Gangemi Pty Ltd v Luppino Pty Ltd
[2012] VSC 168
•4 May 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
LIST D
No. S CI 01062 of 2011
BETWEEN
| R & P GANGEMI PTY LTD (ACN 005 885 147) | Plaintiff |
| and | |
| D & G LUPPINO PTY LTD (ACN 005 908 912) | First Defendant |
| and | |
| DIEGO LUPPINO | Second Defendant |
---
JUDGE: | SIFRIS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 23 April 2012 | |
DATE OF JUDGMENT: | 4 May 2012 | |
CASE MAY BE CITED AS: | Gangemi Pty Ltd v Luppino Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 168 | |
---
SOLICITORS – representing a party in rectification claim – rectification arising out of solicitors’ error – solicitors admit error and liability – conflict – effect on administration of justice and the appearance of justice – test to be applied.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N O’Bryan SC | WMB Lawyers |
| For the Defendant | Mr M Wise | Middletons |
HIS HONOUR:
The issue before the court is whether the plaintiff should be restrained from retaining WMB Lawyers to act for it in the present proceeding.
WMB Lawyers drew four contracts for the sale of land on behalf of the plaintiff as vendor on the basis that the sales were not of “going concerns” for GST purposes. The plaintiff alleges that this was done by reason of an oversight by WMB Lawyers.
The plaintiff seeks rectification of the contracts on the basis that it was the common intention of the parties that the sales would be transacted on a “going concern basis”. The defendants deny the common intention alleged and oppose rectification of the contracts.
WMB Lawyers appears as solicitor on the record for the plaintiff notwithstanding that its own conduct in preparing the contracts, and in particular not giving effect to the intention of the parties, as alleged, is the critical issue in the case. The conduct of the firm will be subject to scrutiny and, in a real sense, it will be defending its own actions in the proceeding.
Legal principles
In Kallinicos & Anor v Hunt and Ors Brereton J, after referring to numerous authorities, said: [1]
[1] [2005] NSWSC 1181 at [76] (citations omitted).
“The foregoing authorities establish the following:
•….
•…[T]he 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; Holborow; Williamson v Nilant; Bowen v Stott; Law Society v Holt]. Prince Jefri does not address this jurisdiction at all. Belan v Casey and British American Tobacco are not to be read as supposing that Prince Jefri excludes it. Asia Pacific Telecommunications 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].
•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].”
In Mitchell v Burrell[2] Brereton J at [20] said:
“… 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][2008] NSWSC 772.
His Honour continued at [21]:
“The point is illustrated, in Windeyer J’s judgment in Scallan (at [10]), by his Honour’s reference to the difference between the case where the (mere) interest of a solicitor is one that arises simply in supporting the success of his or her client (for example, in connection with advice about discovery or the commencement or continuation or abandonment of proceedings), and the case where the solicitor has an interest in the result of an action ‘additional to his interest in doing his best for a client to have success in an action’.”
Bell J in Garde-Wilson v Corrs Chambers Westgarth summarised the inherent jurisdiction this court has to restrain solicitors from acting in a particular case as follows:[3]
[3][2007] VSC 235 (footnotes and authorities cited omitted); see also Mitchell v Burrell [2008] NSWSC 772 at [3]; Kallinicos & Anor v Hunt and Ors [2005] NSWSC 1181 at [76].
“35 In my recent judgment in Main-Road Property Group v Pelligra & Sons, I set out the Court’s jurisdiction in these terms:
The court possesses jurisdiction to restrain a party from engaging lawyers, or to restrain lawyers from acting, whether they be solicitors or barristers, on any one of these three grounds: to prevent the possible disclosure or misuse of confidential information (broadly defined) obtained by them when acting for a former client, to prevent them from acting against a former client when this would be a breach of their fiduciary duty of loyalty and to protect the integrity of the judicial process
…
40The third ground relates to ensuring the due administration of justice and the protection of the integrity of the judicial process. This jurisdiction extends to restraining a lawyer from acting for a party in litigation before a court in order to ensure that justice is not only done but manifestly and undoubtedly seen to be done. I think it logically extends to restraining a lawyer from acting in proceedings in a tribunal.
41The test is objective and whether a fair-minded reasonably informed member of the public would reasonably conclude that the proper administration of justice required the lawyer to be restrained from acting.
42Proper weight must be given to the fundamental principle that, in the public interest, a party to litigation in a court and, I would add, proceedings in an administrative tribunal, should not be deprived of the lawyer of their choice without good cause.
