FEDERAL COURT OF AUSTRALIA Patrick v Capital Finance Corporation (Australasia) Pty Ltd [2004] FCA 1249 PRACTICE AND PROCEDURE - Costs – Indemnity costs – Application for costs on indemnity basis – Allegation proceedings were unreasonably instituted and continued – Allegation proceedings unduly prolonged – Allegation of no basis for pleading fraud, accessory knowledge or knowing participation - Applicant successfully defended a no case submission in the principal proceeding – Evidence insufficient to establish that proceeding was commenced in an abuse of process for an ulterior purpose – Experienced counsel certified pleading – Proceeding not commenced or continued unreasonably or recklessly – Applications dismissed. EVIDENCE – Legal Professional Privilege – Common interest privilege – Joint interest privilege – Waiver - Disclosure of documents to adverse parties – Conflict of interest between parties claiming common interest privilege at the time of the disclosure – Subsequent common interest in resisting costs applications – Common interest privilege inapplicable where there is a conflict of interest – Common interest privilege does not operate retrospectively over material previously waived. Federal Court of Australia Act 1976 (Cth) Evidence Act 1995 (Cth) s 122 Patrick v Capital Finance Pty Ltd (No 2) [2002] FCA 1570 cited Patrick v Capital Finance Corporation (Australasia) Pty Ltd [2004] FCA 120 cited Buttes Gas and Oil Co v Hammer (No. 3) [1981] 1 QB 223 discussed Farrow Mortgage Services Pty Ltd v Webb (1996) 39 NSWLR 601 discussed Lee v South West Thames Regional Health Authority [1985] 1 WLR 845 applied Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 discussed Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (1998) 81 FCR 526 cited Gray v Associated Book Publishers (Aust) Pty Limited [2002] FCA 1045 cited White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 distinguished Levick v Commissioner of Taxation (2000) 102 FCR 155 discussed WILLIAM GEORGE DOUGHTY PATRICK (for himself and as representing the persons referred to in paragraph 1 of the Statement of Claim) v CAPITAL FINANCE CORPORATION (AUSTRALASIA) PTY LTD (ACN 074 692 443) CAPITAL FINANCE CORPORATION (AUSTRALIA) PTY LTD (ACN 074 352 104), CAPITAL FINANCE CORPORATION PTY LTD (ACN 064 512 385), KERROD GRANT PARK, OVERSEA-CHINESE BANKING CORPORATION LIMITED (ABN 073 598 035), CHRISTOPHER COOTE AND PHILLIP EMANUEL PRODUCTIONS LIMITED (ACN 002 693 512) V 637 OF 2001 TAMBERLIN J SYDNEY 24 SEPTEMBER 2004 IN THE FEDERAL COURT OF AUSTRALIA VICTORIAN DISTRICT REGISTRY V637 OF 2001 BETWEEN: WILLIAM GEORGE DOUGHTY PATRICK (for himself and as representing the persons referred to in paragraph 1 of the Statement of Claim) APPLICANT AND: CAPITAL FINANCE CORPORATION (AUSTRALASIA) PTY LTD (ACN 074 692 443) FIRST RESPONDENT CAPITAL FINANCE CORPORATION (AUSTRALIA) PTY LTD (ACN 074 352 104) SECOND RESPONDENT CAPITAL FINANCE CORPORATION PTY LTD (ACN 064 512 385) THIRD RESPONDENT KERROD GRANT PARK FOURTH RESPONDENT OVERSEA-CHINESE BANKING CORPORATION LIMITED (ABN 073 598 035) FIFTH RESPONDENT CHRISTOPHER COOTE SIXTH RESPONDENT PHILLIP EMANUEL PRODUCTIONS LIMITED (ACN 002 693 512) SEVENTH RESPONDENT JUDGE: TAMBERLIN J DATE OF ORDER: 24 SEPTEMBER 2004 WHERE MADE: SYDNEY THE COURT ORDERS: 1. The application by each of the respondents for indemnity costs against Corrs Chambers Westgarth and Dr Patrick in relation to the principal proceeding is dismissed. 2. Dr Patrick pay the costs of the respondents in relation to the principal proceeding on a party-party basis. 3. The respondents pay 80% of the costs of Dr Patrick and Corrs in relation to their applications for indemnity costs on a party-party basis. 4. The respondents pay the costs of Dr Patrick in relation to the order made by the Court on 30 April 2003. 5. Dr Patrick pay the respondents' costs in relation to the order made by the Court on 1 May 2003. 6. Any orders for costs made in the interlocutory judgments in respect of the principal proceedings are not otherwise varied. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIAN DISTRICT REGISTRY V637 OF 2001 BETWEEN: WILLIAM GEORGE DOUGHTY PATRICK (for himself and as representing the persons referred to in paragraph 1 of the Statement of Claim) APPLICANT AND: CAPITAL FINANCE CORPORATION (AUSTRALASIA) PTY LTD (ACN 074 692 443) FIRST RESPONDENT CAPITAL FINANCE CORPORATION (AUSTRALIA) PTY LTD (ACN 074 352 104)) SECOND RESPONDENT CAPITAL FINANCE CORPORATION PTY LTD (ACN 064 512 385) THIRD RESPONDENT KERROD GRANT PARK FOURTH RESPONDENT OVERSEA-CHINESE BANKING CORPORATION LIMITED (ABN 073 598 035) FIFTH RESPONDENT CHRISTOPHER COOTE SIXTH RESPONDENT PHILLIP EMANUEL PRODUCTIONS LIMITED (ACN 002 693 512) SEVENTH RESPONDENT JUDGE: TAMBERLIN J DATE: 24 SEPTEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The first, second, third and fourth respondents ("Capital and Mr Park"), the fifth respondent ("OCBC") and the sixth respondent ("Mr Coote"), seek an award of costs on an indemnity basis from the applicant ("Dr Patrick") and/or his solicitors, Corrs Chambers Westgarth ("Corrs"), who acted for him in the principal proceeding. These applications are resisted by both Dr Patrick and Corrs. 2 The principal proceeding, in which the respondents were successful, was instituted by Dr Patrick and was brought by way of a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"). Dr Patrick was the representative party, representing the fifty-eight persons named in the Schedule to the Fourth Further Amended Statement of Claim, being persons who had invested in an unsuccessful tax-driven investment scheme based on a musical stage production known as "Crazy For You". 