“The number one rule is to protect the insolvency practitioner at all cost.” – From the minutes of meeting between a PPB liquidator and Minter Ellison lawyers.
Rarely will a judge pierce the veil of legal professional privilege, that is, order that the cloak of secrecy between a lawyer and a client be removed.
But in an epic legal battle in South Australia – one that may prove to be a watershed case for lawyers and liquidators nationwide – the Chief Justice of the Supreme Court, Chris Kourakis, has done precisely that.
The correspondence is telling. It is grist to the mill for Senator John Williams, who heads the impending inquiry into the Australian Securities and Investments Commission, and others in Canberra who are calling for reform to what has become one of this country’s most lucrative industries – insolvency.
In this case, the 12-year feud between PPB’s Peter Macks and small businessman John Viscariello, things had run off the rails.
Viscariello was a retailer of sheets. His companies went under in 2001. After a plethora of claims and counterclaims that stretched from the Magistrates Court, through the Federal and Supreme courts to the High Court and back, John Viscariello first defended then pursued the liquidator for abuse of process.
The recoveries from Viscariello’s companies were exhausted years ago but the lawsuits dragged on tortuously. It became a one-man fight against the system.
In early 2006, Viscariello took action against PPB liquidator Peter Macks for abuse of process and petitioned the Legal Practitioners Conduct Board to investigate Minter Ellison, the blue-chip law firm acting for Macks, and its Queen’s counsel. The board took no action. It went after Viscariello instead, launching a series of “own motions”, peppering the businessman-turned-lawyer with onerous demands for information – for years.
They finally took his livelihood, his licence to practise law, last year. Besides sheer bloody-mindedness and a thirst for justice, John Viscariello’s licence was the only thing that kept him fighting. Without it, he could never have borne the costs.
His adversaries had counted on this. But in August 2012, Chief Justice Kourakis dealt the liquidator and his solicitors a savage blow. “I have formed the view that the proceedings were prosecuted recklessly, indifferent to the possibility that they might be an abuse,” he found in an interim judgment.
He also questioned how Macks could have “come to burden the creditors of Bernstein [Viscariello’s company] with the weight of legal costs approaching half-a-million dollars in an attempt to recover $28,000”.
That $28,000 debt belonged to Viscariello’s girlfriend at the time, Tanya Hamilton-Smith. Personal animosities were high. PPB and Minters tried to get at Viscariello’s assets by bankrupting Hamilton-Smith.
That action was settled in February, 2007, for a small sum but Macks and Minters were working on another strategy. In an unrelated matter, Hamilton-Smith owed $4079.80, allegedly, to a Heidi George. Out of the blue, Heidi George sued Hamilton-Smith.
As it turned out, Macks was funding it. The internal correspondence shows Macks was financing George’s claim to bankrupt Hamilton-Smith – and ultimately to get at Viscariello.
“Mr Macks’ purpose in funding the arrangement was to secure the bankruptcy of Ms Hamilton-Smith,” the judge wrote in his interlocutory judgment. Moreover, they tried to cover it up. “A strategy appears to have been adopted to refrain from disclosing the existence of the funding arrangement.”
The judge stopped short of finding there was an ”improper purpose” in funding Heidi George to get at Hamilton-Smith but he said there were reasonable grounds to suspect the proceedings were pursued recklessly and ordered the internal correspondence between PPB and Minters be tendered.
Besides the proof of the Heidi George funding deal, the new evidence shed light on billing practices.
The pursuit of John Viscariello – via Heidi George – is referred to as a “speculative” funding arrangement. “In the course of the litigation, the solicitors and Mr Macks had engaged in a loosely defined fee-sharing arrangement funded from recoveries,” Kourakis found.
The new evidence is likely to harden the conviction of the court.
A letter from a Minters partner to PPB dated April 27, 2006, says:
“Although there will be no benefit to creditors in continuing to pursue the litigation, and indeed you may be required to fund the litigation from your own funds given the lack of funds in the administration, we accept that this is a commercial decision for you to make. We understand you may wish to proceed due to matters of principle.”