White Industries (Qld) Pty Ltd v Flower & Hart (A Firm)
[1998] FCA 806
•14 JULY 1998
FEDERAL COURT OF AUSTRALIA
COSTS – application for indemnity costs – whether solicitors should be ordered to pay personally opposing party’s costs – Court’s power to award costs pursuant to s 43 Federal Court of Australia Act 1975 (Cth) – whether respondent unreasonably instituted and continued action on behalf of its client alleging misleading and deceptive conduct, fraud and negligence when it knew there were no or substantially no prospects of success – test to be applied - whether purpose was unreasonable because respondent had an ulterior purpose in instituting the proceeding which was to effect an object beyond what the legal process offers - whether purpose in instituting the proceeding was to give client a “temporary bargaining stance” or “to secure some bargaining position” so as to delay payment due by client under a building contract - abuse of process – whether party used court proceedings and procedures for a purpose unrelated to the objectives for which the court process is designed to achieve when solicitor held the view that his client “could not win any litigation if put to the test” – whether practitioners conducted litigation in a manner designed to obstruct and delay proceeding
LEGAL PRACTITIONERS – solicitors – indemnity costs - whether personal liability for – whether breached duties owed to the Court – whether solicitor protected from liability by reliance on counsel’s advice
PRACTICE AND PROCEDURE – pleading - allegation of fraud – whether statement of claim pleaded fraud with knowledge without any factual basis for making the allegation
EVIDENCE – whether principles in Browne v Dunn apply – whether respondent or respondent’s witnesses were put on notice that statements made in documentary evidence may be used against them or were put on notice that an adverse inference may be drawn against them in order that they may respond to that issue and give an explanation – inference that the purpose in instituting the proceeding was to delay payment of the amount due to the applicant where the respondent had formed the opinion that its client did not have a cause that could be won
EVIDENCE – whether principles in Jones v Dunkel apply – whether adverse inference may be drawn where a witness is put on notice of an issue and the party calling the witness and the witness do not address the issue in their evidence‑in‑chief – issue in relation to justification for pleading fraud or view that there was a factual basis for alleging fraud
Federal Court of Australia Act 1976 (Cth): s 43(1)
Caboolture Park Shopping Centre Pty Ltd (In liquidation) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224 – followed
Briginshaw v Briginshaw (1938) 60 CLR 336 – applied
Myers v Elman [1940] AC 282 – considered
Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 - applied
Browne v Dunn [1894] 6 R 67 – considered, followed & not applied
Jones v Dunkel (1959) 101 CLR 298 – considered & applied
Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 – upheld by High Court in Ferrcom Pty Limited v Commercial Union Assurance Company of Australia Limited (1993) 176 CLR 332 – considered & applied
Davy‑Chiesman v Davy‑Chiesman [1984] Fam 48 – considered & applied
Edwards v Edwards [1958] P 235 – considered & applied
Orchard v South Eastern Electricity Board [1987] 1 QB 565 – considered & applied
Currie & Co v The Law Society [1977] 1 QB 990 – considered & applied
De Sousa v Minister for Immigration, Local Government and Ethnic Affairs (1993) 41 FCR 544 – considered & applied
Ridehalgh v Horsefield [1994] Ch 205, 226 – considered & applied
Cahill v Eckstein (unreported, New South Wales, Supreme Court, Smart J, 5 June 1998) – considered & applied
Tolstoy‑Miloslavsky v Aldington [1996] 1 WLR 736 – considered & applied
Williams v Spautz (1992) 174 CLR 509 – considered
Goldsmith v Sperrings Ltd [1977] 1 WLR 478 – considered
Minister Administering the Crown Lands (Consolidation) Act and Western Lands Act v Tweed Byron Aboriginal Land Council (1990) 71 LGRA 201 – applied
Oldfield v Keogh [1941] 41 SR (NSW) 206 – applied
Locke v Camberwell Health Authority [1991] 2 Med LR 249 – applied
WHITE INDUSTRIES (QLD) PTY LTD v FLOWER & HART (A FIRM)
QG 198 of 1986
GOLDBERG J
BRISBANE
14 JULY 1998
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QG 198 of 1986
BETWEEN:
WHITE INDUSTRIES (QLD) PTY LTD
ApplicantAND:
FLOWER & HART (A FIRM)
Respondent
JUDGE:
GOLDBERG J
DATE:
14 JULY 1998
PLACE:
BRISBANE
INDEX
Heading Page Introduction and background to application for costs to be paid by solicitors 1 Execution of building contract between Caboolture Park and White 5 Events leading up to the issue of the proceeding by Caboolture Park 8 The letter of 18 December 1986’s reference to “you could not win any
Litigation if put to the test”15 Institution of the proceeding 18 What advice did Mr Callinan QC give? 22 Progress of the proceeding 27 Commencement of the trial 35 The standard of proof 40 Mr Lockhart’s approach to the proceeding 42 Justice Callinan’s evidence 44 What was the purpose of the proceeding? 45 What inferences can be drawn from the evidence? Should the rule in
Browne v Dunn be applied?58
The rule in Browne v Dunn 67 Was there a factual basis for the allegation of fraud? 74 Jurisdiction to award costs 85 Commencing or continuing proceedings with no or substantially no prospects
of success88
Abuse of process 100 Allegation of fraud 103 Retention of counsel 105 The parties’ submissions 107 Conducting the litigation in a manner designed to obstruct and delay the
hearing of White’s claim111
Conclusion 114
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QG 198 of 1986
BETWEEN:
WHITE INDUSTRIES (QLD) PTY LTD
ApplicantAND:
FLOWER & HART (A FIRM)
Respondent
JUDGE:
GOLDBERG J
DATE:
14 JULY 1998
PLACE:
BRISBANE
REASONS FOR JUDGMENT
Introduction and background to application for costs to be paid by solicitors
The motion before the Court is for an order that the respondent, Flower & Hart, a firm of solicitors, pay the costs of the applicant White Industries (Qld) Pty Ltd (“White”) of the proceeding which was brought by Caboolture Park Shopping Centre Pty Ltd (in liquidation) (“Caboolture Park”) a wholly owned subsidiary of Hersfield Development Corporation Pty Ltd (“HDC”) against White on an indemnity basis. White excludes from the costs it seeks those costs which are solely referable to it prosecuting its cross‑claim against Caboolture Park. (From time to time in these reasons the names Caboolture Park and HDC are used interchangeably because it is not clear in what capacity a person was speaking or acting or being addressed. As Caboolture Park was a wholly owned subsidiary of HDC and either had, or used, the same officers and employees as HDC nothing turns on whether Caboolture Park or HDC is referred to at any relevant time.)
The motion arises out of the proceeding which was commenced on 23 December 1986 when Caboolture Park, for whom Flower & Hart was acting, filed an application supported by a statement of claim claiming damages and other relief against White in respect of conduct alleged to contravene s 52 of the Trade Practices Act 1974 (Cth), or to constitute fraudulent misrepresentation, or negligent misstatement arising out of a building contract entered into between White and Caboolture Park for the construction of a shopping centre at Caboolture. White filed a defence and cross‑claim on 10 April 1987 denying the allegations against it and seeking payment of moneys owing by Caboolture Park under the building contract.
The application and the cross‑claim came on for trial on 7 June 1988 together with proceedings which had been commenced in the Supreme Court of Queensland by subcontractors against White and Caboolture Park arising out of the construction of the shopping centre and which had been transferred to the Federal Court. Flower & Hart acted for Caboolture Park in the proceeding until 9 August 1989 when it applied for leave to file a notice of cessation to act for Caboolture Park. That leave was granted. By that date the proceeding had occupied approximately 150 hearing days. On the same day Ryan J ordered that a notice be served on Caboolture Park that the Court might, and in default of appearance would, enter judgment dismissing Caboolture Park’s action. On 17 August 1989, some two and a half weeks after the appointment of receivers to Caboolture Park’s parent company, HDC, a receiver and manager was appointed to Caboolture Park.
On 17 August 1989 there was no appearance on behalf of Caboolture Park. Ryan J ordered that Caboolture Park’s application against White be dismissed and that Caboolture Park pay White’s costs, including reserved costs, to be taxed or fixed in accordance with reasons to be published on a date to be fixed. Judgment was entered on 18 August 1989. On 6 April 1990, judgment was given on White’s cross‑claim against Caboolture Park in favour of White for $5,525,652.61 together with interest and costs. The costs order was in the following terms:
“That White Industries (Qld) Pty. Ltd.’s costs, including the costs referred to in paragraph 1 of this order, the costs ordered on 17 August 1989 to be paid to it on a dismissal of the application herein, any reserved costs and any costs previously ordered to be paid to it which have not yet been taxed, be specified as a gross sum by Ryan J on a date to be fixed, or be ascertained in such other manner as on that date he may direct.”
Judgment was entered on 30 April 1990 but as Caboolture Park was in liquidation no proceedings have been taken by White to recover the costs awarded to it under the order.
After judgment was entered, as a result of information coming into the possession of White, White filed a notice of appeal in respect of the costs order on 23 November 1992, sought an order that the time for filing and serving the notice of appeal be extended and sought an order that its costs be paid by Flower & Hart on an indemnity basis. The grounds of the appeal were that since the making of the costs order on 6 April 1990 fresh evidence had been discovered by White consisting of correspondence and memoranda passing between Caboolture Park, Flower & Hart and counsel retained by Flower & Hart for Caboolture Park which contained statements that the proceeding was:
“(a)commenced and maintained by [Caboolture Park and Flower & Hart] in the belief that [Caboolture Park] had no or substantially no prospects of success;
(b)commenced and maintained by [Caboolture Park and Flower & Hart] for an ulterior purpose.”
The appeal came on for hearing before a Full Court on 29 April 1993 and it was stood over on White undertaking to file a notice of motion in the original proceeding seeking to join Flower & Hart as a party. This it did on 7 May 1993 and in the notice of motion White sought orders that Flower & Hart be joined in the proceeding and that it pay all of the costs of White, other than those solely referable to the cross‑claim, so as to provide to White a complete indemnity for those costs and interest thereon.
