Seamez v McLaughlin

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

No.13148/92 - Seamez (Australia) Pty Limited & Ors v Robert J McLaughlin & Anor JUDGMENT

1 The plaintiffs, Seamez (Australia) Pty Ltd ("Seamez"), Baden John Brown ("Brown")and Geraldine Freeman ("Freeman"), have commenced proceedings against the defendants, their former solicitors, Robert McLaughlin ("McLaughlin") and Richard Buckley ("Buckley"), claiming damages for breach of contract and breach of fiduciary duty. 2 I hope without disrespect, I will refer to all those involved by their surnames. 3 The second and third plaintiffs, Brown and Freeman, are directors of Seamez, a company which manufactures and sells cleaning chemicals. 4 The first and second defendants are partners in the law firm McLaughlin O'Riordan, which acted for Seamez in proceedings it commenced in the Federal Court of Australia Ltd against United Systems (Holdings) Pty Limited ("United Systems"), Ian John Barkley ("Barkley"), Elizabeth Barkley and Umberdex Pty Ltd (collectively "the respondents"), being proceedings No. G629 of 1990 ("the Federal Court proceedings"). 5 Prior to the Federal Court proceedings, in December 1986, United Systems had commenced proceedings in the Supreme Court, Equity Division, against Seamez, Brown and Barkley ("the Equity proceedings"). In the Equity proceedings United Systems sought an order restraining Seamez, Brown and Barkley from manufacturing, offering for sale or selling a product produced by Seamez known as "Vanish" and from dealing in any way with the formula and/or manufacturing instructions for United System's product "MP 2000". 6 United Systems alleged that Brown had stolen its formula and manufacturing instructions for the product "MP2000" whilst he was employed by a subsidiary company of United Systems and that Seamez was using the formula and manufacturing instructions to produce Vanish. Barkley was working for Seamez at the time these proceedings were instituted. 7 Seamez's defence was that the formula they were using to produce Vanish was obtained by them from wholesalers, Albright & Wilson, and was not owned or developed by United Systems. 8 In the Federal Court proceedings, which were commenced on 5 November 1991, Seamez alleged that their employee, Barkley, had stolen the formulae and primary data sheets for products developed by Brown, that the formulae were trade secrets and that Seamez had copyright in the primary data sheets, that Barkley provided the formulae to United Systems and that United Systems had produced and sold products using those formulae. The amended statement of claim sought damages and/or an account of profits for breach of confidentiality, breach of copyright, misleading and deceptive conduct under s42 of the Fair Trading Act and s 52 of the Trade Practices Act and breach by Barkley of a restraint of trade covenant in his employment contract with Seamez. 9 The Seamez products, the formulae to which had allegedly been stolen and used by United Systems, were Heavy Duty Soap Gel, Industrial Strength Barrier Cream, Gleam, Emerald, Vitalize, Beer Line Cleaner 1 and 2 and Seamez Concentrate. 10 United Systems' defence was that the formulae were not "confidential", being formulae provided by wholesale suppliers and not therefore owned by either Seamez or United Systems, and/or that the formulae were developed by United Systems and had been stolen by Brown. 11 Initially, Stuart & Mills, solicitors, acted on behalf of Seamez in the Federal Court proceedings. However, on 24 January 1991, Seamez retained McLaughlin O'Riordan to act on its behalf. McLaughlin was the partner with carriage of the matter (although from February 1991 until June 1991 an employed solicitor, Fraser Doak, had day to day conduct of the matter). Seamez did not instruct McLaughlin O'Riordan to act on its behalf in relation to the Equity proceedings because United Systems was not pressing its claim. 12 On 5 November 1991, the Federal Court proceedings were fixed for a hearing of 5-7 days commencing on Monday 23 March 1992 before his Honour Justice Sheppard. The proceedings were to go to trial in the first instance on liability only, with an account of profits to be taken at a later time if the plaintiffs were successful. On the Friday before the date fixed for hearing, 20 March 1992, the matter was settled on the basis of a payment by Seamez to United Systems of $20,000. The terms of settlement were contained in a deed of settlement ("the deed") executed on 20 March 1992 and filed in Court on 23 March 1992.

The present proceedings 13 In the week following the execution of the deed, Brown instructed Parbury & Associates to act on behalf of Seamez. On 16 June 1992, the plaintiffs commenced proceedings against the defendants by the filing of a statement of claim. At the hearing, the plaintiffs relied on the case as pleaded in an amended statement of claim filed on 24 July 1997. In the amended statement of claim the plaintiffs sought damages for breach of contract and breach of fiduciary duty. 14 Pursuant to an order made by consent on 25 September 1997 by Deputy Registrar Haggett, determination of the quantum of damages was postponed. The order was in terms of para 1 of a notice of motion dated 5 August 1997, which was in the following terms:

"That pursuant to Part 31 Rule 2 there be determined separately from all other questions in the proceedings and after the determination of all other questions in the proceedings the question of the quantum of the damages, if any, sustained by the Plaintiffs as a result of such acts or omissions of the defendants as may be proved to found any of the causes of action pleaded in the amended statement of claim".

15 On 13 November 1998, I noted counsels' agreement to the following (Tr.319)-

"1. Issues to be tried are all the issues in the proceedings except the quantification of damages for any loss or damage suffered by the plaintiff;

2. The issues to be tried include any actions or events consequent upon any breach of duty by the defendants;

3. The absence of quantification of damage is not to impede a finding of breach of duty by the defendants (whether a duty of care, contractual duty or fiduciary duty); and

4. Deferral of the issue of quantum of damages does not imply an admission of loss or damage by the defendants."

16 The main complaint in these proceedings relates to the defendants' advice on settlement. The plaintiffs allege that the settlement of the Federal Court proceedings, in effect, amounted to an abandonment of the proceedings and of other rights, that they settled in reliance upon negligent and misleading advice given by McLaughlin, and that as a result they lost the benefit of the Federal Court proceedings.

17 The plaintiffs also claim that the defendants acted in breach of fiduciary duty. It is alleged that McLaughlin, due to inadequate preparation, was not ready to proceed with the hearing on the date fixed for the trial and that, by persuading the plaintiffs to settle on unfavourable terms, concealing that situation and preferring his own interests to those of his clients.

18 In the amended statement of claim the plaintiffs seek damages for breach of contract. The terms of the contract which they submit have been breached are specified as follows: i. A term and condition that the defendants would at all times advise the plaintiffs with respect to the litigation and to keep the plaintiffs fully and frankly and accurately informed and advised concerning the prospects of success in the litigation, whether or not it should be settled or otherwise compromised and in such case the terms upon which it should be settled or otherwise compromised - the plaintiffs argue that this is an express term of the contract which was agreed to between Brown and McLaughlin in a conversation they had on 24 January 1991; and ii. A term and condition that the defendants would, or alternatively it was the duty of the defendants to exercise all reasonable care skill, diligence and competence as solicitors in the preparation, conduct and finalisation of the said litigation and to take all reasonable and proper care that the litigation was, inter alia, concluded upon the basis of a skilful, diligent and competent legal analysis of the respective and relative merits of the parties to the litigation - this was said to be an implied term of the agreement.

19 The defendants deny that these were terms of the contract between themselves and the plaintiffs and deny that they breached any such terms. The defendants deny that they breached any fiduciary duty.

20 Counsel for the plaintiffs submitted a schedule of the findings sought by the plaintiffs as to the acts and omissions which allegedly constituted breach of contractual and fiduciary obligation. The schedule was as follows:

i. Failing to obtain full and proper discovery from the respondents in the litigation such that the applicants' case was not adequately prepared on the issue of documents held by the respondents regarding the chemical formulae of their products and also regarding profits made by them from sales of their products.

iii. Advising the applicants that the litigation should be settled or compromised only on 19 March 1992, one business day before the commencement of the hearing of the litigation or even on 18 March 1992, only two days before the commencement.

iv. Failing to obtain counsel's advice concerning the applicants' prospects for success in the litigation.

vi. Failing to inspect the documents concerning the 1986 Equity Division proceedings at the time of initial instructions, in October 1991 or at any time prior to 18 March 1992.

vii. Failing to obtain the advice of counsel concerning the 1986 Equity Division proceedings documents.

viii. Failing to inform the plaintiffs that leading counsel had returned his brief until the evening of Thursday 19 March 1992 or alternatively on 18 March 1992.

ix. Failing to advise the plaintiffs adequately or at all of the consequences and circumstances of leading counsel returning his brief.

x. Failing to properly consider and assess the applicants' affidavit evidence, particularly that of Baden John Brown, prior to the week before the commencement of the hearing of the litigation.

xi. Failing to properly obtain and consider the affidavit evidence of Freeman in good time prior to the commencement of the litigation.

xii. Failing to apply for an adjournment of the hearing of the litigation on Wednesday 18 March, Thursday 19 March or Friday 20 March 1992 when instructed by the plaintiffs to do so, or failing to seek instructions to do so.

xiii. Failing to heed the plaintiffs' instructions to make an application to adjourn the hearing of the litigation by instructing Jacobson or Brender of counsel or by instructing other appropriate counsel.

xiv. Advising the applicants on 20 March 1992 that both their counsel were unable to appear at the hearing of the litigation when in fact Brender was available to appear at the hearing of the litigation.

xv. Advising Mr Brown on 20 March 1992 that the applicants would not be able to get an adjournment of the hearing of the litigation and the applicants would be forced on.

xvi. Failing to take any adequate steps to retain alternative counsel to Jacobson during the period 18 March 1992 to 20 March 1992.

xvii. Placing the plaintiffs in a position on 20 March 1992 whereby the plaintiffs had no alternative other than to settle the litigation on very disadvantageous terms.

xviii. Representing to the plaintiffs on 20 March 1992 that the respondents to the litigation had taken out a Mareva injunction against them and would serve the injunction before the commencement of the hearing on Monday 23 March 1992 when to the knowledge of McLaughlin the respondents had not done so and did not ever intend to do so.

xix. Representing to the plaintiffs that Mr Robert Fulton had commenced defamation proceedings against Mr Brown and that the process for those proceedings would be served on Mr Brown before the commencement of the hearing of the litigation on 23 March 1992 when to the knowledge of McLaughlin Mr Fulton had not done so.

xx. Representing to the plaintiffs that if they did not settle the litigation that they would be required to pay $250,000 in cash to the respondents by 9:30am on 23 March 1992, prior to the hearing of the litigation, when he had no reasonable grounds for believing that to be true.

xxii. Failing to explain at all or in the alternative properly, the terms of the deed proffered by the respondents to settle the litigation.

xxiii. Representing to the plaintiffs that the terms of the deed did not effect the plaintiffs' rights to commence proceedings after 20 March 1992 against the respondents to protect their interests in their products.

xxiv. Failing to advise the plaintiffs that under the provisions of the deed the respondents obtained a release in relation to the use of any of their products at any time.

xxvi. Failing to advise the plaintiffs that the beer line cleaning products were not excluded from the settlement.

xxvii. During the period 17 March to 20 March 1992 failing to advise the plaintiffs that the litigation was not fully or properly prepared for hearing.

xxviii. Failing to advise the plaintiffs as at 16 March 1992 that the litigation was not ready for hearing as a result of the defendants' breaches of duty.

xxix. Advising the plaintiffs to compromise the litigation upon a payment to the respondents of $20,000.

xxx. Failing to advise the plaintiffs during the period 18 March to 20 March 1992 of McLaughlin's view that the applicants' chances of success in the litigation were better than 50%.

21 Counsel for the plaintiffs submitted a further schedule, being the findings sought as to the alleged consequences of such acts and omissions (cross referenced to the alleged acts and omissions relied on in each case). The second schedule was as follows:

The plaintiffs would not have signed the deed of 20 March, 1992 to settle the Federal Court proceedings (breaches ii, iii, xii, xiii, xiv, xv, xvi, xvii, xviii, xix, xx, xxi, xxii, xxiii, xxiv, xxvi and xxx)

The plaintiffs would have continued to conduct the Federal Court proceedings to judgment (breaches viii, ix, xii, xiii, xv, xvi, xvii, xviii, xix, xx, xxi, xxvii, xxviii, xxix and xxx).

