Westcoast Clothing Company Pty Ltd v Freehill Hollingdale & Page [1999] VSC 266

Westcoast Clothing Company Pty Ltd v Freehill Hollingdale & Page [1999] VSC 266 | Case summary | Zoe

[111]

The Master then turned to the question of hardship to the plaintiff. He noted that it was common ground that if the action was dismissed the plaintiff would be unable to bring fresh proceedings because the limitation period had expired. The defendant, however, sought to rely upon the fact that the plaintiff had in the course of the hearing withdrawn the claim for fraudulent misrepresentation and argued that as a result the statement of claim was essentially in the same form as that which Franklyn, J. had considered on 6 February 1987 and had suggested did not disclose a cause of action. The Master held that there were no other matters relied upon in the amended statement of claim other than the fraudulent misrepresentation allegation which would "in any way distinguish the pleading from that dealt with by Franklyn, J.". In particular the new paragraph 4A which raised an implied term not to derogate from the exclusive licence did not materially change the situation in his view. He held that on the materials before him the plaintiff's claim was still based solely on an allegation of the grant of a competing licence prior to the execution of the licensing agreement. Counsel for the defendant argued that this could not involve a breach of the pleaded term in para 4A as that had to relate to the conduct of the defendant after the grant of the licence. He referred to an argument by counsel for the plaintiff that the evidence disclosed that the defendant was in breach of an express warranty as to title to grant an exclusive licence or a collateral warranty having a similar effect. The Master said that the difficulty with that argument was that there was nothing in the pleadings to raise an allegation of breach of warranty as to title express or otherwise. The Master said he found himself in "complete agreement" with Franklyn, J. and that as the claim for fraud had been withdrawn the pleadings did not disclose an arguable case for damages. Therefore, on the then pleading the plaintiff's case could not succeed at trial. He stated that counsel had indicated that the plaintiff wished to amend the statement of claim but was unable to indicate the nature of those amendments. The Master noted that the plaintiff was not without remedy in that the delay appeared to have been the responsibility of one or more of his lawyers.

[134]

Returning to Freehills' argument, it submitted that when one goes back to the evidence of what work Freehills did and what Freehills was instructed to do the conclusion should be drawn that they were under "the umbrella" of their principal and that they were told what to do by him and had very limited exposure to Bodis directly. Counsel conceded, however, that it is necessary to look at the circumstances as they unfolded in determining the way in which Freehills was required to discharge the duty of care owed to the plaintiff. Reliance was placed on the evidence of Ley who was then a solicitor and an employee of Freehills. Anything he did, for example, contacting counsel or sending letters to the client, was with the express authority of Brott and it was made very clear to Freehills by Brott that he was controlling the litigation and making the tactical decisions. In short, it was put for Freehills that the duty was limited to one of acting with skill and care in carrying out that which Freehills was instructed to do by Brott as the principal solicitor. It was conceded, however, that if they were asked to do something which they believed could not be done in Western Australia they would be obliged to advise Brott of that fact. The question of the issuing of a summons for final judgment was cited as a good example. It was also conceded that Ley used his professional judgment in relation to the discovery of documents where he questioned whether discovery of the kiosk financial documents was obtainable. In each instance it was put, however, that in commenting on the proposals to Brott he was acting within the scope of the retainer of Freehills. In the case of the summons for final judgment, it was argued that the advice given was not as to the merits of the application but rather the procedural difficulties. It was put that the reference in the relevant letter to the fact that the application for judgment in the opinion of Freehills would not succeed was simply a reference to procedural matters. In my view this analysis is not correct. Freehills was expressing an opinion on the merits which it had not been asked to do. I note that Brott did not criticise it for its initiative at that time. Counsel submitted that it could not have anything to do with the merits because Freehills didn't have any material. That argument cannot be sustained. Freehills had the pleadings, Franklyn, J.'s expression of views and the issues that he raised leaving the issue of fraud only. It also had the affidavits on the Mareva injunction application.

