Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd - [2013] SASC 180

SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
BLONG UME NOMINEES PTY LTD & ANOR v SEMWEB NOMINEES PTY LTD & ORS
[2013] SASC 180
Reasons of Judge Dart a Master of the Supreme Court
15 November 2013
PROCEDURE - MISCELLANEOUS PROCEDURAL MATTERS
Plaintiffs' application seeking orders restraining Ouwens Lawyers from continuing to act for the second and third defendants – whether the Court should exercise its inherent supervisory jurisdiction over its officers to restrain Ouwens Lawyers from acting.
Held: In the interests of justice, order that Ouwens Lawyers be restrained from continuing to act for the second and third defendants in the action.
Kallinicos and Another v Hunt and Others (2005) 64 NSWLR 561, applied.
Bowen v Stott [2004] WASC 94; Chapman v Rogers; ex parte Chapman [1984] 1 Qd R 542; Coppola & Anor v Nobile & Anor (2012) 279 LSJS 543; Giannarelli v Wraith (1988) 165 CLR 543; Kooky Garments Ltd v Charlton [1994] 1 NZLR 587; Miles v Hughes Unreported, Supreme Court of Western Australia, Parker J, 11 November 1998, Library No 990009; Mitchell v Burell [2008] NSWSC 772, considered.

BLONG UME NOMINEES PTY LTD & ANOR v SEMWEB NOMINEES PTY LTD & ORS
[2013] SASC 180
JUDGE DART:

In this application the plaintiffs seek to enjoin a firm of solicitors, Ouwens Lawyers, from acting for the second and third defendants.
Mr Ouwens is a solicitor and the sole principal of the firm of Ouwens Lawyers. He is the fifth defendant in these proceedings, a director of the first defendant, Semweb Nominees Pty Ltd (“Semweb”), and also a director of the third defendant, Ouwens Corporate Services Pty Ltd (“OCS”). That company is the trustee of the Ouwens Corporate Services Trust. Mr Ouwens is one of two specified beneficiaries of the Trust.
It is Mr Ouwens’ personal interest in the subject matter of the litigation which the plaintiffs say make it inappropriate for Ouwens Lawyers to act in this matter.
Background
In 2002 three professional men, Mr Nicholas Orfanos, Mr Willem Ouwens and Mr Michael Michaels decided that they would purchase a building together as an investment. The intention of each of them was that their professional firms would occupy space in the building.
A suitable building was identified, being the building at 147 Frome Street Adelaide, known as “The Stables”. A contract was entered into on 26 September 2002 to purchase that property. The purchase price including settlement costs was $1,385,819.72. Each of the three investors contributed $155,273.24 to the acquisition. The balance of the monies required to settle were secured by a mortgage from Westpac Banking Corporation.
A Deed of Trust dated 25 November 2002 provided for Semweb to become the registered proprietor of the property at settlement. It holds the property on trust in equal one third shares for each of the three investors.
Each of the investors nominated the trustee of a trust to hold their interest in the building. Mr Orfanos nominated Orfanos Nominees Pty Ltd, the second plaintiff, which was trustee of the The Stables Trust. Mr Michaels nominated the second defendant, Melrob Investments Pty Ltd (“Melrob”), and Mr Ouwens nominated OCS.
On the same date that the Deed of Trust was executed a Joint Venture Deed was executed. Each of the investors’ Trusts became parties to a joint venture.
The three professional firms moved into the property. Two of those, Ouwens Lawyers and Sims Richmond, still occupy the property. By late 2006 the relationship between Mr Orfanos and Mr Ouwens had deteriorated to such an extent that Mr Orfanos wished to leave the joint venture and sell the one third interest in the property held by his Trust. His professional practice vacated the property in late 2007. It appears that Mr Orfanos has been attempting to reach a resolution of this matter since that time.
Each of the three men is a director of Semweb. Mr Orfanos has not attended directors’ meetings of that company since December 2007 because of the breakdown of the relationship with Mr Ouwens. He attempted to appoint a solicitor, Mr Ian Edgley, as an alternate to represent his interests, however the other directors would not permit that.
These proceedings were instituted on 3 June this year. The application seeking to enjoin Mr Ouwens and his firm from acting (FDN14) was filed on 16 July.
