Gujarat NRE India Pty Ltd v Wollongong Coal Limited

[2017] NSWSC 209

Supreme Court

New South Wales

Medium Neutral Citation:

Gujarat NRE India Pty Ltd v Wollongong Coal Limited [2017] NSWSC 209

Hearing dates:

2 March, 3 March 2017

Date of orders:

08 March 2017

Decision date:

08 March 2017

Jurisdiction:

Equity

Before:

Slattery J

Decision:

In the circumstances the proper administration of justice does not require the solicitor to be prevented from acting. Motion dismissed with costs.

Catchwords:

LEGAL PRACTITIONERS - motion to restrain solicitor acting in litigation – main proceedings listed for hearing in less than two weeks after argument on the motion - solicitor had acted for two parties in the negotiation of a commercial agreement - the two parties were then in common ownership but are no longer – the commercial agreement being negotiated was also made with other parties - those parties are not parties to the current litigation - no current claim to rectify the commercial agreement - the main proceedings concern issues of construction of the commercial agreement and the implication of terms into the commercial agreement on various bases - conceded that the former common solicitor does not hold any confidential information that may be used against the applicant on the motion - whether in the exercise of the Court’s inherent jurisdiction over its officers and to control its processes that the proper administration of justice requires that the solicitor should be prevented from continuing to act.

Legislation Cited:

Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 – Reg. 14

Uniform Civil Procedure Rules 2005, r 42.7.

Cases Cited:

Anson v Anson [1953] 1 QB 636
BP Refinery (Western Board) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Cleveland Investments Global Limited v Evans [2010] NSWSC 567
Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640
In re A Debtor [1937] Ch 156
Israel v Foreshore Properties Pty Limited (in liq) (1980) 54 ALJR 421
Jazabas Pty Limited v Haddad [2006] NSWSC 880
Kallinicos v Hunt (2005) 64 NSWLR 561
Leicestershire County Council v Michael Faraday and Partners Ltd (1941) 2 KB 205
Maxwell-Smith v S & E Hall Pty Limited (2014) 86 NSWLR 481
Ollis v Lye & Anor [2016] NSWSC 1616
Simic v New South Wales and Housing Corporation [2016] HCA 47
Wentworth v De Montfort and Others (1988) 15 NSWLR 248

Category:

Procedural and other rulings

Parties:

Applicant: Wollongong Coal Limited
Respondent: Brian Gillard

Representation:

Counsel:

 

Defendant/Applicant: A. Spencer
Plaintiff/Respondent: D. Pritchard SC; D. Jarrett

 

Solicitor:

  Defendant/Applicant: Harold Werksman, Thomson Geer
Plaintiff/Respondent: Brian James Gillard, Gillard Consulting Lawyers

File Number(s):

2014/211688

Publication restriction:

No

Judgment

1. This action is listed for hearing in the Equity Division before Robb J, for four days commencing on Monday, 13 March 2017. The Defendant, Wollongong Coal Limited (“WCL”) applied by motion in the Equity Duty List on 1 March 2017 to restrain Mr Brian James Gillard, the solicitor on the record for the plaintiff, Gujarat NRE India Pty Limited (“Gujarat”) since 17 February 2017, from acting further for Gujarat in these proceedings. Mr Gillard has acted for WCL in the past in negotiating the commercial agreement the subject of the main action.

2. Mr Gillard actively opposes the orders sought on WCL’s motion. Gujarat also opposes the orders sought but took no active role in opposition.

3. The motion was returnable the following day, 2 March 2017. Its hearing occupied about two hours of argument that afternoon. The matter was briefly relisted for supplementary argument the following day, 3 March 2017. But the parties resolved the supplementary issue and the Court reserved judgment.

4. Mr A. Spencer appeared for WCL instructed by Thompson Geer, solicitors. Mr D. Prichard SC and Mr D. Jarrett instructed by Gillard Consulting Lawyers appeared for Mr Gillard and mentioned the matter for Guarajat. The Court was much assisted by the careful arguments of counsel and the preparation of the solicitors on both side in what was a compressed urgent hearing.

5. The point at issue on the motion may be shortly stated. WCL does not contend that Mr Gillard may use any of WCL’s confidential information against it. Rather, it contends that in the exercise of the Court’s inherent jurisdiction over its officers and to control its processes that the proper administration of justice requires that Mr Gillard should be prevented from acting: Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 at [32] (Kallinicos).

