Plaintiffs v Defendants

2 In April 2004, Barry Peter Bray and Ms Gilbert advanced money to Graphics 103 Pty Ltd ("Graphics") and Rowprint Services (Vic) Pty Ltd ("Rowprint") under written loan agreements. Each company secured the loans by charging its assets in favour of the lenders. The businesses failed and the borrowers defaulted. The defendants, Victor Raymond Dye and Roger Darren Grant were initially appointed as administrators and then liquidators of the companies. The dispute in the main proceeding arose out of the defendants' management of the administration and liquidation and their alleged failure to account to the plaintiffs for the proceeds from the realisation of charged assets.

3 The main proceeding was commenced by writ on 25 January 2007. The claim then made by the plaintiffs was that the defendants pay to them the whole of the proceeds of realisation of the assets of Graphics and Rowprint which came into their hands as administrators and later liquidators, less any employee claims having priority pursuant to s 561 of the Corporations Act 2001 ("the Act"), but not exceeding the sum of $342,755.53 together with interest thereon. That was the amount then said to be outstanding under the loan agreements. The plaintiffs also sought an inquiry into the defendants' failure to comply with the requirements of s 420A of the Act when selling the assets of Rowprint and Graphics.

4 Throughout the main proceeding the plaintiffs were represented by Goldsmiths, a firm of solicitors which is now incorporated under the name and style, Goldsmiths Barristers & Solicitors Pty Ltd. Garry David Goldsmith was a member of the firm and is a director of the company. He is the person who initially took instructions from the first defendant, Barry Peter Bray and who instructed counsel, Alan Walter Sandbach, to appear on behalf of the plaintiffs in the proceeding.

5 On 17 May 2007, the plaintiffs issued a summons seeking judgment against the defendants for the whole of the proceeds received from the sale of assets subject to the charges, less employee claims, such claims not to exceed $342,755.53. Mr Bray filed an affidavit in support of the application, dated 17 May 2007. He purported to do so on his own behalf and on behalf of Ms Gilbert. Mr Goldsmith also swore an affidavit, dated 17 May 2007, in support of the application.

6 The application for summary judgment was heard by Master Daly (as she then was) on 1 June 2007. Prior to the hearing the defendants filed a defence and the first defendant, Mr Dye, filed and swore an affidavit, dated 28 May 2007, verifying relevant facts. The defence was, as might be expected, primarily directed to the allegation of breach of s 420A of the Act and the proceeds from the sale of charged assets.

7 By their defence the defendants alleged conversations with Mr Bray concerning their requirement for an acknowledgement from Ms Gilbert before disbursing funds to Mr Bray. They alleged that Mr Bray told them that he would procure a form of release signed by Ms Gilbert. They alleged that Mr Bray told them Ms Gilbert was in Queensland, that he had paid out her debt and would contact her when she returned at the end of the week. The defendants case was that in the absence of a proper release executed by Mr Bray and Ms Gilbert they were under no obligation to pay over the funds. They alleged that from before the commencement of the proceeding they remained ready, willing and able to pay the balance of the proceeds to the plaintiffs upon receipt of a good and valid discharge for payment. In an affidavit filed and sworn by him, Mr Dye gave evidence in support of the defences. In paragraph 38 of his affidavit Mr Dye said,

At no time have I seen or been provided with a power of attorney or other record of agency from Gilbert appointing Bray to act on her behalf. I note that the loan agreement and charges exhibited to Bray's affidavit herein do not provide for Bray or Gilbert to act severally.

8 On 1 June 2007, Master Daly ordered that subject to the plaintiffs providing a written direction to the defendants, signed by both of them, the defendants pay to the solicitors for the plaintiffs the sum of $166,319.44, plus accrued interest. The defendants were ordered to pay the plaintiffs' costs of the summons. The defendants appealed. On 5 June 2007, Osborn J set aside the relevant parts of the orders of Master Daly, dismissed the plaintiffs' summons dated 17 May 2007, and reserved the costs of the summons and of the appeal. His Honour noted, in the course of his brief Reasons for Judgment,

The substantial dispute remaining between the parties is with respect to the question of costs. The defendants' position is that they acted reasonably having regard to the requirement for them to deal with both the plaintiffs jointly and the failure of the plaintiffs to provide for the acknowledgement of receipt of the money in accordance with arrangements agreed to orally between the first defendant and first plaintiff.

His Honour also noted that the precise amount payable under the relevant security remained an issue, as did the plaintiffs' claim with respect to the manner of realisation of the company's assets.

9 By summons dated 27 September 2007, the defendants sought summary judgment against the plaintiffs. In the alternative, they applied to strike out the plaintiffs statement of claim. The grounds advanced in support of the application were set out in an affidavit of Fiona Kathleen Murray-Palmer, a solicitor employed by the firm of Deacons, solicitors for the defendants. In substance, the defendants argued that the amount due to the plaintiffs had been paid on 5 June 2007, and that the alleged breach of s 420A of the Act could not be maintained. On 25 October 2007, Master Evans (as he then was) dismissed the claim made in paragraphs 26 to 28 of the plaintiffs' statement of claim (which related to alleged breaches of s 420A of the Act) and gave leave to the plaintiffs to serve an amended statement of claim in which allegations of the defendants' refusal to pay amounts due, made in paragraphs 29 and 30 of the statement of claim, were fully particularised. The plaintiffs were ordered to pay the defendants' costs of the application.

10 An amended statement of claim was eventually filed on 29 November 2007. The plaintiffs converted the claim previously made under s 420A of the Act into one made for breach of duty under s 180 of the Act. They further claimed that the defendants had not faithfully performed their duties as liquidators and sought an enquiry under s 536 of the Act. They persisted with their claim made for the proceeds of the realisation of assets which they said they were unable to particularise.

11 In about March 2008, a dispute arose between the parties concerning the plaintiffs' failure to comply with orders previously made for further and better particulars. On 7 March 2008, Robson J ordered the plaintiffs to provide further and better particulars of their amended statement of claim by 14 March 2008, and in default the proceeding would be dismissed, in which event the plaintiffs would be required to pay the defendants' costs of the proceeding, including reserved costs. He set the proceeding down for trial on 16 June 2008, on an estimated duration of two days. On 16 June, the day fixed for trial, Mr Goldsmith filed an affidavit, sworn that day, in which he deposed that he had the care and conduct of the matter on behalf of the plaintiffs. He informed the court that Mr Bray had recently had emergency surgery and, as a consequence, was confined to bed. Robson J adjourned the hearing of the proceeding until 8 September 2008 and reserved the costs of the parties.

