financial resources. That is an unfortunate fact of life. It does not mean that those without resources should be barred from the courts, particularly where legal practitioners are prepared to accept instructions on a contingency basis.

[186] The policy underlying the power of the courts to order for security costs is based on different considerations. Undoubtedly, the exercise of that power has the effect from time to time of preventing arguable cases from being run. Where that happens, it should be pursuant to an order of a court on an application for security for costs, after balancing all relevant considerations. It should not be pursuant to a decision of a legal practitioner who is afraid to accept instructions from an impecunious client because the defendant, if successful, may obtain an order for costs against the legal practitioner personally.”


A preliminary issue – waiver of privilege

32. Counsel for the applicant submitted that I reject as inadmissible any of the evidence relating to the instructions received by the respondent because the respondent had not taken sufficient steps to persuade the plaintiff to waive privilege so that his statements of evidence and instructions could be placed before the court and the respondent cross-examined upon them.

33. The steps taken by the solicitor for the applicant are set out in the affidavit of Russell Stewart of 26 June 2008 and consist of a letter advising of the need to waive legal professional privilege and advising the plaintiff to obtain independent legal advice.

34. The difficulties faced by a legal practitioner in such circumstances are referred to by McColl JA in Lemoto at [92(f)], where her Honour states that where the ability to call evidence is hampered by confidentiality obligations the lawyer should be given the benefit of the doubt. Mr Jones submitted that this was in the applicant’s favour, as more forceful attempts should have been made to contact the plaintiff, such as the respondent telephoning him personally, in the way that he had done so many times during the litigation.

35. The fiduciary nature of the solicitor/client relationship is a relationship of trust. However, when the solicitor and the client find their interests opposed, as is the case here, the solicitor should not, in my view, take advantage of the relationship of trust to contact the former client. In particular, he should not provide advice, or seek to persuade the former client. The proper advice is the course that Middletons took, namely to write advising the client to obtain independent legal advice.

Was the case hopeless on its facts?

36. The trial judge’s findings of fact, on all aspects of the case, turn on his Honour’s findings as to credit. I set out the following extracts from the judgment:

· I do not accept all of the plaintiff’s evidence. In many ways I found him to be an unsatisfactory and unreliable witness. In short, he describes a mechanism of injury that is unlikely, if not impossible. I thought he was evasive with a lot of the cross-examination. He did not frankly front the point of a lot of questions in cross-examination, especially about his prior health, about his continuing restrictions and disabilities, and about his improvement in progress, particularly following surgery he had in 2005. …He was not open about these matters when asked about them. (p. 4)

· The plaintiff was not frank and open about those matters [seeing Dr Voutas] when cross-examined about them (p.5)

· But [the video film] did show that on several occasions the plaintiff raised his right arm above shoulder level and at times well above shoulder level. It was not a position that the plaintiff had allowed in the giving of his evidence…One wonders, if he was in pain, why he was raising his painful arm above his shoulder instead of his pain-free arm. (p.6)

· For those reasons there is a considerable amount of the plaintiff’s evidence generally that I find I am not able to accept. (p.7)

· I do not accept his description of the accident. I find it incomprehensible that the plaintiff facing directly out from the house could have taken off effectively at a right angle or, if not a right angle, a significant angle to the right and land on the driveway some metres from the right- hand edge of the stairway. There must be some other explanation for how the plaintiff came to finish up where he was. …but various possibilities do not amount to evidence and the fact of the accident does not enable me to infer any particular manner in which the accident occurred. (p. 7)

· All I accept from the plaintiff’s evidence is that he had a fall and that he landed in the driveway. Without knowing how he fell, I cannot find negligence on the part of the defendant. (p. 8)

· I do not accept the plaintiff’s evidence that the steps from the veranda were wet from rain…I do not find the evidence from the Bureau [of Meteorology] to be definitive of there being no rain, but it is persuasive evidence that there was no rain and I prefer it to the evidence of the plaintiff, especially in the absence of any corroboration in the case that there had been rain. (p. 9)

· I do not propose to assess damages in this case. One of the reasons I am deciding this case in favour of the defendant turns a lot on the credibility of the plaintiff. If I proceed to assess damages that credibility factor will run over into my assessment of the damages and if I am in error in what I have done in my assessment of the credibility of the plaintiff and come to a wrong decision on that basis, my assessment of damages would likely be infected with similar effort and accordingly I do not propose to proceed to assess damages. (p. 18 – 19).


