Degiorgio v Dunn (No 2)

[2005] NSWSC 3

Reported Decision: 62 NSWLR 284

New South Wales

Supreme Court

CITATION:	Degiorgio v Dunn (No 2) [2005] NSWSC 3 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	17/12/04
JUDGMENT DATE :	1 February 2005
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Applications for indemnity costs orders against plaintiff and plaintiff's solicitor dismissed with costs.

CATCHWORDS:	PROCEDURE - costs - application by successful defendant for indemnity costs order against plaintiff and plaintiff's solicitor - LEGAL PRACTITIONERS - statutory duty in pursuing claim for damages - statutory liability for costs and analogous general law liability discussed - WORDS AND PHRASES - "damages" - "without reasonable prospects of success"
LEGISLATION CITED:	Supreme Court Rules, Part 52A rule 43 Legal Profession Act 1987, ss.198J, 198M, 198N
CASES CITED:	Ahern v Deputy Commissioner of Taxation (1983) 78 FLR 202 Bushell v Repatriation Commission (1992) 175 CLR 408 Cadogan v McCarthy & Stone (Developments) Ltd [2002] L&TR 249 Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 Degiorgio v Dunn [2004] NSWSC 767 Hurst v Bryk [2002] 1 AC 185 Momibo Pty Ltd v Adam (DCNSW, unreported, 31 August 2004) Nagle v Lavender [2002] NSWSC 611 Oshlak v Richmond River Council (1998) 193 CLR 72 Re Leeds and Hanley Theatre of Varieties Ltd [1902] 2 Ch 809 Repatriation Commission v Webb (1987) 76 ALR 131 Seager v Copydex (No 2) [1969] 1 WLR 809 Sorridimi v Moros [2004] NSWSCA 168 Steindl Nominees Pty Ltd v Laghaifar [2003] 2 QdR 683 United Mexican States v Cabal (2001) 209 CLR 165 Westend Pallets Pty Ltd v Lally (1996) 69 IR 1
PARTIES:	John Degiorgio - Plaintiff/First Respondent Stephen Teece - Second Respondent Greg Dunn - Defendant/Applicant
FILE NUMBER(S):	SC 5916/02
COUNSEL:	Plaintiff/First Respondent - In person Mr D.R. Pritchard/Mr E.C. Muston - Second Respondent Mr S.W. Cairns - Defendant/Applicant
SOLICITORS:	Plaintiff/First Respondent - In person Middletons Lawyers - Second Respondent Peter Merity - Defendant/Applicant

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

TUESDAY, 1 FEBRUARY 2005

5916/02 – JOHN DEGIORGIO v GREG DUNN (NO 2)

JUDGMENT

The costs claims

1 On 26 August 2004, I ordered that the plaintiff’s claims in the amended statement of claim be dismissed in their entirety and said that the defendant was entitled to an order for costs, at the same time directing that written submissions on the question of costs be filed: see Degiorgio v Dunn [2004] NSWSC 767. The proceedings were later re-listed so that certain questions with respect to costs might be canvassed. Thereafter, the successful defendant filed a notice of motion (supported by affidavits) in which the plaintiff was named as first respondent and the solicitor who acted for the plaintiff in the proceedings was named as second respondent. By that notice of motion (filed on 1 October 2004), the defendant sought the following orders:

“1. That the first respondent pay the applicant’s costs of these proceedings on an indemnity basis up to and including 9 September 2004 pursuant to:

(A) Section 76 of the Supreme Court Act 1970; and

(B) Part 52A rule 4 of the Supreme Court Rules 1970.
2. In addition to Order 1 that the second respondent pay the applicant’s costs of these proceedings on an indemnity basis up to and including 29 September 2004 being the date the second respondent ceased to act for the first respondent pursuant to:
(A) Part 52A rule 4 of the Supreme Court Rules 1970 and/or
(B) Section 198M of the Legal Profession Act 1987 (NSW).
3. That the first and second respondents pay the applicant’s costs of this notice of motion.”

2 The procedure thus adopted with respect to the solicitor is indicated, in general terms, by the decision of the Court of Appeal in Sorridimi v Moros [2004] NSWSCA 168.

3 I should record that the solicitor in question no longer acts for the plaintiff. He withdrew from the retainer immediately it became clear that an application for a costs order against him would be pursued. At the hearing on costs, the plaintiff appeared without legal representation and his former solicitor was represented by counsel.