Gujarat, WCL and the Override Deed – July 2013 to March 2017

6. The main proceedings principally concern provisions of a commercial agreement (called the “Override Deed”), made in July 2013 between WCL, Gujarat and two other third parties, UIL (Singapore) Pte Ltd (“UIL”) and Argonaut Securities Pty Limited (“Argonaut”). WCL and Gujarat were in common ownership in July 2013. In the Override Deed, Gujarat gave up against WCL certain of its rights as a surety to an indemnity and to subrogation.

7. The Override Deed effected a commercial compromise designed in part to secure UIL’s position resulting from WCL’s prior defaults in coal delivery under arrangements. Under these arrangements, upon UIL paying to WCL certain advances, WCL would sell and deliver coal to parties UIL nominated as purchasers.

8. But by July 2013 WCL’s coal delivery defaults had triggered financial default to UIL. Mr Gillard acted for both WCL and Gujarat in negotiating the Override Deed under instructions from the same board members and executives who were in control of both companies between 19 and 25 July 2013.

9. The Override Deed was executed on 25 July 2013. In the Override Deed Gujarat: guaranteed, both as a principal obligor and an indemnifier, any amounts unpaid by WCL to UIL (clause 5.1); and waived its general law rights (to indemnity from WCL and to subrogation to WCL’s rights), in the event that Gujarat satisfied WCL’s obligations to UIL.

10. Under the Override Deed, WCL was required to pay UIL USD 20,411,033 in instalments. In the event of WCL’s default on instalments, Gujarat was required to pay the full balance due from WCL to UIL. Alternatively UIL was entitled to realise a parcel of 150,000,000 of Gujarat’s shares in WCL (clause 6.1(a)), then held by Argonaut and designated in the Override Deed as security for Gujarat’s guarantee of WCL’s obligations to UIL.

11. WCL defaulted on its second instalment to UIL. To remedy the consequences of WCL’s default, under the Override Deed UIL exercised its right to sell the 150,000,000 shares in WCL held by Argonaut as security for WCL’s obligations. Gujarat thereby satisfied WCL’s obligations to UIL. The sale realised AUD 12,000,000, or USD 11,139,600, which was applied in reduction of the USD 13,500,000 plus interest then owing under the Override Deed.

12. By late October 2013 Gujarat had lost its controlling shareholding interest in WCL. At about the same time the common board membership and management of WCL and Guarajat ceased. An officer of both companies, Mr Arun Jagatramka, who had given instructions in the negotiation of the Override Deed, continued only as the principal of Gujarat. And Mr Gillard ceased acting for WCL.

13. In the main proceedings, Gujarat now seeks to recover from WCL the financial loss it has suffered by satisfying WCL’s obligations to UIL. At general law, a guarantor in the position of Gujarat, who has paid out the principal debtor’s obligations to the creditor, would ordinarily have a right to an indemnity for the same amount from the principal debtor, either under an implied contract, or as an implied term in the guarantee itself: In re A Debtor [1937] Ch 156; Anson v Anson [1953] 1 QB 636 and Israel v Foreshore Properties Pty Limited (In Liq) (1980) 54 ALJR 421, at 424.

14. Gujarat wants to make use of its general law right of indemnity as a security against WCL. But first it has to get around Override Deed clause 5.3, in which it waived that right. Most of Gujarat’s Amended Statement of Claim (“ASOC”) is devoted to the elaboration of various legal devices to overcome clause 5.3.

15. Some of these devices are reasonably conventional. Others are more exotic. These devices comprise the different causes of action that Gujarat pleads against WCL in the main action listed for trial next Monday. These causes of action are analysed later in these reasons to identify some of the issues in which Gujarat’s solicitor will be involved the main proceedings.

16. Gujarat appointed Mr Gillard as its solicitor on 17 February, only seven working days before WCL filed this motion seeking to restrain him from acting. Within those seven days WCL corresponded with Mr Gillard and Gujarat, unsuccessfully seeking undertakings that Mr Gillard would not act.

17. For a long time prior to that, for reasons that remain unclear, WCL had not sought to require Mr Gillard to hand over the WCL documents in Mr Gillard’s possession that had been generated during his negotiation of the Override Agreement. Probably because of the long shadow cost by the trial, WCL finally decided to issue a subpoena to Mr Gillard for the documents he held.

18. It could just have asked him. Mr Gillard has a continuing obligation to hand over client documents of WCL still in his possession after completion of his former retainer: see Leicestershire County Council v Michael Faraday and Partners Ltd (1941) 2 KB 205; Wentworth v De Montfort and Others (1988) 15 NSWLR 248 and Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015 – Reg. 14. But the subpoena undoubtedly saved unnecessary argument, so close to trial.

