Nakad v Nakad

1. [1]

   The Defendants are the applicants on a Notice of Motion filed 10 February 2023, in which they seek orders varying a pre-litigation undertaking given by their solicitor to the Plaintiff’s solicitor to hold in trust the proceeds of the sale (the Proceeds) of a property in Concord, New South Wales.

2. [2]

   When the Motion was heard in the Real Property list on Friday 10 March 2023, I gave judgment dismissing the Defendants’ Notice of Motion and indicated that I would provide reasons later, which I do here.

Background

1. [3]

   By Statement of Claim filed 11 November 2022, the Plaintiff, Marie Nakad, commenced proceedings against the Defendants, Joe and Maria Nakad, seeking a declaration that all the Proceeds are held for her on trust by the Defendants. The precise nature of that trust is not articulated in the Statement of Claim.

2. [4]

   The Plaintiff was married to Sid Nakad, who died intestate in 2015. The Defendants are Sid’s biological children and the Plaintiff’s stepchildren.

3. [5]

   In 1998, the Plaintiff and Sid purchased the property. The Plaintiff pleads that the Defendants were placed on title as joint tenants with Sid because of tax advice received. Upon Sid’s death the Defendants became the sole registered proprietors of the property.

4. [6]

   The Plaintiff pleads that she and Sid agreed that the Defendants would hold their interest on trust for Sid and the Plaintiff. In part, this is said to be based on the Plaintiff’s contributions to the deposit. The balance was paid by a loan secured over another property owned by the Plaintiff and Sid. The Defendants defend the claim and deny that the Plaintiff contributed to the purchase price and that there is any trust in existence.

5. [7]

   On 20 June 2022, the Defendants exchanged contracts with a purchaser to sell the property. On 20 July 2022, the Plaintiff lodged a caveat over the property, claiming a “beneficial interest in trust”.

6. [8]

   The sale was to complete in October 2022. No lapsing notice appears to have been issued.

7. [9]

   The parties only put in evidence correspondence from early October 2022. However, it appears that before this time, the Defendants’ solicitor had written to the Plaintiff’s solicitor asking for the removal of the caveat so that completion of the sale could occur.

8. [10]

   On 7 October 2022, the Plaintiff’s solicitor wrote to the Defendants’ solicitor, asserting that the Plaintiff was entitled to the whole beneficial interest in the Proceeds and also:

9. [11]

   On 10 October 2022, the Defendants’ solicitors responded including:

10. [12]

    It is unclear on the evidence exactly when the caveat was removed, however, on 14 October 2022 the sale completed.

11. [13]

    In their Motion, the Defendants sought the following orders:

12. [14]

    The Plaintiff had not been asked for an undertaking as to damages and did not proffer one. Notwithstanding the form of the orders sought by the Defendants, Mr Smallbone’s submissions were primarily directed to seeking an order that the Defendants’ solicitor be released from the undertaking, for the reasons that the undertaking was analogous to an interlocutory injunction, no undertaking as to damages had been given, and the Plaintiff only had a weak prima facie case because there was limited or no evidence in support of the Plaintiff’s trust claim.

13. [15]

    The Defendants’ argument was that the undertaking was, in substance, an alternative to an interlocutory injunction and therefore could be varied by Court order; and, alternatively, the Court has inherent jurisdiction to supervise undertakings of solicitors and it is appropriate to vary the undertaking in the circumstances.

14. [16]

    The Defendants’ motivation for seeking a variation to the undertaking is so that they may use the Proceeds to pay for their legal costs in these proceedings. As a result of the undertaking, Mr Smallbone submitted that the Defendants were experiencing financial hardship because they do not have substantial assets other than the Proceeds to pay legal costs of this litigation.

15. [17]

    The Plaintiff submitted that the correspondence between the parties on 7 and 10 October 2022 gave rise to a binding contract that could not be varied by the Court.

The undertaking

1. [18]

   In my view the proper construction of the solicitors’ letters is that the parties formed an agreement. The terms of that agreement were that the Plaintiff promised to remove the caveat on the terms proposed by the Defendants’ solicitor concerning the retention of the Proceeds on trust.

