Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd
[2011] NSWSC 1343
•07 November 2011
Supreme Court
New South Wales
Medium Neutral Citation: In the matter of Hopetoun Kembla Investments Pty Ltd - Hopetoun Kembla Investments Pty Ltd v JPR Legal Pty Ltd [2011] NSWSC 1343 Hearing dates: 21 October 2011 Decision date: 07 November 2011 Jurisdiction: Equity Division - Corporations List Before: Ward J Decision: Statutory demand set aside
Catchwords: CORPORATIONS - application under ss 459G, 459H(1)(b) and 459J(1)(b) of the Corporations Act 2001 (Cth) for order setting aside statutory demand - whether Graywinter principles apply to preclude reliance on supplementary affidavits - whether genuine offsetting claims established - whether pending appeal from costs determination the subject of judgment debt constitutes "some other reason" for the purposes of s 459J(1)(b) to set aside demand - HELD - Graywinter principles apply to preclude reliance on ground sought to be relied on as "some other reason" pursuant to s 459J(1)(b) but not otherwise - genuine offsetting claims established in excess of the amount claimed in statutory demand - statutory demand set aside - CIVIL PROCEDURE - application for leave to use in present proceedings documents obtained under subpoena in other proceedings - leave granted Legislation Cited: Civil Procedure Act 2005 (NSW)
Conveyancing Act 1919 (NSW)
Corporations Act 2001 (Cth)
Courts and Crimes Legislation Amendment Act 2009 (NSW)
Evidence Act 1995 (NSW)
Legal Profession Act 1987 (NSW)
Legal Profession Act 2004 (NSW)Cases Cited: Advance Ship Design Pty Ltd v D J Ryan t/as Davies Collison Cave (1995) 16 ACSR 129
Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137
Airs Re Pty Ltd v JBB Treatt [2007] NSWSC 1100
Andi - Co Australia Pty Ltd v Meyers [2004] FCA 1358
Baden Delvaux & Lecuit v Societe Generale pour Favoriser le Development du Commerce [1992] 4 All ER 161; [1993] 1 WLR 509
Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 WLR 1476
Barnes v Addy (1874) 43 LJ Ch 513
Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1
Beauty Health Group Ltd v Sholl [2011] NSWSC 77
Bhagat v Global Custodians Ltd [2002] FCA 223
Briginshaw v Briginshaw (1938) 60 CLR 336
Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [2005] NSWSC 638
Callite Pty Ltd v Adams [2001] NSWSC 52
Campbell's Cash & Carry Pty Ltd v Fostif Pty Ltd [2006] HCA 41; (2006) 229 CLR 386
Central City Pty Ltd v Montevento Holdings Pty Ltd [2011] WASCA 5
Chadwick Industries (South Coast) Pty Ltd v Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37
Clark Boyce v Mouat [1994] 1 AC 428
Cranney Farm Pty Ltd v Corowa Fertilisers Pty Ltd [2011] NSWSC 9
CSR Limited v Eddy [2008] NSWCA 83; (2008) 70 NSWLR 725
Cufurovic v Coshott [2009] NSWSC 372
David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265
Edge Technology Pty Ltd v Lite-on Technology Corporation (2000) 34 ACSR 301
Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560
Endeavour Film Management Pty Ltd and Anor v Fox Studios Australia Pty Ltd [2003] NSWSC 1056
Energy Equity Corp Ltd v Sinedie Pty Ltd [2001] WASC 419; (2001) 166 FLR 179
Entwells Pty Ltd v National & General Insurance Co Ltd (1991) 6 WAR 68
Equuscorp Pty Ltd v Perpetual Trustees WA Ltd (1997) 16 ACLC 12
Eumina Investments Pty Ltd v Westpac Banking Corporation (1998) 84 FCR 454
Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR 785
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Glegg v Bromley [1912] 3 KB 474
Goldspar Australia Pty Ltd v KWA Design Group Pty Ltd (1999) 17 ACLC 456
Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452
Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121
Hansmar Investments Pty Ltd v Perpetual Trustee Ltd [2007] NSWSC 103; (2007) 61 ACSR 321
Hoare Bros Pty Ltd v Deputy Commissioner of Taxation (1996) 62 FCR 302; 135 ALR 677
Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284
Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 787; 122 ALR 717
John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250
John Shearer Ltd v Gehl Co (19`95) 18 ACSR 780
K & L Airconditioning Pty Ltd v Circuit Force (WA) Pty Ltd [2008] FCA 1715
Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145; (2009) 257 ALR 336
Licardy v Law Society of New South Wales [1998] NSWCA 130
Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743
Maguire & Tansey v Makaronis [1997] HCA 23; (1997) 188 CLR 449
Maniotis v Valimi Pty Ltd [2002] VSCA 91; (2002) 4 VR 386
Mibor Investments Pty Ltd v Commonwealth Bank of Australia [1994] 2 VR 290; (1993) 11 ACSR 362
Midas Management Pty Ltd v Equator Communications Pty Ltd [2007] NSWSC 759
Monk v Australia & New Zealand Banking Group Ltd (1994) 34 NSWLR 148
Moutere Pty Ltd v Deputy Commissioner of Taxation [2000] NSWSC 379; (2000) 34 ACSR 533
NA Investment Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210
National Australia Bank Ltd v Idoport Pty Ltd [2007] NSWSC 1349
National Mutual Property Services (Aust) Pty Ltd v Citibank Savings Ltd (1995) 132 ALR 514
On Call Interpreters and Translators Agency Pty Ltd v Commissioner of Taxation (No 3) [2011] FCA 366; (2011) 279 ALR 341
POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533
Poulton v Commonwealth (1953) 89 CLR 540
Process Machinery Australia Pty Ltd v ACN 262 590 Pty Ltd [2002] NSWSC 45
Prosperity Advisers Pty Ltd v Secure Enterprises Pty Ltd t/as Strathearn Insurance Brokers Pty Ltd [2011] NSWSC 35
Quarter Enterprises Pty Ltd v Allardyce Lumber Co Ltd [2011] NSWSC 1031
Re Dennis; Ex parte Dennis (1888) 60 LT 348
Re Londonderry's Settlement; Peat v Walsh [1964] Ch 594
Re Morris Catering (Aust) Pty Ltd (1993) 11 ACSR 601
Re Ox Operations Pty Ltd [2008] FCA 61
Re Schekeloff; Ex parte Schekeloff v Hopkins Group Pty Ltd (1989) 86 ALR 645
Re Simersall: Blackwell v Bray (1992) 35 FCR 584
Reale Bros Pty Ltd v Reale [2003] NSWSC 666; (2003) 179 FLR 427
Rickard Constructions Pty Ltd v Rickard Hails Moretti Pty Ltd [2004] NSWSC 1041; (2004) 220 ALR 267
Royal Premier Pty Ltd v Taleski [2001] WASCA 48
Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 25 ACLC 1392
Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341
SMEC International Pty Ltd v CEMS Engineering Inc [2001] NSWSC 459; (2001) 38 ACSR 595
Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217
Tatlers.com.au Pty Ltd v Davis [2006] NSWSC 1055; (2006) 203 FCR 473
Timberland Property Holdings Pty Ltd v Schindler Lifts Australia Pty Ltd [2011] NSWSC 466
Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 185 FLR 130
Toorallie Pty Ltd v Black [2001] NSWSC 1088
Tosich v Tasman Investment Management [2008] FCA 377; (2008) 250 ALR 274
Trendtex Trading Corporation v Credit Suisse [1982] AC 679
TS & B Retail Systems Pty Ltd v 3 Fold Resources Pty Ltd (No 3) [2007] FCA 151; (2007) 158 FCR 444
Wentworth v De Montfort (1988) 15 NSWLR 358
West International Pty Ltd v Ultra Drilling Pty Ltd [2008] FCA 1443; (2008) 68 ACSR 108
Whyked Pty Ltd v Yahoo Australia & New Zealand Pty Ltd [2006] NSWSC 650Texts Cited: Ford's Principles of Corporations Law (online edn) Category: Principal judgment Parties: Hopetoun Kembla Investments Pty Ltd (Plaintiff)
JPR Legal Pty Ltd (Defendant)Representation: Counsel
A S Martin SC with S V Shepherd (Plaintiff)
J T Johnson (Defendant)
Solicitors
Verekers Lawyers (Plaintiff)
Sally Nash & Co (Defendant)
File Number(s): 11/293538
Judgment
HER HONOUR : This is an application brought by Hopetoun Kembla Investments Pty Ltd under s 459G of the Corporations Act 2001 (Cth) for an order setting aside a statutory demand dated 22 August 2011 served on it by JPR Legal Pty Ltd (an incorporated legal practice). The statutory demand claims the sum of $477,152.23 based on a judgment entered in this Court by the registration on 19 August 2011 of an Amended Certificate of Determination of Costs Assessment (No 2010/136191) that had issued on 23 June 2011 under the provisions of the Legal Profession Act (NSW) (though whether the costs assessor issued the certificate under the 2004 Act or the 1987 Act is not entirely clear).
