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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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