Salmon v Albarran

Supreme Court of NSW|2021-02-09|Before: Parker J, Slattery J

Judgment

This interlocutory judgment arises out of two separate applications by the plaintiffs for leave to amend their Statement of Claim. The form of the amendment is now largely uncontroversial. This judgment deals with the remaining area of controversy about the form in which the amendments should be permitted, and costs.
The plaintiffs sue as assignees of Terra Cresta Business Services Pty Ltd ("TCBS"). TCBS was placed in liquidation in July 2008. Before then its business was the provision of management, accountancy and consulting services.
The second plaintiff, TCBS Group Holdings Pty Ltd ("TCBSGH"), was the holding company of TCBS. The first plaintiff, Owen Salmon, was a director of both TCBSGH and TCBS. He appears to have controlled both companies' affairs.
The third defendant, Steven Brown, is a solicitor who previously acted for TCBS (and according to Mr Salmon, for him personally). Mr Brown is sued for breach of duty and fraud in acting for TCBS, between 2006 and 2008, in a commercial dispute. The dispute was with two of TCBS' customers, known as BACF and BACM, which between them allegedly owed TCBS more than $1.5 million.
The first defendant, Richard Albarran, and the second defendant, Geoffrey David McDonald, are (or were at relevant times) partners of the accountancy firm, Hall Chadwick. Mr Albarran and Mr McDonald were appointed by TCBS as the receivers of BACF and BACM. They are sued for breach of duty as receivers and also for participation in Mr Brown's alleged breaches of duties as a solicitor.
I will refer to Mr Albarran and Mr McDonald as the "Receivers". The fourth to eighth defendants are other partners of Hall Chadwick. I will refer to them and the Receivers collectively as the "Hall Chadwick partners".

Applications to amend Statement of Claim

The first notice of motion was filed by the plaintiffs on 3 August. The application came on for hearing before me on 28 August. Following argument, it became apparent (and counsel for the plaintiffs accepted) that the proposed new Statement of Claim was still inadequate. I refused leave to amend, dismissing the motion.
The defendants also applied to have paragraphs 61-70 of the existing Statement of Claim struck out. These paragraphs pleaded the plaintiffs' deceit claims. Counsel for the defendants contended that, on analysis, these paragraphs also fell foul of the views I had expressed at the hearing on 27 April. Counsel for the plaintiffs did not oppose that course.
The result was to dispose of the notice of motion, except for the question of costs, which were reserved. At the request of counsel for the plaintiffs, I then made directions for the making of another amendment application.
The plaintiffs' further notice of motion was filed on 6 October. In correspondence, the defendants' solicitors raised complaints about the form of the proposed pleading. The application was listed before me on 13 November but owing to difficulties with the plaintiffs' representation could not be heard.
The plaintiffs' legal representatives then decided to produce a new version of the Statement of Claim to meet the defendants' criticisms. This was done and an amended notice of motion seeking leave to amend in accordance with a new version of the Statement of Claim was filed on 1 December. The motion was eventually fixed for hearing before me on 9 February this year.
The Hall Chadwick partners formally took the position on the application that no amendment was permissible. Their contention was that all of the existing pleaded causes of action are statute barred, and that in these circumstances the Court has no power to allow an amendment which would introduce a new cause of action. But counsel for the Hall Chadwick partners recognised that it would not be practicable to determine in advance of the final hearing whether the existing claims are statute barred. Counsel thus proposed a form of order, to which counsel for the plaintiffs agreed, which would effectively defer this issue until the trial.
On this issue, Mr Brown is not in the same position as the Hall Chadwick defendants. It is not contended on his behalf that all of the existing pleaded causes of action against him are statute barred. But as a matter of discretion, the point is taken on his behalf that the Court should not permit amendments which would relate back to the beginning of the proceedings. Again however it is accepted that the issue should be preserved for argument at the trial.
Counsel for the Hall Chadwick defendants took no point about the form of the amendments themselves. The points taken by counsel for Mr Brown were limited. In the course of argument counsel raised the point that the personal claims against Mr Brown remain listed in his bankruptcy trustee. But counsel eventually accepted that this depended on a factual issue, namely whether the claims had been disclosed in Mr Salmon's report as to affairs. Counsel accepted that if the point is to be raised at all, that should be done after the factual issues have been dealt with by way of pleading.
The only issue on which counsel for Mr Brown asked me to make a ruling concerned Mr Brown's immunity defence. Counsel submitted that on their face, various aspects of the claim against Mr Brown were squarely covered by the immunity. Counsel submitted that the application of the immunity was so clear that this was an appropriate case to strike out those aspects of the claim as being hopeless, rather than requiring Mr Brown to plead to them.
Counsel for Mr Brown focused on two aspects of the claim. The first is pleaded in paragraphs 133 and 133A. These paragraphs complain about the failure by Mr Brown to put certain evidence before the Court in the course of the hearing in September 2006. That evidence went to the solvency of BACM when the charge was granted. Elsewhere in the proposed pleading (paragraph 113A), the plaintiffs expressly allege that had the evidence been put before the Court "it is likely" that Young CJ in Eq would have found that BACM was solvent on that date.
Counsel next pointed to paragraph 133C of the proposed pleading. That complains about Mr Brown's failure to seek a costs order against Mr Wily for TCBS' costs of successfully defending the validity of the charge over BACF. The paragraph goes on to state that TCBS was left without any sum to set off against the costs order made in favour of Mr Wily, which was the basis for the winding up order against it. Although the pleading does not allege in so many words that if a costs order had been sought it would have been made, counsel for the plaintiffs accepted that implicitly that is the allegation.
Counsel for Mr Brown submitted that in the circumstances the claims fall squarely within the immunity. In order to uphold those claims, the Court would have to conclude that the decisions made by Young CJ in Eq on solvency and costs were the incorrect ones in the circumstances. This is the very sort of enquiry which the immunity exists to prevent: Attwells at [35]. In passing, I note that counsel for the third defendant initially made a similar argument about part of paragraph 135 of the proposed Statement of Claim. But when the allegations were explained by counsel for the plaintiffs, counsel for Mr Brown accepted that they do not attract the immunity.
For his part, counsel for the plaintiffs submitted that the immunity does not apply when the claim is one of fraud. This provoked a riposte from counsel for Mr Brown that the conduct in question is not alleged in the pleading to have been fraudulent.
Counsel for the plaintiffs did not cite any authority in support of the proposition that the immunity does not extend to fraudulent conduct. The purpose of the immunity is, as I have already indicated, to prevent a claim against a lawyer who acted in earlier proceedings in which a judicial decision was made from becoming a vehicle for collateral challenge to that decision. It is not easy to see why, as a matter of principle, the allegation that the lawyer's conduct was fraudulent should make any difference.
Nevertheless, I do not propose to disallow the relevant paragraphs of the plaintiffs' Statement of Claim. Disallowing those paragraphs would not dispose of the causes of action alleged against Mr Brown; his counsel accepted that other aspects of his conduct of the 2006 proceedings (for instance, failure to pursue the separate hearing into quantum) would not attract the immunity. At the moment, it is not clear that disallowing those particular aspects of the claim would result in any substantial shortening of the proceedings. And the point about the application of the immunity to fraudulent claims has not been fully briefed and argued.
In the circumstances, I think the plaintiffs should be allowed to proceed with the claim as currently formulated, at least to the point when the pleadings are closed. I do not rule out the possibility that when issue has been joined and the issue has been considered in more depth, reasons might appear for disposing of the challenged aspects of the claim against Mr Brown in advance of the trial. But at the moment the discretionary balance leans the other way.

