RFD Ltd v Harris [No 2]
[2011] WASC 104
•21 APRIL 2011
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RFD LTD -v- HARRIS [No 2] [2011] WASC 104
CORAM: ALLANSON J
HEARD: 31 MARCH 2011
DELIVERED : 21 APRIL 2011
FILE NO/S: CIV 2272 of 2006
BETWEEN: RFD LTD
First Plaintiff
AIG EUROPE (UK) LTD
Second PlaintiffAMERICAN HOME ASSURANCE COMPANY
Third PlaintiffAND
DANIEL PAUL HARRIS
Defendant
Catchwords:
Practice and procedure - Variation of injunction - Turns on own facts
Legal profession - Duties of practitioners - Acting in a case where practitioner will be witness
Legislation:
Legal Profession Act 2008 (WA), s 581, s 583
Legal Profession Conduct Rules 2010 (WA)
Result:
Application dismissed
Category: B
Representation:
Counsel:
First Plaintiff : Ms K A Vernon
Second Plaintiff : Ms K A Vernon
Third Plaintiff : Ms K A Vernon
Defendant: Mr K J Bradford
Solicitors:
First Plaintiff : DLA Phillips Fox
Second Plaintiff : DLA Phillips Fox
Third Plaintiff : DLA Phillips Fox
Defendant: Bradford & Co
Case(s) referred to in judgment(s):
Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174
Goumas v McIntosh [2002] NSWSC 713
RFD Ltd v Harris [2008] WASCA 87
ALLANSON J: The background to this matter is set out in the decision of McLure JA in earlier proceedings in the Court of Appeal: RFD Ltd v Harris [2008] WASCA 87 [3] ‑ [9]:
3.On 26 March 2001 the respondent [the defendant in these proceedings] was involved in an accident (accident) in the course of his employment by Austal Ships Pty Ltd (Austal). The respondent claimed to have completely lost the use of his legs as a result of the accident. The overwhelming weight of the expert medical evidence was that there was no organic (physical) cause of his symptoms. He was diagnosed by psychiatrists as suffering from a conversion disorder which involves the conversion of an unconscious mental problem into neurological symptoms, in the respondent's case, paralysis.
4.The respondent received workers' compensation payments. In December 2002 he commenced a District Court action against the first appellant for common law damages for personal injuries said to have been suffered in the accident. In particular, the respondent claimed he suffered permanent functional paraparesis (paralysis) as a result of the accident.
5.The second and third appellants are agents for the management of claims made under policies of insurance between, inter alia, the first appellant and its insurer.
6.The first appellant admitted liability in the District Court action. On 29 April 2005 the first appellant and the respondent agreed to settle the District Court action. It was a term of the settlement that the first appellant consent to judgment in a total amount of $750,000. On 4 May 2005 judgment was entered in the District Court action for $650,000 (exclusive of workers' compensation payments) plus $100,000 costs (the judgment).
7.Austal had, under workers' compensation legislation, claimed an indemnity from the first appellant in relation to the payments of workers' compensation to the respondent. By a deed of settlement dated 18 March 2005 between the first appellant and Austal, the first appellant agreed to pay Austal $301,658 for workers' compensation which had been paid to the respondent. The second appellant indemnified the first appellant for a significant portion of that amount. Further, pursuant to the insurers' obligation to indemnify the first appellant, the second appellant paid the judgment sum to or on behalf of the respondent.
8.Video surveillance footage showed that within five months of the judgment the respondent was walking without assistance. In September 2005 he was observed attending a paintballing session in relation to which he signed a disclaimer to the effect that he was sufficiently fit to stand the strain and exertion involved in playing paintball.
9.In these proceedings the appellants contend that the settlement agreements, judgment and payments made pursuant thereto were obtained by the fraudulent conduct of the respondent in knowingly misrepresenting in the District Court action and to the many medical experts who assessed his condition for the purposes of that action that he had, and continued to have, permanent functional paralysis. The appellants seek to set aside the settlement agreements and the judgment.
On 11 December 2006, Blaxell J heard an application on behalf of the plaintiffs for an injunction restraining the defendant from disposing of, encumbering or otherwise dealing with his property. His Honour made the orders sought in these terms:
1.Until further order, the defendant be restrained and an injunction is hereby granted restraining him whether by himself, his servants, agents or otherwise from disposing of, encumbering or otherwise dealing with in any way any of the following properties whether in his own name or not and whether solely or jointly owned up to the value of $1,105,958.86:
1.1the property known as 884 Orange Springs Road, Orange Springs more particularly described as Lot 890 on Deposited Plan 250002, Certificate of Title Volume 1891 Folio 417;
1.2the property described as Lot 558 on Deposited Plan 231453, Certificate of Title Volume 2228 Folio 522; and
1.3the property known as 41 Seville Crescent, Mindarie more particularly described as Lot 528 on Plan 22550 Certificate of Title Volume 2130 Folio 865.