Flower & Hart filed a notice of motion on 25 May 1993 disputing the jurisdiction of the Court to entertain White’s notice of motion and, at the request of the parties, a question was stated for the Full Court whether the Court had jurisdiction to entertain White’s motion as an application in this proceeding. For the purposes of the case stated the Court was asked to assume that White had evidence from which it would ask the Court to conclude:
“... that Flower & Hart:
(a)Commenced and continued litigation on behalf of Caboolture Park Shopping Centre Pty Ltd in the knowledge that it had no worthwhile prospect of success in that litigation in order to vex White Industries (Qld) Pty Limited.
(b)Commenced and conducted litigation on behalf of Caboolture Park Shopping Centre Pty Ltd when the purpose of Caboolture Park Shopping Centre Pty Ltd of such litigation was:
(i)to delay an action by White Industries (Qld) Pty Limited against Caboolture Park Shopping Centre Pty Ltd to recover monies payable under the contract referred to in paragraph 2 above [between White and Caboolture Park];
(ii)to put White Industries (Qld) Pty Limited under pressure to compromise such claim.
(c)Delivered a Statement of Claim dated 22 December 1986 containing an allegation of fraud in circumstances when it was not justified in making that allegation in a pleading.
(d)Accepted instructions to conduct the litigation in a manner designed to obstruct and delay the hearing of the Cross‑claim [filed on 10 April 1987].”
On 22 September 1993 the Full Court (Lee, Hill and Cooper JJ) answered that question in the affirmative: Caboolture Park Shopping Centre Pty Ltd (In liquidation) v White Industries (Qld) Pty Ltd (1993) 45 FCR 224.
White alleges in paragraph 9 of its amended statement of facts and contentions that Flower & Hart, in the course of acting for Caboolture Park:
“(a)commenced and continued the proceedings on behalf of Caboolture Park in the knowledge that it had no worthwhile prospects of success in the proceedings in order to vex the applicant or in circumstances where had the respondent given reasonable attention to the relevant law and facts the respondent would have had such knowledge;
(b)commenced and continued the proceedings on behalf of Caboolture Park not for the purpose of litigating the claims set forth in the statement of claim but for the collateral purpose of:
(i)delaying action by the applicant against Caboolture Park to recover monies repayable under the building contract [between White and Caboolture Park];
(ii)putting the applicant under pressure to compromise such claim;
(c)delivered a statement of claim dated 22 December 1986 containing an allegation of fraud in circumstances where there was no factual basis for making that allegation;
(d)accepted instructions to conduct the proceedings in a manner designed to obstruct and delay the hearing of both Caboolture Park’s application ... and the applicant’s cross‑claim ... and did in fact conduct the proceedings in a manner designed to so obstruct and delay the hearing.”
White alleges that this conduct was in breach of the duty which Flower & Hart owed to the Court. Flower & Hart in its statement of facts and contentions admits that at all material times it owed a duty to the Court:
“(a) To conduct the proceedings before the Court with due propriety.
(b) To be honest with the Court.(c)Not to act so as to obstruct or defeat the administration of justice by the Court.
(d) Not to be a party to an abuse of the Court’s process.”
Flower & Hart then says:
“10At all material times the instructions of Caboolture Park to the Respondent were that Caboolture Park was entitled to relief against the Applicant because of the circumstances surrounding the making of a contract between the Applicant and Caboolture Park in relation to the construction of a shopping centre for Caboolture Park.
11The Respondent believed, at the time when the claim by Caboolture Park was commenced, and at the time when the pleadings were finalised, that on the basis of its instructions the case of Caboolture Park in relation to relief under the Trade Practices Act, and for damages for fraud, was weak but fairly arguable.
12In those circumstances it was not improper to include such claims in the pleading.”
These allegations need to be understood against the background of the original transaction between Caboolture Park and White and the circumstances which led to the commencement of the proceeding.
Execution of building contract between Caboolture Park and White
By 1985 HDC had become a substantial developer and builder itself of shopping centres in a number of Australian States. During 1985 HDC was in the process of extending its Capalaba Shopping Centre in Queensland. HDC proposed to build a shopping centre at Caboolture and this was ultimately undertaken by its wholly owned subsidiary Caboolture Park. It called for tenders and, on 19 August 1985, White submitted to Caboolture Park’s architect its pricing for the construction of the shopping centre in the amount of $14,820,000. Two other tenders were received but both were substantially in excess of White’s tender.
Thereafter a meeting was held on 27 August 1985 attended by Messrs Herscu, Bennett and Briggs on behalf of HDC and Messrs Dugan, Dempster and Anderson on behalf of White. At that meeting Mr Herscu, the principal of HDC, told the White representatives that their price was too high and they should come in with a lower price. On 2 September 1985, White sent a telex to HDC noting that full drawings were not available from the architect and engineer, that the architect believed that sufficient documentation to enable the gross maximum price to be established would not be available for at least another two weeks and White said it was refining its pricing “as best as possible on current documentation received today”.
On 10 September 1985 White sent HDC a letter in which White confirmed its revised price of $15,075,000 and noted that the alteration to the price was contributed to by changes in structural details. White noted that it was still concerned that the structure may run over budget as structural details were still not complete. As with the earlier pricing submission the letter included a brief description of the items covered and included a number of prime cost items. This letter was subsequently annexed to and formed part of the building contract that was entered into on 9 October 1985.
On 10 September 1985 a second meeting was held between HDC and White representatives at which the letter of 10 September 1985 was discussed and Ian Bennett, the chief estimator for HDC, discussed with the White representatives ways in which they could reduce their price. White had produced a summary sheet dated 6 September 1985 showing how its pricing was made up and, of the amount of $15,075,000, $13,789,545 was provided for subcontract items, $986,000 for preliminaries and $300,000 for White’s fee. Mr Bennett went through this schedule with the White representatives and suggested lower figures to them which were then shown in the schedule and this resulted in an all up price of $13,375,000. As a result of this negotiation and what Mr Bennett told the White representatives, the figures were reduced to a total of $13,375,000.
On 12 September 1985, White wrote to HDC and confirmed the discussions on 10 September 1985 that it was prepared to construct the shopping centre on the basis of what was described as a “target sum contract” for a target sum of $13,375,000 with a White target fee of $350,000. The letter also referred to the savings and overruns to be shared on a 60/40 basis. In the letter White said:
“H.D.C. REQUIREMENTS
Under the target sum arrangement W.I.Q. would require H.D.C. to use its purchasing power on all trades to assist in achieving the target trade budgets.
TENDERS
W.I.Q. would wish to participate in negotiations with all trades tenders to ensure these target budgets are met.”
On 9 October 1985 Caboolture Park and White entered into a building contract. A standard form contract was used but its description was amended to read “target lump sum contract”. It incorporated the White letters of 10 and 12 September 1985 except that the references to $15,075,000 and prime cost items were deleted from the letter of 10 September 1985. Clause 1.06.07, which set out the contract sum, had been amended to describe the contract sum as “the target contract sum” and at the end of this clause there was an insertion:
“Wherever the words ‘contract sum’ apply in this agreement read the words ‘target contract sum’”.
The contract provided a break down of the figure of $13,375,000 which comprised forty‑one provisional sums totalling $11,975,000, an amount of $1,050,000 for preliminaries and an amount of $350,000 for White’s fee. In short, it was not a lump sum contract but the equivalent of a “cost‑plus” or schedule of rates contract. The forty‑one provisional sum items were expressly described as “provisional sums as per clauses 4.03” which allowed for a variation in the sum depending upon what the cost turned out to be.
After the contract was signed and construction had commenced, it became apparent and known to HDC and Caboolture Park that there would be cost overruns and that the final cost of construction would substantially exceed the contractual target sum of $13,375,000. HDC and Caboolture Park acquiesced in, and accepted, these cost increases. On 17 December 1985 Mr Poppleston, HDC’s supervisor on‑site who received quotations from the subcontractors, approved or rejected their quotations and passed their accounts for payment, said in a memorandum to Mr Herscu:
“In summary, as attached, White estimates that the final cost will exceed the original budget of $13.375M by $2.451M, resulting in a final cost of $15.826M.
This summary shows savings on the original budget in the order of $686,000.00, for which there are various reasons, and overruns of $3.137M, which are also noted”.
The attached summary set out the differences between the budget estimates for the various provisional sums, the contract price and the estimated final costs and gave explanations for the differences.
On the following day, 18 December 1985, Mr Poppleston sent a further memorandum to Mr Herscu in which he said that the final cost would certainly exceed the target budget of $13,375,000 and he gave the reasons which included under‑estimated costs and designs not completed at the time the target budget was set. From time to time HDC issued financial statement reports showing the cost overruns and it was apparent from these reports that the overruns by December 1985 were running in excess of $2,000,000.
Events leading up to the issue of the proceeding by Caboolture Park
Before turning to the critical events leading up to the issue of the proceeding it is important to refer to what was described as HDC’s or Mr George Herscu’s attitude and approach to litigation for it is relied on by Flower & Hart. I refer in particular to Mr Herscu’s attitude and approach because Mr Herscu personally took all important decisions in relation to any litigation. Mr Herscu’s attitude and approach was described in various ways by HDC’s general manager Mr Pearce and by HDC’s solicitors. It was a robust approach and HDC was not frightened to commence litigation to get what it wanted or to defend vigorously any claim made against it. HDC’s policy was to pursue vigorously any litigation undertaken. Its objective was either to win at trial or settle on favourable terms. Mr Herscu did not believe anything was impossible and was unconcerned about entering into litigation with limited prospects. HDC was unconcerned to enter into litigation to achieve its commercial purposes even if the advice was it could not win. The policy was no settlement discussions. Mr Herscu always took an optimistic view of litigation and as a result HDC viewed prospects of success in litigation more favourably than was indicated in the legal advice it received.
Over the years prior to 1985 Flower & Hart, of which Mr Michael Meadows was a partner, had carried out a substantial amount of legal work for HDC. Mr Herscu was regarded as a sensitive and difficult client and Mr Meadows was the partner who had the contact with Mr Herscu whether the matter was commercial, conveyancing or litigation. HDC had been involved in other substantial litigation and on difficult and contentious matters Mr Meadows was instructed to obtain the advice of Mr Callinan QC. (Mr Callinan was subsequently appointed to judicial office but as all relevant events occurred long before his appointment I will refer to him as Mr Callinan except when referring to his evidence in court.)
Mr Meadows’ approach was to ensure that legal advice given to HDC was practical and took account of the relevant commercial issues. Mr Meadows knew that Mr Herscu would want to take a small prospect of success and convert it into an impregnable case and he was concerned to ensure that this did not occur.
