Furlong v Wise & Young Pty Ltd

1. [1]

   Six parties have incurred costs considering two iterations of a form of cross-claim proposed to be brought against them by the three defendant companies Wise & Young Pty Limited, Defined Properties Investment Pty Limited and Wyse & Young International Pty Limited (“the Companies”).

2. [2]

   Those six parties include the first plaintiff, Ms Kathleen Furlong, her former parents in law, Mr Gilbert and Mrs Kim Leishman, and two corporate trustees. The other proposed cross-defendant is Ms Furlong’s solicitor in these proceedings, Mr Hector Ekes.

3. [3]

   The solicitor acting for the Companies, Mr Michael Foley, drafted the proposed cross-claims.

4. [4]

   The cross-claims include allegations of dishonesty and other serious misconduct against each of the proposed cross-defendants (other than Mrs Leishman). It also makes allegations of dishonesty against the second plaintiff, Mr Mark Leishman (who is a bankrupt). Mr Leishman is not named as a cross-defendant.

5. [5]

   Those allegations are made in the course of an allegation of “civil conspiracy” against each of the proposed cross-defendants (apart from Mrs Leishman).

6. [6]

   My attention was drawn to the proposed cross-claim in the course of case managing these proceedings in the Expedition List.

7. [7]

   I was gravely concerned about the nature of, and the basis for the allegations to which I have referred and as to whether my discretion to make an order against Mr Foley under s 99 of the Civil Procedure Act 2005 (NSW) (“the Act”), or under the Court’s supervisory jurisdiction was enlivened.

8. [8]

   I adopted the “show cause” process required by s 99(2) of the Act and by Practice Note SC Gen 5 (“Costs orders against legal practitioners”).

9. [9]

   Having now heard from Mr Foley, I have come to the conclusion that:

   1. (1)

      the material available to Mr Foley, which relevantly appears to be no more than the “urging” (Mr Foley’s word) of his client, a Mr Dimitriou (who appears to be the will and mind behind the Companies), did not provide a proper basis for Mr Foley to put forward a cross-claim containing these allegations;

   2. (2)

      the proposed cross-defendants have incurred costs “without reasonable cause” in circumstances for which Mr Foley is responsible for the purpose of s 99 of the Act.

10. [10]

    I propose to:

    1. (1)

       order that the Companies pay the costs thrown away by the proposed cross-defendants by reason of their need to consider the proposed cross-claims;

    2. (2)

       order that Mr Foley himself pay those costs, if the Companies do not do so; and

    3. (3)

       make an order under s 98(4) of the Act specifying a gross sum for those costs.

11. [11]

    The particular orders I propose are set out at the end of this judgment.

Background

1. [12]

   The first and only active plaintiff, Ms Furlong, is the registered proprietor of a property at The Hill.

2. [13]

   Ms Furlong seeks the removal of caveats lodged by each of the Companies on the title of the property.

3. [14]

   The Companies claim to have an interest in the property by reason of a mortgage dated 30 October 2014, a Deed of Loan and Guarantee dated 25 November 2015 and a series of documents called “Appointment Letters and Costs Agreement” dated 1 January 2014.

4. [15]

   Ms Furlong alleges that signatures on those documents purporting to be hers, and that of Mr Leishman are forgeries.

5. [16]

   I am managing the proceedings as Expedition Judge. The proceedings are now fixed for hearing in the week commencing 1 August 2016.

6. [17]

   As early as 4 December 2015, Mr Foley foreshadowed that the Companies proposed to bring a cross-claim. Following filing and service of Ms Furlong’s statement of claim on 18 March 2016, I directed that the Companies serve a defence and any cross-claim by 31 March 2016. No cross-claim was filed pursuant to that order. On 1 April 2016 I directed the Companies to circulate any proposed cross-claim by 7 April 2016. That did not happen. On 8 April 2016 I extended the time for the Companies to circulate a form of cross-claim to 13 April 2016. None was circulated. On 22 April 2016 I extended the time again to 26 April 2016 and ordered the Companies to pay Ms Furlong’s costs of 1, 8 and 22 April 2016 which I determined pursuant to s 98(4) of the Act to be $1,500.00

7. [18]

   On 26 April 2016, Mr Foley circulated a proposed form of cross-claim, which I marked MFI 1.

8. [19]

   On 29 April 2016, by reason of the particular allegations set forth in the cross-claim said to provide a basis for the allegation of conspiracy, I refused the Companies leave to file the cross-claim, ordered that Mr Foley show cause why he should not personally pay the costs incurred by the prospective cross-defendants in relation to the cross-claim, and directed Mr Foley to circulate any further proposed cross-claim by 3 May 2016.

