HIS HONOUR: If this were a tale written by Beatrix Potter, it might be entitled The Tale of the Tempestuous Teacup. Unfortunately it is not a children's story. It is a judicial decision made necessary by an application, peripheral to the real and significant issues involved in the substantive litigation, that appears to have arisen from a situation where on each side ego has triumphed over reason.
The plaintiffs were clients of the law firm known as Atanaskovic Hartnell (AH). The ninth and tenth defendants are partners in that firm, and the ninth defendant, Mr Atanaskovic, is the person specifically involved in the dispute with which I am now dealing.
The plaintiffs say, and there is a great deal of evidence to support what they say, that they were defrauded of approximately $8 million (gross) in a series of transactions effected by a solicitor then in the employ of AH. Some of that money has been recovered, in the sense that it is sitting in court awaiting a decision as to who is entitled to receive it. The plaintiffs have sued AH, claiming, in various ways, that the firm failed properly to supervise the solicitor in question so as to protect the plaintiffs from the risk of the harm which in fact eventuated.
As I have said, that is a very serious matter. It will, if not resolved by means other than a final hearing, no doubt involve significant evidence, significant court time, very substantial expense, and perhaps the prospect of a journey through the appellate hierarchy of the courts of this State and nation.
The issue with which I am dealing is an application by the plaintiffs seeking an order, said to be pursuant to s 61(1) of the Civil Procedure Act 2005 (NSW) or UCPR r 2.1, that Mr Atanaskovic not communicate directly with a number of persons who are in effect the principals or the employees of one or other of the plaintiffs, in relation to the proceeding and for as long as the plaintiffs' present solicitors continue to act for the plaintiffs. There is a subsidiary order sought seeking to restrain Mr Atanaskovic from causing any employee of AH to do likewise.
The application has arisen out of correspondence exchanged between the parties which, whatever its original justification may have been, can be seen to have been ill-advised and intemperate, and to have become worse in tone and content as time passed.
There were two principal topics involved in that correspondence. One related to an approach made by Mr Atanaskovic to the Chief Operating Officer of the plaintiffs, seeking to initiate mediation. The other related to correspondence in which AH sought recovery of a substantial amount of fees said to be owing by the plaintiffs in respect of other proceedings in which AH had acted for the plaintiffs.
The correspondence is contained in an exhibit to an affidavit that was read on the hearing of the application. I do not propose to refer to all of it. A couple of highlights (or lowlights) will suffice.
Dealing first with what might be called the mediation correspondence: on 19 March 2018, Mr Atanaskovic wrote to the Chief Operating Officer of the plaintiffs, referring to "without prejudice by phone last Friday evening" discussions, and suggesting the possibility of a claim against LawCover. I am not entirely clear why Mr Atanaskovic thought that it was his role to suggest to the plaintiffs, who by then were represented by the firm HWL Ebsworth, how to proceed. I should however add that Mr Atanaskovic was not then a party to the proceedings; indeed, he was not joined as a defendant until very recently, and after either all or substantially all of the contentious correspondence was exchanged.
HWL Ebsworth (I shall refer to the firm as "HWLE" in what follows) wrote to Mr Atanaskovic and one of his partners in AH on 21 March 2018. In the letter, HWLE requested that Mr Atanaskovic and his firm "immediately cease all communications with our clients" and demanded that "all future correspondence regarding this matter must be in writing and addressed to this firm".
It would seem that Mr Atanaskovic was not pleased by that letter. He replied two days later, on 23 March 2018. Mr Atanaskovic's letter commenced (after referring to the letter to which it was replying) by stating that the letter of 21 March 2018 was "on its face … something of an embarrassment to the legal profession, inter alia since your letter itself constitutes a breach of relevant legal conduct rules and is therefore hypocritical". After that peaceful beginning, Mr Atanaskovic made some further complaints.
