Michael Wilson and Partners Limited v Robert Colin Nicholls & Ors

LEGISLATION CITED : Civil Procedure Act 2005 (NSW),

Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd & Ors [2009] NSWCA 12 Bellevarde Constructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228 Boyes v Colins [2000] WASCA 344; 23 WAR 123 Glover v Australian Ultra Concrete Floors Pty Limited [2003] NSWCA 80 Hooker v Gilling [2007] NSWCA 99 CASES CITED : Khan v Armaguard Ltd [1994] 1 WLR 1204 Mercer v Chief Constable of the Lancashire Constabulary [1991] 1 WLR 367 Michael Wilson & Partners v Robert Colin Nicholls & Ors [2009] NSWSC 548 Nowlan v Marson Transport Pty Limited [2001] NSWCA 346 Sutton v Erect Safe Scaffolding (Aust) Pty Ltd [2006] NSWCA 265 White v Overland [2001] FCA 1333

Michael Wilson & Partners (Plaintiff) Robert Colin Nicholls (First Defendant) David Ross Slater (Second Defendant) PARTIES : Temujin Services Limited (Third Defendant) Temujin International Limited (Fourth Defendant) Temujin International FZE (Fifth Defendant) Shaikenov & Partners, LLP (Sixth Defendant) Scoulton Holdings Limited (Seventh Defendant)

Mr M Walton SC, Mr J Carney (Plaintiff) COUNSEL : Mr G McGrath, Mr A Fox (First Defendant) Mr G Lindsay SC, Mr A Fox, Mr S Adair (Second to Fifth Defendants)

SOLICITORS : Clayton Utz (Plaintiff) Henry Davis York (First to Fifth Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

Tuesday 14 July 2009 ex tempore Revised 15 July 2009

50151/06 Michael Wilson & Partners v Robert Colin Nicholls & Ors

JUDGMENT The state of these proceedings 1 The proceedings before the court involve many issues not commonly experienced even in complex commercial litigation. In opening the case Mr Walton SC leading counsel for the plaintiff contended that the case involved the dishonest and fraudulent conduct of the defendants and their colleague, Mr Emmott at the expense of the plaintiff, Michael Wilson and Partners, being a law firm incorporated in the British Virgin Islands and having a branch in Almaty, Kazakhstan. Mr Michael Wilson was said to be at the relevant times, a director and a principal of Michael Wilson Partners [MWP]. The plaintiff's case would be that in addition to the law services which it provided to its clients, MWP also provided services which an Australian law firm would not. Those services were said to be akin to those of a merchant bank. 2 In his opening Mr Walton submitted that there would be evidence that MWP was rewarded, not only in the fees which it had earned from its law services, but also because of the nature of the additional work it performed, often by a share in the equity of the eventual deal. The plaintiff's case would be that in this way, the rewards for the services which it provided were often greatly in excess of the rewards that an Australian law firm would expect in engaging in work for clients of a similar nature. 3 Mr Walton's opening address included the following:

Mr Nicholls, Mr Slater and Mr Emmott are all lawyers originally from Australia. Mr Nicholls was a partner of Freehills in this city and then was a member of the New South Wales Bar for a time, before he left for overseas. Mr Slater was a Victorian solicitor, who worked in private practice in Victoria and subsequently as an in house corporate counsel for Westpac. Mr Emmott was a partner of a law firm in London, before he moved to Kazakhstan. Each worked in Almaty, Kazakhstan as expatriate lawyers for MWP, relevantly at various times in 2005 except for Mr Slater, in 2006. Mr Emmott was also a director of MWP, to the knowledge of Nicholls and Slater. He took on the role of a partner of a law firm with Michael Wilson. Both Nicholls and Slater worked for him as well as for Wilson.

What happened was as follows. Kazakhstan is a little like Western Australia in that it is abundantly rich in mineral and oil and gas resources but lacks the capital to develop those resources. At the relevant times, many Kazakhstan assets were being transferred into structures which would facilitate Western investment in them. Your Honour will recall Kazakhstan was originally part of the Soviet Union and originally all of the assets were owned by the State.

