Victorian Lawyers RPA Ltd v Werden
[2006] VSC 73
•3 March 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
No. 5355 of 1998
IN THE MATTER of Section 249 of the Legal Practice Act 1996
- and -
IN THE MATTER of GABRIEL WERDEN, a practitioner
(Practising under the firm name of WERDENS)
BETWEEN:
| VICTORIAN LAWYERS RPA LTD. (ACN 075 475 731) | Plaintiff |
| v | |
| GABRIEL WERDEN (Practising under the firm name of Werdens) | Defendant |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 7 FEBRUARY 2006 | |
DATE OF JUDGMENT: | 3 MARCH 2006 | |
CASE MAY BE CITED AS: | VICTORIAN LAWYERS RPA LTD v WERDEN | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 73 | |
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Legal Practitioners – Receiver appointed to the practice of legal practitioner who had misappropriated trust moneys of several clients and dissipated some or all of it gambling at Crown Casino – One client’s claim against the Legal Practitioners’ Fidelity Fund disallowed by the Legal Practice Board – Compromise of that client’s action against the Legal Practice Board – As part of settlement client assigned his right title and interest in any cause of action against Crown Casino or any other gambling house in Australia to the Legal Practice Board – Pursuant to s.258 of the Legal Practice Act 1996 the receiver sued Crown Limited under s.67 of the Lotteries Gaming and Betting Act 1966 – Moneys held by receiver as a result of compromise of action against Crown Limited – Whether the receiver could pay the client who had settled with the Legal Practice Board a proportionate share of the net amount held by him or whether it should all be paid to the Legal Services Board, the successor of the Legal Practice Board - Legal Practice Act 1996 ss.258, 262, 266, 270 – Legal Profession Act 2004 ss.5.1.1, 5.5.4, 5.5.8, 5.5.13, 5.6.5 and Schedule 2 cl.7.1 and cl.8.7.
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APPEARANCES: | Counsel | Solicitors |
| For the Receiver | Dr J.F. Bleechmore | Joseph Barravecchio |
| For the Defendant | No appearance | |
| For Mr Di Pietro | Mr R. Meldrum QC | Trueman Dawson |
| For Crown Limited | Mr M.D. Wyles | Mallesons Stephen Jaques |
HIS HONOUR:
This is an application by summons filed on 27 October 2005 by Steven Sapountsis, the Court appointed receiver of the trust property of Gabriel Werden, for directions, pursuant to s.266(1) of the Legal Practice Act 1996 ("the 1996 Act") as to the manner in which the receiver shall exercise or perform the power or duties conferred or imposed on him by Division 1 of Part 9 of the 1996 Act in respect of a sum of money presently held by him.
The Background
On 2 April 1998 Kevin Joseph Power was appointed by this Court under s.250 of the 1996 Act as receiver of all of the trust property of Gabriel Werden, a regulated practitioner of the plaintiff, Victorian Lawyers RPA Ltd (“the RPA”). Mr Power was also authorised to carry on the legal practice of Mr Werden. Mr Power was described in the order as “a current practitioner and General Manager of Professional Standards” of the RPA. There was evidence before the Court that Mr Werden had misappropriated substantial sums of his clients' money and dissipated much of it by gambling at the Crown Casino in Melbourne.
Subsequently, claims were made by former clients of Mr Werden against the Legal Practitioners' Fidelity Fund ("the Fidelity Fund"), established under Division 2 of Part 16 of the 1996 Act, for losses alleged to have been incurred as a result of Mr Werden's conduct. The Fund was administered by the Legal Practice Board (“the Board”), which was established under s.347 of the 1996 Act. One of the claimants was Michael Di Pietro who lodged a claim of $550,000 with the Board in about April 1999. The Board considered Mr Di Pietro's claim and on or about 25 May 1999 disallowed it on the ground that the claim did not lie against the Fidelity Fund (s.211(3) of the 1996 Act) because the Board took the view that it was a claim "in respect of a defalcation of, or in relation to, … money given to a practitioner … for the purpose of investment or re-investment by the practitioner" (s.208(3) of the 1996 Act).