The day before that letter had been sent, Mr Atanaskovic had sent an email to Mr Bruce Gordon, who I take to be a principal of the plaintiffs. That email referred to "our without prejudice phone discussion yesterday" and stated that Mr Atanaskovic was communicating "in a personal capacity, and not as a solicitor". Nonetheless, the letter made some comments on the way in which the plaintiffs' claim was framed, and as to the way in which the plaintiffs' loss should be assessed.
Perhaps not surprisingly, that email produced yet another stern reply, again marked by much bold print and underlining, demanding "[s]o that there can be no possible doubt" that communications of the kind to which I have just referred should cease. It would appear that, by some error, that letter of HWLE was sent on two occasions. Mr Michael Sophocles, another partner in AH, took offence at that, and replied referring to "threatening correspondence" sent more than once, and commenting that he did not understand whether the double sending "was simply a mistake or was a misguided attempt at harassment". Mr Sophocles demanded that HWLE communicate with the lawyers for AH, the firm Gilchrist Connell (GC).
Matters did not really improve from there. I do not propose to satisfy, in any way further than I have done, the curiosity of those who might wonder what all this is about except by pointing out that on 25 May 2018, Mr Atanaskovic saw fit to send an email to Mr Gordon pointing out, among other things, that LawCover's insurer's solicitor had communicated an offer that Mr Atanaskovic thought was "generous", and pointing out that non-acceptance left the plaintiffs "at some risk of having to pay the insurer's future legal expenses in full". It is very difficult to understand, in light of what had passed between the parties, why Mr Atanaskovic thought it was appropriate to write that letter.
I turn to the question of fees. On 27 February 2018, GC wrote to HWLE pointing out that GC's client AH was owed in excess of $1.1 million for unpaid fees in relation to other litigation, and stating that AH claimed, and maintained its claim to, a lien in respect of the relevant papers. HWLE replied the following day, setting out what the firm understood to be the status of the various fee invoices. Apparently, Mr Sophocles thought that HWLE's response was inadequate. He wrote to HWLE on 1 March 2018, referring to the letter of 28 February 2018, and setting out various contentions as to why the fees were owing. His contentions included that nothing had been raised to suggest that the fees were in any way excessive or inappropriate.
For reasons that I do not understand, and that the evidence does not explain, there was no reply to Mr Sophocles' letter during March or April. On 2 May 2018, there was a reply which did no more than ask for further information, and, in due course, that was followed by a substantive reply to which I shall return. After the HWLE letter of 2 May 2018, Mr Atanaskovic wrote to HWLE on the topic of outstanding fees. That letter disputed, in strenuous terms, various allegations either made by or inferred from previous correspondence.
Mr Atanaskovic followed up that letter with further letters over the next week or so.
On 11 May 2018, HWLE wrote what I have referred to as the substantive reply on the question of fees. That letter made extremely serious allegations. It asserted in effect that AH had falsified billing records. It asserted, further, that AH had failed to account appropriately for a payment received, or to deal with it in accordance with the instructions of the payer. It is hardly surprising that this letter was not well received. Among other things, it caused Mr Atanaskovic to resume his contact direct with the plaintiffs or their principals.
It is the case for AH and Mr Atanaskovic that the correspondence was justified. As to the correspondence relating to mediation, he said in effect that he had been advised by GC to initiate contact direct with the plaintiffs, with a view to obtaining their consent to a mediation. There is no doubt in principle that it is or may be appropriate for the principal of one litigant to communicate with the principal of another, without going through lawyers, with a view to arranging some form of alternative dispute resolution. Whether that is appropriate where one of the principals is not only a legal practitioner, but the former legal practitioner acting for the other side, is open to question.
As to the fees correspondence, the explanation given is that it was necessitated because HWLE had failed, for a period in excess of ten weeks, to offer any substantive reply to GC's letter to which I have referred. It is certainly the case that there was no substantive reply, and the discourtesy involved is regrettable, although in the scale of this litigation hardly to be taken as surprising.
