Meyfield Developments Pty Ltd v Altus Development Pty Ltd (No. 2)

[2018] VSC 25

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S CI 2016 02366

MEYFIELD DEVELOPMENTS PTY LTD (ACN 168 772 656)	Plaintiff
v
ALTUS DEVELOPMENT PTY LTD (ACN 163 362 990) AND ORS (according to the attached Schedule)	Defendants

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JUDGE:	Kennedy J
WHERE HELD:	Melbourne
DATE OF HEARING:	1 February 2018
DATE OF RULING:	8 February 2018
CASE MAY BE CITED AS:	Meyfield Developments Pty Ltd v Altus Development Pty Ltd (No. 2)
MEDIUM NEUTRAL CITATION:	[2018] VSC 25

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LEGAL PRACTITIONERS — Solicitors —Application to restrain solicitor from acting where solicitor allegedly exposed to suit — Application refused where suit hypothetical and conduct unlikely to come under attack in this proceeding — Relief also refused having regard to the timing of the application.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr T Mitchell	Mills Oakley
For the Defendants	Mr A Herskope	Kalus Kenny Intelex

HER HONOUR:

1. The plaintiff applicant seeks an order that Kalus Kenny Intelex (KKI) be restrained from acting in this proceeding for the defendants.

Nature of Dispute

1. The proceeding was first issued in June 2016. It has had an unfortunate protracted history by reason of the making of various amendments to the pleadings, as well as other interlocutory disputes. More recently, this has included a contempt summons issued by the defendants on 16 November 2017 (which has been referred to Judicial Registrar Clayton for reference to a common law judge).

1. In its Statement of Claim, the plaintiff, Meyfield Developments Pty Ltd (Meyfield), claims amounts due under a services agreement by which Meyfield agreed to provide project development services in respect of land at 256-266 City Road, Southbank. Pursuant to the agreement, the first defendant, Altus Development Pty Ltd (Altus), agreed to pay a services fee of $900,000 within three days after Altus or an associate entered into a contract to purchase the land, as well as a completion fee of $8,100,000 upon settlement of the purchase of the land.

1. In circumstances where a relevant contract of sale was entered into and settled, the plaintiff claims that the amounts owing have not been paid and seeks an amount of $9,000,000 as a debt, or alternatively, damages. The claim is made against Altus as the primary debtor, and the second and third defendants as guarantors (Mr Anthony Gilbert and Mr Kwong Yip, respectively).

1. In their Fourth Further Amended Defence, the defendants raise a number of defences:

·        that, by reason of defects in execution, the plaintiff is not a party to the agreement as alleged;

·        that the services agreement was part of a scheme entered into to give effect to an unlawful purpose of avoiding relevant stamp duty;

·        that the services agreement was procured by fraud, which was constituted by multiple representations allegedly made by a Mr Anthony Ferraro, as agent of the plaintiff; and

·        that there was a total failure of consideration.

1. One of the representations pleaded is that Mr Ferraro allegedly said that Meyfield was a ‘company related to the vendor of the property’ (the relevant representation). This representation was said to be false, given that at no relevant time were Meyfield and the (vendor) Apex companies related to one another. It is further alleged that Mr Ferraro made the representations (including this one) in order to induce Altus to enter into the services agreement and for Mr Gilbert and Mr Yip to give the guarantees – and that ‘in the premises’ the services agreement was ‘procured by fraud’.

1. In an Amended Reply, the plaintiff denies the making of the representations and says that Mr Ferraro did not act on behalf of Meyfield. Insofar as any issue of causation is raised, it pleads that, by reason of certain objective matters communicated to Altus (including by KKI), Altus, Mr Gilbert, and Mr Yip ‘knew’ certain matters, including that Meyfield was an entity controlled by Mr Luke Stokie (and presumably thereby unrelated to the vendor). The pleadings therefore raise the actual state of knowledge of Altus, Mr Gilbert and Mr Yip rather than the appropriateness of the conduct of KKI.

1. A third party notice has also been served in the matter against (the then) solicitors for the plaintiff, alleging that they wrongfully conveyed to the vendor’s solicitor that they acted for the purchaser. A third party notice has also been issued against Mr Ferraro in respect of the alleged fraudulent representations. He in turn has filed a defence wherein he generally denies the making of those representations.

1. The third parties did not seek to participate at the hearing of this application.

1. On 16 June 2017, the matter was listed for trial. At the time, it was not known whether witnesses would be called from KKI. However, the defendants have drawn attention to a statement then made by Counsel for the plaintiff that the plaintiff did not propose to make a formal application restraining KKI from seeking to act.

1. The current application was then filed on 7 December 2017 and heard following the filing of affidavits by the defendants on 24 January 2018.

