GEORGE ANDREW HARRISON & ANOR v DELCIE JOAN SCHIPP [2002] NSWCA 27

New South Wales Court of Appeal

CITATION : GEORGE ANDREW HARRISON & ANOR v DELCIE JOAN SCHIPP [2002] NSWCA 27 FILE NUMBER(S) : CA 40814/01; 40728/98 HEARING DATE(S) : 13 February 2002 JUDGMENT DATE : 15 February 2002

PARTIES : GEORGE ANDREW HARRISON & ANOR v DELCIE JOAN SCHIPP JUDGMENT OF : Mason P

COUNSEL : Appellant: G Lucarelli Respondent: M Slattery QC SOLICITORS : Appellant: Blake Dawson Waldron Respondent: Barker Gosling CATCHWORDS : Mediation - referral by Court opposed by one party - Supreme Court Act, s110K - relevant factors - relevance of costs and inability to recover them (ND) DECISION : Dismissed with costs.

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 4014/01; CA 40728/98 MASON P

Friday 15 February 2002 George Andrew HARRISON & Anor v Delcie Joan SCHIPP

JUDGMENT 1 MASON P: I have before me an application for an order under section 110K of the Supreme Court Act referring pending proceedings for mediation. Also before me is an application for further directions. The proceedings have been fixed for hearing on an expedited basis on 12 March. They arise out of earlier proceedings fought over many days in the Commercial Division. 2 The upshot of the earlier proceedings was an order by Einstein J that Mr Harrison and a company with which he was associated pay equitable compensation of $230,000-odd and interest of $394,000 plus costs on an indemnity basis. The orders were based upon findings of breach of fiduciary duty. Mr Harrison was Mrs Schipp's solicitor and there were additional circumstances held to give rise to a fiduciary relationship between the parties. Mr Harrison's appeal to this Court was unsuccessful (see Harrison v Schipp [2001] NSWCA 13). 3 Mrs Schipp had pleaded facts which included allegations of dishonesty. This raised insurance issues, although I am not suggesting that they would not have surfaced in any event. I just do not know. But part of the proceedings before Einstein J concerned the question whether Mr Harrison was entitled to indemnity under the professional indemnity scheme. It was a matter in which both Mrs Schipp and Mr Harrison had a common interest, at least from a monetary point of view. Mrs Schipp failed in her claim at first instance to have the insurers stand behind the defendant. 4 Fresh proceedings were commenced in the Equity Division in late 2001. In them, Mr Harrison and Emibarb Pty Limited have pleaded the discovery of items of fresh evidence said to be critical in the evaluation, particularly, of Mrs Schipp as a credible witness. The relief sought includes orders setting aside the judgments favourable to Mrs Schipp made by Einstein J and upheld in the Court of Appeal. The proceedings raise a question of law as to whether in the absence of an allegation of fraud (and there is none) it is open to impugn a judgment on this basis. 5 The Equity proceedings were removed into this Court and have been fixed for hearing on an expedited basis on 12 March. There are two issues. The first is the legal one as to whether there is jurisdiction to entertain such an application and whether, if there once was, it has been removed by the creation of an appellate structure. The second is the factual one, which will involve looking at the fresh evidence and considering its impact upon the earlier decision. At least as of December of last year, it appeared that that evidence was in fairly small compass and was not itself a matter of great dispute, the real issue being, as I understood it, whether it was truly fresh and whether its absence can be seen to have made any difference. 6 At a directions hearing before me on 13 December 2001, I made formal orders expediting the proceedings and granting liberty to apply. I noted that an application for security for costs was to be listed before the Registrar early this year. I decided not to make any formal orders for directions, in the anticipation that the parties would work out an agreed form of directions and timetable that would ensure that the record was in order for the hearing. Unfortunately it appears that the parties did not do so, and/or did not police any arrangement that they made apparently informally. 7 The application for security for costs was contested and (I have been informed) it failed, principally on the basis that the present proceedings are fresh proceedings, and therefore the higher threshold concerning an application for security for costs touching that type of proceedings was not passed. 