Smits v Roach - [2002] NSWSC 241

No judgment structure available for this case.

Reported Decision:
(2002) 42 ACSR 148
(2002) 55 NSWLR 166

New South Wales

Supreme Court

CITATION: Smits & Ors v Roach & Ors [2002] NSWSC 241

CURRENT JURISDICTION: Equity Division
Commercial List

FILE NUMBER(S): SC 50099/99

HEARING DATE(S): 11 - 14 March 2002
18 March 2002
20-21 March 2002

JUDGMENT DATE: 19 June 2002

PARTIES :

Leonardus Gerardus Smits (1st Pltf)
John Anthony Leslie (2nd Pltf)
Plantoy Pty Limited (3rd Pltf)
Walter Edward Roach (1st Def)
Valerie Anne Roach (2nd Def)
Winnote Pty Limited (In Liq) (6th Def)
Sydtech Pty Limited (In Liq) (7th Def)

JUDGMENT OF: McClellan J

COUNSEL : G Lindsay SC/W Haffenden (Pltfs)
J Sheahan SC/E Finnane (Defs)

SOLICITORS: Smits Leslie, Solicitors (Pltfs)
McCabe Terrill Lawyers (Defs)

CATCHWORDS: COMMERCIAL - maintenance and champerty - retainer agreement between solicitors and clients provided for payment of a percentage of any damages recovered in a litigation matter - negotiation between solicitors, clients and litigation funder - further agreement between solicitors and liquidator securing the time costs of the solicitors - application of the Legal Profession Act 1993 and Maintenance and Champerty Abolition Act 1993 - discussion of the common law of champerty - whether agreements were contrary to public policy - whether recovery on quantum meruit is permissible - whether the common law position in regards to enforceability of champertous agreements has been changed - whether commencement of multiple proceedings amounted to an abuse of process.

LEGISLATION CITED: Legal Profession Act 1987
Trade Practices Act
Fair Trading Act
Maintenance and Champerty Abolition Act 1993

CASES CITED: Denist v Freethy (1890) 24 QB 519
Wild v Simpson (1919) 2 KB 544
Re Trepca Mines Ltd (No 2) [1963] 1 Ch 199
DJE Constructions Pty Ltd v Maddocks (1982) 1 NSWLR 5
AG Australia Holdings Limited v Burton & Anor [2002] NSWSC 170
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
Clyne v NSW Bar Association (1960) 104 CLR 186
Hogarth & Ors v Gye & Anor [2002] NSWSC 32
Thai Trading Co v Taylor [1998] QB 781
Roux v Australian Broadcasting Commission (1992) 2 VR 577
Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261
Montague Mining Pty Limited v Gore & Ors (t/as Clayton Utz) [2001] FCA 791
Gore v Justice Corporation Pty Ltd [2002] FCAFC 83; [2002] FCA 354
Wallersteiner v Moir (No 2) [1975] 1 QB 373
Awwad v Geraghty & Co [2000] 3 WLR 1041
Re William Felton & Co Pty Ltd (1998) 145 FLR 211
New South Wales Bar Association v Cummins (2001) 52 NSWLR 279
New South Wales Bar Association v Somosi (2001) 48 ATR 562
Murphy v The Bar Association of New South Wales (2001) 49 ATR 48
Rondel v Worsley [1969] 1 AC
Giannerelli v Wraith (1988) 165 CLR 543
Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357
Re a Firm of Solicitors [1992] 1 All ER 353
Thompson v Australian Capital Television Pty Ltd (1994) 54 FCR 513
Corporate Affairs Commission of NSW v Yuill (1991) 172 CLR 319
Hoking v The Western Australian Bank (1909) 9 CLR 738
Balog & Strait v ICAC (1990) 169 CLR 625
BIL (NZ Holdings) Ltd v ERA House Ltd (1991) 23 NSWLR 280
Brambles Holdings Ltd v Bathurst City Council (20000-2001) 53 NSWLR 153
Kearley v Thompson (1890) 24 QBD 742
Port of Melbourne Authority v Anshun Pty Ltd [1981] 147 CLR 589
VACC Insurance Ltd v BP Australia Ltd (1999) 47 NSWLR 716
McGowan v Commissioner of Stamp Duty (2001) 47 ATR 357
Spautz v Gibbs (1990) 21 NSWLR 230
Williams & Ors v Spautz (1991-92) 174 CLR 509
Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509

DECISION: See para 328

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McCLELLAN J

WEDNESDAY 19 JUNE 2002

50099/99 SMITS & ORS v ROACH & ORS

JUDGMENT

1 HIS HONOUR: The first and second plaintiffs, Messrs Smits and Leslie, are solicitors. The third plaintiff, Plantoy Pty Ltd, (“Plantoy”), is their service company. These proceedings involve a claim for professional costs and damages. The hearing is confined to issues of liability.

2 The first and second defendants, Mr and Mrs Roach, who are husband and wife, (the latter being, in some pleadings, referred to as the fifth defendant) (I shall refer to them as “Roach” and “Mrs Roach”) were at all relevant times, the sole directors and shareholders of the sixth and seventh defendants, as identified in the summons ultimately relied upon. (I shall refer to Mr Roach and the companies together as the “Roach interests.” Where it is relevant, this will include Mrs Roach). Those companies, (“the Roach companies”) now in liquidation, had an interest in a peat mining venture in Victoria. The Roach interests retained Freehill Hollingdale & Page (“Freehills”) solicitors to advise in relation to the development of the venture. It is alleged by the Roach interests that Freehills gave negligent advice, which caused the Roach companies to lose the mining venture and with it, the opportunity to earn very considerable sums by way of profit from the commercial exploitation of the peat.

3 The plaintiffs were retained by the Roach interests to act in relation to proceedings against Freehills claiming damages (“the Freehills litigation”).

4 As originally constituted, the proceedings included claims against Andrew John Rayment, (“Rayment”) Rene Rivkin (“Rivkin”) and the company which they jointly owned, Justice Corporation Pty Ltd (“Justice Corporation”). These persons and the company became involved in the problems of the defendants as funders of the Freehills litigation. The eighth and ninth defendants have both been liquidators of the Roach companies and are sued in that capacity. The proceedings against Rayment, Rivkin, Justice Corporation and the liquidators have been settled.

The early history

5 Mr Leslie (“Leslie”) and Roach first met through a common interest in Liberal Party politics. They both lived in the northern suburbs of Sydney and they, and their families, became close friends. Leslie is the godfather to one of Roach’s children.

6 Roach is an engineer. In the early 1990s, he came across a peat deposit in Victoria which he believed to be capable of exploitation for a significant profit. He arranged for a lease of the land to be obtained by his company Winnote Pty Ltd (“Winnote”). He engaged Freehills to act in the matter and alleges that a solicitor from that firm advised him that as peat was not a mineral, a mining licence was not required to exploit the deposit. It is alleged the advice was wrong with the consequence that another person obtained a mining licence and, although Winnote held a lease of the land, the other person has been able to exploit the deposit.

7 Believing the Roach interests had a claim against Freehills , Roach asked Leslie to act for him. Because he had few liquid assets, Roach asked Leslie to act on the basis that he would be paid costs only if the litigation succeeded and would receive, in addition, ten percent of any damages recovered. This was described as the incentive for Leslie to take the retainer. I have no doubt this offer, which at the time the parties would have understood to be particularly generous, was made by Roach for reasons which included a desire to assist Leslie.

8 Leslie, who I am satisfied had no understanding of the law of maintenance and the related professional obligations of legal practitioners, accepted the retainer on these terms. He indicated that although he would wait for his costs, Roach would be required to meet any out of pocket expenses. As a sole practitioner, he undertook some preliminary work in the matter, which included giving advice. He also did work with respect to a claim by Roach against his former partner in the venture, Mr Luscombe.

9 Leslie ceased practising on his own and commenced practising in partnership with Mr Smits (“Smits”) and Mr Newton (“Newton”) on 1 July 1995. Shortly before this occurred, Leslie discussed the Freehills litigation with Smits, who expressed some concern about an arrangement which meant that the solicitors would only be paid in the event that the Roach interests recovered damages from Freehills.

10 From 1 April 1996, Newton withdrew from the solicitors partnership. Thereafter, Leslie practised with Smits under the name Smits Leslie.

11 The issues in the present trial require an examination of many events and correspondence from 1995 until the present day. In these reasons, I have endeavoured to relate the events relevant to each issue in the proceedings, but it is not intended to be an exhaustive account of the dealings between the parties. Leslie has filed an extraordinarily detailed affidavit and prepared many volumes of copied documents. It would not serve any useful purpose for me to relate all of the events which he records.

The preparation of the Freehills matter

12 During 1995, Leslie was engaged in securing the position of Roach in Winnote and the removal of Luscombe as a shareholder. Leslie gives a colourful account of the negotiations and the ultimate receipt of a share transfer from Luscombe. The precise nature of the dispute with Luscombe does not appear to be relevant.

13 As I have mentioned, at about the time that Leslie joined the partnership with Smits and Newton, he raised the matter of his contingent fee arrangement in the Roach matter with Smits. He also disclosed that Roach had agreed to pay him ten percent “of what they get as a bonus.” Smits expressed concern about the prospect that the firm would not be paid any costs unless Roach was successful in the litigation. He suggested that either Mr Archer (“Archer”) or Mr Torrington (“Torrington”) of counsel should be engaged to advise as to Roach’s prospects.

14 In July 1995, Leslie prepared a brief for Torrington and instructed him to prepare a statement of claim. It was not until November 1995 that the draft was finally settled and the statement of claim was filed on 15 November 1995. The explanation for this delay is that there were difficulties in settling the details of the claim and identifying the names of the defendants.

15 During this early period, it does not appear that Smits took any active role in the preparation of the matter. Leslie accepted that burden. He had retained Archer to assist in the litigation and in a meeting held in late January 1996, both Smits and Leslie conferred with Archer and Roach. During the conference, the matter of fee arrangements was raised. Leslie confirmed that Smits Leslie would be liable for Archer’s fees.

16 After Roach had left the conference, the matter of fees was again raised. Smits confirmed that the firm would be liable for Archer’s fees but expressed concern about the exposure which the firm was accepting. He said to Archer at one stage:

“You will appreciate that we only want to expend money on the case if it is likely to be successful. We need you to advise as we move forward, on the prospects of success.”

