Eco-Pact Pty Ltd v Law Society of New South Wales

1. [1]

   By notice of motion filed on 19 October 2023, the appellant, Eco-Pact Pty Ltd (Eco-Pact) sought orders, including an order that the order of the Registrar requiring it to pay security for the costs of the respondent Law Society of New South Wales (the Law Society) of the appeal be set aside (the review application).

2. [2]

   At the commencement of the hearing on 23 October 2023, Mr Fraser, who appeared on behalf of Eco-Pact, applied for an adjournment of the review application on the basis that he needed more time to obtain evidence that, if the order for security were not set aside, the proceedings would be stultified. I refused that adjournment for the reasons given later in these reasons.

3. [3]

   At the conclusion of the hearing of the motion on 23 October 2023, I made consequential orders with a view to ensuring that Eco-Pact’s appeal could be heard on the allocated date of 22 November 2023 and extended the time within which security ought be paid to 30 October 2023, subject to any further order.

4. [4]

   On 24 October 2023, I ordered that the review application be dismissed and that Eco-Pact pay the respondent’s costs of the motion, with reasons to follow. What follows are my reasons for refusing the appellant’s application for a review of the Registrar’s orders.

The background to the application

1. [5]

   Eco-Pact operated a pizza store pursuant to a franchise agreement with Eagle Boys Dial-A-Pizza Australia Pty Ltd (Eagle Boys). The store was damaged by fire on 6 January 2013. Eco-Pact retained Ms Saldaneri, a lawyer, to act on its behalf in relation to its claim against its insurer, QBE Insurance (Australia) Ltd (QBE), and in relation to other matters. It alleged that during 2014 and 2015 it had paid a total of $275,000 to Ms Saldaneri’s trust account and that it had suffered pecuniary loss of $94,468 as a result of Ms Saldaneri’s defaults with respect to those funds.

2. [6]

   Eagle Boys made a claim against Eco-Pact and Brian Meknas (as guarantor) for franchise fees which it alleged were outstanding. This claim was settled on about 1 June 2017 when Houda Meknas, Mr Meknas’ mother, advanced money to Eco-Pact and Mr Meknas for that purpose.

3. [7]

   In 2021, Eco-Pact commenced proceedings against the Law Society by summons, seeking to recover its alleged pecuniary loss from the Fidelity Fund, which was said to amount to $94,468 (being the difference between trust money of $275,000 and agreed proper disbursements of $180,532). The proceedings were heard by Griffiths AJA (the primary judge) on 14 and 15 March 2023. On 29 March 2023, the primary judge dismissed the amended summons and made directions on costs: Eco-Pact Pty Ltd v Law Society of NSW [2023] NSWSC 283. On 21 April 2023, the primary judge ordered Eco-Pact to pay the Law Society’s costs of the proceedings: Eco-Pact Pty Ltd v Law Society of NSW (No 2) [2023] NSWSC 410.

4. [8]

   The principal bases of the primary judge’s decision were as follows. In respect of $20,000, there was no default. In respect of $80,000, this amount was not “trust money” because it had been paid by Eco-Pact to Ms Saldaneri for the purpose of defeating Eco-Pact’s creditors. The primary judge found that this purpose not only took the $80,000 out of the definition of trust money in s 129 of the Legal Profession Uniform Law (NSW) but also made it an illegal transaction. His Honour held that these matters were sufficient to defeat the claim for $94,468. However, in addition, the primary judge accepted the evidence of Valerie Higinbotham whose affidavit was read on behalf of the Law Society as evidence of the value of the legal services provided by Ms Saldaneri to Eco-Pact, which amounted to $18,750, being 50% of $37,500. The sum of $80,000 and $18,750 also exceeded Eco-Pact’s claim.

5. [9]

   Eco-Pact filed a notice of intention to appeal on 21 April 2023 and a notice of appeal on 28 June 2023. On 31 July 2023, the Law Society foreshadowed an application for security for costs of $35,000 on the basis that there was reason to believe that Eco-Pact would not be able to pay the Law Society’s costs if the appeal were unsuccessful. It sought information about Eco-Pact’s financial position and requested a response by 9 August 2023. As no response had been received by 10 August 2023, the Law Society wrote again, seeking a response by 14 August 2023. On 11 August 2023, Mr Fraser wrote to the Law Society seeking an extension on the grounds that Mr Meknas, Eco-Pact’s de facto principal, was in gaol and Mr Fraser had only been able to arrange an appointment on 18 August 2023.

