Westcoast Clothing Company Pty Ltd v Freehill Hollingdale & Page
[1999] VSC 266
•30 July 1999
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION Do not Send for Reporting Not Restricted
No. 4627 of 1999
| WESTCOAST CLOTHING COMPANY PTY LTD | Plaintiff |
| V | |
| FREEHILL, HOLLINGDALE AND PAGE (A FIRM), | 1st Defendant |
| ISAAC ALEXANDER BROTT LACHLAN MACINTOSH FLINT WATTS | 2nd Defendant 3rd Defendant |
---
JUDGE: | Smith, J. | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 4 to 31 March, 1999, 7 to 22 April 1999 | |
DATE OF JUDGMENT: | 30 July 1999 | |
CASE MAY BE CITED AS: | Westcoast v Freehills & Ors | |
MEDIA NEUTRAL CITATION: | [1999] VSC 266 | |
| Negligence – solicitors – agent – barrister – action dismissed – contributory negligence – Hungerfords’ damages |
APPEARANCES: | Counsel | Solicitors |
For the Plaintiff | Mr. P. Galbally Q.C. with Mr. R. Cook | S. V. Winter & Co. |
| For the 1st Defendant | Miss C. McMillan | Ebsworth & Ebsworth |
| For the 2nd Defendant | Mr. J. Sher Q.C. with Mr. B. Fitzgerald | Minter Ellison |
| For 3rd Party | Miss A. Ryan | Arthur Robinson & Hedderwicks |
HIS HONOUR:
Introduction – the proceedings
In these proceedings the plaintiff Westcoast Clothing Company Pty Ltd ("Westcoast") seeks damages from the defendants for losses alleged to have arisen out of the dismissal of proceedings that it had brought in the Supreme Court of Western Australia against the Sail America Foundation for International Understanding ("Sail America"). The Western Australian proceedings were commenced on 20 February 1987 and dismissed on 7 September 1994. They concerned a claim for damages for alleged breach of a contract between Westcoast and Sail America and for alleged fraudulent misrepresentations by Sail America.
Westcoast conducted a business as a clothing manufacturing and wholesaler. Its chief executive was Mr Bodis (“Bodis”). Sail America ran the "Stars and Stripes" syndicate during the America’s Cup Challenge in Freemantle in 1986 and 1987. It successfully defeated all other challengers and won the final against the defending Australian yacht in early 1987.
For the purposes of issuing the writ and the initial injunction application Westcoast had engaged the services of Western Australian practitioners; namely, Stables and Co, solicitors, and Mr Pullen of counsel. By 1 April 1987 the second defendant, Brott, had become involved in the matter. On that date he wrote to Westcoast stating he was awaiting the receipt of documents. Stables and Co, however, were directly retained in Western Australia by Westcoast. On 20 May 1987 Brott delivered the first of several briefs to the third defendant Watts. On this occasion the brief was to advise, to amend, to draw further and better particulars, to draw requests for further and better particulars of defence, to draw plaintiff’s interrogatories and to draft a reply to correspondence. On 21 May 1987 Westcoast advised Stables and Co that all materials had been referred to Brott and in future Stables and Co were to act on instructions from Brott. On 7 August 1987 Stables and Co were advised by Westcoast that they were no longer to act for Westcoast. On 14 August 1987, Brott retained the first defendant Freehill, Hollingdale and Page (“Freehills”) to act in the matter. A file note made at the time by Freehills, of the relevant phone conversation with Brott noted that accounts were to be rendered monthly to both Westcoast and Brott and that Brott accepted that he was principally liable. In a letter of instructions from Brott to Freehills, Brott stated
"please act as agents only in the matter. . . . Please file notice of change of practitioner, contact our client and this office to confirm instructions. "
The lawyers thus engaged by 14 August 1987 continued to act for Westcoast until the action was dismissed in September 1994.
To understand the issues that arise in the present proceedings it is necessary to have an understanding of the contract between Westcoast and Sail America and the issues raised in the Western Australian proceedings between Westcoast and Sail America. It is also necessary to identify significant events in the handling of that case. Agreement between Westcoast and Sail America
On 21 October 1986 Westcoast and Sail America entered into an agreement whereby Sail America granted Westcoast, for a period of 12 months from the date of the agreement,
"the sole and exclusive right in the licensed territory to copy, reproduce, use or apply the licensed marks to the licensed products and to sell the licensed products by wholesale. " (Clause 2)
The ‘licensed territory’ was defined as
"Australia but excluding any premises or sites situate in Mews Road, Marine Terrace and Esplanade Reserve, Freemantle and provided that the licencee shall not sell goods to retailers (other than chain or department stores) in the municipal area of Freemantle without the prior written consent of the licensor which consent shall not be unreasonably withheld. The licensor or its nominee shall have the sole and exclusive right to sell products of any sort or description bearing the licenced marks within the excluded area referred to above."
The "licensed marks" comprised two logos. The one of relevance to these proceedings comprised a representation of a yacht with a slightly tilted triangular sail with stars and stripes on it. Immediately below the yacht the words "Stars and Stripes" were set out in large letters between two sets of double lines. The yacht was presented as being on the surface of lines above the words "Stars & Stripes". In addition the words “America’s Cup 87” were written in an arc on either side of the representation of the yacht with the word "America’s" on one side and "Cup 87" on the other side.
"Licenced products" were defined as "textiles, clothing and wearing apparel, food, toys, furniture, posters, tobacco products and accessories to tobacco products".
Pursuant to cl.3 of the agreement Westcoast was obliged to pay Sail America a royalty of ten per cent of the total net selling price of the licensed products bearing the licensed marks sold by it. By cl. 5.1 Sail America undertook to take all steps necessary to maintain trade mark applications in respect of the licenced marks and by cl.6 the plaintiffs agreed to a procedure to deal with the problem of infringements or threatened infringements of the licensed trade marks. This required both parties to consider "the nature and extent of the infringement" and obliged them to take such action by way of proceedings as agreed by them from time to time on such terms and conditions as they agreed.
Clause 10 of the contract also contained warranties on the part of Sail America.
"10 WARRANTIES AND INDEMNITIES
(a)The licensor represents and warrants and undertakes with the licensee as follows:
(i)It is entitled to be the owner of the entire right, title and interest in and to the licensed marks and has full power to grant this licence free of any encumbrance.
(ii)That it has not assigned, granted or let any licence or right whether exclusive or not to any third party whereby the licensee would be prevented from making, using, exercising or vending its rights hereunder.
(iii)The use of the licensed marks in the licensed territories shall be free of any infringement of trade mark of any other person.
(iv)The licensor shall not directly or indirectly permit the licenced marks to be used outside the licenced territory on any goods which are or may to the licensors knowledge be exported to the licenced territory or any part thereof. "
The Western Australian Proceedings
On 5 February 1987, Westcoast commenced proceedings against Sail America seeking, inter alia, a Mareva injunction and damages. The statement of claim, as originally drawn, alleged that in breach of the term of the agreement conferring the exclusive license, (Clause.2), Sail America had
"prior to the execution of the agreement and thereafter granted to other . . . persons a right in the licensed territory to copy, reproduce, use or apply the licenced marks to the licenced products and to sell the licensed products by wholesale. "
It also referred to the warranty contained in clause 10 (a) (ii) (see above) of the Warranties and Indemnity clause (but not the others) and alleged that Sail America had at the date the licence was granted to Westcoast
"granted a licence or right to other parties whereby [Westcoast] was prevented from exercising or vending its rights as exclusive licensee under the agreement. "
The immediate purpose of the commencement of proceedings was to seek a Mareva injunction to restrain Sail America from removing its yachts and other assets from the jurisdiction pending the hearing of a claim for damages arising out of alleged breaches of the above warranties. Westcoast also sought leave to issue and serve the writ on Sail America in Nevada, USA.
The leave and injunction applications came on for hearing before Mr Justice Franklyn. On 6 February 1987, his Honour dismissed the application. He found that the evidence showed that Sail America
"had on one prior occasion granted a licence to a third party to use and sell the licenced marks and products and that third party had authorised a sub-agent to exercise that licence, such agent in fact doing so in competition with the plaintiff in Australia".
He held that that fact became known to the plaintiff in late October 1986. He held further that
"in December 1986 the plaintiff became aware that a further party was selling the same licenced marks and products under a licence granted by the defendant and in competition with the plaintiff. "
His Honour then went on to note that the statement of claim pleaded that Sail America had at the date upon which the licence was granted to Wescoast granted a licence or rights to other parties depriving the plaintiff of its exclusivity. His Honour commented:
"It is thereby made clear that he is relying on the previous assignment and not on the possibility of any assignment made after the entry into the contract and covenant, or the warranty. "
His Honour went on:
"The plaintiff’s claim is based solely on an allegation of the grant of a competing licence or right prior to entry into the contract relied upon and prior to the making of the warranty. In my view, accepting that to be the fact, the defendant’s conduct complained of cannot be characterized as a breach of contract but rather as a false representation which, although if made fraudulently might entitle the plaintiff to damages, would not entitle him to damages on the basis set out in the plaintiff’s affidavit in support of his application in this matter. ".
His Honour then commented that there was "no allegation of fraudulent misrepresentation” and "no unequivocal evidence in support of such an allegation in the affidavit". As a result he said he was satisfied that the statement of claim did not disclose "a good arguable case to support the claim for damages". He refused leave to issue the writ and declined to grant the injunction. He concluded with the observation that the decision was founded on the pleadings as they stood. After further argument, he ordered that the application for the injunction be dismissed and adjourned the motion for leave to issue and serve the writ out of the jurisdiction. This was done to give Westcoast the opportunity to amend the statement of claim. Times were set.
Counsel then acting for Westcoast was asked by it to consider the pleadings and to provide an amended statement of claim. He did so and subsequently a writ was issued containing a modified statement of claim. It repeated the above pleadings and introduced some changes. The first was a new clause, paragraph 4A. It provided:
"4A. It was an implied term of the agreement that the defendant would not derogate from the exclusive licence granted by it to the plaintiff. "
Paragraph 6 of the statement of claim was set out in more detail with specific allegations of the grant of licences by Sail America to Winterland Productions, an American company, and Star Struck Enterprises an Australian business, the former before the Westcoast contract, the latter before or after the contract. A pleading of fraudulent misrepresentation was included. It was alleged that, to induce Westcoast to enter the agreement, Sail America had represented to Westcoast that
" (i)the defendant was then capable of granting to the plaintiff the exclusive rights which are referred to in the agreement and
(ii)the defendant then had the intention that no other such rights had or would be granted to any other person ("the representations"). The representations were made orally to the plaintiff’s officer Jozsef Bodis by the defendant’s servant and agent Steven Soares in or about October 1986 but prior to the 21st October 1986. "
It also pleaded that the representations were repeated when the defendant’s solicitors proffered to the plaintiff for execution the agreement containing clause 2 and 10. Westcoast pleaded that the representations were made:
"well knowing that . . . it had granted the licence to Winterland Productions . . . and well knowing that it intended to grant to other parties the rights granted exclusively to the plaintiff or acted recklessly not caring whether the representations were true or false". (cl.12)
The particulars that were given of that allegation were as follows:
"The defendant’s servant or agent Purdon authorised Steven Soares to execute the Agreement at a time when Purdon knew that a licence had been granted to Winterland Productions as pleaded in para 11. The plaintiff cannot presently give particulars concerning the Defendant’s intention to grant other parties rights. Particulars will be given after the Defendant answers interrogatories. The Defendant’s intentions can however be inferred from the fact that it had already entered into the agreement with Winterland Productions. "
It further alleged that Winterland Productions and Star Struck Enterprises had exercised the rights granted to them by Sail America under their respective agreements. It also expanded the pleading of the allegation of breach of the warranty not to assign, grant or let any licence to allege that Sail America had already done so with Winterland Productions.
Prior to the filing of the writ and amended statement of claim on 20 February 1987 , negotiations had taken place between Westcoast and Sail America which resulted in Sail America, through Westpac Banking Corporation, providing to the plaintiff a bank guarantee in the sum of $400,000. It was for an indefinite term and was supported by an indemnity provided to Westpac Banking Corporation by Sail America and by two individuals Malin Burnham and Dennis Connor.