Alternatively to 2, the plaintiffs would have had an opportunity to consider settlement of the Federal Court proceedings calmly, in a timely manner, and with the benefit of considered opinions of their solicitor and senior counsel (all breaches and/or misrepresentations alleged except xxii, xxiii, xxiv, xxv and xxvi).

The plaintiffs would not have settled the Federal Court proceedings on the terms that they did (all breaches and/or misrepresentations alleged).

The plaintiffs would not have lost the opportunity to have their Federal Court proceedings determined by a Judge of that Court (all breaches and/or misrepresentations alleged).

Alternatively to 5, the plaintiffs would not have incurred the costs, or alternatively a significant proportion of the costs, of the Federal Court proceedings (breaches ii, iii, iv, v, vi, vii, x, xi, xii and xiii).

The plaintiffs would not have incurred the sum of $20,000.00, paid to the respondents in the Federal Court proceedings (breaches ii, iii, iv, viii, ix, xii, xiii, xiv, xv, xvi, xvii, xviii, xix, xx, xxi, xxiii, xxiv, xxvi, xxix and xxx).

The plaintiffs would have instructed the defendants in definitive terms to apply for an adjournment of the Federal Court proceedings if they had known or thought that there could be any doubt that their instructions to run the Federal Court proceedings did not necessarily include the making of all or any applications to adjourn them (the Federal Court proceedings would have been adjourned) (breaches viii, ix, xii, xiii, xiv, xv, xvi, xvii, xviii, xix, xxi, xxvii and xxviii).

The plaintiffs would have had the opportunity overnight or over the weekend further to reflect upon and to confer about the terms of the deed of 20 March, 1992 before being required to decide whether or not to sign it (breaches iii, xvii, xviii, xix, xx, xxi and xxix).

The plaintiffs would have instructed the defendants to take all such further steps as were necessary or sufficient to complete discovery in the Federal Court proceedings in the ways referred to in McLaughlin's (unsent) letter of 20 March, 1992 addressed to the Solicitors for the Respondents in the Federal Court proceedings (breaches i, v, x, xii, xxvii, xxviii and xxx).

The plaintiffs would not have incurred the costs of the present litigation (breaches ii, iv, xii, xiii, xvi, xvii, xviii, xix, xx, xxii, xxiii, xxiv, xxix and xxx).

The law 22 The courts recognise that a solicitor is subject to a range of implied obligations : Midland Bank v Hett, Stubbs & Kemp [1979] Ch 384; Hawkins v Clayton (1988) 164 CLR 539, including the obligation to exercise reasonable care and skill: Nocton v Lord Ashburton [1914] AC 932, 956; Hawkins (at 575); Midland Bank v Hett, Stubbs & Kemp [1979] Ch 384; Ashby v Russell [1997] ANZ ConvR 321,322-3.

23 The scope of the contractual duty of care will vary, depending upon the terms and limits of the retainer; any duty of care must relate to what the solicitor is instructed to do: Midland Bank (at 402-403); Hawkins (at 544 per Mason CJ and Wilson J).

24 The courts have recognised that a solicitor's duty of care extends to his/her explanation of the effect and import of legal documents which fall within the retainer : Fox v Everingham (1983) 50 ALR 337, 341; Charlick v Foley Bros Ltd (1916) 21 CLR 249; Golec v Scott (1995) 38 NSWLR 168; Krakowski v Trenorth Ltd (1996) Aust Torts Reports 81-401.

25 In the case of the defendants, they were retained to prepare and conduct the Federal Court proceedings. Such a retainer includes, by implication, in my view, an obligation to advise in relation to settlement of the proceedings. In any event, once a solicitor assumes the role of adviser in relation to settlement and the client accepts that role (as occurred in this case), there is a consensual extension of the retainer (if that be necessary) to include the provision of such advice. The contractual duty of care then attaches to that function.

26 Although the scope of the contractual duty of care varies from the duty of care in tort, in that the contractual duty is limited by the terms of the retainer whereas the duty of care in tort is not (see Hawkins and Citicorp Australia Ltd v O'Brien (1996) 40 NSWLR 398, 412-413), the standard of care is the same in contract and tort. In Hawkins, Deane J said (at 583)-

"The content of the solicitor's duty of skill and care under the contractual term which has traditionally been implied corresponds with the content of the ordinary duty of skill and care under the common law of negligence: see eg, Central Trust Co. v Rafuse (1986) 31 DLR (4th) at 525."

27 Thus, statements of principle concerning the standard of care owed by a solicitor in tort are applicable to contract cases. The standard of care imposed is that of an ordinary skilled and reasonably careful practitioner : Hawkins; Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642, 652.

28 In Karpenko v Paroian, Courey, Cohen & Houston (1981) 117 DLR (3d) 383, Anderson J expressed support for the view expressed by Grant J in Brenner et al v Gregory et al [1973] 30 DLR (3d) 672, 677:

"[I]n an action against the solicitor for negligence it is not enough to say that he had made an error of judgment or shown ignorance of some particular part of the law, but he will be liable in damages if his error or ignorance was such that an ordinarily competent solicitor would not have made or shown it".

The decision in Karpenko has been referred to with approval by Young J in Studer v Boettcher (unreported, 21 October 1998) at 16) and by Williams DCJ in Campbell v Gibson & Gibson (1992) 8 SR(WA) 263, 264.

29 A somewhat stricter approach has been adopted against plaintiffs in relation to claims which pertain to the settlement of a case. The courts have taken the view that because of the public policy interest in encouraging settlement of disputes "only in a clear and exceptional case…[can]…the decision of counsel to recommend settlement…be successfully assailed": Karpenko supra at 397 per Anderson J; also see Studer v Boettcher supra at 16; Campbell v Gibson & Gibson supra; Maillet & Pothier v Haliburton & Comeau (1983) 114 APR 311, 315; Atwell v Michael Perry & Co (1998) 4 All ER 65. The approach applies equally where the advice is given by a solicitor. According to these decisions, a solicitor will only be in breach of duty in advising in favour of a settlement if the error alleged to have been made is an egregious one and, in particular, will not be liable for "an error of judgment based on an honest opinion as to the facts or on points of law of doubtful construction or of new occurrence": Campbell v Gibson & Gibson supra at 264. Young J in Studer (supra) at 16 quoted with approval the following passage from the decision in Karpenko (at 387):

"The courts do not interfere unless it can be seen that the view that the barrister or solicitor took was such that no reasonable solicitor or barrister could have come to in the circumstances".

30 This line of authority relates to a solicitor's exercise of judgment in advising settlement. It does not relate to the provision of information to the client, known by or readily available to the solicitor, which is relevant to a decision by the client concerning settlement. No such caution is required in that regard.

31 In addition to being subject to implied contractual duties, the defendants as solicitors were also subject to fiduciary obligations. Where a conflict between the interests of the client and those of the solicitor arises, solicitors must not prefer their own interests to that of the client: Tyrrell v Bank of London (1862) 11 ER 934 at 941; Law Society of New South Wales v Harvey [1976] 2 NSWLR 154; Law Society of New South Wales v Moulton [1981] 2 NSWLR 736. As solicitors, the defendants were subject to that obligation.

The plaintiffs' evidence in the present proceedings 32 The evidence relied upon by the plaintiffs consisted partly of documentary evidence but primarily of the evidence of witnesses. The affidavits of the main plaintiffs' witnesses were those of Baden John Brown, sworn 13 October 1997, Geraldine Freeman, sworn 13 October 1997 and Michael Anthony Coleman, sworn 27 February 1997. These witnesses were cross-examined. (Coleman was a mutual friend of Brown and McLaughlin.) He introduced the plaintiffs to McLaughlin. Other affidavits were read in the plaintiffs' case. They were not relied on in final address.

33 The evidence as to how the affidavits of Brown, Freeman and Coleman came into existence is as follows. Brown claims that his statement for the present proceedings was completed by his solicitor, Mr Parbury, by late April 1992. He said that he gave his instructions for the preparation of that statement partly in oral form and partly in writing, and based on his own independent recollection of the events. In cross-examination he said (at Tr.24) that he provided to Mr Parbury, for the purpose of drafting his statement, some typed and long hand notes which set out his recollection of events. These were in evidence. He also conceded in cross-examination that he had discussed the case often with Freeman and that he had discussed what had occurred at the meetings which took place between 17 and 20 March 1992 with her. He denied that, for the purposes of preparing his statement, he had discussed in detail with Freeman what she recalled of those meetings. He also denied that he discussed these events with Coleman before preparing his affidavit. The earliest affidavit by Brown filed in these proceedings was sworn on 3 March 1997.

34 Freeman claims that her statement was also completed by late April 1992. She said that she did not provide any written or typed notes to Mr Parbury, but that she gave her instructions for the preparation of her statement to Mr Parbury orally in conference with him. She also admitted in cross-examination that she and Brown had discussed the events the subject of these proceedings on numerous occasions, but she claimed that her affidavit evidence was based solely on her own independent recollection of events. She denied that she discussed the events with either Brown or Coleman to assist her in the preparation of her affidavit. The earliest affidavit by Freeman filed in these proceedings was sworn on 3 March 1997.

35 Coleman claimed that he gave his instructions for the preparation of his affidavit to Parbury orally in conference with him, some time in mid-1994. He said that his instructions were based solely on his independent recollection of events. He denied that he spoke to either Freeman or Brown about the events to which he deposed before giving those instructions. Coleman's draft statement was prepared on 15 June 1994. The draft statement was then amended, with several additional passages being added, and, on 14 September 1994, the amended statement was signed by Coleman. The affidavit by Coleman ultimately relied upon in these proceedings was sworn by Coleman on 27 February 1997.

36 The defendants challenged this account of the way the plaintiffs' affidavit evidence came into existence. Having regard to a high degree of similarity in content, detail, terminology and sequence (particularly in relation to conversations) between the affidavits of the three witnesses, I am satisfied that the affidavits cannot have come into existence without direct or indirect collaboration.

37 The defendants' submission was that Brown's affidavit was prepared first, with the use of the notes typed up by him and that Freeman and Coleman's affidavits were then prepared to accord with his affidavit.

38 My analysis is as follows. I agree that Brown, Freeman and Coleman have given such similar accounts, particularly of events on 19 and 20 March 1992, that they cannot all be original accounts given according to the respective witness' genuine recollection. Either they are a joint collaboration or only one is a genuine recollection of the detail of what occurred. If one account is truly based on a genuine recollection of events, the other two are not.

39 There is the further implication that, if one is genuine account, the other two witnesses have given incorrect evidence as to how their respective accounts came into existence. For example, if Brown or Freeman's account is genuine, that account must have come into existence before Coleman's. Coleman's evidence that he gave an independent account of events at a later time in such similar terms would then have to be rejected. If, on the other hand, Coleman's account is genuine and came into existence when he said it did, Brown and Freeman's evidence of having given independent accounts at an earlier time in such similar terms would have to be rejected. I need not spell out how the same implications arise as between any two of the three.

40 Accordingly, acceptance of one of the three accounts of the events on 19 and 20 March 1992 means not only that the other two are not genuinely recollected, independent accounts. It also means that the authors of those other accounts have misstated the way in which their respective accounts came into existence, and seriously so. The credit of the others would then be worthless.

41 It is important to recognise that the similarities between the three accounts does not imply that all three witnesses are discredited. One account may be genuine. That the other two were copied from that account - a necessary implication - would not discredit it at all.