Costs

Counsel for the plaintiffs conceded that the plaintiffs should pay: 1. the costs thrown away by reason of their amendments; 2. the costs of the unsuccessful first motion; 3. the costs of the second motion up to 1 December, when the revised version of the Statement of Claim was brought forward (these costs would include the costs of the abortive hearings in November).
Counsel for Mr Brown, however, went further. Counsel submitted that: 1. the plaintiffs should pay the whole of the costs of the second amendment application; 2. the costs awarded should be on an indemnity basis; 3. the costs should be payable forthwith, and it should be a term of the eventual grant of leave that those costs be paid before the amendment is formally permitted.
As I understood it, counsel for the Hall Chadwick partners took the same position.
On the first issue, counsel for the Hall Chadwick partners accepted that he could not complain about the form of the 1 December version of the Statement of Claim. But counsel pointed out that it had still been necessary to attend on the hearing before me, if for no other reason than to debate the question of costs (the plaintiffs' concessions which I have set out at [49] above were only made by counsel for the plaintiffs at the hearing). I accept this submission. The plaintiffs will have to pay the Hall Chadwick partners' costs of the second application to date.
But the same considerations do not apply to Mr Brown. Unlike counsel for the Hall Chadwick partners, counsel for Mr Brown continued after 1 December to resist the amendment on substantive grounds. That resistance has been unsuccessful. The plaintiffs will pay Mr Brown's costs of the second application only up to 1 December.
In support of the application for indemnity costs, counsel for Mr Brown complained, with some justification, about the lack of progress in the proceedings and the number of versions of the Statement of Claim which have been propounded. But I do not think I should take the additional step of awarding indemnity costs. There is nothing to suggest that the plaintiffs' legal advisers have been doing other than their best in trying to get what is a complex claim properly pleaded. It is to their credit that, rather than take up further time with futile argument, they accepted that earlier versions of the proposed Statement of Claim were inadequate and should be replaced. It would be counter-productive to penalise their clients by means of an indemnity costs order.
Counsel for the plaintiffs indicated that the making of a lump sum order for costs, especially if payment of the costs was made a condition of the grant of leave to amend, was likely to be opposed. Counsel suggested that it might stultify the proceedings.
I made it clear to the parties that I did not propose to make a lump sum costs order, nor to make an order for immediate assessment of the costs. What I indicated I might be prepared to do is to make an order for payment of a lump sum on account of costs (I explain the difference in Omutta Pty Ltd v Wilson (No 2) [2019] NSWSC 401 at [13]). I would also consider an application to require that lump sum to be paid before the amendment can be made.
Given that this is controversial, I will adjourn the making of orders granting leave to enable the defendants, should they wish to pursue any such application, to put on the necessary evidence, and for the plaintiffs to put on any evidence in response. I will also defer making any order that the plaintiffs pay the costs thrown away by the amendment until the amendment is made (although I indicate now that such an order will be made).

Orders

The orders of the Court are: Applicants' notice of motion filed 3 August 2020 1. Order that the applicants/plaintiffs pay the respondents/defendants' costs of the notice of motion. Applicants' notice of motion filed 6 October 2020 (1) Order that the applicants/plaintiffs pay the first, second and fourth to eighth respondents/defendants' costs to date of the notice of motion. (2) Order that the applicants/plaintiffs pay the third respondent/defendant's costs up to 1 December 2020 of the notice of motion. (3) Adjourn the further proceedings on the notice of motion to a date to be fixed by arrangement with my Associate.

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