17 Archer gave advice on the prospects of the litigation on 22 March 1996. It was not favourable to the Roach claim. However, Roach did not accept it and considerable further effort appears to have been expended in investigating the relevant facts and law. The critical question was whether under Victorian mining law, peat was a mineral. Ultimately Roach identified a proclamation made in 1992 by which peat was relevantly declared to be a mineral. This caused Archer to revise his opinion.

18 In the meantime, the solicitors acting for Freehills had requested particulars of the claim. The response was settled by Archer as was other correspondence related to pleading matters and damages. By 8 August 1996, Roach had prepared a calculation to support the damages claim. He believed he might recover $971,280,000. The belief apparently incorporated an approach to damages given by Archer.

19 In the months which followed, considerable activity was directed towards refining the pleadings, matters of discovery and negotiations with the Victorian Government. No doubt, these matters were important and the interlocutory issues were hard fought. However, little progress was made

20 On about 3 March 1997, Leslie and Smits met with the Roaches and discussed the possibility of making an offer of compromise under Pt 22 of the Supreme Court rules. The solicitors suggested an offer be made. He took time to consider the position and ultimately gave instructions.

21 Leslie filed a Notice to Set Down for Trial on 12 May 1997, after which matters related to discovery appear to have consumed the efforts of all parties. Freehills offered to settle the matter in August 1997 for a sum of $57,600 plus costs. That offer was rejected.

22 Further interlocutory steps relating to subpoenas, issues of privilege, discovery and other matters were pursued. It was not until about late August 1997 that any attention appears to have been given to identifying the experts who might be retained to support the damages claim. At that time, it was contemplated that Mr Frank Fischl (“Fischl”) of Price Waterhouse might be engaged, but no other expert appears to have been considered. My understanding is that proofing of relevant witnesses was effectively forgotten, Leslie being consumed by documentary matters.

23 On 15 September 1997, a further offer was received from Allen Allen & Hemsley (“Allens”) acting on behalf of Freehills, to settle the matter for $100,000 plus the costs of the proceedings. Roach also determined not to accept this offer.

24 The documentary issues continued to occupy considerable amounts of Leslie’s time. Various interlocutory motions were disposed of, some after contested hearings. An issue also arose as to whether the whole proceedings should be transferred to the District Court. Matters relating to interrogatories were raised, addressed and disposed of.

25 By April 1998 the matter had come under the Differential Case Management processes of the Common Law Division of the Supreme Court. In that month, Deputy Registrar Howe made directions which required the plaintiffs’ experts’ reports to be prepared by 18 September 1998 as well as any statements to be relied on at the trial.

26 It would appear that little, and most likely nothing, had been done in relation to these matters by the beginning of June when Roach requested a meeting to discuss the situation. A meeting was arranged between Archer, Leslie and the Roaches but it does not appear that evidentiary issues were discussed in any detail. Instead, interrogatories were considered.

27 On 22 June 1998, Leslie had a telephone conversation with Mr Dwyer (“Dwyer”) of Allens and they again discussed the possibility of settlement. Apparently, no amounts were mentioned but they arranged to meet later in the week to pursue the discussion. They met on 25 June 1998, at which time Dwyer offered to settle for $125,000 plus costs. Roach rejected the offer, although he indicated he would settle for $9 million. A counter offer in this sum was made but rejected.

28 Leslie spoke with Archer in early July to make arrangements for Archer to assist in settling the necessary statements of evidence. The expectation was that time would be available in late July for this to occur. The expectation was not fulfilled.

29 By early August, Roach was, in my opinion rightly, becoming very concerned about the preparation of evidence. At this point, any hope of complying with the court’s directions was lost. Roach was told that Archer would not be available to assist in the preparation of statements until the week of 24 August and he, not surprisingly, had concluded that there would not be adequate time if the statements were to be ready by 18 September 1998. In fact, the parties did not meet to discuss these matters until 3 September when Leslie says the following conversation occurred:

“Mr Archer: Ted. We will need expert evidence to prove firstly, that the whole of the deposit could have been extracted; secondly, how it could have been extracted; thirdly, the cost of extraction; fourthly, assuming that all of the peat could have been extracted, what was the profit; and fifthly, what was your loss. I suggest that you speak to expert accountants such as KPMG, Horwath & Horwath and Ferrier Hodgson. We may need to obtain evidence from a professional witness in relation to the validity of the proclamation made by the Governor of Victoria in October 1982.

Mr Roach: Stephen. I will contact the accountants and see what firm I can instruct and whether or not any of those firms you mentioned have a conflict. They may have already been instructed by Freehills or have acted for Freehills in the past.

Myself: Ted. You have heard what you have to do. I now want you to go off and speak to those various accountancy firms and get back to me and make a report to me as soon as you have spoken to those people and decided who you are going to use.

Mr Roach: Sure John. I’ll get back to you as soon as I can.

30 It is plain that these issues should have been considered months before September 1998. Although the fact that Archer was not available contributed to the problems, the lack of attention to evidentiary matters by Smits Leslie made a breach of the court-imposed obligations, in relation to the filing of the evidence, inevitable. Considerable effort was given to the preparation of Roach’s statement in September but it was many weeks later before it was settled.

31 On 23 September 1998, Smits provided the Roach interests with a detailed advice on damages. The letter contains a number of unusual statements but it is not necessary or appropriate for me to determine in these proceedings whether the analysis is correct. The letter finishes with the following summary paragraph:

“Thus, in summary, in our opinion, the starting point which should be adopted in this case is that the measure of damages is approximately equivalent to the wholesale value of the peat less the costs of any severance of the mineral in order to put the peat in a saleable condition. We note also that in a case of breach of contract, damages are assessed as at the date of the breach (when the negligent advice was given in 1988); whereas, in tort the damages are determined as at the date of the loss (when the mining licence was granted to Groves in 1993). Perhaps it should be left to the defendants to explain to the Court the circumstances in which it would be unrealistic to award as much as that net value as otherwise your experts may, inadvertently open their valuation to potential deductions, ie those deductions which are excluded expressly by your land economist or valuer or, at least reasoned away by such experts. It would not seem to us to be necessary for your experts in their initial report to specify the respects in which it might be ‘unrealistic’ to reduce the level of loss by reason of such factors as specified in our discussion with you. However, the Plaintiffs’ experts must anticipate the limits of liability which will be asserted by the Defendants and be ready to meet such assertions by way of reply.”

32 It is plain that the case needed far more consideration to be given to it than had occurred.

33 Smits Leslie negotiated an extension of time for the filing of witness statements, which alleviated some of the time pressures. However, little appears to have been done to retain and prepare expert evidence.

34 On 11 October, Leslie had a conversation with Roach about the engagement of Fischl of Price Waterhouse to prepare an expert’s report. By Leslie’s account, the following exchange occurred:

“Myself: Ted. Have you yet instructed Frank Fischl of Price Waterhouse to prepare an Expert’s Report?

Mr Roach: No I haven’t. I still have reservations about instructing Price Waterhouse and I have delayed in giving them instructions to prepare an Expert’s Report.

Myself: Ted. You know our view is that Frank Fischl will deal with your matter impartially and we regard him as a competent expert in this field. We strongly urge you to get on with it and instruct Fischl so an Expert’s Report can be prepared in time and you don’t end up being in default with any Court orders. You’ve been delaying this exercise long enough. You told us on 16 September that you had sent that letter off and now I find that you still haven’t progressed it.

Mr Roach: I’m sorry John. I have delayed it. I’ll send a letter off to Price Waterhouse today.

35 Although Leslie had the carriage of the documentary matters in the case, it appears that Smits now involved himself significantly in matters related to the engagement and briefing of experts.

36 On Smits’ advice a decision was made to engage an expert in peat, Mr Peter Murray (“Murray”) of P J Murray & Associates. Effort was expended in settling the draft of the letter of instruction. It was finally sent to Murray on 27 October 1998. A meeting was held with Murray to discuss the matter in November 1998. Thereafter Murray was engaged and appears to have commenced preparation of his report immediately.

37 It seems that Murray made considerable progress with his expert report. However, Fischl ultimately decided that he would not accept a retainer which included a capped fee arrangement and his retainer did not proceed.

38 In the course of preparing his report, Murray gave advice that consideration should be given to joining the Victorian Government as a defendant in the action. Leslie took the issue seriously and retained Mr Ian Davidson (“Davidson”) of counsel to advise. He was also asked to advise in relation to possible proceedings against Luscombe and related interests.

39 Davidson was consulted in conference on 9 December 1998. During that conference, Davidson indicated his fee for giving the required advice would be in the order of $5,000. Roach appears to have reluctantly agreed to pay that fee. The advice was given and Smits Leslie paid the fee. Although complaint is made in these proceedings that Roach accepted an obligation to pay the fee, Smits Leslie ultimately acknowledged, in a letter of 28 April 1999, that it was their responsibility under the retainer agreement.

40 Smits Leslie lay the blame for the lack of timely preparation of the case on Roach. I have no doubt that because of his concern about the likely cost, Roach delayed retaining an accountant when he had been advised to do so. However, I am satisfied that the fundamental problems were the responsibility of Smits Leslie. Leslie did not have the capacity to articulate and present the claim effectively and Smits, who had paid little attention to the matter until September 1998, did not provide any effective advice. Undoubtedly the many absences of Archer in Perth also contributed to the problems.

41 In a letter to Roach dated 15 December 1998, which dealt with other matters, Smits sought to defend the preparation of the case by his firm. He drew attention to the difficulties arising from the lack of availability of Archer, the difficulties in retaining an accountant and sought to explain the delay in settling reports as in some way related to a prospective change in the court’s practice in relation to expert evidence. He also contended that Smits Leslie had devised a strategy for the proceedings and that it was Roach’s failings which had caused the delay.

42 I do not accept that the failure to adequately prepare the case was the fault of Roach and find that the suggestion that the delay in preparing expert statements was due to a prospective change in procedure, to be without substance.

43 Throughout the last part of 1998, Roach was affected by serious health problems and it is likely that his capacity to deal with the day-to-day issues in the litigation was diminished. He was undoubtedly concerned about costs. However, it is plain that Roach had been pressing for evidentiary issues to be addressed in some comprehensive manner, he being conscious of his obligations in that regard. It was hardly for Roach to identify the legal and evidentiary structure for his case. He had retained lawyers for that purpose. They should have devised a strategy and then sat down with Roach to structure an effective means to implement it, taking account of the likely costs.