The critical events leading up to the issue of the proceeding on 23 December 1986 commenced in November 1986 when HDC decided it had paid enough to White and Mr Pearce asked Mr Meadows on 9 November 1986 whether they could stop the architect from issuing further certificates under the contract. Mr Pearce told Mr Meadows that the project had gone way over budget and they were paying White more than they had expected to pay with the prospect of having to pay even more. Mr Pearce said that Mr Herscu’s reaction was that White must have been charging too much. They wanted to see how they could stop payment. Mr Pearce did not suggest, or raise any issue, that there had been any misrepresentations by White. On 11 November 1986 the architect was agreeable to HDC’s request that no further certification would be made without first giving HDC five days notice of any certification proposed to be issued. The architect told Mr Meadows that they had certified payment of $16,000,000 under the contract and that they had not certified any more than what Mr Poppleston had approved in writing. On the same day, Mr Meadows brought this to Mr Pearce’s attention when he advised HDC, in substance, that any proceedings against the architect would not be successful.
The matter was brought to a head on 8 December 1986 when White wrote to HDC, a certificate of practical completion having been received from the architect, and told HDC that the contract price to date including all claims and variations and provisional sum adjustments was $19,668,608. White identified the currently approved contract sum of $17,532,509.11, payments to date of $16,474,250.78, required immediate payment of the difference, namely $1,058,258.33 and required approval of adjustments to the approved contract sum of $2,136,098.89.
On 9 December 1986 Mr Meadows went to Melbourne and conferred with Mr Pearce, Mr Bennett, Mr Perch (an HDC architect) and Mr Poppleston. Mr Meadows was told that costs in relation to the project had gone many millions over budget. Mr Meadows tried to find out what increases were associated with the numerous variations and what increases were simply overruns. He also tried to find out why, and in what circumstances, the target contract sum agreement had been entered into. Mr Bennett said that White was the lowest of four tenders at $14,800,000 fixed and that negotiations had taken place to settle upon the contract sum. Mr Bennett told Mr Meadows that he had been delegated by Mr Herscu the task of negotiating the price with White, that tenders were called on a target sum basis due to the expedition required and that prime cost items in the tender were rejected by Mr Herscu as being too expensive. Mr Herscu told Mr Bennett and White that $13,500,000 was the most he could spend on construction. Mr Bennett said that in response to White’s figures he had put it to the White representatives that the shopping centre could be constructed for $13,375,000 which was the aggregate of his estimate for each trade which would be involved and that he based his estimates on his experience and HDC’s costs and the carrying out of extensions to its Capalaba Shopping Centre. Mr Bennett told Mr Meadows that he went through each item on White’s summary sheet with White, proposed lower figures for most items and supplied the figures that made up the $13,375,000. Mr Bennett had told White that HDC would help White negotiate prices with subcontractors as HDC had the purchasing power.
Mr Bennett said that the representatives of White considered the matter overnight and the next day they met with Mr Briggs and himself and said words to the effect that they agreed with the figures that he had put forward and believed they could do the job for that price. Mr Bennett said that he then summarised the position for the meeting. He went through the figures which he had provided for the individual trades again and explained why he thought they were reasonable. He stressed that some of the trades might come in under or over the budget, nevertheless White was to carry out the works for around $13,375,000. Mr Bennett said that Mr Dugan from White had agreed with his summary. Mr Bennett said he outlined the agreement reached to Mr Herscu who agreed and Mr Bennett then returned to the meeting and said they had an agreement and White said they would submit the formal contract for signature as soon as possible.
At this meeting with Mr Meadows on 9 December 1986 HDC’s only complaint to him was that it had been over charged under a cost‑plus contract. There was no complaint that there had been any misrepresentations by White which were false, misleading or fraudulent and Mr Meadows was aware from what he had been told that all payments which had been made had been certified by the architect and approved by Mr Poppleston.
At this time Mr Meadows realised that further millions were payable, that Mr Herscu did not want to pay, that under the contract a claim by Caboolture Park was hopeless if the architect certified that further amounts were payable and that Caboolture Park’s bargaining position was poor. Mr Bennett did not tell Mr Meadows that the figures he had given White were unreasonable, but rather said that the figures he had given White were reasonable. Mr Meadows realised he needed a stronger bargaining card and he wanted to put his client in its strongest position.
Following this conference Mr Meadows wrote a letter to Mr Pearce on 16 December 1986 in the following terms:
“We refer to our discussions with you, Mr Ian Bennett, Mr Sol Perch and Mr Rick Poppleston in Melbourne on 9 December, and confirm Messrs Bennett & Poppleston instructed us as follows:-
A.Tenders were called from some four (4) builders on a ‘target sum’ basis (for the purpose of expedition).
Following assessment or these tenders discussions were held with White Industries (Qld) Pty Ltd (“Whites”).
B.Whites had included in its tender a list of provisional sums for what are now items 1 to 41 of Clause 15.03 of the Building Contract.
C.The figures proposed by Whites were rejected by your company and do not appear in the Building Contract.
A new set of figures proposed by Mr Bennett and others of your company (and based to some extent on your company’s experience at Capalaba Park) were included as the contract provisional sums.
It is important to note that the final ‘provisional sums’ adopted were those proposed by your company, not Whites.
As your company proposed these sums, we cannot see how it can be said Whites misrepresented the position here. It might have been possible, had Whites original figures been used, to say Whites represented the Works could be completed for a figure ‘in the order’ of the total nominated. But this is clearly not the case here.
We do not even think it would be of much use comparing the final cost of the Works (excluding variations) with the original Whites ‘target sum’ for those works. It does not really seem that your company has relied on Whites’ expertise here.
If you wish, we can discuss the matter with Mr Callinan, Q.C. to see if he can come up with any avenue of relief to your company. We are not at all optimistic but at least your company would then have pursued all possible avenues.
We confirm we think your company would now be best advised to ascertain:-
(a) the cost of the Works approved by your company to date;
(b)the claims for, nature of and authority for any variations to the Works, bearing in mind that if the Architect was authorised to direct variations, he need only have done so ‘in writing’ ie., even a plan might be sufficient; and
(c)the best possible and worst possible situations for your company in relation to the outstanding claims.
We confirm that the Architect is under a duty to Whites to certify progress certificates etc. in accordance with the Building Contract. Failure to do so may expose the Architect to an action for fraud and/or collusion.
In these circumstances, your company can expect the Architect to seek to protect his position one way or another.
Please let us have your further instructions after you have considered this letter.”
Mr Pearce instructed Mr Meadows to confer with Mr Callinan which he arranged to do on 17 December 1986. Before that meeting Mr Pearce told Mr Meadows that White had ceased work on the site, was threatening legal proceedings for some millions of dollars claimed due and that he believed the commencement of legal action by White was imminent. Mr Meadows said that before he met with Mr Callinan he was advising Caboolture Park that proceedings were not alive and he was not contemplating issuing proceedings as a result of what he had been told on 9 December 1986.
Mr Meadows met with Mr Callinan in his chambers between 8.30pm and 9.30pm on the evening of 17 December 1986. He took with him a copy of his letter of 16 December 1986. He had no recollection of taking a copy of the contract although he thought it quite likely that he had done so. He had no witness statements at that time. He outlined to Mr Callinan the result of his meeting in Melbourne and discussed his letter of 16 December 1986 to Mr Pearce. There is an issue as to whether Mr Callinan told Mr Meadows that Caboolture Park had an arguable case, albeit weak or whether he told Mr Meadows that as long as there was evidence of a number of matters which he specified there was an arguable case albeit weak. For present purposes it is sufficient to record that there was discussion in the course of which Mr Callinan said that it did not matter who had initially suggested the contract figure so long as it was adopted by White and that there was an arguable case but it was fairly weak. I will return to the dispute about the context of this statement and the findings I make in relation to it.
In the course of the conference Mr Callinan told Mr Meadows that he was concerned that Mr Herscu should be under no misapprehension as to the comparative weakness of Caboolture Park’s position. Mr Callinan said that these cases had a habit of building up a momentum of their own and that he did not want Mr Herscu to come along in six months time, convinced that he had a strong case and refusing to follow his legal adviser’s advice regarding some reasonable settlement. Mr Callinan said that the matter was one which would probably have to be settled with some cost to Mr Herscu and he did not want Mr Herscu building up any unrealistic expectations of success.
Mr Meadows and Mr Callinan then discussed the terms of a letter to be forwarded by Mr Meadows to Mr Herscu and this was sent the following day, 18 December 1986. Mr Callinan said he did not settle the letter although he may have had input into it. A diary note of Mr Meadows on that evening records that Mr Callinan dictated the letter. In any event Mr Meadows sent a copy of it to Mr Callinan on 18 December 1986 and said that Mr Callinan approved of its contents albeit after it was sent to Mr Pearce. It matters not whether Mr Callinan dictated the letter or only approved of its contents. What is clear is that Mr Callinan has not suggested that there is anything in the letter which does not accurately record his view or opinion and I am satisfied that it records his views and his advice and that he approved it. As action by White to recover outstanding payments claimed due to it was believed to be imminent according to Mr Meadows’ instructions, Mr Callinan proposed that Caboolture Park should immediately institute proceedings in the Federal Court against White under s 52 of the Trade Practices Act alleging misleading or deceptive conduct rather than waiting to raise this claim as a defence to an action commenced by White. Mr Callinan told Mr Meadows that he thought Mr Herscu should get on the front foot and he was anxious to have the s 52 action commenced in the Federal Court.
Mr Meadows’ letter of 18 December 1986, which was quite deliberately expressed in stronger terms than his letter of 16 December 1986, was in the following terms:
“I conferred with Ian Callinan Q.C. last night.
We are both very concerned about your position.
I advise as follows:
1.The strict legalities are against you and your contractual position is weak.
2.Shortly stated, pursuant to Clause 4.03.03 of the Contract, the nominated amount is a provisional amount, subject to all necessary adjustments and subject to certification by the Architect as to their reasonableness.
3.As you know, the Architect either has said or will say in respect of most items that the amounts claimed are reasonable.
At law, the Architect has a preliminary arbitral function and is generally regarded (in the absence of positive misconduct) as being the final umpire on disputed issues of cost for all practical purposes.
