Naro Investments Pty Ltd & Ors v Benjamin & Khoury Pty Ltd

The defendant seeks summary dismissal of the plaintiffs’ Amended Statement of Claim in these proceedings under Uniform Civil Procedure Rule 2005 (“UCPR”), r 13.4 and the entry of judgment on a cross-claim under UCPR, r 13.1. For the reasons set out below the Court grants that relief.

The Dimarti family have been mired in litigation for over seven years. Three of the plaintiffs in these proceedings, Naro Investments Pty Limited (“Naro”), Rocco Dimarti and Natalie Dimarti were unsuccessful parties in earlier litigation against other Dimarti family members: Carmelo Dimarti v Danielle Dimarti as Administratrix of the Estate of the Late Antonio Dimarti; In the matter of Naro Investments Pty Limited v Dimarti [2016] NSWSC 1887 (“the earlier litigation”). Now these plaintiffs and another family member, Margherita Dimarti (collectively, “the clients”) bring the present proceedings against the corporate vehicle of the solicitors, who acted for them in the earlier litigation, Benjamin and Khoury Pty Limited (“the solicitors”).

The solicitors acted for the clients on retainer in relation to the earlier litigation during the period of October 2016 and July 2017. The judgment in the earlier litigation was given on 23 December 2016, resolving disputes about the share-holding interests various family members claimed in Naro. Upon the termination of the retainer, disputes arose between the solicitors and the clients about the quantum of the fees the solicitors charged for their legal services in the earlier litigation. The clients engaged new solicitors, Horowitz and Bilinsky, to conduct this costs dispute for them. On behalf of the clients, Horowitz and Bilinsky negotiated a settlement deed on 5 December 2018 between the clients and the solicitors compromising the costs dispute (“the settlement deed”). The settlement deed gave the clients time to pay a lesser sum ($492,000, “the settlement sum”) than that which the solicitors claimed to be due for their costs from the clients ($547,237.90). The clients later defaulted in the payment of the settlement sum, which was due on 1 July 2019, under the settlement deed. The clients commenced the present proceedings by Statement of Claim in November 2019, seeking relief to set aside the settlement deed.

In these proceedings, the clients seek to declare the settlement deed void on several grounds. They allege that it was procured by the solicitors, (a) in breach of fiduciary duty, (b) whilst the former clients were in a relationship of undue influence with the former solicitors, (c) as a result of the former solicitors’ unconscionable conduct, or (d) as a result of economic duress. The solicitors bring a Cross-Claim seeking judgment and interest claimed to be due under the settlement deed.

The solicitors now seek by motion dated 12 November 2020 summary dismissal of the clients’ Amended Statement of Claim on the grounds that no reasonable cause of action is disclosed: UCPR, r 13.4. And if they are successful in their primary relief on the motion, the solicitors also seek summary judgment on the Cross-Claim for the settlement sum of $492,000 plus interest. The solicitors contend the clients have no defence to the Cross-Claim: UCPR, r 13.1.

These proceedings were heard in the applications list on Friday,12 March 2021. Mr M. Elliott SC instructed by Mr C. Roberts of Roberts and Partners Lawyers appeared for the applicant/defendant. Mr J. Pope, solicitor, appeared for the clients.

A short survey of the pleadings and the evidence filed is useful before considering the issues on the motion.

Naro, Margherita Dimarti, Rocco Dimarti and Natalie Dimarti, entered into a costs agreement with the solicitors with effect from 11 October 2016. From October 2016 to July 2017, the solicitors issued tax invoices for legal costs and disbursements. According to the solicitors, only a small fraction of those invoices were ever paid. On 29 May 2017, the plaintiffs signed promissory notes agreeing to pay the solicitors $474,541.95, being the quantum of legal costs and disbursements owing at that date. Whilst this figure seems very high for the provision of legal services for about 10 months, no costs assessment has taken place so any comment about the figure should be reserved.

On 12 December 2017, the solicitors served a statutory demand on Naro, seeking payment of $547,237.90, being the amount acknowledged as owing in the promissory notes plus two additional invoices dated 5 June 2017 and 12 July 2017. Naro applied to set aside the statutory demand. By order dated 19 June 2018, Black J dismissed that application with costs.

