South Black Water Coal Ltd v McCullough Robertson [1997] QSC 77

The statement of claim in action 9730 of 1996

The statement of claim in action 9730 of 1996 alleges that by the agreement in writing dated 12 July 1994 between Thiess and South Blackwater ("the Contract"), Thiess agreed to upgrade the coal handling and processing plant for the Kenmare mine at South Blackwater. An understanding of the scope of action 9730 of 1996 is of obvious relevance to the resolution of the issue between the parties in these proceedings. The following is a general summary of its contents.

"(1) The Contract was contained in, or evidence by, or is to be inferred from the following documents:

(b) section I of the contract: the conformed contract correspondence;

(i) the special conditions of contract including appendices (a) and (b);

(ii) the general conditions of contract including annexure 1;

(d) section III of the contract: the contract schedules and data;

(ii) the general specification including appendices I to V.

(2) It was an implied term of the contract that it was to operate retrospectively to 9 May 1994 or alternatively 16 May 1994.

Certificates issued, payments made and security held

(3) Thiess carried out the works to the stage of practical completion, obtained progress certificates and was paid money by South Blackwater (para.9).

(4) South Blackwater failed to ensure that the Superintendent certified for payment the full amount of the work done by Thiess (sc.12(c)).

Quantum meruit claim consequent upon termination of the contract

(5) South Blackwater, by its conduct, repudiated the Contract (sc.18).

(6) Thiess accepted the repudiation by letter dated 11 November 1996 and terminated the Contract (sc.19).

(7) Thiess is entitled to be paid a reasonable sum for the work done and material supplied by it and claims $16,916,889 on that account. (sc.20 & 21).

(8) Thiess lodged bank undertakings with South Blackwater as required by the Contract (sc.13). South Blackwater, by its conduct in breach of contract, prevented Thiess from obtaining a Final Certificate and, therefore, a contractual right to the release of the undertakings pursuant to clause 39.9 of the general conditions of contract. In consequence of the foregoing, Thiess 's preconditions to the release of the undertakings ought to be treated as satisfied (sc22-26).

(9) South Blackwater failed to ensure that the Superintendent issued payment certificates pursuant to clause 39 which made adjustments to the contract amount in respect of the variation in the amounts there set out (sc.30). In consequence of such failure to adjust Thiess is entitled to $2,741,164 pursuant to clause 37.2 or alternatively clause 39 of the general conditions of contract or alternatively as damages for breach of contract or alternatively on a quantum meruit.

(10) The Superintendent failed to grant Thiess appropriate extensions of time with respect to specified events. In breach of clause 16 of the general conditions of contract South Blackwater failed to ensure that the Superintendent acted reasonably and equitably and/or arrived at a reasonable measure of time. Alternatively it is alleged that in breach of clause 16 of the general conditions of contract the principal failed to ensure that the Superintendent exercise the power referred to in clause 31.6 of the contract in relation to specified matters. Thiess claims $410,000 damages for breach of contract or as a debt due and owing pursuant to clause 31.7 or alternatively clause 39 of the general conditions of contract. (sc.33-40)

(11) It was orally agreed between Thiess and South Blackwater on or about 25 May 1994 that the Thiess offer did not include "dustproof housings to the computers and, to this end, it was agreed that the line ´the housing for the computers must be at least IP54' which appeared in section 4.2.4. of the scope of work document should be struck out". It was alleged that the Contract be rectified so as to conform to such alleged agreement. (sc.44)

(12) There is a latent conditions claim in paragraphs 45 to 50 under which Thiess claims $991,863.40 as damages for breach of contract or as a debt pursuant to clause 37.2 or alternatively clause 39 of the general conditions of contract. In the course of the works Thiess encountered physical conditions falling within the definition of latent conditions on clause 15.1 of the general condition of contract. South Blackwater, in breach of contract, failed to ensure that the Superintendent issued payment certificates pursuant to clause 39 which made adjustment to the contract amount for the proper value of the additional work carried out.

(13) SC51-62 constitute a claim for damages for breach of contract in the sum of $9,296,251 arising out of alleged failure by South Blackwater at the request of Thiess to provide Thiess with documents which would accurately describe the "as built position of the existing plant" and to supply "as - built information within the time indicated on tender program 1D".

(14) South Blackwater failed to detail upgrade work within the time required by clause 4.1.22 of the contractor's final consolidated offer. (sc.55)

(15) Thiess has been delayed by causes in respect of which the Superintendent should have granted Thiess extensions of time for practical completion and operational completion pursuant to clause 31.6 of the general conditions of contract. South Blackwater's conduct was in breach of clause 16 of the general conditions of contract. South Blackwater refused to cause the Superintendent to grant to Thiess extensions of time and required Thiess to commence the shutdown no later 1 April 1995. (sc.59) In consequence of the breaches of contract referred to in sc.58-59, Thiess was required to increase its workforce and incurred other additional expenses.

(16) SC 63 to 73 consists of claims for damages for breach of s.52 of the Trade Practices Act 1974 in the sum of $9,296,251 or alternatively, for an order that the Contract be varied by substituting the sum of $59,141,668 for the original contract price and/or for an order pursuant to s.87 of the Trade Practices Act that South Blackwater is estopped from denying the entitlement of Thiess to the reimbursement claimed by it in its pleading for costs loss and expenses arising out of or in connection with the state of the existing plant and equipment.

