Lai v Tiao [No 2]
[2009] WASC 22 (S2)
•22 MAY 2009
LAI -v- TIAO [No 2] [2009] WASC 22 (S2)
Pending Appeal
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2009] WASC 22 (S2) | |
| Case No: | CIV:1442/2005 | 19 23 & 26 NOVEMBER 2007, 22 FEBRUARY 2008, 6 MARCH 2009, 24 AUGUST 2009 | |
| Coram: | JOHNSON J | 22/05/09 | |
| 4/02/10 | |||
| 20 | Judgment Part: | 1 of 1 | |
| Result: | Application for order refused | ||
| B | |||
| PDF Version |
| Parties: | SHENG CHIN LAI CHENG CHIH TIAO HUI PING WANG AUSTRALIAN CHINESE CONFUCIUSMENCIUS SAINT TAO CENTRE INC |
Catchwords: | Costs order against solicitor |
Legislation: | Rules of the Supreme Court 1971 (WA), O 66, r 5 |
Case References: | Amon v Raphael Tuck & Sons Ltd [1956] 1 QB 357 AW & LM Forrest Pty Ltd v Beamish (1998) 146 FLR 450 Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398 Fricker v Van Grutten [1896] 2 Ch 649 Harrison v Goodland (1944) 69 CLR 509 Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421 Hoskins v Van Den-Braak (1998) 43 NSWLR 290 Lai v Tiao [2009] WASC 22 Medcalf v Mardell [2003] 1 AC 120 Myers v Elman [1940] AC 282 Ridehalgh v Horsefield [1994] 3 All ER 848 Saif Ali v Sydney Mitchell & Co [1980] AC 198 Templeton v Leviathan Pty Ltd (1921) 30 CLR 34 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CIVIL
- 22 FEBRUARY 2008, 6 MARCH 2009,
24 AUGUST 2009
DECISION : 4 FEBRUARY 2010 FILE NO/S : CIV 1442 of 2005 BETWEEN : SHENG CHIN LAI
- Plaintiff
AND
CHENG CHIH TIAO
HUI PING WANG
First Defendants
AUSTRALIAN CHINESE CONFUCIUSMENCIUS SAINT TAO CENTRE INC
Second Defendant
Catchwords:
Costs order against solicitor
Legislation:
Rules of the Supreme Court 1971 (WA), O 66, r 5
(Page 2)
Result:
Application for order refused
Category: B
Representation:
Counsel:
Plaintiff : Mr K G Robson
First Defendants : No appearance
Second Defendant : Mr G D Crocket
Solicitor's Firm : Mr P G McGowan
Solicitor - Mr C O'Toole : Mr D R Williams QC
Solicitors:
Plaintiff : Tan & Tan
First Defendants : No appearance
Second Defendant : G D Crocket & Co
Solicitor's Firm : Butcher Paull & Calder
Solicitor - Mr C O'Toole : McCallum Donovan Sweeney
Case(s) referred to in judgment(s):
Amon v Raphael Tuck & Sons Ltd [1956] 1 QB 357
AW & LM Forrest Pty Ltd v Beamish (1998) 146 FLR 450
Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398
Fricker v Van Grutten [1896] 2 Ch 649
Harrison v Goodland (1944) 69 CLR 509
Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421
Hoskins v Van Den-Braak (1998) 43 NSWLR 290
Lai v Tiao [2009] WASC 22
Medcalf v Mardell [2003] 1 AC 120
Myers v Elman [1940] AC 282
Ridehalgh v Horsefield [1994] 3 All ER 848
(Page 3)
Saif Ali v Sydney Mitchell & Co [1980] AC 198
Templeton v Leviathan Pty Ltd (1921) 30 CLR 34
(Page 4)
1 JOHNSON J: When the judgment in this matter was delivered on 12 February 2009 I advised the parties that I proposed to hear from them as to the specific orders to be made to reflect the conclusions reached in the judgment. At a hearing on 6 March 2009 all parties had the opportunity to address the proposed declarations and orders sought by the plaintiff. One order sought by the plaintiff was for all monies paid to the first defendants' firm of solicitors, Butcher Paull & Calder, their solicitor, Mr Conal O'Toole, and to their counsel, Mr Peter McGowan, to be repaid to the Australian Chinese Confucius-Mencius Saint Tao Centre Incorporated (the Association).
2 On 22 May 2009 a supplementary decision was delivered identifying all declarations and orders to be made and providing reasons for the decisions reached. In relation to the order sought against counsel, the decision was that the inclusion of counsel in the order misunderstood the nature of the relationship between counsel and the client, and between counsel and the solicitor, and there was no basis for making such an order in this case.