On 21 August 1998, Mr Di Pietro had sued Mr Werden and the Board in a proceeding in this Court. Part of the relief sought by Mr Di Pietro was an order that the Court direct the Board to allow his claim and deal with it in accordance with Division 2 of Part 7 of the 1996 Act. Prior to any determination of this proceeding by the Court, the parties, apart from Mr Werden who had still not been served with the Writ, compromised the claim by entering into a deed dated 29 June 1999. The parties to the deed, which was entitled "Deed of Agreement Release and Authority" ("the Deed of Agreement") were Mr Di Pietro, the Board, the RPA and the Law Institute of Victoria ("the LIV"). Although neither the RPA nor the LIV were parties to Mr Di Pietro's proceeding, it seems that he had alleged that in February 1998 he had received misleading advice by telephone from either the RPA or the LIV concerning the safety of, and the Fidelity Fund's coverage of, any monies deposited into a solicitor's trust account.
By clause 1 of the Deed of Agreement, the Board agreed to pay Mr Di Pietro the sum of $315,000 inclusive of interest and costs ("the settlement sum") which Mr Di Pietro accepted "in full satisfaction of all claims, counterclaims, actions, demands, suits or rights of set-off or claims" which he might have against the Board, the RPA or the LIV arising out of any of the matters in dispute between them in the proceeding or in the claim against the Fidelity Fund. In consideration of the terms of the Deed of Agreement, the parties to that Deed forever mutually released and discharged each other from "all actions, claims, counterclaims, suits, actions and demands" in relation to any matter arising from the alleged defalcation relating to the proceeding, the claim or the alleged telephone conversations (clause 4). However, Mr Di Pietro's right to continue any proceedings as against Mr Werden "or any other person or persons or corporation" in respect of the shortfall between the amount of the pecuniary loss claimed by him and the amount received by way of the settlement sum (save as against the Board, the RPA or the LIV) was preserved (clause 5).
Clause 7(a) of the Deed of Agreement provided as follows:
"7. Subject to the terms provided herein:
(a)The Plaintiff [Mr Di Pietro] agrees to assign and subrogate to the Secondnamed Defendant [the Board] all his right title and interest in any cause of action as against Crown Casino Melbourne or any other gambling house in Australia concerning the recovery of monies gambled by the Solicitor. The Plaintiff hereby authorises and empowers the Secondnamed Defendant to take or institute in the name of the Plaintiff any action or proceedings to recover the full amount set out in the claim PROVIDED ALWAYS that the Secondnamed Defendant shall at all times indemnify the Plaintiff in respect of all costs and damages of whatsoever nature and kind that may arise in such proceedings. In the event of the secondnamed Defendant recovers damages from such proceedings then the Secondnamed Defendant shall be entitled to firstly apply such funds in payment of its costs connected with the proceedings, secondly to be re-imbursed the settlement sum together with interest thereon and the balance shall be distributed to the Plaintiff as follows:
i)Of the monies that can be legally traced as beneficially belonging to the Plaintiff then these monies shall be paid to the Plaintiff pro tanto;
ii)Of the monies that cannot be legally traced as beneficially belonging to the Plaintiff or any other third party then the Plaintiff is to be paid a proportion of these monies as represented by the ratio that the Plaintiff's shortfall in such proceedings bears to the overall claim made by the Secondnamed Defendant in any recovery proceedings on behalf of all parties claimed."
On 3 April 2002 Mr Power commenced a proceeding in this Court against Crown Limited ("Crown") seeking to recover the sum of $635,940, which consisted of a number of payments which it was alleged had been made to Crown between 11 June 1997 and 23 February 1998 for or by way of or on account of a wager or bet by Mr Werden at the Crown Casino using money stolen or embezzled by him from three clients. The sum of $635,940 comprised $60,000 stolen from Norrene Sandra Johnston (the whole of which had been paid to her from the Fidelity Fund), $44,940 stolen from Maria Raciti (of which $40,000 had been paid to her from that Fund) and $531,000 stolen from Mr Di Pietro (of which $315,000 had been paid to him by the Board under the Deed of Agreement).
