Dugan v Process Holdings Pty Ltd
[2021] VSC 555
•9 September 2021
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 04063
| CRAIG FRANCIS DUGAN and others | Plaintiffs |
| v | |
| PROCESS HOLDINGS PTY LTD (ACN 138 041 488) and others | Defendants |
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JUDGE: | LYONS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 August 2021, further written submissions from the parties dated 12 August 2021 and 24 August 2021. |
DATE OF JUDGMENT: | 9 September 2021 |
CASE MAY BE CITED AS: | Dugan v Process Holdings Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2021] VSC 555 |
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LEGAL PRACTITIONERS – Application by defendants to restrain firm from continuing to act for plaintiffs – Whether firm should cease to act for client where solicitor giving evidence as a material witness – Inherent jurisdiction of Court over its officers and to control its processes – Nature of conflict between solicitor’s duty to act in client’s best interests and solicitor’s own personal interest (financial, reputational or otherwise) – Low risk of inconsistency between evidence of solicitor and evidence or claim of former client – Resulting low risk of relevant conflict – Discretionary factors weigh against restraint including exceptional nature of jurisdiction and stage of proceeding.
PRACTICE AND PROCEDURE – Whether defence discloses cause of action or may prejudice or embarrass the fair trial – Failure to plead elements of defence – Plea embarrassing where conclusion with unstated facts – Plea embarrassing where vague and unintelligible – Strike out of pleading on Court’s own motion.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr S. Marks QC with Mr B. Gibson | Thomson Geer |
| For the Second to Thirteenth and Fifteenth Defendants | Mr M. Clarke QC with Ms V. Plain | Cornwalls |
HIS HONOUR:
INTRODUCTION
There were two applications listed for hearing on 10 August 2021. First, the second to thirteenth defendants and the fifteenth defendant sought to restrain Thomson Geer from continuing to act as solicitors for the plaintiffs in this proceeding (the ‘restraint application’). For convenience, I will refer to the second to thirteenth defendants and the fifteenth defendant as the ‘defendants’. Second, the plaintiffs sought to strike out certain paragraphs of the amended defences filed by the defendants in this proceeding (the ‘strike out application’).
However, on the day before the hearing of these applications, the defendants filed an affidavit exhibiting a proposed further amended defence (‘PFAD’) seeking to address some of the concerns of the plaintiffs raised in the strikeout application. The defendants sought leave to file the PFAD at the hearing of these applications (the ‘amendment application’). As all these applications are, in part, related I heard and determined them together.
It is appropriate that I set out the evidence that was relied upon in these applications. The defendants relied upon six affidavits of Radhika Kanhai affirmed on 26 March 2021, 14 May 2021, 21 May 2021, 28 May 2021, 9 August 2021 and 24 August 2021 (the ‘sixth Kanhai affidavit’). The plaintiffs relied upon four affidavits of Michael Barrett sworn on 14 May 2021 (the ‘first Barrett affidavit’), 21 May 2021 (the ‘second Barrett affidavit’), 16 August 2021 (the ‘third Barrett affidavit’) and 23 August 2021 (the ‘fourth Barrett affidavit’), and the affidavit of Adrian Tembel affirmed on 20 May 2021. As is evident from their dates, some of these affidavits were filed after the oral hearing with the leave of the Court. In addition, further submissions were filed by the parties after the oral hearing with the leave of the Court.
In the course of argument, I was also referred to the outlines of evidence of Craig Dugan and Adam Brooks filed on behalf of the plaintiffs, and of Phillip Tuckett and John Rundell filed on behalf of the defendants.
For the reasons that follow, I have concluded that:
(1) the restraint application should be refused;
(2) the amendment application should be allowed in part; and
(3) the strike out application should be allowed in part.
Before considering this application, it is necessary to set out the nature of this proceeding and the claims made in it. That in turn raises the strike out application and the amendment application.
CLAIMS AND DEFENCES IN THE PROCEEDING
2.1 Background
This proceeding relates to the circumstances in which the defendants purchased the plaintiffs’ interests in the first defendant, Process Holdings Pty Ltd (‘Process Holdings’). Process Holdings, together with its subsidiaries and related entities, conducted an engineering business specialising in the design, manufacture and supply of process plant and equipment in the industrial sector (the ‘Process Group’).
The sale transaction was finalised by a share sale deed on 6 September 2013 (the ‘share sale deed’). Prior to its execution, each of the first plaintiff (Mr Dugan) and the second to seventh defendants[1] were officers of Process Holdings. Mr Dugan’s company, the second plaintiff, owned 16.22% of the shares in Process Holdings. The second to seventh defendants and their corporate entities owned a majority of the remaining percentage.[2]
[1]Mr Tuckett, Mr Singh, Mr Walker, Mr Rundell, Mr Gow and Mr Arter.
[2]Martin Hooper Holdings Pty Ltd, the fifteenth defendant, owned 2.38% of the shares in Process Holdings. Mr Letcher owned 2.38% of the shares in Process Holdings.
Mr Dugan resigned as Managing Director of the Process Group on 20 March 2012. Thereafter he remained as a non-executive director of Process Holdings and other companies within the Process Group.
2.2 The Claims
By their amended statement of claim dated 21 September 2020 (the ‘ASOC’), the plaintiffs allege that, in the lead up to the execution of the share sale deed and whilst negotiating its terms with the first plaintiff, the defendants participated in discussions and negotiations with an international engineering consortium known as Degremont for the potential purchase by Degremont of all or part of the Process Group (the ‘Degremont negotiations’).
Relevantly, the plaintiffs allege that the Degremont negotiations commenced in about March 2013 and continued during the period when the share sale deed was negotiated. The plaintiffs allege that, as a result of the Degremont negotiations, on 10 October 2013 Degremont made an indicative offer to purchase the Process Group. The Process Group was sold to Degremont in June 2014 at a significantly higher price than was paid by the defendants for the plaintiffs’ interests.
The plaintiffs had some knowledge of Degremont’s interest in the Process Group. The ASOC alleges that, on about 3 April 2013, Mr Dugan was informed of Degremont’s interest. On the evidence before me:
(1) on 3 April 2013, Barry Graham, then the Managing Director of Process Group International Limited (‘PGI’), informed Mr Dugan that the Process Group had been approached by Degremont and that a meeting had been arranged in Abu Dhabi the next week; and
(2) on 4 April 2013, Mr Dugan sent an email to his then solicitor, Mr Brooks of Herbert Geer, advising that Degremont had approached the Process Group ‘to buy the entire company’ and the approach ‘is serious’. The email suggested that the plaintiffs request to be copied in on all correspondence. At that time Mr Brooks, then a partner of Herbert Geer, was acting on behalf of the plaintiffs in relation to the share sale deed.
