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Court in the Act
6 October, 2003  
Melbourne silk faces costs slug-out from extravagant and flawed litigation

Litigation funder may seek costs contribution from Doug Meagher QC in the wake of “reckless” litigation. Barristers’ insurance premiums under fresh pressure

The potential for a fresh Flower & Hart-type crisis has blown up in Queensland with a costs’ judgment from Justice Richard Chesterman in the marathon Emanuel Management v Fosters Brewing litigation. The consequences for barristers’ insurance premiums could be quite awful.

[It may be recalled that Justice Goldberg in July 1998 ordered the Brisbane law shop Flower & Hart to pay costs on an indemnity basis to White Industries. Goldberg found that a George Herscu company had started fraud proceedings against White Industries for an “improper purpose”. Flower & Hart acted for the unsuccessful plaintiff and had briefed Tubby Callinan to advise and appear.]

Chesterman in the Emanuel case (in reasons just to hand) has ordered that the successful defendants, which include Foster’s Brewing (previously Elders Finance Group), and Coopers & Lybrand are entitled to recover costs for this horrendously longwinded and expensive litigation on an indemnity basis.

The case alleged that Elders Finance acted dishonestly in acquiring control of large parcels of Emanuel’s land. The plaintiffs also claimed that Elders effectively controlled Emanuel while the property group was insolvent.

The liquidator of the Emanuel property group, Peter Macks of PPB, instigated the original proceedings. He sued the old Elders Finance Group and the accountants for the companies, Coopers & Lybrand.

imageThe plaintiffs made allegations of fraud against the defendants and of dishonesty and deliberate misconduct against Foster’s Brewing’s (Elders’) solicitors and officers.

Justice Chesty (right) found in an earlier judgment (July 17, 2003) that that the plaintiffs’ persisted with a hopeless case, with no evidence adduced to support the allegations:

“It is significant that extravagant claims of dishonesty, corruption and gross impropriety were made in support of which not the slightest evidence was called.”

The corporate plaintiffs are worthless, but Chesty went on to order that indemnity costs could be recovered from the litigation funder, Gordian Runoff Ltd, originally part of GIO, now AMP. The funder was “an emanation of and substitute for” the insurer.

The judgment said that Gordian Runoff’s solicitor was given contractual powers to supervise the conduct of the litigation and to be kept informed of its progress. Chesty explained:

“By the terms of the arrangements between the liquidator and GRL the former had to appoint GRL’s solicitor ‘in relation to the bringing of the main action Ward & Partners were the solicitors retained by the liquidator. The agreement provided that (GRL’s solicitor) would appoint Ward & Partners to be his agents to run the main action Ward & Partners would report to (the solicitor) directly in all matters concerning the claim’.”

GRL was to receive 35 percent of any judgment received by the plaintiffs.

Chesterman went on:

“The case it funded involved serious allegations of misconduct against persons of great prominence. There was a degree of recklessness in the conduct of the litigation in the sense that these allegations were made and persisted in without a proper evidentiary basis and in the face of warnings that there was no such basis. GRL was in a position to control the conduct of the litigation”

Costs are anticipated to be as high as $30 million. Foster’s costs alone are of the order of $19 million.

The hearings ran for seven months in the Queensland Supreme Court, and the action overall has been on its legs for about eight years.

Barristers with their snouts in this case included, for the Foster’s group of defendants, PA Keane QC, J. Sheahan SC, J. Bond SC, JD McKenna, and A. Pomerenke, instructed by Clutz.

For the Coopers & Lybrand group there was BC Oslington QC, GA Thompson SC, and LF Kelly, instructed by Mallesons.

imageFor the plaintiffs there was also a weighty line-up: D. Meagher QC (right), P. Morrison QC, R. Derrington, J. Peden and M. Liversey. The solicitors on the record were Bennett & Philp instructed as town agents for Hunt & Hunt (Adelaide).

Just before the costs hearing the litigation funder gave notice that it might seek contribution for costs from counsel for the plaintiffs, Doug Meagher QC of the Melbourne Bar & Bistro.

In the costs judgment, Chesty said:

“The claim for contribution will presumably rest upon claims in negligence or breach of retainer against senior counsel

[I]t appears to me that a proceeding of the kind where Gordian Runoff Ltd insinuates that it will bring is not a claim for an order that a non-party pay the costs of an action, but will be a claim for damages for negligence against a barrister.”

A few snatches of Chesterman’s findings in July on the merits of the case will suffice:

“A striking feature of the plaintiffs’ case is the lack of direct, testimonial evidence to support it. None of the principals to the transactions who would know of the alleged fraud and conspiracy were called despite their not being parties and no relief being sought against them The case entirely relies upon documents and the cross examination of the Elders’ witnesses in an attempt to obtain concessions of wrongdoing. It is noteworthy that the documents, on their face, either do not support the plaintiffs’ case or are damaging to it. Likewise the cross examination was of a most curious nature, if its purpose was (as it seems to me it had to be) to elicit admissions of circumstances which would give rise to inferences supporting the conspiracy and dishonesty alleged. No doubt to be effective the cross-examination had to be subtle but it had, at some stage, to approach the points in issue. As well, as a matter of fairness, the witnesses had to be given an opportunity to answer the very serious charges brought against them. As far as I could judge it, the cross examination did not attempt the task. Indeed with a number of witnesses the cross examiner appeared to avoid putting his case so as not to give the witnesses an opportunity to deny wrongdoing or to explain circumstances relied on to suggest it

“There was an air of unreality about much of the plaintiffs’ case. At times it appeared as though the litigation were treated, not as a trial, but as a commission of inquiry into all aspects of the commercial dealings between the plaintiffs and (Emanuel). There was little attempt to discard the irrelevant or the ambiguous, and to bring focus to such of the evidence as might support their pleaded case. Nor did the plaintiffs appear to realise that much of what they rely upon was minimal to their interests or is, at best, equivocal.”

If Gordonian Runoff pursues Doug Meagher for contributions it can be anticipated that that litigation will also be long and arduous. Meagher may also seek to join others from his team.

All of which has the potential to impact most diabolically on barristers’ insurance premiums.