Equuscorp Pty Ltd v Wilmoth Field Warne (No 4)

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

COMMERCIAL LIST

No. 6284 of 2003
F5559

EQUUSCORP PTY LTD (ACN 006 012 344)	Plaintiff
v
WILMOTH FIELD WARNE (a firm)	Defendant

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JUDGE:	BYRNE J
WHERE HELD:	Melbourne
DATES OF HEARING:	10-14 October 2005, 2 February 2006
DATE OF JUDGMENT:	10 February 2006
CASE MAY BE CITED AS:	Equuscorp Pty Ltd v Wilmoth Field Warne (No. 4)
MEDIUM NEUTRAL CITATION:	[2006] VSC 28

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Legal Practitioner – costs agreement for litigious legal work – whether a provision for payment of a higher fee in the event of successful outcome is agreement to pay uplifted fees – whether a provision whereby the costs are to be paid out of the proceeds of litigation, if sufficient, is agreement to pay contingency fee – costs agreement void – legal fees not recoverable.
Legal Practice Act 1996 ss. 98, 99, 102

Legal Practitioner – remuneration - deed of costs – construction of deed – “moneys recovered” – “disbursements”- whether general overhead expenses are disbursements – solicitor’s lien – security lodged to obtain release of files – whether unfounded assertion of lien is breach of deed of costs – damages - loss of opportunity.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M L Sifris SC with Mr S Maiden	Phillip Kotsanis
For the Defendant	Mr R M Garratt QC with Mr Mark Moshinsky	Minter Ellison

Table of Contents

The Legal Practice Act Point

Is the Deed of Costs Void?
The Consequences of the Breach

WFW’s Entitlement to Costs from Beagle Litigation

Beagle Settlement Recovery

The Net Recovery Point
Late Recovery of Money
The Targridge and Second Lenbourne Apportionment

The Beagle Disbursements

Disbursements
Interest Paid
Litigation Support Expenses
Miscellaneous Disbursements
Mr Simpson’s fees
Linardos Chartered Accountant’s fees
Galloway & Co
On-Line Searching
Eco-System Management
Mr Crees-Morris
Assignment of Leases and Management Agreements
Australian Paralegal Services
Phillip Kotsanis

The Assignment of the Management Rights

Conclusion

The Equus Loss of Opportunity Claim

Conclusion

HIS HONOUR:

On 25 June 2004, I published my judgment[1] following the trial of most of the questions in this proceeding. The parties have now returned to deal with the remaining questions, and this is my judgment with respect to them. This judgment should be read in conjunction with my 2004 judgment; I adopt the terminology of that judgment.
[1][2004] VSC 164 (Revision – 11^th October 2005).

The remaining issues for my determination essentially concern two matters.

(1)WFW’s entitlement to costs from moneys recovered from the defendants in the Beagle litigation.
(2)The Equus claim made in paragraph 12GA of its statement of claim[2] for loss opportunity damages for breach of contract by WFW in seeking and obtaining an order that Equus provide security in the sum of $700,000 as a condition to WFW delivering up certain files held by it.

[2]Fourth further amended statement of claim, filed 29 October 2004.

I should record at this stage that questions other than these were deferred at the 2004 trial. I was told, however, that the issues mentioned above represent the remaining questions for determination in this drawn out and bitterly contested litigation. I proceed on the basis.

The Legal Practice Act Point

I interrupt this judgment at this point to deal with a matter which was brought forward at a very late stage but which, logically, precedes the other matters in issue. On 5 December 2005, six weeks after argument was concluded and a few days before judgment was to be given, Equus applied upon summons for leave to amend its pleadings to bring a fresh claim and a fresh defence to the counterclaim of WFW. These involved the same point, namely, that the deed of costs dated 25 September 2004 – the deed of costs which was the contractual foundation of the relationship between the parties from 2000 until they fell out in mid-2003 and the deed whose terms and their application had been the subject matter of this litigation and a part-heard arbitration between the parties – this deed of costs was void pursuant to s. 102(1) of the Legal Practice Act 1996. The consequent contention was that, by reason of sub-s. (3) of that provision, WFW was not entitled to recover any amount for its legal services and, further, that WFW was obliged to repay to Equus in the amount of legal fees received in respect of those services.

Notwithstanding the opposition of WFW, I felt constrained to allow the application. I did this because the points were arguable and they turned upon questions of statutory construction without any need for further evidence, and because, if successful, they would have a profound effect on the result. I permitted Equus to amend its statement of claim and its reply and defence to counterclaim only insofar as it thereby contended that the deed of costs was void pursuant to s. 102(1) and that WFW was not entitled to recover the legal costs which it seeks in this proceeding. I did not permit an amendment which was directed to enabling Equus to recover costs paid. These amendments are now contained in the fifth further amended statement of claim of Equus filed on 12 December 2005 and in its second further amended reply and defence to counterclaim filed on the same day.

Is the Deed of Costs Void?

By s. 102(1) a costs agreement which contravenes a provision of Part 4 Division 3 of the Legal Practice Act is void. Counsel for Equus contended that the deed of costs contravenes both s. 98(3) and s. 99(1) of Division 3. The relevant provisions are as follows:

“97. Costs agreements may be conditional on success
(1)A costs agreement may provide that the payment of some or all of the legal costs is contingent on the successful outcome of the matter to which those costs relate.
(2)An agreement referred to in sub-section (1) is called a ‘conditional costs agreement’.
...
(5)A legal practitioner or firm must not enter into a conditional costs agreement unless the practitioner or a partner of the firm has a reasonable belief that a successful outcome of the matter is reasonably likely.

98. Uplifted fees are allowed
(1)A conditional costs agreement may provide for the payment of a premium on the legal costs otherwise payable under the agreement on the successful outcome of the matter in respect of which the agreement is made.
(2)The premium must be a specified percentage of the legal costs otherwise payable, and must be separately identified in the agreement.
(3)A legal practitioner or firm must not enter into a conditional costs agreement under which a premium, other than a specified percentage not exceeding 25% of the costs otherwise payable, is payable on the successful outcome of any matter involving litigation.
Penalty:100 penalty units.

99. Contingency fees are prohibited
(1)A legal practitioner or firm must not enter into a costs agreement under which the amount payable to the legal practitioner or firm under the agreement, or any part of that amount, is calculated by reference to the amount of the award or settlement or the value of any property that may be recovered in any proceedings to which the agreement relates.
Penalty:100 penalty units.

(2)Sub-section (1) does not apply to the extent that the costs agreement adopts an applicable scale of costs of a court or tribunal.”

It will be recalled that under the deed of costs WFW agreed to share the risks of the Equus litigation.[3] The deed in cl 13 achieves this in two ways. First, it provides that the work of WFW should be billed on the basis of two hourly rates: a normal rate of $400 per hour for most of the matters which are covered by the deed and a discount rate of $66.00 per hour. The normal rate is chargeable only when and where a successful result has been achieved in that matter. Second, the moneys recovered in respect of such a matter are to be applied in an agreed order of priority. Ranking last in priority are the legal costs of WFW and this last rank is shared with the client, that is, the proceeds of the litigation after prior ranking payments are to be shared between WFW and Equus on a dollar for dollar basis until all legal fees at the normal rate are paid and then the surplus, if any, paid to Equus. This means that WFW will receive payment of legal costs only where there was a fund available for Equus to make that payment and, further, only to the extent that the amount of the fund is equal to or greater than twice the amount of those costs. Disbursements are dealt with under a different regime.
[3]See [2004] VSC 164 at [3] ff.

For convenience, I set out again the operative parts of cl. 13 of the deed:

“a.WFW will charge at the rate of $400 per hour inclusive of GST (‘the Normal Rate’) for work undertaken by the solicitor working on the file and the Equus Partner as provided for in Clause 3 herein. The Normal Rate will be charged where there has been a successful result (this is deemed to include a settlement or compromise of some or all of the sum claimed in the litigation) which leads to a recovery of some or all of the claimed amount in the litigation represented by each file.
b.From any moneys recovered from the Defendants or any other third parties pursuant to the litigation on a particular file, the following priorities as to entitlements to such money will apply:
(i)reimbursement to Equus of all reasonable disbursements incurred by Equus pursuant to the litigation on that file, including all disbursements of the kind referred to in Clause 7 of this Deed; then from the balance (if any)
(ii)reimbursement to Equus of any adverse cost orders (including interlocutory cost orders) against Equus or its associates; then from the balance (if any)
(iii)reimbursement to Equus of all moneys previously paid by Equus for legal fees on the file (to either WFW or other solicitors for any fees); then from the balance (if any)
(iv)one dollar shall be due and payable to Equus and one dollar shall be due and payable to WFW until WFW has been paid all legal fees on the file calculated at the Normal Rate and all disbursements due pursuant to Clause 5(b) with the balance (if any) thereafter payable to Equus.

...
fExcept as otherwise provided elsewhere in this Deed and in particular Clause 13c of this Deed, the Normal Rate is payable on any matter when a judgment or a compromised settlement is reached in favour of Equus and recoveries are made.”

There was no issue before me that the deed of costs is a conditional costs agreement within the meaning of s. 97. On behalf of Equus it was then put that the legal costs “otherwise payable under the agreement” under s. 98(1) are the costs calculated at the discount rate, for these are the costs payable otherwise than on a successful outcome in the matter. The premium is therefore represented by the difference between the costs calculated at $400 per hour and those calculated at $66 per hour. This premium is not specified as a percentage of the costs otherwise payable. As a matter of calculation, it is $334 per hour or 506% of the discount rate.[4]
[4]These figures are applicable to most, but not all, of the matters covered by the deed of costs. With respect to the others, the premium calculated in this way is well in excess of 25% of the discount rate.

On behalf of WFW two preliminary matters were emphasised. First, that since s. 98(3) creates a criminal offence, it should be construed strictly. Second, the differential fees arrangement which put WFW at some risk in respect of its legal fees is one which was reached to suit the convenience of Equus. Its director, Mr Russo, said in evidence that he wanted a fee agreement under which he would pay as little as possible by way of upfront fees and to pay the balance of the agreed fees later from the cash-flow to be generated by the litigation. This indeed was a feature of the successive fee agreements which had been reached between Equus and WFW since 1997. It was pointed out that Mr Russo is an astute businessman and an experienced professional litigator and that there is here no suggestion of imposition on the part of WFW, let alone unconscionability. I accept all of this; the question for my determination, however, is whether I am satisfied to the civil standard that the deed of costs offends the requirements of s. 98.

As to this, counsel for WFW argued that this is not a case of an uplift of fees in the event of a successful outcome. A liability to pay fees at the normal rate was always the expectation of the parties for they always contemplated a successful outcome. The effect of the deed of costs, therefore, was as Mr Russo wished; there was to be a monthly payment of fees at a reduced rate which was on account of fees at the full rate which would be paid later. In this way the deed of costs has the consequence, in the event of unsuccessful outcome, of reducing the fees otherwise payable rather than that of providing for a premium in the event of success.

The answer to the present controversy must lie in the terms of the fee agreement itself, for s. 98 is directed, not so much to the expectations of the parties, but to the agreement which they have entered into.

The contractual provisions as to the two rates of fees are complicated. Clause 5 deals with the monthly bills which WFW is to render for each matter. In these bills, WFW must set out the number of six minute units billed and the accumulated amounts of the legal fees at the discount rate and the normal rate. Subject to a presently immaterial exception, cl. 5 goes on to provide:

“... all work performed by the solicitors on the files is to be billed at the agreed rate of $66.00 per hour inclusive of GST (‘the Discount Rate’). Equus shall pay WFW invoices within 14 days of receipt...”

In two clauses there is to be found an indication supportive of the contention of WFW that payment at the normal rate is seen as a future event rather than as a contingent one. Clause 5b provides that certain disbursements will not be required to be paid by Equus ‘until payment of the Normal Rate as defined in clause 13 becomes due and payable...’ Likewise, cl. 27, which deals with only two of the matters the subject of the costs agreement, speaks of a certain procedure to be followed ‘so as to determine when the Normal Rate is payable’.[5]
[5]The last sentence of cl. 30 on one reading, may be said also to contain such an indication.

Notwithstanding these provisions, the whole thrust of the deed of costs is that legal fees at the normal rate are to be chargeable only where there is a successful result. The converse follows: absent a successful result the legal fees of WFW are to be at the discount rate. For example, cl. 27b speaks of certain events that “will not trigger the payment to WFW at the Normal Rate”. It is also abundantly clear from cl. 13a which provides that “The Normal Rate will be charged where there has been a successful result...”.[6] My attention was taken to no provision of the deed which suggests that the failure to achieve a successful result has the effect of removing from WFW an existing right to receive its fees at the normal rate. Clauses 16 and 17b, which deal with the consequences of termination in certain circumstances, also show the intention of the document is that, pending a successful conclusion of the litigation, WFW has no present entitlement to receive in the future payment for legal services at other than at the discount rate.
[6]See also cl. 29.

I conclude from this that under the deed of costs, legal costs payable to WFW on a successful outcome are greater than those otherwise payable under the agreement. The deed of costs, therefore, provides for uplifted fees. Since the premium payable on the successful outcome is not expressed in terms of a specified percentage not exceeding 25%, the deed of costs contravenes s. 98(3).

Section 99 prohibits contingency fees. It was contended on behalf of Equus that the deed of costs contravenes this prohibition because, under cl. 13(b)(iv), the amount payable to WFW is calculated by reference to the amount of the award or settlement. In one sense, this is uncontrovertible because, if, following a successful result, the fund available for payment under para (iv) after the priority payments have been made, is nil or less than twice the amount of the WFW bill for legal fees, then WFW is not entitled to payment of its fees in full.

The response of counsel on behalf of WFW fastened upon the word “calculated” in s. 99(1). The section strikes at a costs agreement under which the amount payable is calculated by reference to the amount of the award. In the present case, it is said, the amount payable is calculated by reference to the billable units of time which have been applied to the matter and the appropriate hourly rate. The amount of the award or settlement will have the effect, where it is insufficient, only of reducing the amount which becomes due and payable, that is, the amount recoverable by WFW from the client.

While in this respect, as in others, the terminology of the deed is not always consistent, the provisions of cll. 5 and 13 clearly show that WFW is entitled to bill its client at the discount rate during the interlocutory stages of the litigation. It is entitled to charge at the normal rate only if and when a successful result has been achieved. The deed contemplates that, at this stage, WFW will have been paid in accordance with its monthly accounts at the discount rate. It may also have received moneys paid under orders for costs against the other party pursuant to cl. 13(e) and cl. 14.[7] Clause 13b then deals with the distribution of the fund represented by the money recovered from the successful result. It does not say anything about the amount which WFW has or may charge for its legal services. This distribution regime, which is as advantageous to Equus as it is perilous for WFW, is, on one view, concerned with “the amount payable to the legal practitioner” for if the fund is exhausted or diminished beyond a certain amount, so too is the amount which Equus is obliged under the deed of costs to pay to its solicitors. Nevertheless, I am of opinion that the distinction drawn by counsel for WFW is a good one. Clause 13b is not so much concerned with the calculation of the legal costs which Equus is liable to pay; it is concerned with the satisfaction of that liability. The legislation, too, draws a distinction between the amount which is payable under the costs agreement and that which is recoverable.[8] Clause 13b(iv) is concerned only with the latter; it is not concerned with the calculation of the costs. The deed of costs does not contravene s. 99.
[7]This may also arise under cl. 25, but this provision is not at all easy to construe.
[8]See, for example, s. 102(2), (3).

The Consequences of the Breach

In general terms, s. 102 provides that the deed of costs agreement which I have found to contravene s. 98(3) is void and it precludes WFW from recovering costs for legal services provided under it. The relevant provisions are in the following terms:

“102 Certain Costs agreements are void
(1)A costs agreement that contravenes any provision of this Division is void.
(2)Subject to sub-section (3), legal costs under a void costs agreement are recoverable as set out in section 93(b) and (c).[9]
(3)A legal practitioner or firm that has entered into a costs agreement in contravention of section 97(5), 98(3) or 99 is not entitled to recover any amount in respect of the provision of legal services in the matter to which the costs agreement related and must repay any amount received in respect of those services to the person from whom it was received.

(4) If a legal practitioner or firm does not repay an amount required by sub-section (3) to be repaid, the person entitled to be repaid may recover the amount from the practitioner or firm as a debt in a court of competent jurisdiction.”

[9]Under s. 93(b) the legal practitioner may be paid in accordance with an applicable scale or remuneration order; under s. 93(c) it may be paid the reasonable value of the services provided.

The intent of Parliament as it appears in sub-s. (3) is clear and very severe. Where a legal practitioner enters into a costs agreement which contravenes one of the three stipulated provisions, its work is to be without fee. For present purposes it means that the claim of WFW for legal fees, whether at the normal rate or at the discount rate must fail.

WFW in its amended defence asserts that this consequence does not follow; Equus may not deny the validity of the costs agreement by the application of the doctrines of election and estoppel.

The facts underlying this contention are not, for the most part, controversial. Equus has, until very recently, relied upon various provisions of the deed of costs in litigation in this Court and in arbitration. To this may be added the fact that it obtained the benefit of the various provisions of the deed of costs in the period prior to mid-2003 when WFW declined to act further as its solicitors. To this may be added the fact that, during these same periods, WFW has also relied upon provisions of the deed and, further, it has incurred substantial detriment as a consequence. It has incurred the trouble and expense of resisting the contentions of Equus based on its interpretation of the deed and, generally, of being engaged in hard and long fought litigation.

More controversial is the pleaded assertion that Equus has so acted with knowledge that the deed of costs contravened s. 98 and s. 99 of the Legal Practice Act. I make no such finding. There is no evidence that Equus, through any of its officers, had that knowledge. Indeed, the probabilities must be that it did not. It is most improbable that with such knowledge it would have embarked upon and continued this expensive litigation and then, at the death knock, raised this point. The more probable position is that this point has only recently come to its attention.

Election consists in a choice between rights which the person making the election knows he or she possesses and which are alternative and inconsistent rights.[10] In this case the necessary ingredients are lacking. There are here no alternative and inconsistent rights. Parliament dictates that this costs agreement is void. Equus is given no choice. In any event, I do not find that Equus had the necessary knowledge.
[10]Commonwealth v Verwayen (1990) 170 CLR 394 at 421 per Brennan J.

Estoppel is a rule which prevents a party to litigation from asserting a fact or a legal consequence of a fact in certain circumstances where it would be unconscionable for it to do so. It is not necessary for me to spell out the various circumstances where this may arise. What is put here is that both of the contracting parties conducted themselves on the basis that the deed of costs was valid. I accept that this was so. This was not, however, the result of any representation by either of them; it was just an assumption under which they laboured, so that it falls within the rubric of estoppel by convention.[11]
[11]Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244.

I refer first to a contention on behalf of Equus which is fatal to it. This is that there can be no estoppel in the face of a statute. In Kok Hoong v Leong Cheong Kweng Mines Ltd[12], the Privy Council observed that the question whether an estoppel can be set up to avoid a legislative proscription of a particular transaction will depend upon the social policy underlying the proscription:

“In their Lordship’s opinion a more direct test to apply in any case such as the present, where the laws of moneylending or monetary security are involved, is to ask whether the law that confronts the estoppel can be seen to represent a social policy to which the court must give effect in the interests of the public generally or some section of the public, despite any rules of evidence as between themselves that the parties may have created by their conduct or otherwise.[13]

I will adopt this approach in the present case.

[12][1964] AC 993.

[13][1964] AC 993 at 1016.

Overmyer Industrial Brokers Pty Ltd v Campbells Cash & Carry Pty Ltd[14] was a case where a property owner engaged an agent to sell its property. Following its sale, the owner resisted the agent’s claim for commission on the basis that the agency agreement was not in writing. Pursuant to s. 42AA(1) and (4) of the Property Stock and Business Agents Act 1941 (NSW), the agent in such an event was not entitled to remuneration for services performed and was obliged to repay any remuneration withheld. In this sense the statute resembles s. 102(3) presently under consideration. The New South Wales Court of Appeal rejected a submission by the agent based upon estoppel, observing that the legislature had made it plain that there was to be no remuneration in the case before the court; no estoppel in the face of the statute would therefore lie.[15]
[14][2003] NSWCA 305.
[15][2003] NSWCA 305 at [55].

The case before me is even stronger. By s. 102(1) the costs agreement is void. It is clear that the policy behind s. 102 is to protect clients and to discourage legal practitioners from entering into agreements which contravene ss. 97(5), 98(3) and 99.[16] In the present case where, it would seem, the prohibition was not in the minds of any of the parties, it would be extraordinary that this meant that, for that reason, it should be ignored. There is a further feature in a case such as the present. Although I have found Mr Russo to be an experienced businessman, litigator and effective negotiator, he remains the lay-client of a legal practitioner. In these circumstances the raising of an estoppel would have the effect of rewarding the solicitor for its failure, presumably due to ignorance, to raise with the client at the time of contract the fact that the agreement breached the law.
[16]These provisions are set out at par [6] above.

I will not therefore deal with the arguments which fastened upon the presence or no of the ingredients of this estoppel. I mention only that there is here nothing which would make it unconscionable to allow Equus to rely upon the statute. It is not suggested that it contributed in any way to the assumption of WFW that the deed of costs was not void. It has not been established that it knew of the statute but, nevertheless, permitted the agreement to be implemented and indeed litigated. The fact that the consequence of the point Equus now takes is that it has had the benefit of WFW’s legal work without payment is a result of the decision of Parliament to visit this draconian punishment upon the legal practitioner.

I conclude therefore that the costs agreement is void and that WFW may not recover any amount for the provision of legal services in any matter to which the costs agreement relates. The restriction in s. 102(3) to remuneration for legal services presumably means that the prohibition attaches to its legal fees rather than to disbursements which it incurred in the furtherance of the client’s interests.

One final matter which was the subject of some argument was the extent to which the deed of costs is void. I was referred to the severance clause, cl. 34, of the deed. It was contended on behalf of Equus that I should go through the deed with a blue pencil striking out only those provisions which dealt with the calculation and payment of the legal fees. This, it seems to me, is an unrealistic exercise. The matters, the subject of the deed of costs, are the mutual obligations of the solicitor and the client. Insofar as the solicitor is conducting a business, the document contains numerous provisions relating to its remuneration. Insofar as the client is retaining the solicitor to perform legal services, the document deals with these and the manner of their performance. It is not commercially or otherwise sensible to see one set of obligations as standing alone and independent of the other. In short, the parties did not at the time of contract contemplate that the solicitor might perform the services without remuneration any more than they might have thought that the client would make payments without receiving the services. Since the costs provisions are void so too are the other provisions which are inseparable from them. Ancillary provisions such as those relating to interpretation of the document and to termination would also fall.

Given these conclusions, it is not necessary that I deal with the matters which were the subject of the trial in October. Nevertheless, in deference to the submissions of the parties and having regard to the fact that my reasons were substantially complete when the new point was raised, I shall set out my views upon them.

WFW’s Entitlement to Costs from Beagle Litigation

As explained in my June 2004 judgment[17], the agreement entered into between Equus and WFW was contained in the deed of costs dated 29 September 2002 pursuant to which WFW acted on behalf of Equus in a large number of legal proceedings, including a group of proceeding called “the Beagle litigation”. The agreement provided in various ways for WFW to share with their client the risk that the litigation might be unsuccessful in the sense that no money, or a modest sum of money, was recovered by Equus from it. One of these was the allocation in cl. 13b of the proceeds of the litigation. This allocation applied only where the litigation was successful within the meaning of cl. 13a[18]. The Beagle litigation was successful in this sense because, following its settlement, there was a recovery of part of the amount claimed in the litigation.
[17][2004] VSC 164.
[18]Clause 13 is set out in par [8] above.

Two questions remain for resolution in the application of this provision to the Beagle litigation.[19]

(1)What is the amount of “moneys recovered from the defendants or any other third parties pursuant to the litigation”?
(2)What is the amount of the Equus disbursements mentioned in part (i)?
[19]This litigation is described in [2004] VSC 164 at [42]-[52].

Beagle Settlement Recovery

The Beagle litigation settlement[20] is contained in two settlement deeds. The first, dated 8 March 2003, was entered into with the manager parties. The second, dated 20 March 2003, was entered into with the trustee. Under the trustee’s settlement the sum of $500,000 was to be paid to Equus. I am not otherwise concerned with this deed for present purposes. Under the manager parties’ settlement, the manager parties agreed to pay the settlement sum of $1.9M by a payment of $1.6M to Equus and by the payment of $300,000 into a certain bank account. The manager parties’ deed provided, by cl. 4, that Equus, Targridge and Second Lenbourne would assign to the manager parties certain lease and management agreements concerned with the Templegate forestry project on the completion date, that is, within five days after the bank account was opened or upon such other date as the parties agreed.[21] By cl. 4.7, it was agreed that if any lease and management agreement was not assigned by the completion date, the manager parties might withdraw from the bank account the sum of $10,500 for such each lease and management agreement concerning property in the Wombat Forest and $4,000 for each other such lease and management agreement. Upon the completion date, the amount remaining in the bank account after payment of any money payable to the manager parties was to be paid to Equus, Targridge and Second Lenbourne in such proportion as they may direct.[22]
[20]The settlement is described in [2004] VSC 164 at [74].
[21]Clause 4.4.
[22]Clause 7.

In fact, upon settlement on 21 March 2003, the settlement money was dealt with differently. Payment of the $500,000 under the trustee’s settlement was dealt with as described in my 2004 judgment.[23] As provided for in the settlement deed, $1.6M was paid to Mr Russo on behalf of Equus. The bank account was opened but no money was deposited in it. Of the sum of $300,000 which was to be deposited, $188,000 was paid to Equus and the remaining $112,000 was withheld by the manager parties because Equus was then unable to provide an assignment of leases and management agreements in the names of two of the investors, Leeds and Polycoat. These difficulties were later overcome and the assignments took place prior to 8 July 2003. The $112,000 thereupon became payable under the terms of the settlement. But, by this time, WFW and Equus were in dispute and WFW made claim to the sum withheld, contending that it was part of the amount due for its fees with respect to the settled Beagle litigation. By agreement between the contending parties, the money was on 8 July 2003 paid into a holding account at the Macquarie Bank where it still remains pending the outcome of this litigation.
[23][2004] VSC 164 at [77] ff.

Against this factual background, it was contended on behalf of Equus that, in various ways, the amount of moneys received upon the settlement with the manager parties was less than $2.4M, being the aggregate of the sum of $1.9M referred to in the manager parties’ settlement and the sum of $500,000 referred to in the trustee’s settlement. The first position adopted by Equus was that there should be deducted from this sum for the purposes of cl. 13b the sum of $404,000 representing the value of the assets transferred to the manager parties by Equus, Targridge and Second Lenbourne under the manager parties settlement. Its next alternative position was that there should be deducted from the amount of $2.4M the sum of $112,000 because this part of the settlement proceeds was not recovered until after the deed of costs had been terminated.

Its third alternative position is a little more difficult to grasp. It was said that the $1.9M received under the manager parties’ settlement should be apportioned between Equus, Targridge and Second Lenbourne as follows:

Equus $1,533,300

Targridge $269,800

Second Lenbourne $96,900

Total: $1,900,000
The three companies are said to have agreed that Equus would pay these sums to Targridge and Second Lenbourne at a later date. It is then said that these payments totalling $366,700 should not be treated as a recovery by Equus for the purposes of cl. 13b.

I interrupt myself to observe that none of these three contentions was pleaded. The factual basis for them is to be found in Mr Russo’s affidavit of 3 October 2005, filed many months after the trial order permitted. The points themselves appear first to have seen the light of day on 10 October 2005 when counsel for Equus opened their case or shortly before that date. WFW objected to my receiving the Russo affidavit and to my entertaining the contentions, but I determined to do so on the basis that, for the most part, the facts asserted in the affidavit were non-contentious and that, insofar as Mr Russo there expressed an opinion as to the value of the interests transferred by Equus or the other two companies, it was accepted on behalf of Equus that I should treat this as not being evidence of their true value. It appeared to me that counsel for WFW had, in the circumstances, had sufficient time to address these essentially legal contentions in their final address which was, after all, made in writing some eight days after the evidence was concluded.

Before I leave this essentially procedural matter, I wish to add one further remark. It is a feature of modern commercial litigation that trials are increasingly long and complex. In an effort to assist the parties, the Court has of late been more ready to accede to applications for the trial of preliminary issues pursuant to Rule 47.05. The benefits of such a course are denied to the parties and the Court where, after the preliminary trial, parties revisit their pleadings to raise issues which they might have had presented at the completed trial or to raise issues which seek to circumvent the decision at the preliminary trial. If there had been but one trial of all issues, this course would not be available. The Court should, in my view, set its face against amendments of this kind where they serve to undermine the Court process. That said, I do not consider that the new allegations in this case are of that kind. The points raise what are essentially issues of construction of the document which parties are able to address without disadvantage.