19. The subpoena had nothing to do with Gujarat’s almost contemporaneous change of solicitors. I accept Mr Gillard’s evidence as to the reasons for the change: the previous solicitor was urgently required for other simultaneous litigation that Gujarat is conducting. He was not cross-examined about these issues. Gujarat’s former solicitors on the record were PLL, now known as Omniwealth Legal. I accept that PLL, (Mr Leather) are also the solicitors on the record for Gujarat in other complex matters, which are being heard together in the Commercial List of this Court for 10 days starting on 27 March 2017. Complex commercial litigation can be all-consuming for the lawyers involved. It is quite reasonable in my view for Gujarat to ask Mr Leather to focus on only one of those pieces of litigation.

20. Gujarat argued that WCL’s application was too late because of this delay. Perhaps WCL could have asked for the documents from Mr Gillard earlier. But the timing is perhaps explained by other factors. Gujarat showed no inclination to put on any evidence from Mr Gillard in its case in the main proceedings. And WCL seemed reluctant to call him as a witness in its case; perhaps because of uncertainty as to what he might say, or because he was seen as still being close to Gujarat.

21. Gujarat’s criticism is a distraction. Whatever be the reason for WCL’s timing of its subpoena, and even accepting that the subpoena could possibly have been issued a little earlier than a month before the date for trial, WCL had no reason at all to bring this motion until Gujarat notified it on 17 February that Mr Gillard was going on the record as its solicitor. It acted promptly after that date. WCL did not delay in bringing this application. This is not a case where an applicant allows a case almost to go to trial before first seeking to restrain a solicitor who has been on the record for the other side for some time.

The Motion

22. The applicable law may be shortly stated. Where a retainer is no longer active, the Court’s jurisdiction to intervene at the suit of a former client to restrain a solicitor from acting is founded on obligations of confidence and is not connected with principles of conflict of interest: Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, Maxwell-Smith v S & E Hall Pty Limited [2014] NSWCA 146; (2014) 86 NSWLR 481 at [24].

23. There is no continuing equitable or contractual duty of loyalty to provide the basis of the Court’s intervention. So, for a former client to restrain a former solicitor from acting against it, the former client must ordinarily show: (1) that the former solicitor has the client’s confidential information, to the disclosure of which the former client has not consented; and (2) the information may be relevant to the new matter in which the interests of the solicitor’s new client may be adverse to those of the former client.

24. But the Court also has inherent jurisdiction to restrain solicitors from acting in particular cases as an incident of its inherent jurisdiction over its officers and to control its processes in aid of the administration of justice: Kallinicos at [32].

25. The test to be applied in the exercise of 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: Kallinicos at [76]. The jurisdiction is to be regarded as exceptional and is to be exercised with caution: Kallinicos at [76]. 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: Kallinicos at [76]. And the timing of the application may be important, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief: Kallinicos at [76].

Does the Administration of Justice Require that Mr Gillard Not Act?

26. WCL criticizes Mr Gillard’s involvement in slightly wider aspects of the transaction than have already been identified in the relatively compressed summary of circumstances above. For example, Mr Gillard was apparently also involved in negotiations concerning an Original Security Deed made on 26 March 2013 between Gujarat, WCL and UIL. Under that Original Security Deed Gujarat granted a security interest over Gujarat’s 150,000,000 shares in WCL to UIL. But under clause 13.6 of the Original Security Deed Gujarat as grantor could not utilize its rights of subrogation in respect of the secured party, being UIL, until the secured money had been paid in full.

27. In the main proceedings Gujarat now alleges that the Original Security Deed contained an implied term that Gujarat had such rights as were specified in clause 13.6, including subrogation, indemnity and set off, against WCL, but subject to the secured money being paid in full. The thrust of the contention in the main proceedings is by the implication of terms and other devices to enable Gujarat to make maximum use of its ordinary rights of subrogation, indemnity and set-off against the other obligor, WCL. These additional issues about the Original Security Deed, clause 13.6 feature in Gujarat’s final pleading in the main proceedings, the Amended Statement of Claim. But they do not raise any issues that are very different from those that arise in respect of the dispute about Override Deed clause 5.3.

28. In order to focus debate about how Mr Gillard’s knowledge and memory of transactions might be deployed to WCL’s disadvantage in the main proceedings, the Court requested Mr Spencer provide a summary list of the issues raised in the ASOC that showed why Mr Gillard should not be permitted to act. That summary was then the subject of a response from Gujarat. In my view the list does not establish that there is any affront to the administration of justice, in the sense required by the authorities, from Mr Gillard continuing to act. On the contrary, the list shows that Mr Gillard’s actual knowledge and memory either cannot or will not be deployed in the litigation to WCL’s disadvantage.

