Amil Dlakic by his tutor Liliane Dlakic v Michael John Vaughan

Amil Dlakic by his tutor Liliane Dlakic v Michael John Vaughan - [2023] NSWSC 679 - NSWSC 2023 case summary — Zoe

[3]

Outline of the dispute

The dispute between the parties was complex. For the purpose of making these reasons intelligible, I will now set out a brief explanation of the nature of the dispute.
Mr Dlakic and Mr Vaughan are solicitors of this Court. The dispute concerned the practice of the firm Johnston Vaughan. The principal of Johnston Vaughan was initially Mr Vaughan so far as the dispute is concerned. Mr Vaughan employed Mr Dlakic as an employed solicitor. By a deed dated 19 July 2010, Mr Vaughan sold the practice of Johnston Vaughan to Mr Dlakic for a price of $550,000. Mr Dlakic's practising certificate was suspended on 30 October 2014. Shortly thereafter, by a deed made on 25 November 2014, Mr Dlakic transferred the practice of Johnston Vaughan back to Mr Vaughan for payment of $1. This deed has been called the "buyback agreement" and is the principal subject of these reasons.
I dealt in J1 with a number of separate claims. Now relevant is a claim made by Mr Dlakic that the Court should declare that the buyback agreement was void or ought to be set aside, and should also make appropriate orders to compensate Mr Dlakic. I found at J1 [287] that, in principle, Mr Dlakic was entitled to an order setting aside the buyback agreement if the grant of that relief was available having regard to the relevant discretionary considerations. Alternatively, Mr Dlakic had a right to elect to affirm the buyback agreement and sue to enforce its terms.
As I noted at J1 [244], Mr Dlakic had not then elected whether he would ask the Court to grant him the relief that may be available according to whether he did, or did not, ask the Court to make an order setting aside the buyback agreement. That is an issue that remains relevant for the purposes of this judgment.
The Court was told at the recent hearing that Johnston Vaughan ceased to operate on 30 June 2019. A consequence was that, for all purposes, any consideration of Mr Dlakic being able to conduct the practice of Johnston Vaughan or to sell it became academic.

[6]

The final hearing

A final hearing in these proceedings took place on 20 to 22 March 2023. The primary issue for consideration was the adoption of Ms Exner's reports. As will be explained, a number of challenges to Ms Exner's conclusions emerged, and the Court was asked to determine a number of issues that Ms Exner had not decided.
At the hearing, both parties sought to tender a considerable amount of additional evidence. It was not immediately clear which parts of the evidence were properly admissible on an application the purpose of which was to adopt a referee's reports. The evidence related to communications between the parties concerning the conduct of the reference, communications with Ms Exner, and evidence concerning the substance of the dispute between the parties that may have related to issues that remain undecided, but which also on its face appeared to challenge the substantive conclusions reached by Ms Exner. When it became clear that the process of dealing with the admissibility of all of the evidence would be protracted and jeopardise the completion of the hearing in the allotted time, I ruled for practical reasons that I would provisionally receive all of the evidence, save for limited exceptions, on the basis that I would decide what evidence was admissible after the Court was given detailed written submissions by the parties as to why the evidence to be relied upon was admissible, having regard to the hearing being for the purpose of the adoption of a referee's reports and the principles that limit the evidence that is relevant on such a hearing.
It also became necessary for the Court to give the parties an opportunity to supplement their oral submissions by submissions in writing. For that purpose, Mr Dlakic delivered what were described as "skeleton" submissions on 5 April 2023. Mr Vaughan then responded by delivering detailed submissions filed on 28 April 2023 (the Defendant's Submissions). As Mr Vaughan had the carriage of a number of issues that were first explained in his submissions, Mr Dlakic was permitted to deliver detailed submissions in reply, which were filed on 18 May 2023. Finally, by leave, Mr Vaughan delivered submissions on 30 May 2023, which were permitted on the basis that they were to be strictly in reply.

[7]

Pleading issues that remain relevant

As I will explain below, these proceedings have been unusual in two significant respects. First, Mr Vaughan, by his amended defence, responded to Mr Dlakic's amended statement of claim almost exclusively by simply denying the allegations made by Mr Dlakic. Mr Vaughan made few positive allegations of fact. Secondly, in response to a notice to produce served upon him, Mr Vaughan produced virtually none of the books and records of Johnston Vaughan that a properly conducted solicitor's practice would be expected to retain and be able to produce. Both of these matters had a significant effect on the conduct of the proceedings.
As to the first of these matters, the consequence has been that there was no issue contested at the initial hearing in relation to a number of significant matters upon which Mr Vaughan has sought to rely in response to the findings in Ms Exner's reports, and for the purpose of the formulation of the final orders to be made by the Court. Not only was there no evidence on these matters at the initial hearing, but the questions that would be expected to have been put to Mr Dlakic in cross-examination were not put. Mr Dlakic's position is that Mr Vaughan has now lost the right to raise these matters.
First, in par 33 of his amended statement of claim, Mr Dlakic pleaded that from 25 November 2014, the date of the buyback agreement, to 18 April 2015, Mr Dlakic continued to pay the operating expenses of Johnston Vaughan from his own resources. Mr Dlakic did that because, as alleged in par 7, Mr Vaughan warranted and represented to him that Mr Vaughan would continue to pay the net income earned by Johnston Vaughan to Mr Dlakic. Mr Vaughan's response to par 13 in his amended defence was simply: "Denied". Mr Vaughan did not admit that Mr Dlakic had continued to pay the operating expenses of the practice, and allege that Mr Dlakic had been paid part of the profits earned by the practice. The result was that the Court found, at J1 [265], that Mr Dlakic did continue to pay operating expenses of Johnston Vaughan after the date of the buyback agreement, but there was no contest and no finding that Mr Vaughan had paid any of the profits of the practice to Mr Dlakic.
Secondly, Mr Vaughan did not in his amended defence make any allegation that, as a consequence of the suspension of Mr Dlakic's practising certificate, it would have been illegal for Mr Vaughan to have paid any part of the net profit of Johnston Vaughan after the date of the buyback agreement to Mr Dlakic, with the result that Mr Dlakic is not entitled to any remedy that would involve him receiving compensation calculated by reference to the revenue received by Johnston Vaughan after the date of the buyback agreement.

[10]

Deficient production of books and records by Mr Vaughan

As I have said above, Mr Vaughan did not respond to a notice to produce served upon him to produce to the Court before the original hearing the books and records of the practice of Johnston Vaughan that the Court would ordinarily assume must have been prepared in the ordinary course of the business of the practice. The absence of the expected books and records has confounded the ability of Mr Dlakic and the Court to deal with the proceedings in a complete and efficient way at the original hearing. Given the importance of the issue, it will be appropriate to repeat relevant aspects of J1. I began my consideration of the issue at J1 [98] as follows: [98] It will be convenient to end this consideration of the background facts by dealing with the absence of detailed evidence of the work done by Johnston Vaughan for clients, the amounts of fees billed, and the amounts of fees paid by clients at relevant times. Evidence of those matters may have been significant or helpful in relation to many issues in these proceedings, as it would have assisted the Court to have an objectively based understanding of the real nature of the firm's practice. That evidence would have been necessary to enable the Court to determine whether, and if so to what extent, Mr Vaughan did not pay Mr Dlakic fees received by Johnston Vaughan in respect of work done for clients before the date of the buyback agreement. It would have been material to an assessment of whether the consideration of $1.00 payable under the buyback agreement was inadequate. It would have been material to an understanding of the likely outcome of an accounting that will be necessary if the Court makes an order setting aside [the] buyback agreement.
The apparent inadequacy of production by Mr Vaughan was dealt with as a separate issue at the beginning of the hearing, as explained at J1 [104]-[105] as follows: [104] The first morning of the hearing was devoted to dealing with the consequences of Mr Vaughan's response to the notice to produce. An affidavit by Mr Vaughan sworn on 8 March 2018 and an affidavit of Mr Dlakic's solicitor, Mr Hugo Nicholas Antony Paul sworn 12 March 2018, were read in respect of the issue. I permitted counsel for Mr Dlakic to cross-examine Mr Vaughan on the adequacy of his response to the notice to produce. [105] I do not propose in these reasons for judgment to deal with this issue in any comprehensive way. The reason is that the result of the exercise was inconclusive. The available evidence does not permit the Court reliably to form a judgment about the extent to which documents falling within the categories sought in the notice to produce exist, what has been produced, or the comprehensiveness of what has been produced. All that the Court knows is that, as a matter of fact, the legal representatives for Mr Dlakic have sought to be in a position where they could tender on his behalf reasonably comprehensive business records of relevant transactions, but they have not been able to do so.
I expressed the following conclusions at J1 [111]-[112]: [111] The Court has no choice but to determine the issues that are before it on the basis of the evidence that has been tendered, but it should do that having regard to the appearance that Mr Dlakic's case has been impaired by the failure of Mr Vaughan to comply with the notice to produce in a complete and timely way. As it is clear that there has not been production of all of the documents that would have been prepared and retained in the ordinary course by a well-run firm of solicitors, the Court should be solicitous to an appropriate extent when considering the fact that in some respects Mr Dlakic has not been able to tender the best evidence that should have been available. [112] The deficiency in production will also have the effect that some issues that may otherwise have been capable of being determined finally on the evidence at the hearing will now need to be dealt with as part of an accounting process, if Mr Dlakic succeeds in one or other of his claims arising out of the buyback agreement.
The inadequacy of production by Mr Vaughan is therefore the reason why Mr Dlakic's claim could not finally be dealt with after the initial hearing, and explains much of the convoluted path that the proceedings have taken since J1 was published.

[11]

Findings on credibility

The findings that I made in J1 concerning the credit that should be accorded to the evidence given by Mr Dlakic and Mr Vaughan remain relevant to the determination of the remaining issues. In outline, I formed the following conclusions concerning the credibility of Mr Dlakic's evidence: [125] Notwithstanding these concerns, I formed the opinion from listening to Mr Dlakic in cross-examination that he was attempting to give genuine and truthful evidence to the best of his ability. [126] I accept that in most instances the evidence given by Mr Dlakic reflected his genuine present recollection of the relevant events. However, Mr Dlakic's evidence must be treated with due scepticism given the consequences of his psychological disabilities and the consequential effect on the process whereby his affidavits were prepared and his recollection of events established. I have attempted to exercise particular care to measure the plausibility of Mr Dlakic's evidence against the background of the objective circumstances, and have looked carefully for corroboration in the evidence given by the other witnesses called in Mr Dlakic's case. [127] There are a number of additional concerns that have caused me to exercise caution in weighing the significance of the evidence given by Mr Dlakic. … [131] Consequently, I have concluded that there is a real risk that Mr Dlakic has, over time, come to a reconstructed memory of Mr Vaughan's conduct which paints Mr Vaughan as the sole villain in Mr Dlakic's affairs.
In the case of Mr Vaughan, I stated the following conclusions in J1: [133] I regret to have to say that I found Mr Vaughan to be an unsatisfactory witness. [134] The abiding sense that I gained listening to Mr Vaughan's cross-examination was that he was bemused as to how he could explain his conduct, both in respect of his unconscionable treatment of Mr Dlakic, and the fundamental inconsistencies between his own affidavit evidence and the objective facts. [135] Mr Vaughan's evidence was unsatisfactory in a structural sense, in the manner of its being given in cross-examination, and its fundamental inconsistency with the objective evidence. … [137] Consequently, I am not prepared to give significant weight to most of the evidence given by Mr Vaughan in his affidavits. … [147] Consequently, I have not accepted Mr Vaughan's evidence except to the extent that it is corroborated by evidence that I am prepared to accept, or its acceptance is warranted on the basis that it is the most consistent conclusion to draw by reference to the objective evidence.

[12]

The buyback agreement claims

I explained the claims made by Mr Dlakic concerning the buyback agreement at J1 [242]-[244] in the following terms: [242] The first of the claims is that the buyback agreement is either void or should be set aside. The second assumes the continued effectiveness of the buyback agreement, and claims damages for failure by Mr Vaughan to pay to Mr Dlakic fees received in respect of work done before the date of the buyback agreement, in breach of a term of that agreement. [243] As I understand Mr Dlakic's case, the second of these claims will not logically arise if he succeeds on the first. If the buyback agreement is void or is set aside, then Mr Dlakic will continue to be legally entitled to all fees earned by Johnston Vaughan before the date of the buyback agreement, and Mr Vaughan will be liable to account to Mr Dlakic for all such fees that were received afterwards. [244] Mr Dlakic has not yet elected which of these two alternative remedies he wishes to obtain. If he is entitled to an order setting aside the buyback agreement, and he elects for that remedy, then the benefit of that remedy to him in money terms will depend upon what is determined from a reconstruction of the accounts of Johnston Vaughan. That is an exercise that has not yet been done. It is not yet clear that it can be done, but the question of whether or not it can be done cannot be answered at present because of the late and incomplete production of documents by Mr Vaughan in response to Mr Dlakic's notice to produce. If the buyback agreement is set aside, then Mr Dlakic will be entitled to all of the fees received, but he will also be responsible for all of the expenses and other outgoings of the practice. Those expenses may include an allowance for remuneration for Mr Vaughan for the work that he did in carrying on the practice of Johnston Vaughan. The evidence before the Court at present does not demonstrate whether Johnston Vaughan made a profit, and if so what that profit was. It is conceivable that the more advantageous remedy to Mr Dlakic would be to leave the buyback agreement in effect, and obtain the benefit of an order that Mr Vaughan pay to him all fees received by the practice after the buyback agreement in respect of work done before. The position is unclear.
I made the observations in J1 [243]-[244] concerning Mr Dlakic's entitlement to the net profit of Johnston Vaughan if the buyback agreement was set aside, as Mr Vaughan had not pleaded a defence based upon the claim that a consequence of the suspension of Mr Dlakic's practising certificate was that the payment of any part of the net profit to Mr Dlakic would have been illegal.
As I will explain below, the subsequent history of these proceedings has been bedevilled by the issue of whether Mr Dlakic made the election concerning the remedy that he wished to have after the date of publication of J1, if so what the consequences of the election were, and whether any election made by Mr Dlakic was binding upon him.
I described the representation upon which Mr Dlakic relied at J1 [246]. That representation was that, notwithstanding the buyback agreement, Mr Vaughan would continue to pay the net income of Johnston Vaughan to Mr Dlakic. I found that that representation was a misrepresentation and that it gave rise to an entitlement in Mr Dlakic to rescind the buyback agreement. I also found that Mr Vaughan's conduct was unconscionable in entering into the buyback agreement because he took advantage of significant vulnerabilities from which Mr Dlakic suffered. I reached the following conclusions at J1 [287]-[288]: [287] I consider that the evidence overwhelmingly justifies a finding that Mr Vaughan took advantage of a special disadvantage from which he knew Mr Dlakic suffered, so that Mr Dlakic will be entitled to an order setting aside the buyback agreement, if the grant of that relief is available having regard to relevant discretionary considerations. [288] In my view the granting of that relief would separately be justified on the basis of Mr Vaughan's misleading and deceptive conduct in representing to Mr Dlakic that he would continue to receive the income of Johnston Vaughan after the date of the buyback agreement. I am satisfied that when Mr Vaughan gave that assurance to Mr Dlakic, he did not have any genuine intention to implement it. However, in the circumstances of this case, the preferable course is to treat Mr Vaughan's conduct in making the misrepresentation to Mr Dlakic as being an aspect of his taking advantage of the special disadvantage from which Mr Dlakic suffered.
In the conclusion to my judgment I made the following observations concerning the consequences of the inadequacy of the books and records of Johnston Vaughan that Mr Vaughan had produced to the Court in relation to the determination of the relief to which Mr Dlakic was entitled: [474] I have discussed on a number of occasions the apparent significance of the inadequate response by Mr Vaughan to the notice to produce that was served upon him by Mr Dlakic. I have taken the view that the absence of adequate documentation concerning the affairs of Johnston Vaughan has had serious consequences to the conduct of these proceedings. Primarily, it has impaired Mr Dlakic's ability to make considered choices about the relief that he should pursue. It has also impaired the capacity of the Court to make case management orders for the just, quick and cheap completion of these proceedings. As to this last matter, the Court would hesitate simply to make an order that an accounting take place, without the Court having an adequate understanding of the practical consequences and being able to facilitate an appropriate and cost-effective determination of the remaining issues. [475] I should make it clear that I do not contemplate that the parties will be permitted to lead further evidence where that evidence could have and should have been led at the hearing, to enable them to remedy any deficiencies in the cases that they have presented. On the other hand, I am satisfied that it will not be appropriate for the Court simply to make case management orders and then leave the parties to pursue the attempt on Mr Dlakic's part, that has failed thus far, to gather the documents that ought to exist concerning the financial affairs of Johnston Vaughan at relevant times. That is an exercise that should take place first, and should be facilitated by the full force of the Court to ensure that all available documents are produced in a timely and complete fashion. Only then will the Court and the parties have some chance to determine how these proceedings should be brought to a proper conclusion.
This aspect of J1 will be relevant when I come to consider Mr Vaughan's proposal to rely upon two additional affidavits insofar as those affidavits contain evidence that could have been led at the original hearing.

