Gokani v Visvalingam Pty Ltd

1. [1]

   LEEMING JA: I agree with Basten AJA.

2. [2]

   BASTEN AJA: The appellant, Anand Kantilal Gokani, was the solicitor on the record for Vitarag Pty Ltd, the defendant in proceedings in the District Court brought by the respondent, Visvalingam Pty Ltd. Visvalingam had sought recovery of a loan of $94,000, plus interest, which it said had been made to Vitarag in 2008. The proceedings were commenced on 12 February 2018 and defended by Vitarag. Judgment was delivered on 5 July 2021, upholding Visvalingam’s claim against Vitarag in an amount of $175,546.91. [1]

3. [3]

   On 12 July 2021, Visvalingam filed a notice of motion in the District Court proceeding seeking –

4. [4]

   On 1 March 2022, an amended notice of motion was filed including the following additional order:

5. [5]

   The motion was heard on 10 and 11 March 2022; written submissions were filed in late April 2022. A further hearing took place on 2 June 2022. Judgment on the motion was delivered on 26 July 2022, [2] the Court making the following order:

Jurisdiction of this Court

1. [6]

   Mr Gokani filed a notice of appeal on 12 October 2022. Because the proceedings in the District Court were brought by way of an action for recovery of principal and interest under a loan agreement, and the costs orders were incidental to that matter, an appeal lay under s 127 of the District Court Act 1973 (NSW).

2. [7]

   The respondent, which would have known the amount of the costs payable to it pursuant to the order, took no issue with the assertion that the amount in dispute exceeded the threshold of $100,000 in s 127(2)(c)(i) of the District Court Act 1973 (NSW).

3. [8]

   Nor did any issue arise as to the requirement for leave under s 127(2)(b), which requires leave with respect to a judgment or order “as to costs only”. As explained by Bell P in Muriniti v Mercia Financial Solutions Pty Ltd, [3] leave is not required with respect to a challenge to an order under s 99 of the Civil Procedure Act 2005 (NSW). Similarly, leave is not required with respect to an order under Sch 2, cl 5, of the Legal Profession Uniform Law Application Act 2014 (NSW) (“Application Act”). The then President, after considering authorities from both Australia and the UK which supported such a conclusion, stated:

4. [9]

   Accordingly, the appeal to this Court was properly brought as of right. Before turning to the substance of the appeal it is convenient to address a further preliminary issue.

Further evidence on appeal

1. [10]

   On 13 March 2023, the respondent filed a motion seeking leave to adduce further evidence. The evidence sought to be relied upon was an affidavit of its solicitor, Mr Chedid, dated 21 February 2023. There was no objection taken to the affidavit itself, but objection was taken to a bundle of documents exhibited to the affidavit which ran to 116 pages. So far as the affidavit itself was concerned, the relevant paragraphs appeared on a single page. It recorded that on 21 October 2021, Vitarag was placed into liquidation. It then recorded that on 12 July 2022, the respondent took steps to require Mr Gokani to deliver up all files and records of Vitarag. Mr Chedid’s firm are now the solicitors acting for Vitarag, having been appointed by the liquidator.

2. [11]

   The primary purpose of the lengthy material exhibited to the affidavit was to establish a fact which was known to the respondent at the time its application for costs against Mr Gokani was on foot in the District Court. According to the submissions in support of the application, the respondent’s solicitors had, “by 16 May 2022” become the solicitors for the liquidator of Vitarag. The submissions further stated that “since May 2022” Vitarag had waived its privilege with respect to documents held by Mr Gokani for the purposes of the litigation between the two companies, although the liquidator had not seen the documents. There was a statement in the costs judgment, to the effect that there had been no waiver of privilege by Vitarag; the respondent submitted that one matter the documents established was that that statement was factually incorrect. The remainder of the documents were said to illustrate the attempts which the liquidator had taken to obtain the files from Mr Gokani in the period from May 2022.

3. [12]

   There were three difficulties facing the respondent in pursuing its motion. First, although the Court has power to receive further evidence pursuant to s 75A(7) of the Supreme Court Act, it would be unusual to receive evidence of events which had occurred before the completion of the trial the subject of the appeal and known at that time to the party seeking to tender the evidence, but which had not been adduced at trial. Given that the respondent knew that Mr Gokani was declining to answer questions which might reveal privileged information, it is unclear why the fact of the waiver of privilege was not drawn to the judge’s attention. There was no explanation for that omission.

