Simone v Kola (No 2)

[2017] NSWSC 821

Supreme Court

New South Wales

• Summary available
• Amendment notes

Medium Neutral Citation:

Simone v Kola (No 2) [2017] NSWSC 821

Hearing dates:

27 March 2017

Date of orders:

23 June 2017

Decision date:

23 June 2017

Jurisdiction:

Common Law

Before:

Schmidt J

Decision:

Judgment for Mr Simone.

 

The usual order as to costs under the Rules is that they follow the event. That is an order in favour of Mr Simone, for costs as agreed or assessed. If the parties wish to be heard as to costs on other than the usual basis, they should approach within 14 days.

 The parties should also confer and file orders which otherwise reflect the conclusions reached, within 14 days.

Catchwords:

APPEAL – from Local Court – whether appeal raises matters not in issue at first instance – purpose of payment into solicitor’s trust account – whether solicitor complied with applicable obligations imposed by Legal Profession Act 2004 (NSW) and Legal Profession Regulations 2005 (NSW) – Local Court’s jurisdiction – appeal upheld

Legislation Cited:

Civil Procedure Act 2005 (NSW)
Evidence Act 1995 (NSW)
Law Reform (Law and Equity) Act 1972 (NSW)
Legal Profession Act 2004 (NSW)
Legal Profession Regulations 2005 (NSW)
Local Court Act 2007 (NSW)
Uniform Civil Procedure Rules 2005 (NSW

Cases Cited:

Albanis v Eleftheriou [2014] NSWSC 416
Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17
Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14
Barwick v Council of the Law Society of New South Wales [2004] NSWCA 32
Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26
Ceerose Pty ltd v Building Products Australia Pty Ltd [2015] NSWSC 1886
David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353; [1992] HCA 48
Equititrust Ltd v Franks [2009] NSWCA 128
Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7
Geyer v Redeland Pty Limited [2013] NSWCA 338
Ji v Firth [2013 NSWSC 186
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Kola v Simone (Local Court (NSW), Bradd LCM, 7 June 2016, unrep)
Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491
RHG Mortgage Limited v Rosario Ianni [2015] NSWCA 56
Roxburgh v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516; [2001] HCA 68
Simone v Kola [2016] NSWSC 1778
Steak Plains Olive Farm Pty Ltd v Australian Executor Trustees Limited [2015] NSWSC 289
Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35
Wexford Pty Ltd v Praveen Meckraj Doolub & Ors [2008] NSWSC 952

Category:

Principal judgment

Parties:

Michael Simone trading as Simone Legal (Plaintiff)
Mechelle Kola (First Defendant)
Corema Pty Limited (Second Defendant)
Triple Crowne Investment’s Pty Limited (Third Defendant)
Kola Investments Pty Limited (Fourth Defendant)

Representation:

Counsel:
Mr G Sirtes SC with Mr M Fernandes (Plaintiff)
Mr J Dooley (Defendant)

  Solicitors:
Simone Legal (Plaintiff)
Lazarus Legal (Defendants)

File Number(s):

2016/344069

Publication restriction:

None

 Decision under appeal 

Court or tribunal:

Local Court of NSW

Jurisdiction:

Civil

Citation:

--

Date of Decision:

07 June 2016

Before:

Bradd LCM

File Number(s):

2015/11382

Judgment

1. In January 2015 Mechelle Kola, her husband Konstantin Kola, Corema Pty Limited as trustee of the Kola Discretionary Trust, Triple Crown Investments Pty Limited and Kola Investments Pty Limited brought proceedings in the Local Court to recover some $100,021.24 from a solicitor, Michael Simone, then trading as Simone Legal. That sum was a part of $142,000 earlier deposited into Mr Simone’s trust account.

2. In 2013 Mr Kola became a bankrupt and his trustees in bankruptcy, Antony De Vries and David Solomons, were joined as defendants. He is now no longer a bankrupt.

3. Mr Simone brought a cross-claim against Mrs Kola, seeking payment of his assessed fees of having acted for her, Mr Kola and another of their companies, Oasis Developments Pty Limited, in proceedings brought in the Equity Division of this Court. Neither Mr Kola nor Oasis was a party to the cross-claim. Oasis was by then deregistered.

4. In issue in the Local Court was the purpose for which the moneys were held by Mr Simone in his trust account and whether he was entitled to use those funds, as he did, to pay the assessed costs and disbursements owed to him in respect of the Equity Division proceedings. Whether, if orders were made in favour of the defendants in relation to the trust funds, orders should be made against Mrs Kola, in relation to those assessed costs on the cross-claim, was also in issue.

5. Bradd LCM gave judgment in favour of Mrs Kola and the corporate defendants in Kola v Simone (Local Court (NSW), Bradd LCM, 7 June 2016, unrep). Final orders were made on 8 November 2016, but no orders were made in favour of Mr Simone in relation to the assessed costs, despite his Honour having earlier concluded that the assessment was legally binding on Mrs Kola.

6. I stayed the Local Court orders in Simone v Kola [2016] NSWSC 1778, it becoming apparent that his Honour had fallen into relevant legal and other error.

7. Section 39(1) of the Local Court Act 2007 (NSW) provides for an appeal as of right to this Court on a question of law. Section 40(1) permits a party to appeal on a question of mixed fact and law, with the leave of this Court.

8. There was finally no issue between the parties as to the inadequacy of the reasons given and that his Honour had made various errors. In the result, there was also no issue that leave to extend time to appeal and leave to appeal should be granted. Their common position was also that if the appeal was upheld, the matter did not require further hearing in the Local Court.

9. For reasons which I will explain, I have concluded that the appeal must be upheld, the Local Court’s orders set aside and orders made in favour of Mr Simone. That is because on all of the evidence, contrary to his Honour’s conclusions, the defendants in these proceedings failed to prove their case at trial; Mr Simone proved his case against Mrs Kola on the cross-claim; and on appeal, the defendants did not establish a basis for affirming the Local Court’s judgment on the matters for which they then contended.

The appeal did not raise matters not argued in the Local Court

10. The appeal was pressed on the basis of various errors of fact and law identified in the grounds to be:

“1   The Court below erred in law by finding that the Plaintiff did not comply with Regulation 88(4) of the Legal Profession Regulations 2005 (NSW) ("Regulations") because the practice has not given the First Defendant "a bill relating to the money" within the meaning of Regulation 88(4)(b) of the Regulations.

2   The Court should have held that the Plaintiff complied with regulation 88(4) of the Regulations because the cost assessor's Certificate of Assessment constituted "a bill relating to the money" within the meaning of Regulation 88(4)(a) of the Regulations.

3   The Court below erred in law in finding that the Plaintiff did not comply with section 88(3) of the Regulations merely because:

a.   there were no "instructions that have been received by the practice and that authorises the withdrawal" within the meaning of regulation 88(3)(a)(ii) of the Regulations; and

b.   there was no "request for payment" within the meaning of regulation 88(3)(b) of the Regulations.

4   The Court below should have held that the Plaintiff complied with Regulation 88(3) of the Regulations as:

a.   the Plaintiff had received 'instructions that have been received by the practice" within the meaning of regulation 88(3)(b) of the Regulations as:

i   the express purpose of the loan between Graziano De Bortoli, Frank Gelonesi and, amongst others, the First Defendant herein included paying the Plaintiff's legal fees; or

li.    the First Defendant signed an authority dated 22 November 2013.

b    the costs assessor's Certificate of Assessment was a "request for payment' within the meaning of Regulation 88(3)(b) of the Regulations.

5.   The Court below erred in law in finding that there had been unjust enrichment through illegality because the Plaintiff withdrew money from the trust account.

6.   The Court should have held that the Plaintiff’s withdrawal of the money was not illegal.

7.   The Court below erred in law in finding that the Plaintiff had been unjustly enriched because the Court failed to consider that the Plaintiff had done extensive legal work for amongst others the First Defendant for which the Plaintiff had not been paid.

8.   The Court below erred in law in holding that the Plaintiff could not set-off the amount owing by one of the Defendants.

9.   The Court below should have held that:

a.    the fund was jointly owned as joint tenants such that each of the Defendants was entitled to all of the money

b.   the Plaintiff could, accordingly set-off the amount owing by one of the Defendants as such Defendant owned the entirety of the funds.”