12 On 30 July 2008, Master Wood (as he then was) taxed costs orders in favour of the defendants made 25 October 2007 and 15 November 2007. He ordered that -

The costs of the defendants are taxed and allowed in the sum of $9,437.10 to be paid by the plaintiffs.

13 The trial of the proceeding took place on 30 September 2008, 1 October, 3 October and 20 October 2008.

14 At trial the plaintiffs abandoned their complaint about the sale process. A substantial part of the affidavit material filed by the parties, and no doubt preparation for trial, was devoted to that issue. The plaintiffs were given leave to file a further amended statement of claim in which they acknowledged receipt of $173,957.23 paid to them by the defendants on 4 June 2007.

15 The substantive allegation and claim advanced by the plaintiff's at trial was that between 14 February 2006 and 25 November 2007 the defendants converted the whole of the proceeds derived from the realisation of the assets of Graphics and Rowprint, save for the reasonable costs of realisation, by appropriating the proceeds to themselves as remuneration and expenses. The plaintiffs claimed damages for conversion. They accepted in their prayer for relief that an adjustment must be made for the sum of $173,957.23 paid to them by the defendants, but rejected a concession previously made to the effect that their claim should be reduced by the amount of any employee claims having priority pursuant to s 561 of the Act.

16 The plaintiffs contended that it was for the defendants to justify any claim they may have, based upon the principles enunciated in Re Universal Distributing Co Ltd (in liq).[2] The defendants argued that the issue was not properly raised. Evidence was not directed to the reasonableness of the defendants' remuneration and expenses, or whether amounts had been properly apportioned.

17 The plaintiffs also sought an inquiry pursuant to s 536 of the Act "into the matter", whatever that meant.

18 At trial the defendants challenged the plaintiffs' standing to maintain the proceeding. Their primary contention was that s 561 of the Act denied the plaintiffs any opportunity to recover any further amount. The defendants submitted that the adjustment of priorities in favour of the Commonwealth, for payments made under the General Employment Entitlement and Redundancy Scheme, meant that even if the defendants were required to disgorge all remuneration and expenses, the only beneficiary would be the Commonwealth. They submitted that the amount due to the Commonwealth, under s 561 of the Act, exceeded the upper limit of the plaintiffs' claim. The amounts due to the Commonwealth are: $75,573.68 in respect of Graphics, and $327,143.61 in respect of Rowprint.

19 Having found that the plaintiffs had standing, I rejected their primary claims for conversion and for the payment of proceeds from the realisation of assets subject to floating charges. I found that the defendants' claim for remuneration during the period of their administration was soundly based and that no proper challenge had been made by the plaintiffs to the defendants' entitlement to remuneration during the period of their administration or as liquidators. I declined to embark upon an enquiry under s 536(1)(v) of the Act.

The plaintiffs pay the defendants' costs of the proceeding including reserved costs, such costs to be taxed in default of agreement as follows:

(a) on a party/party basis from the commencement of the proceeding until 23 July 2008 inclusive;

(b) on an indemnity basis for the period 24 July 2008 to the date of judgment.

21 In an attempt to recover their costs, the defendants issued a warrant of seizure and sale, filed 25 August 2009, against Ms Gilbert. Attempted execution was the first Ms Gilbert knew of the proceeding. By summons dated 28 September 2009, Ms Gilbert sought to reinstate the proceeding and obtain orders to indemnify her in respect of the costs order made against her. Consequently, the question now arises as to what should be done to remedy Ms Gilbert's exposure to orders for costs, including one made on 20 July 2008 by Master Woods, the execution process and costs in relation to this application.

22 The defendants also issued a summons, dated 12 November 2009, in which they sought orders that Goldsmiths and/or Mr Sandbach pay their costs, which the plaintiffs were ordered to pay in the main proceeding, as well as earlier orders for costs taxed by Master Wood. They also applied for their costs of this application.

23 Ms Gilbert had a significant role in events prior to the commencement of the proceeding. Her role and absence from the trial were issues in the proceeding. It now appears that a separation of the financial relationship between Mr Bray and Ms Gilbert had taken place well before the proceeding was commenced. Mr Bray had, in effect, paid out Ms Gilbert and assumed the benefit of any entitlement she may have had to recover funds from the companies.

24 At trial the defendants relied upon a Deed of Priority, dated 5 November 2005, executed by Mr Bray. The plaintiffs argued that it was of no consequence because an identical deed had not been executed by Ms Gilbert. They capitalised on her absence. In that regard, in the Reasons for Judgment in the principal proceeding I said,

The role of Ms Gilbert in this litigation is, at best, uncertain. She did not give evidence, by affidavit or otherwise. The defendants, as administrators and liquidators, had no direct communication with her. All communications were through Mr Bray. Ms Gilbert's absence from any participation in the proceeding is explained by Mr Bray on the basis that she was variously interstate or overseas. There is another explanation.

Mr Dye deposed to a conversation with Mr Bray on 21 February 2006 in which Mr Bray said that he had borrowed sufficient funds to pay out Ms Gilbert and had done so. Mr Bray said in evidence that when he received payment from the defendants of approximately $175,000 on 8 August 2007 he "made sure that [Ms Gilbert] was reimbursed for what she was owed". The defendants rely upon this evidence to contend that Ms Gilbert no longer has any legitimate interest in prosecuting this proceeding.

I accept the evidence of Mr Dye concerning his conversation with Mr Bray, to the effect that Ms Gilbert has been paid in full. In the circumstances I accept the defendants' submission that from the time of payment of her entitlement, Ms Gilbert ceased to have any legitimate interest in making the claims made by the plaintiffs in this proceeding insofar as they seek to recover additional amounts from the defendants.