4. [13]

   Secondly, the further evidence demonstrated that the respondent still did not have the file, but the respondent did not assert that the hearing of the appeal should be delayed to allow it to obtain the file. [4]

5. [14]

   Thirdly, the purpose of tendering the material was quite limited. Counsel for the respondent identified the sole point of the tender in the following terms: [5]

6. [15]

   In objecting to the tender, the appellant’s counsel noted that YPOL Lawyers acted for Mr Gokani on the costs application. On 7 September 2021, some eight weeks after the motion for costs was filed, YPOL wrote to the then director of Vitarag, Mr David Murray, requesting his advice within 10 days as to whether Vitarag waived privilege over Mr Gokani’s file. No reply was received. Mr Gokani’s solicitor, Mr Selvakumaran, affirmed an affidavit on 21 October 2021 annexing the letter and recording the absence of a response. By the time the motion was heard on 10 and 11 March 2022, the liquidator had not waived privilege. The issue of waiver was raised on 11 March 2022. [6] Privilege had in fact been waived by the liquidator by the time the matter came back before the court on 2 June 2022 for further submissions as to whether Sch 2 of the Application Act was engaged. It was common ground that nothing further was said in relation to waiver of privilege on that occasion.

7. [16]

   The issue to which this material went was Mr Gokani’s reliance on a statement in Medcalf v Mardell, [7] in which, after referring to a statement of principle in Ridehalgh v Horsefield, [8] Lord Bingham of Cornhill suggested that the particular passage should be strengthened by emphasising two matters: [9]

8. [17]

   Accordingly, the purpose of the further evidence was to displace the very considerable constraint on reaching a finding adverse to the solicitor, by removing the assumption that privilege had not been waived.

9. [18]

   At trial, the respondent had submitted that only very weak attempts had been made to obtain a waiver of privilege. As the trial judge appreciated, there was an issue as to the validity of that submission. In Ridehalgh, the Court of Appeal had taken a rather different view, stating: [10]

10. [19]

    Counsel for the appellant submitted that the question of whether or not client privilege had been waived “is not the most significant point on this appeal by a very considerable margin”. [11]

11. [20]

    Both counsel accepted that there would be no difficulty in the presentation of their submissions if the Court reserved on the motion: the Court took that step. The suspicion that nothing might ultimately turn on the motion turned out to be correct: no further reference was made by either party to what weight, if any, was to be given to the Medcalf principle.

12. [21]

    In these circumstances, the appropriate course is to grant leave to the respondent to read the affidavit of Mr Chedid of 21 February 2023 but refuse leave to adduce the documents constituting the exhibit to that affidavit.

Jurisdiction of District Court to award costs against a solicitor

1. [22]

   As noted above, the original motion sought an order pursuant to s 99 of the Civil Procedure Act. That section relevantly provides:

2. [23]

   This Court has held that subs (2)(c) permits an order that the solicitor indemnify the opposing party against costs payable by it to its solicitor. [12]

3. [24]

   It was only some ten days before the hearing of the motion, and some eight months after the motion was initially filed, that the amendment, seeking an order under the Application Act, was made. Schedule 2 of the Application Act relevantly provides:

4. [25]

   An issue appears to have arisen after the initial hearing of the motion as to whether Sch 2 to the Application Act was engaged. The costs judgment appears to have been written initially on the basis that it was engaged. The last section of the judgment commenced with the following passage:

5. [26]

   On the appeal, senior counsel for the appellant eschewed a challenge to the findings of the trial judge, in so far as they relied on Sch 2 of the Application Act. He submitted that he was obliged to take that stance, because the matter had been conceded below. However, that does not appear to be correct. After setting out Visvalingam's submissions that the claim pursuant to the loan agreement was a claim in damages, the judge observed:

6. [27]

   The judge was, in any event, satisfied that “an action in debt is not within the ordinary meaning of an action in damages”: at [40]. He was not persuaded that the proper construction of cl 2, being limited to “a claim for damages”, should be given a “wider meaning, especially since cl 2 generally operates to remove a common law right to retain legal representation to maintain or defend proceedings”. That reasoning should be accepted and applied to the same phrase, “claim for damages” used in cl 5.

