Eric Anthony Lucas v NRMA Insurance Limited
[2005] ACTCA 34
•13 SEPTEMBER 2005
ERIC ANTHONY LUCAS v NRMA INSURANCE LIMITED
[2005] ACTCA 34 (13 SEPTEMBER 2005)
APPEAL – Indemnity costs – whether a denial of natural justice – false admission statements – exclusion of affidavit material in evidence – whether improper and unreasonable conduct of solicitor – what can be challenged in subsequent proceedings.
CROSS-APPEAL – miscarriage of judicial discretion.
Reichel v Magrath (1889) 14 AC 665
Walton v Gardiner (1993) 177 CLR 378
Rogers v The Queen (1994) 181 CLR 251
D’Orta-Ekenaike v Victoria Legal Aid (2005) 214 ALR 92
Rippon v Chikotin (2001) 53 NSWLR 198
Ziems v The Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279
Re Bendeich (No 2) (1994) 53 FCR 422
Jamison v The Government Insurance Office of New South Wales (1988) 7 MVR 209
Hills v Raunio [2003] ACTSC 5
ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
No. ACTCA 36 - 2004
No. SC 751 of 1996
Judges: Higgins CJ, Crispin P and Marshall J
Court of Appeal of the Australian Capital Territory
Date: 13 September 2005
IN THE SUPREME COURT OF THE ) No. ACTCA 36 - 2004
) No. SC 751 of 1996
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:ERIC ANTHONY LUCAS AND KAREN NARELLE FOGARTY trading as COLQUHOUN MURPHY BARRISTERS & SOLICITORS
Appellant
AND:NRMA INSURANCE LIMITED
First Respondent
AND:SAM RAUNIO
Second Respondent
AND:SILVICULTURAL SERVICES AUSTRALIA PTY LTD t/as
RL NEWMAN & ASSOCIATES
Third Respondent
AND:JAMES HILLS
Fourth Respondent
ORDER
Judges: Higgins CJ, Crispin P and Marshall J
Date: 13 September 2005
Place: Canberra
THE COURT ORDERS THAT:
1. The appeal is allowed.
2. Order 1 of the orders of the primary judge made on 1 October 2004 be set aside.
3. The first and second respondents pay the appellants costs of the appeal.
4. The cross appeal be dismissed with no order as to costs.
IN THE SUPREME COURT OF THE ) No. ACTCA 36 - 2004
) No SC 751 of 1996
AUSTRALIAN CAPITAL TERRITORY )
)
COURT OF APPEAL )
ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:ERIC ANTHONY LUCAS AND KAREN NARELLE FOGARTY trading as COLQUHOUN MURPHY BARRISTERS & SOLICITORS
Appellant
AND:NRMA INSURANCE LIMITED
First Respondent
AND:SAM RAUNIO
Second Respondent
AND:SILVICULTURAL SERVICES AUSTRALIA PTY LTD t/as
RL NEWMAN & ASSOCIATES
Third Respondent
AND:JAMES HILLS
Fourth Respondent
Judges: Higgins CJ, Crispin P and Marshall J
Date: 13 September 2005
Place: Canberra
REASONS FOR JUDGMENT
THE COURT:
The matters before the Court are an appeal and cross-appeal from a judgment of Connolly J published on 1 October 2004. In that judgment, the primary judge ordered that the present appellants pay the costs incurred by the first and second respondents in respect of two days of a six day trial on an indemnity basis.
The essential issue for determination in these proceedings is whether the primary judge denied the appellants natural justice by refusing to accept into evidence, portions of affidavit material filed on their behalf, seeking to exculpate what prima facie appeared to be improper professional conduct.
The appellants, Mr Lucas and Ms Fogarty, are the principals of a firm of solicitors known as Colquhoun Murphy (“the firm”). The firm acted for Mr James Hills in a personal injuries action brought by him against Mr Raunio, NRMA Insurance Limited (“NRMA”) and Silvicultural Services Australia Pty Ltd (“Silvicultural”).