3 It is not necessary to repeat the background and history of the Crazy For You Fund in these reasons, because this information is set out in my reasons for decision on the no case submission and in the judgment delivered by me after the conclusion of the hearing, which proceeded after the no case submission was rejected. The hearing of the proceeding involved a number of interlocutory applications and extended over a period of many months: see Patrick v Capital Finance Pty Ltd (No 2) [2002] FCA 1570 and Patrick v Capital Finance Corporation (Australasia) Pty Ltd [2004] FCA 120. preliminary issue - claim of common interest privilege 4 When the costs applications came on for hearing before me, counsel for Dr Patrick and Corrs sought, on instructions, to withdraw an affidavit sworn by Dr Patrick, and to object to the reading of an affidavit by Ms Goddard, a solicitor for Capital and Mr Park, on the basis of common interest privilege. It was said that this material was the subject of common interest privilege and could not, therefore, be used against either Dr Patrick or Corrs without the consent of both of them. I note that reliance is placed upon common interest privilege, as opposed to joint interest privilege. I also note that the material contained in the exhibits to Dr Patrick's affidavit was the subject of a Notice to Produce that was issued on behalf of Capital and Mr Park. 5 Dr Patrick's affidavit, which has numerous exhibits, was sworn subsequent to my judgement of 26 February 2004, on 4 July 2004, and filed and served shortly thereafter. At that stage, Corrs had ceased to act for Dr Patrick, on the grounds of conflict of interest, and the affidavit was prepared with the assistance of another Sydney firm of solicitors. Dr Patrick has since retained Minter Ellison, who began to act for him on 23 July 2004, and now jointly represent both Corrs and Dr Patrick. The affidavit of Ms Goddard was sworn on 29 June 2004. In it, Ms Goddard deposed to the result of investigation of the file and records of Corrs concerning this proceeding, in respect of which Dr Patrick had raised no objection of privilege. 6 Counsel for Corrs and Dr Patrick tendered a Deed of Settlement and Release between Dr Patrick and Corrs, of July 2004, which does not bear a specific date, but bears a facsimile transmission notation of 23 July 2004. The recitals to this deed relevantly state that: "A. In or about October 2000 Patrick instructed Corrs to advise in relation to his 1996 investment of $100,000 in the stage production 'Crazy For You'. B. In or about May 2001 Patrick further instructed Corrs to act on his behalf as the named applicant in proposed representative proceedings in the Federal Court ('the Crazy For You Proceeding'), and in relation to a debt and caveat claim against Patrick by the Overseas Chinese Banking Corporation ('the retainer'). C. The Crazy For You proceeding was issued on 6 June 2001 in the Victorian Registry of the Federal Court by proceeding numbered V637 of 2001, and judgment was delivered on 26 February 2004, in favour of the respondents. D. The first six respondents to the Crazy For You Proceeding subsequently sought orders that both Patrick and/or Corrs pay those respondents' cost on, inter alia, an indemnity basis ('the respondents' costs application'). E. Patrick has advised Corrs that he supports the respondents in seeking orders that Corrs pay any costs ordered to be paid to the respondents ('Patrick's costs application'), and has made various claims regarding conduct of Corrs against Corrs ('the claim'). F. Corrs denies any liability in relation to the respondents' costs application, Patrick's costs application, or the claim." (Emphasis added) 7 It is important to note the conflict of interest between Corrs and Dr Patrick evidenced by recital C. 8 On 22 November 2002, two days after the hearing of the principal proceeding commenced, the solicitors for OCBC, Cornwall Stodart, wrote to Ms Kaitinis of Corrs, stating: " … the Applicant's case against OCBC is in our view entirely without foundation. In particular, there is absolutely no basis for the fraud allegations made against OCBC. In our view it is now clear, if it was not already before, that there is no proper basis upon which counsel can sign the certificate required by Order 11 rule 1B of the Federal Court Rules in respect of the Fourth Further Amended statement of Clalm [sic] or your firm can permit this proceeding to continue. If the allegations of fraud and dishonesty (objective or otherwise) against OCBC are not immediately withdrawn, OCBC will hold your firm and counsel retained by your firm accountable for the making and continuation of those allegations. Our client will also be looking to your firm and counsel retained by your firm for its costs of defending these allegations and of the proceedings generally, if Dr Patrick does not promptly satisfy the costs orders which will be made against him." (Emphasis added) 9 Shortly thereafter, on 9 December 2002, Counsel for Dr Patrick certified the Fourth Further Amended Statement of Claim. 10 This letter, in a general sense, was said by Corrs to give rise to common interest privilege with Dr Patrick on the part of Corrs, arising from the contingent threat to seek costs against Corrs if Dr Patrick did not pay. This of course assumes, from November 2002, that Dr Patrick would lose the case that was at issue in the principal proceeding. In my view, such a generalised contingent threat does not give rise to a sufficient common interest by Corrs in the outcome of the principal proceeding at that point. The position was different after March 2004, once judgment had been given for the respondents in the principal proceeding, and the respondents had clearly indicated that orders for costs would be pursued against Corrs on an indemnity basis. 