4.Your position is further weakened by the fact that in almost every case, proposed sub‑contract prices were expressly referred to your Company’s officers for approval.
In some instances, there were express approvals and in others, approval may well be inferred from tacit acceptance or absence or protest.
5.I do not deal with other than matters of principle at this stage.
To quote Ian Callinan, ‘in a word, your legal position is weak’.
6.Is there anything that can be done to try to give you, at the very least, a temporary bargaining stance? (Underlining in letter as sent)
I think there is one possibility, but please do not over‑estimate its ultimate strength.
Ian Callinan and I think that you should immediately start Section 52 proceedings (under the Trade Practices Act) in the Federal Court alleging deceptive conduct and relying upon the proposition that in each and every case i.e. in respect of the target contract price, its components and the submitted tenders, the builder represented they were reasonable when in fact they were not.
Fraud on the ground of recklessness may also be available to be pleaded against the builder.
7.To put you in the best possible position, I have instructed Ian Callinan and Richard Perry (Junior Counsel) to draw proceedings for urgent filing in the Federal Court. I expect the pleadings to be completed and filed by Monday, 22 December at the latest.
8.At this time, Ian Callinan sees no reason for your Company to appoint a new Architect pursuant to the obligation in that regard imposed on your company under the Contract.
I do have to make it clear however that you could not win any litigation if put to the test.
I have not for example, attempted to describe the significant legal obstacles standing in your way, such as the general law of building contracts with particular reference to the role of an architect, estoppels and quantum merit. I have also not dealt with variations where generally the same obstacles exist.
It is better I think that at present I apply myself and my firm’s resources to the urgent institution of proceedings to attempt to secure some bargaining position for you.”
The letter’s reference to “you could not win any litigation if put to the test”
Mr Meadows said that the letter was meant to reflect the advice given to him by Mr Callinan but that the statement “I do have to make it clear however that you could not win any litigation if put to the test” did not fully or accurately state his views on the matter at the time. He said that this blunt statement was intended to convey to Mr Herscu that notwithstanding any argument he might raise, Mr Callinan and Mr Meadows, on the material before them, thought Caboolture Park would not in the end be successful. Mr Meadows said he did not mean to say that Caboolture Park had no arguable cause of action but rather wished to make it clear that in the end, on the fairly sparse material then before them, he did not believe the argument would ultimately prove successful. Mr Meadows said the position was put bluntly in the letter because Mr Herscu had some limitations in his command of English, was never concerned with the niceties of legal argument and they did not want Mr Herscu to build up any false hope. Mr Meadows and Mr Callinan saw a need to get a realistic and pessimistic message across to Mr Herscu lest he build up a delusion that he had a strong case and would win.
I find Mr Meadows’ explanation or qualification for the words “you could not win any litigation if put to the test” unconvincing. If Mr Meadows was intending to put the position, as he and Mr Callinan saw it bluntly, nothing could be clearer than “you could not win”. The words he used in the letter are not consistent with a view that Caboolture Park had an arguable case.
Mr Meadows had difficulty with this proposition in cross‑examination. He said that he held the view that if the case on misrepresentation was to go to trial it would be lost until his conference with Mr Callinan. That view was consistent with his letter of 16 December 1986 and was dictated by the fact that the figures in what was said to be the representation were provided by HDC which placed a substantial obstacle in any proceeding that might be issued. He said that Mr Callinan disagreed with him and said that there was scanty material before them but he believed that there was an arguable case that White had adopted the figure provided by HDC and represented that it could achieve that figure.
However after Mr Meadows saw Mr Callinan he formed the view that on the material before him the action would ultimately fail. He put the matter another way when he said that Mr Callinan advised him that the s 52 action was never going to be wholly successful and that Mr Herscu would have to pay a substantial amount in the long run. This is another way of saying that the action will fail as it is difficult to see how the s 52 action or fraud action could be partially successful. Either there was misleading and deceptive conduct and/or fraud or there was not. In the former case having regard to what had been paid, Caboolture Park would not be obliged to pay any further amounts to White. In the circumstances if the s 52 case and fraud case was unlikely to be wholly successful, as Mr Meadows put it, and money was to be paid to White under the contract that must be because the s 52 case and fraud case would fail.
I am satisfied that the letter of 18 December 1986 accurately and honestly recorded and reflected the views held by Mr Meadows and Mr Callinan at that time as to Caboolture Park’s prospects of success in any litigation brought under s 52 or in fraud. That is to say any such litigation could not be won. As I noted earlier Mr Meadows’ approach to giving advice to HDC was practical and took account of the relevant commercial issues. When Mr Meadows signed the statement of claim and instituted the proceeding his view was that if the proceeding went to trial and judgment it would fail.
This conclusion is confirmed when one looks at the whole of the terms of the letter and puts the statement “you could not win any litigation if put to the test” in the context of all of those terms. In particular it must be read in the light of Mr Meadows’ search for “a temporary bargaining stance” for his client. Mr Meadows said that there was no discussion in his conference with Mr Callinan about seeking the delay of payment of any amount payable under the contract and he said that he had not been given any instructions on behalf of anyone at HDC that they had an interest in delaying payment. This evidence does not lie easily with the statement in his letter of 18 December 1986:
“Is there anything that can be done to try to give you, at the very least, a temporary bargaining stance?”
More particularly is this so when Mr Meadows emphasised the matter by underlining the words “a temporary bargaining stance”. Mr Meadows did not give any explanation for the reason he underlined these words other than to suggest that the words were underlined as over enthusiasm on his part in an attempt to dampen down any false expectations of success Mr Herscu might have. I will return to a consideration of this sentence.
There is another passage in the letter which highlights the temporary nature of what Mr Meadows was seeking to achieve. Mr Meadows and Mr Callinan were proposing the institution of an immediate s 52 case based upon the proposition that White had represented that the components of the target contract price were reasonable when in fact they were not. This was a surprising proposition because on 9 December 1986 Mr Bennett had told Mr Meadows that the figures he had suggested to the White representatives were quite reasonable.
That delay was the purpose for the institution of the proceeding is also borne out by the final paragraph of the letter:
“It is better I think that at present I apply myself and my firm’s resources to the urgent institution of proceedings to attempt to secure some bargaining position for you.”
For the reasons to which I shall refer, I am satisfied that the purpose which Mr Meadows had for the proceeding proposed in the letter was not to vindicate any right which Caboolture Park had, or was thought to have, under or in relation to the building contract but rather to stall White in its quest for the moneys due under the building contract. The terms of the letter taken as a whole, as well as the particular passages to which I have referred and subsequent evidence to which I shall refer lead me to this conclusion.
Institution of the proceeding
Later that day (18 December 1986), Mr Pearce instructed Mr Meadows to issue and serve proceedings against White as soon as possible. In response to questions from Mr Pearce Mr Meadows said he saw no grounds for the issue of proceedings against the architect and that proceedings against Mr Poppleston seeking to restrain him from taking employment elsewhere would be quite inappropriate and fruitless.
Mr Meadows also spoke to Mr Herscu on 18 December 1986 who told him of the three meetings which had been held between representatives of HDC and White in relation to negotiating the construction cost. Mr Herscu told Mr Meadows that the discussions took place in relation to the preliminary budget and Mr Herscu said he told White that he had a fixed sum of money, $13,500,000, to spend and he invited White to bring the figures down to the lower price he sought. Mr Herscu said that on the basis of the subcontracts originally let by White pursuant to the contract and after taking into account some variations and on site labour and site allowances, a total of $15,500,000 all up would have been payable by Caboolture Park to White (some $2,000,000 above the budget allowance) but Mr Herscu said he had already paid $16,000,000 to White and the job was nowhere near finished.
Mr Herscu told Mr Meadows that White had told him they could build a shopping centre for the tendered figure ($13,375,000) and that while he expected some cost overruns, a 50% increase was never contemplated. Mr Herscu told Mr Meadows to confer further with Mr Callinan and to issue proceedings first before communicating with White.
Mr Meadows asked Mr Herscu to have Mr Bennett prepare a spreadsheet showing the budget figures for each trade, the figures at which subcontracts for those trades were let and the value of any amendments or variations. Mr Herscu told Mr Meadows to speak to Mr Poppleston about the gravity of the situation and the fact that legal proceedings would be instituted. The spreadsheet was sent to Mr Meadows after the proceeding was instituted on 28 January 1987 and it showed subcontracts let totalling $15,687,745.13, variations certified by the architect totalling $2,262,194.73 and total variations claimed of $5,036,920.36. Mr Meadows did not read it.
The statement of claim was drawn by junior counsel, Richard Perry, and settled by Mr Callinan after they had discussions with Mr Poppleston. They returned the statement of claim to Mr Meadows under cover of a memorandum of advice dated 22 December 1986, which was in the following terms:
“We have been asked to advise in relation to this matter and to draw appropriate pleadings. Although the enclosed Statement of Claim sets out three alternative causes of action against White Industries Querist should be under no misapprehension that this is anything other than a relatively weak case. We have had discussions with Mr Poppleston and from the information that he has imparted to us it is clear that the target sum was arrived at by virtue of Querist’s insistence rather than as an offer by White Industries. It is clear also from the correspondence that Querist’s architects have indeed sanctioned many, if not all, of the sums now claimed by White Industries.
Nonetheless it is Querist’s contention that the target sum was understood by Querist to bear some relation to the final construction cost. That assumption is perhaps a reasonable one in the circumstances. Whether that assumption founds an action is perhaps debatable. Nonetheless the purpose of the pleadings (sic) is to place Querist in the advantageous position of having struck the first blow.”
The last sentence is significant and I will come back to it later. The application and statement of claim signed by Mr Meadows, although dated 22 December 1986, were filed with the Court on 23 December 1986.
The statement of claim pleaded:
“7.During the course of the negotiations and prior to the making of the said agreement the aforesaid JOHN DUGAN, ALAN ANDERSON and BRIAN DEMPSTER represented to the applicant that:
(a)the agreed target contract sum of $13,375,000.00 or a sum very close thereto was attainable;
(b)the target contract sum or a sum very close thereto represented and was the attainable total cost of construction;
(c)the Respondent was capable of and undertook to achieve a total construction cost consistent with the amount of the target sum or a sum very close thereto.