44 I have discussed elsewhere the difficulties which had emerged between the parties by the end of December 1998. However, work had not entirely ceased on the preparation of the case at this time.

45 On 22 December, Roach gave instructions to proceed with the claim against Luscombe and commence proceedings against the Victorian Government. Those proceedings were filed on 24 December 1999.

46 Work also continued on the collection of relevant information and Leslie travelled to Melbourne on more than one occasion. Apart from Murray, other experts, including a valuer and peat expert, were considered. Roach’s personal accountant was also retained.

The first retainer agreement

47 I have already described the fact that Leslie disclosed his arrangement with Roach to Smits before joining the partnership with Smits and Newton.

48 When Smits was familiar with the Roach litigation, he became concerned that the arrangements for the payment of the firm’s professional costs had not been included in any written document. Towards the end of 1996, he persuaded Leslie that a written agreement should be executed and undertook its drafting. He forwarded a draft agreement to Roach together with a letter of 14 November 1996, in which Roach was invited to consider the draft with a view to further discussions. I shall refer to this as the “First Retainer Agreement.”

49 The draft provided that the parties to the agreement would be Smits, Leslie, Roach and the Roach companies.

50 The draft agreement provided hourly rates for both solicitors and counsel, a sum of $3,000 to be paid in advance and an estimate of costs in the sum of $10,000,000 (claimed to be a genuine pre-estimate). The obligation of the Roach interests to pay costs was made contingent on the successful outcome of the proceedings.

51 Clause 2.1, 2.2 and 2.3 of the agreement were in the following terms:

“2. Conditional Costs Agreement

2.1 The Clients’ obligation to pay all of the Solicitors’ and the barrister’s costs otherwise payable under this Agreement is contingent on the successful outcome of the matters in which the Solicitors and barrister provide the legal services to the Clients.

2.2 The circumstances constituting the successful outcome of the matter shall be the recovery of any moneys by any of the Clients and/or any Associates of any of the Clients from any of the defendants in any proceedings comprised in the Subject Matter or from any Associates of any of those defendants in respect of such proceedings.

2.3 The Clients undertake to pay to the Solicitors (inclusive of Counsel’s fees) the estimated amount of their costs upon recovery of any moneys referred to in Clause 2.4 hereof provided always that the liability of the Clients under this Clause shall not exceed the amount of moneys recovered as stated in Clause 2.2 hereof.”

52 Before drafting the agreement, Smits had obviously given consideration to the possibility that at least some parts of it may be void, either for champerty or because of a conflict with the relevant provisions of the Legal Profession Act 1987. To guard against this possibility, clauses 2.4, 2.5. and 2.6 were included in the agreement. They were expressed in the following manner:

“2.4 As this Agreement may not provide that costs are to be determined as a proportion of, or are to vary according to the amount recovered in any proceedings to which the Agreement relates:

(a) if any provision of this Agreement is determined to be void or any moneys provided for in this Agreement are unrecoverable for any reason, the Solicitors and the barrister shall nonetheless be entitled to claim payment of their costs and fees on the hourly rates basis specified herein;

(b) in event (a), the Solicitors and the barrister shall be entitled to charge a premium of twenty-five per cent (25%) on the aggregate sum of such costs and disbursements; and

(c) the Solicitors undertake to review and decrease their estimated costs by an appropriate and equitable amount in the circumstances if during the course of the proceedings it becomes apparent or is determined that the Clients will recover less than fifty per cent (50%) of the amounts claimed in the proceedings.

2.5 Without limiting clause 2.3 hereof or the amount of any decrease determined for the purposes of Clause 2.4(c) hereof, the Solicitors undertake to reduce their entitlement to their estimated costs (under Item 3 above) if the amounts recovered by the Clients in respect of the Subject Matter are less than:

(a) $200,000,000 to an amount not exceeding $6,000,000 in costs;

(b) $100,000,000 to an amount not exceeding $4,000,000 in costs;

(c) $30,000,000 to an amount not exceeding $2,000,000 in costs; and

(d) $10,000,000 to an amount not exceeding ten per cent (10%) of the recovered moneys.

2.6 Each sub-paragraph of Clause 2.5 hereof shall be construed and applied as an independent provision and the balance thereof shall be subjected specifically to Clauses 2.3 and 18 hereof.”

53 Although expressed on a reducing scale, it is obvious that clause 2.5 provides for the amount of costs payable to be related to the amount recovered in the Freehills litigation.

54 Further protection for the solicitors was sought by clause 18. It was in the following terms:

”18. SEVERABILITY OF PROVISIONS

Any provision of this Agreement which is prohibited, void, voidable, invalid, null, inoperative or unenforceable in any jurisdiction shall, as to such jurisdiction, be limited pro tanto without affecting adversely the remaining provisions hereof or affecting the validity or enforceablitility of such provision in any other jurisdiction.

55 Amongst various matters which Roach was required to acknowledge, under the agreement, was that he was agreeing to pay costs higher than scale costs and that “the Solicitors’ estimate of their costs is fair and reasonable in the light of the fact that the Clients estimate their claims in the proceedings to be in the order of $971,000,000” (clause 5.2).

56 Provision was made for the termination of the agreement. Clause 14 was in the following terms:

“14 SOLICITORS CEASING TO ACT

(a) the Clients have not carried out any term or condition of this Agreement, and in this respect time limitations are of the essence;

(b) the Clients do not give adequate instructions to the Solicitors within a reasonable time of being asked to do so;

(c) the Solicitors reasonably form the opinion that mutual confidence and trust no longer exist between the Solicitors and the Clients;

(d) the Solicitors reasonably decide that continuing to represent the Clients may breach the requirements of professional ethics or duty; or

(e) the Solicitors otherwise in their absolute discretion decide to cease to act.

14.2 Where the Solicitors decide, pursuant to Clause 14.1(e) above, to stop acting for the Clients, the Solicitors will give not less than seven (7) days’ prior written notice to that effect to the Clients.

14.3 The Clients may terminate this Agreement by written notice to the Solicitors and such termination will not affect the Clients’ responsibility to pay costs to the Solicitors to the time of termination.”

57 The agreement was not immediately accepted by Roach, who responded by letter dated 3 February 1997, in which he suggested various detailed amendments. The parties later met and following discussions, the ultimate document was executed.

58 Roach’s letter of 3 February 1997 offered to increase the “estimate of costs” from $10,000,000 provided in the draft agreement, to a maximum of $45,000,00, the actual costs being on a sliding scale which was related to the amount recovered from Freehills. Smits did not agree to this change and the agreement was executed containing the original sum. At the same time, a letter drafted by Smits, dated 17 March 1997, was also signed by the parties. It was headed “Offer and disclosure in respect of client agreement.” As the First Retainer Agreement was replaced by the Second Retainer Agreement, it is not necessary to dwell upon the terms of this letter.

The Second Retainer Agreement

59 As I have already related, on 22 June 1998 Mr Dwyer, the solicitor acting for Freehills at Allen, Allen & Hemsley, spoke with Leslie on the telephone and raised the possibility of settlement. As it happens, on the same day, Smits reread the retainer agreement and identified a need to revise it. It was suggested to him in cross-examination that his interest in the terms of the retainer agreement was out of a concern that the matter might settle. He denied this suggestion. He forwarded his revised version of the agreement to Roach, together with a letter dated 22 June 1998. Although he drew attention to the suggested changes favourable to Roach in the letter he did not mention those which favoured Smits Leslie.

60 Smits’ letter provided the following:

We have had occasion to have another look at these documents and we are concerned that they may be unfair or inequitable to yourselves and contrary to the intentions of the parties. For example, let us assume that you are successful in recovering only $3 or $4 million notwithstanding the fact that your claim amounts to $971 million. Under clause 2.3 of the Retainer Agreement you would be obliged to pay that $2 or $3 million to us on account of fees. You will observe that clause 2.5 is operative without limiting clause 2.3. Hence, notwithstanding the fact that under clause 2.5(d) the amount payable by you would only be $300,000 or $400,000 in those circumstances, that would not override the operation of clause 2.3, under which you would be liable to pay the $3 or $4 million to us. In our opinion that was not the intention of the parties.

Accordingly, we seek to reach a reasonable and equitable adjustment or compromise with you. Our proposal is that if the amount recovered from the defendants is less than $10 million then we should be entitled to receive an amount equivalent to 10% of the amount recovered by you, together with any costs and disbursements which might be recoverable from the defendants. Of course, in so far as you have paid any of those disbursements, those amounts would be reimbursed to you.

Also, in the event that you are totally unsuccessful in the proceedings, which seems unlikely, we confirm that you would not be liable to pay any amounts to us on account of any outstanding costs or disbursements, including Counsel’s fees; although, you might be liable to pay costs and disbursements to the defendants.

If these arrangements are acceptable to you, then we shall be grateful if you arrange execution of this letter under seal in the same manner as has occurred in respect of the Retainer Agreement and return the same to us.

If, however, you are dissatisfied with our proposal or compromise, then we should be pleased to sit down with you in order to resolve any differences on an amicable, reasonable and equitable basis.”

61 It is apparent that the mechanism to secure Roach’s position was to amend clause 2.5 by deleting the words “without limiting clause 2.3 hereof or”. The fact that the changes made no sense was not appreciated by the parties at the time. It is of significance that although not referred to in Smit’s letter, an additional clause 2.7 was proposed by Smits to be added to the agreement. I cannot conclude that the failure to refer to it occurred by accident. The proposed clause provided for the solicitors, in addition to any other moneys which they received, to retain any costs recovered from the defendants in the proceedings. The amount could be significant. The clause provided as follows:

“2.7 In addition to any other moneys, the Solicitors shall be entitled absolutely to retain for their own benefit any costs recoverable or recovered by the Clients from the defendants.”

62 The consequence was that not only were Smits Leslie to be paid “professional costs” calculated in accordance with the agreement, but they were to receive, in addition, any amount on account of costs recovered from Freehills.

63 As with the first agreement, provision was made for its termination in clause 14.

64 Roach responded to Smits’ letter by facsimile dated 24 June 1998, which suggested some detailed amendments. They included a revision of the extent to which Smits and Roach would benefit from any verdict. Roach suggested 10 percent of the recovery up to $10 million and 5 percent of any amounts above $10 million plus any costs recovered from the defendants.