The application to set aside the statutory demand is based on two grounds: first, pursuant to s 459H(1)(b) of the Corporations Act , that Hopetoun has genuine offsetting claims against JPR which exceed the amount the subject of the statutory demand and, second, that there is "some other reason" for the purposes of s 459J(1)(b) of the Act that the demand should be set aside (namely, that Hopetoun has reasonable and arguable grounds on an appeal lodged in respect of the costs determination and is prepared to pay into Court the amount the subject of the statutory demand pending the determination of its appeal). (It is accepted by Hopetoun that, the debt being a judgment debt, there can presently be no genuine dispute as to the existence of that debt.)
The originating process filed on 12 September 2011 for Hopetoun was accompanied by a supporting affidavit sworn on that date by Mr Robert Mark Taylor (a director of Hopetoun and the group accountant of the Waugh group of companies of which Hopetoun is part) and was served within the requisite 21-day period. At the hearing of the application, Hopetoun sought to rely on a further affidavit of Mr Taylor (sworn 7 October 2011) as well as various affidavits sworn in October 2011 by Mr Ashton Cameron Waugh (a director of the Waugh Group of companies) and Mr Mark Francis Green (Hopetoun's solicitor). Counsel for JPR (Mr Johnson) raised a Graywinter objection to the admission of these later affidavits (and to certain of the documents sought to be tendered for Hopetoun) on the basis that they are said to raise or relate to issues not identified as being in dispute in the affidavit served within the 21-day period.
In summary, Mr Johnson submits that it is not open to Hopetoun to rely on any challenge to the identification of the legal retainer that founded the costs judgment, or any alleged conflict of interest or breach of fiduciary duty on the part of JPR, as grounds to set aside the statutory demand (under either s 459H or s 459J) on the basis that those matters were not raised, expressly or by necessary or reasonably available inference, in the affidavits served at the time of the application to set aside the statutory demand. After some debate on that issue, I provisionally read the supplementary affidavits (and provisionally admitted the documentary evidence to which a Graywinter objection had been made) and deferred ruling on the Graywinter issue until now.
In addition to the relief sought in the originating process, an application was made by Hopetoun during the course of the hearing for leave to use in these proceedings certain documents obtained under subpoena(s) issued in other proceedings in this Court (the Bitannia proceedings), those documents having been exhibited to one of the supplementary affidavits to which there was already a Graywinter objection. As this matter was raised only during the course of the hearing, at the conclusion of the hearing I gave leave for JPR to serve written submissions on the issue raised by Hopetoun's application for leave to use the subpoenaed documents within a short time frame after the hearing (and for any submissions in reply to be served by Hopetoun). (I also gave leave for Senior Counsel appearing for Hopetoun (Mr Martin SC) to serve written submissions in reply to Mr Johnson's oral closing submissions.) Submissions were served pursuant to those directions on 28 and 31 October 2011, respectively. Having had an opportunity to consider those submissions, I now publish my reasons.
Issues
The issues for determination may be summarised as follows:
(i) whether the operation of the Graywinter principle precludes reliance by Hopetoun on the supplementary affidavits and evidence to which objection was raised and precludes it from raising, as grounds to set aside the demand, the two issues referred to above (namely, the challenge to the identification of retainer and the breach of fiduciary duty claims);
(ii) whether there are genuine offsetting claims that exceed the amount of the judgment debt;
(iii) whether the pending District Court appeal from the costs determination constitutes "some other reason" within the meaning of s 459J(1)(b) why the statutory demand should be set aside; and
(iv) whether leave should be granted to Hopetoun to make use in these proceedings of documents (broadly, trust account ledgers and other financial documents) obtained by its lawyers on subpoena(s) served in the Bitannia proceedings.
For the reasons set out below, the Graywinter objection is upheld but only as to the challenge based on the pending District Court appeal. I am of the view that the supporting affidavit sufficiently disclosed the factual basis for the offsetting claims for breach of fiduciary duty now pressed by Hopetoun and that Hopetoun has established that these are genuine offsetting claims in excess of the amount of the judgment debt claimed in the statutory demand. The statutory demand should therefore be set aside. Finally, I am of the view that the leave sought in relation to the use of the subpoenaed documents should be given.
Background facts
Hopetoun is the trustee of the estate of the late William Montgomery Waugh. Mr Waugh and members of his family owned and operated a number of hotels throughout New South Wales through a group of companies. In 2003, the now director and principal solicitor of JPR (to whom I will refer as Mr R) was in practice as a sole practitioner. From around 2003, Mr R commenced acting as the solicitor for Mr Waugh and the Waugh group of companies. He maintained a trust account at all relevant times (and, indeed, up until around 2009 although he ceased to practise in sole practice in August 2007).
JPR was incorporated on 29 August 2007 as an incorporated legal practice. Mr R is the sole director (and beneficial owner) of JPR and performs legal services under the auspices of JPR. From August 2007, Mr R has continued to act as a solicitor for Mr Waugh and his group of companies. The identification of the retainer pursuant to which he has done so (i.e. whether this was a continuation of his 2003 personal retainer or a new retainer with JPR) is hotly in dispute between the parties to the present proceedings.
What is not dispute is that over the period from June 2004 to March 2008 the then financial controller of the Waugh group of companies (to whom I will refer as Mr J) defrauded members of the Waugh group of companies of a considerable amount of money by means of the transfer of funds or payment of cheques from the Waugh group of companies into Mr R's trust account (those funds usually being recorded in Mr R's trust account ledger as being held in the name or for the account of Mr J) and by the subsequent disbursement of those funds to Mr J's creditors (one of whom was Mr R) or to companies in which Mr J had an interest (and in which in some cases Mr R also had, or shortly thereafter acquired, an interest). It is alleged that the monies were disbursed for the benefit of Mr J, who is now a bankrupt, and (this not being admitted) that they were neither authorised nor for the benefit of any of the Waugh group of companies.
