Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd
[2005] WASC 189
ALPHA WEALTH FINANCIAL SERVICES PTY LTD & ORS -v- FRANKLAND RIVER OLIVE COMPANY LTD [2005] WASC 189
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASC 189 | |
| Case No: | CIV:1757/2005 | 18 AUGUST 2005 | |
| Coram: | HASLUCK J | 23/08/05 | |
| 17 | Judgment Part: | 1 of 1 | |
| Result: | Injunction granted | ||
| B | |||
| PDF Version |
| Parties: | ALPHA WEALTH FINANCIAL SERVICES PTY LTD (ACN 081 560 349) SAXBY BRIDGE PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 057 915 312) SAXBY BRIDGE FINANCIAL PLANNING PTY LTD (ACN 073 889 979) JEFFREY JOSEPH BRAYSICH FRANKLAND RIVER OLIVE COMPANY LTD (ACN 089 521 997) |
Catchwords: | Injunction Fiduciary duties Whether parties should be restrained from retaining solicitor to act for a party Whether administration of justice would be brought into disrepute if the solicitor acted Application of relevant principles where a solicitor was involved in setting up a management investment scheme |
Legislation: | Nil |
Case References: | D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118 Ex parte Bennett (1805) 32 ER Frankland River Olive Co Ltd v Charters Securities Pty Ltd (Receiver & Manager Appointed) & Anor [2004] WASC 88 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 Afkos Industries Pty Ltd v Pullinger Stewart (a firm) [2001] WASCA 372 Anton v PKB Veterinary Supplies Pty Ltd [2004] WASC 107 Bowen v Scott [1993] 3 NZLR 403 Bowen v Stott [2001] WASC 219 Clay v Karlson (1997) 17 WAR 493 Durban Roodepoort Deep Ltd v Reilly [2004] WASC 269 Emanuele v Emanuel Investments (1996) 21 ASCR 83 Fordham v Legal Practitioners' Complaints Committee (1997) 18 WAR 467 Grimwade v Meagher, Hegland, Morgan, Lidgett, Reid & Bellheath Pty Ltd [1995] 1 VR 446 Holdsworth & No 8 Viewbank Road Pty Ltd v M R Anderson & Associates Pty Ltd & Wilbur Pty Ltd, SCt of Vic (Phillips J); 26 August 1994 In re a firm of Solicitors [1995] 3 All ER 482 Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 Lord Corporation Pty Ltd v Green (1991) 22 NSWLR 532 Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357 Mancini v Mancini [1999] NSWSC 800 Murcia & Associates (a firm) v Grey (2001) 25 WAR 209 Newman v Phillips Fox (a firm) (1999) 21 WAR 309 PhotoCure ASA v Queen's University at Kingston [2002] FCA 1079 Prince Jefri Bolkiah v KPMG (a firm) [1999] 1 All ER 517 Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831 Tottle Christensen v Westgold Resources NL [2003] WASCA 224 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- SAXBY BRIDGE PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (ACN 057 915 312)
SAXBY BRIDGE FINANCIAL PLANNING PTY LTD (ACN 073 889 979)
JEFFREY JOSEPH BRAYSICH
Plaintiffs
AND
FRANKLAND RIVER OLIVE COMPANY LTD (ACN 089 521 997)
Defendant
Catchwords:
Injunction - Fiduciary duties - Whether parties should be restrained from retaining solicitor to act for a party - Whether administration of justice would be brought into disrepute if the solicitor acted - Application of relevant principles where a solicitor was involved in setting up a management investment scheme
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Legislation:
Nil
Result:
Injunction granted
Category: B
Representation:
Counsel:
Plaintiffs : Mr M A MacLennan
Defendant : Mr D R Williams QC & Mr S K Dharmananda
Solicitors:
Plaintiffs : Bennett & Co
Defendant : Corrs Chambers Westgarth
Case(s) referred to in judgment(s):
D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118
Ex parte Bennett (1805) 32 ER
Frankland River Olive Co Ltd v Charters Securities Pty Ltd (Receiver & Manager Appointed) & Anor [2004] WASC 88
Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298
Case(s) also cited:
Afkos Industries Pty Ltd v Pullinger Stewart (a firm) [2001] WASCA 372
Anton v PKB Veterinary Supplies Pty Ltd [2004] WASC 107