The plaintiffs did not submit that Mr Bray, having discharged the liability of the company to Ms Gilbert, thereupon became subrogated to her rights as mortgagee. Mr Bray did not give evidence of the terms under which he paid Ms Gilbert's entitlement. It is possible that Mr Bray may have acted under a personal obligation to indemnify Ms Gilbert.[3]

25 The evidence given by Mr Bray in the main proceeding was not consistent with the unchallenged evidence given by Ms Gilbert on this application. She said that Mr Bray had settled his financial separation from her in late 2005. The separation had the effect, as far as she was concerned, of removing any liability she had for the borrowings that financed the loans made to Graphics and Rowprint and meant that Mr Bray was entitled to any repayment of the loans.

26 The basis for Ms Gilbert's application was set out in her affidavit sworn 28 September 2009. She deposed that she was unaware of the proceeding until attempted execution. She denied having instructed solicitors to conduct the proceeding, or having authorised or consented to any person, including Mr Bray, Mr Goldsmith or Mr Sandbach to act on her behalf. She said that until 23 September 2009, she had never heard of Goldsmiths or Mr Sandbach. Ms Gilbert deposed that she and Mr Bray separated their financial affairs in late 2005, by which time she assumed that Mr Bray was entitled to repayment from Graphics and Rowprint. Ms Gilbert said that there was a time, around mid-2007, when Mr Bray telephoned her about a document which he said she was required to sign to assist him in recovering loan moneys. Because of the arrangements between them, she signed the document but thought nothing of it. She said that she had no further contact with Mr Bray until late 2009.

27 On 30 October 2009, I gave leave to Ms Gilbert to amend her summons and made directions for the filing and service of affidavits and for written submissions. I fixed her summons for hearing on 4 March 2010. The amended summons issued on behalf of Ms Gilbert sought orders that Mr Bray, alternatively his solicitors, Goldsmiths; alternatively such other person or entity as the court thinks just - indemnify Ms Gilbert for the amount of all costs ordered to be paid by her in the proceeding. The summons also sought an order staying the execution of the costs order against Ms Gilbert and an order for her costs of this application.

28 Mr Swanwick, who appeared on behalf of Ms Gilbert, submitted that when commencing the proceeding in Ms Gilbert's name, Goldsmiths warranted that it had authority to do so and exposed her to the risk of an adverse judgment. Goldsmiths had no such authority either express or implied. Mr Swanwick submitted that Ms Gilbert had suffered damage as a consequence of Goldsmiths breach of its warranty of authority, being an order for costs awarded against her in the main proceeding and her costs of this application. Mr Swanwick submitted that Goldsmiths was liable to Ms Gilbert for those damages. He argued that the liability may be satisfied by Goldsmiths meeting the costs of Ms Gilbert's application and either paying the costs order or indemnifying her for the amount of the adverse judgment. Finally, Mr Swanwick submitted that if Goldsmiths had been misled by someone into believing or assuming that they had Ms Gilbert's authority, they may be entitled to an indemnity from that person.

29 Mr Bray filed an affidavit, sworn 6 October 2009, in response to Ms Gilbert's affidavit. He deposed that it was always his understanding that Ms Gilbert's name was included in the court proceeding for technical reasons. He said that when he commenced the litigation he had no intention or understanding that she would be exposed to any possible adverse outcome. He believed that the litigation was for his benefit alone and at his risk. He confirmed the evidence given by Ms Gilbert to the effect that she was not aware of the litigation.

30 Mr Bray said that he did not consciously mislead the court. He said that his lack of understanding of the court process might have caused others to assume or conclude that Ms Gilbert was aware of, and participated in, the proceeding. He said that he could not in good conscience permit Ms Gilbert to remain exposed to the consequences of his actions.

31 Mr Bray said that when he commenced the proceeding he did not inform Ms Gilbert. When initially asked by the defendants to sign a form of release he contacted his previous solicitors who advised him not to sign the document. The solicitors referred Mr Bray to a barrister, Mr Sandbach, who advised him that the defendants could not insist upon his signing the form. Mr Sandbach advised that he should commence proceedings and that he was confident that summary judgment would be obtained. Due to a conflict of interest, Mr Bray's former solicitors were unable to act for him. Mr Sandbach referred Mr Bray to Mr Goldsmith who commenced to act on his behalf.

32 Mr Bray went on to depose that when provided with a Costs Agreement by Goldsmiths, Mr Bray signed and returned it. The document also made provision for a signature by Ms Gilbert. He said that he did not give the document to Ms Gilbert, nor did he tell her of its existence. He said that sometime later he received a telephone call from an employee at Goldsmiths who told him that the agreement had not been signed by Ms Gilbert. Mr Bray said that he informed that person (at Goldsmiths) that Ms Gilbert had nothing to do with the matter. He said that he told the person that he was taking responsibility for all costs of the case.

33 Mr Bray deposed that he did not place any particular significance on the fact that all court documents recorded Ms Gilbert as a plaintiff. He assumed that this was because Ms Gilbert was one of the original lenders and debenture holders. Mr Bray continued,

I do not recall any lawyer - not Goldsmiths and not Sandbach - ever raising with me the issue of whether Gilbert knew anything about the proceedings until very late in the proceeding. It seems to me that the lawyers all simply assumed that she must have an interest, and must know about it; and I assumed that the fact that she was named in the title of the proceeding had no particular significance. It seems to me now with hindsight that we all acted on our assumptions, which unfortunately were not identical.[4]

34 Mr Bray did not clarify precisely when the issue of Ms Gilbert's participation was raised by a lawyer or the lawyers, although if his narrative is in chronological sequence, the event took place prior to summary judgment in early June 2007. Mr Bray deposed that at about the time of the application for summary judgement he had a conversation with Mr Goldsmith concerning Ms Gilbert's failure to sign the Costs Agreement. He deposed that he told Mr Goldsmith that Ms Gilbert "was not going to sign it because I don't want to expose her to any liability in relation to this case".

35 Mr Bray deposed that towards the end of the proceeding he had occasion to tell Mr Goldsmith that he had not informed Ms Gilbert of how the case was going. The evidence given by Mr Bray was not challenged, although Mr Goldsmith sought to differentiate his knowledge in a material respect. None of the deponents who gave evidence for the purpose of this application were cross-examined. Cross-examination may have clarified matters, including material inconsistencies between the evidence of Mr Bray and the evidence of Ms Gilbert, and the evidence of Mr Bray and that of his legal advisers. There were also inconsistencies between the evidence of Mr Goldsmith and the evidence of Mr Sandbach which were not clarified or explained.

36 Mr Goldsmith filed an affidavit, sworn 28 October 2009, in which he deposed that he first became involved in the matter in about October 2006, when he was contacted by Mr Sandbach who was a person he regularly briefed. Mr Sandbach informed him that he had been previously briefed by another firm of solicitors, Novatsis & Alexander, on behalf of the plaintiffs, but that the firm would no longer be able to continue to act for them due to a conflict of interest. Mr Sandbach asked whether Goldsmiths would "go on the record for the plaintiffs".

37 Mr Goldsmith said he agreed and arranged a conference to meet with Mr Bray. Mr Goldsmith said that at their first meeting he took preliminary instructions from Mr Bray and was told that loans had been made by him and his partner, Ms Gilbert. Presumably, Mr Goldsmith was told of the default and the action taken by the defendants. Mr Bray said that Ms Gilbert had "left the business affairs to him", including the recovery of the loan debt. Mr Goldsmith obtained an authority from Mr Bray for the release of the Novatsis & Alexander file, which he subsequently received. Mr Goldsmith said that a review of that file made it apparent to him that Ms Gilbert had left the running of matters up to Mr Bray.

38 Mr Goldsmith deposed that on 4 October 2006, he wrote to Mr Bray and Ms Gilbert at an address in Burwood given to him by Mr Bray, and sent a Costs Agreement and retainer letter to them at that address. The Costs Agreement was returned on about 19 October 2006, but was signed only by Mr Bray. Mr Goldsmith said that he did not consider the omission to mean that Ms Gilbert was unaware of the proceeding.

39 Mr Goldsmith said that he left the running of the proceeding to Mr Sandbach who had prior knowledge of the matter. He believed that Mr Sandbach dealt directly with Mr Bray on some matters. Mr Goldsmith deposed that following an application for summary judgment on 1 June 2007, he was instructed to prepare a Direction and Receipt to be signed by Mr Bray and Ms Gilbert, together with a for of Authority designed to authorise Goldsmiths to pay funds received from the defendants directly to Mr Bray. Mr Bray agreed that he would deliver these documents to Ms Gilbert for her signature. Mr Bray subsequently returned signed documents to him. Mr Goldsmith relied upon the delivery of these documents as a reaffirmation that Ms Gilbert was aware of the proceedings and had authorised Mr Bray to act as her agent.

40 Mr Goldsmith deposed that around the time of the appeal from the decision of Master Daly he had a discussion with Mr Bray and again requested that the Costs Agreement be executed by Ms Gilbert. Mr Goldsmith said that Mr Bray told him that he would arrange for Ms Gilbert to sign the document. Mr Goldsmith followed up his request in writing on 9 August 2007. He said that he did not receive a response to that letter and did not follow it up any further.

41 Mr Goldsmith deposed that in the course of preparing the matter for trial he had a discussion with Mr Bray in which he asked of Ms Gilbert's whereabouts should she be required to give evidence. Mr Bray told him that Ms Gilbert was in London and that he did not have any way of contacting her.

42 Mr Goldsmith did not agree with some matters stated by Mr Bray in his affidavit. He denied that Mr Bray told him that Ms Gilbert would not be signing the Costs Agreement. Mr Goldsmith said that Mr Bray told him that he would get Ms Gilbert to sign the document. That is why he followed up his request in writing on 9 August 2007. Mr Goldsmith deposed that the allegation made in September 2009 by Ms Gilbert's solicitors that the litigation had been conducted without her knowledge or authority, came as a "bolt out of the blue". He said that he had been led to believe by Mr Bray that Ms Gilbert knew about the proceeding and was a willing participant. Mr Goldsmith did not otherwise challenge the evidence of Mr Bray.

43 Mr Sandbach filed an affidavit sworn 1 March 2010. He deposed that he was initially retained by Messrs Novatsis & Alexander on behalf of Mr Bray and Ms Gilbert in relation to security that was sought from Rowprint and Graphics for a proposed loan. He gave some advice in relation to that matter but did not meet Mr Bray or Ms Gilbert. Mr Sandbach deposed that he was again consulted by that firm on behalf of Mr Bray and Ms Gilbert following default under the loan agreements. He gave advice in relation to that matter and further advice in relation to proposed proceedings to be commenced against the liquidators.

44 Mr Sandbach deposed that he was informed by Mr Alexander that his firm could not act for Mr Bray and Ms Gilbert in relation to the proposed proceeding because it had previously accepted a retainer from the liquidator of Graphics. Mr Sandbach said he suggested that Garry Goldsmith might be a suitable solicitor. Mr Sandbach said that shortly thereafter he was retained by Goldsmiths to draw proceedings in relation to this matter. He assumed that he was retained on behalf of Mr Bray and Ms Gilbert. He said he was not privy to Mr Goldsmith's arrangements with Mr Bray and Ms Gilbert, but was aware that Mr Goldsmith had arranged to obtain a Direction and Receipt signed by Mr Bray and Ms Gilbert.

45 Mr Sandbach deposed that when the question of Ms Gilbert's participation in the proceeding and her unavailability to give evidence arose in the course of the trial he sought instructions from Mr Bray. Mr Sandbach said that Mr Bray "confirmed the instructions that he had given before the trial that Gilbert was overseas and that he couldn't contact her but that she had given her authority to conduct the proceedings".[5] If that evidence is to be accepted at face value there was plainly some discussion about Ms Gilbert's authority to commence and prosecute the proceeding. Mr Sandbach did not depose to any inquiries made by him of Mr Goldsmith regarding Ms Gilbert. Mr Sandbach said that he did not learn that Ms Gilbert had not authorised the proceeding until told by Mr Goldsmith in about September 2009.

46 Mr Sandbach said that he discussed the question of parties to the proceeding with Mr Bray before the proceeding was commenced. He advised Mr Bray that Ms Gilbert was a necessary party. He told Mr Bray that if Ms Gilbert did not agree to become a plaintiff it would be necessary to join her as a defendant. Mr Bray told him that he (Mr Bray) was sure that Ms Gilbert would prefer to be a plaintiff in the proceeding rather than a defendant. Mr Sandbach did not say that he made, or attempted to make, any inquiry of Ms Gilbert.

47 Based on Mr Sandbach's version of events it is clear that the question of Ms Gilbert's role as a plaintiff in the proceeding was discussed with Mr Bray more than once.

48 It was common ground that Ms Gilbert did not consent to become a plaintiff or give any instructions to Goldsmiths, and was unaware of the proceeding until the defendants attempted execution of judgment. There were material differences between the evidence of Mr Bray and Mr Goldsmith. Mr Bray would have the court accept that he told Mr Goldsmith that he did not want to expose Ms Gilbert to any liability and, at a later time, that Ms Gilbert was unaware of how the case was progressing. While Mr Goldsmith took issue with some of Mr Bray's evidence he did not cross-examine Mr Bray.

49 From about the time of the application for summary judgment, Mr Goldsmith knew that Ms Gilbert was not an active participant in the proceeding. The validity of any assumption he may have made concerning Ms Gilbert's authority must have been seriously questioned by him on a number of occasions. The Cost Agreement remained unsigned. What he had been told by Mr Bray - on Mr Goldsmith's version of events - should have caused him to question his instructions as the trial progressed. He did not seek to contact Ms Gilbert to clarify her role, instructions or whereabouts. In the circumstances, he should have sought direct communication with his "client".

50 It is difficult to understand why a solicitor would overlook such an important element of his relationship with a client as a costs agreement unless he had been told that she was not to be exposed to any costs. A solicitor would ordinarily be expected to explain to those who might become liable for costs, the scope of that risk. By purporting to act on behalf of Ms Gilbert and commencing a proceeding in her name, Mr Goldsmith exposed her to the risk of an order for costs. By the time the trial had commenced the risk had already materialised into costs orders. Mr Goldsmith continued to hold Ms Gilbert out to the defendants, and to the court, as a party amenable to an order for costs. Nothing was said on her behalf at the time of the defendants' application for costs to differentiate her position from that of Mr Bray. Thus, following judgment in the main proceeding, Ms Gilbert's risk of liability for costs once again materialised. The defendants applied for costs against both plaintiffs.

51 The position of Ms Gilbert is relatively straightforward. She wishes to be relieved of any liability for costs. It was common ground that this was appropriate, although there were differences as to how it might be achieved. Mr Swanwick, who appeared on behalf of Ms Gilbert, sought a stay of execution against her and an order that she be indemnified by Mr Bray for all costs ordered to be paid by her in the proceeding, by Goldsmiths or by such other person as the court may think fit. Ms Gilbert also sought costs of and incidental to this application on an indemnity basis. Mr Swanwick characterised Ms Gilbert as having suffered damage by reason of Goldsmiths' breach of warranty or authority. He submitted that Goldsmiths was liable to Ms Gilbert for those damages, or the liability be extinguished by Goldsmiths discharging the costs order.

52 The defendants' application for costs, apart from the costs of this application, was predicated on an assumption that some analysis must be undertaken of the extent to which the wrongful inclusion of Ms Gilbert as a plaintiff had contributed to their costs. They submitted that it was unlikely that the proceeding would have been brought at all had Mr Bray's legal advisors been aware that Ms Gilbert was not willing to participate in the proceeding as a plaintiff. While I have no doubt that the issues in the proceeding would have been different, it is not possible to conclude, in the absence of evidence from the parties and perhaps their legal advisors, what shape the case would have taken and how, if at all, it would have been advanced by Mr Bray alone. Those matters were not explored in this application, nor was it a suitable vehicle in which to do so.

53 The defendants submitted, in the alternative, that a significant part of the case, and thus costs incurred by them, was attributable to issues connected with the involvement of Ms Gilbert. They submitted that, had they known of her true relationship with Mr Bray and the early resolution of financial issues between them, many events that had the effect of protracting or complicating the proceeding would not have occurred. They submitted that the case would have been resolved at an early stage, because it would have been apparent that Mr Bray alone could have provided a receipt for funds held by the defendants, or that the Deed of Priority, executed by Mr Bray (but not executed by Ms Gilbert), would have taken on a new importance.

54 I have no doubt that the trial would have been less complicated and shorter had Ms Gilbert not been named as a plaintiff. The trial might have been replaced by an application for summary judgement. The true position would quickly have become apparent if Mr Bray sought to rely upon her absence or failure to execute the Deed of Priority. But it is not possible in this proceeding to determine how much shorter the trial would have become or how the resolution of issues might have been differently managed.

55 The difficulty in reaching any conclusion as to the impact upon the defendants' costs burden, had Ms Gilbert not been joined as a plaintiff and her true position become apparent is not, of itself, a reason to avoid making an assessment if it is required. The difficulty confronting the court on this occasion was, however, that the proceeding under which this application was made was wholly inappropriate as one to provide the evidentiary foundation necessary to make such an assessment.

56 The defendants' assumption that a causal nexus was necessary was echoed by Mr Goldsmith and Mr Sandbach. They submitted that there was simply no occasion to make any order for costs against them.

57 Mr Goldsmith submitted that the causal link between their conduct in bringing the proceeding on behalf of Ms Gilbert and the defendants' entitlement to costs was broken because there was an existing costs order in favour of the defendant, enforceable against Mr Bray, which would not be affected by appropriate remedial orders in favour of Ms Gilbert. He submitted that the defendants had not sought any special order for costs against Ms Gilbert. I find that submission difficult to follow unless what was intended was no more than that the defendants did not lose the benefit of the order for costs merely because Ms Gilbert was excused from liability. If that is what was meant by the submission it overlooked the advantage to the defendants of having two plaintiffs against whom to recover costs instead of one. It also overlooked the responsibility of Mr Goldsmith for having held Ms Gilbert out as plaintiff against whom an order for costs might be made, and having permitted such orders to in fact be made without seeking to differentiate her position from that of Mr Bray. It had not been submitted on behalf of Ms Gilbert that, for some special reason, no order for costs should be made against her.

58 Mr Goldsmith submitted that the proceeding would have been brought in any event by Mr Bray in the absence of Ms Gilbert as a plaintiff. He argued that an order for costs made against him or his firm would place the defendants in a better financial position than they would be in had Ms Gilbert never been named as a party. That submission seems to assume some incapacity on the part of Mr Bray which Mr Goldsmith had earlier submitted was immaterial. It also assumes that the proceeding would not have taken a different course. Mr Sandbach said that Ms Gilbert was a necessary party - had she not been a plaintiff it would have been necessary to join her as a defendant. I am not so sure, but, in any event, the case would have had a very different complexion and her exposure to costs would have been quite different.

59 At the heart of Mr Goldsmith's submission was the proposition that it is not appropriate for the court to concern itself with the impact on the defendants of the elimination of Ms Gilbert as a person against whom an order for costs was made. Mr Bray remained liable to pay 100 per cent of the defendants' costs.

60 Mr Sandbach made submissions along the same lines as Mr Goldsmith, although he sought to differentiate his position from that of his instructing solicitor. He submitted that the onus was on the defendants, in seeking an order against Mr Goldsmith and himself, to satisfy the court on the balance of probabilities, that the case would have proceeded differently, and that less costs would have been incurred by the defendants, if Ms Gilbert were not named as a plaintiff in the proceeding.

61 In my view the defendants application by summons is unnecessary. This is not an occasion requiring the court to exercise its discretion afresh to order costs against solicitors or counsel. Orders for costs have already been made. The starting point is to remedy a serious injustice and wrong done to Ms Gilbert. While the primary responsibility for the wrong must lie at the feet of Mr Bray, it does not stop there. Mr Goldsmith is not excused. He commenced a proceeding in the name of a party without having first obtained her authority. The evidence establishes that he was put on notice that any assumption he might have made about Ms Gilbert's agreement to be a plaintiff was questionable. In the circumstances, he should have sought specific instructions from Ms Gilbert.

62 As to Mr Sandbach, he was responsible, in a practical sense, for commencing the proceeding on behalf of Ms Gilbert. He referred the matter to Mr Goldsmith and prepared the pleading. According to Mr Goldsmith, he had the practical carriage of the matter. I see nothing to distinguish between the position of Mr Goldsmith and Mr Sandbach, so far as their responsibility for the wrongful commencement and prosecution of a case on behalf of Ms Gilbert is concerned. The history of this case, and their duties as legal practitioners, required Mr Goldsmith and Mr Sandbach to satisfy themselves that Ms Gilbert was a willing plaintiff, aware of her exposure to an order for costs. Both were aware that Ms Gilbert's role in the proceeding, including her absence, had become an issue in the trial; both discussed her role with Mr Bray and should have been on notice that she may not have given instructions; both failed to make adequate enquiries or speak directly to Ms Gilbert (their purported client) to clarify her position.

63 The question remains what is to be done to protect Ms Gilbert from the consequence of the cost orders made against her.

64 In Fricker v Van Grutten,[6] the Court of Appeal in England considered circumstances similar to this case. An action was commenced by three persons, one of whom was a bankrupt. The solicitor for the plaintiffs, Mr Toppin, applied to amend the writ to add the bankrupt's trustee, Mr Weller, as a co-plaintiff. The trustee's solicitors signed a consent on his behalf. The trustee later discovered that he had incurred a substantial liability for costs and challenged the ability of his solicitor to consent to his becoming a plaintiff. He applied to be removed as a party and for an order that the plaintiffs' solicitor pay the costs of all parties occasioned by the proceeding. At first instance, Kekewich J refused the application, having concluded that the trustee had been taken to have authorised his solicitor to give consent on his behalf.

65 The court allowed the appeal, concluding that the trustee had not given his consent. The court directed a stay of all proceedings in the name of the trustee and all proceedings against him in the action since his name had been added. That was done to protect him by stopping all executions under the orders made against him. Lindley LJ turned to the question of what was to be done concerning costs. His Lordship said,[7]

As regards Mr Toppin, he has done what he ought not to have done. He got this informal consent, and acted on it, and occasioned the trouble that we are asked to set right; and following the course adopted in Nurse v Durnford and Newbiggin-By-the-Sea Gas Co v Armstrong we must order him to pay all Mr Weller's costs, and all costs which he has been ordered to pay, and he must also pay to the defendants their costs so as to indemnify them. He must pay Mr Weller's costs as between solicitor and client, and the costs as between solicitor and client, and the costs of the defendants as between party and party; and such costs must include the costs of this application both here and in the Court below. Mr Weller's name should be struck out for the purpose of all future proceedings [emphasis added].

Lopez and Rigby LJJ agreed. Rigby LJ said,[8]

The defendants feel that they have been victimised; but someone must be the victim; and, the proceedings have been wrongly instituted the question is, who is to be responsible for that? The person who in this case has been the cause of the wrong, Mr Toppin, is the person to pay. I agree that the order must be in the terms stated by Lindley LJ. There must be a stay of the proceedings upon the orders made against Mr Weller, and, Mr Toppin having purported to act as his solicitor in the action without a proper authority, he must pay Mr Weller his costs as between solicitor and client; and, having put forward Mr Weller as one of the persons to pay the costs ordered to be paid by the plaintiffs, he must be substituted for Mr Weller, and must pay the costs which Mr Weller has been ordered to pay to the defendants [emphasis added].

66 The following year, in Geilinger v Gibbs[9] Kekewich J applied Fricker. In that case a writ was issued in which Walter Geilinger and Bertie Hallet were named as plaintiffs. At the time the writ was issued Geilinger was an infant but his solicitors were not aware of this fact. They had issued the writ at the direction of Hallet, his co-plaintiff, in the belief that Geilinger, who was said to be Hallet's partner but who was in fact his clerk, was of full age. When Geilinger attained the age of 21 years he took out a summons asking that his name be struck out as a plaintiff in the action and that his costs of and incidental to the application and any costs for which he might be liable to the defendants in the action be paid by Hallet or his solicitors. In delivering his judgment, Kekewich J said,[10]

The utmost that can be said against Messrs Williams & Neville in their character of solicitors is that they trusted overmuch to the plaintiff Hallet, whom I suppose they had good reason for trusting, and that they did not, under the circumstances, take the extreme care which ought to be taken in joining a co-plaintiff with him; in other words, there is nothing to be said against them professionally. It seems to me to be clear that they acted without authority in joining Geilinger as plaintiff, and the real question is whether they have thereby rendered themselves liable to the defendants for costs...

It being, therefore, established that this action was, so far as Geilinger is concerned, brought wholly without his authority, the way is cleared for the main question, which is whether the solicitors for Geilinger ought to pay the defendants' costs. I take it that there is no question that if Geilinger, having been made plaintiff, was in any way liable, he would have a remedy over against his solicitors who acted for him. That is recognised in all the cases. But the question is whether the defendants have a right as against the solicitors to make them pay, and that depends on what is called more than once in Fricker v Van Grutten "the principle" of the cases on the subject...

The result is that the principle now established is not that the plaintiff is necessarily to pay the costs, but that the solicitors who have improperly made him plaintiff are to be substituted for him. As was said by Rigby LJ in Fricker v Van Grutten the solicitor "having put forward Mr Weller as one of the persons to pay the costs ordered to be paid by the plaintiffs, he must be substituted for Mr Weller, and must pay the costs which Mr Weller has been ordered to pay to the defendants." So in this case Messrs. Williams & Neville, having put forward Geilinger as one of the persons who ought to pay the costs of the defendants, and having no authority to do that, must be substituted for him and made liable to indemnify the defendants. But can that be done only at the instance of the plaintiff, or can the defendants apply, as they have done in this case? It seems to me that when once the principle is arrived at, it is clear that the defendants are entitled to make the application. The plaintiff was formerly entitled to apply for relief by way of indemnity, because he was under liability to the defendant, but now that there is no such liability there is nothing for him to apply for. But to stop short of the whole substitution of the solicitors for the plaintiff, and to say that the defendants are not entitled to any remedy, but that it can only be given at the instance of the plaintiff, would be to depart from the principle - to adopt it in part instead of in whole. I think that these applicants are right, and that Messrs. Williams & Neville must now be ordered to pay to the defendants their costs of the action so far as they are attributable to the infant plaintiff Geilinger having been made a party, and also their costs of this application [emphasis added].

67 The "principle" is that legal practitioners, usually the solicitors, who have improperly put forward a person as a plaintiff, are to be substituted for that plaintiff and must pay the costs that the plaintiff has been ordered to pay to the defendants. This principle, once applied to the facts of this case, would see Mr Goldsmith and Mr Sandbach liable to the defendants in lieu of Ms Gilbert. It does not require any further analysis of the defendants' entitlement than to recognise an existing costs orders. Such a consequence would not provide the defendants with any different entitlement as to costs than they already have. The liability of the lawyers would be no greater or less than that of Ms Gilbert. They would, of course, have a right of contribution from Mr Bray and might be in a position to assert a right to a full indemnity having regard to instructions given to them by Mr Bray.

68 Fricker was referred to with apparent approval, but distinguished in Australian Workers Union v Bowen,[11] and also referred to with approval by the Victorian Court of Appeal in Toyota Motor Corporation Australia Ltd v Lambra Pty Ltd,[12]. The facts of those cases did not require an analysis of the aspect of the principle now under consideration.

69 In Burswood Resort (Management) Ltd v The Australian Liquor, Hospitality and Miscellaneous Workers' Union & ors,[13] Anderson J referred to Fricker and Geilinger with approval. The principal derived from those authorities was set out in the judgment of Anderson J as follows,[14]

Where the plaintiff who had not given authority is only one of several plaintiffs the action is not dismissed but appropriate stay orders are made insofar as the action involves the subject plaintiff, and if costs orders have been made against that plaintiff, the solicitor is substituted as the party liable to pay those costs.

70 It is apparent from the authorities already mentioned that the principle derived from Fricker and Geilinger in relation to the solicitors liability for costs is one which does not require an analysis of the extent to which the costs incurred may have been different had the plaintiff, joined without authority, not been a party. Where no costs order has been made, the liability of the solicitor to orders for costs in favour of a defendant would invite different considerations. An application for costs would require the exercise of discretion by the court to make an appropriate order for costs to compensate the defendant or defendants, if compensation was necessary, for the improper joinder of a party.

71 AW & LM Forest Pty Ltd v Beamish[15] involved a motion by defendants to challenge the retainer of the solicitor who purported to act for one of three plaintiffs who was a company. It was held that the solicitor was not properly retained and the challenge to the retainer succeeded. Young J continued,[16]

As to costs, the ordinary rule is that the solicitors whose retainer is challenged pay all the costs of the proceedings up until the order is made. Where one plaintiff only appears by a solicitor who has no retainer, then the appropriate order as indicated in the Harry S Bagg's case is that the name of the company as a party plaintiff should be struck out and that the solicitors pay so much of the defendants' costs of the proceedings and of the application as are attributable to the company being made a party to the proceedings [emphasis added].

Young J referred to Fricker, although was not concerned with an existing costs order but whether an order should be made, against whom and on what basis.

72 Fricker was followed in Harry S Bagg's Liquidation Warehouse Pty Ltd v Whittaker.[17] Again it does not appear that there was an existing order for costs in that case. The wrongly joined party was struck out as a plaintiff and the solicitor was ordered to pay "so much of the defendant's costs of the proceeding and of the application as are attributable to (that plaintiff) being made a party to the proceeding".

73 It might be thought that the application of the principle by the mere substitution of the lawyer for the plaintiff leads to unfairness. Suppose the solicitor had realised the true position at the end of the proceeding but before a costs order had been made. Presumably an enquiry would become necessary to ascertain the extent to which the defendants' costs were attributable to the wrongful joinder or lack of authority. In some cases, that assessment would be straightforward where, for example, there is only one party; or where the proceeding was only recently commenced; or where it was plain that the case would not have otherwise proceeded; or where it would have been conducted in a materially different way. In the present case, however, a proper assessment could not be made without a trial of the issues of causation, which may be complex and expensive.

74 Where an order for costs has been made against a party who did not authorise the solicitor to act, one might ask why the defendants should be denied the benefit of the order they have already obtained against the wrongly joined plaintiff? Why should the defendants be denied the opportunity to pursue costs against two plaintiffs rather than one?

