McVeigh & Anor v Linen House Pty Ltd & Rugs Galore Australia Pty Ltd & Ors [1999] VSCA 138

Court of Appeal (Vic)|1999-09-03|Before: CALLAWAY and BATT, JJ.A.

LEGAL PRACTITIONERS - Duty of loyalty - Acting for party against former clients in respect of very transaction and period in which they had acted for latter - Court of Appeal's jurisdiction to restrain practitioners from acting in appeal - Present client's passive attitude to appeal no answer.

On 11 June 1999 a summons was filed in this proceeding on behalf of Dean Royston McVeigh and Colin McDonald. The summons sought a stay of orders made by Gillard, J. on 4 June 1999. Further orders ancillary to the proposed stay were also sought. Two of them reflected ancillary orders that Gillard, J. had made in connexion with stays granted by him. The other was to the effect that the appellants "shall disburse", which we take to mean shall not disburse, any funds made available in accordance with the terms of the relevant deed of company arrangement other than in the payment of legal expenses reasonably incurred by them.

The hearing of that summons was twice adjourned by consent. It is apparent that none of the parties represented before us this morning is in a position to argue it. It also appears that each of the parties desires a stay. There is at present in force a stay granted by Gillard, J. which will expire on 10 September 1999. Our disposition of the summons will not prevent the parties, or any of them, making such application to his Honour as they or it may think fit.

In the circumstances I have briefly described, none of the parties opposes refusal of the relief sought in paragraphs 1 and 2 of the summons. The only other relief sought is for expedition. That application is replicated in another summons that is before us. Accordingly the order of the Court is that the applications made in paragraphs 1 and 2 of the summons filed on behalf of Dean Royston McVeigh and Colin McDonald on 11 June 1999 be refused.

Earlier this morning the Court dealt with a summons filed in this proceeding on 11 June 1999. There is also before us a summons filed on behalf of the appellants on 25 August 1999. The respondents to the second summons are the respondents to the appeal, namely, Linen House Pty Ltd and Rugs Galore Australia Pty Ltd, together with Messrs Wisewoulds, Pindos International Imports Pty Ltd, Real Enterprises Pty Ltd and Young & Rubicam Mattingly Pty Ltd. Appearances were announced on behalf of the appellants and all the respondents except Young & Rubicam Mattingly Pty Ltd. The solicitors for the appellants have undertaken by counsel to file an affidavit of service by 2.15 p.m.

The summons applies for eight orders, but Mr Hayes abandoned his application for the first four and modified the terms of the fifth. The fifth order sought, as modified, is an injunction restraining Messrs Wisewoulds from acting for the second respondent in the appeal.

The summons also seeks an order that the hearing of the appeal be expedited and that it be heard together with the appeal in proceeding number 5765 of 1999. We consider that that relief should be granted, mainly because of the pendency of the second appeal. We should not, however, direct that the appeals be heard together, but rather that they be listed together. It will then be for the Court before which they are listed to determine whether they should be heard in sequence or together. We note that there is no party to the other appeal who is unrepresented before us.

The eighth application is simply for further or other relief.

In those circumstances we propose to reserve our decision on the application for an injunction against Messrs Wisewoulds until 3.30 p.m.. Mr Denton has no interest in that matter, so we shall now make orders disposing of the rest of the summons.

The Court will make the following orders on the summons filed on behalf of the appellants on 25 August 1999:

1. That the hearing of the appeal be expedited and that the appeal be listed together with the appeal in proceeding number 5765 of 1999.

2. That the relief sought in paragraphs 1 to 4 of the summons be refused.

3. That the appellants pay the costs of all the respondents, except Messrs Wisewoulds and Young & Rubicam Mattingly Pty Ltd, of the applications made in the summons other than that in paragraph 5.

4. The Court reserves its decision on the application made in paragraph 5.

The Court made two orders this morning. The second disposed of most of the summons filed on behalf of the appellants on 25 August 1999. We direct that the "other matters" part of that order include the following:

The appellants unconditionally withdraw the allegation of collusion touching variously Mr Crutchfield, Mr Marsh, Messrs Wisewoulds, Mr Wallace and Messrs Rosendorff made in paragraphs 32 to 34 and paragraphs 38 to 40 of the affidavit of Colin Raymond McDonald sworn 25 August 1999 and the exhibits thereto and in paragraph 15 of the affidavit of Dean Royston McVeigh sworn 2nd September 1999.

