Down to Earth Spring Water v Mitrofanis Demetrius Nikolaidis and Leon Nikolaidis trading as MD Mikolaidis and Co

[2002] NSWSC 64

CITATION:	Down to Earth Spring Water & Ors v Mitrofanis Demetrius Nikolaidis & Leon Nikolaidis trading as MD Mikolaidis & Co [2002] NSWSC 64
FILE NUMBER(S):	SC 20928/97
HEARING DATE(S):	29/1/02, 30/1/02, 31/1/02, 1/2/02, 8/2/02, 11/2/02, 12/2/02, 13/2/02, 14/2/02
JUDGMENT DATE:	3 May 2002
PARTIES :	Down to Earth Spring Water (1st Plaintiff) Nilbrook Pty Limited (2nd Plainitff) Four MJ Pty Limited (3rd Plaintiff) Mitrofanis Demetrius Nikolaidis & Leon Nikolaidis Trading as MD Nikolaidis & Co (Defendant)
JUDGMENT OF:	Bell J at 1

COUNSEL :	Mr T. A. Alexis / Ms E. Champion (1st, 2nd, 3rd Plaintiffs) Mr P. M. Wood / Mr M.A. Jones (Defendant)
SOLICITORS:	Hazan Hollander (1st, 2nd, 3rd Plaintiffs) Henry Davis York (Defendant)
LEGISLATION CITED:	Supreme Court Rules 1970
DECISION:	Pursuant to Pt 31 r 2 SCR determination of separate questions - breach of retainer and duty of care established

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW

20928/97

BELL J

Friday 3 May 2002

DOWN TO EARTH SPRING WATER PTY LTD & Ors v MITROFANIS DEMETRIUS NIKOLAIDIS & LEON NIKOLAIDIS trading as MD Nikolaidis & Co

Judgment

BELL J

:

1 The first plaintiff, Down to Earth Spring Water Pty Limited (“DTE”) was in 1990 carrying on the business of producing and selling bottled water to the domestic market in Sydney. At the material time DTE had four directors; John Preston, Gary Smith, Adam Loel and Jason Paris (“the directors”). The last mentioned three directors each held 25 percent of the shares in DTE. The remaining 25 percent of the shares in DTE were held by the second plaintiff, Nilbrook Pty Limited (“Nilbrook”). John Preston was at all material times a director and shareholder of Nilbrook and of the third plaintiff, Four MJ Pty Limited (“Four MJ”). Four MJ was the owner of premises at 117 – 119 Silverwater Road, Silverwater, from which DTE conducted its business.

2 Each of the defendants were partners in the legal practice conducted under the name “MD Nikolaidis & Co”.

3 In or about July 1991 the plaintiffs retained the defendant to act for them in relation to a dispute with the State Bank of NSW (“the Bank”). On 15 August 1991 the plaintiffs commenced proceedings in the Federal Court of Australia seeking relief against the Bank (“the damages claim”). On 19 August 1991 Beaumont J ordered that the proceedings be transferred to this Court.

4 By the damages claim the plaintiffs contended that the Bank had breached the terms of an agreement made on 11 January 1991 by which it had agreed to loan the sum of $1,000,000 to Nilbrook in consideration of each of DTE and Four MJ providing certain securities to it. The claim was also pleaded in negligence and pursuant to s 42 of the Fair Trading Act 1987 in respect of conduct engaged in by the Bank which was said to be misleading or deceptive.

5 Messrs Paris, Loel and Smith were plaintiffs in the proceedings brought against the Bank, each had provided a personal guarantee in support of the loan advance to Nilbrook.

6 The Bank cross-claimed against the plaintiffs seeking judgment for the sum due under the loan to Nilbrook and to enforce its securities.

7 The hearing of the plaintiffs’ damages claim and the Bank’s cross-claim commenced before Brownie J on 30 March 1992. On 2 April 1992 the hearing was adjourned to 9 June 1992.

8 On 9 June 1992 Mr Grieve QC, who had been retained by Leon Nikolaidis (“Mr Nikolaidis”) on the plaintiffs’ behalf, informed Brownie J that his instructions were to discontinue the plaintiffs’ damages claim. Leave was sought to amend the plaintiffs’ defence to the Bank’s cross-claim so as to plead that the loan contract was void for illegality. His Honour gave judgment for the Bank on the damages claim and adjourned the hearing of the cross-claim until 11 June 1992.

9 It is the plaintiffs’ case in these proceedings that the defendant did not have instructions to discontinue their damages claim and that, in instructing senior counsel so to do, the defendant acted in breach both of the contract of retainer and the common law duty of care owed to the plaintiffs. The latter is pleaded as a duty to act at all times in accordance with the instructions of the plaintiffs, to the extent that it was legally and ethically permissible to do so. The plaintiffs claim damages.

10 On 22 October 1999 an order was made pursuant to Pt 31 r 2 of the Supreme Court Rules 1970 (“the SCR) as follows:

“That the issues of whether the defendant was retained by the plaintiffs and, if so, whether the defendant breached that retainer be determined by the court in an early separate trial.”

11 At the time the above order was made the plaintiffs’ case was pleaded as one of breach of retainer only. On 2 November 2001 the plaintiffs were granted leave to file an amended statement of claim pleading their claim also in negligence. The order pursuant to Pt 31 r 2 of the SCR was amended so as to include the determination of the question of whether the defendant acted in breach of the common law duty of care owed to the plaintiffs.

12 The proceedings before me involved the determination of these separate questions.

13 Despite the formulation of the separate question the proceedings were conducted upon the basis that there was no issue as to the fact of the retainer. The sole question agitated before me concerned what instructions were given by the plaintiffs during the course of a conference (or conferences) to Mr Grieve and junior counsel, Mr Svehla, and Mr Nikolaidis over the long weekend prior to the resumption of proceedings on 9 June 1992 (“the long weekend conference”).

14 Fundamental to the plaintiffs’ damages claim in the proceedings before Brownie J was the contention that there had been substantial delays in the provision of the loan funds by the Bank. DTE was said to have been unable to achieve budgeted performance as the result of these delays. By mid-1991 DTE was having difficulty servicing the loan. The Bank foreshadowed the appointment of a receiver. This led the plaintiffs to retain the defendant with a view to the commencement of proceedings against the Bank.

15 The defendant briefed Mr Coles, QC with Mr Svehla to appear on the plaintiffs’ behalf in the proceedings. In the event Mr Coles was not available on the dates allocated for the hearing of the matter and the defendant briefed Mr Palmer QC (as his Honour then was) to lead Mr Svehla.

16 At a conference prior to the commencement of the hearing Mr Palmer advised Mr Preston and at least two other of the directors, of his view that their case was an arguable one, but that the prospects of success were not strong.

17 The proceedings commenced before Brownie J on 30 March 1992. The hearing continued on 31 March and 1 April 1992. On that day the hearing was adjourned following the late service of an accountant’s report, prepared by Trevor Vella of Horwarth and Horwarth on behalf of the plaintiffs. The following day, on the application of the Bank, the hearing was vacated and stood over to 9 June 1992. Mr Palmer was not available to complete the matter on the dates set aside in June.

18 In late May 1992 Mr Grieve was briefed and commenced preparation of the matter. The case was a complex one and required Mr Grieve to review a substantial number of documents, including accounting records relating to DTE’s business activities. After consideration of that material Mr Grieve was troubled by two aspects of the claim. The measure of damages recoverable in respect of the breaches pleaded under the Fair Trading Act was limited and would not have embraced a claim for loss of profit. The claim pleaded in contract was that the Bank had breached an agreement to provide loan funds by 31 January 1991. Mr Grieve’s review of the material suggested to him that, even if loan funds had been provided by that date, it would not have prevented DTE from becoming insolvent. In Mr Grieve’s opinion, for the damages claim pleaded in contract to have any prospect of success it was necessary to establish that a contractual obligation to provide loan funds had arisen by early December 1990.

19 During the course of the week ending Friday 5 June 1992, further evidence was prepared on behalf of DTE. This was directed to addressing the deficiencies which Mr Grieve had identified in the plaintiffs’ claim.

20 Mr Grieve devoted the whole of 4 and 5 June 1992 to the further preparation of the matter. By 5 June 1992 it had become apparent to him that the viability of DTE’s business was dependant upon its use of deposit monies paid by customers upon their entry into contracts for the supply of bottled water. In each instance the customer paid a $50.00 deposit in respect of the crock and stand supplied by DTE. Mr Grieve was of the opinion that DTE’s customer contracts operated to impress the deposits as money to be held in trust by DTE for its customers. In Mr Grieve’s view, DTE was not at liberty to apply the deposit monies as part of its general revenue.

21 It was apparent from Mr Grieve’s review of the accounting evidence that, from the outset, it had been contemplated that DTE would fund its activities by making use of the deposits. The cash flow projections which DTE provided to the Bank in support of its application for the loan showed that DTE’s use of the deposits was a prerequisite to its financial success.

22 Mr Grieve considered that the directors had allowed DTE’s business to be conducted in a manner that could have defrauded its customers of their deposit money. In the event that the business failed, customers who had paid DTE the refundable deposit would be no more than unsecured creditors.

23 In a conference with Mr Svehla and Mr Nikolaidis held prior to the long weekend conference (“the lawyers’ conference”) Mr Grieve conveyed his view both that DTE was not lawfully able to apply the deposits as working capital and that its business plan (which formed the basis of the Bank’s agreement to advance the loan funds) was predicated upon DTE using the deposits in breach of trust. Mr Grieve considered that the plaintiffs and the Bank were in pari delicto. In Mr Grieve’s opinion the plaintiffs could not maintain their damages claim against the Bank because the loan contract was tainted with illegality. For the same reason the Bank could not maintain its cross-claim against the plaintiffs.