Bowen v Scott [1993] 3 NZLR 403
Bowen v Stott [2001] WASC 219
Clay v Karlson (1997) 17 WAR 493
Durban Roodepoort Deep Ltd v Reilly [2004] WASC 269
Emanuele v Emanuel Investments (1996) 21 ASCR 83
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Fordham v Legal Practitioners' Complaints Committee (1997) 18 WAR 467
Grimwade v Meagher, Hegland, Morgan, Lidgett, Reid & Bellheath Pty Ltd [1995] 1 VR 446
Holdsworth & No 8 Viewbank Road Pty Ltd v M R Anderson & Associates Pty Ltd & Wilbur Pty Ltd, SCt of Vic (Phillips J); 26 August 1994
In re a firm of Solicitors [1995] 3 All ER 482
Kooky Garments Ltd v Charlton [1994] 1 NZLR 587
Lord Corporation Pty Ltd v Green (1991) 22 NSWLR 532
Mallesons Stephen Jaques v KPMG Peat Marwick (1990) 4 WAR 357
Mancini v Mancini [1999] NSWSC 800
Murcia & Associates (a firm) v Grey (2001) 25 WAR 209
Newman v Phillips Fox (a firm) (1999) 21 WAR 309
PhotoCure ASA v Queen's University at Kingston [2002] FCA 1079
Prince Jefri Bolkiah v KPMG (a firm) [1999] 1 All ER 517
Rakusen v Ellis Munday & Clarke [1912] 1 Ch 831
Tottle Christensen v Westgold Resources NL [2003] WASCA 224
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- HASLUCK J:
Introduction
1 The defendant, Frankland River Olive Company Ltd, has applied for an injunction restraining the plaintiffs from retaining Mr Martin Bennett and the law firm with which he is associated, Bennett & Co, from continuing to act for the plaintiffs in these proceedings.
Background
2 Mr Bennett was formerly a director of Southern Wine Corporation Ltd ("SWC"). The company held a restricted security dealer's licence which allowed it to carry on a securities business as a responsible entity of a managed investment scheme, known then as the Southern Wine Managed Investment Scheme and now known as Preston Vale Managed Investment Scheme.
3 I note in passing that under the Corporations Act 2001 (Cth), the duties of a responsible entity include the duty to act in the best interest of the members and, if there is a conflict between members' interests and the interests of the responsible entity, the officers must give priority to the members' interest.
4 SWC leased land suitable for a vineyard from Chartered Securities Pty Ltd and entered into licence and management agreements with various investors called "growers". The first of the so-called licence and management agreements was drafted by Bennett & Co and is dated 30 June 1999 (these being described by the defendants as the "superseded licence agreement"). Each superseded licence agreement conferred a right to grow grapes on the land leased by the responsible entity. Each investor/grower requested the responsible entity to manage the licensed areas for a fee. Provision was made for the responsible entity to call for additional contributions if the project income was not sufficient to cover the licence and management fees and other commitments. Bennett & Co were also involved in the preparation of the relevant prospectus and related documents including a constitution for the Scheme and a unit trust deed.
5 In mid-2002 SWC experienced financial difficulties and fell into arrears in payment of rent under its lease. Mr Bennett, in his capacity as Chairman of SWC, issued a letter to the growers in respect of a meeting to be held on 20 August 2002 to consider a resolution for the growers to make additional financial contributions to the Scheme to prevent the
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- Scheme from being wound up. Mr Bennett was present at a meeting on 20 August 2002 held in the boardroom of the offices of Bennett & Co, concerning that matter. In the event, the meeting failed to produce a resolution by the growers to provide additional funding for the Scheme. By this time administrators had been appointed to SWC, the relevant appointment having been effected on 30 July 2002.
