SACHS GERACE LAWYERS PTY LTD v DBC INVESTMENT GROUP PTY LTD & DRC PROPERTY GROUP PTY LTD

Category: Principal judgment

Parties: Sachs Gerace Lawyers Pty Ltd (Plaintiff)
DBC Investment Group Pty Ltd (First Defendant)
DRC Property Group Pty Ltd (Second Defendant)

Representation: Counsel:
Mr J Courtenay (Plaintiff)
Solicitors:
Sachs Gerace Lawyers Pty Ltd (Plaintiff)
In person:
Mr D Diesel (sole shareholder and director on behalf of both Defendants)

File Number(s): 2024/00469285

Publication restriction: Nil

JUDGMENT

Introduction and background

1. These proceedings concern a claim in contract for unpaid legal fees for work done by the Plaintiff, Sachs Gerace Lawyers Pty Limited (Sachs Gerace), a firm of solicitors, for the Defendants, DBC Investment Group Pty Limited and DRC Property Group Pty Limited (the Companies).

2. Sachs Gerace acted for the Companies from September 2023 to October 2024 in proceedings in the Supreme Court of New South Wales in which the Companies brought a claim for damages against Reward Homes Pty Limited (Reward Homes) and Mr Michael McCrudden (Supreme Court proceedings). In the Supreme Court proceedings, the Companies appear to have claimed losses for breaches of a number of agreements for several million dollars.

3. The parties entered into a Costs Agreement dated 22 September 2023 (Costs Agreement) for the provision of legal services pursuant to which Sachs Gerace performed services in respect of the preparation for, and in the pursuit of, the Companies’ claim for damages in the Supreme Court proceedings. This work included drafting a letter of instruction (letter of instruction) for, and assisting in, the preparation of an expert report of a Mr Paul Waterhouse dated 4 July 2024 for the assessment of the value of the loss caused by the alleged breaches of the contracts between Reward Homes and the Companies (Waterhouse Report).

4. Sachs Gerace now seeks payment of the following four outstanding invoices totalling $101,037.39:

(a) Invoice 13214 issued 5 June 2024 for $35,498.35 incl GST (less part payment of $10,650.10); (b) Invoice 13307 issued 12 July 2024 for $56,407.29 incl GST; (c) Invoice 13401 issued 21 August 2024 for $14,776.85 incl GST; and (d) Invoice 13406 issued 29 August 2024 for $5,005.00 incl GST.

5. Each of the invoices comprises a bill which sets out the hours of work performed and the person who carried out the work, along with the date and the descriptions of the work performed. The bills also included itemised descriptions of any disbursements (such as counsel’s fees, ASIC searches or printing fees) which were the subject of the invoice.

6. Sachs Gerace also claims interest accrued on the unpaid amount of each invoice after seven days of issue, at the Cash Rate Target set by the Reserve Bank of Australia plus 2% (clause 5 of the General Terms of the Costs Agreement).

7. At the hearing of these proceedings, Mr Dre Diesel sought to appear for the Companies. Mr Diesel is the sole shareholder and director of the Companies and no objection was taken to him appearing for the Companies at the hearing. Mr Diesel appeared for the Companies on that basis.

8. This circumstance appears to have come about following the filing of a Notice of Intention of Ceasing to Act on 1 May 2026 by the Companies’ former solicitor in these proceedings, Mr Andrew Stewart of Stewart Law. Mr Stewart did not appear at the commencement of the hearing and his apparent withdrawal from the proceedings was not otherwise explained.

9. Mr Diesel, in his capacity as sole shareholder and director of the Companies, had provided an affidavit verifying the Companies’ Amended Defence filed 31 October 2025 (Amended Defence). Mr Diesel also had affirmed and caused to be filed on behalf of the Companies several affidavits during the course of the proceedings as will be explained below. No application was made for an adjournment by the Companies. Rather, Mr Diesel came to Court prepared to argue the Companies’ defence including with written submissions. The proceedings had been commenced in December 2024 and on 23 April 2026 had been listed for hearing by consent of the parties. In these circumstances, Mr Diesel was permitted to appear on behalf of the Companies at the hearing.

10. I have found Mr Diesel to be intelligent, articulate and courteous. I sought throughout the hearing to explain the processes and procedures of the Court and the issues which were raised in the pleadings. Mr Diesel expressed a preference to put his submissions in writing as he did at the commencement of the hearing. Mr Diesel was given an opportunity to put further submissions in writing in response to submissions advanced by Sachs Gerace and I accommodated a request by Mr Diesel to extend the page limit of his further submissions.

Issues in Dispute

11. The issues in dispute are set out in Sachs Gerace’s Statement of Claim and in the Amended Defence. A reply had been filed but Sachs Gerace did not seek to rely or prove several of the allegations contained in it and did not press the legal issue raised in [3] of the Reply.

12. The Companies do not dispute the existence and terms of the Costs Agreement or that the work which is the subject of the invoices and bills was carried out. The Companies did not raise in their Amended Defence any deficiency in the Costs Agreement or any non-compliance with the disclosure requirements under the Legal Profession Uniform Law (NSW) (LPUL). Nor did the Companies raise in their Amended Defence that there was any restriction on the commencement of proceedings by Sachs Gerace for the recovery of its unpaid legal costs. Rather, the Companies’ defence to the claim as set out in [3] and [7] of its Amended Defence was that, in substance, Sachs Gerace performed its services negligently and that as a result, the amounts already paid by the Companies, together with the invoices the subject of the claim, exceeded an amount that is fair and reasonable for the purposes of s 172 of the LPUL.

13. More specifically, it was pleaded at [7(d)] of the Amended Defence, in answer to the entire claim, that Sachs Gerace failed to warn the Companies, prior to the service of the Waterhouse Report, of alleged “patent deficiencies” of that Report which were articulated as follows:

“i. The reliance on a risk-free discount rate of 4.355% is unreasonable and uncommercial when a commercial enterprise in a property sales industry would ordinarily attract a risk-adjusted discount rate reflecting inherent business risks.

ii The omission of multiple alternative scenarios involving commercial upturns in the report and the reliance of the sole assumption on a single conservative scenario on 5% real estate growth.

iii Reliance of an inflation rate of 2.5% instead of the actual average consumer price index of 3.3 – 3.7% per annum.

iv The calculation of introducer commissions is flawed by limiting projections to just 12 sales per year and ignores the defendants’ realistic growth.

v Lack of verification creates a risk that these spreadsheets in the expert report could be excluded under the business records rule.

vi the calculation on the final outstanding invoice owed by Reward Homes Pty Ltd under the Services and Sales & Marketing Agreements was not verified by the expert.”

14. Relevantly, the Companies also alleged that:

(a) Sachs Gerace served the Waterhouse Report when the Companies did not have reasonable opportunity to consider its findings and seek further advice ([7(e)] of the Amended Defence); and (b) Sachs Gerace failed to advise the Companies that Mr Waterhouse lacked specific expertise in forensic accounting and complex economic loss quantification required for contentious litigation ([7(f)] of the Amended Defence).

15. The Companies alleged that they are required to expend further costs in the Supreme Court proceedings to rectify the Waterhouse Report ([7(j)] of the Amended Defence).

16. The Companies pleaded that the amount claimed by Sachs Gerace, together with the amounts that the Companies had already paid Sachs Gerace (over $60,000 for legal fees and disbursements), exceed what is the fair and reasonable amount allowable under s 172 of LPUL in consideration of the quality of the work done [7(k)] of the Amended Defence).

17. Having regard to the issues raised by the Companies in its pleading, it is convenient to frame the following issues for determination:

(a) Whether the Companies have established that Sachs Gerace provided any of its services negligently. As pleaded, this involves consideration of the following matters:

(i) whether the Companies have established the “patent deficiencies” alleged in [7(d)] of the Amended Defence (as set out above); and (ii) whether the Companies did not have a reasonable opportunity to consider the findings of the Waterhouse Report and whether Mr Waterhouse has been shown to lack expertise as alleged in [7(e)] and [7(f)] of the Defence;

(b) Whether provision of negligent services by Sachs Gerace as alleged in the Amended Defence entitles the Companies to a reduction in the amount claimed by Sachs Gerace by reason of s 172 of LPUL; and (c) If so, what is the quantum of any reduction?

Evidence

18. Sachs Gerace relied on an affidavit of Ms Anne Fernando affirmed 5 February 2026. Ms Fernando was the partner of the firm with responsibility for the matter for the Companies in the Supreme Court proceedings until Sachs Gerace ceased to act for the Companies in October 2024. Ms Fernando gave evidence, among other things, of the Costs Agreement, costs agreements with junior and senior counsel and the invoices issued to the Companies throughout Sachs Gerace’s retainer. This evidence was supplemented by the tender of one of the invoices the subject of the claim, which had been omitted from Ms Fernando’s affidavit.

19. Ms Fernando’s evidence was that the Supreme Court proceedings had already been commenced prior to Sachs Gerace’s retainer. Ms Ramsha Sulaman, an Associate of the firm, had day to day carriage of the matter under Ms Fernando’s supervision.

20. The material exhibited to Ms Fernando’s affidavit demonstrated that Sachs Gerace provided updated fee estimates in accordance with the Costs Agreement on 4 October 2023, 3 May 2024 and 12 July 2024 and the basis for those updates. The provision of these updates had been admitted in the Companies’ Amended Defence.

