Iron Mountain Mining Ltd v K & L Gates [No 2]
[2015] WASC 373
•6 OCTOBER 2015
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: IRON MOUNTAIN MINING LTD -v- K & L GATES [No 2] [2015] WASC 373
CORAM: MASTER SANDERSON
HEARD: 8 SEPTEMBER 2015
DELIVERED : 6 OCTOBER 2015
FILE NO/S: LPA 34 of 2014
BETWEEN: IRON MOUNTAIN MINING LTD
Applicant
AND
K & L GATES
Respondent
Catchwords:
Legal costs - Third party payer - Effect of conviction when third party company have indemnified party for legal costs - Whether assessment available
Legislation:
Corporations Act 2001 (Cth)
Legal Practice Act 2003(WA)
Legal Profession Act 2008 (WA)
Result:
Iron Mountain not a third party payer
Appeal allowed
Category: A
Representation:
Counsel:
Applicant: Ms M L Coulson
Respondent: Mr B W Ashdown
Solicitors:
Applicant: Coulson Legal
Respondent: Stewart Forbes
Case(s) referred to in judgment(s):
Andrew Koh Nominees Pty Ltd v Receiver & Manager of the Balneum Join Venture [2007] WASCA 152; (2007) 33 WAR 561
Boyce v McIntyre [2009] NSWCA 185
Huntingdale Village Pty Ltd v Mallesons Stephen Jaques [2013] WASC 48
Iron Mountain Mining Ltd v K & L Gates [2015] WASC 291
Leckenby v Note Printing Australia Ltd [2014] VSC 538
Legal Services Commissioner v Wright [2012] 2 Qd R 360
National Acceptance Corporation Pty Ltd v Benson (1988) 12 NSWLR 213
Note Printing Australia Ltd v Leckenby [2015] VSCA 105
MASTER SANDERSON: This is an appeal from a decision of Registrar Whitby in which the learned registrar determined as a preliminary issue that Iron Mountain Mining Ltd (Iron Mountain), the applicant, was a third party payer within the meaning of the Legal Profession Act 2008 (WA) (the Act). The learned registrar dealt with the matter on the papers with the consent of the parties. She produced written reasons for her decision: Iron Mountain Mining Ltd v K & L Gates [2015] WASC 291. Although an appeal from a registrar is a hearing de novo I have had regard to the learned registrar's reasons. For the purposes of this appeal, I have also adopted the learned registrar's statement of facts. Neither counsel for K & L Gates, the appellant, nor counsel for Iron Mountain, the respondent, had any difficulty with that statement of facts.
By way of background it should be noted Iron Mountain applied for an assessment of costs rendered by K & L Gates to David Alan Zohar (client) which were paid by Iron Mountain. The registrar's summary of the facts was as follows:
The client was a director of the applicant from 11 February 2005 to 11 February 2014.
On 18 April 2012 the client was charged with three offences pursuant to s 1309(2) of the Corporations Act 2001 (Cth) (the Act).
In September 2013, the charges against the client were substituted with six charges pursuant to s 1309(1) of the Act.
On 14 February 2014, three of the six charges were discontinued.
The client pleaded guilty to the remaining three charges.
The client incurred legal costs in relation to defending the criminal proceedings (Costs).
The applicant had agreed to provide an indemnity to the client in the following terms:
'Iron Mountain Mining Limited (IRM) has agreed to provide the fullest and most comprehensive indemnity available under the law, for all current and past directors of Aluminex Resources Limited (Aluminex) being David Alan Zohar, Shoshana Zohar, Julie Zohar and Simon England. This will apply without limitation for all legal costs arising from legal proceedings connected to or arising from Aluminex or the takeover of Aluminex by IRM. IRM indemnifies the directors of Aluminex as stated above in accordance with section 199A and 199C of the Corporations Act [2001], and any other indemnity as available to the fullest extent of the law.'
The parties refer to this as the Contractual Indemnity.
In addition to the Contractual Indemnity, the applicant had agreed, under its constitution, to indemnify its directors, which included the client, as follows:
'Except as may be prohibited by Sections 199A and 199B of the Corporations Act every Officer, auditor or agent of the Company shall be indemnified out of the property of the Company against any liability incurred by him in his capacity as Officer, auditor or agent of the Company or any related corporation in respect of any act or omission whatsoever and howsoever occurring or in defending any proceedings, whether civil or criminal.'