Those assets were being transferred into structures which would facilitate western investment in them, in particular, through the raising of capital on the alternative investment market of the London Stock Exchange known as AIM. MWP acted in relation to such transactions. A particularly important part of its work was the conduct of due diligence to ensure that an asset could be sold and was being sold by its proper owner and the obtaining of relevant government consents which were essential prerequisites to foreign investment.

Mr Emmott occupied a position at MWP akin to that of a partner of a law firm. He had, however, we say by September 2005 become corrupt. Acting on an MWP file known as "Max 1" in 2005; first, he had received as a secret commission through his family trust Eagle Point Investments Limited or EPIL, 14 and three-quarter million shares issued on 5 August 2005 in a company Max Petroleum. That represented about 5% of that company's issued capital upon its listing on the AIM in October 2005; and secondly, he expected to receive as an additional secret commission a significant sum of money. He admits this was eventually 250,000 US dollars, but the evidence is that his family trust received in November 2005 a total of 900,000 US dollars. These matters arose by reason of his acting for clients on behalf of MWP. They were, we say, secret commissions never divulged to Mr Wilson or to anyone else at MWP.

This wasn't the first such incident either. In January 2005 Mr Emmott had secretly deposited two payments of 45,000 Euros each into his personal bank account. These amounts he had received for providing consulting services to GEPA International SA, a company associated with Mr Valesco-Gomez, a client of MWP. 4 Mr Walton further contended as follows:

We will be pressing that the defendants should personally account for the profits they have made at the expense of MWP. Now in that accounting we are only seeking the profits that the defendants made which is distinct from the kind of relief that will no doubt be sought against Mr Emmott personally in the United Kingdom. Also part of the relief that we are seeking is a constructive trust over the business of the fourth defendant, Temujin International Limited.

As I say these matters that I've just described to your Honour are all relevant background to what then happened. In the nine months from September 2005 until the end of 2006, the three men Emmott, Nicholls and Slater acted in concert to establish a new business, which would gain for them similar benefits to those that Emmott had been corruptly securing for himself from deals and transactions that MWP was retained on and from MWP's own clients. 5 Finally and as part of the plaintiffs opening address Mr Walton submitted as follows:

Your Honour as I said in commencing this, the plaintiff's case will largely depend upon the documents speaking for themselves. There is a clear paper trail and there is a clear inference to be drawn from that paper trail of which I've just given your Honour a taste, that the defendants set about in the second half of 2005 to set up a business of their own while still at MWP, using the resources of MWP, using the contacts of MWP, using the documents of MWP and in effect channelling client documents from MWP to Mr Slater which he immediately set about using for the business of Temujin, thereby giving Temujin an enormous leg up.

This was a concerted endeavour, planned we say as early as September 2005 in the business proposal, plotted throughout October and November and culminating in the meeting on 20 December where despite the terms of the cooperation agreement as excluding Mr Nicholls and Mr Emmott, plainly involved them in the business, plainly involved them in the funding of the business and plainly involved them in working towards the success of that business. And they then set about secretly channelling as much work of MWP as they could towards Temujin, in breach of both contractual and equitable duties.

