Lake Burrendong State Park Trust v Thompson - [2011] NSWSC 1554

Supreme Court

New South Wales

Medium Neutral Citation: Lake Burrendong State Park Trust v Thompson [2011] NSWSC 1554
Hearing dates: 29 November 2011
Decision date: 16 December 2011
Jurisdiction: Equity Division
Before: Hallen AsJ
Decision:
Order that:
(a) the Plaintiff's notice of motion filed on 11 August 2011 be dismissed;
(b) the Plaintiff to pay the Defendants' costs of the proceedings and of the notices of motion.

Catchwords: Plaintiff commenced proceedings, by Summons seeking injunctive relief against the Defendants in relation to their representation in proceedings that had been commenced in the District Court of New South Wales at Orange - Proceedings resolved by acceptance of undertakings from Defendants - Each party seeks costs of the proceedings even though no hearing on merits.
Legislation Cited: Civil Procedure Act 2005
Crown Lands Act 1989
Uniform Civil Procedure Rules 2005
Cases Cited: Ajkay v Hickey & Co Pty Limited [2011] NSWSC 822
Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194
Boscaini Investments Pty Ltd v Corporation of the City of Kensington and Norwood (1999) SASC 327
Bridie v Messina (1965) 66 SR (NSW) 446
Chapman v Luminis Pty Ltd [2003] FCAFC 162
Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302
Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547
Holborow v Macdonald Rudder [2002] WASC 265
Ismail-Zai v State of Western Australia [2007] WASCA 150; (2007) 34 WAR 379
Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561
Kooky Garments Ltd v Charlton [1994] 1 NZLR 587
Minister for Immigration and Ethnic Affairs, Re the; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622
Mitchell v Burrell [2008] NSWSC 772
Muhibbah Engineering (M) BHD v Trust Co Ltd [2009] NSWCA 205
Ohn v Walton (1995) 36 NSWLR 77
One Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270
Red Bull Australia Pty Ltd v Michael Peter Stacey and Christian Walter Graebner [2011] NSWSC 1350
Saeco International Group (Australia) Pty Ltd v Giorgio Massimo Ubertini [2011] VSC 360
Scallan v Scallan [2001] NSWSC 1078
Category: Procedural and other rulings
Parties: Lake Burrendong State Park Trust (Plaintiff)
Anne Maree Thompson (first Defendant)
Thompson Madden Pty Limited trading as Thompson Madden Solicitors (second Defendant)
Representation: Counsel:
Mr J K Kirk SC (Plaintiff)
Mr G Curtin SC (Defendants)
Solicitors:
Crown Solicitor's Office (Plaintiff)
Gilchrist Connell (Defendants)

File Number(s): 2011/115795

Judgment

The Applications

HIS HONOUR: On 8 April 2011, the Plaintiff commenced proceedings, by Summons, in which it sought injunctive relief against the Defendants in relation to their representation of Richard Peter Beatty in proceedings that had been commenced in the District Court of New South Wales at Orange. The Plaintiff also sought the costs of the proceedings.

On 22 May 2011, JRR Legal Pty Ltd, trading as Jones Rolfe Rudd, solicitors, was instructed to act on behalf of Mr Beatty in the District Court proceedings. By letter dated 2 June 2011, Jones Rolfe Rudd informed the Plaintiff's solicitors that the Defendants (for whom the firm also then acted) would give undertakings to the Court in terms of proposed orders. No agreement was reached on costs (the amount sought by the Plaintiff, apparently, being $26,600).

On 8 June 2011, the Plaintiff's solicitors sent the final form of proposed consent orders to the Defendants' solicitors. In the covering letter, it was noted that the Defendants "will not consent to a cost order".

The proceedings were settled on 10 June 2011, when a Consent Order in the following form, was filed in the Supreme Court proceedings:

"The Court orders:

The first Defendant, Ms Anne Maree Thompson, be restrained from:

a. giving legal advice to;

b. acting for; and

c. representing (whether directly or indirectly, through intermediaries or otherwise),

Mr Richard Peter Beatty in, or in relation to, the proceeding number 10 of 2010 issued in the District Court of New South Wales in Orange (also called proceeding '2010/00101649') (hereafter 'Proceedings').

The second Defendant, Thompson Madden Pty Ltd ACN 146 217 165 (t/as "Thompson Madden Solicitors") (whether by its employees, agents, or officers) be restrained from:

a. giving legal advice to;

b. acting for; and

c. representing (whether directly or indirectly, through intermediaries or otherwise),

Mr Richard Peter Beatty in, or in relation to, the Proceedings."

There was no dispute that there was no hearing on the merits.

The making of these orders finalised the dispute of the parties other than in respect of the costs of the proceedings. It is in relation to those costs that a notice of motion was filed by each of the parties on 11 August 2011.

On 5 August 2011, other solicitors were retained to act for the Defendants in these proceedings.

The Plaintiff, by its notice of motion, initially, sought an order that the Defendants pay its costs calculated on the indemnity basis. However, shortly before the hearing, it amended its claim to seek costs calculated on the ordinary basis. Needless to say, there was no opposition to this amendment.

The Plaintiff claims that, although the matter did not go to trial, nevertheless, it should be awarded costs because it was the successful party in the litigation or, alternatively, because of the conduct of the Defendants.

The Defendants, by their notice of motion, seek their costs of the Supreme Court proceedings calculated on the ordinary basis. They say that the Plaintiff's claim was doomed to fail from the outset and should never have been commenced.

The hearing of the application took one full day. Ten affidavits, of varying length, some of which related to the substantive proceedings, were read, and an exhibit, comprising a few hundred pages, was tendered. There was, however, no cross-examination of any witness.

Each senior Counsel provided comprehensive written submissions, which I have found most helpful. Those submissions will remain with the papers. The submissions were supplemented by oral submissions and references to the relevant facts.

One has the feeling that the costs of these applications are likely to have exceeded the costs the subject of dispute. However, that is mere speculation.

Background Facts

The Plaintiff, Lake Burrendong State Park Trust, is a reserve trust established under s 92 of the Crown Lands Act 1989 . It is constituted by that Act as a corporation, having as its corporate name, the name assigned to the trust in the notification of its establishment. It is entitled to sue, and be sued, in, and by, its corporate name and style. As a reserve trust, it is charged with the care, control and management of any reserve (or any part of a reserve) of which it is appointed trustee. In this case, the Plaintiff is the trustee for the Lake Burrendong State Park.

The second Defendant, Thompson Madden Pty Limited, a firm of solicitors, was incorporated on 9 September 2010. That firm acted for Mr Beatty for some time, after that date, in District Court proceedings, in circumstances to which I shall later refer. Following the events referred to above, Messrs Jones Rolfe Rudd came to act for Mr Beatty in those proceedings.

The first Defendant, Anne Maree Thompson, is the principal solicitor involved in the second Defendant. She and Mr Michael Madden (who is her husband) hold an equal number of shares in the second Defendant. She, however, is the sole director, of the second Defendant. Mr Madden is an employed solicitor with the second Defendant.

The evidence reveals that Mr Madden had strong connections with the Plaintiff. From about 1999 until 30 April 2009, he was a member of the Plaintiff's community trust board, which managed the Plaintiff. From August 2005, he was, in fact, the Chairman of the Plaintiff's board. It was he who executed the written employment agreement between Mr Beatty and the Plaintiff and the evidence suggests that he worked closely with Mr Beatty during the employment of each with the Plaintiff.

An issue raised in this matter relates to the likelihood, or otherwise, of Mr Madden being a witness in the District Court proceedings. It will be necessary for me to return to that topic later in these reasons.

Mr Beatty is a former employee of the Plaintiff. His employment was terminated on 11 December 2009. The District Court proceedings, which were commenced by Statement of Claim filed on, or about, 8 March 2010, concern his claim for damages in respect of an alleged breach by the Plaintiff of his employment contract with the Plaintiff. (There have been as many as seven versions of the Statement of Claim served, although I am not sure that anything turns on this. It will, however, be necessary, to refer to one aspect of the most recent version of the Statement of Claim.)

There is no dispute that Messrs Boyd & Longhurst, a firm of solicitors, was, between 2005 and April 2009, the exclusive provider of legal services to the Plaintiff. At the firm, Mr Peter Stanley Boyd had the conduct of matters for the Plaintiff, and he acted, generally, on behalf of the Plaintiff, principally in relation to conveyancing matters.

I am satisfied, from the evidence read on the notices of motion, that the first Defendant acted for the Plaintiff in relation to only one matter, being a debt recovery action against certain site-holders within the Lake Burrendong State Park who were alleged to be in arrears of their site fees. The first Defendant did not have any involvement with, nor was she aware of, any retainer between, the Plaintiff and Mr Boyd and/or any other person in his firm, relating to Mr Beatty's employment, or contract of employment, with the Plaintiff. She had disclosed these facts to the Plaintiff's solicitors before the Supreme Court proceedings were commenced. These findings are important in the circumstances of this case.

