Rahme v Satouris [2018] NSWSC 1753 | Case summary

Rahme v Satouris [2018] NSWSC 1753 | Case summary | Zoe

[3]

Introduction

In these proceedings, the plaintiffs, Mrs Dana Rahme (Mrs Rahme) and Mr Gabriel Rahme (Mr Rahme), who are married to each other, complain about the conduct of the second defendant, Benjamin & Khoury Pty Ltd (B & K), and the fourth defendant, Mr Dieb Khoury (Mr Khoury). B & K conducts a solicitors practice and Mr Khoury is the principal of B & K. The complaints relate to the signing by Mrs Rahme of costs agreements with B & K and the giving of a charge by Mrs Rahme over real property owned by her to secure her liability under the costs agreements. The costs agreements relate to costs payable to B & K in connection with proceedings number 2008/288054 in the Common Law Division of the Supreme Court (the Bevillesta Proceedings) brought against Bevillesta Pty Ltd (Bevillesta).
The Bevillesta Proceedings arose out of arrangements involving Bevillesta, on the one hand, and Mr Rahme and D Tannous No 2 Pty Ltd (Tannous) and J & J Rahme Pty Ltd (J & J Rahme), on the other hand. At all relevant times, Mr Rahme was the only director of, and controlled both, Tannous and J & J Rahme (together the Companies or singly the Company). The arrangements were made in connection with leases of shop premises in a shopping centre known as Gosford Town Centre (the Gosford Centre). More specifically, the arrangements included two instruments both entitled "Lease Indemnity Deed" entered into in 2005 (the Indemnities) by Bevillesta. One of the Indemnities was entered into with Tannous and the other was entered into with J & J Rahme.
In the Indemnities, Bevillesta was described as "the Lessor" and Tannous or J & J Rahme, as the case may be, was described as "the Lessee". The Indemnities related to fit out contributions paid by Bevillesta to the Companies in connection with shop premises in the Gosford Centre. I shall return to the language of the Indemnities below. Before doing so, it is necessary to describe the background to the retainer of B & K by the Companies in connection with the Bevillesta Proceedings and the involvement of Mrs Rahme in the Bevillesta Proceedings. I shall then say something about the claims made in these proceedings by Mr and Mrs Rahme before addressing the issues raised.

[4]

Retainer of B & K by the Companies

On 31 March 2008, McLachlan Chilton (the Former Solicitors), acting on behalf of Tannous and J & J Rahme, demanded payment from Bevillesta under the Indemnities of the sums of $542,544.60 and $1,035,681.90 respectively. The Former Solicitors then commenced the Bevillesta Proceedings. The original plaintiffs were Tannous and Mr Rahme. It is not clear why J & J Rahme was not originally joined as a plaintiff. The Bevillesta Proceedings sought orders that Bevillesta indemnify Tannous in respect of liability for income tax incurred in respect of payments made by Bevillesta by way of contribution to fit out expenses. The alleged income tax liability of the Companies had not been paid at that time. The plaintiffs also made other claims that are not presently relevant.
By notice of motion filed on 26 March 2009, Bevillesta applied for summary dismissal of the Bevillesta Proceedings on the basis that the right to claim indemnity arose only on payment of the sum in respect of which the indemnity was claimed. For reasons published on 12 August 2009, Hall J declined to order summary dismissal. His Honour considered that there was a real question to be tried as to the interpretation of the Indemnities in that regard. Hall J granted leave for the filing of a further amended statement of claim in which J & J Rahme was to be joined as a plaintiff.
B & K was subsequently retained to conduct the Bevillesta Proceedings and, on 11 December 2009, Mr Rahme and Tannous entered into a costs agreement with B & K, whereby B & K was instructed to prosecute the claim against Bevillesta in the Bevillesta Proceedings. J & J Rahme was not a party to the costs agreement of 11 December 2009. That may be because it was not a plaintiff at that time.
On 5 February 2010, B & K wrote to Mr Rahme in relation to a conference held on 1 February 2010 attended by Mr William Washington of counsel, Mr William Musgrave of B & K and Mr Symn Waters of B & K. Mr Khoury reviewed that letter before it was sent. The letter confirmed that B & K was determining whether or not "you have reasonable prospects of succeeding on your current claim" and that, until investigations were complete, B & K would be unable to shed more light on that matter, saying that one of "the inherent problems" was the lack of "supportive particulars to substantiate your allegations". The letter referred to the comments made by Hall J and confirmed "the current potential pitfalls in your claim and his advice to cure such".
On 22 February 2010, B & K wrote to Mr Rahme again for the purpose of bringing him up-to-date with "searches, investigations and inquiries into the material gathered" and to provide particulars still outstanding that were needed "to substantiate your claims" in relation to a proposed further amended statement of claim. The letter said that B & K had discussed the Indemnities with Mr Rahme "in detail" and confirmed that B & K would further analyse the material to clarify "the legally binding nature and enforceability of these documents and to scrutinise any ambiguities and defects in form".
On 26 February 2010, B & K wrote to Mr Rahme once more in relation to a directions hearing in the Bevillesta Proceedings on 24 February 2010. The letter confirmed that B & K had "critically analysed your matter" with Mr Washington and stated that the Companies were claiming monies under the Indemnities even though the Companies themselves had not made any payments of any relevant income tax to the Australian Taxation Office (ATO). The letter referred to the hearing before Hall J, when Mr BW Rayment QC had appeared on behalf of the plaintiffs, and observed that his Honour had accepted the submission that the indemnity claim was not vitiated merely because the primary obligation had not actually been "incurred and paid" by the Companies. Mr Khoury reviewed the letter before it was sent, contemporaneously with reading written advice from Mr Washington.
On 2 March 2010, Mr Rahme attended a conference at the offices of B & K at which Mr Khoury, Mr Musgrave and Mr Jerry Kekatos were present. Mr Kekatos is an accountant who provided advice to Mr Rahme and to the Companies. A tax invoice addressed to Mr Rahme on 31 March 2010 recorded that advice from Mr Washington was discussed at the conference, as well as another matter that was not to be proceeded with any further. The bill records that they also discussed "tax" and the "indemnity clause", and that instructions had been received to continue with that claim. Mr Kekatos was to prepare a report and evidence in support of the claim. The tax invoice recorded that there had been a discussion and working through of: …all client options and alternatives - costs and expenses - etc - consider litigation funding - benefits etc - possible assignment of [chose] in action - ATO - etc. In addition, the tax invoice recorded instructions to proceed with: claim based on the tax indemnity - the claim will be to recover the requisite sum of monies owed to the ATO to be paid to the 2 plaintiff companies. It also recorded discussion of issues concerning costs and noted that "client" had agreed to make payment towards costs that week. The invoice also recorded that Mr Kekatos was to provide all supporting material with respect to the amount of the tax owed.
Mr Khoury agreed in cross-examination that the Indemnities had to be available at that conference for them to have been discussed. However, he said he had no specific recollection of discussing the indemnity clause and, following repeated questioning, indicated he had no recollection beyond what was contained in his note in the tax invoice.
On 4 March 2010, B & K wrote to Mr Rahme with reference to the conference of 2 March 2010. The letter said that B & K had "no supportive evidence by way of documents or written submissions or advices" when it was initially instructed and that it had obtained "with urgency" supportive evidence in order to enable them to "properly re-plead" the claim. The letter recorded that it was explained to Mr Rahme and to Mr Kekatos that: …you were essentially starting a brand new claim from scratch and that most of the work undertaken to date by your former legal team would need a complete overhaul if your claim was to be given any chance of survival and …you may very well need to abandon your claim if incurable.
The letter of 4 March 2010 then confirmed that B & K had obtained the leases, Indemnities and accompanying copies of letters that were "found to contain terms substantially different to the matters pled in your Amended Statement of Claim". The letter went on to say as follows: "This compounded your already existing problem in that with any adequate re-pleading of your current claim changing substantially the character of the terms originally pleaded and under the scrutiny of both the Defendant and the Court may in effect be deemed as a total new claim which would probably result in your current claim being struck out. In light of the sunset clause in the Deeds you decided and expressly instructed (sic) to press on with re-pleading the Amended Statement of Claim in full knowledge of those risks."
A second letter of 4 March 2010 confirmed the first letter and continued by saying that Mr Rahme's initial instructions to B & K were to focus searches, investigations and inquiries on obtaining all evidence capable of supporting and substantiating claims against Bevillesta as to:

the claim for the tax indemnity not honoured by Bevillesta;
a tripartite agreement that formed part of the shortfall of moneys being sought from Bevillesta; and
fees owed by Bevillesta to Mr Rahme for tenure as the centre manager of the Gosford Centre.

The second letter then stated that, at the conference of 2 March 2010, Mr Rahme had altered his previous instructions, which were now as follows:

B & K would draft a further amended claim against Bevillesta, which would be solely for the tax indemnity component; and
Mr Rahme no longer wished to press the claim regarding fees sought from his tenure as centre manager or the tripartite agreement. The second letter confirmed that the changes to the instructions and corresponding amendments to the claim might ultimately lead to a "strike out order of the current claim on grounds of incompatibility between the two claims."

A third letter of 4 March 2010 confirmed discussion of counsel's opinion that it would take a senior solicitor and counsel a whole day and more likely two or more days to prepare for the drafting of the further amended statement of claim. The third letter estimated that the costs associated with that work would climb to around $25,000 to $30,000 and requested that that amount be paid into B & K's trust account.
On 29 March 2010, Mr Khoury and Mr Musgrave conferred with Mr Rahme, and, on 1 April 2010, B & K wrote to Mr Rahme confirming that, at that conference, the status of the Bevillesta Proceedings, various notices of motion served and listed for hearing on 30 April 2010, and the status of the statement of claim and the proposed amendments had been discussed. In addition, the amount of work involved and the further information, particulars and documentation required to enable B & K to complete the statement of claim properly and to have it finally settled by Mr Washington were discussed, as well as the amount of work involved in attending to those matters.
The letter of 1 April 2010 also confirmed that costs, fees and expenses incurred to date, together with future ongoing costs, fees and expenses for work in accordance with Mr Rahme's specific instructions, were discussed. The letter confirmed the additional costs being incurred, with a new estimate in the sum of $50,000 in addition to the previous estimate. The letter then confirmed that Mr Rahme had instructed B & K that Mrs Rahme was in the process of selling her house, in which she had equity in the order of $300,000, and that a substantial part of that equity had been assigned to pay Mr Rahme's legal fees in the Bevillesta Proceedings. The letter confirmed that the proposed sale had reached a stage where contracts had been exchanged and that it would be approximately six to eight weeks following exchange before settlement occurred and "for you to be in receipt of the funds". The letter stated Mr Rahme had advised that he was arranging alternate funds, that he would do so as expeditiously as he could and that he would keep B & K advised as to his progress. The letter also confirmed that B & K was unable to proceed with the current payment arrangements, which had resulted in Mr Rahme being considerably in arrears, contrary to "our terms of trade as discussed and as agreed with you".
The letter of 1 April 2010 then confirmed that, on that day, B & K had conferred at length with Mr Kekatos and discussed all of the issues outlined above and updated him as to the requirements needed to enable B & K to comply with the directions of the court and deal with the notice of motions filed "by the other side". The letter said that the evidentiary requirements had been discussed in some detail and that Mr Kekatos confirmed the degree and the extent of his ongoing assistance. The letter said, in addition, that costs and expenses to date had been discussed with Mr Kekatos and confirmed that costs and expenses had increased over the original estimate, which had been based on Mr Rahme's instructions at that time. The letter confirmed that Mr Kekatos had advised that he would discuss the matter further with Mr Rahme and that he and Mr Rahme would together formulate a payment schedule that would comply "with trading terms and requirements". Finally, the letter confirmed that Mr Rahme was to pay a minimum amount of $20,000 into B & K's trust account by Monday 12 April 2010 and that he would thereafter make payments of $1000 per week on the Monday of each week up to 31 December 2010. The letter said that, at that stage, Mr Rahme's financial status and commitments would be reviewed and appropriate adjustments made.

a summary of the Bevillesta Proceedings;
an opinion as to prospects of success of the Bevillesta Proceedings;
an estimate of the costs of the Bevillesta Proceedings;
a summary of proposed proceedings against the Former Solicitors; and
an opinion as to prospects of success of the proposed proceedings against the Former Solicitors.