9. [20]

   On 3 May 2016, Mr Foley circulated a further form of cross-claim (which I marked MFI 2) which differed in some respects from the 26 April 2016 draft but, in substance, repeated the allegations of conspiracy, and the related underlying allegations.

10. [21]

    Mr Foley also provided brief submissions which did not grapple with the substance of the concerns I expressed on 29 April 2016 concerning cross-claim MFI 1.

11. [22]

    I dealt with the Companies’ application to file cross-claim MFI 2 on 6 May 2016.

12. [23]

    On that occasion Mr Auld of counsel appeared for the prospective cross-defendants. Mr Auld made written and oral submissions.

13. [24]

    I was so concerned about the nature of the allegations made in the proposed cross-claim that I questioned Mr Foley closely as to the basis upon which the allegations were made.

14. [25]

    I shall return below to Mr Foley’s response to some of my enquiries.

15. [26]

    I refused the Companies leave to file the proposed cross-claim, directed Mr Foley to show cause for the purpose of s 99 of the Act why he should not pay the costs occasioned by the proposed cross-defendants in relation to both the forms of cross-claim (MFI 1 and MFI 2) and why those costs should not be assessed under s 98(4) of the Act at the figures referred to in an affidavit sworn by Mr Ekes on 5 May 2016.

16. [27]

    On 11 May 2016 Mr Foley provided written submissions in relation to those matters.

17. [28]

    When the matter was before me again on 13 May 2016, I invited Mr Foley to make such further submissions about these matters as he thought appropriate. He did so. Having heard those submissions, I reserved my decision.

The allegations in the cross-claim and Mr Foley’s purported justification of them

1. [29]

   The proposed cross-claim contains 109 paragraphs and is over 40 pages in length.

2. [30]

   The document contains many pleading infelicities, the most egregious of which are contained in the allegations of civil conspiracy.

3. [31]

   The critical allegation is that each of the cross-defendants, apart from Mrs Leishman, “wrongfully and maliciously conspired and combined together to cheat, defraud, injure and damage the [Companies] and each of them using lawful and unlawful means”.

4. [32]

   The starting point of the conspiracy pleading is an allegation that Ms Furlong and Mr Mark Leishman knew that the certificate of title to The Hill property was in the possession of one of the Companies, Wise & Young Pty Limited (par 83A).

5. [33]

   It is then pleaded that Mr Leishman “had access” to the Companies’ office and documents (par 83B and 83C).

6. [34]

   That pleading is in the passive voice and fails to state what facts are relied upon to support the conclusion that Mr Leishman “had access” to the Companies’ office.

7. [35]

   There is then incorporated into the conspiracy pleading (at par 83F) earlier paragraphs (pars 53 and 60) which allege that certain loan security documentation and a mortgage securing a particular loan “were stolen” by Mr Leishman from the Companies’ office.

8. [36]

   Again, the passive voice is used. At the very least, the Companies must plead the facts on which they rely to make this very serious allegation. The bald assertion that the documents “were stolen” by Mr Leishman is not sufficient.

9. [37]

   On 6 May 2016, I asked Mr Foley upon what basis that allegation was made.

10. [38]

    We had the following exchange:

11. [39]

    In his submissions of 11 May 2016 Mr Foley said about this matter:

12. [40]

    The fact that Mr Dimitriou “urged” Mr Foley to plead that Mr Leishman stole the documents does not itself provide a sound basis for Mr Foley to propound a pleading to that effect.

13. [41]

    The other material available to Mr Foley to justify an allegation that Mr Mark Leishman stole the documents in question appears to be that (a) Mr Leishman somehow “had access” to the relevant premises, (b) the documents are no longer present at the premises, and (c) that someone turned off the video surveillance at the premises on the day in question.

14. [42]

    Mr Foley should give serious consideration to whether those facts, if pleaded, provide a sound basis on which to make the allegation.

15. [43]

    The next matter is even more problematic.

16. [44]

    In pars 83H and 83I it is alleged that Ms Furlong and Mr Leishman falsely swore, in two statutory declarations, that they were unable to find the certificate of title to the property and that the certificate of title was not held by any corporation as security for a loan. Evidently, the basis for the allegation of falsity is the earlier allegation that Ms Furlong and Mr Leishman knew the certificate of title was in the possession of Wise & Young.

17. [45]

    The cross-claim then alleges (in par 83G) that Mr Ekes “knowingly prepared the two false Statutory Declarations”.

