Flinders Street Developments Pty Ltd v Bond Finance No 5 Pty Limited

This was an interlocutory decision inside a much larger commercial lending fight. The Court was not deciding the final merits of the borrowers' unconscionable conduct and misleading conduct claims. It was deciding whether the lenders should be stopped from continuing to use ERA Legal as their solicitors in two related Federal Court proceedings.

The commercial setting was a large loan of about $66.7 million. The Court said the funds were primarily for refinancing an existing loan. There were 30 applicants in one proceeding, described for convenience as the Borrowers, and they were borrowers or guarantors under the loan deed and a later variation deed. A separate proceeding against one guarantor, Mr Lester, had started in the Supreme Court of Queensland and was transferred to the Federal Court.

The issue about lawyers arose because ERA Legal had been involved from the start. The firm acted for the lenders in the transaction itself and then acted for them again in the litigation. The borrowers' pleaded case attacked aspects of the lenders' conduct in connection with the loan, including the way legal costs were charged and passed on under the loan documents. That meant the lenders' chosen solicitors were not just external litigators stepping in after the event.

They were part of the transaction history being examined.

For a business reader, that matters because disputes of this kind often happen in urgent refinance situations. The documents are signed quickly, money is moving, and legal costs may be deducted from the advance or added to the debt. If the transaction later unravels, the same law firm that helped structure the deal may still be acting for the lender in court.

The borrowers' broader case was substantial. The Court summarised allegations that the lenders had engaged in unconscionable conduct under s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth), misleading or deceptive conduct under s 12DA, and breaches of the loan deed. The pleaded case also said the lenders knew the refinance was urgent and that failure to obtain it would result in the loss of significant commercial opportunities.

The borrowers also challenged deeds of forbearance. They alleged either that those deeds did not release the lenders from the borrowers' claims on their proper construction, or alternatively that it would be unconscionable for the lenders to rely on those deeds in the circumstances in which they were executed. That is a familiar commercial pattern. A distressed borrower signs later documents to buy time, and those later documents then become a second battleground about releases, admissions and enforceability.

The legal-cost allegations were especially important. The Court recorded a pleaded case that the letter of offer referred to a solicitor or documentation fee of $50,000, but a later direction to pay authorised $200,000 in legal fees. The lenders then allegedly recorded a further $83,000 against the outstanding loan balance. The borrowers said they were not told before signing that the fee had increased from $50,000 to $200,000.

The borrowers also pleaded that ERA Legal had a costs agreement with the lenders on time-based rates and an urgency premium. The urgency premium was said to be two times normal rates for urgent work during office hours, three times normal rates for urgent work outside normal hours Monday to Thursday, and four times normal rates for urgent work outside normal hours on Friday, Saturday, Sunday and public holidays.

ERA Legal was said to have estimated its fee at $125,000 and later rendered a lump sum invoice for $283,000.

The pleaded case then linked those facts to the Legal Profession Uniform Law. The borrowers said they were non-associated third party payers because they were under a legal obligation to pay the lenders' legal costs under the loan deed. On that basis, they alleged they should have been able to request itemisation, seek sufficient information to consider a costs assessment, and apply for a costs assessment. They said they were not given the relevant costs material and were deprived of that opportunity.

The immediate legal issue was narrow but important. The Court had to decide whether to use its supervisory power to restrain ERA Legal from acting for the lenders. The source of power identified in the reasons was s 23 of the Federal Court of Australia Act 1976 (Cth), together with the Court's implied power to make orders necessary for the exercise of its jurisdiction. That power extends to restraining a legal practitioner where necessary to ensure the due administration of justice.

The Court reviewed the established authorities and said the relevant test in this context is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires the practitioner to be prevented from acting, in the interests of protecting the integrity of the judicial process and the due administration of justice. The Court also stressed that this jurisdiction is exceptional and must be exercised with caution.

That caution was central to the result. The reasons emphasise a heavy burden on the party seeking restraint and the public interest in a litigant not being deprived of its chosen lawyer without due cause. The Court referred to authority explaining that restraining a party's lawyers can interfere with trust and confidence between client and solicitor, may cause real prejudice to the conduct of the case, and can create an unjustifiable forensic advantage for the party seeking the order.

The reasons also dealt with a debate in the authorities about whether the standard is what a fair-minded observer 'would conclude' or 'might conclude'. Feutrill J adopted the 'would conclude' formulation on this application, having regard to the weight of authority and the exceptional nature of the power. But the Court also said the guiding principle is practical necessity: whether restraint is necessary in the particular circumstances to prevent prejudice to the proper administration of justice.

The test should not be applied rigidly or inflexibly.

That point is useful for businesses. Courts are not looking for a technical or tactical reason to disqualify lawyers. They are asking whether the integrity of the process really requires it.

The borrowers put their case in two main ways. First, they said ERA Legal had a personal interest because the proceedings directly put in issue the fairness and reasonableness of legal costs charged by ERA Legal to the lenders, costs that the borrowers were allegedly required to indemnify under the loan deed.

