European Hire Cars Pty Ltd v Beilby Poulden Costello

LEGISLATION CITED : Civil Procedure Act 2005 Legal Profession Act 2004

Degiorgio v Dunn (No 2) [2005] NSWSC 3 Firth v Latham [2007] NSWCA 40 Ideal Waterproofing Pty Ltd v Buildcorp Australia Pty Ltd [2006] NSWSC 155 CASES CITED : Medcalf v Mardell [2003] 1 AC 120 Lemoto v Able Technical Pty Ltd & Ors [2005] NSWCA 153, 63 NSWLR 300 Ridehalgh v Horsefield [1994] Ch 205 Whyked Pty Ltd v Yahoo No 7 Pty Ltd [2008] NSWSC 477

European Hire Cars Pty Ltd - Plaintiff/Applicant PARTIES : William Barry Beilby Donald Bedford Courtenay Poulden - Respondents Ian Scott Hall

COUNSEL : B Coles QC - Plaintiff/Applicant G Gregg - Respondents

SOLICITORS : Landerer & Company - Plaintiff/Applicant Yeldham Price O'Brien Lusk - Respondents

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3805/2006 EUROPEAN HIRE CARS PTY LTD v BEILBY POULDEN COSTELLO LAWYERS JUDGMENT 1 HIS HONOUR: On 25 July 2008 the plaintiff applied by Notice of Motion for orders relating to costs against the partners of Beilby Poulden Costello (the respondents), the solicitors who acted for the plaintiff in the principal proceedings. The application is now Further Amended Notice of Motion (FANM) filed on 12 December 2008. The defendant Mr Armstrong is not a party to the application; the partners of Beilby Poulden Costello are the only respondents. I disposed of the principal proceedings on 14 June 2007 - [2007] NSWSC 629. The satellite proceedings have proven as complex as the original proceedings. 2 The effect of FANM Claim 4 is that the plaintiff seeks an order that his former solicitors pay the defendant's costs which the plaintiff was ordered to pay the defendant at stages of the litigation, repay the costs and disbursements paid to them by the plaintiff and forego the outstanding fees. Claim 4 is in the following terms: An order that the partners of Beilby Poulden Costello:- a. pay the defendant's costs on an indemnity basis in respect of the following:- i. that part of the Defendant's costs of the Application to set aside the judgment in Local Court proceedings no. 9522 of 2003 pursuant to the Judgment of His Honour Magistrate Lulham dated 12 th August 2004; ii. that part of the Defendant's costs which relate to the transfer of the proceedings from the Local Court into the District Court and then in to the Supreme Court; iii. that part of the defendant's costs incurred from and after 11 June 2004 pursuant to the Affidavit of William Barry Beilby sworn 11 June 2004 in Local Court proceedings no. 95223 of 2003 [paragraphs 3(g) & 5(b) and annexure "E"] ; iv. that further and in the alternative to (iii) above , that part of the Defendant's costs incurred from and after 10 th October 2005 pursuant to paragraphs 83 and 84 of the Judgment of the Trial Judge, His Honour Bryson AJ dated 14 th June 2007 in these proceedings; and b. repay the costs and disbursements paid to them by the Plaintiff to date; and/or c. forego any outstanding fees claimed by them against the Plaintiff, pursuant to:- (a) section 198M of the legal Profession Act 1987; and/or (b) section 348 of the legal Profession Act 2004; and/or (c) section 99 of the Civil procedure Act. 3 The claim was based on the Legal Profession Act 1997 s 198M, which was in effect until 30 September 2005, Legal Profession Act 2004 s 348 which commenced on 1 September 2005 and Civil Procedure Act 2005 s 99. The legislation now relevant is Pt 32 Div 10 of the Legal Profession Act 2004, ss 345 to 349. Transitional provisions operate to make s 348 applicable to the present claim and the conduct of the proceedings before 1 September 2005 and it is sufficient to refer to section 348 and not the earlier legislation. Transitional provisions which have this effect are found in Legal Profession Act 2004 schedule 9 paragraph 3(3). I set out ss 345 and 348 345 Law practice not to act unless there are reasonable prospects of success

(1) A law practice must not provide legal services on a claim or defence of a claim for damages unless a legal practitioner associate responsible for the provision of the services concerned reasonably believes on the basis of provable facts and a reasonably arguable view of the law that the claim or the defence (as appropriate) has reasonable prospects of success.

(2) A fact is provable only if the associate reasonably believes that the material then available to him or her provides a proper basis for alleging that fact.

(3) This Division applies despite any obligation that a law practice or a legal practitioner associate of the practice may have to act in accordance with the instructions or wishes of the client.

(4) A claim has reasonable prospects of success if there are reasonable prospects of damages being recovered on the claim. A defence has reasonable prospects of success if there are reasonable prospects of the defence defeating the claim or leading to a reduction in the damages recovered on the claim.

(5) Provision of legal services in contravention of this section constitutes for the purposes of this Division the provision of legal services without reasonable prospects of success. 348 Costs order against law practice acting without reasonable prospects of success

(1) If it appears to a court in which proceedings are taken on a claim for damages that a law practice has provided legal services to a party without reasonable prospects of success, the court may of its own motion or on the application of any party to the proceedings make either or both of the following orders in respect of the practice or of a legal practitioner associate of the practice responsible for providing the services: (a) an order directing the practice or associate to repay to the party to whom the services were provided the whole or any part of the costs that the party has been ordered to pay to any other party,

(b) an order directing the practice or associate to indemnify any party other than the party to whom the services were provided against the whole or any part of the costs payable by the party indemnified. (2) The Supreme Court may on the application of any party to proceedings on a claim for damages make any order that the court in which proceedings on the claim are taken could make under this section.

(3) An application for an order under this section cannot be made after a final determination has been made under this Part by a costs assessor of the costs payable as a result of an order made by the court in which the proceedings on the claim concerned were taken.