11 However, this does not alter the important circumstance that at the time when Dr Patrick waived privilege by swearing his affidavit of 6 July 2004 and giving permission to Capital and Mr Park to access his file (which led to the affidavit of Ms Goddard), Dr Patrick did not have a common interest with Corrs in the outcome of the costs applications. Even if the threat contained in the letter of 2002 was sufficient to give rise to common interest privilege, the fact remains that when Dr Patrick waived privilege in 2004, his interests were clearly hostile to those of Corrs in relation to costs. 12 Briefly summarised, Counsel for Corrs and Dr Patrick submits that because his clients have a common interest in resisting the respondents' applications for costs, whether on an indemnity basis or a party-party basis, they share common interest privilege in the records that Corrs kept in relation to these proceedings, which cannot be waived by one party to the common interest without the consent of the other. Accordingly, it is said that the conduct by Dr Patrick that purported to waive privilege in these documents (filing an affidavit that evinced his intention to claim against Corrs and allowing access to his Corrs file) could not waive that privilege, since Corrs had not consented to any waiver. Therefore, it is said that these documents may not be used in these applications. 13 The common interest is said to derive both from the fact that Corrs and Dr Patrick had a common interest in defending any action for costs against them dating back to at least November 2002, when OCBC intimated that Corrs might be sued for costs along with Dr Patrick as a consequence of amendments to the Statement of Claim, and from the operation of the Deed of Settlement and Release made on or about 23 July 2004. It is said for Dr Patrick and Corrs that the privilege arising from this common interest extends to prevent the use in evidence of disclosures made by Dr Patrick, prior to entry into the Deed of Settlement and Release of July 2004, regarding his dealings with Corrs. The consequence would be that all the material in the Corrs file, together with the contents of Dr Patrick's affidavit of 4 July 2004 and that of Ms Goddard's affidavit of 29 June 2004, could not be relied on in relation the costs claims. 14 As the recitals to the Deed of Settlement and Release extracted above state, prior to 23 July 2004, Dr Patrick was supporting the respondents in seeking orders that Corrs pay any costs ordered to be paid to the respondents. He was also intending to make claims against Corrs regarding its conduct of the proceeding on his behalf, as evidenced by his affidavit of 4 July 2004, which was filed by his then independent solicitors, Milne Berry & Berger. It is important to note that Dr Patrick retained these solicitors after a communication from Corrs on 22 March 2004, which pointed out that the interests of Corrs and Dr Patrick could be in conflict in relation to the costs applications. 15 The respondents submit that until execution of the Deed of Settlement and Release, the interests of Dr Patrick and Corrs in the costs applications, far from being held in common, were diametrically opposed, and therefore could not form the basis of a common interest privilege that would prevent the respondents from using material which had lawfully come into their possession with the consent of Dr Patrick. They also contend that common interest privilege cannot retrospectively apply to the material waived by Dr Patrick prior to his entry into the Deed of Settlement and Release, in order to protect Corrs against claims by third parties, namely the respondents, to whom there has been disclosure, and who share no common interest with Corrs. 16 At the conclusion of the argument on the common interest privilege question, I decided to admit the material in question conditionally, and to proceed on the basis that that I would rule on the submissions and give my reasons for the ruling which I now set out below. There was no cross-examination on either Dr Patrick's affidavit of 4 July, or Ms Goddard's affidavit of 29 June. 17 Common interest privilege was described by Brightman LJ in Buttes Gas and Oil Co v Hammer (No. 3) [1981] 1 QB 223 at 267-8: "… if two parties with a common interest and a common solicitor exchange information for the dominant purpose of informing each other of the facts, or the issues, or advice received, or of obtaining legal advice in respect of contemplated or pending litigation, the documents or copies containing that information are privileged from production in the hands of each. … this proposition … is a legitimate extension of the principle that protects confidential communications between co-plaintiffs or co-defendants for the purpose of an action." 18 There is a detailed consideration of common interest privilege in the judgment of Sheller JA in Farrow Mortgage Services Pty Ltd v Webb (1996) 39 NSWLR 601 at 609: "Common interest is not … a rigidly defined concept. A mere common interest in the outcome of litigation will be sufficient to enable any party with that interest to rely on it." 19 In the present case, it could be argued that once the respondents had clearly stated that they would sue both Corrs and Dr Patrick for costs, then Corrs and Dr Patrick had a common or shared interest in the outcome of the litigation in order to defend the claim for indemnity costs against each of them. However, at the time when Dr Patrick swore his affidavit and disclosed his dealings with Corrs to the respondents, there was a clear conflict of interest between Dr Patrick and Corrs. Indeed, as the recitals to the Deed of Settlement and Release demonstrate, Dr Patrick had taken steps to support the respondents' claim against Corrs. This conflict subsisted until around 23 July 2004, when the Deed of Settlement and Release was executed. By that date, Dr Patrick had made his disclosure. It was thereafter too late for Corrs or Dr Patrick to assert that Dr Patrick's privilege should not be treated as having been waived. 