[2015] HCA 7
Australian Securities and Investment Commission v Rich (2005) 190 FLR 242
[2005] NSWSC 149
Briginshaw v Briginshaw (1938) 60 CLR 336
[1938] HCA 34
Cahill v Kenna [2014] NSWSC 1763
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588
[2011] HCA 21
Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106
Source
Original judgment source is linked above.
Catchwords
[2015] HCA 7
Australian Securities and Investment Commission v Rich (2005) 190 FLR 242[2005] NSWSC 149
Briginshaw v Briginshaw (1938) 60 CLR 336[1938] HCA 34
Cahill v Kenna [2014] NSWSC 1763
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588[2011] HCA 21
Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106[2007] HCA 28
Kirch Communications Pty Ltd v Gene Engineering Pty Ltd [2002] NSWSC 485
Lithgow City Council v Jackson (2011) 244 CLR 352[2011] HCA 36
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705[2001] NSWCA 305
Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234(2009) 261 ALR 384
NU v NSW Secretary of Family and Community Services (2017) 95 NSWLR 577[2017] NSWCA 221
Rejfek v McElroy (1965) 112 CLR 517[2000] HCA 43
Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd (2009) 75 NSWLR 380
Judgment (18 paragraphs)
[1]
Introduction
The plaintiff appeals under s 247 of the Legal Profession Uniform Law (NSW) (LPUL) against a decision dated 18 August 2021 of the Fidelity Fund Management Committee (Committee), as delegate of the Law Society Council. By an application lodged by the plaintiff upon the Legal Practitioners Fidelity Fund (Fidelity Fund) on 1 March 2017, the plaintiff claimed an amount of $94,468 which it alleged constituted its pecuniary loss caused by a default by the law practice Saldaneri & Associates. The Committee rejected the claim.
In brief, the claim relates to the conduct of Ms Jacqueline Saldaneri, who provided services to the plaintiff and Mr Brian Meknas (who was the sole shareholder and director of the plaintiff at relevant times). From around August 2013 Ms Saldaneri acted for the plaintiff in relation to its insurance claim with QBE Insurance (Australia) Ltd arising from a fire which damaged the plaintiff's Eagle Boys Dial-A-Pizza franchise store (Eagle Boys franchise) on 6 January 2013. Up until October 2016 Ms Saldaneri continued to act for the plaintiff in relation to that insurance claim.
Mr Meknas was guarantor and indemnifier in respect of the plaintiff's Eagle Boys franchise. On 28 January 2014, Eagle Boys Australia Dial-A-Pizza Pty Ltd (Eagle Boys) informed both the plaintiff and Mr Meknas that the franchise agreement was terminated. In the ensuing months Eagle Boys took various steps which ultimately resulted in the plaintiff going into administration and Mr Meknas being made bankrupt. Ms Saldaneri also acted for both the plaintiff and Mr Meknas personally in relation to those other proceedings arising from both their financial difficulties.
The plaintiff claims that it paid a total amount of $275,000 in trust money to Ms Saldaneri, which can be divided into the following three categories:
1. $20,000 paid by way of four $5,000 instalments by Mr Meknas into Ms Saldaneri's trust account on 1 July 2014;
2. $175,000 paid into that trust account by Ms Saldaneri on 28 August 2014 using funds forwarded to her by QBE in relation to the plaintiff's insurance claim; and
3. 6 payments totalling $80,000 paid between 11 and 18 September 2015 by either Mr Meknas or the plaintiff into what turned out to be Ms Saldaneri's office account.
The plaintiff accepts that $180,532 of that money was properly disbursed by Ms Saldaneri in one form or another but claims that Ms Saldaneri has defaulted in relation to the balance of $94,468.
The bulk of the plaintiff's claim relates to $80,000 which was paid to Ms Saldaneri in several instalments in September 2015. Mr Meknas claims that he telephoned Ms Saldaneri around 10 September 2015 after he received a text message notifying him that Eagle Boys had obtained an order for substituted service. His evidence is that Ms Saldaneri told him that the plaintiff needed to make sure that it had enough funds to pay for the costs of prosecuting the QBE insurance claim. He says that she also told him that, by putting $80,000 into her trust account, it would be safe from creditors who might try to bankrupt him. Mr Meknas says that he acted upon that advice. Mr Meknas thought that the money went into Ms Saldaneri's trust account, but it turned out to be her office bank account.
In broad outline, the defendant's opposition to the plaintiff's claim is based upon the following propositions:
1. No default has been demonstrated in respect of the $20,000 (paid by way of four instalments of $5,000 each) on 1 July 2014 and, even if there was any pecuniary loss resulting from a default, that loss was not suffered by the plaintiff because the whole of the $20,000 was paid by Mr Meknas personally.
2. The $80,000 paid by way of six instalments in September 2015 was for the purpose of defeating the creditors of the plaintiff and Mr Meknas. Consequently, the money was not received in the course of, or in connection with, ordinary legal practice and was not "trust money". In any event, since only $60,000 of the $80,000 was paid by the plaintiff, it did not suffer any pecuniary loss in respect of the remaining $20,000 which was paid by Mr Meknas.
3. The transaction involving the payment of $80,000 was an "illegal transaction" and the plaintiff knew or ought reasonably to have known of its illegality, such that the claim should be disallowed or reduced under s 240(4)(d) of the LPUL.
4. The plaintiff's claim on the Fidelity Fund should be reduced to take into account the value of the benefits of the legal services (plus disbursements) received by the plaintiff from Ms Saldaneri.
In broad outline, the plaintiff's position is that at all relevant times Mr Meknas wanted the plaintiff to prosecute its claim against QBE and this would have been jeopardised if the plaintiff was wound up or went into administration. In addition, having regard to the surrounding circumstances and relevant documentary materials, including bank statements, it could not be concluded that Mr Meknas wanted to withhold the $80,000 from Eagle Boys or other creditors. The plaintiff also challenges the defendant's construction of relevant provisions in the LPUL and their application to this case, particularly with regard to the claim of illegality. Finally, the plaintiff contends that the evidence does not justify an amount of more than $10,000 being attributed to the value of the benefit which the plaintiff received from Ms Saldaneri's work.
The matter has a long history, which I will now summarise alongside setting out my findings of fact.
[2]
Background facts
The following material is substantially based on an affidavit dated 15 June 2022, and oral evidence given, by Mr Meknas and two affidavits both dated 1 December 2022 by a solicitor (Ms Andrianne Andrianopoulos) employed by the defendant. Ms Andrianopoulos annexed to one of those affidavits a copy of the Committee's reasons for its decision, various correspondence and the defendant's records which were available to the Committee when it made its decision (with some minor exceptions). The defendant also relied upon a bundle of documents produced under subpoena issued to Chifley Advisory Pty Ltd (whose partner, Mr Gavin Moss, was the administrator and deed administrator of the plaintiff). The defendant also relied upon an affidavit dated 28 July 2022 by an expert costs assessor, Ms Valerie Higinbotham, to which the plaintiff objected (see further below).
[3]
Mr Meknas' reliability and credibility
As noted, the plaintiff relief upon an affidavit by Mr Meknas. Mr Meknas also gave oral evidence-in-chief in which he corrected various parts of his affidavit. He was cross-examined on selected parts of his affidavit. The bulk of his affidavit was not challenged.
It is desirable at the outset to address Mr Meknas' reliability and credibility as both were impugned by the defendant.
Mr Meknas' medical history and health condition are relevant to the reliability of his evidence. I accept that, for the last 12 years or so, he has been taking high dosages of painkillers for his back pain, anti-depressants and anti-anxiety medication. I accept his claim that he suffers from poor memory and concentration, which he attributes to his anxiety. I also consider that the reliability of his oral evidence may have been affected by the fact that his oral evidence was given by audio-visual link from a prison where he is currently incarcerated. I should make clear that I am not suggesting that this fact affects his credibility, as opposed to his reliability. I have simply assumed that giving evidence in those circumstances is likely to have added to his anxiety.
I accept the defendant's submission that the assessment of Mr Meknas' reliability should take into account the numerous corrections which he made to his evidence in both his oral examination-in-chief (where he corrected several parts of his affidavit) and further in re-examination (see further below).
Mr Meknas struck me as an intelligent person. He seemed to have no difficulty understanding most of the questions which were put to him. Nevertheless, for the reasons set out above, there are good reasons to doubt the reliability of some of his evidence. I have approached his evidence with some caution, particularly where it is not corroborated by independent documentary material.
Turning to Mr Meknas' credibility, the defendant submitted that I should find him to be an untruthful witness. Two primary matters were relied upon. First, the defendant submitted that Mr Meknas gave inconsistent evidence as to why the $20,000 transferred to Ms Saldaneri on 1 July 2014 was paid by way of four separate payments of $5,000.
In his oral evidence-in-chief, when asked by the plaintiff's counsel (Mr Barham) why the payments were made in this manner, he said that, at that time, there was a limit on the amount of money he could transfer at a time.
[4]
Findings of fact
In about October 2012, Mr Meknas first instructed Ms Saldaneri on an unrelated matter.
As at January 2013, the plaintiff was successfully operating the Eagle Boys franchise. On 6 January 2013, the business premises were damaged by fire such that the plaintiff was unable to continue operating there. On 7 January 2013, the plaintiff claimed on its insurance policy with QBE. QBE admitted liability and made interim payments to the plaintiff on account of that liability. But the total amount for which the plaintiff was entitled to be indemnified was disputed.
After 6 January 2013, with the plaintiff having ceased to trade, it survived with the occasional interim payment from QBE and with cash injections from Mr Meknas (which were recorded as loans in the plaintiff's bank accounts).
It appears that Saldaneri & Associates commenced providing legal services to the plaintiff sometime in August 2013 when Mr Meknas started forwarding emails relating to the dispute with QBE to Ms Saldaneri. This also coincides with a costs agreement dated 30 August 2013, which was prepared by Ms Saldaneri but evidently not provided to Mr Meknas until April or May 2014 (another copy was emailed to him on 30 June 2014, as to which see further below).
On or about 27 November 2013, the plaintiff formally instructed Saldaneri & Associates to act for it in relation to its dispute with QBE. On that day, Ms Saldaneri wrote to solicitors representing QBE and asked that all future correspondence regarding the dispute be sent to her. Mr Meknas claims that, on an unspecified date before 30 June 2014, Ms Saldaneri indicated to him that the plaintiff could pay her fees when the matter with QBE settled. I do not accept that claim, for reasons identified at [43] below.
On 28 January 2014, Eagle Boys terminated its franchise agreement with the plaintiff.
On 4 February 2014, Eagle Boys served a notice on the plaintiff demanding payment of the sum of $69,521.77 on account of franchise fees which it claimed it was owed.
On or about 15 April 2014, Eagle Boys commenced proceedings in the Magistrates Court of Queensland against the plaintiff and Mr Meknas (as guarantor and indemnifier) claiming $61,465 plus interest and costs. A process server telephoned Mr Meknas on about 16 May 2014 and said that he wished to meet with him in order to serve documents. Mr Meknas telephoned Ms Saldaneri. He claims that she advised him to avoid being served. Mr Meknas' unchallenged evidence, which I accept, is that Ms Saldaneri said words to the following effect:
Don't let anyone serve you. If a stranger turns up at the door send him away. Don't open the door. If any documents are left at the door mark them 'Return To Sender' and pop them in the letter box. Don't reply to any emails just forward them to me. Also, don't answer calls if you don't know who is calling or if there is no caller ID displayed. Don't get served and you will be alright. In the end we will get the funds you need from the QBE case to pay out your creditors but until then avoid being served.
