Plaintiffs v Defendant

Supreme Court of Victoria|2015-10-07|Before: ROBSON J

RECEIVERS - Court appointed under Chapter 5 of the Legal Profession Act 2004 - Officers of the Court - Functions of receivers - Duties of receivers in conduct of proceedings under s 5.5.14 of the Legal Profession Act 2004.

RECEIVERS - Court appointed under Chapter 5 of the Legal Profession Act 2004 - Duty of receivers of good faith to beneficiaries - Duty to beneficiaries to assist the Court to determine issues between the beneficiaries.

CIVIL PROCEDURE - Civil Procedure Act 2010 - Whether receivers breached obligations under the Act to use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute - s 24 Civil Procedure Act 2010.

CIVIL PROCEDURE - Civil Procedure Act 2010 - Whether receivers breached obligations under Act to make a claim with a proper basis - s 18 Civil Procedure Act 2010.

1 On 27 May 2015, I delivered judgment in this proceeding in favour of the defendant (Mr Forster).[1] Mr Forster now seeks orders for costs against the plaintiffs (the receivers) and also against the Legal Services Board (the Board).

2 Mr Forster is entitled to his costs. There are several issues that need to be resolved to determine the appropriate order for his costs.

The costs claimed against the receivers and the Board

3 By letters dated 2 July 2015, Mr Forster gave notice to each of the receivers and the Board that he would seek the following orders as to costs:

(a) The Board pay Mr Forster's costs of and incidental to this proceeding, including all reserved costs, on an indemnity basis.

(b) The Board indemnify Mr Forster in respect of all the receivers' costs of and incidental to this proceeding, including all reserved costs, on the basis of a complete indemnity.

(c) Alternatively, the receivers in their personal capacity pay Mr Forster's costs of and incidental to this proceeding, including all reserved costs on an indemnity basis and also, in their personal capacity, indemnify Mr Forster in respect of all their costs of and incidental to this proceeding in their capacity as receivers on the basis of a complete indemnity.

(d) Such further or other order as to the costs of this proceeding as may be just.

The orders proposed by the receivers and the Board

4 The receivers and the Board put forward a joint proposal as to costs as follows:

The Legal Services Board undertakes that, unless the plaintiffs are successful in their appeal from the Judgment given in this proceeding on 27 May 2015, it will not recover any unpaid fees, costs and expenses incurred by the plaintiffs in this proceeding from the defendant (including any amounts paid pursuant to paragraph 1 of these Orders) pursuant to section 5.6.7(5) of the Legal Profession Act 2004.

The plaintiffs pay the disbursements and expenses by the defendant in the conduct of this proceeding, limited to counsel's fees, court fees, expenses relating to the service of documents, witness fees, and incidental expenses in relation to photocopying and postage.
There be no order as to costs.
The Notice to Produce served by the defendant on the plaintiffs dated 6 July 2015 be set aside.

5 The respective claims raise several issues as follows.

6 The receivers and the Board contend that as Mr Forster's practising certificate was not renewed, he is not entitled to his costs as a solicitor but only his disbursements as if he were a litigant in person.

7 As discussed below, a solicitor who acts for himself or herself is entitled to his or her professional costs of conducting the litigation, if costs are awarded in his or her favour. That exception to the general rule only applies to the period during which the solicitor held a practising certificate. During the period that a solicitor no longer holds a practising certificate, the solicitor may only recover costs as if he or she was a litigant in person.

8 In September 2011, the Board failed to renew Mr Forster's practising certificate. Under s 2.4.5 of the Legal Profession Act 2004 (the LP Act),[2] Mr Forster was entitled to continue practising until his application for the renewal of his practising certificate was finally determined.

9 The receivers and the Board contend that Mr Forster's right to practise ceased on 8 December 2011, when VCAT dismissed his application for review of the decision of the Board not to renew his practising certificate.

10 Mr Forster contends that his right to practise ceased on 12 February 2014, when the High Court of Australia refused Mr Forster special leave to appeal against the Court of Appeal's dismissal of Mr Forster's appeal against the decision of VCAT.

11 Mr Forster in the first instance seeks costs against the Board. The Board contends that Mr Forster is not entitled to costs against it. The Board says that Mr Forster is only entitled to costs against the receivers. Mr Forster contends that the receivers were the Board's privy, and as such the Board should be liable for costs.

12 A further issue arises also with respect to the Board. Under s 5.6.7(5) of the LP Act the Board may recover any of the receivers' unpaid fees, costs and expenses from the law practice.

13 The Board contends that Mr Forster is the law practice and that but for the undertaking it proposes to give, Mr Forster would be liable to meet any costs order made against the receivers. The receivers would incur an expense in the receivership in paying Mr Forster's costs. The Board says that under s 5.6.7(5) of the LP Act it may recover those costs incurred by the receivers from Mr Forster. Thus, Mr Forster may, in effect, receive no costs in respect of the failed proceeding by the receivers as he would be required to pay the costs that the receivers were ordered to pay him.

14 Mr Forster, on the other hand, does not accept the undertaking proffered by the Board and instead seeks a costs order directly against the Board. In that event, the Board would have no statutory right to recover those expenses against Mr Forster.

15 A further issue arises as to whether Mr Forster should be awarded costs on an indemnity basis against either the receivers or the Board. Mr Forster alleges that certain aspects of the way in which the receivers conducted the proceedings against him, entitle him to seek indemnity costs.

16 If an order is made against the receivers, an issue arises as to whether the receivers should be ordered to pay in their personal capacity rather than as the receivers. The receivers are personally liable for any costs and expenses they incur. I understand that this application by Mr Forster is that the receivers should be liable for the costs but not be entitled as receivers to reimburse themselves from the practice of Mr Forster.

17 It is convenient to consider the position of the receivers in the proceeding.

18 On 2 June 2009, the Board applied to this court for a receiver to be appointed to Hollows Lawyers, the practice of Mr Forster. On 12 April 2010, this court ordered, pursuant to s 5.5.1 of the LP Act, that Mr Batrouney and Mr Lyle be appointed as joint and several receivers of the regulated property, as defined in s 5.1.2 of the LP Act, of Mr Forster practising under the name of Hollows Lawyers.[3] Mr Batrouney and Mr Lyle are solicitors and members of the firm of Hall & Wilcox. The solicitors acting for the receivers in the proceeding were Hall & Wilcox.

19 Further, the court ordered that in addition to the receivers' conduct of the receivership under the LP Act, the receivers were to examine the Melbourne Voyager files held by the law practice to ensure that all irregularities in relation to trust money, trust property or the affairs of the practice had been fully identified and rectified, and, in particular that all trust deficiencies had been properly restored.

20 The receivers were appointed until 12 October 2010 or until further order.

21 The receivers were ordered to file with the court and provide to the Board, and Mr Forster, reports in relation to the receivership of the law practice on a monthly basis, or more frequently if requested by the Board.