24 In the course of the lawyers’ conference Mr Grieve advised that an approach should be made to the Bank to settle the proceedings. The only other option he saw was for plaintiffs to discontinue their damages claim and to seek to defend the cross-claim on the basis of illegality. Mr Grieve’s concern was that the latter course required that the plaintiffs confess to the Court that DTE’s financial arrangements had been conducted in breach of trust. In his view, this exposed them to potentially serious consequences including prosecution for criminal offences.

25 Mr Grieve’s opinion that the loan contract was tainted with illegality and that the plaintiffs could not maintain their damages claim while defending the cross-claim upon the ground of illegality was firmly held. Mr Svehla recalled during the course of the lawyers’ conference on an occasion when Mr Grieve was absent that either he or Mr Nikolaidis questioned why it was necessary for the plaintiffs to discontinue their damages claim. On Mr Grieve’s return the matter was raised with him. Mr Grieve reiterated his advice which Mr Svehla accepted in the light of Mr Grieve’s standing and experience in commercial matters.

26 As a result of the advice conveyed to Mr Nikolaidis during the lawyers’ conference he arranged for the directors to attend a conference at Mr Grieve’s chambers. The directors and Ian Greenwood, the accountant for each of the plaintiff companies, attended the long weekend conference with Mr Grieve, Mr Svehla and Mr Nikolaidis on Sunday 7 June 1992.

27 At the long weekend conference Mr Grieve advised that the plaintiffs’ damages claim against the Bank would fail because the contract relied upon was tainted with illegality and that for the same reason the Bank’s cross-claim would fail. Notwithstanding this view, Mr Grieve considered that the directors would be well advised to offer a substantial sum to settle the proceedings in order to avoid DTE’s commercial arrangements being aired in court with the attendant risk of criminal prosecution.

28 Towards the conclusion of the long weekend conference the directors were asked to discuss among themselves a two page handwritten document prepared by Mr Grieve setting out advice which they had been given and containing instructions concerning the future conduct of the proceedings (“the handwritten instructions”).

29 The directors were left alone to discuss their response to Mr Grieve’s advice concerning the offer of settlement. The handwritten instructions included provision for the insertion of a sum which the directors authorised counsel to offer the Bank in settlement of the proceedings. The directors inserted the word “Nil” in the space which had been left blank for this purpose. Each of the directors signed the handwritten instructions:

“8th June 1992 Nikolaidis & Co Solicitors
82 Elizabeth Street, Sydney
Dear Sirs
Re Down to Earth Spring Water Pty Ltd & Ors v State Bank of NSW
We acknowledge that we have today been advised by Mr D E Grieve QC and Mr J Svehla of Counsel to the following effect:
1. That the first plaintiff company’s prospects of successfully maintaining its claim for damages against the defendant Bank will fail because it will inevitably emerge that the contract relied on was tainted with illegality given the fact that deposit money was to be used by the plaintiff for its own purposes and in breach of trust;
2. That the Bank’s claim to recover the money lent will fail for the same reason;
3. That notwithstanding 2, there are substantial reasons, which have been explained to us, to settle the case by agreeing to pay the Bank a significant sum suggested by both counsel to be not less than $500,000.
We hereby instruct you to offer the Bank not more than $nil to compromise the proceedings and to proceed to the hearing if that offer is rejected, notwithstanding the risks which may confront us and the adverse consequences which may result from the Court’s determination of the dispute. We specifically acknowledge the advice of senior and junior counsel that those risks and consequences include the possibility that we may face criminal prosecution as a result of the way in which we have administered the affairs of Down to Earth Spring Water Pty Ltd.
Counsel are instructed to defend the Bank’s claim on the basis that the loan contract was void for illegality.”

30 The handwritten instructions contain no instruction in terms to discontinue the damages claim.

31 Neither Mr Nikolaidis, Mr Grieve nor Mr Svehla assert that during the course of the long weekend conference any express verbal instruction was given by the Directors to discontinue the damages claim.

32 It is the plaintiffs’ case that no instructions were given by the directors to discontinue the damages claim. Mr Nikolaidis was required both by his retainer and his common law duty of care to obtain clear instructions to discontinue the damages claim before instructing Mr Grieve so to do. In the plaintiffs’ submission I would find that Mr Nikolaidis proceeded upon the mistaken assumption that in signing the handwritten instructions authorising counsel to defend the cross-claim on the basis that the loan contract was void for illegality the directors were also authorising the discontinuance of their damages claim. In acting upon this assumption and thus in failing to obtain instructions to discontinue the claim it is said that Mr Nikolaidis was in breach of both his retainer and his duty of care.

33 It was the defendant’s submission that implicit in the written instruction to defend the Bank’s claim on the basis that the loan contract was void for illegality was the instruction to discontinue the damages claim. I was invited to find that Mr Grieve advised the directors in plain and unequivocal terms that their claim for damages could not be maintained because the underlying loan contract was tainted with illegality. Specifically, Mr Wood, who with Mr Jones appeared on the defendant’s behalf, pointed to the evidence that there had been discussion during the long weekend conference of defending the cross-claim on the ground of illegality while maintaining the damages claim in the alternative. Mr Wood submitted that I would find that Mr Grieve advised that it was not possible to defend the cross-claim by pleading that the loan contract was void for illegality on the one hand while maintaining a claim for damages in reliance on the same contract on the other. In Mr Wood’s submission it follows that in signing the handwritten instructions directing counsel to defend the cross-claim on the basis that the loan contract was void for illegality the directors were authorising the discontinuance of their damages claim. Once it was accepted that Mr Grieve tendered such advice during the long weekend conference any other conclusion was said to be logically flawed. Further, Mr Grieve’s evidence was that at the end of the long weekend conference he said that he was going to see Mr McDougall QC, the Bank’s counsel, and advise him that the plaintiffs intended to drop the damages claim and defend the cross claim on he basis of illegality. It was submitted that I would find that the directors were well aware of the course Mr Grieve proposed to adopt and had the opportunity to instruct him not to do so and chose not to take that opportunity.

34 It is necessary to look to the contents of discussions and the advice given at the long weekend conference. At the time of preparing their affidavits in these proceedings none of the witnesses called on behalf of the plaintiffs were assisted by any contemporaneous notes of the long weekend conference.

35 Each of the directors and Mr Greenwood prepared draft statements around mid 1993. In each case this was the first occasion when the witness turned his mind to the detail of the advice given and the discussions which took place at the long weekend conference.

36 There is an issue as to when Mr Preston first sought advice concerning his complaint that the damages claim had been discontinued without instructions. I will return to this. For present purposes, I note that the deed of settlement between the Bank and the plaintiffs bears the date 7 July 1993. It is apparent that as at that date it was the plaintiffs’ assertion that the damages claim had been discontinued without instructions. At this time Madgwicks, solicitors, were acting for the plaintiffs.

37 Mr Preston said that he had prepared a chronology setting out details of the conversations which took place during the long weekend conference in answer to a request to do so. He gave the chronology to a solicitor employed by Madgwicks.

38 Mr Greenwood recalled attending Madgwicks about half way through 1993 and preparing a lengthy statement in connection with this matter.

39 Mr Loel prepared a draft statement in 1993 when Madgwicks were acting for the plaintiffs. Mr Loel said that he had discussions with his fellow directors around this time about the subject events.

40 Mr Smith said that he had access to drafts of previous affidavits at the time of preparing his affidavit in these proceedings. He had prepared notes soon after the events.

41 Mr Paris was cross-examined concerning what, if any, documents he had to assist him when he swore his affidavit in February 2000. He was not able to identify any documents. He said:

“I don’t think these were the first. I think originally the first people I spoke to were Madgwicks, Solicitors, and I think that we might have had some mental notes or things that we had written down from there (T219)”.

42 Neither Mr Nikolaidis, Mr Grieve nor Mr Svehla had the benefit of any contemporaneous notes of the long weekend conference. In his affidavit Mr Nikolaidis said that it was his usual practice to make file notes of his attendances. In October 1992 he ceased acting for Mr Preston and all companies associated with Mr Preston. Subsequently he directed his staff to remove all file notes, internal memoranda and accounting records from files relating to Preston company matters. He gave this direction in anticipation that Mr Preston would collect the files. Later he had not been able to find file notes of the long weekend conference.

43 The sole documents available to Mr Nikolaidis, Mr Grieve and Mr Svehla to assist each with recalling the contents of discussions during the long weekend conference were the handwritten instructions and the joint advice prepared by Mr Grieve and Mr Svehla on 10 June 1992 (“the joint advice”).

44 Mr Nikolaidis first became aware of the plaintiffs’ claim against him in November 1997. Around that time he spoke by telephone with Mr Svehla and informed him of the plaintiffs’ claim. Mr Svehla sought, and obtained, a copy of the statement of claim. Mr Svehla did not otherwise give consideration to the matter at that time.

45 Mr Svehla first endeavoured to recall the contents of the long weekend conference when he set aside time to prepare his affidavit over the break in January 2001. Mr Nikolaidis swore his first affidavit in the proceedings on 6 September 2000. Mr Grieve swore his affidavit on 5 September 2000.

46 In the defendant’s submission I would be circumspect about accepting the account given by the directors and Mr Greenwood of the contents of discussions at the long weekend conference. In the absence of contemporaneous notes I would find it unlikely that any of the plaintiffs’ witnesses were able to recall the precise terms of the advice given and their response thereto. In written submissions it was said:

“The only appropriate method of assessing, on the balance of probabilities, what instructions were provided in June 1992, is to consider objectively ascertainable evidence of contemporaneous events, consider the inherent probabilities and infer from that material which version is the more likely.”

