Ward v Westpac Banking Corporation Limited

Supreme Court of NSW|2022-02-03|Before: Kunc J

Summary

The Court has before it two notices of motion whereby each moving party seeks orders that the legal advisors of their opponent be restrained from acting. Each application is based not on an attempt to preserve confidential information, but invokes the general supervisory jurisdiction of the Court over legal practitioners. For the reasons which follow, each of the applications will be dismissed.

The litigation

The plaintiffs in these proceedings are Messrs Roger Ward and Peter Mahommed. Their solicitor is Mr Leonardus Smits. He appeared for them today.
The first defendant is Westpac Banking Corporation (Westpac), which appeared briefly by solicitor and then was excused because it had no part to play in today's motions. It does have a motion for security for costs on foot which will be determined at a later date. The second defendant is the Registrar General, who also took no part in today's proceedings.
The third defendant is Ms Karen Cox, as administrator of the deceased estate of the late David William Dixon, pursuant to letters of administration granted on 27 November 2020 (Ms Cox). Her solicitors are Messrs Jim Kekatos and Ben Thomas of Kekatos Lawyers, and Mr D Allen of Counsel (the Cox lawyers). Mr Allen appeared for Ms Cox and the Cox lawyers (including himself) today.

Ms Cox's motion - general

By notice of motion filed on 12 July 2021, Ms Cox seeks this order: "1. An order restraining Mr Leonardus Gerardus Smits from acting for Roger Thomas Ward and/or Peter Shah Mahommed in these proceedings pursuant to the inherent jurisdiction of the Supreme Court of NSW."
The motion also contains orders for security for costs against Messrs Ward and Mohammed. As part of the case management of these proceedings, Ward CJ in Eq has ordered that Ms Cox's application for security for costs will be heard later, together with Westpac's application for security for costs, to which I referred earlier. The only matters before me today were the respective applications to restrain the legal advisers from acting.

Ms Cox's motion - Ms Cox's evidence

As ultimately presented, Mr Allen's argument depended on the findings of Williams J in a lengthy and detailed judgment in Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 3) [2021] NSWSC 1482 (Overdean). Mr Mahommed and Mr Smits were defendants in Overdean, and their conduct in acting under powers of attorney was an important issue in those proceedings. Her Honour made serious findings against both Mr Mahommed and Mr Smits, including: "Breaches of fiduciary duty by Messrs Smits and Mahommed in entering in to the 20 March 2018 deed 619. I have referred to the terms of the 20 March 2018 deed in detail at [231]-[241] above. The deed was drafted by Mr Smits. [543] Mr Mahommed signed it on behalf of BAD Nominees, purportedly in his capacity as attorney appointed under the Power of Attorney. [544] Mr Smits approved of Mr Mahommed's exercise of the Power of Attorney to enter into the deed. 620. It will be recalled that, under the 2 August 2017 contract, BAD Nominees (or its nominee) was entitled to receive a transfer of the nine lots from BLE (as mortgagee in possession) in consideration for a reduction of $1,000,000 in the amount of BAD Nominees' claim as a creditor of BLE. 621. Pursuant to the 20 March 2018 deed, BAD Nominees undertook to nominate Garslev as the transferee of the nine lots and assigned to Garslev all of BAD Nominees' right, title and interest to and in respect of: (1) the 2 August 2017 contract and the orders made in the 2017 proceedings on 23 October 2017 in respect that contract; (2) the February 2013 loan and the February 2013 security; and (3) all debts, claims and rights of action of BAD Nominees against Mr Dean, Mr Conlon or any other lawyers or tax accountants of BAD Nominees. 622. In return, Garslev agreed "to pay or to guarantee in aggregate payment of the said sum of $850,000 to the Assignor [BAD Nominees], to its use or benefit and/or to such recipients as are or may be authorised or directed by the Assignor herein or otherwise or by any attorney, representative, agent or officer of the Assignor and subject to these terms and conditions." 623. The stated consideration of $850,000 is less that the current market appraisal for the nine lots alone of $923,000, as referred to in the Recitals to the 20 March 2018 deed. Messrs Smits and Mahommed considered that BAD Nominees' rights under the February 2013 loan and security had value as at March 2018, as I will refer to below. 624. The 20 March 2018 deed did not entitle BAD Nominees to receive a payment of $850,000 for the rights to the nine lots and the other rights. The deed assigned those rights to Garslev in consideration for a mere promise or guarantee to pay that sum. Pursuant to clause 1, any such payment was not required to be made to BAD Nominees but could be made to any recipient directed by Messrs Smits and Mahommed as attorneys of BAD Nominees. Pursuant to clauses 2 and 3 of the deed referred to at [234]-[236] above, Garslev was entitled to "pay" the $850,000 by paying, settling or indemnifying BAD Nominees in respect of: (1) alleged debts and liabilities of BAD Nominees, including: (a) GST allegedly payable in respect of the nine lots in the amount of $185,000; (b) any stamp duty payable in respect of the transfer of the nine lots; (c) amounts allegedly payable by BAD Nominees under the deeds of assignment of debts executed in May 2016; and (d) amounts allegedly payable by BAD Nominees to Messrs Smits and Mahommed and Vestecorp (referred to as the "Attorneys", "Consultants" and "Lawyers"); and (2) liabilities that had not been incurred by BAD Nominees as at the date of the deed, including amounts that may be payable in the future to the "Attorneys", "Consultants" and "Lawyers". 625. Under clause 3 of the deed, Garslev was irrevocably authorised to pay, settle or indemnify BAD Nominees in respect of the amounts referred to above by deducting them from the $850,000 consideration without making any inquiry about whether BAD Nominees was in truth indebted for those amounts. Clause 3 conferred an "absolute discretion" on Garslev to determine whether any amounts invoiced to BAD Nominees from time to time were debts of BAD Nominees that could be paid, settled or indemnified by Garslev and offset against the $850,000 consideration. … 673. Mr Smits (by drafting the 20 March 2018 deed and approving its execution on behalf of BAD Nominees by his co-attorney) and Mr Mahommed (by executing the 20 March 2018 deed) breached their fiduciary duties owed to BAD Nominees by conferring these unauthorised benefits on Mr Smits and Vestecorp and on Garslev. … 675. Mr Smits (by drafting the 20 March 2018 deed and approving its execution on behalf of BAD Nominees by his co-attorney) and Mr Mahommed (by executing the 20 March 2018 deed) breached their fiduciary duties owed to BAD Nominees not to act in circumstances where there was a conflict between the interests of BAD Nominees and their own interests. They proceeded to act, and preferred their own interests and the interests Garslev to the interests of BAD Nominees. … 700. Mr Smits (by drafting the Garslev deeds and approving or acquiescing in the execution of the deeds on behalf of BAD Nominees by his co-attorney) and Mr Mahommed (by executing the Garslev deeds) breached their fiduciary duties owed to BAD Nominees by conferring those unauthorised benefits on Mr Smits and Vestecorp and on Garslev. 703 For the reasons explained at [727]-[745] below, the breaches of fiduciary duty in relation to the 20 March 2018 deed and the Garslev deeds were a dishonest and fraudulent design. … 708 As I have stated earlier in these reasons, the purpose of the power conferred on Messrs Smits and Mahommed by the Power of Attorney was to protect and enforce the rights and interests of BAD Nominees (as trustee of the Dean Super Fund) as a creditor of BLE and GEP, as recorded in clause 3 of the IAD: see [575] above. The purpose of enabling Messrs Smits and Mahommed to determine the fees to be paid to them without the knowledge and approval of Mr Dean on behalf of BAD Nominees was extraneous to the purpose for which the power was conferred. On the basis of the terms of the 20 March 2018 deed and the other evidence referred to at [619]-[685] above, I find that Messrs Smits and Mahommed did exercise the power for that extraneous purpose when they caused and permitted BAD Nominees to enter into the 20 March 2018 deed. The execution of that deed under the Power of Attorney was not an exercise of the power in good faith and for a proper purpose. For those reasons, Mr Mahommed's reliance on the Power of Attorney in executing the 20 March 2018 deed on behalf of BAD Nominees was a fraud on the power. … 734 In my opinion, the breaches of fiduciary duty by Messrs Smits and Mahommed in relation to the Garslev deeds, which had the effect of depriving BAD Nominees of the value of the nine lots to the advantage of Messrs Smits and Mahommed, Vestecorp and Garslev, clearly transgressed ordinary standards of honest behaviour and were a dishonest and fraudulent design. Because the effect of the Garslev deeds that I have described above was obvious from the terms of those deeds, I find that Garslev (through its sole director, Mr J Smits) either had actual knowledge of their effect or wilfully shut its eyes to their effect. As I have already noted, whether Garslev knew that this amounted a breach of fiduciary duty is irrelevant. I reject Garslev's denial that it wilfully shut its eyes to the obvious. … 745 In my opinion, the equitable remedies that are appropriate to the circumstances of the breaches of fiduciary duty by Messrs Smits and Mahommed in which Garslev knowingly assisted [652] are orders rescinding the 20 March 2018 deed and the Garslev deeds, an order requiring Garslev to account as constructive trustee for the benefit that it has derived from knowingly assisting in the breaches of fiduciary duty, and an order requiring Messrs Smits and Mahommed and Garslev to pay equitable compensation for the loss that will not be addressed by Garslev accounting for the benefits it has derived."

Ms Cox's motion - the respondents' evidence

Four affidavits of Mr Mahommed were read but were not referred to in argument, with one limited exception. That exception was evidence from Mr Mahommed that Mr Smits submitted demonstrated that Mr Mahommed would have difficulty finding and funding lawyers other than Mr Smits if Mr Smits were restrained from acting, and that the complexity of this litigation meant that a great deal of money would be wasted in having to brief new lawyers, when compared to Mr Smits's familiarity with the facts of these proceedings.
Insofar as the findings in Overdean were concerned, Mr Smits informed the Court that the findings against him and Mr Mahommed would be strenuously contested in an appeal that was shortly to be filed (her Honour's decision was delivered on 17 November 2021 and a notice of intention to appeal has been filed).

Ms Cox's motion - the applicable legal principles

There was no dispute about the applicable legal principles. Mr Allen referred the Court to the fourth and fifth points of the well-known passage in the decision of Brereton J in Kallinicos v Hunt (2005) 64 NSWLR 561; [2005] NSWSC 1181 at [76]: "The foregoing authorities establish the following:- ● During the subsistence of a retainer, where the court's intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court's jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests (Prince Jefri). ● Once the retainer is at an end, however, the court's jurisdiction is not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure) (Prince Jefri). ● After termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court's intervention, such duty having come to an end with the retainer [Prince Jefri; Belan (v Casey; Photocure; British American Tobacco; Asia Pacific Telecommunications; contra Spincode; McVeigh; Sent). ● However, the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice [Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode; Holborow; Williamson v Nilant; Bowen v Stott; Law Society v Holt]. Prince Jefri does not address this jurisdiction at all. Belan v Casey and British American Tobacco are not to be read as supposing that Prince Jefri excludes it. Asia Pacific Telecommunications appears to acknowledge its continued existence. ● The test to be applied in this inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice (Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Holborow; Bowen v Stott; Asia Pacific Telecommunications). ● The jurisdiction is to be regarded as exceptional and is to be exercised with caution (Black v Taylor; Grimwade v Meagher; Bowen v Stott). ● Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause (Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott). ● The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief (Black v Taylor; Bowen v Stott)."
In Seng Hpa v Walker [2017] VSC 320 (references omitted) McMillan J said: "149. The applicable principles when a solicitor is acting in a position of conflict are well established. Specifically, the concern arises that a solicitor's position of conflict will compromise his or her duties to the Court, which include the general duties of disclosure, not abusing the Court processes, not corrupting the administration of justice and conducting cases efficiently and expeditiously.[88] As stated by Mandie J in Grimwade v Meagher: "Solicitors not only owe a duty to their clients to do the best for them but an overriding duty to the Court… As part of their professional responsibility, therefore, solicitors and counsel must ensure that they do not appear in a matter in which they have an actual or potential conflict of interest or where, by reason of their relationship with their client, their professional independence can be called into question… I am primarily concerned in this case with the principle of protecting the integrity of the judicial process. That integrity is undermined if solicitors or counsel do not possess the objectivity and independence which their professional responsibilities and obligations to the Court require of them ..." 150. Ordinarily such issues arise in relation to applications to restrain a lawyer from acting, or for costs against a lawyer in professional misconduct proceedings or in claims of breach of fiduciary duty.[90] In one instance in the Federal Magistrates' Court, for example, a solicitor was restrained from acting for his parents on the basis that he had 'a personal interest of the closest kind' to his client. 151. Concerns of conflict are heightened in circumstances where a solicitor not only has an interest in the proceeding beyond recovering their fees, but also gives evidence in the proceeding on substantive matters. As noted in Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd, a concern is that the solicitor, although 'using best efforts to be impartial and objective, might adjust his or her evidence in a way to procure a result that suited his or her interests'. Relevant additional interests that have been recognised include personal or reputational interests, financial interests, or a professional interest in a transaction that is the subject of the proceeding. In Brown v Guss (No 2), a probate proceeding in which a solicitor was acting on behalf of his son and where his daughter was also a material witness, the Court recognised that the solicitor had additional interests in the outcome of the proceeding in the form of a reputational interest and a greater financial benefit to his children. In Italiano v Lake, a solicitor in a Part IV proceeding was in a position of conflict as she was also the mother of the plaintiff and had sworn affidavits in the proceeding. In circumstances Rush J did not restrain the solicitor from acting as the size of the estate was small, the specific evidence of the solicitor was likely to be of limited significance, the plaintiff was impecunious and at risk of exacerbated mental health issues."

