Garlick v Kerbaj (No 2)
[2022] VSC 778
•15 December 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROPERTY LIST
S ECI 2020 02573
BETWEEN:
| DARRYN GARLICK (as Representative of the estate of JACK JOHN ERMAN) | Plaintiff |
| v | |
| DANIEL KERBAJ & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Matthews AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 October 2022 |
DATE OF RULING: | 15 December 2022 |
CASE MAY BE CITED AS: | Garlick v Kerbaj & Ors (No 2) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 778 |
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PRACTICE AND LEGAL PRACTITIONERS – Solicitors – Inherent jurisdiction – Restraining solicitors from acting – Test to be applied – Interests of justice – Conflict of interest between clients – Solicitor’s personal interest – Where solicitor likely to be a material witness – Civil Procedure Act 2010 (Vic) – Alleged breach of overarching obligations – Solicitors Conduct Rules – Res judicata or abuse of process – Firm of solicitors and its principal restrained from acting.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Lennon, solicitor | Lennon Lawyers |
| For the First Defendant | Mr S Clement | EC Legal |
| For the Third and Fourth Defendant | Mr P Lennon, solicitor | Lennon Lawyers |
| No appearance by the Second Defendant | ||
| The Fifth Defendant was excused from appearing |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
Background......................................................................................................................................... 2
Background to this proceeding................................................................................................... 2
The June Ruling............................................................................................................................. 4
Procedural background in respect of the Restraint Application............................................ 6
Applicable Legal Principles............................................................................................................. 7
Submissions...................................................................................................................................... 11
Res judicata and abuse of process............................................................................................ 11
The Respondents’ submissions........................................................................................ 11
Kerbaj’s submissions......................................................................................................... 12
Administration of justice............................................................................................................ 13
Kerbaj’s submissions......................................................................................................... 13
The Respondents’ submissions........................................................................................ 16
Ongoing CPA enquiry................................................................................................................ 17
Kerbaj’s submissions......................................................................................................... 17
The Respondents’ submissions........................................................................................ 18
Conflict of interests between the Respondents, Argyle Lending and the Lennons.......... 19
Kerbaj’s submissions......................................................................................................... 19
The Respondents’ submissions........................................................................................ 20
Legal practitioners acting in a matter in which they may be a material witness.............. 21
Kerbaj’s submissions......................................................................................................... 21
The Respondents’ submissions........................................................................................ 21
Prejudice to parties..................................................................................................................... 22
Kerbaj’s submissions......................................................................................................... 22
The Respondents’ submissions........................................................................................ 23
Consideration.................................................................................................................................... 27
Res Judicata and Abuse of Process........................................................................................... 27
Administration of Justice........................................................................................................... 29
Ongoing Civil Procedure Act Enquiry..................................................................................... 31
Conflicts of interest..................................................................................................................... 32
Legal practitioners acting in a matter in which they may be a material witness.............. 34
Prejudice to the Respondents.................................................................................................... 35
Conclusion......................................................................................................................................... 38
HER HONOUR:
Introduction
This ruling concerns an application made by summons dated 21 June 2022 by Daniel Kerbaj, the first defendant (‘Kerbaj’), to restrain Patrick Lennon and Lennon Lawyers (together, ‘the Lennons’), from acting for any of the parties in this proceeding (‘Restraint Application’).[1] In particular, Kerbaj sought to restrain the Lennons from acting for the plaintiff Darryn Garlick (‘Garlick’) as representative of the estate of Jack John Erman (‘Erman’), Graham George Ali, the third defendant (‘Ali’), and Victoria Louise Horner, the fourth defendant (‘Horner’), in this proceeding and from advising them in respect of the proceeding. Kerbaj’s summons also sought other relief, however that is not relevant to the Restraint Application and is not dealt with in this ruling.
[1]By order made 10 October 2022 on the Court’s own motion pursuant to r 84.03 of the Supreme Court (General Civil Procedure) Rules 2015, the Honourable Justice McDonald referred the Restraint Application to me for hearing and determination.
In making the Restraint Application, Kerbaj relies on my decision in Garlick v Kerbaj & Ors[2] dated 17 June 2022 (‘June Ruling’) and on the grounds of the administration of justice, along with alleged conflicts of interest, and the prospect that Patrick Lennon and Jane Lennon will be material witnesses at trial. For convenience and as I have previously done in my June Ruling, I will refer to these three parties (Garlick, Ali, and Horner) collectively as the ‘Respondents’.
[2][2022] VSC 336.
In support of his application, Kerbaj also relies on the following material:
(a) affidavit of Patrick Lennon dated 22 April 2022 (‘First Pat Lennon Affidavit’);
(b) affidavit of Jane Lennon dated 18 June 2020 (‘First Jane Lennon Affidavit’);
(c) affidavit of Jane Lennon dated 22 April 2022 (‘Second Jane Lennon Affidavit’);
(d) affidavit of James Woods dated 16 September 2022;[3]
[3]Only to the extent necessary in order to place the documents contained in the exhibit into evidence, as there were issues regarding admissibility of the affidavit.
(e) affidavit of Ali dated 4 October 2022;
(f) affidavit of Horner dated 4 October 2022;
(g) affidavit of Patrick Lennon dated 5 October 2022 (‘Second Pat Lennon Affidavit’);
(h) affidavit of Darryn Garlick dated 6 October 2022 (‘Garlick Affidavit’);
(i) affidavit of John Jack Erman dated 13 October 2020;
(j) other documents filed in the proceeding identified and contained in a paginated bundle of documents (‘Application Book’); and
(k) written outline of his counsel dated 12 October 2022 (‘Kerbaj Written Outline’).
In opposition to the application, the Respondents rely on the following material:
(a) affidavit of James Woods dated 16 September 2022;
(b) first and second Pat Lennon Affidavit; and
(c) written outline of their solicitor dated 12 October 2022 (‘LL Written Outline’) and attached annexure.
I have taken all of the parties’ written materials and oral submissions into account in the course of preparing these reasons, whether the matters raised therein are specifically referred to in this ruling or not.
For the reasons which follow, orders will be made to restrain the Lennons from acting for any parties in this proceeding.
Background
Background to this proceeding
The background to this proceeding and the issues in dispute in this proceeding between the parties are set out in the June Ruling, and the reasons herein assume familiarity with that ruling. Further, capitalised terms have the same meaning as contained in the June Ruling unless otherwise specified herein.
It is necessary, however, to briefly summarise the subject matter of this proceeding and the June Ruling so as to ensure these reasons are understood.
Erman was the registered proprietor of the Property and entered into a sale contract in May 2020. On 16 June 2020, he commenced this proceeding by making an application for removal of the caveat lodged by Kerbaj. At that time there were three other caveats (lodged by the Second Defendant, Ali and Horner, and Lightspeed Mortgage Management Pty Ltd) on the title to the Property plus four warrants of seizure and sale in favour of Credit Corp Services Pty Ltd. At the hearing before the Honourable Justice Incerti on 18 June 2020, Erman produced the Settlement Statement produced by his solicitors, Lennon Lawyers, which identified the values of some of the caveators’ interests, including Ali and Horner who were identified as being owed $310,000.00. The First Jane Lennon Affidavit was also provided to the Court and to the parties, in which Jane Lennon deposed that she was the director of Argyle and had facilitated a loan between Erman as borrower and Ali and Horner as lenders, stating that the payout figure for them was nearly $310,000 plus costs (including of Lennon Lawyers) estimated at $30,000 to $40,000. After that hearing and prior to judgment being delivered, Erman, the Second Defendant, Kerbaj, Ali, Horner and Credit Corp settled the caveat removal application and entered into the Agreement, which led to the Consent Orders being made on 22 June 2020. The Agreement provided for $310,000 to be paid to Ali and Horner, Lightspeed was to be paid out, and all of the caveats and warrants were to be removed. The balance of the sale proceeds were to be paid into Court (thereby creating the ‘Fund’, which at that time was $363,742.73) and the caveators (excepting Lightspeed) and Credit Corp would be able to make claims on the Fund and any disputes dealt with subsequently. The Consent Orders were made in accordance with the Agreement, providing for these matters in relevantly identical terms.
The parties did not reach any further resolution of the competing claims to the Fund, and the proceeding has continued as a means of determining those claims.