Importantly also, is the undisputed fact, that, at least from the commencement of the District Court proceedings, until the second Defendant was retained, it was Boyd & Longhurst which acted for Mr Beatty in those proceedings. The employed solicitor at Boyd & Longhurst with the conduct of the matter on behalf of Mr Beatty was the first Defendant.

There had been various communications, in writing and orally, between the first Defendant, as the solicitor with the carriage of Mr Beatty's matter, whilst she was employed at Boyd & Longhurst, and the legal representatives of the Plaintiff in these proceedings (the Defendant in the District Court proceedings). The written correspondence included a stream of letters between the Plaintiff's solicitors and the first Defendant, as a solicitor with Boyd Longhurst, acting for Mr Beatty, relating to whether the District Court proceedings could be dealt with in two stages, first, a dispute about documents the subject of subpoenas, and secondly, directions that ought to be made in relation to the conduct of the proceedings.

Whilst Boyd & Longhurst and the first Defendant were acting for Mr Beatty, the Plaintiff made no complaint, of the type that was subsequently made when the second Defendant commenced to act for him.

The first Defendant's employment with Boyd & Longhurst ceased on 22 October 2010. On 25 October 2010, she commenced to practice as the sole principal of the second Defendant. On 27 October 2010, Mr Beatty instructed the first Defendant to act in the District Court proceedings. (I should mention that Boyd & Longhurst did not object to this course being taken and an affidavit sworn by Mr Boyd has been read on behalf of the Defendants on their notice of motion.)

In a letter dated 15 November 2010, from the second Defendant, the Plaintiff's solicitors were informed "... this firm now holds instructions to act for Mr Beatty".

There was no immediate response to the letter dated 15 November 2010. Importantly, the Plaintiff did not immediately make any protest or take any steps on becoming aware of the Defendants' involvement.

Under cover of a letter dated 25 January 2011 the Plaintiff received a copy of an affidavit, sworn 9 November 2010, by Mr Beatty. What was said to be important in this affidavit, is contained in paragraphs 14 and 15:

"14. At a Trust board meeting in late 2007 the Trust board discussed my employment being confirmed in the position of Manager, rather than Relieving Manager. I was asked by the Chairman Michael Madden to leave the room. When I returned Mr Madden said words to the effect of,

"We've discussed whether you should be offered employment as Manager and decided you should be as you have been performing the position well. The Trust board should make a proper and formal written contract with you. Can you draft the contract and then we will forward it to the Trust board's solicitors to be checked".

I said:

"OK".

15. It was not until around June 2008 that I was able to get a copy of the previous Manager Laurie Douglas' written contract from him. I drafted the contract in my name and in the same terms except that I updated the remuneration with CPI increases. I then presented it to the Trust board's solicitors who reviewed it. The Trust board's solicitors advised me that the Trust board instructed them to raise with me the removal of the clause allowing for personal use of the Park vehicle within a 100km radius of the Park. I was told the Trust board were concerned that as the car had the Parks (sic) insignia on it, it was not a good look if the car was seen outside a pub or being used for other personal uses. I agreed to removal of the clause."

Following receipt of the copy affidavit of Mr Beatty, the Plaintiff's solicitor, Mr Sivarajah, spoke with Mr Johnson, a trust board member from about mid 2005 to 30 April 2009. Mr Johnson said to him:

"I generally agree with what is said at paragraphs 12 to 14, I was present at 7 April 2009 meeting but don't recall any advice from solicitors being discussed or the employment contract of Beatty being tabled and signed ... If legal advice was obtained it would have been from Boyd & Longhurst who were the Trust's solicitors at the time. I can't recollect whether Ann (sic) Thompson was working with Boyd & Longhurst then. I knew she joined Boyd & Longhurst at some point in time but can't recollect when she joined.

...

Mick Madden as Chairman largely dictated the agenda. He controlled everything that happened at meetings. Basically Mick Madden and Peter Beatty controlled the Park on their own - doing what they wanted to do. When it came to making decisions it was put at meetings by Mick Madden that this is the best way to go. There was no pressure - but it was put in a way that you should agree with what Mick Madden thought about the matter.

Mick Madden had day to day management of the Trust independent of what was happening at the Board ... I observed Mick Madden and Peter Beatty having regular meetings at the Trust premises. Peter Beatty and Mick Madden knew a lot of matters that the Board did not know about."

On 1 February 2011, Mr Savarajah spoke, by telephone, with Peter Cox, who was an Assistant Park Manager of the Plaintiff from 26 May 2008 until 8 January 2010. On 7 February 2011, he received from Mr Cox, a signed statement which included the following paragraphs:

"6. I recall Mick Madden (Chairman) say to me words to the effect, "Peter, we are happy with your performance. We want to make you a permanent. Peter Beatty will organise the employment contracts for you and him. We will then have the employment contracts reviewed by Ann Thompson".

7. I understand that sometime later Peter Beatty obtained a previous employment contract from Laurie Douglas, who was the previous manager of the Park.

8. Shortly before 7 April 2009 Board meeting, Peter Beatty said to me words to the effect, "Can you get another copy of the employment contract from Laurie Douglas for the Board meeting". I understood that Peter Beatty has misplaced the copy of the contract that he obtained from Laurie. I subsequently obtained a copy of the contract from Laurie Douglas and gave it to Peter Beatty.

9. The next thing I knew of the matter was at the 7 April 2009 meeting when my employment contract was tabled. Mick Madden showed me the contract. I noted that it was an exact duplicate of the contract for Peter Beatty as Peter Beatty's name was still on the contract and the contract was for the "manager", not the "assistant manager". I raised these matters with Mick Madden. Mick ruled a line through Peter Beatty's name and wrote my name in there and initialled the contract and also changed the title to "assistant manager". I subsequently signed the contract, however I cannot recall whether I signed the contract during the meeting or shortly thereafter.

10. I recall that Peter Beatty was also given an employment contract to sign during that meeting. I also recall some discussion about giving back payment to Peter by the Trust Board members.

11. During my employment as Assistant Manager (even before obtaining a formal contract on 7 April 2010) I observed that Mick Madden (as Chairman) would frequently meet with Peter Beatty to discuss matters concerning the management of the Park. I attended a number of those meetings."

By letter dated 11 February 2011, the solicitors for the Plaintiff wrote to the Defendants. The letter, which assumed some importance in the argument on costs, was in the following terms:

"I refer to the above matter in respect of which I act for the Defendant, Lake Burrendong State Park Trust ("Trust"). The following has come to my client and my attention.

1. Thompson Madden, the solicitors for the Plaintiff appears to be a two partner firm comprising of Ms Anne Thompson and Mr Mick Madden.

Mr Madden

2. Mick Madden, partner of Thompson Madden, was a former Chairman of the Trust (2005 - 2009 approx) and Board Members of the Trust as Chairman and was under a fiduciary relationship with the Trust during the period he was a Board Member and Chairman.

3. Moreover, Mr Madden was Chairman of the Trust during the time that a number of the matters the subject of these proceedings took place ( for example the issue of the application of development consent from Wellington Council - see page 14 of the proposed Further Amended Statement of Claim attached to the affidavit of Anne Thompson sworn 2 February 2011, and in respect of obtaining advice in respect of the Plaintiff's employment contract) and therefore has gained sensitive information on behalf of the Trust, in his capacity of a fiduciary to the Trust, in respect of matters that will now be litigated in these proceedings.

4. Mr Madden would be in the invidious position of being a witness in respect of the formation of the Plaintiff's contract with the Trust and in respect of the allegations in respect of the termination of the contract (by virtue of information he has gained in his capacity of fiduciary of the Trust). At the same time, his firm acts for the Plaintiff in a legal capacity.

Ms Thompson

5. The issues concerning Ms Thompson are subtly different; Ms Thompson appears to have given advice to the Trust in her capacity as an employed solicitor for Boyd & Longhurst, the then solicitors for the Trust. It appears that the advice given included advice in respect of the Plaintiff's employment contract, which is at the heart of these proceedings. At the same time, Ms Thompson is now the main solicitor acting for the Plaintiff against the Trust in respect the same and related matters. I note that the affidavit of the Plaintiff sworn 9 November 2010 supports this view (as it does the nature of involvement of Mr Madden discussed above).

Concerns held

6. In my opinion, it would be inappropriate for Mr Madden, a Chairman and former fiduciary of the Trust, to now act against the Trust in his capacity as a partner for the law firm acting for the Plaintiff in the circumstances.

7. Similarly, it would be inappropriate for Ms Thompson to act for the Plaintiff against the Trust in respect of the matters in which she advised the Trust in her capacity of a solicitor. In my opinion, this would be clearly contrary to the ethical duties and standards that bind all solicitors in this State, and there is ample authority supporting a restraint on a solicitor from acting in such circumstances (not to mention any professional misconduct action, or disciplinary action which may flow from any conflict).

