Reardon v Digney
[2017] VSC 574
•25 September 2017
| IN THE SUPREME COURT OF VICTORIA AT MELBOURNE | Not Restricted |
COMMERCIAL COURT
COMMERCIAL LIST
S CI 2016 04220
| ROSEMARY REARDON | Plaintiff |
| v | |
| PAUL JOSEPH DIGNEY | First Defendant |
| DAVID ANTHONY DIGNEY | Second defendant |
| JOHN FRANCIS DIGNEY | Third defendant |
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JUDGE: | ALMOND J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 9 August 2017 |
DATE OF RULING: | 25 September 2017 |
CASE MAY BE CITED AS: | Reardon v Digney & Ors |
MEDIUM NEUTRAL CITATION: | [2017] VSC 574 |
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LEGAL PRACTITIONERS – Solicitors – Application to restrain plaintiff from continuing to retain solicitors in the proceeding – Solicitors likely to be material witnesses on controversial issues – Possibility of solicitors being exposed to suit – Kallinicos v Hunt (2005) 64 NSWLR 561 – Costs.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S Minahan | Aitken Partners |
| For the Defendants | Mr D Collins QC Mr J Nixon | Tony Hargreaves & Partners |
HIS HONOUR:
Introduction
The defendants, by summons dated 27 July 2017,[1] seek an order that Edwin Clark and Jonathon Lean (both solicitors at Aitken Partners Pty Ltd) and Aitken Partners Pty Ltd (collectively, the Solicitors) be restrained from continuing to act for the plaintiff, Mrs Rosemary Reardon, in this proceeding. The application is made pursuant to the Court’s inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of the Court’s inherent jurisdiction over its officers and to control its processes in aid of the administration of justice.[2]
[1]Leave was granted to amend the summons at the commencement of the hearing to name Jonathan Lean, Edward Clark and Aitken Partners Pty Ltd as the appropriate addressees in place of the defendants (who were incorrectly named).
[2]Defendants’ outline of submissions dated August 2017, [1].
The defendants submit that the Solicitors should be restrained from acting as they are likely to be material witnesses in the proceeding on issues of substance which are controversial and, in respect of which, questions of credibility and integrity are likely to arise. The defendants say that in the circumstances, the Solicitors’ continued representation of the plaintiff would prejudice the administration of justice and therefore should not be allowed.
The Solicitors resisted the application primarily on the grounds that it was made too early in the proceeding. They submit that without the benefit of pleadings defining the scope and extent of the issues in dispute, the Court is not in a position to determine whether the Solicitors will or will not be required to give evidence, and should not take the exceptional step of restraining them.[3]
[3]Senior Counsel for the plaintiff has already withdrawn from further acting in the proceeding. Affidavit of Anthony Hargreaves sworn 26 July 2017, [11] (‘Hargreaves affidavit’).
Background
The 2013 Proceeding
The proceeding arises out of a mediation in, and settlement of, proceedings brought by the defendants against (amongst others) Mrs Reardon in July 2013 (the 2013 Proceeding).[4]
[4]Digney & Ors v Reardon & Ors, proceeding no. S CI 2013 03426.
Prior to the 2013 Proceeding Mrs Reardon’s husband, Michael Reardon, was (through his wholly-owned entity M H Reardon & Associates Pty Ltd) a tax accountant for the defendants.[5] The defendants alleged in the 2013 Proceeding that during the period between 2007-2012, Mr Reardon misappropriated cheques which were provided by the defendants to Mr Reardon for the purpose of paying taxes to the Australian Taxation Office (ATO) by depositing those cheques in various accounts associated with Mr Reardon in each of the National Australia Bank (NAB), Commonwealth Bank of Australia (CBA) and the St.George bank (St.George).[6] Each of NAB, CBA and St.George were joined as defendants on account of their receipt of misappropriated funds.
[5]Affidavit of Fiona Nosworthy sworn 26 July 2017, [3] (‘Nosworthy affidavit’).
[6]Nosworthy affidavit, [4].
On discovering that Mr Reardon had been declared bankrupt and Mrs Reardon had been appointed as a director of a number of Mr Reardon’s companies, the defendants successfully sought and obtained a freezing order against Mrs Reardon, and orders were made joining Mrs Reardon as sixth defendant to the 2013 Proceeding.[7] The claims against Mrs Reardon were, in the main, for:
(a) knowing assistance in respect of Mr Reardon’s breach of fiduciary duties in relation to the defendants’ cheques collected by each of NAB, CBA and St.George; and
(b) knowing receipt of payments made from the NAB and CBA accounts into which the defendants’ cheques were paid (which did not include any claims in relation to cheques collected by St.George).[8]
[7]Nosworthy affidavit, [7]; Orders of Sifris J dated 16 July 2013.
