Vaccaro and Anor v Flammia [2008] NSWSC 1322 | Case summary

Vaccaro and Anor v Flammia [2008] NSWSC 1322 | Case summary | Zoe

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Gosford City Council v GIO General Ltd (2003) 56 NSWLR 542 R v Caradonna (2000) 118 A Crim R 312 Colonial Mutual Superannuation Pty Limited v Flammia (No. 2) [2007] FCA 1655 Colonial Mutual Superannuation Pty Limited v Flammia (No. 3) [2007] FCA 2104 Vella v Permanent Mortgages Pty Limited [2008] NSWSC 505 Tzaidas v Child (2004) 61 NSWLR 18 Blair v Curran (1939) 62 CLR 464 Jackson v Goldsmith (1950) 81 CLR 446 Bailey v New South Wales Medical Defence Union Limited (1995) 184 CLR 399 Ramsay v Pigram (1968) 118 CLR 271 Gleeson v J Wippell & Co Limited [1977] 1 WLR 510 Nationwide Building Society v Balmer Radmore [1999] Lloyds Rep PN 241 Hilton v Barker Booth and Eastwood [2005] 1 WLR 567 Law Society of NSW v Harvey (1976) 2 NSWLR 154 McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 Yaktine v Perpetual Trustees Victoria Limited [2004] NSWSC 1078 Ginelle Finance Pty Limited v Diakakis [2007] NSWSC 60 CASES CITED : Rogers v The Queen (1994) 181 CLR 254 Rippon v Chilcotin Pty Limited (2001) 53 NSWLR 198 Briginshaw v Briginshaw (1938) 60 CLR 336 Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500 Nettle v Mathieson Group Pty Limited [2007] NSWCA 98 Macquarie Underwriting Pty Limited v Permanent Custodians Limited (2007) 240 ALR 519 The Owners - Strata Plan 50530 v Walter Construction Group Ltd (In Liq) [2006] NSWSC 552 Wilkie v Gordian Runoff Ltd [2005] 221 CLR 522 CGU Insurance Ltd v Porthouse [2008] HCA 30 Kuligowski v Metrobus [2004] 220 CLR 363 Kuppers v New South Wales Fire Brigades [2005] NSWSC 193 Murphy v Abi-Saab (1995) 37 NSWLR 280 Jacara Pty Limited v Perpetual Trustees WA Limited (2000) 106 FCR 51 Trylow Pty Limited v Commissioner of Taxation [2004] FCA 446 Cantarella Bros Pty Limited v Andreasen [2005] NSWSC 579 Ibrahim v Pham [2007] NSWCA 215 Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (2008) 167 FCR 314 Lustre Hosiery Ltd v York (1935) 54 CLR 134 Grey v Australian Motorists and General Insurance Co Pty Ltd (1976) 1 NSWLR 669

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Factual Background 6 The following basic facts are not controversial. 7 From about 1990 until April 2006, the Plaintiffs utilised the services of Manna & Flammia Solicitors located at 45 Castlereagh Street, Penrith. 8 The Plaintiffs were the registered proprietors of several properties in the Camden district. The Plaintiffs left a number of Certificates of Title at the Defendant's legal practice for safekeeping. Amongst these was the Certificate of Title for a property at 9 McMinn Place, Narellan Vale ("the Narellan Vale CT"). 9 Prior to 27 November 2003, the Narellan Vale CT was taken from the Defendant's legal practice. On 23 December 2003, a mortgage in favour of Hillsan Pty Limited ("Hillsan") was purportedly executed by the Plaintiffs with respect to the Narellan Vale property. The Plaintiffs contend, and LawCover accepts, that the signatures of the Plaintiffs on the mortgage are forgeries. According to the mortgage, the Plaintiffs' signatures were witnessed by Hugh Johnson, Solicitor, of Sylvania. Both the Plaintiffs and LawCover accept that there was no such person on the roll of legal practitioners at that time. He is a fictitious character. Hillsan advanced the sum of $400,000.00 under the mortgage. The evidence suggests that that sum was distributed between a number of persons. It is common ground that the Plaintiffs did not receive any of this sum. 10 The Hillsan mortgage was not stamped with the Office of State Revenue until 9 November 2005 and was not registered on the title with the Department of Lands until 28 November 2005. The Hillsan mortgage provided for repayment of the principal sum by 23 December 2004 with interest to be charged at the rate of 10.5% per annum. 11 On or about 26 September 2006, Hillsan commenced proceedings (14742/06) against the Plaintiffs in the Possession List of the Common Law Division to seek possession of the Narellan Vale property for failure to comply with the terms of the mortgage. The Plaintiffs state that they did not learn that the Narellan Vale CT had been taken from the premises of the Defendant's legal practice, nor that it had been used for the purpose of giving a mortgage to Hillsan until they learned of the Possession List proceedings being brought against them in 2006. 12 The Possession List proceedings have not yet proceeded to hearing. 13 The evidence reveals that the Defendant's practicing certificate was suspended on or about 29 May 2006. On 9 November 2007, the Defendant attended the Insolvency & Trustee Service of Australia and filed a debtor's petition and became a bankrupt.

