Conduct of colourful Sydney solicitor described by Justice Bergin as “quite disgraceful” … Lawyer’s evidence “unsatisfactory” … Behaviour would cause a reasonable observer to “lose confidence in the integrity of the legal profession” … “Breathtaking” grasp for shares in clients’ company … Kate Lilly on the case
Sydney solicitor Leigh Johnson has been whacked with six of the best in the equity division of the NSW Supremes.
In 2007 Johnson offered her legal services to Peter and Athalie Calvo in return for 32.5 percent of the shares in the Australian Institute of Music.
The Calvos believed this arrangement was in lieu of Johnson’s legal fees. Earlier this year, Mrs Calvo received a legal bill of over $2 million.
On August 31, Patricia Bergin CJ in Eq dismissed Johnson’s application for specific performance of the transfer of shares.
The late Dr Peter Calvo and his wife Athalie Calvo are the founders of the Australian Institute of Music Ltd. In 2004 AIM was in serious financial strife and Dr Calvo asked a man called Bill Sweeny to take over management of the institute. Arrangements were also made for him to become a 37.5 percent shareholder.
Sometime later a dispute arose between the Calvos and Sweeny, regarding his failure to pay for the shares that had been issued to him. Around this time, the Calvos’ son Peter introduced the couple to Leigh Johnson.
A meeting was organised at the Calvos’ apartment. In court, Mrs Calvo gave evidence that Johnson offered to act for them in exchange for 32.5 percent of the shares in AIM. She also claimed that Johnson had told them they wouldn’t pay any further legal costs, other than disbursements.
Johnson recalled the conversation differently. She claimed she tried to encourage the Calvos to settle so that they would have some money for their retirement. She also claimed that she told the Calvos she would not act for them, and that they would need to refer to the matter to a commercial lawyer.
Nevertheless, on May 14, 2007, Dr and Mrs Calvo signed two identical costs agreements with Johnson. Later that month, they executed a deed of agreement (the 2007 deed), under which Johnson would receive 32.5 percent of the shares in AIM in consideration for her work.
In July 2007, the Calvos sought a declaration in the Supreme Court that Sweeny’s shares in AIM were held on trust for their benefit. Unfortunately, these legal proceedings had the Calvos stretched thin. By the end of the following year, they could no longer afford to pay Johnson – or any of the other lawyers they had instructed.
To solve this difficulty, Johnson and Peter Calvo paid a visit to Nitzan Ronan whose company, Ellimark Ltd, owned the premises on which AIM operates. A loan agreement was suggested, wherein Ronan would fund the Sweeny litigation and Ellimark would receive an option to purchase 12.5 percent of the shares in AIM.
On Mrs Calvo’s evidence, Johnson arrived at her apartment on the second day of the Sweeny hearing, in February 2009. She had with her a bundle of documents, including the Ellimark deed and a shares’ mortgage.
Although Mrs Calvo was unhappy with the Ellimark deed, she claims Johnson told her that she had “no choice but to sign otherwise the hearing can’t continue because the barristers require more money”. Johnson agreed that she delivered the documents, but denied this particular conversation took place. Instead she claimed that she told the Calvos to seek independent legal advice.
The Calvos were successful in their case against Sweeny in July 2009. Shortly afterwards, Johnson contacted Mrs Calvo to inquire about her shares in AIM. Arrangements were made to transfer the shares to her name while Dr Calvo was in hospital, recovering from a stroke. Johnson was also appointed as a director of AIM.
In April 2010, the Calvos’ solicitors, Stephen Wawn & Associates, wrote to solicitors retained by Johnson, Whitehead Cooper Williams:
“We have advised our clients that your client cannot have both her legal costs and the shares in The Australian Institute of Music Ltd. It would appear clear that she has elected during the course of the proceedings to vary the terms of her original retainer and require payment to her of her professional fees and all the various disbursements to barristers and other lawyers rather than to have the shares in the company. Our clients have been forced to accept this variation. We are instructed that your client has also recently made demand for additional legal costs from our clients.
Our clients are, as previously advised to your client, more than happy to pay your client a reasonable sum for her professional services on receipt of an itemised bill of costs. We are instructed to again reiterate that request.
Please have your client prepare a bill of costs in a form suitable for assessment so that our clients can recover these costs from Mr Sweeney.”
About three months passed and an itemised invoice did not appear. In August, Stephen Wawn & Associates advised Whitehead Cooper Williams that they had been instructed to make a complaint to the Legal Services Commissioner. Ms K.M. Dulhunty was appointed to make a costs assessment.
In July 2011, Johnson wrote to the Legal Services Commissioner:
“I refer to your letter dated 30 June 2011 and advise that I spoke to Ms Dulhunty last week when she left a message on my voicemail. I rang her back the same day and she advised me she had sent me a letter. I advised her that I had received no letter from her and requested she re-send it either in hard copy or via email. Ms Dulhunty seemed vague and pre-occupied with other things and told me she wanted me to furnish her with my account re Calvo. I told her I would prepare it for her.
In reference to Ms Dulhunty’s allegations, I advise that I acted for the Calvos from beginning to end of Supreme Court proceedings which were ultimately successful. They had been to several lawyers before me who advised that they had NO prospects of success but that if they deposited $400,000 into their trust they would “kick it around” for them. They came to me and Mrs Calvo cried and begged me to act for them for NO money up front because she said they had none. (This I came to realise was a lie as was most of what Mrs Calvo said, including her evidence).