20 The authorities are to the effect that after a conflict of interest has clearly been identified common interest privilege will not apply. A leading authority on this aspect is Lee v South West Thames Regional Health Authority [1985] 1 WLR 845. In that case, a young boy had been injured while being transported between two hospitals, which were each the responsibility of a different statutory authority, by an ambulance that had been provided by a third health authority. The statutory authority for one of the hospitals requested a report from the ambulance crew, with a view to obtaining legal advice on that authority's liability. A memorandum was provided, and was disclosed on preliminary discovery. The health authority responsible for the ambulance crew claimed privilege. Donaldson MR gave the judgment of the two member court, which decided that the courts should recognise as privileged information that is exchanged between a party to litigation and third persons with a common interest and legal advisers in common relating to pending litigation. His Lordship, referring to Buttes case, said at 850: "The facts were far removed from this appeal, but all the members of the court thought there was such a thing as 'common interest' privilege. Mr Utley, for Marlon's [the boy's] mother, not unnaturally retorts that if Hillingdon [the health authority that ran one of the hospitals] is still a likely defendant, then far from having a common interest with the South West Thames Authority [the health authority that ran the ambulance service], their interests are diametrically opposed and their defences are likely to be of the 'cut throat' variety. Buttes' case is also thus distinguishable. … The principle is that a defendant or potential defendant shall be free to seek evidence without being obliged to disclose the result of his researches to his opponent. Hillingdon can certainly waive its rights and, were it to do so, the memorandum would clearly be disclosable by South West Thames. However, it has not done so." 21 I note that in the present case, Dr Patrick's disclosure was not to a party with a common interest but rather to a party with a hostile interest. 22 In Ampolex Ltd v Perpetual Trustee Co (Canberra) Ltd (1995) 37 NSWLR 405 Giles CJ said at 409-10: "What is important is that … two persons interested in a particular question will not have a common interest for the purposes of common interest privilege if their individual interests in the question are selfish and potentially adverse to each other. In such a case there will not be the necessary identity of interest." (Emphasis added) Sheller J cited this passage with approval in Farrow at 612. I agree that it correctly states the principle. 23 In the case of joint interest privilege, which arises from legal advice being given to joint clients, each must join in the waiver to waive the privilege: see Ampolex at 412-3 per Giles J and the cases there cited. This is to be contrasted with common interest privilege, where it will not always be necessary for all the interested parties to concur in the waiving of the privilege in order for the privilege to be waived. Fairness may require that waiver by one of the parties constitutes waiver by all. This is to be determined according to the circumstances in which the privileged communication took place and came to be exchanged and provided to others: see Farrow per Sheller JAat 619-620; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (1998) 81 FCR 526 at 564 per Goldberg J; Gray v Associated Book Publishers (Aust) Pty Limited [2002] FCA 1045; JD Heydon, Cross on evidence, 6th Australian ed. Butterworths, Sydney, 2000 at [25015]; and J Auburn, Legal professional privilege: law and theory, Hart, Oxford, 2000 at 131-132. As noted above, Dr Patrick and Corrs rely upon common interest privilege rather than joint privilege. 24 In my view, when Dr Patrick swore his affidavit on 4 July 2004 and agreed to make his Corrs file available to the respondents, he unconditionally waived his privilege in respect of this material. At that time, his interests were directly opposed to those of Corrs. He had elected to assist the respondents by providing material in order to enable them to succeed in their claim against Corrs. This was done in furtherance of his own interests in pursuing a claim against Corrs for damages or indemnity. In such circumstances, it is somewhat artificial to suggest that Dr Patrick took any co-operative steps with Corrs to seek advice or obtain material which could give rise to a common interest during the entire course of the preparation and hearing of the principal claim from its inception. 