Qihua Zhao v Sheng Yu Zhang & Anor

Qihua Zhao - plaintiff PARTIES : Sheng Yu Zhang - first defendant Shujin Zhou - second defendant

M Bradford - plaintiff COUNSEL : submitting appearance - first defendant A Giveny - second defendant

Stephen Miller Solicitor - plaintiff SOLICITORS : submitting appearance - first defendant Armstrong Legal - second defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

1579/07 Qihua Zhao v Sheng Yu Zhang & Anor JUDGMENT 1 His Honour: This is an application by the second defendant, Shujin Zhou, to restrain Mr Stephen Miller, solicitor, (the solicitor) from acting for the plaintiff, Qihua Zhao, in these proceedings. It was based on the proposition that the solicitor was in possession of information which was confidential to the second defendant and relevant to the issues in these proceedings in which the use of such information would be disadvantageous to her. 2 These proceedings were commenced on 22 February 2007. The plaintiff is the brother-in-law of the first defendant. The first and second defendants are married but have separated. They are the joint registered proprietors of the property situated at no. 27 High Street, Canterbury (the property). The plaintiff provided most, if not all, of the money for the purchase of the property. He claims that the money was a loan pursuant to an agreement with the first defendant, and that the defendants hold the property on trust for him, and seeks an order that they transfer the property to him. He also claims monies payable to him by the defendants. 3 On 21 March 2007 the second defendant filed a defence in which, relevantly, she denies any loan agreement, and pleads that the funds advanced by the plaintiff to the first defendant were a gift. She adheres to this position in her amended defence filed 8 May 2007. 4 On 27 March 2007 the first defendant filed a notice of appearance in which he submits to the making of all orders sought, and to the giving or entry of judgment in respect of all claims made, save as to costs. 5 In support of the application was the second defendant's affidavit of 9 July 2007. In opposition were read the affidavits of the solicitor of 27 July 2007, of Yongmei Guo of 26 July 2007, and of the first defendant of 26 July 2007. None of the deponents was required for cross-examination. The facts 6 The following history was substantially accepted and, in any event, was established on the evidence. 7 On 1 January 1982 the first and second defendants were married and subsequently came to Australia. On 31 October 2000 they purchased the property which became the matrimonial home. On about 20 October 2005 they separated. 8 In about early April 2006 the second defendant met Yongmei Guo, the solicitor's wife, who arranged a meeting with the solicitor to discuss her matrimonial affairs. On 8 April 2006 a meeting took place between the second defendant and the solicitor at his office at no. 368 Sussex Street, Sydney. Also present were Jane Zhang, the second defendant's daughter, and Yongmei Guo, each of whom may have acted as an interpreter when required. 9 According to the second defendant (affidavit, para 5), she provided to the solicitor details in relation to her assets and liabilities, including information in respect of the purchase of the property. She told him that the first defendant had not disclosed to her any of the information in relation to the receipt of the gift of monies that he used to purchase the property. She did not produce any documentation to him, and said she answered his questions in relation to her matter as best she could. 10 She described the information provided to the solicitor in the following terms (affidavit, para 10): "10 During the conference I provided Mr Miller with the following details: (a) Details of my marriage, for example the date of marriage, date of separation, the length of the marriage, number of children, etc; (b) Details surrounding the circumstances of my residence overseas and in Australia; (c) Details surrounding the circumstances of Sheng's residence overseas and in Australia; (d) Details of the assets and liabilities Sheng and I had when we resided overseas and when we resided in Australia; (e) Details of Sheng's employment in Australia; (f) Details of Sheng's income; (g) Details of my income; (h) Details of the financial relationship between Sheng and I while he was residing in Australia and I was still residing overseas, before I commenced residing in Australia; (i) Details of The Property and the circumstances surrounding the money that financed The Property."

