George 218 Pty Ltd v Bank of Queensland Ltd
[2017] WASC 232
•16 AUGUST 2017
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: GEORGE 218 PTY LTD -v- BANK OF QUEENSLAND LTD [2017] WASC 232
CORAM: ARCHER J
HEARD: 6 JULY 2017
DELIVERED : 16 AUGUST 2017
FILE NO/S: CIV 2841 of 2013
BETWEEN: GEORGE 218 PTY LTD
First Plaintiff
PRADA PTY LTD
Second PlaintiffTINA MICHELLE BAZZO
Third PlaintiffGUCCE HOLDINGS PTY LTD
Fourth PlaintiffAND
BANK OF QUEENSLAND LTD
Defendant
FILE NO/S :CIV 1460 of 2017
BETWEEN :GEORGE 218 PTY LTD
First Plaintiff
PRADA PTY LTD
Second PlaintiffTINA MICHELLE BAZZO
Third PlaintiffGH1 PTY LTD
Fourth PlaintiffAND
JEFFREY LAURENCE HERBERT
Defendant
Catchwords:
Practice and procedure - Application to restrain solicitors from acting for party - Allegation that solicitors gave advice that they would have an interest in defending - Clear case required - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 420A
Result:
Application dismissed
Category: B
Representation:
CIV 2841 of 2013
Counsel:
First Plaintiff : Dr J T Schoombee & Mr A P Rumsley
Second Plaintiff : Dr J T Schoombee & Mr A P Rumsley
Third Plaintiff : Dr J T Schoombee & Mr A P Rumsley
Fourth Plaintiff : No appearance
Defendant: Mr S K Dharmananda SC & Ms C A Petersen
Solicitors:
First Plaintiff : Alan Rumsley
Second Plaintiff : Alan Rumsley
Third Plaintiff : Alan Rumsley
Fourth Plaintiff : No appearance
Defendant: Lavan
CIV 1460 of 2017
Counsel:
First Plaintiff : Dr J T Schoombee & Mr A P Rumsley
Second Plaintiff : Dr J T Schoombee & Mr A P Rumsley
Third Plaintiff : Dr J T Schoombee & Mr A P Rumsley
Fourth Plaintiff : No appearance
Defendant: Mr S K Dharmananda SC & Ms C A Petersen
Solicitors:
First Plaintiff : Alan Rumsley
Second Plaintiff : Alan Rumsley
Third Plaintiff : Alan Rumsley
Fourth Plaintiff : No appearance
Defendant: Lavan
Case(s) referred to in judgment(s):
Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 5] [2016] WASC 263
Commonwealth Bank of Australia v Jackson McDonald (a firm) [2014] WASC 301
George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434
George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434 (S)
George 218 Pty Ltd v Bank of Queensland Ltd [2016] WASCA 182
George 218 Pty Ltd v Bank of Queensland Ltd [2017] HCASL 63
Holborow v MacDonald Rudder [2002] WASC 265
Westpac Banking Corporation v Newey [2013] NSWSC 533
ARCHER J:
Introduction
These reasons concern an interlocutory application made in two related proceedings, CIV 2841 of 2013 (2013 proceedings) and CIV 1460 of 2017 (2017 proceedings).
The first to third plaintiffs[1] apply for an injunction restraining Lavan from continuing to act on behalf of the defendants in both proceedings.
[1] The fourth plaintiff in each proceeding is in liquidation.
The application is brought on the basis that, in the exercise of its supervisory jurisdiction, the court should restrain Lavan from continuing to act because the first to third plaintiffs submit that Lavan's own conduct is being impugned in the proceedings and that there is also a possibility that lawyers of Lavan may be called to give material evidence.[2]
[2] First to Third Plaintiffs' Submissions on Conflict of Interest dated 23 June 2017 (Plaintiffs' Submissions) [5].
An overview of the dispute
The commencement of the 2013 proceedings
The plaintiffs commenced the 2013 proceedings against the Bank of Queensland Ltd (Bank), seeking declarations to the effect that they were not liable under guarantees originally given to Statewest Credit Society Ltd (Statewest) to secure borrowings by Success Assets Pty Ltd (Success). Success was a company controlled by the third plaintiff, Ms Bazzo. The Bank counterclaimed for the amounts allegedly owing to it under the guarantees in relation to certain amounts advanced by the Bank to Success under certain loan agreements in July 2010.
