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Rodney Naumburger in his capacity as Executor of the Estate of the late Harry Norman Freedman v Victor Berger - [2021] NSWSC 903 - NSWSC 2021 case summary — Zoe
[2002] HCA 17
Calandra v Murden [2015] NSWCA 231
Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445
[1912] HCA 67
Cubillo v Commonwealth of Australia (No 2) (2000) 103 FCR 1
(2018) 125 ACSR 149
Jones v Dunkel (1959) 101 CLR 298
Source
Original judgment source is linked above.
Catchwords
[1910] HCA 58
Burke v LFOT Pty Ltd (2002) 209 CLR 282[2002] HCA 17
Calandra v Murden [2015] NSWCA 231
Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445[1912] HCA 67
Cubillo v Commonwealth of Australia (No 2) (2000) 103 FCR 1(2018) 125 ACSR 149
Jones v Dunkel (1959) 101 CLR 298[1959] HCA 8
Law Society of NSW v Berger (No 1) [2017] NSWCATOD 137
Levy v Watt [2014] VSCA 60
Judgment (38 paragraphs)
[1]
These proceedings
On 15 October 2013, Mr Freedman's solicitors sent a letter of demand to Mr Berger. Mr Berger was unrepentant. Mr Freedman commenced these proceedings on 30 October 2013. In support of the Summons, Mr Freedman swore an affidavit in which he described that, as a consequence of Mr Berger having retained some $187,000 of client payments, the partnership had insufficient funds to pay remaining creditors. While Mr Berger implied that he had used the funds, at least in part, to pay creditors of the partnership, Mr Berger had not provided details in respect of such payments despite Mr Freedman's repeated requests.
On 6 December 2013, the Court noted that the parties had agreed and undertaken to each other:
(a) … that on and from 6 December 2013, they shall place all moneys received by either of them in respect of the former partnership … the subject of these proceedings, into MBBF's Westpac account;
…
(c) that the monies received into the MBBF Westpac account are to be used to pay liabilities, expenses and debts payable by MBBF to creditors of the former partnership …
(d) on or before 18 December 2013, each party will provide to the other a summary of monies received by either of them in respect of MBBF or expended by them on account of debts and liabilities payable by MBBF in the period from 21 June 2013 and continuing. …
On 7 February 2014, by consent, Ball J made an order that Mr Berger provide the plaintiff with a summary of all monies received by him in respect of the partnership from 21 June 2013 and continuing, and an account of debts and liabilities paid by him on account of debts and liabilities payable by the partnership from 21 June 2013 and continuing.
Whilst a vast amount of correspondence ensued with Mr Berger over the following years, which I have now read, it does not appear that Mr Berger ever gave a straight, comprehensive answer as to the fees which he had collected or expenses that he had paid.
[2]
Domabyl costs assessment
Solicitors for the beneficiaries of Mrs Domabyl's Estate, Prentice Jarvin, continued to correspond with Mr Morgenstern, although the correspondence in evidence is incomplete. It would appear from this correspondence that, on 21 June 2013, MBBF rendered two invoices in the Estate of Mrs Domabyl. Subsequent invoices were rendered by MBB for its fees in relation to administration of the Estate.
On 22 November 2013, Mr Berger referred an application for assessment of costs in relation to Mrs Domabyl's file to a costs assessor of the Court. The costs applicant was the partnership and the costs respondent was the Estate. Whilst Mr Berger purported to file the application on behalf of the partnership, he did so without the knowledge or consent of Mr Freedman or Ms Gopalan. Mr Berger agreed that, although the applicant on the costs assessment was the partnership, Mr Freedman at no stage consented to Mr Berger conducting a costs assessment on his behalf.
Mr Berger agreed that he conducted the application on behalf of himself and Mr Freedman as the applicant and also represented the respondents, the executors of the Estate, being himself and Mr Green. Mr Berger did not accept that he thereby placed himself in a position of conflict of interest, "I personally don't comprehend what I should have done different to what I did. I'm happy to be enlightened …" When it was suggested that Mr Berger should have stepped out of the position of conflict by having another person appointed in his place, "Who? I'm truthfully trying to understand the concept, and I'm just struggling." Mr Berger did not tell Mr Green that it was inappropriate for Mr Berger to act for both the costs applicant and the costs respondent, nor did he consider that it was inappropriate to so act.
The plaintiffs submitted that Mr Berger had no authority to apply for the costs assessment on behalf of the partnership and it was improper for him to act as both costs applicant and costs respondent. In doing so he breached his obligations to Mr Freedman and to the beneficiaries of Mrs Domabyl's estate. I agree.
On 19 December 2013, Prentice Jarvin noted that Mr Morgenstern had lodged three bills for assessment and estimated further fees to date. The solicitors requested copies of the assessments of the costs for which bills had already been filed, and to arrange assessment of Mr Morgenstern's further costs and disbursements, noting their client's principal concern was to finalise the administration of the estate as soon as possible without incurring unnecessary costs. On 4 February 2014, Prentice Jarvin wrote again. In respect of costs, Prentice Jarvin noted that it had been more than four months since itemised bills had been lodged with the Court and "our clients would prefer to wait for the assessments". Copies of the costs assessments received to date were again sought.
On 14 February 2014, the costs assessor wrote to Mr Berger in his capacity as executor of the Estate of Mrs Domabyl, inviting objections from the Estate as costs respondent. Mr Berger did not raise any objections to any of the costs. Nor, so far as Mr Berger was aware, Mr Green did not take any active steps in relation to the costs assessment.
On 12 June 2014, a certificate of determination of costs was issued in the Domabyl matter in the sum of $176,800.74. The certificate of determination was accompanied by a statement of reasons, of which only page five is in evidence. The costs assessor noted that the costs applicant did not make disclosure to the costs respondent as required by the Legal Profession Act 2004 (NSW). Further:
The application for assessment of costs is to be determined in accordance with the requirements of the 1984 legislation. Pursuant to section 367 of the Act I am only empowered to determine the reasonableness of the costs that are expressly disputed in the objections. Costs which are not expressly disputed must be allowed (O'Connor v Fitti [2000] NSWSC 540).
On 14 February 2014 I forwarded a notice to the Costs Respondent being the executors of the estate c/- 16/337 New South Head Road, Double Bay NSW 2028. In that letter I invited objections from the Costs Respondent. I received no objections.
I also note that no objections were provided to me with the application. I take notice of the procedure provided for in the Legal Profession Act which involves the Manager, Costs Assessment giving a copy of the application to the Costs Respondent prior to the matter being assigned to me and allowing the Costs Respondent to file objections.
In the absence of any objections from the Costs Respondent and noting the decision in O'Connor v Fitti referred to above, there appears to be no disputed costs in this matter and accordingly I have confirmed the costs referred to in the tax invoice.
Section 317 of the 2004 Act sets out the effects of a failure of a law practice to disclose. In particular, section 317(4) provides that if a law practice does not disclose to a client anything required by the Division to be disclosed, then, on assessment of the relevant costs, the amount of the costs may be reduced by amount considered by the Costs Assessor to be proportionate to the seriousness of the failure to disclose. I have therefore turned my mind to whether or not there should be any reduction in the costs as a result of the non disclosure required under the 2004 Act. I have formed the view that there should be no reduction in the costs. I consider the hourly rates to be reasonable for the work undertaken. The deceased was aware that legal costs were being incurred and would continue to be incurred for the services provided by the Costs Applicant. Disclosure in relation to costs concerning the conveyancing matter had been made on 22 August 2005. Although that was some three and a half years prior to the commencement of work in March 2009, the material provided to me indicates that the deceased was an intelligent woman who was knowledgeable in her own affairs and by reason of earlier correspondence was well aware that legal costs would be charged and the general proportion of those costs.
Obviously, the only material which the costs assessor had before them to draw the conclusions in the final paragraph was material supplied by Mr Berger.
On 13 June 2014, Mr Morgenstern forwarded the certificate of determination to Prentice Jarvin, advising that Mr Green would be telephoning to arrange a without prejudice discussion to resolve outstanding issues relating to the retention sum and determination of legal costs, commission and other expenses. "Mr Green will be authorised to represent he and Mr Berger as Executors and this firm as to outstanding fees of this firm …"
On 16 June 2014, Mr Freedman wrote to Mr Morgenstern, advising that he had been informed that Mr Berger had made an application for the assessment "of 'legal costs' he proposes charging the Domabyl Estate which are the charges questioned by the Supreme Court and the Law Society" and sought confirmation as to the position. Mr Freedman advised that any costs assessed were to be paid to the partnership, noting that orders made by the Court in these proceedings required Mr Berger to ensure that all monies received for legal services during the partnership were to be paid into the partnership's bank account. It is apparent from Mr Freedman's letter that he had no prior knowledge of the costs assessment made by Mr Berger in the partnership's name.
