Byrne v Production Magic Pty Ltd

Background

1. In the late 1990s, Anatoly established a prestige motor vehicle leasing business. That business is conducted by one or both of the first and second defendants. I will call those companies the "Trading Companies".
2. The shares in the Trading Companies and, in effect, the business conducted by them, are owned by the "3250 Trust" which was established by a trust deed dated 19 November 1998.
3. The trust deed provided that the power of appointing a new trustee was vested in the "principal". The trust deed appointed Anatoly as the principal.
4. When Anatoly died in July 2014, the trustee of the trust was the (now deregistered) first plaintiff, which I will call the "Former Trustee".
5. Prior to his death, Anatoly was the sole shareholder of the Former Trustee and, until shortly before his death, the sole director of the Former Trustee. Thus, prior to his death, Anatoly was, in substance, in control of the business conducted by the Trading Companies.
6. On his death, Anatoly's shares in the Former Trustee, and thus effective control of the businesses, passed to Polina (as the sole beneficiary under his will). Polina had little or no active involvement in the businesses before then.
7. In March 2016, Eugene caused the third defendant to become the trustee of the Trust. I will refer to that company as the "New Trustee". Eugene is the sole director and shareholder of the New Trustee. Eugene has, it seems, caused the shares formerly held by the Former Trustee in the Trading Companies to be transferred to the New Trustee and for the Former Trustee to be deregistered.
8. The means by which Eugene has purported to achieve this result is by deed of variation of the trust deed. That deed of variation bears the date 27 December 2013. That document is purportedly executed by Anatoly. It provides that Eugene is appointed as an additional principal of the trust. Its effect, if it is valid, is that now Anatoly has died, Eugene is the sole principal of the trust and thus has power to appoint a new trustee.
9. Polina has stated in an affidavit that "I believe that the signature on this document does not look like Anatoly's signature".
10. In March 2013, some 15 months before Anatoly died, documents were lodged with ASIC, purportedly signed by Anatoly, recording the appointment of Eugene as director of the Former Trustee. Polina has sworn that she believes "that the signatures on these documents do not look like Anatoly's signature".
11. These matters will be further investigated on behalf of Polina.
12. Polina commenced these proceedings on 30 January 2017 seeking an order under s 601AH(2) of the Corporations Act 2001 (Cth) reinstating the Former Trustee (and another company) and other relief under ss 175, 181, 182, 232 and 233 of the Act.
13. Although pleadings have been ordered, they are not yet to hand.
14. Mr Oakes SC, who appeared before me for Polina, summarised the issues likely to arise as follows: "Assuming the deed of variation is valid, whether the appointment of a new trustee by Eugene is valid given that the trustee appointed was a company of which Eugene was the sole shareholder and director. Assuming the deed of variation is invalid, restoration of the status quo ante. Whether the purported signatures of Anatoly on the deed of variation are his signatures and whether the purported signatures of Anatoly on ASIC forms showing the purported appointment of Eugene as a director of [the Former Trustee] were Anatoly's signatures. Whether the acts of Eugene in purporting to appoint a new trustee, causing the assets of the 3250 Trust to pass to the New Trustee, and deregistering [the Former Trustee and another company], amount to oppressive conduct. Consideration of oppressive acts is continuing. Whether by those purported acts Eugene has breached his fiduciary duty to the first and third plaintiffs. Whether by those purported acts Eugene has breached ss 181(1) or 182(1) of the Act. Whether Angela was a person who was involved in a contravention of ss 181(1) and 182(1) of the Act. Recovery on amount of $890,000 [which claim arises out of circumstances separate to that which I have described above]."

Mr Brown's role

1. Between 2011 and 2015, Mr Brown acted for the Trading Companies in relation to a large number of debt recovery matters. Mr Brown said he so acted for the Trading Companies on "hundreds" of occasions.
2. During at least some of that time he acted on instructions from Eugene and Angela. Mr Brown's evidence did not make it clear whether he acted on Eugene's and Angela's instructions before, or only after Anatoly's death.
3. In his affidavit Mr Brown said: "162. In a work sense, I have observed [Eugene] make decisions in relation to negotiating and settling both property and hire car related matters. I have also observed [Angela] make decisions in relation to negotiating and settling hire car related matters. 163. At no time have I observed or experienced either of [Eugene] or [Angela] deal with a matter as complex, significant or personal as the current proceedings before the Court. All matters in respect of which I have dealt with [Eugene] and [Angela] have been far more procedural and routine in nature and part of their day to day commercial business. 164. I have limited insight into their character and certainly I have no better insight into their character than [Polina] as the mother of [Angela] and the mother in-law of [Eugene] for the past 19 to 20 years. As such, [Polina] is far more intimately aware of the characteristics of [Eugene] and [Angela] than I am."
4. In 2014 Mr Brown acted for one of the Trading Companies in relation to an unfair dismissal brought by a former employee. He took instructions from Angela in relation to the circumstances of the employee's dismissal and drafted a statement of evidence (I infer to be given by Angela) in those proceedings.
5. Between 2010 and 2015 Mr Brown also acted for Eugene, and companies associated with Eugene and a business partner of Eugene. In relation to one of those companies, Mr Brown only ceased acting on 7 March 2017 (well after these proceedings had commenced).

Confidential information

1. In these circumstances, and particularly by reason of the matters set out at [21] above, Mr Emmett, who appeared for Eugene and Angela, submitted that Mr Brown is in possession of confidential information concerning Eugene and Angela acquired by reason of his privileged relationship with the Trading Companies. That confidential information is what Mr Emmett described as being Eugene's and Angela's "litigious character and tendencies".
2. Mr Emmett submitted that confidential information can have a broad reach. He drew attention to the observations of Brooking JA (with whom Ormiston and Chernov JJA agreed) in Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501; VSCA 248 at [58] that confidential information may include "knowledge of such things as the personalities and reactions of participants" and the observation of Harper M in Byrne v Production Magic Pty Ltd [2012] ACTSC 6 at [20] that confidential information may involve "the knowledge of the…vulnerabilities and strengths of the plaintiff [that] may be of use to those conducting the litigation".
3. Although Mr Brown, in the passages that I have set out, contended that the circumstances in which he has observed Eugene and Angela make decisions concerning litigation in which the Trading Companies were involved were not "as complex, significant or personal" as those likely to arise in these proceedings, the fact is that he has on (to use his word) "hundreds" of occasions seen Eugene and Angela at work in a litigious setting.
4. I do not think Mr Brown's assertion that he has "no better insight" than does Polina as to Angela's and Eugene's "character" nor that Polina is "far more intimately aware" of that character to be to the point. As Mr Emmett submitted, if Mr Brown is using his knowledge of character acquired through privileged communications, even to reinforce Polina's judgments or assessments or strategies, that would be a misuse of the information that he acquired by reason of privileged communications, that being litigation privilege.
5. That privilege is, on the face of, that of the Trading Companies. Eugene, as the director of those companies, has stated that those companies do not waive that privilege. Mr Oakes did not submit that Eugene was disentitled to do this, at least at this time.
6. Mr Emmett accepted that neither he, nor Eugene or Angela, could point to any particular information that Mr Brown might have about Eugene's and Angela's "litigious character and tendencies" that Mr Brown could use to their disadvantage. However, Mr Emmett submitted, I think correctly, that this highlights, and is not an answer to, the problem. Eugene and Angela cannot know precisely what advantage Mr Brown might have, having observed them in their litigious context to which I have referred. Ward J (as her Honour then was) said (albeit in somewhat different circumstances) in Cleveland Investments Global Ltd v Evans [2010] NSWSC 567 at [4] "that is the very forensic disadvantage on which [they rely] for this application".
7. I see this as a powerful factor favouring restraint of Mr Brown from further involvement in the proceedings.
8. I appreciate that other factors are also at play here.
9. Regard must be had to the public interest in a litigant not being deprived of the lawyer of his or her choice, and the inconvenience or impracticability of requiring a lawyer to cease acting: for example see Kallinicos v Hunt (2005) 64 NSWLR 561; NSWSC 1181 at [76] (Brereton J).
10. Due weight must thus be given to the fact that: 1. Polina wishes Mr Brown to continue to act for her, especially in circumstances where, she says, she feels isolated and intimated by the manner in which she is now being treated by Angela and Eugene; 2. Mr Brown's employed solicitor is able to speak to Polina in her native Russian (especially concerning "more complicated words and documents"); 3. Mr Brown has spent some 300 hours on the matter to date; and 4. time and cost will doubtless be thrown away if Polina must now retain fresh solicitors.
11. On the other hand: 1. there is no suggestion that Polina is without means to instruct another solicitor; 2. these proceedings are at an early stage; and 3. there is no question of undue delay in the bringing of this application (cf for example the conclusion to which Black J came in In the matter of IPM Group Pty Ltd [2015] NSWSC 240, especially at [58]).

Conclusion

1. These are all matters that must be taken into account.
2. However, the conclusion to which I have come is that, by reason of the knowledge that Mr Brown must have, at least to some extent, of the "litigious character and tendencies" of Eugene and Angela, he should be restrained from continuing to act for Polina in these proceedings.
3. In my opinion, a fair-minded, reasonably informed member of the public would conclude that, in these circumstances, the proper administration of justice, in the interests of protecting the integrity of the judicial process and due administration of justice, including the appearance of justice, requires that Mr Brown be prevented from acting for Polina: see Kallinicos at [76].
4. I invite counsel to bring in short minutes to give effect to these reasons and to provide for the future conduct of the proceedings.
5. I will hear the parties as to the costs of this application.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 March 2017