Bagshaw v Scott

NEW SOUTH WALES DISTRICT REGISTRY NSD 2543 OF 2003

THE COURT ORDERS THAT: The costs orders of Beaumont J of 17 May and 20 August 2004 are varied as follows: 1. The applicant pay the first respondent's costs of the proceedings, such costs to be assessed on an indemnity basis. 2. The applicant pay the fifth respondent's costs of the proceedings, such costs to be assessed on an indemnity basis. 3. The applicant pay the third, fourth and sixth respondents' costs of the proceedings, such costs to be assessed on a party and party basis. 4. The applicant and his solicitor, Mr Graham, are jointly and severally liable to pay the difference between the costs of the proceedings of the third, fourth and sixth respondents assessed on a party and party basis and the amount of those costs assessed on an indemnity basis.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

NEW SOUTH WALES DISTRICT REGISTRY NSD 2543 OF 2003

BENNETT J: 1 These proceedings concern applications for indemnity costs brought by the first and third to sixth respondents respectively. 2 The proceedings arise out of litigation in respect of the applicant ('Mr Bagshaw'). Mr Bagshaw was made bankrupt on 12 October 1993. Thereafter, there were numerous proceedings in this Court and in the Supreme Courts of New South Wales and South Australia in respect of moneys owed by Mr Bagshaw and properties owned by Mr Bagshaw and his wife. 3 On 14 April 2002 Mr Bagshaw was discharged from bankruptcy.

The parties 4 These proceedings were commenced by an application filed 24 December 2003 and an amended statement of claim ('ASC') filed 30 March 2004. The respondents are, as described in the ASC: · The first respondent ('Mr Scott') - a 'business associate and/or partner of … John Slattery'. · The second respondent ('Mr Sheahan') - the 'trustee in bankruptcy [of Mr Ken] Livingstone'. · The third respondent ('Mr Thomas') - '[employed by] Westpac Banking Corporation as Senior Credit Manager'. · The fourth respondent ('Mrs Thomas') - an '[employee of Mr] Livingstone and paid by the Scott Family Trust' and the 'wife of [Mr] Thomas'. · The fifth respondent ('Ms Hermanson') - an '[employee of] Westpac Banking Corporation, Baulkham Hills branch and then at Castle Hill Industrial Centre'. · The sixth respondent ('Mr Perry') - an '[employee of] Westpac Banking Corporation as an in-house solicitor'. · The seventh respondent ('Mr Stevens') - a 'barrister acting on behalf of [Mr Bagshaw]' and 'engaged by Wadlow Solicitors … in or about the conduct of various Court proceedings'. · The eighth respondent ('Wadlow Solicitors') - a firm of solicitors 'engaged by [Mr Bagshaw] to provide legal services in or about the conduct of various court proceedings'.

The amended statement of claim 5 The ASC is complex. The subject matter includes a proof of debt lodged by Mr Scott with Mr Bagshaw's trustees in bankruptcy and claimed security over some four properties owned by Mr Bagshaw. 6 The ASC alleges, broadly speaking, that representations and claims made by Mr Scott on his own behalf, or on behalf of Mr Livingstone, as to the indebtedness of Mr Bagshaw and as to Mr Scott's interest in the properties were fraudulent and false to Mr Scott's knowledge. There were also allegations that Mr Scott had perjured himself in McMahon v Livingstone [2001] NSWSC 55 ('McMahon') (a case in which Windeyer J considered the relationship between Mr Livingstone and Mr Scott) and that Mr Scott gave inconsistent evidence in those proceedings and in affidavits sworn by him in proceedings in this Court concerning Mr Bagshaw. 7 Mr Bagshaw claimed in the ASC that, but for the claimed indebtedness to Mr Scott, he had committed no act of bankruptcy, as the gross value of his assets exceeded the gross value of his liabilities. Further, he claimed that those assets would have been available to obtain an annulment or, alternatively, a discharge from bankruptcy pursuant to Part VII of the Bankruptcy Act 1966 (Cth) (the 'Act'). 8 In the ASC, Mr Bagshaw also made a variety of claims against persons employed by Westpac but notably, not Westpac itself. They are Mr Thomas, Ms Hermanson and Mr Perry. There has been previous litigation between Mr Bagshaw and Westpac in this Court (proceedings NG 54 of 1997, QG 7045 of 1997, N 7351 of 2001), the Supreme Court of New South Wales (proceedings 11751 of 1994, 40609 of 2000) and the Supreme Court of South Australia (proceedings 358 of 1992, 1070 of 1994). Included were allegations that Mr Thomas 'negligently and without just reason withdrew credit from'Mr Bagshaw when he knew or ought to have known that certain signatures on a memorandum of mortgage over property at Kersbrook, South Australia (the 'South Australia mortgage') were false. Ms Hermanson was alleged to have falsely witnessed Mrs Bagshaw's signature on the South Australia mortgage in that Mrs Bagshaw did not sign the document. Mr Perry was alleged to have wrongly taken Mr Bagshaw's personal property, which was not included in a possession order issued out of the Supreme Court of New South Wales. 9 The allegations relevant to Mrs Thomas were that Mr Livingstone and/or Mr Scott arranged for Mrs Thomas to discuss Mr Bagshaw's assets and problems with Mr Thomas. 10 The claims against Mr Stevens were basically of negligence in the making of admissions on behalf of Mr Bagshaw in a letter, which admissions were incorrect and not in accordance with instructions from Mr or Mrs Bagshaw. Wadlow Solicitors were also allegedly negligent in mailing the letter as drafted by Mr Stevens in the absence of instructions to send the letter and where the contents of the letter were contrary to instructions given by Mr and Mrs Bagshaw. Wadlow Solicitors were also said to have represented both Mr and Mrs Bagshaw and the purchaser of one of the properties without the knowledge of Mr Bagshaw. 11 Arising from the claims, orders were sought. As well as an order that the bankruptcy of Mr Bagshaw be annulled ab initio, orders were sought against Mr Scott and Mr Sheahan in respect of the proceeds of the sale of two of the properties, injunctive relief as against Mr Scott restraining disposal of properties and moneys and, as against all of the respondents, damages and interest. Damages were particularised to include damages for fraud and deceit. 12 In the case of Mr and Mrs Thomas, damages were sought for fraud and for false and misleading conduct under the Trade Practices Act 1974 (Cth). As against Ms Hermanson, damages were sought for false and misleading conduct and misrepresentation. As against Mr Perry, damages were sought for 'loss of property as a result of illegal entry and theft of property'. As against Mr Stevens and Wadlow Solicitors, damages were sought for negligence and 'wilful misconduct'. 13 It can be seen that the allegations were of a most serious nature.