The Net Recovery Point

The first Equus contention depends upon the meaning of the expression “moneys recovered” in the opening words of cl. 13b. I have no doubt that this expression refers to money and not to other things of value received from the litigation. I was told that much of the Equus litigation covered by the deed of costs was litigation to recover debts or damages. In evidence, as exhibit 65, there were five statements of claim in which Equus was shown as plaintiff. In these pleadings, Equus sought from the defendants sums certain or damages. The Beagle litigation which was the subject of the March settlements, comprised the Bailey proceeding[24] and the Targridge proceeding[25] in the Federal Court. In the Bailey proceeding, Equus and other plaintiffs and, in the case of the Targridge proceeding, Targridge and Second Lenbourne sought damages. Targridge was a company controlled by Mr Russo and was a major shareholder in Equus. Second Lenbourne was controlled by his accountant and friend, Tom Linardos. The deed of costs was prepared against a background that the substantial objective of the various proceedings covered by the expression “files”[26] was the recovery of money. The success, therefore, of the litigation was identified in cl. 13a as being “the recovery of some or all of the claimed money”. By settlement, this money would be recovered in exchange for some consideration, by the granting of a release to the defendant or by the conferring of some other benefit upon that party. It seems, therefore, entirely consistent with the thinking underlying the deed of costs, that WFW should assume a risk of financial disadvantage unless the litigation were brought to a successful result, that is, that the litigation produced a sum of money sufficient to provide a fund from which their legal fees might be paid.[27]
[24]See [2004] VSC 164 at [51].
[25]See [2004] VSC 164 at [49].
[26]As defined in cl. 1(i).
[27]See for example cll. 5(b), 13a, 13(f).

The terminology of cl. 13b also leads to this conclusion. The expression used is “moneys recovered” or “money”. Clause 13(f) speaks of “recoveries made”. It will be recalled, too, that the provision immediately preceding that under consideration speaks in terms of “the sum claimed in the litigation” and “a recovery of ... the claimed amount in the litigation”. It is clear from this terminology that the parties had in mind that the benefit from the litigation here in question, by settlement or otherwise, moving to Equus is a monetary one.[28] If it were otherwise, it might be expected that the parties would have spelt this out in terms and, perhaps, provided some mechanism for valuing the non-monetary component of the recovery.
[28]See also cl. 21.

This conclusion disposes of the first point taken. Nevertheless, I shall venture my further views upon it on the assumption that my construction of the deed of costs is found to be in error. There is no evidence of the value of the interests assigned by Targridge or Second Lenbourne under the settlement. It was put that I should accept as their value the amount agreed in the settlement agreement to be withheld if the interests be not transferred to the manager parties, there being no other evidence as to value. The reply to this offered on behalf of WFW was that this figure, which totals $404,000, may not necessarily be their true value; it may be high or low, depending upon the role that the retention was to play in the scheme of the settlement. I agree. This point must fail also for want of evidence.

Late Recovery of Money

It is clear enough that, by 8 July 2003, $112,000 was released by the manager parties following the assignment of the Leeds and Polycoat leases and management agreements. The submission put on behalf of Equus was that this could not be treated as money recovered for the purposes of cl. 13b because, by that date, the costs agreement had been terminated. The fact of prior termination of the deed of costs was not in issue. The first thing to be noted about this is that the deed of costs does not in terms impose such a temporal limitation. Indeed, the document contemplates that a number of acts may be performed after termination. These include payment by Equus of certain disbursements[29] and legal costs.[30] Clause 16 deals with the entitlement of WFW to recover costs after they have terminated the deed of costs:

“16.If WFW decides to terminate this Deed for any reason, WFW thereby abandons any right to claim any future payment for the provision of the legal services save and except for fees and disbursements incurred pursuant to Clause 7 to the date of termination at the Discount Rate or for those files on which at the time of termination there has been a recovery at which time, payment shall be made by Equus to WFW in accordance with the priorities set out in Clause 13b.”
[29]Clause 4.
[30]Clause 8.

It is apparent from these provisions that the machinery under cl. 13b does not cease to be available upon termination of the agreement. Just as the priority payments to be made out of settlement proceeds are not time-related in terms of the continuing existence of the agreement, so too, is the receipt of those proceeds. I reject the second point.
The Targridge and Second Lenbourne Apportionment

What was put here was that, upon its proper construction, “moneys recovered from the defendants” in cl. 13b, means moneys recovered by Equus. In the Targridge proceeding the applicants were Targridge and Second Lenbourne, two investors in the Beagle scheme. These companies and Equus were parties to the two settlement deeds, which resolved the Beagle Litigation in the Federal Court. By cll. 4.2 and 4.3 of the manager parties’ settlement deed, each of these companies agreed to transfer to the manager parties their leases and management agreements. These were, in respect of Targridge, for five lots in the Wombat Forest and one other lot; and in respect of Second Lenbourne, for three other lots. I mention, in passing, that in terms of cl. 4.8, the compensation for the non-assignment of these lots was $56,500 for Targridge and $12,000 for Second Lenbourne.

In these circumstances, counsel for Equus said that each of Targridge and Second Lenbourne surrendered their interests in the Beagle scheme. I take this to mean that they assigned them to the manager parties pursuant to the terms of the settlement.

Next, it was said that Targridge and Second Lenbourne each agreed with Equus that the price of the surrender was $269,800 and $96,900 respectively and that Targridge and Second Lenbourne were not parties to the deed of costs. Accordingly, “moneys recovered” for the purposes of cl. 13b must not include moneys recovered by them. From the settlement sum of $2.4M, therefore, there must be deducted the sum of $366,700.

I reject this contention for any of a number of reasons. First, cl. 13b does not specify that moneys recovered by these companies associated with Equus are not to be dealt with under cl. 13b. Indeed, cl. 28 makes it clear that WFW is acting for those companies in the Beagle Litigation as well as for Equus and that the legal fees of those companies are consolidated with those of Equus. In these circumstances, it would require a clearly expressed contractual intention for me to conclude that the fund from which these consolidated costs are to be paid should be dealt with differently.

Secondly, the manager parties’ deed of settlement provides that $1.6M of the settlement money is payable to Equus and that the balance of $300,000 is payable on closure to Equus, Targridge and Second Lenbourne in such proportions as they may direct in writing.[31] In fact, $188,000 of this balance was paid to Equus and the balance was withheld by WFW notwithstanding the protests of Equus. There is, thus far, no evidence that Targridge or Second Lenbourne were entitled to any part of the proceeds of the Beagle Litigation. Then in paragraph 28 of his affidavit of 3 October 2005, Mr Russo says this:
[31]Clause 7.

“Equus has agreed with Targridge that this is a reasonable sum for Equus to pay Targridge as a result of the settlement. Targridge has agreed to accept payment of that sum upon the conclusion of this proceeding.”

The sum in question is $269,800. In his oral evidence, Mr Russo explained that the actual persons who reached this agreement were himself; he ran both companies. When he was challenged about the lack of confirmatory evidence he replied “No I didn’t sign some document. Me knows what me is saying.” And at paragraph 34 of his affidavit, Mr Russo says this:
“Equus accepts that the sum of $96,900 is reasonable consideration pursuant to the agreement between Equus and Second Lenbourne for a release by Equus of Second Lenbourne’s liability to pay Equus $35,636.60, being the sum due under its loan, plus Second Lenbourne’s legal costs in the Beagle matter.”

It is difficult to see the conclusionary statements in these passages as probative evidence of the agreements which the deponent here asserts.

It will be recalled that Mr Russo was the director of Targridge and that his accountant, Mr Linardos, now deceased, was a director of Second Lenbourne. On the evidence before me, I do not accept as a fact that the whole of the settlement money was not recovered by Equus. Having recovered this money it was for Equus to determine how it is to be used. If there was an agreement to pay some part of it at some later date to Targridge or Second Lenbourne this is beside the point. Moreover, if it were necessary that I make a finding that such an agreement or agreements was or were entered into, I would not, on the evidence before me, make such a finding. This point, too, must fail.

The Beagle Disbursements

Following the Beagle settlements under which there was to be paid $2.4M, Equus on 2 May 2003 provided a draft list of disbursements which, it said, were to be paid in first priority out of this fund in accordance with cl. 13b(i). These totalled $2,130,047.44. The final list of disbursements which formed the basis of this trial is the list dated 30 March 2005 which comprised 369 items totalling $2,511,090.37. Many of these items were accepted by WFW, leaving in dispute only the following:

(1)       Interest claimed on every item.
(2)       Litigation support expenses.
(3)       Fifteen miscellaneous items.
(4)       The assignment of the management rights.
Disbursements

It will be recalled that, in cl. 13b of the deed of costs, the terms of the first priority deduction from money recovered from the litigation are as follows:

“(i)reimbursement to Equus of all reasonable disbursements incurred by Equus pursuant to the litigation on that file, including all disbursements of the kind referred to in Clause 7 of this Deed; then from the balance (if any)...”

The word “disbursement” in ordinary speech refers simply to money which has been paid out.[32] The essential feature of this non-technical definition is that there has been an actual payment made to some other person. The deed of costs, as the name suggests, is to a very large extent concerned with the legal costs payable to WFW. “Disbursements” is a word which has long been taken in the context of legal bills of costs to mean those payments
“... which have been made in pursuance of the professional duty undertaken by the solicitor, and which he or she is bound to perform, or which are sanctioned as professional payments, by the general and established custom and practice of the profession”.[33]

Such a definition is applicable to charges by a solicitor and they normally include fees paid to counsel. In this context, a disbursement is to be contrasted with legal fees or costs which are payments to a lawyer for the legal services performed by that lawyer or by his office. This distinction is recognised in the differential treatment accorded to disbursements and fees in parts (i) and (iii) of cl. 13b.

[32]Oxford English Dictionary 2^nd Ed.

[33]Re Remnant (1849) 11 Beav. 603 at 613; 50 ER 949 at 954, per Lord Langdale. See also Halsbury’s Law of Australia [325-9500].