On 13 September 2018, the solicitors served a Summons to have Naro wound up. On 15 October 2018, Horowitz and Bilinsky informed the solicitors that they acted for Naro in the winding up proceedings. Horowitz and Bilinsky then negotiated a 3 week adjournment of a winding up hearing listed for the following day.

Then intensive negotiations began between Horowitz and Bilinsky and the solicitors, who acted for themselves at this time. These negotiations were evidenced in detailed correspondence about the terms of the draft settlement deed and involved three offers and five counter offers made on the following dates: 22 October 2018, 24 October 2018, 1 November 2018, 19 November 2018 and 3 December 2018.

It is not necessary to detail this correspondence in these reasons. But some of its features are important. Horowitz and Bilinsky were demonstrably effective negotiators. They persuaded the solicitors to abandon a number of the initial positions the solicitors took in negotiations. These included a claim over Margherita’s family home and a claim for a snap-back provision that, in default of payment of the settlement sum, would have rendered due the full original amount claimed by the solicitors. They also gained six months deferral of the due date for the costs. An objective reading of the correspondence shows that Horowitz and Bilinsky engaged in robust, detailed and professional negotiations on behalf of the clients. Mr Pope did not identify any point that Horowitz and Bilinsky had obviously missed in taking for the clients.

Finally, on 5 December 2018, negotiations for the costs compromise were finalised. The plaintiffs and the solicitors entered into the settlement deed, whereby the plaintiffs agreed to pay the solicitors $492,000 (“the settlement sum”) by 1 July 2019 in settlement of the disputes between the parties. Several terms of the settlement deed are relevant.

Under the deed, the solicitors were referred to as “B & K”. The deed describes Rocco and Natalie Dimarti and Naro as the “clients” and Margherita Dimarti as “Margherita”.

The recitals of the deed are important. The clients are described as “the former clients of B & K” (Recital A). Rocco and Natalie Dimarti and Naro’s retainer agreement and their costs agreement with B&K, of 14 October 2016 is recited together with Margherita Dimarti’s signing of the costs agreement on 29 May 2017 (Recital B).

Recitals D, E, F and G then deal with subjects of the then outstanding rights to a costs assessment, the promissory note and the statutory demand as follows:

The Recitals J and K deal with the nature and quality of the settlement in the settlement deed as follows:

The settlement deed records a release in Recital L:

Finally, the recitals record the element of compromise in the settlement and the fact that the clients and Margherita, as defined, had independent advice before entering into the deed:

The settlement deed contained a mechanism that gave irrevocable powers of attorney to B&K to arrange for the sale of certain properties either owned, or partly owned, by the clients and Margherita. It is not necessary for the purposes of these reasons to enter into the detail of that mechanism. The relevant operative terms of the deed were the following:

The settlement sum was not paid by 1 July 2019. It remains unpaid.

Instead, on 12 June 2019, the clients filed the Statement of Claim in these proceedings, which was subsequently amended by order of Robb J on 11 September 2019. The Amended Statement of Claim fields four broad claims for relief on behalf of the clients. These are:

Legal Principles. The legal principles applicable on strike out of proceedings may be shortly stated. Firstly, the tests to be applied in considering an application for summary dismissal and an application for summary judgment are largely the same. Both tests stipulate that a party should only be denied the opportunity to place her or his case before the Court where there is a high degree of certainty about the outcome of the proceeding if the proceedings were to go to trial: Agar v Hyde (2000) 201 CLR 552; (2000) 173 ALR 665; (2000) 74 ALJR 1219; [2000] HCA 27 at 275; Spencer v Commonwealth of Australia (2010) 241 CLR 118; (2010) 84 ALJR 612; [2010] HCA 28 at 131.

Secondly, where a lack of cause of action is alleged, the Court must be satisfied that the case “cannot succeed”, such that it is “manifestly groundless”: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; (1964) 38 ALJR 253; [1965] ALR 636 at 128-129 (“General Steel”). Further, an assessment of whether the case is in fact “manifestly groundless” is to be made taking the plaintiff’s case at its highest: Agius v New South Wales [2002] Aust Torts Reports 81-656; [2001] NSWCA 371 at [24].