3 In relation to both the solicitor and the firm of solicitors, I expressed a preliminary view that there appeared to be some substance to the claim for the solicitors to disgorge the fees paid to them. However, as they were not parties to the proceeding and were not represented at the hearing on 6 March 2009, I was not prepared to make any order until they had the opportunity to be heard. Although I made no specific reference to the court's power to make the order foreshadowed, it was O 66 rule 5(1)(e) of the Rules of the Supreme Court 1971 (WA) on which I intended to rely if I formed the view that such an order should, in fact, be made.
4 The foundation for the application for the order to disgorge the fees paid to the solicitors was the finding that Mr Tiao had no authority to engage a solicitor on behalf of the Association which lead to the making of a declaration that neither Mr O'Toole nor Butcher Paull & Calder was validly engaged as solicitors for the Association: Lai v Tiao [2009] WASC 22 [77].
5 The following is the relevant part of the judgment of 22 May 2009 which identifies the reasons for the preliminary view formed concerning the repayment of fees paid to the solicitors:
Counsel for the plaintiff advised that the plaintiff filed a challenge to Mr O'Toole's supposed retainer very early in the litigation. The basis of the challenge was that there was no board resolution or other form of authority in existence justifying the engagement by Tiao of Mr O'Toole to
(Page 5)
- act on behalf of the Association. Counsel noted that Mr O'Toole maintained that this was an issue to be determined at trial. However, no board resolution was ever put before the court to justify the retainer and the finding of the Court was that Tiao had no authority to engage a solicitor on behalf of the Association. According to counsel for the plaintiff, Mr O'Toole is now caught by the consequences of his decision not to sight a retainer before acting on behalf of the Association and of seeking a determination of the issue at trial. Counsel further noted that, even on the account given to Mr O'Toole by his client, Mr O'Toole should have known that the proposition that Tiao was authorised couldn't be justified. According to counsel, a prudent solicitor would ask to see the resolution or other form of authority and would not simply take the word of one board member, particularly where that board member's word is hotly contested by another board member [76].
…
In the more usual course of events solicitors must act upon the account given to them by their client. If, before accepting instructions, solicitors were meant to make a subjective judgment about the truthfulness of the client or of the prospects of the action's success, certain people in the community would have little prospect of being represented. It also seems to me that the end result would be an entirely inappropriate impediment to a person enforcing his or her rights because of the likelihood that the solicitors of an unsuccessful party would be required to disgorge the costs paid to them for their work.
However, the preliminary view I have formed is based on the fact that the issue of whether Mr Tiao was authorised to engage solicitors on behalf of the Association was one of the central issues at trial and was the subject of a specific finding that he was not so authorised. At trial no evidence was adduced to suggest that the first defendants were authorised to engage solicitors on behalf of the Association to defend the plaintiff's claim. Neither was there evidence of any authorisation for the first defendants to pay for their legal fees from Association funds.
In circumstances where Mr OToole was on notice with respect to the issue of authorisation it cannot be said that he did not turn his mind to the issue. Clearly, either Mr O'Toole was advised that no such authorisation existed or his client failed to provide such authorisation. It was not a situation where it would have been reasonable to accept the word of either of the first defendants that authorisation existed. Either situation notified Mr O'Toole of the potential risks of continuing to act and accepting Association funds by way of payment [86] - [88].
6 On 24 August, 2009, a hearing was held for the purpose of giving Mr O'Toole and Butcher Paull & Calder the opportunity to be heard on whether the order sought by the plaintiff, ostensibly on behalf of the Association, should be made. Both were represented by counsel and the
(Page 6)
- Association was also represented separately from the plaintiff. For convenience I will use the collective term 'solicitors' when referring to Mr O'Toole and Butcher Paull & Calder.
7 Various issues were raised at the hearing on behalf of the solicitors. A preliminary point was taken as to whether the plaintiff had the standing to make the application for the order. Another preliminary point was the late stage at which an appearance had been entered by new solicitors for the Association and submissions filed and served on its behalf. It was submitted that the consequence of this should be to disentitle the Association being heard.