The letter of 12 July 2010 stated that the Companies were claiming under an indemnity for income tax in relation to fit out contributions paid by Bevillesta to the Companies, which income tax was said to be due by the Companies to the ATO. The letter observed that it was noteworthy that Bevillesta had made two unsuccessful attempts to strike out the claim, one of which had been heard by Hall J and was unsuccessful. The letter said that Hall J had directed the plaintiffs to file and serve an amended statement of claim and that, as a consequence of the failure to comply with that direction, Bevillesta had filed another motion to strike out the action. At that time, B & K had begun to act for the plaintiffs and it was considered that the appropriate approach was to re-plead the actions entirely, an approach that "met favour with Barr AJ".
The letter of 12 July 2010 then referred to Bevillesta's appeal from the orders made by Barr AJ and said that Mr Washington considered that the plaintiffs had reasonable prospects of successfully defending the appeal. The letter also said that Mr Washington had advised that the Companies had reasonable prospects of succeeding in recovering from Bevillesta under the Indemnities the amount of taxation liabilities. The letter also dealt with the prospects of success of proposed proceedings against the Former Solicitors on the basis that the original pleadings fell short of the standard required of a solicitor carrying on commercial litigation.
On 13 July 2010, an employee of the Administrators sent an email to B & K authorising B & K to act on behalf of the Companies in relation to having the Bevillesta Proceedings relisted for the purpose of seeking an adjournment to allow the Administrators to assess the merits of the proceedings and any proposal for a deed of company arrangement that may be submitted with respect to funding the proceedings. The email said that, in that regard, as discussed, B & K had agreed that their costs in acting in the matter would be paid directly by Mr Rahme. By email of 21 July 2010, B & K reported to the Administrators that Mr Washington had appeared at a directions hearing on 19 July 2010 and the proceedings had been stood over for further directions on 16 August 2010.
On 23 July 2010, Mr Khoury met with Mr Rahme and Mr Kekatos. The purpose of the meeting was to discuss the Bevillesta Proceedings and ongoing payment requirements with respect to costs. Since Tannous and J & J Rahme were by then under external administration, Mr Khoury was not prepared for B & K to continue to act unless both past and future costs were secured. The meeting discussed the possibility of an equitable charge over a property owned by Ms Mary Rahme, Mr Rahme's sister, to secure B & K's fees if the Bevillesta Proceedings were to be pursued. On 29 July 2010, Mr Rahme obtained from Ray White Commercial Parramatta an appraisement of Mary Rahme's property, indicating that it would achieve a sale price in the vicinity of $600,000 to $650,000.
On 30 July 2010, the Administrators sent an email to Mr Kekatos acknowledging his advice that either Mary Rahme or Mrs Rahme would provide a mortgage over real property in order to secure the payment of legal fees, including any adverse costs orders, associated with the Bevillesta Proceedings. The email noted that such a mortgage would involve the Administrators lodging a caveat over the relevant property. The email requested a copy of the latest loan statement for the relevant property in addition to a copy of the latest valuation performed in respect of it.

[5]

Assignment of the Bevillesta Proceedings to Mrs Rahme

On 11 August 2010, Mr Kekatos sent an email to the Administrators saying that he had been approached by Mrs Rahme and Mary Rahme to make an offer to purchase "the chose[s] in action" in which Tannous and J & J Rahme were involved, referring to the Bevillesta Proceedings and the potential claim against the Former Solicitors. The offer was to acquire "the litigation and the rights" for:

payment of $25,000 to each Company on acceptance; and
10% of any settlement achieved. Mr Kekatos said in his email that the offer related to each of Tannous and J & J Rahme. It is likely that the proposal to acquire the choses in action was prompted by the likelihood that, following the appointment of the Administrators, Bevillesta would again apply for security for costs in the Bevillesta Proceedings and that, in circumstances where the plaintiffs were under administration, it was likely that security would be ordered.

The Administrators responded on 17 August 2010, rejecting the offer made by Mr Kekatos as being inadequate and putting forward the following for each of the Companies:

an upfront cash contribution of $25,000;
30% of the net recoveries after costs, if any, obtained by each of the Companies in relation to any claim that they may have against Bevillesta under Indemnities;
30% of the net recoveries after costs, if any, obtained by each of the Companies in relation to any claims they may have against the Former Solicitors relating to the claims against Bevillesta. Mr Kekatos replied later on 17 August 2010, saying that the percentage required by the Administrators was "excessive" and that he could not see his "clients" going past "a 20% share" and that he would have to consult with his clients as to 20%.

On 19 August 2010, the Administrators responded, saying that they would be happy with 25% for each of the Companies. Mr Kekatos replied that his clients were firm at 20%. On 20 August 2010, the Administrators confirmed that they would proceed "at 20%". The final email in the chain was from Mr Kekatos to the Administrators saying "how do we proceed".
On 23 August 2010, Mr Barnden indicated to Mr Musgrave that "the deed of sale for chose in action" was being put together, together with a deed of company arrangement for the creditors of Tannous and J & J Rahme. It was suggested that at least another fortnight was needed "for all formalities to be dispensed with and to have the transfer of chose in action to Rahme's sister".
On 6 September 2010, Mr Musgrave was told by Mr Rahme that he was seeing Mr Kekatos for the purpose of expediting the creation of a new company to be called "Joseph Rahme Investments Pty Ltd", which was to purchase the choses in action. Mrs Rahme and Mary Rahme were to be directors of the new company, which would be the client that would enter into a costs agreement with B & K. Mr Rahme said that Mary Rahme was to "put up her property as security" for costs.
However, on 7 September 2010, Mr Musgrave was informed that Mary Rahme was going bankrupt and that Mrs Rahme would "put up her property". On the same day, Mr Musgrave received a "market appraisal" from PW Taylor Real Estate in respect of a property at Oatlands owned by Mrs Rahme (the Oatlands Property). The appraisal said that, if the Oatlands Property were offered for sale, it would potentially be sold in the range of $1,100,000 to $1,200,000. On 9 September 2010, B & K was provided with a loan statement showing an outstanding balance of $628,665.75 secured by mortgage over the Oatlands Property.
On 10 September 2010, Joseph Rahme Investments Pty Ltd was incorporated. Mr Rahme and Mrs Rahme were its only directors and shareholders. However, Mrs Rahme asserted in evidence that she had no knowledge of being a director or shareholder of that company. That assertion is likely to be correct.
On 13 September 2010, a facsimile communication addressed to Mr Rahme and Mrs Rahme was sent by B & K to Mr Michael Soulos, of Spanko Soulos and Co solicitors. The facsimile attached a costs agreement and costs disclosure for execution by Mr Rahme and Mrs Rahme and requested that every page be signed "with your solicitor" and that "your solicitor" sign every page. The facsimile said that it was important that Mr Soulos attest in writing to the proper and correct identification of Mrs Rahme not only as herself but also as the authorised signatory and director of Joseph Rahme Investments Pty Limited. At that time, Mrs Rahme had not met Mr Khoury or any employee of B & K.
On 13 September 2010, Mr Rahme and Mrs Rahme attended the home of Mr Soulos. The visit was arranged with Mr Soulos by Mr Rahme. During the visit, Mrs Rahme signed several documents after receiving advice from Mr Soulos. The documents that she signed consisted of:

a costs agreement between B & K, on the one hand, and Joseph Rahme Investments Pty Ltd, Mrs Rahme and Mr Rahme, on the other (the September Costs Agreement);
a deed of equitable charge by Mrs Rahme over the Oatlands property in favour of B & K;
a deed of equitable charge by Mrs Rahme over the Oatlands Property in favour of the Administrators, and
an acknowledgement of legal advice received by Mrs Rahme.

The September Costs Agreement is dated 13 September 2010 and is in the form of an offer by B & K addressed to Joseph Rahme Investments Pty Ltd, Mrs Rahme and Mr Rahme to enter into a costs agreement. The offer states that, by entering into the costs agreement, the offerees assume all liability, jointly and severally, for all past professional costs, disbursements and expenses in matter numbers "1017" and "1049" on an account stated basis. It stated that it was made pursuant to the purchase by Joseph Rahme Investments Pty Ltd of the chose in action being the claims made by the Companies in the Bevillesta Proceedings.
The September Costs Agreement relevantly provided as follows: "If you accept this offer you will be regarded as having entered into a costs agreement. This means you will be bound by the terms and conditions set out in this document, including being billed in accordance with it. Acceptance may be by … signing and returning a copy of this document …" The September Costs Agreement also provided that Mrs Rahme agreed, by entering into the agreement, to charge the Oatlands Property by way of mortgage for all unpaid legal costs, expenses, disbursements, fees and interest and consented to "B & K lodging a caveat against the Oatlands Property."
Curiously, although the body of the September Costs Agreement refers to matter numbers "1017" and "1049", the heading refers to matter number "1064". No explanation was given in relation to that discrepancy.
Mr Soulos gave Mrs Rahme oral advice that the September Costs Agreement would make her responsible for B & K's costs, being not only future costs but also the costs for acting for the Companies to date. He advised her that she was liable to pay those costs whether the Bevillesta Proceedings were successful or otherwise and that the deeds of equitable charge secured payment of the costs and authorised a caveat to be put on the title to the Oatlands Property. He advised that the caveat meant that B & K would have an interest in the Oatlands Property. Mr Soulos also told her that he did not know anything about the Bevillesta Proceedings, which had been going on for years already. When Mrs Rahme told Mr Soulos that her husband had told her that the Bevillesta Proceedings should succeed, he responded "litigation is a lottery … if you sign nothing today, you lose nothing".
The acknowledgement of legal advice signed by Mrs Rahme confirmed that she had freely and voluntarily signed the documents and that Mr Soulos had advised her that she would be liable to pay all costs, and interest, charged by B & K in relation to or arising out of the Bevillesta Proceedings. She acknowledged that she had been advised that, if she failed to comply with any of the terms and conditions of the deeds of equitable charge or the September Costs Agreement, B & K could sue her personally and that she would be liable to pay the costs charged by Mr Barnden in relation to the administration and liquidation of the Companies. Mrs Rahme conceded in cross-examination that the acknowledgement accurately recorded the advice that had been given to her by Mr Soulos.

the assignment must be absolute;
the assignment must be in writing;
the intention must be clear; and
written notice must be given to Bevillesta.