[5]
Fidelity Fund scheme summarised
The general objective of the Fidelity Fund (which the Law Society is required to maintain and manage pursuant to s 115(1) of the Legal Profession Uniform Law Application Act 2014 (NSW)) is to "ensure that persons who suffer pecuniary loss as a result of defaults by law practices have a source of compensation for defaults arising from or constituted by acts or omissions of associates of law practices": s 218 of the LPUL. Importantly, however, the scheme is not so broad as to provide compensation to any person who entrusts money to a solicitor and it is misappropriated. The scheme is more limited, as is evident from the following relevant provisions.
The entitlement to make a claim on the Fidelity Fund is set out in s 233(1) of the LPUL, which relevantly provides that a person "who suffers pecuniary loss as a result of a default by a law practice is entitled to make a claim about the default against the fidelity fund …".
Of central importance is the following definition of "default" in s 219 of the LPUL:
(a) in relation to trust money or trust property received by a law practice in the course of legal practice by the law practice - a failure of the law practice to pay or deliver the trust money or trust property, where the failure arises from an act or omission of an associate that involves fraud or other dishonesty; or
(b) in relation to trust property received by a law practice in the course of legal practice by the law practice - a fraudulent dealing with the trust property, where the fraudulent dealing arises from or is constituted by an act or omission of an associate that involves fraud or other dishonesty
Section 221(1) of the LPUL confirms that s 233 applies to a default of a law practice "only to the extent that it occurs in connection with the provision of legal services by the law practice." "[L]egal services" is defined in s 6(1) of the LPUL to mean "work done, or business transacted, in the ordinary course of legal practice". For reasons which I will develop below, I consider that the phrase "ordinary course of legal practice" does not include any conduct of a legal practice which is illegal or improper.
Another significant provision is s 129 of the LPUL, which defines the expression "trust money". Subject to certain exclusions identified in s 129(2), this means (s 129(1)):
… money entrusted to a law practice in the course of or in connection with the provision of legal services by the law practice, and includes -
(a) money received by the law practice on account of legal costs in advance of providing the services; and
(b) controlled money received by the law practice; and
(c) transit money received by the law practice; and
(d) money received by the law practice, that is the subject of a power exercisable by the law practice or an associate of the law practice, to deal with the money for or on behalf of another person.
[6]
Consideration and determination
The primary issues requiring determination are as follows:
1. Scope of the present appeal.
2. Whether the plaintiff has established that it - as opposed to Mr Meknas - suffered a "pecuniary loss" as a result of a "default" by Ms Saldaneri in relation to the $20,000 paid by Mr Meknas on 1 July 2014.
3. Whether the $80,000 paid to Ms Saldaneri by Mr Meknas and the plaintiff between 11 and 18 September 2015 is "trust money", being money received in the course of or in connection with legal practice.
4. Whether the plaintiff has established that it - as opposed to Mr Meknas - suffered a "pecuniary loss" as a result of a "default" by Ms Saldaneri in relation to the $80,000 paid by Mr Meknas and the plaintiff between 11 and 18 September 2015.
5. If the answer to issue (4) is yes, should there be a deduction under s 240(4)(d) of the LPUL on the basis that the conduct of the transaction in relation to which the claim was made was illegal and the plaintiff knew or ought reasonably to have known of that illegality?
6. Should the plaintiff's claim be further reduced under s 244(1)(a) of the LPUL by reason of the value of the benefits of Ms Saldaneri's legal work, including disbursements, received by the plaintiff and, if so, what is the value of the benefit here?
7. The admissibility of Ms Valerie Higinbotham's affidavit and ruling on the plaintiff's tendency notice.
[7]
Issue 1: Scope of the present appeal
This threshold issue turns on the proper construction of s 247 of the LPUL (the terms of which are set out at [114] above). As Beech-Jones J observed in Wang v Law Society of New South Wales [2020] NSWSC 1741 (Wang 2020) at [3], s 247(4) is a "curiously worded provision", which is to the effect that the Court as the "designated tribunal may review the merits of the fidelity authority's decision to the extent considered relevant by the tribunal". I respectfully agree with his Honour's observation at [3] that this appears to "confer some discretionary ability on the part of the Court to conduct merits review".
It is desirable to set out [4] from Wang 2020, with which I also respectfully agree:
A provision in similar form was found in s 452 of the Legal Profession Act 2004. Previous decisions of this Court have treated that provision as, nevertheless, indicating that what is involved is a de novo review (see for example Wang v Council of the Law Society of New South Wales [2009] NSWSC 67). It is not possible nor indeed appropriate on this application to finally determine the form of review envisaged by s 247. However, at first blush, it appears to be some form of blended review which enables the Court, if it considered appropriate, to consider whether there was some fundamental defect in the fidelity authority's decision which might warrant it being set aside but otherwise to conduct a merits review, although the capacity for further investigation of some issue by a remittal and referral cannot be discounted.
Justice Garling came to a similar view in determining an interlocutory dispute in Jacups v The Fidelity Fund Management Committee of the Law Society of NSW [2022] NSWSC 313 at [39].
Acting Justice Basten may have taken a broader view in Wang v Law Society of New South Wales (No 2) [2022] NSWSC 1720 (Wang 2022) when his Honour said the following regarding the ambit of s 247(4) at [3]-[5] (footnotes omitted):
[3] Although the language of reviewing the "merits" was not introduced into New South Wales law until s 452(4) of the Legal Profession Act 2004 (NSW), the Court of Appeal had held that an appeal under s 90D(4) of the Legal Profession Act 1987 (NSW) (permitting the Supreme Court to "make such order as it thinks fit") was "in the nature of a hearing de novo".
[4] The Legal Profession Act 2004 (Vic) provided for claims against the fidelity fund in that jurisdiction to be made to the Legal Services Board. An appeal from a decision of the Board disallowing a claim could be made to a court which would have had jurisdiction to determine the claim if it were a claim for a debt: s 3.6.23(8). The court was empowered to "review the merits of the Board's decision": s 3.6.23(4). In relation to that provision, which reflects the language of the Uniform Law, Bell, Gageler and Keane JJ stated in Legal Services Board v Gillespie-Jones that "[t]he appeal is by way of a new hearing".
[5] Applying those principles, the function of this Court is not to review for error the reasons of the committee, but to make a fresh assessment of the merits of the claim.
[8]
Issue 2: Whether the plaintiff has established that it - as opposed to Mr Meknas - suffered a "pecuniary loss" as a result of a "default" by Ms Saldaneri in relation to the $20,000 paid by Mr Meknas on 1 July 2014
Having regard to the terms of Ms Saldaneri's email dated 30 June 2014, in which she requested that $20,000 be deposited into her trust account on account of her legal fees to date, I am prepared to accept that although the $20,000 was paid by Mr Meknas on 1 July 2014 personally, this was done at the direction of the plaintiff and any pecuniary loss relating to that sum would be the plaintiff's loss and not Mr Meknas' personally.
For the following reasons, however, I accept the defendant's submission that the $20,000 paid by Mr Meknas on 1 July 2014 is not recoverable by the plaintiff because the plaintiff has suffered no pecuniary loss as a result of Ms Saldaneri's "default".
First, I find that although the $20,000 was "trust money" (as conceded by the defendant), there was no default by Ms Saldaneri in respect of that money because the evidence indicates to the necessary standard that Ms Saldaneri legitimately withdrew that amount for her legal services to the plaintiff. That is consistent with the terms of her email dated 30 June 2014 referred to above, when she told Mr Meknas that she required $20,000 to be deposited into her trust account "on account of our costs to date and Counsel's fees for settling the Statement of Claim". True it is that there is no evidence of Ms Saldaneri ever issuing a tax invoice in relation to her fees. As at 30 June 2014, Ms Saldaneri had been providing legal services to the plaintiff since mid-August 2013 (see [31]ff above). The unsent tax invoice dated 1 July 2014 sets out the details of those professional fees and disbursements which, according to Ms Saldaneri, came at a total cost of $55,000 for the period up to and including 1 July 2014, which is well above the $20,000 payment made by Mr Meknas on behalf of the plaintiff.
For these reasons, I find that there was no default by Ms Saldaneri with respect to this particular sum of $20,000 paid into her trust account on 1 July 2014.
[9]
Issue 3: Whether the $80,000 paid to Ms Saldaneri by Mr Meknas and the plaintiff between 11 and 18 September 2015 is "trust money", being money received in the course of or in connection with legal practice
The first matter is whether the plaintiff has a valid claim in respect of the entire sum of $80,000 or is limited to claim only $60,000 of that amount because the balance of $20,000 was paid to Ms Saldaneri directly by Mr Meknas in circumstances where there is no direct evidence of him having loaned that money to the plaintiff.
It is convenient to set out 3 tables as Annexure A to these reasons for judgment. The tables were prepared by the defendant and refer to various payments made between the plaintiff, Mr Meknas and Ms Saldaneri. Table 1 records the payments totalling $80,000 made by the plaintiff and Mr Meknas to Ms Saldaneri's office account between 11 and 18 September 2015 inclusively. Table 2 records the relevant payments totalling $60,000 made to the plaintiff from Mr Meknas' transaction account during the period 10 to 18 September 2015 inclusively. Table 3 records the relevant payments totalling $82,000 made from Mr Meknas' NAB iSaver account to his transaction account during the period 10 to 17 September 2015 inclusively.
As noted above, of the $80,000 paid into Ms Saldaneri's office account, $60,000 was paid by the plaintiff (using the money transferred to the plaintiff's bank account from Mr Meknas' transaction account), and the balance of $20,000 was paid by Mr Meknas directly by transferring money from his transaction account in two payments ($5,000 on 11 September 2015 and $15,000 on 15 September 2015).
The defendant emphasised that the relevant bank transactions only record $60,000 of the total amount of $80,000 as being loaned to the plaintiff. Accordingly, the Court was urged to find that the balance of $20,000 was Mr Meknas' personal money which could not be included in any amount of the alleged "pecuniary loss" suffered by the plaintiff itself. I do not accept that submission. The omission to refer to that amount in the bank transfers as a loan does not prevent it from being so characterised, particularly when regard is had to the fact that it is one of a series of transactions over a period of approximately 1 week where there was a clear goal to transfer $80,000 from the plaintiff to Ms Saldaneri. Having regard to the chronology and context in which the payments were made, I am willing to infer that the $20,000 was paid by Mr Meknas at the direction of the plaintiff (he being the sole director of that company), with a view to that amount being regarded as a loan notwithstanding that that Mr Meknas transferred this amount to Ms Saldaneri's office account directly and from his personal transaction account.
[10]
Issue 4: Whether the plaintiff has established that it - as opposed to Mr Meknas - suffered a "pecuniary loss" as a result of a "default" by Ms Saldaneri in relation to the $80,000 paid by Mr Meknas and the plaintiff between 11 and 18 September 2015
This issue assumes that the $80,000 constitutes "trust money" received in the course of, or in connection with, legal practice. For the reasons set out above, I consider that that issue should be answered in the negative.
If I am wrong in so finding, I consider that issue 4 should be answered in the affirmative. I have explained above why I consider that all the $80,000 was paid to Ms Saldaneri by or on behalf of the plaintiff. It is clear that there was a default by Ms Saldaneri in relation to that amount.
[11]
Issue 5: If the answer to issue (4) is yes, should there be a deduction under s 240(4)(d) of the LPUL on the basis that the conduct of the transaction in relation to which the claim was made was illegal and the plaintiff knew or ought reasonably to have known of that illegality?