42 Of the accounts by Brown, Freeman and Coleman it is much more likely that Coleman's is an original and genuine account than that Brown's or Freeman's is an original and genuine account for the following reasons -

i. Coleman was, relatively speaking, an independent witness. He had known Brown as a personal friend since the 1960s but he had also known McLaughlin for in excess of 20 years. He had no personal interest in the outcome of the Federal Court proceedings and had none in the outcome of these proceedings.

ii. As a barrister, it is very unlikely that he would allow an affidavit to be written for him that was not his own genuine recollection, or participate in the process. It is also unlikely that he would lie on oath about how his affidavit came to be prepared. I say this because of the professional consequences which would flow from such false evidence if he were found out. And there would have to be a serious risk of risk of that happening as he, as a barrister, would appreciate.

iii. The fact that the draft statement of Coleman, was written out in long hand by the plaintiffs' solicitors and the flow of the draft statement support Coleman's evidence as to the manner in which he gave his instructions for the affidavit. In contrast, the only draft statements of Brown and Freeman which were produced by their solicitor under notice to produce were notes for evidence typed by Brown.

43 Accordingly, the approach I intend to take is to select Coleman's account as the evidentiary vehicle for the plaintiffs' case. He did not become actively involved until 19 March 1992. However, the implication is that the evidence of Brown and Freeman on any contentious matter, whether before or after that date, must be disregarded as being of no weight. That is because the implication of the selection is not only that Brown and Freeman's account of events on 19 and 20 March 1992 must be copied from Coleman's account but also because their evidence of how their respective accounts of those events came into existence must be seriously incorrect and their credit must be assumed to be worthless.

44 I should stress that this is not a finding that the credit of Brown and Freeman is worthless, only that it has to be treated as worthless in view of the course I am taking. It is unnecessary for me to make any finding about their credit and I make none.

45 Nor, have I made any finding at this stage of my reasoning that Coleman's account of events is correct. That falls to be considered having regard to other evidence, particularly the evidence of McLaughlin.

46 As to events prior to 19 March 1992, Coleman has little to say. Brown and Freeman have a great deal to say, but I will disregard their evidence for the reasons I have given. My findings in relation to events prior to 17 March 1992, will be based on other evidence, substantially that of senior and junior counsel briefed in the Federal Court proceedings, P M Jacobson QC and R Brender, and, to some extent, McLaughlin.

47 As to events between 17 and 23 March 1992, I have the evidence of Coleman, McLaughlin, Jacobson, Brender and Buckley and some documentary evidence. 48

49 In early 1991, Coleman, on behalf of Brown, asked McLaughlin if he could recommend a solicitor to take over the conduct of the Federal Court litigation. McLaughlin offered to do so himself.

50 Brown and Freeman met with McLaughlin on 24 January 1991, when they instructed him to act on behalf of the plaintiffs in the Federal Court proceedings. Senior and junior counsel were briefed to advise in the matter as early as February 1991. Jacobson was briefed as senior counsel and Brender was briefed as junior counsel. Both counsel were later briefed to appear at the hearing.

51 After arranging the introduction, Brown and McLaughlin spoke to Coleman from time to time about the Federal Court proceedings. Coleman states in his affidavit that McLaughlin was particularly enthusiastic about the outcome of the proceedings, saying that United Systems would have to settle and mentioning figures in the millions of dollars.

52 McLaughlin denies that he ever indicated to Brown or Freeman the value of their claim. He denies that he gave them any assurance that the respondents would settle or that the respondents had no defence.

53 McLaughlin says he told the plaintiffs they had a good case. He says that Brender told him Seamez had good prospects of succeeding, and that counsel, at no time prior to 17 March 1992, ever suggested that there were deficiencies in Seamez's claim. Jacobson confirms that, in a conference with Brown and McLaughlin, he told them that Seamez appeared to have good prospects assuming the affidavit evidence proved to be correct.

54 The difference between Coleman's evidence of what McLaughlin told him about the prospects of the litigation and McLaughlin's evidence of what he told Brown and Freeman is one of degree, but of substantial degree. Coleman's evidence and McLaughlin's evidence in this regard are not consistent.

55 In the course of the months leading up to the hearing McLaughlin attended to a number of matters in preparation for the hearing. He briefed senior and junior counsel, he arranged for counsel to draft a number of affidavits which were sworn and filed in the proceedings, he retained a number of expert witnesses to prepare reports and to give evidence in the proceedings, and he attended to other matters which were necessary for the preparation of the case.

56 The plaintiffs claim that McLaughlin's preparation was deficient in two respects. Firstly, they complain that McLaughlin failed to inspect documents relating to the Equity proceedings within a reasonable time and, secondly, that he failed to ensure that the respondents provided proper discovery.

Failure to inspect documents relating to Equity proceedings

57 McLaughlin said that he was not told about the Equity proceedings until about mid-June 1991 In cross-examination he conceded that he may have been incorrect in this regard (Tr.284) but that he did not receive any papers relating to the Equity proceedings until 18 March 1992. McLaughlin conceded in cross-examination that he should have inspected the files relating to the Equity proceedings earlier than he did (Tr.286-7). He gave evidence that, in October 1991, Brender asked him to find out more about the Supreme Court proceedings. He admitted that, in mid-October 1991, Brown signed authorities for the purpose of obtaining access to files related to those earlier proceedings, authorising inspection of the Supreme Court file and the file held by the plaintiffs' former solicitors, Mannix Enright, who had acted in the earlier proceedings. McLaughlin conceded that he did not inspect the Supreme Court file at all, and that he inspected only some of the papers held by Mannix Enright and then not until shortly before the hearing.

58 When McLaughlin saw documents from the Mannix Enright file, he formed the view that they contradicted the evidence filed by Brown. The relevant documents were notes prepared by Brown for his former solicitors in relation to the Equity proceedings and affidavits sworn by Brown and of Barkley in the Equity proceedings. In the notes, Brown wrote-

"All of our products were formulated in the 1st instance by obtaining formulation guidelines from raw material suppliers, such as, ALBRIGHT & WILSON etc. I would telephone the suppliers, make a request and receive the formulations per post, after which, BARKLEY produced the products. BARKLEY would use this information to assist him in manufacturing a product, although, he would change percentages of raw materials or add other cleaning agents, depending what he considered most necessary, to suit our needs. In short, our products have been formulated with the assistance of guidelines from raw material suppliers and with adjustments or additives made at the discretion of BARKLEY."

59 McLaughlin was of the view that this contradicted Brown's assertion in the Federal Court proceedings that it was he, rather than Barkley, who had developed the formulae for the products the subject of the Federal Court proceedings.

60 Brown said, when confronted with these documents, that they did not contradict what he had said in the Federal Court proceedings for the following reasons: the notes were only rough notes; in an affidavit sworn by Barkley in the Equity proceedings, Barkley had confirmed that he prepared products using Brown's written instructions; and the product which was the subject of the Equity proceedings was not one of those which was the subject of the Federal Court proceedings. Brown told McLaughlin that Barkley had formulated products for Seamez in accordance with instructions prepared by Brown.

61 The relevant affidavit sworn by Brown in the Equity proceedings, being an affidavit sworn on 26 February 1987, does not, of itself, seem to me to contain anything of serious significance. In par 8 of that affidavit Brown stated that the formula for the Seamez product "Vanish" was derived from a list of ingredients specified by a wholesaler, Albright & Wilson. That observation does not exclude a degree of originality in the formulation of a product by Brown in relation to proportions and additives.

62 In par 18 of an affidavit sworn by Barkley in the Equity proceedings on 26 February 1987, Barkley did in fact assert that he produced the products for Seamez using written instructions given to him by Brown. He stated-

"I first mixed up "Vanish" for Seamez in late September or early October 1986. I simply followed some directions off a sheet of paper that was given to me by Baden Brown."

63 At paragraph 19 of the affidavit he conceded that he had some discretion in respect of developing formulae for Seamez. He stated-

"Annexed hereto and marked with the letter "B" is a true copy of the sheet with formulations on it given to me by Baden Brown. The handwriting on the sheet is mine. I put it on after working for Seamez. I wanted to lower the ph. factor to make the liquid about neutral. I also made some other changes to try and develop the product."

64 It does not seem to me that these affidavits and notes were a serious embarrassment to the plaintiffs' case in the Federal Court proceedings. The product, the subject of the notes and the affidavits, was not the subject of the Federal Court proceedings. The notes were unlikely to have been in the possession of the respondents' solicitors or likely to come into their possession because they were notes provided by Brown to his former solicitors for the purposes of the Equity proceedings and, therefore, would have been subject to legal professional privilege. The asserted inconsistency between the notes and the affidavit evidence was argumentative rather than being clear cut.

65 Another matter in respect of which the plaintiffs complain was McLaughlin's failure to ensure that the respondents provided proper discovery. McLaughlin, Jacobson and Brender agreed that the respondents had still not provided complete discovery by 20 March 1992 and that the documents sought in discovery related to both quantum and liability. The documents sought included the respondents' batch books, which are books containing the formulae for the various products and the amount of product made up from each formula. The plaintiffs hoped to use the batch books in support of their case that the formulae being used by the respondents for the respondents' products were identical to Seamez's formulae and that the formulae were developed by Seamez.

66 Between May 1991 and 20 March 1992 McLaughlin sent numerous letters to the respondents' solicitors seeking proper discovery.

67 On 6 November 1991, counsel for the respondents proposed that he and Brender should attempt to resolve the issue of discovery by agreement failing which the matter was to be re-listed on a motion for further and better discovery. Further documents were discovered and further correspondence and discussions between McLaughlin and the respondent's solicitors took place.

68 In early March 1992, McLaughlin filed a notice of motion seeking further discovery. On 9 March 1992, Shepherd J made an order for supplementary discovery and his Honour noted that, in the event that further discovery was not provided, he might strike out the defence. On 18 March 1992, McLaughlin sent a letter to the respondent's solicitors in which he raised the deficiencies in discovery and noted the plaintiffs' intention to raise these deficiencies with the judge at the hearing on 23 March 1992. On 20 March 1992, McLaughlin drafted a further letter which was to be sent to the respondents' solicitors relating to discovery, but the letter was not sent.

69 On 20 March 1992, the Friday before the hearing, the respondents had still not provided further discovery. In cross-examination, counsel for the plaintiffs asked Brender whether the inadequacy of discovery would have created difficulties at the hearing if it had proceeded. Brender gave the following response (Tr 339/31-46)-

"Well, I'm not sure. On quantum, I think that possibly was dealt with or could have been dealt with by leaving that to one side as an issue. Now, there may have been difficulties in the case because we didn't have the documents that we were perhaps entitled at the moment, but I mean in a situation where one party won't give you documents that you say exist, if they ultimately swear an affidavit of discovery or in some other way that they don't have the documents, there is nothing further you can do. So whilst it's a problem for the case, it doesn't mean you are in any better position by waiting or pressing it any further. So I'm not sure it's the situation where you could say there are X documents and you don't have them and if we get an adjournment or postpone then in some way we will have them and it will be different. I'm not sure that there were ever going to be any more documents on liability on them."

70 Despite the problems with discovery as of 17 March 1992 there was no suggestion by Brender that the hearing on 23 March 1992 could not safely proceed. There was other evidence tending to establish that the respondent's products were copies of Seamez's products, namely, the expert evidence of Dr Eckhard that United System's products were identical to Seamez's products and the evidence of Brown that the formulae for the Seamez products were developed by him.

71 Discovery of documents which showed the extent of sales by the respondents of the products in question was necessary for an account of profits but not for the hearing on liability.

72 I am not satisfied that there was any breach of duty on the part of McLaughlin in relation to discovery in view of the lack of evidence that the respondents in the Federal Court proceedings had anything further to discover having the potential to sound in damages in the present proceedings.

Jacobson returns his brief 73 A major difficulty in relation to the proceedings arose on 17 March 1992.

74 On 17 March 1992, a conference took place between Jacobson, Brender, Brown and Erica (an employee of McLaughlin O'Riordan). During the conference Jacobson asked Brown a series of questions about the formulae for Seamez's products and about how he had developed the formulae, most of which Brown could not answer. Jacobson indicated to Brown that he was unhappy with his performance.

