Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd
[2002] VSC 324
•14 August 2002
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 2048 of 2002
| AUSTRALIAN LIQUOR MARKETERS PTY LTD | Plaintiff |
| v | |
| TASMAN LIQUOR TRADERS PTY LTD | Defendant |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 19 JULY 2002 | |
DATE OF JUDGMENT: | 14 AUGUST 2002 | |
CASE MAY BE CITED AS: | AUSTRALIAN LIQUOR MARKETERS PTY LTD v TASMAN LIQUOR TRADERS PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2002] VSC 324 | |
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LEGAL PRACTITIONERS – Fiduciary duty of loyalty – Solicitors acting for client in one proceeding in Queensland and against the same client in unrelated proceeding in Victoria – No confidential information disclosed – Undertakings by Victorian solicitors not to seek any information about Queensland proceeding – Injunction refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R.B.C. Wilson | Deacons Lawyers |
| For the Defendant | Mr M.J. Stirling | Hardys Solicitors |
HIS HONOUR:
This is an application by the defendant, by summons dated 28 June 2002, for an order that Deacons Lawyers, the solicitors for the plaintiff in this proceeding, be restrained from further acting as the solicitors for the plaintiff.
The application was supported by an affidavit sworn on 15 July 2002 by Glen William Skelton, the Manager of the defendant. The plaintiff relied on two affidavits both sworn by Bruce Akiva Goldman, the partner of Deacons who has the conduct of this proceeding on behalf of the plaintiff. Mr Goldman's two affidavits were sworn on 15 and 19 July 2002 respectively.
The defendant, Tasman Liquor Traders Pty Ltd ("TLT"), is a wholesale liquor supplier, operating its business from premises in Cheltenham, Victoria. In August 2001 TLT was served with a claim by Venacorp Pty Ltd (In Liquidation), which had been issued in the District Court of Queensland ("the Queensland proceeding"). This was a preference action seeking repayment of a sum of just over $40,000. TLT instructed Mr Robert Hession of the firm of Hardys in Dandenong to act as its solicitors in respect of the Queensland proceeding. In turn, Hardys engaged Deacons to act as TLT's local solicitors in the Queensland proceeding. Prior to the issuing of the Queensland proceeding, TLT had retained other solicitors in both Victoria and Queensland in relation to the dispute with Venacorp Pty Ltd (In Liquidation).
According to Mr Skelton's affidavit, by letter dated 19 September 2001:
"Hardys provided a copy of the Statement of Claim with various instructions to Deacons Queensland."
An authority from TLT was sent to its former solicitor in Queensland to forward TLT's file to Deacons. Instructions for the defence were sought by Deacons from Hardys and on 24 September 2001 TLT's defence was filed in the Queensland proceeding. In early October 2001, Hardys received a bill from Deacons for the work performed for TLT. Subsequently, Hardys instructed Deacons to provide advice to TLT in relation to the Queensland proceeding. By letter dated 11 January 2002, Deacons provided such advice to Hardys. A further bill was then sent to Hardys by Deacons. Both bills were paid in late February 2002. In May and June 2002 there was correspondence between Deacons and Hardys concerning discovery. A third bill was also sent to Hardys by Deacons. All of the bills were addressed to Hardys.
In the meantime, on 25 October 2001 Mr Goldman had written to Hardys notifying them that Deacons had been retained by Australian Liquor Marketers Pty Ltd ("ALM") in regard to the finalisation of a new sale of business agreement then being negotiated by ALM and TLT. It appears from the pleadings in this proceeding that in or about January 2002 the negotiations between the parties broke down. The statement of claim in this proceeding, which was commenced on 7 June 2002, alleges a repudiation by the defendant by letter dated 9 January 2002.
After service of the writ in this proceeding, Mr Skelton raised with Mr Hession his concern that Deacons were acting for the plaintiff in this proceeding against the defendant at the same time as they were acting for the defendant in the Queensland proceeding. This concern was communicated to the Melbourne office of Deacons by telephone and confirmed by letter dated 13 June 2002.