The current issue only arises if I am wrong in finding that the $80,000 sum was not trust money because it was entrusted to Ms Saldaneri otherwise than in the course of, or in connection with, the provision of legal services in the ordinary course of legal practice by her firm. Assuming, contrary to that finding, that the $80,000 was trust money, the current issue is whether the plaintiff's claim is affected by s 240(4)(d), which relates to the concept of illegality.
This issue turns on the proper construction of s 240(4)(d) of the LPUL (extracted above at [111]). In brief, a claim may wholly or partly be disallowed, or reduced, to the extent that the conduct of the transaction with the law practice in relation to which a claim is made was illegal, and the claimant knew or ought reasonably to have known of that illegality.
The relevant transaction is the payment and receipt of $80,000 in six instalments to Ms Saldaneri in September 2015 following Mr Meknas' conversation with Ms Saldaneri on 10 September 2015. On that day Mr Meknas had learned that Eagle Boys had obtained substituted service in respect of its statement of claim concerning the debts owed to it by the plaintiff and Mr Meknas.
The defendant submitted that the $80,000 was paid to Ms Saldaneri "for the express purpose of furthering a common intention to delay, defeat and thereby defraud Mr Meknas's and Eco-Pact's creditors, in particular Eagle Boys". It contended that s 240(4)(d) of the LPUL is sufficiently broad to capture conduct any conduct "contrary to law", which may manifest in a broad range of ways (for example, by contravention of a civil penalty provision, the commission of an offence at common law or by conduct which comprises fraud at common law). Alternatively, if a criminal offence needs to be demonstrated, the defendant submitted that the relevant payments involved potential criminal offences under ss 590(1)(c)(i), 596(1)(b) and 596(1)(c) of the Corporations Act 2001 (Cth) and/or 266(3) of the Bankruptcy Act 1966 (Cth).
The plaintiff advanced a narrower construction of s 240(4)(d), which would require the relevant conduct to involve the breach of a statute to constitute illegality. The plaintiff also denied that the relevant conduct involved an offence under any of the provisions of the Corporations Act and Bankruptcy Act referred to above.
[12]
Issue 6: Should the plaintiff's claim be further reduced under s 244(1)(a) of the LPUL by reason of the value of the benefits of Ms Saldaneri's legal work, including disbursements, received by the plaintiff and, if so, what is the value of the benefit here?
On my earlier findings, the $20,000 paid to Ms Saldaneri on 1 July 2014 was properly applied to cover the cost of her professional fees up until that date. I have also reduced the value of the plaintiff's claim of $94,468 by $80,000 under s 240(4)(d). Accordingly, this issue does not strictly arise, there being a net value of nil to the claim at this stage. However, for completeness, if it were required, I would have made a further reduction to the plaintiff's claim under s 244(1)(a) of the LPUL on account of the value of the benefits of Ms Saldaneri's legal work (including disbursements) received by the plaintiff.
Although the plaintiff was highly critical of the quality of Ms Saldaneri's legal services, it made a formal concession that an amount of $10,000 could be attributed to the value of those services.
The defendant's primary position was that the Court should accept Ms Higinbotham's evidence, which valued the benefit of both her professional work and the filing fee associated with the summons brought on the plaintiff's behalf in the Supreme Court at approximately $37,000 (subject to all the qualifications set out in her report, on which see further below). Alternatively, the defendant urged the Court to adopt the approach of the Committee and apply a 50% discount to that amount.
The defendant's alternative position should be accepted. In view of the difficulties (if not impossibility) of the Court conducting a detailed review of the quality of every aspect of Ms Saldaneri's work given the limited available materials (which Ms Higinbotham candidly acknowledged: I address the admissibility of Ms Higinbotham's report in the next section of these reasons for judgment). I consider this to be an appropriate case in which to adopt a broad-brush approach. Thus, had it been necessary, I would have applied a 50% discount to Ms Higinbotham's assessment and attributed a value of approximately $18,500 to Ms Saldaneri's work done for the plaintiff.
A figure of at least that amount is also supported by the following matters separate from Ms Higinbotham's evidence. First, I accept the defendant's alternative submission that it is reasonable to attribute $10,000 as the value of Ms Saldaneri's work leading up to QBE making an interim payment of $175,000. Secondly, it is appropriate to attribute a $10,000 value to the legal services provided by Ms Saldaneri in relation to making arrangements with the plaintiff's other creditors (including PFD) and advising on insolvency. Thirdly, it is appropriate to attribute a minimum of $3,000 (and possibly more) to the other work which Ms Saldaneri did, while recognising the deficiencies in some parts of her work relating to both the QBE claim and Eagle Boys' debts (as outlined above) as well as the work done by Mr Edwards (see [80] above).
[13]
Issue 7: The admissibility of Ms Valerie Higinbotham's affidavit and ruling on the plaintiff's tendency notice
At the hearing I indicated that I would give reasons in due course to two evidentiary matters. The first concerns the plaintiff's tendency notice dated 12 August 2022. The second relates to the admissibility of Ms Higinbotham's affidavit dated 28 July 2022 and the report exhibited thereto, which were relied upon by the defendant.
[14]
Tendency notice
By a notice dated 12 August 2022, the plaintiff sought to rely upon tendency evidence under s 97(1) of the Evidence Act and reg 5 of the Evidence Regulation 2020 (NSW). The relevant evidence of tendency which the plaintiff sought to adduce concerned Ms Saldaneri's tendency to misappropriate trust money held by her in her law practice.
The relevant conduct comprised the following:
1. On 1 July 2014, the plaintiff deposited the sum of $20,000 into Ms Saldaneri's trust account.
2. Without authority, Ms Saldaneri withdrew the entirety of that $20,000 from the trust account in six withdrawals during the period 1 to 10 July 2014.
3. On 28 August 2014, the plaintiff caused the sum of $175,000 to be deposited into the trust account.
4. Without authority, Ms Saldaneri withdrew from the trust account $35,068 from the $175,000 sum in 11 withdrawals during the period 28 August to 30 December 2014.
5. On 1 June 2016, another client of Jacqueline Saldaneri & Associates deposited $1,925 into the trust account on account of the deposit payable in respect of a house purchase.
6. Prior to 22 June 2022, that client paid an additional sum of $74,995 into the trust account also on account of the deposit payable in respect of the house purchase.
7. Without authority, Ms Saldaneri withdrew the entirety of the amounts deposited into the trust account by that other client in 27 withdrawals during the period 1 June to 25 July 2016.
As it transpired, the defendant did not object to the admissibility of the material the subject of the tendency notice, but reserved its right to make submissions on the significance of the material. Accordingly, there is no need to rule on its admissibility.
[15]
Ms Higinbotham's affidavit and report on costs
The plaintiff objected to the admissibility of an affidavit sworn 28 July 2022 by Mr Valerie Higinbotham and to part of an exhibit thereto, being a report by Ms Higinbotham to the defendant in the form of a letter dated 27 November 2018. The plaintiff's objections were based on Ms Higinbotham's failure to refer in her report to the expert witness code of conduct set out in Sch 7 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) and for non-compliance with the requirements for expert evidence to be admissible as identified in Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705; [2001] NSWCA 305.
Paragraphs 13 to 19 of Ms Higinbotham's affidavit relate to the views she expressed in her 27 November 2018 report. In that report, she opined that the likely outcome of assessment of the reasonable costs of the work of Saldaneri & Associates was $30,870 plus GST (totalling $33,957) being for 88.22 hours of work at $350 per hour plus GST. In her affidavit, Ms Higinbotham said that she remained of that opinion but she acknowledged that it was a tentative conclusion drawn from insufficient but available data "derived from my experience in reviewing thousands of costs assessments over the last 44 years".
The background to the provision of Ms Higinbotham's report is as follows. She was asked by the defendant under cover of a letter dated 21 November 2018 to consider four binders of materials provided by Ms Saldaneri in relation to the trust account investigation and to advise the Law Society on the likely result of a solicitor/client costs assessment of the matters conducted by Saldaneri & Associates for the plaintiff and Mr Meknas. Ms Higinbotham was briefed inter alia with a copy of the unsigned costs agreement dated 30 August 2013, as well as with a copy of the plaintiff's belated application for costs assessment.
In her report, Ms Higinbotham said that she had reviewed the four binders but had found them to be "only partly helpful". She also identified various other gaps in the materials, including the lack of file notes.
In her report, Ms Higinbotham identified the following work as having been undertaken by Saldaneri & Associates for the plaintiff and Mr Meknas based on the materials in the four binders:
1. consideration of the QBE insurance policy and various attendances in relation to that matter;
2. reading and advising on the Eagle Boys franchise agreement and related agreements;
3. attendances relating to the default judgment obtained by Eagle Boys;
4. dealing with a claim by PFD in the Melbourne Magistrates Court;
5. multiple attendances on Mr Meknas;
6. attendance on an accountant;
7. advice on bankruptcy notice;
8. advice on deed of company arrangement and costs of administration; and
9. attendances to the removal of contrary credit listing and advising on garnishee order.
[16]
Costs
The defendant acknowledged that the ordinary position under s 247(7) of the LPUL is that there should be no order as to costs unless the Court is satisfied that an order for costs should be made in the interests of justice. It submitted, however, that if the Court was to conclude that there was illegality in the payment of the $80,000 as part of a scheme to defeat the plaintiff's creditors, it was appropriate to order the plaintiff to pay the defendant's costs, including the reserved costs of the notice of motion filed by the defendant on 15 October 2021 (which was dismissed by consent on 21 April 2022). I tentatively accept that submission. The plaintiff should, however, be given an opportunity to make a brief written submission of no more than 2 pages on the issue of costs and for the defendant to respond. Orders will be made accordingly.
[17]
Conclusion
For these reasons, the amended summons is dismissed. The Court's tentative view is that the plaintiff should bear the defendant's costs of the proceeding (including the notice of motion filed on 15 October 2021). The plaintiff should have leave, within 7 days hereof, to file a written submission not exceeding 2 pages on the issue of costs. If the plaintiff acts upon that opportunity, the defendant should have leave, within a further 7 days thereof, to file a response not exceeding 1 page. Final orders will then be made on the papers.
[18]
Annexure A (109672, pdf)
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 29 March 2023
es [2020] NSWSC 1741
Wang v Law Society of New South Wales (No 2) [2022] NSWSC 1720
Category: Principal judgment
Parties: Eco-Pact Pty Ltd (Plaintiff)
Law Society of NSW (Defendant)
Representation: Counsel:
P Barham (Plaintiff)
T Prince (Defendant)
In cross-examination, Mr Meknas was taken to [10] of a written statement dated 23 November 2016 which he made to Mr Tony Fairbairn (a trust account investigator who investigated Saldaneri & Associates' trust account). There, Mr Meknas said that Ms Saldaneri told him to transfer $20,000 but not all at once and in no more than $5,000 instalments at a time. In cross-examination, Mr Meknas acknowledged that this part of his earlier statement to Mr Fairbairn "might have been true". It was then put to him that his oral evidence-in-chief regarding the bank's limit on transfers was the truthful explanation for why there were four separate payments. The following exchange occurred:
Q. The evidence you gave today was the truth, wasn't it, that there was a limit on the account, and the reason you only paid $5,000 payments was because there was a limit on the account?
A. This is when I was asked by, when I was being asked by why was it paid five, now all I can recollect is it was probably because it was only 5,000 a day. Now I could have probably, back then, because back then you got to understand I was in a very, very distressed, on a lot of medication, under a lot of anxiety, and basically if I read this, this is, either this is incorrect or what is correct is the $5,000 a day. It's either one of them.
The defendant's counsel then put to Mr Meknas that he had made up [10] in his statement to Mr Fairbairn in order to make Ms Saldaneri look worse, a proposition which he denied.
