Extreme Body Works Pty Ltd v Insurance Australia Group Limited

[2013] VCC 1578

IN THE COUNTY COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL LIST
GENERAL DIVISION Revised
Not Restricted
Suitable for Publication

Case No. CI-13-04760

Extreme Body Works Pty Ltd	Plaintiff
v
Insurance Australia Group Limited	Defendant

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JUDGE:	His Honour Judge Cosgrave
WHERE HELD:	Melbourne
DATE OF HEARING:	28 October 2013
DATE OF RULING:	31 October 2013 (revised 7 November 2013)
CASE MAY BE CITED AS:	Extreme Body Works Pty Ltd v Insurance Australia Group Limited
MEDIUM NEUTRAL CITATION:	[2013] VCC 1578

REASONS FOR RULING
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Catchwords: Application for solicitor to cease acting -- solicitor’s company engaged in Magistrates’ Court proceedings against current client – reasonable perception of conflict

Cases cited: Kallinicos v Hunt (2005) 64 NSW LR 561; R & P Gangemi Pty Ltd v D&G Luppino Pty Ltd [2012] VSC 168; Mitchell v Burrell [2008] NSWSC 772; Grimwade v Meagher [1995] 1 VR 446; Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501; Sent and Primelife Corporation v John Fairfax Publications Pty Ltd  [2002] VSC 429; Dale v Clayton Utz [2013] VSC 54; Kooky Garments Ltd v Charlton [1994] 1 NZLR

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Wilmoth	EC Legal
For the Defendant	Mr P Doyle	DLA Piper

HIS HONOUR:

1       The Defendant applied by summons filed 15 October 2013 for orders that James Woods (“Woods”) and the firm of which he is the senior consultant solicitor, namely EC Legal, cease acting as solicitor for the plaintiff. The basis for the order is the Court’s jurisdiction to exercise its discretion to ensure the due administration of justice.

2       There are well established principles regarding the disqualification of a legal practitioner from continuing to act in a matter. They might be summarised as follows:

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

b) the danger of misuse of confidential information is not the sole touchstone for curial intervention where a solicitor acts against a former client. There is also an independent equitable obligation of loyalty which forbids a solicitor acting against a former client in the same or a closely related matter. Intervention may also be justified on this ground in the exercise of a court’s supervisory jurisdiction;

c) there is an overriding jurisdiction to intervene in order to protect the due administration of justice arising where a reasonable informed member of the public would conclude that solicitors should be prevented from acting.

3       The law regarding the application of the administration of justice ground was summarised by Brereton J in Kallinicos v Hunt[1], as follows:

[1](2005) 64 NSW LR 561

“[76] The foregoing authorities establish the following:

…

However, the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice (Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode Pty Ltd; Holborow; Williamson v Niland; Bowen v Stott; Law Society v Holt). Prince Jefri Bolkiah does not address this jurisdiction at all. Belan v Casey and British American Tobacco Australia Services Ltd are not to be read as supposing that Prince Jefri Bolkiah excludes it. Asia Pacific Telecommunications Ltd appears to acknowledge its continued existence.

The test to be applied in this inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice (Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Holborow; Bowen v Stott; Asia Pacific Telecommunications Ltd).

The jurisdiction is to be regarded as exceptional and is to be exercised with caution (Black v Taylor; Grimwade v Meagher; Bowen v Stott).

Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause (Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott).

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 (Black v Taylor; Bowen v Stott).

4       In R & P Gangemi Pty Ltd v D&G Luppino Pty Ltd[2], Sifris J quoted the above passage from Kallinicos and further referred to another judgment of Brereton J in Mitchell v Burrell[3] where His Honour said at [20]:

“…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.”