6. [10]

   On 15 August 2023, the Law Society agreed to an extension until noon on 19 August 2023 (subsequently extended to 21 August 2023) on the basis that, although Mr Meknas was neither a director nor a shareholder of Eco-Pact, it understood him to be its alter ego. By email dated 20 August 2023, Mr Fraser wrote to the Law Society to inform it that Eco-Pact did not have the money to pay security for costs. Of Mr Meknas, Mr Fraser said:

7. [11]

   On 21 August 2023, the Court allocated a hearing date of 22 November 2023. On 22 August 2023, the Law Society filed a notice of motion for security for costs (the security motion), together with its evidence in support. On 25 August 2023, the Law Society filed its submissions in support of the security motion. The matter came before the Registrar for directions on 28 August 2023, at which time directions were made by consent which required Eco-Pact to file and serve its evidence and submissions in opposition to the security motion and which specially fixed the security motion for hearing before the Registrar on 18 September 2023 with an estimate of an hour.

8. [12]

   On 12 September 2023, Eco-Pact filed an affidavit of Mr Fraser, together with its written submissions. The Law Society filed its written submissions in reply on 15 September 2023.

9. [13]

   ASIC searches and the evidence of Mr Fraser revealed the following. Mr Meknas was a director of Eco-Pact from the date of its incorporation on 18 October 2007. He resigned as a director in August 2016 when he was made bankrupt, at which time his mother, Houda Meknas, became a director and secretary of Eco-Pact. This change was registered on 6 February 2017 (when he became bankrupt). According to Mr Fraser, Mrs Meknas was subject to the direction of Mr Meknas in her role as a director. Although Mr Fraser sought instructions from her, the instructions she gave accorded with the directions given to her by Mr Meknas.

10. [14]

    On 14 August 2023 (about two weeks after the Law Society had foreshadowed its application for security for costs), Mrs Meknas purported to resign as a director of Eco-Pact by WhatsApp message sent from her phone. On 19 August 2023, Mr Meknas, as Eco-Pact’s sole shareholder, resolved to appoint himself its sole director and secretary.

11. [15]

    When Eco-Pact was registered, Mr Meknas was its sole shareholder. On December 2012, he transferred his shares to his sister, Ivy Darwich, for reasons which she told Mr Fraser she did not recall. On 29 June 2023, Mr Fraser sent her a share transfer, which she signed to transfer her shares in Eco-Pact to Mr Meknas.

12. [16]

    On 8 September 2023, Mrs Meknas sent Mr Fraser copies of bank statements from Mr Meknas’ bank account with the National Australia Bank (the NAB account) for the period from 15 May 2023 to 8 September 2023 (which were exhibited to his affidavit in opposition to the security application). Mr Fraser deposed that he had been informed by Mr Meknas that his mother has access to the NAB account.

13. [17]

    Mr Fraser’s evidence on information and belief as to the financial position of each of Mr Meknas, Mrs Meknas and Ms Darwich was also supported by business records, such as bank statements, title searches and other records, as well as detailed reference to what he had been told by these three individuals.

14. [18]

    Mr Fraser’s evidence also disclosed that, in September 2021, Ms Saldaneri paid to Eco-Pact the sum of $150,000, being the net proceeds of the settlement of its claim against QBE. Mr Fraser deposed that he had been told by Mr Meknas that these funds had been spent on “legitimate personal expenses … purchasing drugs for personal use … legal costs paid for the defence of charges brought against him for drug-related expenses … and gambling.”

15. [19]

    Mr Fraser’s evidence also recorded that he had been told that Ms Darwich had $80,000 in savings but that she was unwilling to use it to fund the appeal; and that Mrs Meknas was impecunious and lived in public housing. Further evidence is referred to by the Registrar in the extract from her reasons below.