8. Given the following:

a. the apparent size of Thompson Madden;

b. and the additional complicating fact that Mr Madden and Ms Thompson are married partners, as well as business partners;

c. there is already indication that there is involvement of Mr Madden in these proceedings (note in this regard that Mr Madden appears to have witnessed the affidavit of Ms Thompson sworn on 2 February 2011),

I do not see any effective separating of Ms Thompson and Mr Madden.

9. Accordingly, my client is now considering applying to the Supreme Court of NSW to restrain Thompson Madden (or if necessarily (sic) any individual practitioners with Thompson Madden) from acting for the Plaintiff in these proceedings.

10. I would appreciate any response to this letter and any matters you may wish to raise against restraint proceedings no later than 4pm Wednesday 16 February 2011.

11. Please note that an absence of any reply will be noted generally or specifically in any costs application should such restraint proceedings be commenced.

12. I await each reply in respect of the issues raised above. Please note that as the interests of each party of Mr Madden and Ms Thompson diverge slightly, I would appreciate a reply identifying separate responses, or correspondence which explain each person's response in detail."

It is important to note that neither the terms of the conversation between the Plaintiff's solicitor and Mr Johnson, nor the written statement from Mr Cox, was explicitly disclosed in the letter dated 11 February 2011 from the Plaintiff's solicitors to the Defendant.

By letter dated 16 February 2011, the first Defendant responded, setting out a number of facts. Included in what was stated was that "Boyd & Longhurst ceased acting for Lake Burrendong State Park Trust once an administrator was appointed in May 2009" and that "Boyd & Longhurst accepted a retainer to act for Mr Beatty in relation to his employment law/breach of contract matter in October 2009". It was with the agreement of the firm, that the file was transferred to the Defendants since the first Defendant had had the carriage of the matter. The letter also stated:

"1. Thompson Madden is an incorporated legal practice under the name Thompson Madden Pty Limited, trading as Thompson Madden.

2. I am the principal of Thompson Madden.

3. Mr Madden is an employed solicitor at Thompson Madden.

4. I commenced working at Boyd and Longhurst (sic) as an employed solicitor on the 1 st April 2008 and ceased my employment there in October 2010.

5. I was aware that Mr Peter Boyd, one of the two partners at Boyd and Longhurst (sic), held instructions to act for the Lake Burrendong State Park Trust. I am not aware whether Mr Boyd was instructed to give advice on the employment contract between Lake Burrendong State Park Trust and Mr Peter Beatty. If Mr Boyd was instructed to give advice on the employment contract between Lake Burrendong State Park Trust I did not have any involvement with that matter whatsoever. The only matter pertaining to Lake Burrendong State Park Trust which I had any involvement was in relation to signing several letters of demand which were sent to sie-holders who were in arrears with their site fees. I state that this debt recovery matter had no material connection with the matter of Beatty v Lake Burrendong State Park Trust .

6. Whilst I was employed at Boyd and Longhurst (sic) I had carriage of my own case load of files which I managed from obtaining first instructions until that file's completion. Each of the partners in the firm, Mr Boyd and Mr Paul Longhurst, also had their own case load of files. Each of the partners and my files were kept in separate offices. The partners would only have any involvement in my files if I had asked them for advice on process or procedure. I did not have access to the partners' files without their permission.

7. I am aware that Boyd & Longhurst cased acting for Lake Burrendong State Park Trust once an administrator was appointed in May 2009.

8. Boyd and Longhurst (sic) accepted a retainer to act for Mr Peter Beatty in relation to his employment law/breach of contract matter in October 2009.

9. It was agreed between the partners of Boyd & Longhurst and me that the file relating to Mr Beatty's employment law/breach of contract should be transferred to my new firm as I had the carriage of the matter and it was felt that it was in the best interests of the client to do so.

10. We had instructed Counsel at a very early stage of Mr Beatty's matter. The Statement of Claim, Notice of Motion and various affidavits were drafted and filed during the time that I was employed at Boyd and Longhurst (sic). Obviously Mr Madden could not have had any input into the matter as he was not employed by Boyd and Longhurst (sic).

11. Since commencing my own firm, Mr Madden has not had any material involvement in the matter except to witness my signature on an affidavit. Mr Madden did not draft the affidavit, nor did he even read the affidavit. It was not necessary for him to do so in order to simply witness my attestation.

I trust that this correspondence adequately addresses your concerns in relation to this matter. Mr Boyd, of Boyd & Longhurst, is on leave this week. However, I am confident that he will be willing to verify my assertions in relation to the employment contract matter."

On the same day, Mr Madden also responded, under the letterhead of the second Defendant. He stated a number of the matters to which reference has been made. In particular, he confirmed that he "was not involved in any way in the termination of Mr Beatty". He also confirmed he had not had any involvement in the District Court proceedings and that whilst he had witnessed the first Defendant's signature on an affidavit, he "was not, and am still not, aware of the contents of the affidavit or what matter the affidavit related to".

On 23 February 2011, the Plaintiff's solicitor wrote to the Defendants stating:

"I refer to my letter dated 11 February 2011 and to your letter in response dated 16 February 2011.

Contrary to what you have stated at para 5 of your letter of 16 February 2011, I have information which indicates that you may have given advice in relation to Peter Beatty's employment contract to Lake Burrendong State Park Trust ("Trust").

It would assist if you could obtain instructions from your client as to who are the "Trust's Board solicitors" referred to at paras 14 and 15 of the Affidavit of Peter Beatty sworn 9 November 2010 (which I note you witnessed and presumably would have at least reviewed prior to its execution).

I would appreciate it if you could provide the requested information by 4.00 pm Friday 25 February 2011.

I reiterate what I stated in my letter of 11 February 2011, that an absence of any reply will be noted generally or specifically in any cost application should restraint proceedings be commenced. I also note that the fact that I have not commented on other aspects of your letter of 16 February 2011 should not be taken to mean that I accept what you have stated there.

Please do not hesitate to contact me if you have any queries."

On 7 March 2011, another letter was written to the Defendants because no response had been received to the letter of 23 February 2011. What was sought was the identity of the firm that had been referred to as "the Board's solicitors" in the earlier correspondence. It was said that this information "may well exonerate you and avoid the need for costly restraint proceeding in the Supreme Court as well as disciplinary proceedings that may arise from any complaint that my client may make in respect of this matter".

It is clear from the tone and content of the correspondence that the principal concern raised by the Plaintiff's solicitor related to the continued involvement of the first Defendant as the solicitor for Mr Beatty.

There was no response to either of the last two letters referred to. The first Defendant states that she did not respond to the letter of 23 February 2011 as she "did not consider that it was in Mr Beatty's interests in the District Court proceedings to clarify the matters in his affidavit sworn 9 November 2010" and because she "was of the view that the contents of this letter ... [was] an attempt to further delay the hearing of Mr Beatty's Motion" (seeking leave to amend the Statement of Claim and to have the construction of the employment contract dealt with as a separate matter).

The first Defendant states that she did not respond to the letter of 7 March 2011 as she "took the view that the contents of my letter ... of 16 February 2011 stated my position in relation to this issue as fully as possible" and "any further response would have been in near identical terms and would contain no additional information".

In further support of what had been said by the first Defendant in the letter of 16 February 2011, on their notice of motion, the Defendants relied upon her affidavit of 12 August 2011 and an affidavit sworn on 11 August 2011, by Mr Boyd. Leaving aside a factual dispute (as to what he had, or had not, told Mr Houghton who had stated a conversation with him in an affidavit sworn 8 April 2011 filed on behalf of the Plaintiff), Mr Boyd stated that he "did perform legal work for [the Plaintiff] prior to an administrator being appointed ... [which] works was almost exclusively of a conveyancing nature" and that "no legal advice was given, nor work performed, in relation to any Contract of Employment regarding [the Plaintiff] and any employee of that Trust by myself, or to the best of my knowledge, by any other member of my firm". He confirmed that a search had not revealed any file relating to any such matter.

The Course of the Supreme Court Proceedings

As stated previously, the Plaintiff's Summons was filed on 8 April 2011.

Messrs Jones Rolfe Rudd filed an Appearance on behalf of both Defendants on 19 April 2011.

A Notice of Change of Solicitor (to the Defendants' present solicitors) was filed on 11 August 2011.

The first return date of the Summons was 20 April 2011. On that date, consent directions were made. The directions required the Plaintiff to serve any further evidence on which it intended to rely at the hearing by 11 May 2011. The Defendants were required to serve any further evidence on which they intended to rely at the hearing by 1 June 2011. The Plaintiff's evidence in reply was required to be filed by 8 June 2011. (Other directions were made regarding objections to evidence and written submissions.) The matter was adjourned until 20 July 2011.

