Mr Roach: I direct you to stop work on the Freehills matter. I am getting two other legal opinions.
…
You guys are liars, con-men, sharks and thieves …
Myself: Ted, your terminology is offensive and inappropriate. You have no justification for making those comments. I request that you withdraw them.
Mr Roach: I won't. You guys are feathering your own nest, neglecting our interests and are utterly incompetent. You have a side deal with Justice Corporation concerning the payment of your costs. You are putting a liquidator in Winnote and Sydtech, so that Justice Corporation can rip us off in fees.
Myself: Would you care to repeat your comments, Ted. John has just walked into my office. [Mr Roach repeated his comments in substance or effect.] Your allegations are totally untrue. It will be the function of the Liquidator of Winnote and Sydtech to determine what is reasonable and to apply liquidation laws.
…
He must seek approvals from the Committee, the Creditors or the Court. He is not allowed to incur or pay unfair or unreasonable costs. The costs have to be fair and reasonable.
All legal costs can be assessed by the Court. I sent to you a copy of Part 11 of the Legal Practitioners Act. That would be applicable to costs of Smits Leslie or any other solicitors and Counsel.
If the Liquidator does not comply with reasonable directions from the creditors which include yourself and your companies, you could make an application to determine the appointment of the Liquidator or appeal against his decision.
The Agreement between the Solicitors and the Liquidator could fix hourly rates for legal services and overall fee limits.
There is no arrangement, understanding or agreement as between us and Justice Corporation.
Mr Roach: Will you give me an express covenant to that effect in a Deed.
Myself: Absolutely. I swear on my children's lives that we have no contracts or arrangements whatsoever with Justice Corporation.
You wanted Justice Corporation and us to accept thirty per cent all up. I said to you that we will not enter into any contract of that nature with Justice Corporation. Our contract is only with you. You must approve all arrangements with Justice Corporation.
Mr Roach: A Queens Counsel friend of mine has given me bad reports on Justice Corporation and Rivkin.
…
You guys have extremely bad reputations.
…
I should come up there and punch you on the nose.
Myself: You can come here if you want to Ted, but I think you lack the courage. You can only make these false and baseless allegations when you are on the end of a telephone or in correspondence. Come down here and do it face to face like a man.
Mr Roach: I have no car, otherwise I would come down there now.
Myself: Catch a taxi, Ted. Ted, you views are misconceived and ill informed. If Justice Corporation spends $10,000,000 on legals and gets the benefit of an indemnity costs or party and party order, then they should be reimbursed for at least one half to two thirds of those costs. The defendants would not be bound to pay more than fair and reasonable costs. Justice Corporation cannot simply run up unjustifiable charges.
We have revised the pleadings and want to progress this matter. Do you want to work with us or not? You have failed to attend several meetings with Stephen Archer of Counsel. I had to cancel the meetings. That is embarrassing and counter productive. No Counsel likes to be mucked around. I cannot get any sensible responses from you. I have made arrangements to go on leave between 7 and 17 April 1999 because I feel that you are wasting my time. I cannot make any meaningful progress with you. You will have to wear the consequences of your wrongful suspension of our work.
John and I are both extremely upset and disappointed by your irrational and intemperate behaviour. We have been totally loyal to you and Anne. Your behaviour is unacceptable."
The retainer comes to an end
136 After these unfortunate events, Smits telephoned Rayment. He then wrote a letter to Justice Corporation dated 31 March 1999 in the following terms:
"I refer to my telephone conversation on Monday, 29 March 1999 with your Mr Andrew Rayment, with whom we have no complaint.
Our clients have suspended our involvement in the proceedings.
In October 1998, we referred this matter to you for funding purposes. As mentioned to Mr Rayment, Mr Roach, the principal of our clients, has alleged to us that we have some kind of covert relationship and deal with Justice Corporation in respect of the potential funding of the proceedings. As Justice Corporation well knows, that allegation is absolutely false. Mr Roach has also alleged to us that he has consulted a Queens' Counsel who has made certain, unspecified, but disparaging remarks concerning Justice Corporation and by implication, therefore, yourself; although, we do not know the identity of the Queens' Counsel or the substance of the remarks allegedly made other than that our client alleged that he was advised, in effect not to deal with Justice Corporation.
We presume that Justice Corporation will not proceed to fund this litigation if our clients attempt to terminate our retainer based upon such false allegations.
Our clients have failed to finalise our instructions in relation to your funding proposal over several months, but, we suspect that they will by-pass us.
We are concerned about the apparent lack of business ethics and moral turpitude being exhibited by our clients in making direct approaches to Justice Corporation, none of which are being reported to us.