The first plaintiff, Blong Ume Nominees Pty Ltd, is said now to be the trustee of the Stables Trust. The original trustee was the company mentioned above, Orfanos Nominees Pty Ltd. The defendants took the point that Blong Ume Nominees Pty Ltd was not properly appointed as trustee of The Stables Trust. In response, and as a matter of caution, an application was made to join Orfanos Nominees Pty Ltd as second plaintiff. The joinder was not opposed and an order to that effect has been made. Accordingly, there are now two plaintiffs.
The plaintiffs’ pleaded case
It is clear that the Orfanos interests wish to realise the value of the one third ownership of the property. They have been attempting for a number of years to reach an agreement to that effect. No agreement has been able to be reached.
The position of the defendants is that the plaintiffs should go into the marketplace and sell the one third interest in the property.[1] The plaintiffs regard the defendants’ position as impractical and, for that reason, have brought these proceedings.
[1] Transcript at page 8, line 12.
The principal pleaded contentions of the plaintiffs are that:
1The joint venture was terminable on reasonable notice and has been terminated effective 31 December 2012 by the giving of notice;
2In the alternative, the joint venture gave rise to a partnership between the parties to the joint venture, namely the one or other of the plaintiffs and the second and third defendants;
3Semweb owed fiduciary duties to each of the joint venture parties;
4Each of the joint venturers as joint venture parties, or alternatively as partners, owed fiduciary duties to each other;
5Mr Michaels and Mr Ouwens owed fiduciary duties to Orfanos Nominees, and
6Orfanos Corporate Services moved out of the property in December 2007 and since that time Ouwens Lawyers and Sims Richmond have continued to occupy it, without any written agreement:
a.on a rental that is less than fair market rent, and
b.in circumstances where Ouwens Lawyers and Sims Richmond do not properly reimburse Semweb for expenses and outgoings incurred as a result of their use and occupation of the property.
It is then pleaded that by reason of the tenants Ouwens Lawyers and Sims Richmond failing to pay fair market rent and proper outgoings that:
1Semweb has recorded a trading loss each financial year;
2Semweb has breached the fiduciary duties owed to the plaintiffs;
3Melrob and OCS have likewise breached fiduciary duties they owed the plaintiffs, and
4Mr Michaels and Mr Ouwens have also breached fiduciary duties owed to the plaintiffs and have, in particular, gained an advantage for Ouwens Lawyers and Sims Richmond to the detriment of the plaintiffs.
On 10 September 2012 the plaintiffs gave written notice of termination of the joint venture effective 31 December 2012. That is said to have brought the joint venture to an end.
In the alternative, the plaintiffs say that the notice has the effect of dissolving the alleged partnership within the meaning of the Partnership Act 1891.
The remedies sought by the plaintiffs include:
1A declaration that the joint venture could be terminated on reasonable notice, that the first plaintiff gave reasonable notice and therefore the joint venture was validly terminated on 31 December 2012;
2In the alternative, a declaration that the joint venture was a partnership and that the partnership was dissolved on 31 December 2012;
3An order for the sale of the property and the distribution of the proceeds;
4Equitable compensation for breach of fiduciary duties by the first, second, third, fourth and fifth defendants, and
5An order for an account.
The matters pleaded by the plaintiffs are denied by the defendants. In particular, the defendants deny that the joint venture was terminable on reasonable notice and therefore deny that the joint venture has or did terminate on 31 December 2012. It is also denied that there was a partnership and that there has been any breach of fiduciary duty.
It is not necessary for the disposal of this application to consider the allegations and the responses in any detail. The matters set out above simply serve to illustrate the issues which will be in play on a trial of the action.
The legal test
This Court, in recent times, has considered the issue of enjoining solicitors from acting on a number of occasions. In one such case, Coppola & Anor v Nobile & Anor,[2] Stanley J set out the categories of cases in which a court may restrain a solicitor from acting. They are as follows:
1Where a solicitor seeks to act, or acts against a former client, creating a risk that a solicitor might use, or be bound to use, information which is subject to a duty of confidence to a former client;
2Where a solicitor seeks to act, or acts against a former client in circumstances which give rise to a breach of duty of loyalty owed by the solicitor to his client as a fiduciary, and
3In circumstances where the court considers, having regard to the supervisory jurisdiction it exercises over solicitors as officers of the court, that it is necessary to restrain the solicitor from acting where the conduct of the solicitors was so offensive to common notions of fairness and justice they should as officers of the Court be restrained from acting.