22 The receivers were also ordered to report to the court, the Board and Mr Forster giving the estimated costs of the receivership within two weeks of the order.

23 The court made orders as to the remuneration of the receivers. The court ordered that any fees, costs and expenses that may be incurred by the receivers in relation to the receivership of the law practice were to be paid and recoverable from the law practice, Hollows Lawyers (in effect, Mr Forster).

24 The court ordered that to the extent that such fees, costs and expenses were not paid by the law practice, such fees, costs and expenses were payable from the Public Purpose Fund in accordance with s 5.6.7(4) of the LP Act. Section 5.6.7 provides as follows:

(1) An external intervener is entitled to be paid, in accordance with the instrument of appointment-

(a) fees by way of remuneration; and

(b) the legal costs and the expenses incurred in relation to the external intervention.

(2) An account of the external intervener for fees, costs and expenses may, on the application of the Board, be reviewed or assessed.

(3) The fees, costs and expenses are payable by and recoverable from the law practice.

(4) Fees, costs and expenses not paid to the external intervener by the law practice are payable from the Public Purpose Fund and must be debited to the General Account.

(5) The Board may recover any unpaid fees, costs and expenses from the law practice.

(6) Fees, costs and expenses paid by or recovered from the law practice after they have been paid from the Public Purpose Fund are to be paid into that Fund and must be credited to the General Account.

25 In accordance with s 5.5.2 of the LP Act, the Board gave notice to Mr Forster, and others, of the order made by the court on 12 April 2010.

26 Chapter 5 of the LP Act provided for 'external intervention'. The purposes of ch 5 included to ensure that an appropriate range of options was available for intervention in the business of and professional affairs of law practices for the purpose of protecting the interests, trust money and property of clients, and to ensure that there was an accountable and transparent process for the appointment of interveners for the conduct of interventions.

27 An external intervener was defined to mean a supervisor, manager or receiver under ch 5. Chapter 5 sets out the circumstances where an external investigation was warranted. These included where the Board formed a belief on reasonable grounds that the practice was not dealing adequately with trust money or trust property: s 5.2.1(d)(i).

28 Under s 5.2.2, provision was made for the Board to determine to appoint a supervisor of trust money of the practice, to appoint a manager for the law practice and to apply to this court for the appointment of a receiver for the law practice.

29 Provision was then made for appointment of a supervisor of trust money (pt 5.3), the appointment of managers (pt 5.4) and the appointment of receivers (pt 5.5).

30 Part 5.5 included provision for the application to the court for the appointment of a receiver (pt 5.5, s 5.5.1) and the notice of the appointment (s 5.5.2), and also set out the effect of the service of the notice of appointment (s 5.5.3), the role of the receiver (s 5.5.4), and the powers of a receiver (ss 5.5.6 to 5.6.14).

(a) the power to take possession of regulated property (s 5.5.6);

(b) the power to take delivery of regulated property (s 5.5.7);

(c) the power to deal with regulated property (s 5.5.8);

(d) the power to require documents or information (s 5.5.9);

(e) the power to conduct examinations (s 5.5.10); and

(f) the power to recover regulated property where there has been a breach of trust giving rise to a debt or liability owed by the solicitor, or where the solicitor knew or believed the payment was in breach of trust or failed to provide adequate consideration for the property transferred (s 5.5.14).

32 Section 5.5.14(1)(c) was the sole provision relied upon by the receivers in this proceeding against Mr Forster as discussed in the trial judgment. There was no allegation that Mr Forster knew or believed he was acting in breach of trust, improperly or unlawfully, nor was it alleged that he provided any inadequate consideration in taking or receiving regulated property.

33 Section 5.5.17 provided for the termination of a receiver's appointment by the court.

34 As can be seen, there were extensive provisions about the powers of a receiver where one is appointed by the court to the practice of a solicitor. On the other hand, the office of receiver was not treated by the LP Act as anything other than the office of a court appointed receiver that this court has under the Supreme Court Act 1986 (SCA).

35 Part 5.6 of the LP Act contained general provisions relating to an external intervener, including a receiver. Section 5.6.1 dealt with the conditions on appointment of an external intervener. In the case of a receiver, this court was authorized to impose conditions on the appointment of a receiver. Under s 5.6.5 this court could give directions to a receiver.

36 I have set out s 5.6.7 above that dealt with the fees, legal costs and expenses of the receiver. Under s 5.6.8 the receiver was to provide written reports to this court.

37 Section 5.6.10 provided, inter alia, for the receiver to be reimbursed for damages and costs recovered against the receiver. Section 5.6.10 provided:

The Board may reimburse an external intervener out of the Public Purpose Fund for all or any damages and costs recovered against the external intervener, or any employee or agent of the external intervener, in respect of any act done or omitted to be done by the external intervener, or by an employee or agent of the external intervener, in good faith in the exercise or discharge, or the purported exercise or discharge, of the powers or duties conferred or imposed on the external intervener by or under this Chapter.

38 Under s 6.7.1 provision was made for the Board to maintain a fund called the Public Purpose Fund. The Board was required to keep in the Public Purpose Fund a General Account, a Statutory Deposit Account and a Distribution Account. Provision was made for the use of each account. The General Account was to be used, inter alia, to meet any money required to be paid to a receiver out of the Public Purpose Fund under ch 5. It is unnecessary for me to examine the sources of income that are credited to the various accounts in the Public Purpose Fund.

39 Historically, the procedure to appoint a receiver was a remedy available exclusively in the Courts of Equity. The common law courts received power to appoint receivers under the Judicature Act reforms in the late 19th century in England. The present power of the court derives from s 37(1) of the SCA. Order 39 of the Supreme Court (General Civil Procedure) Rules 2005 (Rules) governs the procedure for the appointment of receivers. Under r 39.09, a receiver may apply to the court for directions.

40 According to Meagher, Gummow & Lehane, Equity Doctrines & Remedies:[4]

A receiver is a person appointed to take possession of, get in, or recover, property for the benefit of the persons who are ultimately determined to be entitled to it.

41 Receivers and managers appointed by the court over a company's assets are not agents of the company, nor are they agents of the court:[5] they are officers of the court.[6] They carry out their functions for the benefit of the company/beneficiaries under the court's direction, in contrast to creditor-appointed receivers who owe their duties to the appointing creditor.[7] In my opinion, the receivers appointed under pt 5.5 of the LP Act are and remain officers of the court. This was reflected in the order made by the court in this case which required the receivers to regularly report to the court.

42 In McMeckan v Aitken,[8] Holroyd J of this court said that '[u]nquestionably a receiver is an officer of the court, because appointed by the court'. Equity Doctrines & Remedies states that from that proposition a number of propositions flow.[9] It says that a receiver appointed by the court does not, until the rights of the parties are firmly established, hold or deal with the property primarily for the benefit of any one party or as agent for any party.[10] Further, it says that not being the agent of the parties, a receiver appointed by the court contracts as principal so as to incur a personal liability.[11] Further, the appointment of a receiver by the court does not vest any property rights in the receiver and, in particular, does not vest in the receiver any rights of action. 'It follows, that the receiver cannot sue in his own name in relation to, or for the purpose of recovering property which he has been appointed to receive.'[12]

43 Equity Doctrines & Remedies[13] says that:

A receiver appointed by the court is neither the agent of nor a trustee for any of the parties, but does owe duties of a fiduciary character. The duties are owed to all persons interested in the property: Cape v Redarb Pty Ltd, and State Bank of New South Wales Ltd v Chia.

44 In fact, Higgins J in Cape v Redarb Pty Ltd and Einstein J in State Bank of New South Wales Ltd v Chia described the duties as fiduciary, not just as of a fiduciary character.[14] Einstein J said it is undoubted that court appointed receivers owe fiduciary obligations to all persons interested in the subject property.[15]

45 Court appointed receivers also have a duty to act fairly and impartially in relation to all persons who are interested in the company's property. They must make decisions within their powers in the interests of the beneficiaries. They must exercise their powers in good faith and on proper advice. Court appointed receivers are also under a duty to provide information to those whose interests they serve.[16]

46 The duty of the receivers to act in good faith in exercising their powers in the interests of the beneficiaries becomes of particular relevance when I turn to consider the conduct of the receivers in this case and whether they acted in good faith towards Mr Forster as well as to the clients of the law practice.

47 Court appointed receivers will generally be personally liable on their own contracts.[17] Also it is well established that receivers may approach the court for directions and advice.[18]

48 In some circumstances, court-appointed receivers may sue or be involved in litigation without first applying to the court for directions or authorisation.[19] The general rule, however, is that the court-appointed receiver cannot sue in his/her own name. In Wilton v Commonwealth Trading Bank of Australia, Hutley JA, with whom Street CJ and Glass JA agreed, said of receivers appointed by the court under the Legal Practitioners Act 1898 (NSW):

If Wilton had been an ordinary receiver appointed by the court, it is clear that he could not have brought an action in his own name. The reason why he could not bring such an action is that appointment as a receiver does not vest any property in him: Bolton v. Darling Downs Building Society. Where he has obtained possession of property he is entitled to maintain an action in his own name in respect of that property: Re Sacker, approved by the House of Lords in Rodriguez v. Speyer Brothers. The receiver could apply to the court for leave to bring an action in the name of the party to the action who was the proper plaintiff: Seton, Judgments and Orders, 7th ed., p. 765.

...

When the legislature makes provision for a receiver, the inference is that it is creating a receiver according to the ordinary legal understanding of that term, unless a clear contrary intention appears. A clear contrary intention can be made to appear by implication, but this implication is not to be made unless it is essential for the effective working of the receivership.

...

... I cannot see the necessity for inferring that the receiver has a right to sue in his own name.

Considerable difficulty may be occasioned by any implied status to sue. The court has an inherent power to appoint a receiver of a solicitor's trust account at the suit of persons whose interest therein may be imperilled and, because of its statutory responsibilities in respect of moneys received by a solicitor in the course of his practice on trust, the Law Society is such an interested person. The receiver so appointed by the court would not ordinarily have any right to sue in his own name. It may be that, if the one person is first appointed receiver under its inherent power and later pursuant to Div. 2 of Pt. VIII of the Legal Practitioners Act, it would be confusing for both receiverships to be in existence at the one time if they have very different incidents.[20]

49 Hutley JA held that receivers appointed under the legislation were in the same position as receivers appointed under the court's inherent jurisdiction in terms of not being able to sue in their own name. However, receivers appointed under the legislation had power to approach the court for orders authorising them to bring proceedings in the name of the proper plaintiff.

50 In Cape v Redarb Pty Ltd, Higgins J held it was not a breach of a court appointed receiver's fiduciary duties to complete a contract of sale of company assets without first seeking judicial advice and direction.

51 In my opinion, however, selling company assets is a very different thing to initiating complex and costly proceedings against one of the possible beneficiaries of the regulated property. In the latter situation, it may be that the court appointed receiver is under a duty to seek directions from the appointing court before initiating the proceedings. Whether there is such a duty will depend on the facts and circumstances of the case, including the terms of appointment, existing directions of the court, and the terms of any statute under which the receiver is appointed.[21]

52 As to the court's role in giving directions when such are sought by court appointed receivers, Austin J explained in Mariconte v Batiste that:

Where a receiver is appointed under statutory provisions, the function of the Court on an application for directions is analogous to its function with respect to a provisional liquidator. In performing that function, it is appropriate for the Court to give directions in order to provide guidance to the receiver, not only on matters of law but also on the propriety or reasonableness of the contemplated exercise of discretion.

...

It is not appropriate for the Court to supplant the receiver as decision-maker. The Court's direction is sought so as provide him with a degree of protection from litigation.[22]

53 In Glazier Holdings Pty Ltd v Australian Mens Health Pty Ltd,[23] Young J outlined the history of court appointed receivers. His Honour said that receivers are different to trustees and liquidators, so cases dealing with the advice the court gives them do not necessarily apply to applications by receivers for court advice. Young J said:

... a receiver has a very limited and usually relatively mechanical function. Instead of making a broad statement that receivers may always seek the opinion of the court, it would be better to put the proposition more narrowly, that if a receiver within his own limitations requires the guidance of the court, then normally he should have it.

54 Young J also pointed out that when giving advice to the receiver, the court will look at the receiver's 'real aim', which 'cannot be to benefit one party rather than the other'. In that case Young J declined to give the court's approval to the sale of assets proposed by the receiver.

55 As to the level of scrutiny a court will apply to court appointed receivers' day to day decisions, Street CJ in Eq explained in Duffy v Super Centre Development Corporation Ltd that:

The receiver and manager is appointed as an officer of the Court to undertake in that capacity the management of the business of the company as well, of course, as undertaking the care of the company's assets. To the extent to which he makes decisions from time to time, they are in effect made under the authority of the Court itself, and they are subject to review and control by the Court should a proper case be made out requiring such intervention. Whilst this Court does, therefore, have an ultimate control over the day-to-day actions of a receiver and manager, it is a control which is not in my view to be too freely exercised. If, of course, there can be shown to be some defect in the manner in which the receiver and manager is conducting his duties - a defect arising either out of some want of good faith or out of some erroneous approach in law or in principle - then that is clearly a ground on which the Court would entertain an application by one of the interested parties for appropriate directions or some other form of remedial order. Where, however, the challenge made is that there has been an absence of prudence and wisdom in the receiver's decisions, a far heavier onus rests upon the party who seeks to challenge the decision in question. The Court will not concern itself with minor and ordinary decisions that he may have made: it must be shown that there is a decision of real significance in the affairs of the company and as to which there are real and substantial grounds for questioning its correctness before the Court will embark upon an investigation of what, if any, directions ought to be given.[24]

56 Hutley JA gave further guidance in Buckey v Bennell Design & Constructions Pty Ltd:

The authority of a receiver, and the basis for any challenge to his authority, is to be found in the order appointing him...