75 As a result of the conference, Jacobson formed the view that Brown could not have formulated the products himself, that Brown's main affidavit in the Federal Court proceedings, sworn on 19 July 1991, was not in substance his own and that it had been prepared only with considerable assistance by Freeman. He also had concerns about the fact that Freeman, being a witness in the proceedings, had been present when Brown had given the instructions for the preparation of his affidavit. The former problem was, however, Jacobson's main concern. He did not think he could conscientiously present Brown's affidavit as being Brown's own evidence in view of the opinion he had formed about the true source of what was in it.

76 Later that evening, 17 March 1992, Jacobson informed Brender and McLaughlin of his views and of his intention to obtain a ruling from the president of the Bar Council as to whether it would be inappropriate for him to return his brief.

77 On the morning of 18 March 1992, Jacobson obtained a ruling from the then president of the Bar Council. According to Jacobson, either at an early morning conference with McLaughlin and Brender or later that day, he told McLaughlin of the ruling and of his decision to return the brief.

78 McLaughlin says that it was on the evening of 17 March 1992 that he spoke to Brown about Jacobson's departure from the case and recommended that Brown consider settlement. In his affidavit sworn 16 April 1998, McLaughlin said that, on the evening of 17 March 1992, he gave Brown the following advice-

"We have a problem. Peter won't run the case. He says it is obvious from his conference with you that you don't know the chemistry and won't be believed about having developed the formulae. We will have great difficulty getting an adjournment - we have no grounds for one. If we can't get an adjournment we'll be forced on and probably lose, from what Peter Jacobson says. In light of what he has said I think you should settle the case. You are going to be in too much trouble in cross examination".

79 In response to this, McLaughlin says that Brown asked him to find an alternative Queens Counsel and to proceed with the hearing. McLaughlin says that at a conference with Brown on 18 March 1992, McLaughlin repeated the same advice to him.

80 Brown denies that any such advice was given on those dates.

81 McLaughlin says that on 18 and 19 March 1992, he made several attempts to find alternative Queens Counsel but was unsuccessful.

82 Jacobson also gave evidence that Freeman was told on 18 March 1992 of his decision to withdraw from the case. He said that at around noon on 18 March 1992, at a conference with her, Brender and McLaughlin told Freeman his views about the case and about the credibility of Brown and he also told her of his decision to withdraw from the case.

83 In cross-examination, McLaughlin said that, although his view about the plaintiff's prospects of success in the Federal Court proceedings changed as a result of Jacobson's views and as a result of the documents seen in relation to the Equity proceedings, he still - even on 20 March 1992 - believed that the plaintiffs had a slightly better than 50% chance of succeeding (Tr.272-5).

84 On this evidence, it is clear at least that, by 18 March 1992, Jacobson was out of the case and attempts were being made to find another leader.

Meeting between McLaughlin, Coleman and Brown on 19 March 1992

McLaughlin's account 85 McLaughlin's account of this meeting is as follows. McLaughlin arranged to meet with Coleman and Brown at about 11.30am on 19 March 1992. He states that, at this meeting, the topics discussed were Jacobson's views about the case and the documents that McLaughlin had received from Mannix Enright. During the conference McLaughlin says he told Brown the following -

"So far I have not been able to get a silk to take on the case. I don't recommend that you can let Rodney Brender run it alone. He hasn't the seniority for something as large and complex as this.

You can't substantiate what you've said in your affidavit of 19 July 1991 as to the development of those formulae. These documents from the other case contradict what you say about development of the formulae.

Jacobson says you won't be believed. There is a question about whether you will be able to rely upon your affidavit anyway because Jacobson says it was really not yours but Geraldine's (ie Freeman's) . Geraldine was present when Brender took the affidavit.

Jacobson says you'll lose the case. Your alternatives are to run it and probably lose it or try to settle it now for some lesser payment to the other side. If you run it for two weeks and lose you'll pay their costs as well as your own - possibly as much as a quarter of a million dollars all up."

86 McLaughlin says he then suggested that they try to negotiate a settlement for the payment of $20-30,000 to the respondents. He does not say what Brown's response was to this suggestion.

Coleman's account 87 Coleman's account of this meeting is different. He says that, on 19 March 1992, at McLaughlin's urgent request, he attended a meeting at McLaughlin's office with Brown.

88 Unlike McLaughlin's account, Coleman says that the meeting was conducted in a light hearted mood. He agrees that the matters discussed at this meeting were Jacobson's view of the case and the contents of notes that Brown had prepared for his solicitors in the Equity proceedings.

89 According to Coleman, Brown re-assured McLaughlin that the affidavit was his own and that he would be ready to give his evidence at the hearing on the Monday. Coleman says he also re-assured McLaughlin that Brown would be ready to give evidence at the hearing.

90 McLaughlin then questioned Brown on the contents of the notes that Brown had prepared for his former solicitors, Mannix Enright, in relation to the Equity proceedings and upon which McLaughlin expected that Brown would be cross-examined.

91 Coleman says that all these matters were discussed in a jocular fashion. In particular, there was no discussion of settlement, nor any suggestion that the case could not proceed.

Early morning telephone call between Coleman and McLaughlin

92 Coleman says that, on Friday morning, 20 March 1992, McLaughlin telephoned Coleman and asked him to meet him urgently later in the day. On the telephone, McLaughlin told Coleman that the plaintiffs could not win because both barristers had left the case. Coleman says McLaughlin also told him that Jacobson had left the case because he did not believe Brown and that Brender had left because he had breached a bar rule about interviewing two witnesses together. Coleman agreed to go to the meeting.

93 McLaughlin says that he does not recall this telephone conversation with Coleman and he denies that he ever told Coleman or anyone else that both barristers had left the case.

94 Brender gave evidence that he was always willing to appear at the hearing of the proceedings but that he did not feel confident that he could run the case without senior counsel and that he had conveyed this view to McLaughlin.

First meeting on 20 March 1992: McLaughlin, Brown and Coleman

McLaughlin's account 95 McLaughlin says that, on 20 March 1992, at some time in the early afternoon, he met with Coleman and Brown. In cross-examination, McLaughlin said that, at this meeting (Tr.314) he -

"explained to Baden (ie Brown) and to Coleman the difficulties associated with the running of the matter, in that I still had not been able to get a leader; that Jacobson had a very firm view that Baden would not do very well in cross examination and might be in difficulty; that it would be a matter for whoever ran the matter as to whether or not Geraldine's affidavit was to be used or not, and that the down side to it, if it did not go well, could be a large amount of money to be paid by Baden".

Coleman's account 97 Coleman says the meeting was at about 11.30am that day. There was no jocularity this time. McLaughlin said that both counsel had left the case - Jacobson because he did not believe that Brown's affidavit was his own and Brender because he had to report himself to the Bar Association - and that Seamez had to settle because they could not win.

98 Coleman's account of the meeting then proceeded as follows. Coleman asked whether they could get an adjournment. McLaughlin said they would not get away with that. He said that the other side wanted to settle on a walkaway basis and that there was $30,000 in the kitty that would probably cover costs. Both sides could then go on their own way in peace.

99 According to Coleman, Brown's response to this suggestion was one of anger. McLaughlin repeated his advice that as both counsel had left the case they could not go on. He said he could try to find alternative counsel but they would only have the weekend to learn the brief and it would cost $30,000 to brief them. (McLaughlin denies that he ever said that it would cost $30,000 to brief new counsel). According to Coleman, Brown requested that McLaughlin brief new counsel and have them apply for the matter to be adjourned to a new date to which McLaughlin replied -

"They [the respondents] are ready to go and they will oppose the application. The best we could get would be for the Court to give us another day to prepare so that it would start Tuesday instead of Monday. That doesn't help us, and if they force us on it will cost you $250,000."

100 Coleman's evidence is that Brown was very upset at the suggestion of settlement, and that he asked McLaughlin to apply for an adjournment and to find new counsel regardless of the cost involved. According to Coleman, in response to Brown's request for new counsel McLaughlin said-

"Baden you can't win, you can't go on, you will lose. If you settle you will live again to fight them another day when you can win. A settlement won't stop you taking further proceedings if they continue to sell your products. Baden, I'm trying to save you. I don't want you putting any more money into this case."

101 According to Coleman, towards the end of the meeting, McLaughlin told them that he was going to contact the other side's solicitors to see if he could get them to agree to a lower amount in settlement and he asked Coleman to go away and speak to Brown about the situation.

Discussion between Coleman and Brown on the way to the factory

102 Coleman and Brown then drove to Seamez's factory. On the way there, according to Coleman, they discussed what Brown wanted to do. In the course of this discussion Brown mentioned a settlement offer of $500,000 that McLaughlin had allegedly told them about just the previous day and the fact that they had rejected it. Coleman advised Brown that he should listen to McLaughlin and weigh up what McLaughlin said as sound professional advice. Brown told him that he wanted to go on with the case and that his major concern was to protect his products from exploitation by United Systems. That was Coleman's account of the conversation in the car.

103 According to Coleman, Brown had not agreed to anything by way of settlement at this stage, nor suggested that he would.

Telephone call between Brown and McLaughlin and between Coleman and McLaughlin during the afternoon of 20 March 1992

104 According to McLaughlin, at around 2.00pm, he received a telephone call from Coleman (although in cross-examination he said that it was from Brown: Tr.314) in which he received instructions to settle the case. In his oral evidence, McLaughlin stated that his only recollection of his instructions was that he was to settle the case for $20,000 or $30,000. In his affidavit, at par 106, he states that he received instructions in the terms set out in a the facsimile letter written by him to Brown. The facsimile confirmation slip confirms that the letter in question was faxed to Seamez's office at 2.11pm on 20 March 1992. Brown says that he did not see the facsimile letter until Monday, 23 March 1992. The letter states -

"We confirm our conversation at 2.00 pm today in that your instructions are for us to settle this matter for payment of up to $30,000.00 to United Systems and that mutual releases of present and past actions will be given by all parties to the other parties to the proceedings.

We confirm that we are confident that the matter will settle for the payment of only $20,000.00 and we are hopeful that this will be achieved today.

We confirm Mr Coleman's telephone instructions that we are to include provision in the deed that the terms of settlement are not to be disclosed by any of the parties to any other person.

We shall advise you immediately the matter has been settled."

105 The letter is relied on by McLaughlin as a record of what was said in the telephone conversation about the terms of a proposed settlement, in addition to the settlement figures of $30,000 and $20,000. In relation to such other terms, the letter is, however, very ambiguous. McLaughlin said in his evidence that "actions" (in the letter) meant proceedings which would make "present action(s)" a reference to the Federal Court proceedings and "past action(s)" a reference to the Equity Court proceedings. Because the position of the respective parties, as plaintiffs and defendants, was reversed in the two proceedings, such a release would have been "mutual". The releases would be confined to the claims made in the respective proceedings. But in what sense would there be a "release of (such) actions"? Did that mean simply discontinuance of the two proceedings? Or did it mean that each side would be released from whatever claims were made by the other in the respective proceedings? That was not clear. On the other hand, if actions meant conduct, each side would be releasing the other from liability for anything and everything done up to the moment of settlement, but would not be precluded by the deed from acting as they wished thereafter. So the letter was ambiguous in more than one way.

106 Because of these ambiguities, it is not possible to discern from the letter what McLaughlin asserted to have been the terms of the telephone conversation beyond the settlement figures of $30,000 or $20,000, or to infer from the letter what was said.

107 Coleman's evidence was as follows. He says that, while he was with Brown at the factory, McLaughlin telephoned and spoke first to Brown. Brown told Coleman that McLaughlin told him that the other side had agreed to a settlement of $20,000. Coleman then spoke to McLaughlin on the telephone. Coleman says that, in this conversation, McLaughlin told him that Fulton (who figured on the other side) had taken out a defamation writ for $300,000 against Brown which the other side was going to serve on him before Court on Monday, and had also taken out a Mareva injunction which they would serve at the same time and which would prevent Brown from dealing with any assets, so that he would be unable to continue in business. On the other hand, if the matter settled the other side would not proceed with the writ and the injunction. (McLaughlin denies that he said anything about a Mareva injunction or a defamation suit.)

