Equity - General principles - Fiduciary obligations - Conflict of interest and duty - Solicitor acting for more than one party to a proceeding - Applicant's right to challenge opponents representation.

Mullins v Rothschild [2001] TASSC 76, Kingston v State Fire Commission 140/1998, followed.

Professions and Trades - Lawyers - Solicitor and client - Potential risk of use of privileged material - Privileged material of a company obtained when plaintiff a director

Farrow Mortgage Services Pty Ltd (in liq) v Mendell Properties Pty Ltd & Others [1995] VicRp 1; [1995] 1 VR 1, Rakusen v Ellis, Munday v Clarke [1912] 1 Ch 831, considered.

Evidence Act 2001 (Tas), ss118, 123, 124.

Judgment Number: [2003] TASSC 11

JON JOVANOVIC v THE LAW SOCIETY OF TASMANIA,

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION,

SCOTT PURDON, JANINE MARCIA MARTIN, DAVID JOHN GUNSON,

JOHN WILLIAM WOODS, NULINE MARKETING TASMANIA PTY LTD,

MAX McMULLEN, TASMANIAN PERPETUAL TRUSTEES LIMITED,

HUGH BARRY, HAROLD JOHN ADAMS, THE ATTORNEY-GENERAL, STEPHEN MAXWELL BURK, MICHAEL AARON ASHWOOD,

MICHAEL WALLACE GRANT, THE COMMISSIONER OF POLICE,

DIRECTOR OF PROSECUTIONS, BYRON CROSS, TASMANIAN LEGAL AID

1 The plaintiff seeks to have the Court exercise its inherent power of supervision and control of proceedings and legal practitioners as officers of the Court and to either order or direct that a firm of practitioners, Messrs Gunson Williams, cease to act as solicitors for the seventh, eighth and eleventh named defendants. In addition, he seeks orders disqualifying Mr David Gunson SC from acting in proceedings separate from this action.

2 These proceedings involve a claim by Mr Jovanovic for damages against some twenty-one defendants for various breaches of duty, fiduciary, statutory and tortious, said to have arisen during the course of commercial dealings involving the plaintiff and a business partner, Mr Ian Maxwell Tapping, and a subsequent investigation and prosecution connected directly or indirectly with those dealings. Some components of the claim involve disciplinary proceedings conducted by the Law Society of Tasmania against the wife of the plaintiff, who is herself a legal practitioner.

3 The statement of claim comprises, at this stage, some 329 paragraphs, and given that some of the defendants have foreshadowed various interlocutory proceedings, it is neither appropriate nor necessary to give detailed analysis of it. However, the statement of claim traverses a wide range of factual material.

4 Although the plaintiff made his application in respect of action 727/2002, he sought to extend the order to include action 153/2000 which was commenced against him by a company, D W & I M Tapping Pty Ltd (in liquidation). Some general background to the relationship of the plaintiff with that company can be seen from the judgment of the learned Chief Justice in his review of a conviction of the plaintiff which arose out of his directorship of the company D W & I M Tapping Pty Ltd and reported in Jovanovic v Australian Securities and Investment Commission [2001] TASSC 6. Other proceedings indirectly arising out of the same or a number of commercial dealings are comprised in complaints made under the Justices Act 1959 which allege criminal misconduct, namely complaints numbered 92639/2001 and 12435/2001. It would appear that Tapping, a former co-director of the plaintiff, is the co-defendant to one of those complaints.

5 The plaintiff did not file a comprehensive affidavit in support of his application, but relied on material lodged with the Court of Petty Sessions, the Federal Court, and the Registry of this Court. Counsel for the solicitors and Mr Gunson did not concede the validity of the factual allegations, but the Court has been able to discern from the material supplied, sufficient information to enable resolution of the matter.

6 There remains one additional complication. Mr Gunson SC, who has appeared as counsel during the course of these interlocutory proceedings, and who is the senior partner of the firm of solicitors, Gunson Williams, has been named as defendant in his own right. The Court has pointed out to Mr Williams, who appeared for Mr Gunson, and the other three defendants on the hearing of this application, the risks inherent in counsel appearing in circumstances where he could become a witness and/or perceive a conflict of interest in the course of a hearing on the merits of the action, especially as between defendants. It does not always follow that interests remain identical or that factual divergence might not arise. Counsel has indicated that the firm is aware of the potential, but will address the issue as and if it becomes apparent. This issue, raised by the Court, relates to the interests of the named defendants and the ethical obligations of counsel and does not come within the province of Mr Jovanovic's claim.

7 As stated, the plaintiff did not read into evidence a detailed affidavit grounding the application, but relied on documentation and assertion. The Court is able to accept, as assumptions, much of the material advanced, in order to determine the matter, since those assumptions are either permitted by the evidence or derive from inferences reasonably open. One assertion made from the bar table, namely that Mr Gunson is presently acting for Tapping in proceedings commenced by complaint number 12435/2001, was not disputed.

8 The basis of the application is two-fold, namely:

(1) There is a potential for conflict between the interests of Nuline Marketing, McMullen and Adams, the seventh, eighth and eleventh defendants respectively, which ought preclude common representation.

(2) The relationship of Tapping and the plaintiff as co-directors of D W & I M Tapping Pty Ltd, might have involved the sharing of material privileged to either the company or the directors, and the obtaining of such material from Tapping could be used to the detriment of the plaintiff.

9 The statement of claim traverses the period 1986 - 2002 and comprises many allegations of conduct in a variety of dealings and transactions. Nuline is described as:

"A corporate entity which unlawfully converted chattels in the care and possession of the plaintiff ..." (par8)

McMullen, a legal practitioner and member of the Law Society of Tasmania, is said to have:

"... contemporaneously represented the 9th named Defendant (Tasmanian Perpetual Trustees), the company of the 11th named Defendant (Adams) and DIT (in liquidation) (Tapping)." (par9)

10 Adams was "a director of C R P, a company which obtained funding from D I T before it went into liquidation, and which (C R P) was placed in liquidation following misfeasance occasioned by persons or person allegedly unknown, within the first named defendant's organisation (The Law Society)". (par13).

11 The matters said to give rise to a cause of action against McMullen are said to be advice given to Tapping concerning the provision and investment of moneys by the company D W & I M Tapping Pty Ltd to C R P (pars167 - 169, 214), breach of fiduciary duty and undertakings (pars260-261), and subsequent dealings involving Tasmanian Perpetual Trustees which constituted breaches of fiduciary duty and undertakings (pars287 - 291). Adams was a director of C R P which had borrowed money from D W & I M Tapping Pty Ltd (pars143 - 154), made false representations (pars182 - 183) which caused detriment to the company of which the plaintiff was a director (pars204 - 205), and dishonoured personal guarantees (pars208 - 213). Nuline obtained and wrongly retained property by Adams. From the pleadings it is difficult to see conflict between the interests of the three defendants. It is said that each breached a contractual or tortious duty to the plaintiff, either as an individual or as a director of a company. Whether McMullen owed any duty to the plaintiff is irrelevant to whether his position conflicts with either of the other defendants. The other defendants do not appear on the pleadings to be in conflict. But the question is different. It is for those defendants to claim potential prejudice. If any discern reason to withdraw instructions, then they can so do. It is then for each defendant to decide on representation or withdrawal. It is not for an opponent to claim prejudice on the part of others. It is not for an opponent to seek disqualification on the basis of a perceived or claimed conflict on their part.

12 The plaintiff relies on the Rules of Practice 1994 made under the Legal Profession Act 1993, which relevantly provide:

"12 - (1) A practitioner may act for more than one party to any proceedings or transaction.

(2) A practitioner must not accept instructions from more than one party to any proceedings or transaction unless the practitioner is satisfied on reasonable grounds that -

(a) each of the parties is aware that the practitioner intends to act for another party or parties; and

(b) each of the parties is aware that as a result of acting for more than one party -

(i) the practitioner may be prevented from disclosing to any one of those parties the full knowledge that the practitioner has of matters relevant to the proceedings or transaction; and

(ii) the practitioner may be prevented from giving advice to any one of those parties if that advice is contrary to the interest of any other party; and

(iii) the practitioner must cease to act for all parties if the practitioner determines that he or she is not able to continue to act for all parties without acting in a manner contrary to the interests of one or more of those parties; and

(c) each of the parties, with full knowledge of the matters referred to in paragraph (b), has consented to the practitioner acting for more than one party.

(3) A practitioner who is acting for more than one party to any proceedings or transaction must immediately cease to act for all parties if that practitioner determines that he or she is not able to continue to act for all parties without acting in a manner contrary to the interests of one or more of those parties."

13 There is no evidence that in this case any of the parties represented by Gunson Williams is unaware of common representation, nor that any has other than full knowledge of the matters referred to in r12(2)(b) and has consented to common representation. If, during the continuation of these proceedings, the firm becomes aware of circumstances giving rise to the operation of r12(3), then the duty of the firm is mandatory. For this Court, without evidence, to intrude into the solicitor/client relationship and inquire into the details of instructions, the advice provided and the state of awareness of each client would constitute an unwarranted invasion of privilege. It ought make inquiry at the behest of a client, or, if during the course of a hearing it becomes apparent from the evidence or the conduct of the proceedings that a circumstance predicated by r12 exercises the power of supervision and, if necessary, intervention (Mullins v Rothschild [2001] TASSC 76, Kingston v State Fire Commission 140/1998). But no such circumstances have arisen thus far in these proceedings.

14 There are circumstances where, by reason of accident (Kingston (supra)), prior relationship (Mullins v Rothschild (supra); Rothschild v Mullins [2002] TASSC 100), or imputed knowledge (Mallesons v KPMG Peat Marwick [1991] 4 WAR 357), a court is entitled to enjoin a legal practitioner or firm of solicitors from continuing to act for a party in proceedings. Possible breach of privilege (Grant v Downs [1976] HCA 63; (1976) 135 CLR 674; Baker v Campbell [1983] HCA 39; (1983) 153 CLR 52) or conversely the withholding of knowledge possessed (Spector v Ageda [1973] Ch 30) are factors which require consideration and intervention. The test is whether there is a real and sensible possibility of the misuse of confidential information (Farrow Mortgage Services Pty Ltd (in Liq) v Mendell Properties Pty Ltd & Others [1995] VicRp 1; [1995] 1 VR 1; Rakusen v Ellis, Munday v Clarke [1912] 1 Ch 831), although the test in Rakusen has been considered as imposing an unfair burden on a former client (Prince Jefri Bolkiah v KPMG [1998] UKHL 52; [1999] 2 AC 222, Lord Millett at 236).

15 The material placed before this Court permits the making of assumptions which, expressed most favourably to the plaintiff, can be stated as:

(1) The plaintiff has never been a client of the former Gunson Williams, nor has Mr Gunson ever acted as counsel for him.

(2) The plaintiff was a co-director with Tapping of the company D W & I M Tapping Pty Ltd, which is now in liquidation.

(3) The commercial dealings of that company are an integral part of these proceedings.

(4) The affairs of D W & I M Tapping Pty Ltd were the subject of an investigation by officers of the Australian Securities and Investment Commission (the second defendant), the conduct of which is a subject of these proceedings (statement of claim, pars3, 222 - 226, 230 - 257, 268 - 279).

(5) It is a reasonable inference that during the course of its commercial dealings and the investigation by officers of the Commission that the company obtained legal advice for the purposes of those dealings and the investigation. It is a reasonable inference that the plaintiff and Tapping, as co-directors, shared or had access to such advice.

(6) The investigation gave rise to a prosecution against the plaintiff for failure to submit to the liquidator a report as required by the Corporations Law, s475, which was the subject of a successful appeal (Jovanovic v ASIC (supra)).

(7) Civil proceedings have been commenced by the plaintiff by the liquidator of D W & I M Tapping in action 153/2000. The firm of Toomey Manning & Co are the solicitors on the record for the liquidator. During the course of those proceedings, the plaintiff has applied to join additional parties, including McMullen, the eighth defendant in this action. The firm of Gunson Williams are the solicitors on the record for McMullen.

(8) The plaintiff has been prosecuted for alleged criminal conduct by complaint 92639/2001 which relates to his involvement with the company D W & I M Tapping Pty Ltd. He has been committed for trial in the Criminal Court. The plaintiff and Tapping have been jointly prosecuted for alleged criminal conduct by complaint 12435/2001 which relates to their involvement with the company. They have both been committed for trial, Tapping on 26 June 2002 and the plaintiff on 30 August 2002 (action 278/2002). It would appear, and is assumed, that Mr Gunson has been retained to act on behalf of Tapping on those proceedings.

(9) The firm of Gunson Williams are retained by three defendants in these proceedings and it is likely that Mr Gunson will appear as counsel on the hearing of the action.

16 The plaintiff contends that information privileged to the company and himself as director can be used by the firm or Mr Gunson SC through his own knowledge gained by acting for Tapping. In any consideration of this contention, it is necessary to add two pieces of information stated in the plaintiff's statement of claim. The statement of claim relevantly states:

"233 The 2nd named Defendant visited the premises of DIT with their accountant Mrs Lawler and took a large number of Company records and documents and questioned Mr Tapping and the Plaintiff in respect of DIT's activities.

234 Mr Tapping and the Plaintiff were examined under oath by officers of the 2nd named Defendant on 30th May 1997 in respect of the dealings between DIT, CRP, the 8th named Defendant, the 9th named Defendant, the 10th named Defendant, and the 11th named Defendant, on 1st August 1996 again by officers of the 2nd named Defendant in respect of, inter alia the processing equipment in which DIT had an interest, and the 7th October 1997 in respect of DIT's activities with the previously mentioned Defendants, and in respect of seized documents accounts and DIT records.

235 The 2nd named Defendant was fully appraised of DIT problems, details of dealings between DIT and the Defendants, and monies advanced by DIT and monies invested by DIT with the 9th named Defendant, DIT's dealings with the 8th named Defendant, 10th named Defendant, and 11th named Defendant and directors sought advice from the 2nd named Defendant and kept the 2nd named Defendant fully informed of DIT activities.

236 Notwithstanding the extensive and in-depth knowledge that the 2nd named Defendant had in respect of the activities of DIT, on or about October 1998 the 2nd named Defendant and the 2nd named Defendant's officers, inter alia the 3rd named Defendant, appointed the 6th named defendant as its independent expert, when they knew and or ought to have known that the 6th named Defendant was not independent, to investigate DIT mortgage fund, who prepared a report on 16th October 1998."

17 Any material said by the company to be privileged ought to have been identified at the time of seizure and its status subsequently determined. (Commissioner of Australian Federal Police v Propend Finance Pty Ltd (1996 - 1997) 188 CLR 501.) Whilst privilege can be claimed during the course of an examination, it is limited in nature. The answer given might not be admissible in subsequent proceedings (the Evidence Act 2001, s122(2)(c) ("the Act")), but its contents might nevertheless be used in the assimilation of knowledge by the investigators.

18 The Act, Pt10, DivI, provides for the issue of privilege by reference to the solicitor/client privilege and states the following relevant definitions:

(a) an employer, not being a lawyer, of a lawyer;

(f) a successor to the rights and obligations of a client, being rights and obligations in respect of which a confidential communication was made;

'confidential communication' means a communication made in such circumstances that, when it was made -

was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law;

'confidential document' means a document prepared in such circumstances that, when it was prepared -

was under an express or implied obligation not to disclose its contents, whether or not the obligation arises under law.

(d) a successor to the rights and obligations of a party, being rights and obligations in respect of which a confidential communication was made."

19 It governs the admissibility of evidence, not knowledge of its existence. The Act, s118, provides similar protection against the adducing of evidence during litigation "on objection by a client". The client making the objection must be identical to the client referred to in s118(b) (Telstra Corporation v Australian Media Holdings (1997) 41 NSWLR 147).

20 Neither the plaintiff nor the company D W & I M Tapping Pty Ltd, have ever been a client of the firm of Gunson Williams in any proceedings connected with the current action. Mr Gunson has never acted as counsel in any such proceedings. The obtaining of documents by either the liquidator or officers of the Commission altered the status of those documents making them subject to other legislative provisions (see Corporate Affairs Commission of NSW v Yuill & Others (1990 - [1991] HCA 28; 1991) 172 CLR 319; Times Properties v Challenge Bank Ltd (1996) 18 ATPR 41-455, a case in which it was held that a receiver was not entitled to claim privilege of a document in which the company had received legal advice. Documents so seized may be made available to creditors to assist in the furtherance of their claims (New Cap Reinsurance Corporation Holdings Limited and the Corporations Law [2001] NSWSC 835). Answers given by the plaintiff in the course of his statutory examination might themselves be privileged, but answers given by Tapping are subject to his own and not to the plaintiff's rights.

21 In relation to the claim that knowledge possessed by Tapping as a director remains privileged at the behest of the plaintiff, the Act, s124 relevantly provides:

"124 - (1) This section only applies to a civil proceeding in connection with which 2 or more parties, before the commencement of the proceeding, have jointly retained a lawyer in relation to the same matter.

(2) This Division does not prevent one of those parties from adducing evidence of -

(a) a communication made by any one of them to the lawyer; or

(b) the contents of a confidential document prepared by or at the direction or request of any one of them -

Even if such a relationship existed here, the section would apply. But no such relationship existed. Nor can the plaintiff claim transferred or extended privilege in the pending criminal proceedings. It may be that in the course of instructions Tapping discloses information detrimental to the plaintiff and which could be used in these proceedings. Tapping is entitled to adduce, and therefore disclose to his legal advisers, material prejudicial to the plaintiff, except under circumstances defined by the Act, s123, which states:

"123 - This Division does not prevent a defendant in a criminal proceeding from adducing evidence unless it is evidence of -

(a) a confidential communication made between an associated defendant and a lawyer acting for that person in connection with the prosecution of that person; or

(b) the contents of a confidential document prepared by an associated defendant or by a lawyer acting for that person in connection with the prosecution of that person."

22 There remains a further answer to the plaintiff's contention. Assuming that Mr Gunson does not act for Tapping, it would be open to him to approach Tapping as a provider of information or a potential witness. Tapping would be entitled to decline contact or the provision of information. The privilege attaches to Tapping, not Mr Gunson. The position might become complex if Tapping supplies privileged or confidential material, but enjoins Mr Gunson from disclosure (Rules of Practice, r12), but such is not the concern of the plaintiff. Mr Gunson might be precluded from adducing evidence in these proceedings of material privileged as to the plaintiff, but such would arise irrespective of the origin of the document. The question of knowledge of a confidential document or report differs from the issue of privilege. In Webster v James Chapman & Co (a firm) and others [1989] 3 All ER 939 at 943 - 944:

"Once a privileged document or a copy of a privileged document passes into the hands of some other party to the action, prima facie the benefit of the privilege is lost: the party who has obtained the document has in his hands evidence which ... can be used at the trial. But it will almost invariably be the case that the privileged document will also be a confidential document and, as such, eligible for protection against unauthorised disclosure or use."

Scott J refused to suppress a party's use of a report which had been prepared using confidential knowledge, stating as a reason, at 947:

"...the conduct of the defendant's case would be seriously embarrassed if the defendant and its legal advisers were not able to make use of their knowledge of the contents of the original report, knowledge that has come into their possession through no fault of theirs."

(see also English and American Insurance Co Ltd v Herbet Smith [1988] FSR 232, referred to in Kingston (supra)).

23 It is not necessary to determine whether this Court, in the exercise of its equitable jurisdiction, has the power to enjoin a practitioner from acting for a party in criminal proceedings. It is not necessary to determine whether an application in action 727/2002 can be extended, by way of order, to action 153/2000 or the criminal proceedings. The reasoning process employed in this judgment accepts that such a course is open, but such is not to be taken as anything other than an attempt to resolve the substantive issues raised by the plaintiff.

24 The plaintiff has not made out his claim that the Court should enjoin either the firm of Gunson Williams or Mr Gunson from acting for the seventh, eighth or eleventh defendants in these proceedings because of claimed potential conflicts of interest between such defendant since the plaintiff has no standing in the determination of such question.

25 The plaintiff has not made out his claim that the Court should enjoin either the firm of Gunson Williams or Mr Gunson from acting for the seventh, eighth or eleventh defendants in these proceedings because of claimed potential prejudice arising from the use of confidential or privileged information because there has not existed a privileged solicitor/client relationship between the plaintiff and either the firm as solicitors or Mr Gunson as counsel.

26 The plaintiff has not made out his claim that the Court should enjoin either the firm of Gunson Williams or Mr Gunson from acting for McMullen in action 153/2000 because there has not existed a privileged solicitor/client relationship between the plaintiff and either the firm as solicitors or Mr Gunson as counsel.

27 The plaintiff has not made out his claim that the Court should enjoin either the firm of Gunson Williams or Mr Gunson from acting for Tapping in joint criminal proceedings commenced by complaints numbered 92639/2001 and 12435/2001 on the grounds that there has not existed a privileged solicitor/client relationship between the plaintiff and either the firm as solicitors or Mr Gunson as counsel and because of the provisions of the Act, s123.