Further, the ASOC alleges that:
(1) on 5 April 2013, the plaintiffs asked the defendants to undertake that they would copy Mr Dugan into email correspondence relevant to the possible purchase of the Process Group by a third party purchaser, would provide Mr Dugan with any relevant documents as soon as practicable after they became available and would invite Mr Dugan to any relevant meetings (the ‘5 April 2013 request’);[3]
[3]ASOC, [22].
(2) on 9 April 2013, Mr Tuckett met with representatives of Degremont in Abu Dhabi;[4]
[4]ASOC, [22A].
(3) on 10 April 2013, Mr Rundell on his own behalf and on behalf of the defendants responded to the 5 April 2013 request (the ‘10 April 2013 response’), advising that Mr Tuckett would generate a meeting report that would be circulated to the Process Group directors in the event that Degremont’s interest was of a ‘non-trading’ nature, and that the directors would continue to comply with their obligations under the Corporations Act 2001 (Cth) in relation the provision and dissemination of information to the Process Group directors (the ‘Rundell Representations’);[5]
[5]ASOC, [23].
(4) on 12 April 2013, Mr Tuckett sent Mr Dugan and the other directors an email attaching a report of Mr Tuckett’s meeting with Degremont in Abu Dhabi on 9 April 2013 (the ’12 April 2013 email’ and the ‘Tuckett report’). In the 12 April 2013 email, Mr Tuckett advised that he would keep Mr Dugan and the other Process Group directors updated ‘if anything of significance’ arose in relation to Degremont’s interest in the Process Group (the ’Tuckett Representations’);[6]
(5) in April and May 2013, Mr Gow on his own behalf and on behalf of the defendants represented to Mr Dugan that ‘nothing was happening with Degremont’ and that Degremont ‘was not interested in the Process Group’ (the ‘Gow Representations’);[7] and
(6) the defendants, by failing to provide the plaintiffs with any information relating to the Degremont negotiations prior to settlement of the share sale deed represented that nothing of significance had happened with Degremont and Degremont was not or was no longer interested in purchasing the Process Group (the ‘Directors’ Continuing Representations’).[8]
[6]ASOC, [23B].
[7]ASOC, [24].
[8]ASOC, [26].
In these reasons, I will refer to the Rundell Representations, the Tuckett Representations, the Gow Representations and the Directors’ Continuing Representations as the ‘Representations’.
The plaintiffs allege that the failure to provide the plaintiffs with any information relating to the Degremont negotiations prior to settlement of the share sale deed was a breach of fiduciary duties owed by the second to seventh defendants.[9]
[9]ASOC, [43]-[47].
Further, the plaintiffs allege that, by making the Representations, the defendants engaged in misleading or deceptive conduct,[10] made fraudulent and deceitful representations[11] and/or breached a duty of care owed to the plaintiffs.[12] It is significant for the purpose of the strike out application that the plaintiffs relied upon breaches of s 18 of the Australian Consumer Law (Vic), defined in the ASOC as the ‘ACL’. No claim was based upon the Competition and Consumer Act 2010 (Cth) of which the Australian Consumer Law (Cth) is a schedule (together the ‘Commonwealth ACL’). Claims are also brought against the defendants for accessorial liability and knowing receipt.[13]
[10]ASOC, [48]-[53].
[11]ASOC, [53A]-[60].
[12]ASOC, [60A]-[60F].
[13]ASOC, [63]-[64].
The plaintiffs allege that, had they been aware of the nature or extent of the Degremont negotiations, they would not have sold their interests in the Process Group to the defendants, but instead would have awaited the outcome of the Degremont negotiations or insisted on an adjustment clause in the share sale deed to take into account any subsequent sale to Degremont. As noted above, the defendants sold their interests in the Process Group to Degremont on 24 June 2014 at a significantly higher price. The plaintiffs allege that the difference relating to the plaintiffs’ interests in the Process Group is in the order of $4.6 million.
2.3 The Amended Defences and Proposed Further Amended Defences
The defendants deny the substance of the plaintiffs’ allegations in their amended defences filed on or about 18 November 2020. Separate defences have been filed although the substance of all of them are the same. For convenience, I shall refer in these reasons to the amended defence of the second defendant (the ‘amended defence’).
In [46A] of the amended defence, in response to the claim for breach of fiduciary duty, the defendants allege that any loss has been suffered by Mr Dugan’s own fault by, in summary:
(1) recklessly failing to make any proper enquiry of the defendants as to Degremont generally after 20 March 2012, including at the directors’ meeting on 30 April 2013;[14]
[14]Amended defence, [46A(a)].
(2) deliberately refraining from having the Process Group valued, relying upon statement made by Mr Brooks to Riordan Lawyers, then solicitors for the defendants, on or about 21 March 2013;[15]
(3) recklessly failing to seek any warranty in respect of the interest from Degremont despite instructing Mr Brooks that Mr Dugan considered Degremont’s interest to be ‘serious’;[16] and
(4) deliberately refraining from having the property from which the business of the Process Group was conducted (the ‘Property’) or the Hobbs Court Unit Trust (which owned the Property) valued, relying upon a letter from Mr Brooks to Riordan Lawyers dated 21 June 2013.[17]
[15]Amended defence, [46A(b)].
[16]Amended defence, [46A(c)].
[17]Amended defence, [46A(d)].
As a result, the defendants allege in [46B] of the amended defence that any award of equitable damages or compensation is to be reduced to the extent the Court thinks just and equitable. I note that, in the strike out application, the plaintiffs seek that [46A] and [46B] be struck out on the basis that any defence based upon a reduction of damages for breach of fiduciary based upon contributory negligence is not known at law.
Further, in [46C] of the amended defence, in response to the claim for breach of fiduciary duty, the defendants allege that the plaintiffs are ‘estopped from seeking equitable relief on account of the conduct of [Mr] Dugan, detrimental to the interests of the Process Group, between March 2012 and 6 September 2013’. The particulars to [46C] are as follows:
Dugan’s conduct includes, among others, the following:
(i)Accessing and utilising Process Group confidential information to negotiate and obtain rights to Capstone products, for his own Business and/or in association with Hardchrome Engineering, in conflict with his duties to Process Group;
(ii)Accessing and divulging Process Group commercially sensitive information to a third party. Dugan incorrectly represented to Wes Tech Engineering Inc (by forwarding emails to Wes Tech that Dugan had accessed) that Process Group was considering making a claim for delay against Wes Tech Engineering in the context of a contractual arrangement, which caused Wes Tech Engineering to retain legal advice and put the contractual relationship on hold. Dugan’s access to the database was revoked after this incident;
(iii)On behalf of Optimal Group, negotiating and entering into an employment agreement with Antti Kilpikoski of Process Group, in competition with Process Group; and
(iv)Making representations to the National Australia Bank that the Second to Sixth Defendants were seeking to vary the terms of Process Groups’ facilities with the NAB, without Board approval, which caused the NAB to freeze Process Group’s facilities.
