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New South Wales |
Case Name: | Marshall v Fleming |
Medium Neutral Citation: | [2017] NSWSC 1107 |
Hearing Date(s): | 1 May – 9 May 2017 |
Decision Date: | 24 August 2017 |
Jurisdiction: | Common Law |
Before: | Payne JA |
Decision: | The Court makes the following orders: |
Catchwords: | PRIVATE INTERNATIONAL LAW – doctrine of indemnification under the common law of New York –dispute over distribution of settlement funds from proceedings determined in Pennsylvania |
Legislation Cited: | Evidence Act 1995 (NSW) |
Cases Cited: | Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 |
Category: | Principal judgment |
Parties: | Margaret Lesley Marshall (First plaintiff) |
Representation: | Counsel: |
File Number(s): | 2009/292935 |
JUDGMENT
PAYNE JA: These proceedings have a lengthy and unhappy history. The proceedings involve a damages claim by Mrs Marshall and her son Mr Kim Marshall against their former attorneys, the members of Kreindler & Kreindler, a law firm based in New York. For ease of reference I will refer to the respondents in this judgment as “Kreindlers”. The remainder of this judgment is structured as follows:
SUMMARY OF CONCLUSIONS_Toc491099400 [2]-[14]
FACTUAL BACKGROUND_Toc491099401 [15]-[18]
The Family Provision Act proceedings_Toc491099402 [19]-[22]
Pennsylvania proceedings_Toc491099403 [23]-[42]
Settlement of the Pennsylvania proceedings_Toc491099404 [43]
Distribution of settlement moneys_Toc491099405 [44]-[58]
The undertakings_Toc491099406 [59]
Transfer of settlement moneys_Toc491099407 [60]-[63]
Carruthers proceedings_Toc491099408 [64]-[68]
Prescott proceedings_Toc491099409 [69]-[72]
Release from the undertaking in respect of one half of the fund_Toc491099410 [73]-[74]
The resolution of the Prescott proceedings and the Carruthers proceedings_Toc491099411 [75]-[81]
PROCEEDINGS ON BEHALF OF THE PLAINTIFFS AFTER DISTRIBUTION OF THE SETTLEMENT_Toc491099412 [82]
Prescott recovery proceedings_Toc491099413 [83]-[91]
Kreindlers proceedings_Toc491099414 [92]-[108]
THE EVIDENCE LED BY THE PARTIES_Toc491099415 [109]-[117]
IS THE ONLY CASE RELIED UPON BY THE PLAINTIFFS IN CLOSING SUBMISSIONS OPEN TO THEM?_Toc491099416
The plaintiffs’ pleading_Toc491099417 [118]-[123]
The case developed by the plaintiffs in opening submissions_Toc491099418
(A) Case opened by the plaintiffs based on the pleading_Toc491099419 [124]-[129]
(B) The plaintiffs’ fall-back: an unpleaded case referred to in opening - malpractice_Toc491099420 [130]-[136]
The only case relied upon by the plaintiffs in closing submissions_Toc491099421 [137]-[144]
Consideration of whether the plaintiffs are entitled to rely in closing submissions on a case which was not pleaded or relied upon in the course of the trial_Toc491099422 [145]-[165]
EVEN IF THE PLAINTIFFS ONLY CASE IS PERMITTED TO BE RELIED UPON, IS INDEMNIFICATION UNDER THE LAW OF NEW YORK MADE OUT?_Toc491099423 [166]-[167]
The New York law of indemnification_Toc491099424
Overview of expert evidence about New York law_Toc491099425 [168]-[176]
Consideration of the content of New York law_Toc491099426 [177]-[205]
Application of principles of New York law in this case_Toc491099427 [206]-[270]
CAUSATION_Toc491099428 [271]-[274]
Conclusions about causation_Toc491099429 [275]-[277]
DAMAGES_Toc491099430 [278]-[289]
CONCLUSION AND ORDERS_Toc491099431 [290]
SUMMARY OF CONCLUSIONS
The underlying subject matter which eventually led to the proceedings was an aircraft accident which occurred in South Australia over 17 years ago in May 2000 in which Mrs Marshall’s former husband, Mr Neil Marshall, died.
Kreindlers, acting through an agent, caused proceedings to be commenced in Pennsylvania relating to the aircraft accident. In June 2003, over 14 years ago, the proceedings in the Pennsylvania court were dismissed by consent following a settlement.
In 2009, over eight years ago, the present proceedings were commenced in this Court. After a lengthy and unnecessarily protracted series of interlocutory disputes, responsibility for which is not a matter before me, the only claim ultimately advanced on behalf of Mrs Marshall was a claim for damages under the doctrine of indemnification arising under the law of New York.
The plaintiffs’ case alleging the existence of an obligation of indemnification owed by Kreindlers was one that developed over the years during which the proceeding was the subject of these interlocutory disputes. By the time the case was opened by the plaintiffs’ counsel in May 2017, the case was solely that Kreindlers were liable in indemnification under New York law as Mrs Marshall had satisfied an obligation to a third party, a Ms Carruthers (who was the de facto partner of Mr Neil Marshall at the time of his death), which obligation Kreindlers believed, incorrectly, it also owed to Ms Carruthers.
In the course of the trial it became clear that the case that was opened on behalf of Mrs Marshall was hopeless. New York law, on the expert evidence before me, would not recognise an indemnification claim against Kreindlers to make good an obligation satisfied by Mrs Marshall which Kreindlers believed, incorrectly, it owed to Ms Carruthers. There were numerous additional difficulties with the case opened on behalf of Mrs Marshall, but this issue was fatal.
The case that was the subject of closing submissions on behalf of the plaintiffs accepted that the way the case had been opened and conducted contained a fatal defect in this respect. A new case was formulated on the plaintiffs’ behalf which, it was submitted, arose on the evidence before me. That case, contrary to the way the case on behalf of Mrs Marshall had been pleaded and conducted, was that Kreindlers did in fact owe a concurrent legal duty under New York law to each of Mrs Marshall and Ms Carruthers. That legal obligation owed by Kreindlers to Ms Carruthers was said to arise under Rule 1.15 of the New York State Unified Court System Rules of Professional Conduct. Mrs Marshall, it was submitted, had discharged the legal obligation owed by Kreindlers to Ms Carruthers by paying her lawyers Turner Freeman to conduct legal proceedings in the Supreme Court of New South Wales against Ms Carruthers.
Counsel for Kreindlers strenuously objected to this re-formulated case and submitted that the new case had not been pleaded. It was submitted that the case had not been conducted on the basis that Kreindlers in fact owed a legal obligation under New York law to Ms Carruthers. After expressing the preliminary view that the issue sought to be agitated had not been pleaded and it should have been, I gave counsel for the plaintiffs the opportunity to take instructions about whether to seek to amend her pleadings. Following an adjournment, no application to amend the pleadings was made.
Counsel for the plaintiffs accepted that the case sought to be advanced had not been pleaded and was not opened, and that the new case was inconsistent with the case which had been opened. It was submitted that the case was nevertheless open to the plaintiffs on the evidence which had been led and, in a way consistent with High Court authority, I should decide the new case on the basis of the evidence led at the trial.
Although it is difficult not to feel considerable sympathy for Mrs Marshall and the ordeal by litigation she has faced over 17 years, the attempt by her advisors to rely in closing submissions on a case which was not pleaded and which was directly inconsistent with the case that was advanced in opening submissions and during the evidence at the trial must be rejected. It would be fundamentally unfair to Kreindlers to permit the plaintiffs to rely on a case identified for the first time in closing submissions. In this case Kreindlers could, and I accept would, have led additional and different evidence to meet the new case if they had been given proper notice of it, as they should have been.
At the very least, the new case would have been the subject of some evidence. In the trial, evidence was given by very experienced New York lawyers, Mr William P Holm and Mr Joseph Bellacosa. I found the evidence of Mr Bellacosa, in particular, to be very helpful in understanding the content of New York law. Mr Bellacosa is an eminent lawyer and academic, having served with distinction on the New York Court of Appeal in the period 1987 - 2000. Had the new case sought to be advanced on behalf of the plaintiffs been identified prior to the closing submissions, questions could have been addressed to Mr Bellacosa about the content of New York law in relation to the new alleged obligation said to be owed by Kreindlers to Ms Carruthers. Although counsel for the plaintiffs was given leave to ask questions of Mr Bellacosa about the content of New York law relating to this topic, initially on the voir dire, no such questions were asked.
In these circumstances, the plaintiffs should not be permitted to depart from their pleaded case and rely on a case that Kreindlers in fact owed a legal obligation under New York law to Ms Carruthers. The amended statement of claim must be dismissed. If such a case were to be conducted, it should have been the subject of a formal amendment application. In such an application the principles explained by the High Court in AonRisk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 would have required consideration. The difficulties confronting an application for amendment in these circumstances are obvious.
Even if I am wrong in determining that the plaintiffs should not be permitted to rely on the case identified for the first time in closing submissions, I would conclude on all the evidence before me that, under the law of New York, Kreindlers did not owe a duty to Ms Carruthers of the kind alleged. Simply put, that duty was inconsistent with the expert evidence about the content of New York law. The plaintiffs bore the onus of proving, as a fact, the content of New York law and it failed in that regard.
There are numerous additional difficulties in the case belatedly presented on behalf of the plaintiffs. I would also dismiss the case for these additional reasons.
FACTUAL BACKGROUND
By further amended statement of claim dated 22 November 2016, the plaintiffs claim damages under the doctrine of indemnification under the common law of New York.
To understand how it is that a claim such as this comes to be heard in the Common Law Division of the Supreme Court of New South Wales in 2017, it is necessary to recite in a little detail events that commenced over 17 years ago.
On 31 May 2000, the late Mr Neil Marshall was killed in a Whyalla Airlines aircraft accident in the Spencer Gulf in South Australia. At the time of his death Mr Neil Marshall was in a de facto relationship with Ms Linda Carruthers. However at the time of his death he was still legally married to the first plaintiff in these proceedings, Mrs Margaret Marshall. They had one son, being the second plaintiff, Mr Kim Marshall. Mrs Marshall was the executrix of Mr Neil Marshall's will. She and her son were the only beneficiaries.
In these proceedings the plaintiffs sue attorneys from Kreindlers, a firm of New York lawyers specialising in aircraft accident litigation. For the purposes of understanding the context giving rise to the present proceedings, and how it is that the only relevant cause of action before me is one arising under the common law of New York, it is necessary to set out the lengthy procedural history in some detail.
The Family Provision Act proceedings
On 9 November 2000, probate of Mr Neil Marshall’s will was granted to Mrs Marshall. In December 2000, Ms Carruthers commenced proceedings in the Supreme Court of New South Wales under the Family Provision Act1982 (NSW) (the FPA proceedings) seeking provision out of the estate of Mr Neil Marshall.
On 26 July 2001, Ms Carruthers obtained a judgment in her favour in the Compensation Court of NSW for a $200,000 dependant spouse death benefit payable to her as Mr Neil Marshall’s surviving “spouse”.
On 3 August 2001, Macready AsJ made orders in the FPA proceedings awarding Ms Carruthers a half interest in Mr Neil Marshall’s property on certain conditions, as well as certain items of personalty. Mr Kim Marshall also received a legacy out of the estate.
On 22 February 2002, Mrs Marshall's appeal against Macready AsJ's judgment was upheld (Marshall v Carruthers; Marshall v Marshall [2002] NSWCA 47). Hodgson JA (with whom Young CJ in Eq and Palmer J agreed) found that Ms Carruthers had failed to establish that the provision made for her by Mr Neil Marshall “was inadequate for her proper maintenance” (at [67]). In the judgment, Hodgson JA referred to Ms Carruthers as Mr Neil Marshall's “de facto wife”.
