More law firms may soon be targeted in a lawsuit brought by defunct financial advisor Dover Financial alleging three law firms provided negligent advice concerning an inaptly titled ‘client protection policy’, which a judge recently found was “highly misleading” and “an exercise in Orwellian doublespeak”.
In the first directions hearing for the case on Wednesday before Victorian Supreme Court Registrar Julie Clayton, Scott Krischock, solicitor for third defendant McMasters Lo Andrawis Lawyers, sought to join law firm TMC Legal to the proceedings.
Emma Murphy, barrister for first defendant Holley Nethercote, added that her client may well seek to plead TMC Legal as a concurrent wrongdoer.
Registrar Clayton said that this placed Dover and TCM Legal in a “difficult position” as the firm is currently representing Dover in the proceedings. Dover will need to find new legal representation should TCM be joined, the registrar said. She ordered that any application for joinder of TMC Legal be filed by July 1, and the matter be set down for hearing in August.
Krischock also flagged an intention to join other parties to the lawsuit.
“As noted in my orders, I am foreshadowing the prospect that, once there has been discovery, we may seek to join other parties for apportionment, beyond TMC Legal,” he told the court.
The lawsuit was filed on April 2 in the Supreme Court of Victoria by Dover and its former director Terry McMaster, and accuses law firms Holley Nethercote, Sophie Grace Compliance and McMasters Lo Andrawis Lawyers of negligence and breach of retainer.
The three law firms were hired by Dover to give advice on its client protection policy, which was the subject of proceedings brought by the Australian Securities and Investments Commission. In November last year, Federal Court Justice Michael O’Bryan found the policy — which he called “an exercise in Orwellian doublespeak” — contravened the Corporations Act and the Australian Securities and Investments Commission Act by being misleading and deceptive.
On Wednesday, Murphy also sought orders for particulars of the loss and damage claimed against her client, telling the court that Holley Nethercote was entitled to know the case against it.
“My client’s retainer ran from February 2016 to March 2016. Closure of the Dover business on the pleadings was in the middle of 2018. I just don’t understand why the plaintiff is not in a position now to articulate the heads of loss and damage,” she said.
She also called for quantification of other amounts claimed against Holley Nethercote, including the legal costs of the ASIC prosecution and closure of the Dover business.
Andrew Panna QC, barrister for Dover, said that the orders were “premature” and that the exact losses would not be known until outcome of the ASIC penalty hearing against Dover, which was run earlier this month, was known.
Registrar Clayton agreed and declined to make orders as to loss and damages. The parties will be back before the court on August 30 for a hearing of the joinder application, as well as a security for costs application.
In their lawsuit, Dover and McMaster accuse the three firms of breaching the terms of their retainers or their duty to exercise skill and care in ensuring the client protection policy was compliant.
“[The law firms] failed to provide legal advice to Dover Financial competently or at all in respect of the client protection policy and failed to identify and advise that the client protection policy was misleading or deceptive and in contravention of s.1041H of the Corporations Act and ss.12DA(1) and 12DB(1)(i) of the ASIC Act,” the statement of claim says.
Dover would have “retained appropriately qualified and experienced legal advisors” if it had been aware of the negligence and breach of retainer of the three law firms, the lawsuit alleges.
In March 2018, ASIC advised Dover that the client protection policy was a serious contravention of the law. One week after this, Dover withdrew the policy and later posted a corrective notice on its website admitting the notice was deceptive, unlawful and void.
In June 2018, after giving testimony at the banking royal commission and famously collapsing in the stand, McMaster shut down Dover Financial. In August, ASIC cancelled the firm’s financial services licence and launched its Federal Court proceedings a month later.
Because of the alleged negligence of the law firms, Dover claims the company suffered loss after being forced to close its doors, exposed to civil pecuniary penalties, and made to pay legal costs in defending against the ASIC case.
McMaster is also suing the law firms on an individual basis, saying he was put at “serious risk of loss” because of their conduct.
“If, by reason of the use of the client protection policy, Dover Financial did not comply with its legal obligations in conducting the Dover business and was in contravention of the Corporations Act and the ASIC Act, Terry McMaster would also likely be held liable as a person involved in such contraventions and would likely suffer loss and damage,” the statement of claim says.
As well as financial loss, McMaster claims he has suffered reputational damage as a result of the law firm’s alleged negligence.
The retainers with the three law firms were signed at different times, with Holley Nethercote entering into an agreement in February 2016, MLA Lawyers in August 2016, and Sophie Grace in June 2017.
A separate Australian Consumer Law claim has also been brought against the law firms, accusing them of misleading and deceptive conduct.
“Each of the [three law firms’] representations was false, misleading and deceptive in that [the three law firms] did not have the expertise or skill to provide the legal services properly and competently and, in particular, to assess whether the client protection policy contravened the Corporations Act and/or the ASIC Act,” the lawsuit says.
In a statement to Lawyerly, Holley Nethercote said it had confidence in its services and the legal system. The firm said it would be filing a defence soon, but declined to comment further.
“The legal proceedings and the court is the appropriate process and forum for the matter to play out, rather than through the media,” the firm said said.
Dover and McMaster are represented by Andrew Panna QC and Adam Coote, instructed by TMC Legal. Holley Nethercote is represented by Emma Murphy, instructed by Clyde & Co. MLA Lawyers is represented by Colin Biggers & Paisley. Sophie Grace is represented by Geoffrey Kozminsky.
The case is Dover Financial Advisers Pty Ltd & Anor v HNLaw & Ors.