Byrne v Production Magic Pty Ltd

[2012] ACTSC 6

SIMON VINCENT BYRNE v PRODUCTION MAGIC PTY LTD AND GARY WOODBRIDGE AND GREGORY ALLAN WILLIAMS AND IVAN STEFANCHUK AND BETTER MUSIC PTY LTD AND GREGORY EDWARD SOULSBY AND GREG SOULSBY PTY LTD
[2012] ACTSC 6 (31 January 2012)

LEGAL PRACTITIONERS – solicitors – challenge to retainer – whether conflict of interest or duty – action by former director against company and other directors – solicitors for defendants had acted on incorporation of company and preparation of agreement between  directors – inherent jurisdiction to restrain solicitors from acting – application to restrain made five years after commencement of proceedings and after certificate of readiness filed and hearing date fixed – application to restrain refused

Corporations Act2001
Court Procedures Rules 2006, r 21

Kallinicos v Hunt [2005] NSWSC 1181
Wagdy Hanna & Associates Pty Ltd v National Library of Australia [2004] ACTSC 75

Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501

No. SC 790 of 2006

Master Harper
Supreme Court of the ACT

Date: 31 January 2012

IN THE SUPREME COURT OF THE     )
  )          No. SC 790 of 2006
AUSTRALIAN CAPITAL TERRITORY           )          

BETWEEN:  SIMON VINCENT BYRNE

Plaintiff

v

AND:  PRODUCTION MAGIC PTY LTD

First Defendant

GARY WOODBRIDGE

Second Defendant

GREGORY ALLAN WILLIAMS

Third Defendant       

IVAN STEFANCHUK

Fourth Defendant

BETTER MUSIC PTY LTD

Fifth Defendant

GREGORY EDWARD SOULSBY

Sixth Defendant

GREG SOULSBY PTY LTD

Seventh Defendant

ORDER

Judge:  Master Harper
Date:  31 January 2012
Place:  Canberra

THE COURT ORDERS THAT:

1. the plaintiff’s application dated 17 May 2011 be dismissed.

1. the plaintiff pay the defendants’ costs of the application.

1. This is an application by the plaintiff that the solicitors on the record for the defendants, Meyer Vandenberg, be restrained from continuing to act for them. 

1. The action has been listed for hearing before a judge on 15 October 2012, with an estimate of four days.

1. The plaintiff and the three individual defendants were, until the present dispute arose, directors of the first defendant company, Production Magic Pty Ltd.  The corporate defendants were shareholders, each controlled by one of the directors.

1. The solicitors for the defendants, then practising as Meyer Clapham but for present purposes the same firm, acted on the incorporation of Production Magic Pty Ltd, and the preparation of a document described as a directors’ and shareholders’ agreement.  The company was incorporated in mid-2000 and the agreement was executed in November 2000.  The parties were the directors (the individual parties to the present action); the shareholders (three companies and two individuals, one company not being a party to the action); and the company, Production Magic Pty Ltd.  The agreement provided, among other things, for what was to happen when a shareholder wished to leave the company.  In brief, a shareholder could transfer its or his shares only after first giving notice to the company and to the other shareholders, giving them the option to buy the shares.  Alternatively the company was given a discretion to buy the shares itself.

1. In November 2005 the plaintiff served a transfer notice on the company and the other shareholders, nominating a transfer price per share. 

1. There is no evidence before me as to any further activity by Meyer Clapham until March 2005, when Mr Clacher, a solicitor employed by the firm in the capacity of an associate, prepared a letter of advice addressed to the directors of Production Magic Pty Ltd about the retirement and transfer provisions in the directors’ and shareholders’ agreement.  The letter was in general terms and did not refer to the intention of any particular director or shareholder to leave the company.

1. On 10 October 2005 the firm (by then Meyer Vandenberg) wrote another letter to the directors over Mr Clacher’s signature, providing advice in relation to a notice of retirement as a director received from the plaintiff.  Mr Clacher noted that Mr Byrne had not given notice as a shareholder, and attached a draft transfer notice.  On 14 October 2005 Mr Clacher appears to have sent a further letter to the directors, of which only the first two pages were before me, providing advice as to the transfer provisions in the agreement.

1. On 17 October 2005, the plaintiff sent Mr Clacher an email.  He said that one of the other directors had passed on to him a copy of the letter of 10 October.  The plaintiff said that he disagreed with Mr Clacher’s opinion that the retirement notice he had served was not effective as a transfer notice under the agreement.  He reminded Mr Clacher that he was the managing director and secretary of the company, and the majority shareholder.  He told Mr Clacher to take instructions only from him, and not to advise or act for the other shareholders.  He asked for a copy of instructions from one of the other directors (Mr Woodbridge), saying that these had been given without his knowledge.

1. Mr Clacher responded later on the same day.  His response was that he was the solicitor advising the company and the board of directors.  He was unable to advise the plaintiff separately.  To do so would place him in a position of conflict.  He adhered to his previous advice about the effectiveness of the notice but made the point that the plaintiff was free to seek his own advice.

1. The plaintiff responded within the hour.  He said that he was aware that Mr Clacher had forwarded his email to Mr Woodbridge and had discussed the matter with him.  He regarded this as a “breach of trust” by Meyer Vandenberg.  He said that he would be taking the matter further.

1. He then sent Mr Clacher another email demanding as managing director of Production Magic Pty Ltd that he be provided with a copy of Mr Woodbridge’s instructions.  Mr Clacher replied the next morning.  He said that the instructions were privileged, and would not be released without consent of the client, implying that this would involve authority from the board of directors.

