Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 3) - [2024] NSWSC 888

Supreme Court

New South Wales

Medium Neutral Citation: Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 3) [2024] NSWSC 888
Hearing dates: 27, 28, 29, 30 November, 1, 6 December 2023 and 9 April 2024
Date of orders: 23 July 2024
Decision date: 23 July 2024
Jurisdiction: Common Law
Before: Cavanagh J
Decision:
(1) Judgment for the defendant.
(2) The plaintiff is to pay the defendant’s costs.
(3) I grant liberty to apply on 3 days’ notice should either party seek a variation of the costs order.

Catchwords:
NEGLIGENCE – solicitors – plaintiffs retained the defendant to advise and appear in respect of claims against them in the District Court – plaintiffs failed in all proceedings – whether the defendant should have advised that the defences were hopeless and doomed to fail prior to their filing –effect of “no oral variation” clauses in Australia
OCCUPATIONS – legal practitioners – solicitors –advising client – obligation of solicitor to advise client that defence has no reasonable prospects of success – effect of Legal Profession Uniform Law Application Act 2014 (NSW) sch 2
NEGLIGENCE – damages – where plaintiffs’ claim limited to costs paid for legal services and ordered costs in the District Court proceedings – where portion of these costs paid by companies unrelated to the proceedings but under the control of one of the plaintiffs – whether plaintiffs entitled to claim portion of costs paid by these “related entities”

Legislation Cited:
Civil Liability Act 2002 (NSW), ss 5A, 5B, 5D
Legal Profession Uniform Law Application Act 2014 (NSW), sch 2
Uniform Civil Procedure Rules 2005 (NSW), r 51.9

Cases Cited:
Astley v Austrust Ltd (1999) 197 CLR 1
Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 259 CLR 1
Bailey v Bailey (1924) 34 CLR 558
Bird v Ford [2013] NSWSC 264
Bird v Ford [2014] NSWCA 242
Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87
Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284
Fink v Fink (1946) 74 CLR 127
Flynn v PPK Mining Equipment Pty Ltd (No 2) [2022] NSWSC 1640
Gokani v Visvalingam Pty Ltd [2023] NSWCA 80
Heydon v NRMA Ltd (2000) 51 NSWLR 1
Jones v Dunkel (1959) 101 CLR 298
Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300
MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] 2 WLR 1603
Roads and Traffic Authority of NSW v Dederer (2007) 234 CLR 330
Royal Society for Prevention of Cruelty to Animals (Victoria) v Holdsworth [2015] VSCA 243
Sara Stockham Pty Ltd v WLD Practice Holdings Pty Ltd [2021] NSWCA 51
Short v Delaney [1999] NSWSC 1293
Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 2) [2024] NSWSC 887
White v Philips Electronics Australia t/as Philips Healthcare [2019] NSWCA 115

Category: Principal judgment
Parties: Victorian X-Ray Group (Dandenong) Pty Ltd (First plaintiff)
Victorian X-Ray Group (Boronia) Pty Ltd (Second plaintiff)
Bevyn Thomas White (Third plaintiff)
Anthony Malouf t/a Malouf Solicitors (Defendant)
Representation:
Counsel:
M Luitingh (Plaintiffs)
A Avery-Williams with P Boyle (Defendant)
Solicitors:
Jane Button & Associates Pty Ltd (Plaintiffs)
Sparke Helmore Lawyers (Defendant)

File Number(s): 2021/139605
Publication restriction: None

JUDGMENT

This is a professional negligence action pursued by the plaintiffs against their former solicitors, the defendant. These proceedings arise from and follow on from unsuccessful litigation conducted by the defendant on behalf of the plaintiffs in the District Court of New South Wales. The plaintiffs were the defendants in a number of District Court proceedings. The defendant acted for them during the period 2016 to 2019 in defence of those proceedings.
The plaintiffs’ case in this Court is that the defendant should have advised, informed and warned them from the outset, that is prior to the filing of any defences in the District Court, that they had no defence. The plaintiffs allege that they should have been told that the proposed defences to the claims against them were hopeless and doomed to fail.
The plaintiffs claim that, if they had been so informed, they would not have attempted to defend any of the proceedings in the District Court. They would have settled the claims in the District Court on the best possible terms, even if that required paying the claims against them in full.
The plaintiffs claim that because they did not receive that advice, they continued with the defence of the claims against them and even pursued an appeal from one judgment against them. The end result of the District Court litigation was that the plaintiffs paid (or say they paid) a substantial sum in respect of legal costs incurred in the defence of the proceedings in the District Court. They were also ordered to pay the claimant’s costs in the District Court, which they ultimately paid.
The plaintiffs’ claim in this Court is for the recovery of all of the legal costs they paid arising out of the proceedings in the District Court and in the Court of Appeal. The plaintiffs do not claim any additional sums, such as loss of profit or the amounts paid to the claimants in the District Court, as damages.
The plaintiffs pursue causes of action both in contract and in tort, although both causes of action arise out of a failure to take care. The provisions of the Civil Liability Act 2002 (NSW) (“CLA”) apply (s 5A of the CLA).
Because the plaintiffs’ claim is limited to a failure to advise and warn prior to the commencement of litigation (in this case, prior to the filing of defences), the defendant does not rely on the principle of advocate’s immunity. The plaintiffs emphasise that the defences filed on their behalf in the District Court should have been viewed as “hopeless and doomed to fail” referring to the use of that term in Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 259 CLR 1 presumably to resist any reliance on advocate’s immunity. The defendant does not rely on any immunity and thus it is unnecessary to consider that issue further.
Rather, the defendant asserts that he is entitled to succeed because:

the plaintiffs have not established that he failed to act with reasonable care; and

even if breach is established, the plaintiffs fail on causation.

Although the plaintiffs’ claim is limited to the costs paid during the course of the District Court proceedings, there was no agreement on damages. This became a source of discontent during the hearing. However, it emerged that the defendant’s real point was that the nominated plaintiffs did not pay all of the legal costs and, thus, could not recover those costs as losses incurred by them.
The hearing proceeded initially over six days. There was a further one day hearing on some damages issues. Each party relied on voluminous documentation running into thousands of pages. Complaints were made by the plaintiffs about the defendant only providing many of his documents to the solicitors for the plaintiffs shortly before the hearing (or even during the hearing) in circumstances in which those representing the plaintiffs were unable to deal with them at such short notice. There is some substance to that complaint, and I have some sympathy for those representing the plaintiffs, bearing in mind that the solicitor for the plaintiffs is a sole practitioner and she retained one counsel.
Having said that, and despite the complexity of the issues and the volume of material involved, and subject to the question of loss, the case was conducted in a professional, efficient and expert manner. Mr Luitingh, who appeared on behalf of the plaintiffs, was plainly able to get on top of the vast amount of material in the time available and Ms Avery-Williams, who appeared with Ms Boyle on behalf of the defendant, cooperated with Mr Luitingh in the proper identification of documents.
Both parties prepared lengthy written submissions and gave oral submissions. It was apparent that the legal representation had undertaken extensive and exhaustive steps to ensure that their clients’ cases were properly presented. This allowed for the efficient running of the case, which could have occupied much greater hearing time.

Background to these proceedings

VXG (“Victorian X-Ray Group”) Balwyn, VXG Dandenong and VXG Boronia operated medical imaging businesses in Victoria. Mr White was a director of each company. The medical imaging equipment situated at each of the premises was serviced by Philips Healthcare (“Philips”) pursuant to Service Agreements held with each individual company. Philips obtained guarantees from Mr White and another director, Mr Mensink, in respect of the obligations of each of the VXG companies to pay Philips for its services.
Each of the VXG companies fell into arrears with Philips. That is, they fell behind in the payments they were required to make to Philips in accordance with the Service Agreements.
On 8 September 2016, Philips terminated the Service Agreements it held with a number of the VXG companies, including VXG Balwyn, VXG Dandenong and VXG Boronia, on the basis that those companies had not paid Philips’ invoices.
Philips issued letters of demand to each VXG company and, when payment was not made, commenced proceedings in the District Court. Mr White and Mr Mensink were also named as defendants in each of the District Court proceedings as they had provided guarantees.
There were separate proceedings against each of VXG Balwyn, VXG Dandenong and VXG Boronia.
It is common ground in these proceedings that the defences were filed in the District Court and the cases conducted on the basis that the terms of each Service Agreement governed the entitlement of Philips to recover the debts said to be owing, except that, as set out in the defences filed, the VXG companies denied that they were liable to pay the amounts claimed by Philips and asserted that the Service Agreements had been varied or no longer applied or that the services had not been provided

The Balwyn proceedings

The Balwyn proceedings were commenced by Philips on 30 September 2016.
A defence was filed on 13 January 2017. VXG Balwyn pleaded that the Service Agreement was varied in early April 2014 to provide that some of the invoices issued by Philips would be cancelled and reissued on a lower cost basis and that further invoices would be issued on the same basis. VXG Balwyn also pleaded that Philips agreed that from December 2014 it would not issue further invoices or charge for further services under the Service Agreement. Particulars were provided specifying phone conversations between Mr White and Mr Tomek for Philips as well as a meeting which took place between Mr White and Mr Damen of Philips in November 2014 (the “Damen meeting”). Mr White adopted that defence.
The matter proceeded to hearing in the District Court on 20 July 2018. Olsson SC DCJ entered judgment for Philips for $192,426.88 plus interest. Her Honour ordered costs against the defendants on an indemnity basis.
Notably, her Honour did not accept the evidence of Mr White as to his alleged oral agreement with Mr Damen. In particular, her Honour noted the inconsistency between Mr White’s affidavit evidence and the oral evidence he gave during the hearing. In his oral evidence, he suggested that Philips had agreed that the Service Agreement would be cancelled (not just the invoices), seemingly to justify why no service payments had been made at all despite the fact that servicing had taken place for at least a period.
On 5 November 2018, a Notice of Appeal was filed in the Balwyn proceedings, a Notice of Intention to Appeal having been filed previously. The Balwyn Appeal proceedings were heard by the Court of Appeal on 14 May 2019. On 17 May 2019, the Court of Appeal dismissed the appeal with indemnity costs against the appellant (White v Philips Electronics Australia t/as Philips Healthcare [2019] NSWCA 115).

