Spincode Pty Ltd v Look Software Pty Ltd & Ors [2001] VSCA 248

Spincode Pty Ltd v Look Software Pty Ltd & Ors [2001] VSCA 248 - VSCA 2001 case summary — Zoe

[20]

The mediation, which obviously was never going to succeed, collapsed by about 22 January. On 1 February Dee, who had recently become managing director of the company, was surprised to receive, in that capacity, a facsimile letter from the company's solicitors, McPherson + Kelley, beginning "We act for Robert Louis Moore and Spincode Pty. Ltd.", making a series of allegations and complaints, raising the possibility that the company would be wound up or that the shares held indirectly by Moore would be acquired and ending with an implied threat of legal action if no settlement was arrived at. Dee, who had understandably regarded McPherson + Kelley as the company's solicitors, acting for it both generally and in the internecine disputes that had arisen, telephoned Kirton and expressed his surprise. Kirton said he was not aware of the facsimile. It had in fact been sent by another partner, Bier, who had acted for Moore in 1994. Shortly after this the defendants' present solicitors, Logie-Smith Lanyon, began to act for them and a prolonged correspondence ensued between the two firms of solicitors in which constant complaint was made that McPherson + Kelley, having always acted for the company, and having in particular acted for it in relation to the disputes which were now moving towards litigation, should act no further. The position taken up by McPherson + Kelley in this correspondence is remarkable and reprehensible. By letter dated 8 February, having identified "your client" as the company, McPherson + Kelley asserted that it had "not acted nor provided advice personally to your clients". Later, in its letter of 23 February, when faced with more documentary material, McPherson + Kelley modified its stance, asserting, "We no longer act for Look Software Pty. Ltd. Your firm does." The letter went on to assert that at the time of the dispute between the participants Kirton had been acting for Moore and also to assert, by clear implication, that he had been acting for no-one else. The bills of costs showing the firm to have acted for the company in the very matter of the dispute were dismissed on the ground that their delivery "does not give rise to a conflict of interest". It having been successfully established by Logie-Smith Lanyon, by the production of documents, that McPherson + Kelley had acted for the company in drafting distribution agreements, McPherson + Kelley observed, "Those distribution agreements do not bear the name of this firm", as if intending to rely on some difficulty of proof their former client might face.

[36]

In Re Holmes; In Re Electric Power Co. Ltd.[12] was an application to restrain Holmes from acting for the petitioners in a winding up on the ground that he had acted for the company. He had been employed in its incorporation in March 1874 and had attended one or two board meetings, at one of which he was formally appointed solicitor to the company. His bill relating to the incorporation had been paid in June 1874 and since that date he had not acted for the company. In March 1876 the company entered into negotiations for a loan with another firm of solicitors, and in May 1876 Holmes acted as solicitor for a debenture holder on a petition to wind the company up, which was dismissed by consent; no objection was then raised by the company to his acting for the petitioner. The pending petition was presented in February 1877. Hall, V.C. dismissed the application, remarking that the fact that no objection had been taken to Holmes's acting on the earlier winding up petition showed that the application for an injunction was not bona fide. The Vice-Chancellor would in any event have dismissed the application on the merits, being of opinion that the solicitor had not acquired private information of any significance as a result of his former retainer. He went on to refer to authorities which included Cholmondeley v. Clinton, Beer v. Ward and Parratt v. Parratt and to the fact that in the first and third of these cases the solicitor had discharged himself. Five years later, in Little v. Kingswood Colleries Co.[13] Hall, V.C. restrained a solicitor from acting against his former client. What is said in that judgment must be read subject to what took place when the case reached the Court of Appeal. My present concern is not with the breadth of the view taken by Hall, V.C. but with his opinion about the basis of Cholmondeley v. Clinton. The Vice-Chancellor noted that Cholmondeley v. Clinton had been referred to by Lord Cottenham, L.C. in Dietrichsen v. Cabburn[14] (not a case of seeking to have a solicitor restrained) as an example of the equitable jurisdiction to restrain by injunction an act which the defendant by contract or duty was bound to abstain from.

[51]

"In Rakusen's case the Court of Appeal founded the jurisdiction on the right of the former client to the protection of his confidential information. This was challenged by counsel for Prince Jefri, who contended for an absolute rule, such as that adopted in the United States, which precludes a solicitor or his firm altogether from acting for a client with an interest adverse to that of the former client in the same or a connected matter. In the course of argument, however, he modified his position, accepting that there was no ground on which the court could properly intervene unless two conditions were satisfied: (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. This makes the possession of relevant confidential information the test of what is comprehended within the expression `the same or a connected matter'. On this footing the court's intervention is founded not on the avoidance of any perception of possible impropriety but on the protection of confidential information. My Lords, I would affirm this as the basis of the court's jurisdiction to intervene on behalf of a former client. It is otherwise where the court's intervention is sought by an existing client, for a fiduciary cannot act at the same time both for and against the same client, and his firm is in no better position. A man cannot without the consent of both clients act for one client while his partner is acting for another in the opposite interest. His disqualification has nothing to do with the confidentiality of client information. It is based on the inescapable conflict of interest[26] which is inherent in the situation. ... Where the court's intervention is sought by a former client, however, the position is entirely different. The court's jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary relationship which subsists between solicitor and client comes to an end with the termination of the retainer. Thereafter the solicitor has no obligation to defend and advance the interests of his former client. 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."[27]

