Woodgate v Leonard [2007] NSWSC 495 | Case summary

2641/06 GILES GEOFFREY WOODGATE AS LIQUIDATOR OF MGB CHADD PTY LTD & 3 ORS v MICHAEL LEONARD & ANOR JUDGMENT 1 By interlocutory process filed on 16 April 2007, four companies in liquidation claim, through their liquidator, orders restraining a corporation which is an "incorporated legal practice" (for the purposes of the Legal Profession Act 2004) and the solicitor who is the principal of that company from acting or continuing to act on behalf of certain persons in or about examinations under Part 5.9 of the Corporations Act 2001 (Cth). 2 The Part 5.9 examinations are to be conducted at the instigation of the liquidator at whose behest the present application is made. 3 In the particular context, I approach this application as principally an application for an order that the incorporated legal practice and the solicitor be restrained from acting on behalf of the particular persons in connection with, first, the examinations of those persons and related orders for production of documents and, second, such applications as remain extant for relief directed towards discharge of any such examination summons and setting aside of any such order for production. There is also a wider aspect to the application to which I shall come. 4 The solicitor against whom the relief is sought is Mr Michael Leonard. The incorporated legal practice is Leonard Legal Pty Limited. Mr Leonard is the sole director of that company. He also owns all the shares in the company. 5 The four applicant companies are MGB Chadd Pty Ltd ("Chadd"), HBABPL Pty Ltd ("Herd Bars"), Murlform Pty Limited ("Murlform") and BNS Engineering Company Pty Limited ("BNS"). I shall refer to them as "the companies now in liquidation". Each became subject to Part 5.3A administration on 28 March 2006. Voluntary winding up followed. The present liquidator was originally the administrator. 6 The persons (including corporations) for whom the liquidator wishes to ensure that Mr Leonard and Leonard Legal do not act, in the relevant context, are Susan Fawcett, Helen Fawcett, Mark Fawcett, Albert Hunt, Hunt Corporation Australia Pty Limited, Abroclown Pty Limited, Hunt Heavy Haulage Pty Limited and Hunt Specialised Transport Pty Limited. Each of these four companies is controlled by or associated with Mr Hunt. 7 The liquidator applied for the issue of examination summonses directed to all four individuals just mentioned, plus Mr Leonard himself. Application was also made for orders for production in respect of all the individuals and all the companies mentioned in paragraph [6], plus Mr Leonard and Leonard Legal. Examination summonses were issued and orders for production were made in all such cases. Having regard to orders made by consent on 7 May 2007 the only subsisting challenges by affected persons to the outcome of the liquidator's applications are challenges to orders for production. Applications, in that respect, by Helen Fawcett, Susan Fawcett, Mr Hunt, Mr Leonard, the four companies controlled by or associated with Mr Hunt and Leonard Legal are extant. Each seeks to have the order for production affecting him, her or it set aside. In the other cases (including all the examination summonses), attempts to overcome the results of the liquidator's applications have not been pursued by the affected persons. The several examinations of individuals may therefore be expected to occur. 8 Mark Fawcett is or was a director of each of the companies now in liquidation. Helen Fawcett is the mother of Mark Fawcett (and the widow of the late Douglas Fawcett, a former director of the companies). She was a director of the companies in liquidation up to 2002. Susan Fawcett is the wife of Mark Fawcett. According to the liquidator, she does not appear to have been a director of any of the companies. 9 Mr Hunt is, it is said, the godfather of the children of Mark Fawcett and Susan Fawcett. It is not suggested that he was an officer of any of the companies in liquidation. He is, however, the controller of or otherwise associated with Abroclown Pty Ltd, which became the purchaser of certain properties (one at Revesby and the other at Port Kembla) from one of the companies now in liquidation (Chadd) under two contracts for sale dated 17 March 2006. The liquidator maintains that, on 10 March 2006, Mr Hunt, together with Mark Fawcett and others, attended a meeting with Mr Leonard in respect of insolvency advice concerning the companies now in liquidation. 10 Mr Leonard, both through Leonard Legal and, at an earlier stage, as a member of a solicitors' partnership, acted in a professional capacity at various times and in various ways for the members of the Fawcett family and for each of the companies now in liquidation. Several aspects of prior associations and past events are relied upon by the liquidator upon the present application. 