Plaintiffs v First Defendant

Supreme Court of Victoria|2010-08-23|Before: Davies J

LEGAL PRACTITIONERS - Application to restrain a firm of solicitors from continuing to act - Relevant considerations for exercise of the Court's inherent jurisdiction - Whether conflict of interests - Whether lack of objectivity and independence - Whether risk of disclosure of confidential information - Application refused.

1 This is an application by the second defendant ("Wenco") for an injunction to restrain the legal firm Gray Friend & Long ("the firm") from acting for the plaintiffs in this proceeding ("the Bearings proceeding") and for the defendants in proceeding 7399 of 2004 ("the Wenco proceeding"). In short, Wenco claims that the firm has a conflict because of the related nature of the cases. It was argued for Wenco that the firm, because of the conflict, will not be able to exercise the independent and objective judgment in the conduct and management of both cases that its professional responsibilities and obligations to the Court require of it. It was also argued that confidential information available to the firm in acting for the defendants in the Wenco proceeding is at risk of being imparted to the plaintiffs in the Bearings proceeding.

2 It is necessary to set out the background to both proceedings in some detail to explain how the question of conflict and risk of use of confidential information arises.

3 Wenco and the first defendant ("Industrial") carried on business in partnership under the name W.W. Industrial - Wenco Industrial from January 2000 to 15 April 2004, when the partnership was dissolved. In July 2004 Wenco instituted the Wenco proceeding against Industrial and William Whitehead ("Whitehead") (collectively the "Wenco defendants"). Whitehead is a director of Wenco and the sole director of Industrial. He was also the manager of the partnership business. Industrial and Whitehead retained the firm to act on their behalf.

4 Wenco made allegations to the effect that Industrial and Whitehead had breached the terms of the partnership agreement by failing to account to Wenco for Wenco's share of partnership profits and by wrongfully diverting business of the partnership to Industrial and another company, B.J. Bearings Pty Ltd ("Bearings"). Bearings is a company controlled by Whitehead and his wife (collectively "the Whiteheads") and, in its capacity as trustee of the Whitehead Family Trust, the sole shareholder of Industrial.

5 It appears that Industrial initially disputed the existence of the partnership. Wenco sought declaratory relief that the partnership existed and that it had been dissolved with effect from 15 April 2004 and sought an account of all partnership dealings.

6 Industrial consented to an order made by Teague J on 16 August 2006 granting the declaratory relief in the terms sought by Wenco. Industrial and Whitehead also consented to orders by Teague J for the taking of accounts of the partnership and for specified questions to be referred to a special referee for that purpose. Those questions included question 5:

5. What amounts (if any) not charged or paid during the subsistence of the partnership are reasonably chargeable to the partnership in each of the accounting dates by:

(a) BJ Bearings Pty Ltd in respect of:

(i) costs of provided staff;

(ii) transport and freight services;

(iii) premises and storage facilities;

(iv) sales, storage, cataloguing and indexing services, including commission on sales of partnership products;

(v) principal and interest on monies lent to the Partnership;

(b) WR and BM Whitehead for monies lent to the partnership and securities provided to the partnership bankers in respect to the partnership account at bank;

(c) Quickbiz Pty Ltd for the provision of administrative staff and administrative services to the partnership and monies lent to the partnership;

(d) The First Defendant (W.W. Industrial) for monies lent to the partnership;

(e) The Second Defendant (Whitehead) for monies lent to the partnership?

7 Quickbiz Pty Ltd is another company owned and controlled by the Whiteheads.

8 The special referee provided his report to the Court in late November 2006 and by summons filed on 5 June 2007 the Wenco defendants sought orders that the Court adopt the special referee's report. On 28 September 2007, Smith J made an order adopting the report, save for one finding which is not relevant for present purposes. "Other Matters" in the form of order recorded that Smith J ordered the adoption of the findings of the special referee on question 5 on the basis that the conclusions of the special referee were:

confined to the quantum of the amount recoverable by the claimants, in the event that the entitlement of the claimants or one or other of them to each respective amount referred to is established.

subject to revision pursuant to and in accordance with any future finding of this Court as to the entitlement of the claimants ... to recover any of the amounts which the Special Referee in answer to ... question 5 has found to be reasonably chargeable to the Partnership.