(17) At a meeting on 14 June 1994 between representatives of Thiess and representatives of South Blackwater, certain agreements were reached and South Blackwater represented that it would compensate Thiess for any cost, loss or expense arising out of or in connection with the state of the existing plant and equipment or part thereof. Such representations are alleged to have been made also at a further meeting between representatives of South Blackwater and Thiess on 29 June 1994.

The circumstances in which a conflict of interests on the part of the defendant is alleged to have arisen

Bradley McCosker is a member of the defendant firm. In 1993 he and Charles Sullivan were senior associates of Blake Dawson Waldron ("BDW"), the solicitors for South Blackwater. They were and have remained friends. Mr McCosker states his recollection of his involvement on behalf of South Blackwater with matters which bear on the subject of action 9730 of 1996 as follows-

BDW received instructions from Queensland Coal Trust ("QCT") to advise in relation to tender documents for the Kenmare project. South Blackwater was a subsidiary of QCT. The instructions went to a partner of BDW, Mr Magarey who in turn referred the matter to Mr McCosker. In accordance with the client's express instructions he briefed Ms Burke of counsel.

Near the end of 1993 Mr McCosker and Ms Burke met with representatives of QCT or of South Blackwater and preliminary advice was given to South Blackwater ´in respect to the form of tender documents which had been submitted by them'. After the meeting Ms Burke prepared an opinion in relation to the proposed South Blackwater tender documents which was reviewed and commented on by Mr McCosker before it was delivered. After the delivery of the opinion there was a further meeting attended by Mr McCosker and Ms Burke with representatives of QCT and/or South Blackwater for the purposes of discussing matters raised in the opinion. Mr McCosker may have attended a second such meeting in Ms Burke's chambers after Christmas 1993. His next contact with the matter was becoming aware, through a telephone call from Mr Brook of South Blackwater on or about 30 June 1994 that South Blackwater was negotiating with a tenderer with a view to concluding negotiations before 30 June 1994 in order for it to qualify for a potential investment allowance. He does not recall whether that telephone call was to him or to Mr Magarey.

On or about 1 July 1994 he was informed by Mr Sullivan that the latter had been involved in negotiations on behalf of South Blackwater the previous night and that such negotiations had concerned a proposed contract between South Blackwater and Thiess. The details of the negotiations were not touched upon but it was said that ´a deal between (South Blackwater and Thiess) had been reached on 30 June 1994.'"

Mr McCosker swears to having had no further involvement in respect of the matter prior to his resignation from BDW in about August 1994, with effect from 23 September 1994. He joined the defendant firm on or about 10 October 1994.

In an affidavit the subject of a confidentiality order, Mr Magarey has exhibited material from BDW's file. That material enables a reasonably accurate appreciation of Mr McCosker's involvement in matters relating to the Contract to be derived. Instructions were first received by BDW from South Blackwater in a letter of 8 October 1993. The letter contained a recommendation that Ms Burke be briefed to peruse the contract documentation which South Blackwater "has put out to tender for the first stage of the Kenmare Project." The instructions to counsel dated 13 October 1993 contain the invitation-

"If counsel has any queries, she should contact Donald Magarey . . or Brad McCosker . . ".

Ms Burke prepared a draft advice which was reviewed by Mr McCosker. He gave brief written comments on it in a memorandum dated 6 November 1993. Counsel's advice was dated 9 November 1993 and is some 64 pages in length. A lengthy conference took place on 12 November 1993 between Mr McCosker, Ms Burke and representatives of South Blackwater. A further lengthy conference attended by Mr McCosker took place in Ms Burke's chambers on 23 February 1994 at which special and general conditions of the proposed form of contract were reviewed. The same persons met again for a number of hours in Ms Burke's chambers on 24 February 1994 and reviewed provisions of the proposed contract. A further review of contractual terms and conditions was conducted by Mr McCosker later that day, seemingly with a view to a meeting or discussion that he was to have with a Mr Stirling of South Blackwater. Mr McCosker prepared a document headed "further issues in relation to draft form of contract". It discussed terms and conditions of contract which had been the discussion at earlier meetings. Some of its content may also be comment on the provisions of the proposed form of contract and suggested changes which were not the subject of earlier discussion. A copy of the document was delivered to South Blackwater under cover of a letter of 25 February 1994. A diary note of 1 March 1994 reveals that Mr McCosker attended a meeting with representatives of South Blackwater on that day. The duration of the meeting was approximately 1 hour 15 minutes. Various terms of the contract documents were discussed.

On 18 March 1994 Mr McCosker had a further discursion with Mr Stirling concerning provisions of the proposed contract. Mr McCosker sent Mr Stirling a fax dated 18 March 1994 in which he submitted 2 further proposed clauses and commented on matters which had previously been the subject of discussion.

Events between 18 March 1994 and 26 September 1994

Subject to the following observations about the letter of 20 September 1994, Mr McCosker's direct involvement in a contract or contracts in relation to Kenmare as an employee of BDW appears to have ended on or about 18 March 1994.

A dispute arose between Thiess and South Blackwater in about early September 1994 concerning the Contract and its performance. On or about 29 June 1994 the defendant was retained by Thiess to advise it in relation to the Contract.

On or about 20 September 1994 Mr Sullivan prepared a letter of advice to South Blackwater in respect of a dispute between South Blackwater and Thiess "arising out of alleged incorrect information allegedly provided by (South Blackwater) to Thiess pursuant to the contract . . ".