What is disputed is that the conduct of Mr J was such as to put Mr R (or JPR) on notice of (or on enquiry as to) any wrongdoing, at least before June 2009. It is submitted by Mr Johnson of Counsel that Mr J had held a senior position in the Waugh group of companies over an extended period of time (including being a signatory of relevant bank accounts) and that, by reference to the doctrine of apparent authority, it could be concluded that Mr J had the requisite authority to make the payments sought to be impugned as against JPR. As to the question of Mr J's apparent authority, and whether Mr R (and through him JPR) had knowledge or was on notice of any want of authority on the part of Mr J to make the withdrawals, it is not appropriate on the present application for any finding to be made. It is sufficient to note that I am satisfied that there is a reasonable basis for an argument that the transfer of large sums of moneys to and from Mr R's trust account to be held in or to Mr J's account occurred in circumstances that at least should have put Mr R on enquiry as to whether they were authorised transactions (whether or not Mr R had actual knowledge that they were not).
It is submitted by Mr Martin that, as at the date on which Mr R incorporated his legal practice (29 August 2007), Hopetoun (and other companies in the Waugh group) had claims against Mr R under the first and second limbs in Barnes v Addy (1874) 43 LJ Ch 513 for knowing receipt and knowing assistance in relation to the frauds committed by Mr J (and that those claims would have been available to be offset against any claim by Mr R for legal fees in relation to the provision of services to Hopetoun or the Waugh companies in the period from 29 January 2004 up to and including the date of incorporation of JPR on 29 August 2007).
Following its incorporation, it seems that JPR rendered invoices for legal fees part of which remained unpaid. JPR subsequently lodged a claim for assessment of those legal costs, claiming costs for the period from 29 January 2004 (i.e. before it was incorporated). Hopetoun maintains that JPR did so (notwithstanding that it had not provided any services to Hopetoun prior to JPR's incorporation), in order to "protect" the fees relating to the provision, prior to 2007, by Mr R of his legal services to Hopetoun (on the basis that those fees could not then be the subject of any offsetting claim for knowing assistance or knowing receipt in relation to the misappropriation of moneys by Mr J).
The conduct of incorporating JPR, and/or claiming fees in the name of JPR for work previously performed by Mr R in his capacity as a sole practitioner, is conduct relied upon as a breach of fiduciary duty by Mr R and/or JPR and as knowing assistance in what is alleged to be the fraudulent and dishonest design of Mr R to backdate the claims for work by JPR (and thus render the fees in question not amenable to any offsetting claims). Separate proceedings have now been commenced by Hopetoun in this Court (the Hopetoun proceedings) in which those claims are made (so, for example, the alleged fraudulent and dishonest design of Mr R is pleaded at [220] of the Statement of Claim in the Hopetoun proceedings, tendered in evidence at the hearing as Exhibit B; the alleged breaches of fiduciary duty of JPR are set out at [215] and the allegation of knowing assistance at [222]).
A costs determination was in due course issued and it was this certificate (as amended due to the slip rule in June 2011) that, on registration, became the judgment debt on which JPR's statutory demand is now based. The original costs determination was issued on a template recording that it was a determination under the 2004 Act; the amended certificate was issued on a template referring to the 1987 Act (though this was not the "slip" that was the subject of correction). It was submitted by Mr Martin that the costs assessor had issued the determination under the 1987 Act on the basis of a view that the relevant retainer pre-dated the 2004 Act but had nevertheless used the procedure in the 2004 Act. The significance of the question as to which Act is applicable to the costs determination relates to the question whether the District Court now has jurisdiction to entertain Hopetoun's appeal(s).
JPR issued a Creditor's Statutory Demand for Payment, which was served on 22 August 2011. The demand, attaching the judgment obtained in favour of JPR, describes the debt outstanding as follows:
The Company owes the Creditor the amount of $477,152.23 for professional services rendered by the Creditor to the Company at the request of the Company, the costs of which were assessed by the Supreme Court of New South Wales under Certificate of Determination 2010/136191, which has been registered and certified as judgment on 19 August 2011, by the Creditor against the Company.
Hopetoun filed and served its originating process seeking to set aside the statutory demand towards the end of the 21-day period mandated under s 459(3) on 12 September 2011. On the same day (that also being the day on which the supporting affidavit was sworn by Mr Taylor), separate Deeds of Assignment were executed by each of Waugh Consultancy Pty Ltd and Bitannia Pty Ltd (both being companies in the Waugh group of companies) with Hopetoun. (Although the executed Deeds are dated 12 September, Mr Taylor's first affidavit deposes to the assignments having occurred on 9 September 2011.) (A third Deed of Assignment was executed by another company, Afinia Pty Ltd, but no claim in relation to Afinia is now pressed.)
Under those Deeds, each of Waugh Consultancy and Bitannia assigned to Hopetoun all of its right, title and interest both at law and in equity in, inter alia , a particular defined claim (Waugh Consultancy's Claim or Bitannia's Claim, as the case may be), the definition of which is set out below, and "all claims, demands, causes of action and rights of action, maintainable by" either Waugh Consultancy or Bitannia (again, depending on the deed in question) arising out of or connected with the facts, matters and circumstances of [that] Claim ..." (clause 2.1). Reference to these assignments was made in, and copies of the Deeds annexed to, Mr Taylor's first affidavit sworn in these proceedings (i.e. the supporting affidavit for the purposes of s 459(3) of the Act).
Waugh Consultancy's Claim is defined in Recital G of the Waugh Consultancy Deed of Assignment as follows:
[Waugh Consultancy] has a claim against JPR Legal for damages for breach of contract, an account and/or equitable damages for breach of fiduciary duty and an account for moneys held as constructive trustee in relation to a misappropriation by [Mr J] from the Waugh Marketing Account in the sum of $500,000 by St George cheque number 100622 in the amount of $500,000 (the cheque) from about 15 December 2006 in the sum of $217,219.14 up to 9 September 2011. (my emphasis)
Similarly, "Bitannia's Claim" is defined in Recital G of the Bitannia Deed of Assignment as:
Bitannia has a claim against JPR Legal for damages for breach of contract, an account and/or equitable damages for breach of fiduciary duty and an account for moneys held as constructive trustee in relation to a misappropriation by [Mr J] from the Bitannia Account in the sum of $300,000 plus interest in the sum of $199,689.72 from 4 June 2004 to 9 September 2011 and continuing.
Thus, the Deeds made clear that what was being assigned included any rights to a claim for "equitable damages" for breach of fiduciary duty by JPR in relation to an identified transaction in each case (but without further particularisation of what comprised the breach of fiduciary duty).
Mr Johnson submits that it is not immediately clear (notwithstanding the inclusion of a reference in the Recitals to each of the Deeds of Assignment of Hopetoun's position as trustee), whether the assignment was to Hopetoun in its own right or to Hopetoun in its capacity as the trustee of the estate of the late William Montague Waugh, submitting that it would be reasonable to interpret the respective Deeds as being an attempted absolute assignment of the identified 'Claims' to Hopetoun in its own capacity and not in any capacity as trustee. (Mr Johnson submits that if the assignment is to Hopetoun in its own right then this is relevant to the assertion of a genuine offsetting claim, Mr Taylor being the beneficial owner of Hopetoun.)