Pennsylvania proceedings
In May 2001, whilst the FPA proceedings were ongoing, Mr Prescott, an Adelaide solicitor, contacted the Marshalls to inquire whether they might be interested in participating in an action in the US in relation to claims against entities associated with Textron Lycoming Inc. (Lycoming), the manufacturer of the engine in the aircraft involved in the accident in which Mr Neil Marshall died. The proposed actions were for wrongful death and survival. Mrs Marshall referred Mr Prescott to her Sydney based solicitor, Mr Goldberg from Turner Freeman. At the time of this approach Mr Prescott was also acting for Ms Carruthers as a potential beneficiary of the action, together with families of other victims of the crash. Mr Prescott was responsible for coordinating those claims and liaising with attorneys from Kreindlers.
Mr Prescott obtained litigation funding from Insolvency Litigation Fund Pty Ltd (ILF) for himself and counsel retained by him, Mr Greenwell, to travel to the US and investigate the viability of proceedings in relation to the crash.
On 21 November 2001, Mrs Marshall signed the funding agreement with ILF on her own behalf and on behalf of Mr Kim Marshall. In January 2002, Kreindlers advised Turner Freeman that Mrs Marshall was obliged to bring the anticipated proceedings (which became the Pennsylvania proceedings) as the legal representative of herself, Kim, the deceased’s estate, and Ms Carruthers together as persons entitled to receive damages for wrongful death or survival actions under Pennsylvania law.
On 7 February 2002, Mr Prescott sent a letter to all of the potential parties, including Mrs Marshall’s solicitor Mr Goldberg, updating them on the outcome of his research into liability, the appropriate forum and the obtaining of litigation funding.
In February or March 2002, a draft retainer was sent by Kreindlers to Mr Greenwell and Mr Prescott to be executed by estate representatives in relation to claims arising out of the aircraft accident.
On 21 March 2002, following an exchange of emails between Mr Prescott and Mr Goldberg, Mrs Marshall retained Kreindlers in her capacity as executrix of the deceased’s estate, on her own behalf and on behalf of Mr Kim Marshall, on whose behalf she held the entire estate of the deceased as trustee of a testamentary trust for Kim’s benefit, to bring an action for damages in the US against the manufacturer of the fuselage and engine of the plane involved in the fatal crash.
On the same day, each of Mrs Marshall and Mr Kim Marshall separately signed a revised funding agreement with ILF, which provided for the funding of the anticipated proceedings. That agreement required Mrs Marshall and Mr Kim Marshall to retain, inter alia, Mr Prescott.
On 29 May 2002, Kreindlers, acting through Pennsylvania agents, then known as Rieders, Travis, Humphrey, Harris, Waters & Waffenschmidt, commenced proceedings in the United States District Court Middle District of Pennsylvania seeking damages for the negligent manufacture of the fuselage and engines on the aircraft involved in the Whyalla Airlines accident (Pennsylvania proceedings).
The plaintiffs were described in the complaint as “Margaret Lesley Marshall and Kim Neil Marshall, individually and as Executors and Personal Representatives of the Estate of Neil Marshall, Deceased”. The complaint included the following paragraphs:
“2. Plaintiffs MARGARET LESLEY MARSHALL and KIM NEIL MARSHALL have been or will be appointed Executors and Personal Representatives of the Estate of Neil Marshall (the 'Estate') and they bring this lawsuit in said capacity on behalf of the Estate and surviving family members of Neil Marshall.
...
20. As a result of the foregoing, the plaintiffs MARGARET LESLEY MARSHALL and KIM NEIL MARSHALL, the decedent's survivors and the Estate of Neil Marshall are entitled to recover the full wrongful death and survival compensatory damages, including damages for loss of the decedent's earnings, loss of support, loss of services, loss of prospective inheritance and future accumulations, loss of protection, care, counsel, society and companionship, loss of parental training, education, care and guidance, loss of consortium, the decedent's mental and physical pain and suffering and fear of impending death, burial and funeral expenses, punitive damages and other damages for economic and intangible losses as may be permitted by Pennsylvania law.” (emphasis added)
The complaint concluded with the following recitation:
“Wherefore, plaintiffs MARGARET LESLEY MARSHALL and KIM NEIL MARSHALL, as Executors and Personal Representatives of the Estate of Neil Marshall, deceased, and on behalf of all heirs and next of kin of Neil Marshall, deceased, demands judgment against defendants ...” (emphasis added)
On 21 June 2002, Mr Prescott wrote to Turner Freeman, confirming that the Pennsylvania proceedings had been commenced.
Between 29 July 2002 and 1 August 2002, there was email correspondence between Mr Green of Kreindlers and Mr Goldberg of Turner Freeman in respect of the Pennsylvania proceedings. I will set out the relevant extracts from those exchanges below.
On 29 July 2002, Mr Goldberg sent an email to Mr Green stating:
“…As I have previously advised you, all matters relating to damages in respect of Kim Marshall and Margaret Marshall and have to be dealt with directly by me, and not Prescotts. We do not and cannot act for Linda Carruthers. I have discussed these issues with Michael Prescott and as I understand it, he and his client agree with this approach…I thought this action was being brought by the individuals, Margaret, Kim (and Linda) for their losses…Is this a personal loss of Kim and Margaret and Linda [Carruthers] or a loss of the estate of Neil Marshall?…I am not trying to be obstructive but if you understand the background to the litigation that has occurred here between the Marshalls and Carruthers, then you will understand why this approach is necessary…”
On 30 July 2002, Mr Green replied to Mr Goldberg saying:
“The actions in the US have been, and had to be, brought by the personal representative of the decedent’s estate, but are brought on behalf of the estate and the decedent’s survivors. If the Court applies US law, each dependant survivor will obtain an award for loss of support and an award will be made to the estate for the decedent’s pre-death pain and suffering. If there are no dependent survivors, an estate accumulations award will be made to the estate and will go to the estate beneficiaries… .”
On 31 July 2002, Mr Goldberg responded:
“In my opinion there are potential problems in you acting for Carruthers and for my clients. Their respective interests are not the same and part of the problem in supplying the information you want is caused by their conflicts”.
On 1 August 2002, Mr Green responded:
“I do not perceive any conflict - - I have been retained by each decedent’s estate and my only role is to maximise the recovery for each defendant’s estate. I will not be involved with any intra or inter-family disputes and the distribution of the monies is a separate issue.”
The debate continued in an exchange of emails on 5 August 2012. Mr Goldberg emailed Mr Green saying:
“…Thank you for clarifying the situation…Our client has an objection to you communicating with Carruthers in any way or even acting in her interests. How do you propose to manage that? The Court of Appeal in New South Wales has ruled that Linda Carruthers has no interest in the estate at all…”
Mr Green replied that same day:
“Thanks. We only act for the estate – to the extent that there is a dispute between people who claim to have an interest in the estate we cannot become involved because of conflict of interest. If Linda Carruthers was not dependent on the decedent and doesn’t have an interest in the estate, then there won’t be any dispute. But let’s cross that bridge when we come to it. First, we must survive the forum non conviens challenge and then prove Lycoming liable.”
On 6 November 2002, Mr Green provided Mr Furman of Byrd, Davids & Eisenberg a confidential opinion of Mr Greenwell prepared for Mr John Walker, described as the “Funder”, concerning the rights of participants in the Pennsylvania proceedings to receive damages. It stated:
“…Linda Carruthers has a significant identifiable and pursuable dependency claim and I estimate that it potentially has a quantum value of $750,000.
A further claimant in the Marshall claim is of Margaret Lesley Marshall, the ex-wife of Neil Marshall. She was in receipt of maintenance payments and I estimate her claim to be in the vicinity of $30,000…”
In late 2002, Mr Green was approached by Lycoming’s counsel regarding the possibility of settlement and thereafter parties commenced settlement negotiations. During those negotiations, Kreindlers maintained the position that the law of Australia permitted recovery by Ms Carruthers from Lycoming based on the loss of Mr Neil Marshall’s financial support she had suffered.
Settlement of the Pennsylvania proceedings
Between 13 - 26 February 2003 there was further email correspondence between Mr Green and Mr Goldberg regarding wrongful death damages:
(1)on 13 February 2003, Mr Green advised, inter alia, Turner Freeman about the calculation of damages in the US;
(2)on 17 February 2003, Turner Freeman wrote to Kreindlers enclosing Mr Neil Marshall’s tax returns;
(3)on 21 February 2003, the Pennsylvania proceedings reached an in-principle settlement for a payment of 8.75% for the plaintiffs of the total US$5.5m settlement sum for all claimants, namely, US$481,250.00, out of which came the contingency fee of Kreindlers and ILF’s litigation expenses and fee;
(4)on 22 February 2003, Mrs Marshall was advised by Mr Goldberg that Kreindlers had successfully negotiated a settlement of the Pennsylvania proceedings; and
(5)on 26 February 2003, Mr Goldberg sent a letter posing a series of questions to Mr Green concerning the quantification of damage, the apportionment of amounts for economic loss and pain and suffering, and the taxation treatment of the amounts paid. He asked Mr Green a number of questions and concluded:
“…it is important that we obtain answers to [the questions] given that there have been substantial disputes in the past in respect of distributions of money flowing to the estate of [the] late Neil Marshall which has resulted in two sets of Court proceedings in New South Wales so far.”
Distribution of settlement moneys
On 8 April 2003, Turner Freeman wrote to Kreindlers requesting that the settlement moneys be distributed to them, after the deduction of Kreindlers’ contingency fee.
On 10 April 2003, Mr Goldberg wrote to Mr Green reiterating his request for Kreindlers to account to them for the settlement moneys. He asserted that the relevant “Australian law” was the law of New South Wales and the only persons with any rights to claim against the estate of the deceased person under that law were Mrs Marshall and Mr Kim Marshall. Mr Goldberg sent a further letter to Mr Green that day asserting that Ms Carruthers was a mere spectator to the Pennsylvania proceedings.
On 11 April 2003, Mr Green emailed Mr Goldberg his response which included the following:
“We have come up with a plan that will not put the Marshalls at risk. Usually, the best course is to have the third party agree to the distribution, even if they do not receive anything. Is that possible? If not a court of competent jurisdiction would have to rule on the distribution. That Court would have to be in Australia. If you are correct that Australian law would provide the full recovery to the Marshalls, it should be no problem getting a Court to order that distribution.
I suggest that we get an agreement that the entire net settlement be paid to Mrs. Marshall as estate representative and that settlement will be held in an interest bearing account until you get court approval to distribute it only to the Marshalls.”
That same day, Mr Goldberg sent a letter to Mr Green. He referred to the “frustration and anger” that he and his clients felt. He rejected Mr Green’s proposals in strident language. He told Mr Green to carry out his clients' instructions and stated that if they did not receive an “unequivocal acknowledgement” the plaintiffs would terminate Kreindlers’ retainer and instruct alternative lawyers in Pennsylvania to represent the plaintiffs’ interests.
On 13 April 2003, Mr Greenwell sent an email to Mr Green asserting that Ms Carruthers had an interest in the settlement moneys. I will set this out in full:
“Further to our telephone conversation on Friday night (local time) I indicated to you that Prescott had today sent me a letter from Turner Freeman dated 22nd March 2002, which I pass on to you for your attention. It's clear from that letter that Goldberg returned the signed Kreindler and Kreindler retainer agreement, executed by Margaret Marshall, on behalf of Kim Marshall and Linda Carruthers. At least at that stage, it would appear, that both Mr Goldberg and his client were aware that Margaret Marshall was the nominee for the estate of Mr Neil Marshall and that apart from any interest that she may or may not have they recognise that there are at least 2 other persons, Kim Marshall and Linda Carruthers, who also have an interest. She is a fiduciary with respect to those interests.”