No further particulars have been provided. I note that the plaintiffs also seek that [46C] be struck out on the ground that it does not disclose a defence known to law and is embarrassing. In the PFAD, the defendants sought to include after the word ‘estopped’ the words ‘on the basis of equitable maxim of unclean hands’. In the course of oral argument before me, the plaintiffs maintained their objection to [46C] as amended in the PFAD.
In [51] of the amended defence, in response to the claim for misleading and deceptive conduct, the defendants deny that the plaintiffs relied upon the Representations and allege that the plaintiffs would have entered into the share sale deed in any event. Further, the defendants relevantly allege that:
(1) Mr Dugan, in association with Hardchrome Engineering, was anxious to develop his own business as agent for Capstone established in February 2013 in competition with the Process Group and he needed the money from the sale proceeds to pursue his own business interests which was in breach of the provisions of the Security Holders Deed, the Unitholders Deed and a breach of the Plaintiffs’ fiduciary duty to Process Holdings;[18]
[18] Amended defence, [51(iii)].
(2) the plaintiffs were prepared to sell their interests in Process Holdings at a discount in order to secure:
(a) an insurance indemnity,
(b) a release in respect to the said breach of the provisions of the Security Holders Deed, the Unitholders Deed and said breach of fiduciary duty;
(c)a release in respect to the conduct referred to in paragraph 46C; and
(d) an exemption from the restraint clause.[19]
[19] Amended defence, [51(iv)].
No particulars were provided of these allegations.
In the strike out application, the plaintiffs also seek that the words in italics in [51] of the amended defence be struck out. In the PFAD, the defendants sought to recast [51(iii)] and [51(iv)] in the following terms:
(iii)In February 2013, Craig Dugan, who controlled each of the other plaintiffs set up a company, Optimal Group, which became the agent for Capstone in or about March 2013 in competition with the Process Group. In association with Hardchrome Engineering, the First Plaintiff was anxious to develop his own business, Optimal Group, as agent for Capstone established in February 2013, in competition with the Process Group and he needed the money from the sale proceeds to pursue his own business interests which was in breach of the provisions of the Security Holders Deed, the Unitholders Deed and a breach of the Plaintiffs' fiduciary duty to Process Holdings to:
(A) Act bona fide and in the interests of Process Group;
(B) Avoid conflicts of interest by preferring his own interests over the interests of Process Group;
(C)Not to divert business away from Process Group to his own benefit.
PARTICULARS
The restraint provisions are contained in clause 17 of the Unit Holders' Deed dated 5 August 2010
The restraint provisions are contained in clause 18 of the Security Holders Deed dated 5 August 2010.
The said breaches are constituted by the following conduct:
(A)Accessing and utilising Process Group confidential information to negotiate and obtain rights to Capstone products, for his own Business and/or in association with Hardchrome Engineering, in conflict with his duties to Process Group;
(B)Diverting the Capstone trading opportunity from Process Group, for his own business and/or in association with Hardchrome Engineering;
(C)Accessing and divulging Process Group commercially sensitive information to a third party. Dugan incorrectly represented to Wes Tech Engineering Inc (by forwarding emails to Wes Tech that Dugan had accessed) that Process Group was considering making a claim for delay against Wes Tech Engineering in the context of a contractual arrangement, which caused Wes Tech Engineering to retain legal advice and put the contractual relationship on hold. Dugan's access to the database was revoked after this incident;
(D)On behalf of Optimal Group, negotiating and entering into an employment agreement with Antti Kilpikoski of Process Group, in competition with Process Group; and
(E)Making representations to the National Australia Bank that the Second to Sixth Defendants were seeking to vary the terms of Process Groups' facilities with the NAB, without Board approval, which caused the NAB to freeze Process Group's facilities.
In an email sent by Dugan to his solicitor, Adam Brooks, on 4 April 2013 (1.04pm), he stated:
“More news. Apparently, they have been approached by a French water treatment engineering company who want to buy them. They are visiting UAE next week and then travelling on to Australia. It is serious. I think we should ask to be copied on all correspondence and it is to buy the entire company.”
(iv)The Plaintiffs were prepared to sell their interest in Process Holdings at a discount on the value of such interest as assessed by the Plaintiffs on 21 September 2012 in order to secure:
(ii) an insurance indemnity
(iii) a release in respect to the said breach of the provisions of the Security Holders Deed, the Unitholders Deed and said breach of fiduciary duty;
(iv) a release in respect of the following conduct:
(A)Accessing and utilising Process Group confidential information to negotiate and obtain rights to Capstone products, for his own Business and/or in association with Hardchrome Engineering, in conflict with his duties to Process Group;
(B)Accessing and divulging Process Group commercially sensitive information to a third party. Dugan incorrectly represented to Wes Tech Engineering Inc (by forwarding emails to Wes Tech that Dugan had accessed) that Process Group was considering making a claim for delay against Wes Tech Engineering in the context of a contractual arrangement, which caused Wes Tech Engineering to retain legal advice and put the contractual relationship on hold. Dugan's access to the database was revoked after this incident;
(C)On behalf of Optimal Group, negotiating and entering into an employment agreement with Antti Kilpikoski of Process Group, in competition with Process Group; and
(D)Making representations to the National Australia that that the Second to Sixth Defendants were seeking to vary the terms of Process Groups' facilities with the NAB, without Board approval, which caused the NAB to freeze Process Group's facilities; and
(v) an exemption from the restraint clause.
PARTICULARS
The releases referred to in subparagraph (iv) herein and the exemption referred to in subparagraph (v) herein are contained in or evidenced by the following documents:
(a) An email from Adam Brooks to Simon Jay dated 8 May 2013.
(a) Clauses 9 and 15 in the Sale of Shares and Units Deed dated 6 September 2013; and
(b) Clause 12 in the Hobbs Court Sale Deed dated 6 September 2013.
Copies of the documents may be inspected at the offices of the [defendants’] solicitors by prior appointment.
In the course of argument, the plaintiffs also objected to the form and substance of these paragraphs on the basis that they were embarrassing and did not disclose a cause of action.
In [53] of the ASOC, the plaintiffs plead that by reason of the misleading and deceptive conduct, the plaintiffs have suffered loss and damage. In response, in [53] of the amended defence, the defendants deny that allegation and plead, in summary, that:
(1) the plaintiffs failed to mitigate the alleged loss and damage;[20] and
(2) any loss was suffered partly as a result of Mr Dugan’s own failure to take reasonable care, and any liability of the defendants to the plaintiffs is to be reduced having regard to the plaintiffs’ share in the responsibility for the loss and damage in accordance with s 137B of the Competition and Consumer Act 2010 (Cth).[21]
[20]Amended defence, [53(a)].