B & K said that they had been instructed to draft a deed of sale for the chose in action to effect the assignment and that Mrs Rahme was organising to have the deed of sale scrutinised by "her solicitor M Soulos", who was to provide "independent advice on the document" for the benefit of Mrs Rahme prior to her entry into the transaction. B & K said Mr Washington would settle the draft deed of sale prior to obtaining final instructions on it from the Liquidator and prior to handing it over to Mrs Rahme, who would then obtain advice from "her solicitors". That letter is not consistent with B & K acting for Mrs Rahme at that stage.
On 29 November 2010, B & K wrote to Mr and Mrs Rahme in relation to the Bevillesta Proceedings, with a copy to Mr Kekatos. B & K confirmed that the Liquidator had given instructions to draft the deed of sale for Mrs Rahme's intended purchase of the choses in action consisting of the Bevillesta Proceedings. The letter said that the success "of your purchase of the chose in action" would be contingent upon a majority vote of creditors which was to be held on 6 December 2010. The letter said that it was intended that, subject to a majority vote, Mrs Rahme would execute the document on 6 December 2010, thereby completing the transaction so that Bevillesta, as well as the Supreme Court, could be notified. The letter said that it was desirable to have that finalised prior to the next directions hearing in the Supreme Court on 10 December 2010. The letter said that a draft deed of sale would be sent to Mrs Rahme in the next couple of days and suggested that she seek independent legal advice "from your solicitor" prior to the creditors' meeting of 6 December 2010. Once again, the terms of that letter do not suggest that B& K was acting for Mrs Rahme. Rather, they indicate the contrary.
On 19 November 2010, Mr Washington sent a memorandum of advice to B & K concerning the quantum of damages sought to be recovered in the Bevillesta Proceedings. He expressed the opinion, on the basis of assumptions that he stated, that the payments by the Companies to prospective tenants of shops in the Gosford Town Centre would have been capital payments and would not have been deductible in their hands, such that the Companies would be assessable on the whole of income received from Bevillesta.
On the same day, 19 November 2010, the Liquidator sent a report to the creditors of the Companies (the November Report), which was prepared for the purpose of discussing the general winding up of the Companies and considering approval of the sale to Mrs Rahme of the choses in action held by the Companies in relation to their claim against Bevillesta. The November Report said that the Liquidator had received an offer on behalf Mrs Rahme to purchase "the Companies' current legal proceedings against Bevillesta" and that, in light of legal advice received from Mr Washington, Mrs Rahme had sought further advice and was "now comfortable" in submitting the offer to purchase "the current legal proceedings against Bevillesta". The November Report said that the Liquidator was of the opinion that the offer received from Mrs Rahme to purchase the chose in action was reasonable.

[8]

While Mrs Rahme complains about the charge over the Oatlands Property, the substance of her complaint is that she incurred a liability to B & K for costs by reason of the September Costs Agreement and the October Costs Agreement. If those agreements are unenforceable or are set aside, the charge secures nothing. On the other hand, if the October Costs Agreement stands, Mrs Rahme will be liable for costs. It does not appear to be relevant whether the costs are secured or otherwise if she is personally liable to B & K. There has been no suggestion that Mrs Rahme is insolvent such that the existence of security may be relevant for unsecured creditors.
B & K and Mr Khoury assert that neither has any liability to either Mr Rahme or Mrs Rahme. They say that B & K did not act negligently or in breach of retainer in providing legal services during the time that Mr Rahme was a client, and that there is no evidence that Mr Rahme has suffered any loss or damage by reason of any conduct by B & K. It appears to be common ground that Mr Rahme has demonstrated no loss. They contend further that Mrs Rahme was not a client of B & K prior to 9 December 2010. Accordingly, they say, neither of them owed any relevant duty to Mrs Rahme.
B & K and Mr Khoury assert that Mrs Rahme was, in effect, a litigation funder in so far as she entered into costs agreements prior to the Deed of Sale. They say that, at the times when she entered into the costs agreements, Mrs Rahme was separately represented by Spanko Soulos & Co and that the various instruments signed by her prior to 9 December 2010 were signed in the presence of Mr Soulos, who was acting as her independent solicitor, who provided her with advice and who gave her warnings about the risks she faced in entering into the transactions. Mrs Rahme signed the Deed of Sale in the presence of Mr Soulos, who, B & K and Mr Khoury assert, was acting as Mrs Rahme's independent solicitor. He provided her with advice and gave her warnings about the risks she faced in entering into the Deed of Sale. Nevertheless, she did so.
In addition, B & K and Mr Khoury assert that, if they have, or either of them has, any liability to Mrs Rahme, then the claim against them is a claim for economic loss arising from an alleged failure by B & K to take reasonable care within the meaning of s 34(1)(a) of the Civil Liability Act 2002 (NSW) (the Civil Liability Act) and is an apportionable claim within the meaning of s 34(1) of the Civil Liability Act. They assert that Mr Paul Satouris, of the Former Solicitors, Mr Soulos and Mr Washington each owed a duty of care to provide legal advice and services with reasonable care and skill and each breached those obligations.
In addition, B & K and Mr Khoury allege that, if, as a result of their negligence, which is denied, Mr Rahme and Mrs Rahme have suffered loss, which is denied, such loss was caused or contributed to by Mrs Rahme's own negligence. They say, therefore, that the damages should be reduced in accordance with the principles of contributory negligence as required by ss 5R and 5S of the Civil Liability Act. In particular, they assert that Mrs Rahme sought independent legal advice from Mr Soulos but did not act on that advice, or did not rely on it, despite receiving advice from Mr Soulos that litigation is a lottery and there is no guarantee that they would be successful.

[10]

The Issues

The most significant question raised in the proceedings is when Mrs Rahme became a client of B & K. B & K and Mr Khoury contend that she did not become a client of B & K until after the Deed of Sale was entered into, whereby she purported to acquire the choses in action consisting of the claims that the Companies had against Bevillesta under the Indemnities, which were the subject of the Bevillesta Proceedings.
Mrs Rahme and Mr Rahme, on the other hand, contend that B & K and Mr Khoury were under a fiduciary obligation to her prior to the signing of the September Costs Agreement. They assert that the conduct of B & K and Mr Khoury, in having her enter into the September Costs Agreement and the October Costs Agreement, involved a breach of their fiduciary duty to her and was unconscionable, and that the execution of the agreements was obtained by B & K exerting undue influence over her. They also say that, in those circumstances, the September Costs Agreement and the October Costs Agreement were unjust contracts within the meaning of the Contracts Review Act.
In that regard, there is a further question as to whether Mr Soulos was sufficiently independent of Mr Rahme and B & K in advising Mrs Rahme in relation to the September Costs Agreement, the October Costs Agreement, the deeds of equitable charge and the Deed of Sale. Connected with that question are two further questions as to whether B & K had an overarching obligation to provide Mr Soulos with everything that he might require in order to discharge his obligations to give independent advice to Mrs Rahme and whether Mr Soulos discharged his obligations to Mrs Rahme adequately.
If B & K and Mr Khoury were not acting for Mrs Rahme at relevant times and did not owe fiduciary obligations to her when she signed the September Costs Agreement, the October Costs Agreement, the deeds of equitable charge and the Deed of Sale, that is the end of the matter. However, if there was a contractual relationship between Mrs Rahme, on the one hand, and B & K, on the other, as a result of a retainer, further questions arise as to whether B & K failed to provide Mrs Rahme with appropriate advice as to:

whether the Companies were entitled to sue Bevillesta in respect of their respective liability to the ATO before they had discharged those liabilities; and
whether, having regard to the terms of the Indemnities, the causes of action that Companies had against Bevillesta were assignable.

B & K and Mr Khoury deny liability to both Mrs Rahme and Mr Rahme on various bases. First, they say that B & K did not act negligently or in breach of any contract of retainer in providing legal services. In any event, they say, there is no evidence that Mr Rahme suffered any loss or damage by reason of any wrongful conduct on the part B & K. That last proposition appears to be accepted by Mr Rahme.
If B & K has a liability to Mrs Rahme, questions then arise as to the reduction of any liability by reason of the concurrent liability of the Former Solicitors, of Mr Soulos or of Mr Washington, or by reason of the contributory negligence of Mrs Rahme in failing to heed the advice of Mr Soulos. Finally, questions arise as to the limitation period provided for in the Contracts Review Act. That requires consideration of the true construction of ss 16(b) and 16(c) of the Contracts Review Act.
B & K and Mr Khoury say that any negligence in relation to advice given to Mrs Rahme's was negligence or breach of contract of retainer on the part of Mr Soulos. Further, they say, Mrs Rahme failed to heed the advice of Mr Soulos or failed to seek alternative independent advice, when Mr Soulos told her he was unwilling to provide her with more comprehensive advice, including advice in respect of the Bevillesta Proceedings. She therefore contributed to any loss that she suffered.
I do not understand there to be any remaining issues on the quantification of the damages, apart from reduction by reason of proportionate liability or contributory negligence. Having regard to the conclusions that I have reached, it does not matter.

