Gordon Leslie Rowell as trustee of the Estate of Burnett Leslie Carlisle (deceased) and others v Michael Declan Heffernan and others - [2013] NSWSC 404 - NSWSC 2013 case summary — Zoe

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Gordon Leslie Rowell as trustee of the Estate of Burnett Leslie Carlisle (deceased) and others v Michael Declan Heffernan and others

[2013] NSWSC 404

Supreme Court of NSW|2013-04-22|Before: Sackar J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2013-04-22

Before

Sackar J

Source

Original judgment source is linked above.

Judgment (17 paragraphs)

[1]

Background 1In the proceedings before me, the First and Second Plaintiffs and the Fourth Defendant have made claims against the First Defendant alleging, among other things, professional negligence, breach of various statutory duties imposed on solicitors, breach of trust and breach of fiduciary duty, arising out of conduct engaged in by the First Defendant during the time that he practiced as a solicitor. 2The First Defendant's tutor, Peter Allan Rowlands Clinch, swore an affidavit dated 16 October 2012 in which he gives evidence that the First Defendant was employed as a solicitor by law firm Clinch Neville Long from around 20 July 1996 to 28 February 2003. Records from the Law Society of New South Wales indicate that the First Defendant was admitted as a solicitor on 30 October 1972 and continued to hold a practicing certificate to the year ended 30 June 2010. 3Under cover of a letter dated 11 April 2013 from the solicitors for the First Defendant I received a deed dated 9 April 2013 executed by the First and Fourth Defendants setting out the settlement reached in respect of the cross-claim by the Fourth Defendant against the First Defendant (this is the First Cross-Claim in the proceedings). The First Defendant's solicitors sent further correspondence to my Associate on 17 April 2013, this time attaching an executed copy of a deed dated 16 April 2013 in settlement of the claims made by the First and Second Plaintiffs against the First Defendant. The parties to the settlement deeds agree that as the First Defendant is under a relevant legal incapacity, each of the two settlements reached require the approval of the court. 4Having reviewed the medical evidence in the Exhibit to the First Defendant's tutor's affidavit dated 16 October 2012, I am satisfied, and there does not appear to be any dispute, that the First Defendant is under a legal incapacity for the purpose of s 76 of the Civil Procedure Act. In a letter dated 17 August 2012, Dr Ronald Joffe, a neurologist of whom the First Defendant was a patient from 22 April 2008 to 22 September 2010, described the First Defendant as being "bewildered for much of the examination" during his first consultation on 22 April 2008. Dr Joffe diagnosed the First Defendant with Alzheimer's disease, and said that the First Defendant's condition would "certainly have been evolving over some 3 or 4 years prior to" his initial consultation in April 2008. Dr Joffe described the First Defendant during a later consultation on 22 September 2010 as "worsening" in condition and as having "no idea of what he is saying or doing...he doesn't understand anything much and his comprehension is awful". The First Defendant was a resident in retirement village in Chatswood and is, at present, a high care resident at BUPA Queens Park Care Facility in Waverley, suffering from advanced dementia.

[2]

Principles 5The Civil Procedure Act 2005 s 76 provides: 76 Settlement of proceedings commenced by or on behalf of, or against, person under legal incapacity (3) Except with the approval of the court, there may not be: (a) any compromise or settlement of any proceedings to which this section applies, or (b) any acceptance of money paid into court in any such proceedings, as regards a claim made by or on behalf of, or against, a person referred to in subsection (1). 6Subsection (1) refers to a person under legal incapacity. Section 3 defines a person under legal incapacity as: any person who is under a legal incapacity in relation to the conduct of legal proceedings...and, in particular, includes: (a) a child under the age of 18 years, and (b) an involuntary patient, a forensic patient or a correctional patient within the meaning of the Mental Health Act 2007, and (c) a person under guardianship within the meaning of the Guardianship Act 1987, and (d) a protected person within the meaning of the NSW Trustee and Guardian Act 2009, and (e) an incommunicate person, being a person who has such a physical or mental disability that he or she is unable to receive communications, or express his or her will, with respect to his or her property or affairs. 7The principles for approval of settlements entered into by a person under a legal incapacity are well settled. For the court to grant approval it must be satisfied that it is beneficial to the interests of the person under the legal incapacity (Permanent Trustee Company Ltd v Mills (2007) 71 NSWLR 1 at [29] per Hammerschlag J; Fisher v Martin [2008] NSWSC 1357 at [29] and [41] per Rothman J). The compromise should be assented to by the tutor and legal advisors (Permanent Trustee Company Ltd v Mills at [29]), though it ultimately is for the court, not the parties, to determine whether the compromise is beneficial (Fisher v Martin at [29]). The authorities setting out these principles were summarised by Hallen AsJ (as his Honour then was) in Fairhurst v Fairhurst [2012] NSWSC 388 at [30]-[40], and subsequently approved by Allsop P in Institoris v Falconer [2012] NSWCA 298 at [2]. 8I will first deal with the settlement of the Fourth Defendant's cross-claim, and then with the settlement of the First and Second Plaintiffs' claims. However, I will only set out the factual background only insofar as necessary to determine whether to approve the aspects of the proceedings the subject of the settlements.