It is further submitted by Mr Johnson that as there is no evidence before the Court of any notices having been given in accordance with the requirements of s 12 of the Conveyancing Act 1919 (NSW) in respect of each of the assignments, any entitlement of Hopetoun to maintain an offsetting claim arising from dealings with the assignors of that claim would be one based in equity (which is not disputed).
On 30 September 2011, Hopetoun filed in the District Court of New South Wales a summons commencing an appeal pursuant to s 384(1) of the Legal Profession Act 2004 and also seeking leave to appeal pursuant to s 385(1) of the Legal Profession Act 2004 from the whole of the costs determination. (Self-evidently, that summons was filed after the supporting affidavit had already been served in connection with the present application. There was no reference in Mr Taylor's supporting affidavit to an intention to lodge any such appeal.) On the same day, Hopetoun also filed a Notice of Motion in the District Court seeking an order pursuant to s 386(1) of the Legal Profession Act 2004 that the operation of the Amended Certificate of Determination of Costs be suspended until the appeal is determined. Copies of those documents were exhibited to an affidavit sworn by Mr Green (to which a Graywinter objection was taken).
Hopetoun contends that the costs assessor erred in determining both that it was JPR which had been retained in 2003 by the late Mr Waugh to provide legal services to the Waugh group and that JPR had provided legal services to the Waugh group from 2003 to September 2009. (Mr Johnson submits, however, that the District Court has no jurisdiction to entertain such an appeal.)
It is submitted by Mr Johnson that the circumstances in which this claim was raised (i.e. with no appeal having been lodged until after a hearing date was set for the present application and with Hopetoun having taken an assignment of rights in relation to a variety of claims by other corporate entities in the Waugh Group on the very day that the originating process was filed) bespeak a "recent concoction" by Hopetoun of the alleged offsetting claims and thus go to the genuineness of the offsetting claims (Mr Johnson referring to the fact that Hopetoun had participated in the costs assessment process and had not sought either to review the determination of the Costs Review Panel or to stay the judgment).
Reasons
At the outset I note that Mr Johnson submits that, in circumstances where serious allegations of knowing assistance in an alleged fraud have been raised, then the standard of proof required in order for the Court to be satisfied of the existence of a genuine offsetting claim (or other reason why the demand should be set aside) is at a higher level, on the application of the principles in Briginshaw v Briginshaw (1938) 60 CLR 336. I have some difficulty with that proposition. The question before the Court on an application to set aside a statutory demand based on the existence of a genuine offsetting claim (or other reason) is not one which requires a determination of the merits (nor is it appropriate to make any such determination) and the test is well recognised as having a low threshold.
What has to be determined is whether the factual evidence is sufficient to satisfy the Court that the claim has a proper factual basis ( John Holland Construction & Engineering Pty Ltd v Kilpatrick Green Pty Ltd (1994) 14 ACSR 250) and whether the claim has some merit (as explained by Barrett J in Toorallie Pty Ltd v Black [2001] NSWSC 1088 at [14] and expressed in different ways in various cases, including Edge Technology Pty Ltd v Lite-On Technology Corporation (2000) 34 ACSR 301 at [25]; Jesseron Holdings Pty Ltd v Middle East Trading Consultants Pty Ltd (1994) 13 ACSR 787 at [791]; Macleay Nominees Pty Ltd v Belle Property East Pty Ltd (above) at [18]; Intag Microelectronics Pty Ltd v AWA Ltd (1995) 18 ACSR 284 at 289; Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341 at 357; Royal Premier Pty Ltd v Taleski [2001] WASCA 48 at [63] and Beauty Health Group Ltd v Sholl [2011] NSWSC 77).
In Beauty Health , Barrett J said at [23]:
The court's task is not to make any final choice between the competing contentions about the relevant matter. It need only see that the Plaintiff has asserted a claim and that the claim rises to the level of a serious question to be tried ( Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341), is based on a cause of action advanced in good faith for an amount claimed in good faith ( Macleay Nominees Pty Ltd v Belle Property East Pty Ltd [2001] NSWSC 743) and is not frivolous or vexatious ( Chadwick Industries (South Coast) Pty Ltd v Condensing Vapourisers Pty Ltd (1994) 13 ACR37).
What seems to be suggested by Mr Johnson's invocation of Briginshaw is that, in determining the question whether the offsetting claims have a proper factual basis, the court must be persuaded to a higher level of satisfaction where the allegations involve fraud than would ordinarily be required to meet the low threshold otherwise applicable in applications of this kind. While I readily accept that any allegation of fraud is not lightly to be made, I have found no authority for the proposition that Briginshaw principles apply in order to require a higher level of satisfaction to be reached as to the factual basis of an offsetting claim in cases where the claim involves serious allegations of the kind here raised (namely, knowing assistance in a fraud) and given the limited nature of the task on an application to set aside based on offsetting claims under s 459H(1)(b), I am not persuaded that this is the case. In any event, even applying a Briginshaw standard, I would have reached the same ultimate conclusion in the present case.
(i) Graywinter
As noted above, the first issue is whether the supporting affidavit sworn by Mr Taylor satisfies the minimum requirements for an affidavit to be a "supporting affidavit" for the purposes of s 459 (and hence whether Hopetoun has met the jurisdictional hurdle recognised in Graywinter ).
Mr Johnson submits that the failure of Mr Taylor to raise, in his first affidavit, a challenge to the retainer of JPR (or the breach of fiduciary duty now alleged against JPR) precludes reliance upon any ground predicated on such a dispute. (Mr Johnson notes that Mr Taylor, in his affidavit at [15], has himself deposed that from September 2007 to September 2009, JPR had assumed the conduct of the law practice known as "JPR Legal" and had continued Mr R's retainer by the Waugh group of companies.)
There is no dispute between the parties as to the applicable principles on this first issue, those being set out in Graywinter Properties Pty Ltd v Gas & Fuel Corporation Superannuation Fund (1996) 70 FCR 452 (at [459]-[460]); (1996) ACSR 581 (at [588]) and applied in various cases since then (including Process Machinery Australia Pty Ltd v ACN 262 590 Pty Ltd [2002] NSWSC 45, at [22]; Tokich Holdings Pty Ltd v Sheraton Constructions (NSW) Pty Ltd (in liq) CGU Workers Compensation (NSW) Ltd v Tokich Holdings Pty Ltd; Application of Sheraton Constructions (NSW) Pty Ltd (in liq) [2004] NSWSC 527; (2004) 184 FLR 130 at [56]; and Elm Financial Services Pty Ltd v MacDougal [2004] NSWSC 560 at [7]). In Graywinter, Sundberg J held that the failure of an affidavit to meet the minimum requirements was a jurisdictional impediment to an application under s 459G. The High Court in David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43; (1995) 184 CLR 265, confirmed that the court cannot entertain, as an application under s 459G of the Corporations Law , a case in which an affidavit containing the minimum requirements has not been served within time. Nor can a jurisdictional defect be met by evidence served outside the 21-day period.
