(1815) 34 E.R. 515
Geelong School Supplies Pty Ltd v Dean (2006) 237 ALR 612
[2005] NSWSC 1181
Sent v John Fairfax Publication Pty Ltd [2002] VSC 429
Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501
Source
Original judgment source is linked above.
Catchwords
(1815) 34 E.R. 515
Geelong School Supplies Pty Ltd v Dean (2006) 237 ALR 612[2005] NSWSC 1181
Sent v John Fairfax Publication Pty Ltd [2002] VSC 429
Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501
Judgment (2 paragraphs)
[1]
Reasons for Judgment
This is an application by the Plaintiffs, Mr Paul Smith and Mrs Gordana Smith (for whom Mr N. Kirby, of Counsel, appears), to restrain the solicitor for the First and Second Defendant, Mr Trevor Russell, from continuing to act for those Defendants in these proceedings. The Third and Fourth Defendants, for whom Mr E. Yamine, solicitor, appears, support the Plaintiffs' application.
The proceedings concern a company known as Citrus Group Pty Ltd ("Citrus"), the Fourth Defendant, the shares in which are owned by a partnership known as the CG Partnership Pty Limited ("CGP"), the Third Defendant. Shares in CGP are currently owned as to 50% by Mrs Smith, a trustee for a family trust, and 50% by Shadeen Pty Limited ("Shadeen"), the Second Defendant, a company owned, or controlled, by Mr Colin Steingold, the First Defendant. Mr R. Glasson, of Counsel, appears for Shadeen and Mr Steingold. Mr and Mrs Smith are directors of Citrus and Mr Steingold describes himself as Chairman of Citrus, although he is not a director of Citrus.
Mr and Mrs Smith claim that Shadeen, through Mr Steingold, obtained its 50% shareholding in CGP (and thereby effectively obtained a 50% stake in Citrus) by undue influence and psychological pressure, and described by Mr Kirby in the Commercial List Statement as "a systemic campaign of psychological warfare and degradation to the point where the plaintiffs felt so dependent on him for his advice that he was this messianic figure in the life of their business": see T3.11-20. They also claim that Mr Steingold has conducted himself in a manner highly detrimental to Citrus. As Mr Glasson observed in his written submissions, these amount to claims of undue influence and oppressive conduct.
Mr Steingold was previously a solicitor but ceased to practise as one in 2017.
These proceedings were commenced on 5 June 2018 and an interlocutory injunction was obtained against Mr Steingold and Shadeen on that date.
Mr Steingold has retained a solicitor, Mr Russell. Mr Russell is a partner of Piper Alderman Solicitors. He has previously worked for other legal firms, including ERA Legal where he came into contact with Mr Steingold.
Each of Mrs Smith, Mr Steingold and Mr Russell filed affidavits in support of their respective positions, in connection with this present application.
Mr Russell has, it is agreed, acted for Mr and Mrs Smith in the past (i.e. in 2013/2014 in the context of the failure of another company also known as Citrus Group Pty Ltd, and which became known as Contact Blue Pty Ltd ("Blue") and, more recently, also for Citrus). Mr Russell says that he was approached directly by Mr and Mrs Smith and Mr Steingold to "carry out work for Citrus". In between these times, he also acted for a party (Mr Meyers of the Halkin Group) who was in dispute with Mr and Mrs Smith (at a time when Mr Steingold was acting for Mr and Mrs Smith) and, indeed, in that connection and at that time, Mr Steingold challenged (by letter of 19 May 2017) Mr Russell's involvement against Mr and Mrs Smith, calling that a conflict of interest: see affidavit of Thomas Russell of 16 June 2018, page 35. Mr Russell responded to that assertion in effect rejecting it: see affidavit of Thomas Russell of 16 June 2018, p 42.
There appears to be a complicated history of engagement of legal work:
1. Mr Steingold and Mr Russell had a longstanding relationship with Mr John Myers of Halkin Group and Mr Myers introduced Mr and Mrs Smith to Mr Steingold, and Mr Myers introduced Mr and Mrs Smith to Mr Russell who was engaged by then to assist them to deal with Blue's "solvency crisis".