[135]

A review of the activities of Freehills and Brott in the matter supports one aspect of Freehills' case, namely, that it was not to deal directly with the client unless expressly instructed to do so. Freehills were also expected to act when asked by Brott to do something. Freehills, however, never acted as a letter box or a machine which automatically carried out the instructions of Brott. It always exercised its own judgment and from time to time proffered advice and suggestions in light of its examination of the matters raised. Freehills also saw fit to exercise its judgement in other ways. For example, initially it reviewed the file and advised Brott on the state of the action. On 18 April 1990, having late the previous year been asked by Brott to accelerate the action and complete all interlocutory steps, Freehills drew Brott's attention to the fact that notice of intention to proceed was required because one year had elapsed without a step being taken in the actions. It also felt entitled to question Brott's instructions and to seek sufficient instructions to enable it to understand what was required and to express its own opinions about the likely success of applications - such as the kiosk documents and tax return discovery issues. In relation to the summons of final judgment correspondence, Freehills volunteered its own view as to the likelihood of success on the merits. At no time did Brott suggest to Freehills that it was inappropriate for Freehills to exercise its own judgment on the merits of issues he was raising with them. His only major complaint occurred in August 1991 when Freehills was pressing him for instructions. He complained of badgering. Another example of Freehills exercising its professional judgment was the letter of 5 February 1992 where it alerted Brott to its concern that inaction in the matter might mean that Sail America would seek to have the claim dismissed for want of prosecution or to have the guarantee released and that a continuation of the then delay would make such orders more likely.

[145]

Brott wrote a reminder letter on 17 May 1990, in particular, asking for a copy of the proposed affidavit. It seems, however, that Freehills had not done anything and on 8 June 1990, Ley of Freehills wrote to Brott stating that other commitments had prevented him from responding before that date. He stated he was leaving for overseas that afternoon but would return to the office on the 18th June and would respond to all queries in detail immediately upon his return. On his return, however, a further delay occurred and on 16 August 1990, Ley of Freehills wrote a three page letter to Brott dealing with a number of matters. He apologised for the delay in attending to the matter. In dealing with the question of discovery he raised a number of concerns indicating that he believed the application would fail but saying that if he was instructed to make the application he would do so. He sought instructions, however, on the precise grounds upon which it could be made. It seems that on 21 August 1990 Brott wrote to Freehills giving, inter alia, reasons why the documents sought were relevant. That letter, however, was not received by Freehills until October. In the meantime, on 3 September 1990 Brott wrote a reminder letter to Freehills relating to the discovery question which was apparently received on 6 September 1990. On 9 October 1990, Freehills received the letter from Brott of 21 August 1990. On 19 October 1990 Freehills replied to that letter from Brott. It referred to further difficulties it thought existed in trying to pursue discovery of the kiosk documents. Following further communications, Freehills wrote to Brott on 5 November 1990 indicating that it now had a better understanding of the basis on which discovery was sought but believed it may be difficult to persuade a court to make an order. It sought instructions as to whether it was to draw the affidavit along the lines previously sent in December of 1989 and drew attention to the practice of making a request for the discovery by correspondence before issuing proceedings. On 20 February 1991 Brott took Freehills to task in a letter about the failure to pursue discovery. In a conversation held on 17 April 1991, one year and four months after the original instructions, Brott instructed Ley to send a letter seeking discovery and to fax to Brott a precedent of the summons and affidavit required. Ley recorded Brott as saying that the application was largely tactical and that neither he nor counsel thought it would succeed. While the evidence is unclear it appears that the summons was filed in May of 1991 and resurrected a year later when the order for discovery was made by consent. It appears that the affidavit was not available in May of 1991.

[155]

Freehills was also criticised over its handling of the summons for final judgment. It was put that Freehills agreed, on 5 May 1992, that it would be a good idea to issue a summons for final judgment. It was argued that subsequently, Freehills prepared the brief for Watts to advise in a number of matters. I will refer in more detail to those matters later. The instructions to Watts did not include the preparation of a summons for final judgments. That was a matter in which Brott himself instructed Watts in July 1992. By May of 1993 Brott had sent a copy of the summons for final judgment and draft affidavit to Bodis. On 22 June 1993 Brott apologised to Freehills for a long delay in replying to it. It would seem that there had been no contact between Freehills and Brott since a telephone conversation on 16 February 1993 and a letter from Freehills to Brott of 3 May 1993 confirming that Brott was presumably still awaiting a response from Watts dealing with a question concerning one of Watts' fees and advising of the change of solicitor for Sail America. In a letter of 22 June 1993 Brott advised Freehills that he now had a draft summons for final judgment and supporting affidavit from Watts. Freehills replied on 8 July 1993 making no comment on the summons for final judgment but acknowledging receipt of the letter. On 13 August 1993 Brott spoke with Ley to seek information about the required procedures in Western Australia for the summons for final judgment. The conversation lasted some 15 minutes. On 13 August 1993 a copy of the summons was forwarded to Freehills with advice that the affidavit and exhibits were being settled and would be forwarded for swearing by Bodis. On 17 August 1993 Freehills wrote a letter to Brott explaining the procedures and raising concerns held by Ley and Gething. It, inter alia, pointed out that leave would be needed and it was unlikely that it would be granted, six years having elapsed since the appearance had been entered. Freehills had re-drafted the summons, however, to seek such leave. The letter asserted that Freehills had not been involved in a decision to bring the application and did not know the reason for it being brought. Freehills expressed the opinion that an application for judgment would not be successful. Instructions were sought in light of the comments. A month later, on 16 September 1993, Brott forwarded to Watts the Freehills' letter seeking his opinion and it appears that at about that time the summons for final judgment project was abandoned.