We are certain that you will not want to be associated with the funding of the litigation which results in a non consensual jettison of the solicitors who referred the matter to you.
A meeting with you is requested in the circumstances to clarify our position.
We can assure you that we will continue to act in good faith, in the best interests of our clients and that we will not mislead Justice Corporation or our clients.
For nearly four years, we have carried financially our clients in respect of their claims and we are not prepared to be abused in respect of our accrued entitlements.
You should, therefore, be aware that litigation will ensue with respect to our retainer if our interests are not dealt with honourably by our (sic) clients."
137 Smits then said in his statement that having heard nothing further from Justice Corporation or from Roach he wrote a letter to the Roaches, dated 25 March 1999.
"We refer to your second fax dated, and sent on, 25 March 1999 to ourselves.
The credibility of your comments can be gauged against your derogatory remarks about us. Suffice it to say that your defamatory comments that we were 'con men', 'liars', 'cheats', 'sharks', 'thieves', etc, etc, in the most abusive terms I have ever heard from any client were overheard by three persons here. Your physical threat to me is as empty as your response to my invitation to enact it.
In relation to the third matter raised in your fax, I acknowledge that there was an error made on my part, which I admitted to you immediately and immediate steps were taken to rectify the same. The revision of the relevant provisions was sent to you forthwith. Suffice it to say that you have made many errors in the past and we certainly do not dwell upon them in the same manner that you do. As you correctly point out, these matters were identified by you and I immediately admitted (and rectified) my mistake. I do not resile from the fact that I made an honest mistake.
Your comment that there has been an 'unreasonable cost blow-out' is totally unfounded. You are making a claim for several billion dollars as against arguably the largest legal firm within Australia. It is not inconceivable that in a period of about four years you would have run up a legal bill of the order of $600,000 in order to sue Freehills (Melbourne) and Freehills (Sydney) in respect of a complex series of matters. The spirit of the Retainer Agreement has not been abused or dishonoured by us to any extent whatsoever. The converse is doubtful. We have adhered strictly to the terms of the Retainer Agreement. We request that you do likewise.
As to the fifth paragraph of your letter, again, you are mistaken as to the content of the provisions contained in your putative Agreement with Justice Corporation. Suffice it to say that, the Agreement recorded by us accurately reflects the negotiations and agreements which you reached with Mr Andrew Rayment of Justice Corporation in a meeting at their Head Offices on Friday, 12 March 1999. If you wish to resile from the in-principle agreement reached at that meeting, that is a matter for you, and we may and no doubt other Solicitors, remain ready, willing and able to advise you upon the consequences of your repudiation of that in-principle agreement. However, please do not request us to print a form of agreement which is different in content to the one which you reached with Justice Corporation and to pretend that it accords with your instructions. We have no intention of making any arrangements whatsoever with Justice Corporation that we will collect our recoverable legal costs from the Defendants. We have mentioned this to you time and again. We rely upon the terms of our Retainer Agreement with you.
If you want to terminate our Retainer Agreement, then please have the decency to do so in a professional manner and we shall arrange for our costs to be assessed forthwith by the Court and enforced against you for payment. Such crystallisation and enforcement will follow immediately upon the termination of the Agreement. It is not necessary for us to wait indefinitely for you to pursue your claims as against the Defendants. If you want to crystallise the termination of our association, then please do so forthwith, without any further nonsense. We are not going to be subjected to your continual verbal harassment and scurrilous abuse.
Finally, the last paragraph of your fax is arid nonsense and indicates the extent to which you have lost the plot."
138 Smits Leslie also issued a notice of rescission of the retainer agreement. The basis stated for the termination was as follows:
"(A) Anticipatory breach by you of the Agreement, which we have accepted, in the light of the conduct referred to below.
(B) Further or alternatively, breaches by you of essential conditions of the Agreement, including:
(1) your failure to carry out terms and conditions of the Agreement (and in respect of which time limitations are of the essence), including your wrongful suspension of our work and failure to give instructions in a timely manner, adequately or at all, thereby precluding us from complying with judicial directions for the filing of witness statements and counsel's agreed availability to settle your witness statement on 12 April 1999 [clause 14.1(a)];
(2) your failure to give us adequate instructions within a reasonable time of being asked to do so, in respect of important matters concerning witness statements, including your failure, neglect, refusal or omission to give us adequate instructions as to content or finalisation of witness statements, the retention of suitable expert witnesses, and briefing of counsel [clause 14.1(b)]; and
(3) we have formed the reasonable opinion that mutual confidence and trust no longer exist between yourselves and ourselves [clause 14.1(c)], which situation was evidenced and compounded by:
(a) the abusive and defamatory utterances made by you, Mr Roach, to us on 25 March 1999, and your utterly false, baseless and unsubstantiated allegations that we have made side agreements and arrangements, and had discussion with, Justice Corporation Pty Limited (Rivkin) concerning deals to favour ourselves at your expense in respect of the Proceedings;
(b) your consultation, behind our backs, with un-named senior counsel and other solicitors concerning our alleged lack of performance and bad reputations;
(c) the opportunistic positions adopted by you relative to issues or concerns which have arisen adverse to yourselves in relation to the Proceedings, by blaming or 'shafting' our Mr Leslie for your own shortcomings, after you have take into account, with the benefit of hindsight, counsels' written opinions and our on-going advice;
(d) your attempts to contrive complaints in respect of the alleged lack of performance of our Mr Leslie in order to conceal, or misdirect attention from, your own shortcomings.