The June Ruling
By summons dated 17 February 2022, addressed to Ali and Horner, Jane Lennon and Argyle, Kerbaj sought orders (inter alia) that Ali and Horner, alternatively Argyle, repay $194,330.36 (the ‘Overpayment’) to the Fund (‘Overpayment Application’). The import of the First Jane Lennon Affidavit (and the Settlement Statement) was that there were three loans to Erman by Ali and Horner and that they were owed approximately $310,000 plus costs. Kerbaj alleged that rather than being owed $310,000 plus costs, Ali and Horner were owed substantially less. Rather than all three loans being from Ali and Horner, only the first loan for $102,500 was. The other two loans were from AJTB for $106,500 and Grand Bollox for $52,500. All three loans were entered into at different times and AJTB and Grand Bollox did not lodge caveats. After settlement of the Property, rather than adhering to the Agreement and the Consent Orders by paying $310,000 to Ali and Horner, that amount was instead paid to Argyle. Argyle’s records demonstrate that of the $310,000, Mr Lennon was paid $6,741.32; Ali and Horner were paid $115,669.64; Grand Bollox was paid $57,928.14; and AJTB was paid $120,668.43. By his application, Kerbaj sought repayment into the Fund of the Overpayment, being the difference between the $310,000 ordered to be paid to Ali and Horner and the $115,669.64 which they were actually entitled to.
The hearing of the Overpayment Application occurred on 20 May 2022, and on 17 June 2022 my June Ruling in this proceeding was delivered in favour of Kerbaj. I found, inter alia, that there were misrepresentations made by and on behalf of Erman, Ali and Horner as to certain material facts. In particular, that Ali and Horner were not owed $350,000 or $310,000 as represented but rather they were owed $102,500 plus interest and costs, and that there were three separate loans with three separate set of lenders. Those misrepresentations were the basis for finding that Erman, Ali and Horner had breached certain of the overarching obligations in the Civil Procedure Act 2010 (Vic) (‘CPA’) and that the Consent Orders arising from the Agreement should be varied such that the Overpayment be paid into Court by Ali, Horner and Argyle pending finalisation of this proceeding.
The misrepresentations were contained in the Settlement Statement, the First Jane Lennon Affidavit, and in the Loan Account Statement (filed on 19 July 2021 pursuant to orders made by Keith JR requiring a statement of the monies claimed by Ali and Horner in this proceeding).
In addition to being a director of Argyle, Jane Lennon is the wife of Mr Lennon and is a solicitor employed by Argyle.[4]
[4]Evidence as to each of these was adduced at the 20 May 2022 hearing, and in submissions on that day Mr Lennon referred to Jane Lennon a number of times as his wife.
In my June Ruling, I stated that there was a sufficient basis for me to be concerned that Mr Lennon may have breached certain overarching obligations in the CPA and that I intended to make directions for him to show cause as to whether he had breached those obligations and whether the Court should make orders pursuant to s 29 of the CPA against him personally (‘Pat Lennon Alleged CPA Breaches’). This is what is referred to in these reasons as the CPA Enquiry.
In addition, I stated that I was concerned that the allegations and findings in the June Ruling raised questions as to the conduct of Mr Lennon and Jane Lennon and their fitness to engage in legal practice, and that I would refer the June Ruling to the Legal Services Commissioner.
Following delivery of the June Ruling, I made orders on 24 June 2022 that, inter alia:
(a) Ali, Horner and Argyle pay the Overpayment into Court and pay Kerbaj’s costs of the application on an indemnity basis, liability for both being joint and several;
(b) reserving whether Mr Lennon should be ordered to pay Kerbaj’s costs of the application;
(c) Mr Lennon was to file and serve any affidavits relied upon regarding the Pat Lennon Alleged CPA Breaches;
(d) provision for further affidavits and submissions regarding the Pat Lennon Alleged CPA Breaches; and
(e) adjourning the proceeding to a date to be fixed regarding the Pat Lennon Alleged CPA Breaches.
Procedural background in respect of the Restraint Application
On 15 September 2020, Kerbaj previously made an application to restrain the Lennons from acting for any party in the proceeding or alternatively, be restrained from acting for Ali and Horner (‘Previous Restraint Application’). On 16 October 2020, Efthim AsJ refused this application.[5]
[5]Erman v Kerbaj & Ors (unreported, 16 October 2020, Efthim AsJ).
At a directions hearing on 12 August 2022, I made orders in respect of the Restraint Application that:
(a) it be listed for hearing before me on 14 October 2022;
(b) the filing of any affidavits by Kerbaj by 2 September 2022; and any person wishing to oppose the Restraint Application were to file and serve any affidavits by 16 September 2022;
(c) the filing and serving of any affidavits in reply by Kerbaj by 30 September 2022;
(d) Kerbaj and any party or person wishing to oppose the Restraint Application were to file and serve outlines of submissions of no more than 10 pages by 7 October 2022.
On 16 September 2022, I made orders by consent between the parties that:
(a) the date by which Kerbaj was to file and serve any affidavit in support of the Restraint Application be extended, nunc pro tunc, to 16 September 2022, and that any party or person wishing to oppose the Restraint Application to file and serve any affidavits by 3 October 2022;
(b) Kerbaj was to file and serve any affidavits in reply by 10 October 2022; and
(c) Kerbaj and any party or person wishing to oppose the Restraint Application was to file and serve outlines of submissions of no more than 10 pages by 12 October 2022.
Applicable Legal Principles
Sifris J (as his Honour then was) in Gangemi Pty Ltd v Luppino Pty Ltd & Anor[6] summarised the applicable principles for an application to restrain solicitors from acting in a particular case as follows (citations omitted):
[6][2012] VSC 168, [5]-[10] (‘Gangemi’).
In Kallinicos & Anor v Hunt and Ors Brereton J, after referring to numerous authorities, said:
“The foregoing authorities establish the following:
·….
·…[T]he court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice [Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode; Holborow; Williamson v Nilant; Bowen v Stott; Law Society v Holt]. Prince Jefri does not address this jurisdiction at all. Belan v Casey and British American Tobacco are not to be read as supposing that Prince Jefri excludes it. Asia Pacific Telecommunications appears to acknowledge its continued existence.
·The test to be applied in this inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice [Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Holborow; Bowen v Stott; Asia Pacific Telecommunications].
·The jurisdiction is to be regarded as exceptional and is to be exercised with caution [Black v Taylor; Grimwade v Meagher; Bowen v Stott].
·Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause [Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott].
·The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief [Black v Taylor; Bowen v Stott].”
In Mitchell v Burrell Brereton J at [20] said:
“… the line is crossed only when the solicitor has a personal stake in the outcome of the proceedings or in their conduct, beyond the recovery of proper fees for acting, albeit that the relevant stake may not necessarily be financial, but involves the personal or reputational interest of the solicitor, as will be the case if his or her conduct and integrity come under attack and review in the proceedings. The presence of such circumstances will be a strong indication that the interests of justice – which in this field involve clients being represented by independent and objective lawyers unfettered by concerns about their own interests – require the lawyer to be restrained from continuing to act.”
His Honour continued at [21]:
“The point is illustrated, in Windeyer J’s judgment in Scallan (at [10]), by his Honour’s reference to the difference between the case where the (mere) interest of a solicitor is one that arises simply in supporting the success of his or her client (for example, in connection with advice about discovery or the commencement or continuation or abandonment of proceedings), and the case where the solicitor has an interest in the result of an action ‘additional to his interest in doing his best for a client to have success in an action’.”
Bell J in Garde-Wilson v Corrs Chambers Westgarth summarised the inherent jurisdiction this court has to restrain solicitors from acting in a particular case as follows:
“35In my recent judgment in Main-Road Property Group v Pelligra & Sons, I set out the Court’s jurisdiction in these terms:
The court possesses jurisdiction to restrain a party from engaging lawyers, or to restrain lawyers from acting, whether they be solicitors or barristers, on any one of these three grounds: to prevent the possible disclosure or misuse of confidential information (broadly defined) obtained by them when acting for a former client, to prevent them from acting against a former client when this would be a breach of their fiduciary duty of loyalty and to protect the integrity of the judicial process
…
40The third ground relates to ensuring the due administration of justice and the protection of the integrity of the judicial process. This jurisdiction extends to restraining a lawyer from acting for a party in litigation before a court in order to ensure that justice is not only done but manifestly and undoubtedly seen to be done. I think it logically extends to restraining a lawyer from acting in proceedings in a tribunal.