7. [28]

   However, the trial judge then went on to consider whether the present case was a claim for damages. That question, he concluded, should be answered by reference to “the pleading rather than the circumstances giving rise to the claim”. The next step, however, added a level of sophistication to the inquiry. Although the relief claimed on the original statement of claim was an order for payment of money, the judge noted that the calculation of the claim (namely identification of the loan amount and the calculation of interest thereon), appeared under a heading “[l]oss and damage”. On that basis, he concluded that the original claim was “a claim for damages”: at [46]. There were two problems with this conclusion, one of which the judge noted. That was that the amended statement of claim, on which the matter went to trial, was a claim for “debts owed to the plaintiff”, and the reference to “loss and damage” was deleted. The judge recognised that the subsequent pleading and the basis of the claim at trial “was not one in damages”.

8. [29]

   There had been, however, no change to the substance of the claim. It had always been and remained a claim in debt. The use of a heading “loss and damage” did not demonstrate that the cause of action was a claim “for damages”. The words “loss” and “damage” refer to the detriment suffered by the plaintiff: the word “damages” refers to the relief which may be obtained. The plaintiff never sought damages. There was no tenable basis for Visvalingam to rely on Sch 2, cl 5 of the Application Act.

9. [30]

   In some cases, this would be a matter of some importance. Aspects of Sch 2, as the judge recognised, go beyond general law principles established in cases such as Myers v Elman, [13] and beyond the statutory basis for an order for costs against a legal practitioner in s 99 of the Civil Procedure Act. For present purposes, it is sufficient to conclude that the respondent’s claim should not have succeeded under either provision.

Filing of defence to original statement of claim

1. [31]

   Before identifying the relevant issues arising from the filing of a defence to the original statement of claim it is necessary to set out some brief facts. It is also necessary to be cautious in undertaking that exercise. A critical aspect of the claim that Mr Gokani acted improperly in filing a defence turned on his state of knowledge at that time. In addressing that question the trial judge had to put to one side his own knowledge based on evidence that had been presented in the course of the trial, his impressions as to witnesses and findings of fact made in the substantive judgment on liability.

2. [32]

   With that in mind it is appropriate to identify one fact and the dramatis personae. The fact is that in September 2008 a sum of $94,000 was paid by way of loan by a couple in Australia for the benefit of a businessman in the USA.

3. [33]

   The beneficiary was Nanubhai Chitubhai Patel (Mr Patel Snr) who in 2008 lived in California and was the principal of a company, Rockhard Transportation Inc, which transported rock and building materials. In 2008 he was seeking funds to maintain the operations of the company. In that exercise he enlisted the help of his son, Ashish Nanubhai Patel (Ashish Patel) who worked in investment banking and lived in Sydney. The loan the subject of the proceedings was paid into a bank account in the name of the Kailash Trust, of which the defendant in the District Court, Vitarag Pty Ltd, was the trustee.

4. [34]

   The money was obtained through the agency of Ashish Patel from the parents of Selva Nithan Thirunavukarasu, who was referred to in the proceedings by all participants as “Nithan”. His parents, Savthri and Selvavinayagam Thirunavukarasu, controlled a self-managed superannuation fund known as Savi3 Superannuation Fund established in June 2008. At one stage they were the trustees of Savi3. Later, the plaintiff in the District Court, Visvalingam Pty Ltd, was the trustee of that fund. The loan was obtained from that fund.

5. [35]

   For reasons which will be noted shortly, the original statement of claim was deficient in matters of substance and not merely of form. As counsel for the appellant submitted, if a solicitor were to be at risk of bearing responsibility for the whole costs of a trial in the event that a defence was filed, without reasonable cause, to a deficient claim, that must also be the case even if the plaintiff at trial were to be unsuccessful. Such an outcome suggests that the underlying reasoning of the trial judge was fundamentally flawed. It is convenient to turn immediately to why that is so.

6. [36]

   That the trial judge adopted that reasoning appears from a passage which conceded the possibility, against the finding in the liability judgment, that affidavits filed by the plaintiff provided a proper basis for alleging that Vitarag was not the borrower. The judge continued:

7. [37]

   The order required that Mr Gokani pay the plaintiff’s costs on an indemnity basis on and from the date of the filing of the defence to the original statement of claim on 16 April 2018.

8. [38]

   It is necessary to deal with the findings in relation to Mr Gokani on an alternative basis adopted by the trial judge. The judge found not merely that the defence was filed “without reasonable cause” but also that Mr Gokani had no subjective belief in the existence of reasonable cause. Thus, the judge referred to the certification on the defence as not having been pressed by Mr Gokani “as evidence of his belief, or of the reasonableness of any belief”: at [15]. The judge noted that Mr Gokani “gave no evidence of his belief at the time of filing the defence, and why he so believed (if he so believed) that Vitarag was not the borrower or could not be shown to be the borrower”: at [18]. The judge further stated that there was no evidence “from Mr Gokani that he believed, or had reason to believe, that Ashish or Nanu was the borrower at the time of filing the defence”: at [17].

