Without reasonable prospects of success: what does it mean?
February 28, 2013
Keddie & Ors v Stacks/Goudkamp Pty Ltd  NSWCA 254
The NSW Court of Appeal has recently examined the concept of ‘without reasonable prospect of success’ in the context of considering whether costs orders made against a firm of solicitors ought to be upheld.
Mr Marshall (‘Marshall’) made a claim for damages for nervous shock arising out of a motor vehicle accident in which his son was killed (‘the Claim’). Marshall instructed Stacks / Goudkamp Pty Ltd (‘Stacks’) to act on his behalf.
Prior to Stacks having the opportunity to obtain Marshall’s claim file from the defendant, or to arrange a medico-legal examination by a psychiatrist, Marshall instructed Stacks to attempt settlement. Stacks’ advice was that it was ‘premature’ to attempt settlement as it was impossible to determine whether Marshall would be entitled to damages for non-economic loss without him being examined by a psychiatrist. Marshall was persistent and instructed Stacks to settle the claim.
Marshall’s treating general medical practitioner provided a report diagnosing reactive depression and post-traumatic stress disorder (‘PTSD’). The report concluded that Marshall’s condition had stabilised and he had made a substantially full recovery. Both parties were provided with a copy of this report. Marshall wrote again to Stacks instructing it to ‘finalise [his] claim immediately’.
Settlement negotiations were conducted. The defendant made an offer of $7,455 ‘inclusive of everything’ which made no allowance for future economic loss. Marshall instructed Stacks that he wished to undergo a MAS assessment to determine permanent impairment and impairment of earning capacity. Marshall informed Stacks that he had an appointment with a psychiatrist for the purposes of obtaining a medico-legal report.
Three days after the scheduled appointment with the psychiatrist Marshall instructed Stacks that he did not ‘want to go further’ and ‘to make a counter-offer of $10,000, but if we can’t get them up he’ll take the $7,445’. Stacks made a counter-offer of $10,000 plus costs which was rejected. The defendant then made an offer of $10,000 inclusive of costs which Stacks accepted.
Two and a half years later, Marshall instructed Keddies to act on his behalf in respect of a professional negligence claim against Stacks (‘the Proceedings’) which alleged that:
- Stacks were negligent in proceeding to settle the claim in circumstances where psychiatric evidence had not been obtained: Stacks ought to have required the client to attend a psychiatrist prior to settling
- Marshall ought not have been permitted to settle the claim whilst he was under ‘undue pressure’, being a combination of his own mental condition and the progress of the criminal trial arising out of the subject accident.
In its defence, Stacks pleaded that the client had signed an ‘Authority to Settle’ authorising and directing Stacks to settle the claim.
At the hearing before Colefax DCJ, Marshall conceded that at the time of signing the Authority to Settle:
- He knew that there was no psychiatric evidence available to Stacks to support the claim
- Stacks’ view was that it was premature to resolve the claim
- If he wanted to prosecute the claim by obtaining a MAS assessment, it would have been necessary for him to have obtained psychiatric evidence
- He did not want to obtain any psychiatric evidence
- He expected his solicitors to follow his instructions.
The evidence also established that Keddies had obtained advice from counsel prior to filing the Statement of Claim. It was counsel’s opinion, based on his review of Stacks’ file, that the client ‘will not succeed in these proceedings’. Notwithstanding this advice, and Keddies agreement with counsel that ‘this matter should never proceed to hearing and should be settled at the first available time’ the Proceedings were commenced.
The Proceedings were adjourned part-heard whilst the client was still under cross-examination. Marshall failed to appear at the adjourned hearing date. Marshall’s counsel and Keddies then withdrew from the Proceedings. Colefax DCJ dismissed the Proceedings and ordered that Marshall pay Stacks’ costs. Stacks sought an order that Keddies indemnify Marshall for the costs order pursuant to s348 of the Legal Profession Act 2005 (NSW) (‘the Act’), or s99 of the Civil Procedure Act 2005 (NSW) (‘the CPA’) on the basis that Keddies had provided the client with legal services and commenced the Proceedings in circumstances where there were no reasonable prospects of success. His Honour made an order in Stacks’ favour pursuant to s348 of the Act but rejected Stacks’ alternative application for an order under s99 of the CPA.
Keddies appealed against the s348 costs order made by Colefax DCJ and Stacks cross-appealed against his Honour’s refusal of a costs order under s99 of the CPA. The central issue was whether, at the time of commencing the Proceedings, Keddies had a reasonable belief that the Proceedings had reasonable prospects of success.
Beazely JA (with whom Barrett JA and Sackville AJA agreed) found that the evidence established that Stacks was entitled to act on the client’s ‘clear and firm instructions’ and further, it had no right to compel the client to undergo a psychiatric assessment.
Accordingly, based on the information available to Keddies at the time of filing the Statement of Claim, there was no reasonable prospects of the Proceedings succeeding.
Her Honour held that the phrase ‘without reasonable prospects of success’ means ‘not fairly arguable’ and that Keddies had not established that the lawyers involved in the conduct of the proceedings had ‘applied his or her independent professional mind to the claim’ such as to establish ‘on the basis of provable facts and a reasonably arguable view of the law that the claim has reasonable prospects of success’.
Accordingly, Keddies’ appeal was dismissed, Stacks’ cross-appeal was upheld and Keddies were ordered to pay Stacks’ costs of the Proceedings.
This decision provides guidance as to what is encompassed by the concept reasonable prospect of success. It is an important reminder for lawyers not to commence proceedings in the hope that they will be quickly resolved in circumstances where the facts and law do not arguably support the cause of action pleaded.
Authored by Gabrielle Watts, Lawyer, Sydney.
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