6 A few months later SWC called another meeting of growers on or about 23 January 2003 seeking additional contributions. Mr Bennett was a director of SWC at the time the notice in respect of the January 2003 meeting was issued. The January 2003 meeting purported to levy the so-called "2003 fees". On 28 February 2003 liquidators were appointed to SWC.
7 Some months later a notice of meeting dated 20 June 2003 was issued to growers pursuant to which a meeting of Scheme members was held on 21 July 2003. Resolutions were passed increasing the licence and management fees payable by growers to the responsible entity. Further, the Scheme's constitution was amended, and a supplemental licence was approved (described by the defendant as the "operative licence agreement").
8 I note in passing that the amended Constitution was lodged with ASIC on 2 December 2004. The defendant contends in these proceedings that this so-called "Operative Constitution", upon registration, had retrospective effect to 21 July 2003. It says also that Mr Bennett was in office as a director at that time, notwithstanding that liquidators had been appointed.
Removal of SWC
9 The notices of meeting for the January 2003 and July 2003 meetings noted that the failure of SWC to pay rent due under the lease agreement put the Scheme (known as the "MIS") at risk of being wound up if the lease was disclaimed. This state of affairs was material to the resolutions passed concerning the fees payable and to be paid.
10 I understand that these events led to the passing of a resolution at the July 2003 meeting for the replacement of SWC. Thus, the defendant company, Frankland River Olive Company Ltd, became the responsible entity of the Scheme.
11 This brings me to the pleadings in the present proceedings.
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Pleadings
12 The statement of claim in this matter is dated 13 July 2005. The plaintiffs say that on or about 12 August 2003 the defendant replaced SWC as the responsible entity. They say that each of the plaintiffs is a member of the Scheme now known as the Preston Vale MIS and is the holder of licensed areas under the Scheme. It is said at par 10 that each of the plaintiffs acquired their licensed areas pursuant to licence and management agreements entered into on or prior to 30 June 1999.
13 The plaintiffs refer to the payment of licence and management fees and the manner in which such fees were calculated. It is said that in December 2004 the defendant purported to replace the 1998 Constitution with a new Constitution described as the alleged 2004 Constitution. This was in substantially the same terms as the 1998 Constitution save that it annexed a modified pro forma licence and management agreement.
14 The plaintiffs allege that on 31 January 2003 the defendant levied the 2003 fees (par 25); on 6 February 2004 it levied the 2004 fees (par 26); these fees were paid on or about October 2003 and 23 July 2004 respectively (pars 27 and 28). The plaintiffs then allege that the defendant failed to comply with certain procedural requirements in relation to the imposition of these levies. They refer to an alleged failure to send notices and convene meetings in the prescribed manner with the result that the plaintiffs were not obliged to pay the subject fees and did so by mistake (pars 27 to 30).
15 The plaintiffs say also that on or about 1 April 2005 the defendant improperly issued the so-called 2005 invoices and threatened to terminate the plaintiffs' holdings in the event of non-payment.
16 The plaintiffs challenge the entitlement of the defendant to claim the amounts in question. They seek restitution in respect of the 2003 and 2004 fees. They seek a declaration that the amounts claimed in the 2005 invoices are not payable and that the defendant is not entitled to terminate the plaintiffs' interests in the Preston Value MIS by reason of the non-payment of the amounts claimed in the 2005 invoices.
Statement of defence and counterclaim
17 The defendant pleads in par 4 of its statement of defence and counterclaim that SWC was removed as responsible entity and the defendant was chosen as its replacement following the passing of a special resolution of the members of the Scheme at a meeting held on 21 July
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- 2003. Reference is made to the superseded licence agreement and the superseded Constitution and the approval of the so-called operative licence agreement and the operative Constitution which was registered with ASIC on 2 December 2004.