What is required in order to satisfy the s 459G(3) requirement is that the affidavit alert the party to the nature of the case sought to be made on the application to set aside the statutory demand, identifying the "area of controversy" so that it is identifiable with one or more of the grounds available under ss 459H and 459J ( Process Machinery and Elm ).
In Graywinter , Sundberg J said (at [587]):
In order to be a 'supporting affidavit', an affidavit must say something that promotes the Company's case... The affidavit need not detail, in admissible form, all the evidence that supports the contention of genuine dispute ... The affidavit must...disclose facts showing there is a dispute between the parties. A mere assertion that there is a genuine dispute is not enough, nor is a bare claim that the debt is disputed sufficient. (my emphasis)
There need not be an explicit articulation in the supporting affidavit of the ground(s) on which the application to set aside is to be raised, provided the ground is raised expressly or by necessary or a reasonably available inference ( POS Media Online Ltd v B Family Pty Ltd [2003] NSWSC 147; (2003) 21 ACLC 533 per Austin J; Hansmar Investments Pty Ltd v Perpetual Trustee Ltd [2007] NSWSC 103; (2007) 61 ACSR 321 per White J).
Barrett J in Saferack Pty Ltd v Marketing Heads Australia Pty Ltd [2007] NSWSC 1143; (2007) 25 ACLC 1392, noting that what was required was that the grounds of objection be evident on the face of the affidavit, nevertheless considered that where the ground of challenge was a defect by reason of an omission from the creditor's accompanying affidavit, it would be sufficient if this omission was discernible on the face of a document annexed to the affidavit in support accompanying the statutory demand, even though attention had not been drawn to the point sought to be raised thereby (approving Callite Pty Ltd v Adams [2001] NSWSC 52, where an available inference from the documents annexed to the relevant affidavit that a particular ground of challenge had been raised was held to be sufficient).
Lindgren AJA in NA Investment Holdings Pty Limited v Perpetual Nominees Limited [2010] NSWCA 210 held that there is no requirement that the party seeking to set aside a statutory demand draw to the attention of the defendant the particular issue on which reliance will be sought to be placed (observing that such a submission confused the concept of "support" in the requirement for an affidavit in support with natural justice considerations). (His Honour's observation is relevant in the present case where a reader of Mr Taylor's first affidavit might have assumed that the offsetting claims under that heading in his affidavit were the only offsetting claims asserted by Hopetoun.)
In the case of an application to set aside based on an offsetting claim which is unliquidated (as is the first of the bases on which the present application is brought), Gzell J held in Broke Hills Estate Pty Ltd v Oakvale Wines Pty Ltd [2005] NSWSC 638 that a supporting affidavit is insufficient if it does not contain sufficient material indicating not only the nature of the offsetting claim but also the way in which it is calculated (to enable a court to make an estimate of the amount of an offsetting claim), that being necessary having regard to the statutory exercise under s 459H(2) of the Corporations Act required to be carried out by the court (namely, the calculation of the "substantiated amount" of a statutory demand by deducting from the amount which is not genuinely in dispute the total amount of any offsetting claim).
Similarly, in relation to applications based on any ground under s 459J(1)(b), the affidavit needs sufficiently to identify the "other reason" why the statutory demand should be set aside ( Process Machinery) .
Therefore, the question in the present case is whether there was sufficient evidence in the supporting affidavit sworn by Mr Taylor (and the documents annexed thereto) and filed within the 21-day period to raise (whether expressly or by necessary, or a reasonably available, inference) the grounds of challenge to the statutory demand now sought to be made based on the identification of the relevant retainer and the alleged breach of fiduciary duty.
Mr Johnson concedes that if the relevant areas of controversy are sufficiently identified in the supporting affidavit, then reliance can be placed by Hopetoun on the further affidavits in relation to those matters as supplementing the factual grounds relied upon by the plaintiff in support of the allegation of an offsetting claim or of the "other reason" for the statutory demand to be set aside (as held in Energy Equity Corp Ltd v Sinedie Pty Ltd [2001] W ASC 419; (2001) 166 FLR 179 at [29]).
Mr Martin submits that the question of the identity of the party to the retainer with Hopetoun was an issue identified in the initial affidavit of Mr Taylor, referring to paragraphs [14], [15], [16], [20] and [21] of that affidavit. The paragraphs so identified by Mr Martin (in the context in which they appear in the affidavit) are as follows:
14. From 2003 until August 2007 [Mr R] was retained as company solicitor for all of the companies and businesses in the Waugh Group including those set out above and Waugh Consultancy.
15. From September 2007 until September 2009 the Defendant assumed the conduct of the law practice known as JPR Legal and continued [Mr R's] retainers referred to above.
16. I observe from the correspondence and accounts that at various times between 2003 and 2009 Mr R acted for the Waugh Group including Hopetoun, the Estate and Waugh Consultancy as [Mr R] solicitor and JPR Legal.
17. During this time I am told by Mr Ashton Waugh that Mr R expanded his staff from himself and some paralegals up to about 6 employed solicitors.
18. Mr R was not in partnership with any other solicitors and did not himself work for any other solicitors.
19. During all of this period, other than the clients set out at paragraph 22 below, the Waugh Group including Waugh consultancy was Mr R's main client.
20. Hopetoun and, from my inquiries I can say Waugh Consultancy and the Managed Entities, always thought that Mr R was the companies' solicitor and that Mr R, or JPR, had not informed Hopetoun, Waugh Consultancy or the Managed Entities of the consequences of Mr R becoming an incorporated legal practice.
Mr Martin submits that the material facts on which Hopetoun seeks to rely for its contention that the entity to whom any fees were payable was Mr R not JPR are set out in that affidavit. (As to the appeal, Mr Martin confirmed that one of the issues on the appeal is the correct identity of the party to whom Hopetoun might be liable to pay.) Mr Martin submits that the position of Hopetoun, as asserted by Mr Taylor, is that its retainer was always with Mr R and it was led to believe that this position continued throughout. It is submitted that all that Mr Waugh's later affidavit does is to supplement the evidence relating to the identity of the appropriate legal practice or practitioner to whom any legal fees were due.
The statutory demand was annexed to Mr Taylor's first affidavit. In that document JPR claims an amount due to JPR, for professional services rendered to Hopetoun at its request (that being the basis on which the costs determination and judgment were obtained). It is submitted by Mr Martin that, read in light of the paragraphs of the affidavit, one can determine that there was an issue as to the party to whom the legal fees were payable.
I was taken in submissions to the costs assessor's determination. As I understand it, at the costs determination, an issue was raised as to who was the appropriate costs respondent (the bill of costs having been issued to both Hopetoun and Waugh Consultancy) but the issue as to the entity with whom the costs retainer at the relevant time or times subsisted (Mr R or JPR) was not raised. The costs assessor was apparently not satisfied that it was in his jurisdiction to determine the appropriate parties to the retainer (the costs assessors' power to have made such a determination being another matter raised on the appeal). I understand that the parties then proceeded on the basis that Hopetoun accepted that it would be liable on any costs determination but there was no determination (or agreement) as to the identity of the party properly able to claim the costs under the retainer. At T 62.23, Mr Martin confirmed that no submission had been made to the costs assessor that JPR was the incorrect applicant (but noted that insofar as there may be leave to appeal under s 385(1) of the Act, this would be an appeal by way of a hearing de novo ).
