Salmon v Albarran (No 2)

[2021] NSWSC 186

Supreme Court

New South Wales

Medium Neutral Citation:

Salmon v Albarran (No 2) [2021] NSWSC 186

Hearing dates:

9 February 2021

Date of orders:

5 March 2021

Decision date:

05 March 2021

Jurisdiction:

Equity

Before:

Parker J

Decision:

See [58]

Catchwords:

CIVIL PROCEDURE – pleadings – amendment – former statement of claim struck out – application for leave to re-plead – foreshadowed advocate’s immunity defence – plaintiffs allege solicitor’s conduct fraudulent – re-pleading permitted

Cases Cited:

Attwells v JacskonLalic Lawyers Pty Ltd (2016) 259 CLR 1

Omutta Pty Ltd v Wilson (No 2) [2019] NSWSC 401

Category:

Procedural rulings

Parties:

Owen Salmon (First Applicant/Plaintiff)
TCBS Group Holdings Pty Ltd (Second Applicant/Plaintiff)
Richard Albarran (First Respondent/Defendant)
Geoffrey David McDonald (Second Respondent/Defendant)
Steven Brown (Third Respondent/Defendant)
Robert William Joseph Elliott (Fourth Respondent/Defendant)
Drew Anthony Townsend (Fifth Respondent/Defendant)
David Kenney (Sixth Respondent/Defendant)
Luigino Malacco (Seventh Respondent/Defendant)
Paul Andrew Leroy (Eighth Respondent/Defendant)

Representation:

Counsel:
M Evans (Applicants)
MR Elliott SC (First, Second, Fourth to Eighth Respondents)
DA Lloyd (Third Respondent)

Solicitors:
O’Brien Lawyers (Applicants)
Hall & Wilcox (First, Second, Fourth to Eighth Respondents)
Gilchrist Connell (Third Respondent)

File Number(s):

2016/373218

Publication restriction:

Nil

Judgment

1. This interlocutory judgment arises out of two separate applications by the plaintiffs for leave to amend their Statement of Claim. The form of the amendment is now largely uncontroversial. This judgment deals with the remaining area of controversy about the form in which the amendments should be permitted, and costs.

2. The plaintiffs sue as assignees of Terra Cresta Business Services Pty Ltd (“TCBS”). TCBS was placed in liquidation in July 2008. Before then its business was the provision of management, accountancy and consulting services.

3. The second plaintiff, TCBS Group Holdings Pty Ltd (“TCBSGH”), was the holding company of TCBS. The first plaintiff, Owen Salmon, was a director of both TCBSGH and TCBS. He appears to have controlled both companies’ affairs.

4. The third defendant, Steven Brown, is a solicitor who previously acted for TCBS (and according to Mr Salmon, for him personally). Mr Brown is sued for breach of duty and fraud in acting for TCBS, between 2006 and 2008, in a commercial dispute. The dispute was with two of TCBS’ customers, known as BACF and BACM, which between them allegedly owed TCBS more than $1.5 million.

5. The first defendant, Richard Albarran, and the second defendant, Geoffrey David McDonald, are (or were at relevant times) partners of the accountancy firm, Hall Chadwick. Mr Albarran and Mr McDonald were appointed by TCBS as the receivers of BACF and BACM. They are sued for breach of duty as receivers and also for participation in Mr Brown’s alleged breaches of duties as a solicitor.

6. I will refer to Mr Albarran and Mr McDonald as the “Receivers”. The fourth to eighth defendants are other partners of Hall Chadwick. I will refer to them and the Receivers collectively as the “Hall Chadwick partners”.

Claims, defences and procedural history

7. The underlying facts and the claims made against the defendants are complex. Slattery J summarised them in an earlier interlocutory judgment: Salmon v Albarran [2019] NSWSC 243 at [33]-[78]. The following abbreviated summary is provided for the purpose of this judgment. It draws also on the latest version of the proposed Statement of Claim, which fills in some further details to which Slattery J did not need to refer.

8. The dealings between TCBS on the one hand, and BACM and BACF on the other, go back to 2004. In March 2005 BACM and BACF executed fixed and floating charges in favour of TCBS, in each case securing indebtedness to TCBS of up to $1.5 million. Those charges were subsequently registered.