21. The material exhibited to Ms Fernando’s affidavit also showed that a draft of the letter of instruction to Mr Waterhouse, for the purpose of his report, had been provided to Mr Diesel for his review and comment. Mr Diesel evidently reviewed the letter of instruction and provided some suggested changes to it. These amendments were incorporated in the letter of instruction provided to Mr Waterhouse.

22. Without descending into detail, the bills issued by Sachs Gerace demonstrated that substantial work was carried out by it in relation to the pursuit of the Companies’ claim, including preparation and attendance at interlocutory and directions hearings, and the preparation of evidence other than in connection with the Waterhouse Report. This work included the preparation of evidence from Mr Diesel and communications and attendance with both senior and junior counsel. The invoices attach, and the bills include, disbursements in the form of counsels’ fees.

23. An examination of the itemised description of the work performed on the bills attached to the invoices in dispute shows that only a handful of entries are with respect to the expert evidence of Mr Waterhouse. That is to say that very substantial components of the work performed by Sachs Gerace, which is the subject of the unpaid invoices, do not relate to work carried out in respect of the Waterhouse Report. The invoices also did not appear to record a charge to the Companies in the form of a disbursement for Mr Waterhouse’s fees. This was not explained in the evidence.

24. Ms Fernando was cross-examined.

25. Ms Fernando did not accept that there were forensic flaws in the Waterhouse Report. She confirmed that Ms Sulaman, under her supervision, assisted with the preparation of instructions to Mr Waterhouse and liaised with Mr Waterhouse for the purpose of the preparation of his report.

26. Ms Fernando gave evidence that Ms Sulaman had put together a ‘spreadsheet of commissions’ based on documents that Mr Diesel had provided to Sachs Gerace, such as sales advices and the front pages of contracts. The spreadsheet was provided, I infer from her evidence, to Mr Waterhouse. Ms Fernando said all of the figures in the spreadsheet were referable back to a document given to Sachs Gerace by Mr Diesel.

27. Ms Fernando’s evidence was that these documents were annexed to an affidavit of Mr Diesel that had been prepared and was filed at about the same time as the Waterhouse Report had been filed. I note that no affidavit of Mr Diesel filed in the Supreme Court proceedings was read or tendered in this Court.

28. Ms Fernando said she was unaware that she was supposed to have ‘the commissions’ verified by the expert (Mr Waterhouse).

29. The Companies relied on four affidavits of Mr Diesel which had been filed in these proceedings. These affidavits were affirmed by Mr Diesel on 1 April 2025, 5 June 2025, 29 July 2025 and 3 September 2025.

30. These affidavits were apparently prepared for the purpose of interlocutory proceedings in this Court, including an application to set aside default judgment which had been entered against the Companies, and applications for extension of time to put on a defence and cross-claim in these proceedings. Ultimately, judgment was set aside and the Companies were permitted to file a defence in the form of the Amended Defence to which I have made earlier reference. No cross-claim was filed. It does not appear that any orders were made or leave given to the Companies to file a cross-claim.

31. In his affidavit of 27 July 2025, Mr Diesel said that in the Companies’ proposed defence (as at 25 July 2025), the Companies allege that Sachs Gerace was grossly negligent and that this significantly compromised the Companies’ evidentiary position and bargaining power in negotiating a settlement in the Supreme Court proceedings.

32. At this point it is sufficient to note that there was no evidence in the affidavits relied upon by the Companies of:

(a) The circumstances of the service of the Waterhouse Report or whether the Companies had an opportunity to consider its findings; (b) The costs which the Companies allege they are required to pay, or have in fact paid, to rectify the alleged deficiencies in the Waterhouse Report; (c) Any further or supplementary reports or other reports which attempted to ameliorate or cure the alleged deficiencies in, or otherwise supplement, the Waterhouse Report, either by Mr Waterhouse himself, or by any other expert. Mr Diesel’s affidavit of 5 June 2025 did include an apparent estimate of costs from a solicitor and barrister, in respect of the further prosecution of the Companies’ claims in the Supreme Court proceedings, which included the settling of a letter of instruction for a supplementary expert report of Mr Waterhouse and for the preparation of other unspecified expert and lay evidence. However, there was no evidence of whether any such work was carried out, or whether any further evidence was obtained for the purpose of the Supreme Court proceedings; or (d) What steps, if any, were taken and what developments ensued in the Companies’ pursuit of their claims in the Supreme Court proceedings after Sachs Gerace had ceased to act.

33. Counsel for Sachs Gerace did not cross-examine Mr Diesel.

34. The Companies tendered the Waterhouse Report, ultimately without objection.

35. I rejected the tender of some email communications to Mr Diesel from accountants concerning alleged deficiencies in the Waterhouse Report. I also rejected the tender of an advice on prospects by counsel prepared in April 2025 in relation to the Supreme Court proceedings, and some without prejudice communications between the Companies and Sachs Gerace with respect to the subject matter of these proceedings.

Commencement of proceedings and other matters raised by the Companies

36. Section 194 of LPUL provides:

194. Restriction on commencing proceedings to recover legal costs

(1) A law practice must not commence legal proceedings to recover legal costs from a person unless a bill has been given for the legal costs and the bill complies with the requirements of this Law and the Uniform Rules.

(2) A law practice must not commence legal proceedings to recover legal costs from a person who has been given a bill until –

(a) where the legal costs are the subject of a costs dispute before the designated local regulatory authority – the authority has closed or resolved the dispute; and

(b) at least 30 days after the later of –

(i) the date on which the person is given the bill; or

(ii) the date on which the person receives an itemised bill following a request made in accordance with section 187.

37. The parties had not referred to s 194 of LPUL or its operation in their opening written submissions. No point was taken by the Companies in their pleadings as to the maintenance of the proceedings having regard to the terms of s 194 of LPUL, or indeed any other bases. As I have observed, the Amended Defence specifically invoked the operation of s 172 of LPUL.

38. I requested submissions as to whether s 194 of LPUL should be addressed in these proceedings, and whether it had been complied with on the evidence before the Court. Counsel for Sachs Gerace accepted that compliance with s 194 is a matter that, if raised on the pleadings, may be an answer to a claim for legal costs by a defendant. However, it was not a matter that needed to be proved by a plaintiff if compliance was not in issue in the proceedings. He submitted that apart from s 172 of LPUL, no provisions of LPUL had been put in issue in proceedings as a bar or restriction to the commencement of proceedings by Sachs Gerace and Sachs Gerace had not acquiesced in any departure further from the pleadings: see Banque Commerciale SA, En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279 at 287. On that basis, he argued that as it had not been put in issue, compliance with s 194 did not need to be considered and could not be raised by the Companies in answer to the claim.

39. I accept Sachs Gerace’s submissions that as the issue of compliance with s 194 of LPUL had not been raised in the pleading, the issue of compliance does not strictly arise in these proceedings such that any non-compliance could not be raised in answer to Sachs Gerace’s claim.

40. In Calabria Community Club Ltd v Christer Nominees Pty Ltd [2025] NSWCA 65 (Calabria Community), the Court of Appeal considered whether the appellant could raise non-compliance with s 36 of the Property, Stock and Business Agent Act 2002 (NSW) (as it applied at the time) (PSB Act) to a claim for commissions in circumstances where the appellant’s defence did not contain any reference to s 36. Section 36 of the PSB Act at the relevant time provided as follows:

(1) An action or other proceedings cannot be commenced by a licensee for the recovery of remuneration or any sum as reimbursement for expenses until the expiration of 28 days after a statement of claim has been served personally or by post on the person to be charged with the remuneration or expenses.

(2) The statement of claim must be in writing, set out the amount claimed and contain details of the services performed by the licensee in respect of which the remuneration or expenses are claimed. …

41. In Calabria Community at [52]-[53] Kirk JA (with whom Adamson JA and McHugh JA agreed) stated:

“52. The Club’s defence did not contain any reference to s 36. The Club’s written submissions to this Court appeared to suggest that the provision could be taken to be in issue by reason of the parties’ reference to the Act in their pleadings, or because Christer Nominees generally bore the onus of proof. That is not so. Rule 14.14(2) of the UCPR requires that a defendant must plead specifically any matter that may take the opposite party by surprise, or which the defendant alleges makes any claim of the opposite party not maintainable, or which raises matters of fact nor arising out of the preceding pleading. In oral submissions, senior counsel for the Club properly accepted that the rule applies and the Club’s reliance on s 36 should have been specifically pleaded.

53. Pleadings and particulars serve to afford procedural fairness to the parties and to define the issues for decision in the litigation: see eg Dare v Pulham (1982) 148 CLR 658 at 664; [1982] HCA 70. Given its failure to raise the issue in its pleadings, the Club had to resort to the argument that this was one of those cases where “the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial”: quoting Dare v Pulham at 664. The burden of persuasion to establish that this was such a case rested with the Club. Its argument is not made out.” (emphasis added)

42. His Honour made reference to other procedural arguments at [54]-[63] before finding at [64] that the primary judge was correct to conclude that as non-compliance with s 36 of the PSB Act had not been pleaded by the appellant, it was not open for it to rely on the point. Similar conclusions were reached by the Court of Appeal in Boensch v Bingham [2024] NSWCA 116 (Boensch v Bingham) at [31]-[32] and [37]-[38] where the appellant did not plead non-compliance with the disclosure obligations under s 174 of LPUL. I will make further reference to the reasons in Boensch v Bingham below.

