JUDGMENT No. wn 226 94 " Senescnecccesacess, Ceneccoanece WORD: COURT AND JUDGES - disqualification from hearing motion for costs against solicitor - reasonable apprehension of prejudgment of issue at trial arising from comments made in principal proceeding. Da_ Sousa v Minister of State for Immigration and Ethnic Affairs (1993) 114 ALR 708. Grassby v_ The Queen (1989) 168 CLR 1. Livesey v The New South Wales Bar Association (1983) 151 CLR 288. Re J.L-R. Ex parte C.J.L. (1986) 161 CLR 342. WHITE INDUSTRIE: LD) PTY LTD v_ FLOWER HART (A FIRM QG 198 of 1986 CORAM: Ryan J PLACE: Brisbane DATE: 08 November 1994 ~9 NOV 1994 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY IN THE FEDERAL COURT OF AUSTRALIA ) ) QUEENSLAND DISTRICT REGISTRY ) No QG 198 of 1986 ) GENERAL DIVISION ) BETWEEN: WHITE INDUSTRIES (QLD) PTY LTD (Applicant) AND: WER HART (A FIRM (Respondent ) oram: Ryan J Place: Brisbane Date: 08 November 1994 MINUTE OF ORDE THE COURT ORDERS: 1. That the hearing of the applicant's motion for costs on notice of which is dated 7 May 1993 be adjourned before a judge other than Ryan J. 2. That the costs of and incidental to the motion on notice dated 12 November 1993 seeking that Ryan J disqualify himself from hearing the motion referred to in paragraph 1 of this order and the motion for directions of 12 November 1993 be reserved to the judge hearing the motion of 7 May 1993. 3. That there be liberty to apply to each party on not less than 48 hours notice in writing to the other party. NOTE : Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION No QG 198 of 1986 ee eee BETWEEN: WHITE INDUSTRIES (OLD) PTY LTD (Applicant) AND: FLOWER & HART (A FIRM) (Respondent ) oram: Ryan J Place: Brisbane Date: 08 November 1994 REASONS _FOR NI Ryan _ J: Before the Court is a motion on notice issued on behalf of the respondent, Flower & Hart, a firm of solicitors, which seeks that I disqualify myself from hearing an application for costs against that firm. The application for costs against Flower & Hart, also made by way of motion, is in respect of the trial of an action brought by Caboolture Park Shopping Centre Pty Ltd (Caboolture Park) against White Industries (Qld) Pty Ltd (WIQ) in which, at all relevant times, Flower & Hart acted as solicitors for Caboolture Park. The trial commenced before me on 14 June 1988 and concluded on 17 August 1989 after some 155 sitting days. It is necessary to refer briefly to that action. By its application issued on 22 December 1986, Caboolture Park sought damages and other relief from the respondent, WIQ, in respect of conduct alleged to contravene s.52 of the frade - 2 - Practices Act, or to constitute fraudulent misrepresentation or negligent misstatement. The conduct was alleged to have occurred in the course of negotiations which led to a building contract being concluded, on 9 October 1985, between Caboolture Park, as owner and WIQ, as builder for the construction of a shopping centre at Caboolture, a satellite centre north of Brisbane. WIQ had, by defence and cross-claim filed on 10 April 1987, claimed against Caboolture Park moneys alleged to be owing to it under the building contract. On 17 August 1989 I dismissed Caboolture Park's action with costs. The following extract from my reasons for judgment on the cross-claim delivered 6 April 1990 details the events which led me to take that course: "On 7 August 1989, after these proceedings had occupied some 150 sitting days, they were called on for hearing in Brisbane, having been adjourned from 21 July 1989. Counsel for Caboolture Park indicated that they appeared out of courtesy to the Court but that neither they nor their instructing solicitors regarded themselves as any longer instructed on behalf of Caboolture Park. It was further indicated that Messrs Flower & Hart, the solicitors on the record for Caboolture Park, desired leave to file a notice of withdrawal of practitioner in accordance with 0.45 r.7(2) of the Rules of this Court. I then directed that application to be made on 9 August 1989 and notice of it to be served accordingly on Caboolture Park. That notice was served on 8 August 1989. Also on 8 August 1989, I published findings of fact and reasons for judgment on issues pertaining to the sub-contract of, and performance of work by, Paks Contractors Pty. Ltd., a sub-contractor to WIQ to which was entrusted the construction of the formwork designated as trade package 7. I then made orders in consequence of those findings and reasons. There was no appearance on behalf of Caboolture Park on that day. Nor did Caboolture Park appear on 9 August 1989 when I granted leave to Mesers Flower & Hart to file a notice of cessation to act as solicitors for Caboolture Park, notwithstanding that the period of seven days fixed by 0.45 r.7 of the Rules of this Court had not expired. On 9 August 1989 I directed that there be served on Caboolture Park a notice