Sail America filed a defence. It is relevant to note that while it denied the major allegations in the statement of claim, and, in particular, that it breached any terms of the agreement.
(a)It admitted (para 4(a) and 10(a) )that prior to 21 October 1986 it had entered into an agreement with Winterland Productions granting it certain rights including the right to use certain licenced marks referred to in the agreement between the plaintiff and the defendant.
(b)It denied entering into an agreement with Star Struck Enterprises or any other Victorian company.
(c)It alleged that unknown to it, Winterland on a date unknown to it, entered into an agreement with Ashock Pty Ltd whereby Winterland granted to Ashock Pty Ltd certain of the rights granted by the defendant to Winterland.
It alleged that "in point of law" the agreement with Winterland Productions did not constitute a breach of any warranty and denied that Westcoast was prevented from exercising or vending its rights under the agreement.
Sail America also raised a specific defence, namely, that there had been a settlement agreement reached between Westcoast and Sail America under which Sail America and Westcoast varied the agreement to allow the plaintiff to sell the licensed product in the area previously excluded from the licensed territory and that thereafter Westcoast had sold and attempted to sell the licensed products within the expanded area of the territory.
The pleadings remained in this state for the remainder of the life of the Western Australian proceedings. It is important to note that the inclusion of cl.4A in the statement of claim did not address the view of the matter that, rightly or wrongly, had troubled Mr Justice Franklyn, namely, the fact that the terms relied upon imposed an obligation in the future and that the acts of Sail America complained of by Westcoast had occurred prior to the agreement being entered into by the parties. Thus the only amendment that purported to address the fundamental difficulties seen by Mr Justice Franklin was the pleading of fraudulent misrepresentation. As noted above the possibility of such a pleading had been flagged by his Honour in his reasons for dismissing the application for the injunction.
The Western Australian action – Interlocutory history
It will be necessary in considering the issues of liability and contribution between the defendants to examine in some detail what was done by the lawyers acting for Westcoast. Before doing so it is of assistance to note the interlocutory activity between the parties after the hearing of the Mareva injunction.
10 April 1987
Application by Sail America for security for costs of $35,000.
Request by Sail America for further particulars of statement of claim.
Request by Westcoast for discovery from Sail America.
16 April 1987
Sail America request for discovery from Westcoast.
27 July 1987
Costs of the Mareva injunction application taxed at $1,356.10.
6 November 1987
Interrogatories filed and served by Westcoast for examination of Sail America.
22 January 1988
List of documents of Sail America filed.
28 January 1988
Affidavit of documents of Westcoast filed.
29 January 1988
Order obtained requiring Sail America to answer Westcoast interrogatories within 30 days.
19 February 1988
Sail America’s answers to Westcoast interrogatories.
3 March 1988
Interrogatories filed by Sail America for the examination of Westcoast.
30 March 1988
Summons by Sail America seeking answers to interrogatories from Westcoast.
12 April 1988
By consent order made compelling Westcoast to answer interrogatories of Sail America within 14 days .
19 April 1988
Summons issued by Sail America seeking security for costs returnable on 29 April 1988 (adjourned sine die).
16 May 1988
Sail America filed summons seeking answers to its interrogatories within 7 days and an order for dismissal..
17 May 1988
Westcoast provided Commonwealth Bank of Australia guarantee in the sum of $30,000.
25 May 1988
Westcoast answers to Sail America’s interrogatories filed.
26 May 1988
Costs order made against Westcoast on summons for answers to Sail America’s interrogatories.
No further steps were taken between the parties in 1988 or 1989. There was then no real inter party activity in 1990.
19 April 1990
Westcoast filed Notice of Intention to proceed.
16 August 1990
Freehills filed and served further and better particulars of amended statement of claim (they were supplied to Freehills by Brott on 16 December 1987).
No further steps were taken between the parties in late 1990 and early 1991. Some desultory activity between the parties occurred in 1991.
17 April 1991
Freehills requested Sail America, to provide within 14 days further discovery of financial records relating to the purchase and sale of various goods sold from its kiosk in Mews Road Freemantle between 21 October 1986 and 21 October 1987.
1 May 1991
Summons apparently issued by Westcoast seeking further discovery of the kiosk documents (adjourned sine die)
30 May 1991
Letter from Freehills to the solicitors for Sail America requesting provision of income tax returns of Sail America by way of discovery.
14 June 1991
Freehills sought response from Sail America to request for further discovery.
19 June 1991
Sail America’s solicitors advised Freehills that enquiries were being made.
Ten months later interparty activity recommenced.
28 April 1992
Summons for further discovery by Sail America returnable on 5 May 1992.
4 May 1992
Affidavit for further discovery sworn by Mr Bodis and delivered.
5 May 1992
Order by consent for further discovery relating to kiosk documents including taxation returns relating to kiosk sales.
19 May 1992
Freehills forwarded order to solicitors for Sail America.
22 May 1992
Supplementary list of documents supplied by Sail America.
16 July 1992
Freehills sought further discovery from Sail America of documents relating to the agreement between Westcoast and Sail America, the registration of trade marks, the negotiations between Sail America and Winterland Productions in relation to the licensing agreement dispute and its resolution and lawyers files relating to the same.
27 July 1992
Sail America sought an extension of time to respond to the 16 July 1992 request until 14 August 1992.
1 September 1992
Freehills wrote to the solicitors for Sail America demanding a response to the request of 16 July 1992 by 4 September 1992 and threatening an application for orders compelling a response..
14 September 1992
Freehills requested Sail America to supply discovery of taxation returns, Australian or otherwise, relating to the commercial activities carried on by Sail America in the Mews Road area and the Sail America compound during the America’s Cup Challenge.
22 September 1992
At about this time, the solicitor for Sail America raised with Freehills the possibility of settlement. Freehills added to the request for discovery a request for discovery from Westcoast of taxation returns and commercial records relating to the dealings of the crew and officials of the Sail America syndicate in products subject to the licence agreement.
1 October 1992
Partial response by Sail America to request for discovery.
13 October 1992
Mallesons on behalf of Sail America made an all-in offer of $10,000 to settle the action.
13 October 1992
Mallesons on behalf of Sail America declined to provide the discovery sought by the letters dated 14 September 1992 and 22 September 1992.
The offer made on `13 October 1992 was rejected. There was then no inter party activity for 11 months except that on 27 April 1993 Blake Dawson Waldron filed notice of change of solicitors for the defendant Sail America. Activity resumed in dramatic fashion in late 1993.
22 September 1993
Blake Dawson Waldron communicated an offer of $10,000 in full settlement of the claim including costs. It warned that if the offer was rejected Sail America would apply to have the action dismissed for want of prosecution.
29 October 1993
Freehills advised Blake Dawson Waldron of the rejection of the offer and that the case was being prepared for trial.
There was then no inter party activity for 6 months. Matters then came to a head:
28 April 1994
Summons by Sail America seeking order to dismiss the action for want of prosecution served on Freehills returnable 10 May 1994 together with supporting affidavits by Soares, Connor, Burnham and Taylor.
1 June 1994
Freehills filed notice of intention to proceed
8 June 1994
Affidavit in opposition for Westcoast filed and served.
23 June 1994
Orders made by Master concerning the filing of material in the dismissal application.
16 August 1994
Affidavit by L. Soares in support of dismissal application filed.
22 August 1994
Further affidavits filed by Sail America.
23 & 24 August 1994
Hearing of application for dismissal.
25 August 1994
Blake Dawson Waldron advised Freehills that Sail America would accept $10,000 in settlement of all claims and would apply for an increase in scale costs if Sail America were successful in the dismissal application.
7 September 1994
Judgment delivered in dismissal application. Action dismissed for want of prosecution.
Thus there was a period of three years material inactivity from 25 May 1988 until 17 April 1991 and two years of little or no activity from 19 May 1992 until 29 April 1994.
The Western Australian proceedings - the decision to dismiss
Master Adams published detailed reasons for his decision to dismiss the action on 7 September 1994. As to the history of the action the Master stated that:
1.No complaint was made of any material delay during the first 15 months of the action.
2.The defendant complained that from 25 May 1988 when the plaintiff delivered answers to interrogatories, until 17 April 1991 when the plaintiff requested further discovery, there was a delay of almost three years during which the plaintiff did no more than provide further particulars of the statement of claim on 16 August 1990. Those particulars had been requested by the defendant on 10 April 1987.
3.The defendant conceded responsibility for the delay of about one year in complying with the request for discovery on 17 April 1991 which was satisfied with a supplementary list of documents filed on 2 June 1992. The Master regarded this concession as a generous one in view of the correspondence during that period (I agree with that opinion).
4.No steps to progress the action were taken by the plaintiff after it obtained the consent order for discovery on 19 May 1992. Further discovery was requested between July 1992 and October 1992, that request was refused and the issue was not pursued.
5.The next step in the proceedings was taken by the defendant when it filed the application to dismiss the action on 29 April 1994.
The Master held that there had been a delay of some six years in the action since May of 1988, reduced to five years in light of the defendant’s concession. In that time the Master held that little had been done by the plaintiff to progress the action much less ready it for trial. The Master added that "coupled with that is the three year delay by the plaintiff in providing particulars of its statement of claim. "
The Master noted that there was a related complaint that the defendant sought particulars of damages in February 1987. Some were provided in Mr Bodis’ affidavit of 7 June 1994 for the first time more than 7 years after the request was made but they were incomplete in that they failed to disclose total clothing sales, sales of other products or details of discounted sales.
The Master found that there was a very long delay on the part of the plaintiff and that it was inordinate.
He then turned to the question of whether it was excusable. He stated that the only explanation offered for the delay was that it was due to the plaintiff’s lawyers. He held that the involvement of the Melbourne firm as principal solicitors seemed to have had much to do with the delay that occurred saying that the geographic realities meant that there was a considerable amount of correspondence between the Perth and Melbourne solicitors. He noted that a further factor was the briefing of Melbourne counsel by the Melbourne solicitors and that a consequence of the plaintiff having three sets of legal advisers was that even the simplest interlocutory application became a protracted matter. The Master expressly stated that he could not determine who was at fault amongst the lawyers indicating that there was insufficient on the papers before him to enable him to do that. He held, however, that the plaintiff was not unaware that his lawyers were dragging their feet. He appeared to accept the evidence in an affidavit of Brott that Bodis had been in touch with Brott and counsel in Melbourne on a regular basis either to ask what was happening or to complain about the delay. He held that, therefore, although the client was not directly responsible for the delays he was aware that it was occurring and had the power to do something about it. He held also that the plaintiff had to accept responsibility for delay due to the cumbersome arrangements between its lawyers. He held that there was no explanation for that arrangement. He went on to hold that the plaintiff had to accept responsibility for his lawyers’ failure to proceed diligently with the action. As a result he held that the delay was inexcusable.
The Master then turned to the issue of prejudice. He referred firstly to the financial position of Sail America and how for a variety of reasons it had become insolvent and consequently had no funds to meet any damages awarded or to fund the cost of the litigation. He held that the defence was being effectively run by Mr Burnham and Mr Connor because of the indemnity they had given to Westpac in respect of the bank guarantees. The Master held that the situation was that Messrs Connor and Burnham would not have been exposed to this liability if the case had been brought to trial in a reasonable time and that the prejudice to them caused by the delay was something that the court could take into account. He said that the action could and should have been tried before 1992 and that while it could not be said that the delay in the litigation had given rise to the insolvency it was a change of circumstance giving rise to possible prejudice that arose after the time when the action could reasonably have been expected to be tried.
The second item of prejudice was the bank fees relating to the $400,000 guarantee which had been costing the defendant $8,000 per year. Some $64,000 has been paid up to that date $24,000 by the defendant prior to its insolvency and the balance by Messrs Connor and Burnham. In view of the fact that the action was not ready for trial, and Westcoast proposed to amend its statement of claim, the Master thought that it could be assumed that it was unlikely that the matter could be tried for a further 18 months with the result that further bank guarantee fees would be incurred. He noted that such fees would be irrecoverable even if the defendant won the action.