[2][2012] VSC 168

[3][2008] NSWSC 772

5       In Grimwade v Meagher[4], Mandie J held that the court could restrain a representative from acting for a particular party in order to preserve the appearance of justice being seen to be done in the exercise of its inherent jurisdiction to ensure the due administration of justice. His Honour held that the objective test to be applied in the exercise of this jurisdiction was:

“whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice required that counsel be so prevented from acting, at all times giving due weight to the public interest that a litigant should not be deprived of his or her choice of counsel without good cause.”[5]

[4][1995] 1 VR 446

[5]Ibid at 452

6       In reaching his decision[6], Mandie J had regard to the judgment of Thomas J in the New Zealand High Court in Kooky Garments Ltd v Charlton[7], where he said:

“Independence is a function of counsel. The Court is entitled to assume that solicitors and counsel appearing before it possess that independence. Solicitors not only owe a duty to their clients to do the best for them but also owe an overriding duty to the Court. The same overriding duty is owed by counsel who have been granted a right of audience to appear in this Court. As part of their professional responsibility, therefore, solicitors and counsel must ensure that they do not appear in a matter in which they have an actual or potential conflict of interest or where, by reason of their relationship with their client, their professional independence can be called into question…

I am primarily concerned in this case with the principle of protecting the integrity of the judicial process. That integrity is undermined if solicitors or counsel do not possess the objectivity and independence which their professional responsibilities and obligations to the Court require of them…If, therefore, the solicitors or counsel are in default in this regard, the Courts not only may intervene but, in all probability, should intervene”

[6]Grimwade v Meagher was approved in subsequent decisions such as Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501, 515; Sent and Primelife Corporation Ltd v John Fairfax Publications Pty Ltd [2002] VSC 429, [112]-[113]; Dale v Clayton Utz [2013] VSC 54, [160]

[7][1994] 1 NZLR 587

7       Here, Woods, through his company The Woodsman Pty Ltd (“Woodsman”), is presently or recently has been engaged in litigation in the Magistrates’ Court against the present plaintiff and other parties in relation to moneys allegedly lent to them. Mr Can is the director, secretary and sole shareholder of the plaintiff. He guaranteed the obligations of the borrowers to Woods’ company, Woodsman. The present plaintiff gave a charge over the whole of its assets in favour of Woodsman in order to secure the loan.

8       In a letter dated 11 September 2012, signed by Woods, Woodsman advised the claims manager at NRMA Motorcar Trades Insurance:

“This company now claims the benefit of the insurance policy over the above premises.

All communication in relation to the policy should be addressed to me at this office.”

9       In a memo dated 14 December 2012, from Woods to Can, Woods wrote:

“The first possibility is the insurance claim. I have advised the NRMA of the current position and I expect that they will acknowledge my interest as the first priority in any payment from the insurance claim. But it is far from certain that there will ever be a pay out and, if there is to be one, it is many months away.

In ensuring that the NRMA makes a payment, our interests are entirely aligned. I will be the first person to receive a pay our from the insurance but there may be a surplus after payment of my claim which will be available to you.

So my proposal here is that you allow me to handle the dealings with the insurance company. I cannot act on your behalf as there is a clear conflict of interest , but I will be acting on my company’s behalf and can, in that capacity, ensure that the documents provided to the insurers are sufficient for them to be required to pay out and, if I believe that they are delaying unnecessarily, I will bring legal action in my company’s name seeking a pay out. For this to be successful, it requires your full and complete cooperation.”

10      Thus we arrive at a situation where:

a) Woods through his company sued the plaintiff in the Magistrates’ Court for an amount exceeding $80,000 (although the outstanding debt is now said to be about $62,000).

b) The solicitors EC Legal Pty Ltd are to represent Can in the present proceeding in this court on a no win-no fee basis.

c) EC Legal has agreed to do this because Woods asked that it should do so.

d) Woods is not charging for any time spent on the matter. However, unless restrained, he proposes to:

(i) view the court documents in the proceedings and any correspondence between the solicitors for the parties following permission being granted by Michael Anderson (the principal solicitor for EC Legal with responsibility for the carriage and conduct of this proceeding).

(ii) discuss the matter with Michael Anderson or the plaintiff’s other legal practitioners and make suggestions to them on the conduct of the proceeding.

e) Woodsman is providing for any necessary out of pocket expenses.

11      Notwithstanding the submissions made by the plaintiff, in my view there is a clear scope for conflict to occur. Due to the pre-existing debt, the subject of the Magistrates’ Court proceeding, Woods has a financial interest in the outcome of this proceeding. That interest extends, in my opinion, well beyond the recovery of proper fees for acting. To that extent, the objectivity and independence of Woods is compromised.

12 In argument, reference was made to the situation which applies in a no win-no fee situation where often, a plaintiff firm of solicitors assumes the risk of the litigation and finances the action in the hope of recovering its costs together with the uplift permitted by the Legal Profession Act.

13      The plaintiff submitted that such a situation was indistinguishable in principle from this case. However, in my view it is quite different. The law firm in the contingent fee context runs its business model on the basis that the cases which succeed will cover the costs of the unsuccessful cases. The firm has an interest in the outcome because it seeks to recover its professional costs and disbursements. But such a firm does not maintain these actions as a means of recovering pre-existing debts owed to the firm by the litigant for whom the firm acts. This is a significant distinction.

14      To the extent that Woods is compromised, so it seems to me is EC Legal. The firm appears to recognise this conflict in part, with Mr Anderson saying that Woods would have no future involvement in supervising the junior solicitor. Anderson said also that he would not give information to Woods about the proceedings or take instructions from him on behalf of the plaintiff regarding the proceedings.[8]

[8]Indeed, the passage quoted at paragraph [9] above from the memo shows Woods himself recognises the conflict which exists.

15      It remains the case that Woods has a major personal interest in the outcome of the litigation and that EC Legal is still acting or has recently acted (the position is somewhat unclear) for Woodsman against the plaintiff in the Magistrates’ Court.

16      The defendant submitted that Woods’ position was also affected by the “strong possibility” of being called as a witness. The defendant contended this could arise, especially in the context of the defence foreshadowed by the insurer, namely arson and fraud by Mr Can. The defendant contended that Woods might give evidence that Mr Can had no motive to destroy the business because he put so much personal effort and commitment into the business, and the loss of “his baby” had an adverse psychological effect on Can.

17      I do not attribute significant weight to this factor, but accept there is a reasonable possibility that the plaintiff might call Woods to support its case.

18      It was suggested that the plaintiff would not be able to engage another firm to represent it if EC Legal were precluded from doing so. The affidavit material however does not provide any detail about the plaintiff’s financial position or efforts, unsuccessful or otherwise, to obtain alternative representation. Indeed, in his affidavit, Mr Can deposed both to his ability to obtain independent legal advice if required and to his consultation with Mr Akbulut of Amicus Lawyers before he signed the affidavit in this application.

19      The application is brought at an early time in the proceeding, and it is not a situation where the defendant has delayed until shortly before trial. To that extent, if the application were granted, it should not cause the plaintiff significant inconvenience or wasted costs to obtain new representation. Indeed, on the affidavit material, it seems clear that because of the basis upon which EC Legal was acting at the request of Woods, the plaintiff incurred no costs.

20      On the whole of the material, which I have read and considered, there seems to me to be sound reason to make the orders sought by the defendant and no sufficient reason to desist from doing so, notwithstanding that it interferes with the plaintiff’s original choice of solicitor.

21      In the circumstances, I make the following orders:

(a)      Mr James Woods cease acting as solicitor for the Plaintiff.

(b)      EC Legal Pty Ltd cease acting as solicitors for the Plaintiff.

(c)The time for filing of the Defendant’s defence be extended to 21 November 2013.

(d)The Plaintiff pay the Defendant’s costs of the application, fixed at $1,199.00.

(e)      There be a stay of 30 days with respect to the costs order.

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Certificate

I certify that these 8 pages are a true copy of the reasons for decision of His Honour Judge Cosgrave delivered on 31 October 2013.

Dated: 7 November 2013

Monika Paszkiewicz

Associate to His Honour Judge Cosgrave