[21]Amended defence, [53(b)]-[53(c)].
Once again, no particulars were provided.
The plaintiffs sought to strike out [53(a)] to [53(c)] of the amended defence. In response, the PFAD provides in [53], after denying any loss and damage caused by the Representations:
says further that if the [Representations] were made (which is denied), the alleged representations did not cause the plaintiffs to sell their interests in the Process Group … because the plaintiffs were so negligent in protecting their own interests, such that causation has been severed by the intervention of the plaintiffs’ negligence, which negligence is constituted by the following conduct:
(A) Failing to make any proper enquiry as to Degremont generally;
(B) Deliberately refraining from having the Property valued or the units in the Hobbs Court Unit Trust valued;
(C)Deliberately refraining from having Process Holdings valued; and
(D)Recklessly failing to seek to have any warranty in respect to the interest from Degremont included in any sale agreement or deed despite instructing Adam Brooks, the Plaintiffs' solicitor, that Dugan considered Degremont's interest to be serious.
PARTICULARS
On or about 21 March 2013, Adam Brooks, solicitor, for the Plaintiffs informed Simon Jay of Riordan Lawyers verbally that Craig Dugan does not want to get a third party valuer involved at that stage and that he had prepared spreadsheets which Adam Brooks provided to explain how he (Dugan) had arrived at his value for his various equity interests.
In response to an email dated 14 June 2013 from Riordan Lawyers for the Defendants to Herbert Geer, solicitors for the Plaintiffs, stating that a registered valuer would be engaged to give an appraisal of the value of the Property and enable the net value of the units to be worked out, Herbert Geer, solicitors, responded by email dated 21 June 2013 stating, “our client does not believe that a valuation of Hobbs Court would be worth the cost and effort at this time”.
(Dugan’s Own Negligence)
Further, in the PFAD, [53(a)] to [53(c)] remained the same as in the amended defence save that in [53(b)] reference is made to ‘Dugan’s Own Negligence’ rather than unspecified allegations relating to Mr Dugan’s failure to take reasonable care.
In the course of argument, the plaintiffs indicated that they did not oppose the amendments to [53(A)] to [53(D)] of the PFAD but maintained their objections to [53(a)] to [53(c)].
RESTRAINT APPLICATION
3.1 Introduction
As is evident, up to and including the execution of the share sale deed in September 2013, Mr Brooks advised the plaintiffs and represented them in negotiating the sale of their interests to the defendants. At that time Mr Brooks was a partner of the Melbourne firm, Herbert Geer.
In March 2014, Mr Brooks, together with other partners of Herbert Geer, joined Thomsons Lawyers and the firm Herbert Geer ceased to operate. As I set out in more detail below, Thomsons Lawyers did not acquire Herbert Geer or assume its liabilities. Thomsons Lawyers then changed its name to Thomson Geer.
In around June 2019, Mr Barrett, a partner of Thomson Geer, was engaged to act for the plaintiffs. This proceeding was commenced by writ filed on 5 September 2019 and Thomson Geer is the firm on the record for the plaintiffs.
In 2019 and 2020, a number of procedural orders were made to prepare this matter for hearing. This included for pleadings, discovery, the filing and service of subpoenae, for amended pleadings in the second half of 2020, and for witness outlines and expert reports. Relevantly:
(1) the plaintiffs were to file their witness outlines by 18 December 2020 and their expert reports by 29 January 2021; and
(2) the defendants were to file their witness outlines by 1 March 2021 and their experts reports by 5 March 2021.
On 23 December 2020 the plaintiffs filed witness outlines, including an outline of Mr Brooks who the plaintiffs intend to call as a witness of fact at the trial.
There was a directions hearing on 19 February 2021. I made orders extending the time for the defendants to file their witness outlines until 25 March 2021 and their expert reports until 7 April 2021.
On 22 February 2021 the defendants’ solicitors (‘Cornwalls’) wrote to Thomson Geer, asserting for the first time that, by reason of Mr Brooks being a witness for the plaintiffs, Thomson Geer should cease to act for the plaintiffs in this proceeding (the ‘22 February 2021 letter’). That letter alleged that [46A] and [51] of the amended defence put the advice given, or neglected to be given, by Mr Brooks in relation to the sale in issue. In these circumstances, it was alleged that Thomson Geer ‘has a direct interest in ensuring that the evidence given by Mr Brooks does not give rise to any professional liability issues for [Thomson Geer], and therefore has a serious conflict of interest’. The 22 February 2021 letter referred to r 13.4 of the Professional Conduct and Practice Rules 2005. It requested that Thomson Geer confirm they will cease to act for the plaintiffs by 4:00pm on 5 March 2021.
On 2 March 2021 Thomson Geer responded, rejecting any allegation that Thomson Geer had a conflict of interest and setting out the reasons why it was entitled to continue to act for the plaintiffs (the ‘2 March 2021 letter’). In particular, the letter referred to the fact that Mr Brooks advised the plaintiffs in relation to the sale in his capacity as a partner of the firm Herbert Geer and not Thomson Geer. It also referred to r 27 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 (the ‘Solicitors’ Conduct Rules’), which replaced the Professional Conduct and Practice Rules 2005.
By summons dated 29 March 2021 the defendants issued the restraint application. I note at this stage that the plaintiffs have asserted that it should be inferred that this application was issued, and is intended, to delay the matter being listed for trial. I am unable to draw that inference on the evidence before me.
It is accepted by the plaintiffs that Mr Brooks is a material witness. The question which the restraint application poses is whether, in the circumstances of this case, the firm of which Mr Brooks is now a partner should be prevented from continuing to act for the plaintiffs.
3.2 Herbert Geer and Thomson Geer
Before considering the relevant principles and the nature of Mr Brooks’ likely evidence at the trial of this proceeding, it is appropriate that I set out the nature of the relationship between Mr Brooks and Thomson Geer, of which he is now a partner and which has acted for the plaintiffs since around June 2019.
The Chief Executive Partner of Thomson Geer, Mr Tembel, affirmed an affidavit on 20 May 2021 setting out the nature of that relationship. He deposed that he negotiated with the senior partners of Herbert Geer to join Thomson Geer (which, at the time, was known as Thomsons Lawyers). The effective date which those partners and other staff of Herbert Geer joined Thomsons Lawyers was 31 March 2014. On the effective date:
(1) the partners of Herbert Geer resigned as partners of that firm (the ‘resigning HG partners’);
(2) upon those partners resigning from Herbert Geer, by resolution of the partners of Thomsons Lawyers, the resigning HG partners became partners of Thomsons Lawyers;
(3) Thomsons Lawyers acquired certain assets from Herbert Geer; and
(4) Thomsons Lawyers then changed its name to Thomson Geer.