There is merit to this submission. I approach with caution such of the evidence of the directors and Mr Greenwood as to the terms of the discussions at the long weekend conference as is not consistent with the account of one or more of Mr Nikolaidis, Mr Grieve and Mr Svehla.

47 It was the defendant’s submission that I would find the evidence of the directors and Mr Greenwood to be neither reliable nor creditworthy. A number of matters were relied upon in support of this submission. These included what was said to be an “unnerving consistency” in each of the witness’ ability (in his affidavit in reply) to accept parts of the conversations deposed to by the defendant’s witnesses while denying other parts of the same conversations. Thus each of the plaintiffs’ witnesses denied that Mr Grieve advised in the terms set out in paragraph 47 of his affidavit. In this paragraph Mr Grieve said that he advised the directors that: “you have no choice but to abandon your claim”. Elsewhere in written submissions the defendant invited me to find Mr Preston and Mr Smith were lacking in credibility because, contrary to the assertions in their affidavits, in the course of oral evidence each accepted that the word “abandon” may have been used.

48 Generally it was submitted that I would find that the evidence of the directors was not creditworthy because of departures in recollection between the affidavit and oral evidence. I do not consider the consistency in the assertions made in the affidavits in reply to be such as to adversely affect the credibility of the deponents. Equally, I do not draw inferences adverse to the credit of the plaintiffs’ witnesses by reason of the departures from the accounts given in their affidavits instanced in the written submissions prepared on behalf of the defendant.

49 In assessing Mr Preston’s evidence I take in to account that he is a man with very considerable experience in litigation. He has been cross-examined on many occasions. Throughout his lengthy cross examination in these proceedings he was astute as to the line being pursued by the cross-examiner. In this respect he was a difficult witness to assess. I make a like observation concerning my assessment of the evidence of Mr Nikolaidis.

50 Mr Preston’s evidence was generally supported by that of his fellow directors and by the evidence of Ian Greenwood and Helen Karagiannis.

51 Mr Greenwood has acted for many years on behalf of a number of companies associated with Mr Preston. The value of this business was nonetheless relatively insignificant to his practice. Mr Greenwood’s recollection of more than one matter was faulty. He accepted as much. However, I did not take this to be the product of a deliberate attempt to mislead. Accepting that his recollection of events was imperfect, in broad outline his evidence was supportive of that given by the directors.

52 On balance I accepted the remaining directors as persons who were endeavouring to give a truthful account of events which occurred a long time ago. Mr Smith, in particular, impressed me as a witness who made concessions during the course of cross-examination which I considered to be frank. I am mindful that the directors discussed relevant matters among themselves sometime not later than mid 1993. Such a process seems to me to admit of a degree of unconscious reconstruction.

53 There was an issue concerning the length and date of the long weekend conference. Each of the directors deposed in his affidavit to attending one conference with Mr Nikolaidis, Mr Grieve and Mr Svehla on Sunday 7 June 1992. Prior to the conclusion of that conference Mr Grieve produced the handwritten instructions and the directors considered and signed it. Mr Preston, Mr Greenwood and Mr Paris were confident in their recollection that the long weekend conference was held on Sunday 7 June and was not resumed on Monday 8 June. Mr Smith accepted that it was possible that the conference had continued on Monday 8 June. He said he had no memory of the second day. Mr Loel did not think that the conference had continued on Monday 8 June.

54 Mr Greenwood’s recollection was consistent with that of the directors namely that the long weekend conference was held on Sunday 7 June and did not continue on Monday 8 June. He was emphatic in this respect. He was equally confident that he had not attended a conference with counsel, Mr Nikolaidis and Mr Vella on the morning of 7 June prior to the arrival of the directors. I am satisfied that his recall in this latter respect is wrong.

55 Mr Nikolaidis, Mr Svehla and Mr Grieve each said that the long weekend conference occupied some of Sunday 7 June and Monday 8 June. Counsels’ fee notes and the accounting records maintained by the defendant do not assist in fixing the number of conferences with the directors held over the long weekend.

56 In his affidavit Mr Svehla said that to the best of his recollection the handwritten instructions were drafted by Mr Grieve during the lawyer’s conference on the morning of Sunday 7 June and that copies of that document were handed to the directors on 7 June. Mr Svehla went on to say that it was possible (although less likely) that the handwritten instructions had been handed to the clients during the further conference on 8 June 1992. Mr Svehla described the handwritten instructions as being “post-dated”.

57 I think it is likely that the handwritten instructions were distributed towards the end of the long weekend conference.

58 The terms of Mr Svehla’s affidavit on one view lend support to an acceptance of the directors’ evidence that the long weekend conference concluded on Sunday 7 June. However, in oral evidence, Mr Svehla said that his affidavit was wrong in so far as it suggested that the handwritten instructions had been drafted prior to the commencement of the conference with the clients. He said that Mr Grieve had sought to set out the substantive nature of the advice that had been given in the handwritten instructions. Mr Svehla evinced considerable uncertainty as to the timing of the conference on Monday 8 June but he was consistent in his recollection that it had extended over two days.

59 I have come to the view that the directors and Mr Greenwood are in error to the extent each asserts that the conference took place on Sunday 7 June and did not extend over to the following day. In this regard I am principally influenced by the contents of the two contemporaneous documents: the handwritten instructions and the joint advice.

60 The handwritten instructions are dated 8 June 1992. On its face this tends to support the accuracy of the recall of Mr Grieve, Mr Nikolaidis and Mr Svehla who each said that the document was signed on Monday 8 June. I am inclined to accept that to be the case notwithstanding the oddity that Mr Svehla should have referred to it as being post-dated in his affidavit.

61 The joint opinion commences with the observation:

“We consider that it is appropriate that we confirm advice given orally during the course of lengthy conferences which have occurred over the past several days.”

This points strongly to the long weekend conference occupying both 7 and 8 June.

62 It was not suggested that any matter of moment turns on the question of whether the long weekend conference occupied one or two days. I have dealt with this issue in some detail for the assistance it offers in assessing the reliability of the various witnesses.

63 Despite the difficulties of recalling events without the assistance of contemporaneous notes there was a substantial area of common ground as to the content of discussions at the long weekend conference. Each of the directors and Mr Greenwood give an account that the conference commenced with Mr Grieve raising the issue of illegality. In his affidavit Mr Nikolaidis recalls the commencement of the long weekend conference in similar terms. Mr Svehla’s recollection was to the like effect.

64 Mr Grieve’s recollection of his advice concerning illegality is set out in paragraph 44 of his affidavit. This account is conformable with the evidence of the directors, Mr Greenwood, Mr Svehla and Mr Nikolaidis.

65 Mr Grieve also recalled advising the directors during the course of the long weekend conference of his view that their damages claim against the Bank had minimal prospects of success. This opinion was stated without regard to the issue of illegality.

66 None of the directors or Mr Greenwood recalled Mr Grieve advising on the prospects of the damages claim apart from the issue of illegality. I am satisfied that any advice that Mr Grieve gave as to the prospects of the claim generally, that is apart from the issue of illegality, was not prominent in the course of the long weekend conference. Mr Svehla had no recall of advice being given as to the prospects of the plaintiffs’ damages claim succeeding absent the issue of illegality.

67 Mr Preston and other directors challenged Mr Grieve’s opinion concerning illegality. The conference was a tense and emotional one. The directors were resistant to any suggestion that they had conducted DTE in a way that exposed them to criminal liability. One or more of the directors raised with Mr Grieve the question of why two senior counsel previously briefed on the plaintiffs’ behalf had not identified the issue nor had Justice Brownie adverted to it during the course of the three days of hearing in March 1992.

68 During the course of the conference, in order to impress upon the directors the seriousness of the situation as he saw it, Mr Grieve emphasised that each of them and Mr Greenwood were at risk of prosecution for criminal offences. Mr Nikolaidis recalled Mr Grieve saying words to the following effect:

“You can shake your head as much as you want, but when you’re in the dock, ultimately convicted and the handcuffs are locked on the reality of what I am saying will set in” (paragraph 131).

69 During the long weekend conference one or more of the directors asked whether it was necessary to raise the issue of illegality. To this Mr Grieve replied that, as an officer of the court, he was bound to raise the matter.

70 I am satisfied that the handwritten instructions were drafted by Mr Grieve on Monday 8 June after he had advised the directors of his opinion as to the following matters: (i) the underlying loan contract was tainted with illegality; (ii) the directors and Ian Greenwood were at risk of prosecution for criminal offences arising out of the conduct of the financial affairs of DTE; (iii) it was Mr Grieve’s duty to draw the Court’s attention to the question of illegality; (iv) neither the plaintiffs’ damages claim nor the Bank’s cross-claim could be maintained in the light of the illegality (v) the plaintiffs’ should nonetheless endeavour to settle the proceedings by the offer of a substantial sum in order to lessen the risk of prosecution for criminal offences.

71 I accept Mr Svehla’s evidence concerning the handwritten instructions:

“In it Grieve was trying to set out and get the clients to acknowledge the substantive nature of advice he was giving on illegality because of the views he had formed of the significance and seriousness of it and the seriousness encompassed the criminal element (T323)”.

72 Each of the directors and Mr Greenwood recalled that Mr Grieve advised that as a consequence of the issue of illegality being raised the damages claim would fall away.

73 I did not understand either Mr Grieve or Mr Svehla assert that an expression such as that the damages claim would ‘fall away’ was not used in the course of advice during the long weekend conference.