8 As to the first of the preliminary issues, counsel for the plaintiff effectively conceded that there was little to justify the plaintiff's involvement in a hearing dealing specifically with orders sought for repayment of Association funds. In terms of the original action, the plaintiff was a director of the Association who, on my findings, had effectively been excluded by Mr Tiao from participation in the Association's activities and who became concerned when he was made aware that part of the Association's property had been sold, apparently without authorisation. If it were not for the plaintiff, it is highly unlikely that anything would have been done about the way in which the Association was being managed by Mr Tiao. However, by the time of the present hearing, an annual general meeting had been held at which new Board members were elected. Although the plaintiff was one of the newly elected Board members, there was no suggestion that the Association could not take action on its own behalf and, as I have noted, it was represented by counsel at this hearing. There was no longer any basis for the plaintiff to attempt to protect the Association's interests by taking action in his own right but for the benefit of the Association. The conclusion I drew was that the plaintiff did not have standing to seek an order for the return from solicitors of the costs paid from funds of the Association or to be heard on the issue and, as a result of that ruling, counsel for the plaintiff withdrew.
9 As to the second preliminary issue, the late involvement of the Association in the proceeding, counsel for the Association relied on the complexity of the issues dealt with in the judgment and the significant time necessary to fully understand the judgment. Difficulties were also said to have been encountered because of the fact that almost all of the people involved in the matter do not speak English and required an interpreter. Further, two of the Board members who were to instruct counsel had been away in Taiwan, requiring telephone link-ups, which
(Page 7)
- increased the language difficulties involved. Emphasis was also placed by counsel on the prejudice to the membership of the Association of being excluded from participation at this hearing, particularly in view of the intense financial, emotional and spiritual impact of the lengthy legal proceedings. Conversely, it was submitted that no prejudice to the solicitors had been identified and no prejudice could arise from the late filing of submissions because the Association's submissions essentially support and reflect the submissions of the plaintiff which had been available for some time.
10 There was, in my view, considerable substance to the submissions made on behalf of the Association and, consequently, I determined to allow counsel for the Association to appear and be heard in relation to the issue before the court. As the Association, a party to the action, was now represented and making the application for the order, much of the submissions on which the solicitors relied were no longer of relevance.
11 In terms of substantive issues, counsel for the solicitors relied on the following allegations:
1. that the monies paid to the solicitors were not paid from the funds of the Association;
2. that neither Mr O'Toole nor the firm, Butcher Paull & Calder were parties to the action and hence an order could not be made against them; and
3. that an order only could be made against a solicitor if the solicitor's actions were improper, unreasonable or negligent.
12 Although these arguments were primarily put before the court by senior counsel for Mr O'Toole, counsel for Butcher Paull & Calder joined in the submissions of senior counsel and raised one further matter, to which I will later refer.
13 Senior counsel for Mr O'Toole submitted that the proper way for the issue of repayment of costs to be brought before the court was for the Association to bring proceedings for repayment of so much of its funds that were not authorised to be disbursed. The basis upon which the Association could claim a refund or repayment of its funds paid to a lawyer was said to be on the basis of a breach of warranty of authority. It was further stated that, in such proceedings, some of the impediments alleged to apply to the making of an order in these proceedings such as
(Page 8)
- issues of privilege, would not apply and the legal basis for the claim could be pleaded and the relief specified.
14 In relation to the first issue raised, it was submitted on behalf of the solicitors that there was no evidence before the court that the Association paid any monies to the solicitors. Indeed, senior counsel maintained that the affidavit evidence before the court was that no monies were paid by the Association. According to counsel, as a minimum, before the court should make the contemplated order there must be some evidence that Association funds had been utilized, and the only evidence before the court at the present time was that the monies paid to the solicitors were not paid from Association funds.
15 The affidavit evidence of Mr Tiao was that, after having first met with Mr O'Toole to obtain legal advice, he opened a new bank account with BankWest in the name of the Association. That account was used to pay legal costs of these proceedings as accounts were rendered. Mr Tiao further deposed to the fact that all monies in the account were deposited by him or Hui Ping Wang or by Cheng Han Pty Ltd, a company of which Mr Tiao is a director. According to Mr Tiao, his expectation was that the monies so advanced would be treated as loans in the accounts of the Association.
16 The proposition put by senior counsel was that, as Mr Tiao had no authorisation to open an account in the name of the Association and Mr Tiao controlled the funds in the account, the result is that the account is not an Association account, the Association had no right to the funds in the account and, therefore, the accounts rendered by the solicitors were not paid from Association funds.
17 It was further submitted that it would be necessary for there to be evidence at trial that Association funds were used to pay the solicitors before an order of the type sought could be made. Senior counsel refuted the suggestion that an order could be made for repayment of Association funds and, in the event it transpired that no such funds were in fact involved, the order would simply have no effect. It was submitted that such an approach would amount to the court making an order based on an assumption.
