Firth v Latham

[2007] NSWCA 40

New South Wales

Court of Appeal

CITATION:	Firth v Latham & Ors [2007] NSWCA 40
HEARING DATE(S):	03/11/2006
JUDGMENT DATE:	9 March 2007
JUDGMENT OF:	Santow JA at 1; McClellan CJ at CL at 2; Hoeben J at 3
DECISION:	See para [70]
CATCHWORDS:	Legal Practitioners - s345 of Legal Profession Act - whether "reasonable prospects of success" when trial commenced - exercise of discretion by trial judge under s348(1)(a) of the Legal Profession Act - solicitor ordered to pay costs awarded against plaintiff - effect of s43A Civil Liability Act on plaintiff's claim.
LEGISLATION CITED:	Civil Liability Act 2002 Legal Profession Act 2004
CASES CITED:	Altamura v Victorian Railways Commissioners (1974) VR 33 at 35 Bullock v London General Omnibus Co (1907) 1 KB 264 Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284 Fennell v Supervision & Engineering Services Holdings Pty Ltd (1988) 47 SASR 6 at 7-8 Gould v Vaggelas (1984) 157 CLR 215 at 247 House v R (1936) 55 CLR 499 at 504 Johnsons Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544 at 556 Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449 Latham v Fergusson [2006] NSWCA 288 Lemoto v Able Technical Pty Limited & Ors (2005) 63 NSWLR 300 Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA Pty Ltd (1984) 157 CLR 149 at 163 Roads and Traffic Authority of New South Wales & Ors v Palmer (No 2) [2005] NSWCA 140 at [30] Steppke v National Capital Development Commission (1978) ACTR 23 at 30-31 Sved v Council of the Municipality of Woollahra (1998) NSW Con R 55-852 at 55,605
PARTIES:	Stephen Paul Firth - Claimant Kim Latham - First Opponent Pittwater Council - Second Opponent Olivia Floyd-Fergusson by her next friend Lara Floyd - Third Opponent
FILE NUMBER(S):	CA 40085/2006
COUNSEL:	K Rewell SC - Claimant R Letherbarrow SC/Ms C Allen - 1st Opponent P Garling SC/J Sheller - 2nd Opponent R Goodridge - 3rd Opponent
SOLICITORS:	Firths - Claimant Abbott Tout - First Opponent Phillips Fox - Second Opponent Employment Lawyers - Third Opponent
LOWER COURT JURISDICTION:	District Court
LOWER COURT FILE NUMBER(S):	DC4100/2004
LOWER COURT JUDICIAL OFFICER:	McGuire DCJ
LOWER COURT DATE OF DECISION:	18/11/2005

CA 40085/2006
DC 4100/2004

SANTOW JA
McCLELLAN CJ at CL
HOEBEN J

Friday 9 March 2007

Stephen Paul FIRTH v Kim LATHAM & Ors

JUDGMENT

1 SANTOW J: I agree with Hoeben J.

2 McCLELLAN CJ at CL: I agree with Hoeben J.

3 HOEBEN J: The claimant seeks leave to appeal from a decision of McGuire DCJ in which his Honour made an order pursuant to s348(1)(a) of the Legal Profession Act 2004 that the claimant repay the third opponent certain costs which she had been ordered to pay to the second opponent. It was agreed that the application for leave to appeal and the appeal should be heard together.

Factual background

4 On 9 April 2003 the third opponent (“the plaintiff”), then an infant aged 23 months, was injured when struck by a motor vehicle driven by the first opponent (“the driver”) while on a pedestrian crossing in Garden Street, North Narrabeen. The plaintiff brought proceedings (“the principal proceedings”) against the driver and the second opponent (“the Council”). The claimant (“the Solicitor”) acted on behalf of the plaintiff as her solicitor in those proceedings. The matter proceeded as to liability only before McGuire DCJ on 31 October, 1, 2, 3 and 4 November 2005. His Honour gave judgment on 18 November 2005. The plaintiff obtained judgment against the driver. In the course of the proceedings, judgment had been entered in favour of the Council.

5 The driver sought leave to appeal to this Court from his Honour’s judgment. The driver was successful and his Honour’s judgment in favour of the plaintiff was set aside. Judgment was entered in favour of the driver (Latham v Fergusson [2006] NSWCA 288). A summary of relevant facts and evidence in relation to the principal proceedings is to be found at [5] –[27] of that judgment.

6 In order to understand the present application, it is necessary to set out in some detail the way in which the principal proceedings were conducted.

7 On 27 September 2004 a Statement of Claim was issued on behalf of the plaintiff by the solicitor claiming damages against the driver. A Statement of Defence was filed on behalf of the driver on 9 February 2005 denying liability.

8 The driver obtained a report on the accident dated 3 March 2004 from William Keramidas, a traffic accident investigation analyst. The report was apparently obtained to assist the driver in relation to a prosecution which had been brought against her. It was served by the driver on the plaintiff on 4.2.05.