By letter dated 14 June 2002, Mr Goldman of Deacons wrote to Hardys advising that "[i]n our opinion there is no conflict of interest." After setting out the limit of the Melbourne office's knowledge of the Queensland proceeding and the view that it was "entirely unrelated to the matters which are the subject of the Victorian proceeding", the letter continued:
"8.There has been no exchange between the Deacons' Brisbane office and Deacons' Melbourne office of any confidential information of Tasman Liquor Traders Pty Ltd relevant to the matters which are the subject of the Victorian proceeding or otherwise relevant to the Deacons' Melbourne office continuing to act for Australian Liquor Marketers Pty Ltd. Furthermore, we assure you and your client that there will not be any such exchange.
9.The persons in the Melbourne office who will be handling the matter for the plaintiff in Melbourne are currently confined to Mr Goldman and Ms Thomson. Any other person in Deacons' Melbourne office who may act in the matter will be appropriately vetted to ensure that they too have no conflict of interest and no knowledge of any information confidential to Tasman Liquor Traders Pty Ltd arising from Deacons' Queensland office acting in connection with the Queensland proceeding.
10.Deacons has expressly limited its retainer with Australian Liquor Marketers Pty Ltd to provide that Deacons is not required to make use of any information confidential to Tasman Liquor Traders Pty Ltd that might have been or might in the future be disclosed to Deacons' Brisbane office in connection with it acting as agent in the Queensland proceeding.
11.If, notwithstanding the above, Tasman Liquor Traders Pty Ltd does not wish the Deacons' Brisbane office to continue to act as agent in the Queensland proceeding could Hardys please notify the Deacons' Brisbane office so that arrangements can be made for the file to be transferred to another firm in Brisbane."
By letter dated 17 June 2002, Hardys took exception to Deacons "in effect threaten[ing] to cease to act for our client in the Queensland proceedings in the event that it does not agree to your firm acting against it in the Victorian proceedings." Deacons responded by letter dated 19 June 2002:
"There is no question of disloyalty to Tasman Liquor Traders Pty Ltd ('Tasman Liquor Traders') on Deacons' part. A member of the firm in the Brisbane office acts for, and in the best interests of, Tasman Liquor Traders (instructed by your firm) in the Queensland proceedings, and will continue to do so unless requested not to by your client. We have provided assurances that members of the Deacons' Melbourne office have not received any confidential information in regard to your client from the Brisbane office, and provided assurances that no such information will be passed between the offices."
Mr Skelton said in his affidavit that he and his fellow director took the view that it was "extraordinary that Deacons, as a national firm, can see fit" to act for the defendant in the Queensland proceeding and "then accept instructions" from the plaintiff to act for it against the defendant in this proceeding. Mr Skelton continued:
"I consider this position to be unacceptable as a client paying a lawyer for professional services … I consider that the very least that [TLT] is entitled to expect is that Deacons would remain faithful to [TLT] to the extent of not acting for other parties against [TLT] in legal proceedings."
In his first affidavit Mr Goldman said that on 12 June 2002 he became aware that "Hardys had separately retained the Deacons Queensland office to act as its agent in a Queensland proceeding." He also said that other than the court documents attached to his affidavit he had "no knowledge of the Queensland proceeding", that he had not "conveyed any confidential information regarding this proceeding" or the matters between ALM and TLT preceding this proceeding "to any person in Deacons Queensland office", and that he had not been provided with "any confidential information regarding the Queensland proceeding from any person in the Deacons Queensland office." Accordingly, Mr Goldman expressed the view that there was "no conflict of interest" in Deacons acting for the plaintiff in this proceeding.
In his second affidavit Mr Goldman deposed that although he had read Mr Skelton's affidavit, he had not read any of the exhibits to that affidavit. The exhibits had been sealed in an envelope "in order to avoid any inadvertent perusal of these documents."
Mr Stirling of counsel, who appeared for the defendant, conceded that this proceeding and the Queensland proceeding were unrelated. He also conceded that at this stage there was no question of any confidential information having been obtained by either the Brisbane or Melbourne offices of Deacons. In any event, even if a partner of Deacons in the Brisbane office had obtained some confidential information, it would not necessarily be imputed or attributed to the relevant partner in the Melbourne office.[1]
[1]Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 at 235 per Lord Millett; Unioil International Pty Ltd v Deloitte Touche Tohmatsu(No. 2) (1997) 17 WAR 98 at 110-111 per Ipp J.