41The test is objective and whether a fair-minded reasonably informed member of the public would reasonably conclude that the proper administration of justice required the lawyer to be restrained from acting.
42Proper weight must be given to the fundamental principle that, in the public interest, a party to litigation in a court and, I would add, proceedings in an administrative tribunal, should not be deprived of the lawyer of their choice without good cause.
43One aspect of this principle is that, quite apart from clients, the courts and, again I would add, tribunals, are entitled to receive the assistance of solicitors and counsel who are observably independent.”
In Afkos Industries Pty Ltd v Pullinger Stewart (a firm) the Full Court of the Supreme Court of Western Australia applied the following passage of Thomas J in Kooky Garments Ltd v Charton:
“Unfortunately, this is a situation which is not all that uncommon. Representatives of law firms appear for clients where there is an actual or potential conflict of interest often enough for it to be a matter of grave concern to the Court. Where the acts or omissions of the law firm, including situations where the actions of the client are based on advice given by the solicitors, are at the heart of the question in issue, the firm is, in a real sense, ‘defending’ its actions or advice. There is, in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the Court demands. There is no sound reason to presume or accept that the solicitors must first have the opportunity to clarify whether their client is liable as a result of their actions or of acting on their advice before confronting the conflict.
What I have said, of course, does not apply where the advice given is unrelated to liability or the question in dispute. Advising a client to prosecute or defend a claim does not attract these observations. They are restricted to the situation where the acts or omissions of the solicitors are an integral part of the other party’s complaint or the client has been sued in circumstances where he or she was acting on the advice of their solicitors and it is effectively that advice which is in issue.
In such cases, apart altogether from the position of the client, the Court is not receiving the assistance of counsel who are observably independent. Independence is a function of counsel. The Court is entitled to assume that solicitors and counsel appearing before it possess that independence. Solicitors not only owe a duty to their clients to do their best for them but also owe an overriding duty to the Court. The same overriding duty is owed by counsel who have been granted a right of audience to appear in this Court. As part of their professional responsibility, therefore, solicitors and counsel must ensure that they do not appear in a matter in which they have an actual or potential conflict of interest or where, by reason of their relationship with their client, their professional independence can be called in question.”
In Bahonko v Nurses Board of Victoria (No 3) Middleton J at [2]-[3] said:
“The Court’s jurisdiction to restrain a legal practitioner from acting in proceedings is an exceptional one and discretionary. It must be exercised with appropriate caution and due weight must be given to the public interest in a litigant not being deprived of the legal practitioner of its choice without due or good cause: Grimwade v Meagher & Ors [1995] 1 VR 446 at 452; Geelong School Supplies Pty Ltd v Dean[2006] FCA 1404 at [35] and [51]. The cost, inconvenience or impracticality of requiring a legal practitioner to cease to act may provide a reason for refusing to grant relief: Geelong School [2006] FCA 1404 at [51]; Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561; Black v Taylor [1993] 3 NZLR 403 and Bowen v Stott [2004] WASC 94.
The Court must be careful not to intervene unless it is absolutely required in the circumstances of the case. Further, the Court should be mindful that sometimes applications for restraining legal practitioners may be misused or quite inappropriately pursued by a party to proceedings. In Freeman v Chicago Musical Instrument Co 689 F2d 715 (1982), the Court observed at 722:
We do not mean to infer that motions to disqualify counsel may not be legitimate, for there obviously are situations where they are both legitimate and necessary; nonetheless, such motions should be viewed with extreme caution for they can be misused as techniques of harassment.”
The principle of res judicata is based on the public interest that a party in litigation should not be twice vexed by the same issue; that there should be finality in litigation. Lord Bingham in Johnson v Gore Wood & Co stated that the approach should be as follows:[7]
In the absence of special circumstances, the parties cannot return to the court to advance arguments, claims or defences which they could have put forward for decision on the first occasion but failed to raise. The rule is not based on the doctrine of res judicata in a narrow sense, not even on any strict doctrine of issue or cause of action estoppel. It is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on forever and that a defendant should not be oppressed by successive suits when one would do. That is the abuse at which the rule is directed.
[7][2001] 2 WLR 72 (‘Johnson v Gore Wood & Co’), 86.
Submissions
The main issues raised by the parties and which need to be addressed in this ruling are as follows:
(a) the Respondents’ contention that the Restraint Application should be dismissed by reason of the doctrine of res judicata and/or abuse of process;
(b) considerations regarding the proper administration of justice;
(c) the impact of the ongoing CPA enquiry regarding Mr Lennon;
(d) whether there is a conflict of interest between the Respondents, Argyle and the Lennons such that the Restraint Application should be granted;
(e) whether the Restraint Application should be granted on the contention that Mr Lennon and Ms Lennon will be material witnesses at trial; and
(f) an assessment of the prejudice to the Respondents if the Restraint Application is granted and whether the application should be refused on that basis.
While some of these issues overlap, I will deal with each of them separately below.
Res judicata and abuse of process
The Respondents’ submissions
The Respondents submit that by reason of the Previous Restraint Application and the doctrine of res judicata, the Court should not entertain the Restraint Application. The Respondents rely upon Johnson v Gore Wood & Co as set out above. They say that the principle of res judicata is aimed at bringing finality in civil proceedings, inclusive of interlocutory applications as is the case here. They say that the underlying public interest principle is that a party should not be twice vexed in the same matter.
The Respondents submit that the Restraint Application is re-litigating the same issues as the Previous Restraint Application, although they conceded that the Restraint Application has a different factual matrix.
The Respondents further contend that allowing the Restraint Application to be heard is inconsistent with achieving finality in the proceeding, particularly if it is granted as that may cause a delay while the Respondents consider their options for the conduct of the remainder of the proceeding.
They also submit that in the present proceeding, the extent and breadth of the interlocutory applications have, as both parties have at various times submitted or conceded, been at odds with the commerciality of the proceedings and that most of the Overpayment will be repaid to the actual lenders (Grand Bollox and AJTB). The Respondents submit that the amount for distribution will still be only $363,000 or thereabouts.
The Respondents highlight that the trial scheduled for 2 August 2022 was vacated at the request of Kerbaj and there does not seem to be any intention by Kerbaj to have the matter set down for trial.
Kerbaj’s submissions
Kerbaj submits that he is not seeking to re-litigate the Previous Restraint Application. Kerbaj submits that circumstances have changed since that application was determined and he relies on the findings in my June Ruling in that regard. The change in circumstances are summarised below at paragraph 33. Further and perhaps more particularly, Kerbaj submits that the matters relied upon are different matters which were previously concealed from Kerbaj and are different to those relied on in the Previous Restraint Application.
Administration of justice
Kerbaj’s submissions
Kerbaj submits that the objective test for an application to restrain lawyers from acting for a party is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a firm and/or a legal practitioner should be prevented from acting and such an order ought not be lightly made by the Court.
Kerbaj submits that based on the findings in the June Ruling as to the Lennons’ conduct, a fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires that they be prevented from acting. Kerbaj submits that at the hearing on 18 June 2020 and thereafter in this proceeding, there were misrepresentations and misleading statements concerning material facts made by and on behalf of Erman, Ali and Horner to the Court and other parties.[8]
[8]June Ruling, [119]-[129].
Kerbaj relies on the following matters from my June Ruling:
(a) the representations in the Settlement Statement, First Jane Lennon Affidavit and Loan Account Statement were false and misleading;[9]
[9]June Ruling,[119]-[129].
(b) the Settlement Statement was blatantly false.[10] It claimed that $350,000 was owing to Ali and Horner and it was prepared by Lennon Lawyers and put before the Court by them;
[10]June Ruling, [121].
(c) Jane Lennon swore an affidavit on 18 June 2020 (ie. the First Jane Lennon Affidavit) to the effect that Ali and Horner were owed approximately $350,000;[11]
[11]June Ruling, [30].
(d) Ms Lennon was aware of the true situation, and the First Jane Lennon Affidavit was deliberately false and misleading as to the true facts;[12]
[12]June Ruling, [125].
(e) the Loan Account Statement, which is a filed court document bearing Lennon Lawyers’ imprimatur, misrepresented the true position as to the loans and purported to convey that all three of the loans were made by Ali and Horner;[13]
[13]June Ruling, [128].
