Ausmedic Australia Pty Limited v Whiteley Medical Supplies Pty Limited

THE NATURE OF THE PRINCIPAL PROCEEDINGS 7The plaintiff's statement of claim is long and elaborate. It recites that the plaintiff is a corporation which, at all material times, has conducted (in Australia and New Zealand) the business of a wholesale provider of rehabilitation, mobility and therapy products to the health and medical professions. It alleges, and the first defendant admits, that the first defendant is and was at all material times a direct competitor with it. 8The second to seventh defendants are all natural persons. The plaintiff alleges, and for present purposes it can be accepted, that, until various dates in June 2012, they were all officers or employees of the plaintiff. 9Particular notice needs to be taken of the second defendant, Mr Williams. Between 17 June 1997 and 28 June 2012 or thereabouts, he is said to have served as managing director of the plaintiff and, on or about 26 March 2012, he was appointed by the plaintiff as a director of Surgical Synergies Pty Limited when the plaintiff acquired all the shares in that company. The evidence includes an employment agreement dated 14 March 2007 between the plaintiff and Mr Williams referable to his position as Managing Director of the plaintiff. 10The plaintiff alleges, and Mr Williams accepts, that at all material times Surgical Synergies Pty Limited has been the wholesale supplier in Australia and New Zealand of products manufactured by Patterson Global Limited. 11Patterson Global Limited purchased all the issued shares in the plaintiff some time before 2011. The statement of claim alleges that that occurred on 14 March 2007. Mr Williams pleads that it occurred in June 2010. For present purposes, the distinction does not matter. 12Nevertheless, I note that, in proceedings brought by a subsidiary of the plaintiff (Auckbritt International Limited) against Mr Williams, and others, in the High Court of New Zealand, the relevant date is identified as 26 June 2010. That appears from paragraph 4 of the statement of claim filed by the plaintiff's subsidiary on 25 July 2012, admitted by Mr Williams in his statement of defence filed 31 August 2011. 13It is common ground between all parties that, for a substantial number of years before June 2012, Mr Williams was a senior figure in the conduct of the plaintiff's business and that, at some stage before the acquisition of the plaintiff by Patterson Global Limited, he held shares in the plaintiff. The New Zealand pleadings suggest that Mr Williams was a shareholder of the plaintiff at the time of its acquisition by Patterson Global Limited in June 2010: statement of claim, paragraph 8; defence, paragraph 8(b). 14The principal allegation made in the statement of claim in the proceedings before this Court is that, between June 2011 and June 2012 or thereabouts, Mr Williams (together with some of the other defendants) devised, and implemented, a scheme for the acquisition of the first defendant by Mr Williams, and associated parties, and for the conduct of business in competition with the plaintiff. 15The plaintiff alleges that this conduct involved misuse of its confidential information by all the defendants, and breaches of duties of various kinds by various of the defendants. The relief claimed in the statement of claim includes a large array of claims at law, in equity and under s 1317H of the Corporations Act 2001 (Cth). 16It is not necessary for the purpose of this judgment to analyse all of the claims for relief made in the statement of claim or to give detailed consideration to the distinct jurisprudential bases upon which those claims are founded. 17Reference does need to be made, however, to the relief claimed against the third defendant. The plaintiff alleges that, between October 2007 and June 2012 or thereabouts, he was employed as its marketing manager pursuant to an undated, written contract of employment. That contract includes, in clause 13, restraint of trade provisions which the plaintiff seeks to make the subject of a separate trial.

THE SECOND MOTION : Restraint of the Defendants' Solicitors 33The plaintiff's second motion (filed on 4 September 2012) requires more detailed scrutiny. 34The respondents to the motion are Somerville Legal Pty Limited and Mr TD (Tim) Somerville. 35Somerville Legal Pty Limited is, I infer, an "incorporated legal practice" within the meaning of Part 2.6 of the Legal Profession Act 2004 (NSW). It is a corporation that engages in legal practice in New South Wales. 36The evidence does not disclose whether Mr Somerville is a "legal practitioner director" of Somerville Legal Pty Limited within the meaning of Part 2.6. 37The corporation conducts practice under the name "Somerville Legal". Its letterhead describes Mr Somerville as "Founding Partner" of the practice. Four other individuals (including Mr Ben Hemsworth) are described as "Directors". 38Nevertheless, the evidence does disclose that Mr Somerville has been practising as a solicitor since 1975. Whatever his precise status within "the firm" of Somerville Legal, he is a lawyer with personal and professional obligations as an officer of the Court (Legal Profession Act 2004, s 33) and as the holder of a practising certificate issued by the Law Society of New South Wales under s 41 of the Act. 39Mr Hemsworth's evidence is that he is a solicitor; that he is the Managing Director of Somerville Legal; and that he has day to day carriage of these proceedings on behalf of the defendants. 40This is consistent with the form of a notice of appearance filed in the proceedings on behalf of the defendants on 14 August 2012. The notice identifies Mr Hemsworth, of Somerville Legal, as the legal representative of the defendants. He is thus "the solicitor on the record" for the defendants within the meaning of UCPR rule 1.2 and the Dictionary to those rules. 41By virtue of UCPR rule 7.31, anything authorised or required to be done in these proceedings by Somerville Legal (by or under the Civil Procedure Act 2005 (NSW), the UCPR or otherwise by law) can be done by a solicitor who is a director, officer or employee of the corporation. Mr Somerville is such a person, as well as Mr Hemsworth and other solicitors working within the firm. 42In light of the active role taken by Somerville Legal in defence of the plaintiff's claims, and in opposition to the plaintiff's notice of motion, I treat as an administrative error inclusion in the defendants' notice of appearance of a general statement of submission to orders of the Court, save as to costs. The defendants have not maintained a submitting appearance, either before or after the date upon which the notice of appearance was filed. 