1. The plaintiff commenced the present action on 19 October 2006.  He seeks declaratory and monetary relief under the Corporations Act2001 and the general law, arising out of what may be described as the breakup of the company.

1. After the best part of a day before me in July 2007 resolving issues between the parties about particulars, the defendants filed their defence in August 2007.  The matter proceeded through the interlocutory steps of discovery and interrogatories, supervised by the Registrar at numerous directions hearings.

1. In July 2010 the solicitors for the plaintiff prepared a certificate of readiness.  This was signed by the then solicitors for the plaintiff on 6 July 2010 and by the solicitors for the defendant on 6 August 2010.  The solicitors certified that the action was ready for trial, and specifically certified as to the numerous individual items required to be considered in the prescribed form of certificate of readiness.  The only reservation expressed was one by the plaintiff’s solicitors as to completion of inspection of documents, which I take it, was satisfactorily resolved soon afterwards.  The certificate was filed on 6 August 2010.

1. The matter then came before a Deputy Registrar in September 2010, and was listed for hearing in July 2011.

1. The plaintiff changed to her present solicitors in January 2011.  The present application was filed in May 2011, and came before me for hearing in June 2011.  It was by then apparent that the action, which had been listed to follow other matters, had minimal prospects of being reached during the week it had been fixed, and I vacated the hearing date and gave the parties leave to approach the list clerk to fix a fresh date.  I heard the application and reserved my decision, directing that I be notified when a date had been fixed.  In fact the parties were able to get the matter before a Deputy Registrar on 26 July 2011, when the new hearing date, 15 October 2012, was fixed but regrettably I was not informed of this until the solicitors for one of the parties took the matter up with the Law Society who wrote to the Chief Justice in November 2011.

1. The parties agree that the court has an 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.  A relatively recent detailed analysis of the principles governing the exercise of the jurisdiction was undertaken by Brereton J in Kallinicos v Hunt [2005] NSWSC 1181. His Honour summarised the principles at [76], with considerable reference to authority which I need not repeat. His Honour concluded that the test to be applied in the exercise of the 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 is to be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause, and 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.

1. This is not a case where it is suggested that the plaintiff was personally a client or former client of the solicitors, nor is it a case where it is submitted that the solicitors have confidential information belonging to the plaintiff which would make it unfair for them to act against him.  There is considerable authority about such cases, summarised by Brereton J in Kallinicos v Hunt and by Higgins CJ in Wagdy Hanna & Associates Pty Ltd v National Library of Australia [2004] ACTSC 75. These cases relate to the situation where a solicitor is acting against the interests of a former client, after the end of the previous retainer, and are not relevant to the present situation.

1. The application is to be determined by the application of the principles I have quoted from the decision of Brereton J in Kallinicos.

1. It seems to me that a fair-minded reasonably informed member of the public might very well come to the view that the solicitors for the defendants should not be permitted to represent them in defending litigation commenced by the plaintiff, the former chairman and managing director of the first defendant company prior to the dispute.  I think that an ordinary member of the public may well see this as inherently unfair.  True it is that Mr Clacher is no longer employed by the firm, but he was an employee subject to the supervision of the partners.  A reasonable objective observer might well take the view that the firm has “knowledge of such things as the personalities and reactions of participants”: a phrase used by Brooking JA in Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 at [58]. This may well be a case where the knowledge of the firm of the vulnerabilities and strengths of the plaintiff may be of use to those conducting the litigation.

1. However, that is not the end of the matter.  The jurisdiction to restrain is equitable, and discretionary.  In the present case it is of the utmost significance that those representing the plaintiff took no action to seek a restraining order for nearly five years after the commencement of the litigation, and did so only after the signing and filing of the certificate of readiness in which the solicitors had certified that the action was ready for trial. 

1. The general expectation is that an applicant for relief analogous to an injunction must be especially prompt in approaching the court for relief.  It seems to me that the same principle should be applied to the present application as applies to interlocutory injunctions generally.  In the absence of evidence to the contrary, one cannot help but suspect that there is some connection between the plaintiff’s change of solicitors and the application to restrain.  If it had been a matter of outrage to the plaintiff himself, one would have expected that he would have instructed his previous solicitors to make such an application soon after proceedings were commenced.

1. Here, by reason of the delay in making the application, the solicitors for the defendants have been involved in the matter for years and have built up a knowledge of and familiarity with the details of the matter which would be lost if the defendants were to be required to change solicitors now, a few months before the hearing.  It would, additionally, put the new solicitors to a considerable amount of time and effort, for which they would be expected to charge the defendants, to bring themselves up to the necessary level of familiarity with the matter.  That is to say, a restraining order would put the defendants to very considerable additional expense.

1. Although, in determining this application, I am not specifically applying a rule within the Court Procedures Rules 2006, I am mindful of the objective of those Rules, set out in rule 21, of facilitation of the just resolution of the real issues in civil proceedings with minimum delay and expense, and of disposing of the proceedings at a cost affordable by the parties.

1. Taking account of those matters, I have arrived at the view that the court should not exercise its discretion to restrain the defendants’ solicitors from continuing to act for the defendants.  The outcome might have been otherwise if the application had been made soon after commencement of the proceedings.

1. The application will be refused with costs.

   I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of Master Harper.

   Associate:

   Date:      31 January 2012

Counsel for the plaintiff:  Mr CM Erskine SC
Solicitor for the plaintiff:  Dibbs Barker
Counsel for the defendants:  Mr PA Walker
Solicitor for the defendants:  Meyer Vandenberg
Date of hearing:  10 June 2011
Date of judgment:  31 January 2012