As I have said, the application is based on s 61(1) of the Civil Procedure Act and on UCPR r 2.1. Those sources of power were examined by the Court of Appeal in McGuirk v The University of New South Wales [1] . Sackville AJA gave the leading judgment. His Honour dealt with both sources of power. Young JA agreed with Sackville AJA, although he offered some reasons of his own. Giles JA agreed on the approach that Sackville AJA said should be taken to r 2.1, and the area in which he disagreed is not relevant. Giles JA also, I think, took a similar approach to s 61(1) as that indicated by Sackville AJA. In the circumstances, and without wishing to be disrespectful to either Giles JA or Young JA, I shall concentrate on the reasons of Sackville AJA.
His Honour dealt with the construction of s 61(1) at [140] and following. He noted at [143] that for the sub-section to be enlivened, the Court must consider "whether the directions are necessary or appropriate for the speedy determination of the real issues between the parties". His Honour added at [144]:
No doubt a finding that the unjustified behaviour of one party has significantly increased the costs of the proceedings or inflicted hardship on the other party makes it easier for the court to conclude that the behaviour is likely to lead to delays and that orders curtailing the behaviour will assist in bringing about the speedy determination of the real issues in dispute. But that does not detract from the proposition that the language of s 61(1) requires the court to consider whether the proposed orders are appropriate for the purpose identified in the sub-section. If no such conclusion is or can be reached, the proposed directions are not authorised by s 61(1). The fact that the court must seek to give effect to the overriding purpose when considering whether to exercise the power conferred by s 61, does not allow the court to read s 61 as authorising any direction it thinks appropriate for the just, cheap resolution of the proceedings. Thus, s 61(1) cannot be read, for example, as authorising a direction that will have no bearing on the speedy determination of the "real" issues, but might be thought to save some costs or avoid unnecessary distress to a party. (This is not to suggest that other powers, notably that conferred by UCPR, Pt 2 r 2.1, cannot be used for these purposes.)
Sackville AJA dealt at [147] to [149] with the evidentiary burden imposed to show that s 61(1) is enlivened. His Honour said that a large volume of communications irrelevant to the issues in dispute could justify an inference that directions curtailing or restricting the flow of communications might be appropriate under the sub-section. Likewise, his Honour said, if it appeared that the sender of the communications had breached his or her duty to the Court under s 56(3) of the Civil Procedure Act, the Court might be more inclined to give directions to limit communications. Finally, his Honour said, offensive or threatening communications could be regarded as "likely to be inimical to the statutory objective of achieving a speedy determination of the real issues between the parties".
It is apparent that if any of those matters were proved, it would be open to the Court to give a direction under s 61(1).
Sackville AJA dealt with r 2.1 at [160] and following. His Honour noted at [162] that r 2.1, or more accurately the power conferred by it, was wider than s 61(1). It was, his Honour said, a power "at any time to give such directions and to make such orders for the conduct of any proceedings, whether or [not] inconsistent with the rules of Court, for the just, quick and cheap disposal of the proceedings". It was not limited, his Honour said, to directions precisely for that purpose, but was expanded by the notion of convenience. And it was a power "for the conduct of any proceedings".
Thus, Sackville AJA said at [163]:
In my opinion, if a party to proceedings repeatedly sends gratuitously offensive or threatening communications to the other party or its legal representatives, it will not usually be difficult to conclude that it is convenient for the just, cheap and quick disposal of the proceedings to make directions or orders requiring the party to desist from such conduct. In particular, a finding that the party responsible for the communications is in breach of his or her duty under s 56(3) of the CP Act (as the primary Judge found in this case) would support such a conclusion. It will be even easier to reach that conclusion if the communications have caused distress or safety concerns to some of the recipients. In the circumstances I have described, it would generally be open to a court to find that the proceedings cannot be disposed of justly if a party cannot pursue or defend a claim, or its legal representatives cannot discharge their responsibilities to the client or the court, without being subjected to gratuitously offensive or threatening communications. An order or direction requiring the offending party to desist can aptly be described as an order or direction for the "conduct of the proceedings".