[16]

Consequences of rescission of the buyback agreement

In J2, I made a number of observations concerning the issues that would need to be addressed if Mr Dlakic elected to rescind the buyback agreement, at J2 [15]-[18], as follows: [15] As to the setting aside of the buyback agreement, as recorded in the principal judgment, shortly before the buyback agreement was made, the Law Society of New South Wales (Law Society) appointed a receiver for the law firm, Johnston Vaughan, which was then solely owned, or so it seemed, by Mr Dlakic. That step was taken by the Law Society in conjunction with other steps that led to the suspension of Mr Dlakic's practising certificate. As I understand it, Mr Dlakic remains unable to practice as a solicitor in this State. It is unlikely that Mr Dlakic will ever again become entitled to practice, and, as I understand it, Mr Dlakic is in the course of legal proceedings against an insurer that are based upon a claim by him that he is totally and permanently incapacitated from his former employment as a solicitor. [16] Consequently, if the buyback agreement is to be set aside, the Court will need to consider the possibility that the reinstatement of Johnston Vaughan to Mr Dlakic will be futile, and whatever value remains in the firm will be lost, by reason of the fact that Mr Dlakic is legally prohibited from carrying on the firm's business. [17] If the buyback agreement is set aside, then Mr Dlakic will become entitled to the net profit from the operation of the firm during the period after the date of the buyback agreement, during which it has been managed by Mr Vaughan. Mr Vaughan will be entitled to receive an appropriate amount of remuneration for his efforts. As recorded in the principal judgment, the financial records of Johnston Vaughan leave much to be desired, and provide an unsatisfactory foundation for the determination of the net profit for the relevant period. [18] At the hearing, Mr Dlakic complained, with considerable justification, that the consequence of his unsuccessful efforts to obtain full and accurate financial records for the operation of the firm for the relevant period from Mr Vaughan had the result that Mr Dlakic was unable to prove at the hearing the amount to which he would become entitled if the buyback agreement was set aside. As a result, it was not feasible for the Court to determine that issue on the basis of the evidence led at the hearing. The consequence is that the Court will now have to make appropriate orders for the conduct of an account to determine what, if any, net profit must be paid by Mr Vaughan to Mr Dlakic. That is one of the difficult issues that the Court must now determine.
Then, at J2 [23]-[41], I considered the issues involved in making an order setting aside the surrender of the lease of the premises from which Johnston Vaughan's practice was conducted, and, at J2 [42]-[49], the evidence presented by Mr Dlakic concerning a possible sale by him of the practice of Johnston Vaughan, if he rescinded the buyback agreement. Significantly for present purposes, I considered the procedural steps that would have to be undertaken to try to establish the necessary financial circumstances of Johnston Vaughan at relevant times in order to ascertain the information that would be necessary to enable Mr Dlakic to make a considered election as to the relief that he should choose: [71] The next unfinished aspect of this matter is to deal with the orders necessary to implement the accounting that must be undertaken to determine the amount, if any, to which Mr Dlakic is entitled, as a result of the setting aside of the buyback agreement, in the context of the unusual agreement that the Court found in the principal judgment to have been made between Mr Dlakic and Mr Vaughan, to the effect that Mr Dlakic would continue to enjoy the profits of the practice, and be responsible for its debts, notwithstanding the buyback agreement. [72] Orders should be made now to enable the accounting to take place, notwithstanding that I have continued to reserve my decision as to whether an order setting aside the buyback agreement should be made by the Court until after the issue of whether the surrender of lease should also be set aside has been determined. The reason is that the Court did not have before it the evidence necessary for it to decide what amount Mr Dlakic is entitled to from the conduct of the practice of Johnston Vaughan after the date of the buyback agreement, and that amount will have to be determined anyway, even if the buyback agreement is not set aside, as that amount would form part of any equitable compensation to which Mr Dlakic would be entitled. [73] The parties are agreed that the accounting should be undertaken by way of a reference under Division 3 of Part 20 of the Uniform Civil Procedure Rules 2005 (NSW). [74] It will be appropriate for the Court to adapt the draft orders for reference submitted by Mr Dlakic. … [79] On the other hand, Mr Vaughan is entitled to the net profit being assessed on the basis that he was entitled to receive proper and reasonable remuneration, given that he was notionally an employee of the practice who performed all of the duties of its sole principal. [80] Apart from the allowance for Mr Vaughan referred to in the preceding paragraph, I am not willing to stipulate the matters that the referee should be required to take into account in determining the net profits of the practice. It is already apparent that the referee's task will be impeded by the lack of comprehensive and reliable financial records for the practice. The parties will have to make submissions to the referee as to the most cost efficient manner for the reference to be conducted in the first instance. Both the parties and the referee will be given liberty to apply to the Court for directions to resolve any difficulties.

[17]

Orders made following J1 and J2

The Court made orders to give partial effect to J1 and J2 on 14 May 2019. The orders that remain relevant at this stage of the proceedings are: The Court … 7 Orders that the Defendant be restrained, until further order of the Court, from destroying or removing from the premises of Johnston Vaughan or elsewhere, by himself or others engaged by him, any documents (physical and/or electronic) and things of or relating to the legal practice Johnston Vaughan. 8 Reserves the issue of whether the Defendant should be ordered to account to the Plaintiff for the net income of Johnston Vaughan for the period from 24 November 2014, or whether, alternatively, the Defendant should be ordered to pay equitable compensation to the Plaintiff, until the Court has determined whether to make an order setting aside the buyback agreement. 9 Orders that the proceedings be referred to a referee, who is to be a qualified forensic accountant, as agreed between the parties within 10 days of the publication of this judgment or, failing such agreement, to be appointed as soon as reasonably practicable by the president of the Institute of Chartered Accountants in Australia, for determination of the amount for which the Defendant will be liable to account to the Plaintiff for the net income of Johnston Vaughan for the period from 24 November 2014 to the date of the report, if the Court makes an order that the Defendant account to the Plaintiff in that manner. This amount is to be a sum which fairly and equitably in all the circumstances is the best estimate of the likely net profit of the business of Johnston Vaughan over the relevant period, taking into account the accounts rendered, income received, genuine expenses, including expenses which were paid by the Plaintiff, and making an allowance to the Defendant for his work in that business as is reasonably appropriate for a solicitor performing the function of the sole principal of the practice. 10 Orders that the referee be provided by each party with one (1) accounting report relating to the sum that that party contends ought to be paid on account; and the underlying source material which the Defendant has made available to the Plaintiff in the course of these proceedings. 11 Grants liberty to the parties and the referee to apply to the Court for advice and directions in relation to the conduct of the reference. 12 Grants liberty to the parties to apply in relation to the adoption of the referee's report. 13 Orders the Defendant to pay the reasonable costs of the reference in the first instance, without prejudice to the right of the Defendant to require the costs of the reference to be assessed. … 17 Orders the Defendant to pay the Plaintiff's costs of these proceedings, other than the claims made by the Plaintiff for damages for professional negligence in respect of the loans made by Mr Fetin and Dr Vince pleaded in pars 34-45 and 46-53 respectively of the amended statement of claim (the professional negligence claims). 18 Orders the Plaintiff to pay the Defendant's costs of the professional negligence claims. … 22 Grants liberty to the parties to apply on 3 days' notice by arrangement with the Associate to Robb J.

[18]

Procedural history after J2

The Court made further procedural orders on 20 June and 5 August 2019 that do not require explanation. It will be convenient to note that the Court was informed by agreement of the parties at the recent hearing that the practice of Johnston Vaughan ceased to operate between these two dates, on 30 June 2019.
On 8 August 2019, the Court made further orders, including an order appointing Ms Exner as the referee and an order varying order 9 made on 14 May 2019 concerning the terms of the reference. Mr Dlakic makes a specific claim for an order for the costs of the hearing on this date against Mr Vaughan. The orders made on that date which remain relevant are: The Court 1. By consent makes orders in terms of the Order signed by Robb J and dated today's date. 2. Notes that the consent of the defendant is without prejudice to its claim that the plaintiff has already made an election concerning the form of relief to which he is entitled. 3. Notes that the defendant has informed the Court that he chooses as the referee the person named in order 2(b) of the Order, if she is prepared to accept the appointment. 4. Grants leave to the parties to apply to the Court by arrangement with the associate to Robb J for any further orders considered necessary to facilitate the conduct of the reference. 5. Stands the proceedings over to 9:30am on 24 October 2019 for directions in respect of the receipt of the expert's report and any other necessary case management orders. … Order … 2 Within seven days, the Defendant choose one of the following chartered accountants: … (b) Jennifer Exner of Deloittes; or … to be appointed as Referee for the purpose of Order 9 of the Orders of 14 May 2019 (as amended by these orders) 3 Order 9 of the Orders made on 14 May 2019 be varied to read as follows: Orders that the proceedings be referred to the referee selected by the Defendant from the list proposed by the Plaintiff and contained in the court's orders of today's date, for determination of both: (a) the amount for which the Defendant will be liable to account to the Plaintiff for the net income of Johnston Vaughan for the period from 24 November 2014 to the date of the report, if the Court makes an order that the Defendant account to the Plaintiff in that manner. This amount is to be a sum which fairly and equitably in all the circumstances is the best estimate of the likely net profit of the business of Johnston Vaughan over the relevant period, taking into account the accounts rendered, income received, genuine expenses, including expenses which were paid by the Plaintiff, and making an allowance to the Defendant for his work in that business as is reasonably appropriate for a solicitor performing the function of the sole principal of the practice; and (b) the fair market value of the legal practice Johnston Vaughan as at both 25 November 2014 and 27 September 2018, as well as (separately) the quantum of all monies paid by the plaintiff to the expenses of Johnston Vaughan subsequent to 25 November 2014, for the purposes of calculating the quantum of any equitable compensation payable to the Plaintiff by the Defendant by reason of the latter's unconscionable conduct, if the Court makes an order for equitable compensation. … 6. Costs be reserved.
As is evident from order 1, the orders were made by consent. I understood at the time I was asked to make the orders that the parties had conferred and agreed that the orders were appropriate for the purpose of proceeding to the final determination of the proceedings.
By note 2, Mr Vaughan preserved his position in relation to his belief that Mr Dlakic had already made a binding election concerning the relief to which he was entitled.
Order 3 in the short minutes of order effected a variation of order 9 that the Court made on 14 May 2019. I understood that the parties had agreed that the issues that the varied order 9 required Ms Exner to determine would be sufficient to enable Mr Dlakic to elect as to the remedy he wished to have and to enable the Court to make whatever final orders were necessary to determine the proceedings.
I had formulated order 9 as made on 14 May 2019 in draft form in J2, on the basis that the parties were given an opportunity to respond to the draft before formal orders were made. It should be noted that by the consent orders made on 8 August 2019, the Court, on the application of the parties, made the original order 9 into order 9(a), and added a new order 9(b). The parties must have agreed that there would be utility in the referee deciding the additional issue.
Both the original and the varied order 9 were specifically formulated to deal with the problem that the final determination of the proceedings would require the referee to determine questions concerning the finances of the practice of Johnston Vaughan in circumstances where it was already known that the books and records of the practice as produced by Mr Vaughan were inadequate for the purpose. The Court did not order that the determination be made by a referee solely for reasons of expediency. Ms Exner was appointed as referee because of her expertise as a forensic accountant. As such, Ms Exner was likely to be in a better position than the Court to make judgments that may be necessary to make the most reliable findings that were possible in the face of the inadequacy of the financial records. In this regard, the Court consciously deferred in the fact-finding process to the expertise of the referee as being more likely reliable than if the Court had attempted to carry out the same exercise.
On 27 September 2019, it was necessary for the Court to make a number of specific orders concerning the conduct of the reference to ensure that the difficult exercise that had been accepted by Ms Exner would proceed as efficiently as possible. The Court's orders were: The Court 1. Directs the parties by their solicitors by 4pm on Tuesday, 1 October 2019 to sign and send to Jennifer Exner of Deloitte Australia, the referee appointed pursuant to the orders of the Court made on 8 August 2019, a letter on the plaintiff's solicitor's letterhead in the form attached to these orders and marked attachment "A". 2. The direction in paragraph 1 is without prejudice to the parties' entitlement to apply to the Court for leave to provide further materials to the referee. 3. Directs the parties to confer for the purpose of determining what additional material should be provided to the referee in respect of the subject matter of the affidavit of the defendant sworn 26 September 2019 and to provide to the associate to Robb J by 11 October 2019 a draft of any agreed letter to the referee or alternative drafts prepared by each of the parties in respect of the receipt by the referee of that material. 4. Directs the plaintiff by 4pm Friday, 4 October 2019 to provide to the defendant and the associate to Robb J a schedule of all information and actions which the plaintiff wishes to receive or take or have taken in relation to the compliance by the defendant with any orders in that regard previously made by the Court or necessary for the purposes of the reference, together with an explanation of the reasons for the necessity for that information to be received or those steps to be taken. 5 Directs the defendant by 4pm on 11 October 2019 to deliver to the plaintiff and the associate to Robb J a schedule that specifically engages with the plaintiff's schedule and contains the defendants response on an item by item basis. 6. Stands the proceedings over to 4pm on Tuesday, 15 October 2019 before Robb J to resolve the outstanding questions the subject of these directions or alternatively to make directions to enable the resolution of those questions.
Attachment "A" to these orders was a draft letter dated 27 September 2019 addressed to Ms Exner that made provision for signature by the solicitors for both Mr Dlakic and Mr Vaughan. The draft letter contained an overview of background facts and then stated the "Tasks required to be undertaken" in the following terms: Pursuant to the orders of the court, you are required to undertake two tasks: 1. Task 1: The amount (if any) the defendant is liable to account to the plaintiff for the net income of Johnston Vaughan for the period from 24 November 2014 to the date of the report. This amount is to be a sum which fairly and equitably in all of the circumstances is the best estimate of the likely net profit of the business of Johnston Vaughan over the relevant period, taking into account the accounts rendered, income received, genuine expenses, including expenses which were paid by the Plaintiff, and making an allowance to the Defendant for his work in that business as is reasonably appropriate for a solicitor performing the function of the sole principal of the practice; and 2. Task 2: The fair market value of Johnston Vaughan as at both 25 November 2014 and 27 September 2018, as well as (separately) the quantum of all monies paid by the plaintiff to the expenses of Johnston Vaughan subsequent to 25 November 2014.
The draft letter then set out the information that was then available to the parties that was thought to be relevant to the preparation of Ms Exner's report. It will not be helpful to set out the list in these reasons. The information provided was at least deficient in the sense that, because of the deficiencies in the information provided by Mr Vaughan to Mr Dlakic that have been explained above, the parties were unable to provide Ms Exner with comprehensive records of the practice of Johnston Vaughan for the relevant period. The draft letter ended: "If you require any further information or instructions, please do not hesitate to contact the parties, whose details are set out above."
These orders were formulated by the parties in consultation with the Court. Orders 4 and 5 represented a specific attempt by the Court to require the parties to direct their attention to the additional information that they wished Ms Exner to have so that she could make the most specific and reliable findings that were possible on the basis of that information in respect of the tasks that she was appointed to undertake. It was the Court's intention that the parties would have a last and final opportunity to put information to the referee, so that her findings would be as accurate as possible and would be final. However, the orders were not intended to contradict the observations made in J1 [474]-[475] concerning the prohibition on the reliance on evidence that ought to have been made available before the first hearing. The orders were made on the assumption that there may be collateral evidence relevant to the completion of the tasks given to Ms Exner that might alleviate the difficulties caused by the deficiencies in the books and records of Johnston Vaughan.
On 28 August 2020, Mr Dlakic filed a notice of motion the objective of which was to obtain an order that Mr Vaughan pay Ms Exner's costs as required by order 13 made by the Court on 14 May 2019. On 6 November 2020, Parker J made the following orders in the Applications List: 1. I make the orders and notations in the Short Minutes of Order initialled by me and dated today. SHORT MINUTES OF ORDER 1 Without prejudice to the right for the Defendant to have the costs invoiced by Deloitte assessed as to their reasonableness the Defendant will make payment of the invoices for the work pursuant to the orders of Robb J made on 14 May 2019 and the letter and scope of works and attached terms and conditions dated 28 November 2019 as follows: a. make payment of the outstanding invoice in the sum of $34,254 on or before 27 November 2020, b. make payment of any further invoices issued by Deloitte within 28 days of receiving the invoice. 2 Each party is to pay their own costs of and incidental to the motion filed by the plaintiff 28 August 2020. 3 The Court notes the email received from Deloitte and placed on the court file consenting to and being bound by the above orders.
On 10 March 2021, Mr Dlakic filed a notice of motion in which he sought the following orders: 1. An order, pursuant to rule 20.17(1)(c), rule 20.20(1) or alternatively rule 20.21 of the Uniform Civil Procedure Rules 2005 (NSW) that the Defendant within 7 days of the date of this Order provide the information and documents requested by Deloitte in their letter dated 3 December 2020. 2. That the Defendant pay the Plaintiff's costs of and incidental to this motion on an indemnity basis.
I understood that, at the time the Court was asked to make this order, Ms Exner had decided that it was necessary to request further information from Mr Vaughan and had made that request in a letter dated 3 December 2020.
Mr Dlakic seeks a specific order for his costs to be payable by Mr Vaughan in respect of a short hearing on 25 March 2021, after which the Court made the following orders: The Court by consent makes orders in terms of the short minutes of order signed by Robb J and dated today's date. Short minutes of order 1 The Court notes the undertaking given to the Court by the defendant to use his best endeavours to provide a response to the matters raised and the information sought in the letter from Jennifer Exner, of Deloitte Risk Advisory to Mr Nicholas Gibbs of Mills Oakley, Solicitors dated 24 March 2021 by close of business on Friday 16 April 2021. 2. Stand the plaintiff's motion and these proceedings over to 9:15am 3 May 2021 before Robb J. 3. The costs of and incidental to the plaintiff's Notice of Motion be reserved.
Mr Vaughan gave this undertaking to the Court because he had apparently not responded in due time to a request for information made by Ms Exner on 16 April 2021.
Mr Dlakic also seeks an order for costs against Mr Vaughan in respect of a further brief hearing that occurred on 3 May 2021, which lasted about eight minutes, at which the following orders were made: The Court 1 Stands the plaintiff's notice of motion filed 10 March 2021 over to Wednesday, 9 June 2021 at 9:15am for directions. 2 Reserves costs.
As appears from the transcript for this hearing, counsel for Mr Dlakic informed the Court that the parties had received an email from Ms Exner advising that she was working with the information that had been provided by the parties on the assumption that there was no more material to come. On that basis, Mr Dlakic sought an order that his notice of motion be stood over until 10 March 2021. Counsel advised the Court that it was likely that the only matter that would be outstanding was the issue as to costs.
Mr Dlakic provided his submissions on the costs issue to the Court. At the hearing on 9 June 2021, the Court made an order that Mr Vaughan provide his submissions on the issue of costs within seven days and stood the proceedings over to 9 July 2021.
Ms Exner delivered her initial referee's report on 28 May 2021. I will refer to the relevant parts of that report below.
At the final hearing, the parties tendered a considerable amount of correspondence between their solicitors and with Ms Exner concerning the conduct of the reference. It would ordinarily not be necessary for the Court to give close attention to correspondence of this nature on an application to the Court to adopt a referee's report. I propose to consider the correspondence only to the extent that it is strictly necessary for the Court to do so. One aspect of the correspondence that should be recorded is a letter from the solicitors for Mr Dlakic to Michael Vaughan & Co (Mr Vaughan having established a new practice in that name after the practice of Johnston Vaughan ceased, and having become his own solicitor in the proceedings) dated 24 August 2021. The letter included the following statement: 4. It is the plaintiff's position by electing to pursue the alternate remedy and no longer seeking to have the Buyback Agreement set aside, the plaintiff is entitled to an order for compensation, that includes: a. The net profit received by the practice after the buyback agreement in respect of work done before the buyback agreement (the Adjusted Net Profit); b. The expenses paid by the plaintiff on behalf of the practice after the date of the buyback agreement (the Expenses Issue); and c. The value of the practice (the Valuation Issue). (Together, the Exner Issues). 5. Ms Exner has produced a report dated 28th May 2021 (the Exner Report) that addresses the Exner Issues in the following ways: a. The Adjusted Net Profit - "Task 1 Net profit of Johnston Vaughan" (Section 4); b. The Expenses Issue - "Task 3 Monies paid by the Plaintiff towards the expenses of Johnston Vaughan" (Section 6); and c. The Valuation Issue - "Task 2 Value of Johnston Vaughan at the relevant dates" (Section 5).
This extract from the 24 August 2021 letter was made, as it states, after Ms Exner had delivered R1 and was made in response to that report. It appears, although the meaning of the letter may not be clear, that Mr Dlakic had decided on the basis of the conclusions reached by Ms Exner that it was in his interests to elect to affirm the buyback agreement, and to sue to enforce the agreement. Clause 4 of that agreement has been set out at [21] above. It entitled Mr Dlakic to be paid the fees received by Mr Vaughan after the date of the buyback agreement from work in progress before that date, less the costs of disbursements incurred by Mr Vaughan in respect of that work in progress. Mr Dlakic evidently understood that, if he affirmed the buyback agreement, he would become entitled to receive the amounts described in par 4 of his solicitors' letter.
On 9 July 2021, the Court made the following orders: The Court 1 makes orders in terms of the short minutes of order signed by Robb J and dated today's date. 2 grants leave to the parties to relist the proceedings by arrangement with the Associate to Robb J. Short minutes of order THE COURT ORDERS THAT: 1. The Court notes that the plaintiff elects to seek equitable compensation for damages for breach of the Buyback Agreement. 2. The plaintiff to provide any further submissions to Ms Exner seeking her further opinion, clarification or comment in respect of any matters raised in her report dated 28 May 2021 and any further material for her consideration by 30 July 2021. 3. The defendant to provide any response to Ms Exner in relation to any submissions or material provided to her by the plaintiff pursuant to Order 2 above by 20 August 2021. 4. Within 14 days of any further report produced by Ms Exner, the plaintiff is to provide proposed orders to the defendant which he seeks be made by the Court including the adoption of Ms Exner's report dated 28 May 2021 or any subsequent report, the quantification of all aspects of his claim and any further orders in terms of cost of the proceedings or reserved costs (the Proposed Orders). 5. Within 7 days of the defendant being provided with the Proposed Orders, the defendant is to notify the plaintiff and the Court of his consent or opposition to the Proposed Orders. 6. In the event of any opposition to the Proposed Orders, the defendant is to file and serve submissions setting out his opposition to the Proposed Orders within 7 days of receipt of the Proposed Orders (the Defendant's Submissions). 7. The plaintiff is to file and serve submissions in response to the Defendant's Submissions within 7 days of receipt of the Defendant's Submissions. 8. The matter is to be listed for directions in respect of the Proposed Orders on 14 September 2021 at 9:15am before Robb J. 9. Reserve the costs of the appearance today.
Mr Dlakic seeks an order that Mr Vaughan pay his costs of 9 July 2021.
The Court was apparently asked to make the note in par 1 of the short minutes of order made on 9 July 2021 because of the position taken by Mr Dlakic as disclosed in par 4 of his solicitors' 24 August 2021 letter.
On 15 December 2021 and 3 February 2022, the Court was asked by the parties to make orders by consent that had the effect of varying orders 4 to 7 made on 9 July 2021 to extend the dates for the parties to comply with orders 4 to 7. I infer that the extensions were sought because Ms Exner had been asked to reconsider some of the conclusions that she had reached in R1. Ms Exner delivered her supplementary report, R2, on 6 December 2021.

[19]

The final hearing

The final hearing in these proceedings began on 20 March 2023. In essence, most of the hearing was occupied by a dispute between the parties concerning whether Mr Dlakic had made an election in relation to the remedy that he had chosen that bound him to affirm the buyback agreement. That position appears consistent with the statement in Mr Dlakic's solicitors' 24 August 2021 letter that is set out above. Mr Vaughan appears to have thought that, if Mr Dlakic elected to affirm the buyback agreement, he would be entitled to compensation that included the value of the practice of Johnston Vaughan. Notwithstanding that Ms Exner had found that the practice had a value, Mr Vaughan went to considerable lengths in his new evidence and submissions to try to persuade the Court that it should not adopt Ms Exner's finding, and should find that the practice had no value. Apparently, Mr Vaughan directed much of his energy during the reference to trying to persuade Ms Exner to assign a nil value to the practice.
On the other hand, Mr Dlakic appeared to understand that, whichever election he had made, he would be entitled to relief that included the net profit of the practice of Johnston Vaughan until it ceased to operate. I should note that, at the hearing, Mr Dlakic abandoned the claim that he was entitled to both the net profit of the practice and to the value of the practice at the date of the buyback agreement.
The Court made some observations during the hearing to the effect that the parties may not have correctly understood the consequences of the two alternative forms of relief between which Mr Dlakic initially had the right to elect.
During the course of the hearing, Mr Dlakic apparently realised that the election that he originally appeared to have made might not give him the relief that he expected, and he changed his position to assert that, whatever he had said on the issue of an election, that was not binding upon him, and that he was not required to elect between the alternative remedies until the Court had finally determined the monetary value of the two alternative forms of relief.
After submissions were made by the parties on the issue, Mr Vaughan conceded on the last day of the hearing that Mr Dlakic retained the right of election that he claimed to have: see T 105.21. The result was that the clouds of obscurity parted and some sun shone in. Although much of the hearing had been wasted, the Court would not be required to decide the issue of whether Mr Dlakic had made an election between inconsistent remedies that was binding upon him, either as a matter of law, or because Mr Vaughan had conducted the reference in a way that had the effect that Mr Dlakic was estopped from changing his position. Although the issues to be decided were simplified in that way, instead of the Court only having to receive evidence relevant to the quantification of one form of relief, it is now required to determine the quantification of each form of relief, so that Mr Dlakic can then elect between them. As it happens, that outcome makes the issue of what evidence was admissible at the hearing more complicated, as the Court will now be required to deal with evidentiary disputes in relation to the form of relief that Mr Dlakic will later elect not to take.
As the greater part of the hearing was directed at a false issue that disappeared on the last day, the Court did not have time to determine all of the evidentiary disputes that arose during the course of the hearing. Further, the parties did not leave themselves sufficient time to make proper oral submissions.
The parties contested the reception into evidence of two affidavits sworn by Mr Vaughan on 28 February 2022 and 2 August 2022, both dates being after Ms Exner had delivered her two reports. As I understood the content of those affidavits, they were largely occupied with providing evidence going to the facts relevant to the issues determined in Ms Exner's reports, for the purpose of persuading the Court not to adopt aspects of the report on the grounds that Ms Exner had reached false conclusions. Had there been time for the Court to examine the affidavits in detail, I would have immediately rejected all parts of the affidavits that had been sworn for that purpose. That would have been on the ground that it was too late after the conclusion of the reference, having regard in particular to orders 4 and 5 made by the Court on 27 September 2019, to permit Mr Vaughan to tender new evidence at the final hearing. Furthermore, after the end of the original hearing, it had become impossible for Mr Dlakic to fairly deal with evidence that had not been put to him in his cross-examination. I would have made a similar ruling to the ruling that I made in J2 [11]-[12].
However, the admissibility of Mr Vaughan's new affidavits was complicated by the fact that both Mr Dlakic and Mr Vaughan submitted that there were some issues in respect of which they were, in principle, entitled to tender further evidence in the proceedings because, for one reason or another, Ms Exner had not dealt with, or declined to deal with, the relevant issues as part of the reference. That position, as adopted by both parties, left open the possibility that some of the additional evidence relied upon by both parties might properly be admissible at the hearing. The parties had not left the Court sufficient time to deal with that possibility in a detailed way.
There was also a problem with the way that the parties had presented the documentary evidence to the Court in their court books. Only three Court books were required for the original hearing to determine liability. Each party provided a separate two lever arch volume court book to the Court at the final hearing. The separate court books overlapped to some extent. Some documents upon which Mr Dlakic wished to rely were in Mr Vaughan's court book but not his own. Pages 78 to 127 of the first volume of Mr Vaughan's court book were not in the folder where they ought to have been, but the Court was told that they had been inserted at the end of the second folder. When counsel for Mr Vaughan started to tender documents from Mr Vaughan's court book in a serial fashion, it became apparent that he was making submissions as to the admissibility of documents that had already found their way into evidence as part of Mr Dlakic's court book.
The parties ultimately agreed to cooperate to provide a single joint court book, as they should have done in the first place. The Court now has the benefit of having three sets of Court books; the two overlapping but incomplete court books which it worked on during the hearing, and a new untouched court book that is apparently complete but is ordered in a different way to the court books that the Court was required to use during the hearing.
The Court was not given time to rule upon the admissibility of all of the documents that are now in the joint court book. That is problematic, because, in principle, most of the documents should not be admissible, as they constitute communications between the parties and between the parties and the referee concerning the reference, or they contain evidence that should not have been provided to the referee because it was not properly dealt with at the initial hearing, or because it should have been provided to the referee, but was not. Yet it is possible that some aspects of the documentary evidence may be properly admissible because there is some issue relevant to the relief to which Mr Dlakic is entitled that the Court must determine - as separately claimed by each party - but was not determined by Ms Exner.
As stated, the Court was forced by circumstances to rule that it would receive Mr Vaughan's two affidavits and the documents in the joint court book provisionally, on the basis that it would rule on the admissibility of the evidence in these reasons for judgment: see T 82.50-83.50. Furthermore, I ruled that the parties would be required to deal specifically in the written submissions that had by that stage become necessary with the admissibility of each document upon which they wished to rely. The Court did not accept the burden of going through the whole of Mr Vaughan's two affidavits and the joint court book to rule individually on the admissibility of all parts of that evidence. The Court required the parties to identify and to justify the admissibility of each aspect of the new evidence upon which they wished to rely in their written submissions: see T 103.30-103.42.

[20]

Ms Exner's reports

It will be convenient to consider the two reports delivered by Ms Exner together, as the only effect of R2 is to correct a small number of errors in R1. I will signify the changes by stating the varied figure in bold in square brackets after the equivalent figure in R1.
The preparation of R2 by Ms Exner is significant to the issue of whether the Court should adopt the conclusions stated by Ms Exner, as it demonstrates that Ms Exner entertained challenges by the parties to her initial conclusions in R1 but she adhered to those conclusions, save for a small number of computational or typographic errors.
Ms Exner's first report contains detailed reasoning in 36 pages, as well as a number of appendices that explain aspects of her reasoning in detail, or contain particular aspects of the evidence upon which Ms Exner relied.
Ms Exner set out the tasks that she had been instructed to perform at R1 [1.4]. That statement is consistent with order 9 as varied on 8 August 2019, save that Ms Exner described the task in order 9(a) as Task 1, and she separated the two components of order 9(b) into Task 2 and Task 3. Task 2 was the determination of the fair market value of Johnston Vaughan, as at 25 November 2014 and 27 September 2018. Task 3 was the determination of the amount of all monies paid by Mr Dlakic towards the expenses of Johnston Vaughan after 25 November 2014.
At R1 [1.6], Ms Exner stated that she had listed the documents that she had relied upon in Appendix 2. I will not set out the documents that are there listed, but it appears that the information available to Ms Exner concerning the financial affairs of Johnston Vaughan was limited.
It will be convenient to set out in full aspects of the summary of Ms Exner's conclusions as stated in Part 2 of R1, as follows (noting that footnotes have been omitted and the tables have been edited in accordance with the note set out below the extract): … Net profit of Johnston Vaughan post 25 November 2014 Overview 2.3. I have been instructed to determine the amount (if any) the Defendant is liable to account to the Plaintiff for the net profit of Johnston Vaughan for the period from 24 November 2014 to the date of my report (refer paragraph 1.4 above). 2.4 Details as to my precise instructions and my interpretation of these instructions is set out in Section 4. In short, I have assessed the Adjusted Net Profit of Johnston Vaughan for the period from 5 February 2015 to 31 October 2019 (the Relevant Period), being the period for which accounting records have been provided to me. 2.5 The task of assessing the Adjusted Net Profit of Johnston Vaughan has been complicated due to issues and limitations arising from the accounting records of the practice. I have summarised the key issues that have impacted my assessment of the Adjusted Net Profit of the practice during the Relevant Period in Section 4 (refer paragraph 4.6 below). Alleged unrecorded cash receipts 2.6 The Plaintiff asserts that the accounting records of Johnston Vaughan understate the fee income generated by the practice as there are significant cash receipts that have not been recorded in the relevant general ledgers. 2.7 The Plaintiff has prepared two spreadsheets which purport to include details of unrecorded cash receipts from clients during the period from 25 November 2014 to 31 December 2018 (total of $514,406). 2.8. In order to test the accuracy of the spreadsheets prepared by the Plaintiff, validation procedures were undertaken in respect of a sample of the alleged unrecorded receipts, which totalled approximately $301,000. I have been able to satisfactorily trace $154,426 of the receipts in this sample to the accounting records. I have been unable to identify any evidence as to how $146,657 of the receipts in this sample have been recorded in the accounting records of the business; this equates to approximately 49% of the sample transactions selected. 2.9 If this 'failure' rate is extrapolated across the total population of the alleged unrecorded receipts, a total of circa $265,000 in cash receipts has been unrecorded during the time period addressed by the Plaintiff's spreadsheets. 2.10 The Defendant contends that the cash receipts provided for a mixture of disbursements of the legal practice. I am unable to determine, based on the information available to me, the extent to which any unrecorded cash receipts have been used to pay unrecorded expenses of the business. I appreciate that this may have occurred. However, in my opinion, there should be contemporaneous records that evidence this e.g. to comply with the substantiation requirements for taxation purposes. 2.11 To assist the Court in making a finding on this issue, I have presented my calculations that assess the Adjusted Net Profit of the business on the following alternative scenarios: a) Assuming that all of the alleged unrecorded cash receipts were used to pay genuine expenses of the business (i.e. no adjustment is required to the net profit of the business) (Scenario 1). b) Assuming that an arbitrary 50% of the alleged unrecorded cash receipts were used to pay genuine expenses of the business (Scenario 2) c) Assuming that the alleged unrecorded cash receipts were retained by the Defendant and not used to pay any business expenses (Scenario 2). Commercial remuneration 2.12 The issue as to the commercial remuneration that would have been appropriate for the personal exertion efforts of the Defendant during the Relevant Period is outside my area of expertise, as I am not a remuneration expert. For this reason, I have sought joint instructions on this matter. 2.13 In the absence of receiving joint instructions on this issue, I have assumed that the commercial remuneration package for the role of the Defendant in the business during the Relevant period is $200,000 [corrected in R2 at [1.17(a)] to $175,000] per annum. To the extent that the assumption is unreasonable in relation to any fiscal year/s during the Relevant Period, my conclusions will change, perhaps materially. 2.14 Details as to each party's position on this issue and my reasons for adopting the above assumption are set out in paragraphs 4.38 to 4.52 below. My conclusions 2.15. The table below summarises my conclusion as to the total Adjusted Net Profit of Johnston Vaughan during the Relevant Period on each of the alternate scenarios. Table 1 Total Adjusted Net Profit during the Relevant Period Net profit before tax 528,737 Total adjustments (486,647) Adjusted net profit (excluding unrecorded cash receipts) 42,090

[23]

2.16. The Plaintiff asserts that funds totalling $67,470 were received from clients after the date of the Buyback Agreement (i.e. 25 November 2014) and these funds related to work in progress undertaken prior to this date (Refer to paragraphs 4.80 to 4.89 below). Based on my understanding of the terms of the Buyback Agreement, any funds received by the Defendant relating to work in progress prior to the sale should have been paid to the Plaintiff. 2.17 I am unable to conclude as to the total amount paid to the Plaintiff in respect of work undertaken prior to the Buyback Agreement, or details as to the liabilities satisfied by the application of funds owed by him, because of a paucity of information available to me. I consider that the amount of $67,470 may be owing to the Plaintiff (in addition to the Adjusted Net Profit) unless the Court is satisfied that these funds have either been repatriated to the Plaintiff or used by the Defendant to pay the liabilities of Johnston Vaughan Solicitors Pty Ltd that existed at the date of the Buyback Agreement. Value of Johnston Vaughan at the relevant dates 2.18 I have undertaken Limited Scope Valuations of the practice at the relevant dates because I have not undertaken all of the approaches, methods and procedures that would ordinarily be conducted in a valuation assignment due to limitations in the available accounting records. 2.19 I have valued the practice by reference to determining the value of the commercial goodwill only. This approach excludes the value of any tangible business assets and business liabilities that may have been in existence at the date of the valuation, such as accounts receivable, work-in-progress and payroll tax liabilities. I have adopted this approach on the assumption that the sale of the practice at any time would be structured such that any tangible business assets and business liabilities in existence [at] the date of sale would remain with the vendors. This is consistent with the manner in which the previous sale transactions of Johnston Vaughan in July 2010 and November 2014 were structured. 2.20 My approach also assumes that the office fit-out and furniture has no (or nominal) market value as at the date of sale. I consider that this assumption is reasonable, given that the balance sheets as at (or around) the valuation dates do not recognise any value for these assets. 2.21 The table below sets out my opinion as to the commercial goodwill that a hypothetical purchaser would be prepared to pay to acquire the practice trading as Johnston Vaughan, as at the relevant dates: Table 2 Indicative value of the practice (commercial goodwill only) 24/11/14 Alt. 24/11/14 27/9/18 Low 33,000 50,000 10,000 High 67,000 70,000 15,000 Midpoint 50,000 60,000 12,500

[24]

2.22 This reflects my assessment of the price that a hypothetical purchaser would be prepared to pay to acquire a legal practice that was already operating and established, taking into account the financial and operational issues that the business was experiencing at each date of valuation. Monies paid by the Plaintiff to the expenses of Johnston Vaughan 2.23. In my opinion, there is sufficient evidence for me to conclude that the plaintiff paid a total of $175,323 [varied in R2 [2.8] to $199,683] toward the expenses of Johnston Vaughan, subsequent to 25 November 2014. This represents the payment of insurance premiums (a total of $24,725) and the payment of the additional expenses that the Defendant has conceded were paid by the Plaintiff (totalling a further $150,598). 2.24 I am unable to opine as to the validity of the additional business expenses that the Plaintiff contends that he has paid as there is insufficient documentary evidence in support of these payments. Whilst I have verified some of these amounts to outgoings of an equivalent amount disclosed in the bank statements of the Plaintiff's CBA General Account (i.e. confirming that the funds were withdrawn from the bank account), I am unable to verify either the recipient or purpose of the payments to supporting documentary evidence. 2.25. I am unable to conclude as to the extent to which (if any) these expenses were liabilities of the practice as at 25 November 2014. 2.26 To the extent that it can be established, with the appropriate documentary evidence, that some or all of these expenses were paid by the Plaintiff in settlement of business liabilities that occurred after the date of the Buyback Agreement, then: a) The Adjusted Net Profit would need to be reduced by the total amount of such expenses, and b) The Plaintiff would then be entitled to be reimbursed by the Defendant for any such expenses, on my reading of the Buyback Agreement. 2.27. In other words, the two items in paragraph 2.26 above would offset each other. 2.28. This issue does not affect my valuations of the legal practice in Task 2, at either date, as these expenses were allegedly paid after the First Valuation Date and before the period taken into consideration for the Second Valuation Date.

Note that the tables have been simplified and Table 1 contains the revised figures in R2 and Table 2 contains the new middle column explained in R2 as setting out an alternative valuation determined by Ms Exner.
At R1 [1.7], Ms Exner referred to order 10 made on 14 May 2019, in which I ordered that the referee be provided by each party with one accounting report relating to the sum that that party contended ought to be paid on an account. Ms Exner advised that she had sought a report from each party by email dated 29 April 2020, but had not been provided with submissions of that nature from either party. Order 10 was not made idly by the Court. Because of the mixture of incompatible components in the determination of the likely net profit of the business of Johnston Vaughan described in order 9, I considered that it was important that each party provide the referee with a report that explained how that party contended that the net profit should be determined. That was intended to provide a scaffolding for the conclusions reached by the referee, so that the Court would be able to resolve any disputes on the basis of as transparent an understanding of the accounting issues that were involved as was possible in the circumstances that were likely to require exercises of judgment by the referee.
Although it is necessary to understand the whole of Ms Exner's reasoning concerning the determination of the Adjusted Net Profit of Johnston Vaughan in Part 4 of R1, the following aspects of her reasoning are significant.
Ms Exner determined the Adjusted Net Profit primarily on the basis of the trial balance and supporting general ledgers for the period 5 February 2015 to 31 October 2019: R1 [4.4]. At R1 [4.6(d)] Ms Exner explained the information given to her as to why the accounting evidence did not include any transactions between the date of the buyback agreement on 25 November 2014 and 4 February 2015. That was information provided by Mr Vaughan that he opened a new bank account on 5 February 2015 and that the money received from clients after 24 November 2014 continued to be deposited into Mr Dlakic's general account as there was not enough time to advise clients of the suspension of Mr Dlakic's practising certificate. Consequently, Ms Exner assumed that any fee income received by the practice from 25 November 2014 to 4 February 2015 had been received by Mr Dlakic and should not be incorporated into her calculations.
At R1 [4.6(e)] Ms Exner referred to the fact that Mr Vaughan ceased to operate the practice of Johnston Vaughan by July 2019, but the accounting records for Johnston Vaughan continued to 31 October 2019. Ms Exner said that she had assumed that receipts to which Johnston Vaughan was entitled had continued to be paid into its accounts after 30 June 2019, and that consideration of payments into the new account of Michael Vaughan & Co were outside the scope of her instructions. Ms Exner did not seek any accounting records of Michael Vaughan & Co.
The position therefore is that the accounting records are not necessarily reliable for the period 25 November 2014 to 4 February 2015 and 30 June 2019 to 31 October 2019. Ms Exner's determination of the Adjusted Net Profit of Johnston Vaughan will be understated to the extent that Mr Vaughan received fees for work done by Johnston Vaughan during these two periods.
Ms Exner observed at R1 [4.6(a)] that there were significant variances between the total fee income and expenses recorded in the general ledgers and trial balances of the practice, as compared with that recorded in Mr Vaughan's tax returns. Over the five years between financial year 2015 and financial year 2019, as set out in Table 4 in R1 [4.27], the total from the trial balance of $548,197 was $312,300 more than the total taxable income disclosed of $235,897. Ms Exner stated, at R1 [4.29]-[4.30], that she had adopted the net profit derived from the trial balances, as neither Mr Vaughan nor his external accountant was able to explain the variances.
Ms Exner noted, at R1 [4.6(b)], that Mr Dlakic asserted that the trial balances and general ledgers were not reliable on the basis that a large portion of Johnston Vaughan's revenue was received from clients in cash, which was not recorded in the accounting records of the practice. Ms Exner noted that the issue was complicated because Mr Vaughan claimed that some cash receipts were used to pay the expenses of the business, but there were no contemporary records to substantiate the payment of expenses with cash. As Ms Exner was not able to verify Mr Vaughan's claims, she provided to the Court her conclusions on the basis of the three scenarios that are set out in Table 1. Mr Vaughan did not provide affidavit evidence before the initial hearing to offset Mr Dlakic's evidence of Johnston Vaughan being paid in cash by evidence that the cash had been used to pay the practice's expenses.
At R1 [4.6(c)] Ms Exner stated the following important proposition concerning the basis of her report: … In the absence of any other information, I have relied upon the fee income as recorded in the accounting records for the purpose of this report, with the exception of adjustments that I have considered appropriate in respect of unrecorded cash receipts.
Ms Exner stated in a footnote that the accounting records to which she referred were the general ledgers and trial balances. I understand Ms Exner's reference to the exception of adjustments appropriate in respect of unrecorded cash receipts to mean that Ms Exner considered the claims made by Mr Dlakic concerning receipts of cash by Johnston Vaughan and, to the extent that she accepted that cash had been received, she incorporated those receipts into her assessment of the total revenue of the practice.
Ms Exner explained, at R1 [4.11]-[4.33], the procedures that were undertaken, based upon a sampling process, in order to assess the reliability of the profit and loss statement section in each of the trial balances of Johnston Vaughan that caused her to conclude that no adjustments were required to the completeness of the fee income for the purpose of her assessment of the Adjusted Net Profit.
In relation to her consideration of the money paid by Mr Dlakic towards the expenses of Johnston Vaughan in Part 6 of R1, which was Ms Exner's Task 3, Ms Exner expressed the following conclusion: 4.19 In determining the Adjusted Net Profit of the practice during the Relevant Period, I have not deducted any payments made by the Plaintiff for business expenses after 25 November 2014 on the basis that these payments are most likely to have been made by the Plaintiff in settlement of business liabilities that existed as at the date of the Buyback Agreement. These amounts would have remained the liability of the Plaintiff, in accordance with the terms of the Buyback Agreement. 4.20 To the extent that it can be established, with the appropriate documentary evidence, that some or all of these expenses were paid by the Plaintiff in settlement of business liabilities that occurred after the date of the Buyback Agreement, then: a) The Adjusted Net Profit (as determined in paragraph 4.92 below) would need to be reduced by the total amount of such expenses, and B) The Plaintiff would then be entitled to be reimbursed for any such expenses, on my reading of the Buyback Agreement. C) In other words, the impact of item (a) would be offset by item (b) above.
The Adjusted Net Profit to which Ms Exner referred is the same as in Table 1 that has been set out above as part of Ms Exner's summary of conclusions.
On the issue of the monies paid by Mr Dlakic towards the expenses of Johnston Vaughan, Ms Exner's conclusion, expressed at R1 [6.23] was that there was sufficient evidence to conclude that Mr Dlakic paid a total of $199,683 (as corrected at R2 [2.8]) towards the expenses of Johnston Vaughan after 25 November 2014. Ms Exner added in R1 [6.24]-[6.25] that she was unable to opine further as to the validity of the additional business expenses that Mr Dlakic asserted he had paid. That was because there was insufficient documentary evidence to support the payments. Some of the amounts could be verified against statements from Mr Dlakic's bank account, by showing that the money had been withdrawn, but Ms Exner was unable to verify either the recipient or the purpose for the payments. Ms Exner was also unable to determine whether or not the additional payments claimed by Mr Dlakic related to expenses of Johnston Vaughan incurred before 25 November 2014, for which Mr Dlakic was responsible in any event.
In essence, Mr Dlakic did not persuade Ms Exner that he had paid the additional expenses of Johnston Vaughan that Ms Exner did not accept because Mr Dlakic was not able to provide invoices or other accounting records to verify that he had paid expenses of the practice. For example, Mr Dlakic claimed that he had paid $139,808 in rent to the lessor, Davlite Pty Ltd, but there were no tax invoices or other accounting records from the lessor. Consequently, Ms Exner acted upon Mr Vaughan's concession that Mr Dlakic had paid $43,866 in rent.
Ms Exner explained how she assessed the commercial remuneration for Mr Vaughan at R1 [4.38]-[4.52]. Ms Exner acknowledged that the question was not within her expertise, and she adjusted an opinion provided by Mr Vaughan from a person said to be an expert in the sale of law practices, and concluded that the appropriate remuneration was the average of 40% of the total fee income of Johnston Vaughan for the financial years 2016 to 2019. In selecting the proportion of 40% Ms Exner made an adjustment in Mr Vaughan's favour. The expert whose opinion Mr Vaughan had provided to Ms Exner had suggested a percentage of 35% on the assumption that the revenue would be significantly greater than that found by Ms Exner for Johnston Vaughan. Ms Exner increased the proportion in Mr Vaughan's favour because she judged that the remuneration should be a higher proportion of a lesser total average revenue. The result she adopted was $175,000 per annum. This conclusion is reasonably consistent with clause 4 of the 19 July 2010 deed by which Mr Dlakic purchased the practice of Johnston Vaughan from Mr Vaughan, in which Mr Dlakic agreed to pay Mr Vaughan a salary of $150,000 per year plus superannuation: see J1 [26]-[27]. On the first day of the recent hearing Mr Dlakic abandoned his claim that the remuneration of $175,000 per annum should be reduced: see T 20.30. As will be seen, Mr Vaughan challenged the adequacy of the $175,000 remuneration and submitted that a greater allowance should be made.
I will not discuss the content of Ms Exner's reports in further detail at this stage, as it will be more appropriate to consider the detail of the reports in the context of any challenges made by the parties to the validity of the conclusions reached by Ms Exner.