The Dandenong proceedings

Philips also commenced proceedings against VXG Dandenong, Mr White and Mr Mensink on 30 September 2016. Philips obtained judgment in default on 23 December 2016. An application to set aside default judgment was heard in the District Court on 17 February 2017. That application was unsuccessful. A second application to set aside the judgment was heard on 24 March 2017. That application was successful.
On 31 March 2017, a defence was filed. VXG Dandenong pleaded that on 19 November 2014 Philips entered into an agreement (called the “termination agreement”) whereby it agreed to terminate the Service Agreement and enter into a new agreement. The Damen meeting was pleaded and particulars were provided. Further, VXG Dandenong pleaded that the plaintiff was estopped from relying on the terms and conditions of the Service Agreement.
On 6 December 2017, Gibb DCJ entered judgment in favour of Philips against VXG Dandenong in the District Court in the sum of $85,940.49 plus interest and costs. Again, her Honour preferred the evidence of Mr Damen to that of Mr White. Her Honour described Mr White as imprecise and loose with words. Her Honour also observed that the nature of the new arrangement said to be entered into as a result of the Damen meeting was unclear.

The Boronia proceedings

On 23 December 2016, Philips commenced proceedings against VXG Boronia, Mr White and Mr Mensink in the District Court. On 31 January 2017, a defence was filed. VXG Boronia pleaded that the amounts sought by Philips were not payable as Philips had not provided the services required by the Service Agreement.
On 14 November 2017, VXG Boronia commenced separate proceedings against Philips (the “Boronia separate proceedings”).
The Boronia proceedings did not proceed to a hearing. They were settled at some point after the firm ceased to act for VXG Boronia and Mr White.
VXG Boronia disputed that it was liable to pay the amount sought on the basis that Philips had failed to provide proper servicing in accordance with the Service Agreement, as a result of which, VXG Boronia had suffered a loss of profit. VXG Boronia sought damages in respect of that loss of profit.
As I have already indicated, for the reasons set out in the District Court judgments, VXG Balwyn, VXG Dandenong and Mr White lost in the District Court. They were therefore ordered to pay the amounts owing to Philips plus interest and costs. They subsequently settled the VXG Boronia proceedings and the separate Boronia proceedings.
These proceedings follow from those results.

The retainer of the defendant

The defendant was retained originally for VXG Balwyn and Mr White on 18 October 2016, having been referred by VXG’s Melbourne solicitor, Mr Webb. The defendant acted for the VXG companies and Mr White in respect of the Philips’ claims until he ceased to act on 12 August 2019.
The defendant firm is a practice operated by Mr Malouf. Mr Malouf is a very experienced practitioner with expertise in commercial law and civil litigation. During the period 1986 to 1993, he practised in partnership with his brother, Gerard Malouf (who runs a separate firm by that name). Between 1993 and March 2022, he operated the firm as a sole practitioner.
During the period of work on behalf of VXG and Mr White, he employed a number of solicitors. Warren Staples, a senior and very experienced solicitor, had carriage of the VXG matters during the period that the firm was retained. Gabrielle Polczynski, also an experienced solicitor, assisted Mr Staples and Mr Malouf in the matters from about March 2017.
During the period that the firm was retained, day-to-day instructions were mainly provided on behalf of the VXG companies by Robert Vandermeer. Mr White was also directly involved with providing instructions. It is clear that Mr Vandermeer reported to Mr White and Mr White was the decision-maker on behalf of the VXG companies, and of course, he was sued in his personal capacity.

The claims in these proceedings

VXG Balwyn is not a plaintiff as it was placed into liquidation on 11 August 2017. The liquidator assigned the whole of VXG Balwyn’s rights, title and interest in the company’s chose of action against the defendant on 18 December 2020. No issue is taken with that assignment or Mr White’s entitlement to pursue the cause of action on behalf of VXG Balwyn.
It is also alleged that Mr White was the sole director of each of the VXG companies and the beneficial owner of not less than 50% of the issued share capital in each of the VXG companies. Further, it is asserted that he has at all times been jointly liable with the VXG companies for legal fees and disbursements he incurred or was charged by the defendant in respect of each of the District Court proceedings. The defendant acted for each of the companies and Mr White as he was sued as a guarantor.
The plaintiffs plead that, by reason of the retainer of the defendant, and the nature and circumstances of the services required of the defendant, he owed to each of the VXG companies and Mr White an implied contractual obligation to:

exercise reasonable care, skill and diligence in the provision of services pursuant to the retainer; and

supervise and ensure that all of his employees exercise reasonable care, skill and diligence in the provision of services pursuant to the retainer.

Further, the plaintiffs assert that the defendant owed a duty of care of a similar scope and nature. The defendant did not dispute this description of the obligation owed to the plaintiffs. The plaintiffs allege that in respect of each of the matters in the District Court they should have been advised that, in fact and law, there was no reasonable basis to defend the proceedings (again meaning that they were hopeless and doomed to fail rather than just being weak cases).
In the plaintiffs’ closing submissions, the plaintiffs made extensive reference to the duties of a legal practitioner (namely schedule 2 of the Legal Profession Uniform Law Application Act 2014 (NSW) (“LPULAA”) and the requirements of a legal practitioner in respect of the filing of pleadings, although there is no pleading of a breach of any statutory duty. There may be an issue as to whether sch 2 applied to the District Court proceedings as the claims were not for damages, but rather recovery of a debt (see Gokani v Visvalingam Pty Ltd [2023] NSWCA 80) but the defendant certified the defences and considered that he was so required. It is thus not necessary to consider that point further.
Although the case was conducted with some precision by Mr Luitingh, at the outset of the hearing there was some uncertainty as to the extent of the claim that he was pursuing. After hearing his opening, I asked him to review the transcript and confirm the following day that his opening was consistent with the case he was pursuing. This is because, as he opened the case, the plaintiffs’ claim was limited in time in terms of when the plaintiffs maintained that the firm should have advised that the defence of the District Court cases was bound to fail.
On the second day of the hearing, Mr Luitingh directed my attention to a paragraph in the Statement of Claim which referred to a continuing obligation. That is, he sought to include in his case an allegation that, even if the firm had not been required to give advice at the times identified by him, (which were in each District Court case prior to the filing of a defence in each matter) it should have given advice at a later time.
However, the defendant objected, pointing to quite specific particulars provided by the solicitors for the plaintiffs in that regard. Mr Luitingh candidly accepted that he would have to be bound by those particulars and, in any event, asserted that there was never any change in the information or instructions provided after the nominated dates (although I do not accept that having regard to the evidence of Mr Fermanis). He had said in opening that the plaintiff was not pursuing any fall-back case.
The particulars provided were set out in a letter from the solicitors for the plaintiffs to the solicitors for the defendant dated 30 June 2022. The plaintiffs said:

“With respect to the Balwyn Proceedings … , the Plaintiffs’ case is that Malouf ought to have provided advice that there was no arguable defence within 7 to 14 days of service of the Statement of Claim (30 September 2016), alternatively immediately upon receipt of the 30 November 2016 warning letter from the solicitors for Philips Electronics, and, further and alternatively, in any event, prior to the filing of the defence which occurred on 13 January 2017.
…
With respect to the Dandenong Proceedings … , the Plaintiffs’ case is that Malouf ought to have provided advice that there was no arguable defence and no proper cross-claim within about 7 to 14 days of service of the Statement of Claim (30 September 2016), alternatively immediately upon receipt of the 30 November 2016 warning letter from the solicitors for Philips Electronics, and, further and alternatively, in any event, prior to the filing of any defences which occurred as early as 31 March 2017 and prior to the filing of any cross-claim which occurred on 1 May 2017.
…
With respect to the Boronia Proceedings …, the Plaintiffs’ case is that Malouf ought to have provided advice that there was no arguable defence within a couple of days of service of the Statement of Claim (23 December 2016) or, further and alternatively, in any event, prior to the filing of the defence which occurred as early as on 31 January 2017.”

The plaintiffs also specified in this letter that, if such advice had been given in each matter, they would have immediately accepted it and would have been able to satisfy the claims by Philips either by paying in full or paying a reduced amount as part of a commercial negotiation within 28 days.
As such, the case was conducted on the basis of a statement of agreed issues, which is as follows.

Whether a solicitor exercising reasonable care would have concluded that the defences in the Balwyn, Dandenong and Boronia proceedings were hopeless and doomed to fail prior to the date those defences were filed.

Whether a solicitor exercising reasonable care would have concluded that the Separate Boronia proceedings were hopeless and doomed to fail prior to the filing of that claim on 14 November 2017 or within a few days of receipt of the defence on 22 December 2017.

Whether a solicitor exercising reasonable care would have concluded that the Balwyn Appeal proceedings were hopeless and doomed to fail prior to the filing of the Notice of Intention to Appeal on 30 August 2018.

If the answer to any of 1, 2 and/or 3 is yes, whether the defendant breached his duty of care by:

failing to advise the plaintiffs that the defence in the Balwyn proceedings was hopeless and doomed to fail prior to the filing of the defence in that proceeding on 13 January 2017;

failing to advise the plaintiffs that the defence (filed on 31 March 2017) and the cross-claim in the Dandenong proceedings (filed on 1 May 2017) were hopeless and doomed to fail prior to the filing of those pleadings;

failing to advise the plaintiffs that the defence in the Boronia proceedings was hopeless and doomed to fail prior to the filing of that defence on 31 January 2017;

failing to advise the plaintiffs that the Seperate Boronia proceedings were hopeless and doomed to fail prior to the filing of that claim on 14 November 2017 or within a few days of receipt of the defence on 22 December 2017; and

failing to advise that there was no arguable basis for an appeal prior to the filing of the Notice of Intention to Appeal in the Balwyn proceedings on 30 August 2018.