In other words, the court has no roving control over the receiver. Its control over him is based upon its power to determine whether he is performing the duties imposed upon him... The court's control does not take the form of supervision in the sense that, if the court considers a decision taken in the course of management inexpedient, it revises it, in the exercise of its superior management wisdom. The court's control is over the authority of the receiver, over his integrity and over his competence...

...

It would seem to me that these authorities establish that, though the court appointed receiver was an officer of the court, the court at no time had day to day supervision of his activities, and the only way in which his activities came before the court was on complaint by somebody affected by them that he was acting contrary to his charter embodied in the order appointing him, to the detriment of that person's position.[25]

57 Under r 63.28 of the Rules costs are to be taxed on a standard basis, an indemnity basis or such other basis as the court may direct. Special circumstances must be shown to depart from the general rule that costs are to be taxed on the standard basis.[26] In Ugly Tribe Co Pty Ltd v Sikola, Harper J held that these special circumstances include:

(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) Conduct which amounts to a contempt of court.

(vi) The commencement or continuation of proceedings in wilful disregard of known facts or clearly established law.

(vii) The failure until after the commencement of the trial, and without explanation, to discover documents the timely discovery of which would have considerably shortened, and very possibly avoided, the trial.[27]

58 To this list, Mr Forster would add pursuing an action in circumstances where, if properly advised, the plaintiff would have known that the proceeding had no chance of success.[28]

59 In this case, Mr Forster also relies on the Civil Procedure Act 2010 (CPA). Mr Forster contends that the receivers failed in several respects to comply with their overarching obligations under the CPA. Mr Forster relies on the following provisions:

Section 18 Overarching obligation - requirement of proper basis

A person to whom the overarching obligations apply must not make any claim or make a response to any claim in a civil proceeding that -

(a) is frivolous; or

(b) is vexatious; or

(c) is an abuse of process; or

(d) does not, on the factual and legal material available to the person at the time of making the claim or responding to the claim, as the case requires, have a proper basis.

Section 22 Overarching obligation to use reasonable endeavors to resolve dispute

A person to whom the overarching obligations apply must use reasonable endeavors to resolve a dispute by agreement between the persons in dispute, including if appropriate, by appropriate dispute resolution, unless -

(a) it is not in the interests of justice to do so; or

(b) the dispute is of such a nature that only judicial determination is appropriate.

Section 23 Overarching obligation to narrow the issues in dispute

If a person to whom the overarching obligations apply cannot resolve a dispute wholly by agreement, the person must use reasonable endeavours to -

(a) resolve by agreement any issues in dispute which can be resolved in that way; and

(b) narrow the scope of the remaining issues in dispute -

(c) it is not in the interests of justice to do so; or

(d) the dispute is of such a nature that only judicial determination is appropriate.

Section 24 Overarching obligation to ensure costs are reasonable and proportionate

A person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to -

(a) the complexity or importance of the issues in dispute; and

(b) the amount in dispute.

Section 25 Overarching obligation to minimise delay

For the purpose of ensuring the prompt conduct of a civil proceeding, a person to whom the overarching obligations apply must use reasonable endeavours in connection with the civil proceeding to -

(a) act promptly; and

(b) minimise delay.

...

Section 28 Court may take contravention of overarching obligations into account

(1) In exercising any power in relation to a civil proceeding, a court may take into account any contravention of the overarching obligations.

(2) Without limiting subsection (1), in exercising its discretion as to costs, a court may take into account any contravention of the overarching obligations.

Section 29 Court may make certain orders

(1) If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to -

(a) an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation;

(b) an order that the legal costs or other costs or expenses of any person be payable immediately and be enforceable immediately;

(c) an order that the person compensate any person for any financial loss or other loss which was materially contributed to by the contravention of the overarching obligation, including -

(i) an order for penalty interest in accordance with the penalty interest rate in respect of any delay in the payment of an amount claimed in the civil proceeding; or

(d) an order that the person take any steps specified in the order which are reasonably necessary to remedy any contravention of the overarching obligations by the person;

(e) an order that the person not be permitted to take specified steps in the civil proceeding;

(f) any other order that the court considers to be in the interests of any person who has been prejudicially affected by the contravention of the overarching obligations.

(2) An order under this section may be made -

(a) on the application of -

(ii) any other person who, in the opinion of the court, has a sufficient interest in the proceeding; or

(b) on the court's own motion.

(3) This section does not limit any other power of a court to make any order, including any order as to costs.

Section 30 Applications for orders under section 29

(1) An application for an order under section 29 is to be made -

(a) in the court in which the civil proceeding was, or is being, heard; and

(b) in accordance with the rules of court.

(2) An application for an order under section 29 must be made prior to the finalisation of the civil proceeding to which the application relates (excluding any period for appeals).

(3) For the purposes of subsection (2), if an order, including an order in respect of costs, is made after the date of finalisation of the civil proceeding to which the application relates, the date of making of the last of the orders is taken to be the date of finalisation of that proceeding.

...

Section 42 Proper basis certification

...

(3) For the purposes of this section, a determination by a legal practitioner -

...

(c) as to whether any claim, response to a claim, question posed or response to a question posed has a proper basis, on the factual and legal material available, must be based on a reasonable belief that the claim, response to a claim, question or response to a question has a proper basis.

Mr Forster's oral submissions****[29]

60 In oral submissions, Mr Forster submitted that costs should be awarded in his favour on an indemnity basis.

61 In doing so Mr Forster relied on the CPA and otherwise the general discretion of the court to award costs on an indemnity basis.

62 Mr Forster submitted that the receivers were officers of the court and owed duties to the court. This was not disputed by the receivers. Mr Forster submitted that I was justified and correct to express, in the trial judgment, the concerns that I had about the failure of the receivers to assist the court. Mr Forster was not able to assist with any authorities to support this proposition.

63 Mr Forster submitted that the duty of the receivers to assist the court is even greater than that of a prosecutor to tender all relevant evidence whether or not the evidence assists the case that the prosecutor wishes to advance.

64 Mr Forster submitted that there were other matters, apart from the special position of the receivers, that would warrant an order for indemnity costs.[30] In particular, Mr Forster contends that he informed the receivers on receipt of the receivers' letter of demand that the receivers' claim in respect of the double disbursements was misconceived.

65 As for the no fee agreement claims and the scale fee agreement claims, Mr Forster says that the receivers issued proceedings without even writing a letter of demand or seeking his response. Further, Mr Forster says that the receivers did not respond to his letter to explore further his contention that the receivers' claim in respect of the double disbursements was misconceived. Mr Forster submits that this is an example of the receivers' failure to comply with their obligations under the CPA and in particular, s 23.