I am unable to discuss the contents of the letter in detail as, to do so, would be to publish legal advice given by BDW to South Blackwater. The letter addressed two broad topics, a possible claim by Thiess in respect of documentation issued by South Blackwater under the Contract or purportedly sought by Thiess under the Contract ("the documents claim") and Thiess's obligation under the Contract to provide additional security in certain circumstances. In dealing with "the documents claim" matter, the letter refers to various provisions of the conditions of tendering, the memorandum of agreement, the general conditions, "the Thiess offer" and of the formal instrument of agreement. It also refers to letters which passed between South Blackwater and Thiess. There is consideration of the meaning and effect of certain express and allegedly implied contractual terms and comment on allegations raised by Thiess. The part of the letter relating to the documents claim consists of some sixteen paragraphs and occupies approximately seven pages. The other part of the advice is about one page in length. Such advice is generally as to the construction of contractual terms although, in quite a general way, it does advert to the Trade Practices Act and the Fair Trading Act (Qld).

The question of whether the 26 September 1994 letter was seen by Mr McCosker

There is a dispute as to whether Mr McCosker saw the letter of advice. Mr Sullivan's recollection is that he gave a copy of the letter to Mr McCosker and asked him to review it. He further swears that Mr McCosker reviewed the letter and returned it to him. The letter of advice was completed on 20 September 1994 but not forwarded to South Blackwater until 26 September 1994. It is common ground that if Mr McCosker saw it at all he would have seen it between 20 and 23 September. Mr McCosker's evidence is that he has no recollection of seeing the letter. He swears that in a meeting with Mr Sullivan in February 1996-

· Mr Sullivan raised the possibility that Mr McCosker may have been shown the letter of advice before the copy of it went to Mr Magarey for signature on BDW's behalf;

· he asked Mr Sullivan whether he had in fact looked at such advice saying he could not recall doing so;

· Mr Sullivan said that he would have to check his file;

· Mr Sullivan, in the course of discussion, agreed with Mr McCosker that if Mr Sullivan had shown Mr McCosker the letter it would have been part of a course of conduct under which Mr Sullivan would show letters of advice drawn by him to Mr McCosker in order to enable him to say to Mr Magarey, on presenting the letter of advice, that Mr McCosker had agreed with its contents.

· Mr Sullivan, at about the conclusion of this conversation, indicated that he would check his file and decide what he would do.

Mr McCosker heard nothing further of the matter concerning an alleged conflict of interest until 6 March 1996 when he was informed by a Mr Campain, an associate director of Thiess, that he had spoken to a Mr Heath of South Blackwater who had raised a question of a conflict of interest on the part of Mr McCosker.

Mr Sullivan's recollection, set out in paragraph 14 of his affidavit filed on 13 March 1997, is that-

"We often used each other as ´sounding boards' and discussed clients' issues. It was pursuant to that practice that I showed him my draft letter of 20 September 1996 and asked him to review it. I was also aware that he had been involved in drafting the contract on which I was then advising and I considered it worthwhile seeking his opinion on the dispute."

The recollections of Messrs McCosker and Sullivan do not coincide as to conversations had by them concerning the possibility that Mr McCosker might be in a position of conflict. Mr Sullivan recalls having two discussions in which the question of conflict arose. His recollection is that the first such discussion occurred in July to September 1995, was very brief and that the matter arose again and was discussed in more length on the evening of 19 April 1996 on the occasion of a football match. He accepts that he did not assert to Mr McCosker on either of the two conversations that Mr McCosker had perused the letter of advice and that on one of those occasions (which he puts as being in the course of the second rather than the first) that he posed the question, in effect, of ". . what if you had given (South Blackwater) advice on (Thiess's) claims". Nor did I understand his evidence as disputing Mr McCosker's evidence that Mr Sullivan told him at about the time of posing that question that he, Mr Sullivan, would have to check his file.

Mr Sullivan's evidence is that he refrained from any positive assertion in regard to Mr McCosker's having seen the draft letter in his discussion with Mr McCosker in order to avoid conflict. Mr Sullivan's recollection is that Mr McCosker made no alteration to the draft presented to him.

Findings in relation to the 26 September 1994 letter

I have not found it necessary to resolve the evidentiary conflict as to the date on which the first of the two discussions between Messrs McCosker and Sullivan concerning McCosker's actual or potential conflict of interests took place. I accept that Mr Sullivan has an actual recollection of handing a copy of the letter to Mr McCosker for the latter to consider. I accept that Mr McCosker has no recollection of this happening or of having perused a copy of the letter in draft or final form. I consider it probable that Mr McCosker perused the letter. Having regard to the fact that the letter was provided to Mr McCosker in the last few days prior to his departure from BDW on 23 September 1995 and to the fact that he had ceased to be involved with Kenmare contractual matters for some months, I consider it probable that any consideration given by him to the contents of the letter was likely to have been perfunctory in nature. That conclusion is supported by Mr Sullivan's recollection that when Mr McCosker returned the copy letter he made no amendments to it and offered no comment on its content beyond replying in the affirmative to a query along the lines of "Is it okay?" I accept that Mr McCosker retains no knowledge of the contents of the letter.

By the time of the first of the two "conflict" conversations, he had retained no knowledge of having read it.