The Plaintiff had filed two affidavits (sworn 7 and 8 April 2011 respectively) in support of the Summons. Subsequently, one further affidavit was filed on 18 May 2011. No affidavits were filed on behalf of the Defendants in relation to the substantive proceedings.

On 10 June 2011, the Consent Order, signed by the solicitor for each of the parties, set out above, was filed.

On 20 July 2011, further directions were made, setting aside the orders made on 20 April 2011, and requiring each of the Plaintiff and the Defendants to file and serve a notice of motion with affidavits in support "for the Court to determine the costs liabilities of the parties" by 11 August 2011. Affidavits in reply were to be filed and served by 17 August 2011 and the matter was stood over until 19 August 2011, on which date it was hoped that a hearing date for both notices of motion would be given.

The Plaintiff filed two further affidavits sworn on 11 and 25 August 2011 respectively.

There were three affidavits filed and served by, or on behalf of, the Defendants, on 11 August 2011 (two) and on 12 August 2011 (one).

The Negotiations to Settle the Proceedings

There does not seem to have been very much discussion between the parties regarding the settlement of the Supreme Court proceedings after their commencement. I shall set out the content of the correspondence relating to the agreement in relation to the Consent Orders below.

On 8 April 2011, the District Court proceedings were adjourned, by consent, until 20 May 2011, since instructions had been given to commence the Supreme Court proceedings.

On 20 May 2011, there was a further Call-over in the District Court in Orange. The Plaintiff's solicitor appeared, by telephone, and applied for an adjournment of the proceedings. (There is some dispute about the application made so I have stated it neutrally.) For Mr Beatty, an application was made that the matter should progress. The Registrar made directions for the filing of written submissions on the orders that each party was seeking and an order for the application to be heard by Judge Norrish SC, on 3 June 2011, was made.

By letter dated 24 May 2011, Jones Rolfe Rudd wrote to the Plaintiff's solicitor inviting the Plaintiff "to discontinue the proceedings on terms that each party bear their own costs". The bases for the Defendants maintaining the view that they had adopted until that time, were explained in detail. (I shall not repeat the twelve reasons identified in that letter, which, broadly speaking, echo the submissions made on this costs application.)

The first Defendant states, and the Plaintiff does not dispute, that she "took the view that in order to enable Mr Beatty to progress the District Court proceedings without any further delay, the Second Defendant should cease to act on his behalf in the District Court proceedings". She says that she "only took this view as it was in my client's best interests, not because I thought that there was any merit in [the Plaintiff's] allegations ... that I had a conflict of interest in acting for Mr Beatty or that Mr Madden was in breach of any fiduciary obligation to [the Plaintiff]".

Mr Beatty has also stated on oath, that he wished to have the Defendants continue to act for him in the District Court proceedings "because of [the first Defendant's] familiarity with the matter", but that he "became concerned that the Supreme Court proceedings would delay the progress of the District Court proceedings and I therefore decided to transfer my file to Mr Andrew Rolfe of Jones Rolfe Rudd".

On 22 May 2011, Mr Rolfe received instructions to act for Mr Beatty in the District Court proceedings. On 24 May 2011, Mr Rolfe informed the Plaintiff's solicitor that the Defendants were no longer acting for Mr Beatty in the District Court proceedings and that his firm was now acting.

The Plaintiff's solicitor responded in a letter dated 26 May 2011. Even in this letter, it was asserted that the Plaintiff was concerned "that [the Defendants] may still be involved in the conduct of the matter on behalf of [Mr Beatty] in the District Court proceedings notwithstanding that you/your firm are now formally the solicitor on the record in these proceedings". He went on to suggest that "there is a concern that the approach of you taking conduct of the District Court proceedings on behalf of [Mr Beatty] could be more about a strategic response to dealing with the Supreme Court and District Court proceedings in light of [the Plaintiff's] position or otherwise possibly a temporary measure to enable the District Court proceedings to progress in a manner [the Defendants] had previously sought to ensure".

On 30 May 2011, settlement discussions between the legal representatives of the parties continued until agreement was finally reached.

Other Relevant Facts

On 1 May 2009, an administrator replaced the trust board of the Plaintiff.

In the seventh version of Mr Beatty's Statement of Claim in the District Court proceedings, he asserted that there was no proper basis for terminating his employment on performance grounds pursuant to any of the allegations made in the "show cause letter" dated 8 October 2009.

The second allegation in the "show cause" letter related to Mr Beatty, as Park manager, failing "to make the appropriate application for development consent from Wellington Council in respect of the works undertaken at Lion Island Lookout" which failure "exposed the Trust to the likelihood of prosecution by the Council".

The third allegation in the "show cause" letter related to Mr Beatty's failure to ensure that a compliant procurement process (as set out in the Trust Handbook) was implemented in respect of the Lion Island Lookout Project.

In response to each of the two allegations referred to, by letter dated 7 December 2009 from Boyd & Longhurst, under the signature of the first Defendant, Mr Beatty responded that he "was directed by the Trust and as an employee any planning decisions did not lie with him" and that "he was directed by the Trust and as an employee, any failure to follow a procedure was under his employer's instructions".

On or about 11 December 2009, the Plaintiff terminated Mr Beatty's employment with the Trust. Mr Houghton, on behalf of the Plaintiff, signed the letter of termination.

On or about 19 October 2009, Mr Madden made a written complaint to the NSW Ombudsman relating to certain events that he said had led to the Plaintiff not being re-appointed in April 2009. I shall not repeat the contents of the complaint, but the Plaintiff's solicitor, in his affidavit sworn on 18 May 2011, and not denied by Mr Madden (who did not swear an affidavit in the proceedings), stated "the complaint ... makes allegations which appear to generally be in support of Mr Beatty's proposed defence".

On 24 November 2009, in other proceedings involving the developers, as Plaintiffs, and Mr Houghton as administrator of the Trust, as Defendant, Mr Madden had sworn an affidavit about events relating to the Lion Island Lookout.

The Submissions

The thrust of the Plaintiff's submissions were:

"14. The Plaintiff had significant and legitimate concerns about the position of both Ms Thompson herself, and about the firm more generally given the involvement of Mr Madden. The Defendants' responses to the issues raised had been far from sufficient to assuage these concerns.

15. The concerns relating to Ms Thompson were as follows:

a. There is an issue in the District Court case as to the content of Mr Beatty's employment contract.

b. There was evidence that Mr Peter Cox, another employee of the Trust, had been told by Mr Madden that "Peter Beatty will organise the employment contracts for you and him. We will then have the employment contracts reviewed by Ann Thompson". As noted, Ms Thompson had been employed as a solicitor with the legal firm Boyd & Longhurst from 7 December 2007 to October 2010.

c. Mr Peter Boyd, of Boyd & Longhurst, and his partner Paul Longhurst were not involved in providing advice in relation to Mr Beatty's Employment Agreement. However, Mr Boyd advised that he did not know whether Ms Thompson, who was an employed solicitor with the firm, was involved in providing advice in relation to Mr Beatty's Employment Agreement; and further he had further information to provide in respect of that matter "off-the-record" (although he has since denied that this was said).

d. There was no proper response from the First Defendant as to the identity of the "Trust board's solicitors" referred to in Mr Beatty's District Court affidavit despite several letters seeking this information..

16. The basis for a restraint injunction issuing against Ms Thompson was the conflict inherent in her apparently acting first for the Trust, then for Mr Beatty on the same subject matter: this is contrary to the requirements of administration of justice: Kallinicos v Hunt [2005] NSWSC 1181, 64 NSLR 561; Geelong School Supplies Pty Ltd v Dean [2006] FCA 1404, 237 ALR 612, per Young J.

17. The broader concerns relating to the position of the firm related to the position of Mr Madden:

a. He was likely to be a material witness in the District Court proceedings given the dispute as to the content of the contract of employment, and his role in organising that employment as Chairman of the Trust.

b. He was also likely to be a material witness given the dispute as to Mr Beatty's performance in his employment. One of the grounds for termination of Mr Beatty's employment was a failure of Mr Beatty to obtain development approval for development work undertaken in respect of an area known as Lion Island Lookout. It is evident that Mr Madden was intimately connected with this matter. His involvement is corroborated by a complaint he made to the NSW Ombudsman.

c. He had a potential personal interest or an interest in the outcome in conflict with the firm's loyalty to client, Beatty.

d. He had a close association with the Trust, which tends to undermine the public confidence in the administration of justice.

e. The direct knowledge of Mr Madden in acting as Chairman (and therefore having a significant role in administering the Trust) would place the (sic) Mr Madden and his firm in a superior position regarding the proceedings: Ismail-Zai, see also Kallinicos at [72], Williamson & anor v Nilant.

18. The Defendants have not sought to adduce any evidence either in the substantive proceedings or in respect of these costs applications that counters the allegations raised above of Mr Madden's intimate connection to the underlying District Court proceedings.