Ms Cox's motion - submissions

During the course of argument, Mr Allen abandoned a submission based on Mr Smits having to be restrained because he could be a material witness in the present proceedings. Mr Allen based his submissions solely on what he described as the relationship between Messrs Smits and Mahommed, and to a lesser extent, with the late Mr Dixon. Mr Allen submitted that the findings of Williams J in Overdean demonstrated that Mr Smits had enjoyed, for a long period of time, a close personal relationship with Mr Mahommed which went well beyond the professional relationship of solicitor and client.
Furthermore, he contended, it followed from her Honour's findings that the nature of that relationship was such that they were prepared to commit fraud together. He drew attention to the fact that in Overdean, at least at some of the material times in which Mr Smits' conduct was in question, Mr Smits was acting as a solicitor, as well as in a personal capacity as attorney. Mr Allen submitted that brought those circumstances closer to the present circumstances, where Mr Smits was acting as Mr Mahommed's solicitor in these proceedings.
Mr Allen submitted that a fair-minded, reasonably informed member of the public would not have any confidence that Mr Smits would properly perform his duties as a solicitor and officer of the Court in representing Mr Mahommed in these proceedings in circumstances where their relationship was so close that it had extended to him being prepared to engage in dishonest conduct with Mr Mahommed.
Mr Allen also drew attention to the fact that, in the present proceedings, it was clear that there had been a relationship between Mr Mohammed and Mr Smits which pre-existed the current litigation and that both gentlemen had dealings with the late Mr Dixon. The amended statement of claim disclosed that in these proceedings Mr Smits had engaged in one particular transaction in favour of Mr Ward on behalf of Mr Dixon acting as Mr Dixon's attorney.
Mr Allen submitted that the jurisdiction which was being invoked was a jurisdiction protective of the proper administration of justice. It was one where on the authorities, in particular referring to the observations of McMillan J set out in [15] above, a person in a close personal relationship with another should not be permitted to act for that latter person. In this case it was said the need to restrain Mr Smits was even greater because, on the evidence, the nature of the relationship which was one which included a willingness to engage in fraudulent conduct.
For his part, Mr Smits drew attention to these matters: 1. Mr Allen had accepted that Mr Smits had no interest in the current proceedings other than in relation to his professional costs. 2. There was no factual or legal overlap between Overdean and these proceedings. They were two completely different cases. 3. While this case did include one transaction being executed by Mr Smits on behalf of the late Mr Dixon as the latter's attorney, it was not disputed that there was no criticism of Mr Smits' conduct in these proceedings in so doing. Furthermore, that transaction was not the subject of any challenge in these proceedings. 4. There was substantial evidence in support of the case advanced by the plaintiffs. 5. While Mr Smits accepted that the findings made against him and Mr Mohammed must be taken as correct unless and until they were overturned on appeal, the Court should take into account that an appeal was shortly to be filed, in which those findings would be strenuously contested. 6. As a matter of discretion, the Court should take into account that Mr Mohammed would have differently finding and funding new lawyers, and that the complexity of the proceedings would result in considerable wastage of time and expenditure if new lawyers had to be briefed. .
In reply, Mr Allen submitted: 1. There was no evidence filed on behalf of Mr Ward as to the consequences for him of Mr Smits being restrained; Mr Ward's case was really derivative from Mr Mahommed's; 2. Mr Mahommed had not given any evidence that he had even attempted to approach anyone else to ascertain whether or not he would be able to retain alternative representation; and 3. There was some prospect of a cost saving in these proceedings if the matter were to be looked at by legal advisers with fresh eyes.