9 Mr Keramidas had attended the accident scene, inspected the location and had taken various photographs. The report stated “based on the available evidence and the author’s inspection of the site, it is clear that the main view obstruction in this case was the hazard marker board on the south western blister island of the crossing”. This was a reference to a chevron sign behind which the plaintiff was playing. She moved from behind it, started to cross the pedestrian crossing and was struck.

10 The report also stated:

“At that level, it would be unexpected that there would be sufficient height differential between the child and the barrier to enable an oncoming driver to detect the presence of the child.
In effect therefore, by combining the anthropomorphic data and the witness account, it is evident that the child would only have become visible once the child moved past the eastern edge of the hazard marker board, which would be at a point approximately half a metre from the edge of the north bound lane.
It is unlikely that the child would have been visible to the accused, due to the relative height of the child to the hazard indicator board situated on the south western blister island of the crossing.”

11 The receipt of this report caused the solicitor to investigate the possible liability of the Council in connection with its construction of the pedestrian crossing and the erection of the chevron sign. He gained access to the records of the Council and found that the Council had not constructed the pedestrian crossing in accordance with its own plans. The original plans had not included chevron signs on the approaches to the pedestrian crossing, but only on the central island.

12 By Notice of Motion dated 30 May 2005 the plaintiff on the advice of the solicitor sought leave to add the Council as a second defendant to the proceedings. Leave was granted and an Amended Statement of Claim was filed on 3 June 2005.

13 In support of the motion the solicitor swore an affidavit in which he stated:

“In all the circumstances I ask that this honourable Court make the orders sought in the Notice of Motion herein to permit the Council to be added as a second defendant on the basis that the crossing in question was constructed contrary to the plan and that deviation was a material fact in the plaintiff’s accident.”

14 As against the Council, the Amended Statement of Claim alleged negligence in the construction of the pedestrian crossing, in particular that the Council had erected on either side of the crossing a chevron sign (alerting motorists to the presence of the pedestrian crossing) which obscured small children from the view of approaching motorists. It was also alleged that the chevron signs were erected contrary to the Council’s own plans and specifications for the construction of the crossing.

15 The Council filed a Notice of Defence wherein it admitted the allegation that it had constructed the pedestrian crossing but asserted:

“In answer to the whole of the Amended Statement of Claim, the second defendant relies on the Civil Liability Act as amended (the Act). Specifically without limiting its defence, the second defendant relies on section 42 of the Act.”

16 The driver did not file a cross-claim against the Council, but the Council cross-claimed against the driver. On behalf of the plaintiff the Solicitor served on the Council the 3 March 2004 Keramidas report. The Council responded by serving a report dated 7 September 2005 of Roger Stuart-Smith, a consulting traffic engineer. The effect of that report was that the presence of the “standard directional hazard markers” on the kerb extensions associated with the pedestrian crossing was consistent with RTA design guidelines and with good engineering practice. It was the opinion of Mr Stuart-Smith that the hazard markers should have been included on the original design drawing and their addition to the constructed site was appropriate. He thought that the use of hazard markers on kerb extensions was accepted practice in NSW for recent installations of pedestrian refuges incorporating kerb extensions. On 20 September 2005 the solicitor served a copy of that report on the driver.

17 At the request of the driver, Mr Keramidas prepared a further report dated 13 October 2005. In that report Mr Keramidas stated:

“In the first instance, it must be recognised that the design guidelines regarding pedestrian facilities exist to provide guidance to engineers, so as to create facilities which are broadly consistent in layout and in accordance with good engineering practice. They do not replace sound engineering judgment.
It was noted in Mr Stuart-Smith’s report that the original design specifications for the subject pedestrian facility included Chevron Guidance Marker Boards on the refuge island, but did not include such signage on either kerb extension. In the first instance therefore, it must be acknowledged that had the pedestrian facility been constructed in the manner designed, then the view obstruction on the western kerb extension would not have existed, and therefore there would have been a far greater opportunity (although by no means a certainty) of the first defendant having had the opportunity to detect the presence of the child from a much earlier point, and could have potentially been in a position to avoid impact with her.”

18 Mr Keramidas referred to the warning in the Australian Standard dealing with pedestrian refuges: “Mounting heights need to be selected so as to avoid obscuring visibility of child pedestrians”. He also identified alternative methods of hazard marking which would have reduced the likelihood of the accident occurring. These included having the hazard markers at an angle, rather than at 90 degrees to approaching vehicles. His conclusion was as follows:

“In general, the author does not consider the pedestrian facility (as it existed at the time of this incident) to fall outside what is often observed in similar facilities within the State of NSW. As indicated above, the facility itself does not technically comply with the Technical Direction recommended by the RTA, but as a whole is not unreasonable in its layout and construction.
In the author’s opinion however, given the understanding by the road authority that this facility was to be used by school children, aspects of visibility and view obstruction should have been carefully considered. Indeed, without knowing the full facts of the underlying assumptions or considerations of the engineers putting forward the original design for this facility, it may be that the issue of visibility was precisely why they did not design the inclusion of a marker board in the first place.”