(f) the Loan Account Statement falsely claimed that the balance of Ali’s and Horner’s loans to Erman was $302,634.16,[14] and those falsehoods were designed to further that misrepresentation as to the true position during the proceeding;
[14]June Ruling, [48].
(g) the false representations in the Settlement Statement and First Jane Lennon Affidavit were deliberate and done to induce Kerbaj to enter into the settlement Agreement;[15]
[15]June Ruling, [125], [153] and [183].
(h) the critical documents revealing the misrepresentation needed to be ’painstakingly dragged out of‘ Argyle and the true lenders;[16]
[16]June Ruling, [120].
(i) even when faced with clear evidence of the true position and past deception, the Respondents did not acknowledge that the representations were false;[17]
[17]June Ruling, [122].
(j) the June Ruling described the submissions made by the Respondents at the hearing on 20 May 2022, in regards to the second and third loans being secured by the Ali & Horner Caveat or as money advanced by the mortgagee, as fanciful,[18] preposterous,[19] and implausible.[20] The June Ruling also described Mr Lennon’s submission in relation to tacking and its application to the case as incomprehensible;[21]
[18]June Ruling, [131].
[19]June Ruling, [131].
[20]June Ruling, [138].
[21]June Ruling, [147].
(k) the Court raised concerns about the conduct of Mr Lennon and Ms Lennon as to their fitness to engage in legal practice and a copy of the June Ruling was to be referred to the Legal Services Commissioner;[22]
(l) these misrepresentations were made by Lennon Lawyers, including Mr Lennon, with knowledge that Ali and Horner were not owed $350,000, but rather a much lower amount,[23] and with knowledge of the true position of the loans. Kerbaj also emphasised that no evidence has been filed contradicting or otherwise explaining that conduct; and
(m) Kerbaj further submits from the above that Erman, Ali and Horner were held to have breached certain of their overarching obligations and there was also a sufficient basis for concern that Mr Lennon had breached certain of his obligations under the CPA.[24]
[22]June Ruling, [182]-[183].
[23]June Ruling, [138].
[24]June Ruling, [167]-[173] and [175].
Kerbaj submits that these are serious findings which underpin the grave concerns about the conduct of Mr Lennon and Lennon Lawyers in this proceeding.
Kerbaj notes that no appeal of the June Ruling, or application for leave to appeal, has been made.
Kerbaj submits that the $310,000 paid pursuant to the Consent Orders was paid to Argyle which is an entity related to both Mr Lennon and Jane Lennon. Kerbaj highlights that once those funds were received by Argyle, some funds were paid to Mr Lennon,[25] and other funds were retained by Argyle.[26] Furthermore, Kerbaj draws attention to the evidence at the 20 May 2022 hearing which showed that Mr Lennon and Jane Lennon were each involved in facilitating the second and third loans,[27] and Mr Lennon used his position as Erman’s lawyer in June 2020 to ensure that Argyle’s lenders got repaid when two of them had not lodged caveats.[28]
[25]June Ruling, [45]. “Lennon P” was paid $6,741.32.
[26]June Ruling, [62].
[27]June Ruling, [50]-[53]. These were the loans which had been represented as having been made by Ali and Horner and thereby secured by the caveat they had lodged, whereas in fact they were loans made by separate lenders who had not lodged caveats in respect of them.
[28]June Ruling, [175].
Kerbaj therefore submits that the June Ruling compels the making of orders restraining the Lennons from continuing to act in this proceeding as the Court has expressed serious doubts as to whether they can properly discharge their duties to the Court in this proceeding. Kerbaj says that the integrity of the judicial process and the due administration of justice, including the appearance of justice, requires that they be so restrained. He contends that the Court and the parties cannot reasonably assume that in appearing before it in this proceeding, the Lennons possess the necessary independence to carry out their roles and duties.
Kerbaj submits that the history of this proceeding shows a pattern of conduct by Mr Lennon which is not consistent with the proper administration of justice. In particular, Kerbaj submits that Mr Lennon has appeared at hearings to object to subpoenas relating to the critical documents which revealed the misrepresentation, that Mr Lennon simply did not return to an online hearing on 11 March 2022 after it was stood down to accommodate his commitments, and that Mr Lennon has not adequately explained his conduct in these respects.
The Respondents’ submissions
The Respondents agree with Kerbaj as to the test that is to be applied. The Respondents submit that the Overpayment Application (which was the subject of the June Ruling) was put on the basis that the application would remedy all the ills that had gone before, which include the misrepresentations as to the loan amount owing to Ali and Horner. The Respondents further submit that with the repayment of the Overpayment having now been made, there is no compelling nexus between the misrepresentations and the ongoing retention of the Lennons in this proceeding.
The Respondents submit that the findings in the June Ruling are prospective. They say that those are issues that are to be resolved later and they should not be a reason of itself for, or in any meaningful way support, the Restraint Application.
The Respondents submit that there is no reason to think that the conduct of the Lennons which is criticised in the June Ruling would continue or that similar conduct may occur going forward that might impact some aspect of the trial. They say that the past conduct does not support the relief sought.
The Respondents submit that the timing of the Restraint Application is clearly relevant to the cost, inconvenience and/or impracticality of requiring lawyers to cease to act and may provide a reason for refusing to grant relief. The Respondents complain that the Restraint Application has come very late in the proceeding, and even if Kerbaj contends that it was triggered by the June Ruling, that does not ameliorate or detract from the irreparable prejudice the Respondents will suffer if it is granted. They complain that as at the date of the hearing, it is some four months since the June Ruling was delivered. In response to this last point, Kerbaj submitted in reply that the relevant facts and findings were not known until the June Ruling was delivered, and the Restraint Application was filed about four days later. He says that there was no delay, and if there was, it cannot be held against him when relevant matters were concealed from him.
Ongoing CPA enquiry
Kerbaj’s submissions
Kerbaj refers to the June Ruling,[29] noting that there was a sufficient basis for concern that Mr Lennon may have breached certain of his obligations under the CPA, and that orders were subsequently made for Mr Lennon to ‘show cause’ as to whether he has breached those overarching obligations, and that the ‘show cause’ enquiry is ongoing. I shall refer to this as the CPA Enquiry.
[29]June Ruling, [175]-[176] and [186].
Kerbaj submits that Mr Lennon therefore has a personal or reputational interest, as his conduct and integrity is under review in the CPA Enquiry which stands distinct from the interests of his clients.
Kerbaj submits that the acts and omissions of Mr Lennon are an integral part of the CPA Enquiry and his complaint. Further, Kerbaj submits that it must be assumed that the Respondents acted on the advice of their solicitors, and it is effectively that advice which is in issue.
Kerbaj also submits that in circumstances whereby there is no challenge to the findings that Mr Lennon’s clients breached their overarching obligations, if Mr Lennon intends to contend that he did not breach his overarching obligations, then he may need to articulate a position which either discloses his instructions or otherwise contradicts the position that the Respondents have taken in this proceeding. Kerbaj submits that Mr Lennon would be required to participate in this proceeding wearing two hats – one as lawyer for the Respondents, and another defending his own actions.
He says that a fair-minded observer would read the June Ruling, read the findings that have been made, and would note that an associate judge of this Court had found it sufficiently serious to commence the CPA Enquiry and to make a referral to the Legal Services Commissioner. He further says that would impact how a fair-minded observer considers the due administration of justice to be carried out. Nothing can be said about the likely outcome of the enquiry: it needs to be taken no higher than an enquiry is on foot. It is the existence of that enquiry that is the point. He says that a fair-minded observer would see these matters and have concerns with a solicitor continuing to act in the very proceeding in which the impugned conduct occurred.
The Respondents’ submissions
The Respondents submit that other than an extant issue as to costs, that is, whether Mr Lennon is to be jointly and severally liable with Ali, Horner and Argyle for the costs orders already made regarding the Overpayment Application, that matter will not be a cause of concern for the Court when scheduling the trial. The Respondents further submit that the Restraint Application is a revisiting of the June Ruling almost ad nauseam.
The Respondents submit that the CPA Enquiry is separate and can therefore be left until after the trial of the proceeding.
Conflict of interests between the Respondents, Argyle Lending and the Lennons
Kerbaj’s submissions
Kerbaj submits that there are now multiple conflicts of interest in this proceeding.