25 The earliest point at which a relevant common interest between Dr Patrick and Corrs could have arisen, was in March 2004, which was when the respondents first made their claim for costs against both of them, following the judgment. However, shortly after the claim for costs was made against Corrs, Dr Patrick's interests became adverse to those of Corrs by reason of his decision to provide evidence against Corrs' interests to protect his own position. Accordingly, Corrs was not and is not entitled to prevent him from waiving that privilege in favour of the respondents to inspect the file and read his affidavit. Entry into the Deed of Settlement and Release on or about 23 July 2004 operated to create a prospective common interest between Dr Patrick and Corrs in relation to the proceedings against them. However, nothing of significance for present purposes appears to have come into existence between that date and the present time. I do not think that the execution by Corrs and Dr Patrick of the Deed of Settlement around 23 July 2004 could operate retrospectively to confer privilege on Corrs so as to prevent or extinguish the waiver by Dr Patrick of his privilege in or about March 2004 at a time when he did not have such a common interest with Corrs. It would be odd to say the least if a party were able to retrospectively confer privilege over material, dating back several years, in respect of which privilege had previously been waived so as to negate the waiver. My conclusion, therefore, is that prior to the execution of the Deed of Settlement and Release, Corrs and Dr Patrick did not have a relevant common interest in the litigation. It follows that the material in question is not the subject of common interest privilege, and cannot be excluded from this proceeding on that basis. 26 In the course of submissions reference was made to s 122(2) of the Evidence Act 1995 (Cth) ("Evidence Act"), which provides that the Evidence Act does not prevent the leading of evidence given with the consent of the party concerned. In this case, prior to the Deed of Settlement and Release of July 2004, there was a knowing and voluntary disclosure by Dr Patrick, to the respondents, of the contents of the file that records his dealing with Corrs. 27 A further particular objection to the evidence of Ms Goddard was based on discretionary considerations said to arise from the fact that Minter Ellison, the solicitors for Corrs, were not informed of her intention to examine Dr Patrick's files before she went to the Sydney office to inspect them. In an affidavit of 27 July 2004, Mr Obst of Minter Ellison refers to Ms Goddard's failure to consult him in relation to her inspection of the file. It was submitted on the basis of Mr Obst's evidence that Corrs had a proprietary interest in many of the documents and that there has been an inspection by "subterfuge". I disagree. There was no objection by Dr Patrick in waiving his privilege. In my view, there is nothing in the circumstances pointed to by Counsel for Dr Patrick and Corrs in relation to the inspection, which persuades me that as a matter of discretion the material should not be adduced in this proceeding. 28 I now turn to consider the grounds on which indemnity costs are sought against Corrs and Dr Patrick. basis of the respondents' claims for indemnity costs 29 In broad summary, the respondents seek costs on an indemnity basis against Dr Patrick and Corrs on the grounds that Dr Patrick and/or Corrs: · alleged that the respondents had knowledge of a scheme to divert investors' funds without any known facts to support these allegations; · allowed the trial to commence and continue without withdrawing allegations of knowledge and fraud when they should have known that there was no basis for these allegations and did not propose to call evidence of any fact to support these allegations; · failed to advise Dr Patrick that they knew of no facts that would support the allegations of knowledge or fraud; · acted unreasonably in commencing and continuing the proceeding without giving any proper consideration, prior to commencement or during the proceeding, of the prospects of success; · unduly prolonged the proceeding, including the trial; · wilfully disregarded the consideration that no facts existed which could support the allegation of fraud; · failed to withdraw allegations in respect of which no case had been made out after it became apparent that a case could not be made out; and · failed to cross examine on fraud or open fraud as a matter alleged. 30 The respondents also allege other matters relating to the conduct of the proceeding on the part of Corrs or Dr Patrick. In particular, they rely upon the fact that in the ultimate result they were successful on almost all counts. They also submit that it was evident from the outset, largely as a result of Dr Patrick's settlement with the Australian Taxation Office, that he had suffered no loss. They submit that the characters and reputations of the respondents, along with others involved in the Crazy for You Fund, were wrongly and unreasonably besmirched by the allegations of fraud. They say there was a failure to properly investigate the relevant matters before commencing the proceedings and an unjustified reliance on a report of the Australian Taxation Office concerning the deductibility of investments in the Crazy for You Fund. They say that as a result, untenable allegations of serious misconduct were made against the respondents without any evidence being adduced to back up the allegations. Submissions on behalf of Dr Patrick and Corrs 31 The submissions on behalf of Dr Patrick and Corrs can be summarised as follows: · the respondents have not have not provided any evidence of an ulterior purpose on the part of Corrs or of Dr Patrick in instituting the proceeding, and have not otherwise established that the proceeding was commenced or continued for an ulterior motive or with unlawful disregard of known facts or clearly established law; · Dr Patrick's legal advisers were under no obligation to accept the truth of the material in the respondents' affidavits until cross-examination of all witnesses was completed; · there were facts to support the