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[2009] QSC 292
General information, not legal advice.
Supreme Court of Queensland
2009-09-15
Douglas J
Original judgment source is linked above.
Forbes Dowling Lawyers for the respondents/plaintiffs and for themselves
[1] Douglas J: This is an application to restrain solicitors from continuing to act for the plaintiffs in these proceedings. The defendants submit there is an unmanageable conflict between the duties owed by the solicitors to their clients and their duties to this Court because of their interest in and their conduct and supervision of negotiations related to the financing of a proposed development referred to in the litigation.
[2] The plaintiffs' claim in the action is for declaratory relief and for damages for breach of a contract to fund a property development as well as other relief. The further amended statement of claim pleads that the first plaintiff, Pearlbran Pty Ltd, accepted an offer of finance from the second defendant, Wingate Property Finance Pty Ltd, to fund the development of land at South Maclean. The offer was conditional on Pearlbran having 14 pre-sales of the land to be developed and Wingate and/or the first defendant, Win Mezz No. 19 Pty Ltd, being satisfied with the terms and conditions of those pre-sales.
[3] The second plaintiffs, Stephen John Anderson and David Anthony Anderson as trustees of the Anderson Family Trust No. 2, then proposed that they be substituted for Pearlbran as the recipients of the funding after Pearlbran had resolved to distribute the land to them as beneficiaries of a trust where Pearlbran was the trustee. That occurred in May and June 2008, according to the pleading, in an exchange of emails between the parties' solicitors, including Mr Myrteza who was then a partner of the firm Forbes Dowling, the plaintiffs' solicitors.
[4] He is no longer a partner of that firm but is still employed by it and has had the conduct of this litigation until recently.
[5] The subsequent agreement with the second plaintiff included a requirement that they submit nine pre-sale contracts, rather than the 14 previously required, on terms satisfactory to the defendants. The second plaintiffs pleaded that they obtained nine pre-sale contracts. At least three of them were with a company owned and controlled by Mr Myrteza, Boshanje Developments Pty Ltd, as the prospective purchaser.
[6] The contracts were made available to the defendants for review before and after they were executed. On 5 June 2008, however, the defendants' Melbourne solicitors, Herbert Geer, indicated that they were not satisfied with the terms of the pre-sale contracts and said they would need to be reviewed by their Brisbane agents, Nicol Robinson Halletts. That firm has now merged with and adopted the name of Herbert Geer which is the defendants' solicitor in these proceedings.
[7] Mr Myrteza spoke with a Mr Peter Townley at Nicol Robinson Halletts about their perceived issues with the contracts on 5 June 2008. The further amended statement of claim goes on, in para 23, to allege that the issues raised by Nicol Robinson Halletts were rectified by actions involving Mr Myrteza. The actions alleged by the plaintiffs are admitted but the further amended defence denies, in para 5(d) that the issues raised were rectified on the ground that the allegation was not true.
[8] Then, on 27 June 2008, an email was sent from the defendants withdrawing the offer of a loan in part because of issues involving the pre-sale contracts "in relation to the concentration of purchaser, the level of deposits and the sunset dates"[1], noting that one contract had not then been executed or exchanged.
[9] Paragraphs 42 and 43 of the further amended statement of claim go on to allege that the defendants did not act in good faith and acted capriciously, unreasonably or unconscionably in circumstances where a conversation between a Mr Nankivell and Mr Myrteza on 27 June 2008 before the sending of the email may assume some importance in the litigation. The allegations, in para 43(h) and para 43(i), are that Wingate and/or Win Mezz:
"(h) Had decided by 12.20 pm on 27 June 2008 not to proceed with the funding based on the matters raised in the Email despite Peter Townley advising Mr Myrteza by telephone on 26 June 2008 that provided the contracts to be provided on 27 June 2008 were in order settlement would be effected on 27 June 2008.
Mr Nankivell advised Mr Myrteza in a telephone conversation at approximately 12.20 pm on 27 June 2008 that Wingate and/or the First Defendant:
(i) Had 'issues' other than those identified in relation to the contents of the contracts.
(ii) The 'issues' related to: the failure to provide the Spudic contract despite the fact that nine other contracts had been provided; the fact that the first named Second Plaintiff, Stephen John Anderson was identified in litigation; and 'other issues' which were unspecified save that a search had been done which revealed that there was a Coal Exploration Permit over the Land.
(i) Did not verify the matters raised in the Email prior to sending the Email and in particular;
[10] The further amended defence denies the allegations in para 43 and alleges in para 10(c) that the defendants, by their solicitors, made clear to the plaintiffs, by their solicitors, the issues for resolution regarding the pre-sales in time to enable the plaintiffs to address those issues.
[11] The further amended statement of claim also alleges in paras 61 to 64 that the defendants were negligent in failing to identify any issues with the contracts in a timely fashion. Mr Myrteza was the plaintiffs' solicitor during the period identified.
[12] The further amended defence alleges in para 4(ae) that the fact that Boshanje Developments was an entity controlled by Mr Myrteza, the solicitor representing the plaintiffs, was a matter of concern to the defendants in terms of the sufficiency of the pre-sale contracts, an assertion denied in para 4(ae) of the reply because of communications involving Mr Myrteza. The further amended defence goes on to criticise the form of those contracts and their enforceability in explicit and detailed terms. The reply pleads a significant number of facts relevant to the sufficiency of the contracts in asserting that appropriate pre-sale contracts were provided.
[13] In the current state of the pleadings, therefore, there are several contentious facts in the litigation which involve Mr Myrteza. They include:
• Whether his control of Boshanje Developments, where he was the plaintiffs' solicitor seeking to satisfy the defendants of the sufficiency of the nine pre-sale contracts and where Boshanje Developments was the purchaser in at least three of those contracts, was properly a matter for concern by the defendants in respect of the sufficiency of those contracts;[2]
• Whether, as the solicitor for the plaintiffs in their dealings with the defendants, Mr Myrteza addressed appropriately the issues raised by the defendants about the sufficiency, including the enforceability, of the pre-sales contracts;[3]
• Whether the defendants had acted capriciously, unreasonably or unconscionably, taking into account in particular the allegations in paras 43(h) and 43(i) of the further amended statement of claim and the response to them in para 10(c) of the further amended defence.
The role and interest of Mr Myrteza in the litigation
[14] Those conclusions have lead me to the form the view that Mr Myrteza is likely to be a witness on material matters and that his evidence may be controversial particularly in respect of the role of Boshanje Developments as purchaser in a significant number of the pre-sale contracts. His roles in drafting the pre-sale contracts and in trying to meet the criticism of them, including the criticisms that they were not unconditional and not enforceable, also seem likely to require him to give evidence.
[15] Mr Lilley SC for the respondents conceded that, if Mr Myrteza should be restrained from acting, then Forbes Dowling should also cease to act.
[16] He submitted, however, that it was not clear that Mr Myrteza would be required to give evidence as most of the relevant exchanges were in documents whose existence was admitted on the pleadings. His argument was that the dispute would resolve itself essentially into an analysis of the legal effect of the relevant contracts and the exchanges of correspondence.
[17] There may be some strength in that argument insofar as it relates to the sufficiency of the pre-sale contracts but it seems to me to be much more likely that the role of Boshanje Developments will be contentious as will the allegation that the respondents have acted capriciously, unreasonably or unconscionably as reflected in the conversation in issue in paras 43(h) and 43(i) of the further amended statement of claim.
[18] More than that, it also seems to me that Mr Myrteza, because of the matters to which I have referred, has a personal or reputational interest in the result additional to his interest in doing his best for his client to succeed in the action. His interest would extend into the defence of the issue whether the role of Boshanje Developments was properly a matter of concern to the defendants and of his own conduct in drafting or seeking to amend pre-sales contracts that should have met the appropriate standards of sufficiency for the loan agreement with the defendants.
[19] Any failure by him to give evidence and make himself available for cross-examination would also be likely to provoke an argument that adverse inferences should be drawn in respect of his conduct of the plaintiffs' case.
[20] It was also argued for the defendants that Mr Myrteza had, by taking an assignment of rights under a pre-existing mortgage over property of the plaintiffs to secure the payment of his firm's fees in the action, leapfrogged a mortgage secured by the defendants in reliance on a charging clause in the offer of finance. That did occur, but with the consent of the plaintiffs according to Mr Myrteza's evidence. The nature and timing of the transaction, in making payment of the firm's fees dependent on the outcome of the action and in taking precedence over any order the defendants might obtain, was criticised as was the failure to lead direct evidence from the plaintiffs that they consented to the course of action.
[21] These considerations in themselves, however, did not seem to me to warrant the removal of the firm from representing the plaintiffs.
[35] It is unnecessary to devote much time to this point. For reasons already given, it cannot succeed. Rule 13.4 of the Legal Profession (Solicitors) Rule 2007 (Qld) provides:
'A solicitor must not unless exceptional circumstances warrant otherwise in the solicitor's considered opinion:
in a case in which it is known, or becomes apparent, that the solicitor will be required to give evidence material to the determination of contested issues before the court.
Given the great variety of circumstances in which the problem addressed by rule 13.4 may arise, it is desirable to provide some guidance as to the reasons for the rule, and hence as to the proper course in the circumstances which have arisen. The reasons for the rule include:
(i) the concern that the solicitor's performance as an advocate or the Court's assessment of credibility of the solicitor as a witness may be affected by the suggestion that the solicitor's evidence is tainted by the desire to assist the client, and even by the possibility of avoiding a complaint by the client as to the solicitor's performance as such in the matters which gave rise to the litigation;
(ii) a concern that the client's prospects of frank and disinterested advice may be diminished by reason of the solicitor's involvement in the matters which have led to the litigation.'
[36] In Chapman v Rogers; ex parte Chapman, Campbell CJ said:
'... 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.'
[37] Plainly, the Chief Justice was not purporting to propound any universal principle that a solicitor or an employee of a solicitor could not act in a matter in which it was likely that he, or she, a partner or employee, may be called as a material witness. There is no such principle, although, as Rule 13.4 of the Legal Profession (Solicitors) Rule 2007 shows, it will normally be inappropriate for a solicitor to continue to act for a party in litigation if he or she is likely to be a material witness in respect of a contentious matter. What is or is not proper or permissible will depend in each case on a careful analysis of the relevant facts.
[38] Windeyer J remarked in Scallan v Scallan to the effect that it is not unusual for solicitors acting in contested probate proceedings to give evidence of facts relevant to the instructions for execution of a will. A similar practice exists in conveyancing disputes. In Mitchell v Burrell, Brereton J stated that, 'in contested conveyancing proceedings, it is not unusual for solicitors who have acted on the conveyance to continue to act in the proceedings for specific performance or rescission and to give evidence in those proceedings.' I refer to these decisions merely to further illustrate the folly of attempting to decide a question such as that under consideration before the relevant facts can be ascertained."
[23] In this case, unlike the situation in Watkins v Christian, the pleadings have closed and it is possible to reach the conclusions I have expressed about Mr Myrteza's likely role and interest in the result of the litigation. In my view there is the distinct possibility of a real or apparent conflict between his personal interest and his duty to the Court. As Brereton J said in Mitchell v Burrell[6] "the interests of justice ... in this field involve clients being represented by independent and objective lawyers unfettered by concerns about their own interests".
[24] The fuller discussion by his Honour bears repetition:[7]
"[19] Accordingly, I am quite satisfied that Mr Morey may be a witness on a material matter, and that his evidence may be controversial.
[20 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. As Windeyer J pointed out in Scallan v Scallan [2001] NSWSC 1078, it is, for example, not unusual for instructing solicitors in contested probate proceedings to give evidence of facts relevant to instructions for and execution of a Will. Similarly, in contested conveyancing proceedings, it is not unusual for solicitors who have acted on the conveyance to continue to act in the proceedings for specific performance or rescission and to give evidence in those proceedings. Accordingly, despite Rule 19 of The Law Society of New South Wales Professional Conduct and Practice Rules, which imposes a professional obligation (as distinct from a private right), I do not accept that in every case where a solicitor acting for a party is a material witness even on a controversial matter, the Court will restrain the solicitor from continuing to act. Although some observations of Campbell CJ in Chapman v Rogers; ex parte Chapman [1984] 1 Qd R 542, 545, may go somewhat further, the cases indicate - as Campbell CJ did in that case itself - 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.
[21] The point is illustrated, in Windeyer J's judgment in Scallan (at [10]), by his Honour's reference to the difference between the case where the (mere) interest of a solicitor is one that arises simply in supporting the success of his or her client (for example, in connection with advice about discovery or the commencement or continuation or abandonment of proceedings), and the case where the solicitor has 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'. Similarly, in Kooky Garments Ltd v Charlton [1994] 1 NZLR 587, 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 (at 589-590):
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.
[22] In the present case, there is reason to suppose that Mr Morey's conduct may come under attack and review. This is because of the potential anomalies, to which reference has been made, between the version pleaded and certified by him in the Statement of Claim on the one hand, and his 22 June 2006 letter on the other; the manner in which he responded to requests that he explain those apparent anomalies; and the rather fine distinctions drawn in his ultimate explanation of those anomalies. I wish to be quite clear that it may well turn out to be that there is a perfectly good explanation for all these matters, and it may well be that Mr Morey's conduct will prove to be entirely beyond reproach in every way. But the material that is presently available suggests that, whatever the outcome may be, there is likely - indeed very likely - to be a robust attack on his credit if he enters the witness box.
[23] In that lies the heart of the problem. Mr Morey may be called as a witness in the plaintiff's case, to corroborate her version of the September 2005 arrangements and/or to corroborate her allegation that she had not received legal advice. At first sight, though I appreciate that further evidence may change this, that would be prima facie inconsistent with what has been said in some of his correspondence, and would leave more than a little room for the suggestion that such evidence was at least 'tailored', out of loyalty to his client. In other words, he would be subject to robust cross-examination. It is unlikely that he would be called in Mrs Mitchell's case if he were going to contradict her version; but if he were not called, there would undoubtedly be a strong submission made that an adverse Jones v Dunkel inference should be drawn from the failure to call him. It is also possible that, based on what is known from the correspondence so far available, he might be called by the Burrells in their case, in the expectation that he might contradict Mrs Mitchell's version and case. If so, and he did not give evidence consistent with what is in the 22 June 2006 letter, the defendants might well be granted leave to cross-examine him as adverse. In any event, if he were called in the defendant's case and gave evidence adverse to Mrs Mitchell, he would then be liable to be cross-examined by counsel for the plaintiff, on the instructions of himself or Mr Jurd.
[24] In my view, in those circumstances, a fair minded, reasonably informed member of the public would entertain serious reservation as to whether decisions about the conduct of the plaintiff's case would be made exclusively in the interests of the plaintiff, or to a greater or lesser extent having regard to the interests of Mr Morey. In particular, there would be reservations as to whether decisions to call him or not to call him in the plaintiff's case were influenced by his own interests as well as or in place of Mrs Mitchell's, and there would be concerns if he were called in the defendants' case as to whether the vigour of any cross-examination of him was influenced by concern for his interests as distinct from those of Mrs Mitchell. The point is perhaps highlighted by asking the rhetorical question that was raised in the course of argument: if Mr Morey's evidence of what he was told by Mrs Mitchell about the September 2005 conversations did not coincide with Mrs Mitchell's own evidence, who would Mr Morey instruct counsel to submit should be believed - himself or his client? It seems to me that there is a substantial risk that a situation of embarrassment could arise and a reasonably informed lay observer would think it contrary to the interests of justice that Mr Morey act in those circumstances."
[25] The passage quoted by his Honour from the decision of Thomas J in Kooky Garments Ltd v Charlton[8] recognising the distinction between the situation where solicitors are called on to defend their own actions or advice and other cases emphasises the difficulties caused by Mr Myrteza's continuing to act in the matter.
[26] The discretionary factors urged against the grant of the order included that the preparation of the matter for trial is well advanced, the action having been on foot for a year. It was also argued that there has been delay in making the application and that the plaintiffs may have difficulty affording the cost of replacing their solicitors.
[27] The pleadings closed on 30 April 2009. This application was filed on 23 June 2009. Disclosure had not been completed when I heard this application as the parties were discussing whether further disclosure was required. The matter has not been set down, however, and there is, therefore, ample time for the engagement of new solicitors. Accordingly the question of delay does not loom large as a disentitling factor taking into account the date the pleadings closed. Also. as Brereton J said in Kallinicos v Hunt:[9]
"Accordingly, although the prima facie right of a party to be represented by the lawyer of his or her choice is an important one, this is a case in which it should succumb to the higher interests of the administration of justice, and relevant discretionary considerations do not significantly weigh against that result."
[28] The efficacy of Mr Myrteza's conduct as the plaintiffs' solicitor, the effect of his interest in Boshanje Developments and the potential relevance of his evidence to allegations that the defendants behaved unconscionably are matters in issue in this case which argue against him being observably independent to a fair minded, reasonably informed member of the public. It is necessary therefore, in my view, to prevent him and his firm from continuing to act "in order to protect the integrity of the judicial process and the due administration of justice, including the appearance of justice."[10]
[29] Accordingly I order that Duke Myrteza and Forbes Dowling Lawyers cease to act as the solicitors for the plaintiffs herein and that Forbes Dowling Lawyers take steps to withdraw as solicitors on the record within 14 days of today. I shall hear the parties as to costs.
[1] See para 27 of the further amended statement of claim.
[2] See para 27 of the further amended statement of claim, para 4(ae) of the further amended defence and para 4(ae) of the reply.
[3] See para 23 of the further amended statement of claim and para 5(d) of the further amended defence.
[5] See at [35]-[38], footnotes omitted.
[6] [2008] NSWSC 772 at [20]. See also the earlier discussion by His Honour in Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561, 584-587 at [87]-[95].
[8] [1994] 1 NZLR 587, 589-590.
[9] [2005] NSWSC 1181; (2005) 64 NSWLR 561, 587 at [95].
[10] Mitchell v Burrell [2008] NSWSC 772 at [3].
Pearlbran & Anor
Win Mezz No. 19 Pty Ltd & Anor [2009] QSC 292
(2005) 64 NSWLR 561