8.By making the representations referred to in Paragraph 7 hereof the said JOHN DUGAN, ALAN ANDERSON and BRIAN DEMPSTER impliedly represented that:
(a)they, or the Respondent, through its other servants or agents, knew of facts, matters or circumstances which justified the making of such representations;
(b)the Respondent, by its servants or agents possessed sufficient and requisite skill, competence and experience so as to have properly considered and assessed an appropriate target contact sum and total construction cost;
9.By virtue of the matters alleged in Paragraph 5 hereof the making of the said representations and implied representations referred to in Paragraphs 7 and 8 hereof constituted conduct engaged in by the Respondent.
10.The making of the representations and implied representations by the Respondent was:
(a)conduct engaged in in the course of trade or commerce;
(b)conduct engaged in that was misleading or deceptive or likely to mislead or to deceive.
11.Further and alternatively the making of the said representations and implied representations was negligent and the Respondent, by its servants and agents including but not exclusively the said JOHN DUGAN, ALAN ANDERSON and BRIAN DEMPSTER:
(a)had no reasonable basis for making the said representations and implied representations, and
(b)knew that the Applicant intended to and would rely upon such representations in entering into the said agreement.
12.Further and alternatively the representations referred to in Paragraphs 7 and 8 hereof were made fraudulently in that they were made with knowledge that they were false, or without knowledge that they were true or with reckless indifference as to their truth or falsity.
13.Induced by and in reliance upon the truth and faith of the said representations the Applicant entered into the aforesaid agreement.
…”
It is important to note that the statement of claim as settled alleged fraud on the basis of knowledge of falsity or without knowledge of truth or on the basis of reckless indifference as to the truth or falsity of the representations. It is not clear what was the genesis of the decision to plead fraud. Neither Mr Meadows nor Mr Callinan ventured an explanation as to why or how a decision was made at the time to plead fraud or as to the basis, factual or otherwise, upon which such a decision was made. No evidence was led in any of the affidavits of any discussions about pleading fraud. I also note that the statement of claim did not plead an allegation that the representations were false nor any particulars of such falsity.
At the time the proceeding was instituted Mr Meadows had not seen any documentary evidence in relation to the cost overruns or how they had come about. Mr Meadows did not see or read any documents which came into existence prior to the date of the contract before the proceeding was issued. He had not read White’s tender or any documents relevant to the circumstances under which the contract price increased. He had not seen any communications between the HDC people on the site and the HDC people at its head office in Melbourne. He realised that he ought to look at any documentation that came into existence prior to the contract but he did not ask for documents to be made available to him as he wanted to issue quickly as Mr Herscu wanted the proceedings issued as soon as possible and he had advice from Mr Callinan that this was an appropriate course to follow. He wanted to make a pre‑emptive strike and Mr Herscu told him not to tell White that they were intending to issue proceedings. Mr Meadows was anxious, on the advice of Mr Callinan, to strike the first blow, get on the front foot and be the plaintiff in an impending action. Had Mr Meadows not been in a hurry to issue the proceeding he said he would have assembled a full brief and presented it to counsel. At the time he issued the proceeding he expected that it would not go to trial and that they would be able to settle although he said he did not intend that the proceeding should not go to trial. Mr Meadows expected when he issued the proceeding that it would provide his client with a bargaining tool in negotiations in relation to its liability under the contract because he always believed that his client would have to pay a substantial amount under the contract.
At the time Mr Meadows issued the proceeding he said that the falsity on which he was relying and was alleging was that when White made the representation that it could build and complete the shopping centre for around $13,375,000 it had no reasonable basis for the statement. This was a surprising aspect of falsity on which to rely because Mr Meadows’ only source of instructions as to the representations made was Mr Bennett. It will be recalled that the component amounts which made up the $13,375,000 came from Mr Bennett. When asked in cross‑examination about what Mr Bennett had told him on 9 December 1986, Mr Meadows said that Mr Bennett did not say to him that the figures suggested by Mr Bennett were said by White to be reasonable or unreasonable. Mr Bennett did not tell Mr Meadows that the components of the target price he had suggested to White were unreasonable. Rather Mr Bennett told Mr Meadows that the figures he had suggested to the White representatives were reasonable. It is difficult therefore to see what possible basis Mr Meadows had for claiming that there was no reasonable basis for the representation. Mr Meadows said that he had three things in mind - White’s original tender of $14,800,000 fixed, White’s second figure of $15,075,000 and the factual end result where White was looking for close to $20,000,000. However this explanation does not lie easily with his acknowledgment that Mr Bennett, the progenitor of the representation, thought the representation reasonable. Mr Meadows did not recall paying any great attention to that factor or taking it into account before issuing the proceeding claiming fraud and misleading conduct. However, he said that before he issued he believed that the fact that Mr Bennett had based his estimates on his own experience at Capalaba was a highly relevant factor and he thought that the fact that Mr Bennett thought those figures were reasonable was an important factor. The fact that Mr Meadows was advising the issue, and procuring the issue, of proceedings in these circumstances supports the finding that Mr Meadows not only believed that Caboolture Park had a hopeless case but was prepared to institute the proceeding for an ulterior purpose that is a purpose unrelated to the vindication of a right claimed by his client. I will return to this issue.
What advice did Mr Callinan QC give?
I return to the issue as to what advice Mr Callinan gave to Mr Meadows on the evening of 17 December 1986. Mr Meadows’ version is that Mr Callinan said that on the facts as they were then known, Caboolture Park had an argument, albeit weak, that White had represented to Caboolture Park that the ultimate cost of construction of the shopping centre would bear some reasonable relation or approximation to the nominated target sum of $13,375,000. According to Mr Meadows, Mr Callinan said that as the ultimate cost was many millions of dollars in excess of the nominated target sum an action under s 52 of the Trade Practices Act would lie and that he did not think the fact that HDC had put forward the figures on which the target sum had been based defeated that action. However, Mr Callinan stressed that at this stage before any detailed written statements had been obtained Caboolture Park’s argument must be seen as relatively weak. Mr Meadows said that after some discussion he accepted Mr Callinan’s view as correct, namely that Caboolture Park had an argument it could legitimately raise against White even though that argument was fairly weak. Mr Meadows said that Mr Callinan’s advice was recorded in his memorandum enclosing the statement of claim on 22 December 1986.
Mr Callinan’s version is somewhat different and more qualified. Mr Callinan said that he took a contrary view to Mr Meadows’s view that as the figure of $13,000,000 or thereabouts had initially been suggested by Caboolture Park to White that it would be difficult to argue that it was a representation by White. Mr Callinan continued in his affidavit sworn 26 March 1993:
“Although I was not overly optimistic about the final outcome of the action (though, it was too early at that stage to form an opinion about that) I did not believe that the fact that Caboolture Park may have suggested the ultimate construction cost figure was, on that account, fatal to any Section 52 claim. It seemed to me that it did not matter who initially suggested the figure as long as there was evidence that it had been adopted by White Industries, that White Industries had consequently represented that it could be constructed at that approximate cost, and that Caboolture Park had been induced to contract with White Industries on that basis. I considered that there was an arguable case, the prospects of which would obviously ultimately depend on how the evidence unfolded.”
Justice Callinan elaborated on this evidence in cross‑examination when he said that at the time he considered that if there was evidence to support the adoption of the figure by White, the representation by White that it could construct for that approximate figure, the inducement of Caboolture Park to contract with White on that basis, the falsity of the representation and the suffering of loss by Caboolture Park as a consequence of the making of the representation there was an arguable case, albeit a weak one.
What is in issue is whether Mr Callinan communicated this view to Mr Meadows in this way. Justice Callinan agreed that he advised that if there was evidence of the three matters set out in his affidavit, namely adoption of the figure by White, a representation by White and inducement together with falsity, there might be an argument, albeit weak, that a representation was made which was actionable. Justice Callinan said he wanted evidence of adoption, the consequential making of the statement, inducement and loss although he thought that the evidence of adoption was probably already available. Justice Callinan said that his advice was not that there was a case but rather that if there was evidence of the four matters of adoption, the consequential making of the statement, inducement, falsity and loss there might be a case albeit weak. He said that he sent back the statement of claim on the basis that in effect instructions had to be obtained on those matters.
Justice Callinan put the matter succinctly when in response to the question:
“When you sent the statement of claim back you had already advised that provided evidence can be produced in relation to the three matters you set out in your affidavit and the fourth [falsity]”,
he answered:
“It went without saying, I would have thought”
and went on to say that it was fundamental that provided evidence could be obtained Mr Meadows could issue the statement of claim. However Justice Callinan did not suggest that he told this to Mr Meadows, namely that provided evidence could be obtained he could issue the statement of claim.
Mr Meadows did not recollect receiving advice from Mr Callinan in these terms, that is to say in terms that provided there was evidence of these matters there was an argument albeit weak that a representation had been made. Mr Meadows’ recollection was that Mr Callinan referred to there being very scanty material before them but that Mr Callinan believed that there was an arguable case that White had adopted the figure provided by HDC and represented that it could achieve that figure.
Mr Sofronoff QC who appeared with Mr Newton for Flower & Hart, submitted that it was not open to me to make a finding that Mr Callinan’s advice was in substance that provided there is evidence you have a case because that distinct proposition was never put to Mr Meadows and because such a finding was inconsistent with the documentation which Mr Callinan subsequently wrote, signed or settled, in particular the letter of 18 December 1986, the advice of 22 December 1986 the settled statement of claim and the opinion of 13 April 1987 (to which I refer later). However the distinct proposition was put to Mr Meadows (Transcript 309) and he did not recollect receiving advice in those terms. Further such a finding is not inconsistent with the documentation emanating from Mr Callinan. The point is not that Mr Callinan said to Mr Meadows that he should not institute the proceeding until he had the evidence available but rather that as long as there was evidence available as to the matters to which Mr Callinan referred there was an arguable, albeit weak, case. A conclusion along these lines is not inconsistent with any of the documentation emanating from, or approved, by Mr Callinan. The letter of 18 December 1986 does not state or suggest that the s 52 case was arguable; it simply gives advice - immediately start s 52 proceedings and then, after referring to instructions to counsel to draw proceedings, it says - you could not win any litigation if put to the test.