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The Colonial Proceedings 23 In evidence on the present application are judgments of Emmett J of the Federal Court of Australia in Colonial Mutual Superannuation Pty Limited v Flammia (No. 2) [2007] FCA 1655 (1 November 2007) and Colonial Mutual Superannuation Pty Limited v Flammia (No. 3) [2007] FCA 2104 (7 December 2007) (Exhibit TRP1, pages 1-43). In those proceedings ("the Colonial proceedings"), Colonial Mutual Superannuation Pty Limited ("Colonial") sued Mr Flammia and William Anastasiadis, alleging that they had induced Colonial by fraud to cause a cheque in the sum of $438,802.80 to be drawn in favour of Stanley G Stevens. The cheque was sent to Mr Flammia. Mr Flammia sought indemnity from LawCover under a professional indemnity policy of insurance. By the policy, LawCover agreed to indemnify Mr Flammia against civil liability for any claim that arose from his legal practice, and that was first made against him during the period of insurance. However, the policy provided that LawCover would not indemnify Mr Flammia for a claim that arose from any dishonest or fraudulent acts or omissions on his part, whether directly or indirectly. LawCover did not accept liability to indemnify under the policy and thus Mr Flammia filed a cross claim against LawCover. 24 Emmett J was satisfied that the money due to Mr Stevens was obtained fraudulently and by use of a forged signature. His Honour observed at [70]-[72], by reference to Mr Flammia's memorandum of fees to Mr Caradonna, that it was quite apparent that Mr Flammia had fairly full knowledge of Mr Caradonna's criminal conduct by late 2001. With respect to the relationship between Mr Flammia and Mr Caradonna in late 2001, Emmett J concluded in Judgment No. 2 at [78]: "Mr Flammia had intimate knowledge of Mr Caradonna's personal affairs, gained while acting for Mr Caradonna while he served his prison sentence. The link between Mr Flammia and Mr Caradonna, in the context of Mr Caradona's [sic] involvement in the fraud, gives rise to an inference, in the absence of anything further, that they each had knowledge of the fraudulent nature of the actions in which they engaged." 25 In finding that Mr Flammia had a case to answer in the civil proceedings, Emmett J concluded in Judgment No. 2 at [102]-[105]: "102 On the current state of the evidence, inferences are open that point to Mr Flammia's involvement in and knowledge of conduct that a reasonable person, and particularly a solicitor, would understand to be dishonest and fraudulent. Mr Flammia knew that Mr Caradonna was a convicted fraudster. Mr Caradonna's contact with both Mr Flammia and the Bogus Stevens Number at crucial times strongly suggests, on the current evidence, that both Mr Caradonna and Mr Flammia were involved in the fraud.

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The Plaintiffs' Claim on the Fidelity Fund 30 On 29 August 2006, the then solicitors for the Plaintiffs wrote to the Law Society of New South Wales ("Law Society") foreshadowing a claim on the Fidelity Fund, based upon possible negligence of Mr Flammia concerning the Narellan Vale CT. On 8 September 2006, the Manager of the Fidelity Fund replied in the following terms (Exhibit 2): "In your letter you refer to possible negligence by Mr Flammia. Please note however that a fundamental element for a successful claim on the Fidelity Fund is dishonesty. If you remain of the view that negligence may be involved, you may wish to contact Mr Flammia's professional indemnity insurer. However, if you are of the view that dishonesty may be involved, please advise further a Fidelity Fund claim form will then be forwarded to you for completion by your clients." 31 On 12 September 2006, the Plaintiffs' solicitors responded in a letter which included the following: "At this stage we are still investigating the matter on our clients' behalf. However, there are certain serious allegations made against Mr Flammia in relation to dealings involving our clients and other parties. As such we wish to proceed with a claim against the fund and would request that a Claim Form be forwarded to us for our clients' consideration." 32 On 15 September 2006, the Manager of the Fidelity Fund provided information to the Plaintiffs' solicitors with respect to the manner of making a claim on the fund. 33 Pursuant to s.438 Legal Profession Act 2004, on 24 May 2007, the Law Society advertised a final date of 28 August 2007 for Fidelity Fund claims regarding the law practice of Manna & Flammia Solicitors and Lorenzo Flammia. The same day, the Manager of the Fidelity Fund wrote to the Plaintiffs' then solicitors informing them of the deadline, and the fact that claims received after that date are barred unless the Fidelity Fund Management Committee or the Supreme Court allowed further time. 34 On 27 July 2007, the Plaintiffs, through their solicitors, made a claim on the Fidelity Fund (Exhibit 1). Given submissions made on behalf of LawCover with respect to the contents of the Plaintiffs' claim on the Fidelity Fund (that they contain admissions by the Plaintiffs), it is appropriate to set out relevant parts of the information provided as part of the claim. 35 Section 7.1 of the claim sought information with respect to the property (other than money received by or held on trust by the solicitor) to which the claim related. The claim form stated: "The solicitor was the holder of the title deeds in safe custody. Annexed hereto is a letter confirming the items in safe custody. The issue in this claim relates to the title deed of 9 McMinn Place, Narellan Vale held in safe custody by the firm." 36 Section 7.3.1 of the claim sought particulars of the nature of the dealing with the property by the law practice, and the manner in which it was said to be fraudulent. The Plaintiffs responded in the claim form: "This matter is currently subject to a Police investigation by the Penrith Fraud department. The title deed was removed without consent and a mortgage registered on the title without knowledge of the owners." 37 In response to s.7.3.2 and 7.3.3, which sought information concerning the time, place and the identity of other parties involved in any fraudulent dealing, the claim form stated: "To be confirmed when the Police report is finalised." 38 In response to s.7.3.4 concerning the effect of the fraudulent dealing on the existence or value of trust property, the Plaintiffs responded: "A mortgage was placed on title to the value of $400,000.00 plus interest and penalties. We are liable for penalties. We are liable for penalties and are the subject of a possession claim in the Supreme Court." 39 In response to s.7.4 which enquired as to whether property had been recovered, the Plaintiffs replied: "No. We have been unable to obtain a return of the certificate of title to the property unless the mortgage is paid in full." 40 Section 7.5 enquired as to whether a demand had been made on the practice for compensation for loss, to which the Plaintiffs replied: "Lorenzo Flammia's licence was suspended. We have lodged a LawCover claim which is attached, however, LawCover is awaiting a response to the Police Report for our Claim of $400,000.00, penalty interest and damages." 41 In response to s.9.2 of the claim form, the Plaintiffs stated that the Penrith Police had referred them to Jim Sofiak of the Law Society who had included Penrith Police in his investigation. 42 In response to s.9.3, the Plaintiffs stated that a LawCover claim had been lodged and enclosed a copy of it. 43 In response to s.9.5 which enquired as to whether legal proceedings had been commenced against the solicitor, the Plaintiffs stated: "Yes. We have commenced a professional negligence claim against Lorenzo Flammia in the Supreme Court. Documents just filed and to be served." 44 Annexed to the claim on the Fidelity Fund were a series of statements from, amongst others, each of the Plaintiffs. Included in the supporting documents was a copy of a COPS entry of the New South Wales Police Service recording a report on 8 March 2001 of a break, enter and steal on the premises of Manna & Flammia Solicitors, 45 Castlereagh Street, Penrith in which a laptop computer was said to have been stolen. No mention was made in the COPS entry of the taking of any documents, let alone the Narellan Vale CT. 45 The Plaintiffs attended Mr Flammia's office on 11 April 2006 following a telephone call from Mr Flammia to Mr Vaccaro the preceding day indicating that one of their title deeds had been "stolen", but that they were "not to worry" as he had "already informed the Law Society". According to the statement of Mrs Vaccaro, she attended Mr Flammia's office with her husband and Mr Cosimo Care on 11 April 2006. During the conversation, Mr Flammia said words to the following effect: "I was broken into at the beginning of the month and your title deed was stolen. Had it not been for the Law Society contacting me I would not have known … Don't worry you will get your title deed back." 46 Mrs Vaccaro enquired, "Why did they take only that title deed?" and Mr Flammia did not respond. According to Mrs Vaccaro, Mr Flammia showed them the room where documents were kept, the room being opposite the bathroom. 47 A statement of Cosimo Care asserted that, on 11 April 2006, he drove the Plaintiffs and his wife to the office of Manna & Flammia to obtain the title deeds from Mr Flammia. Whilst in Mr Flammia's office, Mr Care stated that a conversation took place in which Mr Flammia said words to the effect: "Someone probably took the title deed to purchase or obtain $5,000.00 to $10,000.00 against the property … it is white collar crime." 48 Also provided in support of the claim on the Fidelity Fund was a letter dated 23 February 2007 from Mary Banicevic, who had worked for Manna & Flammia as a conveyancing secretary. In response to a question as to whether a safe custody procedure was in place when she worked at the firm, Ms Banicevic replied that the "safe custody procedure was that once a deed came into the office from a client or after settlement it was entered into the deeds book and placed in a metal tin in a metal cabinet in a rear room of the office". In response to a question as to whether the premises had been broken into on 7 March 2001, Ms Banicevic responded that the "offices were broken into approximately three times to my knowledge" although she was unaware of the exact dates, but that, on each occasion the police were called. She said that "the first time the offices were broken into there were quite a number of items stolen - such as radio and cassette player, Mr Flammia's laptop and other items". 49 In response to a question whether Mr Caradonna ever attended the premises and, if so, whether he was permitted unsupervised access to the premises, Ms Banicevic replied: "Mr Caradonna did attend the office on numerous occasions during business hours. During the time that he was in the office, he would walk around the office by himself and would go into the kitchen which was also at the rear of the office and make himself coffee without asking anyone. My desk was right in front of the kitchen. As to him being permitted access to the premises unsupervised, I am not aware." 50 LawCover submits that the making of the Fidelity Fund claim by the Plaintiffs represents an admission on their part that dishonesty was involved on Mr Flammia's part.