9. [39]

   It is possible that the absence of a subjectively held belief was not central to the judge’s reasoning, but the respondent did not rely on that possibility. Rather, it submitted that the statement of the dispositive issue identified by the judge as “whether Mr Gokani acted without reasonable prospects of success, that is, whether he lacked a reasonable belief” [14] was a question which was concerned with “the reasonable belief as subjectively held by the solicitor”. [15]

10. [40]

    The respondent relied on two authorities to support that understanding, both of which concerned predecessors to Sch 2 of the Application Act, dealing with claims for damages. Each of them referred to the provision being “concerned with the reasonable belief as subjectively held by the practitioner”: see Keddie v Stacks/Goudkamp Pty Ltd (“Keddie”). [16]

11. [41]

    There are a number of problems with relying upon this line of authority. First, the cases dealt with claims for damages and hence no issue arose as to the engagement of the earlier provisions equivalent to Sch 2 of the Application Act. Secondly, s 348(1) of the Legal Profession Act 2004 (NSW), being the provision addressed in Keddie, stated: “[i]f it appears to a court in which proceedings are taken on a claim for damages that a law practice has provided legal services to a party without reasonable prospects of success” the court may make orders with respect to payment of costs. It is true that a separate provision (s 345) prohibited a law practice from providing legal services on a claim or defence of a claim for damages “unless a legal practitioner … reasonably believes … that the claim or the defence … has reasonable prospects of success”. It is not necessary for present purposes to consider whether the reference to reasonable belief contained in the prohibition was properly imported into the separate section with respect to orders for costs, which made no reference to the belief of the solicitor, but merely adopted (similarly to s 99 of the Civil Procedure Act) the criterion of the provision of legal services “without reasonable prospects of success”. The principle of statutory construction which would import such an additional criterion into s 99 was not explored. The better view is that s 99 contains no such element.

12. [42]

    Secondly, the term “subjective”, in relation to a belief, has no simple application. As the appellant submitted, the complexity of attributing knowledge or belief as to a fact has been explored by this Court in other contexts, including with respect to the operation of ss 50C and 50D of the Limitation Act 1969 (NSW), in Murgolo v AAI Ltd t/as AAMI. [17]

13. [43]

    In the present circumstances, the relevant factor must be a belief in a fact, rather than the fact itself. It is no part of a legal practitioner’s role in litigation to form concluded views as to the existence of facts or the outcome of proceedings. The terminology in Sch 2 of the Application Act invokes a standard of “reasonable prospects of success”.

14. [44]

    Secondly, as Leeming JA explained in Murgolo, the holding of an opinion or belief (in the case of a tribunal of fact) may involve feeling an “actual persuasion” but that “an opinion that a state of facts exists may be held according to indefinite gradations of certainty”. [18]

15. [45]

    Thirdly, even in the context of Sch 2 of the Application Act, which deals both with claims and defences, there is an important distinction between a belief as to a fact, the proof of which falls to the practitioner’s client, [19] and a belief as to a fact the proof of which is imposed on the other party. In the present case, all that the original defence did was to deny that Vitarag was liable for repayment of the loan. Establishing that it was a party to the loan was an essential element of the plaintiff’s case. When the statement of claim was served, Mr Gokani had no necessary knowledge of any evidential basis for the plaintiff’s claim. The original pleading read as follows:

16. [46]

    The defence denied pars 5 and 6 of the statement of claim and further denied that the defendant was “indebted to the plaintiff in the amount claimed in paragraph 13 of the statement of claim or at all”.

17. [47]

    The defence was verified by an affidavit of Ashish Patel dated 15 April 2018. Mr Patel stated that he was a director and principal shareholder of the defendant. The affidavit was in standard form but asserted that “allegations of fact that are denied in the defence are untrue”.

18. [48]

    In dealing with the filing of the defence, the trial judge referred to an absence of evidence as to Mr Gokani’s belief at the time he filed the defence. Referring to Mr Patel as “Ashish” and his father, who was the principal beneficiary of the loan as “Nanu”, the judge stated:

19. [49]

    There are several difficulties with this reasoning. First, the letters of confirmation were referred to in par 8 of the statement of claim as post-contractual conduct. There was no evidence that Mr Gokani had access to those letters at the time the defence was filed. However, although the trial judge placed much weight upon those letters in his judgment on liability, an experienced legal practitioner need not have assumed that post-contractual unilateral conduct by one party, allegedly some four years after the contract was entered into, would be dispositive.