43The principal reason for identification of Mr Hemsworth at this point is, however, to record that, at the commencement of the hearing of the plaintiff's motion, counsel for the plaintiff expressly disavowed any intention on the part of his client to have Mr Hemsworth treated as a respondent to the motion: Transcript page 1 (line 29)-page 2 (line 18). No relief is sought against him personally. He is not identified in any of the orders sought in the motion. The fact that he is named in its formal parts as the only "respondent" is to be disregarded. The only relief that is sought is against Somerville Legal Pty Limited and Mr Somerville. References in this judgment to "the respondents" are references to them alone. 44Although Mr Hemsworth may have the day to day carriage of the proceedings on behalf of the defendants, the evidence shows that Mr Somerville has, at least, signed correspondence on their behalf in relation to the proceedings. He signed the respondents' letter dated 14 August 2012 declining to deliver up correspondence with the Office of State Revenue, or to deal with that correspondence, unless Somerville Legal's outstanding costs were paid. 45Of more significance, Mr Somerville appears to have been regarded by the plaintiff as the principal of Somerville Legal throughout the period it retained the practice as its solicitors. The professional relationship that Mr Somerville may have developed with Mr Williams throughout that time, and continues to enjoy, lies at the heart of the plaintiff's application for an injunction. 46Since the commencement of these proceedings, all retainer arrangements between the plaintiff and Somerville Legal have been terminated. Nevertheless, the plaintiff apprehends that, through acting for the plaintiff over several years, the respondents (or, more especially, Mr Somerville) have acquired significant insights into its internal management and ongoing business strategies. The plaintiff fears that those insights are being deployed to its disadvantage in the current proceedings, and will continue to be so should the respondents be permitted to continue acting for the defendants in these proceedings. 47Mr Somerville has sought to assuage the fears of the plaintiff by swearing an affidavit setting out what he believes to be the limits of his knowledge of the plaintiff's affairs. 48The plaintiff is not satisfied with those assurances. 49Although it expressly disclaims any challenge to the personal integrity of Mr Somerville (Transcript page 27 (line 48)-page 28 (line 20)), it presses its claim for injunctive relief because, it says, Somerville Legal was the primary provider of legal services to it for at least four years or so before the commencement of these proceedings; Mr Somerville was its principal contact at Somerville Legal throughout that time; during the gestation period leading up to the defendants' rebirth as its competitor, Mr Somerville was in regular contact with Mr Williams as Somerville Legal's principal contact with the plaintiff; and, since the defendants' "scheme" was unmasked, the respondents have "changed sides". The plaintiff contends that, having had such a close working relationship with it, the respondents should not be permitted to act for the defendants against it in these proceedings. 50On the hearing of the motion the respondents were represented by counsel for the defendants. Submissions were made on behalf of the respondents and the defendants in common. 51By its motion, the plaintiff seeks: (a) an order that the respondents be restrained from acting in the proceedings for the defendants. (b) a direction that the respondents file a notice of ceasing to act in the proceedings. (c) an order that the respondents be required to return to the plaintiff "all of the plaintiff's documents of which it has possession or control". 52The plaintiff accepts that the success, or otherwise, of its motion will depend upon an assessment of the respondents' dealings with Mr Williams: Transcript, page 19 (lines 12-21). That much, I believe, is agreed by the parties. It is, in my opinion, plainly correct. The first defendant can, for present purposes, be regarded as Mr Williams' corporate vehicle. The individual defendants other than Mr Williams lack the same deep connection that he is alleged to have had with both the plaintiff and the respondents. 53I leave to one side the third claim for relief, for delivery up of documents. It does not depend on the outcome of the first two claims. They are related: the second claim is consequential on the first. The third claim is independent of them. Whatever the outcome of the plaintiff's application for injunctive relief, it would be entitled to delivery up of any of its documents held by the respondents, subject to such (if any) lien over those documents that Somerville Legal may be entitled to claim for unpaid costs. 54I doubt that there is any issue of principle between the parties on that score. However, no attention was given on the hearing of the motion to identification of particular documents that might be thought to fall within the ambit of the plaintiff's demand for delivery up. There is a feint suggestion in inter partes correspondence (in particular, via the respondents' letter dated 14 August 2012) that Somerville Legal may claim a lien for unpaid costs, but no attention was given to that topic either. 55Division of a solicitor's records between solicitor and client can be attended by fine distinctions, as demonstrated by Wentworth v De Montfort (1988) 15 NSWLR 348 and rule 8.5 of the Revised Professional Conduct and Practice Rules 1995 ("the Solicitors' Rules"). The Solicitors' Rules have legislative force under the Legal Profession Act 2004 (NSW) by virtue of s737 and Schedule 9, clause 24. 56I am not satisfied of the necessity for any formal order on the third claim for relief at this stage. 57If it becomes necessary, in the future, for there to be an adjudication about the identification of "documents" or attribution of ownership to them, the Court's assistance can be sought. That could be done by means of an application under the Legal Profession Act 2004, s 728 in the ordinary course. In the meantime I do not exclude the possibility that questions about the delivery up of documents will be resolved outside the context of the present claim for relief. 58The focus for attention in this judgment must be on the plaintiff's claim for injunctive relief. 