This report was served on the plaintiff on 14 October 2005.

19 On the first day of the trial, during the opening on behalf of the plaintiff, senior counsel for the Council (Mr McCulloch SC) advised the Court of the Council’s intention to rely upon s43A of the Civil Liability Act 2002. The difficulties created for the plaintiff by that section were succinctly and accurately identified at that time. Accordingly, although s43A had not been specifically referred to in the Council’s Notice of Defence, the plaintiff’s legal advisers were on notice from the first day of the hearing that the application of this section was an issue in the proceedings (day 1, T.8 line 7).

20 When the case for the plaintiff closed on the second day of hearing, no evidence had been adduced against the Council. At the beginning of the case for the driver, counsel for the plaintiff (Mr Goodridge) made it clear that he proposed to object to the tender of the reports of Mr Keramidas. Ultimately the report of 3 March 2004 was admitted but that of 13 October 2005 was rejected (day 4, T.51 line 42).

21 On day three of the hearing the following exchange took place:

“McCULLOCH: Your Honour before we proceed would your Honour permit me to raise one matter which I feel I ought to as a matter of fairness. I didn’t rise to my feet when the counsel announced the plaintiff’s case was closed because as I apprehended the rules give me no right to seek summary dismissal. But it occurs to me that this case is taking some time and will be expensive for the parties and the only party who has served my client is the plaintiff and in those circumstances your Honour I’d invite Mr Goodridge, through your Honour because this may ultimately be relevant to the question of costs what now, having closed his case, he says the evidence against my client is?
GOODRIDGE: Your Honour Mr Leatherbarrow has indicated to the Court and otherwise that there is yet further evidence which he will seek to adduce and if it is adduced I will then be tendering that against the second defendant. So not all of the evidence is necessarily in against the second defendant. So therefore I do not discontinue against the second defendant at this stage.
HIS HONOUR: Well obviously I don’t know what’s to come, but just assume there is nothing to come, what do you say is the evidence that would implicate the second defendant?
GOODRIDGE: At this stage, nil your Honour, that’s the short answer.” (Day 3, T.49, line 3)

22 His Honour then requested senior counsel for the driver (Mr Leatherbarrow SC) to indicate whether any evidence which he proposed to call might establish liability on the part of the Council, to which he replied “Possibly”. Counsel for the plaintiff told the Court that if the reports of Mr Keramidas were admitted, they contained evidence of liability of the Council.

23 On day four of the hearing the following exchange took place:

“GOODRIDGE: Your Honour if both Mr Keramidas’ reports are admitted into evidence and the shortest way to do this, if I could just take your Honour to the second report, the October report, ask your Honour to turn to page 12 and ask your Honour to read to himself the five conclusions, particularly numbers 2 to 5 and that at this stage, if the reports were admitted would be the case against the second defendant.
HIS HONOUR: Yes, but all right, so it would have or it might have created an obstruction of view so what, how does that demonstrate some negligence on the part of the Council?
GOODRIDGE: Your Honour the evidence on that would be developed – sorry your Honour in order to understand that your Honour needs to understand if I could take your Honour to page 8 of Mr Keramidas’ second report, Mr Keramidas states that obvious on this proposition while the significant issues in this case is the view obstruction created by the guidance marker, if now take your Honour to page 9 …
McCULLOCH: So it’s plain your Honour I object to this material being tendered by Mr Leatherbarrow in his case.
HIS HONOUR: Say that again?
McCULLOCH: I reserved my decision with respect to objecting and it’s appropriate that I now make it so that your Honour knows where I wish to stand on this. I object to the tender of Mr Leatherbarrow, pages 9, 10 and 11 and the conclusions on page 12, number 2 to 5 which appear to me to be drawn from pages 9 to 11 inclusive on the grounds that they are irrelevant, there is no issue between Mr Leatherbarrow’s client and my client, he is seeking to tender it in his case in which he is defendant only to the claim by the plaintiff, it does not satisfy section 55 of the Evidence Act. ” (Day 4, T.39, line 43)

24 On day five of the hearing, after the evidence in chief of Mr Keramidas had concluded but before cross-examination commenced, counsel for the plaintiff consented to a verdict in favour of the Council.

25 After giving judgment in favour of the plaintiff against the driver on 18 November 2005, his Honour reserved the question of costs. He was told that the plaintiff would be seeking a Bullock order against the driver in respect of any costs which she might have to pay to the Council and that the Council was seeking that the solicitor pay its costs personally.

26 It was agreed by the parties that his Honour should deal with the costs questions by way of written submissions. Further evidence was placed before his Honour comprising affidavits by the solicitor and a solicitor acting on behalf of the Council. Annexed to the affidavit of the solicitor was material which had not been before his Honour in the principal proceedings, ie the report of Mr Keramidas of 13 October 2005 and the report of Mr Stuart-Smith. Written submissions were received from all of the parties.