What Mr Stirling did submit was that it was a breach of the duty of loyalty owed by a firm of solicitors to their client for the solicitors to act in one matter on behalf of their client whilst at the same time acting for another party in a proceeding brought against their client. He further submitted that the public perception of disloyal conduct by the solicitors was an important consideration for the Court in deciding whether or not to restrain the solicitors from acting against their client.
That a solicitor owes a duty of loyalty to his or her client is now well established.[2] Mr Stirling referred me to a number of authorities in support of his submission that Deacons' conduct was a breach of the duty of loyalty which they owed as solicitors to their client, TLT. However, only one of those authorities, as I read them, goes as far as holding that it is a breach of a solicitor's duty to act at the same time both for and against the one client in unrelated matters.
[2]See the authorities listed by Brooking JA in Spincode Pty Ltd v Look Software Pty Ltd [2001] VSCA 248 at [42] footnote 36.
In Wan v McDonald[3] Burchett J referred to a solicitor's duty to safeguard confidential information of the client and continued:
"… But there are at least two other aspects of the problem to which attention has more recently been drawn; a solicitor's duty of loyalty, which cannot be treated as extinguished by the mere termination of the period of his retainer, and the important consideration of public policy which gives a special quality to the relationship of solicitor and client that the law will not generally permit to be stained by the appearance of disloyalty.
It is obvious that, at least in the application of these principles to particular circumstances, there is likely to be a great difference between cases such as Rakusen and D & J Constructions, on the one hand, and cases, on the other, where the one solicitor, having acted for both parties, seeks to act against one of his former clients, and in the interest of a preferred client, in litigation arising out of the very matter in which he himself acted for both. In my opinion, it could only be in a rare and very special case of this latter kind that a solicitor could properly be permitted to act against his former client, whether or not any real question of the use of confidential information could arise."[4] (Emphasis added.)
[3](1991) 33 FCR 491
[4](1991) 33 FCR 491 at 513
This decision was referred to with approval by Batt JA in McVeigh v Linen House Pty Ltd.[5] In that case his Honour held that a firm of solicitors should not act for a company in an appeal "… when regard is had to the appearance created by the fact that they would be solicitors on the record …" for the company in an appeal by the solicitors' former clients, the company's administrators, concerning their administration[6]. That is, the solicitors were seeking to act against their former clients in the same or a related matter.
[5][1999] 3 VR 394 at 398
[6][1999] 3 VR 394 at 400
In the leading case of Spincode Pty Ltd v Look Software Pty Ltd[7], Brooking JA held that:
"the equitable obligation of 'loyalty' is not observed by a solicitor who acts against a former client in the same matter."[8] (Emphasis added.)
His Honour stated that throughout he comprehended in 'the same matter' "a closely related matter."[9] This equitable obligation of "loyalty", according to Brooking JA:
"… forbids not only the concurrent holding of two inconsistent engagements by different clients in the same matter but also the holding of two successive inconsistent engagements … By 'inconsistent' I mean only that the solicitor who formerly acted for one client in the same matter now acts in that matter for a client with an interest adverse to that of the former client."[10] (Emphasis added.)
[7][2001] VSCA 248
[8][2001] VSCA 248 at [53]
[9][2001] VSCA 248 at [53] footnote 52
[10][2001] VSCA 248 at [53]
Similar statements are to be found in two decisions of JD Phillips J, as his Honour then was, in Macquarie Bank Ltd v Myer[11] and Holdsworth v MR Anderson & Associates Pty Ltd[12]. In the former case, his Honour stated:
"Obviously the court will not readily countenance a solicitor who has acted for one client accepting a retainer from another to act against that former client in the same matter or in a related matter (although, as the cases demonstrate, there cannot be said to be any absolute rule)."[13] (Emphasis added.)