75 The explanation for a just application of the principle by substituting the lawyer for the plaintiff against whom a costs order has been made may be found at a number of levels. One explanation is that the solicitor is taken to have "put forward" the plaintiff to be bound by the order. Another may involve policy considerations. To breathe new life into an existing order, by substituting the wrongdoer, avoids further complex litigation following the conclusion of a trial.

76 The better explanation is, in my view, that where there is an existing order the court is not called upon to exercise its discretion to make any order for costs on the application of the defendant. That has already been done. Where the discretion is to be exercised afresh the court will, of course, be required to make some assessment of the significance to the defendants costs of the plaintiffs' wrongful joinder of the solicitors before making an order for costs in the proceeding against a lawyer. But where there is an existing order, justice may very simply be done by substituting for the wrongly joined plaintiff, those who are responsible for the wrong - those who improperly exposed the plaintiff to the risk of a costs order and allowed that risk to materialise into reality. To adopt such a course recognises the existing order for costs, avoids the prejudicial consequence of that order on the wrongly joined plaintiff and avoids any consequential prejudice to the defendants, who would otherwise be denied an additional party from whom they might recover on the existing order.

77 Mr Goldsmith and Mr Sandbach submitted that I was required to make an assessment of the extent to which the wrongful joinder of Ms Gilbert contributed to the defendants' costs. I have disagreed. If, however, I am wrong and required to exercise my discretion to award costs in favour of the defendants so as to reflect the extent to which their costs are attributable to the wrongful joinder of Ms Gilbert, I must do so without the advantage of a full trial of the issues of causation and evidence concerning the circumstances in which the defendants incurred particular costs.

78 In the present case, I am not satisfied that Mr Bray would not have commenced the proceeding in the absence of Ms Gilbert as a plaintiff. Mr Sandbach said that she would have been joined as a defendant. If her true position had been known from the outset, I have no doubt that it would have had a material impact on the way in which the proceeding was conducted and thus a significant impact on the defendants' costs. I have no doubt that the proceeding would have occupied substantially less court time. The pleaded issues would have been different. It is possible that the proceeding would not have proceeded beyond a summary judgment application. It is also possible that the summary judgment application would not have been made at all. The Deed of Priority, while confined in its scope to the conduct of the defendants as administrators, might have been employed much earlier to meet Mr Bray's claims in whole or in part. The deed had real significance as a forensic tool to be employed by the defendants.

79 If obliged to make an assessment on an application by the defendants for their costs "thrown away," I would estimate, doing the best I can, that the defendants would not have incurred half of their costs had Ms Gilbert not been joined as a plaintiff but required to participate as a defendant in the proceeding.

80 Ms Gilbert should be excused from any liability under the orders for costs made against her and have her costs of this application. The defendants should have their costs of the warrant of seizure and sale dated 25 August 2009, and of this application. The costs of the warrant and of this application should be paid by Mr Bray, Mr Goldsmith and Mr Sandbach. If justice is to be done, the circumstances require that these costs be paid on an indemnity basis. Mr Bray has accepted responsibility for creating wrong assumptions. His conduct does not, however, excuse the failure of his legal advisers to discharge their duty to Ms Gilbert, the defendants and to the court.

81 Mr Sandbach and Mr Goldsmith were a little coy in making submissions which would attribute greater liability to one another. They made no application for any order that Mr Bray indemnify them in respect of any liability they may have. Therefore, I will not differentiate between them.

82 The options available to relieve Ms Gilbert of her liability for costs as a consequence of the wrong done by Mr Bray and his legal representatives include a stay of execution of a warrant issued on behalf of the defendants, a stay of the order for costs made against her, an order setting aside that order for costs or an order substituting Mr Bray's legal representatives for Ms Gilbert, or some combination. I propose to relieve Ms Gilbert of the liability of the costs orders made against her by substituting for her Mr Goldsmith and Mr Sandbach. Having taken that course, the basis upon which those costs are to be calculated and payable will not change. If, however, I am required to exercise my discretion, on the application of the defendants, to make a fresh order for costs attributable to the conduct of Mr Goldsmith and Mr Bray, I would order that one half of the defendants' costs in defending this proceeding, including reserved costs, be paid by Messrs Goldsmith and Sandbach on an indemnity basis. That order would reflect my conclusion in relation to their culpability.

83 In the circumstances I propose to make the following declarations and orders:

(1) I declare that Garry David Goldsmith and Alan Walter Sandbach were not authorised by Sarah Gillian Gilbert to commence and maintain this proceeding on her behalf against the defendants.

(2) I order that the warrant of seizure and sale dated 25 August 2009, issued on behalf of the defendants, is permanently stayed.

(3) I order that the defendants' costs of and incidental to the warrant of seizure and sale are to be paid by Barry Peter Bray, Garry David Goldsmith and Alan Walter Sandbach on an indemnity basis.

(4) I order that the order for costs made on 20 April 2009 be varied by substituting for Sarah Gillian Gilbert, Garry David Goldsmith and Alan Walter Sandbach.

(5) I order that the order for costs made by Master Wood on 30 July 2008 be varied by substituting for Sarah Gillian Gilbert, Garry David Goldsmith and Alan Walter Sandbach.

(6) I order that Barry Peter Bray, Garry David Goldsmith and Alan Water Sandbach pay the costs of Sarah Gillian Gilbert and the defendants of this application on an indemnity basis.

[1] Bray v Dye [2009] VSC 113.

[2] [1933] HCA 2; (1933) 48 CLR 171.

[3] Bray v Dye [2009] VSC 113, [33]-[36].

[6] [1896] 2 Ch 649 ('Fricker').

[9] [1897] 1 Ch 479 ('Geilinger').

[11] Unreported, High Court of Australia, Latham CJ, Rich, Starke, Dixon and Williams JJ, 23 August 1946.

[12] Unreported, Supreme Court of Victoria, Court of Appeal, Brooking, Tadgell and Phillips JJA, 26 October 1993.

[13] Unreported, Supreme Court of Western Australia, Appeal Court, Roland, Franklin and Anderson JJ, 25 September 1996.

[15] Unreported, Supreme Court of New South Wales, Equity Division, Young J, 27 August 1998.

[17] (1982) 45 NSWLR 421, 430.