Smits v Roach

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Heydon,Crennan JJ.,GUMMOW,HAYNE JJ.,Kirby J.
• Judgment Date: 20 July 2006
• Neutral Citation: 2006-0720 HCA D,[2006] HCA 36
• Court: High Court
• Docket Number: S398/2005
• Date: 20 July 2006

Leonardus Gerardus Smits & Anor

Appellants

and

Walter Edward Roach & Ors

Respondents

[2006] HCA 36

Gleeson CJ, Gummow, Kirby, Hayne, Heydon AND Crennan JJ

S398/2005

HIGH COURT OF AUSTRALIA

Smits v Roach

Courts and judges — Apprehended bias — Disqualification of judge — Right to trial by independent and impartial tribunal — Familial association — Brother of judge alleged to have an indirect pecuniary interest in outcome of proceedings — Associated party given access to judge's draft reasons in advance of delivery — Non-disclosure of association until conclusion of trial — Whether apprehension of bias reasonable — Whether connection between familial association and feared deviation from impartial decision articulated.

Courts and judges — Apprehended bias — Disqualification of judge — Familial association — Brother of judge alleged to have an indirect pecuniary interest in outcome of proceedings — Failure to object promptly to judge's participation in the trial — Waiver of right to object.

Legal practitioners — Barrister and client — Relationship of agency — Imputation to litigant of knowledge possessed by counsel.

Words and phrases — ‘apprehended bias’.

Representation

J McC Ireland QC with H Altan for the appellants (instructed by Moloney Lawyers)

T G R Parker SC with N J Owens for the respondents (instructed by Henderson Taylor Workplace Lawyers)

ORDER

Appeal dismissed with costs.

1 Gleeson CJ, Heydon AND Crennan JJ. The appellants, who are solicitors, were retained to act for the respondents in an action for damages for professional negligence against another firm of solicitors. The appellants and the respondents fell into dispute. The appellants ceased to act for the respondents, who were subsequently represented in the professional negligence proceedings by other solicitors. The appellants sued the respondents in the Supreme Court of New South Wales, seeking to recover professional costs to which they claimed to be entitled. They failed at first instance before McClellan J 1. An appeal to the Court of Appeal of the Supreme Court of New South Wales (Sheller, Ipp and Bryson JJA) was partly successful 2. The issue in the further appeal of the appellants to this Court is narrower than the issues considered by the Court of Appeal. It concerns only the ninth ground of appeal to the Court of Appeal, which was that McClellan J ‘erred in failing to disqualify himself on 26 June 2002 from determination of the proceedings’. The Court of Appeal rejected that ground on the basis that the appellants ‘waived their right to seek to have the judge disqualify himself’.

2 In order to explain how the questions of disqualification and waiver arose, it is necessary to describe, in broad outline, the professional negligence proceedings, and the disputes that arose between the appellants and the respondents in relation to the conduct of those proceedings.

The professional negligence proceedings

3 The first respondent, Mr Roach, is an engineer. The second and third respondents are companies formerly controlled by the first respondent. They are now in voluntary liquidation. In the late 1980s, the first respondent became interested in a peat deposit in Victoria. The respondents engaged Freehill Hollingdale & Page (‘Freehills’) to act on their behalf in the legal steps to be taken to permit the exploitation of the peat deposit. The second respondent took a lease of the land. The respondents allege that, as a result of negligent advice from Freehills, the Roach interests failed to apply for a mining licence and, in consequence, another person obtained the right to exploit the deposit.

4 For many years the first respondent had been a personal friend of the second appellant, Mr Leslie. The first respondent sought the professional assistance of Mr Leslie in connection with a claim for damages against Freehills.

The respondents were not in a financial position to meet the costs of the proposed litigation in the ordinary way. A special agreement about costs was made. On 1 July 1995, before any proceedings against Freehills were commenced, the second appellant went into partnership with the first appellant.

5 On 15 November 1995, the firm of Smits Leslie commenced proceedings on behalf of the respondents against Freehills. On 7 April 1999, the retainer of Smits Leslie was formally terminated. The circumstances in which the termination occurred are part of the subject matter of the litigation between the appellants and the respondents. The parties had been in dispute for several months before the termination.