65 These amendments were accepted by Smits and Leslie and the letter of 22 June was revised. The revised letter is dated 24 June and was executed by Roach, the Roach companies and Smits and Leslie. The third paragraph now read as follows:

“Accordingly, we seek to reach a reasonable and equitable adjustment or compromise with you. Our proposal is that if the amount recovered from the defendants is less than $10 million then we should be entitled to receive an amount equivalent to 10% of the amount recovered by you, and for values over $10 million dollars an extra maximum of 5% recovered by you, together with any costs and disbursements which might be recoverable from the defendants. Of course, in so far as you have paid any of those disbursements, those amounts would be reimbursed to you.”

66 Quite why it was thought necessary to include this aspect of the matter in a letter separate from the formal agreement was considered in the evidence. The fact that the percentage of the recovery was intended to form part of Smits Leslies’ entitlements can hardly be denied. I am satisfied that it is later referred to in a letter from Smits of 11 December 1998 as “the agreed share of the claim proceeds”.

67 Smits was asked about the necessity for this letter. He replied:

Q. And you knew, did you not, that the Legal Profession Act specifically contemplated that entering into champertous fee agreements might be professional misconduct?

68 I do not accept Smits. He was undoubtedly careful in his drafting of the retainer agreement, and was obviously conscious of the difficulties which the Legal Profession Act presented. I am in no doubt that the separate letter was crafted in an attempt to ensure, as far as possible, that the costs agreement, which Smits knew to be controlled by the Legal Profession Act, was separated from the champertous arrangement reflected in the letter. The denial by Smits that he intended to take a share in the proceeds of the Freehills litigation is fanciful. Smits did not impress me in a number of respects which regrettably, include a lack of integrity in the dealings with Roach and a lack of candour when giving his evidence. He does impress me as a careful man, with particular concern about matters of detail. It is inconceivable that he wrote the letter merely because Roach asked him to or that he did not pay enough attention to its contents.

69 As with the previous agreement, clause 5.2 of the Second Retainer Agreement required the Roach interests to acknowledge that the estimate of costs was reasonable having regard to the estimated recovery of $971,000,000. This is to be contrasted with the fact they be this stage, Roach had made an offer of compromise in the sum of $12,000,000.

The dealing with Justice Corporation and the events which followed.

70 As I have related, by September 1998, considerable work was being undertaken, particularly by Leslie, in furtherance of the Freehills litigation. It was also becoming increasingly clear that the prospect of the matter settling was remote. The preparation of the matter for trial and the funding of counsel was obviously going to involve significant financial commitments under the existing arrangements. Smits Leslie was now being required to accept significant risks in relation to its own fees and those of counsel.

71 Leslie was asked about this:

72 I do not accept Leslie. It is inconceivable that both he and Smits had not given consideration to financial risks, including counsel’s fees to which they were committed.

73 Without informing, or even discussing the matter with Roach, Smits decided to investigate the possibility of engaging litigation funders. He proceeded, without even raising the matter with his clients, to have a telephone conversation with Mr Farthing (“Farthing”) of Rivkin Litigation Finance.

74 Smits then wrote to Rivkin although the intention was to deal with Justice Corporation, seeking funding for the Roach interests on 23 September 1998. He had still not mentioned the matter to Roach. He said he tried to discuss the matter with him but was not able to do so. Smits sought to justify the position by saying that he did not believe the letter was harmful to his client’s interests. Whether or not that is true, I find it extraordinary that a solicitor, without first obtaining express instructions, breached his client’s confidence in such a manner. The extent to which Smits was acting in his own interests is evident from the particular requests which he made of Farthing. His first request was for a payment to Smits Leslie as the following extract from his letter indicates:

“Our clients seek indicative commercial terms as to the availability of a litigation finance facility, which covers, inter alia:

a) an up front payment of an agreed figure on account of accrued legal expenses;

(b) the cost of experts reports; and

(c) the Plaintiffs’ possible exposure to costs payable if the proceedings are unsuccessful.”

75 Of course, the clients had given no such instruction. When they were informed of Smits’ actions, they were exceedingly concerned about the upfront payment requested by Smits Leslie.

76 Once he was aware of the situation, Roach commenced his own discussions with Rivkin, in particular as to the percentage his company would require if it took over the litigation. Leslie came to learn of these discussions and developed a theory that Roach and Rivkin were conspiring against Smits Leslie. He was asked about this in cross examination:

77 There is no reason to accept that this theory has any substance. Given that Smits was now engaged on a path which would significantly diminish Roach’s potential gain from the litigation and benefit Smits Leslie, it is hardly surprising that Roach opened up his own discussions. It is plain that as a result of the events which occurred, Leslie developed a sinister view of Roach’s actions. Ultimately, he has come to believe that Roach “set him up” from the outset so that he could use the champertous arrangement to his advantage. There is no basis for this view in the evidence.

78 I have already referred to the request made by Smits in the letter of 23 September to Rivkin. However, the whole of the letter should be read in order to understand the extent to which the solicitors breached their clients’ trust.

“We refer to our recent telephone conversation and summarise our clients’ position below. That position statement is based on our clients’ instructions and the documents forwarded with this letter. It is qualified in the sense that we have not performed any independent verification of any allegations made by our clients by talking third party witness statements or otherwise, albeit that we have no reason to disbelieve those allegations in any material respect and the record of written advice given to our clients should determine the liability issue in their favour.

…

The Swan Marsh peat deposit is the largest deposit of high quality black sedge peat in Australia. It is approximately 650 hectares in area (p 160 Industrial Minerals of Victoria 1995 Report) and has a minimum depth of 10 metres. There is practically no overburden.

The low grade Australian white peat sells for $55 from the mine gate at Emerald Peat in New South Wales. Imported black sedge peat, the quality end of the market, sells for $150 cubic metre retail. The wholesale price fluctuates around $80 per cubic metre. It costs about $10 per cubic metre to mine or sever the peat. Conservatively, the peat has a net profit of $30 to $40 per cubic metre. It is mined by using rubber tyred scrappers similar to those used in the civil roadworks industry by road contractors to grade soils.

At present Australia imports most of its black sedge peat from Germany. Black sedge peat is used in the mushroom industry for growing mushrooms and in the horticulture industry for potting mixes, soil conditioners and fertilisers. It also has other applications such as a water retainer in dry areas and for gold extraction.

There are very favourable markets for sedge peat in Victoria and this is confirmed in the Industrial Minerals of Victoria 1995 Report (Page 161 Paragraph 18.7 Outlook). There is also a very good market in New South Wales and other parts of Australia. Imports for the year 1989/90 in Australia amounted to 19,000 tonnes. Australian production (mainly white peat) in the same year was 12,000 tonnes and rose to 38,000 tonnes in 1992/93. There has been a rapid increase in the use of peat in Australia.

The claim made against the Defendants on 19 August 1996 was particularised as being comprised of:

(a) $2,632,000 being amounts expended upon establishing the peat extraction operation; and

(b) $971,280,000 [no doubt inclusive of (a)] in respect of future profits on the sale of peat, calculated as follows:

(i) the area of the peat deposit is 1600 acres (subsequently the area has been ascertained to be 650 hectares, ie 1606.15 acres). There are 4047 square metres in an acre. The depth of the deposit is 10 metres. Thus, the volume of peat extractable is:

1600 x 4047 x 10 = 64,752,000 M³;

(ii) the wholesale price of Australian Black Peat was $75 per cubic metre. Of this, at the gate of the peat deposit, the net profit is 20% of the wholesale price, ie $15; and

(iii) therefore, the Plaintiffs’ loss was calculated to be:

64,752,000 x $15 - $971,280,000.

However, you will observe that the loss claim is affectively doubled if the net profit per cubic metre is of the order of $30 to $40.

…

Messrs Price Waterhouse Coopers have been retained by the Plaintiffs as expert advisers to quantify and verify the Plaintiffs’ true measure of loss. Land economists and expert valuers and accountants from the Cessnock Region are also being interviewed to value the peat deposit.

Approximately $300,000 - $400,000 in legal costs have been incurred by the Plaintiffs to date and are owing to us.

Several months ago Freehills made a without prejudice offer to pay the Plaintiffs $125,000 and their legal costs in full settlement. They stated that they ‘would be shocked if our costs had reached $500,000’ but the implication was that they might make a lump sum payment not far less than that sum as part of an overall settlement.

In our opinion, the critical issue will be the determination of the proper measure of loss which was suffered by the Plaintiffs as a result of the Defendants’ negligent advice. We consider that the Defendants advice was negligent and that the Plaintiffs relied upon that advice to their detriment in the sense that the Plaintiffs did not obtain the requisite Mining Licence. They considered that to be unnecessary on the basis of the Defendants’ advice.

We have advised our clients that this is the kind of case which might be accelerated to finality with expedition if suitable orders are obtained for a Referral under Part 72 of the Supreme Court rules.

Our clients seek indicative commercial terms as to the availability of a litigation finance facility, which covers, inter alia:

(a) an up front payment of an agreed figure on account of accrued legal expenses;

(b) the cost of experts reports; and

(c) the Plaintiffs’ possible exposure to costs payable if the proceedings are unsuccessful.

Could you please let us know your other requirements and let us have an in principle proposal. We can meet with you before you respond if that is likely to assist you.”

79 Apart from the concerns I have already identified, the suggestion that $300,000 to $400,000 was owing to Smits Leslie on account of costs was quite wrong. Any entitlement in Smits Leslie was dependent upon a successful outcome in the proceedings. The solicitors were aware of this and I can only conclude that this was a deliberate attempt to misrepresent the position.

80 Roach was not advised of the approach to Rivkin until probably 30 September 1998. When challenged by Roach, Smits explained that the need for funding was so that Roach would appear stronger in the eyes of his adversaries. Although this may have been a factor, it is apparent that Smits had other motivations. Plainly, the desire of Smits and Leslie to secure their own financial position was significant.

81 Rayment, who was then a practising barrister, took the matter up on behalf of Rivkin and expressed significant interest in the possibility of funding the litigation but required more information. This was provided by Smits. Rayment also met with the Roaches. Rayment indicated to Roach that subject to a satisfactory opinion from Queens Counsel and the agreement of appropriate terms, he was interested in funding the proceedings.