(4) A law practice or legal practitioner associate of the practice is not entitled to demand, recover or accept from a client any part of the amount for which the practice or associate is directed to indemnify a party pursuant to an order under this section. 4 In approaching this decision I should observe and conform with observations in the leading judgment in the Court of Appeal in Lemoto v Able Technical Pty Ltd & Ors [2005] NSWCA 153, 63 NSWLR 300; McColl JA. These statutory powers are to be exercised only in clear cases and only with careful consideration (see paras [123 to 126], [189 to 191], [195]). The discretion in s 348 is an important step in consideration - see McColl JA at [130]. It is not a formality. As generally with discretionary powers, it is to be exercised for purposes relevant to the legislation which created it. It is not enough that the claim was plainly doomed to fail; the view taken by the Court of Appeal was that this does not preclude the question. See McColl JA [101 to 115]. Entitlement of a litigant to determination of his controversy by the court, and to have legal representation, are policy concerns relevant to the exercise of the discretion; see McColl JA at [95] to [100], [139] to [142]. 5 In my view the exercise of the power to protect the interests of adverse litigants has a more pressing claim for consideration than its exercise in favour of clients of the legal practitioner; although the statutory power does extend to making an order in favour of the legal practitioner's own client. The legal practitioner's client and the adverse party stand in altogether different positions; for the client the disastrous outcome is, to a greater or lesser extent, his own doing. 6 At [132] McColl JA adopted the formulation in exposition of "reasonable prospects of success" made by Barrett J in Degiorgio v Dunn (No 2) [2005] NSWSC 3 at [28]. Her Honour expressed approval of the re-formulation "so lacking in merit or substance as to be not fairly arguable" but with observations which point to the need to apply the statutory words in their statutory context. Her Honour recognized that reasonable minds might differ and said "The question will be whether the solicitor or barrister's belief that they had material which objectively justified proceeding with the claim or the defence 'unquestionably fell outside the range of views which could reasonably be entertained" and referred to Medcalf v Mardell [2003] 1 AC 120 at [40] (Lord Steyn).

7 In Firth v Latham [2007] NSWCA 40 observations of Hoeben J at [68] recognize that the conduct of litigation is a dynamic process. The expression "dynamic process" is in my view well applicable to the manner in which the plaintiff's case was conducted and the continuing address to possible means of overcoming its difficulties. 8 The plaintiff claimed damages or debt against Mr Armstrong as the executor of the will of his late wife Mrs Patricia Armstrong, who died on 10 October 2002. Mr Armstrong obtained probate of her will, under which for practical purposes he received the whole of her assets, the value of which greatly exceeded the plaintiff's claim. He had notice of the plaintiff's claim when he distributed the estate to himself. The plaintiff's business was providing hire car services, that is, cars with chauffeurs. The Armstrongs had been customers for some years. Mrs Armstrong had health difficulties and adverse circumstances of various kinds, including motoring troubles. By 2002 she and Mr Armstrong were estranged and lived separately. Mrs Armstrong owned a BMW M3 motor car but she often used hire cars and chauffeurs, sometimes four times a week. According to the evidence of Mr Galluzzo, the director and principal figure of the plaintiff, Mrs Armstrong told him that her BMW car was getting too much for her and was too powerful, and asked for his advice about buying a small automatic car with power steering. This led to Mr Galluzzo taking Mrs Armstrong to Mercedes-Benz motor dealers and selecting a white E 200 Kompressor, a four-cylinder car with automatic transmission.

9 I gave the following account of the arrangements which followed in my earlier judgment at paragraphs 15, 16 and 17. 15. In about March or April 2002 Mr Galluzzo took Mrs Armstrong to Daimler Chrysler Mercedes Benz motor dealers in Zetland. She selected a white E200 Kompressor, a four cylinder car with automatic transmission. Mr Galluzzo gave the following account of the arrangements then made. 17. At about the same time, Mrs Armstrong said to me, 'I really want that car but I don't have the funds to purchase the car until my divorce settlement takes place. Can you buy the car on my behalf and you can transfer it into my name as soon as settlement goes through with my divorce. I will pay you back whatever it costs you with whatever I get from the settlement.' I said, 'Okay'.

16. Mr Galluzzo's evidence is that he has trusted her, trusted that what she was telling him was true, and relied on her promise to repay when her divorce settlement was finalised.

17. It is Mr Galluzzo's evidence that Mrs Armstrong said to him to the effect that she did not want the car to be kept at her home at Beecroft because she did not want Mr Armstrong to know that she had it, and Mr Galluzzo said that he could garage it at his business with his other cars and then when she needed to use it someone from the plaintiff would come and pick her up "and you can then drive the car from our garages", and Mrs Armstrong agreed. 10 What Mr Galluzzo said in his evidence in chief about the agreement appears in paragraphs 15 to 18 and part of paragraph 20 of his affidavit of 10 October 2005, as follows: 15. By March 2002, the deceased was unable to handle driving her BMW vehicle any more. Some time after her accident in 2001, she had said to me words to the effect, " My BMW is too powerful for me. Its getting too much. " She said this to me in various conversations between late 2001 and March 2002. In early 2002 she also said words to the effect "I think I want to sell my car. Can you help me find a buyer for my car and look for a small automatic car for me with power steering ." I suggested to the deceased " Why don't you buy a Toyota Echo, which is a reliable but small car ?" She said, " I don't want an ordinary car, I want you to get me a better or equal car to what I had when I was with Ken. Something like a Mercedes Benz ." 16. In or about March or April 2002, I took her to Daimler Chrysler Mercedes Benz of Sydney to shop for a new vehicle. She saw a car that she liked there and selected a white Mercedes Benz E200 Kompressor ("the Mercedes"). The Mercedes was a 4 cylinder car. 17. At about the same time, the deceased said to me, " I really want that car, but don't have the funds to purchase the car until my divorce settlement takes place. Can you buy the car on my behalf and you can transfer it into my name as soon as settlement goes through with my divorce. I will pay you back whatever it costs you with whatever I get from the settlement ." I said: " Okay ." 18. I trusted the deceased and trusted that what she was telling me was true. I relied on her promise that she would repay me for the money that I had spent on the Mercedes when her divorce settlement was finalised. During this period she was always upset and I felt sorry for her. The Mercedes is not one that I would ordinarily use in the running of the business at EHC. The types of vehicles that EHC uses are larger, long wheel based vehicles with either V8 (8 cylinders) or V12 (12 cylinders) engines. We do not have any cars that have 4 cylinders as I find that those cars are not as durable as the 8 or 12 cylinder cars. The cars are stored at a warehouse at 6 Waterloo Street Rozelle. Further, all our cars are either black or gold in colour. This has always been the case ever since EHC commenced. The Mercedes was white and is a 4 cylinder car.