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(e) evidence of Mr Flammia's conduct in relation to Colonial, as reflected in the judgments of Emmett J, and which is admissible against and binding upon the Plaintiffs as parties claiming through Mr Flammia, manifests tendency evidence within the meaning of s.97 Evidence Act 1995 of the most powerful kind which renders inherently likely that the Plaintiffs' loss was occasioned by, or arose directly or indirectly from, Mr Flammia's dishonesty in association with Mr Caradonna. 72 With respect to the argument referred to at paragraph 71 above, Mr Bell SC submits that the Plaintiffs made admissions in their Fidelity Fund claim form. He points to the fact that the Plaintiffs answered Question 7.3 (which is only required to be answered if the claim relates to fraudulent dealing), as an admission by the Plaintiffs that Mr Flammia had fraudulently dealt with trust property namely, the Narellan Vale CT. The Plaintiffs made a joint statutory declaration confirming that the matters set out in the Fidelity Fund claim form were true and correct. He submits that these matters constitute admissions by the Plaintiffs that the circumstances giving rise to the claim against Mr Flammia arose from his fraudulent dealing with the Narellan Vale CT and such dealing constitutes dishonesty within the meaning of clause 21 of the policy. 73 LawCover submits that a further admission is contained in the letter dated 12 September 2006 from the Plaintiffs' then solicitors to the Fidelity Fund (see [31] above). Further reliance is placed upon the letter dated 19 September 2007 from the Plaintiffs' then solicitors to Senior Constable Davis of the Fraud Squad (see [51] above) which asserted that "this was a scheme between Lorenzo Flammia and Tony Caradonna to the detriment of many innocent people". 74 Mr Bell SC submits that these admissions are admissible against the Plaintiffs, as proof of their truth, pursuant to ss.81 and 87(1)(a) Evidence Act 1995. He submits that Mr Flammia is a bankrupt and will not defend himself in these proceedings. Accordingly, he submits that, on a final hearing, the Court will inevitably make a finding in accordance with the Plaintiffs' admissions. 75 With respect to the submission at paragraph 71 above, Mr Bell SC notes that, in 2007, LawCover was joined by Mr Flammia as a cross respondent in the Colonial proceedings in the Federal Court. He refers to the findings of the Federal Court and notes that the conduct pre-dated fraudulent use of the Narellan Vale CT in this case, where the Hillsan mortgage is dated 23 December 2003. 76 With respect to issue estoppel, LawCover submits that Mr Flammia and the Plaintiffs are privies: Blair v Curran (1939) 62 CLR 464 at 531. He submits that both LawCover and Mr Flammia were parties to the Colonial proceedings and judgments. If LawCover was to be joined in the present proceedings, both LawCover and Mr Flammia would be parties to these proceedings. That establishes the identity of parties necessary for an issue estoppel to be pleaded at the final hearing. Accordingly, Mr Bell SC submits that LawCover and Mr Flammia would be bound, in the present proceedings, by all matters which were necessary to decide as the groundwork of the Colonial proceedings' judgments. He submits that, for the purposes of determining which matters were necessary to decide, the Court may have regard to the Federal Court's reasons for judgment, the pleadings, particulars and evidence: Jackson v Goldsmith (1950) 81 CLR 446 at 467. 77 Mr Bell SC submits that the Colonial proceedings' judgments establish issue estoppels as between LawCover and Mr Flammia in respect of matters including the following:

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(c) that fraud involved, inter alia, Mr Caradonna and Mr Flammia faxing a forged document from Mr Flammia's office. 78 Mr Bell SC submits that s.6(1) Law Reform (Miscellaneous Provisions) Act 1946 creates a charge on all insurance monies that are or may become payable in respect of a liability, and that if no insurance monies are payable, the statutory charge has nothing to which it may attach: Bailey v New South Wales Medical Defence Union Limited (1995) 184 CLR 399. Accordingly, the Plaintiffs' rights against LawCover under s.6(1) are no better than Mr Flammia's rights against LawCover. If Mr Flammia's claim against LawCover under the policy is affected by an issue estoppel, then so is the Plaintiffs' derivative claim against LawCover. An alternative way of making the same point is to say the Plaintiffs are Mr Flammia's "privy in interest" for the purpose of issue estoppel because the Plaintiffs' claim is "under or through" Mr Flammia: Ramsay v Pigram (1968) 118 CLR 271 at 279. LawCover submits that there is sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings in to which the other is party: Gleeson v J Wippell & Co Limited [1977] 1 WLR 510 at 514-516. LawCover submits that the Plaintiffs have a sufficient degree of identification with Mr Flammia to make it just to hold that the decision in issue estoppels between LawCover and Mr Flammia in the Colonial proceedings should be binding in these proceedings as against the Plaintiffs, because the Plaintiffs claim under and through Mr Flammia. 79 With respect to the submissions at paragraph 71 and (d), Mr Bell SC submits that Mr Flammia, as the Plaintiffs' solicitor, owed the Plaintiffs a fiduciary obligation in respect of his safe keeping of the Narellan Vale CT. As such, he submits that Mr Flammia had an obligation to disclose to the Plaintiffs all matters within his knowledge which may be relevant to the magnitude of the risk involved in the Plaintiffs leaving the title deed with Mr Flammia for safe keeping. Mr Bell SC referred to Nationwide Building Society v Balmer Radmore [1999] Lloyds Rep PN 241 at 263-264, where Blackburne J held that a solicitor acting for a lender who has knowledge that there is a risk that a borrower is intending to defraud the lender, is obliged to disclose that matter to the lender, regardless of any other obligations owed by the solicitor to the borrower. LawCover relies as well upon the decision of the House of Lords in Hilton v Barker Booth and Eastwood [2005] 1 WLR 567. There, the House of Lords held that the solicitor acting for two clients (Mr Hilton and Mr Bromage) in a sale by Mr Hilton to Mr Bromage had an obligation to inform Mr Hilton that Mr Bromage had recently been released from prison after pleading guilty to offences involving fraudulent trading and participating in the management of a company whilst an undischarged bankrupt. The solicitor knew of those matters by reason of having acted for Mr Bromage in the criminal proceedings. The House of Lords held that, as between the solicitor and Mr Hilton, the solicitor was obliged to disclose those matters to Mr Hilton, regardless of whether that would constitute a breach of the solicitor's duty to Mr Bromage. 80 Mr Bell SC submits that position is a fortiori in this case, because in relation to the superannuation fraud perpetrated by Mr Flammia and Mr Caradonna, there is no confidence in an iniquity: Nationwide Building Society v Balmer Radmore at 264. He submits that the following matters were plainly relevant to the magnitude of the risk involved in the Plaintiffs leaving the title deed with Mr Flammia for safe keeping:

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(e) far from being a place of safe keeping, Mr Flammia's office was in fact an office operated by a fraudulent solicitor, and a venue at which overt acts in relation to frauds had previously been committed by Mr Flammia acting with Mr Caradonna. 81 Mr Bell SC submits that Mr Flammia was obliged to disclose those matters to the Plaintiffs, in accordance with the principles in Nationwide Building Society v Balmer Radmore and Hilton v Barker Booth and Eastwood. The fact that the disclosure would involve the disclosure of Mr Flammia's own fraudulent conduct could not prevent that duty from arising, because Mr Flammia's personal interest in not disclosing his own fraudulent conduct could not be preferred over his fiduciary obligation to the Plaintiffs to disclose all matters relevant to the Plaintiffs' decision to entrust, or to continue to entrust, their title deed to him. 82 LawCover submits that Mr Flammia's failure to disclose these matters must inevitably be described as dishonest. Reliance is placed, by way of analogy, upon Law Society of NSW v Harvey (1976) 2 NSWLR 154 at 173-174 and McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 at 597 [62]. Mr Bell SC argues that the only plausible inference is that Mr Flammia did not disclose those matters because it would involve the divulging of his own previous fraudulent conduct, and that he wished his own fraudulent conduct to remain undetected. Any such preferment of Mr Flammia's own interests, he submits, was also dishonest because Mr Flammia would have known that he had a fiduciary duty to bring those matters to the attention of the Plaintiffs: McCann v Switzerland Insurance Australia Limited at 579 [61]-[62]. There can be no suggestion that Mr Flammia could have honestly forgotten that he had previously engaged in a fraudulent conspiracy with Mr Caradonna, or that Mr Flammia could have honestly overlooked the previous fraudulent conspiracy, or honestly considered that it was not a relevant matter which ought to have been disclosed to the Plaintiffs. 83 LawCover submits that the causal connection encompassed by the wording "arises from … whether directly or indirectly" in clause 21 of the policy is extremely broad. In McCann v Switzerland Insurance Australia Limited at 589 [22]-[23], the High Court applied a broad notion of causation to the words "brought about by" in a previous version of the LawCover policy. Mr Bell SC submits that the clause in the present version of the policy is even wider than that considered by the High Court, referring as it does to a claim which "arises from" any dishonest or fraudulent acts "whether directly or indirectly". He submits that those words are to be given a wide construction: Yaktine v Perpetual Trustees Victoria Limited [2004] NSWSC 1078 at [58]; Ginelle Finance Pty Limited v Diakakis [2007] NSWSC 60 at [138]. 84 Mr Bell SC submits that, if Mr Flammia had acted in accordance with his duty and disclosed these matters to the Plaintiffs immediately after the fraudulent conduct occurred with Mr Caradonna in 2001, it cannot seriously be suggested that the Plaintiffs would have done anything other than retrieve the Narellan Vale CT from Mr Flammia's purported safe keeping. Had the Plaintiffs retrieved the title deed in 2001, it could not have been fraudulently used by Mr Caradonna in 2003 as alleged in the Amended Statement of Claim. Accordingly, LawCover submits that the Plaintiffs' claim against Mr Flammia "arises, directly or indirectly" from Mr Flammia's dishonest omission to disclose to the Plaintiffs the matters relied upon by LawCover. In these circumstances, LawCover submits that clause 21 of the policy is engaged, the contrary is not arguable and leave to join LawCover and proceed against it should accordingly be refused. 85 With respect to the submission at paragraph 71, Mr Bell SC submits that the judgments of Emmett J in the Colonial proceedings are admissible as tendency evidence pursuant to s.97 Evidence Act 1995. He submits that the conduct there disclosed bears a strong similarity to what occurred in the present case, namely the use of an innocent person's document (in the present case, a title deed; in the Colonial proceedings, a redemption form) coupled with forged signatures to obtain money from financial institutions. He submits that any suggestion that the use of the Narellan Vale CT by Mr Caradonna to obtain funds by deception was a coincidence, with Mr Flammia not being involved, should be rejected. He submits that the overwhelming probability is that this was a further instalment of the dishonest and fraudulent conduct in which the two men were engaged. 86 Finally, Mr Bell SC submits that, in the light of the Plaintiffs' admissions and the other matters dealt with in the Colonial proceedings' judgments, the amendment sought to be made by the Plaintiffs involve an abuse of process. He submits that the categories of abuse of process are not closed and that, in assessing whether there has been an abuse of process, a broad-based merits approach ought be taken. There may be an abuse of process, absent an estoppel, where there is an attempt to litigate a newer matter already determined in earlier proceedings: Rogers v The Queen (1994) 181 CLR 254 at 156. The original agitation of the issue need not have been in proceedings to which the party alleging abuse was a party. The relevant abuse may be in terms of unconscionability, blowing hot or cold or approbating and reprobating. It may also be in terms of an act which brings the administration of justice into disrepute. In the present case, Mr Bell SC submits that an abuse of process arises because:

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Submissions of Plaintiffs 88 Mr Beale, counsel for the Plaintiffs, contends that the unlawful removal of the Narellan Vale CT from Mr Flammia's office, at some time prior to 27 November 2003, constitutes an event giving rise to a claim for damages or compensation, which the Plaintiffs have against Mr Flammia for the purpose of s.6(1) Law Reform (Miscellaneous Provisions) Act 1946. He submits that, pursuant to paragraph 4 of the policy, LawCover indemnified Mr Flammia for liability in respect of the claim commenced against him by the Plaintiffs, and that the provision of the service of holding in safe custody valuable securities, including the Narellan Vale CT, falls within the definition of "the provision of legal services" in paragraph 35(f) of the policy. 89 Mr Beale submits that the event which gave rise to the claim by the Plaintiffs against Mr Flammia, and which gave rise to the charge under s.6, was the unauthorised removal of the Narellan Vale CT from the office of Mr Flammia. 90 Mr Beale accepts that the critical issue for determination on this application is whether, on the evidence adduced on this application, leave should not be granted because, under the terms of the policy, LawCover is entitled to disclaim liability for the purposes of s.6(4) Law Reform (Miscellaneous Provisions) Act 1946. 91 The Plaintiffs submit that LawCover has presented no evidence which demonstrates that Mr Flammia, notwithstanding his connection with Mr Caradonna, was either directly or indirectly involved in the dishonest removal of the Narellan Vale CT from Mr Flammia's office. 92 Mr Beale submits that the judgments of Emmett J in the Colonial proceedings do not give rise to any relevant issue estoppel as a consequence of which LawCover is entitled to disclaim liability. He submits that Emmett J was concerned with a distinct set of facts, in an earlier time period, and a completely separate cause of action to that contained in the present application. Mr Beale submits that the findings of Emmett J concerning Mr Flammia's dishonesty related to the particular facts and circumstances as found in that case and that those findings have no application to this case in such a way as to found the basis for application of the doctrine of issue estoppel. 93 The Plaintiffs submit that they have established an arguable case that LawCover is obliged to provide indemnity and that, accordingly, the Court cannot be satisfied that LawCover is entitled under the terms of the contract of insurance to disclaim liability: Tzaidas v Child at 25 [19]-[20]. Further, Mr Beale submits that LawCover has not established the second limb in relation to disclaimer under s.6(4) of the Act, namely "that any proceedings, including arbitration proceedings, necessary to establish that the insurer is so entitled to disclaim, have been taken". 94 In answer to LawCover's submission that the documents provided by the Plaintiffs in support of the claim on the Fidelity Fund contain admissions that Mr Flammia had acted dishonestly, Mr Beale submits that the contents of these documents are not capable of being admissions with respect to Mr Flammia's conduct. Rather, they constitute no more than allegations on the part of the Plaintiffs (and unsubstantiated allegations), since no evidence has been adduced of dishonesty on Mr Flammia's part. Alternatively, Mr Beale submits that the question whether the pleadings or other assertions constitute admissions under s.81 Evidence Act 1995 should be treated as a question of fact properly left to trial. 95 Mr Beale submits that the case against LawCover should be determined on the evidence available at a trial, not by reference to propositions contained in earlier pleadings or correspondence, as part of a precautionary application to the Fidelity Fund made under time constraints in 2007. He submits that the present proceedings allege negligence against Mr Flammia, and that nothing asserted on behalf of the Plaintiffs constitutes an admission which is capable of demonstrating dishonesty on Mr Flammia's part. He submits that these statements in earlier documents could not be used to preclude the Plaintiffs from leading evidence which was consistent only with negligence, and not dishonesty. 96 Mr Beale contends that the evidence relied upon by LawCover involves suspicion and innuendo, but that it is incumbent upon LawCover to adduce evidence of dishonesty or fraudulent conduct on the part of Mr Flammia of a type which meets the standard of proof in s.140 Evidence Act 1995 and Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-363. 97 Mr Beale submits that the terms of clauses 21 and 22 of the policy make clear that, for the purpose of disclaiming liability, it is necessary that "the claim" arises from dishonest or fraudulent acts or omissions. The dishonesty or fraud must relate to the factual circumstances of "the claim", and not some other facts and circumstances. If there be any ambiguity in this respect, and Mr Beale submits that there is not, he contends that the contra proferentem rule would operate strictly against the party drafting the policy, LawCover, so as to support the Plaintiffs' argument: Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500. 98 Mr Beale submits that s.54 Insurance Contracts Act 1984 (Cth) has the effect of limiting the right of an insurer to refuse indemnity because of "some act of the insured or of some other person, being an act that occurred after the contract was entered into …". He relies upon Tzaidas v Child at 50 [130], 52 [136]-[137] (per Santow JA). 99 Mr Beale submits that nothing in McCann v Switzerland Insurance Australia Limited, or the English authorities relied upon, assists LawCover in its argument that Mr Flammia's failure to disclose to the Plaintiffs his past relationship with Mr Caradonna was itself a dishonest omission within clause 21 of the policy. 100 With respect to LawCover's submission that the joinder of LawCover to the present proceedings would constitute an abuse of process, Mr Beale submits that permitting the Court to determine whether the conduct comes within clause 21 of the policy in the circumstances of this case is not an attempt to re-litigate an issue already determined by Emmett J in the Colonial proceedings. In response to LawCover's argument that the Plaintiffs are approbating and reprobating, Mr Beale submits that the lodging of a claim on the Fidelity Fund (requiring dishonesty) is not such as to operate to prevent the Plaintiffs from seeking to establish negligence on Mr Flammia's part in the present proceedings. In reality, Mr Beale submits that these were alternative steps taken by the Plaintiffs, in a manner similar to alternative pleadings advanced by litigants upon differing (and inconsistent) bases in fact and law. The fact that a claim was made on the Fidelity Fund (upon the limited basis contained in the supporting documentation) ought not be used to prevent the Plaintiffs from pressing the present claim and joining LawCover to the proceedings. 101 Mr Beale submits that the Court should exercise discretion in favour of joinder of LawCover and a grant of leave unde s.6(4) of the Act, and that questions of admissibility and weight of evidence with respect to facts relevant to the present proceedings ought be left to the trial of the Plaintiffs' claim.

