Smits & Ors v Roach & Ors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50099/99 SMITS & ORS v ROACH & ORS JUDGMENT 1 HIS HONOUR: The first and second plaintiffs, Messrs Smits and Leslie, are solicitors. The third plaintiff, Plantoy Pty Ltd, ("Plantoy"), is their service company. These proceedings involve a claim for professional costs and damages. The hearing is confined to issues of liability. 2 The first and second defendants, Mr and Mrs Roach, who are husband and wife, (the latter being, in some pleadings, referred to as the fifth defendant) (I shall refer to them as "Roach" and "Mrs Roach") were at all relevant times, the sole directors and shareholders of the sixth and seventh defendants, as identified in the summons ultimately relied upon. (I shall refer to Mr Roach and the companies together as the "Roach interests." Where it is relevant, this will include Mrs Roach). Those companies, ("the Roach companies") now in liquidation, had an interest in a peat mining venture in Victoria. The Roach interests retained Freehill Hollingdale & Page ("Freehills") solicitors to advise in relation to the development of the venture. It is alleged by the Roach interests that Freehills gave negligent advice, which caused the Roach companies to lose the mining venture and with it, the opportunity to earn very considerable sums by way of profit from the commercial exploitation of the peat. 3 The plaintiffs were retained by the Roach interests to act in relation to proceedings against Freehills claiming damages ("the Freehills litigation"). 4 As originally constituted, the proceedings included claims against Andrew John Rayment, ("Rayment") Rene Rivkin ("Rivkin") and the company which they jointly owned, Justice Corporation Pty Ltd ("Justice Corporation"). These persons and the company became involved in the problems of the defendants as funders of the Freehills litigation. The eighth and ninth defendants have both been liquidators of the Roach companies and are sued in that capacity. The proceedings against Rayment, Rivkin, Justice Corporation and the liquidators have been settled. The early history 5 Mr Leslie ("Leslie") and Roach first met through a common interest in Liberal Party politics. They both lived in the northern suburbs of Sydney and they, and their families, became close friends. Leslie is the godfather to one of Roach's children. 6 Roach is an engineer. In the early 1990s, he came across a peat deposit in Victoria which he believed to be capable of exploitation for a significant profit. He arranged for a lease of the land to be obtained by his company Winnote Pty Ltd ("Winnote"). He engaged Freehills to act in the matter and alleges that a solicitor from that firm advised him that as peat was not a mineral, a mining licence was not required to exploit the deposit. It is alleged the advice was wrong with the consequence that another person obtained a mining licence and, although Winnote held a lease of the land, the other person has been able to exploit the deposit. 7 Believing the Roach interests had a claim against Freehills , Roach asked Leslie to act for him. Because he had few liquid assets, Roach asked Leslie to act on the basis that he would be paid costs only if the litigation succeeded and would receive, in addition, ten percent of any damages recovered. This was described as the incentive for Leslie to take the retainer. I have no doubt this offer, which at the time the parties would have understood to be particularly generous, was made by Roach for reasons which included a desire to assist Leslie. 8 Leslie, who I am satisfied had no understanding of the law of maintenance and the related professional obligations of legal practitioners, accepted the retainer on these terms. He indicated that although he would wait for his costs, Roach would be required to meet any out of pocket expenses. As a sole practitioner, he undertook some preliminary work in the matter, which included giving advice. He also did work with respect to a claim by Roach against his former partner in the venture, Mr Luscombe. 9 Leslie ceased practising on his own and commenced practising in partnership with Mr Smits ("Smits") and Mr Newton ("Newton") on 1 July 1995. Shortly before this occurred, Leslie discussed the Freehills litigation with Smits, who expressed some concern about an arrangement which meant that the solicitors would only be paid in the event that the Roach interests recovered damages from Freehills. 10 From 1 April 1996, Newton withdrew from the solicitors partnership. Thereafter, Leslie practised with Smits under the name Smits Leslie. 11 The issues in the present trial require an examination of many events and correspondence from 1995 until the present day. In these reasons, I have endeavoured to relate the events relevant to each issue in the proceedings, but it is not intended to be an exhaustive account of the dealings between the parties. Leslie has filed an extraordinarily detailed affidavit and prepared many volumes of copied documents. It would not serve any useful purpose for me to relate all of the events which he records. The preparation of the Freehills matter 12 During 1995, Leslie was engaged in securing the position of Roach in Winnote and the removal of Luscombe as a shareholder. Leslie gives a colourful account of the negotiations and the ultimate receipt of a share transfer from Luscombe. The precise nature of the dispute with Luscombe does not appear to be relevant. 13 As I have mentioned, at about the time that Leslie joined the partnership with Smits and Newton, he raised the matter of his contingent fee arrangement in the Roach matter with Smits. He also disclosed that Roach had agreed to pay him ten percent "of what they get as a bonus." Smits expressed concern about the prospect that the firm would not be paid any costs unless Roach was successful in the litigation. He suggested that either Mr Archer ("Archer") or Mr Torrington ("Torrington") of counsel should be engaged to advise as to Roach's prospects. 14 In July 1995, Leslie prepared a brief for Torrington and instructed him to prepare a statement of claim. It was not until November 1995 that the draft was finally settled and the statement of claim was filed on 15 November 1995. The explanation for this delay is that there were difficulties in settling the details of the claim and identifying the names of the defendants. 15 During this early period, it does not appear that Smits took any active role in the preparation of the matter. Leslie accepted that burden. He had retained Archer to assist in the litigation and in a meeting held in late January 1996, both Smits and Leslie conferred with Archer and Roach. During the conference, the matter of fee arrangements was raised. Leslie confirmed that Smits Leslie would be liable for Archer's fees. 16 After Roach had left the conference, the matter of fees was again raised. Smits confirmed that the firm would be liable for Archer's fees but expressed concern about the exposure which the firm was accepting. He said to Archer at one stage: "You will appreciate that we only want to expend money on the case if it is likely to be successful. We need you to advise as we move forward, on the prospects of success." 17 Archer gave advice on the prospects of the litigation on 22 March 1996. It was not favourable to the Roach claim. However, Roach did not accept it and considerable further effort appears to have been expended in investigating the relevant facts and law. The critical question was whether under Victorian mining law, peat was a mineral. Ultimately Roach identified a proclamation made in 1992 by which peat was relevantly declared to be a mineral. This caused Archer to revise his opinion. 18 In the meantime, the solicitors acting for Freehills had requested particulars of the claim. The response was settled by Archer as was other correspondence related to pleading matters and damages. By 8 August 1996, Roach had prepared a calculation to support the damages claim. He believed he might recover $971,280,000. The belief apparently incorporated an approach to damages given by Archer. 19 In the months which followed, considerable activity was directed towards refining the pleadings, matters of discovery and negotiations with the Victorian Government. No doubt, these matters were important and the interlocutory issues were hard fought. However, little progress was made toward the resolution of the dispute. No attention was paid to collecting witness statements, either lay or expert. 20 On about 3 March 1997, Leslie and Smits met with the Roaches and discussed the possibility of making an offer of compromise under Pt 22 of the Supreme Court rules. The solicitors suggested an offer be made. He took time to consider the position and ultimately gave instructions. 21 Leslie filed a Notice to Set Down for Trial on 12 May 1997, after which matters related to discovery appear to have consumed the efforts of all parties. Freehills offered to settle the matter in August 1997 for a sum of $57,600 plus costs. That offer was rejected. 22 Further interlocutory steps relating to subpoenas, issues of privilege, discovery and other matters were pursued. It was not until about late August 1997 that any attention appears to have been given to identifying the experts who might be retained to support the damages claim. At that time, it was contemplated that Mr Frank Fischl ("Fischl") of Price Waterhouse might be engaged, but no other expert appears to have been considered. My understanding is that proofing of relevant witnesses was effectively forgotten, Leslie being consumed by documentary matters. 23 On 15 September 1997, a further offer was received from Allen Allen & Hemsley ("Allens") acting on behalf of Freehills, to settle the matter for $100,000 plus the costs of the proceedings. Roach also determined not to accept this offer. 24 The documentary issues continued to occupy considerable amounts of Leslie's time. Various interlocutory motions were disposed of, some after contested hearings. An issue also arose as to whether the whole proceedings should be transferred to the District Court. Matters relating to interrogatories were raised, addressed and disposed of. 25 By April 1998 the matter had come under the Differential Case Management processes of the Common Law Division of the Supreme Court. In that month, Deputy Registrar Howe made directions which required the plaintiffs' experts' reports to be prepared by 18 September 1998 as well as any statements to be relied on at the trial. 26 It would appear that little, and most likely nothing, had been done in relation to these matters by the beginning of June when Roach requested a meeting to discuss the situation. A meeting was arranged between Archer, Leslie and the Roaches but it does not appear that evidentiary issues were discussed in any detail. Instead, interrogatories were considered. 27 On 22 June 1998, Leslie had a telephone conversation with Mr Dwyer ("Dwyer") of Allens and they again discussed the possibility of settlement. Apparently, no amounts were mentioned but they arranged to meet later in the week to pursue the discussion. They met on 25 June 1998, at which time Dwyer offered to settle for $125,000 plus costs. Roach rejected the offer, although he indicated he would settle for $9 million. A counter offer in this sum was made but rejected. 28 Leslie spoke with Archer in early July to make arrangements for Archer to assist in settling the necessary statements of evidence. The expectation was that time would be available in late July for this to occur. The expectation was not fulfilled. 29 By early August, Roach was, in my opinion rightly, becoming very concerned about the preparation of evidence. At this point, any hope of complying with the court's directions was lost. Roach was told that Archer would not be available to assist in the preparation of statements until the week of 24 August and he, not surprisingly, had concluded that there would not be adequate time if the statements were to be ready by 18 September 1998. In fact, the parties did not meet to discuss these matters until 3 September when Leslie says the following conversation occurred: "Mr Archer: Ted. We will need expert evidence to prove firstly, that the whole of the deposit could have been extracted; secondly, how it could have been extracted; thirdly, the cost of extraction; fourthly, assuming that all of the peat could have been extracted, what was the profit; and fifthly, what was your loss. I suggest that you speak to expert accountants such as KPMG, Horwath & Horwath and Ferrier Hodgson. We may need to obtain evidence from a professional witness in relation to the validity of the proclamation made by the Governor of Victoria in October 1982. Mr Roach: Stephen. I will contact the accountants and see what firm I can instruct and whether or not any of those firms you mentioned have a conflict. They may have already been instructed by Freehills or have acted for Freehills in the past. Myself: Ted. You have heard what you have to do. I now want you to go off and speak to those various accountancy firms and get back to me and make a report to me as soon as you have spoken to those people and decided who you are going to use. Mr Roach: Sure John. I'll get back to you as soon as I can.

30 It is plain that these issues should have been considered months before September 1998. Although the fact that Archer was not available contributed to the problems, the lack of attention to evidentiary matters by Smits Leslie made a breach of the court-imposed obligations, in relation to the filing of the evidence, inevitable. Considerable effort was given to the preparation of Roach's statement in September but it was many weeks later before it was settled. 31 On 23 September 1998, Smits provided the Roach interests with a detailed advice on damages. The letter contains a number of unusual statements but it is not necessary or appropriate for me to determine in these proceedings whether the analysis is correct. The letter finishes with the following summary paragraph: "Thus, in summary, in our opinion, the starting point which should be adopted in this case is that the measure of damages is approximately equivalent to the wholesale value of the peat less the costs of any severance of the mineral in order to put the peat in a saleable condition. We note also that in a case of breach of contract, damages are assessed as at the date of the breach (when the negligent advice was given in 1988); whereas, in tort the damages are determined as at the date of the loss (when the mining licence was granted to Groves in 1993). Perhaps it should be left to the defendants to explain to the Court the circumstances in which it would be unrealistic to award as much as that net value as otherwise your experts may, inadvertently open their valuation to potential deductions, ie those deductions which are excluded expressly by your land economist or valuer or, at least reasoned away by such experts. It would not seem to us to be necessary for your experts in their initial report to specify the respects in which it might be 'unrealistic' to reduce the level of loss by reason of such factors as specified in our discussion with you. However, the Plaintiffs' experts must anticipate the limits of liability which will be asserted by the Defendants and be ready to meet such assertions by way of reply." 32 It is plain that the case needed far more consideration to be given to it than had occurred. 33 Smits Leslie negotiated an extension of time for the filing of witness statements, which alleviated some of the time pressures. However, little appears to have been done to retain and prepare expert evidence. 34 On 11 October, Leslie had a conversation with Roach about the engagement of Fischl of Price Waterhouse to prepare an expert's report. By Leslie's account, the following exchange occurred: "Myself: Ted. Have you yet instructed Frank Fischl of Price Waterhouse to prepare an Expert's Report? Mr Roach: No I haven't. I still have reservations about instructing Price Waterhouse and I have delayed in giving them instructions to prepare an Expert's Report. Myself: Ted. You know our view is that Frank Fischl will deal with your matter impartially and we regard him as a competent expert in this field. We strongly urge you to get on with it and instruct Fischl so an Expert's Report can be prepared in time and you don't end up being in default with any Court orders. You've been delaying this exercise long enough. You told us on 16 September that you had sent that letter off and now I find that you still haven't progressed it. Mr Roach: I'm sorry John. I have delayed it. I'll send a letter off to Price Waterhouse today. 35 Although Leslie had the carriage of the documentary matters in the case, it appears that Smits now involved himself significantly in matters related to the engagement and briefing of experts. 36 On Smits' advice a decision was made to engage an expert in peat, Mr Peter Murray ("Murray") of P J Murray & Associates. Effort was expended in settling the draft of the letter of instruction. It was finally sent to Murray on 27 October 1998. A meeting was held with Murray to discuss the matter in November 1998. Thereafter Murray was engaged and appears to have commenced preparation of his report immediately. 37 It seems that Murray made considerable progress with his expert report. However, Fischl ultimately decided that he would not accept a retainer which included a capped fee arrangement and his retainer did not proceed. 38 In the course of preparing his report, Murray gave advice that consideration should be given to joining the Victorian Government as a defendant in the action. Leslie took the issue seriously and retained Mr Ian Davidson ("Davidson") of counsel to advise. He was also asked to advise in relation to possible proceedings against Luscombe and related interests. 39 Davidson was consulted in conference on 9 December 1998. During that conference, Davidson indicated his fee for giving the required advice would be in the order of $5,000. Roach appears to have reluctantly agreed to pay that fee. The advice was given and Smits Leslie paid the fee. Although complaint is made in these proceedings that Roach accepted an obligation to pay the fee, Smits Leslie ultimately acknowledged, in a letter of 28 April 1999, that it was their responsibility under the retainer agreement. 40 Smits Leslie lay the blame for the lack of timely preparation of the case on Roach. I have no doubt that because of his concern about the likely cost, Roach delayed retaining an accountant when he had been advised to do so. However, I am satisfied that the fundamental problems were the responsibility of Smits Leslie. Leslie did not have the capacity to articulate and present the claim effectively and Smits, who had paid little attention to the matter until September 1998, did not provide any effective advice. Undoubtedly the many absences of Archer in Perth also contributed to the problems. 41 In a letter to Roach dated 15 December 1998, which dealt with other matters, Smits sought to defend the preparation of the case by his firm. He drew attention to the difficulties arising from the lack of availability of Archer, the difficulties in retaining an accountant and sought to explain the delay in settling reports as in some way related to a prospective change in the court's practice in relation to expert evidence. He also contended that Smits Leslie had devised a strategy for the proceedings and that it was Roach's failings which had caused the delay. 42 I do not accept that the failure to adequately prepare the case was the fault of Roach and find that the suggestion that the delay in preparing expert statements was due to a prospective change in procedure, to be without substance. 43 Throughout the last part of 1998, Roach was affected by serious health problems and it is likely that his capacity to deal with the day-to-day issues in the litigation was diminished. He was undoubtedly concerned about costs. However, it is plain that Roach had been pressing for evidentiary issues to be addressed in some comprehensive manner, he being conscious of his obligations in that regard. It was hardly for Roach to identify the legal and evidentiary structure for his case. He had retained lawyers for that purpose. They should have devised a strategy and then sat down with Roach to structure an effective means to implement it, taking account of the likely costs. 44 I have discussed elsewhere the difficulties which had emerged between the parties by the end of December 1998. However, work had not entirely ceased on the preparation of the case at this time. 45 On 22 December, Roach gave instructions to proceed with the claim against Luscombe and commence proceedings against the Victorian Government. Those proceedings were filed on 24 December 1999. 46 Work also continued on the collection of relevant information and Leslie travelled to Melbourne on more than one occasion. Apart from Murray, other experts, including a valuer and peat expert, were considered. Roach's personal accountant was also retained. The first retainer agreement 47 I have already described the fact that Leslie disclosed his arrangement with Roach to Smits before joining the partnership with Smits and Newton. 48 When Smits was familiar with the Roach litigation, he became concerned that the arrangements for the payment of the firm's professional costs had not been included in any written document. Towards the end of 1996, he persuaded Leslie that a written agreement should be executed and undertook its drafting. He forwarded a draft agreement to Roach together with a letter of 14 November 1996, in which Roach was invited to consider the draft with a view to further discussions. I shall refer to this as the "First Retainer Agreement." 49 The draft provided that the parties to the agreement would be Smits, Leslie, Roach and the Roach companies. 50 The draft agreement provided hourly rates for both solicitors and counsel, a sum of $3,000 to be paid in advance and an estimate of costs in the sum of $10,000,000 (claimed to be a genuine pre-estimate). The obligation of the Roach interests to pay costs was made contingent on the successful outcome of the proceedings. 51 Clause 2.1, 2.2 and 2.3 of the agreement were in the following terms: "2. Conditional Costs Agreement 2.1 The Clients' obligation to pay all of the Solicitors' and the barrister's costs otherwise payable under this Agreement is contingent on the successful outcome of the matters in which the Solicitors and barrister provide the legal services to the Clients. 2.2 The circumstances constituting the successful outcome of the matter shall be the recovery of any moneys by any of the Clients and/or any Associates of any of the Clients from any of the defendants in any proceedings comprised in the Subject Matter or from any Associates of any of those defendants in respect of such proceedings. 2.3 The Clients undertake to pay to the Solicitors (inclusive of Counsel's fees) the estimated amount of their costs upon recovery of any moneys referred to in Clause 2.4 hereof provided always that the liability of the Clients under this Clause shall not exceed the amount of moneys recovered as stated in Clause 2.2 hereof." 52 Before drafting the agreement, Smits had obviously given consideration to the possibility that at least some parts of it may be void, either for champerty or because of a conflict with the relevant provisions of the Legal Profession Act 1987. To guard against this possibility, clauses 2.4, 2.5. and 2.6 were included in the agreement. They were expressed in the following manner: "2.4 As this Agreement may not provide that costs are to be determined as a proportion of, or are to vary according to the amount recovered in any proceedings to which the Agreement relates: (a) if any provision of this Agreement is determined to be void or any moneys provided for in this Agreement are unrecoverable for any reason, the Solicitors and the barrister shall nonetheless be entitled to claim payment of their costs and fees on the hourly rates basis specified herein; (b) in event (a), the Solicitors and the barrister shall be entitled to charge a premium of twenty-five per cent (25%) on the aggregate sum of such costs and disbursements; and (c) the Solicitors undertake to review and decrease their estimated costs by an appropriate and equitable amount in the circumstances if during the course of the proceedings it becomes apparent or is determined that the Clients will recover less than fifty per cent (50%) of the amounts claimed in the proceedings. 2.5 Without limiting clause 2.3 hereof or the amount of any decrease determined for the purposes of Clause 2.4(c) hereof, the Solicitors undertake to reduce their entitlement to their estimated costs (under Item 3 above) if the amounts recovered by the Clients in respect of the Subject Matter are less than: (a) $200,000,000 to an amount not exceeding $6,000,000 in costs; (b) $100,000,000 to an amount not exceeding $4,000,000 in costs; (c) $30,000,000 to an amount not exceeding $2,000,000 in costs; and (d) $10,000,000 to an amount not exceeding ten per cent (10%) of the recovered moneys. 2.6 Each sub-paragraph of Clause 2.5 hereof shall be construed and applied as an independent provision and the balance thereof shall be subjected specifically to Clauses 2.3 and 18 hereof." 53 Although expressed on a reducing scale, it is obvious that clause 2.5 provides for the amount of costs payable to be related to the amount recovered in the Freehills litigation. 54 Further protection for the solicitors was sought by clause 18. It was in the following terms: "18. SEVERABILITY OF PROVISIONS Any provision of this Agreement which is prohibited, void, voidable, invalid, null, inoperative or unenforceable in any jurisdiction shall, as to such jurisdiction, be limited pro tanto without affecting adversely the remaining provisions hereof or affecting the validity or enforceablitility of such provision in any other jurisdiction. 55 Amongst various matters which Roach was required to acknowledge, under the agreement, was that he was agreeing to pay costs higher than scale costs and that "the Solicitors' estimate of their costs is fair and reasonable in the light of the fact that the Clients estimate their claims in the proceedings to be in the order of $971,000,000" (clause 5.2). 56 Provision was made for the termination of the agreement. Clause 14 was in the following terms: "14 SOLICITORS CEASING TO ACT