Mr Hills is the fourth respondent to this appeal. He has filed a submitting appearance in these proceedings. Mr Hills failed, at trial, before the primary judge. His Honour was not satisfied that Mr Hills’ injuries were caused by any negligence on behalf of the defendants.
During the substantive proceedings a junior solicitor employed by the firm gave evidence concerning her conduct of the litigation on behalf of Mr Hills. The solicitor, Ms Pearsall, obtained two statements from Mr Raunio concerning the circumstances of Mr Hills incurring an injury, as a consequence of riding and crashing a trail bike, which he had borrowed from Mr Raunio, during a time when Mr Hills and Mr Raunio were employed by Silvicultural.
The statements obtained by Ms Pearsall from Mr Raunio were favourable to Mr Hills but were inconsistent with file notes taken by Ms Pearsall of telephone conversations she had with Mr Raunio. Mr Raunio disavowed the statements at trial, notwithstanding that he had signed them when Ms Pearsall sent them to him.
A good deal of time was spent at the trial of the substantive proceeding during which Ms Pearsall was cross-examined about the circumstances in which the statements had been produced. At [41] in his reasons for judgment in the substantive proceeding, the primary judge noted that Ms Pearsall was unable to provide any satisfactory explanation for the very significant differences between her file notes and the statements. However, the primary judge did note that Ms Pearsall had suggested in her evidence that Mr Lucas may have had a conversation with Mr Raunio which gave rise to a different version of events than those which appeared in her file notes.
The primary judge accepted Mr Raunio’s oral evidence and disregarded his signed statements. He was critical of Ms Pearsall for preparing two statements for Mr Raunio’s signature which did not accord with her own file notes of their conversations.
After the dismissal of the action of Mr Hills, Mr Raunio and NRMA made an application to the primary judge for a costs order against the firm.
In his judgment on the question of costs against the firm, the primary judge noted the following pertinent background facts:
· Mr Hills was severely injured in a motorbike accident which occurred on 9 June 1995;
· Mr Hills had borrowed a motorbike from Mr Raunio, a fellow employee;
· The motorbike collided with a fencepost, causing Mr Hills to suffer profound injuries;
· It was Mr Hill’s case, in the substantive proceeding, that the injuries were caused as a result of faulty brakes on the motorbike and that Mr Raunio and Silvicultural were aware of the faulty brakes and failed to warn him; and
· The substantive issues at the trial were whether the brakes were faulty and whether Raunio and Silvicultural knew of any such fault.
The hearing before the primary judge (who at the relevant time was a Master of the Court) took six days to conclude.
At [3] of his reasons for judgment in the costs application, his Honour said:
“The claim for costs against the plaintiff’s solicitors is brought on the basis that I made findings in my judgment critical of certain aspects of the conduct of the litigation. These concerned the conduct of an employed solicitor in the plaintiff’s solicitors’ firm who directly approached the defendant Raunio, and obtained from him a signed statement admitting liability which was contrary to the telephone notes of the conversation that solicitor had with Mr Raunio. The statement signed by Mr Raunio on 28 December 1995 said –
“I admit that, prior to the accident, the brakes on the motorcycle were in need of readjustment. Whilst I had knowledge of this fact prior to James’ accident, I was yet to make the necessary adjustments. I had not told James of this.”
At [7] in his reasons for judgment, the primary judge referred to certain findings he had made in the substantive judgment. Those findings were essentially as follows:
· Mr Raunio did not read the statements signed by him, before signing them, because he assumed the statements would have been in accordance with the contents of his conversation with Ms Pearsall;
· Mr Raunio, as a forestry labourer, simply signed the statements without reading them, although he did correct the spelling of his name in one of them; and
· The signed statements of Mr Raunio were not true but his oral evidence, which accorded with Ms Pearsall’s file record, was true.
At [8], the primary judge said -
The defendants’ claim for indemnity costs against the plaintiff’s solicitors is brought on the basis of the above findings, and it is said that their liability for costs should flow from both the inappropriate contact with Mr Raunio and, more significantly, from the unexplained discrepancy between the version of events that is recorded in the telephone attendance record, and the version that was in the statement which was sent to Mr Raunio and signed by him.