27 His Honour gave judgment as to costs on 16 December 2005. The effect of his Honour’s judgment was to reject the plaintiff’s application for a Bullock order against the driver. His Honour found that the solicitor was justified in commencing proceedings against the Council but that he was not justified in continuing the proceedings from the date when the trial commenced. Pursuant to s348(1)(a) of the Legal Profession Act 2004, his Honour ordered that the solicitor pay to the plaintiff the costs of the Council awarded against her from the date when the trial commenced.

Judgment below

28 In reaching his decision in relation to the solicitor his Honour correctly identified the relevant sections of the Legal Profession Act 2004 and had regard to the leading decision on the interpretation of those sections Lemoto v Able Technical Pty Limited & Ors (2005) 63 NSWLR 300.

29 Applying those sections as explained in Lemoto, his Honour concluded that there was sufficient material available to the solicitor for him to have a reasonable belief that “provable facts” and the law justified commencing proceedings against the Council. His Honour referred to the fact that the pedestrian crossing as constructed had not conformed with the Council’s own plans and to those parts of the first report of Mr Keramidas which indicated that this variation from the plans contributed to the accident, ie the lack of visibility of the plaintiff behind the chevron sign. The first Keramidas report identified alternatives to having the chevron sign at the commencement of the pedestrian crossing, which if implemented may have avoided the accident.

30 His Honour accepted that at the time when proceedings were commenced against the Council more evidence needed to be gathered and there remained defences under the Civil Liability Act 2002 which needed to be met. Nevertheless at that point in time his Honour concluded that there was an arguable case against the Council.

31 His Honour noted that the obligation imposed by s345 of the Legal Profession Act was a continuing obligation. He drew a distinction between the situation which existed when proceedings were commenced against the Council and that which prevailed at the time when a trial was about to commence. Material which might indicate an arguable case against a party so as to justify the commencement of proceedings might not be sufficient at the point of trial to demonstrate the continuing existence of such an arguable case.

32 Following the approach in Lemoto his Honour interpreted the phrase “without reasonable prospects of success” as used in the Act to mean “so lacking in merit or substance as not to be fairly arguable”. His Honour found that whereas the plaintiff’s case against the Council was not hopeless or without foundation at the time when proceedings were issued against the Council, that situation had changed by the time the trial commenced. At that point in time his Honour found that due to lack of evidence the plaintiff’s case against the Council was “without reasonable prospects of success”.

33 By way of illustration his Honour referred to the absence of any opinion from an appropriately qualified expert in support of the plaintiff’s claim against the Council. His Honour noted that the contents of the second Keramidas report did not fill the evidentiary gap in the plaintiff’s case and that much of it was inadmissible in any event. His Honour inferred from the way in which the matter had been conducted that at the commencement of the trial the solicitor had no intention of adducing any evidence against the Council and intended to rely upon evidence which might emerge in the driver’s case (ie from Mr Keramidas) to enable a case against the Council to be made out.

The appeal
Extension of time

34 The solicitor’s Ordinary Summons for Leave to Appeal was filed on 23 February 2006. The Council objected to leave being granted to the solicitor to bring the application out of time on the basis that no satisfactory explanation for delay had been given.

35 His Honour’s judgment as to costs was handed down on the last day of term. As a matter of practicality it is notoriously difficult at that time of year for solicitors to obtain the advice of counsel quickly. The rules of Court are not altogether clear as to the effect on time limits of the Christmas vacation. Finally no prejudice to the Council has been identified if leave to file his Summons for Leave to Appeal out of time is allowed in favour of the solicitor.

36 The issue raised in the summons is an important one and has been fully argued. In those circumstances I propose to grant an extension of time to 23 February 2006 for the solicitor to file his Summons for Leave to Appeal.

Bullock order

37 Despite not being raised in the Summons for Leave to Appeal and the draft grounds of appeal, a significant part of the solicitor’s summary of argument challenged his Honour’s refusal to make a Bullock order in favour of the plaintiff against the driver (paras [49] – [62]). Those submissions have been largely overtaken by events in that his Honour’s judgment in favour of the plaintiff has been set aside and judgment has been entered in favour of the driver. In those circumstances where there has been no unsuccessful defendant, it would be rare (but not of course impossible) for a Bullock order to be made in favour of a plaintiff who has been entirely unsuccessful.