14.1 The Solicitors may stop acting for the Clients forthwith if: (a) the Clients have not carried out any term or condition of this Agreement, and in this respect time limitations are of the essence; (b) the Clients do not give adequate instructions to the Solicitors within a reasonable time of being asked to do so; (c) the Solicitors reasonably form the opinion that mutual confidence and trust no longer exist between the Solicitors and the Clients; (d) the Solicitors reasonably decide that continuing to represent the Clients may breach the requirements of professional ethics or duty; or (e) the Solicitors otherwise in their absolute discretion decide to cease to act. 14.2 Where the Solicitors decide, pursuant to Clause 14.1(e) above, to stop acting for the Clients, the Solicitors will give not less than seven (7) days' prior written notice to that effect to the Clients. 14.3 The Clients may terminate this Agreement by written notice to the Solicitors and such termination will not affect the Clients' responsibility to pay costs to the Solicitors to the time of termination." 57 The agreement was not immediately accepted by Roach, who responded by letter dated 3 February 1997, in which he suggested various detailed amendments. The parties later met and following discussions, the ultimate document was executed. 58 Roach's letter of 3 February 1997 offered to increase the "estimate of costs" from $10,000,000 provided in the draft agreement, to a maximum of $45,000,00, the actual costs being on a sliding scale which was related to the amount recovered from Freehills. Smits did not agree to this change and the agreement was executed containing the original sum. At the same time, a letter drafted by Smits, dated 17 March 1997, was also signed by the parties. It was headed "Offer and disclosure in respect of client agreement." As the First Retainer Agreement was replaced by the Second Retainer Agreement, it is not necessary to dwell upon the terms of this letter. The Second Retainer Agreement 59 As I have already related, on 22 June 1998 Mr Dwyer, the solicitor acting for Freehills at Allen, Allen & Hemsley, spoke with Leslie on the telephone and raised the possibility of settlement. As it happens, on the same day, Smits reread the retainer agreement and identified a need to revise it. It was suggested to him in cross-examination that his interest in the terms of the retainer agreement was out of a concern that the matter might settle. He denied this suggestion. He forwarded his revised version of the agreement to Roach, together with a letter dated 22 June 1998. Although he drew attention to the suggested changes favourable to Roach in the letter he did not mention those which favoured Smits Leslie. 60 Smits' letter provided the following:

"We refer to the Retainer Agreement and associated documents executed by you in our favour in or about March 1997 notwithstanding the fact that our copy of our Retainer Agreement appears to be dated November 1996. We have had occasion to have another look at these documents and we are concerned that they may be unfair or inequitable to yourselves and contrary to the intentions of the parties. For example, let us assume that you are successful in recovering only $3 or $4 million notwithstanding the fact that your claim amounts to $971 million. Under clause 2.3 of the Retainer Agreement you would be obliged to pay that $2 or $3 million to us on account of fees. You will observe that clause 2.5 is operative without limiting clause 2.3. Hence, notwithstanding the fact that under clause 2.5(d) the amount payable by you would only be $300,000 or $400,000 in those circumstances, that would not override the operation of clause 2.3, under which you would be liable to pay the $3 or $4 million to us. In our opinion that was not the intention of the parties. Accordingly, we seek to reach a reasonable and equitable adjustment or compromise with you. Our proposal is that if the amount recovered from the defendants is less than $10 million then we should be entitled to receive an amount equivalent to 10% of the amount recovered by you, together with any costs and disbursements which might be recoverable from the defendants. Of course, in so far as you have paid any of those disbursements, those amounts would be reimbursed to you. Also, in the event that you are totally unsuccessful in the proceedings, which seems unlikely, we confirm that you would not be liable to pay any amounts to us on account of any outstanding costs or disbursements, including Counsel's fees; although, you might be liable to pay costs and disbursements to the defendants. If these arrangements are acceptable to you, then we shall be grateful if you arrange execution of this letter under seal in the same manner as has occurred in respect of the Retainer Agreement and return the same to us. If, however, you are dissatisfied with our proposal or compromise, then we should be pleased to sit down with you in order to resolve any differences on an amicable, reasonable and equitable basis." 61 It is apparent that the mechanism to secure Roach's position was to amend clause 2.5 by deleting the words "without limiting clause 2.3 hereof or". The fact that the changes made no sense was not appreciated by the parties at the time. It is of significance that although not referred to in Smit's letter, an additional clause 2.7 was proposed by Smits to be added to the agreement. I cannot conclude that the failure to refer to it occurred by accident. The proposed clause provided for the solicitors, in addition to any other moneys which they received, to retain any costs recovered from the defendants in the proceedings. The amount could be significant. The clause provided as follows: "2.7 In addition to any other moneys, the Solicitors shall be entitled absolutely to retain for their own benefit any costs recoverable or recovered by the Clients from the defendants." 62 The consequence was that not only were Smits Leslie to be paid "professional costs" calculated in accordance with the agreement, but they were to receive, in addition, any amount on account of costs recovered from Freehills. 63 As with the first agreement, provision was made for its termination in clause 14. 64 Roach responded to Smits' letter by facsimile dated 24 June 1998, which suggested some detailed amendments. They included a revision of the extent to which Smits and Roach would benefit from any verdict. Roach suggested 10 percent of the recovery up to $10 million and 5 percent of any amounts above $10 million plus any costs recovered from the defendants. 65 These amendments were accepted by Smits and Leslie and the letter of 22 June was revised. The revised letter is dated 24 June and was executed by Roach, the Roach companies and Smits and Leslie. The third paragraph now read as follows: "Accordingly, we seek to reach a reasonable and equitable adjustment or compromise with you. Our proposal is that if the amount recovered from the defendants is less than $10 million then we should be entitled to receive an amount equivalent to 10% of the amount recovered by you, and for values over $10 million dollars an extra maximum of 5% recovered by you, together with any costs and disbursements which might be recoverable from the defendants. Of course, in so far as you have paid any of those disbursements, those amounts would be reimbursed to you." 66 Quite why it was thought necessary to include this aspect of the matter in a letter separate from the formal agreement was considered in the evidence. The fact that the percentage of the recovery was intended to form part of Smits Leslies' entitlements can hardly be denied. I am satisfied that it is later referred to in a letter from Smits of 11 December 1998 as "the agreed share of the claim proceeds". 67 Smits was asked about the necessity for this letter. He replied: "Q. Mr Smits, why did you write the letter of 24 June? A. Mr Roach asked me to incorporate those changes in it. Q. You have written the letter of 22 June? A. Yes. Q. You have then got an executed agreement on 23 June. Why did you write the letter of 24 June? A. I think there is something wrong with the date of the letter, your Honour, as to - I mean it is dated the 24th, I don't know why. It might have just been a problem of it not happening until that day. I don't know. I can't explain it. Q. Put it another way. If you say that the terms of the arrangement between you and Mr Roach was as provided in the retainer agreement of 23 June 1998, why was it necessary to write a letter at all? A. I don't think it was. Q. Well, why did you do it? A. It was just the way it evolved. Q. Why did you write a letter that had 5% in it? A. Mr Roach asked me to do it and I didn't pay enough attention to it. SHEAHAN: Q. Mr Smits, that is absolutely false, isn't it? A. No, it is not. Q. You knew and intended by the letter of 24 June when executed you with your partner would have a right to a share in the proceeds of the Freehills litigation? A. No. Q. And you were quite happy that it was in a letter separate to the retainer agreement because that would slightly increase the prospects of it surviving a challenge on the grounds of champerty? A. I don't think that is right. Q. You knew about champerty at this stage? A. I had an awareness of general principles of champerty, yes. Q. And you knew because you had read Pt 11 of the Legal Profession Act by this stage that provisions of a costs agreement which provided for remuneration by reference to the proceeds of the litigation were illegal? A. They were void to that extent. Q. They were void; isn't that right? A. Void to that extent. Q. And you knew, did you not, that the Legal Profession Act specifically contemplated that entering into champertous fee agreements might be professional misconduct? A. No, I did not. Q. You didn't? A. No, I didn't. I didn't look at that." 68 I do not accept Smits. He was undoubtedly careful in his drafting of the retainer agreement, and was obviously conscious of the difficulties which the Legal Profession Act presented. I am in no doubt that the separate letter was crafted in an attempt to ensure, as far as possible, that the costs agreement, which Smits knew to be controlled by the Legal Profession Act, was separated from the champertous arrangement reflected in the letter. The denial by Smits that he intended to take a share in the proceeds of the Freehills litigation is fanciful. Smits did not impress me in a number of respects which regrettably, include a lack of integrity in the dealings with Roach and a lack of candour when giving his evidence. He does impress me as a careful man, with particular concern about matters of detail. It is inconceivable that he wrote the letter merely because Roach asked him to or that he did not pay enough attention to its contents. 69 As with the previous agreement, clause 5.2 of the Second Retainer Agreement required the Roach interests to acknowledge that the estimate of costs was reasonable having regard to the estimated recovery of $971,000,000. This is to be contrasted with the fact they be this stage, Roach had made an offer of compromise in the sum of $12,000,000. The dealing with Justice Corporation and the events which followed. 70 As I have related, by September 1998, considerable work was being undertaken, particularly by Leslie, in furtherance of the Freehills litigation. It was also becoming increasingly clear that the prospect of the matter settling was remote. The preparation of the matter for trial and the funding of counsel was obviously going to involve significant financial commitments under the existing arrangements. Smits Leslie was now being required to accept significant risks in relation to its own fees and those of counsel. 71 Leslie was asked about this: "Q. And would only have those fees recovered if the Freehills' litigation was successful? (sic) A. That would be correct. Q. You and Mr Smits were starting to become a little nervous about that risk, weren't you? A. I don't recall. Q. You don't recall? A. No. Q. What was the estimate that you had made of the potential counsel's fees that you might have to pay to see this litigation through? A. I had not made an estimate. Q You had not made an estimate? A. No. Q. Not at all? A. No. Q. Had Mr Smits made an estimate that he communicated to you? A. I don't know, perhaps you can ask him that later. Q. Had Mr Smits made an estimate that he communicated to you? A. No. Q. Had you heard Mr Smits express a view as to an estimate of counsel's costs? A. I may well have, but I cannot now recall that. Q. Does the figure of 2 to 3 million for counsel's fees for running the -- A. That rings a bell, yes. I don't know when somebody told me that, but that rings a bell." 72 I do not accept Leslie. It is inconceivable that both he and Smits had not given consideration to financial risks, including counsel's fees to which they were committed. 73 Without informing, or even discussing the matter with Roach, Smits decided to investigate the possibility of engaging litigation funders. He proceeded, without even raising the matter with his clients, to have a telephone conversation with Mr Farthing ("Farthing") of Rivkin Litigation Finance. 74 Smits then wrote to Rivkin although the intention was to deal with Justice Corporation, seeking funding for the Roach interests on 23 September 1998. He had still not mentioned the matter to Roach. He said he tried to discuss the matter with him but was not able to do so. Smits sought to justify the position by saying that he did not believe the letter was harmful to his client's interests. Whether or not that is true, I find it extraordinary that a solicitor, without first obtaining express instructions, breached his client's confidence in such a manner. The extent to which Smits was acting in his own interests is evident from the particular requests which he made of Farthing. His first request was for a payment to Smits Leslie as the following extract from his letter indicates: "Our clients seek indicative commercial terms as to the availability of a litigation finance facility, which covers, inter alia: a) an up front payment of an agreed figure on account of accrued legal expenses; (b) the cost of experts reports; and (c) the Plaintiffs' possible exposure to costs payable if the proceedings are unsuccessful." 75 Of course, the clients had given no such instruction. When they were informed of Smits' actions, they were exceedingly concerned about the upfront payment requested by Smits Leslie. 76 Once he was aware of the situation, Roach commenced his own discussions with Rivkin, in particular as to the percentage his company would require if it took over the litigation. Leslie came to learn of these discussions and developed a theory that Roach and Rivkin were conspiring against Smits Leslie. He was asked about this in cross examination: "Q. To be fair, I have got to say this deals with a period from 12 October 1998, not 30 September, but is it not an allegation of conspiracy involving Mr and Mrs Roach and Mr Rayment? A. I have no doubt they conspired together. I don't recall the actual dates this occurred, but I have no doubt whatsoever that happened." 77 There is no reason to accept that this theory has any substance. Given that Smits was now engaged on a path which would significantly diminish Roach's potential gain from the litigation and benefit Smits Leslie, it is hardly surprising that Roach opened up his own discussions. It is plain that as a result of the events which occurred, Leslie developed a sinister view of Roach's actions. Ultimately, he has come to believe that Roach "set him up" from the outset so that he could use the champertous arrangement to his advantage. There is no basis for this view in the evidence. 78 I have already referred to the request made by Smits in the letter of 23 September to Rivkin. However, the whole of the letter should be read in order to understand the extent to which the solicitors breached their clients' trust. "We refer to our recent telephone conversation and summarise our clients' position below. That position statement is based on our clients' instructions and the documents forwarded with this letter. It is qualified in the sense that we have not performed any independent verification of any allegations made by our clients by talking third party witness statements or otherwise, albeit that we have no reason to disbelieve those allegations in any material respect and the record of written advice given to our clients should determine the liability issue in their favour.

Essentially, the case concerns Freehills' advice to the Plaintiffs in 1988 that peat was defined as 'a stone' under the Extractive Industries Act, 1966 (Vic) and that the Plaintiffs did not need to apply for a mining licence under the Mines Act, 1958. In fact peat was proclaimed by gazettal to be a mineral in October 1982. The Plaintiffs spent in excess of $2.5 million in developing the peat deposit. A Mining Licence was issued to a third party in 1993 under the Mineral Resources Development Act, 1990, which superseded the Mines Act, 1958. So far as we are aware, that party still holds the mining rights to the peat deposit or has authorised mining of the peat in return for royalties. The Swan Marsh peat deposit is the largest deposit of high quality black sedge peat in Australia. It is approximately 650 hectares in area (p 160 Industrial Minerals of Victoria 1995 Report) and has a minimum depth of 10 metres. There is practically no overburden. The low grade Australian white peat sells for $55 from the mine gate at Emerald Peat in New South Wales. Imported black sedge peat, the quality end of the market, sells for $150 cubic metre retail. The wholesale price fluctuates around $80 per cubic metre. It costs about $10 per cubic metre to mine or sever the peat. Conservatively, the peat has a net profit of $30 to $40 per cubic metre. It is mined by using rubber tyred scrappers similar to those used in the civil roadworks industry by road contractors to grade soils. At present Australia imports most of its black sedge peat from Germany. Black sedge peat is used in the mushroom industry for growing mushrooms and in the horticulture industry for potting mixes, soil conditioners and fertilisers. It also has other applications such as a water retainer in dry areas and for gold extraction. There are very favourable markets for sedge peat in Victoria and this is confirmed in the Industrial Minerals of Victoria 1995 Report (Page 161 Paragraph 18.7 Outlook). There is also a very good market in New South Wales and other parts of Australia. Imports for the year 1989/90 in Australia amounted to 19,000 tonnes. Australian production (mainly white peat) in the same year was 12,000 tonnes and rose to 38,000 tonnes in 1992/93. There has been a rapid increase in the use of peat in Australia. The claim made against the Defendants on 19 August 1996 was particularised as being comprised of: (a) $2,632,000 being amounts expended upon establishing the peat extraction operation; and (b) $971,280,000 [no doubt inclusive of (a)] in respect of future profits on the sale of peat, calculated as follows: (i) the area of the peat deposit is 1600 acres (subsequently the area has been ascertained to be 650 hectares, ie 1606.15 acres). There are 4047 square metres in an acre. The depth of the deposit is 10 metres. Thus, the volume of peat extractable is: 1600 x 4047 x 10 = 64,752,000 M³; (ii) the wholesale price of Australian Black Peat was $75 per cubic metre. Of this, at the gate of the peat deposit, the net profit is 20% of the wholesale price, ie $15; and (iii) therefore, the Plaintiffs' loss was calculated to be: 64,752,000 x $15 - $971,280,000. However, you will observe that the loss claim is affectively doubled if the net profit per cubic metre is of the order of $30 to $40.