20. …Prior to signing the contract, I showed the contract to the deceased and told her about the terms of the lease arrangement. She said to me words to the effect, " That is fine. Go ahead and sign it. Keep all the paperwork in your offices, get the car and I will pay you back when my divorce settlement goes through ." I then arranged to sign the contract for lease and the Mercedes was delivered to me shortly thereafter. 11 The plaintiff leased the car from the dealer under a lease dated 19 April 2002. The plaintiff undertook all liability for the lease and charges and Mr Galluzzo and Mrs Galluzzo personally guaranteed the liability. According to Mr Galluzzo's evidence, the car was garaged at the plaintiff's premises at Rozelle, and when Mrs Armstrong wanted to drive or use the car Mr Galluzzo or another chauffeur would travel to Beecroft, pick Mrs Armstrong up and take her to Rozelle, and she would then use the car. There is no written record of an arrangement between Mrs Armstrong and the plaintiff for her to take a transfer of the car into her name, or to pay costs. Mrs Armstrong did not ever pay any costs or any money and did not take a transfer of the car, and at the time of her death had not got anything from a settlement associated with her divorce; there had not been any settlement associated with divorce proceedings. 12 The plaintiff's claim against Mr Armstrong and the estate has been expressed in several ways but at the time of the trial on 12 to 14 June 2007 the claim was a claim for $57,150.44, the balance of all expenditure by the plaintiff on the Mercedes-Benz car, for lease payments, registration and similar charges and the final payout, allowing credit for $45,000 received on sale of the vehicle. Classification as a claim for debt or for damages is not completely clear but I treated it as a claim for damages for failure to observe the promise to pay back whatever the transaction cost the plaintiff and to take a transfer of the car. 13 Another claim related to a payment of $4540 which the plaintiff made for repairs to Mrs Armstrong's BMW car after it was damaged in or about early September 2002. At Mrs Armstrong's request Mr Galluzzo arranged for repairs to the car and paid for them. This car was repaired and Mr Armstrong took it back, eventually and not without difficulty. In Mr Armstrong's Defence he offered to pay this claim, while not admitting it. Although this claim was not admitted it was not actively disputed at the hearing and I gave judgment for the plaintiff for $4540. Events relating to damage to the BMW and its repair led to a considerable body of evidence and a number of witnesses dealing with these transactions, which were relevant to Mr Galluzzo' credit, but not otherwise important. 14 The proceedings were commenced in the Local Court Downing Centre Sydney by Ordinary Statement of Claim filed on 9 September 2003. It was then a claim for $35,096.66 damages with further accruing losses. There was also a claim relating to the repair costs of the BMW. Would that the litigation had stayed in the Local Court! Justice would have been better served than it has been. The Ordinary Statement of Claim was amended and somewhat increased on 27 November 2003. On 23 December 2003 Mr Armstrong filed a Defence; he did not admit the contract relating to the Mercedes-Benz. At the same time he filed a Statement of Confession, confessing judgment for $4890 in full and final satisfaction. At the same time by letter Mr Armstrong's solicitors conveyed an offer to settle, the confessed amount $4890 to be accepted, the claim to be withdrawn and each party to pay its own costs. This offer was not accepted. The Local Court Registrar sent the respondents a Notice of Confession, calling for a notice refusing to accept the amount confessed within 14 days otherwise judgment. There was no such notice, the confession took effect and judgment was given by the Registrar. The respondents, on behalf of the plaintiff, applied to the Local Court to set aside this judgment: the application was heard by Mr B A Lulham Magistrate on 13 June and 15 July 2004 and decided on 12 August 2004, for reasons then stated with meticulous care. His Honour made orders extending the time to file notice rejecting the confession for a further 14 days and set aside the judgment which had been obtained. 15 Consideration of the application, in effect an application set aside judgment, involved consideration by Mr Lulham of the question whether there was a prima facie case worthy of trial. His Honour referred to what he spoke of as "the Mercedes-Benz purchase dispute" in paragraph 5(i) of his judgment: "The plaintiff alleged that through its agent and director, it agreed to sell a motor vehicle to Patricia Ann Armstrong on the basis that the plaintiff would purchase the vehicle and hold it in trust for the said Patricia Ann Armstrong until the completion of her family law proceedings, whereupon she was to pay to the plaintiff the amount incurred for the purchase and holding of the vehicle." So stated, that claim appears to be a claim for a trustee's indemnity. His Honour at paragraph 15 referred to an ex tempore decision he had made during oral argument: "I found I was comfortably satisfied that the plaintiff had an arguable or prima facie case in relation to the 'Mercedes-Benz purchase dispute', and one which he should be entitled to have litigated in Court." 16 On 22 October 2004 the respondents, acting for the plaintiff, applied to the Supreme Court by Summons for an order transferring the proceedings from the Local Court to the Supreme Court. When this application was heard by Master McLaughlin on 26 November 2004 the learned Master expressed doubts about his own power and the Supreme Court's jurisdiction to order the transfer; at that time there was no statutory machinery for such a transfer. The parties then agreed that the Summons be dismissed with no orders as to costs; it was said that the plaintiff would consider commencing fresh proceedings in the District Court. 17 The Local Court proceedings were adjourned from time to time. The respondents applied to the District Court for transfer of the proceedings from the Local Court. Notice of Motion was filed in the District Court on 15 February 2005 and sought removal under s 21B of the Local Courts (Civil Claims) Act 1970. On 8 April 2005 Judicial Registrar McDonald of the District Court ordered the transfer and made procedural directions. 18 There were amendments to the Ordinary Statement of Claim. The solicitors filed a Second Further Amended Ordinary Statement of Claim (2FAOSC) in the District Court on 15 July 2005. The amount of the claim in 2FAOSC is not clearly stated but claims totalling $102,150.94 less credit $45,000, net $57,150.94 were made related to the Mercedes-Benz and $4540 related to the BMW. It was on this that the proceedings went to trial before me. On the second day of the hearing before me I refused an application for further amendments. 2FAOSC restated the terms of the claim, differently to the statement in the Local Court. In AOSC in the Local Court the allegations about the terms of the agreement dealing with payment and taking transfer were as follows: (3) …It was agreed between the deceased and the plaintiff that the plaintiff would hold the said motor vehicle in trust for the defendant and that it could be transferred to her at her request pending:- (a) the completion of her Family Law proceedings; and/or