the third to sixth respondents' notice of motion 14 On 27 April 2004 the third to sixth respondents filed a notice of motion seeking the following orders: '1. The proceedings against the third to sixth respondents be summarily dismissed pursuant to Order 20 rule 2. 2. In the alternative to order 1, the application and statement of claim insofar as they seek relief or make allegations against the third to sixth respondents be struck out pursuant to Order 11 Rule 16. 3. [Mr Bagshaw] and his solicitor [Mr Ian Graham] … pay the third to sixth respondents' costs of these proceedings such costs to be assessed on an indemnity basis. 4. Such further or other orders as the Court deems fit.' 15 The third to sixth respondents' notice of motion was heard on 17 May and 20 August 2004 by Beaumont J. 16 On 17 May 2004 Beaumont J ordered, by consent, that pars 68 to 79 of the ASC and pars 8, 9, 10 and 12 (where first appearing) of the relief sought on page 14 of the ASC and paragraphs 9 to 12 of annexure 'A' to the original application be struck out. The effect of these orders was to strike out the claims against Mr Thomas, Mrs Thomas, Ms Hermanson, Mr Perry, Mr Stevens and Wadlow Solicitors. Beaumont J further ordered, by consent, that Mr Bagshaw pay the third to sixth respondents' costs on a party and party basis of the proceedings to that date. This costs order was made subject to the proviso that the order was without prejudice to the application of the third to sixth respondents to seek indemnity costs and to claim costs as against Mr Ian Graham (Mr Bagshaw's solicitor in these proceedings) jointly with respect to the costs orders against Mr Bagshaw.

Mr scott's notices of motion 17 On 10 May 2004, Mr Scott filed a notice of motion seeking the following orders: '1. The proceedings be dismissed as against [Mr Scott]. 2. In the alternative, the proceedings as against [Mr Scott] be stayed. 3. That [Mr Bagshaw] not, without the leave of the Court, institute any proceeding against [Mr Scott]. 4. Costs. 5. Further or other orders.' 18 On 20 August 2004 Beaumont J made orders, by consent, in accordance with pars 1, 3 and 4 of this notice of motion. 19 On 20 August 2004 Mr Scott filed a further notice of motion seeking the following orders: '1. This notice of motion be returnable instanter. 2. [Mr Graham] pay [Mr Scott's] costs of the notice of motion filed by [Mr Scott] on 19 May 2004, and also of the proceedings, such costs to be assessed on an indemnity basis. 3. Costs. 4. Further or other orders.' 20 This notice of motion was heard on 20 August 2004. Mr Walsh, who appeared for Mr Scott, simply adopted the submissions of counsel for the third to sixth respondents. 21 Beaumont J reserved his decision. Subsequently, the matter was transferred to me.