38 In Roads and Traffic Authority of New South Wales & Ors v Palmer (No 2) [2005] NSWCA 140 at [30] Giles JA summarised the current position in relation to Bullock orders as follows:

“30 By a Bullock order, from Bullock v London General Omnibus Co (1907) 1 KB 264, a plaintiff who has brought proceedings against two defendants, and has succeeded against one but failed against the other, may obtain an order that the unsuccessful defendant pay the costs the plaintiff has been ordered to pay to the successful defendant. Many forms of words have been used to explain when the order will be appropriate. In Sved v Council of the Municipality of Woollahra (1998) NSW Con R 55-852 at 55,605 I said -

“It is not sufficient for the making of a Bullock order that it was reasonable for the plaintiff to bring the proceedings against both defendants, although sometimes the condition for making a Bullock order is stated in that way (eg Johnsons Tyne Foundry Pty Ltd v Maffra Corporation (1948) 77 CLR 544 at 556; Altamura v Victorian Railways Commissioners (1974) VR 33 at 35). One statement of principle is that the order may be made where the costs have been reasonably and properly incurred by the plaintiff as between it and the unsuccessful defendant (eg Johnsons Tyne Foundry Pty Ltd v Maffra Corporation at 572-3; Norwest Refrigeration Services Pty Ltd v Bain Dawes (WA Pty Ltd (1984) 157 CLR 149 at 163; Gould v Vaggelas (1984) 157 CLR 215 at 247, 229); it has also been said that the conduct of the unsuccessful defendant must have been such as to make it fair to impose some liability on it for the costs of the successful defendant, or that the conduct of the unsuccessful defendant must show that the joinder of the successful defendant was reasonable and proper to ensure recovery of the damages sought ( Steppke v National Capital Development Commission (1978) ACTR 23 at 30-31; Gould v Vaggelas at 229; Fennell v Supervision & Engineering Services Holdings Pty Ltd (1988) 47 SASR 6 at 7-8, 15; Lackersteen v Jones (No 2) (1988) 93 FLR 442 at 449). The difference in formulations is probably more apparent than real, as reasonableness as between the plaintiff and the unsuccessful defendant will normally be demonstrated by some conduct of the unsuccessful defendant which made it proper that the successful defendant be joined or that the unsuccessful defendant should bear the costs of the successful defendant. Such conduct was found in Lackersteen v Jones (No 2) in the unsuccessful defendant denying the authority of its agent whereby the plaintiff joined the agent who became the successful defendant, and more widely has been found in the unsuccessful defendant telling that the plaintiff in one way or another that it should look to the successful defendant for its remedy ( Altamura v Victorian Railways Commissioners ; Gould v Vaggelas ; Fennell v Supervision & Engineering Services Holdings Pty Ltd ).””

39 Applying those principles his Honour was correct to conclude that the service of the first report of Mr Keramidas on the plaintiff by the driver was not the sort of conduct which would justify the making of a Bullock order. The decision to bring proceedings against the Council was based primarily upon the solicitor’s investigations which revealed that the pedestrian crossing as constructed did not comply with the Council’s plans. There was no conduct identified on the part of the driver which could properly be characterised as encouraging the plaintiff to bring proceedings against the Council. No error in his Honour’s approach has been identified. Any challenge by the solicitor to his Honour’s refusal to grant a Bullock order in favour of the plaintiff against the driver must fail.

Costs order against solicitor

40 The relevant provisions of the Legal Profession Act are as follows:-

“345 (1) A law practice must not provide legal services on a claim or defence of a claim for damages unless a legal practitioner associate responsible for the provision of the services concerned reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.

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

(3) This Division applies despite any obligation that a law practice or a legal practitioner associate of the practice may have to act in accordance with the instructions or wishes of the client.

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

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

347 (1) The provision of legal services by a law practice without reasonable prospects of success does not constitute an offence but is capable of being unsatisfactory professional conduct or professional misconduct by a legal practitioner associate of the practice who is responsible for the provision of the service or by a principal of the practice.

(2) A law practice cannot file court documentation on a claim or defence of a claim for damages unless a principal of the practice, or a legal practitioner associate responsible for the provision of the legal service concerned, certifies that there are reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.

…

348 (1) If it appears to a court in which proceedings are taken on a claim for damages that a law practice has provided legal services to a party without reasonable prospects of success, the court may of its own motion or on the application of any party to the proceedings make either or both of the following orders in respect of the practice or of a legal practitioner associate of the practice responsible for providing the services:

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

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

41 The meaning of those provisions was comprehensively analysed by McColl JA in Lemoto v Able Technical Pty Limited & Ors at [116] – [138]. By way of a general overview, her Honour said:

“123 The grave consequences to which Div 5C exposes a legal practitioner and his or her client indicates that “[t]he construction of the section and the application of the jurisdiction should … be no wider than is clearly required by the statute”: cf Medcalf (at 143 [56]) per Lord Hobhouse of Woodborough.

124 There are some general observations which can be made. First, Div 5C represents a departure from the historical basis upon which legal practitioners could be exposed to personal costs orders. A legal practitioner is now required to ensure that a claim, or a defence to a claim, for damages has “reasonable prospects of success” and, to that extent, to become a judge of the client's cause. The legislature has endorsed the proposition that it is not in the public interest, nor a function of the due administration of justice, for legal practitioners to provide legal services in circumstances which involve representing clients who wish to pursue or defend claims for damages which have no reasonable prospects of success.