82 The draft agreement proposed by Justice Corporation was given to Smits on 7 December 1998. Smits made changes and provided the draft to Roach. The original draft dealt with the interests of the funder, the litigants and the proposed administrator of the Roach companies. However, Smits introduced a further element - the interests of Smits Leslie.

83 On 10 December 1998, Smits sent Roach a schedule of proposed amendments to the funding agreement. Many of the changes were minor. The most significant change was the introduction of Plantoy (Smits Leslies’ service company), which was to be assigned ten percent of the claim proceeds and the sum of $500,000 said to be “on account of legal costs and disbursements incurred prior to the date of this agreement”. The draft was forwarded with a covering letter. Although these amendments were incorporated in the draft, they were not referred to in the covering letter. This omission could hardly have been by mistake.

84 Roach considered the draft agreement together with the changes suggested by Smits. Not surprisingly, he became very concerned as to the form of the agreement now proposed. He was particularly concerned about the clauses which provided for benefits to Smits Leslie including the $500,000 “upfront fee”. This is not surprising, for it represented a fundamental change from the contingent fee arrangement, which had previously been in place. He was also unaware of the relationship of Plantoy to the solicitors. He had never previously heard of the company.

85 When the facsimile from Smits Leslie arrived on 10 December, Roach said he was shocked, telephoned Smits, and the following conversation took place:

”ROACH Leo I have just read your fax and it includes a range of commercial interests which we have not even discussed.

SMITS What do you mean. I have been looking after your interests.

ROACH What is this $500,000 upfront fee? What is Plantoy Pty Limited? What do you mean you can obtain ten percent of the claim proceedings?

SMITS Ted, this is a little complex. How about I send you another fax which explains it all.

ROACH Do that and we will need to have a meeting.”

86 Smits gave a different account of this conversation. According to Smits, he endeavoured to explain that he was seeking an upfront fee in order to ensure that Smits Leslie was remunerated for the work which they had already done in the matter. I think it is likely that words to that effect were part of the conversation, although probably not now recollected by Roach. I do not think their differences, in recollection with respect to these matters, are of any moment. Smits’ claim for an upfront fee was a radical departure from any terms to which Roach had previously agreed.

87 On 11 December 1998, Smits sent Roach another fax which outlined the basis upon which he sought to be remunerated under the prospective litigation agreement. It is significant, when referring to Smits Leslie’s fee entitlements, that Smits includes future costs orders and the share of the claim proceeds:

“We refer to our recommended changes to the Justice Corporation Litigation Agreement Precedent, which were sent to you for your instructions on Thursday, 10 December 1998.

In summary, our fee entitlement can be characterised generally as follows:

1. Accrued fee entitlements, which are of the order of $500,000;

2. The benefit of any (future) costs orders obtained against the Defendants; and

3. Our agreed share of the Claim Proceeds (as defined in that Precedent).

Under the terms of the proposed Agreement:

(a) We would be replaced as the Solicitors for the Claimants, so that we cannot earn any further revenue on account of doing any future legal work;

(b) We would be expected to cede in favour of Justice Corporation any costs recovered from Defendants [see sub paragraph (b) of the definition of the ‘Sale Property’ contained in Clause 1]

Accordingly, for discussion purposes, we have simplified our prospective entitlements, as defined in the proposed definition of ‘Plantoy’s Portion’, as contained in the schedule of recommended changes sent to you by fax on Thursday, 10 December 1998.”

88 The two met on that afternoon. Leslie and Mrs Roach were also present for part of the meeting. Roach gave the following account of their conversation:

“Mr Smits: Now Ted, what’s the problem? I have made it very clear in my faxes. All we are asking is for our entitlement.

Myself: Leo, I totally disagree with you attempting to get $500,000 up front from Justice Corporation. I don’t see how they’ll agree to pay you that sort of money. You are jeopardising the whole litigation funding.

Mr Smits: I want to arrange a business deal with Justice Corporation.

Myself: I don’t want this business arrangement to hinder Justice Corporation funding the case.

Mr Smits Ted, under the funding agreement we are to be replaced as the solicitors and we will lose substantial fees that we would have obtained if we ran the case right through

Myself: Leo, why are you entitled to any future fees if you don’t do the work?

Mr Smits Ted, we are passing this case on to benefit you. I have to do a business deal with Justice Corporation.

Myself: I would have thought, since you are not completing the case, that your best entitlement should be your legal costs to date paid on the successful outcome of the case. Leo, we are now paying 30% of any settlement to the funders. We will be 20% worse off than we would have been under our arrangement. The retainer agreement was signed on the assumption that Smits Leslie would complete the case. That is now not so.

Mr Smits: Things have changed since then. I am missing out on a lot of fees. I’ll ask for $250,000 upfront and $250,000 on the successful conclusion of the case.

Myself: I am unhappy about any up front fee, especially if it hinders the case. If Justice Corporation are prepared to pay an upfront fee, that is up to them, however I do not agree to any upfront fee and if you are paid it then it should come out of your final entitlement even though I can’t see them accepting it. I am not having some business arrangement that results in the funders pulling out.

Mr Smits: Oh no, if it looks like they won’t be in the litigation funding, then I’ll back off. I also want 10% of the total claim received. The case will now be more professionally handled and you will get a better outcome.

Myself: Leo, no upfront fees. You have continually claimed this is a billion-dollar case and that you can handle it. This formed the basis of the retainer agreement.

Mr Smits: Things have changed, you need funding and a major legal firm to run this case. Our agreement was that we get 10% of the total claim and any legal fees we can recover from the other side. That’s what we want.

Myself: No, how about 5% of what we receive?

Mr Smits: How about 10% of the amount that you receive?

Myself: Ok, I agree on 10% of what we receive subject to you being our legal advisers and for your firm to put our interests paramount in this case. Can you explain to me who Plantoy Pty Ltd is?

Mr Smits: It’s a company that John and I have equal shares in, we are both directors and it’s a service company used in the structure of our legal practice.

Myself: We are not paying Plantoy Pty Ltd because our Retainer Agreement is with Smits Leslie.

I then stood up and walked out to greet my wife who was just outside the door. I said words to the effect:

Myself: Anne, Leo and I have agreed that their legal fees will be 10% of whatever we receive so long as they act as our solicitors and protect our interests. They can also have whatever legal fees that they can obtain from the other side, but that is Smits Leslie’s liability.

Mr Smits nodded his agreement. Mr Leslie was not present at this time.”

89 Smits gave a different account. He put the exchange in more colourful language and suggested the agreement was reached with Roach that, in addition to the share of the proceeds, an upfront fee of $500,000 would be paid if Justice Corporation agreed. His account included the following:

“Mr Roach: John [Mr Leslie] is to gutless to stay in this negotiation. I don’t want Anne [Mrs Roach] to interrupt us. It is up to you and me to reach an agreement. In the event that Justice Corporation funds our litigation against Freehills, we will pay or procure the payment to you of $500,000 plus ten per cent of what we get. Justice Corporation can pay the $500,000 up front to you if you can convince it to do it. That is up to you to fix. But, your ten per cent entitlement will only be paid out of what we get. It will be equivalent to ten per cent of the difference between what we recover and the thirty per cent payable to Justice Corporation. Those monetary entitlements will supersede your monetary entitlements under your Retainer Agreement. You can take it or leave it now. If you don’t take it, you and John can f_____ off. Anne and I and our companies will only be bound by that Agreement if you agree to accept $500,000 and ten per cent of what we get. Do you agree?

Myself: Ted, you have left us no choice. We have to accept your offer. We agree to it but it still has to be documented properly and Justice Corporation have to agree to fund the litigation. As long as our interests are properly protected in the Funding Agreement, we have no problem with you. I suggest that we bring John and Anne back into the meeting so that we can tell them what we have agreed.

Mr Leslie and Mrs Roach were then requested to re-join the meeting. When they did so, I said words to the following effect:

Myself: Ted and I have agreed that we will receive $500,00 plus ten per cent of what Ted and Anne and their companies get out of the Freehills case. We have to try and convince Justice Corporation to pay us all or a substantial part of the $500,000. Otherwise, we will get paid at the end of the case. In order to make the ten per cent arrangement valid and enforceable, it will be necessary for us to include a suitable assignment provision in the Funding Agreement, along the lines of the assignment proposed in favour of Justice Corporation. Does that summarise our position Ted?

Mr Roach: Yes, that represents our agreement. But, you do not get your ten per cent unless we get paid our sixty percent.

Mrs Roach nodded her concurrence. Mr Leslie said: ‘That’s good. I am really glad we have settled our differences.”

90 Leslie gave this account of the same meeting:

“On or about 11 December 1998, Mr and Mrs Roach attended at Smits Leslie’s offices at Gordon. I attended for a part of the time a conference between Mr and Mrs Roach and Mr Smits. That conference took place in our Boardroom. During the course of that meeting part of the conversation was to the following effect:

Mr Smits: If our firm is going to drop out of the Freehills proceedings, so that you and the other Plaintiffs can get Litigation Funding then you have to see that interests of our firm are protected under the Litigation Funding Agreement. You will appreciate Ted, that what we are giving up is the entitlement to recover costs from Freehills and we have to be compensated for that. Once the Funding Agreement is signed and Justice Corporation come into the picture and appoint lawyers to act for the Plaintiffs in the Freehills proceedings, we no longer have any right to recover from Freehills costs for legal services that we have provided to the Plaintiffs in the Freehills proceedings to date. If you are successful and there is a costs order awarded against Freehills under the Funding Agreement, Justice Corporation will be entitled to enforce and keep payment of those costs. We will have no entitlement to do so. Andrew Rayment has suggested that we can only protect ourselves by putting the $500,000 in accrued fees for the work we have done in the Funding Agreement, then it will be paid to us as compensation for the matter being taken away from us and that we would take an assignment of 10% of the cause of action from the Administrators of Winnote and Sydtech to our service company, Plantoy to cover our other entitlements. We have always told you that we do not want to be involved in any champertous arrangement. If we take an assignment of 10% of the cause of action from the Administrators of Winnote and Sydtech, that does away with any element of champerty.

Mr Roach: Well I don’t want you and John to get a half a million dollars at this stage if we are not going to recover anything from the litigation. You should only get 10% of what we get in recovery.

Mr Smits: As I have just explained to you, we must first get back the value of the work we have carried out on behalf of the Plaintiffs in this litigation, as by entering into the Funding Agreement we lose the benefit of those costs and they are then passed on to Justice Corporation or the Plaintiffs.