[86]

The Issue to be Determined 102 The onus lies upon the Plaintiffs to establish their claim for discretionary relief as sought in the Amended Notice of Motion: Nettle v Mathieson Group Pty Limited [2007] NSWCA 98 at [21]. 103 Section 6 Law Reform (Miscellaneous Provisions) Act 1946 creates "a new right with an associated remedy to enforce it": Bailey v New South Wales Medical Defence Union Ltd at 446. The right is the charge as created by s.6(1). The remedy to enforce performance of the obligation secured by such a charge is the direct right of action against an insurer given by s.6(4), subject to the requirement for leave. Section 6(4) does not direct the Court to deny leave only in a case where it is satisfied both of the entitlement to disclaim liability and that necessary steps have been taken to establish entitlement to do so. Leave must be refused in those cases but may also be refused, as a matter of discretion, even if the prohibition does not apply: Bailey v New South Wales Medical Defence Union Ltd at 448; Tzaidas v Child at 24 [17]. 104 LawCover has not argued that a charge has not arisen in this case by the making of the claim under the policy. Rather, the argument has focused upon the question whether discretion should be exercised in favour of the Plaintiffs by reference to the dishonesty/fraud exclusion clause. 105 The question to be answered is whether, by reference to evidence available on the application, it was arguable that the insured had a claim under the relevant policy: Tzaidas v Child; Macquarie Underwriting Pty Limited v Permanent Custodians Limited (2007) 240 ALR 519 at 522 [15]. In the circumstances of this case, have the Plaintiffs demonstrated, in light of the material in evidence on the application, that it is arguable that Mr Flammia was not dishonest in the circumstances in which the Narellan Vale CT came to leave Mr Flammia's office, and be used for the purpose of the Hillsan mortgage in 2003? The demonstration of an arguable case has been said to be "a relatively modest hurdle": Tzaidas v Childs at 52 [140] (per Santow JA). 106 I should keep firmly in mind that the issue on this interlocutory application concerns arguability. And it falls to be determined by reference to the evidence before me. The limitations on the extent of decision making in the course of an interlocutory hearing have been recognised, in particular where contested questions of fact and/or law are involved: The Owners - Strata Plan 50530 v Walter Construction Group Ltd (In Liq) [2006] NSWSC 552 at [29]. 107 I am not purporting to determine the Plaintiffs' claim for relief against LawCover, as if at a final hearing upon the assumption that LawCover had been joined as a party to the proceedings. There is a volume of documentary evidence before the Court on this application. It is likely that there will be a range of additional evidence, oral and documentary, at any final hearing should LawCover become a party to the proceedings. As Graham J observed in Macquarie Underwriting Pty Limited v Permanent Custodians Limited at 539 [106], a finding, for the purposes of s.6(4), that there is an arguable case of entitlement to indemnity will not affect the ultimate outcome of the matter following a trial and detailed argument in relation to the whole of the evidence and the impact of the relevant statutory provisions upon the question of liability in the matter. 108 A number of the issues raised on this application concern the potential use of evidence, including tendency evidence, at a final hearing. It will fall to the trial judge to determine the admissibility and weight of such evidence. That does not mean that I should disregard or in some way downgrade the value, or potential value, of such evidence on this application. However, I am conscious of the limitations in determining issues on an interlocutory application.