First, Kerbaj submits that there is a conflict between Garlick and Ali and Horner. Kerbaj points to the fact that Ali and Horner were never owed $350,000 by Erman and yet that is a position that Erman and now Garlick had ‘accepted’, on oath, throughout this proceeding.[30] Kerbaj submits that plainly Erman and now Garlick ought to have been challenging Ali and Horner’s claim, but did not, and thus there was a conflict between the claims of mutual clients of Lennon Lawyers. Kerbaj further says that the latest affidavits filed by each of the Respondents do not address that conflict in the context of the past misinformation.
[30]Affidavit of Jack John Erman sworn on 13 October 2020 at [7].
Second, Kerbaj submits there is a conflict of interest between the Respondents and Argyle. Kerbaj points out that pursuant to the Respondents’ summons dated 20 July 2022, the Respondents seek orders that Argyle Lending be joined as a party to this proceeding, and that Argyle be paid $194,330.36 out of the funds held in Court.[31] Kerbaj submits these are not orders that serve the Respondents in any way and there is no good reason why the Respondents would file such a summons.
[31]This is the amount of the Overpayment which was paid into Court following the June Ruling.
Third, Kerbaj submits that the Lennons are related to Argyle and the proposed orders referred to in the previous paragraph raise more potential conflicts. The Lennons are plainly appraised of confidential information of their current clients (and Argyle), such that they could only act if given informed consent by their clients and if the law practice and solicitors concerned establish an effective information barrier.[32]
[32]By reason of rule 11.4 Australian Solicitors’ Conduct Rules 2015.
Kerbaj highlights that the conduct, as set out above and referred to in the June Ruling, resulted in indemnity costs orders being made against Ali, Horner, and Argyle.[33] Further, the question of whether the costs of Overpayment Application ought to also be awarded against Mr Lennon is reserved.[34] Kerbaj submits that similar to the CPA Enquiry, Mr Lennon faces an intractable conflict in defending that costs application whilst still acting for the Respondents.
[33]Recital O and paragraph 2 of the orders made on 24 June 2022.
[34]Recital P and paragraph 11 of the orders made on 24 June 2022.
Kerbaj submits that a fair-minded independent observer would consider that Ali and Horner ought to be represented by an independent lawyer to advise them, including advice about Mr Lennon's conduct on their behalf, referred to in the June Ruling.
The Respondents’ submissions
The Respondents submit that Garlick is effectively a contradictor to Kerbaj’s claim in the proceeding. Garlick does not oppose the claim of Ali and Horner, and does not oppose the quantum of the fifth defendant’s claim although there is a minor priority issue in respect of the latter. While the link was not explicitly drawn, I took this to be a submission that there was no conflict of interest between Garlick and any other party, other than Kerbaj of course.
The Respondents say that there is no conflict of interest between Garlick and Ali and Horner, because whatever the outcome of this proceeding, Garlick accepts the liability of Erman’s estate for the loan Erman obtained from Ali and Horner. Similarly, he accepts that the estate is liable for the loans to Grand Bollox and AJTP, which is where the Overpayment ultimately went in June 2020. The Respondents note that Kerbaj has made a summary judgment application against Ali and Horner, and if they continue to be involved in the proceeding they will only be involved to the extent of prosecuting their own claim.
At the hearing, Mr Lennon stated that the Respondents no longer sought to join Argyle to the proceeding, and so no issue or conflict as between Argyle and the Respondents arose.
The Respondents submit that none of the issues regarding conduct that arise from the June Ruling would be problematic for the Court in adjudicating or determining the integrity and validity of Kerbaj’s claim nor problematic for Kerbaj to run his case.
Legal practitioners acting in a matter in which they may be a material witness
Kerbaj’s submissions
Kerbaj notes that with the passing of Erman, Mr Lennon gave evidence in the First Pat Lennon Affidavit about various critical conversations on a hearsay basis, which evidence is not otherwise given by any witness in this proceeding.[35] Kerbaj also notes that Ms Lennon gives evidence in the Second Jane Lennon Affidavit about the inception of the second and third loans, which claims are sought to be agitated in the Respondents’ summons dated 20 July 2022. Kerbaj submits that as at least 20 May 2022, Ms Lennon was the controlling mind of Argyle, which entity is intimately involved in various aspects of the impugned conduct and is now sought to be joined to the proceeding.
[35]See, e.g., paragraphs 3, 5, 7-9, 15 and 28-31 of the First Pat Lennon Affidavit. For the avoidance of doubt, the first defendant does not concede that each of those matters are admissible.
Kerbaj submits that it is somewhat difficult to reconcile the position of Mr Lennon in the Second Pat Lennon Affidavit that neither he nor Ms Lennon will give evidence at trial.[36] Kerbaj submits that if the Court accepts that Mr Lennon or Ms Lennon may be a material witness or may have a personal interest in the outcome of the proceedings, then pursuant to r 27.1 of the Australian Solicitors’ Conduct Rules they ought not be permitted to appear as advocate for their clients in the hearing.
[36]Affidavit of Pat Lennon sworn on 5 October 2022 at [20].
The Respondents’ submissions
The Respondents accept that applying Kallinicos v Hunt,[37] the Court may need to make a finding as to whether a solicitor is likely to be a material witness. However, the Respondents submit that they do not propose that Jane Lennon and Pat Lennon be called to give evidence and there is no necessity for them to be involved in any material sense.
[37](2005) 64 NSWLR 561.
In respect of Jane Lennon, it is said that irrespective of what has gone before, Jane Lennon will not be involved with the proceeding in any way, shape, or form. Argyle was the facilitator of the loans and Jane Lennon would not be required to give evidence. That loans were made by Grand Bollox and AJTP can be dealt with through documents or through evidence from persons connected with those entities.
Insofar as Mr Lennon is concerned, the Respondents submit that it is not proposed that he be called to give evidence, because the matters referred to by Kerbaj are hearsay discussions with Erman before he passed away. They say the same in respect of any discussions between Jane Lennon and Erman.
Prejudice to parties
Kerbaj’s submissions
Kerbaj acknowledges that the Court must consider the inconvenience and any prejudice to the parties in making restraint orders, including the right of the Respondents to choose their own lawyers, and that impact must necessarily be balanced against the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice.
Kerbaj submits that the proceeding, as at 14 October 2022, is not currently fixed for trial and thus the Respondents have an opportunity to obtain alternate representation.
He further submits that Ali and Horner had their loan repaid in June 2020 and as such there is no reason for them to remain as active participants in the proceedings. Kerbaj submits that there is no prejudice to Ali and Horner if the Restraint Application is successful.
Kerbaj submits that since the time Garlick was substituted as plaintiff pursuant to orders made on 22 April 2022, following the death of Erman, the only substantive step in the proceeding was the hearing on 20 May 2022. Kerbaj submits that the June Ruling and the application book prepared for that hearing would provide any new solicitor with the relevant background and so be familiarised with the relevant matters.
Kerbaj submits that the Court can infer from paragraphs 7 to 9 of the Garlick Affidavit that Lennon Lawyers has not issued any invoice to Garlick on this matter.
The Respondents’ submissions
The Respondents submit that Kerbaj will not suffer any prejudice if the Lennons continue to act for the Respondents, for the following reasons:
(a) the Overpayment to Ali and Horner has now been rectified by way of having Ali, Horner and Argyle pay that amount into Funds in Court;
(b) Kerbaj and his legal advisors are au fait with the proceeding, subject matter, and claims of the parties. They cannot seriously point to anything, nor have they, that will affect their ability to prosecute the claim on Kerbaj’s behalf that arises from the ongoing involvement of the Lennons;
(c) Kerbaj cannot complain that the Lennons have failed to resolve and/or settle the proceeding and the costs of the proceedings as Kerbaj had sought to vacate the trial date previously given and has not pressed for another date; and
(d) Kerbaj’s claim is the weakest in terms of priority and substance and is not substantiated by any documentation.
In reply to the submission set out in the previous paragraph, Kerbaj says that this is not the correct question or test to apply. It is not a question about the prejudice to Kerbaj of the Lennons continuing to act, and that is not how he puts his application. Kerbaj says that the fear is that the Lennons either will not be independent and uphold their duty to the Court, or there is an apprehension or a doubt about upholding those duties to the Court raised by the matters set out in the June Ruling. Therefore, it is not a matter of prejudice to Kerbaj in the manner submitted by the Respondents.