[26]

Orders sought by Mr Dlakic

On 20 March 2023, the first day of the last hearing, counsel for Mr Dlakic handed up draft short minutes of order with the explanation that the draft contained the orders that Mr Dlakic then asked the Court to make: see MFI 1. The orders were: 1. The defendant is to pay the plaintiff the following amounts: a. $826,882 for the Adjusted Net Profit post 25 November 2014 broken down as follows: i. Unbilled WIP (see Tab 34): [The table in the draft orders is reproduced below] ii. $275,952 based on Ms Exner's adjusted net profit. iii. $116,000 in respect of unrecorded receipts. b. $67,470 for funds received from clients after the date of the Buyback Agreement. c. [Deleted] d. $199,683 for the total monies paid by the Plaintiff for the expenses of Johnston Vaughan subsequent to 25 November 2014; e. $55,000 for the payments made by the defendant that relate to legal fees in respect of these proceedings. Total - $1,149,305. 2. The defendant to pay the plaintiff's costs of the Notice of Motion filed 10 March 2021. 3. The defendant to pay the plaintiff's costs of and incidental to the appearances on: a. 8 August 2019; b. 25 March 2021; c. 3 May 2021; d. 9 July 2021. 4. The defendant to pay the plaintiff pre-judgment and post-judgment interest.
The item that was order 1(c) that Mr Dlakic deleted from his initial draft of the short minutes of order was a claim for $70,000, being the highest indicative fair market value of the legal practice of Johnston Vaughan that had been determined by Ms Exner. It is not necessary in the circumstances to reconcile the figure of $70,000 to Table 2 in the summary of Ms Exner's conclusions that is set out above in which the highest value stated $60,000, as I have decided that the value of the practice of Johnston Vaughan should not be a component of the compensation to which Mr Dlakic is entitled whatever remedy he elects to take.
The table that was inserted in draft order 1(a)(i) was in the following terms: Nakhle (IJG Group 2) Pty Ltd $66,902 Catherine Ricketts $59,000 Dusko Likic $46,000 Deborah Canov $52,000 Paul Calleja $180,000 Rabija (Robyn) Tarakaj $31,028 Total $434,930.00

[27]

These orders were in a structure consistent with the orders that Mr Dlakic's solicitors appeared in their 24 August 2021 letter that is discussed above to state were the orders that Mr Dlakic had elected to choose, although the draft short minutes of order contained a number of additional components that appear to have emerged in the reference process. The draft short minutes of order were consistent with Mr Dlakic having elected to affirm the buyback agreement.
I now understand that Mr Dlakic has abandoned the draft short minutes of order, because they are inconsistent with the submissions that he makes in his skeleton outline of submissions dated 5 April 2023. In those submissions Mr Dlakic asks the Court to determine the value of the remedies to which Mr Dlakic may be entitled depending upon the election that he will make after these reasons for judgment are published. The First Scenario deals with the alternative that Mr Dlakic elects to affirm the buyback agreement. The total amount claimed is $1,015,923. The Second Scenario deals with the alternative that Mr Dlakic elects for an order setting aside the buyback agreement. The total amount claimed is $786,945.
It will be convenient to set out the claim made by Mr Dlakic in respect of each of the scenarios. The $1,015,923 claimed in the First Scenario is broken down as follows: a. $434,930 for WIP generated after 19 July 2010 but before 25 November 2014 (the date of the buyback agreement) (the Unbilled WIP); b. $67,470 as determined by Ms Exner as an amount that may be owing to the plaintiff (the Additional Funds); c. $70,000 for the value of the practice as determined by Ms Exner (the Practice Value); d. $116,000 for two receipts deposited into the CBA trust account (the Two Receipts); e. $72,840 for funds illegitimately transferred by the defendant from Johnston Vaughan CBA Trust Account to the trust account of Michael Vaughan & Co during the period from July to September 2019 (the Illegitimate Transfers); f. $55,000 for the payments made by the defendant that relate to legal fees in respect of these proceedings (the Defendant's Legal Fees); g. $199,683 for the expenses paid by the plaintiff after the date of the Buyback Agreement as determined by Ms Exner (the Post-Buyback Expenses).
The $786,945 claimed in the Second Scenario is broken down as follows: a. $275,952 for the Adjusted Net Profit of the practice as determined by Ms Exner (the Adjusted Net Profit); b. $67,470 for the Additional Funds; c. $116,000 for the Two Receipts; d. $72,840 for the Illegitimate Transfers; e. $55,000 for the Defendant's Legal Fees; f. $199,683 for the Post-Buyback Expenses.

[28]

Preliminary Observations

In her reports, in performance to the tasks she was given, Ms Exner made findings concerning the Adjusted Net Profit and the Post-Buyback Expenses, to use Mr Dlakic's definitions. Ms Exner mentioned some of the other amounts claimed by Mr Dlakic, although those references were collateral to her findings, and in some instances rejected submissions made to her by Mr Dlakic. Mr Dlakic seeks to build an additional case based upon these collateral matters considered by Ms Exner in her reports. Ms Exner specifically did not deal with the Unbilled WIP as it concerned an issue that fell outside the tasks she was appointed to undertake.
Mr Dlakic's attempt to include items in his claims that were not specifically dealt with at the original hearing and have arisen collaterally in the manner that I have described has given rise to an issue about whether Mr Vaughan should now be permitted to rely upon affidavits made after Ms Exner delivered her reports. There is scope for argument about whether the issues were alive at the original hearing and should have been the subject of evidence led at that hearing, or whether in reality Mr Dlakic is raising new issues so that procedural fairness should allow Mr Vaughan to rely upon new evidence to deal with the issues.
It may assist in the explication of these reasons if I put the issues in their proper context. The primary remedy sought by Mr Dlakic in his amended statement of claim was orders having the effect of setting aside the buyback agreement and for relief consequent on that outcome. His claim for damages for breach of the buyback agreement was made in the alternative. The focus of Mr Dlakic's forensic effort at the original hearing was to establish the entitlement to have the buyback agreement set aside. Little, if any, attention was given to the quantification of his damages for breach of the buyback agreement.
It was Mr Dlakic's focus on the setting aside of the buyback agreement that led the Court to make the observations that it did in J1 concerning the forensic difficulties that may be experienced in determining the net profits of Johnston Vaughan that may become payable to Mr Dlakic if the buyback agreement was set aside. That led in turn to the realisation that the most efficient way to determine the net profits was to appoint a referee with suitable qualifications to ascertain the net profits.
That was the reason why order 9 made on 14 May 2019 required the appointment of a referee to determine the net profits of Johnston Vaughan from the date of the buyback agreement. That intent survived into order 9(a) made on 8 August 2019, as explained above. Order 9(b) required the referee to determine the value of the practice of Johnston Vaughan. One or both of the parties must have thought that the value of the practice was relevant to the remedies to which Mr Dlakic may have been entitled. The parties also added a requirement that the referee determine the amount of any expenses of Johnston Vaughan paid by Mr Dlakic after the date of the buyback agreement.
The parties did not include a requirement that the referee determine whether any Unbilled WIP as at the date of the buyback agreement had been received by Johnston Vaughan after that date, which was the primary question that would arise if Mr Dlakic affirmed the buyback agreement and sued to enforce clause 4.
As will be seen, the result has been that Ms Exner's reports do not deal with all of the accounting issues necessary to enable the Court to determine the amounts that would be payable to Mr Dlakic under what he calls the First Scenario, being the result of his election to affirm the buyback agreement.
The parties have not in their submissions in any explicit way considered the logical consequences of the election that Mr Dlakic may make between the alternative remedies in relation to the determination of the quantum of the alternative amounts that would be payable to him.
If Mr Dlakic elected to affirm the buyback agreement, then the effect would be that he had sold Johnston Vaughan to Mr Vaughan for the price of one dollar. Mr Dlakic would become entitled to payment under clause 4 of any amount of Unbilled WIP that he could prove was received by Johnston Vaughan after the date of the buyback agreement. He would also be entitled to be repaid the amount of the expenses of Johnston Vaughan that he could prove that he paid under the mistaken belief that he would still be paid all of the net profits of the practice.
If Mr Dlakic elected to set aside the buyback agreement, then subject to the difficulties in achieving restoration of the status quo that were discussed in J1 and J2, Mr Dlakic would be entitled to repayment of his one dollar price plus the net profits of the practice subject to the entitlement of Mr Vaughan to be remunerated for his conduct of the practice. The timing of the receipt of WIP by Johnston Vaughan would be irrelevant, as would be the payment of the expenses of the practice by Mr Dlakic.
The value of the practice of Johnston Vaughan would be irrelevant in either scenario, unless the Court was unable to make orders that would sufficiently restore the status quo upon Mr Dlakic electing to set aside the buyback agreement. In that case Mr Dlakic may have been entitled to elect to receive equitable compensation or damages, depending upon the legal basis of his claim, for his loss of ownership of Johnston Vaughan. That loss would probably be calculated on the basis of the value of the practice at the date of the buyback agreement.
It is clear that Mr Dlakic would not be entitled to the value of Johnston Vaughan if he elected to affirm the buyback agreement. By that agreement Mr Dlakic fixed the price of the practice at one dollar.
It is equally clear that if Mr Dlakic elected to set aside the buyback agreement, his entitlement to receive the value of Johnston Vaughan by way of compensation or damages would be an alternative to his entitlement on the basis that orders were made to restore the status quo, being primarily an order that he be paid the net profits of the practice after the allowance to which Mr Vaughan was entitled.
As I have explained above, Mr Dlakic removed his claim for the value of Johnston Vaughan from the draft short minutes of order that became MFI 1. That course was theoretically correct. However, Mr Dlakic has reinstated his claim for the value, but only in Item (c) of his First Scenario. That is misconceived as, once Mr Dlakic affirms the buyback agreement, the value of Johnston Vaughan will be fixed by contract at one dollar.
As I have explained, Mr Dlakic could have maintained his claim to the value of Johnston Vaughan as an alternative to his Second Scenario. He has not done so, which is understandable because the highest value that Ms Exner assigned to Johnston Vaughan as at the date of the buyback agreement was $70,000.
Accordingly, the issue of the value of Johnston Vaughan as at any date is irrelevant to the determination of these proceedings. That is perhaps unfortunate, as the greatest single forensic effort undertaken by Mr Vaughan in his new evidence and submissions is his attempt to establish that Johnston Vaughan had nil value as at the date of the buyback agreement: see Part 5 of Mr Vaughan's 28 April 2023 submissions.
In these circumstances, I do not propose to deal with the dispute between the parties concerning the valuation of Johnston Vaughan. Ms Exner dealt with the issue at length in Part 5 of R1. Having regard to her reasons and the fact that she only assigned a low value to the practice, being $50,000 as at the date of the buyback agreement with an upper limit of $70,000, I would not in any event have rejected the finding as to value made by Ms Exner.

[29]

Effect of the suspension of Mr Dlakic's practising certificate

Mr Vaughan's submissions to the hearing on the adoption of Ms Exner's reports raised a number of new issues that arose out of the fact that Mr Dlakic's practising certificate had been suspended by the Council of the Law Society of New South Wales (the Council) shortly before he entered into the buyback agreement.
At the date of the buyback agreement, the Legal Profession Act 2004 (NSW) (LP Act) remained in force. It was not repealed until 1 July 2015 when the Legal Profession Uniform Law Application Act 2014 (NSW) had the effect that the Legal Profession Uniform Law (NSW) came into operation.
Following the report of a trust account investigator employed by the Law Society of NSW prepared pursuant to s 270 of the LP Act, on 30 October 2014 the Council resolved under s 548 of the LP Act to suspend Mr Dlakic's practising certificate immediately. On the same day, the Council appointed a manager of the law practice Johnston Vaughan. Under s 626(1) of the LP Act, the manager was given power to carry on the practice and do all things that the practice or a legal practitioner associate of the practice might lawfully have done in carrying on the practice. Mr Vaughan submitted that from 30 October 2014, including the 25 November 2014 date of the buyback agreement, Mr Dlakic did not have possession of, nor did he have any power over, the client files of the law practice of Johnston Vaughan.
As Mr Dlakic's practising certificate had been suspended, he was a "disqualified person" within the meaning of s 4 of the LP Act. Under s 6(a) of the LP Act, an "Australian legal practitioner" was "an Australian lawyer who holds a current practising certificate or a current interstate practising certificate". Consequently, Mr Dlakic was not an Australian legal practitioner for the purposes of the LP Act. The effect of s 7(1)(g) of the LP Act was that "a person (not being an Australian legal practitioner) who shares the receipts, revenue or other income arising from the law practice" is an "associate" of that law practice.
Mr Vaughan relied upon s 17 of the LP Act, which relevantly provided: 17 Associates who are disqualified or convicted persons (1) A law practice must not have a lay associate whom any principal or legal practitioner associate of the law practice knows to be: (a) a disqualified person, or … unless the associate is approved by the relevant authority under subsection (3). (2) A contravention by a law practice of subsection (1) is capable of being unsatisfactory professional conduct or professional misconduct on the part of a principal or legal practitioner associate of the law practice involved in the contravention. (3) The "relevant authority" to approve a person for the purposes of subsection (1) is: … (b) in the case of a disqualified person who is an associate of a solicitor--the Law Society Council, or … (9) In this section: "lay associate" of a law practice has the same meaning as in section 7 (Terms relating to associates and principals of law practices), and includes a consultant to the law practice (however described) who: (a) is not an Australian legal practitioner, and (b) provides legal or related services to the law practice, other than services of a kind prescribed by the regulations.
Mr Vaughan submitted that, as Mr Dlakic was a disqualified person and as he had not been approved by the Law Society, "Mr Vaughan could not share the revenues and receipts of the practice of Johnston Vaughan with Mr Dlakic": Defendant's Submissions par 2.6.
Mr Vaughan sought to raise two defences based upon the fact that Mr Dlakic's practising certificate had been suspended before the date of the buyback agreement. First, Mr Dlakic had no title to the practice of Johnston Vaughan that he could sell to Mr Vaughan. Secondly, Mr Dlakic had no right to share in the revenue of Johnston Vaughan and any transaction that purported to give him that right was illegal and unenforceable.
Mr Vaughan relied upon the second defence in response to Mr Dlakic's claim for the Unbilled WIP that was part of his First Scenario and for the Adjusted Net Profit that was part of his Second Scenario: see Defendant's Submissions par 3.3 and par 10.2 respectively.
Although the basic facts upon which Mr Vaughan relied were established by the evidence at the initial hearing, Mr Vaughan did not plead these issues in his defence, he did not lead any evidence specifically to establish the defences, no submissions were made upon them, and the Court made no findings as to their validity in J1 or J2. Instead, the Court made findings that were consistent with Mr Dlakic having alternative rights to recover the Unbilled WIP and the Adjusted Net Profit.
Although Mr Vaughan put the submissions that I have discussed above, he has not made an application to amend his defence to raise those matters.
Mr Dlakic responded to Mr Vaughan's submissions by submitting that Mr Vaughan was precluded from making them, or relying upon the defences to which they related, because they were not pleaded, he has not made an appropriate application to amend his pleadings, and even if such an application were now to be made, the proper course would be to reject the application because of its timing and all that has happened in the proceedings to date.
I accept Mr Dlakic's submission that Mr Vaughan is not entitled to rely upon his recent arguments based upon the alleged effect of Mr Dlakic's practising certificate being suspended at the time that he entered into the buyback agreement with Mr Vaughan.
In Trampoline Enterprises Pty Ltd v Fresh Retailing Pty Ltd [2019] VSCA 74 the Court of Appeal of the Supreme Court of Victoria (Kaye, McLeish and Hargrave JJA) said (footnotes omitted): [104] Further, the ruling by her Honour, to that effect, has not been demonstrated to be in error. The applicants did not, in their reply and defence to counterclaim, plead or raise, any alleged illegality, or failure to register the Craigieburn store under the Food Act, in response to the counterclaim by Fresh Retailing for damages. Contrary to the submissions made by senior counsel for the applicants, if the applicants had sought, at trial, to raise that issue, it was necessary to plead it. It may be accepted that in cases in which a proof of a claim necessarily involves the introduction of evidence demonstrating that the claim is based on illegal or improper conduct, a court may decline to enforce that claim, notwithstanding that the other party has not pleaded such illegality or impropriety in response to it. However, this was not such a case. As we have said, the proof by Fresh Retailing of its claim for damages in the counterclaim, did not involve proof by it, or reliance by it, on any illegal or improper conduct. Rather, it was the applicants who sought to introduce and raise, in evidence, the issue of illegality. [105] In those circumstances, it was necessary for the applicants to plead that illegality, or, at the very least, to foreshadow it before the trial of the proceeding. The applicants failed to do that. They did not seek to adduce any evidence, as to that matter, in the course of the presentation of their own case. Rather, on the tenth day of the case, after the evidence in the proceeding was well established, they sought to introduce the issue in the course of cross‐examination of Singh. In those circumstances, the judge was, we consider, well justified in not permitting such cross‐examination, particularly given the overarching purpose specified by s 7 of the Civil Procedure Act 2010, namely, to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute. [106] Consequently, in light of the failure of the applicants to prove, by admissible evidence, that the Craigieburn store had not been registered under the Food Act by 29 March 2014, the major premise, to proposed ground of appeal 1(b), is not made out. Nevertheless, it is appropriate to address the issues raised by that ground, on the assumption (which was not proven) that the franchisee of the Craigieburn store had not obtained registration of the premises under the Food Act until after 29 March 2014. [107] The relevant principles, concerning the effect of an illegality on a claim under contract, are well established. They have been discussed, in relatively recent years, by the High Court in a number of decisions, including Yango Pastoral Co Pty Ltd v First Chicago Australia Ltd, Fitzgerald v FJ Leonhardt Pty Ltd and Nelson v Nelson. They have also been recently considered by this Court, in some detail, in Civil and Allied Technical Construction Pty Ltd v A1 Quality Concrete Tanks Pty Ltd. [108] In Knowles v Fuller, Jordan CJ stated the principles as follows: … illegality was not pleaded; and it is well settled that a Court will not entertain a defence of illegality which has not been pleaded, unless (1) the transaction sued upon is ex facie illegal, or (2) the plaintiff cannot prove his case without proving also that he is claiming under an illegal transaction, or (3) exceptionally, where a fact comes to light in the course of the trial which of itself shows that the transaction sued on is illegal on grounds which nothing could cure … In the last type of case, it is important that the Court be satisfied that it has before it the whole of the facts relating to the transaction which could throw any light on its legality or illegality. [109] That passage has been cited and followed in a number of subsequent cases.
In my view, the conditions in which a party may rely upon a defence of illegality without that defence having been specifically pleaded are not satisfied in the present case.
Even if an application were now to be made by Mr Vaughan to make appropriate amendments to his defence, I consider that - at least in principle in advance of the application being made - the proper course would be for the Court to reject the application on the basis of the principles discussed in the joint judgment of Gummow, Hayne, Crennan, Kiefel and Bell JJ in Aon Risk Services Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 at [98]-[103].
I add that I am not satisfied in any event that either of Mr Vaughan's two new arguments are valid.
As to the argument that in some way the buyback agreement was invalid because Mr Dlakic had nothing to sell because the manager had exclusive control over the files of Johnston Vaughan under the LP Act, I note from the Defendant's Submissions par 2.1(g) that the manager in fact assisted in the transfer of the files and trust monies to Mr Vaughan, after he learned that the practice of Johnston Vaughan had been transferred to Mr Vaughan under the buyback agreement, as Mr Vaughan had the requisite practising certificate. Although the issue was not explored in the evidence because it was not raised in Mr Vaughan's defence, the evidence does not support a conclusion that a sole practitioner whose practising certificate is suspended necessarily loses the value of the goodwill of his or her practice in cases where the Law Society has appointed a manager because the practitioner has lost control of the files and the money in his or her trust account.
There is scope for argument as to whether any 'illegality' that arose out of the relationship between Mr Dlakic's practising certificate having been suspended and his rights under the buyback agreement had the effect that those rights are unenforceable. Section 17(2) of the LP Act had the effect that a contravention of subsection (1) was capable of being unsatisfactory professional conduct or professional misconduct by both the principal and the associate. There is a strong argument that breach of s 17 would not have the effect of making any agreement between the associate and the principal for the sale of the practice illegal and unenforceable on the principles discussed by Macfarlan JA (Beazley P and Gleeson JA agreeing) in REW08 Projects Pty Ltd v Lifestyle Investments Pty Ltd (2017) 95 NSWLR 458; [2017] NSWCA 265 at [18]-[22]. At [20] of that judgment, Macfarlan JA, citing McHugh J in Nelson v Nelson (1995) 184 CLR 538 at 604-5; [1995] HCA 25, states one of the grounds for enforcing an agreement notwithstanding its illegality is where the "illegal agreement was induced by the defendant's fraud, overpressure and or undue influence." The Court in this case found that Mr Vaughan had induced Mr Dlakic to enter into the buyback agreement by misrepresentations and unconscionable conduct. The significance of these matters was not explored at the hearing or dealt with in J1 or J2 because they were not raised by Mr Vaughan.
In any event, clause 4 of the buyback agreement provided that Mr Dlakic was "entitled to receive" the Unbilled WIP that was received by Mr Vaughan after the date of the buyback agreement, and Mr Vaughan was required to "pay those monies received" to Mr Dlakic. The money referred to was money earned by Mr Dlakic from his exertions as a legal practitioner before the date of the buyback agreement at times when he had a current practising certificate.
The objective of s 17 of the LP Act, when read with the relevant part of the definition of an associate in s 7(1)(g), is to prevent principals from having a prohibited lay associate in a practice, and that situation may exist where the principal "shares the receipts, revenue or other income arising from the law practice" with a person who is not an Australian legal practitioner. The issue is what is meant in the context by the use of the word "shares". Although the issue was not explored in submissions, the word suggests that the associate by right, or in fact, receives a share of the receipts, revenue or other income from the law practice, where the money involved is properly so described. The LP Act does not prohibit legal practitioners from entering into or performing agreements with people, who happen to have suspended practising certificates, to pay them money generated by the law practice in circumstances that do not truly fall within the notion of sharing.
I do not accept that the object or effect of the LP Act was to prevent Mr Vaughan from paying to Mr Dlakic legal fees received by Mr Vaughan after the date of the buyback agreement, but in fact earned by Mr Dlakic but unbilled before that date, when the LP Act permitted Mr Dlakic to conduct the practice.
If Mr Dlakic elects to set aside the buyback agreement, then, subject to the effect of the LP Act and the replacement legislation, equity would consider making an order that Mr Vaughan pay to Mr Dlakic what has been called in these proceedings the Adjusted Net Profit. That is an amount that would not be equal to the revenue earned by Johnston Vaughan after the date of the buyback agreement. It would be the net profit after allowing for a proper amount for Mr Vaughan's remuneration. It would in effect be an amount of equitable compensation necessary to restore the status quo as at the date of the buyback agreement. While it would in part be measured by reference to the receipts, revenue or other income of Johnston Vaughan, it would not in any strict sense involve the sharing of those receipts. It would not have the effect that Mr Dlakic would retrospectively receive a right to share in the revenue in specie at the time of its receipts from clients.
Consequently, many issues arise in relation to how, if at all, the LP Act might have impinged upon the outcome of Mr Dlakic's claim in these proceedings. As the issue was not raised and dealt with at the initial hearing, it is not warranted that it be fully considered now in what would in reality be a theoretical exercise.

