Wende v Horwath

DECISION : 1.The further amended summons is dismissed. 2.The plaintiffs are to pay the defendant's costs.

CATCHWORDS : LOCAL COURT - appeal - contract - terms and parties - costs - application of Local Court Practice Note 2

LEGISLATION CITED : Local Courts Act 1982 Uniform Civil Procedure Rules

Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 Commonwealth of Australia v Griffiths [2007] NSWCA 370; 70 NSWLR 268 CASES CITED : Fabre v Arenales (1992) 27 NSWLR 437 Fox v Percy [2003] HCA 22; 214 CLR 118 Jones v Dunkel (1959) 101 CLR 298 Sherborne Estate (No 2), Re; Vanvalen v Neaves [2005] NSWSC 1003; 65 NSWLR 268

TEXTS CITED : Cross on Evidence, 7th Aust ed (2004)

Herbert Wende (First Plaintiff) PARTIES : Margaret Wende (Second Plaintiff) Mark Lloyd (Third Plaintiff) Horwath (NSW) Pty Ltd (Defendant)

P Bates on 29 and 30 October 2008 (Plaintiffs); COUNSEL : C M Lawrence on 12 December 2008 (Plaintiffs) S Hughes (Defendant)

SOLICITORS : McKell's Solicitors (Plaintiffs) Heidtman & Co Lawyers (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

1 The plaintiffs conducted a plant nursery at Holgate NSW under the business name "Berghofen Nurseries". 2 In August and October 1998 wattle trees growing on an adjoining property fell, causing significant damage to a shade house, irrigation equipment and plants on the plaintiffs' property, as a result of which the plaintiffs incurred financial loss. 3 The plaintiffs instructed a solicitor, Mr Finney, to act in proceedings brought by the plaintiffs in the District Court against the owners of the wattle trees for the damage and economic loss occasioned by the fall of the trees. In October 2003 Mr Lyons, solicitor, took over the conduct of the District Court proceedings from Mr Finney. Ultimately those proceedings were settled in early March 2004 on terms which the plaintiffs regarded as unfavourable. 4 In the course of those proceedings the defendant, a firm of chartered accountants, was engaged to provide certain expert accounting services in relation to the assessment of the plaintiffs' losses. Ms Lindsay, a qualified chartered accountant specialising in forensic accounting, and a director of the defendant, was responsible for providing the services. The defendant prepared reports dated 2 September 2003 and 5 November 2003 in relation to the District Court Proceedings. 5 The defendant charged fees for its services totalling $18,536 in addition to a prepayment of $1000 which was paid by the plaintiffs in July 2003. The $18,536 was not paid. 6 The defendant brought proceedings in the Downing Centre Local Court against the plaintiffs to recover the unpaid fees. The proceedings were heard by her Honour, Magistrate Freund. The defendant succeeded in those proceedings and obtained a verdict in its favour for $18,536 together with interest to be calculated. An amended cross-claim by the plaintiffs was dismissed. Various costs orders were made. 7 The plaintiffs, by further amended summons filed on 19 August 2008, have appealed, and, in so far as necessary, sought leave to appeal, from judgments and orders made by her Honour on 25 May 2007 and 24 July 2007. 8 In his written submission dated 20 October 2008 counsel for the plaintiffs submitted that her Honour erred for two main thematic reasons namely:

(a) her Honour should have applied the well known principle in Jones v Dunkel (1959) 101 CLR 298 in favour of the plaintiffs and against the defendant to infer that the defendant should have adduced evidence from Mr Finney and Mr Lyons, but did not do so, and did not provide any explanation for failure to do so, and should have inferred that evidence by Mr Finney and Mr Lyons would not have assisted the defendant;

(b) her Honour's analysis lacked precision and rigour with regard to some fundamental elements of contract law: objective rather than subjective tests; acceptance; consideration. 9 The appeal to this Court is limited to error in point of law (Local Courts Act 1982 s 73(1)), or, by leave, on a ground that relevantly involves a question of mixed law and fact or costs (Local Courts Act 1982 s 74). There is no appeal against the determination of a pure question of fact. 10 Section 75(1) of the Local Courts Act 1982 provides that: "The Supreme Court may determine an appeal made under s 73(1) or s 74: (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal."

11 The distinction between a question of fact and a question of law was considered in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155 where the Court of Appeal held: "To say of a finding that it is perverse, that it is contrary to the overwhelming weight of the evidence, that it is against the evidence and the weight of the evidence, that it ignores the probative force of the evidence which is all one way or that no reasonable person could have made it, is to say the same thing in different ways. Upon proof that the finding of a jury is vitiated in this way, it will be set aside because it is wrong in fact. Since the Act does not allow this Court to correct errors of fact, any argument that the finding of a Workers' Compensation Commission judge is vitiated in the same way discloses no error of law and will not constitute a valid ground of appeal. It is also pointless to submit that the reasoning by which the court arrived at a finding of fact was demonstrably unsound as this would not amount to an error of law… A finding of fact in the Commission may nevertheless reveal an error of law where it appears that the trial judge has misdirected himself ie has defined otherwise than in accordance with law the question of fact which he has to answer. A possibility of this kind exists with ultimate findings of fact but not with respect to primary findings of fact such as whether the applicant suffered injury on a particular date. Further an ultimate finding of fact, even in the absence of a misdirection, may reveal error of law if the primary facts found are necessarily within or outside a statutory description and a contrary decision has been made…"

12 The issues before this Court are defined in the plaintiffs' further amended summons. They are identified and discussed separately hereunder.

Issue One - Did the defendant have a contract with the plaintiffs directly or was the defendant in a contractual relationship only with Mr Finney? Background

13 Ms Lindsay gave evidence that on 24 July 2003 Miss Lumby, an employee of Mr Finney, telephoned her and gave her details of the plaintiffs' claim and requested Ms Lindsay to "discuss the issue of costs direct with the plaintiffs when they meet with you".

