New South Wales Supreme Court CITATION : Kavia Holdings Pty Limited & 1 Ors v Werncog Pty Limited [1999] NSWSC 839 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 2585/98; 2016/98 HEARING DATE(S) : 18/08/99 JUDGMENT DATE : 18 August 1999 Kavia Holdings Pty Limited ACN 050 108 757 (First Plaintiff/Cross Defendant (First Cross-Claim)) PARTIES : Rocks Catering Pty Limited ACN 003 510 656 (Second Plaintiff) Werncog Pty Limited ACN 065 477 303 (Defendant/Cross Claimant (First and Second Cross-Claims)) John Anton Szangolies (Cross Defendant (Second Cross Claim)) JUDGMENT OF : Santow J COUNSEL : A J Sullivan, QC/ A Leopold (Plaintiffs) D P Robinson (Defendant) SOLICITORS : Aubrey F Crawley & Co (Plaintiffs) Baker & McKenzie (Defendant) CATCHWORDS : PRACTICE AND PROCEDURE — Defendants' duty of candour not to mislead court in relation to conditions sought by the defendant to be imposed on plaintiff's injunction; Duty to court of party and of legal adviser. Jones v Dunkel (1958-9) 101 CLR 298 Thomas A Edison v Bullock (1912) 15 CLR 679 CASES CITED : Frigo v Culhaci (Court of Appeal, 17 July 1998, unreported) Holden v Waterlow (1866) 15 WAR 139 Moody v Cox [1917] 2 CH Pulse Microsystems Limited & Ors v Safesoft Systems Inc & Another (1996) 36 IPR 331 DECISION : Indemnity costs awarded where trial judge misled. REVISED — 23 August, 1999 IN THE SUPREME COURT OF NEW SOUTH WALES IN EQUITY SANTOW J Nos. 2585/98; 2016/98 KAVIA HOLDINGS PTY LIMITED ACN 050 108 757 First Plaintiff/Cross Defendant (First Cross-Claim) ROCKS CATERING PTY LIMITED ACN 003 510 656 Second Plaintiff WERNCOG PTY LIMITED ACN 065 477 303 Defendant/Cross Claimant (First and Second Cross-Claims) JOHN ANTON SZANGOLIES Cross Defendant (Second Cross-Claim) JUDGMENT — ex tempore 18 August 1999 INTRODUCTION 1 It is well settled that if an applicant for an injunction fails to disclose to the Court all relevant facts which the duty of candour to the Court requires to be disclosed, and in a way which is not misleading, the Court has a discretion to discharge the injunction. The Court may in some cases exercise its discretion by maintaining the injunction, though penalising the applicant by an appropriate order as to costs or by calling upon the Plaintiffs' undertaking as to damages. See for example, Holden v Waterlow (1866) 15 WAR 139 and Thomas A Edison v Bullock (1912) 15 CLR 679 at 682 and the discussion in Spry "The Principles of Equitable Remedies" LBC 1997 at 494-500. While that duty of candour applies with especial stringency to ex parte applications (see for example Frigo v Culhaci (Court of Appeal, 17 July 1998, unreported), its scope extends to any application, contested or not, where evidence is presented to the court in support of an application. Those duties apply to the parties. 2 But their legal advisers — not at fault here — have also by virtue of their duties to the court, a personal duty to the court, overriding their duty to the client, to disclose the law and not mislead as to the facts; see D A Ipp "Lawyers Duties to the Court" (1998) 114 LQR 63 at 67. A legal adviser depends on the instructions given. Nonetheless the legal adviser should remain alert to the importance of ensuring he or she can fulfil the personal duty of candour he or she owes to the Court. If in doubt about the veracity of the instructions or their potential to mislead the Court, the legal advisers should press the client until properly satisfied that such potential is removed and in the meantime must decline to put submissions to the Court while in doubt about their potential to mislead. The point may be reached, where the lawyer ceases to act. Whether and how far legal professional privilege would then preclude disclosure to the Court, perhaps in very general terms, of the reason for ceasing to act, is a question for the future. Absence of that minimal disclosure leaves the Court at risk of being misled by the recalcitrant party and its new and potentially uninformed legal advisers. I adopt in that regard what has been said by G E Dal Pont in "Lawyers' Professional Responsibility" (LBC, 1996) at 354-5: " (d) Verification of client's narrative Lawyers must bring a proper degree of caution, even mild scepticism, to their client's narrative of events. In other words, they must take reasonable steps to verify the client's contentions, especially where the client is making serious allegations against another person. For example, in Y v M [1994] 3 NZLR 581 at 590, Temm J found that of one of the causes of a misleading affidavit in a custody and access dispute (which included allegations of child sexual abuse) was 'the unquestioning acceptance by the partner in the firm as to what the mother had to say'. (c) Evidentiary foundation to support statements and allegations Related to the duty to ascertain the verity of the client's statements, lawyers must not be a party to the presentation to the court of any evidence, or the making of any statement or allegation, for which there is, in their opinion, insufficient evidentiary foundation. For instance, the Australian Bar Association's Code of Conduct (1993) ABA, Code of Conduct (1993), r5.8, provides that '[i]n opening any proceedings, a barrister shall not open any alleged facts as a fact where he or she does not believe that the alleged fact will be supported by evidence to be presented'." 3 The underlying principles are expressed in the maxim that he who seeks equity must do equity. There is an immediate and necessary relation between the equity which must be done and the equity sued for; Scrutton LJ in Moody v Cox [1917] 2 CH at 87-8. 4 The situation presently before me is the converse of the conventional case of a party seeking an injunction; I am dealing with the duty of candour of the defendant who seeks to resist an injunction or as here, have the court impose conditions on its grant. The question is whether the same principles apply with analogous results, where it is shown that the Defendant has misled the Court, wittingly or not. 5 I am satisfied in that converse case, the Court's discretion is likewise enlivened. It may be exercised to vary the conditions sought by the Defendant and/or to impose appropriate cost orders upon the Defendant. What enlivens the discretion, is that the Defendant has misled the Court in the way the Defendant has presented its case against the Plaintiff's relief and in particular as to the conditions which should attach to it. (I say this, noting there is no suggestion that the Defendant's legal advisers were aware that their instructions were such as would mislead the Court.) This is as a mark of the Court's concern at the Defendant's failure in that duty, deliberate or not, careless or not, innocent or not, and to compensate the other party to the extent extra costs are thereby incurred. Naturally, if the Court is made aware of the basis for that failure and in particular whether it was inadvertent, that is a factor which may potentially affect the appropriateness and terms of a cost order. But so far as the other party is concerned, if a further hearing is necessitated by that non-disclosure, inadvertent or not, that innocent party should ordinarily be compensated for any extra cost, whatever the outcome of that further hearing.. THE PRESENT CIRCUMSTANCES 6 The Plaintiffs successfully obtained relief, though on conditions, against eviction by the Defendant from two leased properties in Darling Harbour, in a judgment and orders of Young J on 27 July 1999. Material to the conditions attaching to that relief was the question of what would have been a fair market rent at the time for the two leased premises. This was in order to arrive at a basis for establishing the rent that should, in all the circumstances, be paid by the Plaintiffs thereafter. This would be until a final determination is made in relation to the issues between the parties, anticipated in some six months. 7 On 6 August 1999 the solicitors for the Plaintiffs drew the Defendant's solicitor's attention to evidence which must have misled Young J in determining the fair rental for one of the two premises; that indeed has been properly conceded by counsel for the Defendant to-day. That evidence related to a valuer's estimate of fair market rent for supposedly comparable premises, based on instructions from the Defendant as to those market rentals. The letter of 6 August 1999 at para 16 and following sets out several instances where rent concessions of various kinds had not been disclosed to the valuer by the Defendant and which concededly, if taken into account, would have led to those supposedly comparable rents being reduced. That is not to say that in an ultimate trial of that issue the fair market rent would necessarily differ from that found by Young J, though it might. What is undeniable is that further evidence at a fresh hearing will now have to be considered in order to determine afresh that very matter as affecting the Plaintiffs' conditions for relief. So extra costs will be incurred, quite unnecessarily and taking up scarce court time. 8 The Defendant was invited to give any further explanation for how the misleading evidence came to be given insofar as it may bear upon whether the valuer was erroneously instructed through the Defendant's innocent mistake, careless mistake or deliberately. The Defendant declined to take up that opportunity. Rather it sought that the matter await the determination of what has been described as a "final" interlocutory hearing by Hodgson CJ in Eq on 10 September 1999. That further hearing would not have been necessary, but for the Defendant's failure. At that hearing, the matter of the interim arrangements would be dealt with and in particular the appropriate rent determined as would be paid until a final hearing in six months. I declined to defer consideration of the Defendant's application pending the outcome of the hearing of 10 September 1999. I did not consider that the outcome before Hodgson CJ in Eq, even if identical with that reached by Young J in terms of an interim rental arrangement, should affect the application of the principles to which I have earlier referred. The simple and inescapable fact is that a further hearing has been necessitated solely because the Defendant, for whatever reason, misled the Court. Moreover it has declined to put before the Court any further explanation than that, leaving the inference inescapable that such further explanation would not have assisted the Defendant's case; Jones v Dunkel (1958-9) 101 CLR 298. 9 The Defendant/lessor has consented to interim rental arrangements which accord with those originally sought by the Plaintiff before Young J rather than the higher level he determined, based on the misleading evidence then before him. That is hardly a concession, since this lasts only until the hearing date some three weeks hence on 10 September 1999, when a new interim regime can be laid down. It follows that the Defendant will not be significantly disadvantaged, given the shortness of the interval till then. 10 This would therefore constitute no real penalty for the Defendant in misleading the Court and, by its actions, necessitating a further hearing. That the evidence in relation to one of the two tenancies is not claimed to be misleading hardly matters in such a context. The Plaintiffs must now face a further hearing of the very matter which should have been resolved before Young J, as well as the earlier hearing before me. The Court has therefore by cost orders to signify the importance it places on the proper performance of the duty to the Court of complete candour. This principle is conveniently stated in the Canadian case of Pulse Microsystems Limited & Ors v Safesoft Systems Inc & Another (1996) 36 IPR 331 at 342: "An award of solicitor-and-client costs in this court and in the Court of Queen's Bench, however, will serve to compensate the defendants for the costs they have incurred in defending their rights in the interlocutory proceedings. At the same time, it will serve as a penalty to the plaintiffs for their failure to make full and frank disclosure to the court on their application for Anton Piller relief, and as a reminder to other plaintiffs of the complete candour which must accompany such an application. As well, the defendants will have judgment against the plaintiffs for the value of their hard drive, namely, $600." CONCLUSION 11 In referring to the failure of the Defendant's duty, I wish to make emphatically clear that no assertion was made that the fault lay with either counsel or instructing solicitors for the Defendant; indeed the Plaintiffs' counsel was at pains to say otherwise. However, that does not alter the position so far as the appropriate order that should be made in the circumstances. This is because the duty of candour is firstly a duty of the party involved, though reinforced by the legal adviser's corresponding duty to the Court. ORDER 12 That the Defendant pay on an indemnity basis the Plaintiffs' costs of and incidental to to-day (18 August 1999) and the Plaintiffs' costs of 27 July 1999. ********** Last Modified: DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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