In the judgment of Tara Communications Group Pty Limited v Simons Ravden Pty Limited, delivered in August 2012, the New South Wales Supreme Court made a personal costs order against a solicitor who acted for a corporate plaintiff, without valid and binding instructions.

The ordinary rule, when a solicitor has taken unauthorised steps in litigation, is to require the solicitor to personally pay the costs he or she may have caused the parties to incur. If sufficient grounds are shown however, the court may depart from the ordinary rule.

Facts

  • The solicitor acted for Tara Communications Group Pty Limited (Tara) as the plaintiff in the litigation.
  • The solicitor obtained instructions from a Mr Jungklaus, who purported to be a director of Tara.
  • Tara had previously been a company "associated" with a Mr Ryan.
  • Some time previously, the solicitor acted for Mr Ryan in his bankruptcy.
  • Prior to Mr Jungklaus' "appointment" as a director, Mr Ryan had purported to be the sole director of Tara (despite the Corporations Act prohibiting a bankrupt from managing the affairs of a corporation).
  • The solicitor did not, however, question Mr Jungklaus' status as a director. He did not undertake any enquiries with Mr Ryan regarding the source of Mr Jungklaus' appointment as a director.
  • Detailed enquiry would have disclosed that Mr Jungklaus' appointment as a director was invalid because it was initiated by Mr Ryan, who was himself prohibited from acting as a director.

Outcome

The Court applied the ordinary rule and made a personal costs order against the solicitor on an indemnity basis.

The Court held that the solicitor had failed to undertake detailed enquiry regarding the source of Mr Jungklaus' appointment as a director. It was insufficient for the solicitor to rely on a company extract for Tara, which "confirmed" that Mr Jungklaus was a director.

In particular, the Court noted that even when the defendants' lawyers drew to the solicitor's attention the problems and issues associated with him receiving instructions from Mr Jungklaus, the solicitor:

  • failed to make detailed enquiries regarding the source of Mr Jungklaus' appointment as a director
  • claimed that he was not required to look behind his instructions
  • continued to act for Tara.

Grounds for the court to depart from the ordinary rule

The outcome of the case may be contrasted with another recent decision of Amir Ashrafinia v Mohammad Ashrafinia Reza Ashrafinia1

In that case, the Court concluded that the solicitor had not received valid and binding instructions from the company. Despite this, the solicitor escaped a personal costs order.

The Court found that:

  • the solicitor had been presented with minutes of a directors meeting, which purported to contain resolutions that the solicitor was authorised to act for the company
  • the invalidity of the resolutions was not apparent on the face of the minutes provided
  • there was an apparent urgency in obtaining instructions and proceeding
  • when the solicitor's retainer was queried, the solicitor preceded to file a notice of ceasing to act
  • the solicitor's conduct did not of itself substantially increase the costs.

Implications

The decision is a reminder that solicitors must be careful to ensure that they have valid instructions to act on behalf of corporate clients.

Footnotes

1 Tara Communications Group Pty Limited v Simons Ravden Pty Limited [2012] NSWSC862
2 Amir Ashrafinia v Mohammad Reza Ashrafinia, Parvaneh Karami Fakhrabadi v Mohammad Reza Ashrafinia [2012] NSWSC 500.

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