in the followzng terms: "Pursuant to the direction of the Honourable Mr Justice Ryan -3- made 9th August 1989, the first respondent hereby gives notice to the applicant that, whereas on 7th, 8th and 9th August 1989 there wag no appearance on behalf of the applicant at the trial of this matter; (a) The further hearing of this matter has been adjourned to not before 12 noon on Thursday 17th August 1989 at the Federal Court of Australia, 450 Little Bourke Street, Melbourne, at which time and place the applicant may cause an appearance to be entered on its behalf; (b) At the said time and place the Court may, and in default of appearance on behalf of the applicant, will pursuant to Order 32 rule 2(1)(c) of the Federal Court Rules enter judgment dismissing the action by the applicant against the first respondent together with an order that the applicant pay the first respondent's costs and together with such other order as to the Court may seem just; (c) At the said time and place the first respondent/cross claimant White Industries (Qld) Pty Limited will apply for judgment on its cross-claim together with costs." That notice was duly served on 9 August 1989 at the registered office of Caboolture Park, but there was again no appearance on behalf of Caboolture Park at the resumed hearing in Melbourne on 17 August. Accordingly, I then acceded to WIQ's motion and ordered that there be judgment for WIQ on Caboolture Park's application with costs, including any reserved costs. It therefore remained for the Court to consider WIQ's application for judgment on its cross-claim together with the costs referable to that cross-claim." On 6 April 1990 I published my reasons for judgment on the cross-claim and pronounced the following orders: "1. That there be judgment with costs for the first cross-claimant against the first cross-respondent on the cross-claim in the sum of $5,521,652.61, including interest at the rate of 19% per annum from 21 March 1987 until judgment on the sum of $3,339.643.81. 2. That White Industries (Qld) Pty Ltd's costs, including the costs referred to in paragraph 1 of this order, the costs ordered on 17 August 1989 to be paid to it on the dismissal of the application herein, any reserved costs and any costs previously ordered to be paid to it which have not yet been taxed, be specified as a gross sum by Ryan J on a date to he fixed, or be ascertained in such other manner as on that date he may direct." In the course of my reasons I made the following observations on the quantification of the costs ordered to be paid: "Having regard to the length of time which this case occupied, the complexity of the issues raised, and the relationship between costs already ordered in favour of WIQ and the further costs which I have already indicated judgment for WIQ on the cross-claim should carry, I -4- consider that it would be wasteful of the resources of the Court and the parties for WIQ's costs of the whole proceedings to be taxed. Rather, I believe that it would be a proper exercise of the discretion conferred by 0.62 r.4(2) to order that WIQ is entitled, in respect of all its costs, to a gross sum, to be fixed by me, perhaps after consultation with a District Registrar, or to be ascertained in some other manner as I may direct. Such a fixation of costs will require the submission on affidavit of the details of the costs to which WIQ contends it is entitled in the light of these reasons. By way of a guide for the preparation of the affidavit material, I make the following observations on the matters to which Mr Fraser has drawn attention: (i) WIQ should have all its costs referable to defending Caboolture Park's application to the extent that it wag based on fraudulent misrepresentation or misleading or deceptive conduct in contravention of 8.52 of the Trade Practices Act, except insofar as such costs are of an unreasonable amount or have been unreasonably incurred. My intention is that, subject to the exceptiona just mentioned, WIQ will be completely indemnified by Caboolture Park for costs in that category. (Hereafter costs fixed in the manner just indicated are described as being "on an indemnity basis".) Having regard to the evidence of Caboolture Park's own witnesses, Messrs Herscu, Briggs and Bennett, I consider that Caboolture Park, properly advised, should have known before instituting its application, or early in the lengthy process of amendment needed to torture the statement of Claim into disclosing causes of action in fraud and under 8.52 and to provide appropriate particulars, that it had no chance of successfully proving those causes of action. (ii) WIQ should also have its costs on an indemnity basis where Caboolture Park was ordered to pay costs of applications to amend its pleadings and where costs were incurred or thrown away as a result of adjournments requested by Caboolture Park, because it was unable usefully