Courage at all costs? Lawyers reminded of personal exposure in Centro

Australia’s most famous English silk, Geoffrey Robertson, once rhetorically rolled his eyes at the concept of fearless lawyers in Anglo-Australian law.

He was all for the idea but his point was that a brave lawyer, here or in London, braves mainly the risk of occasional unkind words from the bench and the media.

For truly courageous lawyers, he said, look to places like Columbia.

There, some lawyers’ career alternatives boil down to either a safe and very comfortable life for themselves and their families, subsidised by the local drug lords, or a more principled career on a very modest government income which, among other things, is hopelessly inadequate to guard them and their families from the real possibility of kidnapping or assassination.

Columbia remains a long way off but Robertson QC’s disparagement of legal courage here might require some updating after Justice Michelle Gordon’s reported comments in the Centro case this week.

The case is in its seventh week in the Federal Court. There are hundreds of millions of dollars at stake. The auditors were always in the gun. Now their counsel and solicitors King & Wood Mallesons might be too.

See the Fairfax reports here and here.

A judge’s power to order costs against the lawyers is not in doubt (see for example my post here on Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 and the Allen Arthur Robinson post on a similar recent case here). But such costs orders typically involve after-the-event criticism of the lawyers from the bench.

Media reports of the Centro case suggest provisional criticism from the bench of the lawyers’ anticipated performance.

Assuming these reports are correct, what is a brace of silks and senior juniors and their über firm instructing solicitors to do?

While it would hardly look courageous, they could turn tail and run. Abandoning a line of argument in defiance of a client’s instructions is a real option in some cases. While obviously problematic (not least from the costs angle) it can be justified in the right circumstances by the lawyers’ overarching obligations under, among other things, the Federal Court Act, the Civil Dispute Resolution Act (Cth) and Victoria’s Civil Procedure Act.

Another option is persevering in the teeth of incoming judicial flak and attempting to win over an apparently very dubious judge. (although they have reportedly described their argument as “not without foundation” which sounds a mite trepidatious.)

But whichever course the auditors’ representatives now choose, they will probably require more guts than Robertson QC thought was usually required of Anglo and Australian lawyers.

This a nine-cornered stoush (yes, nine!) and costs will surely be running at several Portsea beach houses per week.

Stay tuned.

PPSA in 500 words

The Commonwealth Personal Property Securities Act 2009 came into operation on 30 January 2012. It comprises 300 + pages (never mind the regulations) and is not light reading.

Can it be summarized in just two A4 pages? Let’s try.

The PPSR Act establishes something that might be crudely likened to a Torrens title registration scheme for tangible and intangible personal property. It is modeled on existing legislation in New Zealand and Saskatchewan.

“Personal property” does not mean domestic or consumer property (although that is within its scope too). “Personal” means personal as opposed to real property.  Most businesses will be affected (For example who has title to the hire-purchased photocopier in a solicitor’s office if the soli goes broke? What if the soli stays solvent and the photocopier supplier goes bust?)

The registration system is national, internet-based, administered by the Insolvency & Trustee Service of Australia (ITSA) and accessible 24/7.

In insolvency situations the register will generally determine the title of the liquidator / trustee in bankruptcy to personal property in the possession of the insolvent company / individual that might otherwise be claimed by a financier, unpaid supplier etc.

Example:

Say ABC Company goes into liquidation while in possession of:

  • vehicles it has leased from X bank;
  • widgets from Y supplier which have not yet been paid for and are subject to retention of title clauses; and
  • an entire business ABC purchased from Z on vendor terms and on which there are still instalments outstanding.

In this example X, Y and Z would formerly probably have had good title as against the liquidator to their particular property in ABC Company’s possession. But no longer. Under the new regime the liquidator will likely be entitled to seize and sell each of these assets as part of ABC Company’s insolvent estate unless the rival claimants have registered a security interest in them.

Registration of a given security interest will cost $5 a time.

Failure to make that $5 investment might cost unlucky punters literally millions – see Waller v New Zealand Bloodstock Limited [2005] NZCA 254; [2006] 3 NZLR 629. In that case the owners of a $2 million racehorse leased it to a stud. The stud’s financier repossessed the stud (and with it, the horse). The horse’s owners had not registered their security interest in their  horse under New Zealand’s equivalent of the Australian legislation. They lost their $2 million chaff-burner to the liquidator as a result.

Now consider the lawyers –

  • Clients’ standard terms of trade agreements might require revision. Previously effective retention of title clauses in supply agreements might fail under the new regime unless supported by registration of the resulting security interest;
  • Clients who are not advised of the new regime by their lawyers are likely to be gravely miffed if they lose their assets to their customer’s liquidators as a consequence;
  • Professional negligence claims against lawyers will inevitably result – see for example K-Auto Trading NZ v McGurie [2008] NZHC 94

After a remarkably long gestation the Personal Property Security Act 2009 is now operational law. The new regime includes a two year introductory transition period (but why defer getting things right until 2014?)

Paul Duggan

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Paul Duggan is a commercial litigation barrister based in Melbourne, Australia.

Since 1996 he has advised and appeared in most types of business-to-business and business-to-customer disputes – commercial and domestic building matters, commercial and retail leasing disputes, insolvencies, franchises, partnerships, insurance, professional negligence, sales of land, Corporation Act matters and trade practices disputes to name a few. Although Paul has represented governments, major public companies, insurers, Lloyds syndicates and private individuals his clients are predominantly small and medium enterprises contemplating or engaged in litigation in the Victorian Supreme Court, County Court or VCAT.

Paul also practises in the federal jurisdictions and interstate.

Paul’s clerk is Gordon & Jackson.

Liability limited by a scheme approved under the Professional Standards Act 2003.