JPM Lawyers Pty Ltd v Barfly's Nominees Pty Ltd

Introduction 1 The applicant is a firm of solicitors. It represented the first respondent (Barfly's) in Supreme Court of Victoria proceeding S CI 2013 02618 against Kliger Partner Lawyers (Kligers) in which Barfly's sought damages for negligence and breach of contract (SC Proceeding) and in proceeding S APCI 2018 0105, being an appeal brought by Barfly's in the Victorian Court of Appeal from the decision in the SC Proceeding (Appeal). The applicant retained Mr Simon Wilson QC as senior counsel and Mr Joshua Kohn as junior counsel in the SC Proceeding and in the Appeal. 2 On 11 November 2019, the Victorian Court of Appeal allowed the Appeal and remitted the matter to the Trial Division of the Supreme Court of Victoria for an assessment of damages: Barfly's Nominees Pty Ltd v Kliger Partners (A Firm) [2019] VSCA 256. 3 On 14 July 2020, there was a mediation of the dispute the subject of the SC Proceeding. On 15 July 2020, Barfly's and Kligers entered into a settlement agreement in respect of the SC Proceeding. The settlement agreement was not in evidence, but it appears to be common ground that, pursuant to the settlement agreement, Kligers agreed to pay Barfly's $2.4 million (settlement sum) in settlement of the SC Proceeding within 60 days of execution of the settlement agreement. It also appears to be common ground that the settlement monies have now been paid to Barfly's. 4 Subsequently, a dispute has arisen between the applicant and Barfly's about the payment of the applicant's legal fees, and part of the fees charged by senior counsel, in acting in the SC Proceeding and the Appeal. The total amount claimed is $745,120 (comprising $587,500 plus GST in respect of the applicant's fees and the sum of $98,870 in respect of senior counsel's fees). 5 On 28 September 2020, the applicant filed an originating application and concise statement seeking relief against Barfly's on three principal bases: damages for breach of contract; statutory damages or compensation for misleading conduct under the Australian Consumer Law, being Schedule 2 of the Competition and Consumer Act 2010 (Cth); and a declaration that Barfly's holds that part of the settlement sum that represents the claimed legal fees on trust for the applicant. The applicant also seeks relief against the second respondent (Mr Hachem) on two principal bases: as guarantor of Barfly's contractual obligations to pay the applicant's legal fees; and statutory damages or compensation for misleading conduct under the Australian Consumer Law. 6 At the same time as filing the originating application and concise statement, the applicant applied to the Court for urgent interlocutory relief. The applicant sought an order pursuant to rule 14.11(2) of the Federal Court Rules 2011 (Cth) that the respondents pay into Court the sum of $745,120. 7 At the request of the applicant, I heard the interlocutory application on 28 September 2020. The respondents were only served with the originating application and concise statement that morning, but were represented at the interlocutory hearing by their newly instructed solicitor, Mr J Broadbent of Broadbent Legal. 8 For the following reasons, I dismissed the interlocutory application.

Evidence before the Court 9 The only evidence adduced by the applicant in support of the interlocutory application consisted of four letters recently exchanged between the applicant and the respondents or its new solicitors, Broadbent Legal. In summary, those letters were as follows: (a) On 22 September 2020, the applicant wrote to the respondents demanding payment of amounts claimed to be owing to the applicant (and senior counsel) in respect of the SC Proceeding and the Appeal by 4pm on Thursday 24 September 2020. The applicant stated that if the amounts claimed to be owing were not paid, the applicant would issue legal proceedings to recover the same. The letter set out the bases of the claim in similar terms to the concise statement that has now been filed save that, in the letter, the applicant did not claim to have any interest or entitlement to the settlement sum that had been paid to Barfly's. The letter (and the concise statement) referred to numerous documents, none of which were in evidence. (b) On 24 September 2020, Mr J Broadbent of Broadbent Lawyers replied stating that he had been engaged to act for Barfly's in relation to the resolution of the costs matters. Mr Broadbent stated that he had received some of the documents referred to in the applicant's letter, but not all. Mr Broadbent outlined some initial objections to the claims made by the applicant, principally based on an alleged failure to comply with obligations under the Legal Profession Uniform Law (being the Schedule to the Legal Profession Uniform Law Application Act 2014 (Vic)). No admissions were made in that letter. (c) On 25 September 2020, the applicant replied to Broadbent Legal. The letter refuted the matters raised by Broadbent Legal under the Legal Profession Uniform Law and demanded that Barfly's and Mr Hachem provide a written undertaking by 12 p.m. on Monday 28 September 2020 that they will not take any steps to dissipate any funds from Barfly's bank account number ending 131 such that Barfly's will be unable to pay the fees claimed to be owing. The letter assumed that the settlement sum had been paid into the named bank account. (d) On 28 September 2020, Mr Broadbent of Broadbent Legal replied to the applicant advising that he had instructions to accept service of legal process on behalf of the respondents. The letter also stated that Mr Broadbent was instructed that all of the funds received by Barfly's from the settlement of the SC Proceeding had been withdrawn progressively over the course of 8 days during the period 14 to 22 September 2020 and were no longer in the bank account of Barfly's. 10 During the interlocutory hearing, the applicant submitted that it had adduced the four letters referred to above in reliance on r 17.02(1) of the Rules which provides: An interlocutory application need not be accompanied by an affidavit if a party (the first party) wants to rely on correspondence or other documents, the authenticity of which is not in dispute. 11 The applicant seemed to be proceeding on a fundamental misunderstanding of the purpose of r 17.02 and the need for an interlocutory application such as the present to be supported by evidence. Rule 17.02 is intended to remove the need, on an interlocutory application, to tender documentary evidence through an affidavit. If the authenticity of the documents is not in dispute, and the party wishing to tender the documents complies with the procedural requirements set out in r 17.02(2), the documents may be tendered in the interlocutory hearing without an affidavit. 12 There was no difficulty with the applicant tendering the four letters summarised above on the application. However, the letters merely established that the applicant believes that it has a claim against the respondents. In that sense, the letters add little to the concise statement that has been filed by the applicant (they merely establish that a demand for payment had been made before the commencement of the proceeding). The letters are not evidence of the underlying facts and are of no assistance to the applicant in establishing that it has a prima facie right to relief. 13 During the interlocutory hearing, the respondents tendered (without objection) two documents which were said to be notes made by junior counsel, Mr Kohn, during the mediation on 14 July 2020. In its concise statement, the applicant relies on those notes in support of an allegation that the respondents verbally agreed to pay the applicant, out of the settlement sum, the amounts claimed by the applicant. By themselves, the notes are unintelligible. They require explanation by Mr Kohn or a person present when the notes were being made. 14 In the absence of any evidence, the interlocutory application was bound to fail. As discussed below, the order sought by the applicant requires the Court to be satisfied that the applicant has a prima facie case to relief in the proceeding and that the order is in aid of that claim for relief. The Court cannot be so satisfied in the absence of any evidence.

Rule 14.11 15 Part 14 of the Rules concerns interlocutory orders for the preservation of rights and property. Division 14.2 addresses orders for the preservation of property. Rule 14.11 provides as follows: (1) A party may apply to the Court for an order: (a) for the detention, custody, preservation or inspection of property; or (b) authorising a person to do any act or thing for the purpose of giving effect to an order. (2) In a proceeding about the right of any party to a fund, a party may apply for an order that the fund be paid into Court or otherwise secured. 16 The applicant did not apply for an order under r 14.11(1). Rather, it applied for an order under r 14.11(2) that the amount claimed by it be paid into Court. 17 Rule 14.11(2) was considered by Gleeson J in Brentwood Village Limited (in liq) v Terrigal Grosvenor Lodge Pty Limited (No 2) [2015] FCA 944. Her Honour observed (at [45]-[47]): 45 The parties did not refer to any case law about the operation of rule 14.11(2). The cases which I have located are concerned mainly with the meaning of "a proceeding about the right of any party to a fund" in analogous Court rules: see Newcastle City Council v Caverstock Group Pty Ltd [2008] NSWCA 249; (2008) 163 LGERA 83 and Myers v Design Inc (International) Ltd [2003] 1 WLR 1642. 46 In Myers, Lightman J gave some more general consideration to the scope of the Court's power to make "an order for a specified fund to be paid into court or otherwise secured, where there is a dispute over a party's right to the fund". He stated (at 1645): The provisions of the rule require as conditions for exercise of the jurisdiction to make the order that at the date of the order (1) the person against whom the order is to be made has legal title to or is in possession or control of an actual identifiable fund, colloquially the fund must be in his hands; (2) there is a dispute as to a party's proprietary entitlement to or interest in the fund; (3) the circumstances are such that the fund should be secured by payment into court or in some other way. 47 In my view, this passage applies to rule 14.11(2). 18 In that case, her Honour also accepted that the orthodox approach to an application for interlocutory injunctive relief applies to an application under r 14.11(2) (at [48]). The applicant did not contend to the contrary. 19 In Australian Broadcasting Corporation v O'Neill (2006) 227 CLR 57, the High Court reiterated the organising principles for the grant of interlocutory relief, which take account of the strength of the applicant's case and the practical consequences likely to flow from the specific relief sought: see at [19] per Gleeson CJ and Crennan J and at [65]-[72] per Gummow and Hayne JJ. The second consideration is usually referred to as the balance of convenience or the balance of the risk of doing an injustice by either granting or withholding the interlocutory relief sought. In O'Neill, Gummow and Hayne JJ said at [65] (citations omitted): The relevant principles in Australia are those explained in Beecham Group Ltd v Bristol Laboratories Pty Ltd. This Court (Kitto, Taylor, Menzies and Owen JJ) said that on such applications the court addresses itself to two main inquiries and continued: The first is whether the plaintiff has made out a prima facie case, in the sense that if the evidence remains as it is there is a probability that at the trial of the action the plaintiff will be held entitled to relief ... The second inquiry is ... whether the inconvenience or injury which the plaintiff would be likely to suffer if an injunction were refused outweighs or is outweighed by the injury which the defendant would suffer if an injunction were granted. By using the phrase "prima facie case", their Honours did not mean that the plaintiff must show that it is more probable than not that at trial the plaintiff will succeed; it is sufficient that the plaintiff show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending the trial. That this was the sense in which the Court was referring to the notion of a prima facie case is apparent from an observation to that effect made by Kitto J in the course of argument. With reference to the first inquiry, the Court continued, in a statement of central importance for this appeal: How strong the probability needs to be depends, no doubt, upon the nature of the rights [the plaintiff] asserts and the practical consequences likely to flow from the order he seeks. 20 In Warner-Lambert Co LLC v Apotex Pty Ltd [2014] FCAFC 59; (2014) 311 ALR 632, the Full Court of the Federal Court observed (at [70]): Whether an applicant for an interlocutory injunction has made out a prima facie case and whether the balance of convenience favours the grant of such relief are related questions. It will often be necessary to give close attention to the strength of a party's case when assessing the risk of doing an injustice to either party by the granting or withholding of interlocutory relief especially if the outcome of the interlocutory application is likely to have the practical effect of determining the substance of the matter in issue or if other remedies, including an award of damages, or an award of compensation pursuant to the usual undertaking, are likely to be inadequate.