I do not accept that this particular matter reflects adversely upon Mr Meknas' credibility. I accept his explanation that [10] of his 2016 statement to Mr Fairbairn has to be assessed in the context of his medical issues at that time.
The second (and potentially more serious) matter relied upon by the defendant concerning Mr Meknas' credibility relates to an affidavit which he affirmed in the course of bankruptcy proceedings against him. The affidavit is dated 14 July 2016. Although the affidavit states that the relevant proceedings were in the Federal Court, the parties agree that this was in error and the relevant proceedings were in fact in the Federal Circuit Court. The parties also agree that the affidavit had not been filed, even though it had been affirmed and signed by Mr Meknas. In that affidavit, Mr Meknas deposed that he had been unaware of the bankruptcy proceedings against him and that it was not until 4 July 2016, when he received an email from Ms Saldaneri, that he saw the pleadings in the bankruptcy proceedings.
In cross-examination on this topic, Mr Meknas denied that he had lied when he said in that earlier affidavit that he was "unaware of the proceedings" up until July 2016. It is desirable to set out the following exchanges on this matter:
Q. That was a lie, wasn't it?
A. Not at the time, I think to my thoughts because you've got to understand what position I was in at the time, what mental state I was in, how much medication I was on. I'd just had an operation that's gone wrong. Just so much was going on, so it's not the case of if it was a lie or if it wasn't a lie, if I was aware of it being true or not true, but it was never an intention of lying.
Q. But you were aware of the proceedings in 2014, shortly after they'd commenced, weren't you?
A. Yes.
Q. Read paragraph--
A. Sorry. Ask that question again please?
Q. I'll ask a different question. Read the last sentence of paragraph 16 to yourself.
A. 16. Yes.
Q. You had seen the pleadings before 1 July 2016; correct?
A. Well, if I'd seen the pleadings I did not understand exactly legally what they meant at the time.
Q. That was a lie too, wasn't it?
A. What do you mean?
Q. It was a lie that - in paragraph 16 of your affidavit you say that, "Before July 2016 I had not seen the pleadings"; that was a lie?
A. That's what I'm - it wasn't a lie, no.
Q. It was untrue?
A. It was untrue. It wasn't a lie, yes.
It was then put to Mr Meknas in cross-examination that it was a lie for him to have stated in [14] of his earlier affidavit that he had "never been served with the pleadings", in circumstances where he now accepted that he had seen the pleadings in April 2014. The following exchange occurred:
Q. Yes, this affidavit you have accepted that you received the pleadings in April 2014 and you told the Federal Court that you hadn't?
A. Well, that's what it says, if that's what it says, but, yes - I guess I'm going to answer yes.
Q. So you were willing to lie to the Federal Court?
A. It was never a lie. It was not intentionally lying.
I am not persuaded that these matters provide a sufficient basis for concluding that Mr Meknas is not a truthful witness. Mr Meknas accepted in cross-examination that it was untrue for him to say in his earlier affidavit that he had not seen the pleadings before July 2016. I accept his evidence that, although his statement was not true, he was not intentionally lying. Again I take into account his poor health at the time. I have also taken into account the fact that the affidavit was apparently not read in the bankruptcy proceedings. The reason for that is not apparent on the evidence before the Court.
For these reasons, I do not find that Mr Meknas was an untruthful witness. That is not to say, however, that I accept all his written and oral evidence unreservedly. I have explained above why I have concerns about the reliability of some of his evidence and the general need for his evidence to be corroborated by relevant documentary material.
There is one further matter which should be mentioned before I set out my findings of fact. It relates to the fact that Mr Meknas was not cross-examined on large parts of his affidavit, including his evidence as to his state of mind. Lest there be any doubt, I should make it clear that I have assessed Mr Meknas' evidence not only with reference to the matters set out immediately above but also on the basis that the absence of cross-examination on particular issues does not mean that I am compelled to accept Mr Meknas' evidence. I consider this approach to be consistent with authorities, including Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234; (2009) 261 ALR 384 at [105] per Campbell JA (Allsop P and Basten JA agreeing); and NU v NSW Secretary of Family and Community Services (2017) 95 NSWLR 577; [2017] NSWCA 221 at [59] per Beazley P (McColl JA and Schmidt J agreeing).
With those matters in mind, I turn now to make the following findings of fact.
From around that time, and in accordance with Ms Saldaneri's advice, Mr Meknas took various steps to avoid being served with any documents. This included him not taking telephone calls and not opening mail. He also told his mother (who lived at the plaintiff's registered address) not to open any mail which she received for the plaintiff and to have it returned to the sender to avoid being served.
In cross-examination, it was put to Mr Meknas that he took steps to avoid service because he did not want to pay money to Eagle Boys and that he knew that taking these steps was dishonest. In response, Mr Meknas said that "they weren't dishonest in my mind at the time, because there was a verbal agreement between me and one of Eagle Boys' marketing managers or someone that was high up at the time". I do not accept that evidence. It is unsupported by any documentary material. If in fact there was such a verbal agreement, Mr Meknas would presumably have inquired why he was being served contrary to that agreement and not simply have taken steps to avoid service as he did. Moreover, there is no evidence that Mr Meknas ever told Ms Saldaneri about any such verbal agreement.
The plaintiff's dispute with QBE had not resolved by 30 June 2014. On that date the plaintiff instructed Ms Saldaneri to commence proceedings against QBE.
On 30 June 2014, Ms Saldaneri emailed the costs agreement dated 30 August 2013 (ie some 10 months earlier) to the plaintiff. Mr Meknas claimed in his affidavit that this was the first and only costs agreement he received from Ms Saldaneri. He then corrected this in his oral evidence-in-chief by saying that Ms Saldaneri had handed him a copy in April or May 2014 and further added in cross-examination that she had made some handwritten corrections to it. I do not accept that evidence. There was no copy of any such document in evidence.
The costs agreement dated 30 August 2013 addresses the plaintiff and Mr Meknas as being "[j]ointly and severally liable". In the costs agreement, Ms Saldaneri estimated that her total professional costs would be in the range of $27,000 to $80,000 excluding GST, and that her disbursements for counsel's fees would be between $25,000 and $50,000 - that is, up to $148,000 including GST. Ms Saldaneri provided a breakdown of her estimate of her professional costs:
1. for endeavouring to negotiate the settlement of the plaintiff's QBE claim, she estimated they would be between $2,000 and $10,000 excluding GST;
2. if negotiations were not successful, which was the case so far as Ms Saldaneri was concerned as she did not negotiate any such settlement, for drafting a statement of claim she estimated her costs would be between $10,000 and $20,000 excluding GST; and
3. if necessary, for preparing the matter for, and attending a, final hearing, she estimated her costs would be between $15,000 and $50,000 excluding GST.
Significantly, in her email dated 30 June 2014, Ms Saldaneri asked the plaintiff to pay $20,000 into her trust account on account of her costs to that date and the anticipated costs of drafting a statement of claim and instructing counsel.
Clause 5 of the costs agreement dealt with billing arrangements. It provided for the receipt of money directly into the firm's trust account in accordance with cll 88(3)(a)(i) and 88(3)(b) of the Legal Profession Regulation 2005 (NSW). It was also stated that the firm would send a bill of costs "containing information of our professional fees and charges and disbursements either after completion of the work, or monthly, or at other times as agreed with you, when the work is in progress". By cl 6 of the costs agreement, the plaintiff was asked to deposit $5,000 into the firm's trust account to allow it to commence working on its matter.
Mr Meknas says that Ms Saldaneri told him on or before 30 June 2014 that she would not act for him on a "no-win no-fee" basis, but was prepared to wait until the claim was settled for payment of her professional costs. As indicated above, I do not accept that evidence. It is inconsistent with Ms Saldaneri's request in her 30 June 2014 email for the plaintiff to pay $20,000 into her trust account. Moreover, on 1 July 2014, Mr Meknas paid $20,000 from his personal account directly into Ms Saldaneri's trust account by four instalments of $5,000 each, as directed by her.
According to Ms Saldaneri's trust account statement, between 1 July 2014 and 10 July 2014, she systematically withdrew the entire $20,000, by six separate transactions, purportedly in payment of "tax invoice 115", which is dated 1 July 2014 but is unsigned and was among the documents in Ms Saldaneri's file. There is no evidence of any such tax invoice ever having been issued, even though Ms Saldaneri's 30 June 2014 email states: "We will also attend to drafting our interim tax invoice to date". I accept Mr Meknas' evidence that he had never received any invoices from Ms Saldaneri during the whole time Ms Saldaneri was providing legal services to the plaintiff or him personally.
On 10 July 2014, QBE posted a cheque for the sum of $175,000 directly to Ms Saldaneri as a further payment to the plaintiff on account of its insurance claim.
On 23 August 2014, Ms Saldaneri requested instructions from Mr Meknas to pay the plaintiff's creditors and for her to retain the balance of the QBE payment in her trust account on account of her professional costs in relation to the QBE claim.
On 25 August 2014, Ms Saldaneri deposited the $175,000 cheque into her office bank account. On 28 August 2014, she transferred that sum to her trust bank account.
Between 28 August 2014 and 1 September 2014, Ms Saldaneri withdrew three amounts from her trust account totalling $13,000 purportedly for "Payment of tax invoice", which purported tax invoice was not specified. Whilst some work had been done on the plaintiff's dispute with QBE, no proceedings had yet been commenced.
Between 8 September 2014 and 19 September 2014, Ms Saldaneri made several payments from her trust account as directed by the plaintiff, totalling $65,532. Between 9 September 2014 and 5 October 2014, she also withdrew by seven payments of various amounts a total of $22,000 (bringing the total from 28 August 2014 to $35,000) purportedly for "Payment of tax invoice" (of which there is no evidence). The proceedings against QBE were still about 6 months away from being commenced. The bank statements of Ms Saldaneri do not record any details of these tax invoices, just "taxinvoice eco", "taxinvoice ecopac" or "taxinvoice ecopact" both for this series of transfers and those in July 2014.
In summary, by 5 October 2014, Ms Saldaneri had withdrawn and paid out from the total of $195,000 which had been paid into her trust account ($20,000 by Mr Meknas on 1 July 2014, and $175,000 derived from funds transferred by QBE which she deposited into her trust account on 28 August 2014) an aggregate sum of $120,532 comprising:
1. $65,532 to the plaintiff's creditors, as per the plaintiff's direction; and
2. $55,000 to herself (see at [44] and [48]-[49] above), without the provision of a tax invoice to the plaintiff (however, that figure accords with the amount in tax invoice 115).
The balance remaining in Ms Saldaneri's trust account after making those payments was $74,468.
Some time on or before 27 October 2014, the plaintiff through Mr Meknas instructed Ms Saldaneri to pay $100,000 to the plaintiff.
On 27 October 2014, Ms Saldaneri did so by paying $74,400 to the plaintiff from the actual balance then remaining in her trust account, and by paying a further $25,600 from her office account in two amounts of $10,600 and $15,000. Mr Meknas presumed the $100,000 had all been paid out from Ms Saldaneri's trust account. Mr Meknas wanted to use the $100,000 to buy shares in Medibank Private, but ultimately was only able to purchase about $20,000 worth of those shares. Mr Meknas retained the unused balance of $80,000.
On 30 December 2014, Ms Saldaneri paid herself the remaining $68 from the trust account purportedly for the "Payment of tax invoice". Again, no tax invoice was issued.
On or about 2 April 2015 (ie more than 9 months after she had received instructions to commence proceedings against QBE), Ms Saldaneri filed a statement of claim in the NSW District Court.
On 25 August 2015, Eagle Boys obtained an order for substituted service of its statement of claim on each of the plaintiff and Mr Meknas.