Further, he deposed that:
(1) there was no merger between the businesses of Herbert Geer and Thomson Geer;
(2) Herbert Geer ceased to operate as a law firm from the effective date and was subsequently wound up;
(3) all liabilities of Herbert Geer in the operation of that firm prior to the effective date remained with the partners of that firm and were not assumed by Thomson Geer;
(4) Thomson Geer did not assume any risk or liability of Herbert Geer associated with the conduct of its professional practice prior to the effective date, including professional indemnity liabilities and risks;
(5) as a result, Mr Brooks remains liable for any claims made in respect of advice provided to clients of Herbert Geer prior to the effective date; and
(6) further, Mr Brooks and the other resigning HG partners agreed to indemnify the ongoing partners of the firm in respect of all such liabilities.
Further, Mr Tembel deposed that, consistent with the agreement, since the effective date, if a claim is notified against a resigning HG partner who has become a partner of Thomson Geer in respect of a liability which arose before the effective date, then Thomson Geer’s professional indemnity insurance policy is responsive to that claim as it provides retroactive cover in relation to such liabilities of the resigning HG partners. However, any liability on account of the deductible payable to the insurer in respect of any such claim is the liability of the resigning HG partners and would have to be met by them.
Similarly, if there is any insurance risk in respect of the insurance policy operating to indemnify Thomson Geer for such a claim, that risk will be borne by the resigning HG partners not the ongoing partners of Thomson Geer.
Neither Thomsons Lawyers nor Thomson Geer acted for the plaintiffs in relation to the sale by the plaintiffs of their interests in the Process Group, which was completed on 6 September 2013. Further, Mr Barrett of Thomson Geer only commenced acting on behalf of the plaintiffs in around June 2019. I will deal further below with the circumstances in which Mr Barrett was engaged by the plaintiffs.
Mr Barrett deposed that this proceeding is a substantial and complex proceeding. The plaintiffs’ claims amount to approximately $7 million together with costs of the proceeding. He also deposed to the significant work that has been undertaken by Thomson Geer in respect of this proceeding, including discovery, proofing of the plaintiffs’ witnesses, preparing witness outlines and preparing the court book.
He deposed that, if the injunction is granted, the plaintiffs would be substantially prejudiced. This would primarily consist of the substantial costs that would be incurred in instructing another firm, which he estimates in the order of not less than $100,000. This is in the context of the significant fees already incurred. In addition, he deposed that he has developed a strong relationship with the principal of the plaintiffs and the first plaintiff, Mr Dugan.
3.3 Mr Brooks’ Involvement in This Proceeding
There was some evidence of Mr Brooks attending the mediation in this proceeding in May 2020. As a result, with the leave of the Court, the plaintiffs filed the third and fourth affidavits of Mr Barrett in which Mr Barrett deposed to Mr Brooks’ involvement in the proceeding.
In summary, in the third Barrett affidavit, Mr Barrett deposed that:
(1) Mr Brooks referred Mr Dugan to Mr Barrett in about April 2019 to advise about a potential claim against the defendants. Mr Barrett did not previously know Mr Dugan;
(2) Mr Barrett attended meetings with Mr Dugan and Mr Brooks in April and June 2019 in which Mr Brooks explained the background of the transaction and provided relevant documents;
(3) since agreeing to act for Mr Dugan in this proceeding, Mr Barrett has been solely responsible for the conduct of the proceeding assisted by solicitors under his supervision. Mr Brooks has not been in any way involved in the conduct of the proceeding;
(4) on 19 May 2020, a mediation was conducted at Thomson Geer’s offices. Mr Brooks attended the mediation at Mr Barrett’s request. This was in light of Mr Brooks’ detailed knowledge of the history giving rise to the proceeding and his relationship with Mr Dugan, which Mr Barrett thought would be of assistance at the mediation. Mr Barrett participated in the mediation as the plaintiffs’ solicitor in charge of the matter; and
(5) should Thomson Geer continue to act for the plaintiffs in the proceeding, Mr Brooks will continue to have no role in the conduct of the proceeding other than as a lay witness.
However, in the fourth Barrett affidavit, Mr Barrett deposed that in fact Mr Brooks had further involvement in the proceeding. That involvement relevantly included:
(1) in July and August 2019, Mr Brooks provided further documents to Mr Barrett and liaised with Mr Barrett and Mr Dugan regarding the development of the claim against the defendants;
(2) in September 2019, Mr Brooks reviewed various emails that Mr Barrett sent to him about this proceeding. Mr Brooks attended the end of a meeting between Mr Barrett and Mr Dugan on 4 September 2019 to discuss instituting this proceeding, but Mr Brooks did not participate in any substantive discussion;
(3) in December 2019, Mr Brooks reviewed material which Mr Barrett provided to him after discovery and attended a conference with Mr Dugan and Mr Barrett on 13 December at which they discussed, among other things, the service of a Calderbank letter;
(4) in February and April 2020, Mr Brooks reviewed documents provided to him by Mr Barrett including the Tuckett report, a chronology and materials from the defendants, and liaised with Mr Barrett about strategy ahead of the mediation;
(5) in May 2020, Mr Brooks prepared for and attended the mediation and, after that mediation failed, Mr Brooks received phone calls from Mr Dugan and liaised with Mr Barrett regarding strategy;
(6) in July 2020, Mr Brooks reviewed particular emails produced by other parties to the proceeding presumably by way of discovery; and
(7) in October and December 2020, Mr Brooks prepared his outline of evidence in the proceeding and, for that purpose, considered documents and conferred with counsel.
Mr Barrett deposed that he had now reviewed the invoices issued by Thomson Geer to the plaintiffs on the file for this proceeding. 14.8 hours of Mr Brooks’ time has been charged on that file to the plaintiffs at a cost of $9,990 (excluding GST), of which 11.3 hours relate to the preparation of Mr Brooks’ outline of evidence.
Further, Mr Barrett deposed that he has become aware since 18 August 2021 that Mr Brooks has charged Mr Dugan on his own file (the ‘Brooks file’) for 27.6 hours of his time spent in respect of the proceeding at a cost of $18,630 (excluding GST), of which 12.2 hours relate to Mr Brooks’ preparation for and attendance at the mediation. At [11] of the fourth Barrett affidavit, Mr Barrett deposed that no time has been charged on the Brooks file referable to the proceeding since 31 July 2020. However, at [12], Mr Barrett deposed that, excluding time spent in connection with the mediation and preparing his outline of evidence, 18.9 hours had been charged for Mr Brooks’ time on the Brooks file in the period from 28 February 2019 to 31 December 2020.
Mr Barrett deposed that the prospect of Mr Brooks giving evidence in the proceeding was first raised with Thomson Geer by counsel on 14 August 2020. Since that date, the only time of Mr Brooks which has been charged to the plaintiffs is in respect of the preparation of Mr Brooks’ outline in October and December 2020.