43. Counsel for Sachs Gerace, quite properly, drew my attention to Frontier Law Group Pty Ltd v Robert Glenn B**arkman [2016] NSWSC 1542 (Frontier Law Group) where Slattery J considered an application to extend a caveat on a property under s 74K of the Real Property Act 1900 (NSW), which among other things, required the Supreme Court to be satisfied that “the caveator’s claim has or may have substance”. The plaintiff’s claim was in respect of legal costs. At [32]-[41] his Honour considered that various non-compliances with LPUL, which included s 194, meant that the Court was not satisfied that the claim had or may have had substance. I do not consider that the reasons of Slattery J in Frontier Law Group, which ultimately concerned an assessment of the substance of the caveator claim, are inconsistent with the more recent Court of Appeal decisions to which I have referred to, or the application of principle which they demonstrate.

44. This is not a case where I can infer the parties chose to disregard the pleadings and to fight the case on issues chosen at the trial. Rather, counsel for Sachs Gerace expressly submitted in his opening and closing submissions, that the issues to be determined were as set out in the pleadings. The Amended Defence did not raise any non-compliance with LPUL, other than s 172 in the manner pleaded in [7(k)] (see [16] above). Reference to LPUL in the pleadings or to the onus of proof, is not sufficient. Accordingly, it is not open to the Companies to rely on non-compliance with s 194 of LPUL in answer to Sachs Gerace’s claim for unpaid invoices and it is not necessary for Sachs Gerace to establish its compliance with the terms of s 194 to prove its claim.

45. In the event that I am wrong about the consequence of the Companies’ failure to plead s 194 of LPUL in answer to the claim, I accept Sachs Gerace’s submissions, put in the alternative, that the terms of s 194 of LPUL have, in any event, been complied with.

46. As to s 194(1), the requirements as to bills are set out in LPUL Part 4.3 Division 5. The requirements, each of which I consider to have been met, are set out in summary below:

(a) A bill may be a lump sum or itemised: s 186. Each of the Invoices is itemised by way of a breakdown of professional fees, with time for Sachs Gerace’s lawyers recorded in units (of 6 minutes per cl 2 of the Costs Agreement), and separately recorded disbursements (such as counsel’s fees). (b) Any person entitled to apply for an assessment of the legal costs to which a bill relates may request the law practice given that person an itemised bill, within 30 days after the date on which the legal costs become payable: s 187. This is of no application in circumstances where the invoices are itemised, and where there is no evidence of any request having been made for an itemised bill. (c) A bill given by a law practice, or a letter accompanying the bill, must be signed by a principal of the law practice designated in the bill or letter as the responsible principal for the bill, or nominate a principal as responsible for the bill: s 188(1). If a principal does not sign or is not nominated as responsible, each principal of the law practice is taken to be a responsible principal for the bill: s 188(2). In this case, the last page of each Invoice contains a notation “Responsible principal of law practice – David Sachs”, above the bolded words “Notification of client’s rights”. (d) A bill is to be given to a client in accordance with the Legal Profession Uniform General Rules: s 189. Relevantly, rule 73 sets out how a bill is to be given to a client or agent with rule 73(1)(f) permitting email to a client who has consented to receiving bills electronically or their agent. Mr Diesel on behalf of the Companies so consented via clause 1 of the Costs Agreement, with each of the disputed Invoices (and the prior bills across the life of the matter) being sent to Mr Diesel by email. (e) A law practice must ensure that a bill includes or is accompanied by a written statement setting out (a) the avenues that are open to the client in the event of a dispute in relation to legal costs; and (b) any time limits that apply to the taking of such actions: s 192. On the last page of each Invoice under the bold heading “Notification of client’s rights”, an explanation is provided that in the event of a dispute in relation to legal costs the Companies may “seek the assistance of the NSW Commissioner” or “have the costs assessed” with the time limits notified for each of those steps (consistent with s 198 dealing with assessments, and s 272(2) and (3) dealing with referrals of costs disputes to the Commissioner).

47. As to s 194(2) there is no evidence of any costs dispute as defined, nor could there be one where the time limits for bringing one and the periods in which time could be extended in LPUL s 272, have expired. The proceedings were commenced in December 2024 whereas the last Invoice was issued on 29 August 2024.

48. Despite the fact that I had raised the issue of compliance with s 194 of LPUL with the parties, the Companies’ submissions did not focus on that issue, or whether it could be raised. Rather, the Companies’ opening and closing submissions addressed alleged failures to comply with disclosure obligations in s 174 of LPUL and submitted that the proceedings could not be maintained by reason of s 178 of LPUL. Section 178(1) of LPUL provides:

(1) If a law practice contravenes the disclosure obligations of this Part –

(a) the costs agreement concerned (if any) is void; and

(b) the client or an associated third party payer is not required to pay the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority; and

(c) the law practice must not commence or maintain proceedings for the recovery of any or all of the legal costs until they have been assessed or any costs dispute has been determined by the designated local regulatory authority or under jurisdictional legislation; and

(d) the contravention is capable of constituting unsatisfactory professional conduct or professional misconduct on the part of any principal of the law practice or any legal practitioner associate or foreign lawyer associate involved in the contravention.

49. As I have set out earlier, despite invoking s 172 of LPUL in its Amended Defence, the Companies had raised no deficiency or inadequacy concerning costs disclosure in the Costs Agreement or otherwise. The precise basis of the non-compliance, as submitted by Mr Diesel in his closing submissions for the Companies, is not easy to follow. As best I can determine, the submission is that:

(a) Sachs Gerace failed to update earlier costs disclosure pursuant to s 174(1)(b) of LPUL. The apparent basis for that failure was the pursuit of a strategy to prosecute the valuable claims of the Companies, described as being “anchored to an unverified report while the retainer was active”. This ‘radical shift’ required an updated estimate of costs, which, it was asserted, had not been given; and (b) Sachs Gerace, rather than resolving “these vulnerabilities” failed to take reasonable steps to ensure client understanding under s 174(3) of LPUL.

50. These submissions, while apparently appealing to alleged deficiencies in the Waterhouse Report, are otherwise unmoored from the pleadings. The Statement of Claim alleged the entry into the Costs Agreement, the provision of updated fee estimates and the provision of services by Sachs Gerace in the months referable to its unpaid invoices. The Companies admitted entry into the Costs Agreement, the provision of updated fee estimates and the provision of services but averred that such services had been performed negligently.

51. In circumstances where Sachs Gerace explicitly submitted that the proceedings were to be determined on the issues in the pleadings, I do not consider that it is open to the Companies to raise allegations of non-disclosure (such as they are) under s 174 of LPUL.

52. In Boensch v Bingham the Court of Appeal considered an argument by the appellant that because a solicitor failed to provide an updated costs disclosure pursuant to LPUL s 174(1)(b), the costs agreement between the appellant and lawyer was void. Relevantly, at [31]-[32] and [37]-[38] Gleeson JA (with whom White JA and Griffiths AJA agreed) said:

“[31] Compliance with the disclosure obligations under s 174(1) of the Uniform Law and the consequences of non-compliance for the costs agreement concerned (if any) under s 178(1)(a) were not issues that were pleaded by Mr Boensch in his defence or cross-claim. The pleaded issue raised by the cross-claim (pars 8-12) was that Mr Bingham had “broken” the agreement in Annexure A to the mortgage by enforcing his claim for legal costs in an amount more than the capped amount of $100,000 and prior to 1 March 2024. Accordingly, it is unsurprising that the primary judge made no findings concerning Mr Bingham’s disclosure obligations under s 174(1) of the Uniform Law, or whether the mortgage was void under s 178(1)(a) of the Uniform Law.

[32] It is said that the primary judge found that “the mortgage … was not void as regulated under s 178(1)(a) of the Uniform Law”. That is not an accurate statement of her Honour’s findings: cf [30]-[31] of the primary judgment. Insofar as it said that the primary judge erred in not finding that “there was non-compliance with disclosure obligations given the amount enforced was about $376,000, exceeding the capped amount of $100,000 under the mortgage”, this assumes that compliance with the disclosure obligations under s 174(1) was a matter in issue below. As indicated, this issue was not pleaded.

…

[37] Thus, there remained a degree of confusion in Mr Boensch’s responses to the primary judge’s questions, even after her Honour sought clarification from Mr Boensch. Nevertheless, it does not follow that the primary judge was in error in not deciding a matter which had not been pleaded, relevantly, whether Mr Bingham had contravened the disclosure obligations under s 174(1)(b), and if so, what was the effect of non-compliance on the mortgage, given s 178(1)(a).