On 17 June 2014, a "without prejudice" meeting took place at the offices of Prentice Jarvin at which it was agreed that the Estate would pay $223,000 in settlement of all costs billed prior to 28 February 2014. On 24 June 2014, Mr Berger sent Mr Freedman and Ms Gopalan a draft letter to Mr Flynn, advising that the executors of Mrs Domabyl's estate would be making a distribution to beneficiaries on 25 June 2014. The executors had agreed to pay $223,000 in full settlement of bills rendered by the partnership totalling $234,772.64, leaving a shortfall of $11,772.62. The letter proposed that the shortfall be apportioned between MBBF and MBB, with various adjustments, and the monies be paid out to the partners accordingly. Mr Freedman replied, "I believe that any money payable to MBBF should be paid into MBBF and used to pay creditors of MBBF".
On 26 June 2014, Mr Morgenstern sent a letter to Mr Flynn along the lines proposed, setting out the suggested apportionment and adjustments and seeking Mr Green's assistance to resolve the dispute between the partners so that the funds could be paid out. No reply is in evidence; obviously Mr Flynn did not action Mr Berger's request.
[3]
Mitronics litigation
Mitronics Corporation Pty Ltd was a printing company which had an agreement with Patdith to supply photocopiers. Finance was provided by Capital Finance Australia Pty Ltd, and Mr Berger gave a personal guarantee in respect of Patdith's obligations under the finance agreement. On 20 September 2013, by consent, Capital Finance obtained judgment against Patdith and Mr Berger in the Local Court for $74,879.64 but agreed not to enforce the judgment provided Patdith and Mr Berger prosecuted proceedings then on foot against Mitronics and Capital Finance, seeking relief under the Trade Practices Act 1974 (Cth).
On 6 April 2014, Mr Freedman and Mr Berger signed Binding Heads of Agreement addressing various aspects of the dissolution of the partnership, including that the assets of the partnership would be applied to pay specified creditors and an accountant would be appointed to collect the balance of the assets of the partnership to pay all partnership creditors. In respect of Mitronics, it was agreed that the assets would be used to pay an estimated $87,000 "being a judgment for costs against Mr Berger and Patdith". Presumably, the judgment arose from the Local Court proceedings. In addition, it was agreed that the liability of Mr Berger and Patdith to Mitronics and Capital Finance, if any, was "a joint liability of their partnership and Freedman will contribute equally to the liability including but not limited to the costs of defending [Mitronics' claim] and prosecuting the claim of Patdith … against Mitronics presently proceeding in the Federal Court of Australia".
Mr Morgenstern transferred funds collected for MBBF to pay outstanding counsel's fees in the Mitronics matter. Mr Morgenstern had collected fees on two of Mr Berger's files, being Lewis and Valore. On 1 December 2014, a journal entry was made in the Lewis ledger account, transferring $3,017.63 "re paymnt of Rodney Brenders fees re Mitronics matter - MBBF". Likewise in the Valore ledger, on 1 December 2014, $2,525.87 was transferred "re paymnt of Rodney Brenders fees re Mitronics matter - MBBF".
Mr Berger said that he did not tell Mr Freedman that he was using these funds to pay counsel's fees in the Mitronics matter, "He just refused to fund the proceedings at some time through the course of the Federal Proceedings. He just didn't provide the funds." I will return to this at [207] and [216].
[4]
Mr Freedman dies
On 7 April 2015 Mr Freedman died unexpectedly.
On 21 July 2015, Ahtram opened a bank account with the Commonwealth Bank entitled "Adjustment MBB with MBBF" (Ahtram's Account). On 25 August 2015, $25,516.41 was deposited into this account. As will be seen at [231], these were fees collected by Mr Berger in the Spinak matter. On 13 October 2015, funds were transferred from Ahtram's Account in payment of Mitronics expenses. It appears that thereafter Mr Berger deposited at least some of the fees collected from MBBF's clients into Ahtram's Account and also made payments from the account in respect of some of Mr Berger's files, including cost assessor's fees.
In disciplinary proceedings before the Civil and Administrative Tribunal of New South Wales (NCAT), Mr Berger said that the money in Ahtram's Account "now forms part of the pool of monies in dispute on accounting of the assets of the former MBBF partnership …" When cross-examined in the NCAT proceedings, Mr Berger said he was not holding the monies in trust pending a decision in these proceedings, nor holding it separately for the purposes of the dispute rather than for himself but said, "No. It was for my discretion I was holding it." In these proceedings, Mr Berger explained, "Well, by that, I mean I had to approve what was going to happen."
It appears that, whilst these proceedings were in a state of flux whilst an application for a grant of probate was underway in respect of Mr Freedman's estate, Mr Berger took it upon himself to deal with collections and payments outside the regime provided by the Dissolution Agreement and the orders made by the Court on 6 December 2013 (see [120]).
Probate of Mr Freedman's estate was granted on 16 November 2015, appointing Mr Naumburger as executor. On 27 November 2015, Mr Freedman's sons were appointed trustees of the MAHD MBBF Trust.
[5]
Garnisheeing partnership bank account
Four days after the grant of probate in Mr Freeman's Estate, on 20 November 2015, Mr Berger registered the certificate of determination of costs in the Domabyl matter in the District Court of New South Wales. The named defendant in the District Court proceedings was the Estate of Mrs Domabyl. It appears that this was done unbeknowns to the plaintiffs.
On 5 February 2016, Mr Berger filed a motion in the District Court seeking a garnishee order against MBBF's bank account for $176,748.07 together with costs and interest. In an affidavit in support of the application, Mr Berger affirmed that Mrs Domabyl was liable to pay the judgment. Mr Berger made no reference to the fact that the fees were payable by the Estate of Mrs Domabyl to the partnership, nor that the bank account in respect of which the garnishee order was sought was the partnership's account. Nor did Mr Berger refer to the fact that an order had been made in this Court that fees recovered by the partners be paid into the partnership account, nor that distribution of the funds in the account were the subject of these proceedings.
On 14 March 2016, in execution of a garnishee order obtained from the District Court of NSW, Mr Berger garnished the sum of $178,748.07 from the MBBF trust account and deposited the sum into another Ahtram bank account. This was done without the knowledge or consent of the plaintiffs or Ms Gopalan. Mr Berger spent the funds on repaying a personal loan from his wife's cousin, buying a new car, transferring funds to another Ahtram bank account, paying disbursements in the Mitronics matter and transferring funds to Mr Berger's bank account from which he paid solicitor and counsel's fees in the proceedings brought against him by the Law Society. The funds were exhausted by July 2017.
It appears that by reason of Mr Freedman's passing, Mr Berger's audacious actions took some time to come to the plaintiffs' notice. The plaintiffs do not appear to have had access to the partnership's bank accounts nor the firm's LEAP records. The plaintiffs' efforts to extract these records from Mr Berger were protracted and largely unsuccessful. Whilst Mr Berger bombarded the plaintiffs and their solicitors with lengthy emails containing numerous assertions, little documentation was supplied, a fact about which the plaintiffs' solicitors frequently complained.
For example, on 8 February 2018, Mr Stanford complained, "I don't have information to start with - you do - but you are not sharing it, so I am always in the dark. … [I]t is, with respect, wrong for you to constantly criticise me and my clients for not chasing debts when you are not sharing information and thereby putting up obstacles for recovery … Your refusal to share information is ultimately a disservice to both yourself and my clients. And so, for the umpteeth [sic] time, I repeat my request that you share the information you have, namely the LEAP records, so we can work together." Mr Berger responded that this was "JUST ABSURD. I DO NOT BELIEVE ANYONE WOULD HAVE THE VIEW OTHER THAN I HAVE BEEN TOTALLY TRANSPARENT."
By October 2018, Mr Berger had disclosed that he had received $178,748.07 in relation to the Domabyl matter, but not the means by which he had obtained the funds.
For completeness, on 21 September 2017 Mr Berger was found by the NSW Civil and Administrative Tribunal to have engaged in professional misconduct as a result of inter alia the payments from the Domabyl trust account: Law Society of NSW v Berger (No 1) [2017] NSWCATOD 137. On 5 January 2018 the NSW Civil and Administrative Tribunal ordered that Mr Berger's name be removed from the roll of local lawyers: Counsel of the Law Society of NSW v Berger (No 2) [2018] NSWCATOD 4. Mr Berger appealed. On 23 May 2019, the Court of Appeal dismissed Mr Berger's appeal from NCAT: Berger v Council of the Law Society of NSW [2019] NSWCA 119.