We are familiar with the judicial authorities in relation to champerty and maintenance, whereby litigation finance may be recognised statutorily and given judicial approval in certain insolvency situations. If it is considered to be necessary or advisable, we are willing to recommend that a Deed of Company Arrangement ('DCA') be entered into by each corporate plaintiff, so as to enable the financier to invoke the benefit of the relevant enactments. Kevin Shirlaw of Messrs Horwath & Horwath is willing to consent as a Voluntary Administrator if he is acceptable to you. Messrs Price Waterhouse Coopers have been retained by the Plaintiffs as expert advisers to quantify and verify the Plaintiffs' true measure of loss. Land economists and expert valuers and accountants from the Cessnock Region are also being interviewed to value the peat deposit. Approximately $300,000 - $400,000 in legal costs have been incurred by the Plaintiffs to date and are owing to us. Several months ago Freehills made a without prejudice offer to pay the Plaintiffs $125,000 and their legal costs in full settlement. They stated that they 'would be shocked if our costs had reached $500,000' but the implication was that they might make a lump sum payment not far less than that sum as part of an overall settlement. In our opinion, the critical issue will be the determination of the proper measure of loss which was suffered by the Plaintiffs as a result of the Defendants' negligent advice. We consider that the Defendants advice was negligent and that the Plaintiffs relied upon that advice to their detriment in the sense that the Plaintiffs did not obtain the requisite Mining Licence. They considered that to be unnecessary on the basis of the Defendants' advice. We have advised our clients that this is the kind of case which might be accelerated to finality with expedition if suitable orders are obtained for a Referral under Part 72 of the Supreme Court rules. Our clients seek indicative commercial terms as to the availability of a litigation finance facility, which covers, inter alia: (a) an up front payment of an agreed figure on account of accrued legal expenses; (b) the cost of experts reports; and (c) the Plaintiffs' possible exposure to costs payable if the proceedings are unsuccessful. Could you please let us know your other requirements and let us have an in principle proposal. We can meet with you before you respond if that is likely to assist you." 79 Apart from the concerns I have already identified, the suggestion that $300,000 to $400,000 was owing to Smits Leslie on account of costs was quite wrong. Any entitlement in Smits Leslie was dependent upon a successful outcome in the proceedings. The solicitors were aware of this and I can only conclude that this was a deliberate attempt to misrepresent the position. 80 Roach was not advised of the approach to Rivkin until probably 30 September 1998. When challenged by Roach, Smits explained that the need for funding was so that Roach would appear stronger in the eyes of his adversaries. Although this may have been a factor, it is apparent that Smits had other motivations. Plainly, the desire of Smits and Leslie to secure their own financial position was significant. 81 Rayment, who was then a practising barrister, took the matter up on behalf of Rivkin and expressed significant interest in the possibility of funding the litigation but required more information. This was provided by Smits. Rayment also met with the Roaches. Rayment indicated to Roach that subject to a satisfactory opinion from Queens Counsel and the agreement of appropriate terms, he was interested in funding the proceedings. 82 The draft agreement proposed by Justice Corporation was given to Smits on 7 December 1998. Smits made changes and provided the draft to Roach. The original draft dealt with the interests of the funder, the litigants and the proposed administrator of the Roach companies. However, Smits introduced a further element - the interests of Smits Leslie. 83 On 10 December 1998, Smits sent Roach a schedule of proposed amendments to the funding agreement. Many of the changes were minor. The most significant change was the introduction of Plantoy (Smits Leslies' service company), which was to be assigned ten percent of the claim proceeds and the sum of $500,000 said to be "on account of legal costs and disbursements incurred prior to the date of this agreement". The draft was forwarded with a covering letter. Although these amendments were incorporated in the draft, they were not referred to in the covering letter. This omission could hardly have been by mistake. 84 Roach considered the draft agreement together with the changes suggested by Smits. Not surprisingly, he became very concerned as to the form of the agreement now proposed. He was particularly concerned about the clauses which provided for benefits to Smits Leslie including the $500,000 "upfront fee". This is not surprising, for it represented a fundamental change from the contingent fee arrangement, which had previously been in place. He was also unaware of the relationship of Plantoy to the solicitors. He had never previously heard of the company. 85 When the facsimile from Smits Leslie arrived on 10 December, Roach said he was shocked, telephoned Smits, and the following conversation took place: "ROACH Leo I have just read your fax and it includes a range of commercial interests which we have not even discussed. SMITS What do you mean. I have been looking after your interests. ROACH What is this $500,000 upfront fee? What is Plantoy Pty Limited? What do you mean you can obtain ten percent of the claim proceedings? SMITS Ted, this is a little complex. How about I send you another fax which explains it all. ROACH Do that and we will need to have a meeting." 86 Smits gave a different account of this conversation. According to Smits, he endeavoured to explain that he was seeking an upfront fee in order to ensure that Smits Leslie was remunerated for the work which they had already done in the matter. I think it is likely that words to that effect were part of the conversation, although probably not now recollected by Roach. I do not think their differences, in recollection with respect to these matters, are of any moment. Smits' claim for an upfront fee was a radical departure from any terms to which Roach had previously agreed. 87 On 11 December 1998, Smits sent Roach another fax which outlined the basis upon which he sought to be remunerated under the prospective litigation agreement. It is significant, when referring to Smits Leslie's fee entitlements, that Smits includes future costs orders and the share of the claim proceeds: "We refer to our recommended changes to the Justice Corporation Litigation Agreement Precedent, which were sent to you for your instructions on Thursday, 10 December 1998. In summary, our fee entitlement can be characterised generally as follows: 1. Accrued fee entitlements, which are of the order of $500,000; 2. The benefit of any (future) costs orders obtained against the Defendants; and 3. Our agreed share of the Claim Proceeds (as defined in that Precedent). Under the terms of the proposed Agreement: (a) We would be replaced as the Solicitors for the Claimants, so that we cannot earn any further revenue on account of doing any future legal work; (b) We would be expected to cede in favour of Justice Corporation any costs recovered from Defendants [see sub paragraph (b) of the definition of the 'Sale Property' contained in Clause 1] Accordingly, for discussion purposes, we have simplified our prospective entitlements, as defined in the proposed definition of 'Plantoy's Portion', as contained in the schedule of recommended changes sent to you by fax on Thursday, 10 December 1998."

88 The two met on that afternoon. Leslie and Mrs Roach were also present for part of the meeting. Roach gave the following account of their conversation: "Mr Smits: Now Ted, what's the problem? I have made it very clear in my faxes. All we are asking is for our entitlement. Myself: Leo, I totally disagree with you attempting to get $500,000 up front from Justice Corporation. I don't see how they'll agree to pay you that sort of money. You are jeopardising the whole litigation funding. Mr Smits: I want to arrange a business deal with Justice Corporation. Myself: I don't want this business arrangement to hinder Justice Corporation funding the case. Mr Smits Ted, under the funding agreement we are to be replaced as the solicitors and we will lose substantial fees that we would have obtained if we ran the case right through Myself: Leo, why are you entitled to any future fees if you don't do the work? Mr Smits Ted, we are passing this case on to benefit you. I have to do a business deal with Justice Corporation. Myself: I would have thought, since you are not completing the case, that your best entitlement should be your legal costs to date paid on the successful outcome of the case. Leo, we are now paying 30% of any settlement to the funders. We will be 20% worse off than we would have been under our arrangement. The retainer agreement was signed on the assumption that Smits Leslie would complete the case. That is now not so. Mr Smits: Things have changed since then. I am missing out on a lot of fees. I'll ask for $250,000 upfront and $250,000 on the successful conclusion of the case. Myself: I am unhappy about any up front fee, especially if it hinders the case. If Justice Corporation are prepared to pay an upfront fee, that is up to them, however I do not agree to any upfront fee and if you are paid it then it should come out of your final entitlement even though I can't see them accepting it. I am not having some business arrangement that results in the funders pulling out. Mr Smits: Oh no, if it looks like they won't be in the litigation funding, then I'll back off. I also want 10% of the total claim received. The case will now be more professionally handled and you will get a better outcome. Myself: Leo, no upfront fees. You have continually claimed this is a billion-dollar case and that you can handle it. This formed the basis of the retainer agreement. Mr Smits: Things have changed, you need funding and a major legal firm to run this case. Our agreement was that we get 10% of the total claim and any legal fees we can recover from the other side. That's what we want. Myself: No, how about 5% of what we receive? Mr Smits: How about 10% of the amount that you receive? Myself: Ok, I agree on 10% of what we receive subject to you being our legal advisers and for your firm to put our interests paramount in this case. Can you explain to me who Plantoy Pty Ltd is? Mr Smits: It's a company that John and I have equal shares in, we are both directors and it's a service company used in the structure of our legal practice. Myself: We are not paying Plantoy Pty Ltd because our Retainer Agreement is with Smits Leslie. I then stood up and walked out to greet my wife who was just outside the door. I said words to the effect: Myself: Anne, Leo and I have agreed that their legal fees will be 10% of whatever we receive so long as they act as our solicitors and protect our interests. They can also have whatever legal fees that they can obtain from the other side, but that is Smits Leslie's liability. Mr Smits nodded his agreement. Mr Leslie was not present at this time." 89 Smits gave a different account. He put the exchange in more colourful language and suggested the agreement was reached with Roach that, in addition to the share of the proceeds, an upfront fee of $500,000 would be paid if Justice Corporation agreed. His account included the following: "Mr Roach: John [Mr Leslie] is to gutless to stay in this negotiation. I don't want Anne [Mrs Roach] to interrupt us. It is up to you and me to reach an agreement. In the event that Justice Corporation funds our litigation against Freehills, we will pay or procure the payment to you of $500,000 plus ten per cent of what we get. Justice Corporation can pay the $500,000 up front to you if you can convince it to do it. That is up to you to fix. But, your ten per cent entitlement will only be paid out of what we get. It will be equivalent to ten per cent of the difference between what we recover and the thirty per cent payable to Justice Corporation. Those monetary entitlements will supersede your monetary entitlements under your Retainer Agreement. You can take it or leave it now. If you don't take it, you and John can f_____ off. Anne and I and our companies will only be bound by that Agreement if you agree to accept $500,000 and ten per cent of what we get. Do you agree? Myself: Ted, you have left us no choice. We have to accept your offer. We agree to it but it still has to be documented properly and Justice Corporation have to agree to fund the litigation. As long as our interests are properly protected in the Funding Agreement, we have no problem with you. I suggest that we bring John and Anne back into the meeting so that we can tell them what we have agreed. Mr Leslie and Mrs Roach were then requested to re-join the meeting. When they did so, I said words to the following effect: Myself: Ted and I have agreed that we will receive $500,00 plus ten per cent of what Ted and Anne and their companies get out of the Freehills case. We have to try and convince Justice Corporation to pay us all or a substantial part of the $500,000. Otherwise, we will get paid at the end of the case. In order to make the ten per cent arrangement valid and enforceable, it will be necessary for us to include a suitable assignment provision in the Funding Agreement, along the lines of the assignment proposed in favour of Justice Corporation. Does that summarise our position Ted? Mr Roach: Yes, that represents our agreement. But, you do not get your ten per cent unless we get paid our sixty percent. Mrs Roach nodded her concurrence. Mr Leslie said: 'That's good. I am really glad we have settled our differences." 90 Leslie gave this account of the same meeting: "On or about 11 December 1998, Mr and Mrs Roach attended at Smits Leslie's offices at Gordon. I attended for a part of the time a conference between Mr and Mrs Roach and Mr Smits. That conference took place in our Boardroom. During the course of that meeting part of the conversation was to the following effect: Mr Smits: If our firm is going to drop out of the Freehills proceedings, so that you and the other Plaintiffs can get Litigation Funding then you have to see that interests of our firm are protected under the Litigation Funding Agreement. You will appreciate Ted, that what we are giving up is the entitlement to recover costs from Freehills and we have to be compensated for that. Once the Funding Agreement is signed and Justice Corporation come into the picture and appoint lawyers to act for the Plaintiffs in the Freehills proceedings, we no longer have any right to recover from Freehills costs for legal services that we have provided to the Plaintiffs in the Freehills proceedings to date. If you are successful and there is a costs order awarded against Freehills under the Funding Agreement, Justice Corporation will be entitled to enforce and keep payment of those costs. We will have no entitlement to do so. Andrew Rayment has suggested that we can only protect ourselves by putting the $500,000 in accrued fees for the work we have done in the Funding Agreement, then it will be paid to us as compensation for the matter being taken away from us and that we would take an assignment of 10% of the cause of action from the Administrators of Winnote and Sydtech to our service company, Plantoy to cover our other entitlements. We have always told you that we do not want to be involved in any champertous arrangement. If we take an assignment of 10% of the cause of action from the Administrators of Winnote and Sydtech, that does away with any element of champerty. Mr Roach: Well I don't want you and John to get a half a million dollars at this stage if we are not going to recover anything from the litigation. You should only get 10% of what we get in recovery. Mr Smits: As I have just explained to you, we must first get back the value of the work we have carried out on behalf of the Plaintiffs in this litigation, as by entering into the Funding Agreement we lose the benefit of those costs and they are then passed on to Justice Corporation or the Plaintiffs. There were then discussions about the proposed amendments to the Litigation Funding Agreement. At about this time, I left the meeting to attend to an urgent client inquiry. Later, I returned to the meeting when I was requested to do so. During the second part of the meeting, words to the following effect were spoken: Mr Smits: John, while you've been absent, Ted and I have had some discussions and we have agreed that Smits Leslie will received (sic) $500,000 plus 10% of the actual amount received by Ted and Anne and their Companies in the Freehills Litigation. It is up to us to try and convince Justice Corporation to pay us all or a substantial part of the $500,000. If this doesn't happen, we will get paid at the end of the case. I have told Ted, and he agrees that for us to take the 10% arrangement and make the 10% arrangement valid and enforceable it will be necessary for us to take an assignment of 10% of the cause of action from the Administrators of Winnote and Sydtech. We will need to include a suitable clause to that effect in the Funding Agreement. Ted, do you agree with what I have just told John? Mr Roach: Yes, that's what we agreed. We also agreed that you don't get your 10% until we get our 60%. Mr Smits: John and Anne, are you happy with this agreement. Mrs Roach and I nodded our agreement." 91 Mrs Roach's account of the relevant conversation was similar to that of her husband. It was, to say the least, not a comfortable meeting. Mistrust of Smits Leslie by Roach was clearly evident, and I have no doubt, was justified. I am satisfied that Roach remained concerned that if Smits Leslie insisted on an upfront fee, Justice Corporation may have walked away from the whole arrangement. Furthermore, I am not persuaded that it was agreed that Smits Leslie would receive $500,000 plus ten percent of the recovery. Certainly, Roach did not offer such an arrangement. By the conclusion of the meeting, Smits and Roach had agreed that Smits Leslie could seek an upfront fee provided it was acceptable to Justice Corporation. However, the only agreement was that Smits Leslie would share in ten percent of the proceeds of the litigation provided they continued to act and advise Roach in the matter. There was no agreement that, if an upfront fee was ever agreed, it would be in addition to the entitlement of ten per cent of the recovery, or payable from the recovered monies. 92 Thereafter, further exchanges by telephone and facsimile took place. In conversations on 14 December, both Smits and Roach confirmed they had reached agreement on 11 December. However, they had different understandings of their exchange. Smits sent a further set of amendments to the draft agreement with a facsimile on 15 December 1998. He continued to press for immediate payment to Smits Leslie. By a letter on the same day, Roach indicated that he did not believe that the amendments suggested by Smits reflected the agreement which had been reached at the meeting of 11 December 1998. His letter was in the following terms: "The conditions we agreed to last Friday have not been adhered to, therefore we cannot contemplate signing any agreement with Justice Corporation Pty Limited at this time. There was no approval given for you to obtain an up-front fee of $500,000. It was explained to you that if you could recover these costs from the defendants, then you were entitled to this sum. You wanted $250,000 up front and $250,000 on the successful conclusion of the case. My conversation to you was for you to try and obtain this from Justice Corporation if they were agreeable to it. However insisting on $500,000 up front will place the whole arrangement in jeopardy. In regard to Smits Leslie's percentage, it was suggested that if we proceeded with Justice Corporation, and that Smits Leslie acted as our legal advisors with our interests paramount, then Smits Leslie would receive 10% of settlement moneys received by us. It was clearly explained why we require this structure. Obviously this offer has now been negated. Who is Plantoy Pty Limited? Our agreement is with yourself and John, trading as Smits Leslie. We will need further time to have this contract properly examined." 93 The letter concluded with a concern about the state of preparation of the case: "I am also very concerned that we have not had a clear strategy or adequate advice with regard to the expert witnesses needed by Legal Counsel in order to bring this case to a successful conclusion. This strategy has to include the relevant statements and experts' reports, as directed by Legal Counsel, being on time according to the Supreme Court orders." 94 Smits replied: "With respect, the conditions which we agreed to last Friday, 11 December 1998, have been adhered to by us, as I attempted to, and hopefully did, explain to you in our telephone conversation late on Tuesday, 15 December 1998. With regard to our request for an up-front payment of $500,000 to cover incurred costs and disbursements to date, we reminded you in our telephone conversation that the your/our original invitation to Justice Corporation was predicated upon the assumption that an offer, in substance or effect, had been made by the Defendants' advisers for settlement based on payment of such an assessment. They never suggested (of course) that we should be paid $500,000 and said, in effect, that they would be astonished if we requested $500,000, but they clearly had in mind a figure close to that sum. In our opinion, our costs, taking into consideration care and skill, must be in the range of a minimum of $400,000. However, if it transpires that Justice Corporation will not proceed unless the up-front payment is of the order of $250,000, then we will be agreeable to receiving the balance out of the payment of the Claim Proceeds. Also, we entertain no difficulty whatsoever with any obligation on our part to establish our monetary entitlement at the higher level. We accept that it will be our responsibility to convince Justice Corporation as to that entitlement. Also, we accept that such moneys would only be payable out of the Claim Proceeds and not directly from you. In our telephone conversation, you stated, in effect that you consider that Justice Corporation is unlikely to pre-pay more than $100,000. Could you please tell us whether and, if so, on what basis and in what terms, that was discussed with Mr Rayment. With regard to the specific arrangement which was agreed to on Friday last, in our opinion that is precisely what is reflected in item No. 44 of the Schedule of Recommended Changes which we sent to you under cover of our letter dated 15 December 1998. In that regard, we would invite you to read carefully the definitions of the 'Claim Proceeds' and the 'Agreed Portion', such that ten per cent (10.0%) of the difference between those items reflect precisely our revised agreement. Consequently, there has been no negation of any offer. In any event, if there had been such a negation, at law, there would be a continuation of the original agreement. Like yourself, we also operate through companies. Our only service company is Plantoy Pt Limited ("Plantoy"). The only shareholders and directors of Plantoy are John Leslie and myself. Accordingly, your Agreement is with us and no-one else. For our part, we confirm that any arrangements which are made with Plantoy can be treated by you as arrangements which are made only with us. We confirm that you should take as much time as necessary in order to satisfy yourself completely as to the contents and effect of the proposed Agreement. For our part, we are at your disposal to discuss any aspect of the matter at any time which is mutually convenient. We note that we have invited you to participate in a further conference about the subject matter of the proposed Agreement on Friday next, 18 December 1998, at a time to be arranged by you with me or my secretary." 95 The letter concluded with the following pointed remarks: "Finally, I am compelled to say: (i) we do not consider it to be appropriate conduct to exclude your wife (in her capacity as a director and otherwise being interested in the case) from any meetings: (ii) if it were not for the input and the financial support which John has given to you to the full extent of his resources and capability - both of which should always have been apparent - you would be statute barred and have nothing; (iii) we have always acted in the best interests of the Plaintiffs. There is nothing opportunistic in our approach. We remain committed loyally to the achievement of the best outcome for your family. (iv) you should be wary of the pitfalls of giving evidence under stressful cross examination from experienced Senior Counsel. From my observations, and without intending to be offensive in any way, I know from experience that you will not present well as a witness. (v) If PricewaterhouseCoopers will not act for you, we recommend that you engage forthwith Mr David McGrane of Mann Judd, Mr Trevor Vella from Horwath Sydney, a partner of Ferrier Hodgson, or some other suitable accountant who is experienced in producing Reports for Courts and in being cross examined on such Reports, if they can act for you, to do the requisite accounting work during January 1999." 96 Roach responded to the letter. It is plain that the possibility of an upfront payment was still causing considerable difficulty. Although Smits continued to demand it, there was no suggestion that Justice Corporation would agree to it. Roach's letter dated 17 December 1998 provides: "I refer to your letter of today's date. 1. Legal costs which will be payable to you are those which you can obtain from the defendants. Our agreement does not involve legal costs payable to you by us. If you now wish to obtain up front payments, then that is a matter outside of any agreement with us. I am not in favour of any payments being made until the case is resolved, especially if Justice Corporation under the agreement you have arranged can request all payments made by them at any time. 2. With regard to any arrangement of 15 December, 1998, these matters have not been finalised and are only of consideration if an agreement is reached with Justice Corporation. 3. In reference to Plantoy Pty Ltd, our arrangements have been with Smits Leslie. Plantoy Pty Ltd is not Smits Leslie regardless of the directors and shareholders. 4. The contract from Justice Corporation has considerable commercial disadvantages to both myself and the companies involved. I consider it, even with your amendments, to be a commercial disaster with the potential of leaving myself bankrupt. … There have been no discussions between myself and Mr Rayment in regard to payment to yourselves. I have always said that this matter is between you and the money Justice Corporation can recover from the defendants. I am compelled to say also: (1) John should be present at meetings where we discuss all contractual arrangements. The meeting last Friday should not have proceeded when he unfortunately left. (2) We accept and appreciate John's, Stephen's and your efforts on our behalf. (3) I was very upset because the meeting did not attempt to examine the commercial implications of Justice Corporations contract, but rather your financial interests. For instance it would be extremely negligent for me to accept a contract which could bankrupt me; capping of the fees input by Justice Corporation, so there is no guarantee of the case being taken to conclusion; demands of payment at any time; accepting us as the last beneficiaries; the necessity for our companies to be placed in administration etc. These issues will all need to be resolved and I will seek a commercial lawyer's opinion on a fairer commercial contract with Justice Corporation." 97 Smits Leslie responded by letter dated 17 December 1998. It is plain that the relationship of solicitor and client was now under significant threat. The letter concluded with the following remarks: " (3) It appears that you have not comprehended, fully or properly, the comments made by me in the meeting on Friday last, 11 December 1998, concerning the aspects referred to by you. If these were matters of such vital concern to you, and were not covered adequately in our Schedule of Recommended Changes to the proposed Funding Agreement received from Justice Corporation, there was nothing precluding you from discussing or raising these matters with me. I have taken considerable time and effort to discuss the commercial effectiveness of the proposed arrangements with Justice Corporation. I have continued to do so since our meeting. The amendments reflected in the two revised schedules sent to you since that meeting are confirmatory as to that situation. Moreover, I welcome every input that you can give to us, by way of instruction or otherwise, in order to finalise the Schedule of Recommended Changes, so as to maximise the protection and benefits which can be afforded or flow to the Plaintiffs. Insofar as your final comment carries any implication that we do not practise as 'commercial lawyers' of high standing in the legal community, that we lack independence and/or that we may not be up to the task, I will leave you to dwell upon the defamatory aspects of such implications. If that was not your intention, then we invite you to withdraw the comments unreservedly and to apologise for making such implications in open correspondence." 98 The correspondence continued with a reply from Roach dated 18 December 1998. In it he makes plain both the nature of the misunderstanding between them and the reason for his concern about any upfront payment. He said: "… Under 'The Litigation Agreement' from Justice Corporation and your amendments, the $500,000 your company, Plantoy Pty Ltd, is claiming is a direct debt of the 'Claimants'. You have included 'Walter Edward Roach' and 'Winnote Pty Ltd' as 'claimants' to the Litigation Agreement. The $500,000 plus interest has to be paid back to Justice Corporation by the claimants, even if none or only part of it is recovered in costs from a successful outcome in the case. This is not part of our current agreement and the value and timing of the payment, contrary to our discussions last Friday, need to be resolved with the claimants first and then accepted by Justice Corporation." 99 He responded to the final comments in Smits' letter in the following manner: "In reference to your last paragraph, there is no reference to your competency, but because of your contractual agreement you are commercially involved in this matter. There needs therefore to be a separate commercial solicitor to structure the 3 party agreement between Justice Corporation, Plantoy Pty Ltd/Smits Leslie, and the 'Claimants'. I have been advised that this is the appropriate commercial course of action." 100 Smits Leslie responded by a letter dated 18 December 1998. The letter said in part: "Unless the Plaintiffs are liable to pay our costs, no such costs could ever be recoverable from the Defendants. It is another matter for us to agree to some of limited or non recourse in respect of such debts. It is improper to suggest that we have included Walter Edward Roach and Winnote Pty Limited as claimants to the Litigation Agreement. That Agreement was never formulated by us. Also, it is quite clearly the case that those parties are also our clients under our current Retainer Agreement and liable to pay all costs. Again, it is incorrect for you to say that our costs are not recoverable from yourselves as our clients. What else could you expect other than an obligation on your part to reimburse or exonerate Justice Corporation if it pays any of our costs and disbursements. Additionally, we are being asked to waive our entitlement to recover those costs and disbursements from the Defendants. Then, you complain about the fact that you have to reimburse or exonerate Justice Corporation in respect of those debts, albeit out of any costs or damages which might be payable to you by the Defendants. Indeed, Ted, that is a fundamental part of our current Agreement. We have expended nearly $500,000 in costs and disbursements for your ultimate benefit, in good faith and trust. What we are hearing lately from you does not accord with our arrangements and is disturbing, given our expenditure to date." 101 With respect to the problem of separate legal advice, the letter said: "…. We do not see that there is any necessity for a separate commercial solicitor to structure any arrangements as between the Plaintiffs and Justice Corporation. In relation to ourselves, we consider that there are Agreements in place. We suggest that the precedent with Justice Corporation be settled in an appropriate manner. There is nothing to preclude you from obtaining any commercial or legal advice from any other party at any time. If you consider it to be necessary or appropriate to do so, before you execute or subscribe any Agreement with Justice Corporation or ourselves, please do not hesitate to do so. That is of no negative concern to us." 102 The letter ended with a further pointed comment: "Finally, we note your aggravation of any fallout in our relationship by reason of your failure to withdraw absolutely your defamatory implications." 103 On 18 December 1998, Roach telephoned the offices of Smits Leslie at approximately 6.15 pm and left a message with a secretary in which he said "I will be using other solicitors from now on in". Although this statement was made, Smits Leslie continued to act until the retainer came to an end in April the following year. 104 Smits, Leslie and the Roaches met again on 21 December. During that meeting Smits says the following exchange occurred. It does not reflect favourably on his professional capacity, judgment or veracity. "Myself: You will appreciate that John and I do not want to be involved in any arrangements which might be considered by a Court to constitute maintenance or champerty. I explained these terms and my concerns to you when I submitted our original Retainer Agreement to you. You will recall that, at that time, I also provided you with a copy of Part 11 of the Legal Profession Act. I drew your specific attention then to the provisions contained in Part 11 of the Act on conditional costs agreement. You will remember that was one of the reasons why Justice Corporation considered it to be necessary to put Winnote and Sydtech into voluntary administrations. The Voluntary Administrator or a Liquidator of those companies will have the statutory power to transfer part of the causes of action or fruits of the litigation to Justice Corporation and Plantoy … . Mr Roach: We want to make it abundantly clear to you that our agreement with you is now that you will receive $500,000 plus ten per cent of what we get in the event that Justice Corporation funds the litigation. If Justice Corporation does not fund the litigation then you will have to continue work under the existing Retainer Agreement. Is that clear? 105 Roach denied saying the words attributed to him and stated that he, at no time, agreed to pay Smits Leslie $500,000. I do not accept Smits' account. It is significant that Leslie gave no independent account of the conversation. Although Leslie's note of the meeting records a reference to an agreement to a payment of $500,000, Smits' does not. Having regard to the correspondence between them it would be extraordinary if Roach had voluntarily agreed to the $500,000 payment at the meeting. 106 Smits' explanation for the introduction of Plantoy, which is referred to in Smits' account of the conversation, is at odds with the oral evidence given in the proceedings. Having regard to the proportion of the proceeds agreed to be payable to Smits Leslie when negotiating the Second Retainer Agreement, the suggestion that Smits Leslie had been concerned to avoid maintenance or champerty is impossible to believe. 107 Smits was asked about the reason for involving Plantoy: "Q. I am still not sure I understand why it was necessary to involve Plantoy. A. Well, forgive me, your Honour, if I am not making myself sufficiently clear. There were tax considerations. Perhaps I should expand a little bit, your Honour. If income is received, for argument's sake, in the identities of the partners themselves, then the tax treatment of those receipts would be different to the tax treatment of receipts in the service company. Q. But here the income was to be derived from the work of the partners, wasn't it? A. Yes. Q. Or aren't we talking about income? A. Well, your Honour, you can dispose of income. I mean all of those cases going forward from Everett's case recognise that you can assign income to spouses or companies which are associates. I mean it is not just a simple black and white tax position that you can't -- Q. So is that what was happening here? A. No, I wasn't putting it on that premise. I was trying to -- Q. What were you doing? A. I was trying to answer your Honour's question. Q. What were you doing here? A. I thought I explained that in the sense that I believed that the income, this income, if assigned to Plantoy would be taxed in Plantoy at the tax rate applicable to a company deriving assessable income. In that company both Mr Leslie and I had a certain amount of fully franked tax credits which would have to that extent at least given us some softening of the tax impact. Conversely, to the extent that income had been received in our own personal identities as partners of the practice, the progressive tax scale would have operated differently and there would have been the provisional tax liability on top of that." 108 Perhaps there was a taxation motivation for the proposed arrangement. In any event, when giving evidence, Smits clearly viewed the possible payment as income and was proposing to take advantage of the introduction of Justice Corporation to restructure the arrangement. 109 Smits said that after this meeting, he prepared a revised set of amendments for the proposed agreement. They were forwarded to Justice Corporation on 23 December 1998. In his statement, Smits said he did this after he obtained express approval from Roach to do so. He said he had the following conversation with Roach: "Myself: Do you have any problem with the recommended amendments to the proposed Litigation Funding Agreement? I want to send them to Justice Corporation before Christmas. Mr Roach: I am happy with the changes that you have made but I do not want you to commit us irrevocably to those changes otherwise we will have no room to manoeuvre with them. I want to know exactly what they are prepared to agree to before we make any final commitments. Myself: That's OK. I will put something into the covering letter to the effect that we have not got your final approval or instructions in relation to the proposed changes." 110 Smits gave no date or place for this alleged conversation. 111 Roach both denied the conversation and said he never received a copy of Smits' letter to Justice Corporation and the proposed alterations. I accept Roach. Of particular significance is the statement by Smits in his letter to Justice Corporation, which says that he is forwarding, at the same time, a copy of the agreement to Roach. There is no evidence that this occurred. Although Smits said in evidence that he gave Roach a copy of the revised agreement, the fact that there is no documentary record of the event, when otherwise the parties by this time were writing to each other daily and even more frequently, suggests that Roach's recollection is correct. 112 Furthermore, Smits' statement that he said: "I want to send (the amendments) to Justice Corporation before Christmas", is entirely inconsistent with the evidence in his second statement in these proceedings where he says he would prefer to have delayed forwarding the amendments to Justice Corporation until after the Christmas period. 113 Finally, having regard to the preceding correspondence it would be extraordinary if Roach had agreed to the changes, for they included the following:

"2.4 Conditions Precedent On or before the date hereof Justice Corporation and/or the Claimants shall make arrangements which are acceptable to Smits Leslie, Solicitors for the payment of the sum of $500,000 to Plantoy, which is acknowledged to be due and payable to Smits Leslie on account of legal costs and disbursements incurred by the Claimants in respect of the Claims prior to the date of this Contract." 114 The introduction of a condition in these terms would have brought a quick protest from Roach. The suggestion that Roach had agreed to it is simply not credible. 115 By this stage, it is plain that the relationship between the Roaches and Smits and Leslie had deteriorated significantly. Roach had come, in my opinion correctly, to believe that Smits, in his negotiations with Justice Corporation, was acting primarily to secure the position of Smits Leslie which was, in part, in conflict with the best interests of himself, his wife and the companies. It was becoming increasingly unlikely that the parties could continue to cooperate effectively. 116 Justice Corporation did not immediately respond to the letter from Smits Leslie. This caused difficulties because of the need to file evidence in accordance with the court's directions. If Justice Corporation was to take over the litigation, Rayment had indicated that he would want his counsel to approve the evidence to be filed. Smits Leslie wrote on 21 January pressing for Justice Corporation to finalise its decision. 117 There was a further discussion between Roach and Leslie on 16 February 1999. Leslie said that during that discussion, Roach said he was satisfied with the revised form of the funding agreement, which by then he had received from Smits Leslie. Leslie sought to support his evidence by reference to a handwritten note. Roach denied that he accepted the revised agreement. 118 I have no hesitation in accepting Roach's account. Having regard to his constantly repeated opposition to an upfront payment to Smits Leslie, it is inconceivable that he would now agree to it. Of significance is the fact that although Leslie records raising the issue, he does not record any answer from Roach. If Roach had answered as suggested, it would be surprising if he did not make a record of it. 119 On 24 February, Roach met with Rayment and others to discuss the process of litigation funding and the necessity for the liquidation of Winnote and Sydtech. Consideration was also given as to whether Roach should be a plaintiff in the proceedings. 120 Following that conversation, Roach spoke with Leslie on 26 February 1999 and related his conversation with Justice Corporation. The effect of the conversation was to inform Leslie that Roach understood Justice Corporation had some concern in relation to the current structure of the litigation, which may prove an impediment to effective funding. Justice Corporation were still not entirely committed to the case. Roach also expressed his concern about delays in settling the funding agreement and in the appointment of new solicitors and counsel to pursue the matter. 121 In the meantime, Justice Corporation had undertaken a preliminary assessment of the proceedings and retained the services of Richard White SC to advise. 122 Roach received further draft documents in relation to the funding agreement in early March 1999. They came from the prospective liquidator of the Roach companies and not from Smits. His concerns were increased, for amongst other matters, the amount proposed to be provided by Justice Corporation had been reduced from $15 million to $5 million. He said he discussed the matter with Smits and gave the following account: "Myself: Leo, this funding agreement has been faxed over to me. The amount that Justice Corporation are prepared to put in has dropped from $15m to $5m. Mr Smits: That is definitely not on. I will talk to Rayment. We definitely agreed to $15m. It must be a mistake. Myself: You better review the agreement to ensure there are no other changes. Mr Smits: Fine. Myself: What about all the other outstanding matters. Mr Smits: Ted, I've discussed with Rayment whether or not you should be a Plaintiff. My view is you should. Rayment says you shouldn't. We discussed Freehills Melbourne. I don't think there is a limitation problem. Myself: Shouldn't senior counsel be involved. White's opinion seems clear. Why don't we have a meeting with White? Mr Smits: I will set up a meeting with Richard White to discuss some of the legal issues that he has raised. Myself: Good. When? Mr Smits: Ted, I think this conference should only be with the lawyers." 123 Smits gave an entirely different account of this exchange. There was also disagreement between the parties as to the precise sequence of events at this time. Smits gave evidence of a meeting with Roach on 4 March. Roach said he cannot recall such a meeting. Smits' account is important for, if true, it reveals the extent to which the parties have ceased to trust each other. Smits had now come to believe that Roach and Rayment may be conspiring to defeat his interests. His account reflects those concerns: "On 3 and 4 March 1999, I had further discussions with Mr Roach. There was a meeting on 4 March 1999 at our offices at which Mr Roach and I were present together with Mr Leslie for most of the time. When I was alone with Mr Roach, at the beginning of the meeting, Mr Roach opened his bag on our Boardroom table and I noticed that he had in the top of it a form of Funding Agreement between Justice Corporation, Winnote (in Liquidation), Sydtech (in Liquidation) and John Sheahan. As Mr Roach looked aside furtively upon noticing my unexpected discovery, I said: 'Oh Ted, I see that you have got the latest draft of the Funding Agreement? Will I review it?', to which he responded 'Yes, of course', and handed it to me. At the same time, Mr Roach handed to me additional documents relating to the proposed voluntary administrations of Winnote and Sydtech. These included forms of consent signed by Mr Sheahan and dated 1 March 1999, under which Mr Sheahan agreed to act as Administrator of the companies. Although I was given those additional documents on 4 March 1999, it was not until much later that I realised that the consent documents had been signed by Mr Sheahan on 1 March 1999. When I looked more closely at the new form of Funding Agreement, a number of things struck me as being odd: (i) John Sheahan was nominated as a party; whereas, I thought that, at least so far as Mr Roach was concerned, Mr Shirlaw was the nominated Administrator; (ii) Mr Roach was in possession of the new draft of the Funding Agreement, given the fact that we were acting for the Clients and all the previous drafts and changes had been processed directly between Smits Leslie and Justice Corporation; (iii) I noticed that Mr Roach was not nominated as a party to the Agreement, which was contrary to the advice of Smits Leslie; (iv) no mention of the new draft having been given to Mr Roach was made to me in my extensive discussions with Mr Rayment on 2 and 3 March 1999; (v) there was no provision in it for any payment to Smits Leslie or Plantoy; and (vi) Messrs Garrett Walmsley Madgwick (the solicitors acting for Justice Corporation) and not Clayton Utz or Blake Dawson Waldron were nominated as the Claimants' Lawyers. It was not until later that the true significance of these things became apparent to me. During the meeting which was held on 4 March 1999, between 10.30 am and 2.20 pm between Mr and Mrs Roach, Mr Leslie and myself, words to the following effect were spoken: Mr Leslie: Andrew Rayment wants us to send to Justice Corporation a bill for $500,000 on account of our accrued fees. We are not sure that we want to do that yet as it may accelerate our tax liability for that fee income without any corresponding receipt of income. Mr Roach: I have come to the conclusion that thirty per cent is too much to give to Justice Corporation. I want to cut them back as much as I possibly can. They should get no more than twenty per cent. Their rates are, what do you call it? - usurious. ….. You are also getting too much. You are getting paid all your accrued costs plus ten per cent. …..