16. [20]

    The Registrar heard the security motion on 18 September 2023 and reserved her decision. On 4 October 2023 the Registrar published reasons and made orders (Eco-Pact Pty Ltd v Law Society of New South Wales, Registrar Jones, 4 October 2023, unrep), which included the following:

17. [21]

    The Registrar noted Eco-Pact’s concessions that it is impecunious and would be unable to pay the Law Society’s costs if ordered to do so; that if security is ordered, $35,000 is an appropriate amount; and, that Mr Meknas is its alter ego. After reciting the Eco-Pact’s submissions, the Registrar noted that the effect of the first concession is that the threshold requirement in Uniform Civil Procedure Rules 2005 (NSW) (UCPR), r 42.21(1) was met.

18. [22]

    The Registrar also noted Eco-Pact’s submission that the Law Society was required to establish “special circumstances” before an order for security would be made. She referred to Black Hill Residents Group Inc v Marist Youth Care Ltd [2021] NSWCA 314; (2021) 250 LGERA 379 (Black Hill), in which White JA held that where UCPR, r 42.21(1)(d) was enlivened, it was not necessary for an applicant for security to establish special circumstances. Notwithstanding Black Hill, the Registrar determined that the Law Society had established special circumstances, in any event.

19. [23]

    The Registrar considered Eco-Pact’s prospects of success to be “reasonably arguable and not hopeless”.

20. [24]

    On the question whether Eco-Pact had established that an order for security would stultify the proceedings, the Registrar said:

21. [25]

    The Registrar was not satisfied that the appeal involved a matter of public importance, accepted Eco-Pact’s concession as to the amount of security, did not consider that there had been any significant delay in the application and refused a stay as the matter had already been listed for hearing on 22 November 2023.

22. [26]

    The Registrar concluded, at [15]:

The appellant’s application for an adjournment of the review application

1. [27]

   As referred to above, on 19 October 2023, Eco-Pact filed the review application together with a further affidavit of Mr Fraser sworn 19 October 2023. In that affidavit, Mr Fraser deposed that the only evidence he was able to file in opposition to the security motion was his affidavit which was expressed to be on information and belief because Mr Meknas was in custody at the John Morony Correctional Centre and both Mrs Meknas and Ms Darwich were in Lebanon and were not due to return until some time in November 2023. On this basis, he sought an extension of time until 1 December 2023 within which to file the evidence in support of the review application. He identified the further evidence in [10] of his affidavit of 19 October 2023 as follows:

2. [28]

   As referred to above, I refused the application for adjournment. My reasons for the refusal are as follows.

3. [29]

   Mr Fraser, who appeared for Eco-Pact, submitted that he required the adjournment in order to obtain direct evidence from Mr Meknas as to stultification and also copies of his and Eco-Pact’s bank statements. He contended that the time permitted by the Registrar for filing of evidence in support of the review application did not allow for sufficient time for him to obtain such bank statements on subpoena, which he argued would be the “best evidence” of stultification because they would show the gradual dissipation of the $150,000 which was of particular concern to the Registrar, as her reasons in [14.2] extracted above, demonstrate. Mr Fraser also submitted that, if granted the adjournment he sought, he could obtain direct evidence from Mrs Meknas and Ms Darwich as to their unwillingness or inability to provide security for costs.

4. [30]

   Mr Fraser also sought to rely on what he contended was a concession made by the Law Society at the directions hearing before the Registrar on 18 October 2023, that the hearing of the review could take place on 30 October 2023. Mr Prince, who appeared for the Law Society, submitted that the “concession” was made at a time when the Law Society did not know that a judge would be available to hear the review on 23 October 2023. As soon as the Law Society learned of that circumstance, it pressed for the hearing of the review application to proceed on 23 October 2023.

5. [31]

   Eco-Pact has had ample time, between the foreshadowing of the security application on 31 July 2023 and the hearing before the Registrar on 18 September 2023, to obtain relevant bank statements, if not from the individual account holders, then from the relevant bank on subpoena. If, indeed, Mr Meknas had paid for his own legal costs of the criminal proceedings (which led to his conviction and incarceration), invoices could have been obtained from the solicitor who acted for him. Further, Mr Fraser can be taken to have been aware of the applicable practice note, Practice Note No SC CA 1 – Court of Appeal, which commenced on 1 May 2023, cl 9 of which relevantly provides:

6. [32]

   Mr Meknas has been incarcerated since October 2022 (serving a sentence of imprisonment for drug-related offences for which he was convicted, which are in addition to those drug-related charges which are still pending). He is, accordingly, accessible to Mr Fraser by appointment, although not as accessible as had he been at liberty. Further, bank statements were able to be provided by Mrs Meknas by WhatsApp message and could have been obtained on subpoena. No subpoena has been prepared. These matters are relevant to the extent to which the need for the adjournment has been occasioned by the party applying for it and the steps which could have been taken by that party to protect its interests: see generally, Part 6 of the Civil Procedure Act 2005 (NSW), including s 58(2)(b)(ii), (iv) and (v).

7. [33]

   Further, the adjournment sought would result in the vacation of the hearing date. I raised with Mr Fraser the possibility of a shorter adjournment, say, to 30 October 2023, with a view to preserving the hearing date but I understood his position to be that such an adjournment would not help because he would be in no better position to obtain further evidence. Adjourning the review application and the hearing of the appeal would occasion further costs to the Law Society (which could not be expected to be recovered, having regard to Eco-Pact’s impecuniosity) and would cause disruption to the administration of justice since the date allocated for the hearing of the appeal would be unlikely to be able to be allocated to another appeal, having regard to its imminence. This is also a matter to be taken into account.

8. [34]

   In addition, Mr Fraser argued that, even on the evidence which was before the Registrar, the security application ought to have been refused.

9. [35]

   In the circumstances referred to above, I was not persuaded that the adjournment ought be granted. I stood down the hearing of the review application until 2pm to enable Mr Fraser to collect his thoughts before presenting the application, which he did competently and comprehensively that afternoon.

The review application

1. [36]

   The principles which apply to review applications were summarised by this Court (Hodgson JA, Ipp JA agreeing) in Tomko v Palasty (No 2) (2007) 71 NSWLR 61; [2007] NSWCA 369 as follows:

2. [37]

   Mr Fraser argued that it was in the interests of justice that the Court conduct a review of the Registrar’s decision and that, accordingly, it was not necessary for him to demonstrate a House v The King (1936) 55 CLR 499; [1936] HCA 40 error. In the alternative, he submitted that it was significant that Mr Meknas had offered an undertaking to make himself personally liable for any costs order against Eco-Pact and that it was erroneous for the Registrar not to have referred to this offer in her reasons, as it had been the subject of submissions.

3. [38]

   There is no mention of the undertaking offered by Mr Meknas in the written submission provided by the parties to the Registrar. On the assumption (which may be dubious) that the Registrar was informed of the undertaking, it was relevant to her discretion. This may provide a warrant to review the decision.

4. [39]

   The only additional material before me on the review application, which was not before the Registrar, was as follows. First, the costs agreement dated 13 March 2023 between Eco-Pact and Secure Legal (Mr Fraser’s firm) was tendered by Mr Fraser. It provided that, if Eco-Pact were unsuccessful on the appeal, the amount of the costs would be limited to what was remaining in the trust account of Secure Legal and, if Eco-Pact were successful but was not awarded its costs, Secure Legal’s professional fees would be limited to a maximum of a third of the amount awarded. Second, Mr Fraser tendered a letter from Legal Aid dated 1 February 2023, which recorded that there were pending charges outstanding against Mr Meknas including for the offence of supplying a prohibited drug which were listed before the Local Court at the Downing Centre on 2 February 2023 and in respect of which there had been a grant of legal aid. Third, Mr Fraser tendered the affidavit of Ms Higinbotham which was read on behalf of the Law Society in the hearing before the primary judge as evidence of the value of the legal services provided by Ms Saldaneri to Eco-Pact. This amount was required to be offset against the amount claimed against the Fidelity Fund which was said to be the result of her wrongdoing.

5. [40]

   Mr Fraser submitted that:

   1. (1)

      Eco-Pact’s prospects on appeal were reasonably arguable (including because Ms Higinbotham’s evidence of the value of the work was scant);

   2. (2)

      the questions raised by the appeal were matters of public importance because they turned on the definition of “trust money” in s 129 of the Legal Profession Uniform Law (NSW) as “money entrusted to a law practice in the course of or in connection with the provision of legal services by the law practice”;

   3. (3)

      the Law Society was a well-funded respondent which could afford to bear its own costs;

   4. (4)

      the evidence of stultification was sufficient (since it established that Mr and Mrs Meknas were impecunious and that Ms Darwich was unwilling to provide funds) and the Registrar was in error not to be satisfied of this matter; and

   5. (5)

      if there was any doubt about Mr Meknas’ means, any prejudice to the respondent could be overcome by his undertaking to be liable for the respondent’s costs of the appeal.

6. [41]

   Mr Prince submitted that:

   1. (1)

      Eco-Pact’s prospects of success on appeal were limited, if not poor;

   2. (2)

      there was no matter of public importance raised as the findings of the primary judge (that the $80,000 was paid to Ms Saldaneri to prevent it from being available to Eco-Pact’s creditors) were fact-specific and plainly correct;

   3. (3)

      although the Law Society is well-funded, it ought not have to bear its own costs of the appeal;

   4. (4)

      the evidence of stultification was not only bad in form but inadequate to explain what had happened to the $150,000 which had been paid to Eco-Pact on 30 September 2021 or why none of the persons who stood behind Eco-Pact (Mr Meknas, Mrs Meknas or Ms Darwich) were either willing or able to pay the modest amount of $35,000 by way of security; and

   5. (5)

      the undertaking proffered by Mr Meknas was, in effect, worthless since he had engaged in criminal conduct and his assets were unlikely to be able to be located, thereby rendering enforcement of the costs order against him pursuant to an undertaking a fruitless and potentially costly exercise.

7. [42]

   Mr Prince made detailed submissions as to why the appeal would fail. It may be that this Court, at the hearing of the appeal, will accept those submissions. However, I do not propose to do more than accept Mr Fraser’s submission that the appeal is arguable. It is not appropriate for me to assess the prospects in any more detail, particularly as it can be expected that detailed submissions will be made on the appeal itself. This was the approach taken by the Registrar and was, with respect, correct.

8. [43]

   Nor do I discern any error in the approach taken by the Registrar to the other factors to which she referred in paragraph 14.3 of her reasons, including that the evidence was insufficient to establish stultification of the proceedings. The absence of evidence as to what happened with the $150,000 is telling. Although Mr Fraser sought to explain it away by submitting that it was dissipated when Mr Meknas went into a downward spiral of drug abuse, this does not sit well with his conviction on charges of drug supply, which is an occupation almost invariably conducted for remuneration.

9. [44]

   I accept Mr Prince’s submissions about the undertaking. While such an undertaking may, in some circumstances, be sufficient to avoid an order for security for costs being made, the present case does not belong to that category. I am unable to draw the inference that Mr Meknas’ assets (whatever they may be) would be available for enforcement of a costs order, unless they were provided as security for costs, as ordered by the Registrar.

10. [45]

    The history of Eco-Pact, including the changes in its director and shareholder do not warrant the conclusion that Mrs Meknas or Ms Darwich would not stand to benefit from any success by Eco-Pact. In these circumstances, their capacity to contribute to the security for costs is relevant, as the Registrar found.

11. [46]

    For the reasons given above, I am persuaded that the Registrar’s order for security for costs in the sum of $35,000 ought stand, for the reasons given by the Registrar as well as for the additional reasons given above. The review application ought be dismissed. As referred to above, on 23 October 2023, I extended the time within which this amount ought be paid to 5pm Monday 30 October 2023.

Orders

1. [47]

   As referred to above, on 24 October 2023, I made the following orders:

   1. (1)

      Dismiss the notice of motion filed by the appellant on 19 October 2023.

   2. (2)

      Order the appellant to pay the respondent’s costs of the notice of motion.