11. By a notice of contention filed in December 2016 the defendants contended that the Local Court’s decision should be affirmed on other grounds. The notice provided:

“1.   The Court below erred in finding that the trust money was and is held for Konstantin Kola, Mechelle Kola and Oasis Developments Pty Ltd.

2.   As to paragraph 1 above, the Court below should have found that the trust money was and is held for the defendants.

3.   The Court below erred in finding that the trust money was received from Konstantin Kola, Mechelle Kola and Oasis Developments Pty Ltd.

4.   As to paragraph 3 above, the Court below should have found that the trust money was received by the plaintiff on behalf of the defendants.

5.   The Court below erred in finding that the plaintiff could only disburse the money received in accordance with a direction given by Konstantin Kola, Mechelle Kola and Oasis Developments Pty Ltd.

6.   The Court below erred in finding that the plaintiff required instructions from Konstantin Kola, Mechelle Kola and Oasis Developments Pty Ltd once the money was held in the trust account

7.   As to paragraphs 5 and 6 above, the Court below should have found that the plaintiff could only disburse the money in the trust account in accordance with instructions given by the defendants or otherwise in accordance with the legislation and regulation.”

12. Despite what was advanced in the notice of contention, in the defendants’ March 2017 written submissions it was argued at [52] - [58] that the grounds of appeal raised a point not argued in the Local Court, about which they could have called evidence which would have prevented the point from succeeding, namely, in relation to the beneficial ownership of the trust money: see Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438.

13. There is no doubt that the case below could have been conducted differently than it was by the defendants. Mrs Kola, who, unlike Mr Kola, was a director of Oasis and of the corporate defendants, did not give evidence. Nor did the defendants call evidence from other obvious witnesses, such as Mr Gelonesi, one of the two lenders who had loaned them the funds, part of which they deposited into Mr Simone’s trust account. Nor did they call evidence from their solicitor on that transaction, Mr D’Agostino, as to instructions which he was given.

14. As the defendants submitted, they each could have given relevant evidence on what was in issue at trial, including for example, in relation to the arrangements, if any, made as between Mr and Mrs Kola, Oasis and the corporate defendants, in relation to the borrowings. Mrs Kola, who unlike Mr Kola was a director of the corporate defendants and Oasis, could also have given evidence as to what the defendants intended be done with the borrowed money paid into Mr Simone’s trust account.

15. However, given the matters which the parties’ pleaded cases respectively raised, when considered together with what the parties actually joined issue over at the trial and which his Honour was called on to decide, which I will discuss below, I am satisfied that no Suttor v Gundowda point arises in this case.

The proceedings in the Local Court

16. It was in February 2012 that Mr and Mrs Kola and the defendant companies had jointly and severally borrowed $900,000 from their accountant, Mr De Bortoli and Mr Gelonesi, another accountant.

17. In the amended statement of claim it was wrongly pleaded that Mr Simone had acted for the borrowers who made the payment into his trust account, on the loan transaction. It was also incorrectly pleaded that the defendants had instructed Mr Simone to “disburse the loan funds” in identified amounts to the Commonwealth Bank, Mr Monti (another solicitor who had acted for Mr Kola) and to the defendants.

18. By trial, it was common ground that it was Mr D’Agostino who had acted for the borrowers; that Mr Simone had acted for the lenders; that it was only $142,000 of the borrowings which had been paid into Mr Simone’s trust account; and that some of it was later paid to Mr Monti. The purpose of the payment made to Mr Simone still remained in issue.

19. The case as opened for the defendants in the Local Court was that Mr Simone had acted for Mr and Mrs Kola and Oasis. It was not then suggested that he had acted for the defendants, nor was that put to Mr Simone in cross-examination, it was accepted on this appeal. As opened in the Local Court, it was identified that:

“The case boils down to two matters; the first is whether the first defendant was able to transfer money that was put into his account on behalf of the five borrowers, being Mr Kola, Ms Kola and the three corporate plaintiffs, but he was able to use that amount to pay legal costs owed to him by Mr Kola and Ms Kola, and the different corporate entity, being Oasis, in circumstances where the three corporate plaintiffs, Corema, Triple Crowne and Kola Investments and(sic) no liability to pay any money to Mr Simone.

The plaintiffs contend that he was not entitled to do that. The plaintiffs contend that in doing so, he breached the Legal Profession Act and the Legal Profession regulation and I’ll take your Honour to those sections in due course, but I can briefly note that I’ll be referring in my submissions to s 255 of the Legal Profession Act, s 261 and Regulation 88 of the Legal Profession Regulation 2005. My clients contend that because he breached those sections and regulation, my clients have an action for money they hadn’t(sic) received against the first defendant for a refund of the money that he transferred out of his trust account.

If that submission is accepted, your Honour will need to determine whether the first defendant is entitled to set off the requirement on him to repay the money to the plaintiffs against the debt that Mechelle Kola, Oasis and Mr Kola owe the first defendant pursuant to the costs certificate issued on 15 April 2013. My clients contend that a set off can only occur whether(sic) there’s a mutual debt between the plaintiffs and the defendant, and here, the debts weren’t mutual because the parties are different.

As I apprehend it, the first defendant also contends that the Local Court does not have jurisdiction to hear a restitutionary claim, and I’ll be submitting to your Honour in due course that it does.”

20. What appeared in the agreed statement of facts and issues on which the case proceeded, as well as the evidence which the defendants themselves led, departed in significant ways from their pleaded case. In fact, much of what was agreed accorded with Mr Simone’s evidence.

21. There was no issue that the Equity Division proceedings in which Mr Simone had acted for Mr and Mrs Kola and Oasis were settled in 2012. Mr Simone had also acted on other matters, which it is not necessary here to explain.

22. There was no written costs agreement entered in respect of the Equity Division proceedings. There was a dispute over the bill which Mr Simone provided in 2012, with the result that Mr Simone’s costs were later assessed and a certificate issued in his favour. It was Mr Monti who acted for Mr and Mrs Kola and Oasis on that assessment. It was then contended that Mr Simone had not acted for Mrs Kola. That was not accepted in the costs assessor’s reasons for determination.

23. The outcome of the assessment was not challenged, nor was the amount later certified as remaining outstanding disputed. That amount was what Mr Simone later transferred out of funds which then still remained in his trust account, after the payment earlier made to Mr Monti.

24. While Mr Kola gave evidence, neither Mrs Kola, their daughter Ms Kola, who had also been a director of Oasis, Mr D’Agostino, Mr Gelonesi, nor Mr Monti, were called to give evidence. Thus, obvious Jones v Dunkel inferences arose to be considered. Mr Kola’s credibility was also in issue.

25. Mr Simone and his wife both gave evidence and he also called evidence from the other lender and the defendants’ accountant, Mr De Bortoli, who gave evidence supportive of Mr Simone’s case. Mr De Bortoli’s evidence included for example, that he had advised Mr Kola that he would have enough money “to pay your legals”: judgment at [23]. Mr Simone’s credibility was, however, also in issue.

26. The loan agreement identified that the purpose of the loan was “attending to the payment of business expenses.” Whose expenses they were, was not there identified, but it was accepted for the defendants on this appeal, that there was no evidence that any business expenses in which all of the defendants had an interest, in fact existed. That accorded with the evidence that the borrowings were used for various other purposes, including in February 2012, the payment of $728,000 to “compromise a dispute between the Commonwealth Bank and Mr Kola”: judgment at [20], as well as the payment made to Mr Monti.

27. It was in March 2012 that Mr Simone advised that his outstanding fees and disbursements for the Equity Division proceedings were in the vicinity of $100,000. He then provided Mr and Mrs Kola and Oasis with a final bill for $167,814.57, including counsel’s fees. There was a dispute over those costs. There was, however, no dispute that later $41,978.76 was later paid to Mr Monti out of the money Mr Simone held in trust, for fees which the defendants accepted that Mr Kola owed him. After Mr Monti was paid, $100,021.24 remained in Mr Simone’s trust account.

28. However, on 9 March 2012, on Mr Kola’s instruction, Mr D’Agostino wrote to Mr Simone asking for a bank cheque for $142,000 in favour of Mr and Mrs Kola. Mr Kola was not a director of Oasis, or of the defendant companies. Mr Simone refused to comply with that direction. Indeed, given the payment made to Mr Monti, Mr Simone could not have complied with it, even had it been proper for him to do so.