A box of records belatedly produced by Ms Saldaneri to the Law Society (see further below) contained an unsigned tax invoice in the amount of $87,200 dated 30 August 2015 addressed to the plaintiff. There is no evidence of any such invoice having been sent to the plaintiff.
On about 10 September 2015, and pursuant to the order for substituted service, Mr Meknas was notified of the Eagle Boys' proceedings by a text message sent to his mobile telephone. He tried to telephone Ms Saldaneri. When she did not answer, he sent her an email setting out the content of the Eagle Boys' text message and asked her to call him. Ms Saldaneri then called Mr Meknas. It is well to set out Mr Meknas' account of this important conversation from his affidavit:
Me: "What does this mean? What do I do?"
Saldaneri: "Don't you worry about it, Brian. Just keep avoiding being served. We just need to keep the QBE case going."
Me: "Are you going to talk to Eagle Boys?"
Saldaneri: "Not yet. Just don't get served. By the way, how did you go with your $100,000? How did the investment work out?"
Me: "Not as well as I had hoped, Jac. I have around $80,000 left."
Saldaneri: "We need to make sure there are enough funds to fight the QBE claim and it would be best if that cash was put into my trust account. No-one will be able to touch it there. It will be safe from any creditors who try to bankrupt you. The $80,000 will be safer in trust. You should transfer the money to my account and break it up. Call the payment 'legal fee payment'. The account number is [redacted]."
Me: "Okay if that is what you think I should do".
In his affidavit at [46], Mr Meknas said that he could not now recollect what he thought as at 10 September 2015 was meant by the words "safe from any creditors who try to bankrupt you" and "will be safer in trust". He said that, at that time, he believed that his claim against QBE was worth several hundred thousand dollars and that his primary concern from 30 June 2014 up until 10 September 2015 and thereafter was to ensure that the plaintiff could progress the QBE claim to a conclusion. He added that he never intended or expected that the plaintiff would have an administrator appointed or be wound up, or that he would be made bankrupt, at least not before the QBE claim had been finalised and all creditors, including Eagle Boys, had been paid. He stated at [47] that he believed that Eagle Boys should have waited to be paid until the QBE proceeding was finalised.
Mr Meknas gave oral evidence-in-chief in which he said that he now recollected that the source of the $80,000 paid to Ms Saldaneri was his personal NAB iSaver account. Exhibit B is a copy of a bank statement relating to that account for the period 17 June 2015 to December 2015. When read in conjunction with the bank statements relating to Mr Meknas' transaction account, the plaintiff's account and Ms Saldaneri's office account, it is evident that Mr Meknas transferred a total of $80,000 in a series of transactions to the plaintiff's bank account in the period 10 to 18 September 2015, describing each individual payment as a loan. The plaintiff transferred $20,000 back to Mr Meknas' transaction account on 15 September 2015. The plaintiff otherwise transferred the balance of $60,000 to Ms Saldaneri's office account. Mr Meknas separately transferred $20,000 to Ms Saldaneri's office account in the same period. In itemised form, the relevant transactions between the plaintiff or Mr Meknas and Ms Saldaneri's office account are as follows:
1. a payment of $5,000 by Mr Meknas on 11 September 2015, described as "LEGALFEEPAMENT";
2. a payment of $15,000 by the plaintiff on 11 September 2015, described as "Legalfeepament";
3. a payment of $20,000 by the plaintiff on 14 September 2015, described as "LEGALFEEPAMENT";
4. a payment of $15,000 by Mr Meknas on 15 September 2015, described as "LEGALFEEPAMENT";
5. a payment of $20,000 by the plaintiff on 16 September 2015, described as "LEGALFEEPAMENT"; and
6. a payment of $5,000 by the plaintiff on 18 September 2015, described as "LEGALFEEPAMENT".
In re-examination, Mr Meknas corrected his earlier oral evidence that he had agreed to pay $80,000 into Ms Saldaneri's office account. When this was put to him in re-examination, he said that he intended the money to go into the trust account. I accept Mr Meknas' evidence that he assumed that the account details provided were for Ms Saldaneri's trust bank account, but in fact it was her office bank account.
As directed by Ms Saldaneri, the payments were made in instalments (six in all). Significantly, two of these payments (totalling $20,000) were made by Mr Meknas personally, while the other four (totalling $60,000) were made by the plaintiff (after Mr Meknas transferred money from his personal transaction account to the plaintiff's account). This is relevant to the issue of the amount of any pecuniary loss sustained by the plaintiff arising from Ms Saldaneri's default.
As the description of the transfers indicates, in accordance with Ms Saldaneri's instructions, the transfers from the plaintiff were described in its bank statements as legal fee payments. In cross-examination, Mr Meknas denied that this was a false description in order to disguise the nature of the true payment. I do not accept this evidence. It was put to him that the real reason why he paid the $80,000 to Ms Saldaneri was to keep that money out of the hands of Eagle Boys and other creditors. Mr Meknas responded by saying that, at that time, there was a reason for sending the money to Ms Saldaneri, namely because of the QBE case. The following significant exchange then occurred (emphasis added):
Q. You wanted to deprive Eagle Boys from getting access to the $80,000?
A. Yes, but never deprive them of being paid in the end.
Shortly thereafter in his cross-examination, Mr Meknas denied the following propositions:
1. That by paying the $80,000 to Ms Saldaneri, he could contend that it was a legitimate payment for legal services.
2. Ms Saldaneri would transfer the money back to Mr Meknas once there was no danger that Eagle Boys could get access to it.
3. He paid the money to Ms Saldaneri intending to deprive Eagle Boys from being able to satisfy a judgment against him and the plaintiff.
4. He knew, when he did this, that he was acting dishonestly.
I do not accept Mr Meknas' denial of the propositions described in sub-paragraphs 1, 3 and 4 of [64] above. It is also difficult to understand why he flatly denied the proposition in sub-paragraph 2 of [64] above because that proposition seems to accord with his answer to the earlier question set out at [63] above. I accept Mr Meknas' earlier oral evidence and his explicit and candid acknowledgement that, when he arranged for the $80,000 to be transferred, he wanted to deprive Eagle Boys from getting access to that money, at least for the time being (see at [63] above). That was dishonest and involved an improper arrangement between he and Ms Saldaneri. Mr Meknas either knew or ought reasonably to have known that the arrangement was dishonest and improper.
Ms Saldaneri did not transfer any of the $80,000 from her office account into her trust account, nor did she make any entry in relation to the $80,000 in her trust account records.
On 22 October 2015, Ms Saldaneri discontinued the District Court proceedings against QBE after having filed a summons in the Supreme Court on 21 September 2015. The statement of claim filed by Ms Saldaneri in the District Court on or about 2 April 2015 had included a claim for a "declaration that the Plaintiff is entitled to be indemnified by the Defendant [under the provisions of the QBE policy] in respect of loss to the plant, equipment, stock, revenue and costs at its [business] premises … as a result of the fire occurring on or about 6 January 2013". As QBE's solicitors correctly asserted, the District Court did not have the power to make this declaration. This triggered the filing of the summons seeking declaratory relief in the Supreme Court.
Ms Saldaneri did not advise Mr Meknas during their discussion on 10 September 2015, nor at any time before 19 October 2015, to file a defence to Eagle Boys' claim, and none was filed. Consequently, default judgment for a sum of $86,246.98 inclusive of interest and costs was entered against each of the plaintiff and Mr Meknas in favour of Eagle Boys on 19 October 2015. Mr Meknas was unaware of this at the time.
On about 20 November 2015, Mr Darren Edwards, a solicitor at Edwards Kirby Lawyers, told Mr Meknas in an unsolicited telephone call from him that default judgment had been entered. Mr Edwards offered his firm's services to Mr Meknas, but Mr Meknas said that the plaintiff already had a solicitor.
In early December 2015 Mr Meknas contacted Ms Saldaneri. She told him not to worry, and that she would apply to have default judgment set aside and defend Eagle Boys' claim.
Notwithstanding that advice, Ms Saldaneri never prepared any such application. Nor did she provide documents regarding the QBE claim, which Eagle Boys' solicitors had requested in order to evaluate settlement proposals.
On 4 March 2016, Eagle Boys made an offer to settle its claim for the sum of $30,000. Ms Saldaneri never communicated this offer to Mr Meknas, despite seeking on 21 March 2016 a 14 day extension of the offer period as she maintained that she had "not had an opportunity to obtain" her clients' instructions. The offer was never accepted. Mr Meknas only became aware of the offer after he received the box of documents which Ms Saldaneri delivered to Mr Fairbairn of the Law Society on 24 November 2016. I accept Mr Meknas' evidence that, had this offer been communicated to him, he and the plaintiff would have accepted it. He explained that this is corroborated by his advice to Mr Edwards of what he considered to be the maximum amount the plaintiff was liable to pay Eagle Boys, being a sum of $27,000, and his willingness to pay $50,000 for the costs of having an administrator appointed to the plaintiff in an attempt to avoid the plaintiff being wound up. This $50,000 fee was payable from the proceeds received from the prosecution of the QBE claim, and only if those proceeds were deficient was it payable by the plaintiff.
On 22 April 2016, Eagle Boys commenced proceedings to wind up the plaintiff.
On 6 May 2016, after separate discussions with each of Mr Edwards and Ms Saldaneri, Mr Meknas caused an administrator (Mr Moss) to be appointed to the plaintiff. Mr Meknas completed and filed an undated report as to the plaintiff's affairs. Significantly, the report did not refer to the $80,000 paid to Ms Saldaneri in September 2015. It did show, inter alia, contingent assets of $450,000 relating to the QBE claim, $50,000 as a contingent liability for solicitor and counsel fees and $99,973 in favour of Mr Meknas as a secured creditor in respect of secured debts he had paid personally. In cross-examination Mr Meknas said that Ms Saldaneri had helped him complete the report as to the affairs of the plaintiff.
On 17 May 2016, Mr Meknas lodged a proof of debt in the administration of the plaintiff in the sum of $122,915. The amount of the proof of debt was calculated as being the difference between the aggregate of the amount claimed as having been paid by Mr Meknas on behalf the plaintiff, and the amounts owing by the plaintiff to him, less the amount of $297,621, which had been received as a payout to that date, from QBE.
On 18 May 2016, Ms Saldaneri lodged a proof of debt in the administration of the plaintiff in the amount of $50,000 on account of "Legal fees estimate for ongoing work also".
On or about 25 May 2016, Eagle Boys commenced bankruptcy proceedings against Mr Meknas. Mr Meknas instructed Ms Saldaneri to defend both the winding up proceedings and the bankruptcy proceedings.
On 16 June 2016, the plaintiff (administrator appointed) entered into a deed of company arrangement. Pursuant to this deed, the control of the plaintiff, and hence the further conduct of the relevant legal proceedings, reverted back to Mr Meknas. According to the ASIC records Mr Meknas ceased to be a director of the plaintiff on 15 August 2016.
On 22 June 2016, Eagle Boys offered to adjourn the winding up proceedings against the plaintiff for a period of three months if it was paid $15,000 by a third party. Mr Meknas instructed Ms Saldaneri to pay $15,000 to Eagle Boys to secure this adjournment. Ms Saldaneri did so on about 30 June 2016 by two payments of $6,000 and $9,000. Mr Fairbairn, the defendant's trust account investigator, subsequently concluded that these payments were from trust money which Ms Saldaneri held for another of her clients. Mr Meknas was not aware of that illegality. Eagle Boys did not offer to adjourn the bankruptcy proceedings against Mr Meknas.
