Federal Court reiterates administration of justice as a ground for restraining solictiors from acting

Geelong School Supplies Pty Ltd v Dean [2006] FCA 1404Justice Neil Young, who has just resigned after less than a year in the job as a Federal Court judge in order to return to the bar, took the exceptional step of restraining a solictor from continuing to act in order to protect the administration of justice in circumstances where the solicitor had acted for one joint venturer in relation to a meeting of the joint venture company which resolved to commence proceedings against the other joint venturer. That meeting had been controversial because it was held in the absence of the joint venturer the meeting resolved to sue, and the solicitor was likely to have to give evidence about it. There was the added problem that even if the company had properly resolved to commence the proceedings, the running of the proceedings would be frustrated by a deadlocked board. This post summarises the facts in a simplified form, and the outcome. The next post reproduces some of Justice Young’s discussion of the law.

There was a company which sold school books in Geelong. Two couples, the Porchs and the Deans, ran it as a joint venture, through their family companies, but the Deans managed the business. It was making a loss so they agreed to wind it up. The business ceased, and the assets were being distributed when the Porchs came to understand that the Deans had sold business details to a competitor of the former business and so had enriched themselves at the expense of the Porchs and the company to which they owed duties. The Porchs sought an account of profits for breach of fiduciary duties. The Porchs also purported to cause the joint venture company to sue the Deans for breach of directors duties. Because it needed to be a plaintiff in that suit, the Porchs no longer wanted it to be wound up as soon as possible as per the Porchs’ and the Deans’ agreement. The joint venture company was deadlocked, neither the Porchs nor the Deans holding a casting vote.

The way the Porchs managed to cause the company to commence the proceedings was by giving notice of a meeting which the Deans were unable to attend, and refusing a request to hold the meeting on a date when the Deans could come.

The solicitors had been acting for the Porchs from the date of the mediation at which the parties agreed to wind up the joint venture company, or so the Deans’ counsel submitted. At any rate, the solicitors acted for the Porchs in relation to the controversial meeting and non-acceptance of the request for the adjournment of the meeting.

There was a problem on the face of the documents with the controversial meeting. Two notices had gone out. The first said that the resolution had not passed and the second said it had. The Porchs relied on the second. So must the solicitors have, since they considered themselves validly retained by the company as well as by the Porchs in the proceeding in which this decision was made.

The solicitors did not help themselves by denying at one point that they had ever acted for the company despite having stated previously in correspondence that they did act for it. Justice Young found at [37] that:

“[The solicitors] also purported to act for [the company] when [they] must have known that [they] had no proper authority from the board of directors of [the company] to do so. When [the Deans’ solicitors] protested that he had no authority to act for [the company], he gave the disingenuous response that his then firm had never received instructions to act for GSS in any capacity. That proposition is denied by the correspondence which is in evidence in these proceedings.”

Justice Young decided that:

“a fair minded, reasonably informed member of the public would conclude that the proper administration of justice requires that [the solicitors] be restrained from acting for [theh company]. In view of [the solicitors’] past conduct and their retainer to act for … the Porchs, there is a fundamental difficulty in WVL continuing to act for [the company] against [the Deans], when [the company] represents the beneficial interests of both [the Porchs] and [the Deans]. These matters warrant the grant of injunctive relief even if no account is taken of WVL’s position in relation to the meeting and resolution of 16 June 2006.”

He was helped along in that conclusion by a submission by the company’s counsel that the solicitors could take instructions from the Porchs, and he found at [46] that is what it was likely they would do. He said at [45] that having acted for the Porchs since at least August 2005, a fair minded observer would conclude that the solicitor was:

“not in a position to give objective and dispassionate advice to [the company] in the interests of both its unit holders in relation to the conduct of these proceedings”.

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