[11]

When Mrs Rahme became a Client of B & K

Mr and Mrs Rahme contend that, upon entering into the September Costs Agreement, Mrs Rahme became a party to a contract with B & K that included an obligation on the part of B & K to take instructions from her in relation to the Bevillesta Proceedings and to keep her fully informed so that she understood all relevant issues of the Bevillesta proceedings. They assert also that, in circumstances where she had given the Oatlands Property as security for payment of B & K's fees, a duty of care arose in her favour.
In the course of cross-examination, Mr Khoury in effect agreed that the parties to a costs agreement are the persons giving instructions. He agreed that B & K was going to take instructions from one or more of the offerees under the September Costs Agreement, namely, Joseph Rahme Investments Pty Ltd, Mrs Rahme and Mr Rahme. When asked whether, after the September Costs Agreement had been entered into by Mrs Rahme she became the client of B & K, Mr Khoury gave the somewhat Delphic response, "not in some sense but in a sense yes".
The offer that resulted in the October Costs Agreement was addressed to Mrs Rahme and Mr Rahme. It was stated to relate to the "current" Bevillesta Proceedings and the "proposed" proceedings by the Companies against the Former Solicitors.
Both of the September Costs Agreement and the October Costs Agreement described the work that B & K had been instructed to do in the same terms, including:

seeking and receiving detailed instructions;
advising of new and further evidence requirements and assisting to obtain that evidence;
critically analysing all material and available evidence;
discussing with the offerees and assisting the offerees to understand the relevant issues etc;
providing an overview of the matter;
commencing proceedings including drafting of claim, detailed pleadings and where necessary providing particulars; and
supervising the hearing. Mr Rahme and Mrs Rahme assert that the terms of those agreements required B & K to read the Indemnities and give advice on the cause of action and the efficacy of the purported assignment of the choses in action by the Companies.

Mr Khoury agreed that the Indemnities were relevant documents and that, by the costs agreements, B & K had made a promise to read the Indemnities. While he asserted that that is what he did, he said that he could not recall reading the Indemnities after 13 September 2010.
When the Companies became subject to administration, Mr Rahme was anxious to maintain their claims against Bevillesta. At that stage, Mr Kekatos had been assisting Mr Rahme and the Companies for some considerable time. While an assignment of the choses in action to Joseph Rahme Investments Pty Ltd or to Mary Rahme had been proposed by Mr Kekatos, neither of those proposals came to fruition. Arrangements were then put in place for an assignment to Mrs Rahme. Those steps appear to have been taken by Mr Kekatos and Mr Rahme. Neither B & K nor Mr Khoury recommended that the choses in action be assigned to Mrs Rahme or that she purchase the choses in action. The idea clearly emanated from Mr Kekatos.
B & K and Mr Khoury clearly recognised that a person taking an assignment of the choses in action and agreeing to assume liability for and give security for B & K's fees, as was proposed, would be in need of independent advice. Clearly, it was appropriate that she obtain independent legal advice in relation to the steps that she was proposing to take. B & K and Mr Khoury believed that that is what she did in seeing Mr Soulos. It is not possible to conclude that B & K had any obligation, at that stage, to advise Mrs Rahme about whether she should enter into any proposed transaction concerning security for costs or assignment of the choses in action.
Mr Rahme and Mrs Rahme had known Mr Soulos for some time. Prior to commencement of the Bevillesta Proceedings, Mr Soulos had acted in relation to matters involving the Companies and Bevillesta. However, he had had no involvement in the Bevillesta Proceedings as such.
Mr Soulos was a properly qualified solicitor and he was independent of B & K and Mr Khoury, who had no reason to doubt that he was capable of giving Mrs Rahme independent and competent professional advice in relation to the obligations that she was proposing to undertake in relation to B & K's fees and the assignment of the choses in action. Mrs Rahme retained Mr Soulos and met with him on several occasions. He gave her advice about the instruments that she was proposing to sign and the transactions into which she was proposing to enter. There was no apparent bias or lack of independence in his conduct. Apart from providing documents and information to Mr Soulos to enable him to give advice to Mrs Rahme, neither B & K nor Mr Khoury played any role in the process whereby Mr Soulos advised Mrs Rahme.
Mr Soulos took various steps to confer with and advise Mrs Rahme as set out above. They involved the following:

the meeting on 13 September 2010, when Mrs Rahme signed the September Costs Agreement, the deeds of equitable charge and the acknowledgement of legal advice;
the letter from Spanko Soulos & Co of 16 September 2010 to Mrs Rahme confirming the advice given on 13 September 2010;
the meeting on 5 October 2010, when Mrs Rahme signed the October Costs Agreement and the deeds of variation;
the signing of the acknowledgement of legal advice by Mrs Rahme on 6 October 2010;
the letters from Mr Soulos to B & K of 6 October 2010 and 13 October 2010, whereby Mr Soulos sought and obtained further information about the Bevillesta Proceedings;
the meeting between Mr Soulos and Mrs Rahme on 14 October 2010, at which the further documents provided by B & K were discussed and a deed of variation was signed;
the letter from Mr Soulos to Mrs Rahme of 15 October 2010 enclosing copies of the documents that had been returned to B & K and advising about her liability for costs;
the meeting on 26 October 2010, when Mrs Rahme re-signed one of the documents that had been signed previously;
the meeting on 3 December 2010, when Mr Soulos provided Mrs Rahme with advice about the proposed deed of sale, during which Mr Soulos gave advice concerning Mrs Rahme's responsibility for costs;
the meeting on 9 December 2010, when the Deed of Sale was discussed and executed, as well as an acknowledgement of legal advice, and Mr Soulos advised Mrs Rahme that she should not be involved unless she knew what was happening in the litigation and that Mr Soulos could not give her advice on that topic; and
the swearing, on 19 January 2010, by Mrs Rahme and by Mr Soulos, of affidavits in support of the motion for joinder of Mrs Rahme as a plaintiff in the Bevillesta Proceedings. It is not insignificant that, on four separate occasions, Mrs Rahme signed acknowledgements of the legal advice given to her by Mr Soulos.

There is no reason to doubt that the arrangements between Mr Soulos and Mrs Rahme constituted a proper professional solicitor and client relationship in which Mr Soulos was acting in the interests of Mrs Rahme in return for payment for his services. He issued invoices to Mrs Rahme, all of which were paid.
B & K was informed that Mrs Rahme was being advised by Mr Soulos and that relevant documents had been signed by her and witnessed by Mr Soulos, in circumstances where it appeared that they had been explained to her and she had entered into them voluntarily and on an informed basis. There was nothing said to B & K or any reason given to them to suspect that there was anything inappropriate about the advice given by Mr Soulos to Mrs Rahme. The material provided to B & K concerning the execution of the September Costs Agreement and the October Costs Agreement as well as the deeds of equitable charge and deeds of variation gave no reason to doubt that Mrs Rahme had read the documents, understood them and agreed to be bound by them. Whether or not Mrs Rahme in fact read the documents is not to the point [1] .
It is clear that, when Mrs Rahme signed each of those instruments, she was being advised by Mr Soulos. She was fairly to be characterised as a "third party payer" within the meaning of s 302A(1) of the Legal Profession Act 2004 (NSW) (the Legal Profession Act). [2] Under that provision, a person is a third party payer in relation to a client of a law practice if the person is not the client but is under a legal obligation to pay all or any part of the legal costs for the legal services provided to the client. That may be contrasted with s 322 of the Legal Profession Act, which relevantly provides that a costs agreement may be made:

between a client and a law practice retained by the client;
between a client and a law practice retained on behalf of the client by another law practice;
between a law practice and another law practice that retained that law practice on behalf of the client; and
between a law practice and an associated third party payer. A costs agreement must be written or evidenced in writing and may consist of a written offer that is accepted in writing or by other conduct. The offer must clearly state that it is an offer to enter into a costs agreement, that the client may accept it in writing or by other conduct and must state the type of conduct that would constitute acceptance [3] .

Section 328 of the Legal Profession Act provides for a client to apply for a costs agreement to be set aside in certain circumstances. However by reason of s 322(6), relief under s 328 is only available to third party payer if the costs agreement has not also been entered into with a client.
In all of the circumstances, it is clear that the clients in the September Costs Agreement were Mr Rahme and Joseph Rahme Investments Pty Ltd and the client in the October Costs Agreement was Mr Rahme. I do not consider that the signing by Mrs Rahme of the September Costs Agreement or the October Costs Agreement resulted in her becoming a client of B & K at the time of signature.
Inappropriate advice given by Mr Soulos or the breach of his contract of retainer or negligence on his part cannot be attributed to B & K. It may, of course, lead to a reduction of B & K's liability by reason of the concurrent wrongdoing, if B & K were otherwise held to be liable. I shall address that question below.
At the time when Mrs Rahme executed the September Costs Agreement, the October Costs Agreement and the deeds of equitable charge, the choses of action, consisting of the claims made in the Bevillesta Proceedings, were considered to be of value. The Former Solicitors had commenced the Bevillesta Proceedings and had acted on behalf of the Companies on the basis that the claims had some prospects of success. B & K considered that the claims had prospects of success and Mr Washington had provided advice to that effect. The claims had survived the summary dismissal application before Hall J. The Liquidators and the creditors of the Companies appear to have considered that the choses in action could be sold for a significant sum. Mr Soulos did not advise Mrs Rahme that the choses in action were worthless, although he told her that he could not give any advice as to the prospects of success.
The execution by Mrs Rahme of the Deed of Sale, following the advice given by Mr Soulos, concluded the independent advice provided to Mrs Rahme in relation to the transaction. From that time, there was no longer a requirement for Mrs Rahme to be separately represented and advised because the transactions requiring such independent advice had been concluded. Further, from that moment, Mrs Rahme had an interest in the outcome of the Bevillesta Proceedings and she was then able to, and did, become a client of B & K. However, the Bevillesta Proceedings reached a conclusion shortly after Mrs Rahme had acquired the choses in action because administrators were appointed to Bevillesta. It is by no means clear that the abandonment of the Bevillesta Proceedings was because the claims were thought to be hopeless rather than because Bevillesta appeared to be incapable of meeting a judgment. There is no evidence to suggest that B & K, the Former Solicitors, Mr Soulos or the Liquidators had any knowledge of the financial decline of Bevillesta prior to the appointment of administrators to Bevillesta.
B & K and Mr Khoury accept that, once Mrs Rahme had become a client of B & K's, after the Deed of Sale was completed on 9 December 2010, B & K was required to perform the retainer with due skill, care and competence. However, the retainer was concerned only with the prosecution of the Bevillesta Proceedings against Bevillesta. By that time, Mrs Rahme had purchased the choses in action, consisting of the claims made in the Bevillesta Proceedings. B & K's retainer was never to provide advice about the efficacy of entering into the deeds of equitable charge, the deeds of variation, the September Costs Agreement or the October Costs Agreement. Nor could there be any suggestion that B & K had been retained to advise Mrs Rahme about the assignment of the choses in action and whether the assignment was beneficial for her. Rather, Mrs Rahme was a third party purchasing the choses in action from B & K clients, namely, the Companies and the Liquidators. There is no basis for concluding that a solicitor acting for a seller has a duty to advise the buyer about the utility of the proposed purchase from the seller.

