Lester v Lester - [2007] SASC 298

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
LESTER & ORS v LESTER & ORS
[2007] SASC 298
Reasons of Judge Lunn a Master of the Supreme Court
14 August 2007
PROFESSIONS AND TRADES - LAWYERS
Application by plaintiffs to preclude lawyer on the record for the defendants from continuing to act for the defendants as being contrary to the proper administration of justice - defendants' lawyer a potential witness at the trial - held application dismissed as a fair-minded member of the public would not have concluded that in the interests of the protection of the integrity of the judicial process and the due administration of justice the lawyer should be prevented from acting.

LESTER & ORS v LESTER & ORS
[2007] SASC 298
Reasons on the plaintiffs’ application to preclude Allen Burtt from acting as the solicitor for the defendants.

JUDGE LUNN: The first two plaintiffs, Cecily and David Lester, are the parents of the first defendant, Damian Lester. The first and second plaintiffs control the third plaintiff, Eleventh Klingon Pty Ltd (“Klingon”). The first plaintiff and the first defendant are directors of Astrode Investments Pty Ltd (“Astrode”). The second and third defendants are companies controlled by the first defendant.
This action arises out of a series of informal and complicated transactions between the parties. This recitation of the facts is confined to matters relevant to the present application. In late 1998 the first defendant negotiated for the purchase of a carpark in Moore Street, Adelaide (“Moore Street property”) and separately for another carpark at Flinders Street, Adelaide (“the Flinders Street property”). He arranged to borrow much of the purchase price from Bank SA. Part of the terms of the borrowing required that Klingon should give security for it. There was an informal understanding between the natural parties that Klingon would provide the necessary security.
In about September 1998 Astrode on behalf of itself or its nominee entered into separate contracts for the purchase of the Moore Street property and the Flinders Street property. Prior to the settlement on these purchases on 1 February 1999 Astrode, in circumstances which are the subject of controversy, nominated the second and third defendants respectively as the purchasers under those contracts and the properties were transferred into their names.
A substantial part of the purchase price for both purchases was provided by moneys borrowed from Bank SA. A step in effecting this loan was the first plaintiff signing on behalf of Klingon a letter of offer dated 19 January1999 to Bank SA which included terms that Klingon would give security for the loan. On about 21 January Allen Burtt, as solicitor for the first defendant, posted a letter enclosing the document to be signed on behalf of Klingon to the first and second plaintiffs who were interstate. The first plaintiff signed the offer on behalf of Klingon and the document was posted back to Mr Burtt in Adelaide. The second plaintiff enclosed with the document the letter of 21 January from Mr Burtt on which the second plaintiff had made the following handwritten endorsement:
Allen
Executed and signed and sealed, as requested but subject to proviso and undertaking.
(Signature of second plaintiff)
Letter to follow.
Later the first plaintiff sent a letter dated 27 January 1999 to Mr Burtt, the relevant part of which read:
We have executed the documents forwarded with your letter of 21 January 1999, on the proviso that:
(1)as soon as possible after settlement, (the second and third defendants) each issue a share to (the first plaintiff) and/or nominee, and
(2)I am appointed a Director of both companies as agreed.
The plaintiffs’ contention on this aspect of its case is that these pieces of correspondence combined with the conduct of the defendants in using the consent of Klingon to obtain the loan from Bank SA constituted a contract for the first plaintiff to be issued with a share in each of the second and third defendants and to be appointed as a director of each of them. The defendants deny that there was any such contract and have not issued such shares or appointed the first plaintiff to be a director.
The precise terms of the current pleading of this issue are important. Paragraphs 11A and 11B of the second amended statement of claim plead:
11AIn further performance of the agreement in or about January 1999 Cecily, on behalf of Eleventh Klingon, signed a Letter of Offer dated 19 January 1999 from Bank SA offering security from Eleventh Klingon in relation to the loan on the condition that Cecily and/or Eleventh Klingon be given a 50% interest in the proposed purchaser of the Moore Street property and the Flinders Street property.
11A.1 The condition was notified in a letter from Cecily to Allen Burtt (“Mr Burtt”), Damien’s solicitor, on 27 January 1999.
11BThe condition referred to in paragraph 11A was accepted by Astrode or its agent forwarding the signed Letter of Offer to Bank SA.
There is no reference to Mr Burtt in the statement of claim other than in paragraph 15 which relates to a later meeting in April 1999 which is apparently not controversial. The responding second amended defence for the first time pleaded paragraph 17A which reads:
17AThe defendants deny the facts and matters alleged in paragraphs 11A (including the sub-paragraph thereto) and 11B and say further that the:
17A.1 said Letter of Offer was signed and returned by Cecily by prepaid express post to Damian prior to 27 January 1999.
17A2 the signed Letter of Offer was received by Damian and returned to Bank SA before the condition alleged in paragraph 11A.1 of the Claim had been notified by the (sic) Cecily.
The plaintiffs’ reply to that defence pleaded:
5In answer to paragraph 17A of the Second Amended Defence the plaintiffs:
5.1say that the proviso and undertaking had also been communicated to Damian in a telephone conversation between David and Damian prior to the Letter of Offer being sent to Cecily and that Damian advised David that he accepted that proviso and undertaking;
5.2say that the proviso and undertaking were also communicated by the handwritten notation on the letter dated 21 January 1999, “Allen, executed and sealed as requested, but subject to proviso and undertaking”, which letter accompanied the signed Letter of Offer;
5.3say that the proviso and undertaking had also been communicated by David to the defendants’ solicitor in a telephone conversation on 28 December 1998 in which David told Mr Burtt that he required Damian to give an undertaking to appoint Cecily as director and secretary of Adelaide City Investments as soon as practicable and the response by Mr Burtt that Damian was prepared to give that undertaking.
Paragraph 5.3 of that reply is the only pleading of the conversation between the second plaintiff and Mr Burtt on 28 December 1998 which has assumed substantial significance in the context of this application.
The evidence before me about this conversation on 28 December 1998 is an affidavit of Mr Burtt sworn on 27 October 2006 which reads:
11 The ‘handwritten note’ of David Lester to which Natasha Haslam refers in her facsimile transmission was made on a copy of my letter of 21 January 1999. …..
12 To the best of my recollection when I first read the “handwritten note” I thought it referred to the undertaking that I discussed with David Lester on 28 December 1998 because that was the only undertaking I had discussed with David Lester at any time. Exhibited hereto and marked with the letter “AMB5” is a true copy of my file note recording the discussion with David Lester. …..
(Natasha Haslam is a solicitor for the plaintiffs). The file note referred to is dated 22 December 1998 and the relevant part reads:
In relation to the Deed for the retirement of Astrode ….. as the trustee of the Moore Street Carpark Trust I saying that this needs to be completed ASAP. However, I saying Damian Lester is prepared to give an undertaking to appoint Cecily Lester as the company secretary of Adelaide City Investments Pty Ltd as soon as practicable.
He accepting that undertaking and will arrange for the Deed to be completed and forwarded to my office.
In an affidavit sworn on 31 October 2006 the second plaintiff said on this topic:
9I seek leave of the Court to refer to the Affidavit of Allen Michael Burtt dated 27 October 2006. At paragraph 12 of the Affidavit Mr Burtt refers to his note of a telephone discussion I had with him on 28 December 1998. My recollection of that telephone discussion is that I told Mr Burtt that I required Damian to give an undertaking to appoint Cecily as director and secretary of Adelaide City Investments Pty Ltd as soon as practicable and that Mr Burtt told me that Damian was prepared to give that undertaking.
It should be noted that the only significant discrepancy between the file note of Mr Burtt and the version of the second plaintiff is that the second plaintiff also refers to an appointment as director whereas Mr Burtt only refers to an appointment as secretary. The version of the second plaintiff in his affidavit does not refer to the third defendant at all or make any reference to any share being issued to the first plaintiff in either the second or third defendants. The area of dispute between the two versions of the phone call appears to be quite narrow. Neither the plaintiffs nor the defendants have filed any further affidavits on the point in support of their positions on the present application. (The affidavits referred to were filed in respect of an earlier application about privileged documents).
