Plaintiffs v Defendants

For the Second to Thirteenth and Fifteenth Defendants

1 There were two applications listed for hearing on 10 August 2021. First, the second to thirteenth defendants and the fifteenth defendant sought to restrain Thomson Geer from continuing to act as solicitors for the plaintiffs in this proceeding (the 'restraint application'). For convenience, I will refer to the second to thirteenth defendants and the fifteenth defendant as the 'defendants'. Second, the plaintiffs sought to strike out certain paragraphs of the amended defences filed by the defendants in this proceeding (the 'strike out application').

2 However, on the day before the hearing of these applications, the defendants filed an affidavit exhibiting a proposed further amended defence ('PFAD') seeking to address some of the concerns of the plaintiffs raised in the strikeout application. The defendants sought leave to file the PFAD at the hearing of these applications (the 'amendment application'). As all these applications are, in part, related I heard and determined them together.

3 It is appropriate that I set out the evidence that was relied upon in these applications. The defendants relied upon six affidavits of Radhika Kanhai affirmed on 26 March 2021, 14 May 2021, 21 May 2021, 28 May 2021, 9 August 2021 and 24 August 2021 (the 'sixth Kanhai affidavit'). The plaintiffs relied upon four affidavits of Michael Barrett sworn on 14 May 2021 (the 'first Barrett affidavit'), 21 May 2021 (the 'second Barrett affidavit'), 16 August 2021 (the 'third Barrett affidavit') and 23 August 2021 (the 'fourth Barrett affidavit'), and the affidavit of Adrian Tembel affirmed on 20 May 2021. As is evident from their dates, some of these affidavits were filed after the oral hearing with the leave of the Court. In addition, further submissions were filed by the parties after the oral hearing with the leave of the Court.

4 In the course of argument, I was also referred to the outlines of evidence of Craig Dugan and Adam Brooks filed on behalf of the plaintiffs, and of Phillip Tuckett and John Rundell filed on behalf of the defendants.

5 For the reasons that follow, I have concluded that:

(1) the restraint application should be refused;

(2) the amendment application should be allowed in part; and

(3) the strike out application should be allowed in part.

6 Before considering this application, it is necessary to set out the nature of this proceeding and the claims made in it. That in turn raises the strike out application and the amendment application.

7 This proceeding relates to the circumstances in which the defendants purchased the plaintiffs' interests in the first defendant, Process Holdings Pty Ltd ('Process Holdings'). Process Holdings, together with its subsidiaries and related entities, conducted an engineering business specialising in the design, manufacture and supply of process plant and equipment in the industrial sector (the 'Process Group').

8 The sale transaction was finalised by a share sale deed on 6 September 2013 (the 'share sale deed'). Prior to its execution, each of the first plaintiff (Mr Dugan) and the second to seventh defendants[1] were officers of Process Holdings. Mr Dugan's company, the second plaintiff, owned 16.22% of the shares in Process Holdings. The second to seventh defendants and their corporate entities owned a majority of the remaining percentage.[2]

9 Mr Dugan resigned as Managing Director of the Process Group on 20 March 2012. Thereafter he remained as a non-executive director of Process Holdings and other companies within the Process Group.

10 By their amended statement of claim dated 21 September 2020 (the 'ASOC'), the plaintiffs allege that, in the lead up to the execution of the share sale deed and whilst negotiating its terms with the first plaintiff, the defendants participated in discussions and negotiations with an international engineering consortium known as Degremont for the potential purchase by Degremont of all or part of the Process Group (the 'Degremont negotiations').

11 Relevantly, the plaintiffs allege that the Degremont negotiations commenced in about March 2013 and continued during the period when the share sale deed was negotiated. The plaintiffs allege that, as a result of the Degremont negotiations, on 10 October 2013 Degremont made an indicative offer to purchase the Process Group. The Process Group was sold to Degremont in June 2014 at a significantly higher price than was paid by the defendants for the plaintiffs' interests.

12 The plaintiffs had some knowledge of Degremont's interest in the Process Group. The ASOC alleges that, on about 3 April 2013, Mr Dugan was informed of Degremont's interest. On the evidence before me:

(1) on 3 April 2013, Barry Graham, then the Managing Director of Process Group International Limited ('PGI'), informed Mr Dugan that the Process Group had been approached by Degremont and that a meeting had been arranged in Abu Dhabi the next week; and

(2) on 4 April 2013, Mr Dugan sent an email to his then solicitor, Mr Brooks of Herbert Geer, advising that Degremont had approached the Process Group 'to buy the entire company' and the approach 'is serious'. The email suggested that the plaintiffs request to be copied in on all correspondence. At that time Mr Brooks, then a partner of Herbert Geer, was acting on behalf of the plaintiffs in relation to the share sale deed.

(1) on 5 April 2013, the plaintiffs asked the defendants to undertake that they would copy Mr Dugan into email correspondence relevant to the possible purchase of the Process Group by a third party purchaser, would provide Mr Dugan with any relevant documents as soon as practicable after they became available and would invite Mr Dugan to any relevant meetings (the '5 April 2013 request');[3]

(2) on 9 April 2013, Mr Tuckett met with representatives of Degremont in Abu Dhabi;[4]

(3) on 10 April 2013, Mr Rundell on his own behalf and on behalf of the defendants responded to the 5 April 2013 request (the '10 April 2013 response'), advising that Mr Tuckett would generate a meeting report that would be circulated to the Process Group directors in the event that Degremont's interest was of a 'non-trading' nature, and that the directors would continue to comply with their obligations under the Corporations Act 2001 (Cth) in relation the provision and dissemination of information to the Process Group directors (the 'Rundell Representations');[5]

(4) on 12 April 2013, Mr Tuckett sent Mr Dugan and the other directors an email attaching a report of Mr Tuckett's meeting with Degremont in Abu Dhabi on 9 April 2013 (the '12 April 2013 email' and the 'Tuckett report'). In the 12 April 2013 email, Mr Tuckett advised that he would keep Mr Dugan and the other Process Group directors updated 'if anything of significance' arose in relation to Degremont's interest in the Process Group (the 'Tuckett Representations');[6]

(5) in April and May 2013, Mr Gow on his own behalf and on behalf of the defendants represented to Mr Dugan that 'nothing was happening with Degremont' and that Degremont 'was not interested in the Process Group' (the 'Gow Representations');[7] and

(6) the defendants, by failing to provide the plaintiffs with any information relating to the Degremont negotiations prior to settlement of the share sale deed represented that nothing of significance had happened with Degremont and Degremont was not or was no longer interested in purchasing the Process Group (the 'Directors' Continuing Representations').[8]

14 In these reasons, I will refer to the Rundell Representations, the Tuckett Representations, the Gow Representations and the Directors' Continuing Representations as the 'Representations'.

15 The plaintiffs allege that the failure to provide the plaintiffs with any information relating to the Degremont negotiations prior to settlement of the share sale deed was a breach of fiduciary duties owed by the second to seventh defendants.[9]

16 Further, the plaintiffs allege that, by making the Representations, the defendants engaged in misleading or deceptive conduct,[10] made fraudulent and deceitful representations[11] and/or breached a duty of care owed to the plaintiffs.[12] It is significant for the purpose of the strike out application that the plaintiffs relied upon breaches of s 18 of the Australian Consumer Law (Vic), defined in the ASOC as the 'ACL'. No claim was based upon the Competition and Consumer Act 2010 (Cth) of which the Australian Consumer Law (Cth) is a schedule (together the 'Commonwealth ACL'). Claims are also brought against the defendants for accessorial liability and knowing receipt.[13]

17 The plaintiffs allege that, had they been aware of the nature or extent of the Degremont negotiations, they would not have sold their interests in the Process Group to the defendants, but instead would have awaited the outcome of the Degremont negotiations or insisted on an adjustment clause in the share sale deed to take into account any subsequent sale to Degremont. As noted above, the defendants sold their interests in the Process Group to Degremont on 24 June 2014 at a significantly higher price. The plaintiffs allege that the difference relating to the plaintiffs' interests in the Process Group is in the order of $4.6 million.

2.3 The Amended Defences and Proposed Further Amended Defences

18 The defendants deny the substance of the plaintiffs' allegations in their amended defences filed on or about 18 November 2020. Separate defences have been filed although the substance of all of them are the same. For convenience, I shall refer in these reasons to the amended defence of the second defendant (the 'amended defence').

19 In [46A] of the amended defence, in response to the claim for breach of fiduciary duty, the defendants allege that any loss has been suffered by Mr Dugan's own fault by, in summary:

(1) recklessly failing to make any proper enquiry of the defendants as to Degremont generally after 20 March 2012, including at the directors' meeting on 30 April 2013;[14]

(2) deliberately refraining from having the Process Group valued, relying upon statement made by Mr Brooks to Riordan Lawyers, then solicitors for the defendants, on or about 21 March 2013;[15]

(3) recklessly failing to seek any warranty in respect of the interest from Degremont despite instructing Mr Brooks that Mr Dugan considered Degremont's interest to be 'serious';[16] and

(4) deliberately refraining from having the property from which the business of the Process Group was conducted (the 'Property') or the Hobbs Court Unit Trust (which owned the Property) valued, relying upon a letter from Mr Brooks to Riordan Lawyers dated 21 June 2013.[17]

20 As a result, the defendants allege in [46B] of the amended defence that any award of equitable damages or compensation is to be reduced to the extent the Court thinks just and equitable. I note that, in the strike out application, the plaintiffs seek that [46A] and [46B] be struck out on the basis that any defence based upon a reduction of damages for breach of fiduciary based upon contributory negligence is not known at law.

21 Further, in [46C] of the amended defence, in response to the claim for breach of fiduciary duty, the defendants allege that the plaintiffs are 'estopped from seeking equitable relief on account of the conduct of [Mr] Dugan, detrimental to the interests of the Process Group, between March 2012 and 6 September 2013'. The particulars to [46C] are as follows:

Dugan's conduct includes, among others, the following:

(i) Accessing and utilising Process Group confidential information to negotiate and obtain rights to Capstone products, for his own Business and/or in association with Hardchrome Engineering, in conflict with his duties to Process Group;

(ii) Accessing and divulging Process Group commercially sensitive information to a third party. Dugan incorrectly represented to Wes Tech Engineering Inc (by forwarding emails to Wes Tech that Dugan had accessed) that Process Group was considering making a claim for delay against Wes Tech Engineering in the context of a contractual arrangement, which caused Wes Tech Engineering to retain legal advice and put the contractual relationship on hold. Dugan's access to the database was revoked after this incident;

(iii) On behalf of Optimal Group, negotiating and entering into an employment agreement with Antti Kilpikoski of Process Group, in competition with Process Group; and

(iv) Making representations to the National Australia Bank that the Second to Sixth Defendants were seeking to vary the terms of Process Groups' facilities with the NAB, without Board approval, which caused the NAB to freeze Process Group's facilities.

22 No further particulars have been provided. I note that the plaintiffs also seek that [46C] be struck out on the ground that it does not disclose a defence known to law and is embarrassing. In the PFAD, the defendants sought to include after the word 'estopped' the words 'on the basis of equitable maxim of unclean hands'. In the course of oral argument before me, the plaintiffs maintained their objection to [46C] as amended in the PFAD.

23 In [51] of the amended defence, in response to the claim for misleading and deceptive conduct, the defendants deny that the plaintiffs relied upon the Representations and allege that the plaintiffs would have entered into the share sale deed in any event. Further, the defendants relevantly allege that:

(1) Mr Dugan, in association with Hardchrome Engineering, was anxious to develop his own business as agent for Capstone established in February 2013 in competition with the Process Group and he needed the money from the sale proceeds to pursue his own business interests which was in breach of the provisions of the Security Holders Deed, the Unitholders Deed and a breach of the Plaintiffs' fiduciary duty to Process Holdings;[18]

(2) the plaintiffs were prepared to sell their interests in Process Holdings at a discount in order to secure:

(3) an insurance indemnity,

(4) a release in respect to the said breach of the provisions of the Security Holders Deed, the Unitholders Deed and said breach of fiduciary duty;

(5) a release in respect to the conduct referred to in paragraph 46C; and

(6) an exemption from the restraint clause.[19]

24 No particulars were provided of these allegations.

25 In the strike out application, the plaintiffs also seek that the words in italics in [51] of the amended defence be struck out. In the PFAD, the defendants sought to recast [51(iii)] and [51(iv)] in the following terms:

(iii) In February 2013, Craig Dugan, who controlled each of the other plaintiffs set up a company, Optimal Group, which became the agent for Capstone in or about March 2013 in competition with the Process Group. In association with Hardchrome Engineering, the First Plaintiff was anxious to develop his own business, Optimal Group, as agent for Capstone established in February 2013, in competition with the Process Group and he needed the money from the sale proceeds to pursue his own business interests which was in breach of the provisions of the Security Holders Deed, the Unitholders Deed and a breach of the Plaintiffs' fiduciary duty to Process Holdings to:

(A) Act bona fide and in the interests of Process Group;

(B) Avoid conflicts of interest by preferring his own interests over the interests of Process Group;

(C) Not to divert business away from Process Group to his own benefit.

PARTICULARS

The restraint provisions are contained in clause 17 of the Unit Holders' Deed dated 5 August 2010

The restraint provisions are contained in clause 18 of the Security Holders Deed dated 5 August 2010.

The said breaches are constituted by the following conduct:

(A) Accessing and utilising Process Group confidential information to negotiate and obtain rights to Capstone products, for his own Business and/or in association with Hardchrome Engineering, in conflict with his duties to Process Group;

(B) Diverting the Capstone trading opportunity from Process Group, for his own business and/or in association with Hardchrome Engineering;

(C) Accessing and divulging Process Group commercially sensitive information to a third party. Dugan incorrectly represented to Wes Tech Engineering Inc (by forwarding emails to Wes Tech that Dugan had accessed) that Process Group was considering making a claim for delay against Wes Tech Engineering in the context of a contractual arrangement, which caused Wes Tech Engineering to retain legal advice and put the contractual relationship on hold. Dugan's access to the database was revoked after this incident;

(D) On behalf of Optimal Group, negotiating and entering into an employment agreement with Antti Kilpikoski of Process Group, in competition with Process Group; and

(E) Making representations to the National Australia Bank that the Second to Sixth Defendants were seeking to vary the terms of Process Groups' facilities with the NAB, without Board approval, which caused the NAB to freeze Process Group's facilities.

In an email sent by Dugan to his solicitor, Adam Brooks, on 4 April 2013 (1.04pm), he stated:

"More news. Apparently, they have been approached by a French water treatment engineering company who want to buy them. They are visiting UAE next week and then travelling on to Australia. It is serious. I think we should ask to be copied on all correspondence and it is to buy the entire company."

(iv) The Plaintiffs were prepared to sell their interest in Process Holdings at a discount on the value of such interest as assessed by the Plaintiffs on 21 September 2012 in order to secure:

(iii) a release in respect to the said breach of the provisions of the Security Holders Deed, the Unitholders Deed and said breach of fiduciary duty;

(iv) a release in respect of the following conduct:

(A) Accessing and utilising Process Group confidential information to negotiate and obtain rights to Capstone products, for his own Business and/or in association with Hardchrome Engineering, in conflict with his duties to Process Group;

(B) Accessing and divulging Process Group commercially sensitive information to a third party. Dugan incorrectly represented to Wes Tech Engineering Inc (by forwarding emails to Wes Tech that Dugan had accessed) that Process Group was considering making a claim for delay against Wes Tech Engineering in the context of a contractual arrangement, which caused Wes Tech Engineering to retain legal advice and put the contractual relationship on hold. Dugan's access to the database was revoked after this incident;

(C) On behalf of Optimal Group, negotiating and entering into an employment agreement with Antti Kilpikoski of Process Group, in competition with Process Group; and

(D) Making representations to the National Australia that that the Second to Sixth Defendants were seeking to vary the terms of Process Groups' facilities with the NAB, without Board approval, which caused the NAB to freeze Process Group's facilities; and

(v) an exemption from the restraint clause.

PARTICULARS

The releases referred to in subparagraph (iv) herein and the exemption referred to in subparagraph (v) herein are contained in or evidenced by the following documents:

(a) An email from Adam Brooks to Simon Jay dated 8 May 2013.

(a) Clauses 9 and 15 in the Sale of Shares and Units Deed dated 6 September 2013; and

(b) Clause 12 in the Hobbs Court Sale Deed dated 6 September 2013.

Copies of the documents may be inspected at the offices of the [defendants'] solicitors by prior appointment.

26 In the course of argument, the plaintiffs also objected to the form and substance of these paragraphs on the basis that they were embarrassing and did not disclose a cause of action.

27 In [53] of the ASOC, the plaintiffs plead that by reason of the misleading and deceptive conduct, the plaintiffs have suffered loss and damage. In response, in [53] of the amended defence, the defendants deny that allegation and plead, in summary, that:

(1) the plaintiffs failed to mitigate the alleged loss and damage;[20] and

(2) any loss was suffered partly as a result of Mr Dugan's own failure to take reasonable care, and any liability of the defendants to the plaintiffs is to be reduced having regard to the plaintiffs' share in the responsibility for the loss and damage in accordance with s 137B of the Competition and Consumer Act 2010 (Cth).[21]

29 The plaintiffs sought to strike out [53(a)] to [53(c)] of the amended defence. In response, the PFAD provides in [53], after denying any loss and damage caused by the Representations:

says further that if the [Representations] were made (which is denied), the alleged representations did not cause the plaintiffs to sell their interests in the Process Group ... because the plaintiffs were so negligent in protecting their own interests, such that causation has been severed by the intervention of the plaintiffs' negligence, which negligence is constituted by the following conduct:

(A) Failing to make any proper enquiry as to Degremont generally;

(B) Deliberately refraining from having the Property valued or the units in the Hobbs Court Unit Trust valued;

(C) Deliberately refraining from having Process Holdings valued; and

(D) Recklessly failing to seek to have any warranty in respect to the interest from Degremont included in any sale agreement or deed despite instructing Adam Brooks, the Plaintiffs' solicitor, that Dugan considered Degremont's interest to be serious.

PARTICULARS

On or about 21 March 2013, Adam Brooks, solicitor, for the Plaintiffs informed Simon Jay of Riordan Lawyers verbally that Craig Dugan does not want to get a third party valuer involved at that stage and that he had prepared spreadsheets which Adam Brooks provided to explain how he (Dugan) had arrived at his value for his various equity interests.

In response to an email dated 14 June 2013 from Riordan Lawyers for the Defendants to Herbert Geer, solicitors for the Plaintiffs, stating that a registered valuer would be engaged to give an appraisal of the value of the Property and enable the net value of the units to be worked out, Herbert Geer, solicitors, responded by email dated 21 June 2013 stating, "our client does not believe that a valuation of Hobbs Court would be worth the cost and effort at this time".

(Dugan's Own Negligence)

30 Further, in the PFAD, [53(a)] to [53(c)] remained the same as in the amended defence save that in [53(b)] reference is made to 'Dugan's Own Negligence' rather than unspecified allegations relating to Mr Dugan's failure to take reasonable care.

31 In the course of argument, the plaintiffs indicated that they did not oppose the amendments to [53(A)] to [53(D)] of the PFAD but maintained their objections to [53(a)] to [53(c)].

32 As is evident, up to and including the execution of the share sale deed in September 2013, Mr Brooks advised the plaintiffs and represented them in negotiating the sale of their interests to the defendants. At that time Mr Brooks was a partner of the Melbourne firm, Herbert Geer.

33 In March 2014, Mr Brooks, together with other partners of Herbert Geer, joined Thomsons Lawyers and the firm Herbert Geer ceased to operate. As I set out in more detail below, Thomsons Lawyers did not acquire Herbert Geer or assume its liabilities. Thomsons Lawyers then changed its name to Thomson Geer.

34 In around June 2019, Mr Barrett, a partner of Thomson Geer, was engaged to act for the plaintiffs. This proceeding was commenced by writ filed on 5 September 2019 and Thomson Geer is the firm on the record for the plaintiffs.

35 In 2019 and 2020, a number of procedural orders were made to prepare this matter for hearing. This included for pleadings, discovery, the filing and service of subpoenae, for amended pleadings in the second half of 2020, and for witness outlines and expert reports. Relevantly:

(1) the plaintiffs were to file their witness outlines by 18 December 2020 and their expert reports by 29 January 2021; and

(2) the defendants were to file their witness outlines by 1 March 2021 and their experts reports by 5 March 2021.

36 On 23 December 2020 the plaintiffs filed witness outlines, including an outline of Mr Brooks who the plaintiffs intend to call as a witness of fact at the trial.

37 There was a directions hearing on 19 February 2021. I made orders extending the time for the defendants to file their witness outlines until 25 March 2021 and their expert reports until 7 April 2021.

38 On 22 February 2021 the defendants' solicitors ('Cornwalls') wrote to Thomson Geer, asserting for the first time that, by reason of Mr Brooks being a witness for the plaintiffs, Thomson Geer should cease to act for the plaintiffs in this proceeding (the '22 February 2021 letter'). That letter alleged that [46A] and [51] of the amended defence put the advice given, or neglected to be given, by Mr Brooks in relation to the sale in issue. In these circumstances, it was alleged that Thomson Geer 'has a direct interest in ensuring that the evidence given by Mr Brooks does not give rise to any professional liability issues for [Thomson Geer], and therefore has a serious conflict of interest'. The 22 February 2021 letter referred to r 13.4 of the Professional Conduct and Practice Rules 2005. It requested that Thomson Geer confirm they will cease to act for the plaintiffs by 4:00pm on 5 March 2021.

39 On 2 March 2021 Thomson Geer responded, rejecting any allegation that Thomson Geer had a conflict of interest and setting out the reasons why it was entitled to continue to act for the plaintiffs (the '2 March 2021 letter'). In particular, the letter referred to the fact that Mr Brooks advised the plaintiffs in relation to the sale in his capacity as a partner of the firm Herbert Geer and not Thomson Geer. It also referred to r 27 of the Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015 (the 'Solicitors' Conduct Rules'), which replaced the Professional Conduct and Practice Rules 2005.

40 By summons dated 29 March 2021 the defendants issued the restraint application. I note at this stage that the plaintiffs have asserted that it should be inferred that this application was issued, and is intended, to delay the matter being listed for trial. I am unable to draw that inference on the evidence before me.

41 It is accepted by the plaintiffs that Mr Brooks is a material witness. The question which the restraint application poses is whether, in the circumstances of this case, the firm of which Mr Brooks is now a partner should be prevented from continuing to act for the plaintiffs.

42 Before considering the relevant principles and the nature of Mr Brooks' likely evidence at the trial of this proceeding, it is appropriate that I set out the nature of the relationship between Mr Brooks and Thomson Geer, of which he is now a partner and which has acted for the plaintiffs since around June 2019.

43 The Chief Executive Partner of Thomson Geer, Mr Tembel, affirmed an affidavit on 20 May 2021 setting out the nature of that relationship. He deposed that he negotiated with the senior partners of Herbert Geer to join Thomson Geer (which, at the time, was known as Thomsons Lawyers). The effective date which those partners and other staff of Herbert Geer joined Thomsons Lawyers was 31 March 2014. On the effective date:

(1) the partners of Herbert Geer resigned as partners of that firm (the 'resigning HG partners');

(2) upon those partners resigning from Herbert Geer, by resolution of the partners of Thomsons Lawyers, the resigning HG partners became partners of Thomsons Lawyers;

(3) Thomsons Lawyers acquired certain assets from Herbert Geer; and

(4) Thomsons Lawyers then changed its name to Thomson Geer.

(1) there was no merger between the businesses of Herbert Geer and Thomson Geer;

(2) Herbert Geer ceased to operate as a law firm from the effective date and was subsequently wound up;

(3) all liabilities of Herbert Geer in the operation of that firm prior to the effective date remained with the partners of that firm and were not assumed by Thomson Geer;

(4) Thomson Geer did not assume any risk or liability of Herbert Geer associated with the conduct of its professional practice prior to the effective date, including professional indemnity liabilities and risks;

(5) as a result, Mr Brooks remains liable for any claims made in respect of advice provided to clients of Herbert Geer prior to the effective date; and

(6) further, Mr Brooks and the other resigning HG partners agreed to indemnify the ongoing partners of the firm in respect of all such liabilities.

45 Further, Mr Tembel deposed that, consistent with the agreement, since the effective date, if a claim is notified against a resigning HG partner who has become a partner of Thomson Geer in respect of a liability which arose before the effective date, then Thomson Geer's professional indemnity insurance policy is responsive to that claim as it provides retroactive cover in relation to such liabilities of the resigning HG partners. However, any liability on account of the deductible payable to the insurer in respect of any such claim is the liability of the resigning HG partners and would have to be met by them.

46 Similarly, if there is any insurance risk in respect of the insurance policy operating to indemnify Thomson Geer for such a claim, that risk will be borne by the resigning HG partners not the ongoing partners of Thomson Geer.

47 Neither Thomsons Lawyers nor Thomson Geer acted for the plaintiffs in relation to the sale by the plaintiffs of their interests in the Process Group, which was completed on 6 September 2013. Further, Mr Barrett of Thomson Geer only commenced acting on behalf of the plaintiffs in around June 2019. I will deal further below with the circumstances in which Mr Barrett was engaged by the plaintiffs.

48 Mr Barrett deposed that this proceeding is a substantial and complex proceeding. The plaintiffs' claims amount to approximately $7 million together with costs of the proceeding. He also deposed to the significant work that has been undertaken by Thomson Geer in respect of this proceeding, including discovery, proofing of the plaintiffs' witnesses, preparing witness outlines and preparing the court book.

49 He deposed that, if the injunction is granted, the plaintiffs would be substantially prejudiced. This would primarily consist of the substantial costs that would be incurred in instructing another firm, which he estimates in the order of not less than $100,000. This is in the context of the significant fees already incurred. In addition, he deposed that he has developed a strong relationship with the principal of the plaintiffs and the first plaintiff, Mr Dugan.

50 There was some evidence of Mr Brooks attending the mediation in this proceeding in May 2020. As a result, with the leave of the Court, the plaintiffs filed the third and fourth affidavits of Mr Barrett in which Mr Barrett deposed to Mr Brooks' involvement in the proceeding.

51 In summary, in the third Barrett affidavit, Mr Barrett deposed that:

(1) Mr Brooks referred Mr Dugan to Mr Barrett in about April 2019 to advise about a potential claim against the defendants. Mr Barrett did not previously know Mr Dugan;

(2) Mr Barrett attended meetings with Mr Dugan and Mr Brooks in April and June 2019 in which Mr Brooks explained the background of the transaction and provided relevant documents;

(3) since agreeing to act for Mr Dugan in this proceeding, Mr Barrett has been solely responsible for the conduct of the proceeding assisted by solicitors under his supervision. Mr Brooks has not been in any way involved in the conduct of the proceeding;

(4) on 19 May 2020, a mediation was conducted at Thomson Geer's offices. Mr Brooks attended the mediation at Mr Barrett's request. This was in light of Mr Brooks' detailed knowledge of the history giving rise to the proceeding and his relationship with Mr Dugan, which Mr Barrett thought would be of assistance at the mediation. Mr Barrett participated in the mediation as the plaintiffs' solicitor in charge of the matter; and

(5) should Thomson Geer continue to act for the plaintiffs in the proceeding, Mr Brooks will continue to have no role in the conduct of the proceeding other than as a lay witness.

52 However, in the fourth Barrett affidavit, Mr Barrett deposed that in fact Mr Brooks had further involvement in the proceeding. That involvement relevantly included:

(1) in July and August 2019, Mr Brooks provided further documents to Mr Barrett and liaised with Mr Barrett and Mr Dugan regarding the development of the claim against the defendants;

(2) in September 2019, Mr Brooks reviewed various emails that Mr Barrett sent to him about this proceeding. Mr Brooks attended the end of a meeting between Mr Barrett and Mr Dugan on 4 September 2019 to discuss instituting this proceeding, but Mr Brooks did not participate in any substantive discussion;

(3) in December 2019, Mr Brooks reviewed material which Mr Barrett provided to him after discovery and attended a conference with Mr Dugan and Mr Barrett on 13 December at which they discussed, among other things, the service of a Calderbank letter;

(4) in February and April 2020, Mr Brooks reviewed documents provided to him by Mr Barrett including the Tuckett report, a chronology and materials from the defendants, and liaised with Mr Barrett about strategy ahead of the mediation;

(5) in May 2020, Mr Brooks prepared for and attended the mediation and, after that mediation failed, Mr Brooks received phone calls from Mr Dugan and liaised with Mr Barrett regarding strategy;

(6) in July 2020, Mr Brooks reviewed particular emails produced by other parties to the proceeding presumably by way of discovery; and

(7) in October and December 2020, Mr Brooks prepared his outline of evidence in the proceeding and, for that purpose, considered documents and conferred with counsel.

53 Mr Barrett deposed that he had now reviewed the invoices issued by Thomson Geer to the plaintiffs on the file for this proceeding. 14.8 hours of Mr Brooks' time has been charged on that file to the plaintiffs at a cost of $9,990 (excluding GST), of which 11.3 hours relate to the preparation of Mr Brooks' outline of evidence.

54 Further, Mr Barrett deposed that he has become aware since 18 August 2021 that Mr Brooks has charged Mr Dugan on his own file (the 'Brooks file') for 27.6 hours of his time spent in respect of the proceeding at a cost of $18,630 (excluding GST), of which 12.2 hours relate to Mr Brooks' preparation for and attendance at the mediation. At [11] of the fourth Barrett affidavit, Mr Barrett deposed that no time has been charged on the Brooks file referable to the proceeding since 31 July 2020. However, at [12], Mr Barrett deposed that, excluding time spent in connection with the mediation and preparing his outline of evidence, 18.9 hours had been charged for Mr Brooks' time on the Brooks file in the period from 28 February 2019 to 31 December 2020.

55 Mr Barrett deposed that the prospect of Mr Brooks giving evidence in the proceeding was first raised with Thomson Geer by counsel on 14 August 2020. Since that date, the only time of Mr Brooks which has been charged to the plaintiffs is in respect of the preparation of Mr Brooks' outline in October and December 2020.

56 With leave of the Court, the defendants filed submissions and the sixth Kanhai affidavit in response to the third and fourth Barrett affidavits.

57 The defendants submitted that the conflicting accounts of the involvement of Mr Brooks in the affidavits of Mr Barrett demonstrate that the plaintiffs have failed to be frank with the Court about disclosing Mr Brooks' involvement in the conduct of the proceeding, or whether the extent of the purported involvement as deposed to by Mr Barrett is accurate.

58 In summary, the defendants submitted that this is because:

(1) the third Barrett affidavit demonstrates that Mr Barrett has sacrificed his duty to the Court and to his client in favour of his partner, Mr Brooks. Mr Barrett only resiled from his statement that Mr Brooks has not in any way been involved in the conduct of the proceeding after an enquiry from the defendants' solicitors as to whether the plaintiffs had been charged for legal services provided by Mr Brooks;

(2) Mr Barrett has sought to minimise Mr Brooks' role in the conduct of the proceeding, which is inconsistent with the content of the narrations referred to in tax invoices issued to the plaintiffs. Those invoices indicate that Mr Brooks has charged the plaintiffs for, amongst others, judgment calls on claim assessment, liaising with Mr Barrett regarding strategy and strategic direction, and conferring and participating in meetings with counsel;

(3) Mr Brooks has charged the plaintiffs $28,530.00 (excluding GST) for his time in relation to the proceeding; and

(4) Mr Barrett's explanation for his qualification to the third Barrett affidavit, namely that he had not reviewed the invoices and was not aware that Mr Brooks had rendered his own invoices, is implausible in view of the content of the narrations on those invoices.

59 Ms Kanhai deposed that Mr Brooks, together with Mr Barrett, participated in the mediation as instructing solicitors for the plaintiffs. Ms Kanhai deposed that Mr Brooks was included in a number of emails between Cornwalls, Thomson Geer and the mediator regarding the anticipated conduct of the mediation, including that Mr Barrett advised by email that the plaintiffs were attending the mediation in person through Mr Dugan and his wife, and Mr Barrett would also attend 'together with [his] partner, Adam Brooks'.

60 Further, the defendants submitted that no explanation has been offered as to why Mr Brooks himself has not provided an affidavit to the Court as to the nature of his role in the conduct of the proceeding.

61 The principles to be applied in determining whether to exercise the Court's inherent jurisdiction to restrain solicitors from acting in the administration of justice were generally not in dispute. Those principles were summarised in Kallinicos v Hunt ('Kallinicos') as follows:[22]

(1) 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 processes in aid of the administration of justice;

(2) the test to be applied is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a lawyer should be prevented from acting, in the interest of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice;

(3) the jurisdiction is exceptional and is to be exercised with caution;

(4) due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without good cause; and

(5) the timing of the application may be relevant, in that the cost, inconvenience and impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief.

62 The mere prospect of a solicitor being called to give evidence as a material witness, even on controversial matters, is not enough to invoke the jurisdiction of the Court to restrain the solicitor from acting. As Brereton J noted in Mitchell v Burrell ('Mitchell'):[23]

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.

63 Further, the Court's inherent jurisdiction to restrain a solicitor from acting is discretionary. In exercising that discretion, the Court must take into account the prima facie right of a party to be represented by the lawyer of his or her choice, the inconvenience, cost and disruption which might be caused in requiring a party to change lawyers, and the exceptional nature of the Court's jurisdiction.[24]

64 Finally, it is important to bear in mind that the conclusion that must be reached is that the administration of justice, including the appearance of its administration, 'requires' that the solicitor should be prevented from continuing to act. This point was emphasised by Pagone J in Premier Capital (China) Ltd v Sandhurst Trustees Ltd.[25] As noted by his Honour, there may be circumstances where a fair-minded reasonably informed member of the public may conclude that it would be prudent that a solicitor not act in a proceeding. However, the test is whether the administration of justice 'requires' that the solicitor be prevented from continuing to act.

65 It goes without saying that, while these principles can be simply stated, their application depends on the facts of each case. While the facts of each case are different, I have found it instructive to have regard to the facts of the two primary cases relied upon by the parties, namely Kallinicos and Mitchell. This is in light of the submissions of the defendants and the plaintiffs, the former of whom sought to highlight factual similarities and the latter of whom sought to highlight factual differences. Further, this analysis has helped me better understand how and when these principles are applied.

66 Before doing so, there is one issue I wish to address at this stage. There was some argument about the effect of the new r 27.2 of the Solicitors' Conduct Rules on the circumstances in which the Court might exercise its discretion to restrain a solicitor from acting. The new r 27.2 of the Solicitors' Conduct Rules provides:

In a case in which it is known, or becomes apparent, that a solicitor will be required to give evidence material to the determination of contested issues before the court the solicitor, an associate of the solicitor or a law practice of which the solicitor is a member may act or continue to act for the client unless doing so would prejudice the administration of justice.

67 The Solicitors' Conduct Rules became operative on 1 July 2015. Prior to that, the applicable conduct rule was r 13.4 of the Professional Conduct and Practice Rules 2005, which provided:

13.4 A practitioner must not unless exceptional circumstances warrant otherwise in the practitioner's considered opinion:

13.4.1 appear for a client at any hearing, or

13.4.2 continue to act for a client,

in a case in which it is known, or becomes apparent, that the practitioner will be required to give evidence material to the determination of contested issues before the court.

68 The plaintiffs submitted that, while the reformulated r 27 does not change the underlying purpose of the rule, namely to protect the administration of justice, the content of r 27 contains two material differences. First, the presumption is now in favour of a solicitor continuing to act. Second, there is now an onus on the person seeking to restrain the solicitor from continuing to act to show that their continued acting 'would prejudice the administration of justice'.[26]

69 The plaintiffs submitted that it may be inferred that the reversal of the evidential onus was intended to reflect the public interest in a litigant not being deprived of the lawyer of his or her choice without good cause. Further, the plaintiffs submitted that the new rule requires that there must be a real, as opposed to apparent, risk of prejudice.[27] In oral argument, counsel for the plaintiffs submitted that, if a reasonably informed member of the public, into whose shoes the Court must step, is to be sufficiently concerned so as to conclude that the proper administration of justice requires that a lawyer should be prevented from acting, real prejudice will figure highly in that person's mind.

70 For my part, to the extent that r 27 is relevant to the exercise of the Court's inherent jurisdiction to restrain a solicitor from acting, I consider that r 27 is generally consistent with the principles in Kallinicos and Mitchell set out above. In this regard, I refer to the comments of Brereton J in Kallinicos to the effect that, while the rules of conduct are of some relevance to the Court's discretion, they are far from decisive.[28]

71 However, consistent with the authorities, I agree with the plaintiffs' submission that whether or not a solicitor or firm should be restrained from continuing to act will depend upon the particular circumstances and facts. The Court is to weigh up the degree of risk of conflict of the relevant kind, any prejudice to the parties, the readiness of the matter for trial, the likely cost of changing solicitors and the practical realities. In that context, I will now turn to the facts in Kallinicos and Mitchell.

72 Kallinicos was a proceeding arising from the breakdown of a partnership between the first plaintiff, Mr Kallinicos, and the first defendant, Mr Hunt. The other parties to the proceeding were companies of which Mr Kallinicos and/or Mr Hunt were directors and shareholders and which conducted the business of the partnership, being acquiring and reselling properties for profit. One of those companies was Rowntree Properties Pty Ltd ('Rowntree').

73 Before the proceeding was issued, Mr Kallinicos sent a letter to Mr Hunt on 9 November 2001 purporting to terminate the partnership between them. Mr Moloney, then of Eddy & Moloney, responded to that letter on behalf of Mr Hunt. By that time, Mr Moloney had acted on behalf of Rowntree in the sale of some lots of land owned by the partnership. After that time, he continued to act for Rowntree in relation to the sale of further lots. The letters distributing the proceeds of these sales were signed by Mr Moloney.

74 In the proceeding, among other things, Mr Kallinicos disputed the distribution of the sale proceeds to Mr Hunt's interests to the exclusion of Mr Kallinicos' interests. Mr Kallinicos also alleged that the transfer of one of the lots was effected by a memorandum of transfer which falsely purported to contain his signature.

75 The proceeding was commenced on 8 January 2003. On or about 4 February 2003, Mr Moloney filed a notice of appearance on behalf of the defendants. On 13 October 2003, Mr Moloney filed a notice of change of solicitor, the effect of which was that he ceased to act for Rowntree but continued to act for the other defendants.

76 On 21 April 2005, Mr Kallinicos sought an order restraining Mr Moloney from acting on behalf of any of the defendants in the proceeding. This was primarily on the basis that Mr Moloney, having acted for Rowntree as vendor on the sales, was a material witness. At the time of the application, despite being on foot for over two years, the proceeding had largely involved procedural issues concerning pleadings and particulars and no defence had been filed.

77 At the time of the application the solicitors on record for the defendants was Moloney Lawyers. The reasons do not address the fact that this was a different firm to the one that acted in the lot sales. It seems likely this was because the application appears to be an application to restrain Mr Moloney himself.

78 As to the relevant principles, after an extensive review of the authorities, Brereton J set out the principles referred to in [61] above.

79 As to the likely evidence of Mr Moloney, Brereton J was satisfied that Mr Moloney would be a material witness in the proceeding on issues of substance which appeared to be controversial, in particular, as to what instructions were given for the disbursement of the sale proceeds and by whom. Further, his Honour was satisfied that there was a 'high degree' of probability that Mr Moloney's evidence and/or conduct would come under scrutiny, including how Mr Moloney, being on notice of the claims of Mr Kallinicos, could accept instructions to distribute the proceeds for the benefit of Mr Hunt.[29]

80 Justice Brereton concluded that Mr Moloney would be in a position in which his clients' interests, his own interest, and his obligations to the court might be in conflict and, as a result, a fair-minded, reasonably informed member of the public would consider that the independent objectivity of Mr Moloney was compromised.[30] In this context, his Honour noted that 'if a practitioner's credibility is at stake as a witness, his personal integrity may be put in issue and that may constitute a personal interest inconsistent with the practitioner's duty to the court or to the client'.[31]

81 Justice Brereton took into account that senior and junior counsel had been retained by the defendants. His Honour also took into account that the concerns as to the objectivity of Mr Moloney as a witness would not disappear if he ceased to act for the defendants. However, he concluded that these matters:[32]

do not alter the fundamental problem, that the fair-minded reasonably informed observer would think that Mr Moloney's independence and objectivity as a solicitor would be comprised. The scrutiny which Mr Moloney's conduct would attract, and his knowledge of the instructions for the disbursement of the proceeds of the relevant units, means that fair-minded members of the public would perceive Mr Moloney as not being able, however well intentioned, to advise his client and conduct the proceedings free of and unaffected by the impact of personal interest.

82 Justice Brereton then considered whether in these circumstances the Court should exercise its discretion to restrain Mr Moloney from acting. He took into account the prima facie right of a party to be represented by the lawyer of his or her choice, the inconvenience, cost and disruption which might be occasioned by requiring a party to change lawyers, and the exceptional nature of the jurisdiction.[33] He noted that the proceedings were at a very early stage. He concluded that, notwithstanding a party's prima facie right to be represented by the lawyer of his or her choice, this was a case which should 'succumb to the higher interests of the administration of justice' and relevant discretionary considerations did not significantly weigh against that result.[34]

83 In Mitchell, the defendants (Mr and Mrs Burrell) purchased a house on 20 April 2006 substantially with funds provided by the plaintiff (Mrs Mitchell). The issue was whether the house was held on trust for Mrs Mitchell. Mrs Mitchell's solicitor at the time of the purchase was Mr Morey of Slattery Jurd. He also acted for Mrs Mitchell for a time in the proceeding. After that time, Mr Jurd, another partner at Slattery Jurd, acted for Mrs Mitchell in the proceeding.

84 In the statement of claim, Mrs Mitchell alleged that Mr Burrell discouraged her from seeking legal advice with respect to their agreement and that she subsequently did not seek or receive such legal advice. The statement of claim was signed and certified by Mr Morey.

85 The defendants sought an injunction restraining Mrs Mitchell's solicitors (Slattery Jurd) and its principals (Mr Morey and Mr Jurd) from continuing to act on the basis that Mr Morey was likely to be a material witness whose evidence was in conflict with Mrs Mitchell. The application against Mr Jurd was put on the basis that he was, as Mr Morey's partner, unable to bring a proper professional and objective mind to the proceeding.

86 The conflict was based upon a letter dated 22 June 2006 from Mr Morey to Mrs Mitchell (the '22 June 2006 letter') which suggested Mrs Mitchell had received legal advice from Mr Morey. The subject of the letter regarded Mrs Mitchell's pension entitlements being affected by the purchase of the property in the name of the defendants. It continued: 'I gave you specific advice in the past and my secretary re-confirmed this with you as these difficulties were foreseen and discussed with you almost 8 months ago'.[35] The defendants submitted this was inconsistent with the allegations in the statement of claim signed by Mr Morey.

87 Justice Brereton noted that at first sight there was an apparent tension between the contents of the letter and the allegations in the statement of claim that Mrs Mitchell did not seek or receive legal advice about the proposed transaction with the defendants.[36] In addition:

(1) in response to a request for particulars as to whether the plaintiff denied receiving legal advice, Mr Morey replied that Mrs Mitchell did not receive legal advice in respect of the agreement with the defendants until on or about 22 June 2006 (which was after the purchase of the property);

(2) in response to a request that Slattery Jurd cease to act, Mr Morey again denied that he gave the plaintiff specific advice in relation to the property until 22 June 2006;

(3) however, Mr Morey confirmed that in about October or November 2005 Mrs Mitchell advised Mr Morey that she was discussing a general arrangement with the defendants to purchase a property, but not the property in fact purchased in April 2006.

88 In these circumstances, Brereton J said that there was a 'real and substantial' risk that Mr Morey may be a material witness.[37] Brereton J continued:[38]

Mr Morey's evidence may be controversial, because at least on one view of the presently available material it could contradict allegations made by Mrs Mitchell. One does not know in any detail what will be his version of what Mrs Mitchell related to him of the September 2005 conversations, but there has to be some potential that it will not coincide with her version, or with the version that would be most favourable for her. As to the advice she sought and was given, I appreciate that their versions may coincide, but the material presently available suggests that the contrary is distinctly possible.

89 Justice Brereton was satisfied that Mr Morey's conduct may come under attack. This was because of the potential anomalies between the version of events 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, and the 'rather fine' distinctions drawn in his ultimate explanation of those anomalies.[39]

90 Justice Brereton noted that, while there might be a good explanation for such anomalies, the material before the Court suggested that it was very likely there would be a robust attack on Mr Morey's credit.[40] His Honour said that lies at 'the heart of the problem'.[41] If Mr Morey was to be called as a witness to corroborate the allegation that Mrs Mitchell had not received legal advice that would appear, at first sight, to be prima facie inconsistent with Mr Morey's correspondence. His Honour noted this 'would leave more than a little room for the suggestion that such evidence was at least "tailored", out of loyalty to his client'.[42]

91 In those circumstances, his Honour was satisfied that 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 would be influenced by Mr Morey's own interests. As to the discretionary factors, his Honour did not consider that any such considerations told against making orders to restrain the solicitors: the case was at a relatively early stage and additional costs involved in having to instruct new solicitors would be relatively small.

92 As to whether Mr Jurd and Mr Morey's firm should also be restrained from acting, Brereton J observed that:[43]

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. ... 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 ... 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.

93 The analysis of these two cases is instructive. These cases highlight the need to assess the risk of inconsistent evidence and the nature of the relevant conflict in order for the Court to exercise its discretion to restrain a solicitor from acting.

94 As to the first, in my view, these cases highlight the need to consider the degree of risk that the evidence of the solicitor might be inconsistent with the evidence or case of the client, such that there may be a conflict between the interests of the solicitor (whether financial, personal or reputational) and the interests of the client at trial (the 'relevant conflict').

95 As to any inconsistency between the evidence of the solicitor and the evidence or claim or defence of the client, there was such evidence in both Kallinicos and Mitchell. In Kallinicos, it was that Mr Moloney was aware of Mr Kallinicos' interest in partnership property, and was on notice that Mr Kallinicos claimed to have terminated the partnership and was demanding payment of his share of the partnership assets, but nevertheless disbursed the sale proceeds to Mr Hunt's interests. In Mitchell, it was that correspondence sent by Mr Morey suggested that Mr Morey advised Mrs Mitchell in relation to the proposed purchase with the defendants which was inconsistent with the allegations in the statement of claim certified as correct by Mr Morey.

96 I accept that, in some cases, the risk of inconsistency between the evidence of the solicitor and the evidence or case of the client will be apparent without the need for evidence of this kind. However, in most cases, such as in Kallinicos and in Mitchell, the evidence available at the time of the restraint application will be a most important factor in assessing the degree of risk that the evidence of the solicitor might be inconsistent with the claim or defence of the client or the evidence of the client at trial, such as to place the solicitor in a position of conflict.

97 As to the second, these authorities highlight the nature of the relevant conflict required in order for the Court to exercise its discretion to restrain a solicitor from acting. The authorities make plain that the fundamental issue is that the independent objectivity of the solicitor would be compromised by reason of a conflict between the solicitor's duty to act in the client's best interests unaffected by their own interests and the solicitor's personal interest in the proceeding (whether that be financial, reputational or otherwise).

98 Finally, in my view, these authorities highlight that the assessment of the degree of the risk of inconsistency, and thus any conflict, is of importance in determining whether the Court should exercise its discretion to restrain the solicitor or firm from acting. That is to say, the more likely it is that the evidence of the solicitor will give rise to a relevant conflict, the less likely the discretionary considerations would influence whether to make an order restraining the solicitor or firm from acting. By contrast, the less likely it is that evidence of the solicitor will give rise to a relevant conflict, the more likely that discretionary considerations would influence whether to make such an order.

99 It is now appropriate to refer to the nature of the evidence likely to be given by Mr Brooks at trial based upon his outline of evidence. In summary, his outline relevantly provides:

(1) Mr Dugan told Mr Brooks on 4 April 2013 that Mr Dugan had been informed by the Managing Director of the Process Group that Degremont was 'serious' about buying the Process Group;[44]

(2) on 5 April 2013, Mr Dugan, with Mr Brooks' assistance, sought undertakings from the directors of the Process Group to keep him informed of any communications with or developments concerning Degremont and to ensure he was invited to participate in any meetings. Mr Brooks was sent a copy of the response from Mr Rundell to this request, in which Mr Rundell and the other directors undertook to comply with their obligations under law to keep Mr Dugan informed;[45]

(3) having received such a response, Mr Brooks did not consider it necessary or appropriate to ask the defendants if they were complying with their legal obligations and did not do so. Mr Brooks believed that, if there had been any material developments, the defendants would have informed Mr Dugan of this in accordance with the undertaking;[46]

(4) Mr Brooks does not recall whether he was shown a copy of the 12 April 2013 email or the Tuckett report or being told about the meeting with Degremont representatives in Abu Dhabi. He states that, if had he read that email and the Tuckett report, he would have noted that the negotiations were at an early stage and that Mr Tuckett said he would keep the recipients of the email informed of things of significance;[47]

(5) between 12 April 2013 and 6 September 2013, Mr Brooks continued to negotiate the terms of Mr Dugan's exit from the Process Group. At no time during this period did the defendants or their solicitors inform Mr Brooks that there had been any communications, meetings or negotiations between the Process Group and Degremont;[48]

(6) Mr Brooks does not recall being informed by Mr Dugan of a conversation between Mr Gow and Mr Dugan which is the subject matter of the Gow Representations;[49]

(7) in around August 2013, Mr Dugan was asked to vote in favour of a resolution that would permit the Process Group to give financial assistance to PG Evolution, the company set up by the defendants to acquire the plaintiffs' interests. This was referred to as a 'whitewash resolution'. Mr Dugan told Mr Brooks he would not agree to this resolution;[50]

(8) Mr Brooks advised Mr Dugan that, on the information known to him at the time, it was in Mr Dugan's interest to support the resolution and complete the sale;[51] and

(9) Mr Brooks has since been shown communications passing between the Process Group and Degremont, and between the defendants, between April and September 2013. Had Mr Brooks been aware of the fact, extent and progress of the Degremont negotiations, he would not have advised Mr Dugan to complete the sale. Rather, he would have advised Mr Dugan to await the completion of the negotiations with Degremont or, if Mr Dugan wished to proceed, to include a term that would provide an uplift to the purchase price in the event there was a change of control of the business within a prescribed period.[52]

100 Mr Dugan's outline relevantly provides, in summary, that:

(1) around 3 April 2013, Mr Graham of PGI informed Mr Dugan that the Process Group had been approached by Degremont and that a meeting had been arranged in Abu Dhabi the next week;[53]

(2) on 5 April 2013, Mr Dugan sought undertakings from the defendants that they would copy Mr Dugan into email correspondence with third parties regarding the possible purchase of the Process Group and invite him to any meetings at which this was to be discussed;[54]

(3) by email dated 10 April 2013, Mr Rundell made the Rundell Representations;[55]

(4) on 12 April 2013, Mr Tuckett sent the 12 April 2013 email and the Tuckett report, thereby making the Tuckett Representations;[56]

(5) in April and May 2013, Mr Gow in conversation with, and emails to, Mr Dugan made the Gow Representations;[57]

(6) as a result of the Rundell Representations, the Tuckett Representations and the Gow Representations, together with the other Progress Group directors' subsequent failure to provide the plaintiffs with any information relating to Degremont prior to settlement of the share sale deed, Mr Dugan believed that Degremont was not interested in acquiring the Process Group and that discussions with Degremont had ceased i.e. the Directors' Continuing Representations;[58]

(7) had Mr Dugan known the true position, he would have not sold his interests to the defendants pursuant to the share sale deed;[59]

(8) Mr Brooks has informed Mr Dugan that if he had known the true position regarding the Degremont negotiations between mid-April 2013 and 6 September 2013, Mr Brooks would not have given Mr Dugan advice to complete the share sale deed but would instead have advised Mr Dugan:

(1) not to sell his interests in the Process Group until the Degremont negotiations were concluded; or alternatively

(2) to include in the share sale deed an uplift provision in the event that the business was on-sold; and

(9) had Mr Brooks given that advice to Mr Dugan at the relevant time, Mr Dugan would have followed it.[60]

101 The defendants asserted that Mr Brooks is a material witness on matters of controversy and that his conduct will be challenged in the proceeding. Relevantly, the defendants submitted that there were 'anomalies' in Mr Brooks' outline. For my part, I found those anomalies difficult to identify from the defendants' submissions and oral argument.

102 In their written submissions, the defendants noted that Mr Dugan's outline:

(1) does not deal with the 4 April 2013 email to Mr Brooks, in particular, the instructions given to Mr Brooks that Mr Graham said Degremont was serious;

(2) does not deal with the issue as to whether Mr Dugan told Mr Brooks about the alleged conversations with Mr Gow;

(3) does not deal with the issue as to whether the Tuckett report was passed onto Mr Brooks or discussed with Mr Brooks; and

(4) states that Mr Dugan would have followed any advice from Mr Brooks.

103 The defendants contended both in written and oral submissions that, on the one hand, Mr Brooks conceded that on 4 April 2013 Mr Dugan said to him that Degremont was serious but does not refer to any instructions or documents to suggest this position had changed at the time of advising Mr Dugan that it was in his interests to proceed with the sale in September 2013. On the other hand, Mr Brooks states in his outline that had he been aware of the fact, extent and progress of the Degremont negotiations he would not have advised Mr Dugan to complete the sale or would have advised that it be completed on different terms.

104 Further, the defendants contended that Mr Brooks' (and therefore Mr Dugan's) conduct is also called into question because:

(1) Mr Brooks informed the defendants' solicitors that his client refused a valuation of the Property and did not want to have the Process Group valued by a third party valuer; and

(2) Mr Brooks was informed by Mr Dugan that the interest from Degremont was serious yet did and said nothing.

105 In the course of oral argument, I requested the defendants provide a short summary of the relevant anomalies relied upon which might give rise to a conflict of a kind identified in the authorities. As a result, in the course of their reply submissions, the defendants provided a list of seven conflicts or anomalies (the 'list of anomalies'):

1. What if the Court does not believe Brooks as to what he states in:

1. Paragraph [20] of his statement; and/or

2. Paragraph [28] of his statement; and/or

3. Paragraph [29] of his statement; and/or

4. Paragraph [30] of his statement.

2. What if a conflict arises on the evidence between Dugan and Brooks as to:

1. The provision of the Tuckett Report;

2. The provision of the rejection of the undertaking sought;

3. The limited undertaking given on 5 April 2013;

4. The provision of any and what version of the Gow Representations in April or May 2013;

5. What information Brooks had at the moment of giving advice in paragraphs [29] and [30] of his statement;

6. What if there is a diversion or conflict is Mr Barrett to instruct Counsel to submit to the Court.

3. Was the advice referred to in paragraphs [28] and [29] of Brooks' statement:

1. Based only on the knowledge of instructions given on 4 April 2013;

2. Based on the Tuckett Report;

3. Based on either the undertaking sought, its rejection, or the limited guarantee provided by Rundell;

4. With the knowledge of any and what Gow Representations;

5. Any and if so what instructions given prior to the advice.

4. Do you believe or disbelieve Brooks as to whether his assertion in paragraphs [29] and [30] of his statement that any or what documents referred to in paragraph [29] was to cause him to change his advice?

5. What information or facts, if any, would form a proper basis for the assertion in paragraph [29] that he would have advised Dugan not to complete the sale?

6. What information or facts form the basis of Brooks' assertion that he would have advised to insist on an uplift clause? Does the Court accept the evidence?

7. What if Brooks decides not to give evidence leaving the Court to draw adverse inferences?

107 The defendants submitted that the facts of this proceeding are similar to Kallinicos in that, in Kallinicos, the solicitor was a member of one firm at the time of the relevant conduct or advice and was a member of a different firm at the time of the proceeding.

108 I wish to note that, in written submissions, the defendants submitted that Thomson Geer's conduct is called into question because it has a direct interest in ensuring that the evidence given by Mr Brooks does not give rise to any professional liabilities for that firm. However, in light of the content of Mr Tembel's affidavit referred to above, in oral argument the defendants conceded this was no longer pressed as a basis for any conflict. Rather, counsel submitted that if an inconsistency between the evidence of Mr Brooks and the evidence of Mr Dugan arises, there is a risk of embarrassment in that Mr Barrett will be required to instruct counsel as to who is to be believed. The defendants also referred to the comments of Brereton J at [92] above in relation to the nature of a firm.

109 As noted above, the plaintiffs accepted that Mr Brooks is a material witness in the proceeding. They submitted that the issue is whether there is a sufficient risk that he, or more relevantly to this application, Thomson Geer, might be in a position of conflict by reason of Mr Brooks' evidence which would require, in all the circumstances of this case, that Thomson Geer be restrained from further acting in the proceeding. As is evident from my comments above, I agree that this is the issue for determination in the restraint application.

110 In written submissions, the plaintiffs noted that the defendants relied in the 22 February 2021 letter on [46A] and [51] of the amended defences to assert that the advice given, or not given, to Mr Dugan by Mr Brooks was in issue in the proceeding. Those paragraphs relevantly allege that Mr Dugan recklessly failed to seek to have any warranty in respect of the interest from Degremont, and that the plaintiffs would have entered into the share sale deed in any event despite Mr Dugan telling his solicitors he had heard Degremont's interest was serious.

111 The plaintiffs contended that these assertions are fundamentally flawed. First, they submitted that the advice given, or not given, by Mr Brooks is not in issue in the proceeding either by reason of the matters raised in [46A] or [51] of the amended defences or at all. This is because those allegations relate to Mr Dugan contributing to his own loss or Mr Dugan's reliance on the Representations. Second, they submitted that, based on the defendants' witness outlines, the defendants do not dispute that the defendants did not tell Mr Dugan anything about Degremont from early April 2013 to the date of execution of the share sale deed. To the contrary, they submitted that Mr Tuckett's outline shows that he will say that after the 12 April 2013 email and the Tuckett report he did not tell Mr Dugan anything further about Degremont.

112 Further and relevantly, the plaintiffs contended that, contrary to the defendants' submissions, it is not correct to assert that Mr Brooks' advice to complete the sale in September 2013 will require scrutiny at the trial of this proceeding because he was told that Degremont's interest in the Process Group was 'serious' in April 2013. This was particularly in light of [17]-[19] and [22]-[23] of Mr Brooks' outline of evidence which, as set out above, records in summary that:

(1) having received the 10 April 2013 response, Mr Brooks did not consider it necessary or appropriate to ask the defendants if they were complying with their legal obligations and did not do so. Mr Brooks believed that, if there had been any material developments, the defendants would have informed Mr Dugan of this in accordance with the undertaking; and

(2) Mr Brooks negotiated the terms of the share sale deed with the solicitors for the defendants after that time and was not informed about any communications, meetings or negotiations between the Process Group and Degremont.

113 Further, the plaintiffs submitted that the facts of Kallinicos which I have summarised above are distinguishable because, in summary:

(1) in Kallinicos, the Court found that there was a high degree of probability that both the evidence and the propriety of the conduct of the solicitor would come under scrutiny, such that the solicitor's duties to the court, his client and his own interests might be in conflict. By contrast, the plaintiffs submitted that there was no such conflict in this case, in particular, as there is no allegation of wrongdoing or misconduct against Mr Brooks;

(2) in Kallinicos, there was a real prospect that both the interests and the evidence of the solicitor would conflict with the interests and the evidence of his client. There is no reason to believe that the evidence or interests of Mr Brooks and the plaintiffs will conflict. To the contrary, Mr Brooks and the plaintiffs share a common interest in disputing the defendants' assertions that the plaintiffs failed to protect their own interests;

(3) in Kallinicos, the issues in respect of which the solicitor would give evidence were controversial and in respect of which the credibility and personal integrity of the solicitor was likely to be put in issue. There could be no suggestion that the relevant facts in this case put the credibility or integrity of Thomson Geer in issue;

(4) in Kallinicos, there was a real prospect that the solicitor might be exposed to suit. Thomson Geer could not be sued for the conduct of Mr Brooks or his firm at the time, Herbert Geer, prior to Mr Brooks becoming a partner of Thomson Geer; and

(5) in Kallinicos, the inconvenience, cost and disruption of requiring the defendants to change lawyers was relatively small as the proceeding was at an early stage. By contrast, the plaintiffs' case in this proceeding has been fully prepared and ready for trial for some time and the prejudice to the plaintiffs having to find new solicitors would be significant.

114 The plaintiffs also submitted that Kallinicos involved an application to restrain an individual solicitor who had a personal interest in the proceeding. By contrast, Mr Brooks is not the solicitor for the plaintiffs but is a partner of Thomson Geer which is acting for the plaintiffs. Further, Thomson Geer had no involvement in the sale of Mr Dugan's interests.

115 The plaintiffs only had the opportunity to address the defendants' list of anomalies after oral argument concluded. In summary, the plaintiffs submitted that the list of anomalies does not give rise to any, or any likely, risk of conflict with Mr Dugan which would create the potential for Mr Brooks to have to defend his position or professional integrity.

116 As to the matters set out in [1] of the list of anomalies, the plaintiffs submitted that it was not to the point that the Court may choose not to believe Mr Brooks on certain issues. The issue is whether Mr Brooks' evidence is likely to be inconsistent with Mr Dugan's evidence such that there would be, or would likely be, a conflict between the interests of Mr Dugan and the interests of Mr Brooks to defend his position or professional integrity.

117 As to the issues raised in [1(a)-(c)], the plaintiffs submitted that there is unlikely to be any issue as to whether Mr Brooks would be believed on the subject matter of the paragraphs of his outline identified by the defendants. In any event, they submitted that the evidence of Mr Dugan, the contemporaneous documents and the plaintiffs' case are consistent with those paragraphs of Mr Brooks' outline.

118 As to the issues raised in [1(c)-(d)], the plaintiffs submitted the advice that Mr Brooks would have given if he had known of the fact, nature and extent of the Degremont negotiations (the 'counterfactual advice') is a matter for him. It is not a matter which could give rise to an inconsistency with Mr Dugan's evidence or, as a result, a relevant conflict. Further, the counterfactual advice is consistent with Mr Dugan's outline and the plaintiffs' case.

119 As to [2(a)-(d)] of the list of anomalies, the plaintiffs submitted there was no risk of any inconsistency in the matters identified based upon the outlines of Mr Brooks and Mr Dugan. In this regard, the plaintiffs noted that:

(1) Mr Brooks does not recall receiving the Tuckett report; and

(2) Mr Brooks and Mr Dugan both acknowledged receiving the 5 April 2013 request and the 10 April 2013 response which contained the Rundell Representations.

120 As to any potential inconsistency regarding the 'version' of the Gow Representations, the plaintiffs noted that, based on Mr Brooks' outline, Mr Brooks does not recall being informed of the Gow Representations. Further, based on Mr Gow's outline, Mr Gow does not deny making the Gow Representations. Indeed, Mr Gow will say 'it is possible that [Mr] Dugan asked [Mr Gow] during their conversation "what is happening with Degremont" and [Mr] Gow responded "nothing is happening with Degremont that I know of, or words to that effect"'.[61] In these circumstances, there is no evidence of inconsistency or relevant controversy.

121 As to [2(e)-(f)] of the list of anomalies, the plaintiffs submitted that the evidence of both Mr Dugan and Mr Brooks is that neither of them had the relevant information referred to in [29] of Mr Brooks' outline, namely the fact, nature and extent of the Degremont negotiations. They submitted that, as a result, there is no reason to believe that there is likely to be any inconsistency or relevant controversy which would put Mr Barrett in a position of conflict of the kind suggested in [2(f)] of the list of anomalies.

122 The issues raised in [3] of the list of anomalies related to the anomalies set out in [1] and [2] of that list. As a result, for the most part, the plaintiffs made similar submissions in response to [3] of the list of anomalies as those in response to [1] and [2] of that list. The plaintiffs submitted that there was no evidence of any possible inconsistency or risk of inconsistency between the evidence of Mr Dugan and Mr Brooks.

123 As to the questions raised in [4], [5] and [6] of the list of anomalies relating to the counterfactual advice, the plaintiffs submitted that, whether or not the Court believes Mr Brooks, there is no inconsistency with the evidence of Mr Dugan which would give rise to a relevant conflict. These are all matters solely within the knowledge of Mr Brooks as to the basis upon which he would form his professional opinion.

124 As to the question raised in [7] of the list of anomalies, namely what if Mr Brooks decides not to give evidence, the plaintiffs submitted that the question does not arise because the present application is premised on Mr Brooks giving evidence.

125 As noted above, the plaintiffs accept that Mr Brooks is a material witness. This is primarily because Mr Dugan says that he would have followed Mr Brooks' counterfactual advice. I consider that Mr Brooks' counterfactual advice might come under close scrutiny at the trial of the proceeding. This is because that counterfactual advice and Mr Dugan's reliance on it are required to establish Mr Dugan's claim for damages, at least under the ACL and in negligence.

126 Indeed, I consider that the defendants will challenge Mr Brooks' evidence to the effect that:

(1) if he had been aware of the fact, extent and progress of the Degremont negotiations he would not have advised Mr Dugan to complete the sale; and

(2) instead he would have given Mr Dugan advice to await the completion of the Degremont negotiations or to include a term in the share sale deed to provide an uplift to the purchase price in the event that there is a change of control of the business within a prescribed period.

127 In light of these general comments, it is necessary to say something about the list of anomalies relied upon by the defendants. Consistent with the submissions of the plaintiffs, I found the list of anomalies of little assistance in resolving the restraint application. This is because the list of anomalies for the most part posed a number of possibilities: 'what if the Court does not believe [Mr] Brooks...'; 'what if a conflict arises on the evidence...'; 'do you believe or disbelieve [Mr] Brooks...'; 'what if [Mr] Brooks decides not to give evidence'. However, the list of anomalies failed to identify the likelihood of a relevant inconsistency which might lead to a relevant conflict.

128 Consistent with the authorities set out above, it is first necessary to consider the degree of the risk of any inconsistency arising in the evidence of Mr Brooks and the evidence of Mr Dugan on the key issues identified by the defendants in the list of anomalies and/or the claim of the plaintiffs. Based on the list of anomalies, there appears to be a clear overlap between some of the factual issues relied upon by the defendants. For convenience, I have divided the factual issues:

(1) which relate to the Representations alleged, including the nature of the Representations; and

(2) which relate to the advice in fact given by Mr Brooks to Mr Dugan to complete the share sale deed in early September 2013 (the 'September 2013 advice') and/or the counterfactual advice.

129 As to the first category, I consider that the risk of inconsistency in relation to the factual matters relied upon by the defendants regarding the Representations (relevantly the Tuckett report, the 5 April 2013 request, the 10 April 2013 response containing the Rundell Representations and the nature of the Gow Representations) is very low. This is for two primary reasons. First, on the evidence before me, there is no indication that there is likely to be an inconsistency between the evidence of Mr Dugan and Mr Brooks on these matters. This is in light of the contents of the outlines of each of Mr Brooks and Mr Dugan and the absence of any contemporaneous documents in evidence which might indicate any such inconsistency.

130 Second, and related to the first point, the Representations at the heart of the plaintiffs' claim are for the most part evidenced in writing. As a result, oral evidence as to whether they were made or of their substance will be of no great moment at the trial. I acknowledge that the Gow Representations are alleged to be partly in writing and partly oral. However, it is not alleged that the Gow Representations were made to Mr Brooks. Further, a key aspect of the Gow Representations is not denied in Mr Gow's outline.

131 As to the second category, while there is a risk of inconsistency in relation to the factual matters relied upon by the defendants regarding the September 2013 advice or the counterfactual advice, I consider that risk at present is low. This is because, based on the outlines of Mr Brooks, Mr Dugan and the defendants, there is no evidence to suggest that Mr Brooks had information about the Degremont negotiations other than that set out in his outline. In this regard, I agree with the plaintiffs that the defendants' submissions set out in [103] above ignore the paragraphs of Mr Brooks' outline set out in [112] above, namely that Mr Brooks expected to be informed of any relevant matters relating to Degremont in light of the 10 April 2013 response and was not informed of anything about Degremont after that time in the course of negotiating the share sale deed.

132 In addition, there are no contemporaneous documents in evidence which might indicate any inconsistency with Mr Brooks' state of knowledge prior to the share sale deed being executed.

133 Of course I acknowledge that unexpected evidence may arise during the course of the trial, including possibly as to Mr Brooks' knowledge of the nature and extent of the Degremont negotiations prior to 6 September 2013. This may give rise to an inconsistency in his own evidence and with the evidence of Mr Dugan or the case of the plaintiffs. For example, any such unexpected evidence of Mr Brooks' knowledge of the Degremont negotiations prior to September 2013 may suggest that Mr Brooks may have changed the advice he gave to Mr Dugan in September 2013 to complete the share sale deed or would have given the counterfactual advice prior to completion of the share sale deed.

134 If such evidence as to Mr Brooks' knowledge of the nature and extent of the Degremont negotiations prior to 6 September 2013 was to arise, I also acknowledge that this evidence may result in a conflict between the duty of Mr Brooks to give honest evidence and the interests of Mr Dugan and the plaintiffs in succeeding in the claim as pleaded. This is particularly so given the plaintiffs' case for damages relies upon the counterfactual advice.

135 However, on the basis of the allegations made in the proceeding and the evidence before me, in particular the relevant outlines and the contemporaneous documents in evidence before me, I consider that the risk of any such inconsistency and/or consequential conflict is low. Further, I consider that such a risk is not a sufficient basis for me to exercise my discretion to restrain Thomson Geer from continuing to act. This is for a number of reasons.

136 First, this is because of the exceptional nature of the jurisdiction and the prima facie right of a party to be represented by the lawyer of its choice. This is in the context where I have concluded that the risk of conflict is low.

137 Second, this is because of the inconvenience, cost and disruption which would be caused by requiring the plaintiffs to change lawyers at this stage. On the evidence before me, I have formed the view that it is likely that significant prejudice will be suffered by the plaintiffs should such an order be made given the stage of the proceeding. As set out above, this proceeding was commenced in September 2019, almost two years ago. Pleadings have been finalised (subject to the plaintiffs' strike out application also heard on the day of the restraint application), significant discovery has been undertaken, and witness outlines and expert reports have been filed. The evidence before me is that the costs of requiring the plaintiffs to obtain alternative legal representation would be not less than $100,000. This is in the context where substantial costs, in the hundreds of thousands of dollars, have already been expended by the plaintiffs in this proceeding.

138 As a result of these conclusions, it is unnecessary to consider the relevance of the fact that Mr Brooks was not a partner of Thomson Geer at the time he acted in the sale of the plaintiffs' interests and whether, as a result, I should decline to restrain Thomson Geer from acting.

139 However there is one matter I wish to address. I do not accept, on the current evidence, that the Court should not have confidence that the plaintiffs and Mr Barrett have been frank about Mr Brooks' involvement in the conduct of the proceeding. Such a finding is not appropriate on the evidence before me and I would be unwilling to make such a finding without cross-examination. However, the evidence before me discloses that Mr Brooks has been involved in the prosecution of this proceeding, including strategic decisions made by the plaintiffs and Thomson Geer.

(1) seek to strike out a number of paragraphs, or parts of paragraphs, of the amended defence; and

(2) oppose leave being granted to amend a number of paragraphs, or parts of paragraphs, of the PFAD.

141 First, the plaintiffs seek to strike out [46A] and [46B] of the amended defence and the PFAD. As set out above, these relate to the plea of contributory fault on the part of the plaintiffs as a defence to the claim for breach of fiduciary duty.

142 Second, the plaintiffs seek to strike out [46C] of the amended defence and the PFAD, which pleads that the plaintiffs should be estopped from seeking equitable relief on the basis that the plaintiffs have engaged in conduct which was detrimental to the interests of the Process Group. In the PFAD, the defendants seek to rely upon the defence of unclean hands.

143 Third, the plaintiffs seek to strike out [53(a)] to [53(c)] of the amended defence which were not relevantly amended in the PFAD. As noted above, [53(a)] pleads a failure to mitigate loss without any particulars and [53(b)] to [53(c)] plead proportionate liability pursuant to s 137B of the Competition and Consumer Act 2010 (Cth). The plaintiffs did not oppose the amendments to [53(A)] to [53(D)] of the PFAD. They will be allowed.

144 Fourth, the plaintiffs allege that [35(f)] and the parts of [51(iii)] and [51(iv)] of the amended defence, as set out in [23] above, should be struck out as they are groundless and lacking merit. In the PFAD, [35(f)] is deleted and [51(iii)] and [51(iv)] are amended as set out in [25] above. The plaintiffs do not oppose the deletion of [35(f)] but oppose leave to amend [51(iii)] and [51(iv)] in the PFAD.

145 Fifth, the plaintiffs assert that [14(c)(i)], the first paragraph of the particulars to [15(d)(iv)], [15A(h)] and [35(d)-(l)] of the amended defence are frivolous and vexatious in that they do not respond to the claims pleaded by the plaintiffs and raise irrelevant factual matters with an apparent collateral purpose of attacking Mr Dugan's credibility. In the PFAD, [15A(h)] and [35(d)-(l)] are deleted. Those deletions should be allowed. Further, in the course of argument I indicated that I would strike out the particulars to [14] of the ASOC. As a result, the defendants conceded that [14(c)] and the first paragraph of the particulars to [15(d)(iv)] of the amended defence can also be struck out.

146 Finally, the PFAD also contained a new [60G] and [60H] seeking to rely upon the defence of contributory negligence under the Wrongs Act 1958 (Vic) to the claim for breach of duty of care. In the course of argument, the plaintiffs did not object to that amendment so long as the defendants were intending to rely upon Dugan's Own Negligence set out in [53(A)] to [53(D)] of the PFAD. On that basis, I will allow the amendments.

147 Thus, it is necessary to consider the allegations in:

(1) [46A] and [46B] of the amended defence and of the PFAD;

(2) [46C] of the amended defence and PFAD;

(3) [51(iii)] and [51(iv)] of the amended defence and PFAD;

(4) [53(a)] of the amended defence and PFAD; and

(5) [53(b)] to [53(c)] of the amended defence and PFAD.

148 Before doing so, I will set out the relevant principles which were not in dispute.

149 Rule 23.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) provides:

Where an indorsement of claim on a writ or originating motion or a pleading or any part of an indorsement of claim or pleading -

(a) does not disclose a cause of action or defence;

(b) is scandalous, frivolous or vexatious;

(c) may prejudice, embarrass or delay the fair trial of the proceeding; or

(d) is otherwise an abuse of the process of the Court -

the Court may order that the whole or part of the indorsement or pleading be struck out or amended.

150 Further, s 18 of the Civil Procedure Act 2010 (Vic) ('Civil Procedure Act'), in summary, provides that a person to whom the overarching obligations apply must not make any claim or make a response to any claim in a civil proceeding that is frivolous, vexatious or an abuse of process, or does not on the factual and legal material available to the person at the time of making the claim or responding to the claim (as the case requires) have a proper basis.

151 Section 29 of the Civil Procedure Act permits the Court to make any orders it considers appropriate in the interests of justice if it is satisfied that a person has breached any of the overarching obligations. This includes striking out pleadings for which there is no proper basis.

152 The principles to be considered when determining whether to exercise the Court's power to strike out a pleading include the following:[62]

(1) the function of a pleading in civil proceedings is to 'alert the other party to the case they need to meet (and hence satisfy basic requirements of procedural fairness) and further, to define the precise issues for determination so that the Court may conduct a fair trial';

(2) a pleading 'must state all the material facts to establish a reasonable cause of action (or defence)', and only facts which are relied on to establish the essential elements of the cause of action or defence are material facts;

(3) a pleading is embarrassing if it simply pleads a conclusion from unstated facts; and

(4) a pleading must be expressed in an 'intelligible form' that is not 'vague or ambiguous or inconsistent'. If an opposing party is unable to decipher the meaning of what is being alleged, the pleading will be embarrassing within the meaning of r 23.02.

153 Further, a pleading which does not disclose a cause of action or defence known to law will be struck out. The test is whether the pleading raises 'a claim [or defence] that has no real prospect of success, in the sense of being fanciful', as applied by the Victorian Court of Appeal in CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd.[63]

154 In Babcock & Brown DIF III Global Co-Investment Fund, LP v Babcock & Brown International Pty Ltd (No 2) ('Babcock'),[64] Hargrave J referred in part to the principles set out in Wheelahan v City of Casey ('Wheelahan')[65] and noted that the Court should not take a technical approach to pleadings, particularly 'when the true nature of the case to be met is clear from reading the pleading as a whole and there is no embarrassment to filing a responsive pleading'.[66] The Court of Appeal in Uber Australia Pty Ltd v Andrianakis endorsed both the principles in Wheelahan and the approach of Hargrave J in Babcock.[67]

155 I will now deal with each category of amendment in light of these principles.

4.3 Contributory Fault in Fiduciary Duty Claim - [46A] and [46B]

156 In summary, the plaintiffs submitted that, consistent with obiter dicta of McHugh, Gummow, Hayne and Callinan JJ and of Kirby J in Pilmer v The Duke Group ('Pilmer'),[68] contributory fault cannot be raised in response to a plea of breach of fiduciary duty. Relevantly, the majority noted that there are 'severe conceptual difficulties in the path of acceptance of notions of contributory negligence as applicable to diminish awards of equitable compensation for breach of fiduciary duty'.[69]

157 The plaintiffs noted that subsequent courts have recognised the High Court's rejection of the contributory fault defence in claims for breach of fiduciary duty, including the New South Wales Court of Appeal in Rahme v Benjamin & Khoury Pty Ltd ('Rahme').[70]

158 The defendants conceded that, based upon the obiter comments in Pilmer, the defence may face challenges at trial but submitted it remains nonetheless a defence capable of being pleaded for the purpose of r 23.02.

159 In my view, based upon the obiter comments of the High Court in Pilmer and the decision of the New South Wales Court of Appeal in Rahme, contributory fault cannot be raised in response to a plea of breach of fiduciary duty to reduce the quantum of the damages ordered. This is consistent with the views of the current authors of Meagher, Gummow and Lehane's Equity: Doctrines and Remedies.[71] As indicated in argument, I am satisfied that there is no defence of contributory negligence available.

160 However, in the course of oral argument, I was pointed to a passage of I Spry, The Principles of Equitable Remedies ('Spry'),[72] which suggests that when both common law and equitable claims are heard and determined in a proceeding, equity might limit the quantum of the claim in accordance with common law principles. The relevant passage provides that:[73]

It is necessary here to refer to a further distinction, that is, to the distinction between cases where the plaintiff does, and those where he does not, have a right to legal damages. In the first place, where a plaintiff seeking equitable damages has also a right to legal damages it is ordinarily found, at least in the absence of special equitable considerations such as unfairness or some other such matter affecting the balance of justice between the parties, that the same measure of damages is applied in equity as at law.

161 In their written submissions dated 12 August 2021, the plaintiffs contended that the principle raised in Spry was considered and rejected by the High Court in Pilmer. In essence, the plaintiffs submitted that the Full Court of the Supreme Court of South Australia in Duke Group Limited v Pilmer[74] relied on Spry and the authorities cited therein - Johnson v Agnew[75] and Wenham v Ella[76] - to find that it was appropriate to allow for the reduction of equitable compensation on account of the contributory fault of the plaintiff in that case. However, the plaintiffs submit that it is this finding, and therefore the principle in Spry, which was reversed in Pilmer.

162 In a written reply dated 24 August 2021, the defendants contended that in fact the principles considered in Pilmer and Spry differ. It is submitted that Spry stands for the proposition that, where a plaintiff has other common law claims for damages together with an equitable claim for damages against a defendant, equity will recognise any limitation that might be imposed in relation to the common law claims. The defendants submitted that this is separate to the issue considered in Pilmer.

163 In light of these competing legal submissions, I am not satisfied that the defendants' prospects of success of [46A] and [46B] in the amended defence are such that these paragraphs should be struck out. In my view, based upon the passage in Spry relied upon by the defendants, there may be circumstances where the Court might exercise its discretion to limit equitable compensation where a plaintiff's other common law claims against the same defendant have been reduced. In the present case, the particulars relied upon under [46A] as giving rise to the relevant contributory fault are the same as those now relied upon in [53(A)] to [53(D)] of the PFAD which the plaintiffs do not object to. As a result, there will be no additional factual enquiries which arise by reason of allowing [46A] and [46B] to remain. In these circumstances, I will not strike out [46A] and [46B].

164 In summary, the plaintiffs contended that [46C] of the amended defence does not disclose a defence. It pleads that the defendants are to be estopped from seeking equitable relief on account of the conduct of Mr Dugan detrimental to the interests of the Process Group between 20 March 2012 and 6 September 2013. Reference is then made to certain alleged breaches of his duties. In the PFAD, the defendants sought to include after the word 'estopped' the words 'on the basis of equitable maxim of unclean hands'.

165 In submissions, the defendants conceded that the application of the defence of unclean hands requires an immediate and necessary connection between the conduct to make the plaintiffs' hands unclean in the equity claimed. However, they say that whether the defences raised are sufficiently connected is not a matter that can be determined by the Court on a strike out application.

166 I had cause to consider the defence of unclean hands in Milfoil Pty Ltd v Commonwealth Bank of Australia,[77] in which I noted that there were two necessary elements:

(1) depravity in a legal and moral sense; and

(2) that depravity must have an immediate and necessary relation to the equity sued for.

167 As to the first element, it is difficult to define with precision the types of impropriety that amount to depravity in the legal as well as moral sense. However, the recognised categories include where the plaintiff has been guilty of some type of misrepresentation, where the plaintiff has materially misled the Court or attempted to abuse its processes, where the plaintiff has been guilty of equitable fraud or where there has been gross sexual immorality.

168 As to the second element, Isaac J noted in Meyers v Casey that the gist of the doctrine is that a person should not be allowed to take advantage from his or her own wrong.[78] Further, in Anaconda Nickel Ltd v Edensor Nominees Pty Ltd, the Victorian Court of Appeal noted that general fraudulent conduct signifies nothing.[79] Rather, it is only when that conduct is connected with the particular transaction that the defence of unclean hands is made good.

169 While the PFAD now refers to the defence of unclean hands, the elements of that doctrine are not pleaded or alleged by reference to the relevant facts so as to put the plaintiffs on notice of the case to be met at trial. Relevantly, no nexus is pleaded between the relevant conduct set out in the particulars to [46C] and the relief for which the plaintiffs sue. Further, in my view, the particulars provided are very general and vague, particularly at this stage of the proceeding. In large part, they mirror the particulars in [A], [C], [D] and [E] to [51(iii)] of the PFAD. In this regard, I refer to my comments as to the adequacy of those particulars in [176]-[180] below. I note that I was not taken in submissions to any outlines which might assist in further identifying the relevant conduct. In all these circumstances, I am not satisfied that the plaintiffs or the Court is able to determine the case to be met at trial. Rather, I consider that allowing [46C] to remain in its current form will add to the issues explored and costs incurred at trial.

170 In all these circumstances, I will strike out [46C] in the amended defence and I will refuse leave to grant the amendments to that paragraph in the PFAD.

171 As set out in section 2.3 above, in [51] of the amended defence, in response to the claim for misleading and deceptive conduct, the defendants deny that the plaintiffs relied upon the Representations and allege that the plaintiffs would have entered into the share sale deed in any event. Further, the defendants relevantly allege that:[80]

(iii) In association with Hardchrome Engineering, [Mr Dugan] was anxious to develop his own business, as agent for Capstone established in February 2013, in competition with the Process Group and he needed the money from the sale proceeds to pursue his own business interests which was in breach of the provisions of the Security Holders Deed, the Unitholders Deed and a breach of the Plaintiffs' fiduciary duty to Process Holdings;

(iv) The Plaintiffs were prepared to sell their interest in Process Holdings at a discount on the value of such interest as assessed by the Plaintiffs on 21 September 2012 in order to secure:

(i) an insurance indemnity;

(ii) a release in respect to the said breach of the provisions of the Security Holders Deed, the Unitholders Deed and said breach of fiduciary duty;

(iii) a release in respect to the conduct referred to in paragraph 46C hereof; and

(iv) an exemption from the restraint clause.

172 No particulars were provided of these allegations.

173 The plaintiffs seek to strike out the parts of [51(iii)] and [51(iv)] in italics. The plaintiffs submitted that, for these defences to have a proper basis, there must be some evidence that Mr Dugan knew of and had regard to the alleged breaches at the time he entered into the share sale deed on 6 September 2013. The plaintiffs submitted that there is no evidence which would support such an inference.[81]

174 Further, the plaintiffs submitted that there is no proper basis to the allegation in [51(iv)(iii)] relating to a release in respect of the conduct in [46C] of the amended defence. They submitted that the relevant release must be the release in cl 15.2 of the share sale deed. That clause only relates to the period up to and including 20 March 2012, whereas it seems that the breaches rely upon events after that time.

175 As set out at [25] above, the defendants sought to amend [51(iii)] and [51(iv)] in the PFAD. The plaintiffs also objected to the form and substance of the proposed amended paragraphs on the basis that they were vague and embarrassing.

176 Indeed, in the course of argument, I raised with counsel for the defendants that these paragraphs in the PFAD are so unclear and vague and rolled up as to be unintelligible.

(1) who or what 'Capstone' was or how it or Optimal Group was alleged to be 'in competition' with the Process Group;

(2) who or what Hardchrome Engineering was and what its 'association' was with Mr Dugan;

(3) how the development and pursuit of Mr Dugan's own business was in breach of the restraint in cl 18 of Security Holders Deed and cl 17 the Unitholders Deed relied upon; or

(4) how the 'development' and 'pursuit' of Mr Dugan's own business was in breach of the three fiduciary duties alleged.

178 Further, the particulars of the conduct constituting the 'said breaches' provided in [A] and [B] (the 'alleged contravening conduct') compound these problems rather than address or resolve them. For example, [A] does not identify the 'confidential information' referred to in that paragraph or how or when it was 'accessed' or 'utilised' to 'negotiate' and 'obtain rights to Capstone products'. It is not clear whether the 'conflict with [Mr Dugan's] duties' referred to is limited to the fiduciary duties (and if so which ones) or whether it includes the breaches of cl 18 of the Security Holders Deed and/or cl 17 the Unitholders Deed relied upon. Further, I was not taken to any witness outlines which might otherwise indicate the true nature of the case to be met at trial.

179 Similar issues apply in relation to the alleged contravening conduct in [C] to [E] of those particulars.

180 Further, reference is then made in the particulars to the email from Mr Dugan to Mr Brooks dated 4 April 2013 in which Mr Dugan informs Mr Brooks of the Degremont approach and the fact that 'it is serious'. However, that email has nothing whatsoever to do with the matters alleged in [51(iii)]. Counsel for the defendants could not inform me why it was there.

181 Similar problems arise in relation to [51(iv)] in the PFAD. In substance, the defendants allege that the plaintiffs did not enter into the share sale deed based on the Representations, but rather to secure:

(ii) an insurance indemnity;

(iii) a release in respect to the said breach of the provisions of the Security Holders Deed, the Unitholders Deed and said breach of fiduciary duty [which I understood was a reference to the particulars [A]-[E] under [51(iii)]];

(iv) a release in respect of the following conduct: ... [which mirrored the particulars [A] and [C]-[E] under [51(iii)]]; and

(v) an exemption from the restraint clause.

182 The insurance indemnity referred to in [51(iv)(ii)] was not identified. When I asked counsel to identify the relevant insurance indemnity, he could not do so and responded that the plaintiffs did not seek to strike this paragraph out of the amended defence.

183 As to the releases referred to in [51(iv)(iii)] and [51(iv)(iv)], the defendants were unable to provide a satisfactory explanation why the release in cl 15.2 of the share sale deed, which only applied for conduct to 20 March 2012, would apply to the alleged contravening conduct set out in the particulars [A]-[E] under [51(iii)], which related to conduct after 20 March 2012. No other release was relied upon by the defendants. As to the nature of the alleged contravening conduct relied upon under [51(iv)], I refer to my comments in [176]-[180] above.

184 As to the 'exemption from the restraint clause' referred to in [51(iv)(v)], the particulars refer relevantly to cls 9 and 15 of the share sale deed and cl 12 of the Hobbs Court Sale Deed dated 6 September 2013. I was only taken by counsel for the defendants to cl 9.5 of the share sale deed. The restraint is contained in cl 9, which imposes a restraint on certain business activities to be undertaken by the plaintiffs during the period of the restraint in cl 9.2 after completion of the share sale deed. Clause 9.5 provides an exemption in respect of certain kinds of activity. However, it is unclear to me on reading this clause in the context of [51(iii)] and [51(iv)] how it is alleged that cl 9.5 may have ensured that the alleged contravening conduct in any of the particulars [A]-[E] to [51(iii)] might be exempt under that clause. None of the relevant and material facts have been pleaded. Nor was I taken to any witness outlines which might otherwise indicate the true nature of the case to be met at trial.

185 In these circumstances, I will not allow the proposed amendments to [51(iii)] and [51(iv)] of the PFAD. Further, I will strike out the parts of [51(iii)] and [51(iv)] of the amended defence which are the subject of the plaintiffs' summons.

186 Further, I consider that the remaining parts of [51(iii)] and [51(iv)] of the amended defence should be struck out on the Court's own motion. In my view, they do not put the plaintiffs or the Court on notice of the case to be met at trial. There are a number of reasons why I consider this is appropriate in the circumstances of this case. Consistent with the arguments made in support of the PFAD, these paragraphs are premised on the basis that the plaintiffs were somehow in breach of existing or future obligations owed to the Process Group and sought to be relieved of those obligations as part of the share sale deed. Indeed, these paragraphs are premised on the basis that these issues were what motivated the plaintiffs to complete the share sale deed.

187 It may be that such a case can be established. However, on the basis of the allegations in the amended defence, such a case has not been identified or articulated in a clear or logical way. Further, the relevant material facts have not been alleged. This includes, by way of example, the relevant conduct on the part of Mr Dugan, how each category of conduct is alleged to give rise to the breaches of duty or of contract, and how the contractual terms secured as part of the share sale deed provided a relevant benefit to Mr Dugan. This is in a context where the attempts to allege the existing or future breaches as set out above in the PFAD have been disallowed.

188 It is important to bear in mind that this proceeding has been on foot for a considerable period of time. Outlines of evidence have been filed and the proceeding is almost ready for trial. The Court must insist at this stage on the proper articulation of the issues for trial both for the plaintiffs and the Court. Paragraphs [51(iii)] and [51(iv)] do not properly articulate those issues or the basis for them. Rather, I consider that allowing these paragraphs to remain in their current form will add to the issues explored and costs incurred at trial. As a result, I will strike out these paragraphs from the amended defence.

189 For completeness, I do not accept the plaintiffs' contention that before any such allegation can be pursued there must be evidence that the plaintiffs knew of these existing or likely future breaches. That is a matter than can be established at trial.

190 As noted above, in [53(a)] of the amended defence, in response to the allegation that the plaintiffs have suffered loss and damage by reason of the Representations, the defendants allege the plaintiffs failed to mitigate the alleged loss and damage. No particulars are provided. As a result, the plaintiffs sought to strike out this paragraph. In the PFAD, [53(a)] is repeated with no attempt to provide particulars.

191 In my view, consistent with the principles set out at [152] above, this paragraph contains a conclusion from unstated material facts and must be struck out. It does not put the Court or the parties on notice of the defence to be met at trial. I note that I was not taken in submissions to any outlines which might assist in further identifying the relevant conduct which might support the allegation. I consider that allowing [53(a)] to remain in its current form will add to the issues explored and costs incurred at trial. As a result, [53(a)] of the amended defence will be struck out.

4.7 Proportionate Liability Defence - [53(b)] and [53(c)]

192 As set out above, the proportionate liability defence in [53(b)] and [53(c)] of the amended defence relies upon s 137B of the Competition and Consumer Act 2010 (Cth). However, the plaintiffs only sue on the Victorian ACL. The defendants submitted that there was some uncertainty as to whether the plaintiffs only relied upon the Victorian ACL in light of the prayer for relief in the ASOC and their reply. However, counsel for the defendants conceded in argument that, if the plaintiffs clarified that they only rely upon the Victorian ACL, then the defendants are unable to rely upon s 137B of the Competition and Consumer Act 2010 (Cth) and [53(b)] and [(53(c)] should be struck out.

193 In written submissions dated 12 August 2021, the plaintiffs provided that clarification. As a result, I will strike out [53(b)] and [53(c)] of the amended defence.

194 As to the restraint application, I will dismiss the restraint application.

(1) I will strike out the particulars to [14] of the ASOC and [14(c)] of the amended defence. I will not allow the amendments to [14(c)] of the PFAD;

(2) I will strike out the first paragraph of the particulars to [15(d)(iv)] of the amended defence. I will allow the amendment to the particulars to [15(d)(iv)] in the PFAD but I will not allow the amendments to [15(c)(ii)] of the PFAD;

(3) I will strike out [15A(h)] of the amended defence which was removed in any event in the PFAD. I will give leave to delete that paragraph in the PFAD;

(4) I will strike out [35(d)-(l)] of the amended defence which were removed in any event in the PFAD. I will give leave to delete these paragraphs in the PFAD;

(5) I will not strike out [46A] and [46B] of the amended defence;

(6) I will strike out [46C] of the amended defence and I will not allow the amendments to that paragraph in the PFAD;

(7) I will strike out [51(iii)] and [51(iv)] of the amended defence in their entirety and I will not allow the amendments to [51(iii)] and [51(iv)] of the PFAD;

(8) I will allow the amendments to [53(A)] to [53(D)] of the PFAD subject to (10) below;

(9) I will strike out [53(a)] to [53(c)] of the amended defence and I will not allow the amendments to those paragraph in the PFAD; and

(10) I will allow the amendments in [60G] and [60H] of the PFAD on the condition the relevant conduct relied upon is Dugan's Own Negligence as defined in the particulars to [53(A)] to [53(D)].

196 I will hear from the parties on the form of orders to be made and costs. In the absence of agreement, I will list the proceeding for mention. At that time, orders can also be made for the future conduct of the proceeding including the outstanding discovery application.

[1] Mr Tuckett, Mr Singh, Mr Walker, Mr Rundell, Mr Gow and Mr Arter.

[2] Martin Hooper Holdings Pty Ltd, the fifteenth defendant, owned 2.38% of the shares in Process Holdings. Mr Letcher owned 2.38% of the shares in Process Holdings.

[21] Amended defence, [53(b)]-[53(c)].

[22] [2005] NSWSC 1181; (2005) 64 NSWLR 561, 582-3 [76] ('Kallinicos').

[23] [2008] NSWSC 772, [20] ('Mitchell').

[25] [2012] VSC 611, [3], [13].

[26] Relying upon Hempseed v Ward and Anor [2013] QSC 348, [35]-[36] (McMeekin J).

[27] Relying upon Mitchell (n 23) [20]-[21].

[28] Kallinicos (n 22) 585 [87]. I note that his Honour was considering the New South Wales predecessor to r 27. See also Barrack Corporation Pty Ltd v The Kara Group of Companies Pty Ltd [2014] NWSCA 395, [49] (Adamson J, Barrett JA and Sackville AJA agreeing).

[29] Kallinicos (n 22) 584 [84]-[85].

[62] Annesley v Westpac Banking Corp [2016] VSC 323, [71] ('Annesley'); Wheelahan v City of Casey [2013] VSC 316, [25] ('Wheelahan').

[63] [2017] VSCA 11; (2017) 55 VR 62, 72 [24].

[64] [2017] VSC 556 ('Babcock').

[67] [2020] VSCA 186; (2020) 61 VR 580, 599-601 [50]-[54].

[68] [2001] HCA 31; (2001) 207 CLR 165.

[70] [2019] NSWCA 211; (2019) 100 NSWLR 550, 574 [124]-[127].

[71] John Dyson Heydon et al, Meagher, Gummow and Lehane's Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) [2-345].

[72] I Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages (Lawbook Co, 7th ed, 2007) ('Spry').

[74] [1999] SASC 97; (1999) 73 SASR 64.

[75] [1980] AC 367.

[76] [1972] HCA 43; (1972) 127 CLR 454.

[77] [2019] VSC 504, [562]-[569].

[78] [1913] HCA 50; (1913) 17 CLR 90, 123.

[79] [2004] VSCA 167; (2004) 50 ACSR 679, 689 [37] quoting Attwood v Small (1838) 6 CI & Fin 232.

[80] Amended defence, [51(iii)]-[51(iv)].

[81] Relying upon the first Barrett affidavit, [14], [15].