[87]

Construction of the Policy 109 A policy of insurance is a commercial contract and should be given a businesslike interpretation, requiring attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Limited at 589 [22] (per Gleeson CJ); Wilkie v Gordian Runoff Ltd [2005] 221 CLR 522 at 528-529 ]15]; CGU Insurance Ltd v Porthouse [2008] HCA 30 at [43]. Maxims and rules of construction, developed as tools to aid the tasks of interpretation, are subordinate to the primary duty, which is to uphold the contract between the parties. The contra proferentem rule is one of last resort: McCann v Switzerland Insurance Australia Limited at 600-603 [74] (per Kirby J). 110 Clause 21 of the policy allows LawCover not to indemnify Mr Flammia "when the claim arises from any dishonest or fraudulent acts or omissions … whether directly or indirectly". I accept that these are words of wide import: Yaktine v Perpetual Trustees Victoria; Ginelle Finance Pty Limited v Diakakis. 111 It is necessary, however, that there be some link revealed in the evidence with respect to the Plaintiffs' claim arising from the taking and unauthorised use of the Narellan Vale CT and dishonesty or fraud on the part of Mr Flammia. Issues Arising From the Judgments of Emmett J in the Colonial Proceedings 112 For the doctrine of issue estoppel to apply in the present proceedings, it is necessary that, in the Colonial proceedings, the same question has been decided, the judicial decision which is said to create the estoppel was final and the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies: Kuligowski v Metrobus [2004] 220 CLR 363 at 373 [21]. The onus lies upon LawCover, as the party seeking to rely upon an estoppel, to establish this requirement: Kuppers v New South Wales Fire Brigades [2005] NSWSC 193 at [22]; Spencer Bower, Turner and Handley, "The Doctrine of Res Judicata", 3rd edn, 1996, paragraph 98. In ascertaining whether there is an issue estoppel, a court is entitled to look not only at the record, but also at any material that shows what issues were raised and decided, including the evidence in the first proceedings: Jackson v Goldsmith at 467; Rogers v The Queen at 263; Murphy v Abi-Saab (1995) 37 NSWLR 280 at 288; Spencer Bower, Turner and Handley, "The Doctrine of Res Judicata", above, paragraph 204. 113 The first judgment of Emmett J determined a no-case submission and was interlocutory in nature. However, the second judgment of Emmett J made findings and determinations with respect to the proceedings and constituted a final judicial decision. Accordingly, that element of an issue estoppel is made out. 114 LawCover and Mr Flammia were parties to the Colonial proceedings which gave rise to the judgments of Emmett J. If LawCover becomes a party to the present proceedings, then Mr Flammia, the Plaintiffs and LawCover will all be parties to the proceedings. For present purposes, I accept that this state of affairs satisfies the element for issue estoppel in that the parties to the judicial decision or their privies were the same parties as the parties to the proceedings in which the estoppel is raised or their privies. Relevantly, the Plaintiffs and Mr Flammia would be privies for this purpose. 115 Is the same question to be decided in the present proceedings as was decided by Emmett J so as to satisfy the remaining element of issue estoppel? The Plaintiffs submit that this element does not exist in this case. In Ramsay v Pigram, Barwick CJ at 276 encapsulated what was involved in enquiring whether the same question has been decided, so as to attract the doctrine of issue estoppel: "Long standing authorities, in my opinion, warrant the statement that, as a mechanism in the process of accumulating material for the determination of issues in a proceeding between parties, an estoppel is available to prevent the assertion in those proceedings of a matter of fact or of law in a sense contrary to that in which that precise matter has already been necessarily and directly decided by a competent tribunal in resolving rights or obligations between the same parties in the same respective interests or capacities, or between a privy of each, or between one of them and a privy of the other in each instance in the same interest or capacity. The issue thus determined, as distinct from the cause of action in relation to which it arose, must have been identical in each case." 116 In Blair v Curran at 532-533, Dixon J said that what is precluded by issue estoppel is what is legally indispensable to the conclusion. In the case of matters of fact, the issue estoppel is confined to the ultimate facts which form the ingredients in the cause of action - facts fundamental to the decision. In Murphy v Abi-Saab, Gleeson CJ (Kirby P and Rolfe AJA agreeing), said at 288E-F: "The difficulty is to distinguish between decisions of fact or law fundamental or cardinal to the judgment and other decisions. One thing, however, is clear. Only a decision about a matter which it was necessary to decide can create an issue estoppel. It is, therefore, essential to approach reasons for judgment which are said to create an estoppel with an accurate understanding of what the author of the reasons was required to decide. A practical test of whether a decision is fundamental is to ask whether it is possible to appeal against the finding: Spencer Bower and Turner, the Doctrine of Res Judicata , 2nd ed (1969) at 182; Talyancich v Index Developments Limited (1992) 3 NZLR 28." 117 It will be apparent from the recital of the circumstances of the case determined by Emmett J, and the circumstances of the Plaintiffs' claim in the present proceedings, that there is a distinct prospect that overlapping issues will arise between the two sets of proceedings. For present purposes, I am prepared to accept that, in the present proceedings, the Plaintiffs would be bound by the findings of Emmett J with respect to the earlier relationship between Mr Flammia and Mr Caradonna and their dealings with the funds extracted from Mr Stevens' superannuation scheme. An issue may arise, at any final hearing, concerning the admissibility of such evidence in these proceedings. On this application, that evidence was admitted without objection. I will have regard to it. 118 However, the issue to be determined in the present proceedings will concern the conduct of Mr Flammia (and Mr Caradonna) with respect to the storage, removal and unauthorised use of the Narellan Vale CT to give a mortgage to Hillsan in 2003. Clearly, that is a different question to any of those determined by Emmett J in the Colonial proceedings. For present purposes, I accept that the findings of Emmett J give rise to an issue estoppel with respect to the precise issue in these proceedings concerning the nature of the relationship between Mr Flammia and Mr Caradonna, and their dishonest dealings in 2001-2002 with respect to Mr Stevens' superannuation funds. However, that issue constitutes one part only of the evidence before me. 119 I do not consider that the availability of the findings of Emmett J in the Colonial proceedings and the consequential application of the doctrine of issue estoppel, operate against the discretionary determination in favour of the Plaintiffs to join LawCover to the present proceedings. The fact that Mr Flammia acted dishonestly on an earlier occasion in the manner found by Emmett J does not preclude the Plaintiffs from contending that Mr Flammia was negligent (but not dishonest) in this case, nor does it stand in the way of the Plaintiffs having an arguable case of liability under the policy concerning this claim. 120 The Plaintiffs' claim in negligence in these proceedings will be determined by reference to the totality of the evidence concerning the retention, removal and unauthorised use of their title deed prior to November 2003. The availability of an issue estoppel argument to LawCover, with respect to certain antecedent events, does not mean that the Plaintiffs do not have an arguable claim against LawCover under the policy.