66 On 26 July 2011, the receivers wrote a letter of demand to Mr Forster seeking the payment of $2,730,475 in respect of what became the double disbursement claim. The letter relevantly said:

The Deloitte report dated 3 February 2011 identified that Hollows raised $2,730,475 in adjustment notes. These adjustment notes were raised by Hollows Lawyers in an attempt to correct trust account irregularities. Details of how this sum of $2,730,475 is comprised are know[n] to you.

The procedure undertaken by Hollows did not correct the trust account irregularities as no funds were returned to the trust account and, contrary to regulation 3.3.34 of the Legal Professions Regulations 2005, no invoices were issued to the Melbourne Voyager clients.

67 On 4 September 2011, Mr Forster replied to the receivers. The letter from Mr Forster was written in the third person. In his letter Mr Forster said:

In our view there is no basis upon which the Receivers may claim this amount [referring to the $2,730,475] from Mr Forster.

The only power of the receiver to recover trust money is under s 5.5.14 Legal Profession Act 2004 (Vic) (the Act) which on any view has not been, and will not be able to be satisfied.

The rectification measures adopted by the Practice were not subject to criticism by Deloitte but to the contrary Deloitte concluded, after a most extensive and expensive examination of the Practice trust accounts and files, that as a result of the measures no moneys were owed to clients. Indeed you the Receivers concluded on 4 February 2010 that "Deloitte has finalised its examination of the MV files and has determined that Hollows created sufficient adjustment notes and write-offs to cover all trust irregularities discovered by LIV and Deloitte' and that 'Based on the Deloitte Report, there are no current Trust Transaction issues that result in funds being returned to the MV clients' and that 'based upon our review and analysis of the detail extracted by the Deloitte (but not concluded upon) no client review was financially disadvantaged by the transaction."

68 As can be seen, the receivers did not claim any moneys were owed to any clients of the practice. Rather, the receivers only alleged that funds ought to have been returned to the trust account.

69 When the receivers' case was opened by senior counsel, it was made clear that the receivers' case was that a trust account deficiency had occurred and the relief sought in respect of the alleged double disbursements was to have the alleged deficiencies paid back into the trust account.

70 There was no claim by the receivers (contrary to that pleaded) that any moneys were owed to the clients. Rather, the claim sought to have moneys returned to trust and after the moneys had been paid back into the trust account, the practice (now under the control of the receivers) would account to the client. Whether or not the payment of moneys back into the trust account, or the subsequent accounting, gave rise to any obligation to pay moneys to the client, was not part of the receivers' case.

71 As indicated in the judgment, the uncontested evidence was that Mr Forster was owed more by the client than was transferred from trust to Mr Forster. Nevertheless, senior counsel said that it was completely irrelevant whether or not the client may have owed moneys to Mr Forster.[31] The obligation sought to be enforced was that Mr Forster should pay the alleged double disbursements back into the trust account.

72 Thus, it can be seen that the receivers' case was not one involving the recovery of moneys owed by Mr Forster to clients. Rather, it was a claim that because a mistake had been made in the office account, moneys had to be returned to trust so that a proper accounting could then be made to clients.

73 Mr Forster contends that the receivers ignored the warning that their claim on the double disbursements was misconceived. Section 5.5.14(1)(c) only permitted the receivers to recover a debt or liability. Mr Forster contends that the transaction that the receivers required Mr Forster to perform did not arise from a debt or liability to anybody. Rather, it was a procedure under the LP Act or the Legal Practice Act Regulations (LP Regulations) for dealing with trust moneys, which procedure may have required Mr Forster to pay into the trust account trust money that was otherwise owed to Mr Forster.

74 Mr Forster says that the receivers did not answer Mr Forster's objection to their claim in relation to the alleged double disbursements but merely issued the writ on 13 February 2012 without further discussion. Mr Forster contends that the receivers did not pay proper regard to Mr Forster's warning that the double disbursement claim was misconceived because the receivers thought they could get paid whether or not the misconceived claim failed.

75 Mr Forster submits that in issuing the proceedings as they did, the receivers did not use reasonable endeavours to ensure that the legal costs and other costs incurred in connection with the proceeding were reasonable and proportionate to the complexity or importance of the issues in dispute and the amount in dispute as required by s 24 of the CPA.

76 Mr Forster further submits that in issuing the proceedings without further consultation with Mr Forster, the receivers did not use reasonable endeavours to resolve by agreement any issues in dispute that could have been resolved that way, nor did they narrow the scope of the remaining issues in dispute as required by s 23 of the CPA.

77 Mr Forster says that the double disbursement claim was not based on a factual dispute but on a question of law and the misconception by the receivers that s 5.5.14(1)(c) was appropriate to sue on to compel Mr Forster to observe trust accounting requirements under the LP Act or the LP Regulations despite no debt or liability being owed by Mr Forster to the clients.

78 Mr Forster relies on Fountain Selected Meats v International Produce Merchants,[32] where Woodward J of the Federal Court of Australia laid down a general principle concerning the awarding of indemnity costs where the proceeding was misconceived. His Honour quoted from an earlier decision of his where he canvassed circumstances where an order for indemnity costs might be open:

Another case cited in argument was Australian Guarantee Corporation Ltd v De Jager [1984] VicRp 40; (1984) VR 483 where (at 502) Tadgell J allowed solicitor and client costs because he found the pursuit of the action to have been 'a high-handed presumption'.

No doubt the expression "high-handed presumption" was appropriate in the case Tadgell J. had to decide, and he needed to go no further; but in order to establish a convenient principle in such cases it is necessary to be a little more prosaic. 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. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.[33]

80 Mr Forster contended that the receivers, after being warned that s 5.5.14(1)(c) was not open to the receivers to use to compel Mr Forster to carry out trust accounting requirements, should have turned their minds to the issue and if they had, and had been properly advised, they would have realised the double disbursement claim was not an appropriate claim to bring under s 5.5.14(1)(c) of the LP Act and had no chance of success.

81 In argument before me, it was suggested that Emerton J had given directions to the receivers to sue Mr Forster. In fact, Emerton J was not asked for directions on whether or not the receivers were justified in bringing the claim they did. Rather, her Honour was asked to extend the term of the receivership so that the proceedings (that had already been issued) could be pursued. On hearing that application, Mr Forster contended that it was put to Emerton J by the receivers that her Honour should not look at the merits of the proceeding (that had already been issued by the receivers).

82 Further, Mr Forster submits that in bringing the proceeding, the receivers did not turn their minds to whether there was any benefit for the clients of the practice in respect of double disbursement claims relating to four Melbourne Voyager clients who had expressly instructed Mr Forster not to proceed with the claim on their behalf as they did not want to lose their veteran's pensions, which they were at risk of losing had they succeeded in their claim for damages arising out of the Melbourne Voyager collision. Those clients expressly disclaimed being paid any moneys by Mr Forster.