125 Secondly, Div 5C requires the legal practitioner to evaluate the client's case with an eye to his or her potential exposure to a personal costs order as well as the disciplinary consequences which may flow from a finding that he or she has contravened s 198J: see s 198L. The potential for a conflict of interest is manifest as, too, is the deterrent effect on legal practitioners. Division 5C is capable of visiting severe consequences both against the legal practitioner and the client potentially deprived of legal representation to pursue his or her claim for damages.

126 The legislature clearly intended Div 5C to have this chilling effect. It is timely, however, to recall the tensions to which the Court of Appeal referred in Ridehalgh (at 226). While the Div 5C jurisdiction should not be emasculated, the due administration of justice should not be impaired by a too liberal exercise of the new powers.

127 Turning to the construction of Div 5C, it is apparent that the question whether legal services have been provided “without reasonable prospects of success” turns, in the first instance, on the legal practitioner's “reasonable” belief as to the “provable facts” and his or her view of the law: s 198J(1). Section 198J(2) explains the circumstances in which a fact will be regarded as “provable”, again turning on the question of the legal practitioner's “reasonable” belief that the material then available provides a proper basis for alleging that fact. There is no express requirement that this material be admissible. However s 198J imposes a continuing obligation. There may be a stage in a claim for damages where the fact a legal practitioner could not then reasonably believe that the evidence available would be admissible to enable the claim to be proved or defended, may lead to a prima facie case of a contravention of s 198J: cf Cahill v Ekstein (Smart J, 5 June 1998, unreported).

128 Section 198J (4) describes the circumstances in which a claim or a defence will be regarded as having “reasonable prospects of success”. The combined effect of s 198J(1) and (4) is that a claim will have “reasonable prospects of success” if the legal practitioner reasonably believes there are “provable facts” and a “reasonably arguable view of the law” to establish that “there are reasonable prospects of damages being recovered on [a] claim …[or] … there are reasonable prospects of [a] defence defeating the claim or leading to a reduction in the damages recovered on the claim”.

129 Section 198J (5) conflates the product of s 198J(1) and (4) to provide that provision of legal services in contravention of s 198J constitutes the provision of legal services “without reasonable prospects of success” for the purposes of the Division. The remaining sections in Div 5C use the conflated expression. It is important not to lose sight of its constituent components.

130 The question whether a s 198M order should be made is discretionary. The court “may” make either a repayment order or an indemnity order: s 198M(1). The discretion operates even if the court concludes that the legal practitioner provided legal services to a party without reasonable prospects of success.”

42 In determining what the expression “without reasonable prospects of success” meant, her Honour accepted the analysis of Barrett J in Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284 where his Honour said:

“28 The several factors to which I have referred … cause me to adopt the construction of “without reasonable prospects of success” that equates its meaning with “so lacking in merit or substance as to be not fairly arguable”. The concept is one that falls appreciably short of “likely to succeed.”

43 On that issue her Honour concluded:

“132 Barrett J's construction of the expression “without reasonable prospects of success” appears to me to accommodate both the purpose of Div 5C and to reflect the language of s 198J. The test, whether a claim or a defence was “so lacking in merit or substance as to be not fairly arguable”, must be applied, however, in the context of the constituent components of s 198J. In that context the question becomes whether the solicitor or barrister held a reasonable belief that the provable facts and a reasonably arguable view of the law meant that the prospects of recovering damages or defeating a claim or obtaining a reduction in the damages claimed were “fairly arguable”. These are matters about which reasonable minds might differ. The question will be whether the solicitor or barrister's belief that they had material which objectively justified proceeding with the claim or the defence “unquestionably fell outside the range of views which could reasonably be entertained”: Medcalf (at [40]) per Lord Steyn.

…

138 When considering whether to make a s 198M order the court should, in my view, consider the nature of the contravention of Div 5C which has been established, the possibly serious implications of making the costs order and determine whether it is just, in all the circumstances, that a repayment and/or indemnity order should be made and whether it should be as to the whole or part of the costs.” ( Lemoto McColl JA [132] and [138])

44 It is against that background that the submissions of the solicitor need to be considered.

45 His Honour’s order under s348(1)(a) of the Legal Profession Act 2004 involved an exercise of his discretion. For this Court to intervene the solicitor has to establish error of the kind identified in House v R (1936) 55 CLR 499 at 504, ie that his Honour acted upon a wrong principle or allowed extraneous or irrelevant matters to guide or affect him or if he made a mistake as to the facts or if he did not take into account some material consideration. Here the error which the solicitor seeks to establish is in his Honour’s process of reasoning.

46 In that regard I accept that the solicitor had to assume that both reports of Mr Keramidas would be admitted. I accept, as his Honour did, that the solicitor’s investigations revealed that the Council had constructed the pedestrian crossing and that the chevron signs on the approaches to the pedestrian crossing did not comply with the Council’s original design.

47 I accept that the effect of the first report of Mr Keramidas was that the accident involving the driver and the plaintiff could have taken place without there necessarily being negligence on the part of the driver.