Myself: We really appreciate your attitude Ted, after everything we have done for you. If it wasn't for John's efforts, no case would have been filed against Freehills before your claims became statute barred. Now that we have arranged funding for your case with Rivkin, you try to cut down our agreed entitlements. ….. The Funding Agreement needs to contain an appropriate indemnity for you Ted, for your defence of any cross claims brought against you by Freehills and any adverse costs orders which might be made against you. Andrew Rayment has agreed with us that Justice Corporation will give that indemnity to you. Mr Roach did not disclose to Mr Leslie and myself during that meeting or otherwise that all of the references to our agreed entitlements had been excised from the proposed Funding Agreement." 124 Further tension was evident with respect to the preparation of the matter for hearing. The solicitors conferred with White and on 11 March, Smits spoke with Roach by telephone. The mistrust between them is evident from the conversation: "On 11 March 1999, I had a telephone conversation with Mr Roach during which words to the following effect were spoken: Mr Roach: You guys gave me a filtered version of your discussion with Richard White yesterday. Myself: Ted, who or what gave you that impression? That is not a fair comment. We did our best to convey to you our recollection of the substance of what was said in our conference with Richard White. What specifically is your concern? Mr Roach did not answer my questions. ….. Mr Roach: You were not at the meeting which I had with Stephen Archer. I quizzed Stephen Archer on what we need to prove our damages against Freehills. Have you heard the latest on the Austotel decision of the High Court in which Clayton Utz are being sued for negligence. Myself: Yes. We heard about the Austotel decision. That will have to be reviewed carefully with Counsel in the light of the pleadings, facts and circumstances and documents in your case. It may necessitate some revision of the pleadings. I have spoken to Mr Archer at some length about his opinion. I have reviewed the written advice which he has given to you. I have also reviewed a number of other decisions. You have been given the benefit of those reviews. But, we cannot take it much further until we get the final version of Mr Murray's valuation report and you finalise your Witness Statement. ….. We have to recognise and respect everybody's role in this exercise. You need to stop playing the lawyer and allow us to do our job properly. You are continuously frustrating our best endeavours to act for your benefit by asserting legal positions without a proper appreciation of the relevant authorities and rules of law. What we need from you is clear, precise and direct instructions as to factual matters and relevant documents. To date you keep on pontificating about the law, but we cannot get you to take a fixed position on your evidence. We have explained to you times that Judges are not idiots. Naturally, in their minds, they will quickly question your credibility if you vacillate or appear to be opportunistic, or invent or contrive answers to questions. You will have to relate the history factually. The changing stories and shifting emphases we are hearing from you give us grave cause for concern. I have already expressed serious concerns to you that you will not measure up as a reliable witness. At the present time your story strikes me as being somewhat of a pot pourri or a pastiche. It comes across as a loosely based recollection of muddled events and documents which have been distorted substantially over time, so that its evidentiary value will be minimal. You must concentrate on distilling your evidence in your mind and witness statements so that it is a true, candid and chronologically correct recollection of what actually happened. Mr Roach: What I need is an outline of the litigation strategy. Myself: The strategy can be evolved properly once we have finalised the Witness Statements and the Expert's Report. Our first priority ought to be to comply with the Directions of the Court. Then, I will formulate and document a strategy for you." 125 The closing remarks by Smits reveal a remarkable approach to major litigation. Quite how Smits expected to succeed by formulating a strategy for the case only after finalising the evidence, is difficult to comprehend. 126 On 12 March, Roach and Smits met with Rayment. The level of funding by Justice Corporation was agreed at $15 million and after discussing some other aspects of the matter it was accepted that a further draft agreement would be prepared. 127 The contemplated draft was forwarded to Roach on 24 March 1999. The parties gave differing accounts of the precise events and more particularly, the conversations which occur thereafter. However, Roach was greatly concerned about further claims for remuneration which had been inserted by Smits Leslie and which had never previously been raised with him. 128 Roach's account of their conversation, was as follows: "Later the same day or possibly the next day, 24 March 1999 I cannot now recall which, I contacted Mr Smits. We had a conversation in which we discussed my concerns about the schedule of changes in words to the effect: Myself: Leo, your schedule of recommended changes includes you wanting 25% of all the legal expenditure for the remainder of the case and 25% of the 30% Justice Corporation are to receive. This is not on. This should be 10% of whatever we receive. Mr Smits: Yes, I was trying to simplify things. I will need to change that. Myself: You still have Plantoy in there. Mr Smits: I will have a further look at it and send you the revised changes. 129 Smits said he recalled having a conversation with Roach on 23 March 1999 in the following terms: "Mr Roach: You get $500,000 and ten per cent of what we get. I want to cut down the entitlements of Justice Corporation. You and Justice Corporation should share thirty per cent. You should sort that out with Justice Corporation. I want to get a minimum amount or percentage over and above what Justice Corporation can get from Freehills. I do not want Justice Corporation to bail out if it reaches the $15,000,000 funding limit. Myself: We will not agree to negotiate with Justice Corporation for a share of their thirty per cent in lieu of our agreed entitlements. I can't see Justice Corporation wanting to spend $10,000,000 with no expectation of recovering thirty per cent or a net sum of about $5,000,000, that is $15,000,000 minus $10,000,000, if the litigation runs its entire path. … Based on what Mr Murray has told us, we can't see the peat deposit being valued at less than $9,000,000. … We can't see Justice Corporation wanting to bail out after they have put up $15,000,000 in expenditure if there are sound prospects of success. … You have to recall that the reasons for Justice Corporation's involvement were in part to let Freehills know you had substantial funding of the order of $15,000,000, that the claim is serious and that it will be litigated to the bitter end with litigation funding, if necessary, in order to encourage an earlier and greater settlement. Mr Roach. Anne and I are concerned that there will be nothing left for us. I insist on tying your entitlements to ours. We insist on tying your entitlements to our net recovery. … … 130 On 24 March 1999, Roach received a further facsimile from Smits enclosing a Deed of Release and Discharge and a Revised Schedule of recommended changes to the Final Draft Litigation Funding Agreement.

The termination of the Retainer 131 Roach rang Leslie on the morning of 25 March 1999, concerned about the increasing demands of Smits and had a conversation with him with words which Roach said were to the following effect: Myself: John, I'd like to have a talk to you about the things that Leo has put into these changes to the revised Litigation Funding Agreement before Justice Corporation get them. He is wanting me to personally sign a Deed of Indemnity for the company to have a debt of $600,000 and he is wanting 25% of the legal costs recovered plus 25% of the 30% payment to Justice Corporation. Mr Leslie interrupted me and said words to the effect: Mr Leslie: I don't want to have anything to do with this. Leo is organising this. He then hung up. 132 Almost immediately Roach rang Smits. Roach's account of the conversation was as follows: "Myself: Leo, in this draft Deed of Release and Discharge you have sent me, your legal costs are now $600,000. Late last year they were $300,000 - $400,000, then a few months later $500,000 and now in a few weeks you want $600,000. These fees seem to be rising by $100,000 at an escalating rate. I have not agreed to any of this. Mr Smits: These are our entitlements. There has been a lot going on. Ted I don't know why you are so upset, Justice Corporation have agreed to all of these changes. Myself: What do you mean Justice Corporation have agreed? I haven't had any conferences with Justice Corporation and you concerning these changes. How do I know there are no side deals going on. Mr Smits: There are no side arrangements. Are you calling me a con man? Myself: Leo, they are your words not mine. Mr Smits: I'll amend the Deed to include a clause that says there are no side arrangements. Myself: Leo, that does not justify your claim of $600,000. I have no idea what your fees should be. They seem to be rising at $100,000 every few weeks. This was not our agreement was it? Mr Smits: Are you calling me a cheat? Myself: Leo, I'm not calling you anything. Why don't you answer my questions? We seem to agree on a particular outcome and then you do whatever you want to, often without discussing things. Mr Smits: When has that occurred? Myself: Continuously, look at the changes yesterday. You wanted 25% for Plantoy of all payments to Justice Corporation, including 25% of all future legal fees and 25% of any payments to them including the 30% of their claim proceeds fee. Mr Smtis: Oh, that was a mistake. I didn't mean that to be included. Myself: Leo, it was so carefully worded. I cannot understand how a solicitor could accidentally include a clause like that which involves a lot of money, and then claim it was a mistake. Mr Smits: Are you calling me a liar? Myself: Leo they are your words, but after all that has gone on, I would more accurately describe you as a shark. Leo, with your claim for legal costs at $600,000 and rising now at $100,000 every few weeks and with the problems with the Agreement, the best thing I can do is to get a legal opinion on the Justice Corporation contract, and our Retainer Agreement, and take it from there. 133 At this point Leslie came into the room and Smits put the telephone on loud speaker so that Leslie could hear the conversation. The conversation continued as follows: Mr Smits: Ted, you have called me a cheat, liar, a con man and a shark. You come down here and say that. Myself: Leo, they are your words. In your state this could become physical. Considering all the facts it is important to me that I get an independent firm of solicitors to look at these agreements. I'll put this in writing. As a result of the fees rising so rapidly and in order to protect the interests of the companies and shareholders I will put this action on hold. I'll send you a fax to this effect." 134 Roach directed that all legal work be placed "on hold" until he had "received an independent legal opinion on the status of the contracts currently under review." 135 Again, Smits had a different account of these events. He said the following occurred: "At about 9.31 am on 25 March 1999, I received a facsimile from Mr Roach. Shortly afterwards, Mr Roach rang me.

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:

(a) $500,000 (referred to in Order 3 below); and (b) a sum equivalent to all costs [as defined in Section 173(1) of the Legal Profession Act, 1987] and paid up until the date fixed by Order 5 below, by any of those Defendants to any barristers for the proper maintenance of their Proceedings No 20950 of 1997 in this Court as against partners of Freehill Hollingdale & Page, Solicitors in Sydney and Melbourne respectively. ["the Negligence Proceedings"]

Judgment against the Third and Fourth Defendants in the sum of $500,000.

Judgment against the Third Defendant in the sum of $18,038.40 in relation to the claim made in Local Court Proceedings No 9244/99 between Messrs Smits and Leslie (Plaintiffs) and Mr Roach (Defendant).

Judgment against the Third and Fourth Defendants in the sum of $29,031.00 in relation to the claim made in Local Court Proceedings No 7936/99 between Messrs Smits and Leslie (Plaintiffs) and Mr Roach (Defendant).

Judgment against the Third and Fourth Defendants in the sum of $4,298.79 in relation to the claim made in Local Court Proceedings No 10933/99 between Messrs Smits and Leslie (Plaintiffs) and Mr Roach (Defendant).

Stay the enforcement of Orders 2 and 3 until earlier of:

Interest on the judgment debts referred to in Orders 2, 3, 4, 5 and 6 respectively from 19 April 1999 until payment, at the rate prescribed under Section 94 of the Supreme Court Act 1970.

Declare that the Plaintiffs are secured creditors of the Third and Fourth Defendants in respect of the judgment debts referred to in Orders 2, 3, 4, 5 and 6 and interest referred to in Order 8, respectively.

Stay continued of these Proceedings as against the Third and Fourth Defendants until further order." 189 The letter said of the proposed orders: 1. Proposed Order 3 would give effect to part of the Agreement noted on the Consent Orders made herein by the Court on 24 September 1999: Enclosure 'B'. 2. As to proposed Order 2: (a) Clause 2.3 of the Retainer Agreement executed on 6 April 1997 and 23 June 1998 by and between Smits Leslie and Mr Roach, Winnote and Sydtech provided: 'The clients undertake to pay to the Solicitors (inclusive of Counsel's fees) the estimated amount of their costs upon recovery of any moneys referred to in Clause 2.4 hereof provided always that the liability of the Clients under this Clause shall not exceed the amount of moneys recovered as stated in Clause 2.2 hereof'. In Item 3 on the First Page, the Estimate of Costs was $10,000,000 in the draft Retainer Agreement of November 1996 and in the Retainer Agreements executed on 6 April 1997 and 23 June 1998. (b) On page 2 of the Disclosure Letter of 17 March 1998 from Smits Leslie to Mr Roach, Winnote and Sydtech it was stated: 'We (Smits Leslie) shall charge you for your professional costs on the basis of a fixed lump sum of Ten Million Dollars ($10,000,000)' (c) In April 1999, Mr Roach, Winnote and Sydtech repudiated performance of their obligations under the Retainer Agreement, in consequence whereof Smits Leslie terminated the Agreement for anticipatory breach. (d) The measure of damages for deprivation of a commercial opportunity, which occurred by reason of breach of contract enables the innocent party (Smits Leslie) to bring an action for damages for the loss of that advantage or opportunity. Consequently, in The Commonwealth v Amann Aviation 92 ALR 601, the majority of High Court Judges concluded that a lost commercial advantage or opportunity was a compensable loss, even though there was less than a 50% likelihood that the commercial advantage would be realised. Damages for breach of contract were assessed by reference to the probabilities or possibilities of what would have happened. These principles were affirmed and applied recently by Rolfe J in the Judgment delivered on 10 November 1999 in Global Network v Legion Telecall [1999] NSWSC 1090 at paras 149 et seq, which are copied herewith: Enclosure 'C'. Rolfe J is also hearing these proceedings." 190 That letter was followed with a further letter of 13 January 2000, which sought to justify the claim for $10 million and offered to compromise for the sum of $5 million. Not surprisingly, the offer was not accepted and the Liquidator wrote in the following terms: "I refer to our recent discussions and your correspondence of 12 and 13 January last. In relation to your further request for the Liquidators to determine your claim against the above companies before 1 February 200, I refer you to our facsimile dated 15 September 1999 whereby a number of points were put forward to all parties as a way forward to: a) reduce the current litigation at that time; b) restore some order to all matters concerning the above companies; and c) move forward in the Freehills' negligence litigation. In our facsimile of 15 September 1999, I remind you of the following points: 3. 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 the time charges up to 1 December 1998. 4. That Smits Leslie may submit to the Liquidators for their consideration a proof of debt for their out of pocket expenses to 19 April 1999 limited to $75,000. 5. In respect of the period 1 December 1998 to 19 April 1999, Smits Leslie submit to the Liquidators for their consideration, proofs of debt in accordance with 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. 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 Road (sic), 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). I believe it is clear from the abovementioned (and taken from the agreeance of all parties), that the Liquidators have agreed to admit your claims for $575,000 and will consider further fees up to $100,000, and the ten percent interest claim. You may wish to submit a proof of debt for the Liquidators' consideration in regard to both these matters. I would be pleased for you to provide me with proofs of debt in relation to Points 5 and 8 above. In relation to Pont 6 above, the Liquidators were of the understanding that by agreeance with you to the points listed in our facsimile of 15 September last, that security would not be sought. Your facsimile of 12 January last suggests otherwise. I am advised by the solicitors for Mr Roach that the proceedings against him (to which you now wish to join Winnote and Sydtech) should be heard in the commercial list by no later than April of this calendar year. This hearing will no doubt provide further detail of any additional claim you may have against Winnote and Sydtech. Should you wish to discuss the above, please contact me directly." 191 In the event, an amended summons was filed claiming damages and costs in respect of the Freehills proceedings and costs in relation to the Victorian Government/Luscombe matter. The liquidated companies were, with the leave of the court, joined in the proceedings. Ultimately the liquidators, Cussen and Shirlaw were also joined. 192 To determine both the claim and cross claims, a clear understanding of the course of these proceedings and others commenced by Smits Leslie is necessary. The history of this litigation 193 The current proceedings were commenced by a summons filed on 11 August 1999, that is, of course, before the September 1999 agreement. The original summons sought to sustain a claim against the Roaches and Rayment, Rivkin and Justice Corporation. It appears to have been motivated by Smits Leslie's belief that they had been unjustifiably excluded from any ongoing benefit from the Freehills litigation and their retainer wrongfully terminated by Roach. 194 The summons pleaded breaches of contract and included claims pursuant to the Trade Practices Act and the Fair Trading Act. It included a claim that Roach and Rayment "conspired to defraud (Smits Leslie) by causing or effecting the termination of the retainer of (Smits Leslie)." 195 There can be little doubt that the timing of the proceedings, including these allegations, would have affected the likelihood of Justice Corporation funding the litigation. The pleading is fairly described as an ambit claim. Although a catalogue of allegations were pleaded in relation to contract and misrepresentation, the allegations of fraud were not separately particularised. Smits Leslie sought damages, equitable compensation as well as aggravated and exemplary damages. 196 As I have elsewhere related, following the agreement embodied in the Ten Point Plan in September, consent orders were made and only the Roaches remained as defendants in the proceedings. 197 An amended summons was filed on 3 March 2000. The Roaches were now named as the first and second defendants and the Roach companies (of course in liquidation) were joined. The revised pleadings were confined to a claim that the retainer had been wrongfully repudiated by the Roach interests and, relied on an implied term, that Smits Leslie had a present entitlement to damages. In the alternative, Smits Leslie sued on the alleged agreement of 11 December 1998 claiming $500,000 and ten per cent of the proceeds from the litigation and otherwise claimed their interests had not been protected in the funding agreement with Justice Corporation. Significantly, there was no claim based on the September 1999 agreement. 198 The Roach interests filed a cross claim on 14 April 2000 alleging a breach by Smits Leslie of the retainer agreement, with the consequence that they lost the opportunity of being represented on a contingency basis. 199 Another amended summons was filed on 20 July 2001. The amendments included claims based on the first costs agreement. 200 A further amended summons was filed on 12 October 2001. In addition to the Roach companies, the liquidators Cussen and Shirlaw, were now joined, it being alleged that they breached the Ten Point Plan agreed in September 1999 by refusing to admit Smits Leslie to proof in the sum of $500,000. 201 The proceedings against the liquidators were settled in February this year, a condition of the settlement being that Cussen would give evidence in these proceedings. This has occurred. 202 In September 2001, Roach applied to the court for leave to intervene in these proceedings in the name of the companies. That leave was granted. A further application was made during the proceedings to file amended pleadings. That was also granted. 203 The defence pleaded puts in issue whether there was an agreement in September 1999 or alternatively, seeks a declaration that it has been terminated. It is pleaded that Smits Leslie, by bringing and maintaining the current proceedings, have repudiated the September agreement. It is significant that, except in the alternative when later pleaded by Smits Leslie, the Roach interests have never pleaded the alleged agreement of September 1999 as a defence to Smits Leslie's claims. 204 The proceedings against the liquidators were dismissed, by consent, on 15 February 2002. 205 A third further amended summons was filed by the plaintiffs on 15 February 2002. A claim for specific performance of the September 1999 agreement was made. Accordingly, the claims in the summons may be summarised as follows:

(a) As against the Roaches and the companies, claims are brought based on the first and second retainer agreements.

(b) As against the Roaches and the Roach companies, a claim is brought based on the alleged agreement of December 1998. These claims include claims based upon allegations of misleading conduct.

(c) As against the companies and the liquidators, the alleged agreement of September 1999 is pleaded with claims for damages and specific performance. No agreement with Roach is alleged to have been made in September 1999. It is significant that it was not until this third further amended summons was filed, that a claim for specific performance was advanced.