18. [46]

    On 6 May 2016, I asked Mr Foley about this pleading:

19. [47]

    In his submissions of 11 May 2016, Mr Foley said about this matter:

20. [48]

    Thus, what is being alleged is that Mr Ekes prepared statutory declarations that he knew to contain false statements and arranged for Ms Furlong and Mr Leishman to swear to their truth. That is as serious an allegation of professional misconduct against a solicitor as can be imagined. Based on what Mr Foley told me, I see no basis for it. It is most certainly not the “only logical conclusion” to be drawn from the alleged fact (if it is a fact; I make no finding about the matter) that the statutory declaration does contain false statements.

21. [49]

    Mr Foley had no proper basis to make this allegation. The fact that he had instructions to do so is not sufficient. In these circumstances the allegation should not have been made.

22. [50]

    The cross-claim then contains the following allegation:

23. [51]

    The implication of what is being alleged here is that, knowing that the statutory declarations were false, Mr Ekes used them to prepare an application to Land and Property Information (“LPI”) for a replacement certificate of title.

24. [52]

    Mr Foley made clear in his submissions of 11 May 2016 that this is what is being alleged. He said:

25. [53]

    Mr Foley’s reference to there being a “mastermind” appears to relate to the allegation that the statutory declarations contain false statements (a matter about which, I emphasise, I have formed no view and make no findings) and that someone had the idea of using them to obtain a duplicate certificate of title to the property. Evidently, Mr Foley’s own opinion is that he doubts this was Ms Furlong’s or Mr Leishman’s idea. Mr Foley has not revealed what basis he has for that opinion. Mr Foley seems to have a hunch that Mr Ekes was the “mastermind”. Evidently, the “somebody who knows their way around the various practices of the [LPI]” to whom Mr Foley is referring here is Mr Ekes. This is not a proper basis to make such a grievous allegation. It should not have been made. That Mr Foley was prepared to make it reveals a serious error of judgment on his part.

26. [54]

    Later in the cross-claim, this allegation is made:

27. [55]

    The implication of this allegation is striking. In effect, it is that Mr Ekes purported to witness what appears to be Ms Furlong’s signature to an affidavit, knowing the signature was not hers. Again, that is a grave allegation to make.

28. [56]

    In relation to that paragraph, I had this exchange with Mr Foley on 6 May 2016:

29. [57]

    At the very least, if the Companies propose to allege that the signature on the affidavit purporting to be that of Ms Furlong is not hers, coupled with the allegation that the affidavit was prepared by and attested to by Mr Ekes, they should face up to the implications of that allegation. In its current form, it is scandalous.

30. [58]

    Finally the cross-claim makes this allegation:

31. [59]

    These paragraphs seem to claim that Mr Gilbert Leishman somehow “propounded an unsigned affidavit” as a part of some “ploy” to defraud Wise & Young. Whether that “ploy” was part of the alleged conspiracy is not explained.

Consideration

1. [60]

   The proposed cross-claim does not set out facts which could justify the allegations of theft made against Mr Mark Leishman (see [35 ff] above) nor the allegations of a “ploy” made against Mr Gilbert Leishman (see [58] above).

2. [61]

   Based on what is stated in the proposed cross-claim, and what Mr Foley said in court and in his written submissions, I see no basis at all for the grievous allegations made against Mr Ekes. Those allegations should not have been made.

3. [62]

   There was no proper basis for Mr Foley to advance those allegations on behalf of the Companies. The fact that Mr Dimitriou “urged” him to do so does not provide any such basis.

4. [63]

   It is part of the duty of legal practitioners to exercise restraint in relation to allegations of fraud and serious misconduct.

5. [64]

   Thus, the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) provide:

6. [65]

   There is a corresponding rule in the Legal Profession Uniform Conduct (Barristers) Rules 2015 (NSW): r 65.

7. [66]

   Section 99 of the Act provides, relevantly:

8. [67]

   As is well known, the “overriding purpose” of the Act is to facilitate the just, quick and cheap resolution of the real issues in the proceedings (s 56(1)). Parties to proceedings are under a duty to assist the court to further that overriding purpose (s 56(3)) and solicitors (amongst others) must not cause parties to be put in breach of that duty (s 56(4)). The court may take into account any failure to comply with those obligations when exercising a discretion concerning costs (s 56(5)).

9. [68]

   In his written submissions, Mr Foley said:

10. [69]

    Mr Foley concluded his submissions as follows:

11. [70]

    As I have set out above, Mr Foley in his written submissions said he was “confused about the pleading of conspiracy”.

12. [71]

    That may be true, but what Mr Foley did not, when before me, seem to appreciate was that my concerns did not arise from some shortcoming that I perceived as to the manner in which Mr Foley observed technical pleading rules about conspiracy.

13. [72]

    My concern was as to his preparedness, on the urging of Mr Dimitriou, to make allegations of dishonesty and other serious misconduct without having a proper basis for doing so.

