Michael Wilson and Partners Limited v Robert Colin Nicholls

Michael Wilson and Partners Limited v Robert Colin Nicholls - [2008] NSWSC 501 - NSWSC 2008 case summary — Zoe

[25]

[29] In this State J L Holdings must now be understood as operating subject to the statutory duty imposed upon the courts by s 56(2) of the Civil Procedure Act 2005 , which requires the Court in mandatory terms - "must seek" - to give effect to the overriding purpose - to "facilitate the just, quick and cheap resolution of the real issues in the proceedings" - when exercising any power under the Act or Rules. That duty constitutes a significant qualification of the power to grant leave to amend a pleading under s 64 of the Civil Procedure Act . 9 These matters of general case management principle and of the difficulties which can arise where the Court is pressed to allow additional amendments have particular poignancy in relation to the applications presently before the Court. In relation to these present proceedings the circumstances which prevail involve two relatively recent occasions when hearing dates were vacated. And as may sometimes confidently be expected, notwithstanding prior guillotine orders aimed at preventing the adducing of further evidence without leave, precisely such an application is amongst the cluster of applications to be dealt with. 10 It is convenient to turn to the relevant background. The relevant background 11 The plaintiff, Michael Wilson & Partners ["MWP"] is said to be a large law firm incorporated in the British Virgin Isles and carrying out its business of providing legal services in Kazakhstan. Mr Michael Wilson is a director and principal of MWP. Apparently MWP never operated in Australia. 12 The first and second defendants, Mr Robert Colin Nicholls [apparently an Australian barrister] and Mr David Ross Slater [apparently a New South Wales solicitor], were, on the plaintiff's case, previously employed by MWP. On the plaintiff's case, Mr Emmott was also a previous employee of MWP. It is common ground that, while not a party to the present proceedings, Mr Emmott is involved in a related commercial arbitration taking place in London later this year. 13 The plaintiff's case is that Mr Slater set up a small competing firm in Kazakhstan, in which both Mr Nicholls and Mr Emmott are employed as consultants. The plaintiff's case is that this firm is conducted through the third, fourth and fifth defendants [referred to respectively as "TSL", "TIL" and "TFZE" or collectively as "The Temujin companies"]. The sixth defendant, Shaikenov & Partners LLP ["SP"] is said to be [amongst other things] a beneficiary and until holder in TIL, and was not represented in these proceedings. 14 The plaintiff makes a range of allegations regarding the conduct of the abovementioned defendants. Broadly speaking, these include allegations that the individual defendants, by various acts and at various times from February 2005 onwards, arranged, while in the employ of the plaintiff, to set up their own practice and divert business and opportunities that should have gone to the plaintiff [cf: McDougall J judgment of 20 February 2008 at 3]. 15 There are also allegations that the defendants' conduct after the termination of their employment breached their duty to maintain for MWP's benefit confidential information received as part of their employment. 16 Mr Nicholls, Mr Slater and Mr Emmott are said to have terminated their employment with MWP on 1 March 2006, 9 January 2006 and 20 July 2006 [respectively]. 17 The plaintiff's case is that the employment contracts of the first and second defendant were entered into in NSW, and are subject to NSW law. At least some of the defendants were served outside of NSW, but have submitted to the Court's jurisdiction. 18 The plaintiff's case in terms of the attempts to prove loss and damage appears to require the Court to travel through the highways and byways of numerous alleged activities of the defendants in and about complex commercial dealings from which the plaintiff claims it would have benefited but for the defendants' claimed wrongdoing. 19 To my mind a deal of the problems treated with during the hearing of the motions before me arises simply because the very tight timetable leading to the original May fixture, which appears to have resulted in a massive work effort by the plaintiff. However, the defendants have not been able to adequately adumbrate problems with the plaintiff's so-called contentions explaining its further claims [outlined in the "Addendum to Plaintiffs Submissions" furnished to the Court by Mr Walton as an aide memoir, together with the accompanying folder of documents MFI P3]. The conduct of the present proceedings 20 The proceedings have been on foot for some time. In November last year, the proceedings were listed for hearing on 5 May 2008, a date that was later vacated in favour of 12 May 2008. On 17 April 2008, orders were made to vacate the hearing, and to set aside the 12 May 2008 date for the hearing of all outstanding interlocutory applications. 21 The defendants allege that the substantial delays in proceeding with the litigation have been caused by the plaintiff's failure to comply with the timetable established for the serving of evidence. In return, the plaintiff alleges that delays have been due, at least in part, to the defendants' failure to provide proper and timely discovery. The plaintiff also put forward evidence that is said to substantiate the physical impossibility of the plaintiff having been able to comply with certain parameters of the Court's directions in relation to the date for filing its further evidence. 22 At the commencement of the hearing of the several motions, an issue arose concerning the plaintiff's contention that it had been unaware that the defendants were still pressing their motion that freezing orders made against the assets of the first and second defendants be lifted. Due to an alleged error in the drafting of the relevant short minutes of order made by McDougall J, the plaintiff understood that the motion to lift the freezing orders had been dismissed. In fairness to the position explained to the court by senior counsel for the plaintiff, the hearing of the applications by which freezing orders were sought to be discharged or extended were set aside to be dealt with on 20 May 2008, on which date the remaining motions were heard. The motions 23 Outside of those motions which relate to the freezing orders, the motions which remained to be decided include:

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[8] As Giles CJ in Comm. D (as his Honour then was) said in Tallglen ( supra, at 142): "Part 31, rule 2 of the rules empowers the court to make orders for the decision of any questions separately from any other question, whether before, at or after any trial or for the trial in the proceedings, and for the statement of a case and the question for decision. In the ordinary course, all issues in proceedings should be decided at the one-time, but separate decision of a question may be appropriate where, for example, the decision of the question is critical to the outcome of the proceedings and ( at least if decided in one-way) will bring the proceedings to an end. In particular circumstances the separate decision of a question may be appropriate even if it will not bring the proceedings to an end, such as where there is a strong prospect that the parties will agree upon the result when the core of their dispute is decided or where the decision will obviate unnecessary and expensive hearing of other questions, but such occasions must be carefully controlled lest fragmentation of the proceedings (particularly when the exercise of right of appeal is borne in mind) brings delay, expense and hardship - that which the making of an order was intended to avoid. It is often the case that the need to make findings of fact for a decision of the separate question, especially findings which may involve issues of credit, tells strongly against the making of an order because related facts, and renewed issues of credit, will or may arise at a later stage in the proceedings . Experience teaches that it should be able to be seen with clarity that decision of a separate question will be beneficial in the conduct of the proceedings and the resolution of the parties dispute."" [Emphasis added] 26 Clearly, however, each application for a separate determination must be determined upon its own merits. Dealing with the issue 27 The very magnitude of the proceedings and the virtual certainty that a number of the same witnesses who would be called by the respective parties on the liability side [were a separate question regime to be imposed] would also require to be called on the second tranche quantum hearing, itself makes quite plain that the present is a circumstance in which 'the longest wait is often found to be the shortest'. Further it seems to me quite plain that to split the proceeding in two separate question tranches would ultimately both very likely be more expensive to all parties and certainly lead to a very protracted path through to final decision. 28 And finally although this is not often appreciated by the profession, there can certainly be cases where there is bitter argument which only later ensues as to whether or not particular witnesses called on the liability tranche are later also able to be called on the quantum tranche: giving rise to real questions which can be extraordinarily difficult to resolve. Leave to further amend the plaintiffs amended commercial list statement 29 In the proposed second further amended commercial list statement the plaintiff seeks to make a number of amendments, the principal of which involve the following allegations:

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iii. ordering that absent first obtaining the leave of judge of the court, the plaintiff be disentitled from relying upon any further evidence in chief of any witness after 2 May 2008. Unopposed additional evidence 41 The position which presently obtains is that the plaintiff seeks such leave, it being very difficult for the Court to deny such leave in the absence of particular evidence of prejudice to the defendants. 42 The defendants did not oppose the leave being granted to the plaintiff to adduce evidence of two witnesses, Professor William Butler and Aliya Lawson (nee Abdi). Opposed additional evidence 43 The defendants oppose the grant of leave permitting the plaintiff to rely on additional evidence: namely the evidence of Messrs La Hatte, Tudorovic, Kolleeny and Gibson and a further affidavit of Michael Wilson, all going to issues related to the relief to which the plaintiff claims to be entitled should it succeed on liability. 44 Mr Gleeson SC submitted that it was clear that a number of these witnesses had either not been briefed by the plaintiffs until the early months of 2008 or had not begun their relevant work until about that period. Whilst I accept that this may have been the case, the fact is that the event of the vacation of the hearing dates and the fact that no further hearing date has yet been fixed strongly suggests that the leave sought should be given, there being no particular form of prejudice to the defendants [otherwise than their need to have an early hearing date because of the gravity of the allegations made against them]. 45 The parameter dealing with whether or not those tasks were, as the plaintiff contends, made the more difficult by the defendants' failure, described in the affidavits, to provide proper and timely discovery, or whether, as the defendants contend, they were not responsible for any lag and timetable does not presently have to be adjudicated upon but may in due course sound in costs. Decision 46 It is appropriate to grant leave to rely upon this category of further evidence:

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xiv. The plaintiff unless otherwise ordered intends to proceed in accordance with the Clayton Utz letter. Dealing with the issue 49 Whilst the parties have been at liberty to reach such arrangements as they may have in relation to a confidentiality regime, once the parties bring the dispute before the Court, plainly the Court has the power to regulate the regime in the proper administration of justice as between the parties in litigation. 50 There are obvious tensions as between the desire of particular parties to preserve confidentiality and the importance of all parties being given a proper opportunity to present their respective cases. The Court will endeavour to accommodate both sets of interests wherever possible and will do so to the extent practicable by laying down confidentiality regimes. 51 However a precondition for the making of orders in the form of confidentiality regimes involves the Court being satisfied of the claimed confidentiality. 52 Notwithstanding the fact that the defendants adduce precious little in terms of evidence that should the confidentiality regime be lifted, the plaintiff would gain access to commercially sensitive documents, it cannot be said that they have no material to support this proposition [cf affidavit of Mr Gorry 19 February 2008 paragraph 30 - Court Book tab 25]. The nature of the subject matter permits the court to infer that there is a confidentiality and considerable commercial sensitivity in terms of the documents passing between a firm of solicitors and its relevant clients, particularly where the plaintiff has a relevant competitive interest in the same discipline. 53 Subject to appropriate constraints being put into place I am satisfied that the current restrictions imposed by the current regime are severely hampering the plaintiff's ability to provide instructions to its legal advisers. So much is demonstrated by the affidavit of Mr Wang sworn on 22 April 2008 and his further affidavit of 19 May 2008. By way of example only, by reason of these restrictions, Clayton Utz was unable to provide Mr Wilson with a complete copy of its letter of 18 January 2008 particularising MWP's damages. 54 The proposal put forward by the plaintiff solicitors in their letter of 12 February 2008 [annexed to the affidavit of Mr Wang of 19 May 2008 ] does take the matter somewhat further, but at the same time presents some problems. To my mind the regime which requires to be put into place in substitution for the current regime is as follows: 1 In respect of documents listed at part 1 (a) of the defendants amended list of documents [Commercially Confidential Documents] the following regime shall apply : a. A nominated partner and solicitor from Clayton Utz [CU] shall be entitled to inspect and obtain one copy of the Commercially Confidential Documents;

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"describes the work undertaken in respect of each client file in which instructions were received by the fourth defendant before 20 July 2006 and the name(s) of the client representative(s) who have provided instructions to the fourth defendant in respect of each client file". 61 The table however did no more than give a brief overview of the work carried out, with no indication of the time spent, or the costs incurred or recovered, in respect of that work. What is more the work referred to is only up until 20 July 2006. It does not seem to me that the relevant date in terms of all of the issues in these proceedings terminates on 20 July 2006. Indeed apparently the defendants have discovered bank documents in the confidential section as well as relevant ledgers in the period 1 July 2006 to 5 December 2007. TIL invoices were also discovered from April 2006 to 31 July 2007 and then from 1 August 2007 to 31 December 2007. 62 The plaintiff seeks discovery of such documents as came into existence before 31 December 2007. As Mr Wang points out in paragraph 51 of his affidavit of 22 April 2008, neither of the contractual restraints pleaded in respect of Mr Nicholls and Mr Slater are expressed to cease as at 20 July 2006. To make the matter perfectly clear, the proposed amended commercial list statement further now seeks to plead in paragraphs 25, 31 and 43, and in paragraphs 59A and 61A, that the obligations owed by the defendants did not cease when Mr Emmott left the plaintiff firm on 20 July 2006. 63 Mr Gibson in his affidavit of 2 May 2008 describes the extent of the documents provided to date by the defendants as "by no means complete". 64 The grounds under cover of which the defendants object to the discovery of these client files include that the plaintiff already has sufficient information about the identity of the defendants' clients, the client matters and information in relation to the work undertaken for each client, in order to enable it to make its case, while at the same time protecting the confidences of the defendants' clients who have either not consented to or refused further disclosure of their files 65 This is a difficult area. The plaintiff is entitled to pursue its case and is not obliged to accept the defendants' proposition as to the amount of information which the plaintiff will need in order to succeed on liability as well as quantum. There is no claim by the defendants to oppression in terms of the amount of material sought. 66 Arguably a pragmatic approach would be one of sampling, a matter which I put forward to the bar table during address. Commonly sampling of particular records and files can have the benefit of satisfying both parties. Absent a sampling regime being agreed between the parties, it seems to me that the plaintiffs are entitled to this material. 67 A further objection by the defendants is that they have a concern that the plaintiff will not respect the confidentiality of information in the client files. The submission is that on a number of occasions the plaintiff has breached its implied undertakings to the court not to use documents from these proceedings for other proceedings. 68 To my mind this further objection cannot be regarded as of substance. The plaintiff is bound by the usual obligations to the Court and if necessary, express undertakings to the Court can be extracted from Mr Wilson. 69 There is no substance in the proposition that the same application had previously been unsuccessful before McDougall J. 70 In paragraph 16 of the judgement of McDougall J. handed down on 20 February 2008 His Honour observed as follows:

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vi. In Patterson v BTR Engineering at 325, Gleeson CJ observed in relation to the general rule stated above: "There is no reason in principle why the evidence which is relevant to the first of the issues earlier referred to might not also have a bearing on the second, and this will especially be so where the prima facie case that is made out against the defendant is one of serious dishonesty involving diversion of money from its proper channels." vii. Meagher JA in the same case said, at 326: "Normally proof of the first ingredient alone will not suffice; normally one cannot infer a risk of dissipation of assets from the mere fact that the plaintiff has a prima facie cause of action... However, in exceptional cases ... one can infer the existence of the latter ingredient partly or wholly from proof of the former. This may well be the situation in all cases where the plaintiff's prima facie case against the defendant involves proof of gross dishonesty." Dealing with the plaintiff's application 80 The first aspect of the plaintiff's application is the addition of the reference to THL in the existing freezing orders. This is explained in paragraphs 7 and 12 of Mr Wang's affidavit of 22 April 2008 at Court Book tab 15. The evidence of Mr Wang suffices as at an interlocutory level as establishing that THL has been established as a Bahamas vehicle through which TIL has channelled funds. To be noted is the admission by Mr Slater at paragraph 86 of his affidavit of 30 April 2008 (Court Book tab 33) that "payments to and from the THL Account are, in effect, payments to and from TIL." 81 All other things being equal, the principled exercise of the relevant discretion would seem to require that the freezing orders must embrace THL. As the plaintiffs have contended, quite why THL and its operation and account were not disclosed by the defendants previously pursuant to the express terms of the freezing order already in place is not explained by the defendants. 82 The plaintiff also contends that the use by TIL of THL and its Swiss bank account is in plain breach of the orders of the BVI court freezing the assets of TIL: referring in this regard to Ms Dixon's affidavit at paragraph 91 and page 342ff of the exhibit thereto for the freezing order of the BVI Court. 83 The second aspect of the plaintiff's application seeks to extend the existing freezing orders against the first and second defendants to the proceeds which the plaintiff contends they received in the context of the Roxi re-admission transactions referred to in the commercial list statement. 84 Thus the plaintiff seeks to increase the amount referred to in the freezing orders as the "Relevant Amount", currently AUD$4,158,625, to AUD$32,251,128 , this sum being reflective of the amount disclosed by the recent discovery of the Roxi re-admission document as the likely proceeds in Roxi stock and in cash from the transaction in the hands of Mr Slater. 85 The third part of the plaintiff's application involves adding the two PJT entities to the terms of the order. The alleged role of PJT in the Roxi re-admission transaction is described by Mr Wang in his affidavit of 22 April 2008 (see paragraphs 37 and following of the affidavit in the context of the AIM re-admission of Roxi and in particular sub-paragraph 10(ee) as to the payments due to PJT) . 86 The plaintiff contends that, for the reasons set out in that affidavit at sub-paragraphs 10(oo) to (ss), PJT is not an arm's length client of TIL but is owned and/or controlled, directly or indirectly, by the defendants. 87 This is said to be especially borne out by the designation by PJT that Mr Slater was to be the recipient of the US$30 million consideration otherwise due to PJT in the Roxi re-admission transactions and that TIL, via funds paid out of THL's Swiss bank account, has made significant payments to PJT's director, Miss Lighezzolo. 88 The plaintiff further contends as follows:

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vi nothing now said by Mr Slater as to PJT (see paragraphs 50 and following of his affidavit of 30 April 2008) requires a different conclusion. Should the freezing orders be extended 89 At the time the freezing orders were granted by this Court on 9 October 2006, the plaintiff established to the Court's satisfaction a sufficient cause of action against the first and second defendants. 90 As the plaintiff has contended, the case that is pleaded against the defendants is one of serious dishonesty amounting to fraud. I accept that this parameter infers a risk of dissipation of assets: see Patterson v BTR Engineering above. 91 It is also alleged that the first and second defendants have knowingly assisted in breaches of the fiduciary duty Mr Emmott owed to the plaintiff, which includes acting fraudulently to the detriment of MWP: see paragraph 68 of the Further Amended Commercial List Statement. 92 The evidence now served by the first and second defendants admits breach of the contractual restraint and solicitation: see the affidavits of Mr Nicholls of 30 April 2008 (Court Book tab 32), of Mr Slater of 30 April 2008 (Court Book tab 33) and of Mr Hawkins of 30 April 2008 (Court Book tab 31); and see Barrett v Ecco Personnel Pty Ltd [1998] NSWCA 30; Wright v Ryan [2005] NSWCA 368; and Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd (2004) 207 ALR 136. These cases establish for the purpose of the common law of Australia that a solicitation in the context of a case such as the present may include the situation where the first approach comes from the prospective client. 93 As the plaintiff has contended, in addition to the matters suggested by the Court of Appeal in Patterson v BTR Engineering, referred to above, in relation to the threat of dissipation, in documents subpoenaed by the plaintiff and produced by PJT the following has emerged: a) In an email from the second defendant Mr Slater to Debra Lighezzolo (the sole director of PJT) on 26 March 2008 in relation to the transfer of Roxi shares to PJT he states: " Nows [sic] the time to do a runner with the shares!!!! "; and

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ii. apropos the costs of the second-fifth defendants, of $100,000. 114 It is never easy to define the amounts to be paid by way of security for costs and it is necessary for the Court to always factor in a real reduction for exigencies. 115 It is also always to be recalled that the Court may further adjust orders for security depending upon special circumstances being shown to justify a movement away the anterior previous regime. The issue concerning whether or not the plaintiff's claim to the further freezing orders should be conditioned upon the requirement to furnish security to underpin the usual undertaking as to damages 116 The defendants have contended that in the circumstance where the plaintiff has no assets in Australia it is appropriate to require the furnishing of security to underpin the usual undertaking is to damages: the amount sought being $30,000,000. Apparently it is suggested that this very large sum is appropriate by reference to the value of the further assets sought to be frozen by the additional freezing orders. Notably the defendants have never before sought an order underpinning the usual undertaking as to damages. 117 There is substance in the defendant's contention that, even at this very advanced stage of this litigation, an amount of security to underpin the usual undertaking as to damages should be paid into court. Whilst it is extraordinarily difficult to fix the lump sum which may be appropriate, the defendants' contention as to the amount is, in the circumstances of the litigation, quite ridiculous. 118 In my view the appropriate sum to be so fixed is $50,000 which is to embrace that form of security apropos all defendants. Had the issue been raised much earlier in the litigation and been litigated on the evidence, the award of this form of security may have been considerably more. Case management application 119 Mr Lindsay QC applied for the Court to consider as a matter of case management the making of an order that there should not be any further notices of motion filed by the plaintiff without the prior leave of the court. There is no basis for any such order to be made by the Court and the application is rejected. Short minutes of order 120 Parties are to bring in short minutes of order. Costs of the motions will be reserved to be treated with following the final hearing. Note: When this judgment was first published a confidentiality regime was put into place limiting access in the first instance to the parties and to their legal advisors. That order was revoked on 28 May 2008. Note 2: The following sentence has replaced certain words in the original sentence in paragraph 6 of the judgment: In many ways the transformation of the anterior overriding purpose rules of the Court into statutory form has given a new lease of life to the Court's discretionary case management powers, where, over past decades, case management procedures were alternately hailed or derided. Further issue reserved for decision

The defendants' motion seeking an order that the plaintiff advise the defendants of the names and addresses of its past and current shareholders was not dealt with in the judgment.
There is no substance to that application in the circumstances where relevant further security for costs order have been made and where orders have been made for the plaintiff to furnish security to underpin the usual undertaking as to damages. ****************

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Judgment (206 paragraphs)

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Cases Cited (12)