[30]

Reliance by Mr Vaughan on his recent affidavits

Mr Dlakic objects to Mr Vaughan being given leave to read his new affidavits made on 28 February 2022 and 2 August 2022, on the ground that Mr Vaughan seeks to introduce new evidence after the conclusion of the initial hearing and the publication of J1 and J2, when he has not been given leave by the Court to do so (even if as a procedural matter he was permitted to file the affidavits), no application for leave has been made, and Mr Vaughan has not provided any explanation as to why he did not serve the evidence contained in the affidavits before the initial hearing.
Mr Dlakic's opposition is raised in the context, as has been explained above, that his preparation of his own case was very seriously hampered, if not hamstrung, by the deficiency in production of the books and records of Johnston Vaughan before the initial hearing. In large measure, Mr Vaughan has enjoyed the forensic benefit of the paucity of the financial evidence that was made available to Mr Dlakic, and by his new affidavits he has attempted, on a selective basis favourable to himself, to provide testimonial evidence that could have been provided before the initial hearing, had Mr Vaughan chosen to do so. Mr Vaughan adopted an obstructive response to Mr Dlakic's claim and largely ran a defence of mere denial. Having lost the case in relation to the issues that remain alive, Mr Vaughan has attempted, by means of his new affidavits, to obviate the consequences of the tactical choices that he originally made.
Furthermore, none of the new evidence was put to Mr Dlakic in cross-examination at the original hearing, so he has not been given an opportunity to respond to and to answer it. Not only was there no occasion at the recent hearing for the purpose of adopting Ms Exner's referees reports for that cross-examination to take place, by reason of the deterioration in Mr Dlakic's psychological condition since the conclusion of his cross-examination, it would be neither realistic nor fair for him to be cross-examined now.
Mr Dlakic's written submissions filed on 18 May 2023 contained a fair summary of the contents of Mr Vaughan's new affidavits, as follows (references in footnotes omitted): 25. By the 28 February 2022 affidavit, the defendant seeks now to adduce evidence that was not before the Court during the 2018 hearing, which he asserts establishes that: a. the plaintiff received the sum of $77,938.32 for the period 25 November 2014 to 3 March 2015 from the Office General Account (0354); b. the plaintiff received the sum of $11,024.18 into his personal account "after the buy back"; c. the plaintiff received the sum of $88,962.50 for "monies he actually received from the practice after the date of the buy back" during the period 25 November 2014 to 2 April 2015; and that d. the plaintiff paid his personal expenses from the account ending 0354 totalling $95,664.47. … 28. By the 2 August 2022 affidavit, the defendant seeks to: a. Firstly, adduce material that was either already provided to Ms Exner for her consideration or alternatively, material that was not provided to Ms Exner, despite the defendant having had the opportunity to do so; and b. Secondly, adduce evidence in response to the plaintiff's various claims. Much like the 28 February 2022 affidavit, the 2 August 2022 affidavit seeks to provide evidence that was not before the Court during the 2018 hearing.
Mr Vaughan made a submission in the 28 February 2022 affidavit that the sum of $184,626.97 should be set off against any money that the Court finds Mr Dlakic is entitled to.
I accept in principle Mr Dlakic's submission that Mr Vaughan, by reason of his tactical decisions at the initial hearing and the consequences of him being permitted to rely upon late evidence at this stage, should not be permitted to rely upon the evidence in the two new affidavits.
That is particularly so in relation to his attempts at this late stage to give evidence to support a finding that he is entitled to a set off by Mr Dlakic against amounts that the Court would otherwise order Mr Vaughan to pay Mr Dlakic on the basis of the findings made by the Court in J1 and J2.
As I have noted above when considering the pleading issues that remain relevant, Mr Vaughan had an opportunity to respond to Mr Dlakic's pleaded allegation that he continued to pay the operating expenses of Johnston Vaughan from his own resources after the date of the buyback agreement, but all he pleaded was "Denied". Mr Vaughan chose not to plead that Mr Dlakic received any of the sums asserted in Mr Vaughan's 28 February 2022 affidavit.
It is, however, necessary to state a potential qualification to the ruling that Mr Vaughan should not now be permitted to rely upon the evidence in either of his two new affidavits. Mr Dlakic's First and Second Scenarios claim money that Ms Exner did not find in her reports was owed by Mr Vaughan to Mr Dlakic. As explained above, that was in some measure because of the restricted subject matter of the tasks that were given to Ms Exner. In relation to some of the components of Mr Dlakic's Scenarios, Mr Dlakic seeks either to contradict findings by Ms Exner or to build his claim by adding information to collateral findings made by Ms Exner. It is possible that, by taking that course, Mr Dlakic may have created circumstances whereby Mr Vaughan's entitlement to procedural fairness required that he be able to provide additional evidence on specific issues that have been opened up by Mr Dlakic's submissions. That is an issue that will only need to be considered in relation to each individual component, if the additional evidence given by Mr Vaughan is capable of defeating a particular claim that the Court would otherwise be minded to accept.

[33]

Additional Funds

Mr Dlakic claims the amount of $67,470 on the basis that Ms Exner found at R1 [2.16]-[2.17] and [4.80]-[4.89] that this amount might be due to Mr Dlakic in addition to the Adjusted Net Profit for funds received by Johnston Vaughan from clients after the date of the buyback agreement, as these funds related to work in progress undertaken prior to that date. That tentative conclusion was expressed by Ms Exner to be subject to the Court finding that the funds or some part of them had in fact been paid to Mr Dlakic or used by Johnston Vaughan to pay liabilities that existed at the date of the buyback agreement.
As Ms Exner observed at R1 [4.80], this issue had arisen because Mr Vaughan had asserted that: "At the time of the suspension of Mr Dlakic there were files open which included work in progress (WIP) [that]…is included in the income of the first year when it should be excluded" in the amount of $67,470. Ms Exner said that she interpreted Mr Vaughan's claim to mean that the $67,470 should be excluded from her assessment of the Adjusted Net Profit of Johnston Vaughan, as it related to WIP for the period before the date of the buyback agreement. Ms Exner said in R1 [4.81]: "I have assumed that the factual basis for the information provided by the Defendant is accurate." Ms Exner was unable to validate that all of the $67,470 was actually received, or that it was included in the general ledgers for Johnston Vaughan after the date of the buyback agreement. Consequently, I interpret Ms Exner's observation that this amount "may be owing to" Mr Dlakic to refer to no more than a possibility.
In any event, I am satisfied that there is a risk that the Additional Funds claim may be a subclass of the Unbilled WIP claim. Both rely upon Johnston Vaughan having received Unbilled WIP, as at the date of the buyback agreement, after that date. Even though the Unbilled WIP claim was not explicitly included in the reference, Mr Vaughan sought to persuade Ms Exner to reduce the income of Johnston Vaughan after the date of the buyback agreement by establishing that some of that income was for Unbilled WIP as at that date. To determine whether, and if so to what extent, the two claims involve 'double dipping' by Mr Dlakic, it would be necessary to compare the list of invoices that the respective parties claimed constituted the Unbilled WIP, to determine the extent to which the invoices did not overlap in the two claims. It would then be necessary to determine whether the evidence established that payments were in fact received by Johnston Vaughan, after the date of the buyback agreement, in respect of WIP as at that date.
The forensic exercise that has just been described is required for Mr Dlakic to establish his Unbilled WIP claim. The submissions that he has made in support of that claim do not descend to the detail that is necessary. I will consider those submissions below. The submissions that have been made do not exclude the real possibility of 'double dipping'.
Mr Vaughan's response to this claim included reliance upon pars 25 to 33 of his 2 August 2022 affidavit. In those paragraphs in Mr Vaughan gave evidence directed at establishing that Mr Dlakic had withdrawn a total of $184,626.97 from the accounts of Johnston Vaughan between 27 November 2014 and 2 April 2015. In par 33, Mr Vaughan claimed: "The amount of $67,470 received from clients after the date of the Buyback for work done prior to the Buyback were well and truly recouped by the Plaintiff." I would not allow Mr Vaughan to rely upon this evidence, as no explanation has been given as to why Mr Vaughan was unable to lead it at the initial hearing.

[34]

Two Receipts

This claim for $116,000 is based upon the fact that Ms Exner identified, at R1 [4.62(c)(ii)], two receipts totalling $116,000 which were deposited into the CBA trust account. This issue arose in that part of R1 in which Ms Exner dealt with two spreadsheets prepared by Mr Dlakic, in which he claimed that payments in cash had been received by Johnston Vaughan after the date of the buyback agreement, which were not brought to account as income. Mr Dlakic's case at the reference was that the net profit of Johnston Vaughan should be increased by the amount of the cash receipts. The total amount of the alleged unrecorded cash receipts was $541,406. Ms Exner carried out a sampling exercise which she described at R1 [4.62]-[4.64]. In that exercise, Ms Exner determined that, for the 39 transactions in the sample with a total value of $301,083, eight unrecorded receipts with a total of $38,426 had been recognised as fee income in the general ledger, and 29 unrecorded receipts with a total of $146,657 had been recorded in the cash books but not recorded as fee income in the general ledger of Johnston Vaughan. As to the remaining two samples, Ms Exner said: Two receipts (total of $116,000) were deposited into the CBA Trust Account. To the extent that this represents retainer monies received from clients in advance of services provided, I would not expect these receipts to be recognised as fee income of the practice at the time of receipt of funds. Rather, I expect that fee income would be recognised after the commissioned work had been undertaken on a client matter, after an invoice had been generated, issued and approved for payment by the client and once the monies on trust were applied in settlement of the invoice, in accordance with the client's authority.
Mr Dlakic's case in relation to these two amounts was based upon Ms Exner's assumption that the two amounts represented monies received on trust from clients, and did not represent fee income earned by the practice at the time of receipt. Mr Dlakic submitted that this assumption by Ms Exner was inconsistent with the nature of the work done by the practice, in accordance with submissions made to Mr Exner by Mr Vaughan, that were apparently made during the reference.
As the two amounts were paid into a trust account, I am satisfied that Ms Exner was entitled to infer that they were received on trust. It is unlikely that money that Johnston Vaughan was entitled to receive personally was paid into its trust account. Even if there was evidence that it was not Johnston Vaughan's usual practice to receive fees in advance from clients that were required to be held on trust, the general practice would not be sufficient to exclude the possibility that Johnston Vaughan proceeded on that basis in two isolated instances. Relatively specific evidence would be needed to disprove the assumption made by Ms Exner. Ms Exner concluded that, if the two amounts were paid into trust in advance of legal services being provided, then they would not have been paid out to Johnston Vaughan as income except against invoices issued after the work was done. That is a reasonable inference. If the two amounts were simply treated as fee income at the time they were paid into trust, there would be a risk of the net profit of Johnston Vaughan being artificially increased by double counting of the amounts paid into trust and the invoices for fees recognised in the general ledgers. Of course, if the two amounts were not paid into trust on account of legal fees, they would have remained beneficially the funds of the clients and could not properly be included in Johnston Vaughan's revenue.
The two amounts were listed by Mr Dlakic in his schedules of cash payments to Johnston Vaughan after the date of the buyback agreement. They are not part of his claim that Johnston Vaughan received payments for Unbilled WIP as at the date of the agreement. The amounts logically cannot be recoverable under Mr Dlakic's First Scenario, as they are not recoverable under clause 4 of the buyback agreement. If Mr Dlakic affirms the buyback agreement, then Mr Vaughan will be entitled to the $116,000 whatever the basis upon which it was received, because the money should be recorded as part of the Adjusted Net Profit.
Logically, the Two Receipts could only be recoverable by Mr Dlakic under the Second Scenario, on the basis that he elects to set aside the buyback agreement. However, I am not persuaded that the tentative conclusions stated by Ms Exner are a sufficient basis for the Court to find that the amount of the Adjusted Net Profit found by Ms Exner should be increased by $116,000. Ms Exner did not make a finding to that effect, even though it was relevant to her Task 1. The attack on Ms Exner's logic does not provide a positive basis for the Court to find that the $116,000 was income of Johnston Vaughan, in addition to the income that was recognised in the determination of the Adjusted Net Profit.
Mr Vaughan's response to this claim was to rely upon pars 75 to 81 of his 2 August 2022 affidavit. At par 76 Mr Vaughan said: "… How the sum of $116,000 falls into the heading Unrecorded Receipts does not make sense." He then claimed that, on 15 June 2018 "well after the Buyback Agreement" a named client deposited the sum of $16,000 into the practice's trust account, and that on 7 August 2018 the client deposited a further sum of $100,000 into the trust account on account of legal fees. Mr Vaughan then said by reference to an annexed trust account ledger, that the amount of $98,000 was withdrawn in legal fees by the practice.
This evidence need not be admitted as it ought to have been led at the initial hearing, but in any event, it only confirms Ms Exner's reasoning that I have already accepted.