(b) the payment to the Plaintiff by the deceased of such sums as the Plaintiff incurred by way of the cost of lease payments for the motor vehicle and expenses incurred by it acquiring and holding the vehicle on behalf of the deceased. 19 In 2FAOSC the allegation in paragraph 4 is thus: 4. In or about April 2002 Patricia Anne Armstrong ('the Deceased") and the plaintiff entered into an agreement ("the First Agreement") on the following terms: a. the plaintiff would purchase a Mercedes Benz E200K for the Deceased; and b. once the Deceased had available funds, the Deceased would reimburse the plaintiff in respect of the purchase and expenses incurred by it in respect of the vehicle, following which the plaintiff would transfer the vehicle to the Deceased. Particulars a. The agreement was between Mr Galluzzo and the deceased, and was oral. b. The agreement was made at the premises of Mercedes Benz Sydney. 20 2FAOSC does not state, in any recognisable way when or how it is alleged that the contractual promise in paragraph 4(b) was broken. There was no allegation that the deceased ever did have available funds; it is alleged (paragraph 17) that at the time of the distribution of the assets of the estate there were sufficient assets to meet the plaintiff's claim. There are several further new claims against Mr Armstrong, including a claim that he breached fiduciary duties to the plaintiff by distributing after receiving notice of the plaintiff's claim. I have not seen any form of Defence in which Mr Armstrong pleaded that he had fully administered the estate before notice of the plaintiff's claim (plene administravit) or that he had fully administered except as to stated assets before notice (plene administravit praeter).

21 There were doubts on whether the jurisdiction of the District Court under s 134(1)(h) of the District Court Act extended to this claim, and the respondents took Senior Counsel's advice on the subject; advice favoured applying for further removal into the Supreme Court. Affidavits showing the parties' cases in chief were filed in the District Court. Attempts to obtain some agreed arrangements about jurisdiction in the course of a directions hearing on 5 May 2006 were unproductive and the respondents applied to the Supreme Court by Summons on 9 June 2006 and obtained an order for transfer on 26 June 2006. There, after further preparations, the hearing came on before me on 12 June 2007. 22 A mediation before the Hon Brian Cohen QC took place on 28 April 2006. After the mediation the defendant made an offer by letter of 30 May 2006 between solicitors. In this letter the defendant's solicitors made strong assertions about the defendant's view of the merits, and referred to Calderbank, and the words of offer were: Nevertheless, in an effort to resolve the matter and avoid further expenditure on legal costs, our client is prepared to settle the matter on the following terms: 1. payment of the sum of $12,000.00 by the defendant to the plaintiff within 28 days in full and final settlement of all of the plaintiff's claims; and 2. each party to bear all of its own costs of all of the proceedings. The above offer remains open for acceptance for a period of 28 days from the date of this letter. 23 The defendant obviously thought enough of the plaintiff's claim to make it worth his while to offer this not inconsiderable sum of money. This offer was not accepted during the 28 days it was available. In a conversation about 8 August 2006 the solicitor representing Mr Armstrong told an employed solicitor representing the plaintiff to the effect that if the plaintiff wanted to settle for $12,000 he could recommend that to the defendant. 24 I was not asked to grant any equitable relief. A sterner Justice would have remitted the proceedings to the Local Court again, or to the District Court. The claim was too small for Supreme Court proceedings to be appropriate but in view of the procedural history I did not raise the subject but thought that justice required me to hear and determine the litigation however small it was. So I did. At the end of the hearing the only evidence before me about the terms of a contractual arrangement for Mrs Armstrong to buy and take transfer of the vehicle and pay the costs was in Mr Galluzzo's affidavit as set out earlier. I did not believe Mr Galluzzo's evidence about the arrangements at all, but if I had believed it the plaintiff's claim could not have succeeded. 25 In the case as alleged, and also as presented, there is general obscurity about what was, in the pleadings, alleged to be the time at which payment and transfer of title were to take place, and when and how there was a breach of the contractual obligation. This imparticularity reduced the defence to general statements of non-admission and denial. A pleading alleging breach of a contractual obligation impliedly alleges that all times passed, all conditions were fulfilled and all things happened necessary to entitle the plaintiff to performance of the promise: see now UCPR 14.11; there have been similar provisions in rules of court for generations. The Defence did not deny this implied allegation in an appropriately distinct way and indeed there was no appropriately distinct allegation of breach of contract to raise the implication for the Defence to deny, but I am satisfied that the issue was raised by non-admission of the plaintiff's indistinctly stated claim. In any event it would not have been possible for me to give judgment for damages to the plaintiff when the plaintiff's own evidence did not show a cause of action. In my judgment I made the following observations: 38 Of at least equal strength as a ground for rejecting the principal claim is the fact that the condition which on Mr Galluzzo's evidence undoubtedly had to be fulfilled before Mrs Armstrong's promise to pay money and complete the sale took effect, has never been fulfilled. That is to say, she has never completed her negotiations and obtained money from her divorce settlement.

39 Reference was made in the course of argument to the principle in Browne v Dunn (1893) 6 R 67 and to the defendant's leading counsel not having confronted Mr Galluzzo with the suggestion in cross-examination that the agreement contained a condition precedent to this effect. In my view Browne v Dunn is not involved and there is no expectation of counsel that Mr Galluzzo should have been confronted in that way.

41 So there are, in my opinion, two bases for deciding against the principal claim. 26 When dealing with costs I said: 83 I disposed of the principal claim on two bases. One was nonacceptation of the claim that an agreement was made, but the second was that the agreement as alleged, if made, was plainly on the evidence offered subject to a condition precedent to the obligation to make payment, and the condition precedent had never been fulfilled.