[65]

"Beneficiary protection apart, another more subtle purpose seems also to be at work in the conduct regulation of at least some types of fiduciary. This warrants emphasis. In some spheres conduct regulation would appear to be becoming an end in itself and this because there can be a public interest in reassuring the community - not merely beneficiaries - that even the appearance of improper behaviour will not be tolerated. The emphasis here seems, in part at least, to be the maintenance of the public's acceptance of, and of the credibility of, important institutions in society which render `fiduciary services' to the public. We encounter often enough the observation that fiduciary duties are `more intense' in some relationships than in others. We likewise are familiar with the notion that the courts will exact from court officers standards more stringent than those imposed on others. Often the `intensity' observation merely signifies that the opportunity for impropriety is the greater with some types of fiduciary than with others and that supervision will therefor be the more vigilant. But in some instances, as also with court officers, the law is, I suggest, in fact committed to imposing standards of behaviour more severe than is usual with the ordinary run of fiduciary - and, I propose, for the public interest reason I mentioned earlier. I have laboured this point because it seems to me to be at the heart of the controversy over when lawyers in particular can act against former clients. I will later suggest that the `public interest' may be a factor which may dissuade courts from too ready an acceptance of `Chinese Wall' defences in legal and financial institutions and this because an apprehended community scepticism about the efficacy of such devices may lead to an erosion of public confidence in such institutions. But I would like for a moment to dwell on the lawyer acting against a former client. It is well known that lawyers, like all professionals, are subject to a legal and not merely an ethical duty to maintain the secrecy of information acquired fromm or about their clients when acting in their professional capacity. This duty knows limited exceptions, that alone of note for present purposes being that information so acquired cannot be used or disclosed without the client's consent. The duty, furthermore, is one which subsists after the termination of the professional-client relationship. It has traditionally been considered that it is this duty, primarily, which sets the limits to when a lawyer can act against a former client. The difficulty lies in determining how that duty should be applied in favour of clients and against lawyers." (Footnotes omitted.)

[78]

"In such a situation, I am strongly disposed to the view that the solicitor ought not to act, and I do not think that that depends upon the existence or not of confidences imparted on the earlier occasion that now merit protection. It seems to me to depend rather upon the existence of the contract of retainer that was made in the first place, than upon the existence of confidences disclosed and meriting protection against misuse. Consider, for example, the case of a solicitor acting for both vendor and purchaser, which nowadays (at least in this State) may occur only after certain safeguards have been put in place, and I refer to Council of Law Institute of Victoria v. A Solicitor [1993] VicRp 26; [1993] 1 V.R. 361, especially at pp.366 to 368 and the reference there to the Solicitors' Professional Conduct and Practice Rules 1984. But suppose the transaction of sale and purchase goes off for want of payment on the due date, and an argument develops over the delivery of the purchase price to the solicitor. There may be nothing confidential about the facts by which alone that dispute will be resolved, but can it be supposed that the solicitor, having been retained by both vendor and purchaser to act, and having accepted that retainer, and having acted, can then act for one against the other in the resolution of that dispute? 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. It is on that basis that I think that (at least in the ordinary case) a court of equity would restrain the solicitor from acting for either vendor or purchaser in the dispute between them. Nor do I think that anything turns on whether that dispute first arose before or after the formal conclusion of the work which the solicitor had been engaged to transact on behalf of both."

[99]

If I thought that the solicitors in this case were subject neither to a negative equitable nor to a negative contractual obligation, I would say that what has been done by them - and I would have regard to the whole of their conduct here - is so offensive to common notions of fairness and justice that they should, as officers of the Court, be brought to heel notwithstanding that they have not (on this hypothesis) infringed any legal or equitable right. The authorities supporting this approach need not be mentioned again. It may be that one should refer to this head, rather than that of misuse of confidential information, the advantage that McPherson + Kelly would have by reason of their knowledge of such things as the personalities and reactions of the participants and what changes may have taken place in the past as regards what Kirton in his diary note called "allegiance"[65]. I am not deterred by the suggestion that, once infringement of legal or equitable rights ceases to mark off what may be proscribed, solicitors and their would-be clients will be subject to a great and unfair uncertainty, being unable to say in advance what view the Court will take. No experienced solicitor of sound judgment would have done what has been done in this case. And in my view the nature and objectives of the jurisdiction which the Court exercises over its officers, and the breadth of the discretion, permit regard to be had, not only to the nature of the dispute before litigation ensued, and the former retainer, and the new one, but also to the conduct of the solicitors at all stages. This includes the partisan approach of Kirton when he acted for the company and his undisclosed attempts to serve Moore's interests, the peremptory and unseemly way in which the solicitors changed sides, their denials that it was the company which had been their client and the uncandid affidavit of Kirton in which he tried to give the impression that the company had not been the client. It would, as they used to say, be pessimi exempli if McPherson + Kelly were not called to account.

At a glance

Court

Decision date

Before

Source

Judgment (164 paragraphs)

Parties

Legislation Cited (2)