43One aspect of this principle is that, quite apart from clients, the courts and, again I would add, tribunals, are entitled to receive the assistance of solicitors and counsel who are observably independent.”
In Afkos Industries Pty Ltd v Pullinger Stewart (a firm)[4] the Full Court of the Supreme Court of Western Australia applied the following passage of Thomas J in Kooky Garments Ltd v Charton:[5]
“Unfortunately, this is a situation which is not all that uncommon. Representatives of law firms appear for clients where there is an actual or potential conflict of interest often enough for it to be a matter of grave concern to the Court. Where the acts or omissions of the law firm, including situations where the actions of the client are based on advice given by the solicitors, are at the heart of the question in issue, the firm is, in a real sense, ‘defending’ its actions or advice. There is, in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the Court demands. There is no sound reason to presume or accept that the solicitors must first have the opportunity to clarify whether their client is liable as a result of their actions or of acting on their advice before confronting the conflict.
What I have said, of course, does not apply where the advice given is unrelated to liability or the question in dispute. Advising a client to prosecute or defend a claim does not attract these observations. They are restricted to the situation where the acts or omissions of the solicitors are an integral part of the other party’s complaint or the client has been sued in circumstances where he or she was acting on the advice of their solicitors and it is effectively that advice which is in issue.
In such cases, apart altogether from the position of the client, the Court is not receiving the assistance of counsel who are observably independent. 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 their 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 in question.”
[4][2001] WASCA 372.
[5][1994] 1 NZLR 587 at 589-590.
In Bahonko v Nurses Board of Victoria (No 3)[6] Middleton J at [2]-[3] said:
“The Court’s jurisdiction to restrain a legal practitioner from acting in proceedings is an exceptional one and discretionary. It must be exercised with appropriate caution and due weight must be given to the public interest in a litigant not being deprived of the legal practitioner of its choice without due or good cause: Grimwade v Meagher & Ors [1995] 1 VR 446 at 452; Geelong School Supplies Pty Ltd v Dean[2006] FCA 1404 at [35] and [51]. The cost, inconvenience or impracticality of requiring a legal practitioner to cease to act may provide a reason for refusing to grant relief: Geelong School [2006] FCA 1404 at [51]; Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561; Black v Taylor [1993] 3 NZLR 403 and Bowen v Stott [2004] WASC 94.
The Court must be careful not to intervene unless it is absolutely required in the circumstances of the case. Further, the Court should be mindful that sometimes applications for restraining legal practitioners may be misused or quite inappropriately pursued by a party to proceedings. In Freeman v Chicago Musical Instrument Co 689 F2d 715 (1982), the Court observed at 722:
We do not mean to infer that motions to disqualify counsel may not be legitimate, for there obviously are situations where they are both legitimate and necessary; nonetheless, such motions should be viewed with extreme caution for they can be misused as techniques of harassment.”
[6][2007] FCA 491.
The submissions
Mr N O’Bryan SC who appeared for the plaintiff, and opposed the application, emphasised that the court should only restrain a litigant’s preferred solicitor from acting in extreme cases and that the jurisdiction to do so should be used very sparingly, as indicated by the authorities.
Mr O’Bryan submitted that this was not a true case of conflict because the solicitors had admitted error and accordingly there was truly no dispute or conflict with the client. He submitted further that even if there was conflict it was not the sort of conflict that would – the word was emphasised – cause a “fair-minded, reasonably informed member of the public [to] conclude that the proper administration of justice requires that [the plaintiff’s solicitors] 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”.[7]
[7]Kallinicos & Anor v Hunt and Ors [2005] NSWSC 1181 at [76].
It was also submitted that because the solicitor who prepared the contracts was not a partner of the firm and would not be involved in the proceedings any further, the extreme order proposed by the defendant was inappropriate.
Finally, Mr O’Bryan submitted that the existence of senior and junior counsel, with no financial or reputational interest in the matter, was an important matter that made some of the authorities relied on by the defendants distinguishable and called for a different disposition.
Mr Wise of counsel, who appeared for the applicant defendants, submitted that this was an appropriate case in which the court’s jurisdiction to restrain a solicitor from acting should be exercised – in fact it was the quintessential case. He submitted that despite the unity of purpose of the plaintiff and its solicitors, the absence of conflict between solicitor and client did not mean there was no conflict as understood by the authorities. The conflict was between the plaintiff’s solicitors’ desire – albeit in common with the client – to win the case so as to avoid losses to the firm and its duties to the court to bring an independent and objective mind to the proceeding. The conflict was in its own position and this would readily be appreciated by the ‘fair-minded and reasonably informed observer’, it was submitted.
Mr Wise submitted further that the fact that the lawyer who made the error was an employee or consultant was irrelevant as the firm itself was still liable. It was also submitted that the authorities did not draw a distinction between solicitors and counsel.
Finally Mr Wise referred to Rules 9.2 and 13.4 of the Professional Conduct Practice Rules 2005 published by the Law Institute of Victoria.
Rule 9.2 is as follows:
“A practitioner must not accept instructions to act or continue to act for a person in any matter when the practitioner is, or becomes, aware that the person’s interest in the matter is, or would be, in conflict with the practitioner’s own interest or the interest of an associate.”
Rule 13.4 is as follows:
“A practitioner must not unless exceptional circumstances warrant otherwise in the practitioner’s considered opinion:
13.4.1appear for a client at any hearing, or
13.4.2continue 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.”
Resolution
In my opinion, the plaintiff’s solicitors do have a conflict. It is a real conflict. Their desire, in common with their client, to succeed in the rectification claim goes beyond a desire to succeed as a solicitor acting for a client. They have a real and substantial financial interest in the outcome. If their client looses they will be liable. Their understandable desire to avoid such liability places them in a difficult and different position to that of the usual solicitor.
The conflict is no less a conflict because the relevant solicitor was not and is not a partner of the firm. Ultimately, it is the firm that is liable if the rectification claim is not successful.
The critical question is whether despite such conflict a fair-minded and reasonably informed observer would conclude that by the plaintiff’s solicitors continuing to act, the proper administration of justice would be affected or seen to be affected.
A reasonably informed observer would know that the plaintiff’s solicitors have duties to the court and to their client notwithstanding any conflict, and that counsel retained in the matter would be free of any conflict and able to bring an objective and dispassionate mind to the case.
The observer would also know that the plaintiff’s solicitors have more than a professional interest in the success of the case. They have a serious financial interest and may lack objectivity in relation to the conduct of the case and, in particular, in relation to settlement discussions and prospects. Any compromise of the case would probably, to the extent of the compromise, render the firm liable.
In my opinion a fair minded observer would recognise the difficult position of the plaintiff’s solicitors and have reservations about the plaintiff’s solicitors’ ability to discharge their duties in circumstances where the solicitors face the prospect of substantial loss. Although relevant, the independence of counsel is no protection or panacea for the difficult position in circumstances where the solicitors provide instructions to counsel including the ability to terminate any retainer and brief other counsel or no counsel. It is also of little comfort that the solicitor who allegedly made the mistake would not take any part in the litigation. For so long as the firm remains liable they are in a difficult position arising out of the ever present conflict and cannot be in a position where they remain “unfettered about their own interests”.
The causal nexus between the conflict and the integrity of the judicial process and the due administration of justice is obvious. This is particularly so in relation to the requirement that the integrity of the administration of justice be seen to be free of any conflict. How can it be, a fair minded observer would remark, that when the lawyers are assessing the position of their client, the strength of their client’s case and the prospect and desirability of compromise, they will not be able to do so free of the ever present prospect that they may be liable. Such an encumbrance and restriction on the lawyers’ objectivity and independence compromises, or at the very least will be seen to compromise, the integrity of the legal process, and is not ameliorated by independent counsel.
Mr O’Bryan submitted that this approach was harsh and unnecessary. It would mean that in every case of rectification arising out of a solicitor’s mistake, the solicitor, and the relevant firm, could not act. Although this may well be a consequence it is obviously necessary to consider each case on its own facts. Further, in many cases applications of this kind are not made. The time the application is made may also be relevant. If, as in this case, the proceeding has not been fixed for trial the inconvenience or burden of appointing a new solicitor is reduced. The situation may be different if the application was made shortly before trial. The issues in the case are relatively straightforward and the documentation is limited. In this instance, new solicitors can very easily pick up the running of the case.
Although it is not necessary for the purpose of this decision to determine whether the firm is in breach of the Professional Conduct and Practice Rules 2005, I am of the opinion that in the circumstances of this case Rule 9.2 is attracted. I do not propose to deal with Rule 13.4. It may well be that the rule does not apply.
In the circumstances and for the reasons set out above I propose to grant the relief sought by the defendants. The prima facie right of the plaintiff to engage solicitors of its choice must, in this case, be subject to the higher interests of the administration of justice.
I will hear from the parties in relation to the precise form of order and costs.
3
0