Supreme Court New South Wales Medium Neutral Citation: Council of the Law Society of NSW v O'Brien [2019] NSWSC 383 Hearing dates: 4 April 2019 Date of orders: 04 April 2019 Decision date: 04 April 2019 Jurisdiction: Common Law Before: Campbell J Decision: Orders at paragraph [18] Catchwords: CIVIL PROCEDURE – Freezing order r 25.1 – prevention of frustration or inhibition of the court's process – prima facie case that defendants have misappropriated assets – admission of extensive fraudulent dishonesty – access to accounts for living expenses Legislation Cited: Uniform Civil Procedure Rules 2005, r 25.1 Cases Cited: KTC v Singh & Ors [2018] NSWSC 1510 Category: Procedural and other rulings Parties: Council of the Law Society of NSW (Plaintiff) Mark O'Brien (First Defendant) Therese O'Brien (Second Defendant) Representation: Counsel: H. El-Hage (Plaintiff) K. Emanuel (First Defendant) A. Herring (Second Defendant) File Number(s): 2019/104595 EX TEMPORE Judgment - REVISED 1. By summons filed today, the Law Society of New South Wales seeks freezing orders against the first and second defendants in circumstances where the first defendant has admittedly misappropriated trust money and utilised that trust money to purchase assets which are sought to be made the subject of the freezing order. 2. The first defendant is a solicitor of this Court who had been in practice since about 1985 in partnership, in recent years, at Edgecliff. The second defendant is his wife and the evidence before me, at this interlocutory stage, provides prima facie support for a finding that she had at least some knowledge of some of the misappropriations. Naturally, the solicitor's practicing certificate has been suspended. 3. The matter came to light, as these things often do, in a most unlikely way when facts incidentally came to the attention of the solicitor's law partner who, knowing intimately the profitability of the practice, was set to wondering about how his law partner had been able to afford an expensive new house at Bondi. When spoken to by his partner, the solicitor at first obfuscated and maintained that obfuscation for a period of time until it must have become obvious to him that he could no longer continue to deny his law partner's suspicion. His law partner in accordance with his professional obligations set about preparing a full written account of the matter for the Law Society but before it was complete, the solicitor attended upon the Law Society and admitted certain misappropriations. The Law Society moved swiftly. Action was taken, amongst other things, to suspend his practising certificate forthwith. 4. The matter of concern for the Law Society in these proceedings is that during the course of its investigation and its dealings with the solicitor more defalcations than were initially admitted by the solicitor have come to light. I should say that the solicitor has been represented by Mr Kevin Emanuel, a very experienced practitioner, and from reading the affidavit of Ms Nadia Haddad affirmed on 3 April 2019, on which the Law Society relies, I have been impressed, but not surprised, by the level of co-operation emanating from Mr Emanuel. Notwithstanding his good offices, it remains clear that further facts of concern indicating the possibility of yet further defalcations have come to light gradually during the process and it is this concern that has moved the Law Society, notwithstanding the co-operation that has been offered, to come to Court and seek orders freezing the assets of the solicitor and his wife, most of which are owned jointly, or in respect of which they both have an interest. 5. The orders are sought under r 25.11 of the Uniform Civil Procedure Rules 2005 (NSW) and the Court is empowered to make a freezing order for the purpose of preventing the frustration or inhibition of the Court's process by seeking to meet a danger that a judgment or prospective judgment of the Court will be wholly or partly unsatisfied. 6. The only proceedings before the Court at the moment are the summons brought on urgently before me as duty judge seeking the freezing orders. But as Mr El-Hage of counsel who appears for the Law Society has explained, given the size of the apparent defalcations, which at this stage are estimated to amount to something in the order of $5.9 million, the Law Society is concerned that there will be a considerable call upon the fidelity fund and when that eventuates, it will have rights of recoupment against the solicitor, which may well be greatly reduced if not rendered nugatory unless his assets are preserved by an order of the Court. 7. As I have said, the solicitor is represented by Mr Emanuel and the second defendant by Mr Herring, an experienced solicitor, both of whom have urged upon me, quite properly, that the level of co-operation already shown, which will continue, is sufficient to protect the Law Society's legitimate position. 8. The property I mentioned earlier at Bondi has been put on the market with reputable real estate agents. It is being appropriately marketed and the certificate of title in respect of it has been deposited with the Law Society. Moreover, a further substantial asset is money on deposit in a superannuation fund, of which the first and second defendants are beneficiaries. That fund is being administered by Ord Minnett and as a result of, I am informed by Mr Emanuel, realising shares held in the fund, there is currently a cash amount of in excess of $1.9 million. Both Mr Emanuel and Mr Herring offer undertakings on behalf of their clients to authorise the withdrawal of those funds, which I am assured can be done, to, in the first instance, deposit them in Mr Emanuel's trust account and then in an account of the Law Society's nomination. The defendants also offer an additional undertaking in relation to the real property, that they will pay the net proceeds of the sale to the Law Society. 