Sturesteps v Khoury (No 2) [2017] NSWSC 1525

Supreme Court New South Wales

Medium Neutral Citation: Sturesteps v Khoury (No 2) [2017] NSWSC 1525 Hearing dates: 3 November 2017 Date of orders: 03 November 2017 Decision date: 03 November 2017 Jurisdiction: Equity - Applications List Before: Parker J Decision: Recusal application dismissed Catchwords: Civil Procedure – recusal application – apprehended bias – where Judge as counsel made allegations of fraud against party in prior unrelated proceedings – where party is appearing as junior counsel in applications to be heard before Judge – no disqualification Cases Cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27 Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337; [2000] HCA 63 Category: Procedural and other rulings Parties: George Osvald Sturesteps (First Plaintiff) Beryl Donna Sturesteps (Second Plaintiff) Dieb Peter Khoury (First Defendant) Benjamin & Khoury Pty Ltd (Second Defendant) Representation: Counsel: P Menzies QC/CJ Bevan (Plaintiffs) R Gration (Defendants)

Solicitors: WM Lawyers Pty Ltd (Plaintiffs) Benjamin & Khoury Pty Ltd (Defendants) File Number(s): 2014/24406 Publication restriction: Nil

Judgment – EX TEMPORE

(revised and issued 10 november 2017) 1. The plaintiffs seek to have me recuse myself from hearing two interlocutory applications which are fixed for hearing before me as the Applications Judge next Friday, 10 November. The plaintiffs in these proceedings, Mr and Mrs Sturesteps, are former clients of the first defendant, Mr Khoury. The second defendant is an incorporated legal practice, of which Mr Khoury is a director. Mr Khoury, and then the second defendant, acted for Mr and Mrs Sturesteps in earlier proceedings in this Court concerning the collapse of the HIH group of companies. Those proceedings were very protracted and it is said that approximately $3 million was paid to Mr Khoury for representation in those earlier proceedings. Mr and Mrs Sturesteps now claim that they have been overcharged by Mr Khoury and seek recoupment of a sum said to amount to some $1 million or so. 2. The proceedings were commenced in 2014, but are not yet ready for hearing. There have been extensive interlocutory disputes concerning the form of the pleadings. The current statement of claim is a document styled "Second Further Amended Statement of Claim", which was filed on 13 February this year. The defendants filed their Defence to that Second Further Amended Statement of Claim on 6 June 2017. 3. The plaintiffs have applied for orders requiring the provision of answers to what are said to be requests for particulars of the Defence and for further orders directed towards preparation of the case for hearing, with a view to it being fixed for hearing at some point in the first half of 2018. The plaintiffs' notice of motion was filed on 13 July 2017. The defendants have applied for leave to amend the Defence. The defendants' notice of motion was filed on 14 August 2017. 4. Pursuant to the usual requirements of the Applications List, the parties have filed written submissions in support of their respective application and in opposition to the other party's application. The relevant evidence which the parties seek to put before the Court for the purpose of determining those applications, together with the parties' written submissions, have been compiled into a Court Book, which is in evidence before me for the purposes of this application. 5. Mr Menzies, of Queen's Counsel, is briefed to lead Mr Bevan of counsel for the plaintiffs on the hearing of the two interlocutory applications. The application that I recuse myself arises out of the circumstance where, before my appointment as a Judge of this Court, I was retained as counsel in proceedings to which Mr Bevan was party. The background to those proceedings was that Mr Bevan had claimed payment of a sum of $5 million or so by way of unpaid fees and interest from a solicitor, Mr Evangelos Patakas, who had briefed Mr Bevan in various matters, starting in about 2004. 6. Mr Bevan had commenced the process of having his claims for payment of fees assessed. Mr Patakas denied that he was obliged to pay Mr Bevan, or at least that he was obliged to pay Mr Bevan except on terms that he first receive payment from the relevant clients. Mr Patakas commenced proceedings in 2016 in this Court, in which he sought declaratory relief and damages arising out of Mr Bevan's claims. He also sought interlocutory relief in the form of orders restraining the further progress of the costs assessment proceedings until determination of his claims in the Supreme Court. Mr Bevan responded by applying to have the proceedings summarily dismissed. 7. Among the allegations made by Mr Patakas in his Statement of Claim, which I was responsible for settling, were allegations that Mr Bevan, in putting forward his claims for payment, had acted fraudulently. 8. The application for interlocutory relief and the summary dismissal application came before McDougall J for determination in September 2016. I appeared for Mr Patakas and, in the course of the argument before his Honour, I made submissions by reference to evidence that was led on that application that the allegations of fraud, among others, were justifiable based on the evidence. I did so in terms which might fairly be described as trenchant. Interlocutory relief was granted and the application for summary dismissal was refused. I continued to act for Mr Patakas up until my appointment as a Judge of this Court became public in March this year. At the time of my appointment, the proceedings were being managed in the Expedition List. They had not (and, so far as I am aware, have not) gone to trial. 9. In these circumstances, counsel for the plaintiffs submit that my earlier identification with allegations of fraud against Mr Bevan is such as to require me to recuse myself. The duty of counsel is to present his or her client's case to the best of his or her ability and to the limits of what can properly be put by reference to the evidence in the case. In acting as counsel, I was not seeking to persuade the Court that in fact Mr Bevan had been guilty of fraud, but only to submit that the evidence before the Court provided a proper basis for the grant of interlocutory relief and for the refusal of the application for summary dismissal. Nevertheless, I accept that, in what I did, I publicly and trenchantly identified myself with allegations that Mr Bevan had engaged in fraud. In doing so, as I have mentioned, I settled and therefore took responsibility for the allegations to that effect in Mr Patakas' pleadings. 10. Mr Menzies QC, with his usual tact and aplomb, pointed out that my personal views, if any, about Mr Bevan's behaviour are not in issue. Nor is there any suggestion, on a personal level, that I would be unable to deal fairly with the applications. However, as he correctly, with respect, submitted, the question is one of public perception. Authoritative guidance in that regard is found in the High Court decision in Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337. The test for determining whether recusal is required involves two steps. The first is to identify what it is said that might lead the Judge to decide a case other than on its legal and factual merits. The second is the articulation of the logical connection between the matter identified and the feared deviation from the course of deciding the case on its merits: Ebner at 345 [8]. 11. In the present case, the matter in question is my public identification with the allegations of fraud against Mr Bevan. In my opinion, the resolution of this application turns on the second step, which is the articulation of some sort of logical connection between my public identification with the allegations and the possibility that I might not decide the applications before me on their merits. I emphasise that the test must be applied by reference to the two interlocutory applications which are fixed for hearing before me. It is not suggested that I would necessarily be the trial Judge in this matter and I leave aside the question of whether, given what I did as counsel in the litigation between Mr Patakas and Mr Bevan, I could properly act as trial Judge in this case. 12. Based on my review of the Court Book for the applications and the submissions which have been made by the parties, it seems to me that the issues to be determined on the two interlocutory applications are purely procedural. It is likely that the defendants' application to amend will need to be dealt with first. That application will involve questions as to whether the amendments sought merely bring the Defence into line with issues that have already been raised in the proceedings, or whether, if not, the amendments should still be allowed in accordance with the principles articulated in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175. 13. Those principles in turn would require consideration of three main questions: first, to what extent would the defendants be prejudiced by refusal of the amendments or, to put it in other language, how important are the amendments to the defendants being able to make a full case in response to the claims made against them; second, whether there would be any prejudice to the plaintiffs if the amendments were permitted; and third, whether there is a satisfactory explanation for any delay in bringing the application forward. 14. The initial question, as to whether the amendments reflect matters which have already been raised, is essentially a question of interpretation of the proposed Defence in the light of the case that has hitherto been made, which would be a matter of record. In the Aon analysis, the first and third questions are ones where the focus will be on the conduct of the defendants, not the plaintiffs. The second question, namely prejudice to the plaintiffs, does require focus on the plaintiffs but it is not suggested, and I see no sign in the submissions of the parties, that Mr Bevan's role would have anything to do with this question. 15. Turning to the plaintiffs' application, the entitlement for particulars is again a question of practice, turning on the nature of the allegations made and the information to be provided which will fairly give the plaintiffs an understanding of the defence which the defendants put forward. Again, it seems to me that these are matters which would be debated essentially by reference to the written record. Similar considerations will influence any debate, if there is one, about the appropriate timetable for proceeding towards hearing. 16. On the face of it, therefore, I find it difficult to see why the involvement of Mr Bevan in the applications as junior counsel could rationally be thought to cause me to deviate from deciding the applications on their merits. To the extent that I need to form any view about the way the parties have conducted themselves in the litigation, any such view will be based on the evidence before me, and I cannot see a logical connection between that and an allegation that counsel for one of the parties has engaged in fraudulent conduct in seeking to pursue recovery of fees said to be owing as a result of quite unrelated retainers. 17. Mr Menzies QC referred me to a reference in Mr Khoury's affidavit of 14 August 2017 to two affidavits which were earlier filed in these proceedings, one by Mr Sturesteps, the first plaintiff, and one by Mr Musgrave, the solicitor for the plaintiffs in these proceedings. The passage in Mr Khoury's affidavit refers to a number of specific paragraphs of Mr Sturesteps' and Mr Musgrave's affidavits. They are put forward in connection with a statement by Mr Khoury that he was uncertain as to the status of an expert report which had previously been served. The reference was apparently to correspondence, which I assume was annexed or referred to in those affidavits. The affidavits themselves have not been included in the Court Book. They were tendered on this application over the objection of the defendants. 18. Mr Menzies referred me to a number of paragraphs of those affidavits. The paragraphs to which I was referred are not the paragraphs which are referred to in Mr Khoury's affidavit in the Court Book. The critical evidence to which I was referred was in Mr Musgrave's affidavit. Mr Musgrave refers to earlier correspondence in the proceedings. That correspondence is not itself, so far as I am aware, in evidence before me. Mr Musgrave interprets the evidence as allegations by Mr Khoury of fabrication and tailoring of evidence, levelled at himself and Mr Bevan. 19. As the letters themselves have not been referred to me, I am not in a position to evaluate whether those letters do actually give rise to such allegations. So far as I can see, however, no such allegations are made as part of the pleadings in this case. It is not clear to me how Mr Musgrave's response to these supposed allegations could be relevant to these proceedings at all, let alone how they could be relevant to the resolution of the applications which are fixed for hearing before me. 20. In this regard, I think it is significant that the Court Book has been prepared without inclusion of the affidavits in question. It appears that those who were responsible for the preparation of the Court Book took the view that the affidavits were not necessary for the purpose of resolving the dispute concerning the two applications. In my opinion, that approach was clearly correct. So far as I can see, I would not be called upon, in resolving the applications, to resolve or even to consider allegations of fabrication of evidence against Mr Musgrave or Mr Bevan. 21. For the reasons I have already given, it is my view that the applications will be capable of being disposed of without any reference to evidence or submissions which in any way cast any aspersions on Mr Bevan or any of the other legal representatives for the parties who are involved in this litigation. It follows that, whatever my personal views may be and whatever my personal wishes may be, I am obliged to hear the applications in the ordinary course in the Applications List and to dismiss the application that I recuse myself. (Counsel addressed the Court on costs) 1. The orders of the Court are: 1. The plaintiffs' application for recusal is dismissed. 2. The defendants' costs of the recusal application will be the defendants' costs in the interlocutory applications.