The deed of costs was negotiated and executed against a background where litigious work had been done by other solicitors retained by Equus, by its own employee solicitors and, of course, by WFW in the years which preceded the execution of the deed of costs. Furthermore, a substantial part of the business of Equus was that of pursuing litigation; its business was characterised by its counsel as being that of a professional litigant. The evidence before me demonstrated that it, and in particular Mr Russo, was very much a “hands on” client. He participated and directed the forensic strategy of the litigation and even undertook the tasks of preparing lists of documents for discovery and of inspecting discovered documents.[34] It is clear from the terms of the deed of costs that this was how the parties saw his role. The deed of costs contemplated, too, that Equus might itself carry out large mail outs of documents to other litigants.[35] For this reason it may be said that the client itself was to perform legal tasks which would otherwise be entrusted to and charged for by its solicitor.
[34]See too cl. 20.
[35]Clause 26.

Clause 7 speaks of the “following disbursements” and then lists them under eleven specific categories, and a twelfth general category, as follows:

“(a)     all Court fees;
(b)     Sheriff’s Office and Bailiff’s fees;
(c)     Barristers fees (unless disputed by either Equus or WFW);
(d)     search and lodging fees;
(e)     ‘bulk’ photocopy costs carried out by a third party;
(f)      transcript costs;
(g)     newspaper and Government Gazette advertising fees;
(h)     courier fees;
(i)      expert fees and other consultants;
(j)      service fees & location enquiry costs;
(k)     external storage/archive costs on the files; and
(l)all other agreed disbursements necessary to attain the litigation objectives of Equus on a particular file (‘the disbursements’)...”

As a matter of construction, I read the phrase “necessary to attain the litigation objectives of Equus on a particular file”, as attaching to each of these categories. Further it follows from the last parenthesis in the quoted passage that an expense which falls within one or other of these 12 categories is a disbursement for the purposes of the deed of costs. This is not a surprising result since an expense of one or other of these categories would ordinarily satisfy the technical meaning of that word in the law of costs. But this is not an exhaustive definition for the purposes of cl. 13b(i), for in that provision, the disbursements incurred by Equus are inclusive of the cl. 7 disbursements. It may be, therefore, that the disbursements incurred by Equus which fall outside the cl. 7 disbursements, include expenses incurred by Equus for work of one of the cl. 7 categories, but which had been performed pursuant to an agreement directly between Equus and a provider or between the provider and some solicitor other than WFW.[36]

[36]Cf the treatment of legal fees in cl. 13b(iii).

A feature of the ordinary meaning of “disbursement” is that it is a payment made. It is not sufficient that there be merely an obligation to make the payment. This is not so important in its technical meaning where the focus is on the type of expense, although the taxing officer will normally require proof of payment of the disbursement.[37] Clause 13b(i) speaks of “disbursements incurred by Equus pursuant to the litigation on that file”. What then is the significance of the words “incurred by Equus”? Where work is done on the file, a payment which falls within one of the cl. 7 categories may be made by Equus directly to the provider or by reimbursement to WFW where they have themselves made the payment to the provider.[38] In either case, the disbursement is described in the clause as a disbursement “incurred by WFW”. This is so in the former case notwithstanding that WFW has not made any payment; it is simply indebted to the provider for the supply. I, therefore, accept the submission put on behalf of Equus on this point that disbursements in the deed of costs includes unpaid disbursements. Contrary to the ordinary non-technical meaning of the word, an expense which otherwise falls within a cl. 7 category may be a disbursement incurred for the purpose of the deed of costs, notwithstanding that no payment has in fact been made in respect of it. I conclude, therefore, that an expense may be a disbursement incurred by Equus where it has been paid by Equus, where it has been paid by WFW and Equus has reimbursed WFW for it, or where there exists an obligation in Equus to pay it.[39] For the most part, the deed of costs envisages that disbursements incurred by WFW will have been paid by Equus or reimbursed to WFW in accordance with cl. 7 as the litigation progressed. The exception to this appears to be that class of disbursements incurred by WFW which are not payable until there has been a successful result.[40] These are to be reimbursed to WFW last in priority in accordance with cl. 13b(iv).[41] This being the case, “disbursements incurred by Equus” are those which it has paid directly to the third parties concerned, those which it has reimbursed to WFW, and those which it is obliged to pay to one or other of them pursuant to cl. 7.
[37]See R. 63.43.
[38]Clause 7. See also cl. 11(b), (c).
[39]See too cl 5a (WFW accounts to show disbursements incurred for the month).
[40]Clause 5b.
[41]Clause 13b (iv).

There is one further aspect of “disbursements” which must be underlined. It is that they must be referable to a particular file, in this case, to the Beagle litigation. This conclusion arises from any of a number of textual and other indicators.

·Clause 13b speaks of “disbursements incurred by Equus pursuant to the litigation on that file”. The file referred to is the file in which there has been a successful result[42], in this case, the Beagle litigation. Clause 7 contains a general description of expenses which fall within the definition. This is “all other agreed disbursements necessary to attain the litigation objectives of Equus on a particular file”. As I have mentioned, I read this last phrase as applying not only to the general category but to each of those which preceded it. To qualify as a disbursement within the meaning of cl. 7, the expense must satisfy this phrase.
·By cl. 7 WFW is responsible for its ordinary general operating expenses associated with providing the legal services on the file. WFW must also bear the cost of paralegal and support staff.[43] It follows that expenses of this nature incurred by it cannot be passed on to Equus as a disbursement. It may be that this conclusion also points towards the inability of Equus to treat its own general operating expenses in the same way.
·The scheme of the deed of costs is that Equus required very careful control and supervision of the disbursements incurred by WFW. The expenses must be reasonable and must have been incurred only where the work was performed in accordance upon the instructions of the client.[44] Again, it may be inferred that only those expenses which meet this description are to be paid or reimbursed to WFW by Equus under cl. 7 and that only those expenses when incurred by Equus are to be brought to account under cl. 13b(i).
·In the law of costs, the definition of “disbursements” does not extend to the general overheads or operating expenses of a solicitor. This must be covered by professional fees. To qualify as a disbursement an expense must be referable to a particular file and must be within one of the categories of expense listed in cl. 7.
·There is no warrant in the deed of costs for treating as a disbursement an expense of Equus which would not have been treated as such if incurred by WFW.

[42]Clause 13a.

[43]Clause 5c.

[44]See cll. 10, 11a.

I conclude, therefore, that for present purposes, an expense incurred by Equus falls within part (i) of cl. 13b where each of the following conditions is satisfied:

(1)The expense was for the provision of services or things which fall within one of the categories set out in cl. 7;
(2)The expense has been paid by Equus either directly to the provider or by reimbursement to the person who made the payment or the expense was for services or things provided by agreement with Equus but for which no payment has yet been made;

(3) The expense was referable to the Beagle litigation; and
(4) The expense was reasonable.

Before I consider each of the disputed disbursement claims in the disbursement list, I note that there was no issue before me that they satisfied the first of these requirements. Nor, in most cases, was there any dispute that the expense had in fact been paid. The principal areas of controversy lay in the third and fourth requirements.

Interest Paid

The circumstances attending this component of every item are to be found in paragraphs 4 and 10 of Mr Russo’s affidavit sworn 18 February 2005. In the disbursements list, interest is claimed at 10 percent from the date each item was paid, the earliest date being 10 December 1997. It seems that the interest was paid or is payable to Katesara Pty Ltd, a company owned by Mr Russo’s wife, Carol Russo, and by his daughter, Sarah Russo, and of which Mrs Russo was a director. Mr Russo said that Equus granted four registered charges to Katesara in 1989, 1991, 1991, and 1996 respectively.

Mr Russo in his affidavit says of this debt of Katesara:

“The terms of the Loan (as varied from time to time) require Equus to repay the Loan on demand and to pay interest on the principal outstanding from time to time at the rate of 10% per year.”

These terms are not documented. Indeed, such supporting material as Equus disclosed suggests the contrary. In its balance sheets for 1999, 2000, 2001 and 2002, the loans are shown as non-current, an inappropriate description for a loan payable on demand. The notes to the balance sheet show that on 30 June 2000 the secured loans stood at $9,789,416 an increase of $2,464,187 from 30 June 1999. Interest for the year ending 30 June 2000 is shown as $1,481,291 which appears to be somewhat more than the 10 percent mentioned by Mr Russo. In the following accounts the secured loan as at 30 June 2001 is shown as $8,977,856, a reduction of $811,560. In the same year interest paid is shown as $81,153 and accrued interest – secured, remains unchanged. In the 2002 accounts secured loan is shown as $7,443,742, a further reduction of $1,534,114 and accrued interest remains unchanged.[45] No accounts have been prepared for 2002-3.
[45]There is no profit and loss account in evidence for this year.

Mr Russo deposed that in 2000, Equus was facing applications for security for costs in its litigation. In September of that year, Katesara and Equus agreed that Katesara would not charge interest after 1 July 2000 upon the loan which then stood at $9,789,416. This enabled Mr Russo to present to the Court a more favourable financial picture of Equus than would otherwise have been the case. It would seem that Mrs Russo, on behalf of Katesara was content for this to be done, doubtless because it was in the interests of the Russo family as a whole. This agreement to forego interest of about $1M per annum was said to have been recorded in a letter which now cannot be found. And so things stood until early 2003 when, Mr Russo said, he and his wife on behalf of Equus and Katesara respectively agreed to set aside the 2000 agreement retrospectively so that Equus became liable for interest at 10 percent per annum, from 1 July 2000. This agreement was not then documented. Nor does it appear how it was treated in the books of account of the two companies, for no financial statements have been prepared for Equus since those of 2002.