The proceedings and their outcome

4 The claims in the defendant’s notice of motion will be better understood in the context of a brief description of the outcome of the proceedings. The plaintiff claimed, as principal relief, a declaration that he and the defendant had commenced trading as a partnership in or about January 2000, a declaration that they traded in partnership in the business of a musical band known as “Dirty Deeds AC DC Tribute Show” from about January 2000 and a declaration that the registered business name “Dirty Deeds AC DC Tribute Show” is an asset of the partnership. My conclusion was that no such partnership had existed. At the centre of the plaintiff’s claims was a conversation between the plaintiff and defendant in January 2000. Both accepted that a relevant conversation occurred but each gave a different version of it. I therefore considered other circumstances.

5 In the end, my conclusion was reached by reference to five main findings, apart from those concerning the January 2000 conversation: first, that payment claims apparently submitted by the plaintiff and remittance advices apparently furnished by the defendant showed that the plaintiff was remunerated by way of a fixed fee per performance with the band; second, that the plaintiff’s income tax returns for relevant periods recorded receipt of “professional fees” and did not reflect any partnership income, whereas the defendant’s returns showed that he carried on a business and paid “musicians’ fees”; third, that the plaintiff had, within a matter of a few weeks after the formation of what he claimed to be the new partnership, gone to Canada where he remained for 17 months; fourth, that while in Canada the plaintiff had engaged in activities of the kind he might have been expected to confine to the alleged partnership; and, fifth, that the plaintiff, while in Canada and on his return, approached persons in Sydney involved in the activities which he maintained were carried on by the defendant and him in partnership and tried to interest them in becoming involved instead in competing activities that the plaintiff sought to establish on his return to Sydney.

The matters for decision

6 I have already said that, on the ordinary principle that costs follow the event, the defendant is entitled to an order for costs against the plaintiff. For decision upon the defendant’s notice of motion filed on 1 October 2004, in so far as it involves the plaintiff, is the question whether the order against the plaintiff should require the payment of costs on the indemnity basis.

7 For quite separate decision on the notice of motion is the question whether an order which is effectively an indemnity costs order should be made against the plaintiff’s solicitor or, more precisely, the solicitor who acted for the plaintiff in relation to the proceedings but ceased acting after the claim against him had been foreshadowed. The immediate impetus for this second claim was presumably the plaintiff’s statement in cross-examination at the trial that the only thing he owns is a mobile phone.

The claim against the solicitor

8 I propose to consider first the claim against the solicitor since this was, in a sense, more strongly pressed and involved the adducing of evidence over and above that led at the trial. The claim against the solicitor is expressed to be based on Part 52A rule 43 of the Supreme Court Rules and s.198M of the Legal Profession Act 1987. The aspect of Part 52A rule 43 relied upon is that referring to a situation where “costs are incurred improperly or without reasonable cause, or are wasted by any undue delay or by any other misconduct or default, and it appears to the Court that a solicitor is responsible”. The defendant does not invoke the power conferred on the court by s.76C of the Supreme Court Act 1970 which is expressed in slightly different terms.

9 The case against the solicitor was argued mainly by reference to the more specific provisions in s.198M of the Legal Profession Act. I did not understand the defendant to contend that there was, in the context of this case, impropriety, lack of reasonable cause, waste, misconduct or default for the purposes of Part 52A rule 43 above and beyond the matters forming a basis for the resort to the Legal Profession Act. In saying that, however, I am not suggesting that the two potential bases of liability are co-extensive; merely that the defendant did not rely upon any distinction between them.

Division 5C of Part 11 of the Legal Profession Act 1987

10 Section 198M of the Legal Profession Act is as follows:

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

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

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

11 This is the fourth of five sections in Division 5C of Part 11 of the Act. Its purpose and meaning are to be understood in the light of the first of the five sections, being s.198J:

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

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

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

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

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

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

12 I should also refer to s.198N which, in some circumstances, creates a rebuttable presumption adverse to a legal practitioner on the “without reasonable prospects of success” question. In the present case, however, there is no need to consider s.198N in any substantive way since the circumstances are not within either s.198N(1) (because this court did not, on the hearing of the proceedings, make any finding relevant to the operation of that section) or s.198N(2) (because the trial court was the Supreme Court). I mention, by way of aside, that the fact that no aspect of s.198N operates also means that principles of lawyer-client confidentiality are not modified by s.198N(3). In the hearing on costs, the plaintiff, who appeared without legal representation, made it clear that he wished to preserve and maintain the privileged nature of communications between the solicitor and him. Rulings on evidence were made accordingly and the solicitor, in cross-examination, was not required to answer certain questions to which the plaintiff’s blanket objection applied.