On 30 June 2016, orders were made in the Federal Circuit Court dismissing the Mitronics proceedings as having no reasonable prospects of success: Patdith Services Pty Ltd v Mitronics Corporation Pty Ltd [2016] FCCA 1611; (2016) 310 FLR 86. Mr Berger and Patdith filed an application to appeal to the Federal Court of Australia. Mitronics and Capital Finance sought security for costs. On 9 November 2016, Markovic J ordered security to be provided and stayed the application for leave to appeal until security was given and, if security was not provided, then the proceedings were dismissed: Patdith Services Pty Ltd v Mitronics Corporation Pty Ltd [2016] FCA 1315. Whether the security was provided, or the proceedings dismissed, is not known. Further payments for Mitronics' expenses were made from the Ahtram Account.
An amount of $148,313.09 is presently held in various bank accounts associated with MBBF, being the remaining funds of the partnership. The material which I have now reviewed indicates that, when the partnership was dissolved and for several years afterwards, the partnership owed monies to its accountant and IT provider. Mr Freedman and Ms Gopalan on the one hand, and Mr Berger on the other, were unable to agree on a range of matters in respect of the creditors, including who should be paid, who had been paid (and by whom) and which creditors were creditors of the partnership and which were creditors of the partners' subsequent practices. The Heads of Agreement was entered into: see [136]. The correspondence abated. Mr Flynn has been supervising MBBF's trust account for 8 years. MBBF's bank accounts have been in funds for, as I understand it, a significant period awaiting the outcome of these proceedings. I infer that all legitimate creditors of the partnership have been paid.
[6]
RELIEF SOUGHT
Ultimately, Mr Berger accepted that he was obliged to account to the plaintiffs in respect of many of the claims made. Mr Berger, however, contended that these amounts should be reduced to take into account claims made in the discontinued cross-claim and related proceedings. Those proceedings having been discontinued, unless the matter is pleaded in Mr Berger's Defence to the Further Amended Statement of Claim, the plaintiffs' claims should not be thereby reduced.
[7]
Proceeds of sale of Gladesville property
The plaintiffs seek repayment of Mr Freedman's half share of the deposit, being $56,000. Mr Berger says he has accounted for this. There is no documentary evidence to support the suggestion that Mr Berger had already accounted to Mr Freedman for the deposit and I do not accept his uncorroborated evidence.
The plaintiffs contend that Mr Berger wrongly directed the purchaser to draw cheques in payment of the balance sale monies to Mr Freedman for the sum of $139,562.97 and to himself for $142,230.46, such that Mr Freedman received $2,667.49 less than Mr Berger and $1,337.75 less than the amount to which he was entitled. Mr Berger denies this was wrongful.
There was no costs agreement between Mr Berger and Mr Freedman in relation to the sale of the Gladesville property. There was no basis on which Mr Berger was entitled to deduct $2,667.49 from the sale proceeds. Nor was Mr Berger entitled to keep the deposit. Mr Berger must account to Mr Freedman for his half interest in the property by paying $57,337.75.
Where money has been stolen, it is trust money in the hands of the thief: Black v S Freedman & Co at 110; [1910] HCA 58; Creak v James Moore & Sons Pty Ltd (1912) 15 CLR 426; [1912] HCA 67; Levy v Watt [2014] VSCA 60; (2014) 308 ALR 748 at [65]; In the matter of Courtenay House Capital Trading Group Pty Ltd (in liq) and Courtenay House Pty Ltd (in liq) [2018] NSWSC 404; (2018) 125 ACSR 149. Thus, Mr Berger holds these monies on trust. As Mr Berger has had the benefit of these monies since September 2013, he should also compensate Mr Freedman for his loss of the use of the monies by paying interest in accordance with section 100 of the Civil Procedure Act 2005 (NSW).
[8]
Domabyl fees
The plaintiffs say that the funds garnished from the MBBF trust account by Mr Berger were improperly obtained. This is a significant understatement. However, as the plaintiffs observed, MBBF's entitlement to the funds is itself questionable given the manner in which the monies were obtained as well as the subsequent finding by NCAT, upheld by the Court of Appeal, that Mr Berger engaged in overcharging when issuing the 22 June 2012 invoice. The plaintiffs submitted that, ideally, the certificate of determination of costs dated 12 June 2014 and the registration of certificate of determination dated 20 November 2015 should be set aside and another assessment conducted to determine MBBF's entitlement to the costs. The plaintiffs pointed to difficulties with this course: on the filing of the costs determination certificate in the District Court, the certificate was taken to be a judgment of that Court for the amount of unpaid costs: Legal Profession Act 1987 (NSW), section 208J. The garnishee order was an order of the District Court. There was a statutory process for the determination to be reviewed and then appealed, which had not been followed: Legal Profession Act 1987 (NSW), sections 208KA-208NC. This gave rise to procedural and jurisdictional questions regarding the orders that this Court could make.
The plaintiffs submitted that this Court could make its own assessment of what portion of the funds ought to be allocated to each of Mr Berger, Mr Freedman's successors, and Mrs Domabyl's Estate. The Court should adopt a "broad-brush" approach, similar to the approach taken in gross sum costs order determinations: Idoport Pty Ltd v National Australia Bank Ltd [2007] NSWSC 23 at [8]-[14] (Einstein J). There was evidence before NCAT that $38,673.00 (or 24.5%) of the fees and $584.03 (or 22.5%) of the disbursements charged in the invoice were for legal work, $90,527.04 (or 57.4%) in fees was for non-legal work, and $28,533.52 (or 18.1%) in fees and $1,848.69 (or 77.5%) in disbursements were of an unidentified nature. However, that evidence was not before this Court. Nevertheless, the plaintiffs submitted that there was sufficient material before the Court, especially the 22 June 2012 invoice itself, for the Court to make a determination as to the fair and reasonable amount properly chargeable by MBBF for the work that was performed. The plaintiffs submitted that it would be appropriate to award 50% of the $176,800.74 invoiced (that is, $88,400.37) to MBBF and the balance of the $178,748.07 (being $90,347.70) to Mrs Domabyl's Estate.
I am not overly troubled by the certificate of costs assessment registered in the District Court. When the certificate of costs assessment in the Domabyl matter was filed in the District Court Registry, it was taken to be a judgment of that Court: Legal Profession Uniform Law Application Act 2014 (NSW), sections 70 and 71. The fact that a filed costs certificate is "taken to be a judgment" does not mean that the certificate is an actual judgment of the Court. As Giles JA explained in Frumar v The Owners - Strata Plan No. 36957 [2010] NSWCA 172, "In truth there was no District Court judgment. So-called judgments under … [the Act] … take their force from the statute and are not judgments of the Court": at [8]. Further, as Handley AJA explained in Frumar, "The entry of judgment on a filed certificate is a ministerial act. It makes the certificate enforceable as a judgment but otherwise does not alter its legal effect": at [42]. As such, unlike an actual judgment, a costs certificates that is "taken to be a judgment" may be set aside on any ground on which the certificate itself may be impugned: Doyle v Hall Chadwick [2007] NSWCA 159 at [47]-[54].
The evidence before this Court clearly indicates that the garnishee order made by the District Court was made "irregularly, illegally or against good faith": rule 36.15(1) of the Uniform Civil Procedure Rules 2005 (NSW). The defendant, were it so minded, could apply to have the order set aside noting, of course, that the District Court has implied powers extending to correcting its own record: Calandra v Murden [2015] NSWCA 231 at [20] per Beazley P, Meagher and Leeming JJA. The garnishee order, however, does not interfere with the relief sought by the plaintiffs.
There can be no doubt that the issue of an invoice in the Domabyl matter was in breach of the Write Off Agreement and Mr Berger's fiduciary obligations to Mr Freedman. So too was his application for a costs assessment, purportedly on behalf of the partnership. As a partner, Mr Berger had ostensible authority to make the assessment application: Partnership Act, s 5(1). But he had no actual authority to do so, given Mr Freedman's stance on the question of Mrs Domabyl's fees. So too was his application to register the costs assessment with the District Court as well as his application for a garnishee order.
Section 29 of the Partnership Act provides:
Accountability of partners for private profits
(1) Every partner must account to the firm for any benefit derived by the partner without the consent of the other partners from any transaction concerning the partnership, or for any use by the partner of the partnership property, name, or business connexion.
(2) This section applies also to transactions undertaken after a partnership has been dissolved by the death of a partner, and before the affairs thereof have been completely wound up, either by any surviving partner or by the representatives of the deceased partner.
…
This restates the general obligations imposed on fiduciaries, being a principle that is strictly adhered to such that no question may be raised as to the fairness or unfairness of a contract so entered into: Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 at 471 per Lord Cranworth. As Einstein J explained in McKensey v Hewitt (Supreme Court of New South Wales, 15 October 1997, unrep) at 24-25:
The Court approaches the situation with a wide discretion applying the principle that persons should not be permitted to take advantage of their own wrongs. A fiduciary who profits from his breach of duty is liable to account for the profit. This is the appropriate remedy here.