83 Mr Forster also submits that although Deloitte advised the receivers that nothing was owed by Mr Forster to the Melbourne Voyager clients, the receivers informed Emerton J that the receivers would decide after they succeeded in having Mr Forster repay moneys back into the trust account whether the money put back into the trust account would go to the clients or Mr Forster.

84 Mr Forster contended that in the circumstances of this case it was inappropriate for the receivers to commence proceedings to recover moneys from Mr Forster to put back into the trust account, for two reasons. First, the receivers had not turned their minds to who was entitled to the money that would be paid back into the trust account if they succeeded against Mr Forster. Second, the receivers had conceded that the money, once in the trust account, might have belonged to Mr Forster.

85 Mr Forster submitted that the purpose of the proceeding by the receivers against him in relation to the double disbursements was not to achieve a financial benefit for any person but rather the purpose was to compel Mr Forster to comply with trust accounting requirements under the LP Act and the LP Regulations, without any consideration of the cost of the exercise as against the financial benefit.

86 Mr Forster contends that the enforcement of correct accounting procedures required under the LP Act and the LP Regulations was a matter primarily for the Board. Mr Forster says that the enforcement of correct accounting procedures was not a responsibility of the receivers. The receivers had a different function to manage the practice including recovering from the solicitor any debt or liability owed by the solicitor as provided under s 5.5.14(1)(c).

87 In substance, Mr Forster says that the receivers were using an inappropriate procedure under s 5.5.14(1)(c) for an inappropriate purpose of compelling Mr Forster to comply with requirements of solicitors' trust accounting under the LP Act and LP Regulations. According to Mr Forster, there are two layers of impropriety involved in the receivers' conduct. First, s 5.5.14(1)(c) was an inappropriate vehicle to pursue the receivers' purpose, and second, that purpose was not an appropriate purpose for the receivers to pursue.

88 Mr Forster also relied on what he alleges was inappropriate conduct of the receivers in conducting the proceedings. In particular, Mr Forster relied on:

(a) The failure of the receivers to narrow the issues by conceding that on the accounts raised by and rendered by Mr Forster to the double disbursement clients, nothing was owing to the double disbursement clients by reason of the mistake made in the office accounts relied on by the receivers.

(b) The making of claims by the receivers that certain clients did not sign fee agreements without taking a proof of evidence from the clients who it was alleged did not sign a fee agreement but merely having a telephone conversation in which the client, when asked whether they could remember signing a fee agreement, said in substance that they could not remember signing a fee agreement. The clients were not taken through the correspondence and file notes on their file relating to the conduct of their claim to refresh their memories.

(c) The receivers' persistence in the no fee agreement claim involving Mr Dawson when the proof of evidence taken from Mr Dawson (well after the proceedings against Mr Forster had commenced) showed that he had no recollection of whether or not he had signed a fee agreement in circumstances where he had received the original with a request to sign but no longer had it in his possession (raising the inference that he had returned the fee agreement as requested). Mr Dawson made no complaint to the receivers. The receivers instituted the proceedings without any such complaint.

(d) The failure of the receivers to narrow the issues, where Emerton J had found that there was a statutory deficiency but there may not have been an accounting deficiency, and thus the real issue was whether, in those circumstances, a debt or liability arose under s 5.5.14(1)(c), particularly when Deloitte had advised the receivers that there was no accounting deficiency.

(e) The failure of the receivers to tender the sensitivity report prepared by Deloitte for the receivers at great expense. This failure occurred despite the report being highly relevant to Mr Forster's defence and having been referred to and relied on by Emerton J in her decision to extend the receivership, and despite it establishing that Mr Forster was not indebted to any double disbursement client for recovering fees in excess of those otherwise owed by the client to Mr Forster.

(f) The failure of the receivers to call an expert accountant to explain the relationship between the trust accounts and the office accounts, particularly where the receivers' double disbursement claims depended on accounting entries made in the office accounts.

(g) The receivers' conduct in ignoring of the common law rule confirmed in Simson v Ingham[34] that an error in the office accounts allocating a payment by a debtor to a particular invoice may be rectified in the office account before the allocation is informed to the debtor, and particularly where the receivers did not dispute or question the authority of Simson v Ingham.[35]

(h) The significant waste of costs involved in making claims that some 21 clients had not signed fee agreements when the fee agreements were found in the receivers' possession.

(i) The significant waste of time spent on the scale fee agreements claim where the receivers informed the court they were intending to prove that the fees charged were more than those that would have been due on scale, merely on the documents and the scale, and they then changed their mind, during the running of the trial, seeking to tender evidence from an expert costing consultant Mrs Ashby. This left the disputed items of costing undefined in any particulars and left the court with the difficult and time consuming task of assessing detailed costing questions.

(j) After the receivers spent very large sums retaining Deloitte to examine the accounts of Mr Forster to determine whether Mr Forster owed any money to his clients, failing to call the responsible partner Mr Jackson to give evidence of what he ascertained and the conclusions he drew; particularly when Deloitte had come to the conclusion that no debt or liability was owed to any of the double disbursement clients by reason of the double disbursement payments.

(k) Failing to call the investigators from the Law Institute who discovered the errors in the office account.

(l) At the same time as Mr Forster was being sued in court he was being pressed by the Board on several other fronts in a manner that was oppressive and put undue pressure on Mr Forster. Mr Forster says he was faced with a claim for millions of dollars by the Board but the Board distracted him from defending the claim by running other proceedings against him in VCAT and elsewhere.

89 Mr Forster says that in those circumstances, the interests of justice are best served by making an order for indemnity costs against the receivers.

90 I now turn to Mr Forster's written submissions. These relate to two separate issues. His submissions to some extent confused the two. First, Mr Forster complains of the amount of costs incurred by the receivers in the conduct of the proceedings against him. As discussed above, to the extent that they cannot be recovered from the practice, the receivers are reimbursed from the Public Purpose Fund held by the Board. It is the Board which then has the statutory power to recover those costs from Mr Forster under s 5.6.7.

91 The second aspect is the costs and expenses Mr Forster has been put to by reason of the receivers bringing the proceeding and the way in which the receivers conducted the proceeding.

92 As to the first issue, the Board and the receivers have proposed, as part of the orders they contend should be made, that unless the receivers are successful in their appeal from the judgment given in this proceeding on 27 May 2015, the Board will not recover any unpaid fees, costs and expenses incurred by the receivers in this proceeding from Mr Forster (including an amount paid pursuant to the order I will shortly set out) pursuant to s 5.6.7(5) of the LP Act.

93 Such a proposal seems to be based on the fact that it would be unfair and unjust for Mr Forster to be required to pay the costs of proceedings against him that have failed. I agree that it would be unfair and unjust for the Board to seek to recover those costs from Mr Forster. I note that the Board has a discretion whether to do so or not. In my view, the proposal of the Board not to seek the costs from Mr Forster is one that the Board may make and in the circumstances is justified in doing so.