substitution of judge 22 In early December 2004, an associate in the Court ('the associate') contacted the parties by telephone to inform them of the transfer and to invite further submissions in relation to the outstanding items in the respondents' respective notices of motion. The moving respondents advised by telephone that they consented to the delivery of judgment by me based on the evidence and submissions heard by Beaumont J. 23 On 6 December 2004, I received a letter from Mr Bagshaw, as follows: 'We request further written submissions be placed before the Court in this matter. It does not require the judge to reconvene the court. Could you please give us a date & time satisfactory to the court. 1. Scott is now bankrupt - he has no standing in the Court. 2. Westpac had 2 dummy mortgages on a S.A. property. 3. We notify the Court that we are bringing the 2 cases back before the Court on both cases on fraud.' 24 The letter was signed and dated by Mr Bagshaw personally, and attached three undated and unreferenced newspaper clippings mentioning Mr Scott and Mr Livingstone. The newspaper clippings are neither evidence nor submissions in this matter. 25 On 7 December 2004, the associate sent a facsimile to the parties confirming the transfer of this matter to my docket and requesting that: 'Any further written submissions relevant to the issues arising from the hearing of the notices of motion must be filed and served by the applicant no later than 5 pm Friday 10 December 2004. Any written submissions in reply by the first or third to sixth respondents must be filed and served no later than 5 pm Wednesday 15 December 2004.' 26 By facsimile dated 9 December 2004, Mr Graham, on behalf of Mr Bagshaw, requested an extension of time to 21 January 2004 for filing further written submissions. 27 The associate advised the parties by facsimile on 15 December 2004 that Mr Bagshaw's request had been declined, subject to Mr Bagshaw establishing any compelling basis for making further submissions. 28 On 19 December 2004, the associate sent a facsimile to the parties with the following proposal ('the proposal'): 'Justice Bennett will extend the time for filing and serving any further written submissions to 5 pm 21 January 2004. Subject to the receipt of any further written submissions, Justice Bennett proposes to deliver judgment in relation to the outstanding items in the respondents' notices of motion on the basis of the following materials available to her Honour: · The affidavit evidence, · Written submissions, and · Transcripts of the hearing before Justice Beaumont. Justice Bennett considers that it is not appropriate to consider any notes made by Justice Beaumont of the hearing of this matter. Please notify me … in writing whether your clients consent to this proposal by 5 pm Tuesday 28 December 2004.' 29 On 11 January 2005, Mr Bagshaw's solicitor, Mr Graham, advised by telephone that he consented to the proposal. Mr Bagshaw filed further submissions on 3 February 2005. On 12 January 2005, Henry Davis York, solicitors for the third to sixth respondents, confirmed via facsimile its clients' consent to the proposal. No further submissions were made on behalf of the third to sixth respondents. On 17 January 2005, Church & Grace, for the first respondent, responded to the proposal by letter confirming that they did not have current instructions and that they would not be making further submissions. 30 There is a body of common law dealing with the procedure for the substitution of judges in heard or part heard matters. The authorities were reviewed by Kirby P in Wentworth v Rogers (No 3) (1986) 6 NSWLR 642 ('Wentworth'). In this case, the New South Wales Court of Appeal considered an application for leave to appeal from an interlocutory order of Maxwell J on the costs of a return of subpoena. Cantor J, having presided on the hearing of the return of subpoena, reserved the costs of the return of subpoena, became ill, commenced extended leave and was thereafter unable to deliver the judgment on those costs. Maxwell J was substituted for Cantor J and his interlocutory orders were based on submissions addressed to him as well as the papers before Cantor J and the transcript of oral submissions before Cantor J. 31 Kirby P derived the following principles, which I respectfully adopt: · If specific provision is made by statute for the reconstitution of the court following the death, illness, resignation, prolonged absence or other incapacity of a judge who has part heard a case, the legislation will govern the substitution: Chua Chee Chor v Chua Kim Young [1963] 1 All ER 102 ('Chua Chee Chor'). · Statute apart, the primary rule is that once a court embarks upon the hearing of the case, prima facie the court as so constituted should conclude the hearing and any reconstitution of the court in the middle of proceedings will be an irregularity warranting intervention on appeal or review to require a new trial de novo. · The primary rule is subject to the exception that if an ancillary, severable and distinct matter is severed and not dealt with in an earlier proceeding, it may be determined by another judge: Orr v Holmes (1948) 76 CLR 632. · The primary rule applies with special force where the part heard case is before the court constituted by a judge and jury (Coleshill v Manchester Corporation [1928] 1 KB 776) or where, though constituted by a judge alone, there is a serious conflict of evidence: Chua Chee Chor; Brennan v Brennan (1953) 89 CLR 129 ('Brennan'). In such cases proper practice requires recommencement of the trial de novo. · The above requirements, if not followed, may result in an order for a new trial. But in certain circumstances such an order will not be made. The guiding principle is the demands of justice in the particular case. Relevant to the application of that principle is a consideration of the extent of any possible prejudice done by the procedure that was followed and the risk of injustice arising from it as well as the expense and delay that would be occasioned by an order for a trial de novo in the circumstances that have occurred: Brennan; Cotogno v Lamb (No 2) (1986) 3 NSWLR 221. · It is also relevant to consider the conduct of the parties and those who represented them (if any) at the trial, for if they have induced, acquiesced in or waived the irregularity they will not normally thereafter be heard to complain of it: Re British Reinforced Concrete Engineering Co Ltd's Application (1929) 45 TLR 186; Brennan. 32 In Wentworth, Priestley JA, with whose reasons Glass JA agreed, considered that: 'If a judge is unable through absence to make an order which needs to be made for some proceeding before the court to be completed there must be jurisdiction in the court enabling another judge to make the order. The question which can present difficulties in such circumstances is the extent to which the new judge can use materials already before his predecessor in arriving at his conclusion. Very often this problem is solved by the parties' agreement to the new judge making such use of the material before his predecessor as he sees fit… 33 The majority refused the application for leave to appeal, based on the finding that: In the present case the inference I draw from the materials before this Court showing what happened before Maxwell J is that the applicant's representatives took part without demur in the proceedings before Maxwell J in the course of which it was transparently clear that his Honour was making use of the materials which had been before Cantor J.' 34 There is no statutory provision applicable to the substitution of single judges after the hearing has concluded in Federal Court cases. Section 14 (3) of the Federal Court Act 1976 (Cth) deals only with the constitution of Full Courts in such circumstances. 35 In the instant case, the parties have not objected to my delivery of a judgment on the basis of the affidavit evidence, written submissions and transcripts of the hearing before Justice Beaumont, which I have taken to have been tendered before me. There is no serious conflict of evidence in this case and the rehearing of this matter would have cost the parties some considerable expense and delay. While I am of mindful of the possibility of prejudice to some parties and to Mr Graham, on balance it seems to me that the interests of justice are better served by my delivery or a judgment on the basis of the written material, as has been proposed to the parties.

the issues for determination 36 It falls for me to determine, with regard to the proceedings and claims having been respectively dismissed and struck out as against Mr Scott and the third to sixth respondents, whether it is appropriate to order the applicant to pay the moving respondents' costs on an indemnity basis and whether Mr Bagshaw's solicitor, Mr Graham, should be jointly liable for costs ordered in favour of the moving respondents. 37 The parties are not in dispute about the applicable law, nor is there any significant divergence as to the underlying facts. There is dispute over the application of the law to the facts.

The LAW 38 Section 43 of the Federal Court of Australia Act 1976 (Cth) and O 62 r 9 of the Federal Court Rules provide for a general discretionary power residing in the Court to make orders for costs, including costs to be assessed on an indemnity basis and as against third parties (including solicitors) to the proceedings. The discretion in awarding costs is absolute and unfettered, to be exercised judicially: Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance (1986) 10 FCR 177, at 178 (per Woodward J).