The Respondents rely on the principle that courts ought not lightly deprive a party of their lawyer of choice. Each of the Respondents have provided affidavits in opposition to the Restraint Application. From those affidavits, it is clear that their opposition is based on the implications for them in terms of costs, delay and the Lennons’ intimate knowledge of the proceeding. They say they will be prejudiced if they can no longer retain the Lennons to act for them.
It is convenient at this juncture for me to summarise the evidence relied upon by the Respondents in this regard.
In his affidavit, Ali deposes that:
(a) the prejudice to him and Horner if the Lennons are restrained is greater than would have been the case if the Previous Restraint Application had been granted, as the legal costs have escalated substantially since that time and he believes the prejudice in having to engage new lawyers now would be irreparable;
(b) if Lennon Lawyers no longer act for him and Horner, they would be entitled to render an account for services to date and insist on payment, and would be entitled to exercise a lien that would make the appointment of new lawyers almost impossible;
(c) substantial additional and effectively duplicated costs would be incurred in engaging new lawyers given the large volume of material in the proceeding and the large number of interlocutory applications that have taken place. This may also cause further delay due to the time and effort required to engage new lawyers and any prospect of the matter being scheduled for trial in the near future may be jeopardised;
(d) there is no conflict between him, Horner and Erman (now Garlick);
(e) he believes the chances of a significant costs order being made against him and Horner would be significantly increased if the Lennons are unable to represent them and they are required to engage new lawyers; and
(f) he is concerned that given some of the nuances of the proceeding, for example the issue of Kerbaj’s knowledge of the various encumbrances, may well be compromised if new lawyers without the historical and intimate knowledge of the proceeding are to assume conduct of the proceeding when so much water has passed under the bridge.
Ali makes other statements in his affidavit which I have not summarised as I do not consider them germane to the Restraint Application, as they go to the merits of the various parties’ claims in this proceeding.
Horner simply adopts and agrees with the Ali Affidavit.
In his affidavit, Garlick deposes that:
(a) he has ’very limited financial means’;
(b) he agreed to be substituted as plaintiff in this proceeding but did so reluctantly;
(c) if the Restraint Application is granted, he does not believe he has any real prospect of engaging alternative lawyers. He says that there is a huge amount of material, and the matter has some complexity due to the various interlocutory steps and he understands that there is still a significant amount of time and effort that needs to be devoted to the litigation by any new lawyers should they be willing to be retained;
(d) he does not believe he is in a position to find a lawyer willing to take on the matter absent satisfactory funding arrangements;
(e) if the Lennons are restrained from acting further, he understands that pursuant to their retainer, they would be entitled to render an invoice for work undertaken to date and they would also be entitled to exercise a lien which may well mean that a further and potentially insurmountable obstacle will exist insofar as appointing new lawyers; and
(f) he seeks that the Lennons be permitted to continue to act on his behalf given the intimate and extensive knowledge they have of the matter and to protect the interest of beneficiaries and/or creditors of Erman’s deceased estate in order that a fair result is achieved.
From this, the Respondents submit that they face tremendous prejudice and costs if the Restraint Application is granted. In support of this, the Respondents submitted the following:
(a) Kerbaj has failed to comply with his own timetabling orders in respect of the Restraint Application and had not pressed for an early hearing of it;
(b) the proceeding has been on foot for nearly two and a half years and should not be further delayed;
(c) Kerbaj had made similar submissions about delay and prejudice to those made now by the Respondents, when Erman, Ali and Horner had sought to restrain his solicitors from acting;[38]
[38]Erman, Ali and Horner had made that application in July 2021, which I heard and refused on 2 September 2021.
(d) Kerbaj’s delay in bringing the Restraint Application, the increase in cost, and the high threshold required for restraining lawyers clearly favour the Respondents when balancing the competing considerations;
(e) if the Lennons were restrained from acting for the Respondents, it may result in the Respondents being unable to fund the litigation and to engage lawyers to act on their behalf; and
(f) given the voluminous amount of material and the complexity of the litigation, the retention of new lawyers at this stage would be enormously costly and may deprive the Respondents from pursuing their claims. The Respondents particularly emphasised that the proceedings have gone for two and a half years, with the costs on any view being self-evidently substantial.
Consideration
It is common ground that the objective test for an application to restrain lawyers from acting for a party is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that the firm and legal practitioner should be prevented from acting.
The Respondents do not and have not challenged my findings in the June Ruling, upon which Kerbaj mainly relies in making his submissions.
It is clear from the authorities, and not disputed between the parties, that this test requires the Court to consider a number of factors, including:
(a) the fundamental principle that a party should not be deprived of the lawyer of their choice. The jurisdiction must be exercised cautiously and in exceptional circumstances; and
(b) the prejudice to the parties if the restraint order is made, including as to costs and delay.
I will now consider each of the matters referred to in paragraph 23 above.
Res Judicata and Abuse of Process
As Kerbaj has submitted, and as conceded by the Respondents, the Restraint Application has a different factual matrix to the Previous Restraint Application. In particular, my June Ruling found that there were misrepresentations made in the Settlement Statement, by Ms Lennon in her first affidavit, and in the Loan Account Statement which bears the Lennon Lawyers’ imprimatur. There were also concerns about the conduct of Mr Lennon and Ms Lennon as to their fitness to engage in legal practice, and as to whether Mr Lennon had breached some of the overarching obligations.
The Previous Restraint Application relied primarily on alleged conflicts of interest between Erman (the borrower) on the one hand and Ali and Horner (the lenders) on the other. In his decision, Efthim AsJ records that Erman acknowledges his indebtedness to Ali and Horner and there is no dispute between them. His Honour concluded that there was no evidence of any differences in the interests between Erman and Ali and Horner. His Honour rejected Kerbaj’s submission that Lennon Lawyers should be restrained due to Mr Lennon having a personal stake in the outcome as there was no evidence to show that Argyle acted in a capacity other than as facilitator of the loan. Kerbaj contended that by acting for Erman, Ali and Horner, Mr Lennon was in breach of the paramountcy of a solicitor’s duty to the Court and to the administration of justice because it creates a likelihood that those parties may reach an agreement which either inflates Ali’s and Horner’s claim or raises their priority to the available funds, and that they were cooperating with each other to visit an unjust result on Kerbaj. His Honour rejected this.
It is readily apparent that the facts relied upon for the Previous Restraint Application are quite different to those relied on for this Restraint Application. Indeed, the matters relied on here are clearly matters not known to Kerbaj at the time of making the Previous Restraint Application.
Res judicata does not operate to prevent multiple interlocutory applications of the same type, provided that the basis for them is different. Here, the grounds are quite different and I do not accept that the doctrine of res judicata applies to prevent the Restraint Application from being made or granted.
I do not accept the Respondents’ submission as summarised in paragraphs 27 and 28 above. It is based on a misconception of the principle of res judicata. As I indicated during the course of argument, finality in the context of res judicata means that an issue or allegation has been heard and determined, and parties ordinarily do not get to relitigate it in a subsequent hearing or in other aspects of the case. It does not mean that the proceeding is not able to be finalised because it may be delayed. It may very well be the case that the amount at stake in this proceeding does not justify the length of time and costs spent on it, particularly in terms of some of the interlocutory disputes that have occurred. However, that is not a reason to not consider the Restraint Application if it is properly made and has merit, which it does. On an issue as important as the proper administration of justice, this is particularly so.
Even when taking into consideration the commerciality of the proceedings, the change in circumstances is substantial and material as to the question of whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires the Lennons be prevented from acting.
The Respondents did not make clear submissions about abuse of process other than as an incidence of res judicata. For the sake of completeness, however, I will state that I do not regard the Restraint Application as an abuse of process.
Administration of Justice
I turn now to the question of whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that the Lennons be prevented from acting in this proceeding. I accept Kerbaj’s submissions that the findings in the June Ruling,[39] which have not been disputed, compel the making of orders restraining the Lennons from continuing to act in this proceeding.
[39]Paragraphs 33 to 37 above.
When these factors are taken together, it is self-evident that a fair-minded member of the public would conclude that the Lennons are required to be restrained due to their conduct and involvement in the misrepresentations made. This weighs heavily in favour of exercising the inherent jurisdiction of the Court to grant the Restraint Application.
