Nauru Phosphate Royalties Trust v Business Australia Capital Mortgage Andrew Hugh Jenner Wily v Nauru Phosphate Royalties Trust

The underlying issues 14 As I have said, one of the obligations that the Deed imposed on the Nauru parties was an obligation to pay the "Reserve Sum". That sum was paid as required into the account controlled by Messers Atkins and Nikolaidis. 15 The Reserve Sum was to be held to meet the claims of various "Priority Creditors" defined in the deed. Those Priority Creditors include Ernst & Young (EY). The Deed set out Mr Wily's estimate of the amount owed to each Priority Creditor. In the case of EY, the estimate was in round figures $560,000. By clause 4.1 of the Deed, Mr Wily was required in effect to negotiate with the Priority Creditors and to seek to procure from them releases, in an agreed form, in exchange for the negotiated amount of their claim. As negotiations with each Priority Creditor were finalised, Messers Atkins and Nikolaidis were to pay out the negotiated sum from the controlled account in exchange for an executed Deed of Release. 16 If all Priority Creditor claims were resolved by 30 June 2007, the balance (if any) of the Reserve Sum was to be paid to the BA parties and I think another company. However if all Priority Creditor releases - i.e. releases of all Priority Creditor Claims - were not procured by 30 June 2007 any balance of the Reserve Sum was to be paid to NPRT. 17 Mr Wily obtained releases from all priority creditors except EY. Thus NPRT claims to be entitled to the balance of the Reserve Sum. Mr Wily and the BA parties say that the reason why no resolution could be reached with EY was that the Nauru parties, in breach of their expressed and implied obligations under the Deed, withheld information from Mr Wily and failed to give him reasonable assistance to enable him to negotiate a compromise with EY. Thus, the BA parties claim to be entitled to damages representing in effect the lost opportunity (or, as they would have, certainty) of receiving the balance of the Reserve Sum.

The evidence 18 Against that background Mr Nikolaidis said that he had discussions with Mr Clodumar in February 2007 and May 2008 to the following effect: 11. Shortly after the matter was settled (to the best of my recollection in January or February 2007) I had a telephone discussion with Mr Clodumar in which he said to me words to the following effect: KC: "I have just learned that the Nauruan companies have settled this matter for $8.5 million."

KC: "I am very concerned as to how this matter got out of control to this extent. On top of which we have paid about $1.5 million in legal fees."

LN: "You know, Kinza we have tried to settle this matter from as early as May 2006."

KC: "The Nauruan people have been treated very badly at the hands of their lawyers." LN: " You will need to take that up at a Parliamentary level."

KC: "I intend doing so." 12. In or about May 2008, I had a further discussion with Kinza Clodumar in which words to the following effect were spoken:

KC: "Why is the litigation still running between the BA Group and Nauru."

LN: "The issues are quite complex but in short the agreement we had with Nauru was that Nauru was to provide all necessary assistances to the liquidator in finalising monies that are claimed by certain Nauruan creditors. The issue that we have is that Ernst & Young claim to be a creditor of Nauru for $560,000.00. The Liquidator has a concern about the validity of the Ernst & Young debt and has requested Nauru under the terms of the Deed to provide him with assistance in dealing with it. They provided no assistance or documents. As a result, Mr Wily could not finalise the issue with the Ernst & Young debt within the timeframe provided in the Deed Nauru claims that we breached the Deed because we had not finalised our release with Ernst & Young by 30 June 2007 and we say that Nauru breached the Deed because Nauru failed to provide all necessary assistance and documents to enable this process to occur."

KC: "Ernst & Young is owed no money. My memory is that they tried to rob us. Why don't you take the Ernst & Young matter to Court and let the Court decide?" LN: "That was the intention but we were not in a position to do so unless we had all the documents available to us. Nauru refused to provide us with all the documents and as a result we couldn't take those steps." KC: "This is going to be another fight that is going to cost the Nauruan people millions of dollars in legal costs."

LN: "It is will certainly be another fight and it is certainly going to be expensive."

LN: "I will be in Melbourne for a few days in mid May, I will give you a call and can discuss this over lunch."