In June 1995 Mr Durant the manager of Thiess' process engineering division sought advice from Mr McCosker in relation to the Contract. Mr McCosker mentioned his prior involvement to Mr Durant, expressing the view that he did not have any conflict of interest that would prevent him from acting for Thiess in relation to any contractual dispute between Thiess and South Blackwater. Mr Short and Mr Rosengren, respectively a consultant and a senior associate of the defendant, commenced acting for Thiess in the matter by about September 1995. Thiess had largely completed its work under the Contract by October 1995. However by that time there were many claims by Thiess for payment under the Contract which were unresolved. By the end of October 1995 meetings had already taken place between Thiess and South Blackwater with a view to resolving Thiess's outstanding claims. Negotiations between Thiess and South Blackwater, sometimes involving the intervention of a mediator or facilitator, took place in November and December 1995. In November representatives of South Blackwater were informed by Mr Campain, an associate director of Thiess, that Thiess had obtained a favourable advice from senior and junior counsel in respect of certain claims. Mr Heath, general manager of South Blackwater, responded that South Blackwater wished to obtain senior counsel's advice also. It was agreed between the parties that the material with which Thiess's counsel had been briefed should be provided to South Blackwater so as to ensure that the respective opinions were obtained against common factual backgrounds.

Towards the end of December 1995 Mr McCosker was requested by management of Thiess to become involved in the proposed claims against South Blackwater by assisting Messrs Short and Rosengren. He gave consideration to a possible conflict of interests, concluded that none existed and commenced to have an active involvement in the matter in February 1996.

By the end of 1995 South Blackwater was aware that the defendant firm was acting for Thiess in relation to the dispute.

Discussions in relation to the McCosker conflict in March 1996

On 5 March 1996 Mr Campain had a conversation with Mr Heath in which he recommended that Mr McCosker should ascertain from Mr Sullivan the timing of the delivery of the senior counsel's opinion awaited by South Blackwater.

· On 6 March 1996 Mr Heath informed Mr Campain that he had raised Mr Campain's recommendation with Mr Sullivan and that Mr Sullivan had agreed with it.

· Mr Heath went on to say that Mr Sullivan had mentioned that the partners of BDW had the view that Mr McCosker should not act for Thiess in the claim against South Blackwater, given Mr McCosker's previous involvement with BDW.

· Mr Heath said words to the effect that Mr McCosker's acting for Thiess was not an issue at present but that it might cause a problem if the negotiations failed and litigation ensued.

· Mr Campain had a telephone conversation with Mr McCosker about the conflict matter on or about 6 March. Mr McCosker advised in effect, that Mr Campain should clear the matter up. As a result of that conversation, Mr Campain formed the intention to take the matter of conflict up with Mr Heath in the near future in order to ensure that the matter was resolved one way or another.

Mr Heath's recollection of this discussion is slightly different. He swears that he said to Mr Campain words to the effect "I have been alerted by Blake Dawson Waldron as to a potential problem with Brad McCosker's involvement. I do not know if it is a major issue at this stage but it could become one later on if the matter is not resolved." He asserts that Mr Campain said words to the effect-

"If there is potential problem, it is better to be dealt with now, so I will speak to Brad McCosker personally about the issue."

Mr Sullivan's evidence was that the only purpose in Mr Heath's raising the conflict question with Mr Campain, and his advice-

". . was to ensure that if one day it came to pass that an injunction was applied for, it could not be said that it had never been raised . . ".

A meeting between representatives of Thiess and South Blackwater took place in 19 March 1996. No reference was made to Mr McCosker in the course of that meeting. Thiess produced a three page document for the purposes of discussion at the meeting which had a reference to Mr McCosker on its third page. I am not satisfied that Mr Heath saw or at least, had regard to the contents of that page.

On 29 March 1996 Mr Campain telephoned Mr Heath and discussed various matters relating to the dispute. Mr Campain swears that in the course of that conversation he raised the question of Mr McCosker's possible conflict of interest and was told by Mr Heath that the matter of Mr McCosker acting for Thiess "in its claims against SPCL was not an issue". His evidence is that he did not raise the matter again after that date "as the issue had been put to rest". Exhibit 4 is a copy of the 29 March page from Mr Campain's 1996 diary. It contains the cryptic entry-

Mr Campain's evidence is that the note was made by him whilst speaking to Mr Heath. Mr Heath does not recall the matter of McCosker's possible conflict being discussed on that later occasion.

Discussions between Messrs Sullivan and McCosker on the evening of 19 April 1996

On 19 April 1996 Messrs Sullivan and McCosker met at "The Gabba" to watch a football match. Both of them agree that there was some discussion on that occasion concerning the dispute between South Blackwater and Thiess and that Mr Sullivan raised the matter of a conflict of interest on the part of Mr McCosker.

Further findings in relation to the March and April 1996 conversations

Messrs Campain and Heath had a telephone conversation on 29 March 1996 in the course of which Mr Campain wrote the diary note which is exhibit 4. In the course of that conversation, Mr Campain, conformably with the intention formed by him earlier in the month, raised the question of Mr McCosker's possible conflict of interests in continuing to act for Thiess in the dispute between Thiess and South Blackwater. Mr Heath said words to the effect that there was then no problem with Mr McCosker's continuing to act in the matter. I have not found it easy to resolve whether Mr Thiess gave his assurance in unqualified terms. The background to the telephone conversation and the diary note suggest that Mr Campain was looking for a complete resolution to the conflict question and that he secured such resolution. That is the effect of his oral evidence also. The defendant though, in its letter of 6 December 1996, refers only to a conversation in which Mr Heath gave an assurance which, in effect, adverted to the possibility that the question of conflict might be raised if litigation ensued. Whatever words were used by Mr Heath in the conversation, Mr Campain, on the basis of what was said, concluded reasonably that Mr McCosker and the defendant were free to continue to act for Thiess in the dispute and that the question of conflict had been resolved for practical purposes. However, whatever was said Mr Heath did not expressly abandon any right on the part of South Blackwater to raise the question of Mr McCosker's position of conflict should the matter go litigation.

In the course of the discussion on the evening of 19 April Mr Sullivan invited Mr McCosker to look at BDW's files in order to "satisfy himself on the conflict issue". Mr McCosker did not take up the offer. It was plain to Mr Sullivan from the conversation that evening that Mr McCosker was acting on behalf of Thiess in the dispute. In a conversation subsequent to 19 April with Mr Heath, Mr Sullivan mentioned something of his discussion with Mr McCosker about the conflict matter. As Mr Heath had already adopted a position in relation to the conflict matter there is no reason to suppose that either he or Mr Sullivan gave any particular consideration or weight to matters concerning Mr McCosker's position of conflict at that stage.

If Mr Campain was told by Mr McCosker of the substance of the discussion between McCosker and Sullivan on 19 April, it did not change his view that the conflict matter was not a live issue. Nor should any reference to the 19 April conversation have affected, relevantly, his state of mind. He had the benefit of Mr Heath's assurance and there was no suggestion that South Blackwater was contemplating any change in its stance on the conflict point.

Mr Heath understood, after the conversations on 6 and 29 March 1996, that the defendant was continuing to act for Thiess in relation to the dispute and knew or had no reason to doubt that Mr McCosker was maintaining his involvement. The following exchange occurred in the course of Mr Heath's cross-examination-

"In any event, it is true to say that after March 6, as far as you were concerned, it wasn't an issue? -- No, as far as I was concerned it had been dealt with. If we proceeded down the road towards litigation - and at that stage we were in meaningful negotiations to resolve it without going to litigation, then it was resolved."

Prior the March conversations Heath had understood that South Blackwater was taking advice in relation to the dispute from the defendant. He appreciated or ought to have appreciated that the involvement of the solicitors had been extensive and would continue to be so whilst the dispute continued.

From about January 1996 Mr McCosker acted in the dispute on behalf of Thiess on almost a daily basis. Settlement discussions took place between the parties (without direct participation of their respective legal advisers) on 16, 17, 18 April 1996 and on 23 and 24 April 1996. There were further oral and written communications between representatives of South Blackwater and Thiess with a view to resolving the matter. By letter dated 11 July 1996 Thiess submitted claims to the superintendent for decision pursuant to clause 46.1(a) of the general conditions of contract. Those claims included ones based on misleading and deceptive conduct on the part of South Blackwater and ones based on a quantum meruit. The letter contained detailed allegations of misrepresentation. In the course of the negotiations Mr Sullivan, and perhaps other partners of BDW, met with representatives of South Blackwater in order to advise them. It is reasonable to conclude that representatives of South Blackwater believed that Thiess was being similarly advised by the defendant.

The material does not disclose a great deal about what happened between the parties in relation to the dispute between July and November. Mr Sullivan's recollection is that the negotiation "continued sporadically between September 1995 and October 1996".

The writ of summons in action 9730 of 1996 was issued and served on 15 November 1996. On 29 November 1996 BDW wrote to the defendant raising the question McCosker's, and the defendant's, possible conflict of interest. The letter stated inter alia-

"Earlier this year, when Mr Campain of Thiess mentioned that Mr McCosker was involved, SBCL's former general manager, Mr M. Heath raised the conflict issue with Mr Campain. Mr Campain said that he would raise the matter with Mr McCosker."

That letter also raised for the first time, a claim that the defendant firm was in a position of conflict.

The defendant replied in a letter dated 6 December 1996 denying that there was any conflict of interest. The letter stated inter alia-

"(f) . . McCullough Robertson have acted for Thiess for almost 2½ years with the full knowledge of your client and yourselves. Indeed, SPCL's Mr Heath told Mr Bevan Campain of Thiess in March 1996 that your Mr Sullivan had told him that he had spoken to the partners at Blake Dawson Waldron who felt that Mr McCosker should not act. Mr Heath said that this wasn't a problem or an issue at that time but that it might be if litigation ensued. Accordingly your client and yourselves clearly understood much earlier this year (if not before) that Mr McCosker was acting."

BDW's letter in reply dated 13 December 1996 stated inter alia-

"We note your comments in relation to Mr McCosker's involvement. However, Mr McCosker provided advice to SPCL in respect of certain contractual issues which, based on previous claims Thiess Contractors Pty Ltd (´Thiess') has made against SPCL, may be the subject of Thiess' statement of claims.

In addition, Mr McCosker reviewed a letter of advice to SPCL regarding certain claims received from Thiess prior to his departure from his firm.

We have representatives who are prepared to swear affidavits to this effect."

The statement of claim in the action was delivered on 20 December 1996.

Thiess has spent in excess of $1 million on solicitors' fees, counsel fees and experts and other consultants' fees in and about the preparation of its claims against South Blackwater.

The Possession of Confidential Information and the Solicitor's Position of Conflict

As may be seen from the summary of the statement of claim in action 9730 of 1996, the dispute between the parties is concerned with acts and omissions during the life of the contract and with representations allegedly made on or about 14 June 1994 and 29 June 1994. The defendants' submit, with some justification, that even if the letter of 20 September 1994 were to be published now there is nothing in it which would be helpful to Thiess. It is submitted that "the letter contains no more than one lawyer's observations about a contract and the effect of its terms: see D.J. Constructions v. Head (1987) 9 N.S.W.L.R. 118 at 120 B-C". It is further submitted that the pre-contractual advice contained in Ms Burke's lengthy memorandum and associated discussions is also of marginal relevance because it is pre-contractual advice as to the construction of contractual provision and was overtaken by subsequent events in the negotiation and performance of the Contract.

However it is impossible to escape the conclusion that the 20 September letter and the earlier advices are or are likely to be of some relevance to the issues raised in the statement of claim. They include advice as to the construction of some of the contractual provisions upon which Thiess relies. Such advice may assume more (or less) relevance as the issues in the action are further defined by delivery of a defence (and counterclaim) and reply (and answer). The plaintiff contends, correctly in my view, that the allegations in the statement of claim of misleading and deceptive conduct relating to the scope and operation of certain contractual provisions, give the relevant part of the pre-contractual advices particular relevance.

Having seen the letter of advice of 20 September 1994 Mr McCosker became possessed of information confidential to South Blackwater, namely the advice contained in the letter. He was similarly possessed of confidential information as a result of participating in the giving of advice to South Blackwater in respect of proposed contractual terms.

In commencing to act for Thiess in the dispute Mr McCosker placed himself in a position in which there was a significant possibility that his duty to South Blackwater may conflict with his interest in advancing the interests of his new client, Thiess. As Mr McCosker was a partner in the defendant firm it was placed in a similar position: Mallesons Stephen Jaques v. KPMG Peat Marwick (1990) 4 W.A.R. 357 at 374.

Principles relevant to the existence of a duty on the part of the defendant firm

In Spector v. Ageda (1973) Ch.30 at 48 Sir Robert Megarry observed:

"A solicitor must put at his client's disposal not only his skill but also his knowledge, so far as is relevant; and if he is unwilling to reveal his knowledge to his client, he should not act for him. What he cannot do is to act for the client and at the same time withhold from him any relevant knowledge that he has."

The solicitor client relationship is, of course, a fiduciary one. Gummow J. observed in National Mutual Holdings Pty Ltd v. Century Corporation (1989) 22 FCR 209 at 229-

"But even among fiduciaries solicitors stand in a special position. There is an underlying principle that a person should be entitled to seek and obtain legal advice in the conduct of his affairs without the apprehension of his being thereby prejudiced; the concern is with the general preservation of confidentiality and encouragement of full and frank disclosure between client and solicitor: Baker v. Campbell [1983] HCA 39; (1983) 153 CLR 52 at 114-115, per Deane J."

In Rakusen v. Ellas, Munday and Clarke (1912) 1 Ch. 831 Cozens-Hardy M.R. rejected the proposition that a court should restrain a solicitor from acting against a former client merely because to do so would place the solicitor in a position in which his duty to his present client may conflict with the duty to his past client. The other members of the court were in general agreement. Buckley L.J. said at 123-

"The question then involves the consideration of the circumstances under which a client is to be prevented from obtaining the services of a particular solicitor. The circumstances I think are these: the jurisdiction is a jurisdiction to restrain the solicitor from giving the new client any assistance against the old client by reason of knowledge acquired as a solicitor for the old client. If to ensure that result it is shewn to be reasonably necessary to restrain the employment of the solicitor by the new client the injunction will be granted, but on no other ground could such an injunction be granted as against the client."

Cozens-Hardy M.R. spoke in terms of the need to be "satisfied that real mischief and real prejudice would in all probability result if the solicitor is allowed to act."

Doubt has been cast on the Rakusen approach in cases such as re a Firm of Solicitors (1992) Q.B. 959; Mallesons Stephen Jaques v. KPMG Peat Marwick (1990) 4 WAR 357; Farrow Mortgage Services Pty Ltd (in liquidation) v. Mendall Properties Pty Ltd (1995) 1VR1 at 5; The Uncle Toby's Co. Pty Ltd v. Trevor Jones Steele Publications Pty Ltd (in liquidation) (1995) Butterworths unreported judgments 148 (Victorian Supreme Court Batt J.); Murray v. Macquarie Bank Ltd (1991) 33 FCR 46; Carindale Country Club Estate Pty Ltd v. Astill [1993] FCA 218; (1993) 42 FCR 307; and Farrow Mortgage Services Pty Ltd (in liquidation) v. Clayton Utz (unreported, Supreme Court of Queensland, White J., 4 September 1995). The latter case contains a comprehensive and helpful review of recent authorities.

In Mallesons Ipp J at 362,3 formulated a test of a real and sensible possibility that the solicitor's-

". . interest in advancing the case of the new client might conflict with his duty to keep the information given to him by the former client confidential, or to refrain from using that information to be detriment of the former clients."

In MacDonald Estate v. Martin (1990) 77 DLR (412) 249 Sopinka J. (with whose reasons Dickson CJC, la Forest and Gonthier JJ. agreed) formulated the following test at p.270-

"The test must be such that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur. That, in my opinion, is the overriding policy that applies and must inform the Court in answering the question: Is there a disqualifying conflict of interest?"

Drummond J., in Carindale Country Club Estate Pty Ltd v. Astill, after referring to MacDonald Estate, Mallesons and a number of other authorities, posed the following test at 312-

"In my opinion, a solicitor is liable to be restrained from acting for a new client against a former client if a reasonable observer, aware of the relevant facts, would think that there was a real, as opposed to a theoretical, possibility that confidential information given to the solicitor by the former client might be used by the solicitor to advance the interests of a new client to the detriment of the old."

In Farrow Mortgage Services Pty Ltd (in liquidation) v. Mendall Properties Hayne J. applied a test of "real and sensible possibility of the misuse of confidential information". It is clear that the weight of recent authority in this country, Canada, and possibly England, is against limiting relief to the circumstances described by Cozens-Hardy M.R. in Rakusen.

Having regard to the conclusions I have reached in relation to acquiescence and matters affecting the exercise of any discretion I may have in this matter, it is not necessary for me to express a concluded view as to the appropriate test to apply in this case. In my view however, the Rakusen test is likely to be deficient in some factual situations, including those now under consideration, as not taking into account or failing to have sufficient regard to-

(a) A fiduciaries' obligation not to place himself in a position in which he has an interest "which possibly may conflict" with the interest of a former client (Aberdeen Ry Co v. Blaikie (1854) Macq. 461) or which gives rise to "a significant possibility of such conflict" (Chan v. Zacharia [1984] HCA 36; (1983-84) 154 CLR 178 at 198);

(b) Public policy considerations which afford special protection to solicitor client communications and which require the maintenance of public confidence in the administration of justice.

The defendant argues that whatever may have been the rights of the plaintiff to restrain the defendant from acting in the dispute those rights have been lost through the plaintiff's acquiescence. The defendant's argument relies particularly on the discussion of acquiescence by Deane J. in Orr v. Ford [1989] HCA 4; (1989) 167 CLR 316 at 337-8. At that reference Deane J. said:

"Strictly used, acquiescence indicates the contemporaneous and informed ("knowing") acceptance or standing by which is treated by equity as "assent" (i.e. consent) to what would otherwise be an infringement of rights. . . The word is commonly used also to refer (i) to a representation by silence of a type which may found an estoppel by conduct ..; or (ii) to acceptance of a past wrongful act in circumstances which give rise to an active waiver of rights or release of liability .. ; or (iii) to an election to abandon or not enforce rights: see, e.g. per Lindley L.J., Allcard v. Skinner (1887) 36 Ch. D. 145, at pp. 186-189."

In Allcard v. Skinner (1887) 36 Ch.D. 145 Cotton LJ. said at 174-

"Mere delay in enforcing a right is not itself a defence. It is very different from raising no objection to an act while it is being done, which may be treated as an assent to the act, and therefore as being acquiesced in such a sense as to be an equitable defence. The judgment of Lord Justice Thesiger in De Bussche v. Alt (1877) 8 Ch.D. 286 is in point."

In the latter case, Thesiger LJ, in giving the judgment of the Court, said at 314-

"If a person having a right, and seeing another person about to commit, or in the course of committing an act infringing upon that right, stands by in such a manner as really to induce the person committing the act, and who might otherwise have abstained from it, to believe that he assents to its being committed, he cannot afterwards be heard to complain of the act."

In Cashman v. 7 North Golden Gate Gold Mining Co (1897) 7 Q.L.F. 152, Sir Samuel Griffith said at 153-4-

"The term acquiescence is not a term of art. It was used in courts of equity as a term to characterize a defence which may be set up by a person against whom another makes a claim for equitable relief. It is a well-known doctrine of equity that when a person claiming equitable relief has lain by for a long time and so conducted himself that it would be inequitable to permit him to complain of the defendant's actions, the court will refuse to grant the relief. The term also bears another meaning. It may be fairly applied to a man who, seeing an act about to be done to his prejudice, stands by and does not object to it. He may be very properly said to be acquiescing in that act being done. But the difference in point of law in the legal consequences of the two kinds of acquiescence is quite clear. A man who stands by and sees an act about to be done which will be injurious to himself, and makes no objection, cannot complain of that act as a wrong at all. He never has any right of action, because he stands by and allows the act to be done. Acquiescence in the other sense is a defence to an action for specific relief, on the ground that the plaintiff cannot be reinstated in his original position without doing injustice to the defendant, but it is not an answer to a cause of action already accrued."

In my view the plaintiff has acquiesced in the defendant's conduct. The plaintiff knew, prior to March 1996, that the defendant was acting for Thiess in the subject dispute. In March 1996, at the latest, it became aware that Mr McCosker was a member of the defendant firm and that he was acting in relation to the dispute. By this time the plaintiff, through its solicitors, was aware of the extent of the information possessed by Mr McCosker as an employee of BDW. Acting upon legal advice the plaintiff decided that it would not oppose Mr McCosker's or the defendants continuing to act in the dispute in whatever manner and to whatever extent Thiess and the defendant considered appropriate. The plaintiff was then aware and continued to be aware that: the dispute was a very substantial one; extensive legal advice was likely to be obtained by Thiess on a continuing basis; and that such advice would or would be likely to touch upon the matters in respect of which Mr McCosker had previously advised or had been involved on behalf of the plaintiff. The plaintiff communicated its decision to Thiess not to take objection to McCosker's continuing to act in the understanding that Thiess would act on that intimation. It had the expectation, which in the event was fulfilled, that both McCosker and the defendant would continue to act in the dispute. The plaintiff must have appreciated also that there was some risk that in acting on behalf of Thiess, McCosker would retain some residual memory of advices given or information obtained whilst an employee of BDW. The plaintiff took a commercial decision to accept such risks.

The position in relation to acquiescence is clouded by the initial intimation on 6 March 1996 to the effect that the plaintiff might raise the question of conflict of interests if negotiations were not successfully concluded. I have found that there was never a clear and unequivocal departure from that position although Thiess was given to understand on 29 March 1996 that the conflict question was no longer a matter of practical concern. In the end result I have concluded that the existence of this degree of ambiguity in the plaintiff's position does not prevent the plaintiff from having acquiesced in the defendant's conduct. The plaintiff assented to the defendant's acting adversely to the plaintiff in a general and unlimited way and thus gave the defendant and Thiess to believe that if there was a valid objection to the defendant's continuing to act, no point would be taken by the plaintiff. It does not seem to me that the plaintiff ever held or expressed to the defendant or Thiess the concern that should the dispute go to litigation then the risk of a misuse by Mr McCosker of confidential information would be greater than such risk whilst the parties were attempting to solve their differences without recourse to litigation.

If South Blackwater's conduct did not disentitle it to equitable relief on the grounds of acquiescence I would nevertheless, in the exercise of my discretion, decline to grant an injunction for the following reasons-

(1) The considerations discussed in relation to the issue of acquiescence are generally applicable. In particular, I have had regard to the fact that South Blackwater is a commercially sophisticated company which took the decision to permit Mr McCosker to continue to advise Thiess after receiving advice from a large reputable firm of solicitors skilled in commercial matters. South Blackwater perceived it to be to its commercial advantage to allow Mr McCosker to continue to participate in the giving of advice to Thiess in the subject dispute. It sought to impose no limits on the extent or duration of Mr McCosker's involvement. I do not accept that South Blackwater's desire to remove the defendant, and Mr McCosker, as Thiess's legal advisers is motivated by anything other than a desire to make the litigation as difficult and as uncomfortable as possible for Thiess. The plaintiff points out that even after delivery of the statement of claim the full parameters of the dispute are not fully defined. The point is not without relevance to this and the acquiescence argument. However, it seems plain that the dispute in its pre-litigation stage was far reaching and gave rise to substantially the same risks that the plaintiff complains of in these proceedings.

(2) The likelihood that Mr McCosker retains little, if any, material knowledge of the contents of the early 1994 advices and the likelihood that he retains no knowledge at all of the contents of the 20 September 1994 letter. Even if Mr McCosker did retain some knowledge of the early 1994 advices I greatly doubt that he could use such knowledge to the disadvantage of the plaintiff.

(3) The plaintiff alleges a risk that at some stage in the course of the action something will happen to jog Mr McCosker's memory concerning relevant aspects of the 1994 advices. As Mr McCosker's role in the early 1994 advices, although extensive, was quite subsidiary to that of Ms Burke's and as his participation was without reference to or involvement in negotiations I consider any such risk to be slight. If Mr McCosker did retain some knowledge of any of the advices it highly likely that any disadvantage which the plaintiff could suffer as a result thereof would already have been suffered. Mr McCosker's involvement in the dispute has been protracted and detailed. Part of that involvement included a great many hours spent in and about the preparation of the statement of claim. The plaintiff elected to take the risk that confidential information may be misused by Mr McCosker, even if that was only done unwittingly, by the decision it took in March 1996. Once it was plain that the dispute would be the subject of court proceedings the plaintiff proceeded to raise and pursue its claims in a leisurely way.

(4) The counter-balancing prejudice to Thiess in the event that the injunction were to be granted. Thiess has paid a great deal of money for legal advice in order to further its claims against the plaintiff. It is quite true, as is submitted on behalf of the plaintiff, that much of the money so spent would not be thrown away if Thiess had to engage new solicitors. But it is inevitable that a substantial amount of costs would be thrown away. It is only a partial answer to submit, as the plaintiff does, that such costs might be recoverable from the defendant. In order to effect such recovery Thiess would be obliged to commence other proceedings and there could be no certainty as to their outcome. Thiess's conduct in the matter has been quite proper. When the conflict question arose it referred the matter to its solicitors. Having discussed the problem with its solicitors it sought to have the matter resolved with the plaintiff. It formed the view, based on the plaintiff's representations, that the question of conflict of interest would not be raised again in the course of negotiations and was unlikely to become a matter of practical concern at any stage. For Thiess, it is not simply a question of the throwing away of legal fees. If the defendant is prevented from acting there will be a delay in the prosecution of the action. There will be a loss of management time taken up in re-acquainted new solicitors with matters within the knowledge of the defendant and Thiess will be deprived of the use of legal advisers in which it has reposed confidence.

For the above reasons I decline to grant the relief sought in the notice of motion and I propose to order that the action be dismissed. I will hear argument on the question of costs.