The parties refer to this as the Constitutional Indemnity.
The client called upon the applicant, pursuant to the Contractual Indemnity and the Constitutional Indemnity to pay the Costs and the applicant paid the Costs.
After the client pleaded guilty in the criminal proceedings, the applicant commenced proceedings in the District Court against the client seeking recovery of the legal fees it had paid to the respondent on behalf of the client.
On 24 November 2014, the client was declared bankrupt. The Trustee in Bankruptcy issued a circular to creditors dated 16 December 2014 which concluded that it was unlikely there would be sufficient funds to pay a dividend to the client's creditors, including the applicant.
The applicant then commenced these proceedings seeking an assessment of the invoices rendered by the respondent to the client in relation to the criminal proceedings [4] ‑ [17].
Section 253(1)(a) of the Act provides as follows:
(1)For the purposes of this Part -
(a)a person is a third party payer, in relation to a client of a law practice, if the person is not the client and -
(i)is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or
(ii)being under that obligation, has already paid all or a part of those legal costs.
Section 253(2) of the Act is in the following terms:
(2)The legal obligation referred to in subsection (1) can arise by or under contract or legislation or otherwise.
The Act draws a distinction between associated and non‑associated third party payers. Section 253(1)(b) is in the following terms:
(1)For the purposes of this Part -
...
(b)a third party payer is an associated third party payer if the legal obligation referred to in paragraph (a) is owed to the law practice, whether or not it is also owed to the client or another person.
Further, s 253(1)(c) is in the following terms:
(1)For the purposes of this Part -
...
(c)a third party payer is a non‑associated third party payer if the legal obligation referred to in paragraph (a) is owed to the client or another person but not to the law practice.
In relation to third party payers s 295 of the Act provides, relevantly, as follows:
(3)A third party payer may apply to a taxing officer for an assessment of the whole or any part of a bill for legal costs payable by the third party payer.
...
(10)If there is a non‑associated third party payer for a client of a law practice -
...
(b)the client -
(i)may participate in the costs assessment process where the non‑associated third party payer makes an application under this section in relation to costs for which the non‑associated third party payer is liable; and
(ii)is taken to be a party to the assessment and is bound by the assessment;
...
(d)despite any other provision of this Division, the assessment of the costs payable by the non‑associated third party payer does not affect the amount of legal costs payable by the client to the law practice.
Also relevant to this appeal is s 199A of the Corporations Act 2001 (Cth). Relevantly, that section provides:
(3)A company or related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against legal costs incurred in defending an action for a liability incurred as an officer or auditor of the company if the costs are incurred:
...
(b)in defending or resisting criminal proceedings in which the person is found guilty.
Also of relevance is Note 2. That reads as follows:
The company may be able to give the person a loan or advance in respect of the legal costs (see section 212).
Two other sections of the Corporations Act are relevant. First, s 199C(2) which provides that:
Anything that purports to indemnify or insure a person against a liability, or exempt them from a liability, is void to the extent that it contravenes section 199A or 199B.
Section 212(2)(c)(ii) provides as follows:
[I]f section 199A applies to the costs - the officer must repay the amount paid if the costs become costs for which the company must not give the officer an indemnity under that section.
The learned registrar concluded Iron Mountain was a third party payer placing heavy reliance on the decision in first instance in Leckenby v Note Printing Australia Ltd [2014] VSC 538 and the appeal from that first instance decision Note Printing Australia Ltd v Leckenby [2015] VSCA 105.
Before considering these two decisions it is worth saying something about the previous legislation and how it feeds into the present Act. The parties agreed that the Legal Practice Act 2003 (WA) did not apply to this case. Counsel for Iron Mountain was of the view the provisions of that Act (referred to by counsel as the '2003 LPA') provided historical context to the current provisions of the Act. Section 232 of the 2003 LPA entitled a person charged to request a taxation of costs. A 'party charged' was defined in s 228(2)(a)(iii) of the 2003 LPA to include 'a person liable to pay or to reimburse another for costs in a bill'.