29. In November 2012 Mr Kola made a complaint about Mr Simone to the Legal Services Commission, which was dismissed, after written advice was given by Mr De Bortoli that the funds Mr Simone held in trust were held in accordance with his instructions and “for the specific purpose of attending the payment of outstanding legal costs, disbursements and other expenses”. Oasis was deregistered in November 2012 and Mr Kola became a bankrupt in April 2013.

30. It was also in April 2013, that the costs determination was issued for $126,933.98 costs and disbursements. $81,414.98 costs and disbursements was then still outstanding. On 15 April 2013 a costs certificate in that amount was issued in favour of Mr Simone. That was reflected in the order which he finally pressed on the cross-claim against Mrs Kola.

31. There was subsequent correspondence between Mr Simone and Mr Monti. The costs determination was finally not appealed and it was on 1 October 2013 that Mr Simone transferred the sum certified from his trust account, in reliance on the certificate and on his case, in accordance with the requirements of the Legal Profession Act2004 (NSW) and the Legal Profession Regulations 2005 (NSW). The legality of this transfer was in issue.

20. On 22 November 2013, however, a written authority was signed by Mr and Mrs Kola, as well as by Ms Kola on behalf of Oasis, and provided to Mr Simone. It provided that:

“You are hereby authorised and directed to pay the balance of monies retained in your trust account after deducting costs and disbursements as assessed by the court to GDC tax trust account.”

33. On 13 December 2013 Mr Monti sent Mr Simone the somewhat contradictory advice that:

“Dear Michael

I refer to my recent correspondence dated 9 December 2013 requesting a copy of the trust ledger and note with concern that I have not been afforded the courtesy of a reply.

I now repeat that request and require production of the trust account records without delay.

In addition to the above, as I understand matters, costs and disbursements were assessed in the sum of $126,933.98.

My client was credited with payment of costs and disbursements totalling $45,519.00.

I calculate the balance payable to you for costs and disbursements in the sum of $81,414.98.

The balance after deducting the assessed unpaid fees is $16,887.26

This email should not be taken as constituting an authority for you to account to yourself for fees.

The funds held by you in trust were held on instructions by your client on the specific basis that they were to be utilised in the payment of costs and disbursements.

You are hereby directed to pay Messrs Graziano Debortoli and Frank Gelonesi (the Lenders) the sum of $16,887.26.

I have also advised my client that the loan principal shall therefore be reduced by $16.887.26, and that interest be recalculated and reduced in accordance with the reduced outstanding loan amount.

Kindly confirm payment to the lenders by return.”

34. The $45,519.00 referred to the payment made to Mr Monti for the fees which Mr Kola had owed him.

35. In September 2014, yet another solicitor, then acting for the defendants, wrote to Mr Simone claiming that $700,000 had been disbursed to the CBA, $42,000 to Mr and Mrs Kola; that Mr Simone held $158,000 in trust, which belonged to the defendants; and that the defendant companies were not parties to the costs assessment. It was then demanded that $158,000 be paid to the defendants. Allegations of breaches of professional obligations and threats of complaints to the Law Society were then advanced.

36. Those demands contradicted both the November 2013 authority and what Mr Monti had advised in December 2013.

37. It was only in 2016 that Mr and Mrs Kola and the defendant companies brought the Local Court proceedings.

38. The sum pursued in the amended statement of claim was for $100,021.24. That claim was disputed, but in the event that the defendants were successful in whole or in part, by his cross-claim Mr Simone sought an order in his favour for $126,933.98, or so much as was found still to be due and payable to him. That claim reflected the result of the assessment of Mr Simone’s disputed bill for acting for Mr and Mrs Kola and Oasis in the Equity proceedings.

The parties’ cases in the Local Court

39. In the Local Court the parties relied on the statement of agreed facts and issues, which identified the issues to be:

“22. Whether Mr Simone complied “with reg 88 of the Legal Profession Regulation 2005 (NSW) when accounting for the amount set out in the Certificate of Determination by drawing on the money held in his trust account? If not, does the failure to comply give rise to an obligation to pay the amount to the Plaintiffs.”

23.   Was Mr Simone “otherwise entitled to account for the amount set out in the Certificate of Determination of Costs from the money he held in his trust account?”

24.   Does the Local Court of New South Wales have jurisdiction in restitution and if so is Mr Simone “liable to give restitution to the Plaintiffs in an action for money had and received?

25.   If Mr Simone “is required to pay the amount to the Plaintiffs”, does he “have an equal and offsetting claim against any of the plaintiffs arising from the Certificate of Determination?””

40. The defendants’ written submissions addressed the requirements of the legislative scheme and contended that the money paid into trust had been advanced by Mr and Mrs Kola and the corporate defendants, but had wrongly been used by Mr Simone to pay the certified fees which Mr and Mrs Kola and Oasis owed him, despite the common parties being Mr and Mrs Kola. In accordance with s 255 and regulation 88, the money was argued to have been held exclusively for Mr and Mrs Kola and the corporate defendants. In the result it could not be withdrawn to pay the fees which Mr and Mrs Kola and Oasis owed Mr Simone.

41. It was argued that no bill had been provided to Mr and Mrs Kola and the corporate defendants, which would have permitted any withdrawal from trust. Nor was there any amount legally payable by them to Mr Simone. While under s 368(5) the costs certificate had the effect of a judgment against Mr and Mrs Kola and Oasis, those fees were not legally payable by Mr and Mrs Kola and the corporate defendants. There was thus no basis on which Mr Simone could have used those funds to satisfy the amount he was owed under the costs certificate.

42. The Local Court having jurisdiction under s 29A of the Local Court Act to hear any “money claim”, the order which the defendants sought could thus be made: Albanis v Eleftheriou [2014] NSWSC 416 at [27] - [28]; Ji v Firth [2013] NSWSC 186. That order would require Mr Simone to give the defendants restitution.

43. While s 21 of the Civil Procedure Act 2005 (NSW) provided for a defendant’s right of set off, that did not arise here, because there was no requisite mutuality of debts: Equititrust Ltd v Franks [2009] NSWCA 128 at [51]. The corporate defendants had no liability for those costs, it was claimed, having no debt to Mr Simone. That was despite filing the costs certificate having force as a judgment against Mrs Kola and Oasis and possibly Mr Kola’s trustees in bankruptcy. In the result, the orders which the defendants sought had to be made.

44. As to the cross-claim, it was argued that it articulated no cause of action and that it was otiose, following the determination of the costs assessment in Mr Simone’s favour against Mrs Kola.

45. Mr Simone’s case was that the defendants’ case had to fail, given that the purposes of the loan agreement and the payment into his trust account, included payment of his legal fees. He had written authorities Mrs Kola had provided, authorising withdrawals he had made from trust, including in relation to the certified fees. Further, the withdrawal was made in accordance with the requirements of the Legal Profession Act and Regulations, with the result that there had been no unjust enrichment on his part. In the result there would be no order of restitution: Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 at [29] - [30].

46. Mr Simone contended that the proper inference from all of the evidence was that the disputed money was put into his trust account, rather than into Mr D’Agostino’s trust account, so that he could be paid for the work he had performed in the Equity Division proceedings for Mr and Mrs Kola and Oasis.

47. In response, the corporate defendants contended that a trust account was “sacred” and that any deliberate use of clients’ money for a purpose other than that for which it was entrusted to the practitioner, involved an act of dishonesty: Barwick v Council of the Law Society of New South Wales [2004] NSWCA 32 at [117] - [118].

48. In order for the trust money to be disbursed as it was, Mr Simone thus required the prior instructions of Mr and Mrs Kola and the corporate defendants. Payment of the fees owed by Mr and Mrs Kola and Oasis was not an express purpose of the loan and was otherwise contrary to the evidence as to the purpose of the payment they had made into trust. In any event, the requirements of the Regulations had not been engaged.

The Local Court judgment

49. Bradd LCM began his judgment with matters of background, finding that Mr De Bortoli and Mr Gelonesi had loaned Mr and Mrs Kola and the corporate defendants some $900,000. $785,000 was used to pay a debt owed to the CBA and $142,000 was paid into Mr Simone’s trust account.

50. Earlier Mr Simone had acted for Mr and Mrs Kola and Oasis, in the Equity Division proceedings, in respect of which Mr Simone had issued a bill. Those costs were assessed, with the result that he had eventually transferred $81,414.98 from his trust account to, it must be inferred, his office account.