There were then discussions about the proposed amendments to the Litigation Funding Agreement. At about this time, I left the meeting to attend to an urgent client inquiry. Later, I returned to the meeting when I was requested to do so. During the second part of the meeting, words to the following effect were spoken:

Mr Smits: John, while you’ve been absent, Ted and I have had some discussions and we have agreed that Smits Leslie will received (sic) $500,000 plus 10% of the actual amount received by Ted and Anne and their Companies in the Freehills Litigation. It is up to us to try and convince Justice Corporation to pay us all or a substantial part of the $500,000. If this doesn’t happen, we will get paid at the end of the case. I have told Ted, and he agrees that for us to take the 10% arrangement and make the 10% arrangement valid and enforceable it will be necessary for us to take an assignment of 10% of the cause of action from the Administrators of Winnote and Sydtech. We will need to include a suitable clause to that effect in the Funding Agreement. Ted, do you agree with what I have just told John?

Mr Roach: Yes, that’s what we agreed. We also agreed that you don’t get your 10% until we get our 60%.

Mr Smits: John and Anne, are you happy with this agreement.

Mrs Roach and I nodded our agreement.”

91 Mrs Roach’s account of the relevant conversation was similar to that of her husband. It was, to say the least, not a comfortable meeting. Mistrust of Smits Leslie by Roach was clearly evident, and I have no doubt, was justified. I am satisfied that Roach remained concerned that if Smits Leslie insisted on an upfront fee, Justice Corporation may have walked away from the whole arrangement. Furthermore, I am not persuaded that it was agreed that Smits Leslie would receive $500,000 plus ten percent of the recovery. Certainly, Roach did not offer such an arrangement. By the conclusion of the meeting, Smits and Roach had agreed that Smits Leslie could seek an upfront fee provided it was acceptable to Justice Corporation. However, the only agreement was that Smits Leslie would share in ten percent of the proceeds of the litigation provided they continued to act and advise Roach in the matter. There was no agreement that, if an upfront fee was ever agreed, it would be in addition to the entitlement of ten per cent of the recovery, or payable from the recovered monies.

92 Thereafter, further exchanges by telephone and facsimile took place. In conversations on 14 December, both Smits and Roach confirmed they had reached agreement on 11 December. However, they had different understandings of their exchange. Smits sent a further set of amendments to the draft agreement with a facsimile on 15 December 1998. He continued to press for immediate payment to Smits Leslie. By a letter on the same day, Roach indicated that he did not believe that the amendments suggested by Smits reflected the agreement which had been reached at the meeting of 11 December 1998. His letter was in the following terms:

“The conditions we agreed to last Friday have not been adhered to, therefore we cannot contemplate signing any agreement with Justice Corporation Pty Limited at this time.

There was no approval given for you to obtain an up-front fee of $500,000. It was explained to you that if you could recover these costs from the defendants, then you were entitled to this sum. You wanted $250,000 up front and $250,000 on the successful conclusion of the case. My conversation to you was for you to try and obtain this from Justice Corporation if they were agreeable to it. However insisting on $500,000 up front will place the whole arrangement in jeopardy.

In regard to Smits Leslie’s percentage, it was suggested that if we proceeded with Justice Corporation, and that Smits Leslie acted as our legal advisors with our interests paramount, then Smits Leslie would receive 10% of settlement moneys received by us. It was clearly explained why we require this structure. Obviously this offer has now been negated.

Who is Plantoy Pty Limited? Our agreement is with yourself and John, trading as Smits Leslie. We will need further time to have this contract properly examined.”

93 The letter concluded with a concern about the state of preparation of the case:

“I am also very concerned that we have not had a clear strategy or adequate advice with regard to the expert witnesses needed by Legal Counsel in order to bring this case to a successful conclusion. This strategy has to include the relevant statements and experts’ reports, as directed by Legal Counsel, being on time according to the Supreme Court orders.”

94 Smits replied:

“With respect, the conditions which we agreed to last Friday, 11 December 1998, have been adhered to by us, as I attempted to, and hopefully did, explain to you in our telephone conversation late on Tuesday, 15 December 1998.

With regard to our request for an up-front payment of $500,000 to cover incurred costs and disbursements to date, we reminded you in our telephone conversation that the your/our original invitation to Justice Corporation was predicated upon the assumption that an offer, in substance or effect, had been made by the Defendants’ advisers for settlement based on payment of such an assessment. They never suggested (of course) that we should be paid $500,000 and said, in effect, that they would be astonished if we requested $500,000, but they clearly had in mind a figure close to that sum. In our opinion, our costs, taking into consideration care and skill, must be in the range of a minimum of $400,000. However, if it transpires that Justice Corporation will not proceed unless the up-front payment is of the order of $250,000, then we will be agreeable to receiving the balance out of the payment of the Claim Proceeds. Also, we entertain no difficulty whatsoever with any obligation on our part to establish our monetary entitlement at the higher level. We accept that it will be our responsibility to convince Justice Corporation as to that entitlement. Also, we accept that such moneys would only be payable out of the Claim Proceeds and not directly from you. In our telephone conversation, you stated, in effect that you consider that Justice Corporation is unlikely to pre-pay more than $100,000. Could you please tell us whether and, if so, on what basis and in what terms, that was discussed with Mr Rayment.

With regard to the specific arrangement which was agreed to on Friday last, in our opinion that is precisely what is reflected in item No. 44 of the Schedule of Recommended Changes which we sent to you under cover of our letter dated 15 December 1998. In that regard, we would invite you to read carefully the definitions of the ‘Claim Proceeds’ and the ‘Agreed Portion’, such that ten per cent (10.0%) of the difference between those items reflect precisely our revised agreement. Consequently, there has been no negation of any offer. In any event, if there had been such a negation, at law, there would be a continuation of the original agreement.

Like yourself, we also operate through companies. Our only service company is Plantoy Pt Limited (“Plantoy”). The only shareholders and directors of Plantoy are John Leslie and myself. Accordingly, your Agreement is with us and no-one else. For our part, we confirm that any arrangements which are made with Plantoy can be treated by you as arrangements which are made only with us.

We confirm that you should take as much time as necessary in order to satisfy yourself completely as to the contents and effect of the proposed Agreement. For our part, we are at your disposal to discuss any aspect of the matter at any time which is mutually convenient. We note that we have invited you to participate in a further conference about the subject matter of the proposed Agreement on Friday next, 18 December 1998, at a time to be arranged by you with me or my secretary.”

95 The letter concluded with the following pointed remarks:

“Finally, I am compelled to say:

(i) we do not consider it to be appropriate conduct to exclude your wife (in her capacity as a director and otherwise being interested in the case) from any meetings:

(ii) if it were not for the input and the financial support which John has given to you to the full extent of his resources and capability – both of which should always have been apparent – you would be statute barred and have nothing;

loyally

(iv) you should be wary of the pitfalls of giving evidence under stressful cross examination from experienced Senior Counsel. From my observations, and without intending to be offensive in any way, I know from experience that you will not present well as a witness.

(v) If PricewaterhouseCoopers will not act for you, we recommend that you engage forthwith Mr David McGrane of Mann Judd, Mr Trevor Vella from Horwath Sydney, a partner of Ferrier Hodgson, or some other suitable accountant who is experienced in producing Reports for Courts and in being cross examined on such Reports, if they can act for you, to do the requisite accounting work during January 1999.”

96 Roach responded to the letter. It is plain that the possibility of an upfront payment was still causing considerable difficulty. Although Smits continued to demand it, there was no suggestion that Justice Corporation would agree to it. Roach’s letter dated 17 December 1998 provides:

“I refer to your letter of today’s date.

1. Legal costs which will be payable to you are those which you can obtain from the defendants. Our agreement does not involve legal costs payable to you by us. If you now wish to obtain up front payments, then that is a matter outside of any agreement with us.

I am not in favour of any payments being made until the case is resolved, especially if Justice Corporation under the agreement you have arranged can request all payments made by them at any time.

2. With regard to any arrangement of 15 December, 1998, these matters have not been finalised and are only of consideration if an agreement is reached with Justice Corporation.

3. In reference to Plantoy Pty Ltd, our arrangements have been with Smits Leslie. Plantoy Pty Ltd is not Smits Leslie regardless of the directors and shareholders.

4. The contract from Justice Corporation has considerable commercial disadvantages to both myself and the companies involved. I consider it, even with your amendments, to be a commercial disaster with the potential of leaving myself bankrupt.

There have been no discussions between myself and Mr Rayment in regard to payment to yourselves. I have always said that this matter is between you and the money Justice Corporation can recover from the defendants.

I am compelled to say also:

(1) John should be present at meetings where we discuss all contractual arrangements. The meeting last Friday should not have proceeded when he unfortunately left.

(2) We accept and appreciate John’s, Stephen’s and your efforts on our behalf.

(3) I was very upset because the meeting did not attempt to examine the commercial implications of Justice Corporations contract, but rather your financial interests. For instance it would be extremely negligent for me to accept a contract which could bankrupt me; capping of the fees input by Justice Corporation, so there is no guarantee of the case being taken to conclusion; demands of payment at any time; accepting us as the last beneficiaries; the necessity for our companies to be placed in administration etc.

These issues will all need to be resolved and I will seek a commercial lawyer’s opinion on a fairer commercial contract with Justice Corporation.”

97 Smits Leslie responded by letter dated 17 December 1998. It is plain that the relationship of solicitor and client was now under significant threat. The letter concluded with the following remarks:

“ (3) It appears that you have not comprehended, fully or properly, the comments made by me in the meeting on Friday last, 11 December 1998, concerning the aspects referred to by you. If these were matters of such vital concern to you, and were not covered adequately in our Schedule of Recommended Changes to the proposed Funding Agreement received from Justice Corporation, there was nothing precluding you from discussing or raising these matters with me. I have taken considerable time and effort to discuss the commercial effectiveness of the proposed arrangements with Justice Corporation. I have continued to do so since our meeting. The amendments reflected in the two revised schedules sent to you since that meeting are confirmatory as to that situation. Moreover, I welcome every input that you can give to us, by way of instruction or otherwise, in order to finalise the Schedule of Recommended Changes, so as to maximise the protection and benefits which can be afforded or flow to the Plaintiffs.