I am satisfied that on the evening of 17 December 1986 Mr Callinan advised Mr Meadows that as long as there was evidence available as to the matters to which he referred in evidence, namely adoption of a construction cost figure by White, White’s representation that the project could be constructed at that approximate cost, that Caboolture Park had been induced to contract with White on that basis and that the representation was false, Caboolture Park had an arguable, albeit weak, case. I am also satisfied that Mr Callinan advised that proceedings should be instituted immediately. However I do not accept that Mr Callinan told Mr Meadows that provided there was evidence Mr Meadows should issue proceedings or that proceedings should not be instituted until he had evidence available. To the extent to which Mr Callinan considered and advised on the issue of evidence he considered that there was probably evidence of adoption of Caboolture Park’s figures by White and that provided there was evidence of the matters to which he had referred there was an arguable, albeit weak, case. Such a finding is not inconsistent with the relevant documentation or the other advices given by Mr Callinan. Mr Callinan may have thought that it was fundamental that proceedings should not be issued unless evidence could be obtained but he did not specifically raise that matter with Mr Meadows. Indeed the letter of 18 December 1986 and Mr Callinan’s advice of 22 December 1986 are only consistent with the view that Mr Callinan was advising and/or approving of the issue of the proceeding immediately. Mr Meadows said as much in the letter of 18 December 1986 and Mr Callinan did not dispute this proposition.
It was submitted by Mr Sofronoff that such a conclusion was inconsistent with the settling of a statement of claim and its return under cover of the advice of 22 December 1986 which was not expressed in such qualified terms but was only consistent with the writers of the advice, Messrs Callinan and Perry, holding the view that there was a relatively weak case not dependent upon the determination whether there was appropriate evidence. I do not accept that submission having regard to the circumstances under which the application and statement of claim were settled by counsel. Those circumstances are that the situation, as Mr Meadows and Mr Callinan understood it, was urgent as White was expected to commence proceedings against Caboolture Park in the near future and Mr Herscu was adamant that he wanted action taken. Mr Meadows’ letter of 18 December 1986, either dictated and/or subsequently approved by Mr Callinan, accurately recorded the views then held by Mr Meadows and Mr Callinan and accurately recorded that the purpose of the pleading was to gain a temporary bargaining stance and bargaining position for the client who had a case that could not be won if put to the test. Further, Mr Callinan’s advice was in pessimistic terms and after pointing out the extreme difficulties involved concluded:
“Nonetheless the purpose of the pleadings [sic] is to place Querist in the advantageous position of having struck the first blow”.
That was the purpose of the pleading, in my opinion, from the solicitor’s point of view, having regard to the client’s adamant view that it did not want to pay any more money. The purpose of pleading was, notwithstanding that the case could not be won, to put the client in the position of an applicant or plaintiff so that it could obtain a temporary bargaining stance and bargaining position. The pleading was settled, returned by counsel and filed not because it pleaded a case thought to be capable of being won but because it provided a procedure or mechanism by which White’s recovery of monies due under the building contract could be forestalled or delayed.
The urgency was for Caboolture Park to issue a proceeding first; there was no time to investigate, collect or collate evidence. Although Mr Callinan turned his mind to the question of evidence and advised that subject to the evidence being available there was an arguable, albeit weak, case he did not make the obtaining of the evidence a pre‑condition to the issue of the proceeding. The whole tenor of the letter of 18 December 1986 is that - you cannot win but we think you should issue proceedings urgently to obtain a temporary bargaining stance and bargaining position.
There is nothing in Mr Callinan’s and Mr Perry’s memorandum of advice of 22 December 1986 which is inconsistent with Mr Callinan’s advice that if the evidence was available there was an arguable, albeit weak, case. There was no time to take the matter of evidence further more particularly when:
“... the purpose of the pleadings (sic) is to place Querist in the advantageous position of having struck the first blow.”
I am satisfied that Mr Callinan expressed no view on the merits of the case by reference to such evidence as was available. His advice that the case was arguable was limited substantially to the key issue that Mr Meadows had raised with him, namely had White made a representation that it could build for a figure?
Progress of the proceeding
On 13 February 1987 the first directions hearing in respect of the proceeding was held before Pincus J who directed Caboolture Park to deliver an amended statement of claim with particulars.
Mr Meadows travelled to Melbourne on 16 February 1987 when he took a statement from Mr Herscu and he spent all day on 17 February 1987 taking a statement from Mr Bennett. Sometime prior to 19 February 1987 Mr Meadows suggested to Mr Pearce that he obtain advice from a competent quantity surveyor as to his best estimate of the cost of construction of the shopping centre as at the contract date. He received conflicting advice from the quantity surveyor but the end result of that advice was the expression of a view that “no one should have accepted the price in the first place and that the builder was an idiot”. An amended statement of claim was delivered on 24 February 1987 in an expanded form which reflected the subject‑matter of the statements taken by Mr Meadows. On 25 February 1987, White sought further and better particulars of the statement of claim which were delivered in the form of a further amended statement of claim on 2 March 1987.
Mr Meadows was not a litigation practitioner and he brought in one of his partners Mr Robert Lockhart to manage the litigation. Mr Lockhart was handling the matter by 26 February 1987 and he sought counsel’s advice on the issue of damages. On 26 February 1987 Mr Morris sent Mr Lockhart a draft joint opinion of Mr Callinan, Mr Perry and himself which had not been considered by Mr Callinan or Mr Perry and which Mr Morris said did not purport to represent their views in which the following statement appeared:
“We should preface our observations by noting our instructions that it is presently regarded as unlikely that this action will ever go to trial. Whilst the possibility that a trial may ultimately occur should not be lost sight of, the present priority is to particularise a claim for damages in a manner which will withstand attack during the course of interlocutory steps.”
Mr Lockhart said that those instructions probably came from him as he took the view that the action was one that should settle because of the sheer size of the action.
White delivered its defence and cross‑claim on 23 March 1987 and on 2 April 1987 Caboolture Park’s junior counsel were delivered instructions to draw a request for further and better particulars of the defence and cross‑claim. Mr Lockhart said that he did not seek by the delivery of the request to be obstructive and he did not instruct counsel to seek to draw an obstructive request. However, counsel returned the request the following day under cover of a letter which stated:
“We consider that, having regard to the general strategy which has been adopted in this action to date, there is some merit in taking the Respondent’s solicitors to task in respect of certain aspects of their client’s Defence and Counter‑Claim; to that end, we have drafted a letter to those solicitors, which is self‑explanatory. Subject to obtaining appropriate instructions, we recommend that a letter in substantially the same terms as our draft should be sent to the Respondent’s solicitors at the earliest possible time.
We have also, as instructed, drawn a Request for Further and Better Particulars, which is enclosed herewith.
We were tempted to prepare a Request which was even more searching and extensive; however, on reflection, we consider that the client’s tactical objectives will be best served by adopting an attitude which is not transparently obstructive. We regard the Request which we have drawn as being not unreasonable, having regard to the breadth of issues in the action, and the substantial amounts of money involved.”
On 10 April 1987 Mr Callinan and Mr Meadows went to Melbourne to review HDC’s documents. On 13 April 1987 Mr Callinan provided an opinion in which he set out in considerable detail the steps which had to be taken in the preparation of the case. He said that full statements were required from the clerk of works and Messrs Poppleston, Briggs, Pearce, Herscu and Bennett. (The three affidavits that were finally prepared were not prepared for over twelve months). He identified four likely lines of defence to Caboolture Park’s claim, the fourth of which was that Caboolture Park in all respects acquiesced in or accepted “the escalating prices and ultimate contract figure”. He referred to these defences and then said:
“There are a number of as yet unanswered questions. Querist is itself a builder of some experience. That does not of course absolve a builder in the position of Whites from performing the work arising under its contract. But how, any judge will ask, could it be that Querist could simply continue to pay out the amounts of money which it did to contractors who had far exceeded the estimated price of the work, the subject of their contracts? The great underlying question is, how could Querist have paid out some many millions of dollars in the vicinity of or more than the target price up to the end of September, 1986, while it was apparent that the work was then unfinished, that claims were outstanding, and that there was no, even remote chance, of completing the work for anything like the target price. That is the great unanswered question, and at present, no satisfactory response comes readily to mind. All statements should pay close attention to this matter.”
In the opinion Mr Callinan said that junior counsel should commence to draft interrogatories for his consideration and he explained the extensive nature of the interrogatories he had in mind. Later in the opinion he said:
“Querist is anxious to make the matter difficult generally as it can for Whites, and I reiterate that the most promising way of achieving this is by having ready as soon as possible, an extremely comprehensive set of Interrogatories.”
On 8 September 1987 an order was made directing Caboolture Park to deliver a draft set of interrogatories. A first draft was delivered on 22 October 1987 and a further set of draft interrogatories was delivered on 16 December 1987 comprising 700 pages dealing with over 500 variations. An order was never made that the interrogatories be answered.
Throughout April and May 1987 further interlocutory steps were taken at directions hearings further directions were given and pleadings and particulars were filed and served.
Commencing in December 1986 a number of White’s subcontractors had commenced proceedings in the Supreme Court of Queensland against White and Caboolture Park for monies due for work carried out on the construction of the shopping centre. On 11 May 1987 at a directions hearing before Spender J counsel for White foreshadowed an application to have two separate trials, one in respect of Caboolture Park’s s 52/fraud/negligence claim and the other in respect of White’s cross‑claim under the building contract. Mr Lockhart was concerned that if White succeeded in its application, Caboolture Park’s claim would be brought on for trial very quickly as the issues involved would be simplified, as he put it, “to merely a claim under the Trade Practices Act”. He wrote to Mr Pearce that day, said that Flower & Hart would oppose such an application and said he had put before counsel a number of options which, if adopted, would out‑manoeuvre White in relation to its proposed application. Those options included:
“… immediately applying to join the sub‑contractors as Defendants to the action, or applying to amend the statement of claim so that the issues involved in your company’s claim under the Trade Practices Act become so interwoven with the counterclaim of White Industries that it would be impossible to have the issues split.”
Flower & Hart amended Caboolture Park’s reply and answer on 19 May 1987 by adding paragraph 14(c) which raised allegations of negligence by White in the administration of the building contract. On 19 May 1987 Flower & Hart reported to Mr Pearce that:
“This has been done in an effort to prevent White Industries from arguing that your company’s Trade Practices claim is separate from the claim which it has against your company under the building contract and is thereby designed to frustrate any attempt to split the issues.”