74 In Mr Grieve’s opinion the contract was unenforceable and no court would give effect to it. Mr Grieve recalled advising the directors, “you have no choice but to abandon your claim” (paragraph 51). In cross-examination Mr Grieve gave this evidence concerning the content of his advice:

“Q. Would you agree that from what you could see each of the directors and Mr Greenwood were completely and utterly stunned by what you had to say to them?
A. Yes.
Q. And do you recall saying to Mr Greenwood in the presence of the other directors, in response to him saying ‘I don’t believe there is any illegality’, words to this effect, ‘Of course it is possible that I am wrong, I don’t claim to be infallible’.
A. Yes.
Q. And when you say ‘yes’ you agree that words to that effect were said by you in this conference?
A. Yes.
Q. And do you agree with me that you went on to say, ‘But I do hold the view quite strongly that this contract is tainted by illegality. Once the issue of illegality is raised, your case will fall away. It becomes irrelevant. Once we have shown that the contract is illegal, we wouldn’t be able to claim damages’ or words to that effect?
A. Words to that effect, yes.
Q. And your recollection is, is it not, that the advice was not well received; indeed, you had formed the view, as you tell us in paragraph 50, that the directors were unable to accept the facts as disclosed by the evidence to you were not as they apparently believed them to have been?
A. That’s correct.
Q. And they expressed to you in strong, clear, unambiguous terms, did they not, that as far as they were concerned the bank was the sole architect of their misfortune?
A. Well, that’s what they obviously believed.
Q. And they conveyed that belief to you by saying to you that they wanted to run their damages case against the Bank?
A. That’s right (T438-9)”.

75 Mr Svehla’s oral evidence on this aspect included:

“Q. There was one message and one message only that there clients were given and that is by reason of the illegal conduct, each party would be unable to maintain its claim against the other?
A. Well, each party would not succeed.
Q. The claim of each party would fall away as a consequence of a finding of illegality simply because the Court would not seek to enforce contracts that are tainted with illegality, that was the essence of the advice conveyed to the clients, wasn’t it?
A. There was the discussion about Mr Grieve’s view as to inconsistent alternative claims, but yes.
Q. So you accept, do you, Mr Svehla, that the essence of the advice given by Mr Grieve to these clients was that each party’s claim would fall away in consequence of the illegality because the court would not enforce the contracts that are so tainted?

A. I’ve set out in my affidavit my recollection of the discussions that occurred on the topic and, as I’ve said, part of Mr Grieve’s view which created the hole in my stomach was his views as to what the plaintiffs had to do, namely, discontinue their claims. How that was appreciated ultimately by the plaintiffs I can’t honestly comment on. (T330-331)”.
….

“Q. What to the best of your recollection was said on the question of the timing of the respective claims falling away by reason of illegality?
A. Well, Mr Grieve said – I mean you can’t – what he was conveying or the substance of what he said was –I’m sorry. I withdraw that. It occurred in a – the way it occurred was in several stages, at least two stages. There’s the discussion as to the concept of illegality and why illegality permeated the loan contract and there was a lot of discussion about all of that, as we’d gone through and as I have set out in my affidavit. Then there was discussion about the consequences of that for the running of the case. My recollection is that the first concentration was on the consequences of illegality to the Bank’s claim, i.e. their claims are unenforceable for money and possession of property, et cetera. But then Grieve did also say – whether he used the words, ‘the plaintiffs’ claims’ or ‘your claims fall away’ or something else, he said words that had the substantive effect of that the plaintiffs can’t maintain or run their claims and that led to a discussion or a debate, in particular with Mr Preston, about why that had to be so, you know, why can’t the plaintiffs still run their claims and have the defence of illegality and Mr Grieve just said, ‘look, you can’t, on the one hand, assert rights under a contract and, on the other hand, say the contracts are no good because they are illegal (T335)”.

76 Mr Svehla agreed that the language of discontinuance had not been used during the long weekend conference. It was his recollection that Mr Grieve’s advice was in terms “by reason of illegality, both claims will fail”.

77 Mr Nikolaidis did not recall the expression “abandon” or “abandoning” being used during the course of the conference.

78 I accept that during the course of the long weekend conference Mr Grieve used words to the effect that the plaintiffs’ damages claim and the Bank’s cross claim would both fall away by reason of the illegality which tainted the loan contract.

79 During the course of the long weekend conference there was discussion concerning the possibility of the plaintiffs’ damages claim being run as an alternative to a defence to the Bank’s cross-claim which raised illegality. This is a matter of some significance since in the defendant’s submission I would find that Mr Grieve advised that the damages claim could not be maintained in the alternative to a defence to the cross-claim which pleaded illegality.

80 In affidavit sworn on 22 February 2000 Mr Preston gave an account that after handing back the handwritten instructions, he had a conversation with Mr Nikolaidis in these terms:

Myself to Nikolaidis: “isn’t it possible to have two bites of the cherry, the illegality and the negligence as an alternative?”
Leon Nikolaidis: “Yes, we can. If it is illegal the negligence will fall away and if it is not illegal then we fight on with the negligence case. We cannot fail, we will get up on illegality. There is no doubt in our minds. We have looked at it carefully” (paragraph 13).

Mr Preston went on to state:
I then heard Mr Loel say to Mr Svehla words to the effect:
“How come, if it is so obvious, why didn’t you, Leon or Grieve pick this up sooner?”
I did not hear anyone reply to this. I then said words to the effect:
Myself: “ We want to go ahead with the negligence claim on Tuesday.”
Grieve: “On Tuesday, I am duty bound to tell the judge about the illegality. The negligence case will fall away because it is tainted with illegality.”
I thought Mr Grieve meant that we would have to address the illegality issue first on Tuesday and keep the negligence as an alternative for later. However, I wanted to double check this. I was reluctant to raise the issue with Mr Grieve again because he still seemed annoyed with us (which I assumed at the time was because we had not followed his advice about the settlement offer to the State Bank). I therefore raised the issue with Mr Nikolaidis after leaving Mr Grieve and Mr Svehla. A conversation to the following effect took place:
Myself: “What happens if you’re wrong on the illegality?”
Nikolaidis: “We will plead in the alternative and still argue the negligence if we do not succeed on the illegality.”
Myself: “Good”.
Nikolaidis: “In my opinion, having checked out the illegality issue, it is the best way to run the case as it will reduce the cost and time in court. John, you will get the property back unencumbered and you won’t have to repay the loan. That is a good win for you.”
Myself: “No it’s not. We want damages for the loss of business. Tell Grieve that’s what we’re going for.”
Nikolaidis: “I’ll tell him” (paragraph 14).

81 Mr Preston agreed that one of the directors had asked “why can’t we keep the damages claim alive and also run the illegality case if that illegality is what’s occurred?” (T104). Mr Preston said that he did not recall Mr Grieve saying that it was not possible to plead the case in the alternative. Mr Preston denied that Mr Grieve had expressed the opinion that one could not raise the illegality point and at the same time pursue the damages claim (T104).

82 Given the difficulties to which I have earlier made reference reliance on an individual’s recollection of the terms of a conversation long after the event I am not persuaded that Mr Preston instructed Mr Nikolaidis in the terms set out in paragraphs 13 and 14 of his affidavit which are extracted above. I do find that Mr Preston was a party to a discussion with Mr Nikolaidis concerning maintaining the plaintiffs’ damages claim in the alternative to defending the cross-claim on the basis of illegality. I will return to this.

83 I do not find that Mr Preston instructed Mr Grieve “to go ahead with the negligence case on Tuesday”. No other director recalled instructions being given in these terms. I think it unlikely that they were. Mr Grieve had no recall of being given such an instruction. In the event that he had been instructed to proceed with the negligence case on Tuesday, I would expect this to have prompted him to elaborate on his advice as to the difficulty of maintaining the damages claim in the alternative and to have explained his understanding of the effect of the handwritten instructions which by this time had been completed and returned to him.

84 In his affidavit sworn on 22 February 2000 Mr Smith gave no account of any discussion of the damages claim being run in the alternative. In his affidavit in reply he stated “I recall that Mr Preston and Mr Grieve had a conversation about claims in the alternative, but I do not now recall the substance of what was said about running cases in the alternative”.

85 Mr Loel in his affidavit sworn on 21 February 2000 recalled Mr Grieve observing “you have not taken my advice. You are not being serious. You are being foolhardy” when Mr Preston said that they had decided to offer the Bank nil. Thereafter Mr Loel said there was some discussion in the presence of Mr Nikolaidis:

Preston: “We can plead this illegality in the alternative to our claim for damages.”
Myself: “Don’t be stupid, John. You can’t have it both ways. We have to go the one way with the illegality.”
Preston: “You don’t understand these things.”
Preston turned to Nikolaidis and said words to the effect:
Preston: “Leon, we can run the illegality point and the damages in alternative, can’t we?”
Nikolaidis: “Yes we can.”
Myself: “Well, you can’t get better odds than that.”
Nikolaidis: “That’s right.”
The conversation continued to the following effect:
Grieve: “The damages question will fall away because of the illegality point. You can take it that I am right about this. So pleading in the alternative is just taking up a lot of time. But if it had to happen then it could happen.”
Svehla: “Yes.” (Paragraph 6)

86 In cross-examination Mr Loel said that all the lawyers had been present in the meeting room at the time of the above conversation. He agreed with the proposition that in his mind there was no doubt that the three lawyers had said that it was possible to run in the alternative the illegality point and the damages claim (T265).

87 In his affidavit sworn on 22 February 2000 Mr Paris said that when Mr Grieve came back into the room (after the directors discussed the handwritten instructions) Mr Preston said “we have decided to offer them nil”. He recalled Mr Preston saying “we’ll run with this, but we’ll keep our damages claim in the alternative.” To which Mr Grieve responded “the negligence case will just fall away. You are going to win on the illegality point. This case is as plain as black and white”. Later Mr Paris recalled Mr Preston saying to Mr Nikolaidis “we can raise this illegality matter in the alternative” and Mr Nikolaidis replying “that’s no problem”. In cross examination evidence Mr Paris was asked:

“Q. Do you remember someone suggesting that you could claim in the alternative or plead in the alternative?
A. Yes, I remember that term.
Q. Do you remember Mr Grieve saying that you cannot do that, you cannot pursue your claim for damages?
A. No, what was said is that it would fall away at the end of the day was the term I remember (T224)”.

88 In his affidavit sworn on 22 February 2000 Ian Greenwood described a discussion between Mr Grieve and Mr Preston after the handwritten instructions were completed;

Preston (to Grieve): “If you’re wrong, can we still argue the damages case?”
Grieve: “Yes, but there’s no point. It’s a waste of time.”
Preston: “We can still argue it though, can’t we?”
Grieve: “Yes. But the damages claim will fall away” (paragraph 14).

89 Mr Nikolaidis gave no account of any discussion between the directors and any of the lawyers during the long-weekend conference on the topic of running the damages claim in the alternative to raising the issue of illegality in his affidavit. In the course of his cross-examination he was asked:

“Q. During the occasion when you were having a conference with the directors in the absence of Mr Grieve and Mr Svehla, do you recall Mr Preston raising with you the question as to whether or not the plaintiffs could run this illegality point in the alternative to the claim for damages?
A. Yes, I think he did raise that with me.
….
Q. Do you recall that Mr Loel, when Mr Preston first raised this question interjected and said words to the effect ‘Don’t be silly, John’ or ‘stupid, John, you can’t have it both ways, we have to go the one way with the illegality’: do you recall him saying that?
A. He may have said that.
Q. Do you recall Mr Preston with usual vigour turned to Mr Loel and said something like, ‘You don’t understand these things’, effectively telling him to be quiet?
A. That would be consistent with the nature of the instructions I got in the matter, yes.
Q. And do you recall at that point Mr Preston turned to you and said, ‘Leon, can we run the illegality point and the damages in the alternative?’
A. He may have said that.
Q. And what he was seeking to convey to you, no doubt, was that the illegality point having been raised and by reason of Mr Grieve’s obligations to the Court to disclose the conduct, which in his view constituted the illegality, that could be raised but the plaintiffs’ position with respect to the damages claim could be reserved?
A. He wasn’t I don’t believe seeking to convey anything to me. I think the discussions that were being had were more question and answer type discussions rather than obtaining or giving formal instructions.
Q. But nonetheless you do recall him raising with you the prospect of running the illegality point and damages, to use his words, in the alternative?
A. The possibility of running them in the alternative, yes.
Q. And you responded to that question, didn’t you, in the affirmative?
A. No.
Q. And Mr Loel said in your hearing words to the effect, ‘well, you can’t get better odds than that’ and you said ‘yeah, that’s right’?
A. No.
Q. You reject that, do you?
A. Yes.
Q. Do you recall that the question of alternative claims was raised by Mr Preston with Mr Grieve directly in your presence?
A. Yes.
Q. In other words, you recall that the discussion about reserving the plaintiffs’ right to damages, notwithstanding illegality, was raised not only with you privately but also in the combined conference with counsel?
A. Yes.
Q. And do you recall Mr Grieve saying, when Mr Preston raised that, words to the effect, ‘There’s no point, it’s a waste of time because of illegality’?
A. I don’t think he used those words.
Q. Mr Preston said, ‘Well, we can still argue it though, can’t we?’ and Mr Grieve said, ‘yes, but the damages claim will fall away, there’s no point’?
A. No, not at all (T408 - 410)”.

90 Mr Svehla recalled discussion touching on the question of running the illegality point and maintaining the damages claim in the alternative prior to the signing of the handwritten instructions. He said that Mr Preston or one of the other directors asked “Are you saying that we have to abandon our claim?” and that Mr Grieve said “Yes”. Shortly thereafter Mr Preston or one of the directors asked “Why can’t we keep our claim alive and also run the illegality if that’s what has to be done?” to which Mr Grieve responded “it’s not possible. You can’t rely upon your own illegality in performance of the contract with the Banks to get a claim for damages against the Banks”. Mr Preston said “but what if you’re wrong?” and Mr Grieve said “I’m not. I’ve got no doubt about the illegality (paragraph 87).”

91 In his affidavit Mr Grieve deposed in paragraph 52:

In response to a question posed by one of the directors as a result of my advice , I recall advising the plaintiffs in the Long weekend conference in words to the following effect:
Director: “What if you are wrong about this illegality issue. Can’t we run the damages claim in the alternative?”
Grieve: “Of course it is possible that I am wrong. I do not claim to be infallible. But I do hold the view quite strongly that this contract is tainted with illegality. I do not think it is possible to plead the case in the alternative. Once you maintain that a contract is illegal you can scarcely be heard to claim damages, in the alternative or otherwise, for breach of it.”

92 I accept the following incidents occurred. That there was an exchange between Mr Loel and Mr Preston in the presence of Mr Nikolaidis concerning whether the negligence claim might be run in the alternative. In the course of that discussion Mr Loel expressed some reservation about whether it was possible to maintain the damages claim while raising the issue of illegality. Mr Preston rejected this suggestion in terms which conveyed his view that Mr Loel had little grasp of legal matters. I cannot be confident of the accuracy of Mr Loel’s recall with respect to the detail of the conversation. Thus, I do not find that Mr Nikolaidis said that the plaintiffs’ could run their negligence claim in the alternative to the defence raising illegality. However, I am persuaded that in the course of this discussion Mr Nikolaidis did not advise either Mr Preston or Mr Loel that by seeking to amend the cross-claim in order to raise a defence based upon illegality it would be necessary for the plaintiffs to discontinue their damages claim. Mr Nikolaidis did not claim to have done so.

93 In paragraphs 90 and 91 above I set out Mr Svehla’s account and Mr Grieve’s account of the latter’s response when challenged as to what might be the position if his opinion proved to be wrong. I prefer Mr Grieve’s recollection of the purport of his advice in this respect to that of Mr Svehla. I accept that Mr Grieve conveyed his advice forcefully. He acknowledged that his views on the question of the illegality tainting the loan contract were strongly held. However, I think it unlikely that he would have expressed himself in quite the emphatic terms attributed to him by Mr Svehla.

94 On the defendant’s behalf it was contended that acceptance that Mr Grieve advised in the terms set out in paragraph 91 above led to the inescapable conclusion that the directors had by implication instructed that the damages claim be discontinued. It was said to be impossible to reconcile their instructions to defend the cross-claim on the basis that the contract was tainted with illegality on any basis other than that the damages claim was to be discontinued.

95 I accept that Mr Grieve gave advice consistent with that set out in paragraph 91 above. It does not follow that the directors understood the advice or intended that in signing the handwritten instructions they were to be taken to be authorising the discontinuance of the plaintiffs’ damages claim. In this regard I note that Mr Grieve accepted that Mr Preston may have asked him “What if you are wrong? Can we still argue the damages case?” and agreed he may have responded by saying words to the effect “Yes, but there’s no point. It is a waste of time because of the illegality.” (T439-440)

96 Mr Smith agreed with the proposition that Mr Grieve had explained that once illegality was raised, no court was going to give effect to a contract tainted by it. He testified:

“Q. And didn’t he tell you that you couldn’t maintain your claim against the Bank because of the illegality?

A. He said that both claims would fall away.
Q. But didn’t he say that once you raise the issue of illegality, you cannot then sue on the contract that you are saying is illegal?
A. Yes, yes.” (T188)

97 Mr Smith went on to agree that Mr Grieve may have said during the course of the long-weekend conference that if the Bank was unable to enforce its securities by reason of the illegality it might be a good outcome for the plaintiffs because they would keep the one million dollars and not face bankruptcy or liquidation. Generally, Mr Smith agreed that it was fair to say that after Mr Grieve advised on the risk of the directors going to jail this was a consideration that dominated his thinking throughout the rest of the conference.

98 Notwithstanding his evidence extracted at paragraph 96 above, Mr Smith did not resile from the assertion in his affidavit (at paragraph 7) that he understood Mr Grieve’s advice to be that the plaintiffs’ damages claim could not succeed if the illegality argument succeeded.

99 Mr Grieve said that after the handwritten instructions were returned to him he told the directors that he did not agree with what they proposed. He said that he went on to say “I will arrange a meeting this afternoon with the Bank’s counsel. I have to tell them that we are going to abandon the claim and that we will raise illegality as a defence to the Bank’s cross-claim if the matter doesn’t settle.” (paragraph 58).

100 Mr Svehla recalled that Mr Grieve had advised that he and Mr Svehla would go and see counsel for the Bank. Mr Svehla did not say that Mr Grieve had spoken of abandoning the claim. His recollection was that Mr Grieve said “We will tell them about the illegality issue and that we won’t be proceeding with our claim and will be filing an amended defence to the State Bank’s claim based on illegality.” (paragraph 105).

101 In oral evidence Mr Svehla said that on balance he recalled that this had been said in the presence of the directors. His recollection on this matter was not as strong as on other aspects of the conference. When asked whether he was comfortable with the proposition that the words used did not involve the language of discontinuance or abandonment at that point Mr Svehla said:

“look, my recollection is that Mr Grieve did not sort of use the technical legal language of discontinuance, no. I’m pretty confident of that recollection as well, for what it’s worth (T 358).”

102 I think it probable that Mr Grieve did inform the directors that he was going to speak with the Bank’s counsel. Mr Smith said that after the handwritten instructions were returned Mr Grieve said in a disgruntled tone: “Very well. I will speak to the Bank and let you know” (affidavit 22/2/2000 paragraph 9).

103 Mr Grieve did see Mr McDougall on the afternoon of Monday 8 June. By that time he had drafted the proposed amended cross-claim. I think the likelihood is that he drafted that document at the conclusion of the long weekend conference after the directors had left. It is apparent that Mr Grieve and Mr Svehla conferred further with Mr Nikolaidis at this time. In the absence of notes it is difficult to be confident of precisely what was said in the presence of the directors on the topic of the approach to be made to the Bank’s counsel.

104 I am satisfied that nothing said by Mr Grieve conveyed to the directors that he proposed informing the Bank’s counsel that their damages claim was to be discontinued before the illegality defence to the cross-claim was determined.

105 Each of the directors maintained that he had not given instructions to discontinue the plaintiffs’ damages claim at the long weekend conference. Consistent with this account each gave an account of being surprised when Mr Grieve announced that he was instructed to discontinue the plaintiffs’ damages claim when the proceedings were resumed on 9 June 1992.

106 The directors and Mr Nikolaidis agreed that there was a conference between them and Mr Nikolaidis at court during the first adjournment of the proceedings after the discontinuance of the damages claim was announced.

107 Mr Preston gave an account of this conference with Mr Nikolaidis in his affidavit sworn on 22 February 2000. He said that one director asked “why did Grieve drop the negligence claim?” to which Mr Nikolaidis responded “I don’t know. I’ll speak to Grieve”. Mr Nikolaidis had also said “I’ll fix it and get back to you” (paragraphs 20 and 21). Support for a conversation along these lines is to be found in Mr Smith’s affidavit sworn on 22 February 2000 (paragraph 13). Mr Paris gives an account consistent with that of Mr Preston and Mr Smith in his affidavit sworn on 22 February 2000 (paragraph 14). Mr Loel in his affidavit sworn on 21 February 2000 gave an account, again broadly consistent with that offered by the other directors on this topic (paragraph 9).

108 Mr Nikolaidis denied that any discussion of the character described by the directors had taken place.

109 Differences in recall concerning the contents of the long weekend conference may be explained by the lapse of time and, perhaps, differing perceptions of the content of the advice given. However, with respect to the evidence of the discussion between the directors and Mr Nikolaidis during the morning adjournment of proceedings on 9 June 1992 there was a clear conflict. I preferred the evidence of the directors to that of Mr Nikolaidis on this issue.

110 The evidence of the directors as to the contents of this discussion received a degree of support from that of Helen Karagiannis. Ms Karagiannis was Mr Preston’s secretary at June 1992. At the time of giving evidence she was no longer in his employ. She said that she had attended court on the morning of 9 June 1992 in company with Mr Grieve, Mr Nikolaidis and the directors of DTE. She remained seated outside the courtroom. She recalled that after quite some time the directors walked out of court and from a short distance she observed that they were “frazzled, upset, angry. They were all talking amongst each other…..I just observed they were talking amongst themselves, at times raising, I’d guess, their voices because they were clearly upset and angry (T203).”

111 Ms Karagiannis impressed me as a truthful witness. Mr Woods’ submitted that a number of matters may have led to the appearance of anger and distress which she observed. He instanced the directors’ admitted concern over the risk of criminal prosecution. I do not consider this provides an explanation for Ms Karagiannis’ evidence. The directors were advised of the risk of criminal prosecution during the long weekend conference. This was a cause of concern to them. Nothing which transpired in Court on the morning of 9 June served to make prosecution a greater or lesser risk. There is no suggestion that the issue of the prosecution of the DTE directors was raised before Brownie J that morning. Ms Karagiannis had been in the company of the directors prior to them going into Court on the morning of 9 June. Her evidence was consistent with some event having occurred in court that morning which gave rise to the signs of distress and anger which she observed.

112 There is a further matter which inclines me to accept the evidence of Mr Preston and his fellow directors that Mr Grieve’s announcement of the discontinuance of the plaintiffs’ damages claim came as a surprise to them. Some handwritten notes dated 15 June 1992 were tendered in evidence (exhibit 24) . These include a notation apparently recorded at 2:10 pm:

“D Grieve when he knew about the illegality would not go in front of judge and proceed to claim damages”.

Mr Preston said that the notes were made by him. It was suggested to him that they were notes of a conference with Mr Grieve held on 15 June. He rejected that proposition. He thought the notes recorded things conveyed to him by Mr Nikolaidis. He did not recall a conference after Court on that day. I think the notes record advice given by Mr Nikolaidis on 15 June. If it be the case that Mr Preston well knew as at 8 June 1992 that in signing the handwritten instructions he and his fellow directors were authorising the discontinuance of the damages claim, it might be thought curious that a week later he recorded advice from his solicitor in these terms.

113 The sole contemporaneous record of any advice given in conference in connection with these proceedings seems to me on balance to point in favour of an acceptance of Mr Preston’s evidence (supported as it is by his fellow directors and Mr Greenwood) to that of Mr Nikolaidis.

114 On the defendant’s behalf three matters in particular were relied upon as being inconsistent with the directors’ claim that they had not understood that in instructing counsel to raise illegality as a defence to the cross-claim they were to be taken to be authorising the discontinuance of the plaintiffs’ damages claim. These were (i) the absence of any timely complaint; (ii) two letters each said to constitute an admission that the discontinuance of the damages claim was done on instructions and (iii) the improbability of their account.

115 There was said to be no satisfactory evidence of any complaint that the damages claim had been discontinued without instructions until after Brownie J delivered judgment on the Bank’s cross-claim on 10 September 1992.

116 In cross-examination Mr Preston explained that he had not terminated Mr Nikolaidis’ retainer until 12 October 1992 because he had wanted him to lodge any appeal against Brownie J’s judgment. Mr Nikolaidis was the only solicitor who knew about the matter. He had not complained to Mr Nikolaidis since from around 12 June 1992 he had it in mind to sue him over the matter and he did not wish to alert him to this possibility while his retainer was still on foot. Mr Preston accepted that Mr Grieve had been briefed by Mr Nikolaidis on behalf of DTE on 10 July 1992 on the Bank’s application for the appointment of receivers. When asked why he would permit the briefing of Mr Grieve if Mr Grieve had made the error of the kind that he alleged Mr Preston observed “because he knew the matters and we needed Mr Grieve to try and hold off the Bank” (T78).

117 As a general observation I accept that Mr Preston is a man who is not slow to complain if he considers that he has occasion to do so. He said that he had remonstrated with Mr Nikolaidis over the discontinuance of the claim on the morning of 9 June and that Mr Nikolaidis had said that he would “fix it”. He had come to realise that the matter could not be fixed by the afternoon of 11 June 1992. From around 12 June 1992 he was giving active consideration to commencing proceedings against Mr Nikolaidis arising out of this matter. He instructed his secretary, Ms Karagiannis, to compile a list of firms of solicitors who might handle such a case. He telephoned a number of solicitors in the period of a week or so following 12 June 1992 to seek advice with respect to such a claim. He was challenged as to the absence of any document to support his claims in this respect. In re-examination he identified a photocopy of some notes said to have been recorded in a diary maintained by Ms Karagiannis.

118 Ms Karagiannis was called and produced the original of the diary. At the back in a section headed “Notes” she had recorded the names of a number of firms of solicitors. She said that Mr Preston asked her to compile a list of solicitors. She contacted the Law Society to obtain information as to solicitors who were able “to help us with our cause”. In this regard I note that the notes commence with the heading “Law Cover solicitors” and under that heading appear the names of a number of firms bracketed with the words “not to be used”. Generally, the notes are consistent with a finding that inquiries were made to determine a suitable firm of solicitors to bring proceedings against the defendant.

119 Ms Karagiannis said that she made the inquiries recorded in the diary not long after the court case was dropped. It would have been a week or so but not any longer than that. I bear in mind that after an interval of close to ten years an honest witness may be unreliable in estimating periods of time. Making allowance for this, I nonetheless accept that Ms Karagiannis was directed to make inquiries related to the possible commencement of proceedings against the defendant prior to 10 September 1992.

120 Mr Wood submitted that the explanation offered by Mr Preston for his failure to complain did not hold true since in the period between 15 June (when Brownie J reserved judgment) and 10 July (when the Bank sought the appointment of a receiver), there were no urgent matters arising from the proceedings which required the retention of the defendant’s services. I think that this pays insufficient regard to the reality of the situation in which Mr Preston and his fellow directors were placed. As at 15 June it was not apparent that Brownie J was disposed to accept the defence to the cross-claim based on the illegality argument. On the day judgment was reserved Mr Nikolaidis advised Mr Preston on the plaintiffs’ prospects of successful appeal. I accept that as at 15 June Mr Preston considered that he had no option but to retain Mr Nikolaidis’ services at least until judgment was delivered and, if need be, a notice of appeal filed. I accept that the other directors looked to Mr Preston with respect to the conduct of the legal proceedings.

121 Mr Loel responded to the challenge concerning an absence of complaint in this way:

“Well, certainly, when we walked out of the courtroom and on the Thursday when I had realised and had the empty feeling in my gut, as I think I’ve – you’ve mentioned earlier in this, that it was lost, the reason we didn’t write a letter to him or express our disgust in writing was we needed these people to help us because they were the only people that we felt were up to speed in our case, in our situation and we immediately felt that we would have an appeal that – or we wanted to appeal and they were the people to assist us in that, or at least to assist us in getting the appeal on. I doubt we would have used them to run it (T241).”