With leave of the Court, the defendants filed submissions and the sixth Kanhai affidavit in response to the third and fourth Barrett affidavits.
The defendants submitted that the conflicting accounts of the involvement of Mr Brooks in the affidavits of Mr Barrett demonstrate that the plaintiffs have failed to be frank with the Court about disclosing Mr Brooks’ involvement in the conduct of the proceeding, or whether the extent of the purported involvement as deposed to by Mr Barrett is accurate.
In summary, the defendants submitted that this is because:
(1) the third Barrett affidavit demonstrates that Mr Barrett has sacrificed his duty to the Court and to his client in favour of his partner, Mr Brooks. Mr Barrett only resiled from his statement that Mr Brooks has not in any way been involved in the conduct of the proceeding after an enquiry from the defendants’ solicitors as to whether the plaintiffs had been charged for legal services provided by Mr Brooks;
(2) Mr Barrett has sought to minimise Mr Brooks’ role in the conduct of the proceeding, which is inconsistent with the content of the narrations referred to in tax invoices issued to the plaintiffs. Those invoices indicate that Mr Brooks has charged the plaintiffs for, amongst others, judgment calls on claim assessment, liaising with Mr Barrett regarding strategy and strategic direction, and conferring and participating in meetings with counsel;
(3) Mr Brooks has charged the plaintiffs $28,530.00 (excluding GST) for his time in relation to the proceeding; and
(4) Mr Barrett’s explanation for his qualification to the third Barrett affidavit, namely that he had not reviewed the invoices and was not aware that Mr Brooks had rendered his own invoices, is implausible in view of the content of the narrations on those invoices.
Ms Kanhai deposed that Mr Brooks, together with Mr Barrett, participated in the mediation as instructing solicitors for the plaintiffs. Ms Kanhai deposed that Mr Brooks was included in a number of emails between Cornwalls, Thomson Geer and the mediator regarding the anticipated conduct of the mediation, including that Mr Barrett advised by email that the plaintiffs were attending the mediation in person through Mr Dugan and his wife, and Mr Barrett would also attend ‘together with [his] partner, Adam Brooks’.
Further, the defendants submitted that no explanation has been offered as to why Mr Brooks himself has not provided an affidavit to the Court as to the nature of his role in the conduct of the proceeding.
3.4 The Relevant Legal Principles
The principles to be applied in determining whether to exercise the Court’s inherent jurisdiction to restrain solicitors from acting in the administration of justice were generally not in dispute. Those principles were summarised in Kallinicos v Hunt (‘Kallinicos’) as follows:[22]
[22](2005) 64 NSWLR 561, 582-3 [76] (‘Kallinicos’).
(1) 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 processes in aid of the administration of justice;
(2) the test to be applied is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a lawyer should be prevented from acting, in the interest of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice;
(3) the jurisdiction is exceptional and is to be exercised with caution;
(4) due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without good cause; and
(5) the timing of the application may be relevant, in that the cost, inconvenience and impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief.
The mere prospect of a solicitor being called to give evidence as a material witness, even on controversial matters, is not enough to invoke the jurisdiction of the Court to restrain the solicitor from acting. As Brereton J noted in Mitchell v Burrell (‘Mitchell’):[23]
the line is crossed only when the solicitor has a personal stake in the outcome of the proceedings or in their conduct, beyond the recovery of proper fees for acting, albeit that the relevant stake may not necessarily be financial, but involves the personal or reputational interest of the solicitor, as will be the case if his or her conduct and integrity come under attack and review in the proceedings. The presence of such circumstances will be a strong indication that the interests of justice – which in this field involve clients being represented by independent and objective lawyers unfettered by concerns about their own interests – require the lawyer to be restrained from continuing to act.
[23][2008] NSWSC 772, [20] (‘Mitchell’).
Further, the Court’s inherent jurisdiction to restrain a solicitor from acting is discretionary. In exercising that discretion, the Court must take into account the prima facie right of a party to be represented by the lawyer of his or her choice, the inconvenience, cost and disruption which might be caused in requiring a party to change lawyers, and the exceptional nature of the Court’s jurisdiction.[24]
[24]Kallinicos (n 22) 586 [92].
Finally, it is important to bear in mind that the conclusion that must be reached is that the administration of justice, including the appearance of its administration, ‘requires’ that the solicitor should be prevented from continuing to act. This point was emphasised by Pagone J in Premier Capital (China) Ltd v Sandhurst Trustees Ltd.[25] As noted by his Honour, there may be circumstances where a fair-minded reasonably informed member of the public may conclude that it would be prudent that a solicitor not act in a proceeding. However, the test is whether the administration of justice ‘requires’ that the solicitor be prevented from continuing to act.
[25][2012] VSC 611, [3], [13].
It goes without saying that, while these principles can be simply stated, their application depends on the facts of each case. While the facts of each case are different, I have found it instructive to have regard to the facts of the two primary cases relied upon by the parties, namely Kallinicos and Mitchell. This is in light of the submissions of the defendants and the plaintiffs, the former of whom sought to highlight factual similarities and the latter of whom sought to highlight factual differences. Further, this analysis has helped me better understand how and when these principles are applied.
Before doing so, there is one issue I wish to address at this stage. There was some argument about the effect of the new r 27.2 of the Solicitors’ Conduct Rules on the circumstances in which the Court might exercise its discretion to restrain a solicitor from acting. The new r 27.2 of the Solicitors’ Conduct Rules provides:
In a case in which it is known, or becomes apparent, that a solicitor will be required to give evidence material to the determination of contested issues before the court the solicitor, an associate of the solicitor or a law practice of which the solicitor is a member may act or continue to act for the client unless doing so would prejudice the administration of justice.
The Solicitors’ Conduct Rules became operative on 1 July 2015. Prior to that, the applicable conduct rule was r 13.4 of the Professional Conduct and Practice Rules 2005, which provided:
13.4A practitioner must not unless exceptional circumstances warrant otherwise in the practitioner's considered opinion:
13.4.1 appear for a client at any hearing, or
13.4.2 continue to act for a client,
in a case in which it is known, or becomes apparent, that the practitioner will be required to give evidence material to the determination of contested issues before the court.
The plaintiffs submitted that, while the reformulated r 27 does not change the underlying purpose of the rule, namely to protect the administration of justice, the content of r 27 contains two material differences. First, the presumption is now in favour of a solicitor continuing to act. Second, there is now an onus on the person seeking to restrain the solicitor from continuing to act to show that their continued acting ‘would prejudice the administration of justice’.[26]
[26]Relying upon Hempseed v Ward and Anor [2013] QSC 348, [35]-[36] (McMeekin J).