(e) the denials made in your letter of 25 March 1999, given the wording and substance of Mr Roach's inappropriate remarks on 25 March 1999 to our Mr Leslie, and in a later conversation on that day between you, Mr Roach, and our Mr Smits which was overhead by two other persons in our offices;
(f) your insistence that we must follow absolutely your dictatorial directives on the basis that you, Mr Roach, are 'the general' and we are merely 'commissioned soldiers' and have no role to fulfil as 'independent solicitors', or ethics to adhere to in the conduct of our practice as solicitors of the Court;
(g) the undisclosed, unprincipled and undermining contact made by you, Mr Roach, to our Mr Leslie's spouse to question whether he had ever been 'cheated' by our Mr Smits, on the basis that Mrs Leslie would not disclose the existence or content of the conversation to our Mr Leslie; and
(h) your on-going, vexatious attempts, Mr Roach, to divide and 'wedge' our partnership arrangements, to your own self-advantage."
139 The notice of rescission was served on 7 April. The notice of intention to cease acting as the solicitor was served on the same date.
140 Smits explained his decision to rescind the Retainer Agreement in the following terms:
"By 6 April 1999, I had heard nothing further from Justice Corporation or from Mr Roach and as a consequence I wrote a letter to the Clients. When Smits Leslie issued a Notice of Intended Rescission of the Retainer Agreement to the Clients on or about 6 April 1999, Mr Leslie and I had formed the opinion that we were not in a position to enforce the Agreement made on 11 December 1998 by Smits Leslie with the Clients until a Funding Agreement with Justice Corporation had been finalised or executed. We did not consider it to be appropriate at that time to particularise the defaults which had occurred in respect of that Agreement. Consequently, we included in the Notice of Rescission a general statement, in the last paragraph, that the particulars specified in the Notice were necessarily generalised and summarised, and were not exhaustive; but that full particulars would be furnished in due course. At that time Mr Leslie and I discussed and formed the opinions that no safeguards were being included in the proposed Funding Agreement to protect our interests, that the Mr Roach was deliberately avoiding the finalisation of his own Witness Statement and Mr Murray's Expert Report with us so that he could change the solicitors acting for the Clients in relation to the Freehills proceedings (as provided for in the draft Funding Agreement of 1 March 1999) and so as to avoid paying any costs to us by alleging that our arrangements were champertous and illegal. I formed the view that Mr Roach was avoiding meetings with myself to settle the recommended changes to the pleadings of the Clients in the Freehills proceedings, that he had avoided communicating with me about the engagement of PricewaterhouseCoopers as Experts, that he had avoided any attendance at conferences which I had scheduled in February and March 1997 with Mr Archer of Counsel to progress compliance with outstanding Directions of the Court, that he had for a long time been 'setting me up' for emotive disputes, to which I did not react emotionally at all, and that he had conspired with Mr Rayment to create a new form of Funding Agreement which contained no reference whatsoever to any entitlements of the Plaintiffs, nor safeguards to ensure that any of those entitlements would be protected after the change in legal representation of the Clients in relation to the Freehills proceedings and execution of the Funding Agreement. I, therefore, formed the view that Mr Roach had no intention of performing the steps which were necessary to properly and efficiently prosecute the Freehills Proceedings, most particularly given the substantial and on-going non-compliance by the Clients with the outstanding Directions of the Court and that Mr Roach intended to avoid compliance by the Clients with their obligations to the Plaintiffs under the Retainer Agreement and our Agreement of 11 December 1998. It was as a consequence of all of those matters and Mr Roach's treatment of ourselves that I spoke at length to Mr Leslie who finally agreed with my opinion and we decided to issue the Notice of Intended Rescission on or about 6 April 1999."
