Equuscorp Pty Ltd v Wilmoth Field Warne
[2006] VSC 294
•9 August 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 7027 of 2006
IN THE MATTER OF the Commercial Arbitration Act 1984
| EQUUSCORP PTY LTD (ACN 006 012 344) | Plaintiff |
| v | |
| WILMOTH FIELD WARNE | Defendant |
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JUDGE: | BYRNE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 7 August 2006 | |
DATE OF JUDGMENT: | 9 August 2006 | |
CASE MAY BE CITED AS: | Equuscorp Pty Ltd v Wilmoth Field Warne | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 294 | |
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Arbitration – leave to appeal – no manifest error of law.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Tatarka | Phillip Kotsanis |
| For the Defendant | Mr R M Garratt QC | Minter Ellison |
HIS HONOUR:
This is an application brought pursuant to s. 38(4) of the Commercial Arbitration Act 1984 by Equuscorp Pty Ltd (“Equus”) for leave to appeal against the interim award of Mr F.X. Costigan QC dated 23 May 2006.
Pursuant to s. 38 an appeal lies against an arbitrator's award on a question of law arising out of an award. Absent consent, an appeal may be brought only by leave of the court.[1] Section 38(5) sets out the circumstances applicable to a grant of leave:
[1]Section 38(4)(b)
“(5)The Supreme Court shall not grant leave under sub-section (4)(b) unless it considers that—
(a)having regard to all the circumstances, the determination of the question of law concerned could substantially affect the rights of one or more parties to the arbitration agreement; and
(b)there is—
(i)a manifest error of law on the face of the award; or
(ii)strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law.”
It was not suggested that sub-paragraph 38(5)b(ii) has any application. The application for leave in this case proceeded on the basis of manifest error of law. It is established that such an error is made out if there be “powerful reasons for considering on a preliminary basis without any prolonged adversarial argument that there is on the face of the award an error of law”.[2]
[2]Energy Brix Australia Corporation Pty Ltd v National Logistics Co-ordinators (Morwell) Pty Ltd (2002) 5 VR 353 at 368 [31] per Winneke P, Ormiston, Phillips, Buchanan and Vincent JJA concurring, quoting with approval Promenade Investments Pty Ltd v NSW (1992) 26 NSWLR 203 at 226 per Sheller JA.
In order to understand this application it is necessary to put the arbitration in context. It is but a step in a complex series of dispute resolution procedures undertaken between Equus, which is a general financier, and its former solicitors, Wilmoth Field Warne (“WFW”). These disputes arise out of a deed of costs entered into between them dated 25 September 2002. The parties fell out in the first half of 2003 and Equus commenced a proceeding in the Court, No. 6284 of 2003, seeking recovery of its files over which WFW claimed a lien. This was soon resolved and the parties continued the litigation to determine their rights under the deed of costs. A feature of the deed is that, broadly speaking, WFW is entitled to payment of its legal fees only at a discount rate unless and until there has been a successful outcome of the litigation for which the fees were incurred. In such an event, WFW is entitled to payment at a higher rate, subject to certain qualifications. Under the deed, Equus is entitled to terminate the agreement if there is an unremedied event of default by WFW. By clause 17b, a consequence of the termination of the deed is that WFW is entitled to payment of fees only at the discount rate. It is therefore a matter of some moment whether Equus has terminated the deed for default. Some of the suggested defaults by WFW were referred by Equus for the decision of the arbitrator by notice of dispute dated 10 July 2003 given pursuant to clause 24 of the deed. Other suggested defaults remained before the Court as part of the litigation.
The litigation then moved forward to judgment after two trials which were conducted before me. My judgments were given on 25 June 2004[3] and on 10 February 2006.[4] In the latter judgment I found that the deed of costs was a costs agreement which was void for contravention of s. 98(3) of the Legal Practice Act 1996. Section 102 of that Act, which renders such a costs agreement void, also provides that a legal practitioner who enters into an agreement in contravention of s. 98(3) is not entitled to cover any fees for legal services provided in a matter to which the costs agreement related and further, must repay money received in respect of those legal services. My conclusion that the deed of costs is void is subject to appeal by WFW.
[3][2004] VSC 164.
[4][2006] VSC 28.
The decision that the fees agreement was void created an immediate problem in the arbitration which the arbitrator recognised in paragraph 27 of his award. It was put on behalf of WFW that my decision meant that there could be no question that it was in breach of a term of this void agreement. The arbitrator accepted that, so long as my decision remained, he could not make the declarations sought by Equus that WFW was in breach of the deeds of costs.