6 The damages claimed by the respondents against Freehills were for the loss of the profits that would have been made from the exploitation of the peat deposit. They were claimed to be in the order of $1 billion. There is no material before this Court that permits any conclusion about the credibility of that assessment of loss. In the Supreme Court of New South Wales, there was in evidence a report that a ‘spokeswoman for Freehills … said the peat farm central to the proceedings is quite small and its only use is for fertiliser for mushrooms’. There was also evidence that, at one stage, Freehills offered to settle the claim for $57,600 plus costs, but the offer was rejected. The offer was later increased to $125,000 plus costs, but was again rejected. Those offers may reflect no more than an assessment of what it was worth to Freehills, in terms of their own costs and time, to resolve the litigation. However, on the evidence in the present proceedings it is not possible to form a view about the merits of the claim against Freehills, or about the amount of damages likely to be awarded if the action were ultimately to succeed. Neither McClellan J nor the Court of Appeal made findings about those matters.

7 Another topic about which the evidence is unclear, and about which there are no findings, is the state of preparation of the litigation between the respondents and Freehills when, in late 1998 and early 1999, the appellants effectively ceased to act for the respondents. The absence of the financial resources necessary for the preparation and prosecution of the case against Freehills was a principal cause of the breakdown in the personal and professional relations between the appellants and the first respondent. No findings have been made as to the extent to which the respondents have had benefit from the professional services of the appellants, or as to the value of that benefit assessed by reference to ordinary professional fees. To what extent it may have been necessary for the solicitors who took over the case from the appellants to duplicate work for which the appellants claim to be paid does not appear. On the approach taken by the Court of Appeal to the issues with which this Court is concerned, that was not material. It is clear, however, that the litigation was not in an advanced state of preparation at the time the appellants ceased to act.

The disputes between the appellants and the respondents

8 The disputes that were the subject of the litigation before McClellan J arose out of the problem of funding the action against Freehills. They culminated in mutual distrust, animosity and recriminations. There was conflicting evidence before McClellan J as to the events leading up to the termination of the appellants' retainer in April 1999. McClellan J preferred the evidence of the first respondent to that of the appellants.

9 When, in 1995, the first respondent asked the second appellant to act for him and his companies, he proposed that the basis of the retainer would be that the second appellant would be entitled to be paid costs only in the event of success in the litigation, and that, in such event, the second appellant would be entitled to receive, in addition to normal professional fees, 10 per cent of any damages recovered by way of court order or settlement. The magnitude of the proposed litigation, and of the potential commitments to third parties, such as barristers and expert witnesses, was of concern to the first appellant when, in mid-1995, he went into partnership with the second appellant. Two written retainer agreements were signed. It is a measure of the rate of progress of the litigation, and the problems of litigation funding, that, although the action against Freehills was commenced in November 1995, the first retainer agreement was signed in April 1997, and the second on 23 June 1998. The first retainer agreement is of historical significance only. The retainer agreement of 23 June 1998 became of central importance. It pre-dated by only a few months the complete breakdown of the solicitor-client relationship. What was happening to the Freehills litigation while all this was going on appears only by inference from findings about the disagreements and recriminations between the appellants and the first respondent.

10 McClellan J and the Court of Appeal found that both retainer agreements were champertous. The second retainer agreement, of 23 June 1998, was supplemented by a letter dated 24 June 1998. The agreement specified hourly rates for the legal work undertaken by the appellants. It provided that ‘[t]he Clients' obligation to pay all of the Solicitors' and the barrister's costs otherwise payable under this Agreement is contingent on the successful outcome of the matters in which the Solicitors and barrister provide the legal services to the Clients’. The supplementary letter provided that, if the amount recovered in the action was less than $10 million, the appellants would be entitled to share in the proceeds to the extent of 10 per cent of the amount recovered, and for values over $10 million ‘an extra maximum of 5% recovered’. The share in the proceeds was to be in addition to ‘any costs and disbursements which might be recoverable from the defendants’.

11 In...