Break Fast Investments Pty Ltd v Rigby Cooke Lawyers

[2015] VSC 305

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE
COMMON LAW DIVISION

S CI 2013 02758

BREAK FAST INVESTMENTS PTY LTD (ACN 090 648 990)	Plaintiff
v
RIGBY COOKE LAWYERS (A FIRM) (ABN 58 552 536 547)	First defendant
and
ALAN HERSKOPE	Second defendant
and
LISELM PTY LTD (t/as MASON SIER TURNBULL) (A FIRM) (ACN 006 439 238)	Third defendant

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JUDGE:	BELL J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	23 JUNE 2015
DATE OF JUDGMENT:	26 JUNE 2015
CASE MAY BE CITED AS:	Break Fast Investments v Rigby Cooke Lawyers & Ors
MEDIUM NEUTRAL CITATION:	[2015] VSC 305

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LEGAL PRACTITIONERS – former solicitors of third defendant acting for plaintiff in subsequent litigation – whether solicitors should be restrained from so acting – whether risk of disclosure and misuse of confidential advice given – whether breach of continuing duty of loyalty – whether threat to integrity of judicial process. 

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APPEARANCES:	Counsel	Solicitors
For the plaintiff	Mr P Vout	Foster Nicholson Jones Lawyers
For the third defendant	Mr N De Young	Minter Ellison Lawyers

HIS HONOUR:

1. Mason Sier Turnbull (‘MST’), the third defendant, applies by summons for an order restraining Foster Nicholson Jones (‘FNJ’) from acting for Break Fast Investments Pty Ltd (‘BFI’), the plaintiff in this proceeding (‘the primary proceeding’).  It contends that FNJ should be so restrained because it previously acted for and gave advice to MST in relation to relevant matters.  It relies upon three grounds, namely:

·there is a material risk of misuse of confidential information obtained by FNJ from MST

·continuing to act would involve a breach of FNJ’s continuing duty of loyalty to MST

·the administration of justice requires FNJ to cease acting.

1. There was no dispute about the governing principles, which I have had occasion previously to consider.  The grounds relied upon by MST reflect the independent bases upon which a restraining order may be granted, which I explained in Main Road Property Group Pty Ltd v Pelligra and Sons Pty Ltd:[1]

The court possesses jurisdiction to restrain a party from engaging lawyers, or to restrain lawyers from acting, whether they be solicitors or barristers, on any one of these three grounds: to prevent the possible disclosure or misuse of confidential information (broadly defined) obtained by them when acting for a former client, to prevent them from acting against a former client when this would be a breach of their fiduciary duty of loyalty and to protect the integrity of the judicial process.[2]

[1][2007] VSC 43 (1 March 2007) [65] (‘Main Road Property Group’).

[2]Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 (Brooking, Ormiston and Chernov JJA) (‘Spincode’) (I would follow Brooking JA on the continuation of the fiduciary obligation of loyalty); Sent v John Fairfax Publishing Pty Ltd [2002] VSC 429 (7 October 2002) (Nettle J) (‘Sent’); Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd [2006] VSC 152 (12 April 2006) (Whelan J); Village Roadshow Ltd vBlake Dawson Waldron [2003] VSC 505 (23 December 2003) (Byrne J); Grimwade v Meagher [1995] 1 VR 446 (Mandie J) (‘Grimwade’).

1. In Garde-Wilson v Corrs Chambers Westgarth,[3] I expanded upon that explanation of the three grounds, as follows (relevantly to the present case):[4]

   [3][2007] VSC 235 (3 July 2007).

   [4]Ibid [37].

The first ground relates to a possible misuse of confidential information.  The principles were stated by Nettle J in Sent v John Fairfax Publication Pty Ltd[5] as follows:

[5][2002] VSC 429 (7 October 2002).

Authority establishes that the court will restrain a legal practitioner continuing to act for a party to litigation if a reasonable person informed of the facts might reasonably anticipate a danger of misuse of confidential information of a former client and that there is a real and sensible possibility that the interest of the practitioner in advancing the case in the litigation might conflict with the practitioner’s duty to keep the information confidential, and to refrain from using that information to the detriment of the former client.[6]

[6]Ibid [33] (footnote omitted).

In some cases the lawyer who obtained the information has no immediate recollection of it and may even be determined not to use it.  The lawyer may still be restrained if, applying the objective test, there is a real and sensible possibility that he or she may subconsciously or inadvertently do so.[7]

[7]Ibid [92]-[93].