And then, two years later on 1 February 2005, the 2003 agreement was documented in a deed of variation of that date. It is to be noted that this document is dated only 18 days before Mr Russo swore his affidavit in this proceeding relating to the disbursements and at a time when it was convenient for Equus to have incurred a substantial expense to deduct from the Beagle settlement proceeds. In this deed of variation the amount of the loan secured by the debenture is said to be $12,697,889, not the figure of $11,886,329 shown in the accounts. The balance as at 31 January 2005 is said in the deed of variation to be $20,146,213. The interest which Equus there agreed retrospectively to pay is 10 percent per annum compounding on daily rests.

Mrs Russo made no mention of either the 2000 agreement or the 2003 agreement or the deed of variation in her evidence in chief. When she was asked about the 2003 agreement she was very vague. The burden of her evidence was that she recalled discussing the document “earlier this year” with the accountants but could not recall the detail. She said that this was the first time she remembered the topic of retrospectively paying interest on the loan had been discussed. I will not burden this judgment with the inconsistencies in Mr Russo’s evidence on this topic.

I return to the claim for interest as a disbursement. I am not satisfied that in the years covered by the items in the list, that is from December 1997 to October 2003, Equus paid Katesara or incurred to it, a liability to pay interest upon the sums shown in the list. If interest was paid or payable in respect of any of those years it was money borrowed for its working capital generally, not for the conduct of the Beagle litigation.

This brings me to the fundamental flaws in the Equus contentions on this point. Assuming that the interest was paid or was payable by Equus to Katesara as Mr Russo asserts, it is not an expense within a cl. 7 category; it is not a payment or liability “incurred pursuant to the [Beagle] litigation” in terms of cl. 13b(i). It is merely part of the operating overhead expenses incurred by Equus for the conduct of its business of litigator and also, it would seem, of the conduct of its other businesses at Eagle Ridge Golf Course and Sailz at Yarrawonga. The claims for these items must fail.

Litigation Support Expenses

The sums involved here are substantial:

Item Date Amount

7

31.12.98

$3,569

16

31.12.99

$60,114

87

31.12.00

$191,016

230

31.12.01

$357,181

293

31.10.02

$108,362

$720,242
In his affidavit of 18 February 2005 Mr Russo explains that these items in each year represent the cost to Equus of retaining its own staff, support systems and infrastructure. It appears from his affidavit and from the calculations in Exhibit NR2 to that affidavit, that in each case the figure represents and is arrived at as follows. First, it should be noted that the item dates above are incorrect. The expenses claimed were incurred over the financial years ending 1999, 2000, 2001, 2002, and 2003 respectively. In each accounting period it is said[46] that Equus incurred external legal expenses in respect of the various items of litigation in which it was involved. For example, in 1998-9 these totalled $375,994 and the part of this item referable to the Beagle litigation is $1,060, that is about 0.28%. No documents were provided to justify this figure which, in any event, appears inconsistent with the legal expenses shown in the Equus accounts for that year. It is therefore concluded that the Beagle litigation in that year represented 0.28% of the costs generally to Equus of conducting all of its litigation. This conclusion was not demonstrated. The total expenses in the Equus profit and loss account, other than legal costs and interest paid, have been treated as its costs generally of all of its litigious activities. The amount claimed for the Beagle litigation in the year 1998-9 is therefore, 0.28% of these general costs for that year. A similar calculation is undertaken for each of the subsequent years.

[46]No accounts were prepared for 2003.

I will not dwell on the details of these calculations.[47] The sums claimed in each year cannot be treated as disbursements for the purposes of cl. 13b(i). They are a theoretical rather than actual cost of the Beagle litigation. They do not represent expenses of the categories mentioned in cl. 7; they are part of Equus’ general operating expenses and are not referable to the Beagle litigation. These claims must be rejected.
[47]There are minor arithmetic discrepancies and some of the component parts cannot on any basis be seen as concerned with litigation.

Miscellaneous Disbursements

I turn now to the fifteen miscellaneous disbursement items in dispute. In each case the question is whether the expense is a disbursement incurred by Equus in the sense that this expression is used in cl. 13b(i) and, further, whether it is reasonable.

Mr Simpson’s fees
Item 115 - $454

The statement of account for Mr Simpson of counsel shows that on 2 March 2001 he charged $575 for settling a pleading in the Targridge Proceeding. If paid, this item is clearly a cl. 13b(i) disbursement. The accounts of Equus show that this account was paid by it as to $454 as part of a larger payment to Mr Simpson on 16 May 2001. The explanation for the difference is that Mr Russo agreed with Mr Simpson a reduction in respect of a number of his accounts. Against this is the evidence of Mr Simpson’s clerk’s financial record which shows the fee to have been written off. To my mind this is not inconsistent with the Equus records. It is consistent with the barrister and client agreeing a general reduction and the barrister, as a matter of accounting convenience, applying this discount to certain fees rather than as a general discount to all of them. I allow this item.

Linardos Chartered Accountant’s fees
Item 129 - $5,390
Item 136 - $1,942

Mr Russo says that these items concern accounting work done in March and April 2001 on behalf of Equus with a view to resisting an application for security for costs in the Beagle litigation in the Federal Court. On their face the invoices of Mr Linardos bear this out. I allow these items.

Galloway & Co
Item 130        -          $51
Item 193        -          $29
Item 228        -          $198

Galloway & Co is a firm of title searchers engaged by Equus. These four very small items, on their face, are invoices for obtaining copy searches in April and September 2001. There is sufficient evidence that they were incurred in the prosecution of the Beagle litigation. I allow them.

On-Line Searching
Item 227 - $133

I accept Mr Russo’s evidence and allow this item.

Eco-System Management
Item 250 - $1,216

According to Mr Russo this item refers to an expense concerned with discussions with Mr Long of Eco-systems regarding wood yield calculations, future markets and secondary market considerations regarding he Beagle project. The work was carried out, according to the invoice, between October 2001 and February 2002. At this time the Beagle litigation was being handled by WFW. The evidence shows that, whatever was the subject matter of these discussions, it was not brought to the attention of Mr Snell who was handling the file. No report or note of the discussions has been produced. I do not accept that this expense was incurred in the furtherance of the Beagle litigation.

Mr Crees-Morris
Item 258 - $525

Mr Crees-Morris is a forestry expert whose account shows that he was engaged in having discussions with forestry consultants in April 2002. I am satisfied that this was a reasonable expense incurred in the furtherance of the Beagle litigation. I allow it.

Assignment of Leases and Management Agreements
Item 334        -          Hall Chadwick $5,000
Item 335        -          Hall Chadwick $7,500
Item 358        -          Galloway & Co $245
Item 360        -          DHL $86

It will be recalled that, upon settlement of the Beagle litigation in March 2003, $112,000 was withheld pending the assignment of the Leeds and Polycoat leases and management agreements to the manager parties. The expenses involved in these items were incurred in procuring these assignments which were necessary to complete the settlement and to recover all of the money which is to provide fund for the payment of the WFW costs.

The contention put against these items is that, at the time of settlement, Mr Russo said he believed he could transfer the interests in question. This, it seems to me, is beside the point. On the basis on which I am approaching these miscellaneous items, I am satisfied that they should be allowed.

Australian Paralegal Services
Item 339 - $33

It seems that this modest item, representing the costs of a full title search of land titles in New South Wales, relates to land the subject of the Galloway search to which I have referred.[48] Given its date it appears to relate to the settlement of the Beagle litigation. I will allow it.

Phillip Kotsanis
Item 355 - $14.80

[48]See para [73] above.

This is an expense in the nature of a reimbursement of Mr Kotsanis, the Equus inhouse solicitor, for three lots of photocopying which he arranged and paid for in May 2002. I allow this item.

The Assignment of the Management Rights

It was contended, as an argument in the alternative to that discussed above[49] that $404,000, being the value of the leases and management rights assigned to the manager parties under the Beagle settlement, should be treated as a disbursement and deducted from the recovery proceeds as a first priority payment. I have set out the factual basis for this item above.[50]
[49]See paras [42] ff above.
[50]See paras [36]-[38] above.

This contention is without substance. The transfer of these interests cannot, on any view of the meaning of disbursement in cl. 13b(i), meet the requirements of that provision. It is not an expense of any of the categories mentioned in cl. 7 or of the kinds traditionally falling within the definition of disbursement.

Conclusion

The consequence of this is that the amount available for distribution pursuant to cl. 13(b)(iv) is $1,004,540 which is made up as follows:

Gross moneys received $2,400,000

Less disbursements

Uncontested 1,373,853

Allowed 21,601

1,395,454

$1,004,546

Pursuant to cl. 13b(iv) one half of this is available to meet WFW’s legal costs, namely, $502,270.
The Equus Loss of Opportunity Claim

This is another claim which has been brought forward after the trial of the preliminary questions. In essence, it is said that Equus suffered loss when, as a result of the wrongful demand by WFW that Equus provide $730,700.54 security for the payment of its legal fees under the deed of costs, Equus was required to provide $700,000 security and thereby lacked the liquidity to pursue an opportunity to acquire an asset worth some $6M. The cause of action is breach of contract, the contract being the deed of costs. Before I analyse this cause of action it is convenient that I set out the facts underlying it, for they were not in dispute.

Equus and WFW were in dispute immediately after the settlement of the Beagle litigation in March 2003. WFW asserted an entitlement to payment of a substantial sum for work done on all of the files the subject of the deed of costs and this was denied. Equus contended that WFW was in breach of the deed of costs and, on various bases, asserted that the deed of costs had been terminated. It denied that it owed any money to WFW. WFW denied these claims and, itself, claimed a lien over all the files in its possession; they refused to deliver up the files to Equus.