inference that there had been a round robin of cheques (despite this being contrary to the finding eventually made), features of the transactions that could reasonably have given rise to the inference, in the absence of further evidence, of the diversion of funds and of constructive knowledge on the part of the respondents, and a significant gap in the evidence as to where the funds for the term bonds originated; · the respondents failed to call Mr Emmanuel and/or evidence as to bank practice in relation the issue of bank cheques or warrants; · counsel for Dr Patrick provided a certificate in respect of the pleading in accordance with the Federal Court Rules, and the Court was persuaded that an arguable basis existed for amendments alleging fraud and granted leave for these amendments to be made, including the allegation of fraud against OCBC, which was made with the leave of the Court; · the Court found that there was a case to answer on the part of all respondents (see Patrick v Capital Finance Pty Ltd (No 2) [2002] FCA 1570); · Dr Patrick's legal advisers would not have acted responsibly by abandoning the case after the finding, on the no case submission, that there was a case to answer; · the case fell principally on the applicant's failure to adduce sufficient evidence as to the nature of the funding of these term bonds, and to thereby discharge the onus of proof; and · the case can be distinguished from the case considered by Goldberg J in White Industries (Qld) Pty Ltd v Flower & Hart (a firm) (1998) 156 ALR 169 ("White Industries") because it could not be said that this was a case where there was no worthwhile prospect of success. The Judgment on no case submission 32 My reasoning and statement of the relevant facts on the no case submission are set out in my judgment of 18 December 2002 (see Patrick v Capital Finance Pty Ltd (No 2) [2002] FCA 1570), and I will not repeat them. I will, however, record the following findings because they bear on the costs submissions now advanced on behalf of the respondents. 33 I am satisfied that Dr Patrick left the conduct of the proceeding in the hands of Corrs, including the decision as to whether there was sufficient material to alleged fraud. I am not satisfied that Dr Patrick gave any specific instructions to allege fraud. Nor do I consider that he has been guilty of conduct that would make him liable for indemnity costs. In my view, it was reasonable for Dr Patrick to rely on the advice of his solicitors, and, as discussed further below, this advice did not make it apparent that the case was untenable. 34 I found that there was a case to answer, on the evidence as it then stood, that OCBC was aware that a major part of investors' funds were to be diverted to purchase security for repayment obligations. This question was finely balanced. However, the evidence was sufficiently strong to warrant the continuance of the case and the rejection of the no case submission having regard to the inferences which I thought should be drawn in favour of the applicant at that point. I concluded that the evidence supported inferences that there was a case to answer in respect of the claimed round-robin exchange of cheques on the settlement, and that a substantial amount of money originally generated from OCBC did not go into the underlying project, which was the subject of the investment. I rejected the submissions of the applicant in relation to interference with contractual relations. I based my finding as to knowledge of OCBC on the inferences that could be drawn from the circumstances then before me. I did not accept that actual intentional and subjective fraudulent intent, as opposed to "objective dishonesty", had been made out against OCBC. I also rejected the applicant's submission that the failure of OCBC to point out the inaccuracy in the Prospectus was an implied representation by OCBC. In relation to OCBC being a knowing accessory I accepted that an inference could be drawn, on the then state of the evidence, that OCBC had the requisite knowledge. In addition, I formed the view that there was a case to answer in relation to the claim that OCBC was liable as a recipient of trust property. 35 I found that Mr Coote's role in relation to the Crazy for You Fund was a critical one. I also found that there was case to answer in relation to allegations of breach of fiduciary duty and breaches of agreement. 36 I concluded that in light of the close involvement of Mr Park in the Crazy for You Fund, an inference could be drawn, on the then state of the evidence, that Capital and Mr Park were aware of the concern expressed by the solicitors for OCBC, and that without the benefit of any positive countervailing evidence it was reasonable to infer that Capital and Mr Park were aware of, and acquiesced in, misleading representations in the Prospectus, and accordingly, would be liable as accessories. I also considered that there was a case made out on the state of the evidence in relation to the recipient liability ground. 37 My overall conclusion on the no case submission was that on the evidence the applicant made out a case against the respondents. In my view, these findings on the no case submission are of central importance when it comes to considering the question of whether costs should be awarded on an indemnity basis or as against the solicitors. Reasoning on the costs applications 38 I note from the outset of this discussion that the award of costs on an indemnity basis is directed to compensate and not to punish. 