108 Coleman says he told Brown what McLaughlin had said to him about the writ and the injunction and then continued to discuss settlement with McLaughlin. He said that he told McLaughlin-

"..the money doesn't concern Baden, he's more concerned about protecting his products and stopping the manufacture of them."

109 McLaughlin asked Coleman to come and see him with Brown and Freeman and to bring the company seal.

110 Christopher Herbert Brown ("Chris Brown"), the solicitor acting for the respondents in the Federal Court proceedings gave evidence that he had never told McLaughlin that Fulton or any other party whom he represented had commenced defamation proceedings nor that United Systems had taken out a Mareva injunction against Seamez or Brown. Defamation proceedings were never in fact commenced against Brown and no application for a Mareva injunction against Seamez or against Brown was ever made.

Comment on the two accounts 111 The important difference between these two accounts of the telephone conversation is not whether McLaughlin genuinely understood from the conversation that he had instructions to settle for up to $30,000 to be paid by Seamez. Plainly that was his understanding. The letter makes that clear. Coleman's account of the conversation is not seriously inconsistent with that. Coleman acknowledges that he was told by McLaughlin that the case could be settled for a payment of $20,000 and that he (Coleman) told McLaughlin that Brown was not concerned about paying money to settle the case. That this was McLaughlin's understanding of his instructions is further confirmed by the terms of the draft deed which Mr Chris Brown sent him later that day and which cannot have appeared out of thin air. Further confirmation is to be found in McLaughlin's request that Brown bring Freeman and the company seal. As far as McLaughlin was concerned, the case was going to settle.

112 Two things are important about the account of the conversation given by Coleman: First, there was the alleged mention of the writ and the Mareva injunction. (Brown said he was not concerned about the writ, but the Mareva injunction - as allegedly explained by McLaughlin - would have been of grave concern.) Secondly, there was Brown's insistence on protecting his products and stopping United Systems from manufacturing them. That was going to have to be accommodated to Brown's satisfaction in the proposed settlement if Coleman's account of the conversation is correct. The letter of 20 March 1992 did not resolve the question of what, if anything, was said about these matters in the telephone conversation.

The first draft of the deed 113 By the time a further meeting took place in McLaughlin's office later in the day of 20 March 1992, a draft deed had arrived from Chris Brown, United System's solicitor.

114 By cl 2(i) of the draft deed, the Federal Court proceedings were to be dismissed by consent.

115 Clauses 1, 4 and 5 of the draft deed provided, so far as is material, as follows. (The "Releasors" were the plaintiffs. The "Releasees" were United Systems and its associates.)

"1(a) In this deed including the recitals the following expressions shall have the following meanings unless inconsistent with the context. … 'Intellectual Property' includes all computer programmes, formulae, brochures, labels, marketing, advertising literature, patents, client lists, sales lists, price lists and processes used by the Releasees and/or any one or more of them at any time down to and including the date of this deed in any business, employment or other engagement of the Releasees and/or any one or more of them at any time down to and including the date of this deed. …. 4. The Releasors hereby release the Releasees from all actions costs, claims expenses, interest and demands of each and every kind whatsoever which the Releasors and/or any one or more of them now have or could would or might have upon or against the Releasees and/or any one or more of them, whether known or unknown, arising out of or in any way connected with: (i) any act allegedly done or omitted to be done by the Releasees and/or any one or more of them, the subject of the Proceedings, or allegedly giving rise to the relief claimed by the applicant Seamez in the proceedings; and

(ii) any act done or omitted to be done by the Releasees and/or any one or more of them in the course of the business activities of the Releasees and or any one or more of the Releasees.

5(i) The Releasors and each of them acknowledge and declare that the Releasors and each of them have no rights or interests whatsoever in the Intellectual Property.

(ii) The Releasors and each of them will not at any time in the future assert or make any allegation whatsoever that the Releasors and/or any one or more of them have any interest whatsoever in the Intellectual Property."

116 The meaning and effect of these clauses was, materially, as follows. By cl 4, the plaintiffs would release United Systems and its associates from all claims made in the Federal Court proceedings and from anything done in their business activities to that date.

117 By cl 5, the plaintiffs would be precluded from asserting an interest in any formula used or product marketed by United Systems or its associates (including the Beer Line cleaner product) prior to that date. This clause would bar any future proceedings by Seamez to prevent United Systems from marketing any product the company had marketed to date (including the Beer Line cleaner product) or to claim damages for that, irrespective of whether such marketing would otherwise have been actionable by Seamez.

118 Clauses 7 and 9 precluded the plaintiffs from disclosing information about United Systems and its associates, or the contents of the deed.

119 The draft deed contained no release of any kind by United Systems and their associates .

120 All the foregoing provisions in the draft deed would be meaningless or not easily understood by a lay person without explanation, or at least easily misunderstood.

Second meeting on 20 March 1992: McLaughlin, Buckley, Brown, Freeman and Coleman

121 McLaughlin says that, following the telephone call to Seamez' office, he telephoned Chris Brown, solicitor for the other side, and they agreed in principle to a settlement by the payment of $20,000 to the respondents and for the terms of the settlement to remain confidential. He says he then arranged for Brown and Freeman to attend his office with Coleman to execute a deed. The draft deed arrived.

122 McLaughlin's account of the meeting was as follows. McLaughlin read out to the plaintiffs the operative parts of the draft deed, clause by clause, and some of the definitions in the draft deed. In particular he said (at para 116 of his affidavit) that he explained to the plaintiffs that the effect of the release contained in the draft deed was -

"not just in relation to the products which are the subject of the proceeding. It goes beyond that to release them from liability for their use of formulae of any other products which they have used in their business down to the present time."

123 McLaughlin said he gave Coleman a copy of the draft deed to read. Coleman read the draft, and agreed with the explanation that McLaughlin had given concerning the effect of the document.

124 According to McLaughlin, Brown asked him to try and obtain the respondents' consent to limit the deed to the products the subject of the proceedings. McLaughlin says he told Brown that he would try, but that he did not think that the respondents would agree to that. According to McLaughlin, Brown also raised a concern that Fulton might try and commence defamation proceedings against him. (This was McLaughlin's evidence of how the topic of defamation proceedings was first raised.)

125 McLaughlin's oral evidence in these respects conflicts with the evidence he gave in his affidavit. In his affidavit, at par 143, McLaughlin stated:

"No-one suggested during this conference that the release should be confined to the respondent's use of product formulae and recipes up to the date of the deed. No-one suggested that the release should leave the applicant free to commence later proceedings in respect of any subsequent use of formulae and recipes, the confidentiality and ownership of which had been in contest in the proceedings."

126 In cross-examination, McLaughlin agreed that Brown and Freeman urged him at this meeting to ensure that the settlement would not prevent them from taking action in the future to protect their products (Tr 351). He said the respondents refused to agree to that.

"Baden Brown did not instruct me that the Applicant would not give a release in relation to the Respondents' manufacture of a product which appeared to be a copy of Seamez' beer line cleaner, Parts 1 and 2. Had he suggested that I would have expressed the view that there would be no prospect of the Respondents agreeing to exempt those two products from the release."

128 However, in cross-examination, McLaughlin admitted that Brown said at this meeting that he would prefer it if the deed did not apply to the Beer Line Cleaner products (Tr 350). Again, his affidavit evidence conflicted with his oral evidence.

129 McLaughlin says he telephoned Chris Brown and asked him to obtain his clients' instructions as to whether they would agree to limit the deed to the products the subject of the proceedings, to give Seamez the same benefits as were given to the respondents in cls 6, 7 and 9, and to the inclusion of a provision protecting Brown from any potential defamation proceedings by Fulton. According to McLaughlin, Chris Brown telephoned him back and said that his clients would agree to the proposed changes with the exception of limiting the deed to the products the subject of the proceedings. McLaughlin says he told Brown, Freeman and Coleman what Chris Brown had said to him.

130 McLaughlin in cross-examination (Tr.280) conceded that the releases in the draft deed were not mutual, in that Seamez, unlike United Systems, had no protection against further suit by its competitor. McLaughlin said, however, that he understood this was acceptable to the plaintiffs because Brown had assured him that Seamez was not copying any of United Systems' products.

131 According to McLaughlin, Brown asked him whether the deed took away his proprietary interest in his products. McLaughlin says he told Brown that this was not the case. As Brown did not appear to be re-assured by McLaughlin's explanation about the effect of the deed, McLaughlin says he asked Buckley to explain the effect of the deed to him.

132 McLaughlin was absent from the room when Buckley provided an explanation of the deed. In his affidavit, at par 29, Buckley said that he gave the following explanation to Brown and Freeman in relation to the deed -

"In the deed, both Brown and Seamez are acknowledging that they had no exclusive proprietary interest in the chemical formulae referred to in the definition of intellectual property".

133 According to Buckley he then read out the definition of intellectual property and said-

"By making this acknowledgment you are giving up any right to assert or enforce such an exclusive proprietary interest".

134 In cross-examination, Buckley's evidence as to the explanation given to the plaintiffs in relation to the deed was substantially the same as his affidavit evidence with one important exception. In cross-examination, he said that he told the plaintiffs (Tr.410)-

"They were foregoing, sorry, they were acknowledging they couldn't assert their proprietary interest in that intellectual property up to that date, and that any further formulae recipes, intellectual property that they acquired, wasn't affected".

135 According to Buckley, after giving his explanation of the draft deed, he then had a brief discussion with Coleman about the document and returned to his office. He conceded that Brown appeared to be upset and that he appeared to be unhappy about settling.

136 I have to say that an explanation of the deed in the terms which Buckley says he used would have meant no more to a lay person than the terms of the deed itself, or would have been as easily misunderstood at the least.

137 McLaughlin then re-entered his office and, according to him, Brown said he now understood the effect of the draft deed.

138 A second version of the draft deed was soon after delivered to McLaughlin's office. McLaughlin complained to Chris Brown that it did not incorporate all the agreed changes.

139 A third and final version of the deed was sent shortly thereafter.

140 The final draft differed from the initial draft only in the following respect, so far as is material. It incorporated a new cl 10 which provided the plaintiffs with a comprehensive release in relation to anything done by them to the date of the deed. That effectively put an end to the Equity proceedings.

141 According to McLaughlin, when the third version arrived, he read out the operative parts of the draft deed to Brown, Freeman and Coleman explaining the changes to the draft as he went along. He says he then went to Buckley's office where he, in the presence of Chris Brown, added a cl 13 to the deed in handwriting. Clause 13 imposed a similar obligation of confidentiality on United Systems and its associates as the earlier drafts had imposed on the plaintiffs. The "mutuality" objective had been achieved.

142 According to McLaughlin, after this further change was made, he showed the draft to Brown and Freeman, and they executed the document. Both he and Buckley were present when the deed was executed. He denied that Brown signed the deed "under protest" (as Brown asserted he did).

143 Coleman's account of this meeting was as follows.

144 Brown, Freeman and Coleman met with McLaughlin at his office at around 4.30pm on 20 March 1992. Coleman told McLaughlin that Brown was not happy about settling and would prefer to fight it out in court, but that he was willing to listen to McLaughlin's advice. McLaughlin then repeated his earlier advice, namely, that they had no counsel, that Brown could not win the case and that he had to settle.

145 A draft deed of settlement was received by McLaughlin shortly after they arrived. McLaughlin read the document to himself and made occasional comments about it as he did so, but he did not explain its contents or its effect.

146 While McLaughlin was reading through the deed, an office girl came into his office to let him know that Brender was on the phone wanting to know what was happening. McLaughlin told her to tell Brender that he would call him back.