On 26 May 1987 Mr Lockhart wrote to Mr Pearce informing him that White had served an application seeking orders that the issues in the proceeding be split so that it could be dealt with speedily and seeking to strike out paragraph 14 of the reply and answer. Mr Lockhart said:
“You will recall that we specifically inserted paragraph 14 in the reply and answer so that all issues in the action would be bound together thereby making it impossible for a separate trial of the individual issues to occur.”
On 28 May 1987 Pincus J ordered that some parts of paragraph 14 be struck out but paragraph 14(c) remained in the pleading and a split hearing was not ordered.
An application was made in May 1987 to stay one of the subcontractors’ claims in the Supreme Court of Queensland and judgment was given on 24 December 1987 refusing the stay. That application was treated as a test case. An appeal against that refusal was dismissed on 23 February 1988.
On 10 November 1987 there was a hearing before Pincus J at which the issues of a Court appointed expert and the fixing of a trial date were canvassed. White sought an order for the fixing of a trial date but no trial date was fixed. Caboolture Park was represented at the hearing by two junior counsel Messrs Morris and Perry. There was a reason for this representation which Mr Lockhart set out in a letter to Mr Pearce of 10 November 1987:
“We had a conference with Mr Callinan Q.C. on 9 November at which time it was decided that he should not be present at the mention today. The reason for this was that it was considered that there would be questions asked by the Court as to the lack of progress in the action, what further steps would be taken in the action by your company and that the Judge might press for a commitment that the matter would be pursued in a more diligent manner by your company. It was considered that if only Junior Counsel was present the Judge would not be able to press such questions and it may frustrate White’s attempts to obtain a trial date.”
In February 1988 Mr Callinan recommended that Caboolture Park apply to the Federal Court to join the various subcontractors in the Federal Court proceeding. This advice was communicated by Mr Lockhart to Mr Pearce by letter dated 18 February 1988 in the following terms:
“You will recall that late last year we raised with you the prospect of joining the subcontractors who had commenced proceedings in the Supreme Court as parties to the Federal Court action ...
We have now received advice from Mr Callinan to the effect that he recommends that we apply to the Court to join the various subcontractors as parties in the Federal Court action. While Mr Callinan cannot say for certain that your company would be successful on such an application due to problems associated with the jurisdiction of the Federal Court he is however of the opinion that to now join the actions is of immense advantage to your company. Mr Callinan considers that your company has now exploited to the full the fact that the actions up to this time have been conducted in separate Courts.
The first advantage to your company in joining the parties in one action is that the Federal Court action has reached the stage where it is now difficult to delay the matter proceeding to trial. By joining the subcontractors to the Federal Court action you will add fourteen new parties (each individually represented). As a result of the new parties being added pleadings will have to be amended, discovery will have to be made by the subcontractors and interrogatories will have to be delivered to the subcontractors. In essence the joining of the subcontractors should delay the action considerably and will be relatively inexpensive when compared to the cost of preparation for trial.
The second and probably the most important advantage is that it creates very real difficulty for Whites in the conduct of its case. Whites will be left in the position where it will have to allege in the same Court that it does not owe the subcontractors money while at the same time alleging that your company owes it money. A similar situation will arise in respect of variations to the works.
The delivery of a request for particulars in April 1987 which was searching and extensive was part of the general strategy to take every point on Mr Herscu’s instructions. That of itself would not warrant a costs order against the solicitors but when viewed against the background of the events around 17 to 23 December 1986 it demonstrates an implementation of the purpose for which Flower & Hart instituted the proceeding on behalf of its client. Counsel’s reference to adopting an attitude “which is not transparently obstructive” supports the proposition that there was a strategy of putting obstructions in the way of White achieving an expeditious determination of its claim for monies due under the building contract.
I take the same view of the delivery of the draft interrogatories having regard to Mr Callinan’s advice on 13 April 1987 that “the most promising way” of achieving the objective of making the matter as difficult generally for White as could be achieved was to deliver “an extremely comprehensive set of Interrogatories”.
The approach taken to the subcontractors’ claims is of less significance because White joined in the application to transfer those claims to the Federal Court. I do not consider this approach obstructionist but Mr Lockhart’s desire to ensure that the issues involved in the s 52 claim became so interwoven with White’s cross‑claim so that it would be impossible to split the issues is another example of an attempt to implement the purpose of delaying White’s entitlement to recover the monies due to it under the building contract. The implementation of this purpose is also demonstrated by Mr Lockhart’s letter to his client on 18 February 1988 that Mr Callinan’s advice was that the subcontractors should be joined in the Federal Court proceeding and that such joinder “should delay the action considerably”.
The delivery of the amended reply and answer on 19 May 1987 alleging negligence by White in the administration of the building contract was a further implementation of the purpose to delay the hearing of White’s cross‑claim. So much, in my view, was acknowledged by Mr Lockhart when he wrote to Mr Pearce on 26 May 1987 reminding him that the amendment was made to make it impossible for a separate trial of individual issues to occur.
The general allegation is made that Flower & Hart appealed interlocutory orders on behalf of Caboolture Park, their primary aim being to delay the progress of the proceeding and not to vindicate Caboolture Park’s legal rights. The general allegation cannot be accepted in relation to all interlocutory appeals as on some occasions Caboolture Park was successful. However Mr Lockhart saw delay as an advantage to be obtained from an appeal when he wrote to Mr Pearce on 2 November 1987 although he recognised that an appeal against the appointment of an expert was important in itself. Nevertheless appealing interlocutory orders on the basis of Mr Herscu’s instructions, of itself, is not a matter I take into account adversely to Flower & Hart.
The deliberate decision by Mr Lockhart on 9 November 1987 in conjunction with Mr Callinan not to have Mr Callinan attend a hearing before Pincus J the next day was taken for the purpose of delaying the trial of the proceeding as it was considered, according to Mr Lockhart’s letter to Mr Pearce of 10 November 1987, that the presence of Mr Callinan might hasten a trial date.
The objection taken in March 1988 to inspection of documents by an accountant on behalf of White is not of itself an example of obstruction and delay as counsel’s advice that the objection taken could not be sustained was only given the previous day.
Flower & Hart complained that the case of obstructive behaviour was never put to its witnesses and that it was not opened by White’s senior counsel. However Mr Karkar made it clear in the course of Mr Sofronoff’s response to Mr Karkar’s opening, before any witnesses were called for cross‑examination, that White was relying on its allegation that Flower & Hart conducted the proceeding in a manner designed to obstruct and delay the hearing and that it was relying on the documents contained in the agreed bundle of documents.
I am satisfied that the documents relied upon by White in support of its allegation of conducting the proceeding so as to obstruct and delay the hearing, to the extent to which I have referred to them in this section of my reasons, show that Flower & Hart was implementing the original purpose for which it instituted the proceeding on behalf of its client, namely to delay and defer White’s recovery of the monies due to it under the building contract.
Conclusion
As at 23 December 1986 Mr Meadows had decided to institute and had instituted the proceeding on behalf of Caboolture Park in circumstances where:
(a) he held the view and had told his client that it could not succeed in the proceeding;
(b)his purpose in instituting the proceeding was to give his client a temporary bargaining stance and a bargaining position so as to delay and defer action by White to recover monies due under the building contract;
(c)he had signed a statement of claim pleading fraud, and in particular fraud with knowledge without considering whether there was a factual basis for the allegation and in circumstances where there was no factual basis for making the allegation.
Further the proceeding was conducted thereafter by Flower & Hart in circumstances which, from time to time, were designed to delay and defer the hearing of the proceeding and the cross‑claim in the implementation of the purpose for which it had instituted the proceeding.
I am satisfied, consistently with the authorities to which I have referred, that Flower & Hart unreasonably initiated the proceeding when there were no prospects or substantially no prospects of success of the proceeding succeeding. What Mr Meadows did was unreasonable because he had an ulterior purpose in instituting the proceeding which was to effect an object beyond what the legal process offers. Simply put that purpose was to postpone and delay an inevitable outcome and to achieve a breathing space. To the extent to which the proceeding was instituted for the purpose of reducing the amount which Caboolture Park would have to pay White under the building contract or for the purpose of compromising or settling White’s anticipated claim that purpose was subsumed under and was subordinate to the principal or predominant purpose for which the proceeding was instituted – to delay and defer payment. However, as I have found, Mr Meadows’ purpose in instituting the proceeding was not to vindicate a right of his client. The consequence is that Flower & Hart breached the duty it owed to the Court to conduct proceedings before the Court with propriety, not to be a party to an abuse of process and not to obstruct or defeat the administration of justice.
I do not consider that it is a proper use of Court process and procedures to institute a proceeding to delay a respondent or defendant in asserting and enforcing a right, and obtaining recovery in respect of it, when the applicant or plaintiff and its legal advisers believe that there is no basis for the institution of the proceeding and that it cannot succeed. It was also unreasonable because Mr Meadows had insufficient information on which to form a view that the proposed proceeding had any realistic prospects of success. He had not given careful consideration to whether the proceeding should be instituted because he had no time to do so and, in any event, the purpose of the proceeding was for a different purpose, that is different from the purpose of seeking to vindicate a right. It was also unreasonable because the proceeding propounded a cause of action pleading fraud when not only was there was no factual basis for the allegation but he had given no consideration to whether there was a factual basis for pleading fraud and he had given no consideration to the issue of whether fraud should be pleaded.
I have not addressed separately the cause of action in negligence pleaded in the initial statement of claim as subsequently amended. Little attention was paid to this cause of action in the course of the hearing and no attention was directed to it in any significant way in the documentation. So far as the documentation from December 1986 to September 1988 is concerned the views expressed by Flower & Hart and counsel in relation to the prospects of success were couched in terms, referable only to the s 52 cause of action but I am satisfied that those views were equally applicable to the negligence cause of action. My findings in relation to the s 52 cause of action are equally applicable to the negligence cause of action – it had no prospects of success.