9. I am of the view that those undertakings and other arrangements are sufficient to protect the legitimate interest of the Law Society in respect of those assets. I did express a concern in the course of argument that the making of a freezing order in respect of the real property could have a dampening effect upon its market value. This concern was largely based upon the idea that were it known that the property was being marketed under duress, it may well affect what a willing but not anxious purchaser is likely to pay for it. That was a concern shared by Mr Emanuel. 10. It seems to me that it is better to deal with the matter the way I have described in terms of the deposit of the certificate of title and the provision of proper undertakings to the Court. In my view that arrangement might better serve the interests the Law Society seeks to advance by these proceedings. 11. I am also of the view that the Law Society cannot do better in respect of the superannuation funds than the deposit of them in an account nominated by them and, at their option, controlled by them. Naturally should the confidence that those funds can be released quickly be misplaced, liberty should be reserved to the Law Society to apply at short in respect of that matter. 12. There are on the current evidence a number of bank accounts and the Law Society's concern, because information has been forthcoming slowly, is that there may be other bank accounts and other assets which have not yet been disclosed. It seems to me that it would be better that the general assets of the defendants be subject to a freezing order rather than left to their control. 13. It may be that the fraud having now been disclosed, although the extent of it perhaps not fully, that they can be relied upon, especially the solicitor, to honour arrangements made with the Law Society as to the operation of those accounts. However, human nature being what it is, I am not confident that agreements as to withdrawals of money would be punctiliously observed if left to the first and second defendants' discretion. 14. In making that observation I feel compelled to bring to mind the dictum of White J, as his Honour then was, in KTC v Singh & Ors [2018] NSWSC 1510 at 8: In many cases the risk of dissipation of assets to avoid a judgment will be evident from the plaintiff's strong prima facie case of the defendants having fraudulently misappropriated assets or of serious dishonesty. In this particular case of course the solicitor has admitted his extensive fraudulent dishonesty and notwithstanding what I have referred to as the good offices of Mr Emanuel and Mr Herring, I think the less discretion left to him the better. I think there is a risk that those assets will be unreasonably dissipated. Given the apparent size of the fraud, it is important that assets be preserved so far as they can be. 1. Naturally the defendants will need to have access to the accounts for the purpose of their living expenses and, doubtless, legal expenses. I have been told that the parties have agreed that the amount of the living expenses reasonable to their station in life, their age and their health is $2,000 per week, and that sum should be allowed. The question of legal expenses of course is somewhat at large. However, a sensible arrangement as mentioned by Mr Emanuel, is that the proposed costs be submitted to the Law Society for approval so that arrangements can be made for payment to the legal representatives direct and that should be incorporated in the order I will make. 2. Because the extent of the fraud has only slowly emerged, and I acknowledge that ongoing disclosure has been facilitated by Mr Emanuel, it does seem to me that the Law Society has made out a case for ancillary orders requiring the defendants to provide affidavits dealing with the matters in proposed order 3. I will make that order. The only dispute about that is really when can it be provided. I understand the Law Society's point of view that its officers are anxious that it be done as soon as possible, given that the first disclosure of the fraud occurred, in relative terms, as long ago as 21 February and the matter is still unresolved. Having said that, it may not be an easy task to put a proper, comprehensive and complete affidavit together and in the circumstances I am prepared to allow a little more time. In my judgment the defendants should be required to provide the affidavit by 4 pm on Thursday 11 April 2019. 3. Often in cases like this there is a risk of the defendants taking flight so keeping them on a short timetable assists in guarding against that type of risk. I do not see this as being that type of case and I do not think Mr El-Hage presented it as that type of case. As I have said, the level of co-operation so far has been good, I repeat, but not perfect. I am not convinced that there is any real risk in allowing a few more days for the preparation of the affidavits. 4. My orders are: 1. I direct the legal representatives of the parties to bring in short minutes of order reflecting these reasons by 4 pm today. 2. I direct Mr Emanuel and Mr Herring to file a notice of appearance in proper form in the registry by close of business on Friday 5 April 2019. 3. I reserve liberty to apply to the Law Society of New South Wales on short notice. 1. Mr El-Hage moves for an order that the defendants pay the Law Society's costs of and incidental to this urgent application. Mr Emanuel makes these points. First, there has been co-operation and, secondly, he had no intimation that this application would be made until the documentation was served upon him in draft last night. Mr Herring adopts Mr Emanuel's submissions and his position is the same. 2. I do not think the Law Society has acted unreasonably. It seems to me that when one contemplates applying for a freezing order, surprise is of the essence. Moreover, as I have said in my judgment, there has been a legitimate concern about the progress of disclosure and, finally, the application was opposed. It has been successful even if only in part as I have acceded to the submission that some of the concern of the Law Society can be addressed by undertakings. In my judgment costs should follow the event. I therefore order the defendants to pay the Law Society's costs of and incidental to this urgent application. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 08 April 2019