14 On the same day Mr Finney forwarded an email to the defendant advising that he acted for the plaintiffs, stating shortly the nature of their claim and requesting the provision of a report advising "as to your opinion as to the income/cash flow losses sustained by our client as a result of destruction to the shade house". The letter confirmed that the plaintiffs would like to meet with the defendant prior to the defendant commencing the preparation of the report.

15 On 25 July 2003 the male plaintiffs and Ms Lindsay met at the latter's home. Notes of the meeting were made by Ms Lindsay during its course. The notes recorded that the invoice was to be issued to Berghofen Nurseries.

16 The defendant forwarded a letter of engagement to Mr Finney dated 28 July 2003 which, inter alia, stated: "We refer to your letter of 24 July 2003 and confirm our willingness to assist you in the above matter. Scope of assignment 1. We understand that you require us to prepare a report setting out our opinion as to quantum of loss suffered by the plaintiffs in this matter as a result of certain complained of conduct of Mr Peter Fischer and Ms Sharon Millyard. 2. We also understand that we are to review and comment on the reports prepared by Ivey ATP dated 31 January 2003 and 5 June 2003. ... Timing 5. You have indicated that a directions hearing will take place today, and that a deadline will be set for the provision of our report. We understand that you will request the Court to provide a period of 4 weeks. At this stage, we anticipate that we will be able to meet this timetable providing we receive any further necessary information and instructions in a timely manner. We will do our best to provide you with a draft report by 18 August 2003 (that is two weeks from now)… Costs 8. As every litigation report is unique in its preparation and presentation it is not possible to provide a precise quote of our costs. Based on our understanding, as at the date of this engagement letter, of the work that we have been asked to undertake, we estimate that our fee may be in the vicinity of $8000 - $10,000 excluding GST and disbursements. The estimated fee includes time costs of the preparation of a draft report and calculations included in same. The estimated fee does not include: (i) any detailed revision of the draft report for any reason (unless due to errors on our part); (ii) time spent in conferences with yourselves, your client, Counsel and other experts; (iii) preparing critiques of other expert reports other than the above mentioned reports by Ivey ATP; (iv) time spent in preparation for, and the giving of evidence; which costs will be billed at our usual hourly rates then prevailing. 9. Disbursements for photocopying, courier, stationary, travelling and like items will be charged in addition to our time costs. ... 12. As Giles Finney, CBD Law, have engaged our services, our invoices for this assignment will be addressed to Giles Finney, CBD Law who accepts responsibility for their payment. Please advise us on the fax back form attached hereto if our invoices should be addressed to a party or parties other than Giles Finney, CBD Law. … 17. Our standard terms of engagement, including details of our hourly rates, are set out in Annexure A hereto. 18. It is our policy to obtain written notice of agreement to our terms of engagement before commencing any work on the assignment. Prior to us commencing, we request that you acknowledge that the terms and conditions set out herein are in accordance with your understanding by signing and faxing to us the attached fax back letter. 19. If you do not return the fax back letter but nevertheless instruct us to start work or, if we have started work which you have requested us either verbally, or by conduct to undertake, you will be deemed to have accepted these terms of engagement as set out in this letter."

17 The standard terms of engagement included: "7 A retainer of $1,000 (excluding GST) is payable at the time of acceptance of the engagement… 10 Payment of our accounts is not contingent on the outcome of the litigation… 12 The engagement will terminate when the matter is settled or the hearing is completed. However, either party may terminate the engagement upon fourteen (14) days written notice… 15 We advise that we are obliged to abide by the District Court of New South Wales Expert Witness Code of Conduct. In terms of the Code of Conduct Rules: (i) 'An expert witness has an overriding duty to assist the Court on matters relevant to the expert's area of expertise; (ii) An expert witness is not an advocate for a party; (iii) An expert witness's paramount duty is to the Court and not to the person retaining the expert.'"

18 It was common ground that neither the fax back form referred to in paragraph 12 of the letter of engagement or the fax back letter referred to in paragraph 18 of the letter of engagement was returned. 19 Ms Lindsay gave evidence that on 5 August 2003 she spoke to Mr Finney and was told the client was to speak to her direct on terms of the engagement.

20 Ms Lindsay gave evidence the contract was between the defendant and the plaintiffs direct. She deposed in her affidavit sworn 15 December 2005 "my secretarial staff prepared the engagement letter in accordance with our standard practice. In this particular case, as I had been requested by Trish Lumby of Giles Finney, CBD Law's office to deal with the plaintiffs directly on cost, I had established with Messrs Lloyd and Wende that our tax invoices would be issued in the name of 'Berghofen Nurseries'". She stated it was an oversight on her part that paragraph 12 of the engagement letter stated that invoices would be addressed to Giles Finney, CBD Law. Paragraph 12 should have reflected that the plaintiffs should have been the persons referred to as the person who "accepts responsibility for payment" of the account.

21 The defendant also relied upon correspondence which included the following: "a) Letter from Mr Finney to the plaintiffs dated 29 July 2003 the final paragraph of which stated: We enclose herewith letter from Horwaths dated 28 July 2003. Would you please let us know as to whether you wish to engage their services on the Terms contained therein… The obligation to meet payment for the report will arise whether or not the report is ultimately served on the defendants [in the District Court proceedings]. Should you wish to have further discussion with Horwaths as to their approach methodology, preliminary view before them being formally engaged, please do so… b) On 31 July 2003 the [plaintiffs] sent a letter to [the defendant] stating: 'Mr Finney has just provided us with your letter of offer, which we will study. We will return the signed agreement shortly' … c) By letter dated 7 August 2003 to Ms. Lindsay the plaintiffs acknowledged reading the Engagement Letter. The final sentence in their letter reads:

'ps. I confirm that $1000 has been transferred to your account on 28 July 2003 and will phone you later today to find out about further documents you might require' d) On 15 August 2003, Ms. Lindsay forwarded a letter to the plaintiffs which stated: 'I wish to confirm my understanding of the role of Horwath… and specifically myself as the expert witness, in this matter. In accordance with instructions from your solicitor, Giles Finney of CBD Law, set out in their letter of instruction to me dated 24 July 2003, we are to provide a report setting out my opinion on the quantum of loss/damages sustained by you as a result of damage and subsequent destruction of one of the shade houses on your property… We are also to review and comment on the reports of Ivey ATP dated 31 January 2003 and 5 June 2003. As set out in my letter of engagement dated 28 July 2003… my duty is to assist the Court on matters relevant to my area of expertise (which is the quantification of damages). Further I am not an advocate of your case, and my paramount duty is to the Court. … Before I can proceed further with the preparation of my report, I request that you acknowledge and confirm: The above description of my role; and That you agree to pay my reasonable costs of the preparation of the report as outlined above. My cost estimate (at $8000 to $10000 plus GST and disbursements) and terms of payment were set out in my letter of engagement dated 28 July 2003. Kindly sign below to indicate your agreement." e) On 17 August 2003 the Defendants replied to Ms. Lindsay by facsimile which stated inter alia: '…we fully agree and embrace the laws governing your function in the matter, as we have expressed to you previously and again in our telephone conversation. We have further confirmed in that telephone conversation, that we will be bound by your contract of engagement…" 22 There was repeated use in the plaintiffs' correspondence to Ms. Lindsay between 13 October 2003 and 31 October 2003 of the expression "our agreement". 23 On 4 March 2004 the defendant sent a letter to the plaintiffs enclosing two invoices for the total sum claimed. On 5 March 2004 the defendant received a letter from the plaintiffs advising that they were forwarding the invoices on to Mr Finney, their former solicitor, for payment. This was the first time that the plaintiffs alleged Mr Finney was a party to the contract.

24 The plaintiffs gave evidence that the contract for the accounting services was between Mr Finney and the defendant. They relied primarily upon the letter of engagement, particularly paragraph 12 thereof and Mr Finney's failure to return the fax back form. They generally attacked the credibility of Ms Lindsay and asserted her file notes were either not contemporaneous, made up after the event or fabricated. They denied they had agreed that they should be invoiced for the defendant's fees. 25 Her Honour found Mr Wende's demeanour in the witness box, argumentative, evasive and non-responsive. She found that he tried to manipulate answers in a manner that would assist the plaintiffs' case and his evidence was inconsistent and on a number of occasions he had to be directed by her Honour to answer the question. Her Honour concluded Mr Wende was not a credible witness and generally did not accept his evidence unless it was independently corroborated by contemporaneous documents over the relevant period. 26 Her Honour found that Mr Lloyd was evasive and that his evidence was often tailored or manipulated to assist the plaintiffs' case. She concluded that his evidence could not be accepted unless contemporaneous file notes or correspondence corroborated it. 27 It was common ground that the other partner in Berghofen Nurseries, Mrs Wende, had no real role in or knowledge of the transaction. No point was taken that she did not give oral evidence.

28 Her Honour concluded that Ms Lindsay was a credible witness and a witness of truth. Her Honour found Ms Lindsay was candid and frank in her responses; there was no evidence her file notes were not contemporaneous, or made up after the event or false and they corroborated much of her evidence.

29 Her Honour, having considered the evidence, concluded: "Accordingly, I am satisfied on the balance of probabilities that there was a contract between [the defendant] and [the plaintiffs] in the terms set out in the Engagement Letter." On Appeal

30 Neither Mr Finney nor Mr Lyons gave evidence before her Honour. The plaintiffs submitted that in the circumstances, as the defendant was on professional terms with the solicitors the defendant's failure to call Mr Finney or Mr Lyons permitted a Jones v Dunkel inference to be drawn against it thus permitting ambiguities in correspondence between the plaintiffs and defendant to be construed favourably to the plaintiffs. 31 The rule in Jones v Dunkel was not referred to in her Honour's judgment though she did make reference to it during the hearing. It was submitted for the plaintiffs that her Honour erred in not applying the rule. 32 The rule in Jones v Dunkel can be summarised, for present purposes, as follows: The "unexplained failure by a party to call witnesses may, not must, in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case" - J.D Heydon, Cross on Evidence, 7 th Aust ed (2004) at 1215 33 In Fabre v Arenales (1992) 27 NSWLR 437 at 449 - 450 Mahoney JA (Priestley and Sheller JJA concurring) held: "The significance to be attributed to the fact that a witness did not give evidence will in the end depend upon whether, in the circumstances, it is to be inferred that the reason why the witness was not called was because the party expected to call him feared to do so. But there are circumstances in which it has been recognised that such an inference is not available or, if available, is of little significance. The party may not be in a position to call the witness. He may not be sufficiently aware of what the witness would say to warrant the inference that, in the relevant sense, he feared to call him. The reason why the witness is not called may have no relevant relationship with the fact in issue: it may be related to, for example, the fact that the party simply does not know what the witness will say. A party is not, under pain of a detrimental inference, required to call a witness "blind".

… A Jones v Dunkel inference may not arise if, for example, the witness has a reason for not telling the truth or refusing to assist and the party who may well call him is aware of this." 34 Cross On Evidence also states [at 1215]: "The sixth and most difficult aspect of the rule in Jones v Dunkel turns on the failure to call non-party witnesses. It is easy to apply the principle where it is the party who fails to give evidence. But the rule cannot be applied to the non-calling of a witness unless it would be natural for the party to call the witness, or the party might reasonably be expected to call a witness, or, as Glass JA said "the missing witness would be expected to be called by one party rather than another." 35 In the present case Mr Finney and Mr Lyons were solicitors who had acted for the plaintiffs in the District Court Proceedings. In the ordinary course it would be expected the plaintiffs would have called them to give evidence if they would have assisted the plaintiffs' case. The plaintiffs' explanation for their failure to call them as witnesses was that there had been a falling out between the plaintiffs and each solicitor leading to litigation between the plaintiffs and Mr Finney and a costs dispute between the plaintiffs and Mr Lyons. 36 In my opinion the rule in Jones v Dunkel has no application in relation to the calling of Mr Finney or Mr Lyons by the defendant as:

(a) it would not be natural or reasonably to be expected that the defendant would call the plaintiffs' ex-solicitors, the mere fact the plaintiffs chose not to call them does not mean the defendant was obliged to do so;

(b) the solicitors prima facie would be bound to refuse to discuss the matter with the defendant by reason of solicitor/client privilege. I note a claim for privilege was made in respect of the plaintiffs' documents and maintained until October 2006. The defendant would be calling the witnesses "blind";

(c) the defendant is not required to call a witness "blind";

(d) the relevant inference could not be drawn that the defendant did not call these witnesses because it feared to do so;

(e) the utility of calling these witnesses would be low as evidence favourable to the defendant would likely be attributed by the plaintiffs to the falling out of the solicitor with the plaintiffs and self interest on the part of the solicitor;

(f) the defendant's case was a strong one and there was no need to call the solicitors to support it;

(g) Mr Lyons' involvement in relation to the issues was a very limited one. 37 The inference, if drawn, would be of little significance and would not affect the ultimate weighing of the evidence. 38 The plaintiffs submitted that her Honour "erred in not giving effect to the presumption, where a client (the plaintiffs) is legally represented by a solicitor (Mr Finney), such solicitor (Mr Finney) contracts in his capacity as a principal with a third party (Horwath) i.e. there is a presumption that there is no privity of contract between the third party (Horwath) and the clients (the present plaintiffs)". It was submitted that the presumption had particular application where the solicitor, as here, is acting for the client on a conditional fee basis. 39 Plaintiffs' counsel quoted a number of authorities in support of the alleged principle which he submitted was reflected in r 32 of the (NSW) Solicitors' Rules and Regulation. 40 It was common ground on the appeal that this submission was not made to her Honour and she was not referred to the authorities or rule 32. 41 Rule 32 provides: "A practitioner who deals with a third party on behalf of a client for the purpose of obtaining some service in respect of the client's business, must inform the third party when the service is requested, that the practitioner will accept personal liability for payment of the fees to be charged for the service or, if the practitioner is not to accept personal liability, the practitioner must inform the third party of the arrangements intended to be made for payment of the fees." 42 In my opinion, if there is a presumption such as that sought to be relied upon by the plaintiffs, it has no application in the circumstances of this case where, on the evidence accepted by her Honour, the defendant was informed at the outset by the solicitor that the issue of costs was a matter between the plaintiffs and the defendant which arrangement was accepted by the defendant. 43 The plaintiffs, on appeal, have made various submissions that her Honour erred in selectively quoting material, omitting relevant parts of correspondence and, on one occasion, misstating the evidence. For my part I do not consider these submissions demonstrate any material error. 44 Similarly I reject, as strained and untenable, the submission that the correspondence relied upon by the defendant should be construed as merely evidencing the plaintiffs' acceptance or acknowledgment of a contract between Mr Finney and the defendant. 45 In my opinion her Honour's approach to determining this issue was to objectively consider the evidence. There is nothing in the judgment that suggests her Honour applied a subjective test rather than objective test. 46 In my opinion it was implicit that the terms of the engagement which were accepted by the plaintiffs were modified to reflect that the intended parties were the plaintiffs and the defendant and not Mr Finney and the defendant. I do not accept the submission that the plaintiffs' acceptance was of a complete offer in the terms of the Letter of Engagement including an unmodified cl 12.

47 Her Honour accepted Ms Lindsay as a witness of truth. She accepted Ms Lindsay's evidence, and concluded, contrary to the evidence of the plaintiffs, that the contract was between the plaintiffs and the defendant. 48 In Fox v Percy [2003] HCA 22; 214 CLR 118 the High Court held that a finding of fact by a trial judge, based on the credibility of a witness, may only be set aside upon appeal where incontrovertible facts or uncontested testimony demonstrate that the judge's conclusions are erroneous or where it is concluded that the decision at the trial was glaringly improbable or contrary to compelling inferences in the case.

49 The plaintiffs have not pointed to any incontrovertible facts, or uncontested testimony which demonstrates that her Honour's conclusions were erroneous or that the decision was glaringly improbable or contrary to compelling inferences in the case.

50 I grant leave to appeal on this issue on the basis that it involves questions of mixed law and fact and raises an essential aspect of the dispute between the parties. However in my opinion her Honour's conclusions were open to her and no material error has been demonstrated. Accordingly the appeal on this issue fails. Issue Two - Were there two separate contracts for the work done by the defendant?