20. [50]

    Secondly, the defence did not plead that someone else was the borrower; it merely denied that Vitarag was liable to the plaintiff. There was no obligation at the time Mr Gokani filed the defence for him to form any view as to facts which were not alleged, nor, it might be added, did Mr Patel’s affidavit of verification advert to, or need to advert to, such facts.

21. [51]

    Thirdly, in so far as it was stated that there was no evidence either at trial or on the application from Ashish or Nanu to support the assertion that one was or both of them were the borrower, that was erroneous in a number of respects. First, as the judge noted at [27], the plaintiff relied upon an affidavit of Selva Nithan Thirunavukarasu, sworn on 26 November 2019 (albeit more than a year after the defence was filed) which gave extensive evidence of conversations between himself and Mr Patel. The affidavit was replete with references to statements to Mr Thirunavukarasu by Mr Patel suggesting personal liability. Those statements included, “my Dad and I will borrow the money and secure it against the property and pay your Mum a really healthy interest rate, like 10-12%”. [20] The judge also noted that Mr Patel Snr in fact gave evidence pursuant to which he did not accept any responsibility for the loan.

22. [52]

    It is apparent that the reasoning in the costs judgment paid insufficient attention to the precise question being addressed, namely the state of knowledge of Mr Gokani as at 16 April 2018. Further, it relied on findings with respect to disputed evidence which had been made in the course of the trial and the liability judgment. If subsequent evidence were to be relied on, it included the plaintiff’s concession (discussed below) that it was not a party to any contract in 2008.

23. [53]

    Fourthly, when the judge returned to the correct temporal issue, he said that “Mr Gokani gave no evidence of his belief at the time of filing the defence”: at [18]. After hesitating as to whether to draw a Jones v Dunkel inference against him, the judge continued:

24. [54]

    This passage does not merely reverse the onus of proof, but fails to acknowledge that a finding that a solicitor took a step in litigation without a belief as to reasonable prospects of success was an extremely serious finding. If a client verifies a pleading on oath or by affirmation there must ordinarily be evidence which both demonstrates why the affidavit was false and why the solicitor knew or ought reasonably to have known that to be the case.

25. [55]

    An applicant seeking to saddle the solicitor acting for a party with responsibility for the costs of litigation will encounter a number of practical difficulties. One is that the solicitor may well not be able to give a full account of his or her conduct, because the client is not prepared to, or simply fails to, waive privilege. There was no evidence before the trial judge that privilege had been waived. As explained above, when Mr Gokani’s solicitor gave evidence he was cross-examined about steps he had taken to obtain a waiver. [21] In fact privilege had not then been waived and there was no later request to recall him, nor to prove waiver by the liquidator.

26. [56]

    Further, it should not be accepted that simply by making a claim for costs against a solicitor, a burden of proof is placed upon the solicitor to deny misconduct. For the reasons already given, the nature of the defence itself, which was entirely negative, provided no basis for an inference that the solicitor held any particular belief as to the nature of the evidence available to the plaintiff or to his client or as to the ultimate prospects of success. Nor did he need to form such a belief. He had available to him instructions from the director of the defendant denying liability for the loan. Unsurprisingly, there was no challenge to the defence at the time it was filed. There was never any application to strike the defence out, nor was there any evidence that such an application would have had any prospect of success.

27. [57]

    For these separate reasons, the findings with respect to the defence filed to the original statement of claim did not warrant an order for costs against Mr Gokani.

28. [58]

    There is a further reason why no such order should have been made. While later events should not be used to burden a solicitor with knowledge that he did not have at the time he filed the defence, subsequent events which demonstrate that the defence was entirely warranted and the statement of claim was deficient should be available to resist a claim against the solicitor. In part that follows from the fact that both s 99 of the Civil Procedure Act, and indeed cl 5 of Sch 2 to the Application Act, rely upon an objective test of the step having been taken “without reasonable cause”. In the present case, whatever Mr Gokani may or may not have believed, the original statement of claim was patently deficient. The circumstances in which that was revealed in the course of the litigation should be identified.

29. [59]

    On 6 June 2018, less than two months after the defence was filed, the defendant filed a notice of motion seeking security for costs. The matter came before Judge Russell SC on 6 July 2018; at least that was the day on which the judge handed down reasons. Judge Russell noted (at p 2):

30. [60]

    Noting that the loan upon which the plaintiff sued was an oral agreement, the judge considered that estimate to be more realistic than the shorter estimate by the plaintiff’s solicitor. The judge continued:

31. [61]

    As had been foreshadowed before Russell DCJ, the plaintiff filed an amended statement of claim. However, that did not take place until more than a year after the security was ordered, namely on 1 August 2019. The loan agreement was varied in significant respects and significant detail was added. In substance, the oral agreement was said to have been reached in “conversations between Selva Nithan Thirunavukarasu and Ashish Patel”. The loan was now said to have been made by Nithan’s parents as trustees for the Savi3 Fund and Vitarag as trustee for the Kailash Trust, and not pursuant to a contract with the plaintiff.

32. [62]

    Mr Ashish Patel was added as a second defendant. It was alleged that Mr Patel agreed to guarantee the payment by Vitarag of amounts that became due under the contract, identified as the “First Contract”. There was then an express pleading (for the first time) that the money was advanced, on or around 12 September 2008. It was said to have been advanced to the first defendant, Vitarag. The original period of the loan was identified as 90 days, rather than 30 days as pleaded in the original statement of claim. Interest was to be calculated at 10% per annum, rather than the rate of 6% per annum pleaded in the original statement of claim. The extension of the repayment date from 30 days to “within five years”, which was asserted in the original statement of claim to have occurred on or around 23 August 2008 was repleaded as “the date five years after 12 September 2008”, the variation being made by a “Second Contract” entered into on or around 28 June 2012. That agreement was said to be partly oral and partly in writing. The oral arrangement was said to have been made “in conversations” between Nithan and Ashish Patel; the written element was said to be “contained recorded” in a letter of confirmation signed by Mr Patel and emailed by him to Nithan on or around 28 June 2012. A further guarantee by Mr Patel was alleged, either based on oral arrangements with Nithan or an implied agreement based on the creation of the Second Contract.

33. [63]

    These variations completely recast the factual substratum of the plaintiff’s case. The involvement of the plaintiff itself was also recast.

34. [64]

    Mr and Mrs Thirunavukarasu retired as trustees of the Savi3 Fund upon the appointment of the plaintiff, which was now said to have occurred on or about 1 February 2018, that is almost ten years after the original loan agreement. The involvement of the plaintiff, it was now pleaded, resulted from an assignment of the interests of the retiring trustees to the plaintiff by a deed dated 1 March 2019, that is, 13 months after the filing of the original statement of claim and months after the hearing before Russell DCJ. Notice in writing of the assignment was said to have been given to the defendants on or around 9 April 2019 or, alternatively, on or around 20 or 21 June 2019.

35. [65]

    These changes in the pleadings were not insignificant: the plaintiff was not said to have had any interest in the loan agreement until after the filing of the original statement of claim. The pleading that repayment was guaranteed by Mr Patel found no reflection in the original statement of claim. The interest rate was varied, and the extension of time occurred some four years after it had originally been pleaded to have occurred.

36. [66]

    It followed that, if the amended statement of claim were assumed to be correct, the defendant had reasonable cause to deny every allegation in the original statement of claim. The amount of the principal did not change, but all the other details, including as to the identity of the parties, did change. It follows that, on the plaintiff’s own case, there could be no challenge to the filing of the defence to the original statement of claim.

Subsequent events

1. [67]

   For the reasons set out above, the order made by the trial judge on 26 July 2022 requiring payment of costs from the date of filing the defence to the original statement of claim must be set aside. There was no notice of contention seeking to support an order effective from a later date.

2. [68]

   The judge, however, did consider certain events which arose after the filing of the amended statement of claim. First, prior to the filing of the amended statement of claim, both Ashish Patel and his father (who until 14 May 2018 were the only two directors of Vitarag) had resigned, Mr Patel Snr on 14 May 2018 and Ashish Patel on 15 April 2019. [22] Ashish Patel remained the sole shareholder of Vitarag. However, Mr Gokani advised the plaintiff’s solicitors that he had last been instructed by Ashish Patel on 10 April 2019, several months before the amended statement of claim was filed. After Ashish Patel retired as a director, his place was taken by David Murray, who verified the defence to the amended statement of claim, which was filed on 23 August 2019.

3. [69]

   The points of claim filed by the plaintiff in support of its application for a costs order against Mr Gokani did not identify the filing of the second defence as a basis for the costs order. Although the points of claim proffered three dates from which costs might be assessed none was 23 August 2019. The submissions of the respondent in this Court did not seek to support an order on that basis.

4. [70]

   In a passage in the costs judgment at [21]-[34] the judge dealt with the case run by Vitarag at trial which relied significantly on evidence given by Nithan (for the plaintiff) as to conversations he had with Ashish Patel in arranging the loan. The judge stated:

5. [71]

   The judge noted that none of those matters were known to Mr Gokani before the service of Nithan’s affidavit, which was dated 26 November 2019; or, as the judge further observed, “at least there was no evidence of it”: at [22].

6. [72]

   Noting that Ashish Patel did not give evidence and that his father did not suggest he was the borrower personally, the judge expressed “a judicial reluctance in drawing inferences in their favour”, apparently meaning in favour of Mr Gokani and counsel briefed by him. The judge then concluded that from the date of the filing of the defence to the original statement of claim, up until the service of Nithan’s affidavit, he found “no basis to conclude that there was any belief, let alone a reasonable belief based on provable facts, of an alternative borrower to Vitarag”: at [24].

7. [73]

   It is not clear that anything turned on that reasoning. In subsequent paragraphs, the judge repeated findings made in the liability judgment to the effect that Nithan’s evidence that Ashish had referred to “my Dad and I will borrow the money” was a colloquial statement which “could not reasonably supplant” the formal letter of confirmation, “because of the substantial lapse of time since the conversation, and because Ashish was out of contact, giving no instructions or evidence for Vitarag”.

8. [74]

   To the extent that this material was relevant, it was relevant to Mr Gokani’s basis for pursuing the defence to the proceedings through the trial. As counsel for Mr Gokani submitted, there was a volume of material in evidence at the trial upon which a commercial litigator could have formed the belief that a defence had reasonable prospects of success (if that were the relevant test) and which would provide reasonable cause to defend the proceedings. First, the affidavit gave accounts of the conversations from which could be inferred an oral agreement by way of loan. That was the agreement particularised as resulting from conversations between Nithan and Ashish Patel. Those conversations gave rise to real doubt as to the identity of the borrower. For the most part, they did not identify Vitarag as the borrower. The inference that the money was a loan to Vitarag derived principally from the objective circumstance that Mr Patel sought to have the money transferred to the bank account of the Kailash Trust of which Vitarag was the trustee. The destination of a loan payment, on instructions from a borrower, is a common event, which may, but often does not, reveal the identity of the borrower.

9. [75]

   The first letter of confirmation relied upon in the pleading, and given significant weight by the trial judge, might reasonably have been relied on by the plaintiff as an admission against interest. It was in fact created more than a year after the due date on the oral contract which, as identified in a letter of demand of 27 September 2017 from the solicitors for the plaintiff, was 22 August 2013 (being five years after the money was provided on 23 August 2008). Further, it did not accord with the pleaded term of the agreement relied on in the amended statement of claim, which asserted that interest was to run at 10% per annum; the letter of confirmation stated that interest was payable at 6% per annum.

10. [76]

    To the extent that post-contractual conduct was admissible and, in the judge’s words, “of force equivalent to a signed loan agreement” [23] a solicitor in Mr Gokani’s position might reasonably have believed that weight would be given to an email on 27 June 2012 from Nithan to Ashish Patel referring to “the 94k that was loaned to your Dad” and the further email on 15 June 2017 referring to “money lent to you and your father in 2008”.

11. [77]

    The solicitor in Mr Gokani’s shoes might not have anticipated that the judge would find that “the value of these conversations is limited, because a colloquial reference to the borrower being Ashish, his father, or both, could not reasonably supplant the formal ‘Letter[s] of Confirmation’”. Furthermore, the statement that Mr Patel Snr did not give evidence that he was the borrower was, as noted above, also incorrect. When Mr Patel’s business Rockhard Transportation was in need of funds to maintain its operations, [24] Mr Patel Snr sought assistance from his son Ashish in Australia. He stated that Ashish organised around twelve loans “to me” from various parties. [25] He recalled borrowing a total of US$2.5M from around forty different parties, including the loans organised by Ashish. [26]

12. [78]

    Mr Patel Snr referred to a paragraph in Nithan’s affidavit in which Ashish Patel was said to have told Nithan:

13. [79]

    In response to what was said in that paragraph, Mr Patel Snr stated: [27]

14. [80]

    The judge may not have accepted that evidence of Mr Patel Snr, but it was evidence which permitted the solicitor for Vitarag to defend the proceedings.

15. [81]

    Mr Gokani briefed Mr Newton of counsel to appear for Vitarag at the trial. Evidence was presented at the hearing of the costs application to demonstrate that Mr Newton was an experienced commercial barrister. The judge did not find otherwise. However, he gave no weight to that fact in relying on the absence of evidence from Mr Newton.

16. [82]

    With respect, that approach is not tenable. A solicitor may not necessarily escape liability for the improper pursuit of litigation by briefing counsel; however, where counsel is briefed and runs the trial, the appropriate inference is that he did not accept the brief in the belief that the case was hopeless. For reasons already explained, the defendant’s case was not hopeless. In those circumstances, the appropriate inference was that Mr Gokani obtained and acted upon Mr Newton’s advice that the matter could properly run. Mr Selvakumaran’s affidavit filed for Mr Gokani on the costs application, demonstrated that Mr Newton was counsel briefed by Mr Gokani for Vitarag who appeared at a pretrial conference before the Judicial Registrar in the District Court on 30 May 2018 (six weeks after the defence was filed), and who appeared before Russell DCJ on the security for costs application. The inference is that at all relevant stages, Mr Gokani briefed counsel and that counsel saw no basis to refuse to act. The point may not have been dispositive of the case, but the trial judge gave insufficient weight to that circumstance; indeed, he did not refer to that evidence.

Conclusion

1. [83]

   Two further observations may be made in relation to this proceeding. First, circumstances where the costs of recovery of a loan through litigation are likely to approach, or even exceed, the amount at stake, without having regard to the vicissitudes of litigation and the likelihood of success or failure, present in sharp focus the importance of practitioners (and clients) having regard to the overriding purpose identified in Pt 6 of the Civil Procedure Act and the duty to further the overriding purpose in the conduct of the proceedings. The court is required to implement its practices and procedures so as to resolve issues between the parties in such a way that the cost is proportionate to the importance and complexity of the subject matter in dispute: Civil Procedure Act, s 60. The “importance” of this case was reflected in the amount of the claim.

2. [84]

   The attempt to recover costs from the solicitor for the defendant was an example of what has been described as adjectival or “satellite” litigation, [28] the principal claim having been disposed of. The jurisdiction invoked derives from the supervisory jurisdiction of the court with respect to its officers (legal practitioners) who fail to discharge their duties to aid in promoting the cause of justice, as explained by Lord Wright in Myers v Elman [29] in 1940.

3. [85]

   It is true that, over the decades since 1940, the courts, and disciplinary agencies within the profession, have greatly expanded the regulation of professional conduct. However, the purpose of such regulation is subverted at a point when practitioners are discouraged from pursuing their client’s interests in litigation, where there are grounds to do so. As Barrett J explained in Degiorgio, it is not appropriate to entertain fine arguments as to the scope by which legal principles are contestable, nor to assess by hindsight the reasonableness of a particular claim or defence. In relation to the filing of a defence, Lord Reid stated in Myers v Elman, supporting the finding of the trial judge, Singleton J: [30]

4. [86]

   On this appeal the Court was taken to no authority in which a solicitor acting for a defendant had been subjected to an adverse costs order for filing a defence the sole purpose of which had been to put the claimant to proof of its case.

5. [87]

   Finally, it is important that where such cases are brought, careful attention be given to the provision under which the application is brought. Had it been necessary to consider the precise operation of cl 5 of Sch 2 to the Application Act, it would have been important to identify the differences in approach which should be adopted as between a complaint about a claim for damages brought without reasonable prospects of success, and the defence to such a claim. For example, there is an issue as to whether the need for a solicitor to rely upon “provable facts” has a significant operation in cases where the client bears no onus of proof.

6. [88]

   For the reasons set out above, the appeal must be upheld and the judgment and orders below set aside. The notice of appeal sought that the respondent’s notice of motion in the District Court be dismissed with costs and that the respondent pay the costs of the appellant in this Court. Such orders are appropriate in the case of the appellant’s success and in the absence of any submission that costs should not follow the event.

7. [89]

   Accordingly, the Court should make the following orders:

   1. (1)

      Allow the appeal and set aside the orders made in the District Court on 26 July 2022.

   2. (2)

      In place of those orders, order that:

   3. (3)

      Order that Visvalingam pay Mr Gokani’s costs of the appeal.

8. [90]

   GRIFFITHS AJA: I agree with Basten AJA.