Equuscorp Pty Ltd v Acehand Pty Ltd
[2003] VSC 186
•6 June 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL & EQUITY DIVISION
PRACTICE COURT EQUUSCORP PTY LTD LIST
No. 7713 of 2000
| EQUUSCORP PTY LTD (ACN 006 012 344) | Plaintiff |
| v | |
| ACEHAND PTY LTD & ORS | Defendants |
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JUDGE: | Balmford J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 9 & 15 April 2003 | |
DATE OF JUDGMENT: | 6 June 2003 | |
CASE MAY BE CITED AS: | Equuscorp v Acehand | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 186 | |
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BREACH OF CONFIDENCE – leasing investment scheme – firm of solicitors retained by lessor to undertake conveyancing of land and preparation of prospectus letter in relation to title of land – whether same firm of solicitors restrained from acting for an investor (lessee) – whether firm of solicitors had access to confidential information – whether real and sensible possibility of misuse of confidential information – whether duty of loyalty existed –no real risk of misuse of confidential information found – no duty of loyalty found.
Local Government Act 1919 (NSW)
Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd [2002] VSC 324
Farrow Mortgage Services Pty Ltd (In liq.) v Mendall Properties Pty Ltd [1995] 1 VR 1
Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501
Holdsworth v M R Anderson & Associates (unreported, delivered on 26 August 1994)
Yunghanns v Elfic (unreported, delivered on 3 July 1998)
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M R Scott | Wilmoth Field Warne |
| For the 208th Defendant | Mr M R Pearce | Collins & Stephens |
HER HONOUR:
Introduction
This is the return of a summons by the plaintiff filed on 3 September 2002 seeking orders:
·that the 208th defendant (“Mr Stewart”) be restrained from retaining and/or continuing to retain Collins & Stephens as his solicitors in this matter;
·that Mr Stewart be restrained from receiving from Collins & Stephens any information communicated to that firm in confidence by Sintoff Pty Ltd (“Sintoff”) and/or Seymour Softwoods Pty Ltd [an error for Seymour Softwoods Ltd] (“Seymour”) and/or Berrema Finance Pty Ltd (“Berrema”) in the course of acting for any and/or each of them; and
·that Collins & Stephens be restrained from acting for and/or advising Mr Stewart in this proceeding.
As Habersberger J said in Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd [2002] VSC 324 at [25]:
. . . in every case involving an application to restrain a solicitor from acting, it is a question of balancing the competing considerations - one party's right to be represented by solicitors of its choosing against another party's right not to have its (former) solicitors acting against it in the same or substantially the same proceeding.
The substantive proceeding arises out of a failed investment scheme (“the scheme”). The investors (who are referred to in the documents as “growers”) are or are intended to be lessees from Sintoff of small areas of pine plantation at Holbrook and Tumbarumba in New South Wales. The investment was promoted by Seymour. Berrema appears to have been involved in some way in the financing arrangements. Those three companies are closely related and are conveniently referred to as “the Seymour Group”. A receiver was appointed to each of them on 20 June 1995. The plaintiff became the successor to Sintoff by a chain of assignments. By Deed dated 17 January 1992, Sintoff assigned to RMBL Investments Pty Ltd (“RMBL”) its rights under the leases. By Deed dated 18 December 1996, RMBL assigned those rights to the plaintiff. By Deed dated 10 July 1997, the plaintiff assigned those rights to Sintoff. Further, by Deed dated 12 October 2000, the receiver of Sintoff re-assigned those rights to the plaintiff. As that successor, the plaintiff is seeking to enforce the terms of the leases against some 500 defendants. Two test cases are in course of preparation and at the time of the hearing of the summons pleadings had not yet closed.
The defendants are grouped, for the purpose of the substantive proceeding, according to the year in which they invested. Those who invested in the first year did so without a prospectus; those who invested in the second year invested pursuant to the first prospectus; those who invested in the third year did so pursuant to the second prospectus, and so on. The first and second prospectuses are almost identical. There are four prospectuses altogether.
Some of the defendants have taken the point under a provision of the Local Government Act 1919 of New South Wales (“the Local Government Act”) that a lease for more than five years of part of the land in a title is a subdivision and requires Council approval, which was not obtained, and accordingly the leases are void or unenforceable. The plaintiff’s reply denies this submission on grounds of both law and fact. Mr Stewart has not yet filed his defence, and it is not known whether he will take the point.
