Corporations - Company in liquidation on grounds of oppression - Lawyers acting for liquidator and a party to the winding up

Legal practitioners - Conflict of interest - Duty to advise liquidator - Solicitor also acting for party interested in litigation - Conflict of roles

Court's practice and procedure - Inherent power to control legal practitioners to protect administration of justice

Plaintiff's claim to prevent legal practitioner acting for liquidator

Aboriginal & Torres Strait Island Commission v Jurnkurakurr Aboriginal Resource Centre Aboriginal Corporation (In Liq) [1992] NTSC 39; (1993) 11 ACLC 319

Advance Housing v Newcastle Classic Developments (1994) 12 ACLC 701

Carindale Country Club Estate Pty Ltd v Astill [1993] FCA 218; (1993) 42 FCR 307

David Lee & Co (Lincoln) Ltd v Coward Chance (a firm) [1991] Ch 259

Domino Hire Pty Ltd v Pioneer Park Pty Ltd [1999] NSWSC 1046; (2000) 18 ACLC 13

Equiticorp Holdings Ltd v Hawkins [1993] 2 NZLR 737

Freuhauf Finance Corporation Pty Ltd v Feez Ruthning [1991] Qd R 558

In re A Firm of Solicitors [1992] QB 959

Intercontinental Properties Pty Ltd (1977) 2 ACLR 488

Kooky Garments Ltd v Charlton [1994] 1 NZLR 587

Macquarie Bank Ltd v Myer [1994] VicRp 22; [1994] 1 VR 350

Murray v Macquarie Bank Ltd (1991) 33 FCR 46

Oceanic Life Ltd v HIH Casualty and General Insurance Ltd [1999] NSWSC 292

Prince Jefri Bolkiah v KPMG (A Firm) [1998] UKHL 52; [1999] 2 WLR 215

Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831

Re A Firm of Solicitors [1997] Ch 1

Re Biposo; Condon v Rodgers [1995] NSWSC 31; (1995) 13 ACLC 1,271

Re Club Superstores Australia Pty Ltd (In Liq) (1993) 10 ACSR 730

Tracker Software International Inc v Smith (1997) 15 ACLC 1,407

Watson v Watson, unreported; SCt of NSW (Santow J); 25 May 1998; [1999] NSWSC 800

Wood & Wood v Targett (1997) 15 ACLC 756

Yunghanns v Elfic Ltd, unreported; SCt of Vic (Gillard J); 5970/97; 3 July 1998

1 This is an application by chamber summons to prevent a firm of solicitors from further acting for a liquidator. It may well have been better if the application had been brought by way of originating motion naming the solicitors as defendants but no point is taken about the procedure used. The fact that the summons is responded to by counsel who may have a personal interest in the outcome is unfortunate and highlights the general utility of separate proceedings.

2 LPO Transact Pty Ltd is in liquidation, having been placed in provisional liquidation on 23 December 1999 by application of Ramakrishna Marriemuthu Naidoo ("Rama") on the grounds that:

"(a) the Director has acted in affairs of the company in his own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members;

(b) affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against a member or members or in a manner that is contrary to the interests of the members as a whole; and or

(c) that it is just and equitable that the company be wound up."

3 Mr Nilant, the defendant in these proceedings, is the Court appointed liquidator. Mr Nilant is represented by the firm of Metaxas & Vernon, solicitors.

4 The business of LPO Transact Pty Ltd was to conduct a licensed post office in Kingsway. There were three shareholders, Rama and the present plaintiffs, Ian Edward Williamson ("Williamson") and Yogan Soobiah Naidoo ("Yogan"). Rama ceased to be a director of the company on 4 January 1999. A dispute arose as to whether Rama had paid about $31,500 owing to the company in respect of shares.

5 Before the company entered into provisional liquidation, and while it was still controlled by Williamson and Yogan, District Court proceedings were taken by LPO Transact Pty Ltd against Rama: District Court Action No 3242/99. Messrs Clayton Utz were instructed on behalf of the company. Rama resisted the claim most strongly and, in turn, made serious allegations against Williamson and Yogan as to their conduct in the company and as to the fate of $450,000 which represented the sale price of the business to another person. Eventually, Rama took action to wind up the company. It is obvious that there are fundamental disputes between Williamson and Yogan on the one hand, and Rama on the other.

6 Following appointment of Mr Nilant as liquidator, Rama funded an examination of Williamson and Yogan under the provisions of the Corporations Law before a Registrar of this Court. Mr Metaxas acted for the liquidator and conducted the examination on his behalf. No further action has been taken by the liquidator in respect of the District Court action because, it is said, there is no funding to pursue the claim at present and there is a conflict in the affidavits of Williamson, Yogan and Rama, and inconsistencies in the accounts for the company.

7 Williamson and Yogan have commenced this present action to remove Mr Nilant as liquidator and to query some of his accounts. They also seek to have the liquidation set aside and the company restored. The case has not proceeded with particular dispatch and there is a defendant's chamber summons of 4 April 2002 outstanding to dismiss this action for want of prosecution.

8 It is against this background that Williamson and Yogan seek the removal of the firm of solicitors Metaxas & Vernon who presently act for the liquidator and have since 13 November 2001 also acted for Rama.

9 There are some further matters which should now be recounted.

10 When Rama petitioned the Court for a winding-up order, he was being represented by a firm of solicitors, Messrs Paiker & Overmeire. Paiker & Overmeire also were Rama's solicitors in his defence of the District Court action. Although those proceedings are dormant, Clayton Utz continue as the solicitors on the record for LPO Transact Pty Ltd and, to the extent necessary, receive instructions from Mr Nilant.

11 The examinations of Williamson and Yogan were conducted on 26 September 2000 and 8 December 2000. Metaxas & Vernon commenced acting for Rama on 13 November 2001 and now act for him in a number of actions.

12 The day after Metaxas & Vernon had accepted instructions to act for Rama, on 14 November 2001, the liquidator held a creditors' meeting of LPO Transact Pty Ltd. The minutes of that meeting disclose that Ms Karen Vernon, a solicitor representing the liquidator, attended the meeting. Ms Vernon is a partner in Metaxas & Vernon. Williamson and Yogan attended as the substantial creditors of the company. Ms Vernon took part in the meeting and separately advised the liquidator about a particular matter raised by Williamson and Yogan. The minutes record that Mr Williamson offered to pay Mr Nilant's outstanding fees of $1203. A motion moved by Williamson and seconded by Yogan calling on Mr Nilant to resign as liquidator of LPO Transact Pty Ltd was passed, both Williamson and Yogan voting for the motion.

13 Following instructions to act generally for Rama, Metaxas & Vernon became the solicitors on the record for Rama in the District Court proceedings. Mr Metaxas' explanation for this is as follows in his affidavit sworn on 5 June 2002:

"5. ... It was not my intention to act in the proceeding but Rama Naidoo's previous solicitors Paiker & Overmeire refused to deliver to me files in relation to CIV 1855 of 1999 unless I agreed to also file a change of solicitor in respect of the District Court proceedings. As Rama Naidoo was anxious that I should act for him in the Supreme Court action CIV 1855 of 1999 I agreed to file a notice of appointment as required by Paiker & Overmeire. Since getting on the record in the District Court action no steps have been taken in the proceedings. I have never advised the liquidator in respect of the District Court. I have asked the third defendant to retain another firm to act for him in the District Court and he has agreed. As no steps have been taken in the proceedings I simply sought to spare my client the expense of retaining a solicitor to act when there was no need."

14 A notice of change of solicitors was filed in the District Court proceedings on 15 July 2002. Until that date however, Metaxas & Vernon were on the record representing Rama in an action brought against him by LPO Transact Pty Ltd. At the same time they were retained by the liquidator (though not in respect of the District Court action) to act for him in defending the present proceedings. Judging from the representation of the liquidator by Mr Metaxas at the examinations and the attendance and participation of Ms Vernon at the creditors' meeting, the firm of Metaxas & Vernon are retained generally by the liquidator.

Conclusion: The solicitors are in a position of conflict

15 It is clear that the three people chiefly concerned in LPO Transact Pty Ltd have divided into two camps with Williamson and Yogan in one camp and Rama in the other. The liquidator is in the middle, no doubt proceeding with an orderly liquidation, having regard to the funds available. The liquidator is an officer of the Court and for the purposes of this present application, I proceed on the basis that the liquidator is acting appropriately. I understand there may be an issue about this, but that dispute is not presently before me.

16 Before 13 November 2001, I do not consider there was any conflict of interest by Metaxas & Vernon. Up until that date, Mr Metaxas had appeared on the examinations on instructions from the liquidator. There is no evidence that his firm had been retained by Rama. Even if, as appears to be the case, Rama funded the examinations, no conflict arose. Interested parties will often fund actions by a liquidator. Provided the legal practitioner's loyalty between clients is not compromised, there can be no objection to this course.

17 Since 13 November 2001 however, it seems to me that Metaxas & Vernon have been caught in a hopeless conflict. They owe a duty of loyalty to Rama. They also owe a duty of loyalty to the liquidator, together with a duty to advise the liquidator in circumstances where the liquidator is obliged to act objectively and impartially. Any advice tendered by the solicitors or actions recommended by them must be seen against a background where there is a liquidation on the basis of oppression and an insoluble conflict between the two camps directly interested in the liquidation, one of whom is also the client of the same solicitors.

18 Of course, lawyers are not judges and the same degree of independence and impartiality is not required, nor expected. Lawyers are expected to advance their clients' cases with vigour. However, in the present case there is a clear perception that, fulfilling their role to provide impartial and sound advice to the liquidator, it would be difficult, if not impossible, for the solicitors to put to one side, their role in representing Rama.

19 The submissions filed on behalf of the defendant give support to the view that the roles have become intertwined. The submissions, filed on 6 June 2002 entitled "Outline of Defendant's submissions on the Plaintiffs' application for removal of Defendant and to restrain Metaxas & Vernon from acting for the Defendant", are in three parts. The first part, which relates to matters already dealt with by the Master, sought to strike out various portions of affidavits. The application appears to have been generally successful.

20 The second part deals with the position of the liquidator and is yet to be determined. The third part makes submissions as to this issue, relevantly:

"20. The lengths to which the deponent goes in dealing with the District Court action tends to suggest that he is doing nothing but playing out a vendetta against Rama Naidoo.

...

27. The allegation of conflict of interest against Metaxas & Vernon is supremely irrelevant. The deponent does not identify the interests which are said to be in conflict. The assumption that Metaxas & Vernon represent the defendant in the District Court proceedings is wrong and simply highlights the capacity of the plaintiffs to make any allegation in an attempt to further his cause.

28. The entirely unjustified attack upon the defendant and those who represent him is symptomatic of the capacity of these plaintiffs for mischief."

21 These submissions are written in strong language, stronger perhaps than one might usually expect in respect of submissions opposing the application of removal of a liquidator or lawyers retained by the liquidator. They are made, as I have said, against the background of a fundamental dispute between Williamson and Yogan on the one hand, and Rama on the other hand. There appears to be other litigation in train, involving Yogan and his mother on one side, and Rama on the other, where Metaxas & Vernon are acting for Rama.

22 Cases will differ. In not every case where a solicitor acts for a liquidator and a party interested in the liquidation will there be a conflict. However, in the present case it seems to me there is sufficient reason to cause Metaxas & Vernon to be removed as solicitors for the liquidator. A liquidator's duty was long ago stated to be:

"... it is of the utmost importance that the liquidator should ... maintain an even and impartial hand between all the individuals whose interests are involved in the winding-up. He should have no leaning for or against any individual whatever." (Contract Corporation, In re Gooch's Case (1871) LR 7 Ch App 207 at 211).

23 This is not a case where the solicitor has come into possession of confidential information while acting for one client and there is a risk that confidential information may be disclosed when acting for another client; Newman v Phillips Fox (1999) 21 WAR 309. Nor is it a case where the solicitor has some form of stake in the outcome such as to raise a query as to the independence of the solicitor from the cause of action: Afkos Industries Pty Ltd v Pullinger Stewart (A Firm) [2001] WASCA 372,

24 Rather, this is a case which falls within the inherent jurisdiction of the Court and particularly in the necessity for the Court to control its processes and those of its officers, including liquidators.

25 It is well settled that the Court's inherent jurisdiction to preserve the proper administration of justice extends to restraining a legal practitioner from acting in a particular case: Abse v Smith [1986] QB 536; Black v Taylor [1993] 3 NZLR 403; Grimwade v Meagher [1995] VicRp 28; (1995) 1 VR 446. In the latter case Mandie J stated the relevant test at 452 in terms I accept and adopt:

"The objective test to be applied in the context of this case is whether a fair minded reasonably informed member of the public would conclude that the proper administration of justice required that counsel be so prevented from acting, at all times giving due weight to the public interest that a litigant should not be deprived of his or her choice of counsel without good cause."

26 Applying that test to the evidence, I am satisfied that the conflict which may arise between the interests of Rama, which the solicitor must legitimately advance, and the necessity to give impartial advice and representation to the liquidator of LPO Transact Pty Ltd is such that the interests of justice require the solicitor be restrained from acting for the liquidator and I so order.