to proceed with adducing evidence for the whole or any part of a day. (i122) I consider having regard to the gravity of the allegations made by Caboolture Park in its statement of claim and to the number and seniority of Counsel retained by Caboolture Park, that it was reasonable for WIQ to have retained Mr Hunter 9Q.C. as leading Counsel for the period during which he was retained. (iv) In the light of the complexity of the issues involved in what has been called "the building case" raised by WIQ's cross-claim and Caboolture Park's defences to it, it was reasonable for WIQ to have retained two and at times three Counsel. Although its representation in Court on the building case was usually confined to one Counsel that was obviously made possible because other Counsel were simultaneously deployed out of court in taking instructions, drafting statements and affidavits, and analysing documentary and oral evidence adduced by Caboolture Park." Caboolture Park is in liquidation and I understand no proceedings have been taken by WIQ to recover its costs under ~ 5 - the relevant order made on 6 April 1990. However, on 7 May 1993 WIQ filed a motion in the proceedings seeking orders including: "2. That, in addition to the costs orders made by Ryan J on 17 August 1989 and 6 April 1990, Flower & Hart pay all of White Industries (Qld) Pty Ltd's costs of the action other than those costs that are solely referable to White Industries (Qld) Pty Ltd prosecuting its cross-claim, except insofar as such costs are an unreasonable amount or have been unreasonably incurred, such that White Industries (Qld) Pty Ltd are completely indemnified by Flower & Hart for these costs and interest on these costs. 3. That the costs are to be specified as a gross sum by Ryan J on a date to be fixed, or to be ascertained in such other manner as on that date he may direct." The question of whether the Court has jurisdiction to entertain the motion filed on 7 May was referred by way of a case stated to a Full Court which, on 22 September 1993 answered the question in the affirmative (sub nom Caboolture Park Shopping Centre Pty Ltd (in liquidation) v_ White Industries (Qld) Pty Ltd) (unreported decision of the Full Court of the Federal Court of Australia delivered 22 September 1993). The basis on which WIQ seeks the exercise of the Court's discretion to order Flower & Hart to pay WIQ's costs of defending the proceeding brought by Caboolture Park is set out in its statement of facts and contentions filed in the proceeding on 8 December 1993 in these terms: "9, In the course of acting for Caboolture Park as alleged in paragraph 2 hereof, the Respondent: (a) commenced and continued the proceedings on behalf of Caboolture Park in the knowledge that it had no worthwhile prospects of success in the proceedings in order to vex the Applicant; -6- (b) commenced and continued the proceedings on behalf of Caboolture Park for the purpose of:~ (1) delaying action by the Applicant against Caboolture Park to recover monies repayable under the building contract referred to in paragraph 4 hereof; (ii) putting the Applicant under pressure to compromise such claim; (¢) delivered a statement of claim dated 22 December 1986 containing an allegation of fraud in circumstances where there was no factual basis for making that allegation; (da) accepted instructions to conduct the proceedings in a manner designed to obstruct and delay the hearing of both Caboolture Park's application referred to in paragraph 3 hereof and the Applicant's cross-claim referred to in paragraph 4 hereof and did in fact conduct the proceedings in a manner designed to so obstruct and delay the hearing. 10. At all material times the Respondent had a duty to the Court: (a) not to improperly delay or put the Applicant to unnecessary expense; (b) not to conduct itself in a way that tended to defeat the course of justice in the proceedings; (c) not to conduct the proceedings when the real purpose of the proceedings was not the litigation of the claim set out in the statement of claim; (a) to conduct the proceedings before the Court with due propriety; (@) to be candid and honest with the Court; (£) not to obstruct the administration of justice by the Court; (9g) not to abuse or facilitate the abuse of the Court's process. 