141 Leslie described the falling out in more colourful language. He described his exchange with Roach as one in which he was abused by Roach , describing it as "the vicious, filthy abuse I copped from him". As a consequence, he felt unable to continue working for Roach.
142 In his evidence he described how he got "sick" of Roach: "Mr Roach thought he was a QC. He always thrust legal opinions down your throat as he was the know all of all know alls."
143 The assertions made by Smits Leslie were denied by Roach, who had by this time engaged Phillips Fox to act for him. Phillips Fox wrote indicating that they regarded the notice of rescission as a wrongful termination of the agreement and reserved their client's rights.
The retaining of other solicitors
144 Smits Leslie complain that before Smits moved to terminate the retainer, Roach had already repudiated the agreement by retaining other solicitors to advise him and the companies. I am satisfied that by early March 1999, the firm of Garrett Walmsley Madgwick had been approached by Roach for advice. I also accept that it was anticipated that they would act in the Freehills litigation if funding was provided by Justice Corporation.
145 There is a dispute as to whether Garrett Walmsley Madgwick had come into the matter by 5 or 6 March, as maintained by Smits Leslie, or 25 March as suggested by Roach. To my mind, nothing turns on that question. Plainly, having regard to the conflict which existed, Roach was entitled to independent advice and was invited by Smits to obtain it. Furthermore, if Justice Corporation were to take over the matter, it was contemplated by all parties from the outset that new solicitors suitable to Justice Corporation would be retained. It is not open to Smits Leslie to suggest that even if the other solicitors had been approached in early March, Roach had repudiated the agreement.
146 I have little doubt that by the middle of March, Smits and Leslie had come to realise that there was no prospect of their arrangements with Roach continuing or that they would be provided with any immediate payment under an arrangement with Justice Corporation. As a consequence, Smits determined that the arrangement would end but he was concerned to ensure that either Roach terminated the retainer or that his breach entitled Smits Leslie to determine it. He was attempting to ensure that Smits Leslie could sue to recover the entitlements he believed they could enforce under the retainer agreements.
Credit
147 There are many instances where the evidence of the Roaches is in conflict with that of Leslie or Smits. On occasions, it is difficult to construct a clear version of the relevant conversations. Particularly in the latter part of 1998 and early 1999, Roach was ill and probably unable to pay as much attention to his affairs as he would have wished.
148 However, I have carefully observed the parties giving their evidence and for the reasons I have related, I have little difficulty in accepting Roach as against Leslie or Smits on any critical issue. Leslie admitted, and it was plain from his demeanour, that he hated Roach. He had come to believe, in my view entirely without justification, that Roach conspired with Justice Corporation to defraud him and Smits. At one stage when giving evidence, he said:
"My own personal view now is that Mr Roach set me up from day one, took advantage of my friendship and deliberately set me up …"
149 He confessed:
"I hate him (Mr Roach) intensely."
150 The intensity of these feelings was manifest when he gave his evidence and I have formed the view that these feelings have influenced the account he gave.
151 Smits' evidence was equally unsatisfactory. When questioned, he failed to make concessions which should plainly have been made. He suggested that there was no conflict between the interests of Smits Leslie and Roach when dealing with Justice Corporation. This is hardly credible. In my judgment, the evidence which he gave was carefully crafted to suit the version of the events which he wished the court to accept and did not always accord with the true position.
152 On the other hand, both Mr and Mrs Roach were impressive witnesses. Their evidence was clear, although their concern at the betrayal of their interests by Smits and Leslie was apparent.
153 I accept the evidence of the Roaches where it conflicts with either Smits or Leslie.
The events which followed
154 After Smits Leslie had terminated the arrangements, Roach engaged Phillips Fox to advise him in relation to the retainer. Smits Leslie wrote to Phillips Fox on 19 April 1999 offering to settle with Roach for $600,000. The letter continues to repeat the assertion that fees of $10,000,000 were reasonable having regard to the amount Roach assessed by way of damages. Smits Leslie maintained a present entitlement to fees although the Freehills litigation had not been finalised.
155 Justice Corporation did not respond to the letter from Smits of 31 March. He wrote again on 19 April 1999. The letter sought to poison the relationship between Rayment and Roach. Relevant extracts are as follows:
"We refer to our letter dated 31 March 1999 to Mr Rene Rivkin, to which we have not yet received the courtesy of a response or acknowledgement.
On 7 April 1999, we wrote to Justice Corporation and informed them that we have terminated our relationship with the Plaintiffs in the Proceedings.
During the course of our conversations with you in November/December 1998, you expressed concern that Justice Corporation did not want to be seen to be acting in breach of good faith to the referring solicitors in respect of the finance application, being ourselves.
