Atanaskovic Hartnell v Birketu Pty Ltd

1. [1]

   BASTEN JA: I agree with Gleeson JA.

2. [2]

   GLEESON JA: Between May 2016 and September 2017, Brody Clarke (Clarke), a solicitor then in the employ of Atanaskovic Hartnell (AH), a well-known firm of solicitors in Sydney, perpetrated several frauds on two clients of the firm, Birketu Pty Ltd (Birketu) and WIN Corporation Pty Ltd (WIN). Those companies were associated with Mr Bruce Gordon, a prominent Australian businessman, and were long established clients of AH. On 28 September 2017, Birketu and WIN, represented by AH, commenced proceedings against Clarke and obtained urgent freezing orders against his assets. In 2018, Birketu and WIN, with new representation, joined the partners of AH and Deutsche Bank AG as defendants (the fraud case). In separate proceedings, the partners of AH sued Birketu and WIN for the recovery of solicitors’ fees and disbursements the subject of seven invoices (the fees case).

3. [3]

   The two proceedings were heard together over 13 days. After judgment had been reserved, the fraud case settled. Judgment in the fees case was handed down on 9 August 2020. The primary judge (Hammerschlag J) found that AH largely succeeded on its claim and judgment (inclusive of interest) was subsequently entered for AH against Birketu in the amount of $858,966.92 and against WIN in the amount of $115,692.97: John Ljubomir Atanaskovic and the persons named in Schedule A t/as Atanaskovic Hartnell v Birketu Pty Ltd [2019] NSWSC 1006 (the first judgment).

4. [4]

   That left for determination AH’s claim in respect of one invoice referred to as the “investigation invoice”. This invoice concerned work done by AH for Birketu pursuant to a retainer in relation to the dispute between Birketu and Deutsche Bank. The amount in issue was comparatively small: $172,686.27. The primary judge found that this invoice was in a “different position” to the other invoices (save in respect of the disbursements, in the amount of $7,686.27) because Mr John Atanaskovic, a partner of AH, gave an oral undertaking to Birketu not to charge for work performed pursuant to the investigation retainer (the undertaking).

5. [5]

   The parties were given the opportunity to be heard further on whether the Court can and should exercise its inherent supervisory jurisdiction over legal practitioners, as officers of the court, to withhold directly or indirectly enforcement of the investigation retainer. That jurisdiction is preserved by s 264(1) of the Legal Profession Uniform Law (NSW): see Prothonotary of the Supreme Court of New South Wales v Thomson [2018] NSWCA 230 at [3]; Council of the New South Wales Bar Association v Siggins [2021] NSWCA 40 at [9]. Birketu did not seek to rely on s 99 of the Civil Procedure Act 2005 (NSW).

6. [6]

   In his second judgment, the primary judge found that AH was not entitled to recover its fees from Birketu for work performed pursuant to the investigation retainer, except to the extent of $14,930.15 for work related to a discrete matter (being transactional work connected with the extension of a share swap agreement). AH was therefore not entitled to recover an amount of $149,736.19: John Ljubomir Atanaskovic and the persons named in Schedule A t/as Atanaskovic Hartnell v Birketu Pty Ltd – Supervisory Jurisdiction [2020] NSWSC 573 (the second judgment).

7. [7]

   By their appeal, AH challenged the whole of the second judgment and the finding in the first judgment that Mr Atanaskovic gave the undertaking to Birketu. Shortly prior to the hearing, AH indicated that it did not press its challenge to that factual finding.

8. [8]

   The essential issues on the appeal were whether AH obtained the fully informed consent of Birketu to act for and advise Birketu with respect to the investigation retainer and whether AH could or ought be permitted to resile from the undertaking.

9. [9]

   For the reasons that follow, the appeal should be dismissed.

Factual circumstances

1. [10]

   The primary judge made detailed factual findings. The following summary of the factual circumstances provides the context for the appeal.

2. [11]

   The frauds perpetrated by Clarke fell into two categories. First, Clarke induced Birketu and WIN to make payments totalling more than $1,000,000 to his own bank account with Westpac Banking Corporation at Leura by telling them falsely that the account was AH’s trust account (the disbursement frauds). Second, Clarke twice deceived Deutsche Bank into transferring amounts totalling over $7,000,000 from Birketu’s account to a bank account that purportedly was a trust account of AH but was in fact Clarke’s personal bank account (the Deutsche frauds). The effect of the fraudulent transactions was to reduce the amount of collateral lodged by Birketu with Deutsche Bank under a share swap agreement between them. That gave rise to a dispute between Birketu and Deutsche Bank as to whether the purported variation to the share swap agreement – fraudulently sought to be effected by Clarke – was enforceable against Birketu with the consequence that the amount of the collateral Deutsche Bank would ultimately have to repay to Birketu when the share swap terminated had been reduced by $7,000,000.

3. [12]

   In about mid-October 2017, Mr Atanaskovic recommended to WIN, Birketu and Mr Gordon that they obtain independent advice. Birketu engaged HWL Ebsworth later in October 2017. Mr Andrew Lancaster, the CEO of WIN, gave evidence that those solicitors provided “general advice against the whole position”. As indicated, after HWL Ebsworth took over the conduct of the fraud case, AH and Deutsche Bank were joined as defendants in 2018.

4. [13]

   In the fraud case, Birketu claimed damages against AH in an amount equivalent to that paid into Clarke’s Westpac account and not recovered, on the basis that AH was vicariously liable for Clarke’s actions. AH disputed liability asserting that Clarke had not acted within the course and scope of his employment with AH.

5. [14]

   Birketu also sought to recover from Deutsche Bank the amounts which it had debited to Birketu’s account on Clarke’s directions, claiming that Deutsche Bank had no mandate to make those entries. The sole defence raised by Deutsche Bank was that Clarke had ostensible authority from Birketu to conduct the dealings with Deutsche Bank that led it to debit Birketu’s account. Birketu responded by asserting that if Clarke had ostensible authority (which was denied), AH was vicariously liable to it for Clarke’s actions. Deutsche Bank alternatively contended that if Clarke did not have ostensible authority, it was entitled to recover from AH what it had to pay Birketu because AH was vicariously liable to it for Clarke’s actions. AH’s primary position was that Clarke did not have ostensible authority from Birketu because Clarke did not act within the course and scope of his employment with AH.

6. [15]

   Thus, as the primary judge found in his second judgment at [11]:

7. [16]

   In the fees case, AH sued Birketu and WIN for unpaid fees and disbursements in respect of seven invoices, six of which were not directly related to the dispute concerning the frauds. The seventh invoice, dated 28 February 2018 for $172,686.27, relating to the investigation retainer, included disbursements of $7,686.27. In the first judgment, the primary judge allowed recovery of the disbursements (at [372]).

8. [17]

   The investigation retainer was the subject of an engagement letter, dated 16 November 2017, by which AH accepted a retainer from Birketu (with effect from 18 October 2017) to advise and assist Birketu in connection with the possibility of a dispute with Deutsche Bank. The terms of the investigation retainer are lengthy and are set out in full in Schedule A to these reasons, excluding the standard terms of engagement (comprising three pages).

9. [18]

   The primary judge found at [15] of the second judgment:

10. [19]

    In an email to Mr Gordon and Mr Lancaster dated 16 October 2017, Mr Atanaskovic said:

11. [20]

    Mr Lancaster replied by email on 17 October 2017 referring to “our conversation this afternoon” and indicated to Mr Atanaskovic that he would “discuss WIN/Birketu’s view on receiving independent legal advice with Bruce”, being a reference to Mr Gordon.

12. [21]

    On 28 October 2017, Mr Atanaskovic sent Mr Gordon by email a draft “Birketu re Deutsche Bank claims engagement letter”, which was in substantially the same terms as the final letter dated 16 November 2017. Mr Atanaskovic’s covering email described the “engagement letter” as being “of an administrative or ‘paperwork’ nature” and as not intending to change what had already been discussed, but “merely to record some things in the usual way, and perhaps to flesh out a couple of others”. The covering email continued:

13. [22]

    On 16 November 2017, Mr Atanaskovic sent an email at 4:09 pm to Mr Lancaster, copied to Mr Daniel Collis, the chief financial officer of WIN, attaching the final form of the engagement letter. Mr Lancaster responded by email at 4:51 pm noting “this is not your typical AH engagement letter” and asked Mr Atanaskovic whether he should assume “it is still in draft form and awaiting any feedback from Birketu”. Mr Atanaskovic replied to Mr Lancaster by email at 5:48 pm advising “[n]o, not really”, and stated that “these letters are not usually negotiated”. Mr Atanaskovic’s email continued:

14. [23]

    The investigation retainer was finalised with some amendments and signed by AH dated 16 November 2017. According to AH’s standard terms, which were attached to the retainer letter, by continuing to instruct AH after receipt of that letter, the client is taken to have agreed to those terms.

15. [24]

    Before the investigation retainer was formalised, but after it had taken effect informally, there was detailed consideration amongst the partners of AH as to whether AH could accept the retainer. On 25 October 2017, Mr Jon Skene, a partner of AH, sent an email to Mr Atanaskovic copied to three other partners in the firm, analysing the position, drawing attention to the complications involved, and raising his concerns that AH potentially had a conflict of interest as the question of AH’s vicarious liability for the conduct of Clarke would likely be litigated in a “3-way dispute” between Birketu, AH and Deutsche Bank. Mr Skene expressed the preliminary view that AH may be in breach of r 12 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (NSW) (Solicitors’ Conduct Rules), as none of the exemptions under the rule applied, and in such event, the conflict of interest could not be resolved by the informed consent of the client.

16. [25]

    It is necessary to reproduce in full the whole of the Skene email as significant parts of its contents are relied upon by Birketu in support of its contention that Birketu did not give its fully informed consent to AH acting:

17. [26]

    On 9 January 2018, Mr Atanaskovic attended a lunch with Mr Gordon and Mr Lancaster during which he gave a verbal undertaking that AH would not charge for any work done by the firm in relation to the investigation of the frauds (the undertaking). At trial, Mr Atanaskovic denied giving the undertaking. The primary judge rejected that evidence and found in his first judgment (at [352]) that the undertaking was given in the terms recorded in an email from Mr Lancaster to Mr Gordon, copied to Mrs Judith Gordon, on 10 January 2018 at 10:58 am:

18. [27]

    Despite the undertaking, AH issued a Statement of Account/Tax Invoice for $172,686.27 to Birketu dated 28 February 2018 (the investigation invoice) under cover of a letter addressed to Mr Gordon c/- Birketu which referred to Mr Gordon’s “now apparent desire to change solicitors in the matter”, being a reference to Birketu’s formal change of solicitors in the fraud case.

19. [28]

    The investigation invoice contained 21 line-items, which the primary judge reproduced in the second judgment (at [52]). A more detailed time record report was also in evidence identifying the dates and description of work done. That report confirmed that most of the work was done in the period of 3 October 2017 to 30 November 2017 (items 1-94, out of a total of 122 items).

20. [29]

    On 9 August 2019, the primary judge referred two questions to a referee, Mr R Gyles AO QC, for inquiry and report under Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 20.14, namely, which of the items in the invoice were referrable to (1) work done for the benefit of AH, or (2) attendances where AH’s interests were adverse, or potentially adverse, to the interests of Birketu.

21. [30]

    The primary judge adopted Mr Gyles’ report dated 4 February 2020 in the second judgment (at [48]), noting:

The primary judge’s reasons – second judgment

1. [31]

   The primary judge stated his findings at [5]-[27] which provided the background to the second judgment. None of these findings are challenged. With respect to the work the subject of the investigation invoice, the primary judge found:

2. [32]

   At [75], the primary judge recorded that it was not in issue that:

3. [33]

   At [76], the primary judge concluded that the supervisory jurisdiction of the Court should be exercised to preclude recovery by AH of the fees owed under the investigation invoice (save for an amount of $14,930.15). At [77], the primary judge stated that to permit AH to recover more would be to:

4. [34]

   These conclusions rested upon the following findings.

5. [35]

   First, AH did not obtain the fully informed consent of Birketu (at [84]) and Birketu’s sophistication, experience and resources did not excuse AH from the heavy burden of full disclosure (at [92]). Specifically, AH did not, or did not sufficiently, disclose:

6. [36]

   As a consequence of AH acting for Birketu, the primary judge found that: AH would learn facts concerning the surrounding circumstances of Clarke’s fraud, which it otherwise did not know, from Birketu’s cooperation in the investigation (at [90]); AH had an opportunity of managing issues between Birketu and Deutsche, and this lessened the chance that Deutsche and Birketu would down tools and take aim at AH; and there was a great advantage to AH in closely investigating the facts and the internal workings of Birketu if, as came to pass, AH was subsequently sued in relation to issues such as causation and negligence: at [91].

7. [37]

   Second, even assuming a finding that Birketu gave fully informed consent to AH acting (which there was not), this was not a bar to the exercise of the supervisory jurisdiction as:

   1. (1)

      although AH may have adequately put arguments (to Deutsche Bank) on the ostensible authority aspect of the wider dispute, that had little to say about its position generally, given Mr Gyles’ other observations about AH’s position of conflict: at [94];

   2. (2)

      the present case was of the kind that Street CJ referred to in Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 (Harvey), where the conflict of interest is such that it is not proper, or even possible, for the solicitor to continue to act for and advise his or her client, even with consent: at [95];

   3. (3)

      even if there was a defence of fully informed consent to a breach of fiduciary duty, this did not make AH’s position any less untenable from the point of view of its professional ethical obligations, given that r 12.1 of the Solicitors’ Conduct Rules does not provide as an exception that a solicitor can act if there is a conflict, provided there is fully informed consent: at [98];

   4. (4)

      the work for which AH seeks payment, including the work relating to the question of Clarke’s ostensible authority and also “the conflict of interest work, the freezing and tracing of assets work, and the work related to the negligence of Deutsche”, was infected by the conflict of interest, given the overlapping and complicated underlying set of facts which it would be difficult to investigate for one purpose without having the other in mind: at [99]-[100]; and

   5. (5)

      there was no benefit, but only detriment to Birketu, from this work: at [101].

8. [38]

   Third, AH ought to be held to its undertaking which was given in a professional capacity: at [104].

9. [39]

   Fourth, the special circumstances necessary for the Court’s exercise of its supervisory jurisdiction are present: at [105]. In this regard, there is no challenge to the primary judge’s statements of principle at [29]-[34]. It is accepted that the Court has a well-established inherent supervisory jurisdiction, to which solicitors are amenable, which is designed to impose on them higher standards than the law applies generally (United Mining & Finance Corporation Ltd v Becher [1910] 2 KB 296 at 304; Wade v Licardy (1993) 33 NSWLR 1 at 6-9), and this jurisdiction extends to ensuring that a solicitor honours an undertaking given by him or her in that capacity.

The issues on appeal

1. [40]

   The issues on appeal were as follows:

   1. (1)

      whether AH obtained the fully informed consent of Birketu to act and advise in relation to Birketu’s dispute with Deutsche Bank (ground 1);

   2. (2)

      whether the conflict of interest and duty was so acute that AH could not act for or advise Birketu in the dispute with Deutsche Bank, even with Birketu’s fully informed consent, and whether to permit AH to recover its fees in those circumstances would give efficacy to a retainer which it was not open to AH, acting ethically, to accept (ground 2);

   3. (3)

      whether the work performed by AH was “infected by the conflict of interest” and whether Birketu obtained no benefit from the work performed by AH, only detriment (ground 3);

   4. (4)

      whether AH could not, or ought not, be permitted to resile from the undertaking (as found by the primary judge), and whether recovery of the whole or part of the fees claimed by AH would allow them to renege dishonourably on the undertaking (ground 4); and

   5. (5)

      whether there were special circumstances such that the Court should exercise its supervisory jurisdiction and preclude AH from recovering those fees (ground 5).

2. [41]

   Ground 2 is strictly in the alternative to ground 1; it stands or falls with ground 1. Although AH approached grounds 2-4 as separate matters, these grounds were related and ultimately need to be considered in the context of the challenge to the exercise of the discretion. AH accepted that ground 5 is dependent on the outcome of grounds 1-4.

Ground 1 – whether fully informed consent

1. [42]

   It is necessary first to recall some basic principles.

Legal principles

1. [43]

   The fiduciary duty owed by a solicitor to a client is a duty of “absolute and disinterested loyalty”: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 104 (Mason J); [1984] HCA 64, citing Judge Learned Hand in Phelan v Middle States Oil Corporation (1955) 220 F (2d) 593, 602-603. That fundamental rule embodies two themes: the “conflict rule” and the “profit rule”. This case is concerned with the conflict rule.

2. [44]

   The conflict rule precludes “any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict”: Chan v Zacharia (1984) 154 CLR 178 at 198 (Deane J); [1984] HCA 36; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [68] (Gageler J). The objective of the rule is “to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage”: Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557; [1995] HCA 18 (Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).

3. [45]

   In National Mutual Holdings Pty Ltd v The Sentry Corporation (1989) 22 FCR 209 at 229, Gummow J, after referring to the statement by Deane J in Chan v Zacharia at 199 concerning a conflict or significant possibility of conflict, observed that whilst his Honour was speaking of fiduciaries generally (in that case between partners, not solicitor and former client):

4. [46]

   Informed consent is a defence. There is no duty on a fiduciary to obtain the informed consent of the principal, “[r]ather, the existence of an informed consent [will go] to negate what otherwise was a breach of duty”: Maguire v Makaronis (1997) 188 CLR 449 at 467; [1997] HCA 23.

5. [47]

   Accordingly, it is for the fiduciary to make out the defence: Maguire at 466; Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1; [2011] FCAFC 24 at [108] (Besanko J, Finkelstein and Jacobson JJ agreeing); Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [135] (Leeming JA, Barrett and Gleeson JJA agreeing).

6. [48]

   The consent must be “fully informed” and what is required “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”: Maguire at 466. In Harvey, Street CJ said at 170 that there must be:

7. [49]

   The question is whether the client has been “fully informed of his rights ‘and of all the material facts and circumstances of the case’”: Rahme v Benjamin & Khoury Pty Ltd (2019) 100 NSWLR 550; [2019] NSWCA 211 at [100] (Macfarlan JA, Bathurst CJ and McCallum JA agreeing), citing Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 at 393.

8. [50]

   Consent can be established “at different times and in different ways”, and sufficiency of disclosure can depend on the sophistication and intelligence of the persons to whom disclosure must be made: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [107].

9. [51]

   There is a common feature of the lawyer-client relationship which could be seen as involving a conflict of interest and duty. A lawyer has an interest in maximising fee revenue, in (i) taking on a client, (ii) setting the fees to be charged, and (iii) determining what needs to be done. There are regulatory controls which address these matters. None of these interests was invoked as a basis of conflict in this case.

10. [52]

    AH’s principal submissions were as follows:

    1. (1)

       the “important circumstance”, being the independent legal advice given by HWL Ebsworth to Birketu on the “whole position”, was not taken into account by the primary judge;

    2. (2)

       AH disclosed both the existence of a conflict and its implications to Birketu in the investigation retainer letter;

    3. (3)

       Birketu did not provide evidence that it was not aware that AH had a conflict of interest and duty, or that it did not understand the implications of that conflict, or that the advice actually given by HWL Ebsworth was not meaningful as to the nature and implications of that conflict or that HWL Ebsworth was not fully independent; and

    4. (4)

       Mr Gordon and Birketu had strong pragmatic reasons to want AH to act in the dispute against Deutsche Bank.

11. [53]

    There is no challenge to the primary judge’s findings in the second judgment (at [11]) identifying the nature and circumstances of AH’s conflict of interest and duty (see [15] above). AH accepted that it was in a position of actual conflict between its personal interest and fiduciary duty at the time of entering the investigation retainer. AH also accepted that, as the party seeking to recover its fees, AH had the onus of proof of establishing fully informed consent.

Decision

1. [54]

   The disclosure relied upon by AH in the retainer letter is to be read together with the covering email of 28 October 2017 attaching the first draft of the retainer letter (see [21] above). Several observations can be made concerning the disclosure by AH.

2. [55]

   First, although Deutsche Bank and its lawyers had suggested that AH was in a position of conflict in acting for Birketu in its dispute with Deutsche Bank, AH told Birketu that it did not “presently” consider that such a conflict had arisen “directly” in relation to this matter. Rather, AH described the conflict as a “potential” one, or one that “may … possibly arise” in the future, if Birketu “does have a liability to Deutsche Bank”. At the same time, AH advised Birketu that it did not have a liability to Deutsche Bank in relation to the $7,000,000 of collateral transferred to Clarke’s personal account.

3. [56]

   That was not a correct statement of the legal position given that AH was in a position of actual conflict. In describing the conflict as a “potential” one, or one that might arise in the future, AH conflated its assessment of the likely outcome of the dispute between Birketu and Deutsche Bank with the conflict question; the conflict question required attention to be given to the existence of actual or potential opposition of interests between AH and Birketu arising from Birketu’s dispute with Deutsche Bank. The purported disclosure by AH in the retainer letter did not address the correct question.

4. [57]

   Second, to the extent that AH accepted in its reply submissions that it was not correct to describe the conflict in the retainer letter as being a “potential” one or one that might arise in the future, it does not follow, as AH submitted, that those descriptions of the conflict were “natural enough given that it depended on Birketu being legally liable to Deutsche Bank”. The erroneous description by AH of the conflict as a “potential” one obscured the reality of the opposition of interests between AH and Birketu. This was not disclosed by AH.

5. [58]

   Third, it is no answer to say, as AH submitted, that Mr Gordon and Birketu knew that AH had a conflict. Mr Gordon and Birketu knew what they had been told by AH, namely, that AH did not consider that it had a conflict of interest and that there was “no compelling conflicts argument” against AH acting for Birketu. They were not told that AH had an actual conflict of interest in acting for Birketu on the investigation retainer.

6. [59]

   Nor was there full disclosure of all material facts and circumstances. As the Skene email correctly recorded, one difficulty confronting AH in acting for Birketu on the dispute with Deutsche Bank was that, in advising Birketu on any settlement offer by Deutsche Bank, the interests of Birketu and AH were adverse: whilst an independent solicitor may have advised Birketu to accept less than full recovery of its claim against Deutsche Bank, it was not in AH’s interests to give that advice, as it would face a potential cross-claim by Birketu for any difference (see [25] above).

7. [60]

   Fourth, it cannot pass without mention that the description of the draft “engagement letter” in the covering email of 28 October 2017 as administrative or “paperwork” was inapt, given the importance of the purported disclosure by AH in the retainer letter.

8. [61]

   The email also asserted, somewhat threateningly, that despite enquiries of Mr Collis and others, Birketu had not explained to AH why many of the payments were made to Clarke’s account. That statement highlighted the actual conflict which existed and was a prelude to AH’s position in the fraud case that AH was not vicariously liable for Clarke’s conduct. Plainly, the interests of AH and Birketu conflicted because of their opposition of interests on the question of whether AH was vicariously liable for Clarke’s conduct.

9. [62]

   The primary judge’s findings on the issue of fully informed consent have been referred to at [35] above. AH addressed these findings in its reply submissions.

10. [63]

    AH submitted that the access to information which the investigation retainer would provide AH was sufficiently disclosed to Birketu by the statements in the retainer letter that AH “may arguably have practical interests in seeking to avoid liabilities and duties, or seeking to avoid satisfying duties and liabilities, to Birketu or you”, and that AH would “therefore not give the advice, or act in a way” which it “would properly otherwise do”.

11. [64]

    Even accepting that these vague statements should be read in context with other statements in the retainer letter referring to the potential claim by Birketu that AH was liable for Clarke’s conduct, that disclosure said nothing about the benefit that the retainer would provide to AH by way of access to information which AH might use against Birketu in subsequent litigation.

12. [65]

    AH also submitted that the failure to disclose the access to Birketu’s information was only a theoretical implication of the conflict which did not render the disclosure in the retainer letter insufficient: Rahme v Benjamin & Khoury at [100]. According to the submission, the possibility of AH obtaining access to information not already in its possession from its prior representation of Birketu was remote and speculative. However, AH adduced no evidence to support this assertion.

13. [66]

    Further, and contrary to AH’s submissions, it is not to the point that Birketu made no attempt in evidence to identify any specific information which AH had or could have obtained which AH could use in subsequent litigation between them which was not already known to AH. That would be to reverse the onus of proof on the defence of fully informed consent.

14. [67]

    Moreover, the information to which the investigation retainer would provide access would be of a significantly different quality from any information previously obtained by AH when acting for Birketu. That is because the investigation retainer involved an examination and consideration of the facts relating to Birketu’s dealings with Clarke in relation to the variation of the share swap agreement, of which AH was not aware, and those facts inextricably overlapped with the facts relating to AH’s vicarious liability for Clarke’s conduct. Indeed, the likelihood that there was information not known to AH inhered in AH’s assertion that Clarke was not acting in the course of his employment with AH.

15. [68]

    AH submitted that the circumstances giving rise to the overlap of facts between the investigation retainer and the issue of AH’s vicarious liability, including the possibility of claims by Birketu against AH, was expressly disclosed in the retainer letter. The difficulty with this submission is that AH did not disclose its personal interest in the investigation of Clarke’s ostensible authority, given the opposition of interest on the issue of AH’s vicarious liability for Clarke’s conduct.

16. [69]

    AH also submitted that the degree of overlap of the facts was not as great as the finding by the primary judge might suggest. This submission sought to diminish the significance of the primary judge’s finding that the investigation of Clarke’s ostensible authority “overlapped inextricably” with the question of AH’s vicarious liability for Clarke’s conduct. However, no basis was shown for finding error in that assessment by the primary judge which was based on readily supportable reasoning.

17. [70]

    AH submitted that the potential contest between Birketu and AH on the vicarious liability issue, and the circumstances in which it would arise, were expressly disclosed in two passages in the draft retainer letter, which were repeated in the final letter. However, an examination of those passages highlights the insufficiency of the purported disclosure.

18. [71]

    The first passage contained the uninformative statement that “this firm may suffer from a conflict of interests and/or duties in relation to this matter (and conflicts of interests and/or duties may also arise as a result of other matters and circumstances), such as referred to above (in brackets) and below)”. The cross-reference to the passage “(in brackets)” above was to the following:

19. [72]

    The second passage contained statements that “it may be argued by DB and/or by Birketu that this firm may have a liability to Birketu for any liabilities which Birketu would have incurred to DB for the moneys so advanced …” and “this firm may arguably have practical interests in seeking to avoid liabilities and duties, … and thus may therefore not give the advice, or act in a way, which this firm would properly otherwise do” were it not to have those “possible interests” (emphasis added).

20. [73]

    Neither passage amounted to a full disclosure of all the relevant facts and circumstances. As his Honour found (at [88]), AH did not disclose that the critical aspect on which Birketu’s and AH’s interests were “plainly at odds” concerned Clarke’s course of conduct and scope of authority and that the opposition of interests between Birketu and AH on the issue of vicarious liability gave rise to the actual conflict of interest.

21. [74]

    AH submitted that the finding about the potential advantages and disadvantages of the retainer was conclusionary on the other findings. That submission ignored that this finding was based on the unchallenged findings of the primary judge (at [57]-[63]) adopting the report of Mr Gyles (see [30] above), concerning the items of work done for the benefit of AH and the attendances where AH’s interests were adverse or potentially adverse to the interests of Birketu.

22. [75]

    AH submitted that the fact that it had recommended that Birketu obtain independent advice, which Birketu had done, was an important consideration both as to the nature of the required disclosure and the reality of the informed consent given. AH complained that the primary judge seemingly gave no weight to this consideration because he made no reference to it.

23. [76]

    Contrary to AH’s submissions, the primary judge referred to AH’s recommendation that Birketu obtain independent advice when he set out in full the terms of the retainer letter in the second judgment (at [14]), which recorded that advice.

24. [77]

    Although his Honour did not specifically refer to the evidence of Mr Lancaster that Birketu had obtained advice from independent lawyers, nothing flows from this since the acknowledgment by Mr Lancaster in cross-examination that Birketu was taking general advice against the whole position did not amount to evidence of advice on the specific question of the “possible” conflict of interest referred to in the retainer letter. Moreover, there was no evidence that Birketu obtained advice on the actual conflict of interest which existed.

25. [78]

    The primary judge considered Mr Gordon’s position, and took into account Birketu’s sophistication, experience and resources in deciding whether AH had obtained fully informed consent from Birektu. There is no error in the finding that this did not excuse AH from the heavy burden of full disclosure.

26. [79]

    Insofar as AH complained that his Honour made a similar finding that Mr Atanaskovic was sophisticated, experienced and possessed resources, which AH says was irrelevant, these observations were made in connection with the finding (at [92]) that the retainer reflects an acute awareness of the position of conflict. This complaint goes nowhere.

27. [80]

    The challenge to the finding that AH did not obtain Birketu’s fully informed consent should be rejected.

Ground 2 – Conflict so profound that AH could not act

1. [81]

   Ground 2 challenges two findings by the primary judge which are related. One is the finding at [77(1)] that to permit AH to recover its fees would give efficacy to a retainer which it was not open to AH, acting ethically, to accept “in the face of the clear and profound conflict of interest between its own interests and the duties which it owed Birketu”. The other finding is at [95] that the conflict of interest was so profound that it was not proper, or even possible, for AH to continue to act for and advise Birketu, even with consent.

2. [82]

   These findings were based on the principles stated by Street CJ in Harvey. Reference was also made to the statement of Megarry J in Spector v Ageda [1973] Ch 30 at 47. In addition, the primary judge reasoned that fully informed consent would not be effective to make AH’s position any less untenable given its professional ethical obligations as r 12.1 of the Solicitors’ Conduct Rules does not provide an exception for a solicitor to act where he or she obtains the fully informed consent of the client.

3. [83]

   Although AH accepted that there can be cases of the type referred to in Harvey (where it is not possible for a solicitor to act), AH submitted that the primary judge erred in finding that the present case was of that type.

Decision

1. [84]

   Given the conclusion on ground 1, this ground does not strictly arise. Nevertheless, I will indicate my views: Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12]; Boensch v Pascoe [2019] HCA 49; (2019) 94 ALJR 112 at [8].

2. [85]

   The statement of Street CJ in Harvey at 170-171 to which the primary judge referred (at [40]) is as follows:

3. [86]

   AH submitted that the wider statements of principle in Harvey must be applied “sub modo”, referring to the remarks of Young J in Marcolongo v Mattiussi [2000] NSWSC 834 at [66]. This submission was unhelpful as AH did not specify how those principles should be qualified.

4. [87]

   The wider statements in Harvey should be read as saying no more than two things. First, in some cases the circumstances of the solicitor’s conflict of interest and duty may be so profound that the objective of the conflict rule (to preclude the solicitor being swayed by considerations of self-interest) can only be achieved if the solicitor does not act for the client. In Harvey, Street CJ gives the example of a deliberate proposal of the solicitor that his client deal with him (at 171).

5. [88]

   Second, in some cases it may not be “even possible” for the solicitor to obtain the client’s fully informed consent, in the sense of not “practically possible”, given the high standard of disclosure required of the solicitor, which Street CJ described as:

6. [89]

   In seeking to distinguish the present case from the type of cases contemplated in Harvey, AH submitted that the interests of AH and Birketu were aligned against Deutsche Bank on the question of Clarke’s ostensible authority. There are several difficulties with this submission.

7. [90]

   First, the fact that there was some commonality of interest between Birketu and AH in a three-way dispute with Deutsche Bank on one issue (denying that Clarke had ostensible authority from Birketu) is no answer to AH’s actual conflict of interest which existed from the opposition of interest on the issue of AH’s vicarious liability for Clarke’s conduct.

8. [91]

   Second, as the primary judge found (at [99]), the question of Clarke’s ostensible authority and AH’s vicarious liability for his actions depended on an overlapping and complicated set of facts which it would be difficult to investigate for one purpose without having the other in mind.

9. [92]

   Third, it is no answer for AH to say, as it submitted, that its interests were aligned with Birketu because AH was “even more than usually motivated to win the dispute with Deutsche Bank and resolve the issue for a significant and longstanding client”. The motivation of AH was irrelevant to the question of informed consent, but anyway was part only of the situation.

10. [93]

    The Solicitors’ Conduct Rules were developed by the Law Council of Australia in accordance with s 427 of the Legal Profession Uniform Law (NSW) and are made by the Legal Services Council under Pt 9.2 of that Law. The content of the Conduct Rules may include, without limitation, provisions with respect to what Australian legal practitioners, Australian-registered foreign lawyers and law practices must do, or refrain from doing, in order to “avoid conflicts of interest”: s 423(2)(c) Legal Profession Uniform Law (NSW). The Solicitors’ Conduct Rules commenced in New South Wales on 1 July 2015: see Pt 1, r 2.

11. [94]

    The objective of the Rules is to assist solicitors to act ethically and in accordance with the principles of professional conduct established by the common law and the Rules (Pt 1, r 3.1). Part 2, r 2 sets out the purpose and effect of the “Operational rules” contained in Pt 2. The stated purpose of the operational rules is the same as the objective of the Rules stated in Pt 1 (Pt 2, r 2.1). The effect of the Rules is that they apply in addition to the common law (Pt 2, r 2.2), and whilst a breach of the Rules may give rise to disciplinary action by the relevant disciplinary body, a breach cannot be enforced by a third party (Pt 2, r 2.3).

12. [95]

    Part 2 of the Rules includes r 12, which relevantly provides:

13. [96]

    It is not necessary to set out the specific exceptions in r 12.4 relating to the preparation of a Will, referral fees received by solicitors from a third party or referred fees paid by a solicitor. It is common ground that none of the exceptions applied in this case.

14. [97]

    The term “associate” is defined in the glossary of terms as follows;

15. [98]

    AH submitted that r 12.1 should be understood as subject to the long-established position that a solicitor can obtain informed consent to act where the solicitor is in a position of conflict. In support of this construction of the rule, AH referred to Riley Solicitors Manual (2005, LexisNexis Butterworths) at [6010] where it is said that the rule “states the general fiduciary proscription in this context”. AH also referred to the Commentary on the draft Solicitors’ Conduct Rules issued by the Law Council of Australia in August 2013, which stated:

16. [99]

    In oral argument, senior counsel for the respondents submitted that “r 12 is scarcely intending to set up yet another parallel system, apart from the true common law and equity, … [containing] … the supervisory jurisdiction with respect to relations between fiduciaries who are solicitors and their clients”. The submission continued that there was nothing of benefit to AH from this understanding of r 12 or its application, pointing to the position set out in Mr Skene’s email.

17. [100]

    As indicated, the scope of the ethical obligation in r 12.1 is not dispositive of the appeal, given the conclusion on ground 1 that an actual conflict existed. If it were necessary to decide this point, my view is that the construction of r 12.1 adopted by the primary judge was incorrect. However, that error is immaterial; the ethical obligation in r 12.1 was an independent reason for the alternative finding that the present case was of the type referred to in Harvey where the conflict was so profound that it is not proper or even possible for a solicitor to act.

18. [101]

    Rule 12 deals with three discrete aspects of the solicitor/client relationship: conflicts of interest (r 12.1), undue influence in the context of charging in excess of the solicitor’s fair remuneration (r 12.2), and dealings between the solicitor and client involving borrowing money from a client, except for permitted categories of clients (r 12.3).

19. [102]

    The subject matter of r 12.1 is the proscriptive fiduciary duty imposed on a solicitor by the “conflict rule”. As indicated, the conflict rule precludes a solicitor from acting for a client where there exists a conflict of personal interest and fiduciary duty or a significant possibility of such a conflict.

20. [103]

    Given the wide definition of “associate”, which includes a member of the solicitor’s immediate family, the ethical obligation imposed by r 12.1 extends to a conflict which exists between the personal interests of an “associate” of a solicitor and the solicitor’s duty to the client. It is not necessary to address whether the ethical obligation in the case of conflicts involving an associate of the solicitor is potentially wider than the proscriptive fiduciary duty imposed by the conflict rule.

21. [104]

    The present question is a narrower one: does the ethical obligation in r 12.1 necessarily preclude a solicitor from acting for a client where a conflict exists and no specific exception in r 12 is available? There are several compelling reasons why r 12.1 should be read as not intending to change the general law that fully informed consent is a defence to the proscriptive fiduciary duty (see [46] above).

22. [105]

    First, the rule lacks any specific indication of an intention to exclude the general law exception to the conflict rule for fully informed consent. Second, attributing such an intention to r 12.1 would be contrary to the stated objective and purpose of the Rules being to assist solicitors to act in accordance with the principles of professional conduct established by the common law. The absence of a specific exception to r 12.1 for fully informed consent is unsurprising once it is recognised that the principles of professional conduct established by the common law include the defence of fully informed consent.

23. [106]

    Third, it is most unlikely that a rule made by the Legal Services Council relating to conduct of solicitors to “avoid conflicts of interest” (s 423(2)(c) Legal Profession Uniform Law (NSW)) was intended to preclude a solicitor from avoiding the conflict rule by the existing exception at general law of obtaining the fully informed consent of the client. Rather, if there is fully informed consent, there is no breach of r 12.1.

24. [107]

    This conclusion is consistent with the Commentary issued by the Law Council of Australia but is not reliant upon that Commentary. The Commentary was issued two years prior to the introduction of the Solicitors’ Conduct Rules in New South Wales, and does not have the status of extrinsic material under s 34 of the Interpretation Act 1987 (NSW) to which the Court could have regard when construing the statutory rules. The Commentary does no more than state what the Law Council of Australia, as the proponent of the draft Rules, may have thought or intended the scope of the proposed rule to be.

25. [108]

    Notwithstanding the error by the primary judge in the construction of r 12.1 of the Solicitors’ Conduct Rules, AH has not shown error in the alternative finding that the present case was of the type where it was not proper or even possible for AH to act for Birketu, given the profound conflict that existed. Ground 2 has not been made out.

Ground 3 – Nature of the work performed by AH

1. [109]

   AH challenged the primary judge’s finding that the work performed by AH was “infected by the conflict of interest” and that Birketu obtained no benefit from the work, whilst the benefit obtained by AH was more than incidental. AH submitted that this finding involved two errors.

2. [110]

   First, the primary judge should not have concluded, based on the report of Mr Gyles, that AH’s work was necessarily infected by a conflict of interest. Second, the primary judge should have found that AH’s work benefited Birketu, and AH received only an incidental benefit, such that it was not unreasonable for AH to recover fees for that work.

Decision

1. [111]

   As to the first asserted error, AH submitted that both Mr Gyles and the primary judge erred in concluding that it would be difficult to investigate the facts for one issue without investigating the other, because the questions of AH’s vicarious liability and Clarke’s ostensible authority are separate legal questions.

2. [112]

   That separate legal questions arose from the dispute with Deutsche Bank misses the point. The answer to each of the legal questions was fact sensitive. As Mr Gyles observed, and the primary judge agreed, the vicarious liability and ostensible authority issues shared the same underlying set of facts. The primary judge addressed the extent to which the separate legal questions impacted AH’s conflict of interest and found (at [94]), that while AH may have adequately put arguments on one aspect of the wider dispute, this had little to say about its position generally, being a reference to AH’s conflict of interest and duty on the vicarious liability issue. There is no error in that finding. Plainly, it would be difficult for AH to investigate the facts for one issue without it affecting the other.

3. [113]

   As to the second asserted error, accepting that Mr Gyles found that AH had demonstrated “cogent reasoning” in their work on the issue of ostensible authority, AH’s submissions ignored the findings of Mr Gyles, which were adopted by the primary judge, concerning the work which AH did in its own interests and contrary to the interests of Birketu (at [62]). These findings undermined AH’s submission that it is fair and reasonable that Birketu should pay for such work.

4. [114]

   To the extent that there was any benefit to Birketu in AH possibly persuading Deutsche Bank that Clarke did not have ostensible authority to act for Birketu, this was mitigated by two matters. As the respondents correctly submitted, Birketu inevitably had to obtain new legal representation, given AH’s conflict of interest and duty, and as the primary judge found, the benefit to AH was more than incidental. That finding was well open on the conclusions in the report of Mr Gyles (at [62]), which the primary judge adopted.

5. [115]

   AH says that the same costs would have been incurred by Birketu if other solicitors, other than AH, had been retained from the beginning for the investigation retainer because the same correspondence with Deutsche Bank and detailed consideration of the issue of ostensible authority would have been undertaken by the other firm as by AH. Again, that misses the point. At the time AH entered the investigation retainer it was not in Birketu’s interest that costs be incurred in retaining AH, which was in a position of actual conflict, when at least some of those costs would be duplicated when new solicitors were retained, once the conflict was properly recognised by AH. So much was ultimately accepted by AH in argument.

6. [116]

   AH also repeated the submission made in support of ground 2 that Birketu benefited from the work because its interests were aligned with AH on the ostensible authority issue. As indicated, commonality of interest on one issue did not mean that the parties’ interests were aligned. Given the opposition of interest on the issue of AH’s vicarious liability for Clarke’s conduct, on which the parties took opposing positions at trial, the parties’ interests were plainly not aligned. Ground 3 has not been made out.

Ground 4 - The undertaking

1. [117]

   For a court to enforce a solicitor’s undertaking as such it is an essential requirement that there be a promise made in his or her capacity as a solicitor: United Bank of Kuwait Ltd v Hammoud [1988] 1 WLR 1051 at 1063 (Staughton LJ), citing United Mining and Finance Corporation Ltd v Becher [1910] 2 KB 296 at 306-307 (Hamilton J); Wade v Licardy at 7G-8B, citing In re A Solicitor [1966] 1 WLR 1604 at 1607-1608 (Pennycuick J).

2. [118]

   AH sought to avoid the enforcement of Mr Atanaskovic’s statement on two bases: (1) that the statement did not amount to an undertaking; and (2) that, if it did, then the exercise of the discretion to enforce the undertaking miscarried.

3. [119]

   It is to be recalled that the primary judge found in the first judgment that Mr Atanaskovic said at a lunch with Mr Gordon and Mr Lancaster on 9 January 2018 words to the effect:

4. [120]

   In writing, AH advanced three reasons why the words spoken by Mr Atanaskovic did not amount to an undertaking.

5. [121]

   The first reason – that the word “undertaking” was not used by Mr Atanaskovic – was not pressed in AH’s reply submissions. That retreat from AH’s submission in chief is unsurprising. It is well-established that the use of the word “undertaking” is not essential in order for a solicitor’s representation as to future conduct be enforceable: Hastingwood Property Ltd v Saunders Bearman Anselm (A firm) [1991] Ch 114 at 126, citing John Fox v Bannister, King & Rigbeys [1988] QB 925; and Re A Solicitor; Ex parte Hales.

6. [122]

   The second and third reasons can be dealt with together. AH repeated the submission advanced below that the context demonstrates that no undertaking was given as the discussion of fees about work which had been performed is not something intended to be honoured in the solicitor’s professional capacity.

7. [123]

   The primary judge rejected this submission, finding at [104]:

8. [124]

   In oral argument, AH submitted that the line between a statement made by a solicitor as to something that will be done or not done, and a formal undertaking, is difficult to draw. Whilst maintaining the written submission that the statement by Mr Atanaskovic ought not be construed as an undertaking by a solicitor, senior counsel for AH accepted that the statement could be regarded as an undertaking. That concession was properly made.

9. [125]

   The undertaking given by Mr Atanaskovic was something to be honoured in his professional capacity. The words used by Mr Atanaskovic are clear and unambiguous; they amount to an undertaking not to charge for the work that AH subsequently sought to recover from Birketu.

10. [126]

    AH accepted that the Court has a discretion whether to enforce an undertaking but submitted that the exercise of discretion miscarried because the primary judge appears to have concluded that it followed as a matter of course that the undertaking should be enforced.

11. [127]

    I reject that submission. On a fair reading of his Honour’s reasons, including the statement of principles at [28]-[34], and the application of those principles at [75(4)], [77(3)] and [78], his Honour proceeded on the correct basis that the Court had a discretion to enforce the undertaking in the exercise of the Court’s supervisory jurisdiction.

12. [128]

    Next, AH submitted that the undertaking should not be enforced because “this was at most a marginal case” and, at its highest, the evidence reveals a change of intention by Mr Atanaskovic in the following circumstances:

    1. (1)

       there was no reliance by Birketu on the undertaking in terms of altering conduct;

    2. (2)

       there was no loss caused as a result of AH resiling from the undertaking;

    3. (3)

       almost all of the work had been performed by AH prior to the undertaking being given;

    4. (4)

       the conduct of Mr Atanaskovic was not dishonest; and

    5. (5)

       the undertaking was given at an informal lunch and was not subsequently confirmed in writing.

13. [129]

    The first three matters are related and can be dealt with together. AH submitted that the supervisory jurisdiction is compensatory and therefore the absence of reliance and loss are relevant matters in the exercise of the Court’s discretion to enforce an undertaking. As to the absence of consideration for the promise, AH submitted that a solicitor’s voluntary promise concerning fees for work already performed has not previously been enforced in the supervisory jurisdiction, and to enforce such a promise would place a solicitor’s promise in a different position from promises made by a creditor for discharge of a debt without consideration.

14. [130]

    These contentions are misplaced. They ignore the principles stated by the primary judge at [30]-[31] of the second judgment, as to which no complaint is made. The position is helpfully summarised by GE Dal Pont in Lawyers’ Professional Responsibility (7th ed, 2021, Thomson Reuters (Professional) Australia Limited) at [22.30]:

15. [131]

    In short, the supervisory jurisdiction is both disciplinary and compensatory; enforcement of an undertaking is for the purpose of ensuring honourable conduct on the part of the Court’s own officers, and is distinct from the legal rights and remedies of the parties; enforcement does not depend upon there being consideration for the undertaking. What distinguishes the enforcement of a voluntary promise by a solicitor from a similar promise made by an ordinary creditor is the fact that the undertaking is given by a solicitor in his or her professional capacity. As officers of the Court, solicitors are expected to abide by undertakings given by them professionally and, if they do not, they may be called upon to make good their defaults. Where the solicitor, directly or indirectly, still has it in his or her power to do the act which he or she undertook to do, the Court may order the solicitor to do that act: John Fox v Bannister, King & Rigbeys at 928 (Nicholls LJ).

16. [132]

    That expectation of solicitors is reinforced by r 6.1 of the Solicitors’ Conduct Rules which provides:

17. [133]

    Here, the undertaking concerned the solicitor’s professional entitlement and position. There was no error by the primary judge in enforcing the undertaking by precluding AH from recovering the fees they undertook not to charge the client.

18. [134]

    It remains to address two authorities to which AH referred on the relevance of reliance and loss to the exercise of the discretion. For the reasons that follow, the first is an unreliable guide to the nature and limits of the supervisory jurisdiction in New South Wales, and the second is readily distinguishable on the facts.

19. [135]

    Coll v Floreat Merchant Banking Ltd [2014] EWHC 1741 (QB) involved an application by a claimant (a former employee) for leave to bring committal proceedings against solicitors of the former employer for alleged breach of inter-party undertakings given by the solicitors to keep safe a computer pending resolution of the dispute and not to part with its possession or allow any other party to access, open or interfere with the computer other than by agreement of the parties or by order of the court. Hickinbottom J held that, given there was no reasonable prospect of the claimant proving that the relevant solicitor had breached an undertaking, and that there was no other good reason to allow the application to proceed, permission should not be granted.

20. [136]

    After referring to several English authorities, Hickinbottom J set out a summary of propositions at [45] which were said to be derived from “a great number of authorities”, including some referred to in the judgment, although no authorities were referenced in the summary. Strictly, the summary was obiter, given the outcome of the proceedings. AH placed emphasis on the proposition in sub-par (iii) of [45]:

21. [137]

    Three observations can be made. First, care must be exercised in applying propositions stated in summary terms in the context of the statutory regulation of solicitors in England to the supervisory jurisdiction in Australia. AH did not refer the Court to any Australian authority which has adopted, let alone referred to, Coll. Second, as senior counsel for the respondents correctly submitted, the proposition in sub-par (iii) (“the jurisdiction will only usually be exercised”), like the other propositions in [45] of Coll, is very general and does not provide reliable guidance for the exercise of the supervisory jurisdiction in this State. Third, a major difficulty with the proposition in sub-par (iii) is that, although reference is made to the disciplinary aspect of the enforcement of an undertaking, there is no mention that the disciplinary aspect does not require reliance, loss or consideration for an undertaking.

22. [138]

    The second case relied upon by AH, Re a Solicitor; Ex parte Hales, involved an undertaking given by a solicitor to a person, not being the solicitor’s client, that the solicitor would hold funds for the purpose of payment to the person upon a certain event happening. The Court concluded that the personal undertaking made by the solicitor was sufficient to exercise its supervisory jurisdiction to compel the solicitor to carry out the undertaking. Darling J found that the undertaking constituted a declaration of trust, and there was a breach of trust by the solicitor against the person who had altered his legal rights in consequence of the declaration of trust (at 545). Lawrence J was of a similar view (at 547). The finding of reliance in that case was in the context of what amounted to a declaration of trust. The case is not authority for the proposition, as suggested by AH, that reliance is usually required to be established to engage the Court’s supervisory jurisdiction.

23. [139]

    As to the fourth matter, the dishonourable conduct of the solicitor which warranted the enforcement of the undertaking in this case was not that Mr Atanaskovic did not have an intention to honour the undertaking when it was given; it was that Mr Atanaskovic had given an undertaking in his professional capacity which was capable of performance and from which AH reneged.

24. [140]

    As to the fifth matter, to describe the setting in which the undertaking was given as a “non-working lunch” or an “informal lunch”, is another way of saying that the setting was a social occasion. But the informality of the occasion does not detract from the context in which the undertaking was given by Mr Atanaskovic to reassure his client that it would not be out of pocket as a consequence of the fraud perpetrated by a solicitor employed by AH. As Mr Lancaster recorded in his 10 January 2018 email, Mr Atanaskovic acknowledged at the lunch that “Birketu/WIN would not be out of pocket” in defending Birketu against the “Brody/Deutsche fraud situation”, which was a matter created by a member of his own staff.

25. [141]

    There is no merit in AH’s contention that the subject matter of the undertaking relating to its fees meant that the undertaking was given at a time when AH was not representing the client or acting in the client’s interests. This was another way of saying that the undertaking was not given in a professional capacity. The present case is readily distinguishable from the theoretical example discussed in Geoffrey Silver & Drake (A firm) v Baines [1971] 1 QB 396 at 404, where Widgery LJ said:

26. [142]

    By contrast, negotiating terms of payment for the provision of legal services is conduct by a solicitor in the course of legal practice. The subject matter of the undertaking, being fees for the legal services provided by AH pursuant to the investigation retainer, was inextricably linked to the provision of the services by AH in their capacity as solicitors. Resiling from the undertaking given to Birketu was dishonourable conduct by AH which warranted the exercise of the Court’s supervisory jurisdiction.

27. [143]

    Ground 4 has not been made out.

Ground 5 – the exercise of the Court’s supervisory jurisdiction

1. [144]

   Given the conclusions above on grounds 1-4, ground 5 does not arise as it is dependent on success on any of grounds 1-4.

2. [145]

   However, it is appropriate to address one further submission advanced by AH. Contrary to AH’s submissions in chief, exorbitant overcharging is not the only basis for the exercise of the Court’s supervisory jurisdiction and nothing in New South Wales Crime Commission v Fleming (1991) 24 NSWLR 116 at 123 (Gleeson CJ) suggests it is. AH acknowledged so much in their reply submissions.

3. [146]

   This case involved considerations quite distinct from those raised by overcharging. Here, the issue was the standard of conduct of a solicitor where an actual conflict of interest existed and a solicitor attempted to resile from an undertaking given to the client in a professional capacity. Plainly, on the findings of the primary judge, the circumstances of this case warranted the exercise of the Court’s supervisory jurisdiction.

Conclusion and Orders

1. [147]

   The appeal has failed. There is no reason why costs should not follow the event: UCPR, r 42.1.

2. [148]

   I propose the following orders:

   1. (1)

      Appeal dismissed.

   2. (2)

      Appellants to pay the respondents’ costs.

3. [149]

   McCALLUM JA: I agree with Gleeson JA.