51 On 27 October 2003 the defendant was advised by Lyons and Lyons solicitors that they had taken over the carriage of the District Court proceedings in place of Mr Finney; that those proceedings had been set down for hearing on 10 November 2003; and that Ivey ATP had provided reports in response to the defendant's report of 2 September 2003. They requested Ms Lindsay provide a report in response to the further Ivey ATP reports. 52 On 28 October 2003 Ms Lindsay wrote to Lyons and Lyons and stated: "Whilst I appreciate the urgency of this matter, I am not able to undertake a detailed review of the Ivey report until the end of this week at the earliest with a view to providing you with a draft report by mid next week. I will not commence any work on this aspect of the assignment until I have written confirmation to proceed. … My time for this aspect of the assignment will be charged at $420 per hour (plus GST). I estimate that our cost to prepare a draft report will be in the range of $3500 to $4500 (plus GST). This estimate does not include time for my attendance at any conferences with you your client or Counsel, preparation for Court, attendance at Court, which costs will be charged at my hourly rate. I will require a further retainer of $1000 to be deposited prior to me proceeding with this aspect of the assignment… We have previously indicated that we are prepared to wait for payment until settlement or judgment. Could your clients kindly confirm in writing that they will meet our account for $13,500 (plus GST) in respect of these costs [together with our future costs for further work in the matter] on the previously agreed terms." 53 On 30 October 2003 the plaintiffs sent a letter to Ms Lindsay requesting that she prepare a supplementary report. It stated: "… You request an interim payment of $1000 and an early approval of your bill. Neither is in compliance with our agreement and is rejected. It appears that you have not accounted for the $1000 already paid. We request that you supply us with your draft response by not later than 31 October 2003. Our agreement obliges you to make time available appropriately to comply with court directions." 54 On 30 October 2003 Ms Lindsay responded to that letter as follows: "I advise that in accordance with my firm's practice, I am not able to undertake any further work on your matter until: (i) we come to an agreement about costs for our report dated 2 September 2003; (ii) you both [i.e. Mr Wende and Mr Lloyd] agree to pay my costs (as estimated in my letter of 28 October 2003) for preparation of a response to the Ivey reports; (iii) you both agree to pay my costs for court preparation, any meetings and attendance at Court based on my current hourly rate; (iv) you deposit a further retainer of $1000 into the Horwath bank account. Because I am being requested to undertake work over and above the initial engagement, a further retainer is required. As already advised, if we receive today the required confirmation of costs and retainer the first opportunity I can look at this matter is tomorrow. I cannot provide a response by tomorrow…I was advised that the [defendants in the District Court proceedings] response to our report was due on 14 October 2003. The Ivey report is dated 24 October 2003 and I received it on 27 October 2003 (almost two weeks after I was expecting it). It is not reasonable that you should expect that I put aside all of my other commitments and neither was it a term of our initial engagement that work on this matter should take priority over every other matter we are dealing with." 55 In a letter dated 31 October 2003 to the plaintiffs Ms Lindsay stated: "…contrary to what you have said we have not sought payment of our costs. We are simply seeking confirmation prior to commencing any further work that our costs, as advised, will be paid. We are not departing from our terms of engagement as originally agreed…I cannot proceed with any further work until you commit to the payment of our costs for the preparation of our report dated 2 September 2003 and my estimated future costs. This is my firm's practice and I am not able to depart from this policy." 56 On 31 October 2003 Ms Lindsay received a reply from the plaintiffs which stated; "Thankyou for your fax this morning…We accept your proposal. We would further like to assure you that we will be bound by our agreement as set out in your Terms of Engagement, and all your bills will be paid as agreed." 57 Ms Lindsay provided a first draft of her response to the October 2003 Ivey ATP reports to the plaintiffs by cover letter dated 3 November 2003. The plaintiffs provided their comments with respect to the draft report on 4 November 2003. On 5 November 2003 Ms Lindsay provided the final report. 58 The plaintiffs alleged they were not liable to the defendant in relation to the report of 5 November 2003 as it formed part of the alleged original contract between the defendant and Mr Finney. 59 Her Honour held: "[the plaintiffs] argument in my view must fail as there was, in my view, based upon the exchange of correspondence, a clear additional contract that was entered into between [the defendant] and [the plaintiffs] with respect to the second report." On Appeal

60 The plaintiffs submitted her Honour erred. Their essential submission was that the additional report was part of the work agreed to be done in the initial contract thus the consideration for the further contract was past consideration and therefore not good consideration and the plaintiffs were not bound by the second contract. 61 I am unable to accept the plaintiffs' submission. The Letter of Engagement expressly stated under the heading "Scope of assignment" that the work the defendant was undertaking was to prepare a report setting out its opinion as to quantum of loss and to review and comment upon reports of Ivey ATP dated 31 January 2003 and 5 June 2003. The defendant estimated its fee for that work. It expressly stated that: "The estimated fee does not include: (i)… (ii)… (iii) preparing critiques of other expert reports other than the above mentioned reports by Ivey ATP… (iv)… which costs will be billed at our usual hourly rates then prevailing." 62 In my opinion it was not a term of the initial contract that the defendant would critique later reports of Ivey ATP as part of that agreement though it did accept that if it undertook such additional work the costs would be billed at the usual hourly rates then prevailing. 63 Accordingly there was adequate consideration for the second contract in that the defendant agreed to produce a report and the plaintiffs agreed to pay for it at the usual hourly rates then prevailing. As the defendant was merely seeking confirmation that the plaintiffs would pay the fees already incurred and was not seeking a new contract in respect of the work already performed, no question of past consideration arises. 64 In any event, even if the critique of the Ivey ATP reports was part of the original contract it would not avail the plaintiffs unless, contrary to the finding of her Honour, which I have upheld, the initial contract was with Mr Finney. 65 I grant leave to appeal on this issue on the basis that it involves a question of mixed law and fact and relates to an issue of some significance in the proceedings. However in my opinion, her Honour's conclusions were open to her and no error has been demonstrated. Accordingly the appeal on this issue fails. Issue Three - If there was a second contract was it void or voidable or unenforceable due to undue pressure placed by the defendant on the plaintiffs to agree to modified contractual terms of payment shortly before the listed hearing date when it was too late for the plaintiffs to retain another expert?

66 [See paragraphs 51 to 57 hereof] 67 Her Honour said in her judgment on this issue: "Although not specifically pleaded I can only assume that a similar claim, namely the contract arising out of the correspondence between 28 October 2003 and 31 October 2003 should be void as a result of alleged undue pressure" 68 Her Honour stated that at that time the plaintiffs:

(a) had recently changed solicitors to Lyons and Lyons

(b) had been served with a further report from Ivey ATP dated 24 October 2003

(c) District Court proceedings had been listed for hearing on 10 and 11 November 2003

Her Honour also said in her judgment: "e) They were legally represented by Lyons & Lyons at the time they entered into the Contract with [the defendant] with respect to the Second Report; f) There is no contemporaneous file note or correspondence independently verifying that [the plaintiffs] felt vulnerable or under duress at the time they entered into the Contract for the Second Report with [the defendant]. g) Furthermore, there is no evidence that they complained to Lyons & Lyons or Ms. Lindsay with respect of their alleged vulnerability, lack of understanding or that they had felt undue pressure or duress at the time that the Second Report was prepared;"

(a) "There is no doubt that at the time [the plaintiffs] through [their] solicitors Lyons and Lyons had requested the Second Report and there was a degree of urgency and time pressure as a result of the impending hearing of the District Court litigation.