[35]

Illegitimate Transfers

This claim concerns an amount of $72,840 that Mr Vaughan caused to be transferred from the Johnston Vaughan CBA Trust Account to the trust account of Michael Vaughan & Co in the period from July to September 2019. At R2 [2.10] and [3.17]-[3.20], Ms Exner considered a claim by Mr Dlakic that these transfers between the two trust accounts related to Unbilled WIP of Johnston Vaughan at the time the transfers occurred. Mr Vaughan confirmed to Ms Exner that these transfers had taken place, but declined to provide the information sought by Ms Exner by way of tax invoices, authorities and costs agreements that Ms Exner had requested to enable her to determine whether any of the amounts should be included in the Adjusted Net Profit of Johnston Vaughan. Ms Exner concluded that she was unable to determine the issue because of the inadequacy of the information provided by Mr Vaughan.
As noted above, Mr Vaughan caused Johnston Vaughan to cease operating on 30 June 2019, after the delivery of J2 on 7 May 2019. Mr Dlakic has not asserted in these proceedings that Mr Vaughan was not entitled to take that course. Mr Vaughan caused monies held in the Johnston Vaughan Trust Account that remained open to be transferred to the trust account for his new practice, Michael Vaughan & Co.
The Illegitimate Transfers claim cannot logically be part of Mr Dlakic's First Scenario and can only be part of his Second Scenario. It would be necessary for Mr Dlakic to prove that the money paid into the Johnston Vaughan Trust Account was received on account of fees for the provision of legal services by Johnston Vaughan. It would then be necessary for him to establish that the legal services were provided before 30 June 2019. If they were provided by Mr Vaughan, operating as Michael Vaughan & Co, after 30 June 2019, there would be no impediment to Mr Vaughan transferring the money to his new trust account. That would be so unless Mr Dlakic established a case, which he has not sought to do, that Mr Vaughan was not entitled to provide legal services to the clients of Johnston Vaughan after 30 June 2019 in the name of his new firm. Again, if the monies in the trust accounts remained beneficially owned by the clients, then they could not form part of the income of either practice.
Mr Vaughan responded to this claim at pars 7.1 to 7.5 of the Defendant's Submissions, which do not refer to any part of Mr Vaughan's affidavit evidence. The submissions assert that clients of Johnston Vaughan, who had paid money into trust on account of fees, agreed with Mr Vaughan for the money to be transferred to the new trust account of Michael Vaughan & Co. The submissions identified the amounts held on trust for four clients, but those amounts only added up to $49,090. The submissions are consistent with Michael Vaughan & Co having provided the relevant legal services, rather than Johnston Vaughan before 30 June 2019, when Johnston Vaughan ceased to operate.
Even though these submissions do not refer to any evidence given by Mr Vaughan, it is not necessary to consider them further because they are consistent with the conclusion that the Court has reached on the basis of Ms Exner's reports.

[36]

Defendant's Legal Fees

Mr Dlakic submitted to Ms Exner that two payments in the total amount of $55,000 recorded in the CBA Trust Account bank statements were made to the barrister who appeared for Mr Vaughan at the original hearing. Mr Dlakic claimed that these payments should be treated as personal expenditures of Mr Vaughan and not business expenditures, so that they should be added back to Ms Exner's determination of the Adjusted Net Profit.
Ms Exner recorded, at R2 [3.45]-[3.47], that Mr Vaughan asserted that he had put the amount of $55,000 into the trust account to fund the payment to his barrister. Ms Exner stated that she was unable to validate Mr Vaughan's assertion, but that she had reviewed the general ledger of Johnston Vaughan for the 2018 financial year and noted that the $55,000 was not recorded as an expense in the profit and loss statement. Accordingly Ms Exner concluded prima facie that no adjustment was required for the purpose of the determination of the Adjusted Net Profit.
Mr Dlakic claims that the $55,000 should nonetheless be added back as income of Johnston Vaughan for the purpose of determining the Adjusted Net Profit, because Mr Vaughan was the only party who could have provided Ms Exner with the information that she required for her to verify that the $55,000 was sourced from Mr Vaughan's personal funds.
This is another claim that cannot logically form part of the First Scenario but only the Second Scenario.
Even though Mr Vaughan did not provide Ms Exner with evidence that he paid the $55,000 into the Johnston Vaughan Trust Account, the evidence establishes that it was paid out of a trust account. Unless there was evidence that the money was the property of Johnston Vaughan, and incorrectly paid into its Trust Account, the evidence that is available establishes that the money was not the money of Johnston Vaughan. That is consistent with the treatment of the amount in the profit and loss statement - that is, it was not referred to at all because it was never Johnston Vaughan's money. The evidence is consistent with Mr Vaughan not using the funds of Johnston Vaughan to pay his own legal costs.
Mr Vaughan made the bare assertion, in par 82 of his 2 August 2022 affidavit that the $55,000 "[was] paid by myself from my own funds". It is not necessary for the Court to receive this evidence, as it is consistent with the conclusion reached by the Court on the basis of Ms Exner's reports.

[37]

Post-Buyback Expenses

This claim is supported by Ms Exner's finding, at R2 [2.8] that the correct amount of the expenses of Johnston Vaughan that Mr Dlakic paid after the date of the buyback agreement was $199,683.
In pars 9.1 to 9.7 of the Defendant's Submissions, Mr Vaughan mounts a detailed argument as to why Mr Dlakic is not entitled to repayment of any post-buyback expenses. The essence of Mr Vaughan's argument is found in par 9.3 where he says: "…The defendant admits that in the period from 25 November 2014 to July 2015 the plaintiff paid some monies into the practice accounts of Johnston Vaughan, as is addressed in detail below. However, during that period the plaintiff withdrew or transferred far more out of those accounts tha[n] he put in and, at the same time, as is set out again in detail below, the plaintiff, a signatory on the xx[xxxx] account for the practice Johnston Vaughan drew cheques in excess of $95,000 on that account for which the defendant does not have the records showing the payee or the purpose of such cheques." Mr Vaughan noted that Ms Exner had declined to determine any amounts paid out of the accounts of Johnston Vaughan to or for the benefit of Mr Dlakic because that exercise did not form part of Task 3. Mr Vaughan submitted that, even if that is so in relation to Task 3: "That is not and cannot be the tasks set for the Court…" Mr Vaughan then made detailed submissions, based upon the bank statements for an account of Johnston Vaughan for the period 16 October 2014 to 20 July 2015 (20 pages with individual transactions numbered 1 to 483). Mr Vaughan submitted that the Court should note that Mr Dlakic was the sole signatory on the relevant bank account. Mr Vaughan then made detailed submissions by reference to pars 7 to 12 of his 28 February 2022 affidavit, in which he made assertions by reference to the bank statements as to specific amounts claimed to have been withdrawn by Mr Dlakic for his own benefit, in a total amount of $184,626.97.
This is the claim that ought specifically have been pleaded in Mr Vaughan's defence, as I have noted above at [18], but was not pleaded and was not addressed at the initial hearing. It is confounding why Mr Vaughan chose not to do so, given that it appears from his 28 February 2022 affidavit that he may have had records that would have enabled him to prosecute the claim that he now seeks to make. The content of the submissions now made by Mr Vaughan make inexplicable his deficient response to Mr Dlakic's notices to produce before the initial hearing. The appearance is that Mr Vaughan simply chose not to produce books and records of Johnston Vaughan that were in his possession and which he now seeks to deploy in his defence.
As Mr Dlakic was not given the opportunity of answering Mr Vaughan's new case at the initial hearing, I reject so much of Mr Vaughan's new affidavits as give evidence to support this claim.
The Court will adopt Ms Exner's finding that Mr Dlakic paid $199,683 of expenses of Johnston Vaughan after the date of the buyback agreement.

[38]

Adjusted Net Profit

As is set out in Table 1 in R1 [2.15] that is set out above, Ms Exner expressed her conclusion concerning the amount of the Adjusted Net Profit on the basis of three separate scenarios. Ms Exner did not make a determination as to which of the scenarios should be adopted. Ms Exner determined that the Adjusted Net Profit was $275,952, subject to possible reduction on the basis of Mr Vaughan's assertion that part of the cash receipts of Johnston Vaughan as at the date of the buyback agreement had been applied in making cash payments of Johnston Vaughan's operating expenses. Mr Vaughan did not provide evidence of these payments to Ms Exner. Ms Exner created the three scenarios on arbitrary assumptions as to the proportion of the $265,289 in unrecorded cash payments that she had found was received was applied to pay operating expenses in cash. Ms Exner did this, as she stated in R1 [4.69]: "To assist the Court in making a finding on this issue…" The matter has therefore been left to the Court to decide.
I accept Mr Dlakic's submission that, as Mr Vaughan did not plead that these cash payments had been made in his defence, and in any event, he did not lead any evidence at the initial hearing to prove the proportion of the unrecorded cash receipts that had been applied in payment of Johnston Vaughan's operating expenses, the proper course is for the Court to accept Scenario 3 and find that the Adjusted Net Profit was relevantly $275,952 (as revised at R2 [2.3]). I therefore reject Mr Vaughan's submission, made at Defendant's Submissions par 11.9 without elaboration, that the Court should accept Scenario 2.
In the Defendant's Submissions at pars 11.2 to 11.8, Mr Vaughan challenged the reasonableness of Ms Exner's allowance of an annual salary of $175,000 for Mr Vaughan. I reject that challenge because, as Ms Exner explained at R1 [4.40]-[4.44], for want of better evidence, Ms Exner determined the $175,000 amount by acting upon evidence provided by Mr Vaughan that suggested that 35% of total fee revenue received was a proper basis for the determination of the remuneration to be allowed to Mr Vaughan, and then actually made the determination on the basis of 40% to allow for the lower amount of revenue that she had found Johnston Vaughan had received. Mr Vaughan cannot now complain if Ms Exner determined the amount of the remuneration by adjusting the evidence provided by Mr Vaughan in his favour.

[39]