94 Accordingly, I will proceed on the basis that unless the receivers are successful on their appeal, the Board will not seek to recover against Mr Forster the receivers' costs of the proceedings and any costs awarded against the receivers in favour of Mr Forster.

95 I shall therefore limit my consideration of Mr Forster's written submissions to the second aspect, namely the receivers' conduct in bringing the proceeding and the way in which the receivers conducted the proceeding. As set out above, Mr Forster contended that the receivers breached the CPA in bringing the proceeding against him and in their conduct of the proceeding.

96 In addition to the matters referred to in Mr Forster's oral submissions, Mr Forster relies on the following allegations.

(a) In breach of s 23 of the CPA, the receivers sought to broaden the scope of the receivership by encouraging clients to lodge complaints against Mr Forster.

(b) The pleadings were unduly prolix.[36] The statement of claim was some 275 pages long.

(c) In many cases, the claims were quite small and did not warrant proceedings in this court in circumstances where the clients had made no complaint about the sum:

97 The receivers submit that Emerton J did consider the claims in the proceeding when her Honour was requested to extend the receivership. Her Honour did find that it was not for the court at that stage to adjudicate on the merits of the recovery proceeding. Her Honour said that would be a matter for the judge hearing the recovery proceeding or any preliminary application to strike out the statement of claim in whole or in part. Her Honour did consider the nature of the claims rather than the detailed pleading of the claims.

For the reasons that follow, having regard to the nature of the claims made in the recovery proceeding, I am satisfied that the recovery proceeding advances the purpose for which the receivers were appointed, that there is a sound basis for the recovery proceeding to be pursued, and that the receivership should be extended to enable that to occur.

I have taken the opportunity since the first day of hearing to review the principal judgment in this proceeding, delivered on 31 March 2010, which resulted in the appointment of the receivers. Findings were made that the double payment of disbursements gave rise to trust account deficiencies and breaches of the Legal Profession Act and the Legal Profession Regulations 2005. Furthermore, the court closely examined the way in which the trust account deficiencies were purportedly remedied, and concluded that it could not be confident that the trust account deficiencies had been restored in a manner that complied with the Act and Regulations.

The judgment deals in detail with the defendant's contention that there was no deficiency where fees previously written off by the law practice were written back in, and an adjustment note was issued. The judgment records Mr Lombardo's evidence that where clients' files had rightoffs well in excess of an alleged deficiency, then no deficiency should be recorded from an accounting perspective.

However, the court concluded that while deficiencies may have been restored from an accounting perspective by issuing an adjustment note, that did not mean they had been restored in compliance with the Act and Regulations. The court expressed itself not to be satisfied that all irregularities had been identified and satisfactorily rectified by the law practice. It identified a real prospect that some of the rectification measures taken by the law practice involved further breaches of the Act and Regulations.[37]

99 Her Honour then made extensive reference to the Deloitte sensitivity analysis and Deloitte report. Her Honour then concluded as follows:

Pursuant to s 5.5.14 of the Legal Profession Act, the receivers are empowered to recover regulated property taken in breach of trust, improperly or unlawfully. There is at least an argument that the transfer of moneys from the trust account to the office account for fees was effected otherwise than in accordance with the Act and Regulations and was unlawful.

It seems to me, therefore, that there is a prospect that former clients of the law practice may be able to recovery moneys as a result of the receivers' enforcement of the trust accounting requirements, and the requirement to take fees only in accordance with fee agreements, or alternatively according to scale. There was that point to the recovery proceedings.

However, even if it turns out at the end of the day that no particular client recovers money as a result of the recovery proceedings, there remains important that law practices follow and be seen to follow the correct procedure in relation to the treatment of trust moneys. There is another factor supporting the extension of the receivership, to enable the recovery proceedings to be brought. As the board submitted, there is a significant public interest in the court supervising the conduct of practitioners' trust accounts, and ensuring that the trust accounting requirements are properly complied with. In my view, there is good reason to extend the receivership to enable the receivers to prosecute the recovery proceedings. The claims made reflect the issues identified by the court, which have been the subject of significant further investigation by the receivers. The receivership must therefore continue to enable the recovery proceedings to be resolved one way or another.[38]

100 In my opinion, the receivers' double disbursements claim was misconceived and was pursued for an inappropriate purpose. Section 5.5.14(1)(c) was designed to permit the receivers to recover from a solicitor in certain circumstances where there is a debt or liability owed by the solicitor which may arise by reason of the matters referred to in the section.

101 Section 5.5.14(1)(c) was not designed to compel a solicitor to carry out trust accounting obligations or procedures under the LP Act or the LP Regulations. This is highlighted by the fact that when the receivers commenced the proceeding they had not turned their minds to who was beneficially entitled to the money they sought to have put back into the trust account. They were not seeking to have a debt or liability discharged but rather seeking to have money returned to the Hollows Lawyers trust account, so that they could then work out who was entitled to the money. This was not the function or the purpose of s 5.5.14(1)(c). If properly advised, the receivers would have been aware of this. As far as they were concerned the money may have been beneficially owned by Mr Forster.

102 I find that the receivers should have turned their mind to whom the money would belong if it was put back in the trust account. If it belonged to the clients, then perhaps s 5.5.14(1)(c) may have been appropriate. Section 5.5.14(1)(c) was not appropriate to use as a mechanism to get the money back into the trust account and then to decide who it belonged to.

103 I agree with Emerton J that there is a significant public interest in the court supervising the conduct of practitioners' trust accounts and ensuring that the trust accounting requirements are properly dealt with. In my view, if the receivers properly addressed the purpose and function of s 5.5.14(1)(c) as Mr Forster contended, then it would have been apparent that s 5.5.14(1)(c) was not the proper vehicle to use to force Mr Forster to comply with his obligations under the LP Act and LP Regulations. Section 5.5.14(1)(c) was not designed to force a solicitor to 'follow the correct procedures in relation to the treatment of trust moneys'. Section 5.5.14(1)(c) was a means to recover a debt or liability owed by the solicitor in certain circumstances.

104 In my view, the proceedings under s 5.5.14(1)(c) in relation to the double disbursement claim were an inappropriate proceeding brought by the receivers for an inappropriate purpose.

105 In my opinion, the claim for the double disbursements was unwarranted and unreasonable. The receivers had received advice from Deloitte that no moneys were owed by Mr Forster to his clients. In fact, Mr Forster had written off some $5 million in outstanding fees.

106 The receivers contended that because of the error made in Mr Forster's office accounts, he was obliged to pay the amount credited to payment of disbursements that had already been paid, back into trust. The receivers argued that it was irrelevant whether Mr Forster was otherwise owed an amount in excess of this sum by the client.

107 As discussed above, as receivers, the receivers owed fiduciary duties to Mr Forster including to act bona fide, fairly and in the best interests of Mr Forster. In my view, it was incumbent on the receivers to have formed a view whether and to what extent fees were owed to Mr Forster by his clients.

108 Assuming that Mr Forster was obliged to pay the 'double disbursement' back into the trust account (which I do not accept), there was no issue that he had a lien over that sum for professional costs he was owed by his clients. The money would not have been repaid to the client if it was subject to a lien. The money could only have been paid to Mr Forster.

109 An examination of the accounts by the receivers would have shown that there was no benefit to the clients in compelling Mr Forster to repay the 'double disbursement' back into the trust account. The only purpose was to compel Mr Forster to do something that he may have been required to do under the LP Act or the LP Regulations.

110 The receivers could have for a very small sum issued fresh invoices to the clients informing them of the amount written off their accounts and of the mistake that had been made in the office accounts (but not in the trust account). Of course, no money would need to be paid to the client by reason of such new accounts. The receivers were the receivers of the practice and entitled to issue fresh invoices.

111 I find that the approach taken by the receivers was out of proportion to the problem that had arisen in the office accounts of Mr Forster. I find that the receivers failed to use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding for the recovery of the double disbursements were reasonable and proportionate to -

(a) the complexity or importance of the issues in dispute; and

112 The double disbursement claim formed a significant proportion of the time taken at the trial. I find that the steps taken to ensure there were reasonable grounds for the 'double disbursement' claims were inadequate.

113 The receivers claimed that Mr Forster was indebted or otherwise liable for the double disbursement sums to the law practice and to the particular double disbursement client.[39] In my view, the receivers' conduct in including the allegation that the double disbursement was owed to the client was speculative and did not have a proper basis contrary to s 18 of the CPA.

114 As indicated above, the receivers conceded that they did not turn their minds to whom the money would be due if the double disbursement sums were returned to trust by Mr Forster. They said that ascertaining who was entitled to the money was a process that would be undertaken if and when the moneys were returned by Mr Forster to the trust account. This demonstrates that the receivers' purpose in making the double disbursement claim was to have the moneys paid back into trust.

115 Accordingly, as discussed earlier, I find that it was inappropriate for the receivers to allege that moneys were owed to the individual double disbursement clients when the purpose of the proceeding was to have the moneys paid back into the trust account. Further, in bringing such proceedings without ascertaining to whom the moneys were due (despite having been advised by Deloitte that nothing was owing by Mr Forster to his clients), in the receivers were in breach of their duties of good faith to Mr Forster and their duty to act fairly and impartially as between Mr Forster and his clients. It was also in breach of their duty to make decisions in the best interests of the beneficiaries, to wit Mr Forster and the clients.

116 In view of the Deloitte report obtained by the receivers that Mr Forster did not owe any moneys to his clients by reason of the double disbursement transactions, the receivers were on notice that the likely result of the double disbursement claims was that Mr Forster would be found to be entitled to the moneys. The receivers retained their own firm to act for them in the litigation.

117 Mr Forster claims that the only benefit of the litigation was for the receivers' own law firm to earn legal fees. I do not accept that was the motive of the receivers. Although by not retaining independent solicitors to act for and to advise them, the receivers may have exposed themselves to this allegation. As discussed, I find that the motive of the receivers was to compel Mr Forster to comply with the perceived trust accounting obligations imposed by the LPA and the LP Regulations.

118 The consequence of my decision is not that solicitors can get away with not faithfully observing their trust accounting obligations as long as no debt is owed to clients. Far from it. If there is no debt owing to clients arising from the trust accounting problems, as Deloitte found, then the authorities responsible for supervising the actions of solicitors may take action against the solicitor and he or she may be subject to penalty. However, where there is no debt owed to clients, (or to the practice if the practice is other than the solicitor) proceedings to recover a debt or liability should not be brought under s 5.5.14(1)(c).

119 In no sense should my judgment be treated as excusing a solicitor from carrying out the important obligations of properly keeping his trust account records and correcting an errors properly. Rather, it is that it was inappropriate and in breach of the receivers' obligations as fiduciaries to Mr Forster to seek to recover moneys from him under s 5.5.14(1)(c) of the LPA in respect of the double disbursement claims.

120 The history of these proceedings is set out in the trial judgment. In the initial statement of claim of the receivers against Mr Forster of 13 February 2012, the receivers alleged that 24 Melbourne Voyager clients were billed for legal work without them signing a costs agreement.

121 Later in February 2012, Mr Forster found costs agreements for 21 of the 24 clients in a file in the possession of the receivers. The receivers amended their claims to allege three clients were billed without signing a costs agreement.

122 When the matter was set down, the receivers essentially based their allegations on the receivers not finding signed costs agreements in the files they had taken possession of. Before the trial began the receivers located reference to a signed fee agreement for one of the three.

123 When the trial began in June 2013, by which time statements of all witnesses to be called had been ordered to be filed, there was no evidence to support the receivers' claim other than the results of their searches and some hearsay evidence of Mr Uljans of telephone conversations with some Melbourne Voyager clients. In particular, there was to be no evidence from the three clients who it was alleged had not signed fee agreements. In November 2013, however, a witness statement was filed for Mr Dawson and Mr Martin, the two relevant clients.

124 As it was, I found that I was not satisfied that Mr Dawson or Mr Martin had not signed a fee agreement. I mention the history as I consider that the receivers' decision to sue without obtaining a witness statement from the relevant clients was unjustified. The allegations were very serious and Mr Forster had insisted that he did obtain a valid fee agreement from all his clients.

125 I find that the decision to proceed on the 26 no fee agreement claims was speculative in circumstances where no proof of evidence had been taken from the persons who the receivers alleged had not signed the fee agreements. I also find that the decision was not in keeping with the receivers duties of good faith to Mr Forster.

126 I do not find that the claims did not have a proper basis as provided in s 18 of the CPA. If there was no fee agreement, fees paid may have been repayable to the client. Rather, I find that the receivers were not justified in commencing Supreme Court proceedings in respect of the no fee agreement claims without taking proper proofs of evidence from the relevant clients and thoroughly perusing the relevant files, with the client, to piece together the circumstances surrounding the clients retaining Mr Forster.

127 As it is, the case involving Mr Dawson should not have been brought. I accept the matter involving Mr Martin was open for the receivers to bring but only after they had taken proper proofs of evidence from Mr Martin.

128 The receivers' primary claim in respect of the scale fee agreements claims was that, as a detailed scale costs calculation was not carried out, the whole of the fees recovered from the relevant clients was entitled to be recovered by the receivers. I consider that there was no need to cost the files on this claim and it was understandable that they were not, in any event, in view of the prohibitive cost of costing files.

At a glance

Court

Decision date

Before

Source

Judgment (338 paragraphs)

Parties

Legislation Cited (9)

Cases Cited (10)