[11][1994] 1 VR 350
[12]Unreported, 26 August 1994
[13][1994] 1 VR 350 at 359
The decision of Mandie J in Westend Entertainment Centre Pty Ltd v Equity Trustees Ltd[14], which Mr Stirling relied on, is the only authority of which I am aware, which holds that the solicitor's duty of loyalty is applicable to a situation not involving the same or a related subject matter. In that case, Deacons had acted for approximately six years on behalf of the previous and present accountancy firms of Mr Cerantonio in a Supreme Court proceeding. In the later proceeding, Deacons acted for the defendant against a company of which Mr Cerantonio was the managing director and for which his firm acted as its accountants. After referring to the solicitor's duty of loyalty and the need to avoid the appearance of disloyalty, Mandie J continued:
"That principle is of particular application in cases where a solicitor seeks to act against a former client in litigation arising out of or in relation to the same subject-matter. This case does not involve that aspect. However, Mr Cerantonio is, through his accountancy companies, in substance the client (or soon to be the former client) of Deacons in a proceeding in which serious allegations were made against him. His sensitivity can be well understood in circumstances where it would seem that Deacons on behalf of the defendant is now likely to be the channel for other potentially serious allegations to be made against him and both cases thus involve questions of the propriety of his conduct in a commercial context. I have concluded that for the reason of appearance of disloyalty the injunction sought would have been granted against Deacons had they not removed themselves from the record."[15]
Undoubtedly, it was appropriate in that case to extend the solicitor's duty of loyalty. Similar issues of conduct and credit were likely to be raised in otherwise unrelated proceedings. That is not this case. The two proceedings are truly unrelated.
[14][1999] VSC 514
[15][1999] VSC 514 at [27]
During the course of the argument, I asked Mr Stirling whether he was suggesting that Deacons would not be loyal to the defendant in acting on its behalf in defending the Queensland proceeding. He said that he was not putting the application on the basis of perceived misuse by Deacons of their position or any complaint about their conduct other than in acting for the plaintiff against the defendant in this proceeding. However, Mr Stirling did submit that as a result of the divided loyalties, the defendant could not confide in its Queensland solicitors without risking such information being passed on to the Melbourne office of Deacons to the defendant's detriment in respect of this proceeding. As I have said, Mr Stirling did not suggest that there was anything in the subject matter of the Queensland proceeding itself which could be regarded as confidential or sensitive. But what he did submit was that there was a risk that important matters, of the kind described by Gillard J in Yunghanns v Elfic Ltd[16] as the "getting to know you" factors, could be communicated to the Melbourne office of Deacons. As Gillard J said:
"… the relationship between solicitor and client may be such that the solicitor learns a great deal about his client, his strengths, his weaknesses, his honesty or lack thereof, his reaction to crisis, pressure or tension, his attitude to litigation and settling cases and his tactics. These are factors which I would call the 'getting to know you' factors. The overall opinion formed by a solicitor of his client as a result of his contact may in the circumstances amount to confidential information that should not be disclosed or used against the client."[17]
[16]Unreported, 3 July 1998
[17]Unreported, 3 July 1998 at pp.10-11
The other point emphasised by Mr Stirling was that the perception of the community would be that it was "a bit rich" for Deacons to be acting both for and against TLT at the same time.
Mr Wilson of counsel, who appeared for the plaintiff, submitted that there was no reason to restrain Deacons from continuing to act for the plaintiff because there was no reason to hold that Deacons could not properly represent both clients in the respective proceedings. He submitted that because this was potentially a conflict of duty with duty it was important to consider the scope of Deacons' retainer in the Queensland proceeding. There was some dispute between the parties about whether it was correct to describe that retainer as one of acting in the Queensland proceeding for the defendant, or only as the local agent for the defendant's Victorian solicitors, Hardys. It does not really matter what description is used, in my opinion, because it is clear that Deacons in Queensland were not simply acting as a post box in the Queensland proceeding and would probably be dealing personally with the defendant if that dispute went to trial. Mr Wilson's point was that, nevertheless, because the two proceedings were not related there was no conflict between the duties owed to the respective clients. He submitted that there was no restriction on Deacons putting at its client's disposal all of its skill and knowledge in respect of the Queensland proceeding.