Apart from the present proceedings, the following proceedings have been commenced by Smits Leslie: First Supreme Court Proceedings 91346/99 206 These proceedings were commenced on 12 July 1999 and are the Costs Agreement Proceedings brought in relation to a bill of costs issued by Smits Leslie in relation to the dispute between Roach and Luscombe. The amount in the bill is $4,032 and an additional $30.00 is claimed for disbursements. 207 The original summons in the present proceedings contained a claim in relation to the Luscombe proceedings, expressed as the instruction by Smits Leslie of counsel to prepare a statement of claim. First Local Court Proceedings 7936/99 208 These proceedings were commenced on 19 July 1999 and make a claim for costs in the Freehills proceedings. The proceedings were commenced by Statement of Liquidated Claim and claims for breach of the retainer agreement, being the failure to pay costs after the plaintiff allegedly terminated the agreement. The claim made in the Local Court proceedings falls within paragraph 20 of the original summons in the present proceedings. Second Local Court Proceedings 9244/99 209 These proceedings were commenced on 20 August 1999 in which the plaintiffs sue for payment in respect of a bill of costs relating to the proceedings against the State of Victoria and Kerry Luscombe. The proceedings are brought pursuant to the 24 June 1998 Retainer Agreement. The claim falls within para 20 of the original summons in these proceedings. 210 Roach also draws attention to para 4 of the pleaded claim. In that paragraph reference is made to the fact that the bill of costs sued upon includes a memorandum of fees issued by Davidson of counsel and to the fact that those fees are sought to be recovered in the First Local Court proceedings. 211 It is submitted by Roach that it should be concluded that Smits Leslie, by bringing the two proceedings, when only one would have been sufficient, were using multiple proceedings as a deliberate and oppressive tactic. Third Local Court Proceedings no 10933/99 212 These proceedings were commenced on 30 September 1999. The claim is for $3,912.79 for disbursements claimed under the same retainer agreements as are sued upon in the current proceedings. The claim falls within the relief sought in para 20 of the original summons in the present proceedings. Third Supreme Court Proceedings - costs assessment 91602/99 213 These proceedings were commenced on 20 August 1999 and were brought against Roach Industries Pty Limited, which was not a defendant to the original summons. The matter has been dealt with and determined in the amount of $2,381.50 which has been paid. These proceedings do not overlap with the present proceedings although the defendants submit that the bringing of them is evidence of the endeavours by the plaintiffs to oppress the defendants by the bringing of a multiplicity of proceedings. Cross claims 214 The Roach interests bring cross claims in which damages are sought for wrongful repudiation by Smits Leslie of the retainer agreement. A claim for a declaration as to the non-existence of the September 1999 agreement is also made. Finally, it is alleged against Smits Leslie that by bringing a multiplicity of proceedings, Smits Leslie have committed an abuse of process entitling the Roaches to damages. The plaintiffs' submissions 215 In his opening submissions, senior counsel appearing for Smits Leslie, confined the case brought by the plaintiffs. As I understand the position, the following matters are now raised in these proceedings:

(a) a claim that agreement was made in September 1999, which entitles Smits Leslie to be admitted as creditors of the companies in the sum of $500,000 and otherwise to lodge proofs of debt in relation to additional sums. This raises the issues of whether there was a contract in September 1999 and whether Smits Leslie have any entitlements under it. It is submitted that by giving up their files, Smits Leslie acted in pursuance of the agreement to their detriment and as a consequence, the agreement cannot be denied.

(b) the claim for a payment of $500,000, said to have been agreed as additional to a percentage of the proceeds of the Freehills litigation in December 1998. This raises the issue of whether an agreement was made at that time and whether it was represented that Roach would pursue the interest of Smits Leslie in that sum in any agreement with Justice Corporation.

(c) no claim is pressed in these proceedings for a percentage of the proceeds of the Freehills proceedings. However, it is said that the retainer agreements were wrongfully repudiated by the Roach interests, which entitles Smits Leslie to damages, being professional costs pursuant to the agreement, and future profit costs lost by reason of the termination of the agreement. In the alternative, Smits Leslie claim that they were entitled to terminate the agreement pursuant to clause 14 and plead an implied term (it not being expressly provided) that in the event the retainer was terminated, the defendants would pay professional costs, counsel's fees and disbursements. If those claims fail, Smits Leslie say they are entitled to reasonable remuneration for the work which they undertook.

The defendants' submissions 216 The defences raised by the Roach interests accept that the parties entered into the Retainer Agreements but say, being champertous, they were "illegal void and unenforceable". In any event, it is alleged that by the Notice of Rescission dated 6 April 1999, the plaintiffs repudiated the agreement and the repudiation was accepted. Otherwise, it is submitted the Roach interests were entitled to terminate the agreement. 217 It is further submitted that any agreement was contingent upon a successful outcome in the Freehills proceedings, which has not to date occurred. 218 The Roach interests deny the agreement allegedly made in December 1998 but say, both that it was illegal, being champertous, and, being an oral agreement for solicitors' costs, is not enforceable. Roach denies that an agreement was made in September 1999 but says that, if it was made, and remains in force, it operates to satisfy the present action. However, he says that because Smits Leslie originally sought to sue to recover against the Roach companies on the Retainer Agreements alone, the September 1999 agreement has been repudiated, which repudiation has been accepted. 219 Roach submits that he is entitled to a declaration that there is no binding agreement arising from the events of September 1999 and furthermore, he is entitled to damages and exemplary damages for abuse of process and damages for breach of contract. 220 The defendants' contract claim derives from the fact that the original Retainer Agreements were contingent and having been, so it is alleged, wrongfully determined, the opportunity to be represented on a contingency basis has been lost. Instead, less favourable terms have been secured for the funding of the Freehills litigation by Justice Corporation. The first and second retainer agreements 221 Smits Leslie accept that they cannot sustain clauses 2.5, 2.6 of the Retainer Agreements and clause 2.7 of the Agreement of 23 June 1998. However, they seek to sustain a claim for the following payments:

(a) Smits Leslie's professional costs and counsel's fees contingent on a successful outcome in the Freehills proceedings;

(b) payment of other disbursements incurred by Smits Leslie other than counsel's fees within thirty days of the issue of any account, and