At [9], the primary judge said -
At the opening of these proceedings I had to deal with the question of what evidence could appropriately be brought by the solicitors defending the claim. Counsel were in agreement that it would not be appropriate to in any way challenge the findings in the substantive judgment, and on that basis I ruled that no evidence could be brought that questioned my finding that Ms Pearsall prepared the admission statement contrary to the version of events contained in the telephone record of conversation, and that I could draw from the failure of Mr Lucas to give evidence, and the failure to cross-examine Mr Raunio to the contrary, the inference that there was no other version of events provided by Mr Raunio to the plaintiff’s solicitors.
At [10], the primary judge said -
I ruled however that evidence going to the solicitors’ conduct which did not contradict my previous findings, and which went to explaining their decision to continue with the proceedings when it was known that the admissions were contrary to the telephone record of attendance, could be provided.
The primary judge referred to his disapproval, in the substantive judgment, of the conduct of Ms Pearsall in approaching Mr Raunio, a likely defendant, before instituting the substantive proceedings. His Honour, however, said at [22] that it was not clear in late 1995 in the Australian Capital Territory that such conduct was inappropriate and that [at 23] such conduct did not, of itself, justify an adverse costs order.
However at [24] the primary judge considered that the preparation of documents containing false admissions was “conduct deserving of some sanction” and was “improper and unreasonable conduct” deserving of a costs sanction.
At [25] the primary judge considered that any costs order should be limited to the extent that the improper conduct put the defendants in the action to the burden of additional costs. The primary judge considered that the appropriate sanction was two days costs on an indemnity basis. A request by counsel for Mr Raunio for costs of the entire proceeding was rejected on the basis that his Honour accepted that, even without the false admission by Mr Raunio, Mr Hills still maintained that the brakes had failed and would have pressed on with his case.
On the cross-appeal Mr Raunio and NRMA contended that his Honour’s exercise of discretion in ordering two days’ indemnity costs miscarried and that he should have ordered that six days indemnity costs be paid by the firm. However, counsel for Mr Raunio and NRMA agreed that their cross appeal would be moot in the event that we accepted the contentions of counsel for the firm that their clients had been denied natural justice and that the appeal should be allowed on that ground.
Counsel for the firm noted that, before the primary judge, the firm sought to rely on an affidavit of Mr Lucas and an affidavit of Mr Meagher (now of Senior Counsel), who was junior counsel for Mr Hills in the substantive proceeding. His Honour disallowed certain passages in each affidavit on the basis referred to at [9] of his reasons, which we have set out in full above.
Counsel for the firm submitted that the effect of the evidence which the primary judge refused to receive was:
· Mr Lucas had spoken to Mr Raunio before the proceedings were commenced;
· Mr Raunio told Mr Lucas that the brakes on the motorcycle required adjustment and that this fact could have contributed to the accident;
· Mr Lucas passed on these instructions to Ms Pearsall and asked her to obtain a statement from Mr Raunio; and
· Mr Lucas was not present during Ms Pearsall’s evidence;
· Mr Lucas prepared a statement of the evidence he was able to give about his discussion with Mr Raunio;
· Senior Counsel, at trial, made a forensic decision not to call Mr Lucas.
Counsel for the firm submitted that rules of natural justice entitled it to call evidence to explain fully its conduct of the litigation and that the scope of such evidence was not to be regarded as constrained by findings made in litigation to which none of the firm’s members were parties. Counsel contended that the effect of the exclusion of the evidence, referred to in the preceding paragraph, was that the primary judge had declined to receive a cogent explanation for conduct which might otherwise seem improper.
Counsel for the firm also referred to the different interests which solicitors have in representing their clients, as distinct from a situation in which their own interests are at stake.
Counsel for Mr Raunio and NRMA submitted that there was a precise correlation of duty and interest between the firm and its client on the question of the false admission statements. They contended that the account of Mr Lucas’ conduct sought to be ventilated in the excluded evidence was inconsistent with a letter written by the firm to Mr Hills on 30 November 1995. Counsel further submitted that the attempt to rely on evidence seeking to exculpate the firm amounted to a collateral attack on the findings made by the primary judge in the substantive proceeding. They contended that it was an abuse of process for an unsuccessful party in a previous proceeding to call into question, in later proceedings, the result of the decision making process in the earlier proceedings. This principle, derived from Reichel v Magrath (1889) 14 AC 665, as counsel observed, has been applied by the High Court in Walton v Gardiner (1993) 177 CLR 378 at 393, Rogers v The Queen (1994) 181 CLR 251 and D’Orta-Ekenaike v Victoria Legal Aid (2005) 214 ALR 92 at [190] and by the New South Wales Court of Appeal in Rippon v Chikotin (2001) 53 NSWLR 198.
Counsel submitted that, as in Rippon, the principle was sufficiently flexible to be applied by analogy in favour of an entity, which was not a party to earlier proceedings. Logically, so the argument ran, it could be applied against non-parties to an earlier proceeding who had a coincidence of interest and duty with a party to the earlier proceeding.
Further, counsel referred to that part of [9] of the reasons of the primary judge where his Honour mentioned counsels’ “agreement” that findings made in the substantive proceeding would not be challenged.
We agree with the submissions of counsel for the firm that his Honour’s exclusion of parts of the evidence of Mr Lucas and of Mr Meagher denied the firm a full and fair opportunity to give its account of the circumstances in which the false admission statements came to be prepared. It may be that any such account would be open to challenge as being inconsistent with what is contained in the firm’s letter to Mr Hills of 30 November 1995. However, that is a question of fact, which should be determined by a trial judge after considering the entirety of the relevant evidence. At the very least, the excluded evidence would provide an explanation as to why the statements sent to Mr Raunio, even if based on a misunderstanding about what he might say, did not constitute misconduct but rather, were the result of an honest mistake.
During the course of argument on the appeal, counsel were asked to identify the source of the agreement referred to at [9] of his Honour’s reasons. The only source suggested was the interchange between counsel and his Honour recorded in various passages at pp 55 to 57 of the transcript of argument on 13 September 2004. During those passages counsel for the firm stressed that he did not challenge the finding that it was not established that Mr Raunio knew the brakes of the bike to be defective. He conceded that such a finding was “an ultimate finding”. He contended that he was permitted to challenge intermediate findings such as whether Mr Raunio told anyone that the brakes were defective, because that did not involve an ultimate finding. His Honour did not appear to accept the latter part of that submission, saying at lines 26 to 33 at p 56 of the transcript of 13 September 2004 -
How does one explain to Mr Hill “Well you lost but on this subsequent application for costs Mr Burnside was able to persuade the judge that Mr Raunio really did say there was a fault in the brakes and that he knew about it” and that question – I’m going to ask you that question in a sense rhetorically “How do you explain it to Mr Hill?” But that’s why there’s such a longstanding – it seems to me that’s why there’s such a longstanding prohibition on collateral challenge.
At p 57 counsel responded -
The important point is to distinguish between ultimate findings i.e. no fault in the brakes, therefore no knowledge of fault in the brakes, those are findings which we can’t challenge and don’t seek to challenge. The second question that arises here is was Mr Lucas running a hopeless case knowing it to be hopeless but doing it for some ulterior purpose That’s the factual test which the present applicant has to surmount.
The interchange continued with his Honour and counsel expressing different views on what could be challenged in subsequent proceedings and what could not be challenged. During the course of argument, counsel clearly agreed that it would have been inappropriate to challenge the ultimate findings and it may be understandable that his Honour formed the impression that the agreement extended to other significant findings. However, a careful reading of the transcript reveals that the agreement was actually more limited.
Counsel for the respondents submitted that the notice of appeal did not challenge his Honour’s statement as to the existence of such an agreement. We disagree. Ground (a) of the grounds of appeal contends that the primary judge erred at [9] of his reasons in excluding the evidence of Mr Lucas. The exclusion of that evidence occurred, in part at least, because of the existence of the alleged agreement. A perusal of the transcript does not support the existence of an agreement to that effect. Consequently, it cannot be said that there existed some agreed basis which would bar the appellants from contending that they were denied natural justice.