The remedy "is available to strip the defaulting fiduciary of the profit whether or not the principal has suffered a loss commensurate with the profit made by the fiduciary, or any loss, by reason of the breach, and even in cases where it might be thought that the result is an unmerited windfall for the plaintiff.": Meagher Gummow and Lehane in Equity; Doctrines and Remedies 3rd ed (Butterworths, Sydney, 1992) at 157.
It is irrelevant to a fiduciary's liability that he acted honestly, or that his act prejudiced or benefited or that the profit was not available to, the party to whom the fiduciary duty was owed.
More recently in Wright v Lemon (No 2) [2021] WASC 159, Le Miere J explained at [303] (footnotes omitted):
Unauthorised conflicts or profits give rise to fiduciary liability. There is no defence other than informed consent. It is immaterial that a transaction might be fair. It is of no consequence that others may realize a windfall gain.
Mr Berger said, "I have always been prepared to account to [Mr Freedman] for half irrespective of what happened." Mr Berger agreed that to the extent that any money was owed by Mrs Domabyl, that money was owed to the partnership and not to Mr Berger personally. "I undertook always to account to him for his share when I recover it." "I was going to account to him, and have done so since, for all the money that has been charged in this matter." "[Mr Freedman] disowned any claim to any of the money and I undertook always - I made it clear I would be recovering money and I would account [for it] to him, and I always have in the mathematics." To the extent that Mr Berger says he has already accounted to the plaintiffs, I do not accept his evidence.
Having breached his fiduciary duties and thereby made a secret profit, Mr Berger is obliged to account to his fiduciary - not as to half of the fees but all of the fees - as "he will not be permitted to retain, but be compelled to make it over to his constituent": Huntington Copper Co v Henderson (1877) 4 R 294 at 308; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 144-5 per Lord Russell; Chan v Zacharia at 198 per Deane J.
Mr Berger should disgorge the benefit which he has improperly obtained by paying the whole of the monies into the partnership account or, preferably, into Court. It does appear that the beneficiaries of Mrs Domabyl's Estate may be entitled to the monies, or at least some of the monies, given the circumstances in which the certificate was obtained and judgment entered. Mr Berger's failure to make any objections to the itemised bill of costs in his role as executor of Mrs Domabyl's Estate was in dereliction of his duty to the beneficiaries, acting as he was in a position of conflict of interest.
A copy of this judgment should be provided to Prentice Jarvin to be on-forwarded to the beneficiaries in the event that they wish to make an application by interpleader for the funds, or part of the funds. If no application is made, then the funds can be divided equally between the plaintiffs and Mr Berger. If an application is made, then the Court can hear from the beneficiaries and the parties to these proceedings as to how the funds should be paid. I am not prepared, at this stage at least, to assess the costs on the basis of the evidence before the Court, being the invoice rendered. The beneficiaries of Mrs Domabyl's Estate may also have something to say on the subject.
[9]
Fees recovered from other clients
The parties agree that, after the partnership dissolved, Mr Berger billed files of MBBF clients for which he was the responsible partner; took steps to recover fees and pursued debtors; but did not deposit recovered fees into a joint MBBF bank account for the payment of creditors. The plaintiffs seek to recover monies collected by Mr Berger from payment of 27 invoices totalling $574,603.43. The plaintiffs allege, and Mr Berger denies, that he appropriated the fees to his own use and benefit. The plaintiffs contend that Mr Berger thereby breached his fiduciary obligations and the Dissolution Agreement and seek damages, restitution and equitable compensation. Mr Berger denied that he had failed to render true accounts and full information to the plaintiffs in relation to a substantial number of client files and says he has accounted to the plaintiffs.
It is clear that Mr Berger departed from the Dissolution Agreement and collected fees from the partnership's clients but, variously, held the monies himself or deposited the funds into bank accounts under his control, including Berger's Account and Ahtram's Account. Mr Berger took matters into his own hands and variously collected and expended monies belonging to the partnership as he saw fit.
Notwithstanding the vast amount of documentary evidence, the simplest of records - such as invoices, receipts and bank statements - were generally not available. Even getting the 'base line' as to what the clients owed the partnership at the date of dissolution is not easy. I have used an incomplete Invoices Report for the files for which Mr Berger was the person responsible, printed on 29 May 2013, Mr Freedman's memorandum to Mr Berger of 12 September 2013 listing outstanding debtors above $2,000 (with amounts rounded off) and an aged debtor's report printed by Mr Freedman on 6 March 2015 as at 30 June 2013.
[10]
Abrahams (14974)
On 18 June 2013, the firm issued an invoice to the client for $8,553.60. According to the aged debtors report, $10,297.10 was owed on this matter as at 30 June 2013.
On 14 August 2013, according to MBB's general ledger in respect of the "MBB Adjustment Account", $8,553.60 was paid by the client. On 20 September 2013, Mr Berger advised Mr Freedman that $8,553.60 had been received for this client and deposited "to an account titled 'MBB adjustment to MBBF". Although the bank statements in evidence for Berger's Account do not extend to the date of payment on 14 August 2013, it is likely that this is the account to which Mr Berger was referring.
On 5 November 2013, according to MBB's general ledger in respect of the "MBB Adjustment Account", a further $1,420.65 was paid, with (partial) narration, "#14974 Biordi". The monies were deposited to Berger's Account. Although the deposit referred to the same matter number, Mr Berger did not agree that it was a payment in respect of the same matter. I think Mr Berger was right. As at 30 June 2013, client Biordi owed $1,420.65 in respect of matter number 14979, being one of Mr Berger's files. Either way, the money deposited by Mr Berger to his account was in respect of monies owed to the partnership and for which he is obliged to account.
[11]
Ambrousian (15179)
On 20 September 2013, Mr Berger advised that $2,659.70 had been received for this client and deposited "to an account titled 'MBB adjustment to MBBF'", which I take this to be a reference to Berger's Account.
Whilst Mr Berger later suggested, in his Defence and during cross-examination, that the monies had been paid into MBBF account, MBBF's Office Receipts ledger did not record such a receipt. Mr Berger blamed this on staff and did not agree that the funds were not paid to the partnership, "I rely upon my ledger." I expect that Mr Berger's statement to Mr Freedman on 20 September 2013 more likely indicated the correct position at the time and subsequent accounting records to do not suggest otherwise. Mr Berger is obliged to account for these monies to the plaintiffs.
[12]
Arden (14810)
According to the aged debtor's report as at 30 June 2013, this client owed $4,354.35. On 12 September 2013, Mr Freedman included an invoice to Arden for $4,300 in his memorandum, "MBBF Outstanding Costs".
On 5 October 2017, following a meeting with the plaintiff's then solicitor, Mr Stanford, Mr Berger advised by email that this account had been paid "VB recovered since and he paid disbs." Mr Berger agreed, "It's one of the items that I have to account for."
[13]
Armstrong (14440 and 14998)
On 20 September 2013, Mr Berger advised that $4,405.08 had been received for this client for matter number 14440 and $1,884.30 had been received for matter number 14998 and deposited "to an account titled 'MBB adjustment to MBBF'", which I take this to be a reference to Berger's Account.
On 25 September 2013, according to MBB's general ledger in respect of the "MBB Adjustment Account", $3,780.09 was paid for matter number 14440. These monies were deposited to Berger's Account with the narration, "14440 Armstrong".
In his defence and evidence, Mr Berger only accepted an obligation to account for the payment received on 25 September 2013, saying the earlier acknowledgement of receipt was an error. It seems unlikely that Mr Berger would have acknowledged receipt of monies unless he had actually received them. Thus I find that Mr Berger received payments on both 20 September 2013 and 25 September 2013, and must account to the plaintiffs for these monies.
[14]
Cao (14731)
The Invoices Report indicated that, as at 29 May 2013, two invoices remained outstanding in this matter, totalling $39,745.50. According to the aged debtor's report as at 30 June 2013, this client owed $59,443.72. According to Mr Freedman's memorandum of 12 September 2013, $60,000 was then owing by this client.
On 16 September 2013, Mr Berger advised that the costs were being assessed and a caveat had been placed on title. On 17 October 2013, Mrs Berger telephoned the client who said he had spoken to Mr Berger, "it is undisputed he does not have to pay it."
On 13 July 2015, a certificate of determination of costs was issued in respect of MBBF's fees rendered to this client, assessing costs at $67,688.25, of which the assessor noted that $12,248.64 had been paid, leaving $55,439.61 owing. I assume that the fact that the assessed costs exceeded MBBF's outstanding invoice relates to post-dissolution invoices rendered by MBB.
On 5 October 2017, Mr Berger advised the plaintiffs' solicitors that the account had been paid, "VB recovered since and he paid disbs." Mr Berger agreed that he was paid monies and said he reduced the amount to be made for the sake of resolving the matter. Having done so, he withdrew the caveat lodged on the title of property owned by the client. In the absence of any documentary evidence adduced by Mr Berger to support the suggestion that he had accepted less than the full amount, I find that Mr Berger recovered MBBF's outstanding fees in full, being $59,433.72.
