15 In the circumstances, the defendants submitted that as manifest error had been established, the Bank could not rely on the certificate, and, there being no other evidence of the quantum of the debt, the claim should be dismissed.
16 Mr Parncutt also made a further submission based on public policy and illegality. This had not been pleaded, but Mr Parncutt submitted that I was bound to refuse relief as the matter had been brought to my attention. The submission was that the rebate arrangements contravened s 317 of the Legal Practice Act 1996 and s 2.2.9 of the Legal Profession Act 2004 as they amounted to income sharing by the solicitors' firm. He relied in particular upon Beneficial Finance Corporation Limited v Conway (No 2)[6] and Hamilton v Haw.[7] He submitted the costs arrangements were "tainted" and that no relief should be given to the Bank as a consequence. Alternatively, he submitted that the Bank ought only to be entitled to party/party costs, in which case he said no sum would be now outstanding.
17 Mr Garratt QC, senior counsel for the Bank, began by indicating that the illegality argument had been raised without any prior notice to the Bank. He sought to file and serve written submissions on that issue.
18 As to the purported errors, other than those concerning the costs rebates, Mr Garratt submitted that the material established that the two payments and the four invoices referred to all concerned the costs of this proceeding, which costs are expressly excluded from the certificate relied upon and form no part of the sum claimed in this proceeding.
19 As to the rebate issue, it was submitted on behalf of the Bank that there was no manifest error because the rebate was a payment made by the solicitors' firm to the client based upon the total volume of that client's work and was not referrable to the account of any particular bank customer. He submitted that in any event any error was merely arguable and was not "manifest". He relied in particular upon Legal and General Life of Australia v A Hudson Pty Ltd[8] and Dobbs v National Bank of Australasia Limited.[9]
20 When asked what should be done if I concluded that there had been a manifest error, Mr Garratt sought the opportunity to file an affidavit deposing to the effect on the amount outstanding of a crediting of the relevant proportion of the rebates and a consequent recalculation of the interest.
21 On 12 December 2006 I adjourned the further hearing of the trial to a date to be fixed and made directions for the filing and service by the Bank of its written submission on illegality and any further affidavit concerning recalculation assuming an entitlement to a credit for the rebates, and for the filing and service of any written submission and affidavit in response by the defendants.
22 I was unable to adjourn the trial to a fixed date on that occasion.
23 I arranged for the matter to be mentioned on 6 March 2007 and after the hearing that day I made an order fixing the resumption of the trial on quantum for 8 March 2007. By then the material which had been before the Court on 12 December had been supplemented by two affidavits on behalf of the Bank, affidavits of Brian Arthur sworn 20 December 2006 and 12 February 2007; and by two affidavits on behalf of the defendants, affidavits of Douglas Abrahams sworn 23 January 2007 and 26 February 2007.
24 Objection was taken to reliance upon an exhibit to the affidavit of Brian Arthur sworn 12 February 2007. I upheld the objection but permitted the Bank to file and serve a further affidavit by 1.00 pm the following day. A further affidavit of Brian James Arthur was sworn and filed on 7 March 2007.
25 On 6 March counsel for the defendants applied to amend the defence so as to plead the public policy and illegality issue. I did not permit that amendment as counsel for the defendants indicated that nothing was sought to be raised which had not already been the subject of submissions and counsel for the Bank indicated that no point would be taken on the basis of a failure to plead matters which had been the subject of submissions. Given the history of the matter I was anxious not to have the parties embark upon another round of pleadings.
26 The trial on the issue of quantum resumed on 8 March 2007. The Bank relied upon the affidavit of Brian James Arthur sworn 7 March 2007. Some further submissions were made. Counsel for the respective parties confirmed that the material and submissions were complete and I reserved my decision.