The third item of prejudice identified by the Master was the loss of or unavailability of three witnesses, Lynn and Steven Soares and Judy Connor. They were responsible for the retail operations of Sail America during the America’s Cup Challenge in Freemantle and were relevant witnesses for the defendant on the question of damages and the defence of compromise. He held that Mr Soares was not available to travel to Australia for 18 months, Mrs Soares was not available to travel within the next few years because of a young family and Mrs Connor, divorced from Mr Connor, was no longer interested in assisting the defendant. He held that the witnesses would have been available and willing to travel to Australia prior to 1992. He held that these witnesses were important witnesses. The Master also held that there was a substantial risk that witnesses would not be available to the defendant if the matter did come on for trial in 18 months time. He held that their unavailability was a consequence of the plaintiff’s delay. The Master also upheld the defendant’s argument that general prejudice flowed from the difficulty of locating witnesses in Australia to give evidence as to the likely market for the product and the impact of time on the memory of all witnesses. The Master held that this had diminished the capacity of the defendant to fairly and properly defend the action and constituted serious prejudice which would justify the court in "contemplating dismissal for want of prosecution".
The Master then turned to the question of hardship to the plaintiff. He noted that it was common ground that if the action was dismissed the plaintiff would be unable to bring fresh proceedings because the limitation period had expired. The defendant, however, sought to rely upon the fact that the plaintiff had in the course of the hearing withdrawn the claim for fraudulent misrepresentation and argued that as a result the statement of claim was essentially in the same form as that which Franklyn, J. had considered on 6 February 1987 and had suggested did not disclose a cause of action. The Master held that there were no other matters relied upon in the amended statement of claim other than the fraudulent misrepresentation allegation which would “in any way distinguish the pleading from that dealt with by Franklyn, J.”. In particular the new paragraph 4A which raised an implied term not to derogate from the exclusive licence did not materially change the situation in his view. He held that on the materials before him the plaintiff’s claim was still based solely on an allegation of the grant of a competing licence prior to the execution of the licensing agreement. Counsel for the defendant argued that this could not involve a breach of the pleaded term in para 4A as that had to relate to the conduct of the defendant after the grant of the licence. He referred to an argument by counsel for the plaintiff that the evidence disclosed that the defendant was in breach of an express warranty as to title to grant an exclusive licence or a collateral warranty having a similar effect. The Master said that the difficulty with that argument was that there was nothing in the pleadings to raise an allegation of breach of warranty as to title express or otherwise. The Master said he found himself in “complete agreement” with Franklyn, J. and that as the claim for fraud had been withdrawn the pleadings did not disclose an arguable case for damages. Therefore, on the then pleading the plaintiff’s case could not succeed at trial. He stated that counsel had indicated that the plaintiff wished to amend the statement of claim but was unable to indicate the nature of those amendments. The Master noted that the plaintiff was not without remedy in that the delay appeared to have been the responsibility of one or more of his lawyers.
The Master then analysed the conduct of the defendant more closely concluding that the delay in giving discovery for one year related only to the sales of products from the defendant’s kiosk in Freemantle and that the delay had not prevented the plaintiff obtaining witness proofs and taking other steps necessary for trial until the discovery was obtained.
The Master concluded that in all of the above circumstances the case was very much one that ought to be dismissed for want of prosecution. He then listed other considerations which reinforced that conclusion.
(a)The defendant’s written warning in September 1993. He noted that this should have prompted the plaintiff into action but it did not. This strengthened the position of the defendant.
(b)The plaintiff had obtained the posting of a bond. Such a plaintiff has a clear responsibility to attend diligently to the prosecution of the action and must be prepared to suffer the consequences when it does not.
(c)The inadequate particularisation of the plaintiff’s claim for damages despite the fact that the case was now 7 years old.
(d)If the action were to go to trial it would not take place until more than 9 years after the events in question. The fair trial would not be possible because it would be difficult for the defendant to counter the plaintiff’s evidence particularly about the market. He referred again to his conclusions about the difficulties facing the defendant in obtaining witnesses’ assistance from America.
(e)Finally he referred to the effects of Rule 4A and 4B of the Rules of the Supreme Court which came into effect on 26 March 1993 dealing with case flow management in the court and the emphasis they placed on the substantial public interest in eliminating unnecessary delays in determining proceedings before the court. He noted that the plaintiff took no steps in the proceedings during 1993 and early 1994. He raised issues about the full ramifications of the new rules but did not express any concluded views stating that the failure to take steps to progress the action during 1993 and early 1994 was a further compelling reason why the action should be dismissed.
Liability in these proceedings - Freehills
Westcoast pleaded its case against Freehills on the basis that there was an agreement between the plaintiff and Freehills entered into in about October 1987 whereby Freehills was retained to act on its behalf through the agency of the second named defendant Brott. The plaintiff has not pleaded a case that any such agreement arose at a later date, for example, when a fee agreement was entered into on about 5 May 1992.
I am satisfied that at the time relied upon in the pleading, the agreement that was made was one between Brott and Freehills with Brott as the principal and Freehills as his agent. The plaintiff was the person whose interest were to be served by the agreement between Brott and Freehills but it was not a party to that agreement. Accordingly I am satisfied that the plaintiff’s claim against Freehills cannot be put as a contractual one.
In the alternative, the plaintiff alleged that Freehills owed a duty of care to it while engaged as Brott’s agent in the Western Australian proceedings. The plaintiff argued that the obligations of Freehills extended beyond the parameters of the specific instructions given to it by Brott. It was put that it had an overriding duty to ensure the well being of the litigation from the ultimate client’s point of view so that if any matters came to its attention which could cause economic loss to the plaintiff it was obliged to exercise reasonable care in addressing those matters. A number of particulars of breach of that duty have been pleaded by the plaintiff, particulars common to a large extent with those pleaded against the other defendants. Before considering them, however, it is necessary to resolve issues raised by Freehills in its attempt by it to limit the scope of the duty of care.
Freehills did not dispute that a duty of care arose. It argued however that its duty of care to the plaintiff was confined to doing that which it was retained to do as agent or specifically asked to do by its principal during the retainer as agent. It relied on the well known formulation of Oliver, J. in Midland Bank v Heff Stubbs and Kemp (1979) Ch. 384 at 402-3 where the solicitors’ duties were described in the following terms:
"The extent of his duties depends on the terms and limits of that retainer and any duty of care to be implied must be related to what he is instructed to do.
Now no doubt the duties owed by a solicitor to his client are high, in the sense that he holds himself out as practising a highly skilled and exacting profession, but I think that the Court must beware of imposing upon solicitors - or upon professional men in other spheres - duties which go beyond the scope of what they are requested and undertake to do. It may be that a particularly meticulous and conscientious practitioner would, in his clients general interest, take it upon himself to pursue a line of enquiry beyond the strict limits comprehended by his instructions. But that is not the test. The test is what a reasonably competent practitioner would do having regard to the standards normally adopted in his profession, and cases . . . demonstrate that the duty is directly related to the confines of the retainer.
It also referred to the analysis of Deane, J. in Hawkins v Clayton (1988) 164 CLR 539 at 579 where his Honour stated that the relationship of solicitor and client
"is a relationship of proximity of a kind which may well give rise to a duty of care on the part of the solicitor which requires the taking of positive steps, beyond the specifically agreed professional task or function to avoid a real and foreseeable risk of economic loss being sustained by the client. Whether the solicitor - client relationship does give rise to a duty of care requiring the taking of such positive steps will depend upon the nature of the particular professional task or function which is involved and the circumstances of the case. "
(Deane, J.’s views were approved by Priestley, J.A. in Cousins v Cousins (Court of Appeal NSW, 18 December, 1990, unreported (at 12 and 13) and it would seem by Sheller, J.A. (for the Court) in City Corp Australia Ltd v O’Brien (1996) NSWLR 398 – 413. Counsel also submitted that care must be exercised to ensure that the conduct is not judged with the benefit of hindsight. It must be judged in the light of the circumstances at the time the conduct in question occurred.
Freehills and the other parties appeared to assume that the above approach, which on the above authorities applies in determining the duty of care owed in tort by the principal solicitor to the client, is applicable in determining the duty of care owed by the agent to the principal client.
Counsel for the plaintiffs did not cite authority to support its argument. Other counsel did cite relevant authority. In particular counsel for the third defendant referred to a decision of Hedigan, J. in the matter of Ergopex Pty Ltd and others v Meerkin and Atel (A Firm) (1996) V Conv R 54-550 where his Honour brought together the authorities relevant to the question of the scope of the duty of care owed by the solicitor to the client.
His Honour referred to the above passages from Oliver, J. and Deane, J.. He also referred to a passage from the reasons for judgment of Mason, C.J. and Wilson, J. in Hawkins v Clayton (1988) 164 CLR 539 at 544 where their Honours indicated that they found it
"helpful to start with the contract under which the will was drawn and retained in the custody of the respondents. It is that contract which ‘indicates the nature of the relationship that gives rise to the common duty of care’. "
Another passage cited by Hedigan, J. was from the judgment of Brennan, J. in Leary v Federal Commission of Taxation (1980) 32 ALR 221 at 239 where the lawyers professional duty was described as:
"to give advice as to the meaning and operation of the law and to render proper professional assistance in furtherance of the client’s interest within the terms of the client’s retainer. "
In elaborating upon the nature and extent of the duty of care his Honour also relied upon a decision of the Full Court of the Federal Court of Australia in the matter of Fox v Everingham (1983) 76 FLR 170 at 178 - 9 where it was stated that:
"in cases such as the present (acting for the buyers of a house in the course of construction when the contract was signed) a solicitor is paid not only for what he in fact does, but also for the responsibility he assumes in trying to protect clients from financial loss if things go wrong. "
The final case cited by his Honour, one of particular relevance to the issues in the present case, is the decision of Waimond Pty Ltd and Another v Byrne (1989) 18 NSWLR 642. The majority (Kirby, P. and Hope, A.J.A.) held a solicitor negligent while acting for more than one party in a transaction. Kirby, P. (at 652) commented on an attempt to limit the solicitors duty strictly to the scope of his retainer. He commented that this attempt was
". . . inconsistent with the holding of the High Court in Hawkins It attempts to confine the duty of care to a contractual format. And as the majority established in that case that duty lies also in tort. The consequences of tort liability may not be the same as a contractual liability. Although the contractual retainer will be an important indicium of the nature of the relationship which gives rise to the common law duty of care (as the minority held in Hawkins), it will not chart exclusively the perimeters of that duty. Deane, J. pointed out (579) that, depending upon the circumstances of the particular case the duty may require the taking of positive steps ‘beyond the specifically agreed professional task or function’, where these are necessary ‘to avoid a real and foreseeable risk of economic loss being sustained by the client’. This court is bound to conform to the majority holding in Hawkins. I therefore do not agree that Oliver, J.’s definition of the scope of the duty applies. It is a remnant of the earlier view expressed in Groom v Crocker that the liability of the solicitors to a client derives exclusively from the contract between them. That notion of a solicitor’s duty is now exploded. It should not be reintroduced by the back door of Oliver, J.’s approach to the definition of the content of the duty of care owed in negligence.”
Counsel for the third named defendant submitted that what President Kirby said was particularly relevant to the argument advanced on behalf of Freehills in the matter before me in that Freehills was really seeking to narrow the duty of care to one where they were under a duty of care to do no more than that which they were asked to do within the scope of the retainer. Counsel for the third named defendant submitted that the actions and inactions of Freehills have to be tested by reference to the question of what steps should have been taken to prevent a foreseeable economic loss to Westcoast. I note also counsel’s argument that the common law duty imposed on Freehills could override the duties and obligations imposed by the contract. No direct authority was cited in support of the argument and it appears to me to be inconsistent with the authorities cited above which require consideration of the terms of the retainer in determining the scope of the duty of care. The two duties were likely to clash where Freehills had concerns about the way Brott was handling the matter and could not receive adequate assurances of improvement. In that situation, bearing in mind it could not, in my view (see below), initiate contact with Bodis without breaching its retainer with Brott, it could probably do no more than threaten to resign, if appropriate action were not taken, and ultimately resign if it was not. If, however, Brott organised meetings with the client it would have been proper to air its concerns at such meetings.