Ms Cox's motion - determination

There can be no doubt that the findings against Mr Mahommed and Mr Smits in Overdean are serious. Mr Smits, correctly with respect, accepted that only if and until they are overturned, the Court must proceed on the basis that those findings stand. However, the jurisdiction to restrain a lawyer from acting is an exceptional one, which the authorities make clear is to be exercised with caution and with due regard for the public interest in not interfering with a party's choice of legal representative.
I have given anxious consideration to the arguments raised by Mr Allen and accept that there is much to be said for them. They certainly have a strong initial attraction. However, the matters which I have identified in [21] above as having been raised by Mr Smits provide the reasons why I am not satisfied that, in this case, the hypothetical fair-minded, reasonably informed member of the public would conclude that the proper administration of justice required Mr Smits to be restrained from acting for the plaintiffs in these proceedings.
While for at least some of the time considered in the Overdean proceedings, Mr Smits was acting as a solicitor, a consideration of her Honour's reasons makes it clear that Mr Smits and Mr Mahommed were, in effect, acting as two people in their own right (albeit as attorneys) and were treated as such in the proceedings.
The circumstances of this case, and Mr Smits' role in them, are sufficiently different from Overdean to lead me to the conclusion that the fair-minded observer, while perhaps initially troubled at the appearance of Mr Smits acting for Mr Mahommed, would, by reason of the matters referred to by Mr Smits, not be so troubled as to reach the conclusion that public confidence in the administration of justice would require Mr Smits to be restrained from acting. This is because Mr Smits' role in these proceedings is sufficiently distinct in both character and capacity to neutralise any initial concern that may be raised by the findings in Overdean.
For these reasons, prayer 1 of Ms Cox's motion will be dismissed.

The second plaintiff's motion

By notice of motion dated 26 August 2021, Mr Mahommed sought orders including: "1. An order restraining each respondent in his personal capacity, and through any servant, consultant, agent or legal practice, whether incorporated or not, from acting for or representing the Third Defendant, Frist Cross Defendant (Ms Cox) herein. 2. An order that each respondent provide indemnity under clause 5(1)(b) of Schedule 2 of the Legal Profession Uniform Application Act 2014 to each plaintiff and Leonardus Gerardus Smits, Solicitor in respect of all costs incurred or payable by or to them of and incidental to the Defences filed herein by the Third Defendant on 13 May 2021 to the First Cross-Claim and on 05 August 2021 to the Amended Cross Claim. 3. Joint, several and personal costs orders against each respondent, in favour of the Applicant and Leonardus Gerardus Smits pursuant to clause 5 of Schedule 2 of the Legal Profession Uniform Law Application Act 2014 (NSW) (the Uniform Law) and ss 98 and 99 of the Civil Procedure Act 2005 (NSW) in respect of the Notice of Motion filed on 29 June 2021 by the Third Defendant and this Notice of Motion. 4. An Order that the Costs in respect of each said Notice of Motion be fixed and payable jointly and severally by each respondent within 7 days after the making of these Orders in the lump sum of $33,000 (inclusive of GST) under section 98(4)(c) of the Civil Procedure Act 2005.
Mr Smits accepted that orders 2, 3 and 4 could only be made if the Court made the order restraining the Cox lawyers from continuing to represent Ms Cox.
I can deal with Mr Mahommed's motion much more briefly. Mr Smits sought to contend that the order should be made because the Cox lawyers had a serious conflict of interest. With respect to Mr Smits, and despite his lengthy written submissions, he was unable to explain to me what exactly the conflict was. It appeared to be a concern based around the role of an entity not a party to these proceedings, Greenhills Securities Pty Ltd (Greenhills).
It appears that an issue in these proceedings is that Westpac claims to be subrogated to rights that Greenhills is said to have had in the land. Mr Smits, on behalf of his clients, was exercised by the fact that Ms Cox, in her capacity as administrator of the late Mr Dixon's estate, has admitted Westpac's claim to be subrogated to Greenhills' rights. Mr Smits submitted that in circumstances where the Cox lawyers had acted for Greenhills in other proceedings, and were now acting for Ms Cox, the admission by Ms Cox of Westpac's claim to be subrogated to Greenhills evidenced a conflict in the Cox lawyers.
The Court accepts Mr Allen's submission that Mr Smits has confused the notion of a conflict with the disagreement on the part of the plaintiffs in these proceedings with the position taken by Ms Cox. Just because Mr Smits' clients disagree with a position where Ms Cox has agreed with Westpac's claim in relation to subrogation, does not mean that the Cox lawyers have a conflict of interest in that regard in these proceedings by reason of having acted or, if they still do, acting for Greenhills.
In any event, as Mr Smits acknowledged, his client's disagreement with the position taken by Ms Cox on that issue will be fully litigated in these proceedings with the respective contentions being argued by each side of the record.
In those circumstances, and with respect to Mr Smits, I am quite unable to identify any basis upon which the Court would exercise its general supervisory jurisdiction to restrain the Cox lawyers from acting for Ms Cox in these proceedings.

Conclusion

The Court's orders are: 1. Paragraph 1 of the third defendant's motion filed on 12 July 2021 is dismissed. 2. The second plaintiff's motion, dated 26 August 2021, is dismissed.
After I announced this result the parties were agreed that there should be no order as to costs. I therefore note that the Court makes no order as to any party's costs of and incidental to today's hearing.

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: 07 February 2022

At a glance

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