[2] (2012) 279 LSJS 543 at [20].
It is only the third category that arises in this matter. Again, there are many authorities dealing with the Court’s inherent jurisdiction to restrain solicitors, as officers of the Court, from acting in a matter.
In Kallinicos and Another v Hunt and Others[3]Brereton J, after a detailed consideration of the relevant authorities, held that the authorities established a number of principles in relation to the restraining of solicitors from acting, which were as follows:[4]
[3] (2005) 64 NSWLR 561.
[4]    Kallinicos and Another v Hunt and Others (2005) 64 NSWLR 561at [76].
The foregoing authorities establish the following:
·     During the subsistence of a retainer, where the court's intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court's jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests.
·     Once the retainer is at an end, however, the court's jurisdiction is not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure).
·     After termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court's intervention, such duty having come to an end with the retainer.
·     However, the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice. Prince Jefri Bolkiah does not address this jurisdiction at all. Belan v Casey and British American Tobacco Australia Services Ltd are not to be read as supposing that Prince Jefri Bolkiah excludes it. Asia Pacific Telecommunications Ltd appears to acknowledge its continued existence.
·     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.
·     The jurisdiction is to be regarded as exceptional and is to be exercised with caution.
·     Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause.
·     The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief.
[Citations omitted.]
Kallinicos dealt with the sale of a number of pieces of real property. A solicitor had acted for one of the parties in a number of the settlements. The plaintiff in the proceedings alleged that the defendants had misapplied the proceeds of sale from the settlements. The Court restrained the solicitor from acting on the basis that he would be a material witness in the litigation and that he had an interest in how the evidence turned out because there was a potential for him to be exposed to suit.
It was submitted to Brereton J that because the defendants would be represented by senior and junior counsel there was no need to restrain the solicitor. However, his Honour found that that did not alter the fundamental problem, which was that the solicitor’s independence and objectivity as a solicitor would be compromised.[5]
[5] Kallinicos and Another v Hunt and Others (2005) 64 NSWLR 561, at [91].
In its inherent jurisdiction the Court is dealing with circumstances where a conflict arises between a solicitor’s duty to the Court and his or her duty to a client. In Giannarelli v Wraith[6]Mason CJ made clear that a practitioner’s duty to his or her client is subject to the overriding duty to the Court.
[6] (1988) 165 CLR 543 at 555.
In Kooky Garments Ltd v Charlton[7]Thomas J said that the integrity of the judicial process is undermined if solicitors or counsel do not possess the objectivity and independence which their professional responsibilities and obligations to the court require. If the objectivity is lacking, the courts not only may intervene, but in all probability should intervene.
[7] [1994] 1 NZLR 587 at 590.
In Chapman v Rogers; ex parte Chapman[8]Campbell CJ said it was generally unwise for a solicitor who is likely to be a material witness to continue acting either personally or through his or her firm.
[8] [1984] 1 Qd R 542 at 545.
In the case of Mitchell v Burell[9]Brereton J again considered the issue of restraining a solicitor from acting, exercising the Court’s inherent jurisdiction to do so. His Honour stated that not in every case where a solicitor will be a witness would he be restrained, but the line was crossed when the solicitor had a personal stake in the outcome of the proceedings. That personal stake may be financial, but it might also involve a personal reputational interest of the solicitor, if his or her conduct and integrity came under attack and review in the proceedings.
[9] [2008] NSWSC 772 at [20].
Relevantly for present purposes, his Honour was called upon to determine whether, if the solicitor in question was restrained, another solicitor in the firm could continue to act. His Honour said that most cases pointed to the view that the law treats a firm of solicitors as a single entity, so that if one partner is disqualified, the firm should not act.[10]
[10] Mitchell v Burell [2008] NSWSC 772 at [25].
That is particularly pertinent here. Mr Ouwens says he does not act for the second and third defendants but it is his firm through another solicitor that acts. I have approached the matter on the basis that if Mr Ouwens would be restrained from acting, then his firm should likewise be restrained. He is the sole principal of the firm and no relevant distinction can be drawn between Mr Ouwens and the firm.