In my opinion, it would not be correct to conclude that there could be no conflict between the duties owed by Deacons to their respective clients. After all, Deacons quickly recognised the potential for conflict, once the question had been raised, by expressly limiting its retainer with ALM "to provide that Deacons is not required to make use of any information confidential to [TLT] that might have been or might in the future be disclosed to Deacons' Brisbane office in connection with it acting as agent in the Queensland proceeding" (see paragraph 7 above). By limiting its retainer with ALM, Deacons was attempting to avoid what otherwise could have been a conflict of duties.
Further, there remains the very real question of the risk of the "getting to know you" factors being communicated. An example discussed in argument was that an unwillingness to give evidence by the defendant's principal witness in the Queensland proceeding might be very useful information for the plaintiff in this proceeding. Mr Wilson's answer to this was that appropriate safeguards had been put in place and, if necessary, could be further strengthened.
Mr Stirling submitted that in a case based on a breach of the duty of loyalty, the applicant did not have the onus of showing that there was a "real and sensible possibility"[18] of any misuse of confidential information. It was enough to show that the solicitor's undivided duty of loyalty had been breached. I do not agree with that submission. In my opinion, one cannot conclude that there has been a breach of the duty of loyalty by a solicitor acting for two clients without examining the extent to which, if at all, the interests of the two clients are adverse to each other. The more removed the interests of the two clients are from being adverse to each other, the lower the possibility of any misuse of confidential information. Further, in my opinion, in every case involving an application to restrain a solicitor from acting, it is a question of balancing the competing considerations – one party's right to be represented by solicitors of its choosing[19] against another party's right not to have its (former) solicitors acting against it in the same or substantially the same proceeding.
[18]See Farrow Mortgage Services Pty Ltd (In Liq.) v Mendall Properties Pty Ltd [1995] 1 VR 1 at 5 per Hayne J.
[19]See Yunghanns v Elfic Ltd, unreported, 3 July 1998 at p.10 per Gillard J.
Taking into account all of the circumstances of this case, including in particular that the two proceedings are truly unrelated; that there is no question of any confidential information having been obtained by Deacons; the nature of the disputes involved in the two proceedings; the fact that one proceeding is being handled in the Brisbane office of Deacons and the other in the Melbourne office; that Deacons in the Queensland proceeding is acting on the instructions of Hardys, TLT's own solicitors; and the assurances given by Deacons that appropriate safeguards would be put in place, I have reached the conclusion that the balance favours there being no restraint on Deacons continuing to act for the plaintiff in this proceeding. This is because I have concluded that, provided certain conditions are met, there is no "real and sensible possibility" of any misuse of any "getting to know you" factor, which in the end was the only concern which I consider the defendant could legitimately raise. I am also of the view that a member of the public knowing all of these circumstances would accept that it was not inappropriate to allow the plaintiff in this proceeding to retain the solicitors of its choice.
Although concerns have been expressed in other cases about the efficacy of information barriers or "Chinese walls"[20], I am satisfied that adequate safeguards can be put in place in this case. Deacons have already given written assurances to TLT (see paragraphs 7 and 8 above) in terms which I consider were appropriate and adequate. Nevertheless, without in any way suggesting that I doubt the reliability of those assurances, I consider that Mr Goldman and Ms Thomson, the solicitors in the Melbourne office of Deacons who have the carriage of this proceeding on behalf of the plaintiff, should give undertakings to the Court. Subject to hearing from counsel I would propose undertakings to the following effect:
[20]For a most colourful description of such concerns, see Yunghanns v Elfic Ltd, unreported, 3 July 1998 at p.28 per Gillard J.
(a)That he/she has no knowledge of any confidential information of TLT relevant to the subject matter of this proceeding;
(b)That he/she will not request or require any member of the Brisbane office of Deacons to disclose to him/her any information concerning the Queensland proceeding;
(c)That he/she will not discuss any aspect of the Queensland proceeding or this proceeding with any member of the Brisbane office of Deacons, nor permit any such discussion to take place in his/her presence;
(d)That notwithstanding the above, should he/she become aware of any further information concerning the Queensland proceeding, he/she will immediately inform TLT's solicitors of that fact; and
(e)That any other solicitor who assists with the handling of the plaintiff's case in this proceeding will give a similar undertaking to the Court.
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