BETWEEN : OWSTON NOMINEES No 2 PTY LTD (ACN 001 769 099)

Interlocutory injunction - To restrain solicitors and counsel from acting in the cause - Alleged conflict of interest - No imminent threat of prejudice - No effect on present applications

First Defendant : Mr P J Deakin QC & Mr S E McCarthy

Third Defendant : Mr P J Deakin QC & Mr S E McCarthy

Defendant to counterclaim : Mr S Rushton SC & Mr J Giles

Afkos Industries Pty Ltd v Pullinger Stewart [2001] WASCA 372

Clay v Karlson (1997) 17 WAR 493

Gugiatti v City of Stirling [2002] WASC 33; (2002) 25 WAR 349

Holborow v Macdonald Rudder [2002] WASC 265

McVeigh v Linen House Pty Ltd [1999] VSCA 138; (1999) 3 VR 394

Newman v Phillips Fox (1999) WASC 171; 21 WAR 314

Prince Jefri Bolkiah v KPMG [1998] UKHL 52; [1999] 2 AC 222

Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831

Supreme Court of New South Wales in Kallinicos v Hunt [2005] NSWSC 1181

Wan v McDonald (1992) 33 FCR 493

Williamson v Nilant [2002] WASC 225

Zalfen v Gates [2006] WASC 296

1 EM HEENAN J: In the course of dealing with proceedings, which are being heard before me yesterday and today arising out of the judgment which I gave in this matter and my reasons for decision of 9 March 2009, there have been to motions brought for interlocutory injunctions to restrain a firm of solicitors, Lavan Legal and their counsel, from acting or continuing to act for the party Owston Nominees No 2 Pty Ltd ('Owston') in these proceedings.

2 It is necessary for me to say something about the nature of the applications which have been before me and which are still pending, and of the recent history of Owston and its own intended application. The applications upon which I have been sitting arise from issues which were left for further determination as a result of the judgment which I entered in these proceedings or which derive from new claims introduced into those proceedings by leave resulting in amendments of the pleadings leading to the need to resolve some discrete controversies at a further trial or disposition.

3 There are five matters upon which on which the court is now being asked to pronounce. I mention them as follows. First, the contractual claim for costs in the rent action, which I dealt with yesterday and which is not the subject of any present controversy and which in my opinion does not bear on the applications for interlocutory injunctions. Secondly, the claim for interest under s 32 of the Supreme Court Act 1935 (WA) in the fire claim in relation to the judgment in favour of Owston Nominees Pty Ltd against Clambake, which has also been resolved and which, because it only affects the quantum of the judgment resulting from the addition of that interest, does not in my view bear on the applications for interlocutory injunctions.

4 The third and fourth issues can be taken together. These are issues which have either been left over for trial as separate issues following the judgment in March, or which have been introduced by further amendments to the pleadings made by leave since then.

5 The first of these is what I will call the claim for failure to insure in the fire claim. This is a claim by Clambake against Tipperary Projects and its guarantor, Mr Anderson, for damages for alleged breach of an obligation to insure the destroyed property against the risk of fire and other risks. There is an application before me to strike out that claim on the grounds that the findings already made in the action render it untenable for a variety of reasons including alleged estoppel, res judicata, abuse of process or because there is an obvious and irresistible defence under s 80 or s 87 of the Trade Practices Act 1974 (Cth).

6 The fourth claim is the new claim by Clambake against the new defendant in the fire action. Mr Anderson, for alleged liability as a guarantor for the contractual obligation by Tipperary to indemnify Clambake for the liability which Clambake has been found to have towards Owston. There is an application on behalf of Mr Anderson to dismiss that claim summarily on the basis that it is untenable in view of an alleged res judicata, estoppel or abuse of process, or also because there is an unanswerable claim by way of defence under s 80 or s 87 of the Trade Practices Act. Those claims and the strike-out applications remain to be determined.

7 The fifth application is the one which has generated the motions for the interlocutory injunctions although it is not the only application now the subject of the present motions. This is a foreshadowed application by Clambake to extend the orders made suspending enforcement of the judgment in favour of Owston against Clambake. The basis for the application to extend the suspension of the orders which I had made when judgment was entered on on 9 March 2009 is set out in the affidavit of Ms Justine Catherine Condon sworn 7 May 2009, and I shall not further elaborate upon it.

8 It is Mr Bennett, instructed by Lavan Legal, who appears for Owston who has foreshadowed an intention to oppose any extension of the stay ordered. There are a variety of reasons upon which the stay order may be extended or refused, most of which, in my present opinion, (which can only be incomplete and provisional because I have not determined the fourth and fifth applications mentioned), will depend on the outcome of those other applications, but it is possible (and for present purposes that potential is relevant) that the determination of the application to extend the suspension of the judgment may be affected by the current financial position of Clambake.

9 I turn now to the format of the applications for injunctions. These were advanced first by Land Capital, whose counsel, Mr Hancy, has produced a draft motion for injunction, an undertaking for damages and affidavits in support of that application being: an affidavit of Mr Jonathon Eric Wyatt of 12 May 2009; and a supplementary affidavit of Mr Wyatt also of 12 May 2009. Mr Hancy has referred, in addition, to one of two affidavits filed and relied upon by counsel for Owston that is the affidavit of Dean Prosper Healy of 12 May 2009 and to a fourth affidavit which I have taken as being read, being the affidavit of Mr Anderson of 11 May 2009.

10 Land Capital, having made this application, counsel for Clambake and for Mr Cohen, joined in the application and gave undertakings on behalf of their solicitors to file a motion paper and an undertaking for damages seeking injunctions essentially for the same reasons and for similar purposes.

11 I come now to the more recent history of Owston. It is common ground that Owston was one of the co-claimants in the fire action and was successful in obtaining a judgment for damages against Clambake. Until very recently Owston was appearing by and was represented by the same solicitors and counsel as Tipperary, but within the last few days Owston has appeared separately represented by its own solicitors and counsel, the new solicitors and counsel being as already mentioned, Messrs Lavan Legal and Mr M L Bennett.

12 The materials before me do not show a complete record of all that has happened to Owston in recent times but in the affidavits of Ms Condon and the affidavit of Mr Anderson, also mentioned, there is material from which it is possible to deduce the following incomplete history. Mr Anderson, who was a director and controller of Owston, is a party to proceedings in the Family Court of Australia involving his wife, as a result of which it was apprehended that his wife was making, or about to make, an application to the Family Court for the appointment of a receiver or manager of Owston on the basis of an allegation that Owston owned and controlled a quantity of property which was, in a loose sense, matrimonial property.

13 That potential having come to the notice of a company, Angas Securities Ltd, a secured creditor of Owston, resulted in the appointment by Angas Securities Ltd of two joint receivers Messrs Duncan and Powell, pursuant to a debenture charge dated 3 December 2003. The appointment of those receivers is in relation to all the assets of Owston excepting certain items of real property and, importantly, excluding the proceeds of the judgment of 9 March 2009 in favour of Owston against Clambake in these present proceedings.

14 Although the actual notice of appointment does not appear in the papers before me, it is also apparent that another creditor of Owston, a company called Balanced Securities Ltd, has also appointed receivers of certain property of Owston, that property being the rights to the proceeds of the judgment in favour of Owston against Clambake.

15 It follows that whether Mr Bennett and his solicitors are instructed by the receivers or for the creditor Balanced Securities Pty Ltd or Owston, the submissions which they wish to make are to advance the prospects of enforcing the judgment in favour of Owston against Clambake, and incidentally, to oppose any further application to extend the order suspending the immediate effect of that judgment, and for similar related purposes.

16 In an application before me yesterday on behalf of Owston, Mr Bennett forecast a demand for access to financial information from Clambake concerning the current state of its assets and liabilities and the apparent solvency of the trust of which it is trustee in order to consider the application for the extension of the order suspending judgment. I did not deal with that application yesterday because of want of sufficient notice and because of indications by Clambake's counsel that voluntary provision of some of the financial information seemed imminent, but it is enough to indicate that, to an extent at least, the interests of Owston in opposing the application for the extension of the order suspending execution, extend to examination of the financial resources of Clambake.

17 The other facts relevant to this application are that up until a certain point two solicitors then in the firm of Phillips Fox acting for Land Capital moved from that firm to another firm where they took over the conduct of the proceedings for Land Capital, leaving behind them not the paper documents and files but electronic data on the firm's computer system containing much of the content of the files and associated matters. Phillips Fox then changed its name and became Lavan Legal and now, some years later, the solicitors at Lavan Legal have access to the database, so it is alleged. It is also alleged that that access means that they have access to confidential information provided by Land Capital and by Clambake and Mr Cohen for the use of Land Capital at a time when the interests of Clambake, Land Capital and Mr Cohen all coincided in advancing their opposition to the Tipperary and Owston demands in the fire action.

18 It is said in the affidavits that that information contains details of evidence to be obtained from witnesses, strategic approaches about what evidence would be called at trial, arrangements to call expert witnesses, details of witnesses as to valuation, the sharing of expenses in relation to the defence of the action and the general tactics to be involved in the litigation.

19 The affidavits do not specifically allege that there is financial information concerning Clambake which is or might be relevant to the question of whether or not an order suspending execution of the judgment should be granted or refused, but the implication is that so extensive was the information provided by Mr Cohen, Clambake and Land Capital that access to it would be useful in relation to matters bearing on the opposition by the new solicitors for Owston to any extension of the order for the suspension of the judgment. It is on that basis that I have been presented with the applications for injunctions to prevent the new solicitors acting further for Owston in these proceedings generally.

20 In the course of dialogue with counsel I have attempted to ascertain what information there might be which would specifically bear on the grant or refusal of the application to suspend execution of the judgment and what interests of Land Capital or Mr Cohen could or might be jeopardised by dealing with the application to refuse or to extend the order to suspend execution of the judgment. Quite frankly, but I must say I think inevitably, counsel have been unable to point to any particular prejudice, actual or potential, on the part of Mr Cohen or Land Capital in relation to any of those matters. The proceedings at trial involved claims by Owston against Land Capital and Mr Cohen but those claims failed and were dismissed with costs. In my view, the fact that the costs have not been finally settled or determined does not in any way affect that position.

21 However, it is submitted on behalf of Clambake that the information is potentially prejudicial because of its capacity to bear on the question of whether or not the application for further suspension of the judgment should be granted or refused. It is therefore necessary that I turn to consideration of that matter and of the principles.

22 Before I do so, however, I should observe that the way by which the applications were made and argued suggests that I should approach this matter on the footing that an independent application is being made to prevent the solicitors and counsel, who incidentally have not been joined as parties, from acting generally and that for that purpose I should, indeed must, consider all the implications and the threat of disclosure of confidential information from a perspective broader than consideration merely of the five issues which are presently pending before me.

23 I say with respect to those who advanced those submissions that I do not agree that that is so. Were this an originating summons brought against the solicitors and others as respondents, when one would look at the matter from all points of view, such a wider perspective may be necessary but it has been brought only as part of these proceedings. In my view it must be treated on the basis of any potential impact on these proceedings and even more particularly upon its impact upon the applications now before me rather than in any broader sense.

24 This does not mean that Mr Cohen, Clambake or Land Capital are not free to bring an originating summons seeking to invoke a broader protective perspective but, dealing as I am with specific applications, I consider that my focus should be limited to the potential impact on these applications and to these alone.

25 That brings me to a consideration of the principles. I am indebted to counsel for their helpful reference to much of the legal authority on this subject and with the submissions fresh in everyone's mind I need go only to the particular passages. I go first to the judgment of Steytler J, as his Honour then was, in Newman v Phillips Fox (1999) WASC 171; 21 WAR 314, [18] where his Honour said:

The justification for intervention by the court in applications of this kind has traditionally been founded upon one or more of three bases. These are the protection of confidential information, restraint from breach of fiduciary duties in the context of a conflict of interest and the court's control over the conducts of solicitors as its officers.

As to the first of these it is well-established that the court can intervene if a solicitor is in the possession of information which is confidential to a former client and if that information is or might be relevant to a matter on which that solicitor is instructed for the second client.

27 His Honour then refers to a number of well-known authorities and says:

However, the court is also able to intervene in a case in which the solicitor is in possession of the confidential information is employed by or where he has become a partner in a second firm which is acting in proceedings against the solicitor's other client in circumstances in which that information is or might be relevant to the conduct of those proceedings against the former client and there is a risk that the information will be disclosed to those having the conduct of the proceedings against the former client.

28 Again his Honour makes reference to authority which I need not cite.

29 I have myself also dealt with these issues in Holborow v Macdonald Rudder [2002] WASC 265 [23]. I said:

The power of this court to restrain a solicitor from acting in an action or other cause because of an alleged conflict of interest is not limited to those instances in which the future action of the solicitor concerned may imperil confidences of the client for whom the solicitor previously acted. It is an ample power to supervise the conduct of legal practitioners, as officers of the court, to ensure that they do not act in any way contrary to their obligations to their former client.

30 Those phrases were used by Batt J in McVeigh v Linen House Pty Ltd [1999] VSCA 138; (1999) 3 VR 394 and also by Burchett J in Wan v McDonald (1992) 33 FCR 493, 517.

31 Examples of this jurisdiction can be found in Clay v Karlson (1997) 17 WAR 493, Afkos Industries Pty Ltd v Pullinger Stewart [2001] WASCA 372 and Williamson v Nilant [2002] WASC 225. In those cases legal practitioners were restrained from acting in various instances where there was found to be a potential that the legal practitioner might be a witness in the case, where the subject matter of the litigation was likely to involve an evaluation of the conduct of the solicitor concerned, or the efficacy of documents prepared by his firm, and while a solicitor was acting for a liquidator in connection with the liquidator's investigations into the prior activities in of the insolvent company where the solicitor had, prior to the insolvency, been acting for the company. In some of these cases it is obviously apposite to speak of the solicitor's duty of loyalty to the client which continues even after the termination of the period of his retainer. This seems to be a broad general recognition of the scope of the duties which a solicitor owes to his client, even a former client, arising from the fiduciary relationship between them. I then went on to deal with the more compendious obligations of fiduciaries, of which a solicitor is one, before saying at [25] that by acting for a client a legal practitioner does not thereby oblige himself to be a permanent ally in support of the client but rather, as a fiduciary, he accepts and must always perform all the duties of a fiduciary even after the relationship has terminated.

32 This recognises, as Templeman J pointed out in Gugiatti v City of Stirling [2002] WASC 33; (2002) 25 WAR 349, that it has been settled law for nearly a century that the mere fact that a solicitor has acted for a client in a particular matter does not of itself entitle the client to restrain the solicitor from acting against him in the same matter. See Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831. However, if a solicitor is possessed of information which is confidential to his client, a solicitor cannot be permitted to act against his client unless there is no risk of disclosure. The risk must be real and not merely fanciful or theoretical but it need not be substantial.

33 Observations essentially to the same effect were made by Master Newnes, as his Honour then was, in the case to which I have been referred: Zalfen v Gates [2006] WASC 296 where specific reference was made to a number of cases which I have cited, in [61] and following, and in particular to Prince Jefri Bolkiah v KPMG [1998] UKHL 52; [1999] 2 AC 222 [64]. I consider, with respect, that the law on this subject has been aptly and helpfully summarised by Brereton J in the decision of the Supreme Court of New South Wales in Kallinicos v Hunt [2005] NSWSC 1181 [76].

34 However, I wish to add specifically that I consider that there are more factors than those specifically mentioned which can result in a solicitor being restrained from acting after the cessation of the retainer. That is those referred to in Holborow. In this present case the application is essentially brought on the basis of the risk of disclosure of confidential information concerning the financial resources of Clambake.

35 I can see that in certain circumstances a situation might arise where access to past financial information about Clambake would be confidential information and that access to it by solicitors acting adversely to Clambake could result in improper jeopardy of confidential information. However, I do not see that as a real and distinct possibility for the determination of the outstanding applications before me. That is not to say that it is impossible that that might develop or that if it were to develop a renewal of this application would not be successful but, as I have already indicated, it seems to me that the fate of the application for an extension or refusal of an order to suspend judgment is more dependent upon the likely outcome of applications 1, 2, 3 and 4 which I have mentioned than upon particular financial circumstances.

36 In making that observation I do not wish to convey any impression that I have prejudged those applications or that the financial position of Clambake at present is not material. However, much of its financial position has already previously been disclosed and unless it is to be suggested that there has been a material deterioration in that position and that the pursuit of that suggestion is likely to involve recourse to information accessible from the past, which I think are unlikely possibilities, I do not see any real or distinct possibility of prejudice. Accordingly I will refuse each of the applications for the interlocutory injunctions.

37 In making these observations I am not unmindful of the tests for the grant of interlocutory injunctions concerning the balance of convenience and the existence of a reasonable question to be tried. They have been referred to by the submissions of counsel, the principles are well-established and I have not neglected them. I am satisfied that the balance of convenience in this case is against the grant of the injunctions sought.