It might be said that the answers to question 4 are likely to follow from the answers to question 1-3. It is difficult to envisage the circumstances in which a solicitor who considered that proposed defences were bound to fail was not obliged to inform the client of that. Logically, if the statutory regime precluded a solicitor from filing a defence, the solicitor would be bound to tell the client that and the reason for that being, as asserted in this case, that the defence was bound to fail.
The focus of the evidence during the hearing was very much on the communications between the parties prior to the filing of the defences and an assessment of the information available to the defendant prior to the certification and filing of each defence (and the filing of the Seperate Boronia proceedings).
This is important as there is certainly substantial evidence from witnesses such as the counsel involved, Mr Fermanis and Mr Woods, that they were, to say the least, pessimistic as to the outcomes and said so. Yet, Mr Fermanis also gave advice and assisted in the drafting of the defence in the Dandenong matter for the purposes of setting aside a default judgment obtained by Philips. He was not briefed prior to the filing of the Balwyn matter.
As the plaintiffs also pursue losses arising out of the Balwyn Appeal proceedings, it is also necessary to consider the information available to the firm at the time of the filing of the Notice of Intention to Appeal the Balwyn District Court judgment. However, as I will discuss later in this judgment, it is difficult to understand the basis on which the plaintiffs assert negligence on the part of the defendant in respect of the Balwyn Appeal proceedings when the date nominated by the plaintiffs (by which the firm should have provided the advice) was the date of the filing of the Notice of Intention to Appeal – that is, a form of holding appeal – as opposed to the Notice of Appeal. I will deal with this issue later in the judgment.
By his defence, the defendant denies any failure to take care. He accepts that he did not inform the plaintiffs prior to the nominated dates that their cases in the District Court were hopeless and bound to fail but says that, through various communications, the plaintiffs were made aware that the cases were weak and/or risky or had difficulties.
This was acknowledged by the plaintiffs. Indeed, Mr Luitingh opened the case on the basis of that acknowledgement. That is, although the plaintiffs were made aware of weaknesses in their cases, they were never told that they were doomed or bound to fail and, thus, using Mr Luitingh’s words, were presented with two options by the firm, one of which was to defend the matters in the hope of success, despite the risks in doing so.
As such, this is not a case in which the plaintiffs assert that there was a general failure to provide advice or even that there was a general obligation to provide advice on a continuous basis throughout the conduct of the litigation (although there might have been). The plaintiffs’ case focussed on the asserted obligation to provide advice before specific dates and to advise not just that the cases had weaknesses or were risky, but that they were bound to fail.
A determination of the issues raised by the parties requires analysis of the extensive documentation relied upon, as well as the oral evidence adduced. Having said that, it seems to me that much of the oral evidence was directed towards confirming what is contained in contemporaneous documents. Cross-examination of the witnesses was directed not at establishing that the witnesses were being untruthful or even that they had poor recollections, but more at gaining admissions and statements as to what was and was not done.
All of the legal representatives involved in the District Court proceedings gave evidence, being Mr Malouf, Mr Staples and Mr Fermanis and Mr Woods of counsel. Ms Polczynski provided a statement, but she was not required for cross-examination. On the other hand, only Mr White gave evidence.
The defendant submits that the evidence of Mr Vandermeer would have been important. He did not give evidence and no explanation was provided as to his absence. Having regard to his overall role in the District Court proceedings, his evidence must have been relevant. However, it is important to emphasise the limits of a Jones v Dunkel inference (see Jones v Dunkel (1959) 101 CLR 298). It is only that the evidence would not have made the plaintiffs’ case any better. I draw that inference but nothing further, having regard to the absence of Mr Vandermeer as a witness in the proceedings.
In the end, most of the emails, letters and file notes speak for themselves. As often occurs, there was some reconstruction based on the correspondence and file notes. Although Mr Luitingh made something of Mr Malouf’s admission of reconstruction of conversations, I took him to really be saying that he was doing his best to put into words conversations which he did not completely recall but must have occurred, having regard to file notes. Again, subject to the overall significance of the words used during the Damen meeting in November 2014, this is not a case which turns on the precise recollection of any witness as to any particular conversation. This is because the plaintiffs accept that they were aware and had been advised that the District Court litigation was risky or had weaknesses and the defendant accepts that they did not, at any time prior to the particular dates, provide any direct and specific advice to the plaintiffs that their cases in the District Court were hopeless and doomed to fail.

The duties of a solicitor

A solicitor owes a duty of care to their client. The duty arises both in contract and tort (Astley v Austrust Ltd (1999) 197 CLR 1 at [44]). Like all duties of care, the duty may be discharged by the exercise of reasonable care (Heydon v NRMA Ltd (2000) 51 NSWLR 1 at [146] per Malcolm AJA (“Heydon v NRMA Ltd”); Roads and Traffic Authority of NSW v Dederer (2007) 234 CLR 330 at [43] per Gummow J).
Depending on the nature of the retainer and the work to be performed, a solicitor’s obligations to their client may include an obligation to advise the client on their rights and obligations and, in the litigation context, to advise the client on the prospects of success, including the risks associated with any particular course pursued by the client (Short v Delaney [1999] NSWSC 1293 at [5]; Heydon v NRMA Ltd).
All solicitors act on instructions. The nature and extent of any duty or obligation owed to the client is impacted by the nature of the instructions.
In the litigation context, a solicitor is not the guarantor of a result but the solicitor must advise a client as to the risks associated with a course of action recommended by the solicitor or proposed by the client. Ultimately, as a solicitor acts on instructions, it is the client’s decision whether to proceed with the pursuit or defence of proceedings or resolve the proceedings but the client is entitled to complain if they have not been properly informed of the risks of adopting a particular course, such as rejecting an offer of settlement or proceeding to a full hearing.
If a solicitor considers that a proposed defence has no prospects of success, that solicitor is obliged to warn or advise the client of this. Whether the solicitor can continue to act may depend on the stage of the proceedings and the instructions of the client. It is not necessarily the case that a solicitor, having so advised the client, who continues to act in a hopeless case is negligent (Bird v Ford [2013] NSWSC 264 at [90]). Negligence depends on a breach of duty owed to that person.
As Barrett JA observed in Bird v Ford [2014] NSWCA 242 (on appeal from the judgment of Schmidt J referred to above) at [25]:

“General law principles are to the effect that a lawyer may with impunity act for a client in proceedings which are apparently hopeless, provided that the lawyer is not aware that the proceedings might amount to an abuse of process; and that a client has a right to have his or her case conducted in court irrespective of the view that his or her lawyer has formed about the case and the prospects of success: White Industries (Qld) Pty Ltd v Flower & Hart (1998) 156 ALR 169; Degiorgio v Dunn (No 2) [2005] NSWSC 3; 62 NSWLR 284.”

Whether the solicitor could certify the defence is a separate issue, although having regard to sch 2 of the LPULAA it must be that a solicitor who considers that a proposed defence of a claim of damages has no prospects of success cannot certify the defence. Indeed, a solicitor cannot provide legal services in respect of a defence unless the solicitor considers that the defence has reasonable prospects of success.
Schedule 2 cl 2 of the LPULAA is in the following terms;

2 Law practice not to act unless there are reasonable prospects of success
(1) A law practice must not provide legal services on a claim or defence of a claim for damages unless a legal practitioner associate responsible for the provision of the services concerned reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.
(2) A fact is provable only if the associate reasonably believes that the material then available to him or her provides a proper basis for alleging that fact.
(3) This Schedule applies despite any obligation that a law practice or a legal practitioner associate of the practice may have to act in accordance with the instructions or wishes of the client.
(4) … A defence has reasonable prospects of success if there are reasonable prospects of the defence defeating the claim or leading to a reduction in the damages recovered on the claim.
(5) Provision of legal services in contravention of this clause constitutes for the purposes of this Schedule the provision of legal services without reasonable prospects of success

Schedule 2 cl 2 has some significance because it impacts on what might be the general law position that a solicitor is entitled to continue to act for a client in litigation even if they believe that the case is hopeless. Having regard to sch 2 cl 2, a solicitor must not provide legal services unless the solicitor reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or defence has reasonable prospects of success.
The defendant says that, despite his view as to the weaknesses in the cases, he was entitled to and did certify the defences. This could only be on the basis that he reasonably believed on the basis of provable facts and a reasonably arguable view of the law that the defences had reasonable prospects of success.
The plaintiffs dispute what was submitted to be the defendant’s position that the firm was only required to be satisfied that a prima facie case was shown to enable the solicitor to consider whether there was reasonable cause to file a defence or cross-claim: see Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300.
The plaintiffs submit that, prior to filing a defence, a solicitor is required to undertake:

a reasonable evaluation of provable facts and consider the factual contest between the disputing parties: Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284; and

a reasonable evaluation of the law that applies within that factual contest.

The plaintiffs submit that the bar is not so low as for it to only be necessary for the solicitor to consider that there is a prima facie case. The plaintiffs submit that this is because the prima facie case is one which, having regard to the circumstances established by the proposed testimony, satisfies the Court judicially: Bailey v Bailey (1924) 34 CLR 558.
In circumstances in which there is a statutory preclusion on a solicitor providing legal services in the circumstances set out in sch 2 cl 2, it does not seem to me that the term “a prima facie case” is of any assistance. Nor does it assist the defendant that a solicitor might not necessarily be negligent even if he continues to act in a hopeless case.
This is because this is a case about whether a solicitor should have formed the view that the clients’ defences were hopeless prior to filing the defences and advised accordingly. The relevance of sch 2 cl 2 is that the solicitor was required to be satisfied of the matters therein prior to certifying the defence. Mr Malouf certified all of the defences in the District Court.
The defendant did not run a case that he was entitled to file the defences on behalf of his clients even though he knew or ought to have known that the defences were hopeless and doomed to fail. Rather, the defendant denied that he knew or ought to have known that the defences were hopeless and doomed to fail at the time of filing each defence. He thus denied that he was obliged to inform the plaintiffs that their cases were hopeless and doomed to fail.
Of course, the test of negligence is not wholly subjective. The Court does not merely inquire into what the solicitor believed. In a case such as this, the inquiry is into what the solicitor ought to have advised and thus ought to have thought as to the prospects of success, assuming that the solicitor was performing his services with reasonable care and competence.
Mr Malouf may have held the belief that the defences were not hopeless and formed the view required by sch 2 cl 2 but the question remains whether a competent solicitor exercising reasonable care ought not to have had that view and ought to have formed the view that the cases were hopeless.
It is not necessary to say more about these principles. If the defendant should have had that view, then he should not have certified the defences. A case which is hopeless and doomed to fail would not have reasonable prospects of success. Similarly, the defendant was bound to inform the plaintiffs of this, if that was the position. He did not.
The question of breach must be considered prospectively, that is, not looking backwards in the knowledge that the plaintiffs were unsuccessful in the District Court but rather considering the position of the defendant in terms of the information available to him and what he ought to have known and ought to have done up to the dates specified by the plaintiffs in the statement of claim.
Further, the question of breach must be assessed having regard to the appropriate standard of care which was imposed upon the defendant. Mr Malouf was not a judge of appeal. Despite his evident experience, he is not to be assumed to have the legal expertise of a judge of appeal. He was required to make appropriate enquiries and properly assess the legal position, but his conduct is not to be assessed as if he should be aware of every case and every fine legal argument which might be raised.
Having said that, Mr Malouf held himself out as an expert in litigation and commercial law. He must be expected to have sufficient expertise, including the ability to properly assess the merits of legal issues, particularly relating to contracts. I did not apprehend Mr Malouf to be disputing this. Nor did I apprehend the defendant to be disputing that, if he formed the view that the defence was hopeless, he should have informed the plaintiffs of that.
The CLA applies to these proceedings as the causes of action in tort and contract are both based on a failure to take care.
Sections 5B and 5D thus apply. It could not be in dispute that the risk of harm in embarking upon unmeritorious proceedings would be the risk of incurring costs and the obligation to pay the other party's costs. Such a risk was reasonably foreseeable and not insignificant.