84 That this defence existed and was in logic irresistible ought to have been obvious to anyone who saw Mr Galluzzo's principal affidavit. The point was somewhat obscured by the form of the much amended District Court pleadings, but I am satisfied that it was there. 27 I had earlier dealt with a similar subject in my observations of 13 June 2007 dealing with application for leave to file a third further amended statement of claim. The amendment would have removed the words "once the deceased had available funds" from paragraph 4(b). 28 At their initial meeting on 12 June 2003 Mr Galluzzo gave Mr Beilby instructions accompanied by typewritten notes prepared by him as a claim summary which said among other things: Whilst Trish's BMW was being repaired, she continually asked me to purchase a more suitable car for her. Her divorce settlement from Ken still had not been finalised, so Trish had advised me that she wouldn't be able to register a new car under her name while these legal proceedings were still taking place. In April 2002, a near new Mercedes E200 Kompressor 2001 model, became available from Mercedes Benz of Sydney at a reduced price. The vehicle was purchased under my name with the promise that when the settlement went through, Trish would then transfer the car in her name. 29 Before action and (it would seem) in response to a letter of demand from the plaintiff's solicitors Mr Armstrong called on Mr Galluzzo and offered $12,000 in settlement and Mr Galluzzo rejected that offer without consulting the solicitors. Mr Galluzzo told his solicitors, in a letter of 20 August 2003 "please note that Mr Armstrong came to my office on Friday the 20th of June and offered to pay $12,000. I refused his offer." Communications between the solicitors before action show that Mr Armstrong disputed that there had been any relevant agreement about purchase of the Mercedes-Benz. 30 In written instructions dated 18 May 2004 Mr Galluzzo told the respondents: 3. The Mercedes Benz E200 K was bought under instruction from the late Mrs Armstrong. She did not want her husband to know about it because they were going through a divorce. Mr Armstrong and his secretary Barbara put an AVO on Mrs Armstrong, but Mr Armstrong would turn up at the home in Beecroft and "snoop around" as she put it. I advised Ken Armstrong about the Mercedes Benz on the day of her funeral 17 October 2002. 31 Fairly plainly, this was not a complete or fully considered instruction on the terms of the arrangement. However it does give some indication, to a reasonable hearer, of the need to address when and how there was a breach of the contractual promise. The solicitors gave Mr Galluzzo a letter of advice on 21 July 2003 which reviewed prospects of success, pointed to difficulties about credibility, but did not point to this difficulty. Nothing happened throughout the proceedings which reduced the difficulty or improved the plaintiff's position on this point. 32 Various forms of the statement of claim, by the absence of an altogether clear address to the problem, indicate general awareness of the existence of some such difficulty and a wish to express the claim in some terms which did not present it bluntly. Mr Zipser of counsel in his message of 10 June 2004 referred to some complexities which he had noted when focusing on the merits. This message did not present the difficulty in a completely blunt way, but did allude to it. Counsel said: 5) There are then two complexities with a claim for damages for breach of the Agreement: a) First, the plaintiff must establish that there was a breach of Agreement. In the present case, if a term of the Agreement was that Ms Armstrong was not required to pay for the vehicle "until her divorce settlement went through", and if the divorce settlement did not go through before Ms Armstrong died and has not gone through following her death, it is unclear whether the time for performance of Ms Armstrong's obligation to purchase the vehicle has arisen. Alternatively, a term of the Agreement may be that Ms Armstrong was required to pay for the vehicle once she had money to pay for the vehicle, whether from her divorce settlement or otherwise. In this case, a question is whether there was money in Ms Armstrong's estate to pay for the vehicle. If there was not, again, it is unclear whether the time for performance of Ms Armstrong's obligations to purchase the vehicle has arisen. (and sub paragraph (b) related to the measure of damages.) 33 In written instructions of 15 June 2004 Exhibit 1, Tab 19, Mr Galluzzo said: (a) Mrs Armstrong wanted to pay for the Mercedes Benz once she had money to pay for the vehicle, but at that time her finances were frozen by her estranged husband Ken Armstrong, she knew her finances would be freed up once her divorce was settled, she said that by December 2002 it should all be finalised.

(b) It was not part of the agreement for Mr Galluzzo to keep the Mercedes sedan vehicle, it is a domestic vehicle that is of no use to European Hire Cars. 34 Mr Zipser saw Mr Galluzzo and Ms Ho, a solicitor employed by the respondents, in conference on 18 August 2004. In a message which commented on the conference and matters arising from it Mr Zipser said, among other things, 2) Mr Galluzzo should note that my opinion expressed above does not mean that he will definitely succeed in this litigation. There are still the separate problems identified in paragraph 5(a) of my fax dated 10 June 2004.

