Incentive Dynamics Pty Ltd (in liq) v Robins, Douglas Robert McNeill
[1997] FCA 671
•25 July 1997
FEDERAL COURT OF AUSTRALIA
LEGAL PRACTITIONERS - Solicitors - Confidential information - Communicated to solicitor while previously acting for company - Solicitor now acting for new clients including directors - Company in liquidation taking action against new clients - Company seeking to restrain solicitors from acting for new clients - Confidential information previously conveyed to solicitors by new clients on behalf of company - Confidential information can now be conveyed by new clients to solicitors free of any legal restraint concerning confidentiality - Information held by solicitors of impressions, beliefs, conclusions and observations - Whether information identified with sufficient precision to enable it to be found to be confidential - Mere fact that solicitor for new clients is to be called as witness for former client is not alone sufficient to grant injunction- Whether information disadvantageous to the applicants.
Farrow Mortgage Services Pty Ltd (in liquidation) v Mendall Properties Pty Ltd & Ors (1995) 1 VR 1;
Carindale Country Club Estate Pty Ltd v Astill & Ors (1993) 115 ALR 112;
Chapman v Rogers; ex parte Chapman [1984] 1 Qd R 542;
Yamaji v Westpac Banking Corporation (No 1) (1993) 115 ALR 235
INCENTIVE DYNAMICS PTY LTD (IN LIQUIDATION) & Anor v ROBINS & Ors
NG 3043 of 1997
JUDGE(S): NORTH J
PLACE: MELBOURNE
DATE: 25 JULY 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) NG 3043 of 1997 ) GENERAL DIVISION )
IN THE MATTER OF INCENTIVE DYNAMICS PTY LIMITED (IN LIQUIDATION)
(ACN 003 294 700)AND THE CORPORATION LAW
INCENTIVE DYNAMICS PTY LIMITED (IN LIQUIDATION)
(ACN 003 294 700)First applicant
ROBERT WILLIAM MORTON in his capacity as Official Liquidator of Incentive Dynamics Pty Limited
Second applicant
DOUGLAS ROBERT McNEILL ROBINS
First respondent
JOHN HAIGH ROBINS
Second respondent
JONATHAN MICHAEL MEISSNER
Third respondent
JOHN D’ERSBY HUDSON
Fourth respondent
COLDWICK PTY LIMITED
(ACN 053 673 395)Fifth respondent
ROBINS HAIGH McNEILL PTY LIMITED
(ACN 002 876 395)Sixth respondent
PAGBY PTY LIMITED
(ACN 005 203 136)Seventh respondent
CHERYL ANN CHANG
Eighth respondent
JUDGE(S): NORTH J PLACE: MELBOURNE DATED: 25 JULY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The application is dismissed with costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) NG 3043 of 1997 ) GENERAL DIVISION )
IN THE MATTER OF INCENTIVE DYNAMICS PTY LIMITED (IN LIQUIDATION)
(ACN 003 294 700)AND THE CORPORATION LAW
INCENTIVE DYNAMICS PTY LIMITED (IN LIQUIDATION)
(ACN 003 294 700)First applicant
ROBERT WILLIAM MORTON in his capacity as Official Liquidator of Incentive Dynamics Pty Limited
Second applicant
DOUGLAS ROBERT McNEILL ROBINS
First respondent
JOHN HAIGH ROBINS
Second respondent
JONATHAN MICHAEL MEISSNER
Third respondent
JOHN D’ERSBY HUDSON
Fourth respondent
COLDWICK PTY LIMITED
(ACN 053 673 395)Fifth respondent
ROBINS HAIGH McNEILL PTY LIMITED
(ACN 002 876 395)Sixth respondent
PAGBY PTY LIMITED
(ACN 005 203 136)Seventh respondent
CHERYL ANN CHANG
Eighth respondent
JUDGE(S): NORTH J PLACE: MELBOURNE DATED: 25 JULY 1997
REASONS FOR JUDGMENT
This is an application brought by the applicants in the proceedings for orders that the first, second, third, fifth, sixth and eighth respondents (the respondents) be restrained from continuing to engage their present solicitors, Hall & Wilcox, as their solicitors in these proceedings. The basis of the application is that Hall & Wilcox previously acted for the first applicant (Incentive) on a number of occasions on which Hall & Wilcox received confidential information.
Incentive is a company which was placed into liquidation by the Court on 15 April 1996, on the application of a creditor. The second applicant is the liquidator of the first applicant appointed by the Court.
In the statement of claim filed on 21 February 1997, the applicants allege that the first and second respondents were directors of Incentive and the third respondent (Mr Meissner) was a de facto director and/or officer of Incentive. Importantly for the present application, the applicants further allege that Incentive was insolvent at all times after 30 June 1993. They allege that, while Incentive was insolvent, the first, second and third respondents caused or permitted Incentive to make loans to themselves or companies in which they were shareholders or directors. The alleged loans totalled approximately $3.5 million. The applicants allege that the first, second, third and fourth respondents were guilty of fraud, negligence, default, breach of trust or breach of duty in relation to the affairs of Incentive, and they claim damages and the return of moneys paid. The alleged wrongful conduct of the first, second, third and fourth respondents is described in particulars as:
“.... causing or permitting to be advanced and lent funds of the firstnamed applicant to or at the direction of [specified corporations or individuals] when such loans conferred no benefit upon the first applicant and where no proper loan documentation was prepared, no security taken, no interest paid or demanded and further in failing to take any steps to cause or to endeavour to cause such funds to be repaid to the first applicant.”
Against Mr Meissner, it is separately claimed that he signed three cheques of $10,500 each, payable to himself, between August and November 1995 and collected the proceeds when he knew that Incentive was insolvent. The applicants claim those moneys as money had and received or, alternatively, as a voidable preference. Other claims are made by the applicants but they are not presently relevant.
Two factors which are relevant to the present application should be noted about the proceedings. The first is that a central allegation is made by the applicants that Incentive was insolvent from 30 June 1993. The second is that, where the accounts of Incentive record the loans which are the subject of the proceedings, the respondents say that the actual transaction behind the recorded loan was a debit against a trade debtor or anticipated trade debtor which had been or was to be provided with goods or services by Incentive. In other words, the respondents raise a question about the proper interpretation of the accounts of Incentive.
Prior to the liquidation of Incentive, Hall & Wilcox acted for Incentive in four matters, two of which were the main focus of attention in this application. In one of those, Hall & Wilcox conducted negotiations between March and September 1995 with the Australian Tax Office in respect of unpaid group tax amounting to about $220,000 and payable by Incentive in respect of the period from about January 1994 to about February 1995. Hall & Wilcox also acted on behalf of the directors of Incentive, namely, the first and second respondents, in the negotiations. By statute, the directors were personally liable for the unpaid group tax. The role of Hall & Wilcox was to discuss with the Australian Tax Office arrangements to pay off the liability over an extended period. It is convenient to examine the work done by Hall & Wilcox by reference to three consecutive periods which correspond to periods for which Hall & Wilcox rendered separate accounts for fees. In March 1995, the Australian Tax Office had issued proceedings in the Supreme Court and County Court to recover the unpaid group tax. Mr Tony Todaro, a solicitor with Hall & Wilcox, was instructed by Mr Meissner to make an offer to pay off the arrears over twelve months, and to support the offer with cash flow projections. Mr Todaro conveyed the offer to Ms Ansar of the Australian Tax Office, who said that it was not acceptable. He discussed delaying entry of judgment in the recovery proceedings whilst discussions continued. Mr Todaro then received various notices from the Australian Tax Office including notices of estimated liability to tax which contained statutory declarations to be completed on behalf of Incentive. He forwarded these documents to Mr Meissner for him to make the declarations. These were necessary to crystallise the amount of tax owing. On 5 April 1995, he reported to Mr Meissner that the Australian Tax Office was prepared to consider an offer of payment of arrears over nine months. He wrote:
“To give this further consideration Ms Ansar of the Tax Office has requested the most recent balance sheets and profit and loss statements of the company together with cash flow statements which will indicate the companies are able to meet the payments.”
In the next fortnight Mr Todaro sent a number of reminders to Mr Meissner to prepare the necessary information. On 18 April 1995, he sent an account for 10.2 hours of work.
In early May, Mr Todaro reported to Mr Meissner as to the stage reached in the court proceedings. He asked Mr Meissner to pay the Australian Tax Office a promised instalment which was overdue, and to pay the account rendered by Hall & Wilcox. On 17 May 1995, he sent to Ms Ansar a balance sheet, profit and loss statement and 12-month projected cash flow in support of the offer to pay by instalments. On 19 May 1995, Ms Ansar by phone sought further information and complained of the failure to pay instalments as promised. Mr Todaro wrote to Mr Meissner seeking the additional information required by Ms Ansar, relayed the complaint about failure to pay the instalments promised, and reminded Mr Meissner of the outstanding April account from Hall & Wilcox. On 2 June 1995, Mr Todaro advised Mr Meissner that payments of arrears over nine months should commence on 14 June 1995, and again reminded him that Ms Ansar was waiting for the further information. Mr Meissner provided some of the information in writing to Mr Todaro on 15 June 1995. Mr Todaro wrote to Mr Meissner on 20 June 1995, relaying Ms Ansar’s dissatisfaction with late payments, some non-payments and failure to provide the information sought. He said that the information provided by Mr Meissner was not complete. This was followed up by a phone call. On 22 June 1995, Mr Meissner provided some further information in writing and enclosed a cheque in payment of the account of Hall & Wilcox, and another cheque in payment of some outstanding tax instalments. The information and taxation cheques were sent by Mr Todaro to Ms Ansar with a request that the Australian Tax Office enter into a formal agreement for payment over twelve rather than nine months. Mr Todaro sent by fax a number of reminders to Mr Meissner to pay instalments on the due dates. On 10 July 1995, Mr Todaro sent an account for fees for 10.3 hours of work for the second period of work.
On 17 July 1995, Mr Todaro received a letter of demand addressed to Incentive and its directors from the Australian Tax Office resulting from the failure to pay current and arrears of group tax. He arranged for payment. On 26 July 1995, he sent a fax to Ms Ansar seeking a formal agreement for payment of arrears by twelve instalments. In response, the Australian Tax Office sent a proposed payment agreement to Mr Todaro. On the same day, the Attorney-General’s Department sent Mr Todaro a letter proposing the resolution of the litigation consequent upon the signing of the proposed agreements. On 15 August 1995, Mr Todaro wrote to the directors of Incentive and to Mr Meissner, enclosing the proposed agreement and the proposed terms of settlement of the litigation, and advising them of the legal effect of these documents. On 30 August 1995, Mr Todaro rendered an account for 11 hours work for the third period. The last letter from Mr Todaro to Ms Ansar, dated 8 September 1995, said:
“We confirm that in respect of Incentive Dynamics we have been instructed as follows:
1.Other companies associated with the directors of Incentive Dynamics have run into severe financial difficulties. One of those companies has been placed in receivership by its financier.
2.Incentive Dynamics is in a position where it cannot meet the payments provided for in the payment agreement you have forwarded to us.
3.The directors have engaged financial advisers, including a firm of insolvency specialists, to assist them in determining the exact financial position and viability of Incentive Dynamics and for the purpose of putting a revised proposal to you.
4.It is proposed that this proposal, supported by appropriate documentation, will be forwarded to you in the first few days of the week commencing 18 September 1995.”
The second matter in which Hall & Wilcox acted for Incentive concerned the resignation on 23 November 1995 of Ms Henderson and Ms Harold, two employees of Incentive. Each sent a letter of resignation dated 23 November 1995 to Incentive which included the following:
“The following circumstances have reduced my faith in the Company and leave me no option but to resign immediately:
1)the apparent insolvency of the Group:
* Jon Meissner told me on November 20, 1995 of the outstanding Group Tax liability of approximately $300,000.
2)the large amount of debtors outstanding in relation to work being performed for Tattersall’s and the inability of the Group to pay those debts,
3) the fact that the Companies’ premises are being sold
4)that I have had legal advice that if I continue to be involved in the management of the companies and the conduct of the Tattersall’s account with the Dynamics Group I may be exposing myself to liability to creditors pursuant to the provisions of Part 5.7B of the Corporations Law. That is the provision in relation to directors (or other persons involved in the management of a corporation) being involved in insolvent trading, and
5)that undue pressure is being placed on me to raise money for the Group by billing Tattersall’s.”