[12]

Fiduciary Obligation

Mr and Mrs Rahme assert that there were breaches of the fiduciary duty owed by B & K and Mr Khoury to Mrs Rahme because of the conflict and the failure of B & K and Mr Khoury to obtain Mrs Rahme's fully informed consent to the arrangements. They assert that there could have been no fully informed consent until Mrs Rahme had received advice from an independent, third party lawyer as to the prospects of the Bevillesta Proceedings and the efficacy of any assignment of the choses in action of the Companies and the terms and conditions of B & K's retainer. They assert that B & K deliberately ensured that no such advice could be given because, contrary to its fiduciary duty, B & K did not take steps to ensure that Mrs Rahme received independent advice on the terms and conditions of the proposed retainer, including fees for acting for the Administrators, the effect of the Indemnities and the efficacy of the proposed assignments. They assert that B & K did not take such steps because both B & K and Mr Khoury not only knew of the problems concerning the construction of the Indemnities and the efficacy of the proposed assignments, but also knew that the problems were fatal. Therefore, they assert, B & K and Mr Khoury knew that an independent lawyer properly advising Mrs Rahme would have advised her not to enter into any arrangement with B & K, with the consequence that B & K would not recover its fees.
Mr and Mrs Rahme contend that B & K and Mr Khoury owed them a fiduciary duty, arising out of the relationship of solicitor and client, at latest from the time of signing the September Costs Agreement. I have concluded that Mrs Rahme was not a client of B & K until after 9 December 2010. However, Mr Rahme and Mrs Rahme contend that the existence of a fiduciary relationship did not rest or fall solely on the relationship of solicitor and client.
A fiduciary relationship may exist when one party agrees to act for or on behalf of the other in the exercise of a discretion or power that will affect the interest of the other in a legal or practical sense [4] . Mrs Rahme and Mr Rahme contend that a fiduciary relationship may arise as between a solicitor and a prospective client prior to the actual contract of retainer between the solicitor and client [5] . They assert that, irrespective of whether Mrs Rahme had become a client of B & K and Mr Khoury following the signature of the September Costs Agreement, she had placed her trust and confidence in B & K, as solicitors, to look after her interest by giving her full and frank advice, free of obligations and favours owed to others.
Mr and Mrs Rahme contend that, in addition to B & K, Mr Khoury was in a fiduciary relationship with Mrs Rahme, in so far as he was the sole director of B & K, an incorporated legal practice. He agreed in cross-examination that he supervised the Bevillesta Proceedings from the point of view of the Companies and that, as supervisor, he made himself familiar with the matters and would, in 2010, have made his own determination about the prospects of success and, in order to make that determination, he would have read the Indemnities. Mr and Mrs Rahme assert that, in those circumstances, Mr Khoury was himself in a fiduciary relationship with Mrs Rahme and that, even if he were not, he induced breaches of fiduciary obligation by B & K, which they assert were dishonest and fraudulent breaches by reason of the increase in the rate of their fees.
In particular, Mrs Rahme and Mr Rahme contend that B & K and Mr Khoury owed a duty to Mrs Rahme not to place themselves in a position where their duty to her was in conflict with their own interests, and were under an obligation to make full disclosure to her and engage in fair and open dealings [6] . For example, a costs agreement between a solicitor and client that provides for charges on an hourly rate may involve a conflict between the duties of the solicitor to the client and the interests of the solicitor. Hence, the solicitor may well be under an obligation to inform the client who was entering into a time charging agreement of the normality or otherwise of such an arrangement [7] .
Mr and Mrs Rahme contend that, in negotiating the costs agreements with Mrs Rahme, both B & K and Mr Khoury were looking after their own interests in ensuring that the Bevillesta Proceedings would continue so as to result in B & K's past fees being paid, in circumstances where Mr Rahme was not in a position to pay them. They say that it was in the interests of B & K and Mr Khoury for the Bevillesta Proceedings to continue so that B & K could earn fees for acting for the Administrators and any assignee, with the comfort of the security that was to be provided by Mrs Rahme. They say that the position of conflict was exacerbated by B & K's decision to act for the Administrators, knowing that the Administrators would not pay and that Mr Rahme could not pay for their services, and knowing that the interests of Mrs Rahme did not align with the interests of the Administrators.
More particularly, Mr and Mrs Rahme complain that B & K did not disclose to Mrs Rahme that the rates of professional fees disclosed in the 13 September 2010 Costs Agreement and the 5 October 2010 Costs Agreement were higher than the rates disclosed in the earlier costs agreement disclosure made with Mr Rahme. For example, the hourly rate for Mr Khoury disclosed in the costs agreement of 11 December 2009 was $550 whereas the hourly rate disclosed in the September Costs Agreement and the October Costs Agreement was $753.50. The hourly rates for senior solicitors, intermediate solicitors and junior solicitors were also higher in the disclosures in the later costs agreements.
There is no substance in Mrs Rahme's complaint about the increase in the rate of fees charged by B & K. Further, there was no conflict between interest and duty or breach of fiduciary duty in relation to that matter.
Mrs Rahme was not B & K's client but a third party payer, being advised by Mr Soulos. The clients, Mr Rahme and Joseph Rahme Investments Pty Ltd, had raised no question about the proposed hourly rates. Mrs Rahme signed both the September Costs Agreement and the October Costs Agreement and, in particular, signed the pages containing the statement of the hourly rates. She was advised by Mr Soulos. She must be taken to have understood what she was signing.
The hourly rate shown in the September Costs Agreement and the October Costs Agreement were charged to four other clients during the months of September to December 2010. During that period, seven costs agreements were entered into by B & K, including the September Costs Agreement and the October Costs Agreement. Thus, six out of seven of the costs agreements entered into during that period had the same hourly rate.
During the period September 2010 to December 2010, B & K also obtained deeds of equitable charge in relation to fees payable in other matters. That suggests that it was not an unusual practice. It was not a practice limited to the arrangements for Mrs Rahme. While a solicitor has an obligation to disclose the rates proposed to be charged, there is no obligation to disclose whether the rates were more or less than those previously charged to another client or previously charged to the same client.

[13]

Undue Influence

Mr and Mrs Rahme contend that, because the relationship of solicitor and client commenced with the September Costs Agreement, there was a presumption of undue influence or ascendancy as between B & K and Mr Khoury, on the one hand, and Mrs Rahme, on the other. They assert that B & K refrained from giving advice to Mrs Rahme and relied on Mr Rahme as a surrogate for informing Mrs Rahme. They assert that, despite the lack of direct communication, undue influence was brought to bear on Mrs Rahme by B & K because B & K gave its imprimatur to the arrangements and there was undue influence by reason of the lack of full disclosure. They assert that Mrs Rahme's assent was not free, voluntary or independent and that the onus lay on B & K and Mr Khoury to establish otherwise.
Mr and Mrs Rahme assert that, as at 13 September 2010, Mrs Rahme was in a position of disadvantage in being subordinate to the will of Mr Rahme. They say that based on the facts that Mrs Rahme was Mr Rahme's wife, Mr Rahme wanted the choses in action (consisting of the Bevillesta Proceedings) to be assigned, and Mr Rahme and B & K had decided that Mrs Rahme would pay B & K's fees either by providing security for the proposed corporate assignee or being the assignee personally. They assert that Mr Rahme made the decision for Mrs Rahme that she was not to be given independent advice about the costs agreement and the security, and that she would not be given advice concerning the prospects of success of the Bevillesta Proceedings and the efficacy of the assignment. They assert that Mrs Rahme was a volunteer insofar as she was entering into the arrangement for the benefit of her husband.
Mr and Mrs Rahme assert that it was obvious to B & K that Mrs Rahme's will would or could be subordinated to the will of her husband, to the extent that she was unable to make a free choice. They assert that B & K wanted the benefit of the proposed bargain to be obtained by taking advantage of Mr Rahme's ascendancy over Mrs Rahme. They say that Spanko Soulos & Co were chosen to purport to give advice to Mrs Rahme in circumstances where that firm was not truly independent because it had previously acted for Mr Rahme. They assert that Spanko Soulos & Co did not give appropriate, independent advice about the prospects of the Bevillesta Proceedings and the efficacy of the assignment.
At the time when the Companies became subject to administration, B & K was owed significant amounts in respect of unpaid legal fees. By that time, B & K had seen to the amendment of the pleadings, with the assistance of Mr Washington, and had managed to set the Bevillesta Proceedings on track after they had allegedly been poorly handled by the Former Solicitors. Unsurprisingly, Mr Rahme wanted B & K to continue to act in the Bevillesta Proceedings after any assignment of the choses in action. Equally unsurprisingly, B & K wanted security for the payment of their outstanding fees as a condition of continuing to act in the Bevillesta Proceedings. In that context, Mr Rahme, with the assistance of Mr Kekatos, sought agreement from Mrs Rahme to give security over the Oatlands Property for the payment of B & K's past and future fees.
The Oatlands Property was owned by her. It was one of two family properties, both of which were in her name. Mr Rahme and Mrs Rahme had discussed the properties and chosen them together. Both worked on the negotiations for their purchase and Mr Rahme contributed to the repayment of moneys borrowed to purchase the properties. In the course of giving oral evidence, Mrs Rahme said that she was willing to enter into the transactions with B & K to assist her husband. She said "It was our lifestyle. It's us".
B & K provided no advice to Mrs Rahme about whether she should give security for B & K's costs or whether she should purchase the choses in action. At that stage, she could fairly be characterised as a third party funder of the Bevillesta proceedings, albeit married to Mr Rahme, who clearly wished to ensure security for fees payable to B & K so as to ensure that they would continue to act and facilitate the assignment of the choses in action from the Companies, which were B & K's clients. Mrs Rahme had previously been a director and secretary of Tannous. There is no evidence to suggest that Mrs Rahme was any way overborne by Mr Rahme in relation to her dealing with Mr Soulos. At the relevant times, she was advised by Mr Soulos, her own independent solicitor.
There is no evidence to support a conclusion that B & K or Mr Khoury brought any pressure to bear on Mrs Rahme. There is no evidence that they had any knowledge of any other person bringing improper influence or pressure to bear upon her.