The evidence

As is often the case in these sorts of matters, the contemporaneous documents tend to shed most light on the issues. Those contemporaneous documents include emails, letters and quite thorough file notes prepared by the solicitors working at the firm.
This is a case in which the solicitors made thorough file notes and sought information from Mr White and Mr Vandermeer both orally and in writing on a number of occasions prior to filing the defences. Further, at least in respect of the Dandenong defence, there was substantial input from counsel.
In their affidavits, all of the witnesses tended to outline a chronology of events from their perspective, having regard to the contemporaneous documents. The cross-examination on both sides was forensically successful in that admissions were elicited.

I have no reason to doubt what Mr Malouf, Mr Staples, Ms Polczynski, Mr Fermanis or Mr Woods thought or believed in the sense that they were giving evidence to the best of their recollections and based on genuinely held views. I reject the plaintiffs’ submissions as to what I should make of, in particular, the evidence of Mr Malouf and Mr Fermanis.
Mr White adopted a more argumentative approach to cross-examination. He often tended to be unresponsive and seemed keen to make somewhat self-serving statements to make his point. His oral evidence was perhaps reflective of what emerges from some of his emails during the course of the District Court proceedings.
There can be no doubt that Mr White had a strong view about how things should be done, why things were not working out the way he wanted and whose responsibility that was. His emails are replete with expressions such as “weakness” and the other solicitors “getting the better” of them and of his legal representatives not having regard to what he was saying. He was not accepting of some of the advice he was given, seemingly believing that, if he could “toughen up” his lawyers, a better outcome might be achieved.
I have a firm view that he believed that the litigation process could be used to extract a better commercial result from Philips and that he blamed the lawyers for being unable to convince Philips to provide that better commercial result. Of course, commercial settlement often occurs and there is nothing inconsistent with a person pursuing a defence whilst at the same time seeking to reduce the risk of an adverse result by pursuing settlement.
At least during the course of the District Court litigation, pessimistic advice from the firm or from counsel was greeted with criticism of those who provided it and a disinclination to pay the legal fees. This must be so because it is apparent from the invoices sent by the firm that the fees were not being paid as and when they were due. Rather, Mr White decided that he would pay an amount that he determined each month, thereby resulting in a build-up of significant unpaid legal fees during the course of the litigation.
His explanation for this in evidence tended to suggest that he believed this was the solicitors’ problem, almost as if his failure to pay money owing to others was not his problem but of those who allowed it to occur. In saying this he wished to avoid any inference that he was not paying because of financial difficulties.
Further, as I will explain, he quite wrongly asserted that Mr Malouf had told him that the prospects were strong.
Having said that, the contemporaneous documentary evidence is so detailed that any preference for Mr Malouf’s evidence over that of Mr White is not determinative of the question of breach.
In paragraph 54 of his affidavit of 1 June 2022, Mr White says that in or about October and November 2016 he was advised “multiple times” that there was a reasonable basis to defend the Dandenong proceedings. Mr Malouf is said to have stated:

“You can alter a written contract with a verbal agreement. Things have changed. Now you don’t need to have everything in writing. The world’s moved on. The meeting you had on the 14^th of the 11^th with Damen is when you varied it. A verbal agreement is as good as a written one. You are on good ground by changing that agreement verbally.”

Mr Malouf denies that he gave such advice but accepts that he might have said that a written contract can be altered with a verbal agreement. At the time of the hearing that remained his understanding.
I do not accept that Mr Malouf gave this advice, that is that Mr White/VXG Dandenong was on good ground. Such advice would be inconsistent with all correspondence and contemporaneous file notes. Again, it may be that he advised that a written agreement could be varied orally. It appears to have been his belief. It would be surprising if Mr Malouf was saying that there was a good defence for VXG Dandenong in October and November at the same time as the client was not even suggesting there was a defence.
There is nothing in any file note to support Mr White’s assertion. This appears to be a self-serving and incorrect statement on his part. It is plain that, at this time, Mr Vandermeer and/or Mr White were telling the firm that they wanted the Balwyn matter defended on the basis of the Damen agreement but the firm was seeking further information in order to substantiate what they were being told.
Mr Malouf was also wrong in an aspect of his evidence. In paragraph 31 of his affidavit, Mr Malouf refers to there being an undated statement in his file which appeared to have been sent around 2 November 2016. As emerged during cross-examination, Mr Malouf was wrong in suggesting that that document had come into possession of the firm around 2 November 2016. This is because the document itself refers to something happening on 9 March 2017. Mr Malouf agreed that, as such, this draft document could not have come into possession of the firm prior to that time.

Review of relevant events

Philips first issued a demand for unpaid service fees on 2 June 2015. It continued to make demands of the VXG companies up to 8 September 2016 when it terminated each of the Service Agreements.
It then commenced proceedings in the District Court, firstly against VXG Balwyn and Dandenong and then against VXG Boronia. In each of the cases, Philips pleaded and relied on the terms of Service Agreements.
The dispute with Philips was referred to the firm by Mr White’s Melbourne solicitor, Mr Webb. Mr White initially left a message for Mr Malouf referring to having known him for 30 years. Mr Malouf accepts that he did know of him.
The first real instructions came through Mr Webb on 19 October 2016. There was a discussion between Mr Webb and Mr Staples. The initial instructions related to VXG Balwyn and were to the effect that there was a dispute as to how much was owed because VXG Balwyn was not a busy site and it should not be required to pay services for much greater usage of the equipment. Mr Webb informed Mr Staples that there was a meeting in December 2014 at which Mr White agreed with Philips that the Service Agreement in respect of Balwyn would come to an end.
There followed a number of conversations and email exchanges in respect of the Balwyn proceedings. During the period November/December 2016 the focus in terms of instructions for a defence was very much on the Balwyn proceedings. Indeed, Mr White made it plain that he wanted to deal with each site separately rather than deal with Philips on a global basis.
At least initially, the instructions were to the effect that Mr White wanted to contest the Balwyn debt but thought the Dandenong matter would need to be settled.
In respect of the VXG Dandenong proceedings, Mr Staples recalls Mr Vandermeer saying:

“‘What can we do about Dandenong? We owe the $80,000, we’re not disputing the amount. We’ve been trying to negotiate a roll-over on the basis of a purchase of a 2^nd hand CT scanner for $220,000, which with the $80,000 means we would pay $300,000, but Philips only wants to sell us a new scanner for $300,000 and we don’t need that’.”

It seems clear that at this time it was not being suggested that there was a defence in the Dandenong proceedings.

During October and November there were a number of conversations and email exchanges, with Mr Staples seeking information about any emails or other documents relating to the Damen meeting in 2014. Mr Vandermeer said there were emails.
Reference was also made to email exchanges between Mr Vandermeer and representatives of Philips from May and June 2016 as corroboration that Philips was well aware of the reasons why the invoices had not been paid.
In an email from Mr Vandermeer to Mr McDonald of Philips (copying in Mr Damen) dated 3 May 2016, Mr Vandermeer refers to a suggested agreement in May 2013 that the end date for all CT Service Agreements would be the 10-year anniversary. He also referred to the December 2014 meeting with Mr Damen where he asserted it was agreed that the VXG Balwyn historical invoicing was incorrect and should be reversed to nil.
On 17 November 2016, Mr Malouf spoke to Mr White. Mr Malouf’s file note records a conversation in which Mr White said that the situation with Philips was bizarre. Mr Malouf asked that he be sent all of the claims. Mr White then referred to having an instalment plan to pay in respect of VXG Boronia to the sum of $120,000, which covered most but not all of the arrears. He referred to one of the machines at Boronia breaking down the week before but Philips not agreeing to repair it as there was then no customer Service Agreement. He said that Philips could not rely on a debt owed by one company to refuse to provide services to another company. He referred to the service Philips did in June being faulty. There was a further discussion about the amount of arrears and issues surrounding determination of the amounts outstanding.
On 21 November 2016, the defendant wrote to the solicitors for Philips setting out the basis of its resistance to Philips’ claims. On 24 November 2016, Mr Malouf spoke again to Mr Vandermeer, suggesting that he had not heard anything from the solicitors for Philips and that VXG might need to obtain an injunction to require Philips to provide maintenance or repair services. Mr Vandermeer responded saying they might be prepared to discuss a settlement of VXG Boronia and Dandenong but not Balwyn.
On 28 November 2016, Mr Malouf wrote to VXG (Mr Vandermeer and Mr White) requesting further information in respect of each of the VXG Balwyn, Dandenong and Boronia matters. He referred to making a request for further and better particulars from Philips’ solicitors on 3 November 2016 and not having received a response. He enclosed a copy of a defence filed by Mr Mensink. He referred to making an offer of settlement in the VXG Dandenong proceedings but not receiving any response. Again, he referred to writing to the solicitors for Mr Mensink saying that Mr White was attempting to negotiate a payment in respect of VXG Dandenong but the VXG Balwyn debt was disputed.
He referred to having a conversation with the solicitor for Philips that day in respect of VXG Boronia. Mr Malouf recommended briefing counsel absent resolution of the VXG Boronia matter. Included in Mr Malouf’s file is a detailed file note of the conversation with the solicitor for Philips of 28 November 2016.
The solicitors for Philips responded to the letter from the firm on 30 November 2016. This was identified by Mr Luitingh during the proceedings as the “warning letter”. Philips purported to again explain why VXG Boronia had no defence. It is somewhat ironic that the plaintiffs put such importance on this letter when during the District Court proceedings Mr White was demanding that his legal representative toughen up in response to the aggressive or bullish position taken by Philips solicitors. For example, on 17 January 2017, Mr Vandermeer informed Mr Malouf and Mr Staples that Mr White was becoming frustrated that they seemed to be taking a soft line and arguing for the other side. This could only be a reference to the defendant advising on the risks in a way that tended to emphasise the case being pursued by Philips.
There followed communications about the firm accepting service on behalf of Mr White (in his personal capacity as the defendant). It is plain from a conversation of 13 December 2016 between Mr White and Mr Staples that Mr White did not want the firm to accept service on his behalf. He referred to him changing address and Philips not knowing where they were. He said, “we could grease negotiations”.
There was a further conversation between Mr Staples, Mr White and Mr Vandermeer on 15 December 2016 regarding the terms of Philips’ offer. Mr White wanted a meeting arranged, suggesting that Philips was not being commercial. Mr Staples queried having the lawyers present, having regard to the threats of action.
Mr Staples raised the pushback he was getting from the solicitors for Philips. Mr White said, “[w]e are not saying no. We just want to sort out the whole situation”. Mr Staples raised whether he wanted to discuss all the matters, but Mr White said he wanted to keep them separate. Mr Staples advised Mr White to mitigate his damages and take up Philips’ quote for service of the CT machine at VXG Boronia ($3,000).
On 17 December 2016, Mr Staples made a file note that offers had been made in the VXG Boronia proceedings. In particular, there was discussion with the solicitor for Philips. Mr White was advised of these discussions. There was a further conversation on 20 December 2016 between Mr Staples and Mr Vandermeer.
Again, Mr Staples sought information regarding the December 2014 agreement. He said that Philips had given them a deadline of 23 December 2016 for a defence. He said, “at the moment we don’t have instructions about anything that would give you a defence, so we haven’t done anything. What are your instructions about their response?”
In respect of both the VXG Boronia and Dandenong proceedings, Mr Vandermeer indicated that Mr White did not want to pay any invoices until they obtained a new Service Agreement for VXG Boronia. Mr Staples responded suggesting that Philips could get a judgment on VXG Dandenong. On 20 December 2016, there was a further discussion regarding the process of negotiations. It is not necessary to repeat everything Mr White had said, but Mr White plainly wanted Mr Malouf to go to a meeting with Philips, suggesting “he’s a head kicker”.
Mr White said, “[w]e’re offering to pay on Dandenong if they sign. We wanted to purchase a new machine for Dandenong for $228,000 and have ongoing service. That’s our defence”. Mr Staples said, “[t]hat won’t cut in court”.
There followed a further discussion about what happened with VXG Boronia. Again, Mr Staples said, “[p]lenty, but that doesn’t help you on Dandenong”. Mr White said, “[p]ut on a defence that they won’t negotiate with us”.
Mr Staples said that would not do any good and Mr White asked him to get Mr Malouf to call him. There followed some further conversation all aimed at trying to negotiate. The content of the communications leaves little room for doubt that Philips was not willing to deal with Mr White as Mr White wanted it to.
Up to this time the instructions coming from Mr White and Mr Vandermeer were to the effect that the Damen meeting/agreement was the basis on which the Balwyn matter could and should be defended but that in respect of both the Dandenong and Boronia matters Mr White was looking to negotiate with Philips to get a better deal or to enable some arrangement to be entered into in respect of the outstanding sums. Mr Malouf had made it clear that the information provided was insufficient to file a defence in the Dandenong matter and that he would not file a defence in the terms suggested by Mr White.
On 23 December 2016, Philips obtained default judgment in the Dandenong proceedings. Mr White had been informed of the risk of that occurring. On that same day Philips commenced proceedings against VXG Boronia as well as Mr White and Mr Mensink.
The particulars sought by the firm in respect of the Balwyn defence were provided by Mr Vandermeer on 9 January 2017. Mr Vandermeer provided a commentary on the draft defence provided by the firm and provided further information as to the Damen meeting. The firm responded with a letter enclosing a defence which they had drafted in the Balwyn proceedings on 10 January 2017. Mr Vandermeer provided further information for that draft defence.
On 10 January 2017, Mr White and Mr Malouf spoke. Mr Malouf advised Mr White that they needed to retain counsel, put on defences and set aside the judgment in Dandenong.
Mr White asked Mr Malouf to speak to a different person from Philips. There was a discussion about whether the matter could be resolved during the proceedings. Mr Malouf emphasised that they needed to get a barrister involved due to the complexity of the issues.
Mr White said they didn’t have much money. Mr Malouf said he could not proceed without funds and Mr White responded saying he would organise some funds.
Mr Malouf followed up with a letter of 10 January 2017 dealing with each of the matters. He advised that the essential defence in the Balwyn matter was that the agreement was varied. He confirmed that he had telephoned the solicitors for Philips seeking a meeting without response.
Mr Vandermeer responded to the further draft defence providing further information and comments. The information provided by Mr Vandermeer formed the basis for the defence filed.
On 10 January 2017, Mr Malouf wrote in respect of Dandenong noting that the only available defence would be that Philips did not service the machine as frequently as was required.
Mr Vandermeer responded on 11 January 2017 referring to an agreement by Mr Damen at the meeting on 19 November 2014 that there would be a lower cost support agreement for the CT machine. He said Mr Damen failed to implement his commitment to the offer or implement a lower cost agreement.
The defence in Balwyn was filed on 13 January 2017.
On 17 January 2017, Mr Vandermeer forwarded a detailed email responding to the firm’s concern that the draft defence was unconvincing.
At this point, a defence had been filed in Balwyn; Philips had obtained judgment in default in Dandenong and the proceedings had only just commenced in Boronia.
There was a further conversation between Mr Malouf, Mr Vandermeer and Mr White on 16 January 2017. Mr Malouf again raised the need for funds and briefing a barrister. Mr White was also resisting service of the proceedings on him and there was a discussion about substituted service.
Mr White says that in January 2017 Mr Malouf told him he had no time to deal with the matter and that he would be handing the matter over to Mr Staples. Mr Malouf denies making this statement, observing that Mr Staples was already involved in the matter and the documents record Mr Malouf’s ongoing involvement in the matter. This is so. It is possible that Mr White was confusing a later period when Mr Malouf was sick. If the statement was an attempt to suggest that Mr Malouf was not properly performing his role, I reject it.
There were conversations between Mr Malouf, Mr Staples and Mr Vandermeer on 17 and 18 January 2017. In file notes from that period, Mr Malouf recorded in respect of the Dandenong matter, that a judge was not likely to find an agreement between Mr White and Mr Damen or any variation of the Dandenong Service Agreement. There was a further conversation between Mr Malouf and Mr White on 18 January 2017. Mr White complained about judgment being entered in Dandenong.
On 19 January 2017, Mr Vandermeer provided detailed written instructions including a “transcript” of the Damen meeting.
It may be surprising that Mr White was complaining about the judgment in Dandenong as Mr Malouf had made it plain to him immediately before the judgment was entered that he had not received instructions which provided the basis for a defence and that he would not file a defence in the terms Mr White wanted. Mr Malouf questioned Mr White about any agreement with Mr Damen in respect of Dandenong. Mr White complained that Philips had not kept its word.
On 25 January 2017, Mr Staples discussed the Boronia proceedings with Mr Vandermeer. He sought instructions as to a defence. He made a file note as to each of the issues raised by the Statement of Claim and Mr Vandermeer’s instructions thereto. Between 25 and 29 January there was an exchange of correspondence relating to the Boronia defence. Mr Staples set out in some detail his understanding of the defence to be filed and raised matters for clarification. Further he confirmed that they would need to support the defence at a later stage referring to evidence that would need to be obtained from Mr O’Rourke. He provided the draft defence for review. Mr White reviewed it and provided further information in some detail.

On 31 January 2017, Mr Staples told Mr Vandermeer that:

“We can defend on the basis that services weren’t supplied for the CT and ultrasound. The plaintiff will have a different view of the law but I believe it’s arguable…”

On 31 January 2017, a defence was filed in the Boronia proceedings.
On 1 February 2017, Mr Staples briefed Luke Fermanis of counsel in respect of the application to set aside judgment in the Dandenong matter.
The application to set aside judgment in the Dandenong proceedings was heard on 17 February 2017. On 28 February 2017, the application was dismissed with costs.
The application was initially dismissed based on insufficient evidence to support the agreement to vary said to have been made on 19 November 2014.
Mr Vandermeer also sent a letter to Mr Malouf suggesting they were set up to fail; outlining the process of negotiations and complaining about the firm’s conduct, noting that even though he had paid for a barrister and Philips had only retained a solicitor, Philips had won. He wondered how Philips had been able to inject into the process a detailed affidavit from Mr Damen.
After receiving a report on the outcome, Mr Vandermeer instructed Mr Malouf to make a second application.
He instructed Mr Malouf that the failure of Mr Damen to progress the agreement should not be taken as a non-agreement. It was an example of poor processing by Philips. He acknowledged that the position would be clearer if he could produce an email recording his agreement but emphasised this did not mean that Mr Damen did not agree.
He complained that Mr White was getting frustrated because the firm was taking a softer line, arguing for the other side. The basis of that criticism is unclear, although the criticism itself is quite consistent with the approach Mr White took to the work of his own lawyers from time to time, seemingly thinking that a critical factor in the outcome of litigation or any settlement is the behaviour of the lawyers. He plainly believed that his own lawyers needed “toughening up”, whatever that might mean.
On 8 March 2017, Mr Vandermeer and Mr White provided further instructions for a fresh application to set aside the judgment in the Dandenong proceedings. The firm responded providing advice about the legal aspects of the proposed defence, suggesting that only asserting that there was a variation to a lesser cost would be insufficient to set aside the judgment. Mr Staples noted that Mr Fermanis would be amending the defence to include allegations of misrepresentation
Mr White swore an affidavit reciting the conversation with Mr Damen and including the words said to have been spoken by Mr Damen

“I agree that the current arrangements need to stop and a new level of cover put in place.”

He added that, in all their dealings with Philips, they had altered, cancelled or changed arrangements through face-to-face meetings.
The further application was heard on 27 March 2017. The Registrar set aside the default judgment. A defence was filed on 31 March 2017.
Orders for substituted service (on behalf of Mr White as second defendant, as he would not agree that the defendant accept service on his belief) were made on 17 March 2017. A defence was filed on his behalf in similar terms to that relied on by VXG Dandenong.
By 31 March 2017, the firm had filed a defence on behalf of VXG Dandenong relying on the affidavit of Mr White and the instructions provided by Mr White and Mr Vandermeer.
From about March 2017, Ms Polczynski assisted Mr Staples and Mr Malouf in the conduct of the three matters.
On 4 April 2017, a cross claim was filed in the Dandenong proceedings. A defence to the cross claim was filed by Philips on 5 May 2017.
During the period February-March 2017 there were discussions regarding Mr White’s defence (as guarantor), potential conflicts and the need for Mr White to maintain the same defence as the companies otherwise the firm could not act for him.
On 12 April 2017, Mr Vandermeer provided instructions with respect to the defence to the claim against Mr White in the Boronia matter. A defence was filed on 13 April 2017. Defences were filed on behalf of Mr White in the Balwyn matter on 21 April 2017 and in the Dandenong matter on 1 May 2017. Defences were filed by Mr White only after Philips had obtained orders for substituted service as Mr White had refused to disclose his address for the purposes of service.