The test to be applied in the inherent jurisdiction is whether a fair-minded and reasonably informed observer would think that the independence and objectivity of the solicitor, as a solicitor, would be compromised.[11]
[11] Kallinicos and Another v Hunt and Others (2005) 64 NSWLR 561 at [91].
A concern, of course, is that a solicitor, notwithstanding using best efforts to be impartial and objective, might adjust his or her evidence in a way to procure a result that suited his or her interests.[12]
[12] Bowen v Stott [2004] WASC 94 at [53].
In Miles v Hughes[13] Parker J said the heart of the matter is the desirability of avoiding any suggestion of real or apparent conflict between the duty owed by a practitioner to the court and the obligation of the practitioner to the client or to the self interest of the practitioner.
[13] Unreported, Supreme Court of Western Australia, Parker J, 11 November 1998, Library No 990009 at page 6.
In summary, the effect of the authorities is that a practitioner is not to act in a matter where, by reason of either personal reputational or financial interests, the practitioner’s independence and objectivity is likely to be impaired, thereby creating a conflict with the practitioner’s overriding duty to the court.
The Ouwens Interests
It is necessary as a first step to consider what the interests of Mr Ouwens and his firm are in the subject matter of the litigation. A summary of the interests of Mr Ouwens and his firm is as follows:
1Mr Ouwens has a personal reputational issue. There is an allegation that in his capacity as director of Semweb he acted in breach of duty to procure a benefit for Ouwens Lawyers;
2Mr Ouwens is one of two specified beneficiaries of the Trust of which the third defendant is Trustee. That Trust holds one third of the property. Mr Ouwens is a director of the Trustee. An order is sought by the plaintiffs that the building be sold and the surplus proceeds distributed equally to the three investors. The third defendant opposes that order;
3Mr Ouwens has an interest in the tenure of his firm in the building. It occupied the building pursuant to a written agreement until 2007. Since 2007 there has been no formal written agreement in relation to occupation of the building. The tenure of Ouwens Lawyers and its right to continue to occupy the building may be in issue, and
4The amount of rent properly to be paid by Ouwens Lawyers is in issue. The firm, and its principal, has a direct financial interest in that issue.
It is clear that Mr Ouwens is likely to be a material witness and that he has a personal financial interest in the outcome of the action going far beyond the usual interest of a solicitor. He also has a reputational interest in that he is said to have acted in breach of duty as a director of Semweb; a fact he denies.
Consideration of the issues
For the reasons mentioned in the preceding paragraph, it appears that Ouwens Lawyers ought not be acting in this matter. However, it was submitted there are a number of matters which ameliorate the position and which it is submitted should lead the Court, in the exercise of its discretion, to dismiss the plaintiffs’ application.
On the plaintiffs’ application it was counsel for the second and third defendants, the parties for whom Ouwens Lawyers act, who opposed the making of the order. A number of grounds were advanced, which were that:
1Mr Ouwens in his capacity as the fifth defendant is already represented by an independent firm of solicitors;
2The second and third defendants should be permitted to choose their own solicitors, and they wish to retain Ouwens Lawyers;
3Considerable costs will be incurred in retaining new solicitors and the costs already incurred will be thrown away;
4The plaintiffs have been guilty of delay in making the application;
5A solicitor at Ouwens Lawyers other than Mr Ouwens has the conduct of the file for the second and third defendants, and
6The second and third defendants have retained independent counsel.
I deal with each issue in order.

The first point raised is that because Mr Ouwens, in his capacity as a defendant, is already represented by independent solicitors, the Court should be satisfied that no issues arise in respect of Ouwens Lawyers acting for the second and third defendants.
It was submitted that Mr Ouwens would receive independent legal advice and, as a result of that advice, could be expected to act appropriately.[14] To some extent the submission appears to confuse Mr Ouwens’ two capacities in this litigation. One of those is as defendant. The other is as principal of the firm of solicitors on file for the second and third defendants. The mere fact that Mr Ouwens is a defendant in the proceedings is in itself a reason why his firm ought not act for the second and third defendants.
[14] Transcript at page 70, line 22.
The fact that he is separately represented as a defendant does not deal directly with the issue of whether by reason of his personal interest in the outcome of the litigation Mr Ouwens is in a position of conflict between his duty to the Court as a solicitor and his duty to his clients, the second and third defendants. The fact that he is separately represented as a defendant does not, in my view, detract from his duty as an officer of the Court, nor to the appearance of a conflict with that duty.