According to the bank statements for Ahtram's Account, $2,252.25 was paid for an assessment fee in this matter on 28 September 2015. On 13 April 2016, $2,000 was paid from Ahtram's Account to refund a barrister in this matter. The evidence does not reveal whether the barrister's fees were charged in respect of the conduct of the matter pre-dissolution by MBBF or post-dissolution by MBB. In the absence of evidence, I am not prepared to allow this disbursement but will reduce the amount for which Mr Berger is obliged to account by $2,252.25 for the costs assessor's fees paid. The net amount is $57,181.47.
[15]
Carrabs (14879)
According to the aged debtor's report as at 30 June 2013, this client owed $2,011.35. According to Mr Freedman's memorandum of 12 September 2013, the client then owed $2,000. On 17 October 2013, Mrs Berger telephoned the client who said she will be calling Mr Berger "as she does not believe she should be paying it."
In his Defence, Mr Berger pleaded, "$2,011.34 was paid to MBB. To be adjusted. Was result of threat of costs the defendants will incur and our filing for assessment. Filing fees paid are to be adjusted as well." Mr Berger agreed that the $2,011.34 was an amount that he had to account for. In the absence of any evidence as to what the adjustment is, or the filing fee paid, Mr Berger should account for the full amount.
[16]
Casey (14408)
According to the aged debtor's report as at 30 June 2013, this client owed $9,906.11. On 12 June 2013, Mr Berger signed a proof of debt in the client's bankruptcy in respect of unpaid legal costs of $11,055.42.
In his Defence, Mr Berger pleaded, "See ledger as invoiced $11,673.71. To be adjusted. Adjustments for disbursements in favour of Victor Berger." Mr Berger was evasive as to whether he had received any monies from the client, "I'll have to look at that matter … I'll check the ledger."
The evidence in respect of whether this client paid is slight. As the client was bankrupt, it is possible that the trustee in bankruptcy made a distribution, including to MBBF, in respect of its unpaid fees but there is no evidence either way and I am unwilling to speculate. I am not satisfied on the balance of probabilities that Mr Berger collected fees in respect of this client, nor for that matter that Mr Berger paid disbursements in respect of the matter.
[17]
Jewish House (14295)
On 20 September 2013, Mr Berger advised that $14,000 had been received for this client and deposited "to an account titled 'MBB adjustment to MBBF'", which I take this to be a reference to Berger's Account.
On 19 November 2013, $1,240.77 was deposited to Berger's Account for Jewish House. A corresponding entry was made in MBB's general ledger, "MBB Adjustment Account". In contrast, on 9 February 2018, Mr Berger advised the plaintiffs' solicitor that the fees in respect of this matter had been "waived".
In his Defence and evidence, Mr Berger accepted an obligation to account to the partnership for only $1,240.77. Again, I think it unlikely that Mr Berger would have acknowledged receipt of $14,000 to Mr Freedman if he had not, in fact, received the monies. He is obliged to account to the plaintiffs for both receipts totalling $15,240.77.
[18]
Johnson (14845)
In matter 14845 fees were rendered on 11 June 2013 in the sum of $8,938.60. According to the aged debtor's report as at 30 June 2013, this client owed $8,938.60.
According to a matter ledger, the fees were paid by the client in two instalments, $6,298 on 28 January 2014 and $2,000 on 30 May 2014. On 5 October 2017 and 9 February 2018, Mr Berger advised the plaintiffs' solicitor that this matter had been "[p]aid".
When it was suggested to Mr Berger that these receipts were not deposited into MBBF's bank accounts, Mr Berger blamed this on his secretary and the administrative staff assisting Mr Freedman and Ms Gopalan in their new firm. I do not accept his explanation. He is obliged to account for the money.
[19]
Kisnerman (14566)
According to the aged debtor's report as at 30 June 2013, this client owed $93,737.06. On 21 August 2013, 7 October 2013 and 15 January 2014, three further invoices were issued to Mrs Kisnerman in respect of a dispute, totalling $26,858.05, which I assume concerned further work done by Mr Morgenstern for this client.
According to MBB's general ledger in respect of the "MBB Adjustment Account", on 5 November 2013, $40,000 was paid in respect of this matter. The monies were deposited to Berger's Account. Mr Berger agreed that he was obliged to account to the partnership for the $40,000.
On 30 August 2016, $990 was paid from Ahtram's Account for the costs consultant in this matter. On 12 September 2016, a certificate of determination of costs was issued in respect of this client. Nil costs were payable. The partnership was ordered to pay the assessor's costs of $1,925. On 5 October 2017, Mr Berger advised the plaintiffs' solicitors that the matter was "in course of assessment and recovery".
On 12 December 2017, Mr Berger filed a further application for assessment which included, at least in part, invoices rendered post-dissolution. On 31 May 2018, a further costs assessment was issued in the Kisnerman matter, again assessing the amount payable as nil. In her reasons, the costs assessor noted: (emphasis added)
… the Respondent has produced evidence of payments made to the Applicant personally from 21 October 2013 to November 2015 exceeding $60,000. This sum is well in excess of the $24,460.35 claimed in this assessment so that the Respondent would have no liability remaining to the Applicant anyway."
Mr Berger agreed that the costs assessor correctly stated the position but did not agree that those funds ought to have been paid to the partnership. I do not agree. Mr Berger is obliged to account to the partnership for the $40,000 collected on 5 November 2013 and the further payments made by the client personally thereafter, in total, "exceeding $60,000". I will use the figure of $60,000. I will allow the amounts paid from Ahtram's Account for the costs consultant, resulting in a net amount of $59,010. Whilst MBBF was ordered to pay the assessor's costs of $1,925, there is no evidence that Mr Berger did so.
[20]
Lambrou (14530)
According to the aged debtor's report as at 30 June 2013, this client owed $1,396.60. On 3 September 2013, $1,000 was paid into Berger's Account and recorded accordingly in MBB's general ledger, "MBB Adjustment Account".
On 20 September 2013, Mr Berger advised that $1,000 had been received for this client, being an "instalment payment", and deposited "to an account titled 'MBB adjustment to MBBF'". Mr Berger should account for the $1,000 received.
[21]
Lewis (11891)
According to the aged debtor's report as at 30 June 2013, this client owed $3,227.63. According to Mr Morgenstern's ledger for this matter, the client paid $100 on 15 August 2014, $2,000 on 20 October 2014 and $1,017.63 on 4 November 2014. That is, all but $110 was paid.
On 1 December 2014, a journal entry was, transferring $3,017.63 for "re paymnt of Rodney Brender's fees re Mitronics matter - MBBF". Whilst it was put to Mr Berger in cross-examination that Mr Freedman had told Mr Berger that he wanted no further part in the Mitronics litigation, the Binding Heads of Agreement referred to at [1] obliged Mr Freedman to contribute equally to the costs of the litigation. As such, Mr Berger is not obliged to account for this receipt as it was applied to a partnership expense.
[22]
McArdle (11165)
According to the aged debtor's report as at 30 June 2013, this client owed $153,516.82.
On 30 August 2013, $76,640.99 was paid into Berger's Account and recorded accordingly in MBB's general ledger, "MBB Adjustment Account". On 16 September 2013, Mr Berger advised Mr Freedman that the client had paid. On 20 September 2013, Mr Berger advised that $149,120.33 had been received "out of which barristers fees and other creditors to be paid" and deposited "to an account titled 'MBB adjustment to MBBF'".
In evidence, Mr Berger said the figure in the email was a mistake. "I copied that from the bookkeeper … I took that information from something she gave me. Subsequently found it was wrong … [T]he figure [paid was] 76,640.99 … [the figure in my email] was the wrong figure." Certainly, the figure in the email did not align with the deposit recorded in Berger's Account. But it was no mistake.
On 1 October 2013, in response to an email from the accounts department of Mr Freedman's new firm requesting payment of the outstanding account, the client (who appears from the email to have been a solicitor with their own firm) advised that she had received a payment of $210,000 as settlement of her matter,
"Mr Berger paid me $61,000 and kept the rest. You thus got $149,000".
Mr Freedman said that Mr Berger managed to negotiate a situation whereby he received settlement monies in the matter, deducted his fees and sent the balance of the payment to the client.
There being no reason to doubt the veracity of the client's email of 1 October 2013, I find that Mr Berger did obtain payment in full from the client by deducting the partnership's fees from the settlement monies but only disclosed having received half of the amount to Mr Freedman. He should account for the whole amount.
[23]
McMillan (14793)
In his Defence, Mr Berger pleaded that the client had been invoiced $20,597.93 of which $18,745.58 had been paid. As to where the money had been paid, Mr Berger said, "I would have to rely upon the ledger. I would have to look at the ledger and see what it says. … [M]y recollection is it was paid to [the partnership]. But I'll have to check that again." The payment is not in fact recorded in MBBF's bank accounts. I find that Mr Berger received the money and is obliged to account to the partnership for that receipt.