11 The first matter to which the liquidator draws attention is a 2006 proposal for the preparation of charges over the assets of BNS and Murlform in favour of Helen Fawcett. There are in evidence an email from Mark Fawcett to Mr Leonard dated 15 February 2006 (a little over a month before appointment of an administrator) headed "Charge over BNS and Murlform" and saying, "We need to do a loan doc and a F&F charge for $500,000" and another email of the same date giving Helen Fawcett's particulars and referring to a "loan start date" of 16 August 2002 (that is, some three and a half years earlier). There are also emails from Mark Fawcett to Mr Leonard on 24 February 2006 seeking information about progress on preparation of "that bill of sale for mum" and Mr Leonard's response of the same day that he would "have it to you by the end of today". 12 Mr Leonard confirmed that he received no instruction direct from Helen Fawcett in relation to this matter. It appears that her son, a director of the companies concerned, asked Mr Leonard to prepare charges for execution by the companies in her favour, being charges securing pre-existing indebtedness. Importantly, however, it is Mr Leonard's evidence that, whereas he did, in response to instructions, ask a member of his staff to prepare charge documents, no charges were in fact created. 13 The second matter to which the liquidator points is evidence of a meeting with Mr Leonard attended by Mark Fawcett and Mr Hunt (and others) on 10 March 2006 (some 18 days before an administrator was appointed). The evidence consists of a memorandum of costs dated 31 March 2006 rendered by Leonard Legal to Mark Fawcett referring to such an attendance upon those persons on that day re "Commercial Advice - Liquidation Matters". The fact that $1,875 was charged for this indicates that it was probably a meeting rather than a telephone attendance. Mr Leonard confirmed that one of Mr Hunt's companies had paid the fees rendered on 31 March 2006. He also described the purpose of the meeting as being to advise Mark Fawcett on his responsibilities as a company director. Mr Leonard first met Mr Hunt on that occasion. Mr Hunt was introduced as a personal friend of Mark Fawcett. 14 The third matter relied upon by the liquidator concerns Chadd's sale to Abroclown of the two properties already mentioned (one at Revesby and the other at Port Kembla). The purchaser company - which, as I have said, is associated with Mr Hunt - retained another firm of solicitors in the matter. The Revesby property was sold for $2.8 million and the Port Kembla property for $3.2 million. 15 In relation to each sale and purchase transaction, contracts were exchanged on 17 March 2006 and completion took place on the same day. This is regarded by the liquidator as unusual for an arm's length transaction. It is alleged by the liquidator that, upon completion of each sale, effect was not given in full to the contract provisions with respect to completion adjustments. It is said that there was no adjustment for land tax in each case, for "rental and bonds/security deposits in respect of any tenant of the respective properties" or, in the case of Port Kembla, "all of the Council rates for Wollongong City Council". Settlement sheets in evidence suggests that there were, in each case, adjustments for council rates, water rates, estimated water usage and sewerage usage charge. Parts of each contract are in evidence, in that pages 1, 2 and 3 and then the odd numbered pages (but not the even numbered pages) form part of the documents tendered by the liquidator. It is not possible to glean from these incomplete versions what provision was made in respect of settlement adjustments. It is Mr Leonard's evidence that he was instructed by his client not to make the adjustments about which the liquidator is concerned. 16 The fourth matter raised by the liquidator is that, upon completion of each sale of land by Chadd, the settlement moneys were applied in discharging not only secured indebtedness of Chadd to an outside lender (Perpetual Trustee Company) but also "indebtedness secured against the real estate held by Helen Fawcett and the estate of the late Douglas Fawcett, which had been cross-collateralised as part of the security with the borrowings by MGB Chadd Pty Limited to Perpetual Trustee Company Limited" (I quote from the liquidator's points of claim). 17 It is the contention of the liquidator that, upon completion of the property sales, funds of almost $2.6 million were applied by Chadd for the benefit of Helen Fawcett (and the estate of her late husband) to discharge indebtedness that ought to have been met out of the separate assets of Helen Fawcett and the estate; also, it seems, that Chadd is subrogated to the rights of the outside secured lender as against Helen Fawcett and the estate. The liquidator has commenced proceedings against Helen Fawcett in this connection. Mr Leonard (or, more precisely, his incorporated legal practice) is acting for her in the proceedings. There has been no attempt to restrain the incorporated legal practice or Mr Leonard from so acting. 18 Fifth, the liquidator draws attention to the fact that the contract for the sale of the Port Kembla property indicated that the sale was "subject to existing tenancies" rather than "vacant possession". The contractual significance of this appears likely to be covered by part of clause 17 which is on an even numbered page of the contract and therefore not in evidence. The liquidator also draws attention to the fact that, immediately before 17 March 2006, Mr Leonard was instructed to prepare a lease of the Port Kembla property to Herd Bars and apparently prepared three forms of such a lease. The liquidator says that, at completion of the sale and purchase of the property "a concluded lease … may not have been executed by either MGB Chadd Pty Limited or Herd Bars & Bodies Pty Limited or Abroclown Pty Limited". 19 The sixth matter raised - also in connection with the Port Kembla sale - is that the property was transferred on the basis that the sale was free of GST because it was a supply of a going concern, whereas none of Chadd, Herd Bars, Multiform and BNS was in occupation after about 17 March 2006. 20 Seventh, the liquidator points out that Mr Leonard acted for relevant persons in other matters as well. For example, in the period shortly before the sale of the Revesby and Port Kembla properties, he acted for Chadd in what appeared to be refinancing proposals. He is acting for Helen Fawcett in the proceedings already mentioned. He acted for Mark Fawcett in relation to an earlier Part 5.9 examination. He acted for the companies in liquidation in respect of negotiations with creditors, including Onesteel Trading, Atlas Steels and the Australian Taxation Office. Mr Leonard confirmed that an employed solicitor, Ms Ly, has conduct of a file involving an action by Onesteel Trading against Helen Fawcett to enforce a guarantee. 21 The liquidator intends to examine (a) Mark Fawcett (as the sole director of each company) regarding affairs generally; (b) Helen Fawcett as the substantial beneficiary of moneys receivable by Chadd for the sale of its properties; also with respect to her relationship with the companies; (c) Susan Fawcett regarding assignment of a trade mark and the sending of aluminium to Canada, both in the days immediately before the appointment of an administrator; (d) Mr Hunt regarding the way in which the prices for the properties were determined and his involvement in the appointment of an administrator to some of the companies; and

JOHNSON: Strictly speaking." 26 It is also relevant to quote paragraph 34 of the liquidator's points of claim: "The Applicant now opposes Michael Leonard and Leonard Legal acting for each person or entity referred to in paragraph 33 [ie, those mentioned in paragraph [6] of this judgment]. Particulars (a) The Applicant repeats each of the factual matters set forth above. (b) Michael Leonard and Leonard Legal acted for each of the companies referred to in paragraph 1 above [ie, the companies now in liquidation]. (c) Michael Leonard is the subject of examination personally. (d) Michael Leonard may be required to provide an affidavit for the Applicant [liquidator]. (e) Michael Leonard and Leonard Legal are required to maintain confidentiality in respect of their legal and other affairs of each of the companies referred to in paragraph 1 above, within his knowledge and disclose such information to the liquidator. (f) Michael Leonard may be a witness in other proceedings. (g) In giving evidence in the examination being conducted of him issues will arise in respect of the conduct and affairs of Fawcett family and other entities referred to in paragraph 31 above. (h) Issues of client legal privilege will arise in respect of information sought during the examinations. (i) Issues may arise in respect of personal liability for failing to adjust amounts properly due under the respective contracts for sale of land referred to in paragraphs 9 and 10 above [ie, the Revesby and Port Kembla properties]. (j) Issues may arise as to offences under the revenue laws of the Commonwealth concerning the transfer of the Shellharbour Road [Port Kembla] property as a going concern." 27 I turn now to the circumstances in which the court may restrain a lawyer from acting in relation to a particular proceeding or matter. It is axiomatic that the court may take such a step where there will be breach of some obligation owed by the lawyer to the person seeking the restraint - where, for example, the person is a client (or former client) and an obligation of confidentiality owed by the lawyer to the person will be breached. An injunction will also lie in any other case where the lawyer's continuing to act would be inconsistent with fiduciary or contractual duties owed by the lawyer. 28 The liquidator relies to some extent on the duty of confidentiality. But he does so in non-specific terms: see paragraphs (e) and (h) of the extract from the points of claim at paragraph [26] above. There is in those paragraphs no explicit statement of particular apprehension of either breach of confidentiality or compromise of client legal privilege. 29 The liquidator also appears to rely to some extent on the possibility that conflicting personal interests of Mr Leonard and Leonard Legal may be such as to preclude them, on fiduciary duty grounds, from particular fields of activity. Paragraph (i) of the extract from the points of claim at paragraph [26] above seems to contemplate some possibility of personal liability of Mr Leonard or Leonard Legal or both for negligence or breach of retainer in relation to the transactions involving the properties at Revesby and Port Kembla. Paragraph (j) hints at some form of personal liability for complicity in revenue offences. 30 But the reality is that, in these respects, the liquidator's lack of specificity and concrete allegation means that there is no sound basis for any finding that the orders now sought are warranted by cogent apprehension of breach of some duty owed by Mr Leonard or Leonard Legal to the companies now in liquidation. Generalised statements of unsubstantiated possibility cannot ground injunctive relief. 31 I turn, therefore, to the main contention of the liquidator, that is, that the injunctive relief is justified by a principle stated by Brereton J in Kallinicos v Hunt (2005) 64 NSWLR 561. His Honour sad at p.582, after a thorough review of earlier cases: "[T]he 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." 32 Brereton J later said: "The test to be applied in this inherent jurisdiction is whether a fair-minded, 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." 33 His Honour added that the jurisdiction "is to be regarded as exceptional and is to be exercised with caution"; and that "[d]ue 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". 34 In a passage subsequently approved in Bahonko v Nurses Board of Victoria [2007] FCA 491, Young J said in Geelong School Supplies Pty Ltd v Dean [2006] FCA 1404 (at [35]): "The crucial question, therefore, is whether on the evidence before me a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that Vogrig and WVL be restrained from acting for GSS in these proceedings. In answering this question it must be borne in mind that this is an application for a permanent injunction: Yunghanns v Elfic Ltd (unreported, Supreme Court of Victoria, Gillard J, 3 July 1998). It must also be borne in mind that the Court's jurisdiction is an exceptional one; it is to be exercised with appropriate caution and due weight must be given to the public interest in a litigant not being deprived of the solicitor of its choice without due cause." 35 I quote also from the judgment of Whealy J in R v Khazaal [2006] NSWSC 1353 (at [28]): "There is ample authority to support the proposition that the Court has an inherent jurisdiction to protect the integrity of the judicial process. The principle has often been called in aid in circumstances where a solicitor has acted for two parties on a previous occasion, and is then called upon to act for one of those parties against the other. More often than not, it will arise because of the fact that the solicitor possesses confidential information which may be used adversely to the interests of the former client. Other instances have turned, not so much on the protection of confidential information, but on the Court's concern to ensure that justice and appearance of justice be done ( Black v Taylor (1993) 3 NZLR 403). In Kallinicos & Anor v Hunt & Ors (2005) 64 NSWLR 561, the Court ordered that a solicitor cease to act for the defendants in a civil suit. This was because the solicitor was likely to be a material witness on a controversial issue of substance; and his evidence and the propriety of his conduct would come under scrutiny, such that he would be in a position in which his interests, the interests of his former client and his obligations to the Court might well be in conflict." 36 In each of these cases, there was reference to the decision of Mandie J in Grimwade v Meagher (1995) 1 VR 446. His Honour there restrained counsel from appearing for a plaintiff in a civil trial when he had previously appeared to prosecute the defendant in separate criminal proceedings. He concluded that there was "a real and sensible risk of a lack of objectivity" by counsel which gave rise both to a risk of unfairness to the defendant in the civil trial and concern for the integrity of the judicial process and the administration of justice. His Honour concluded (at p.445) that: "A fair minded reasonably informed member of the public would conclude that the proper administration of justice required that the first defendant be prevented from appearing in the said action because of the real risks of lack of objectivity and of conflict of interest and duty … " 37 The jurisdiction discussed in these cases is an extraordinary and protective jurisdiction. It is separate from the jurisdiction involved in protection of confidential information and the enforcement of fiduciary duty. This is made clear, in particular, in the extract from the judgment of Whealy J just quoted. The concern is with the due and proper administration of justice in a proceeding before the court. The jurisdiction exists to ensure that the integrity of the proceeding is maintained. Identification of the means needed to maintain that integrity will, of course, depend on the nature of the proceeding and its likely course. 38 The present application relates principally to the actual conduct of forthcoming Part 5.9 examinations of the individuals mentioned in paragraph [6] above. The challenged orders for production involve no more than location of the identified documents and their delivery into the custody of the court. No issue of prejudice to the integrity of any proceeding can arise in relation to compliance with those orders (I consider separately below the moves to have orders for production set aside). 39 In considering the present application as it relates to the actual conduct of Part 5.9 examinations, it is necessary to have regard to the role a lawyer is capable of playing in such a case. Where an examination summons is issued on the application of a liquidator, the examination typically takes the form of questioning of the examinee by a lawyer retained by the liquidator, with a registrar of the court presiding. The matter of legal representation of the examinee is dealt with thus at paragraph 15,820 of the fifth edition (loose-leaf) of "McPherson's Law of Company Liquidation" by M G R Gronow and R Mason (footnotes omitted): "The examinee is entitled to be legally represented at her or his own expense (s 597(16)) and it is quite proper for the examinee's solicitor and counsel to have a conference with the examinee before the latter gives evidence, 1 though where a lawyer acts for more than one examinee, he or she may be directed not to disclose to any examinee the questions asked of another examinee in an examination in private. By analogy with the situation of witnesses under subpoena, however, it has been held that an examinee is not necessarily a party to the proceeding in which the examination takes place. Nor are examinees entitled to advance notice of the questions to be asked at the examination, for obvious reasons. The examinee will be questioned by the liquidator's (or other eligible applicant's) legal representative and, from time to time, by the court officer presiding (usually a registrar or a master) (s 597(5B), s 597(7)(b)). The ASIC or any other eligible applicant may take part in the examination and may be represented by a lawyer or agent (s 597(5)(a)). … The role of the court is to ensure that there is fair play between the person being examined and those interrogating the examinee. The court is given a discretion to allow or disallow questions (s 597(5)(b), (7)(b)) and is endowed with a broad discretion to prevent any abuse of process during the examination. Thus, a question that has already been asked, or that is put merely for the purpose of satisfying personal spite or vindictiveness and not bona fide for the benefit of the creditors, contributories or the public may be disallowed by the court. But, clearly, a liquidator is permitted to probe the circumstances that relate to those on which the examination is centred in the hope of determining whether there is another line of inquiry that should be pursued to ascertain the truth. During the course of an examination challenges to questions asked are quite common. The court has a wide discretion as to whether to allow or disallow questions; this is a safeguard against the improper use of the power to examine. Challenges to the decision of the court can lead to adjournments in order that the challenges may be dealt with and, usually, this will involve the application for the decision of a registrar or master to be reviewed. The court has the power to make one or more of a number of directions about the conduct of the examination contained in s 596F. This section is there to ensure that the proper objects of a public examination may be attained and it gives the court the power to give directions in relation to s 597." 40 It is clear that the scope for action by an examinee's lawyer in relation to an examination is very limited. The lawyer may advise the examinee beforehand and take objection to questions put. At the discretion of the presiding registrar, the examinee's lawyer may put questions to the examinee after the questioning by the liquidator's lawyer; however there is no right for an examinee to have his or her lawyer ask questions. Importantly (and as was emphasised by Mr Newlinds SC on behalf of Mr Leonard), a Part 5.9 examination does not produce any outcome affecting anyone's rights. The process is not adversarial. It is entirely inquisitorial and in no way dispositive or determinative of anything. 41 In light of the nature of the procedure and the kinds of action open to an examinee's lawyer, there is very little scope indeed for participation by such a lawyer to be inimical to the due and proper conduct of the proceeding. One would think that it would be an entirely exceptional case - indeed, so exceptional as to be incapable of ready identification in the abstract - in which the rendering of professional services by a lawyer at an examination presented even a theoretical possibility that the integrity of the examination might somehow be compromised. 42 In the present case, however, I am relieved of the need to consider whether even a theoretical possibility of distortion (however remote) may arise. This is because of the undertaking conveyed by Mr Leonard to the court through paragraph 5 of his affidavit of 26 April 2007: "Although I do not necessarily agree that I have to give the undertaking, I undertake: i. Not to attend the examinations, except for my own. ii. Not to discuss my evidence given at the examination with any other examinee. iii. Not to discuss with other examinees their evidence given at their examination, until the examinations have been completed and only to the extent necessarily in other litigations. iv. Not to discuss with any person what should be said at the examination. v. Not to discuss the examinations with the legal practitioners who will be attending the examinations on behalf of examinees, except to the extent that I will discuss with them my own examination, so that I can be represented at my examination." 43 This, to my mind, completely answers the liquidator's concerns insofar as they relate to the conduct of the Part 5.9 examinations. The undertaking is offered by an officer of the court. The court will accept it. 44 There is then the question whether the court's jurisdiction to preserve the integrity of its own processes will support the application for an order restraining Mr Leonard and Leonard Legal from acting further in the subsisting attempts by Helen Fawcett, Susan Fawcett, Mr Leonard, Mr Hunt and Mr Hunt's four companies to have orders for production set aside. 45 Those attempts are likely to proceed on the basis that the liquidator, in seeking production of the particular documents, is motivated by some irrelevant or collateral purpose such as to justify the conclusion that the use of orders for production to obtain those documents amounts to an abuse of process. It might be argued, for example, that the documents are unrelated to the companies in liquidation and foreign to the proper performance of the functions of the liquidator. There is, to my mind, quite simply no ground for any rational apprehension that justice will not be done (or be seen to be done) upon any such application if the individuals and companies are represented by a solicitor who previously acted for the companies in liquidation and is currently acting for other elements of the Fawcett interests. I do not see how a fair minded and reasonably informed member of the public would have any well-based concern for the due administration of justice just because such a solicitor played an active part for clients in trying to keep a liquidator's claims for the production of documents within proper limits. 46 The jurisdiction the liquidator seeks to invoke is invasive and exceptional. It is also discretionary. As Middleton J said in the Bahonko v Nurses Board of Victoria (above) at [37], the court "must be careful not to intervene unless it is absolutely required in the circumstances of the case". The liquidator has not shown an absolute requirement, in the interests of the due and proper administration of justice, for the exercise of the particular jurisdiction in relation to the several pending applications for orders setting aside orders for the production of documents. 47 It remains to mention one further matter. On its face, the liquidator's application also seeks to restrain Mr Leonard and Leonard Legal from acting on a broader basis. Restraint is sought in relation to any future applications concerning the examinations, the examination summonses and the orders for production. The court will not consider any such blanket restraint in relation to undefined future matters. The question whether it would be inimical to the due and proper administration of justice for a solicitor to act can only be judged in the concrete context of a particular proceeding or application. 48 The court: (a) notes and accepts the undertaking of Michael Leonard contained in paragraph 5 of his affidavit sworn herein on 26 April 2007; and (b) orders that the interlocutory process filed on 16 April 2007 be dismissed with costs. **********

Woodgate v Leonard

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Judgment (26 paragraphs)

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