8 It is relevant to the matters yet to be addressed that the costs of the earlier litigation are horrendous sums. Mrs Schipp has been left owing very considerable sums of money under a costs order in favour of the insurers. It has been established that the benefit of those costs orders has been assigned to Mrs Harrison, who now stands poised and able to proceed in bankruptcy against Mrs Schipp if they are not paid. I would not be surprised if Mrs Schipp lacks the capacity to pay them out of her own assets. On the other hand, Mr Harrison and his company have been ordered to pay the main costs of the proceedings before Einstein J and the substantial costs of the appeal, and those costs I have no doubt will exceed the judgment sum against him. 9 I have been informed that bankruptcy proceedings have been commenced against Mr Harrison. They have been adjourned pending the outcome of the present substantive proceedings in this Court, but my understanding is that there is, in effect, no defence to those proceedings and there will be none unless and until the judgment of Einstein J is disturbed. 10 The present application seeks an order pursuant to section 110K that the proceedings be referred to mediation and an order that the plaintiff, Mr Harrison, pay the costs of the mediator and any costs of hiring a venue for the mediation. There is an alternative subsidiary order that I need not spell out. The proposal as developed before me is that the hearing date fixed for 12 March be left undisturbed, and that the matter be fixed before an experienced mediator, Mr Raftesath, some time in the week commencing 25 February. Mr Harrison, who appears to be the sole remaining plaintiff (the company having, if I recollect correctly, gone into liquidation) has indicated he is willing to pay the costs of the mediator and the venue in the sum of $4,000. In response to my enquiry of his counsel as to where the money would be coming from in view of his financial position, I was told it was coming from a source within his family. I hasten to say that there is no suggestion there is anything wrong with that. 11 There has been no offer to contribute towards Mrs Schipp's costs relating to the mediation. It was a matter I raised. I am not suggesting it would have been conclusive. A party cannot buy the right to have a mediation. Equally, an opponent cannot block a mediation in a proper case by insisting on payment of his or her costs. 12 The mediation is sought on the basis, in effect, that this is the last chance of all parties - and I will explain what I mean by all parties - to avoid a financial disaster. There had been an earlier attempt at mediation several years ago before the first instance trial. It was unsuccessful. I mention that, not to suggest that it has any great bearing, although it has some. The fact is that we are very much in the end game where the parties are staring each other down like nineteenth century Western gunfighters, each possibly having the capacity to destroy the other. It may be of course that bankruptcy presents less of a fear to one party than the other. It may be that setoffs are proposed to be made. I just do not know. The fact is there is a potential for each party to bankrupt the other, which would be maybe their right but may not necessarily be in the public interest. On the other hand, there are legal entitlements for damages and costs, and bankruptcy proceedings are an entirely proper way of pursuing to recover them. 13 The nub of the application for mediation is that it would provide all parties with the opportunity to achieve a global resolution for a multi-faceted dispute. By all parties I intend to include the additional factors of Mrs Harrison having come into the picture as assignee of the insurer's debts; and also the interest of Mrs Schipp's solicitors in recovery the very substantial legal costs that they have incurred on her behalf in litigation. My understanding of the evidence is that they have some security over Mrs Schipp's property, and an obvious entitlement to recover their own costs as between solicitor and client. If Mrs Schipp is unable to get the costs out of Mr Harrison, then they will be a further loser in this sad conflict. 14 The submission is that the present case is an instance where "a proper sense of proportion may be introduced in the picture by the efforts of a third party skilled in conciliation," (per Barrett J Morrow v China.com [2001] NSWSC 209 at 44. It is submitted that Mrs Schipp's opposition to the mediation, while relevant, is not decisive, and that is clearly correct. 15 There is one ground that is advanced that I wish to deal with first before endeavouring to express my reasons globally for my ultimate conclusion, which I would indicate is that I am not disposed to order mediation. It has been submitted that there are grounds to apprehend a potential conflict of interest between Mrs Schipp and her lawyers. There seem to be two threads of argument here. The first relates to the fact that Mrs Schipp finds herself with an uninsured defendant and the suggestion that becaue she pleaded dishonesty somehow or other contributes to bringing the house down on everybody's head. That may or may not be the case, but the suggestion is that there might be a possible basis for contending that Mrs Schipp's lawyers were at fault in making this allegation and that therefore there might be a conflict of interest in them continuing to represent her. The second set of circumstances raised as a possible basis for a conflict of interest that is said to be relevant to my consideration is the costs situation. As I understand it, the submission is that the lawyers are owed a substantial sum of money which may be secured, and that puts them in a difficult position. 