Indemnity costs 39 The general principles guiding the exercise of the Court's discretion to order indemnity costs are articulated in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 per Woodward J: 'I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity costs", whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law.' 40 In Hamod v State of New South Wales [2002] FCAFC 97 at [20] a Full Court stated, in regards to the purpose of indemnity costs orders: 'Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the Court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.' 41 As noted by Harper J in Ugly Tribe Co Pty Ltd v Sikola [2001] VSC 189 ('Ugly Tribe') at [7]: 'in seeking costs on an indemnity basis, the first defendant is asking the Court to depart from its usual course'. His Honour observed that special circumstances must be present to justify such a departure and at [7] gave examples drawn from earlier authorities. Relevantly to this application, his Honour noted the following examples: '(i) The making of an allegation, known to be false, that the opposite party is guilty of fraud. (ii) The making of an irrelevant allegation of fraud. (iii) Conduct which causes loss of time to the Court and to other parties. (iv) The commencement or continuation of proceedings for an ulterior motive. (v) … (vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law. (vii) …' 42 In Cook v Pasminco Ltd (No 2) (2000) 107 FCR 44 at [65], 57, Lindgren J said that the solicitors in question: '…were not entitled to commence the proceeding in this Court irresponsibly, recklessly as to whether the federal claims had any prospect of success. Yet it seems to me that this is precisely what they did. If they had responsibly considered the matter, they would have appreciated that the federal claims had no prospect of success at all.' 43 In Vasram v AMP Life Ltd [2002] FCA 1286 ('Vasram'), Stone J awarded indemnity costs on the basis that, at [18]: 'the respondent should never have had to incur any costs responding to such a seriously flawed document and should therefore be indemnified in respect of the costs incurred since 8 October 2001, the date on which the fifth statement of claim was filed.'

Costs orders against solicitors 44 The power to order costs against solicitors must be exercised with care and discretion and only in clear cases. There has to be something which amounts to a serious dereliction of duty: De Sousa v Minister for Immigration, Local Government & Ethnic Affairs (1993) 41 FCR 544 at 547-8 per French J ('De Sousa'); see also Deputy Commissioner of Taxation v Levick (1999) 168 ALR 383 (upheld on appeal to the Full Court in Levick v Deputy of Taxation (2000) 102 FCR 155 ('Levick')). 45 The current authorities guiding the exercise of the Court's discretion have been reviewed and explained recently by Mansfield J in Kumar v Minister for Immigration & Multicultural & Indigenous Affairs (No 2) (2004) 133 FCR 582 ('Kumar') at [2] to [17], which I respectfully adopt. I draw from that analysis factors of relevance to the present case: · The power to award costs against a solicitor personally must be exercised with caution. Too ready an exposure of the lawyer for a party to personal liability for costs of his client or of the other party is likely to inhibit the way the lawyer acts in conducting the litigation. Practitioners should not be encouraged to view the threat to seek a costs order against their opposing solicitor as a tactic available to be employed in the course of litigation to put pressure on their opponent. (Re Bendeich (No. 2) (1994) 53 FCR 422 at 426 - 427 per Drummond J) · Simply instituting or maintaining on instructions proceedings which have no real prospect of success is not a dereliction of duty by a solicitor which warrants an order for costs. (Kumar at [14]) · To invoke the jurisdiction there must be something more than simply instituting or maintaining a proceeding on behalf of a client which has no or substantially no prospect of success, namely, carrying on that conduct unreasonably. (White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 at 236 per Goldberg J) · What constitutes unreasonable conduct must depend upon the circumstances of the case; no comprehensive definition is possible. In the context of instituting or maintaining a proceeding or defence, unreasonable conduct must be more than acting on behalf of a client who has little or no prospect of success. There must be something akin to abuse of process; that is, using the proceeding for an ulterior purpose or without any, or any proper, consideration of the prospects of success. (Levick at [44], 166) · A hopeless case may support the inference that there was some ulterior purpose for the proceeding. (Deputy Commissioner of Taxation v Levick (1999) 168 ALR 383 at [16], 390) · The solicitor is obliged to conduct such investigations, and to give such advice, as is appropriate in the circumstances before the institution of the proceedings. It is for the client to decide whether to take that advice. (Kumar at [15]) · Such an approach does not permit a solicitor to institute, or maintain, proceedings which are being conducted for an ulterior purpose. It does not entitle the solicitor to propose arguments, and then to obtain instructions to propound claims, which are clearly untenable. If advice ought to have been given that the proposed proceedings had no real prospect of success and if, upon the material before the Court, such advice would have been accepted by the client so that the proceedings would not have been instituted, then the solicitor may be ordered to pay the costs of the proceedings, as occurred in De Sousa. (Kumar at [16]) 46 There is precedent for the order of joint liability between a party and its solicitor for indemnity costs. In Buckingham Gate International Pty Ltd v Australia New Zealand Banking Group Ltd (2000) 35 ACSR 411, the Supreme Court of New South Wales per Santow J found that a solicitor had repeatedly put untenable submissions, which had already been rejected in a series of cases. On this basis Santow J ordered six sets of proceedings to be dismissed with 'indemnity costs to be paid as a joint and several liability by the relevant Plaintiff in each case and Mr Levick as its solicitor'. 47 In Gersten v Minister for Immigration & Multicultural Affairs [2000] FCA 922, in this Court, Whitlam J found (at [29]) that a solicitor 'appear[ed] to have been content to act as a mere cipher and not to exercise his own professional judgment' in the conduct of the litigation. On the basis of this 'serious dereliction of his duty to the Court' Whitlam J ordered the applicant and his solicitor to pay costs on an indemnity basis. 48 In Vasram, Stone J found that the applicant's solicitor, in filing a fifth statement of claim seeking to re-agitate issues already decided, 'could not seriously have considered that the claims that had been previously decided had any prospects of success'. On this basis, Stone J ordered the applicant to pay the respondent's costs in the proceeding on a party and party basis and the applicant's solicitors to pay the difference between the respondent's costs from the date of filing the relevant statement of claim assessed on a party and party basis and the amount of those costs assessed on an indemnity basis. 49 The statement by Lord Reid in Rondel v Worsley [1969] 1 AC 191 at 227 included, amongst the obligations comprised within an advocate's 'overriding duty to the court', the requirement that the advocate should not cast 'aspersions on the other party or witnesses for which there is no sufficient basis in the information in [the advocate's] possession'. 50 The legal representative's duty is now also reflected in O11 r 1B(1) of the Federal Court Rules which provides that, if a legal representative prepares a pleading, the pleading must, when filed, be accompanied by a certificate completed by the legal representative in accordance with Form 15B stating that, in the opinion of the legal representative, there is factual and legal material available to him or her which provides a proper basis for the allegations. 51 In A159 of 2002 v Minister for Immigration & Multicultural & Indigenous Affairs [2003] FCA 1087 at [23] Selway J observed: 'A lawyer owes a duty to the Court not to bring or defend proceedings, or assert or controvert an issue in such proceedings unless there is a basis for doing so that is not frivolous. That duty is reflected in Order 11 Rule 1B but the duty exists independently…' 52 Mr Graham, Mr Bagshaw's solicitor, certified both the statement of claim and the ASC. 53 I also note that the Law Society of New South Wales' Solicitors' Rules contain provisions affecting a legal practitioner's exercise of the particular privilege which a practitioner enjoys by reason of his or her relationship with the courts within the administration of the justice system. These rules represent a code of conduct that, while not binding on the court, reflect the requisite standard of conduct, as considered by professional peers. 54 In particular, Rule 23 of the Solicitors' Rules includes the Advocacy Rules (A15 to A72), which apply to all legal practitioners when acting as advocates. Rule A35 is in the following terms: 'A practitioner must, when exercising the forensic judgments called for throughout the case, take care to ensure that decisions by the legal practitioner or on the practitioner's advice to invoke the coercive powers of a court or to make allegations or suggestions under privilege against any person: (a) are reasonably justified by the material already available to the practitioner; (b) are appropriate for the robust advancement of the client's case on its merits; (c) are not made principally in order to harass or embarrass the person; and (d) are not made principally in order to gain some collateral advantage for the client or the practitioner or the instructing practitioner out of court.' 55 More specific obligations are expressed in the succeeding Advocacy Rules.

the factUAL BACKGROUND 56 Upon his bankruptcy, any extant causes of action of Mr Bagshaw vested in his trustee in bankruptcy pursuant to s 58(1) of the Act and so became property divisible among his creditors under s 116(1)(a) of the Act. It remained so vested despite Mr Bagshaw's discharge from bankruptcy in 2002 (cf. Pegler v Dale [1975] 1 NSWLR 265; Daemar v Industrial Commission of New South Wales (No 2) (1990) 22 NSWLR 178; Stone v ACE-IRM Insurance Broking Pty Ltd (2003) QCA 218). 57 The status of Mr Scott's proof of debt in Mr Bagshaw's bankruptcy has been summarised in an affidavit filed by Mr Scott's solicitor: '…Scott commenced separate proceedings in this Court (NG 7940 of 1997) against Bagshaw's trustees in bankruptcy seeking orders that the Court review those trustees' decision to reject a proof of debt lodged by Scott and further ordered that Scott be admitted to proof in Bagshaw's bankrupt estate. These trustees also appealed from the judgment of Whitlam J delivered 20 March 2002. By agreement between Scott and Bagshaw's trustees in bankruptcy made in or about May 2002, all matters in issue between these trustees and Scott were settled. Pursuant to this agreement, the trustees' appeal (N279 of 2002) was discontinued, Scott was admitted to proof in Bagshaw's bankrupt estate, Bagshaw's interests in the properties the subject of the Proceedings were transferred to Scott by Bagshaw's trustees in bankruptcy and Scott agreed not to claim for any distribution that may be made to unsecured creditors in Bagshaw's bankrupt estate.' 58 The third to sixth respondents (and, by adoption, Mr Scott) contend that the proceedings against them were affected by the 'insuperable problem of the bankruptcy', as it was referred to by counsel. This is because, other than the claim against Mr Perry, all causes of action accrued prior to Mr Bagshaw becoming a bankrupt in 1993. They were vested in Mr Bagshaw's trustee in bankruptcy by reason of s 58(1) of the Act, and absent any assignment from the trustee, Mr Bagshaw had no standing to commence or prosecute the proceedings. The proceedings were, accordingly, liable to be struck out as Mr Bagshaw had no standing to commence or prosecute them. 59 An earlier incarnation of these proceedings in this Court was dismissed in an ex tempore judgment on these grounds by Lindgren J. 60 It was the identification of this 'insuperable problem' that, presumably, was a factor striking out by consent of the statement of claim as against the moving respondents.

The evidence of Mr Graham 61 There was extensive examination and cross-examination of Mr Graham at the hearing of the notice of motion. Evidence given by Mr Graham is relevantly, in summary: (a) No material change was made to the pleading from the filing of the original statement of claim until the proceedings were respectively dismissed and struck out as against Mr Scott and the third to sixth respondents.

(b) Mr Graham appreciated that part of his duties as a solicitor was to form an independent view as to whether there was a proper basis upon which the pleadings should be filed.

(c) Mr Graham contended that he did form an independent view that there was a proper basis to file the pleading prior to it being filed on 24 December 2003. Mr Graham's view was that the importance of forming an independent view was heightened because at that stage he had not delivered a full brief to counsel.

(d) Mr Graham believed that it was important, in forming the view as to whether or not a serious allegation like forgery could be maintained, that an independent hand writing expert be retained to look at the material he had in his possession. He believed that such expert evidence would be available prior to a hearing.