Returning to Freehills’ argument, it submitted that when one goes back to the evidence of what work Freehills did and what Freehills was instructed to do the conclusion should be drawn that they were under "the umbrella" of their principal and that they were told what to do by him and had very limited exposure to Bodis directly. Counsel conceded, however, that it is necessary to look at the circumstances as they unfolded in determining the way in which Freehills was required to discharge the duty of care owed to the plaintiff. Reliance was placed on the evidence of Ley who was then a solicitor and an employee of Freehills. Anything he did, for example, contacting counsel or sending letters to the client, was with the express authority of Brott and it was made very clear to Freehills by Brott that he was controlling the litigation and making the tactical decisions. In short, it was put for Freehills that the duty was limited to one of acting with skill and care in carrying out that which Freehills was instructed to do by Brott as the principal solicitor. It was conceded, however, that if they were asked to do something which they believed could not be done in Western Australia they would be obliged to advise Brott of that fact. The question of the issuing of a summons for final judgment was cited as a good example. It was also conceded that Ley used his professional judgment in relation to the discovery of documents where he questioned whether discovery of the kiosk financial documents was obtainable. In each instance it was put, however, that in commenting on the proposals to Brott he was acting within the scope of the retainer of Freehills. In the case of the summons for final judgment, it was argued that the advice given was not as to the merits of the application but rather the procedural difficulties. It was put that the reference in the relevant letter to the fact that the application for judgment in the opinion of Freehills would not succeed was simply a reference to procedural matters. In my view this analysis is not correct. Freehills was expressing an opinion on the merits which it had not been asked to do. I note that Brott did not criticise it for its initiative at that time. Counsel submitted that it could not have anything to do with the merits because Freehills didn’t have any material. That argument cannot be sustained. Freehills had the pleadings, Franklyn, J.’s expression of views and the issues that he raised leaving the issue of fraud only. It also had the affidavits on the Mareva injunction application.
A review of the activities of Freehills and Brott in the matter supports one aspect of Freehills’ case, namely, that it was not to deal directly with the client unless expressly instructed to do so. Freehills were also expected to act when asked by Brott to do something. Freehills, however, never acted as a letter box or a machine which automatically carried out the instructions of Brott. It always exercised its own judgment and from time to time proffered advice and suggestions in light of its examination of the matters raised. Freehills also saw fit to exercise its judgement in other ways. For example, initially it reviewed the file and advised Brott on the state of the action. On 18 April 1990, having late the previous year been asked by Brott to accelerate the action and complete all interlocutory steps, Freehills drew Brott’s attention to the fact that notice of intention to proceed was required because one year had elapsed without a step being taken in the actions. It also felt entitled to question Brott’s instructions and to seek sufficient instructions to enable it to understand what was required and to express its own opinions about the likely success of applications - such as the kiosk documents and tax return discovery issues. In relation to the summons of final judgment correspondence, Freehills volunteered its own view as to the likelihood of success on the merits. At no time did Brott suggest to Freehills that it was inappropriate for Freehills to exercise its own judgment on the merits of issues he was raising with them. His only major complaint occurred in August 1991 when Freehills was pressing him for instructions. He complained of badgering. Another example of Freehills exercising its professional judgment was the letter of 5 February 1992 where it alerted Brott to its concern that inaction in the matter might mean that Sail America would seek to have the claim dismissed for want of prosecution or to have the guarantee released and that a continuation of the then delay would make such orders more likely.
The question whether Freehills was in breach of the duty of care it owed to the plaintiff is to be determined in light of the terms of its retainer with Brott and the circumstances as they evolved. The duty of care was not confined in the manner submitted by Freehills. Ultimately, the obligation on the part of Freehills to the plaintiff was to exercise reasonable care and skill in the course of its retainer as agent of Brott to take all reasonable steps to avoid any real and foreseeable risk of economic loss being sustained by Westcoast. I accept, however, that its retainer prevented it initiating direct communication with the plaintiff without the instructions of Brott.
I turn then to the particulars of negligence alleged against Freehills. It should be borne in mind that each of the plaintiff and the other defendants emphasised different issues but generally adopted each other’s arguments concerning the liability of Freehills. Thus, except where I have indicated otherwise, the issues raised and arguments advanced are those of the plaintiff and the other defendants. I have taken the same approach in dealing with the issues of the liability of the other defendants because the other parties in each case took a similar approach.
Freehills’ liability – delay (statement of claim, particulars (a), (b) and (c) )
Counsel submitted that there was a failure to prosecute the action with any reasonable expedition and, in particular, a failure to deliver the particulars of the statement of claim for some three years even though they were in the possession of Freehills through that period.
Dealing with the latter point first, it was common ground that that delay of three years occurred but Freehills argued the failure to file and serve the further and better particulars did not in itself cause a delay in bringing the case to trial. Accepting the latter proposition, the delay was, nonetheless, a matter relied upon by the Master as an example of dilatoriness and, therefore, had an impact upon the decision that was made leading to the dismissal of the proceedings. It was one for which Freehills was responsible.
As to the general allegation, between July 1988 and December 1989, (18 months) there were no dealings between Freehills and Brott. It was put that it was incumbent upon Freehills to approach Brott to seek instructions. The facts are that on 27 June 1988 Freehills wrote to Brott seeking instructions about entering the matter for trial. On 13 July 1988 Freehills again wrote to Brott seeking instructions but did not raise the matter again. Ultimately, on 15 December 1989 Brott wrote to Freehills advising it of the client’s desire to accelerate the action and dealing with interlocutory matters that needed to be addressed including the pursuit of the kiosk documents. Counsel for Freehills submitted that the delay resulted from the failure of Brott to supply the instructions. While that was the primary problem I am satisfied that the agent in that situation should have persisted in seeking instructions to discharge its duty to the ultimate client. Delay disadvantages the client. An agent in that situation will be ignorant of the cause of the delay. It may have been caused by the client. The principal may, however, be inefficient or have overlooked the file. The agent should approach the principal to ensure it is not the result of oversight by the principal or the client. To allow almost 18 months to go by without seeking instructions was negligent particularly when, at the start of the period, it was thought the case could be set down for trial at that time.
That period of delay concluded when, on 15 December 1989, Brott wrote to Freehills advising it of “our clients” desire to accelerate the action. The letter advised of the wish to pursue the discovery of documents concerning the sale of goods from the kiosk and suggested that an application be made. Brott set out in his letter the possible contents of an affidavit previously drafted by Watts. The letter concluded saying
“once this application has been complete I would suggest this matter is ready to set down for trial immediately.”
There was no response from Freehills, however, for four months until, on 18 April 1990, Freehills wrote to Brott apologising for the “lengthy delay” in replying to the letter of 15 December 1989. It advised, inter alia, of the need to file a notice of intention to proceed and then to wait a further month before the discovery application could be pursued. The letter advised that the draft supporting affidavit would be prepared shortly and a copy sent to him for consideration. The notice of intention to proceed was filed that day.
Brott wrote a reminder letter on 17 May 1990, in particular, asking for a copy of the proposed affidavit. It seems, however, that Freehills had not done anything and on 8 June 1990, Ley of Freehills wrote to Brott stating that other commitments had prevented him from responding before that date. He stated he was leaving for overseas that afternoon but would return to the office on the 18th June and would respond to all queries in detail immediately upon his return. On his return, however, a further delay occurred and on 16 August 1990, Ley of Freehills wrote a three page letter to Brott dealing with a number of matters. He apologised for the delay in attending to the matter. In dealing with the question of discovery he raised a number of concerns indicating that he believed the application would fail but saying that if he was instructed to make the application he would do so. He sought instructions, however, on the precise grounds upon which it could be made. It seems that on 21 August 1990 Brott wrote to Freehills giving, inter alia, reasons why the documents sought were relevant. That letter, however, was not received by Freehills until October. In the meantime, on 3 September 1990 Brott wrote a reminder letter to Freehills relating to the discovery question which was apparently received on 6 September 1990. On 9 October 1990, Freehills received the letter from Brott of 21 August 1990. On 19 October 1990 Freehills replied to that letter from Brott. It referred to further difficulties it thought existed in trying to pursue discovery of the kiosk documents. Following further communications, Freehills wrote to Brott on 5 November 1990 indicating that it now had a better understanding of the basis on which discovery was sought but believed it may be difficult to persuade a court to make an order. It sought instructions as to whether it was to draw the affidavit along the lines previously sent in December of 1989 and drew attention to the practice of making a request for the discovery by correspondence before issuing proceedings. On 20 February 1991 Brott took Freehills to task in a letter about the failure to pursue discovery. In a conversation held on 17 April 1991, one year and four months after the original instructions, Brott instructed Ley to send a letter seeking discovery and to fax to Brott a precedent of the summons and affidavit required. Ley recorded Brott as saying that the application was largely tactical and that neither he nor counsel thought it would succeed. While the evidence is unclear it appears that the summons was filed in May of 1991 and resurrected a year later when the order for discovery was made by consent. It appears that the affidavit was not available in May of 1991.
Freehills submitted that the delay between December 1989 and April 1990 was not the reason the case was not entered for trial. Further it was put that the discovery application was not held up because of any delay by Freehills. It was submitted that it was delayed because instructions were not forthcoming from Brott and the failure to produce an affidavit in support of the application.
In my view it is plain on the evidence that Freehills was solely responsible for delay from the 15 December 1989 to 16 August 1990, delay for which it apologised to Brott. It had a draft of an affidavit. Pursuit of discovery was the activity preventing the setting down of the case for trial. Thereafter, until May of 1991 a combination of factors caused the delay which included some delay by Freehills and the inability of Freehills to appreciate the relevance of the documents sought to be discovered, a relevance ultimately conceded by Sail America with its consent to an order for further discovery in May of 1992.
The next period relied upon by the plaintiff and the other defendants is from August 1991 until February 1992. On 2 August 1991 Freehills had written to Brott seeking instructions on a number of matters and seeking them as a matter of urgency. This letter was responded to by letter of the 9th August 1991, the letter that has come to be known in the trial as the “badgering” letter, in which Brott complained about badgering from Freehills. On 28 August 1991 Freehills wrote to Brott explaining their position and denying any attempt to badger Brott. The letter records the fact that Brott would instruct Freehills to proceed when Westcoast provided instructions and of Brott’s belief that it would be inadvisable tactically to bring the matter on at that time. The letter confirmed that there was nothing for Freehills to do until instructions were received from Brott . On 5 February 1992 Freehills sought instructions again from Brott expressing its concern about the effect of the delay and the risk of the action being dismissed. On 18 February 1992 Brott sought copies of the pleadings from Freehills and events then led on to the meeting of Brott and Bodis with Freehills in May of 1992 in Perth.
In this instance it is difficult to suggest that Freehills’ want of reasonable care or skill contributed in any way to the delay over this period. It seems that tactical decisions played a major part, decisions in which Westcoast and Brott had a role. Further, Freehills were instructed not to do anything. Finally, the period in question was brought to an end when Freehills itself sought instructions from Brott on 5 February 1992.
It was put on behalf of the plaintiff that Freehills also failed to prosecute the action with reasonable expedition or at all between May 1992 and its dismissal on 7 September 1994. It was argued first that by early 1992 Freehills were concerned about the delay and communicated that concern to Brott. In late 1993 again the issue arose with the direct threat of a dismissal application if the matter were not settled. The plaintiff submitted that Freehills should have either in early 1992 or subsequently, delivered an ultimatum to Brott that unless proper instructions were given to bring the matter on for trial Freehills would withdraw from the matter. It was further argued that as a matter of probabilities, such action would have put sufficient pressure on Brott to have the matter expedited. He may well have been compelled to hand the matter over to the solicitors in Western Australia. It would have impressed Brott with the seriousness of the situation and Brott would have been obliged to advise his client. The client would then have been made alive to the dangers.