Insofar as your final comment carries any implication that we do not practise as ‘commercial lawyers’ of high standing in the legal community, that we lack independence and/or that we may not be up to the task, I will leave you to dwell upon the defamatory aspects of such implications. If that was not your intention, then we invite you to withdraw the comments unreservedly and to apologise for making such implications in open correspondence.”

282 The second answer is that, as the agreement was conditional on a successful outcome in the Freehills litigation, the solicitors accepted that they would only be paid if the retainer was maintained and a verdict recovered. Given that the agreement was itself contingent on a successful outcome, I see no unfairness in it operating so that, in the event that the relationship was no longer effective, the solicitors could withdraw, but could not seek remuneration.

The alleged agreement of 11 December 1998 and the claim of misleading and deceptive conduct at 11 December 1998

283 I have related the essential events from which it is submitted that there was an agreement entered into on 11 December 1998. It is accepted by the Roach interests that the evidence would support a finding that on that day, there was an agreement that Smits Leslie (not Plantoy) would be paid ten percent of the Roach component of any verdict in the Freehills proceedings. The agreement was oral. The defendants do not accept that it was otherwise agreed that the plaintiffs would be paid in addition the sum of $500,000 on account of costs.

284 I am not satisfied that there was agreement that the plaintiffs would be paid the additional sum of $500,000. I have no doubt that the issue was raised and continued to be the subject of discussion and correspondence. However it was bound up with Smits Leslie’s insistence on an upfront payment for which they continued to negotiate, without success. That payment was sought in various forms but was never agreed.

285 In any event, the agreement alleged by the plaintiffs was conditional upon them continuing to act to protect the defendants’ interests. Plainly, this did not occur and the retainer was terminated.

286 Furthermore, the claim for $500,000 is for professional costs arising under an oral agreement. As such, it is void having regard to s 184 (4) of the Legal Profession Act. It could not be enforced.

287 In any event, if there was agreement with respect to the $500,000 payment, it was part of a champertous arrangement. Although described as a payment to Plantoy, it was plain that a purpose of any agreement was to provide a benefit to the solicitors, being ten per cent of the proceeds of the Freehills litigation. In these circumstances, the agreement was unenforceable and no cause of action can be sustained in reliance upon it.

288 This aspect of the claim fails.

The September 1999 agreement

289 I have already indicated that I am satisfied that the Ten Point Plan was reflected in a concluded agreement between the Roach companies and Smits Leslie whereby Smits Leslie would seek to recover in the liquidation. Of course, before there could be any recovery, the Roach companies would have to succeed in the Freehills litigation for there were otherwise no funds available.

290 By amending the proceedings to sue the Roach companies, not on the September 1999 agreement, but on the earlier retainers and agreements, Smits Leslie acted in a manner contrary to the September 1999 agreement. Although in February 2002, the pleading was amended to include a claim for specific performance, until that time, the claim made was for recovery pursuant to the previous agreements.

291 If, as I have found, the September 1999 agreement included a forbearance to sue, the bringing of the proceedings was a repudiation of the agreement.

292 At my request, consideration was also given to whether the September 1999 agreement, which sought to compromise agreements which I have found to be unenforceable, would for that reason, be unenforceable. As the agreement by clause 8 sought to preserve a prospective entitlement in Smits Leslie to ten percent of the claim proceeds, it was also argued that the September agreement was itself champertous.

293 Smits Leslie submit that as the enforceability of the September agreement was not the subject of any pleading which raised issues of champerty, either in relation to the retainer agreements, or the agreement itself, the court should not entertain the Roach submission. Although a court must be alert to an illegality and, in some circumstances, must itself raise the issue (see Mason and Carter Restitution Law in Australia para 2603 and the cases referred to), this is not such a case. As the matter was not pleaded and, as will become apparent, is not essential to the manner in which I have determined the proceedings, it need not be considered further. Complexities would immediately emerge, not least being whether an estoppel would arise from the position taken in the proceedings before Windeyer J and from the acceptance of the Smits Leslie documents. Whether the parties should have leave to tender further evidence relevant to these issues would also have to be considered.

294 Smits Leslie submit that even if the bringing of the proceedings against the companies was a repudiation of the Ten Point Plan, in the absence of any acceptance by the companies it cannot be relied upon. In response, the Roach interests submit that they have always asserted that there was no agreement. The original defence did not plead the September 1999 agreement as a defence to the claim and in addition, the final form of the defence pleads repudiation and abandonment. Although there can be no abandonment (there was no agreement to that effect), the parties joined issue as to the right of Smits Leslie to recover under the agreements which preceded the September agreement.

295 I am of the opinion that this submission is sound. As the Roach interests did not attempt to plead the September agreement in answer to the Smits Leslie claim, their act of repudiation was accepted.

296 As a consequence, Smits Leslie fail in all their claims.

The defendants’ submissions in relation to the cross claim

297 The Roach interests identify the fact that when the present proceedings were commenced, there were already two sets of proceedings on foot which overlapped with them, ie the First Supreme Court Proceedings and the First Local Court Proceedings.

298 The original summons in these proceedings was brought against the Roaches, Rayment, Rivkin and Justice Corporation. The proceedings contained cumulative claims against those parties for damages and equitable compensation and aggravated and exemplary damages. The claims were framed in various ways including deceit and conspiracy to defraud. The conspiracy to defraud claim was subsequently withdrawn, although it was resurrected in these proceedings and continued to be a particular of the alleged breach of contract until day 4 of the hearing when those particulars were disavowed.

299 It is emphasised that those parties were “targeted” by these proceedings, and the serious allegations made at a time when a funding agreement was still being negotiated with Justice Corporation, and at a time when the Freehills litigation was at risk of being struck out for want of prosecution.

300 It is submitted that in the present proceedings, even after the summons had been amended, Smits Leslie continued to maintain claims for relief going well beyond what they could have been entitled to on any rational appraisal of their entitlements. Even the pleading which is currently in place contains a claim, on behalf of Plantoy, to 10 percent of the damages recovered in the Freehills litigation plus $500,000.

301 The defendants also point to the fact that in their preparation of evidence in these proceedings, Smits Leslie saw fit to file a statement by Leslie which is several hundred pages in length, which purports to deal with every item of work done by him in the Freehills litigation, and exhibits 65 volumes of documents, including apparently every document brought into existence in the Freehills proceedings during Leslie’s involvement.

302 Moreover, Smits Leslie continued to conduct these proceedings, causing enormous cost to the defendants in circumstances where the obvious course was to leave them to abide the outcome of the Freehills case. Apparently, this was the course suggested in October 1999 by the defendants. Smits Leslie refused. They changed their approach only in March 2001. By then, any strategy to force the defendants into an unmeritorious settlement had clearly failed.

303 Emphasis is also placed on the fact that on 3 August 1999, Smits Leslie commenced proceedings against the then liquidator of Winnote and Sydtech to have him removed. It was alleged that there was preferential treatment in favour of Roach and the related companies. As the liquidator of Winnote and Sydtech was a necessary party to any proposed funding agreement, it is suggested these proceedings were commenced to bring pressure on the Roach interests.

304 In these circumstances it is suggested that the various proceedings were brought so as to put maximum pressure on Roach:

· through the multiplicity of overlapping proceedings;

· through the multiplicity of fora (Local Court, Supreme Court Common Law Division, Supreme Court Commercial Division);

· through the relatively short space of time in which the proceedings were brought;

· through the difficult time at which the proceedings were brought, in that the Freehills proceedings were in jeopardy at the time;

· through the seriousness of the allegations made in the proceedings;

· through the open-endedness of the potential damages claimed in the cumulative claims in the proceedings herein (only abandoned in this trial);

· through the making of allegations and claims against parties with whom Roach was negotiating a commercial agreement, including allegations arising from previous dealings between those parties and Roach; and

· through the overproduction of evidence in these proceedings, where it was known that this would cause Roach both great cost and concerns about the exposure of confidential privileged material relevant to the Freehills proceedings.

305 The defendants submit that this combination of conduct, and its calculated effect, is evidence of a collateral purpose which goes beyond the legitimate purpose of the proceedings themselves. The purpose was to put pressure on Roach and those with whom he dealt in order to secure for Smits Leslie benefits to which they were not entitled.

306 The defendants also point to the fact that until the most recent amendment to the summons in these proceedings, Smits Leslie sued for damages in respect of various disputes which they now say were settled in September 1999. If that assertion is maintained, then these proceedings are, in their entirety, an abuse of process.

307 Finally, it is submitted that the various proceedings were an abuse of process was, essentially, admitted by the plaintiffs when they consented to orders staying the first Supreme Court proceedings and gave undertakings not to prosecute the Local Court proceedings.

The plaintiffs’ submissions on the cross claim.

308 The plaintiffs submitted in final addresses that the defendants conceded that under the Retainer Agreements, the plaintiffs have a right to disbursements (other than counsel’s fees), not contingent on the outcome of the Freehills proceedings.

309 The existence of that right and the absolute refusal of the defendants to pay any of the disbursements from time to time claimed by the plaintiffs is fundamentally inconsistent with the defendants’ allegations of abuse of process. What the plaintiffs did in claiming disbursements was done under colour of right and for the purpose of enforcing entitlements which the defendants now concede but refuse to comply with.

310 In any event, the defendants’ abuse of process allegations must fail because the defendants cannot establish that the plaintiffs had any intention to inflict hardship upon them.

311 Commencement of multiple proceedings does not of itself constitute the tort of abuse of process even if the proceedings are liable to be stayed in the context of managing litigation between parties. Particularly, is this so when allowance is made for the desirability of confining smaller claims to the Local Court and for the need of solicitors to serve a bill before commencing action.

312 Nor can the commencement of proceedings for assessment of costs constitute an abuse of process, merely because a client challenges the underlying entitlement to costs as well as quantification of them.

313 In the event, the plaintiffs gave undertakings not to prosecute, and submitted to orders for a stay of proceedings, as part of the management of these proceedings.

314 Given that the present trial of these proceedings is confined to questions of liability, it is not necessary for the court to become involved in assessing the quantum of the plaintiffs’ entitlement to disbursements. There is, however, one point that may require special attention.

315 Although the plaintiffs concede that their entitlement (under the Retainer Agreements) to recover counsels’ fees in respect of the Freehills proceedings is contingent upon a successful outcome of those proceedings, the same does not apply to the fees of Davidson incurred in connection with proceedings in Victoria. Even on the evidence of the first defendant, he accepted liability for payment of those fees as a disbursement, but he has failed to acknowledge that liability.