16 I do not think I should factor into my consideration any part of what I have called the first strand of matters relevant to a potential conflict of interest. To my mind, it is all too speculative. I cannot proceed on some assumption that some impropriety has occurred or is occurring. Mrs Schipp has had the same solicitor and counsel throughout the whole litigation, as I understand it. They are clearly on notice, and I am sure have been for a long time, of the issue that is raised. I cannot assume that they have taken any improper steps. I certainly cannot assume that a mediation is a way of somehow or other breaking through that issue. If it is a matter that is in the wings, just as the whole issue of costs is a matter that is in the wings, everybody knows about it. To my mind it just emphasises the need for Mrs Schipp's lawyers to hang in, in the whole process, rather than to be driven away from it. 17 It is an everyday occurrence that a lawyer is faced with having to negotiate settlement in a situation where he or she has a potential interest in the settlement, in that substantial sums of money are owing for legal services already given. It does not make life any easier, but it does not amount to such an unusual situation or an improper situation that I should factor it into the considerations. 18 I have not found the question of whether to direct mediation an easy one. It is a matter in which there is a discretion. As I have indicated, the opposition of one party is by no means conclusive. The complexity of the interlocking interests is such that I think mediation might be fruitful, and to that extent I commend it still to the parties. On the other hand, I am not persuaded that the prospects of mediation clinching a deal, if a deal is to be reached, are very high. 19 Because this is an end game situation I think that the parties (each being legally represented and in Mr Harrison's case, he being a lawyer) are very well able to assess the ultimate consequences of the two gunfighters pulling the trigger. I think that if there is a good prospect of settlement, I do not know that mediation is going in this particular case to be the decisive factor. It might be, but I have indicated how heavily I would weigh it. I have indicated that I would reject the suggestion that mediation will help, or ought to be seen to be helping in the conflict of interest issues. 20 The costs factor is, in my mind, quite a significant one. We are looking at a hearing that hopefully will only take one more hearing date where further costs will be incurred on Mrs Schipp's part which, if she succeeds, she may still lose because of the inability of Mr Harrison to meet them. The mediation that is proposed is one where it would be quite unfair to expect Mrs Schipp to engage in without legal assistance, all the more so because of the indirect but relevant interest that her present lawyers have in the outcome of the whole proceedings. 21 I think there comes a time when the whole cost of litigation becomes oppressive to a party. I am not saying that has been reached, but I really am reluctant to put Mrs Schipp into a situation where she is forced to incur any further costs for which there is no effective right of recoupment. 22 Taking these matters into consideration, I do not on balance consider it appropriate to refer the proceedings for mediation. 23 There is one other factor that is in my mind, I should therefore mention it. I know it is proposed that all of this will happen without disturbing the expedited hearing date. I just have some concern that enforced mediation could cause the hearing date to be displaced. It will certainly divert lawyers on both sides and I think if they are going to settle, they should settle without going through all of the formalities of a mediation and not be diverted by it. 24 Accordingly, the motion is dismissed with costs. 25 As regards the directions, I have already indicated in perhaps milder terms than reflect the truth, my displeasure that the matter remains in such an uncertain state. The matter is compounded by the fact that despite assurances given to the Court and to Mrs Schipp's lawyers before the end of the year that all the evidence was either available or was about to be available, there continues to be a trickle, a not insubstantial trickle, of additional material. 26 These proceedings are first instance proceedings in this Court, but I have made it very plain they will be treated procedurally as if they were an appeal and as an appeal that has been expedited. The Court will require all of the assistance with appeal books and submissions that it would expect in an appeal. The very nature of the proceedings are such that the legal issue has got to be squarely addressed in submissions and the factual record put in order. The submissions must address the critical factual issue of the newness of the evidence and its impact upon the earlier judgment. All of these things will require time and all of these things must be done well in advance of the hearing date, otherwise the proceedings will be dismissed. 