I prepared an application to restrain a firm of solicitors from acting in a Corporations List matter in the Supreme Court recently, and so have been reading the latest cases about conflict injunctions. The very latest is TJ Board & Sons Pty Ltd v Castello  VSC 91, where the plaintiff applied unsuccessfully to restrain the defendants’ solicitors from acting, and the defendants applied to restrain the plaintiff’s solicitors from acting. Neither succeeded in convincing Justice Hollingworth. The first application is interesting in making some comment on:
- the materiality of the evidence which a solicitor must be likely to give; and
- the extent of a personal interest in the outcome of the litigation as a result of participation in the controversial events which a solicitor must have
before he or she will be enjoined from acting because of a conflict of duty and interest.
The second application is a relatively unremarkable application of the law relating to confidential information based conflicts which allegedly arose out of a pre-retainer 20 minute ‘meet and greet’ which did not lead on to a retainer.
The plaintiff was a real estate agent, and was suing the defendant pub owners for $13 million in commissions following offers for sale of the pubs which it said triggered the commission provisions of the relevant agreement. Of course the sales never went through, as is always the case in commission disputes.
The plaintiff real estate agent’s application
The vendors and purchasers had drawn the contracts for the sale of the pubs without the assistance of their lawyers. These were the principally contentious documents in this case. But a lawyer with the vendors’ solicitor (not the senior associate referred to below, and not a lawyer who was working on the litigation file) had been involved in the negotiation of an agreement pursuant to which the dispute between the vendors and the purchasers as to the enforceability of the contracts was settled. The real estate agent suggested that the vendors’ conduct breached an implied term of the agency agreement not to act so as to deprive it of the benefit of the agency agreement.
The plaintiff real estate agent wanted to restrain the defendant vendors’ solicitor from continuing to act for the vendors on the bases that he had a conflict between self-interest and duty to his vendor clients in that it was likely he would have to give evidence in the proceeding about the period of negotiation leading up to the settlement agreement referred to as ‘the September deed’. Her Honour found  to :
‘much of what happened in that period is simply not contentious and is recorded in the [correspondence between the vendors’ and purchasers’ solicitors]. It is quite clear that, throughout the relevant period, the defendant vendors were asserting that the disputed agreements were not binding and the purchasers were alleging that they were. However, it does not appear that there will be any contest about the content of the communications between the purchasers’ and vendors’ solicitors…. On the material presently before me, it seems that the real argument will not be as to what actually happened during that period, rather, [it will be] whether the effect of what happened was that any necessary conditions were not satisfied.
19 True it is that [the vendors’ solicitors] were involved in the negotiation and drafting of the September deed. But there is no dispute as to the meaning and effect of the September deed. The fact that the vendors and purchasers ultimately did not proceed with the transaction, as a result of the September deed, is not relevant to the plaintiff’s claim that it is entitled to commission because the disputed agreements amounted to a “binding offer”.’
The second limb of the application was that the vendors’ solicitor had advised the vendors that there was no ‘binding offer’ so that no commission was payable, and that, having given that advice, he was obviously personally interested in the outcome of the litigation vindicating his advice. It was an argument which was given the shortest of shrift, at :
‘Lawyers are often brought in after the disputed events and asked to advise as to the enforceability of documents or the legal effect of a transaction. Clients may then act in a particular way based on that advice. It could not seriously be suggested that, merely by doing so, the lawyers thereby had a relevant personal interest in any subsequent litigation.’
Justice Hollingworth stated the law about these two arguments:
‘where a solicitor for a party is personally interested in the outcome of proceedings, or is likely to be a substantive witness for a party at the trial (not merely giving evidence as to formal or uncontested matters), it may be inappropriate for the solicitor to continue to act for the party’.
Cases referred to included:
- Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd  VSC 152 at  to ;
- Geelong School Supplies Pty Ltd v Dean  FCA 1404 per Young J, especially at  and ;
- Clay v Carlson (1997) 17 WAR 493 per Templeman J; and
- Kallinicos v Hunt (2004) 64 NSWLR 561 at 582-3.
The defendant vendors’ application
The first defendant Mr Castello is the director of the defendant companies which owned the pubs. He and his executive general manager, and their accountant, met with a senior associate with the plaintiff’s solicitors for 20 minutes a year or so before the hearing. In other words, the individual associated with the defendants met with the lawyer who would later act against him in relation to the possibility of that solicitor acting for him and his companies. The real estate agent had arranged the meeting, telling the solicitors he wanted to refer some vendor clients to the firm, and that, though the vendors already had solicitors, they were thinking of changing.