During a number of conversations with Mr Edward Roach over the last several months, he has indicated to us, in somewhat caustic terminology, allegations which have been made by or imputed to you as to our 'negligent conduct' of the Proceedings and the champertous nature of our retainer arrangements, as recorded in our Retainer Agreement with our clients. Put simply, he alleged that you stated, in substance or effect, to us that we were not fit and proper solicitors to conduct the Proceedings on behalf of the Plaintiffs and that the Plaintiffs' Proceedings had been conducted in an incompetent manner. He attributed these statements to you.
During the same period, Mr Roach expressed, on countless occasions, to Mr Leslie and myself, jointly and severally, that Justice Corporation was likely to drain any settlement moneys by causing its nominated advisers to make excessive or prohibitive charges, that we held some undisclosed entitlement to part of Justice Corporation's charges or entitlements, and that Justice Corporation would settle the Proceedings at a gross undervalue of the order of $10 million, so as to result in the Roaches receiving nothing. Also, he alleged that we were part of some conspiracy or scheme to defraud the Roaches of their entitlements, in concert with yourselves, in order to maximise the amount of the legal charges levied on account of the Proceedings, so that there was no ultimate return for the Roaches from the conduct of the Proceedings. Repeatedly, we re-assured our clients that there was no substance, merit or scintilla of sustainable evidence to support any such assertions or allegations. However, we could not continue to act for the Plaintiffs in the face of such baseless allegations.
Over the last several months, we have been subjected to abusive vilification, absolutely false and scurrilous allegations, and on-going innuendoes and insinuations of professional negligence and misconduct from Mr Roach in relation to the conduct of the Proceedings and the proposed financing from Justice Corporation.
All of the aforesaid conduct on the part of Mr Roach seemed to us to be designed or contrived by him to force us into a precipitous termination of our relationship, so that the Roaches could retain or share with Justice Corporation the entitlements which we might otherwise have been entitled to receive under the terms of our Retainer Agreement, and thereby increase the net result for the Roaches, given the fact that Justice Corporation had indicated that it wished to nominate alternative solicitors and counsel to conduct the Proceedings. In view of the content of the allegations made by Mr Roach to ourselves concerning your comments about our conduct of the Proceedings on behalf of the Plaintiffs, we considered that you were entitled to know that we have terminated our relationship with the Plaintiffs due to their anticipatory breach of our Retainer Agreement with them.
Whilst we are not in possession of any substantive evidence, one way or the other, other than Mr Roach's comments to ourselves, we must keep an open mind. If there is any substance or truth in the allegations made by Mr Roach, then it would follow that you, and Justice Corporation, would be guilty of inducing a breach of our Retainer Contract with the Plaintiffs. We must, therefore, reserve our rights.
In the circumstances, and before we institute any proceedings in order to recover our entitlements from the Plaintiffs under the terms of our Retainer Agreement, we propose to offer you an opportunity to afford to us a complete, candid and written explanation as to the content and circumstances of any comments made by you about our professional conduct of the Proceedings on behalf of the Plaintiffs. We hereby do so.
Also, we offer to engage in a meeting with you, only in the presence of Mr Rene Rivkin, so as to explore the logical consequences of the termination of our Retainer Agreement with the Plaintiffs.
You will appreciate that I have been overseas since 7 April 1999. Accordingly, it has not been possible for me to advance the matters raised in this letter. However, you should be under no misapprehension. The matters will be litigious soon."
156 As it happened, the last sentence was no idle threat.
157 On 3 May 1999, Garrett Walmsley Madgwick wrote to Smits Leslie seeking copies of the relevant files and documents. Smits Leslie replied in aggressive terms, both threatening to sue Garrett Walmsley Madgwick and declining to give up the files.
158 On 7 May, an administrator was appointed to both Winnote and Sydtech and they were placed into voluntary liquidation on 28 May 1999. By way of a document entitled Particulars of Debt (Informal Claim), Leslie and Smits claimed various amounts on account of costs for work done and unliquidated damages in respect of lost future profit costs. They also began an aggressive correspondence with the Administrator and his solicitors, Piper Alderman. The letter of 21 May 1999 contained veiled threats. It was in the following terms:
"We were pleased to receive your letter dated 21 May 1999 to ourselves.
Before you finalise any advice to your client, it would doubtless be of some assistance to you to discuss the matter further with us, particularly as we expect that the capacity of your client to give detailed instructions to you is limited or circumscribed by his lack of knowledge of the affairs of Winnote and Sydtech.