[38] Plainly, an assertion that Mr Bingham had contravened the disclosure obligations under s 174(1)(b) was likely to be contentious. It should have been pleaded. It was not suggested by Mr Boensch that the parties had departed from the pleadings in the conduct of the trial. Nor was it suggested that it should be inferred that Mr Bingham acquiesced in such a course, assuming that course had been adopted by Mr Boensch at trial: Banque Commerciale S.A., En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279 at 287.” (emphasis added)

53. His Honour’s observations and reasoning are apposite to the present proceedings. Any alleged non-compliance with the disclosure obligations in LPUL should have been pleaded by the Companies but was not. Sachs Gerace has not acquiesced to a departure from the pleadings in the conduct of the trial. Further, neither ss 174 nor 178 can be taken to be in issue by reason of the parties’ reference to LPUL in the pleadings: Calabria Community at [52]-[53].

54. It may be observed that a failure to comply with the disclosure obligations in s 174 may become relevant to an assessment of the mandate in s 172 that a law practice must, in charging legal costs, charge costs that are no more than fair and reasonable in the circumstances. This is because the terms of s 172(4)(a) provide that a costs agreement is prima facie evidence that legal costs disclosed in the agreement are fair and reasonable if, inter alia, the provisions of Division 3 (in which s 174 is found) have been complied with. Further, s 174(3) provides that in considering whether the legal costs are fair and reasonable, regard must be had to whether the legal costs conform to any applicable requirements of Part 4.3 so that it might be argued that non-compliance with costs disclosure obligations may become relevant in that way.

55. However, these considerations do not assist the Companies. As I have explained above, they did not put in issue any matter of non-compliance with the costs disclosure obligations under Division 3 of Part 4.3 of LPUL or the consequences of matters of such non-compliance. These are matters which may take the opposite party by surprise (Uniform Civil Procedure Rules Rule 14.14(2)). This is so particularly in the circumstances of this case where the fairness and reasonableness of the amount allowable under s 172 was pleaded “in consideration of the quality of the work done”; that is, the negligence alleged in the Amended Defence rather than any allegation of non-compliance with the costs disclosure obligations in Division 3 of Part 4.3.

56. It should also be observed that an allegation of non-compliance with s 174 of LPUL is a serious matter. The consequences of non-compliance do not just have financial consequences. A contravention of the disclosure obligations is capable of constituting unsatisfactory professional conduct or professional misconduct: s 178(1)(c). These are matters which a legal practitioner should be afforded the opportunity to address if non-compliance is to be raised in proceedings.

57. In the Companies’ written submissions, Mr Diesel sought a declaration under s 178(1)(a) of LPUL that the Costs Agreement is void for contravention of s 174 of LPUL. He sought declaratory relief on behalf of the Companies that pursuant to s 178(b) of LPUL, Sachs Gerace was barred from commencing the proceedings for recovery of its costs. He also sought on behalf of the Companies declaratory relief that Sachs Gerace be disentitled from recovering fees or disbursements by reason of a total failure of consideration and commercial utility.

58. As I have observed earlier, a defence in the form of the Amended Defence was filed after default judgment had been set aside. However, it does not appear that any orders were made or leave given for the Companies to file a cross-claim.

59. In reliance on the pleadings, Sachs Gerace did not make submissions concerning its compliance with the disclosure requirements under LPUL or addressing submissions of the Companies concerning the alleged non-compliance with those requirements (such as they were).

60. In view of the admissions in the Amended Defence that updated fees estimates had been provided in accordance with the Costs Agreement on 4 October 2023, 3 May 2024 and 12 July 2024, it is likely that submissions could have been made and further evidence could have been adduced in response to the submissions made by Mr Diesel. In these circumstances, I think it is unnecessary and potentially unfair to Sachs Gerace to embark on a consideration of the substance of the submissions made on behalf of the Companies as to the asserted non-compliance with s 174 of LPUL.

61. In the circumstances, I do not consider the submissions made by the Companies that Sachs Gerace did not comply with disclosure obligations under LPUL or the consequences of any such non-compliances under s 178 of LPUL are open to be raised by the Companies in these proceedings.

Negligence and alleged deficiencies in the Waterhouse Report

62. As I observed earlier, the claim for the Companies in its Amended Defence is, in substance, that:

(a) The Waterhouse Report which was obtained on the basis of instructions prepared by Sachs Gerace and served on behalf of the Companies in the Supreme Court proceedings, was deficient; (b) Sachs Gerace failed to warn the Companies of “patent deficiencie**s of the report” and to warn that Mr Waterhouse lacked “specific expertise in forensic accounting and complex economic loss quantification required for contentious litigation”; (c) The Companies did not have a reasonable opportunity to consider the findings of the Waterhouse Report; and (d) The Companies are required to expend further costs in the Supreme Court proceedings to rectify the “defective expert report”.

63. It is convenient first to consider the deficiencies in the Waterhouse Report alleged in [7(d)] of the Amended Defence which I have extracted in [13] above.

(i) The risk-free discount rate of 4.355% is unreasonable and uncommercial

64. Mr Waterhouse was engaged to prepare an expert report providing a projection of the profit the Companies would have made on the basis that certain agreements entered into with Reward Homes had not been breached for various periods from September 2018 to each of 31 December 2024, 8 May 2042 and 8 May 2067.

65. In order to calculate the future income streams, for the periods which he had been asked to provide his projections, Mr Waterhouse chose to apply a Discounted Cash Flow (DCF) Method. One of the inputs or integers to assess the present value of future income streams in the application of that method is the interest rate. Mr Waterhouse adopted a risk-free discount rate of 4.355%. He explained his adoption of that rate at Section 13, paragraph 1 of the Waterhouse Report as follows:

“1. Discount Rate: In this case I have adopted a risk-free rate which is the return an investor would expect in a very low risk investment. The rate of 4.355% is the return on the Australian government’s ten-year bond, which is viewed as risk free. The percentage rate is one of the three inputs in a DCF.”

66. In Section 14 of the Waterhouse Report, Mr Waterhouse also stated:

“… I have adopted a discount rate of 4.355% which is the current 10-year government bond rate as at the date of this report. This is known as the risk-free rate, which is the safest form of investment. Australian government bonds are viewed as very safe.”

67. No evidence was adduced by the Companies as to why the choice of the risk-free rate was unreasonable or uncommercial, or that its adoption was defective in the circumstances. There was no evidence from any valuer (or accountant) that there was a practice or even a preference for adopting a risk adjusted discount rate reflecting inherent business risks in applying a DCF Method for a commercial enterprise “in a property sales industry”. Nor was there any evidence of what “inherent business risks” were the subject of the particularised allegation in the Amended Defence, or what the appropriate risk adjusted discount rate might have been.

68. Further, as Sachs Gerace submitted, it is not clear why the Report should have assumed any particular downside risk (or as is alleged to the opposite effect at [7(d)(ii)), upside potential). Given the very long periods for which the assessments were being conducted, it is not immediately obvious why it would be patently deficient for a valuer to approach the calculation of the present value of an income stream assuming no particular or specific risk or potential upsides.

69. The issue of any specific inherent business risks to which the Companies might be exposed in the ‘property sales industry’ or otherwise, would be a matter for other evidence, for instance, from the Companies, and then for assumption for Mr Waterhouse. There is no indication in the evidence before me that such evidence was available when the Waterhouse Report was prepared or at any subsequent time.

70. Accordingly, it is not clear how Mr Waterhouse could have factored in a percentage on the inherent risk in the business conducted by the Companies. The basis upon which such assessment should have taken place by Mr Waterhouse in the Companies’ case, has not been explained in the evidence before me.

71. Mr Diesel submitted that the use of a 4.355% discount rate introduces a ‘temporal bias that ignores the 2.83% post-2016 average, causing an unfounded suppression of damages.’

72. The evidentiary basis for this submission is not apparent. The submission also seems to be inconsistent with the allegation in the pleading that the Waterhouse Report did not factor (unidentified) inherent business risks, causing I would infer, the DCF analysis to be overstated rather than understated (suppressed).

73. There are peculiar difficulties associated with the assessment of damages for loss of opportunity and the proof of evaluation of future possibilities and past hypothetical situations as contrasted with proof of historical facts: Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4 at 355; Searle v Commonwealth of Australia (2019) 100 NSWLR 55 at [202]-[206]. The periods which Mr Waterhouse was asked to assess the future cash flows and expenses of the Companies included periods of very long duration, necessarily introducing vicissitudes and uncertainties. It has not been shown that Mr Waterhouse’s adoption of a risk-free rate was, in the circumstances, patently deficient.

(ii) The omission of multiple alternative scenarios involving commercial upturns and reliance on 5% real estate growth

74. Similarly, there was no evidence before me that the Waterhouse Report was deficient because of the omission of multiple alternative scenarios involving commercial upturns.

75. As I have observed above, the Waterhouse Report contemplated, in accordance with the instructions provided to the expert, alternative scenarios (different periods) arising from a breach of a series of agreements with Reward Homes.

76. The Waterhouse Report did, however, adopt a real estate annual growth of 5%. In this respect, Mr Waterhouse explained at Section 13, paragraph 5 of the Waterhouse Report:

“Real Estate Annual Growth Rate: of 5% is the expected future growth in real estate in Australia. The growth rate is based on the annual growth rate of Sydney property over the past 30 years. For example, if a property is worth $1,000,000 at the start of a year, it will be worth $1,050,000 at the end of that year.”