The second ground relates to a possible breach of the fiduciary duty of loyalty that a lawyer owes to their present or former client[8] …

[8]See Spincode (2001) 4 VR 501, 522 (Brooking JA); Sent [2002] VSC 429 (7 October 2002) [104] (Nettle J); Main-Road Property Group [2007] VSC 43 (1 March 2007) [65] (Bell J).

The third ground relates to ensuring the due administration of justice and the protection of the integrity of the judicial process.[9]  This jurisdiction extends to restraining a lawyer from acting for a party in litigation before a court in order to ensure that justice is not only done but manifestly and undoubtedly seen to be done[10] …  

[9]Grimwade [1995] 1 VR 446, 452 (Mandie J).

[10]Ibid.

The test is objective and whether a fair-minded reasonably informed member of the public would reasonably conclude that the proper administration of justice required the lawyer to be restrained from acting.[11] 

Proper weight must be given to the fundamental principle that, in the public interest, a party to litigation in a court … should not be deprived of the lawyer of their choice without good cause. [12]

One aspect of this principle is that, quite apart from clients, the courts … are entitled to receive the assistance of solicitors and counsel who are observably independent.[13] 

[11]Ibid.

[12]Ibid; see also R v Khazaal [2006] NSWSC 1353 (13 December 2006) [90] (Whealy J).

[13]Grimwade [1995] 1 VR 446, 452 (Mandie J) citing Kooky Garments Ltd v Charlton [1994] I NZLR 587, 590 (Thomas J).

1. It is established that the jurisdiction of the court to restrain a lawyer from acting in a particular case is exceptional and must be exercised with caution.[14]

   [14]Grimwade [1995] 1 VR 446, 455 (Mandie J); Kallinicos v Hunt (2005) 64 NSWLR 561, 582 [76] (Brereton J); Slaveski v State of Victoria [2009] VSC 540 (27 November 2009) [4] (Pagone J); BJ Bearings Pty Ltd v WW Industrial Pty Ltd [2010] VSC 365 (23 August 2010) [16] (Davies J); Premier Capital (China) Ltd v Sandhurst Trustees Ltd [2012] VSC 611 (12 December 2012) [2] (Pagone J); Dale v Clayton Utz (No 2) [2013] VSC 54 (26 March 2013) [125], [146], [159] (Hollingworth J).

1. Turning to the facts of the present application, the primary proceeding arises out of a separate proceeding determined by Vickery J in March 2010.[15]  The appeal was dismissed by the Court of Appeal in October 2011.[16]  At first instance, Vickery J held that Ambridge Investments Pty Ltd (‘Ambridge’) held a 25% interest in certain property in respect of which BFI was the trustee.  That conclusion was upheld on appeal.

   [15]Ambridge Investments Pty Ltd (in liq) v Baker [2010] VSC 59 (12 March 2010).

   [16]Baker v Ambridge Investments Pty Ltd (in liquidation) [2011] VSCA 334 (4 November 2011) (Buchanan, Tate JJA and Robson AJA).

1. After the conclusion of the Ambridge proceeding, BFI (by then under different management) issued the primary proceeding against its former solicitors (the first and third defendants) and barrister (the second defendant).  In that proceeding, BFI contends that:

·the defendants acted negligently in not advising BFI that it could not use trust assets to pay their invoices for legal costs

·they breached their duty of loyalty to BFI in failing to advise the company not to take an active role in the proceeding

·they knowingly received trust moneys in payment of their legal costs in breach of trust

1. Under the first and second grounds of its application, MST relies upon advice given to it by FNJ in and about November 2011 in relation to the continuing participation of Mary Nemeth in the partnership, as well as the information provided to FNJ for the purposes of that advice.  Ms Nemeth was the partner responsible at MST for the conduct of the Ambridge proceeding on behalf of BFI.  In late November 2011, Ms Nemeth did leave MST.   She joined another firm of solicitors, taking the BFI litigation with her.

1. MST contends that FNJ gave MST the relevant advice in an email dated 16 November 2011.  In the email, Alan Foster (for FNJ) opined at length about matters connected with the separation of Ms Nemeth from MST.  In that context, he provided (in the last paragraph) advice about the consequences of the judgment of the Court of Appeal for BFI.  While I have read the email in full, I cannot say any more about the advice in the last paragraph because it is confidential and, furthermore, it is unnecessary to do so.  On 17 November 2011, Philip Colman (for MST) responded to Mr Foster’s advice.  Again, I have read it in full but cannot say any more about it.