“Proceedings … taken on a claim for damages”

13 A threshold question arises as to the meaning, in this part of the Legal Profession Act, of the expression “proceedings … taken on a claim for damages”. A “claim for damages” may have one of many foundations. Damages may be claimed for tort, for breach of contract, for infringement of copyright, for breach of statutory duty, under statutory provisions such as s.82 of the Trade Practices Act 1974 (Cth) or under an undertaking as to damages given to the court. This list is by no means exhaustive. Section 68 of the Supreme Court Act 1970, dealing with a case where the court may grant an injunction to restrain a breach of contract or “any wrongful act” or make an order for specific performance, empowers the court to “award damages to the party injured either in addition to or in substitution for the injunction or specific performance”. In addition, equitable compensation is sometimes referred to as a species of “damages”. In Nagle v Lavender [2002] NSWSC 611, Campbell J referred to equitable “damages” as follows:

“While it is correct that equity awards monetary compensation for breach of different obligations to those for which the common law awards damages, and assesses that compensation using different principles to those which the common law uses to assess damages, it is still a common enough, although loose, use of language to talk about damages being awarded in equity when one is talking about equitable compensation being granted.”

14 His Honour mentioned observations in Re Leeds and Hanley Theatre of Varieties Ltd [1902] 2 Ch 809 and Seager v Copydex (No 2) [1969] 1 WLR 809 “to show that, in a loose sense, the notion of damages being awarded for breach of an obligation arising in equity’s exclusive jurisdiction is not unheard of”. The former case involved breach of fiduciary duty and the latter breach of an equitable obligation of confidence.

15 It is thus not an entirely simple matter to decide, from the terms of the enactment itself, what the legislature had in contemplation when it chose to refer, in s.198M, to “proceedings … taken on a claim for damages”. In the end, however, I do not think that there is any real alternative but to treat as within that specification every case in which an originating process claims what are there designated “damages”, whether or not the nature of the damages is specified. Whether the provision also has regard to claims for compensation or reimbursement which are not labelled “damages” but may be within one of the “loose sense” concepts of damages to which I have referred is not a question that need be addressed here. One thing may, however, be said with confidence. Although the relevant provisions were introduced into the Legal Profession Act by the Civil Liability Act 2002 which is concerned overwhelmingly with claims in negligence for personal injuries, the Parliamentary materials make it clear that the Legal Profession Act aspects are not so confined.

“Reasonable prospects of success”

16 An order may be made against a legal practitioner under s.198M(1) if it appears to the court in which proceedings are taken on a claim for damages that the practitioner has provided legal services to a party to the proceedings “without reasonable prospects of success”. A claim is to be regarded as having “reasonable prospects of success” if “there are reasonable prospects of damages being recovered on the claim”. This is stated in s.198J(4). It presumably follows that a party is “without reasonable prospects of success” if, in relation to the party’s claim, there are not “reasonable prospects of damages being recovered on the claim”.

17 A helpful analysis of the elements underlying s.198M(1) is to be found in the judgment of Judge Neilson of the District Court of New South Wales in Momibo Pty Ltd v Adam (unreported, 31 August 2004). His Honour identified five such elements. The first is that reasonable belief (as subjectively held by the practitioner) encompasses the other four and entails a proposition or propositions that can be regarded as logically arguable in an objective sense. The second element is that the reasonable belief must have its objective foundation in material available to the practitioner at the relevant time, which material is not confied to admissible evidence as such and may extend to material that is credible but not strictly admissible. Third, it must be seen that the material thus identified constitutes a proper basis for alleging each relevant fact. Fourth, the claim must proceed according to a reasonably arguable view of the law, a matter not to be approached narrowly: arguably available extension and innovation may be contemplated. The fifth element is that there be reasonable prospects of damages being recovered in the action – not necessarily damages as claimed but some damages, however modest.

18 I would add to this two observations in relation to the fifth element. First, the reference to damages should be understood in the way already discussed. Second, the provisions are not concerned with quantum of damages, with the result that the fifth element will be satisfied even if a prospect of merely nominal or token damages can be seen.

19 Neilson DCJ expressed an opinion, with which I agree, that the relevant provisions of the Legal Profession Act are intended to change general law principles to the general effect that a lawyer may with impunity act for a client in proceedings which are apparently hopeless, provided that the lawyer is not aware that the proceeding might amount to an abuse of process. That apparent legislative intention may serve to add content to the statutory language.

20 When that statutory language is examined, it is seen that, while s.198J(4) goes some way towards explaining “reasonable prospects of success”, it does so in a way that does not attempt to explain or define “reasonable prospects”. The meaning of that expression must be gathered by analogy, with such attention as is permissible paid to Parliamentary materials.