77. In Section 14 of the Waterhouse Report, the author further explained his adoption of that assumption:

“I have estimated based on the past performance of real estate in Australia that the annual growth in commissions for the subject companies would be 5%, as the amount of future commissions earned by the companies would be directly related to the annual growth rate of real estate in Sydney. Table 7 below actually shows an annual increase in real estate values of the past 30 years of 5.8%. I have adopted a conservative rate of 5%. The table below shows figures for Sydney individual suburbs are not available, but I think it is reasonable to assume that the Norwest area would be in line with the rest of Sydney as a whole. I have included a table below which is an extract of a report from CoreLogic who the leading company in Australia are that report on real estate performance, I have attached the full report in Annexure E which shows real estate growth in Sydney over the past 30 years.”

Annexure E to the Waterhouse Report was a report or article by a Research Director of Corelogic Australia entitled “The long game … 30 years of housing values”.

78. There was no indication in the evidence as to what the multiple alternative scenarios alleged in [7(d)(ii)] of the Amended Defence ought to have been or whether such multiple alternative scenarios were to be applied in relation to each of the three main breach of contract scenarios that Mr Waterhouse was asked to assess.

79. There was no evidence as to why the assumption of 5% real estate growth, which Mr Waterhouse considered was conservative at the time of his report, was inappropriate or any challenge to the reasons that he proffered in the Report for adopting it. Again, it may be accepted that the periods for the assessment undertaken provided periods of very long, and perhaps ultimately, unrealistic duration, but that in itself, does not, it seems to me, lead to the conclusion that the assumption adopted by Mr Waterhouse was patently defective. Mr Waterhouse explained he was using a 5% figure for real estate growth and why he had adopted it. The evidence before me does not reveal why that adoption was wrong.

80. I could not detect in Mr Diesel’s closing submissions any particular challenge supporting the alleged failure in the Waterhouse Report to include alternative scenarios or the adoption of the assumed 5% growth in real estate.

81. In the circumstances, I am not persuaded that there was any deficiency in the Waterhouse Report, let alone a patent deficiency, on the basis of the alleged omission of multiple alternative scenarios involving commercial upturns, or the adoption of a 5% real estate growth.

(iii) Reliance of an inflation rate of 2.5%

82. It is apparent from the Tables appearing in Annexure A to the Waterhouse Report, that in calculating Commission Earnings for the three periods the subject of assessment, Mr Waterhouse relied on a “CPI Annual Increase Rate of 2.5%”: see Tables 1, 3 and 5 in Annexure A.

83. There does not appear to be a discrete explanation of the choice of the inflation rate which is adopted in the Tables showing Mr Waterhouse’s calculations. However, there was no evidence before me of why the selection of that interest rate was deficient or patently deficient. It is not clear why the adoption of a 2.5% consumer price increase across the years is incorrect when applied in the long term as it is in Tables 1 and 3 of Annexure A to the Waterhouse Report. Nor is there any evidence before the Court as to the purported “actual’ inflation rate of 3.3-3.7% per annum, whichever period that rate is asserted to have been applicable.

84. In his closing submissions, Mr Diesel appears to submit that the actual CPI rates are referable to a historical average between 2018 to 2024. There is no evidence before me of that fact, but even assuming it to be true, there is no attempt to explain why the average for that period should be, or should have been, adopted in the calculations performed by Mr Waterhouse.

85. In these circumstances, I am not persuaded that the adoption of a 2.5% inflation rate was deficient or patently deficient. Even if some other inflation rate was appropriate to be applied in respect of the cashflows for some period or periods, the adoption of the 2.5% rate could have been adjusted without rendering the entire Report inutile.

(iv) The calculation of introducer commissions – assumption of sales per year

86. Complaint is made at [7(d)(iv)] of the Amended Defence that the calculation of “i**ntroducer c**ommissions” was flawed by limiting the projections to just twelve sales per year, ignoring the Companies’ ‘realistic growth’.

87. It appears that pursuant to one of the agreements which were the subject of the Companies’ claim in the Supreme Court proceedings, an amount was alleged to have been payable to the Companies for services provided to Reward Homes as an “Introducer Commission”. This Introducer Commission appears to have been calculated on a formula articulated in the relevant contract which was set out in the letter of instruction to Mr Waterhouse from Sachs Gerace (at [15]).

88. Mr Waterman did in fact calculate earnings referable to Introducer Commissions based on twelve sales per year in Tables 2, 4 and 6 in Annexure A to the Waterhouse Report. On this topic, Mr Waterhouse stated at Section 15 of the Waterhouse Report:

“Twelve introducer commissions were earned in 2018 (Annexure B Table 5), the amount earned was $336,000. I have used this year for my first cash inflow input into Annexure A Table 2, as the introducer commission did increase in this year, so it would be inappropriate to average the two years.”

Annexure B is referred to as ‘Company Accounts’ and Table 5 in fact records twelve sales for 2018 and thirteen sales in 2019.

89. In paragraph 2 of Section 13 headed ‘Cash Inflow’, Mr Waterhouse explained:

“There is another flow of income received by the plaintiff called Introducer earnings. This was a lump sum paid on each sale. I have elected not to increase this number of time [sic] as I do not know what basis this payment is paid.”

90. In this passage I understand Mr Waterhouse to be referring to ‘this number over time’, rather than ‘this number of time’ which appears to be a typographical error. In other words, Mr Waterhouse did not increase the number of sales over time to determine earnings from the Introducer Commissions for the purpose of his calculations because he did not understand the basis of the payment.

91. The fact or assumption of a figure of twelve sales in 2018 is reflected in the instructions given to Mr Waterhouse (see [24] of letter of instruction from Sachs Gerace to Mr Waterhouse).

92. The adoption of the assumption of twelve years in years subsequent to 2018 has not been shown in the evidence before me to have been deficient. There was no evidence before this Court as to the Companies’ “realistic growth” or whether any such projections (reasonably estimated or otherwise) were provided to or had been made available to Sachs Gerace or Mr Waterhouse at the time the Waterhouse Report was being prepared. There was simply no evidence adduced on this topic.

93. Accordingly, there is no basis to infer that any projections of the Companies’ realistic growth had been ignored by Mr Waterhouse or Sachs Gerace or whether they should even had sought such materials from the Company. Again, there was simply no evidence adduced on those topics.

94. Further, Mr Waterhouse could hardly have been criticised for incorporating or assuming (presumably) a larger number where he explained in his Report that he elected not to do so because he did not understand the basis upon which the number of Introducer Commissions were paid.

95. In these circumstances, I do not find that there was any deficiency in the Waterhouse Report on the basis of the assumption of sales for the purpose of calculating the Introducer Commissions, let alone a patent deficiency.

(v) Lack of verification of spreadsheets

96. The allegation in [7(d)(v)] of the Amended Defence is not a model of clarity. For one thing, it alleges a lack of verification without identifying with precision the subject matter or who ought to have verified that matter. It then alleges a risk that ‘these spreadsheets in the expert report’ might be excluded under ‘the business records rule’, which appears to be a reference to the exception to the hearsay rule in s 69 of the Evidence Act 1995 (NSW), without identifying with precision the spreadsheets which are subject to the risk of exclusion.

97. The allegation seems to be foundational to the Companies’ defence because it is submitted that the consequence of the alleged failure to verify rendered the Waterhouse Report inutile, and it was asserted (but not proved) directly caused the dismissal of the Supreme Court proceedings.

98. As best as I understand it, certain spreadsheets were provided to and relied upon by Mr Waterhouse in preparing the Waterhouse Report. Ms Ferando’s oral evidence was that Ms Sulaman had put together a ‘spreadsheet of commissions’ based on documents that Mr Diesel had provided, and that this was given to Mr Waterhouse (see [26] above). An Excel spreadsheet with 6 Tabs appears to have been enclosed with the letter of instruction (see paragraph 16) summarising certain sales and expenses from 2016 to 2018.

99. I am not certain whether the information in the Excel spreadsheet, referred to in the letter of instruction, was annexed to the Waterhouse Report in Annexure B. However, I do not think that anything ultimately turns on my uncertainty as to whether the relevant spreadsheets, which are the subject of the complaint as to lack of verification, were adduced in evidence before this Court.

100. At Section 8 of the Waterhouse Report, Mr Waterhouse stated in relation to the scope of the valuation:

“8.1 This is a limited scope valuation. I have not inspected in forensic detail any of the source documents relating to the subject company. I have relied on the financial information supplied to me.”

101. Accordingly, the sting of the allegation in [7(d)(v)] of the Amended Defence appears to be that Mr Waterhouse did not inspect in forensic detail sourced documents, such as the spreadsheets referred to; he did not verify them, creating a risk that they could be excluded under s 69 of the Evidence Act.

102. The complaint seems to be that there was a deficiency in the Waterhouse Report because the lack of verification by Mr Waterhouse rendered certain spreadsheets and the Waterhouse Report as a whole, inadmissible. The only evidence before me as to the failure to verify is the disclosure in Section 8 of the Waterhouse Report, which I do not consider to be inappropriate, that Mr Waterhouse did not inspect in forensic detail any of the source documents.