18 The Association relies on the fact that the substantial sums of money were paid to Mr O'Toole and that they were paid by the Association. The fact that Mr Tiao alleges that he paid the monies into an account of the
(Page 9)
- Association is said not to be a relevant consideration for the following reasons:
(a) Mr Tiao was found to be a person of no credibility;
(b) his word requires corroboration;
(c) there is an express finding in the judgment in the action that Mr Tiao mixed his own funds with the Association's funds; and
(d) there is also an express finding that Mr Tiao treated the Association as his personal fiefdom.
19 In oral submissions, counsel for the Association emphasised that Mr Tiao's conduct in setting up the BankWest account must be considered against the background that there had been a blending of monies and a closing down of Association accounts. Consequently, it was submitted, the fact that Mr Tiao had opened the account in the name of the Association and placed funds in it would not preclude the conclusion that it was an Association account and that the funds were that of the Association.
20 It was further submitted that, if Mr Tiao wants to maintain that the monies placed in the account were by way of a loan to the Association, he can make that claim in the context of any action, however instituted, which addresses the correct financial position of the Association as a result of Mr Tiao's management. However, this latter argument tends to reinforce the position of the solicitors that the order proposed should more properly be made in the context of an action to which the solicitors are parties and in which all relevant evidentiary issues could be addressed.
21 With respect to the four specific issues raised on behalf of the Association, it is correct that Mr Tiao was found to be a person of no credibility, whose evidence required corroboration. Further, the court did, in fact, make the two findings to which the plaintiff refers.
22 It is because of the entirely inappropriate way in which Mr Tiao managed the Association and its monies that I have considerable difficulty with the proposition put by senior counsel for Mr O'Toole that the account was not an Association account and that the Association had no right to the funds. In the usual circumstances such conclusions may be able to be drawn. It is entirely because of Mr Tiao's considerable credibility issues and his conduct with respect to the Association that these conclusions cannot so easily be drawn.
(Page 10)
23 I would not be prepared to conclude that the funds in the account to which Mr Tiao refers in his affidavit were paid in from his own funds, on Mr Tiao's words alone. More importantly, because of the fact that the Association's accounts had been closed and Association monies mixed with Mr Tiao's monies, I would not be prepared to find that, even if the monies were paid in by Mr Tiao from one of his own bank accounts, the funds were not Association funds.
24 With respect to the issue of credibility, counsel for Butcher Paull & Calder noted that the adverse finding on Mr Tiao's credibility only came at the end of the trial and it was not for the solicitor to determine his credibility. I accept that, in the usual course of events, not only is it not necessary for the solicitor to determine his client's credibility but entirely inappropriate to decline to accept instructions or defend proceedings based on a personal impression that the client is not entirely truthful: Ridehalgh v Horsefield [1994] 3 All ER 848, 863. However, the issue of Mr Tiao's credibility is not the basis of the order proposed. Because of Mr Tiao's role as a director of an incorporated association, and in circumstances where his right to engage solicitors is called into question by a fellow director, there must exist some resolution or written record of authorisation. Further, because the existence of authorisation is an issue at trial, it would not be enough to take Mr Tiao's word for the existence of such an authorisation as it would be a relevant document required to be produced at trial.
25 The second issue on which the solicitors rely is the fact that Mr O'Toole was not a party to the action and no claim has been made against him. Counsel for the solicitors submitted that the relief claimed, that is the proposed order, was not sought in either the originating summons or in the amended statement of claim. This submission was made despite the concession that the foundation for the Association's application for the order was the finding that Mr Tiao had no authority to engage a solicitor on behalf of the Association, a finding which led to the making of a declaration that neither Mr O'Toole nor Butcher Paull & Calder were validly engaged as solicitors for the Association.
26 Senior counsel for the solicitors correctly point out that the jurisdictional basis for the application for the proposed order against the solicitors has not been identified. It was not identified by counsel for the plaintiff when first sought and was not identified by the court in the reasons for decision delivered on 22 May 2009. Counsel for the solicitors submitted that the foundation for the order sought, which is identified in the preceding paragraph, suggests that the order is sought as a
(Page 11)
- consequential order following the declaration and as part of the relief sought in the action. Alternatively, it was submitted, the order may be based on O 66 r 5(1)(e) of the Rules of the Supreme Court.
27 As I have indicated, it was indeed O 66 that I had in mind when foreshadowing the making of an order against the solicitors, rather than simply making the order as a consequence of the declaration. However, in my view, the repayment of the monies would be a logical consequence of the finding that Mr Tiao had no authority to engage solicitors on behalf of the Association, in circumstances where this issue was central to the trial and where Mr O'Toole was well and truly put on notice that his authority to act on behalf of the Association was doubted. However, whether the order can or should be made in those circumstances would also need to be determined.
