FEDERAL COURT OF AUSTRALIA

Mainland Property Holdings Pty Ltd (Receivers and Managers Appointed) v Naplend Pty Ltd (No 2) [2023] FCA 243

ORDERS

THE COURT NOTES THAT:

1.    The respondents, and Mr Daryl Williams AM KC, have made an undertaking in terms that: “Mr Williams will not be engaged to participate in settlement discussions with the applicants or their representatives, nor consulted in respect of any such discussions, and will not provide any information to the respondents for the purposes of those discussions”.

THE COURT ORDERS THAT:

1.    The applicants’ interlocutory application, filed on 17 March 2023, be dismissed.

2.    The parties will have leave to file submissions with respect to costs, which submissions shall not exceed three pages in length, by no later than 4.00pm on 27 March 2023.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

O’CALLAGHAN J:

INTRODUCTION

1    This is an interlocutory application by the applicants, filed on 17 March 2023. I heard it as a duty matter yesterday and made the orders set out above at the completion of the hearing.

2    These are my reasons.

3    The applicants sought, among other orders, an order to the effect that Mr Daryl Williams AM KC be restrained from acting for the respondents in this proceeding and that written submissions settled by him be removed from the court file. Mr Williams is briefed to represent the respondents in a hearing before a Judicial Registrar tomorrow (22 March 2023), and it is the respondents’ intention for him to rely on that written submission at the hearing.

4    Although the interlocutory application seeks an order that Mr Williams “be restrained from acting for the respondents in this proceeding”, it was accepted at the hearing that Mr Williams has only been retained to represent the respondents at the hearing before the Judicial Registrar, and not otherwise. Mr SJ Maiden KC (who appeared for the respondents at the hearing of the interlocutory application) is briefed with a junior in the proceeding generally.

5    The purpose of the hearing before the Judicial Registrar is for him to prepare a referee report pursuant to an order made by the docket judge (McElwaine J).

6    Broadly speaking, the basis for the applicants’ seeking an order to restrain Mr Williams from acting in this proceeding is that he acted for Mr Mawhinney, and several companies associated with him, at a mediation of two proceedings in the Supreme Court of Victoria in July 2022, and that certain information confidential to Mr Mawhinney, and entities with which he is associated, was disclosed at the mediation.

7    Mr P Bick KC, who appeared with Mr P Donovan of counsel, advanced two grounds on behalf of the applicants, viz that:

(1)    there existed a real and sensible possibility that Mr Williams might misuse the confidential information; and

(2)    a fair-minded and reasonably informed member of the public would conclude that the proper administration of justice required that Mr Williams be restrained from acting.

8    The applicants relied on an affidavit of Mr Rhys Roberts affirmed 17 March 2023. The respondents relied on an affidavit of Mr Williams sworn 18 March 2023.

THE FACTS

This proceeding

9    Mr Mawhinney is the sole director of the seven applicant corporations. Each has a privately appointed receiver and manager.

10    The applicants commenced this proceeding against Naplend Pty Ltd, being one of the appointors, and against Naplend’s receivers and managers, Mr Barry Kogan, Mr Jonathan Henry, Mr William Harris, and Mr Anthony Connelly.

11    M101 Nominees Pty Ltd (in liquidation), another corporation Mr Mawhinney controlled, raised money from investors in private equity ventures by issuing a series of security notes for the purpose of acquiring and developing properties at Mission Beach in Queensland.

12    M101 Nominees appointed PAG Holdings (Australia) Pty Ltd as the security trustee for the security notes. The applicants guaranteed the obligations of M101 Nominees to PAG and, further and accordingly, the applicants charged their assets and undertakings as security.

13    Naplend later provided short-term bridging finance to the applicants to assist them in acquiring a series of properties, in exchange for which the applicants charged all of their assets and undertakings (including real property) in Naplend’s favour.

14    The applicants did not repay the relevant debts when they fell due on 19 August 2020. Accordingly, Naplend appointed receivers over the assets and undertakings of the applicants.

15    Later, on 9 September 2020, PAG appointed its own receivers over the assets and undertakings of the applicants. Neither PAG, nor the receivers it appointed, are parties to this proceeding.