29. It is convenient to structure the Court’s analysis by reference to that list of issues. All paragraph references in this section are to paragraphs of the Amended Statement of Claim or the Amended Defence (“AD”). It can be assumed for the purposes of analysis that WCL has taken issue with all the allegations described here.

30. ASOC [36], [40], [59], [69], [70], [71], [120] and [121]. In different ways all of these parts of the ASOC plead the same general species of allegation: that either the Original Security Deed, clause 13.6 or the Override Deed, clause 5.3, or associated clauses, carried with them various implied terms, that were implied in fact or law. The pleaded implication of terms in fact is based upon conventional principles: BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266. The implication of terms in law is generally pleaded as arising from no more than the rights of contribution and indemnity and subrogation that exist as a matter of general law from surety relationships. WCL identifies in the particulars of the terms implied in fact (that because the implications in fact must be reasonable and equitable and necessary to give business efficacy to the contract) that Mr Gillard’s knowledge may be used against WCL.

31. But this argument is not persuasive. The argument takes insufficient account of the fact that terms implied in contracts are intended to reflect the presumed intention of the parties, not the parties’ actual subjective intention. The principle of implication of terms for reasons of business efficacy is limited by the constraint that it is intended to reflect that presumed intention. A term that was unreasonable or inequitable could hardly be presumed to be part of a party’s intention.

32. Similarly, classic analysis of what is necessary to give business efficacy to a contract is a matter of objective analysis of what terms are needed to effect the commercial or practical result which the contract contemplates. Ordinarily that does not require a court to look at what a party says in negotiating the contract. And the objective nature of the task is already recognised in many of Gujarat’s ASOC particulars: see for example ASOC, [70](f), “implied in fact as it was…(f) the objective intention between the parties”.

33. ASOC, [52], [53], [57] (AD [38]). These parts of the pleadings raise questions as to the proper construction of the Override Deed. Gujarat pleads that: clause 5.3 was inserted into the deed at the request of the creditor, UIL; and, that fact together with the then common ownership of WCL had consequences for how clause 5.3 should be construed. Similar allegations are made in relation to the construction of the Original Security Deed, clause 3.6.

34. Much judicial ink has been spilled on the issue of the proper approach to construction of commercial contracts. The latest authority is that of the High Court in Electricity Generation Corporation v Woodside Energy Limited (2014) 251 CLR 640; [2014] HCA 7 at [35], and applied by Gageler, Nettle and Gordon JJ in Simic v New South Wales and Housing Corporation [2016] HCA 47 at [78]. Those cases reaffirm the traditional principle that an objective approach is to be adopted in determining the rights and liabilities of parties to a contract and that the meaning of its terms is to be determined by what a reasonable business person would have understood those terms to mean. Neither in the way that the construction issue is pleaded nor by reason of traditional principle is it likely that Mr Gillard’s evidence could bear upon the construction issues raised in the main litigation.

35. ASOC, [114] and [115]. Gujarat also pleads an estoppel by convention that both it and WCL were under a number of common assumptions upon entering into the Override Deed about the operation of clause 5.3. The common assumptions are particularised as having been held by a number of officers of Gujarat and WCL, including Mr Arun Jagatramka and Mr Sanjay Sharma. Mr Gillard is not mentioned. Mr Sharma is now associated with WCL. And some correspondence is also mentioned in the particulars.

26. Whether or not these common assumptions are established will depend solely on the evidence of Mr Arun Jagatramka on the one side and Mr Sanjay Sharma on the other. They represent the directing mind and will of the negotiating parties, not Mr Gillard, who even if he were called to give evidence would not ordinarily be permitted to express his own assumptions about the contract.

27. AD [45], [56], [72], [74], [95]. These paragraphs of the Amended Defence all variously raise allegations of fact about the solvency of WCL at various times in 2013 when these agreements were executed and a capital raising occurred. They also take issue with the common assumptions pleaded in the ASOC and plead the intentions of Gujarat, WCL and related companies to satisfy their external obligations. These various allegations have either already been dealt with in the analysis of the ASOC, are uncontroversial matters of fact, or cannot be the subject of Mr Gillard’s evidence. I do not see how they assist WCL’s case on the motion.

28. ASOC, [78] – [80]. Gujarat originally alleged that the Override Deed should be rectified because it does not reflect the intention of the parties. But this pleading was abandoned.