13. In mid May 2008 I met Mr Clodumar for lunch for the purpose of discussing the Nauruan matters with him. He said to me words to the following effect: KC: "Can you get me a discussion paper and copies of any relevant documents that outline the issues and the history. I am going to Nauru next week and I will take this matter up with the President and I will endeavour to have this matter raised in Parliament."

19 At some time in June 2008, Mr Nikolaidis sent Mr Clodumar a draft of a discussion paper. That draft is not in evidence. Mr Nikolaidis said that he then had a further conversation with Mr Clodumar in late 2008, to the following effect: 14. As a result of work pressures I did not get the discussion paper to Mr Clodumar before he left for Nauru. Upon his return in late June Mr Clodumar telephoned me and said to me words to the following effect: KC: "I've got your discussion paper. There is a friend of mine coming out from Nauru next week, he is the uncle of the President he is also my personal solicitor and I've known him for many years. I am sure he doesn't know the full history of this. The people I have spoken to in Nauru don't know the history. When he comes here I will try to organise a lunch. I need you to go into more detail in the discussion paper in relation to the history and the issues currently in dispute and if you think relevant send me a copy of any documents so I can fully understand what the current position is." 20 The "friend" referred to, the uncle of the President of the Republic of Nauru, was Mr Keke. 21 Mr Nikolaidis prepared an amended discussion paper, entitled "Bullet Points for Discussion" (I shall refer to it as the discussion paper ) and sent it to Mr Coldumar on 1 July 2008. That document reads as follows (I adopt the spelling in the original); History · In 2004 the Nauruans companies struck an agreement with the BA companies to settle their respective disputes by payment of $6.5 million by the Nauruan entities and signed Heads of Agreement. · As part of the settlement, certain Creditors were required to be paid out from the $6.5 million of which Ernst & Young was one. ('the Priority Creditors'). · By 2005 the BA companies have not received a payment from the Nauruan companies in accordance with the Agreement. The Liquidator of the BA companies commenced proceedings to recover the $6.5 plus interest as provided for in the Heads of Agreement. · In May 2006 the Liquidator sought an informal conference to try and negotiate a cost effective settlement with the Nauruan companies without incurring the costs of litigation. At the conference was Paul Bannan, a member of the Nauruan Government, the Solicitors Henry Davis York (HDY) and their Barrister. The conference was held at the office of Henry Davis York. The Liquidator was prepared to settle to $3.5 million on walk away arrangement. The offer was rejected. · In June 2006 in a further attempt to try and resolve the matter without recourse to very expensive litigation, the matter is referred back to the former mediator, Sir Lawrence Street. At that stage the Liquidator was prepared to settle the matter on a walk away basis for $4 million, costs and expenses having been substantially increased by this time. Again the settlement offer was required by HDY on behalf of the Nauruans. · The matter then proceeded to be litigated and substantial costs were incurred. At the very time the hearing commenced the settlement was struck for payment by the Nauruans for $8.5 million and the matter was settled. · This matter could have been settled for $5 million less than it was settled for in May some 5 months earlier. · Both parties including the Nauruan Government have spent well in excess of $1 million running this litigation for what purpose? It could have been settled for $3.5 million in May a saving to the Nauruans of $6 million plus. The Present Issue · A Deed of Settlement and Release was entered on the 16 October 2007 providing for the Nauruans to pay $8.5 million as a settlement of which $6.5 million went straight to the BA companies and to $2 million set aside to pay the Priority Creditors which are referred to in above with the balance of the money after payment of Priority