In addition two specific matters were raised. The first related to Freehills’ conduct in relation to the issue of the discovery of tax returns by Sail America.
On 7 August 1992 Brott instructed Freehills to seek tax returns relating to the kiosk and crew commercial activities in Freemantle. A further request was communicated to Freehills by Brott on 8 September 1992. On 14 September 1992 Freehills wrote to the then solicitors for Sail America seeking discovery of those documents by Monday 21 September. It advised Brott that that had been done by letter dated 18 September 1992. On 13 October 1992 Mallesons wrote to Freehills declining to give the discovery sought and Freehills advised Brott of that fact on the same day enclosing a draft summons and affidavit and seeking instructions to make the application. On the same day Mallesons also wrote to Freehills setting out an offer to settle the case for $10,000. On 19 October 1992 Freehills wrote to Brott seeking his instructions in respect of that offer and in respect of discovery. On 12 January 1993 Freehills wrote again to Brott seeking instructions regarding the outstanding discovery matters. On 16 February 1993 there was a discussion between Ley of Freehills and Brott. It appears from the letter subsequently sent by Freehills on the same day that they were instructed to take no further action in relation to the above discovery matters at that point.
It is put that both solicitors were at fault; they should have either abandoned the issue earlier or proceeded with it but they should at least have done something. Matters were allowed to drift on.
Freehills submitted that the problem was a lack of instructions. This is true up to a point but Freehills in view of its concern about delay and possible dismissal of the action should have pressed for instructions between October 1992 and the end of the year. During that period it redirected a large bill of Watts to Brott.
Freehills was also criticised over its handling of the summons for final judgment. It was put that Freehills agreed, on 5 May 1992, that it would be a good idea to issue a summons for final judgment. It was argued that subsequently, Freehills prepared the brief for Watts to advise in a number of matters. I will refer in more detail to those matters later. The instructions to Watts did not include the preparation of a summons for final judgments. That was a matter in which Brott himself instructed Watts in July 1992. By May of 1993 Brott had sent a copy of the summons for final judgment and draft affidavit to Bodis. On 22 June 1993 Brott apologised to Freehills for a long delay in replying to it. It would seem that there had been no contact between Freehills and Brott since a telephone conversation on 16 February 1993 and a letter from Freehills to Brott of 3 May 1993 confirming that Brott was presumably still awaiting a response from Watts dealing with a question concerning one of Watts’ fees and advising of the change of solicitor for Sail America. In a letter of 22 June 1993 Brott advised Freehills that he now had a draft summons for final judgment and supporting affidavit from Watts. Freehills replied on 8 July 1993 making no comment on the summons for final judgment but acknowledging receipt of the letter. On 13 August 1993 Brott spoke with Ley to seek information about the required procedures in Western Australia for the summons for final judgment. The conversation lasted some 15 minutes. On 13 August 1993 a copy of the summons was forwarded to Freehills with advice that the affidavit and exhibits were being settled and would be forwarded for swearing by Bodis. On 17 August 1993 Freehills wrote a letter to Brott explaining the procedures and raising concerns held by Ley and Gething. It, inter alia, pointed out that leave would be needed and it was unlikely that it would be granted, six years having elapsed since the appearance had been entered. Freehills had re-drafted the summons, however, to seek such leave. The letter asserted that Freehills had not been involved in a decision to bring the application and did not know the reason for it being brought. Freehills expressed the opinion that an application for judgment would not be successful. Instructions were sought in light of the comments. A month later, on 16 September 1993, Brott forwarded to Watts the Freehills’ letter seeking his opinion and it appears that at about that time the summons for final judgment project was abandoned.
It was submitted against Freehills that it contributed to the delay involved in the summons for final judgment by its failure to deal with the matter expeditiously and appropriately during the above period.
For Freehills it was submitted that it should be found that Freehills did not agree in May 1992 to the issuing of a summons for final judgment. Alternatively, it was put that the person whose agreement was recorded was a Gething who at the time was a junior solicitor in the firm and that Ley denied that he agreed to the proposal. Further, it was argued, that the assertion of Freehills in its letter of 12 August 1993 that it was not involved in the summons for final judgment decision was not contradicted in any of the correspondence with Brott. In view of the erratic behaviour of Brott that may not be significant. There is some support for Freehills’ argument, however, in that Freehills was not asked to brief Watts to prepare the documents for such an application when that might have been expected if Freehills had agreed to the proposal. Gething, however, conceded that the file note he prepared recorded that he and Ley were present at a meeting with Brott and Watts on 5 May 1992, that at the meeting Watts raised the possibility of issuing a summons for final judgment and that it was discussed and agreed by consensus to be a good idea. In all the circumstances it should be accepted notwithstanding the assertion in the letter of 12 August, 1993, that Freehills agreed in May 1992 to the issuing of the summons for final judgment although it was not instructed to brief Watts for that purpose. It is likely that, with the lapse of time and lack of any further mention, Ley and Gething had, by August 1993, forgotten the agreement reached in May 1992. Freehills, however, should have been seeking instructions in the intervening period or pressing for action from Brott and Watts.
Viewing Freehills’ conduct generally in this period, Freehills allowed the matter to proceed from May 1992 through to August 1993 without applying pressure to Brott to have the matter set down notwithstanding the concern that Freehills had held since the beginning of 1992 about the dangers posed for the proceedings and for the ultimate client by the delays that had occurred. The only other activity that would have been discernible to Freehills would have been the attempt to obtain further discovery in relation to some tax returns. That exercise terminated in February 1993 and so far as Freehills was concerned nothing else occurred up until August of 1993.
It was put for the plaintiff and other defendants that of some five years delay there was a 28 month period, just over two years, caused by Freehills and Brott not communicating with each other. It was put that the solicitor agent had an obligation to expedite matters and, therefore, an obligation to pursue instructions particularly when understandably very concerned about the lapse of time by early 1992. It was put that this was part of the duty owed by the agent to the principal solicitor’s client.
On my analysis of the evidence, there was a period, significantly in excess of 28 months, during which Freehills should have been pressing for instructions and did not do so. It was also in my view solely responsible for the delay in pursuing discovery between 15 December 1989 to 16 August 1990, a period of eight months where the only interlocutory activity preventing the matter being put down for trial was the pursuit of discovery in which Freehills was asked to act and failed to do so.
As from early 1992 the need to apply pressure became acute. At that time Freehills properly identified the real risk of an application by Sail America to have the matter dismissed for want of prosecution. It should have pressed for instructions. Further by late 1992, Freehills should have delivered an ultimatum to Brott that unless proper instructions were given to bring the matter on for trial it would withdraw. Alternatively, it should have continued to press for instructions. Freehills also caused a delay of a little over a month to pass between 7 August 1992 and 14 September 1992 when it failed to respond to instructions to seek further discovery from Sail America. This may seem a minor matter but it must be remembered this delay occurred at a time when all should have been concerned about the passage of time and its threat to the litigation. Freehills clearly was concerned. When Mallesons wrote to Freehills refusing to give discovery on 13 October 1992, Freehills with reasonable promptness advised Brott of that and of the proposal to settle the case but allowed three months to pass before pressing for instructions and then another month to pass before there was any discussion about discovery. Once advised in 1993 of the summons for final judgment Freehills allowed approximately a month to pass before airing its concerns about the proposal. They should have been raised earlier. Between 7 August 1992 and 22 June 1993, when Brott advised Freehills of the existence of the summons for final judgment, very little was happening in the action so far as Freehills was concerned. Yet it remained silent for the most part.
In all the circumstances, Freehills must accept responsibility for causing some of the delay that occurred and some responsibility for the failure for the action to proceed expeditiously. It may be accepted that part of the problem lay in Brott’s insistence that he be the one who initiated steps in the proceedings and that he had attempted to discourage Freehills from applying any pressure. That, however, did not of itself relieve Freehills from discharging the duty of care it owed to the plaintiff. It affected the responsibility for the loss as between Freehills and Brott and had the effect that Brott must bear the major share of the responsibility as compared to Freehills. Freehills, however, had an obligation to the plaintiff. If it had found itself in the position that it did not believe it could discharge its obligations to the plaintiff while meeting the requirements of its principal, its obligation was to deliver an ultimatum of the kind referred to by the plaintiff and, ultimately, to withdraw if it could not obtain a satisfactory response. This would have provided the plaintiff either with knowledge of Freehills concerns or the opportunity to gain that knowledge. In my view Bodis would have demanded an explanation for such withdrawal.
Freehills’ liability - failure to warn (Statement of Claim particulars paras (d)
and (e) )
The plaintiff argued that Freehills was negligent in failing to give any or any timely warning of the risk of dismissal of the actions to the plaintiff.
It was common ground that the plaintiff received warning of that risk in late 1993 when the offer coupled with the threat of dismissal was received by Freehills, passed on to Brott and passed on by him to Bodis. Thus the issue raised is, in reality, whether Freehills was negligent in failing to warn the plaintiff prior to late 1993 of the risk of dismissal.
Counsel for Brott drew my attention to evidence that would suggest that Bodis was aware of the risk of dismissal from an early stage. It was argued that it was not simply from September 1993 that he became aware of the risk. Reference was made to the occasions recorded where he expressed concern in the early 1990’s which show that he was aware the matter had been delayed and was at times wanting the matter to proceed with some urgency.
I am satisfied that in the early 1990’s Bodis did express his concern to Brott about the need for the matter to proceed expeditiously. For example in May and September 1991 he did so. What is significant, however, is that there is no evidence to suggest that he was alerted to the risk that delay might lead to the action being dismissed for want of prosecution when he expressed those views at that time. I interpret his statements then as statements that one would expect from a client who is concerned that the matter is not proceeding expeditiously and not as evidence that he was aware of the risk of dismissal.
The plaintiff submitted that the warning should have been given in early February 1992 when Freehills raised its concern expressly with Brott. The plaintiff further submitted that, notwithstanding express restrictions on contact with the client, where the solicitor agent is the solicitor on the record the retainer must permit direct contact with the client if the solicitor agent cannot otherwise properly conduct the retainer. Alternatively, the solicitor must either secure a change to the instructions or withdraw. The solicitor cannot remain in shackles, it was said, and let the matter continue. It was put that in allowing itself to remain in shackles it was negligent. It was put that as a matter of probability stern action from Freehills would have been sufficient to prod Brott into action to ensure that the matter was entered for trial before any dismissal application. Counsel submitted that, in that situation, Freehills was obliged to bring the matter to the attention of the client if Brott was not prepared to do so. Counsel for Watts and the plaintiff submitted that Freehills should have ignored the restrictions on its retainer and spoken to Bodis even if it risked being sacked by Brott.
Freehills relied on the scope of the retainer in answer to this allegation. It argued that it was made clear to Freehills that they were not to deal directly with the client unless instructed by Brott to do so and, therefore, would have been in breach of the retainer to speak directly to Bodis about the issue. It was also, of course, argued that Freehill’s brief did not require it to consider matters other than those for which it was instructed to do work.
I have already indicated that I accept the proposition that the retainer of Freehills contained within it a prohibition on direct contact with the client unless instructed to make such contact. Its duty of care to the plaintiff arose, in part, in the context of its contract with Brott. I do not, therefore, accept that Freehills was obliged to breach that contract in complying with its common law duty of care to the plaintiff. This limitation, therefore, raised an obstacle to Freehills communicating with Bodis to convey their concerns about the possibility of dismissal of the action because of delay. I have also indicated, however, that I do not accept Freehills’ attempt in these proceedings to limit the scope of its duty of care to the exercise of reasonable care in carrying out specific tasks given to it. Accepting that the duty of care owed to Westcoast required Freehills to exercise due care to avoid reasonably foreseeable economic loss to Westcoast, it was under a duty to take reasonable steps to bring to the plaintiff’s attention any matter which came to its attention which in its view posed a threat to the plaintiff’s action.