(b) In relation to whether or not legal advice was sought in relation to the alleged duress by [the defendant] the evidence from Messrs Wende and Lloyd was contradictory. Mr Wende conceded no advice was sought from Lyons and Lyons whilst Mr Lloyd stated it had been discussed with Lyons and Lyons.

(c) As previously indicated, I did not find the plaintiffs to be witnesses of truth. Accordingly, I find that the correspondence from [the defendant] between 28 October 2003 to 31 October 2003 did not amount to "undue pressure". Furthermore, for the reasons set out above I do not find that there was any duress placed on the plaintiffs by the defendant in relation to the Second Report."

70 The essence of the submission for the plaintiff was that "the purported variation by the defendant in the contractual arrangements for work done after 2 September 2007 to make the plaintiffs directly liable in contract to the defendant was economic duress, as there was no practical option for the plaintiffs to find another expert accountant to prepare a reply to the additional reports by Dr Ivey dated 23 and 24 October 2003 against the objective case management constraints and with the final hearing listed to start on 10 November 2003. The same factors and analysis make the purported contractual variation "unconscionable" in the circumstances within the meaning of the Fair Trading Act 1987 (NSW) s 43(1)." 71 The premise upon which the plaintiffs' submission depends is that the initial contract was between the defendant and Mr Finney. As her Honour's finding, which I have upheld, was that the initial contract was between the plaintiffs and the defendant this ground of appeal fails. 72 This ground would also fail on the basis that no error has been demonstrated. Her Honour's conclusion and reasons were correct. There was no illegitimate pressure applied by the defendant. The time problems besetting the plaintiffs were noted by her Honour. They were not of the defendant's making. The defendant, quite legitimately in my opinion, sought confirmation that fees already incurred by the plaintiffs to the defendant would be paid and that the plaintiffs would agree to pay the fees for additional work requested. No variation of the parties was sought. The plaintiffs' will was not overborne by the defendant.

73 In my opinion this aspect of matter raises issues of mixed law and fact. Accordingly I grant leave to appeal on this issue. However, the appeal on this issue fails. Issue Four - Did the defendant breach express terms of either or both of the alleged contracts with regard to the "database" issue? Background

(a) at the time the damage was sustained the plaintiffs were in the course of trying to move away from flowering plants, in which they had previously been specialising, to plants that were less water intensive, foliage varieties. As part of the change of emphasis they had filled the shadehouse with propagation stock for a variety of new lines. The plaintiffs were two and a quarter years into a three year program for this purpose. Thus, if the damage had not been sustained, the plaintiffs, within nine months, would have been in a position to start selling these plants and thus change the balance of the nursery. This was a response to market trends and was a much more cost effective method of nursery production. It meant that in due course once this filtered through not only would it respond to market trends but it would lead to a reduction in the running costs of the nursery. In that sense, therefore, greater efficiencies overall would have resulted. The plaintiffs used a Fox Pro program to record data relating to the process.

(b) the impact of the loss of the shadehouse on income and goodwill could be quantified by assessing the impact on the business as a whole ("whole of business basis"). If however a business can be subdivided into distinct divisions and the loss is sustained in a more profitable division the true impact of the loss may be undervalued unless it is costed on a stand alone basis ("production facility approach")

(c) the plaintiffs requested the defendant include in its report calculations on a production facility approach as well as on a whole of business basis

(d) if the initial contract was between the plaintiffs and the defendant then the defendant's failure to include in the report calculations based on a production facility approach constituted breach of a fundamental term of the contract (e) the alleged error by her Honour was that she "simply did not understand and deal with this aspect of the case and that itself is a question of law". Later the error was said to be a lack of procedural fairness notwithstanding that there was nothing in the further amended summons to raise an issue in those terms 75 Breach of a fundamental term of the contract was not pleaded in the amended defence or the plaintiffs' cross claim. 76 What was pleaded was that Ms Lindsay misrepresented the defendant's capabilities in providing an expert report for the plaintiffs in that they were unable to use the information provided on the Fox Pro databases provided by the plaintiffs. Her Honour dealt with this. She referred to the following evidence given by Ms Lindsay: "I certainly did not make any representation about doing database analysis in database management software…what I can do is analyse data that's contained in excel spreadsheets or forms that can be converted to excel spreadsheets" and "I wouldn't have taken on the assignment if it was an absolute requirement that it had to be done in database management software because I don't have expertise or working knowledge of that type of analysis". 77 Her Honour said: "I have already found Ms Lindsay as a witness of truth. I am of the view that the correspondence during the relevant period is consistent with her evidence, namely that [the plaintiffs] had provided her with data contained on the Fox Pro database and had assisted Ms Lindsay and her staff to convert it to excel format for analysis. Accordingly, I am satisfied on the balance of probabilities that Ms Lindsay did not falsely represent that she was capable of carrying out database analysis."

As the finding is a credibility based finding of fact it must stand - Fox v Percy . 78 The plaintiffs also had pleaded that there were certain specified inadequacies in the report. Her Honour rejected these allegations and they are not pursued on this appeal. 79 There was evidence from Ms Lindsay that she became concerned around 5 August 2003 that the expectation of the plaintiffs as to what her report would cover clashed with her ethical responsibilities pursuant to the Expert Witness Code of Conduct. She informed Mr Finney of her concerns stating that her understanding was that she was required to quantify the amount and that the plaintiffs did not agree this was the correct measure of loss. They wanted her to quantify the theoretical full capacity of the entire shadehouse even though it was never producing at full capacity in the past.