The Court must exercise its discretion with abundant caution. In General Steel, Barwick CJ cautioned that the Court’s “jurisdiction to summarily terminate an action is to be sparingly employed and is not to be used except in a clear case where the Court is satisfied that it has the requisite material…” (at 129). I fully discussed the relevant principles in Sturesteps v Khoury [2015] NSWSC 1041, at [22] to [26].

The Court has concluded that the evidence does not disclose any arguable basis upon which the plaintiffs/clients could succeed at a trial of these proceedings. Dismissal of this claim is appropriate.

Of the clients’ four broad claims for relief, it can readily be seen that the central claims for relief are (b) and (c): that the settlement deed should be set aside and that it is a contravention of LPUL, s 180(4). The other pleaded claims in (a) and (d), based on the promissory notes and on breach of the retainer cannot be sustained, if the settlement deed is not set aside. Both these claims relate to conduct during the retainer and long preceding the entry into the settlement deed. They involve allegations of causes of action that are clearly captured by the releases in the settlement deed in Recital L and clause 20. But analysis of each of the claims for relief (b), upon which the settlement deed is claimed to be void, shows that no reasonable cause of action for that relief is disclosed. Claim for relief (c) is dealt with later.

Breach of Fiduciary duty. The plaintiffs’ claim for breach of fiduciary duty must fail upon the uncontested fact that any fiduciary duty between the solicitors and the clients ceased at some time in 2017 at the conclusion of the earlier litigation and well before the commencement of these proceedings. It is a well-accepted legal principle that a solicitor only owes a fiduciary duty to a client during the currency of the retainer and not after its termination: Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 at 234-5; [2000] ANZ ConvR 260; [1999] 1 All ER 517, applied in Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1; (1999) 33 ACSR 1; [1999] NSWCA 408 at [205] and in Tecnicas Reunidas SA v Andrew [2018] NSWCA 192 at [35].

Even if the clients were able to establish a subsisting fiduciary duty at the time they entered into the settlement deed, they encounter the equally insurmountable problem that they had independent legal advice throughout the whole period of negotiation and execution of the deed.

Strictly a fiduciary does not have a duty to obtain the fully informed consent of the person to whom the fiduciary duty is owed but rather the existence of informed consent goes to negate what otherwise would be a breach of fiduciary duty: Maguire v Makaronis (1997) 188 CLR 449 (“Maguire”) at 467; (1997) 144 ALR 729; (1997) 71 ALJR 781; [1997] HCA 23. Fiduciaries ordinarily establish informed consent by proof of the giving of independent legal advice to the person to whom the fiduciary duty is owed: Maguire at 466-7.

What is required for fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given: Spellson v George (1992) 26 NSWLR 666 at 669-675; [1992] NSWCA 254 and Maguire at 466.

An inference of fully informed consent in answer to a claim of breach of fiduciary duty would ordinarily be drawn in a case such as this. The presence of the independent solicitors such as Horowitz and Bilinsky were retained throughout negotiation and execution of the settlement deed being challenged. There can be circumstances in which fully informed consent will not be inferred despite the retainer of independent solicitors. Usually those circumstances will involve one of several possible scenarios: some continuing direct communication between the fiduciary and the person to whom the fiduciary duty is owed despite the intervention of the independent solicitor; some defect or weakness in the intervention by the independent solicitor so that person to whom the fiduciary duty is owed remains not fully informed and not in reality independently advised; or some manifest unfairness in the transaction which tends to indicate that fully informed consent was not obtained despite the presence of the independent solicitor. These scenarios are not exhaustive, but are just common examples.

The Court raised such scenarios with Mr Pope and enquired what was the factual contest that he submitted would be fielded on behalf of the clients to rebut the clear inference of fully informed consent that arises here. In response Mr Pope did not identify any fact or any scenario which on the evidence he anticipated advancing at trial that would lead to a contest about the issue of fully informed consent. He offered no criticism of Horowitz and Bilinsky. He offered no theory for trial as to how the natural inference of fully informed consent would be rebutted here.

