Mancini v Mancini

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

JUDGMENT 1 HIS HONOUR: These are satellite proceedings attendant on proceedings 2955 of 1999 in which the plaintiff claims declarations that the defendant has committed various breaches of duty and misconduct in affairs of Wesco Industries Pty Ltd, Wesco Quarry Products Pty Ltd and Wesco Ready Mixed Concrete Pty Ltd, referred to as the Wesco Group. The plaintiff and the defendant were formerly married; their marriage has been dissolved. Each of them owns one of the two issued shares in each of the companies and each of them is or was until 29 June 1999 one of the two directors of each company. In these proceedings the plaintiff seeks to restrain the defendant from retaining to act for him in the principal proceedings Mr Beale of counsel and Messrs McGrath Dicembre & Co, Solicitors of Fairfield, each of who acted for one or all of the companies in the Wesco Group in legal business conducted before the principal proceedings were commenced on 1 July 1999. In other satellite proceedings 3178 of 1999 Mr Mancini sought to restrain Messrs Harrisons Lawyers, solicitors of Parramatta, from acting for Mrs Mancini. On 19 July I embarked on hearing both satellite proceedings together but proceedings 3178 of 1999 were resolved by consent. 2 It was established by agreement that before 1 July 1999 Messrs McGrath Dicembre & Co from time to time acted for Mr Mancini, and acted as solicitors for and gave advice to companies in the Wesco Group on a number of occasions for up to four years; the evidence explicitly deals with business up to two years earlier. It was not however admitted and there is no evidence to show that that firm ever had a general retainer to conduct business for the companies in the Wesco Group, or that no other solicitors acted for those companies during those years. 3 Although the solicitors conducted a number of pieces of legal business for the group and for Mr Mancini, and sometimes received correspondence and information from Mrs Mancini, and Mr Beale saw her in conference in some business relating to land development or some similar poorly identified business, the evidence does not show that they received from her any identified information which has a bearing on the principal litigation. 4 The plaintiff did not herself give evidence in these proceedings and no evidence establishes in a specific way that any confidential information, or indeed any specific information was furnished to the lawyers. Nor was it established that the plaintiff herself was ever their client. She communicated to them on at least one and possibly more occasions, but did so as a director of the companies and with information relating to their affairs rather than to legal business of her own. The view that some confidential or other information which it is appropriate for the court to protect was communicated to those lawyers is left to inference from the fact that they acted for the companies and in some cases for Mr Mancini in various pieces of legal business, which was listed in the affidavit of her solicitor Ms Small, together with the fact that the matters which may be put in issue in the principal proceedings relating to alleged breaches and failures of Mr Mancini range very widely, although they have not been defined by pleadings or in any other clear way. It is also left to inference that it is likely that those lawyers will be in a position to use some of that information while acting for Mr Mancini in the proceedings. 5 In recent years control by Courts of the retainer of lawyers and others concerned in conducting litigation on grounds relating to protection of confidential information has received much attention: see Chris Edmonds,"Trusting Lawyers with Confidences"(1998) 16(3) Australian Bar Review 222 and Mr Justice Ipp, "Lawyers Duties to the Court" (1998) 114 Law Quarterly Review 63 - Aspects of the subject were recently considered by the House of Lords in Bolkiah v KPMG [1999] 2 WLR 215. 6 In this Division two recent cases have made classifications of the ground on which courts control the conduct of lawyers. In Oceanic Life Ltd v HIH Casualty & General Insurance Ltd [1999] NSW SC 292, Austin J at p35 referred to the law with respect to the solicitor's duty to the court and the court's discretion to supervise the conduct of its officers, and ethical principles developed and applied by a professional body. In Watson v Watson (25 May 1998) Santow J referred to Bar Rules 87 and 107 which relate to acting against a former client and acting while in possession of information confidential to another party or another person. Although the Bar Rules are not directly enforceable at the suit of a litigant they do illustrate appropriate professional conduct such as the court may enforce in its supervisory power. The question of jurisdiction is not a difficulty where the court is asked to exercise its supervisory power over professional conduct. Otherwise it is necessary that it should be shown that restraint is required to protect confidential information. 7 It is of importance to observe that information generally is not protected; the protection available relates to confidential information, and is available to the person entitled to the confidence. No circumstances were put forward in which Mrs Mancini herself is entitled to the protection of the law against the use of any particular information by Mr Mancini or by the lawyers whom he has chosen to retain. It is not possible to address in any clear way and to come to a decision on protection of any alleged confidential information without identifying what the confidential information is in a sufficiently specific way to enable it to be identified. Without doing that it is not possible to come to a conclusion on whether the information truly is confidential, to consider and appraise the circumstances in which it came into existence and was communicated, to come to any conclusion about whether protection is appropriate, or to make any enforceable order. A case about confidential information cannot be nebulous. Confidential information which once existed may no longer be confidential; it may no longer be available although it was communicated in the past; it may not be material to any use which might now be proposed to be made of information. Without specificity a claim to protection cannot be defended or decided on any fair procedural basis, and a general allegation of the kind put forward here to the effect that from the nature of the past legal business confidential information must have been communicated should not in my opinion be upheld. 8 The plaintiff's counsel claimed that she is entitled to protection in right of the companies. If this were correct, the claim could not succeed because of the lack of specificity of evidence relating to any particular information or any circumstances making information confidential. The plaintiff's counsel contended that she was in a position to put forward a case derivatively on behalf of or in the interest of the companies on two bases. One related to s.1324 of the Corporations Law and one to the so called fifth exception to the rule in Foss v Harbottle (1843) 2 Hare 461, 67 ER 189. 9 Subsection 1324(1) of the Corporations Law empowers the court on the application of a person whose interest would be affected by conduct in contravention of the Corporations Law to grant an injunction restraining another person from engaging in that conduct. It was said that for the defendant to retain the lawyers referred to would be a breach of duties imposed by s.232 of the Corporations Law. The defendant has been (and perhaps still is) a director and hence an officer of each of the companies; for that reason he is subject to the duties of honesty, care and diligence and other duties imposed by subsections (2), (4), (5) and (6) of s.232. Counsel did not refer me in any clear way to any line of reasoning which would show that for Mr Mancini to retain the lawyers referred to would be a contravention of s.232, or of any other provision of the Corporations Law; and in my opinion there is none. Counsel did not refer me to any reasoning or circumstance which would show that an injunction under s.1324 would protect the interests of the companies, or any circumstances which would show that the interests of the companies are adversely affected by Mr Mancini's retaining the lawyers referred to. 10 The power in subs.1324(1) is discretionary and in the absence of any sound ground related to the purposes of that subsection for making an injunction it would not be appropriate to make one. Having regard to the general purposes of the Corporations Law the relevant discretionary considerations should relate to the interests of the company affected by the contravention, and the fact that the plaintiff is or may be a person whose interest would be affected by the retainer, while it may give her standing to make the application, does not constitute a positive ground for granting the injunction. 11 The view that the exceptions to the rule in Foss v Harbottle include a fifth or residual exception when justice requires that a member be allowed to sue for a wrong done to the company is supported by the decision of Young J in Mesenberg v Cord Industrial Recruiters Pty Ltd (1996) 39 NSWLR 128 and by authorities there referred to and discussed by Young J in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413. It was left open in the decision of the Court of Appeal of Victoria in Link Agricultural Pty Ltd v Shanahan & Ors [1998] VSCA 3: see Kenny JA at para 22. 12 Although counsel told me that he relied on the supposed fifth exception to the rule in Foss v Harbottle, he did not refer me to any grounds upon which that exception should be invoked; the exception if it exists relates to circumstances in which it is just to allow a member or other person to bring proceedings for a remedy to which a company is entitled without actually having the company's authority to do so. It is not enough that the exception should exist; there should also be evidence showing that as a matter of justice the plaintiff should be allowed to invoke the right of another person. The fact that a company having two directors has its affairs in a state of deadlock because the directors are in conflict is not in my view sufficient to show that the fifth exception applies; if it were it would be a commonplace for directors or members of a company in the state of deadlock to bring claims on behalf of the company without its actual authority. I have concluded elsewhere that it has not been shown that any of the companies have a claim on any clear basis against Mr Mancini to restrain the use of confidential information, and I will add, as counsel's submissions invoked breach of fiduciary duty, to restrain any supposed breach of fiduciary duty. 13 In my opinion the plaintiff is not in the position to rely on rights of the company on either of these grounds. 14 However the court's control over the employment by litigants of particular lawyers is not limited to circumstances in which some legal or equitable claim to protection can be made out. Control may also be based on the court's general power to control the conduct of its own officers, including solicitors and counsel, and to control their employment by particular litigants. 15 I asked counsel to refer me to any case in which solicitors who have acted for a company in its general affairs, later act, when conflict has emerged, for one director against another. They were unable to do so. So far as I am aware there is no established judicial disfavour of such conduct and I do not see why there should be, except in cases where some misuse of relevant confidential information is established. 16 On the evidence there is no basis for a finding that Mr Beale is in breach of the Bar Rules, or that the solicitors have acted in any way of which the court should not approve.

Order: The proceedings are dismissed with costs. ********

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