For the purposes of the judgment, Justice Hollingworth assumed the truth of the defendants’ affidavit evidence that they had disclosed to the senior associate the structure of the deal (i.e. which entities owned which pubs, and which were proposed to be sold), and that the defendants asked for and received advice about the contracts, which was that one contract could be used over and over, thus saving costs. There was no retainer, a fact to which her Honour appears to have attached at least some significance at . Furthermore, there was no confidential information. Who owned which pubs, and the name of the businesses carried on in them, was something which could be ascertained by the public at the Land Titles Office, and was not contentious in the litigation. Whether one master contract could be drafted and reused was not a matter of any consequence in the dispute between the parties.
The defendants said that the senior associate had had the opportunity to get to know them in the sense used by Justice Gillard in Yunghanns v Elfic Ltd (the oft-quoted “getting to know you factors” judgment), and made the ambitious argument that that knowledge constituted soft confidential information which it was unfair for the senior associate to deploy in favour of the estate agents in contentious business. Her Honour gave the argument short shrift, saying at :
‘[the facts of Yunghanns] is a very different matter from whatever brief impressions [the senior associate] may have formed about Mr Castello, during a 20 minute introductory meeting. It is not suggested, for example, that Mr Castello disclosed anything about his attitude to disputes, or his views about anything which might be relevant to this litigation. The general impression which [the senior associate] could have formed of Mr Castello is probably no different to the impression which many solicitors form of opposing parties when they meet them at a mediation or a conference.’
The defendants’ affidavit said that they decided after the meeting not to retain the solicitors because the defendants knew that they were already acting for the real estate agent.
The statement of the law these days
The duty of loyalty brought into the spotlight by Justice of Appeal Brooking’s dicta in Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 at 522 is orthodox law in Victoria these days. There is a decision which has applied it as the sole foundation for the judgment (Village Roadshow Ltd v Blake Dawson Waldron  VSC 505, a decision of Justice Byrne), and case after case recites something similar to Justice Hollingworth’s recitation of the law (a list of cases which appears to have approved Spincode follows at the end of this post):
‘3 There was no dispute between the parties as to the general grounds on which a court may restrain a legal practitioner from continuing to act for a party, namely:
(a) Where there is a danger of misuse of confidential information;
(b) Where there is a breach of a fiduciary duty of loyalty not to act against a former client in the same or a closely-related matter; and
(c) Under the court’s inherent jurisdiction to control the conduct of solicitors as officers of the court.’
Her Honour adopted from Kallinicos v Hunt (2005) 64 NSWLR 561 at 582-3 Justice Brereton’s articulation of the principles in relation to the third ground, cast in her Honour’s words:
‘(a) The test to be applied in the inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a lawyer should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice;
(b) The jurisdiction is exceptional and is to be exercised with caution;
(c) Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause; and
(d) The timing of the application may be relevant, in that the cost, inconvenience and impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief.’
Cases which seem to have approved Spincode‘s duty of loyalty
- Sent v John Fairfax Publishing Pty Ltd  VSC 429
- Australian Liquor Marketers v Tasman Liquor Traders Pty Ltd  VSC 324
- Village Roadshow Ltd v Blake Dawson Waldron  VSC 505
- Equuscorp v Acehand  VSC 186
- Edmonds v Donovan  VSCA 27
- Kalenik v Apostolidis  VSC 27
- Adam 12 Holdings v Eat & Drink Holdings Pty Ltd  VSC 152
- Pinnacle Living Pty Ltd v Elusive Image Pty Ltd  VSC 202
- Dennis Hanger Pty Ltd v Brown  VSC 495 (the Chief Justice appeared to accept the decision)
- Main-Road Property Group Pty Ltd v Pelligra & Sons Pty Ltd  VSC 43 (Bell J)
- Garde-Wilson v Corrs Chambers Westgarth  VSC 235 (Bell J)
- D3 and D4 settle with P and take over P’s case against D1 and D2 (-not)
- Duties in relation to costs of solicitors acting for deceased estates
- Who You Gonna Call? Lien Busters
- Plaintiff’s barrister restrained from acting after communicating directly with defendant
- Solicitor who went off the record for party restrained from giving assistance to former client