29. WCL pressed upon the Court the alleged similarities between this case and Cleveland Investments Global Limited v Evans [2010] NSWSC 567 (“Cleveland”), a decision of Ward J, as her Honour then was. WCL submitted that Cleveland was very close to the present. But in my view the analogy is not made good. In Cleveland a solicitor had acted for one party after litigation had commenced and was subsequently proposing to act on the other side of the litigation against the original client. That is not this case. And because of the Court’s above analysis, in my view, Mr Gillard would not be likely in the eyes of a fair-minded and reasonably informed observer to be able to make use of the benefit of information given to Gujarat by WCL. The reality in this case as Mr Gillard is not giving evidence, is that the only evidence of communications between these parties which will be before the trial judge are the written communications which are being made available under the subpoena. In my view this is not a case like Cleveland.

The Discretionary Considerations

40. Many discretionary considerations weigh against WCL’s success on the motion. But for the reasons earlier explained, delay is not one of them. These discretionary considerations add to the reasons to dismiss the motion in addition to the Court’s conclusion that here there is no affront to the administration of justice in permitting Mr Gillard to continue to act for Gujarat.

41. Mr Gillard has a long-standing professional relationship with the principal of Gujarat, Mr Arun Jagatramka. Good reason has been shown for Gujarat to engage Mr Gillard at this point in preparation for the main proceedings. The authorities give considerable weight to the important principle: that parties to litigation before the courts should be able to engage the lawyer of their choice.

42. And there could be very considerable disadvantages to the administration of justice if the only other person who is readily qualified to conduct this case on behalf of Gujarat, Mr Leather, were now required to come back into the matter. Having Mr Leather try to focus on two demanding commercial cases, risks him failing in both of them. This in turn would multiply the potential adverse effects on the administration of justice.

43. Even without any criticism against WCL for the timing of its application, as none is warranted, the circumstances nevertheless mean that were the Court to make orders now, Gujarat would be forced to change solicitors only a few working days before the listed date for the commencement of hearing. There would be very high risk that the hearing date would be vacated if Gujarat were required to change solicitors at this point. Particularly in a case which has been set down for hearing for so long, that is not an outcome which is desirable in the administration of justice.

44. There is little or no risk that Mr Gillard will be giving evidence in the proceedings. No attempt to field him as a witness on Gujarat’s behalf was made, even when the former solicitors acted for Gujarat. And I expect that Gujarat would have difficulty in now persuading the trial judge to permit Mr Gillard to give evidence, especially after the contest that has taken place on this motion.

45. The jurisdiction WCL invokes here should be exercised with caution and in exceptional circumstances. Some particular ground associated with the administration of justice should ordinarily be identified in order to overcome that caution. I do not see such a ground here. Curiously, the nature of what remains of this litigation after the rectification claim has been dropped makes Mr Gillard as much a bystander in the action as anyone else. Here his knowledge and memory of the key communications with Gujarat or WCL, not already recorded in correspondence that can be tendered, is either irrelevant or is now incapable of use.

Conclusions and Orders

46. For these reasons I will dismiss the motion. Cost should follow the event. But if any party wishes to apply for a special costs order they may do so by putting argument on that issue as soon as is convenient after the delivery of this judgment. But the parties may regard that as too much of a diversion of their energies and resources this close to the hearing. Another option is to delay such argument until after the hearing next week.

47. For the reasons indicated above the Court will order as follows:

1. The motion is dismissed.

2. Order that the defendant (the applicant on the motion) pay the respondent’s (Mr Gillard’s) costs of the motion.

3. If any party wishes to apply for a special costs order they should do so either immediately or at a date to be agreed between the parties and fixed in consultation with my associate.

After the Delivery of Written Reasons for Judgment

48. After the Court delivered its written reasons the parties put further submissions on costs. The Court then determined those costs issues.

49. Gujarat’s written submissions recorded: that in the event of Mr Gillard’s success it sought indemnity costs; and, that any costs awarded to Mr Gillard should be payable forthwith, rather than paid at the general costs of the proceedings: Uniform Civil Procedure Rules 2005 (“UCPR”), r 42.7.

50. As to the issue of indemnity costs, upon hearing submissions upon the delivery of judgment the Court indicated, it did not regard such an argument as very persuasive, given the Court’s reasons for judgment. Gujarat decided not to press the application further.

51. As to the issue of whether Mr Gillard’s costs should be paid forthwith, in my view, this is a situation well within the cases where principle indicates that costs should be payable forthwith. The issues on the motion are entirely severable from, or only peripherally related to, the issues in the main proceedings: see Jazabas Pty Limited v Haddad [2006] NSWSC 880. Therefore the Court will make an order that Mr Gillard’s costs be payable forthwith.

(4)   The Court notes that any application for indemnity costs is not pressed.

(5)   The Court orders the defendant (the applicant on the motion) pay Mr Gillard’s costs of the motion forthwith.

**********

Decision last updated: 08 March 2017