In my view, Freehills failed to do enough to impress upon Brott the concerns which it had and plainly made no attempt to have Brott inform Bodis of the danger. Further it was presented with a golden opportunity to advise the client of the problem directly during the May 1992 conference when Brott, Watts and the Freehills representatives were present with Bodis discussing the action generally, steps to be taken and dealing with all issues. Raising the concern then would have done much to expedite the case. It would have brought home not only to Bodis, but also to Brott and Watts the need to proceed with urgency. Freehills could not have assumed that all would be well, it having raised its concerns in February 1992. Freehills did not suggest it could do so. The past history of the matter could not have given it any confidence and some three months had gone by from February to the meeting in May. Further, as emerged at that conference, much needed to be done to have the matter in fact ready for trial with the result that the potential was there for the matter to drift even further.
Freehills submitted that no evidence was led from Bodis as to what he would have done if, at any time prior to late 1993, he had been warned of the risk of the action being dismissed. Freehills submitted that, therefore, I could not be satisfied that he would have taken necessary steps to expedite the action if alerted in May 1992 to Freehills’ concerns. It seems to me, however, that if Freehills had aired its concerns at the time, it must have affected the thinking and action of Bodis. It is my assessment of him, that he would have been active thereafter to ensure he avoided the risk if he had been warned (cf. Romeo v Conservation Commission (N.T.) (1998) 72 ALJR 208 at 236, Kirby, J.) I so find notwithstanding the fact that he gave no direct evidence on the issue.
Freehills’ liability - other matters
The particulars of negligence relating to the content of statement of claim were not pressed against Freehills. (particulars (bb) and (bbb) Nor was the allegation of a failure to particularise damages (particularly para (g) ). As to the particular alleging failure to advise the plaintiff of the added responsibility to attend diligently to the prosecution of the action because of the posting of the guarantee and the cost to the defendant of that guarantee, this is not relied upon as a separate particular of negligence but rather as part of the circumstances affecting the obligations of Freehills to prosecute the litigation with expedition.
Liability in these proceedings - Brott
The plaintiff relied on the duty to exercise care arising from the contractual relationship and that arising in tort. The plaintiff alleged that Brott was retained and employed by it for reward to act for and advise it in relation to the action and, inter alia, the retention of suitable counsel.
For Brott it was not disputed that the alleged duties arose. It was submitted, however, that the criticisms of Brott were in fairly broad terms and that it was imperative to approach any question of negligence on the part of Brott by bearing in mind what appears in Jackson & Powell, Professional Negligence, 4th Ed. at 4-78 where it is stated:
"a charge of negligence against a solicitor is a serious matter and must be distinctly proved. The issue of negligence should be approached ‘with the greatest care’, even though the sum at stake may not be large. "
Brott’s liability – delay (Statement of Claim particulars (a) and (b) )
The plaintiff and the other parties argued that there was a want of the application of reasonable care, skill and diligence and competence on the part of Brott which resulted in the failure to prosecute the action with reasonable diligence. Reference was made to the periods of complete inactivity. In addition counsel referred to his apparent failure to read his file with the result that requests were repeated which had already been complied with much earlier and there was a failure to forward documents, particularly to Freehills, for some time after they had been completed. It was also submitted that Brott failed to give instructions to Freehills when they were sought or within a reasonable time after they were sought. It was complained that his behaviour was erratic which in turn led to further delays and unnecessary work. The plaintiff relied again on the existence of the guarantee as a factor affecting the obligation to proceed with reasonable expedition.
Junior counsel took up the difficult task of trying to defend the conduct of Brott. He submitted that there was no content in these particulars . That proposition, however, merely avoided the issue and in the end counsel for Brott did not attempt to meet in detail the case that Brott was negligent in failing to ensure that the action was prosecuted with reasonable diligence. This is understandable. Brott’s conduct of the proceedings cannot be defended. In all the circumstances it is unnecessary to detail the failings. It suffices to say that the major periods of inactivity appear to be the responsibility of Brott. To the extent that Watts contributed to the delay, Brott bears the ultimate responsibility for such delay because it was within his power to compel Watts to proceed more quickly or to remove the relevant brief and engage other counsel. So far as Freehills’ delays are concerned, again the ultimate responsibility rests with Brott because he failed to exercise reasonable care in monitoring their handling of the matter. If he had, further delays would not have occurred at Freehills office. The documents also reveal that Brott on occasions wasted the time of the other professionals, notably Freehills, by asking that matters be attended to when they had been attended to some months before and his file would have revealed that to him if he had read it. A reading of the documents recording the handling of the matter by Brott presents, unfortunately, a sorry picture.
Counsel for Brott addressed the particular (para (b) ) concerning the delay in providing particulars of the statement of claim for three years after Sail America delivered its request. For Brott it was argued, as for Freehills, that while there was a three year delay, there was not a causal connection between that delay and any other delay in the action and, therefore, it was not a material cause of the Western Australian proceedings being dismissed. In particular it was put that the failure to give the particulars to the defendant, Sail America, did not impact upon its handling of the matter and in particular its seeking of discovery.
It seems to me that while what is argued should be accepted, it ignores the fact that there was a clear want of prosecution of the matter in respect of the further particulars and, so far as Brott was concerned, he, as principal solicitor, was ultimately responsible for that. The impact of that delay and its significance is another matter. The problem for the defendants I suggest is that it provided a graphic demonstration of the lack of expedition and so long as those particulars were not delivered the matter could not be set down for trial. It was a matter that plainly weighed with the Master and properly so. It could of course have been rectified relatively easily but, nonetheless, there was a want of prosecution as a result. Liability of Brott - failure to warn (Statement of Claim – particulars (d) and (e)
The plaintiff further alleged that Brott failed to give the plaintiff any timely warning of the risk of dismissal of the action for want of prosecution.
As noted above, Bodis did not have the specific issue drawn to his attention prior to September 1993. I proceed on the basis that it was not until September 1993 that Bodis became aware of the risk that his action might be dismissed for want of prosecution.
So far as Brott was concerned, as a reasonably competent and experienced practitioner, he would have been well aware of that risk so far as Victorian proceedings were concerned and on 5 February 1992 he was advised by Freehills that that risk existed in Western Australia because of the delay that had occurred in the matter. He was told at that time that a continuation of the delay would make such an order more likely. It was drawn to the attention of Brott’s counsel that Freehills had considered that it was necessary in the interests of the client to raise the issue with its principal. Counsel was asked whether in those circumstances it behoved the principal to alert Bodis to the situation. His response was that Brott needed to do no more than move the proceeding along and he did that by organising the meeting in May 1992. The issue, however, was not raised at that meeting even though it is clear that Bodis was going to have to do a certain amount of the work himself. It would have been important for him to know that he should move quickly. There was, then, special reason to inform him. But he was entitled to be advised in any event of his legal position at all times and Brott should, at that time when the issue was raised by Freehills, have alerted him to the fact that the agent considered that the action was at risk because of the delay that had occurred. If that had been done, the client would have been alerted to the need to keep a closer eye on its lawyers and if the advice had been given in a complete fashion would have been alerted to its right to engage other solicitors if it was concerned.
Firstly, it was put for the defendants that there was no chance that Westcoast could have achieved the levels of sales that were being talked about both in the present case and in the Western Australian case. Counsel argued that they were “totally and utterly unrealistic and would never have been established”. A number of matters were raised. I refer to the following in particular:
(a)Reference was made to a number of situations where during the currency of the contract in Western Australia, Bodis might have been expected to mention the existence of two orders which Bodis now asserted had come into existence in 1986, orders for a total of some 370,000 T-shirts. These orders were from Brown of Axis Sportswear Pty Ltd and Gilchrist of Streetrags. The defendants submitted that I should reject these orders as a fabrication. It was put that, if they were, Bodis was committing a fraud on the court in putting them forward as authentic (a view apparently not shared by the defendants when acting for Westcoast).
It was put that Bodis might have been expected to mention them to Soares when he discovered that the licence was not exclusive, in his affidavits in support of the injunction application and to Scott, his then solicitor, in early 1987. It was also argued that he did not mention them to Brott. Reliance was also placed on the fact that it was not until 15 January 1988, notwithstanding numerous requests from Scott for documentation and after his solicitors had changed, that Westcoast produced copies of the orders to Freehills. A complaint was also made that when swearing the plaintiff’s only affidavit of documents in the Western Australian case on 23 January 1988 there was no mention of the original orders from Brown or Gilchrist but only the copy orders. I note also that reference was made to them by Bodis in his affidavit opposing the dismissal application.
The complaint was also made that the affidavit of documents sworn in the present proceedings on 23 September 1996 did not mention the existence of the originals of the orders or any other documents. The latter omission can be explained on the basis of oversight on the part of the lawyers. It was they who drafted the affidavits and they who should have raised the issue with Bodis.
As to the failure to mention the existence of the orders on the occasions abovementioned, it does seem strange on the face of it that they were not mentioned - if they were firm orders. It is also strange that Bodis still relied on his 200,000 figure in the 1994 affidavit which also referred to the orders – again, if they were firm orders. In the light, however, of the evidence given by Gilchrist and Brown, it is clear that the orders they placed were orders that were subject to a right in the purchaser to vary the quantities depending on the circumstances as they developed. Thus while they could be called orders, they were subject to variation. The T-shirts were products which could be made up in large quantities very quickly. It was not envisaged that the whole order would be made up and supplied at once but rather that the order would be supplied by instalments. Thus there was scope for both Gilchrist and Brown to modify the quantities that they ultimately purchased in light of their success in selling the T-shirts to the retail chains. This aspect of the orders was never explored with Bodis in his evidence and would provide an obvious reason why in the early stages of the proceedings in Western Australia they were not raised in support of the assertion of anticipated sales of 200,000 T-shirts. Bodis would have known that he could not say he had firm sales for those quantities.
As to the failure to mention the documents in court documents until January of 1988, I put that down in part to the Brott view of court documents which Bodis had accepted, namely, that you could always change them - that is, they were not seen by Bodis as particularly significant. It is significant here that Brott was not called to give evidence.
The defendants face the difficulty, ultimately, that notwithstanding the doubts that might be said to arise from Bodis’ handling of these documents and from the documents themselves, they were authenticated by Gilchrist, Brown and also by Johnston who in fact wrote the order placed by Brown’s company. It is true that Mr Brown spoke in his evidence initially in terms of $ 100,000 instead of $1,000,000 in respect of his order but I am satisfied that what occurred there was a genuine mistake on his part. In addition, there were odd features about the documents, such as the dates, requiring explanation. Overall, however, I found the evidence of these witnesses very convincing and have no hesitation in concluding that they did in fact place the two orders with Westcoast and further that they cancelled those orders as soon as Bodis informed them that he had discovered that the licence he had was a non-exclusive licence. I am satisfied that they cancelled the orders because of their knowledge of the market and their appreciation that the retail chain stores would not be interested in a non-exclusive item of clothing. It is reasonable to assume that they would have been convincing in their evidence if given in 1991 and similar findings would then have been made.
The evidence of the orders is of particular significance because it reveals the expectation of Gilchrist and Brown about the potential market for the T-shirts at about the time of the agreement assuming they could be marketed as an exclusive line of T-shirt. Their evidence on the potential market was convincing. They too underwent searching and testing cross-examination by senior counsel. They also supported Bodis in his evidence about the significance of exclusivity for retail stores.
(b)The defendants referred to the fact that no documents were produced either in the course of the Western Australian proceedings or in these proceedings relating to the freight of fabric or the ordering of fabric or the manufacturing and printing and sales of T-shirts. Reference was made to differing explanations given for the absence of such documents in the affidavits of documents and the evidence of Mrs McMahon which shed a differing light upon what had happened to the various primary source documents. The explanation for the affidavits lies in part in my view, in the fact that Bodis proceeded on the basis that Brott had told him that any court documents can be amended. It would be consistent with the manner with which Brott conducted the matter that he would not have impressed upon Bodis the importance of ensuring that his affidavits of documents were accurate. Brott was not called to dispute that evidence of Bodis and Bodis’ evidence may, therefore, be more readily accepted.