16    The applicants’ claims are set out in Mainland Property Holdings Pty Ltd (Receivers and Managers Appointed) v Naplend Pty Ltd [2022] FCA 1305 at [8] (McElwaine J).

17    On 17 June 2022, the respondents filed an interlocutory application, seeking the following orders:

1.    An order pursuant to s 31A(2) of the Federal Court Act 1976 (Cth) and r 26.01(1)(a) of the Federal Court Rules 2011 (Cth) dismissing:

(a)    the whole of the proceeding; alternatively

(b)    that part of the proceeding which raises causes of action being the subject of security interests granted to PAG Holdings (Australia) Pty Ltd (ACN 636 870 963) (PAG) and in respect of which PAG has appointed receivers.

2.    In the alternative to the order sought in paragraph 1, within seven days from the date of this order, the director of each of the applicants, James Peter Mawhinney:

(a)    provide a personal indemnity in favour of the parties to the proceeding in the terms set out in Annexure A to this application, which indemnity can be enforced by any of those parties; and

(b)    in support of the indemnity provided under paragraph 2(a), pay into Court a sum to be set out in the order, and provide the respondents’ solicitors with written confirmation and evidence of having done so.

3.    If any aspect of the order made under paragraph 2 is not complied with:

(a)    the proceeding be stayed indefinitely; and

(b)    the respondents may apply for an order seeking that the proceeding be dismissed.

4.    James Peter Mawhinney pay the respondents’ costs of the proceeding.

5.    Such other orders as the Court deems fit.

18    On 10 October 2022, McElwaine J heard that interlocutory application. On 4 November 2022, his Honour delivered judgment and made the following orders:

1.    The respondents’ application for summary judgment is dismissed.

2.    Within 28 days from the date of these orders, Mr Mawhinney is to provide an indemnity (the indemnity) in favour of the respondents limited to the costs the parties may incur in respect of this proceeding on a party and party basis and in a form to be agreed by the parties or failing agreement to be determined by further order.

3.    Mr Mawhinney must also provide security for costs in an amount to be determined (the security), following receipt of a referee report from a registrar of this Court, by the provision of a bank guarantee for the security in favour of each of the respondents (jointly and severally) from a recognised financial institution in Australia which is an Approved Deposit-taking Institution within the meaning of the Banking Act 1959 (Cth), which bank guarantee is to be provided within 28 days, or such further period as may be ordered, of the determination of the security.

4.    Pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth), there is referred to a registrar of this Court for inquiry and report in accordance with the Federal Court Rules 2011 (Cth) the assessment of the security on a party and party basis, which inquiry is to be undertaken in accordance with such directions as the registrar thinks fit.

5.    Until the indemnity and security are each provided this proceeding is stayed.

6.    If the indemnity or the security are not provided, the respondents have liberty to apply for an order that the proceeding be dismissed.

7.    The parties are to provide short submissions of no more than 3 pages on the question of costs or any further orders within 4 days.

8.    Subject to any further order, the issue of costs and any further orders will be determined on the papers.

19    On 16 December 2022, for reasons which were not explained to me, his Honour varied order 2 of his November 4 orders, relevantly as follows:

1.    Order 2 of the orders made on 4 November 2022 is varied as follows:

2.     Within 28 days from the date of these orders, Mr Mawhinney is to provide an indemnity (the indemnity) as follows:

(a)    in favour of the applicants in respect of their costs of the proceeding as between solicitor and client;

(b)    in favour of the applicants in respect of any costs that the applicants are ordered to pay to the respondents as between party and party; and

(c)    generally in accordance with the document described as Form C as provided to the court on 2 December 2022.

20    Mr Mawhinney provided the indemnity required by way of a Deed of Indemnity, in these terms:

I, James Mawhinney … personally indemnify in favour of the Respondents in proceeding VID192 of 2022 in the Federal Court of Australia (the Proceeding) the following liabilities:

(a)    any and all costs, on a solicitor and client basis, that the Applicants in the Proceeding incur in respect of the Proceeding (save for any costs that the Respondents are ordered by the Court to pay, and do pay, to the Applicants); and

(b)    any costs that the Applicants may be ordered by the Court to pay to the Respondents in respect of the Proceeding limited to such costs on a party and party basis.