Subsequent developments

The litigation took the usual course with each of the VXG companies and Mr White being required to serve evidence. There were ongoing discussions regarding the strength of the evidence and the evidence which would be required. The defendant drafted an affidavit of Mr White and continued to seek instructions on the details of the variation or termination of the Service Agreements. Philips served an affidavit of Mr Damen.
Suffice to say that Mr White was never willing to entertain settlement in any range sought by Philips. This must be either because he or the companies did not have the money to pay any reasonable settlement sum or Mr White remained of the view that Philips would ultimately come to the party and settle on the terms that he wanted.
It could not be that Mr White’s instructions as to settlement of each of the three District Court proceedings were based on any optimistic advice he was receiving from the firm. There was none. Whilst it is not apparent that he was ever advised prior to the filing of each defence that any of the defences were hopeless or doomed to fail, there was a consistent theme in the advice given to Mr White, being that the defences were risky and there were difficulties with the defences filed.
That view was shared by Mr Fermanis who was initially briefed to advise and then appear on the application to set aside the default judgment in the Dandenong matter (and thus after the filing of the defence in the Balwyn matter).
On 11 August 2017, VXG Balwyn was placed into liquidation.
In September 2017, Mr Fermanis provided advice in conference to Mr Vandermeer that the defence in Boronia would not provide a complete set off. Mr Vandermeer subsequently instructed the firm to file separate proceedings against Philips on 14 November 2017.
The Balwyn proceedings were heard on 16 November 2017. The Dandenong proceedings were heard on 21-22 November. Following that hearing, the defendant wrote to VXG Dandenong observing that the oral evidence given was contrary to the affidavits and this caused a change in the arguments they had intended to pursue. In other words, the defendant predicted the likely result and identified the difference between the pleaded defence and Mr White’s affidavit and his oral evidence on the hearing as being likely critical to the outcome. As it turned out, that is having regard to the judgment, that prediction was correct.

Mr Fermanis’ role

Mr Fermanis was first retained on 1 February 2017. From then on he gave advice about, and was involved in, the preparation of the matters, setting aside the judgment in the Dandenong matter, advice following the failure of the first application to set aside, finalisation of affidavits, attempts to settle the matters and the running of the cases.
He says that, in the course of settling Mr White’s evidence in May 2017, he formed the view that the evidence would not prove the Balwyn variation. He says that he said to Mr White at various times during the course of the proceedings words to the effect that “your defence has insurmountable hurdles” or “your defence is quite difficult”. He referred to several problems and that Mr White’s credibility would be the lynch pin of the case. As it turned out, at least having regard to the judgments, he was quite correct. Mr Luitingh’s suggestion that there was never any change in the advice given, whether before or after the filing of the defences, is not correct. This is a good example of this.
At a settlement conference on 10 November 2017, Mr Fermanis gave strong advice saying:

“[Y]ou need to settle this [meaning all of the VXG Proceedings]. You need to get out of this litigation, it’s been and will continue to be incredibly expensive. You shouldn’t run these cases, they will be very hard for you to win and there isn’t any cross-claim in Balwyn, you’re hanging your whole case on being believed about your conversation with Damen and getting past the fact that nothing got put in writing.”

He gave further specific evidence that Mr White would be up for more than 1 million for the debts, interest and costs if he lost all of the cases saying that was a very real possibility. He advised Mr White that if he could get out of everything for less than that he should do so.
In cross-examination, Mr Fermanis agreed that the advice that he gave may have been given from the outset, meaning from the time he was briefed on 1 February 2017. However, I am not sure how that sits with Mr Fermanis’ letter reporting on the outcome of the failed application to set aside judgment.
It is clear that he had a dim view about the prospects of defending the proceedings from the outset. In cross-examination, he was taken to the limitation clause contained in the Service Agreement. He agreed that he had said to Mr White that it would be impossible for the Court to accept that there was an agreement or to determine what the terms were.
When put to him that was always his position, he said, “not quite, but definitely then”.
Mr Fermanis was challenged on the suggestion that, if Mr White’s evidence had been accepted in full that would have been sufficient to establish a concluded agreement. He also agreed that without an expert witness the suggestion that Philips did not service the machine properly was not an argument that could be pursued.
The effect of the forensically successful cross-examination of Mr Fermanis was that Mr Fermanis essentially agreed that he always had the same view about the prospects of successfully defending the District Court proceedings being that they faced insurmountable hurdles and thus would not succeed.
It is plain that Mr Fermanis said these things to Mr White and the defendant at various times, whether at the time of preparing Mr White’s evidence or the time of the settlement conference. What is less clear is whether he shared these views directly and specifically prior to filing the defence in the Dandenong matter. Indeed, there is no evidence that he did. For example, he did not express that view when reporting on the options subsequent to the first application to set aside judgment in the Dandenong proceedings.
The Balwyn defence was filed on 13 January 2017. Mr Fermanis had not been briefed by then. The Boronia defence was filed on 31 January 2017. Mr Fermanis was not briefed at that time. He could not have given any advice to the defendant prior to the filing of the defences in the Balwyn and Boronia matters.
He was involved in the setting aside of the judgment in the Dandenong matter. He described the defence as arguable in his report on the failed application. Despite agreeing to the proposition in cross-examination, there is no record of Mr Fermanis informing the defendant that the defences faced insurmountable difficulties prior to the filing of the defence in the Dandenong matter.

Mr Woods

Mr Woods was briefed by the defendant on the question of costs and interest following the District Court judgments; to pursue an appeal in the Balwyn proceedings and to set aside a bankruptcy notice. He was also briefed in the Boronia proceedings which did not ultimately proceed to hearing. He says in his affidavit that he had concerns about the limitation of liability clause. Having said that, he also said that he never formed the view that the case pursued by VXG Boronia in the Seperate Boronia proceedings was hopeless. He similarly thought the Balwyn appeal would be unlikely to succeed but he never formed the view that the Balwyn appeal was hopeless.
Perhaps consistently with his view at the time that his own lawyers had let him down (and that was the reason he lost), Mr White corresponded directly with Mr Woods. In an email of 23 May 2018, Mr White complained to Mr Woods directly that for too long and tor too many occasions his legal representatives had been passive and the other solicitors’ punching bag, passively accepting, conceding or agreeing to every request reasonable or unreasonable without any challenge.
Mr Woods’ evidence is of limited relevance to the issues in these proceedings because he became involved after the District Court judgments. He certainly gave advice about the appeal in the Balwyn matter but, bearing in mind that the plaintiff’s case in respect of the Balwyn appeal is limited to the proposition that a Notice of Intention to Appeal should not have been filed, his evidence does not inform the question of breach. In any event, it does not assist the plaintiffs as Mr Woods’ view was that the appeal was not hopeless.

The Service Agreements

Each of Balwyn, Dandenong and Boronia entered into separate Service Agreements. The Service Agreements were in standard form headed:

“Philips Health Care

Service Agreement Terms and Conditions”.

As set out in cl 1, Philips agreed to provide to the customer the services on the equipment identified at the location for the prices set forth in the agreement. The services included equipment quality performance service as scheduled by Philips and a repair service due to equipment malfunction as required.
Each agreement contained a number of exclusions which are not relevant to the issues in these proceedings. Each agreement included obligations imposed on the customer relating to the use of the equipment and the site where the equipment was situated.
As set out in cl 6, the customer agreed to pay Philips a service fee for selected services at the specified frequency. Philips reserved the right to withhold services if any invoices remained unpaid for more than 30 days. Further, the occurrence of any equipment faults or malfunctions, would not entitle the customer to reduce or withhold payment.
As set out in cl 8, the agreement was non-cancellable by the customer and remained in effect for the term specified. Clause 8 also specified circumstances in which the customer could cancel the agreement on 60 days written notice.
Clause 10 is expressed as a limitation of liability clause, limiting Philips liability to an amount not exceeding the specified service fee, and purporting to exclude liability for consequential loss including loss of profit.
Clause 18 is an entire agreement clause, which is in the following terms:

“This Agreement constitutes the entire understanding of the parties and supersedes all other agreements, written or oral, regarding its subject matter. No additional terms, conditions, consent, waiver, alteration, or modification will be binding unless in writing and signed by Philips’ authorised representative and Customer. Additional or different terms and conditions, whether stated in a purchase order or other document issued by Customer, are specifically rejected and will not apply to the transactions contemplated by this Agreement. No prior proposals, statements, course of dealing, course of performance, usage of trade or industry standard will be part of this Agreement.”

It is this “no variation clause” which is said by the plaintiffs to be significant to the outcome of these proceedings.

Determination

There are a number of things about the relationship and communications between Mr White, Mr Vandermeer and the defendant during the period between initial instructions and the filing of all of the defences which are relatively clear, including the following.

The defendant did not merely file defences based on brief or cursory instructions from Mr Vandermeer or Mr White. Indeed, as the records reveal, there were occasions when the defendant either personally or through his employed solicitors told Mr Vandermeer or Mr White that the information provided would be insufficient to permit a defence to be filed or that the defence could not be filed based on that information. Further information was then provided. In their closing submissions, the plaintiffs rely on these statements as forms of admissions that the defences were hopeless but this ignores the subsequent provision of additional information.

In respect of the Dandenong matter, Mr White was made aware that a defence could not be filed (based on the then instructions) and had not been filed prior to default judgment being entered. In January 2017, there were further discussions between Mr White and Mr Malouf regarding a potential defence when Mr Malouf again informed Mr White that he could not and would not file a defence in the Dandenong proceedings unless he was satisfied that he could properly certify the defence. Further, following the first unsuccessful application to set aside judgment, the defendant advised Mr White of his options and informed him that there would need to be more evidence to support a defence should he want any further application to be made. Mr White then prepared an affidavit in support of the next application. This set out in more detail the evidence that Mr White would give and the nature of the discussions with Mr Damen. The plaintiffs point to Mr Malouf’s earlier statements about the Dandenong defence submitting in their reply submissions that by 13 January 2017 the defendant had advised Mr White that there was no defence but went ahead and filed one anyway. However, the defence was only filed after the successful application to set aside default judgment and after Mr White prepared his affidavit.

The defendant kept detailed records whether by way of file notes, emails or correspondence such that, subject to some limited exceptions, there could be no dispute as to the communications between the parties.

Mr White was informed that there were risks associated with the proposed defences. He was not told they were hopeless or bound to fail but he must be taken to be aware that there were substantial risks associated with the proposed defence of each of the District Court matters.

The defendant was in a position to understand what Mr White was saying about why the three VXG companies were not liable to pay the amounts claimed. Further, the defendant was aware from the correspondence from Philips (and its solicitors) as to the position and arguments being pursued by Philips, albeit that the defendant was not in receipt of Philips’ evidence prior to the filing of the defences.

The defences, as filed in each of the District Court proceedings, were based on instructions from Mr White and Mr Vandermeer.

Mr Malouf gave consideration to each of the defences prior to certifying and filing them. However, Mr Malouf did not read the Service Agreements and assumed that Mr Staples had, although there may be some uncertainty about that.

Mr Malouf conceded in cross-examination that he did not review the terms of the Service Agreements:

“Q. Okay let me just be direct with you. Did you read the service agreement?
A. I don't recall.
Q. So you will accept that you were provided with the service agreements in October through to December on several occasions, through to the time on 22 December where you and Warren Staples, or 20th, 21st or 22nd, had extensive conversations with Mr White about the defences. Along that route on several occasions you were provided with the service agreements. Correct?
A. Well, Mr Luitingh, Warren Staples was looking after the matter on a day to day basis.
Q. Yes, I know that.
A. And I would have expected him, as a senior, experienced lawyer to look at the service agreements and anything else that there was.
Q. Yes, but the buck stops with you, Mr Malouf. Isn't that right?
A. That's correct.
Q. So what I'm asking you is whether or not you ever read the service agreements and I want to split that up, before you filed the defences or even thereafter?