[91]

(b) statements made in correspondence written by the Plaintiffs' solicitors to a police officer, and in pleadings or other documents drawn on behalf of the Plaintiffs. 124 LawCover tenders these various statements as admissions by the Plaintiffs under ss.81 and 87 Evidence Act 1995. The Dictionary to the Act defines "admission" as a previous representation that is made by a person who is or became a party to a proceeding (including a defendant in a criminal proceeding) and which is adverse to the person's interest in the outcome of the proceeding. In effect, LawCover contends that the Plaintiffs have made admissions by words (in documents) and admissions by conduct (in making a claim on the Fidelity Fund). 125 It is important to observe that the suggested admissions do not relate to the conduct or thought processes of the Plaintiffs themselves. The evidence reveals that they left the Narellan Vale CT (and other documents) for safe keeping at Mr Flammia's legal practice and had no idea that the title deed had been taken and used for the purpose of the Hillsan mortgage, until the undoubtedly surprising news was broken to them in 2006. 126 On the evidence before me, the Plaintiffs have no greater knowledge concerning the circumstances in which the title deed left Mr Flammia's office, and came to be used in this way, than is revealed by the totality of the evidence before me. There is no direct evidence before me of dishonesty or fraudulent conduct on Mr Flammia's part with respect to the Narellan Vale CT. There is considerable evidence of dishonesty and fraudulent conduct on Mr Flammia's part (in conjunction with Mr Caradonna) in other contexts. The case of dishonesty or fraudulent conduct against Mr Flammia is based upon inference, and conclusions which might be reached by reference to evidence of other wrongdoing on his part (in conjunction with Mr Caradonna) before (the Colonial proceedings' judgments) and after (the Vella judgment) the events involving the Plaintiffs. 127 It does not seem to me that the matters relied upon by LawCover as admissions by the Plaintiffs take the matter very far. For present purposes, I accept that statements made by the Plaintiffs' then solicitors are capable of being admissions by the Plaintiffs: Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd (2008) 167 FCR 314 at 318-319 [18]. The fact that the Plaintiffs have no real knowledge whether Mr Flammia acted dishonestly or fraudulently with respect to their claim does not mean that any purported admissions by them to that effect cannot be received into evidence: Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd at 323-324 [37]-[39]. However, it may be that little weight will be given to such an admission. Its probative force must be determined by reference to the circumstances in which it is made and may depend all together upon the party's source of knowledge: Lustre Hosiery Ltd v York (1935) 54 CLR 134 at 143-144; Grey v Australian Motorists and General Insurance Co Pty Ltd (1976) 1 NSWLR 669 at 684-685. At a final hearing, the trial judge may not be satisfied that this evidence ought be treated as admissions. Once again, for the purpose of this application, I will treat this as evidence of admissions and assess what weight ought be given to it. 128 I accept Mr Beale's submission that the claim on the Fidelity Fund was made under time constraints, to ensure an application was on foot in case evidence ever emerged which meant that this was the only avenue left to the Plaintiffs to seek some form of redress arising from the taking and use of the Narellan Vale CT. Neither the contents of the claim, nor the fact that it was made, provides any real assistance to LawCover. The statements by the Plaintiffs which form part of that claim, and the documentation provided in support of it, do not demonstrate any objective basis for a conclusion that Mr Flammia had acted dishonestly or fraudulently with respect to the Narellan Vale CT. Indeed, the claim form states that the matter was still under police investigation. In circumstances where the Plaintiffs were told that any claim on the Fidelity Fund had to be made by a certain date, it does not seem to me that the making of the claim constitutes any reliable or weighty admission by conduct. In reality, the Plaintiffs do not know what happened, apart from their basic knowledge that the title deed had been left with Mr Flammia for safe keeping, but ended up being used for the purpose of the Hillsan mortgage. 129 The suggested admissions in correspondence and other documents rise no higher than the Fidelity Fund claim material. This is not a case where the Plaintiffs have knowledge of the true facts and, in those circumstances, make a statement against interest. Rather, it is a case of the Plaintiffs (being uncertain of the true facts) wishing to protect their own interests by keeping open all lawful avenues by the commencement of proceedings in negligence against Mr Flammia, an application to join LawCover to those proceedings and, in the event it was ever necessary, a claim on the Fidelity Fund if it turned out (and could be demonstrated) that Mr Flammia had acted dishonestly or fraudulently with respect to the Narellan Vale CT. 130 In my view, none of these matters constitutes reliable or weighty admissions which operate against the Plaintiffs on this application.

[95]

Conclusion 137 The Plaintiffs have pleaded a case in negligence against Mr Flammia. For present purposes, it may be taken that he owed a duty of care to the Plaintiffs with respect to the safe keeping of the Narellan Vale CT. The evidence available to the Plaintiffs at this time includes the letter from Ms Banicevic referred to at [48]-[49] above. This suggests that Mr Caradonna had an unusual degree of access to Mr Flammia's office, including access to private areas. The evidence indicates that the Narellan Vale CT was at Mr Flammia's office but that, at a later point in time, it was being used for the purpose of the Hillsan mortgage. The evidence suggests that Mr Caradonna was directly involved in the use of the Narellan Vale CT for that unauthorised purpose. 138 There is no direct evidence of Mr Flammia's dishonest or fraudulent involvement in this process. 139 I have referred to the various arguments advanced by LawCover and expressed my conclusions with respect to them. I have considered the cumulative effect of the matters relied upon by LawCover, in assessing the totality of the evidence on the application. 140 In my view, the Plaintiffs have demonstrated on this application that it is arguable that Mr Flammia was negligent, and not dishonest, on this occasion. Accordingly, the Plaintiffs have demonstrated that it is arguable that they have a claim under the relevant policy. I propose to grant the Plaintiffs the relief sought in the Amended Notice of Motion. 141 Given these conclusions, it is not necessary to resolve the arguments of the Plaintiffs concerning s.54 Insurance Contracts Act 1984 (Cth). 142 It will be a matter for the trial judge, at the final hearing, to determine whether the Plaintiffs are entitled to relief in light of the totality of the evidence adduced at that hearing and after considering all relevant legal arguments advanced by the parties. Upon the basis of the evidence before me, however, I am satisfied that the relevant discretion ought be exercised in favour of the Plaintiffs.

Vaccaro and Anor v Flammia

At a glance

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Judgment (99 paragraphs)

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Legislation Cited (3)

Cases Cited (32)

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