The Supreme Court proceedings

21    Mr Mawhinney, and a number of companies associated with him, were the subject of proceedings brought before the Supreme Court of Victoria. Liquidators of one of the companies associated with Mr Mawhinney brought those proceedings against both that company and Mr Mawhinney in relation to an investment scheme ostensibly run by Mr Mawhinney.

22    The Supreme Court proceedings were mediated on 6 June and 22 July 2022.

23    Mr Roberts and Mr Williams both deposed to the relevant events that occurred at the mediation. There was no relevant or fundamental disagreement between them about what occurred.

24    Mr Roberts deposed relevantly as follows:

8.    At the commencement of the mediation [on 22 July 2022], I was present when junior counsel each briefed Mr Williams KC with a summary of the matters the subject of the mediation as well as a broader summary of the IPO Wealth investment scheme and the M Notes investment scheme.

9.    Prior to the joint session of the mediation, Mr Williams KC, the two members of junior counsel, Mr Chen, Ms Balen, myself, Mr Mawhinney and Mr Nicholson sat around a large table in a room that had been assigned to us. No other person was present. At this time, the following matters were discussed:

(a)    the business model employed by Mr Mawhinney in respect of both the IPO Wealth investment scheme and the M notes managed investment scheme;

(b)    Mr Mawhinney’s priorities in respect of the mediation and the Supreme Court Proceedings;

(c)    Mr Mawhinney’s vulnerabilities;

(d)    Mr Mawhinney’s appetite for risk;

(e)    Mr Mawhinney’s concern for his reputation;

(f)    the likely use to which Mr Mawhinney might put any assets that came into his control as an outcome of the mediation;

(g)    Mr Mawhinney’s access to financing options and his finances and the impact that a settlement of the litigation the subject of the mediation would have on those options. In particular, it was discussed that ending the litigation the subject of the mediation would assist Mr Mawhinney to free up finances that would otherwise have been expended on legal fees.

10.    The mediation commenced at 9.20am and concluded at 9.30pm but Mr Williams left the mediation at approximately 3.00pm. Other than brief breaks and for lunch, Mr Williams was in the company of Mr Mawhinney for four to five hours.

11.    During the course of the day, I was present when Mr Mawhinney also discussed the following matters in the presence of Mr Williams:

(a)    Mr Mawhinney’s views about the conduct of Naplend Pty Ltd and its receivers (who are the Respondents in this proceeding);

(b)    the impact of that conduct on investors; and

(c)    the status of the process of the sales of properties being undertaken by Naplend Pty Ltd’s receivers.

25    Mr Williams deposed relevantly as follows:

11.    I refer to paragraph 9 of the Roberts affidavit. The description of the discussion I had with Mr Roberts, Mr Mawhinney and others as deposed to in that paragraph is an overstatement of the content of that discussion. In this regard:

(a)    The matters referred to in paragraph 9(a) and 9(b) were discussed.

(b)    As to paragraphs 9(c) to 9(e) of the Roberts’ Affidavit, the Supreme Court Proceedings included allegations of conduct by Mr Mawhinney and the entities associated with him which were parties to those proceedings which, if made out and reflected in findings by the Court, would reflect poorly on him. It was discussed that an advantage of settlement was to obviate the risk of findings being made which were adverse to Mr Mawhinney and which might harm his reputation. It is difficult to be more specific in response to the generalised description of matters listed in paragraph 9 of the Roberts Affidavit, but to the best of my recollection that is the only extent to which Mr Mawhinney’s “vulnerabilities” or “concern for his reputation” were discussed. I recall no discussion which could be characterised as being about his “appetite for risk”.

(c)    I recall no discussion of the kind referred to in paragraph 9(f). It is otherwise difficult to respond when the matter is put in such general terms.

(d)    As to paragraph 9(g), there was discussion about the fact that settling would mean that money that would otherwise be spent on legal costs could be freed up for other more productive uses. That is, of course, obvious in any proceeding. I recall no discussion of what those uses may have been.