80 The draft report prepared by Ms Lindsay was submitted to the plaintiffs on 20 August 2003. On that date the plaintiffs provided their comments on the draft report to Ms Lindsay and further comments on 21 and 22 August 2003. Ms Lindsay submitted a further draft report to the defendants dated 25 August 2003. Further comments regarding this draft were forwarded to Ms Lindsay by the defendants on 26 August 2003. The report was completed and submitted in final form on 2 September 2003. The plaintiffs agreed that the report in that form should go forward. 81 The defendant in its reports stated that where it was appropriate it used data in the spreadsheets provided by the plaintiffs. There was a description of the plaintiffs' product change in its business program and the expected impact of those changes but for the damage was referred to. The report contained calculations of the potential capacity (in terms of marginal growth profit) of the damaged shadehouse. It stated that the loss of sales related to the entire business as the damaged shadehouse was integral to the whole business. On Appeal

82 In my opinion her Honour did not err in not determining the issue raised by the plaintiffs on appeal. That issue was not before her. The appeal fails on this basis. 83 Additionally the appeal would fail as the evidence does not establish that there was a fundamental term of the contract as alleged by the plaintiffs. On the contrary the defendant agreed to provide a report setting out its opinion as to the quantum of loss subject to abiding by the Expert Witness Code of Conduct. Ms Lindsay was not prepared to comply with the plaintiffs' requirement as to the contents of the report as, in her opinion, it would place her in breach of the Code. In my opinion there was no fundamental term of the contract, as alleged, and Ms Lindsay was entitled to act as she did. 84 Additionally the plaintiffs did not terminate the contract when informed the alternate basis would not be in the report. Instead they expressly permitted the defendant's report to be used in the District Court proceedings. 85 The plaintiffs' appeal on this issue would also fail for additional reasons considered in relation to issue five. 86 In my opinion the appeal on this issue fails. Issue Five - Was the defendant negligent in relation to the "database" issue?

87 See paragraphs [73a-c] above 88 The plaintiffs' submitted the defendant was negligent in failing to include in its report calculations on a production facility approach.

89 The issue of negligence was raised before her Honour in the plaintiffs' counsel's written submissions in which it was asserted the defendant breached its duty of care by: "(a) failing to conduct a database analysis to ascertain the damages suffered by [the plaintiffs] in respect of the destruction of the Greenhouse (b) failing to take reasonable steps to ensure the Reports did not understate the damages suffered by the Defendants in respect of the destruction of the Greenhouse (c) failing to take reasonable steps to ensure that the Reports did not contain mistakes and misstatements." 90 As is apparent the allegations of breach did not clearly raise the issue which is now sought to be raised by the plaintiffs. 91 Her Honour held: "The Defendants have not pleaded Negligence in either the Amended Defence dated 30 May, 2005 or Amended Cross Claim dated 30 May, 2005. The issue of Negligence arises for the first time in paragraphs 38 to 47 of Mr. Mitchells' submissions dated 26 March, 2007. In summary, the submissions contend interalia that: a. Horwaths were aware that the reports were to be used and relied on by the Defendants in the conduct of the District Court litigation; b. Horwaths were aware that any mistakes in the reports would highly likely to cause economic loss to the Defendants in respect of the proceedings in which they used the reports; c. The vulnerability of the Defendants in bargaining power in relation to the preparation of the experts reports. Earlier in this decision I have found that: a. Horwaths did not misrepresent or mistake its ability in providing an experts report; b. the First and Second Reports were not inadequate in terms of quality; and c. that the Defendants were not vulnerable in terms of "bargaining position" in relation to Horwaths. Accordingly, for all the same reasons I am not satisfied on the balance of probabilities that Horwaths had breached its duty of care to the Defendants in the preparation of the First and Second Experts Reports. Accordingly, Horwaths were not negligent in the preparation of the Reports." On Appeal

92 In his oral submissions counsel for the plaintiffs said: "we are not suggesting here that one can establish that the negligence produced a specific difference in the District Court settlement but we say the negligence here would go to the costs incurred on the indemnity basis which the plaintiffs have in effect suffered as a result of these proceedings, so the quantification of the negligence is the total costs on an indemnity basis that the clients have incurred. I don't claim anything beyond that by way of quantum. The case is not being run here on the basis that specifically it is a District Court case it had been decided differently, I don't put it on that basis but we say it is relevant to the claim here in defence. If your Honour found, contrary to my submissions there was a contract we still say at least the same result because it was a fundamental breach of the term that should have been dealt with." 93 In my opinion her Honour's conclusion was correct both for the reasons given by her, the tasks undertaken by the defendant and that Ms Lindsay was bound to comply with the Expert Witness Code of Conduct. 94 In any event an action in negligence, or for breach of the term alleged in issue four would fail by reason of the application of the principle of witness immunity. That principle extends not only to the evidence given in court by a witness but also to the content of reports prepared by the expert with a view to giving evidence should the matter come to trial - Commonwealth of Australia v Griffiths [2007] NSWCA 370; 70 NSWLR 268. 95 In my opinion the forensic choice exercised by Ms Lindsay as to the content of her report was a matter which came within the normal application of the witness indemnity rule. The rule extends to protect not only the witness but also any person who is vicariously liable for the tortious conduct of the actual witness - Griffiths at [115]. 96 Further in my opinion the damages alleged, namely indemnity costs, do not result from the alleged negligence asserted by the plaintiffs. No loss has been established and as damages are the gist of the action in tort the claim in negligence must fail. 97 In my opinion the appeal on this issue fails. Issue Six - Should the defendant's costs have been limited in accordance with Local Court Practice Note 2 of 2007 ["the Practice Note"] to 25 per cent of $18,526? Background

