James John Mitchell v Pattern Holdings Pty Ltd

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1 This is an application by the applicant/defendant for an order that the respondent/plaintiff's solicitors, Messrs Blake Dawson Waldron (BDW), cease to act for the plaintiff. 2 The main proceedings involve a dispute in which the plaintiff is seeking an order that a Contract for Sale (the Contract), dated 26 July 1999, of Unit 2, 6 Silva Street, Tamarama (Unit 2) be specifically performed. The defendant is the registered owner of the building known as 6 Silva Street, Tamarama (the Tamarama property), which it proposed to develop into four Strata Title units. The Contract was entered into prior to the completion of the development. 3 The Contract provided for completion to take place fourteen days after the plaintiff was notified of registration of the Strata Plan. If the Strata Plan was not registered within twelve months from the date of the Contract, either party could rescind the Contract (SC 2.4). The defendant agreed to use all reasonable endeavours to obtain registration of the Strata Plan (SC. 2.2). 4 The Strata Plan was not registered by 27 July 2000 and on 11 August 2000 the defendant served a Notice of Termination on the plaintiff and subsequently advised that it had another purchaser for Unit 2. The plaintiff then commenced these proceedings.

5 The Statement of Claim in these proceedings alleges that the defendant did not use all reasonable endeavours to procure the registration of the Strata Plan (Par 8). The plaintiff also alleges that by reason of this failure and breach the Notice of Termination is invalid. 6 The Statement of Claim further alleges that the defendant is estopped from denying that by its conduct it encouraged the plaintiff to expect that it would not rely upon SC 2.4 to rescind the Contract. It is alleged that in reliance on that expectation, and with the defendant's knowledge and encouragement, the plaintiff decorated and arranged for certain improvements to Unit 2. Those improvements are particularised and include lighting, kitchen and bathroom fittings, floorboards and an alarm system. 7 There are additional allegations that the issue of the Notice was not bona fide, not in accordance with the Contract, not reasonable and was reckless. The plaintiff seeks a declaration that the defendant is not entitled to rely on the Notice and orders for specific performance, damages and costs. 8 The basis of the defendant's claim for the order restraining BDW from further acting for the plaintiff is that BDW previously acted for other parties who were plaintiffs in proceedings 2523 of 2000 against the defendant (the first proceedings) in which they received information confidential to the defendant. 9 The plaintiffs in the first proceedings entered into a Contract with the defendant in February 1999 to purchase Unit 1 in the Tamarama property. The defendants served a Notice of Termination on those plaintiffs on 18 May 2000. The defendant apparently sent a further Notice of Termination to BDW on 22 May 2000. The plaintiffs in the first proceedings made almost identical claims against the defendant to those made by the present plaintiff. 10 The first proceedings were settled on 5 September 2000. A Deed of Settlement was entered into on that day and clause 11 of that Deed provides: Confidentiality - the terms of this Deed shall not be disclosed directly or indirectly by either of the parties in whole or part save: (a) As is necessary to obtain legal or accounting advice in respect of this Deed; (b) To disclose sufficient details as is necessary to fulfil any legal obligation of disclosure (and then only to those persons legally empowered to demand such detail); and (c) That such party may be compelled to disclose according to law. 11 The plaintiff in these proceedings was informed by one of the plaintiffs in the first proceedings that the defendant had given them a Notice purporting to terminate their contract for the purchase of Unit 1. The plaintiff was also informed that after the commencement of the first proceedings a confidential settlement was reached. 12 The plaintiff in these proceedings previously instructed WH Parsons & Associates, solicitors, and the defendant previously instructed CP Lucas & Co, solicitors. Correspondence between those two firms indicates that the plaintiff had engaged in without prejudice discussions with the defendant concerning the contract and completion of the development (affd. A. Hughes 13.10.2000 ann. AH4). 13 On 11 August 2000 Potts Latimer, the present solicitors for the defendant, advised the plaintiff's former solicitors that the defendant had diligently pursued strata approval with Waverley Council but had encountered "enormous problems and is now faced with the prospect that the Strata Plan may not issue" and that it may have to pursue alternatives, including company title. 14 The defendant's solicitors then advised that they were instructed to give a Notice of Termination and enclosed a copy of such notice with their letter. WH Parsons & Associates advised Potts Latimer that the plaintiff disputed the validity of the Notice of Termination. The plaintiff lodged a caveat on 11 September 2000, notice of which was given to the defendant on 12 September 2000. 15 It is apparent that by late September 2000 the plaintiffs in the first proceedings and the defendant were experiencing some difficulty in the settlement of those proceedings. On 27 September 2000, Potts Latimer wrote to BDW in relation to the first proceedings referring to previous correspondence and advised: We are surprised that you are taking issue at the fact that the draft orders you have annexed to the signed Deed, do not reflect the terms of the Deed and further that you propose to seek specific performance. Should you issue such proceeding, we will seek indemnity costs as you state in your letter of 22 September 2000: "Our client will enforce the terms of the order only in accordance with the terms of clause 7 of the Deed of Settlement". There appears no doubt, accordingly that our client is entitled to rectification of your draft orders and we again reiterate the request to (sic) set out in our letter of 19 September 2000 that the draft orders be amended to reflect clause 7 of the Deed. Of more concern to our client is your client's flagrant breach of clause 11 of the Deed in relation to confidentiality. Our client has been advised by the purchaser of unit 2, Mr Mitchell, that a complete copy of your client's file has been made available to him. We have put you on notice accordingly that should Mr Mitchell institute proceedings against our client using documentation provided by your clients, the subject of confidentiality as provided in the Deed, our client will hold your client liable for not only indemnity costs but damages. 16 BDW responded to this letter on 6 October 2000 making certain requests in respect of the Short Minutes of Order and advised that their clients denied they were in breach of clause 11 of the Deed. BDW advised they were instructed that at all times their clients had kept the terms of the Deed confidential and had not discussed them with any person and in particular with Mr Mitchell, the plaintiff in these proceedings. BDW also advised that Mr Mitchell had not had access to the file of the plaintiffs in the first proceedings and that he denied having informed the first plaintiffs that he had seen their complete file. 17 On 5 October 2000 BDW wrote to Potts Latimer and advised that they acted for Mr Mitchell and that Mr Mitchell intended issuing the present proceedings and sought an undertaking from the defendant that it would not sell unit 2 to any other person. 18 Also on 5 October 2000 Potts Latimer wrote to BDW in the following terms: You have previously acted for (the plaintiffs in the first proceedings) who are the purchasers of another unit in the relevant block. Those proceedings have been resolved on the basis, inter alia, that the terms of the agreement will remain confidential. You were required to maintain that confidentiality on behalf of your clients. This obligation is in conflict with of (sic) your duty to your present client to advise him in relation to matters within your knowledge. Accordingly, it follows that you should not act for him. Having regard to our letter of 27 September 2000 in relation to (the first proceedings), one of the available inferences is that you are involved in a breach of the contractual relationship between our client and (the plaintiffs in the first proceedings) in relation to that confidentiality. In the event that you continue to act, we consider that our client will be justified in that inference and would be entitled to remedies against you. On that inference if you continue to act for Mr Mitchell, your conduct appears to justify an injunction against you and to constitute unsatisfactory professional conduct. 19 On 9 October 2000 BDW responded and advised: We are of course aware that the terms of the Deed of Settlement between your client and our clients are confidential. That confidentiality has been, and will be, preserved. We reiterate that the terms of the Deed of Settlement …. have not been disclosed to any other persons, including Mr Mitchell, nor has Mr Mitchell had access to the (the plaintiffs in the first proceedings) file. The allegations made in your letter therefore have no substance. We propose to continue to act for Mr Mitchell. We note that during the last 2 months our client has been involved in "without prejudice" settlement discussions with your client and it was for this reason that our client had chosen not to institute proceedings immediately…We note that the parties have not been able to resolve the matter and our client now intends bringing the application as foreshadowed in our facsimile to you dated 5 October 2000. 20 The defendant submitted that there will be an impediment to free and candid settlement negotiations in this case because BDW may take advantage, albeit it unconsciously or inadvertently, of the confidential knowledge they have obtained from their previous retainer. The defendant also submitted that BDW owe a duty of confidence to the defendant by reason of the settlement negotiations and the provisions of the Terms of Settlement of which they have knowledge from their retainer by the plaintiffs in the first proceedings. 21 Mr DeBuse relied on a number of authorities: Farrow Mortgages Pty Ltd (In Liq) v Mendall Properties Pty Ltd (1995) 1 VR 1; Mallesons Stephen Jaques v KPMG Peat Marwick (1991) 4 WAR 357; Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, all of which involved applications by former clients of the solicitors or advisers sought to be restrained. In this case neither BDW's clients in the first proceedings or the present plaintiff make any application. 22 A situation similar to the matter before me was decided by Mandie J in Tricontinental Corporation Ltd v Holding Redlich (A firm) (VSC, Mandie J, 22 December 1994). In that case Tricontinental Corporation Ltd (Tricontinental) sought an injunction to restrain Holding Redlich from continuing to act as solicitors for South Australian Asset Management Corporation, (formerly called the State Bank of South Australia) (the Bank), in proceedings brought by the Bank against Tricontinental (the subsequent proceedings). 23 A syndicate of banks including Tricontinental, the Bank and Natwest Markets Australia Ltd (Natwest) had provided a loan of $50 million to a borrower. Proceedings were commenced in 1990 by Natwest against Tricontinental in respect of that loan in which Natwest claimed that Tricontinental had failed to disclose to Natwest certain guarantees which had been given by the borrower, the existence of which were alleged to have been known to Tricontinental. 24 The proceedings between Natwest and Tricontinental were heard by McDonald J on 26 July 1993 when judgment was given for Natwest against Tricontinental including damages in the sum of $11.5 million. An appeal was filed and after negotiation the parties compromised their differences and Terms of Settlement were filed. Holding Redlich acted throughout for Natwest. 25 During the course of the Natwest and Tricontinental negotiations a Memorandum was provided by counsel for Tricontinental to counsel for Natwest. The Terms of Settlement ultimately entered into contained confidentiality undertakings. Both the Memorandum and the Terms of Settlement were confidential exhibits before Mandie J. The Memorandum set out why, in the opinion of Tricontinental, Natwest should compromise the proceedings and what amount was appropriate to be paid by Tricontinental. The Terms of Settlement stipulated the settlement amount and provided that the Terms and the circumstances surrounding their creation "shall remain confidential". 26 Tricontinental's first ground of challenge was that Holding Redlich's knowledge of the monetary amounts involved in the settlement and the negotiating "moves" in the settlement was "useful information which might unconsciously be used" by Holding Redlich to assess any negotiating position in the subsequent proceeding. 27 The second ground was that the contents of the Memorandum gave an insight into Tricontinental's assessment of its strengths and weaknesses which might "unconsciously be used" to the detriment of Tricontinental in the subsequent proceedings. It was claimed that an astute solicitor would be able to "assess and transpose" those matters "in a tutored way" thereby gaining an illegitimate advantage over Tricontinental. 28 Mandie J was satisfied that the evidence and issues between the two proceedings were different and in any event the critical issues could be readily ascertained from a reading of McDonald J's judgment and the Notice of Appeal. However in respect of the knowledge of the negotiating "moves" and settlement amounts Mandie J said: The argument based upon the knowledge of the negotiating moves and settlement amounts gave me some greater cause for concern. However, it seems to me that the likely differences in the issues and evidence in the bank proceedings will be such as to render knowledge of the history of negotiations in the Natwest appeal of negligible use or relevance. It is a serious matter to prevent a party from retaining the legal representative of its choice, particularly upon the application not of a former client but of an adverse party. In the end, I am not satisfied that there is any real substance in the plaintiff's stated apprehensions. 29 Another case which involved an application by an adverse party, as opposed to a former client, is Grimwade v Meagher & Ors (1995) 1 VR 446, which was also heard by Mandie J. 30 In that case Grimwade made application to prevent Meagher QC from further acting for a plaintiff in civil proceedings against Grimwade. In the late 1980s to mid 1990s Grimwade had been prosecuted on charges alleging commercial dishonesty. Meagher QC appeared as leading counsel for the Crown in a four month committal in 1988 after which Grimwade was discharged, a nine month aborted trial on charges apparently brought ex officio in 1989/1990, a two year retrial in 1991-1992 after which Grimwade was convicted and an Appeal in 1994 when the Court of Criminal Appeal entered an acquittal. 31 Grimwade had also commenced civil proceedings against Meagher QC and others for malicious prosecution, abuse of process and misfeasance in a public office. The details of the allegations and the lengthy history of the previous proceedings were in evidence before Mandie J. 32 Meagher QC was restrained from acting or appearing for the clients in proceedings against Grimwade, however Mandie J described the circumstances as "unique, extraordinary and highly exceptional" and said that: Any member of counsel in the shoes of the first defendant, no matter how vigilant and self-controlled, might unconsciously or subconsciously succumb to the temptation to seek to use the said action as a vehicle to justify his conduct of the prosecution or to answer criticisms made in respect thereof and to attack the plaintiff or might be unable to properly distinguish between such personal interests and his duty to his clients. 33 It seems to me that the circumstances of Grimwade v Meagher are very distinguishable from the case before me. 34 I am of the view that as an incident of its inherent jurisdiction, this Court may decide upon the propriety of a legal practitioner representing a party in a particular case to ensure justice and the appearance of justice. It has been said that such jurisdiction should be exercised with circumspection: Black v Taylor [1993] 3 NZLR 403 per Cooke P at 406; State of Western Australia v Ward & Ors (1997) 145 ALR 512 per Hill and Sunberg JJ at 518 - 519. 35 That solicitors may, subject to certain prerequisites, act for multiple parties in circumstances where they may be prevented from disclosing to each party all information relevant to the proceedings or transaction within the practitioner's knowledge is a circumstance well recognised in the Solicitors' Rules made pursuant to s 57B of the Legal Profession Act 1987. Rule 9.2 provides as follows: A practitioner who intends to accept instructions from more than one party to any proceedings or transaction must be satisfied, before accepting a retainer to act, that each of the parties is aware that the practitioner is intending to act for the others and consents to the practitioner so acting in the knowledge that the practitioner: (a) may be, thereby, prevented from - (i) disclosing to each party all information, relevant to the proceedings or transaction, within the practitioner's knowledge, or, (ii) giving advice to one party which is contrary to the interests of another; (b) will cease to act for all parties if the practitioner would, otherwise, be obliged to act in a manner contrary to the interest of one or more of them. 36 The retainer of BDW by these two plaintiffs, in the first proceeding and the present proceedings, is not unlike the example of the multiple retainer. Mr Parker submitted that if the defendant's contentions are correct then there would be far reaching consequences for the legal profession which would include the prohibition on solicitors acting for multiple plaintiffs, for example, in product liability cases. 37 Mr DeBuse suggested that such cases are not a good example because firstly, the factual circumstances will vary between litigants by reason of their different age, gender and background; secondly, insurance companies almost always know that there is a particular solicitor acting for the multiple plaintiffs and therefore would be regarded as impliedly acquiescing in the continuance of the solicitor's retainer; and thirdly, it may be more expedient not to object to the solicitor's retainer because someone who is aware of the parameters of the insurer may promote resolution. 38 It seems to me that the circumstances of this case are not unlike the case of the multiple retainer in a case against a single defendant in which the solicitor for one plaintiff may conclude a settlement, the terms of which may be confidential between that plaintiff and the defendant. Rule 9.2 addresses this matter. 39 There is no issue in this case that BDW recognise their obligation to keep confidential the Terms of Settlement negotiated between the plaintiffs in the first proceedings and the defendant. BDW accepts this obligation as an incident of their retainer by the plaintiffs in the first proceedings. 40 The onus is on the defendant to establish a real and sensible possibility of the misuse of the confidential information which BDW possesses. It is not suggested in this case that there will be a conscious disclosure and the defendant has relied only on an inadvertent disclosure. 41 I do not know what is contained within the Terms of Settlement in the first proceedings other than clause 11 to which I have referred. There is no evidence about the negotiations other than the letters of 27 September 2000 and 6 October 2000 between BDW and the defendant's solicitors, neither of which discloses the contents of the Terms of Settlement. 42 To assess the real and sensible possibility of misuse of confidential information it seems to me that the defendant should have adduced some evidence of the contents of the Terms of Settlement on a confidential basis. At the moment there is only conjecture as to what the possibilities of misuse could be. For instance the defendant may have settled with the plaintiffs in the first proceedings on the basis of a lump sum payment. Alternatively the defendant may have agreed to pursue the registration of a Strata Plan with or without a reduction in the purchase price for the first plaintiffs. The first proceedings may have been discontinued. I do not know. 43 Accepting Mandie J's approach in Tricontinental Corporation v Holding Redlich that a restraint may be imposed, it might be that the contents of the Terms of Settlement would disclose or would provide a basis upon which an inference would be drawn that there would be a real and sensible possibility of the inadvertent misuse of the confidential information. It may be that such material might demonstrate that BDW would probably not be able to resist giving advice to the present plaintiff to settle for anything less than that which was achieved for the plaintiffs in the first proceedings The perception created may be that there would be an inadvertent misuse of confidential information, although much will depend on the facts. 44 In those circumstances it seems to me that if the Court is persuaded such a risk existed, any restraint placed upon BDW would be based upon the principles enunciated in Black v Taylor rather than on the development of any duty to the defendant. However on the evidence called by the defendant a decision on that matter is not necessary. 45 I am not satisfied that I should make the order in the Notice of Motion. The Motion is dismissed. The applicant is to pay the respondent's costs. ***************

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