The firm of Collins & Stephens was retained by Sintoff to undertake, and did in fact undertake, the conveyancing on the purchase of the land, some at Holbrook and some at Tumbarumba, which was subsequently leased to the investors (“the New South Wales land”). That firm was also concerned with the conveyancing on the purchase by Sintoff of other properties at Seymour in Victoria, which was not relevant to the scheme. As well as carrying out the conveyancing on the purchase of the New South Wales land, Collins & Stephens also prepared letters addressed to the Commissioner for Corporate Affairs, setting out the state of the title to that land. Those letters were included in the first and second prospectuses, which also recorded the consent of the firm to their inclusion. The letters were prepared on instructions from Mr Davis of McPherson + Kelley (who now use not an ampersand but a plus sign in the name under which they practise), the firm of solicitors who were acting for the Seymour Group on the preparation of those prospectuses. The firm otherwise received its instructions from a Mr Carl Smith, a director of all three companies.
I do not believe any of the foregoing to be contentious. However, Mr Stephens of Collins & Stephens has deposed that his firm at no stage acted for Sintoff beyond what is set out in the preceding paragraph, and that statement is challenged by the plaintiff.
Confidential information
Mr Scott, for the plaintiff, relied first on the following passage from the judgment of Hayne J in Farrow Mortgage Services Pty Ltd (In liq.) v Mendall Properties Pty Ltd[1] , which was effectively adopted by the Court of Appeal in Spincode Pty Ltd v Look Software Pty Ltd[2]:
Although it is necessary to be acutely conscious of the fact that the court is asked to interfere with the right of a litigant to be represented by the solicitor of the litigant's choice, it is not necessary to conclude that harm is inevitable (or well nigh inevitable) before acting to restrain a possible breach of the duty that a solicitor owes to clients and former clients to keep confidential information given to the solicitor in confidence and not use that information against the interests of the client who gave it to the solicitor. For present purposes . . . [i]t is enough to say that I consider that injunction should go if there is a real and sensible possibility of the misuse of confidential information.
[1][1995] 1 VR 1 at 5
[2](2001) 4 VR 501 at [24], [52], and [61] to [63]
Mr Scott submitted that during his retainer Mr Stephens had had access to confidential material of the plaintiff, relating to the scheme, and that there was a real risk of the misuse of that confidential information if Collins & Stephens continued to act for Mr Stewart. Mr Stephens has deposed that neither he nor any member or employee of his firm has any confidential information which could be used to the detriment of the plaintiff.
Mr Scott produced a large number of documents, apparently extracted from conveyancing files formerly maintained by Collins & Stephens, and exhibited to the affidavits of Mr Tsiakis, a solicitor in the employ of the firm of solicitors representing the plaintiff in this matter. He submitted that from those documents it could be inferred that Mr Stephens had access to confidential information relating to the scheme. Some of those documents can be put on one side as irrelevant for the following reasons:
Unreadable: TT12, TT14, TT20
Related only to the Victorian land: TT15, TT17, TT18, TT19, TT22
Dealing solely with matters appropriate to be considered or acted on by a solicitor acting for a purchaser of land, including matters relating to consents for the proposed use of the land: TT8, TT9, TT11, TT16
Included in error because of the confusion between the business name “Seymour Softwoods” owned by Edward Grace Pty Ltd (“Edward Grace”), another client of Collins & Stephens and the company Seymour: TT13
Draft forms of agreement with Edward Grace: TT33, TT34, TT35.
The third and fourth prospectuses, which are unrelated to the present matter: TT3, TT4
In the letters for inclusion in the first and second prospectuses, TT1 and TT2, Collins & Stephens gave their own advice as to the description and title position of the several parcels of the New South Wales land. Having acted on the purchase of that land, they were in a position to give that advice. On the other hand, statements in those letters as to the ability of Sintoff to give quiet enjoyment, as to the proposal to lease the land to growers, as to the consent of the mortgagee to leasing to the growers and as to permits granted by the Holbrook and Tumbarumba Shire Councils for the use of the land for commercial radiata pine plantations were prefaced by the words “We are instructed” or “We are informed”. Collins & Stephens were clearly aware of the limitations on what they could state of their own knowledge. The text of the letters does not in any way indicate that the firm had any confidential information over and above their knowledge of the titles to the New South Wales land, which is not relevant for present purposes. Drafts of the letter, or references to such drafts, appear at TT37, TT40, TT46, TT47, and TT49 to TT51, and it is not necessary to consider those documents further.
T10 is a fax from Collins & Stephens to the solicitors who were to prepare similar letters for inclusion in the third and fourth prospectuses, enclosing a copy of the format for the letter. TT21 is simply enclosing a cheque “for insurance purposes”.