[24]
Mollica / Valore (12570)
According to the aged debtor's report as at 30 June 2013, this client owed $4,911.42. Matter number 12570 saw payments by the clients received on 19 August 2014 ($49,684) and 9 September 2014 ($946.72) of which the bulk was transferred into the partnership's overdraft account. On 1 December 2014, $2,525.87 was transferred "re paymnt of Rodney Brenders fees re Mitronics matter - MBBF".
As for Lewis, the Binding Heads of Agreement referred to at [1] obliged Mr Freedman to contribute equally to the costs of the Mitronics litigation. As such, Mr Berger is not obliged to account for $2,525.87 as it was applied to a partnership expense.
[25]
Naderi (14927)
According to the aged debtor's report as at 30 June 2013, this client owed $2,818.74. On 17 October 2013, Mrs Berger telephoned the client, who advised that they were not paying and had made a complaint to the Law Society.
On 28 November 2013, according to MBB's general ledger in respect of the "MBB Adjustment Account", $2,112 was paid in respect of the matter. Mr Berger agreed that his Defence should be read as acknowledging that this was an amount that he needed to account for.
[26]
Nothman (15009)
On 25 September 2013, according to MBB's general ledger in respect of the "MBB Adjustment Account", $1,730.90 was paid in respect of the matter. The monies were deposited to Mr Berger's Account. Mr Berger agreed, "In that case, I have to account for it."
[27]
Pan Macedonian Greek Brotherhood (13149)
The firm rendered a series of invoices in this matter in 2010 and 2011 which, according to the Matter Ledger, went on a costs assessment. On 17 September 2013, $9,000 was deposited to Berger's Account for this matter and recorded accordingly in MBB's general ledger, "MBB Adjustment Account". Mr Berger said, "This ledger is a ledger of money that I've acknowledged I should account for." As such, Mr Berger should account to the partnership for this amount.
[28]
Pilowsky (14699)
According to the aged debtor's report as at 30 June 2013, this client owed $1,726.45. On 20 September 2013, Mr Berger advised that $1,726.45 had been received for this matter and deposited "to an account titled 'MBB adjustment to MBBF'", which I take this to be a reference to Berger's Account.
Mr Berger now says that, when he checked his records, he found this was an error. I think it is more likely that Mr Berger would not have acknowledged receipt of the sum unless he had in fact received it at the time. His subsequent denial, in the absence of a contemporaneous document, does not persuade me that it was a mistake. He is obliged to account for the receipt.
[29]
Redman (14108)
According to the aged debtor's report as at 30 June 2013, this client owed $135,021.51. On 16 September 2013, Mr Berger advised that he had arranged with the client to pay $50,000 once an issue with a Deed of Settlement was rectified, then $3,000 per month with the balance to be paid in about June 2014.
On 28 October 2015, $3,112.74 was paid from Ahtram's Account for the Redman assessment fee. Presumably, the party to the settlement with Redman required the partnership's fees in the matter to be assessed.
On 30 November 2015, $124,221.54 was deposited into Ahtram's Account by Clayton Utz. Mr Berger acknowledged that he was obliged to account for this sum. However, it appears that Mr Berger paid the costs assessor's fees, and so he should account for the net amount, being $121,108.80.
[30]
Senes (906 and 15167)
According to the aged debtor's report as at 30 June 2013, this client owed $7,424.67 in matter number 906 and $4,868.60 in matter number 15167.
On 23 October 2013, monies were deposited into Berger's Account for the 906 matter, being $4,144.42 and $1,518.22 (totalling $5,662.64) and recorded accordingly in MBB's general ledger in respect of the "MBB Adjustment Account". According to MBBF's Office Receipts ledger, payments were received in respect of matter 906 totalling $4,607.18 from 12 May 2014 to 18 August 2014. This leaves $1,055.46 to be accounted for in respect of matter 906.
On 9 November 2018, Mr Berger advised the plaintiffs' solicitors that the client's account in matter number 15167 was "PAID TO ME". Mr Berger agreed that, based on this email, if he wrote this in the email it was because the monies had been paid to him.
Mr Berger said that his Defence should be understood as an acknowledgement that, for matter 906, he needed to account for $1,518.20. However, it appears that he is obliged to account for all of the funds received less amounts already remitted to MBBF's office account, that is, $5,923.66.
[31]
Spinak (14962)
According to the aged debtor's report as at 30 June 2013, this client owed $21,432.54.
According to the bank statements for Ahtram's Account, $25,516.41 was deposited into the account on 25 August 2015. On 5 October 2018, Mr Berger informed the plaintiffs' solicitor that, of the sums which he had received in relation to the partnership, $25,516.41 had been received in respect of Spinak on 25 August 2015. This indicates that the deposit related to this matter.
On 14 September 2015, $6,000 was paid out of Ahtram's Account with the narration "PartVBreSpinak". Given that the deposit to the Ahtram Account exceeded the amount owing to the firm, it appears that the $6,000 payment was a disbursement in the Spinak matter, such as counsel's fees.
On 5 October 2017, Mr Berger informed the plaintiffs' solicitor that this client had paid. "VB recovered since and he paid disbs." Assuming in Mr Berger's favour that the $6,000 was a disbursement on the matter, he should account to the partnership for the balance, being $19,516.41.
[32]
Turbett (15232)
On 20 September 2013, Mr Berger advised that $3,271.66 had been received for this client and deposited "to an account titled 'MBB adjustment to MBBF'", which I take this to be a reference to Berger's Account. Mr Berger said in evidence that this was an error. I do not accept his evidence. He should account for the amount received.
[33]
Unknown (14…)
In the MBB general ledger account, "MBB Adjustment Account", a cash receipt of $3,000 is recorded on 2 October 2013 with the narration "received re #14". Obviously, the full narration recorded in the accounting system, which appears to be MYOB, does not appear on the print-out in evidence and the file number is not known. Mr Berger said, "This ledger is a ledger of money that I've acknowledged I should account for." As such, Mr Berger should account to the partnership for this amount.
[34]
Zernelis (13806)
According to the aged debtor's report as at 30 June 2013, this client owed $5,534.64. On 5 October 2017, Mr Berger informed the plaintiffs' solicitor that this client had paid. "VB recovered since and he paid disbs." Mr Berger said that his Defence in respect of this claim should be read as acknowledging that the amount was payable by him.
Mr Berger's actions in collecting fees owed to the partnership but not depositing the fees into the partnership's bank account for the payment of creditors was in breach of the Dissolution Agreement (see [83]) and in breach of the fiduciary obligations which Mr Berger accepted that he owed (see [85]). He is obliged to account to the plaintiffs for these funds.
In total, Mr Berger is obliged to account for $511,230.88. From this, I have deducted $15,181.75 being, by my calculations, disbursements paid by Mr Berger in the Mitronics litigation from either Berger's Account or Ahtram's Account, leaving a net amount of $496,049.13. Having collected these monies in breach of the Dissolution Agreement and his fiduciary obligations to Mr Freedman, Mr Berger holds these monies on trust for the partnership.
The plaintiffs submitted that, of the $148,313.09 presently held in various bank accounts associated with MBBF, half would ordinarily belong to Mr Berger and half to the second and third plaintiffs. The plaintiffs submitted that the entirety of these funds should be paid to the second and third plaintiffs and offset against the amount otherwise payable by Mr Berger. This approach has much to commend it. Of the $148,313.09 in MBBF's bank account, Mr Berger is entitled to half, that is, $74,156.54. Of the monies which Mr Berger is obliged to account to the partnership, he and the plaintiffs are each entitled to $248,024.56. If the plaintiffs retain the whole balance of MBBF's bank accounts, then Mr Berger is obliged to account to the plaintiffs for $173,868.02.
[35]
Bartercard points
The parties agreed that Mr Berger transferred 69,200 Bartercard points from the MBBF Bartercard account to the vendor of the Pitt Street property. Mr Berger's transfer incurred a trade fee of $692.00 and a cash fee of $3,806.00. The parties agreed that Mr Berger's use of the MBBF Bartercard points was done in his capacity as a partner and for Mr Berger's own personal benefit. The defendants disputed that this was a breach of the partnership agreement or any fiduciary obligation but agreed that Mr Berger is liable to account to the plaintiffs for the Bartercard points and all profits derived from the use of those points "and have done so".
On 26 September 2011, Mr Freedman sent an email to Mr Berger, listing a number of issues which he had been attempting to address concerning Mr Berger's practices including, "The Bartercard points you took to buy yourself a property". The suggestion that Mr Berger "took" the Bartercard points implies that Mr Freedman did not know, or at least did not agree, to Mr Berger using the Bartercard points for this purpose. Mr Berger said that Mr Freedman "absolutely knew" about the transfer of the Bartercard points.