51. The issues which his Honour identified the plaintiffs had pursued were whether Mr Simone:

“(1)   Was able to transfer $81,414.96 from the trust account to pay legal costs owed to him by Mr Kola and Ms Kola, Oasis, in circumstances where Corema, Triple Crowne and Kola Investments had no liability to pay any money to Simone Legal.

(2) breached section 255 of the Legal Profession Act 2004 and Regulation 88 of the Legal Profession Regulation 2005

(a)   The plaintiffs' claims an action for money they have not received against Simone Legal for a refund of the money that was transferred out of the trust account.

(b)   The issue that arises is whether Simone Legal is entitled to set off the requirement to repay the money to the plaintiffs against the debt that Mechelle Kola, Oasis and Mr Kola owe Simone Legal pursuant to the costs certificate issued on 15 April 2013.

(c)   The plaintiffs contend that a set off can only occur where there's a mutual debt between the plaintiffs and the defendant, and here, the debts weren't mutual because the parties are different.”

52. After outlining what he understood Mr Simone’s case to be, his Honour noted the adverse inferences which Mr Simone argued should be drawn from Mrs Kola’s failure to give evidence and the issue of credibility arising in relation to Mr Kola. He also noted arguments advanced in relation to the claim for money had and received. His Honour then turned to the provisions of the Legal Profession Act and the Legal Profession Regulations, from which he quoted.

53. At [19], his Honour concluded that under s 255(1) of the Legal ProfessionAct, the trust money was held for Mr and Mrs Kola and Oasis, from whom it was received and that it could only be disbursed in accordance with a direction which they gave.

54. His Honour concluded that under s 261(1)(b) of the Legal Profession Act, Mr Simone could only withdraw money from the trust account, if the relevant procedures and requirements prescribed by the Act and Regulations were complied with. That, his Honour held at [20] identified the “relevant questions” to be whether Simone Legal:

“(1)   Before withdrawing the money sent a request to Konstantin Kola, Mechelle Kola and Oasis a request for payment. If it did

(2)   withdrew the money in accordance with instructions received that authorised the withdrawal, or

(3)   was owed the money by way of reimbursement of money already paid by it on behalf of Konstantin Kola, Mechelle Kola, and Oasis, and

(4)   it had debited the account.”

55. Under the heading “Had Simone Legal sent a request for payment” his Honour concluded that the evidence did not establish that there had been a written request for payment of the $81,414.96 and that Mr Simone had not given a bill “relating to the money”, as required by regulation 88(4)(a), prior to it becoming legally payable and withdrawn from the trust account: at [21] - [22].

56. His Honour then turned to “Submissions for Defendant”.

57. His Honour discussed the evidence given by Mr De Bortoli at [23] - [24], finding that “the instructions are to pay $142,000 into the trust account” and that Mr De Bortoli had advised the Office of the Legal Services Commissioner that “the funds were provided for the specific purpose of attending to payment of outstanding legal costs, disbursements and other expenses”.

58. At [24], his Honour also concluded, however, that “Simone Legal required instruction from Konstantin Kola, Mechelle Kola and Oasis once the money was held in the trust account”. At [25], his Honour concluded that no adverse inference could be drawn from the failure to call evidence from Mrs Kola, Mr D’Agostino and Mr Monti. At [26], references were made to authorities Mrs Kola had provided in 2011, in relation to the payment later made to Mr Monti, before the $142,000 deposit into trust was made. His Honour made no reference, however, to the further authority provided in 2013 after Mr Simone’s costs were assessed.

59. At [27], his Honour concluded that once the costs certificate was issued, the money owed to Mr Simone became payable and that the certificate could have been filed under s 368(5) of the Legal Profession Act. Despite also finding that the costs assessment was legally binding on Mr and Mrs Kola and Oasis, his Honour then concluded, that it “did not however allow Simone Legal to withdraw money from the trust account, thereby circumvent(sic) the legislation”.

60. His Honour then dealt with the claim for money had and received and unjust enrichment, concluding that the withdrawal of the money from the trust account had led to Mr Simone becoming unjustly enriched, given that he illegally withdrew money from the trust account of Mr and Mrs Kola and the corporate defendants, in order to pay legal fees which Mr and Mrs Kola and Oasis owed him: at [31].

61. His Honour then turned to the cross-claim. His Honour held at [32] that:

“Simone Legal claims $126,933.98. The submission on behalf of the cross-claimant is for an equivalent to the costs assessment of $81,414.98 against Mechelle Kola as the money deposited into the trust account is jointly owned. The difficulty with the cross-claimants submission is that the money is owned by Mechelle Kola, Konstantin Kola, Corema, Triple Crowne and Kola Investments, whereas the costs assessment is against Mechelle Kola, Konstantin Kola and Oasis. Simone Legal must comply with the legislation before withdrawing from the trust account.”

62. His Honour then held at [33] – [35]:

“Set off

33   The submission by the first defendant for set-off suffers from the same flaw as its submission with respect to the cross-claim.

Claim

34   The claim is for $100,021.24. The plaintiffs' seek 80% of the amount, acknowledging that Konstantin Kola, an undischarged bankrupt is the owner of 20% of the money. If it is accepted that Mechelle Kola is liable for one-third of the amount of the costs assessment, the plaintiffs seek 60% of the amount being 20% each for Corema, Triple Crowne and Kola investments.

35   The parties may be heard as to:

(1)   The judgment sum;

(2)   Pre-judgment interest; and

(3)   Costs.”

63. There was also a dispute as to the orders which should be made, about which his Honour reserved. No reasons were given for the orders later made in November. They were:

“TERMS OF JUDGMENT/ORDER

Judgment:

Michael Simone trading as Simone Legal (ABN 41 050 380 475), First Defendant

ANTONY DE VRlES (in his capacity as trustee of the bankrupt estate of Konstantin Kola), Second Defendant

DAVID SOLOMONS (in his capacity as trustee of the bankrupt estate of Konstantin Kola), Third Defendant

are to pay

Mechelle Kola, Second Plaintiff

Corema Pty Limited (ACN 063 603 314) as trustee of the Kola Discretionary Trust, Third Plaintiff

Triple Crowne Investments Pty Limited (ACN 128 213 669), Fourth Plaintiff

Kola Investments Pty Limited (ACN 074 755 374), Fifth Plaintiff

the sum of

Claim amount: $80016.99

Interest claimed: $24645.87

Filing fees: $0.00

Service fees: $0.00

Solicitors fees: $0.00

Other costs: $0.00

TOTAL: $104662 86

Defendant is to pay the costs of the Plaintiff on an ordinary basis as agreed or assessed.”

64. How Mr Kola’s trustees in bankruptcy, who filed submitting appearances and against whom no orders were sought, could have been ordered to make any payment to Mrs Kola and the corporate defendants, is not apparent. Nor, as the parties agreed, does his Honour appear to have grappled with the matters over which they joined issue in relation to the costs of the proceedings.

65. As was common ground, it follows that his Honour fell into various relevant errors.

Was the money paid into Mr Simone’s trust account in order to pay his fees?

What the defendants had to establish

66. The onus of establishing the purpose for which the money was paid into Mr Simone’s trust account, fell on the defendants. As discussed in Geyer v Redeland Pty Limited [2013] NSWCA 338 at [54], there in the context of a claim as to negligence, rather than dishonesty:

“A finding on the balance of probabilities involves a finding of a probability greater than 50 per cent. Whether or not a court is so satisfied will depend upon the whole of the evidence. Relevantly, a plaintiff bears the onus of satisfying a tribunal of fact, on the balance of probabilities, that a defendant was negligent. The evidence may give rise to more than one possibility, but in that circumstance, the principle is the same. For the plaintiff to succeed, the tribunal of fact must be satisfied on the balance of probabilities of facts that will establish liability in the defendant.”

67. The way in which the case against Mr Simone was advanced, was that he had deliberately used the defendants’ money for a purpose other than that for which it was entrusted to him, that involving dishonesty on his part. The defendants’ case depended on Mr Kola’s evidence. Whether they had met the onus which fell upon them had to be determined in accordance with, s 140(2) of the Evidence Act 1995 (NSW), which required that consideration be given to:

“(a) the nature of the cause of action or defence, and

(b) the nature of the subject-matter of the proceeding, and

(c) the gravity of the matters alleged”.

68. A conclusion that their onus had been met thus required that Mr Kola’s evidence be preferred on critical matters over that of Mr Simone, despite the defendants’ departure from their pleaded case; their failure to call evidence from relevant witnesses; the matters which were agreed at trial, which supported aspects of Mr Simone’s evidence; and how relevant parts of his evidence were supported by that called from Mr De Bortoli. Account also had to be taken of documentary evidence which supported aspects of Mr Simone’s evidence.

69. Mr Kola’s oral evidence, by way of contrast, departed in various ways, not only from the defendants’ pleaded case, but also from aspects of his own affidavit evidence. It was not only contradicted by the evidence given by Mr Simone; but also by parts of the agreed facts; by the evidence of Mr De Bortoli; and by documents, including the November 2013 authority.

70. Mr Kola did not, for example, adhere to his affidavit evidence that he had instructed Mr Simone to pay $758,000 to the CBA and $142,000 to Mr D’Agostino. In cross-examination Mr Kola agreed that Mr D’Agostino had acted on the loan, but he said that he had assumed Mr Simone’s costs would be $30,000 to $40,000; that he intended to use part of the borrowings to pay his other bills and to get back on his feet “until we got jobs or whatever”; that he then knew that fees were outstanding to Mr Simone, but not how much; and that he could not remember directing the lenders, or Mr D’Agostino to pay any of the borrowings to Mr Simone. Mr Kola insisted that it was not intended that any of those funds would be used to pay Mr Simone.

71. Mr Simone’s evidence was that having advised Mr Kola that the borrowers required independent advice, Mr D’Agostino had been retained by the defendants. He then negotiated changes to the agreement Mr Simone had drafted. A property owned by the defendant companies was used to secure the loan, but it was intended that part of the borrowings would be used to pay his outstanding fees for the Equity Division proceedings.

72. It was also Mr Simone’s evidence that he and Mr Kola had discussed that the amount borrowed would cover his outstanding fees, with money left over. Consistently with such a discussion, after settlement, Mr Simone was provided with the cheque signed by the lenders for $142,000, which he placed into trust. Mr Simone denied having received instructions from Mr Kola to pay that sum to Mr D’Agostino.

68. It was Mr Simone who called Mr De Bortoli. His evidence was that it was he who had given Mr Simone the instruction to place the money into trust, after discussing with Mr Kola that the advance could be used to settle with the CBA and to pay his legal fees and other creditors. Mr De Bortoli explained that he wanted the money he loaned to be paid into trust, so that it would be directed to “the right people”, although he accepted that at the end of the day he could not control what was done with the borrowings.

69. The payment for Mr Simone’s fees out of trust followed the payment made to Mr Monti and the assessment of the costs of the Equity Division proceedings in Mr Simone’s favour.

Jones v Dunkel inferences

75. As discussed in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17at [166], given the gravity of what was alleged against Mr Simone, it was also necessary for the evidence which was led to be weighed “according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted".

76. Account thus had to be taken of the defendants’ failure to lead evidence from Mrs Kola and the others who they identified on appeal, as being in a position to have shed light on what lay in issue.

77. In the circumstances, the absence of evidence called from Mrs Kola, given her position as a director of both Oasis and the corporate defendants, to corroborate Mr Kola’s evidence and contradict that given by Mr Simone, raised Jones v Dunkel considerations. Those principles are concerned with a party’s unexplained failure to give evidence or call a witness, where it would be natural for that evidence to be led, or where the party might reasonably be expected to lead that evidence.

78. Their operation was explained in RHG Mortgage Limited v Rosario Ianni [2015] NSWCA 56 at [75] - [96]. The three relevant considerations are: first, that the missing witness would be expected to be called by one party rather than the other; secondly, that this evidence would elucidate a particular matter; and thirdly, that the absence is unexplained.

79. When those conditions are satisfied, the inference that the evidence would not have helped the party’s case may be drawn and used in two ways. First, in deciding whether to accept any other evidence given, whether for or against that party, which relates to a matter about which the person not called could have given evidence. Secondly, in deciding whether or not to draw inferences of fact which are open, about matters that person could have given evidence about.

80. The operation of the principle was also discussed in Hellicar, where reference was made at [166] to:

“Lord Mansfield's dictum in Blatch v Archer that "[i]t is certainly a maxim that all evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted" is not to be understood as countenancing any departure from any of these rules. Indeed, in Blatch v Archer itself, Lord Mansfield concluded that the maxim was not engaged for "it would have been very improper to have called" the person whose account of events was not available to the court.” [footnotes omitted]

81. In this case there was clearly no impropriety in Mrs Kola giving evidence, she being one the defendants, as well as one of Mr Simone’s clients and liable to him in respect of the certified costs, if the defendants’ case succeeded. Nor was there an explanation given for her absence.

82. His Honour erred in failing to take this into account, when concluding that Mr Kola’s evidence had to be accepted.

Mr Simone did not act for the corporate defendants

83. On this appeal, while not pleaded or dealt with in the agreed statement of facts, on the defendants’ case Mr Simone had also acted for the defendant companies. That was not put to Mr Simone in cross-examination, nor otherwise sought to be established in the Local Court.

84. There the case was advanced in the way discussed at [19].

85. The defendants’ submissions on this appeal also sought to draw a distinction between the position of those who they described as having been “the Oasis parties”, for whom Mr Simone had acted in the Equity proceedings, namely Mr and Mrs Kola and Oasis and that of the borrowers of the funds he held in trust, who they described as “the Borrowers”. They were Mr and Mrs Kola and the defendant companies.

86. The case so advanced paid insufficient attention to the position of Mr and Mrs Kola. That they were both “Oasis parties” and “Borrowers” had to be taken into account, when the issue as to what “the Borrowers” had intended, when they made the payment into Mr Simone’s trust account, was resolved. So too did the fact that Mr Kola was not a director of Oasis, or the corporate defendants and that he became a bankrupt.

87. The evidence suggested that it was he who was the guiding mind of all of the companies, at least until his bankruptcy. Mrs Kola, a director of all of the companies, unarguably could have also given evidence about that.

The funds were deposited into Mr Simone’s trust account so that the fees which Mr and Mrs Kola and Oasis owed him, could be met

88. The purpose for which the funds were deposited into Mr Simone’s trust account had to be inferred from the evidence as to the language which the parties’ employed, the nature of the transaction and the relevant circumstances as to the relationship between them, as well as the outward manifestations of their intentions: Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491 at 503 and Byrnes v Kendle (2011) 243 CLR 253; [2011] HCA 26 at [53] - [59]; [102] - [115].

89. On this appeal the defendants case relied on Mr Simone accepting, in his cross-examination, that:

“Q. But the money was advanced pursuant to the loan agreement?

A. Yes.

Q. The borrowers, you'd accept, are Mr Kola, Ms Kola and the three corporate entities?

A. That's right.

Q. The money was held in your trust account on their behalf?

A. Yeah, I guess so.

Q. Would you accept that section 255 of the Legal Profession Act provides that, "A law practice must (a) hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received"?

A. Yeah, I won't argue with that. I can't say that I've read that section but I'll accept that.

Q. Would you like to have a look at it?

A. No, I accept what you say.

Q. I don't mean to be unfair to you.

A. No, it's okay. I know you wouldn't mislead me.

Q. Would you accept that you held the money exclusively on behalf of Mr Kola, Ms Kola, Corema Pty Ltd, Triple Crowne Pty Ltd and Kola Investments Pty Ltd?

A. Yeah.

Q. You're aware that you can only withdraw trust money to pay your legal fees in accordance with the Legal Profession Act, as at that time anyway, and the Legal Profession Regulation?

A. That's why I went through the cost assessment process.

Q. The cost assessment process was against Mr Kola, Ms Kola and Oasis Developments Pty Ltd?

A. Yes.

Q. It wasn't against Corema, Kola Investments or Triple Crowne?

A. No.

Q. Those three corporate entities owed you no money?

A. Yes.”

90. Whether all of those concessions were correctly made was in issue, given all that the evidence had otherwise revealed. They did not, however, preclude the inference which otherwise arose on all of the evidence being drawn, as to what was intended by the payment made to Mr Simone. That had to be resolved by all of the “outward manifestations” of the defendants’ intentions, not on Mr Simone’s understanding that it was the defendants who owned the funds they had borrowed and that the corporate defendants did not owe him any money.

91. I am satisfied that the payment of $142,000 by Mr and Mrs Kola and the corporate defendants into Mr Simone’s trust account, so that the fees which Mr and Mrs Kola and Oasis owed him, could be met out of those funds, was established by the evidence.

92. Determination of the purpose for which that payment was made to Mr Simone, had to begin with the purpose for which the funds, part of which were paid to Mr Simone, were borrowed. That was revealed by the loan agreement, which referred to the borrowings being intended to meet “business expenses”. Whose they were, was not there identified.

93. The defendants’ contention that the proper inference was that the borrowings were intended to be used to meet their expenses, was simply not made out on the evidence.

94. First, it was an agreed fact that $780,000 of the borrowings was used to pay the CBA what had been agreed it would accept, to settle its dispute with Mr Kola. Further, as finally accepted in oral submissions on this appeal, there was no evidence that any expenses in which the defendants all had an interest, even existed. In the result, the inference that the borrowings were intended to be used to pay such expenses, could not be drawn. It follows that the defendants must have intended that the borrowings would be used to meet other business expenses.

95. As the defendants also accepted on this appeal, use of the borrowed funds to pay legal fees which Mr and Mrs Kola and Oasis owed, certainly involved the use of those funds for Mr and Mrs Kola’s “business expenses”, given that they were then each liable to pay Mr Simone’s fees for the Equity Division proceedings, as was Oasis.

96. It was the use to which the defendants actually put the borrowed funds, which established that they intended that part of them would be used to pay Mr Simone the fees which Mr and Mrs Kola and Oasis owed him.

97. It was $142,000 of those borrowings which was paid into Mr Simone’s trust account, Mr De Bortoli having advised Mr Kola that this sum would be sufficient to cover outstanding fees. As well as the fees owed to Mr Simone, Mr Kola also had Mr Monti’s fees to pay, for having acted for him on other matters. Those fees were also paid out of this $142,000. The defendants did not suggest that this involved any breach of trust.

98. That supported the conclusion that the defendants also intended that Mr Simone’s outstanding fees of acting for Mr and Mrs Kola and Oasis, would be met from those funds.

99. There was nothing precluding the defendants from giving those funds to Mr Simone for that purpose, or him from depositing the funds into his trust account, in order that they could be used to pay his fees, when rendered to Mr and Mrs Kola and Oasis, as the defendants intended. Mr and Mrs Kola were certainly entitled to do so. That Mrs Kola controlled the defendant companies, as well as Oasis, also supported the conclusion that the defendants intended to use part of the borrowings to pay the fees owed to Mr Simone.

100. Third parties such as the corporate defendants are also entitled to make such a payment to a solicitor such as Mr Simone: see Legal Profession Regulations, reg 61, discussed in Wexford Pty Ltd v Praveen Meckraj Doolub & Ors [2008] NSWSC 952. As there discussed at [54], “[p]rima facie where funds are paid into a solicitor’s trust account in the name of a particular client they become funds held on trust by the firm for that client”. Two of those clients were Mr and Mrs Kola. The other was Oasis.

101. That payment of Mr Simone’s outstanding fees using part of the borrowings was intended by the defendants, was also supported by the evidence that this had been discussed not only by Mr Simone and Mr Kola, but also by Mr Kola and Mr De Bortoli and Mr Kola and Mr D’Agostino, before the money was paid to Mr Simone. The defendants called no evidence from Mr D’Agostino, to contradict that inference, even though, contrary to the defendants’ pleaded case, it was an agreed fact that Mr and Mrs Kola and the defendant companies were represented by Mr D’Agostino on the loan transaction.

102. It was apparent from Mr Kola’s evidence, that like Mrs Kola, Mr D’Agostino could also have given evidence as to what was intended by the defendants, when the funds were paid to Mr Simone. That was put beyond doubt by Mr Kola’s evidence, at one point, that it was Mr D’Agostino who had told him to pay the money to Mr Simone.

103. That none of the borrowings were put into Mr D’Agostino’s trust account, as might be expected, given that it was he who had acted for the defendants on the loan transaction, also supported the inference that it was intended that the funds would be used to pay Mr Simone’s fees. It was no more expedient to have placed those funds into Mr Simone’s trust account, as was argued for the defendants on the appeal, than placing them into Mr D’Agostino’s account. So, too, did the fact that none of the borrowings was paid to the borrowers, as at one point Mr Kola also claimed he had directed.

104. The funds were paid into Mr Simone’s trust account, in accordance with instructions which Mr Kola plainly then gave the lenders and Mr D’Agostino, despite what he variously said in cross-examination, to different effect.

105. On all of this evidence it must be inferred that Mr Kola was acting as all of the defendants then intended. That makes irresistible the conclusion that what they intended was that the funds paid to Mr Simone, would be used to meet the fees he was owed for the Equity proceedings. That conclusion was also supported by Mr De Bortoli’s evidence as to the advice he had given Mr Kola, in relation to the amount of the borrowings being sufficient to pay the fees and even, finally, by aspects of Mr Kolas’ own evidence.

106. Mr Kola’s evidence was finally that it was Mr D’Agostino who had told him that the money should be going to Mr Simone. That was consistent with both Mr De Bortoli and Mr Simone’s understanding that the money was paid to Mr Simone, so that it could be used to pay his outstanding fees of the Equity proceedings.

107. It is also relevant to consider that after he received the funds, Mr Simone provided Mr and Mrs Kola and Oasis with his final bill for the costs of the Equity Division proceedings, in an amount of $167,814,57, including counsel’s fees. There was a dispute, with the result that in April 2013, the assessment of those costs resulted in a costs determination of $126,933.98 costs and disbursements. That left $81,414.96 outstanding, given what had already been paid. It was that sum which was reflected in the certificate later issued and the authorisation Mr and Mrs Kola and Oasis later gave Mr Simone, neither the assessment nor the certificate having been challenged.

108. That Mr and Mrs Kola and Oasis were bound to pay the fees which Mr Simone transferred, the assessor having concluded that they were the proper respondents to the application, not the other “Kola entities” for which the costs respondents had contended on the assessment, was not in issue.

109. That the withdrawal from trust accorded with what the defendants had intended, was confirmed by the authorisation which Mr and Mrs Kola, as well as Oasis later provided, when Mr Monti was acting for them. It is relevant to take into account that then there was no suggestion that Mr Simone had acted dishonestly. The case later advanced ion the Local Court to that effect, was inconsistent with the terms of the authority.

110. That was because the authorisation reflected an understanding at the time, on Mr and Mrs Kola’s part, that the money Mr Simone had held on trust and which he had used to pay the assessed fees he was owed, had been intended to be used to pay those fees.

111. While Mr Kola was then a bankrupt, that he gave that acknowledgement could not be ignored, especially given his evidence in cross-examination that at the time the funds were borrowed and the $142,000 was paid to Mr Simone, he “wanted the money to pay my bills and there should have been enough left over, in our eyes, to pay Simone and have a bit left for us”. That is, in fact, what happened. Mr Simone was paid and some money was left over, after some of the funds had been used to pay Mr Monti.

112. Mrs Kola then remained a director of the corporate defendants. The authority was one which she was plainly at liberty to give, as the defendants accepted on this appeal and on which Mr Simone was entitled, in the circumstances, to rely.

113. In the circumstances which had unfolded, that authority acknowledged that not only were Mr and Mrs Kola aware that they and Oasis owed Mr Simone the assessed fees, but that he had been entitled to have them paid out of the funds which he held in trust.

114. While the authority post-dated the withdrawal, its terms were consistent with the existence of an awareness, on the part of Mr and Mrs Kola and Ms Kola, who may also have been a director of the corporate defendants, although of which ones was not established by the evidence, of what Mr Simone had done. The serious allegation of dishonesty which the defendants, including Mr and Mrs Kola, later advanced in the Local Court was thus inconsistent with their own prior actions.

115. In the face of all of this evidence, Mr Simone’s case, that he transferred the certified $81,414.96 from trust, the defendants having intended that his fees would be paid from those funds, should not have been rejected.

116. On all of that evidence I am satisfied that his Honour erred in not concluding that $142,000 of the borrowings was paid into Mr Simone’s account, as he and Mr De Bortoli understood, in order that his fees for having acted for Mr and Mrs Kola and Oasis in the Equity Division proceedings could be paid, as they later were.

117. In the result it must be concluded that his Honour did not properly identify the purpose for which the $142,000 was paid into Mr Simone’s trust account, namely, in order that what Mr and Mrs Kola and Oasis owed him for the Equity proceedings, would be paid out of those funds.

118. In the circumstances, there was no just basis for Mr Kola’s contradictory evidence to have been preferred over that given by Mr Simone, particularly given the gravity involved in that conclusion, namely, that Mr Simone had acted dishonestly.

119. That was a conclusion which was not open, particularly in the absence of Mrs Kola giving evidence which it might be expected she would give, if Mr Kola’s evidence and the defendants’ case, that Mr Simone had acted dishonestly, had a real foundation.

Did Mr Simone breach the requirements of the Legal Profession Act or Regulations?

120. I am also satisfied that the evidence established that in transferring $81,414.96 out of his trust account, as Mr Simone was entitled to do, given the purpose for which the finds had been paid to him by the defendants, there was no breach of the requirements of the Legal Profession Act or the Regulations.

121. Sections 255 and 261 provided:

“255   Holding, disbursing and accounting for trust money

(1)    A law practice must:

(a) hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and

(b)    disburse the trust money only in accordance with a direction given by the person.

Maximum penalty: 50 penalty units.

(2) Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law.

(3) The law practice must account for the trust money as required by the regulations.

Maximum penalty: 50 penalty units.

261 Dealing with trust money: legal costs and unclaimed money

(1)    A law practice may do any of the following, in relation to trust money held in a general trust account or controlled money account of the practice for a person:

(a)    exercise a lien, including a general retaining lien, for the amount of legal costs reasonably due and owing by the person to the practice,

(b)    withdraw money for payment to the practice’s account for legal costs owing to the practice if the relevant procedures or requirements prescribed by this Act and the regulations are complied with,

(c)    after deducting any legal costs properly owing to the practice, deal with the balance as unclaimed money under section 266 (Unclaimed money).

(2)    Subsection (1) applies despite any other provision of this Part but has effect subject to Part 3.2 (Costs disclosure and assessment).”

122. Regulation 88 provided:

“88   Withdrawing trust money for legal costs—section 261 (1) (b) of the Act

(1) This clause prescribes, for the purposes of section 261 (1) (b) of the Act, the procedure for the withdrawal of trust money held in a general trust account or controlled money account of a law practice for payment of legal costs owing to the practice by the person for whom the trust money was paid into the account.

(2)    The trust money may be withdrawn in accordance with the procedure set out in either subclause (3) or (4).

(3)    The law practice may withdraw the trust money:

(a)    if:

(i)    the money is withdrawn in accordance with a costs agreement that complies with the legislation under which it is made and that authorises the withdrawal, or

(ii)    the money is withdrawn in accordance with instructions that have been received by the practice and that authorise the withdrawal, or

(iii) the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person, and

(b)    if, before effecting the withdrawal, the practice gives or sends to the person a request for payment, referring to the proposed withdrawal.

(4) The law practice may withdraw the trust money:

(a) if the practice has given the person a bill relating to the money, and

(b)    if:

(i) the person has not objected to withdrawal of the money within 7 days after being given the bill, or

(ii)    the person has objected within 7 days after being given the bill but has not applied for a review of the legal costs under the Act within 60 days after being given the bill, or

(iii)    the money otherwise becomes legally payable.

(5)    Instructions mentioned in subclause (3) (a) (ii):

(a)    if given in writing, must be kept as a permanent record, or

(b)    if not given in writing, must be confirmed in writing either before, or not later than 5 working days after, the law practice effects the withdrawal and a copy must be kept as a permanent record.

(6)    For the purposes of subclause (3) (a) (iii), money is taken to have been paid by the law practice on behalf of the person when the relevant account of the practice has been debited.”

123. As I have explained, Mr Simone had provided Mr and Mrs Kola and Oasis with a final bill for the costs and disbursements of the Equity Division proceedings in 2012, satisfying reg 88(4)(a). The bill was disputed, but before the sum was later withdrawn from trust, it had become legally payable by Mr and Mrs Kola and Oasis, satisfying reg 88(4)(b)(iii).

124. That was the result of the costs being assessed in Mr Simone’s favour, as they were. The assessment was not challenged by Mr and Mrs Kola or Oasis, with the result that it bound each of them: Legal Profession Act, s 372. Nor was the certificate finally issued in respect of what then remained unpaid challenged. As was Mr Simone’s case and as his Honour found, in the result those certified fees were legally payable by Mr and Mrs Kola and Oasis.

125. It follows that Mr Simone was entitled to transfer the amount so certified, as he did, from the money held in his trust account, for that very purpose, the requirements of reg 88(4) having been satisfied. That transfer thus involved no breach of s 255.

126. Under s 255 and reg 88(4), Mr Simone was not obliged first to file the certificate in a court, by way of enforcement of the certified costs as a judgment, before pursuing what he was legally entitled to do under the Act and Regulations, namely, withdrawing the certified amount from trust. Nor did he require the defendants’ prior written authority for the payment which he made out of trust, that being the very purpose for which the funds had been deposited into the trust account, as I have explained.

Did the Local Court have jurisdiction to make the orders sought by the defendants?

127. As I have explained, the orders which his Honour made were not sought by the parties. Nor did his Honour explain how he resolved matters over which the parties had joined issue over the terms of the order. In the result, as the parties agreed, his Honour fell into further error.

128. Whether the Local Court had jurisdiction to order Mr Simone to repay moneys which the defendants claimed belonged to them, they being moneys had and received as they claimed, was in issue. That depended upon the nature of that Court’s jurisdiction. On Mr Simone’s case, that was a claim for equitable relief in respect of which the Court had no jurisdiction and even if it did, it was one to which he had a defence.

129. The defendants case was that their claim was a “money claim”, as defined in s 29A of the Local Court Act, relying on Albanis v Eleftheriou where at [27] - [28] Beech-Jones J held that a claim in restitution based on alleged repudiatory behaviour in respect of a contract for the sale of a car, was a "common law count", namely a count for “money had and received”, falling within the s 29A definition of “"money claim”. His Honour reached a similar conclusion in Ceerose Pty Ltd v Building Products Australia Pty Ltd [2015] NSWSC 1886 at [22].

130. In Ji v Firth [2013] NSWSC 186 at [23] Campbell J concluded that a claim for overcharged legal fees involved a “money claim”, despite unnecessary claims advanced for equitable relief. The defendants submitted that this was consistent with the conclusion that the Local Court had jurisdiction “to hear a money had and received claim by a former client, against a lawyer, for a refund of moneys retained by the lawyer for fees”.

131. The defendants also contended that the Court’s jurisdiction so granted could not be read down by limitations not found in the express words of the statute itself: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270; [2000] HCA 30 at [17].

132. On Mr Simone’s case the Local Court did not have jurisdiction to deal with such a claim, it being a claim for equitable relief. Even if it did, proper consideration had to be given to his defence to the claim, namely that in the particular circumstances, his retention of the money was not unconscionable: Roxburgh v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 552; [2001] HCA 68.

133. Further, it was argued, that the order made in the Local Court was unjust, given that the money deposited into Mr Simone’s trust account by Mr and Mrs Kola and the defendant companies, had been used in order to pay fees owed to him by Mr and Mrs Kola and one of their other companies, Oasis: Equuscorp at [30]. That was particularly so, given that the money had been paid into trust, in order that the fees which Mr and Mrs Kola and Oasis owed him could be paid: David Securities Pty Ltd v Commonwealth Bank of Australia (1992) 175 CLR 353 at 360.

134. Further, his retention of that money was in the circumstances not unconscionable, that being a matter which had to be resolved on equitable principles: Australian Financial Services and Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560; [2014] HCA 14 at [78].

135. His Honour did not address any of these arguments. That also involved obvious error.

136. This issue depended on the proper construction of the Local Court Act. Thereby the Local Court is given the jurisdiction specified in s 30, relevantly:

“30    Conferral of jurisdiction

(1)    Subject to this Part, the Court sitting in its General Division has jurisdiction to hear and determine:

(a)    proceedings on any money claim, so long as the amount claimed, whether on a balance of account or after an admitted set-off or otherwise, does not exceed the jurisdictional limit of the Court when sitting in that Division, and ...”

137. “Money claim” is defined in s 29A to mean “a claim for recovery of any debt, demand or damages (whether liquidated or liquidated)”.

138. The Local Court is not expressly given power to deal with claims for equitable relief in the way that the District Court is expressly given such power in s 134 “Jurisdiction in equity proceedings” of the District Court Act1973 (NSW). It relevantly provides:

(1) The Court shall have the same jurisdiction as the Supreme Court, and may exercise all the powers and authority of the Supreme Court, in proceedings for.

…

(h)    any equitable claim or demand for recovery of money or damages, whether liquidated or liquidated (not being a claim or demand of a kind to which any other paragraph of this subsection applies), in an amount not exceeding the Court’s jurisdictional limit.

139. The District Court’s common law jurisdiction is dealt with in s 44.

140. By way of comparison, the scheme of the Local Court Act is that s 30 empowers that Court to deal with “proceedings on any money claim” within its jurisdictional limit. That power must be approached in light of the provisions made in the Law Reform (Law and Equity) Act1972 (NSW), considered in Steak Plains Olive Farm Pty Ltd v Australian Executor Trustees Limited [2015] NSWSC 289 at [75]. While thereby the Local Court’s jurisdiction is not enlarged, so far as the extent or nature of the relief it may grant is concerned (s 7), in relation to defences, it is provided in s 6 that:

“6 Defence in inferior court

Every inferior court shall in every proceeding before it give such and the like effect to every ground of defence, equitable or legal, in as full and ample a manner as might and ought to be done in the like case by the Supreme Court under the Supreme Court Act 1970.”

141. The defendants’ demand for repayment of the amount deposited into Mr Simone’s trust account as money had and received, was a common law count falling within the statutory definition of “money claim”. Its resolution depended on the question of the purpose for which the money had been deposited into his trust account and whether the withdrawal had been permitted under applicable provisions of the Legal Profession Act and Regulations.

142. Mr Simone sought to rely on defences such as those considered in Roxburgh. That was concerned with a claimed failure of consideration, which it was explained may arise from a number of causes and which, it was observed at [55], “is not confined by contractual principles”.

143. In Equuscorp it was “a restitutionary claim for benefits received under a contract which is unenforceable for illegality” which was being dealt with: at [34]. There it was held that its resolution “will depend upon whether it would be unjust for the recipient of a benefit under the contract to retain that benefit”. Australian Financial Services and Leasing Pty Ltd was concerned with moneys paid under mistake. It was there observed at [68] that “[t]here can be no denying the equitable roots of the principle by which a claim for restitution of money had and received to the use of the payer is to be determined”. There it was explained at [77] that:

“One category of case in which it would be inequitable to require a recipient to repay is where the recipient has so far altered its position in relation to the receipt that it would be a detriment to it if it were now required to repay.”

144. The defendants’ claim fell into none of these categories.

145. As I have explained, the evidence established that the money was paid into Mr Simone’s trust account, so that the fees which Mr and Mrs Kola and Oasis owed Mr Simone for the Equity Division proceedings could be paid. There was thus no basis upon which the defendants’ claim for moneys had and received could have resulted in the orders which his Honour made. Nor did the equitable defences on which Mr Simone sought to rely, arise to be considered, in those circumstances.

146. So his Honour should have held.

The cross-claim

147. It was s 22 and 90 of the Civil Procedure Act and Part 9 “Cross-Claims” of the Uniform Civil Procedure Rules 2005 (NSW) which governed the cross-claim which Mr Simone pursued against Mrs Kola. Those sections provide:

“22   Defendant’s right to cross-claim

(1)   Subject to subsection (2), the court may grant to the defendant in any proceedings (the first proceedings) such relief against any person (whether or not a plaintiff in the proceedings) as the court might grant against that person in separate proceedings commenced by the defendant for that purpose.

(2)    Relief may not be granted under this section against a person who is not a plaintiff in the first proceedings unless the relief relates to, or is connected with, the subject of the first proceedings.

(3)    A person against whom a defendant makes a claim for relief under this section:

(a)   has the same rights in respect of his or her defence against the claim as he or she would have in separate proceedings commenced against the person by the defendant, and

(b)   if not already a party to the first proceedings:

(i)    becomes a party to the first proceedings, and

(ii)    unless the court otherwise orders, is bound by any judgment (including a judgment by consent or by default) or decision (including a decision by consent) on any claim for relief in the proceedings (including a claim for relief in any cross-claim in the proceedings).

90   Judgments generally

(1)   The court is, at or after trial or otherwise as the nature of the case requires, to give such judgment or make such order as the nature of the case requires.

(2)   If there is a claim by a plaintiff and a cross-claim by a defendant, the court:

(a)   may give judgment for the balance only of the sums of money awarded on the respective claims, or

(b)   may give judgment in respect of each claim,

and may give judgment similarly where several claims arise between plaintiffs, defendants and other parties.”

148. The cross-claim was not a “defence” to the defendants’ claims, in which event s 21(1) of the Civil Procedure Act would have applied. Nor did the order sought against Mrs Kola in fact depend on any “set-off”. Rather, it was a demand for payment of what, on this appeal, it was accepted that Mrs Kola owed Mr Simone, in the event that the defendants’ case succeeded.

149. Understandably, given the order which was sought on the cross-claim, there was no application for an order under r 9.9 of the Uniform Civil Procedure Rules, that the parties’ claims proceed separately. As is apparent from what I have explained, there was an obvious connection between what they respectively pursued against each other.

150. The cross-claim only arose to be considered if the defendants’ case succeeded. The resolution of the cross-claim thus depended on the conclusions reached as to whether the transfer of the certified amount out of Mr Simone’s trust account had accorded with the requirements of the Legal Profession Act and the Regulations, given the purpose for which those funds had been deposited.

151. In that event, Jones v Dunkel inferences also arose to be drawn on the cross-claim, Mrs Kola having given no evidence to resist Mr Simone’s claim.

152. It follows that having concluded that Mr Simone’s defence had not been made out, and despite having correctly held that the costs assessment which Mr and Mrs Kola and Oasis had never challenged was then legally binding upon Mrs Kola, his Honour should have made orders in favour of Mr Simone on the cross-claim.

153. In failing to make such orders his Honour also erred.

154. There is now no question that it was Mrs Kola who was then legally responsible for paying Mr Simone his certified costs, in the event that the defendants’ case succeeded.

155. Neither the Legal Profession Act, nor the Local Court Act, precluded an order being made against Mrs Kola in respect of those costs, in those circumstances. To the contrary, Mr Simone’s claim was also a “money claim” as defined in s 29A of the Local Court Act, that is, a demand for payment of the certified costs which Mrs Kola was then legally bound to pay him.

156. If the certified costs had not earlier been paid out of trust, as they were, Mr Simone could have filed the costs certificate “in the office or registry of a court having jurisdiction to order the payment of the amount of money”: Legal Profession Act, s 368(5). Given the jurisdictional limitation of the Local Court, the certificate could have been filed in that Court: Local Courts Act, s 29.

157. Before the defendants succeeded against Mr Simone, he could not have properly sought to register the certificate in any court, given the payment he had already received out of trust. His cross-claim having failed, he could have pursued that course, if he had not pursued the cross-claim against Mrs Kola, as he was entitled to do.

158. The availability of such an avenue did not, however, provide a proper basis for the order Mr Simone sought being refused, given the case which he had established against Mrs Kola on the evidence.

159. There being no question that if the defendants’ case succeeded, Mrs Kola still had a legal obligation to pay Mr Simone the certified costs, the order which he sought on the cross-claim ought to have been made. That order was incapable of resulting in him becoming unjustly enriched and did not depend on any set-off.

160. Mr Simone’s appeal having succeeded as it has, however, no order now arises to be made on the cross-claim.

Orders

161. In the result there must be judgment for Mr Simone.

162. The usual order as to costs under the Rules is that they follow the event. That is an order in favour of Mr Simone, for costs as agreed or assessed. If the parties wish to be heard as to costs on other than the usual basis, they should approach within 14 days.

163. The parties should also confer and file orders which otherwise reflect the conclusions which I have reached, within 14 days.

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Amendments

23 June 2017 - typographical error on coversheet

Decision last updated: 17 April 2018