At all times prior to being paid a very modest sum of money so that I could continue to a) eat, b) put petrol in my car to drive to attend to their litigation and c) pay my phone bills so that I could attend to their litigation I provided an invoice prior to payment.
I was paid the extremely modest sum of $50,000 plus $5,000 GST for approximately three years of solidly working on their ‘unwinnable’ case, and dealing with their constant lies to myself and to counsel, which caused us all extreme concern to say the least.
My files which included all invoices were provided and inspected by the Law Society at the time.
I moved offices several times since then and at present am unable to locate them.
I trust this answers your concerns.”
Several years passed. On March 24, 2015, Mrs Calvos received an invoice from Johnson – for the modest sum of $2,289,248.54.
Justice Paddy Bergin was scathing about Johnson’s conduct. HH threw out the 2007 deed, the mortgage of shares and the transfer of shares. Unsurprisingly, she also dismissed Johnson’s application for specific performance of the transfer of shares.
The key aspects of Bergin’s judgment related to the Contracts Review Act 1980 and the equitable doctrine of unconscionable conduct.
Contracts Review Act
HH began by considering the documents in the context of the unjust contract provisions in the CRA.
Bergin concluded there was a material inequality of bargaining power – s.9(2)(a) – as between Johnson and the Calvos that “must have been obvious” to Johnson.
HH observed:
Bergin concluded that the 2007 deed, the shares mortgage, and the transfer of shares could be set aside under the Contracts Review Act. HH added:
“If Ms Johnson’s evidence in relation to the circumstances surrounding the execution of the 2007 Deed were to be taken as an exemplar of how solicitors behave, it could justifiably cause a reasonably minded observer to lose confidence in the integrity of the legal profession. Even accepting Ms Johnson’s version of a conversation that occurred with Mrs Calvo at the time the Deed was executed, when Ms Johnson says rather nobly that she refused to accept 37.5% of the shares and agreed to the lesser figure of 32.5% of the shares, the unfairness of the situation is of breathtaking proportion . . .
The circumstances surrounding the execution of the Transfer of Shares at St Vincent’s Hospital when Dr Calvo was so very ill, and when Mrs Calvo was extremely distressed, demonstrates the type of tactics to which Ms Johnson would stoop. I have no doubt that Ms Johnson understood the unfairness and inappropriateness of her conduct in securing signatures on this document at such a time. This conclusion is supported by her silence in respect of its existence, and that of the 2007 Deed, when she was dealing with Ms Dulhunty and the Legal Services Commissioner.”
Unconscionable conduct
Bergin found that the Calvos were not suffering a special disability for the purposes of unconscionable conduct at the time of the 2007 deed and mortgage of shares. The transfer of shares on Dr Calvo’s sickbed was another matter entirely.
“The execution of the transfer of shares at St Vincent’s Hospital in circumstances where Ms Johnson had not given any indication of the quantum of her fees was quite disgraceful. Dr Calvo was clearly suffering from a special disability and Ms Johnson took unconscientious advantage of that situation. The inappropriate pressure of the circumstances surrounding the discussions and meetings at St Vincent’s Private Hospital on 30 December 2009 demonstrate tactics that were quite disgraceful for any commercial person let alone an officer of this court.”
Johnson’s costs
Regarding the costs assessment, Johnson claimed she had always intended to cooperate with Ms Dulhunty’s request for an itemised bill (that never appeared). She conceded that it “perhaps … would have been a good idea” to inform Dulhunty and the Legal Services Commissioner of the existence of the 2007 deed.
On this point, Bergin described Johnson’s evidence as “unsatisfactory”.
“On balance I am not satisfied that Ms Johnson is estopped from claiming that she is entitled to be paid her costs in the circumstances. Although this is not a matter that has been debated and is perhaps not a matter for this court to determine, the circumstances of this case would in my view justify a condition being imposed upon Ms Johnson that she indemnifies Mrs Calvo for any costs that Mrs Calvo may incur in the costs assessment process and a further condition that Mrs Calvo should not be required to pay any costs to Ms Johnson that are not able to be recovered from Mr Sweeney.”
This is not Leigh Johnson’s first brush with fame.
In August 1995 a BMW owned by Johnson was photographed going through a red light in Surry Hills. Johnson was charged but said she wasn’t driving. Her employee Kala Subramaniam made a statutory declaration that she was the one behind the wheel, not her boss. Johnson was convicted but successfully appealed to the District Court.
In December 1996 Subramaniam and Johnson were charged with perverting the course of justice. The police had fitted a listening device to another of Johnson’s employees and recorded Subramaniam admitting that she had agreed to take the red light rap.
Johnson was discharged because the taped evidence could not be admitted against her. At Subramaniam’s trial in August 1999 a District Court jury failed to reach a verdict. She applied for a permanent stay because her mental health had deteriorated. That was rejected by the District Court and the Court of Criminal Appeal.
The jury of 12 found Subramaniam not guilty of giving false evidence, but guilty of making a false statutory declaration. The Court of Criminal Appeal, by majority, dismissed her appeal. Unanimously, in November 2004, more than eight years after the camera snapped Johnson’s car, the High Court upheld the appeal because the judge’s introductory remarks to the jury fell short of what the legislation required, even though the judge’s other remarks during the trial and his summing up did cover the requirements. The High Court ordered a new trial, but as far as we can tell that has never happened.