21 In some contexts, “reasonable prospects of success” signifies no more than “arguable”. I quote the following passage from the decision of the Australian Industrial Relations Commission in Westend Pallets Pty Ltd v Lally (1996) 69 IR 1 at p.12:

“The requirement for an arguable case of either legal error or that the discretion has been miscarried will mean that applicants must demonstrate that their case has a reasonable prospect of success.”

22 It may also be said that “reasonable prospects of success” connotes something less than likelihood of success – hence the formulation of Sheppard J, in Ahern v Deputy Commissioner of Taxation (1983) 78 FLR 202, “… will be likely to succeed or at least have reasonable prospects of success” [emphasis added]. That the test is not a particularly stringent one is suggested by an observation of Gleeson CJ, McHugh and Gummow JJ in United Mexican States v Cabal (2001) 209 CLR 165 at p.174:

“A constitutional challenge to legislation is always a matter of public importance. If it has even reasonable prospects of success, special leave to appeal will be granted – almost as a matter of course” [emphasis added].

23 I was referred by counsel to an article by Nicholas Beaumont, “What are reasonable prospects of success?” (2004) 78 ALJR 812 in which it is suggested that a claim satisfies the statutory requirement “if it is not hopeless or entirely without merit”. The “not hopeless” construction is put forward by reference to Cadogan v McCarthy & Stone (Developments) Ltd [2002] L&TR 249, an English decision about the phrase “reasonable prospect of being able to bring about this occupation”. Saville LJ there said (at pp.253-4)

“The reason why it must be established that there is a reasonable prospect of obtaining permission is that otherwise the landlords could only be said to be contemplating, rather than genuinely intending, the desired course of action. A reasonable prospect in this context accordingly means a real chance, a prospect that is strong enough to be acted on by a reasonable landlord minded to go ahead with plans which require permission, as opposed to a prospect that should be treated as merely fanciful or as one that should sensibly be ignored by a reasonable landlord. A reasonable prospect does not entail that it is more likely than not that permission will be obtained.”

24 The learned author sees the “not fanciful” formulation of Saville LJ as supported by the decision of the High Court in Bushell v Repatriation Commission (1992) 175 CLR 408 which concerned the expression “reasonable hypothesis”. Brennan J (at p.428) approved the distinction drawn in Repatriation Commission v Webb (1987) 76 ALR 131 at p.135 between “a theory that is rationally based” and one that is “irrational, absurd or ridiculous”.

25 The explanatory note accompanying the Civil Liability Bill 2002 provides no guidance on the meaning of “reasonable prospects of success”. The Premier’s second reading speech (Hansard, Legislative Assembly, 28 May 2002, p.2085) is of some assistance in that it refers to “unmeritorious claims” and “spurious defences”. The adjective “unmeritorious” refers to something that is devoid of merit. Something is “spurious” if it is false or not genuine.

26 I accept that this legislation imposes upon lawyers 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. Cases of that kind turn upon the lawyer’s duty to the court. Here, by contrast, the lawyer is subject to a statutory duty reflective of the interests of the community. A recent statement of the relevant general law approach may be found in the decision of the Queensland Court of Appeal in Steindl Nominees Pty Ltd v Laghaifar [2003] 2 QdR 683. Davies JA there said (at p.689), with the concurrence of the other members of the court and after reviewing earlier authorities:

“To the extent that those statements state or imply that it is not improper for a legal representative to present a case which he or she knows to be bound to fail, I would reject them. I would prefer to say that it is one thing to present a case which is barely arguable (but arguable nevertheless) but most likely to fail; it is quite another to present a case which is plainly unarguable and ought to be so to the lawyer who presents it. In my opinion, with respect, it is improper for counsel to present, even on instructions, a case which he or she regards as bound to fail because, if he or she so regards it, he or she must also regard it as unarguable.”

27 In drawing a line at a somewhat higher point on the relevant scale of conduct, the Legal Profession Act should not, in my opinion, be presumed to intend that lawyers practising in New South Wales courts must boycott every claimant with a weak case. A statutory provision denying to the community legal services in a particular class of litigation cannot be intended to stifle genuine but problematic cases. Nor do I see the statutory provisions as intended to expose a lawyer to the prospect of personal liability for costs in every case in which a court, having heard all the evidence and argument, comes to a conclusion showing that his or her client’s case was not as strong as may have appeared at the outset to be. The legislation is not meant to be an instrument of intimidation, so far as lawyers are concerned.

28 The several factors to which I have referred, including the references in the Premier’s second reading speech and the apparent legislative purpose, cause me to adopt the construction of “without reasonable prospects of success” that equates its meaning with “so lacking in merit or substance as to be not fairly arguable”. The concept is one that falls appreciably short of “likely to succeed”.