The documents do not show Ms Saldaneri doing much work in relation to the winding up proceedings. While Mr Edwards was acting respectively for the administrator and deed administrator, he corresponded with Eagle Boys' solicitors and procured the offer from Eagle Boys on 22 June 2016 to adjourn the winding up proceedings in consideration for the $15,000 payment. It was he who negotiated the eventual dismissal of those proceedings. This is relevant as to the question of costs for work allegedly done by Ms Saldaneri as claimed by the defendant.
Ms Saldaneri retained the conduct of Mr Meknas' defence of the bankruptcy proceedings. She procured the adjournment of the bankruptcy proceedings on 2 occasions, the first on 7 July 2016 and the next on 28 July 2016.
Mr Meknas asked Ms Saldaneri at least twice to pay the amount claimed by Eagle Boys during the currency of the bankruptcy proceedings.
Ms Saldaneri prepared a Notice of Grounds of Opposition and an affidavit in support of those grounds. However, it appears that neither document was filed in the bankruptcy proceedings.
On 28 July 2016, the bankruptcy proceedings were listed for hearing on 18 August 2016.
Ms Saldaneri did not appear for Mr Meknas at that hearing, nor did she arrange for someone else to do so. Consequently, on that date, Mr Meknas became a bankrupt.
On 30 August 2016, Mr Meknas learnt that he had been made bankrupt when he spoke with Mr Ryan Coulston, an Insolvency Officer with the Official Trustee - Australian Financial Security Authority (AFSA). He was directed by his bank to AFSA when he discovered a stop had been placed on his bank account. After learning of his bankruptcy, Mr Meknas tried to speak with Ms Saldaneri but was not able to do so until the next day.
On 31 August 2016 Mr Meknas instructed Ms Saldaneri by phone to apply to have the bankruptcy annulled. He subsequently confirmed these instructions in writing. His calls and other attempts to make contact generally went unanswered by Ms Saldaneri.
On 2 September 2016, the Supreme Court made an order dismissing the plaintiff's proceedings against QBE for want of prosecution as a result of Ms Saldaneri's failure to file a List Statement which complied with the applicable rules before that date. The Court made further orders respectively staying the dismissal for 7 days and dissolving the dismissal order if a compliant List Statement was filed with the Court by 9 September 2016. Ms Saldaneri had, prior to the making of these orders, been directed to file a compliant List Statement on several occasions, and the proceedings had been adjourned on at least six occasions.
On 9 September 2016, Ms Saldaneri filed a compliant List Statement with the Court. Mr Meknas was then unaware of any of the matters in this or the preceding paragraph.
On or about 21 September 2016, the winding up proceedings against the plaintiff were dismissed.
On 28 September 2016, Mr Meknas complained to the Office of Legal Services Commissioner about Ms Saldaneri.
On 10 October 2016, Meknas terminated Ms Saldaneri's retainer in relation to his bankruptcy and appointed Fraser Clancy Lawyers instead.
On or about 20 October 2016, the plaintiff terminated Ms Saldaneri's retainer in relation to the QBE claim and appointed Fraser Clancy Lawyers instead. Ms Saldaneri's response to the Law Society's request for information on 6 October 2016, due by this date, was still outstanding.
As indicated, on 23 November 2016 Mr Meknas provided a written statement to Mr Fairbairn who was the Law Society's appointed investigator.
Mr Fairbairn sought records from Ms Saldaneri. As noted, she delivered a box of documents to Mr Fairbairn on 24 November 2016. The two unsigned tax invoices dated 1 July 2014 and 30 August 2015 were in these records. As noted, Mr Meknas claimed that neither he nor the plaintiff were given signed copies of those purported tax invoices. I accept that evidence.
On 30 November 2016, Mr Fairbairn interviewed Ms Saldaneri. She claimed in the course of her interview that she had been verbally authorised by Mr Meknas to apply the monies paid to her by the plaintiff to payment of her tax invoices.
On 1 December 2016 Ms Saldaneri ceased practising law. Following the delivery of Mr Fairbairn's trust account investigation report dated 13 December 2016, Ms Saldaneri's practising certificate was suspended on 17 January 2017. She has subsequently absconded and it is believed that she is currently living in New Zealand. She did not participate in these proceedings.
On 1 March 2017, the plaintiff lodged the claim on the Fidelity Fund.
On 9 June 2017, Mr Meknas' bankruptcy was annulled.
On or about 17 October 2017, the plaintiff settled the QBE Claim.
On 18 August 2021, the defendant decided wholly to refuse the plaintiff's claim on the Fidelity Fund.
On 16 September 2021, the plaintiff commenced this appeal by an amended summons.
"[L]egal costs" is defined in s 6(1) of the LPUL and relevantly includes "amounts that a person has been or may be charged by … a law practice for the provision of legal services".
"Pecuniary loss" is defined in s 219 of the LPUL to mean, in relation to a default:
(a) the amount of trust money, or the value of trust property, that is not paid or delivered; or
(b) the amount of money that a person loses or is deprived of, or the loss of value of trust property, as a result of a fraudulent dealing
Thus, in relation to a claim relating to trust money, the pecuniary loss is limited to the amount of trust money that is not paid or delivered.
Section 240 of the LPUL relates to the determination of claims by the Council of the Law Society (the designated "fidelity authority" under s 16 of the Application Act). It relevantly states:
…
(3) The fidelity authority may determine a claim by wholly or partly allowing or disallowing it, or otherwise settling it.
(4) The fidelity authority may wholly or partly disallow a claim, or reduce the amount of a claim, to the extent that -
(a) the claim does not relate to a default for which the fidelity fund is liable; or
…
(d) the conduct of the transaction with the law practice in relation to which the claim is made was illegal, and the claimant knew or ought reasonably to have known of that illegality; or
…
Under s 241 of the LPUL, the maximum amount payable in respect of a default is the "pecuniary loss" resulting from the default. This does not include costs payable under s 242 (being the reasonable costs in making and proving a claim) and interest payable under s 243.
Provision is also made in s 244 of the LPUL for a reduction to be made to a claim for "any amount equal to amounts or to the value of other benefits in connection with the default concerned" that, inter alia, have already been paid to or received by the person (s 244(1)(a)).
Given its importance in the proceeding, the terms of s 247 of the LPUL should be set out in full:
247 Right of appeal against decision on claim
(1) A claimant against the fidelity fund may appeal to the designated tribunal against a decision of the fidelity authority -
(a) to wholly or partly disallow a claim; or
(b) to reduce the amount allowed in respect of a claim -
but an appeal does not lie against a decision of the fidelity authority to limit the amount payable, or to decline to pay an amount, under section 230 or 231.
(2) An appeal against a decision must be lodged within 30 days of receiving written notice about the decision.
(3) On an appeal under this section -
(a) the appellant must establish that the whole or part of the amount sought to be recovered from the fidelity fund is not reasonably available from other sources, unless the fidelity authority waives that requirement; and
(b) the designated tribunal may, on application by the fidelity authority, stay the appeal pending further action being taken to seek recovery of the whole or part of that amount from other sources.
(4) The designated tribunal may review the merits of the fidelity authority's decision to the extent considered relevant by the tribunal.
(5) The designated tribunal may -
(a) affirm the decision; or
(b) if satisfied that the reasons for varying or setting aside the fidelity authority's decision are sufficiently cogent to warrant doing so -
(i) vary the decision; or
(ii) set aside the decision and make a decision in substitution for the decision set aside; or
(iii) set aside the decision and remit the matter for reconsideration by the fidelity authority in accordance with any directions or recommendations of the tribunal.
(6) The designated tribunal may make other orders as it thinks fit.
(7) No order for costs is to be made on an appeal under this section unless the designated tribunal is satisfied that an order for costs should be made in the interests of justice.
On one view, it appears that Basten AJ considered that the Court was obliged to conduct a merits review of the primary decision in every s 247(4) appeal. On closer analysis, however, I do not believe his Honour went so far. The terms of s 247(4) confer a discretion. They provide that the Court "may review the merits of the … decision to the extent considered relevant" by the Court (emphasis added). Thus it may be appropriate in some cases for the Court, being satisfied for example that there is some fundamental defect in the decision of the fidelity authority, to set aside that decision and then remit the matter for redetermination or itself to conduct a de novo merits review. The Court's power is in the nature of a discretion which focuses on the extent to which it is relevant to conduct a merits review in the particular circumstances of each case.
Section 247 is not without its difficulties (some of which are briefly raised above), but those difficulties need not be resolved here because the parties were ad idem that this appeal required the Court to conduct a de novo merits review of the Committee's decision refusing the plaintiff's claim.
The second matter is whether or not the $80,000 is "trust money". As noted, "trust money" is defined in s 129 of the LPUL, the terms of which are set out at [107] above. It is money entrusted to a law practice in the course of, or in connection with, the provision of legal services by the law practice and includes, relevantly, money received by the law practice on account of legal costs in advance of providing the services. As previously noted, "legal services" is defined in s 6 of the LPUL to mean "work done, or business transacted, in the ordinary course of legal practice" (emphasis added).
In brief, the plaintiff submitted that the $80,000 qualifies as trust money because the money was paid in the context of Ms Saldaneri providing legal advice to the plaintiff in respect of the QBE claim. For the following reasons, I reject that submission.
First, the plaintiff's approach gives insufficient attention to that part of the definition of "legal services" relating to work done, or business transacted, in the ordinary course of legal practice. I accept the defendant's submission that the term "ordinary" introduces a requirement that the relevant legal services be services which are normal and proper for solicitors to provide.
Secondly, I do not accept the plaintiff's submission that this construction of "ordinary course of legal practice" (which feeds into the definition of "trust money" in s 129) should not be accepted because it would render s 240(4)(d) of the LPUL otiose. That latter provision empowers the fidelity authority to disallow (either wholly or in part) or reduce the amount of a claim to the extent that the conduct of the transaction with the law practice in relation to which the claim relates was illegal and the claimant either knew or ought reasonably to have known of that illegality. The two provisions are not inconsistent and may be read together harmoniously.
It is notable that the term "legal services" is relevant to various provisions in the LPUL (and not merely ss 129 and 240(4)(d)), including to the definitions of the terms "client" and "legal costs" within the meaning of that Act (see s 6); to the responsibility of principals to ensure that the legal services provided by the law practice are provided in accordance with the Act, the Uniform Rules and other professional obligations (see s 34(1)(b)); and to the disqualification of entities from providing legal services in particular circumstances (see s 120).
The harmonious operation of the two provisions may be demonstrated by the example given in oral address by Mr Prince (who appeared for the defendant). Money could be paid into a solicitor's trust account for a perfectly proper purpose, such as for legal services for the future cost of a planning application. That would constitute "trust money". If, however, the solicitor then used the money to pay a bribe to a planning official, that would involve illegality and attract the operation of s 240(4)(d), as long as the claimant knew or ought reasonably to have known of the illegality.
Thirdly, s 240(4)(d) operates not only in respect of the conduct of a transaction which was illegal but there is an additional requirement (which is not present in s 129) that the claimant knew or ought reasonably to have known of that illegality.
Fourthly, the plaintiff relied upon Schmidt AJ's decision in Wang v Council of the Law Society of New South Wales [2009] NSWSC 67 (Wang 2009) in support of its position and was critical of Basten AJ's approach in Wang 2022. Indeed, the plaintiff submitted that the latter decision was plainly wrong.
For the following reasons I am not persuaded that there is a fundamental inconsistency in the two approaches. To the extent that there is a difference, I prefer Basten AJ's approach.