[3]

Settlement of the First Cross-Claim 9In its cross-claim, the Fourth Defendant's claims against the First Defendant include: (1)a claim for the sum of $50,000 plus interest and legal costs (totalling about $111,440.56); (2)claims arising from the alleged breaches by the First Defendant of his fiduciary duty to the Fourth Defendant; and (3)various other declarations and orders. 10I will set out the facts as alleged in the cross-claim. The Fourth Defendant, which is the cross-claimant, E Bruce Kennard & Co Pty Ltd, is the trustee of the E Bruce Kennard & Company Pty Limited Superannuation Fund. E Bruce Kennard & Co Pty Ltd retained the First Defendant, Mr Heffernan, as its solicitor since at least 1987 to about late 2010. The Third Plaintiff, Korburn Properties Pty Ltd, is a mortgage service company established by Mr Heffernan. Both Mr Heffernan and his wife were the sole directors and shareholders of Korburn Properties Pty Ltd, and Mr Heffernan was its secretary. 11From about 1992, at the request of Mr Heffernan, E Bruce Kennard & Co Pty Ltd agreed to lend money to various third persons introduced to it by Mr Heffernan. From about 2002, Mr Heffernan began lending money of E Bruce Kennard & Co Pty Ltd to various third persons without first discussing it or obtaining consent to each loan. Mr Heffernan also paid to himself commission from the interest earned on each such loan. 12On about 13 December 2006, Mr Heffernan provided the sum of $50,000 from the assets of the E Bruce Kennard & Co Pty Ltd Superannuation Fund to his own company, Korburn Properties Pty Ltd. On or around the same day, Mr Heffernan's company lent the sum of $300,000 to Terry and Peter Panayi, the Second and Third Defendants (the Panayi Loan). There were four other contributories to the Panayi Loan (in various amounts). 13The terms of the Panayi Loan were evidenced in writing, and in effect provided for the repayment of principal by one year, plus monthly payments of interest calculated by reference to outstanding principal from time to time. The loan was required to be secured by a second registered mortgage (the Panayi Mortgage) over various properties (the Panayi Properties) (the Permanent Trustee Australia Limited and then the Commonwealth Bank of Australia had the first registered mortgage on the Panayi Properties). 14Also on about 13 December 2006, Mr Heffernan's company executed a declaration of trust in respect of the Panayi Mortgage, with itself as trustee, and the beneficiaries being the various five contributories to the Panayi Loan (including E Bruce Kennard & Co Pty Ltd). It was a term of the declaration of trust that Mr Heffernan's company would retain 2.5% per month of the principal amount of the loan outstanding (to be taken out of the monthly interest repayments made by Terry and Peter Panayi). 15On about 16 March 2007 Mr Heffernan prepared a mortgage form to secure the Panayi Loan over the Panayi Properties and had the form stamped, but failed to register the Panayi Mortgage and did not obtain the consent of Permanent Trustee Australia Limited or the Commonwealth Bank to have registered a second mortgage on the title of the Panayi Properties. Terry and Peter Panayi have been underpaying in interest, and have not repaid the principal sum of the loan at all. 16E Bruce Kennard & Co Pty Ltd alleges, among a multitude of other things, that Mr Heffernan stood to make financial gain from the transaction, did not obtain the consent of E Bruce Kennard & Co Pty Ltd before taking its money, poorly conducted the transaction by failing to ensure that Permanent Trustee Australia Limited or the Commonwealth Bank would consent to the registration of the mortgage over the Panayi Properties, failed to check that the improvements to the Panayi Properties were insured, and breached a number of duties imposed on solicitors by the Legal Profession Act 2004. 17On the basis of these allegations, E Bruce Kennard & Co Pty Ltd, the First Cross-Claimant, seeks the sum of its contribution to the Panayi Loan, namely $50,000, plus outstanding interest to which it is entitled, plus legal costs. 18I have reviewed Mr Heffernan's defence to this cross-claim. It is prefaced by a sensible acknowledgement that Mr Heffernan's tutor, who is responsible for the preparation for the defence, has only limited material available to assist him given Mr Heffernan's present incapacity. The most striking, but on reflection unsurprising, feature of the defence is that it consists almost entirely of either admissions of the allegations made in the First Cross-Claim, or a response that Mr Heffernan "does not know and cannot admit" the allegations made in the cross-claim. 19Whatever evidence may ultimately be relied upon by E Bruce Kennard & Co Pty Ltd to support its claim against Mr Heffernan, it is difficult to see what evidentiary material, if any, Mr Heffernan can put on in response to challenge it, given his state of incapacity. It is likely that the contemporaneous documents would be conclusive.