The plaintiffs claimed that they were not liable under the guarantees on two bases:
(1)first, they alleged that the guarantees did not apply to secure the Bank's loans to Success in 2010; and
(2)second, they alleged that they were not liable because the Bank and the receiver Mr Herbert (as an alleged agent for the Bank) breached duties owed to them in relation to the appointment of a receiver and the sale of Success' mortgaged properties (Breach Claims). This second basis was defensive: the guarantors did not seek damages for breach of the pleaded duties.
The trial of preliminary issues
The proceedings were the subject of a trial of preliminary issues on 5 ‑ 7 October 2015 before Mitchell J. The parties had, with the assistance of the court, agreed upon the issues to be determined.
Mitchell J found that all of the plaintiffs were liable under the guarantees to pay Success' outstanding debt to the Bank, and without set‑off. His Honour also found that cl 17 of the guarantees operated to preclude the plaintiffs from relying on the Breach Claims as denying the Bank's entitlement to payment under the guarantees. Therefore, his Honour found that it was unnecessary to resolve the Breach Claims in order to conclude that the plaintiffs' claim for declaratory relief should be dismissed and that the Bank should have judgment on the counterclaim.
Accordingly, on 16 November 2015, his Honour dismissed the plaintiffs' claim for declaratory relief and entered judgment for the Bank on its counterclaim.[3] His Honour noted two matters which had not been addressed by the parties' submissions, being the date at which the principal judgment sum should be awarded and the rate of pre‑judgment interest to be applied. His Honour said that he would hear from the parties in relation to those issues, and in relation to costs, before making orders finally disposing of the proceedings. The matter was adjourned to 27 November 2015 for that purpose.
The further amended statement of claim
[3] George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434.
On 24 November 2015, after the reasons of Mitchell J had been published, the plaintiffs filed a further amended statement of claim, purportedly pursuant to O 21 r 3 of the Rules of the Supreme Court 1971 (WA) (Rules). The amendment introduced pleas that the plaintiffs had suffered loss and damage, and that the Bank had been unjustly enriched, by reason of the alleged breach of duties. This substantially altered the basis on which the plaintiffs' claim had been advanced up to that point.
When the matter came back before Mitchell J on 27 November 2015, his Honour noted that the further amended statement of claim was not authorised by O 21 r 3, as that rule only applies to pleadings filed seven weeks or more before the date fixed for trial. His Honour granted the Bank's application to set aside the further amended statement of claim under O 2 r 1(2) of the Rules.
However, his Honour said that the claim for damages was not precluded by cl 17 of the guarantees. His Honour also noted that the plaintiffs were concerned that, if their action was wholly dismissed, an attempt to begin new proceedings would be characterised as an abuse of process.
His Honour noted that it is generally inconsistent with case management principles to allow a party to amend its pleading to agitate new matters in the period between the pronouncement of reasons for dismissing the claim and the making of an order to that effect. However, his Honour was not prepared at that stage to prevent the plaintiffs from arguing that they should be granted leave to amend their existing pleading. Accordingly, his Honour did not wholly dismiss the plaintiffs' claim. Instead, his Honour dismissed the plaintiffs' claim for declarations that the Bank was not entitled to any payment from the plaintiffs under the guarantees, and gave the plaintiffs liberty to apply for leave to amend their statement of claim to plead a claim for damages against the Bank within 14 days. His Honour entered judgment for the Bank in the counterclaim in the sum of $2,555,309.53, and ordered that the plaintiffs, jointly and severally, pay the Bank that sum and the Bank's costs of the action incurred up to 27 November 2015 to be taxed forthwith.[4]
[4] George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434 (S).
In January 2016, the Bank sought a stay of the 2013 proceedings pending, among other things, payment of the judgment sum.
The appeals
On 30 November 2015, the plaintiffs appealed against the decision of Mitchell J. The appeal was dismissed on 26 October 2016.[5]
[5] George 218 Pty Ltd v Bank of Queensland Ltd [2016] WASCA 182.
An application for special leave to appeal to the High Court was refused on 8 March 2017, with costs.[6]
The 2017 proceedings
[6] George 218 Pty Ltd v Bank of Queensland Ltd [2017] HCASL 63.
On 21 March 2017, the plaintiffs commenced the 2017 proceedings against the receiver, Mr Herbert.
It is common ground that the events the subject of the 2017 proceedings are substantially the same as the Breach Claims in the 2013 proceedings. The plaintiffs say that the 2017 proceedings have been brought in case Mr Herbert is not found to have been the agent of the Bank, but is found to have acted solely in his own right as a receiver.
In the 2017 proceedings, the plaintiffs claim damages including:
(1)the amount of the judgment entered by Mitchell J on 27 November 2017;
(2)the plaintiffs' costs of the 2013 proceedings at first instance, on appeal, and in the special leave application;
(3)the costs of the Bank that the plaintiffs were ordered to pay in relation to the 2013 proceedings; and
(4)further, as yet unspecified, amounts.
On 18 April 2017, Mr Herbert filed a summons seeking orders that the writ and statement of claim in the 2017 proceedings be struck out or permanently stayed as an abuse of process.
Injunction application
The injunction was first sought by a minute of proposed orders dated 15 June 2017.
The fourth plaintiff has gone into liquidation, and took no part in the hearing of the application. In the rest of these reasons, the remaining three plaintiffs will be referred to as the 'plaintiffs'.
The evidence
In opposition to the application for an injunction, the defendants filed an affidavit of Jasmine Ashleigh Sims, sworn 28 June 2017. The plaintiffs objected to much of this affidavit, asserting that the contents were irrelevant, argumentative and hearsay. However, the plaintiffs agreed that the affidavit was admissible evidence that the defendants had taken independent legal advice from senior counsel on the conflict, and wanted Lavan to continue to act. The plaintiffs did not dispute these facts. The defendants did not seek to urge that more should be drawn from the affidavit than those facts. Accordingly, the only remaining issue was whether consent was relevant to the application. My preliminary ruling was that the affidavit would be admitted, although I gave leave to the plaintiffs to file further submissions in relation to the relevance of consent. As I explain later, I have disregarded the affidavit in resolving the plaintiffs' application.
In addition to the affidavits, a bundle of documents was provided to the court, by agreement (Bundle of Documents).
The relevant legal principles
With two exceptions, the relevant legal principles were not seriously in dispute. Both sides accepted the principles as outlined in Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 5] (Belgravia).[7] In summary:
(1)The rationale for the exercise by the court of its inherent supervisory jurisdiction to restrain a solicitor from acting is based on the paramountcy of the duty owed by counsel to the court and the incidents of that duty. If there are circumstances which are likely to imperil the discharge of these duties to a court by a legal practitioner acting in a cause, a court may conclude that the lawyer should be restrained from acting, even where the client wants the lawyer to continue to act. This situation justifies intervention by the court because of an actual or sufficiently material threatened conflict of interest by the practitioner, as an officer bearing fiduciary obligations, between his obligations to the court and his obligations to the client or to some other interest.[8]
(2)It is desirable that litigants not be deprived lightly of the lawyer of their choice.[9]
(3)It is an exceptional jurisdiction.[10]
(4)If a party asserts that a legal practitioner should be restrained from acting for the opposing party, it is necessary for a clear case to be made that the practitioner concerned is in a position where he is fixed with an interest which conflicts with his duty to the court and that the interest is of such a nature that the practitioner may fail in the practitioner's overriding duty to the court.[11]
(5)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 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.[12]
(6)The fact that a lawyer from a firm may be required to give evidence in a matter does not compel the conclusion that the firm cannot act in the matter. There must be some realistic sense of impropriety about the circumstances which justifies the conclusion that unless an injunction is granted, the integrity of the judicial process would be impaired. If a lawyer who is to be a witness will be giving evidence of a formal nature or about a minor matter, then, ordinarily, there will be no impediment to his or her firm continuing to act.[13]
[7] Belgravia Nominees Pty Ltd v Lowe Pty Ltd [No 5] [2016] WASC 263 .
[8] Belgravia [36], citing Holborow v MacDonald Rudder [2002] WASC 265 (EM Heenan J) [27] ‑ [29].
[9] Belgravia [39] citing Commonwealth Bank of Australia v Jackson McDonald (a firm) [2014] WASC 301 [26].
[10] Belgravia [39], citing Commonwealth Bank of Australia [26].
[11] Belgravia [37], citing Holborow [30] ‑ [31].
[12] Belgravia [35].
[13] Belgravia [40], citing Westpac Banking Corporation v Newey [2013] NSWSC 533 [22] (Pembroke J).
The two points at which the parties differed were the applicability of observations of Pembroke J in Westpac Banking Corporation v Newey[14] (Westpac) and the relevance of the client's consent to the solicitors continuing to act after the issue of conflict is raised.
Westpac
[14] Westpac Banking Corporation v Newey [2013] NSWSC 533.
In Westpac, Pembroke J said:
The due administration of justice is not necessarily advanced by claims by litigants who espouse the lofty ideal of protecting the integrity of the judicial process, while seeking to obtain a position of advantage in the litigation. In an appropriate case, a party to proceedings such as Gillis Delaney can of course bring such an application as this. But it does not follow that just because a plaintiff seeks an order for rectification as a result of a supposed mistake by its own solicitor, then that solicitor, let alone his firm, cannot continue to act in the proceedings. There will be cases and cases.
The law and lawyers would be held in disrepute if judges acceded too readily and too often to such applications. Before doing so, there must be some realistic sense of impropriety about the circumstances; something that sensibly justifies the conclusion that unless an injunction were granted, the integrity of the judicial process would be impaired. The basis for the second defendant's application existed only in the clouds, at an abstract theoretical level. The facts on which it relied were thin and the speculation on which it depended was unconvincing. On the other hand, the grant of an injunction must be grounded in pragmatism, reflecting the practical commercial reality, paying due regard to established legal principle and acknowledging norms of acceptable behaviour [21] ‑ [22].
The defendants had set out those paragraphs in their submissions.
In reply, the plaintiffs noted that Westpac at [22] had been cited by Tottle J in Belgravia but only in respect of the accepted test that there must be some realistic sense of impropriety. The plaintiffs submitted that, in other respects, the observations of Pembroke J were 'tendentious' and said they were 'contrary to the accepted law in this State, and which cause that case to be an outlier in respect of principles applied in other jurisdictions including NSW'.[15]
[15] First to Third Plaintiffs' Submissions in Reply on Conflict of Interests dated 30 June 2017 (Plaintiffs' Reply Submissions) [10].
It emerged during the hearing of this matter that that submission was made without the plaintiffs' legal representatives undertaking a search to determine if these paragraphs had been cited in Western Australian cases other than Belgravia. As it happens, those paragraphs were cited by the Chief Justice of this court in Commonwealth Bank of Australia v Jackson McDonald (a firm)[16] (Commonwealth Bank) in saying:
The previous cases also contain observations to the effect that complex commercial litigation is inevitably replete with the potential for conflict from a number of sources, particularly, for example, where solicitors had given advice in relation to transactions giving rise to the dispute, or where solicitors had given advice in relation to the outcome of the dispute, or where the solicitors' practical capacity to be paid depends upon the outcome of the dispute. The point of those observations is that if the court determines applications of this kind with an eye keenly attuned to the perception and avoidance of possible conflict, there will be delays, inefficiencies and increased costs which are not justified by any real or appreciable risk to the administration of justice.
[16] Commonwealth Bank [28]. (Those paragraphs of Westpac were also cited by the Chief Justice in [26].)
In response to the plaintiffs' criticisms of the observations of Pembroke J in Westpac, the defendants made the pragmatic submission that, even if the observations do not correctly reflect the approach, the plaintiffs' application must still fail, purely on the approach outlined in Belgravia.
If it was necessary, I would be inclined to adopt the comments made by the Chief Justice in Commonwealth Bank.[17] However, for the reasons set out later, I accept the defendants' submission that the plaintiffs' application must fail in any event. Accordingly, I have not given any weight to the comments in Westpac or the Commonwealth Bank in deciding this application.
Consent
[17] Commonwealth Bank [28].
The other dispute between the parties as to the legal principles to be applied was the relevance of the client's consent to the solicitors continuing to act after the issue of conflict is raised.
In Commonwealth Bank, the Chief Justice said:[18]
The position adopted by Jackson McDonald's clients is relevant to a test posed by reference to the fair-minded lay observer cognizant of all the facts because that observer would likely be influenced by the fact that those who have perhaps the most to lose by the alleged conflict to which the financiers point have determined on the basis of independent legal advice that they do not wish Jackson McDonald to cease to act.
[18] Commonwealth Bank [25].
The plaintiffs submit that consent can only be relevant where the potential conflict is between the client's interests and the solicitors' interests. They submit that it cannot be relevant where the alleged potential conflict is between the solicitors' interests and the solicitors' obligations to the court.
I accept that the rationale given by the Chief Justice for the relevance of a client's consent to the conclusions of a lay observer does not apply where the alleged conflict is between the solicitors' interests and the solicitors' obligations to the court. However, as will become apparent, it is unnecessary for me to determine whether, in such a case, the consent of the client is of any relevance at all.
Submissions in support of the injunction application
The plaintiffs submit that Lavan should not continue acting because Lavan's own conduct in relation to the sale of secured properties is being impugned, and it therefore has an interest in defending its conduct in the proceedings.[19]
[19] Plaintiff's Submissions [5].
The plaintiffs further submit that there 'is also a distinct possibility (put at its lowest) that lawyers of Lavan may be called to give material evidence'.
The plaintiffs submit that the Bank, Mr Herbert and Lavan share an interest in upholding the process of how the secured properties were marketed and in defeating the argument that the process was conducted negligently and in breach of s 420A of the Corporations Act 2001 (Cth), in circumstances where Lavan closely advised on the process.[20]
[20] Plaintiff's Reply Submissions [18].
Although the plaintiffs plead both common law duties and duties under the Corporations Act, the plaintiffs relied only upon the statutory duty in s 420A of the Corporations Act for the purposes of the restraint application.[21] Section 420A requires a receiver to take all reasonable care to sell a property for not less than its market value, and for the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.
[21] Plaintiff's Reply Submissions [18], ts 429.
In their written submissions, the plaintiffs asserted that Lavan advised the Bank, the receiver of Success (Mr Herbert) and the receivers of Dawnlink (Mr Herbert and Mr Theobald) 'throughout the sale process, in relation to the sales, whether the offer for $4,300,000 could be rejected, whether an obligation could be imposed to provide the sewer connection, whether the lower offer could be accepted for the Success land and in addition prepared the documents and correspondence to give effect to that advice'.[22]
[22] Plaintiff's Reply Submissions [26].
The plaintiffs relied upon the following matters to establish the above assertions:
(1)The pleadings in the Second Further Re‑Amended Statement of Claim (Statement of Claim) in pars 49, 51A, 54, 54E, 60A, 60E, 61, 61A and 62 ‑ 65A.
(2)The documents at pages 71 ‑ 72, 75, 94, 298, 390 and 393 ‑ 398 in the Bundle of Documents (and as footnoted below), and a separate document annexing special conditions of sale (Special Conditions).
In the paragraphs relied upon in the Statement of Claim, the plaintiffs plead that Mr Herbert sold the Success land for less than its value, in breach of his duties as a receiver. It is pleaded that Mr Herbert was also appointed as receiver (with Mr Theobald) for adjacent land (Dawnlink), and sought to sell both properties as a package deal. It is pleaded that the Success land was worth more if sold individually than if it was sold in combination with the Dawnlink land. It was also pleaded that Mr Herbert sought to impose a sewerage condition on the Success land for the benefit of the Dawnlink land.
The plaintiffs plead that Lavan prepared the terms and conditions of the relevant contract to include a condition that the buyer agree to undertake, at its own cost, all works required to connect the Dawnlink land to the sewer mains (sewerage condition).[23] This condition had not appeared in earlier terms and conditions drafted by Lavan.[24]
[23] Statement of Claim [61A] and the Special Conditions.
[24] Bundle of Documents 77 ‑ 90.