[14]

Negligence of B & K

Mrs Rahme and Mr Rahme attached considerable store to the fact that there was no clear evidence that B & K or Mr Khoury had provided the Indemnities to Mr Soulos to enable him to give advice to Mrs Rahme. In that regard, Mr Khoury was cross-examined at some length as to the extent to which he was, in 2010, familiar with the terms of the Indemnities. The suggestion made on behalf of Mrs Rahme and Mr Rahme was that Mr Khoury deliberately withheld the Indemnities from Mr Soulos lest Mr Soulos, having considered their terms, might advise Mrs Rahme of the difficulties that might confront the plaintiffs in the Bevillesta Proceedings and dissuade her from proceeding.
Mr and Mrs Rahme assert that it ought to go without saying that Mr Khoury and others at B & K read the Indemnities. They say that it reflects badly on Mr Khoury's credit that he prevaricated when asked whether he had read the Indemnities and that an honest person in Mr Khoury's position would have taken responsibility and conceded that he had read the Indemnities, since that is what B & K had been retained to do.
When asked what he understood what the indemnifying clause meant, Mr Khoury responded that, other than for the words themselves, he did not have an opinion. He did not agree with the proposition that the most important or pivotal documents in the proceedings were the Indemnities. Mr and Mrs Rahme complain about that answer in circumstances where, they say, an opinion on what the relevant clause meant was at the core of the retainer of B & K.
Mr and Mrs Rahme assert that it must have been necessary for Mr Khoury to have read the Indemnities at that stage, in circumstances where the reasons of Hall J refer to the relevant indemnifying clause of the Indemnities on many occasions. However, Hall J did not recite the terms of the relevant clauses. Therefore, they say, Mr Khoury must have read the Indemnities in order to understand the argument put to Hall J and his Honour's disposition of those arguments.
Mr and Mrs Rahme assert that Mr Khoury was obliged to give his own independent, professional view, with the benefit of his "critical analysis" of either opinion. They assert that it would have been grossly negligent and a breach of his retainer for Mr Khoury or B & K to regurgitate some other person's opinion. They say that, to a lay person, the meaning of what was said in the letters was that there was in fact no obstacle in the way of the claim by the Companies succeeding because Hall J had accepted the submission that the claim was not vitiated by the primary obligation not having been paid. They say that the word "merely" added nothing to the absolute nature of the advice, which gave the impression that the point was argued and won. They assert that the advice breached the express term of the retainer of "discussing with you and assisting you to understand the relevant issues etc".
In any event, Mr Soulos made it quite plain to Mrs Rahme that he was not advising her on the prospects of the Bevillesta Proceedings. Clearly, it would have been necessary for him to call for a copy of the Indemnities before giving such advice. It was a matter for Mr Soulos to ensure that he had all of the materials that would be necessary to enable him to give the advice that was being sought by Mrs Rahme.
Clearly enough, B & K and Mr Khoury wanted to ensure that the Costs Agreement and the deeds of equitable charge, as well as the Deed of Sale, were executed by Mrs Rahme such that it could not later be contended that she had not been properly and fully advised of the obligations that she was undertaking. While it is fair to say that Mr Khoury was less than forthcoming in cross-examination on the question of his knowledge of the terms of the Indemnities, I do not consider that there is any substance in the contention, in so far as it was advanced, that he deliberately withheld the terms of the Indemnities from Mr Soulos.
Further, since Mrs Rahme did not become a client of B & K until after the Deed of Sale was formally entered into on 9 December 2010, there was no duty to advise Mrs Rahme about the prospects of success of the Bevillesta proceedings before that time. There was no duty imposed on B & K or Mr Khoury to ensure that Mr Soulos properly performed his duties to Mrs Rahme, as his client.
Mr and Mrs Rahme contend that B & K was negligent in failing to advise Mrs Rahme about possible difficulties with the Bevillesta Proceedings and with the purported assignment of the Bevillesta Proceedings. The difficulties arise out of the terms of the Indemnities. It is therefore necessary to say something about the terms of the Indemnities and the difficulties.
Clause 2.1(b) of the Indemnities relevantly provided as follows: "The Lessor will indemnify and keep indemnified the Lessee against any liability that the Lessee may have to pay income tax on amounts of any fit-out contribution paid by the Lessor to the Lessee in connection with a lease." Clause 4.1(b), under the heading "Expiry of Indemnities", relevantly provided as follows: "The Lessor shall cease to have any liability to indemnify under cl 2.1(b) on the third anniversary of the date of this Deed." Clause 5, which is headed "Rights Personal", provided as follows: "Notwithstanding anything to the contrary in the Deed, the rights and obligations of the parties under this Deed are personal and may not be assigned."
Each of the Companies made demand under its respective Indemnity within three years of its date. Nevertheless, cl 4.1(b) may have some bearing on the proper construction of cl 2.1(b), in so far as Mr and Mrs Rahme now contend that they should have been advised by B & K and Mr Khoury that there was at least a reasonably strong argument that the indemnity under cl 2.1(b) was only activated upon the relevant Lessee actually paying income tax on the amount of any fit out contribution.
By the time that B & K began acting for the Companies, the Bevillesta Proceedings had been on foot for more than 13 months. The Former Solicitors had been acting for the plaintiffs up until that time. The Former Solicitors had provided advice about the Companies' claims against Bevillesta and had arranged for demands to be made on Bevillesta for payment of the amount of the income tax liability to the ATO. It is clear enough that Mr Rahme, who at that stage was one of the plaintiffs and was the controlling mind of the Companies, relied on the advice given by the Former Solicitors.
As I have indicated, prior to the retainer of B & K by the Companies, Bevillesta had moved for summary dismissal of the Bevillesta Proceedings on the basis that there was no liability under the Indemnities until the Companies had paid their respective liabilities for tax. The contention advanced by Bevillesta was that, on the proper construction of the Indemnities, the right of indemnity was enlivened only when a payment of tax was made rather than when a liability to pay tax arose. In his reasons of 12 August 2009, Hall J observed that Bevillesta relied on the fact that there was no allegation that any tax had been paid by Tannous. However, his Honour considered that the type of indemnity in question was directed to a liability being incurred, not a payment being made.
Mr Rahme was aware of the hearing before Hall J when it occurred and was also aware that Mr BW Rayment QC had been briefed on behalf of the plaintiffs. While Mr Rahme could not recall the specific details of advice given in conference with Mr Rayment, it is reasonable to conclude that he was advised of the arguments advanced on behalf of Bevillesta before Hall J. It is clear that, prior to any involvement of B & K, Mr Rahme was well aware of the fact that there would be a live issue in the Bevillesta Proceedings about whether the indemnity conferred by cl 2.1(b) of the Indemnities required the Companies to have paid tax or merely to have incurred a liability to pay tax.
In any event, there are cogent reasons for concluding that, on the proper construction of cl 2.1(b) of the Indemnities, the liability of Bevillesta to indemnify arose when the liability to pay income tax arose. The language of cl 2.1(b) calls for an indemnity against "any liability that the Lessee may have". It does not speak in terms of reimbursement to the Companies of amounts of income tax actually paid by them. There were certainly reasonable prospects of the claims made by the Companies succeeding in relation to the question of construction. The fact that Hall J refused to dismiss the Bevillesta Proceedings summarily and actually endorsed the construction advanced on behalf of the Companies supports that conclusion. B & K and Mr Khoury were both aware of Hall J's judgment and the contentions advanced by the parties before Hall J. They also relied on advice from Mr Washington.
The appointment of the Administrators and the subsequent winding-up of the Companies did not affect the entitlement of the Companies to enforce the indemnity under the Indemnities against Bevillesta. The Companies continued to be liable for income tax after the appointment of the Administrators and the appointment of the Liquidators. The Companies' entitlement under the Indemnities survived both the administration and the winding up. It is irrelevant that Mrs Rahme had no personal liability to the ATO. She was not seeking to be indemnified in respect of any liability that she may have had. That, of course, raises the next question as to the validity of the assignment.
In the circumstances, the conduct of B & K was reasonable and did not amount to negligence, a breach of contract or misleading or deceptive conduct. There is no substance in the contention now advanced on behalf Mr and Mrs Rahme that B & K was in breach of its contractual duty to its clients in failing to advise that the indemnity given by the Indemnities was only available to the Companies following payment of their respective liabilities for tax.
The question of whether the Deed of Sale was effective to assign the choses in action, in the light of cl 5 of the Indemnities, is not as clear cut. It may have been possible for the Bevillesta Proceedings to have continued without the joinder of Mrs Rahme. She would have been entitled, in equity, to compel the Companies to prosecute the Bevillesta Proceedings, albeit at her expense. However, that was not the course that was adopted, principally, it appears, because of a desire to avoid the need to provide security for costs on behalf of the Companies, which were clearly insolvent.
The choses in action, consisting of the entitlement of the Companies to be indemnified under the Indemnities, were the subject of the Deed of Sale. The Liquidators entered into the Deed of Sale pursuant to s 477(2) of the Corporations Act 2001 (Cth) (the Corporations Act). Section 477(2)(c) relevantly provides that a liquidator of a company may sell or otherwise dispose of, in any manner, all or any part of the property of the Company. The choses in action consisting of the Claims made in the Bevillesta Proceedings constituted property of the Companies.
On 15 October 2010, some six weeks before the Deed of Sale was entered into, Bryson J, sitting in the Equity Division, held [8] that the sale, by a company in liquidation that was a party to a contract, of the chose in action consisting of the benefit of that contract, was valid despite the fact that the contract restricted the rights of assignment as follows: "Neither party shall, without the prior written approval of the other and except on such terms and conditions as are determined in writing by the other, assign the contract or any payment thereunder." The assignor company was in liquidation and it may not be insignificant that Mr Barnden was the liquidator of the company in question.
Ultimately, the decision of Bryson J in the Equity Division was overturned by the Court of Appeal. However, that did not occur until 30 June 2011 [9] . The decision of the Court of Appeal apparently had some bearing on the decision made to abandon the Bevillesta Proceedings following the insolvency of the Bevillesta. However, as the law stood at the time when the Deed of Sale was entered into, it was reasonable to conclude that the purported assignment would be effective.