Creditors to be paid to the BA company. · It was a fundamental term of the Deed that the Nauruan companies would give all reasonable assistance to the liquidator of the BA company in determining what was owed to these Priority Creditors. · All of the Priority Creditors undertook work for the Nauruan companies. · There were 11 Priority Creditors in all and the only Priority Creditor of which there was a significant issue was Ernst & Young. · The Nauruan lawyers, HDY informed us from the outset there was a real issue with the Ernst & Young fees. The Nauruan's previous lawyer, Stewart Levitt had also informed us that there was real issue in relation to the fees claimed by Ernst & Young. The liquidator was required under the terms of the Deed to determine what was owed to Ernst & Young and arranged for them to be paid out of the sum of $2 million held. Because Ernst & Young were engaged by the Nauruan companies and in fact did work for the Nauruan companies, the Nauruan companies were required to provide to the liquidator all assistance in dealing with their claim for fees. No assistance was provided. In fact, HDY refused to allow us access to the various documents which were necessary to determine what Ernst & Young were properly owed. · As a result of the refusal by HDY to allow the liquidator to access the documents, he could not determine the Ernst & Young debt within the time limited by the Deed. As a result of which a dispute has now arisen and that dispute goes directly to the conduct of the Nauruans and HDY in not providing the necessary assistance. · We are now back having a fight with the Nauruans because the Nauruan entities failed to honour the terms and conditions of a settlement arrangement whereby the Nauruan entities had failed or refused to provide the liquidator with all reasonable assistance to settle a very significant claim being made by Ernst & Young for fees. · There appears to be no conceivable reason why the Nauruan entities would not provide the Liquidator with all reasonable assistance because it was the Nauruan entities that disputed Ernst & Young's entitlement to be paid any fees and it is the Nauruan entities that claim that Ernst & Young have substantially overcharged them in relation to fees. · An amount of $2 million from the settlement sum was set aside to pay Priority Creditors. There are 11 Priority Creditors in total, 10 of them being resolved. The outstanding one is Ernst & Young which is by far the most significant. · Why are HDY again being instrumental in trying to ramp up litigation between the parties. What benefit will flow to the Nauruan entities? What the liquidator is trying to do is establish that Ernst & Young are entitled to no fees or substantially reduce their claim for fees consistent with the Nauruan's position from Day 1. · It is clear from our investigations and enquiries that Ernst & Young's Bills to Nauru are largely the work of fiction. They do not in any way reflect the time actually spent on the tasks but more importantly it seems that the Nauruan Government entered into an arrangement with Ernst & Young which was on a success basis only and in the circumstances of the Appointment of Receivers no fees are payable to Ernst & Young. · Why are Henry Davis York trying to protect Ernst & Young at the expense of Nauru? · Do Nauru know that one of HDY largest clients are Ernst & Young. Ernst & Young have retained HDY in one of the biggest pieces of litigation run in Australia that being the New Cap Receivership. This is the Receivership of a large international re-insurance company. · It seems to us that as a result of the advice the Nauruans have received from Henry Davis York, the Nauruans have paid out at least $6 million more than they otherwise needed to pay out to resolve this matter. $5 million in relation to an additional settlement and at least (probably much more). $1 million in legal costs not taking into account the internal and administrative costs of the Nauruan entities. · Can we try and resolve this last dispute without the continued involvement of HDY. There are methods and means to resolve this matter, which can benefit the Nauruan Government without incurring the ongoing costs of HDY.