In TT36, a letter requesting the preparation of the letter for inclusion in the first prospectus, Mr Smith encloses “a copy of the development consent from the Shire.” That enclosure was not before the Court. Mr Scott submitted that this must refer to the approval of the development contemplated by the scheme and that therefore Collins & Stephens must have been aware of the details of that development. However, it will be apparent from the reference to permits in [11] above that it is far more likely to refer to a permit for use of the land for a commercial radiata pine plantation, given that statements as to the existence of such permits were to be included in the letter.
TT38 is a fax from McPherson + Kelley sending to Collins & Stephens an abbreviated early draft of the first six pages of the proposed first prospectus. Mr Stephens deposes that this was sent to him so that he could understand that the lessees to enter into the scheme were to be referred to throughout the prospectus (and therefore in the Collins & Stephens letter) as “growers”. There is no reference in that draft to any matter to do with the Local Government Act, and no indication that Mr Stephens was being informed of anything more than was included in that document.
TT39 is a diary note about the inclusion of another piece of land in the letter being prepared for the prospectus.
TT41 is a detailed bill of costs from Collins & Stephens relating to the purchase of land at Tumbarumba and the drafting of the letter for the prospectus. The style of the bill is such that if Collins & Stephens had had any involvement in the preparation of the scheme, or had received any correspondence or held any conversations relating to the scheme, this would have been apparent from the text of the bill.
In TT42 Ernst & Young, preparing the audit of Sintoff, seek information as to matters on which Collins & Stephens are currently acting for Sintoff, and in TT43 Collins & Stephens reply that their only current matter for Sintoff is the purchase of a piece of land at Holbrook.
TT44 is a note of conversation of Mr Stephens with Mr Smith, who is requesting a letter for the second prospectus. There are references to “leasehold use” and “leases”. However, what is said would appear to be relevant to the content of the proposed letter, and not indicative that Mr Stephens knew any more about the scheme than he needed to know for the preparation of the letter.
TT48, TT52 and TT53 are fax covers indicating that an attached document has four or five pages, and with the endorsement “Re-drafted prospectus for your attention”. TT49 and TT51 are in the same terms, but each actually encloses not the prospectus, but a draft of the letter for the prospectus. TT48 and TT49 bear the same date, TT51 one day later. From the dates, the faxes were clearly sent in the context of the second prospectus. That document has 43 pages. It is apparent that the fax covers, each in the same clear printed handwriting, have been prepared by someone who intended to refer to the letter for inclusion in the prospectus, and not to the prospectus itself. No conclusion can be drawn from those fax covers about any involvement of Collins & Stephens in the preparation of the prospectus, save as to the letter.
In TT54 MacPherson + Kelley request a formal consent from Collins & Stephens to the inclusion of the letter in the prospectus, and in TT55 that consent is supplied.
TT56 is a note of a telephone conversation in June 1990, in which Mr Stephens suggests to Mr Davies of MacPherson + Kelley that he should see a copy of the (second) prospectus, and is told that it will not be necessary. It would appear, therefore, that Mr Stephens knew little about the prospectus at that date.
TT57 is another detailed bill of costs; the comments in [16] above are relevant. It is apparent that the person preparing the bill has been misled by the text of the fax covers referred to in [19] above. TT58 is a note of a request by a colleague of Mr Smith for a copy of the format of the letter relating to the title to the land to be included in the next prospectus, which is to be prepared by the solicitors who acted on the purchase of that land. TT59 is another bill related to one of the conveyancing transactions.
TT45 is a note of a conversation with Mr Smith, where he refers to advice from another firm of solicitors that short term leases for four years were “OK”, no consent was needed and the leases had been structured accordingly. As to that conversation, Mr Stephens deposes that:
I made a note of this conversation for the file although the matters [Mr Smith] told me meant nothing to me. This is because I had had no involvement with any of the issues to do with the leases and was not acting for Sintoff Pty Ltd in relation to any leasing issues. I do not know what the advice was that had been given by Mallesons, nor do I know what advice was sought from Mallesons. I knew nothing of the matters to which Mr Smith was referring as I had no involvement in same. My file note merely records what he told me in that conversation.
This is the only document among all of those to which I was referred by Mr Scott, and which I have listed and described above, which gives any indication that Mr Stephens knew any more about the transaction than he needed to know for the only two tasks which he deposes were entrusted to his firm; the conveyancing to Sintoff of the New South Wales land and the preparation of the letter for each of the first two prospectuses as to the status of the title to that land. It was clearly appropriate that those letters describing the titles to the New South Wales land should be written by the firm which had acted on the purchase. [3] Those tasks required no knowledge of any confidential material relating to the scheme. Naturally, the details of the purchases of the New South Wales land would be confidential as between solicitor and client; but that is another matter and not relevant to the present issue.