Mr Zipser went on to advise the plaintiff to offer a settlement in which the defendant purchased the Mercedes Benz car for $40,000 and each party paid its own costs. This would be a severe compromise. The plaintiff did not act on this advice. 35 A copy of Mr Zipser's message of 10 June 2004 was sent to Mr Galluzzo. When they passed this advice on the respondents made the difficulty known clearly to Mr Galluzzo. Indeed the difficulty does not involve any legal rule which a layman could not understand; it is only a matter of seeing that what can be enforced is no more than what was promised, which was well within Mr Galluzzo's reach as a rational adult. 36 Mr Galluzzo gave the following account in his affidavit evidence of the events which followed Mr Zipser's advice of 10 June 2004. In paragraph 8 of his affidavit of 24 July 2008 he says to the effect that he received a letter dated 15 June from the respondents with a copy of Mr Zipser's message containing advice. He goes on 8 …Following receipt of those documents, I attended a conference with Barry Beilby during which we had a conversation to the following effect:- I said: "What does paragraph 5(a) of Mr Zipser's advice mean?" Beilby said: "The fact that the divorce did not take place does not weaken your case as long as Mrs Armstrong had money left in her estate and that you can prove that the Mercedes motor vehicle existed." 9. The issue of the condition precedent referred to in paragraph 5(a) of Ben Zipser's advice on 10 June 2004 was never again raised and/or discussed between myself and either Barry Beilby or Ben Zipser until the commencement of the hearing of these proceedings on 12 June 2007 when counsel for the defendant, Des Fagan SC, raised and discussed the condition precedent with Ben Zipser. Even then, neither Barry Beilby nor Ben Zipser advised me that European Hire Cars could not succeed on its contract claim because of the condition precedent not having been fulfilled. 10. Had I been advised by Beilby Poulden Costello, either following the advice of Ben Zipser dated 10 th June 2004 (at tab 8 of exhibit JAG 1) and/or following my affidavit sworn 10 th October 2005 which showed that the contract claim was subject to the condition precedent (at tab 3 exhibit JAG 1), that European Hire Cars could not succeed on its contract claim because of the condition precedent not having been fulfilled, I would have settled these proceedings at the mediation of the proceedings in April 2006 in accordance with the terms set out in the letter dated 30 May 2006 from Kitamura and Associates to Beilby Poulden Costello (at tab 7 of exhibit JAG 1, (in which the offer made by the defendant at the mediation is repeated), without wasting further costs and exposing European Hire Cars to an adverse (indemnity) costs order. 37 Mr Beilby in his affidavit of 3 November 2008 replies to this evidence. Mr Beilby says (at paragraph 41): I note that at paragraph 8 of Mr Galluzzo's affidavit sworn 24 July 2008 he refers to a conversation that I had with him in conference after 15 June 2004. I deny that I made the statement that is attributed to me in that paragraph. 38 Mr Beilby refers (at paragraphs 35 and 36) to obtaining Mr Zipser's advice and sending a copy to Mr Galluzzo. He then says: 37 On 15 June 2004 I received a facsimile from Mr Galluzzo. At tab 19 of Exhibit WWB1 is a copy of that facsimile. Mr Galluzzo specifically instructed me: 'Mrs Armstrong wanted to pay for the Mercedes Benz once she had money to pay for the vehicle, but at that time her finances were frozen by her estranged husband Ken Armstrong, she knew her finances would be freed up once her divorce was settled. She said that by December 2002 it should all be finalised.' 38 Upon reading these instructions from Mr Galluzzo I remained of the view that the agreement Mr Galluzzo had reached with the deceased was that the deceased would pay for the Mercedes Benz once she had the funds to do so. It appeared that the reference to the divorce proceedings was only an indication of when she would have sufficient funds to pay for the vehicle. At no stage did Mr Galluzzo instruct me that he or the deceased agreed that the divorce proceedings had to be finalised before he was entitled to be repaid. 39 Mr Beilby's affidavit goes on at paragraphs 39, 40 and 42 to the effect that he gave Mr Zipser a copy of Mr Galluzzo's letter of 15 June 2004 and asked for counsel's advice whether the evidence should be supplemented to include the content of Mr Galluzzo's instructions in the letter. In Mr Beilby's belief, Mr Zipser answered this question in substance by drafting what became Mr Galluzzo's affidavit of 14 July 2004. The affidavit was drafted by Mr Zipser while in conference with Mr Galluzzo. That affidavit, sworn in the Local Court, contains at paragraph [7] the same account of the conversation as in paragraph [17] of Mr Galluzzo's affidavit of 10 October 2005, set out above. 40 There was no cross-examination of Mr Galluzzo or Mr Beilby, so their conflicting accounts of the events were not tested. In my finding the probabilities favour Mr Beilby's evidence that there was no such oral advice as Mr Galluzzo asserts in paragraph 8. A person reading paragraph 5(a) of Mr Zipser's advice would be unlikely to accept the response attributed to Mr Beilby; Mr Beilby would be unlikely to make that response. It is improbable that the subject was not addressed in the process of drafting Mr Galluzzo's affidavit in conference with counsel, and in the events which led to Mr Galluzzo swearing the affidavit. I do not make a finding upholding paragraphs 8 and 9 of Mr Galluzzo's affidavit. I do not decide the Notice of Motion on acceptance of those paragraphs. 41 The provisions of section 349(1) relating to a presumption do not apply. The facts put forward in evidence on behalf of the plaintiff at the hearing before me were not established, and so they do not form a basis for reasonable belief on whether the claim had reasonable prospects of success. 42 From 10 October 2005 onwards it ought to have been obvious that there were not complete proofs of circumstances in which the plaintiff was entitled to any remedy for breach of contract. Before then it was not sufficiently clear from Mr Galluzzo's instructions or evidence that a reasonable belief in the prospects of success could not be formed. The words given in paragraph 17 of Mr Galluzzo's affidavit clearly indicate that the purchase of the car was to take place after the divorce settlement. It is not a reasonably available view that there was an agreement to purchase the car, accompanied by an indication when Mrs Armstrong sought or expected she would be in a position to pay. A legal practitioner who knew that the plaintiff's case was as appears in paragraph 17 of Mr Galluzzo's affidavit, and that there was no more to show that the terms of the promise were other or different could not reasonably believe that the claim had reasonable prospects of success, within the definition found in s 345(4). In my finding the claim relating to Mercedes-Benz did not have reasonable prospects of success; there were not reasonable prospects of damages being recovered on the claim. There is no better account in evidence of what Mr Galluzzo's instructions were which would have furnished a basis for a reasonable belief that the claim had reasonable prospects of success.

43 Mr Zipser advised, on 10 June 2004 in an advice which is of great importance to these proceedings, and was sent to Mr Galluzzo: Mr Galluzzo has a choice of either seeking specific performance of the agreement, or seeking damages for breach of the agreement. Subject to the court's jurisdiction, he could probably seek both remedies in one claim.