147 According to Coleman, a copy of the draft deed was given to him while McLaughlin was out of the room briefly, and Coleman only had a brief opportunity to read through it quickly. Coleman said that he was aghast at what he read because the terms of the draft deed amounted, in his view, to a total surrender on the part of Seamez. He said that he told the plaintiffs that they should not sign the draft deed because it gave away all of Brown's rights to his products.

148 When McLaughlin returned to his office, there was a discussion about changes that should be made to the draft deed. According to Coleman, he told McLaughlin that Brown would never agree to a settlement in which he had to give up his rights to his products. Coleman states in his affidavit that he told McLaughlin to have the following amendments incorporated into the deed -

(a) The deed was to be confined to the 11 products that were the subject of the proceedings but should exclude the Seamez Beer Line 1 and 2 cleaners.

(b) The settlement should apply only up to the date of the deed, so that if the respondents continued to produce the products in question after that date Brown would be able to commence proceedings against them.

(f) A clause for non-disclosure of the settlement terms should be included.

(g) A clause requiring withdrawal of the Fulton defamation suit and the Mareva injunction should also be included.

149 McLaughlin then had several telephone conversations with the respondents' solicitors in which he discussed the proposed amendments.

150 Some time later, according to Coleman, Buckley came into McLaughlin's office to give him a revised draft deed which had arrived. McLaughlin asked Buckley to give him a hand checking the draft deed as he (McLaughlin) had a plane to catch. McLaughlin and Buckley checked the draft together. McLaughlin or Buckley would quote a paragraph number and would say "Releasors, Releasees" and would write on the draft. As McLaughlin and Buckley went through the revised draft deed, McLaughlin said it did not include the proposed amendments. McLaughlin then made a phone call to someone and told them to deliver another deed which did incorporate the proposed changes.

151 There was then further discussions about the draft deed. Brown said that he wanted the deed to be confined to the eleven products less the Beer Line cleaners and this was non-negotiable. McLaughlin reassured Brown that the respondents had agreed that the two Beer Line cleaner products would not be included in the deed.

152 Coleman said that the releases should be mutual and not one way. McLaughlin said that was right and that the other side would agree to that. McLaughlin also said that the respondents would agree to withdrawing the defamation proceedings and the Mareva injunction.

153 According to Coleman, Brown became very emotional, saying everything was happening too fast and that he wanted the weekend to think the matter over. Coleman says that he and McLaughlin tried to calm Brown down. Coleman said to McLaughlin (Coleman affidavit, para 33)-

"Bob, is this what they've agreed to The Beer Line cleaners are out. He drops his claim over the other 9 products and lets them keep the profits they've made from their sales of those 9 up to now, the date of the agreement. Baden pays $20,000 to cover the costs of the hearing and in return they will not pursue any other costs and will withdraw the defamation and injunction. Each side then goes about its business in peace. If they keep the peace then everything is finished for good and everybody is happy, but if they want to be naughty in the future, then Baden can use the evidence he has already obtained in starting fresh proceedings.

'Yes that's the agreement they're prepared to sign'"

154 McLaughlin denies that he represented to the plaintiffs that the deed would be confined to the products the subject of the proceedings, that it would not include the Beer Line Cleaner and that it would preserve the plaintiffs' right to take proceedings against the respondents in the future.

155 According to Coleman, despite McLaughlin's reassurances, Brown still requested that he be given overnight to think the matter over. McLaughlin asked Buckley whether he could see Brown the following day to finalise the deed. Buckley said that the deed had to be signed that night or the deal was off. McLaughlin then said to Buckley (Coleman affidavit, para 35)-

"Richard, Baden is worried about the future of his business, will you tell him if this is right ? What they are agreeing to is that they are forgiven for their sins and escape with what they have got away with in relation to the 9 products. The Beer Line cleaners are not part of the agreement. If they manufacture any Seamez products from this date, Baden is free to pursue them using the same evidence. If they don't everyone is happy and peace will reign.

Buckley said: 'Yes, exactly, in respect of any of your products provided you establish your proprietary rights.'"

156 Again, this is not what the current draft deed provided. It precluded Seamez from suing in relation to the marketing of any products which had been marked by United Systems or its associates to date, and it released United Systems and its associates from any liability for past infringements. Under the current draft, United Systems could continue to market the products of which the plaintiffs complained, including the Beer Line cleaner product, and would be immune from action against past infringements, including the Beer Line cleaner product.

157 Coleman says he then left to keep another appointment. So it is common ground that Coleman had left before the final version of the deed arrived.

158 It was after Coleman left that Brown and Freeman executed the deed. McLaughlin says that, after Coleman left, the third and final version of the deed was delivered to his office by Chris Brown. McLaughlin says that he read out the operative part of the deed to Brown and Freeman. Brown and Freeman deny that. Brown says he signed the deed "under protest". That also is disputed.

159 None of this matters. The deed would have been unintelligible to a lay person or at least very easily misunderstood. What matters is what was said earlier about the meaning and effect of the deed. That, as I have indicated, is in dispute.

160 Terms of settlement were handed up in court on Monday, 23 March 1992 by Brender.

161 As mentioned previously, counsel for the defendants submits that Coleman's evidence is a reconstruction tailored to support the account given by Brown in Brown's typed statements and affidavit. The following submissions were made impugning Coleman's credit:

a. Coleman did not give his instructions for his affidavit until 15 June 1994, and it is highly unlikely that he could have genuinely recalled in such detail conversations which took place two years earlier.

b. There are significant similarities between Coleman's affidavit, on the one hand, and that of Brown and Freeman, on the other, concerning the meetings of 19 and 20 March 1992, and no explanation has been advanced to account for these similarities.

c. There are significant differences between the draft statement by Coleman made on 15 June 1994 and the affidavit he later swore on 28 February 1997. The differences consist of additional evidence not included in the draft statement and which also appears in Brown's typed statements which Brown said were prepared in April 1992.

162 In support of Coleman's credibility counsel for the plaintiff's advanced the following arguments-

b. His position as a barrister makes it unlikely that he would lie in an affidavit or collude with others in the preparation of an affidavit because of the possible professional implications of such conduct.

c. He was present at the meetings on 19 and 20 March 1992 at the request of McLaughlin.

d. The form of his draft statement supports his evidence as to the manner in which his affidavit was prepared.

e. The differences between Coleman's draft statement and his affidavit sworn 14 September 1997 are explicable on the basis that his recollection of the events was enhanced by reading his draft statement and by the solicitor legitimately taking his mind to topics for consideration or more detailed consideration. In any event, the initial statement includes the more important parts of the conversations as recounted in the affidavit.

Submissions in relation to the credibility of McLaughlin

163 Counsel for the plaintiffs impugned McLaughlin's credibility on the following grounds-

a. McLaughlin's version of events which took place on 20 March 1992 is inherently improbable because it suggests that in the space of one afternoon the plaintiffs went from being enthusiastic litigants to being willing to settle the case on very unfavourable terms.

b. McLaughlin's evidence is not supported by any independent witnesses or any documentary evidence.

c. McLaughlin recorded no account of the meetings of 19 and 20 March 1992 when, shortly after the settlement, it was apparent that the plaintiffs were disgruntled and had retained another solicitor in relation to the settlement. Nor did he attempt to obtain a statement from Coleman at any stage. It is submitted that it can be inferred from these omissions that McLaughlin was not in a position to record a favourable recollection of events that would support his case and that he knew Coleman would not support a favourable version of events. The omission to approach Coleman assumes particular significance in light of the fact that Coleman was a friend of McLaughlin.

d. There were serious discrepancies between McLaughlin's affidavit and his oral evidence.

164 I do not accept that Coleman was a truly independent witness. Although he had a longstanding and friendly association with McLaughlin, he had a closer friendship with Brown. However, he had no significant personal interest in the proceedings. If anything, having referred Brown to McLaughlin, his personal interest was to support McLaughlin's handling of the settlement negotiations.

165 A s to the similarities between Coleman's evidence and that of Brown and Freeman, these are capable of being explained on the basis that Brown and Freeman's evidence was copied from Coleman's statement and affidavit. I appreciate that a finding that Coleman has been truthful in this respect implies that Brown and Freeman have not, but that does not affect Coleman's credit. 166 I found the arguments advanced in support of Coleman's credibility very persuasive. I found Coleman's oral evidence in relation to the meetings on 19 and 20 March 1992 very persuasive as it was being given. By contrast, I was not so impressed by McLaughlin's oral evidence. He could not recall many important matters such as the terms of his instructions to settle, the person who gave him the instructions to settle and much of the explanation that he gave in relation to the terms of the deed. The reliability of his evidence is further put in doubt by the fact that he did not swear an affidavit in relation to these proceedings until 16 April 1998, six years after the events to which he deposed. Then there was the evidence he gave in cross-examination about the instructions the plaintiffs gave him on 20 March 1992 conflicting with the evidence he had given in his affidavit in that regard. I think the reliability of McLaughlin's evidence is also seriously called into question by the fact that he made no note of what transpired on 19 and 20 March 1992 despite notice of the plaintiff's dissatisfaction with the settlement, nor any attempt at any stage to obtain a statement from Coleman with a view to corroborating his own version of events.

167 I accept Coleman's evidence as a truthful account of what took place and where McLaughlin's account is in conflict with Coleman's evidence I reject it.

My Findings as to the course of events from 17 to 20 March 1992 (inclusive).