37. The trial judge comprehensively rejected the evidence of the plaintiff and of all of his witnesses. What evidence did the respondent have, apart from his instructions, whatever they were, from the plaintiff? He had the following:

· He had the information provided to him by the investigator, Phoenix Global, who interviewed the applicant and prepared a statement (which the applicant never signed). They advised the applicant, in addition to stating he constructed the front stairs, said “he was aware that the pavers he used on the front stairs were ‘a bit slippery’ because he had fallen on them himself” and that he had noticed, in driving past the premised, that the pavers on the front stairs appeared to have been re-laid by the new owners. The respondent, when asked to sign his statement, said that he had had legal advice not to do so and not to speak to them again. The statement attached contains all of this information except the claim that the applicant had himself fallen on the stairs. I accept that this is an omission of some significance, but the remainder of the material is nevertheless material of some assistance to the respondent. Moreover, although the applicant in written submissions contends that this evidence was inadmissible and therefore not material the respondent can rely on, it was in fact put to the respondent in cross-examination, as the judgment shows (p. 10). The trial judge accepted the respondent’s denial of the claims that he laid the tiles, that he knew they had been changed or were slippery, that he had had a fall, that he had told the investigators he owned this property and that there were tiles on the veranda. However, the trial judge was very dismissive of this statement (which was exhibit D in the trial), saying it “defies comprehension” that there could be so many errors of fact, the most important of these being the assertion that the applicant purchased the property with his future wife when it was in fact in her sole name (pp 10 – 11). The trial judge was similarly dismissive of the investigator’s letter (exhibit E) and of the investigator, Ms Kim de Iacovo, who was called to give evidence.

· A resident, Mr Caine, who lived at the premises for a period of time. He gave evidence that the steps were slippery. This evidence was also rejected by the trial judge because for the whole of the time Mr Caine lived there, there were people coming and going at all times of the day and night, and no one every had difficulty negotiating the steps. However, Mr Caine was not referred to as a witness whose credit was in doubt.

· The plaintiff’s wife gave evidence that she heard the plaintiff call out when he fell, although she did not see it; she came rushing out the front door distressed, slipped and fell and landed near or on him. The trial judge rejected her evidence concerning the accident, saying “I cannot draw any inference from the circumstances of her accident that would enable me to determine how the plaintiff’s accident happened” (p. 8). However, he did not make a specific finding as to her lack of credibility.

· There is material that “clearly establishes” (p. 9) that the plaintiff’s accident happened on 16 December 2004 according to the judge. The plaintiff suffered injuries requiring surgery and the medical evidence on the issue is straightforward (exhibits A, B and 1).

· An expert witness, Mr Oric, was called. The trial judge regarded his qualifications as unsatisfactory, his report as incompetently prepared and complained that a handbook had to be consulted for the regulations in place at the time, but concluded that “in the end I accept Mr Oric’s testing. He used a machine for which he had done some testing and examination and practice and I am satisfied was qualified to use it and I accept his result.” The “result” was that the resultant reading was 25, which was put to the court as being in breach of the Australian Standard. I assume this evidence was not helpful to the plaintiff because the trial judge did not accept the evidence of the plaintiff that the steps were wet from the rain. The trial judge took a very poor view of Mr Oric’s qualifications and report and in particular his costing of the remedial measures.

· However, the trial judge set all of this out, with the adverse comments set out in the previous paragraph, and then concluded that “It will be evident for reasons I have thus far given that I propose to enter a verdict for the defendant.”


38. In paragraphs 4 – 6 of additional written submissions provided this morning, the applicant points out that in the course of collecting this material, the respondent did not brief counsel until two weeks before the hearing (paragraph 110 of the respondent’s affidavit). Basten JA regarded counsel’s involvement as important.

39. Basten JA’s comments about counsel need to be read in context. He describes the solicitor as carrying out his duties in a methodical way, noting that he “also” (at [3]) kept counsel informed. He sought counsel’s advice before joining Toro, the party bringing the costs application, but independently of this the solicitor had sufficient information to provide a proper basis for alleging that Toro was involved (at [45], [87] – [88], [90]).