The plaintiff’s claims

29 The plaintiff’s amended statement of claim filed on 28 June 2004 pleaded:

(a) the making of a partnership agreement between the plaintiff and the defendant in or about January 2000;
(b) certain terms of that partnership agreement;
(c) certain actions of the plaintiff pursuant to the partnership agreement;
(d) breaches of the partnership on the part of the defendant by:
(i) renewing a business name in his own name alone; and
(ii) purporting to terminate the plaintiff’s membership of the band;
(e) the acquisition by the plaintiff of “a reputation and fame” in the course of the partnership agreement, which continued after the purported termination of the partnership;
(f) a request by the plaintiff (and wrongful refusal by the defendant)
(i) to account to the plaintiff for the earnings and expenses while the plaintiff was a partner;
(ii) to permit the plaintiff to inspect the books;
(iii) to cease using the plaintiff’s photographic image in connection with the band; and
(iv) to cease using the name “Dirty Deeds the Band”;
(g) as a consequence of the defendant’s conduct in (f)(iii) and (iv) above,
(i) inability of the plaintiff to perform in his own musical band except at a loss and to obtain suitable employment in the music industry, whereby loss and damage was suffered by the plaintiff; and
(ii) injury to the plaintiff’s reputation as a professional musician and consequential loss and damage.

30 The claims in the amended statement of claim were expressed as follows:

“And the Plaintiff claims:
(aa) a declaration that the Plaintiff and the Defendant commenced trading as a partnership in or about January 2000.
(aaa) a declaration that the Plaintiff and the Defendant traded in a partnership in the business known as ‘Dirty Deeds AC DC Tribute Show’ from in or about January 2000.
(aaaa) a declaration that the registered business name ‘Dirty Deeds AC DC Tribute Show’ is an asset of the partnership.
(a) A declaration that in the events which have occurred the Defendant holds the registered business names ‘Dirty Deeds The Band’ and ‘Dirty Deeds AC DC Tribute Show’ as trustee for himself and the Plaintiff as joint tenants.
(b) An order that the Defendant do no act or thing which impairs the rights of the Plaintiff as declared.
(c) An order that the Defendant do all acts and things necessary to transfer the registered business names ‘Dirty Deeds The Band’ and ‘Dirty Deeds AC DC Tribute Show’ into the Plaintiff’s name.
(d) In the alternative to (c), an order that:
(i) the Defendant do all acts and things necessary to cancel the registration of the registered business names ‘Dirty Deeds The Band’ and ‘Dirty Deeds AC DC Tribute Show’; and
(ii) the Defendant be restrained from registering any business name containing the words ‘Dirty Deeds’ in connection with any musical band or other group of performers.
(e) An order that the proceedings are referred to the Master to take accounts of and enquire into:
(i) All the dealings and transactions of the partnership, including but not limited to all moneys earned by the Band from 1 January 2000 to date.
(ii) What are the assets and liabilities of the partnership.
(iii) What are the respective interests of the partners in the assets of the partnership.
(f) An order that the Defendant permit the Plaintiff by his representative to inspect the records and books of the Band from 1 January 2000 to date.
(g) An order that the Defendant not use or cause to be published any advertising material displaying the Plaintiff’s image.
(h) Damages, particulars of which cannot be provided by the Plaintiff until after discovery and/or interrogatories in these proceedings.
(i) Further or other order.
(j) Costs.”

31 The original statement of claim was filed on 13 December 2002. The amended statement of claim did no more than add items (aa), (aaa) and (aaaa) to the relief sought.

32 Leaving to one side items (i) and (j) as irrelevant for the moment, the relief claimed is overwhelmingly equitable in nature. This is hardly surprising. The relationship of partnership is one traditionally overseen by courts of equity. I quote from the speech of Lord Millett in Hurst v Bryk [2002] 1 AC 185:

“By entering into the relationship of partnership, the parties submit themselves to the jurisdiction of the court of equity and the general principles developed by that court in the exercise of its equitable jurisdiction in respect of partnerships. There is much to be said for the view that they thereby renounce their right of unilateral action to bring about the automatic dissolution of their relationship by acceptance of a repudiatory breach of the partnership contract, and instead submit the question to the discretion of the court.”

33 The main thrust of the plaintiff’s claims was based on the proposition that a partnership had come into existence, that he had been wrongfully excluded from the partnership, that the partnership was ongoing, that he continued to be a member of it and that he was entitled to an account and to access to the books accordingly. The claim in paragraph (h) for unparticularised damages could only have been based on the proposition that there was a repudiatory breach of the partnership agreement or, perhaps, breach of some implied term of that agreement which denied the defendant, acting alone, a right to use the plaintiff’s photographic image or the name “Dirty Deeds The Band” without the consent of the plaintiff. At all events, it can be said that the claim for damages in paragraph (h) is ancillary or subsidiary to the claims for equitable relief and that the damages in contemplation are damages for breach of contract.

34 Even though the plaintiff’s claims were, in the main, of an equitable kind, the inclusion of paragraph (h) and its explicit claim for “damages” must, on the approach I consider to be correct, bring the case within s.198M of the Legal Profession Act.

The defendant’s contentions against the solicitor

35 The defendant, in pursuing the claim against the solicitor based on s.198M, made the following points:

1. Paragraph 19(a) of the statement of claim filed on 13 December 2002 (and retained in the amended statement of claim filed on 28 June 2004) claimed a declaration that the defendant held the registered business names “Dirty Deeds The Band” and “Dirty Deeds AC DC Tribute Show” as trustee for himself and the plaintiff; yet, a search of the relevant register in December 2002 would have shown, the registration of the first of these names had not been renewed on 3 August 2001 and the name had been removed from the register.
2. As to the central claim of the existence of a partnership, none of the critical documents considered by the court (income tax returns of the parties, invoices rendered by the plaintiff and remittance advices issued to the plaintiff) supported the existence of the alleged partnership. It is said that the plaintiff’s solicitor should have inspected these documents beforehand and realised that they indicated that his client’s claim lacked merit.
3. The only evidence adduced by the plaintiff in support of his contention as to the existence of a partnership was the plaintiff’s own oral evidence and this, of itself, was insufficient to justify a finding of partnership.
4. The absence of seventeen months in Canada and the conduct both within and after that period inconsistent with proper performance of the duties of a partner should, it was said, have made it clear to the solicitor that there was no partnership.

The solicitor’s response

36 The solicitor stated in evidence that he had seen the plaintiff’s relevant tax returns by about June 2003, after he had asked for them in August or September 2002. He said that he examined them in some detail. The invoices claiming a fee per performance were also received by the solicitor at about the same time, as were the defendant’s tax returns for relevant years. By reference to the tax returns, invoices and remittance advices, the solicitor was cross-examined about a statement in his affidavit to the effect that, so far as he was aware, there were no documents establishing the non-existence of a partnership:

“Q. When you had those documents in July 2003, did you have cause to revise your opinion?
A. I considered the position. I did not revise my opinion. The tax returns had been prepared after the event and the fact was they were just one thing in a matrix of facts. The invoices had been prepared by Mr Dunn and the circumstances I took - I withdraw what I just said then. The invoices had been prepared by Mr Dunn, so I did not put the same degree of weight on those documents, the tax returns and the invoices, as I might otherwise have. I considered them, but I did not change my point of view.

Q. Why did you give the invoices generated by Mr Dunn less weight than the documents prepared for the tax office?
A. Could you please repeat the question?

Q. Why did you give the invoices prepared by Mr Dunn less weight than the documents prepared for the tax office?
A. I don't believe I said that. If I might clarify, I gave neither the tax returns nor the invoices the same degree of weight that I might have otherwise have. I have explained the reasons why, because the invoices were prepared by Mr Dunn and not by Mr Degiorgio.

Q. What was the significance of that in your mind?

HIS HONOUR: The significance of their having been prepared by Mr Dunn?

CAIRNS: Yes, your Honour.
A. The significance was that I had formed the view that Mr Degiorgio had relied on Mr Dunn to a considerable extent in the running of the band from 2000 onwards and that Mr Dunn might have, in preparing those documents, prepared them in such a way that did not reflect what I understood the nature of the arrangement between the parties to be. The fact that Mr Dunn prepared them gave them less weight than if they had been prepared by Mr Degiorgio in my opinion.”

And later:


“CAIRNS: Q. Sir, in relation to the invoices that you say were prepared by Mr Dunn, you agree with me that a number of them had your client's signature on them?
A. Yes, I do.

Q. There is no suggestion that that signature wasn't placed on the document at about the time payment was made and the invoice presented?
A. I am not sure if I understand your question. Would you mind repeating it?

Q. You had no reason to believe that that signature wasn't contemporaneous with the document coming into existence?
A. I had no reason to know they were contemporaneous.”

37 There was thus a non-fanciful basis for the opinion on the solicitor’s part that the tax returns, invoices and remittance advices might, in due course, be found not to reflect the true position.

38 As to the conversation between the plaintiff and defendant central to the plaintiff’s case, the solicitor was in a position where he knew that the parties would give inconsistent evidence of the content. He was, however, in the somewhat unusual position of having had a direct telephone conversation with the defendant in which the defendant had denied the validity of the plaintiff’s general claims as communicated by a letter of demand in advance of the proceedings. The defendant seemed, on that occasion, to be aggressive and emotional, although the defendant says that he did not act in that way during the telephone conversation. At all events, there may well have been impressions that the solicitor could legitimately draw from the telephone conversation to support a view that the defendant’s denials were advanced in a way that might be broken down to some extent in cross-examination or, at least, might cause credence to be attracted to the plaintiff’s version.

39 The solicitor was cross-examined as to whether he had made a search of the business names register before commencing the proceedings or thereafter. He had not. He did not dispute that that search, if made, would have shown that one of the names was no longer registered. This was not the case in relation to the other.

40 The solicitor was asked a general question about the basis on which he considered there was a viable claim as pleaded. The question and his answer are instructive:

“Q. Sir, at paragraph 52 of your affidavit, you say "the time as certifying this Statement of Claim and at other times in June 2003". What were the provable facts in your opinion that established your claim for the existence of a partnership post 2000?
A. The facts were as follows; there was the conversation, there were the email communications between Mr Degiorgio and Mr Dunn in or about February and March of 2002, there was the matter of the prior partnership between the four band members leading up to the end of 1999, there was the fact that--

Q. Just stopping you--

OBJECTION.

HIS HONOUR: He should finish the answer.

A. There was the fact that Mr Degiorgio portrayed a central identifiable character in the band ACDC. It was an ACDC Tribute band. Mr Degiorgio's image was used to promote that band. There was the fact that when Mr Degiorgio went overseas he had selected and trained a replacement performer for some considerable time on his own time and own expense to take his place in the band. There was the fact of the continuing use of promotional material depicting Mr Degiorgio to promote "Dirty Deeds" and the complaints and the situation which had developed whereby Mr Degiorgio was quite embarrassed and placed in difficulties by the continuance of his image after he was no longer in the band. There was the fact that Mr Degiorgio's parents did a lot of unpaid work concerning the band.

All of which gave me the impression in my mind the facts that established there had been a partnership between the parties. They were the indicia I looked at. Those were the indicia. The fact that they were also, in my opinion, commercially inexperienced persons - it was a garage band, ACDC Tribute band, and it would be unlikely that persons who performed in such a band would be commercially experienced and would run a partnership according to perhaps the normal documentary indicia of a partnership that would be found say in a partnership of lawyers or accountants. So all of these matters put together.

There was also the evidence of the plaintiff Degiorgio's father in support and his mother in support of what Mr Degiorgio told me, and also the fact there were no documents to the contrary other than the tax returns which, as I have explained, I didn't put a great deal of weight on, and the series of invoices and remittence advices prepared by Mr Dunn, again which I did not put a great deal of weight on.”

Assessment of s.198M claim

41 The s.198M claim focuses, of necessity, on the claim for damages. As I have said, the pleading is such that a claim for damages must be based on an allegation of repudiatory breach of the alleged partnership agreement or, perhaps, breach of an implied term denying the defendant, acting alone, a right to use the plaintiff’s photographic image or the name “Dirty Deeds The Band” without the plaintiff’s consent. Central to the damages claim, therefore, is the proposition that a partnership (and hence a partnership agreement) existed. That, of course, is the question to which the judgment was directed. The broad canvassing of the basis on which the solicitor approached the case as a whole and came to conclusions about the substance of the various factual elements is accordingly germane to the s.198M issue.

42 I am satisfied that, at the time the proceedings were commenced and at all material times thereafter, the solicitor was in a position where he held, on the basis of his own appraisal of matters, a genuine subjective opinion that it was incorrect and inappropriate to regard as so devoid of merit or substance as to be not fairly arguable, first, the claim as to the existence of a partnership agreement and, second, the claim that breach of it by the defendant would result in the award of relief accordingly including relief by way of damages. I am also of the opinion that, having regard to the various factual considerations to which the solicitor referred in evidence, he had, as an objective matter, reasonable grounds for holding that opinion. To proceed with the retainer, he did not have to think that success was likely or more likely than not. His responsibility was merely to see that there was, on the facts and the law, a cogent basis for putting forward a case not so devoid of merit or substance as to be not fairly arguable. I am satisfied that he discharged that responsibility.

43 The defendant’s application for an order against the plaintiff’s solicitor, based on s.198M of the Legal Profession Act, does not succeed.