11. The conduct of the Respondent pleaded in paragraph 9 hereof was in breach of the duty set out in paragraph 10 hereof." The evidence to be adduced by WIQ on its motion for costs concerns communications made between Caboolture Park and Flower & Hart and between Flower & Hart and Counsel retained by that firm before and during the proceedings brought by Caboolture Park. Those documents came into the possession of the liquidator of Caboolture Park who, in turn, made them available to WIQ. The documents on which WIQ principally intends to rely are: -7- ""(a) a facsimile transmission from Flower & Hart to Hersfield Developments Corporation Pty Ltd for the attention of Ronald Pearce and George Herscu, dated 18 December 1986. (b) an advice of Mr Callinan of Queens Counsel and Mr Perry of Counsel provided for Flower & Hart, enclosing the first statement of claim in the proceedings, dated 22 December 1986, (c) a joint opinion of Mr Callinan of Queens Counsel, Mr Perry and Mr Morris of Counsel provided for Flower & Hart, dated 26 February 1987. (a) a facsimile transmission received by Flower & Hart from Hersfield Developments Corporation Pty Ltd, signed by Mr Pearce, dated 27 February 1987. {e) a joint advice of Mr Morris and Mr Perry of Counsel provided for Flower & Hart dated 3 April 1987. (£) an advice of Mr Callinan of Queens Counsel provided for Flower & Hart, dated 13 April 1987. (g) an opinion of Mr Callinan of Queens Counsel and Mr Perry of Counsel provided for Flower & Hart, dated 1 March 1988. (h) an advice of Mr Perry of Counsel provided for Flower & Hart, dated 12 August 1988. (1) an advice of Mr Callinan of Queens Counsel provided for Flower & Hart, dated 12 September 1988." It is not necessary on the present motion to refer to the content of those documents. Obviously, those documents were not before the Court during the trial of the proceeding brought by Caboolture Park. It is contended for WIQ that the evidence will establish that Flower & Hart, acting on behalf of Caboolture Park, commenced and prosecuted proceedings, known by it to have no worthwhile prospect of success in order to achieve an ulterior purpose or purposes. It will be alleged that the conduct of Flower & Hart in the prosecution of Caboolture Park's action constituted an abuse of the process of the Court. Mr Sofronoff QC, who appeared with Mr McGill for Flower «& Hart, has contended that my hearing of the motion for costs -g- would arouse in the public a reasonable apprehension that I might not bring an unprejudiced mind to the resolution of the issues raised by the motion. Accordingly, in accordance with established principles, it is submitted that I should refrain from hearing the motion. The basis on which the application that I should disqualify myself is made is that my reasons for judgment published 6 April 1990 would lead a reasonable observer to apprehend that I had formed a concluded view that a legal adviser, acting properly, could form no opinion other than that Caboolture Park had no chance of successfully proving the cause of action founded in fraud and pursuant to s.52 of the frade Practices Act. I do not regard it as appropriate or necessary to explain or amplify what I said in my reasons for judgment. I consider that it is open for a reasonable reader to infer that I had formed a view that proper advice from a legal practitioner could only be to the effect that the causes of action contended for by Caboolture Park had no chance of success. The passage from my reasons quoted above leaves open the question of whether that or some other advice had been provided to Caboolture Park in relation to its prospects of success. It is necessarily silent on what instructions Caboolture Park gave to its solicitors and for what purpose it gave those instructions. The observations which I expressed in my reasons were made in response to a submission on behalf -9- of WIQ that I should award costs against Caboolture Park on an indemnity basis. No application for costs was then made against Flower & Hart and no need arose for that firm to address me on matters relevant to an application for costs against a solicitor. It appears from the statement of facts and contentions filed by WIQ that it will seek to persuade the Court that Flower & Hart acted in the knowledge that its client had no worthwhile prospects of succeeding in its action. Flower & Hart, as appears from its statement of facts and contentions, has traversed that allegation. It is likely, in my view, that the motion for costs will require the Court to determine what belief Flower & Hart had of the prospects of success for Caboolture Park's action and on what instructions that belief was based. The question of what a reasonable solicitor would advise in the circumstances may well be relevant to that determination. The answer to that question may in turn provide a measure of the credit of some of the witnesses to be called on behalf of Flower & Hart. In my view, it could not reasonably be concluded from an objective reading of my reasons for judgment, that I had formed any view on the credit or propriety of Flower & Hart or any of its members or employees. Nor could my reasons reasonably be said to embody a conclusion on the ultimate issue raised by the motion for costs. - 10 - Nevertheless, I am prepared to accept that my reasons for judgment may give rise to a reasonable apprehension that I had reached a concluded view on a matter relevant to the determination of the motion and that raises the question