1. The remainder of the witness statements are currently due to be filed and served on 9 February 2018, with a trial due to commence on 9 April 2018. Counsel for the defendants advised the Court that approximately 80% of the necessary work has been undertaken for the filing of these witness statements.[1]

   [1]Transcript of Proceedings (1 February 2018) 7.

Principles

1. In the decision of Kallinicos v Hunt (Kallinicos),[2] Brereton J undertook a comprehensive examination of the authorities concerning the Court’s supervisory jurisdiction over lawyers. His Honour helpfully summarised the following principles relevant to the inherent jurisdiction of the Court to control the conduct of solicitors as officers of the court:

   [2](2005) 64 NSWLR 561.

(a)   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.

(b)  The jurisdiction is to be regarded as exceptional and is to be exercised with caution.

(c)   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.

(d)  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.[3]

[3]Kallinicos (2005) 64 NSWLR 561, 582-3 [76] (citations omitted).

1. The decision of Kallinicos has been applied on a number of occasions by judges of this Court (see, for example, R & P Gangemi Pty Ltd v D & G Luppino Pty Ltd,[4] Fogerty-Young & Jason,[5] and Bolitho v Banksia Securities Ltd (No 4)[6]).

   [4][2012] VSC 168 (Sifris J).

   [5][2013] VSC 570 (Elliott J).

   [6][2014] VSC 582 (Ferguson JA, as the Chief Justice then was).

1. Further, the cases have recognised that relief in the inherent jurisdiction is discretionary.[7]

   [7]Kallinicos (2005) 64 NSWLR 561, 586 [92]; Mitchell v Burell [2008] NSWSC 772, [27]; Re IPM Group Pty Ltd [2015] NSWSC 240, [73]; Fogerty-Young & Jason [2013] VSC 570, [34].

Basis of the Application

1. In correspondence and submissions, a number of bases appear to have been raised as to why KKI ought to be restrained from acting. Ultimately, however, Counsel for the plaintiff confined the basis for the application solely to KKI’s role in relation to the execution of the services agreement as evident from certain email correspondence summarised, below.[8]

Email correspondence

[8]In particular, a second basis concerned with the proposed evidence of Mr Kalus was abandoned at the hearing (Transcript of Proceedings, 29).

1. By email of 23 June 2015 entitled ‘urgent review’ from Mr Ferraro to Mr Henry Kalus of KKI – and copied to Mr Gilbert – Mr Ferraro attached various documents including the services agreement for his ‘urgent review’.

1. By email of 26 June 2015, Mr Kalus responded: ‘We have reviewed the documents, and provide you with a high level, exceptions based, summary of matters that, in our view, warrant further consideration’. The email contains a number of suggested changes but also requests further information. At Item 15, there is reference to the services agreement wherein Mr Kalus stated:

This requires careful consideration. The Services Agreement is between the purchaser and Meyfield Developments P/L. We have not yet searched that entity to see if it is related to the Vendor … the document and the way in which it interacts with the Contract require careful consideration.

The correspondence concludes with a request that Mr Kalus be contacted if there were any questions.

1. By email of 26 June 2015 at 5.41pm, Mr Gilbert then wrote back thanking Mr Kalus for the prompt services and suggesting he would speak on the relevant Monday (29 June 2015).

1. On 29 June 2015, a retainer letter was then forwarded by KKI which provided a cost estimate for review and advice regarding the purchase of the property. It is clear from the contents of that letter that it was anticipated that future work would be required over a period of time which would include time spent in conference.

1. By email of 29 June 2015, Mr Ferraro then attached various responses by the vendor solicitor in relation to the contract of sale (not the services agreement).

1. On 30 June 2015, Mr Kalus then provided some further comments in relation to the contract of sale. However, in relation to the services agreement, he asked: ‘have you received any feedback from the vendor regarding our comments? Please let us know if you require any further assistance in this regard’.

1. No further response was received. Rather, consistent with an affidavit of Mr Gilbert of 22 January 2018, the defendants appear to have executed the services agreement without further reference to Mr Kalus.

Plaintiff’s submission

1. Meyfield’s submission focused on the relevant representation cited earlier, that Meyfield was related to the vendor. It submitted that the defendants might fail in relation to this misrepresentation if either: 1) they are found to have had knowledge (of the true relationship between Meyfield and the vendor) or 2) it is found that Ferraro was not Meyfield’s agent. In the first case, no negligence action would arise. However, in the second case, KKI might be exposed to a negligence claim because the defendants might say that they would not have entered the contract but for the negligence of the solicitor in failing to conduct a company search.

1. It thereby followed that KKI has an interest that exceeds that of an ordinary solicitor seeking to recover fees. Rather, it was materially interested in the outcome because it might give rise to tortious liability.

Resolution

1. I do not consider that a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that KKI should be prevented from acting.

1. First, as was highlighted already, KKI’s conduct does not directly arise on the pleadings and it was not suggested that its conduct would come under attack and review in this proceeding.