The Statement of Claim then sets out exchanges between Mr Herbert and prospective purchasers in relation to offers and conditions. An offer was received from a company called Riviera Street Pty Ltd (Riviera) for the Success land,[25] but Mr Herbert required that Riviera also purchase the Dawnlink land, or include the sewerage condition in its offer for the Success land. Subsequently, Mr Abberton wrote to Riviera advising that its offer had not been correctly executed and that the receivers did not have an offer in a form capable of acceptance from Riviera in respect of the Success land.[26]
[25] Bundle of Documents 75.
[26] Bundle of Documents 390, Statement of Claim [64D].
The Statement of Claim then pleads the execution of contracts with a company called Shinetone Australia for the sale of the Success land and the Dawnlink land. Those contracts were drafted by Lavan,[27] and signed on behalf of the seller by Lavan.[28]
[27] Statement of Claim [61] ‑ [65A].
[28] Bundle of Documents 395 ‑ 396, the annexures to the Contract (the annexures are the same as the annexures attached to an unsigned contract naming Riviera as the purchaser, handed up, by consent, during the hearing).
Success wrote to Mr Herbert, complaining that he accepted an offer for below market value, and in circumstances where the Success land had not been marketed as an individual property.[29] Mr Abberton, of Lavan, wrote back stating that Lavan acted for the Bank and acted for Mr Herbert and Mr Theobold in their capacity as receivers. Mr Abberton wrote that the receivers had complied with all of their duties to date and would continue to do so (Compliance Letter).[30]
Mr Abberton as a witness
[29] Bundle of Documents 397, letter dated 16 October 2013. Success had previously written on 11 March 2013 to complain about the attempts to sell the Success land together with other land.
[30] Bundle of Documents 398.
On the basis of the above, counsel for the plaintiffs submitted that Lavan, and Mr Abberton in particular, were closely involved in the events. Counsel submitted that, as a result, Mr Abberton 'would have to be called as a witness [by the Bank[31]] to explain what had happened'.[32] Counsel said that Mr Abberton would have to give evidence of 'what he was aware of and about the nature of his advice'.[33]
[31] ts 444.
[32] ts 439.
[33] ts 440.
When this was tested, counsel for the plaintiffs was unable to satisfactorily explain how evidence from Mr Abberton could be relevant to the critical issue of whether Mr Herbert had acted in breach of his duties.[34] Counsel submitted that, if Mr Herbert asserted in evidence that he had acted as he had because of legal advice, it would be necessary to explore what that advice was, what facts had been investigated in giving that advice, and whether it was reasonable for Mr Herbert to have relied on that advice.[35] Counsel said that, if Mr Abberton had made mistakes, those mistakes would be attributed to Mr Herbert.[36] Counsel accepted that there is no allegation of malice in the proceedings, and Mr Herbert's state of mind was not relevant. It was also accepted that whether Mr Herbert acted reasonably was an objective fact.[37] Counsel ultimately submitted that, if Mr Herbert said he acted as he had due to legal advice that it would be proper to act in that way, and if the advice was bad, that would mean that his conduct, based on that advice, was bad.[38]
[34] ts 440 ‑ 453.
[35] ts 439 ‑ 453.
[36] ts 443
[37] ts 448.
[38] ts 453.
In my view, even if Mr Herbert was to give evidence of legal advice he had received, this would not make evidence from Mr Abberton as to what the advice was, or what was assumed or investigated in preparing that advice, relevant. The central issue is the reasonableness of the sale process, not who is to blame if it was unreasonable.
Further, as the exchange with counsel for the plaintiffs illustrated, it is difficult to conceive of any realistic circumstance in which Mr Abberton would be able to give relevant (and therefore admissible) evidence.
In any event, there is simply no realistic prospect that Mr Abberton would be called to give evidence by the Bank.
The prospect that Mr Abberton would and could give evidence is, in my view, fanciful.
This leaves the other aspect of the plaintiffs' application, being Lavan's alleged interest in defending the impugned conduct.
The alleged conflict
The plaintiffs submit that, when faced with allegations that the sales were in breach of duty, Lavan gave advice that the conduct was not in breach of duty. In particular, it is submitted that Lavan advised Mr Herbert that it was proper to sell the Success land and the Dawnlink land as a bundle, and proper to require the sewerage condition.[39] Counsel for the plaintiffs submitted that this was the irresistible inference from the documents referred to above.[40]
[39] ts 455; see also ts 445 ‑ 446.