2. [19]

   This conclusion is evident from the nature of the quid pro quo and the parties’ use of the language of an agreement in the correspondence, including “will consent … on condition”, “if that is agreed”, “if this offer is acceptable”, “will extend to agreeing”, and “you can signify your acceptance”. I also note that the uncontested affidavit evidence of the Defendants’ solicitor appears to accept there was an agreement that could be varied by further agreement:

3. [20]

   The Plaintiff’s “offer” had been that the Proceeds would be held until order of this Court, in the context of the Plaintiff commencing proceedings. The Defendants rejected that offer and instead “revised” it in an offer in the form of the undertaking and required the Plaintiff to demonstrate “acceptance” of the offer by removing the caveat, which occurred.

4. [21]

   It had been open to the Defendants to issue a lapsing notice and to require the Plaintiff to commence proceedings for the extension of the caveat or other regime concerning part or all of the Proceeds. Had that occurred, the Defendants may have persuaded the Court to make orders that allowed the Defendants to use some of the Proceeds for legal costs. However, that course was not adopted by the Defendants; instead, they instructed their solicitor to give the undertaking in the letter reproduced at [11].

5. [22]

   I consider the natural and ordinary meaning of that undertaking is clear, having regard to the surrounding language in the letter, and therefore the agreement to hold the Proceeds “pending the outcome of [the Plaintiff’s] litigation” can only mean that the Defendants agreed that the Proceeds would be held in the Defendants’ solicitor’s trust account until the conclusion of the Plaintiff’s Proceedings, which has not yet occurred.

6. [23]

   I reject Mr Smallbone’s submission that “outcome” of the litigation included any interlocutory order and “the entirety of the Court’s exercise of its jurisdictional power”.

7. [24]

   The parties agreed to “the outcome” being the trigger of the release of the undertaking. The use of the definite article tells against the construction that the parties contemplated an interlocutory “outcome” concerning the undertaking. Instead, they were drawing attention to a single “outcome” at the conclusion of the litigation: see eg Ginger Development Enterprises Pty Ltd v Crown Developments Australia Pty Ltd [2003] NSWCA 296 at [18] (Davies AJA, with whom Mason P and Sheller JA agreed).

8. [25]

   I do not consider that it assists the Defendants that the undertaking proffered by the Defendants’ solicitor did not require the Plaintiff to provide an undertaking as to damages. Such an undertaking might have been sought, had the Court been asked to consider the terms upon which the caveat ought to have been removed or extended. Here, the Defendants instructed their solicitor to give a particular undertaking and, for whatever reason, did not seek to negotiate any undertaking as to damages.

9. [26]

   Therefore, I consider that the undertaking given by the Defendants’ solicitor amounted to a binding agreement when the Plaintiff removed her caveat. It is not open to the Defendants to unilaterally vary that agreement, nor does the Court have power to vary the agreement when it no longer suits the Defendants.

Inherent jurisdiction to supervise pre-litigation inter partes undertakings given by solicitors

1. [27]

   Mr Smallbone was unable to provide the Court with any authority in which any court had made an order in the terms sought by the Defendants. Further, no authority was provided where any court had amended a pre-litigation undertaking given by a solicitor inter partes. There appears to be no controversy that the undertaking is inter partes in nature. Mr Smallbone described the undertaking in the same terms at an earlier directions hearing on 3 February 2023.

2. [28]

   Mr Smallbone relied on the High Court’s decision in Adam P Brown Male Fashions Pty Ltd v Philip Morris Incorporated (1981) 148 CLR 170 to support the Defendants’ application. However, that decision concerned an application to vary an undertaking given to the trial court as the basis for an interlocutory court order. The High Court stated at [10]:

3. [29]

   Here, there is no existing order of the Court that is sought to be varied which is based on a solicitor’s undertaking. There is also no undertaking given to the Court. Instead, the parties agreed to a regime, before proceedings were commenced, for the Proceeds to be held by the Defendants’ solicitors, without the Court’s involvement.

4. [30]

   I do not accept Mr Smallbone’s submission that the situation in this case is “one where the parties agreed on a holding position until the Court should be seized of the matter and make an order”. Instead, the Defendants’ solicitor gave an inter partes undertaking when there was no litigation on foot, “pending the outcome” of the litigation. The substance of what was agreed between the parties was not on its terms subject to any “further order of the Court”. The situation in Adam P Brown Male Fashions is therefore not analogous.

5. [31]

   While it is not necessary to decide, I also do not accept that the filing of the Plaintiff’s Statement of Claim amounts to “changed circumstances”. The undertaking expressly contemplated the Plaintiff bringing a claim for the whole of the Proceeds; the claim cannot amount to “new facts” or “changed circumstances”.

6. [32]

   As I am not satisfied that the Court’s jurisdiction to vary an undertaking has been enlivened, it is not strictly necessary to consider whether the undertaking should be varied by exercise of the Court’s inherent jurisdiction.

7. [33]

   It can be accepted that the Court has a broad inherent jurisdiction. As Garling J stated in Damm v Coastwide Site Services Pty Ltd [2017] NSWSC 1361 at [131]-[132] in the context of the Court’s power to set aside a judgment:

8. [34]

   However, the inherent jurisdiction is not “at large”, and it can be “exercised only as necessary for the administration of justice”: Reid v Howard [1995] HCA 40; (1995) 184 CLR 1 at [20]-[21] (Toohey, Gaudron, McHugh and Gummow JJ).

9. [35]

   There is no doubt that the Court has jurisdiction to supervise officers of the court. In his article “The Inherent Jurisdiction of the Court” (1983) 57(8) Australian Law Journal 449 at 449, Keith Mason (writing extra-judicially) described the exercise of that aspect in the following terms:

10. [36]

    The substance of the Court’s inherent jurisdiction over officers of the court has also been incorporated into the Legal Profession Uniform Law 2014 (NSW) s 264(1)-(2).

11. [37]

    This jurisdiction has applied for example to:

    1. (1)

       Restraining solicitors from acting in a particular case due to a conflict or where it would be objectively subversive to the appearance of justice for the representation to continue: see Kallinicos v Hunt (2005) 64 NSWLR 561; Dyer v Chrysanthou (No 2) (Injunction) [2021] FCA 641 (upheld on appeal: [2022] FCAFC 116).

    2. (2)

       Taxing or controlling solicitors’ costs: see eg discussion in Bell v Hartnett Lawyers (No 3) [2022] NSWSC 1204 (noting an appeal has been lodged); Atanaskovic v Birketu Pty Ltd – Supervisory Jurisdiction [2020] NSWSC 575 at [36]-[37] (Hammerschlag J).

12. [38]

    Here, no submission was made that the Defendants’ solicitor has engaged in any conduct that warrants the “punitive or compensatory” supervision of the Court.

13. [39]

    I do not consider that the Court’s inherent jurisdiction can be invoked where parties to litigation no longer want to be bound to an agreed pre-litigation position given through a solicitor’s undertaking on particular terms.

14. [40]

    Should this be wrong and the inherent jurisdiction of the Court is engaged, I still would not exercise it here for, at least, the following reasons:

    1. (1)

       There has been no suggested misconduct of the Defendants’ solicitors.

    2. (2)

       I do not consider the Defendants’ desire to use the funds as a sufficient reason to amend the undertaking given in the form of an agreement.

    3. (3)

       The Defendants have not demonstrated on the balance of probabilities that they are unable to properly prosecute their defence and possible cross claim in the Plaintiff’s proceedings. While the Defendants may not have significant savings or income, no evidence of any terms of any agreements with lawyers was brought before the Court to demonstrate that the Defendants’ current solicitors would not continue to represent the Defendants unless paid prior to the conclusion of the litigation, and if so, what sum must be paid. Further, there is no evidence of any attempt by the Defendants to obtain alternative representation if that course were necessary. Mr Smallbone provided no submission in answer to my question as to how the lack of access to the Proceeds is causing hardship in light of those uncertainties in the evidence.

Conclusion

1. [41]

   The Defendants’ Notice of Motion filed 10 December 2022 is dismissed with costs.

2. [42]

   The matter is stood over for directions in the Real Property List on 31 March 2023.