So, the Court asked Mr Pope what his best evidence was to support the existence of any factual contest about the issue of informed consent. In response, Mr Pope referred the Court to two passages of the clients’ evidence. He submitted that these grounded an argument that this matter should go to trial on the issue of informed consent.

But neither passage really supported the contention that there would be any issue at trial about informed consent. Upon closer analysis the passages were either neutral on the issue or irrelevant to the issue of informed consent at the time of entry into the settlement deed. The first passage, which related directly to the time the clients signed the settlement deed, came from the evidence of Rocco Dimarti. He said the following:

This evidence does not seek to make a case that Horowitz and Bilinsky failed in any way to discharge their duties as solicitors to the clients or that they did not independently advise the clients about their clients’ legal position before entering into the settlement deed. Rocco Dimarti’s statement that he felt that he “had no choice” reflects an understandable reluctance to enter into a compromise that would nevertheless involve him being made liable to the solicitor for a substantial sum of money. It was quite consistent with Mr Rocco Dimarti having received proper advice and putting him in a position of fully informed consent for him to hold a belief that if he did not settle on the terms offered by the deed, that he might be made bankrupt in part because of a cause of action based upon the promissory note. For a solicitor in the position of Horowitz and Bilinsky properly advising their clients before entry into the settlement deed would have been duty bound to alert their clients to that possibility if settlement was not achieved. Without more, the mere statement that a client felt he had “no choice” did not ground an argument that the client was not receiving independent legal advice. The Court asked Mr Pope a number of times what signposts there were in the evidence that would ground a challenge to the independence of and quality of Horowitz and Bilinsky’s advice and Mr Pope was not able to point to any. That should not be taken as a criticism of Mr Pope, but rather that the evidence is not there.

The second passage of evidence that Mr Pope cited came from the evidence of Natalie Dimarti. It related to the period when the solicitors were still acting for the clients in 2017. Natalie Dimarti’s evidence was as follows:

Natalie Dimarti’s evidence appeared to found a case that some of the dealings between Rocco and Natalie Dimarti and the solicitors in Mid-2017 were conducted against a backdrop of the solicitors refusing to return the Dimartis’ passports to them, thereby applying improper pressure to them. Even accepting this allegation at its highest, it occurred during the clients’ retainer of the solicitors, long before the execution of the settlement deed. Mr Pope did not hold out the prospect that the acquisition of further evidence from his clients, or from other sources, or that the further amendment of the pleadings would improve the way that he could profile a potential factual contest at trial to establish a breach of fiduciary duty by the solicitors.

Undue Influence and Unconscionable Conduct. The plaintiffs’ claim to set aside the settlement deed on grounds of undue influence and unconscionable conduct must fail at trial for much the same reason as the claim for breach of fiduciary duty will fail. The relationship of undue influence pleaded and relied upon also derived from the solicitor-client relationship between the defendant and the plaintiffs. That solicitor-client relationship relates to a period between October 2016 and July 2017 after which the clients became disenchanted with the solicitors and in particular the fees charged by them. Instead, the clients engaged Horowitz and Bilinsky who negotiated the settlement deed, a result which was achieved some 18 months after the end of the solicitor-client relationship.

It is possible for a relationship of undue influence created through a solicitor-client relationship to subsist after the end of that solicitor-client relationship. But the conduct of arm’s length correspondence for approximately 18 months through new and independent solicitors after the end of the solicitor-client relationship is wholly incompatible with arguing for the continuation of any relationship of undue influence.

Independent legal advice, such as that obtained here, is almost always a determining factor in deciding whether entry into the settlement deed was a voluntary and well understood act: Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573 at 577-8. But there can be scenarios in which independent legal advice does not have the effect of showing that a transaction is a voluntary and well understood act.

So the Court invited Mr Pope to indicate what facts could be advanced at trial, or how it could be argued at trial to show that a relationship of undue influence could continue, or that the settlement deed was not a voluntary and well understood act of the clients. It should be recognised that there are exceptional situations in which a relationship of undue influence or a position of special disability will subsist because the independent legal advice is not effective to remove the undue influence, or to remove the special disability: see for example Aboody v Ryan [2012] NSWCA 395. Once the exceptional situation is identified, its defining features can be pleaded and the evidence to establish those features can be adduced.