40. The respondent was an experienced practitioner who prepared his case in a methodical fashion. He had sufficient evidence upon which to have a reasonable belief in the prospect of the case. The quality of these witnesses, and whether their evidence would be accepted by the court, was not for the respondent to make a final judgment of the kind that required him to cease to act or seek instructions to discontinue the case. This was a matter for the court’s adjudication.

Did the respondent fail to obtain evidence on issues vital to the case?

41. In Lemoto at [114] McColl JA notes:

“Another illustration of the sort of hopeless case which might attract the court’s jurisdiction to impose a personal costs order on the legal practitioner responsible for the proceedings would be one where there was no evidence to support an essential element of a cause of action.”

42. In Eurobodalla Shire Council v Wells [2006] NSWCA 5 Ipp JA made a costs order against practitioners for the costs of a hopeless appeal where “the evidence adduced at trial did not establish necessary elements of Mrs Aldridge’s cause of action” (at [26]).

43. There is a fundamental difference between failures to adduce evidence to establish necessary evidence and calling witnesses whose evidence is not accepted by the court.

44. The applicant submits that it should have been obvious to the respondent that the plaintiff’s inability to provide a description of how he fell the way he did (“a mechanism of injury that is unlikely, if not impossible”, to quote the trial judge at page 4) should have immediately alerted the plaintiff to the hopelessness of the case.

45. I do not accept this submission. “Stairway” cases, as they are sometimes referred to in personal injury litigation, are often complex. Staircases are not inherently dangerous ( New South Wales Department of Housing v Hume (2007) Aust Torts Reports 81-879 at 69,349 per McColl JA) but the mechanism of the fall can often be complex as the plaintiff may be propelled forward very suddenly. Where there is serious injury, as was the case for the plaintiff here, description by the injured person of what happened may be difficult. These are matters of judgment for the court.

46. Other alleged omissions were failure to provide proper costing for alternatives to the work (although I note the trial judge appears to have accepted the evidence on this from the plaintiff’s expert) and providing an expert report that attracted the criticism that it did (although I note the trial judge accepted the findings on slip resistance). These are not omissions.

47. The respondent would have been well advised to obtain a report from the Bureau of Meteorology to see if it had been raining. However, reading the trial judge’s comments, it would appear that this certificate was somewhat equivocal, in that there had been rain in the area. Failure to obtain a report of this kind should not attract the grave consequences of an order under this section. Complaints of this nature are essentially a counsel of perfection.

48. I am satisfied the respondent did not omit to obtain vital evidence necessary for the success of the plaintiff’s case.

Was the case hopeless on the law?

49. The applicant draws my attention to Basten JA’s statement at [17] that the Act’s purpose is to discourage practitioners from bringing before the court “claims based upon a legal principle which is not reasonably arguable”. As I have set out below, I do not consider that Sved ( Woollahra Municipal Council v Sved (1996) 40 NSWLR 101) was so unarguable that the claim should not have been brought.

50. The trial judge held that his finding for the defendant on the issue of liability:

“makes unnecessary an examination of the point of law that was raised as to whether a duty of care cannot apply in these circumstances by reason of the Court of Appeal in Woollahra Municipal Council v Sved (1996) 40 NSWLR 101. During the currency of the case at about the end of the third day I queried what the duty of care might be on a person who is the owner or occupier of premises to a visitor who came upon those premises not in his ownership but in an ownership two or three removed down the track”.


51. As the trial judge goes on to note, Mr Jones responded to his inquiry by taking him to Sved and submitting that by reason of this decision “it is not open to me to hold that there is a duty of care.” The trial judge then queried:

“whether that would extend to the case of personal injury with somebody coming on the premises later and my attention was drawn to a passage in the judgment of Justice Clarke at 132B where his Honour, referring to the High Court decision of Bryan v Maloney , observed. The Court then expressed its view that a relationship of proximity existed between Bryan and Mrs Manion both as to physical damage and mere economic loss. They went on to hold that the distinction between the two was essentially technical in the present circumstances.”

52. In oral submissions, Mr Jones developed this point further, asserting that the later High Court decision of Woolcock Street Investments Pty Ltd v CDG Pty Ltd and Anor (2004) 216 CLR 515 is substantially in conflict with Bryan v Maloney and that the decisions of Gleeson CJ and McHugh J substantially modify the principles enunciated in Bryan .