It was unreasonable for Mr Meadows to institute the proceeding for the reasons to which I have referred notwithstanding the fact that he had sought and relied upon the advice of experienced senior counsel. The issues were such that Mr Meadows, consistently with the authorities to which I have referred, was obliged to apply his own mind to a consideration of whether or not to institute the proceeding. He did not do so. Although he obtained senior counsel’s advice he did so on the basis of information and material which was inadequate upon which to form a view or opinion whether the proceeding should be instituted in respect of the causes of action pleaded. But in any event, as is enshrined in counsel’s opinions, the purpose or “prime objective” of the proceeding was, as Mr Callinan put it on 12 September 1988, “to provide a ‘breathing space’ before payment”. In the circumstances which were present on, and in the two weeks leading up to, 23 December 1986 Mr Meadows cannot shelter behind the advice obtained from Mr Callinan. He was obliged to exercise his own mind as to whether the proceeding, as instituted, should be instituted. Insofar as he did so he adopted or acquiesced in what counsel had proposed without exercising his own mind independently of counsel’s views. He was bound to turn his own mind to the prospects of success and to the purpose of the proceeding and to the nature of the causes of action proposed to be pleaded and to the extent to which he did so he determined upon and implemented an improper purpose resulting in an unreasonable institution of the proceeding.
The proceeding which Flower & Hart instituted and the purpose for which it was instituted was an abuse of process and oppressive conduct on its part within the principles set out in the authorities to which I have referred and resulted in Flower & Hart breaching the duty it owed to the court.
Independently of the finding that it was unreasonable to initiate the proceeding I am of the opinion that pleading fraud when there was no factual basis for the pleading and where no consideration was given to whether there was such a factual basis are circumstances which, of themselves, are sufficient to enliven the jurisdiction to order that Flower & Hart should pay White’s costs of the proceeding. That is to say, I am satisfied that the jurisdiction to order solicitors to pay the opposing party’s costs is enlivened where the solicitors institute proceedings relying on a cause of action in fraud where there is no factual basis for that allegation and where no consideration is given before the institution of the proceeding to whether there is such a factual basis.
I do not consider that it is a legitimate or appropriate purpose for the institution of a proceeding in this Court that the purpose of the proceeding is to postpone, delay or put a barrier in front of a claim of another party and the payment of an amount due in respect of that claim. The purpose of proceedings in a court of law is to vindicate a claimed right whether, for example, that right be a right to positive relief such as a claim for money due or specific performance of an agreement or whether the right be one to be free from unauthorised governmental interference. It is not part of the legal process in this Court that its process and procedures be used as an instrument of oppression so as to frustrate the bringing, and expeditious disposition, of a legitimate claim.
The predominant, if not only purpose which Flower & Hart had in mind when the proceeding was instituted by Caboolture Park was to delay and defer White in bringing its undoubted claim for monies due under the building contract to a conclusion. There was no legitimate basis for bringing the s 52 and negligence claims and absolutely no basis for bringing the fraud claim. I say no “legitimate” basis because Flower & Hart saw a basis for bringing the claims but that basis was an abuse of process – frustrate and delay White’s imminent claim to recover the monies due under the building contract.
The fact that Mr Herscu had a robust approach to litigation, did not believe anything was impossible and was unconcerned about entering into litigation with limited prospects made it all the more important for Flower & Hart to have regard to the manner in which it instituted and conducted proceedings on his behalf and on behalf of his companies and to be conscious of its duty to the Court.
As I have noted earlier, it is no answer to say – but we reduced White’s claim under its building contract brought by the cross‑claim. That reduction occurred as a result of a legitimate and appropriate response to White’s cross‑claim – challenging the variations. It did not occur as a result of any of the s 52, fraud or negligence claims. The proper approach to White’s claims under the building contract, consistently with the use which should be made of the Court’s process was either await any claim and file an appropriate defence and/or cross‑claim or, if being a moving party was thought to be a tactical advantage, seeking a declaration that the amount claimed by White in correspondence was not due and owing. What was not appropriate, and what was an abuse of process, was to institute a proceeding in respect of a cause or causes of action which could not succeed for the purpose of securing delay in the ultimate determination of White’s claim for money under the building contract.
It is also no answer to say that the s 52 claim or the negligence claim was arguable although weak because the proceeding was not instituted for the purpose of vindicating those claims. It is even more strongly no answer to say that the fraud claim was arguable, although, weak because Flower & Hart was required to give much more consideration to the fraud claim before instituting it on behalf of its client.
The institution of the proceeding by Flower & Hart on behalf of its client was flawed and an abuse of process from its inception because of the illegitimate purpose for which the proceeding was instituted. That abuse of process was exacerbated by the manner in which Flower & Hart conducted the proceeding and the obstructionist and delaying tactics in which it indulged.
In the circumstances which I have described I am satisfied that Flower & Hart’s institution and continuation of the proceeding falls within the principles and the authorities to which I have referred and warrants an order that Flower & Hart pay White’s costs of the proceeding on an indemnity basis. The institution and continuation of the proceeding was a serious breach of Flower & Hart’s duty to the Court, it was an abuse of process, it was an unreasonable institution of a proceeding with no prospects of success, it was not brought to vindicate a right claimed by the client and it was brought for an ulterior purpose. Not only was the institution of the proceeding unreasonable, so was its continuation. All the more so was its continuation at the time Caboolture Park’s affidavits were filed and served in late May/early June 1988. At that time the affidavits did not deal with what Mr Callinan had called on 13 April 1987 “the great underlying question” and “the great unanswered question” namely, how could Caboolture Park have paid out many millions more than the target price up to the end of September 1986 with the work unfinished and more to be paid? That question remained unanswered in June 1988. Even if the proceeding was not hopeless before June 1988 it became hopeless in June 1988. And this position was again even more so after 14 September 1988.
The impetus for the institution of the proceeding came from the lawyers. It was their suggestion that the proceeding be instituted immediately. Had the advice and recommendation in the letter of 18 December 1986 not been given the proceeding would not have been instituted. It was only because Mr Callinan and Mr Meadows came up with an “avenue of relief” (the terms of the letter of 16 December 1986) that the proceeding was instituted. The client was not pushing for a proceeding to be instituted claiming particular relief; rather the client was saying – is there anything we can do? Flower & Hart was HDC’s regular firm of solicitors and I am satisfied that if Mr Meadows had not given the advice and recommendation he gave on 18 December 1986, which was accepted by the client, the proceeding would not have been instituted claiming damages for breach of s 52, fraud and negligence. The proceeding was instituted as a consequence of Mr Meadows’ advice. I also consider it is more probable than not if Flower & Hart had told its client in early June 1988 (after its affidavits were filed and served) or in mid‑September 1988 (after the receipt of Mr Callinan’s advice of 12 September 1988 and the telephone conference on 14 September 1988) that the proceeding (but not the defence to the cross‑claim) should not be continued and that it could no longer act for the client in the proceeding, if the claims for breach of s 52, fraud and negligence were continued, that these claims would have not been continued by Caboolture Park. It is highly improbable that Caboolture Park would have continued the proceeding on its own without legal assistance and it is highly improbable that it would have retained new solicitors to act for it having regard to its long standing relationship with Flower & Hart and the significance of that firm telling it that the proceeding (but not the defence to cross‑claim) should not be continued.
The pleading of the fraud cause of action in the circumstances highlights and emphasises these conclusions. Even if there was no evidence and finding of the illegitimate purpose I have found I would conclude that the institution of a proceeding with a plea of fraud in the circumstances, or rather absence of circumstances, in which the plea of fraud came about is such as to fall within the principles and the authorities to which I have referred and warrants a costs order against Flower & Hart.
The time has passed when obstructionist and delaying tactics on the part of parties to proceedings in the Court can be countenanced by the Court. It is perfectly proper for a party and its legal advisers to fight a case and to put an opposing party to the proof of its case, although I question whether it is appropriate to put an opposing party to the proof of an issue, which is not disputed, which will not be a critical issue at trial and which will have the effect of running up costs unnecessarily. Nevertheless it is not proper, in my view, to adopt a positive or assertive obstructionist or delaying strategy which is not in the interests of justice and inhibits the Court from achieving an expeditious and timely resolution of a dispute. Court resources are finite and so are the resources of most litigants and the Court should not countenance a deliberate strategy of obstruction and delay. If a party instructs its legal advisers to adopt such a strategy the legal adviser should inform the party that it is not proper for it to do so and if the party insists, then the legal adviser should withdraw from acting for that party. It is most regrettable that a legal adviser should make a conscious decision not to have the senior counsel representing a party appear on a directions hearing (such as occurred on 10 November 1987) for fear that the judge will be better informed. It is also most regrettable that a legal adviser should make a conscious decision to adopt a particular approach or procedure because it will have the effect of “side tracking” the opposition, and achieving delay in the resolution of the proceeding (letter 14 October 1987).
In these circumstances I consider that I should exercise the jurisdiction to order Flower & Hart to pay White’s costs of the proceeding on the basis sought. I also consider that it follows from my findings, and it is implicit in them, that those costs should be paid on an indemnity basis.
Indemnity costs are appropriate to be awarded against Flower & Hart having regard to the circumstances which I have found attended its institution and conduct of the proceeding. They are appropriate for a number of reasons, each of which is found in the circumstances identified by Sheppard J in Colgate‑Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 233 ‑ 234 in his fifth principle or guideline which is in the following terms:
“Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J‑Corp (supra); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V‑C in EMI Records (supra). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.”
In essence the grounds upon which I have found that Flower & Hart should be ordered to pay White’s costs are the same grounds, and are co‑extensive with the grounds, which justify an order for costs on an indemnity basis. The circumstances to which I have referred are such as to warrant and justify costs being ordered on an indemnity basis: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397, 401; Colgate‑Palmolive Company v Cussons Pty Limited (supra) 232 ‑ 234.
The order of the Court will be that Flower & Hart pay White’s costs of the proceeding brought by Caboolture Park on an indemnity basis. Flower & Hart must also pay White’s costs of the motion on a party and party basis. There is nothing in the conduct of the motion which warrants the costs of the motion being paid on an indemnity basis. I will give the parties the opportunity to address the issue whether the payment of interest should be ordered in any form.
I certify that this and the preceding one hundred and twenty (120) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg
Associate:
Dated: 14 July 1998
Counsel for the Applicant: Mr J H Karkar QC and Mr PJ Dunning Solicitor for the Applicant: Minter Ellison Counsel for the Respondent: Mr W Sofronoff QC and Mr G Newton Solicitor for the Respondent: McCullough Robertson Date of Hearing: 20, 21, 22, 23, 24, 27, 29, 30 April, 1 May 1998 Date of Judgment: 14 July 1998
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