[18]

Position of Spanko Soulos & Co

Mr Soulos was originally a defendant in these proceedings. On 21 August 2018, Mr and Mrs Rahme entered into a compromise with Mr Soulos, which was recorded in a 'Deed of Settlement, Release and Indemnity'. Under cl 1 of that instrument, Mr Soulos agreed to pay the sum of $100,000 to Mr and Mrs Rahme. That sum has now been paid by Mr Soulos to Mr and Mrs Rahme. It follows that any damages to which Mrs Rahme or Mr Rahme would be entitled as against B & K or Mr Khoury must take account of that payment.
Mrs Rahme met with Mr Soulos on at least six occasions, in the circumstances outlined above. She signed all the relevant documents in his presence and was provided advice in relation to those instruments. Mr Soulos charged for his services and Mrs Rahme arranged payment of his invoices for those services.
There is no evidence to support a contention that Mr Soulos failed to act independently or that, as a result of any lack of independence, he gave Mrs Rahme advice that was in any way partial or inadequate. The evidence summarised above demonstrates that, in his dealings with Mrs Rahme, Mr Soulos did not act with partiality or lack of independence. It was never suggested to Mr Soulos in cross-examination that he had failed to act in an independent and impartial way or that the advice that he provided to Mrs Rahme was in any way deficient by reason of lack of independence or impartiality. He did not encourage her to sign any of the instruments that were for the benefit of B & K and the Companies. Rather, he repeatedly advised Mrs Rahme that there were serious risks associated with the arrangements into which she was entering and that she did not have to do so. I have outlined above the references made by Mr Soulos to litigation being a lottery, to there not being much merit in the case against Bevillesta, to Mrs Rahme being able to walk away from the transactions without any liability and to Mrs Rahme not having to proceed with the transactions.
Further, at no time did either Mrs Rahme or Mr Rahme consider that Mr Soulos was not acting independently. Mr Rahme said that, if he had considered that Mr Soulos was not acting independently, or that Mrs Rahme was not getting proper independent advice from Mr Soulos, he would have taken steps to have her see a different solicitor.
While it is not necessary to consider the liability of Mr Soulos to Mrs Rahme, as between those parties, B & K and Mr Khoury seek to have the amount of any judgment against them reduced by reason of the liability of Mr Soulos to Mr Rahme and Mrs Rahme. It is therefore is necessary to say something about that matter.
Mr Soulos was Mrs Rahme's solicitor. She retained him to give independent advice to her in relation to the September Costs Agreement, the October Costs Agreement and the equitable charges and caveats. Subsequently, he was retained to give her independent advice in relation to the Deed of Sale. In those capacities, he was required to provide appropriate and accurate advice to Mrs Rahme about those matters, and her position generally, in order to enable her to make a decision as to whether or not to proceed with the transactions. Both Mrs Rahme and Mr Soulos knew that he was being retained because Mrs Rahme needed advice that was independent of B & K. The September Costs Agreement, the October Costs Agreement and the security documents related to fees payable to B & K and, accordingly, were for the benefit of B & K. In relation to the Deed of Sale, B & K was acting for the Companies. They were the assignors and Mrs Rahme was the assignee. It was inappropriate for B & K to act for both assignor and assignee.
Despite the assertions made by Mr Soulos to the contrary, it is difficult to see how he could properly discharge his obligations to provide reasonable and correct legal advice to Mrs Rahme without familiarising himself with the details of the Bevillesta Proceedings. Mrs Rahme retained Mr Soulos because she could not get advice about such matters from B & K, in circumstances where she was not the client of B & K. If Mr Soulos did not regard himself as having adequate materials to enable him to discharge his obligations in advising Mrs Rahme properly, it was incumbent upon him to obtain whatever was necessary to enable him to do so, or to terminate his retainer on the basis that he was unable to perform it properly.
On 13 October 2010, B & K wrote to Mr Soulos enclosing copies of all of the relevant documents, other than the Indemnities themselves. The material thereby provided to Mr Soulos gave him sufficient information to alert him to the argument that there was no indemnity until the liability had been paid, which had been raised by Bevillesta. It appears that Mr Soulos did not consider that he needed any further information or documents and conceded in cross-examination that he was "not interested" in the Bevillesta Proceedings. Clearly, Mr Soulos could have called for the Indemnities when advising about the October Costs Agreement and the September Costs Agreement and the security documents as well as when advising about the Deed of Sale. The materials that Mr Soulos had available to him demonstrated the critical importance of the Indemnities to the Bevillesta Proceedings. A fairly obvious question, when advising on the proposed assignment pursuant to the Deed of Sale, was whether or not the subject of the assignment was capable of assignment. That would call attention to the terms of the Indemnities as well is s 477(2) of the Corporations Act.
Clearly enough, Mr Khoury could have provided the Indemnities to Mr Soulos. In cross-examination, Mr Khoury accepted that that was so, although he indicated that he did not know whether or not the Indemnities had in fact been provided to Mr Soulos. However, it was for Mr Soulos to satisfy himself that he had all of the information he needed in order to provide Mrs Rahme with independent legal advice. He had the capacity, and indeed exercised the capacity, to request further information that he thought was necessary. B & K provided him with a significant quantity of material, including the letter of 13 October 2010 with its attachments, the pleadings in the Bevillesta Proceedings and the reasons of Hall J. The latter made specific reference to the Indemnities and the argument raised by Bevillesta as to the alleged necessity to pay the amount of the liability for tax before being able to enforce the indemnity. If Mr Soulos needed further information he could have requested it at any time from B & K, Mr Kekatos or Mr Rahme or Mrs Rahme. At no stage, did he request copies of the Indemnities.
Mr Soulos had the Indemnities from January 2011 at the latest, when he prepared affidavits for Mrs Rahme and himself to swear on 19 January 2011. Mr Soulos asserted in his evidence that, upon reading cl 5 of the Indemnities in March 2012 in connection with the mediation, he immediately came to the conclusion that the causes of action against Bevillesta were not capable of assignment. It is curious, if he truly believed that to be the case, that he did not advise Mrs Rahme to resist being joined as a plaintiff to the Bevillesta Proceedings in January 2011. Rather, he continued to act for Mrs Rahme in seeking to prosecute her proof of debt against Bevillesta after Bevillesta went into administration. Those claims were entirely dependent upon an effective assignment of the causes of action.
The fact that Mr Soulos did not, in January 2011, conclude that the assignment was ineffective indicates that, even if he had been provided with the Indemnities at an earlier point of time, there would have been no different consequence. Mr Soulos would still have failed to grapple with the question and would have failed to advise Mrs Rahme about relevant issues in the Bevillesta Proceedings. Rather, Mr Soulos was uninterested in any matters that related to the detail of the Bevillesta Proceedings.

[19]

Position of Mr Washington

Mr Washington was retained by B & K soon after B & K was retained by Mr Rahme and the Companies in December 2009. Mr Washington provided a fee disclosure to B & K on 1 February 2010 and a tax invoice for work involved in the first conference with Mr Rahme and Messrs Musgrave and Khoury. The purpose of that conference was to brief Mr Washington on all apparent issues concerning the Companies' claims against Bevillesta to date and "the outstanding matters needing answers" and seek his advice in relation to the matter generally.
On 26 February 2010, Mr Washington provided written advice to B & K. Mr Washington's advice made clear that he had considered the issue raised before Hall J, namely, that the Companies were claiming indemnity from Bevillesta even though the tax had not been paid. It appears that Mr Washington did not advise B & K that there was any issue about that matter or that it prevented the Companies succeeding in their claims against Bevillesta. On 26 February 2010, B & K wrote to Mr Rahme, replicating Mr Washington's advice. Clearly enough, B & K relied upon and was guided by Mr Washington's advice.
In 28 April 2010, Mr Washington provided further written advice to B & K. Once again, Mr Washington raised no concerns about the prospects of success of the claims against Bevillesta. On the following day, Mr Washington emailed a proposed further amended statement of claim that he had drafted. He raised no doubt as to whether any of the claims could be pleaded or maintained. The further amended statement of claim, as drafted by Mr Washington, was signed on behalf of B & K, verified by Mr Rahme and filed later on 29 April 2010. The immediate engrossing and filing of the further amended statement of claim, within hours of its being provided by Mr Washington, demonstrates the extent to which both B & K and Mr Rahme relied on Mr Washington's advice.
On 16 June 2010, Mr Musgrave met Mr Washington in conference to draft and settle a second further amended statement of claim, which was finalised during the conference. That pleading was signed on behalf of B & K on that day and was verified by Mr Rahme on 17 June 2010 and filed on 17 June 2010. That, once again, demonstrates that Mr Washington was providing significant advice and determining the way in which the Companies' claims were being pleaded and maintained against Bevillesta. There is no suggestion that Mr Washington indicated any doubt about the prospects of success. It is reasonable to conclude that his conduct constituted at least an implicit advising that the case had reasonable prospects of success.
On 12 July 2010, Mr Washington provided a further memorandum of advice to B & K in which he specifically advised on the prospects of success of the Bevillesta Proceedings. Mr Washington raised no concerns about the prospects of success of the claims against Bevillesta. The advice concluded that the Companies would have reasonable prospects of succeeding in recovering from Bevillesta under the Indemnities the amount of the taxation liabilities. On 12 July 2010, B & K wrote to the Administrators largely replicating the advice, indicating the extent to which B & K and Mr and Mrs Rahme relied on and were guided by Mr Washington's advice.
On 24 September 2010, Mr Washington attended a meeting of the creditors of the Companies, where he gave advice about the assignment of the choses in action. He did not suggest that the choses in action could not be assigned or sold. Implicit in the advice that he gave was the expression of an opinion that there was no impediment to the assignment of the choses in action.
On 6 October 2010 and 19 November 2010, Mr Washington provided further memoranda of advice concerning the Bevillesta Proceedings. In neither of those memoranda did he raise any issue about any impediment to the success of the claims.
On 24 November 2010, B & K sought specific advice from Mr Washington in relation to the proposed assignment of the choses in action. B & K stated that the proposed assignment needed to be effective at law and in accordance with s 12 of the Conveyancing Act. B & K informed Mr Washington that he would be requested to settle the proposed deed of sale prior to obtaining final instructions and prior to handing it over to Mrs Rahme for execution. On 30 November 2010, Mr Washington sent an email to B & K detailing his advice on the Deed of Sale. It is clear enough, in the circumstances, that Mr Washington was briefed to settle the Deed of Sale and to ensure that the assignment to Mrs Rahme was effective at law.
Thus, it is clear that Mr Washington was intimately involved in the Bevillesta Proceedings from the beginning of B & K's involvement and that he provided advice on a regular basis. Clearly, he must have known that B & K and its clients required, and were relying on, his advice. He provided advice on prospects and never raised any doubt about the claims against Bevillesta not having any prospect of success. He was specifically instructed to provide advice on the proposed assignment and settle the Deed of Sale. He did not advise that the choses in action were incapable of assignment to Mrs Rahme.
After Bevillesta went into administration, Mr Washington was briefed by Mr Soulos in relation to the lodging of a proof of debt. Mr Soulos clearly relied heavily on the advice of Mr Washington in that regard.