Counsel for Equus, however, urged him to make findings against WFW in tort and/or in contract independent of the obligations under the void deed.[5] There appeared then to be two courses open. First, to adjourn the arbitration until the appeal had been determined. This was seen to be unsatisfactory as there were serious issues of fact between the parties upon which the arbitrator had heard evidence and which he was in a position to determine.[6] Accordingly, the arbitrator determined to follow a second course, to make findings on the evidence, reserving to the parties, should this be appropriate, the right to present further argument when the fate of the appeal was known.
[5]Award para 29.
[6]Award para 30.
One of the difficulties which my decision raised for the arbitrator was that of determining what were the legal rights and obligations of the parties against which their conduct was to be assessed. He was not attracted to the submission put on behalf of WFW that, since the deed of costs was void, there was no basis upon which findings as to any obligation could be made. He could not contemplate that the parties had worked together for some time in what he called a legal vacuum.[7] He therefore decided to proceed as best he could without determining what the precise relationship between the parties might be. In paragraph 34 of his interim award he said this:
“However, I have chosen to adopt the course of not initially determining this legal question, but rather to look at the evidence and submissions to see what findings of fact I could make and then decide what appropriate procedures should be followed and what orders should be made dependent upon findings of the status of the Deed of Costs. Accordingly, that is the course I now follow.”
[7]Award para 33.
He heard submissions and in his award he made findings which disposed of all of the Equus claims except claim 11. This, the claim by Equus for repayment of counsel’s fees which had been incurred by WFW in breach of the retainer, depended upon the terms of the deed of costs and therefore could not be determined until the finalisation of the appeal process.[8] The remaining Equus claims he dismissed.
[8]Award para 158.
Equus, in its proposed notice of appeal, sets out the questions of law which it says give rise to manifest error to warrant the bringing of an appeal against the award:
“1.The arbitrator erred in purporting to determine each of the issues in the arbitration by reference to findings of fact made by him without first determining:
(a)the nature and extent of any duty of care; and,
(b)the co-extensive contractual duty
owed by the respondent to the appellant (‘the duties’).
2.The arbitrator erred in failing to identify the duties owed by reference to:
(a)whether the respondent professed to have any, and if so what, special skill or expertise as a firm of commercial litigators; alternatively,
(b)whether the duties were those commensurate with the standard of care and skill which may reasonably be expected of the body of solicitors generally or of those solicitors who are, or profess to be, commercial litigators.
3.The arbitrator erred in considering that the question of whether or not the appellant could establish a breach of the duties could be answered by reference to any or all of the following facts:
(a)that the appellant, and in particular its director, Nicola Russo, is a very experienced professional litigant;
(b)that the appellant, and in particular its director, Nicola Russo, is a ‘hands on’ and very active client, paying detailed attention to the litigation in which it was involved and to an extent which would exceed the interest and ability of other clients;
(c)that the appellant, and in particular its director, Nicola Russo, on occasions directly instructed, and paid, counsel;
(d)that the appellant, and in particular its director, Nicola Russo, controlled settlement negotiations; and,
(e)that the appellant, and in particular its director, Nicola Russo, performed legal tasks which would otherwise be entrusted to and charged for by its solicitor, such as preparing lists of documents for discovery and inspecting discovered documents.”
Counsel for Equus then took me to the findings of the arbitrator upon each of the 13 claims which the arbitrator considered in his award. He submitted that the vice which he identified in the grounds of appeal was present in all except, I would suppose, claim 11 which the arbitrator did not determine. He started with the first claim by way of example. I shall do likewise.
This is a claim arising out of the Martin default judgment. What was complained of was that WFW on 9 April 2002 entered judgment in default of appearance in a proceeding in this Court against one Maxwell Martin when Mr Martin had in fact filed an appearance. Furthermore, having been informed by the Prothonotary of the error on 23 April 2002, WFW did nothing to set the matter to rights. And so on 4 June Mr Martin's solicitors filed an application to set aside the judgment and, inevitably, this was consented to.
Equus complains that WFW charged it for entering the judgment and further, that it was obliged to pay to the solicitors for Mr Martin the sum of $4,769.80 as costs of the their application to set the judgment aside. I pause to remark that this on its face might seem a very trifling complaint involving a very modest sum, particularly having regard to the enormous costs which the arbitration must have involved. This may be so, but the significance of a finding on this matter adverse to WFW was that the breach was relied upon as a breach warranting determination of the deed of costs. This, as I have mentioned, carried very serious financial consequences.
The precise allegation contained in the points of claim is that this entry of default judgment in these circumstances amounted to a breach of a term of the deed of costs and a breach of the solicitor's duty of care. In his award the arbitrator considered the further matter, that WFW failed to move to set aside the default judgment, as a further breach.
The arbitrator concluded that the claim was not established. He started from the position that a solicitor who enters judgment in default of appearance in circumstances where he or she has previous knowledge that an appearance has been entered, is prima facie in breach of a duty to exercise reasonable care. The evidence which the arbitrator accepted, showed that the Martin litigation was part of substantial litigation concerning a commercial venture called in the arbitration, the Sintoff litigation.