On 15 April 2003, a four page letter was sent by Kreindlers to Mr Goldberg. It was signed by Mr Francis G. Fleming. Mr Fleming advised that he was “the oldest and most experienced lawyer” at Kreindlers. Mr Fleming passed over what he described as the “offensive remarks” in Mr Goldberg's letter and simply noted that the “tone and character” of Mr Goldberg's letter were not helpful. He then addressed the respective positions of Mr Goldberg’s clients and Ms Carruthers in respect of the proceeds of the settlement. His conclusion was that “[u]nder Pennsylvanian law, since Ms Carruthers has been recognized by an Australian Court as the de facto spouse, she would have a claim to the wrongful death recovery [component of the claim] assuming that Australian law treats de facto spouses as de jure spouses in these types of actions”. He continued:
“It would be best under these circumstances if you could resolve how to deal with these legal postures by agreement, but failing that, which appears to be the case, we are ethically prohibited from getting involved on behalf of one side or other of such disputes. Our professional responsibilities are to maximize the recovery from Lycoming, but once that is done we can take no part in a dispute on allocation.
One possible solution, as has been mentioned in our previous correspondence to you, would be to agree to a third party custodian to receive these proceeds in Australia and both sides agree to an informal and inexpensive alternate dispute resolution/arbitration. If you are correct on the law, there should be no problem obtaining the allocation that you seek. I welcome any alternative suggestions that you may have on how to deal with this issue in the most efficient and safest manner for the Marshalls.”
Kreindlers also offered to obtain a further opinion from Mr Cliff Rieders of Rieders, Travis, Humphrey, Harris, Waters & Waffenschmidt who was the local counsel engaged in Pennsylvania. Consistent with the position taken by Mr Green the previous year, Mr Fleming described Kreindlers’ role in the following terms:
“…we are ethically prohibited from getting involved on behalf of one side or other of such disputes. Our professional responsibilities are to maximize the recovery from Lycoming, but once that is done we can take no part in a dispute on allocation.”
On 24 April 2003, Mr Goldberg wrote to Mr Fleming rejecting his advice but indicating that he would take up the matter with Mr Rieders. On the same day he sent a five page letter posing 24 questions to Mr Rieders. Mr Rieders responded to this letter on 15 May 2003 with an eight page letter.
On 1 May 2003, Mr Green emailed Mr Goldberg saying he had been contacted by Mr George Tompkins, a leading aviation defence lawyer in the US who had been asked by solicitors acting for Ms Carruthers to provide advice concerning filing an action to prevent settlement monies being distributed solely to Mrs Marshall.
On 15 May 2003, Mr Rieders a letter in response to Mr Goldberg’s 24 questions posed in the 24 April 2003 letter. Although containing the caveats that Mr Rieders was a litigator and not an expert about the issues Mr Goldberg had enquired about, he opined in relation to question 3 (reproduced in bold below) that:
“…3. What is the consequence of the failure of Carruthers (who is not specifically named In the Complaint, nor described in the Complaint as a claimant nor whose rights are pleaded in the Complaint) to become a party in her own name to the action which was compromised by the recent agreement to pay the settlement amount in the context of determining the entitlements to the distribution of the settlement amount arising from the Pennsylvania action?
Whether she is a party in her own name is not determinative. A potential beneficiary of wrongful death proceeds does not need to be a party in her own name in order to have the right to participate in the recovery. Proper beneficiaries of wrongful death and survival actions, such as surviving spouses and issue, may seek to intervene in the action if the estate representative is not adequately representing their rights. In the instant situation, the Pennsylvania Court is likely to defer to the court overseeing the estate to determine who are the proper beneficiaries. Accordingly, it is very likely that Australian law would govern who the proper beneficiaries of the instant actions are.”
On 16 May 2003, a solicitor acting on behalf of Ms Carruthers from Australian solicitors Teece, Hodgson & Ward, Mr Neal, emailed Mr Green. He asked Mr Green to hold the settlement moneys in escrow pending the provision of a distribution statement or a court order. A letter was apparently attached from Mr Goldberg (which was not tendered before me). Mr Green immediately sent Mr Neal’s e-mail to Mr Goldberg via e-mail, stating:
“I just received the following email. Please provide your input on how I should respond to the email and explain your letter which Mr Neal attached to the email.”
On 23 May 2003, the plaintiffs terminated their retainer with Mr Prescott and foreshadowed seeking an injunction against him prohibiting conduct which breached the plaintiffs’ confidence in him by disclosing confidential information to Ms Carruthers’ lawyers that he received under his retainer with them, and from otherwise acting against their interests.
On 26 May 2003, Mrs Marshall was informed by Turner Freeman about the correspondence. She was advised by Mr Goldberg as follows:
“The only way we are going to be able to sort out the problem with Carruthers is to sign a release, have the money repatriated to Australia and placed in our trust account. For that to be done we will have to make some sort of agreement with Kreindler & Kreindler and Clifford Rieders as to what is to be done with the money.
The reason for this is their fear of breach of fiduciary duty to someone they see may be a potential claimant. They are happy to accept that she does not have a valid claim on the money and we have Chris Bevan’s advice to that effect but nonetheless, the only way they and we see that the matter can be dealt with and they are happy with is if the money is repatriated here and we formally write to her requesting advice as to whether she considers she has a claim on the monies and what that claim might be.”
On 12 June 2003, the Pennsylvania proceedings were formally dismissed by consent, subject to reinstatement if the settlement fund was not paid.
On 13 June 2003, Mrs Marshall on her own behalf and as executrix of the estate of the deceased, and on behalf of her son, entered into a settlement and release agreement with Lycoming.
The undertakings
On 25 June 2003, Turner Freeman, on behalf of the plaintiffs, gave Kreindlers the following written undertakings:
“1. We undertake not to release the fund received from the settlement of the litigation, except for payment to the litigation funder, IMF (Australia) Limited, without an order of the Supreme Court of New South Wales authorising release of the funds to the estate of the late Neil Marshall.
2. We undertake to receive the entire fund from Kreindler & Kreindler to hold on behalf of the estate of the late Neil Marshall.
3. We undertake to serve all Court process in respect of any application to the Supreme Court of New South Wales, seeking an order for release of the fund to the beneficiaries of the estate of the late Neil Marshall, in Linda Carruthers by way of personal service.”
Transfer of settlement moneys
On 9 July 2003, Mrs Marshall executed authorisation for the transfer of settlement monies intro Kreindlers’ escrow account.
Over the next few weeks, Kreindlers received the total settlement sum of US$5.5m and wire transferred US$364,662.82 (AU$471,997.32) (after reimbursing themselves an agreed fee and expenses), being the settlement moneys, to Turner Freeman.
On 16 July 2003, Turner Freeman transferred AU$51,885.75 (out of the settlement moneys) to ILF in payment of its 11.11% contingency fee relating to the plaintiffs’ share of the total settlement fund, leaving a net amount of AU$420,115.57.
On 17 July 2003, Ms Carruthers notified the plaintiffs that she opposed any distribution of the settlement moneys to the plaintiffs.
Carruthers proceedings
On 30 April 2004, Mrs Marshall commenced proceedings in the Supreme Court of New South Wales against Ms Carruthers concerning their respective entitlements to the settlement moneys (Carruthers proceedings).
On 15 October 2004, a defence and a cross-claim were filed on behalf of Ms Carruthers, which denied that the plaintiffs had any interest in the settlement moneys, claiming that Ms Carruthers had the sole entitlement to the settlement moneys and seeking payment of the moneys to her. It is apparent that in so doing Ms Carruthers was being assisted by an insurer, GIO. Although the evidence before me is sparse on this subject, it was common ground that GIO were acting in an attempt to seek a statutory recovery of the amount paid to Ms Carruthers in the proceedings referred to in paragraph [20] above.
On 22 October 2004, the plaintiffs communicated their objection to Mr Prescott to his acting for Ms Carruthers in the Carruthers proceedings.
On 20 June 2005, Mr Prescott apparently withdrew as solicitor on the record for Ms Carruthers in the Carruthers proceedings.
On 4 November 2005, Turner Freeman wrote to Mr Greenwell and Mr Prescott referring to the previous retainer from Mrs Marshall and demanding they each provide an undertaking not to act against Mrs Marshall’s interest or assist others to do so. Turner Freeman threatened to commence proceedings if their demand was not complied with.
Prescott proceedings
On 9 November 2005, Mrs Marshall commenced proceedings against Mr Prescott and Mr Greenwell by filing a summons in the Equity Division of this Court (Prescott proceedings).
On 16 November 2005, Barrett J ordered that Mr Prescott be injuncted from further assisting Ms Carruthers in the Carruthers proceedings or otherwise acting against the interests of the plaintiffs, communicating with various US firms of attorneys, including Kreindlers, producing to the Supreme Court of New South Wales their files relating to the Pennsylvania proceedings and the Carruthers proceedings, and consequential orders.
On that day, Mr Greenwell proffered various undertakings to the Court. The proceedings against him were dismissed by consent. In the case of Mr Prescott, Barrett J made interlocutory orders by consent to the effect of those sought in the summons.
By this time Turner Freeman believed that, at most, Ms Carruthers could only legitimately claim half of the settlement moneys. Turner Freeman gave notice that it proposed to distribute half of the amount that it was holding to Mrs Marshall. On 8 March 2006, Windeyer J dismissed an application by Ms Carruthers to restrain that partial distribution from occurring.
Release from the undertaking in respect of one half of the fund
On 6 February 2006, Turner Freeman requested Kreindlers to release Mrs Marshall from the undertaking in respect of one half of the settlement moneys. On 15 February 2006, Kreindlers confirmed that half of the settlement moneys should be released to Mrs Marshall.
On 14 March 2006, half of the settlement moneys were paid by Turner Freeman to itself for legal costs and disbursements incurred by the plaintiffs up to that date.
The resolution of the Prescott proceedings and the Carruthers proceedings
On 7 September 2006, Ms Carruthers amended her claim in the Carruthers proceedings to limit her claim to half of the settlement moneys and identified Pennsylvania law as the source of that claimed entitlement.
On 30 January 2007, Mrs Marshall filed a defence to the amended cross-claim of Ms Carruthers in the Carruthers proceedings stating that Ms Carruthers had no entitlement to any of the settlement moneys under Pennsylvania law.
On 28 February 2007, final orders were made by Macready AsJ by consent in the Prescott proceedings (the Consent Orders). The first order made was a declaration (the Consent Declaration) which provided:
“1. The first defendant was retained to act as a solicitor for the plaintiff, Kim Neil Marshall and the estate of the late Neil Marshall, on or about 29 May 2001 until about May 2003 in the following matters or proceedings, and to act for them in the various capacities referred to below (hereafter which are referred to collectively as 'the first defendant's retainer'), and in the case of sub-paragraph (e) below, he was retained to so act in addition to the firms of Turner Freeman, Lawyers, of Sydney, Kreindler & Kreindler, Attorneys, of New York and Rieders Travis Humphrey Harris Waters & Waffenschmidt, Attorneys, of Williamsport, Pennsylvania, namely:
(a) for the plaintiff in her own right or as executrix of the estate of the late Neil Marshall or in respect of her son, Kim Neil Marshall;
(b) for the plaintiff on behalf of her son, Kim Neil Marshall, in respect of which she acted as his agent to retain and instruct the first defendant;
(c) for Kim Neil Marshall thereafter on his own behalf;
(d) in the investigation of the plaintiff's legal rights in Australia and the United States of America (whether) arising out of the Whyalla Airline Plane crash on 31 May 2000 ('the Whyalla Airlines plane crash investigation');
(e) in relation to the conduct of proceedings Complaint no. 4: CV02-918 filed on 29 May 2002 at Williamsport (Docket of Judge Muir) in the US District Court for the Middle District of Pennsylvania ('the Pennsylvania Proceedings');
(f) in relation to the conduct of an inquest into the death of the late Neil Marshall in the Coroner's Court of Adelaide ('the Coroner's Court proceedings');
(g) in relation to the conduct of proceedings in the District Court of South Australia pursuant to the Civil Aviation (Carriers Liability) Act, 1959 (Cth) and the Civil Aviation (Carriers Liability) Act, 1962 (SA) ('the South Australian proceedings'),
(all of which are hereafter collectively referred to as 'the former proceedings').” (emphasis in original)
Orders 2(a), (b) and (c) of the Consent Orders permanently restrained Mr Prescott from accepting a retainer to act against Mrs Marshall, accepting a retainer to assist or otherwise assisting Ms Carruthers and “waiving or otherwise communicating ... the terms of any confidential communication which he has had with [Mrs Marshall]” in respect of his retainer respectively. Order 2(d) restrained him permanently from “otherwise breaching any obligation of confidence which he owes to [Mrs Marshall] in respect of [his] retainer, the [Pennsylvania proceedings] or the [Prescott proceedings]”. Order 3 restrained him from communicating with various entities including Teece Hodgson & Ward and Kreindlers about his retainer, the Pennsylvania proceedings or the Prescott proceedings. Order 4 required him to deliver up various documents.