[40] ts 455.
Accordingly, counsel submitted that, as the propriety of the aggregation and the imposition of the sewerage condition is being attacked, Lavan has an interest in defending its advice that the conduct was proper.
Submissions in opposition to the injunction application
The defendants submit that the plaintiffs' application is 'fundamentally flawed because no conflict is articulated in the pleadings in either proceeding. At its highest, the plaintiffs set out a factual matrix which includes recitations about Lavan's preparation of certain documents. None of the work product is said to inform the asserted conflict of interest nor is any advice articulated (with any specificity or at all) which would found a conflict'.[41]
[41] Defendant Bank's and Defendant Mr Herbert's Submissions on Plaintiff's Conflict of Interest Application dated 28 June 2017 (Defendants' Submissions on Conflict of Interest) [2].
The defendants submit that there is no evidence as to what advice Lavan gave, or that Mr Herbert aggregated the lands and imposed the sewerage condition as a result of advice from Lavan. The defendants submit that there is no identification of any advice given by Lavan that Lavan would have an interest in defending in these proceedings.
The defendants submit that the plaintiffs' approach 'in effect, replaces the fair minded reasonably informed member of the public, with another fictional arbiter - a hyper‑sensitive neurotic - and converts the court's discretion into a mandatory rule that it must prevent or avoid all conflicts, however chimerical'.[42] The defendants submit that there is no real sensible possibility of conflict that justifies restraining Lavan; that there is not a sufficient risk that a fair‑minded reasonably informed lay observer would be concerned that the administration of justice may be impaired by Lavan continuing to act.[43]
[42] Defendants' Submissions on Conflict of Interest [9].
[43] Defendants' Submissions on Conflict of Interest [13], [16].
In addition, the defendants submit that they would suffer prejudice if Lavan was restrained from acting:
(1)The defendants submit that, as the events the subject of the proceedings have been before the court since 2013, both defendants would be subject to a delay and costs thrown away if Lavan was restrained from acting.[44]
(2)Further, the Bank submits it would suffer prejudice in that it would lose the accumulated knowledge of its existing team of solicitors, and that such prejudice is particularly acute in complex commercial litigation such as this.[45]
Finally, the defendants state that they each took advice from independent senior counsel, and consent to Lavan continuing to act.
[44] Defendants' Submissions on Conflict of Interest [14].
[45] Defendants' Submissions on Conflict of Interest [17] ‑ [18].
Disposition of the injunction application
In determining the injunction application, I apply the approach outlined in Belgravia.
I have already explained my reasons for finding that there is no realistic prospect that Mr Abberton would (or could) give evidence in the proceedings.
As noted earlier, the central issue in the plaintiffs' case is whether the duty owed by Mr Herbert under s 420A of the Corporations Act was breached. The plaintiffs allege that it was breached by the aggregation of the Success land with the Dawnlink land and the imposition of the sewerage condition.
The difficulty for the plaintiffs is that there is no evidence that Lavan gave advice on the propriety of the aggregation and the imposition of the sewerage condition. In the Compliance Letter, written by Lavan, it is said that the receivers had not been acting in breach of their duties, and would not breach their duties in the future. There is also evidence that Lavan was aware of the requirements imposed by the receivers on potential purchasers in relation to contractual terms and the land to be bought, and that Lavan was involved in the drafting of terms, including the sewerage condition. That is as far as the evidence goes.
I bear in mind that the test requires an examination of what a fair‑minded, reasonably informed member of the public (a lay observer) would conclude.
In my view, a lay observer would not conclude that the proper administration of justice requires that Lavan 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.
There is not a clear case that the aggregation and sewerage condition were the product of advice from Lavan, and that Lavan may be required to defend that advice.
The plaintiffs have failed to make out a clear case that Lavan is in a position where it is fixed with an interest which conflicts with its duty to the court and that that interest is of such a nature that Lavan may fail in its overriding duty to the court.
Accordingly, I dismiss the plaintiffs' application to restrain Lavan from acting.
I will hear from the parties as to costs and the future programming of these proceedings.
0
6
1