53. The respondent’s evidence was that his inquiries as to the legal basis upon which these proceedings were brought were to search for Bryan v Maloney , a case he was already familiar with, but that he did not perform a search to see if this decision had subsequently been overruled, not followed or distinguished in subsequent decisions. Mr Eistis said in his evidence that as far as he knew, this decision was still good law, and he relied upon it as the basis for bringing an action against the person who had built the steps.

54. The applicant submits that the respondent should have made proper inquiries as to any qualifications upon the decision of Bryan v Maloney , that such research would have led him to Sved and that the principles enunciated in Sved meant that the plaintiff’s case was hopeless.

55. The significance of a claim in tort involving physical injury to the person, as opposed to pure economic loss, was explained by the Court of Appeal in Guiney v Australand Holdings Ltd & Ors; Castlehaven Sales No 2 (trading as Castlehaven Realtors & Ors v Guiney & Ors [2008] NSWCA 44 at [78] – [81] as follows:

“78 There are other matters germane for close examination. These are carefully treated with in Voli v Inglewood Shire Council (1963) 110 CLR 74 at 84-88. As Windeyer J observed (at 87) when harm enures, the problem for a Court is whether the proximate cause of it was the negligence of the person who made the faulty thing, or the negligence of a person who was to examine, test, or treat it, or the combined negligence of both persons. On occasion:

“if separate and independent acts or omissions of several persons have directly contributed to cause an injury, the first wrongdoer does not necessarily escape liability by proving that, though he was to blame, the injury would not have occurred but for the later negligence of another person.... Essentially the problem is one of remoteness; and of finding the cause of the damage in a particular case , not according to some philosophical concept of causation, but ‘to fix liability on some responsible person’.”

[emphasis added.]


79 The present proceedings involved ordinary physical injury to the appellant caused by an act able to be sheeted home to the first respondent. This is generally a settled area of the law of negligence where depending upon the particular facts, a duty of care will be seen to arise: cf Bryan v Maloney (1995) 182 CLR 609 (at 617) per Mason CJ, Deane and Gaudron JJ. Their Honours (at 623) drew attention to the need to distinguish between relationships with respect to physical injury to person or property and relationships with respect to mere economic loss.

80 More recently in Woolcock Street Investments Pty Ltd v CDG Pty Ltd and Anor (2004) 216 CLR 515 (‘ Woolcock ’), McHugh J at [66] likewise drew attention to the significance of distinguishing between ordinary physical injury to a person and cases concerning mere economic loss. Woolcock dealt only with economic loss.

81 The evidence before the trial judge in the present proceedings whilst plainly posing some difficulties, ultimately established a duty of care that was breached by the first respondent with respect to the defects which had led to the injury. The finding receives substantial support by reason of the above-described pleading admission.”


56. I do not accept the submissions of the applicant that the same test applies to personal injury claims as for claims of pure economic loss. Claims for personal injury are often brought against the occupier and/or builder; none of the personal injury claims brought against builders, so far as I am aware, refer to Sved.

57. Nor do I accept the submission that the claim against the applicant, as the builder of the steps, was so hopeless that any claim should have been brought against the occupier. There are real liability problems, where the occupier is a landlord such as the Defence Housing Corporation, where there is danger that is not obvious, such as the use of the wrong glass in the door in Jones v Bartlett (2000) 205 CLR 166. This is particularly the case where the discovery of such defects can only be ascertained by an expert as opposed to the usual inspection that would be made by a landlord or other occupier upon purchase of the property.

58. This was never an easy case on liability, but that does not mean that a “clear” case has been made out of the kind giving rise to an order under section 348. The respondent gave careful consideration to these matters, including reading Voli v Inglewood Shire Council , as he has set out in his affidavit.

59. To spend more time analysing the legal basis of the claim would be to fall into the trap warned against by Basten JA in Fowler at [84]. The dangers of “satellite litigation” judgments on costs canvassing complex questions of law are self-evident. Whether or not Sved was a complete answer to the claim is not really the issue. The respondent conscientiously did his best to ascertain the identity of the defendant to sue in the proceedings, prepared his case to a reasonable standard and, notwithstanding the trial judge’s rejection of the evidence and complaints about the quality of the witnesses and alleged omissions in the evidence, did what was reasonably necessary to put the case before the court. It has been said that the level of conduct necessary to satisfy the test is a “low threshold” ( Litmus Australia Pty Ltd v Canty [2006] NSWSC 196 at [55] per Barrett J); such a test will not be satisfied by “inexact proofs, indefinite testimony or indirect references” ( Briginshaw at 362). This, in my view, extends to legal research on arguments of some novelty.