[8]Nosworthy affidavit, [11].
Mrs Reardon was represented by Mr Clark of Aitken Partners Pty Ltd from the time she was joined to the 2013 Proceeding.[9]
[9]Nosworthy affidavit, [8].
The parties attended a mediation of the 2013 Proceeding on 24 September 2014 (the Mediation).[10] The Mediation was attended by Ms Nosworthy and Mr Tragardh of Counsel for the defendants, and Mr Clark and Mr Lean with Mr Jones QC for Mrs Reardon.[11] The bank entities were also present at the Mediation (save for St.George, which had already settled the claim made against it by the defendants).
[10]Nosworthy affidavit, [14].
[11]Affidavit of Edwin Vaughan Clark sworn 7 August 2017, [5]; Nosworthy affidavit, [15].
The remaining claims against NAB, CBA and Mrs Reardon were all settled at the Mediation, with Mrs Reardon agreeing to pay to the defendants $300,000 by way of settlement.[12] The proceeding was subsequently dismissed against Mrs Reardon by consent orders dated 7 November 2014.[13]
[12]Nosworthy affidavit, [23]; Settlement agreement dated 24 September 2014, exhibit FMN-1 to the Nosworthy affidavit, pp 95-98.
[13]Nosworthy affidavit, [24]; Orders of Almond J dated 7 November 2014.
The current proceeding
In the current proceeding, Mrs Reardon claims loss and damage arising out of alleged misrepresentations made, or misleading or deceptive conduct[14] engaged in by the defendants, in the period leading up to, and during, the Mediation.
[14]Under s 18 of the Australian Consumer Law.
Broadly, Mrs Reardon alleges that the defendants represented to Mrs Reardon at or prior to the Mediation, that:
(a) they had not received, and would not receive, the benefit of any monies from the ATO on account of the funds allegedly misappropriated by Mr Reardon; and
(b) the loss and damage that the defendants were claiming from her in the 2013 Proceeding included the amount of the misappropriated funds.[15]
[15]Amended statement of claim dated 23 November 2016, [10].
Significantly, for present purposes, the representations are alleged to have been made by each of the defendants prior to and at the Mediation ‘by their conduct represented by silence or implication to Mrs Reardon’.[16]
[16]Amended statement of claim dated 23 November 2016, [10].
Mrs Reardon alleges that the representations were false and untrue because the defendants knew (from at least 17 July 2014) that the ATO intended to make adjustments in their favour of at least $1 million on account of the misappropriated funds and knew that the ATO intended to transfer funds into their ATO accounts on account of the misappropriated funds.[17]
[17]Amended statement of claim dated 23 November 2016, [11].
Further, Mrs Reardon alleges that she has suffered loss and damage including a sum representing part of the settlement sum of $300,000 paid to the defendants (on the basis that she would have settled the 2013 Proceeding for a lesser amount), various legal and other expenses incurred and the value of the lost opportunity to obtain an order for costs against the defendants.[18]
[18]Amended statement of claim dated 23 November 2016, [15], [19], [21].
Applicable legal principles
The principles to be applied by the Court in considering whether to restrain a solicitor from acting on the grounds that the solicitor may be a witness in the proceeding are conveniently summarised in Kallinicos v Hunt.[19] Argument focused on the following elements as set out by Brereton J in that case:
[19](2005) 64 NSWLR 561 (‘Kallinicos’), followed in Gangemi Pty Ltd v Luppino Pty Ltd [2012] VSC 168 (‘Gangemi’).
· [T]he court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice.
· 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.
· The jurisdiction is to be regarded as exceptional and is to be exercised with caution.
· 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.
· 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.[20]
[20]Kallinicos (2005) 65 NSWLR 561, 582-3 (citations omitted).
Counsel for the Solicitors also drew the Court’s attention to rule 27 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (Vic) (Conduct Rules), which provides:
27. Solicitor as material witness in client’s case
27.1 In a case in which it is known, or becomes apparent, that a solicitor will be required to give evidence material to the determination of contested issues before the court, the solicitor may not appear as advocate for the client in the hearing.
27.2 In a case in which it is known, or becomes apparent, that a solicitor will be required to give evidence material to the determination of contested issues before the court the solicitor, an associate of the solicitor or a law practice of which the solicitor is a member may act or continue to act for the client unless doing so would prejudice the administration of justice.