Additionally, when the effect of the excluded evidence is revisited, it can be seen that none of it challenges the findings referred to at [7] in his Honour’s reasons. The ultimate effect of those findings is that there was no negligence on Mr Raunio’s part because the brakes were not faulty and there was, therefore, no reason for Mr Raunio to warn Mr Hills of any such non-existent fault.
In any costs application there can be no traversing of that ultimate finding as between the parties. However, Mr Lucas should be entitled to say, if it is the fact, that he had an honest belief that Mr Raunio told him something different over the telephone from that which appeared in Ms Pearsall’s file note of her conversation with him. Such evidence cannot and would not undermine the ultimate finding made in proceedings between different parties.
Counsel for the respondents’ reliance on Reichel and the Australian authorities cited in support of the collateral immunity principle is misplaced. A finding in one set of proceedings does not necessarily govern a result in another proceeding between different parties. (see, for example, Ziems v The Prothonotary of the Supreme Court of NSW (1957) 97 CLR 279). Counsel for the respondents conceded that if either Ms Pearsall or Mr Lucas had been required to face disciplinary charges (as a result of the statements sent to Mr Raunio), a disciplinary committee of the Law Society would not be bound to accept the findings made by the primary judge concerning their conduct. The solicitors would be at liberty to challenge those findings and adduce evidence in support of their challenge to it. In any event, even in such disciplinary proceedings (let alone on a costs application), no finding is likely to be made that would have the effect or support a conclusion that the verdict against Mr Hills had not been sustainable.
It must be remembered that solicitors have interests other than their own to consider when they represent clients in legal proceedings. As Drummond J said in Re Bendeich (No 2) (1994) 53 FCR 422 at 426 to 427 -
…the power to award costs against a solicitor personally involves special considerations. The cases show that this jurisdiction must be exercised with caution. There is good reason for caution. Too ready an exposure of the lawyer for a party to personal liability for the costs of his client or of the other party is likely to inhibit the way the lawyer acts in conducting the litigation. It frequently happens that a lawyer will have to make judgments as to which of a number of courses is the optimum one to follow, bearing in mind his duty to advance his client’s interests by all proper means and his duty to the Court to conduct the litigation in proper fashion. The introduction of a third consideration into everyday litigation that requires a solicitor to keep in mind the need to minimise the chances of a costs order being made against him personally, would raise a conflict between the lawyer’s duties to his client and to the Court, on the one hand, and his own interests, on the other. As is understandable, such a conflict would likely be resolved by the solicitor concentrating on identifying and adopting the course most likely to minimise his own personal exposure at the expense of following courses best fitted to advantage his client and to bring the action to an expeditious end. Moreover, practitioners should not be encouraged to see the threat to seek a costs order against their opposing solicitor as a tactic available to be employed in the course of litigation to put pressure on their opponent: cf the comments of the Master of the Rolls and of Dillon LJ in Orchard v South Eastern Electricity Board [1987] 1 QB 565 at 577 and 580.
In accordance with the reasons of Drummond J in Re Bendeich, we do not accept the submission of counsel for the respondents that there was a coincidence of interest and duty between Mr Hills in the earlier proceeding (and the firm’s conduct of his case) and the firm’s own interest and duty in the costs application made against it.
As outlined above, the most the excluded evidence would establish is that Mr Lucas and Ms Pearsall (the latter perhaps by reliance on the former’s recollection) believed that the excluded evidence established the import of what Mr Lucas had told Ms Pearsall about his discussion with Mr Raunio, and his honest belief as to its content, as he understood it. Even if it appeared that Mr Raunio had made an admission to Mr Lucas to the effect referred to in the excluded evidence despite his denial of doing so, it does not necessarily follow that the firm, in the costs proceeding, is challenging findings made in the substantive proceeding. The excluded evidence only went to the issue of the brake requiring adjustment and not to its inevitable failure. Even on Mr Raunio’s evidence, it was possible that Mr Lucas misunderstood the effect of what the was being told by Mr Raunio even if his recollection of the words used had been accurate.