9. In June 2005, Andrew Wily was appointed as liquidator of BACM and BACF, along with other related companies, on the application of the Australian Securities and Investments Commission. This was followed by litigation in the Federal Court brought by Mr Wily to recover monies owing to the companies from third parties. Mr Wily’s claims were successful. The sum of $6.5 million was recovered by way of settlement in October 2005 and there was a further $4.5 million settlement in favour of the companies in August 2006.

10. Early in August 2006, Mr Salmon consulted Mr Brown about the recovery by TCBS of the monies claimed by it from BACM and BACF. A particular issue was whether the charges given by BACM and BACF were valid and enforceable. Mr Brown advised that they were, and shortly afterwards TCBS appointed the Receivers to BACM and BACF.

11. Mr Wily reacted to the appointment of the Receivers by bringing proceedings in this Court (“the 2006 Supreme Court proceedings”). In those proceedings Mr Wily contended that the charges were invalid or unenforceable insofar as they secured debts which had been owing to TCBS prior to the date of execution of the charges in March 2005. Mr Wily also sought the removal of Mr Albarran and Mr McDonald. The Receivers and TCBS were joined as defendants in the proceedings.

12. The proceedings came on for hearing before Young CJ in Eq on 17 and 18 September 2006. Settlement negotiations took place between the parties which resulted in an agreement in principle. TCBS was to receive $1.3 million from BACM and BACF out of the Federal Court settlement monies. The proceedings were adjourned to 19 September to allow for preparation and execution of the necessary deeds of settlement.

13. A draft deed of settlement was prepared. Mr Brown, in consultation with the Receivers, included in the draft a provision under which Mr Wily was to release any claims with respect to a transaction involving another company, known as Given Form.

14. The Given Form transaction had involved the payment of money by the administrators of Given Form (who happened to be Mr Albarran and Mr McDonald) to Mr Brown, purportedly by way of discharge of monies owed by BACF and BACM to him. The plaintiffs contend that the transaction had nothing to do with TCBS’ claims against BACF and BACM, and the proposed release was simply to protect the personal interests of Mr Brown and the Receivers.

15. Mr Wily declined to agree to the release concerning the Given Form transaction. The plaintiffs allege that Mr Brown and the Receivers insisted on it. The settlement collapsed.

16. The plaintiffs allege that Mr Salmon was never told about the attempt to obtain a release concerning the Given Form transaction. Instead he was told that the settlement had collapsed because Mr Wily had refused to proceed with the agreement which had been reached in principle.

17. Following the collapse of the settlement, Young CJ in Eq proceeded to hear and determine the claims in the 2006 proceedings. The validity of BACF’s charge had been conceded at the outset. His Honour found that BACM’s charge was unenforceable because BACM was insolvent when it granted the charge. He made a costs order in favour of Mr Wily against TCBS.

18. This left the quantum secured by BACF’s charge undetermined. Young CJ in Eq ordered that quantum be determined at a later hearing. But there was no progress on that front over the next two years. Eventually the costs order in favour of Mr Wily against TCBS was assessed. TCBS was wound up as a result of its failure to pay the costs (by this stage, the plaintiffs allege, TCBS had effectively ceased to trade because of lack of funds).

19. In August 2008, the then liquidator of TCBS settled TCBS’ claim under the charge against Mr Wily. The settlement amount was $300,000. This left a remaining issue in the proceedings about the Receiver’s entitlement to fees. This was settled in December 2009 for $120,000.

20. By this stage, Mr Salmon had become bankrupt. He was not discharged from bankruptcy until August 2014. It seems that the liquidation of TCBS had not been completed. In December 2015 a new liquidator, Mr Schon Condon, was appointed. Shortly afterwards, Mr Condon executed an assignment of TCBS’ causes of action against the defendants to Mr Salmon and TCBSGH.

21. The plaintiffs make two main complaints against the defendants. The first is that they caused TCBS to lose the benefit of the settlement which had been agreed with Mr Wily by insisting on a release, in their own interests, with respect to the Given Form transaction. The second was the failure to pursue the quantification of TCBS’ entitlement under the charge which was upheld by Young CJ in Eq.

22. The plaintiffs allege that the Receivers owed fiduciary obligations to TCBS as the party which appointed them. It is not in dispute that Mr Brown owed fiduciary obligations to TCBS in acting as its solicitor. Mr Salmon alleges that Mr Brown’s obligations as solicitor were owed not just to TCBS but to him personally as well.

23. On the facts which they allege, the plaintiffs have claims for breach of fiduciary duty and negligence against both Mr Brown and the Receivers. But the plaintiffs go further. They allege that Mr Brown and the Receivers lied to Mr Salmon about the failed settlement in September 2006. Included in their claims are claims for damages against the defendants under the tort of deceit.

24. The defendants have not yet pleaded their defences. But they have foreshadowed that they contest the plaintiffs’ allegations on the merits. They have also foreshadowed various other defences. These include the contention that the claims are statute barred.

25. On Mr Brown’s part it is further contended that he is immune from some of the claims against him under the litigation immunity recognised by the High Court in Attwells v Jacskon Lalic Lawyers Pty Ltd (2016) 259 CLR 1. And Mr Salmon’s standing to bring a personal claim against Mr Brown is also challenged. The contention is that that cause of action did not revert to Mr Salmon on his discharge from bankruptcy, and remains vested in his bankruptcy trustee.

26. The case has a chequered procedural history. It was commenced by way of Statement of Claim filed in November 2016. The Statement of Claim was amended in February 2017 and further amended in May 2017.

27. Later, the Hall Chadwick partners applied to have the plaintiffs’ claims summarily dismissed, or struck out, on limitation grounds. That application resulted in the interlocutory judgment of Slattery J to which I have already referred, which was delivered in March 2019. His Honour considered that the limitation issues could not be resolved summarily and dismissed the application.

28. Following further interlocutory manoeuvring, two notices of motion were filed in December 2019. One was from Mr Brown. He sought orders summarily dismissing, or striking out, the proceedings. Mr Brown had not participated in the Hall Chadwick partners’ application. He advanced a different ground for dismissing the proceedings, challenging the validity of the purported assignment of TCBS’ chose of action by the liquidator. For their part, the plaintiffs filed a notice of motion seeking directions permitting expert evidence to be adduced in the proceedings.

29. Both applications were allocated to me for hearing in the Applications List on 17 April last year. Having heard argument, I decided that the plaintiffs’ expert evidence application should be dismissed. I was also not prepared to uphold Mr Brown’s challenge to the proceedings based on the assignment. However, I was satisfied that the way in which the claims had been pleaded in the then version of the Statement of Claim (the one filed in May 2017: see [26] above) was inadequate.

30. I ordered that paragraphs 1 and 71-105 be struck out. These paragraphs pleaded the elements of all of the plaintiffs’ causes of action against the defendants except the claims in deceit. I also ordered that paragraphs 106-109, which pleaded the damages claimed by the plaintiffs, be struck out.

31. The striking out of large parts of the plaintiffs’ Statement of Claim required them to re-plead. I made directions for this to happen by way of formal application for leave to amend. That resulted in the two notices of motion which are the subject of this judgment.

32. While this was happening, the plaintiffs brought proceedings in the Corporations List to have the validity of the purported assignment confirmed. Orders to this effect were made by Black J in early July.

Applications to amend Statement of Claim

33. The first notice of motion was filed by the plaintiffs on 3 August. The application came on for hearing before me on 28 August. Following argument, it became apparent (and counsel for the plaintiffs accepted) that the proposed new Statement of Claim was still inadequate. I refused leave to amend, dismissing the motion.

34. The defendants also applied to have paragraphs 61-70 of the existing Statement of Claim struck out. These paragraphs pleaded the plaintiffs’ deceit claims. Counsel for the defendants contended that, on analysis, these paragraphs also fell foul of the views I had expressed at the hearing on 27 April. Counsel for the plaintiffs did not oppose that course.

35. The result was to dispose of the notice of motion, except for the question of costs, which were reserved. At the request of counsel for the plaintiffs, I then made directions for the making of another amendment application.

36. The plaintiffs’ further notice of motion was filed on 6 October. In correspondence, the defendants’ solicitors raised complaints about the form of the proposed pleading. The application was listed before me on 13 November but owing to difficulties with the plaintiffs’ representation could not be heard.