Without pre-determining in any manner the content of your advice, you should be fully conversant with the contents of all statutory statements and tax returns filed for those companies (as well as for Sugetu and Roach Industries) at all material times since the commencement of their involvement in the peat deposits, as these have been represented by the directors of those companies to present a true and fair view of the affairs of those companies. None of those financial statements and the statutory statements made therein by the directors supports the existence of any liabilities, whether current or non-current, in favour of Sugetu or Roach Industries in excess of $20,000. This fact is easily capable of being corroborated by reference to the key financial data contained in the annual returns filed by the directors of Sydtech and Winnote with the ASC for most of the relevant fiscal years. If it is now asserted that those statutory accounts did not present a true and fair view of the affairs of those companies, then we, as creditors of those companies as from about 1995, would doubtless be entitled to claim that we have been misled or defrauded thereby. Such matters are dealt with extensively in the relevant provisions of the Corporations Law, and of the Trade Practices Act (Cth) and Fair Trading Act (NSW), with which we can assume you can make yourselves readily au fait.
As we assume that you practise exclusively in South Australia, we should perhaps also direct your attention to Sections 178BA, 178BB, 178BC, 179, 180 and 185A of the Crimes Act, 1900 (NSW), which are copied herewith for ease of reference."
159 Further correspondence followed in which Smits Leslie alleged fraud, conspiracy and impropriety against the liquidator. The liquidator continued to seek Smits Leslie's files in relation to the litigation. Ultimately, proceedings were commenced by the liquidator seeking to recover the documents. At the same time, the liquidator was attempting to conclude funding arrangements with Justice Corporation, which would allow the Freehills litigation to go forward. This proved difficult. Matters were further complicated when Smits Leslie commenced proceedings for the removal of Sheahan as liquidator and the appointment of Mr Kevin Shirlaw.
160 The liquidator commenced proceedings to recover the documents. The matter was heard by Windeyer J, who on 5 July 1999, decided that the solicitors could maintain a lien over the documents. An appeal was then lodged.
161 Apart from the difficulty of the proceedings, the vituperative nature of the correspondence issuing from Smits Leslie ensured that the liquidator was not comfortable in his task. Ultimately, he resigned. In the meantime, the prospect of Justice Corporation agreeing to fund the Freehills litigation was diminishing.
162 Messrs Shirlaw and Cussen ("Cussen") were appointed liquidators of Winnote and Sydtech on 26 August 1999. They were aware of the difficulties which had been experienced and were concerned to find a way forward. Following their appointment Cussen had numerous conversations with Smits, Rayment, the solicitors for the previous liquidator and Mr Brendon Swift of Garrett Walmsley Madgwick acting on behalf of the Roach interests. It was apparent to Cussen that Rayment would not sign a litigation funding agreement unless all the issues between the parties had been resolved and agreement reached.
163 On 15 September 1999, Cussen spoke to Smits and indicated that he was trying to broker a settlement between Smits Leslie and the Roaches in order to allow the funding to be put in place. He said to Smits:
"It is ridiculous that these disputes are going to be going on in the background are you willing to settle?"
164 Smits replied:
"Yes, on reasonable commercial terms."
165 They discussed the issues which centred upon a document which Cussen had prepared which has become known as the Ten Point Plan. At the end of the discussion Cussen said:
"Would you agree to those conditions if I obtain the agreement of the Roaches and the funders to those conditions?
Smits: Yes, if you circulate a note to the Roaches and the funders which reflects the substance of our discussion?"
166 Later in the day Cussen sent the facsimile dated 15 September 1999 which includes the Ten Point Plan. It provides as follows:
"1. That the draft consent orders prepared by Smits Leslie be subscribed by solicitors for Justice Corporation, Mr Andrew Rayment, Mr Rene Rivkin and Smits Leslie in relation to proceedings No 50099 of 1999 in the Equity Division of the Supreme Court of NSW; and by the solicitors for the liquidators, namely Piper Alderman and Smits Leslie, in relation to the proceedings No 2909 and 2731 of 1999 in the Equity Division of the Supreme Court of NSW and proceedings No 40573 of 1999 in the Court of Appeal of the Supreme Court of NSW.
2. In relation to Supreme Court proceedings No 2909 of 1999 the undertaking of the defendants to pay the cost of the plaintiff in the amount of $25,000 will be undertaken by Justice Corporation.
3. That the Liquidators agree to admit Smits Leslie as ordinary unsecured creditors of both Winnote and Sydtech in the sum of $500,000 in respect of their time charges up to 1 December 1998.
4. That Smits Leslie may submit to the Liquidator for their consideration on a proof of debt for their out of pocket expenses to 19 April 1999 limited to $75,000.