(e) At the time Mr Graham issued the proceedings, he had the following information:

(i) Instructions indicating that a signature (purportedly of Mrs Bagshaw) on the South Australia mortgage was fraudulently made. Mr Graham states that he was shown a true signature of Mrs Bagshaw, which, by visual comparison, did not match that on the mortgage.

(ii) Copies of accounting records relating to Mr Scott's clearing account.

(iii) Copies of correspondence from Mr Livingstone regarding Mr Bagshaw in the 1980s. In one letter Mr Livingstone writes to Westpac 'I will apply extra measures to my secretary as her husband is employed by Westpac. I will also contact Scott and Slattery to put further pressure on Regional Management which will assist you to close Bagshaw down'.

(iv) Material indicating that Mr Scott may have perjured himself in an affidavit sworn in related proceedings in the Supreme Court of New South Wales (see McMahon at [26]).

(f) On the basis of material before him, Mr Graham formed the view that there had been no mortgages where money was payable to Mr Scott or Mr Livingstone.

(g) With respect to the allegations against Ms Hermanson, he visually compared the signature of Mrs Bagshaw with her purported signature on the South Australia mortgage.

(h) Mr Graham recognised that allegations of fraud were being made against the moving respondents. With 'hindsight' he believes that he had a responsibility to make the inquiries, independently of his client, but he did not make independent inquiries.

(i) In 'hindsight' he agreed that the purpose of making independent inquiries was to search for, among other things, documents on the public record which may give an idea as to whether or not very serious allegations should be made against individuals; he agreed that in 'hindsight' he should 'possibly' have made inquiries of the public record.

(j) Notwithstanding that he knew that a judgment had been obtained in the Supreme Court of New South Wales by which Westpac obtained possession of one of the properties the subject of these proceedings, he did not take steps to seek out a copy of the judgment of the Supreme Court of New South Wales.

(k) He knew that the cause of action against Mr and Mrs Thomas and Ms Hermanson arose prior to 1993 and that Mr Bagshaw became bankrupt in October 1993 but did not take any steps to ascertain whether, upon discharge, Mr Bagshaw was entitled to bring any action.

(l) Mr Graham did not turn his mind at all to the question whether Mr Bagshaw was able, as a discharged bankrupt, to maintain the proceedings.

(m) Mr Graham knew that the assertions being made by Mr Bagshaw were assertions which would, if true, give rise to a cause of action against Westpac. He gave advice to Mr Bagshaw that Westpac would be a proper party, but Mr Bagshaw gave instructions not to sue Westpac. No rationale was given by Mr Bagshaw for this decision and Mr Graham agreed that, at the time, the instructions sounded 'a bit odd' and it 'concerned' him. However, in accordance with those instructions he did not join Westpac as a party to the proceedings but did join the Westpac employees, Mr Thomas, Ms Hermanson and Mr Perry.

(n) Even though he knew that there were contested proceedings involving Mr Bagshaw and Westpac, and that there was possibly a consideration by a superior courtof record as to issues between Mr Bagshaw and Westpac, Mr Graham did not investigate any consideration by those other Courts prior to signing the 15B certificate.

(o) Mr Graham conceded that there were other independent inquiries that he could have made in relation to the allegations made in the ASC.

(p) Mr Graham drafted and certified the ASC based upon instructions given to him by Mr Bagshaw.

(q) Following the advice of senior counsel, Mr Graham reached the view on the morning of the hearing of the third to sixth respondents' application for summary disposal that there was an insufficient factual basis available to support the pleading.

62 Mr Graham's evidence was that he reached the view on the morning of 20 August 2004 that 'the pleadings in their current form didn't or that I didn't have before me… the evidence that I needed for those pleadings'. Mr Graham conceded that there was an insufficient evidentiary basis for the pleadings and that was why instructions were given to consent to the orders striking out the pleading. However, that concession was in the context that Mr Graham believed that evidence could be available at a hearing of a further amended statement of claim. 63 The allegations against Mr Perry were made on the basis merely of Mr Bagshaw's instructions that, as mortgagee, Mr Perry 'was a thief' in taking personal property of Mr Bagshaw, the mortgagor. 64 Similarly, the allegations of fraud against Mr and Mrs Thomas and Ms Hermanson were made on the basis of instructions from Mr Bagshaw, as well as the evidence referred to in [62(e)(iii)]. Mr Graham made no independent inquiries. 65 Mr Graham summarised the cause of action against Ms Hermanson as follows: 'What was the cause of action as you saw it that existed against Ms Hermanson at the time you certified it? --- That she had forged the signature or falsely witnessed the signature of Judith Bagshaw but on that - that was on the basis that Judith Bagshaw had informed [sic] that she wasn't present when it was signed and that she was at school, at work, at the time it was reported to have been signed and that wasn't her signature.' 66 Mr Graham also stated that Mrs Bagshaw instructed him personally that the signature on the memorandum of mortgage was not her signature. 67 As against Mrs Thomas, the evidence was: 'What was the cause of action you thought existed sounding in damages against Del Thomas? --- That Del Thomas had, as an employee of Scott and Livingstone, had put pressure on her husband to make sure that Bagshaw was shut down.' 68 Mr Graham's position was summarised during the cross-examination: 'Although you have come to Court and lent your signature to a statement of claim which accuses people of being thieves and involved in a most wicked conspiracy involving fraudulent documents? --- Yes, on the basis of the instructions from my client, the documents I've seen, letters I've seen and the information I had before me. You think that is enough for you to make allegations of this grand conspiracy? --- Yes.'