37. The plaintiffs’ legal representatives then decided to produce a new version of the Statement of Claim to meet the defendants’ criticisms. This was done and an amended notice of motion seeking leave to amend in accordance with a new version of the Statement of Claim was filed on 1 December. The motion was eventually fixed for hearing before me on 9 February this year.

38. The Hall Chadwick partners formally took the position on the application that no amendment was permissible. Their contention was that all of the existing pleaded causes of action are statute barred, and that in these circumstances the Court has no power to allow an amendment which would introduce a new cause of action. But counsel for the Hall Chadwick partners recognised that it would not be practicable to determine in advance of the final hearing whether the existing claims are statute barred. Counsel thus proposed a form of order, to which counsel for the plaintiffs agreed, which would effectively defer this issue until the trial.

39. On this issue, Mr Brown is not in the same position as the Hall Chadwick defendants. It is not contended on his behalf that all of the existing pleaded causes of action against him are statute barred. But as a matter of discretion, the point is taken on his behalf that the Court should not permit amendments which would relate back to the beginning of the proceedings. Again however it is accepted that the issue should be preserved for argument at the trial.

40. Counsel for the Hall Chadwick defendants took no point about the form of the amendments themselves. The points taken by counsel for Mr Brown were limited. In the course of argument counsel raised the point that the personal claims against Mr Brown remain listed in his bankruptcy trustee. But counsel eventually accepted that this depended on a factual issue, namely whether the claims had been disclosed in Mr Salmon’s report as to affairs. Counsel accepted that if the point is to be raised at all, that should be done after the factual issues have been dealt with by way of pleading.

41. The only issue on which counsel for Mr Brown asked me to make a ruling concerned Mr Brown’s immunity defence. Counsel submitted that on their face, various aspects of the claim against Mr Brown were squarely covered by the immunity. Counsel submitted that the application of the immunity was so clear that this was an appropriate case to strike out those aspects of the claim as being hopeless, rather than requiring Mr Brown to plead to them.

42. Counsel for Mr Brown focused on two aspects of the claim. The first is pleaded in paragraphs 133 and 133A. These paragraphs complain about the failure by Mr Brown to put certain evidence before the Court in the course of the hearing in September 2006. That evidence went to the solvency of BACM when the charge was granted. Elsewhere in the proposed pleading (paragraph 113A), the plaintiffs expressly allege that had the evidence been put before the Court “it is likely” that Young CJ in Eq would have found that BACM was solvent on that date.

43. Counsel next pointed to paragraph 133C of the proposed pleading. That complains about Mr Brown’s failure to seek a costs order against Mr Wily for TCBS’ costs of successfully defending the validity of the charge over BACF. The paragraph goes on to state that TCBS was left without any sum to set off against the costs order made in favour of Mr Wily, which was the basis for the winding up order against it. Although the pleading does not allege in so many words that if a costs order had been sought it would have been made, counsel for the plaintiffs accepted that implicitly that is the allegation.

44. Counsel for Mr Brown submitted that in the circumstances the claims fall squarely within the immunity. In order to uphold those claims, the Court would have to conclude that the decisions made by Young CJ in Eq on solvency and costs were the incorrect ones in the circumstances. This is the very sort of enquiry which the immunity exists to prevent: Attwells at [35]. In passing, I note that counsel for the third defendant initially made a similar argument about part of paragraph 135 of the proposed Statement of Claim. But when the allegations were explained by counsel for the plaintiffs, counsel for Mr Brown accepted that they do not attract the immunity.

45. For his part, counsel for the plaintiffs submitted that the immunity does not apply when the claim is one of fraud. This provoked a riposte from counsel for Mr Brown that the conduct in question is not alleged in the pleading to have been fraudulent.

46. Counsel for the plaintiffs did not cite any authority in support of the proposition that the immunity does not extend to fraudulent conduct. The purpose of the immunity is, as I have already indicated, to prevent a claim against a lawyer who acted in earlier proceedings in which a judicial decision was made from becoming a vehicle for collateral challenge to that decision. It is not easy to see why, as a matter of principle, the allegation that the lawyer’s conduct was fraudulent should make any difference.