39 It has not been established on these applications for costs that Corrs or Dr Patrick acted for any ulterior purpose. The circumstances are quite different form those in the White Industries case, where the relevant principles set out in detail and are considered by Goldberg J. There was some suggestion in argument by the respondents that Corrs, prior to the commencement of the principal proceeding, was taking steps to encourage group actions in relation to tax-driven entertainment schemes, including the Crazy For You Fund. This was not formally spelt out in detail, but reference was made to a preliminary advice and communications and correspondence from Corrs to investors. However, the evidence referred to falls far short of justifying an inference of any such ulterior motive. 40 The transactions at issue in the principal proceeding arose within the factual and legal context of a highly artificial scheme designed to attract tax advantages. Complex and contrived legal rights and obligations were drafted and provided for in extensive documentation. As a consequence, it was no doubt extremely difficult to investigate and ascertain how funds were secured and sourced, and the direction in which they flowed. The precise detail of what occurred was, on its face, peculiarly within the knowledge of one of more of the respondents. That knowledge may have been only partial in respect of some of the respondents at least. 41 Although the initial investigation by the Corrs could have been more thoroughly carried out, I am not persuaded that the proceeding was baseless from the outset, or that they ought to have advised abandonment of the proceedings at any stage, particularly with the benefit of hindsight after the applicant had succeeded on the no case submission. 42 The fact that experienced Counsel certified the pleading shortly after the proceeding commenced does not, of course, relieve the solicitors of their responsibility to carry out a proper investigation of the facts before fraud and accessory knowledge or knowing participation is alleged: see White Industries at 242-243. Nevertheless, it is a factor to take into consideration in examining the solicitor's position. 43 Senior Counsel certified the Fourth Further Amended Statement of Claim on 9 December 2002, which is an indication that he thought there was sufficient material to ground the pleading. From the outset, Counsel for the applicant made it clear that extensive reliance was placed on inferences and circumstantial evidence. This is not a case where there is any suggestion of complicity between counsel and the solicitors in the implementation of an ulterior purpose such as, for example, to delay other proceedings. 44 At the conclusion of the applicant's case in the principal proceeding, the respondents made detailed submissions, extending in total over several days, which were based on the evidence adduced to that point in light of the pleadings. This involved a thorough examination of the substance of the case, and after careful deliberation on the submissions, I considered that, in the absence of any further evidence, there was a case for each of the respondents to answer. This conclusion was reached on the basis that the proceeding ought to continue as against each of the respondents if there was a cause of action established on the evidence in relation to each of them. It is somewhat unrealistic to suggest that, having successfully resisted the no case submission, the applicant should have abandoned the proceeding. 45 As a consequence of the rejection of the no case submission, the respondents presented a substantial body of additional oral and documentary evidence, and there was further extensive cross-examination, which persuaded me, after due consideration, that the applicant had not made out its case for relief. Even then, the case was not clear-cut as to the correct conclusion. I am not persuaded that the hearing would have been significantly reduced as a consequence of the withdrawal of the causes of action after the no case submission, or that it was unnecessarily drawn out as a consequence of the way in which it was conducted for the applicant up to or after that point. Indeed, I do not consider that there was any undue wastage of time by the applicants in the conduct of the case. There were important live issues to be considered in this matter at the conclusion of the hearing in respect of which the outcome was far from clear-cut. It was necessary to consider areas of unsettled law, such as recipient and accessory liability in the light of the inferences that I was asked to draw as to the knowledge of the respondents. 46 A large part of this case was concerned with the evidence of the settlement transactions, and the sourcing and movement of funding and the particular way in which the transactions were carried out. Even after months of considering the evidence and the submissions, some open questions remain as to the precise sourcing and flow of the funds in these settlement transactions. 47 In my view, having re-read the reasons for judgment on the no case submission in the light of the final submissions and the final judgment, I do not accept that the proceeding was commenced or continued unreasonably or recklessly, or in such a way as to enliven an exposure to costs on the part of the solicitors which would warrant the imposition of indemnity costs on the applicant. 48 It will be a rare case where a Court, having made findings that there is a case to answer after hearing detailed submissions, will then conclude that the case was doomed to failure from the outset or at any particular stage in the proceeding. This was a complex case, and not one that could be dismissed out of hand. It was not obvious during the course of the hearing that the submissions made by the applicant were patently untenable. As in a great deal of complex commercial litigation, the Court does not have before it all the material facts and circumstances. The Court operates under the constraints of an adversarial system and in the present case in particular, the parties on both sides did not call all witnesses or adduce all the evidence that might have been expected. This was understandable from a tactical or strategic viewpoint. Such evidence if it existed may not have been favourable to the party's case when considered as a whole. The Court cannot be privy to the reasoning and tactical deliberations of the parties as to who is called or the way in which the case is conducted except in so far as it has material presented to it by the parties. 49 In relation to the November 2002 threat to seek costs against the solicitors and counsel, as indicated by the Full Court in Levick v Commissioner of Taxation (2000) 102 FCR 155 at 166, courts have frequently expressed concern about the risk of a practice developing whereby solicitors endeavour to browbeat their opponents into abandoning clients or particular issues or arguments for fear of personal costs orders being made against them. In some extreme circumstances this could even amount to contempt of court. As the Full Court points out in Levick, it is important to uphold the right of a court to order a solicitor to pay costs wasted by the solicitor's unreasonable conduct of a case. However, this unreasonable conduct must be more than acting on behalf of a client who has little prospect of success. There must be something similar to an abuse of process in the sense of using the proceedings for an ulterior purpose, or without any proper consideration of the prosects of success: see Levick at [44]. Courts cannot know what precise instructions have been given to the solicitors. I note, for example, that from the affidavit of Ms Goddard as to her inspection of Dr Patrick's file, it is apparent that she has not examined all the relevant material in the files relating to Dr Patrick. 50 In relation the submission that it was apparent from the outset that Dr Patrick had not suffered any loss, and that therefore the proceeding should have been abandoned, it is necessary to bear in mind that the proceeding is a class action which involves a number of common questions of law and fact. It is possible, of course, that the situation of Dr Patrick may not be identical with that of other class members so far as damages are concerned. In addition, it is not apparent that the claims of Dr Patrick as to damages were so untenable that no action ought ever to have been brought or pursued. There was from the inception, an arguable case. As to the strength of it, different minds might form different opinions. In the final analysis, in relation to Dr Patrick, the finding was that he had not relied on any misrepresentations as alleged, and there was therefore a fatal causation problem. Moreover, the lynchpin of the case, namely that there had been a diversion of investors' funds, had not been made out. Accordingly, I do not see the submission relying on the failure to prove loss as providing any substantial support for the proposition that there ought be indemnity costs against either Dr Patrick or Corrs. 51 In my view, although there were shortcomings established in the course of the proceedings on the part of Corrs so far as the investigations were concerned, I do not consider that the circumstances are such as to warrant the exercise of my discretion to award costs on an indemnity basis either as against Dr Patrick or Corrs. I do not think a sufficiently strong case has been made out for the exceptional award of costs against Corrs. I therefore think that the appropriate order in relation to costs of the principal proceeding is that Dr Patrick should be ordered to pay the costs of the respondents on a party-party basis. 52 In relation to these costs applications, I note that common interest privilege was asserted and argued on behalf of Corrs and Dr Patrick, and that this claim was unsuccessful. Therefore I consider, in light of the amount of time spent on submissions in relation to the question of privilege, that Dr Patrick and Corrs should receive 80% of their costs on a party-party basis. 53 During the course of the principal proceeding there were a number of interlocutory judgments. In respect of those judgments where I made an order for costs I do not consider that such orders should be varied. I order the respondents to pay the costs of the applicant in relation to the order made on 30 April 2003, which concerned making a letter of 22 January 1997 available for inspection. I order the applicant to pay the respondents' costs in relation to the order of 1 May 2003, dismissing the applicant's Notice of Motion of 15 April 2003 for further discovery. In the principal proceeding, the applicant shall pay the costs of the respondents on a party-party basis. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate: Dated: 24 September 2004 Counsel for the Applicant and Corrs Chambers Westgarth: P. O'Callaghan, QC G. McEwen Solicitor for the Applicant and Corrs Chambers Westgarth: Minter Ellison Counsel for the First, Second, Third and Fourth Respondents: E.N. Magee QC D.M. Austin Solicitor for the First, Second, Third and Fourth Respondents: Voitin Walker Davis Counsel for the Fifth Respondent: R.M. Garratt QC Solicitor for the Fifth Respondent: Cornwall Stodart Counsel for the Sixth Respondent: P.M. Bornstein Solicitor for the Sixth Respondent: Phillips Fox No appearance by the Seventh Respondent. Dates of Hearing: 28-29 July 2004 Date of Last Written Submissions: 12 August 2004 Date of Judgment: 24 September 2004