Tort of abuse of process

316 Professor Fleming describes the tort of abuse of process as arising in cases where a legal process “not itself devoid of foundation, has been perverted for some extraneous purpose, such as extortion or oppression.” Fleming, The Law of Torts 8th ed page 622. Priestley JA described the elements of the tort in Spautz v Gibbs (1990) 21 NSWLR 230, where he said:

“Section 3. Tort of collateral abuse of process:

3.1 Three modern text book descriptions. The tort of abuse of process is recognised under that name in Australia, England and the United States. Fleming, The Law of Torts, 7th ed (1987) says of it (at 592):

‘Unlike malicious prosecution, the gist of this tort lies not in the wrongful procurement of legal process or the wrongful launching of criminal proceedings, but in the misuse of process, no matter how properly obtained, for any purpose other than that which it was designed to serve.’

In England it is described in Halsbury’s Laws of England, 4th ed, par 1381 at 630, as follows:

‘It is a tort to use legal process in its proper form in order to accomplish a purpose other than that for which it was designed and, as a result, to cause damage. The plaintiff need not prove want of reasonable and probable cause, nor need the proceedings have terminated in his favour. He must show that the defendant has used the proceedings for some improper purpose.’

A leading United States text, Prosser and Keeton on the Law of Torts, 5th ed, (1984), first refers to Grainger v Hill (1838) 4 Bing NC 212; 132 ER 769, as showing that the court will refuse to permit its process to be misused for an improper purpose, and then says the ‘decision has been widely followed, and the tort is now well established’. The text continues (at 897 and omitting footnotes):

‘Abuse of process differs from malicious prosecution in that the gist of the tort is not commencing an action or causing process to issue without justification, but misusing, or misapplying process justified in itself for an end other than that which it was designed to accomplish. The purpose for which the process is used, once it is issued, is the only thing of importance. Consequently in an action for abuse of process it is unnecessary for the plaintiff to prove that the proceeding has terminated in his favour, or that the process was obtained without probable cause or in the course of a proceeding begun without probable cause.’

Although it seems clear that the tort exists in Australian, English and American jurisdictions, the above formulations could cause misunderstanding of its scope. It seems that the tort is one for which a plaintiff could recover damages even if the defendant had obtained or showed he had been in a position to obtain judgment against the plaintiff in the proceedings some use of, or during, which is alleged to be an abuse of process.”

317 For the tort to be established, it was previously accepted that the improper purpose must be the sole purpose of the moving party. However, the position which is now accepted, is that the improper purpose must merely be the “predominant purpose” for the tort to be made out. The issue is discussed in the joint judgment of the majority in Williams & Ors v Spautz (1991-92) 174 CLR 509 at 529.

318 In that case, the High Court also makes plain that the onus falls upon the party seeking to satisfy the court that there is an abuse of process to justify that claim. The majority held that it was central for it to be established that “the party who has instituted proceedings has done so for a purpose or to effect an object beyond that which the legal process offers” (p 523).

319 The existence of an unworthy or reprehensible motive for bringing proceedings is not enough to establish the tort. It must be shown that the purpose sought to be effected by the litigant in bringing the proceedings was not within their scope and was improper. This may be demonstrated “when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers” (p 527).

320 In Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 Isaacs J pointed out:

“… if, for instance, it had been shown that the Society had simply threatened Dowling that unless he did what they had no right to demand from him, namely, give up certain names, they would proceed to sequestration, and they had proceeded accordingly, there would have been in law an abuse of the process.” P 527

321 The majority went on to say:

“However, because the Society wished to use the process for the very purpose for which it was designed, there was no abuse of process.”

322 In the present case, I have no doubt that by commencing the various proceedings, Smits Leslie intended to embarrass and bring pressure on the Roaches. I am also satisfied that by bringing the proceedings, particularly the present proceedings, Smits Leslie believed they may be able to secure for themselves an immediate payment from Justice Corporation or may have been able to secure a more favourable position in relation to the distribution of any assets in the Roach companies should the Freehills litigation be successful.

323 However, I am also satisfied that the multitude of proceedings were commenced with the genuine expectation of recovery of the monies claimed. Although they were in part motivated by the hatred which Leslie had formed of Roach, and the desire, which I am sure both Smits and Leslie felt, to inflict damage on Roach for the wrong which they believed had been done to them, I am satisfied the proceedings were brought for the genuine purpose of seeking to recover the monies claimed. The purpose was to prosecute them to a conclusion.

324 No doubt in many cases where a litigant brings proceedings he or she is motivated by a desire for revenge and to inflict financial and emotional harm upon the opponent. It may sometimes be the case that but for these motivations, the proceedings would not have been brought. However, if the proceedings are otherwise legitimate and brought for the purpose of recovering an arguable claim, the tort will not be made out.

325 Having regard to the legitimate interest of Smits Leslie and their efforts to recover the entitlements which they believed were due to them under the agreements, I cannot conclude that the dominant purpose was other than that which the legal process offers. Accordingly, this aspect of the cross claim fails.

326 There are two other aspects of the cross claim. As I have already found that Smits Leslie were entitled to terminate the retainer, the claim by the Roaches for repudiation must fail.

327 I have also found that an agreement was reached with the Roach companies in September 1999 and in my judgment, having regard to the conclusion I have reached on other aspects of the claims, there is no purpose in further considering the making of a declaration.

Conclusion

328 For these reasons I am of the opinion that both the claim and cross claim fail and should be dismissed. The parties should bring in short minutes to reflect my conclusions and may address me in relation to costs.

**********

Last Modified: 06/20/2002

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Citations

Smits v Roach [2002] NSWSC 241

Most Recent Citation

Thredgold v Fyfe Pty Ltd [2019] SADC 89

Cases Citing This Decision

15

Smits v Roach [2006] HCA 36

Smits v Roach [2004] NSWCA 233

Hegarty v Keogh (No 2) [2023] SASCA 30

Cases Cited

23

Statutory Material Cited

4

Dowling v Colonial Mutual Life Assurance Society Ltd [1915] HCA 56

Hunt Contracting Co Pty Ltd v Roebuck Resources Nl [1995] FCA 521

CITATION:	Smits & Ors v Roach & Ors [2002] NSWSC 241
CURRENT JURISDICTION:	Equity Division Commercial List
FILE NUMBER(S):	SC 50099/99
HEARING DATE(S):	11 - 14 March 2002 18 March 2002 20-21 March 2002
JUDGMENT DATE:	19 June 2002
PARTIES :	Leonardus Gerardus Smits (1st Pltf) John Anthony Leslie (2nd Pltf) Plantoy Pty Limited (3rd Pltf) Walter Edward Roach (1st Def) Valerie Anne Roach (2nd Def) Winnote Pty Limited (In Liq) (6th Def) Sydtech Pty Limited (In Liq) (7th Def)
JUDGMENT OF:	McClellan J

COUNSEL :	G Lindsay SC/W Haffenden (Pltfs) J Sheahan SC/E Finnane (Defs)
SOLICITORS:	Smits Leslie, Solicitors (Pltfs) McCabe Terrill Lawyers (Defs)
CATCHWORDS:	COMMERCIAL - maintenance and champerty - retainer agreement between solicitors and clients provided for payment of a percentage of any damages recovered in a litigation matter - negotiation between solicitors, clients and litigation funder - further agreement between solicitors and liquidator securing the time costs of the solicitors - application of the Legal Profession Act 1993 and Maintenance and Champerty Abolition Act 1993 - discussion of the common law of champerty - whether agreements were contrary to public policy - whether recovery on quantum meruit is permissible - whether the common law position in regards to enforceability of champertous agreements has been changed - whether commencement of multiple proceedings amounted to an abuse of process.
LEGISLATION CITED:	Legal Profession Act 1987 Trade Practices Act Fair Trading Act Maintenance and Champerty Abolition Act 1993
CASES CITED:	Denist v Freethy (1890) 24 QB 519 Wild v Simpson (1919) 2 KB 544 Re Trepca Mines Ltd (No 2) [1963] 1 Ch 199 DJE Constructions Pty Ltd v Maddocks (1982) 1 NSWLR 5 AG Australia Holdings Limited v Burton & Anor [2002] NSWSC 170 Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 Clyne v NSW Bar Association (1960) 104 CLR 186 Hogarth & Ors v Gye & Anor [2002] NSWSC 32 Thai Trading Co v Taylor [1998] QB 781 Roux v Australian Broadcasting Commission (1992) 2 VR 577 Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 Montague Mining Pty Limited v Gore & Ors (t/as Clayton Utz) [2001] FCA 791 Gore v Justice Corporation Pty Ltd [2002] FCAFC 83; [2002] FCA 354 Wallersteiner v Moir (No 2) [1975] 1 QB 373 Awwad v Geraghty & Co [2000] 3 WLR 1041 Re William Felton & Co Pty Ltd (1998) 145 FLR 211 New South Wales Bar Association v Cummins (2001) 52 NSWLR 279 New South Wales Bar Association v Somosi (2001) 48 ATR 562 Murphy v The Bar Association of New South Wales (2001) 49 ATR 48 Rondel v Worsley [1969] 1 AC Giannerelli v Wraith (1988) 165 CLR 543 Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357 Re a Firm of Solicitors [1992] 1 All ER 353 Thompson v Australian Capital Television Pty Ltd (1994) 54 FCR 513 Corporate Affairs Commission of NSW v Yuill (1991) 172 CLR 319 Hoking v The Western Australian Bank (1909) 9 CLR 738 Balog & Strait v ICAC (1990) 169 CLR 625 BIL (NZ Holdings) Ltd v ERA House Ltd (1991) 23 NSWLR 280 Brambles Holdings Ltd v Bathurst City Council (20000-2001) 53 NSWLR 153 Kearley v Thompson (1890) 24 QBD 742 Port of Melbourne Authority v Anshun Pty Ltd [1981] 147 CLR 589 VACC Insurance Ltd v BP Australia Ltd (1999) 47 NSWLR 716 McGowan v Commissioner of Stamp Duty (2001) 47 ATR 357 Spautz v Gibbs (1990) 21 NSWLR 230 Williams & Ors v Spautz (1991-92) 174 CLR 509 Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509
DECISION:	See para 328