Wang 2009 involved money being entrusted to a solicitor on trust as a stakeholder. The money was then paid to a third party who was involved in obtained a forged visa for Mr Wang under the guise of it being a legitimate visa. Schmidt AJ rejected a submission that by acting as a stakeholder in those circumstances the solicitor was not doing so in the course of his legal practice. Her Honour said at [76]:
If a solicitor agrees to hold money on trust as a stakeholder, I can see no basis on which it may properly be concluded that the solicitor is doing so other than in the ordinary course of that solicitor's practice, unless it be the case that the solicitor received the money in the course of some other business entirely. While services of a stakeholder need not be provided by a solicitor, such services are within the range of services which they customarily provide in the course of their practice.
In Wang 2022, Mr Wang contacted a Chinese company in Shanghai which specialised in helping Chinese citizens find professional positions overseas and helping Chinese investors and executives with overseas migration. The Chinese company had an agreement with a Sydney-based law firm under which the law firm was retained to assist the company with applying for employer-sponsored visas. Mr Wang had no direct contact with the law firm. The Law Society submitted there that, on an objective review of the facts, the law firm was not acting in the ordinary course of legal practice. One of the bases for this submission was that the services provided by the law firm to Mr Wang under a "Cost and Service Agreement" were not services provided in the ordinary course of legal practice because no one at the law firm was a registered migration agent and was therefore unable lawfully to provide the type of services described in the Cost and Service Agreement. Basten AJ accepted that if the services could not be provided by a solicitor who was not a registered migration agent, it necessarily followed that such services were not part of the ordinary legal practice of a solicitor (see at [42]-[43]). Accordingly, the money paid for such services was not received by the law in the ordinary course of legal practice and did not qualify as "trust money".
In Wang 2022 at [44]-[45], Basten AJ addressed the issue whether his conclusion was inconsistent with Schmidt AJ's decision in Wang 2009. His Honour noted Schmidt AJ's finding that the solicitor there had acted as a stakeholder, which was a service within the range of services customarily provided by solicitors in the course of their practice. Basten AJ added, however, that the description of the solicitor's role as a "stakeholder" failed to acknowledge that his role "was to give a veneer of credibility to the proposed scheme to obtain a visa". His Honour also said at [45] that to describe the solicitor as a "stakeholder" was not, in effect, determinative because the money "self-evidently" had not been entrusted to the solicitor in the course of, or in connection with, the provision of legal services by his law practice.
The facts in these two cases are quite different. To the extent that they are not distinguishable, I prefer Basten AJ's approach, which directs attention to the need to identify the real purpose of money having been entrusted to a solicitor, with reference to all the relevant surrounding circumstances. That is the approach which I have applied here.
That approach produces a conclusion that the amount of $80,000 is not "trust money". This turns on the question whether the payments were made in the course of, or in connection with, the provision of legal services in the ordinary course of legal practice (noting my finding above that this refers to the provision of legal services which are normal and proper for solicitors to provide).
For the following reasons, I consider that the $80,000 was not entrusted to Ms Saldaneri in respect of legal services provided, or to be provided, by her in the ordinary course of legal practice.
I accept the defendant's submission that the payments were made by the plaintiff as part of an arrangement or understanding between it (via its sole director, Mr Meknas) and Ms Saldaneri in order to protect the money from falling into the hands of the plaintiff's creditors. This conduct did not occur in the ordinary course of legal practice. That is so because, as the defendant submitted, the ordinary course of legal practice does not include a law practice receiving money from a client for the purpose of withholding the money from creditors and/or denying them knowledge of, or access to, that money.
I reject the plaintiff's submission that the money was not being hidden because the relevant payments were recorded in the bank account statements of both the plaintiff and Mr Meknas. As noted above, the payments were described as payments for legal fees. This was intended to give them an appearance of legitimacy and disguise their true character, which was to keep the money safe from creditors as was proposed by Ms Saldaneri and accepted and acted upon by Mr Meknas. Furthermore, as will be developed further below, it is also notable that Mr Meknas made no reference to the payments totalling $80,000 in his May 2016 report on the affairs of the plaintiff.
I also reject the plaintiff's submission that no finding should be made to the effect that the plaintiff and/or Mr Meknas were trying to "stiff" their creditors because the documents allegedly show that Mr Meknas was "trying to keep all the balls in the air" and arrange for his creditors to be paid. In support of this submission the plaintiff handed up an aide memoire which recorded payments made to the plaintiff's creditors made between 6 January 2013 and 2 August 2016. That document shows various creditors being paid but it is notable that most of the payments have ceased as at the relevant time, which is 10 September 2015. For example, car lease payments stopped on 10 October 2014 (when a final payment was made presumably because the lease had expired). There were two one-off payments on 9 September 2013 and 25 February 2014 to Citibank in the total amount of $12,399. There is no record of payments to PFD Recovery (PFD) (an entity which apparently obtained default judgment against the plaintiff at some point) after 19 September 2014. Similarly, there are no recorded further payments to an entity only identified by the acronym "SFC" after 17 February 2014. Recorded payments to "Silverchef" finished on 31 May 2013. There are recorded weekly payments to Coca-Cola during the period 19 November 2013 to 10 September 2015, but they are only in the amount of $50 per week. It is evident that the plaintiff also made regular payments under its NAB facility during the period 28 February 2013 to 1 February 2017 in monthly amounts of approximately $1,100, but this is in respect of NAB's secured loan (as at 1 September 2015 the amount owing under this facility was approximately $40,000). Having regard to all these matters, I reject the plaintiff's submission that this material is inconsistent with the proposition that the $80,000 was paid to Ms Saldaneri to take it out of the hands of the plaintiff's creditors.
Accordingly, for these reasons, and independently of any other matters bearing upon the plaintiff's entitlement to claim under the Fidelity Fund, I conclude that it has no entitlement to claim the $80,000 because its receipt by Ms Saldaneri did not occur in the ordinary course of legal practice and it did not, therefore, constitute "trust money".
Determination of the metes and bounds of the term "illegality" in s 240(4)(d) should await a proceeding where that issue must be determined. That is not the case here because, as noted, the parties were agreed that conduct of a transaction with a law practice which is in breach of statute is illegal conduct. The parties were also agreed that the assessment of any relevant conduct for this purpose needed to be carried out according to the standard in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 (see also Rejfek v McElroy (1965) 112 CLR 517 at 521-522; [1965] HCA 46 per Barwick CJ, Kitto, Taylor, Menzies and Windeyer JJ; Australian Communications and Media Authority v Today FM (Sydney) Pty Ltd (2015) 255 CLR 352; [2015] HCA 7 at [33] per French CJ, Hayne, Kiefel, Bell and Keane JJ; and s 140 of the Evidence Act 1995 (NSW)).
It is well to first address the defendant's claim that the relevant conduct constituted an offence by Mr Meknas under s 590(1)(c)(i) of the Corporations Act. It provides:
Offences by officers of certain companies
(1) A person who, being a past or present officer or employee of a company to which this section applies:
…
(c) has, within 10 years next before the relevant day or at a time on or after that day:
(i) engaged in conduct that resulted in the fraudulent concealment or removal of any part of the property of the company to the value of $100 or more; …
contravenes this subsection.
The plaintiff is a company to which this provision applies, it being a company which has been under administration (see s 589(1)(c)). As the sole director of the plaintiff at the relevant time, Mr Meknas also qualifies as "a past or present officer" of the plaintiff. There is no dispute that the relevant conduct occurred within 10 years before the relevant day (being the day on which the plaintiff went into administration, ie 6 May 2016 - see the definition of "relevant day" in s 589(5)). The central issue is whether Mr Meknas engaged in conduct that resulted in the fraudulent concealment of any part of the property of the plaintiff to the value of $100 or more.
For the following reasons, and applying the Briginshaw standard, I consider that this provision applies to the $80,000 of the plaintiff's money which Mr Meknas paid to Ms Saldaneri. Acting upon Ms Saldaneri's advice, Mr Meknas caused $80,000 of the plaintiff's money to be paid to Ms Saldaneri with the purpose of concealing from the plaintiff's creditors, particularly Eagle Boys, the plaintiff's true assets. Mr Meknas admitted as much when, in his cross-examination, he gave an affirmative answer to the proposition, which was squarely put to him, that he "wanted to deprive Eagle Boys from getting access to the $80,000" at least until the QBE claim was finalised (see at [63] above).
I am not persuaded, on the balance of probabilities, that the payment of the total sum of $80,000 to Ms Saldaneri was also made for another purpose, namely to secure funds to progress the plaintiff's claim against QBE. As the plaintiff's written submissions identify, as at 10 September 2015 the plaintiff considered that Ms Saldaneri already retained approximately $30,000 in her trust account for this specific purpose. Moreover, I doubt that Mr Meknas would deplete his own personal finances by such a substantial amount solely or primarily for that purpose. As at 17 September 2015, Mr Meknas' NAB iSaver account had a credit balance of less than $1,200. His personal transaction account had a credit balance of less than $3,000 on 18 September 2015. For completeness, it might also be noted that around 10 September 2015, the balance in the plaintiff's bank account was a modest $55.33. Indeed, as counsel for the defendant pointed out in oral address, the combined amount as at 10 September 2015 of the balances of Mr Meknas' two bank accounts and that of the plaintiff was $84,437.99.
In these circumstances, I attach no weight to the fact that the expression "legalfeepament" (or some variation thereon) appeared on both the plaintiff and Mr Meknas' bank account statements relating to the payments to Ms Saldaneri during the period 11 to 18 September 2015 and also on Ms Saldaneri's office bank account statement. I consider that those descriptions were intended to disguise the true purpose of the transfers, which was to conceal the money from creditors, as arranged between Ms Saldaneri and Mr Meknas.
Moreover, this concealment was consistent with Mr Meknas' conduct dating back to May 2014 when he took various deliberate steps to evade service of any legal documentation from Eagles. Those steps are set out at [36] above. The objective of concealment is further reinforced by the fact that Mr Meknas made no reference to the payment of the $80,000 in his subsequent report in May 2016 on the state of the plaintiff's affairs.
In any event, if in making the payments there was this additional purpose concerning prosecution of the QBE claim, I consider that it was secondary to the dominant purpose, which was to conceal $80,000 of the plaintiff's property. This is also reflected in the fact that the trigger for the payment was the text message which Mr Meknas received on 10 September 2015 concerning the orders for substituted service in Eagle Boys' claim against both the plaintiff and himself.
Finally, given Mr Meknas' position at the relevant time as sole director of the plaintiff, and his personal involvement in making the payments, there can be no doubt that the plaintiff knew or ought reasonably to have known of the relevant illegality, as required under s 240(4)(d).
For substantially similar reasons, I consider that, on the existing evidence and applying the relevant principles, Mr Meknas' conduct was also in breach of s 596(1)(b) of the Corporations Act. It provides:
Frauds by officers
(1) A person who, while an officer or employee of a company:
…
(b) with intent to defraud the company or a related body corporate, or members or creditors of the company or of a related body corporate, makes or purports to make, or causes to be made or to be purported to be made, any gift or transfer of, or security interest in, or causes or connives at the levying of any execution against, property of the company or of a related body corporate; …
contravenes this section.
In particular:
1. Mr Meknas caused $80,000 of the plaintiff's property to be transferred to Ms Saldaneri;
2. this was done with an intention to defraud the plaintiff's creditors;
3. I repeat what I said above regarding a purpose of the payments relating to securing the progress of the QBE claim; and
4. there can be no doubt that, given Mr Meknas' role as sole director and his personal involvement in the payments, the plaintiff knew or ought reasonable to have known of the illegality.