Determination of amount of Unbilled WIP

The Court must determine the amount that Johnston Vaughan received after the date of the buyback agreement from Unbilled WIP as at that date, for the purpose of calculating the amount payable to Mr Dlakic under clause 4 of the buyback agreement, on the basis of the evidence before the Court at the initial hearing, except to the extent that the Court may give leave to the parties to adduce further evidence prepared after the conclusion of the hearing. As explained above, Ms Exner correctly took the view that the determination of this amount was not a task that she had been instructed to carry out.
The amount of Mr Dlakic's Unbilled WIP claim is $434,930. That is the total amount in the table in Mr Dlakic's draft short minutes of order that became MFI 1 that is set out above at [112]. As I have noted above at [169], Ms Exner observed at R2 [3.12]-[3.13] that Mr Dlakic's claim was really only for $393,475, as two amounts, in the total sum of $140,000, had not been received by Johnston Vaughan. Mr Dlakic based his claim on the matters recorded in the spreadsheets that he prepared and were in evidence at the original hearing at Tab 34 to Exhibit AD-1. Mr Dlakic gave evidence on that issue in pars 224 to 227 of his 22 May 2017 affidavit. At par 224, Mr Dlakic said that he had prepared spreadsheets on 1 October 2014 and on 22 May 2017 setting out the fees in numerous matters that he was aware had not been paid to him by Mr Vaughan, although he said that there could have been other matters where fees remain outstanding to him that he could not recall and that he could not determine from the records available to him. Mr Dlakic said: "The total fees that I estimate are owing to me in respect of unpaid Work-in-Progress of Johnston Vaughan is the sum of $1,922,981.44, as set out in the above latest version of the spreadsheet." That sum is indeed the total stated at the end of the 22 May 2017 spreadsheet. The spreadsheet takes the form of listing amounts owed by clients on an aged debtors basis. The meaning of the spreadsheet is not evident on its face, and Mr Dlakic's affidavit does not provide an explanation. Mr Dlakic's reliance upon the spreadsheets is perplexing. One would expect that aged debtors schedules prepared as at two dates could be used to identify the value of the WIP as at the first date (in this case 1 October 2014, which was slightly before the 25 November 2014 date of the buyback agreement) and then, by comparison with the debts that remained outstanding at the second date, the debts that had been paid in the intervening period could be identified. In this case, although Mr Dlakic's two spreadsheets are dated 1 October 2014 and 22 May 2017, the list of debtors is almost identical in each and the information concerning the ages of the debts is identical in almost every case. The later spreadsheet appears to be almost entirely a reprint of the earlier one. It does not prove the Unbilled WIP received by Johnston Vaughan after the date of the buyback agreement. In any event, as the earlier document is an aged list of debtors, tax invoices must have been sent to the debtors so that the debts were not unbilled - that is, they did not represent WIP.
A consideration of the wording of clause 4 of the buyback agreement suggests that the problem lies in the description of this claim as "Unbilled WIP". Clause 4 entitled Mr Dlakic to be paid all money received by Johnston Vaughan after the date of the buyback agreement for all work done in clients' files prior to that date, whether billed or unbilled as at the date of the buyback agreement. Consequently, Mr Dlakic was entitled to be paid all of the fees listed in the 1 October 2014 spreadsheet if those fees were paid by the relevant clients to Johnston Vaughan after 25 November 2014. It is not clear why the manner in which the 22 May 2017 spreadsheet was prepared is of no assistance in determining the amount of fees that were received.
In fairness to Mr Dlakic, he said in par 226 of his affidavit that he was unaware as to what, if any, amount had been received by Mr Vaughan from the client entries in the 22 May 2017 spreadsheet in respect of items 3 to 146 and 149. Mr Dlakic then gave evidence, in par 227, concerning the debts recorded in five of the items. The amounts of the debts that Mr Dlakic specifically claimed were outstanding as at 25 November 2014, for which Johnston Vaughan had received some repayments were (as written by Mr Dlakic): Item 147 Paul Nakhe (IJG GROUP) Pty LTD $48,500 Item 148 Catherine Ricketts $48,000 Item 150 Deborah Canov $41,000 Item 151 Paul Calleja $198,500 Item 152 Rabija (robyn) Tarakaj $25,000
Then, in par 227 of his affidavit, Mr Dlakic gave evidence that tended to prove that Mr Nakhe had paid $55,000, Ms Ricketts had paid $48,500, Ms Canov had paid $15,000, Mr Calleja had paid an estimated $191,000, and Ms Tarakaj had paid $18,028. The evidence given by Mr Dlakic was not challenged, even though it was in some respect weak as proof that the payments had been made. Some of the payments were greater than the amounts set out in the table above, as Mr Dlakic gave evidence that Mr Vaughan had done additional legal work for some of the clients after the date of the buyback agreement. As I understand it, the amounts beside the individual item numbers in the table at [205] above are less than the corresponding amounts in the table set out at [112], because the latter table was wrongly prepared using the amounts in the 22 May 2017 spreadsheet that included not only work done before the date of the buyback agreement, but also work done by Mr Vaughan afterwards that Mr Dlakic was not entitled to be paid under clause 4 of the buyback agreement.
I made the following observations on this issue in J1: [78] Mr Dlakic gave evidence that, following the buyback agreement, he received some very small amounts in respect of fees paid to Johnston Vaughan for work done before the date of the buyback agreement, and in par 224, Mr Dlakic refers to a spreadsheet exhibited to his affidavit that he originally prepared on 1 October 2014, and updated over the period to 22 May 2017, which takes the form of an aged debtors list in respect of amounts that Mr Dlakic claims represented fees owed by clients that should have been paid to the firm and remitted to Mr Dlakic. The total amount of the list is $1,922,981.44. Mr Dlakic qualified his evidence by explaining in relation to some entries that part of the fees payable by clients accrued before the date of the buyback agreement, and part accrued afterwards. Mr Vaughan simply denied the paragraph, without offering any positive explanation concerning what fees were owed to the firm and what amounts were received. [79] Mr Dlakic gave evidence of being aware, by reason of having reviewed some of the Johnston Vaughan trust account ledgers in about October 2015, that some of the fees itemised in the spreadsheet (with a total of about $339,430.35) had been received by Johnston Vaughan. Strangely, Mr Vaughan did not respond to these paragraphs. [80] There is one receipt that I am satisfied occurred, because evidence was given as to its receipt by Mr Steven D'Apice, who was a conveyancer employed by Johnston Vaughan at the time, and who also was responsible for all office records concerning receipts in reconciliation to the trust account cash books and journals, all trust account bookkeeping, and the records necessary to complete PAYG and GST declarations. Mr D'Apice gave evidence that in about September 2015, Mr Dlakic attended the office and negotiated the amount of fees to be paid by a client, Mr Paul Calleja, which enabled an amount of approximately $191,000 to be released from the firm's trust account. Mr D'Apice gave evidence that, of this sum, about $180,000 was paid to Mr Vaughan. Mr D'Apice annexed to his affidavit what he called an expense sheet that was given to him by Mr Vaughan. The document lists eight payments totalling $178,439.11. [81] It must be noted that two of those payments were described as "Michael Vaughan - rent" for $43,866.25, and "rent in advance" for $24,360. This payment to Mr Vaughan occurred long after the time when the lease of the Montgomery Street property to Mr Dlakic had been surrendered. [82] In his specific response to Mr D'Apice's affidavit, Mr Vaughan did not respond to the evidence concerning the release of Mr Calleja's fees from the trust fund or that about $180,000 was paid to him. Mr Vaughan denied Mr D'Apice's evidence that Mr Vaughan instructed him to pay the bills and expenses listed in the document and said (par 21): "I say that the Plaintiff was to pay his obligations to the staff and the rent from the Calleja money. The annexure marked "A" is not a document made by me and the writing on it is the handwriting of the Plaintiff". Irrespective of who was the author of the document annexed to Mr D'Apice's affidavit, Mr Vaughan's response is a clear admission that the money was paid to Mr Vaughan for alleged expenses of Johnston Vaughan at a time long after the date of the buyback agreement.
In saying in J1 [80] that there was one payment that I was satisfied had been received I did not mean that I had found as a fact that that was the only receipt that had been proved. The paragraph appeared under the heading "Contentious issues of fact", and that part of the judgment was directed to explaining questions of fact that were in issue between the parties. The Court did not finally deal with the quantification of Mr Dlakic's claim for enforcement of the buyback agreement in J1.
As is stated in Defendant's Submissions at par 3.2, Mr Vaughan seeks to respond to this claim in pars 12 to 24 of his 2 August 2022 affidavit. I have already explained above why I reject Mr Vaughan's submission that Mr Dlakic is precluded from recovering the amount of this claim because his practising certificate had been suspended.
Mr Vaughan's evidence is difficult to understand because he states that it is given in response to a claim by Mr Dlakic for $1,372,324 for Adjusted Net Profit. Some confusion appears to have been introduced because of references made in Mr Vaughan's evidence to appendices of Ms Exner's reports that in fact were concerned with her identification of cash receipts by Johnston Vaughan after the date of the buyback agreement.
In his affidavit Mr Vaughan gives detailed explanations about each of the matters involving the clients listed in the schedule in [205] above. The explanations are supported by attached extracts from general ledgers, tax ledgers, tax invoices and cheque butts. Mr Vaughan purports to have a detailed recollection of what happened in each of the matters. I will not set out the evidence in detail, but it is a fair description that it seeks to give chapter and verse responses to Mr Dlakic's claim.
The fact that Mr Vaughan is now able to give this evidence, whatever the truth of it may be, given that he did not respond to the evidence tendered by Mr Dlakic at the original hearing, and that he did not produce to the Court any of the documents upon which he now seeks to rely, is extraordinary. It is at least possible that the course of the original hearing would have been completely different if Mr Vaughan had complied with his obligations as a party, let alone a solicitor of this Court, to make a proper response to his obligation to produce the books and records of Johnston Vaughan that were in his possession or control.
The conclusion cannot be avoided that Mr Vaughan, who should have known better, decided to flaunt his obligations and to not provide an evidentiary response to Mr Dlakic's claims. Mr Dlakic was clearly hamstrung in the presentation of his case because of the absence of the books and records that he struggled mightily but unsuccessfully to obtain. I have set out above at [34] the observations I made at J1 [475] to the effect that I made it clear that I did not contemplate that the parties will be permitted to lead further evidence where that evidence could have and should have been led at the hearing, to enable them to remedy any deficiencies in the cases that they have presented. Mr Vaughan's attempt to rely upon the new evidence on the issue of the WIP receipts is a flagrant violation of that ruling.
Furthermore, the reception of the evidence would put the Court in the extraordinary position that it would be asked to accept the evidence of a witness that it has already ruled at J1 [147], as set out above at [29], it would not accept, except to the extent that it is corroborated. As it is now too late for Mr Vaughan to bring forward selected parts of the books and records of Johnston Vaughan, the grant of leave for Mr Vaughan to rely upon his testimonial evidence would be pointless.
Mr Vaughan has not formally applied for leave to rely upon his new evidence on this issue and he has provided no explanation at all as to why he did not serve it on Mr Dlakic before the original hearing. I refuse to permit Mr Vaughan to rely upon the evidence now.
Accordingly, the claim made by Mr Dlakic to enforce clause 4 of the buyback agreement must be decided on the basis of the evidence that was before the Court at the initial hearing. Apart from denying that evidence, Mr Vaughan did not positively challenge it and Mr Dlakic's evidence was not contradicted in cross-examination.
I have set out my findings in relation to the credibility of the evidence given by Mr Dlakic at J1 [125]-[131], the relevant parts of which are reproduced above at [28]. Although I consider that Mr Dlakic was not an entirely reliable witness on some subjects that were affected by his psychological condition and his emotional state, I was satisfied that in relation to objective matters he had attempted to give genuine and truthful evidence to the best of his ability. Consequently, I am satisfied that the issue of the receipts of fees by Johnston Vaughan for legal services provided before the date of the buyback agreement should be determined on the basis that the evidence given by Mr Dlakic is the best evidence that is available, and that Mr Vaughan, who was in sole control of the books and records of the practice, was the only party in a position to contradict that evidence, but did not do so.
I consider in these circumstances that the evidence proves on the balance of probabilities that Johnston Vaughan received the following fees after the date of the buyback agreement for legal services provided to clients before that date: 1. Paul Nakhe - $55,000. See Mr Dlakic's 22 May 2017 affidavit at par 227(1). 2. Catherine Ricketts - $48,500. See Mr Dlakic's affidavit at par 227(unnumbered subparagraph). Although Mr Dlakic's evidence was that Johnston Vaughan had been paid slightly more than that amount, only that amount was outstanding at the date of the buyback agreement. 3. Deborah Canov - $15,000. See Mr Dlakic's affidavit at par 227(2). 4. Paul Calleja - $178,439.11. See J1 [80]. 5. Rabija Tarakaj - $25,000. See Mr Dlakic's affidavit at par 227(4) and Tab 36 of Exhibit AD-1. The exhibit is an unsigned copy of an Authority to Debit Trust Account dated 29 September 2015 that Mr Dlakic said in his evidence was signed by Ms Tarakaj in his presence and handed by him it to Mr Vaughan. The Authority referred to an estate matter and authorised that certain amounts be paid out of trust, including $31,028.00 to Johnston Vaughan. The amount that Mr Dlakic stated was owed at the date of the buyback agreement was $25,000. 6. The total amount is $321,939.11 (compared to the $393,475 which Ms Exner found was the upper limit of Mr Dlakic's claim: see [203] above).

[40]

Conclusion

The result is that Mr Dlakic has established that, if he elects to affirm the buyback agreement, the First Scenario compensation to which he will be entitled is the Unbilled WIP of $321,939.11, as found by the Court, and the Post-Buyback Expenses of $199,683 found by Ms Exner. The total is $521,621.11. The first part of this amount is recoverable under clause 4 of the buyback agreement, and the second part consists of money had and received by Mr Vaughan that was paid by Mr Dlakic to satisfy the expenses of Michael Vaughan under the mistaken belief, induced by Mr Vaughan, that Mr Vaughan would pay Mr Dlakic the profits earned by the practice.
If Mr Dlakic elected to take the compensation under his Second Scenario, he would be entitled to the Adjusted Net Profit of $275,952 found by Ms Exner. As Ms Exner found at R1 [4.19]-[4.20], that is set out above at [102], the fact that Mr Dlakic paid $199,683 in Post-Buyback Expenses does not have the effect of adding to the Adjusted Net Profit. Ms Exner did not find that the Post-Buyback Expenses related to expenses incurred by Johnston Vaughan in earning revenue after the date of the buyback agreement, so that the Adjusted Net Profit, as determined by Ms Exner, must be taken to be revenue received after the date of the buyback agreement, less expenses paid out of that revenue, and not the Post-Buyback Expenses. Consequently, if Mr Dlakic elects to receive compensation determined on the basis that the buyback agreement should be set aside, the only amount that Mr Vaughan has received that ought to be paid to Mr Dlakic is the Adjusted Net Profit.
It will be necessary for Mr Dlakic to make a formal election as to the relief that he asks the Court to give him.
Mr Dlakic also seeks pre- and post-judgment interest.
It will be necessary for Mr Dlakic to prepare draft short minutes of order to give effect to these reasons, and as part of that exercise, he must calculate what he claims as pre-judgment interest, and attach a schedule establishing the basis of the calculation of that interest to his draft short minutes of order.
Mr Dlakic should provide the draft short minutes of order to Mr Vaughan within 14 days of the publication of these reasons, and, if Mr Vaughan objects to any part of the draft short minutes of order, he should prepare revised draft short minutes of order, and provide that document to Mr Dlakic and my Associate within a further seven days. In that event, both parties should serve and deliver to my Associate short written submissions in support of their position by the date that Mr Vaughan is required to submit his draft short minutes of order.

[41]

Costs

In his skeleton outline of submissions filed on 5 April 2023, Mr Dlakic sought the following further costs orders in par 39: 39. The plaintiff seeks an order that: a. The defendant pay the plaintiff's costs of the Notice of Motion filed 10 March 2021 (the Motion); and b. The defendant pay the plaintiff's costs and disbursements incurred since 14 May 2019 as agreed or assessed, including the costs of and incidental to the appearances on: i. 8 August 2019; ii. 25 March 2021; iii. 3 May 2021; and iv. 9 July 2021 (the Reserved Costs).
In relation to the notice of motion filed on 10 March 2021 and what he called the Reserved Costs, Mr Dlakic relied upon submissions dated 8 June 2021 that he had provided to the Court.
Mr Dlakic submitted that Mr Vaughan should be ordered to pay his costs of the proceedings since the previous costs orders were made on the basis that the reference process was necessary because of the non-compliance by Mr Vaughan with the notice to produce served upon him in 2018 that has been discussed in these reasons.
Mr Dlakic also seeks an order that Mr Vaughan pay him interest on the amounts of costs that have been paid by Mr Dlakic. In principle, Mr Dlakic should be entitled to interest on the costs paid by him on the basis considered in Lahoud v Lahoud [2006] NSWSC 126 at [82]-[83].
Mr Vaughan's position on the issue of costs, as set out in Part 17 of the Defendant's Submissions, is that the issue should not be determined by the Court until after Mr Dlakic has made his election concerning the remedy that he wishes to receive. Mr Vaughan informed the Court that a number of offers of compromise have been made during the proceedings, and submitted that it is premature for the Court to deal with the issue of costs on a final basis. Mr Vaughan also stated that there was an issue as to whether Mr Dlakic should pay Mr Vaughan's costs of work done on the remedy that is ultimately abandoned by Mr Dlakic, at least since 9 July 2021.
I accept that, if there is a chance that the parties may rely upon offers of compromise for the purpose of the determination of the costs orders that should be made in these proceedings, it is premature for final costs orders to be made now. However, I consider that it is appropriate for the Court to make a number of rulings on the costs issues, to provide a scaffolding for any future submissions by the parties on costs.
First, all of the costs that have been incurred since the original costs orders were made by the Court on 14 May 2019 have been incurred in the prosecution of Mr Dlakic's claim that he was entitled either to elect that the buyback agreement be set aside, or to elect to enforce it, and, in either case, to seek appropriate compensation. Consequently, in principle, as Mr Dlakic has succeeded on both of the alternative claims, he is entitled to an order that Mr Vaughan pay his costs incurred after 14 May 2019 on the ordinary basis.
Those costs will include the costs of the reference that Mr Vaughan was ordered to pay in the first instance by order 13 made on 14 May 2019. Mr Vaughan has not made an application that he be indemnified in respect of those costs, but in principle that application, if made, should be rejected.
As Mr Vaughan has now accepted that Mr Dlakic's right to elect as between the two alternative remedies remains alive, in principle Mr Dlakic should not be ordered to pay Mr Vaughan's costs incurred in respect of the alternative that Mr Dlakic abandons. Were it otherwise, the value of the right of election would be undermined for the successful claimant, because, if the claimant did not make the election prematurely, the claimant would risk being ordered to pay the costs of the wrongdoer in relation to the alternative that the successful claimant ultimately abandoned. That outcome would, in many cases, have the effect of destroying the right of election.
The Court should also rule on Mr Dlakic's application for the costs of the notice of motion filed on 10 March 2021 and what he called the Reserved Costs. That is because Mr Dlakic may be entitled to those costs, if his submissions succeed, even if for some presently unknown reason an order is not made that he be paid his costs of the proceedings generally from 14 May 2019.
As to the costs of the notice of motion, Mr Dlakic was reasonably justified in filing the notice of motion because Mr Vaughan held up the process of the reference by not providing certain material as requested by Ms Exner in a letter dated 3 December 2020 in a timely way.
Mr Vaughan provided his explanation for his delay in giving Ms Exner the information she requested in his affidavit sworn on 24 March 2021. Mr Vaughan sought to persuade the Court that he had initially attempted to respond in a timely way but that by mischance his communications with Ms Exner were not received, and her communications to him were not responded to either because he "saw no necessity to reply", or correspondence from Mr Dlakic's solicitors was only forwarded to his secretary and that she "was away from her computer most of that day, [and] that letter unfortunately did not come to her attention and as such was not redirected to myself". There are a number of grounds for doubting the veracity of Mr Vaughan's explanations, but I do not think that it is necessary to explore that issue. The simple fact is that Mr Vaughan was required to take responsibility for ensuring that he or his staff responded effectively in a timely way to the correspondence addressed to him by Ms Exner and Mr Dlakic's solicitors, and that, because his response was ineffective in fact, he must take responsibility for the need for Mr Dlakic to file and prosecute the notice of motion.
I am satisfied that Mr Vaughan should be ordered to pay Mr Dlakic's costs of the notice of motion.
As for the Reserved Costs, the costs incurred on 8 August 2019 were in respect of the orders made by the Court on that date that are set out above at [48]. Those orders concerned the process of the reference. Mr Dlakic is entitled to his costs of that day, but only on the basis that he may be entitled to his costs of the proceedings generally after 14 May 2019.
Mr Dlakic is entitled to his costs of the hearing that took place on 25 March 2021 at which the orders set out at [61] above were made, in any event, because the hearing was necessary to obtain the undertaking by Mr Vaughan to respond to the request for information made by Ms Exner.
The same is true for Mr Dlakic's costs of the appearance on 3 May 2021, at which the orders set out at [63] above were made, on the basis that that appearance also related to Mr Dlakic's notice of motion that led to the Court's orders made on 24 March 2021.
As to Mr Dlakic's costs of the hearing on 9 July 2021, at which the Court made the orders set out at [69] above, Mr Dlakic is entitled to his costs of that hearing, but only on the basis that they are part of the costs to which he may generally be entitled in respect of the proceedings after 14 May 2019. The orders made on that day were not made because of any delinquency in the conduct of Mr Vaughan. They were made as a necessary step in the progress of the reference.
The result is that in respect of the Reserved Costs, Mr Dlakic is only entitled to special orders that Mr Vaughan pay his costs of the hearings on 24 March 2021 and 3 May 2021, as well as any notice of motion filed by Mr Dlakic that led to those hearings. The balance of the Reserved Costs must be accommodated within any general order that may be made that Mr Vaughan pay Mr Dlakic's costs.

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