I reject the Respondents’ submission that with the Overpayment having been paid into Court, there is no compelling nexus between the misrepresentations and the Restraint Application. The misrepresentations and the impugned conduct occurred in this proceeding and were intended to, and did, induce Kerbaj to agree to remove his caveat and to enter into the Agreement. The entitlement of Kerbaj, Ali and Horner to the surplus proceeds of sale was an issue then and remains in issue now, to at least some degree. Mr Lennon and Lennon Lawyers were clearly involved in the making of those misrepresentations and the impugned conduct. There is clearly a nexus as the fair-minded member of the public would have concerns that the Lennons can continue to act in this proceeding when the consequences of their own conduct continues to be an issue in the proceeding. In the circumstances here, there is insufficient confidence that the Lennons can properly carry out their duties to the administration of justice and to the Court.
For the same reason, I reject the Respondents’ submission that there is no reason to think that the impugned conduct will continue or recur and impact the conduct of the trial and that therefore the Recusal Application should be refused.
Further, I reject the Respondents’ submission that the past conduct does not support the relief sought. The restraint is not about punishing past conduct, but rather about ensuring the integrity of the administration of justice, as the Court cannot be satisfied that the findings as to past conduct and the ongoing CPA enquiry will not affect the conduct of the proceeding or will not interfere with the due administration of justice. The Court cannot be satisfied that in all the circumstances, the Lennons will be able to fulfil their duties to the Court in this proceeding given the close nexus between the issues in this proceeding and the conduct of the Lennons. That does not presuppose the outcome of the ongoing CPA enquiry: the mere fact of it is sufficient to raise that concern, particularly when it is something that the Court has initiated.
I further reject the Respondents’ submission that the repayment of the Overpayment remedies the ills gone before. Firstly, the contention that the Overpayment Application was put on that basis is incorrect. Further and more importantly, the repayment certainly does not remedy all the consequences that follow from the misrepresentations. One of the bases for ordering the repayment was that the Agreement was voidable for misrepresentation and that clause 2.2.3 of the Agreement provided a basis for the Court to order that repayment.[40] The repayment order only remedies the fact that the Fund was deficient in the amount of Overpayment.[41] It does not deal with the concerns arising out of the Lennons’ conduct, which I have dealt with in paragraphs 90 to 94 above.
[40]June Ruling, [154]-[155].
[41]June Ruling, [163].
I also reject the Respondents’ submission that the findings of the June Ruling are prospective, matters that can be resolved later and that they should not be a reason to support the Restraint Application. When applying the test for restraining solicitors, the circumstances in their totality are to be taken into account, which includes the findings in my June Ruling.
I do not accept that the matters relied on by Kerbaj as set out in paragraph 38 above justify, either on their own or in conjunction with the other matters relied upon in respect of the administration of justice just referred to, the granting of the Restraint Application.
Ongoing Civil Procedure Act Enquiry
I accept Kerbaj’s submission that the ongoing CPA Enquiry means that there may be concerns that Mr Lennon, in defending his actions, may have to articulate a position which either discloses his instructions or otherwise contradicts the position that the Respondents have taken in this proceeding.
Whether or not Mr Lennon ultimately participates in the CPA Enquiry is not the question here. Nor is the ultimate outcome of the CPA Enquiry the question here.
I accept Kerbaj’s submissions that the very fact that I have already found there to be a sufficient basis for concern that Mr Lennon may have breached his overarching obligations and initiated the CPA Enquiry means that Mr Lennon (and thereby Lennon Lawyers given the close relationship between them) has a personal stake here which may conflict with his duties to his clients and to the Court. His reputation may be affected, as may his financial situation (by way of example, if a costs order against him personally is made).
In particular, I accept Kerbaj’s submission summarised in paragraph 47 above.
It follows that I do not accept the Respondents’ submission that the CPA Enquiry is not a relevant factor weighing in favour of the Restraint Application.
Conflicts of interest
In ordinary circumstances, one would expect there to be a conflict of interest between Garlick on the one hand and Ali and Horner on the other hand. Erman knew that Ali and Horner were not owed anything like $310,000 and ought to have challenged that claim. His failure to do so is explicable in light of the fact that he did owe approximately that amount in loans received from Ali and Horner, AJTB and Grand Bollox. He appears to have taken the view that at the end of the day, he owed that amount and so any call he had on the Fund would have just gone to satisfy those debts, if the lenders were not paid directly from the Fund. Whether that was the correct view is another question and one I need not (and do not) answer as part of the Restraint Application.
Therefore, I give no weight to Kerbaj’s submission that the Lennons ought to be restrained due to a conflict of interest between Garlick and Ali and Horner. In any event, those parties have given their consent to the Lennons representing them, after being informed of the arguments about that alleged conflict of interest.
I turn now to Kerbaj’s contention that there is a conflict of interest between the Respondents and Argyle. The submissions made by the Respondents at the hearing were that this was no longer an issue as they were no longer seeking orders that Argyle be joined to the proceeding and that it be paid the Overpayment amount from the Fund. As noted above, these were orders sought by the Respondents’ summons dated 20 July 2022, which has not yet been heard and determined. It is difficult to see how such orders serve the Respondents and to understand why they would therefore seek such orders. While the Respondents say that they will withdraw that application, they have not yet done so or sought orders to that effect. Even if they had or they do, the fact that it was sought exposes the potential for conflict between the Respondents and Argyle.
On its own, I doubt this would be sufficient to justify the restraint of the Lennons, but it is not on its own. There is no contest that the Lennons are related to Argyle. Its sole director (as at 20 May 2022, at least, and while there is no evidence before the Court that this remains the case, nor is there evidence that it does not) is Jane Lennon and it is a matter of public record that Lennon Lawyers frequently appear for and act for Argyle in matters before this and other courts. On the evidence before the Court for the Overpayment Application, it was clear that Argyle, Mr Lennon and Lennon Lawyers worked closely together when facilitating loans and acting for Erman, Ali and Horner. There is no contest that it was Argyle who paid the Overpayment into Court following the orders made to give effect to the June Ruling, although there is no evidence as to the source of funds used to make that payment. Depending on the ultimate outcome of the proceeding, whether Argyle is joined to it or not, and particularly if it was Argyle’s own resources which were used to make the Overpayment, it is not difficult to see that the outcome may affect Argyle in financial terms and may therefore affect Mr Lennon in financial terms through his connection to Argyle, either directly or indirectly.
A proceeding in which the solicitor acting for some of the parties may be affected financially by the outcome, and not just in terms of whether their legal fees will be paid (which is not usually regarded as a ‘financial interest’ giving rise to any concerns as to the proper administration of justice), is one where the fair-minded lay observer would conclude that the solicitor should be restrained from acting.
I regard the potential for conflict between the Respondents and Argyle and the concern as to the potential conflict between the Respondents and Mr Lennon due to his connections to Argyle as a factor to take into account. Given the uncertain state as to Argyle’s participation in this proceeding, and the fact that the potential for the outcome to impact Mr Lennon financially via his connection to Argyle is speculative, I do not regard it as a significant factor.
However, there is one aspect which I think deserves greater weight, and that is the fact that the question of whether the costs of the Overpayment Application ought to also be awarded against Mr Lennon is currently reserved. I accept Kerbaj’s submission that Mr Lennon faces an intractable conflict in defending that costs application while still acting for Ali and Horner, who have already been ordered to pay those costs (with Argyle) on an indemnity basis.
Legal practitioners acting in a matter in which they may be a material witness
In oral submissions, Kerbaj’s counsel stated that he cannot gainsay what Mr Lennon has said about he and Jane Lennon not giving evidence at trial. It was not clear to me whether Kerbaj abandoned the ground of legal practitioners acting in a matter in which they may be a material witness or not.
In Kallinicos v Hunt, Brereton J stated that he had to make a judgment about the likelihood of the solicitor in that case being a material witness at trial.[42] I take this to mean that while the parties’ intentions or views at the time of the restraint application are relevant, so too is the judge’s independent assessment of that.
[42]Kallinicos v Hunt [2005] NSWSC 1181, [78].