indemnity costs 69 Mr Lee, counsel for the third to sixth respondents, drew attention to the fact that, as pleaded, no cause of action against the third to sixth respondents is disclosed in the ASC and he submits that there is no logical connection between the allegations made and the orders sought. 70 Mr Lee referred to Mr Bagshaw's 'indefatigable activity as a litigator' and the evidence that the allegations made in the ASC had been made previously, in a variety of courts, in cases involving Westpac, since 1994. 71 In particular, Mr Lee referred to various prior proceedings relating to the alleged invalid South Australia mortgage. The South Australia mortgage was the subject of a rectification order in the Supreme Court of South Australia, apparently by consent. An order for possession, based on default under the South Australia mortgage, was made on 25 October 1994 in the absence of opposition by Mr Bagshaw. This was the subject of later applications to set aside the judgment on which the order for possession was based and to restrain a mortgagee sale, which were unsuccessful. 72 The allegations of an improper 'withdrawal of credit' and the South Australia mortgage allegations (see [8] above) were also previously agitated by Mr Bagshaw in the Supreme Court of New South Wales. Mr Bagshaw was subsequently convicted of contempt in respect of those proceedings and his defence and cross claim were stayed: Westpac v Bagshaw [1999] NSWSC 466; Westpac v Bagshaw [1999] NSWSC 479. 73 In an affidavit filed in proceedings in the Queensland Registry of this Court (concerning a negligence claim against the trustees of Mr Bagshaw's estate)and in evidence in these proceedings, Mr Bagshaw asserted 'Westpac Bank wants to settle with me if I do not sue their employees'. This may suggest an ulterior purpose for the conduct of the current proceedings. 74 Mr Lee submitted that at least categories (ii), (iii), possibly (iv) and (vi) of Ugly Tribe (see above at [40])apply to the circumstances of this case and that, therefore, Mr Bagshaw should be ordered to pay the costs of the proceedings on an indemnity basis. 75 Mr Tilmouth QC, senior counsel for Mr Bagshaw, submitted that the material available to Mr Graham, outlined at [62(e)] constituted a 'considerable body of new or fresh material which was arguably capable of justifying a re-litigation'. He further stated that the reason why proceedings were conceded as against Mr Scott and the third to sixth respondents was the way the relief was pleaded. Mr Tilmouth conceded, however, that seeking restitution of the properties the subject of the alleged fraudulent proof of debt of Mr Scott (or the proceeds thereof) was futile as such choses in action had vested in Mr Bagshaw's trustee. Mr Tilmouth submitted that if, instead, Mr Bagshaw had sought to set aside the judgment of Whitlam J in Scott v Bagshaw [2002] FCA 276, or if damages had been sought 'perhaps as an alternative to fraud, probably as part of the accrued jurisdiction in bankruptcy' then 'matters might well have stood differently'. As such, 'it was a question of not really thinking through what the proper relief should be rather than a fundamental abuse of process'. 76 When Mr Bagshaw was properly advised as to the causes of action pleaded in the ASC against Mr Scott and the third to sixth respondents, he consented to orders that the pleading as against those respondents be struck out with costs. That suggests, in my view that had he been properly advised initially, he would not have filed the ASC in that form or, indeed, the original statement of claim. In those circumstances, the commencement and continuation of the action suggests a wilful disregard for the facts or the law. 77 As against Mr and Mrs Thomas, fraud was pleaded where, on the basis of the instructions given as related in the evidence of Mr Graham, there was no basis for the allegations or the orders sought. The facts available as regards Ms Hermanson were minimal and do not support the allegations made or the orders sought. The bare instruction from Mr Bagshaw as to Mr Perry did not support the nature of the allegations against him or the orders sought. 78 These were serious allegations that required careful consideration by Mr Bagshaw and by his solicitor. There is no suggestion that there was responsible consideration of the allegations against the third to sixth respondents or an evaluation of the likelihood of success of the claims made. 79 With respect to the claim against Mr Scott, it faced the 'insuperable problem' of the law applicable to Mr Bagshaw by reason of his bankruptcy. 80 As in Vasram, these respondents should never have had to incur costs responding to the allegations made against them. They should be indemnified in respect of the costs incurred in the proceedings in addition to the order for party and party costs made by consent by Beaumont J.

liability of the solicitor for costs 81 Mr Lee submitted that the evidence outlined at [62] demonstrates the following propositions: first, the failure on behalf of Mr Graham to make any independent inquiries prior to making the most serious of allegations; secondly, the failure to undertake even the most basic research as to the ability of Mr Bagshaw, as a discharged bankrupt, to bring proceedings based on a cause of action which (to the extent that it can be identified) accrued prior to his bankruptcy; thirdly, a failure to consider the effect of earlier litigation commenced by Mr Bagshaw even though it was plain that cognate issues were canvassed in earlier proceedings; and fourthly, a basic failure to articulate in any meaningful way the basis of any claim for relief in the Court. 82 Mr Tilmouth submitted that: 'Unlike Re Bendeich (No 2) [(1994) 53 FCR 422] this case is not in the flagrant category, that case being a persistent course of conduct over a long period of time involving repeated serious breaches of duty. At its worst it involves merely the failure to make further investigations.' 83 Mr Tilmouth relied on a distinction that 'an inquiry about how one would go about proving things ultimately is one thing, what you have available to you when you institute at the early stage of proceedings, is another'. He also relied on Mr Graham's evidence to the effect that he thought that, by the time he had made proper enquiries, there would be sufficient evidence to base the proceedings. 84 Mr Lee submitted that the distinction sought to be drawn by Mr Tilmouth was contrary to the Form 15B certificate, whereby Mr Graham certified to the Court that there was available to him at the time of certification the necessary matters to support the allegations made. 85 Mr Lee referred to the reasons given by Mr Tilmouth for Mr Bagshaw's consent to the proceedings being dismissed, as being difficulties with obtaining the relief sought, difficulties with the original proof of debt concerning Mr Scott, and the litigation between Mr Bagshaw and Mr Scott. Mr Lee pointed out that, whatever problems affected the pleading in respect of Mr Scott, they were independent of the allegations made against the third to sixth respondents. He also pointed out that every allegation made against the third to sixth respondents has been the subject of numerous affidavits in other proceedings to which they were not parties. 86 Mr Tilmouth submitted that, if I were to decide that it is appropriate to make an order against Mr Graham, one possible order would be 'to the extent that the costs orders against Mr Bagshaw are not satisfied, that Mr Graham should, in effect, fill the gap or be responsible for the difference'. 87 Mr Tilmouth submitted that it is not appropriate that Mr Graham be subjected to a joint and several order as to costs where he acted as instructed but was not instructed about relevant aspects of previous litigation involving Mr Bagshaw. He submitted that, in those circumstances, it is not appropriate that the solicitor bear a primary responsibility for costs. 88 Although Mr Graham states that, in 'general terms', he advised Mr Bagshaw of the 'seriousness of the allegations' and the possibility of an adverse costs order, it is not suggested by Mr Graham that he gave advice to Mr Bagshaw as to any perceived weakness in his case. It may have been different if he had done so and Mr Bagshaw had rejected that advice (Ridehalgh v Horsefield [1994] Ch 205).

conclusions on liability of the solicitor for costs

Mr Scott 89 Mr Graham did have instructions from Mr Bagshaw indicating that Mr Scott may have perjured himself in earlier proceedings and formed a view as to an available cause of action. 90 He did not make proper enquiries to obtain other material. He did, apparently, believe that such material would be obtained in the future, prior to a hearing. There was a plethora of material from earlier litigation. Mr Graham did not consider the legal position but assumed that, as Mr Bagshaw had been discharged from bankruptcy, the cause of action against Mr Scott could be brought in Mr Bagshaw's name. 91 Mr Graham made a judgment, albeit a flawed judgment, about the evidence to support the allegations and about the legal position. 92 The allegations concerned property and a proof of debt in circumstances where the instructions from Mr Bagshaw were that no money was owing and the property had been wrongfully transferred. Mr Graham formed the view, based on instructions, that no moneys had been payable to Mr Scott. 93 I am not satisfied that Mr Graham deliberately or consciously decided to commence proceedings against Mr Scott without any recognition of the absence of a prospect of success. I am not satisfied that Mr Graham's conduct was so unreasonable that it attracts an order that he pay costs personally. As the Full Court observed in Levick at [44], there must be something more than acting on behalf of a client with little or no prospect of success. There must be something akin to abuse of process such as using the proceeding for an ulterior purpose or without any, or any proper, consideration of the prospects of success.

Ms Hermanson 94 Mr Graham was instructed that Mrs Bagshaw had not signed the South Australia mortgage. He was given a reason why she could not have signed it. He visually compared the signature on the mortgage with that of Mrs Bagshaw and formed the view that they did not match. 95 In those circumstances, despite the fact that the pleading was not well drawn, Mr Graham is not, in my view, liable personally to pay the costs of Ms Hermanson.

The third, fourth and sixth respondents 96 On no basis can it be said that the instructions that Mr Graham received were sufficient to found the allegations against Mr and Mrs Thomas and Mr Perry. The allegations were serious and included fraud. 97 Mr Graham had a responsibility to make his own inquiries independently of his client and he simply did not make them. There was not a skerrick of evidence sufficient to base any cause of action against Mr and Mrs Thomas as pleaded or the orders sought against them. 98 Mr Bagshaw's mere assertion that Mr Perry had stolen his property was a similarly inadequate basis for the allegations in the ASC. 99 The mere assertion of stealing by Mr Perry made by Mr Bagshaw was similarly inadequate. 100 In this case, there has been a serious dereliction of duty by Mr Graham. The case advanced against these respondents was hopeless. The reason given for the instructions to join the Westpac employees and not Westpac should have occasioned further questioning and alerted Mr Graham to the likelihood of an ulterior motive on the part of his client and an abuse of process. It did not. 101 There is no suggestion that Mr Graham advised Mr Bagshaw on the adequacy of the instructions necessary to support the allegations. There is no suggestion that he applied his mind at all to the evidence necessary to support the allegations made, including the allegations of fraud. Mr Graham abandoned his obligation to exercise professional judgment. 102 Mr Graham acted on Mr Bagshaw's instructions. However, Mr Graham should be liable for part of the costs of the third, fourth and sixth respondents. In my opinion, he should be jointly and severally liable to pay the difference between the costs of the proceedings of Mr and Mrs Thomas and Mr Perry assessed on a party and party basis and the amount of those costs assessed on an indemnity basis.

orders 103 Accordingly, I vary the costs orders of Beaumont J of 17 May and 20 August 2004 as follows: 5. The applicant pay the first respondent's costs of the proceedings, such costs to be assessed on an indemnity basis. 6. The applicant pay the fifth respondent's costs of the proceedings, such costs to be assessed on an indemnity basis. 7. The applicant pay the third, fourth and sixth respondents' costs of the proceedings, such costs to be assessed on a party and party basis. 8. The applicant and his solicitor, Mr Graham, are jointly and severally liable to pay the difference between the costs of the proceedings of the third, fourth and sixth respondents assessed on a party and party basis and the amount of those costs assessed on an indemnity basis. I certify that the preceding one hundred and three (103) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett J.

Counsel for the Applicant: S Tilmouth QC

Solicitor for the Applicant: Rob Makin & Associates

Counsel for the First Respondent: P Walsh

Solicitor for the First Respondent: Church & Grace

Counsel for the Second Respondent: W MacCallum

Solicitor for the Second Respondent: Aitken McLachlan Thorpe

Counsel for the Third, Fourth, Fifth and Sixth Respondents M B J Lee

Solicitor for the Third, Fourth, Fifth and Sixth Respondents Henry Davis York

Date of Hearing: 17 May and 20 August 2004

Date of Judgment: 17 February 2005