In Mr Taylor's first affidavit, the offsetting claims are identified (at [5]) as being:
(a) As assignee from Waugh Hotel Consultancy Pty Limited, Bitannia Pty Limited and Afinia Pty Limited of their rights, title and interests and benefits and returns arising there from and all claims, demands, rights and causes of actions maintainable by them arising out of the facts, matters and circumstances of their claims on the defendant as per the Deeds of Assignment annexed and marked "C";
(b) Moneys held on trust by the defendant on behalf of Hopetoun;
(c) Restitution of moneys had and received to the use of the plaintiff;
(d) Constructive trust imposed on the defendant for knowing assistance in breach of fiduciary duty together with interest as particularised below;
(e) An account of profits received by the Defendant in breach of fiduciary duty or equitable compensation;
(f) Conversion of cheques by the defendant;
(g) Damages for breach of contract;
(h) Damages for misleading or deceptive conduct and or misrepresentation;
(i) Interest as particularised below.
In oral submissions, any reliance on an offsetting claim in relation to Afinia was expressly disclaimed and Mr Martin also confirmed that no claim was made for the misappropriations that occurred before the incorporation of JPR (the offsetting claims being pressed simply for losses referable to the subsequent misappropriations and, in the case of (ii), the fees paid to JPR). I accept that the claims as identified in the submissions do not encompass in whole the claims described in Mr Taylor's first affidavit (not only in relation to Afinia but also in relation to matters such as any claim for an account of profits or for conversion or for misleading and deceptive conduct). However, what is clear from the first affidavit is that Mr Taylor was asserting claims based, inter alia , on knowing assistance by JPR in the misappropriation by Mr J of funds and a failure on the part of JPR to inform the respective companies of its knowledge in relation to the transactions in question.
The claims that Hopetoun now asserts as offsetting claims are those articulated in the Statement of Claim filed in the Hopetoun proceedings (largely mirroring the Points of Claim filed by it on 14 October 2011 in these proceedings).
Mr Johnson submits that the Statement of Claim (and Points of Claim) constitute no more than assertions, relying in that regard on what was said in Bhagat v Global Custodians Ltd [2002] FCA 223 at [53]:
... the mere production of a Statement of Claim in an action that pleads fact which, if proved, would support a claim has long been held to be insufficient: "(a) Statement of Claim is no evidence of anything: In Re: Foster, ex-parte Basan [1885] 2 Morr 29 at 33... it is not even sufficient for a Debtor to file an Affidavit which merely propounds a claim that states how, the Debtor proposes to establish it: Ebert v The Union Trustee Co. of Australia Limited [1960] HCA 50. There is an obligation on the Debtor to adduce evidence that provides reasonable grounds for the institution of proceedings: Vogwell v Vogwell [1939] 11 ABC 83 at 85 per Latham CJ. The task Mr Bhagat faced was an onerous task. He raised serious allegations but has not placed before the Court the material (if indeed such material exists) that would satisfy a bankruptcy Court from interfering with the judgment that founded the Bankruptcy Notice.
I agree that allegations made in a pleading (until proved) cannot rise higher than assertions. Mr Martin, however, relies on the allegations contained in the Statement of Claim as identifying the claims that Hopetoun has made against JPR, not as evidence of the factual basis on which those claims will be sought to be established.
In summary, Hopetoun now maintains that it has the following offsetting claims against JPR:
(i) a claim in the sum of $118,600 by way of equitable compensation for breach by JPR of its fiduciary duties owed to Hopetoun, breach of contract and negligence in relation to the circumstance in which JPR engaged Mr R to provide legal services to Hopetoun and failed to disclose to Hopetoun alleged breaches of fiduciary duty (and/or knowing receipt or knowing assistance) on the part of Mr Rin in relation to the misappropriation of a sum of $315,000 by Mr J (the sum claimed being quantified by reference to a further sum misappropriated by Mr J of $18,600 after JPR engaged Mr R's services from 29 August 2007 and the costs of $100,000 said to have been incurred in order to recover those additional moneys).
(ii) a claim in the sum of $840,760 as equitable compensation for breach of fiduciary duties owed to Hopetoun, and for money had and received, in relation to legal fees claimed by JPR (and paid by Hopetoun) for legal services allegedly provided by JPR to Hopetoun between 29 January 2004 and the date of JPR's incorporation on 29 August 2007 (during which period it is said it knew that it could not have provided and did not provide such services to Hopetoun) so that those fees could not be the subject of any offsetting claims by Hopetoun against Mr R for breaches of fiduciary duty, knowing receipt and knowing assistance in relation to misappropriations by Mr J.
(iii) a claim in the sum of $315,000 for breach by JPR of its fiduciary duties owed to Hopetoun and for knowingly assisting Mr R in a dishonest and fraudulent design (in relation both to the misappropriation of that amount by Mr J and to the incorporation of a corporate vehicle in order to render the claim for legal fees not capable of offsetting claims in relation to Mr R's conduct and subsequent application for assessment of costs in relation thereto), the breach of fiduciary duty again being alleged to be the conduct of JPR in claiming legal fees for services allegedly provided by it to Hopetoun prior to the incorporation of JPR for the purpose asserted in (ii) above. (The sum of $315,000 is quantified as the loss of the benefit of that offsetting claim.)
(iv) a claim in the sum of $287,272, which was assigned to it by Waugh Consultancy Pty Ltd on 12 September 2011, being a sum arising out of the same broad facts as those the subject of the claim in (i) above (although referable to Waugh Consultancy) for equitable compensation, breach of contract and negligence ($287,272 being the amount misappropriated after the date of incorporation of JPR and retainer by it of Mr R's services without disclosure of the breaches of his fiduciary duty).
(v) a claim in the sum of $181,959, which claim was assigned to it by Bitannia on 12 September 2011, again being a sum arising out of the same broad facts as those the subject of the claim in (i) above (although referable to Bitannia) for equitable compensation, breach of contract and negligence ($181,959 being the amount misappropriated after the date of incorporation of JPR and retainer by it of Mr R's services without disclosure of the breaches of his fiduciary duty).
The claims identified (in submissions and in the pleading) as offsetting claims have in common various allegations in relation to the fiduciary duties alleged to have been owed by Mr R (as the solicitor for the various companies prior to 29 August 2007) and JPR (as the firm of solicitors through which Mr R seems to have carried on practice as a solicitor after that date).
It is submitted that, as Hopetoun's solicitor, JPR owed fiduciary duties to Hopetoun ( Maguire v Makaronis (1997) 188 CLR 449 at 463; Clark Boyce v Mouat [1994] 1 AC 428 at 437) and that those obligations required JPR to act in utmost good faith for the benefit of Hopetoun; to avoid conflicts between its duties to Hopetoun and its personal interest or the interest of a third party; not to use improperly its position to gain an advantage for itself or for any other person or to cause detriment to Hopetoun; and not to apply Hopetoun's property for the benefit of anyone other than Hopetoun (reference being made to the Court of Appeal's judgment in Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at 46 [196] and 47 [201]).