5. That in respect of the period 1 December 1998 to 19 April 1999, Smits Leslie may submit to the Liquidators for their consideration proofs of debt in accordance their retainer agreement up to a limit of $100,000.
6. That Smits Leslie refrain from making an application to the Equity Division of the Supreme Court of NSW for a Charging Order in respect of their unpaid costs.
7. That Smits Leslie immediately deliver up to the liquidators all books and records of Winnote, Sydtech and Mr Roach held by them in relation to the negligence claims made by Winnote, Sydtech and Mr Roach as against Messrs Freehill Hollingdale & Page.
8. That Smits Leslie may submit a proof of debt to the Liquidators of Winnote and Sydtech in respect of their claim for unliquidated damages which may arise from the alleged wrongful termination of their retainer by Mr Roach, Winnote and Sydtech or in respect of any participation claimed by Smits Leslie or Plantoy Pty Ltd in respect of the claim proceeds defined in their funding agreement (a ten per cent interest).
9. That Smits Leslie, agreed not to sue Mr Sheahan as the former Liquidator of Winnote and Sydtech in respect of any claims liabilities or obligations owed by Mr Sheahan to Smits Leslie as creditors of Winnote and Sydtech.
10. All of the above points are interdependent."
167 The facsimile was sent to Rayment, Smits, Piper Alderman, Swift and Roach.
168 The next day, having spoken to Rayment, Cussen again spoke to Smits. The following conversation occurred:
"Cussen: Leo, did you receive my broadcast fax of 15 September 1999?
Smits: Yes.
Cussen: We want you to support our settlement proposal. Leo, we need to resolve all of these outstanding issues as far as we can between yourselves and the Roaches so we can run the Freehills proceedings effectively without the interference of your proceedings. If there is no recovery from Freehills, you are not likely to recover any fees. We need to move forward even if it is only this far."
Smits: Neil, I agree with you.
169 Later that day, Cussen had a telephone conversation with Roach. Cussen appreciated that Roach was reluctant to provide for any payment to Smits Leslie but says that ultimately Roach said to him:
"Okay, we will see how it goes."
170 Roach did not indicate, at any time, any disagreement with the course which Cussen had proposed. I am satisfied that he agreed to the proposal, allowing Cussen to procure a settlement if he could. However, I am also satisfied Roach believed that if there was an agreement, it would bring all the litigation to an end, including the claims against himself and his wife.
171 On 16 September 1999, Smits sent a facsimile to Shirlaw and Cussen. In that facsimile Smits indicated agreement with items one and two in the Ten Point Plan and stated that Smits Leslie accepted the balance of the proposal. The letter proceeded:
"With reference to the request made to our Mr Leslie by Mr Cussen this morning that we produce to you now all documents bearing upon our costs claims, we are not disposed to do so at this stage as we have made a significant volume of the relevant papers available to you previously and to your predecessors. We do not consider that the Roaches should determine the admissibility of our claim. That is a function and responsibility of the Liquidator. Suffice it to say that the Roaches are well aware as to the bases of our claims, have agreed to or admitted the same on a number of occasions, even in the presence of your Mr Shirlaw and they hold a copy of every document which is relevant to our claim. With due respect to you, we consider that the Liquidators should form their own independent judgment of the basis of sound legal advice and proceed accordingly.
If the Liquidators do not implement expeditiously the proposal put to us, then we can only assume that they do not intend to do so and the appropriate course would for us to seek from the Court a Charging Order and the appointment of a trustee or receiver (as a form of equitable execution) over the causes of action maintained by Winnote and Sydtech against Freehills to give effect to that Charging Order.
Alternatively, in due course, we shall prove our claims, so far as necessary in accordance with your proposal."
172 Cussen immediately replied expressing concern about the misunderstanding which he believed existed. He made plain to Smits that there was no question but that the liquidators would determine the Smits Leslie claim and that Roach would play no part in it.
173 He also said:
"In fact, all parties have agreed in principal to the Ten Points listed in my facsimile dated 15 September 1999."
174 and
"We are arranging for the consent orders to be signed accordingly. Thank you for confirming that you shall prove your claims in the liquidations in due course."
175 The consent orders contemplated in the Ten Point Plan were then executed. As a consequence, the proceedings by the liquidator, including the appeal, were settled as were the proceedings by Smits Leslie seeking to have the liquidator removed. With respect to the current proceedings (No 50099/99), consent orders were executed which involved the discontinuance of the proceedings against the second, third and fourth defendants. At that stage, those defendants were Rayment, Rivkin and Justice Corporation. However, the proceedings remained on foot in relation to both Roach and his wife. The Roach companies were not, at that time, party to the proceedings.
176 The terms of settlement provided that Justice Corporation would enter into the relevant funding agreement and further provided the following:
"3. Prior to 30 October 1999, the second defendant shall make a comprehensive written statement for the plaintiffs in relation to the subject matter of these proceedings."
177 The second defendant was Rayment. Accordingly, the consent orders provided for Rayment to provide a statement which, no doubt, Smits Leslie believed would be of assistance in the proceedings against Roach.
178 However, the terms of settlement also provided the following:
"4. The second, third and fourth defendants shall support the admission of the claims of the plaintiffs to rank for dividend purposes in the liquidation of Winnote and Sydtech:
(a) for such sums as may be determined by the liquidators of Winnote and Sydtech to be due to the plaintiffs on account of accrued costs and disbursements;
(b) for such sum as may be determined by the liquidators of Winnote and Sydtech to be a just and equitable estimate of compensation payable to the plaintiffs in respect of the wrongful termination of their retainer as solicitors of Walter Edward Roach, Winnote and Sydtech on or about 19 April 1999 and the failure to make adequate provision for the protection of the plaintiffs in the said funding agreement.
5. Subject to paragraphs 1 - 4 above the plaintiffs covenant not to sue the second, third and fourth defendants in relation to any claim, liability or obligation referred to in the summons filed by them in these proceedings on 11 August 1999."
179 The terms agreed between these parties made no provision for the Roaches to join in the settlement. I accept Roach when he says he was not aware of the agreed terms. The facsimile from Cussen, which communicated the Ten Point Plan, did not include copies of the consent orders proposed in the current proceedings. It is no doubt for this reason that Roach has maintained that he was never party to an agreement which provided for the Ten Point Plan and the resolution of disputes in accordance with it.
180 The liquidator was of course able, on behalf of Winnote and Sydtech to join in the settlement agreement and I am satisfied this occurred. It follows, in my opinion, that Smits and Leslie agreed that they would thereafter pursue any claim which they believed they had for remuneration from the companies by the mechanism provided in the Ten Point Plan. It was essential that Smits Leslie would not litigate those claims. There was otherwise no purpose to that agreement and a term to that effect should be implied. Indeed, the correspondence of 16 September between Smits and Cussen makes plain that Smits Leslie accepted that they would prove their claims in the liquidation rather than pursue litigation. However, there was no agreement that they would not pursue claims against Roach. Whether Cussen originally intended this to be the outcome I doubt, but there is no other conclusion available.
181 There was a creditors meeting of Sydtech and Winnote on 28 September. Before this occurred, consent orders had been made in the various proceedings and $25,0000 was paid by Justice Corporation to Smits Leslie pursuant to the agreement.
182 For their part, Smits Leslie delivered up their documents in relation to the Freehills litigation and thereby complied with their agreed obligation. Roach was aware that this was done.
183 It was inconsistent with the Ten Point Plan for Smits Leslie to bring proceedings seeking to recover costs and damages from the companies. Of course, at the time when the Plan was agreed, these proceedings were confined to claims against the Roaches and the liquidation funders. However, the position changed when amendments were made to the current proceedings and the companies were joined. It is submitted by the Roaches that by that act, Smits Leslie repudiated the agreement and are not entitled to sue upon it.
184 In any event, the operative parts of the agreement provide for claims to be submitted. Because the companies presently have no funds, there would be little purpose in providing any relief to enforce the agreement. Whether the companies will ever have any funds will depend upon the outcome of the Freehills litigation.
The steps which follow
185 As soon as the Ten Point Plan was in place, the parties arranged for consent orders in the present proceedings to be made.
186 Consent orders were also made in the proceedings between the plaintiffs and the liquidators, by which those proceedings were terminated. A funding arrangement for the Freehills proceedings was put in place with Justice Corporation and the Litigation Lending Services Partnership.
187 Thereafter, discussion continued between the liquidator and Smits Leslie about the ultimate entitlement of Smits Leslie to payment. Smits Leslie did not abandon their claim that the Roach interests had repudiated the retainer and sought to sustain a ten percent interest in the proceeds of the litigation. They did not confine themselves to the path contemplated in the Ten Point Plan.
188 By letter dated 12 January 2000 to the liquidator, Smits Leslie reminded him that they were of a mind to join the Roach companies and the liquidators in the proceedings. If the threat to sue was to be avoided, the liquidators were to agree to judgment being entered in effect for $10 million against the companies. The proposed terms of settlement proffered with the letter were as follows:
"1. Leave to proceed against the Third Defendant and the Fourth Defendant pursuant to Section 471B of the Corporations Law.
2. Judgment against the Third and Fourth Defendants in the sum of $10,000,000 less: