Wang v Cai

Restraint application

I turn now to the application to restrain the solicitor from acting. The application is brought by the Zhou interests. They seek an order in the following terms: The first and second respondents, Gang Sun and Sunfield Chambers Solicitors & Associates Pty Ltd, be restrained from acting for the third plaintiff in the proceeding, Adventure Continent Group Pty Ltd, whilst also acting for the first and/or second plaintiffs in the proceeding.
The respondents to the application are named as the three plaintiffs, Sunfield and Mr Sun personally. Sunfield and Mr Sun were separately represented for the purpose of the application.
The application is put on two bases. First, the applicants rely on Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"), r 7.25. That provides: Adverse parties If a solicitor or a partner of the solicitor is a party to any proceedings, or acts as solicitor for a party to any proceedings, that solicitor may not act for any other party in the proceedings, not in the same interest, except by leave of the court.
The second basis for the application is the court's inherent power to control who represents the parties to litigation before it.
Counsel for the Zhou interests contended that there was a conflict between the interests of Ms Wang and Haixin on the one hand and those of ACG on the other. Counsel sought to illustrate the conflict by reference to two specific prayers for relief in the statement of claim.
The first is prayer 1, which arises out of the resulting trust claim by the Wang interests. That prayer claims: A declaration that [ACG] and [High 618], in their capacities as registered proprietors, as tenants in common in equal shares, of the fee simple estate in the [High Street land], hold their respective interests therein on resulting trust for the benefit of [Ms Wang] and/or [Haixin], in the proportion of their contributions to the purchase price of the said land, namely 83.07% (calculated as the first and/or second plaintiff's contributions totalling $5,400,000 expressed as a percentage of the purchase price of $6,500,000), or in such other proportion as the Court considers appropriate.
The second relevant prayer for relief is prayer 7(c) which arises from the misrepresentation claim by Ms Wang and Haixin. The prayer seeks an order: Varying Part V of the Brighten Future Property Trust Unit Trust Deed dated 24 November 2014 between [ACG], as trustee, and [Haixin] and [Ozjian] and [Solid Asset], as unitholders, so as to require that [Ozjian] and [Solid Asset] pay, or cause the payment, to [Ms Wang] and/or [Haixin] of 83.07% of the net profit of the said unit trust, or such other proportion thereof as the Court considers appropriate.
As I have mentioned, the application was met by a counter-application from the plaintiffs to amend the statement of claim. Among the amendments were amendments made to prayer 1. In its revised form that provides: A declaration that [High 618], in its capacity as registered proprietor of the fee simple estate in the [High Street land], holds its interests therein on resulting trust for the benefit of [Ms Wang] and/or [Haixin], in the proportion of their contributions to the purchase price of the said land, namely 35.71% (calculated as the first and/or second plaintiff's contributions totalling $5,400,000 expressed as a percentage of the purchase price of $6,500,000), or in such other proportion as the Court considers appropriate.
The proposed amendments also add a resulting trust claim by ACG based on its contribution to the purchase of the High Street land. This is reflected in the new prayer 1A: Alternatively, a declaration that [High 618] in its capacity as a registered proprietor of the fee simple estate in the land described in prayer 1 above, holds its interest therein on resulting trust for the benefit of [ACG], in the proportion of [ACG's] contribution to the purchase price of the said land, namely 87.69% (calculated as the third plaintiff's contributions totalling $5,700,000 expressed as a percentage of the purchase price of $6,500,000) or in such other proportion as the Court considers appropriate.
Counsel for the plaintiffs, supported by counsel for the solicitor, presented three arguments in opposition to the application. Counsel's first argument was that the resulting trust claim by Ms Wang does not involve any real or sensible risk of conflict. Counsel submitted that the claim concerns only the beneficial interests in the property.
Counsel characterised the issues to which the resulting trust claim gives rise as merely issues between the unitholders of the Brighten Trust as to the size of their respective interests. Counsel observed that all the unitholders are represented in the proceedings and submitted that in such a case it would in any event be the obligation of ACG as trustee to adopt a position of neutrality and allow the issues to be fought out between the unitholders.
I do not accept these submissions. Even if the claims by Ms Wang did not involve the legal title to the land, the fact remains that they involve an inconsistency between Ms Wang's own interests and those of the Trust. This is not a dispute between one unitholder and another about entitlements to the trust property inter se. It is a dispute involving a claim of an inconsistent trust which, if it were established, would reduce the beneficial interest of the unit trust, taken as a whole, in the property.
In any event I think that Ms Wang's claim does necessarily involve a potential alteration to the legal title held by ACG. Prayer 3 in the statement of claim is as follows: An order that that [High 618], at its own expense, take all such steps as are necessary including, without limitation, execution of transfers in registrable form, to transfer to the plaintiff the proportion of its legal interest in the said land as are necessary to ensure that [Ms Wang] and/or [Haixin] is recorded as the registered proprietor, as tenant in common, of 83.07% of the land or of such other proportion as the Court considers appropriate.
The consequence of a finding of resulting trust is that the legal owner of the property holds the property on bare trust for those who have contributed the money in shares reflecting the quantum of their respective contributions. Prayer 3 is therefore a typical and appropriate consequential order which would follow if Ms Wang's claim were sustained. This clearly shows that the end point of her claim would be a transfer of legal title.
It is true that in the current formulation prayer 3 purports to limit itself to requiring High 618 to make good Ms Wang's alleged entitlement out of its share. That is the case under the existing statement of claim and would remain the case under the proposed amendments, but I do not think that is a tenable position.
ACG and High 618 were co-acquirers and are now co-owners of the property. I find it difficult to see how a finding of resulting trust could be made against one but not the other. In any event, the interest Ms Wang claims exceeds the value of the whole of High 618's interest in the property. It would not be possible to satisfy the equity which Ms Wang claims without reducing the legal title of ACG.
Counsel for Ms Wang submitted, as I understood them, that prayer 7(c) was a merely mechanical change affecting the interests of the unitholders which only affected the interest of the unitholders inter se. Again I cannot agree. The unitholders' beneficial interest in the property is one which is mediated through the terms of the trust deed. There is a real difference between an economic interest held as a unitholder and one which is held directly as a beneficiary under resulting trust. Again, in my opinion, prayer 7(c) shows Ms Wang's claim involves a contest between the beneficial interest of the unitholders, taken as a whole, and her private interests.
Counsel's second argument was that any conflict had been resolved because fully informed consent had been obtained. Counsel relied on a memorandum of consent executed by Ms Wang, apparently on behalf of herself and Haixin and ACG. There was also affidavit evidence from Ms Wang and Mr Sun.
I will not go into this evidence in detail. In my view, it is sufficient to say that it falls far short of demonstrating fully informed consent. Neither the memorandum of consent nor the affidavit evidence even acknowledges that a conflict exists. Rather it asserts that in the view of Ms Wang and Mr Sun there is no conflict.
It is elementary that no question of fully informed consent can arise unless the conflict is first identified and its implications explained (or the existence of the conflict and its implications are obvious). Neither of those conditions is satisfied in the present case.
Counsel's third argument was based on the well-known and often cited statement of principle by Brereton J, as his Honour then was, in Kallinicos v Hunt (2005) 64 NSWLR 561 at [76]. His Honour summarised the authorities on the Court's inherent power over representation in proceedings before it in the following dot points (citations omitted): ● During the subsistence of a retainer, where the court's intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court's jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests. ● Once the retainer is at an end, however, the court's jurisdiction is not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure). ● After termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court's intervention, such duty having come to an end with the retainer. ● However, the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice. ● The test to be applied in this inherent jurisdiction is whether a fairminded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice. ● The jurisdiction is to be regarded as exceptional and is to be exercised with caution. ● Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause. ● The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief.
Counsel for both the plaintiffs and for Sunfield emphasised the last three dot points in particular. Counsel submitted that for the Court to intervene at this stage would be likely to result in delay and inconvenience. Counsel also laid heavy stress on what his Honour said about the jurisdiction being exceptional, and about due weight being given to the public interest in a litigant not being deprived of the law of his or her choice.
With due modesty, counsel for Sunfield submitted that this was of special significance in the present case. Counsel pointed out that Ms Wang has confidence in her existing solicitor and does not want to change. Counsel also observed that she holds a dominant economic interest in the trust.
As I have already noted, Kallinicos was a case of the exercise of the Court's inherent power. It arose in a case where a solicitor had previously acted for a client, and then wished to act for another client in litigation against the former client.
As Brereton J explained, while a solicitor is retained, he or she owes contractual and fiduciary obligations to the client. But those obligations cease when the retainer ends. Putting aside any ongoing obligations with respect to confidential information which the client may have provided to the solicitor in the course of the retainer, the solicitor owes no obligation, legal or equitable, not to act. That is why the Court's inherent power comes in, based on general principles concerning the administration of justice. Hence a test which looks to the perception of fair minded and reasonably informed members of the public concerning what the proper administration of justice requires.
The operation of r 7.25 is quite different. The rule is a command addressed to the solicitor acting for more than one party. The rule operates of its own force, and does not require the invocation of any power of the Court for it to be binding on the solicitor.
The rule is triggered when a solicitor acts for two parties who are not in the same interest. Once that condition is satisfied, the rule has the effect that the solicitor cannot act. The only question for the Court is whether to grant leave to the solicitor to do so, in effect dispensing with the rule.
That question is informed by relevant legal considerations. As will be seen below, they may include the proper practice and procedure of case management and the administration of trusts. The weighing of these factors is a matter for the Court. No question of public perception arises.
The difference between the exercise of the Court's inherent power and the application of the rule is pointed up in the current case by procedural differences. The Court's inherent power arises from control of the solicitor personally, based on the solicitor's status as an officer of the Court. This cannot apply to a solicitor corporation which does not, in any corporate sense, sign the roll of solicitors or become admitted as a solicitor of the Court: Técnicas Reunidas SA v Andrew [2018] NSWCA 192 at [79].
On the other hand, r 7.25 applies to the solicitor on the record in the proceedings. In the present case, that would be Sunfield. The rule would not apply to Mr Sun personally.
The difference is also reflected in the form of the order which would be made by the Court. If a solicitor is acting in violation of r 7.25, the proper order would appear to be one which requires the solicitor to cease to act, by removing himself or herself from the record. Even if an order in the form of a restraint (as sought by the applicants here) is appropriate, it does not reflect the exercise by the Court of some sort of inherent power over the solicitor. It would only be an expedient method of compelling obedience to the command in the rule itself.
I was not referred to any authority on the meaning of the phrase "not in the same interest" as it appears in the rule. The argument before me proceeded on the basis that it was to be equated with the existence of a conflict. Certainly, the phrase would include a conflict as traditionally understood. But the language itself is not so limited. All it requires is that the two parties' interests should not be the same.
On the face of it, something less than a direct conflict between the parties' interests may be sufficient. But on the view I take, it is not necessary for me to attempt to define the limits of the phrase.
In my view, the terms of the rule are clearly satisfied. The fact is that Ms Wang is propounding a claim to the Penrith property, which is in competition with that which now is being propounded (through prayer for relief 1A) by ACG. In my view, that is enough to trigger the operation of the rule.
In any event, for reasons I have given, I consider that the plaintiffs' claims in prayers 1 and 7(c), despite the proposed amendments, are in substance claims against ACG.
The question is whether I should grant leave. As I have already noted, counsel both for the plaintiffs and for the solicitor argued that the efficient course was to do so.
Counsel for the solicitors in particular added that, if I did not allow continued representation of the three plaintiffs together, the third plaintiff would inevitably have to be made a defendant. The proceedings would have to be reconstituted. Counsel asked rhetorically what the point of this would be, and how a reasonable observer would see it.
For reasons I have given, I do not consider that the reasonable observer's perception is relevant. But in any event, I cannot agree with counsel's submission.
In my view, the current constitution of the proceedings is potentially embarrassing. They have been constituted so that, in effect, three plaintiffs who are commonly represented are making inconsistent claims, and one of the plaintiffs is in substance a defendant to claims made by the other two. Even without this application, the Court's power in cases of inconvenient joinder, pursuant to UCPR 6.22, would probably be engaged.
I also consider the current constitution of the proceedings is unsatisfactory from the point of view of the administration of the trust. The Court must uphold the interests of the unit holders, and the obligations of the trustee to act in the interests of those unit holders as a whole. In my view, at the least, that would require an independent consideration on behalf of ACG as trustee of what defences ACG should make to the claims made against it, and (possibly more importantly) what claims ACG should itself make against other parties.
Again, I think that the issue could have been raised otherwise than under r 7.25. It seems to me that the issue could have been raised as one going to the proper administration of the trust, and therefore requiring orders to be made under UCPR Part 54 directing ACG as trustee as to what it should do by way of administration of the trust.
I acknowledge that any delay in the progress of the proceedings is regrettable, but in my view, the proper identification of the parties by and against whom the claims are being made in the proceedings is fundamental. It is asking for trouble not to deal with such questions as quickly as possible.
For these reasons, I think that separate representation of Ms Wang and ACG is not only desirable, but essential. Hopefully, it will result in a reappraisal of the respective parties' claims. It may actually lead to the convoluted present structure of the statement of claim being simplified, and other more straightforward claims being pursued. Whether that will actually come to pass, I do not know. But in my view, it is very much in the interests of the efficient conduct of the proceedings that every opportunity should be given to the parties to allow it to happen.
For these reasons, I have concluded that leave should be refused. I therefore propose to grant relief under UCPR r 7.25. It is not necessary to consider the Court's inherent power.
Rule 7.25 does not mandate that the solicitor can only act for Ms Wang and Haixin rather than ACG. All it requires is that the solicitor should make a choice between acting for parties with different interests.
Of course, the fact that Sunfield up to this point has acted for all three plaintiffs may give rise to issues of confidentiality and conflict going forward, but that is not within the purview of r 7.25. I consider it is a matter for Sunfield to consider in consultation with its clients or former clients.
It will be necessary to consider the precise order to be made, and also to give the opportunity to choose which of the plaintiffs he wishes to continue to represent. It will also be necessary to make consequential orders for the reconstitution of the proceedings. I think that the suggestion from counsel for the solicitor, namely, that the third plaintiff should become a defendant, would probably be the best way forward. But it will be necessary to consider whether that would give rise to any problem or embarrassment in the pursuit of ACG's claims, and in particular, the question of limitation.
I will hear from the parties on this in due course.

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