The Law Society of New South Wales v Holt

CITATION : The Law Society of New South Wales v Holt [2003] NSWSC 629 HEARING DATE(S) : Wednesday 9 July 2003 JUDGMENT DATE : 16 July 2003 JURISDICTION: Common Law JUDGMENT OF : Michael Grove J at 1 DECISION : Motion dismissed

CATCHWORDS : LEGAL PRACTITIONERS - ALLEGED CONFLICT OF INTEREST OF SOLICITOR - FORMER EMPLOYEE OF LAW SOCIETY - APPLICATION BY INVESTIGATOR AND RECEIVER - RESTRAINT FROM ACTING - NEED TO IDENTIFY SUBJECT MATTER OF RISK LEGISLATION CITED : Legal Profession Act 1987 Bolkiah v KPMG 1999 2 AC 222 D & J Constructions v Head & Ors 1987 9 NSWLR 118 CASES CITED : Farrow Mortgage Services v Mendall Properties 1995 1 VR 1 Mitchell v Patent Holdings [2002] NSWSC 1015 National Mutual Holdings v Century Corporation 1989 22 FCR 209 Rakusen v Ellis, Munday and Clarke 1912 1 Ch 831 PARTIES : The Law Society of New South Wales v John Colin Holt FILE NUMBER(S) : SC 10491/02 N. Manousaridis (Plaintiff) COUNSEL : R. Lovas (Defendant/Respondent) R. Stitt QC (Applicant in Motion) A.S. Brown (Plaintiff) SOLICITORS : Chegwidden Solicitors (Defendant/Respondent) B.J. Murdoch (Applicant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

10491/02 - THE LAW SOCIETY OF NEW SOUTH WALES v JOHN COLIN HOLT

1 HIS HONOUR: This is a Notice of Motion brought by Jean Sayer (the applicant) who is the recipient of a subpoena issued by the defendant in the proceedings. The motion seeks an order in effect restraining a solicitor who has filed an appearance (and other documents) from acting for that defendant. 2 It is necessary to sketch some background. On 19 December 1996 the applicant was appointed investigator into the affairs of a solicitor, John Colin Holt (the defendant) by the Council of the Law Society of New South Wales (the Society is the plaintiff) pursuant to s55 of the Legal Profession Act 1987. On 19 May 1997 she was appointed receiver of the defendant's property within the meaning of Part 8 of that Act. On 14 and 25 September 1998 she reported to the Council pursuant to s114. 3 On 22 February 2002 the plaintiff issued a statement of claim seeking to recover from the defendant $554,994.54 together with accruing interest. The sum claimed was made up of three elements: the certified costs of investigation; the fees paid to the applicant for her services and expenses in respect of the receivership and, pursuant to s90A, the amount paid out to four claimants against the Solicitors Fidelity Fund in relation to failures to account to them by the defendant. On 15 March 2002 the defendant filed a notice of appearance in the action giving his address for service as care of John Graham Chegwidden of Chegwidden Solicitors stating details of their office and document exchange. On 5 April 2002 a defence was filed signed by Mr Chegwidden and subscribed as "solicitor for the defendant". The defence was verified by an affidavit of the defendant. Inter alia, the defence admitted that the elemental amounts had not been paid to the plaintiff but "that the plaintiff is not entitled to make the claim against him in the amount claimed or at all". No particulars were supplied in respect of that assertion. 4 As noted, the applicant became involved in this litigation (as distinct from her role as investigator and receiver) as the recipient of a subpoena. This issued on 23 July 2002 at the request of Mr Chegwidden as solicitor for the defendant. The applicant has filed a motion seeking to set aside the subpoena. There have also been filed by the plaintiff a motion to set aside a notice to produce and a further motion for summary judgment in respect of the claims relating to the first and second elements in the initiating pleadings (the cost of the investigation and the receivership fees and expenses). 5 None of these motions has yet been dealt with as when the matter was before Hulme J on 14 October 2002 his Honour gave a direction, by consent: "That the challenge to Mr Chegwidden (the defendant's solicitors) retainer be determined before all other issues." 6 On the matter being listed before me it was made clear that the applicant sought that Mr Chegwidden be restrained from acting for the defendant in the proceedings and I gave a further direction for the filing of an appropriate notice of motion. This has been done and it is with that with which I now deal. 7 Mr Stitt, QC appeared for the applicant. Mr Lovas of counsel appeared for the defendant and opposed the order sought. Mr Manousaridis of counsel appeared for the plaintiff and confirmed that the plaintiff did not challenge the retainer and did not wish to be heard on the application. He sought to be, and was, excused on the basis that he would have a right to be heard in the event that any application for costs affecting his client was made.

8 Mr Stitt moved on the affidavit of Raymond John Collins sworn 13 November 2002. He is the manager of the Professional Standards Department of the plaintiff. Mr Stitt also read, essentially to provide background, part of an affidavit sworn by the applicant on 27 August 2002. This had been originally filed in support of the abovementioned motion to set aside the subpoena. There was no challenge to the material which was read. 9 From that evidence I find, for the purposes of this motion, that Mr Chegwidden was employed by the plaintiff from 14 October 1991 to 20 March 1998. In that employment he acted as a solicitor in the Professional Standards Department and was engaged in the investigation of complaints and reporting thereon. The applicant's appointments in relation to the defendant were as already recounted and Mr Chegwidden was the solicitor to whom the investigation of two complaints against the defendant were allocated within the Professional Standards Department. 10 Mr Collins examined two copy files. The original files have been destroyed in accordance with a routine procedure. The copies record steps taken by Mr Chegwidden in relation to the defendant and my conclusion is that these relate to the two investigations allocated to him for investigation. 11 In respect of one complaint, Mr Chegwidden's actions were to correspond with the complainant to confirm the issues for investigation; put them to the defendant and obtain his responses; continue the investigation; prepare and submit a report; to advise the complainant and the defendant of a decision by the Professional Conduct Committee to dismiss the complaint and later to report on the conduct of the investigation to the Chief Executive Officer of the plaintiff following some correspondence between the complainant and the Attorney General. 12 In respect of the other complaint Mr Chegwidden corresponded with the defendant seeking his responses to the complaint; conferred with the manager of the Professional Standards Department on receipt of responses and informed the defendant that he had answered the matter satisfactorily. 13 I also accept, without reciting the content of the affidavit, the evidence as to the procedures for examination, approval and certification for payment of relevant fees and charges. 14 The argument in support of the application was epitomized in the proposition that there is a real and sensible possibility that Mr Chegwidden's interest in advancing the case of the defendant might conflict with his duty to keep confidential, information obtained whilst there was a fiduciary duty owed by him as a solicitor to his employer/client, the plaintiff, or to refrain from using that information to the detriment of the plaintiff. 15 In Farrow Mortgage Services v Mendall Properties 1995 1 VR 1 Hayne J said: "In my opinion the weight of authority …….. clearly supports the view that the test to be applied in resolving an application of the present kind is not that put forward by Cozens-Hardy M.R. in Rakusen's case but is a less stringent test. 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 (or 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 the 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" - @ 5. 16 And in summary his Honour applied an objective test to the issue in terms of deciding whether "a reasonable person, informed of the facts, might reasonably anticipate a danger" of the misuse of confidential information and a real and sensible possibility of conflict between duties owed to former and present clients. 17 The existence of jurisdiction to make an order such as is sought was affirmed by Bergin J in Mitchell v Patent Holdings [2002] NSWSC 1015 when her Honour said: "I am of the view that as an incident of its inherent jurisdiction, this Court may decide upon the propriety of a legal practitioner representing a party in a particular case to ensure justice and the appearance of justice." 18 Mr Lovas did not dispute the existence of jurisdiction nor the appropriateness of the test expressed by Hayne J, which he acknowledged to be "a lot lighter than it once was" referring to a stringent requirement articulated by Cozens- Hardy MR in Rakusen v Ellis, Munday and Clarke 1912 1 Ch 831. 19 It was submitted by the applicant that Mr Chegwidden has the clearest conflict and that this was in two forms, first that he acquired information in the course of acting as a fiduciary for the plaintiff involving the defendant's conduct including the investigation, receivership and subsequent payments out of the Fidelity Fund and second, that he has now a duty to disclose all knowledge which he has to the defendant. 20 It would be less than candid of me not to observe that, at first blush and without delving into detail, the appearance of a solicitor for a client who had been the subject of investigation participated in by that solicitor whilst employed in his particular role by the plaintiff, in litigation now being contested between the plaintiff and the defendant arising out of that investigation, seemed to me to be likely to fall within the concept of being contrary to the "appearance of justice" articulated by Bergin J. I would also adopt the remark of Bryson J: "Cautious conduct by the court is appropriate because the spectacle or the appearance that a lawyer can readily change sides is very subversive of the appearance that justice is being done" - D & J Constructions v Head & Ors 1987 9 NSWLR 118. 21 It is convenient to turn to the arguments of the defendant in resistance to the orders sought. It was submitted that the evidence showed only the performance of administrative tasks by Mr Chegwidden while he was an employee of the plaintiff. It was said that he was "a functionary within a bureaucracy" who was the recipient and conduit of complaints and a person who checked and authorized the payments of disbursements. Leaving to one side whether such tasks nevertheless attracted a duty of confidentiality, the submission ignores the uncontradicted evidence of Mr Collins that Mr Chegwidden "acted as a solicitor in the Professional Standards Department" and "was engaged in the investigation of complaints". This submission is rejected. 22 The next submission essentially focussed upon what were facts of which a reasonable person ought to be informed in order to provoke any anticipation or any real and sensible possibility of the kind identified by Hayne J in the extract from his judgment in Farrow Mortgage above quoted. The submission had two distinct aspects. 23 First, it was contended that the evidence did not demonstrate that the two matters, or either of them, which were allocated to Mr Chegwidden were among the four matters which led to payment out of the Fidelity Fund. The first and second elements of alleged indebtedness in the statement of claim are not, in terms of the pleading, limited to the four matters particularized in relation to the third element. Nevertheless the evidence shows no more than that the complaint in the first matter allocated to Mr Chegwidden was dismissed by the Committee and there is nothing from which to infer that the matter was revived as a result of later correspondence and report to the Chief Executive Officer. The second complaint is not particularized beyond stating that it was determined as satisfactorily answered and the file was closed. I am not satisfied, in the state of the evidence, that the two matters allocated to Mr Chegwidden led to payments from the Fidelity Fund in respect of which the third element of the amount claimed is germane. 24 Second, it was contended that there was no evidence from which it could be concluded that there were facts which could be communicated to the defendant by Mr Chegwidden which could touch upon any concept of conflict of interest. This is because there is nothing in the affidavits read to identify any potentially relevant material and, further, because disclosure to the defendant of any matter coming to notice in the course of investigation would expressly not be an unauthorized disclosure. The Legal Profession Act s56(1)(b) and s56(5)(g) operate to exclude from unauthorized disclosure any matter coming to notice in the course of investigation where disclosure is made to nominated persons who include, in this instance, the defendant. I am conscious that the section applies in terms to an investigator who is defined (s3) as appointed under s55 but whatever Mr Chegwidden did in relation to the two matters by way of investigation must have been done within the ambit of the legislation. Part 8 of that Act (relating to receivership) does not have secrecy provisions applied to it. 25 It is true, as Mr Stitt submitted, that this application is not directed to keeping confidential information undisclosed but to the restraint of a solicitor from acting for a client where it is alleged that that retainer has the possibility of or the appearance of giving rise to a conflict between duties owed to the former and current clients. It is recognized that solicitors stand in a special position, even among fiduciaries: National Mutual Holdings v Century Corporation 1989 22 FCR 209. 26 The extent of the duty and the circumstances in which a court will intervene to grant protection have been discussed by the House of Lords in Bolkiah v KPMG 1999 2 AC 222. Lord Hope said @ 227: "It is the solicitor's duty to ensure that the former client is not put at risk that confidential information which the solicitor has obtained from that relationship may be used against him in any circumstances …… ….. the former client is entitled to the protection of the court if he can show that his solicitor was in receipt of confidential information which is relevant to a matter for which the solicitor is acting, against the former client's interest, for a new client." 27 Lord Millett said @ 237: "…… 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 fanciful or theoretical. But it need not be substantial." 28 Those views articulate tests arguably less strict than that stated by Hayne J in Farrow Mortgage but there is a common requirement to identify the relevant information. To attract a restraining order it should be shown that the solicitor is in possession of information which is confidential to the former client and to the disclosure of which he has not consented and that the information is or may be relevant to the new matter in which the interest of the new client may be adverse to that of the former: Bolkiah @ 235. 29 The stance of non-involvement in this motion adopted by the plaintiff leaves unestablished whether there is any relevant information to the disclosure of which it does not consent. 30 I am not satisfied that, given the essentially general circumstances which are evidenced, and without more, a reasonable person would anticipate a real and sensible possibility of the misuse of confidential information. The identification of any definable relevant information or risk is left to conjecture. 31 I should record that the defendant also challenged the standing of the applicant to bring this motion. As I have mentioned, the plaintiff expressly declined to join in it. I consider that the court has itself an over-arching interest in the propriety of representation, necessarily weighing the right of a litigant to choice of representative, but ultimately in ensuring justice and the appearance of justice in a particular case. I would not dismiss the motion on the basis that the applicant lacked standing to move the Court. 32 However, for the reasons previously expressed, the motion is dismissed. The parties asked that any question of costs be reserved for specific application and they are reserved accordingly. Liberty to apply in respect thereof is granted. **********

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