But Mr Pope did not indicate there is on the available evidence going to be any contention that the independent legal advice from Horowitz and Bilinsky was ineffective to remove the prior undue influence or the special disability.

Mr Pope did point to what he contended were special disabilities under which Rocco and Natalie Dimarti laboured when they entered the settlement deed. He referred to their youthful age and commercial inexperience and a possible conflict between their interests and those of Naro.

But relief for unconscionable conduct is only available where the conscience of the defendant is affected. The intervention of Horowitz and Bilinsky on behalf of the clients would ordinarily constitute a complete answer to any charge of unconscionable conduct against the solicitors at the time of entry into the settlement deed. Unless the solicitors were put on notice that Horowitz and Bilinsky were unable or unwilling to assist the clients to overcome any operative special disability from which they suffered, then the solicitors’ conscience could not be affected and a remedy in unconscionable conduct could not be available against them.

Mr Pope was invited to explain how, despite the independent advice from Horowitz and Bilinsky, a claim in unconscionable conduct could succeed at trial. Mr Pope did not seek to suggest that at trial there would be any other way that the clients would allege that the solicitors would be put on notice that the clients were affected by an operative special disability despite the intervention of Horowitz and Bilinsky. No reasonable cause of action is disclosed for relief to set aside the settlement deed either on the basis of undue influence or unconscionable conduct.

Economic duress. Nothing in the evidence or the Amended Statement of Claim pleading advances a claim of economic duress that identifies any illegitimate conduct on the part of the solicitors. The application of commercial pressure by a party does not of itself qualify as economic duress unless that pressure goes beyond what the law is prepared to countenance as legitimate; and such illegitimate pressure will be found if for example it consists of unlawful threats or amounts to unconscionable conduct: Crescendo Management Pty Limited v Westpac Banking Corporation (1988) 19 NSWLR 40; (1989) NSW ConvR 55-476.

In submissions, reflecting the pleadings, Mr Pope says that the clients did not believe they had any alternative but to enter the settlement deed. But that does no more than repeat Mr Rocco Dimarti’s evidence above, which does not ground a defence. Mr Pope could not point to any unlawful threats or other unconscionable conduct at the time of the settlement deed on the part of the solicitors that could be characterised as going beyond the solicitors’ legitimate legal rights. The solicitors had arguable claim of right under their existing cost agreements, which they pursued during the negotiations. The clients disputed that claim of right, but it was clearly maintainable. Mr Pope does not contend that it was not. To press a pleaded and legally maintainable right is not illegitimate pressure.

Thus, in neither the Amended Statement of Claim nor the evidence do the clients advance illegitimate conduct on the solicitors’ part that would sustain a cause of action in economic duress.

Moreover, as with the other claims for relief, independent legal advice is an additional obstacle to such a course of action. It is unmaintainable where they had separate legal representation from which it should be inferred that they knew of at least one other choice available to them: to have the solicitors’ costs assessed.

The clients’ other broad claims for relief (c) is a contention that the settlement deed was a costs agreement under LPUL and that the agreement in settlement deed, clause 15 for the solicitors and the clients to waive their rights to an assessment of costs is void, as being contrary to LPUP, s 180(4). LPUP, s 180(4) provides as follows:

It can readily be accepted that if the settlement deed was a costs agreement it could not provide that the legal costs incurred could not be subject to assessment. But the law recognises that solicitors and clients can settle disputes in relation to legal costs and that those settlements can include terms that prohibit parties to the agreement from applying for a costs assessment: Beba Enterprises Pty Ltd v Gadens Lawyers (2013) 41 VR 590; (2013) VSCA 136 at [75] and [76].