9 An appeal against the order by Industrial was dismissed by the Court of Appeal on 27 August 2009.

10 In 2006, the firm was retained and instructed by Bearings, Quickbiz and the Whiteheads (collectively the "Bearings plaintiffs") to institute this proceeding against Industrial and Wenco. Mr Brooks, a member of the firm, deposed in an affidavit sworn on 14 July 2010 that the Whiteheads obtained advice from him about their personal claims and the claims of Bearings and Quickbiz against the former partnership. Mr Brooks further deposed that he advised the Bearings plaintiffs to institute proceedings for recovery of the amounts they claimed from the former partnership because, whilst Industrial acknowledged its liability as a former partner of the Wenco-Industrial partnership for the amounts claimed by the Bearings plaintiffs, Wenco disputed those claims and there was concern about the expiry of the limitation period. Mr Brooks also deposed that Industrial was joined as a defendant to the Bearings proceeding despite its admission of liability because he "considered it fairer for Wenco that both Wenco and Industrial be named as defendants".[1]

11 In the Bearings proceeding the Bearings plaintiffs have alleged that the former partnership is liable to pay them the amounts that the special referee found were reasonably chargeable. The outcome of the Bearings proceeding will have a direct effect on the profits of the former partnership that are claimed by Wenco in the Wenco proceeding. Furthermore, one of the matters for determination in the Wenco proceedings is Wenco's allegation that Industrial and Whitehead improperly diverted business of the partnership to Industrial and Bearings.

12 Thus the cases are interrelated in that there is a commonality of issue: viz whether the liabilities of the former partnership include the claims of the Bearings plaintiffs.

13 In the present application, it was argued for Wenco that the injunction is justified because the firm has placed itself in an untenable position of conflict because it acts for Industrial in the Wenco proceeding but against Industrial in the related Bearings proceeding and takes instructions from Whitehead in both cases, in the circumstance where Whitehead is also a director of Wenco.

14 On 14 July 2010, Mr Brooks, a member of the firm, deposed that he had raised the question of conflict of interest with Mr Whitehead. His evidence was that:

31. ...[Mr Whitehead] stated to me words to the effect that his position was, both on his own behalf and on behalf of WW Industrial Pty Ltd, that he could see no conflict in BJ Bearings Pty Ltd, himself, his wife and Quickbiz Pty Ltd making a claim against the partnership of Wenco and WW Industrial Pty Ltd and that he acknowledged that as between Wenco and WW Industrial Pty Ltd, WW Industrial Pty Ltd would be liable to pay one half of whatever amount was recoverable by the B.J. Bearings Pty Ltd plaintiffs.
32. Subsequently Mr Whitehead informed me that there could be no conflict of interest which affected the position of WW Industrial Pty Ltd, as that company acknowledged that it was responsible for half of any amount sought from the partners in the BJ Bearings proceedings by the Plaintiffs in those proceedings.
1. Prior to the issue of the BJ Bearings proceedings I explained to Mr Whitehead that the proceeding could be brought against Wenco alone but that on advice received from Counsel I considered it fairer that both Wenco and WW Industrial Pty Ltd be named as Defendants in the BJ Bearings proceedings.
  1. In the [Wenco] proceedings the whole of the instructions given on behalf of WW Industrial Pty Ltd to the firm were provided to the firm by Mr Whitehead.
  2. Likewise in the BJ Bearings proceedings, the whole of the instructions given to the firm were given to the firm by Mr Whitehead.
  3. There is no item of confidential information of WW Industrial Pty Ltd which is possessed by any member, employee or agent of the firm, other than myself. That information was received by me from Mr Whitehead.
  4. The whole of the issued share capital of WW Industrial Pty Ltd stands in the name of BJ Bearings Pty Ltd as trustee for Bill Whitehead Family Trust. Accordingly WW Industrial Pty Ltd is a wholly owned subsidiary of BJ Bearings Pty Ltd in that BJ Bearings Pty Ltd holds more than one half of the issued share capital of WW Industrial Pty Ltd within the meaning of s.46(a)(iii) of the Corporations Act 2001.
    1. There is no possibility that the firm could use any confidential information relating to WW Industrial Pty Ltd which is not known to Mr Whitehead or BJ Bearings Pty Ltd in advancing the interest of BJ Bearings Pty Ltd in the BJ Bearings proceedings, nor is there any reason why the use of any information provided by Mr Whitehead to the firm on behalf of WW Industrial Pty Ltd might conflict with those practitioners duties to keep information confidential.
  5. The firm have been practitioners for Mr and Mrs Whitehead for over 20 years and for WW Industrial Pty Ltd since 1999 and in the principal proceedings since August 2004. It would involve a massive amount of legal expense to enable some other firm of solicitors to put itself in a position whereby it could adequately represent the interests of Mr and Mrs Whitehead and WW Industrial Pty Ltd in the [Wenco] litigation, which has been running for the last six years.

15 For the Bearings plaintiffs, it was contended that the firm does not have a conflict of interest because Industrial does not dispute the claim made against it in this proceeding and there is no issue as between Industrial and Wenco that, as the former partners, they are liable to contribute equally to satisfy any amount found due to the Bearings plaintiffs. If there is a conflict of interest, it was argued that the conflict has been cured by client consent. It was also submitted that there is no confidential information that is capable of misuse by the firm, whether consciously or unconsciously, as the firm receives instructions from Whitehead in both proceedings. Finally, it was submitted that Wenco has no standing to make the application because it is not a client or former client of the firm.

16 The Court has the inherent jurisdiction to control its own processes and will restrain a legal practitioner from continuing to act for a party in litigation if the restraint is needed to ensure the due administration of justice and the protection of the integrity of the judicial process.[2] The power will be exercised where a fair minded, reasonably informed member of the public would conclude that the proper administration of justice requires that the legal practitioner be prevented from acting for a client.[3] This is an objective test as the exercise of power is predicated on what is required in the public interest for "an unqualified perception of fairness in the eyes of the general public" in the administration of justice.[4] As such a conclusion overrides the competing public interest that litigants have the right to choose their legal representation,[5] litigants should not be deprived of their choice of representation without good cause and due weight in an application of this kind must be given to that countervailing right. The Courts do not lightly conclude that the exercise of power is warranted.[6]

17 Counsel for Wenco placed considerable reliance on the principle of independence and objectivity that the professional responsibilities and obligations to the Court require of legal practitioners. It was argued that the firm, by acting both for and against a client in related proceedings, had placed itself in a position of conflict, which called into question the professional independence of the firm and its ability to discharge its responsibilities to the potential unfair disadvantage of Wenco. It was submitted that the conduct of the firm, in acting for and against the same party in related proceedings, undermined the public's confidence in the profession and that this would be subversive to the appearance of propriety and therefore detrimental to the public's confidence in the legal system.

18 Counsel for Wenco made reference to Grimwade v Meagher.[7] In that case Mandie J (as His Honour then was) restrained counsel from appearing against a party "in the unique circumstances"[8] of that case which, His Honour found, involved "real risks of lack of objectivity and of conflict of interest and duty".[9] His Honour considered whether "the fair minded and informed observer would apprehend a real risk that [the lawyer] would, albeit unintentionally, lack the objectivity required of counsel in order to perform his duty to his client and to the court".[10] Mandie J concluded that there was a real risk that the lawyer would be unable properly to distinguish or avoid a conflict between his personal interests and his duties to his clients in the action. His Honour further concluded that the lack of objectivity gave rise to a substantial concern that a fair trial would not be held and hence gave rise to a concern for the integrity of the judicial process and the due administration of justice.

19 There is no doubt that the Court can, and should, exercise its jurisdiction to restrain a lawyer from acting where there is concern about the lawyer's capacity to exercise independent judgment and objectivity. That independence is critical to public confidence in the justice system and is reflected in the professional responsibility on a lawyer to avoid a conflict of interest.

20 The question of standing should first be addressed. In my view Wenco has standing to bring this application by reason that Wenco is a litigant in both cases. In my view, notions of fairness and justice entitle it to seek the Court's exercise of its inherent supervisory jurisdiction over the processes before it. For this purpose it is not a necessary requirement to bring the application that Wenco be a client for former client of the firm. It is sufficient for standing that Wenco has an interest in ensuring the fairness and integrity in the conduct of either case.

21 However, I am not satisfied on the evidence before me that Wenco has shown that there is a conflict of interest in the firm acting for the plaintiffs in this proceeding and for the defendants in the Wenco proceeding or that there is any real risk of lack of objectivity and independence of the firm in the conduct of either case.

22 First, there is no blanket rule that a legal practitioner cannot act for a client in one action and against that client in another action.[11] In other words, a conflict of interest is not demonstrated merely by showing that the firm acts for Industrial in the Wenco proceeding and against Industrial in the Bearings proceeding.

23 Secondly, whilst the two sets of proceedings are interrelated, the evidence is to the effect that the respective interests of Industrial and the Bearings plaintiffs in the outcome of both cases is not different. On the evidence of Mr Brooks, Industrial has acknowledged that it has a liability, as a former partner of the Wenco-Industrial partnership, to the Bearings plaintiffs. This evidence was not challenged and there is no reason on the available material before the Court to doubt the truthfulness of this evidence.

24 Thirdly, the firm has raised the question of conflict of interest with Whitehead, from whom the firm obtains its instructions in both sets of proceedings. The unchallenged evidence was that Whitehead does not perceive any conflict of interest in the firm acting for and against Industrial and has so instructed the firm on his own behalf and on behalf of Industrial. Whether Whitehead gave his instruction upon a full appreciation of the implications of the instruction is a separate and different question that was not addressed in this application and no finding is made on whether the consent was informed. For present purposes though, the evidence, in my view, sufficiently demonstrated that the question of conflict has been considered by the firm and brought to the attention of its clients and that those clients have instructed the firm to continue to act.

25 Fourthly, I am not satisfied that there is any reasonable apprehension of a misuse of confidential information. Wenco has not shown how any confidential information might be used that could cause a reasonable person to apprehend a danger of misuse.

26 In all of the circumstances, I am of the view that a fair-minded, reasonably informed member of the public would not consider that the continued involvement of the firm in either proceeding offends against notions of fairness and justice. Accordingly the application is dismissed.

[1] Affidavit of Ian Richard Brooks sworn 14 July 2010, 7 [33].

[3] Ibid; Spincode Pty v Look Software [2001] VSCA 248; (2001) 4 VR 501; Grimwade v Meagher [1995] VicRp 28; (1995) 1 VR 446.

[4] Everingham v Ontario (1992) 88 D.L.R (4th) 755, 761-2 (Richardson J) cited with approval in Grimwade v Meagher [1995] VicRp 28; (1995) 1 VR 446, 451 (Mandie J).

[5] Bhagat v Global Custodians (No 1) [2001] NSWSC 720; Macquarie Bank Ltd v Myer [1994] VicRp 22; (1994) 1 VR 350, 352.

[6] Bhagat v Global Custodians (No 1) [2001] NSWSC 720; Grimwade v Meagher [1995] VicRp 28; (1995) 1 VR 446.

[7] Grimwade v Meagher [1995] VicRp 28; (1995) 1 VR 446.

[10] Grimwade v Meagher [1995] VicRp 28; (1995) 1 VR 446, 454.

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Judgment (42 paragraphs)

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Cases Cited (4)