103. Even if it is assumed that “these spreadsheets” is a reference to the data in the Waterhouse Report from the Companies assembled by Sachs Gerace (possibly at Annexure B to the Waterhouse Report), it is not clear why a lack of verification by Mr Waterhouse is a deficiency. It is not a valuer’s role, necessarily, to verify data given to them in the sense of checking or proving the accuracy of the data – ordinarily, that is a matter for lay or other evidence. There is no evidence that there was any failure to substantiate the information provided to Mr Waterhouse.

104. Ms Fernando’s oral evidence was that Mr Diesel prepared an affidavit which was filed and served at about the same time as the Waterhouse Report. Her evidence was that Mr Diesel’s affidavit annexed the documents from which the information in the ‘commission spreadsheets’ was sourced. That affidavit and the other evidence that had been filed in support of assumptions made or materials relied upon by Mr Waterhouse, were not in evidence. The materials and information provided to Sachs Gerace or to which it had access, was also not in evidence. In the absence of any such evidence, Ms Fernando’s oral evidence that the source materials upon which the ‘commission spreadsheets’ had been prepared were annexed to Mr Diesel’s affidavit which was filed contemporaneously with the Waterhouse Report, suggests that Sachs Gerace understood the need to prove the assumptions on which the commissions spreadsheet provided to Mr Waterhouse had been prepared, and at least, an attempt had been made to prove those assumptions.

105. In his final submissions, Mr Diesel’s arguments seem to be that because the spreadsheets for unpaid commissions relied on in the Waterhouse Report were not verified by Mr Waterhouse, the spreadsheets or the data contained in them were inadmissible (under s 69 of the Evidence Act) and, Mr Waterhouse’s opinion in the Waterhouse Report would be invalidated under s 79 of the Evidence Act relying on Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 (Makita). His submission, as best as I can understand it, is that the Companies do not challenge the mathematical accuracy or derivation of the commissions figure which he asserts were calculated by Sachs Gerace and used in the Waterhouse Report. Rather, the submission is as he describes it “the total absence of independent verification of the data”, which Mr Waterhouse did not undertake or complete.

106. As such, I consider the submission to be misconceived. The facts assumed or accepted by an expert on which opinion evidence is based need not be proved by the expert herself or himself. Mr Waterhouse stated that he adopted or used historical commissions earned by the Companies for the purpose of his calculations for the assessment of future earnings (Section 13, paragraph 2 of the Waterhouse Report). It was not necessary for him to prove the commissions he adopted for the purpose of calculating his projections in order for the opinions expressed in his Report to be admissible under s 79 of the Evidence Act, or to conform with the principles expressed in Makita (see [64] and the summary of principles collected at [85] in the reasons of Heydon JA).

107. Mr Waterhouse candidly disclosed that he did not perform a forensic examination of the source documents that were provided to him. That in itself would not have rendered the information provided to him inadmissible or render the entirety of his opinion evidence in the Waterhouse Report inadmissible. It is true that to the extent that opinions expressed in the Waterhouse Report relied upon assumptions or accepted facts concerning historical commission (unpaid or otherwise), the facts that those commissions had been earned by the Companies would need to be proved (or agreed). That could be done through company records (possibly deploying s 69 of the Evidence Act) or other evidence and could be adduced by lay witnesses or, if the need arose, by other expert evidence. As I have said, the evidence before me of Ms Fernando suggests that the source documents used for the preparation of the commission spreadsheets provided to Mr Waterhouse were annexed to Mr Diesel’s own affidavit filed at about the same time as the Waterhouse Report.

108. Other than the evidence of Ms Fernando, it is not clear what evidence was in fact filed in the Supreme Court proceedings either at the time of filing the Waterhouse Report or subsequently. Nor is it clear what evidence the Companies had the capacity to prepare at the time that the Waterhouse Report was filed or subsequently. Be that as it may, the proposition that the entire Waterhouse Report was defective for the reason that it would be inadmissible in the Supreme Court proceedings because Mr Waterhouse did not verify information concerning the Companies’ commission earnings is, in my opinion, flawed and there is no evidence that a failure by Mr Waterhouse to verify the accuracy of the source material from the Companies rendered the Waterhouse Report patently defective for the purpose of advancing the Companies’ claim in those proceedings.

109. In these circumstances I am not satisfied that there was any deficiency, let alone a patent deficiency in the Waterhouse Report by reason of a lack of verification by Mr Waterhouse of spreadsheets relied upon by him (whether or not they were attached to his report).

(vi) Calculation of the final outstanding invoice

110. There was no evidence concerning the final outstanding invoice owed by Reward Homes under the relevant agreements, or its calculation. It is not apparent in the Waterhouse Report or otherwise what this refers to. There was no evidence whether or not the calculation of this invoice had been provided to Mr Waterhouse, or whether he had inspected it or verified it. The invoice itself was not in evidence.

111. There is simply no evidentiary basis to establish the allegation in [7(d)(vi)] of the Amended Defence. Whether an amount was, or would be, payable under a commercial invoice would ordinarily be a matter to be substantiated by lay evidence, or, potentially, the proper construction of the relevant contract between the parties in the Supreme Court proceedings.

112. In any event, there is no demonstrable failure or defect in the Waterhouse Report even if it be assumed that Mr Waterhouse failed to verify the calculation.

113. I am not satisfied that the Companies have established a deficiency, let alone a patent deficiency in the Waterhouse Report by reason of the matters alleged in [7(d)(vi)] of the Amended Defence.

114. For the reasons set out above, I am not satisfied that the Companies have established any of the matters that they have alleged in the Waterhouse Report are deficiencies, let alone “patent deficiencies”.

Failure of Sachs Gerace to advise about the alleged deficiencies in the Waterhouse Report

115. As I have found that the Companies have not established that any of the matters they complain of in the Waterhouse Report as pleaded in the Amended Defence were deficiencies, let alone patent deficiencies, the claim that Sachs Gerace failed to warn the Companies about these matters prior to the service of the Report must also fail.

116. There was in any event, no evidence before the Court of what a reasonable solicitor in the circumstances would have done in preparing the letter of instruction or receiving the draft or drafts of the Waterhouse Report.

117. The letter of instruction enclosed the Expert witness code of conduct in Schedule 7 of the Uniform Civil Procedure Rules 2005 (Expert witness code) and advised Mr Waterhouse that he must read and comply with them. The Waterhouse Report attached the Expert witness code as Attachment D and contained a statement by Mr Waterhouse that he read, understood and agreed to be bound by them.

118. Even if the allegations as to the deficiencies of the report were substantiated, they do not belie negligence on the part of Sachs Gerace. The alleged deficiencies concerning the discount rate, the adoption of the real estate growth, and the inflation rate, do not self-evidently suggest they ought to have been detected as errors by a reasonably competent solicitor. Similarly, without more, the complaints concerning the adoption of sales per year for the Introducer Commissions, and the lack of verification of source materials in the form of the spreadsheets or the calculation of the final invoice, even if established, are not matters that would present as self-evident deficiencies to a reasonably competent solicitor.

119. There is nothing before the Court to indicate that a reasonable solicitor should have identified the alleged deficiencies in the report, nor acted any differently than Sachs Gerace did in the circumstances.

No reasonable opportunity to consider findings of the Waterhouse Report

120. At [7(e)] of the Amended Defence the Companies allege that the Report was served on the defendants in the Supreme Court proceedings the day after it was received by Sachs Gerace, when the Companies did not have a reasonable opportunity to consider the findings of the Waterhouse Report and seek further advice.

121. Again, there is no evidence on this topic from the Companies.

122. Sachs Gerace’s itemised invoice dated 12 July 2024 discloses a series of time entries recording work done by Sachs Gerace and counsel between 1 July and 4 July 2024 on a draft of the Waterhouse Report with a final entry on 5 July 2024 for a perusal of (presumably in final form) of the Waterhouse Report. That evidence does not establish whether or not the Companies were consulted about the Report directly, but it is evident that consideration was given to the Report by the solicitors and counsel. There is no evidence from the Companies as to the provision of the Waterhouse Report to them, either in final or draft form. As I have observed earlier, the instructions provided to Mr Waterhouse were provided to Mr Diesel for his comment or his review, and he did comment on them.

123. There is otherwise no evidence that Sachs Gerace were negligent in taking the course they did, or that they failed to provide a reasonable opportunity for the Companies to comment on the Waterhouse Report.

Mr Waterhouse’s experience and expertise

124. The Companies allege that Sachs Gerace failed to advise them that Mr Waterhouse lacks specific expertise in forensic accounting and complex economic loss quantification required for contentious litigation ([7(f)] of the Amended Defence).

125. The Waterhouse Report stated at [7.1] that Mr Waterhouse is a Certified Business Valuer with the Australian Valuers Institute. A copy of his Curriculum Vitae (CV) was attached as Annexure F to the Waterhouse Report.

126. Mr Waterhouse’s CV reveals that he had obtained tertiary qualifications including an Advanced Diploma in Property Valuation and a Bachelor of Property Valuation from the Western Sydney Institute of TAFE in 2008, and that he had completed a Chartered Accountants Australia & New Zealand Business Valuation Specialisation Course at Macquarie University in 2012. His qualifications included being a Certificate Business Valuer and a Specialist Retail Valuer, a Certified Property Valuer in New South Wales, Victoria, South Australia, Tasmania and the Northern Territory, and a Registered Property Valuer in Queensland.