The Court accepted the general principle that a lawyer may need to be restrained where, because of allegations made in the proceeding, the lawyer is in a real sense defending the lawyer's own actions or advice. In that situation there is a risk the client will not receive the objective and independent representation to which it is entitled.

But the Court also made clear that not every allegation about a lawyer's conduct is enough. A degree of proportionality is required between the lawyer's personal interest and the feared corruption of independence. The reasons say that not every allegation in a pleading that calls into question a legal practitioner's advice or conduct, no matter how trivial or incidental to the principal issues, will objectively undermine independence enough to justify restraint.

Second, the borrowers argued there was a real possibility that a solicitor from ERA Legal would need to give evidence as a material witness. This was tied particularly to the urgency premium and the allegation that, if the invoice had been itemised, it would have shown that some work said to have been undertaken outside normal hours or on weekends was not correctly described, or was at least highly doubtful.

The borrowers said that because the work done and the premium charged were in issue, ERA Legal practitioners would likely be witnesses.

The Court accepted the general proposition that it is undesirable for a legal practitioner to act if that practitioner is likely to be called as a witness, and noted that the conduct rules address that risk. However, the Court also said that the mere fact a practitioner will be a material witness, even on a controversial matter, does not of itself warrant restraint. The line is crossed only when the practitioner has a personal stake in the outcome of the proceeding or in their own conduct.

That stake can be reputational as well as financial.

Another practical point from the reasons is procedural. Although extensive affidavit evidence had been filed, the Court said there was little reference to it at the hearing and it was largely irrelevant. The resolution of the applications turned almost entirely on the nature of the issues raised in the pleadings. In other words, the Court looked closely at what was actually in issue, rather than treating the application as a broad factual inquiry detached from the pleaded case.

Both interlocutory applications were dismissed. In WAD 375 of 2025, the borrowers' application filed on 26 February 2026 was dismissed and they were ordered to pay the lenders' costs of the application. In WAD 28 of 2026, Mr Lester's application filed on 31 March 2026 was dismissed and he was ordered to pay the lenders' costs of the application.

The reasons show that the Court was not persuaded that restraining ERA Legal was necessary to protect the proper administration of justice. That is the key point. The Court did not say that allegations about a law firm's own conduct can never justify restraint. In fact, the reasons expressly recognise that a lawyer may need to be restrained where the lawyer is in a real sense defending their own actions or advice, or where a personal stake in the outcome threatens independence.

But the Court also stressed that this is an exceptional jurisdiction, that a heavy burden applies, and that not every pleaded criticism of a lawyer's conduct will justify taking away a party's chosen solicitors.

The Court's reasoning also shows why the exceptional nature of the power mattered. The Court adopted the 'would conclude' formulation and emphasised that a high degree of satisfaction is apposite when one considers the rationale for caution. The practical question was whether, in the circumstances of these proceedings, restraint was truly necessary. On the pleaded issues before it, the Court was not satisfied that the threshold had been met.

For business readers, the result is a reminder that courts separate two questions. One question is whether there may be a serious dispute about fees, disclosure, unconscionability or billing practices. Another is whether those issues are so bound up with the independence of the lawyers currently on the record that the court must intervene. The first does not automatically answer the second.

The most practical lesson is about transaction control, not lawyer disqualification. If your business is borrowing money, especially in a pressured refinance, workout or rescue scenario, legal-cost clauses can have major commercial consequences. A lender's legal fees may be payable by you, deducted from the advance before you receive the funds, or capitalised into the debt.

If the documents are broad enough, disputes can later arise about what was disclosed, what was authorised, and whether the amount charged should have been challenged.

This case also shows why urgency is dangerous. The Court recorded a pleaded case that the lenders knew the refinance was urgent and that failure to obtain it would cause loss of significant commercial opportunities. In that environment, businesses often sign directions to pay, fee authorities, variations and forbearance deeds quickly. That can leave very little room to test whether a fee has changed, whether a cost estimate has been exceeded, or whether a later invoice reflects what was actually agreed.

There is also a litigation lesson. If a dispute starts, do not assume that criticism of the other side's solicitors will produce a quick procedural win. Applications to restrain lawyers are difficult, expensive and exceptional. The court will ask whether the administration of justice truly requires intervention. In many commercial cases, the stronger path is to focus on the underlying documents, the billing trail, the trust movements, the contractual indemnity, and any rights to itemisation or assessment.

For lenders and finance providers, the case is also a reminder that transaction records matter. If legal fees are to be passed through to borrowers or guarantors, the disclosure trail should be clear. If a fee estimate changes, the change should be documented and communicated. If funds are to be deducted under a direction to pay, the authority should be precise. If later forbearance deeds are intended to release claims, the drafting and execution context should be handled carefully.

The judgment was delivered by Feutrill J on 25 May 2026 in the Federal Court of Australia. The hearing took place on 17 April 2026. The decision concerns interlocutory applications only. It does not determine the final merits of the borrowers' and guarantor's substantive claims or the lenders' underlying enforcement positions.

The reasons are useful because they set out the applicable principles in a clear way and summarise the pleaded commercial story in some detail. For a business audience, the case is best read as a litigation-procedure decision with a strong finance-document subtext.