14. [73]

    It is not a matter of my notion of “good manners” being offended or having “fixed ideas concerning the behaviour of one of [the Court’s] officers” (I assume the reference is to Mr Ekes). And it is not a matter of Mr Foley being a “whistleblower” or playing some role akin to Edmund Burke. It is a matter of having a proper basis, beyond the exhortation of the client, to make allegations of dishonesty and serious misconduct.

15. [74]

    I find that the making of the allegations has caused each of the proposed cross-defendants to incur costs without reasonable cause in circumstances for which, in my opinion, Mr Foley is responsible.

16. [75]

    I propose to order that the Companies pay the costs of the proposed cross-defendants of their consideration of each of the proposed cross-claims and of the hearings before me on 29 April, and 6 and 13 May 2016. Mr Foley was not on a frolic of his own. He was acting on the urging of Mr Dimitriou and in the interests of the Companies.

17. [76]

    But I also propose to order that, if the Companies do not pay those costs, Mr Foley must do so.

18. [77]

    In Re Felicity; FM v Secretary, Department of Family and Community Services (No 4) [2015] NSWCA 19, Basten JA (with whom Ward and Emmett JJA agreed) expressed the view that s 99 of the Act does not “permit, in terms, an order that the practitioner pay to the party entitled to costs, the costs ordered against the client” and that the “available order is limited to one that the practitioner pay to the client the costs the client has been ordered to pay to the other parties: s 99(2)(b)(ii)” (at [16]).

19. [78]

    However, his Honour held that such an order could be made under the Court’s supervisory jurisdiction with respect to legal practitioners admitted by the Court (at [18]).

20. [79]

    I would respectfully venture the suggestion that s 99(2)(c) (which his Honour referred to at [16] and also earlier at [8], albeit in a different context) does provide a basis for an order that, here, Mr Foley pay directly the costs of the proposed cross-defendants. That sub-section enables the court to order that a legal practitioner (here, Mr Foley) indemnify “any party” (here, the proposed cross-defendants) against costs “payable” by that party. I see no reason to read “payable” as meaning payable only by reason of an order. The wording is apt also to include costs payable by reason of a contract of retainer (see Windeyer J in Karwala v Skrzypczak Re Estate of Ratajcak [2007] NSWSC 931). Mr Auld told me on 6 May 2016 that he appeared on behalf of all the proposed cross-defendants and I infer from that statement the proposed cross-defendants have a concomitant liability for the legal costs thereby incurred.

21. [80]

    In any event, I have power under the supervisory jurisdiction to make the order.

22. [81]

    It will be a matter for Mr Foley and Mr Dimitriou to determine who ultimately foots the bill.

23. [82]

    I propose to make an order under s 98(4) specifying a gross sum for those costs.

24. [83]

    The fact that the proposed cross-defendants (apart from Ms Furlong) are not parties to the proceedings provide no impediment to my power to award costs in their favour: the word “party” is not confined to a person on the record in the proceedings and includes a person who participates in the proceedings. Knight v FP Special Assets Ltd [1992] HCA 28; 174 CLR 178 at 190 per Mason CJ and Deane J; and see Austin J in Re Bauhaus Pyrmont Pty Ltd (in liq) [2006] NSWSC 879 at 292 to 293. Mr Foley made no submission to the contrary.

25. [84]

    I have considered the evidence in Mr Ekes’ affidavit concerning the costs incurred and Mr Foley’s submissions concerning the quantification of those costs. The total amount claimed is in the order of $13,000. The amount accepted by Mr Foley as being reasonable was some $2,000. Included in the amounts claimed is some 11 hours’ work performed by a lawyer working in Mr Ekes’ office (for reviewing the cross-claim and preparing objections to it) and a full days fees of Mr Auld. There is likely to be some duplication of work involved. A reasonable figure for the costs incurred is likely to be something in the order of $6,500. I propose to specify the costs at that figure.

26. [85]

    I make the following orders and directions:

    1. (1)

       That the defendants pay to the parties named as proposed cross-defendants in the forms of cross-claim marked MFI 1 and MFI 2 in the proceedings their costs of considering those forms of cross-claim and of the appearances before me on 29 April 2016, 6 May 2016 and 13 May 2016.

    2. (2)

       That those costs be specified pursuant to s 98(4) of the Civil Procedure Act at $6,500 and be paid by 5pm on 8 June 2016.

    3. (3)

       That if the costs referred to in order (2) are not paid within that time, Mr Foley pay those costs by 5pm on 15 June 2016.

    4. (4)

       That by 5pm on 27 May 2016, Mr Foley provide by email to my Associate any submissions he wishes to make as to why I should not refer the contents of this judgment to the Law Society of New South Wales and the Legal Services Commissioner.