12.    I agree with the contents of paragraph 10 of the Roberts affidavit. When Mr Roberts contacted me at approximately 9.20am on 22 July 2022, I told him that I was only available until 2pm, due to personal commitments. Mr Roberts said words to the effect that he accepted that, because he hoped that that would be all that was required. As things developed, I stayed longer than I had committed for, until almost 3pm, and was late for my personal commitments.

13.    I recall no discussion to the effect described at paragraph 11 of the Roberts affidavit. I had never heard of Naplend before being retained in this proceeding for the purpose of the Security Hearing on 8 March 2023. Further, I cannot recall that Naplend, nor the sale of the properties by the receivers appointed by Naplend, had anything to do with the Supreme Court Proceedings.

26    The proceedings were settled at the conclusion of the mediation and the parties entered into a deed of settlement, which Mr Roberts duly emailed to Mr Williams that evening.

The written submissions settled by Mr Williams

27    As I said, Mr Williams settled a written submission that is intended to be relied upon at the hearing tomorrow. The applicants pointed to particular parts of that submission as founding the relief sought. In particular, the following passages of that submission were relied upon:

9.    Nor should the quantification of security be limited by the steps in the proceeding to be covered – say, up to mediation. In circumstances where it is too soon to assess the prospects of settlement ahead of trial, it is consistent with both the overarching objectives in s 37M of the FC Act and the interests of all relevant persons that the Court quantify security in respect of the costs of the entire proceeding now. That is the most efficient approach. And given that the failure by Mr Mawhinney to obtain an adequate bank guarantee will very likely be fatal to his continuation of this proceeding, it is also the approach that avoids the prejudice which would follow if the case were to later collapse for that reason alone.

…

41.    For the reasons stated above, Mr Mawhinney ought to be required to provide a bank guarantee [In accordance with paragraph 3 of the orders of McElwaine J made 4 November 2022.] in the sum of not less than $4.0M, comprising:

(a)    $1.7M for the respondents’ costs of this proceeding;

(b)    $2.1M for the applicants’ costs of this proceeding; and

(c)     200,000 in GST.

42.    If anything, the security should be rounded up to a higher sum that [sic] simply the aggregate of those amounts. Experience tells us that estimates of future legal costs not uncommonly prove to be too light, because legal proceedings tend to develop and move in ways that cannot easily be predicted in advance. Bearing in mind that the objective here is to provide sufficient security for Mr Mawhinney’s personal indemnity (which may well have no value to the extent that it is unsecured), so that there is no risk that the Companies will fail to be “made whole” in the event that this proceeding fails, a substantial buffer would be appropriate. Rounding the required quantum of security up to $5.0M would provide such a buffer.

CONSIDERATION

28    The first basis relied upon by the applicants in support of their application to restrain Mr Williams was the risk of misuse of confidential information. As Nettle J said in Sent v John Fairfax Publication Pty Ltd [2002] VSC 429:

[t]he court will restrain a legal practitioner continuing to act for a party to litigation if a reasonable person informed of the facts might reasonably anticipate a danger of misuse of confidential information of a former client and that there is a real and sensible possibility that the interest of the practitioner in advancing the case in the litigation might conflict with practitioner’s duty to keep the information confidential, and to refrain from using that information to the detriment of the former client.

29    The parties agreed that answering the following sequence of short-form questions was a convenient way to address the issues in dispute, at least for the purposes of this application:

(1)    What is the relevant information?

(2)    Is that information confidential?

(3)    Does the legal practitioner have possession of that information?

(4)    Is the legal practitioner proposing to act “against” the former client in the requisite sense?

(5)    Is there a real risk that the confidential information will be relevant?

(6)    Is there no real risk of misuse of the confidential information?

30    It can be accepted, and counsel for the respondents did not dispute, that the relevant confidential information received by Mr Williams from Mr Mawhinney was that information deposed to by Mr Roberts.

31    It can also be accepted, and again it was not disputed by the respondents, that such information is confidential.

32    As a general rule, communications between a client and his or her legal representative, for the purposes of giving or obtaining legal advice, have the necessary ingredient of confidentiality, subject to exceptions not relevant here.

33    I am satisfied that each category of information identified by the applicants retains the requisite character of confidentiality in the circumstances of this case.

34    I am also satisfied, and again the respondents did not dispute, that Mr Williams is in possession of that confidential information, and that he is proposing to act “against” the applicants at the hearing tomorrow.

35    I interpolate at this point that I accept the submission made on behalf of the applicants that to the extent that Mr Williams was unable to recall, but did not deny, a number of the matters deposed to by Mr Roberts, that I should accept Mr Roberts’ evidence about such matters.

36    In my view, however, the application to restrain Mr Williams from representing the respondents at the hearing failed because the answer to the fifth and sixth questions set out above at [29] is “no”, in each case.

37    As to question five, as Anderson J said in Re Timbercorp Finance Pty Ltd (in liq) (2019) 137 ACSR 189; [2019] FCA 957 at [102]:

For a legal practitioner to be restrained from acting against a former client on the basis of a possible misuse of confidential information, the “possible misuse” must be sufficiently characterised. There must be a sufficient nexus between the confidential information of the former client and the manner in which it is to be misused by the legal practitioner.

38    The description of the confidential information relied on in this case is of a general nature. Mr Roberts did not descend into detail in describing the business model employed by Mr Mawhinney or the specifics about his priorities in respect of the mediation, his vulnerabilities or his appetite for risk, the precise nature of his concerns about his reputation, his access to financing, Mr Mawhinney’s views about this proceeding and so on. There may be any number of reasons why Mr Roberts did not do so. As Gillard J said in Yunghanns v Elfic Ltd (unreported, Sup Ct, Vic, 3 July 1998): “the degree of particularity of the confidential information must depend upon all the circumstances. Often, it cannot be identified for fear of disclosure.”

39    Counsel for the respondents did not cavil with that proposition, but submitted that it was of some significance that Mr Roberts did not say in terms that he was concerned to provide less precision of description, lest he eviscerate the very confidentiality sought to be protected. In my view, however, it is sufficiently obvious that any more detailed description than that which was provided might do that very thing.

40    In any event, however, even on the assumption that each of the items of confidential information identified and relied upon by the applicants was in fact more fulsomely discussed during the course of the mediation, in my view there could be no nexus between such matters and the task confronting the Judicial Registrar at the hearing. His task at that hearing is to do no more or no less than that which order 4 of the orders made by McElwaine J on 4 November 2022 provided, namely to conduct an “inquiry and report in accordance with the Federal Court Rules 2011 (Cth) the assessment of the security on a party and party basis …”

41    At that hearing, the Judicial Registrar will have the benefit of affidavit evidence about costs sworn by solicitors representing the respondents, an expert costs report prepared by a costs expert on behalf of the applicants, the submissions referred to above prepared by Mr Williams, and oral submissions.

42    The inquiry will be akin to the conducting of a hearing in relation to an application for security for costs. It will involve the Judicial Registrar going through the line items of the various steps to be taken in the proceeding, and forming a view in his capacity as a referee about a number of questions, including what amount would represent an appropriate party-party figure in respect of each line item. In that regard, I was told by Mr Maiden that the respondents will rely on two affidavits. The first, affirmed by Mr David McIntosh, a solicitor in the employ of Dentons, the solicitors for the respondents, deposes to the issues in the proceeding and an estimate of the respondents’ costs of defending it. The affidavit contains a schedule with a long list of individual line items in the ordinary way. The second affidavit, sworn by Mr Cameron Steele, also a solicitor in the employ of Dentons, deposes to certain GST implications involved in the litigation. The respondents will rely on an expert costs report by Ms Catherine Dealehr, which is an annexure to her affidavit sworn 6 March 2023. (It is fair to say there is considerable divergence in the outcomes contended for on behalf of the parties).

43    In my view, as counsel for the respondents submitted, it is difficult to imagine how Mr Williams could consciously or subconsciously invoke any confidential information of the type described above for the purposes of conducting such an exercise before the Judicial Registrar in his capacity as a referee.

44    Counsel for the applicants submitted that the written submissions signed by Mr Williams “make insinuations to the effect that the security to be ordered is at risk of being insufficient and that Mr Mawhinney’s personal indemnity is worthless”. It was further said that Mr Williams’ submissions “make comments as to the strength of the case made by the [a]pplicants in this proceeding in part to downplay the possibility that the [r]espondents will ultimately have to pay any costs to the [a]pplicants”. It was put that those “features of the submissions are clear attempts to dispose the decision-maker to order a higher figure for the quantum of the security”.

45    I do not read the submissions in that way. The particular passages pointed to by the applicants seem to me to be the sort of thing that might routinely be said by way of submission, absent any knowledge of an opponent’s personal circumstances or predilections. But in any event it would be difficult to imagine how such submissions could be relevant to the task to be performed by the Judicial Registrar here.

46    Likewise, I do not agree with the submission put by the applicants that Mr Williams “will have the distinct advantage of knowing Mr Mawhinney’s priorities, vulnerabilities, appetite to risk, and access to financing”. As I said above, even assuming that Mr Williams was told some detail in relation to such matters at the mediation, in my view they are not relevant to the task of the Judicial Registrar.

47    For the same reasons, I do not accept the applicants’ submission that the Judicial Registrar’s assessment of the quantum of the security “goes back to Mr Mawhinney’s resources”.

48    I should also mention one other submission advanced on behalf of the applicants. It was submitted that Mr Williams’ written submission that the quantum of security should be rounded up from $4 million to $5 million to provide “a buffer” indicated that the amount of the security being sought was possibly relevant to something that was discussed in the course of the mediation about Mr Mawhinney’s “vulnerabilities, appetite for risk, financial resources, finances and what he might do with the results of that mediation if the matter were settled”.

49    I do not accept that submission. It is apparent on the face of Mr Williams’ written submission that the submission that some “buffer” be required is said to be necessary because “estimates of future legal costs not uncommonly prove to be too light”. Likewise, although the applicants sought to make something of the parenthetical observation made in paragraph [42] of the written submissions – that is, that Mr Mawhinney’s personal indemnity “may well have no value to the extent that it is unsecured” – it seems to me that it is the sort of observation that cannot be seen to have the requisite nexus with the nature of the confidential information said to have been disclosed at the mediation. It will of course be a matter of the Judicial Registrar to form a view about it, if it comes to it, but an issue would surely arise as to the relevance of such an observation to the task at hand, in any event.

50    It follows, in my view, that there is also no real risk of misuse of the confidential information.

51    It follows that the answer to questions five and six is “no” and that the application to restrain Mr Williams on the first ground contended for must fail.

52    The applicants also relied on the court’s inherent jurisdiction to ensure the due administration of justice, citing, by way of example, Sent v John Fairfax Publication Pty Ltd [2002] VSC 429 and Grimwade v Meagher [1995] 1 VR 446.

53    The submission was put in this way:

The Applicants accept that the jurisdiction of the Court to restrain a practitioner on this basis is “exceptional” and “to be exercised with appropriate caution” [citing Geelong School Supplies Pty Ltd v Dean (2006) 237 ALR 612; [2006] FCA 1404 at [35] (Young J)]. However, the principle that justice is both done and seen to be done is no small matter. Mr Williams KC represented Mr Mawhinney at a mediation. At that mediation, Mr Mawhinney discussed with Mr Williams KC the matters the subject of the dispute in this proceeding. Mr Williams KC now acts for the very party on the other side of that dispute. Regardless of any ability of Mr Williams KC to use that information on the issue of the quantum of security for costs, does that appear just? The principle that justice is both done and seen to be done should be upheld in particular in relation to legal practitioners acting against former clients, perhaps now more than ever. Any public perception that legal practitioners are able to “switch sides” should be eliminated.

54    As Lee J said in Porter v Dyer (2022) 402 ALR 659; [2022] FCAFC 116 at [116], there is a “potentially difficult question of whether the exceptional course of restraint could be appropriate, even where no real risk of misuse of confidential information was established”. This is not the occasion to explore that potentially difficult question.

55    In my view, having concluded that there is no real risk that the confidential information in this case would be relevant to the exercise to be performed by the Judicial Registrar, and that there is no real risk of misuse of confidential information, I am not satisfied that the fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that Mr Williams be restrained from acting for the respondents at the hearing on Wednesday.

Associate:

Dated:    21 March 2023

SCHEDULE OF PARTIES