122 The matter pressed most strongly as a basis for rejecting the directors’ evidence were the contents of two letters. Each was said to amount to an admission that the plaintiffs’ damages claim had been discontinued on their instructions. The first was a letter typed on the letterhead of DTE dated 15 June 1992 addressed to the defendant and sent by facsimile. This letter was signed by Ms Karagiannis (then Ms Lemonis) purportedly on behalf of each of the directors of DTE. The fourth paragraph reads:

“Now that we had to drop our court action for damages against the State Bank and it seems now our success in the illegal court action is unsure, we cannot survive any longer with the huge burden upon us. This mess is not our fault at all, yet we are the ones who are suffering.”

123 Mr Preston agreed that he had drafted this letter. None of the other directors recalled seeing it as at June 1992.

124 Mr Preston said that in the letter he had stated what had happened.

125 The letter is dated 15 June 1992. It has the imprint of being transmitted by facsimile on 19 June 1992. The evidence does not establish when it was composed. In it Mr Preston addresses the difficulties confronting DTE because of the high rate of interest being paid to the Bank. He refers to the possibility that DTE may be required to continue making interest payments at the current rate for a period of time “which may be for the next six months or more”. Mr Preston attended court on 15 June when Brownie J reserved judgment. I think the likelihood is that the letter was drafted after Mr Preston returned from court that day. Mr Preston conferred with Mr Nikolaidis at court at the conclusion of the proceedings. It was on this occasion that he recorded Mr Nikolaidis’ advice “D Grieve when he knew about the illegality could not go in front of the judge and proceed to claim damages”. I am not persuaded that the statement “now that we had to drop our court action for damages” constitutes an admission by Mr Preston that the proceedings had been discontinued on instructions given at the long weekend conference.

126 The second letter, also typed on the letterhead of DTE, is dated 6 July 1992 and was addressed to the Bank. This letter was signed by Mr Smith, Mr Preston, Mr Loel and on the behalf of Mr Paris. The third paragraph of the letter includes this statement:

“We did not proceed with our claim for damages on advice from our senior counsel, Mr Don Grieve, QC that we have naively acted illegally in our treatment of customer deposits and therefore cannot legitimately pursue our claim.”

127 Mr Preston was cross examined concerning the purpose of the letter:

“We were trying to show the Bank that we were badly done by and we were asking the Bank for leniency and possibly if we could settle (T145)”.

128 Mr Loel said of the assertion in the letter of 6 July that it was a statement of fact: “I mean, everyone knew that our claim had been dropped. It had been done in June (T272)”. When pressed further on this topic he said:

“Q. What does ‘on advice from our senior counsel mean?
A. What ‘on advice’ in the context of this letter I believe means – it was historically stated to the opposition who of which we would not tell at any point in time that we had problems with our legal – both our solicitors and our QC. There’s no way we’d tell them that we were having issues with them. We needed to keep things as straightforward with the Bank and let them know that we had cohesion on our side.” (T272).

129 Mr Smith described the letter of 6 July as being clumsily expressed. In re-examination he said that he considered the statement to be historical rather than a statement of who did what. The fact was that by the time of writing the letter the plaintiffs had not proceeded with their claim and, in Mr Smith’s opinion, in writing the letter of 6 July 1992 the directors were not making a comment upon what had happened but rather providing history for the Bank (T202).

130 Mr Paris did not sign the letter personally. He was not able to recall seeing it as at July 1992.

131 It is apparent that the letter was seeking some indulgence from the Bank. It was composed at a time when judgment in the proceedings was reserved. In the light of the evidence generally and the tenor of Mr Loel’s explanation extracted above, I do not take it as an admission that the damages claim brought against the Bank had been discontinued upon instructions.

132 The defendant also contended that Mr Preston’s failure to allege that the damages claim had been discontinued without instructions in his affidavit sworn on 29 January 1993 in connection with an application in the Court of Appeal for security for costs should be seen as constituting an admission. In that affidavit Mr Preston swore:

“The decision not to rely upon the Affidavit of Mr Greenwood sworn 25 November 1991 was made by Senior Counsel for the appellants, George Palmer QC and our solicitor Mr L Nikolaidis. I do not know why the report of Mr Vella was served last as I had expected my solicitors to attend to the timely preparation of the evidence required for the hearing and had left the matter in their hands. Similarly, the decision to withdraw Down to Earth’s claim against the bank was made by Mr Grieve QC and our solicitor Mr L Nikolaidis as was the decision to raise the defence of illegality. As a result of the way in which MD Nikolaidis conducted the preparation of the case in the Court below, I have terminated their services and have engaged Madgwicks to prosecute the appeal [2].”

133 Mr Preston made handwritten alterations to the affidavit before signing it. In the paragraph extracted above the words “and our solicitor Mr L Nikolaidis” where they appear on each occasion were inserted by hand and the alteration duly initialled.

134 Mr Preston acknowledged that at the time he swore this affidavit he understood that it was the Bank’s case that it had incurred unnecessary costs in preparing the proceedings for trial because of a number of changes in the plaintiffs’ position. He agreed that in the affidavit he had sought to set out DTE’s response to this claim. He said that he did not know why he had not set out his assertion that the plaintiffs’ lawyers had acted without instructions in discontinuing the damages claim.

135 It does not seem to me that the statement: “the decision to withdraw Down to Earth’s claim against the Bank was made by Mr Grieve QC and Mr L Nikolaidis” is to be read as an admission that the decision was one made on instructions from the circumstance that it is allied to the statement: “as was the decision to raise the defence of illegality” (the latter decision being the subject of the handwritten instructions). The failure to positively assert the claim in an affidavit filed on the plaintiffs’ behalf by Madgwicks, solicitors, in response to the Bank’s application for security for costs does not lead me to infer that as at January 1993 it was not Mr Preston’s claim that the defendant had discontinued the proceedings without instructions. It is one inference that is open but in the light of the whole of the evidence I do not draw it as a matter of probability.

136 In the course of his evidence Mr Svehla described exchanges in the course of the long weekend conference between Mr Grieve and Mr Preston in vivid terms as being “very hard talking between two hard men” (T344). On the defendant’s behalf it was submitted that the logic of the situation favoured the view that Mr Preston was strongly resisting the advice conveyed to him that it was necessary to discontinue the plaintiffs’ damages claim. I do not agree that the logic of the situation favours such a conclusion.

137 I am satisfied that the handwritten instructions were drafted at a time when Mr Grieve had given his advice and dealt with the various challenges advanced to it. I consider it likely, had there been a heated exchange between Mr Grieve and Mr Preston on the topic of the discontinuance of the plaintiffs’ claim, that Mr Grieve would have included in his draft handwritten instructions an explicit instruction that the damages claim be discontinued.

138 Mr Preston said that Mr Grieve advised that each party would have to pay their own costs (T 104). Mr Smith also recalled that there had been some discussion of who would pay the costs of the litigation once the illegality point was raised. He agreed that Mr Grieve had advised that if the plaintiffs abandoned their claim, and the bank’s claim was thrown out because of the illegality, the Court would be likely to order that each party should bear its own costs (T 190).

139 Mr Svehla had a vague recollection that in the course of the long weekend conference it was said that costs would lie where they fall because the parties were in pari delicto. Mr Nikolaidis said that the advice given on the question of costs was that the plaintiffs’ claim could not be maintained nor could the Bank’s cross-claim and that each party would have to bear its own costs. He was asked:

Q. So what you are saying to her Honour is that the consequence, in terms of costs of discontinuing or abandoning the claim for damages, aside from what may or may not happen in the fullness of time with respect to the illegality point, was not discussed with the clients?
A. A discussion in relation to abandonment of a claim I don’t think ever took place.
Q. You have told us that, thank you, but what about the consequences in relation to costs of discontinuing the claim, aside from whatever the trial judge may find on illegality?
A. The advice that was given was clear and precise in its terms, and the advice was that there was no issue about what may be found. The advice that was given was that the claim for damages could not be maintained on the basis of illegality for the very same reason the bank’s own claim would fail, and the parties would then be responsible for their own costs. That was the advice that was given.
Q. Without going to your experience again, you would have well understood in 1992 that the likely consequence of a party discontinuing a claim against a defendant would be that the discontinuing party would have to pay the other party’s costs?
A. Yes.
Q. And the only issue, therefore, may I suggest to you, in relation to costs was whether or not each party would pay their own or whether the plaintiff would be ordered to pays the defendant’s costs and that, as you understood it, on the long weekend in June of 1992 depended upon whether or not Brownie J accepted the argument on illegality or not?
A. If Mr Justice Brownie accepted the argument on illegality, he would make no order as to costs.
Q. But it is the alternative proposition that I am wishing you to direct yourself to. Were the clients given any advice at all as to what the costs consequences would be of discontinuing their damages claim against the bank if illegality did not succeed?
A. I can’t recall whether there were any discussions along those lines. I am fairly fixed in my mind that the discussions were centred around and directed to the question of illegality and the proposition that the proceedings could not run, the claim for damages could not run, the consequence of which was that there would be no order for costs” (T 407-408).

140 Mr Grieve was not able to recall what advice was given as to costs in the event that the plaintiffs’ discontinued their damages claim and Brownie J rejected the argument on illegality.

141 I am satisfied that no advice was given at the long weekend conference as to the likely order for costs on the discontinuance of the plaintiffs’ damages claim. The focus of the advice given on costs was the proposition that neither the damages claim nor the cross-claim could be maintained since both depended upon the tainted loan contract and, hence, that costs would lie where they fell. Such a conclusion does not to my mind sit well with the defendant’s submission that Mr Grieve’s advice was in plain terms such as to bring home to the directors that in authorising the amendment to the cross-claim raising illegality the directors were to be taken to be instructing that the plaintiffs’ damages claim be discontinued.