Determination of the application 21 The interlocutory application must be dismissed for want of evidence. In the absence of evidence, the Court cannot be satisfied that the applicant has a prima facie case for the relief it seeks in the originating application. Contrary to what seems to have been assumed by the applicant, it is not sufficient for the applicant to rely on the fact that it has made allegations against the respondents in correspondence and in its concise statement. The applicant must adduce evidence of the primary integers of its claim sufficient to establish a prima facie case in the sense described in O'Neill. No explanation was provided why the solicitor who acted on behalf of Barfly's in the SC Proceeding and the Appeal, and who appears to have attended the mediation which resulted in the settlement agreement, did not give evidence about the course of events alleged to have occurred in the concise statement. 22 While the absence of evidence was fatal to the application in itself, the absence of evidence also made it impossible for the Court to be satisfied that there was a proper basis to the application for an order under r 14.11(2). The rule applies in a proceeding about the right of a party to a fund. It follows that, in order for a party to obtain an order under r 14.11(2), the party must establish a prima facie case that it has a right to, or entitlement in, the identified fund the subject of the proposed order. In this case, the applicant must establish a prima facie case that it has a right to, or entitlement in, the settlement sum received by Barfly's pursuant to the settlement agreement. 23 As discussed earlier, the applicant seeks relief against Barfly's on three principal bases: in contract, under s 18 of the Australian Consumer Law and on the basis of an asserted trust over part of the settlement sum. The applicant did not advance any argument in support of the proposition that its claims in contract or under s 18 of the Australian Consumer Law would give it a right to, or entitlement in, the settlement sum received by Barfly's as a separate fund. Those claims were for damages (with related claims against Mr Hachem personally). 24 In relation to the trust claim, the concise statement alleges a bare conclusion that Barfly's holds that part of the settlement sum that is claimed by the applicant on trust for the applicant. There is no explanation in the concise statement as to how the trust is said to arise or the nature of the trust. During the hearing, the applicant was unable to proffer any further explanation of the allegation. The only allegation of fact in the concise statement seemingly relied on by the applicant in support of the conclusion is an allegation that the settlement agreement contained the following clause (referred to in the concise statement as the "Costs' Quarantine Clause"): In the event that Barfly's counsel or solicitors (or any of them) make any demand or take any action or step whatsoever to prevent payment of the Settlement Sum by Kligers to Barfly's in accordance with clauses 2 and 3 of these Terms on the basis that such persons (or any of them) claim to be owed unpaid fees or costs by Barfly's (or in the case of counsel, owed by Barfly's solicitors) ("Claimed Fees") then the following provisions apply: A. subject to the Condition Precedent being fully satisfied, Kligers will pay the Settlement Sum less the Claimed Fees in accordance with these Terms; B. subject to the Condition Precedent being fully satisfied, Kligers will pay the Claimed Fees into KCL Law's trust account by the Due Date, and the Claimed Fees will be paid out of that trust account in accordance with sub-paragraphs (c) and (d) below; C. the date for the payment of the Claimed Fees by Kligers from KCL Law's said trust account will be that date which is 7 days after the parties to any such dispute between Barfly's, its solicitors and counsel give a joint written notice to Kligers that they have resolved that dispute between themselves, or alternatively, such date as a Court of appropriate jurisdiction may otherwise order; and D. the Claimed Fees shall be paid from KCL Law's said trust account to such person or persons as Barfly's, its solicitors and counsel confirm in such joint written notice that the Claimed Fees may be paid by Kligers, or alternatively, to such person or persons as a Court of appropriate jurisdiction may otherwise order. 25 As already noted, the settlement agreement was not tendered in evidence. Nor was any evidence adduced about any actions taken in respect of the clause. However, it appeared to be common ground that neither the applicant nor counsel had made any demand or taken any step under the clause that may have required Kligers to pay the "Claimed Fees" into KCL Law's trust account. I say "may have required" because it also appears that the applicant was not a party to the settlement agreement and a question arises as to the applicant's right to enforce the Costs' Quarantine Clause. In so far as the applicant relied on that clause in support of its allegation that Barfly's held that part of the settlement sum that is claimed by the applicant on trust for the applicant, the clause was not proved in evidence and the manner in which it gave rise to a trust obligation, in circumstances where no steps were taken to enliven the clause, was left wholly unexplained. 26 Having regard to the foregoing, the applicant failed to satisfy me that it has a prima facie case for the relief it seeks in the originating application. I therefore dismissed the interlocutory application on that basis. It was unnecessary to consider the balance of convenience.

Costs 27 The respondents sought their costs of the interlocutory application, while the applicant sought an order that costs be reserved. In my view, it was appropriate that an order be made that costs be reserved. While the applicant was unsuccessful in obtaining the interlocutory order it sought, it is very early in the proceeding. Circumstances may come to light which show that the applicant was justified in bringing the application when it did and, even though it failed on the application, should not have costs awarded against it. The question of the costs of the application can be revisited at a later date when more is known about the relevant facts and circumstances. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.