In Andrew Koh Nominees Pty Ltd v Receiver & Manager of the Balneum Join Venture [2007] WASCA 152; (2007) 33 WAR 561 the Court of Appeal said:
In my opinion, a person will be 'liable to pay' costs in a bill, within s 228(2)(a)(iii), if, relevantly:
(a)the person is under a legally enforceable personal obligation to pay the legal fees in a bill of costs to the legal practitioner who rendered the bill;
(b)the person is under a legally enforceable personal obligation to reimburse another person for the legal fees in a bill of costs which that other person has paid to the legal practitioner who rendered the bill; or
(c)the person's property may lawfully be applied in paying the legal fees in a bill of costs to the legal practitioner who rendered the bill, or in reimbursing another person for the legal fees in a bill which that other person has paid to the relevant practitioner.
It is not essential that there be a contractual or other relationship between the person who is under a legally enforceable personal obligation to pay or reimburse the legal fees, or whose property may lawfully be applied in paying or reimbursing the legal fees, on the one hand, and the legal practitioner in question, on the other. Where a person's property may lawfully be applied in paying the legal fees in a bill of costs etc, that person will in substance be 'liable to pay' costs in a bill, within s 228(2)(a)(iii). It would be inconsistent with the evident intention of the Parliament and with the remedial character of s 228(2)(a) to hold that such a person was not 'liable to pay'. The reasoning in Debney, at 394, 396 ‑ 397, is, with respect, persuasive and should be applied, by analogy, in the present case. Also see Parramatta River Lodge at 12,040. The examples I have given of a person who will be 'liable to pay' costs in a bill, within s 228(2)(a)(iii), are not intended to be exhaustive [34].
Counsel for Iron Mountain maintained the purpose of the introduced non‑associated third party payer provision in the present Act is consumer protection. She referred to the New South Wales Court of Appeal decision in Boyce v McIntyre [2009] NSWCA 185 where Justice Ipp, referring to s 302A and s 350(2) of the Legal Profession Act 2004 (NSW) (a provision similar in form to s 253 and s 295 of the Act):
In these circumstances, the introduction in 2006 of the non‑associated third party payer provisions in the Legal Profession Act in 2006 can be seen as being for the purpose of consumer protection. In particular, the introduced provisions afford protection to persons who agree, in effect, to indemnify other parties (such as lessors and mortgagees) in respect of legal costs for services rendered to those other parties [22].
Counsel submitted in relation to the legal obligation to pay costs a person must be under a legal obligation to pay all or part of the legal costs for the legal services provided to the client. She submitted there was no basis in the text of s 253 of the Act to confine the legal obligation to a legal obligation to pay the specific costs in question rather than a legal obligation to pay amounts or do things which include paying the legal costs in question. In making that submission she drew support from the decision of this court in Huntingdale Village Pty Ltd v Mallesons Stephen Jaques [2013] WASC 48 [27]. Counsel submitted any analysis should take into account the essential remedial nature of the legislation that led the Court of Appeal in Andrew Koh Nominees to adopt a broad discussion of the expression 'liable to pay'.
Counsel also referred to Professor Dal Pont's leading text on costs The Law of Costs (2013, 3rd ed) where at [5.9] the learned author submits that the line drawn in defining who apart from the client is required to indemnify the client is determined by the existence or otherwise of a legal obligation to pay the costs, namely one enforceable by way of court order or otherwise. Reference was made to the Queensland Court of Appeal decision in Legal Services Commissioner v Wright [2012] 2 Qd R 360 [28] (McMurdo J).
Turning then to the Leckenby decisions the facts can be quite shortly stated. What follows is taken from the first instance decision of Sifris J and informed the reasons both at first instance and on appeal:
From September 1998 to June 2004, the plaintiff ('Leckenby') was the Chief Executive Officer of the defendant, Note Printing Australia Limited ('NPAL').
Along with other former officers of NPAL, Leckenby has been charged with conspiring to bribe foreign officials to secure bank note printing contracts for the benefit of NPAL. The charges are brought under the Criminal Code Act 1995 (Cth) and the Crimes Act 1958 (Vic).