The defendants, however, argued that the absence of the primary source documents about freight costs and manufacturing and printing and sales of T-shirts resulted from the plaintiff’s concern that they would disclose a picture that was unfavourable to its case.
It is strange that such documents should not have been available and produced at an early stage in the proceedings in Western Australia in particular. Again, the explanation lies in part in a failure to take the discovery process seriously, a view originally encouraged by Brott. In addition, the explanation for the failure to mention the documents lies in the failure by all the lawyers in the original case to seriously direct their minds to the issue of damages. The plaintiff never adequately particularised its damages. In the early stages, the documents suggest that attention was not given to the possibility of claiming expenses incurred. By 1994, however, the affidavit and witness statement of Mr Bodis reveal that he and his lawyers were then alive to the possibility of such a claim.
Thus it is understandable that documents evidencing such claims were not discovered in the original proceeding. So far as the original case is concerned this failure would not have had any great significance provided that they appeared at the hearing. I accept Mrs McMahon’s evidence that a variety of primary source documents did exist and were kept and that she organised the sending of some at least of them to Winter in 1996 (the present solicitor of the plaintiff). Ultimately, cheque butts were produced which on their face supported a number of the payments, particularly of legal fees. Having been produced, the defendants examined them but did not use them to mount any argument of substance against Westcoast. As to the freight costs of material and the quantities of material acquired the evidence of Bodis was supported to a large extent by that of Kumar his supplier. I can see no basis for rejecting Kumar’s evidence. It differed from that of Bodis in some important details but nonetheless lent substantial support to his case.
(c)The defendants sought to make much of the evidence relating to the parcel of documents that McMahon said she caused to be forwarded to Winter in 1996. I am satisfied the documents had been kept by McMahon and contained a number of what were called primary source documents. I am also satisfied that she placed them in the custody of a member of staff and of Bodis for the purpose of having them forwarded to Winter. The documents did not reach Winter although another document in the same parcel apparently did. The issue arises as to what happened to the documents. Much was sought to be made of the fact that Winter was not called to give evidence about the matter. Applying the rule in Jones v Dunkel it may be said that an inference arises that his evidence would not have assisted Westcoast. Counsel for the defendants submitted that one should, therefore, infer that Bodis had lied in this matter. But that argument assumes that his solicitor, an officer of the court, sat by and allowed the court to be misled and did not withdraw. His evidence might not have assisted Westcoast because he was not able to say whether the documents arrived at his office or his recollection was that when he saw the package, they were not in it. But the defendants invited the drawing of inferences that would have Mr Winter withholding relevant evidence and permitting the court to be mislead. I am not prepared to draw that conclusion. That still leaves unanswered the question of what happened to them and possibilities exist both innocent and not innocent. It is difficult, however, to contemplate how the documents could not have helped the Westcoast claim. As I have indicated, the evidence of other witnesses and, in particular Kumar, lent support to the fundamental bona fides of the claim for items such as freight expenses. Further, the handling of the documents in 1996 is an issue that could not have arisen at the trial of the original proceeding.
(d)Bodis was also attacked for the failure to give discovery of the partnership returns of the firm Westcoast T-shirts. It was said that he did not disclose those documents because they contained a statement that it was the partnership and not the plaintiff that entered into the contract with Sail America and so revealed that the present plaintiff was not entitled to bring the proceedings. Alternatively, it was put that they were false documents and therefore adversely reflected on his credit.
It seems to me that the production of these documents in fact reflected positively on the credit of Bodis and of McMahon. It was McMahon who produced them when the defendants demanded that further efforts be made to produce relevant tax returns. It need not have been produced as the partnership was not involved in the manufacture of T-shirts but only in the manufacture of other items which it manufactured for sale by the plaintiff. Mr Bodis’ explanation that it was done on accountancy advise concerning the application of sales tax was said to be without foundation because the sales tax advice was wrong. Be that as it may, it would not be the first time someone had acted on the basis of wrong advice or fallen victim to error by a professional - as this case proves. Ultimately, however, if Bodis and McMahon were wishing to conceal material they would have had no difficulty concealing these tax returns relating to the partnership and so avoided a lot of trouble. It was put that the returns were not discovered in McMahon’s evidence about the relationship of the partnership and Westcoast. Evidence was led, however, that she did not know what that relationship was. Emphasis was also placed upon the failure to call Mr Eddy an accountant. While, from what transpired in court, it was clear that Westcoast was making enquiries about his availability and other means of obtaining his evidence, nonetheless, I am satisfied that he was not available.
(e)The defendants also relied upon the conflict of evidence between Stott and Bodis about whether, in particular, Stott had discussions with retailers in the eastern states. Bodis, in his two affidavits sworn in 1987 in support of the Mareva injunction application, had deposed that Stott, as his marketing manager was engaged to effect wholesale sales of the licenced products and that he had approached chain stores who had refused to purchase the products because they were not exclusive. In his second affidavit he deposed to Stott travelling to the eastern states prior to negotiating the contract with Sail America to investigate the marketability of the licenced products. He also deposed to information supplied to him by Stott about discussions he had had with Phillip Brown of Axis Sportswear Pty Ltd in Victoria and one Des Weatherhog in Queensland. Both those gentlemen carried on businesses and were experienced manufacturing agents and distributors. In that affidavit he also deposed that Stott was to handle sales in New South Wales. In light of his discussions with Stott and others he produced his prediction of 200,000 T-shirt sales and calculated his loss accordingly.
The evidence given by Stott in these proceedings was in stark contrast to what Mr Bodis had deposed to back in 1987. I think it would be extraordinary indeed if the Bodis I observed, notwithstanding his carelessness, would have incorrectly sworn to the above facts. Stott on the other hand suffered from the major disability of being asked to recall events that occurred 12 years ago. Explanation for the disparity I suggest lies in the fact that Stott has had to reconstruct what occurred based on his present recollection of his normal duties about that time.
Counsel for Westcoast submitted that it was significant in assessing the attacks made upon the credit of the claim, and in particular Bodis’s credit, that the one defendant who knew Bodis the best, Brott, was not called to give evidence. To this may be added the fact that there was nothing in the documents from the files of any of the lawyers who acted for Westcoast to suggest that there were any reservations about the reliability of the information being supplied by Bodis. On the contrary it appears that Brott instructed Freehills to settle the case in late 1992 for $600,000. No evidence was led from Watts or Ley as to any reservations held by them at the time. In particular, there was nothing to suggest that the documentation was fabricated or that documents were alleged to exist which did not. In effect fraud has been alleged notwithstanding that Brott was not called to give evidence. Mr Galbally raised the question as to the source of the instructions on which counsel were acting. It seems to me that the failure to call Brott on these matters should encourage me to accept more readily the evidence given by Bodis, McMahon and others about the bona fide existence of the challenged documents.
In considering the attacks made on the credit of Bodis, it is important to bear in mind that some of the attacks were based upon the conduct of the Western Australian proceeding. These attacks would have been available in those proceedings to challenge the credibility of Bodis. On the other hand there were also those attacks made upon him based on his conduct of this proceeding. While those attacks are relevant to my assessment of Bodis’ credibility, those attacks would not have been available to Sail America in the proceedings in Western Australia. They were indirectly relevant to the question of the credibility of Bodis in those proceedings to the extent that they enable me to form a judgment as to how he might have given evidence and how that evidence might have been assessed.
While the defendants “cried wolf” on occasions, and were in my view, proved wrong, there were points raised by the defendants which required serious consideration. Nonetheless, the essentials of the case of the plaintiff have been substantially supported by several witnesses whom I regard as witnesses of truth and whose evidence can be relied upon. I accept that they would have given evidence at the original trial. They were obvious witnesses.
The conduct of the matter by Bodis, however, remains curious. Notwithstanding the favourable impression I formed of him as a witness, his conduct of the matter has caused me to take a cautious approach to his evidence and to consider whether and to what extent it was supported by other credible evidence or surrounding circumstances and not to accept it without very careful consideration.
Quantum of original claim - analysis
Turning then to the substantive evidence itself, counsel for Westcoast addressed first the question of the likely sales of T-shirts. They relied heavily upon the evidence of Brown and Gilchrist who placed the initial orders with Westcoast – for 140,000 and 230,000 T-shirts respectively. It was said that they as experts in their field saw a substantial market for the product and did so before it was known whether Stars and Stripes would be likely to even reach the final let alone win the America’s Cup. Counsel pointed to evidence that there was a market for things American which the T-shirts could serve. Counsel relied upon the evidence of a distinction between attempting to sell goods on an exclusive wholesale basis to retail chains on the one hand and attempting to sell such goods on a non-exclusive basis either to retail chains or in the location of the event to which they relate. Counsel sought to argue that the orders placed by Gilchrist and Brown indicated that big retail buyers had placed orders as well. The highest that argument can be put, however, is that it is reasonable to infer that Gilchrist and Brown had reached their conclusion that they should place those orders in light of discussions with retail buyers skilled in assessing markets and their own expertise. Counsel for Westcoast also relied upon the evidence of Mr Duncan who was involved in the merchandising of T-shirts for the "Boxing Kangaroo". The selling of that product dated back to the winning of the America’s Cup in 1983 or 1984. His evidence was that the average monthly sales in Australia were about 20,000 up until the America’s Cup challenge began and that sales in October 1986 were 38,000, November 42,000, December 40,000, January 20,000 and February 10,000. It was put that that was not an event T-shirt and the boat that it represented was unsuccessful. Counsel also relied upon Duncan’s evidence that it was possible to protect exclusivity if you had it and it could be done with T-shirts as they did. Counsel also noted, however, that Duncan could not believe that the Royal Perth Yacht Club had sold 500,000 T-shirts. But that was in fact what occurred as was given in evidence by Mr Llewellyn. He also gave evidence of the expectation of sales of 2,000,000 T-shirts provided exclusivity was given. He had preliminary orders for 80,000 to 90,000 T-shirts from retailers until it was realised he did not have exclusivity. The retailers then cancelled orders.
The defendants in the present proceedings relied upon evidence called from persons who attempted to sell similar T shirts including the Sail America personnel. They spoke of sales if a few thousand . The defendants also called expert testimony to cast doubt on the likely volume of sales. The witnesses were not, however, dealing with comparable sales and situations. In addition the opinions of the experts as to likely sales (9,000 and 10,000) were substantially contradicted by the evidence of the substantial numbers sold by the plaintiff in Western Australia and by the Royal Perth Yacht Club. While such evidence, if called, might have raised doubts in the mind of the original trial judge as to whether perhaps the market assessment of Bodis, Brown and Griffith was over enthusiastic, such evidence in my view could have done no more than that. Thus it may have operated to cause a trial judge to take a more conservative view of the likely sales of an exclusive line on T shirts in the Eastern States. At the same time, the convincing evidence of Brown and Gilchrist would have raised, as a real and substantial prospect, sales substantially in excess of the 200,000 T-shirts claimed.
Thus in the light of the evidence now available and likely to have been led in the Western Australian action, Westcoast had strong prospects of being able to satisfy the court on the balance of probabilities that given exclusivity it would have achieved sales of 200,000 T-shirts to the retail chains in the Eastern State. A modest allowance, however, should be made for the risk of not persuading the court to accept that proposition. Other factors that might have caused a lower figure to be accepted included the issue of piracy and the issue of possible anti – American sentiment.
The plaintiff alleged an average profit of $2.30 on 180,000 T-shirts. The unit costs were based on figures supplied by Bodis to his accountant. The original figures were corrected because of an error in the unit selling price of the 100% cotton T-shirt which resulted in a smaller selling agent’s commission and a smaller royalty to Sail America.
The defendants submitted that the plaintiff had asserted the figures claimed but that there was no evidence to support them. The defendants also challenged the net profit figures put forward by the plaintiff arguing that they were outside the percentages that Bodis said were used as a rule of thumb and argued that they were $2.16 for the 100% cotton T shirt and $1.56 for the poly cotton T shirt, - giving an average profit of $1.70 approximately instead of the higher figures claimed by the plaintiff.