2.Paragraph 1 extends to:
2.1any property acquired by the defendant after the making of this order;
2.2prevent disposal of the net proceeds of sale of any of the properties referred to in 1.1, 1.2 and 1.3 above if those properties have been sold since 6 October 2006 and prior to the making of this order.
3.Until further order, with the exception of usual living expenses, the defendant be restrained and an injunction is hereby granted restraining him from disposing of, encumbering or otherwise dealing with in any way any of his other assets whether in his own name or not and whether solely or jointly owned up to the value of $1,105,958.86.
In January 2007 his Honour varied order 3 to permit the defendant 'reasonable legal expenses up to $10,000'.
On 8 August 2007 Templeman J dismissed the plaintiffs' application to extend the interim order made by Blaxell J. The plaintiffs appealed from that decision and on 20 March 2008, in the judgment already referred to, the Court of Appeal upheld the appeal and reinstated the injunction. It has been in place since.
Significantly, during the period while the injunction was not in place, the defendant and his then de facto, Ms Susan Barter, sold the Mindarie property. The proceeds of that sale were distributed on settlement: to Elizabeth Barter ($6,300); to fees, rates and taxes; and the balance ($720,083.58) to the Westpac Banking Corporation. After credit for the balance of the proceeds of sale, the defendant and Ms Barter had a debit balance with Westpac of $35,607.31.
The properties in Orange Springs (the subject of orders 1.1 and 1.2) are occupied by Ms Barter. The defendant and Ms Barter are no longer in a de facto relationship.
The plaintiffs are ready to proceed to trial. The defendant, however, is not. The orders restraining the defendant's property do not currently permit the release of funds for legal expenses, and there has been no such allowance since the $10,000 allowed by Blaxell J in December 2006. The defendant seeks a variation of the orders to enable funds to be available for the payment of legal costs. In particular, he seeks orders that the caveats be removed over the two Orange Springs properties, the properties be placed on the market for the purposes of sale, and the net proceeds be thereafter distributed as follows:
(a)50% to Susan Elizabeth Barter; and
(b)the remainder to the trust account of Bradford & Co, solicitors for the defendant.
The position of Bradford & Co
I think it is necessary to make some brief comments regarding the representation of the defendant by his present solicitors.
The defendant is represented by Bradford & Co, and the plaintiffs by the firm DLA Phillips Fox. Those firms represented the defendant and plaintiff in the original proceedings in which the defendant received the settlement. Mr Keith Bradford, principal of Bradford & Co, appeared for the defendant in the application before me.
The statement of claim refers on several occasions to conduct by Bradford & Co. In general, the plaintiffs allege that the defendant made certain representations to the first plaintiff by the statement of claim filed in the District Court, by further and better particulars of claim filed in the District Court and by a schedule of damages. More specifically, they allege in par 25.22 and par 31.4 of the statement of claim that representations were made to Phillips Fox (as solicitors for the defendants) and to one of the insurers by way of a letter from Bradford & Co. It is anticipated that Mr Bradford will be a witness.
At an earlier hearing in this matter on 28 February 2011, counsel for the plaintiffs foreshadowed an application for an order that Mr Bradford be restrained from acting. At the hearing on 31 March 2011, counsel advised me that her instructions 'at this stage' were not to make such an application. Notwithstanding the reluctance of the plaintiffs to make an application, the position for Mr Bradford needs to be resolved. Under r 42 of the Legal Profession Conduct Rules 2010 (WA):
(1)A practitioner must not act for a client in the hearing of a case in which it is known, or becomes apparent, that the practitioner will be required to give evidence centrally material to the determination of contested issues before the court.
(2)In the circumstances provided for in subrule (1) an associate of the practitioner's law practice may act for the client if ‑
(a)in the practitioner's reasonable opinion there are exceptional circumstances that justify the associate acting; and
(b)the client, having been given an opportunity to obtain independent legal advice concerning the issue, consents to the associate acting.
The Legal Profession Conduct Rules are made under pt 17 div 2 of the Legal Profession Act 2008 (WA). The rules are binding on Australian legal practitioners to whom they apply, and are subsidiary legislation as defined in the Interpretation Act 1984 (WA): Legal Profession Act s 581, s 583. Contravention of the rules may constitute professional misconduct or unsatisfactory professional conduct.
While no application has been made to restrain Mr Bradford, I must take into account the prospect that he will not be able to act as a factor in determining this application.