Hall & Wilcox dealt with claims by the two employees for outstanding moneys. It also advised Incentive in relation to representations that Incentive had financial problems, apparently made by Ms Henderson and Ms Harold to Tattersalls, a client of Incentive. The last substantial action recorded on the file is the receipt of a letter of demand from the solicitors for the two employees on 11 December 1995. Hall & Wilcox rendered an account for $2,477.45. The instructions in relation to this matter were received from Mr John Hudson, the fourth respondent, and Mr Meissner.
The two other matters in which Hall & Wilcox acted for Incentive concerned the sale of premises at Nelson Place, Williamstown, owned by Incentive, and the registration of a caveat on behalf of Incentive. Mr Todaro has provided the second applicant with copies of the files in each of the four matters. The applicants have exhibited the files kept by Hall & Wilcox relating to the unpaid group tax matter and the resignation of Ms Henderson and Ms Harold. The files in the other two matters were not before the Court. The only evidence relating to those matters was from Mr Todaro, who swore that any information relevant to the current proceedings was conveyed to him by Mr Meissner.
The parties were in agreement that the proper approach to the question in this application is as stated by Hayne J in Farrow Mortgage Services Pty Ltd (in liquidation) v Mendall Properties Pty Ltd & Ors (1995) 1 VR 1, at 5, as follows:
“Prima facie a litigant may choose any solicitor to act on behalf of that litigant. The bare fact that a solicitor has acted for a person does not mean that thereafter that solicitor may never act against that person. The court will interfere with the litigant’s choice of solicitor only if there is reason to do so and the reason that has usually been put forward, and is put forward in this case, is that it is necessary to prevent the solicitor from acting or continuing to act in order to prevent the misuse of information given to the solicitor in confidence. .... Although it is necessary to be acutely conscious of the fact that the court is asked to interfere with the right of a litigant to be represented by the solicitor of the litigant’s choice, it is not necessary to conclude that harm is inevitable (or well nigh inevitable) before acting to restrain a possible breach of the duty that a solicitor owes to clients and former clients to keep confidential information given to the solicitor in confidence and not use that information against the interests of the client who gave it to the solicitor. .... that injunction should go if there is a real and sensible possibility of the misuse of confidential information.”
Mr Holmes QC, who appeared with Mr Chippendall, on behalf of the applicants, argued that Hall & Wilcox had obtained information about the financial state of Incentive in confidence. The information was relevant to the present proceedings. If used by Hall & Wilcox, now acting on behalf of the respondents, the information could prejudice the applicants by showing that Incentive was solvent, and that the loans recorded in the accounts reflected trading transactions as alleged by the respondents. In the circumstances, Hall & Wilcox, he contended, have a conflict between their duty to Incentive to keep the information confidential, and their duty to the respondents to place all their knowledge at the disposal of their current clients.
Mr Holmes accepted that the first and second respondents and Mr Meissner were no longer bound to keep the information conveyed to Hall & Wilcox confidential. As directors or agents of Incentive being sued by Incentive, they were entitled to use the information in their defence. Indeed, the information was imparted to Hall & Wilcox in some instances equally on behalf of the first and second respondents and Incentive. Even without the commencement of proceedings against them, the first and second respondents were arguably entitled to use the information free of any obligation of confidentiality. Mr Hudson, the fourth respondent, and Mr John Robins, the second respondent, possess all the information imparted to Hall & Wilcox because they conveyed that information to Hall & Wilcox. Thus, the current clients of Hall & Wilcox are now able to convey, free of any legal restraint concerning confidentiality, all the information Hall & Wilcox previously learned about the financial affairs of Incentive. Hall & Wilcox would then be able to utilise the information without breach of the duty of confidentiality owed to Incentive from the earlier retainers. It can be argued that, until Hall & Wilcox is placed in possession of the information again by a process of instruction from the current clients, Hall & Wilcox is technically bound by the duty of confidentiality. But this is too narrow a view. As the respondents have the capacity to provide the information and desire Hall & Wilcox to utilise it, the information loses its nature as confidential for the purpose of the principle governing the restraint of solicitors from acting against previous clients. The respondents’ ability to provide the same information to Hall & Wilcox as was previously conveyed on behalf of Incentive is determinative against the grant of an injunction in respect of that information.
The circumstances of this case are different from most cases which have dealt with applications for a restraint against continuing to engage solicitors who have previously acted for opposite parties. These cases are generally contests between former and existing clients concerning information imparted in confidence by the former clients to the solicitors, which information is unknown to the existing clients. For instance, in Carindale Country Club Estate Pty Ltd v Astill & Ors (1993) 115 ALR 112, the purchasers of a block of land sued the developer for misrepresentation as to the anticipated minimum size of blocks on the estate. Their solicitor previously acted for the developer. In that capacity, he had obtained information about the anticipated minimum size of blocks on the estate, which information would have assisted the purchasers’ case. The court restrained the purchasers from continuing to engage him as their solicitor. He obtained from the opposite party in the case information in confidence which his current clients did not have. This is not the case here.
So far, I have dealt with information conveyed to Hall & Wilcox by Mr Meissner and the other respondents. This information was provided by way of documents, particularly relating to Incentive’s financial affairs, such as budgets, cash flow projections, balance sheets, profit and loss statements and in discussions summarised in file notes kept by Hall & Wilcox. As I have said, this information can now be given by the respondents to Hall & Wilcox without breach of any obligation of confidentiality. But Mr Holmes submitted that there was other information conveyed which the respondents could not now impart to Hall & Wilcox. Mr Todaro no doubt formed impressions from the discussions and he drew conclusions from the totality of the dealings with Incentive. He could provide a commentary or explanation of his file notes, informed by his own input. He would also have formed beliefs about the instructions given to him. These may all assist the applicants in proving their case. One example used by Mr Holmes came from the following paragraph in an affidavit sworn by Mr Todaro which referred to a belief formed by Mr Todaro:
“To the extent that any general information was conveyed to me regarding the Company’s financial position, with one exception, it was conveyed by Jon Meissner. The exception is one discussion with John Hudson of the Company, on 30 November 1997 when in a discussion with Bill Stark of my firm Mr Hudson made the comment ‘they are thinking of doing a voluntary administration’. I believe Mr Hudson is only expressing a view of John Robins and Doug Robins two of the respondents my firm represents.”
Further, Mr Holmes submitted, Mr Todaro received information concerning the actions of Mr Meissner in giving instructions which may support the applicants’ case that Mr Meissner conducted himself as a de facto director. In Carindale, Drummond J said at 120-121:
“It is a basic requirement that before material will be recognised as having the character of confidential information, the information in question must be identified with precision and not merely in global terms: Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434, 443; 74 ALR 428 and cf O’Brien v Komesaroff (1982) 150 CLR 310 at 327; 41 ALR 255. The requirement is insisted upon even though it may necessitate disclosing to the court the very information the confidentiality of which it is sought to preserve by the action. This requirement has its foundation in the need for the court to be able to frame a clear injunction, should relief against misuse of confidential information be granted. There are procedures available that will minimise the risk that confidentiality will be lost by the litigation process, although the applicant did not seek to invoke them here: cf Law of Trade Secrets, [Dean], p 122 and the Federal Court of Australia Act 1976 (Cth) s 50. But the requirement goes to a matter more fundamental than that: see Independent Management Resources Pty Ltd v Brown [1987] VR 605 at 609:
The more general the description of the information which a plaintiff seeks to protect, the more difficult it is for the court to satisfy itself that information so described was imparted or received or retained by a defendant in circumstances which give rise to an obligation of confidence.”
The evidence before the Court relevant to this issue comprised the files kept by Hall & Wilcox for the relevant transactions and two affidavits sworn by Mr Todaro concerning his role in the transactions. Of course, the files do not identify the information now being discussed with any particularity. The evidence contained within the affidavits is very general. For instance, in relation to the unpaid group tax issue, Mr Todaro said:
I received all my instructions for the Company from Jon Meissner, save for a few discussions with John Robins towards the conclusions of the file. The instructions related to offers which I was to put to the Australian Taxation Office and general financial information of the company and directors to support the proposal. I mostly conveyed the information provided to me by Jon Meissner to Gloria Answar [sic] of the tax office. I would then convey to Mr Meissner Ms Answar’s [sic] request for further information, which information I would then provide to Ms Answar [sic].”
In my view, the information held by Hall & Wilcox by way of impressions, beliefs, conclusions and observations has not been sufficiently identified to enable it to be found to be confidential information.
Then, Mr Holmes contended that the applicants may call Mr Todaro as a witness in support of their case and a solicitor who is to be called as a witness should not act for the opposing side. He relied on the comments of Campbell CJ in Chapman v Rogers; ex parte Chapman [1984] 1 Qd R 542 at 545, as follows:
“[F]or the reason that it is desirable to avoid any suggestion of real or apparent conflict between the duty to the court and the obligation to the client, I consider that it is generally unwise for a solicitor, who is not himself appearing as advocate or as instructing solicitor in court but who is aware that it is likely that he will be called as a material witness (other than in relation to formal or non-contentious issues), to continue, either personally or through his firm, to represent the client if this can be reasonably avoided.”
Although it may be unwise for a solicitor to continue to act in these circumstances, it does not follow that the court will restrain the continued engagement: Yamaji v Westpac Banking Corporation (No 1) (1993) 115 ALR 235, at 237. An applicant for an injunction must establish more than that the solicitor may be called as a witness in the case. Such applicant must show a real and sensible possibility of the misuse of confidential information. As I have already found, the applicants have not done so in this case.
The final consideration is whether the applicants have demonstrated that the information, if used, would be disadvantageous to the applicants. This is a necessary element, as explained by Drummond J in Carindale at 118-9, as follows:
“However, the cases all indicate that before a solicitor will be restrained from acting for a new client at the behest of an old client, not only must there be a threat of disclosure of information given in confidence, but there must be evidence that such disclosure will be to the former client’s disadvantage. The requirement of proof of detriment is at the core of the ruling in Rakusen [v Ellis, Munday & Clarke [1912] 1 Ch 831]. It is emphasised as a requirement in the later cases: see, eg, D & J Constructions Pty Ltd v Head, trading as Clayton Utz [(1987) 9 NSWLR 118] at 124; Murray v Macquarie Bank Ltd [(1991) 33 FCR 96] at FCR 49 and MacDonald Estate v Martin [(1990) 77 DLR (4th) 249] at 267. There may be justification for insisting upon proof of detriment where it is sought to prevent a solicitor acting for a new client. A solicitor should not too readily be disqualified from acting for a new client who wants his services: it is in the public interest that the services of solicitors (who, together with barristers, have a monopoly in the provision of legal services) should be freely available; cf Fruehauf Finance Corporation Pty Ltd v Feez Ruthning [1991] 1 Qd R 558 at 566 and MacDonald Estate v Martin, supra, at 270. This public interest will be unnecessarily intruded upon unless it is shown that disclosure by the solicitor of confidential information will disadvantage the confiding client.”
There is some tension between the applicants’ contention that they may call Mr Todaro to give evidence in support of their case and the necessary element that the use of the information must be disadvantageous to the applicants. It is not obvious from the evidence before the Court that the information obtained by Hall & Wilcox would disadvantage the applicants’ case. Much of the confidential material appears, on a superficial view, to advance the argument that Incentive was insolvent. For instance, the circumstance that group tax had not been paid and that Incentive could not offer any final agreement to pay by extended instalments seems more likely to support the applicants’ case than to disadvantage it. The same can be said about the circumstances surrounding the advice given to Incentive in relation to the resignation of Ms Henderson and Ms Harold.
For these reasons, the application for an injunction to restrain the continued engagement of Hall & Wilcox is dismissed with costs.
I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice North
Associate:
Dated: 25 July 1997
Counsel for the Applicants: Mr M. Holmes QC and Mr J. Chippendall Solicitor for the Applicants: Abbott Stillman & Wilson Counsel for the Respondents: Mr H.W. Fraser Solicitor for the 1st, 2nd, 3rd, 5th, 6th and 8th Respondents: Hall & Wilcox Date of Hearing: 5 & 6 May 1997 Date of Judgment: 25 July 1997
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