28 It was submitted by senior counsel for Mr O'Toole that, because the plaintiff failed to join Mr O'Toole as a party to the action, he is not bound by the result: Amon v Raphael Tuck & Sons Ltd [1956] 1 QB 357, 380. It was further submitted that the court has no jurisdiction over persons other than those properly before it as parties or persons treated by statutory authority as if they were parties. Accordingly, it was submitted, unless a person is properly joined as a party to the proceedings or properly bound to the outcome, he or she is not bound by the judgment or order of the court: Templeton v Leviathan Pty Ltd (1921) 30 CLR 34, 70. Accordingly, it was argued, as a matter or jurisdiction, the order sought by the plaintiff should not be made as relief in the action following the declaration.
29 On behalf of the Association it was argued that there are exceptions to the general principle. However, the circumstances which applied in the authorities on which counsel for the Association relies are in no way analogous to the circumstances in this case: see for example, Harrison v Goodland (1944) 69 CLR 509, which allows for injunctions to be granted against servants or agents of a party but who are not themselves parties to the action; Carnie v Esanda Finance Corporation Ltd (1995) 182 CLR 398, [6] which deals with representative actions.
30 However, as I have indicated, it was Mr O'Toole's role as solicitor which was the basis of the proposed order. The role of a solicitor as an officer of the court puts him or her in an entirely different situation from any other non-party against whom an order is sought to be made: Myers v Elman [1940] AC 282, 303. Counsel for the Association referred to a number of authorities where costs orders have been made against
(Page 12)
- solicitors for commencing proceedings without authority. In Hoskins v Van Den-Braak (1998) 43 NSWLR 290 the court referred to the decision in Fricker v Van Grutten [1896] 2 Ch 649, 658 - 659 where the solicitor who had acted without authority was ordered to indemnify the plaintiff against all costs and to pay the costs of the defendant. It was further submitted that it is commonplace to make orders that a solicitor who commences proceedings without authority must pay the defendant's costs of challenging the supposed retainer: AW & LM Forrest Pty Ltd v Beamish (1998) 146 FLR 450, 458 - 460; Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker (1982) 44 NSWLR 421, 431. In Myers v Elman (319) the following statement was made by Lord Wright:
The underlying principle is that the Court has a right and a duty to supervise the conduct of its solicitors and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally, as was said by Ablinger CB in Stephens v Hill (1842) 10 M & W 28. The matter complained of need not be criminal. It need not involve speculation or dishonesty. A mere mistake or error of judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor's duty to ascertain with accuracy may suffice. Thus, a solicitor may be held bound in certain events to satisfy himself that he has a retainer to act, or as to the accuracy of an affidavit which his client swears. It is impossible to enumerate the various contingencies which may call into operation the exercise of this jurisdiction. It need not involve a personal obliquity. The term 'professional misconduct' has often been used to describe the ground which involves a failure on the part of a solicitor to fulfil his duty to the court and to realise his duty too. The summary procedure may often be invoked to save the expenses of an action. Thus it may in proper cases take the place of an action for negligence or an action for breach of warranty of authority brought by the person named as defendant in the writ. The jurisdiction is not merely punitive but compensatory. The order is for payment of costs thrown away or lost because of the conduct complained of. It is frequently, as in this case, exercised in order to compensate the opposite party to the action.
(Page 13)
32 It was accepted on behalf of the solicitors that the court has jurisdiction over members of the legal profession, including a jurisdiction to tax accounts, make costs orders and exercise supervision, without the practitioner being made a party. However, it was submitted that it was not appropriate in this case to exercise that power.
33 It was further submitted that the order sought goes beyond the orders made in the authorities cited on behalf of the Association which concern indemnification against costs and payment of other litigant's costs. Irrespective of whether the order sought goes beyond the specific orders made in the authorities, I do not accept that it goes beyond the scope of the principle identified in them.
34 The relevant part of O 66 r 5(1) provides:
(1) Where in any proceedings costs are incurred by a party –
(a) as a result of any improper, unreasonable, or negligent act or omission; or
(b) ...
the court may order any practitioner whom it considers to be responsible (whether personally or through a servant or agent) -
(c) ...
(d) …
(e) to refund any relevant costs or fees which may have been paid already.
35 It can be seen that the jurisdiction to award costs arises where costs are incurred by a party as a result of any improper, unreasonable or negligent act or omission. The court can order the practitioner, inter alia, to refund any costs or fees which have been paid already. Assistance as to the meaning of the terms 'improper', 'unreasonable' and 'negligent' can be found in the judgment of Sir Thomas Bingham MR in Ridehalgh v Horsefield (861 - 862):
'Improper' means what it has been understood to mean in this context for at least half a century. The adjective covers, but is not confined to, conduct which would ordinarily be held to justify disbarment, striking off, suspension from practice or other serious professional penalty… But it is not in our judgment limited to that. Conduct which would be regarded as improper according to the consensus of professional (including judicial)
(Page 14)
- opinion can fairly be stigmatised as such whether or not it violates the letter of a professional code.
'Unreasonable' also means what it has been understood to mean in this context for at least half a century. The expression aptly describes conduct which is vexatious, designed to harass the other side rather than advance the resolution of the case, and it makes no difference that the conduct is the product of excessive zeal and not improper motive. But conduct cannot be described as unreasonable simply because it leads in the events to an unsuccessful result or because other more cautious legal representatives would have acted differently. The acid test is whether the conduct permits of a reasonable explanation. If so, the course adopted may be regarded as optimistic and as reflecting on a practitioner's judgment, but it is not unreasonable.
The term 'negligent' was the most controversial of the three… But for whatever importance it may have, we are clear that 'negligent' should be understood in an untechnical way to denote failure to act with the competence reasonably to be expected of ordinary members of the profession.
In adopting an untechnical approach to the meaning of negligence in this context, we would however wish firmly to discountenance any suggestion that an applicant for a wasted costs order under this head need prove anything less than he would have to prove in an action for negligence.
36 Sir Thomas Bingham MR then referred to the following quote by Lord Diplock in Saif Ali v Sydney Mitchell & Co [1980] AC 198, 218:
Advice, acts or omissions in the course of their professional work which no member of the profession who was reasonably well-informed and competent would have given or done or omitted to do… [an error of judgment] such as no reasonably well informed and competent member of that profession could have made.
37 The Master of the Rolls also noted that the Court of Appeal was invited to give the three adjectives ('improper', 'unreasonable' and 'negligent') specific, self-contained meanings, so as to avoid overlap between the three, but declined to do so. It was held in Ridehalgh v Horsefield (862) that conduct which is unreasonable may also be improper, and conduct which is negligent will very frequently be (if it is not by definition) unreasonable. The Court of Appeal did not consider that any sharp differentiation between the expressions would be useful, necessary or intended.
38 It was submitted on behalf of Mr O'Toole that there was no evidence that Mr O'Toole acted unreasonably, improperly or negligently. In particular, it was submitted, there was no evidence from Mr O'Toole as to
(Page 15)
- the circumstances in which he was retained and those circumstances would have a significant bearing on the appropriateness of an order being made against Mr O'Toole personally. It was further said that the finding that Mr O'Toole was on notice with respect to the issue of authorisation, and that it was not a situation where it would have been reasonable to accept the word of either of the first defendants that authorisation existed, does not amount to a finding that his conduct meets the criteria set out in O 66 r 5(1)(a).
39 Counsel for Butcher Paull & Calder joined in the submission that there was no evidence to support the making of the proposed order and, being counsel at trial, emphasised that, for whatever reason, counsel for the plaintiff chose not to address the issue in evidence. Therefore, it was submitted, any such order would be based on an untested assumption. However, the basis of the proposed order was a tentative finding that there was in fact no authorisation and nothing on which Mr O'Toole could have relied to satisfy himself that he was authorised to act on behalf of the Association
40 The remainder of the written submissions made on behalf of Mr O'Toole would be of considerable substance if it were the plaintiff who was pressing for the order. However, that is no longer the case. The proposition contained in those submissions that the plaintiff seeks to extend the jurisdiction to allow one party to litigation to seek an order that the solicitor on the record for an opposite party disgorge to that opposite party fees received by the solicitor, is not entirely accurate. Here, a defendant party purporting to act on behalf of another defendant party in engaging solicitors is found to have no authority to engage solicitors, nor indeed to act on behalf of that other defendant. In my view, that is an entirely different matter to the situation posited by senior counsel for the solicitors.
41 The final submission made by counsel for Butcher Paull & Calder was that one of the resolutions passed at a meeting of members on 26 February 2005 was an omnibus ratification of all past actions of Mr Tiao and others. Therefore, it was said, there was evidence of authorisation because engagement of solicitors on behalf of the Association fell within the conduct ratified at the meeting on 26 February 2005 and any request for authorisation could have been met with a copy of the minutes of that meeting. Counsel further submitted that the court would be required to determine that Mr O'Toole was not aware or was not made aware of the 26 February 2005 resolution before the court could make him disgorge the costs and there was no evidence on this issue.
