Nicholls v Michael Wilson & Partners Limited

Mr G C Lindsay SC, Mr G McGrath, Mr A D B Fox (Appellant) COUNSEL: Mr G Walton SC (Respondent) Miss J E Richards for PJT Corporate Services

SOLICITORS: Henry Davis York (Appellants) Clayton Utz (Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT DATE OF DECISION: 11 December 2009

LOWER COURT MEDIUM NEUTRAL CITATION: Michael Wilson and Partners Limited v Robert Colin Nicholls & Ors [2009] NSWSC 1377

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2009/298561

Monday 1 February 2010 NICHOLLS v MICHAEL WILSON & PARTNERS LIMITED Judgment

1 ALLSOP P: On 11 December 2009, a judge of the Commercial List made orders in the primary action in this matter. The proceedings concerned serious allegations of impropriety and fraud in relation to the conduct of legal and business practice, principally in Kazakhstan. 2 Some of the parties are Australian nationals, and solicitors of this court and in courts in Australia and elsewhere. 3 The hearing was a long and hard-fought one. It is not an exaggeration to say that it was a bitter piece of litigation. It continues in this Court with a notice of appeal by the losing defendants and a notice of cross-appeal by the otherwise winning plaintiff. 4 The matter, having its origins in the Commercial List, will receive in this Court the deemed expedition that all Commercial List matters receive in this Court. There is a specialist list dealing with commercial matters in the Equity Division, that is the Commercial List, whose procedures and expedition are well-known. Matters do not slow down in the Court of Appeal. They are dealt with as a matter of presumption with the same expedition that matters are attended to in the Commercial List. 5 The reason I say that is because all that I henceforth say about the matter should be understood on the basis that the appeal will be expedited and case-managed by a judge of the Court of Appeal who will be, subject to any difficulty arising, one of the judges to sit on the appeal. 6 The matter came before me on 16 December 2009. I continued orders that had been previously made by the learned primary judge until today and ordered that the two primary personal defendants, Mr Robert Nicholls and Mr David Slater, file affidavits of means and circumstances by the middle of January.

7 The orders that I continued were in effect a stay of the judgment linked with a continuation of freezing orders that had been made for some time at first instance.

8 I emphasised in December that I expected full and frank disclosure of the financial positions of the parties, Mr Nicholls and Mr Slater. 9 Those affidavits have been filed. 10 Also on 16 December, I made it clear that I would permit cross-examination upon those affidavits if that was deemed appropriate. Notice to attend for cross-examination was given to Mr Slater and Mr Nicholls through the solicitors on the record. Both gentlemen attended court today pursuant to those notices. Their affidavits were read, but no party wished to cross-examine either gentleman. 11 It was submitted by Mr Walton SC for the respondent that the affidavits were sufficiently inadequate on their face to allow the conclusion that there had been no serious attempt to comply with the Court's order. 12 Mr Lindsay SC, on behalf of the appellants, including Mr Slater and Mr Nicholls, submitted that it was not open to put these submissions, bearing in mind the lack of cross-examination.

13 Mr Walton SC put the view strongly that the matter, on the face of the affidavits, was such as to permit him to put the submission. What I am about to say should not be taken in anyway as criticism of Mr Walton SC or those instructing him. My position is, however, that I am not persuaded that either or both Mr Slater or Mr Nicholls has set out to withhold information. There may be aspects of the affidavits which required explication upon a careful examination but I am not prepared to draw what would be a serious conclusion reflecting on the honesty of both men that they have deliberately attempted to withhold information from the Court in circumstances where the Court made it clear that full and frank disclosure was required.