In his reasons for judgment on the costs application, the primary judge referred to a view expressed by Carruthers J in the New South Wales Supreme Court in Jamison v The Government Insurance Office of New South Wales (1988) 7 MVR 209. His Honour quoted from Jamison at [43] of that judgment in the substantive proceeding (Hills v Raunio [2003] ACTSC 5) to support the view that -
It is clearly inappropriate for a solicitor acting for a person bringing a personal injuries claim to directly approach the alleged tortfeasor to obtain a statement.
In Jamison at 213 Carruthers J said -
…it should be stated in unequivocal terms that it is not appropriate, in my view, for a solicitor acting for a person making a claim for damages against the Government Insurance Office pursuant to sec. 14(1) of the Act to confer with the owner or driver of the relevant vehicle in relation to the accident alleged to have given rise to the litigation. It was suggested during the course of argument that a practice is developing to this effect. If so it should cease immediately.
The primary judge at [21] in the costs judgment referred to the fact that Jamison has not been “universally adopted”. His Honour noted a contrary view had been taken in Victoria and that the Ethics Committee of the Victorian Law Institute had issued guidelines to plaintiff lawyers in respect of their interviewing of prospective defendants. In other words, whilst not forbidden, such a proposal should be approached with due regard to the rights and the potential disadvantages posed to such a person.
His Honour observed that, although it was not clearly seen as inappropriate to interview a prospective defendant in the Australian Capital Territory in 1995, it should be now regarded as inappropriate. We do not accept that this proposition should be accepted as a principle of general application. Whilst there may be cases in which it would be inappropriate for a solicitor for a claimant to interview a potential defendant much will depend on the circumstances and the relationship between the solicitor’s client and the putative defendant as well as the manner in which that interview is arranged and conducted. In some cases discussion with such a person may be the only reasonable course to undertake. For example, if a potential defendant were to respond to a letter of demand by seeking to discuss the matter, there would be no obvious need for the solicitor to respond by peremptorily terminating the conversation. Of course, it will always be necessary for solicitors to ensure that potential defendants are treated fairly and that any consent to be interviewed is a fully informed consent. In this regard the Law Institute of Victoria guidelines seem to us both relevant and appropriate.
Remedy
It was contended on behalf of the appellants that if the appeal was to be allowed the application for costs against them should be referred to a single judge of the Court. The respondents agreed with that contention. However, counsel for the appellants submitted that the costs application should not be remitted to the primary judge because his Honour had already made findings as to the credit of, particularly, Mr Raunio in the substantive proceedings. Counsel for the respondents submitted that there was no reason why the matter should not be remitted to the primary judge. We agree. The excluded evidence and any oral evidence supplementing it will fall to be evaluated by the primary judge in the context of his knowledge concerning the entire factual matrix, but bearing in mind the different question and factual context of the costs application. There is no reason to believe that such a process would be anything but fair and impartial. It is by no means clear that his Honour will need to reconsider any issue as to Mr Raunio’s credibility. Rather the significant issue will be the state of knowledge and the intent of the firm in preparing the statements of Mr Raunio for his signature and the content of the conversations which led to the production of what has been described in argument as the false admission documents.
For the foregoing reasons we consider that the appeal should be allowed and the costs application remitted to the primary judge for hearing and determination on the basis of the inclusion of the previously excluded affidavit evidence and such additional evidence, if any, adduced by way of supplementary explanation or in cross-examination. In the circumstances the cross appeal is moot. We will dismiss it. It is not necessary to consider its merits.
The final orders of the Court will be:
1. The appeal is allowed.
2. Order 1 of the orders of the primary judge made on 1 October 2004 be set aside.
3. The first and second respondents pay the appellant’s costs of the appeal.
4. The cross appeal be dismissed with no order as to costs.
I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.
Associate:
Date: 13 September 2005
Counsel for the Appellant: Mr J W K Burnside QC with Mr G Stretton
Solicitor for the Appellant: Minter Ellison
Counsel for the 1st and 2nd Respondents: Mr T E F Hughes QC with Mr B Kelleher
Solicitor for the 1st and 2nd Respondents: Abbott Tout Lawyers
Date of hearing: 8 August 2005
Date of judgment: 13 September 2005
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