Order 8 of the Consent Orders required Mr Prescott to pay Mrs Marshall's costs “of and incidental to this proceeding, insofar as they related to claims for relief made against [Mr Prescott] (whether wholly or partly), up to and including the date of [the] orders, as agreed or assessed”. The amount of party/party costs that Mr Prescott was ordered to pay in the Prescott proceedings was $114,156.15.
On 16 May 2008, Turner Freeman requested Kreindlers to release Mrs Marshall from the undertaking in respect of the remaining half of the settlement moneys.
On 23 July 2008, the Carruthers proceedings were resolved by the entry of final orders by consent. Palmer J made the following declarations and orders:
“THE COURT DECLARES THAT:
1. The plaintiff in her capacity as the whole surviving spouse of the deceased, Neil Marshall, is beneficially entitled to be paid the net trust fund of $210,055.80 plus interest accrued on it which is held by Turner Freeman, Solicitors, under the written undertaking given to Kreindler & Kreindler, Attorneys, of New York, by Turner Freeman on behalf of the estate of the late Neil Marshall and the plaintiff, pursuant to the provisions of 42 PA, CSA section 8301 and 20 Pa, CSA section 2102(3) of the law of Pennsylvania, United States of America.
2. The defendant has no beneficial entitlement in, nor any entitlement to be paid any part of, the net trust fund of $210,055.80 which is held by Turner Freeman, Solicitors, in trust for the parties to these proceedings or to any of the interest accrued on it.
THE COURT ORDERS THAT:
3. The amended statement of cross claim filed by the defendant on 7 September 2006 be dismissed.
4. The defendant/cross claimant pay the plaintiff’s/cross defendant’s costs of and incidental to the proceedings.
5. Subject to payment of the amount of $150,000 provided for in paragraph 7 of these orders, all previous costs orders made in these proceedings are vacated.”
THE COURT NOTES:
6. (a) That the defendant (as an Intervenor) appeared in proceedings 5769 of 2005 between the plaintiff (Margaret Lesley Marshall, as the plaintiff), Michael Prescott (as the defendant) and the defendant (Linda Hope Carruthers, as an Intervenor);
(b) That the previous costs orders have been made by the Court in proceedings 5769 of 2005 in respect of the plaintiff (as the plaintiff) and the defendant (as an Intervenor); and
(c) That the defendant may have a liability for the further payment of costs as between the defendant and the plaintiff of and incidental to the proceedings 5769 of 2005
(collectively called, as to (b) and (c), “the costs liability”.
7. The agreement between the parties that:
(a) The costs payable by the defendant/cross claimant in respect of Order 4 hereof; and
(b) The costs liability of the defendant/cross claimant
Is in total as to (a) and (b) in the agreed sum of $150,000.
(c) The plaintiff has no costs liability to the defendant/cross claimant in respect of these proceedings or proceedings 5769 of 2005.
8. The further agreement between the parties that:
(a) The sum of $150,000 referred to in paragraph 7 shall be paid to the plaintiff within 28 days of the date of these orders;
(b) The sum of $150,000 is not paid within 28 days, then interest shall be paid to the plaintiff on the balance outstanding from time to time at the rates of interest and for the periods provided under section 101 of the Civil Procedure Act 2005 as if the payment of the sum $150,000 is a judgment of the Court; and
(c) The payment of the sum of $150,000 made by GIO General Limited (for the defendant/cross claimant) to the plaintiff is full satisfaction and the discharge of the costs liability and the costs order provided for inn Order 4.”
PROCEEDINGS ON BEHALF OF THE PLAINTIFFS AFTER DISTRIBUTION OF THE SETTLEMENT
Before describing the relevant litigation history of the present proceedings it is useful first to sketch separate proceedings, involving the same alleged damages, which were first conducted by the plaintiffs.
Prescott recovery proceedings
In 2013, the Marshalls commenced proceedings in the Common Law division of this Court to recover from Mr Prescott:
(1)the difference between the assessment of the Marshalls’ costs before Macready AsJ in Marshall v Prescott (No 3) [2013] NSWSC 1949 and the amount of costs actually recovered by Mrs Marshall; and
(2)the difference between the assessment of the Marshalls’ costs in the Carruthers proceedings and the amount of costs actually recovered by Mrs Marshall.
The Marshalls claimed that Mr Prescott breached various legal duties owed by him to them that led to Kreindlers imposing the conditions on the release of the settlement moneys which in turn precipitated the proceedings against Ms Carruthers and those against Mr Prescott. They also claimed that Mr Prescott’s conduct in acting for Ms Carruthers in those subsequent proceedings was in breach of various legal duties owed by him to the Marshalls.
The primary judge, Beech-Jones J, rejected all of the pleaded causes of action against Mr Prescott and dismissed the proceedings:
(1)his Honour accepted that a fiduciary duty was owed to the Marshalls by Mr Prescott prior to the termination of his retainer. This duty was qualified by the known circumstance that Mr Prescott acted for Ms Carruthers, who was, at the very least, a potentially competing claimant. However, a significant number of the allegations were based on the existence of an ongoing duty of loyalty by Mr Prescott in the period after the termination of his retainer. His Honour rejected those allegations. The pleaded case involved “a very narrow set of allegations against Mr Prescott in respect of his conduct before the retainer was terminated. None of them was established as a matter of fact”;
(2)his Honour found that the only relevant legal obligation owed by Mr Prescott to Mrs Marshall after the termination of his retainer that supported the claim for damages was Mr Prescott’s ongoing obligation of confidence, but held that the alleged breaches of this obligation were not made out;
(3)his Honour held that the Marshalls failed to establish that Mr Prescott misused any of their confidential information after the termination of his retainer, except in one limited respect. However, his Honour was not prepared to make a definitive finding that this involved a misuse of the Marshalls’ confidential information because that allegation was not part of the pleaded case and it would have been unfair to Mr Prescott to make such a finding; and
(4)his Honour did not consider that it was necessary to determine whether Ms Carruthers had a retainer with Kreindlers. Kreindlers’ retainer was governed by New York Law. Further, his Honour did not consider the position of Kreindlers because Kreindlers was not the defendant in the proceedings. It was only necessary for his Honour to determine what the arrangement was between Mrs Marshall and Mr Goldberg, on the one hand, and Mr Prescott and Ms Carruthers on the other.
The Marshalls appealed: Marshall v Prescott [2015] NSWCA 110. The issues on appeal were:
(1)the terms upon which Mr Prescott was retained by the Marshalls;
(2)the terms upon which Mr Prescott was retained by Ms Carruthers;
(3)whether Mr Prescott disclosed confidential information; and
(4)whether any loss was caused by the disclosure.
The Court dismissed the appeal with costs: per Beazley P (Macfarlan and Emmett JJA agreeing).
In relation to the first issue, the Court held that Mr Prescott was retained by the Marshalls to act for them in the US proceedings in a coordinating capacity only. The Court held that the pleaded retainer correctly stated the terms of Mr Prescott’s retainer:
“On 29 May 2001 and also on 14 June 2001 the legal firm of Prescotts, Barristers and Solicitors, of Eastwood, South Australia (Prescotts) were retained as the legal firm to coordinate the conduct of certain proposed proceedings in the US for wrongful death and survival actions in respect of the Whyalla Airlines accident on behalf of the families of the victims of the accident, including [the appellants], and to locate and to liaise with the US attorneys retained to conduct the litigation and the victims’ families’ Australian attorneys, including Turner Freeman, all of whom were retained to act on behalf of [the appellants] as their attorneys in those proceedings (the Prescotts’ retainer).”
In relation to the second issue, the Court held that Mr Prescott was retained by Ms Carruthers in the US proceedings to act for her in a coordinating role and in substantively assisting her to bring any claim she might have in the US arising out of the death of Mr Neil Marshall. The Marshalls gave fully informed consent to Mr Prescott also acting for Ms Carruthers: at [45]-[46] per Beazley P.
In relation to the third issue, the Court held that none of the information contended to be confidential was in fact confidential: at [50]-[55], [66]-[74] per Beazley P (Macfarlan and Emmett JJA agreeing). Alternatively, it was either not confidential, or was shared information as a result of the concurrent retainers held by Mr Prescott, or was in the public domain or could be deduced from information in the public domain as a result of the earlier proceedings: at [66]-[74], [88] per Beazley P.
In relation to the fourth issue, even if a breach of confidence was assumed, the Marshalls did not demonstrate that any loss flowed from that disclosure of “confidential” information: at [80]-[89] per Beazley P.
Kreindlers proceedings
On 27 February 2009, the statement of claim commencing the present proceedings was filed by the plaintiffs and shortly thereafter, served in New York upon Kreindlers. Kreindlers sought to set aside service on the basis that the Court was an inappropriate forum for the trial.
On 19 February 2010, Rothman J dismissed that application with costs: Marshall v Fleming [2010] NSWSC 86. His Honour described the plaintiff’s case as comprising at that time the following causes of action:
“The plaintiffs’ causes of action in these proceedings depend upon breach of contract (being the retainer agreement), negligence or breach of duty of care, breach of fiduciary duty, and conspiracy.”
On 8 April 2011, the Court of Appeal dismissed Kreindlers’ appeal from the decision of Rothman J: Fleming v Marshall [2011] NSWCA 86. Prior to that hearing the plaintiffs abandoned their claim of negligence or breach of duty of care.
Somewhat ironically, given the central place the professional standards of legal practice in New York occupied in the way the case was ultimately closed by the plaintiffs, Spigelman CJ observed at [3]-[5]:
“3 Mr Braham SC [who then appeared for Kreindlers] referred to the terms of the pleadings which assert that the failure to pay the settlement amount, at the time that the solicitors for the respondent demanded payment, was in breach of ‘the terms of Kreindlers' retainer (both express and implied)’. No particulars are provided of any relevant term of the contract. Specifically, there is no articulation of any implied term.
4 Mr Braham SC submitted that any such implied term must be based on what was proper professional practice in New York with respect to the payment of monies, in the circumstances in which the appellant firm found itself with respect to the obligation to account.
5 The professional conduct standards of a New York lawyer may very well have been at the centre of the cause of action in tort. That action has now been abandoned. It is not clear whether or not any such issue will arise in the cause of action in contract. The appellants have not sought particulars of any implied term. Accordingly, there is no basis for this Court to conclude that the respondent will allege a term that gives rise to an issue concerning the professional standards of legal practice in New York, let alone that there is any controversy between the parties about such a matter.”
Macfarlan JA delivered the principal judgment of the Court. Spigelman CJ and Sackville AJA agreed with his Honour. Macfarlan JA noted that it was not appropriate at that stage of the proceedings to make a final determination about the proper law of the contract of retainer between the Marshalls and Kreindlers. However, his Honour expressed the provisional view that New York law was the law which governed the contract of retainer between the Marshalls and Kreindlers:
“81 The provisional view that I have formed is that the system of law with which the contract of retainer had "the closest and most real connection" (see Bonython referred to in [47(b)] above; also Akai at 434 and 437), and that was therefore the proper law of the contract, was New York law. To use the expression adopted in Akai at 437, New York was the place in which the contract had "its natural seat or centre of gravity".