of whether I should, on that basis, disqualify myself from determining the motion. It is clearly inimical to the interests of justice for a matter to be decided on material other than that which is presented in open Court in the instant matter which the Court is required to determine. In Re J.L.R. Ex parte C.J.L. (1986) 161 CLR 342 Mason J observed at 350: "A central element in the system of justice administered by our courts is that 1t should be fair and this means that it must be open, impartial and even-handed. It is for this reason that one of the cardinal principles of the law is that a judge tries the case before him on the evidence and arguments presented to him in open court by the parties or their legal representatives and by reference to those matters alone, unless Parliament otherwise provides. It would be inconsistent with basic notions of fairness that a judge should take into account, or even receive, secret or private representations on behalf of a party or from a stranger with reference to a case which he has to decide." Analogous to the receipt of private representations would be, in my view, the use of conclusions of fact drawn from evidence adduced in earlier curial proceedings in which the party presently in jeopardy did not participate as a party and without that party's being heard on his or her own behalf. In Livesey v The New South Wales Bar Association (1983) 151 CLR 288 the High Court stated at 299: "Necessity and the extraordinary case (see, eg, Ex parte Lewin; Re Ward [1964] NSWR 446, at p.447 make it impossible to lay down an inflexible rule; each case must be determined by reference to its particular circumstances. It 18, however, apparent that, in a case such as the present where it 1s not suggested that there is any overriding consideration of necessity, special circumstances or -l1l- consent of the parties, a fair-minded observer might entertain a reasonable apprehension of bias by reason of prejudgment if a judge sits to hear a case at first instance after he has, in a previous case, expressed clear views either about a question of fact which constitutes a live and significant issue in the subsequent case or about the credit of a witness whose evidence is of significance on such a question of fact. The consideration that the relevant question of fact may be conceded or that the relevant person may not be called as a witness if the particular judge sits would not, of course, avoid the appearance of bias. To the contrary, it would underline the need for the judge to refrain from sitting." The High Court also considered the question of prejudgment in Grassby v The Queen (1989) 168 CLR 1. That case, an appeal from the New South Wales Court of Criminal Appeal comprising Lee CJ at CL, Yeldham and Hunt JJ concerned committal proceedings involving the appellant. In an earlier proceeding (which did not concern the appellant) Hunt J had made the following comment: "A prosecution has also been brought by the appropriate public authorities against Mr A Grassby, the former politician, in relation to his publication of grossly defamatory statements concerning the widow of Mr Donald McKay (the Griffith drug campaigner), following Mr Grassby's successful (but hardly meritorious) claim that her right to recover damages from him was barred by the Limitation Act 1969. That prosecution is obviously an appropriate use of the criminal law, as the fact of the publication by Mr Grassby and the extraordinary circumstances surrounding it were not discovered until a statutory inquiry was held after the limitation period had expired." Hunt J refused, with the concurrence of the other two members of the Court of Criminal Appeal, to accede to an application that he disqualify himself from hearing the appeal. On appeal, the High Court held that the accused or a member of the public might have entertained a reasonable apprehension of bias and that his Honour should have disqualified himself. Dawson J, with whom the other members of the Court agreed, said at 20: "The test which is to be applied when bias is raised has been clearly - 12 - laid down. It is whether in all the circumstances the parties or the public might entertain a reasonable apprehension that the judge might not bring an impartial and unprejudiced mind to the resolution of the matter before him: see Livesey v New South Wales Bar Association (1983) 151 CLR 288. If so, then the judge ought not to proceed to hear the matter. of course, as Gibbs CJ pointed out in Reg v Simpson; Ex parte Morrison (1984) 154 CLR 101, at p.104, the mere expression of the apprehension of bias does not establish that it is reasonably held; that is a matter which must be determined objectively. In this case, it is true that the comment in question was made in the context of another case, Waterhouse v Gilmore, which involved issues different from those before the Court of Criminal Appeal