Since 21 July 2005 Mr Burtt has been the solicitor on the record in this action for all defendants. On 24 May 2007 the plaintiffs took out an application for orders that Mr Burtt cease to act as solicitor for the defendants in these proceedings and that he pay the costs of the application. This order was opposed by the defendants and Mr Burtt. Although it was foreshadowed in correspondence and a supporting affidavit, counsel for the plaintiffs on the hearing of this application did not seek to rely on any ground that Mr Burtt was in possession of confidential information, or was in breach of any equitable duty of loyalty to the plaintiffs, from him having previously acted for the plaintiffs. He conceded that on the grounds relied upon the result of the application should be no different even if Mr Burtt had never previously acted for any of the plaintiffs.
Both counsel accepted that the relevant legal principles were those enunciated by Brereton J in the New South Wales case of Kallinicos v Hunt (2005) 64 NSWLR 561 at 582-3 where he said after a detailed review of the cases:
However, 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. …..
(References to the earlier authorities omitted). (For present purposes I am content to accept this statement of the law, but its breadth is wider than was endorsed by the Full Court in Nasar v Vihervaara (2005) 91 SASR 222 at 228-229).
The second paragraph of the test centres upon whether a fair-minded, reasonably informed member of the public would conclude certain things about the requirements for the proper administration of justice. For this objective test to be satisfied it requires the fair-minded member of the public to think it more likely than not that the proper administration of justice would require that the legal practitioner should be prevented from acting. The test is not that the fair-minded member of the public might reach that conclusion, but that he or she would do so. (As to the significance of tests based on might rather than would see Nasar v Vihervaara above and Southern Equities Corp Ltd v Arthur Anderson (2001) 212 LSJS 380 at 383-385.)
Counsel for the plaintiff submitted that there were four areas in which it could be objectively perceived that the proper administration of justice required that Mr Burtt should not act as the solicitor for the defendants in this action. These were:
A.The conflict of evidence about the telephone discussion of 28 December 1998 mentioned above. It is important that no cause of action is pleaded as arising from this conversation. It is not suggested that any undertaking given by Mr Burtt in that conversation gave rise to any cause of action. Insofar as the plaintiffs rely upon agreements they are either oral agreements made with the first defendant in person or to be implied from correspondence and circumstances. The “proviso and undertaking” referred to in paragraph 5.3 of the reply is presumably that pleaded in paragraph 11A of the statement of claim. It goes far beyond what the second plaintiff deposed to in his affidavit of 27 October 2006. It is difficult to see what is the significance of paragraph 5.3 of the reply other than possibly giving fair notice to the defendants under R 46A.06(2)(c) that Mr Burtt’s interpretation of the handwritten endorsement on the letter of 21 January sent back to him will be contradicted in part, but not wholly, by the second plaintiff’s version of that telephone conversation. While it will be the subject of admissible evidence I do not see there is any particular prospect that it will become a decisive issue in the case. It is also not certain that the defendants would call Mr Burtt to give evidence on the point. It may depend upon how the second plaintiff responds in cross-examination about the substantial differences between his version of the conversation on 28 December 1998 and what is now alleged as the full terms of the “proviso and undertaking”.
B.Evidence from Mr Burtt about when he received the handwritten endorsement on the letter dated 21 January and the letter from the plaintiffs of 27 January and when and how he communicated those to the defendants. There is no indication that the evidence of Mr Burtt on these topics would be any different from that of the first defendant or to suppose that his evidence on these topics would be controversial. It is also not certain that he would be called by the defendants to give evidence on these topics. It is likely to depend of the state of the evidence at the close of the plaintiffs’ case and on what may be said on these topics by the first defendant.
C & D. The circumstances in which the second and third defendants became the purchasers of the respective properties in place of Astrode. As Mr Burtt was the solicitor for the defendants in the conveyancing transactions it is likely that he would be able to give some admissible evidence on these topics. There is nothing to suggest that his evidence on them would be contrary to that of the first defendant or challenged by the plaintiffs. Depending on the evidence given by the first defendant on these topics it is by no means certain that the defendants would call Mr Burtt to give evidence about them.
On these grounds relied upon by the plaintiffs’ counsel I do not consider that the fair-minded reasonably informed member of the public would conclude that the proper administration of justice would require that Mr Burtt 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. If there was to be a major attack on Mr Burtt’s credibility in any cross-examination at the trial, there is some possibility that the integrity of the judicial process would require that he should not act as the solicitor for the defendants. However, there is a substantially greater possibility that his personal integrity and credibility would not be a significant issue.
The plaintiffs’ counsel relied heavily on the Court in Kallinicos v Hunt (above) having held that the solicitor there should not be permitted to act. However, cases are not precedents for their findings of fact: Qualcast Ltd v Haynes [1959] AC 743. A major distinguishing feature in that case is that there the solicitor was at risk of personal liability as a constructive trustee if certain factual findings were made, but here there was no suggestion that Mr Burtt could be made personally liable to the plaintiffs if their allegations of fact are made out. The only suggestion that he could have a personal interest in the outcome of the case was that he would be protecting his professional integrity and credibility. If he is a witness, that is as likely to occur whether he is the solicitor on the record for the defendants or not. The chance that he would not fulfil his duty as an officer of the Court in being the solicitor on the record for the defendants because he might in some areas be possibly protecting his own personal interests is remote. The plaintiffs’ counsel also cited the Victorian single Judge decision of Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd [2006] VSC 152, 12 April 2006, unreported. That decision also turns on its own facts and also involved a possible misuse of confidential information.
The plaintiffs’ counsel relied upon Rule 13.4 of the Rules of Professional Conduct and Practice of the Law Society of South Australia which states:
13.4A practitioner must not unless exceptional circumstances warrant otherwise in the practitioner’s considered opinion:
13.4.1 appear for a client at any hearing; or
13.4.2 continue to act for a client,
in a case in which it is known, or becomes apparent, that the practitioner will be required to give evidence material to the determination of contested issues before the court. Exceptional circumstances will not usually warrant otherwise unless the practitioner has also consulted a senior practitioner who has approved the proposed appearance or continued acting.
While regard can be had to this rule it is not an absolute prohibition and it is not for this Court in these proceedings to enforce compliance with the rule. Although there was no evidence on the point I apply the presumption of regularity in finding that the Queen’s Counsel who represented Mr Burtt on this application would not have represented him if he had advised that there was any breach of the rule by Mr Burtt.
It also needs to be taken into account that Mr Burtt is only acting as the defendants’ solicitor, and not as their counsel, in this action. If he was to act as counsel, different considerations may be relevant.
If I had reached a contrary conclusion, I would still have had to consider whether in the exercise of the Court’s discretion an order should have been made preventing Mr Burtt from acting. I would have exercised that discretion in favour of the defendants.

There has been some delay by the plaintiffs in pursuing this application. The grounds B, C and D were clear as from the institution of the action. Ground A was probably only apparent after Mr Burtt filed his affidavit on 27 October 2006, but it still took until 24 May 2007 for the application to be brought.
The jurisdiction is exceptional and is to be exercised with caution: Kallinicos v Hunt above. Due weight is to be given to the public interest with defendants not being deprived of the lawyer of their choice without due cause: Kallinicos v Hunt (above). There would be significant expense, and possibly some delay, involved in another solicitor now being instructed in place of Mr Burtt for the defendants. While most of those costs would be recoverable from the plaintiffs if the defendants were to obtain an order for the costs of the action someone would have to bear the expense in the meantime. As stated in his affidavit filed on 21 September 2006 Mr Burtt has acted for the first defendant for many years and in numerous matters.
I have today made the following orders on FDN 23:
1Application dismissed.
2The plaintiffs to pay to the defendants and Mr Burtt their costs of the application.
3Certified fit for counsel.
4Liberty to the defendants to apply, if so advised, for the costs to be on an indemnity basis, the costs to be payable forthwith and certification for senior counsel.
5Adjourned to a Directions Hearing on 27 August 2007 at 12 noon.