14 It may well be that, subject to the non-current assets held by Mr Nicholls, Mr Slater and Temujin, there will be little money available if the appeal is unsuccessful. However I am not prepared at the moment to approach the matters before me on the basis that there has been a dereliction by either or both Mr Slater and Mr Nicholls in the setting out of their respective positions. 15 That being the case one must look at the applications that are before me. I can initially put to one side the questions of security for costs. The affidavits of Mr Slater and Mr Nicholls raise immediate questions about security for costs, in particular in relation to Mr Slater, he being, in effect, a foreign party. 16 Questions of the individual positions of Mr Slater and Mr Nicholls will need to be taken into account and the sense or lack of good sense of treating the companies in a different way to the individuals. If the appellate process is to continue in the most expeditious and sensible way it may or may not be appropriate to require the corporate plaintiffs to put up security and explain, if they do put up security, how that security has been marshalled. 17 In my experience, the dealing with different appellants (personal and corporate) on two tracks may cause difficulties in the litigation. Nevertheless, I think the security for costs applications should be dealt with at a later date, though not in the distant future by any means, when there is on foot an application which is anticipated, as I would understand it, from the appellants in relation to the cross-appeal by the respondent. In that context the question of the mutual security can be understood in their respective contexts together with any other relevant considerations such as possible claims on undertakings as to damages. 18 That leads me to the central question today and whether or not I should order that some or all of the judgment sum of some millions of dollars be paid by the appellants or whether there should be a stay of the money judgment in the context of the continuation of the freezing orders. The respondent does not seek full payment out of the judgment sum or any part thereof. That is a position which can be seen, if I may say so, sensibly to reflect the realities. The plaintiff/respondent whose interests are propounded in the litigation by Mr Walton SC is an entity whose ultimate beneficial ownership or interest is shrouded in some mystery. I do not say that disrespectfully or critically but the payment of the significant millions of dollars to the plaintiff would see those sums go to an entity whose ownership and interests are unknown and no sensible risk assessment can be made about the likelihood of repayment of such sums. 19 There may be other considerations attending the respondent and its advisers in taking this otherwise sensible position but I need not speculate. 20 What the plaintiff/respondent seeks is that the judgment sum be paid into court or into a joint interest bearing account. The purpose of this is to secure the judgment if the appeal is unsuccessful beyond the freezing orders, thus the payment can be seen as a form, if one likes, of attachment to enhance the prospects of success in obtaining funds if the appeal is unsuccessful. 21 Set against this is the financial position of the appellants. In submissions in February and in effect repeated today, it was put that the requirement to pay the many millions of dollars in the judgment sum is beyond the means of the appellants. The natural consequence of that would be to transform the positions of the appellants into ones of insolvency. 22 In the light of my reluctance to draw the conclusion without cross-examination that Mr Slater and Mr Nicholls have deliberately withheld information and on examining their affidavits, it would appear that an order that the judgment sum be paid into court or into an interest bearing account, or any sensible proportion of it, would lead to the position of effective insolvency of one or all of the appellants. That would not necessarily stultify the appeal but the interposition of trustees in bankruptcy and a liquidator or liquidators and the attendant additional costs of those persons would be unlikely, in my present view, to add to circumstances promoting expedition. Nor would it, in my view, necessarily promote circumstances of maximum repayment to the respondent should it remain successful in the litigation. 23 It may be possible to craft an order for the payment of some or all of these sums of money on an unconditional basis but then seek to control or supervise the use of insolvency laws. I think this is an unsatisfactory and unwise course to take. Once a circumstance has arisen through unconditional orders of the court that leads to the conclusion that an entity person is insolvent, questions of the public interest arise. Insolvency is not a matter restricted to the parties. It is a matter that changes the status of the person or company in question. The general creditors of these persons would have an interest immediately in their status. 24 I am not persuaded that proper disposition of this appeal will be other than hampered by a requirement that the monies, or a significant part thereof, be paid into court. 25 I am prepared, until further order and upon relevant undertakings, to which I will come to, to continue the temporary stays that were ordered and I am prepared to continue the freezing orders which the evidence is sufficient to support. The freezing orders require the continuation of the undertaking as to damages of the respondent. The stays shall be supported by an undertaking to prosecute the appeal with all due expedition and to assist in the prosecution of the cross-appeal with all due expedition, and also by an undertaking to the court to bring to the attention of the respondent as soon as is evident any change whatsoever in the financial position of the respective parties. This is with a view to there being a continuing obligation of disclosure of the financial position of the appellants such that if assets become available there will be an opportunity to vary the position consequent upon those changed circumstances. Such disclosure should be protected by strict orders of confidentiality but do not impinge upon the interests of third parties. 26 I would require the parties to bring in short minutes as soon as possible. The orders that I would make in relation to the stay are subject to further order, and if it be necessary I will hear the parties now about whether or not I need to make an interim order until the end of the week or whether the parties agree, having heard what the structure of the orders should be, the orders are sufficient to hold the position. 27 Upon the respondent confirming the continuation of its undertaking as to damages earlier given to the court (which is confirmed):

(a) I make an order in terms of order 1 made on 16 December 2009 and sealed on 17 December 2009 excluding the words "and including 1 February 2010 or", and I make an order in terms of order 8 of the same orders excluding the words, "and including 1 February 2010," and inserting in their place the words, "further order".

(b) Costs of today will be costs in the appeal with the exception of the expenses attendant upon Mr Nicholls and Mr Slater attending court for cross-examination in which case those costs are reserved.

(c) The parties to bring in short minutes to reflect these reasons. 28 The parties are at liberty, through the solicitors by agreement with each other, to contact my associate this week with draft orders and arrange a time through my chambers for any further debate if that is needed. In the meantime I will give some thought to the hearing of this matter and a court so that I can give you a case-managing judge. **********

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