48 Where I have difficulty with the submissions of the solicitor is in relation to the proposition that the combination of the two reports of Mr Keramidas provided a case in negligence against the Council which was fairly arguable. There was no issue that the Council in constructing the pedestrian crossing owed a duty of care to pedestrians such as the plaintiff. There was material in the Keramidas reports to establish a causal link between the construction of the chevron sign and the accident. I cannot, however, discern anything in those reports which would establish breach of duty on the part of the Council.

49 Insofar as the Council was concerned, the material in the second Keramidas report is replete with hindsight reasoning. This is best illustrated by the comment at p11 of that report “Had any other treatment been applied other than this type of chevron guidance marker board, it is likely that the extent of view obstruction would have been significantly reduced.” That of course was not and never could be the appropriate inquiry. The issue which needed to be addressed was whether in the circumstances the construction of the pedestrian crossing with a chevron sign of this type was an adequate response to a risk of injury which was reasonably foreseeable. To the extent that the Keramidas reports addressed that question, their conclusion was fatal to the plaintiff’s claim, ie “In general, the author does not consider the pedestrian facility … to fall outside what is often observed in similar facilities within the State of New South Wales. As indicated above, the facility itself does not technically comply with the Technical Direction recommended by the RTA, but as a whole it is not unreasonable in its layout and construction.” (See [18] hereof.)

50 The balance of that quotation could never prove the matters necessary to mount an arguable case against the Council since it involved no more than speculation based upon unestablished facts.

51 The rationale behind the joinder of the Council is clear. The solicitor believed that the plaintiff had a strong case against the driver. After receipt of the first Keramidas report, he was justifiably concerned that if the matters raised therein as to the lack of visibility of the plaintiff behind the chevron sign were established, there was a complete explanation for the accident which did not involve negligence on the part of the driver. He therefore sought to deal with that possible eventuality by making inquiries to see whether a cause of action existed against the Council. His motive was to protect the plaintiff in what he clearly regarded as the unlikely circumstance where she might fail against the driver for the reasons raised in the first report of Mr Keramidas.

52 Although the solicitor did not say so in his affidavit, it can be reasonably inferred that because of what he regarded as the strength of the plaintiff’s case against the driver he did not wish her to needlessly expend costs in preparing a case against the Council where its joinder had been made as a defensive tactic to deal with what he regarded as an unlikely contingency. In acting as he did the solicitor clearly had the best interests of the plaintiff in mind.

53 It was submitted that the solicitor was entitled to assume that if the second report of Mr Keramidas was admitted, the Council would tender the report of Mr Stuart-Smith and that both those experts would give evidence. There would then be ample scope through the cross-examination of those experts for a case against the Council to be established.

54 In my opinion that was a high risk tactic. As indicated, the reports of Mr Keramidas could not provide “provable facts” to establish breach of duty on the part of the Council. The difficulty became even greater when it emerged that the plaintiff intended to object to the tender of both the Keramidas reports. This was no doubt intended to strengthen the case against the driver. Finally, there was nothing in the reports of Mr Keramidas and Mr Stuart-Smith which would support a reasonable belief that cross-examination of either or both of them would cause a case against the Council to emerge where the basis for such a case was not already set out in the reports.

55 It was submitted that his Honour erred in his approach to whether or not there were reasonable prospects of success in the solicitor allowing the matter to proceed to trial against the Council. It was submitted that his Honour’s reasoning assumed that the only way in which this could be done was if positive evidence to that effect was adduced in the plaintiff’s case. If his Honour had reasoned in that way, this could amount to error. It is trite law that matters can be proved through witnesses called in another interest. Nevertheless one would have to have a strong basis for expecting that such witnesses would be called and would give evidence to that effect if the matter to be proved was an important part of the case.

56 In my opinion his Honour did not err in the way submitted. His Honour correctly appreciated that the reports of Mr Keramidas could not of themselves provide a case against the Council and that additional evidence had to be adduced on behalf of the plaintiff to supplement those reports. For the reasons already indicated, his Honour’s conclusion in that regard was correct.

57 I appreciate that considerable care must be taken in judging the conduct of a lawyer for a party in litigation where the arguability of that party’s case depends upon a question of fact. Having said that I am unable to find in the reports of Mr Keramidas a basis whereby breach of duty on the part of the Council could be established. Accordingly it was open to his Honour to find that by going to trial with only that evidence on the issue of breach the plaintiff’s claim was without reasonable prospects of success.

58 There is another consideration which leads to the same result. It arises from the submissions made by the Council in respect of s43A Civil Liability Act 2002.