The plaintiff’s cause of action in this proceeding was based on s.67 of the Lotteries Gaming and Betting Act 1966. That section provided that:
“Where any money is stolen or embezzled and paid to any person as or for or by way of or on account of a wager or bet the person from whom the money was stolen or embezzled may in any court of competent jurisdiction recover the money or any sum not exceeding the amount thereof from the person to whom the money was so paid.”
The proceeding against Crown was brought by the receiver because s.258 of the 1996 Act provided that:
“If any money has been stolen or embezzled the receiver must be taken, for the purposes of section 67 of the Lotteries Gaming and Betting Act 1966, to have been the person from whom the money was stolen or embezzled.”
Section 262 of the 1996 Act is possibly also relevant. It provided that:
“On payment to a person out of the Fidelity Fund of any money in satisfaction of a claim for compensation under Division 2 of Part 7, the receiver is subrogated to the extent of that payment to the rights and remedies of that person against any other person in relation to the defalcation.”
On 3 May 2003, in an attempt to put to rest doubts raised by the Legal Ombudsman that Mr Power’s failure to obtain professional indemnity insurance invalidated his practising certificate during the period from February 1987 to 5 December 2002, the RPA successfully applied ex parte for an order that Mr Power “be authorised to carry on the practice of Gabriel Werden conducted under the business name of Werdens”. Cummins J made the order in this and 20 other matters in which Mr Power had been appointed receiver, on the ground that the RPA and Mr Power had “acted in good faith at all times” and that “the error, if it be such, was honest and inadvertent”.[1] The Court of Appeal has now held that there was no error because Mr Power “fell within the definition of ‘corporate practitioner’” and therefore was not required to have professional indemnity insurance.[2]
[1]Victorian Lawyers RPA Ltd v Slattery [2003] VSC 228 per Cummins J at [7].
[2]Power v Hamond [2006] VSCA 25 at [99] and [103] per Chernov JA, with whom Maxwell P and Ormiston JA agreed.
By a Settlement Deed dated 24 September 2004 the proceeding between Mr Power and Crown was compromised. The parties to the Settlement Deed were Crown, Mr Power as receiver and the Board. The Settlement Deed recited the appointment of the receiver to Mr Werden's practice; the commencement of the proceeding; the main allegations in that proceeding; the receiver's assertion of entitlement to sue under s.258 of the 1996 Act and s.67 of the Lotteries Gaming and Betting Act; Crown’s denials of the claims; the taking of collateral proceedings by Crown against the Colonial State Bank; the making of claims by the three clients against the Fidelity Fund under s.208 of the 1996 Act; the payment of the various sums to them from the Fund; the subrogation of the receiver to their rights and remedies under s.262 of the 1996 Act; the fact that the payment to Mr Di Pietro had been made pursuant to the Deed and that there had been the assignment and subrogation to the Board made by cl.7 of the Deed; and a statement that, to avoid the expense of further litigation and without admission of liability, the receiver, the Board and Crown had agreed to settle the proceeding and all disputes between them in accordance with the terms set out in the Settlement Deed.
Pursuant to the Settlement Deed, Crown agreed to pay the receiver a certain amount of money ("the Crown settlement amount") which, because the settlement was agreed to be confidential, I do not propose to specify. The payment was made “without any admission of liability” and “in full settlement” of all of the claims in the proceeding brought by the receiver against Crown. The Crown settlement amount is that in respect of which directions are now sought from the Court.
On 29 July 2005, Mr Power resigned from his employment with the RPA. On 27 July 2005, this Court ordered that Mr Power’s appointment as receiver be terminated and that Mr Sapountsis be appointed the receiver of the trust property of Gabriel Werden.