1. MST contends that the relevance of the advice to the present proceeding is that the content of the advice is connected with principles and issues that are raised in the primary proceeding.  It is contended that, having advised MST in relation to those principles and issues as raised in relation to BFI in connection with the separation of Ms Nemeth, FNJ cannot now act for BFI in relation to the same principles and issues as raised in the primary proceeding in relation to BFI in connection with MST.

1. While this contention is attractive at first sight, it breaks down upon analysis.  The most important consideration is that the advice given by FNJ was concerned only with the consequences of the Court of Appeal judgment for BFI in the future, the context being Ms Nemeth’s likely separation from MST.[17]  There is no evidence that legal proceedings by BFI against its then lawyers were then in contemplation.  The company was not then in different management and MST was still its solicitor on the record in the Ambridge proceeding.

   [17]To make clear, I accept that the advice did concern the consequences of the Court of Appeal judgment for BFI and was not confined to Ms Nemeth’s likely separation.  Giving that advice came within the scope of FNJ’s retainer, which was expressed in general terms.

1. By contrast, the primary proceeding relates to payments made in the past.  As regards MST, it is contended that invoices provided to BFI between 23 March 2010 and 28 March 2011 in the Ambridge proceeding, and also between 29 March 2010 and 31 August 2011 in a related Federal Court proceeding, were and should not have been paid by BFI with trust money.  The date of the last invoice and the payment thereof preceded the giving of the advice by FNJ.  The primary proceeding was commenced well after the advice was given.

1. At a point in time when Ambridge was awaiting the outcome of the appeal by BFI against the judgment of Vickery J to the Court of Appeal, FNJ commenced to act for Ambridge.  This occurred when Philip Jones joined FNJ, bringing with him responsibility for the Ambridge litigation (see further below).  After that judgment and the change in management of BFI, FNJ (through Mr Jones) commenced to act for BFI as well, including in the primary proceeding.  Mr Jones, not Mr Foster, is the partner at FNJ having continuing responsibility for matters in relation to Ambridge and BFI.

1. Acknowledging that Mr Foster did provide confidential legal advice to MST in relation to the consequences of the Court of Appeal judgment for BFI, Mr Foster (with the support of FNJ) has undertaken to keep that advice confidential and not disclose it to anyone (except for the purposes of the present application, as to which confidentiality is being preserved).  FNJ and Mr Foster are also prepared to undertake that they will not have any role in the conduct of the primary proceeding. 

1. As regards the first and second ground of MST’s application, there was no dispute about the applicable principles, which I have already set out.  I accept the submissions made on behalf of MST that, in the present case, the application of those principles requires consideration of the questions whether:

·a reasonable person informed of the facts might reasonably anticipate a danger of misuse of confidential information that FNJ obtained when advising MST in relation to Ms Nemeth (ie the advice);  and

·there is a real and sensible possibility that the duty of FNJ in advancing the case of BFI in the primary proceeding might conflict with the continuing duty it owes to MST to keep the information confidential and to refrain from using that information to MFI’s detriment.

1. While the submissions made for MST on this (and the other) grounds were persuasively presented, I think they must be rejected.  Essentially for the reasons advanced on behalf of FNJ, in my view the questions must be answered in the negative. 

1. Having regard to the content of the advice and the context in which it was given, there is (objectively) no more than a negligible risk of misuse of the confidential advice and the information lying behind it, especially having regard to the fact that the payments at issue in the primary proceeding were made before the Court of Appeal judgment and the giving of the advice.  In relation to the prosecution by FNJ of BFI’s case as the plaintiff in the primary proceeding, the forensic or strategic value of the content of the advice is not significant and never likely to be so.  I also note that it is accepted that the advice is protected by legal professional privilege and cannot be used in the proceeding for any purpose.  Likewise there is at best a negligible risk that FNJ’s continuing duty to MST to keep the advice confidential might be compromised by its duty to BFI in that proceeding.  If the advice and the information behind it had significant forensic or strategic value in the proceeding I would have been slower to come to that conclusion, but it does not.