59 That section provides:

“43A(1) This section applies to proceedings for civil liability to which this Part applies to the extent that the liability is based on a public or other authority’s exercise of, or failure to exercise, a special statutory power conferred on the authority.
(2) A “special statutory power” is a power:
(a) that is conferred by or under a statute, and
(b) that is of a kind that persons generally are not authorised to exercise without specific statutory authority.
(3) For the purposes of any such proceedings, any act or omission involving an exercise of, or failure to exercise, a special statutory power does not give rise to civil liability unless the act or omission was in the circumstances so unreasonable that no authority having the special statutory power in question could properly consider the act or omission to be a reasonable exercise of, or failure to exercise, its power.
(4) In the case of a special statutory power of a public or other authority to prohibit or regulate an activity this section applies in addition to section 44.”

60 In the Court below and in submissions before this Court it was accepted by the Council that s43A provided a defence to the Council provided it could establish that the liability alleged against it was based on its exercise of a special statutory power. It was common ground that the construction of a pedestrian crossing did involve such an exercise. Although his Honour did not base his decision on it, the Council submitted that because of s43A, the plaintiff had no reasonable prospects of success against the Council at the time the trial commenced.

61 The Council put its submission in this way: Section 43A in essence provided a defence by requiring the plaintiff to establish that no local council having special statutory powers relating to the erection of traffic control devices could properly consider the act or omission to be a reasonable exercise or failure to exercise that power.

62 That being so, it was submitted that there was never any evidence marshalled by the plaintiff which could have related to this issue and that there could never have been success against the Council without some evidence that it had departed from what Councils normally did in similar areas of responsibility. To the extent that there was evidence available on that issue it was against the plaintiff, eg the evidence of the police officer that the presence of chevrons as shown on this crossing was a regular feature within Sydney and the evidence of Mr Keramidas (see [18] hereof) that the pedestrian facility did not fall outside what is often observed in similar facilities within the State of NSW and the evidence of Mr Stuart-Smith to similar effect (see [16] hereof).

63 These submissions by the Council are clearly correct. It follows that even if error had been identified in his Honour’s judgment and this Court were to re-exercise the discretion, it would still find that when the trial commenced the plaintiff’s case against the Council was so lacking in merit or substance as to not be fairly arguable.

64 In the course of argument, it was suggested from the bench that the matters raised by s43A were not matters of defence but rather matters which a plaintiff has to prove as a precondition to establishing liability on the part of a public or other authority for its exercise of a special statutory power. Since the matter was not argued in that way before his Honour and since the matter was not fully argued before this Court, it is not necessary to reach a concluded view.

Notice of Contention

65 In its written submissions the Council sought to contend by way of a draft Notice of Contention that should leave to appeal be granted to the solicitor, the trial judge should have ordered that the plaintiff receive an indemnity from the solicitor in respect of the whole of the proceedings not just from the date of the commencement of trial. Since I propose to grant leave to appeal, it is necessary to deal with this matter.

66 A Notice of Contention is not appropriate for such an application. The application does not seek to support his Honour’s conclusions on other grounds but to have part of his Honour’s decision set aside. The appropriate mechanism is an application for leave to cross appeal. Such an application would be out of time and the Court would have to grant an extension of time within which to file it. It should also be noted that no specific submissions were addressed to this topic, either orally or in writing, other than the following statement in the written submissions:

“The basis being that on the material before him, there was no reasonable prospect of the plaintiff succeeding against the second opponent in the proceedings at any time.”

No reasons were offered as to why the Council should have an extension of time.

67 If there were an extension of time and leave to cross appeal given, I am not persuaded that his Honour erred in the way submitted. The distinction which his Honour made was between evidence sufficient for there to be an arguable case for the joinder of a party and that which was sufficient for there to be an arguable case to go to trial against that party. This was a proper distinction.

68 Being mindful of the judicial restraint which needs to be exercised when applying these sections of the Legal Profession Act (Lemoto [138]), the Act should not be interpreted as requiring that the evidence necessary to establish an arguable case at trial be available to a party before proceedings are commenced. Implicit in the concept of a continuing obligation on the part of a legal practitioner to comply with the sections is the proposition that the conduct of litigation is a dynamic process. Whether reasonable prospects of success exist could vary depending upon the results of inquiries and the collection of evidence. Accordingly, just because the plaintiff could not have satisfied s43A Civil Liability Act when the trial commenced does not mean that the claim against the Council had no reasonable prospects of success when the Amended Statement of Claim was issued.

69 I would dismiss any application by the Council for leave to cross appeal.

Conclusion

70 The orders which I propose are as follows:

(1) The time for the filing of the claimant’s summons for leave to appeal is extended to 23 February 2006.

(2) The claimant’s application for leave to appeal is granted.

(3) The claimant’s appeal is dismissed.

(4) Leave to cross appeal by the second opponent is refused.

(5) The claimant is to pay the costs of the Application for Leave to Appeal and the appeal.

(6) In the matter of Latham v Fergusson [2006] NSWCA 288:

(i) the opponent is to pay the claimant’s costs of the Application for Leave to Appeal and the appeal.
(ii) the opponent is to pay the claimant’s costs of the proceedings before McGuire DCJ from 31 October – 4 November 2005.
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