11 She said that the solicitor took notes during the conference which she estimated lasted more than 2.5 hours. She said that during the conference he produced a diagram and explained with reference to it how a property settlement was reached in matrimonial proceedings. She said (para 13) that "… during the conference, Mr Miller became aware of certain facts that I was able to recollect and the facts that I was unable to recollect". 12 During the meeting he gave her a letter in which it was suggested she collect documents relevant to issues likely to arise in disputed property proceedings before the Family Court. It included the following: "The interview that we are currently undertaking is a (sic) initial interview to discuss general points and to start somewhere. It will be necessary to have a detailed interview which can only meaningfully be undertaken when we have before us, documents that will either prove or disprove issues that will be asserted by either your husband or yourself during the matter." 13 The solicitor's evidence is that he has no specific recollection of what exactly was discussed at the meeting. His recollection is that the second defendant's major concern as expressed to him was that she had very limited income in the form of Austudy and she could not speak English very well. He says that, in accordance with his usual practice in the conduct of a preliminary conference with a potential client, a discussion in most general terms would have taken place about the fact that divorce and property settlement involve separate proceedings in the Family Court, and some general enquiry would have been made by him about the length of marriage, the number of children, and their ages. He says he probably did make some brief notes in the course of the conference, but they would have been very perfunctory and, in accordance with his usual practice, they were discarded sometime later as he had not heard from the second defendant again. 14 The solicitor denies that he was given any details of the second defendant's assets and liabilities, and no detailed information about her personal or financial circumstances, including information about the purchase of the property. He denies being given any information by her which could now be used either to advance the interests of the plaintiff in these proceedings or to disadvantage her. 15 The evidence of Yongmei Guo was to the effect that the second defendant's daughter acted as the interpreter. She says that she cannot recollect the detail of what was said at the conference except that what she described as the usual topics were discussed. These included the types of proceedings brought in the Family Court, matters relevant to applications for orders, the steps for divorce, the approach of the Family Court to property disputes, and the likely cost of divorce and property proceedings. She said that although the conference went on for about an hour, a lot of the time was taken up with conversations between the second defendant and her daughter discussing what the solicitor had said. 16 The solicitor had no contact with the second defendant thereafter. 17 On 14 April 2006 the first defendant retained solicitors, Austin Dunhill Berwick, to act in the matrimonial proceedings. He filed an application for divorce on 22 May 2006. A decree nisi was pronounced on 1 August 2006. 18 By their letter of 1 August 2006, the first defendant's solicitors informed the second defendant of their instructions to seek an order for 50 percent of the matrimonial property, and of a proposal to commence appropriate proceedings in the Family Court. 19 The second defendant retained Armstrong Legal, solicitors, to act for her. In their letter to the first defendant's solicitors of 28 April 2006 a number of issues were raised for consideration. The letter stated the second defendant's denial that the property was purchased from monies lent by the plaintiff. It stated that the money was a gift, and any claim by the first defendant to the contrary would be defended. 20 In October 2006 the solicitor was retained by the plaintiff to act for him in these proceedings. In his letter of 13 December 2006 to the second defendant he advised of the plaintiff's claim in respect of the property, and to monies advanced by him to the first defendant, and requested her to transfer her interest in the property to the plaintiff. He advised that if he did not receive a satisfactory reply proceedings would be commenced without further notice. In his affidavit (para 20) the solicitor states that at the time he sent the letter he did not realise that the second defendant was the person he had seen on 8 April 2006, as he had opened no file, retained no notes, and had received no fee. 21 On 18 May 2007 the second defendant filed a notice of motion for an order that these proceedings be transferred to the Family Court to be joined with the proceedings in that court between the first and second defendants. The application has not yet been heard and determined. 22 By letter of 19 June 2007 to the solicitor, the second defendant's solicitors, Armstrong Legal, requested him to immediately cease acting for the plaintiff. The letter referred to the meeting on 8 April 2006, and stated that the solicitor was provided with information as to the purchase of the property, and asserted that he was acting "… in a position whereby your knowledge places your client at an advantage". 23 The solicitor replied by letter of the same date. He advised he held no file relating to the second defendant, and requested a copy of documents said to have been provided to him. With their response of 22 June 2007, her solicitors sent only a copy of the letter given to her at the meeting. 24 In his letter of 28 June 2007 to the second defendant's solicitors, the solicitor accepted that he met her on 8 April 2006, but said he barely had a memory of the conference. He said that she never was a client of his firm, and requested details of the information given to him which put her at a disadvantage. The letter concluded: "Anyway, if your client wishes to tell me what the secrets were that she alleges she told me on 8 April 2006, which now put her at a disadvantage, I will give the matter further thought, however on the information so far provided, in my view, your client hasn't raised any substantive matter that would call for the writer to cease to act for the plaintiff." 25 There was no response to this letter. On 9 July 2007 the second defendant's notice of motion for the present application was filed. The principles 26 It is well recognised that there is no rule forbidding a lawyer acting in litigation against the former client (e.g. Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222, p 234; British American Tobacco Australia Services Ltd v Blanch [2004] NSWSC 70, para 105). 27 In Bolkiah Lord Millett (p 234) held that the court's jurisdiction to intervene on behalf of a former client required satisfaction of two conditions: (i) that the solicitor was in possession of information which was confidential to the former client and (ii) that such information was or might be relevant to the matter on which he was instructed by the second client. 28 His Lordship said (p 235): "… The only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence. Accordingly, it is incumbent on a plaintiff who seeks to restrain his former solicitor from acting in a matter for another client to establish (i) that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and (ii) that the information is or may be relevant to the new matter in which the interest of the other client is or may be adverse to his own. Although the burden of proof is on the plaintiff, it is not a heavy one. The former may readily be inferred; the latter will often be obvious. I do not think that it is necessary to introduce any presumptions, rebuttable or otherwise, in relation to these two matters. But given the basis on which the jurisdiction is exercised, there is no cause to impute or attribute the knowledge of one partner to his fellow partners. Whether a particular individual is in possession of confidential information is a question of fact which must be proved or inferred from the circumstances of the case …"

and (p 236): "It follows that in the case of a former client there is no basis for granting relief if there is no risk of the disclosure or misuse of confidential information." 29 The applicant must demonstrate that the risk is a real one, not merely fanciful or theoretical (Bolkiah p 237, Belan v Casey [2002] NSWSC 58, para 22; Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550, para 34; Kallinocos & Anor v Hunt & Ors (2005) 64 NSWLR 561, p 582). 30 An applicant must also identify with some specificity the confidential information to be protected. "… it must shown that the information was confidential to the plaintiff when it was communicated, involving the plaintiff in the necessity of showing facts and circumstances which show that it should then have been kept confidential or secret, and necessarily as part of that, what information was so communicated". (Per Bryson, J D & J Constructions Pty Ltd v Head & Ors (1987) 9 NSWLR 118, p 124.) The importance of doing so was explained by his Honour in Mancini v Mancini [1999] NSWSC 800 thus: "7 … It is not possible to address in any clear way and to come to a decision on protection of any alleged confidential information without identifying what the confidential information is in a sufficiently specific way to enable it to be identified. Without doing that it is not possible to come to a conclusion on whether the information truly is confidential, to consider and appraise the circumstances in which it came into existence and was communicated, to come to any conclusion about whether protection is appropriate, or to make any enforceable order. A case about confidential information cannot be nebulous. Confidential information which once existed may no longer be confidential; it may no longer be available although it was communicated in the past; it may not be material to any use which might now be proposed to be made of information. Without specificity a claim to protection cannot be defended or decided on any fair procedural basis, and a general allegation of the kind put forward here to the effect that from the nature of the past legal business confidential information must have been communicated should not in my opinion be upheld."

(See also: The Law Society of NSW v Holt [2003] NSWSC 629, paras 28-30; British American Tobacco para 65.) 31 I consider that the principles referred to in these authorities govern the approach to be taken in determining the second defendant's application. 32 I have not overlooked the second defendant's submission that in the circumstances of this case I should follow the approach taken by the Family Court in In the Marriage of L P and K D McMillan (2000) 26 Fam LR 653. In that case the court (para 54) supported the application in that jurisdiction of the approach of Frederico, J in In the Marriage of Thevenaz (1986) 11 Fam LR 95 that restraint is justified where only a theoretical risk of misuse of the confidential information is shown to exist. It held (para 87) that an applicant need only give evidence that he has provided confidential information to the solicitor, and does not have to divulge the content of that information. The reasons for this approach were said to be related to the sensitive nature of litigation in that jurisdiction. 33 The submission must be rejected, if only for the reason that, in my opinion, the principles in McMillan have no application to the circumstances in the present case. In McMillan the wife's solicitors were restrained from acting on her behalf in proceedings in the Family Court between the wife and her former husband. The reason for the imposition of the restraint was that a non-legally qualified law clerk who had previously been employed by the solicitors acting in the proceedings for the husband, and who had in the course of that employment worked on the husband's case, had moved to work as a secretary to the wife's solicitor. 34 The situation in the present proceedings is different. These are not Family Court proceedings. The solicitor does not, and has not, acted for the first defendant. In these proceedings the first defendant is, and has been, without legal representation, and has filed a submitting appearance. The plaintiff is not a party to the Family Court proceedings which are between the defendants. 35 In my opinion the existence of a pending application to transfer these proceedings to the Family Court to be joined with the proceedings in that court, and the prospect that similar questions concerning the property may arise in each does not require the Court to adopt the approach taken in McMillan. The facts and circumstances disclosed by the evidence in the proceedings in this Court bring this application squarely within the category of case to which the principles in Bolkiah apply. Determination 36 For the purposes of this case I have assumed, without deciding, that during the conference on 8 April 2006 the relationship between the second defendant and the solicitor was one of solicitor and client. Although, on the evidence, the conference was of a preliminary nature and the solicitor had not been formally retained, it is appropriate to proceed on the basis that there was such a relationship, and the second defendant should be regarded as a former client of the solicitor. In these circumstances the authorities establish the sole consideration is whether there is a real, not theoretical or fanciful, risk of disclosure of confidential information (Belan paras 21, 22). In any event the test is of general application whether or not the case is dealing with solicitors. 37 In my opinion the evidence goes no further than showing that the second defendant attended a meeting with the solicitor to discuss possible divorce proceedings and to enable her to decide whether or not she would retain him to act for her in any such proceedings. 38 Her evidence identifies no matter, precisely or otherwise, the disclosure of which might be harmful to her interest in these proceedings. In her affidavit she refers only to categories of information provided to the solicitor. With regard to the property and the circumstances surrounding the money which financed its purchase, all that is said (affidavit, para 5) is that she told the solicitor that the first defendant had not disclosed to her "… any of the information in relation to the receipt of the gift of monies that he used to purchase the property". Furthermore, it appears she made no response to the solicitor's invitation in his letter of 28 June 2007 to specify the information she alleges she provided to him which would put her at a disadvantage. The information that the money was a gift was not, nor could it have been in the circumstances, claimed to have been confidential. 39 There was nothing in the affidavits of the other deponents which assists the second defendant. On the issue of risk, I accept the evidence of the solicitor that, in substance, he has neither a record nor recollection of information provided to him by the second defendant. 40 The whole of the evidence leaves me unpersuaded that the second defendant is entitled to the relief claimed. Absent identification of the information provided to the solicitor, it is impossible to decide the extent to which, if at all, it is or was confidential, or to gauge whether, in the circumstances, there is a real risk of misuse in the proceedings. 41 For the above reasons it is ordered that:

(2) the second defendant pay the costs of the plaintiff and of the solicitor of the motion, limited to one set of costs. **********

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