The detailed cases pleaded in the commercial list statement I've just alluded to it and your Honour will hear a deal of evidence which I've only touched upon in opening about the actual transactions which occurred as a result of this conduct. 6 It is inappropriate for present purposes to do otherwise than to observe that the plaintiff's case is that which has been pleaded through the several causes of action upon which it relies. 7 In an earlier judgment given on 16 June 2009 [Michael Wilson & Partners v Robert Colin Nicholls & Ors [2009] NSWSC 548] I highlighted another unusual parameter. This was that the plaintiff and Mr Emmott had been heavily involved in an arbitration heard in the United Kingdom commencing on 10 November 2008 and apparently concluding in late February 2009 [a twenty day arbitration]. The court has been informed today that on 13 July 2009 London time the arbitrators declined to allow the plaintiff additional time to make oral submissions and announced that they would proceed as quickly as practicable to publish an award. Although Mr Emmott is not a party to the present proceedings, he is apparently currently listed on the defendants' side of the record as proposed to give evidence: apparently an affidavit of his has been served on the plaintiffs. The estimate of time given for the hearing 8 The proceedings were fixed for six weeks. On my own assessment, such an estimate would always have been ludicrous. Whether or not that assessment be fair, the manner in which the plaintiff has approached the litigation calls for strong comment from the Court. 9 Whilst it is apparently the case that, bearing in mind the extraordinary number of documents to be considered, an electronic court book has been utilised by the parties as a case management tool, the plaintiff has from the commencement of the final hearing adopted the procedure of producing in the courtroom extensive folders upon which it has sought to rely as part of its documentary case. It began on 23 June 2009 with some thirteen volumes in twelve folders. Then on 29 June 2009, it tended the electronic court book. The position with respect to the evidence given by Mr Wilson 10 Mr Wilson had made a number of affidavits. Early during the hearing, the plaintiff determined to jettison reliance upon these affidavits and instead to call Mr Wilson to give viva voce evidence. This took place over a three-day period [the first and second days on 29 and 30 June 2009, and the final day on 13 July 2009]. 11 The Court had made clear that following completion of Mr Wilson's oral evidence the defendants would have an entitlement to regroup in order to put themselves in a position to cross-examine Mr Wilson. The Court did not sit between Wednesday 1 July 2009 until 13 July 2009, hence allowing the defendants a fair amount of leeway in which to absorb Mr Wilson's evidence as given up to that point in time. 12 The evidence given by Mr Wilson on 13 July 2009 centered on an explanation of certain transactional details. 13 At the commencement of the evidence given by Mr Wilson on 13 July the plaintiffs tended eighteen or thereabouts further folders. Mr Wilson gave evidence until shortly after the luncheon adjournment on that day, being asked questions only in relation to certain of the very extensive materials included in the further folders. Trolley load litigation 14 From the commencement of the proceedings the defendants have complained about the approach taken by the plaintiff in at short notice, and sometimes without notice at all, producing at the bar table, and seeking to tender, vast quantities of documents generally in folder form. The defendants' complaint has been that it has not been possible for the defendants, on the run so to speak, to absorb this material. 15 The plaintiff's retort has been that the materials which have been served up in this way are simply iterations of documents long discovered and apparently present in the electronic court book. The plaintiff's proposition has been that the materials which have flooded the courtroom so often and at such short notice are no more and no less than the result of the plaintiff's endeavours to make more user-friendly, the materials for consideration during the hearing. Indeed Mr Walton has from time to time made clear that what the plaintiffs have been about is paring down from the voluminous materials already before the court. 16 Regardless of these explanations furnished by the plaintiff, to my mind the plaintiff has exhibited what I call "trolley load litigation". By this term I refer to the practice of a party in litigation with little or no notice, to flood its opponent with materials and then to insist that whilst its opponent is entitled to a period in which to endeavour to absorb the new materials, that period should be minuscule. 17 In Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd & Ors [2009] NSWCA 12, Allsop P made a number of pertinent observations concerning the responsibility of the parties, through their legal representatives, to assist the court to further the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in dispute and to participate in the processes of the court to that end:

160 Giving due weight to the realities of life in running a long and complex trial and the vicissitudes of the appreciation of the evidence given, it cannot be emphasised too strongly that it is the responsibility of the parties, through their legal representatives, to exercise a degree of co-operation to express the issues for trial before and during the trial. Such co-operation can now be taken as an essential aspect of modern civil procedure in the running of any civil litigation, including hard-fought commercial cases. The need for clarity, precision and openness as part of this co-operation has been emphasised in the context of ambush or surprise: White v Overland [2001] FCA 1333 at [4], expressly approved in Nowlan v Marson Transport Pty Limited [2001] NSWCA 346; 53 NSWLR 116 (Heydon JA, with whom Mason P and Young CJ in Eq agreed); Glover v Australian Ultra Concrete Floors Pty Limited [2003] NSWCA 80 at [59]-[60] (Ipp JA, with whom Sheller and Hodgson JJA agreed); Sutton v Erect Safe Scaffolding (Aust) Pty Ltd [2006] NSWCA 265 at [4] (Bryson JA with whom Basten JA agreed); and Hooker v Gilling [2007] NSWCA 99 at [52] (McColl JA, with whom Ipp and Basten JJA agreed).