On or about 5 August 2010, NPAL entered into a Directors' and Officers' policy with Chubb Insurance Company of Australia Limited ('the Policy') Payments have been made to Leckenby in respect of his legal costs to date pursuant to that Policy.
It is common ground that the limit of cover under the Policy will be insufficient to meet the costs of Leckenby in relation to the criminal proceedings which he faces. As a consequence, Leckenby is looking to NPAL to indemnify him in respect of his legal costs of these proceedings.
Leckenby claims that he has a right to be indemnified in respect of his ongoing legal costs of the criminal proceedings under a Deed of Indemnity entered into between him and NPAL and dated 27 July 2001 ('the Deed of Indemnity').
This case concerns the question of whether Leckenby is presently entitled to be indemnified by NPAL in respect of his ongoing legal costs of defending the criminal proceedings both during the interlocutory and trial stages and prior to any verdict of the jury as to his guilt or innocence.
NPAL says that if Leckenby is entitled to be indemnified under the Deed of Indemnity then that entitlement, and the right to payment, does not arise until and unless the criminal proceedings have come to an end (including any appeals) and there has been a not guilty verdict against Leckenby.
Leckenby and NPAL also differ in relation to the question of whether NPAL is entitled to security from Leckenby in relation to any payment made by NPAL to or on behalf of Leckenby [1] ‑ [8].
Counsel for K & L Gates maintained the Leckenby decision was not relevant to this present application because it involved a situation where Mr Leckenby was seeking indemnity prior to any conviction being recorded. Counsel put the position this way. He submitted the words 'is under' or 'being under' in s 253(1)(a) of the Act reflect the existence of a legal obligation. The difference between subparagraphs (i) and (ii) is to reflect the position where a third party is under an obligation to pay and (1) has not then fulfilled that obligation or (2) has fulfilled that obligation by making payment. In both cases a valid legal obligation must exist. Subparagraph (ii) does not preserve a capacity, that if assessed at some point in the past, may have existed (on the facts then existing) but which is now taken as a matter of law to never have existed.
Counsel submitted the time for the court to determine whether Iron Mountain is a third party payer is at the time of the hearing - that is, now. It is not to determine whether Iron Mountain would have been found to be a third party payer if the matter had been considered in 2013 when K & L Gates ceased acting or at some time before Mr Zohar was convicted on 16 May 2014.
Counsel then pointed to the fact that in s 119C(2) which refers to an indemnity being 'void' if it contravenes s 199A or s 199B. Counsel submitted that once the prohibition was triggered by a guilty verdict 'there is in effect no indemnification past, present or future' as the position was expressed in Leckenby [59].
As to the meaning of the word 'void' counsel referred to what was said by Kirby P in National Acceptance Corporation Pty Ltd v Benson (1988) 12 NSWLR 213, 214. The president said:
The word used is 'void'. Although that word may, in particular contexts, invite a more limited construction, normally (as it seems to me) it should receive the meaning which ordinarily attaches to it in everyday speech, viz, having no legal effect for any purpose as against the world so that it is as if the transaction which is 'void' has not occurred, at least so far as the eye of the law is concerned. This is the starting point. Other considerations may require a more limited meaning to be given to the word. But because Parliament from time to time uses 'voidable' in statutes or expressions such as 'void as against the liquidator' (see, eg, s 451 of the Code), it should be presumed, at least to begin with, that where Parliament refers to 'void' it intends a more radical consequence, both in terms of effect and in respect of the parties affected. (authorities omitted)
Counsel referred to a number of other authorities all to like effect. He then concluded the effect of Mr Zohar's conviction on 16 May 2014 was, by virtue of the operation of s 199C(2), to render the contractual indemnity and the constitutional indemnity automatically void ab initio. In other words, it was as though the indemnities had never been given at all. As a consequence Iron Mountain failed to meet the definition of a third party payer pursuant to the Act.
In my view K & L Gates' submissions should be accepted for the reasons put by counsel. Furthermore, I accept the Leckenby cases proceeded on a different basis. In this case once the plea of guilty was entered the indemnities fell away and Iron Mountain could not be regarded as a third party payer. The appeal succeeds. The decision of the learned registrar ought be set aside and the preliminary question ought be determined by the conclusion Iron Mountain is not a third party payer.
I will hear the parties as to costs.
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