In the early days of June the parties exchanged correspondence in an effort to resolve the impasse. When this was unsuccessful, Equus on 12 June 2003 commenced this proceeding seeking the delivery up of the files. As at that date it is common ground that there were unpaid disbursements including counsel’s fees of $105,808.75. On 16 June Equus paid a further $13,830, leaving the balance of $91,978.75. On the following day, 17 June 2003, it brought an application for interlocutory orders that the files be delivered up. This application came on for hearing on 20 June before Bongiorno J sitting in the Practice Court. His Honour was not prepared to accede to the Equus submission that there was no triable issue as to the existence of the claimed lien. By a cross-application WFW sought on that occasion an order that the proceeds of the Beagle settlement be paid into an account pending determination of WFW’s entitlement to the costs claimed. His Honour declined to make an order on the cross-summons having regard to an undertaking proffered on behalf of Equus to pay into the holding account the sum of $620,000 plus $80,000 or thereabouts in respect of outstanding counsel’s fees. His Honour proposed that upon the giving of the undertaking on behalf of Equus to provide the $700,000 for security, he would order the delivery up of the files. No substantive order was to be made on the WFW cross summons.[51] In fact, the order which was authenticated on 27 June 2003 shows that the matter was resolved rather differently. His Honour accepted an undertaking on behalf of WFW that they would deliver up the files upon the deposit by Equus into the holding account of the sum of $695,197.38.
[51][2003] VSC 268.

Then followed a letter from Equus dated 25 June 2003 upon which considerable reliance was placed. In it Equus made an offer to provide certain security in two alternative forms to WFW in order to obtain the release of the files. The first was a first ranking charge over the files and the second was a first mortgage over the Russo home in 299 Queen Street which stood in the name of Mrs Russo. The letter concluded as follows:

“We urge you to prefer the first offer (a charge over the files and future recoveries) which should fully protect your purported lien. To choose the second option would an aggressive act which may make it difficult for the parties to reach any settlement in the future. Equus also wishes to make it clear that any encumbrance of its assets or any assets of its associates (which include Mrs Carol Russo) is likely to lead to substantial detriment to its business due to loss of opportunity. In these circumstances, Equus (and its associates) reserve their rights to particularise and recover this loss from Wilmoth Field Warne. If the first offer is chosen, Equus undertakes not to pursue any such loss of opportunity claim.”

Neither security was acceptable to WFW.

On 9 July 2003 Equus paid some further barrister’s fees and on 11 July counsel’s fees for Mr Colbran QC and Mr Simpson were paid into a holding account with the Macquarie Bank. This left unpaid counsels’ fees and other disbursements totalling $4,531.61, and this remained unpaid on 10 July 2003 when Equus applied to the judge in the Practice Court to vary the security arrangements proffered and accepted by the Court on 20 June 2003. The application was opposed. It was put on behalf of Equus that the payment of nearly $700,000 would have an adverse effect upon its liquidity for trading purposes. This application was supported by an affidavit of Mr Russo sworn 10 July 2003 to which I shall return. Gillard J accepted Mr Russo’s evidence and permitted Equus to substitute a bank guarantee in the sum of $700,000 for the payment of cash. By his order of 15 July 2003, his Honour accepted the undertaking given on behalf of WFW to release the files upon provision of a bank guarantee for the amount of $700,000 and the deposit of only $28,000 cash in the holding account.

In due course, on 17 July 2003, the National Australia Bank issued the required bank guarantee. It was secured by a charge over monies Equus had on deposit with the bank and by an agreement by Mrs Russo to grant a mortgage over the family home in substitution for the charge over the deposit money. The family home is Unit 184, 299 Queen Street, Melbourne which was valued at about $1M and which stood in her name.

Equus is a company registered in 1982. Its paid up capital of 2.5 million shares is held beneficially by Targridge, a Russo family company of which Mr Russo is a director. The directors of Equus since 1997 are Mr Russo and his daughter, Katie Ann Russo. Katie Russo has been since 2000 its company secretary.

Another company within the Russo group is Katesara Pty Ltd. The management of this company is mentioned in paragraph [60] above. Its main business activity was that of lending money to Equus for its own commercial activities. It is and has been since 1996 the chargee of the assets of Equus as security for these loans.

In late February or early March 2003, Mr Russo was approached by a long-time friend, Stephen Wilkins, with an investment opportunity which concerned a viticulture investment scheme for the development of vineyards on two pieces of land in Coonawarra known as the Schoolhouse Block of 228 acres and the Airport Block comprising 143 acres respectively.

For my purposes it is sufficient to record that the scheme, which was established in 1998, involved a number of investors taking a lease of small parts of the vineyards. The investors were required to pay a manager’s fee of some $21,000 most of which was payable at the time of application to join the scheme. The funds for these payments were provided by unsecured loans made to the investors by SE Vineyard Finance Pty Ltd, a company of which Mr Wilkins was the sole shareholder manager. The manager, which received the fees was South East Vineyards Pty Ltd, a company of which Mr Wilkins and an associate, Michael Gartner, were directors. Although the investors outlaid no money under these arrangements, they expected to obtain substantial taxation advantages from the investment and, in due course, they had the expectation of receiving income from the viticulture business.

The owners of the vineyards included Mr Wilkins and Mr Gartner. The development of the vineyards was financed by a loan from Herbert Geer & Rundle (“HGR”). This loan which was then of the order of $7M was secured by a number of securities including debentures over the assets of SE Finance and corporations related to the borrowers, mortgages over the vineyards and guarantees from Mr Wilkins and Mr Gartner and perhaps others. It seems that about October 2002 the borrowers went into default and in March 2003 HGR was about to seek to enforce the securities, including the guarantee against Mr Wilkins.

In this precarious position, Mr Wilkins turned to his friend, Mr Russo. He suggested that Equus purchase the HGR facility, that is the debt of $7M owed by the borrowers for a consideration of $6.5M. He suggested, too, that Equus purchase from SE Finance the loans to the investors which still had many years to run.

According to Mr Russo, his perception at the time was that these two assets, the debt to HGR and the debt of the investors, were not readily saleable notwithstanding that the viticulture project, which was formally valued at $7M, was in fact worth over $10M and that the loan book had a face value of $6.5M payable in the future with interest accruing from year to year. Mr Russo offered to purchase the loan book from SE Finance for $1.5M, which he considered a fair price. Mr Wilkins, for reasons which he detailed to me, was also of opinion that this price was not unreasonable. The arrangement was that SE Finance would be directed to pay this purchase money to HGR to reduce the amount owing under the facility and that Equus would then buy the facility so reduced for $5M. Mr Russo’s strategy thereafter was to move as assignee of the HGR mortgage to foreclose and, eventually, to take possession of the property as owner. The properties would then be sold, as the opportunity arose, at a profit. Equus would retain the loan book for which it had paid less than 25% of its face value. Mr Wilkins accepted this proposal but, in April, before the agreement was documented, Mr Russo found himself unable to proceed and the deal fell through.

The matter was revived on 18 May 2003 when Mr Wilkins asked Mr Russo if Equus would purchase the loan book alone for $1.5M. At this stage, Mr Wilkins had plans for one of his companies to purchase the HGR facility. The two men agreed upon the purchase and Mr Russo was to prepare the documentation. On or about 4 June 2003, Mr Russo advised Mr Wilkins by telephone that Equus was unable to proceed because money which he had earmarked for the purchase “was now being put in issue by WFW”. The transaction, then, was abandoned.

This, in summary, was the evidence of Mr Russo and Mr Wilkins about these matters. Naturally enough, no evidence was led on behalf of WFW to challenge its accuracy and argument proceeded on the basis that this evidence should be accepted notwithstanding that it was not corroborated by any contemporaneous document and, indeed, notwithstanding that the first time the lost opportunity claim in this form appeared was not until late 2004, some 18 months after the events in question.

In these circumstances, it was put on behalf of Equus that this agreement to purchase the loan book was frustrated by the orders for security made by the Court in June and July 2003. The orders had the effect of reducing the working capital available to Equus by $700,000 so that it was unable to raise the $1.5M required for the purchase of the loan book. The claim of Equus in the circumstances was for damages for breach of contract for the lost opportunity to realise a profit from the purchase.

I shall approach this claim in the conventional way by identifying the term of the contract relied upon, the breach of that term, causation and measure of loss.

No term is pleaded. What is said in paragraph 12GA(g) is that the demand of WFW that Equus pay $730,700.54 into a security bank account and their refusal to deliver up the files until this be done, amounted to a breach of the deed of costs. In the course of the opening, counsel for Equus identified the term, rather differently, as being that WFW would deliver up the files upon payment of any outstanding disbursements.

Clause 2 provides consequences where the deed of costs is terminated by WFW. In the first sentence it is provided that, in such an event, WFW must deliver up the files upon payment by Equus of “all outstanding barrister’s fees and all outstanding WFW accounts and unbilled fees and third party disbursements as at the date of termination”. Clause 17 provides for a procedure for WFW to terminate the deed of costs for default by Equus. Paragraph (c) of that clause directs WFW, in such an event, to hand back all files upon receiving full payment of not identical amounts. It may be implied from these provisions that the contractual obligation to return the files does not arise if these fees and disbursements are unpaid. Returning to cl. 4, by the third sentence, WFW expressly abandons any right of solicitors lien over the files where the deed of costs is terminated by WFW. In the next sentence the right of lien is said to exist if Equus remains in default under the deed.

I have found that the deed of costs was terminated by WFW pursuant to cl. 18 on or about 2 June 2003[52] unless Equus had itself terminated the deed by its third notice of default. The validity of this Equus termination depends upon the outcome of the issues presently the subject of an arbitration between the parties. If this determination by Equus under cl. 17 is made out, then it, too, is effective on or about 2 June 2003.[53] It is not necessary that I unravel these complexities at least until the arbitrator’s award has been published. It was not suggested that the WFW right of lien was unreasonably asserted. Nor could this be suggested, for an unchallenged order of this Court was made on the basis that the right of lien was a triable issue. Furthermore, it was accepted before me that there were some counsel’s fees and disbursements outstanding at the time[54] so that the obligation to deliver up the files under the first sentence of cl. 4 did not arise. The version of the term suggested on behalf of Equus in opening, therefore, cannot found the present claim.
[52][2004] VSC 164 at [175].
[53][2004] VSC 164 at [159].
[54]The amount accepted was only about $4,500. See para [88] above.