27 I propose to make the directions as proposed by the defendant in the proceedings, although I am prepared to push the date out a little bit beyond 26 February to 4 March. 28 Gentlemen, do you each have a copy of the draft short minutes of order? 29 DRUMMOND: Your Honour, Drummond, solicitor. Would your Honour hear me in relation to this? Perhaps I can be of some assistance. 30 HIS HONOUR: Do you want to assist or do you want to persuade me out of what I've suggested? Go ahead. 31 DRUMMOND: We'd actually like to bring forward the date. 32 HIS HONOUR: Alright, well I'll leave the date there. 33 DRUMMOND: There are two questions here. One is the material that's to be filed and served, and secondly, there's the timing of that. If we look at the material, the material falls into two categories. There's the appeal books from the earlier appeal which will be effectively recycled, so both parties are already familiar with that material and have copies. We shall need to make up some copies for the Court. The second category is what we call the new material and at this stage we have one red book, there will only be one red book, and we presently have 13 blue books. Mrs Harrison, who was in Court on Wednesday, heard and heeded your Honour's words of encouragement. She's worked through the night and through an earthquake, with the result that this morning we have served three copies of the new red book and the 13 volumes of the new blue book. 34 HIS HONOUR: May I suggest this, that you have leave during the course of the day - I'll be sitting with Heydon JA for the morning in various summons matters - if you want to mention it during the day, or alternatively if you want to send in some short minutes of order. I'm willing to trust the parties that they will be able to work something out in view of what I've been told, and you can send in some directions to me. Is that in order? 35 DRUMMOND: It seems that there are only two areas of possible difficulty for the plaintiff. One is the evidence of Mr Parieson, who is a witness beyond our control, and the other area relates to the issue of whether a solicitor fabricated file notes, and it was only when I returned from annual leave on 29 January that I had an opportunity to read the defence and to see that that allegation was not admitted, so we're effectively put to proof of that. We raised it very promptly as an issue, and we've served two affidavits which are paginated and which we propose to include as part of volume 14 of the brief. 36 HIS HONOUR: It sounds like the evidence is ready to go. 37 DRUMMOND: There are a couple of small outstanding like that, but they're within identified areas relating to identified issues. Everyone knows about it. 38 HIS HONOUR: I think I want more than that. 39 PLAINTIFF: Your Honour, we would like more than that. Unfortunately neither my instructing solicitor nor I are able to participate today in any further discussions. I am due in court somewhere else and my instructing solicitor also has another engagement. We would simply invite your Honour to direct that this other material be on by a certain date and if that's not complied with, then because there is another affidavit of Mr Parieson to come, then that's a matter which - the non-compliance with that, if an application is made to file late material can be dealt with on its merit. 40 HIS HONOUR: I think what I'll do is I will make the directions with the dates that sound like they're generous dates in view of what Mr Drummond has said, but at least everybody knows what we - do you have a copy of the document in front of you? 41 DRUMMOND: Yes, your Honour. 42 HIS HONOUR: What I propose doing is in paragraph 1, 26 February will become 4 March. In paragraph 2, a similar amendment. In paragraph 3, I propose that the defendant's submissions be 8 March as to the law and 11 March as to the fact. If the parties want to bring those times forward in an agreed form of directions, they can reach that agreement and submit the directions. I want to make it very plain that if there are any defaults in these directions - in fact I will reserve liberty to apply for appropriate summary disposal if there are any defaults in these directions. 43 DRUMMOND: Your Honour, 4 doesn't seem appropriate to us. 44 PLAINTIFF: If the appeal books now served contain all of the transcript of the first trial before Einstein J, I agree 4 is no longer appropriate. 45 HIS HONOUR: Thank you, alright. Then I make orders in accordance with the short minutes with those amendments. I'll hand down to my associate a copy of the amended document so that she can interpret the writing to you and you can get a common copy. *****************