142 Mr Woods submitted that the directors were aware that the damages claim had slender prospects of success. Mr Smith, Mr Loel and Mr Paris had each given a personal guarantee to secure the loan advance. They stood at risk of judgment against them in a sum in excess of $1,000,000.00. Mr Preston, through his companies Nilbrook and 4 MJ, also stood to lose a good deal. Mr Grieve’s opinion was that the plaintiffs’ affirmative case was a weak one but the illegality point gave them a strong defensive case. In these circumstances it was submitted that I would find that the directors understood Mr Grieve’s advice to be the offer of a lifeline which, at the time, they had been only too willing to take.

143 Prior to the long weekend conference Mr Palmer had advised Mr Preston and one or more of the other directors that the damages claim, while arguable, was weak and not likely to succeed. Despite that advice it is apparent that their instructions were to proceed to the hearing of the claim. It is common ground that in the course of the long weekend conference one or more of the directors asked if it was necessary to raise the issue of illegality. It was at this juncture that Mr Grieve explained that he was obliged to draw this issue to the attention of the Court. Significantly, Mr Nikolaidis said that in the course of a discussion with the directors in the absence of counsel one of the directors asked, “Can’t we get someone else to run our claim who doesn’t think it’s an issue?” (paragraph 136). He advised that the Court would not allow a further adjournment of the proceedings and that there was no guarantee that new counsel would not reach the same conclusion as Mr Grieve. The inference I draw is that despite Mr Grieve’s confident advice that illegality provided a strong defence to the Bank’s claim, the directors would have preferred to proceed to the hearing without this issue being raised. It may be that they had in mind the risk of criminal proceedings being brought against them. Whatever be the case in that respect, I am not inclined to the view that the directors received Mr Grieve’s advice as a life raft of sorts.

144 It is apparent that whatever concerns the directors entertained about the risk of prosecution they rejected advice to offer the bank a substantial sum in settlement of the proceedings in order to avoid that risk eventuating. In signing the handwritten instructions authorising pleading illegality as a defence to the Bank’s cross-claim are they to be taken to have impliedly authorised the abandonment of their damages claim? I do not believe so. Mr Grieve expressed his view in strong terms that once raised the issue of illegality would be decisive and that both claims would fail. Equally, he made plain that he was ethically bound to inform the Court of the illegality said to taint the loan contract. I see no reason to infer from the logic of the situation that, contrary to their evidence, the directors understood and intended that in signing the handwritten instructions they were authorising the discontinuance of their damages claim.

145 It was submitted that it is inherently improbable that an experienced Queens Counsel, acutely aware of the gravity of the advice he was giving and of the size of the potential damages claim, would have misunderstood the instructions provided to him during the course of a lengthy conference. It is not clear that he did. Mr Grieve said that his instructions to inform Brownie J that the plaintiffs’ proposed to discontinue their damages claim were confirmed to him by Mr Nikolaidis in the course of a conversation after the directors executed the handwritten instructions.

146 Mr Svehla evidence was consistent with that of Mr Grieve, namely that their instructions to discontinue the plaintiffs’ damages claim were confirmed in the course of discussions with Mr Nikolaidis. This emerged during cross examination concerning a remark made by Mr Svehla, which was critical of Mr Nikolaidis, in the course of a telephone conversation with the plaintiffs’ solicitor “We assumed Nikolaidis obtained the instructions. It would not surprise me if he had not done so” (T 354)):

“I certainly said something like that “We”, Grieve and I “acted on the basis” or at least that I did and to the best of my recollection Grieve acted on the basis “the we had instructions and that Mr Nikolaidis knew precisely what we were doing; that we were amending the defence; that we were going to discontinue; and there was no – just absolutely nothing suggested, or said, by Mr Nikolaidis that we didn’t have those instructions.
That was raised expressly with Mr Nikolaidis, those issues, and I provided draft defences and things of that nature. It was within that context that those critical comments were made and in the context of there being no express instruction from the client, in that language. Express instructions in the language of discontinuance from the clients.
But that wasn’t really meant to convey that there weren’t – how can I put it? I guess I wasn’t, by that, seeking to suggest that there, in fact, wasn’t instructions from the client. I mean, that ultimately is the matter in issue, but what I was seeking to convey was yes we got no express instructions in words of one syllable or less : “You are to discontinue the claim” from the clients, but there was express conversations from Mr Nikolaidis on that topic, and I made a critical comment about Mr Nikolaidis in the context of that” (T 354).

147 Mr Nikolaidis accepted that in 1992 he considered it part of his duty to his client to obtain clear instructions prior to taking a step in legal proceedings such as bringing the proceedings to an end. As part of that duty he acknowledged that he understood and accepted the importance of there being a meeting of minds as between the client on the one hand and himself on the other in relation to taking such a step.

148 The cross examination of Mr Nikolaidis on this critical issue included the following:

“Q. You agree with my suggestion that whatever may have been implicit in the instruction to run illegality in defence of the Bank’s cross-claim was not the subject of any express reference in the letter?
A. Yes.
Q. And what I am suggesting to you is that the implicit consequence you saw of raising illegality in defence of the cross-claim was not expressly explained to the clients at or about or around the time this letter was handed to them for their consideration?
A. That’s not correct.
Q. Well, do you say on your oath to her Honour, do you, that the implicit nature of the instruction to discontinue the damages claim in consequence of raising illegality to defend the Bank’s claim was the subject of express discussion?
A. Yes.
Q. It is plain from the terms of the letter, and in particular the fact that Mr Preston wrote the word ‘nil’ in the space that was left for some dollars to be inserted that the advice that was given to offer a sum in the order of $500,000 was rejected?
A. Yes.
Q. And it was plain to you, wasn’t it, that by reason of the rejection of that advice, these clients were prepared to take the risk regarding the disclosure of what Mr Grieve described as their illegal activity?
A. Yes.
Q. And that was plain to you, I suggest, if for no other reason because of the express instruction to run illegality as a defence to the Bank’s cross-claim?
A. Yes.
Q. It was also plain, wasn’t it, that there was no express written instruction to discontinue the damages claim whether in this letter or otherwise?
A. No. (T413-414)
…
Q. Where within the four walls of the amended defence to the Bank’s cross-claim was there an express reference to the discontinuance of the plaintiffs’ damages claims against the Bank?
A. I think it is a matter of just – it was fundamental that you could not raise the issue of illegality and at the same time maintain a claim for damages.
Q. Well, it was fundamental in your eyes based on what Mr Grieve said to you?
A. It was fundamental in anybody’s eyes that that was the case.
…
Q. There was never a conversation with Mr Preston and the other directors with you to the effect that you had instructions to discontinue the plaintiffs’ damages claim against the Bank, was there?
A. The instructions are implicitly contained in the written document of 8 June (T416).
Q. The answer to my question is, yes, there was never any conversation with Mr Preston or the other directors of Down To Earth with words to the effect that ‘you are instructed to discontinue the damages claim against the Bank prior to Tuesday 9 June 1992’; that’s so, isn’t it?
A. There was specific instructions from the directors to run the illegality issue. Those instructions clearly required us to discontinue the claim against the Bank for damages.
Q. What words spoken by Mr Preston conveyed to you clearly as you would have it that you had the authority to discontinue the damages claim against the Bank?
A. The instructions that we received from Mr Preston primarily, and the other directors, that we were to proceed with the illegality point, and in giving us – providing those instructions in the context of the conferences that were held over the June long weekend it was clear, unambiguous and without question that those instructions related to proceeding with the illegality point and discontinuing the damages claim.
Q. So you agree with my suggestion to you that not one word fell from Mr Preston or one of the other directors to clearly authorise you to discontinue the damages claim against the Bank prior to Tuesday 9 June 1992?
A. I disagree.
Q. Can I suggest this to you: because of the written instruction in the handwritten letter which is before you to proceed with the hearing of the matter and raise illegality in defence of the cross-claim and because of Mr Grieve’s very firm opinion that the damages claim could not be maintained because of illegality, you assumed as part of that instruction to plead illegality in defence of the cross-claim that there was also an instruction to discontinue the damages claim, is that right?
A. No.
Q. I want to suggest to you that that assumption must have been made by you in the absence of any expressed written instruction and in the absence of any express verbal instruction to discontinue the damages claim against the Bank?
A. I withdraw my earlier answer. My answer should have been yes rather than no.
Q. You agree with me therefore, so we are clear, that the decision to discontinue the damages claim against the Bank was the result of your assumption that such a step had to be taken as part of the instruction to plead illegality in defence of the Bank’s cross-claim?
A. Yes.

149 I am satisfied that none of the directors gave instructions that the plaintiffs’ damages claim was to be discontinued nor did any of them understand that in signing the handwritten instructions they were to be taken to be authorising the discontinuance of the claim.

150 I think it is likely that Mr Nikolaidis did assume, wrongly, that in signing the handwritten instructions the directors were to be taken to be authorising the discontinuance of the plaintiffs’ damages claim.

151 Pursuant to Pt 31 r 2 of the SCR in answer to the separate question I am satisfied that the plaintiffs have established the following: (i) that the defendant was retained to act for the plaintiffs with respect to their damages claim (ii) that the defendant breached the retainer by instructing counsel to discontinue the damages claim without instructions from the plaintiffs (iii) that the defendant’s conduct in instructing counsel to discontinue the damages claim without instructions from the plaintiffs constituted a breach of the duty of care owed by the defendant to the plaintiffs at common law.

152 The proceedings may be listed before me by arrangement with my Associate to allow the parties to bring in short minutes of order in conformity with, and to reflect the consequences of, these reasons and providing a timetable for the future conduct of the proceedings.

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Last Modified: 05/06/2002