The plaintiffs submitted that it may be inferred that the reversal of the evidential onus was intended to reflect the public interest in a litigant not being deprived of the lawyer of his or her choice without good cause. Further, the plaintiffs submitted that the new rule requires that there must be a real, as opposed to apparent, risk of prejudice.[27] In oral argument, counsel for the plaintiffs submitted that, if a reasonably informed member of the public, into whose shoes the Court must step, is to be sufficiently concerned so as to conclude that the proper administration of justice requires that a lawyer should be prevented from acting, real prejudice will figure highly in that person’s mind.
[27]Relying upon Mitchell (n 23) [20]-[21].
For my part, to the extent that r 27 is relevant to the exercise of the Court’s inherent jurisdiction to restrain a solicitor from acting, I consider that r 27 is generally consistent with the principles in Kallinicos and Mitchell set out above. In this regard, I refer to the comments of Brereton J in Kallinicos to the effect that, while the rules of conduct are of some relevance to the Court’s discretion, they are far from decisive.[28]
[28]Kallinicos (n 22) 585 [87]. I note that his Honour was considering the New South Wales predecessor to r 27. See also Barrack Corporation Pty Ltd v The Kara Group of Companies Pty Ltd [2014] NWSCA 395, [49] (Adamson J, Barrett JA and Sackville AJA agreeing).
However, consistent with the authorities, I agree with the plaintiffs’ submission that whether or not a solicitor or firm should be restrained from continuing to act will depend upon the particular circumstances and facts. The Court is to weigh up the degree of risk of conflict of the relevant kind, any prejudice to the parties, the readiness of the matter for trial, the likely cost of changing solicitors and the practical realities. In that context, I will now turn to the facts in Kallinicos and Mitchell.
Kallinicos was a proceeding arising from the breakdown of a partnership between the first plaintiff, Mr Kallinicos, and the first defendant, Mr Hunt. The other parties to the proceeding were companies of which Mr Kallinicos and/or Mr Hunt were directors and shareholders and which conducted the business of the partnership, being acquiring and reselling properties for profit. One of those companies was Rowntree Properties Pty Ltd (‘Rowntree’).
Before the proceeding was issued, Mr Kallinicos sent a letter to Mr Hunt on 9 November 2001 purporting to terminate the partnership between them. Mr Moloney, then of Eddy & Moloney, responded to that letter on behalf of Mr Hunt. By that time, Mr Moloney had acted on behalf of Rowntree in the sale of some lots of land owned by the partnership. After that time, he continued to act for Rowntree in relation to the sale of further lots. The letters distributing the proceeds of these sales were signed by Mr Moloney.
In the proceeding, among other things, Mr Kallinicos disputed the distribution of the sale proceeds to Mr Hunt’s interests to the exclusion of Mr Kallinicos’ interests. Mr Kallinicos also alleged that the transfer of one of the lots was effected by a memorandum of transfer which falsely purported to contain his signature.
The proceeding was commenced on 8 January 2003. On or about 4 February 2003, Mr Moloney filed a notice of appearance on behalf of the defendants. On 13 October 2003, Mr Moloney filed a notice of change of solicitor, the effect of which was that he ceased to act for Rowntree but continued to act for the other defendants.
On 21 April 2005, Mr Kallinicos sought an order restraining Mr Moloney from acting on behalf of any of the defendants in the proceeding. This was primarily on the basis that Mr Moloney, having acted for Rowntree as vendor on the sales, was a material witness. At the time of the application, despite being on foot for over two years, the proceeding had largely involved procedural issues concerning pleadings and particulars and no defence had been filed.
At the time of the application the solicitors on record for the defendants was Moloney Lawyers. The reasons do not address the fact that this was a different firm to the one that acted in the lot sales. It seems likely this was because the application appears to be an application to restrain Mr Moloney himself.
As to the relevant principles, after an extensive review of the authorities, Brereton J set out the principles referred to in [61] above.
As to the likely evidence of Mr Moloney, Brereton J was satisfied that Mr Moloney would be a material witness in the proceeding on issues of substance which appeared to be controversial, in particular, as to what instructions were given for the disbursement of the sale proceeds and by whom. Further, his Honour was satisfied that there was a ‘high degree’ of probability that Mr Moloney’s evidence and/or conduct would come under scrutiny, including how Mr Moloney, being on notice of the claims of Mr Kallinicos, could accept instructions to distribute the proceeds for the benefit of Mr Hunt.[29]
[29]Kallinicos (n 22) 584 [84]-[85].
Justice Brereton concluded that Mr Moloney would be in a position in which his clients’ interests, his own interest, and his obligations to the court might be in conflict and, as a result, a fair-minded, reasonably informed member of the public would consider that the independent objectivity of Mr Moloney was compromised.[30] In this context, his Honour noted that ‘if a practitioner’s credibility is at stake as a witness, his personal integrity may be put in issue and that may constitute a personal interest inconsistent with the practitioner’s duty to the court or to the client’.[31]
[30]Ibid 584 [86], 585-6 [90].
[31]Ibid 584-5 [87].
Justice Brereton took into account that senior and junior counsel had been retained by the defendants. His Honour also took into account that the concerns as to the objectivity of Mr Moloney as a witness would not disappear if he ceased to act for the defendants. However, he concluded that these matters:[32]
do not alter the fundamental problem, that the fair-minded reasonably informed observer would think that Mr Moloney’s independence and objectivity as a solicitor would be comprised. The scrutiny which Mr Moloney’s conduct would attract, and his knowledge of the instructions for the disbursement of the proceeds of the relevant units, means that fair-minded members of the public would perceive Mr Moloney as not being able, however well intentioned, to advise his client and conduct the proceedings free of and unaffected by the impact of personal interest.
[32]Ibid 586 [91].
Justice Brereton then considered whether in these circumstances the Court should exercise its discretion to restrain Mr Moloney from acting. He took into account the prima facie right of a party to be represented by the lawyer of his or her choice, the inconvenience, cost and disruption which might be occasioned by requiring a party to change lawyers, and the exceptional nature of the jurisdiction.[33] He noted that the proceedings were at a very early stage. He concluded that, notwithstanding a party’s prima facie right to be represented by the lawyer of his or her choice, this was a case which should ‘succumb to the higher interests of the administration of justice’ and relevant discretionary considerations did not significantly weigh against that result.[34]
[33]Ibid 586 [92].
[34]Ibid 587 [95].
In Mitchell, the defendants (Mr and Mrs Burrell) purchased a house on 20 April 2006 substantially with funds provided by the plaintiff (Mrs Mitchell). The issue was whether the house was held on trust for Mrs Mitchell. Mrs Mitchell’s solicitor at the time of the purchase was Mr Morey of Slattery Jurd. He also acted for Mrs Mitchell for a time in the proceeding. After that time, Mr Jurd, another partner at Slattery Jurd, acted for Mrs Mitchell in the proceeding.