On 29 April 2013, Mr Freedman sent an email referring to "your taking of the barter card points for your personal use". Mr Berger replied that he had offered a fair way to balance it, but Mr Freedman did not want to solve anything. I take this to mean that Mr Freedman did not accept Mr Berger's proposal.
Mr Berger explained that the "fair way" was that Mr Freedman could have credits of continued use of Bartercard to equalise the matter but "he chose not to". Further, "I told him I would use the Bartercard points. And we could adjust that with future Bartercard points." When it was suggested that Mr Berger had not subsequently made such an adjustment, he said, "Because he didn't want to. This is kind of money. If you don't use it, you lose it. So you've got to use the services of other people. So he didn't want to do it anymore, Bartercard, but I made the offer to him."
Mr Berger has used a partnership asset for his personal benefit. I infer from Mr Freedman's two emails that Mr Freedman did not agree to Mr Berger doing so. Mr Berger is obliged to account to the partnership for his use of the partnership's assets. It is clear that the means of accounting proffered by Mr Berger was not accepted by Mr Freedman at the time, nor actioned by the partners. Nor was it for Mr Berger to dictate the manner in which he would account.
Mr Berger used each Bartercard point for $1, being a $69,200 deposit on the property together with Bartercard fees of $4,498, totalling $73,698. As I understood the evidence, given the passage of time, the partnership no longer has a Bartercard account into which these funds could be returned. Consequently, Mr Berger should account for the monies. Mr Berger having had the use of the funds since 2008, he should also compensate the partnership by paying interest on the partnership's asset which he has used for his benefit. Taking the same approach in respect of the Bartercard points as I have for the client fees collected by Mr Berger, he need only account for half of the Bartercard points and fees, being $36,849.
[36]
Wife's wage
The parties agree that, from 1 March 2002 to 24 June 2011, Mr Berger caused weekly payments to be made by MBBF to his wife, totalling $70,615. The defendants deny that Mrs Berger was not an employee and did not perform any services for the law firm, or that the payment of wages to Mrs Berger was in breach of the terms of the partnership and Mr Berger's fiduciary obligations. Mr Berger denies that he is liable to account to the plaintiffs for the payments to his wife.
It was suggested to Mr Berger that his wife never worked for the partnership, "Well, she did things from time to time that I would ask her to do …" He agreed that his wife did not have an employment agreement with the firm, attended the offices infrequently and visited "very few times". It is clear that Mrs Berger was not an employee of MBBF.
Mr Berger said that his wife was paid on the advice of the firm's previous accountant until Mr Naumburger became the firm's accountant and advised that this should be discontinued. Mr Berger's explanation does not make sense as Mr Naumburger became the accountant for the partnership in 1997 and Mr Berger did not begin paying a salary to his wife until some years later.
In any event, Mr Berger said he assumed that the payments had stopped, but did not check and later discovered that the payments had continued. The cross-examination continued:
Q. Well, Mr Berger, I suggest that nothing was ever repaid?
A. I did repay it.
Q. Well, you haven't put on any evidence?
A. I have.
Q. There's no document showing the repayment, is there?
A. There was no need. I went to - it was paid to my manager …. And I went to the bookkeeping section of the office and together it was paid by transfers from different places to, to the firm.
On 29 April 2013, Mr Freedman sent an email to Mr Berger referring to "your receiving wages for Judy which were never agreed to nor refunded". Mr Berger responded, "I have repeatedly told you that it was repaid as soon as the error was revealed …" On 10 September 2015, Mr Berger informed Mr Naumburger that he had repaid Judy's wages. There being no documentary evidence to corroborate Mr Berger's assertion that he had repaid his wife's wages, I find that he has not and, having used the partnership's asset without the agreement of his partner, must account for those monies with interest. Taking the same approach as for the client fees and Bartercard points, Mr Berger need only account for half of these monies, being $35,307.
[37]
ORDERS
For these reasons, I make the following orders:
1. Declare that the partnership formerly conducted by the late Mr Harry Norman Freedman in his personal capacity and/or as trustee for the MAHD MBBF Trust and by defendant, in his personal capacity and/or as trustee for the Berger MBBF Trust, under the name and style Milne Berry Berger Freedman (the "Partnership" & "MBBF") was dissolved as from 21 June 2013.
Gladesville property
1. Declare that the defendant holds on trust for the first plaintiff the amount of $57,337.75 from the balance of the proceeds of sale of the Gladesville property.
2. Order the defendant to account to the first plaintiff in the amount of $57,337.75.
Domabyl monies
1. Declare that the defendant, in:
1. rendering an invoice in the Domabyl matter on 22 June 2012;
2. applying for an assessment of costs in the Domabyl matter on 22 November 2013;
3. registering the certificate of determination of costs so obtained in the District Court of New South Wales on 20 November 2015; and
4. seeking a garnishee order in respect of the judgment so obtained, against the Partnership's trust account known as "The Milne Berry Berger Freedman Law Practice Trust Account" held with Macquarie Bank, Account Number 3018-58270 (the "Partnership Trust Account"),
derived a benefit without the consent of his partner, and in breach of his fiduciary obligation to, the late Mr Harry Norman Freedman in his personal capacity and/or as trustee for the MAHD MBBF Trust.
1. Order the defendant to account to the Partnership by paying $178,748.07 into Court.
2. Direct the plaintiffs' solicitors to provide a copy of this judgment to Prentice Jarvin Solicitors within seven days, with a request that a copy of the judgment be provided to the beneficiaries of the Estate of the late Mrs Domabyl in the event that the beneficiaries wish to interplead in respect of the funds paid into Court under Order 5.
Other client fees
1. Declare that the defendant, in retaining costs due, owing and payable to the Partnership acted in breach of his fiduciary obligation to the late Mr Harry Norman Freedman (deceased) in his personal capacity and/or as trustee for the MAHD MBBF Trust.
2. Declare that the defendant holds fees payable to the Partnership on trust for the Partnership.
3. Order the defendant to account to the Partnership by paying $173,868.02 to the second and third plaintiffs.
4. Order that any funds in bank accounts in the name of MBBF, including the Partnership Trust Account, be paid to the second and third plaintiffs.
Bartercard points
1. Declare that the defendant, in using Bartercard points belonging to the Partnership for his personal use, acted in breach of his fiduciary obligation to the late Mr Harry Norman Freedman (deceased) in his personal capacity and/or as trustee for the MAHD MBBF Trust.
2. Declare that the defendant holds $36,849 on trust for the Partnership.
3. Order the defendant to account to the Partnership in the amount of $36,849 by paying these monies to the second and third plaintiffs.
Wife's salary
1. Declare that the defendant, in using funds belonging to the Partnership to pay a salary to his wife without the agreement of his partner, acted in breach of his fiduciary obligation to the late Mr Harry Norman Freedman (deceased) in his personal capacity and/or as trustee for the MAHD MBBF Trust.
2. Declare that the defendant holds $35,307 on trust for the Partnership.
3. Order the defendant to account to the Partnership by paying $35,307 to the second and third plaintiffs.
Judgment, interest and costs
1. Judgment in favour of the first plaintiff in the sum of $57,337.35.
2. Judgment in favour of the second and third plaintiffs in the sum of $246,024.02.
3. Direct the plaintiffs, within 7 days, to provide calculations of the interest payable on amounts to be paid by the defendant under Orders (3), (5), (9), (13) and (16) calculated in accordance with section 100 of the Civil Procedure Act 2005 (NSW).
4. Defendant to pay the plaintiffs costs of the proceedings.
5. In the event that the plaintiffs seek a variation of Order 20:
1. Direct the plaintiffs to file and serve any affidavits and submissions within 14 days.
2. Direct the defendant to file and serve any affidavits and submissions within 14 days thereafter.
3. Any such application will be determined on the papers.
1. Parties to notify any errors or omissions in these orders within 7 days.
2. Stand the matter over before Rees J on 21 October 2021 for directions in respect of further progress under Order 6, with liberty to apply.
[38]
Amendments
28 July 2021 - Order (18) - amount amended to $246,024.02.
28 July 2021 - Amendment to representation on Coversheet.
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 28 July 2021
Parties
Applicant/Plaintiff:
Rodney Naumburger in his capacity as Executor of the Estate of the late Harry Norman Freedman
NSWSC 510
McKensey v Hewitt (Supreme Court of New South Wales, 15 October 1997, unrep)
Patdith Services Pty Ltd v Mitronics Corporation Pty Ltd [2016] FCCA 1611; (2016) 310 FLR 86
Patdith Services Pty Ltd v Mitronics Corporation Pty Ltd [2016] FCA 1315
Payne v Parker [1976] 1 NSWLR 191
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
Ronchi v Portland Smelter Services Ltd [2005] VSCA 83
Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98
Ta Lee Investment Pty Ltd v Antonios [2019] NSWCA 24; (2019) 19 BPR 39,153
Wright v Lemon (No 2) [2021] WASC 159
Texts Cited: Wigmore on Evidence (3rd ed, 1940), vol. 2
Category: Principal judgment
Parties: Rodney Naumburger in his capacity as Executor of the Estate of the late Harry Norman Freedman (First Plaintiff)
Adrian Rudy Freedman in his capacity as co-trustee of the MAHD MBBF Trust (Second Plaintiff)
Ty Matthew Freedman in his capacity as co-trustee of the MAHD MBBF Trust (Third Plaintiff)
Victor Berger (Defendant)
Representation: Counsel:
Mr D Meyerowitz-Katz (Plaintiffs)
Mr V Berger (In Person) (Defendants)
File Number(s): 2013/327799
Jones v Dunkel
Mr Berger made a number of complaints regarding the absence of sworn evidence from the plaintiffs. In turn, the plaintiffs submitted that their access to the records of the partnership was limited, whilst Mr Berger's access was unlimited, and any failure by Mr Berger to tender a document in support of his evidence or defence to a claim - notwithstanding the large amount of documentary material which Mr Berger did tender - would lead the Court to draw an inference that such documents as were available to Mr Berger would have not assisted the defendants: Jones v Dunkel (1959) 101 CLR 298 at 320; [1959] HCA 8.
In what follows, I have drawn heavily on Levine J's elegant summary of the principles in Marsden v Amalgamated Television Services Pty Ltd [2001] NSWSC 510 at [92] and following. The rule in Jones v Dunkel is that the unexplained failure by a party to give evidence, call witnesses or tender documents may in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The rule does not permit the Court to infer that the uncalled evidence would have been damaging, nor to fill gaps in the evidence: Cubillo v Commonwealth of Australia (No 2) (2000) 103 FCR 1; [2000] FCA 1084. If the failure to call the evidence is explained, the inference cannot be drawn. In Ta Lee Investment Pty Ltd v Antonios [2019] NSWCA 24; (2019) 19 BPR 39,153, it was sufficient explanation that the plaintiff no longer spoke to the missing witness: at [118], [137] per Bathurst CJ, Beazley P and Macfarlan JA. The witness may be "hostile": Payne v Parker [1976] 1 NSWLR 191 at 202 per Glass JA. It may be the case that the witness would not be expected to co-operate by way of prior consultation or providing a proof of evidence, and a party is not obliged to call a witness 'blind' in order to avoid the inference being drawn against them: Fabre v Arenales (1992) 27 NSWLR 437 at 449-450 per Mahoney JA.
Before drawing the inference, the missing witness must be a person who it would be natural for one party to call; the witness might be regarded as "in the camp" of one party or "a witness likely to be friendly to the interests of the party": Payne v Parker at 201-202 per Glass JA; Ghazal v Government Insurance Office of New South Wales (1992) 29 NSWLR 336 at 343 per Kirby P with Mahoney and Clarke JJA agreeing. If the witness is equally available to both parties, the condition for drawing the inference usually stands unsatisfied: Payne v Parker at 202.
The inference may also be drawn in respect of the absence of documentary evidence to support a party's case, where the party might be expected to be in possession of documents to corroborate their account: Jones v Dunkel at 320 per Windeyer J, citing with approval Wigmore on Evidence (3rd ed, 1940), vol. 2, page 162: "The failure to bring before the tribunal some circumstance, document or witness, when either the party himself or his opponent claims that the facts would thereby be elucidated, serves to indicate, as the most natural inference, that the party fears to do so, and this fear is some evidence that the circumstance or document or witness, if brought, would have exposed facts unfavourable to the party …"; Burke v LFOT Pty Ltd (2002) 209 CLR 282; [2002] HCA 17 at [134] (Callinan J); Ronchi v Portland Smelter Services Ltd [2005] VSCA 83 at [44] (Eames JA, with whom Buchanan JA agreed); Challenger Property Asset Management Pty Ltd v Stonnington City Council (2011) 34 VR 445; [2011] VSC 184 at [131]-[132] (Croft J); Sino-Resource Imp & Exp Co Ltd v Oakland Investment Group Ltd [2018] QSC 98 at [112] (Henry J).
End of partnership
In light of Mr Sofiak's recommendation, on 20 June 2013, Mr Freedman sent a notice to Mr Berger dissolving the partnership on and from 21 June 2013. The parties agree that the partnership was dissolved as from 21 June 2013. On 21 June 2013, Mr Berger paid $205,258.86 into the MBBF trust account, being the deficiency identified in Mr Sofiak's report.
Mr Berger continued to practise after the dissolution under the name "Milne Berry & Berger" (MBB).
On 1 July 2013, the Law Society resolved to suspend Mr Berger's practising certificate under section 548 of the Legal Profession Act and to appoint Richard Flynn as Manager of MBBF's trust account. On 5 July 2013, Mr Berger commenced proceedings appealing the Law Society's decision. Mr Berger sought a stay of the decision and, on 11 July 2013, a stay was granted: A Solicitor v Council of the Law Society of New South Wales [2013] NSWSC 921 per Schmidt J. On 19 and 22 July 2013, an expedited hearing of Mr Berger's appeal against the Law Society's decision was heard by
Beech-Jones J.
Sale of the Gladesville property
The Gladesville office was in Victoria Road, Gladesville. The property was owned by Mr Freedman and Berfox Pty Ltd as tenants in common in equal shares. Berfox was Mr Berger's company. In about June 2013, Mr Freedman and Berfox appointed a real estate agent to sell the property. The conveyancing transaction was to be handled by Mr Berger under his new firm name, MBB. Mr Freedman received no cost disclosure in respect of the transaction, nor was there any discussions in relation to what charges might be made for that service.
The parties agree that Mr Berger was to provide directions and settlement instructions to ensure payment to Mr Freedman, or in accordance with Mr Freedman's directions, of 50% of the balance proceeds of sale on completion of the sale and on release of the deposit. The parties agree that the deposit belonged to Mr Freedman and Berfox in equal shares; they were each entitled to half.
In July 2013, the property was sold at auction for $1,120,000.00. A deposit of $112,000 was paid. Mr Freedman assumed that the deposit was held by the real estate agent. Mr Freedman later learned from the agent that, although the agent usually held deposits, "after you left the auction Victor said to me that you and he had agreed that the deposit would be released to him." Mr Freedman had not, in fact, agreed for the deposit to be paid to Mr Berger. Mr Berger agreed that he received the deposit and kept it, and it is something he has to account for. I will return to this at [154].
On 14 August 2013, Beech-Jones J dismissed Mr Berger's appeal and discharged the stay: Berger v Council of the Law Society of NSW [2013] NSWSC 1080. On 15 August 2013, the orders discharging the stay were stayed pending an appeal by Mr Berger to the Court of Appeal: Berger v Council of the Law Society of NSW (No 2) [2013] NSWSC 1131 per Beech-Jones J. On 28 August 2013, Barrett JA extended the stay until the hearing of the appeal: Berger v Council of the Law Society of NSW [2013] NSWCA 278.
Completion of sale of Gladesville property
On reading Mr Berger's email of September 2013, it came to Mr Freedman's attention - and surprise - that Mr Berger had collected the deposit for the Gladesville property. Mr Freedman called Mr Berger and asked for 50% of the deposit paid on the Gladesville property and Mr Berger said, "No, you are not getting it, we will have to adjust everything."
On 25 September 2013, Mr Berger sent a settlement adjustment sheet to the purchasers' solicitors in preparation for settlement on 27 September 2013. On 26 September 2013, Mr Freedman sent an email to a member of staff attending to the settlement, advising, "[Mr Berger] has kept all the deposit money so there needs to be an adjustment, so that needs to be taken into account." Mr Freedman also emailed Mr Berger, recording Mr Berger's refusal to release Mr Freedman's share of the deposit money to him:
I record that you only advised that you had taken the whole of the deposit last Friday after I caught you out having kept fees from Abrahams owing to MBBF.
The member of staff attending to the settlement suggested that the deposit be placed in the trust account, but Mr Berger did not agree. Mr Berger sent cheque directions to the purchaser's solicitors, including $139,562.97 in favour of Mr Freedman and $142,230.46 in favour of Mr Berger. Mr Berger agreed that the discrepancy was referrable to legal fees. Mr Berger agreed he had no costs agreement with Mr Freedman. It was suggested to him that no invoice was issued in respect of these fees, "Well, I don't know. I have to check." Settlement of the sale occurred on 27 September 2013.
On 8 October 2013, the Court of Appeal refused Mr Berger's application for leave to appeal: Berger v Council of the Law Society of NSW [2013] NSWCA 336. Mr Berger's practice was thereafter conducted by his cousin, solicitor Tibby Morgenstern.