Disposition of the Case
36 In a very real sense, the dispute that lies at the heart of this litigation represents a dispute between the Dean interests and the Landmark interests, including the Porchs. The dispute erupted in about August 2005 as the business operations of the joint venture were being wound down. Under the Heads of Agreement, it was agreed that the jointly owned land would be sold and that GSS would be wound up. But there was no express agreement between the joint venturers about what would happen once GSS ceased to operate concerning GSS' business records or its former clients. The nub of the dispute concerns what happened to these records and clients.
37 At that time that GSS' business was being shut down, Vogrig personally acted for Landmark and the Porchs. He also purported to act for GSS when he must have known that he had no proper authority from the board of directors of GSS to do so. When HAL protested on behalf of the Deans that he had no authority to act for GSS, he gave the disingenuous response that his then firm had never received instructions to act for GSS in any capacity. That proposition is denied by the correspondence which is in evidence in these proceedings.
38 I infer from the evidence that in about March 2006, Vogrig instructed counsel to draw a statement of claim on behalf of GSS and Landmark. He gave those instructions at a point of time when he must have known that he had no authority to act for GSS. Of course, it may be that instructions were given to him by Landmark or the Porchs that asked him to assume that instructions would also be forthcoming from GSS.
39 By June 2006, Vogrig had joined the firm of WVL. I infer that Vogrig advised the Porchs in relation to the meeting of the board of directors of GSS that was notified for 16 June 2006. WVL forwarded the notice of meeting which allowed only one week's notice for the convening of the meeting. He rejected, or on his advice the Porchs rejected, the Deans' request for an adjournment of the meeting until 20 July 2006 or a mutually convenient date thereafter. The articles of GSS do not prescribe any time for the convening of directors' meetings. In such a case, the law requires that the period of notice for the convening of the meeting be fair and reasonable: Re Homer District Consolidated Gold Mines; Ex parte Smith (1888) 39 Ch D 546; Toole v Flexihire Pty Ltd (1991) 6 ACSR 455 at 461 ('Toole'); Bell v Burton (1993) 12 ACSR 325 at 329. In deciding what is fair and reasonable, the nature of the company and its practices are important factors. So too is the nature of the business to be transacted at the meeting: Toole at 461. Proper notice is a prerequisite of a validly constituted meeting: Barren v Potter [1914] 1 Ch 895.
40 On the limited evidence before me, there is a serious question as to the validity of the meeting and the resolution passed at it. The proposed resolution involved a grave matter and required consideration of a detailed set of allegations in the draft statement of claim. The correspondence does not disclose any compelling reason why the request for an adjournment until 20 July was not acceded to or any difficulties that would arise for the Porchs if the meeting were to be adjourned as requested. In their letter of 15 June 2006, HAL drew the relevant legal requirements to the attention of WVL, pointing out that reasonable notice must be given of any directors' meeting, and that what is reasonable must be determined in the light of the company's particular structure, practice and affairs (citing Petsch v Kennedy [1971] 1 NSWLR 494).
41 The letter from HAL to WVL of 15 June 2006 foreshadowed that an application may be made to the Court for an order restraining any party from acting on any purported resolution of GSS passed at the meeting of 16 June 2006. No such application has been made. At this stage, the Deans' defence in these proceedings does not contain any allegation that the resolution that purported to authorise the institution of these proceedings by GSS was invalid. There is no counterclaim to that effect by the Deans. However, counsel for the Deans foreshadowed that the claim would be raised in these proceedings. He also said that his clients proposed to take separate proceedings to apply for a winding up order against GSS.
42 In these circumstances, the question arises whether I should assume that the proceedings will be extended to include allegations that the meeting and resolution were invalid, as foreshadowed by counsel for the Deans. In Bowen v Stott, Hasluck J confronted a similar situation. In that case, the proposed amendment raised issues concerning the alleged settlement of earlier proceedings. Hasluck J said that if the pleadings were amended as proposed and the matter proceeded to trial, there would be an evidentiary issue as to whether a settlement was effected, and on that issue it was likely that evidence would be required from the solicitor and counsel involved in the negotiations. In his Honour's view, it would be almost inevitable that they would be challenged about the relevant events. In these circumstances, Hasluck J proceeded on the basis that the pleadings would be amended as proposed, and granted an injunction restraining the relevant counsel and solicitors from acting in the matter. The position in Kallinicos was not dissimilar. The application for an injunction was made at an early stage of the proceedings before a defence had been filed. The evidence before Brereton J indicated, nonetheless, that the solicitor was likely to be a material witness on issues of substance which appeared to be controversial: at 584 [84]. Brereton J took these matters into account in granting the injunction.
43 As to what transpired on 16 June 2006, the evidence shows that on 19 June 2006 the Porchs signed a notice of intention to apply to the Federal Court of Australia for leave to issue proceedings under s 237(2) of the Corporations Act as the directors failed to reach agreement on the resolution put to the meeting of directors on 16 June 2006. This notice was forwarded to HAL by WVL on 19 June 2006. Having regard to the contents of the notice, I infer that it was prepared by, or on the advice of, WVL. One week later, WVL advised HAL that the meeting of directors had proceeded on 16 June 2006 and that the two directors present, the Porchs, had unanimously passed a resolution that GSS commence proceedings in the Federal Court.
44 In the event that the Deans file a counterclaim as foreshadowed, the events that transpired on 16 June 2006 will be put directly in issue. Likely evidentiary issues include the following: did the directors fail to agree and did the two directors decide to make a leave application to the Federal Court as suggested by the notice of 19 June 2006; or did the directors pass a resolution as described in WVL's letter of 26 June 2006? If these matters are put in issue, Vogrig will almost certainly be a material witness.
45 The application for injunctive relief also raises more general issues. Having acted for the Porchs and the Landmark interests throughout the dispute since about August 2005, I am satisfied that a fair-minded, reasonably informed member of the public would conclude that Vogrig, and his firm WVL, are not in a position to give objective and dispassionate advice to GSS in the interests of both its unit holders in relation to the conduct of these proceedings. This affords a sufficient basis for the grant of injunctive relief. In addition, I have had regard to the submissions made to me by counsel for the Dean interests as to the foreshadowed challenge to the validity of the 16 June 2006 meeting and resolution in these proceedings. If this challenge proceeds as foreshadowed, Vogrig's position is further compromised by the fact that he is likely to be a material witness in relation to foreshadowed counterclaim challenging the validity of the resolution of 16 June 2006.
46 The position of Vogrig and WVL is rendered more difficult by GSS' deadlocked board of directors and the insolvency of the GSS Unit Trust. GSS has four directors, the Deans and the Porchs. The board is effectively deadlocked. As GSS does not have a functioning board of directors, WVL cannot obtain properly authorised instructions as to the conduct of these proceedings on behalf of GSS. Counsel for the Dean interests illustrated the point by asking what would be the position if a settlement proposal were to be put to GSS. From whom would WVL take instructions? Counsel for Landmark submitted that WVL can properly take instructions from the Porchs as to the ongoing conduct of the proceedings and any settlement thereof. However, two directors do not have authority to give instructions of that kind against the wishes and without the approval of the other two directors. Past history suggests that WVL would take their instructions from the Porchs, just as counsel for Landmark submitted. But that would be to act improperly and in a manner that is not consistent with the due administration of justice in this Court.
47 There is also the question of how GSS is funding its participation in this action. Neither GSS nor the GSS Unit Trust has any funds. I have no evidence before me on the issue, but one possibility is that it is being funded by Landmark. The board resolution of 16 June 2006, assuming it to be valid, did not authorise GSS to borrow any funds to finance its share of the costs of the proceedings.
48 It is also material that, by participating in this proceeding, GSS is not only exposing itself to the costs incurred by its own solicitors, which it cannot meet out of its own funds, but if the action fails it also has potential costs exposure to the respondents (including the fifth, sixth and seventh respondents who have no interest in GSS). Costs liabilities of these kinds would ultimately fall on the unit holders of the trust, in circumstances where two directors did not approve the institution and prosecution of the proceedings.
49 These difficulties stem from the deadlocked position of GSS and the insolvent position of the unit trust. The difficulties would be ameliorated, at least to some extent, if a liquidator were to be appointed to GSS, as the parties intended at the time of the Heads of Agreement. This course was foreshadowed in the course of correspondence between the solicitors for Landmark and the Deans. As matters stand, the Deans and GDI have not as yet made any application to wind up GSS, whether on the just and equitable ground or otherwise, but propose to do so.
50 The present application to restrain WVL from acting for GSS will not resolve the unsatisfactory position of GSS. If WVL is restrained from acting for GSS, GSS may not be in a position to retain new solicitors. If a liquidator is appointed to GSS, the liquidator would be able to consider, independently and objectively, whether the proceedings should continue. If the liquidator is so minded, he or she would then have to secure appropriate arrangements to fund the action.
51 The inherent jurisdiction of this Court is discretionary. Appropriate weight must be given to the exceptional nature of the jurisdiction and to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause. I have also taken into account Brereton J's reminder in Kallinicos that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief. Here, the consideration that I must bear in mind is that if WVL is restrained from acting for GSS, it may not be able to obtain replacement lawyers because of its deadlocked and insolvent position. That circumstance may, of course, hasten an application for the winding up of GSS. Bearing these factors in mind, I have nonetheless concluded that this is an exceptional case that warrants intervention.
52 On the whole, I am satisfied that a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that WVL be restrained from acting for GSS. In view of Vogrig and WVL's past conduct and their retainer to act for Landmark and the Porchs, there is a fundamental difficulty in WVL continuing to act for GSS against the Dean interests, when GSS represents the beneficial interests of both Landmark and the Dean interests. These matters warrant the grant of injunctive relief even if no account is taken of WVL's position in relation to the meeting and resolution of 16 June 2006.