The defendants’ submissions
The defendant applicants submit that the circumstances in this case fall squarely within the principles set out in Kallinicos and are factually analogous insofar as Mr Lean and Mr Clark are both likely to be material witnesses on contested issues in the current proceeding and therefore ought not be permitted to continue to act for Mrs Reardon.
The defendants deny the alleged misrepresentations or any misleading or deceptive conduct. In substance, they assert that the Solicitors were aware that the claim against St.George had settled, and was therefore not included in the claims that were the subject of the Mediation.[21] Accordingly, the defendants submit that it was clear at the time of the Mediation (though not expressly stated) that the claim against Mrs Reardon necessarily excluded any amounts which had been collected by St.George and credited to accounts of the ATO.[22]
[21]Letter from solicitors for defendants to the solicitors for the plaintiff dated 19 December 2016; Hargreaves affidavit Exhibit AH-1, 14-23; Nosworthy affidavit, [13], [17]-[22].
[22]Defendants’ outline of submissions dated August 2017, [5].
The defendants’ note that Mrs Reardon failed to attend the joint session at the Mediation or engage personally in any discussion which occurred during the Mediation between the representatives of the parties and consequently, Mrs Reardon was reliant on information and advice provided to her by her legal advisors, including the Solicitors, in agreeing to settle the 2013 Proceeding.[23] Further, the defendants submit that the Solicitors appreciated or ought to have appreciated at the time of the Mediation that the ATO amounts were excluded from the claims, and submit that it is clear by reference to notes taken at the Mediation that Senior Counsel for Mrs Reardon appreciated that this was so.[24]
[23]Defendants’ outline of submissions dated August 2017, [5]-[6].
[24]Nosworthy affidavit, [20]-[21].
In light of the above, the defendants submit that Mr Lean and Mr Clark will be material witnesses on issues of substance which are controversial between the parties and issues of credibility are likely to arise regarding the following:
(a) what was said at the Mediation with respect to the ATO payments and/or the St.George claims;
(b) what the Solicitors conveyed to Mrs Reardon regarding what was said at the Mediation; and
(c) the advice given and recommendations made to Mrs Reardon concerning the settlement of the 2013 Proceeding.
The defendants further submit that if the case proceeds there is a real prospect of the Solicitors being joined as parties on the basis that they either failed to appreciate the significance of the withdrawal of the claims in respect of payments collected by St.George, or failed to inform Mrs Reardon of the significance of the withdrawal of those claims.[25]
[25]Defendants’ outline of submissions dated August 2017, [7].
Further the defendants submit that there needs to be an independent assessment of whether Mrs Reardon has claims that ought to be brought against the Solicitors.
The Solicitors’ submissions
Counsel for the plaintiff did not rule out the possibility that the Solicitors may be material witnesses in the proceeding. The application was resisted primarily on the basis that it was too early in the proceeding to know one way or another whether that would be the case.[26]
[26]Relying by analogy on Trkulja v Barrow [2013] VSC 227; Plaintiff’s outline of submissions dated 8 August 2017, [13.5].
Counsel for the plaintiff noted that the defendants have not yet filed a defence or particulars and that it was therefore unclear what the areas of controversy in the proceeding will be. In this regard, Counsel submitted that the evidence filed on behalf of the defendants did not contradict the account of the Mediation given by the Solicitors, and that the Solicitors did not otherwise dispute that the settlement with St.George had been disclosed and was known to the Solicitors prior to the Mediation. Counsel submitted that there may ultimately be no factual dispute about what was said or done at the Mediation as between practitioners and the case might simply proceed on a question of law and that this issue was at large until pleadings were closed.
Counsel for the plaintiff particularly emphasised the principles set out in Kallinicos to the effect that:
(a) the jurisdiction to restrain solicitors is to be regarded as exceptional: the mere fact that a party may wish to call a solicitor does not mandate that the solicitor should be restrained from continuing to act in the proceeding;[27]
(b) due weight should be given to the public interest in Mrs Reardon not being deprived of her chosen solicitors; and
(c) there will be costs and inconvenience involved in retaining new solicitors in circumstances where the facts of the 2013 Proceeding are complex and Mrs Reardon is of limited means.
[27]Trkulja v Barrow [2013] VSC 227, [17]-[18].
Counsel for the plaintiff also noted that r 27 of the Conduct Rules is drafted in permissive terms and is wider than the Conduct Rules which were in force when Kallinicos was decided, where the default position was that a solicitor could not act where it became apparent that the solicitor would be required to give evidence as to the determination of contested issues.