[3]And see [11] above
It will be apparent that if Collins & Stephens had been aware of the details of the scheme to the extent that they obtained confidential information of the kind which concerns the plaintiff, their files would have disclosed a great deal more in that context than TT45.
It is impossible to find, on the basis of the material to which I was referred, that there is any real risk of the misuse of confidential information as to the scheme if Collins & Stephens continue to represent Mr Stewart in the substantive proceeding, because I cannot find that they have relevant confidential information to be misused. Nor can I find, on the basis of that material, that the retainer of Collins & Stephens to act for Sintoff extended any further than the performance of the two tasks to which Mr Stephens deposes.
Duty of loyalty
Mr Scott then sought to rely on the principle, sometimes referred to as the “duty of loyalty”, enunciated by J D Phillips J in Holdsworth v M R Anderson & Associates [4] in the following terms [5] :
[After referring to authorities relating to a solicitor with confidential information] But so far as I have been able to see, none of those cases concerned a solicitor who, having once been engaged for a client to effect some transaction was then retained by another to act against the former client in litigation involving that very same transaction. In such a situation, I am strongly disposed to the view that the solicitor ought not to act, and I do not think that that depends upon the existence or not of confidences imparted on the earlier occasion that now merit protection. It seems to me to depend rather upon the existence of the contract of retainer that was made in the first place, than upon the existence of confidences disclosed and meriting protection against misuse.
[4]unreported; decided on 26 August 1994
[5]at 17-18
However, given that I have found no evidence that the retainer of Collins & Stephens for Sintoff extended beyond the conveyancing and the writing of the letter describing the titles which were the result of that conveyancing, it cannot be said that in acting for Mr Stewart in the substantive litigation they are acting against Sintoff (or rather, its successor in title) “in litigation involving that very same transaction”. It has not been suggested to me that there is in the substantive litigation any challenge to the validity of the title to the New South Wales land, which was no doubt accepted by Collins & Stephens in the course of performing their duty as solicitors for Sintoff in its capacity as purchaser. Nor has it been suggested that in that litigation there is any challenge to the accuracy of the letters by Collins & Stephens contained in the first and second prospectuses. The conveyancing and the provision of the letters preceded the transactions concerning the scheme which have given rise to the substantive litigation.
In Spincode [6] Brooking J, after referring to Holdsworth v Anderson and number of other authorities, concluded in effect that it would be a breach of duty “for a solicitor to take up the cudgels against a former client in the same or a closely related matter”. Again, it is difficult to say that the scheme, to which the substantive litigation relates, is “closely related” to the purchase of the New South Wales land, and the writing of a letter describing the title to that land. The only connection is that it deals with the same land. The scheme could not be effected until the purchase of the land was completed. But the scheme was subsequent to the purchase, rather than related to it.
[6]at [52]
One basis for the existence of this duty is the concern of the courts that the solicitor may have become aware of general information about the former client which might be relevant to its attitude to the conduct of litigation, and its likely strategies and thinking about such matters as settlement. As Gillard J said in Yunghanns v Elfic [7] :
. . . it must be borne in mind that a solicitor makes notes, forms views and opinions of clients and observes things that the client may have forgotten or overlooked. In some cases the circumstances of the retainer and the nature of the legal work will be sufficient to establish the nature of the confidential information. In this regard the relationship between solicitor and client may be such that the solicitor learns a great deal about his client, his strengths, his weaknesses, his honesty or lack thereof, his reaction to crisis, pressure or tension, his attitude to litigation and settling cases and his tactics. These are factors which I would call the “getting to know you” factors. The overall opinion formed by a solicitor of his client as a result of his contact may in the circumstances amount to confidential information that should not be disclosed or used against the client.
[7]unreported, decided on 3 July 1998, at 10
However, the retainer did not involve, so far as I can find, acting in any litigious matters where the kind of information referred to by Gillard J could be acquired. In any case, as the plaintiff is merely the successor to Sintoff [8], the “getting to know you factors” have no relevance in the present context. Any knowledge of Sintoff’s attitudes acquired by Collins & Stephens in the course of acting under its retainer is of no use to it in litigation where Sintoff is replaced by the plaintiff.
[8]see [3] above
For all these reasons, I find that the circumstances of this case do not justify depriving Mr Stewart of the right to be represented by solicitors of his own choosing. The summons will be dismissed. Counsel may wish to make submissions as to costs.
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