98 Rule 42.4 of the Uniform Civil Procedure Rules 2005 (UCPR) provides: "(1) the court may by order, of its own motion or on the application of a party, specify the maximum costs that may be recovered by one party from another." 99 The Practice Note provides, relevantly: "2. This Practice Note commences on 1st March 2007. … 3.1 The purpose of this Practice Note is to indicate a limitation on the maximum amount of costs that will generally be awarded in proceedings for liquidated claims to which this Practice Note applies. … 4.1 This Practice note applies to proceedings in the General Division in which the amount claimed does not exceed $20,000 and to all matters transferred from the Small Claims Division to the General Division. 4.2 Unless the court otherwise orders, this Practice Note applies to proceedings no matter when commenced where the first defence is filed or (in the case of a matter commended in the Small Claims Division) where the matter is transferred from the Small Claims Division to the General Division, after the commencement of this Practice Note. 4.3 Unless the Court in a particular case determines otherwise, the discretion of the Court as to costs incurred after the first defence is filed will be exercised as if a maximum costs order under r 42.4 of the Uniform Civil Procedure Rules 2005 ("the UCPR") had been made in the proceedings at the time of filing of the first defence in the terms set out below ("the maximum costs order"). Costs up to and including the filing of the first defence will not be included in the amount specified in the maximum costs order, but may be ordered in addition to that amount. 4.4 Rule 42.4 Maximum Costs Order. The discretion of the court to award costs shall be exercised so as not to exceed the following amounts: (a) where the plaintiff succeeds - 25% of the amount awarded by the court (b) where the defendant succeeds - 25% of the amount claimed by the plaintiff. … 6.1 Any party seeking to vary the Rule 42.4 Maximum Costs Order or such other Rule 42.4 Orders as may be in force may make application at any time but not later than two weeks prior to the first Review date. … 7.1 This Practice Note does not affect the power of the Court to exercise its discretion to depart from the orders specified herein or make orders for indemnity costs in appropriate cases." 100 Her Honour ordered the plaintiffs to pay the defendant's costs including costs on an indemnity basis, the latter as a result of the non-acceptance of Calderbank offers. 101 The plaintiffs submitted that the costs order made by her Honour at the conclusion of the hearing should not have exceeded the amount referred to in cl 4.4(a) as the proceedings were in the General Division, the amount claimed did not exceed $20,000, no application seeking to vary the maximum costs order had been made pursuant to cl 6.1, the first defence had been filed (prior to the commencement of the Practice Note) and it would be inappropriate for the Court to otherwise order under cl 4.2.

102 Her Honour held: "It is my view that this Practice Note does not apply to matters where the first defence is filed prior to the commencement of the Practice Note. I note that in my discussions with the [plaintiffs] during the course of the cross hearing they submitted otherwise. I simply do not agree. However, for the abundance of caution, I refer to paragraph 7 of the Practice Note that states, 'This Practice Note does not affect the power of the court to exercise its discretion from the order specified herein or make orders for indemnity costs in appropriate cases'. I have clearly referred to the authorities in relation to indemnity costs, and accordingly, as previously stated, my view of the Calderbank offer was unreasonably refused by the plaintiffs. Accordingly, this submission must fail." On Appeal

103 The plaintiffs have appealed against her Honour's decision not to limit the defendant's costs in accordance with the Practice Note.

104 The initial issue was whether the Practice Note had application. This was dependent upon the true construction of cl 4.2. This is a question of law which the plaintiffs are entitled to have determined with or without leave. The plaintiffs contended that cl 4.2 should be read, relevantly, as "Unless the Court otherwise orders, this Practice Note applies to proceedings no matter when commenced where the first defence is filed." This construction relies upon the presence of the word "or" in cl 4.2 and the submission that everything after the "or" applied only to matters that were transferred from the Small Claims Division to the General Division. The alternative contention is that cl 4.2 should be read, relevantly, as "Unless the Court otherwise orders, this Practice Note applies to proceedings no matter when commenced where the first defence is filed after the commencement of this Practice Note." 105 In my opinion the construction of cl 4.2 adopted by her Honour was correct. This construction is supported by the use of the word "where", the absence of punctuation after "filed" and the comma after "General Division". It also accords with the decision of this Court in Sherborne Estate (No 2), Re; Vanvalen v Neaves [2005] NSWSC 1003; 65 NSWLR 268 where Palmer J held in relation to r 42.4 of the UCPR: "…the remedy provided by UCPR, r 42.4 is prophylactic: it cannot be used as a cure for excessive expenditure at the time of making a final costs order at the conclusion of proceedings." 106 Accordingly the Practice Note has no application as the first defence was filed prior to its commencement and the appeal on this issue fails. 107 The appeal on this issue would also fail, at least to the extent her Honour had exercised her discretion to depart from the orders specified in the Practice Note by making orders for indemnity costs (see Practice Note cl 7.1).

108 In my opinion the appeal on this issue fails. 109 Some submissions were directed to her Honour's award of costs on an indemnity basis. However as the issue was not raised in the further amended summons I decline to entertain the submissions. I would in any event have refused leave to appeal on the basis that her Honour's orders were well within her costs discretion.

110 Plaintiffs' counsel, in further submissions raised a series of additional issues, which included assertions of breach of the Expert Witness Code of Conduct, overcharging, unfair procedures, and claims for incidental costs, associated costs, clarification of damages and challenging credit findings. 111 Counsel for the defendant has submitted that such allegations were ill founded and disclosed no appealable error. 112 The requirement of leave to appeal is designed to operate as a filter restricting access to the appeal procedure. Leave should only be granted where there are substantial reasons to allow appellate review. The essential question in any particular leave application is whether the statutory policy underlying the leave requirement is outweighed by the nature and significance of the error alleged - Gurr v Robinson NSWCA 10 February 1986 unreported per Kirby P. 113 In this case none of the additional issues were raised in the further amended summons, some raise pure questions of fact and none are such as to attract a grant of leave to appeal. I decline to entertain those further issues. Orders

2. The plaintiffs are to pay the defendant's costs. **********

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