In this case, there is no evidence before the Court that Jane Lennon in her capacity as a solicitor employed by Lennon Lawyers has acted or will act in this proceeding for the Respondents. That being the case, even if she is likely to be a material witness, I do not see this as a basis for restraining Lennon Lawyers from acting.
While this is not the occasion for me to speculate about how the Respondents may run their case at trial, it seems to me that the likely areas on which evidence from Mr Lennon may be sought are the loan and other arrangements between Erman and Kerbaj. However, from the material filed to date, evidence from Mr Lennon about those matters would be hearsay as it appears to be common ground that he had no direct involvement in this. For that reason, it does not appear likely to me that Mr Lennon will be a material witness due to his evidence likely being inadmissible.
It is difficult to see how matters Mr Lennon can give direct evidence about, such as the arrangements leading up to the Agreement and Consent Orders, will be matters for trial, and so I think it unlikely that he would be a material witness in that regard.
Prejudice to the Respondents
I accept Kerbaj’s submission that the Respondents’ submissions[43] as to Kerbaj not suffering prejudice if the Lennons continue to act in this proceeding is irrelevant and not the correct test to apply. Therefore, I do not take the Respondents’ submissions in that regard into account.
[43]See paragraph 70 above.
The impact on the Respondents of granting the Restraint Application is a significant factor to take into account, since due weight must be given to the fact that to do so is to deprive them of the lawyer of their choice. That is one of the reasons why the jurisdiction to restrain solicitors requires exceptional circumstances and is to be exercised with caution, as it should not be done without due cause.
The cost, inconvenience or impracticality of requiring lawyers to cease acting may provide a reason for refusing to restrain the lawyers.
In this case, the Respondents primarily rely on the following, some of which are inter-linked:
(a) their loss of lawyers who have a close and intimate knowledge of the subject matter of the proceeding and of the proceeding itself;
(b) the additional costs which will likely be incurred for new solicitors to familiarise themselves with the proceeding, which are costs that would not be incurred were the Lennons to continue to act;
(c) further delay by reason of being forced to retain new solicitors;
(d) their position vis-à-vis Lennon Lawyers in terms of liability for costs consequent upon the retainer ceasing; and
(e) possibly being unable to afford to obtain new lawyers.
I accept that this proceeding has been a long and convoluted one with many interlocutory applications. However, most of those have now been resolved and those that remain are not of a nature where a detailed knowledge of the procedural history is essential. I do not accept that the Lennons being restrained works a significant prejudice on the Respondents, and I do not accept that that is an irreparable prejudice as deposed to by Ali. I would have thought that new lawyers would be able to be comprehensively briefed and instructed on matters which the Respondents regard as important.
Depriving the Respondents of their lawyer of choice is a significant matter to take into account. Their evidence is clear that they want Lennon Lawyers to continue to represent them. But it is clear from the authorities that this is not an unqualified consideration: the authorities speak of the litigant not being deprived of their chosen lawyer without due cause. In this instance, the interests of justice require the Lennons to be restrained, even though it results in the Respondents being deprived of their services.
I accept the Respondents’ evidence and submission that if the Restraint Application is granted, they will face an increase in costs in terms of retaining new solicitors, and that this is exacerbated by the fact that the proceeding has been on foot for nearly two and a half years. This is a relevant factor for me to take into account and I accept it should be given some weight. However, I do not accept that these costs are likely to be substantial and duplicative if the Respondents approach instructing new solicitors in a systematic and sensible way. Much of what has gone before is not germane to the trial.
While obtaining new solicitors is likely to cause some delay while they get up to speed, I do not regard this as a significant factor as the proceeding is no longer fixed for trial. In any event, due regard can be paid to that when the Court sets a trial date, if it remains a concern for the Respondents.
Much of the Respondents’ evidence as to the costs impact on them of the Lennons ceasing to act seems to be based on their liability (potential or actual) for costs incurred to date. While not stated in unequivocal terms, I read Ali’s and Garlick’s evidence as meaning that Ali and Horner, and Garlick may have not yet been billed by Lennon Lawyers for services to date and that they apprehend that if their retainers cease, Lennon Lawyers would be able to render their accounts and insist on payment. I also apprehend that Ali and Garlick are concerned that if that occurs and payment is not made, Lennon Lawyers may exercise a lien over the files such that they would not be provided to the new solicitors.
Other than Ali’s and Garlick’s statements in this regard, there is no evidence before me as to the terms of the retainers between Ali and Horner and Lennon Lawyers and between Garlick and Lennon Lawyers.
Ali deposes that the arrangement between he, Horner and Lennon Lawyers is not a contingency or deferred payment arrangement. Garlick is silent on this.
It is unclear from the affidavit material whether the possibility of an ‘account for services to date’ being rendered upon the retainers ceasing is for all of the costs of the proceeding to date or just those since an account was last rendered. There is also no evidence as to how much this is. However, I take it from Ali’s affidavit that the ‘account for services to date’ that he is concerned about, given that he says it is not a deferred payment or contingency arrangement, that there must have been previous accounts rendered.
Garlick has only been a party to the proceeding since 22 April 2022 and so it cannot be the case that his costs liability to Lennon Lawyers to date is substantial.
Garlick, but not Ali, also says that he has very limited financial means and does not think he can afford a new lawyer ‘absent satisfactory funding arrangements’. He does not say anything more about what that means or may mean, so I can do no more than speculate about what ‘satisfactory funding arrangements’ may be. I am not willing to speculate in that regard.
I do accept, however, based on the Garlick Affidavit that he may encounter difficulties in obtaining new representation. In my view, while that would be undesirable it does not justify the Court not making the restraint order.
I have taken all of these matters into account and given due regard to them, however I think the case for restraining the Lennons is strong and I do not regard these matters as being of sufficient weight to justify me not granting the Restraint Application. There is due cause to restrain the Lennons from acting in this proceeding.
For completeness, I do not accept the Respondents’ submission that Kerbaj delayed in bringing the Restraint Application including not having pressed for the Restraint Application to be heard until 15 October 2022. As Kerbaj rightly pointed out, the Restraint Application was brought within a week of receiving the June Ruling, and there was no significant delay in it being heard or any prejudice in the delay between June and October. Given the heavy reliance on the June Ruling by Kerbaj and the consequences of it being such a significant feature of this ruling, I do not accept the Respondents’ submission that the Restraint Application has been brought late in the proceeding and that it does not matter that it was triggered by the June Ruling. The findings in the June Ruling and the consequences of that decision are what justify the Restraint Application.
Conclusion
For the reasons set out above, it is appropriate that orders be made to restrain Pat Lennon and Lennon Lawyers from acting on behalf any of the parties in this proceeding.
In my view, this proceeding falls squarely within the matters identified by Brereton J in Mitchell v Burrell: the personal or reputational interest of Mr Lennon and Lennon Lawyers is involved given that their conduct and integrity have come under attack and review in the proceeding. There has already been a sufficient basis for me to refer Mr Lennon’s conduct and the June Ruling to the Legal Services Commissioner, and the CPA Enquiry is ongoing. These are strong and compelling indications that the interests of justice require the Lennons being restrained from continuing to act.
The test for restraining the Lennons, that being that the fair-minded reasonably informed member of the public would conclude that the proper administration of justice requires it, so as to protect the integrity of the judicial process and the due administration of justice, including the appearance of justice, has been well and truly met in this case.
The parties are directed to confer as to an appropriate form of order to give effect to this ruling, including as to costs. By 4.00pm on 20 December 2022, they are to:
(a) send to my Chambers proposed orders if there is consent as to the form of those orders; or
(b) send to my Chambers their preferred form of order and a short submission of no more than 3 pages as to why their form of order should be preferred.
I will then make orders in Chambers on 21 December 2022, which will be sent to the parties.
Insofar as the further conduct of the proceeding is concerned, I intend to list the proceeding for directions on 24 February 2023.
SCHEDULE OF PARTIES
| S ECI 2020 02573 | |
| BETWEEN: | |
| DARRYN GARLICK (as Representative of the estate of JACK JOHN ERMAN) | Plaintiff |
| - v - | |
| DANIEL KERBAJ | First Defendant |
| MARZELLE COHEN | Second Defendant |
| GRAHAM GEORGE ALI | Third Defendant |
| VICTORIA LOUISE HORNER | Fourth Defendant |
| CREDIT CORP SERVICES PTY LTD ACN 082 928 572 | Fifth Defendant |
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