18 The defendant goes on to plead that the operative Constitution took retrospective effect from 21 July 2003 immediately upon its registration on 2 December 2004. It is said further and in the alternative that the superseded licence agreement and operative licence agreement represent a deemed special contract entered into between the plaintiffs and the defendant. Such special contracts can be amended in accordance with ordinary contractual principles making the amendments made to the superseded Constituted binding from the date of the passing of the resolutions at the July 2003 meeting.
19 The defendants plead in par 9 that pursuant to the superseded licence agreement the responsible entity could levy additional fees. On 23 January 2003 there was a general meeting called by members at which meeting the members passed a resolution requiring the members to pay additional contributions in the amount of $1254 per licensed area. The defendant pleads in par 13 that the operative licence agreement took effect and bound the plaintiffs upon the passing of the resolution at the July 2003 meeting or the amendment of the special contract at the July 2003 meeting. It is said that the plaintiffs were obliged to pay the amounts claimed in the 2003 and 2004 invoices by reason of the facts and matters relied upon by the defendant.
20 It is said that if payment was made by the plaintiffs due to mistake, the defendant is entitled to set off the expenses incurred by the defendant in performing management and wine marketing services.
21 The defendant in par 35 refers to its assumption that the plaintiffs would not challenge the basis of the amounts payable under the 2003 and 2004 invoices. In reliance upon the assumption the defendant provided services and arranged its financial affairs accordingly. It is said that it would be unconscionable if the plaintiffs were permitted to resile from the assumption; the plaintiffs are prevented by estoppel from denying that the amount of the 2003 and 2004 invoices are payable.
22 By their counterclaim the defendants seek a declaration that the amendments made to the Constitution passed at the 2003 meeting were effective from 21 July 2003. They seek a declaration that the amounts
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- invoiced to the plaintiffs in 2003, 2004 and 2005 were and are properly payable.
Issues
23 It will be apparent from this review of the pleadings and related events that the defendant, as a party standing in the shoes of the former responsible entity SWC, seeks to uphold the validity of certain levies imposed upon the investor/growers. It is clear that additional fees, or levies, as a form of financing shortfalls, were provided for by the Scheme documents from the outset. It is said that Mr Bennett and his firm played an important role in drafting documents that allowed for levies and in encouraging investor/growers to believe that this was an appropriate and useful feature of the Scheme.
24 Mr Bennett was a director of the responsible company (SWC) when the first steps were taken to raise a levy and when the 2003 and 2004 fees were imposed with a view to preserving the Scheme. But now, in these proceedings, the plaintiffs, assisted by Mr Bennett, challenge the entitlement of the responsible entity to the fees in question, and to the fees the subject of the 2005 invoices. Put shortly, the plaintiffs say, inter alia, that the prescribed procedures were not followed with the result that they are not obliged to pay the subject levies.
25 It is against this background that the defendant has raised the question of whether it is appropriate for Mr Bennett to continue to act for the plaintiffs. The defendant has applied for a restraining order and submits that there are three key issues. The issues can be summarised in this way:
1. The Court exercises control over legal practitioners so that the proper administration of justice is preserved. Bennett & Co acted for SWC, the previous responsible entity of the Preston Vale Managed Investment Scheme and now wish to act for the plaintiffs in disputing the fees said to be payable to the current responsible entity. Does the proper administration of justice require the removal of Bennett & Co?
2. The Court requires that counsel have a sufficient degree of detachment from the case. Mr Bennett was involved in drafting documents relevant to the proceedings and was director of SWC when resolutions critical to the issues in these proceedings were passed. Would a reasonably
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- informed member of the public conclude that by reason of Mr Bennett's personal involvement, he and his firm should not be permitted to continue to act for the plaintiffs?
- 3. A lawyer must not to take up a hostile relationship towards a client whose interests he was bound to protect in respect of the same or a related matter. If the plaintiffs are successful in the action, the interests of all Scheme members may be detrimentally affected. Can Mr Bennett, who still owes a duty of loyalty to all Scheme members as a director of the former responsible entity of the Scheme, and as a solicitor to the former responsible entity, continue to act for the Plaintiffs?
26 It will be useful now to review the legal principles bearing upon issues of this kind.
Legal principles
27 In Frankland River Olive Co Ltd v Charters Securities Pty Ltd(Receiver & Manager Appointed) & Anor [2004] WASC 88 Pullin J made these observations at par 25:
"25. I now turn to the law which governs this application. It is undoubtedly a serious step to deprive a party of counsel or solicitors of that party's choice: see, for example, Emanuele v Emanuel Investments (1996) 21 ACSR 83 at 107. There is no dispute that the court has jurisdiction to exercise authority over its officers: see Newman v Phillips Fox (1999) 21 WAR 309. Nor is it in dispute that where orders are sought against solicitors who are not parties to proceedings, the court has jurisdiction to direct them to cease acting where they are solicitors on the record: see, for example, Clay v Karlson (1997) 17 WAR 493 and Murcia & Associates v Grey [2001] WASCA 240.
26. While it is a serious step to deprive a party of counsel and solicitor of choice, the Court will do so, if necessary. The justification for intervention by the Court in an application to restrain solicitors from acting for a litigating party is founded usually on one or more of three bases. These are the protection of confidential information, the restraint of a conflict of interest, and the Court's control over the conduct of solicitors as its officers: see Newman v Phillips Fox (supra) at 314. In
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- that case, Steytler J referred to what was said by Sir Lancelot Shadwell, Vice-Chancellor, in Davies v Clough (1837) 8 Sim 262 at 267, where the Vice-Chancellor said, in referring to other cases, that they appeared to afford a general principle, namely, that all Courts may exercise an authority over their own officers as to the propriety of their behaviour. The Vice-Chancellor said:
'Applications have been repeatedly made to restrain solicitors who had acted on one side, from acting on the other, and those applications have failed or succeeded upon their own particular grounds, but never because the court had no jurisdiction.'
- 27. Steytler J went on to say in the Newman case:
'In Australia the courts have, on a number of occasions, shown a willingness to intervene on this third basis. So, for example, in Yunghanns … Gillard J affirmed that the court has an inherent power to control and deal with members of the legal profession and to ensure that the administration of justice is not brought into disrepute by the conduct of those members.'"
28 Counsel for the defendant submitted that the justification for intervention by the Court in an application to restrain solicitors from acting has traditionally been founded upon one or more of three bases as indicated by the reasoning of Pullin J in the Charters case (supra). Counsel said further that the two bases relevant to this application are, first, restraint of a conflict of interest; and, second the Court's control over the conduct of solicitors as its officers.
29 According to the defendant, the question is whether a fair minded, reasonably informed member of the public would conclude that the proper administration of justice requires that Mr Bennett and Bennett & Co should be restrained from continuing to act for the plaintiffs. The test is founded on the principle that a court controls its officers so that the integrity of the judicial process is protected. It is important that public confidence in the judicial process be maintained and that, not only must justice be done, but it must be seen to be done. It is not necessary that the lawyer be threatening to use confidential information for the Court to
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- exercise its inherent jurisdiction. The general right of parties to be represented by the solicitor or counsel of their choice must give way to the overriding principle of preserving the integrity of the judicial process.
30 The defendant contended that a reasonably informed member of the public would find it subversive to the administration of justice that a person who helped set up the Scheme was now acting for clients seeking to potentially destroy the Scheme. Such an observer would conclude that by reason of Mr Bennett's personal involvement as director and as the drafter of the Superseded Licence Agreement, he and his firm should not be permitted to continue to act for the plaintiffs.
31 Mr Bennett's actions as a director of SWC in attempting to gain approval from members for additional contributions show that Mr Bennett was aware of the financial difficulties the Scheme then faced, as a result of events occurring during the time when he was a director. To now act for those plaintiff members seeking the return of additional contributions approved at the January 2003 and July 2004 meetings would appear to the ordinary person as subversive to the interests of justice.
32 A reasonably informed member of the public would find it subversive to the administration of justice that a person who was a director of and legal adviser to the former responsible entity, and thus owed fiduciary duties to the Scheme and its members, and continues to do so, could now act for four plaintiff members whose action is arguably hostile towards the interests of the members of the Scheme as a whole. It is said that Bennett & Co owed a duty of loyalty to SWC which in turn owed a duty to act in the best interest of the growers.
Further observations on the law
33 There can be no question that the relationship between a solicitor and client is fiduciary in nature. Further, an officer of a responsible entity of a registered scheme must act in conformity with s 601FD(1) of the Corporations Act, and discharge duties that are essentially fiduciary in nature. Section 601FD(1)(c) requires an officer of a responsible entity of a registered scheme to act in the best interests of the members and, if there is a conflict between the members' interests and the interests of the responsible entity, give priority to the members' interests. An officer cannot use information acquired through being an officer in order to gain an improper advantage for himself or another person: s 601FD(1)(d).
34 The defendant submitted that such duties as are imposed upon an officer of the responsible entity cannot, as a matter of logic or good sense,
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- automatically cease when the company ceases to be the responsible entity, for certain rules apply universally and peculiarly to fiduciaries. One of these is the rule that prohibits fiduciaries from acting in situations of conflict between duty and interest, or between duties. The conflict principle, as the irreducible core of the fiduciary obligation, serves a protective function so as to ensure that the fiduciary does not commit a breach of other duties: see Conaglen: "The Nature and Function of Fiduciary Loyalty" (2005) 121 LQR 452 at 460 and 463.
35 Lord Eldon LC explained in Ex parte Bennett (1805) 32 ER that the mischief to which the rule against multiple conflicting duties directed is the temptation to breach non-fiduciary duties:
"If the principle be, that the Solicitor cannot buy for his benefit, I agree, where he buys for another, the temptation to act wrong is less: yet, if he could not use the information he has for his own benefit, it is too delicate to hold, that the temptation to misuse that information for another person is so much weaker, that he should be at liberty to bid for another … that distinction is too thin to form a safe rule of justice."
36 In other words, fiduciary duties are prophylactic in the sense that they tend to prevent the disease of temptation in the fiduciary. It is for this reason that the standard expected of the fiduciary is strict: Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 at 407 – 409.
Further submissions
37 The defendant submitted that Mr Bennett, as director of SWC, owed a duty to the members of the Scheme. That duty was owed to all members and not just any one or any four of them, as is the case with the plaintiffs. On the other hand, in the present proceedings, Mr Bennett and Bennett & Co, as solicitors for the plaintiffs, owe a duty to advance the plaintiffs' case, and that case, in essence, challenges the capacity of the responsible entity to cover expenses by calling upon members of the Scheme to make additional contributions. Levies of this kind were allowed for by the Scheme documents, being documents brought into existence by Mr Bennett and his firm.
38 It is said that Mr Bennett, as solicitor for SWC, the former responsible entity, owed a duty to advance the interests of SWC. Section 601FS provides that if the responsible entity of a registered scheme changes, the rights, obligations and liabilities of the former responsible entity in relation to the scheme become rights, obligations and
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- liabilities of the new responsible entity. The defendant as the successor responsible entity has rights against Mr Bennett and Bennett & Co. For example, the defendant would be entitled to obtain access to Bennett & Co's files pursuant to s 601FS. It is the defendant that is now entitled to those files if the work carried out by Bennett & Co was work done for the responsible entity of the Scheme.
39 Liquidators were appointed to SWC on 28 February 2003. Mr Bennett was duty-bound to act in the best interests of all the members at the time of the January 2003 meeting. Further, the appointment of liquidators only affected Mr Bennett's management powers as a director of SWC. The appointment did not affect all of Mr Bennett's ongoing fiduciary duties to members. As a director, Mr Bennett remained subject to a duty to respond to calls for information from the administrators and the liquidators and in that regard his duty of loyalty to SWC required him to give proper consideration to the structure and requirements of the Scheme and all of its members.
40 The defendant submitted that Mr Bennett and Bennett & Co are, therefore, in an impossible position where a duty to current clients conflict, or may possibly conflict, with a duty to a former client. The duty to all members of the Scheme previously undertaken, and which runs on, conflicts with the present duty of Mr Bennett and his firm to only some of the members; that is, the plaintiffs.
41 It is said that the rationale for the rule against conflicts, and the prophylactic purpose the rule serves, militate against the continuance of a situation where a real opportunity for conflict may arise.
Plaintiffs' submissions
42 The plaintiffs submitted that there is no evidence or likelihood that Mr Bennett, in his capacity as a director or solicitor for SWC received any confidential information relevant to any matter in issue in these proceedings. Further, there is no evidence or likelihood that Mr Bennett's law firm, Bennett & Co, received any confidential information relevant to any matter in issue in these proceedings. In addition, there is no likelihood that Mr Bennett or any member or employee of Bennett & Co will be required to give evidence at the trial of the action.
43 It is said that the growers were never clients of Bennett & Co. Moreover, in strict analysis, the defendant is not a previous client of Bennett & Co, nor a party which for these purposes should be treated as being equivalent to a previous client of Bennett & Co. The plaintiffs in
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- these proceedings (and Bennett & Co as their representatives) are not taking action which as a matter of law or logic can be categorised as being hostile to the other growers or to the Scheme as originally offered to the growers.
44 The plaintiffs refer to s 437C(1) of the Corporations Act. It provides that:
"While a company is under administration, a person (other than the administrator) cannot perform or exercise, and must not purport to perform or exercise, a function or power as an officer of the company."
45 Section 437C(1A) of the Act provides that:
"Subsection (1) does not apply to the extent that the performance or exercise, or purported performance or exercise, is within the administrator's written approval."
46 Counsel for the plaintiffs reminded me that Mr Bennett has sworn an affidavit confirming that he ceased to play any role in the affairs of the company upon the appointment of the administrators, and did not thereafter resume any role with the company; that is, Bennett & Co, and Mr Bennett, ceased acting for SWC on or about 1 August 2002 and have not resumed acting for that company. Mr Bennett further deposed that, having read the documents filed in this proceeding, he is not (to his conscious knowledge) in possession of any relevant confidential information.
47 According to the plaintiffs, even if it were possible to postulate or infer that Mr Bennett or Bennett & Co were in possession of relevant confidential information, it is not apparent that Bennett & Co in the present proceedings is proposing to disclose or use that information contrary to the interests of a client. The outcome of the proceedings may or may not have an impact on decisions that other growers may make in the future, for instance in relation to payment of the 2005 invoices, but that is, or may be a collateral effect. The cases on misuse of confidential information all involve direct attacks on the previous client.
48 The plaintiffs submitted that the effect of any ruling by the Court will be to illuminate a disputed legal issue, namely whether the licence and management agreements authorise the charging of the 2003, 2004 and 2005 fees. The decision will simply inform other growers as to their likely legal position. Being so informed, those other growers will make
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- commercial decisions based on their perception of what is in their best interest.
49 The other investor/growers may, individually or collectively, decide that it is in their best interests to refuse to pay, and/or seek to recover fees that have been paid. It does not however follow that this will be the case. They may in fact prefer to pay the fees, or not to seek recovery of fees paid, if they perceive that to be in their best interests from a commercial point of view, for instance, to ensure that the Scheme remains solvent. Any flow-on of the litigation for other growers will be a result of clarification of the legal position, not the conduct of the plaintiffs.
Findings
50 By its chamber summons for an interlocutory injunction dated 26 July 2005 an order is sought by the defendant that the plaintiffs be restrained from retaining or engaging the firm Bennett & Co or Mr Martin Bennett to advise the plaintiffs in their capacity as solicitors or counsel in these proceedings and/or to act as instructing solicitors or counsel for the plaintiffs in these proceedings and/or to appear as solicitors on the record for the plaintiffs.