The next two points are related. The first proposition is that it is an important right of litigants to be able to choose their own solicitor. That is no doubt correct. It is also said that if Ouwens Lawyers are restrained from acting, considerable costs will be thrown away as a result of having to retain new solicitors. The authorities make clear that each of these two grounds is a relevant consideration.[15]
[15] Kallinicos and Another v Hunt and Others (2005) 64 NSWLR 561 at [92].
The cases also make clear, however, they are not considerations of the first order.[16] Whilst they are matters that a court must take into consideration in the exercise of its discretion, they are not considerations of such weight that they would prevent the Court from restraining a solicitor from acting where it ought to do so.
[16] Kallinicos and Another v Hunt and Others (2005) 64 NSWLR 561 at [95]; Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 590.
If the relevant facts point to the necessity of a solicitor being restrained from acting for a client on the principles set out above, the fact that that means a litigant will not be able to choose their own solicitor or will incur additional costs are not factors which would prevent the court from restraining the solicitor.
It is also submitted that the plaintiffs have been guilty of delay in making the application. The application itself was filed about six weeks after the commencement of proceedings. Delay, like the two factors mentioned above, is a factor to be considered in determining how the Court’s discretion is to be exercised. Again, however, if a court finds that it is inappropriate for a solicitor to act, it is difficult to envisage a case where the Court would nonetheless permit the solicitor to continue acting simply because of a delay in the bringing of an application.
In any event, there is no relevant delay in the present case. There can be no serious criticism of the plaintiffs bringing the application within weeks of commencement of the proceedings.
The submission of the second and third defendants on delay is that there has been an ongoing dispute for about six years and the parties have been corresponding during that period. Ouwens Lawyers have acted for the interests of the defendants during that period without complaint, it is said.
In my view, that is an entirely different matter. There was at that time no relevant litigation. It is the solicitor’s duty to the court in litigation which enlivens the Court’s inherent jurisdiction to restrain a solicitor. That jurisdiction did not come into existence until the commencement of these proceedings on 3 June this year. The delay point does not assist the second and third defendants.
It is then said that another solicitor at Ouwens Lawyers has the conduct of the matter and that Mr Ouwens himself does not directly have the conduct of the matter. It was conceded, however, that he does give instructions on behalf of the third defendant.[17]
[17] Transcript page 73, line 23.
Mr Ouwens is the sole principal of the firm. All of the other solicitors of the firm are employees. There is no affidavit material as to how the matter is being handled within the firm. In my view, the preferable view is that expressed in Mitchell. A small firm of solicitors such as Ouwens Lawyers should be treated as a single entity. If Mr Ouwens is not permitted to act, it would follow that his firm, likewise, should not act.
The final argument was that it does not matter that Ouwens Lawyers act for the second and third defendants because independent counsel have been retained to act for those defendants. I do not see that this proposition assists.
In Kallinicos the submission that a solicitor should not be restrained because senior and junior counsel have been retained was rejected by his Honour.[18] His Honour said that it was the solicitor’s independence and objectivity as a solicitor that was compromised and the fact that counsel were retained did not affect the fundamental problem.
[18] Kallinicos and Another v Hunt and Others (2005) 64 NSWLR 561 at [91].
None of the matters raised on behalf of the second and third defendants in opposition to the plaintiffs’ application persuade me that Ouwens Lawyers should be permitted to continue to act in this matter.
The firm itself has an interest in the outcome of the litigation, given that its tenure may be called into question and issues arise with respect to the amount of rent it has been paying since 2007 and, presumably, into the future. If it is established that Ouwens Lawyers have been paying inadequate rent, a claim might be made in the future to recover the underpayment of rent. Therefore, we are not only dealing with Mr Ouwens’ personal interests in the matter, but also the interests of Ouwens Lawyers as a firm of solicitors in the subject matter of the litigation.
Conclusion
In my opinion, a fair-minded and reasonably informed observer would think that the independence and objectivity of Mr Ouwens and the firm would be compromised by their interest in the outcome of the litigation. The interests of justice require that they not act.
I order that Ouwens Lawyers cease to act as the solicitors for the second and third defendants and that they take steps to withdraw as solicitors on the record within 14 days of today. I will hear the parties as to any consequential matters.