It seemed to me that Bodis’ evidence was of genuine estimates by him of the costings and realistic selling price. Further, the defendants could have led evidence to challenge the figures and the logic of the calculations but did not do so. In assessing compensation for the lost opportunity, it is reasonable to proceed on the basis that the plaintiff had strong prospects of establishing an average loss of profit over the two types of T shirts of $2.30. Some allowance would need to be made, however, for the risk that the plaintiff might not have established that amount.
I turn then to the claim the damages would have been recoverable in the Western Australian proceeding for the cost of returning materials to Kumar.
It is true that there were no formal documents filed in that proceeding by Westcoast which purported to claim damages for those costs. Nonetheless, it is clear that by the time of the dismissal application, the plaintiff and its advisers were alive to the potential claim and it is reasonable to proceed on the basis that by the trial of the proceeding, if conducted with reasonable expedition and competence in 1991, the claim would have then identified. I note also that the issue was referred to in Bodis’ proof of evidence which was taken in May of 1992. This was the first serious attempt by the lawyers to prepare the case for trial. If the case had been processed with reasonable efficiency, the issue would have surfaced prior to trial. The difficulty facing the plaintiff in this proceeding is the conflict between the evidence of Kumar and that of Bodis.
On the question of the cost of the freight on the return of the materials to Kumar, Westcoast submitted that Bodis’ recollection should be preferred to that of Kumar. Bodis said that he had sent back 105,000 metres of cotton and 265,000 metres of poly cotton. Kumar’s evidence was more general. He said at one stage over 600,000 metres were sent the plaintiff. The witnesses disagreed, however, as to whether material for windcheaters had been sent to Perth. Bodis said that it had not. Relying upon the fact that, in saying that it had not been sent over, Bodis was reducing his claim, counsel for the defendants said that that evidence should be accepted. Counsel for the defendant also relied upon the fact that Kumar’s recollection was that over half of the fabric was returned. But his recollection also was that something of the order of 300,000 metres was returned. Both witnesses gave their evidence honestly. They simply had different recollections about the nature and quantity of the materials ordered and delivered.
In the final analysis , there is not a great deal of difference as to the quantity both said was returned. I consider that the plaintiff had reasonable prospects of establishing that it had returned approximately 300,000 metres of the material. The type of material is unclear. On the plaintiff’s evidence, the cost was $25,920. Taking the defendant’s version of Kumar’s evidence, but assuming that the material for windcheaters was not sent, $13,581 is the calculation – based on the return of 197,500 metres of material.
The next item of damage referred to is the item for bank guarantee fees. The total amount claimed for the period from June 1988 to May 1996 was an amount of $3,160. An examination of the documents before me does not contain any reference to such a claim until this case came to be prepared. In particular the documents relating to the matters to be attended to in May of 1992 do not refer to such an issue. This is understandable because the cost of the guarantee would have been dealt with in light of the outcome of the case and I accept the submission of counsel for the defendants that it should be treated as an item of expenditure rendered abortive by the loss of the proceeding but one that would have been recoverable in those proceedings if successful and one, therefore, subject to the $400,000 limit. There were documents to support most of the fees which were payable every six months. Two documents were missing but in my view counsel for the plaintiff was correct in pointing out that there was nothing in the documents subsequent to those two payments to suggest that there was anything still unpaid in respect of those payments that had been due. As to four payments on or between 16 November 1994 and 25 May 1996, Westcoast stated that those payments totalling $900 were payments made while the action was still alive pending a decision about whether to appeal from the dismissal order. I accept that proposition.
The next item is $25,000 claimed as loss of profit on other sales. There is no evidence before me, and it cannot be demonstrated, that evidence would have been available in the Western Australian action which would have indicated why any lost profit associated with the sale of windcheaters, stubby holders, hats, caps and teaspoons would have arisen from a lack of exclusivity in dealing with those items. I proceed on the basis that the claim of $25,000 would not have been made out.
The next item claimed is interest on the amount of damages that would have been recovered from November 1986 to July 1991 applying the Western Australian legislation. It permitted statutory interest to be assessed as from the date of accrual of the cause of action to judgment in cases of the kind that would have been determined in Western Australia. The average rate of 13.5% is not disputed nor is the time of four and two third years. I note that while the award of interest would have been discretionary, the assessment must proceed on the basis that the case was brought to trial with reasonable expedition by Westcoast and, accordingly, that it would be unlikely that there would have been any deduction made in calculating the interest.
Finally, Westcoast sought from the defendants the costs that would have been recovered in the Western Australian action if the matter had gone to judgment. They have been calculated by a Western Australian costs expert at $62,873 on the assumption of a judgment for $400,000. The defendants ultimately did not dispute that calculation. The defendants argued, however, that there would also have to be deducted the difference between the party party costs that would have been recovered and the solicitor client costs that would have been payable to Brott. Much evidence was led on this question and a great deal of uncertainty attaches to it. The defendants conceded that the original figure of their expert, Mrs Gourlay was too high and should be reduced to between $119,000 to $129,000. She, however, assumed an eight day hearing. If that assumption was applied to the party/party costs figure, it would presumably be increased. It would be appropriate, in all the circumstances to proceed on the assumption that the plaintiff, if successful, would have been out of pocket for $50,000. In reaching that conclusion I assume that the lawyers acting for the plaintiff acted with reasonable skill and efficiency in guiding the litigation to a successful conclusion.
The maximum claim of the plaintiff under scenario A, therefore, totalled approximately $730,000.00.
Experience would suggest that it is unlikely that the plaintiff would have recovered the full amount claimed. Courts can be cynical about claims of this kind and will tend to reduce the claimed quantum of sales or margins or both in such cases in assessing damages. In my view, however, reductions were not likely to be large in this case because of the evidence available to the plaintiff from witnesses such as Gilchrist and Brown and Llewelyn and Duncan which would suggest that the claim assuming an exclusive licence was realistic.
In assessing damages I have, inter alia, considered different scenarios ranging from 25,000 T-Shirt sales to 180,000 T-Shirt sales using the parties’ different margins. I have had regard to the various risks of litigation and the particular risks arising in this case including those on the issue of liability. I have come to the conclusion that compensation for the lost opportunity should be assessed at $400,000. That amount, as it happens is also the amount realistically available for execution at the relevant time. Applying a broad brush assessment it appears to me to be reasonable compensation.
Westcoast also claimed damages in respect of monies expended and wasted because of the loss of the action. The first amount relates to the sum of $21,800 paid by Westcoast to Sail America pursuant to the order dismissing its actions. The next two items claimed related to legal costs and travel and other expenses paid out in the Western Australian proceedings.
The right to the claim for legal costs expended was not disputed. The amount originally claimed for legal costs was disputed. It totalled $48,131.37. From that I accept that there must be deducted two payments totalling $4,273.60 which related to the Mareva injunction application and a payment of $1,000 to the third defendant for advising on and settling the licence agreement. I accept that the other amounts claimed for payments to Stables & Co are made out. Finally it was put that there is no evidence to verify what work was done in respect to which Brott received a payment of $2,125.18 on 17 August 1993. I accept that submission. An adjustment needed to be made to the amounts claimed for payments to Freehills to produce a total of $11,122.92. The total recoverable is $40,503.62.
As to travel and accommodation expenses an amount of $14,500 was claimed. This related to trips by Brott and Watts to Perth and Bodis to Melbourne. Counsel for Westcoast submitted that the evidence showed that Bodis had travelled to Melbourne on at least three occasions and that Brott and Watts travelled to Perth twice. While it is acknowledged that there is no direct evidence of what was spent on those trips, it is put that an average of $2,000 per trip approximately for seven trips was a reasonable figure bearing in mind that accommodation also had to be met. Bodis gave evidence that his air fares ranged from $900 to $1,000 and his accommodation was $200 to $300 a night. Brott gave no-evidence. Watts and Ley gave no evidence that would suggest that these figures were unreasonable. Bearing in mind that on some occasions the visits lasted more than one day an average amount of $1,500 would appear reasonable - $10,500 in total.
The final item of damages claimed as damages flowing directly from the negligence of the defendants is a claim for damages on the Hungerford’s principle from the date of a notional judgment on 1 July 1991 until the issue of this proceeding on 14 February 1996. It was put that Westcoast suffered a foreseeable loss in that it was deprived of the use of the proceeds from the action against Sail America which could have been used to either meet existing debts and thus reduce interest burdens or to invest and thus generate income. Reliance was placed in particular on the passage in Hungerfords v Walker (1989) 171 CLR 125 at 143 --4 where it is said
“The requirement of foreseeability is no obstacle to the award of damages, calculated by reference to the appropriate interest rates, for loss of the use of money. Opportunity costs, more so than incurred expense, is a plainly foreseeable loss because, according to common understanding, it represents the market price of obtaining money.”
It seems that the way in which the business of Westcoast was run changed at the end of the 1992 financial year when the operation of the business was taken over by a trust. The plaintiff argued that, from that date onwards Hungerfords’ interest was still recoverable on the basis that Westcoast had the opportunity to invest such monies. Attention was also drawn to the fact that in Hungerfords’ case the partnership was incorporated and the corporation ran the business. The High Court commented (150-1) that incorporation did not put an end to the losses suffered by the plaintiff and that in such circumstances
“it might be more appropriate to measure the loss on the basis of opportunity cost by reference to current market rates of interest.”
On that basis the damages by way of interest were sought on the Hungerfords’ principle. The rate claimed was 9% compounded. It was put that 9% represents the average rate of statutory interest in Western Australia for the relevant period. I do not understand that assertion to be disputed.
A number of issues were raised by counsel for the defendants in answer to the claim for damages applying Hungerfords v Walker. It is sufficient for present purposes to refer to what I see as the principal argument namely that the plaintiff failed to adduce evidence of the use to which any amount of damages would be put and that it had therefore failed to prove that it suffered a loss as a result of the failure to recover damages in the Western Australian proceedings. It was put that the problem posed for the plaintiff by this lack of evidence was compounded by the fact that from 1992 the business was operated through a family trust and that while it might thereafter be argued that the measure of loss was the sum that might have been earned on that money as opposed to, for example, interest saved by paying off debts there was no evidence to indicate how that money would have been used.
I am satisfied that, on the authorities, it is not sufficient to recover damages for loss of use of the money to merely establish that loss of that kind was foreseeable . The plaintiff must go further and place evidence before the court sufficient to enable the court to be satisfied that a loss was suffered. I refer in particular to Pooraka Holdings Pty Ltd v Participation Nominees Pty Ltd (1991) 58 SASR 184, Hobartville Stud Pty Ltd v Union Insurance Co Ltd (1991) 25 NSWLR 358, Walker and Another v FAI Insurance Ltd (1991) TAS R 258, State Bank of New South Wales Ltd v Yee (1994) 33 NSWLR 618, Commonwealth of Australia v Chessel (1991) 30 FCR 154, Robert John Hutt v The Cascade Brewery Company Ltd unreported 29 November 1991 Wright, J. Supreme Court of Tasmania.
The plaintiff had originally foreshadowed that evidence would be called about the plaintiff’s intentions for the use of the damages that would have been recovered and the returns available in the property and shares markets during the relevant period. Ultimately, there was no direct evidence led as to what the plaintiff would have done with the money if it had received it. There was evidence of the size of the overdraft of the company at the end of the financial years ending 30 June 1991 and 30 June 1992 but no evidence that the money would have been used to reduce such an overdraft or that the money would have been used to obtain income. It must be borne in mind that it does not automatically follow that a party receiving an award of damages to use the money in a financially beneficial way.
There is insufficient evidence to enable the plaintiff to establish a loss arising from the loss of the use of any damages award that would have been recovered but for the negligence of the defendants. Accordingly, the claim for interest based on the Hungerfords principle must fail. That does not, however, prevent the plaintiff recovering statutory interest and I will invite the parties to make submissions as to the appropriate outcome of such a claim.
Conclusion
Accordingly, I assess compensation for the lost opportunity to recover damages in the Western Australian action at $400,000 and the losses directly flowing from the negligence of the defendants at $72,803.62. To those figures must be added an amount for statutory interest before judgment can be entered for the plaintiff.
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