Conclusions

60. In Fowler at [86], Basten JA notes:

“Joining a party to litigation in circumstances where there is a clear basis to recover damages, but the identity of those involved in relevant events is uncertain, is a matter for anxious consideration. The fact that a solicitor, with the advice of counsel, gives such anxious consideration (as was clearly done in the present case) is not a reason for mulcting the solicitors in costs because, at the end of the day, the decision to join the additional party is seen to be wrong.”


61. In that case, Basten JA considered it relevant to the setting aside of the order that any finding against the solicitor required “extensive examination of affidavit evidence and cross-examination of a solicitor” (at [84]). That is the case here and the fact that such detailed analysis is required is itself a matter which provides cause for doubts about the propriety of such an order.

62. As was the case in Whyked and Fowler , the respondent gave anxious consideration to who should be sued for the undoubtedly serious injuries (requiring surgery – see Exhibit A and B) the plaintiff suffered. He responded promptly and appropriately to correspondence from the solicitors for the occupier and builder. He briefed counsel for the hearing and when Sved was raised for the first time (on the third day of the trial, according to the trial judge) he discussed this with counsel. I note Basten JA’s comments about failure to seek an order against counsel at [87], but in the present case this has very limited relevance.

63. In this case, as in Fowler , the adverse inference the applicant asks me to draw as to the respondent’s credibility is that his subjective beliefs are untenable. I accept the respondent’s evidence that he would not have acted for the plaintiff if he had not believed the plaintiff had grounds for bringing his claim. I also consider, notwithstanding the trial judge’s adverse findings as to credit, that there were reasonable grounds for bringing such a claim.

The exercise of discretion

64. If I were to find that the facts established by the evidence before the trial court do not form a basis for a reasonable belief in the plaintiff’s success, I retain a discretion as to whether or not to make an order: Eurobodalla Shire Council v Wells at [28].

65. In Eurobodalla , Ipp JA saw “no redeeming feature in this case”, such as a question of difficult law. All his Honour saw was a total failure to take account of the needs to prove the facts necessary to support the cause of action.

66. That is not the case here. First of all, the issues of law concerning liability of the defendant have a degree of complexity, and involve consideration of issues of liability not commonly encountered in personal injury litigation (see Whyked at [183]). Secondly, as was also the case in Whyked at [182], the solicitor was diligent in the performance of the retainer. He carefully considered and rejected two other potential defendants. (I note the applicant’s argument that the respondent should have pursued the occupier but reject it for the reasons set out in the respondent’s written submissions). Thirdly, the case failed because of credit findings, and personal injury litigation, more than any other litigation, tends to depend upon findings that the trial judge makes as to the credit of witnesses. The Court of Appeal has expressed views about reliance upon credit, as opposed to objectively provable facts, in District Court judgments. A finding about the credit of a witness by a judge is not as capable of accurate measurement by a legal practitioner as, for example, the discovery of information that contradicts a vital part of the evidence.

67. One of the matters raised during the application was the fact that the defendant did not have insurance for the work that he carried out. I have great sympathy for the defendant, but failure to obtain insurance for the building work he carried out is not a reason for making a costs order I would not otherwise make. It may be a factor relevant to the exercise of discretion, had I determined to make such an order, but I do not propose to do so.

68. Finally, I must have regard to the warnings concerning the policy behind this litigation which are contained in all of the judgments in this section. The legislation was intended to have a “chilling” effect, but the administration of justice should not be impaired by a too liberal exercise of these comparatively new powers. The grave consequences to which legal practitioners are exposed clearly indicate that the question of discretion, like the construction of the section and the application of the jurisdiction should be no wider than is clearly required by the statute.

69. Accordingly, if I had made such a finding, I would decline to exercise my discretion to make the orders sought.

70. The parties have asked for liberty to apply in relation to costs issues and I accordingly reserve the issue of costs.

Orders

1. Notice of Motion dismissed.
2. Costs reserved.
3. Liberty to apply re costs.
4. Exhibits retained until further order.

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