In the statement of claim, Mrs Mitchell alleged that Mr Burrell discouraged her from seeking legal advice with respect to their agreement and that she subsequently did not seek or receive such legal advice. The statement of claim was signed and certified by Mr Morey.
The defendants sought an injunction restraining Mrs Mitchell’s solicitors (Slattery Jurd) and its principals (Mr Morey and Mr Jurd) from continuing to act on the basis that Mr Morey was likely to be a material witness whose evidence was in conflict with Mrs Mitchell. The application against Mr Jurd was put on the basis that he was, as Mr Morey’s partner, unable to bring a proper professional and objective mind to the proceeding.
The conflict was based upon a letter dated 22 June 2006 from Mr Morey to Mrs Mitchell (the ’22 June 2006 letter’) which suggested Mrs Mitchell had received legal advice from Mr Morey. The subject of the letter regarded Mrs Mitchell’s pension entitlements being affected by the purchase of the property in the name of the defendants. It continued: ‘I gave you specific advice in the past and my secretary re-confirmed this with you as these difficulties were foreseen and discussed with you almost 8 months ago’.[35] The defendants submitted this was inconsistent with the allegations in the statement of claim signed by Mr Morey.
[35]Mitchell (n 23) [5]
Justice Brereton noted that at first sight there was an apparent tension between the contents of the letter and the allegations in the statement of claim that Mrs Mitchell did not seek or receive legal advice about the proposed transaction with the defendants.[36] In addition:
[36]Ibid [6].
(1) in response to a request for particulars as to whether the plaintiff denied receiving legal advice, Mr Morey replied that Mrs Mitchell did not receive legal advice in respect of the agreement with the defendants until on or about 22 June 2006 (which was after the purchase of the property);
(2) in response to a request that Slattery Jurd cease to act, Mr Morey again denied that he gave the plaintiff specific advice in relation to the property until 22 June 2006;
(3) however, Mr Morey confirmed that in about October or November 2005 Mrs Mitchell advised Mr Morey that she was discussing a general arrangement with the defendants to purchase a property, but not the property in fact purchased in April 2006.
In these circumstances, Brereton J said that there was a ‘real and substantial’ risk that Mr Morey may be a material witness.[37] Brereton J continued:[38]
Mr Morey’s evidence may be controversial, because at least on one view of the presently available material it could contradict allegations made by Mrs Mitchell. One does not know in any detail what will be his version of what Mrs Mitchell related to him of the September 2005 conversations, but there has to be some potential that it will not coincide with her version, or with the version that would be most favourable for her. As to the advice she sought and was given, I appreciate that their versions may coincide, but the material presently available suggests that the contrary is distinctly possible.
[37]Ibid [15].
[38]Ibid [18].
Justice Brereton was satisfied that Mr Morey’s conduct may come under attack. This was because of the potential anomalies between the version of events pleaded and certified by him in the statement of claim on the one hand and his 22 June 2006 letter on the other, the manner in which he responded to requests, and the ‘rather fine’ distinctions drawn in his ultimate explanation of those anomalies.[39]
[39]Ibid [22].
Justice Brereton noted that, while there might be a good explanation for such anomalies, the material before the Court suggested that it was very likely there would be a robust attack on Mr Morey’s credit.[40] His Honour said that lies at ‘the heart of the problem’.[41] If Mr Morey was to be called as a witness to corroborate the allegation that Mrs Mitchell had not received legal advice that would appear, at first sight, to be prima facie inconsistent with Mr Morey’s correspondence. His Honour noted this ‘would leave more than a little room for the suggestion that such evidence was at least “tailored”, out of loyalty to his client’.[42]
[40]Ibid [22].
[41]Ibid [23].
[42]Ibid [23].
In those circumstances, his Honour was satisfied that a fair-minded, reasonably informed member of the public would entertain ‘serious reservation’ as to whether decisions about the conduct of the plaintiff's case would be made exclusively in the interests of the plaintiff or would be influenced by Mr Morey’s own interests. As to the discretionary factors, his Honour did not consider that any such considerations told against making orders to restrain the solicitors: the case was at a relatively early stage and additional costs involved in having to instruct new solicitors would be relatively small.
4.7 Proportionate Liability Defence – [53(b)] and [53(c)]
As set out above, the proportionate liability defence in [53(b)] and [53(c)] of the amended defence relies upon s 137B of the Competition and Consumer Act 2010 (Cth). However, the plaintiffs only sue on the Victorian ACL. The defendants submitted that there was some uncertainty as to whether the plaintiffs only relied upon the Victorian ACL in light of the prayer for relief in the ASOC and their reply. However, counsel for the defendants conceded in argument that, if the plaintiffs clarified that they only rely upon the Victorian ACL, then the defendants are unable to rely upon s 137B of the Competition and Consumer Act 2010 (Cth) and [53(b)] and [(53(c)] should be struck out.
In written submissions dated 12 August 2021, the plaintiffs provided that clarification. As a result, I will strike out [53(b)] and [53(c)] of the amended defence.
CONCLUSION
As to the restraint application, I will dismiss the restraint application.
As to the strike out application:
(1) I will strike out the particulars to [14] and [15] of the ASOC and [14(c)] of the amended defence. I will not allow the amendments to [14(c)] of the PFAD;
(2) I will strike out the first paragraph of the particulars to [15(d)(iv)] of the amended defence. I will allow the amendment to the particulars to [15(d)(iv)] in the PFAD but I will not allow the amendments to [15(c)(ii)] of the PFAD;
(3) I will strike out [15A(h)] of the amended defence which was removed in any event in the PFAD. I will give leave to delete that paragraph in the PFAD;
(4) I will strike out [35(d)-(l)] of the amended defence which were removed in any event in the PFAD. I will give leave to delete these paragraphs in the PFAD;
(5) I will not strike out [46A] and [46B] of the amended defence;
(6) I will strike out [46C] of the amended defence and I will not allow the amendments to that paragraph in the PFAD;
(7) I will strike out [51(iii)] and [51(iv)] of the amended defence in their entirety and I will not allow the amendments to [51(iii)] and [51(iv)] of the PFAD;
(8) I will allow the amendments to [53(A)] to [53(D)] of the PFAD subject to (10) below;
(9) I will strike out [53(a)] to [53(c)] of the amended defence and I will not allow the amendments to those paragraph in the PFAD; and
(10) I will allow the amendments in [60G] and [60H] of the PFAD on the condition the relevant conduct relied upon is Dugan’s Own Negligence as defined in the particulars to [53(A)] to [53(D)].
I will hear from the parties on the form of orders to be made and costs. In the absence of agreement, I will list the proceeding for mention. At that time, orders can also be made for the future conduct of the proceeding including the outstanding discovery application.
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