127. Mr Waterhouse’s CV stated that he was a director and partner of Waterhouse Valuation. It appears he has been with that firm since 2007. His work experience included providing expert witness evidence in relation to property and business valuation reports and services for proceedings heard in the Supreme Court of New South Wales, the Supreme Court of Victoria, the District Court of New South Wales and the Federal Circuit and Family Court of Australia.

128. Mr Waterhouse’s CV also recorded that since 2012 he has been the Chairman and a Board member of the Australian Valuers Institute.

129. The Companies led no evidence, other than what is contained in the Waterhouse Report, about Mr Waterhouse’s expertise or experience. There was no suggestion in the evidence that the matters disclosed in the Waterhouse Report and in his CV as to his training, study or experience were otherwise as they were stated.

130. Mr Diesel’s submissions did not develop why it was that a person with Mr Waterhouse’s stated expertise, by reason of training, study or experience, was unfit to prepare an expert report providing a projection of the profit the Companies would have made but for the alleged breaches of the relevant agreements by Reward Homes.

131. It is not immediately apparent without explanation or evidence why specific expertise in forensic accounting was necessary for the purpose of calculating the future revenue streams that were the subject of the loss of opportunity claim that it appears the Companies were pursuing in the Supreme Court proceedings. Nor did the Companies establish that, for the purposes of pursuing their claim, Mr Waterhouse did not have experience to conduct an analysis or valuation of complex economic loss quantification required for contentious litigation. On its face, his CV disclosed the necessary study and training as a valuer, and he appears to have provided expert evidence in a number of substantial matters concerning valuation and the assessment of damages in Courts around the country, including the Supreme Court of New South Wales and the Supreme Court of Victoria.

132. In my opinion, the Companies have not established that Mr Waterhouse lacked the specific expertise to prepare the Report on the basis of the engagement which was disclosed in the instructions to Mr Waterhouse. I am not satisfied on the evidence before the Court that specific expertise in forensic accounting and complex economic loss quantification was something that was required of an expert in Mr Waterhouse’s position. Nor am I satisfied that Mr Waterhouse did not have expertise, if it was required, in complex economic loss quantification required for contentious litigation.

133. Further, there is no evidence before the Court that in the circumstances a reasonably competent solicitor would have advised the Companies that Mr Waterhouse did not have the necessary expertise to either prepare the Waterhouse Report or to substantiate the claim for loss of opportunity damages in the Supreme Court proceedings.

134. For the reasons set out above, the allegations made by the Companies in [3] and [7] of the Amended Defence that Sachs Gerace acted negligently, must fail.

Reduction under section 172 of LPUL

135. In its Amended Defence, the Companies alleged that by reason of the negligence of Sachs Gerace, the payment by them of over $60,000 for legal fees and disbursements, and the requirement for them to expend further costs in the Supreme Court proceedings to rectify the deficiencies in the Waterhouse Report, the amount claimed exceeded what is the fair and reasonable amount allowed under s 172 of LPUL in consideration of the quality of the work done.

136. Sections 172(2) and (3) contain mandatory considerations with respect to the assessment in s 172(1), but only s 172(2)(e), namely “the quality of the work done” appears to be of relevance to the allegation of negligence in this case. The Companies seek expressly to engage s 172(2)(e) by alleging the fees claimed along with the fees already paid exceed what is fair and reasonable in consideration of the quality of the work done. That is, the Companies’ answer to the claim, is that the negligent performance of the work by Sachs Gerace (being a matter going to the quality of the work done) renders the amount claimed, together with amounts already paid, to exceed what is the fair and reasonable amount under s 172 of LPUL.

137. A solicitor’s duty to exercise reasonable care and skill is an implied term of the retainer for which the solicitor remains contractually liable: Astley v Austrust Ltd (1999) 197 CLR 1. Losses caused by an established failure to exercise care and skill might be pleaded by way of set off or presented by cross-claim. No set-off was pleaded and no cross-claim has been filed. There was no pleaded allegation of a failure of consideration. The only defence pleaded was to invoke the operation of s 172 in the manner I have explained. However, the Companies have not established the alleged deficiencies in the Waterhouse Report or that Sachs Gerace acted negligently as alleged.

138. Accordingly, it seems to me that there is no basis to find that the amount claimed by Sachs Gerace (including legal costs already paid) exceed what is fair and reasonable under s 172 of LPUL in consideration of the quality of the work done. The only pleaded allegation concerning the quality of the work was that it was performed negligently.

139. In these circumstances, it is not strictly necessary in this case for me to consider whether s 172 of LPUL would provide a basis for the Companies’ defence to the claim in contract for payment of legal fees under the Costs Agreement.

140. I raised with the parties at the hearing whether s 172 could be set up in defence to Sachs Gerace’s claim for unpaid legal costs if the Companies established their allegations of negligence. The Companies’ written submissions did not address the question, but assumed that s 172 could be raised as a defence to reduce or extinguish the claim for unpaid fees. Sachs Gerace also appeared to accept the proposition in its opening submissions (at [15]-[17]) but then availed itself of the opportunity to put on further submissions on the point in closing submissions.

141. Section 172(1) of LPUL provides:

(1) A law practice must, in charging legal costs, charge costs that are no more than fair and reasonable in all the circumstances and that in particular are –

(a) proportionately and reasonably incurred; and

(b) proportionate and reasonable in amount.

142. Sections 172(2) and (3) contain matters to which regard must be had in considering whether legal costs satisfy the standard in s 172(1).

143. Counsel for Sachs Gerace was not able to locate any decision where s 172 has been relied upon directly as a defence to a claim brought in contract for unpaid fees.

144. LPUL is silent as to whether s 172 may be raised as a defence directly in response to a claim for breach of contract based on a costs agreement. Counsel for Sachs Gerace submitted ultimately in his closing written submissions, that it could not be.

145. Sections 178(1)(b) and 194 of LPUL to which I have referred above, set out certain restrictions on commencing proceedings to recover legal costs. Section 184 of LPUL, which is found in Division 4 – Costs Agreements, provides that:

184 Effect of costs agreement

Subject to this Law, a costs agreement may be enforced in the same way as any other contract.

146. The terms of s 184, by expressly providing that enforcement of a costs agreement is subject to LPUL, may provide a basis for determining a claim in contract for the enforcement of a costs agreement made under the terms of LPUL by reference to s 172. Section 172 is found in the same Part 4.3 as s 184 and appears in Division 2 headed ‘Legal Costs generally’. Section 169 of LPUL sets out the objectives of Part 4.3:

169 Objectives

The objectives of this Part are –

(a) to ensure that clients of law practices are able to make informed choices about their legal options and the costs associated with pursuing those options; and

(b) to provide that law practices must not charge more than fair and reasonable amounts for legal costs; and

(c) to provide a framework for assessment of legal costs.

147. The terms of s 172 by setting out a general prohibition in relation to the charging of legal costs may be characterised as containing matters going to the enforcement of a costs agreement. That characterisation is reinforced by the terms of s 172(4) which provides that a costs agreement is prima facie evidence that legal costs disclosed in the costs agreement are fair and reasonable if the provision of Division 3 have been complied with and the costs agreement was not entered into in contravention of Division 4. The purpose and process of charging is not ordinarily an end in itself, but undertaken for the establishment of a liability of the client to pay, or for the law practice to recover, legal costs.

148. However, there are indications the other way. First, s 172 is couched, in general terms, as a prohibition in the charging of legal costs by a law practice that are more than fair and reasonable in the circumstances, and not an express prohibition for the recovery of fees. The prohibition is directed to a legal practice and does not in terms create a private right in a client or counter party, neither of which are referred to in that section.

149. Secondly, other than the reference to LPUL generally in s 184, there is no express provision in LPUL that the terms of s 172 are to operate in respect of proceedings commenced to recover legal costs. In particular, there is no reference to s 172 in Division 6, headed ‘Unpaid Legal Costs’ in which s 194 is found. Section 194 addresses restrictions on commencing proceedings to recover legal costs but does not address any rights or restrictions in respect of such proceedings once commenced. Section 195, which I will refer to below, addresses the charging of interest on unpaid legal costs under a costs agreement.

150. On the other hand, s 199(1) of LPUL provides that the assessment of legal costs are to be conducted by costs assessors in accordance with inter alia Part 4.3, which includes s 172. In considering whether legal costs for legal work are fair and reasonable, the costs assessor must apply the principles in s 172 so far as they are applicable: s 200(1). Section 76 of the Legal Profession Uniform Law Application Act 2014 (Application Act) also makes s 172 relevant when conducting an assessment of ordered costs: see Turvey v Crotti (No 3) [2020] NSWSC 346 at [12]-[13] (Emmett AJA).

151. Thirdly, s 207 of LPUL provides that a contravention of a requirement of Part 4.3 that a law practice must not charge more than fair and reasonable costs is capable of constituting unsatisfactory professional conduct or professional misconduct. So a consequence of non-compliance with s 172 is addressed expressly in s 207 of LPUL in terms of disciplinary action and disciplinary findings.