in the present case. The comment was made by his Honour in a context in which he was attempting to draw a distinction between prosecutions for criminal defamation serving only private interests and those which, because they had a public aspect, justified the use of the criminal law. But in seeking to draw that distinction and in using the present case as an example, his Honour necessarily spoke of the prosecution of the applicant in terms of approbation at a time when the evidence against the applicant had not even been heard in committal proceedings. He did s0 without reference to any presumption of innocence. The comment was made, not merely in the course of argument where it may have been regarded as the momentary choice of a convenient example, but in a considered judgment. Moreover, the reference to the prosecution against "Mr A Grassby, the former politician" as being "obviously an appropriate use of the criminal law" involves an element of pre-judgment in emphatic, if not coloured, terms which must surely have justified apprehension on the part of the applicant that the attitude of his Honour towards his prosecution might not be impartial or unprejudiced. Indeed, the fact that the comment appeared in a judgment in an entirely different case, in which presumably there was no consideration of the evidence against the applicant or of any argument that may have been available to him, is so unusual as to lend added significance to the comment. Nor does the factual error which may be contained in it lessen its impact. In the minds of those unfamiliar with the capacity of the judicial mind to accept correction, if there were an error it would merely serve as an additional suggestion that the remarks were of a gratuitous nature." In the present case the statement in my reasons published on 6 April 1990 that "Caboolture Park, properly advised should have known ... that it had no chance of successfully proving those causes of action" is capable of raising an apprehension that I had formed a view of what a solicitor acting properly in the circumstances would have advised. As Flower & Hart will contend for a contrary view a reasonable observer may regard Flower & Hart as carrying an additional burden of having to displace the view attributable to me from reasons for judgment expressed admittedly in the same proceedings but at a time - 13 - when Flower & Hart were not themselves in jeopardy of being visited with any personal liability. It may be accepted that the jurisdiction to award costs against a non party will ordinarily be exercised by the trial judge giving the non-party an opportunity to be heard to the extent that the circumstances require. As well, I do not doubt that a trial judge may impose an order for costs on a solicitor who is not a party notwithstanding that no party seeks such an order: see Da Sousa v Minister of State for Immigration and Ethnic Affairs (1993) 114 ALR 708. That is a corollary of the notion that such an order is made, not to punish the solicitor, but to protect an innocent party. In the normal case the trial judge may take into account his or her experiences of the trial in the exercise of the Court's discretion in relation to costs. However, the present case may be contrasted with the usual case where the question of costs will be ventilated at the end of the trial and submissions received and considered before any ruling is given. In this case I was asked to rule on the question of what order for costs should be made against Caboolture Park. I was not asked to make any finding in relation to the conduct of Flower & Hart and my reasons disclose that I did not do so. However, in the light of subsequent events, comments that I made in relation to costs may be relevant to the present motion in that they are reasonably capable of conveying that I had reached a - 14 - conclusion as to what a solicitor acting property in the circumstances in which Flower & Hart found themselves, would have advised. That will be very much a live issue to be determined on the trial of the motion. The authorities to which I have referred require me in these circumstances to decline to hear the motion. I shall refer the motion for costs for hearing before another Judge of the Court and shall order that the costs of the motion for disqualification be reserved to the judge hearing the motion for costs. There shall be liberty to either party to apply on not less than 48 hours notice in writing to the other party. I certify that this and the preceding thirteen (13) pages are a true copy of the reasons for judgment of his Honour Justice Ryan Associate: bh Ahk Date: K Neembe ENG Counsel for Applicant: Mr R Chesterman QC (White Industries (Q1d)) with Mr P Dunning Solicitor for Applicant: Minter Ellison Morris Fletcher Counsel for Respondent: Mr W Sofronoff QC (Flower & Hart) with Mr D McGill Solicitor for Respondent: McCullough Robertson