19. Ms Thompson says at [23] of her affidavit, under the heading "Chinese wall", that she "made the active and conscious decision that Mr Madden did not assist me in any way in my provision of legal services to Mr Beatty". Yet:

a. There is no evidence of any real attempt being made to erect a Chinese wall.

b. Mr Madden did not raise any issue of alleged Chinese walls in responding to a letter from the Crown Solicitor dated 11 February 2011, when this would have been the proper time to do so if such arrangements genuinely existed.

c. Moreover, the issue of Chinese walls is implausible given the nature of the firm. There could be no effective means of isolating - and being seen to isolate - Mr Madden from the conduct of the District Court case, given the nature of Mr Madden's involvement in the Second Defendant.

d. There is evidence that Mr Madden was involved in the proceedings at least in witnessing Ms Thompson's affidavit.

20. The recognition of the need for Chinese Walls in Ms Thompson's affidavit has the effect of confirming rather than countering the existence of a significant problem."

The thrust of the Defendants' submissions were:

"8. Put simply, the defendants contend that these proceedings were doomed to fail. Although it was appropriate for the plaintiff to consider the defendants' position vis-a-vis the District Court proceedings, a proper examination of the facts (as opposed to suspicions) and relevant principles ought to have resulted in the conclusion that there was no substance to the plaintiff's concerns.

9. The jurisdiction to restrain solicitors from acting in a particular case has been described as exceptional and to be exercised with caution, it being an important public policy that litigants not be deprived of the lawyer of his choice without due cause.

...

11. The applicant must demonstrate a real risk of breach of the duty to hold information confidential ( Belan at [22]), and it is necessary to state precisely what information is sought to be protected ( Belan at [23]).

12. In the present case, the plaintiff has not in correspondence or otherwise:

a) identified the information (precisely or otherwise);

b) established that such information is confidential;

c) nor demonstrated a real risk of breach of the duty to hold information confidential.

13. The simple fact is that neither Thompson nor her previous firm (Boyd & Longhurst) gave any advice to the Trust concerning Beatty's employment contract. The plaintiff had some information that suggested advice was given, but that information did not rise above a suggestion.

14. The plaintiff was informed (by letter dated 16 February 2011) that Thompson had no involvement with Trust matters (other than an unrelated debt recovery matter) prior to the commencement of these proceedings.

15. Boyd, the principal of Boyd & Longhurst, orally informed the administrator that he gave no advice in relation to Beatty's employment contract in a telephone conversation on 21 February 2011. This is in conflict with Houghton's affidavit sworn 8 April 2011 (paragraphs 40 - 42).

...

18 As for Madden, whether or not he would give evidence in the District Court is a moot point. However, any evidence he could give is as available to any solicitor acting for Beatty as it was to the defendants. That is, there being no property in witnesses, the plaintiff cannot prevent Madden being interviewed by any solicitor acting for Beatty.

...

21. The plaintiff has identified various factual matters about which Madden may have knowledge. But none of that information is confidential in the sense that there is a legal prohibition against its disclosure. The proof of that is that the plaintiff anticipates Madden will give evidence of those matters, and raises no reason why he could not do so.

22. Whether or not Madden, assuming he gave evidence, would be "objective and neutral" is irrelevant to an application of this nature."

The Statutory Regime and Legal Principles

Pursuant to s 98(1) of the Civil Procedure Act 2005 ("CP Act"), subject to rules of Court and to the CP Act and any other Act, costs are in the discretion of the Court and the Court has full power to determine by whom, to whom, and to what extent costs are to be paid.

Rule 42.7 of the Uniform Civil Procedure Rules 2005 ("the UCPR") provides that unless the court orders otherwise, the costs of any application or other step in any proceedings, including costs that are reserved, and costs in respect of any such application or step in respect of which no order as to costs is made, are to be paid and otherwise dealt with in the same way as the general costs of the proceedings.

Rule 42.1 of the UCPR provides that if the court makes any order as to costs, it is to order that the costs follow the event unless it appears to the court that some other order should be made as to the whole, or any part, of the costs. This rule, however, does not apply where there has been no adjudication on the merits because without a hearing on the merits, there is no "event" to enliven the rule: Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547 at [11]; Saeco International Group (Australia) Pty Ltd v Giorgio Massimo Ubertini [2011] VSC 360 at [2].

In Bridie v Messina (1965) 66 SR (NSW) 446, at 453, Sugerman J, with whom Maguire J agreed, said:

"A hearing on the merits is one in which the issues of fact or law, or both, between the parties are fought out to a final conclusion binding upon the parties--a decision "upon the merits"."

There is no specific rule in the CP Act or the UCPR dealing with costs in circumstances where the parties resolve their differences without a hearing on the merits. Counsel did not dispute that, in those circumstances, the court has a wide discretion as to costs and that the discretion must be exercised judicially, that is, according to relevant considerations, and taking account of the contextual features and facts of the litigation. The discretion must not be exercised arbitrarily or capriciously.

In Muhibbah Engineering (M) BHD v Trust Co Ltd [2009] NSWCA 205, Young JA at [16]-[18] said:

"[16] I should add that it is important that people be encouraged to settle their disputes.

[17] If people know that, in a case like the present, no order for costs can be made because no evidence has been formally presented, there will be less financial impetus towards settlement.

[18] If parties made a settlement subject to the court considering what is the appropriate order for costs, the court must resolve the matter of costs, justly, but simply and as cheaply as possible."

The purpose of a costs order is to compensate, or indemnify, the person in whose favour it is made, not to punish the person against whom it is made: Ohn v Walton (1995) 36 NSWLR 77 at 79 per Gleeson CJ.

I was referred to a number of authorities setting out the applicable principles in respect of the making of orders for costs where there has been no hearing on the merits, including, Re the Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622, particularly at 624-625; Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194 at 201-202; One.Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270; (2000) 101 FCR 548; Fire Containment Pty Ltd v Robins (No 2) ; Ajkay v Hickey & Co Pty Limited [2011] NSWSC 822; and Red Bull Australia Pty Ltd v Michael Peter Stacey and Christian Walter Graebner [2011] NSWSC 1350. Such cases provide guidance on circumstances that may constitute a basis for the exercise of discretion, but the overriding consideration will always be whether there is some circumstance that justifies a costs order, so as to do justice between the parties.

In Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin , at 624 - 625, McHugh J said:

"... it is first necessary to state the principles which govern an application for costs when a party elects not to pursue an action because he or she has achieved the relief sought in the action either by settlement or by extra-curial means.

In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.

In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action.

...

Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried...

If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.

The critical question in this case then is whether or not the prosecutrix acted reasonably in bringing these proceedings and whether the respondents acted so unreasonably in not informing the prosecutor that an application to review the decision to refuse a visa was being considered that it would be proper for the minister to pay the whole or part of the cost of the proceedings."

In the third paragraph quoted above, McHugh J was contemplating a case where the party seeking costs, in effect, has effectively succeeded in obtaining the relief sought in the proceedings. This is made clear when his Honour made reference to that party not pursuing the action because he, she, or it, has achieved the relief sought in the action either by settlement or by extra-curial means: Muhibbah Engineering (M) BHD v Trust Co Ltd per Sackville AJA at [52]. In so doing, McHugh J recognised that the general principle was not inviolable.

In Australian Securities Commission v Aust-Home Investments Ltd , Hill J said:

"These cases [including R v Gold Coast City Council; Ex parte Raysun Pty Ltd [1971] QWN 13; Liddle v Kooralbyn Pty Ltd (unreported) Supreme Court Queensland 9 October 1987 per Ryan J, Austcorp Finance and Leasing Pty Ltd v Thomas (unreported) Supreme Court Queensland Master White 23 August 1991 and J T Stratford & Son v Lindley (No 2) [1969] 1 WLR 1547 [1969] 3 AllER 1122], seem to me to support the following propositions being made:

(1) Where neither party desires to proceed with litigation the Court should be ready to facilitate the conclusion of the proceedings by making a costs order: Stratford and the SEQEB case.

(2) It will rarely, if ever, be appropriate, where there has been no trial on the merits, for a court determining how the costs of the proceeding should be borne to endeavour to determine for itself the case on the merits or, as it might be put, to determine the outcome of a hypothetical trial: Stratford . This will particularly be the case were a trial on the merits would involve complex factual matters where credit could be an issue.

(3) In determining the question of costs it would be appropriate, however, for the Court to determine whether the applicant acted reasonably in commencing the proceedings and whether the respondent acted reasonably in defending them ( SEQEB ).

(4) In a particular case it might be appropriate to the Court in its discretion to consider the conduct of a respondent prior to the commencement of proceedings where such conduct may have precipitated the litigation: cf Sunday Times Newspaper Co Ltd v McIntosh (1993) 33 SR (NSW) 371.

(5) Where the proceedings terminate after interlocutory relief has been granted, the Court may take into account the fact that interlocutory relief has been granted: cf Re Asiatic Electric Co Pty Ltd [1973] 1 NSWLR 603 at 605, a case, however, which depended on the specific wording of the statute under consideration."