Mr Taylor's first affidavit deposes to the various transfers of moneys into Mr R's trust account ([27], [55]-[57] (and at [52] as to the payment of a particular cheque of $50,000 drawn in favour of Mr R's trust account) [62] and [64]) and the respective ledgers to which those sums were credited in Mr R's trust account. He also deposes in his first account to the transfers out of that account of the respective moneys; the entities to which those transfers were made; and Mr J's relationship with those entities. He further deposes as to the transfers being without the consent or authorisation of the company from whose funds the moneys were transferred (which I read as an assertion based on his review of the accounting records of the relevant companies and subject to weight, having regard to the fact that only generalised information was given as to the basis on which Mr Taylor had formed that opinion). Nevertheless, the details as to the transfers in and out of the trust account are set out in the first affidavit and Mr Martin submits that the statements in the affidavits as to matters such as this should be read not as mere assertions but as conclusions in relation to primary facts.
I accept that the supporting affidavit raises facts from which one can infer that there is a claim for breach of fiduciary duty against JPR based on non-disclosure of the relevant transactions. What is not described in the first affidavit is an offsetting claim for equitable compensation arising out of an alleged breach of fiduciary duty in relation to the incorporation of the law firm per se (which presumably could only be a breach of duty by Mr R, not that of the entity so incorporated) which had the effect of protecting Mr R's position in relation to fees for services rendered while he was a sole practitioner against any offset for the respective claims asserted against him. (Mr Martin confirmed at T 55 that the alleged breach of fiduciary duty arises out of the effect of that conduct being to prefer the interests of Mr R over those of the client, not whether that was the intent.) Nor is there a suggestion in the affidavit that any appeal would be brought against the costs determination (though the affidavit does depose to the giving of instructions for the commencement of proceedings against JPR for other claims, including for knowing assistance in Mr J's alleged breaches of fiduciary duty and "to claim against the defendant for damages suffered as a result of the defendant failing to inform the plaintiff of Mr J's misappropriation" of the respective proceeds). Reference is also made to an alternative claim for damages (for misleading or deceptive conduct and or for misrepresentation) for any loss suffered "in consequence of the defendant not informing [the relevant entity] of the consequences of Mr R changing from being a solicitor in his own right to an incorporated legal practice.
The breaches of fiduciary duty alleged against JPR in the draft pleading, and as identified in submissions, in general turn on the allegation that, on or after 29 August 2007 when it was incorporated, JPR engaged Mr R to provide legal services to Hopetoun (or the other companies in the group to which reference is made in the draft pleadings) in circumstances where it knew (through the knowledge of Mr R imputed to it) that Mr R had breached his fiduciary duties in relation to the misappropriations by Mr J from Hopetoun or that other Waugh group company (by receiving and disbursing the said moneys); knew that Mr R had knowingly received the misappropriated funds in breach of his fiduciary duties owed to Hopetoun or that other company; knew that Mr R had knowingly assisted Mr J in his dishonest and fraudulent design in relation to the said misappropriations; and failed to inform or to disclose to Hopetoun or that other company the said breaches by Mr R. The material facts on which those allegations are based are set out in Mr Taylor's first affidavit (so, for example, in relation to the first such complaint - as to the $315,000 - reference is made to [32] - [35] of his affidavit; as to the Waugh Consultancy complaint the comparable facts alleged are contained in [44], [47], [49] [52], [55]-[57] of Mr Taylor's first affidavit; and the Bitannia complaint is based upon the facts set out in [62], [63] and [66] of Mr Taylor's first affidavit).
The basis of Hopetoun's claim for equitable compensation (or for damages for breach of contract or negligence) in the case of the claims identified at (i), (iv) and (v) is in each case is that had JPR not breached its fiduciary duties owed to its client (Hopetoun, Waugh Consultancy or Bitannia as the case may be), that company would have become aware of Mr J's misappropriation and dismissed him immediately; sought to recover the money immediately; and not continued to retain JPR (that being read as an assertion by Mr Taylor, who was not a director of the companies at the relevant time). Thus it is alleged that losses incurred by additional misappropriations after that time (and the costs of seeking to recover those additional moneys), to which reference is made in Mr Taylor's first affidavit, are recoverable.
The allegation in relation to the offsetting claim in (ii) is somewhat different in that the breach of fiduciary duty relates to the making of the claim by JPR in its application for assessment of costs filed on 1 June 2010 that it had provided legal services to Hopetoun from 29 January 2004 up to and including its date of incorporation on 29 August 2007 (and that its profit costs for that period amounted to $785,081 and its disbursements in the sum of $55,679, totalling $840,760) in circumstances where it is said that JPR could not (and could not to its knowledge) have provided any such services prior to its incorporation. Thus, it is said that the fees paid following the costs determination are recoverable as equitable compensation for that breach of fiduciary duty.
In (iii) the breach of fiduciary duty extends to an allegation that the incorporation of JPR (part of a dishonest and fraudulent design alleged on the part of Mr R with which it is alleged JPR knowingly assisted) was a vehicle to preclude Hopetoun from invoking a set-off as against fees incurred under its retainer with Mr R as sole practitioner of its claims for equitable compensation or the like for his alleged breaches of fiduciary duty or for damages for breach of contract and in tort. (In Mr Taylor's first affidavit, it is asserted that on or after 29 August 2007, Hopetoun continued with and did not vary the terms of the retainer with Mr R whereby Mr R had agreed to provide legal services to Hopetoun ([20]) and that Hopetoun had not entered into any agreement or retainer with JPR (through JPR by itself or through Mr R) to provide legal services to Hopetoun.)
Mr Martin further notes that, in its costs application, JPR itself had stated that:
There is no costs agreement between the law practice and the client. This is because there was a verbal agreement made in 2003 upon which [Mr R] and Mr Bill Waugh agreed to and shook hands in acceptance of this agreement.
and that:
Mr R was to act on behalf of Mr Bill Waugh, his companies and related companies, employees of his company, his family and related persons as and when requested by Mr Bill Waugh.
They agreed on an hourly rate for Mr Rin 2003 of $250.
As far as the "other reason" for setting aside the statutory demand, which is based on the appeal brought from the cost assessor's determination, Hopetoun relies on errors of law relating to the identity of the party with whom there was the retainer for the period prior to 29 August 2007 and which was providing the services for which the fees were rendered. The factual matters relating to the retainer, as set out in the first affidavit of Mr Taylor, have been extracted above. Hopetoun contends that the retainer was at all times with Mr R personally and that it was he who provided the legal services to the Waugh Group from 2003 to September 2009 (this contention being said to be based on the facts in [14], [16] and [20] of Mr Taylor's first affidavit (though also the subject of [2], [5] - [11] of Mr Waugh's later affidavit of 17/10/11).
Therefore, Mr Martin submits that the grounds relied upon by Hopetoun under both s 459H (1)(b) and s459J(1)(b) were "raised" in the first affidavit of Mr Taylor, being discernible from the matters deposed and documents annexed to that affidavit (applying the reasoning emerging from Callite and Saferack, to which I have referred above). In particular, he notes that in Saferack , Barrett J referred with approval to the decision in Callite (where, at [12], Santow J considered that the "legal consequences" which followed from the form of accounts rendered by a solicitor to his client were not required to be pleaded or mentioned in the affidavit).
Mr Martin, in his submissions in reply, has identified the following paragraphs of Mr Taylor's first affidavit from which he submits the grounds for each offsetting claim can be discerned. (To the extent that Mr Johnson appears to have objected to the ambit of the reply submissions as falling outside the leave granted, I did not understand the leave I gave to be limited to particular issues but in any event the analysis carried out by Mr Martin was that which I had independently already carried out, though that it not to suggest that I have not been assisted by those submissions.)
Using the numbering I have ascribed above to the particular offsetting claims, I note that Mr Martin relies upon the following paragraphs of Mr Taylor's first affidavit in support of the proposition that there has been compliance with the Graywinter principle:
(i) Claim in the sum of $118,600 for breach of fiduciary duties owed to Hopetoun: [5(e)], [15], [22(a)], [22(d)], [23(d)], [23(n)], [27], [32] - [35], [38] and [42];
(ii) Claim in the sum of $840,760 for breach of fiduciary duties owed to Hopetoun and for money had and received: [5(c)], [5(e)], [20];
(iii) Claim in the sum of $315,000 for breach of fiduciary duties owed to Hopetoun and for knowingly assisting Mr R in a dishonest and fraudulent design: [5(a)], [5(e)], [20], [21] [22(a)], [22(d)], [23(d)], [23(n)], [27], [32], [35], [38] and [42];
(iv) Claim in the sum of $287,272, for breach of fiduciary duties owed to Waugh Consultancy, assigned to it by Waugh Consultancy on 12 September 2011: [5(a)], [5(e)], [15], [22(f)], [23(a)], [23(f)], [23(m)], [47], [49], [52], [55] - [57], [58(a)], [58(c)];
(v) Claim of $181,959 for breach of fiduciary duties owed to Bitannia, assigned to it by Bitannia on 12 September 2011: [5(a)], [5(e)], [15], [22(c)], [23(b)], [23(c)],[23(g)], [23(h)], [23(k)], [23(1)], [62], [63], [66], [76].
Mr Martin submits that the grounds for the "other reason" under s 459J(1)(b) can be discerned from [5(c)], [14], [16] and [20] of Mr Taylor's first affidavit (those being that Hopetoun's retainer was at all material times with Mr R personally and that it was he, not JPR, that provided the legal services to Hopetoun from 2003 to 2009).
I am satisfied that the material contained in Mr Taylor's first affidavit does sufficiently raise the grounds on which Hopetoun now relies for its offsetting claims in (i), (iv) and (v) above, based on alleged breach of fiduciary duty (or other claims) in relation to the circumstances in which moneys were transferred into and out of the trust account(s) maintained by Mr R and/or JPR Legal (and which Mr Taylor's review of the records leads him to conclude were not authorised) and the fact that JPR's knowledge of those transactions (such as it may ultimately be proven to be) was not disclosed to Hopetoun or its other Waugh company clients.
Insofar as Mr Johnson objected to much of Mr Taylor's evidence as mere assertion (and I did read much of his affidavit evidence as assertion based on Mr Taylor's review of company records and subject to weight), I do not consider that the evidence to which Mr Martin points on this issue can be dismissed as bare assertion. The material relating to the transfers in question is before the Court and the position of Hopetoun (and Mr Taylor) seems to be that in the absence of an explanation discernible from the company records for the payment out of the funds in the manner that they were paid then an inference can be drawn that they were unauthorised by the company in question and not for its benefit.
I consider that the factors to which Mr Martin points tend strongly in favour of the grant of leave in relation to the use of the documents in question. They seem to me to be documents for the production of which Hopetoun and/or other Waugh group companies would have had a right to call even absent any ongoing court proceedings. (There was a suggestion in correspondence annexed to Mr Green's 21 October 2011 affidavit, namely the letter annexure C, which I admitted subject to relevance, that the lawyers acting for JPR in response to the subpoenas issued in the Bitannia proceedings had asserted a lien over documents of this kind by reference to the unpaid fees. Presumably any such issue was resolved, since there seems no dispute that documents were in fact produced in answer to the procedure. Therefore, I place no weight on this correspondence. I simply note that it might indicate that there may not have been a ready response to a request for production of documents outside the context of the court proceedings.)
I do not consider that there is any relevant prejudice attached to their use in the present proceedings (taking into account the fact that JPR has not chosen to put on evidence as to the creation of the documents though balancing this against the lateness with which the issue seems to have been flagged in the course of the proceedings). That is because the documents are being relied upon only in order to establish that there is a factual basis on which the alleged offsetting claims are raised. The proceedings do not involve any determination of the issue as to whether there was a backdating of the invoices or as to whether, if so, there was a breach of fiduciary duty in the circumstances in which that occurred. Moreover, even in the absence of the trust account material there is evidence that supports a finding that there are genuine offsetting claims in this regard.
Insofar as Mr Johnson calls, in effect, for a specific statement as to the particular issue or issues in the present proceedings to which the documents in question are said to be relevant and in respect of which a release from the implied undertaking is sought, it seems to me that this has been provided by means of the schedule limiting the documents to be tendered and by the submissions made by Mr Martin as to the issues to which the documents are said to be relevant and I do not consider that anything further is required.
Mr Johnson submits that an explanation as to the circumstances under which the implied undertaking was not addressed (when considering the use in these proceedings of documents produced in another proceeding at least 18 months before) should have been provided on the current application. The affidavit sworn by Mr Green addresses the circumstances in which the subpoenas were issued (the first being issued only shortly after the commencement of proceedings seeking Mareva orders). I would infer from the contents of Mr Green's affidavit that the explanation for the position leading to the current application was inadvertence on the part of the legal representatives. There is nothing to suggest a deliberate disregard of the undertaking (and I accept the submission by Mr Martin that the allegation of impropriety or contumacious behaviour should be rejected).
Mr Johnson further submits that there should be an apology to the Court for what he contends is the otherwise contumacious behaviour on the part of the plaintiff's legal practitioner (in using documents produced in answer to compulsory Court process in proceedings other than those in which they were produced without the consent of the party that produced those documents or the leave of the Court). I am concerned that there has been an apparent breach of an undertaking that should be taken very seriously by legal practitioners. Nevertheless, I accept that when the issue was raised there was an immediate application for leave to be granted (and hence no suggestion that there was any deliberate attempt to make further use of documents subject to the undertaking). I do not condone any breach of undertakings of this kind. However, I consider the conduct of the plaintiff's legal representatives in making the present application likely to reflect a consciousness of the breach and I am prepared to proceed on the basis that they will take care to avoid any repetition in the future. (In this regard, I note that the leave sought extends only to the present proceedings and that care will need to be taken in relation to any future use of the documents in the context of the more recently commenced proceedings.)
I am therefore satisfied that leave should be granted as sought in the notice of motion filed 21 October 2011.
Orders
For the reasons set out above, I order as follows:
1. The Statutory Demand dated 22 August 2011 served on Hopetoun Kembla Investments Pty Ltd by JPR Legal Pty Ltd set aside pursuant to s459H of the Corporations Act 2001 (Cth).
2. Leave be granted to Hopetoun Kembla Investments Pty Ltd to use in these proceedings ((2011/293538) the documents produced by JPR Legal Pty Ltd and/or the second defendant under subpoenas to produce issued on 5 September 2009 and 19 October 2009, respectively, in proceeding no. 2009/289954 in the Supreme Court of New South Wales.
3. Order that JPR Legal Pty Ltd pay the costs of Hopetoun Kembla Investments Pty Ltd of these proceedings.
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Decision last updated: 08 November 2011
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