218 The allegation central to charge 2 is the allegation made by Molyneux in opening that Hubbard was not indebted to S & C at the times when the bankruptcy notice was issued and served. It is clear that such an allegation was made during the opening.
219 Particulars of the charge given by the Bar overlap with some of the particulars given for charge 1 but additionally allege statements made by Molyneux on 18 August 2003, when she was making an application for an interlocutory order extending the time for compliance with the bankruptcy notice; upon that application, Bryant CFM made an interlocutory order extending the time until the determination of the proceeding, the final hearing of which began on 29 August 2003. During the hearing on 18 August 2003 Molyneux made two statements that Hubbard was "not a debtor". The only elaboration of either statement was an assertion that Hubbard was not insolvent. Obviously the question of solvency has nothing to do with the question of indebtedness and it is not surprising that on 29 August 2003 Molyneux did not attempt to link the two questions. So we regard the two statements made on 18 August 2003 as irrelevant to this charge.
220 Charge 2 puts it that the allegation made was that Hubbard was "not indebted" either as a result of "the variation referred to in Charge 1" or by reason of amounts paid by Hubbard or amounts which should have been credited to his account.
221 For reasons given above in relation to charge 1, the allegation of variation referred to therein did not constitute the opening of a fact and so was not capable of being a contravention of Rule 35; alternatively, if it did constitute the opening of a fact, there were reasonable grounds for a belief (which Molyneux held) that the allegation was capable of support by available evidence and so the making of the allegation was not a contravention of Rule 35.
222 There is an additional reason why the making of the allegation of variation of retainer does not come within the terms of charge 2. That allegation was never a constituent of any allegation that Hubbard was "not indebted". The allegation was only that because of the variation of the retainer to one of a "deferred payment basis" the debt was not due and payable and would not become due and payable until a judgment in the Supreme Court proceeding had been satisfied.
223 That leaves for consideration what Molyneux said in opening about why Hubbard did not owe any money to S & C and what evidence was available to support that proposition.
224 We have set out above the passage of the transcript on 29 August 2003 (on page 3) which recorded what Molyneux said in the course of handing the aide memoire to Bryant CFM. She said that it had been prepared on the evidence of "the primary documents provided to us by the second respondent [S & C]". In her evidence to us Molyneux described those "primary documents" as Joseph's affidavit of 22 November 2002, Joseph's affidavit of 22 August 2003, the written retainer, S & C's bills to Hubbard, and copies of S & C trust ledgers for Currawong, McIntyre and Caddy. That passage of the transcript shows that Molyneux went on to mention the uncollected costs orders, without elaborating on their significance, and concluded by saying that Hubbard did not owe S & C any money.
225 In her evidence to us Molyneux said, and we accept, that the only documents in her possession on the basis of which she prepared the aide memoire were those described in the last paragraph, and that at the time that she handed it to Bryant CFM she believed it to be correct. In fact it was not complete, and hence incorrect, because there were other relevant documents: trust account ledgers for Hubbard himself. Those were available to Molyneux's instructing solicitors because they had been provided by S & C in compliance with a notice to produce served upon S & C, as Hubbard's solicitors, on 5 December 2002 in relation to the impending hearing of Hubbard's application to the Supreme Court for an order varying the Mareva injunction, and they had been referred to in an affidavit of Reid sworn on 12 December 2002 and filed in that proceeding. In her evidence to us Molyneux said, and we accept, that she had forgotten that those copy ledgers had been produced to her instructing solicitors. She conceded that had the aide memoire taken account of entries in those ledgers, particularly entries that recorded payments to barristers, it would not have shown a final figure of $17,689.38 but would have shown a higher final figure.
226 With one apparent exception (and we do not understand the reason for that apparent exception) the aide memoire took no account of barristers' fees paid by S & C and treated moneys received into the trust account (whether used to pay barristers' fees or not) as having been received by S & C for payment of S & C's bills to Hubbard. Because of the terms of the written retainer that was an arguably correct way to treat the payment of barristers' fees. The moneys received into the trust account included the payments by McIntyre and Caddy. By the time that the document was prepared, it was correct to have applied the McIntyre payment in reduction of S & C's bills, because S & C had virtually done that in the bankruptcy notice. In the absence of any knowledge of a reason why the Caddy payment and the Currawong sum could not be treated in the same way, it was reasonable to treat them in the same way.
227 So we consider that there were reasonable grounds for Molyneux's belief, as at 29 August 2003, that the available evidence supported the method of calculation set out in the aide memoire which resulted in a final figure of $17,689.38.
228 The evidence relied upon for preparation of the aide memoire did not, on its own, support the proposition that Hubbard was not indebted to S & C at all. In support of that proposition, Molyneux also referred in opening to the uncollected costs orders.
229 In our view there were reasonable grounds for a belief, which we accept that Molyneux held at the time, that the value of those uncollected costs orders to Hubbard was approximately $50,000.00 and that that sum was readily available if he sought it. As we have stated above, Sundberg's claim for $44,788.00 in costs under the same two orders had not been controversial. The evidence before us was that there were assets of the two estates readily available for payment of the costs, and that Hubbard's costs would probably exceed Sundberg's.
230 Of course, the mere fact that Hubbard, if he chose to do so, could collect the costs and pay them to S & C to extinguish or reduce what he owed S & C, or could authorise S & C to collect the costs and apply them in reduction of its outstanding bills, would not justify an assertion that he did not owe S & C any money. Nor would it justify an assertion that the value of the right to costs under the uncollected costs orders could and should be set off against S & C's claim against Hubbard for fees. The right to costs was Hubbard's right, not S & C's.
231 In his evidence Kirby put forward a much more sophisticated rationale for a belief that the effect of the uncollected costs orders was to cancel out any claim by S & C against Hubbard for fees, and that rationale was developed by his junior counsel in his address in reply to the Bar's final address. It was this. S & C, while still Hubbard's solicitors, had not collected the costs and one could infer that S & C had not advised him that the costs should be collected. That was so even though, so far as it appeared from the evidence, S & C's bills included charges for work done in respect of the very matters for which Hubbard had become entitled to costs from the two estates. The failure to collect the costs or to advise that the costs could be collected was arguably a breach of a duty which S & C owed Hubbard and arguably gave rise to a claim by him against S & C for damages in an amount equivalent to the value of the right to the costs, ie approximately $50,000.00. Under Rule 13.14 of the County Court Rules, that claim for damages could have been relied upon by Hubbard as an arguable defence, in the County Court proceeding which S & C had commenced against him, by way of set off against S & C's claim. Had the defence by way of set off been relied upon and had the defence succeeded, in an amount greater than or equal to the amount to which S & C would otherwise have been entitled, there would have been judgment in Hubbard's favour and it would be true to say that he did not owe S & C any money. The effect of the Rules of Court in this regard is dealt with in Derham, The Law of Set Off, 3rd edition, para 2.64.
232 During the opening and during the rest of the Magistrates Court proceeding nothing like that rationale was ever articulated. It is not difficult to point to potential flaws in the rationale. For instance, any failure by S & C to collect costs or advise Hubbard about his right to the costs did not affect the existence of the right and so it would be difficult indeed to establish that Hubbard had suffered any loss which entitled him to claim damages and to use that claim as a set off.
233 Nevertheless, the existence of the rationale demonstrates, in our opinion, that there was a reasonable basis for the belief that the uncollected costs orders provided support for the allegation that Hubbard was not indebted to S & C.
234 There was no breach of Rule 35 in the manner alleged in charge 2.
235 Charge 2 will be dismissed.