59The plaintiff advances that claim on two bases. They correspond to the first and third of the three bases, for the restraint of a solicitor from acting for a former client, identified in Newman v Phillips Fox (1999) 21 WAR 309 at 314-315: (a) the protection of confidential information; and (b) the Court's control over the conduct of solicitors as its officers. 60The plaintiff does not advance its case on the residual basis identified in Newman v Phillips Fox: namely, restraint of a breach of fiduciary duties in the context of a conflict of interest. 61The contact that occurred between Mr Williams and the respondents during the year preceding the commencement of these proceedings led me, during argument, to press the plaintiff to clarify whether it had, or it might anticipate having, a claim for substantive relief against the respondents that might lead to them being joined as defendants in the principal proceedings. That might have occurred, for example, had the plaintiff apprehended that Mr Somerville was privy to the "scheme" that Mr Williams was allegedly promoting against the interests of the plaintiff. Counsel for the plaintiff disclaimed any case of that character: Transcript page 3 lines (1-14). There is now no suggestion that the second limb of Barnes v Addy (1874) LR 9 Ch App 244 at 251-252 might be invoked by the plaintiff against the respondent. 62Counsel's disclaimer derives additional force from the fact that, as revealed in inter partes correspondence, the plaintiff did at one time have in mind joining Somerville Legal as a defendant in the proceedings. The plaintiff's current solicitors said as much in a letter dated 6 July 2012 addressed to the firm: "We also need to put you on notice that our client may take steps to join your firm as a defendant to the current proceedings. Accordingly, you are on notice not to destroy any records that in any way relate to our client or the current proceedings." 63The leading case relied upon by the plaintiff in support of its confidential information ground is Prince Jefri Bolkiah v KPMG (a firm) [1991] 2 AC 222 at 234-237. The leading case relied upon in relation to the Court's inherent jurisdiction to control its processes and officers of the Court is Kallinicos v Hunt (2005) 64 NSWLR 561 at 582-583 [76]. 64There is no dispute between the parties as to the principles to be applied, or as to the seminal character of these two cases in identification of those principles. The contest between the parties was focussed almost entirely upon an application of the principles to the facts of this particular case. 65What, then, are the facts? 66Between February 2007 and June 2012 or thereabouts, Somerville Legal provided legal services to the plaintiff. Throughout most of that time, if not all of it, Somerville Legal was the primary provider of such services to the plaintiff. 67There is evidence (from Mr Ewen Macdonald, the plaintiff's Head of Finance) that the plaintiff's principal contact at Somerville Legal throughout that period was Mr Somerville. On the other hand, Mr Somerville, has listed the 12 matters (other than the Surgical Synergies transaction) in respect of which Somerville Legal acted for the plaintiff during that period and identified the solicitors within "the firm" who had carriage of those matters. He concedes direct involvement in only three of the 12. 68It is no criticism of anybody to record that neither of these witnesses was cross examined on his affidavit. The hearing of the motion was conducted, with due despatch, as interlocutory business. 69The accounts of both witnesses are accepted on the basis that the work of Mr Somerville (as "founding partner" of the firm) did not routinely descend to the level of particularity of day to day legal work on particular files maintained by the firm. 70That is consistent with Mr Macdonald's evidence that, until his employment with the plaintiff was suspended by the plaintiff (on or about 13 June 2012), it was Mr Williams who was principally involved in instructing Mr Somerville on behalf of the plaintiff. 71I infer that Messrs Williams and Somerville, at the most senior levels of their respective organisations, transacted the business of the plaintiff and Somerville Legal at a high level. 72Mr Somerville has provided a narrative summary of the 12 matters listed in his affidavit. It is consistent with the shorter, less particular, description of the nature of that work given by Mr Macdonald in his affidavit. 73The first of the matters (in respect of which work was done between 27 February 2007 and 8 January 2008 or thereabouts) related to the plaintiff's purchase of a business apparently unrelated to the current proceedings. It included the provision of advice in relation to a commercial strata lease. The matter was conducted by a solicitor no longer with the firm. 74The second matter (work in respect of which was conducted between 29 June 2007 and 7 January 2008 or thereabouts) related to the purchase of another business by the plaintiff. The same solicitor who handled the first matter handled this one. The work undertaken included the provision of various agreements and advice about leases of land and chattels. 75The third matter related to the plaintiff's purchase of four stores. This work was undertaken between 12 September 2007 and 9 October 2008 or thereabouts. The majority of the correspondence on the firm's file is said to have been between the solicitor who had carriage of the first two matters and Mr Williams. The firm provided advice on an asset sale agreement and sub-leases and provided information to the plaintiff's auditors. 76The fourth matter related to the drafting and finalisation of a distribution, or agency, agreement. The matter was conducted by Mr Somerville and Andrew Somerville conjointly. Their work was undertaken between 6 January 2010 and 24 December 2010 or thereabouts. 77The fifth matter (in respect of which work was undertaken between 10 March 2010 and 23 May 2011) related to a dispute about a contract for the supply of goods to the plaintiff. The matter was conducted by Mr Somerville. 78The sixth matter related to the conveyancing aspects of a lease, including advices on a draft deed of surrender of lease and a draft lease. The matter was conducted by Andrew Somerville. The work was conducted between 20 April 2010 and 1 January 2011 or thereabouts. 79The seventh matter was conducted by Allison Benson. The evidence is unclear as to the timing of her work. Mr Somerville's evidence attributes to it the dates between "1 January 2011" and "3 September 2010". In any event, the matter related to a claim of passing off made by the plaintiff in relation to a website. No further instructions were received by Somerville Legal after its despatch of a letter of demand. 