[15]

Terms of settlement 46In relation to the settlement of the cross-claim, the terms of the settlement deed provide for the payment by the First Defendant of $70,000 to the Fourth Defendant (clause 2.1) in exchange for, first, satisfaction of all of the Fourth Defendant's claims against the First Defendant (clauses 2.5 and 7.1), and secondly, the acquisition by the First Defendant of all of the Fourth Defendant's interest in the mortgage to Terry and Peter Panayi (clause 2.2). The settlement is on terms that the parties bears their own costs. Effectively, this means Mr Heffernan pays $70,000 in settlement of a $111,440.56 claim. 47The second settlement deed, which was executed by the First and Second Plaintiff and Mr Heffernan, may be described as being divided into two parts. The first part is the payment by Mr Heffernan of $160,000 to the Carlisle Estate in exchange for acquiring the Carlisle Estate's interest in the Panayi Loan or Panayi Mortgage, whatever its value may be. The second part is the payment of $244,378 by Mr Heffernan to the Carlisle Estate as satisfaction for the claim of $336,604. The deed also requires Mr Heffernan to pay $17,000 to the First and Second Plaintiffs' solicitors on account of Counsel's fees. I note however, that the deed makes no provision for the payment of the solicitors' fees by Mr Heffernan. 48Accordingly, the terms of the deed provide for a total payment of $404,378 (clause 2.1) plus $17,000 (clause 2.2) by Mr Heffernan in exchange for, first, satisfaction of a claim for $496,604 (clauses 2.7 and 7.1), and secondly, the value (if anything) of the Carlisle Estate's interest in the Panayi Loan (clause 2.3). The deed makes further provision for the distribution of any amounts recovered in the proceedings. I do not envisage these provisions exposing Mr Heffernan to further liability. 49Given the prima facie strength of the claims by the First and Second Plaintiffs and by the Fourth Defendant against Mr Heffernan, I do not think it is insensible for some provision for costs in favour of the First and Second Plaintiffs and the Fourth Defendant to be made in each of the deeds of settlement. The overall position is that Mr Heffernan pays $491,378 to settle what appear on the state of the pleadings to be strong claims totalling $608,044.60.

[16]

Conclusion 50In light of the medical reports to which I have referred, it may be possible that at least some of Mr Heffernan's mistakes were a result of his mental deterioration. However, even if that is true, it does not detract from the strength of the claims made against Mr Heffernan; if anything, it would support the inference that he was prone to making mistakes of the nature alleged against him. The factual background set out in the recitals to each of the two deeds of settlement signed by Mr Heffernan is largely in consonance with the facts as alleged in the relevant pleadings. I also add the observation that a number of the allegations made against Mr Heffernan cause real concern and are overwhelmingly likely, if proven true, to have the effect of seriously tarnishing his reputation. 51As Mr Heffernan has reached settlement in respect of each aspect of his involvement in these proceedings, no written submissions have been prepared on his behalf. Mr Ian Rugless, a solicitor at Clinch Long and Letherbarrow acting for Mr Heffernan, has, in letters dated 11 and 17 April 2013, indicated his assent to each of the two settlements and has expressed the view that the settlements are commercially beneficial to his client. Having regard to the state of the pleadings as previously described, to the available evidence, to what would inevitably and understandably be the state of the evidence if the matter proceeds, to the prima facie strength of the claims against Mr Heffernan, and taking into account all the risks and all the circumstances, it is my view that the settlements recorded in the deeds of settlement dated 9 April 2013 and 16 April 2013 are beneficial to Mr Heffernan's interests, and should be approved. 52I therefore make the following orders by consent, in relation to the proceedings between the First and Second Plaintiffs and the First Defendant: (1)The Proceedings between the First and Second Plaintiffs and the First Defendant be dismissed. (2)No order as to costs with the intent that the First and Second Plaintiffs and the First Defendant will bear their own costs in relation to the Proceedings between them. (3)The Court approves the terms of settlement and the release contained in the Deed dated 16 April 2013, executed by the First and Second Plaintiffs and the First Defendant. 53I also make the following orders by consent, in relation to the cross-claim by the Fourth Defendant against the First Defendant: (1)First Statement of Cross-Claim filed 16 April 2012 be dismissed. (2)No order as to costs with the intent that the Cross-Claimant and Cross-Defendant will bear their own costs of the First Cross-Claim and in the Proceedings between them. (3)The Court approves the terms of settlement and the release contained in the Deed dated 9 April 2013, executed by the Cross-Claimant and Cross-Defendant.