It is important to note that the facts of McGuirk are far removed from the facts in this case. That can be gleaned simply by reading the decision of the Court of Appeal, but is amplified when one considers the first instance judgment of Simpson J: McGuirk v The University of New South Wales [2] . The offensive, vituperative and gratuitously insulting nature of Mr McGuirk's correspondence travelled way beyond the bounds of the correspondence that the parties in this case have seen fit to exchange.
There was a submission put that Mr Atanaskovic's conduct involved a breach of the Uniform Conduct, Practice and CPD Rules for Solicitors, specifically r 33. I do not propose to express a view on that. If the plaintiffs put that submission seriously, there are other avenues to which they may turn to vindicate their assertion. What I will say is that the correspondence on each side is unimpressive, and that the Court is entitled to expect better from senior, capable and experienced practitioners. I add that neither s 61(1) nor r 2.1 exists merely to remedy discourtesy or pugnacity.
The plaintiffs put their case on a number of bases. They said that the correspondence would tend to undermine the plaintiffs' confidence in their current lawyers, HWLE. They submitted, I think, that it might weaken the plaintiffs' resolve to proceed. They submitted that it was capable of delaying the final hearing and increasing costs.
The very fact that the plaintiffs have brought the application seems to me to demonstrate that their confidence in their lawyers has not been undermined in the slightest. In any event, there is no evidence from the plaintiffs themselves that they have been distressed, or suffered stress, as a result of the correspondence. There is no evidence from which it could be inferred that their confidence in their lawyers has been diminished one whit.
For essentially the same reasons, I do not think that there is any basis for concluding that the correspondence could be thought to have weakened the plaintiffs' resolve to proceed with the litigation. As I have said, the application made yesterday is proof enough of that. There was no submission of hardship. It is worth noting at this point that, in contrast to the correspondence emanating from Mr McGuirk, there were no threats.
I suppose in a sense it could be said that the correspondence might delay the final hearing. But that delay (if any) has to be considered in the context that the partners of AH have only very recently been joined as defendants, and that to date, the principal cause of delay seems to have been the plaintiffs' difficulty in formulating their claim against AH in a way that actually exposes its legal and factual basis.
It is self-evident that the correspondence will increase costs. One imagines that some time was spent in composing the letters that the Court has been required to consider. One can understand that the time taken to do that is likely to be reflected in the amount of fees charged to the clients (or, in Mr Atanaskovic's case, not charged to clients because his time was taken up in writing the letters in question). But given the issues in the proceedings and what I perceive at present to be the range of evidence, and the length of any hearing that those issues are likely to generate, such increased costs as have been incurred are likely to be insignificant. It is also undoubtedly the case that each party has been keen to throw epistolary grenades at the other; it is not a case where the aggression comes from one side only (again, in strong contrast to the facts in McGuirk).
I conclude that there has been no basis shown for applying s 61(1).
For essentially the same reasons, I think that there has been no basis shown for giving any direction under r 2.1. If it were possible, I would consider giving a direction that each side take a step back and a cold shower and then resume the civilised preparation of the litigation. But that is an order for which no precedent exists, and which I perceive to be beyond even the wide powers conferred by r 2.1.
The notice of motion in question had sought orders for payment out of money in court. I dismissed those prayers for relief yesterday. These reasons have dealt with the remaining prayers for relief. It follows from what I have said that those prayers - that is to say, the whole of the amended notice of motion - should be dismissed. On the face of things there is no reason why the plaintiffs should not pay the ninth and tenth defendants' costs of that notice of motion and I so order.
The exhibits are to be returned once these reasons have been revised.
[4]
Endnotes
[2010] NSWCA 104.
[2009] NSWSC 253.
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Decision last updated: 13 June 2018