[23]

Appendix: Claims made by Mr and Mrs Rahme 1. On 10 August 2005, the Companies entered into the Indemnities by which Bevillesta indemnified each of the Companies for any liability to pay tax on the amount of any fit out contribution paid by Bevillesta to the Companies. 2. Bevillesta paid fit out contributions to each of the Companies. 3. Tannous was liable to pay income tax on the fit out contributions in the sum of $542,544.60 and J & J Rahme was liable to pay income tax on the fit out contributions in the sum of $1,035,631.90. 4. Neither of the Companies has paid income tax on the fit out contributions received by it. 5. On the true construction of the Indemnities, until such time as Tannous or J & J Rahme, as the case may be, had paid the income tax levied on the fit out contribution, there was nothing to indemnify and Bevillesta had no liability to either of the Companies under the Indemnities to pay money until such time as the income tax had actually been paid. 6. On 31 March 2008 each of the Companies called upon Bevillesta to make good their respective indemnities (the Call). 7. The Call was made because Mr Paul Satouris, who was a member of the Former Solicitors, had informed Mr Rahme that, pursuant to the Indemnities, Bevillesta was liable to pay Tannous the sum of $542,544.60 and to pay J & J Rahme the sum of $1,035,681.90, that Bevillesta had no defence to such claims by the Companies and that the Companies would be able to recover those sums from Bevillesta and then not pay all of that money to the ATO, as the ATO could be persuaded to take less. 8. On 27 October 2008, the Bevillesta Proceedings were commenced. 9. In December 2009, Mr Rahme and the Companies retained B & K to act for them. 10. It was a term of that retainer that B & K would perform the retainer with reasonable due skill, care and competence and would correctly advise whether the Indemnities could be enforced. 11. By reason of the retainer, or by reason of performing work for Mr Rahme and the Companies, B & K owed a duty of care to exercise reasonable due skill, care and competence in exercising the retainer or performing the work and to advise correctly whether the Indemnities could be enforced. 12. In February 2010, B & K advised Mr Rahme that:

Bevillesta was liable to pay the Companies under the Indemnities;
the pleadings in the Bevillesta Proceedings would need to be amended;
the Bevillesta Proceedings had reasonable prospects of success;
the Companies would be able to recover the sums referred to above from Bevillesta and then not pay all of that money to the ATO as the ATO could be persuaded to take less; and
failed to advise that an indemnity, such as the Indemnities given by Bevillesta, only required the indemnifying party to pay money to the indemnified party after the indemnified party had paid the debt or that there was an argument with merit that, under the Indemnities, Bevillesta was only required to pay money to the Companies after the Companies had paid the debt. 1. On 18 June 2010, each of the Companies was placed into administration and on 24 September 2010 each of the Companies was ordered to be wound up in insolvency. 2. Thereafter Mrs Rahme retained B & K at the request of Mr Rahme and B & K. 3. It was a term of that retainer that B & K would perform the retainer with reasonable due skill, care and competence, would correctly advise whether the Indemnities could be enforced and would correctly advise whether the Indemnities could be assigned. 4. By reason of that retainer, or by reason of performing work for Mrs Rahme, B & K owed a duty of care to Mrs Rahme to exercise reasonable due skill, care and competence in exercising the retainer or performing the work, to advise correctly whether the Indemnities could be enforced and to advise correctly whether the Indemnities could be assigned. 5. B & K then advised Mrs Rahme and Mr Rahme that the causes of action pleaded in the Bevillesta Proceedings could be assigned, that the preferable assignee was Mrs Rahme and that the Bevillesta Proceedings had reasonable prospects of success. 6. B & K failed to advise that an indemnity, such as the Indemnities given by Bevillesta, only required the indemnifying party to pay money to the indemnified after the indemnified party had paid the debt or that there was an argument with merit that the indemnity given by Bevillesta only required the indemnifying party to pay money to the indemnified after the indemnified had paid the debt. 7. The advice was given in trade and commerce. 8. Both Mrs Rahme and Mr Rahme relied upon the advice by having the Companies file a second further amended statement of claim in the Bevillesta Proceedings and having the Companies prosecute the Bevillesta Proceedings, by Mrs Rahme executing a deed of equitable charge over the Oatlands Property on 13 September 2010, by executing a deed of variation on 5 October 2010, by entering into the October Costs Agreement with B & K under which they became liable to pay all past and future costs associated with the Bevillesta Proceedings, by Mrs Rahme executing a deed of variation on 14 October 2010 and by Mrs Rahme paying legal fees to B & K. 9. On 9 December 2010, Mrs Rahme relied upon the advice by entering into the Deed of Sale, which purported to assign the Bevillesta Proceedings from the Companies to Mrs Rahme. 10. In accordance with the terms of the Deed of Sale, Mrs Rahme was required to pay the sum of $50,000 to the Liquidators of the Companies. 11. The Deed of Sale did not assign anything, purported to assign a bare chose in action and purported to assign a right of indemnity. 12. The Bevillesta Proceedings could not be assigned, a bare cause of action could not be assigned and the right to an indemnity could not be assigned. 13. On 12 March 2012, B & K informed Mr Rahme and Mrs Rahme that they had no cause of action because of the matters referred to in the previous two paragraphs. 14. As a consequence, the Bevillesta Proceedings were dismissed. 15. B & K breached its contract with Mr Rahme and Mrs Rahme and breached the duty of care owed to Mr Rahme and Mrs Rahme in that:
it advised Mr Rahme in December 2009 and thereafter that there was a maintainable cause of action against Bevillesta in relation to the Indemnities when there was not;
it advised Mrs Rahme and Mr Rahme from December 2010 up until 13 March 2012 that the Bevillesta Proceedings could be assigned to Mrs Rahme when they could not be assigned, the right to an indemnity could not be assigned and a bare cause of action could not be assigned;
it advised Mrs Rahme and Mr Rahme in December 2010 and thereafter up until 13 March 2012 that the Bevillesta Proceedings had reasonable prospects of success when they were bound to fail; and
it did not give advice that it was arguable or correct as a matter of law that an indemnifying party is only required to indemnify the indemnified when the indemnified had been paid the indemnified debt. 1. By reason of the breach of contract and breach of duty of care, Mrs Rahme and Mr Rahme have suffered loss and damage, being the legal fees and costs they have paid and are liable to pay in respect of the Bevillesta Proceedings and proceedings 363098 of 2015 in relation to the caveat lodged by B & K in respect of the Oatlands Property (the Caveat Proceedings), in that if they had been told that there was an argument that the Bevillesta Proceedings could not be assigned and that there was an argument that the Indemnities could not be called upon until the ATO had been paid, neither of them would have pursued the Bevillesta Proceedings. 2. The conduct of B & K in advising Mrs Rahme and Mr Rahme that the Bevillesta Proceedings could be assigned was misleading and deceptive in contravention of s 18 of the Australian Consumer Law, in that the Bevillesta Proceedings could not be assigned. 3. In the circumstances, the October Costs Agreement ought to be set aside pursuant to s 238 of the Australian Consumer Law or ss 7 and 10 of the Contracts Review Act and any money paid under it reimbursed. 4. The deed of equitable charge dated 13 September 2010, the deeds of variation dated 5 October 2010 and 14 October 2010 and the October Costs Agreement are unfair contracts within the meaning of s 7 of the Contracts Review Act and are liable to be set aside in equity in that they were entered into because of the erroneous advice of B & K, which benefitted from those contracts. 5. In particular: 1. as at 13 September 2010, 5 October 2010 and 14 October 2010, B & K was Mr Rahme's and Mrs Rahme's solicitor; and 2. as such B & K owed Mr Rahme and Mrs Rahme a fiduciary duty and was in a position to exert undue influence over Mrs Rahme; and 3. the scope of the fiduciary duty was that B & K was: * not to use information obtained by it during its retainer with either Mr Rahme or Mrs Rahme to obtain a benefit for itself; * to ensure that Mrs Rahme only charged the Oatlands Property with payment of money owing by Mr Rahme to B & K and that would become owing in the future by Mrs Rahme with fully informed consent; * to ensure that any legal advice on the equitable charge was given by a solicitor who was truly independent of B & K and Mr Rahme; and * to ask only for reasonable security for future fees and not for fees that were not in fact owed by Mrs Rahme. 1. Despite the matters referred to in paragraph 32(c): * on 13 September 2010, B & K knew that Mr Rahme had no assets whereas Mrs Rahme owned real property with sufficient equity to cover past and future fees; * for that reason, B & K advised Mr Rahme that Mrs Rahme ought to take the assignment when objectively the appropriate person to take the assignment was Mr Rahme; * B & K had no intention of treating Mrs Rahme as the client and always intended to take instructions from Mr Rahme and not Mrs Rahme; * B & K knew that Mr Rahme was enthusiastic about the prospects of the Bevillesta Proceedings succeeding and knew that Mr Rahme would exert influence over Mrs Rahme to encourage her to take the assignment and give security for past and future fees; * B & K advised Mrs Rahme to take the assignment, not because it was in Mr Rahme's or Mrs Rahme's best interest, but because it was in the best interest of B & K to obtain security for past and future fees; * B & K did not inform Mrs Rahme that the hourly rates payable under the October Costa Agreement were to be increased from the rates agreed with Mr Rahme in December 2009; * the increase in hourly rates was obtained because B & K took advantage of the situation of Mrs Rahme becoming the client and taking the assignment and providing security for past and future fees; and * B & K knew it was arguable that the Indemnities were not answerable until the indemnified tax liability had in fact been paid and that the Indemnities could not be assigned; 1. B & K never formed the view that the Bevillesta Proceedings had reasonable prospects of success and had in fact formed the view that the Bevillesta Proceedings would fail; 2. B & K did not inform Mr Rahme or Mrs Rahme of that view as B & K was obtaining security for payment of past and future fees and an increase in the hourly rates payable; 3. B & K told Mrs Rahme that she should not be prepared to give up the case because she was going to do what was right and pay B & K's fees; 4. In the premises, Mrs Rahme's entry into the deed of equitable charge of 13 September 2010, the deeds of variation of 5 October 2010 and 14 October 2010 and the October Costs Agreement were not the result of Mrs Rahme being fully informed of the obligations she was undertaking or the risk she was undertaking and were not the result of her making a voluntary and independent decision but instead the decisions were the result of B & K breaching its fiduciary duties, B & K's unconscionable conduct and B & K's undue influence over Mrs Rahme; 5. Mrs Rahme is entitled to equitable compensation for the fees and costs she had paid and is liable to pay in respect of the Bevillesta Proceedings and the Caveat Proceedings and the $50,000 paid pursuant to the Deed of Sale. 6. At all material times, Mr Khoury was the principal of B & K and for that reason: * owed a fiduciary duty to Mr Rahme and Mrs Rahme in the same terms as B & K; * was the controlling mind of B & K; * was the natural person through whom B & K undertook the actions referred to above; * accordingly was knowingly concerned in the breaches by B & K of its fiduciary duties; and * is liable to compensate Mr Rahme and Mrs Rahme pursuant to s 99 of the Civil Procedure Act. 1. Since 13 September 2010 to the present, B & K and Mr Khoury have had a fiduciary duty not to pursue Mrs Rahme for fees and costs, a fiduciary duty not to exercise any rights under the deed of equitable charge as both have known that B & K's rights to obtain payment of fees and costs from Mrs Rahme and to exercise the rights of the deed of equitable charge have arisen because B & K and Mr Khoury breached their fiduciary duties to Mrs Rahme and are both liable to pay equitable compensation in the amount that has been paid by Mrs Rahme to B & K.

Rahme v Satouris

At a glance

Court

Decision date

Before

Source

Judgment (24 paragraphs)

Parties

Legislation Cited (6)

Cases Cited (6)

Cited By (6)