Consideration of a claim for specific performance may have been a response to some perception of the difficulty that the time of performance had not arrived. If specific performance is ordered the court directs the time and place of performance. The Local Court did not have jurisdiction to order specific performance, and it would seem that the District Court did not have jurisdiction either, because the value of vehicle was over $20,000. See District Court Act 1973 s 134 (1)(b). When the proceedings reached the Supreme Court specific performance was not one of the equitable claims; and this is not surprising, as the car did not have unique character. 44 Mr Beilby discussed with Mr Zipser whether proceedings should be commenced in the Supreme Court to claim specific performance. Mr Zipser noted the difficulties of a claim for specific performance in his message containing advice of 27 August 2004 paragraph 5. So far as I can see, no claim for specific performance was ever made in any court; there would be very poor prospects of success, in relation to a second-hand car of a model commonly in use. The events and reasons which led to the decision to transfer to the Supreme Court do not appear clearly to me but the basis probably shown by a file note of a conversation between an employed solicitor and Mr Zipser about 7 June 2006 when Mr Zipser is recorded as saying "Matter should remain in District Court but had to go to Supreme Court because defendant would not agree to indemnify estate of wife". 45 Mr Hodgkiss SC gave written advice on 14 July 2005 the terms of which show that he was asked to advise not on specific performance but on whether all the claims in the proposed 2FAOSC (which was filed on the following day) were within the jurisdiction of the District Court, particularly s 134(1)(h) which relates to equitable claims for money and damages not exceeding $750,000. Mr Hodgkiss' advice generally supported jurisdiction of the District Court but also supported removal to the Supreme Court to avoid doubt. 46 The evidence of Ms Howes, employed solicitor who managed the matter under Mr Beilby's supervision in the months leading up to trial, shows that the concept of the issue held by her and by Mr Zipser was that it was whether the deceased was in a position to repay Mr Galluzzo at the time of her death. More attention was given to the issue of fact whether there had been an agreement at all. She said (affidavit paragraph 26) "I understood this to be evidence of an indication from the deceased as to the likely timing of payment, rather than it amounting to a condition precedent for repayment." 47 During the hearing those representing the plaintiff gave further attention to whether there was a condition precedent and obtained advice on the afternoon of the second hearing day from senior counsel, who was not briefed to appear. In the course of a conference with senior counsel Ms Howe's evidence is that Mr Galluzzo said to this effect: "Trish agreed to pay me for the lease when she had funds available. She only said to me that it would be when her divorce proceedings were over to indicate when she thought that would be." This is the view of the effect of the evidence which was submitted to me in the proceedings; but it does not have a basis in the evidence about what was said. 48 About December 2003 Mr Galluzzo gave the solicitors a statement by Mr McCrudden barrister which in highly general terms tended to confirm that there were some arrangements for Mrs Armstrong to buy the car. Mr McCrudden said "as a result of those conversations I have no doubt that Mr Galluzzo purchased the Mercedes for Mrs Armstrong and she was to pay him for it some time shortly after the purchase." Attempts were made to obtain an affidavit from Mr McCrudden but he declined to make one. Consideration was given to compelling his attendance under subpoena, but this was not done. The statement obtained from him does not indicate that he could have given evidence about the terms of the agreement of much value. The evidence which it was hoped Mr McCrudden would give related to a short explanation about her dealings with Mr Galluzzo which she gave in conversations when he was acting for her in some Local Court proceedings on a different subject. 49 Written contentions of fact prepared by counsel to comply with directions before the hearing include this contention: 3. In April 2002 the plaintiff (through Galluzzo) for and at the request of the deceased, purchased a white Mercedes Benz E200 Kompressor ("the Mercedes") on terms that the deceased would reimburse the plaintiff in respect of the purchase of the Mercedes. 50 In my opinion the plaintiff has shown that the power in s 348(1) to make orders of the kind there referred to exist. 51 The power is discretionary. 52 The respondents displayed great zeal in the conduct of the litigation, in retrospect, excessive zeal. They acted with great determination in conducting the litigation and addressing the successive difficulties which presented themselves. Equipped with their own powers of reasoning and assisted by Mr Zipser's advertence to the difficulty, they pursued a good outcome in the interests of their client. This is what lawyers are expected to do; but they must also comply with their statutory obligations, and the solicitors failed in that respect. They did not bring all their zeal and intellect to bear on the right part of the problem. In conducting litigation heroic optimism and also heroic pessimism are required and they did not bring heroic pessimism to bear. The probability is that although the respondents saw the difficulty and had no well-conceived answer to it, they continued with the litigation in the hope of serving their client's interests well and taking advantage of any favourable development. Litigation is a very uncertain branch of human affairs. There was a small part of the claim to which there was no answer, although it was not distinctly admitted. 53 Mr Galluzzo is not a simple person, and did not act in a way which placed him in the hands of his legal advisers without understanding of his own. I know from having seen him in the witness box and heard him give evidence at length that he is a businessman with considerable understanding, great application and high zeal in whatever he pursues; and before me he showed a strong, inappropriately strong, readiness to pursue advantage. He is not an unsophisticated person and the incompleteness of the circumstances in which he could expect Mrs Armstrong to take the car off his hands and pay for it is just as accessible to his mind as to any other. My observation at paragraph 84 "that this defence existed and was in logic irresistible ought to have been obvious to anyone who saw Mr Galluzzo's principal affidavit" relates to what Mr Galluzzo should see, as well as to legal practitioners. It no lawyers' mystery that agreed preconditions for purchase and payment have to be fulfilled. 54 The existence of the difficulty was put before Mr Galluzzo, was kept before him and was never withdrawn. The plaintiff and Mr Galluzzo had their autonomy; I do not think that the right conduct of the solicitors was to override Mr Galluzzo, by refusing to act or in some other way. It was for the plaintiff and Mr Galluzzo to decide whether to go on with the case; and with respect to his own credibility he was, to say the least, in a far better position than solicitors to see the difficulty. 55 As a contribution to the disastrous outcome of the litigation, the respondents' failure is proportionately far smaller than Mr Galluzzo's contribution. He stated on oath a claim about the facts of his dealings which the tribunal of fact did not accept. There is a very strange air about addressing in detail how the respondents handled what they were told were the facts when what they were told were not established to be facts at all. The respondents pointed out this potential outcome in early advices. 56 The observations of the learned Magistrate should, at least to some degree, have supported the respondents in the view that the proceedings were worth going on with to decision. None of the other judicial officers before whom interlocutory proceedings came appear to have made any relevant observations, supportive or adverse; but it was not their function to do so. 57 The conduct of the litigation produced settlement offers which were in retrospect golden opportunities. Mr Galluzzo should have had a much clear understanding than the respondents of how advantageous each offer of settlement was because he should have understood the frailty of his claim about what arrangements he had made with Mrs Armstrong. Mr Galluzzo rejected offers out of hand. The conduct of the respondents and their pressing on with the litigation brought the plaintiff and Mr Galluzzo opportunities to settle which were far better than the plaintiff's entitlement; and Mr Galluzzo was in a better position than anyone else to see and understand this. The plaintiff got what Mr Galluzzo wanted; not a good settlement offer, but a hearing and determination. 58 The plaintiff's claim had a rather cloudy basis, and was not based on clear principles. This must have been clear to Mr Galluzzo, and advice confirmed it. He was determined to press on and have it decided and rejected compromises out of hand. There are many lawsuits like this; sometimes they are successful, sometimes they are not. I see nothing reprehensible in the respondents' fully supporting their client's wish to get a decision, preparing the case and maintaining it with energy, and then losing. The plaintiff in the person of Mr Galluzzo was much more a part of the litigation and the outcome than the respondents were. I see no justice in throwing the plaintiff's costs burden onto the respondents by a discretionary decision. 59 Subsection 99(1) of the Civil Procedure Act 2005 is in terms closely similar to terms under consideration in the judgment of the Court of Appeal of England in Ridehalgh v Horsefield [1994] Ch 205 where the Court of Appeal considered, with exegesis, "improper", "unreasonable" and "negligent" in generally corresponding United Kingdom legislation - Supreme Court Act 1981 s 51. Their Lordship's approach has been followed in the construction of s 99(1) - see Ideal Waterproofing Pty Ltd v Buildcorp Australia Pty Ltd [2006] NSWSC 155 (Sully J), Whyked Pty Ltd v Yahoo No 7 Pty Ltd [2008] NSWSC 477 (McDougall J).