The alternative claim against the solicitor

44 The findings and conclusions already outlined are sufficient to dispose also of the defendant’s claim against the plaintiff’s solicitor based on Part 52A rule 43 of the Supreme Court Rules. This is because, on the view I take, the standard of conduct on which ss.198J and 198M of the Legal Profession Act are based is more stringent, from the lawyer’s perspective, than that involved in the aspect of the lawyer’s duty to the court that is the source of the non-statutory jurisdiction to award costs against a legal practitioner in the kinds of circumstances mentioned in Part 52A rule 43.

The claim against the plaintiff

45 As I have said, the defendant’s application for a special costs order against the plaintiff received less attention in submissions than the application for an order against the solicitor, no doubt because of an apprehension that the plaintiff may be impecunious. It is clear, nevertheless, that the application against the plaintiff is pressed.

46 The aspect of the general jurisdiction with respect to costs thus invoked by the defendant is that concerned with what was referred to by Gaudron and Gummow JJ in the following passage in Oshlak v Richmond River Council (1998) 193 CLR 72, as “relevant delinquency”:

“It may be true in a general sense that costs orders are not made to punish an unsuccessful party. However, in the particular circumstance of a case involving some relevant delinquency on the part of the unsuccessful party, an order is made not for party and party costs but for costs on a "solicitor and client" basis eg, Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 10 FCR 177 at 178, see also Packer v Meagher [1984] 3 NSWLR 486 at 500; Australian Guarantee Corporation Ltd v De Jager [1984] VR 483 at 502, or on an indemnity basis eg, Degmam Pty Ltd (In liq) v Wright [No 2] [1983] 2 NSWLR 354, see also Re Smith; Ex parte Rundle [No 2] (1991) 6 WAR 299 at 301. The result is more fully or adequately to compensate the successful party to the disadvantage of what otherwise would have been the position of the unsuccessful party in the absence of such delinquency on its part.”

47 In the present case, the species of “relevant delinquency” of the plaintiff on which the defendant relies is that often associated with the decision in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 and recently described and applied by the Full Federal Court in De Alwis v Minister for Immigration and Multicultural and Indigenous Affairs [2004] FCAFC 77 (at [6] – [7]):

“The purpose of an order for costs is to indemnify or compensate the person in whose favour it is made, not to punish the person against whom it is made: see Latoudis v Casey (1990) 170 CLR 534 Ohn v Waltob (1995) 36 NSWLR 77 at 79 per Gleeson CJ. The usual rule is that costs should be on a party-party basis, but that the court has a wide and unfettered discretion to award costs on an indemnity basis in appropriate cases in particular circumstances: see Colgate-Palmolive v Cussons (1993) 46 FCR 225 at 231–234.

In deciding whether to award indemnity costs each exercise of discretion depends on the particular facts. Indemnity costs can be awarded where it appears that a proceeding is commenced or continued in circumstances where the applicant properly advised should have known there was no chance of success. In this case, that consideration coupled with the failure to attempt to comply with the rules or directions of the court in this matter justifies the award of indemnity costs. The appellant properly advised should have known the appeal had no chance of success: see Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397 at 400–401 per Woodward J; Botany Municipal Council v Secretary, Department of the Arts, Sport, the Environment, Tourism & Territories (1992) 34 FCR 412 at 415.”

48 The question thus posed is whether the plaintiff, properly advised, “should have known that there was no chance of success”. The plaintiff, of course, relied on his lawyers. He put the matter thus in his oral submissions at the hearing on costs:

“DEGIORGIO: Well, I started this case on my own beliefs and the truth that I put to Mr Teece, and him being my lawyer, he was representing me, and I did and said everything to my knowledge, and to give him all the evidence that I had, to pursue this case.

HIS HONOUR: Yes, thank you.

DEGIORGIO: In regards to things that were asked of me, they were handed in in time and nothing was handed in late or anything like that. Thank you, your Honour.”

49 In those circumstances, I am of the opinion that the considerations leading to the conclusion that a costs order should not be made against the solicitor also mean that there should be no order for indemnity costs against the plaintiff.

Disposition

50 The claims in the defendant’s notice of motion have not been made out and, since those claims were pursued in such a way as to involve a notice of motion, an additional party, further evidence (including cross examination) and a hearing that occupied the best part of a day, the considerations discussed in Singh v Singh (No 3) [2004] NSWSC 866 do not militate against the making of an order for costs in respect of the notice of motion.

51 I therefore order that the defendant’s notice of motion filed on 1 October 2004 be dismissed with costs.

52 In the substantive proceedings determined by the judgment of 26 August 2004, the order with respect to costs is that the plaintiff pay the defendant’s coats, such costs to be assessed on the party/party basis.

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08/02/2005	-	Mistake - Paragraph(s) 42
18/02/2005	-	Mistake - Paragraph(s) 42