(c) a premium of 25% on costs and disbursements contingent on a successful outcome. 222 Smits Leslie submit that by 6 April 1999 when they forwarded the Notice of Rescission, Roach had failed to give adequate instructions and accordingly, they were entitled to form the opinion that mutual trust and confidence no longer existed. Accordingly, it is submitted clause 14.1 (a)(b)(c) of the Retainer Agreement operated. In any event, the plaintiffs point to the fact that pursuant to clause 14.1(e) they could decide to cease to act "in their absolute discretion." 223 The first response by the defendants is that because the agreements were contingent and the contingency, ie success in the Freehills litigation, has not occurred, the cause of action is presently incomplete. But for the submission by the plaintiffs that upon termination it is implied that Smits Leslie are immediately entitled to professional costs, which I deal with below, the defendants' submission must be correct. 224 The second response from the defendants is that the agreements, being champertous in nature, fail entirely. Champerty 225 Champerty is a form of maintenance of which the essential elements are the maintenance of an action in consideration of a promise to give the maintainer a share in the proceeds of the action. (See Halsburys Laws of Australia 110-7135ff). As a consequence, a solicitor could not purchase the subject matter of any suit - it was "against the policy of the law". (Denist v Freethy (1890) 24 QB 519 at 522). Maintenance, including champerty, was historically both punishable as an offence by the common law and gave rise to an action in tort. 226 The common law provided that a legal practitioner who enters into a champertous arrangement, apart from committing an offence, and perhaps being guilty of professional misconduct, could not recover any fees either under the illegal agreement or otherwise. The position was stated by Atkin LJ in Wild v Simpson (1919) 2 KB 544 who emphasised the fact that the policy concern was not only with the relationship between the solicitor and the client but also with the wrong occasioned to the other party to the litigation. Atkin LJ said: "The view of the learned Chief Justice seems to me, with all respect, contrary to principle, and if the case is an authority for the proposition that a person employed on an express contract to do work for a remuneration that is illegal can, where the special contract fails for illegality, recover upon a quantum meruit, I think it is wrong and should be overruled. The result would be to make the law of champerty as between solicitor and client of very little effect. A solicitor would only have to bargain to receive the champertous sum in addition to his ordinary costs. He would never be in a worse position financially for the illegality. He could always recover as much as an innocent solicitor, and would take his chance of also recovering the fruits of the wrongdoing." 227 Wild v Simpson was applied more recently in Re Trepca Mines Ltd (No 2) [1963] 1 Ch 199. 228 The principles in relation to the enforcement of illegal contracts in general are well known. They are referred to by Pearson LJ in Trepca Mines and discussed by Street CJ in DJE Constructions Pty Ltd v Maddocks (1982) 1 NSWLR 5 at 9. (See also AG Australia Holdings Limited v Burton & Anor [2002] NSWSC 170). However, it may be necessary in this case to consider the impact of the decision in Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 on the plaintiff's ability to recover. 229 In Australia, the law in relation to maintenance was considered in the context of legal practitioners, in Clyne v NSW Bar Association (1960) 104 CLR 186 where the court, in passing, raised the question whether maintenance, as a crime at common law, ought to be considered obsolete. 230 Whether a crime or only a civil wrong, the court made plain that although a solicitor may, from his own funds, maintain an action for a client who he or she believes to have a reasonable case, (the position was otherwise in the United Kingdom) the solicitor "must not in any case bargain with his client for an interest in the subject-matter of litigation, or (what is in substance the same thing) for remuneration proportionate to the amount which may be recovered by his client in a proceedings." (p 203) 231 The Legal Profession Act 1987 was substantially amended in 1993. At the same time, the Maintenance and Champerty Abolition Act 1993 ("The Abolition Act") was enacted. Being part of the same legislative arrangements which were intended to modify the existing law, it must be assumed that the legislature intended that they operate in a complimentary and not discordant manner. The Abolition Act abolished the offence of maintenance (including champerty) and provided that an action in tort could no longer be sustained. As a consequence, a champertous arrangement is neither a crime nor a civil wrong. 232 The amendments to the Legal Profession Act made detailed provision for the charging of fees by legal practitioners and at the same time, modified the common law prohibition on champerty. Essential to the capacity of a solicitor to recover fees was the requirement for disclosure of the proposed fee arrangements. This is to be done by the making of a costs agreement (s 184). A conditional costs agreement providing for payment of costs by the client only in the event that litigation is successful is sanctioned (s 186), together with an uplift of fees to a maximum of 25 percent. Accordingly, the position in Clyne was both confirmed and modified. 233 Section 188 reflects the common law position and provides that if a costs agreement is made, it: "May not provide that costs are to be determined as a proportion of, or are to vary according to, the amount recovered in any proceedings to which the agreement relates." 234 Section 189 is in the following terms: "189 (1) Any provision of a costs agreement or other agreement that is inconsistent with this Division is void to the extent of the inconsistency. (2) In particular, any provision of a costs agreement or other agreement that purports to waive rights to an assessment of costs under this Part, or the right to receive a bill of costs in the form required for assessment under this Part, is void." 235 It must be emphasised that although s 189(1) states that a provision contrary to the statute is void, it is silent with respect to the impact of the common law on the enforceability of any part of an agreement which includes a champertous arrangement or any entitlement to recover on a quantum meruit basis. 236 If consideration of the issue was confined to the provisions of the amending legislation to which I have so far made reference, it could, perhaps, be argued that, because champerty is permitted to the extent provided by s 186, and s 189(1) is only relevant to a provision of an agreement which offends the statute, the offending provision may in accordance with ordinary principles be severed and the remainder enforced. This was the view favoured by Bryson J in Hogarth & Ors v Gye & Anor [2002] NSWSC 32, where his Honour said that a champertous provision could be severed from a fee agreement, allowing the other provisions which were not affected by s 188, to be enforced. However, it does not appear that his Honour had the decision in Wild v Simpson and other cases drawn to his attention. With respect, I take a different view to that which commended itself to Bryson J. His judgment did not depend on his view in relation to this issue. 237 When enacting the Abolition Act, the Parliament expressly provided that it was not altering the existing law with respect to contracts, considerations of public policy and illegality. Section 6 of the Abolition Act provides: "This Act does not affect any rule of law as to the cases in which a contract is to be treated as contrary to public policy or as otherwise illegal, whether the contract was made before, or is made after, the commencement of this Act." 238 As I have already indicated, the common law position explained by Atkin LJ in Wild v Simpson, is that a legal practitioner could not recover any costs or disbursements in respect of an arrangement with a client in respect of which a component was champertous. The retainer being contrary to public policy is illegal and recovery is not permissible even on a quantum meruit. 239 Although providing that maintenance and champerty are no longer crimes or civil wrongs, section 6 leaves in place the common law rule with respect to the enforceability, or lack of it, of an arrangement tainted by champerty. Unless the common law has changed or it has been otherwise provided by statute, the common law will operate to render such a costs agreement unenforceable and leave the legal practitioner without remedy as to his or her costs. Has there been a change? 240 The law of maintenance and champerty and the policy questions raised by the cost and complexity of modern day litigation and the need for the law to respond to ensure that impecunious plaintiffs are not denied access to the courts, has been considered on a number of occasions in recent years. The law traditionally recognised the right of close associates to support another's litigation. See Thai Trading Co v Taylor [1998] QB 781; Roux v Australian Broadcasting Commission (1992) 2 VR 577 at 605-607. The modern dilemma was addressed in Australia in Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1997) 72 FCR 261 where the judgment of the full court provides a useful summary of the position, which I gratefully adopt: "Maintenance, which consisted of the assistance or encouragement of a party to an action in which the maintainor had no interest, was regarded by the English law, from an early time, as a crime punishable by fine or imprisonment. It later became recognised as a civil wrong. (See generally Blackstone's Commentaries (5th ed), Book IV, p 134.) Champerty was a species of maintenance, on terms that the maintainor and the plaintiff would share in the outcome of the action. It was especially feared because the champertor's financial stake in the litigation provide a strong temptation to suborn witnesses and pursue worthless claims (see "Barratry, Maintenance and Champerty", New South Wales Law Reform Commission Discussion Paper 36, May 1994). These concerns have been reiterated in Re Trepca Mines Ltd (No 2) [1963] 1 Ch 199, Trendtex Trading Corporation v Credit Suisse [1980] 1 QB 629 at 653 and in more recent cases, to which we shall refer. It may be said that public policy considerations shaped the attitude of the Courts towards agreements to maintain litigation. The concern early expressed was that the remedial processes of the law might be used as tool of oppression, as indeed they were by powerful nobles and officers (NSWLRC Discussion Paper, pa 2.9 and see Blackstone, p 134). What maintained actions were thought likely to produce, and which was inimical to the public interest, altered over the course of time and with changing social conditions, as did the recognition of interests which were sufficient to justify interference in another's litigation by supporting it: see Hill v Archbold at 694; Trendtex; Condliffe v Hislop [1996] 1 WLR 753 at 759; [1996] 1 All ER 431 at 437 and Roux v Australian Broadcasting Commission [1992] 2 VR 577 at607. It may now be observed, for example, that concerns expressed earlier this century, as to the potential for the maintenance of actions to give rise to an increase in litigation, might now be considered of lesser importance than the problems which face the ordinary litigant in funding litigation and gaining access to the Courts. In the latter respect, by the time Martell v Consett Iron Co Ltd [1955] 1 Ch 363 came before Danckwerts J, his Honour was able to observe that support of legal proceedings based upon a bona fide common interest, financial or philosophical, must be permitted if the law itself was not to operate as oppressive. The Courts today, in our view, are likely to take an even wider view of what might be acceptable, particularly if procedural safeguards are present or able to be applied. There does not, however, seem to have been any detailed discussion or debate as to these matters and, relevant to this appeal, as to whether champerty will now be tolerated, and if so, on what conditions. We do not suggest that practices in the United States of America would necessarily, or even likely, be viewed as desirable. On the other hand, cases in the United Kingdom such as Grovewood Holdings Plc v James Capel & Co Ltd [1995] Ch 80 and McFarlane v EE Caledonia Ltd (No 2) [1995] 1 WLR 366 proceed upon the basis that such agreements are prima facie unlawful. In any event, this appeal does not, for reasons to which we later refer, require the resolution of these larger questions. Both the offence and tort of maintenance, and of champerty, were abolished in the United Kingdom in 1967, shortly after judgment was delivered in Hill v Archbold and following a report to the Parliament by The Law Commission (Proposals for Reform of the Law Relating to Maintenance and Champerty) in 1966. They were abolished in Victoria in 1969, in South Australia in 1992 and in New South Wales in 1995 by the Maintenance and Champerty Abolition Act 1993 (NSW). The latter legislation was intended to pave the way for the provision of contingency fees in that State. In Queensland solicitors are now permitted to fix their fees by an agreement which may stipulate for a percentage (s 23 of the Legal Practitioners Act 1995 (Qld)). Maintenance and champerty, however, remain torts actionable in Queensland (see J C Scott Constructions v Mermaid Waters Tavern Pt Ltd [1984] 2 Qd R 413), although they were never included as offences in the Criminal Code Act 1899 (Qld). It is plainly unsatisfactory that maintenance of litigation remains a civil wrong in some, but not all, States in Australia. Whether there remain valid reasons for the retention of the tort at common law has not been addressed, although it has long been considered obsolete and in Clyne v New South Wales Bar Association (NSW) (1960) 104 CLR 186, the High Court suggested that it may be necessary to consider whether it ought now be so regarded. Mason CJ, in Halliday v High Performance Personnel Pty Ltd (in liq) (formerly Sacs Group Pty Ltd) (1993) 67 ALJR 678 at 680-681 also appears to have assumed that the status of the tort was questionable. That is not to say, however, that the policy considerations which gave rise to the offence and tort have lost all significance today. The ability of the Courts to treat agreements for maintenance as contrary to public policy, and therefore illegal, remains unaffected by the statutory provisions: see Trendtex Trading at 653; McFarlane v EE Caledonia (No 2) at 370; Roux v ABC at VR 605; Giles v Thompson [1994] 1 AC 142. The giving of financial assistance to a litigant by a non-party will not however conclude the question as to whether it is unlawful on this ground (see Condliffe v Hislop). Questions of public policy with which the Courts will be concerned, as Byrne J observed in Roux v ABC at 605, are those which have regard to litigation and its funding in the contemporary world. Trendtex, and the later cases to which we have just referred, were concerned with the question whether the Court ought lend its aid to the enforcement of champertous agreements. Questions will also likely arise for the Courts, where actions are funded by them, as to the integrity of its processes and in particular as to the uses to which they are being put, and as to the conduct of the maintained party and the maintainor with respect to the proceedings. In this connection it would be necessary to have regard to the provisions of the particular agreement." 241 See also Montague Mining Pty Limited v Gore & Ors (t/as Clayton Utz) [2001] FCA 791 per Wilcox J and Gore v Justice Corporation Pty Ltd [2002] FCAFC 83; [2002] FCA 354. 242 It is also instructive to reflect upon the modern situation in the United Kingdom in relation to legal practitioners. 243 In Re Trepca Mines Ltd at 222, Lord Denning said: "When a solicitor makes a champertous agreement with his client, I should have thought the parties were not in pari delicto. The solicitor is the more guilty, for he ought to know better than to stipulate for a percentage for himself. If he recovers a fund which belongs to his client, he ought to hand it all over to his client, and not be allowed to deduct anything for his costs. He cannot sue for the costs directly, and I do not see why he should recover them indirectly by deduction out of his client's money. Pennycuick J seems himself to have taken this view, but he allowed the solicitor to take the disbursements out of the fund which was charged. I cannot see for myself why any difference should be made between his disbursements and his fees. In the present case, for instance, I do not see why the solicitor should be allowed his disbursements for counsel's fees in settling the champertous agreement, when both of them ought to have known it was champertous and they ought to have had nothing to do with it." 244 In Wallersteiner v Moir (No 2) [1975] 1 QB 373, the Court of Appeal had occasion to consider maintenance after the enactment of the Criminal Law Act 1967. The divergence in approach from that reflected in the High Court decision in Clyne is apparent. Lord Denning said: "English law has never sanctioned an agreement by which a lawyer is remunerated on the basis of a 'contingency fee', that is that he gets paid the fee if he wins, but not if he loses. Such an agreement was illegal on the ground that it was the offence of champerty. In its origin champerty was a division of the proceeds (campi partitio). An agreement by which a lawyer, if he won, was to receive a share of the proceeds was pure champerty. Even if he was not to receive an actual share, but payment of a commission on a sum proportioned to the amount recovered - only if he won - it was also regarded as champerty: see In re Attorneys and Solicitors Act 1870 (1875) 1 CH D 573, 575, per Sir George Jessel MR and In re A Solicitor, Ex parte Law Society [1912] 1 KB 302. Even if the sum was not a proportion of the amount recovered, but a specific sum or advantage which was to be received if he won but not if he lost, that too, was unlawful: see Pittman v Prudential Deposit Bank Ltd (1896) 13 TLR 110, per Lord Esher MR. It mattered not whether the sum to be received was to be his sole remuneration, or to be an added remuneration (above his normal fee), if in any case it was unlawful if it was to be paid only if he won, and not if he lost." 245 Since this strong condemnation of maintenance by lawyers, the position has been relaxed to a modest degree by statute and reconsidered by the Court of Appeal. In Thai Trading v Taylor & Anor [1998] QB 781, the question of recovery by a solicitor of his costs when he acted for his wife on a contingency basis, was raised. The problem was that she had purchased a bed and having paid a deposit, found it to be unsatisfactory and refused to pay the balance. The court reviewed the origins of the current law and acknowledged the contribution of Lord Denning to the contemporary position. In the course of that discussion Millett LJ said: "It is understandable that a contingency fee which entitles the solicitor to a reward over and above his ordinary profit costs if he wins should be condemned as tending to corrupt the administration of justice. There is no reason to suppose that Lord Denning MR in Trendtex Trading Corporation v Credit Suisse [1980] QB 629 or any of the members of the court in Wallersteiner v Moir (No 2) [1975] QB 373 had in mind a contingency fee which entitles the solicitor to no more than his ordinary profit costs if he wins. These are subject to taxation and their only vice is that they are more than he will receive if he loses. Such a fee cannot sensibly be described as a 'division of the spoils'. The solicitor cannot obtain more than he would without the arrangement and risks of obtaining less. On the principle that 'the worker is worthy of his hire' I would regard the solicitor who enters into such an arrangement, not as charging a fee if he wins, but rather as agreeing to forgo his fee if he loses. I question whether this should be regarded as contrary to public policy today, if indeed it ever was." 246 Millett LJ then reviewed the difficulties which English law had confronted in dealing with contingency arrangements for impecunious litigants. Of course, this problem did not then exist in Australia, at least since the decision in Clyne. Acknowledging the difficulties, Millett LJ said it was time to review the position. He said: "If this is the law then something has gone badly wrong. It is time to step back and consider the matter afresh in the light of modern conditions. I start with three propositions. First, if it is contrary to public policy for a lawyer to have a financial interest in the outcome of a suit, this is because (and only because) of the temptations to which it exposes him. At best he may lose his professional objectivity; at worst he may be persuaded to attempt to pervert the course of justice. Secondly, there is nothing improper in a lawyer acting in a case for a meritorious client who to his knowledge cannot afford to pay his costs if the case is lost: see Singh v Observer Ltd (Note) [1989] 3 All ER 777; A Ltd v B Ltd [1996] 1 WLR 665. Not only is this not improper; it is in accordance with current notions of the public interest that he should do so. Thirdly, if the temptation to win at all costs is present at all, it is present whether or not the lawyer has formally waived his fees if he loses. It arises from his knowledge that in practice he will not be paid unless he wins. In my judgment the reasoning in British Waterways Board v Norman 26 HLR 232 is unsound. Accordingly, either it is improper for a solicitor to act in litigation for a meritorious client who cannot afford to pay him if he loses or it is not improper for a solicitor to agree to act on the basis that he is to be paid his ordinary costs if he wins but not if he loses. I have no hesitation in concluding that the second of these propositions represents the current state of the law. I reach this conclusion for several reasons. In the first place, I do not understand why it is assumed that the effect of the arrangement being unlawful is that the solicitor is unable to recover his proper costs in any circumstances. Where the solicitor contracts for a reward over and above his proper fees if he wins, it may well be that the whole retainer is unlawful and the solicitor can recover nothing. But where he contracts for no more than his proper fees if he wins, this result does not follow. There is nothing unlawful in the retainer or in the client's obligation to pay the solicitor's proper costs if he wins the case. If there is anything unlawful, it is in the waiver or reduction of the fees if he loses. On ordinary principles the result of holding this to be unlawful is that the client is liable for the solicitor's proper costs even if he loses the case. I regard Aratra Potato C Ltd v Taylor Joynson Garrett [1995] 4 All ER 695 as wrongly decided. In the second place, it is in my judgment fanciful to suppose that a solicitor will be tempted to compromise his professional integrity because he will be unable to recover his ordinary profit costs in a small case if the case is lost. Solicitors are accustomed to withstand far greater incentives to impropriety than this. The solicitor who acts for a multinational company in a heavy commercial action knows that if he loses the case his client may take his business elsewhere. In the present case, Mr Taylor had more at stake than his profit costs if he lost. His client was his wife; desire for domestic harmony alone must have provided a powerful incentive to win. Current attitudes to these questions are exemplified by the passage into law of the Courts and Legal Services Act 1990. This shows that the fear that lawyers may be tempted by having a financial incentive in the outcome of litigation to act improperly is exaggerated, and that there is a countervailing public policy in making justice readily accessible to persons of modest means. Legislation was needed to authorise the increase in the lawyer's reward over and above his ordinary profit costs. It by no means follows that it was needed to legitimise the long-standing practice of solicitors to act for meritorious clients without means, and it is in the public interest that they should continue to d so. I observe that the author of Cook on Costs, 2nd ed (1995) p 341 expresses his doubt that if is now against public policy for a solicitor to agree with a client that he will not charge a fee unless a particular result is achieved. I agree with him and would hold that it is not." 247 The views of Millett LJ which were accepted by the other two members of that court have not found universal acceptance as the discussion and decision in Awwad v Geraghty & Co [2000] 3 WLR 1041 makes plain. May LJ said: "Since, as I think, the law in 1990 and up to 1993 was as I have summarised it, I do not consider that it is strictly necessary for this court to reach any conclusion as to the balance of public policy which underlay that law. Public policy considerations are extensively discused in the judgments in the Trendtex case [1980] QB 629 and the Wallersteiner case [1975] QB 373. In so far as public policy might enter the present debate, I agree with Schiemannn LJ's conclusion. I accept the general thesis in the judgment of Millett LJ in the Thai Trading case [1998] QB 781 that modern perception of what kinds of lawyers' fee arrangements are acceptable is changing. But it is a subject upon which there are sharply divergent opinions and where I should hesitate to suppose that my opinion, or that of any individual judge, could readily or convincingly be regarded as representing a consensus sufficient to sustain a public policy. The difficulties and delays surrounding the introduction of conditional fee agreements permitted by statute emphasise the divergence of view. In my judgment, where Parliament has, by what are now (with section 27 of the Access to Justice Act 1999) successive enactments, modified the law by which are arrangement to receive a contingency fee was impermissible, there is no present room for the court, by an application of what is perceived to be public policy, to go beyond that which Parliament has provided. That applied with, if anything, greater force in 1993 than it does today." 248 There is no doubt that Australia has adopted a significantly different approach to contingency fees by legal practitioners. Clyne makes this plain. 249 As the decisions reviewed by Bryson J in Re William Felton & Co Pty Ltd (1998) 145 FLR 211 indicate, the law in Australia has sanctioned the funding of litigation in return for a share in the proceeds where the funder has a legitimate interest in the action. However, there has been no relaxation, which I can discern, in the rejection of arrangements which provide for legal practitioners to share generally, and in a manner unrelated to the costs actually incurred, in the financial outcome of the proceedings. It is one matter for a "litigation funder" as they are known, to bargain for a percentage of the proceeds but in my opinion, it is an entirely different matter for a legal practitioner, with the obligations thereby imposed, to enter into an arrangement which contemplates significant financial benefits beyond anything contemplated as costs, if the litigation succeeds. 250 The recent instances of bankruptcies by barristers in this state serve as a useful reminder of one of the fundamental elements of our system of justice. The courts rely upon the integrity of those who are admitted to practice before them, not only to represent the interests of their clients but to do so in a way which does not compromise the duties owed to the court (see New South Wales Bar Association v Cummins (2001) 52 NSWLR 279; New South Wales Bar Association v Somosi (2001) 48 ATR 562; Murphy v The Bar Association of New South Wales (2001) 49 ATR 48; Rondel v Worsley [1969] 1 AC and Giannerelli v Wraith (1988) 165 CLR 543 at 556 per Mason CJ. See also the comprehensive discussions by Ipp J in "Lawyer's Duties to the Court" (1998) 114 LQR 63). When a legal practitioner has a significant financial interest in the outcome of the litigation, there will inevitably be a temptation for that practitioner to depart from that duty. In my opinion, it would be entirely wrong for the law to allow this to occur. 251 Anyone who has acted in major litigation has most likely experienced the pressure imposed by the client's desire to win on the maintenance by that practitioner of his or her professional and ethical obligations. When the parliament provided for limited contingency fees, it presumably balanced those concerns with the benefits to impecunious litigants. But I see no reason why the common law position should otherwise change. It is a common concern of those holding high office in the law that the professional and ethical obligations which practice as a lawyer imposes are being eroded to the dictates of commercial imperatives. (See Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357 ; Re a Firm of Solicitors [1992] 1 All ER 353 and Sir Gerard Brennan, Profession or Service Industry: the Choice, Australian Bar Association Conference (1996); Gleeson CJ, Are the Professions Worth Keeping? Address to Greek-Australian International Legal & Medical Conference - May 1999). 252 The court should not lend itself to the possible further erosion of those ethical obligations by acknowledging a change in public policy in relation to the enforceability of champertous arrangements without the clearest indication by Parliament that it has occurred. In my opinion, to do so would be likely to seriously erode the confidence which this Court must have in the professional integrity of those who appear before it. The ultimate consequence would be to erode the confidence which the public has in the judicial system to resolve disputes. 253 The present case reflects one aspect of the difficulties which can emerge. Because of their financial interest in the litigation itself, Smits Leslie seriously compromised the duty owed to their client, in an endeavour to secure their own financial position. By demanding an upfront payment from Justice Corporation, they advanced their own interests ahead of those of the clients from whom they accepted the retainer. 254 In AG Australia Holdings Limited v Burton & Anor [2002] NSWSC 170, Campbell J discusses the modern day approach to public policy and the identification of the circumstances which may make a contract unenforceable. His Honour was there faced with the problem of discerning the public policy elements relevant to the enforcement of a contact in novel circumstances. That is not the present case. In my opinion the approach in Wild v Simpson remains the law. 255 As Aiken LJ made plain in Wild v Simpson, the only effective sanction which the law has to dissuade legal practitioners from entering unlawful champertous arrangements is to provide that a practitioner who enters into such an arrangement cannot recover, either under any non champertous component of the agreement, or on a quantum meruit. I see no reason why the protection of the public interest in the administration of justice which was thereby intended, should be diminished or removed because limited contingent fee arrangements have received legislative sanction. 256 In the present case, the plaintiffs contend that s 188 and 189 of the Legal Profession Act operate to alter the law so that the common law sanction preserved by s 6 of the Abolition Act is irrelevant. However, I can discern no reason either in policy or in the terms of the legislation which require this outcome. 257 Only to the extent that the common law is contrary to the legislative amendments is it appropriate to conclude that the common law has been changed. See Thompson v Australian Capital Television Pty Ltd (1994) 54 FCR 513, Corporate Affairs Commission of NSW v Yuill (1991) 172 CLR 319; Hoking v The Western Australian Bank (1909) 9 CLR 738. The legislative intention to alter the common law must be plain. (Balog & Strait v ICAC (1990) 169 CLR 625 at 635-6. Although the legislation in the present case was clearly intended to permit contingent fee arrangements with a 25 per cent uplift, there is no legislative intention evident to otherwise protect legal practitioners from the consequences of entering into prohibited champertous arrangements. 258 Section 189(1) provides that a provision in a costs agreement inconsistent with Division 3 is void only to the extent of the inconsistency, but contains no indication that the common law has been modified (See BIL (NZ Holdings) Ltd v ERA House Ltd (1991) 23 NSWLR 280 at 286). 259 The contrary position is also manifest in s 127(3) of the Legal Profession Act which provides: "127(3) Maintenance or champerty by a legal practitioner (except in connection with a conditional costs agreement under Part 11) may constitute professional misconduct despite the Maintenance and Champerty Abolition Act 1993." 260 The decision in Pavey & Matthews brought fundamental changes in the approach of the law to recovery by a party to a contract, which by the operation of a statute is unenforceable, of a just reward for a service rendered. Much has been written about the juristic fallacy exposed by that decision and the role which restitution now plays in adjusting the rights of parties (see Essays on Restitution, Ed P D Finn LBC 1990 esp Restitution In Australian Law: K Mason QC and Unjust Enrichment, Restitution and Proprietary Remedies: Gummow J; Brambles Holdings Ltd v Bathurst City Council (2000-2001) 53 NSWLR 153) 261 The law of restitution is considered in a comprehensive manner in Mason & Carter, Restitution Law in Australia, Butterworths 1995. The authors discuss the fact that in the circumstance where a claim in restitution relies on facts which are part of the illegality, the claim will fail just as it will in contract. (See Kearley v Thomson (1890) 24 QB 742. The capacity to frame a claim in restitution which does not plead the illegal contract, may not be conclusive. The concern is with substance not form. With respect to a contract of employment, as the authors describe it, although the service rendered may be lawful, if the contract under which it is provided offends public policy, "the employee is not entitled to recover a reasonable sum for services rendered." That proposition is supported by reference to Wild v Simpson at para 2616. Conclusions in relation to the retainer agreements. 262 The initial agreement between Leslie and Roach was clearly champertous but now provides only background to the present dispute. I doubt whether Leslie appreciated it to be champertous and it is likely he entered into it without knowledge of the 1993 amendments to the Legal Profession Act. He explained his ignorance of these matters when asked whether he knew of the 1993 amendments: "Q. You knew there was a substantial raft of amendments to the Legal Profession Act in 1993, didn't you? A. No, I didn't, actually. You seem to think every solicitor in this State knows every amendment that goes through. If you are a busy solicitor in this State you go on with doing your work. If you read the law journals you may pick up what the amendments are. You might be surprised that almost everybody who practices in this State don't have time to do it. They have to get on with their lives and the work they have got. I don't know if there were substantial amendments in '83. I can't recall that at all, actually. Q. '93, sorry. A. I didn't have time to read journals. We got on with life, got on with business. Q. You didn't have time to acquaint yourself with your professional obligations? A. You are putting words in my mouth. Q. You know that your professional obligations are in part contained in the statute law of this State? A. They probably are. Q. In particular in the Legal Profession Act? A. The governing rights of solicitors are, yes. Q. And if you do not keep up with amendment to the Legal Profession Act, are you not ignoring your professional obligations as they are from time to time? A. Well, that's a view that the Law Society might take. You are entitled to take whatever view you take about it. Q. I am interested in your view, Mr Leslie? A. I don't have a view on it. Q. Did you not know by June of 1998 that section 188 of the Legal Profession Act said, 'A costs agreement may not provide that costs are to be determined as a proportion of or are to vary according to the amount recovered in any proceedings to which the agreement relates'? A. No, I did not. 263 The retainer agreement executed with Smits Leslie in April 1997 was also champertous. Although, when drafting it, Smits paid careful regard to the Legal Profession Act and was conscious that the agreement might fail for champerty, he nevertheless sought to include within it, solicitors' entitlements by reference to the amount recovered in the proceedings. Clause 2.4 was no doubt drafted having regard to s 188 of the Legal Profession Act. However, clause 2.5 was intended to operate so that the costs payable to the solicitors were dependent upon the sum actually recovered. The agreement, being champertous, fails. Not only are the solicitors unable to recover costs pursuant to it, I am satisfied that the law does not allow recovery on any other basis. 264 The retainer agreement executed in June 1998 was also champertous for the same reasons. However, the arrangements between the parties now included the letter from Smits Leslie of 24 June 1998 executed by the parties. By that letter, it was provided that "if the amount recovered from the defendants is less than $10 million then we (the solicitors) should be entitled to receive an amount equivalent to ten percent of the amount recovered by you, and for values over $10 million dollars an extra five percent recovered by you, together with any costs and disbursements which might be recoverable for the defendants." 265 Mindful of the fact that the retainer agreement continued to provide that the client's estimate of their claim in the proceedings was of the order of $971 million dollars, the personal interest of the plaintiffs in the outcome of the Freehills litigation was very substantial. 266 Whether the retainer agreement is read on its own or together with the letter of 24 June, the arrangements were champertous and the plaintiffs are not entitled to recover any monies 267 In submissions, in further reply, which I granted leave to the parties to file, Smits and Leslie raised for the first time, the submission that the Roach interests could not rely upon the unenforceability of the Retainer agreements, that issue not having been raised before Windeyer J. However, the Roach interests correctly say that estoppel has not been pleaded in these proceedings and as a consequence matters, which may have been relevant to that issue, have not been explored during the trial. No application for leave to plead an estoppel has been made. 268 The correct application of the decision in Port of Melbourne Authority v Anshun Pty Ltd [1981] 147 CLR 589 has been the subject of discussion on a number of occasions. (see the judgment of Fitzgerald JA in VACC Insurance Ltd v BP Australia Ltd (1999) 47 NSWLR 716). The approach which should be taken, assuming an estoppel can arise in relation to an agreement rendered unenforceable because it is against public policy, will give rise to complex issues, none of which have been explored in these proceedings. 269 It must also be remembered that Smits and Leslie succeeded before Windeyer J in proceedings against the Roach companies and surrendered their documents only after the September agreement was made. That agreement was made with the liquidator of the Roach companies and not otherwise. The Roaches were not a party to the proceedings before Windeyer J and did not join in the September agreement. 270 In these circumstances it is difficult to see how any form of estoppel could arise. However, as the matter was not pleaded, it is unnecessary to consider it further. Repudiation of the costs agreement by the defendants 271 I have detailed the history of the relationship between the parties and the difficulties encountered in preparing the Freehills litigation for trial. No doubt, the litigation was significant and the resources required to prepare the matter imposed burdens which were escalated by Roach's poor health and Archer's lack of availability. I am in no doubt that during 1998, Smits but maybe not Leslie, realised that the litigation was beyond both the professional and financial resources of the firm. Plainly Roach lost confidence in their professional ability. 272 Furthermore, I am satisfied that poisoned by the unilateral action of Smits in his dealings with Justice Corporation, and his efforts to secure his firm's financial position, the solicitor-client relationship ultimately broke down. It was hopelessly unworkable by March 1999, if not before. 273 The plaintiffs plead that prior to 6 April 1999, the defendants had failed and refused to provide instructions for the proper conduct of the proceedings, which prevented the solicitors from discharging their obligations under the agreements. Although, no doubt, there were delays which arose from Roach's actions, I am unable to make such a finding. Indeed, I am satisfied that the cause of many of the problems was the fact that Smits Leslie had failed to discharge their obligation to devise an effective litigation strategy and prepare the matter in a timely fashion. If Smits ultimately concluded that the litigation was beyond his firm's skill and capacity (as well as their financial resources), he was correct. 274 Roach did not submit that he terminated the arrangements but rather that he accepted Smits Leslie's repudiation. He said that when he directed work to cease, he was looking for a temporary halt so that he could obtain effective, independent advice. 275 In my opinion the position advanced by Roach better reflects the events which occurred. Roach, no doubt, had great concern about the actions of Smits Leslie, both with respect to their competence and integrity. In my opinion, he would have been more than justified in terminating the retainer. However, the reality is that by 6 April 1999, the relationship between Smits Leslie and Roach had deteriorated to the point where it was impossible for it to effectively continue. Mutual trust was clearly lost and the solicitors were justified in terminating pursuant to clause 14.1(c) of the Second Retainer Agreement.