(Page 16)
42 According to counsel, the fact that Mr Tiao was later found not to be a credible witness, that the meeting of 26 February 2005 was declared invalid, and the actual wording of the resolution was not in fact a ratification, has no impact on the proposition that the ratification resolution of 26 February 2005 provided an appropriate basis for acting on behalf of the Association on the instructions of Mr Tiao.
43 Counsel for the Association submitted that the solicitors have remained silent on the critical issue of the formal appointment to represent the Association when a response is expected. I am not persuaded that, in the present circumstances, there is any obligation on the solicitors to provide evidence on the circumstances of their appointment. The Association has not sought to institute separate proceedings in which it would be expected that the solicitors would give evidence of the matters raised in their defence. Further, although it was then Mr Lai who was the plaintiff in the action against the first defendants and the Association, no attempt was made at trial to question Mr Tiao about the issue of his authorisation to engage council on behalf of the Association. Neither can I see any reason why Mr O'Toole or Butcher Paull & Calder should, on a costs application, provide the evidence that the applicant might need in order to obtain the order. There is a sufficient evidentiary basis for the order sought or there is not. There can be no expectation that the solicitors should fill any evidentiary deficiency.
44 Some of the submissions of counsel for the Association were addressed to the proposition that Mr O'Toole should have arranged for the Association to have separate representation. In my view, this proposition is no more than a consequence of a conclusion that Mr O'Toole should have been aware that there was no authorisation for Mr Tiao to engage him on behalf of the Association and does not further advance the issue of whether an award of costs should be made against Mr O'Toole.
45 Another submission made by counsel for the Association was that, in order to prepare for trial, Mr O'Toole would have had to go through all of the information later adduced in evidence and on going through all of that information it should have become quite apparent, as it did to the Court, that there existed a real problem as to the propriety of him being engaged by Mr Tiao to act on behalf of the Association. I have already referred to Ridehalgh v Horsefield (863) where the English Court of Appeal made reference to the established principle that a legal representative is not to be held to have acted improperly, unreasonably or negligently simply because he acts for a party who pursues a claim or a defence which is plainly doomed to fail. In my view, even if Mr O'Toole formed an
(Page 17)
- adverse view on the strength of the defence case in the course of preparing for trial, that would not provide a basis for the costs order sought.
46 Counsel for the Association further submitted that there were other matters which should have put the solicitors on notice that Mr Tiao's authorisation was questionable. The fact that the Level Holdings contract was signed but not under seal was said to be one such matter which should have resulted in the solicitors concluding that it was necessary for a general meeting to be held to obtain affirmation of Mr Tiao's authorisation. The difficulty with this proposition was that the dispute as to membership, which was also to be resolved at trial, was a clear impediment to obtaining any definitive solution to the issue of authorisation.
47 There is, in fact, no dispute that Mr O'Toole was put on notice. The issue before this court is what he was required to do as a result of being put on notice. Although he clearly had to make some inquiry, what he does not have to do is make his own determination of the credibility of his client or of the veracity of his client's claim. With respect to the solicitors’ proposition that any inquiries would have revealed the resolution at the 26 February 2005 meeting which purported to authorise all of Mr Tiao's past acts on behalf of the Association, counsel for the Association submitted that being made aware of the resolution of 26 February 2005 was not a sufficient answer to the making of the costs order sought. It was said that Mr O'Toole would then have had to look at the validity of the meeting, including whether the appropriate people were given notice of meeting. Counsel further submitted that, when provided with the resolution, Mr O'Toole should have considered it and questioned why the members would want their money to be spent in that way and whether the resolution was in the interests of the Association. It was also said that many aspects of the resolution should have forewarned Mr O'Toole but he merely accepted it at face value.
48 I do not accept that Mr O'Toole was obliged to make any inquiries in relation to the validity of the resolution or the meeting or whether it was in the interests of the Association. Those issues were raised in the pleadings and were for the court to resolve on the evidence. Further, as I have already mentioned, a solicitor is not required to judge the strength of the case and to decline to act if it is unlikely to succeed. The fact that Mr O'Toole may have accepted the information from, and the point of view of, Mr Tiao is not, of itself, a reason to make him repay the monies paid to him for his legal services.
(Page 18)
49 For the reason to which I am about to refer, it is not necessary to decide the various legal issues raised in opposition to the order for reimbursement of costs which is sought by the Association. The complete answer, in my view, is a factual one.
50 I accept that the Court should not make the order sought against the solicitors unless, proceeding with extreme care, I am satisfied there is nothing the practitioner could say if unconstrained to resist the order and that in all the circumstances it is fair to make it: Medcalf v Mardell [2003] 1 AC 120, 134, 140, 151.
51 It is correct to state that there was no Board or members resolution produced which specifically justified the engagement by Mr Tiao of solicitors on behalf of the Association. In order to fully understand the situation which applied to the Association at the relevant time it is necessary to read the judgment delivered on 12 February 2009. Nevertheless, there are a number of matters which can be briefly mentioned. Mr Tiao, a director of the Association, with the assistance of Hui Ping Wang, another director, was running the Association without holding meetings of directors, general meetings or annual general meetings. One of the primary issues at trial was the actual membership of the Association. When Mr Tiao was operating the Association he formed the view that, under the constitution which had at that time only recently been translated, those people who had been considered the members of the Association were not, in fact, members. Those people were excluded from membership and not advised of any meetings when such meetings were ultimately held. Mr Tiao then commenced to admit certain people to membership. They were the only people who were invited to the meetings which were held when his management of the Association was challenged by the plaintiff. Another issue at trial was the validity of these meetings and the resolutions purported to be passed at them.
52 A meeting did take place on 26 February 2005 at which a resolution was passed which, according to the English translation produced in evidence, purported to ratify and confirm all acts, actions, deeds, transactions and omissions of whatever nature of each and every person that had acted or purported to act for or on behalf of the Association. The effect of such a resolution would be to retrospectively ratify Mr Tiao's actions, which would include the action of engaging legal representation for the Association. However, an independent translation of the minutes of that meeting, obtained at the conclusion of the trial, revealed that the terms of the actual resolution passed was to ratify and confirm all past resolutions and projects and hence could not have ratified Mr Tiao's
(Page 19)
- actions in engaging solicitors. The conclusion reached, as expressed in the judgment delivered on 12 February 2009, was that Mr O'Toole and then subsequently Butcher Paull & Calder were not validly engaged as solicitors for the Association
53 An order to disgorge costs paid to the solicitor from the funds of the entity for whom the solicitor purported to act but had no authorisation to do so, may well be justified in terms of exercising an appropriate supervisory function against an officer of the court. In my view, where it is established that a solicitor, after being put on notice, failed to make inquiries confirming authorisation or, having made inquiries, became aware that no authorisation existed, it is appropriate to make such an order. In this case, the preliminary view about making a costs order against the solicitors was based on a conclusion that, on the evidence, the solicitor did not and could not have made any proper inquiry because, as was evident from the trial, no such authorisation existed, it not being a situation where simply the word of the person instructing would be sufficient. It must also be kept in mind that, in this case, all the available evidence of authorisation would be in the hands of the person said to be authorised to engage solicitors on behalf of the Association.
54 As I have noted, it was apparent from the independent translation of the minutes of the 26 February 2005 meeting that no resolution passed at that meeting could provide any authorisation for Mr Tiao to engage solicitors on behalf of the Association, nor to use Association funds to meet the costs of representation. However, that translation was not provided until after the trial and before judgment was delivered. On the translation available before and at the time of trial, one resolution from that meeting purported to ratify all previous actions of Mr Tiao and others. Therefore, on its face, it constituted a ratification of Mr Tiao's conduct in engaging solicitors on behalf of the Association. It was not for Mr O'Toole to make an assessment of the evidentiary value of the document, the validity of the meeting or any other aspect of the meeting and the resolution. All these issues were for the Court to determine and were determined. In the context of identifying whether Mr Tiao was entitled to retain solicitors, it was entirely irrelevant that the 26 February 2005 meeting was found to be invalid and that the terms of the resolution were not as appeared in the English translation on which the first defendants relied and did not, in fact, authorise Mr Tiao's actions.
55 It is relevant that, as a result of the existence of the resolution from the 26 February 2005 meeting, it cannot be said, as was first thought, that, if Mr O'Toole had made the inquiry expected of a prudent solicitor, he
(Page 20)
- would not have found any authorisation for Mr Tiao to have engaged him as counsel for the Association.
56 In my view, the factual matter raised by Mr McGowan is a complete answer to the concern I expressed in my preliminary observations. It was only where any inquiry could not have identified any authorisation that, in my view, the basis for a costs order would exist.
57 For these reasons, I am not prepared to make the costs order against the solicitors which is sought by the Association.
0
9
1