152. Counsel for Sachs Gerace submitted in closing submissions that Part 4.3 Division 7 contemplates costs assessments being undertaken by specialist cost assessors who could be expected to have experience in the area, whereas the matters that s 172(2) requires to be considered are not easily taken into account by a Court. It was further argued that s 203 of LPUL provides that in disciplinary proceedings, determinations of costs assessors (which would be necessarily based on s 172) are admissible as evidence as to the fairness and reasonableness of legal costs – it would be unusual, it was submitted, if the Court were called upon to exercise evaluative judgment under s 172 and be required to also take into account another person’s evaluative judgment.

153. While I accept that costs assessors do perform specialised work under the statutory framework provided by LPUL, I do not consider that the mandatory considerations in ss 172(2) or (3) are matters of a kind which are foreign to the determination by Courts or upon which Courts are not equipped to adjudicate. I do not think the terms of s 203, point one way or the other as to the ambit of the operation of s 172. Disciplinary action initiated under s 207 is not dependent on any of the parties applying for a costs assessment under Part 4.3 Division 7.

154. Further, as counsel for Sachs Gerace submitted, the LPUL does contemplate at least the possibility of a Court applying s 172, by way of s 205, which contemplates that a decision of a costs assessor may be appealed in accordance with the applicable jurisdictional legislation. In New South Wales that is the Application Act, Part 7 Division 6, which provides for an appeal from the Review Panel to either the District Court or Supreme Court proceedings depending on the value. On the current form of the Application Act, such an appeal is by way of rehearing which requires that identification of error before the Court would determine the reasonableness of the costs itself, or remit the matter to a Review Panel: see Shalhoub v Johnson [2023] NSWDC 555.

155. In circumstances where I have found that the deficiencies alleged in the Waterhouse Report have not been established, and that no negligent conduct as alleged against Sachs Gerace has been established, the pleaded basis for the denial or reduction of Sachs Gerace’s unpaid costs falls away. The Companies, as I have said, assumed the operation of s 172 in the circumstances but did not make submissions as to why it did. For these reasons, I do not think it is necessary, and that this is an appropriate case, to reach a firm conclusion that s 172 would have provided a defence to Sachs Gerace’s claim in contract.

156. My preliminary view, in the absence of any authority drawn to my attention, is that there are real difficulties in raising the terms of s 172 as a defence to a proceeding commenced for unpaid fees as a matter of contract where it is alleged that the work was performed negligently.

157. Section 172 requires a legal practice to charge legal costs that are no more than fair and reasonable. That section is central to one of the objectives of Part 4.3 as stated in s 169(b). But that objective needs to be understood in its context which includes, as set out in s 169(c), to provide a framework for assessment of legal costs. Section 172 does not in terms create a private right in a client and s 172 is not in its terms expressed to apply to proceedings that have been commenced to recover legal costs from a person.

158. On the other hand, the provisions of Part 4.3 expressly provide for the operation of s 172 in the costs assessment process: a costs assessor must apply the principles in s 172 so far as they are applicable in considering whether legal costs for legal work are fair and reasonable under ss 199 and 200. Likewise, s 207 makes it explicit that a contravention of a requirement in Part 4.3, that a law practice must not charge more than fair and reasonable costs, is capable of constituting unsatisfactory professional conduct or professional misconduct.

159. In these circumstances, having regard to the terms of s 172, I am not convinced that the opening words of s 184 (“Subject to this Law”) were intended to have the effect that the prohibition in s 172 could be raised in a proceeding commenced to recover unpaid legal costs.

160. The provisions in Part 4.3 Division 3 set out disclosure obligations of law practices regarding costs, including the right to request an itemised bill and the right to seek assistance of the designated legal authority in the event of a dispute about legal costs. Division 7 sets out a regime for costs assessment, which, as I have indicated, mandates the application of the principles in s 172 so far as they are applicable. I consider that it would be open in a costs assessment to raise whether the legal costs reasonably reflect the quality of the work done under s 172(2)(e) by alleging that the work was performed negligently. However, there are time limits imposed on the making of an application for assessment under s 198 of LPUL. It seems to me that these limitations and the evident purpose and objective of Part 4.3 to establish a framework and machinery for costs assessment might be avoided or undermined if a party was able to raise the matters set out in s 172 as of right in a defence to a proceeding to recover legal costs.

161. That is not to say that a defence of negligence cannot be raised in answer to a proceeding commenced to recover unpaid legal costs. However, such a defence would rest on ordinary contractual principles and Court procedures. As I have observed above, without being exhaustive, a defence of set off might be established for the loss claimed by reason of a pleaded breach of an express or implied term in a costs agreement and a client might seek to recover such loss by way of cross-claim. Arguments, if properly pleaded, might be available as to the consequences of non-compliance with the provisions of LPUL in relation to obligations of disclosure or the requirements for the commencement of the proceedings. None of these scenarios have been properly availed of by the Companies in this case.

What is the quantum of any reduction?

162. I have found for the reasons stated above that the Companies have not established the deficiencies alleged in the Waterhouse Report or that Sachs Gerace performed service negligently as alleged.

163. It should also be observed that only a handful of entries itemised in the invoices the subject of the claim, appear to relate to the preparation of the Waterhouse Report. Mr Waterhouse’s fees do not appear in any of the disbursements the subject of the claim.

164. There is no evidence before the Court that any attempts were made to rectify the alleged deficiencies in the Waterhouse Report (such as by a supplementary report), or if such work was undertaken in the Supreme Court proceedings, what that work entailed or what it cost. This absence of evidence is even more stark where Mr Diesel’s affidavit of 5 June 2025 included an apparent estimate of costs for carrying out such work (see [32(c)] above).

165. In the absence of any such evidence, Mr Diesel submitted, that the deficiencies in the Waterhouse Report and in particular, Mr Waterhouse’s failure to verify the ‘spreadsheets’ directly caused the dismissal of the Supreme Court proceedings, as the Companies could no longer secure insurance and litigation funding for their case.

166. Mr Diesel also said in his affidavit of 29 July 2025 (in support of orders setting aside default judgment) that the Companies allege that Sachs Gerace’s gross negligence significantly compromised the Companies’ evidentiary position and bargaining power in negotiating a settlement in the Supreme Court proceedings.

167. However, there is no evidence of what steps were taken and what developments ensued in the Supreme Court proceedings after Sachs Gerace ceased to act in October 2024.

168. In these circumstances, Mr Diesel’s submissions that the pleaded deficiencies in the Waterhouse Report and the alleged negligence of Sachs Gerace compromised the Companies’ evidentiary position and bargaining power or caused the Supreme Court proceedings to be dismissed such that the work undertaken by Sachs Gerace to be inutile or without any value, are mere assertions. As counsel for Sachs Gerace submitted, these assertions are at most evidence of what the Companies claimed, not whether what they claimed was true. It is not possible for the Court to determine on the evidence before it that Sachs Gerace’s services with respect to the Waterhouse Report caused the value of the services rendered to be lessened, or caused any harm to the Companies.

169. It follows that the Companies have failed to establish the basis upon which they plead that the legal fees claimed by Sachs Gerace should be reduced or extinguished. I am not satisfied that, even if s 172 could be raised in answer to the claim, any reduction of the amount claimed for unpaid fees has been established or would be warranted.

170. As no cross-claim been has filed by the Companies, the order sought in Mr Diesel’s submissions that Sachs Gerace repay to the Companies the sum of $61,000 is not maintainable, and must be rejected.

Conclusion

171. As the pleaded defence of the Companies has not been made out, Sachs Gerace are entitled to recover the amount of the unpaid monies which are the subject of their claim. These amount to $101,037.39. Sachs Gerace is entitled to judgment against the Companies in this amount.

172. Sachs Gerace also claims interest on unpaid fees applying the interest rate in the Costs Agreement for the period running from 7 clear days after the issue of each invoice, giving interest to the date of trial totalling $12,394.69. The calculation of that amount of interest has not been put in dispute by the Companies.

173. Section 195 of LPUL provides that a law practice may charge interest on unpaid legal costs in accordance with the applicable terms of a costs agreement. The Costs Agreement, as I have indicated above, provided that interest accrued on unpaid invoices after 7 days of issue at the RBA Cash Rate Target plus 2% (clause 5 of General Terms of the Costs Agreement). That interest rate does not exceed the rate specified under Rule 75 of the Legal Profession Uniform General Rules 2015 for the purpose of s 195(4) of LPUL. The bills the subject of the claim for unpaid legal fees each contain a statement that interest is payable at the rate of interest as specified in the Costs Agreement: s 195(3) of LPUL.

174. In these circumstances, it is appropriate to award interest on the unpaid legal fees in the amount claimed by Sachs Gerace pursuant to the Costs Agreement.

175. Accordingly, I will make an order for judgment in the amount of $101,037.39 comprising the total of the unpaid legal fees in the four invoices which are the subject of Sach Gerace’s claim, together with interest in the amount of $12,394.69 pursuant to the Costs Agreement.

176. Sachs Gerace has succeeded in its claim to recover its legal costs. It has not sought any special costs order. In these circumstances the Companies should pay Sachs Gerace’s costs on the ordinary basis as agreed or assessed.

Orders

177. For these reasons, the Court orders:

178. Judgment for the Plaintiff against the First Defendant and the Second Defendant in the amount of $113,432.08.

179. The First Defendant and the Second Defendant pay the Plaintiff’s costs as agreed, or if not agreed, as assessed.

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