The term as impliedly pleaded in paragraph 12GA(g) is of greater value for the Equus claim. It is said to be an implied term of the deed of costs that WFW would not make a demand for $730,700.54 or, perhaps, any such sum, as the price of the delivery up of the files. It will be recalled that the non-payment of this sum for these legal fees was relied upon by WFW in resisting the Equus claim for interlocutory relief brought on 17 June. This is, of course, some two weeks after the purchase of the loan book was abandoned. Given this timing and the reason given by Mr Russo on that date for withdrawing from the purchase, it must be that he recognised that it was very likely that the Court would require the provision of security for the unpaid fees as the price for releasing the files without a full investigation of the merits of the WFW claims for payment. As things turned out this was correct.

It was not suggested that a party to a contract commits a breach of an implied term of the contract by asserting in a court of law an arguable but ultimately unsuccessful interpretation of that contract.

No order to enforce the lien on an interlocutory basis was ever made. Before Bongiorno J, Equus proffered an undertaking to provide cash as security as the price for obtaining, without trial, the delivery up of the files which it claimed. No cross-undertaking as to damages was sought or given. No authority was cited in support of the existence of the cause of action here asserted and I do not think that it has been made out in this case.

Counsel for WFW further contended that the cause of action should fail for want of sufficient causal connection between the breach, accepting for this purpose that it has been made out, and the asserted loss.

The evidence showed that, in May 2003 when the agreement to purchase the SE Vineyard loan book at $1.5M was entered into, Equus had substantial cash assets. In his affidavit of 10 July 2003 in support of the Equus application to vary the security provided in June, Mr Russo said that the company had $2,353,911 at bank with a net cash position of $546,443 after expected outgoings had been met. It also had a substantial asset in the Eagle Ridge Golf Course which he valued at $8M. The affidavit in this context does not raise as a difficulty to paying the cash security, either the existence of the Katesara debt or the debenture which this company held over all of the assets of Equus. This was doubtless because, as a company within the Russo family group, Katesara might be expected to stand aside if it were thought prudent in the interests of the Russo family to raise money on first security. Katesara had, after all, subordinated its own commercial interest, to those of the group when it agreed to forego many millions of dollars in interest from Equus in 2000.

Katesara is controlled and managed by Mrs Russo. She told me, rather unconvincingly in the circumstances, that one of her primary motivations for at least the past 10 years has been to protect “our family’s assets” from the commercial activities of Equus and of her husband. These assets include two pieces of residential real estate, effectively unencumbered, to the value of $3M and cash assets of approximately $1.4M. Why Equus and her husband, whose activities may have contributed to the acquisition of these family assets, should be seen as being beyond the family pale, was never explained. This is remarkable because it was apparent from her evidence that she, herself, had little commercial background and experience, little understanding of her own financial position and little understanding of her husband’s commercial activities. Moreover, it was apparent that she was accustomed to seek and act upon his commercial advice. And this was not surprising for he is a very astute businessman and a strong-willed individual. It will be recalled that an important part of the business of Katesara under her direction was to make loans to Equus as it needed for its own activities.

Mrs Russo told me that, when her husband in March 2003 was considering the purchase of the HGR facility and the loan book for $6.5M, she was content that Katesara support the transaction, even if this meant advancing more money or making security available to secure its outside borrowings. In May 2003 she was equally content to provide to Equus support for its supposed purchase of the loan book for $1.5M. But in June, she was aware that WFW were seeking some $700,000 in costs and on 12 June that this was to be provided by way of security to obtain the release of the files. In July, she said, she was reluctantly prepared to make her own asset, the family home, available to secure the bank guarantee of $700,000.

It was at this stage that she was so concerned about the amount of assets placed at risk because of the litigation with WFW that she refused to make the family assets available further to enable Equus to purchase the loan book. She then told her husband that she would not support the purchase by making further assets available and the proposal was abandoned. So much appears from her witness statement. Mrs Russo said that what she was not prepared to do was to defer the Katesara debenture to enable Equus to raise the money on the security of its own assets. When asked whether she agreed with this, Mrs Russo, somewhat tentatively, did agree. When she was pressed as to what it was she was refusing to support, she appeared uncertain and confused. She said, too, that her decision not to support the loan book purchase was agreed to by her husband, adding that she was adamant and that he really had no option but to agree.

My impression from the evidence of Mr and Mrs Russo is that she did not take this position contrary to his wishes. For some reason, not disclosed, he did not pursue the agreement with Mr Wilkins to purchase the loan book, he did not take any step to prepare the necessary documentation for many weeks and he was content to let the purchase go. In his affidavit of 10 July 2003, Mr Russo makes no mention of this domestic difficulty among his assertions of the many difficulties confronting Equus in providing the cash which was required under the June 2003 orders. He makes no mention of it in his correspondence with WFW at this time. His references in the correspondence to the loss of working capital are far less specific than might otherwise have been expected to have been the case had he really been forced by WFW’s conduct to abandon the purchase. I do not find that the loss of the purchase was caused by the need to provide the securities which Equus proffered to the Court in June and July 2003.

It is, therefore, not necessary that I consider the proposition advanced on behalf of Equus that the loss was sufficiently proximate to satisfy the Hadley v Baxendale principle. This argument would require Equus to show that, at the time the deed of costs was entered into, in September 2002, WFW or a reasonable person in their position, would have realised that a demand that Equus put up security as the price for obtaining the return of files which WFW would be unlawfully retaining, and the compliance of Equus with that demand would be likely to cause Equus to suffer the loss it now asserts. It may be thought that the suppositious reasonable person would have realised that, faced with such a demand, Equus would either reject it so that its loss would be the consequence of not having possession of its files, or accede to it, so that it would lose the use of the money put up as security. As originally proffered the security was to be the payment of a sum of money which would be held in an interest bearing account. In the event of success, Equus would recover the principal and interest. The security which Equus in fact provided was a bank bond. If the reasonable person foresaw such a security being provided, he or she might accept as a likely loss to Equus the costs incurred by it associated with procuring and maintaining such a bond. What is here suggested is that WFW or the reasonable person would foresee and accept, not only that loss, but the security which Equus would be required to give to the issuing bank would, to that extent so reduce its available working capital that it would be unable to undertake a very profitable venture. To my mind the loss of such an opportunity is too remote from the suggested breach to be recoverable at law.

Nor is it necessary that I determine the value of the opportunity which Equus says it lost. There was no conflict between the parties that the appropriate methodology was to calculate the discounted present value of the future cash flow from the investment. The principal point of difference was the risk rate to be applied to this cash flow in addition to the non-risk rate of 5%. The opinions as to this non-risk rate varied from 0.44% of Mr Russo and 1% to 2% of the chartered accountant, Piera Murone, to 6% of Gregory Pollard Meredith the accountant called on behalf of WFW. The income stream for Equus, had it made the purchase, would depend upon the interest to be paid out of profit from the harvests after deduction of expenses and the prospect that on termination, the investor borrowers would repay the principal. Mr Russo expressed himself as confident that the income would flow as predicted. He spoke of the profile of the investors as being low-risk debtors.

I have regard to the facts mentioned by Mr Russo and Mr Wilkins as indicating that the $1.5M purchase price for the $6.5M asset was reasonable. These were the views of two businessmen held at a time when neither had the interest which Equus now has to diminish the risk. I will not set them out here. I reject the evidence, however, offered on behalf of Equus that the risk for the investment was low. I accept that Mr Russo and Equus would pursue the debtors with skill and energy. Even so, there were inevitable risks which must affect the value of the investment purchased and the prospect of a return to the purchaser. The viticulture scheme was a taxation scheme with a fair degree of artificiality about it. Mr Russo asserted and Ms Murone relied upon the fact that the investors were persons of substance. Little, if any, attention was, however, directed to the prospect that these persons might resent the prospect that they must repay the loans and interest and that they might seize upon suggested omissions in the prospectus to support their resistance.

It is for Equus to establish the value of its lost opportunity. The evidence of Ms Murone was very dependent upon the assumptions she was asked to make. I am not satisfied that the value is greater than the $1.5M which Mr Russo was prepared to pay to obtain it.

I conclude, therefore, that the claim made in paragraph 12GA has not been made out.

Conclusion

I will hear counsel as to the terms of the orders which should be made to give effect to the conclusions here expressed, and as to costs.

---

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Citations

Equuscorp Pty Ltd v Wilmoth Field Warne (a firm) (No 4) [2006] VSC 28

Most Recent Citation

Equuscorp Pty Ltd v Wilmoth Field Warne [2006] VSC 294

Cases Citing This Decision

5

In the matter of an application by Kristee Victoria Jenkins for admission to the Legal Profession [2022] QCA 154

Coadys (a firm) v Getzler [2007] VSCA 281

Wilmoth Field Warne (a firm) v Equuscorp Pty Ltd [2007] VSCA 28

Cases Cited

6

Statutory Material Cited

0

Equuscorp Pty Ltd v Wilmoth Field Warne (No 3) [2004] VSC 164

Pipikos v Trayans [2018] HCA 39

Commonwealth v Verwayen [1990] HCA 39

Equus	$1,533,300
Targridge	$269,800
Second Lenbourne	$96,900
Total:	$1,900,000

Item	Date	Amount
7	31.12.98	$3,569
16	31.12.99	$60,114
87	31.12.00	$191,016
230	31.12.01	$357,181
293	31.10.02	$108,362
$720,242

Gross moneys received	$2,400,000
Less disbursements
Uncontested	1,373,853
Allowed	21,601
1,395,454
$1,004,546

[2006] VSC 28

10 February 2006