I invite Batt, J.A. to deliver the first judgment in relation to the application for an injunction in paragraph 5 of the summons.

It is necessary now to deal with the remaining relief sought in the summons filed on behalf of the appellants, Dean Royston McVeigh and Colin Raymond McDonald, on 25 August 1999, namely, the claim as modified for an injunction restraining Wisewoulds, a firm of legal practitioners (or, as I shall speak of them, solicitors) from acting for the second respondent, Rugs Galore Australia Pty Ltd (which I shall call "Rugs Galore") in the appeal in this proceeding, number 4963 of 1999.

On 26 March 1999 a Deed of Company Arrangement was executed between Rugs Galore as the company and the appellants as administrators. By notice of motion filed on 1 April 1999 in this proceeding Linen House Pty Ltd (which I shall call "Linen House") sought an order under section 445D of the Corporations Law terminating the deed, together with alternative and consequential relief. The consequential relief was that Rugs Galore be wound up in insolvency. The appellants were not party to that proceeding, but at a directions hearing on 9 April Gillard, J. ordered, amongst other things, that copies of all court documents thereafter filed in the proceeding be served on them. When the hearing of the proceeding began on 13 May his Honour raised the question of the appellants' participation. He informed counsel that he was "concerned about some of [their] actions and omissions". In consequence, the appellants were represented by senior counsel the next day. His Honour's concerns were elaborated, and two affidavits were filed on their behalf, one sworn by Mr McVeigh and another by an independent chartered accountant. On 2 June Gillard, J. delivered judgment. He said that he proposed to order that the Deed of Company Arrangement be terminated and that Rugs Galore be wound up in insolvency. He expressed the opinion that neither of the appellants, whose conduct, particularly that of Mr McVeigh, was criticised in the reasons for judgment, should be the liquidator. His Honour indicated, however, that he would hear further submissions from counsel.

On 4 June Gillard, J. ordered that the Deed of Company Arrangement be terminated. His Honour did not order that Rugs Galore be wound up. (Reasons for not ordering that it be wound up were published on 8 June.) His Honour also ordered that, "the respondents", which I take to mean Rugs Galore, pay the applicant's costs of the proceeding and that the order be stayed until 18 June 1999 subject to certain conditions, which it is unnecessary to mention.

On 15 June his Honour extended the stay until 23 July. He also extended the time within which to appeal until that date. The appellants have appealed, alleging a denial of natural justice and various errors of law. There is no suggestion that they need leave to appeal. His Honour made further orders on 18 June and 9 July. The first order joined the appellants as respondents to the proceeding. The second extended the stay until 4.30 p.m. On 10 September 1999, or further order. Both extensions of the stay were subject to conditions, which again it is unnecessary to mention.

The solicitors acting for the appellants in the appeal are Deacons Graham and James (whom I shall call "Deacons"). Those acting for the second respondent, Rugs Galore, are Wisewoulds. It appears that the appellants' appointment as administrators of Rugs Galore on 17 February 1999 was "referred to" Mr McVeigh by Mr Axup, a member of the firm Wisewoulds. Mr McVeigh agreed to instruct Wisewoulds in the matter. By letter of 3 March to Mr Axup he requested that Wisewoulds act on his behalf to inform one Dowson, the director of Rugs Galore, whose employment the appellants had terminated, of his legal responsibilities. Wisewoulds wrote to Mr Dowson's solicitors accordingly on 4 March. The letter commenced: "We act for Dean Royston McVeigh". On 12 March Mr McVeigh requested Wisewoulds to prepare the Deed of Company Arrangement which was necessary if Rugs Galore was to pass to administration under a deed. Wisewoulds prepared a draft deed. On 23 March Mr McVeigh sought a second opinion about the draft from Deacons. He also sent Deacons the correspondence between Wisewoulds and Mr Dowson's solicitors. As a result of advice from Deacons, Mr McVeigh on 25 March sent to Wisewoulds drafting notes prepared by Deacons in relation to the draft deed. The settled Deed of Company Arrangement was executed by the company, Rugs Galore, and the appellants and is dated 26 March 1999. It is endorsed with Wisewoulds' name and Mr Axup's initials as the solicitors who prepared it.

Linen House instituted its proceeding, as I have said, on 1 April. What occurred between Mr McVeigh and Wisewoulds as a result of that I take from a combination of the affidavits of Mr Marsh sworn on 1 September and Mr McVeigh sworn on 2 September. On 6 April Mr Axup asked Mr McVeigh that he might act on his behalf. Mr McVeigh said that the appellants had handed day-to-day control back to Rugs Galore under the deed and, therefore, it was for the company to instruct in relation to the proceeding. He also said that he believed that it was important that he obtained his own independent advice, and he suggested that Mr Axup contact Pindos International Imports Pty Ltd (which I shall call "Pindos International") or Rugs Galore in relation to Linen House's application. He said that he had sent the court papers to Deacons to advise and protect him if and when the appellants were attacked.

Pindos International was the principal secured creditor of Rugs Galore and had made the proposal which formed the basis of the deed.

Wisewoulds rendered to the secretary of "Rugs Galore Australia Pty Ltd (Administrators appointed)", care of Mr McVeigh's then firm, an interim account for the period 30 January to 30 March 1999, which listed, amongst the work charged for, drawing and engrossing notices of appointment, attending upon Mr McVeigh upon his being appointed, subsequent attendances upon the offices of the administrator during the period of administration and with respect to the activities of Mr Dowson, attending a creditors' meeting, drawing and engrossing Deed of Company Arrangement and attendances upon the administrator settling its terms.

I am satisfied from the foregoing recital of facts and from the affidavit of Mr McGirr that after 6 April Wisewoulds did not act for the appellants. In particular, they did not act for them at all in the proceeding brought by Linen House.

But it is clear from the foregoing recital that from about mid-February or at the latest 3 March 1999 until 6 April 1999, or shortly before, Wisewoulds were acting as solicitors for the appellants in and about their administration of Rugs Galore and their administration of that company under the Deed of Company Arrangement. It may well be that Wisewoulds were acting also for Pindos International and perhaps Rugs Galore but that is not inconsistent with their, in any event, acting for the appellants. It is true that Deacons were also tendering advice to the appellants, but that again is not inconsistent with Wisewoulds' having been retained and acting for the appellants in and about the administration and the administration under the deed.

The criticisms of the appellants which formed the basis of his Honour's decision and were in substance that they had misrepresented the facts to creditors or given creditors insufficient information, and which are the subject of the appeal, all relate to conduct by the appellants between their appointment on 17 February and the commencement of the Linen House proceeding on 1 April. During that period, except possibly for the first few days, Wisewoulds were acting for the appellants.

The authorities establish that a court will restrain a solicitor from acting for a litigant not only in order to prevent disclosure of confidences of a client or former client, but also to ensure that the solicitor's duty of loyalty to the former client is respected, notwithstanding termination of the retainer, and to uphold as a matter of public policy the special relationship of solicitor and client.

Thus, in Wan v. McDonald [1992] FCA 4; (1992) 33 F.C.R 491 at 512-513 Burchett, J said:

"The emphasis in the judgments was placed on the solicitor's duty to safeguard confidential information of his client. But there are at least two other aspects of the problem to which attention has more recently been drawn; a solicitor's duty of loyalty, which cannot be treated as extinguished by the mere termination of the period of his retainer, and the important consideration of public policy which gives a special quality to the relationship of solicitor and client that the law will not generally permit to be stained by the appearance of disloyalty.

It is obvious that, at least in the application of these principles to particular circumstances, there is likely to be a great difference between cases such as Rakusen and D & J Constructions, on the one hand, and cases, on the other, where the one solicitor, having acted for both parties, seeks to act against one of his former clients, and in the interest of a preferred client, in litigation arising out of the very matter in which he himself acted for both. In my opinion, it could only be in a rare and very special case of this latter kind that a solicitor could properly be permitted to act against his former client, whether or not any real question of the use of confidential information could arise. As Gummow J said in National Mutual Holdings Pty Ltd v Sentry Corp (1989) 22 F.C.R. 209 at 228-229: '[E]ven among fiduciaries, solicitors stand in a special position.' Sir Owen Dixon explained why all professional persons stand, in a sense, in such a position in Jesting Pilate, p.192, a passage quoted by Dr Finn in the paper already cited, when he wrote: 'Unless high standards of conduct are maintained ... the thrust and confidence of the very community that is to be served is lost and thus the function itself of the profession is frustrated.'"

In Holdsworth and Others v. M.R. Anderson & Associates Pty Ltd and Others (unreported 26 August 1994) Phillips, J., speaking of a solicitor who having once been engaged for a client to effect a certain transaction was then retained by another to act against the former client in litigation involving that very same transaction, said at page 17:

"In such a situation I am strongly disposed to the view that the solicitor ought not to act, and I do not think that that depends upon the existence or not of confidences imparted on the earlier occasion that now merit protection. It seems to me to depend rather upon the existence of the contract of retainer that was made in the first place, than upon the existence of confidences disclosed and meriting protection against misuse."

Considering a case where a solicitor had acted for both vendor and purchaser his Honour said at page 18:

"It is surely part of the contract of retainer that the solicitor will use his best endeavours in the interests of his client and he does not do that by placing his own particular knowledge of events in which he took part as the agent of both at the disposal of one to the exclusion of the other. It is on that basis that I think that (at least in the ordinary case) a Court of equity would restrain the solicitor from acting for either vendor or purchaser in the dispute between them. Nor do I think that anything turns on whether that dispute first arose before or after the formal conclusion of the work that the solicitor had been engaged to transact on behalf of both."

Reference may also be made to pages 21-22 and 24 and Carindale Country Club Estate Pty Ltd. v. Astill [1993] FCA 218; (1993) 42 F.C.R. 307 at 311.

The appellate jurisdiction of this Court extends, in my view, to restraining a solicitor from acting for a party in an appeal in this Court.

Mr Garratt, on behalf of Rugs Galore and Wisewoulds, did not dispute the principles stated in the cases to which I have referred, and I accept them. It follows from them that, subject to any other considerations applicable, Wisewoulds should not act for Rugs Galore in the appeal. Mr Garratt, however, pointed out that in proceeding number 5765 of 1999 before Gillard, J. Rugs Galore had undertaken not to appeal against his Honour's decision in this proceeding, number 4963 of 1999, and Mr Garratt said that it had no interest in upholding or reversing his Honour's order, the subject of the present appeal, except perhaps in relation to costs. What Rugs Galore wanted, he said, was a permanent stay from his Honour of that order. Accordingly, he contended, the point complained of by the appellants did not arise. He later retreated somewhat from the position he had taken up by stating, candidly, that, because Rugs Galore's attention had been for some time fully focussed on implementing a second administration of itself, attention had not been focussed by it on the running of the subject appeal. He said that Wisewoulds would have to decide whether it could advise Rugs Galore whether it should do nothing in the appeal or should take some other course, such as opposing it. The final decision as to "how inactive" Rugs Galore should be was yet to be made, he said. As Callaway, J.A. pointed out during argument, advice relating to that decision may be affected by what is said to be a possible claim in negligence by Rugs Galore against the appellants, as to which one of its present directors has sworn that he proposes to seek advice from a different firm of solicitors.

In my view, Mr Garratt's contention is not an answer to the appellants' reliance on the duty of loyalty still owed to them by Wisewoulds. I am not satisfied that a breach of that duty does not or may not, in a real and not a fanciful sense, arise. In any event, even if one could be sure that Rugs Galore, although attending by counsel, would take no part in the appeal, I still consider that Wisewoulds should not act for it in the appeal when regard is had to the appearance created by the fact that they would be solicitors on the record for Rugs Galore in an appeal by their former clients concerning their administration. The appearance of disloyalty and considerations of public policy require that they should not act.

Mr Garratt also relied upon the lateness of the raising of objection to Wisewoulds' acting for Rugs Galore in the appeal. In my view, in the circumstances of this case, and having regard to the considerations to which I have referred, lateness is not a sufficient ground for refusing to restrain the solicitors from acting.

For the foregoing reasons, I would, unless an appropriate undertaking is proffered, grant the injunction sought. I would hear counsel as to the precise terms of the undertaking or the injunction as the case may be.

Subject to any further submissions by counsel, the Court will make the following orders:

Upon the undertaking of Messrs Wisewoulds by their counsel that within seven days they will cease to act, and that thereafter they will not act, for the second respondent to the appeal in proceeding number 4963 of 1999 in that appeal, the Court orders:

1. That the application for an injunction in paragraph 5 of the summons filed on behalf of the appellants on 25 August 1999 be refused.

2. That, unless a notice of change of solicitor is filed and served under rule 20.01 within seven days - .

(a) Messrs Wisewoulds have leave under rule 20.03(4) to file a notice of ceasing to act under rule 20.03(1); and

(b) the second respondent's address for service, until it complies with rule 20.01 or further order, be care of Bourke, O'Brien & Co., 8th floor, 124 Exhibition Street, Melbourne.

3. That Messrs Wisewoulds pay the appellants' costs of the application for an injunction in paragraph 5 of the said summons.

At a glance

Court

Decision date

Before

Source

Judgment (50 paragraphs)

Parties