In One.Tel Ltd v Deputy Commissioner of Taxation , Burchett J, referred to both Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin and Australian Securities Commission v Aust-Home Investments Ltd, saying, at [6]:

"In my opinion, it is important to draw a distinction between cases in which one party, after litigating for some time, effectively surrenders to the other, and cases where some supervening event or settlement so removes or modifies the subject of the dispute that, although it could not be said that one side has simply won, no issue remains between the parties except that of costs. In the former type of case, there will commonly be lacking any basis for an exercise of the Court's discretion, otherwise than by an award of costs to the successful party. It is the latter type of case which more often creates problems, since there may be difficulty in discerning a clear reason why one party, rather than the other, should bear the costs."

This passage was cited, with approval, by the Full Federal Court in Chapman v Luminis Pty Ltd [2003] FCAFC 162, at [7] and by Davies AJA (with whom Mason P and Meagher JA agreed) in Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 at [5]. Davies AJA prefaced his reference to the relevant passage stating:

"When proceedings are brought to an end without a determination after a trial, the judge may find it difficult, even impossible, to make an award of costs. If the judge does make an award, it will generally be because the judge is satisfied that one party has had a substantial victory and the other a substantial loss, or that there has been a marked difference in the reasonableness of the actions taken by the parties, so that one party should be rewarded for its reasonable actions and the other party should suffer a detriment in costs. ..."

In Boscaini Investments Pty Ltd v Corporation of the City of Kensington and Norwood (1999) SASC 327 , Debelle J, said at [22], of the third of Hill J's propositions:

"I immediately acknowledge the assistance of Hill J but suggest that proposition (3) is of limited assistance. The fact that a party has not conducted himself reasonably may disentitle him to costs. But, beyond that, the reasonableness of the conduct of the parties is not likely to assist in determining whether the applicant should recover his costs. The real question is whether the applicant had reasonable prospects of success. It seems preferable, therefore, to express proposition (3) in different terms.

Depending on circumstances, where the applicant had acted reasonably in commencing proceedings, has an arguable case, and it is reasonable to conclude that that respondent has acted in consequence of the commencement of proceedings, the court may be prepared to make an order as to costs in favour of the applicant."

Thus, it seems to me, if it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled, or its further prosecution became futile, the proper exercise of the costs discretion will usually mean the court will make no order as to costs of the proceedings.

Determination

In this case, each party submits that the conduct of the other was unreasonable in commencing, or defending, as the case may be, the proceedings. Furthermore, for the Plaintiff, it is submitted that the Defendants "surrendered" after conducting the litigation for some time, whilst the Defendant submits that the Plaintiff's case was doomed to failure.

The first matter going to unreasonableness relates to the Defendants not accepting that they should not have continued to act for Mr Beatty following the correspondence of 11 February 2011. The converse is that the Plaintiff's conduct was unreasonable in requiring the Defendants to not act.

In Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 at 582 - 583, a decision upon which both parties relied, Brereton J undertook a detailed examination of the authorities concerning the court's supervisory jurisdiction over legal practitioners. In that case, the first plaintiff applied for an order restraining a solicitor from acting on behalf of any of the defendants, not on the basis that the solicitor was in possession of confidential information of the plaintiffs which was at risk of disclosure, but on the basis that, in its supervisory jurisdiction, the Court should prevent the solicitor from acting, in this particular case, due to the likelihood of him being a material witness and having a perceived interest in the outcome of the proceedings.

In relation to the inherent jurisdiction, his Honour summarised the following principles from the authorities (omitting the references to citations) at [76]:

"... the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice ...

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 ...

The jurisdiction is to be regarded as exceptional and is to be exercised with caution...

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 ...

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 ..."

What should be noticed about Kallinicos v Hunt , however, is that his Honour found (at [78]) that not only was the solicitor, almost certainly, a material witness, but also that he might well be exposed to a suit, and have an interest in how the evidence turned out. The solicitor was in a clear position in which his client's interests, his own interest, and his obligation to the Court may well have been in conflict. There were serious allegations of wrongdoing and the possibility of the solicitor being implicated in improper conduct.

In Mitchell v Burrell [2008] NSWSC 772, in which Brereton J found that the solicitor "may be a witness on a material matter, and that his evidence may be controversial", his Honour added:

"That said, I do not accept that the mere circumstance that a solicitor will be a material witness, even on a controversial matter, of itself justifies restraining the solicitor from continuing to act ...

... the cases indicate ... that 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."

His Honour also referred to Kooky Garments Ltd v Charlton [1994] 1 NZLR 587, in which Thomas J recognised the distinction between the situation where solicitors were, in effect, called on to defend their own actions, or advice, on the one hand - in which case it was inappropriate that they act - and other cases, and continued:

"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."

Brereton J also referred to the reasons for judgment of Windeyer J in Scallan v Scallan [2001] NSWSC 1078, in which his Honour had said, at [8] - [10]:

"[8] The interest of the court in these matters is that there should not be a conflict of interest arising as a result of the representation. Usually a restraining order is sought by a former client to prevent that client's former solicitor from acting in proceedings against that client, or in proceedings where confidential information of the former client might be used or divulged. The conflict said to arise in the present case is a conflict between the duty to the client and the duty to the court. In most such cases, what would be involved would be some personal interest of the lawyer in the litigation. For instance, there are cases where a particular result would be likely to result in a claim in negligence against the solicitor which might be thought to influence the frankness of the solicitor as a witness in the conduct of the action, perhaps giving rise to an apprehension as to incomplete disclosure of documents and the like. Afkos Industries Pty Ltd v Pullinger Stewart (2001) WASC 69 is a good example of such a case where an injunction was granted.

[9] When dealing with matters such as the present, reliance is almost always placed upon a passage on the judgment of Campbell CJ in Chapman v Rogers, ex parte Chapman [1984] 1 Qd R 542 at 545, which I should add did not really bear upon the question to be decided in that case. In that case a solicitor acting for a man charged with driving under the influence gave evidence of his observations of the client about an hour after a breathalyser test was administered by police. After referring to the Solicitors Professional Conduct r11 which stated that a practitioner appearing in court for a client, should withdraw if it became clear that that practitioner or his partner or employee was likely to be a witness on a material question, the Chief Justice went on to state:

I appreciate that the opening words of that ruling refer expressly to a practitioner "appearing in Court for a client"; the solicitor here was not himself appearing in court so that the terms of the ruling do not seem to be directly applicable to the present circumstances. However, for 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. It may be unavoidable in some cases such as those involving complex commercial issues. I do not suggest, and it was not suggested to the magistrate or to us, that the solicitor's evidence in this case should not have been accepted and acted upon by the magistrate in relation to the matters of fact sought to have been established thereby. However, I have mentioned the matter generally as I think it is desirable that it be drawn to the attention of the legal profession.

[10] Drummond J in Yamaji v Westpac Banking Corp (1993) 42 FCR 431 stated that breach of the rule of professional conduct would not found jurisdiction for an injunction unless such jurisdiction arose as a result of the power of the Supreme Court to control its practitioners. Accepting that jurisdiction exists in this Court, the basis on which an injunction was sought was not clearly articulated by counsel for the applicants other than upon the basis of the decision in Chapman v Rogers and the passage which I have set out. Nevertheless I proceed on the basis that the true argument was that there was some risk of conflict between the duty of the solicitor to the court and the duty of the solicitor to the client. That supposed conflict really assumes that a solicitor might give tailored or biased evidence or even false evidence to assist a client, or to support the solicitor's actions so as to negative negligence, but that same conflict could perhaps be said to arise where a solicitor advises a client on discovery. It is, I think, apparent that the conflicts would only arise if the solicitor had 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."

In the present case, senior counsel for the Plaintiff put that Mr Madden was a potential witness who either party might call, and certainly with whom each party would wish to confer. (It could not have been suggested that he ever acted as a solicitor for the Plaintiff. Thus, this is not a case of a former client seeking to restrain a solicitor from acting.)

Senior counsel for the Defendants did not dispute that Mr Madden "may have been a witness in the District Court proceedings". He accepted that the suggestion that Mr Madden would be a witness "was not a far-fetched or fanciful possibility". He said, however, that even now (as it had been in April 2011) it was simply too early to tell.

Neither senior counsel submitted that Mr Madden "almost certainly" would be a witness. Nor was there any suggestion that Mr Madden might give biased, or false, evidence in favour of Mr Beatty, or that he needed to have any concerns about his own negligence.

His interest in the result of Mr Beatty's action, additional to any interest that he might have as a shareholder in the firm of solicitors acting for Mr Beatty, was not identified, other than by reference to his complaint made to the NSW Ombudsman and the affidavit of 24 November 2009 sworn in the proceedings brought against Mr Houghton as administrator of the Trust.

In regard to the affidavit, I note, in passing, that it was not suggested in the evidence, or in the submissions, that what Mr Madden had stated was false, or inaccurate. (In any event, the reference to Mr Madden's affidavit was raised in the Plaintiff's solicitor's affidavit of 18 May 2011.)

Also, it is to be noted that, in any event, Mr Madden was not the solicitor acting for Mr Beatty in the District Court proceedings. He was an employed solicitor at the firm of solicitors that was acting for Mr Beatty and the husband of the solicitor with control of the matter within that firm.

It had been made clear, from the contents of the letters of 16 February 2011 that Mr Madden had not, until then, played any part in the District Court proceedings on behalf of Mr Beatty. It was not made clear, however, that he would continue to not play any part, or that a "Chinese wall" would exist between the first Defendant and him in the future.

In relation to Mr Madden being an employed solicitor in the firm representing Mr Beatty, I record what Brereton J said in Mitchell v Burrell at [25]-[26]:

"[25] ... There are suggestions in some of the cases that where one solicitor in a firm is disqualified from acting, it need not invariably follow that the others are also disqualified. In Bahonko v Nurses Board of Victoria (No 3) [2007] FCA 491, Middleton J restrained an employed solicitor from continuing to act in a matter, but held that the firm by which she was employed was still at liberty to act. In Scallan , the solicitor who was a potential witness was a consultant to the firm (although he had been before then the firm's longstanding senior partner), but that does not advance the matter very far, because no injunction was granted in any event. It is notable that, in both of those cases, it was an employed solicitor whose conduct was in question, albeit in Scallan one who had been recently a senior partner. Against that, most cases point to the view that, in this respect, the law treats a firm of solicitors as a single entity, so that if one partner is disqualified, the firm should not act [ Chapman v Rogers; ex parte Chapman , 545; Bowen v Stott [2004] WASC 94, [66] (firm restrained from acting where one partner was likely to be a material witness); Kooky Garments Ltd v Charlton , 590 (cited with approval in Afkos Industries Pty Ltd v Pullinger Stewart (a firm) [2001] WASC 69, [15])]. In principle, given the incidents of the relationship of partnership (involving utmost good faith and loyalty between the partners), and those of solicitor and client (requiring any partner in a firm to do all in his or her power and use all knowledge and information available to them, including to their partners, to assist the cause of the client), it is difficult to see how, where one partner is disqualified, it could be acceptable for another partner in the same firm to continue to act.

[26] In any event, on the facts of this case I am satisfied that the replacement of Mr Morey by Mr Jurd does not alleviate the concerns which the reasonable lay observer would entertain, and that such observer would remain concerned that decisions whether or not to call Mr Morey, and if he were called by the defendants as to how to cross-examine him, might be influenced by Mr Jurd's obligations to his partner, as well as or in preference to his obligations to his client. Once again, the problem can be highlighted in this way: if the versions of Mr Morey and Mrs Mitchell did not coincide, who would Mr Jurd instruct counsel to submit should be believed, his client or his partner? Accordingly, the reasonable lay observer would continue to entertain reservations that decisions might not be made exclusively in Mrs Mitchell's interests but might be influenced by the interests of the firm and Mr Morey. An independent solicitor would remove the concern that interests other than Mrs Mitchell's might influence important decisions in the conduct of her case."

Yet, it might have been difficult for the Defendants to represent Mr Beatty if Mr Madden's evidence did not support his case. However, it was not, in February 2011, and it is not now, clear, to what Mr Madden's evidence would go, or whether it would be generally, or specifically, supportive of Mr Beatty's evidence. I agree that it was then, and is now, unnecessarily speculative to attempt to predict before the pleadings are finalized, what witnesses will be called and the materiality of his, or her, evidence.

I am also not satisfied, upon the material before me, that even if Mr Madden was a material witness, there was a potential conflict of interest between his duty to the court and any duty that he might have to Mr Beatty as a client of the firm in which Mr Madden was employed. The Plaintiff has failed to demonstrate that there was a reasonable basis to come to the conclusion that there was a reasonable apprehension that Mr Madden would somehow breach his duty to the court if called to give evidence.

Senior counsel for the Plaintiff also relied upon a passage in Ismail-Zai v State of Western Australia [2007] WASCA 150; (2007) 34 WAR 379 at [30] - [34], which is in the following terms:

"[30] As I have foreshadowed, the courts have often exercised their inherent jurisdiction to restrain lawyers from acting against former clients when the consequences of doing so would be to undermine the proper administration of justice... The test to be applied is that stated by Brereton J in Kallinicos at [76] as follows:

...

[31] The importance of the appearance of justice has often been emphasised in this context ...

[32] There are cases in which it has been said that there is a potential for public confidence in the administration of justice to be undermined if there is an appearance that a lawyer can readily change sides ...

[33] In Black , the New Zealand Court of Appeal dealt with the misuse of information that was not confidential in the strict sense of that word, in the context of an appeal against a declaration that a long time family solicitor should not act on behalf of the estate of a deceased member of the family in an action brought against it by another family member. Cooke P said (at 406):

... approaching the case by considering simply the danger of misuse of confidential information, I do not think that [the primary Judge] has been shown to have been wrong in his view that the practitioner ... is definitely disqualified on the ground that the reasonably informed person would not be satisfied that no use of confidential information would occur. Further, I would adopt another passage at p 48 in the Judge's reasons:

Last, the lawyer (and particularly the family solicitor) gets to know personalities. He gets to know something, and often a good deal, of a former client's weakness, fears and reactions. It is as much information passed on as is verbal or written description. Like all information, it can be misused for another person. There could be cases, perhaps with a former client witness' credibility crucial, where such knowledge of personality inevitably acquired by virtue of the former solicitor/client relationship could amount to a real information consideration. There will be cases where a former client's very real fears that he will be cross-examined from a position of unfair superiority should be given due consideration.

Whether that kind of consideration should be put exclusively under the heading of confidential information is in my view unimportant. As to those who may be allowed to represent parties to argue cases, the Courts have an inherent jurisdiction ... The jurisdiction extends to the propriety of a representative appearing in a particular case: it is not then a question of the right of practice generally ... but a question concerning what is needed or may be permitted to ensure in a particular case both justice and the appearance of justice.

[34] Richardson J (at 408) considered that knowledge of personalities and relationships derived from a professional relationship may not be confidential information in a strict sense. However, he said that "it would not be unreasonable for a family member to feel chagrin and concern to find a lawyer who had built up knowledge of that kind was able consciously or unconsciously to draw on it when acting against that member of the family". He was satisfied (at 412) that reasonable members of the public knowing of the solicitor's association with the family, in that case, would consider that justice would not be seen to be done if, when dissension developed within the family, he took sides as counsel and acted against the plaintiff. He also considered (at 412) that:

... the inherent jurisdiction of the Court provides a more satisfactory basis for determining the question than the indirect and somewhat artificial development of a special rule, which treats knowledge of a client (as distinct from knowledge of his or her affairs) gained through a professional association as confidential information under the umbrella of protection of misuse of confidential information.

McKay J, in that case, also relied upon the inherent power of the court to control the conduct of proceedings before it as a sufficient justification for upholding the decision (at 417-420)."

The nature of the knowledge of personalities, weakness, fears, reactions and relationships derived from Mr Madden's professional relationship whilst a member of the Board and/or as its Chairman was not made clear. Even accepting that the passage applies in the present case, the Plaintiff has not satisfied me that there was any such concern, or if there was, what that concern was, or that any such concern was a reasonable one.

In my view, and subject to one matter, the Defendants were not acting unreasonably in coming to the view that Mr Beatty's choice to have them act for him entitled them to act. They were entitled to rely upon the principle that the court's jurisdiction to restrain a legal practitioner from acting in proceedings is an exceptional one, that it is discretionary, and that it must be exercised with appropriate caution and circumspection. They were also entitled to believe that a Court would give due weight to the public interest and to a litigant not being deprived of a legal practitioner of his choice without good cause.

Furthermore, in relation to the first Defendant, no objection had been taken to her, or her former employer, acting for Mr Beatty. This, in my view, is a relevant fact that the Defendants were entitled to consider, since Boyd & Longhurst, for some years, and at the relevant time, had been the "exclusive provider" of legal services to the Plaintiff. It was also relevant because the first Defendant, no doubt, between the commencement of the District Court proceedings and when the Defendants commenced to act, acquired extensive knowledge of the facts and circumstances relevant to the District Court proceedings and the claims by Mr Beatty since she had acted as the solicitor on the record.

As recorded by Brereton J, the timing of the application is one of a number of considerations to be taken into account in applying the test whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice, including the appearance of justice, requires that a practitioner be restrained from acting in a particular matter.

Of course, the personal and other connection between the first Defendant and Mr Madden was a relevant matter for the Plaintiff's solicitor to consider. However, the fact that Mr Madden and the first Defendant were married was fully disclosed and adverted to by her.