80The eighth matter has been attributed a timeline extending from 1 January 2011 to 1 June 2012. It is said to have related to the provision of general advice, by Mr Somerville and Andrew Somerville. The advice apparently concerned a deed of acknowledgement of debt, the operation of a sales representation agreement (provided to Somerville Legal by Mr Williams) and intellectual property rights. 81The ninth matter (the work in respect of which was conducted between 20 May 2011 and 3 June 2011 by Andrew Somerville) related to a deed of sub-lease. 82The 10th matter related to lease work undertaken by Andrew Somerville. That work was conducted between 5 October 2011 and 7 July 2012 or thereabouts. 83The 11th matter also related to lease work undertaken by Andrew Somerville. It was undertaken between 28 November 2011 and 11 April 2012 or thereabouts. 84The 12th matter also related to lease work. It was conducted between about 9 and 20 February 2012. The identity of the solicitor, or solicitors, who did it is not disclosed by the evidence. 85As earlier noticed, this list does not include work undertaken by Somerville Legal in relation to the purchase by the plaintiff of shares in Surgical Synergies Pty Limited and Surgical Synergies Limited, loosely described as "the Surgical Synergies transaction". 86The timeline for that transaction may have commenced as early as June 2011, but the involvement of Somerville Legal is said by Mr Macdonald to have commenced in late 2011. The transaction was apparently completed in or about late March 2012; but residual business (including the payment of stamp duty) remained to be attended to. 87Mr Somerville annexed to his affidavit emails dated 31 March 2012 addressed to him by overseas personnel of "Patterson" commending him for his work on the transaction. A memorandum of costs rendered by Somerville Legal to the plaintiff's parent company (Patterson Medical Limited) on or about 16 July 2012 enumerated items of work done by the firm between 3 May 2012 and 28 June 2012. (As far as the evidence goes, those costs have not been paid and, pending payment of them, Somerville Legal has declined to deliver up to the plaintiff documentation relating to the transaction). 88By a letter dated 6 July 2012 addressed to the Office of State Revenue, Somerville Legal (by Mr Somerville) applied, on behalf of the plaintiff, for remission of penalties for late payment of stamp duty in relation to a share sale agreement dated 30 March 2012 referable to the Surgical Synergies transaction. That letter includes the following explanation for delay in the payment of duty: "... The purchaser company, [the plaintiff] is a subsidiary of Patterson Medical Limited, which is managed from the United Kingdom. Over the last few weeks, there have been significant disruptions in the management of the purchaser. This has included the termination of employment of a majority of the senior members of staff, and Supreme Court proceedings relating to breach of fiduciary duties. The member of staff who was dealing with the payment of the duty in this matter is one of the senior staff whose employment has been terminated, and who is now a defendant in the said proceedings." 89The Patterson personnel who commended Mr Somerville at the end of March 2012 evidently had no inkling then of what was to come or that Mr Somerville might have some connection with it. 90Between, at least, August 2011 and February 2012 or thereabouts, Somerville Legal (by Mr Somerville) acted for Mr Williams and the third, fourth and fifth defendants in relation to transactions pursuant to which Michelle Jane Hayes (the domestic partner of Mr Williams) has since acquired all the shares of the first defendant. 91Somerville Legal drafted transactional documents relating to that acquisition; in particular, a draft confidentiality agreement (dated August 2011) and a draft option agreement and a draft share sale agreement, both dated February 2012. 92The New Zealand pleadings confirm Mr Williams' personal involvement in acquisition of the first defendant (evidenced, for example, by emails sent by Mr Williams in December 2011) and suggest that an option agreement related to the acquisition was not signed until 11 February 2012 and did not "mature" until 31 July 2012: statement of claim, paragraphs 14-15 and 17, together with Mr Williams' defence. 93By paragraph 17 of his defence in those proceedings, Mr Williams admitted the following allegation: "In around February 2012, as Mr Williams was prevented from being directly interested in [the first defendant] until June 2012 (due to a restraint of trade obligation arising out of Patterson Global's acquisition of [the plaintiff]), Mr Williams arranged for an Option Agreement to be entered into between [the then shareholders of the first defendant] and Michelle Hayes [Mr Williams' domestic partner and a trustee of the Hayes Trust] under which Ms Hayes would have a call option, exercisable for 30 days from 1 July 2012, to purchase the shares in [the first defendant] and to nominate any other person or entity to complete the share purchase." 94In his affidavit Mr Somerville deposed that he "believed at all times that, while [Mr Williams] was an employee or director of [the plaintiff], there was no intention to exercise [the option to acquire shares in the first defendant], or for him to be involved in the conduct of [the first defendant]." He also records that, in fact, the option was not exercised while Mr Williams was a director and employee of the first defendant. 95Emails adduced in evidence by the plaintiff demonstrate that Mr Somerville was in email communication with both Mr Williams and the fourth defendant, about the acquisition of the first defendant, in February 2012. 96On 13 February 2012 he sent to them copies of "the final version of [an option agreement and a share sale agreement] as signed". 97On 26 February 2012 he sent an email to Mr Williams and the fourth defendant attaching the draft of a joint venture agreement (drafted by another person, "Fiona", earlier that month) and asking whether he should "go ahead with it now". That agreement is not in evidence, but it appears to have been a joint venture agreement between the second to fifth defendants and Mr Paul Whitely, then a principal of the first defendant. The draft document was apparently prepared by Mr Whitely's legal representative, Fiona Townsend. 98In paragraph 22 of his affidavit, Mr Somerville recorded that he "believed that there was never any intention to enter into any joint venture agreement which would operate while [Mr Williams] was an employee or director of [the plaintiff]". 99It is not necessary for me to enter upon, and I do not enter upon, a consideration of whether the defendants were entitled to plan for their departure from the plaintiff's employment in the manner in which they evidently did in the latter part of 2011 and in the first half of 2012. The parties in the principal proceedings are engaged in a hot contest about that. 100For present purposes, it is sufficient for me to find, as I do, that Mr Williams was actively engaged with the respondents about his personal future at the same time as, in his capacity as managing director of the plaintiff, he was engaging with them in relation to the Surgical Synergies acquisition. 101Mr Williams' plans for future competition with the plaintiff moved well beyond the theoretical in the first half of 2012. That is illustrated by the preparation of documentation providing for the acquisition of the first defendant. It is also illustrated by Mr Williams' pursuit of funding. 102The evidence before the Court on the hearing of the plaintiff's motion includes an undated, unsigned "funding proposal" addressed to Westpac Banking Corporation on the letterhead of "Whiteley Medical". Although it is unsigned, an inference is open that it was prepared by or on behalf of Mr Williams. Counsel for the defendants and respondents accepted, for the purposes of the hearing, that that document came into existence in or about May 2012. 103Mr Williams' defence is more precise. In paragraph 67 (referable to paragraph 25 of the plaintiff's statement of claim) Mr Williams admits that on 10 May 2012 he and the fourth defendant (then the finance director of the plaintiff) prepared for the first defendant, and caused the first defendant to submit to Westpac, a funding proposal. 104In paragraphs 36-37 of his defence, the fourth defendant admits that he assisted Mr Williams to prepare a funding proposal (which I infer to be the funding proposal) but says that, at that time, he was aware that he was to be made redundant by the plaintiff. That opens a door to a controversy I do not need to enter. I simply note that an issue in the principal proceedings is whether, in planning his departure from the plaintiff, Mr Williams engineered redundancies of senior staff for his own ends. 105The funding proposal was tendered in evidence as a response to paragraph 20 of Mr Somerville's affidavit. Having earlier confirmed that he acted for Ms Hayes in relation to an option to acquire shares in the first defendant, he there recorded the following: "I had no reason to believe, and still do not have any reason to believe that the 3rd, 4th, 5th, 6th or 7th defendants had any legal or other interest in the [transaction relating to the first defendant]. So far as I can recall, I had never met the 3rd, 5th or 6th defendants prior to the institution [of these proceedings], and I have no recollection of any prior communications with them." 106The third, fourth, fifth and seventh defendants are referred to by name in the funding proposal. That, in itself, does not necessarily implicate them. However, the fourth defendant's admission that he assisted Mr Williams in the preparation of the document places him in a different category. 107There is no evidence that the funding proposal ever came to the attention of the respondents. However it was pursued by Mr Williams at the same time as Somerville Legal was dealing with residual aspects of the Surgical Synergies acquisition. That is a transaction for which (as evidenced by the firm's memorandum of costs dated 16 July 2012) the firm regards itself as entitled to charge fees to the account of the plaintiff's parent company. 108In relation to that transaction, Mr Somerville has deposed to the following: "[9] In carrying out the Surgical Synergies transaction, I was dealing primarily with [Mr Williams and four other named individuals]. All but [Mr Williams] were employees of the holding company of [the plaintiff] or its related company. The majority of my communications with those persons was by email, of which copies were sent to relevant persons who were instructing me, including [Mr Williams]. In the course of conducting the Surgical Synergies transaction, I received no documentation or information which was not made available to [Mr Williams] while he was employed by [the plaintiff]. [10] In the course of the Surgical Synergies transaction, the vendor established an electronic data room, being a website to which access was gained by password. That data room contained information relating to Surgical Synergies Pty Limited and Surgical Synergies Limited. All of that information was available to the representatives of [the plaintiff] and its related corporations, including all of the persons [earlier identified]. [11] When the Surgical Synergies transaction was settled, I obtained a flash drive containing all the documents which had been in the data room. I forwarded that flash drive to representatives of [the plaintiff]. The data room then ceased to exist. I have retained no copies of any of the information which had been in the data room. [12] To the best of my knowledge, information and belief, none of the information in the data room, and none of the information I received when acting in relation to the Surgical Synergies transaction has any relevance to any issues in the current proceedings... [15a] I have not retained, and I have no specific recollection of the documents or information [claimed by the plaintiff to be confidential information to which Mr Somerville would have had access in the conduct of the Surgical Synergies transaction]. None of that information would have been relevant to my work in negotiating and completing contracts for the purchase of shares." [Emphasis added]. 109The information identified by the plaintiff as "confidential information" to which Mr Somerville would have had access included: (a) information relevant to the acquisition of Surgical Synergies, including Surgical Synergies' financial information, customers, products, profit margins, key employee agreements; (b) information regarding the strategy and direction of the plaintiff as required for negotiations for the acquisition of Surgical Synergies and another business, upon the acquisition of which by the plaintiff in 2007 Somerville Legal provided legal services; (c) information regarding the plaintiff's leased properties and property needs; and (d) information required for the completion of lease documentation, for example information regarding the plaintiff's insurance arrangements. 110Underlining the key position Mr Williams occupies upon a determination of the plaintiff's motion, Mr Somerville deposed (in paragraphs 9 and 17 of his affidavit) that all of the information that he or Somerville Legal may have received in connection with the Surgical Synergies transaction was received from, or made available to, Mr Williams in his capacity as an employee of the plaintiff. 111The primary contentions for, and against, a grant of injunctive relief return to this point. The key ingredient in the mix of facts is the centrality and seniority of Mr Williams. He was the man who made all things happen. That was whether he was wearing his hat as managing director of the plaintiff or planning for his departure from the plaintiff's employment by orchestrating the acquisition of the first defendant and assembling a management team drawing upon his associations with staff of the plaintiff. 112It is not necessary for me to explore in greater depth what might, or might not, have happened in the 12 months or so leading up to the departure of the defendants from the employment of the plaintiff in June 2012. It is enough to record that there is evidence sufficient to find, as I do, that Mr Williams was planning to establish (through the first defendant) a business in competition with the plaintiff and he was doing so using the legal services of the respondents at the same time as the respondents were acting for the plaintiff in relation to the acquisition of "Surgical Synergies for a purchase price of about $4.7 million. The business being transacted was substantial in each case. 113The involvement of Messrs Williams and Somerville in the conduct of the Surgical Synergies transaction on behalf of the plaintiff, and in preparing for Mr Williams' prospective (but unannounced) departure from the employ of the plaintiff, places both men at the centre of evidence likely to be adduced at a final hearing of the principal proceedings. 114There must be, at least, a reasonable prospect that Mr Somerville will be called upon to assist in the preparation of evidence to be adduced at a final hearing, if not himself required to give evidence. 115Difficult questions about entitlements to legal professional privilege might need to be confronted in the preparation, or testing, of evidence to be adduced in the principal proceedings. They might, or might not, arise, depending upon the parties' respective forensic decisions over coming months. 116Whether or not privilege ever attached to, or still subsists in, communications between the respondents and parties interested in these proceedings, the respondents' records (including trust account records, diaries and the like) might reasonably be expected to contain information, not the subject of any entitlement to privilege, material to these proceedings. 117But for the fact that the respondents are acting for the defendants in the proceedings, the plaintiff could be expected to seek, if not also to obtain, access to the assistance of Mr Somerville. That, irrespective of whether he presently has any documentation of the plaintiffs within reach or is conscious of possession of information confidential to the plaintiff. 118Nevertheless, the plaintiff appears to have been slow off the mark in taking its objection to the respondents acting for the defendants in the proceedings. 119The short minutes of order documenting the parties' interlocutory settlement of 3 July 2012 were prepared in the office of Somerville Legal. They identify Mr Hemsworth as the firm's legal representative. 120Although the defendants were represented by a different senior counsel on 2-3 July 2012 (at which time the settlement appears to have been negotiated) Mr Giles appeared for the plaintiff then, as now. 121The evidence does not disclose whether a challenge to the respondents' ongoing participation in the proceedings was foreshadowed during negotiations for the interlocutory settlement. As far as it goes, the formal record for this part of the case commences with a letter of demand dated 6 July 2012, emailed to the respondents on the afternoon of Sunday 8 July 2012, by the plaintiff's solicitors. 122The letter included the following: "We are instructed to request that you [Somerville Legal] file a Notice of Ceasing to Act in respect of [these] proceedings. As recently as June 2012 your firm was acting for our client in connection with the Surgical Synergies acquisition. This acquisition will be an issue in the current proceedings. As our client's solicitors it is inconsistent with your continuing duties to our client to act for its opponent in circumstances where you have knowledge of our client's confidential information relevant to the current proceedings. To continue to act would be inconsistent with your duties as a solicitor. In the circumstances, it is apparent that there is a substantial risk such information will be disclosed or used by you. Therefore your interests in acting for your clients [the defendants], conflicts [sic] with your duty to keep our client's information confidential. Your conduct in acting in these proceedings is also in breach of Practice Rule 3 of the Solicitors Rules. Should you not cease to act in the matter, we reserve the right to seek orders from the Court to that effect... ." 123Rule 3 of the Solicitors' Rules, to which the letter referred, is in the following terms: "Consistently with the duty which a solicitor has to preserve the confidentiality of a client's affairs, a practitioner must not accept a retainer to act for another person in any action or proceedings against, or in opposition to, the interests of a person: (a) for whom the practitioner or the firm, of which the practitioner was a partner, has acted previously; (b) from whom the practitioner or the practitioner's firm has thereby acquired information confidential to that person and material to the action or proceedings; and that person might reasonably conclude that there is a real possibility the information will be used to the person's detriment." 124The plaintiff's letter of demand dated 6-8 July 2012 was met on 11 July 2012 with a refusal by Somerville Legal to file a notice of ceasing to act. That refusal was accompanied by a rejection of the plaintiff's assertion that the firm was in breach of rule 3. Thus, by the time of Somerville Legal's letter dated 11 July 2012, the battle lines were drawn for the plaintiff's motion for injunctive relief. 125By follow up letters dated 11 July 2012 and 15 August 2012 (the latter of which was emailed on the morning of 16 August 2012), the plaintiffs' solicitors renewed (without success) their request that Somerville Legal file a notice of ceasing to act. 126Between 6 July 2012 and 16 August 2012 or thereabouts, the plaintiff's requests that Somerville Legal withdraw from the proceedings were founded solely on the ground of an apprehension of misuse of information confidential to the plaintiff. That is the ground which, on the hearing of the motion, was articulated by reference to Prince Jefri Bolkiah v KPMG (a firm) [1991] 2 AC 222. 127In advancing that ground at the hearing, the plaintiff acknowledged an inability, subject to one exception, to identify confidential information with the particularity required to sustain grant of an injunction. The exception related to Somerville Legal's conduct of the plaintiff's takeover of Surgical Synergies. 128The plaintiff contended that, in the conduct of that transaction, Somerville Legal was privy to its proposed strategies in integrating the newly acquired business into its own business. 129In noting the plaintiff's concession of difficulties with its confidential information case, I leave to one side a misapprehension that it at one time held that Somerville Legal had provided legal services to the defendants in the New Zealand proceedings. Mr Hemsworth swore an affidavit on 16 October 2012 denying involvement in those proceedings. That denial has been accepted. 130The plaintiff's confidential information case suffers from at least two deficiencies. The first is the difficulty that attends the plaintiff's identification of particular information as confidential. The second is the fact, highlighted in Mr Somerville's affidavit, that Mr Williams is and was at all material times privy to all information to which confidentiality might attach in favour of the plaintiff and, were he compelled to obtain new solicitors, it would follow him to their offices. 131These difficulties are compounded by Mr Somerville's declaration that, so far as he is aware, he has neither knowledge, nor means of obtaining knowledge, of information confidential to the plaintiff independently of Mr Williams. 132In frankly acknowledging these difficulties, the plaintiff seeks to turn them to its advantage. It emphasises the extent to which its difficulty in the identification of confidential information is a product of the departure from its ranks of its senior staff (under, it says, the influence of Mr Williams). It also points to the possibility that, although Mr Somerville may genuinely believe that he lacks confidential information, the interplay between him and Mr Williams in the preparation of a case against the plaintiff in these proceedings could bring to the fore vital information which should be available to the plaintiff but, should the respondents not be restrained from acting for the defendants, would be deployed against the plaintiff. 133In short, the plaintiff contends that any deficiencies in its confidential information case strengthen its claim to an exercise of the Court's inherent jurisdiction because they highlight the forensic disadvantage to which the plaintiff is subject by reason of the respondent's "changing sides". 134Articulation of that case requires an application of Kallinicos v Hunt (2005) 64 NSWLR 561 at 582-583 [76]. 135It is sufficient for disposition of the plaintiff's motion to set out the following propositions taken from that judgment: (a) the Court has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice. (b) the test to be applied in this inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner 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. (c) the jurisdiction is to be regarded as exceptional and is to be exercised with caution. (d) due weight should be given to the public interest in a litigant not being deprived of a lawyer of choice without due cause. (e) the timing of an application for an injunction may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief. 136Good reasons for the jurisdiction being regarded as exceptional, and to be exercised with caution, can be found inter alia in the public interest in litigants not being deprived of a lawyer of choice without due cause, and in the cost, inconvenience and impracticality that may attend restraint of performance of a solicitors' retainer. 137Nevertheless, as Kallinicos v Hunt recognises, each case must be considered on its own particular facts. 138That consideration naturally focuses on the test described by reference to "a fair-minded, reasonably informed member of the public". 139Viewed from the perspective of a fair-minded, reasonably informed member of the public, there are substantial factors militating against a grant of the injunctive relief sought by the plaintiff. First, the plaintiff has disclaimed any challenge to the personal integrity of Mr Somerville. Secondly, the plaintiff itself has consciously elected not to join the respondents as parties in the principal proceedings. Thirdly, it delayed making a demand for the respondents to withdraw from the proceedings until after the parties' negotiation of an interlocutory settlement. Fourthly, it pressed the defendants to file their defences, whilst represented by the respondents, notwithstanding a challenge to the respondents' ongoing retainer. Fifthly, by its conduct, both pressing the respondents to prosecute the defendants' defence and pressing them to withdraw their services from the defendants, the plaintiff has exposed the defendants to the costs and inconvenience of attending to case preparation. 140Against these factors are others (also substantial) tending in the opposite direction. First, by acting for the defendants against the plaintiff in these proceedings, the respondents have deprived the plaintiff of a source of information about its own affairs, at the intersection between those affairs and the affairs of the defendants, that would otherwise be available to it. Secondly, given the coincidence in time of Mr Williams' transfer of his allegiance from the plaintiff to a competitor of the plaintiff and the plaintiff's Surgical Synergies acquisition, Mr Somerville is (and others associated with Somerville Legal may be) a witness to events that lie at the core of the principal proceedings. Thirdly, whether or not he is (or they are) ultimately called to give evidence in those proceedings, Mr Somerville (and possibly other Somerville Legal personnel) can reasonably be expected to be called upon by both the plaintiff and the defendants to assist their preparation, or testing, of evidence. Fourthly, the work undertaken by the respondents in the proceedings since 8 July 2012 has been undertaken over the express objection of the plaintiff. Fifthly, there is no suggestion that the interests of the defendants could not have been, or hereafter be, protected and advanced by solicitors other than Somerville Legal as well as by Somerville Legal. 141Each of these factors, for and against a grant of injunctive relief, needs to be taken into account upon a consideration whether a fair minded, reasonably informed member of the public would reach the conclusion that the proper administration of justice requires that the respondents should be restrained from acting for the defendants in these proceedings so as to protect the integrity of the judicial process and the due administration of justice. 142The task at hand is not one simply of striking a balance between competing factors. It is one of evaluation, taking into account all the circumstances of the case. 143In making that evaluation, I find that a fair minded, reasonably informed member of the public would conclude that the proper administration of justice requires a grant of the injunctive relief the plaintiff has sought. That is because, in my assessment, a fair minded, reasonably informed member of the public would appreciate that the respondents were uniquely placed (as solicitors for both the plaintiff and interests associated with Mr Williams) to witness controversial events as they unfolded in the year before Mr Williams' departure from high office with the plaintiff and that, were the respondents to continue to act for the defendants in these proceedings, two things could reasonably be expected to follow. First, the plaintiff would be placed at a forensic disadvantage, vis á vis the defendants, by reason of being deprived of access it might otherwise have expected of its former solicitors and their records. Secondly, the conduct and records of the respondents (and access to both) would be likely to become a centre of controversy in themselves, diverting attention away from other issues in preparation of the substantive proceedings for trial. 144In my assessment, a fair minded, reasonably informed member of the public would also appreciate, more particularly, the following matters. 145First, in both appearance and reality there is a substantial foundation for regarding the respondents as having changed sides, initially representing the plaintiff and then acting against the plaintiff in relation to business connected in time, and arguably, in other respects as well. 146Secondly, because Mr Somerville had a close working relationship with Mr Williams, and records of Somerville Legal relating to work done for Mr Williams' interests and the plaintiff may be of critical significance to the collation of evidence in the principal proceedings, the respondents bear the character of witnesses to central events, not merely the character of lawyers providing legal services for one side of the record. 147Thirdly, the proper administration of justice, in the particular context of these proceedings, might be compromised if the respondents were to continue to occupy a position in which they would be obliged, by an ongoing retainer for the defendants, to deny the provision of assistance to the plaintiff as their former client. 148Fourthly, the integrity of the judicial process might, more specifically, be compromised if the respondents were to occupy the position of witnesses of fact able, or obliged, to aid the preparation of evidence in support of the defendants, to the exclusion of the plaintiff, under the cloak of legal professional privilege claimed by the defendants and unable effectively to be challenged by the plaintiff because of the defendants' coordinated collective departure and their appropriation of the plaintiff's relationship with the respondents. 149Fifthly, a conclusion that the proper administration of justice requires a grant of injunctive relief is not dependent upon the availability of a finding of impropriety on the part of the lawyers to be injuncted. 150I have given consideration to whether a grant of injunctive relief could be limited to a grant of relief against Mr Somerville alone, leaving Somerville Legal to act for the defendants in the proceedings. Neither side of the record contested the plaintiff's motion on that basis. Both sides of the record contested the motion on an "all or nothing" basis. Nevertheless, I have given consideration to it because I am conscious that the jurisdiction I am called upon to exercise is to be regarded as exceptional and is to be exercised with caution. 151I have had regard to the fact that carriage of the proceedings on behalf of the defendants, in the ranks of Somerville Legal, has been vested in Mr Hemsworth, not Mr Somerville. I have also given consideration to whether Mr Somerville could be quarantined from the firm's conduct of the proceedings on behalf of the defendants. 152Having reflected upon these considerations, I have concluded that I am bound to put them aside. First, I find that a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that Somerville Legal (not merely Mr Somerville) be restrained from acting for the defendants, for the reasons I have stated. Secondly, I am not satisfied that a half-way-house solution would be anything but a source of friction and distrust between all participants in the proceedings going forward. 153Whether, and to what extent, the respondents may be obliged, willing or able to assist the respective parties to these proceedings in case preparation may require close consideration by them, and the parties; but those questions should be the subject of consideration by everybody without the impediment of an ongoing retainer of the respondents as lawyers for the defendants in the proceedings. 154For these reasons, I ORDER that, subject to further order, the respondents be restrained from acting in these proceedings on behalf of the defendants. I DIRECT that, within seven days of today's date, the respondents file a notice of ceasing to act in the proceedings. I otherwise make no orders on the claims for relief made by the plaintiff on its motion, but I reserve to the parties to the motion liberty to apply for such relief as they may be advised to seek in relation to the return to the plaintiff of any documentation of the plaintiff which is, or may be, in the possession or control of the respondents.

At a glance

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Judgment (6 paragraphs)

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Legislation Cited (4)

Cases Cited (3)

Cited By (2)