The consequences of termination 276 I have found that the agreement being champertous, the plaintiffs cannot recover under the agreement or otherwise. However, if I am wrong, the plaintiffs submit that as they were entitled to terminate the agreement, pursuant to clause 14.1, they are entitled, under the agreement, to be paid their costs for the work done to the date of termination. The right to be paid is said to arise on termination and is not contingent on success in the litigation. 277 It is submitted that although there is no term of the agreement which provides for such a payment, a term to this effect should be implied. I do not accept that submission. 278 A contract for the provisions of legal services is an entire contract (McGowan v Commissioner of Stamp Duties (2001) 47 ATR 357 at 9). In this case, the arrangement was that the fee would be payable only in the event of a successful outcome in the litigation. If the solicitors decided to terminate, as in fact occurred, the defendants were likely to be left without the means either financial or professional to pursue the case. 279 Accordingly, it was reasonable for the agreement to provide a strong disincentive to the solicitors taking this step, which had a significant possibility of bringing the Freehills litigation to an end. In these circumstances, I do not believe it is necessary to imply such a term to give business efficacy to the retainer agreement. 280 The plaintiffs emphasise that the agreement provides in clause 14.3 that, if the clients terminate the agreement, they remain liable for costs incurred prior to the time of termination. They question why the position should be otherwise if the solicitors, with justification, exercise a right to terminate. 281 The first and most obvious answer is that the agreement made no provision for solicitor costs if the solicitors terminated the agreement, whereas it did if the clients terminated. This, no doubt, provided protection to the solicitors in the event that the client elected to terminate. 282 The second answer is that, as the agreement was conditional on a successful outcome in the Freehills litigation, the solicitors accepted that they would only be paid if the retainer was maintained and a verdict recovered. Given that the agreement was itself contingent on a successful outcome, I see no unfairness in it operating so that, in the event that the relationship was no longer effective, the solicitors could withdraw, but could not seek remuneration.

The alleged agreement of 11 December 1998 and the claim of misleading and deceptive conduct at 11 December 1998 283 I have related the essential events from which it is submitted that there was an agreement entered into on 11 December 1998. It is accepted by the Roach interests that the evidence would support a finding that on that day, there was an agreement that Smits Leslie (not Plantoy) would be paid ten percent of the Roach component of any verdict in the Freehills proceedings. The agreement was oral. The defendants do not accept that it was otherwise agreed that the plaintiffs would be paid in addition the sum of $500,000 on account of costs. 284 I am not satisfied that there was agreement that the plaintiffs would be paid the additional sum of $500,000. I have no doubt that the issue was raised and continued to be the subject of discussion and correspondence. However it was bound up with Smits Leslie's insistence on an upfront payment for which they continued to negotiate, without success. That payment was sought in various forms but was never agreed. 285 In any event, the agreement alleged by the plaintiffs was conditional upon them continuing to act to protect the defendants' interests. Plainly, this did not occur and the retainer was terminated. 286 Furthermore, the claim for $500,000 is for professional costs arising under an oral agreement. As such, it is void having regard to s 184 (4) of the Legal Profession Act. It could not be enforced. 287 In any event, if there was agreement with respect to the $500,000 payment, it was part of a champertous arrangement. Although described as a payment to Plantoy, it was plain that a purpose of any agreement was to provide a benefit to the solicitors, being ten per cent of the proceeds of the Freehills litigation. In these circumstances, the agreement was unenforceable and no cause of action can be sustained in reliance upon it. 288 This aspect of the claim fails. The September 1999 agreement 289 I have already indicated that I am satisfied that the Ten Point Plan was reflected in a concluded agreement between the Roach companies and Smits Leslie whereby Smits Leslie would seek to recover in the liquidation. Of course, before there could be any recovery, the Roach companies would have to succeed in the Freehills litigation for there were otherwise no funds available. 290 By amending the proceedings to sue the Roach companies, not on the September 1999 agreement, but on the earlier retainers and agreements, Smits Leslie acted in a manner contrary to the September 1999 agreement. Although in February 2002, the pleading was amended to include a claim for specific performance, until that time, the claim made was for recovery pursuant to the previous agreements. 291 If, as I have found, the September 1999 agreement included a forbearance to sue, the bringing of the proceedings was a repudiation of the agreement. 292 At my request, consideration was also given to whether the September 1999 agreement, which sought to compromise agreements which I have found to be unenforceable, would for that reason, be unenforceable. As the agreement by clause 8 sought to preserve a prospective entitlement in Smits Leslie to ten percent of the claim proceeds, it was also argued that the September agreement was itself champertous. 293 Smits Leslie submit that as the enforceability of the September agreement was not the subject of any pleading which raised issues of champerty, either in relation to the retainer agreements, or the agreement itself, the court should not entertain the Roach submission. Although a court must be alert to an illegality and, in some circumstances, must itself raise the issue (see Mason and Carter Restitution Law in Australia para 2603 and the cases referred to), this is not such a case. As the matter was not pleaded and, as will become apparent, is not essential to the manner in which I have determined the proceedings, it need not be considered further. Complexities would immediately emerge, not least being whether an estoppel would arise from the position taken in the proceedings before Windeyer J and from the acceptance of the Smits Leslie documents. Whether the parties should have leave to tender further evidence relevant to these issues would also have to be considered. 294 Smits Leslie submit that even if the bringing of the proceedings against the companies was a repudiation of the Ten Point Plan, in the absence of any acceptance by the companies it cannot be relied upon. In response, the Roach interests submit that they have always asserted that there was no agreement. The original defence did not plead the September 1999 agreement as a defence to the claim and in addition, the final form of the defence pleads repudiation and abandonment. Although there can be no abandonment (there was no agreement to that effect), the parties joined issue as to the right of Smits Leslie to recover under the agreements which preceded the September agreement. 295 I am of the opinion that this submission is sound. As the Roach interests did not attempt to plead the September agreement in answer to the Smits Leslie claim, their act of repudiation was accepted. 296 As a consequence, Smits Leslie fail in all their claims. The defendants' submissions in relation to the cross claim 297 The Roach interests identify the fact that when the present proceedings were commenced, there were already two sets of proceedings on foot which overlapped with them, ie the First Supreme Court Proceedings and the First Local Court Proceedings. 298 The original summons in these proceedings was brought against the Roaches, Rayment, Rivkin and Justice Corporation. The proceedings contained cumulative claims against those parties for damages and equitable compensation and aggravated and exemplary damages. The claims were framed in various ways including deceit and conspiracy to defraud. The conspiracy to defraud claim was subsequently withdrawn, although it was resurrected in these proceedings and continued to be a particular of the alleged breach of contract until day 4 of the hearing when those particulars were disavowed. 299 It is emphasised that those parties were "targeted" by these proceedings, and the serious allegations made at a time when a funding agreement was still being negotiated with Justice Corporation, and at a time when the Freehills litigation was at risk of being struck out for want of prosecution. 300 It is submitted that in the present proceedings, even after the summons had been amended, Smits Leslie continued to maintain claims for relief going well beyond what they could have been entitled to on any rational appraisal of their entitlements. Even the pleading which is currently in place contains a claim, on behalf of Plantoy, to 10 percent of the damages recovered in the Freehills litigation plus $500,000. 301 The defendants also point to the fact that in their preparation of evidence in these proceedings, Smits Leslie saw fit to file a statement by Leslie which is several hundred pages in length, which purports to deal with every item of work done by him in the Freehills litigation, and exhibits 65 volumes of documents, including apparently every document brought into existence in the Freehills proceedings during Leslie's involvement. 302 Moreover, Smits Leslie continued to conduct these proceedings, causing enormous cost to the defendants in circumstances where the obvious course was to leave them to abide the outcome of the Freehills case. Apparently, this was the course suggested in October 1999 by the defendants. Smits Leslie refused. They changed their approach only in March 2001. By then, any strategy to force the defendants into an unmeritorious settlement had clearly failed. 303 Emphasis is also placed on the fact that on 3 August 1999, Smits Leslie commenced proceedings against the then liquidator of Winnote and Sydtech to have him removed. It was alleged that there was preferential treatment in favour of Roach and the related companies. As the liquidator of Winnote and Sydtech was a necessary party to any proposed funding agreement, it is suggested these proceedings were commenced to bring pressure on the Roach interests. 304 In these circumstances it is suggested that the various proceedings were brought so as to put maximum pressure on Roach: · through the multiplicity of overlapping proceedings; · through the multiplicity of fora (Local Court, Supreme Court Common Law Division, Supreme Court Commercial Division); · through the relatively short space of time in which the proceedings were brought; · through the difficult time at which the proceedings were brought, in that the Freehills proceedings were in jeopardy at the time; · through the seriousness of the allegations made in the proceedings; · through the open-endedness of the potential damages claimed in the cumulative claims in the proceedings herein (only abandoned in this trial); · through the making of allegations and claims against parties with whom Roach was negotiating a commercial agreement, including allegations arising from previous dealings between those parties and Roach; and · through the overproduction of evidence in these proceedings, where it was known that this would cause Roach both great cost and concerns about the exposure of confidential privileged material relevant to the Freehills proceedings. 305 The defendants submit that this combination of conduct, and its calculated effect, is evidence of a collateral purpose which goes beyond the legitimate purpose of the proceedings themselves. The purpose was to put pressure on Roach and those with whom he dealt in order to secure for Smits Leslie benefits to which they were not entitled. 306 The defendants also point to the fact that until the most recent amendment to the summons in these proceedings, Smits Leslie sued for damages in respect of various disputes which they now say were settled in September 1999. If that assertion is maintained, then these proceedings are, in their entirety, an abuse of process. 307 Finally, it is submitted that the various proceedings were an abuse of process was, essentially, admitted by the plaintiffs when they consented to orders staying the first Supreme Court proceedings and gave undertakings not to prosecute the Local Court proceedings. The plaintiffs' submissions on the cross claim. 308 The plaintiffs submitted in final addresses that the defendants conceded that under the Retainer Agreements, the plaintiffs have a right to disbursements (other than counsel's fees), not contingent on the outcome of the Freehills proceedings. 309 The existence of that right and the absolute refusal of the defendants to pay any of the disbursements from time to time claimed by the plaintiffs is fundamentally inconsistent with the defendants' allegations of abuse of process. What the plaintiffs did in claiming disbursements was done under colour of right and for the purpose of enforcing entitlements which the defendants now concede but refuse to comply with. 310 In any event, the defendants' abuse of process allegations must fail because the defendants cannot establish that the plaintiffs had any intention to inflict hardship upon them. 311 Commencement of multiple proceedings does not of itself constitute the tort of abuse of process even if the proceedings are liable to be stayed in the context of managing litigation between parties. Particularly, is this so when allowance is made for the desirability of confining smaller claims to the Local Court and for the need of solicitors to serve a bill before commencing action. 312 Nor can the commencement of proceedings for assessment of costs constitute an abuse of process, merely because a client challenges the underlying entitlement to costs as well as quantification of them. 313 In the event, the plaintiffs gave undertakings not to prosecute, and submitted to orders for a stay of proceedings, as part of the management of these proceedings. 314 Given that the present trial of these proceedings is confined to questions of liability, it is not necessary for the court to become involved in assessing the quantum of the plaintiffs' entitlement to disbursements. There is, however, one point that may require special attention. 315 Although the plaintiffs concede that their entitlement (under the Retainer Agreements) to recover counsels' fees in respect of the Freehills proceedings is contingent upon a successful outcome of those proceedings, the same does not apply to the fees of Davidson incurred in connection with proceedings in Victoria. Even on the evidence of the first defendant, he accepted liability for payment of those fees as a disbursement, but he has failed to acknowledge that liability. Tort of abuse of process 316 Professor Fleming describes the tort of abuse of process as arising in cases where a legal process "not itself devoid of foundation, has been perverted for some extraneous purpose, such as extortion or oppression." Fleming, The Law of Torts 8th ed page 622. Priestley JA described the elements of the tort in Spautz v Gibbs (1990) 21 NSWLR 230, where he said: "Section 3. Tort of collateral abuse of process: 3.1 Three modern text book descriptions. The tort of abuse of process is recognised under that name in Australia, England and the United States. Fleming, The Law of Torts, 7th ed (1987) says of it (at 592): 'Unlike malicious prosecution, the gist of this tort lies not in the wrongful procurement of legal process or the wrongful launching of criminal proceedings, but in the misuse of process, no matter how properly obtained, for any purpose other than that which it was designed to serve.' In England it is described in Halsbury's Laws of England, 4th ed, par 1381 at 630, as follows: 'It is a tort to use legal process in its proper form in order to accomplish a purpose other than that for which it was designed and, as a result, to cause damage. The plaintiff need not prove want of reasonable and probable cause, nor need the proceedings have terminated in his favour. He must show that the defendant has used the proceedings for some improper purpose.' A leading United States text, Prosser and Keeton on the Law of Torts, 5th ed, (1984), first refers to Grainger v Hill (1838) 4 Bing NC 212; 132 ER 769, as showing that the court will refuse to permit its process to be misused for an improper purpose, and then says the 'decision has been widely followed, and the tort is now well established'. The text continues (at 897 and omitting footnotes): 'Abuse of process differs from malicious prosecution in that the gist of the tort is not commencing an action or causing process to issue without justification, but misusing, or misapplying process justified in itself for an end other than that which it was designed to accomplish. The purpose for which the process is used, once it is issued, is the only thing of importance. Consequently in an action for abuse of process it is unnecessary for the plaintiff to prove that the proceeding has terminated in his favour, or that the process was obtained without probable cause or in the course of a proceeding begun without probable cause.' Although it seems clear that the tort exists in Australian, English and American jurisdictions, the above formulations could cause misunderstanding of its scope. It seems that the tort is one for which a plaintiff could recover damages even if the defendant had obtained or showed he had been in a position to obtain judgment against the plaintiff in the proceedings some use of, or during, which is alleged to be an abuse of process." 317 For the tort to be established, it was previously accepted that the improper purpose must be the sole purpose of the moving party. However, the position which is now accepted, is that the improper purpose must merely be the "predominant purpose" for the tort to be made out. The issue is discussed in the joint judgment of the majority in Williams & Ors v Spautz (1991-92) 174 CLR 509 at 529. 318 In that case, the High Court also makes plain that the onus falls upon the party seeking to satisfy the court that there is an abuse of process to justify that claim. The majority held that it was central for it to be established that "the party who has instituted proceedings has done so for a purpose or to effect an object beyond that which the legal process offers" (p 523). 319 The existence of an unworthy or reprehensible motive for bringing proceedings is not enough to establish the tort. It must be shown that the purpose sought to be effected by the litigant in bringing the proceedings was not within their scope and was improper. This may be demonstrated "when the purpose of bringing the proceedings is not to prosecute them to a conclusion but to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond what the law offers" (p 527). 320 In Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 Isaacs J pointed out: "… if, for instance, it had been shown that the Society had simply threatened Dowling that unless he did what they had no right to demand from him, namely, give up certain names, they would proceed to sequestration, and they had proceeded accordingly, there would have been in law an abuse of the process." P 527 321 The majority went on to say: "However, because the Society wished to use the process for the very purpose for which it was designed, there was no abuse of process." 322 In the present case, I have no doubt that by commencing the various proceedings, Smits Leslie intended to embarrass and bring pressure on the Roaches. I am also satisfied that by bringing the proceedings, particularly the present proceedings, Smits Leslie believed they may be able to secure for themselves an immediate payment from Justice Corporation or may have been able to secure a more favourable position in relation to the distribution of any assets in the Roach companies should the Freehills litigation be successful. 323 However, I am also satisfied that the multitude of proceedings were commenced with the genuine expectation of recovery of the monies claimed. Although they were in part motivated by the hatred which Leslie had formed of Roach, and the desire, which I am sure both Smits and Leslie felt, to inflict damage on Roach for the wrong which they believed had been done to them, I am satisfied the proceedings were brought for the genuine purpose of seeking to recover the monies claimed. The purpose was to prosecute them to a conclusion. 324 No doubt in many cases where a litigant brings proceedings he or she is motivated by a desire for revenge and to inflict financial and emotional harm upon the opponent. It may sometimes be the case that but for these motivations, the proceedings would not have been brought. However, if the proceedings are otherwise legitimate and brought for the purpose of recovering an arguable claim, the tort will not be made out. 325 Having regard to the legitimate interest of Smits Leslie and their efforts to recover the entitlements which they believed were due to them under the agreements, I cannot conclude that the dominant purpose was other than that which the legal process offers. Accordingly, this aspect of the cross claim fails. 326 There are two other aspects of the cross claim. As I have already found that Smits Leslie were entitled to terminate the retainer, the claim by the Roaches for repudiation must fail. 327 I have also found that an agreement was reached with the Roach companies in September 1999 and in my judgment, having regard to the conclusion I have reached on other aspects of the claims, there is no purpose in further considering the making of a declaration. Conclusion 328 For these reasons I am of the opinion that both the claim and cross claim fail and should be dismissed. The parties should bring in short minutes to reflect my conclusions and may address me in relation to costs.

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