2. Mr Myers asked Mr Steingold to prepare a shareholders agreement with Mr and Mrs Smith.
3. Mr and Mrs Smith then asked Mr Steingold to act for them.
4. Mr Steingold warned Mr Smith concerning an offer of $500,000 injection of capital from Mr Myers (through a company owned by Mr Myers).
5. Mr Steingold suggested Mr and Mrs Smith use a Ms Carrie Peterson, but then recommended they switch to Mr Rod Cunich.
6. Mr Russell was acting for Mr Myers and Halkin Group in the dispute with Mr and Mrs Smith.
7. Mr Russell acted for Mr and Mrs Smith and Citrus in various matters, but in June 2018 Mr Russell decided that he was no longer acting for Mr and Mrs Smith and Citrus and was instead acting for Mr Steingold.
There was broad agreement on the principles which govern the question of whether a solicitor who has previously acted for a client can be blocked from acting against that client in new proceedings. In Kallinicos v Hunt (2005) 64 NSWLR 561; [2005] NSWSC 1181, Brereton J (at [76]) said (omitting full case citations):
"76 The foregoing authorities establish the following:-
· During the subsistence of a retainer, where the court's intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court's jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests [Prince Jefri].
· Once the retainer is at an end, however, the court's jurisdiction is not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure) [Prince Jefri].
· After termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court's intervention, such duty having come to an end with the retainer [Prince Jefri; Belan v Casey; Photocure; British American Tobacco; Asia Pacific Telecommunications; contra Spincode; McVeigh; Sent].
· However, the court always 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 [Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode; Holborow; Williamson v Nilant; Bowen v Stott; Law Society v Holt]. Prince Jefri does not address this jurisdiction at all. Belan v Casey and British American Tobacco are not to be read as supposing that Prince Jefri excludes it. Asia Pacific Telecommunications appears to acknowledge its continued existence.
· 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 [Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Holborow; Bowen v Stott; Asia Pacific Telecommunications].
· The jurisdiction is to be regarded as exceptional and is to be exercised with caution [Black v Taylor; Grimwade v Meagher; Bowen v Stott].
· Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause [Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott].
· The timing of the application 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 [Black v Taylor; Bowen v Stott]."
This enunciation of the principles was recently cited with approval in Jing Li v Jin Lian Group Pty Ltd [2018] NSWSC 479 at [9] per Gleeson JA.
The Plaintiffs put their case on three bases:
1. That Mr Russell has obtained confidential information from them.
2. That Mr Russell has had extensive contact with them and has "got to know them": see T8.34 and T56.6-21. That is, he has obtained information about how they think and act and conduct themselves generally and in the context of litigation: see Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501; [2001] VSCA 248 at [58] per Brooking JA and Black v Taylor [1993] 3 NZLR 403 at 406.
3. That the Court has an inherent power to preclude a solicitor acting against a former client: see Kalinicos (supra) at [76]; Geelong School Supplies Pty Ltd v Dean (2006) 237 ALR 612; [2006] FCA 1404 per Young J (as his Honour then was); and Cleveland Investments Global Ltd v Evans [2010] NSWSC 567 at [3]-[8] per Ward J (as her Honour then was).
Mr Kirby, in his submissions, acknowledged that there is a second public policy aspect which intrudes into this area, namely, that a person should be able to retain a solicitor of their choosing, a matter referred to in the passage cited from Kallinicos above, and that there is a tension between that public interest and the right of a party to proceedings to insist that his former solicitor not act against him. As he pointed out the demands of the proper administration of justice can override the second principle, although the discretion is not to be exercised lightly: see In the matter of IPM Group Pty Ltd [2015] NSWSC 240 at [52] per Black J.
Mrs Smith, in her affidavit of 8 June 2018 (at paragraph 14), gave evidence of having disclosed personal information to Mr Russell at a meeting she had with him at Cafe Paradiso, located in Sydney's CBD. None of that information was intended by Mrs Smith to found a claim against Mr Steingold, but related to Mrs Smith's shareholding in Citrus and the concerns she had viz-a-viz her husband. Mr Steingold was in fact present at that meeting and cross-examination of Mrs Smith revealed that much of the relevant personal information was actually disclosed to Mr Russell by Mr Steingold.
Mr Glasson contends that the evidence establishes that:
1. Mr Russell was not acting for Mr and Mrs Smith or Citrus in relation to the share transfer by which Shadeen became a shareholder.
2. Mr Russell was not acting for Mr and Mrs Smith in relation to the split between Mr and Mrs Smith's interests and Halkin Group (i.e. Mr Myers). In fact, he was acting against them.
3. Mr Steingold has had access to records and financial information of Citrus Group and has acted for Mr and Mrs Smith in the past so he knows more than Mr Russell and is free to deploy that knowledge as he sees fit, whoever is acting for him.
4. That there is very little evidence of Mr Russell having acted for Mr and Mrs Smith or Citrus, beyond:
1. matters to do with Blue;
2. a dispute with Fuji Xerox;
3. the purchase of the Citrus business in April 2015; and
4. an Office of State Revenue audit in 2018.
1. No specific confidential information in relation to these matters obtained by Mr Russell has been identified.
Mr Kirby points out that Mr Russell:
1. acted for Mr and Mrs Smith in relation to penalty notices from the Australian Tax Office that they received in respect of Blue in the period between 2013 and 2015;
2. provided a letter of 12 November 2013 to Mr and Mrs Smith setting out the scope of work to be performed by him: see Exhibit C, pp 5-15. That letter states that it was part of the scope of work for both Mr & Mrs Smith to:
"• Take instructions from you concerning the financial pressures affecting Gordana's company, Citrus Group Pty. Limited (A.C.N. 150 998 253).
• Provide you with advice as to how to ensure, having regard to Gordana's legal and ethical obligations as a director of the company, that the business, property and affairs of the company are dealt with in a way that maximises the chances of the company, or as much as possible of its business, continuing in existence despite the financial pressures on the corporate vehicle itself.
• Assist you to implement whatever strategy is ultimately selected, including working with any third parties engaged to assist with the process (at this stage it is envisaged that the business will be valued and sold to another company at commercial value).
• Undertake such additional work and provide such additional advice and representation as you may instruct us to undertake and provide from time to time."
1. acted for Citrus in relation to its terms and conditions with customers; and
2. acted on an issue relating to a car parking lease.
Mr Kirby accepts that there is not a lot of confidential information identified as having been passed to Mr Russell, but he does rely on Mrs Smith's evidence that she is not able to provide details of what Mr Russell did for herself, Mr Smith and Citrus: see affidavit of Gordana Smith of 8 June 2018, paragraph 19.
Mr Glasson submitted that there is no evidence that Mr Russell did undertake the work identified in [15(b)] above because no invoices were produced but, given the passage of time, it is not surprising that Mrs Smith was not able to prove that the work was in fact carried out, and Mr Russell not only does not say that he did not carry out that work but he appears to accept that he did: see affidavit of Thomas Russell of 15 June 2018, paragraphs 8-10.
Mr Kirby relied on the decision of In the matter of Edgecliff Car Rentals Pty Ltd (deregistered) [2017] NSWSC 244 in which Stevenson J ordered that a solicitor who was seeking to act for the plaintiff, and who had acted for the defendants in previous litigation, be restrained from acting for the plaintiff in that matter. His Honour drew attention to the fact that information as to the defendants' "litigious character and tendencies" was confidential information, and referred to Spincode (supra) at [58] in which it was noted that confidential information can include "knowledge of the firm of the vulnerabilities and strengths of the plaintiff may be of use to those conducting the litigation": see Byrne v Production Magic Pty Ltd [2012] ACTSC 6 at [20] per Harper M. In Yunghanns v Elfic Ltd (formerly known as Elders Finance & Investment Co Ltd) (Supreme Court of Victoria, 3 July 1998, Butterworth Cases 9803031), Gillard J described these factors as the "getting to know you factors" and pointed out that it is not so surprising that a client may have forgotten or overlooked the detail of the information provided to the solicitor, and see also, on the "getting to know you factors", Sent v John Fairfax Publication Pty Ltd [2002] VSC 429 at [69]-[70] per Nettle J.
In Edgecliff (supra) Stevenson J referred to an argument, similar to that advanced on behalf of Mr Steingold here, that the solicitor in that case had no better insight than Polina (the Third Plaintiff) as to Eugene and Angela's (the Fifth and Sixth Defendants) character and that Polina was far more intimately aware of their character. His Honour accepted Eugene and Angela's argument, saying (at [27]):
"…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."
His Honour also accepted (at [29]) that it did not diminish the Defendants' complaint that they could not point to any particular information that Mr Brown might have about their "litigious character and tendencies". His Honour concluded (at [37]):
"37 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]."
There are a number of factors here which lead me to the same conclusion:
1. Mr Russell has acted not only for Mr and Mrs Smith, but also for Citrus and in relation to a number of matters.
2. Citrus is a very small company with effectively only two groups of shareholders, Mr and Mrs Smith, on the one hand, and Mr Steingold, on the other.
3. Mr Russell has had not insubstantial contact with Mr and Mrs Smith and Citrus, although the precise frequency of visits to Citrus is in issue. Mrs Smith says that Mr Russell attended at the Citrus office once to twice a month since acting for Citrus in 2017, and he acted for them in 2013 and 2014.
4. Mr Steingold has an unlimited number of solicitors from whom to choose and he is not limited in the way that Polina was in Edgecliff - a reason for the order not to have been made in that case.
5. Mrs Smith met with Mr Russell in April 2018 to discuss matters of a sensitive and personal nature, albeit in the company of Mr Steingold. I infer that she would not have done so if she did not have confidence in Mr Russell as her solicitor. That Mr Russell anticipates that she does have trust and confidence in him is, I think, demonstrated by his email to her of 5 June 2018, in which Mr Russell suggested her meeting with him to discuss the claims of Mr Steingold for whom he said he was now acting against Citrus. It is not made clear why Mr Russell ceased acting for Mr and Mrs Smith and Citrus, and why he thought it was appropriate to meet with Mrs Smith about those matters when she was unrepresented. The meeting, however, did not take place because on that day Mr and Mrs Smith launched these proceedings.
6. This case is not one in which a solicitor has been acting for one side in litigation and then switches sides, as in D & J Constructions Pty Ltd v Head and Ors trading as Clayton Utz (1987) 9 NSWLR 118 at 122-124 per Bryson J (as his Honour then was); Earl Cholmondeley v Lord Clinton (1815) 19 Ves. Jr. 261; (1815) 34 E.R. 515; and Cleveland Investments (supra), and nor is it a case where the solicitor has been acting for two parties in the same interest and then acts for the other when they fall into dispute, both of which situations are more usually the type to call for the exercise of the inherent jurisdiction of the Court but the nature of the case is, however, closely connected with the dynamics of the relationship between Mr and Mrs Smith and Mr Steingold and whether he exercised undue influence over them. Mr Russell is someone who has seen Mrs Smith and Mr Steingold in conference together. This led me to raise the question of whether or not Mr Russell might be a potential witness in the proceedings. Mr Kirby thought there was a prospect that Mr Russell might be a witness. Mr Glasson said he does not accept that Mr Russell might potentially be a material witness but he did say that he could not say that "he has absolutely nothing to do with the events": T9.40-50.
7. Even if Mr Russell will not be a witness, the point remains that he has acquired knowledge and experience of Mr and Mrs Smith as their solicitor and, further, the case is one involving allegations of a kind that bring Mr Russell close to the issues in the case and raise the real possibility that he will have information or knowledge of the Plaintiffs that he would not have obtained if he had not acted for them and Citrus, and which could be relevant to his consideration of material pertinent to the case both factually and tactically in the course of his advising Mr Steingold. Even accepting that Mr Steingold knows more about Mr and Mrs Smith and Citrus, which he is free to divulge to whoever is retained by him as his solicitor, the reasoning in Edgecliff applies here as well.
Therefore, I think that the Plaintiffs are entitled to feel uncomfortable about their former solicitor acting for Mr Steingold in such circumstances and that a fair-minded reasonably informed member of the public would conclude that it is not appropriate or in the interest of justice that Mr Russell continue to act for Mr Steingold.
I therefore conclude that Mr Russell should be restrained from continuing to act for Mr Steingold and Shadeen in this litigation.
The First and Second Defendants, having opposed the Plaintiff's Motion, should pay the Plaintiff's costs.
[2]
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Decision last updated: 21 December 2018