168 I will now record my findings as to the course of events, stated in a way that comes most easily to me. I will then turn to the specific findings sought by the plaintiff. 169 Coleman introduced Brown and Freeman to McLaughlin. McLaughlin and Buckley's firm, McLaughlin & Riordan, was retained by the plaintiffs on 24 January 1991 to act in the Federal Court proceedings. McLaughlin was enthusiastic about the plaintiff's prospects in the proceedings. He told the plaintiffs they had a good case. 170 McLaughlin arranged for affidavits by Brown, Freeman and others to be prepared and filed. The affidavits were drafted or settled by counsel. Documents were obtained on discovery. The proceedings were set down for Monday, 23 March 1992. 171 In the Federal Court proceedings, it was alleged that United Systems had used formulae, wrongfully obtained from the plaintiffs, for the manufacture of products which it was marketing as its own. An account of profits was sought. United System's defence was that the formulae they were using had been provided by raw material suppliers and/or developed by United Systems such that the plaintiffs had no right or interest in relation to the formulae. 172 In earlier proceedings in the Equity Division of the Supreme Court, United Systems, as plaintiff, made similar assertions against Seamez and others in relation to products manufactured and marked by Seamez. Those proceedings were dormant. 173 McLaughlin did not inspect the Supreme Court file, and inspected some only of the papers held by the plaintiffs' previous solicitors, and that not until 19 March 1992. This delay occurrred notwithstanding that he knew about the Equity proceedings at least by mid-June 1991, that McLaughlin had been requested by counsel in October 1991 to find out about them and that, on his own admission, he should have done so. 174 It was thought that there were deficiencies in the discovery provided by the respondents in the Federal Court proceedings. Complaints culminated in an order made on 9 March 1992 for supplementary discovery. Asserted deficiencies were raised in a letter written by McLaughlin on 18 March 1992. 175 At a conference with Jacobson on 17 March 1992, Jacobson formed the view that Brown's affidavit was not genuinely his own and that there was a further problem arising from Brown and Freeman, both of whom were proposed witnesses, having been present together when Brown's affidavit was settled. On the evening of 17 March 1992, Jacobson informed Brender and McLaughlin of his views and of his intention to obtain a ruling from the president of the Bar Council as to whether it would be inappropriate for him to return his brief. 176 McLaughlin asserts that, on the same evening, he spoke to Brown about Jacobson's imminent departure from the case and the problems about the case mentioned by Jacobson, and recommended in strong terms that Brown settle the case. McLaughlin asserts that he repeated his settlement advice to Brown at a conference on 18 March 1992. Brown denies that any such advice was given at that stage. McLaughlin says that Brown's response to the advice was to find an alternative Queen's Counsel and to proceed with the hearing. It is common ground, therefore, that as at 18 March 1992, the plaintiffs wished to proceed with the hearing rather than settle, irrespective of whatever problems may have been brought to their attention at that stage. 177 Brender did not withdraw from the case at any stage. However, he indicated that he did not feel sufficiently experienced to conduct such a case on his own without a leader. 178 McLaughlin set about looking for a replacement for Jacobson and persisted in that endeavour until 20 March 1992. 179 Notwithstanding the difficulties mentioned by Jacobson to which I have referred and the existence of certain notes made by Brown which had recently come to light (and which were thought to be at odds with affidavit evidence filed by Brown in the Equity proceedings), McLaughlin believed that the plaintiff had a slightly better than 50% chance of succeeding in the Federal Court proceedings. 180 On the morning of 19 March 1992, McLaughlin had a meeting with Brown and Coleman at his office. The meeting was conducted in a light-hearted mood. In relation to Jacobson's concern about Brown not being aux fait with the technical material in his affidavit, Brown and Coleman assured McLaughlin that the concern was unfounded and that Brown would be ready for cross-examination on his affidavit at the trial. Brown proffered an explanation for the notes relating to the Equity proceedings. There was no discussion of settlement, nor any suggestion that the case could not proceed. 181 On Friday morning 20 March 1992, McLaughlin telephoned Coleman, saying the plaintiffs could not win because both barristers had left the case. 182 Later in the day, a meeting took place at McLaughlin's office attended by Brown and Coleman. On this occasion, there was no jocularity. McLaughlin repeated that both barristers had left the case and that Seamez had to settle because it could not win. Coleman asked about the possibility of an adjournment. McLaughlin said that was not possible and that the case could be settled "on a walkaway basis", with the $30,000, paid into court by Seamez as security for costs, going to the other side for their costs. Brown's response was one of anger. McLaughlin said that if he could find other counsel it would cost $30,000 to brief them over the weekend. Brown requested McLaughlin to obtain new counsel and have them apply for an adjournment. McLaughlin said they might obtain an adjournment but only until the Tuesday which would not help, and that, if the plaintiffs went on with the case, it would cost them $250,000. (That would have been for the costs of both sides, assuming the plaintiffs lost). Brown asked McLaughlin to apply for an adjournment and to find new counsel regardless of the cost. McLaughlin continued to urge settlement in strong terms, now adding that the settlement would not stop the plaintiffs from taking further proceedings if United Systems continued to sell the products in question. 183 On the way to Seamez's factory after the meeting, Brown told Coleman that he wanted to go on with the case and that his major concern was to protect Seamez's products from exploitation by United Systems. 184 At this stage, Brown's state of mind (which I impute to Seamez) was that, despite the difficulties mentioned by McLaughlin, he wished to proceed with the case rather than settle on the terms outlined by McLaughlin. 185 In the middle of the day, on 20 March 1992, McLaughlin telephoned the factory and told Brown that the other side had agreed to a settlement for $20,000 rather than $30,000. McLaughlin then told Coleman on the telephone that a defamation writ for $300,000 had been taken out against Brown and a Mareva injunction, both of which would be served before court on Monday unless the matter was settled. The Mareva injunction, according to what McLaughlin told Coleman, would prevent Brown from dealing with any assets so that he would be unable to continue in business. (That was, a considerable overstatement of the effect of a Mareva injunction. Coleman was not familiar with the remedy - being a criminal lawyer - and was not in a position to know that the effect of such an injunction had been overstated.) 186 Coleman communicated to Brown what he had been told by McLaughlin. He then told McLaughlin (in Brown's presence) that the money did not concern Brown, and that Brown was more concerned about protecting his products and stopping United Systems from manufacturing them. 187 No defamation proceedings of the kind mentioned by McLaughlin had in fact been instituted, nor had there been any application for a Mareva injunction against Seamez or Brown. 188 A letter, sent by facsimile transmission at about 2.00 pm on 20 March 1992, shows that McLaughlin genuinely understood from his conversation with Brown and Coleman that he had instructions to settle for up to $30,000. However, the letter does not show, one way or the other, what instructions were given in relation to further terms for any such settlement, nor even McLaughlin's understanding of such instructions. 189 Following communication between McLaughlin and Chris Brown (solicitor for United Systems), a draft deed was sent by Chris Brown to McLaughlin. At a second meeting, on 20 March 1992 in Mr McLaughlin's office, attended this time by Brown, Freeman and Coleman, the draft deed was discussed. 190 Materially, the effect of the deed was that United Systems and its associates were released from any liability for any past infringements of Seamez's rights in relation to products marked by United Systems or their associates to date. As to the future, the plaintiffs were precluded from preventing any future infringement by United Systems or their associates of any rights which the plaintiffs might otherwise have had in relation to products marketed by United Systems or their associates to date. 191 In these respects, the draft deed ran counter to McLaughlin's statement to Brown at the first meeting on 20 March 1992 that a settlement, as urged by McLaughlin, would not stop the plaintiffs taking further proceedings if United Systems continued to sell the plaintiffs' products. It also ran counter to Brown's primary concern, communicated to McLaughlin, which was to prevent United Systems from manufacturing products which Brown asserted utilised formulae which were the property of the plaintiffs. (In these respects, the final version of the deed executed by the plaintiffs later on 20 March 1992, was in materially the same terms.) 192 The tone of the meeting was set by an opening statement by Coleman that Brown was not happy about settling and would prefer to fight it out in court, but that he was willing to listen to McLaughlin's advice. McLaughlin repeated his advice to settle the case and did so in strong terms. Coleman then had a brief opportunity to read through the draft deed. He told Brown and Freeman that the draft constituted a total surrender, and they should not sign it because it gave away Brown's rights to his products. Coleman told McLaughlin that Brown would never agree to a settlement in which he had to give up his rights to his products. He said the deed would have to be confined to the products which were the subject of the proceedings, but should exclude the Beer Line 1 and 2 cleaner products altogether; the settlement should apply only up to the date of the deed, so that Brown would be able to commence proceedings against United Systems if they continued to produce the products in question; there should be mutual releases; and there should be a clause requiring withdrawal of the defamation suit and the Mareva injunction. 193 There was then discussion on the telephone between McLaughlin and the other side. Buckley brought in a revised draft deed which had been received. McLaughlin told the other side that the second draft was unsatisfactory. 194 Brown reaffirmed that he wanted the deed confined to the products which were the subject of the proceedings, and that the Beer Line cleaner product should be omitted altogether because it was non-negotiable. McLaughlin told Brown that the other side had agreed that the Beer Line cleaner product would not be included in the deed. McLaughlin also said that the other side had agreed that releases should be mutual and that the defamation proceedings and the Mareva injunction should be withdrawn. 195 Brown then became very emotional and said he wanted the weekend to think the matter over. Coleman asked McLaughlin to confirm that the other side had agreed to omitting the Beer Line cleaner product, that the plaintiffs would drop their claim in relation to the products which were the subject of the proceedings but only to the date of the agreement, and that the plaintiffs could start fresh proceedings against United Systems in the future using the evidence already obtained. McLaughlin said that was the agreement which the other side was prepared to sign. 196 Brown still sought time to consider. Buckley said the deed had to be signed that night or the deal was off. 197 McLaughlin then asked Buckley to confirm to Brown that United Systems were settling on the basis that they were forgiven for past infringements concerning the products specified in the Federal Court proceedings, that the Beer Line cleaner product was not part of the agreement, and that, if United Systems manufactured Seamez's products in the future, the plaintiffs would be free to pursue them using the same evidence. Buckley said that was right. 198 The current draft of the deed did not so provide. It did not exempt the Beer Line cleaner product from the release by the plaintiffs concerning any past conduct by the respondents; and it did not preserve the plaintiffs' capacity to sue United Systems if that company persisted in marketing products which it was currently marketing and in which the plaintiffs claimed to have an interest. Further amendment was required to incorporate what it was said United Systems was prepared to agree to. 199 At this point, Coleman left the meeting to keep another appointment. 200 A final version of the deed arrived from the other side. McLaughlin asserts that he read out the operative part of the deed to Brown and Freeman. They deny that. The deed was executed by Brown and Freeman. Brown says he signed the deed "under protest". That is also disputed. 201 These last mentioned matters of contention do not matter. The deed was unintelligible to a lay person or at least very easily misunderstood. Coleman and Brown had made it clear what the plaintiffs' requirements were. The deed, neither in its draft form nor in its final form, did not answer those requirements. Materially, the Beer Line cleaner product was not exempt from the release by the plaintiffs in relation to any infringement of their interests to date; and the deed did not preserve the plaintiffs' entitlement to sue in relation to any future infringement of their interests if the respondents continued to market any product currently marketed by them of which the plaintiffs complained. Neither McLaughlin nor Buckley assert that before the deed was executed they informed Brown and Freeman that the deed in its final form fell short of the settlement they had said was available in these respects. Brown and Freeman would not have executed the deed but for their reliance on the statements made by McLaughlin and Buckley as to what the terms of the settlement were to be. Those assurances were not met by the deed which McLaughlin invited them - and impliedly advised them - to execute. Findings as to breach of duty sought by the plaintiffs 202 I now turn to the findings sought by the plaintiffs in relation to breach of duty. In ruling on each request for a finding, I bring to account the findings I have made as to the course of events between 17 and 20 March 1992. 203 (i) Failing to obtain full and proper discovery from the respondents in the litigation such that the applicants' case was not adequately prepared on the issue of documents held by the respondents regarding the chemical formulae of their products and also regarding profits made by them from sales of their products. Rejected. It is questionable as to whether the action taken was deficient. But, it is not shown that more vigorous action would have had any effect. The consequence is speculative. There might have been no further documents. The evidence does not disclose a serious possibility that there were. It is not shown that further documents were necessary for proof of the plaintiffs' case. 204 (ii) (Not pressed). 205 (iii) Advising the applicants that the litigation should be settled or compromised only on 19 March 1992, one business day before the commencement of the hearing of the litigation or even on 18 March 1992, only two days before the commencement. Rejected. A view about settlement often emerges during the final stages of preparation for trial. I am not satisfied that, in this case, the lateness of the advice involved breach of duty in not advancing the preparation programme in such a way that the same view about settlement would have emerged earlier. 206 (iv) Failing to obtain counsel's advice concerning the appellants' prospects for success in the litigation . Rejected. Generally speaking, there is no obligation to obtain counsel's advice on settlement. There was no special reason for doing so in this case. 207 (v) (Not pressed.) 208 (vi) Failing to inspect the documents concerning the 1986 Equity Division proceedings at the time of initial instructions, in October 1991 or at any time prior to 18 March 1992. Upheld. I refer to my earlier findings and observations on this matter. (Whether the breach had any consequence is another matter.) 209 (vii) Failing to obtain the advice of counsel concerning the 1986 Equity Division proceedings documents . Rejected. The solicitor was competent to evaluate them

210 (viii) Failing to inform the plaintiffs that leading counsel had returned his brief until the evening of Thursday 19 March 1992 or alternatively on 18 March 1992. Rejected. I am not satisfied there was any material delay.

211 (ix) Failing to advise the plaintiffs adequately or at all of the consequences and circumstances of leading counsel returning his brief. Upheld. McLaughlin should have advised the plaintiffs that Brender could be asked to conduct the case despite his misgivings, and that, if other senior counsel could not be found in time, the Court was likely to grant an adjournment which would be sufficient to enable that to be done (albeit with a penalty as to costs).

212 (x) Failing to properly consider and assess the applicants' affidavit evidence, particularly that of Baden John Brown, prior to the week before the commencement of the hearing of the litigation. Rejected. Final preparation in the week before trial was unexceptionable in this case. The view formed by Jacobson about difficulties in the case arose at that time. It is not unusual that difficulties are perceived in the course of final preparation shortly before the trial.

213 (xi) Failing to properly obtain and consider the affidavit evidence of Freeman in good time prior to the commencement of the litigation. Rejected. See (x).

214 (xii) Failing to apply for an adjournment of the hearing of the litigation on Wednesday 18 March, Thursday 19 March or Friday 20 March 1992 when instructed by the plaintiffs to do so, or failing to seek instructions to do so. Upheld. In my view that should have been done; and with good prospects of success, sufficient to enable other silk to be found and briefed.

215 ( xiii) Failing to heed the plaintiffs' instructions to make an application to adjourn the hearing of the litigation by instructing Jacobson or Brender of counsel or by instructing other appropriate counsel. Upheld. See (xii).

216 (xiv) Advising the applicants on 20 March 1992 that both their counsel were unable to appear at the hearing of the litigation when in fact Brender was available to appear at the hearing of the litigation. Upheld. Brender was available. McLaughlin told the plaintiffs he was not. McLaughlin was mistaken. He should have taken more care to inform himself accurately of Brender's position.

217 (xv) Advising Mr Brown on 20 March 1992 that the applicants would not be able to get an adjournment of the hearing of the litigation and the applicants would be forced on. Upheld. See (xii).

218 (xvi) Failing to take any adequate steps to retain alternative counsel to Jacobson during the period 18 March 1992 to 20 March 1992. Rejected. It is not shown that McLaughlin could have done more than he did in this respect.

219 (xvii) Placing the plaintiffs in a position on 20 March 1992 whereby the plaintiffs had no alternative other than to settle the litigation on very disadvantageous terms. Rejected. This draft finding is insufficiently specific to warrant a response from me. 220 (xviii) Representing to the plaintiffs on 20 March 1992 that the respondents to the litigation had taken out a Mareva injunction against them and would serve the injunction before the commencement of the hearing on Monday 23 March 1992 when to the knowledge of McLaughlin the respondents had not done so and did not ever intend to do so. I do not make this finding but I make a related finding. Whether McLaughlin was told a Mareva injunction had been obtained but not yet activated by service, or would be applied for is neither here nor there. The threat would have been the same. After the passage of 8 years, it may be that Chris Brown told McLaughlin that he intended to apply for such an injunction (in conjunction with a proposed defamation suit), and that both men have forgotten that. I see nothing, therefore, in the assertion that McLaughlin dishonestly misrepresented to Coleman that such an injunction was on the way. What is material is that McLaughlin told Coleman - who was unfamiliar with such injunctions - (to be passed on to the plaintiffs) that the injunction would have the effect of closing down the plaintiff's business. That was not so and McLaughlin ought to have known it was not so. This was a serious breach of duty. It must have caused the plaintiffs grave concern about proceeding with the case. 221 (xix) Representing to the plaintiffs that Mr Robert Fulton had commenced defamation proceedings against Mr Brown and that the process for those proceedings would be served on Mr Brown before the commencement of the hearing of the litigation on 23 March 1992 when to the knowledge of McLaughlin Mr Fulton had not done so. Rejected. For the same reasons as in (xviii), I see nothing in the assertion that McLaughlin dishonestly misrepresented to Coleman that such a writ was on the way. In this instance, however, there it ends. (Further, Brown said he was not troubled by the threat of such a defamation action.)

222 (xx) Representing to the plaintiffs that if they did not settle the litigation that they would be required to pay $250,000 in cash to the respondents by 9.30 am on 23 March 1992, prior to the hearing of the litigation, when he had no reasonable grounds for believing that to be true. Rejected. Coleman does not support this finding. It depends on accepting evidence I am not taking to be reliable. 223 (xxi) Not pressed. 224 (xxii) Failing to explain at all or in the alternative properly, the terms of the deed proffered by the respondents to settle the litigation. Upheld. The terms of the deed were not explained in the important respects I have mentioned. 225 (xxiii) Representing to the plaintiffs that the terms of the deed did not affect the plaintiffs' rights to commence proceedings after 20 March 1992 against the respondents to protect their interests in their products. Upheld. This is cognate with the point in (xxii).

226 (xxiv) Failing to advise the plaintiffs that under the provisions of the deed the respondents obtained a release in relation to the use of any of their products at any time. Upheld. As for (xxiii).

227 (xxv) Not pressed. 228 (xxvi) Failing to advise the plaintiffs that the beer line cleaning products were not excluded from the settlement. Upheld. As for (xxiii).

229 (xxvii) During the period 17 March to 20 March 1992 failing to advise the plaintiffs that the litigation was not fully or properly prepared for hearing. Rejected. This is a reference to the situation in relation to discovery. See (i).

230 (xxviii) Failing to advise the plaintiffs as at 16 March 1992 that the litigation was not ready for hearing as a result of the defendants' breaches of duty. Rejected. As for (xvii).

231 (xxix) Advising the plaintiffs to compromise the litigation upon a payment to the respondents of $20,000. Rejected. It is not shown that such advice was so wrong as to constitute a breach of duty. Other terms on which the case was settled and the absence of other terms are a different matter. 232 (xxx)Failing to advise the plaintiffs during the period 18 March to 20 March 1992 of McLaughlin's view that the applicants' chances of success in the litigation were better than 50%. Upheld. This was a serious deficiency in McLaughlin's advice concerning settlement. McLaughlin's opinion in that regard was a highly relevant consideration. To fail to communicate that view when advising on settlement was a breach of duty. My findings as to consequences of breach of duty 233 The plaintiffs have specified the consequential findings they seek. I have upheld some of the findings of breach of duty which were sought by the plaintiffs and I have rejected others. 234 Before coming to the consequential findings sought by the plaintiffs, I think it would be useful for me to state what I regard as the consequences of my findings as to the course of events and of my findings as to breach of duty. 235 I find that the plaintiffs were until 20 March 1992 opposed to settlement altogether. They wanted the case to be adjourned, a new silk to be briefed and the case to proceed. On 20 March 1992, they were persuaded to settle the case on certain terms. Of the factors which led them to change their mind, some had to do with asserted difficulties about successfully prosecuting the case. Others had to do with the terms on which the proceedings could be, would be and were being settled. 236 The following considerations led them to decide to settle in porinciple rather than press on. Each constituted a breach of contractual duty on the part of the present defendants. (a) Statements that the plaintiffs could not win, whereas McLaughlin was of the view that there was a better than 50:50 chance of winning. (b) Statements that an application for adjournment would be unsuccessful and/or futile, whereas an adjournment would very likely have been granted, sufficient to enable a new leader to be found and briefed. (c) Statements that both counsel had withdrawn from the case whereas Brender had not. (d) The statement that a threatened injunction would prevent the plaintiffs from continuing in business. 237 The following considerations led the plaintiffs to settle on the terms in the deed whereas otherwise they would not have done so. Again, each constituted a breach of contractual duty on the part of the present defendants: (a) Failure to correct or qualify statements that a settlement would include the two features now mentioned. (b) Statements which specified or implied that the release, given by the plaintiffs in the deed in relation to any past infringements by United Systems or its associates, did not include the Beer Line cleaner product. (c) Statements which specified or implied that the deed would not prevent the plaintiffs from bringing proceedings against United Systems and their associates in relation to future conduct, if United Systems or its associates continued to market products contrary to the plaintiffs' claimed rights and interests. 238 I have for convenience drawn a distinction between considerations which induced the plaintiffs to settle at all and considerations which induced them to settle on the terms in the deed. In another sense, the distinction is artificial. The deed embodied the terms on which settlement was available. McLaughlin had endeavoured, unsuccessfully, to improve those terms. It may be assumed that settlement on more favourable (or less unfavourable) terms was not available. It may therefore be concluded - and I so find - that all of the considerations to which I have referred materially contributed to and caused the plaintiffs' decision to settle the case as they did rather than continue with it. 239 As a result of the present defendants' breaches of contractual duty, the plaintiffs thereby lost the benefit of the claims they made in the Federal Court proceedings, incurred the obligations they incurred under the deed, and lost the rights they gave up in the deed. Consequential findings sought by the plaintiff 240 I turn now to the schedule of consequential findings sought by the plaintiffs. I will deal with each in turn. I will not include the references to specified breaches which were provided and which are recorded earlier in this judgment. 241 (1) The plaintiffs would not have signed the deed of 20 March 1992 to settle the Federal Court proceedings . Upheld.

242 (2) The plaintiffs would have continued to conduct a Federal Court proceedings to judgment . Upheld. 243 (3) Alternatively to (2), the plaintiffs would have had an opportunity to consider settlement of the Federal Court proceedings calmly, in a timely manner, and with the benefit of considered opinions of their solicitor and senior counsel. Rejected. This finding is based on the contention that earlier preparation would have shown up perceived difficulties in the plaintiffs' case and would, accordingly, have resulted in earlier and less pressured consideration of possible settlement. For the reasons given earlier in this judgment, the premise on which this finding proceeds has not been established. 244 (4) The plaintiffs would not have settled the Federal Court proceedings on the terms they did. Upheld. 245 (5) The plaintiffs would not have lost the opportunity to have their Federal Court proceedings determined by a judge of that court. Upheld. 246 (6) Alternatively to (5), the plaintiffs would not have incurred the costs, alternatively, a significant proportion of the costs, of the Federal Court proceedings . Rejected. I reject this finding on the assumption that it relates to the plaintiffs' costs. This finding rests on the same premise as (3) above. 247 (7) The plaintiffs would not have incurred the sum of $20,000 paid to the respondents in the Federal Court proceedings . Upheld. I take this draft finding to mean that the plaintiffs would not, as a term of a settlement at that stage, have agreed to the payment to the respondents of that amount out of the moneys paid into court by the plaintiffs as security for the respondents' costs. I make this finding because, but for breaches of contractual obligation by the respondents, the plaintiffs would not have agreed to settle the proceedings at all. Of course, depending on the outcome of a hearing of the Federal Court proceedings, the plaintiffs might ultimately have become liable for the respondents' costs, including the moneys paid into court as security for such costs. 248 (8) The plaintiffs would have instructed the defendants in definitive terms to apply for an adjournment of the Federal Court proceedings if they had known or thought that there could be any doubt that their instructions to run the Federal Court proceedings did not necessarily include the making of all or any applications to adjourn them (the Federal Court proceedings would have been adjourned.) Rejected. Unravelling this draft finding is not warranted. 249 ( 9) The plaintiffs would have had the opportunity overnight or over the weekend further to reflect upon and to confer about the terms of the deed of 20 March 1992 before being required to decide whether or not to sign it . Rejected. I do not find that having the opportunity of considering the proposed settlement overnight or over the weekend would have made any difference to the outcome or might have done. 250 (10) The plaintiffs would have instructed the defendants to take all such steps as were necessary or sufficient to complete discovery in the Federal Court proceedings in the ways referred to in McLaughlin's (unsent) letter of 20 March 1992 addressed to the solicitors for the respondents in the Federal Court proceedings. Rejected. For the reasons given earlier in this judgment, it is not established that there was any remediable deficiency in discovery 251 (11) The plaintiffs would not have incurred the costs of the present litigation. Rejected. The only possible basis for this finding would be the assertion of failure to prepare for trial earlier than occurred, a finding sought and rejected. Breach of fiduciary duty 252 It is submitted that, in advising and urging the plaintiffs to settle on the terms available, McLaughlin preferred his own interests to those of the plaintiffs. 253 The submission depends on an anterior finding that a failure to manage the case diligently would have been disclosed, to the defendants' detriment, if the case was not settled. The asserted deficiencies in management of the case were in relation to discovery and earlier preparation for trial. I have held that there is no substance in either of these criticisms. The foundation for a case based on breach of fiduciary obligation, therefore falls away. 254 For these reasons I find no actionable breach of fiduciary obligation.

I certify that paragraphs 1 - 254 are a true copy of the Reasons for Judgment / Summing up of the Honourable Justice Sperling Associate Date : 29 January 1999

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