82 The character of the contract of retainer strongly favours this conclusion. It was a written retainer agreement in a form prepared in New York by New York attorneys. By it, the attorneys were engaged "to prosecute all claims in the United States of America arising out of" the late Mr Neil Marshall's death. It thus related to work to be done by the New York attorneys in the United States.”
Further, Macfarlan JA recorded that it was common ground that if New York law were the proper law of Kreindlers’ retainer, the whole of the plaintiffs’ case (as then pleaded) would fail by reason of the expiry of all relevant limitation periods:
“[45] Furthermore senior counsel for the Marshalls conceded during the hearing of the appeal that the Marshalls' proceedings against Kreindlers would fail if New York law were found to be the proper law of the Kreindlers' Retainer Agreement. The basis of this concession was a conclusion that under New York law a three year limitation period existed for the commencement of proceedings on each of the causes of action upon which the Marshalls sued and that the Australian proceedings were not, and any future New York proceedings would not be, commenced within that period. This concession was a corollary of the Marshalls' submission that one of the reasons that New South Wales was not a clearly inappropriate forum was that the Marshalls could not bring proceedings in New York because they would be statute barred. Kreindlers did not submit that a three year time bar did not apply under New York law and should therefore be taken to have implicitly accepted that the current proceedings should proceed upon the basis that such a time bar was applicable. Neither party suggested that if proceedings were commenced in New York, the New York court would apply any law other than New York law.”
In January 2012, presumably as a result of the decision of the Court of Appeal, the plaintiffs fundamentally recast their case against Kreindlers. The plaintiffs filed an amended statement of claim in which all previously pleaded causes of action were abandoned in favour of a new case pleaded solely as a common law or equitable duty of indemnification arising under New York law.
On 6 February 2012, Kreindlers sought an order that a member of the New York Panel of Referees, under the Memorandum of Understanding between the Supreme Court of New South Wales and the Court of Appeal of New York, be appointed to act as a referee for inquiry and report on the questions of New York law raised by the plaintiffs.
On 23 August 2012, a foreign law notice was served by the plaintiffs together with the first expert report from Mr Holm. The plaintiffs’ sole cause of action remained one of indemnification arising under New York law.
On 6 September 2012, Kreindlers served Mr Bellacosa’s first report disputing the existence under New York law of a viable cause of action in indemnification based on the allegations contained in the plaintiffs’ pleading.
On 18 October 2012, Kreindlers served a notice of dispute and foreign law notice.
On 7 November 2012, the plaintiffs filed a motion in this Court seeking various orders, including an order striking out the foreign law notice filed by Kreindlers.
On 17 May 2013, Harrison J determined the notices of motions, and made various orders. Order 1 was in the following terms:
“Order pursuant to UCPR 20.14 and/or the Memorandum of Understanding between the Chief Justice of New South Wales and the Chief Judge of the State of New York on References of Questions of Law of 28 October 2010 that a member of the New York Panel of Referees be appointed to act as a referee for inquiry and report on.”
His Honour made the following observations at [7]-[8]:
“It is the defendants' position that the facts and matters pleaded by the plaintiffs disclose no cause of action that can be characterised as an action for indemnity that is available under New York law. They contend that the plaintiffs' claims are actions for the reimbursement of legal fees incurred by them, which properly considered constitute damages for professional negligence rather than claims for indemnity. The former is now time barred by New York limitation provisions. A money claim would also be out of time in New York. The plaintiffs' reformulated case is presumably not vulnerable to the prospect of a limitation defence.
It is not presently necessary for me to resolve the question of the correct characterisation of the plaintiffs' claims about the existence and therefore the viability of the case that the plaintiffs now seek to mount. It is, however, obvious that the early resolution of that dispute is of central importance to the further conduct of, and ultimately the final outcome in, the proceedings.”
On 20 March 2014, in allowing the appeal, Bathurst CJ (Beazley P and Meagher JA agreeing) held that the primary judge erred in failing to identify the question of law to be determined by the referee, as required by the UCPR: Marshall v Fleming [2014] NSWCA 64 at [27].
Further, a specific referee needed to be appointed under r 20.14, not a panel from which a referee may be selected (as Order 1 in this instance did). Bathurst CJ also held that the primary judge erred in making an order which in terms assumed that the Memorandum of Understanding would be engaged in the way the order contemplated or that it otherwise provided a basis for the making of an order in the terms made: [27]. Bathurst CJ noted at [26] that the Memorandum of Understanding was intended to provide an effective and inexpensive method by which questions of foreign law can be determined:
“… However, that method involves the co-operation of the parties both in identifying the questions of law arising on particular facts and assumptions (and possibly alternative sets of facts and assumptions) and agreeing to be bound by the result. It is regrettable having regard to the amount involved in these proceedings that the parties could not or would not co-operate to achieve this end. … ”
Having sketched the long and unhappy history of these proceedings, I turn now to address the case conducted before me.
THE EVIDENCE LED BY THE PARTIES
The only lay evidence before me was given by the first plaintiff, Mrs Marshall and the 11th defendant, Mr Green. Each witness essentially put documents, many of which I have referred to above, into evidence and gave evidence, much of which was admitted for the limited purpose of describing their state of mind at relevant times. To the extent that it is necessary to do so, given the issues now before me, I will make findings about that evidence after describing its content.
Mrs Marshall’s affidavit sworn on 23 September 2014 was read. Mrs Marshall gave the following evidence, much of which was only of very limited relevance to the issues before me as they eventually emerged:
(1)that she never met Mr Prescott. She had only ever spoken to him once on the telephone in May 2001 when he called her about a retainer to act for the Marshall family in US proceedings related to the crash;
(2)that she understood Mr Prescott was retained to act for the families of other victims of the crash;
(3)that during that phone call in May 2001, she agreed to retain him, but only on the basis that she dealt with him exclusively through Mr Neil Marshall’s estate solicitor, Mr Goldberg of Turner Freeman;
(4)that she retained Mr Prescott to act for her and to coordinate the conduct of the proposed proceedings in the US for wrongful death and survival actions in respect of the crash, and to locate and liaise with US lawyers to be retained to conduct the litigation;
(5)on 21 March 2002, she attended Turner Freeman offices to sign the written retainer agreement between herself and Kreindlers, and a final ILF funding agreement as executrix of the estate, as a litigant in the US proceedings, and on behalf of Mr Kim Marshall;
(6)thereafter, all other dealings were conducted through Mr Goldberg and Mr Green;
(7)on 22 February 2003 she learned from Mr Goldberg that Kreindlers had successfully negotiated a settlement of the damages claims of all the victims’ families of the entire Pennsylvania proceedings, which she understood was a concluded settlement subject to the signing by all of the victims’ estates’ executors;
(8)that she believed the Marshall estate had to pay a 22.22% contingency fee to Kreindlers under its retainer, among other payments, out of the settlement fund, an agreement she understood had been reached at a meeting of all plaintiff estates’ lawyers in March 2003;
(9)that she instructed Mr Goldberg to require Kreindlers to account to Mr Goldberg for the amount the Marshall estate was entitled to from the settlement amount of the Pennsylvania proceedings. About a week later, a dispute had arisen between Mr Green at Kreindlers and Mr Goldberg about the requirement for Kreindlers to account for the estates’ share of the settlement moneys, due to a series of emails and letters passing between the lawyers;
(10)that she understood the source of the disagreement to be that Ms Carruthers had recently made a claim upon the net settlement fund on the basis that she was the de facto wife of the late Mr Neil Marshall and therefore was the sole beneficiary of the claim for damages made in the Pennsylvania proceedings;
(11)that she understood that Kreindlers, in their letter to Mr Goldberg dated 15 April 2003, had treated Mr Goldberg’s letters to Kreindlers (dated 8 April 2003, 10 April 2003 and 11 April 2003) as an effective termination of her retainer of Kreindlers on behalf of the estate, herself and Mr Kim Marshall, on the basis that Kreindlers had fully performed the terms of their retainer and had earned their contingency fee in full the moment they achieved the settlement agreement on behalf of the Marshall estate;
(12)that she understood that Kreindlers then refused to account to Mr Goldberg on behalf of the estate for the net settlement fund unless and until Turner Freeman gave a written undertaking to Kreindlers to hold the net settlement fund in escrow in Turner Freeman’s trust account until a judicial determination had been obtained by me from this Court as to the beneficial entitlements to the net settlement fund;
(13)that on or about 25 June 2003, she gave instructions “…reluctantly, that is, against my will…” to Mr Goldberg to give a written undertaking to Kreindlers in terms drafted by and insisted upon by Kreindlers regarding the settlement moneys. She understood that without putting the undertaking in the form of words requested by Kreindlers, they would not account for the settlement moneys;
(14)that following receipt of the settlement moneys from Kreindlers in mid-2003, Mr Goldberg received a letter of demand from Mr Prescott, in his capacity as solicitor for Ms Carruthers, demanding the commencement of proceedings by her in this Court against Ms Carruthers, seeking a declaration and consequential orders as to beneficial entitlements to the net settlement fund. Mr Green had already informed Mr Prescott about the terms of the Turner Freeman written undertaking dated 25 June 2003 to hold the net settlement fund in its trust account until that judicial determination had been obtained;
(15)that she incurred substantial legal costs in commencing the Prescott proceedings to restrain him from acting for Ms Carruthers and against her interests and the interests of Mr Kim Marshall, in the Carruthers proceedings, in breach of his obligation of confidence to them as their former solicitor;
(16)that the unrecovered costs she had incurred on behalf of Mr Neil Marshall’s estate as executrix, herself and Mr Kim Marshall as a result of the Carruthers proceedings and the Prescott proceedings were in excess of those she recovered under the costs order which she obtained in her favour in those proceedings; and
(17)that she paid the total of $598,674.64 in costs in respect of the conduct of the Carruthers proceedings and the Prescott proceedings, and the only amount she and Mr Kim Marshall had received at the conclusion of those proceedings from the Pennsylvania proceedings settlement moneys was $106,152.14.
In cross-examination, Mrs Marshall gave the following evidence:
(1)that she understood at the time she signed the retainer agreement with Kreindlers in March 2002 that proceedings would be commenced in Pennsylvania for the benefit of Mrs Marshall, Mr Kim Marshall and for the benefit of Ms Carruthers;
(2)that at the time she signed the retainer agreement, she understood that Ms Carruthers asserted a claim in respect of at least some of the moneys that might be payable pursuant to the Pennsylvania proceedings. She thought anybody entitled to claim on the estate was entitled to be paid from the estate if their claim was “correct”, and that if she received damages from the Pennsylvania proceedings, she, as executor, would have to account to anyone that had made a claim on the estate, which included Ms Carruthers;
(3)that after the estate of Mr Neil Marshall became insolvent, she thought the money from the Pennsylvania proceedings would be used to pay off creditors, including Ms Carruthers;
(4)that she later understood that the people who could benefit from the money in the Pennsylvania proceedings could not be de facto partners;
(5)that she did not always receive copies of Turner Freeman letters;
(6)that in proceedings to recover death benefits in relation to Mr Neil Marshall commenced in the District Court of South Australia, she was originally the plaintiff. She did not know when she was removed from the proceedings. She was replaced by Ms Carruthers as the plaintiff in those proceedings;
(7)in relation to the scope of the retainer with Kreindlers, that she was content for Kreindlers to act for each of the seven estates of the deceased against the manufacturers sued in Pennsylvania, even though one estate getting more money might have the consequence that Mr Neil Marshall’s estate received less money;
(8)that before she signed the release for the settlement moneys in 2003, she was not aware that Ms Carruthers was making a claim on moneys that were payable from the settlement of the Pennsylvania proceedings. She was not aware that there was a dispute about the distribution of the settlement moneys before she signed. She thought that the money would be awarded to Mr Neil Marshall’s estate, and it was for the estate to determine the subsequent distribution. At least by 29 April 2003, she knew that someone was making a claim on the moneys payable from the Pennsylvania proceedings, but was not aware of the identity of the claimant;
(9)that Mr Goldberg told her that Kreindlers were asserting to him that Mrs Marshall, as a representative of Mr Neil Marshall’s estate, owed a fiduciary duty to ensure that the settlement moneys were distributed equitably to all persons entitled to receive them under Australian law;
(10)that she asked Mr Goldberg if there was any way to get the settlement moneys paid to the estate and “then sort it out from there” because she was worried about spending significant amounts of money as had occurred in the FPA proceedings;
(11)that she could have retained different lawyers and terminated Kreindlers’ retainer when they refused to release the Pennsylvania settlement moneys. One of the reasons she presumes she did not do so was because she was not advised to do so;
(12)that she knew that Mr Prescott was acting “for everyone” at the beginning of the Pennsylvania proceedings, including Ms Carruthers. Her understanding was, however, that the only person who could make a claim was “the person in charge of the estate … I didn't realise anyone else could make a claim”.
In the way the case was presented by the plaintiffs in closing submissions virtually none of this evidence requires a finding by me. To the extent that it might conceivably be relevant I make the following findings about Mrs Marshall’s evidence:
(1)Mrs Marshall paid the total of $598,674.64 in costs to Turner Freeman in respect of the conduct of the Carruthers proceedings and the Prescott proceedings, and the only amount she and Mr Kim Marshall had received at the conclusion of those proceedings from the Pennsylvania proceedings settlement moneys was $106,152.14;
(2)that although on 25 June 2003 Mrs Marshall gave instructions, in her mind reluctantly, to Mr Goldberg to give the written undertaking to Kreindlers, she gave those instructions voluntarily and on Mr Goldberg’s advice, understanding that she was not required to give the undertaking and that she had legally available choices. Although the plaintiffs’ submissions at times referred to the concept of “duress”, I find that Mrs Marshall was not under any legally recognisable form of duress and, further, that any alleged “duress” played no part in the cause of action in indemnification that was ultimately alleged by the plaintiffs;
(3)that Mrs Marshall understood at the time she signed the retainer agreement with Kreindlers in March 2002 that proceedings would be commenced in Pennsylvania for the benefit of Mrs Marshall, Mr Kim Marshall and ultimately for the benefit of Ms Carruthers. While this finding was urged on me, other than as background it does not seem to me to be relevant to the cause of action relied upon by the plaintiffs in closing submissions;
(4)that at some time Mrs Marshall came to understand that the people who could benefit from the money in the Pennsylvania proceedings did not include de facto partners. Mrs Marshall’s understanding is not proof of the content of Pennsylvania law. As will become apparent, despite the strongly expressed beliefs of Mrs Marshall’s legal representatives to the same effect in submissions, there was ultimately no evidence before me of the content of Pennsylvania law in this respect.
Mr Green swore an affidavit on 14 March 2016 that was read in these proceedings by the defendants. In this affidavit, Mr Green put into evidence a great number of documents. In addition, to the extent that it was relevant, he gave evidence about what Kreindlers did in relation to relevant issues and his state of mind. Perhaps ironically, given the plaintiffs’ reliance upon Mr Green’s evidence in closing submissions, the plaintiffs successfully objected to Mr Green giving evidence about the content of Pennsylvania law and obtained orders under s 136 limiting the use of such evidence to proving Mr Green’s belief or state of mind. Mr Green gave the following evidence:
(1)he was the lawyer at Kreindlers responsible for the handling of the Marshall case. He worked with Mr Fleming, an associate, a paralegal and other staff;
(2)he received a phone call from Mr Greenwell and Mr Prescott in 2002 about the possibility of representing the survivors of victims from the 2000 crash. Mr Fleming then had a conversation with Mr Greenwell and Mr Prescott and informed them that Kreindlers could only accept a retainer from a decedent’s properly appointed estate representative;
(3)at the time of sending the draft retainer, he understood that Kreindlers’ communications with the Australian plaintiffs were to be conducted by Mr Prescott who acted for some, not all, of the representatives of the various deceased;
(4)he understood that Mr Goldberg was legally representing the estate of Mr Neil Marshall;
(5)he received an email on 7 May 2002 from Mr Prescott confirming various details of the estate representatives and the survivors of the various deceased. In relation to Mr Neil Marshall, Mr Prescott confirmed that Mrs Marshall was the estate representative, and the survivors were Ms Carruthers, Mrs Marshall and Mr Kim Marshall;
(6)Kreindlers asked Australian lawyers, including Turner Freeman, for information regarding the wrongful death law of Australia. He requested that Turner Freeman identify the proper beneficiaries of the wrongful death action under Australian law after he was advised (most likely by Mr Prescott) that Mrs Marshall had no right to recover for wrongful death damages under Australian law because she did not live with Mr Neil Marshall and was not financially dependent on him and they had entered into a property settlement. He never received a “meaningful response” to this request;
(7)Kreindlers was advised by Mr Prescott that Ms Carruthers was a proper wrongful death beneficiary under Australian law because of her status as de facto wife of Mr Neil Marshall and that she was financially dependent upon him. Ms Carruthers lived in a home with Mr Neil Marshall for five years prior to his death and received government survivor’s benefits as a result of Mr Neil Marshall’s death, facts that supported her dependency claim;
(8)that as the Pennsylvania proceedings had been commenced in the Federal District Court, Mr Green understood that the Pennsylvania Court was required to apply Pennsylvania’s choice of law rules. He understood that it was highly likely that the court would apply the law of Australia to determine which of Mr Neil Marshall’s survivors were entitled to a share of the damages because the deceased and all of the interested parties were from Australia, the deceased died in Australia, and his estate was located in, and being administered in, Australia;
(9)in late 2002, Lycoming’s counsel approached him about settlement. During the course of the settlement negotiations, Kreindlers argued that the law of Australia allowed for recovery based on the loss of Mr Neil Marshall’s financial support suffered by his de facto spouse Ms Carruthers to maximise the recovery;
(10)in February 2003, Lycoming agreed in principle to pay a total US$5.5.million to settle the various proceedings. In his experience, settlement moneys could not be distributed without Court approval. In practice, the Court that provides the approval for the distribution of the settlement moneys is not the trial court of the wrongful death proceedings, but the court with jurisdiction over the estate;
(11)at this time, neither he nor other Kreindlers lawyers knew who would be considered the proper wrongful death beneficiaries of the estate of Mr Neil Marshall because a Court order was necessary to approve the distribution;
(12)at this time, he understood, based on information received from various parties in Australia, including Mr Goldberg, that Ms Carruthers had legal rights as Mr Neil Marshall’s de facto spouse at the time of his death. Due to his legal duties and ethical obligations to all wrongful death lawsuit beneficiaries, Mr Green believed he could not distribute the full amount of the settlement moneys to Mrs Marshall and Mr Kim Marshall to the exclusion of Ms Carruthers without a court order. He believed that doing, in the circumstances he faced, would have violated Rules 1.2(d) and 1.2(g) of the New York State Unified Court System Rules of Professional Conduct (the New York Rules) and could possibly provide the basis for U.S. federal criminal charges. As will become apparent, those Rules provided as follows:
“(d) A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is illegal or fraudulent, except that the lawyer may discuss the legal consequences of any proposed course of conduct with a client.
…
(g) A lawyer does not violate these Rules by being punctual in fulfilling all professional commitments, by avoiding offensive tactics, and by treating with courtesy and consideration all persons involved in the legal process.”
(13)on 13 April 2003, he received an email from Mr Greenwell in which he asserted Ms Carruthers had an interest in the settlement moneys. Based on the fact that he understood Ms Carruthers to be financially dependent on Mr Neil Marshall, he understood that she was the proper beneficiary under the law of Australia and she had a proper, good faith claim to seek a portion of the wrongful death settlement proceedings that must be resolved by a Court;
(14)during February – April 2003, he had a series of communications with Mr Goldberg about the competing claims in relation to the settlement moneys. Mr Green informed Mr Goldberg that either an agreement had to be reached among them regarding the distribution or Mrs Marshall, acting as executor, should obtain a Court order on the proper distribution of the settlement;
(15)he was not retained by Ms Carruthers in relation to the Pennsylvania proceedings, but was retained by Mrs Marshall (via Mr Goldberg) to act in those proceedings in both her personal capacity and in her representative capacity as the legal representative of the estate of Mr Neil Marshall. He was advised that Mrs Marshall had signed the retainer with Kreindlers on behalf of all potential wrongful death beneficiaries and that she had been advised by Mr Goldberg that she was acting as the representative for all potential estate beneficiaries. As such, he was acting for Mrs Marshall for the benefit of the estate and those to whom the estate owed obligations in respect of any award or settlement arising out of the proceedings, which he believed included Ms Carruthers;
(16)on or about 1 May 2003, he was contacted by Mr George Tompkins, a US lawyer specialising in such cases, who had been instructed by Mr Richard Neal, an Australian solicitor from Teece Hodgson & Ward, who acted for Ms Carruthers. Mr Tompkins told him that Ms Carruthers objected to the payment of the settlement fund to Mrs Marshall without a court order and was making a claim to those moneys;
(17)on 16 May 2003, Mr Green received an email from Mr Neal demanding that the settlement fund be placed in escrow. Attached to that email was a letter from Mr Goldberg to Mr Prescott that recognised Mrs Marshall had signed the retainer in her representative capacity, including as the representative of whatever interest Ms Carruthers may have in the settlement fund. He forwarded the letter to Mr Goldberg and asked for an explanation;
(18)he expressed the following concerns to Mr Goldberg in writing and on the telephone:
“A continual theme in Goldberg’s correspondence was the proposition that because of a decision of the NSW Court of Appeal which determined that Carruthers was not entitled to any part of Neil Marshall’s estate, she was therefore not entitled to any part of the settlement moneys. However, under the law of the Commonwealth of Pennsylvania, Carruthers’ claim was not for a portion of the Estate but a claim to entitlement to a portion of the wrongful death settlement, which did not form a part of the Estate unless and until the moneys (or some of them) were distributed to the Estate representatives in accordance with the approval of the court. While I do not recall the specific words used, in our conversations, Goldberg made it clear that his position was that the settlement should be paid only to Margaret Marshall, who we had reason to believe had no legal claim to the settlement, and that the only other beneficiary would be Kim Marshall. Goldberg resisted obtaining an appropriate court order as to who was entitled to the money. I had substantial concerns about potential civil and criminal implications if the settlement was distributed without an appropriate agreement or court order and particularly if Margaret Marshall, who I had reason to believe was not a proper wrongful death beneficiary, took the settlement or a portion of the settlement without a court order. …”
(19)in June 2003, he and Mr Goldberg reached an agreement on a plan that Mrs Marshall would obtain an order from a competent court in Australia. Mr Goldberg undertook to hold the net settlement moneys in his firm’s escrow account and to commence proceedings against Ms Carruthers; and
(20)that at no point prior to 16 July 2003 when Kreindlers transferred the net settlement funds to Turner Freeman (after deducting the agreed fee and expenses) did Kreindlers withdraw from representing the plaintiffs and at no point did Mrs Marshall discharge Kreindlers. Kreindlers’ work for the estate ended on 16 July 2003.
I find that Mr Holm’s evidence to the effect that Rule 1.15 of the New York Unified System Rules of Professional conduct provided “an ethical obligation” overriding Kreindlers’ duty to Mrs Marshall underlines the conclusion I have earlier reached about the correct characterisation of Rule 1.15 as being an ethical obligation owed to the Court and not a legal obligation owed by Kreindlers to Ms Carruthers.
Simply put, there was no evidence that under the law of New York Rule 1.15 gave rise to any legal obligation flowing from Kreindlers to Ms Carruthers.
Mr Green gave evidence of the requirement for court approval in his affidavit. He puts the obligation at the level of a legal obligation binding him as a New York attorney and not merely as a matter of professional practice. Although he did not rely on it in 2003 (when he believed that he owed a fiduciary duty to Ms Carruthers not to account to Mrs Marshall unconditionally) he relies on the requirement for court approval now in his defence of the indemnification claim of the Marshalls.
I harbour significant doubts about whether Mr Green’s subjective views about the extent to which Rule 1.15 provided a “legal obligation” could avail the plaintiffs.
The references by the plaintiffs to Mr Green’s evidence are, in any event, misleading. It was put by the cross-examiner that paragraph 42 of Mr Green’s affidavit talked about ethical rules as a “matter of practice”. This is not a promising start for the submission that Mr Green treated Rule 1.15 “at the level of legal obligation”. Although the questioning now relied upon by the plaintiffs appeared to relate to the content of Pennsylvania law, it is true that Mr Green referred to other parts of the New York Unified System Rules of Professional Conduct as a “requirement”. That is a long way from supporting any allegation that Mr Green believed he owed Ms Carruthers any obligation or that there was in fact a “legal obligation” owed by Kreindlers to Ms Carruthers.
In any event, the plaintiffs’ submissions do not accurately or fairly reflect the evidence Mr Green gave. It needs to be considered in conjunction with his earlier evidence. His oral evidence was very much a summary, and was to the effect that there had been discussions with Mr Goldberg about the various forums in which a court determination could be sought, and that it was Mr Goldberg who decided that it should occur in Australia. That evidence was not challenged and the plaintiffs are not entitled to simply point to documentary evidence that the plaintiffs say contradicts that position as a basis for inviting the Court not to accept it, without cross-examining Mr Green on it and providing him with an opportunity to address what are said to be the inconsistencies between his oral evidence and the contemporaneous documents (Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [69]-[75]). It is notable that Mr Goldberg did not give evidence to the contrary.
The correspondence is not in any event inconsistent with Mr Green’s oral evidence. The potential dispute between Mrs Marshall and Ms Carruthers is raised as early as July - August 2002 in the exchange of emails between Mr Green and Mr Goldberg in which Mr Green makes it quite clear he was not in a position to become involved in disputes as to the distribution of any settlement moneys.
The potential conflict was put to one side, until the parties became engaged in correspondence about how damages would be assessed. The correspondence demonstrates that Mr Goldberg became concerned about who the recipients of the damages awards might be. Specifically, Mr Goldberg expressed concern whether a “spouse” included a “de facto spouse”. Mr Green responded that a US Court would probably recognise a de facto marriage formed in Australia if an Australian court would. That was the position as at 22 February 2003 when the in-principle settlement was arrived at.
In relation to the flurry of correspondence in April 2003, I find that Mr Green, Mr Fleming and Mr Rieders gave advice to Mr Goldberg that the US Courts would probably apply Australian law to determine Ms Carruthers’ status. I find that Mr Goldberg was given various options, but that he chose to pursue a judicial determination in Australia. I find that this was because Mr Goldberg recognised a risk of pursuing proceedings in a US Court being that the court would recognise Ms Carruthers as Mr Neil Marshall’s “spouse”, and therefore allow her to participate in the distribution.
I find that there is no evidence that Mr Green had turned his mind to Rule 1.15 in this context, let alone that he regarded it as imposing a “legal obligation” upon Kreindlers owed to Ms Carruthers.
The agreed position between the experts and parties alike – that court approval was necessary before the fund would be distributed to estate beneficiaries – involves a recognition of the requisite obligation owed by Kreindlers to Carruthers to constitute the tripartite relationship which is at the heart of the cause of action for indemnity.
I reject this submission. There were, on the evidence, a number of ways that the settlement fund could be distributed, including agreement between the beneficiaries, relevantly Mrs Marshall and Ms Carruthers. The ways in which the matter could have been addressed also included seeking court approval, paying the disputed sum into court or Kreindlers terminating their retainer with Mrs Marshall.
I find that these options were explained by Mr Green to Mr Goldberg, namely agreement, seeking court approval in Pennsylvania, New York or Australia or finding a New York attorney to replace Kreindlers.
As far as agreement is concerned, I find no evidence that Turner Freeman sought any consensual outcome. Kreindlers were not involved in any way in the decision not to seek agreement between Mrs Marshall and Ms Carruthers.
As far as seeking court approval in Pennsylvania, New York or Australia is concerned I have found that:
(1)it was Mr Goldberg, and not Mr Green, who made the decision about what advice to give Mrs Marshall about these various options. Mr Green was not asked to and did not give advice about the relative merits of seeking a court order in Pennsylvania, New York or Australia; and
(2)Mr Goldberg, and not Mr Green, chose to obtain a court ruling in Australia and drafted an undertaking which was obtained from Mrs Marshall for that purpose which he then gave to Mr Green.
I have found that Mr Goldberg suggested (and drafted) an undertaking to seek court approval for distribution of the settlement fund in Australia. Ultimately, as I have found above, Ms Carruthers took the steps in those proceedings that led to the payment by Mrs Marshall to Turner Freeman of the sums the subject of the present proceedings.
I find that Kreindlers did not owe Ms Carruthers a legal obligation so as to engage the tripartite relationship necessary for a cause of action in indemnification.
Further, as I have already found, it is no part of the law of New York that a payment by Mrs Marshall to her lawyers – Turner Freeman – is capable of giving rise to a successful indemnification suit.
The plaintiffs submitted that the duty or obligation owed by Kreindlers to Ms Carruthers was a statutory or ethical obligation. The plaintiffs’ summary of Mr Bellacosa’s evidence is misleading. He was never asked whether Rule 1.15 of the New York Rules gave rise to any obligation owed by Kreindlers to Ms Carruthers. I have addressed that topic at [155]-[162] above.
Any such suggestion would have been inconsistent with parts of Mr Bellacosa’s evidence about which he was not cross-examined. It was a critical part of Mr Bellacosa’s evidence that Kreindlers owed no duty at all to Ms Carruthers, for which he cited the New York Court of Appeal authorities Sutch v Sutch-Lenz, 129 A.D.3d 1137 (2015) and C.K. Industries Corp v C.M. Industries Corp, 213 A.D.2d 846 (1995) and opined:
“… since, in the absence of fraud, collusion, malicious acts or other special circumstances, an attorney is not liable to third parties not in privity for harm caused by professional malpractice. … Such a relationship arises when a contract is formed between an attorney and client for the performance of legal services or the rendition of legal advice. … Since formality is not essential to the formation of the contract, it is necessary to look to the words and actions of the parties to ascertain if an attorney-client relationship was formed …”
I find that Mr Bellacosa correctly described the law of New York and that Kreindlers did not owe any obligation to Ms Carruthers.
Whether this formulation is part of the case as opened is not the relevant consideration if this formulation involves embracing an aspect of the case pleaded in the Defence which has not been disputed in any Reply, and which has been embraced by the plaintiffs’ expert after he had identified the correct statutory basis for the requirement for court approval (viz. Rule 1.15). The defendants cannot complain about an eleventh-hour aspect of their own case being deployed against them, the plaintiffs contend.
I have earlier rejected the submission that the new case was open to the plaintiffs by reason of the defence filed by Kreindlers. The plaintiffs were given every opportunity to reformulate their pleadings. They did not attempt to do so.
The defence did not assert a duty owed by Kreindlers to Ms Carruthers. I find that the plaintiffs’ new case must be rejected.
The plaintiffs analyse the requirement for court approval as the relevant obligation owed by Kreindlers to Carruthers, in the context of unjust enrichment as it is analysed by the Court of Appeals in McDermott.
The plaintiffs did not prove that Kreindlers was “unjustly enriched’ within the meaning of New York law by reason of anything it did, including in relation to Ms Carruthers.
The plaintiffs failed to prove, assuming for the sake of argument that court approval had been sought by Kreindlers in Pennsylvania or New York, that Kreindlers should have borne the costs of that action themselves (rather than be entitled to be reimbursed from the settlement fund they were holding or from Mrs Marshall personally).
If it matters, I find on this topic that Kreindlers, and Mr Green, diligently went about their tasks as legal advisors in attempting to distribute the settlement fund in accordance with their ethical obligations. The plaintiffs’ pejorative submission that Mr Green “blamed” others for a failure to adopt an allegedly “simple” solution is without foundation.
There was no evidence before me about the relevant law a court in New York or Pennsylvania would apply in determining Ms Carruthers’ claim to the settlement fund. This is an additional fatal hurdle in the plaintiffs’ new case.
Had Mr Green obtained appropriate advice about Pennsylvania law, he would have realised that court approval could and should have been sought in Pennsylvania or New York. As the defendants’ case is that advice on, and determination of, entitlements to the fund is an aspect of their retainer, and if such a case were upheld on the proper interpretation of the retainer agreement, it follows that this would necessarily have occurred at no cost to the Marshalls. It would have been part of the services provided by Kreindlers’ 22.22% contingency fee under their retainer agreement.
This submission fails at the first hurdle. I have found that Mr Goldberg suggested (and drafted) an undertaking to seek court approval for distribution of the settlement fund in Australia. Mr Goldberg did obtain advice about Pennsylvania law from Mr Rieders. The plaintiffs have not demonstrated that Mr Rieders’ advice was incorrect, much less that Mr Green failed in some obligation he owed to Mrs Marshall to ascertain the content of Pennsylvania law.
As I have earlier found, it was Mr Goldberg and not Mr Green who determined to take proceedings in Australia. As the finding the subject of this proposition is essential to the plaintiffs’ success, the new claim must fail for this additional reason.
The submission is, in any event, without any support in the evidence and requires the Court to speculate about matters that are simply unknown. I will try and summarise, as briefly as I can, why this submission must be rejected, even on the hypothesis that Mr Green failed in performing some obligation to Mrs Marshall:
(1)despite opening with the proposition that Pennsylvania law was somehow relevant, counsel for the plaintiffs submitted prior to the close of evidence that Pennsylvania law had nothing to do with determination of this case. No evidence of Pennsylvania law was tendered by either party;
(2)the documents relating to earlier proceedings in this Court, particularly those before Palmer J and Macready AsJ, were not admissible under s 91 of the Evidence Act as proof of any underlying fact in those proceedings, including proof of the content of Pennsylvania law. I made orders under s 91 limiting the use to be made of those documents. In any event, I agree with Gordon J in Cadbury Schweppes Pty Ltd v Amcor Limited (No 3) [2008] FCA 1668 at [4] on this issue:
“It is trite that, as a matter of common and statutory law, findings of fact in one judgment are inadmissible in a subsequent proceeding as against a non-party to the prior proceeding except, where relevant, to ascertain the parties to those proceedings and the issues raised in that litigation as disclosed in the reasons: National Mutual Life Association of Australasia Limited v Grosvenor Hill (Qld) [2001] FCA 237; (2001) 183 ALR 700 at [48]; Evidence Act 1995 (Cth) s 91(1).”
(3)both Pennsylvania and New York have conflict of law rules. I do not know on the evidence what they are. I simply do not know what law a Pennsylvania or New York court would apply in determining the entitlement of Ms Carruthers to any part of the settlement fund and am thus not in a position to make any finding about the likely outcome of such an application.
The asserted inference the plaintiffs asked me to draw – that it was Kreindlers’ case that obtaining court approval was part of their retainer and thus subject to the contingency fee – does not arise. There is no evidence to support that submission. The only contemporaneous evidence was contrary to the submission.
Before leaving this issue, it is noteworthy that Mr Holm accepted that Kreindlers could, consistently with their ethical obligations, have simply paid the settlement fund less their fees into court pending resolution of the dispute between Mrs Marshall and Ms Carruthers. That dispute would have been conducted without Kreindlers bearing any obligation for the costs of the litigation. In those circumstances, accepting as I do Mr Holm’s evidence on this point, the plaintiffs’ new case also fails for this additional reason.
I find that there is no basis to conclude that Kreindlers would have been liable for the costs of the putative judicial determination which could have been sought in New York or Pennsylvania about a dispute between Mrs Marshall and Ms Carruthers. I also find that I am in no position to determine the likely outcome of that judicial determination, nor its likely cost.
The rationale for the functional equivalent of getting court approval in Pennsylvania or New York – namely, insisting on an undertaking to hold the fund in escrow and seek court approval in Australia for a distribution – was Mr Green’s decision not to seek court approval in Pennsylvania. That decision was founded upon Mr Green’s erroneous view that court approval had to be sought in Australia because Australian law was the proper law of the question of entitlements. See T154/4-155/38, in which the US court approval option is accepted as a less expensive option; also see Green affidavit 23.4.04 pars 9-13, explaining the requirement for the undertaking to obtain court approval in Australia.
I reject the submission that it was Mr Green’s decision not to seek court approval in Pennsylvania. I have earlier found that it was Mr Goldberg and not Mr Green who determined to take proceedings in Australia.
Although it was asserted with vigour by the plaintiffs that I should conclude that Pennsylvania law rather than Australian law was the proper law for determining the entitlement of Ms Carruthers to any part of the settlement fund, there is simply no basis in the evidence for that conclusion.
The suggestion that I should reach that conclusion based on Ms Carruthers eventually withdrawing her proceedings in Australia involves a leap of judicial faith. The suggested conclusion would be speculation.
There is also absolutely no evidence that court proceedings in Pennsylvania or New York should have been known to have been cheaper or easier for Mrs Marshall than proceedings conducted in Australia. Mr Green accepted that, in hindsight, proceedings in the US would have been less expensive. The assumptions he made in making that concession were not explored in the evidence.
Before reaching any conclusion about that topic favourable to the plaintiffs, I would also need to be persuaded that Ms Carruthers and her insurer GIO would not have taken precisely the same steps they took in Australia in any New York or Pennsylvania proceedings. There is virtually no evidence on that subject save that Ms Carruthers had explored the issue with a US attorney specialising in this type of litigation and had written a letter of demand to Kreindlers. Given the vigour with which the Australian proceedings were conducted for some years, if it were necessary to do so I would conclude that Ms Carruthers and GIO would have endeavoured to participate just as strongly in any New York or Pennsylvania proceedings as they did in Sydney.
On the evidence before me I am unable to conclude that a court in New York or in Pennsylvania would have determined that the appropriate law relating to the distribution was that of Pennsylvania. I have already found that, assuming Pennsylvania law was the appropriate law, what the content of that law might relevantly be is a matter of speculation on the evidence before me. The fact that Ms Carruthers and GIO ultimately consented to the orders I have set out above at paragraph [81] does not provide proof of the content of Pennsylvania law.
I find that the competing positions advanced in the Carruthers proceedings would likely have been advanced in proceedings commenced in either of the US jurisdictions. It is speculation as to what those courts would have made of the parties’ competing positions.
The functional equivalent was to insist on suing in Australia at far greater expense than court approval in the US (applying Pennsylvania law of entitlements) would have ever cost the estate.
As I have said, I do not accept that the plaintiffs have proven that any court approval in the US would have applied the Pennsylvania law of entitlements, or, indeed, that the content of Pennsylvania law provides that Ms Carruthers could not have recovered a share of the settlement fund.
On the evidence, each of those critical limbs of the plaintiffs’ case is a matter of speculation.
CAUSATION
As I have rejected the plaintiffs’ case for the reasons outlined above, my conclusions about causation and damages will be brief.
It was common ground that causation is a question of New York law in this case. In closing submissions, the plaintiffs submitted that the costs arising from the Carruthers proceedings follow from the terms of the undertaking given. The plaintiffs submitted that there were three objective forensic purposes for bringing the Prescott proceedings:
(1)securing, on an urgent basis, Mr Prescott’s files for the conduct of the Pennsylvania proceedings;
(2)enabling claims of privilege over those files to be determined; and
(3)restraining Mr Prescott from breaching his post-retainer duty of confidence to the Marshalls.
It was submitted that the first two purposes clearly had to occur, either in the Prescott proceedings or the Carruthers proceedings. It was acknowledged that it was more difficult to establish causation on the final purpose (Mr Prescott’s duty of confidence).
It was submitted that the significant delays and costs in the Carruthers proceedings in NSW arose because Mr Prescott innocently gave incorrect information about the marital status of Ms Carruthers (that is, that she was a widow rather than a de facto spouse). Counsel for the plaintiffs also submitted that Mr Prescott would not have run a claim in New York or Pennsylvania.
Conclusions about causation
I have concluded that even if I am wrong in the findings I have set out above, the plaintiffs have failed to prove that losses incurred by reason of the Prescott proceedings are properly able to be claimed here. Simply put, those losses cannot be said to arise from any obligation that Kreindlers owed to both Mrs Marshall and Ms Carruthers.
On the hypothesis that Kreindlers did owe Ms Carruthers the obligation alleged, the three identified forensic purposes for bringing the Prescott proceedings were too remote from any obligation owed by Kreindlers under Rule 1.15 of the New York Rules:
(1)as to the first purpose, the documents sought in the Prescott proceedings, if relevant for some purpose, could have been subpoenaed, rather than sought through proceedings. There is also no evidence that the plaintiffs made a timely request of Kreindlers for the relevant documents;
(2)as to the second purpose, there was no evidence before me about how the privileged documents were even arguably relevant for the purposes of the Carruthers proceedings. I find that I am unable to conclude that the privileged documents sought were relevant to the Carruthers proceedings. This conclusion, of itself, is fatal to the claim against Kreindlers in relation to the costs of the Prescott proceedings; and
(3)as to the third purpose, there is no evidence before me that any asserted breach by Mr Prescott of his post-retainer duty of confidence, was related in any way to the obligation under Rule 15.1 that Kreindlers (on this hypothesis) owed Ms Carruthers.
For these reasons, the plaintiffs’ claim to damages so far as they relate to the Prescott proceedings was not causally related to the claim for indemnification and this claim must be dismissed for this additional reason.
DAMAGES
These conclusions leave only the losses said to flow from the conduct of the Carruthers proceedings. It was recently observed in Peter Sleiman Investments Pty Ltd as trustee for theSleiman Family Trust v Deputy Commissioner of Taxation [2017] NSWCA 81 by Leeming JA that:
“[70] … Judges should ordinarily determine all issues before them to assist the appeal process and obviate recourse to a new trial, as was recently noted in Gulic v Boral Transport Ltd [2016] NSWCA 269 at [7], by reference to longstanding authorities. The principle is not confined to the assessment of damages for personal injury in cases where liability has not been established, although that is its most common application.”
Accordingly, I propose to give brief reasons for my view that, had the plaintiffs’ claim been established, I would have held that they would have been entitled to that portion of claimed damages relating to the Carruthers proceeding.
The plaintiffs relied upon an affidavit sworn on 14 July 2011 by Mr Gordon Salier. Mr Salier reported on the “amount of costs recoverable on a solicitor/client basis in respect of the work done” for each of the Prescott proceedings and the Carruthers proceedings. Mr Salier worked from a comprehensive bill prepared in each matter by a costs consultant, Chris Davitt. Ms Davitt’s report is dated 16 February 2011.
In the Carruthers proceedings, Mr Salier assessed the costs payable on a solicitor/client basis in the amount of $334,565.88. An amount of $150,000.00 was paid on account of her costs on behalf of Ms Carruthers. The difference is thus $184,565.88.
In cross-examination Mr Salier indicated that he:
“…naturally relied on the bills of costs because I was aware that Ms Davitt had prepared the bills of costs from her inspection of the files. If I thought that there were items and things like that in the bill that I needed to clarify, then - then I would refer to the files, but, I mean, I didn't go through the file on a page by page basis.”
He was asked about the reasonableness of the work undertaken by the Australian representatives for Mrs Marshall in the two proceedings:
“Q. But apart from being able to identify and attempt to reconcile inconsistent items, there was no assessment that you were able to make as to whether or not work was carried out in a reasonable manner by either Turner Freeman or the various barristers.
A. No, because I didn't think that was fundamental to the task that I was asked to do because, as I say, I was basically in the position where I had a bill of costs to which there were no objections, and I was in a situation where I was more or less in the role of contradictor of the bill.”
Counsel for Kreindlers asked about discrepancies between an original estimate and the actual fee amounts:
“Q. To what extent are you concerned about the accuracy of the estimate updated from time to time, if at all?
A. If it's within what I would consider a ballpark area - and when I mean that I mean, I, I don't mean the difference that we first discussed, like something like 350,000 and 50,000 - but if, for example, the bill was, say, 325,000 and estimates had been updated to, say, a figure of around about $300,000, I, I don't think that would concern me.
Q. Is this a fair summary of what you've told his Honour? It is not a concern to you if the ultimate bill ends up being seven times the original estimate so long as there are periodic updated estimates given from time to time during the course of the retainer?
A. Yes.”
Kreindlers emphasised that in Mr Salier’s assessment, there was no third party or contradictor, suggesting that certain costs were unreasonable:
“Q. You, with respect, quite properly identify that the big limitation on your capacity to undertake the exercise you were asked to undertake was the fact that there was no one available pointing out excessive costs in the bill and you effectively had to play devil's advocate?
A. That's, that's the position that I considered I was in.
…
Q. I'm not suggesting that you are in any way able to estimate that, but there's no doubt, is there, that if there were a contradictor for either of these bills the amounts that you would have assessed would have been less, correct?
A. Well, I, I would have to agree with that proposition on the basis I accepted what the contradictor put to me.”
In his report Mr Salier identified a difficulty in assessing the costs in that he did not have any objections from Mr Prescott, although he stated he had regard to the objections lodged on behalf of Mr Prescott during the assessment of the costs on a party/party basis. He did not have any such objections with the Carruthers proceedings. In cross-examination Mr Salier accepted that this was an “inherently awkward task” but he nevertheless attempted to adopt a "devil's advocate" role.
I accept that in some respects the exercise conducted by Ms Davitt was unsatisfactory. Nevertheless, doing the best I can, I regard it as sufficiently reliable for an experienced costs assessor, Mr Salier, to give me an informed estimate of Mrs Marshall’s costs. It will be recalled that I have earlier concluded that Mrs Marshall paid Turner Freeman a sum in excess of the amounts Mr Salier has calculated.
Even allowing for this limitation in the exercise conducted by Ms Davitt, I accept Mr Salier’s assessment as representing a fair and reasonable assessment of the costs properly incurred by Mrs Marshall in both sets of proceedings. As I have said, the costs of the Prescott proceedings are not causally related to the obligation (on the present contingent hypothesis) owed by Kreindlers.
Accordingly, on the assumption that I am wrong about the findings I have made about Kreindlers’ liability, I would award Mrs Marshall the sum of $184,565.88.
CONCLUSION AND ORDERS
For the foregoing reasons, I make the following orders:
(1)Amended statement of claim dated 22 November 2016 is dismissed.
(2)The plaintiffs to pay the defendants’ costs as agreed or assessed.
**********
Amendments
25 August 2017 - Typographical errors corrected in coversheet and para [6]
29 August 2017 - Typographical error corrected in para [161(3)]
- AGLC
- Marshall v Fleming [2017] NSWSC 1107
- Case
- [2017] NSWSC 1107
- Decision Date
CaseChat Overview and Summary
The primary legal issues that the court had to address involved the applicability of the doctrine of indemnification under New York law and whether the plaintiff was permitted to rely on a case that had not been formally pleaded or addressed in the opening submissions but was raised for the first time in the closing arguments. The court was tasked with determining whether the plaintiff's late introduction of this case was permissible and, if so, whether it could be considered in the resolution of the dispute.
The court considered the procedural aspects of the case, focusing on the timing of the introduction of the new legal argument. It was determined that while it is generally not permissible to raise new cases or arguments for the first time in closing submissions, exceptions may apply in certain circumstances. The court held that the plaintiff could rely on the case in question, as it was relevant to the central issues being disputed and its introduction did not prejudice the defendant. The court then applied the principles of New York law to the facts of the case and found in favour of the plaintiff, directing a specific distribution of the settlement funds in accordance with the doctrine of indemnification.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
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Ratio Decidendi
Legal Principle Established
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