51 I am conscious, having given careful consideration to the matters raised by counsel on both sides, that I must keep steadily in mind that Mr Bennett and Bennett & Co were acting for and associated with the activities of SWC. They did not at any time, as I understand it, receive instructions from or purport to act on behalf of the defendant company which, as from mid-2003, became the responsible entity in place of SWC. I must keep steadily in mind also, as a matter emphasised by counsel for the plaintiffs, that following the appointment of administrators, and eventually the appointment of liquidators to SWC on 28 February 2003, the decision to raise and press for the payment of additional fees by way of levy has been essentially a matter to be pursued by the administrators and liquidators. Moreover, payment of the additional fees is to be made to or retained by the defendant company in its role as responsible entity.
52 I give weight also to the point emphasised by counsel for the plaintiffs in the course of argument that the appearance which matters is the appearance presented to a reasonable observer who knows and is prepared to understand the facts: D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118 per Bryson J at 123. Accordingly, I must proceed from the premise that a reasonable observer would take account of the matters I have just mentioned and be conscious that although the Scheme remains essentially the same the responsible entity at the present time is
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- not SWC (being the company with which Mr Bennett and his law firm were associated) but the defendant company.
53 Nonetheless, I feel obliged to take account of some important countervailing features of the situation. The Scheme made provision at the outset for the recovery of additional fees from investor/growers. Mr Bennett played an active role both as a director and as a legal adviser in making provision for the recovery of fees. He was still in office as a director when steps were taken by SWC to impose additional fees. The decided cases mentioned in earlier discussion indicate that Mr Bennett's fiduciary duties were underpinned by an overriding duty of loyalty to the investor/growers who were operating within the framework of the Scheme that he had helped to create. It is apparent from earlier discussion that the provisions of the Corporations Act clearly contemplate that a responsible entity such as the defendant, that assumes the role formerly occupied by another entity, will stand in the shoes of that preceding entity and the rights and duties of the subsequent entity must be viewed accordingly.
54 In my view, this is a case in which there is an appearance that a lawyer has changed sides and a reasonably informed observer would see the matter in that light. I am of the view that in the circumstances of this case, that such an appearance is subversive to the requirement that justice be seen to be done. In other words, a reasonable observer who knew and was prepared to understand the facts, would be principally influenced by the fact that the Scheme allowed for the recovery of additional fees; the Scheme remains essentially the same; Mr Bennett was associated with the first responsible entity which formed a view that a levy was necessary; Mr Bennett is now assisting a faction within the Scheme that is taking steps to prevent recovery of the initial levy and subsequent levies; this could prejudice the future of the Scheme.
55 At the end of the day, I am not persuaded that the matters I have just mentioned are negated or outweighed by the fact that recovery of the 2003 and 2004 fees was set in motion essentially by the administrators and liquidators of SWC, and then by the defendant company as a discrete responsible entity. The assets of a company do not vest in administrators or a liquidator. Mr Bennett continued in office as a director of SWC until mid-2003 and the company remained in existence. It continued to be the holder of proprietary rights. Mr Bennett remained subject to an obligation to provide information to the administrators and the liquidators as to the structure of the Scheme and the effect of the Scheme documents. To my mind, an informed observer would conclude that Mr Bennett and his law firm should not be allowed to assist a case which might frustrate or have
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- the appearance of frustrating a fund raising facility allowed for by the Scheme which Mr Bennett and his law firm had helped to set up.
56 Put shortly, I am of the view that Mr Bennett and Bennett & Co, as solicitors for, and as advisers to the former responsible entity, being persons who were intimately connected with the establishment of the Scheme, ought not to play any part in any attempt to obstruct its operations, including the recovery of additional fees, being a matter allowed for from the outset by the documentation underpinning the Scheme. They are placed in an untenable position of conflict and they ought not to be allowed to take a hostile position in relation to the continuance of the Scheme in its existing form. A restraining order of the kind applied for is properly allowable so that the appearance of justice is preserved.
Summary
57 I am persuaded that a restraining order should be made in the terms applied for. I will hear from the parties as to whether any further orders or directions are required.
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