After consideration of this matter, the Plaintiff's solicitor would need to have been satisfied that there were reasonable grounds for concluding that Mr Madden would be a material witness, and that there was a potential conflict of interest between his duty to the court and any duty that he might have to Mr Beatty as a client of the Defendants.

Whilst it appears that the Plaintiff's solicitor considered the first element, I am not satisfied that he gave enough consideration to the second. Furthermore, no facts were identified which indicated that if the Defendants continued to act in the District Court proceedings, any rights, or interests, of the Plaintiff might have been infringed.

Looking at the letter from the Plaintiff's solicitor of 7 March 2011, leaving aside the implied threat contained in it, one asks, rhetorically, what business was it of the Plaintiff to police the ethical obligations of the Defendants and of Mr Madden? EM Heenan J put the matter succinctly in Holborow v Macdonald Rudder [2002] WASC 265, at [30]:

"The duty of the legal practitioner is not to his client's opponent and he is not answerable to his client's opponent. His duty is to the court and he is certainly answerable to the court and to his or her professional and disciplinary bodies."

Finally, the Defendants' conduct in ceasing to act immediately when it became obvious that to maintain their stance was not in the best interests of Mr Beatty, demonstrates that it was those interests that were in the forefront of the first Defendant's (and hence the second Defendant's) mind.

One matter that I considered might demonstrate some unreasonableness on the part of the Defendants is the failure to reply to the letters of 23 February 2011 and 7 March 2011. The Defendants could have identified the bases for their belief that it was not unreasonable for them to continue to act for Mr Beatty. They could have informed the Plaintiff's solicitor that Mr Beatty wished them, and the first Defendant in particular, to continue to act, and that, if they reached the view that Mr Madden would be likely to be a witness, further consideration would be given to whether they would continue to act. They, also, could have indicated that, meanwhile, the intention was to avoid having Mr Madden play any role in the conduct of the District Court proceedings.

Whilst such a response may not have assuaged the concerns of the Plaintiff, it certainly would have given it cause to pause before it gave instructions to commence the Supreme Court proceedings. The failure to respond, in the light of the threat to commence proceedings in each of the letters, made the commencement of the proceedings in the Supreme Court, if not inevitable, at least likely.

Senior counsel for the Defendants submit that the failure to respond to the letters should not result in an order for costs in favour of the Plaintiff. I agree, but that failure, particularly when taken in the context of the detailed letter of 24 May 2011, is relevant to whether the court should make an order in favour of the Defendants.

I have earlier noted that in the letter dated 24 May 2011, from Jones Rolfe Rudd, the bases for the Defendants adopting the view that they had adopted until that time, were explained in detail. I have also noted the response from the Plaintiff's solicitor and the persistence with the claim for costs, until recently, to be calculated on the indemnity basis.

I turn next to the Plaintiff's argument that in agreeing to give the undertakings, the Defendants effectively "surrendered". I note, in this regard, Fire Containment Pty Ltd v Robins (No 2) in which Gzell J had to determine whether a plaintiff who had discontinued proceedings when satisfactory undertakings were given by the defendant, should have its costs. The plaintiff said, in that case, that the giving of the undertakings was sufficient to constitute an "event" from which costs should follow, even in the absence of a full hearing on the merits. His Honour rejected this contention stating at [11] - [12]:

"What lies at the heart Lai Qin is that, without a hearing on the merits, there is no event to enliven Pt 42 r 42.1 of the Uniform Civil Procedure Rules. That may be concluded from the above passages. Success in an action or on particular issues is the fact that usually controls the exercise of the discretion as to costs. That is the event. But when there has been no hearing on the merits, there is no event. The court is deprived of the factor that usually determines whether or how it will make a costs order.

[12] On this analysis, the Plaintiff's basis for seeking an order for costs, that acceptance of the undertakings was the event for the purposes of Pt 42 r 42.1 of the Uniform Civil Procedure Rules, must be rejected."

In this case, there is evidence of the reasons why the undertakings by the Defendants were given. Furthermore, in the letter of 24 May 2011, it was made clear that they disputed the Plaintiff's entitlement to the relief claimed.

I have earlier recorded my view that the Defendants' conduct in agreeing to no longer act, when it became obvious that it was not in Mr Beatty's interest to continue to do so, represents reasonable conduct on their part. To permit costs to have been incurred in the District Court proceedings, both in time and money, to ensure that they would continue to act, would have demonstrated unreasonable conduct. For this reason too, the giving of the undertakings did not amount to "surrender" as that word is used in the authorities.

In the circumstances, and exercising my discretion on the burden of costs, I am of the view, that the Plaintiff should not receive its costs of the proceedings.

I turn then to whether the Plaintiff should pay the Defendants' costs. It must be remembered that the Defendants filed no affidavits in the substantive Supreme Court proceedings and that there were only one or two listings before the Court between the date of commencement of the proceedings and the date when the matter was settled.

I note also that upon informing the Plaintiff's solicitor of the retainer of new solicitors, the Defendants suggested that each party should pay its or their own costs. The offer was rejected and it would appear that a significant amount of costs were sought. The rejection of the Defendants' offer did not demonstrate reasonable conduct on the part of the Plaintiff.

I cannot imagine the costs of the Defendants of the proceedings were significant. Even though they did not respond to the letters of 23 February 2011 and 7 March 2011, I am of the opinion that they should have their costs of the proceedings, bearing in mind the conduct of the Plaintiffs and their own conduct in resolving the Supreme Court proceedings as soon as it was realized that it was in Mr Beatty's best interests to do so.

In the circumstances, the Plaintiff having failed on its notice of motion, and the Defendants having succeeded on their notice of motion, the Plaintiff should pay the Defendants' costs, including of the costs of the proceedings.

I order that:

(a) the Plaintiff's notice of motion filed on 11 August 2011 be dismissed;

(b) the Plaintiff to pay the Defendants' costs of the proceedings and of the notices of motion.

**********

Decision last updated: 16 December 2011

Medium Neutral Citation:	Lake Burrendong State Park Trust v Thompson [2011] NSWSC 1554
Hearing dates:	29 November 2011
Decision date:	16 December 2011
Jurisdiction:	Equity Division
Before:	Hallen AsJ
Decision:	Order that: (a) the Plaintiff's notice of motion filed on 11 August 2011 be dismissed; (b) the Plaintiff to pay the Defendants' costs of the proceedings and of the notices of motion.
Catchwords:	Plaintiff commenced proceedings, by Summons seeking injunctive relief against the Defendants in relation to their representation in proceedings that had been commenced in the District Court of New South Wales at Orange - Proceedings resolved by acceptance of undertakings from Defendants - Each party seeks costs of the proceedings even though no hearing on merits.
Legislation Cited:	Civil Procedure Act 2005 Crown Lands Act 1989 Uniform Civil Procedure Rules 2005
Cases Cited:	Ajkay v Hickey & Co Pty Limited [2011] NSWSC 822 Australian Securities Commission v Aust-Home Investments Ltd [1993] FCA 585; (1993) 44 FCR 194 Boscaini Investments Pty Ltd v Corporation of the City of Kensington and Norwood (1999) SASC 327 Bridie v Messina (1965) 66 SR (NSW) 446 Chapman v Luminis Pty Ltd [2003] FCAFC 162 Edwards Madigan Torzillo Briggs Pty Ltd v Stack [2003] NSWCA 302 Fire Containment Pty Ltd v Robins (No 2) [2011] NSWSC 547 Holborow v Macdonald Rudder [2002] WASC 265 Ismail-Zai v State of Western Australia [2007] WASCA 150; (2007) 34 WAR 379 Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 Minister for Immigration and Ethnic Affairs, Re the; Ex parte Lai Qin [1997] HCA 6; (1997) 186 CLR 622 Mitchell v Burrell [2008] NSWSC 772 Muhibbah Engineering (M) BHD v Trust Co Ltd [2009] NSWCA 205 Ohn v Walton (1995) 36 NSWLR 77 One Tel Ltd v Deputy Commissioner of Taxation [2000] FCA 270 Red Bull Australia Pty Ltd v Michael Peter Stacey and Christian Walter Graebner [2011] NSWSC 1350 Saeco International Group (Australia) Pty Ltd v Giorgio Massimo Ubertini [2011] VSC 360 Scallan v Scallan [2001] NSWSC 1078
Category:	Procedural and other rulings
Parties:	Lake Burrendong State Park Trust (Plaintiff) Anne Maree Thompson (first Defendant) Thompson Madden Pty Limited trading as Thompson Madden Solicitors (second Defendant)
Representation:	Counsel: Mr J K Kirk SC (Plaintiff) Mr G Curtin SC (Defendants) Solicitors: Crown Solicitor's Office (Plaintiff) Gilchrist Connell (Defendants)
File Number(s):	2011/115795