I do not accept that a solicitor exercising reasonable care ought to have known that the Appeal proceedings were hopeless prior to filing the Notice of Intention to Appeal on 30 August 2018.
The plaintiffs thus fail in establishing that the defendant was in breach of his duty of care or contract.

Causation

The plaintiffs must establish that, but for the negligence of the defendant, the losses they claimed would not have been sustained. In this case, the losses are the legal costs which were paid to the defendant as well as the legal costs which were paid to Philips.
The defendant submits that to establish causation the plaintiffs must prove that but for the defendant’s failure to advise, the plaintiffs would have:

immediately accepted the advice that defending each of the proceedings was hopeless; and

paid the amount sought by Philips either in full or in some lesser amount within 28 days.

The defendant submits that the plaintiffs have not established these matters.
The defendant points to:

the evidence that tends to establish that Mr White was not inclined to accept the advice given by the defendant. This included advice given about the risks associated with the defences and advice given about settlement; and

Mr White’s prior and subsequent conduct, which is said to demonstrate either an inability to pay or a disinclination to pay.

There is evidence to support both those propositions.
Firstly, Mr White tended to respond to advice to settle or about risks associated with his cases by demanding a tougher approach or somehow blaming his lawyers for getting him into a position of weakness in the case.
Further, he did not pay his own lawyers’ fees as and when they were due. He seemed to believe that he was able to determine how much he would pay and when he would pay, making monthly payments of amounts smaller than those that were due.
Mr Malouf’s recollection of Mr White and Mr Vandermeer’s general attitude to settlement was that:

Mr White and Mr Vandermeer instructed him that the VXG companies were incapable of paying the debts in full and, regardless, would refuse to pay them in full. Any settlement agreement would therefore need to provide for payment by instalments.

They wished to leverage the VXG proceedings to negotiate a settlement of each of the debts for a reduced amount.

They were repeatedly told by the firm that they would not be able to settle the VXG proceedings without paying more than they were willing to offer at the time.

This recollection is consistent with the offers which were actually made.
On 22 December 2016, Mr Staples made the following offer on behalf of VXG Boronia.

Payment of $50,270 and $3,657.50 to Philips. This payment was to be made subject to an acknowledgment by Philips that the payment was in full and final settlement of all outstanding amounts due to Philips in relation to the CT Service Agreement and the general x-ray machine.

Entry of the parties into a further CT Service Agreement for a term of 12 months on the same terms and conditions as the prior Service Agreement.

On 23 December 2016, Philips counter-offered by re-iterating its earlier offer to settle the proceedings on the basis that:

VXG Boronia pay the amount of $73,927.50; and

VXG Boronia pay a further amount of $29,500.06.

On the same day, that offer was rejected on behalf of VXG Boronia.
An interim settlement conference (“ISC”) took place on 10 November 2017. Prior to the ISC, Mr Fermanis gave Mr White strong advice to settle the proceedings emphasising that the litigation had been “and will continue to be incredibly expensive”. Mr White instructed Mr Fermanis that he was prepared to pay around $50,000 to settle all of Philips’ claims.
At the ISC, Philips’ opening offer was that the VXG companies pay Philips between $400,000-$450,000 to settle the proceedings. Mr Fermanis told Mr White that he should reconsider his earlier instructions to offer $50,000 but Mr White refused to alter his position.
Philips responded with a counter-offer of $520,000. Mr Fermanis advised Mr White that this was “a significant and reasonable compromise by Philips given they have essentially compromised their interests and costs”. Mr Fermanis sought instructions from Mr White to make a counter-offer of $100,000 on his behalf, but could not recall whether he ever received instructions from Mr White to make that offer.
Mr Fermanis described his attempts to convince Mr White to make any offer over $50,000 at the ISC as a “truly time-consuming process”.
On 14 November 2017, Mr Fermanis received instructions to make the following offer to resolve all of the VXG matters:

$50,000 to be paid to Philips within 28 days;

$50,000 within 28 days thereafter; and

the balance owing payable over 12 months from February 2018.

The same day, Philips rejected that offer. Philips made a further offer to resolve the Balwyn matter only on the following terms:

the second defendant consent to judgment and costs being entered against it; and

in exchange, Philips would not enforce the judgment for a period of time.

In an email conveying this offer to Mr White, Mr Fermanis said:

“If you wish to resolve the proceedings and avoid the risk of litigation, then you should consider making a significantly higher offer than the previous offer (subject to terms of payment). As I have advised previously, there are no guarantees in litigation and whilst lawyers can speculate on an outcome, one cannot bank on that speculation.”

Mr White wrote in his reply to that email:

“Why would I take such a bad deal and admit to something I knowingly [sic] know is not correct. I have been more than reasonable all along and unfortunately the people at Philips are only concerned about their jobs and are prepared to tell mistruths about it. At least the affidavits show they are incompetent … We are not paying $250k for something we don’t owe.”

In his affidavit, Mr Fermanis says that he provided the following advice to Mr White following the conclusion of his evidence in the Balwyn hearing:

“I said to Mr White ‘I think you’re going to lose this case. You should think about coming to a deal with Philips and possibly even just paying the whole debt’.”

Following the dismissal of the first motion to set aside default judgment in the Dandenong matter, Mr Fermanis wrote a letter dated 1 March 2017 reporting on the outcome of the hearing. That letter was provided to the plaintiffs. Mr Fermanis canvassed a number of alternatives to filing a second motion to set aside default judgment. These included:

that the clients pay the amount sought by Philips; or

that the client attempt to enter into a payment arrangement with Philips by either negotiating that directly with Philips or seeking an instalment order from the District Court.

On 3 March 2017, Mr Vandermeer sent an email to Mr Fermanis indicating that he had read Mr Fermanis’ reporting letter but wished to proceed with filing a second motion to set aside default judgment rather than adopting one of the “less costly” options outlined by Mr Fermanis.
On 21 June 2019, the plaintiffs made an offer to Philips to settle all of the VXG proceedings (which now included the bankruptcy and Appeal proceedings) on the basis that the VXG companies would pay $400,000 to Philips in two instalments. This offer was inclusive of costs and interest.
That offer was not accepted by Philips. In response, Philips indicated in a letter dated 27 June 2019 that it would accept a total payment of $864,242.85 to settle all of the VXG proceedings. Mr Vandermeer provided instructions to reject that.
In my view, his attitude to:

paying the service fees to Philips;

paying his own legal fees; and

making reasonable offers to settle each of the proceedings

demonstrated at best a disinclination to pay or at worst an inability to pay.

If it was necessary to make a finding that if Mr White, as the decision maker, had been told that the defences were hopeless and that he should simply negotiate and pay even up to the full amount, I doubt that he would have accepted that advice and that he would have paid.
However, it is important to bear in mind the losses claimed are not the sums owing to Philips or interest thereon, but the legal costs paid to the defendant and paid to Philips at the end of the unsuccessful District Court and Appeal proceedings.
In considering causation, the Court is looking at the counter factual, that is but for the failure to give the advice what would have happened?
The problem with the defendant’s contentions on causation is that they rather ignore the fact that if the defendant had formed the view that the defences were hopeless and bound to fail, the defendant would not have certified the defences. Mr Malouf’s evidence demonstrated that he would not have certified the defences unless he believed that it was proper to do so.
The question is but for the failure to give the advice, would the plaintiffs have incurred the costs that they seek as damages in these proceedings. The answer must be in the negative because if the defendant ought to have so advised then he would not have been able to certify the defences. As his own evidence demonstrates, he was cognisant of his obligations.
I do not accept that he would have filed the defences contrary to his ethical obligations. Further, I do not accept that if Mr Malouf had declined to act, in the sense of filing the defences, the plaintiffs would have simply retained other solicitors and incurred similar costs. There is no reason to conclude that other solicitors would have picked up the case, even if they were indeed bound to fail.
As such, even if Mr White may have been disinclined to pay Philips any substantial sum, he would have been left to either settle on the best possible terms or deal with the cases himself. On either scenario, he would not have incurred the legal costs in the matters. I am also satisfied that he would not have let the litigation proceed such that he would be subject to costs orders against him for substantial sums.
Causation would have been established.

Damages

I will assess damages.
The plaintiffs’ claim for damages is limited to the costs paid to the defendant for their legal services and costs they were ordered to pay to Philips having lost each of the District Court proceedings. Whilst it might be thought that those amounts were capable of agreement or easy determination, the parties were unable to reach agreement on the damages to which the plaintiffs would be entitled because of uncertainty as to who had paid the amounts owing to the defendant and Philips and when those amounts had been paid.
Importantly, the defendant did not take issue with which of the plaintiffs had paid the amounts but took issue on the basis that some of the amounts claimed had not been paid by any of the plaintiffs. That is, it became apparent that some of the costs paid to the defendant during the course of the District Court litigation and/or paid to Philips consequent of orders made against the plaintiffs were actually paid by companies not associated with the District Court litigation for reasons which were not explained. Other companies in the VXG group paid some of the outstanding amounts. Those companies included VXG Carlton and VXG Queensland, and even companies with unrelated names such as Vines Irrigation Pty Ltd and Diagnostic Imaging Services Pty Ltd.
These companies were all under the control of Mr White. He was the sole director and shareholder of quite a number of corporate entities. In their submissions, the parties called these companies “related entities”. The defendant submitted that the plaintiff could not recover amounts paid by these related entities as the plaintiffs have not suffered a loss in respect of those amounts.
The parties agreed that the plaintiffs could only recover amounts paid by way of costs if:

one or either of the plaintiffs had paid such amounts; or

one or other of the plaintiffs had a liability to repay the corporate entity which had paid any amount on account of costs.

In respect of amounts paid by one or other of the plaintiffs, the defendant agreed on the sum of $887,613.12 including interest. However, the plaintiffs maintained that in addition to this sum there are further amounts recoverable by them being amounts:

that were paid to the defendant or Philips on account of costs by the related entities; and

had not yet been paid to Philips (and thus the plaintiffs remained liable to pay such amounts).

Although there was some argument on interest, at least by the end of the further hearing on damages, there appeared to be agreement that:

the sum of $887,613.12 included interest on the amounts paid by the plaintiffs;

to the extent that there was any judgment sum owing by the plaintiffs to Philips in respect of costs, Philips would be entitled to interest on that judgment sum to the date of payment and thus interest must be included up to the date of this judgment or, more accurately the time after judgment (28 days);

in respect of additional amounts that the plaintiffs are entitled to recover, being amounts paid by the related entities, the plaintiffs will not be entitled to interest on those sums because there is no evidence that they would be liable to pay interest to the related entities. Whatever the state of the evidence supporting the plaintiffs’ assertions that the plaintiffs were liable to repay the related entities, there was no evidence which would suggest that the plaintiffs were liable to repay interest at a certain rate or for a certain time.