The requirements of the trial
The action was commenced in 2006. It is now over four years since the defendant's property was frozen. Both parties agree that funds need to be released for legal costs if the matter is to proceed. The dispute is as to the terms on which those funds should be released.
In an affidavit dated 22 November 2010 Catherine Anne Elphick, a solicitor for the plaintiff, attaches advice from Ms Vernon (counsel for the plaintiffs) setting out her opinion as to the likely length of the trial and her estimation of likely associated costs. Ms Vernon has been counsel for the plaintiffs since the commencement of the action. She estimates that the plaintiff will call 19 lay witnesses and four experts, and that the plaintiffs' case will take seven to eight days. Ms Vernon anticipates the defence will call six witnesses, including three experts. Ms Vernon says she expects the trial to take between two and three weeks.
I am told that the tasks for which the defendant now needs funds include preparation of witness statements, and an advice on evidence. There is substantial work to be done before trial. Should Mr Bradford no longer be able to act, those tasks will be picked up by someone without his familiarity with the issues. It is in that context that I must consider the evidence put forward by the parties.
The present application
The defendant relies on the evidence in three affidavits which he swore on 13 November 2010, 26 November 2010, and 24 March 2011. The defendant foreshadowed an additional affidavit from Ms Barter, but that could not be obtained. Ms Barter has obtained separate legal representation, but did not seek to be heard.
In his affidavit of 13 November 2010 the defendant testifies that he is currently employed as a car salesman with a net income of approximately $900 a week. He says that he has no personal assets other than those which are the subject of the injunction and 'of which I have a half share with Susan Barter'. The defendant attaches to his affidavit:
1.a schedule of costs incurred to date;
2.an opinion by Stewart Forbes, barrister and solicitor, setting out his estimate of costs likely to be incurred between now and the time of trial, and costs likely to be incurred in immediate preparation for and the conduct of the trial.
As to the costs incurred to date, the source of the information is not stated. Even if the document is admissible, there is no factual basis for the opinion expressed. I am not prepared to make findings on that evidence.
Even though the proceedings are interlocutory the appending of Mr Forbes' report to the affidavit of the defendant is not, in my opinion, a satisfactory practice. No objection, however, was taken to the admissibility of the affidavit or the attached report. Mr Forbes, on the basis of his experience in matters relating to legal costs and on the information he has been given, estimates costs between now and the commencement of trial, and fees for trial, based on the defendant being represented by senior counsel, junior counsel and an attending senior practitioner. On those premises, he estimates costs until the conclusion of the trial of approximately $890,000. I return to this issue below.
In his second affidavit sworn 26 November 2010, the defendant gives some further limited information regarding his financial position. In particular, he previously owned a GT Falcon which has since been repossessed. He cannot remember when.
The defendant also had a Land Rover Discovery which is now at the property in Orange Springs occupied by Ms Barter. Ms Barter lives on the property without paying rent, and the defendant says that they have an arrangement 'due to our de facto relationship whereby we have split our assets on a 50‑50 basis'. The certificates of title show both Orange Springs properties are mortgaged.
The defendant also attached two appraisals from a real estate agent, in each case stating the author's belief about the current sale price for marketing the property. The author states that he has assessed each property and taken into account factors including comparable properties sold and comparable properties for sale. The appraisal contains not even the briefest description of the properties or transactions said to be comparable. The author's opinion is of no assistance. Documents prepared in this way, and attached to a party's affidavit, are not an acceptable substitute for evidence of value.
There is no evidence about the size of the mortgage in each case, and no way to assess the value of the equity in either property.
On 24 March 2011 the defendant made a further affidavit. He says that he has in storage 'some couches, a dining suite, a bed, entertainment unit and outdoor setting … a magnetic mattress with various other magnetic therapy items'. There is no evidence of the current value of those items.
As to his relationship with Ms Barter, the defendant states that following their separation in 2006 'she is entitled to live at the Orange Springs property and use the Land Rover motor vehicle and that our arrangements in relation to our asset split is one of 50% of profits after expenses emanating from our relationship.' He estimates that he contributed $400,000 to the Orange Springs property and Ms Barter contributed approximately $100,000. There was no final settlement of their relationship entitlements when they separated due to the injunctions that were in place.
Because the defendant had provided so little detail about his financial position, at the hearing on 31 March 2011 I permitted cross‑examination about his asset position. It did not advance the facts available to the court save in one respect. The defendant produced papers issued out of the Magistrates Court of Western Australia which show that judgment has been entered against him in that court in favour of Capital Finance Australia Ltd (who financed the purchase of the GT Falcon) for the amount of $21,170.95 plus interest payable at 6% per annum from 9 December 2009. The defendant is required to attend the Magistrates Court for an examination as to his means on 12 April 2011.
