Ghost of Keddies … Phoenix-type arrangement … While clients are suing for breach of contract the principal puts one law firm into liquidation and recommences business with a new entity … Supreme Court orders principal to compensate clients for overcharging … Third party costs order … Justin Pen reports
THE Supreme Court of NSW has ordered David Marocchi, a former director and shareholder of Paramount Lawyers, to personally cough-up over $600,000 after he “grossly overcharged” seven clients for personal injury litigation conducted in 2009.
Marocchi, a former employed solicitor at the notorious Keddies law shop, is now a director of Paramount Compensation Lawyers Pty Ltd, along with his de facto wife Anna Merlo.
He caused Paramount Lawyers to go into liquidation on May 11, 2016, effectively frustrating his former clients’ claims of $660,000 against the defunct law firm.
Justice James Stevenson made the third-party costs order against Marocchi on the basis that Paramount Lawyers had become a “person of straw”, following calculated financial mismanagement by Marocchi.
Instead of prolonging an existing freezing order on $1,500,000 worth of Marocchi’s and PCL’s assets, the court allowed the solicitor to put up the equity in a pair of Balmain properties, valued at $950,000, that Marocchi co-owned with Merlo.
From 2009 to 2012, Marocchi and Paramount Lawyers represented the septet of clients for personal injury claims arising out of unrelated motor vehicle accidents.
Although each of the claimants received substantial pay-outs, PL deducted considerable amounts for professional costs and disbursements.
In February 2015, Marocchi’s former clients took PL to the District Court and claimed damages for breach of contract.
In one case the NSW District Court heard that PL had billed Daniel Murphy, one of Marocchi’s clients from that period, almost $130,000 for a costs-inclusive settlement that totalled $647,000.
An expert costs assessor, who produced a report on Murphy’s behalf for the District Court proceedings, said the amount properly chargeable was no more than $11,000.
Halfway through the proceedings against PL, in May 2015, Paramount Lawyers ceased taking on any new clients. At the same time, Paramount Compensation Lawyers sprang-up and began operating out of the same address as PL.
Between May and December 2015, PCL hoovered-up all of Paramount’s clients, after which the old law firm ceased trading entirely.
While Marocchi assumed some of Paramount’s liabilities, regarding “employee entitlements and lease equipment”, PCL refused to take on the debts that Paramount owed to Marocchi’s former clients.
Paramount’s liquidator estimated these debts to be around $472,000, notwithstanding the ATO and any contingent creditors.
On April 6, 2016, Paramount initiated proceedings to transfer the seven District Court cases brought against it to the NSWSC and sought leave to issue a cross-claim against Jason Di Michiel, the former joint-director and equal shareholder of the practice.
Di Michiel jumped ship from Paramount in 2014, resigned as a director, and transferred his share in the practice to Marocchi.
In a statement of claim filed on April 26, 2016, Paramount further alleged that Di Michiel nicked off with confidential client information and encouraged Marocchi’s former clients to sue the firm for the litigation overcharging that occurred between 2009-2012.
Justice Nigel Rein heard the issues on May 3, 2016 and a day later delivered an ex tempore judgment against Paramount.
“In my view the former clients should not be forced to become involved in a tussle between Mr Marocchi and/or Paramount on the one hand and Mr Di Michiel on the other.
They have conducted their litigation in the District Court efficiently and should not be penalised because Paramount has been dilatory in considering whether to file a cross claim or bring fresh proceedings in the Supreme Court against Mr Di Michiel.”
One week after Rein’s judgment, Marocchi caused Paramount to go into liquidation.
Following the liquidation, it fell to the Supreme Court to determine whether a third party costs order should be made against Marocchi for Paramount’s unsuccessful manoeuvres in May.
Justice Stevenson referred to the High Court’s decision in Knight v FP Special Assets Ltd, which provided that such an order may only be made in:
“[c]ircumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the subject of the litigation.”
Without skipping a beat, Stevenson proclaimed the present matter to be “a clear case in which to make a third party costs order against Mr Marocchi.”
Marocchi’s involvement in the May proceedings ticked all the boxes for the grant of an order, Justice Stevenson said.
Ultimately, Justice Stevenson found that Paramount was a “in a precarious financial position … because of the manner in which Mr Marocchi managed its financial affairs”.
Indeed, at the commencement of its proceedings in April, PL had just $30.42 in its coffers.
The judge declined to make a third party cost order against Paramount Compensation Lawyers, on the basis that “a third party costs order against Mr Marocchi suffices to achieve justice”.
In light of the undertakings that Marocchi made, concerning the solicitor’s Balmain properties, Justice Stevenson withdrew the freezing orders then in place against PCL’s assets.
In its place, the judge ordered that Marocchi “not dispose of, or further encumber his interest in the two properties … without giving the defendants 14 days’ notice”.