The plaintiff cited numerous authorities in support of its submission that, for there to be an offence under s 596(1)(b), it would need to be demonstrated that some property had actually been taken away or deprived from creditors. I do not regard these authorities as relevant to s 596(1)(b), which is an intention to defraud offence. I accept the defendant's submission that what needs to be established for this purpose is an intention to defraud, not any actual defrauding (see Spies v The Queen (2000) 201 CLR 603; [2000] HCA 43 at [88]-[91] per Gaudron, McHugh, Gummow and Hayne JJ).
Having found on the balance of probabilities and applying the Briginshaw standard that offences were committed under either or both ss 590(1)(c)(i) and 596(1)(b) of the Corporations Act, it is unnecessary to consider and determine whether any of the conduct was also in breach of s 596(1)(c) of the Corporations Act and/or s 266(3) of the Bankruptcy Act.
Finally, the defendant contended that, while the language of s 240(4) is prima facie permissive in that it uses the term "may" (see s 9(1) of the Interpretation Act 1987 (NSW)), if s 240(4)(d) applied, there is no discretion under s 240(4) whether or not wholly or partly to disallow a claim or reduce the amount of a claim to the extent that the conduct of the relevant transaction was illegal. Rather, the determining authority is required to disallow or reduce the claim if the determining authority is satisfied that s 240(4)(d) applies. In effect, it contended that, despite the use of the term "may", s 240(4) imposed a duty to act in one of the several specified ways in circumstances where any of the criteria set out in sub-sections (a) to (f) were satisfied (see, for example, John Fairfax Publications Pty Ltd v Gacic (2007) 230 CLR 291; [2007] HCA 28 at [28] and Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106 at 134-135; [1971] HCA 12).
In support of that submission, the defendant relied upon the terms of s 240(4)(a), which operates to empower the determining authority wholly or partly to disallow a claim (or reduce its amount) to the extent that the claim "does not relate to a default for which the fidelity fund is liable". The defendant submitted that it would be nonsensical if the determining authority had a discretion not to disallow or reduce a claim if it was satisfied that the relevant claim does not relate to a default for which the fidelity fund is liable.
The defendant urged the Court to adopt a similar view in respect of s 240(4)(d).
It is unnecessary for the purpose of this proceeding to express a final view on the issue of construction. That is because, assuming in the plaintiff's favour that there is a true discretion under s 240(4)(d), I see no reason why the discretion wouldn't be exercised to reduce the claim by an amount of $80,000 having regard to my findings regarding the true or dominant purpose for which that payment was made and received.
Rule 31.23 of the UCPR provides as follows:
(1) An expert witness must comply with the code of conduct set out in Schedule 7.
(2) As soon as practicable after an expert witness is engaged or appointed -
(a) in the case of an expert witness engaged by one or more parties, the engaging parties, or one of them as they may agree, or
(b) in the case of an expert witness appointed by the court, such of the affected parties as the court may direct,
must provide the expert witness with a copy of the code of conduct.
(3) Unless the court otherwise orders, an expert's report may not be admitted in evidence unless the report contains an acknowledgment by the expert witness by whom it was prepared that he or she has read the code of conduct and agrees to be bound by it.
(4) Unless the court otherwise orders, oral evidence may not be received from an expert witness unless the court is satisfied that the expert witness has acknowledged, whether in an expert's report prepared in relation to the proceedings or otherwise in relation to the proceedings, that he or she has read the code of conduct and agrees to be bound by it.
The following definitions in r 31.18 of the UCPR should also be noted:
"expert", in relation to any issue, means a person who has such knowledge or experience of, or in connection with, that issue, or issues of the character of that issue, that his or her opinion on that issue would be admissible in evidence.
"expert witness" means an expert engaged or appointed for the purpose of -
(a) providing an expert's report for use as evidence in proceedings or proposed proceedings, or
(b) giving opinion evidence in proceedings or proposed proceedings.
"expert's report" means a written statement by an expert (whether or not an expert witness in the proceedings concerned) that sets out the expert's opinion and the facts, and assumptions of fact, on which the opinion is based.
In support of its objection, the plaintiff relied on McDougall J's decision in Investmentsource v Knox Street Apartments [2007] NSWSC 1128 and cases referred to therein. After referring to Campbell J's earlier decision in Kirch Communications Pty Ltd v Gene Engineering Pty Ltd [2002] NSWSC 485, which related to relevant provisions of the then Pt 36C r 13C of the Supreme Court Rules 1970 (NSW) (which contained a definition of "expert witness" in similar terms to the definition of that expression in r 31.18 of the UCPR), McDougall J reasoned as follows at [42]-[44]:
[42] There is a marked difference between the relevant provisions of the Supreme Court Rules (SCR part 36 r13C) and the relevant provisions of the Uniform Civil Procedure Rules (UCPR r31.18, 31.23). As is apparent from the decision of Campbell J in Kirch, the former rules did not catch the position where the expert whose evidence was tendered had not been engaged to provide opinion evidence in the proceedings. It is apparent that the definitions in the present r31.18 have been structured to deal with that problem. As will be seen, they define both an "expert" and "expert witness". An "expert's report" is a written statement by an expert (whether or not an expert witness in the proceedings concerned).
[43] UCPR r31.23(1) applies to "[a]n expert witness". However, the exclusionary provisions of r31.23(3) apply to "an expert's report". Thus, and quite deliberately, the Rules have been structured to ensure that expert reports that do not acknowledge Schedule 7, whether prepared by an expert engaged for the purpose of giving evidence in the proceedings or otherwise, should not be admitted unless the Court otherwise orders. Subrule (4) defines an equivalent position in relation to oral evidence from an expert.
[44] In my view, the clear intention of this change in the regulatory framework is to reinforce the proposition that, as a general rule, expert evidence should not be admitted unless the expert has at the relevant time subscribed to the obligations that are now to be found in Schedule 7.
There is arguably room to question whether there is a "marked difference" between the previous regime under the Supreme Court Rules and the UCPR noting, in particular that there were similar definitions of "expert" and "expert's report" in that previous regime. I note, however, that this aspect of Investmentsource has been followed in subsequent cases including Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd (2009) 75 NSWLR 380; [2009] NSWSC 49; Cahill v Kenna [2014] NSWSC 1763 and First Class Securities Pty Ltd v R Neuhas [2019] NSWSC 1261.
In contrast, however, Price J in Roads and Traffic Authority of New South Wales v Barrie Toepfer Earthmoving & Land Management Pty Ltd (No 3) [2012] NSWSC 937 followed Campbell J's approach in Kirch notwithstanding that Price J was addressing the relevant provisions of the UCPR.
I do not consider it necessary to resolve any inconsistency in the authorities or determine whether individual cases are distinguishable. As the Court of Appeal emphasised in Hodder Rook & Associates Pty Ltd v Genworth Financial Mortgage Insurance Pty Ltd [2011] NSWCA 279 at [63] per Young JA (Beazley JA and Handley AJA agreeing), each case necessarily depends upon its own particular facts and circumstances. That being so, and assuming that the approach in Investmentsource is to be preferred, I consider for the following reasons that it is appropriate to make an order under r 31.23(3) of the UCPR that Ms Higinbotham's report be admitted into evidence.
First, as I have already indicated, Ms Higinbotham's report was prepared at a time when legal proceedings were not contemplated. Unsurprisingly, therefore, she did not refer to the expert witness code of conduct.
Secondly, and significantly, Ms Higinbotham's affidavit was prepared in different and subsequent circumstances, when these proceedings were on foot. The affidavit, to which the report is exhibited, complies with the expert witness code of conduct (see Hodder Rook at [63] per Young JA, Beazley JA and Handley AJA agreeing). As noted above, the opinions expressed in Ms Higinbotham's affidavit substantially reflect the opinions in her report. In these circumstances, I consider that the primary objective underlying r 31.23 has been accomplished, namely improving the quality of expert evidence (see Australian Securities and Investment Commission v Rich (2005) 190 FLR 242; [2005] NSWSC 149 at [333] per Austin J). I see no reason to doubt Ms Higinbotham's independence and impartiality.
Thirdly, Ms Higinbotham was available for cross-examination (although it should be noted that the plaintiff's counsel said that there was no point in doing so because of the alleged deficiencies in the report, which underpin the Makita objection addressed immediately below).
As to the Makita objection, the plaintiff confirmed that it did not question Ms Higinbotham's qualifications nor her extensive experience as a costs assessor, but submitted that the report was inadmissible because it effectively stated conclusions without setting out the path of reasoning upon which the conclusions or opinions were based.
An expert's primary duty in giving opinion evidence is to furnish the trier of fact with criteria which enables an appropriate evaluation of the validity of the expert's conclusion. Makita emphasised the need for an expert's evidence to explain how the expert's field of specialised knowledge and opinion applies to the facts assumed or observed so as to produce the opinion propounded. In Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588; [2011] HCA 21 at [37], the plurality emphasised the importance of reading what was said in Makita having regard to the basic proposition that "the admissibility of opinion evidence is to be determined by application of the requirements of the Evidence Act rather than any attempt to parse and analysis particular statements in decided cases divorced from the context in which those statements were made". Equally as significantly, the plurality made the further following apposite observations at [37] with regard to the application of s 79 of the Evidence Act:
… The way in which s 79(1) is drafted necessarily makes the description of these requirements very long. But that is not to say that the requirements cannot be met in many, perhaps most, cases very quickly and easily. That a specialist medical practitioner expressing a diagnostic opinion in his or her relevant field of specialisation is applying "specialised knowledge" based on his or her "training, study or experience", being an opinion "wholly or substantially based" on that "specialised knowledge", will require little explicit articulation or amplification once the witness has described his or her qualifications and experience, and has identified the subject matter about which the opinion is proffered.
Having regard to those observations in Dasreef, I am satisfied for the purposes of s 79 of the Evidence Act that Ms Higinbotham has specialised knowledge based on her extensive experience as a costs assessor of 44 years and that the evidence of the opinions expressed in her report regarding the likely outcome of an assessment of the reasonable costs of the work done by Saldaneri & Associates are wholly or substantially based on that knowledge.
Finally, I am also satisfied that the report is admissible as a business record of the defendant. Accepting that s 79 of the Evidence Act nevertheless applies to such a business record (see Lithgow City Council v Jackson (2011) 244 CLR 352; [2011] HCA 36 at [21] per French CJ, Heydon and Bell JJ), I have already explained why I consider that the requirements of s 79 are satisfied.
For these reasons, I consider Ms Higinbotham's report to be admissible as expert evidence and as a business record but subject to qualifications as to weight. Those qualifications necessarily arise from Ms Higinbotham's candid acknowledgement that her opinion as to the likely result of a costs assessment was necessarily a "tentative conclusion drawn from insufficient but available data derived from [her] experience in reviewing thousands of costs assessments over the last 44 years". The deficiencies and omissions in the material briefed to her have generally been described above. Ms Higinbotham said that she reviewed the four folders of material and this assisted her in identifying, at least in general terms, the breadth of the work undertaken by Saldaneri & Associates for the plaintiff and Mr Meknas. She then estimated the number of hours of work involved and multiplied that figure by the hourly rate in the costs agreement for Ms Saldaneri's professional services. Without doubt, Ms Higinbotham's opinion could be described as "rough and ready" but that was inevitable having regard to the difficulties with the materials briefed to her. In my respectful view, these matters go to weight and do not deny the admissibility of her evidence.
In these circumstances, it is unnecessary to determine the plaintiff's objection to the admissibility of Ms Higinbotham's affidavit, which added little if anything to the material contained in her report. The focus of the plaintiff's objection was on those parts of the affidavit which set out Ms Higinbotham's opinion regarding the likely result of a solicitor/client costs assessment of the work done by Saldaneri & Associates which, in substance, are duplicated in Ms Higinbotham's report.