Manifest error: failure to account for rebates
27 An affidavit sworn by a partner of the Bank's solicitors, Peter William Nankerville, on 25 October 2006 revealed that as part of the "panel arrangements" which the Bank's solicitors have with the Bank those solicitors are "required to pay to the Bank a rebate of fees paid by the Bank, calculated by a sliding scale". Copies of the relevant documents and a summary of the total rebates paid were produced as confidential exhibits to that affidavit.
28 Before me the Bank did not accept that the defendants were entitled to have the rebates taken into account in assessing the amount due. It was argued on behalf of the Bank that the arrangements were referrable to the total fees paid by the Bank to the firm in any given year, were not in any relevant sense referrable to particular customers, and were what was described as "counter payments" paid by the solicitors so as to secure for themselves the benefit of being on the Bank's panel.
29 I reject this approach. The Bank alleges in this proceeding that the terms of the finance facilities provided to Pinnacle require Pinnacle to pay on demand all costs and expenses incurred by the Bank including legal costs on a full indemnity basis: statement of claim, para 4. It is then alleged that by the guarantee the defendants irrevocably guaranteed due payment and performance of the facilities and indemnified the Bank in respect of non-payment and non-performance: statement of claim, para 5. I do not consider that costs or expenses "incurred" by the Bank include costs and expenses which have been repaid to it. Nor, in my view can guarantors be required to pay to the Bank by way of "indemnity" legal costs and expenses which have been repaid by the solicitors' firm. Accordingly, my conclusion is that the calculation of the amount outstanding must give appropriately calculated credits for the rebates.
30 Considerable material was exchanged concerning how the credits should be calculated.
31 On behalf of the Bank reliance was placed upon an affidavit of Mr Arthur sworn 20 December 2006 which produced calculations made by Mr Bateson as confidential exhibit "BJA-1". This document calculated a credit by applying the percentage which the legal fees referrable to Pinnacle bore to total fees during relevant periods to the total rebates and the recalculated interest assuming simple interest at 10.5%. On this basis, the rebate credit was calculated at $81,303.35 and the interest adjustment at $18,262.86, making a total of $99,566.21. The interest rate applied was described as a "notional" rate, as the actual rates varied between 9.25% and 10% during the period.
32 In his affidavit sworn 23 January 2007 Mr Abrahams, on behalf of the defendants, criticised this approach saying that the calculation assumed simple interest rather than compound interest and failed to include proper allowance for GST. He performed a calculation of the rebate credit, still assuming an interest rate of 10.5% but applying it on a compound basis, and adjusting for GST, and reached a total credit due of $105,113.22. Thus, neither calculation was made relying upon the interest in fact charged, as both calculations assumed an interest rate of 10.5%, one on a simple basis and the other on a compound basis.
33 Mr Arthurs' affidavit of 7 March 2007 disputed the additional allowance made by Mr Abrahams for GST suggesting that GST allowance had already been made and in relation to interest suggested that the Bank assumption of a 10.5% interest rate throughout the relevant period on a simple interest basis was an assumption which "has tended to favour the defendant in the interest reduction calculation".
34 Mr Abrahams' response (which is in his affidavit sworn 26 February 2007 as that affidavit responded to material originally set out in a fax from Mr Arthur dated 8 February 2007) disputed the proposition that a proper GST allowance had already been made and asserted that the use of a calculation on a simple interest basis "highlights the error in the purported Certificate of Indebtedness".
35 Given my conclusion that allowance for the rebates must be made, in my view the certificate relied upon does contain a manifest error. The error is a significant one in the context of the amount claimed. Whilst the difference between the contending calculations of the appropriate credit is not great, both of the contending calculations proceed upon at least one express assumption (as to the interest rate) which does not accord with the terms and conditions of Pinnacle's facilities. In the circumstances, I do not consider it to be appropriate for me to proceed to attempt some form of rehabilitation of the certificate by making a necessarily inaccurate estimate of the extent of the error.
Manifest error: other issues
36 Whilst the defendants' material has suggested through the course of the proceeding a great number of alleged manifest errors, in the end the only further errors in issue were the following: