Determination
84In this case, each party submits that the conduct of the other was unreasonable in commencing, or defending, as the case may be, the proceedings. Furthermore, for the Plaintiff, it is submitted that the Defendants "surrendered" after conducting the litigation for some time, whilst the Defendant submits that the Plaintiff's case was doomed to failure.
85The first matter going to unreasonableness relates to the Defendants not accepting that they should not have continued to act for Mr Beatty following the correspondence of 11 February 2011. The converse is that the Plaintiff's conduct was unreasonable in requiring the Defendants to not act.
86In Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 at 582 - 583, a decision upon which both parties relied, Brereton J undertook a detailed examination of the authorities concerning the court's supervisory jurisdiction over legal practitioners. In that case, the first plaintiff applied for an order restraining a solicitor from acting on behalf of any of the defendants, not on the basis that the solicitor was in possession of confidential information of the plaintiffs which was at risk of disclosure, but on the basis that, in its supervisory jurisdiction, the Court should prevent the solicitor from acting, in this particular case, due to the likelihood of him being a material witness and having a perceived interest in the outcome of the proceedings.
87In relation to the inherent jurisdiction, his Honour summarised the following principles from the authorities (omitting the references to citations) at [76]:
"... 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 ...
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 ...
The jurisdiction is to be regarded as exceptional and is to be exercised with caution...
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 ...
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 ..."
88What should be noticed about Kallinicos v Hunt , however, is that his Honour found (at [78]) that not only was the solicitor, almost certainly, a material witness, but also that he might well be exposed to a suit, and have an interest in how the evidence turned out. The solicitor was in a clear position in which his client's interests, his own interest, and his obligation to the Court may well have been in conflict. There were serious allegations of wrongdoing and the possibility of the solicitor being implicated in improper conduct.
89In Mitchell v Burrell [2008] NSWSC 772, in which Brereton J found that the solicitor "may be a witness on a material matter, and that his evidence may be controversial", his Honour added:
"That said, I do not accept that the mere circumstance that a solicitor will be a material witness, even on a controversial matter, of itself justifies restraining the solicitor from continuing to act ...
... the cases indicate ... that the line is crossed only when the solicitor has a personal stake in the outcome of the proceedings or in their conduct, beyond the recovery of proper fees for acting, albeit that the relevant stake may not necessarily be financial, but involves the personal or reputational interest of the solicitor, as will be the case if his or her conduct and integrity come under attack and review in the proceedings. The presence of such circumstances will be a strong indication that the interests of justice - which in this field involve clients being represented by independent and objective lawyers unfettered by concerns about their own interests - require the lawyer to be restrained from continuing to act."
90His Honour also referred to Kooky Garments Ltd v Charlton [1994] 1 NZLR 587, in which Thomas J recognised the distinction between the situation where solicitors were, in effect, called on to defend their own actions, or advice, on the one hand - in which case it was inappropriate that they act - and other cases, and continued:
"What I have said, of course, does not apply where the advice given is unrelated to liability or the question in dispute. Advising a client to prosecute or defend a claim does not attract these observations. They are restricted to the situation where the acts or omissions of the solicitors are an integral part of the other party's complaint or the client has been sued in circumstances where he or she was acting on the advice of their solicitors and it is effectively that advice which is in issue. In such cases, apart altogether from the position of the client, the Court is not receiving the assistance of counsel who are observably independent. Independence is a function of counsel. The Court is entitled to assume that solicitors and counsel appearing before it possess that independence."
91Brereton J also referred to the reasons for judgment of Windeyer J in Scallan v Scallan [2001] NSWSC 1078, in which his Honour had said, at [8] - [10]:
"[8] The interest of the court in these matters is that there should not be a conflict of interest arising as a result of the representation. Usually a restraining order is sought by a former client to prevent that client's former solicitor from acting in proceedings against that client, or in proceedings where confidential information of the former client might be used or divulged. The conflict said to arise in the present case is a conflict between the duty to the client and the duty to the court. In most such cases, what would be involved would be some personal interest of the lawyer in the litigation. For instance, there are cases where a particular result would be likely to result in a claim in negligence against the solicitor which might be thought to influence the frankness of the solicitor as a witness in the conduct of the action, perhaps giving rise to an apprehension as to incomplete disclosure of documents and the like. Afkos Industries Pty Ltd v Pullinger Stewart (2001) WASC 69 is a good example of such a case where an injunction was granted.
[9] When dealing with matters such as the present, reliance is almost always placed upon a passage on the judgment of Campbell CJ in Chapman v Rogers, ex parte Chapman [1984] 1 Qd R 542 at 545, which I should add did not really bear upon the question to be decided in that case. In that case a solicitor acting for a man charged with driving under the influence gave evidence of his observations of the client about an hour after a breathalyser test was administered by police. After referring to the Solicitors Professional Conduct r11 which stated that a practitioner appearing in court for a client, should withdraw if it became clear that that practitioner or his partner or employee was likely to be a witness on a material question, the Chief Justice went on to state:
I appreciate that the opening words of that ruling refer expressly to a practitioner "appearing in Court for a client"; the solicitor here was not himself appearing in court so that the terms of the ruling do not seem to be directly applicable to the present circumstances. However, for the reason that it is desirable to avoid any suggestion of real or apparent conflict between the duty to the court and the obligation to the client, I consider that it is generally unwise for a solicitor, who is not himself appearing as advocate or as instructing solicitor in court but who is aware that it is likely that he will be called as a material witness (other than in relation to formal or non-contentious issues), to continue, either personally or through his firm, to represent the client if this can be reasonably avoided. It may be unavoidable in some cases such as those involving complex commercial issues. I do not suggest, and it was not suggested to the magistrate or to us, that the solicitor's evidence in this case should not have been accepted and acted upon by the magistrate in relation to the matters of fact sought to have been established thereby. However, I have mentioned the matter generally as I think it is desirable that it be drawn to the attention of the legal profession.
[10] Drummond J in Yamaji v Westpac Banking Corp (1993) 42 FCR 431 stated that breach of the rule of professional conduct would not found jurisdiction for an injunction unless such jurisdiction arose as a result of the power of the Supreme Court to control its practitioners. Accepting that jurisdiction exists in this Court, the basis on which an injunction was sought was not clearly articulated by counsel for the applicants other than upon the basis of the decision in Chapman v Rogers and the passage which I have set out. Nevertheless I proceed on the basis that the true argument was that there was some risk of conflict between the duty of the solicitor to the court and the duty of the solicitor to the client. That supposed conflict really assumes that a solicitor might give tailored or biased evidence or even false evidence to assist a client, or to support the solicitor's actions so as to negative negligence, but that same conflict could perhaps be said to arise where a solicitor advises a client on discovery. It is, I think, apparent that the conflicts would only arise if the solicitor had an interest in the result of an action, additional to his interest in doing his best for a client to have success in an action."
92In the present case, senior counsel for the Plaintiff put that Mr Madden was a potential witness who either party might call, and certainly with whom each party would wish to confer. (It could not have been suggested that he ever acted as a solicitor for the Plaintiff. Thus, this is not a case of a former client seeking to restrain a solicitor from acting.)
93Senior counsel for the Defendants did not dispute that Mr Madden "may have been a witness in the District Court proceedings". He accepted that the suggestion that Mr Madden would be a witness "was not a far-fetched or fanciful possibility". He said, however, that even now (as it had been in April 2011) it was simply too early to tell.
94Neither senior counsel submitted that Mr Madden "almost certainly" would be a witness. Nor was there any suggestion that Mr Madden might give biased, or false, evidence in favour of Mr Beatty, or that he needed to have any concerns about his own negligence.
95His interest in the result of Mr Beatty's action, additional to any interest that he might have as a shareholder in the firm of solicitors acting for Mr Beatty, was not identified, other than by reference to his complaint made to the NSW Ombudsman and the affidavit of 24 November 2009 sworn in the proceedings brought against Mr Houghton as administrator of the Trust.
96In regard to the affidavit, I note, in passing, that it was not suggested in the evidence, or in the submissions, that what Mr Madden had stated was false, or inaccurate. (In any event, the reference to Mr Madden's affidavit was raised in the Plaintiff's solicitor's affidavit of 18 May 2011.)
97Also, it is to be noted that, in any event, Mr Madden was not the solicitor acting for Mr Beatty in the District Court proceedings. He was an employed solicitor at the firm of solicitors that was acting for Mr Beatty and the husband of the solicitor with control of the matter within that firm.
98It had been made clear, from the contents of the letters of 16 February 2011 that Mr Madden had not, until then, played any part in the District Court proceedings on behalf of Mr Beatty. It was not made clear, however, that he would continue to not play any part, or that a "Chinese wall" would exist between the first Defendant and him in the future.
99In relation to Mr Madden being an employed solicitor in the firm representing Mr Beatty, I record what Brereton J said in Mitchell v Burrell at [25]-[26]:
"[25] ... There are suggestions in some of the cases that where one solicitor in a firm is disqualified from acting, it need not invariably follow that the others are also disqualified. In Bahonko v Nurses Board of Victoria (No 3) [2007] FCA 491, Middleton J restrained an employed solicitor from continuing to act in a matter, but held that the firm by which she was employed was still at liberty to act. In Scallan , the solicitor who was a potential witness was a consultant to the firm (although he had been before then the firm's longstanding senior partner), but that does not advance the matter very far, because no injunction was granted in any event. It is notable that, in both of those cases, it was an employed solicitor whose conduct was in question, albeit in Scallan one who had been recently a senior partner. Against that, most cases point to the view that, in this respect, the law treats a firm of solicitors as a single entity, so that if one partner is disqualified, the firm should not act [ Chapman v Rogers; ex parte Chapman , 545; Bowen v Stott [2004] WASC 94, [66] (firm restrained from acting where one partner was likely to be a material witness); Kooky Garments Ltd v Charlton , 590 (cited with approval in Afkos Industries Pty Ltd v Pullinger Stewart (a firm) [2001] WASC 69, [15])]. In principle, given the incidents of the relationship of partnership (involving utmost good faith and loyalty between the partners), and those of solicitor and client (requiring any partner in a firm to do all in his or her power and use all knowledge and information available to them, including to their partners, to assist the cause of the client), it is difficult to see how, where one partner is disqualified, it could be acceptable for another partner in the same firm to continue to act.
[26] In any event, on the facts of this case I am satisfied that the replacement of Mr Morey by Mr Jurd does not alleviate the concerns which the reasonable lay observer would entertain, and that such observer would remain concerned that decisions whether or not to call Mr Morey, and if he were called by the defendants as to how to cross-examine him, might be influenced by Mr Jurd's obligations to his partner, as well as or in preference to his obligations to his client. Once again, the problem can be highlighted in this way: if the versions of Mr Morey and Mrs Mitchell did not coincide, who would Mr Jurd instruct counsel to submit should be believed, his client or his partner? Accordingly, the reasonable lay observer would continue to entertain reservations that decisions might not be made exclusively in Mrs Mitchell's interests but might be influenced by the interests of the firm and Mr Morey. An independent solicitor would remove the concern that interests other than Mrs Mitchell's might influence important decisions in the conduct of her case."
100Yet, it might have been difficult for the Defendants to represent Mr Beatty if Mr Madden's evidence did not support his case. However, it was not, in February 2011, and it is not now, clear, to what Mr Madden's evidence would go, or whether it would be generally, or specifically, supportive of Mr Beatty's evidence. I agree that it was then, and is now, unnecessarily speculative to attempt to predict before the pleadings are finalized, what witnesses will be called and the materiality of his, or her, evidence.
101I am also not satisfied, upon the material before me, that even if Mr Madden was a material witness, there was a potential conflict of interest between his duty to the court and any duty that he might have to Mr Beatty as a client of the firm in which Mr Madden was employed. The Plaintiff has failed to demonstrate that there was a reasonable basis to come to the conclusion that there was a reasonable apprehension that Mr Madden would somehow breach his duty to the court if called to give evidence.
102Senior counsel for the Plaintiff also relied upon a passage in Ismail-Zai v State of Western Australia [2007] WASCA 150; (2007) 34 WAR 379 at [30] - [34], which is in the following terms:
"[30] As I have foreshadowed, the courts have often exercised their inherent jurisdiction to restrain lawyers from acting against former clients when the consequences of doing so would be to undermine the proper administration of justice... The test to be applied is that stated by Brereton J in Kallinicos at [76] as follows:
...
[31] The importance of the appearance of justice has often been emphasised in this context ...
[32] There are cases in which it has been said that there is a potential for public confidence in the administration of justice to be undermined if there is an appearance that a lawyer can readily change sides ...
[33] In Black , the New Zealand Court of Appeal dealt with the misuse of information that was not confidential in the strict sense of that word, in the context of an appeal against a declaration that a long time family solicitor should not act on behalf of the estate of a deceased member of the family in an action brought against it by another family member. Cooke P said (at 406):
... approaching the case by considering simply the danger of misuse of confidential information, I do not think that [the primary Judge] has been shown to have been wrong in his view that the practitioner ... is definitely disqualified on the ground that the reasonably informed person would not be satisfied that no use of confidential information would occur. Further, I would adopt another passage at p 48 in the Judge's reasons:
Last, the lawyer (and particularly the family solicitor) gets to know personalities. He gets to know something, and often a good deal, of a former client's weakness, fears and reactions. It is as much information passed on as is verbal or written description. Like all information, it can be misused for another person. There could be cases, perhaps with a former client witness' credibility crucial, where such knowledge of personality inevitably acquired by virtue of the former solicitor/client relationship could amount to a real information consideration. There will be cases where a former client's very real fears that he will be cross-examined from a position of unfair superiority should be given due consideration.
Whether that kind of consideration should be put exclusively under the heading of confidential information is in my view unimportant. As to those who may be allowed to represent parties to argue cases, the Courts have an inherent jurisdiction ... The jurisdiction extends to the propriety of a representative appearing in a particular case: it is not then a question of the right of practice generally ... but a question concerning what is needed or may be permitted to ensure in a particular case both justice and the appearance of justice.
[34] Richardson J (at 408) considered that knowledge of personalities and relationships derived from a professional relationship may not be confidential information in a strict sense. However, he said that "it would not be unreasonable for a family member to feel chagrin and concern to find a lawyer who had built up knowledge of that kind was able consciously or unconsciously to draw on it when acting against that member of the family". He was satisfied (at 412) that reasonable members of the public knowing of the solicitor's association with the family, in that case, would consider that justice would not be seen to be done if, when dissension developed within the family, he took sides as counsel and acted against the plaintiff. He also considered (at 412) that:
... the inherent jurisdiction of the Court provides a more satisfactory basis for determining the question than the indirect and somewhat artificial development of a special rule, which treats knowledge of a client (as distinct from knowledge of his or her affairs) gained through a professional association as confidential information under the umbrella of protection of misuse of confidential information.
McKay J, in that case, also relied upon the inherent power of the court to control the conduct of proceedings before it as a sufficient justification for upholding the decision (at 417-420)."
103The nature of the knowledge of personalities, weakness, fears, reactions and relationships derived from Mr Madden's professional relationship whilst a member of the Board and/or as its Chairman was not made clear. Even accepting that the passage applies in the present case, the Plaintiff has not satisfied me that there was any such concern, or if there was, what that concern was, or that any such concern was a reasonable one.
104In my view, and subject to one matter, the Defendants were not acting unreasonably in coming to the view that Mr Beatty's choice to have them act for him entitled them to act. They were entitled to rely upon the principle that the court's jurisdiction to restrain a legal practitioner from acting in proceedings is an exceptional one, that it is discretionary, and that it must be exercised with appropriate caution and circumspection. They were also entitled to believe that a Court would give due weight to the public interest and to a litigant not being deprived of a legal practitioner of his choice without good cause.
105Furthermore, in relation to the first Defendant, no objection had been taken to her, or her former employer, acting for Mr Beatty. This, in my view, is a relevant fact that the Defendants were entitled to consider, since Boyd & Longhurst, for some years, and at the relevant time, had been the "exclusive provider" of legal services to the Plaintiff. It was also relevant because the first Defendant, no doubt, between the commencement of the District Court proceedings and when the Defendants commenced to act, acquired extensive knowledge of the facts and circumstances relevant to the District Court proceedings and the claims by Mr Beatty since she had acted as the solicitor on the record.
106As recorded by Brereton J, the timing of the application is one of a number of considerations to be taken into account in applying the test whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice, including the appearance of justice, requires that a practitioner be restrained from acting in a particular matter.
107Of course, the personal and other connection between the first Defendant and Mr Madden was a relevant matter for the Plaintiff's solicitor to consider. However, the fact that Mr Madden and the first Defendant were married was fully disclosed and adverted to by her.
108After consideration of this matter, the Plaintiff's solicitor would need to have been satisfied that there were reasonable grounds for concluding that Mr Madden would be a material witness, and that there was a potential conflict of interest between his duty to the court and any duty that he might have to Mr Beatty as a client of the Defendants.
109Whilst it appears that the Plaintiff's solicitor considered the first element, I am not satisfied that he gave enough consideration to the second. Furthermore, no facts were identified which indicated that if the Defendants continued to act in the District Court proceedings, any rights, or interests, of the Plaintiff might have been infringed.
110Looking at the letter from the Plaintiff's solicitor of 7 March 2011, leaving aside the implied threat contained in it, one asks, rhetorically, what business was it of the Plaintiff to police the ethical obligations of the Defendants and of Mr Madden? EM Heenan J put the matter succinctly in Holborow v Macdonald Rudder [2002] WASC 265, at [30]:
"The duty of the legal practitioner is not to his client's opponent and he is not answerable to his client's opponent. His duty is to the court and he is certainly answerable to the court and to his or her professional and disciplinary bodies."
111Finally, the Defendants' conduct in ceasing to act immediately when it became obvious that to maintain their stance was not in the best interests of Mr Beatty, demonstrates that it was those interests that were in the forefront of the first Defendant's (and hence the second Defendant's) mind.
112One matter that I considered might demonstrate some unreasonableness on the part of the Defendants is the failure to reply to the letters of 23 February 2011 and 7 March 2011. The Defendants could have identified the bases for their belief that it was not unreasonable for them to continue to act for Mr Beatty. They could have informed the Plaintiff's solicitor that Mr Beatty wished them, and the first Defendant in particular, to continue to act, and that, if they reached the view that Mr Madden would be likely to be a witness, further consideration would be given to whether they would continue to act. They, also, could have indicated that, meanwhile, the intention was to avoid having Mr Madden play any role in the conduct of the District Court proceedings.
113Whilst such a response may not have assuaged the concerns of the Plaintiff, it certainly would have given it cause to pause before it gave instructions to commence the Supreme Court proceedings. The failure to respond, in the light of the threat to commence proceedings in each of the letters, made the commencement of the proceedings in the Supreme Court, if not inevitable, at least likely.
114Senior counsel for the Defendants submit that the failure to respond to the letters should not result in an order for costs in favour of the Plaintiff. I agree, but that failure, particularly when taken in the context of the detailed letter of 24 May 2011, is relevant to whether the court should make an order in favour of the Defendants.
115I have earlier noted that in the letter dated 24 May 2011, from Jones Rolfe Rudd, the bases for the Defendants adopting the view that they had adopted until that time, were explained in detail. I have also noted the response from the Plaintiff's solicitor and the persistence with the claim for costs, until recently, to be calculated on the indemnity basis.
116I turn next to the Plaintiff's argument that in agreeing to give the undertakings, the Defendants effectively "surrendered". I note, in this regard, Fire Containment Pty Ltd v Robins (No 2) in which Gzell J had to determine whether a plaintiff who had discontinued proceedings when satisfactory undertakings were given by the defendant, should have its costs. The plaintiff said, in that case, that the giving of the undertakings was sufficient to constitute an "event" from which costs should follow, even in the absence of a full hearing on the merits. His Honour rejected this contention stating at [11] - [12]:
"What lies at the heart Lai Qin is that, without a hearing on the merits, there is no event to enliven Pt 42 r 42.1 of the Uniform Civil Procedure Rules. That may be concluded from the above passages. Success in an action or on particular issues is the fact that usually controls the exercise of the discretion as to costs. That is the event. But when there has been no hearing on the merits, there is no event. The court is deprived of the factor that usually determines whether or how it will make a costs order.
[12] On this analysis, the Plaintiff's basis for seeking an order for costs, that acceptance of the undertakings was the event for the purposes of Pt 42 r 42.1 of the Uniform Civil Procedure Rules, must be rejected."
117In this case, there is evidence of the reasons why the undertakings by the Defendants were given. Furthermore, in the letter of 24 May 2011, it was made clear that they disputed the Plaintiff's entitlement to the relief claimed.
118I have earlier recorded my view that the Defendants' conduct in agreeing to no longer act, when it became obvious that it was not in Mr Beatty's interest to continue to do so, represents reasonable conduct on their part. To permit costs to have been incurred in the District Court proceedings, both in time and money, to ensure that they would continue to act, would have demonstrated unreasonable conduct. For this reason too, the giving of the undertakings did not amount to "surrender" as that word is used in the authorities.
119In the circumstances, and exercising my discretion on the burden of costs, I am of the view, that the Plaintiff should not receive its costs of the proceedings.
120I turn then to whether the Plaintiff should pay the Defendants' costs. It must be remembered that the Defendants filed no affidavits in the substantive Supreme Court proceedings and that there were only one or two listings before the Court between the date of commencement of the proceedings and the date when the matter was settled.
121I note also that upon informing the Plaintiff's solicitor of the retainer of new solicitors, the Defendants suggested that each party should pay its or their own costs. The offer was rejected and it would appear that a significant amount of costs were sought. The rejection of the Defendants' offer did not demonstrate reasonable conduct on the part of the Plaintiff.
122I cannot imagine the costs of the Defendants of the proceedings were significant. Even though they did not respond to the letters of 23 February 2011 and 7 March 2011, I am of the opinion that they should have their costs of the proceedings, bearing in mind the conduct of the Plaintiffs and their own conduct in resolving the Supreme Court proceedings as soon as it was realized that it was in Mr Beatty's best interests to do so.
123In the circumstances, the Plaintiff having failed on its notice of motion, and the Defendants having succeeded on their notice of motion, the Plaintiff should pay the Defendants' costs, including of the costs of the proceedings.
124I order that:
(a) the Plaintiff's notice of motion filed on 11 August 2011 be dismissed;
(b) the Plaintiff to pay the Defendants' costs of the proceedings and of the notices of motion.