47. Nevertheless, I do not propose to disallow the relevant paragraphs of the plaintiffs’ Statement of Claim. Disallowing those paragraphs would not dispose of the causes of action alleged against Mr Brown; his counsel accepted that other aspects of his conduct of the 2006 proceedings (for instance, failure to pursue the separate hearing into quantum) would not attract the immunity. At the moment, it is not clear that disallowing those particular aspects of the claim would result in any substantial shortening of the proceedings. And the point about the application of the immunity to fraudulent claims has not been fully briefed and argued.

48. In the circumstances, I think the plaintiffs should be allowed to proceed with the claim as currently formulated, at least to the point when the pleadings are closed. I do not rule out the possibility that when issue has been joined and the issue has been considered in more depth, reasons might appear for disposing of the challenged aspects of the claim against Mr Brown in advance of the trial. But at the moment the discretionary balance leans the other way.

Costs

49. Counsel for the plaintiffs conceded that the plaintiffs should pay:

1. the costs thrown away by reason of their amendments;

2. the costs of the unsuccessful first motion;

3. the costs of the second motion up to 1 December, when the revised version of the Statement of Claim was brought forward (these costs would include the costs of the abortive hearings in November).

50. Counsel for Mr Brown, however, went further. Counsel submitted that:

1. the plaintiffs should pay the whole of the costs of the second amendment application;

2. the costs awarded should be on an indemnity basis;

3. the costs should be payable forthwith, and it should be a term of the eventual grant of leave that those costs be paid before the amendment is formally permitted.

51. As I understood it, counsel for the Hall Chadwick partners took the same position.

52. On the first issue, counsel for the Hall Chadwick partners accepted that he could not complain about the form of the 1 December version of the Statement of Claim. But counsel pointed out that it had still been necessary to attend on the hearing before me, if for no other reason than to debate the question of costs (the plaintiffs’ concessions which I have set out at [49] above were only made by counsel for the plaintiffs at the hearing). I accept this submission. The plaintiffs will have to pay the Hall Chadwick partners’ costs of the second application to date.

53. But the same considerations do not apply to Mr Brown. Unlike counsel for the Hall Chadwick partners, counsel for Mr Brown continued after 1 December to resist the amendment on substantive grounds. That resistance has been unsuccessful. The plaintiffs will pay Mr Brown’s costs of the second application only up to 1 December.

54. In support of the application for indemnity costs, counsel for Mr Brown complained, with some justification, about the lack of progress in the proceedings and the number of versions of the Statement of Claim which have been propounded. But I do not think I should take the additional step of awarding indemnity costs. There is nothing to suggest that the plaintiffs’ legal advisers have been doing other than their best in trying to get what is a complex claim properly pleaded. It is to their credit that, rather than take up further time with futile argument, they accepted that earlier versions of the proposed Statement of Claim were inadequate and should be replaced. It would be counter-productive to penalise their clients by means of an indemnity costs order.

55. Counsel for the plaintiffs indicated that the making of a lump sum order for costs, especially if payment of the costs was made a condition of the grant of leave to amend, was likely to be opposed. Counsel suggested that it might stultify the proceedings.

56. I made it clear to the parties that I did not propose to make a lump sum costs order, nor to make an order for immediate assessment of the costs. What I indicated I might be prepared to do is to make an order for payment of a lump sum on account of costs (I explain the difference in Omutta Pty Ltd v Wilson (No 2) [2019] NSWSC 401 at [13]). I would also consider an application to require that lump sum to be paid before the amendment can be made.

57. Given that this is controversial, I will adjourn the making of orders granting leave to enable the defendants, should they wish to pursue any such application, to put on the necessary evidence, and for the plaintiffs to put on any evidence in response. I will also defer making any order that the plaintiffs pay the costs thrown away by the amendment until the amendment is made (although I indicate now that such an order will be made).

Orders

58. The orders of the Court are:

Applicants’ notice of motion filed 3 August 2020

1. Order that the applicants/plaintiffs pay the respondents/defendants’ costs of the notice of motion.

Applicants’ notice of motion filed 6 October 2020

1. Order that the applicants/plaintiffs pay the first, second and fourth to eighth respondents/defendants’ costs to date of the notice of motion.

2. Order that the applicants/plaintiffs pay the third respondent/defendant’s costs up to 1 December 2020 of the notice of motion.

3. Adjourn the further proceedings on the notice of motion to a date to be fixed by arrangement with my Associate.

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Decision last updated: 05 March 2021