Further, the evidence showed that Equus maintained its own legal department with an in-house solicitor, Mr Phillip Kotsanis. The Sintoff litigation comprised five proceedings commenced in November 2000 in this Court against 584 defendants. Mr Kotsanis issued the writs. In early 2001 part of this litigation was passed by Equus to WFW. Some, but not all of these defendants, including Mr Martin, were represented by solicitors, Collins & Stephens. According to the Equus points of claim, Mr Kotsanis remained the solicitor on the record and was in fact the solicitor for Equus with respect to the defendants represented by Collins & Stephens, including Mr Martin, until about 31 May 2001. What happened was that the writ was served on Mr Martin on 10 February 2001 and on 2 March 2001 Collins & Stephens filed an appearance on his behalf. On that day too Mr Kotsanis wrote to WFW informing them inter alia that an appearance had been entered on behalf of Mr Martin. He advised WFW that he, Mr Kotsanis, would remain solicitor for the Martin matter.
Default judgment was entered by WFW on 9 April 2002. Prior to that there was correspondence and memoranda from Equus which included Mr Martin among those defendants against whom default judgment might be entered. Particular reference was made by the arbitrator to a letter of 16 February 2002 in which Equus included Mr Martin as one of the persons for whom it was entering into default judgment.[9]
[9]Award para 46.
It seems to have escaped the attention of those responsible, both in Equus and in WFW, that a judgment was not available against Mr Martin for default of appearance. The matter was compounded by a failure in the office of the Prothonotary. WFW, in accordance with rule 21.01, presumably requested the Prothonotary to search for an appearance and received the response that there was no appearance. Accordingly, judgment was entered. The arbitrator, in considering whether WFW was in breach by entering this default judgment, considered the instructions received from the client which were at variance to the information provided by the client on 2 March 2001. And he brought into account the relationship between WFW and their client, Equus, which he found to differ from the ordinary solicitor/client relationship.[10] This was not only that the legal work on the Sintoff files was apportioned between two firms of solicitors, but also that Equus was a very demanding client who participated in some detail in the litigation. The arbitrator concluded in paragraph 49 of his award that WFW was, in the circumstances, entitled to act upon the client's instructions, particularly the letter of 16 February 2002. Accordingly he found that no breach of duty was made out.
[10]Award para 47.
The arbitrator went on to consider the further unpleaded complaint[11] and concluded that WFW, upon the instructions of Equus, consented to the order setting aside the judgment with costs and that Equus could not now re-open the matter.
[11]See [14] above.
I have set out in some detail the reasoning of the arbitrator with respect to this claim. It is clear that he was here dealing with disputed facts and inferences from facts. Given these findings of fact it was entirely unnecessary for him to consider the nature and extent of the duty owed by the solicitor. Nor does it seem that anything turned upon any debate about the detail of this duty. If the facts had been found otherwise there might have been an argument as to whether WFW's duty was that of a generalist solicitor or that of a specialist commercial litigator. But this did not arise. I am not authorised to go behind the arbitrator's findings of fact and do not do so.
The submission which I have heard demonstrates clearly that the suggested grounds of appeal 1 and 2 are without substance. There is here no manifest error of law.
I heard in argument also submissions to the same effect with respect to certain of the other claims. I have examined those. I have examined also the claims for which argument was not addressed and I am satisfied that the approach that the arbitrator has taken, which I have summarised in respect of claim 1, reflects the approach which he has taken generally. It cannot be characterised as containing an error of law.
The third proposed ground of appeal depends upon the findings of the arbitrator that the director of Equus, Nicola Russo, was an experienced litigator and a very active client who took a greater than usual interest in the litigation and himself performed tasks which a solicitor might otherwise have performed.
The arbitrator's findings as to these matters are found in many places in the award and it was not suggested there was no evidence capable of supporting them. The point taken here was that these were matters which might not be raised in answer to the question whether WFW was in breach of duty. It was said that if this were done it was an error of law.
There is no question of law here. The precise content of a solicitor's duty, whether in contract or otherwise, to a client must depend upon the relationship between them, including the abilities or disabilities of the client. It is not difficult to imagine extreme cases which illustrate this. The client might have difficulty understanding what are the real issues or understanding the legal processes. On the other hand, the client might be better able than the solicitor to understand and direct the tactics in the litigation. Such a client may, in those circumstances, exert a firm directive control on the conduct of the litigation which, in more conventional circumstances, would lie in the province of the solicitor. I do not say that in such a case the responsibility entirely disappears; it is just that the line must be drawn having regard to the facts of the case. Where Mr Russo and Equus falls on this spectrum is a matter for the arbitrator. Having made such a finding, I see no error of law.
Accordingly the application for leave to appeal will be dismissed.
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