22 Mr Nikolaidis says that he became aware on 2 July 2008 that Mr Keke was not only the uncle of the President of Nauru but also the chairman of NPRT. He says that when he became aware of this fact he had a discussion with Mr Clodumar to the following effect: 20. Following the reading of those emails I had a discussion with Mr Clodumar and words were spoken to the following effect:

LN: "I have read the emails that you have sent to me. Is Leo Keki, the Uncle of President of Nauru."

LN: "Is he also the Chairman of the Nauru Phosphate Royalties Trust."

LN: "If that is the case, I can't attend the lunch. The lunch can still proceed with Mr Wily in attendance. He knows the history of the matter as well as I do. Keep me informed about the arrangements for the lunch. Mr Wily can be available on short notice." 23 Mr Miller of Queen's Counsel, who appeared for Mr Nikolaidis in the hearing before me, submitted that Mr Nikolaidis' intention was to make a representation through Mr Clodumar to the Government of Nauru: "a permissible course of action, which is really to influence at a democratic level the Parliament of Nauru." (T22.25; and compare T18.20). Mr Miller submitted further that this was "a case where the confluence of democracy and the freedom to make representations at a parliamentary level and the administration of justice must be balanced." (T22.35).

24 I do not accept Mr Miller's characterization of, or explanation for, Mr Nikolaidis' actions. In cross-examination Mr Nikolaidis conceded the following: (1) He had understood that Mr Clodumar was both himself a beneficiary of NPRT and a representative of a number of other beneficiaries (T5.45). (2) In that capacity Mr Clodumar had influence and a concern over the operation of NPRT (T 6.1) (3) He knew that Mr Clodumar would use the discussion paper to take the matter up with the President of Nauru (T7.10). (4) He believed that the President would "have some degree of influence down stream" (in context clearly a reference to NPRT) but he did not know what influence the President might have (T7.40). (5) He thought that if the proposed lunch with Messrs Clodumar, Keke and Wily went ahead, one of the matters for discussion would have been the current proceedings (T9.30). (6) He was aware that Mr Keke "had obviously an open door to the President of Nauru" (T9.50-10.1). (7) He wanted to explore ways to bring the litigation to an end; he thought that Mr Keke could assist in this. I set out verbatim Mr Nikolaidis' evidence at T10.35-45: Q. And you assumed, did you not, that the uncle of the president had some degree of influence over the president. That was your understanding? A. I'm not sure - you say influence, I could say access to rather than influence.

Q. You had no difficulty understanding what his Honour asked you? A. Yes.

Q. It was certainly your understanding that the uncle of the president had some influence over his nephew, the president? A. Ultimately that is a possibility, yes. (8) He expected Mr Clodumar to convey to Mr Keke "such parts [of the discussion paper] as Mr Clodumar considered appropriate" and that Mr Clodumar would utilise the material contained in that document for the purpose of his discussions. (T11.40-45). (9) The parts of the discussion paper that referred to the relationship between HDY and EY were "intended to inform Mr Clodumar, who...in turn would inform the beneficiaries." (T14.30); His intention was "to make that information available to the relevant parties, and what they did with that information was a matter for them." (T14.35) (10) He expected that the material would go through Mr Clodumar - "a major beneficiary" - to the "large body of beneficiaries" whom Mr Clodumar represented and through Mr Keke to the President. I set out verbatim Mr Nikolaidis' evidence at T15.15-21: A. I contemplated through the conduit of the nephew, the uncle of the president of Nauru, and ultimately conduit to the president of Nauru, yes.

Q. And likewise through the conduit of Mr Clodumar and other beneficiaries, did you not? A. Well, I believed Mr Clodumar would use that information through those conduits.

(11) Mr Nikolaidis agreed that the conveying of that information to those people would sow discord between NPRT and the lawyers" "if that is the way [those people] interpreted that information." Q. And the only purpose of conveying that information through the conduits of the NPRT was to sow discord between NPRT and its lawyers, wasn't it? A. If that's the way they interpreted that information, yes. (12) His intention was to convey to NPRT and those associated with it the desirability of terminating the retainer of HDY and compromising the proceedings (T15.34-44).

(13) He did not consider that what he had done was in any way incorrect (T16.50). (14) He agreed, after some evasion, that unless restrained he would feel free to continue to give material to Mr Clodumar. I set out verbatim Mr Nikolaidis' evidence at T17.1-47; Q. If you are not restrained by the court from doing so would you consider yourself entitled to repeat the same actions again? A. I would not knowingly provide a document to another practitioner's client. The document that I provided was a document to Mr Clodumar for his assistance and use. It was always my belief that Mr Clodumar would use the information that I provided to him for the purposes of having raised at parliamentary level the issues that caused him a concern in relation to this current litigation and in relation to the previous BA litigation in the Federal Court. It was my belief that Mr Clodumar would endeavour to have these issues raised in parliament through the president of Nauru for the purposes of pursuing a parliamentary inquiry into the matter generally. And it was my belief that Mr Clodumar would use his best endeavours to try and bring about a commercial and a cost effective resolution of the current litigation.

Q. Using your document for that purpose? A. Using the information contained in the document.

Q. May I take it, Mr Nikolaidis, that the answer to the question I asked you, namely, would you consider yourself free or entitled to repeat what you did, the answer must be 'yes'? A. No. I would not generate a document specifically and directly for the purposes of that document being passed, knowingly being passed on to another practitioner's client.

Q. If I could just stop you there. You would not feel restrained or prevented from drafting a document for the purpose of providing it to, say, Mr Clodumar, for whatever purpose he wanted to use it for. I mean a document of the kind that you actually drafted? A. No, I wouldn't, I don't believe the current undertakings I gave to the court in any way effect my dealings with Mr Clodumar. I don't believe there is any ethical reason why I cannot continue to talk to Mr Clodumar and provide to him documents, subject to the usual confidentiality issues, provide to him material that he may use for the purposes of raising these issues in the Nauruan parliament.

Q. Or to provide it to members of the trustees of NPRT? A. I would not knowingly give Mr Clodumar any document which I believed he would pass on to another practitioner's client. As I said earlier, I didn't - firstly, I had no knowledge that Mr Keke was a trustee, or I was meeting a person other than the uncle of the president of Nauru. I had no knowledge that he was the trustee of the trust. I had no knowledge that Mr Clodumar had passed that information on. Analysis 25 I should say at the outset that I do not accept Mr Nikolaidis' evidence in the last answer that I have set out at sub-para (14) above, that he would not give Mr Clodumar any document which Mr Nikolaidis believed Mr Clodumar would pass on to another practitioner's client. In my view, considering Mr Nikolaidis' evidence as a whole, he hoped, if he did not believe - and certainly intended - that Mr Clodumar would do precisely that with the discussion paper. Nor do I accept what may be implicit in the penultimate answer, namely that Mr Nikolaidis' intention was limited to giving Mr Clodumar material to be used in the Parliament of Nauru. 26 In my view it is clear from the whole of Mr Nikoladis' evidence that his intention was that the discussion paper, or at least the allegations in it, would go to those who had influence over NPRT, with a view to influencing NPRT and the other Nauru parties to terminate the retainer of HDY and compromise the current proceedings. 27 In this context, I refer to Mr Nikolaidis' evidence set out at sub-paras (11) and (12) above. I do not understand what purpose there was to the document other than to cause NPRT to mistrust both the advice it was getting and the motives of those who gave it that advice, and to cause NPRT to terminate HDY's retainer and negotiate a compromise. 28 Two points should be noted. The first is that I do not accept Mr Miller's submission that Mr Nikolaidis' evidence was frank and forthright, or truthful and frank. On the contrary, I thought that Mr Nikolaidis gave his evidence in a manner characterised by evasion and that he sought to conceal his motives acting the way he had done, under a veneer of respectability. I think indeed the way Mr Nikolaidis gave evidence confirms that he was well aware of the questionable nature of his activities. 29 The second point is that Mr Miller made no attempt to support the allegations made against HDY in the discussion paper, nor was there any foundation for them in the evidence to which I was referred. 30 Mr Forster of Senior Counsel, who appeared for the Nauru parties, characterized those allegations as scandalous. I agree. 31 However, I am not satisfied that Mr Nikolaidis did in fact communicate directly with any representative or officer of the Nauru parties. Thus the Nauru parties are not entitled to relief in the terms sought. That does not mean that no relief should be granted if on the material available some other relief is appropriate. 32 Mr Forster relied on the decision of the Court of Appeal in Harkianakis v Skalkos (1997) NSWLR 42. That was a case of criminal contempt. The contempt was constituted by the publication in a Greek language newspaper of articles calculated to put pressure on the plaintiff to discontinue his defamation case against the defendant. Mason P (with whom Beazley JA agreed) said at 32 that the law was concerned "to protect from improper interference the litigant's freedom to chose whether or not to initiate, continue or discontinue legal proceedings." 33 The facts before me are different; and no application has been made to punish Mr Nikolaidis for contempt of court. Nonetheless, I think, the principle set out by Mason P is relevant by analogy in this case. The Nauru parties are entitled to choose freely whether to continue with these proceedings or whether to negotiate settlement negotiations. They are entitled to take advice on the strength of their case and the alternatives open to them. An attempt to drive a wedge between the Nauru parties and their legal advisers may well diminish their confidence in the quality of the advice that they have received and may in the future receive. 34 A diminution in the perceived quality or independence of that advice may well impact on the reality of their freedom of choice. In this context, I repeat that Mr Miller made no attempt to support the factual truth of the allegations against HDY that Mr Nikolaidis made in the discussion paper. 35 In my view, Mr Nikolaidis' conduct in preparing the discussion paper and disseminating it with the intention that at least the contents should come to the attention of opposing party was underhanded and wrong. It was conduct calculated to induce in the Nauru parties suspicion of their legal advisers and of the advice that those advisers might give. It was conduct intended to persuade the Nauru parties, without having proper advice, to abandon their proceedings. In my view it was an interference in proceedings such to entitle of the Court to intervene. 36 Further in my view, the Court is entitled to intervene on the basis that Mr Nikolaidis is an officer of the Court. I have no doubt that reasonable legal practitioners could consider that Mr Nikolaidis' conduct as I have described it was reprehensible. Whether or not it amounts to professional misconduct within s497 of the Legal Profession Act 2004 is a matter for others. It is sufficient to say that the conduct in question is conduct in relation to proceedings before the Court that the Court should restrain. The Court should so act firstly to enable those proceedings to continue in a fair and even-handed way; and secondly to prevent one of its officers from engaging in conduct of which the Court disapproves. The conduct in question is an unwarrantable, unjustifiable inference in the affairs of an opposing party. It is conduct that the Court should not tolerate in its officers. 37 I am satisfied on the basis of Mr Nikolaidis's evidence (especially that referred at sub-paras (13) and (14) above) that there is a real risk that he will continue with the conduct in question unless restrained by an order or undertaking from doing so. I am not satisfied that a mere finding as to the impropriety of that conduct would be sufficient to deter him. 38 Mr Miller submitted that the Nauru parties had no standing to seek the relief in question. Indeed, he queried their motives in doing so, as he put it "primarily for the benefit of HDY." (T18.45). In my view the Nauru parties have a sufficient interest to entitle them to some form of relief; and in any event they are entitled to do as they have done: bring Mr Nikolaidis' conduct to the attention of the Court.