161 The need for clarity, precision and openness in the conduct of litigation and the responsibility of parties and their legal representatives therefore flows most clearly from the statutory duty of a party and his or her legal representatives in legal proceedings to assist the court to further the overriding purpose to facilitate the just, quick and cheap resolution of the real issues in dispute and to participate in the processes of the Court to that end: see Civil Procedure Act 2005 (NSW), 56. It may be that the provision no more than restates the proper approach of the modern law of procedure reflected in cases such as Nowlan v Marson Transport . It places the proper approach, however, on a firm statutory foundation. These principles can be seen to be reflected in the longstanding rules of pleading requiring any matter that may cause surprise to be pleaded.

162 An enhanced requirement of clarity and disclosure in modern civil litigation can be seen in Australia and England from at least the early 1990s: see the discussion of the "cards on the table" approach by Ipp J (as his Honour then was) in Boyes v Colins [2000] WASCA 344; 23 WAR 123 (with whom Pidgeon and Wallwork JJ agreed), citing Mercer v Chief Constable of the Lancashire Constabulary [1991] 1 WLR 367 and Khan v Armaguard Ltd [1994] 1 WLR 1204. Indeed, from the late 1970s and early 1980s, the Commercial List of this Court (in which List this hearing took place) has been sought to be run on the strict basis of the clear and full enunciation of issues for trial, in a way that has always demanded the fullest co-operation among parties and legal practitioners to delineate and illuminate the real issues in dispute.

163 The clear statutory duty to assist the Court, and, in a practical way, to co-operate to bring forward the real issues in dispute, encompasses the requirement to be clear and precise in the illumination of the issues for trial. The occasion for this is not merely pleading (using the word broadly to encompass the modern commercial list summons and defence), it extends to all aspects of the engagement in the Court's processes. For similar responsibilities in the conduct of references, see Bellevarde Constructions Pty Limited v CPC Energy Pty Limited [2008] NSWCA 228 at [55]-[56].

164 This does not deny the possibility, as occurs in real life in litigation, that issues will develop. Litigation is a dynamic human activity. Changes in how a case is put can be expected. This often occurs in large commercial cases. Such change and the potential for it makes it, however, all the more important that legal practitioners and parties ensure that the clear enunciation of issues keeps pace with that growth and change. This responsibility will encompass parties and their legal representatives making clear what is being put and also what they regard as not legitimately part of the controversy, if it is apparent to them that an issue not pleaded or presented is being relied on. 18 To my mind the plaintiff has infringed these principles in its approach to the presentation of its case up to this point in time. Any seasoned commercial list practitioner would know and understand that its opponent cannot be expected short notice and on the run to place itself in a position to answer its opponent's case. 19 In the 16 June 2009 judgment I observed as follows:

Naturally as a basic tenet of the administration of Justice, the Court must pay particular regard to ensuring that the parties to litigation receive a fair trial. And of course each circumstance must be carefully examined in order to determine whether or not, for whatever reason, the parameters underpinning the rights of the party to a fair trial may have been put in jeopardy. Clearly in any circumstances where that fundamental right is not assured, the Court has a bevy of powers which it may exercise, either to stay the proceedings entirely or to dismiss them or otherwise. 20 Those observations remain pervasive. 21 These issues of case management of major litigation presently being heard on a final basis raise questions of fine judgment. On the one hand the Court must avoid the circumstance in which a defendant without proper ground seeks to put off the hearing into the dim distant future. On the other hand the Court administers justice and must ensure that there is a 'fair' playing field. Trolley load litigation is to be discouraged. But when it has clearly been deployed and has the capacity to wrong foot the opposing party, the court utilises its many powers to right the imbalance. That is appropriate presently. The defendant's costs of and occasioned by the time be taken in and absorbing the latest tranche of eighteen or thereabout folders are to be paid by the plaintiff on an indemnity basis. 22 I turn next to deal with the further matters the subject of debate today, and most particularly with the question of the precise further dates when the proceedings will be continued. 23 Earlier in the morning session today, with certain of the clients of the respective parties in court for the purpose, I made a number of observations calculated to examine the possibilities of a court ordered mediation taking place, the parties having already ascertained the availability the Hon Keith Mason QC, AC. I indicated that I proposed to order such a mediation and that the parties were to provide the usual documentation to ensure that such an order came forward. I indicated that the mediation would take place on the earliest opportunity when Mr Mason had indicated he would be available; namely Tuesday, 21 July.

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