The plaintiffs were confined in the evidence they could put forward. The relevant facts are within the defendant's knowledge or he has the power to obtain the information. It was the defendant's responsibility to ensure the court had information on which it could act.
The positions of the parties
The defendant seeks orders permitting the sale of the land, with the proceeds of sale subject to continuing restraints but so that there is a fund on which the defendant may draw as legal costs are incurred. He says, in effect, that he cannot progress to trial otherwise. The defendant apparently accepts that any particular release of funds would need to be justified on a case by case basis.
The plaintiffs submit that the defendant bears an onus to show that there are no other assets to which resort might be had to pay the legal costs, and that the proposed expenditure is reasonable: Clout (Trustee) v Anscor Pty Ltd [2001] FCA 174 [19] ‑ [20]; Goumas v McIntosh [2002] NSWSC 713 [22]. I accept both propositions. The first clearly applies where the freezing order is in relation to a specified asset and the party restrained seeks its release. Where, as here, the defendant has limited property and all of his assets to a value of over $1 million are restrained, resort to other assets does not arise on the facts. The defendant only received $650,000 in the settlement ‑ there is no large sum unaccounted for. I am satisfied the defendant does not have assets available outside the terms of the order.
The plaintiffs also submit that the defendant had not deposed to his capacity to borrow against his interests in the various properties. The material before the court sufficiently reveals that borrowing is not a realistic alternative.
The issues of reasonableness of selling the land, and the extent of the proposed expenditure are more troubling. The plaintiffs oppose the sale of the land for two reasons. First, it would consume time with consequent delay in bringing this matter to trial, when the sale of personal effects may be done more quickly. Second, the sale of the land would require the resolution of whatever claim Ms Barter has to an interest in it.
The plaintiffs recognise that sale of personal property may produce a limited fund, insufficient to take the matter to trial. But they submit that the orders should be varied only to the extent of funds sufficient for the preparation of witness statements and an advice on evidence and the personal assets may be sufficient for this limited purpose. This submission is apparently on the basis that (properly advised) the defendant would then settle and further costs need not be incurred. I cannot make such a prediction at this stage.
I am, however, troubled by the question of what level of funding is reasonable. The plaintiffs do not dispute that the defendant may have funds released for the purpose of funding representation by senior counsel, junior counsel and an attending senior practitioner. I recognise that the allegation of fraud is serious, and that the value of the subject matter is not completely described by its monetary value. But where the costs proposed equal or exceed the monetary value of the claim, I doubt that the proposed level of funding is reasonable. It is not, however, necessary to decide what legal costs are reasonable at this stage. If the land were sold, the proceeds of sale would be restrained and the defendant would not be permitted to dissipate the funds unreasonably.
Findings
On the material before me, I accept that the defendant is employed on commission and earns about $900 a week. He has ongoing liabilities for rent and child support. There is no reason to believe that he owns any property other than his interest in the Orange Springs properties, his interest in the Land Rover, and his furniture and effects including some magnetic therapy equipment. There is no evidence about the present value of any of those things.
The defendant owes about $22,000 to Capital Finance.
His major asset is his interest in the land in Orange Springs. The defendant requests orders for division of the proceeds of sale of the Orange Springs land, with half to Ms Barter. But there is nothing from which the court can make any assessment of the extent of Ms Barter's entitlements in relation to the property, or whether her residence there is an impediment to selling it.
There is no satisfactory evidence about the value of the land and no evidence of what is owing to the mortgagees. I can make no finding about the funds likely to be realised by any variation to the existing orders, or what would be required to realise them.
I am particularly concerned that there is nothing before the court about the nature and extent of Ms Barter's claim, other than that she was formerly in a de facto relationship with the defendant, and contributed to the purchase of the land. I do not know whether she does claim a half interest, whether she agrees to the sale of the land, or whether it will be necessary for the defendant to commence proceedings to effect a sale.
I have no adequate information about what the defendant's legal costs will be. Further, although I make no order restraining Mr Bradford from continuing to act, the assessment of what needs to be done has to take into account the prospect that another practitioner will have the conduct of the matter should it go to trial. If costs are incurred at the level predicted by Mr Forbes, the proceeds available to the defendant from its sale could be wholly consumed with the defendant still unable to pay for representation at trial.
I see no realistic alternative to the sale of the Orange Springs land. Even if the furniture and other effects can be sold, they are unlikely to realise enough to fund a three week trial. But before varying the orders I need evidence about the value of the land, whether it can be sold, and the amount owing to each of the mortgagees. There must be evidence about Ms Barter's position. Only then may the court assess what funds are likely to be available.
I am not, on the evidence that has been put before me, prepared to make an order varying the injunction to permit the sale of the land.
I dismiss the application.
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