A settlement agreement between solicitors and clients about issues of costs can be reached provided the settlement is an accord and satisfaction involving a genuine compromise of the costs dispute and other factors that indicate that the parties did not intend to make a costs agreement but a settlement agreement: Koutsourais v Metledge & Associates [2004] NSWCA 313 at [9] (“Koutsourais”); Able Demolitions and Excavations Pty Limited v Barry Kennard & Co [2016] VSCA 312 at [101] (“Able Demolitions”); Amirbeaggi v Business in Focus (Australia) Pty Ltd [2008] NSWSC 421 at [42]. If the settlement agreement involves an accord and satisfaction reflecting a genuine compromise to the costs dispute, then the settlement agreement will not be classified as a costs agreement and terms that deny future costs assessment will not be treated as a breach of LPUL, s 180(4). Rather, the settlement agreement will be approached as an ordinary agreement to compromise a dispute.

The settlement deed involves almost all the factors identified in these cases which would remove the settlement deed from being characterised as a costs assessment. There is an accord and satisfaction provided for in the settlement deed and it represents a genuine compromise of a dispute, allowing payment of a substantially lesser sum than that claimed and at a later time. The compromise involves matters other than the claim for costs, including the tailoring of the recovery of property to preserve Margherita Dimarti’s family home. The settlement deed involved the giving of independent legal advice and acknowledges the receipt and understanding of that advice. Moreover, the settlement deed was entered into long after the last costs were incurred pursuant to the costs agreement, a delay of approximately 18 months

The factors to be weighed in determining whether the settlement deed is a costs agreement are all indisputable matters of objective fact. The Court is in as good a position on this application as the Court would be in any future trial to determine whether the settlement deed would be characterised as a costs agreement or not. A sufficient number of factors are present to point clearly to the settlement deed not being a costs agreement. Mr Pope contended otherwise but did not develop any argument that would displace the operative effect of the factors that have been identified here as pointing to a settlement deed not being a costs agreement.

Mr Pope also somewhat faintly argued that when these proceedings were commenced and injunctive relief was sought by the clients against the solicitors that the solicitors conceded that there was a serious question to be tried. But a proper reading of the transcript before Robb J on 17 September 2019 shows that whether there was a serious question to be tried was not argued. This argument does not assist the clients.

This part of the Statement of Claim can be dismissed. That means that the settlement deed survives and the broad claims for relief (a) and (c) are not sustainable as a consequence. The whole of the plaintiffs’ Amended Statement of Claim can therefore be dismissed under UCPR, r 13.4.

The solicitors also seek summary judgment under UCPR, r 13.1 on their Cross-Claim. If the settlement deed is not set aside the solicitors claim that the clients have no defence to that Cross-Claim for the money due under the settlement deed. The solicitors have advanced evidence in conformity with UCPR, r 13.1 that they believe that the clients as cross-defendants have no defence to the Cross-Claim. Mr Pope did not suggest the clients had a defence to the Cross-Claim if the settlement deed was not set aside.

The Court will grant summary judgment in the amount of $492,000 on the solicitors’ Cross-Claim. That is the “settlement sum” and due under the settlement deed, together with the interest stipulated under that deed. The amount of that interest has been calculated in the affidavit of Mr Christiaan Roberts which is not in dispute and the Court accepts is correct up to the date of judgment today.

Mr Roberts assesses the total indebtedness up to the hearing date on 12 March 2021 as $568,820.76. He calculates the total accrued interest up to 12 March 2021 as $76,820.76.

By today, the day upon which judgment is being delivered, the total accrued interest would be $77,396.335. Interest presently accrues at the rate of $82.225/day, which for seven days amounts to $575.575. Therefore, the principal plus accrued interest is $569,396.335 as at 19 March 2021 (being $77,396.335 plus $492,000). Judgment will be entered on the Cross-Claim inclusive of interest in the sum of $569,396.33.

The solicitors have been successful both on the motion dismissing the Amended Statement of Claim and entering judgment on the Cross-Claim. Costs should follow the event. There is no reason why the solicitors should not have their costs of the strike out motion of 12 November 2020 and of the proceedings including any reserved costs. Liberty to apply for 28 days will be granted if either party wishes to seek a special costs order.

In strike-out applications and summary judgment proceedings it is not uncommon for the judgment to be stayed for 28 days in case the unsuccessful party wishes to appeal. That course is taken in the orders below.

For these reasons the Court makes the following orders and directions on the defendant’s motion dated 12 November 2020: