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[2001] VSC 287
Supreme Court of Victoria
2001-08-17
Warren J
Original judgment source is linked above.
[2001] VSC 287
SOLICITORS - removal or restraint from acting against a former client - breach of retainer - breach of fiduciary duty.
(1) Macpherson and Kelley were engaged by Mr Rogers and Mr Moore to act in relation to the incorporation of the company.
(2) Macpherson and Kelley acted for both Mr Moore and Mr Rogers through their respective corporate entities, namely, Spincode and G-Wiz.
(3) During the time of the formation of the business of the company and its incorporation, one Damien Paul and Mr Sven Bier of Macpherson and Kelley acted in relation to a separate dispute with an entity known as JBA.
(4) The solicitors acted in relation to all legal matters concerning the company including the drafting of the memorandum of association, the drafting of software licence agreements, the drafting and reviewing of distributor agreements and application service provider agreements, the registration of trademarks and other agreements.
(5) Mr Dee engaged in extensive contact with Macpherson and Kelley in the preparation of a heads of agreement for a distributor of the company during January 1996.
(6) The solicitors provided advice to Mr Moore concerning the shareholders of the company and, in particular, a shareholders agreement.
(7) The solicitors through Mr Kirton attended meetings and provided advice in relation to the shareholder agreement and a number of shareholder issues in dispute. As a result Mr Kirton was instructed to prepare a shareholder agreement and employer share plan.
(8) On 15 December 2000 Mr Kirton attended a shareholders meeting and provided advice in relation to the shareholders agreement.
(9) In due course in November 2000 or thereabouts Macpherson and Kelley prepared a shareholders agreement and an employee share plan.
(10) Throughout his involvement Mr Kirton represented himself as acting for the company as distinct from Mr Moore or any other individual.
(11) On 29 January 2001 Mr Dee spoke to Mr Kirton of Macpherson and Kelley in relation to the shareholders dispute and alleges that Mr Kirton assured him he would not act on behalf of individual equity holders in any action that involved the company.
"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 Vampbell [1983] HCA 39; (1983) 49 ALR 385; 153 CLR 52 at 114-15 per Deane J."
" ... the main and important basis for the jurisdiction is the necessity of maintaining a confidence."
"Although it is necessary to be acutely conscious of the fact that the court is asked to interfere with the right of a litigant to be represented by the solicitor of the litigant's choice, it is not necessary to conclude that harm is inevitable (all well nigh inevitable) before acting to restrain a possible breach of the duty that a solicitor owes to clients and former clients to keep confidential information given to the solicitor in confidence and not use that information against the interests of a client who gave it to the solicitor. ... It is enough to say that I consider that injunction should go if there is a real and sensible possibility of the misuse of confidential information."
"It is clear, in my view, that a reasonable person, informed of the facts, might reasonably anticipate a danger of the misuse of confidential information and that there is a real and sensible possibility that the interest of the firm in advancing the case of the third and fourth defendants in the present proceeding might conflict with its duty to keep the information given to it by its former client confidential and to refrain from using that information to the detriment of its former client ... "
"I prefer simply to say that the Court should intervene unless it is satisfied that there is no risk of disclosure. It goes without saying that the risk must be a real one, and not merely financial or theoretical. But it need not be substantial." (Emphasis added).
"... the evidential burden shifts to the defendant firm to show that even so there is no risk that the information will come into the possession of those now acting for the other party."
"(t)he authorities establish that a court will restrain a solicitor from acting for a litigant not only in order to prevent disclosure of confidences of a client or former client, but also to ensure that the solicitor's duty of loyalty to the former client is respected, notwithstanding termination of the retainer, and to uphold as a matter of public policy the special relationship of solicitor and client".[2]
"It is surely part of the contract of retainer that the solicitor will use his best endeavours in the interests of his client and he does not do that by placing his own particular knowledge of events in which he took part as the agent of both at the disposal of one to the exclusion of the other ... [4] The common interest of both sides does, I think, make it less likely that the defendants made disclosures in confidence now deserving protection, because whatever they said to the solicitors at the time was doubtless said to them as solicitors for both plaintiffs and defendants and (unless subject to restriction by some special stipulation or by virtue of some other conduct) could be expected to be used by the solicitors to the mutual advantage of both plaintiffs and defendants. After all, that was the whole point of the common retainer ... ".[5]
(1) Were Macpherson and Kelley solicitors for the company and any of the other defendants? In my view there is sufficient evidence on the affidavits filed to disclose that the solicitors were so acting. Furthermore, so much is borne out by the documents extracted from the solicitor's file and tendered in evidence. Furthermore, having heard Mr Kirton in cross-examination I conclude that he never turned his mind to whom precisely he was acting for, whether it be Mr Moore, the company, others or related interests. However, I conclude upon the evidence of Mr Kirton and the extracts from the solicitors' file that Mr Kirton and his firm acted at a critical time for the company.
(2) Is there, in any event, a real and sensible possibility of the misuse of confidential information? In my view there is. As a result of the involvement of the solicitors in relation to the shareholders' agreement and related matters and the removal of Mr Moore as a director and, more fundamentally, their involvement in the formation of the company, I consider that there must inevitably be a risk of misuse of confidential information.
(3) Is there a risk of disclosure? In my view there is. It is not sufficient that Macpherson and Kelley say that a different solicitor, namely Mr Bier, will act in relation to the current proceeding on behalf of Spincode. As Gillard J observed in Yunghanns v Elfic Pty Ltd (in liq), supra, at 25-8 whilst firms of solicitors may erect "Chinese walls" by way of having separate solicitors within the firm act on behalf of parties to avoid potential conflicts of interest such walls are sometimes more aptly described as a "Dutch dyke: a good barrier to water but involving the ever present risk of seepage leading to a leak".
(4) Do the solicitors owe a duty of loyalty to the company or the defendants? On the basis of my finding that the solicitors acted for the company and the defendants they, therefore, owe a duty of loyalty to those parties. I consider that by continuing to act for the plaintiff against the defendants there is an actual or, at least, potential breach of the duty of loyalty owed to their former clients.
[1] See also Tricontinental Corporation Limited v Holding Redlich (a firm), unreported judgment of Mandie J, 22 December 1994; Holdsworth and Ors v M.R. Anderson and Associates Pty Ltd and Ors, unreported judgment of J.D. Phillips J dated 26 August 1994; JNS Technologies (MSDN) BHD v JNS Electronic Industries Pty Ltd and Ors, unreported judgment of Beach J dated 12 May 1998.
[2] See also Wan v McDonald [1992] FCA 4; (1982) 33 FCR 491 at 512-513; Westend Entertainment Centre Pty Ltd v Equity Trustees [1999] VSC 514 per Mandie J at [27].
[5] At p.19 J.D. Phillips J (at pp.20-24) went on to support this statement of the test by reference to Davies v Clough (1837) 8 Sim. 262; 59 ER 105: Wan v McDonald [1992] FCA 4; (1991) 33 FCR 491.
[6] Tricontinental Corporation Ltd v Holding Redlich (A Firm) (Supreme Court of Victoria, Mandie J, 22 December 1994, unreported) and Grimwade v Meagher [1995] VicRp 28; [1995] 1 VR 446.
[7] at 452. Also, this view coincides with that of Drummond J in Carindale Country Club Estate Pty Ltd v Astill [1993] FCA 218; (1993) 115 ALR 112 at 118.
Spincode Pty Ltd
Look Software Pty Ltd [2001] VSC 287
(1995) 1 VR 446
(1995) 1 VR 1
(1989) 22 FCR 209
(1984) 154 CLR 178
(1983) 49 ALR 385
(1982) 33 FCR 491
(1991) 33 FCR 491
(1993) 115 ALR 112