[203]

I have noted that Brott on at least two occasions (in May 1987 and May 1992) well prior to the threat of dismissal of the action sought a review of the pleadings by Watts. In light of what emerges from the documents it may well be that Brott did not himself apply his mind to the adequacy of the pleadings before doing so, but I will give him the benefit of the doubt and assume that he did look at the pleadings and considered that it was appropriate to seek counsel's advice on them. He would have had good reason to do so in 1987 in light of Franklyn, J's reasons. In my view a reasonably competent and experienced solicitor exercising due care and skill would have read the pleadings and would have read Franklyn, J.'s reasons. Franklyn J's reasons placed the plaintiff at risk in any future hearing concerned with the merits of the case whether Franklyn, J. conducted the trial or another Supreme Court judge heard it or a Master of the court dealt with it, because the reasons were likely to be influential. While normally those drafting a statement of claim should be encouraged to be selective in pleading causes of action, in this situation the exercise of reasonable care required that all possible causes of action were pleaded to protect and strengthen the plaintiff's position. Fraud was essentially the only additional allegation relied upon to meet Franklyn, J.'s concern and fraud is often a difficult allegation to prove. I am satisfied, however, that Brott did not specifically raise any issues with counsel. One might have expected him to at least have considered and sought consideration by counsel of the inclusion of a cause of action under s.52 of the Trade Practices Act. It is difficult to believe that a reasonably experienced and competent solicitor practising in the Supreme Court would not have come across that pleading many a time by the late 1980's and the early 1990's. Brott failed in his duty to his client in relation to the pleadings. As between him and Watts, different considerations apply.

[358]

Turning then to the substantive evidence itself, counsel for Westcoast addressed first the question of the likely sales of T-shirts. They relied heavily upon the evidence of Brown and Gilchrist who placed the initial orders with Westcoast - for 140,000 and 230,000 T-shirts respectively. It was said that they as experts in their field saw a substantial market for the product and did so before it was known whether Stars and Stripes would be likely to even reach the final let alone win the America's Cup. Counsel pointed to evidence that there was a market for things American which the T-shirts could serve. Counsel relied upon the evidence of a distinction between attempting to sell goods on an exclusive wholesale basis to retail chains on the one hand and attempting to sell such goods on a non-exclusive basis either to retail chains or in the location of the event to which they relate. Counsel sought to argue that the orders placed by Gilchrist and Brown indicated that big retail buyers had placed orders as well. The highest that argument can be put, however, is that it is reasonable to infer that Gilchrist and Brown had reached their conclusion that they should place those orders in light of discussions with retail buyers skilled in assessing markets and their own expertise. Counsel for Westcoast also relied upon the evidence of Mr Duncan who was involved in the merchandising of T-shirts for the "Boxing Kangaroo". The selling of that product dated back to the winning of the America's Cup in 1983 or 1984. His evidence was that the average monthly sales in Australia were about 20,000 up until the America's Cup challenge began and that sales in October 1986 were 38,000, November 42,000, December 40,000, January 20,000 and February 10,000. It was put that that was not an event T-shirt and the boat that it represented was unsuccessful. Counsel also relied upon Duncan's evidence that it was possible to protect exclusivity if you had it and it could be done with T-shirts as they did. Counsel also noted, however, that Duncan could not believe that the Royal Perth Yacht Club had sold 500,000 T-shirts. But that was in fact what occurred as was given in evidence by Mr Llewellyn. He also gave evidence of the expectation of sales of 2,000,000 T-shirts provided exclusivity was given. He had preliminary orders for 80,000 to 90,000 T-shirts from retailers until it was realised he did not have exclusivity. The retailers then cancelled orders.

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Cases Cited (12)