The receiver’s summons filed on 27 October 2005 was returnable on 8 November 2005 in the Practice Court. On that day I ordered that the summons and supporting material be served on Mr Di Pietro and adjourned the hearing to 7 February 2006. Part of the supporting material was an affidavit sworn on 27 October 2005 by Joseph Ambrose Barravecchio, the Senior Litigation Solicitor for the LIV in the Department of Professional Standards. In paragraphs 10 and 11 of that affidavit Mr Barravecchio stated the amount paid by Crown in settlement of the proceeding brought by Mr Power. Exhibited to Mr Barravecchio’s affidavit was a copy of the Settlement Deed.
At the request of counsel for the receiver, I also directed that until further order the publication by Mr Di Pietro of the summons or any of the supporting material to any person apart from his legal advisers be forbidden and directed that notice be given of my order to the solicitors for Crown and reserved to Crown liberty to apply on the adjourned date for further orders forbidding publication of this proceeding.
The Issue
The need for the receiver to seek directions from the Court pursuant to s.266 of the 1996 Act was because the receiver and the Board received conflicting legal advice as to how the receiver should distribute the amount of money now held by him. The opinions of counsel reached different conclusions on the effect of cl.7(a) of the Deed of Agreement.
The receiver was advised by his counsel, Dr Bleechmore, that "it would be an eminently reasonable decision" for the receiver to consider the interests of Mr Di Pietro in the sum recovered, on his behalf, and then to decide that cl.7(a) of the Deed of Agreement did not apply to the Crown settlement amount, in determining, after paying his costs of the proceeding against Crown, to make a pro rata distribution of part of the net amount to Mr Di Pietro. In his advice to the receiver, counsel pointed out that the receivership operated within a statutory scheme with particular and unique purposes, and subject to what was in effect a legislative code in Division 2 of Part 9 of the 1996 Act. Counsel advised that the receiver is an officer of the Court who is appointed on behalf of all persons interested in the property over which the appointment was made. The receiver must take control of relevant assets and hold them as an officer of the Court, not as an agent or trustee for the parties or any one party. It was counsel's view that, in the case of an appointment under Part 9 of the 1996 Act, the receiver was not an agent or a trustee for any client or clients of the legal practitioner whose trust property was made the subject of an appointment.
Further, Dr Bleechmore drew attention to s.270 of the 1996 Act, which provided that any money or other property that came into the possession of the receiver in the course of the receivership and was not dealt with by the receiver in accordance with ss.252, 255(1) or 264 must be paid or delivered by the receiver to the Board. Section 264 provided that the receiver could deal with such property "in any manner in which the regulated practitioner might lawfully have dealt with it." Counsel advised that this section conferred "a broad discretion" upon the receiver, including restoring recovered property to the person who was the beneficial owner of that property. According to counsel's advice, "the proceeds of the action against Crown Limited are clearly, prima facie, assets in which Mr Di Pietro has an interest."
Dr Bleechmore then considered whether there were any other circumstances which would be relevant to be considered in the exercise of his discretion under s.264. He referred to the provisions of the Deed of Agreement, in particular cl.7(a), but advised that the formula for distribution of proceeds set forth in that clause did not apply to the fruits of the settlement of the receiver's action against Crown because the Board had not taken or instituted any proceeding against Crown, and the amount of money held by the receiver could not be described as damages recovered by the Board. Nor had the Board played any part in funding the action against Crown or in accepting any liability for the costs of any of the party. The proceeding was the result of the independent initiative of the receiver.
Finally, Dr Bleechmore advised that the fact that in the Deed of Agreement Mr Di Pietro had agreed "to assign and subrogate" to the Board all his right title and interest in any cause of action against Crown, did not affect this conclusion. According to counsel's advice, "by force of s.258 there appears to be little in the way of right title and interest of Mr Di Pietro in an action against Crown Limited capable of assignment or transfer." This was because s.258, for the purposes of s.67 of the Lotteries Gaming and Betting Act, actually "deemed" the receiver to be the person from whom the money was stolen or embezzled.
On the other hand, the Board was advised by Mr Merralls QC that cl.7 of the Deed of Agreement did apply and that all of the net Crown settlement amount should be paid by the receiver to the Board and that, as this amount was not sufficient to reimburse the Board “the settlement sum together with interest thereon”, there was no balance to be distributed to Mr Di Pietro. In his advice, Mr Merralls also referred to s.270 and to ss.252, 255(1) and 264. He then set out that s.264(3) stated that the receiver may retain "any property belonging to the regulated practitioner" of which he has taken possession under Division 2 of Part 9 "until all claims against the Fidelity Fund arising out of anything done or omitted to be done by the regulated practitioner have been settled", and must, as soon as practicable thereafter, apply to the Supreme Court for an order as to the disposition of the property. Mr Merralls also referred to ss.265 and 266. He then said:
"These provisions do not interlock in a satisfactory way. But in my opinion they assume that a receiver will apply moneys that he gets in, of the kind or character set out in an order made under sec.250(1), in accordance with legal or equitable entitlements thereto after the payment of any costs etc. that he is lawfully entitled to defray from them."
Mr Merralls then referred to the written advice provided to the receiver by his counsel. Although there was much that he agreed with, Mr Merralls disagreed with the concept of discretion referred to by the receiver's counsel. Mr Merralls advised that, unless the legal practitioner had been given discretionary powers under his retainer or authority from his clients, the introduction of the concept of discretion was misleading. In his opinion, the receiver had "no discretionary power to determine entitlements." The receiver was under a duty to distribute in accordance with the 1996 Act and with the legal and equitable entitlements of potential claimants.
Mr Merralls then turned to the effect of s.258. He advised that the assignment and subrogation under the Deed of Agreement was of or in respect of rights which, because of s.258, Mr Di Pietro could not enforce himself. According to senior counsel's advice, it did not follow that Mr Di Pietro did not have an interest in the cause of action which s.258 made enforceable by the receiver. As Mr Merralls put it, Mr Di Pietro "did not drop out of the picture." It was Mr Merralls' opinion that any moneys recovered from Crown by the receiver by action or compromise that would have been payable to Mr Di Pietro were within the subject matter of the assignment to the Board. Although cl.7(a) of the Deed of Agreement referred only to the application of damages recovered by the Board from proceedings instituted by it by way of subrogation in the name of Mr Di Pietro, it was senior counsel's opinion that:
"… it must be taken to extend, either directly (through the assignment) or by implication, to moneys that might come to the Board as the proceeds of proceedings taken by the receiver as statutory surrogate. After the payment of costs, these moneys are to be applied to the Board in reimbursement of the settlement sum and interest thereon and then, but only then, to be distributed to Di Pietro under sub-par.(i) or (ii) of cl.7(a). Since the balance available for distribution was less than the settlement sum and interest, in my opinion, the Board was entitled to claim the whole of the balance available for distribution from the receiver."
Finally, Mr Merralls advised that, in his opinion, the receiver's counsel had adopted too narrow an approach to the deeming provisions of s.258. Mr Merralls stated that he did not consider that they gave a receiver who brought proceedings under s.67 of the Lotteries Gaming and Betting Act a beneficial interest in recovered moneys. The receiver was bound to deal with them as receiver and to distribute them to those entitled to them. If it was not possible to identify individual entitlements, the receiver must apply equitable principles in making distributions amongst the members of a class or group. If it was possible to identify individual entitlements, the receiver was bound to give effect to them. The individual entitlements identified would be the subject matter of the individual's right and interest in a cause of action against a gaming house under s.67, before the operation of s.258 of the 1996 Act. Thus, senior counsel did not consider that s.258 should be regarded as having extinguished Mr Di Pietro's right and interest so as to affect the assignment by cl.7 of the Deed of Agreement.
The Hearing
I have set out the differing advices of counsel in some detail because neither the Legal Services Board nor its predecessor the Legal Practice Board was represented at the hearing and I therefore did not have the advantage of receiving submissions on its behalf. Instead, the Legal Services Board simply wrote to the receiver's solicitor confirming that it and its predecessor had been kept "appraised of the status" of this application and advising that it would not be represented by counsel at the hearing:
"as you have informed that a copy of Mr Merralls QC's advice, which adequately describes the Board's position, has been provided to the Judge."
Dr Bleechmore appeared as counsel for the receiver and Mr Meldrum QC appeared on behalf of Mr Di Pietro. Mr Wyles appeared as counsel for Crown on the limited question of the confidentiality of the provisions of the Settlement Deed.
The receiver had calculated what he considered to be the appropriate proportion of the balance of the Crown settlement amount, after deduction of his costs, to pay to Mr Di Pietro. Mr Meldrum informed the Court that Mr Di Pietro supported the receiver's application and agreed with his calculation. Regrettably, the lack of representation for the Legal Services Board meant that there was, therefore, no one putting the contrary case.
The Change in Legislation
In paragraph 24 above I referred to the Legal Services Board replacing the Legal Practice Board. This occurred as a result of the Legal Profession Act 2004 ("the new Act") coming into operation on 12 December 2005. Dr Bleechmore submitted that although the resolution of the issue now depended on the application of the provisions of the new Act and not the provisions of the 1996 Act, the result should be no different because the reasoning of the differing advices was still applicable.
Dr Bleechmore took the Court through the relevant transitional provisions of the new Act. They are contained in Schedule 2 to the new Act. Clause 8.7 provides that on the commencement day the Legal Services Board ("the new Board"), which is established by s.6.2.1(1) of the new Act, succeeds the Legal Practice Board ("the old Board") and that in particular all rights, property and assets that were vested in the old Board are vested in the new Board (cl.8.7(1)(b)) and the new Board is substituted as a party to any arrangement or contract entered into by or on behalf of the old Board (cl.8.7(1)(e)). Clause 7.1(2) relevantly provides that Chapter 5 of the new Act applies in relation to a receivership after the commencement day of a receiver appointed under Division 2 of Part 9 of the 1996 Act before that day.
Section 5.1.1(a) provides that the purposes of Chapter 5, which is headed "External Intervention", are to ensure that an appropriate range of options is available for intervention in the business and professional affairs of lawyers for the purpose of protecting:
"(i) the interests of the general public; and
(ii) the interests and the trust money and property of clients; and
(iii)the interests of lawyers … so far as their interests are not inconsistent with those of the general public and clients."
Section 5.5.1 deals with the appointment of a receiver for a law practice under the new Act. Section 5.5.4(1) provides that the role of a receiver for a law practice is:
"(a) to be the receiver of regulated property of the practice; and
(b) to wind up and terminate the affairs of the practice."
Pursuant to s.5.5.1(2)(a) this Court can authorise the receiver "to carry on the legal practice engaged in by the law practice." In Chapter 5, "regulated property" is defined in s.5.1.2 to mean a number of things including:
"(a) trust money received, receivable or held by the practice."
Section 5.5.6(1) provides that:
"A receiver for a law practice may take possession of regulated property of the practice."
Section 5.5.8(2) provides that:
"The receiver may deal with the regulated property in any manner in which the law practice might lawfully have dealt with the property."
Dr Bleechmore submitted that this section mirrored s.264(1) of the 1996 Act.
Section 5.5.13 provides that:
"If any money has been stolen or embezzled, the receiver is taken, for the purposes of section 2.6.3 of the Gambling Regulation Act 2003, to have been the person from whom the money was stolen or embezzled."
Dr Bleechmore submitted that this section mirrored s.258 of the 1996 Act. Section 2.6.3 of the Gambling Regulation Act 2003, which is similar to s.67 of the Lotteries Gaming and Betting Act, states that:
"If money is stolen or embezzled and paid to a person as or on account of a wager or bet, the person from whom it was stolen or embezzled may recover it, or a sum not exceeding its amount, in a court of competent jurisdiction from the person to whom it was paid."
Finally, s.5.6.5(a) of the new Act provides that:
"The Supreme Court may, on application by –
(a) an external intervener for a law practice; or
(b) a principal of the practice; or
(c) any other person affected by the external intervention –
give directions in relation to any matter affecting the intervention or the intervener's powers, duties or functions under this Act."
This is the equivalent provision to s.266(1) in the 1996 Act.
Consideration of the Issue
Dr Bleechmore's helpful submissions were consistent with his earlier advice to the receiver. He emphasised the peculiar breadth of s.5.5.13 of the new Act, and its predecessor s.258 of the 1996 Act, which he submitted divested the person from whom the property has been stolen of his or her normal rights and deemed the receiver to be the person from whom the property was stolen. Section 258 was not limited, as it could have been, to providing that the receiver could bring the action under s.67 of the Lotteries Gaming and Betting Act in the name of, or on behalf of, the person from whom the legal practitioner had stolen or embezzled the money. It went further. On that basis, he submitted, Mr Di Pietro had no right title or interest in any cause of action against Crown to assign to the old Board. Dr Bleechmore therefore submitted that the receiver was entitled to a direction that he could do what he wished to do, namely pay Mr Di Pietro a proportionate amount of the balance of the Crown settlement amount, after deduction of the receiver's costs of the action against Crown.
On behalf of Mr Di Pietro, Mr Meldrum supported and adopted Dr Bleechmore's submissions. Mr Meldrum also emphasised the peculiar nature of s.258 of the 1996 Act which, he submitted, went beyond mere subrogation and by way of a legal fiction deemed the money stolen or embezzled from Mr Di Pietro to have been stolen or embezzled from the receiver. He submitted that this section meant that Mr Di Pietro's rights had been "taken right out of the picture" by the date of the settlement with Crown. Therefore, he submitted, Mr Di Pietro was not left with any equitable interest.
However, I have reached the conclusion that Mr Di Pietro did have some right title or interest in any cause of action against Crown to assign to the old Board pursuant to cl.7(a) of the Deed of Agreement. Like senior counsel for the Board I consider that s.258 did not mean that Mr Di Pietro "dropped out of the picture." Contrary to the submissions of Dr Bleechmore and Mr Meldrum, I consider that s.258 did not divest Mr Di Pietro of all of his right title or interest. In my opinion, s.258 did not actually say that there was such a divesting. What it did say was that "for the purposes of" s.67 of the Lotteries Gaming and Betting Act the receiver "must be taken … to have been the person from whom the money was stolen or embezzled." That is, s.258 was concerned only with who was to be the plaintiff in any proceeding under s.67.
The provision which became s.258 of the 1996 Act was first enacted as s.104GA(1) of the Legal Profession Practice Act 1958 by s.12 of the Legal Profession Practice (Amendment) Act 1970. It then read as follows:
"Whenever any money has been stolen or embezzled the receiver shall be deemed, for the purposes of section 67 of the Lotteries Gaming and Betting Act 1966, to have been the person from whom the money was stolen or embezzled."
In the Minister's second reading speech in the Legislative Assembly on 14 October 1970 it was said in respect of the new s.104GA that:
"Sub-section (1) will overcome the problem of proving which clients' moneys have been used for gambling."
In my opinion, s.258 said nothing about the right title or interest of defrauded clients in the proceeds of a successful action against the gaming house recipient of the stolen funds. Thus, Mr Di Pietro would have had an equitable interest in the proceeds of the receiver's action against Crown, but pursuant to cl.7(a) of the Deed of Agreement. he assigned his interest in the proceeds of such an action to the old Board.
This conclusion can be tested, in my opinion, by considering what would occur if there were no Deed of Agreement and the receiver were to decide, for whatever reason, not to pay any part of the net Crown settlement amount to Mr Di Pietro. According to the submissions of Dr Bleechmore and Mr Meldrum, Mr Di Pietro would have no entitlement to challenge that decision because he had no equitable interest in the proceeds. This cannot be right, in my opinion.
Further, it seems to me that it is not to the point that the Crown settlement amount may not fall within that part of cl.7(a) of the Deed of Agreement concerned with damages recovered by the Board in a proceeding brought by it against Crown. There is still in the first part of cl.7(a) the assignment by Mr Di Pietro to the Board of his right title and interest "in any cause of action" against Crown concerning the recovery of monies gambled by Mr Werden. As I have said, I consider that this applies to Mr Di Pietro's interest in the proceeds of the receiver's action against Crown. Because the balance of the Crown settlement amount is less than the settlement sum paid by the Board to Mr Di Pietro (and interest thereon), no question arises as to whether sub-para.(i) or (ii) of cl.7(a) applies to the moneys held by the receiver.
Accordingly, for the reasons set out above, I propose, pursuant to s.5.6.5(a) of the new Act, to direct that the receiver pay all of the Crown settlement amount to the Legal Services Board.
The Confidentiality Issue
Like many settlement agreements, the Settlement Deed contained confidentiality provisions. Although at an early stage it may have been thought that Crown was seeking much wider orders in terms of the prohibition of information about the receiver's action against Crown and the settlement of that action, in fact all Mr Wyles sought on behalf of Crown was for the amount of the settlement to remain confidential.
It seems to me that the administration of justice has a very real interest in parties settling their disputes. The saving in terms of costs to the parties and the saving in judicial time and resources are important factors. Without a satisfactory rate of settlement the courts would be swamped with far too much litigation and would be unable to cope without a far greater commitment of scarce public funds. A party to a settlement has a legitimate interest in having the amount of any payment kept confidential Otherwise there is a risk that such information could be used to its detriment in other proceedings. A failure to uphold confidentiality provisions undermines the policy of encouraging parties to settle. I am therefore prepared, in the particular circumstances of this case, to make an order in the terms sought by Crown to protect the confidentiality of the size of the Crown settlement amount. Pursuant to r.28.05(2)(a) of the Supreme Court (General Civil Procedure) Rules 2005, the Court may order that a document remain confidential. However, rather than ordering that the whole of Mr Barravecchio's affidavit be made confidential, the effect of the proposed order is to keep only paragraphs 10 and 11 of Mr Barravecchio's affidavit and the exhibited Settlement Deed confidential.
Order
Subject to hearing further from counsel, the order I would propose making is to order and direct that:
1.Steven Sapountsis, the receiver of the trust property of Gabriel Werden ("the receiver"), pay to the Legal Services Board the whole of the amount paid to the receiver by Crown Limited in settlement of the proceeding brought by the receiver against Crown Limited, after deduction of the costs of the receiver of the said proceeding.
2.All copies of the affidavit of Joseph Ambrose Barravecchio sworn on 27 October 2005 ("the Barravecchio affidavit") which have been placed on the Court file, and exhibit JAB-5 to that affidavit (or any copies thereof) which have been and remain placed on the Court file, be sealed by the Prothonotary and not be made available for inspection by any person prior to 28 February 2026 without further order of the Court, such further order not to be made without 48 hours' written notice of the hearing of such application first being given to Crown Limited.
3.The receiver file and serve on Michael Di Pietro and upon the solicitors for Crown Limited a copy of the Barravecchio affidavit ("the redacted Barravecchio affidavit") in which:
(a)the text of paragraphs 10 and 11 is redacted and there is inserted in place of that text the following words:
"The text of paragraphs 10 and 11 of this the copy of the affidavit of Joseph Ambrose Barravecchio sworn on 27 October 2005 has been redacted pursuant to the Order of the Honourable Justice Habersberger made on 3 March 2006"; and
(b)exhibit jab-5 is made a confidential exhibit.
4.Until further order the publication by Michael Di Pietro of the information contained in paragraphs 10 and 11 of the Barravecchio affidavit and of the information contained in confidential exhibit JAB-5 to the Barravecchio affidavit to any person save his legal advisors be forbidden.
5. Liberty to apply be reserved.
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