60 The pursuit by the respondents in accordance with the client's wishes of a claim which had difficulties which reasonably ought to have been and in fact were known to their client as well as to themselves does not, in my finding, fall within the categories (a) or (b) in s 99(1) of the Civil Procedure Act. I see nothing which should be classed as misconduct, or serious misconduct. There was no neglect or incompetence; quite otherwise, in relation to a case which was not large, I see remarkable assiduity. Difficulties were recognized and pointed out to the client; not indeed with the clarity with which they can be pointed out now with retrospective insight, but the respondents' conduct was not in my judgment improper, nor did they conduct the proceedings without reasonable cause. It is not an effect of s 99 that a legal practitioner must give up a case if it has difficulties, or serious difficulties. My conclusion is that the power under s 99 is not available. 61 Counsel for the solicitors made submissions generally to the effect that it would not be just to make an order adverse to the solicitors unless all or some of the liability were also imposed on junior counsel and on senior counsel. In my understanding the suggestion was that I should either withhold an order against the solicitors for this reason, or myself initiate some process against counsel. Nothing has been brought to my attention which could lead me to initiate procedures under the Legal Profession Act 2004 against counsel. Mr Zipser pointed out the difficulty, which he referred to as a complexity, in written advice in June 2004. He advised severe compromise. I do not think that he could come under consideration for blame, or for imposed liability when the case failed on the difficulty which he had pointed out. There were three years for his advice to sink in, but it did not. Senior Counsel was asked to advise on a narrow question and could not be criticised for not taking the whole case and all its problems under consideration. 62 The observations in my judgment at paragraphs [83] and [84] were not made in any context where an evaluation of professional work was an issue. The question whether legal services had been provided with or without reasonable prospects of success was not under consideration. These observations were not made in circumstances where any legal practitioner had been called upon to explain his conduct; cf Lemota at [147]. 63 The complicated steps which were taken relating to transfer of the proceedings from court to court arose from attempts by the respondents, with advice from counsel, to find ways around or through difficulties confronting the plaintiff's case. The first application to the Supreme Court was a failure, principally because the Supreme Court then had no statutory power to make the order asked for. However that application concluded without imposing any liability for costs on the plaintiff. My general orders at the conclusion of the hearing related to costs in the present proceedings, not to those proceedings for removal. However there were reasonable prospects of success; eventually and in a different way the proceedings were transferred to the Supreme Court. The transfer could have been handled differently, by commencing fresh proceedings in the Supreme Court, or by adjourning the application until there had been a transfer to the District Court. With this as with other aspects of the work done, I do not find that legal services were provided without reasonable prospects of success. 64 Questions of jurisdiction are not simple and the solicitors obtained and were guided by the advice of counsel. The object was to find any way of around or through a difficult to which ultimately proved to be insurmountable. I do not regard it as appropriate to make an order imposing liability on the solicitors for acting in these ways. 65 The solicitors' efforts produced recurring offers of settlement, which Mr Galluzzo rejected, out of hand. Setting aside the retrospective view, the offers of settlement and particularly the offer of 30 May 2006 should reasonably have been seen as a very favourable opportunity to find a way out of the litigation and the risks of costs involved in failure. Obtaining such offers is not a success within the meaning of s 348, but such an offer was an outcome well worth pursuing. Further, the plaintiff did succeed with respect to a small part of the claim, to which indeed there was never any serious resistance. 66 In relation to the application to set aside the judgment of the Local Court the solicitors by counsel offered, in their written submissions before me, to indemnify the plaintiff from Mr Armstrong's costs, as agreed by the parties or as otherwise assessed, that relate to the plaintiff's application to set aside the judgment of the Local Court. They offered to set off those costs, as agreed or assessed, against the amount due to the solicitors by the plaintiff I have had regard to this offer in exercising my discretion, and I will make it a term of my order that the solicitors are to act in accordance with the offer. 67 My conclusion after this review is that in the exercise of discretion under sub-section 348(1) I should refuse to make the orders claimed. ORDERS:

(1) These orders are made on terms that the respondents are to comply with their offer to indemnify the plaintiff from Mr Armstrong's costs, as agreed by the parties or as otherwise assessed, that relate to the plaintiff's application to set aside the judgment of the Local Court; and their offer to set off those costs, as agreed or assessed, against the amount due to the respondents by the plaintiff.

(2) Liberty to apply with respect to implementation of the terms in Order 1.

(3) Save as aforesaid the Notice of Motion of 25 July 2008, now the Further Amended Notice of Motion of 12 December 2008, is dismissed with costs. **********

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