Conclusion 39 Accordingly, although I will hear the parties on the precise form of order to be made, I think it appropriate to order that the Sixth Defendant in proceedings 50096 of 2007 be restrained until the further order of the Court from, by himself, his servants, his agents or otherwise communicating or seeking or attempting to communicate whether directly or indirectly with the plaintiffs in connection with any matter that is the subject of proceedings 50096 or 50135 of 2007 except through the plaintiffs' solicitors Henry Davis York.

40 I will give Mr Nikolaidis an opportunity to consider the proposed form of order and to offer an undertaking if he so wishes 41 I note that the Sixth Defendant Mr Nikolaidis through Senior Counsel gives to the Court an undertaking that he will not by himself, his servants or agents or otherwise communicate or seek or attempt to communicate whether directly or indirectly with the plaintiffs in connection with any matter that is the subject of proceedings 50096 or 50135 of 2007 except through the Plaintiffs' Solicitors Henry Davis York. 42 The Nauru parties seek their costs of the application on the indemnity basis. Mr Miller accepts that costs should follow the event, but submits that they should be payable on the ordinary basis. In my view the nature of the application is such that to the extent that it is possible by an order for costs the plaintiffs should not be out of pocket by having been forced to bring it. I do not think that it is necessary in this context to analyse the matter in terms of "relevant delinquency (see Gaudron and Gummow JJ in Oshlack v Richmond River Council (1998) 193 CLR 72 at 85 [44]). Nonetheless, if that analysis is appropriate, I am satisfied that Mr Nikolaidis' conduct as I have found if amply meets that requirement. (1) I order the Sixth Defendant to pay the costs of the plaintiffs' Notice of Motion filed in court on 4 July 2008. I direct that those costs be assessed on the indemnity basis.

(2) I order that the Sixth Defendant's Notice of Motion filed on 14 July 2008 be dismissed with costs and again I direct that those costs be assessed on the indemnity basis.

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