1. Second, insofar as the alleged potential claim arises at all, it arises only indirectly in relation to one representation only.

1. Third, although the defendants accepted that the matters raised by the plaintiff ‘may conceivably form the basis of a potential claim’, such a claim is hypothetical in circumstances where the defendants have indicated that they have no intention to bring such a claim. Although this Court is not called upon to assess the merits of any possible claim, it is also noteworthy that the clients appear to have signed the services agreement, notwithstanding that they had been explicitly told by their solicitor that a company search had not yet been undertaken.

1. In any event, there are also other factors which justify a refusal to grant relief in this case which concern timing and acquiescence.

1. I accept the submission of the defendants that the application has been brought at an extremely late stage without proper explanation. Counsel for the plaintiff also acknowledged the late stage at which the application was brought, conceding that if he was unable to persuade the Court that there is a good reason that the application has come on for hearing so late then the application would probably be refused.[9]

   [9]Transcript of Proceedings (1 February 2018) 14.

1. The explanation provided appeared to be that witness statements were only provided from the solicitors in late 2017. However, the application arises from the emails rather than the material in the witness statements. As properly accepted by Counsel for the plaintiff, the plaintiff knew about the emails ‘from as good as the outset of [the] proceeding’.[10]

   [10]Ibid 34.

1. Counsel for the plaintiff also fairly accepted that he was unable to point to a case where a solicitor was restrained two months prior to a trial.[11] He also accepted that the trial date would have to go off if the application was successful.[12] Mr Kenny (the partner with the carriage of the matter at KKI) has also adduced evidence of the in-depth knowledge acquired through the extensive work undertaken by KKI in this proceeding (some 511 hours), such that he believes the defendants will be materially prejudiced if KKI ceased acting.

   [11]Ibid 33.

   [12]Ibid 34.

1. The fact that the trial date will be vacated, together with the fact that the substantive evidence in the proceeding is almost finalised, constitute powerful countervailing factors against the making of the orders sought. Consistent with the overarching purpose contained in the Civil Procedure Act 2010 (Vic),[13] a restraint in such circumstances would be against the interests of the proper administration of justice.

   [13]The Court must seek ‘to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute’: Civil Procedure Act 2010 (Vic), s 7.

1. There was also the following exchange between Counsel for the plaintiff and the Court at the directions hearing of 16 June 2017 as follows:

MR MITCHELL:  Yes, and now, with the amendments that will be made with the fourth further amended defence, one of the partners of the firm is a material witness, Henry Kalus, and so we've taken this opportunity to again ask them to consider whether they think it's appropriate that the firm remains acting in the proceeding, and what we don't want, now that we have a trial date what we don't want is to arrive at April next year and find that at the last minute they finally decide that they should cease acting.

HER HONOUR:  No, we don't want that.  I'm just not sure how I can structure it to avoid it.  Well, I mean, the first thing is, you can make a formal application.

MR MITCHELL:  We're not proposing to do that, Your Honour.  It really is a matter for them to satisfy themselves of, and we expect that they will ensure that they act in accordance with their obligations…

(Emphasis added)

1. Counsel for the plaintiff invited the Court to read the surrounding transcript, which suggested that the matter was not finally dropped in a context wherein no decision had been made to call Mr Kalus.

1. However, I have read the relevant transcript references for 16 June 2017. Although Counsel expressed ongoing concern, the concern being raised was whether KKI would decide for itself at the last minute to cease to act. The statement made by Counsel that no application was proposed was otherwise unqualified in circumstances where the plaintiff had known about the relevant emails since the proceeding was issued. Mr Kenny has also sworn that he took the statement to mean that no application would be made to restrain his firm and that he could continue to act (which he did).

1. Such conduct amounts to, at least, acquiescence, providing a further factor against granting relief.[14]

   [14]South Blackwater Coal Ltd v McCullough Robertson (a firm) (Unreported, Supreme Court of Queensland, Muir J, 8 May 1997) cited in Re IPM Group Pty Ltd [2015] NSWSC 240, [63]-[64].

Conclusion

1. The plaintiff’s summons will be dismissed.

1. I will hear from the parties on the question of costs.

SCHEDULE OF PARTIES

BETWEEN:
MEYFIELD DEVELOPMENTS PTY LTD (ACN 168 772 656)	Plaintiff
AND
ALTUS DEVELOPMENT PTY LTD (ACN 163 362 990)	First Defendant
ANTHONY GILBERT	Second Defendant
KWONG YIP	Third Defendant
AND
SHIELD PARTNERS PTY LTD (ACN 602 868 860) trading as SHIELD PARTNERS LAWYERS	First Third Party
AND
MELISSA SEREMELIS (also known as MELISSA ANNE WADUGE)	Second Third Party
AND
ANTHONY FERRARO	Third Third Party