Disposition
Since the hearing of the application Mrs Reardon’s solicitors have filed a notice of ceasing to act as solicitors on the record in the proceeding. The Court has been advised that the Solicitors each undertake not to act further in the proceeding.[28]
[28]Email from Mr J Lean of Aitken Partners dated 15 August 2017 addressed to the Chambers of Justice Almond and to Tony Hargreaves & Partners.
Both the applicants and the respondent to the application have advised that in the circumstances they do not require a ruling on the substantive application but only in relation to costs.
In order to rule on costs it is necessary to briefly evaluate the substantive arguments.
First, in my view the application was not made prematurely. Although the defendants had yet to file a defence or give particulars, the Solicitors and the plaintiff were at all relevant times aware that the plaintiff was not present at the joint session of the Mediation or at any discussions between representatives of parties or the parties directly. The plaintiff was therefore wholly dependent upon the information conveyed and the advice provided by her solicitors.
Given that it is alleged that representations were made by the conduct of the defendants represented by silence or implication to Mrs Reardon prior to or at the Mediation,[29] it should have been obvious that those persons who were, in effect, the conduit of information or anything which could relevantly bear on the question of the alleged conduct (which might include a consideration of what was said as well as what was not said), would be required to give evidence. I do not accept there is any realistic prospect of the matter ultimately proceeding only on a question of law.
[29]Amended statement of claim dated 23 November 2016, [10].
In my view, it is almost inevitable that the solicitors who attended the Mediation will be required to give evidence on issues of substance which are controversial, potentially involving issues of credit, with the real prospect of joinder of the Solicitors for the purposes of furthering a claim for proportionate liability.
For all of these reasons, I am satisfied that a fair minded and reasonably informed member of the public would conclude that the Solicitors would not be able to perform the duties they owe both to their client and to the Court with the necessary level of independence from the issues in the proceeding; and that this might have adverse implications for the conduct of the proceeding, and may inhibit or complicate the potential resolution of the proceeding prior to trial.
In this case, these factors substantially outweigh the consideration that the Court’s jurisdiction to restrain solicitors is to be regarded as exceptional; the public interest in a person ordinarily not being deprived of their chosen solicitors; and the cost and inconvenience involved in retaining new solicitors.
Given the events which have transpired since the hearing, it is not necessary to make formal orders on the substantive application. I now turn to the question of costs.
Costs
The defendants sought an order that Aitken Partners Pty Ltd pay the costs of and incidental to the application on an indemnity basis to be taxed forthwith. In support of the application for indemnity costs, Senior Counsel for the defendants argued that there was no proper basis for bringing the application in light of correspondence sent by the defendants’ solicitors outlining in detail the basis on which the Solicitors ought not continue to act for Mrs Reardon. As to immediate taxation, Senior Counsel argued that although the application was interlocutory and that ordinarily costs are taxed when the proceeding in which the order is made is completed,[30] the application was discrete, made against non-parties to the dispute and it was therefore appropriate in this case for an order that costs be taxed immediately.[31]
[30]r 63.20.1 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic).
[31]See e.g. Dale v Clayton Utz (a firm) (No 3) [2014] VSC 591.
Counsel for the plaintiff accepted that in the event the application was successful, the appropriate costs order would be made against the lawyers or the firm. However, Counsel submitted that there was no misconduct or unreasonableness in resisting the application, there were discretionary items to be balanced, and that the appropriate order should be the usual order that costs follow the event on the standard basis, to be taxed at the conclusion of the proceeding.
I accept that the application is a discrete application. The plaintiff’s solicitors have ceased to act in the proceeding and have undertaken to not act further in the proceeding. In the circumstances, I am satisfied that it is appropriate for an order that costs be taxed immediately (if not agreed) and that the costs order should be directed against the solicitors and the firm rather than against Mrs Reardon. Costs will be ordered on a standard rather than on an indemnity basis. In this regard, I accept there were discretionary considerations to be weighed in the balance, including the fact that the application was made at a very early stage in the proceeding and that it was not unreasonable for the solicitors to oppose the application at this time.
Conclusion
For the reasons given above I will make an order that the respondents Aitken Partners Pty Ltd, Edwin Clark and Jonathon Lean pay the costs of and incidental to the defendants’ summons dated 27 July 2017 to be taxed immediately on a standard basis (if not agreed).
I will hear from counsel as to the precise form of order.
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