1. MST also contended that FNJ should be restrained from continuing to represent BFI in the primary proceeding because advising MST in relation to Ms Nemeth and the consequences of the Court of Appeal judgment for BFI gave FNJ private knowledge of the nature and character of MST, its attitude to litigation and other such information.  In its submission, these ‘getting to know you factors’,[18] although difficult to define, are also confidential and should be protected.  Again the relevant principles are not in dispute and I have set them out.

   [18]Sent [2002] VSC 429 (7 October 2002) [68]-[69] (Nettle J); see also Pinnacle Living Ltd v Elusive Image Pty Ltd [2006] VSC 202 (23 May 2006) [21] (Whelan J).

1. I accept that the partners at MST genuinely feel exposed in relation to the internal attributes of the firm.  That feeling of exposure is no doubt heightened by the fact that FNJ was advising MST as regards the separation of one partner from the partnership and therefore as regards matters of internal management.  However, there is no evidence that FNJ had any involvement with MST going significantly beyond advising the firm in relation to Ms Nemeth.  FNJ was not an ongoing trusted advisor of MST.  There is no evidence of intimate and ongoing connection, on a personal or professional level or otherwise.  Objectively assessed, I do not find that any significant confidential information relating to the nature and character of MST or its attitude to litigation and tactics was revealed to FNJ during the course of the retainer.  Certainly I see nothing in the evidence to suggest that, by having acted for MST and gained some kind of insight into the internal operation of the firm, FNJ will, in the conduct of the primary proceeding, be in a position to make use of confidential information obtained from MST in favour of BFI.

1. As I have mentioned, FNJ has erected a Chinese wall between Mr Foster and the other partners at the firm, particularly Mr Jones.  I accept the submission made for FNJ that these steps provide a due measure of comfort that the confidential advice given by Mr Foster (and the information behind it) will not be disclosed, even given that it is a small boutique firm.  These steps should be reinforced in an undertaking to the court which I will ask Mr Foster to give personally.

1. In the third place, MST contends that FNJ ought to be restrained from continuing to act for BFI in the primary proceeding because it has a particular financial interest in maximising the prospects of BFI’s success in that proceeding (over and above the legal fees that it will earn).  That particular financial interest is said to arise because Mr Jones was formerly a partner at TressCox Lawyers which then acted on behalf of Ambridge in the Ambridge proceeding.  Ambridge has issued a proceeding against TressCox alleging negligence in the conduct of the Ambridge proceeding.  To the extent that damages are obtained or maximised in the primary proceeding, it appears that Mr Jones’s potential liability in the TressCox proceeding will be minimised.  In the present application, it is submitted on behalf of MST that FNJ should not be representing BFI in the primary proceeding because it creates a circumstance, at least in terms of appearances, in which FNJ’s objectivity in conducting the case might be compromised.

1. As I have already set out, the test is whether a fair-minded reasonably informed member of the public would reasonably conclude that the proper administration of justice requires the lawyer to be restrained from continuing to act.  I think it is clear from the evidence that it could not be so concluded.

1. As submitted for FNJ, neither Mr Jones nor FNJ will be called upon to defend their actions in the primary proceeding.  It is highly unlikely that Mr Jones will be required to give evidence.  Moreover, art 32 of the TressCox Articles of Partnership indemnifies Mr Jones against any liability arising in the TressCox proceeding.  He is also insured in respect of any such liability.

1. As submitted for MST, an indemnity represents protection from, not destruction of, legal liability and insured lawyers normally have to pay a deductible if liability is established.  Nevertheless, I think Mr Jones’s (and therefore FNJ’s) financial interest in the TressCox proceeding is very limited and not such as to justify a restraining injunction to protect the integrity of the judicial process.

1. In support of its submission in relation to this third ground, MST referred to authorities in which injunctions have been granted.[19]  The facts of these cases, and the financial interests of the lawyers arising out of those facts, are very different to the facts and interests established by the evidence in the present case.

   [19]Bolitho v Banksia Securities Ltd (No 4) [2014] VSC 582 (26 November 2014) (Ferguson J); R & P Gangemi Pty Ltd v D & G Luppino Pty Ltd [2012] VSC 168 (14 May 2012) (Sifris J).

1. In my view, MST has failed to establish that this is the kind of exceptional case in which the court should exercise the jurisdiction to restrain a party from being represented in a legal proceeding by their lawyer of choice.   MST’s application for an injunction restraining FNJ from continuing to act for BFI in the primary proceeding will be dismissed.

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