The issue of substance between the parties on damages is limited to whether the plaintiff has established an entitlement to recover the amounts sought over and above the sum of $887,613.12.
The plaintiff relies on a further bundle of material (Exhibit N) tendered on the further damages hearing. Having said that, that material was reduced from an earlier bundle having regard to agreement reached between the parties on the day. Further, some of the parties’ submissions are no longer relevant.
The plaintiffs acknowledge that the difference between the amounts sought by the plaintiff and the amount allowed by the defendant is approximately $612,069.90 comprising interest in the sum of $206,228.02 and disputed third-party claims of $405,841.88.
The disputed third-party claims comprise amounts not paid by the plaintiffs to the defendants or to Philips but paid by related entities to the defendant or Philips.
The defendant says that the plaintiffs have not established that they have an obligation to repay those related entities. Consequent on the orders I made about service of further evidence, the plaintiffs wrote to the defendant providing a schedule and further evidence in support of their claims. When this did not result in the defendant agreeing, the plaintiffs then served a further affidavit of Mr White (on which the plaintiffs no longer rely) and what purported to be resolutions of a number of corporate entities controlled by Mr White.
On 24 January 2024, each of the related entities and the corporate plaintiffs purported to make resolutions signed by Mr White as the sole director to the effect that the amounts paid by the related entities to the firm and Philips were paid pursuant to loan agreements between those related entities and one or other of the plaintiffs. The effect of the resolutions was said to be to provide evidence that there was a loan agreement between the related entities and each of the plaintiff companies so as to establish that, although the plaintiffs had not actually repaid the amounts paid by the related entities, they had a continuing obligation to repay the related entities.
The defendant objected to the admission of those resolutions into evidence. The defendant originally submitted that the documents might be a sham, but ultimately did not press that submission. Instead, the defendant objected on the basis that the documents contained hearsay and could not be considered business records as they had been produced for the purposes of the litigation or in connection with the litigation.
As I said in my judgment on the admissibility question (see Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 2) [2024] NSWSC 887) that must be so.
In circumstances in which the documents were not business records, they were not admissible. As such, the resolutions purporting to establish the obligation to repay were rejected and are not in evidence. Despite that, the plaintiffs maintain that the Court would still be satisfied that there was an obligation on the part of the plaintiffs to repay those related entities any amounts that the related entities paid to the defendant or Philips on account of costs. This is said to be so because:

none of the related entities had any legal obligation to pay any amount;

although there was no record of loan agreements between the parties, I would infer that the basis on which the related entities paid those sums was on the basis of a loan, that is, the related entities were lending the corporate plaintiffs sums to pay the amount required on account of costs. It is just that the plaintiffs did not pay those monies directly to the defendant or Philips; and

the financial accounts of the related entities (which were in evidence as part of Exhibit N) supported that proposition as there were loan accounts operated by each of the companies in favour of Mr White.

The plaintiffs submit that those loan accounts would go up and down depending on the amounts paid and I would infer that one of the reasons the loan accounts varied was because of payments made on behalf of the plaintiff corporate entities and/or Mr White by the related entities. In making these submissions the plaintiffs acknowledged that the evidence on this is somewhat limited.
The plaintiffs submit that in cases in which it is difficult to prove a loss, the Court must do its best to properly compensate the plaintiff, even on limited evidence on damages. The plaintiffs submit that loss may be established even on sparse or unsatisfactory evidence (Royal Society for Prevention of Cruelty to Animals (Victoria) v Holdsworth [2015] VSCA 243). The plaintiffs submit that the Court would not accept that no loss has been sustained in circumstances in which there are difficulties in estimating and proving the loss (Fink v Fink (1946) 74 CLR 127 at 143 per Dixon and McTiernan JJ).
The plaintiffs submit that the Court must strive to do justice between the parties, having regard to the principles of quick, just and cheap litigation and that having regard to the points taken by the defendant, it would take a significant amount of work and period of court time to prove those additional losses seemingly to the satisfaction of the defendant.
The defendant submits that there is no evidence on which the Court could conclude that any of the plaintiffs are liable to repay any sums paid by the related entities to the defendant or Philips on account of costs. There may be a number of reasons why the related entities might have paid those amounts without entering into loan agreements. Further, the defendant submits that the plaintiffs’ suggestion of the existence of loan accounts in favour of Mr White does not assist the plaintiffs because whilst the loan accounts represent monies paid by Mr White lent by Mr White to the related entities, they do not evidence monies lent by the related entities to Mr White. If monies had been lent by the related entities to Mr White or any of the other plaintiffs, such amounts would be recorded in the accounts of the related entities as an asset, being an amount owing to the related entity rather than an amount owing by the related entity.

Determination on damages issue

The plaintiffs are not entitled to compensation by way of damages unless they have suffered the loss which they claim. In respect of the amounts over the agreed sum, the plaintiffs accept that they did not pay those amounts. The only basis on which they could recover those amounts from the defendant is if they have an obligation to reimburse someone else in respect of those amounts. Neither Mr White, the corporate plaintiffs or the related entities entered into any agreements at the time when the payments were made. No documents were created evidencing any loans or any obligations to repay the amounts which were paid by the related entities as authorised by Mr White.

This is not a case in which there is limited or scant evidence supporting the loss. There is no evidence supporting the loss. Further, in order to accept the plaintiffs’ propositions, I would have to find that the accounts finalised by each of those companies were inaccurate because, at the time the payments were made by the related entities, those related entities had further assets, being amounts owed to them. Similarly, in the case of the corporate plaintiffs, the accounts were inaccurate because they had further liabilities, being the amounts payable to the related entities. This seems to have been overlooked by the plaintiffs’ in their attempts to support their contentions (by way of the resolutions).
There is no legal principle which allows one entity, in this case a corporation, to recover as a loss an amount paid by another legal entity, in this case, another corporation, just because the payments were made by that second corporation so as to satisfy obligations of the first corporation.
No doubt Mr White, in the exercise of his control of the many companies of which he was seemingly the sole shareholder, determined when debts were paid and who paid the debts. He directed one company to pay another company's debts.
It does not seem to me that he can now be taken to have done so on the basis of loan agreements between the companies absent evidence to support that contention.
In the circumstances, the plaintiffs cannot recover the amounts in dispute because they did not pay those amounts, have no ongoing obligation to pay those amounts and have not established that they are liable to repay those amounts. Those amounts do not constitute a loss suffered by the plaintiffs. (collectively or individually).

Orders

The plaintiffs have not succeeded. They have not established that the defendant ought to have known that the defences, separate Boronia proceedings and Appeal proceedings, were hopeless and doomed to fail on or before the time or date nominated by them.
The orders I make are as follows:

Judgment for the defendant.

The plaintiff is to pay the defendant’s costs.

I grant liberty to apply on 3 days’ notice should either party seek a variation of the costs order.

Decision last updated: 23 July 2024

Medium Neutral Citation:	Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 3) [2024] NSWSC 888
Hearing dates:	27, 28, 29, 30 November, 1, 6 December 2023 and 9 April 2024
Date of orders:	23 July 2024
Decision date:	23 July 2024
Jurisdiction:	Common Law
Before:	Cavanagh J
Decision:	(1) Judgment for the defendant. (2) The plaintiff is to pay the defendant’s costs. (3) I grant liberty to apply on 3 days’ notice should either party seek a variation of the costs order.
Catchwords:	NEGLIGENCE – solicitors – plaintiffs retained the defendant to advise and appear in respect of claims against them in the District Court – plaintiffs failed in all proceedings – whether the defendant should have advised that the defences were hopeless and doomed to fail prior to their filing –effect of “no oral variation” clauses in Australia OCCUPATIONS – legal practitioners – solicitors –advising client – obligation of solicitor to advise client that defence has no reasonable prospects of success – effect of Legal Profession Uniform Law Application Act 2014 (NSW) sch 2 NEGLIGENCE – damages – where plaintiffs’ claim limited to costs paid for legal services and ordered costs in the District Court proceedings – where portion of these costs paid by companies unrelated to the proceedings but under the control of one of the plaintiffs – whether plaintiffs entitled to claim portion of costs paid by these “related entities”
Legislation Cited:	Civil Liability Act 2002 (NSW), ss 5A, 5B, 5D Legal Profession Uniform Law Application Act 2014 (NSW), sch 2 Uniform Civil Procedure Rules 2005 (NSW), r 51.9
Cases Cited:	Astley v Austrust Ltd (1999) 197 CLR 1 Attwells v Jackson Lalic Lawyers Pty Ltd (2016) 259 CLR 1 Bailey v Bailey (1924) 34 CLR 558 Bird v Ford [2013] NSWSC 264 Bird v Ford [2014] NSWCA 242 Bundanoon Sandstone Pty Ltd v Cenric Group Pty Ltd [2019] NSWCA 87 Degiorgio v Dunn (No 2) (2005) 62 NSWLR 284 Fink v Fink (1946) 74 CLR 127 Flynn v PPK Mining Equipment Pty Ltd (No 2) [2022] NSWSC 1640 Gokani v Visvalingam Pty Ltd [2023] NSWCA 80 Heydon v NRMA Ltd (2000) 51 NSWLR 1 Jones v Dunkel (1959) 101 CLR 298 Lemoto v Able Technical Pty Ltd (2005) 63 NSWLR 300 MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2018] 2 WLR 1603 Roads and Traffic Authority of NSW v Dederer (2007) 234 CLR 330 Royal Society for Prevention of Cruelty to Animals (Victoria) v Holdsworth [2015] VSCA 243 Sara Stockham Pty Ltd v WLD Practice Holdings Pty Ltd [2021] NSWCA 51 Short v Delaney [1999] NSWSC 1293 Victorian X-Ray Group Pty Ltd v Malouf t/a Malouf Solicitors (No 2) [2024] NSWSC 887 White v Philips Electronics Australia t/as Philips Healthcare [2019] NSWCA 115
Category:	Principal judgment
Parties:	Victorian X-Ray Group (Dandenong) Pty Ltd (First plaintiff) Victorian X-Ray Group (Boronia) Pty Ltd (Second plaintiff) Bevyn Thomas White (Third plaintiff) Anthony Malouf t/a Malouf Solicitors (Defendant)
Representation:	Counsel: M Luitingh (Plaintiffs) A Avery-Williams with P Boyle (Defendant) Solicitors: Jane Button & Associates Pty Ltd (Plaintiffs) Sparke Helmore Lawyers (Defendant)
File Number(s):	2021/139605
Publication restriction:	None