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One Less Liability For Lawyers



gmh legal - one less liability for lawyers



Our firm was recently involved in proceedings in which a party to proceedings attempted to bind our firm to be ‘jointly and severally liable’ for a referees tax invoice to the sum of $325,000 plus GST.

The Plaintiffs relied upon a 20 year-old precedent of questionable authority being Birkai Pty Ltd v Permanent Custodians Limited (1994) 35 NSWLR 178 (“Birkai”), in which his Honour Justice Brownie ordered a solicitor to personally liable for the balance of the fees of a referee appointed by the courts, when their client was unable to pay for their portion of the referees fees.

We are pleased to say that we were successful in the proceedings, and the case of New Price Retail Services Pty Limited & Anor v David Hanna [2014] NSWSC 1051 (“New Price Retail Services”) has overturned this rather questionable authority.

The Civil Liability Act has since 2002, been purportedly about the just, cheap and quick disposal of court cases. It has associated with it the Civil Procedure Rules which attempt to give effect to the policy objectives of the Act. But amongst these rules is Part 20 Division 3, being References to a Referee, providing for the determination of judicial questioning to a referee.

It all makes fairly common sense on its surface there’s a time where the just, cheap and efficient determination of a particular question of fact or evidence of some technical nature is to be referred out to a referee as a matter of record of the case.

THE FACTS


A long running case that has been dragging in the Supreme Court of NSW involves a civil dispute between Australian Pharmaceutical Industries Limited and Priceline Limited against a pharmacist. The exact particulars of the civil claim are not really to the point because they are a matter of public record. Sufficient to state however is the fact that the plaintiff claimed that the defendant had not properly paid all its invoices issued, which had been given associated with supply of the pharmaceutical products. The defendant pharmacist denies he had received the pharmaceutical products which had been the alleged subject of matter of the invoices.

The plaintiff claimed that the defendant pharmacist had not properly paid all the invoices which had been given associated with the supply of pharmaceutical products.

THE REFERENCE ORDER


The issues in the litigation, as to whether there was fraud or recklessness or some serious defect in the process of delivery of the goods and issuing of the invoices from the suppling plaintiffs to the receiving retail pharmacist, no doubt crossed the mind of the court when at the direction hearing the trial judge said words to the effect, “I am seriously minded to cut this, by referring the reconciliation of the accounts to an accountant or some other referee who can ask for what he or she wants and produce a report”. At which point the counsel to the plaintiffs almost immediately conceded saying “I am not instructed to consent to that [reference]. If the court makes that order, the court makes that order”.

This all arose on the courts own notion and within a matter of days the respective parties had capitulated to this proposition and without any resistance. On 4 May 2012, the matter was referred to a referee for report, with the forms of orders made following the prescribed terms set out in Order 3 of Annexure 2 to Practice Note SC Eq 3.

Over the course of the next 12 months, the solicitors of both parties received communication from the referee that preparation of the final report was taking quite some time. The costs of the referee’s services eventually came to be approximately $357,500.

The curious development about this case is that the determination of the issue between the parties in litigation gave rise to a civil claim against our firm in a personal capacity for the sum of $357,500.

On 26 May 2014, realising that the defendant may not have the funds to pay the referee’s costs, the plaintiffs filed a motion that the defendants solicitor be joined as a respondent to the proceedings. The plaintiff sought an order pursuant to the courts inherent jurisdiction requesting that we be jointly and severally liable for the costs of a referee.

THE PLAINTIFF’S MOTION


The plaintiffs sort to bind our firm to paying the referee’s fees using the case of Birkai as their sole precedent. In Birkai, Brownie J ordered a solicitor to personally pay the balance of the fees of a referee. One half of the fees of the referee were outstanding (the other half had already been paid by the opposing party) and the client was evidently insolvent.

Brownie J did not hold that the solicitor in question was liable to pay the referees fees on the basis of any contractual or tortious liability (or any other statutory basis). Rather, he held, in making admittedly “unprecedented” orders, that the solicitor in question should pay the outstanding fees of the referee based on a mere ethical/moral duty, saying:

“On a number of previous occasions I have said that if the Court is to ask people to act as referees, then, generally speaking, the Court should see that they are paid proper fees for their work, and that people who ask the Court to appoint referees must expect the Court to see that the referees are paid those fees; and I see no reason to change that view now….on the material now before me, it is not easy to see any reason why the applicant ought not to be paid by someone.”

Brownie J then processed to make orders that the solicitor in questions pay the outstanding balance of the referee’s fees.

The legal reasoning behind the decision of Brownie J in Biraki was vague and uncertain, if not completely non-existent. His Honour in effect held that an ethical/moral obligation alone, apparently arising every time a third party is obtained by a solicitor or ordered by the Court of its own motion, permits the exercise of a discretion to order that the solicitor pay the costs of a referee in the absence of any basis of legal liability.

In New Price Retail Services, the court rejected a similar attempt to join our firm to the proceedings and make us similarly liable for the fees of a referee.

Sackar J was extremely unsympathetic to the plaintiffs attempt to join the lawyer to the proceedings and make him liable for any portion of the referees’ costs. He effectively derided the decision of Brownie J in Birkai, saying during the course of the proceedings:

“It seems to me there is no contract, there is no claim of negligence, nor is there a claim under the Legal Profession Act. I feel I have to say, and I will say on the record, I haven’t got the faintest idea what Brownie J thought he was doing, because he seems to proceed upon a mixed notion of ethical/moral obligations…” and

“I have to say quite bluntly, I think it is a nonsense decision. It doesn’t seem to be based on any legal reasoning at all”.

When pressed by counsel saying that there was a tenable case to join the lawyer to the proceedings, His Honour replied:

“What is it though? Because a Supreme Court judge once many years ago said it, for reasons which escape me, anyone who tries to read that decision came to a view that in circumstances analogous to the kind, the solicitor ought to stand up, man up, and bear the burden, because it would be unAustralian to allow a referee to go unpaid? At the end of the day…isn’t your case no more, no less, than it would be unAustralian if Mr David Hanna can’t meet these costs, that somebody meet them, and the next best person was the agent who acted for him for a period of time” and

“I think it is utter nonsense to suggest that a mere ethical obligation is sufficient to impose effectively a legal liability for a debt incurred in good faith, without a contract coming into existence between the agent and the third party…”

Thankfully for all members of the legal profession, common sense prevailed and Sackar J rejected the motion to join the lawyer to the proceedings. His Honour held that the plaintiffs had not established a tenable ground for the joinder of the lawyer, and dismissed the application with costs. His Honour said in his judgement, overturning Birkai:

“…there is not sufficient reasoning in Birkai to suggest why a solicitor should bear the burden of the referees fees other than that some one should, and therefore I am not persuaded that the case was correctly decided, nor that it provides a tenable claim such that joinder would be warranted”.

This case provides much need certainty to an area of the law that was vague and unclear subsequent to Birkai, and is one less potential liability that solicitors have to worry about.

The judgement can be read on the following link: New Price Retail Services Pty Limited and Anor v David Hanna [2014] NSWSC 1051

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