Manna Hill Mining Company Pty Ltd v Iles Selley Lawyers

[2004] FCA 1175

FEDERAL COURT OF AUSTRALIA

Manna Hill Mining Company Pty Ltd v Iles Selley Lawyers

[2004] FCA 1175

PRACTICE AND PROCEDURE – solicitors – confidential information – conflict of interest – application for injunctive relief restraining respondent from acting – where respondent had previously acted for applicants.

Yunghanns v Elfic Ltd (formerly known as Elders Finance and Investment Co Ltd) BC9803031 (Unreported, Supreme Court of Victoria, Gillard J, 3 July 1998) cited

MANNA HILL MINING COMPANY PTY LTD (ACN 075 590 644) AND DAVID GERALD MOORE v ILES SELLEY LAWYERS

SAD 822 of 2003

LANDER J
9 SEPTEMBER 2004
ADELAIDE

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 822 OF 2003

BETWEEN:

MANNA HILL MINING COMPANY PTY LTD
(ACN 075 590 644)
FIRST APPLICANT

DAVID GERALD MOORE
SECOND APPLICANT

AND:

ILES SELLEY LAWYERS
RESPONDENT

JUDGE:

LANDER J

DATE OF ORDER:

21 NOVEMBER 2003

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:

1.The application be dismissed.

2.The applicants pay the respondent’s costs certified fit for senior counsel.

Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY	SAD 822 OF 2003

BETWEEN:

MANNA HILL MINING COMPANY PTY LTD
(ACN 075 590 644)
FIRST APPLICANT

DAVID GERALD MOORE
SECOND APPLICANT

AND:

ILES SELLEY LAWYERS
RESPONDENT

JUDGE:

LANDER J

DATE:

9 SEPTEMBER 2004

WHERE MADE:

ADELAIDE

REASONS FOR JUDGMENT

1. On 21 November 2003 I dismissed an application for an injunction restraining the respondent, a firm of solicitors, Iles Selley Lawyers (Iles Selley), from continuing to act for the applicants in proceedings SAD 3004 of 2003 (Wilson v Manna Hill Mining Co Pty Ltd (the principal proceedings).  The applicants in the principal proceedings were both directors of Manna Hill Mining Company Pty Ltd (Manna Hill Mining).  The respondents in the principal proceedings are the two applicants in these proceedings, Mr Moore and Manna Hill Mining and a number of other parties who took no part in this application.  The application, filed on 19 November 2003, sought the following relief:

   ‘1.Urgent injunctive relief against the First Respondent from acting on behalf of Mr Wayne Stephen Wilson and Ms Gayle Lawton in the Federal Court Action number S3004 of 2003.’

2. I heard the application on 21 November 2003 and made the following orders:

   ‘1.       …

   2.        The application be dismissed.

   3.The applicants pay the respondents’ [sic] costs certified fit for senior counsel.

   4.        …’

3. The following are my reasons for making those orders.

4. The application was accompanied by an affidavit sworn on 19 November 2003 by Mr David Moore, a director of Manna Hill Mining.

5. The applicants claimed that Iles Selley was in a position of conflict in acting for the applicants in the principal proceedings. The conflict was said to arise because Iles Selley had previously represented Manna Hill Mining in proceedings in the Supreme Court of South Australia, Action Number 1032 of 2001.  Iles Selley had also represented Manna Hill Resources Ltd (Manna Hill Resources), a company of which Mr Moore was also a director, in proceedings in the Supreme Court of South Australia, Action Number 292 of 2001.

   MANNA HILL RESOURCES PROCEEDINGS

6. In 2001, Iles Selley was engaged by Manna Hill Resources in an action brought by that company against the State of South Australia in respect of the conduct of various Ministers of the State in discharge of their responsibilities under the Mining Act 1971 (SA). In his affidavit of 19 November 2003, Mr Moore deposed:

   ‘7.Mr Iles of Messrs Iles Selley Lawyers had the principal conduct of that action for Manna Hill Resources.

   8.I spent considerable time with Mr Iles in the course of those proceedings instructing him for Manna Hill Resources.  He drew an affidavit for me which consisted of 166 pages and 505 paragraphs.

   9.As a result of the time that we spent together during that matter Mr Iles knows well my thoughts, strategies and approach regarding business matters and disputes and my personal circumstances.

   …

   16.The legal proceedings involving Manna Hill Resources and Manna Hill Mining were very expensive and placed considerable financial strain on the companies and myself personally to be able to fund the accounts of Messrs Iles Selley.’

7. Manna Hill Resources is not an applicant in these proceedings nor is it a party to the principal proceedings.  Its relationship with the respondent is therefore not relevant except perhaps to show Mr Moore’s dealings with those lawyers.

8. Mr Moore deposed in detail to the fees owing to Iles Selley as a result of its engagement.  He annexed various letters to his affidavit, emanating from Iles Selley, requesting payment of outstanding fees.  Manna Hill Resources was ultimately unsuccessful in the proceedings.

   MANNA HILL MINING PROCEEDINGS

9. In 2000 Manna Hill Mining was placed in administration.  In 2001 an arrangement was reached between the administrator and Mr Moore and Bentlee International Pty Ltd (Bentlee) for a Deed of Company Arrangement to be executed. 

10. A dispute later developed subsequent to the execution of the deed and Bentlee issued proceedings in the Supreme Court of South Australia, Action Number 1032 of 2001 (the DOCA action).  Both Mr Moore and Manna Hill Mining were defendants to those proceedings and Iles Selley was retained on behalf of both Mr Moore and Manna Hill Mining.  Mr Wilson and Ms Lawton, the applicants in the principal proceedings, were also joined as defendants in the DOCA action.

11. In his affidavit, Mr Moore deposed:

    ‘12.Mr Iles and his firm were engaged to represent Manna Hill Mining and myself in the DOCA action.  I spent considerable time with Mr Iles describing to him Manna Hill Mining and my role in the company and plans for the company.

    13.The first applicant in the [principal] proceedings Mr Wilson and his wife became involved in the DOCA action as they were apparently the source of the monies provided by Bentlee for the purposes of the DOCA and Mr Wilson was joined as a party.

    14.I introduced Mr and Mrs Wilson to Mr Iles.  Mr Iles suggested that he represent all defendants in the DOCA action.  I was concerned about a possible conflict of interest between Mr Wilson and me but accepted Mr Iles’ recommendation and he acted for all defendants.

    15.In the course of the DOCA proceedings Mr Iles drew an affidavit for me which comprised 29 pages and 102 paragraphs.  He also drew affidavits for Mr Wilson respectively, which consisted of 25 pages and 120 paragraphs and Mrs Wilson which consisted of 16 pages and 83 paragraphs.’

12. Various requests made by Iles Selley for payment of outstanding fees are referred to in the affidavit.

13. Because Iles Selley’s fees had not been paid, Mr Iles, a partner in that firm, wrote to Mr Moore on 24 October 2001 expressing concern about the mounting costs of running the litigation and the difficulties Iles Selley were experiencing as a result of not being placed in funds. 

14. On 29 November 2001, Mr Iles wrote to Mr Moore advising him that it was no longer possible for Iles Selley to continue to act in the DOCA action unless arrangements were made for the payment of outstanding fees. 

15. Mr Iles also wrote to Mr and Mrs Wilson on 29 November 2001, expressing his inability to continue to run the litigation in the DOCA action without reimbursement.  He wrote:

    ‘As we have discussed on a number of occasions now, the reality is that the company …, Moore and Lawton cannot fund the defence.  They cannot fund my firm.  We have the security now of knowing that the $100,000 is locked away in Court, but I need your assurance that you are prepared to meet these and further fees from your own resources and, in particular, from funds shortly to be available to you…

    You also need, obviously, to protect your position vis-à-vis the company. That is a matter as between you and Moore/Lawton, but it is clear to me that it needs to be acknowledged by all that the company will be indebted to you if you press on with the defence.  I have raised with Moore and Lawton the possibility that I may have to cease acting for them (and, possibly, the company) if I am not to be paid.’

16. On 29 January 2002, orders were made by Williams J in the Supreme Court of South Australia, giving effect to a settlement between the parties to the DOCA action.  As a result of that settlement, Bentlee’s claim was dismissed and $50,000 of $100,000 standing to the credit of Supreme Court Action Number 1032 of 2001 in the Supreme Court Suitors Fund was to be paid forthwith to the defendants in that action.

    THE PRINCIPAL PROCEEDINGS

17. In 2003, Mr Moore became aware that the applicants in the principal proceedings were considering filing an application in this Court for relief pursuant to the Corporations Act 2001 (Cth).

18. On 7 July 2003, Mr Moore’s solicitors wrote to Iles Selley in the following terms:

    ‘Dear Mr Iles

    MANNAHILL [sic] MINING COMPANY PROPRIETARY LIMITED

    We have been instructed to act for the above Company by Mr David Moore, Chairman of Directors.

    We have been provided with copies of your letters to Mr Moore of 30 June 2003 together with the Notice of Meeting.

    We note that you act for Mr Wayne Wilson as Trustee of the Wilson Family Trust and Ms Gayle Lawton.

    We are instructed by Mr Moore that you have acted for Mr Moore both personally and in his capacity as a Director of the Company and that you have also acted for the Company on his instructions.

    His instructions to us are that in acting for him and on his instructions you have acquired confidential information concerning him, his thoughts and business strategies and that there is a real possibility that this information will be used to his detriment.

    He therefore instructs us to demand that you immediately cease acting for Mr Wilson and Ms Lawton in this matter.

    …’

19. On 9 July 2003, Iles Selley, in a letter written by Mr Iles, responded to the above letter and addressed the demand that Iles Selley cease acting:

    ‘In relation to the question of perceived conflict of interest, we have considered, as no doubt you have, the provisions of Clause 4.1 of the Law Society’s Rules of Professional Conduct and Practice, those Rules being based on the Model Rules of the Law Council of Australia.

    The question is whether, in previously acting for the Company and Mr Moore, the writer or his firm have ever been privy to “information confidential to the former client and material to the matter” in circumstances where Mr Moore “might reasonably conclude that there is a real possibility the information will be used to his detriment.”  We make a number of comments:

    1.        We are not aware of any:

    1.1      “confidential information” that might be relevant;

    1.2any confidential information which was confidential to Mr Moore (as opposed to other persons for whom we were acting at the time …

    2.In our view, any such confidential information – were it to exist – could not be, in any way, material to the discrete and isolated matters with which the application we propose to make deals.

    3.The application which we propose to make deals simply with whether or not Mr Moore has acted unlawfully in appointing Mr Hagger and allotting shares to Mr Hagger and other persons…

    4.Even if the writer were possessed of “information confidential to” Mr Moore – which he is not – we fail to see how any such information might be used to Mr Moore’s detriment given the confined and limited nature of the issues to be put to the Federal Court.

    5.        The writer and/or his firm will not stand aside.

    …’

20. On 11 July 2003, the solicitors for Mr Moore and Manna Hill Mining again wrote to Iles Selley, reiterating their demand for that firm to cease acting:

    ‘Dear Mr Iles

    MANNAHILL [sic] MINING COMPANY PROPRIETARY LIMITED (THE COMPANY)
    …
    As you point out the relevant provision is clause 4.1 of the Law Society’s Rules of Professional Conduct and Practice.

    Mr Moore instructs us that he maintains his objection to you continuing to represent Mr Wilson and Ms Lawton.

    The issue is not determined solely in relation to whether you have “confidential information” which might be used to the detriment of Mr Moore or the Company.  The issue is wider than that.’

21. The writer then referred to a decision of the Supreme Court of Victoria in Yunghanns v Elfic Ltd (formerly known as Elders Finance and Investment Co Ltd) BC9803031 (Unreported, Supreme Court of Victoria, Gillard J, 3 July 1998), and continued:

    ‘It is therefore our view that it is not only relevant whether you have confidential information relating to Mr Moore, but equally importantly, whether as a result of acting for or on instructions from Mr Moore, you have particular knowledge as to his thoughts and strategies and his attitudes towards litigation generally and, in particular, your clients which might result in the possibility (our emphasis) of the information being used to the detriment of Mr Moore and the company.’

22. Iles Selley responded by letter written by Mr Iles on 16 July 2003 and confirmed that Iles Selley would continue to act for the applicants in the principal proceedings.

23. On 6 August 2003, the principal proceedings were instituted by way of application and a supporting affidavit sworn by Mr Iles.  The application, in its original form, sought various declarations and orders in respect of meetings purportedly convened and resolutions purportedly passed by Mr Moore and others as directors of Manna Hill Mining.  The relief sought in the application was somewhat wider than had been indicated in Mr Iles’ letter of 9 July 2003.

24. As I have already mentioned, Mr Moore was named as the second respondent in the principal proceedings.

25. Manna Hill Mining was made a party to the principal proceedings in order to bind that company in the event that relief was obtained against Mr Moore and the other respondents.

26. Iles Selley took issue with some of the matters raised by Mr Moore in his affidavit.  It challenged Mr Moore’s authority to cause Manna Hill Mining to bring this application and to swear any affidavit on behalf of that company.

27. In the principal proceedings, the applicants, Mr Wilson and Ms Lawton, were alleging that resolutions purportedly passed by directors at directors’ meetings were either never passed or invalidly passed.  In those proceedings, Mr Wilson claimed to be the majority shareholder in Manna Hill Mining and he and Ms Lawton claimed to be two of the three directors of the company and therefore able to control the company.

28. I could not determine whether Mr Moore had authority to cause Manna Hill Mining to bring the subject proceedings without first determining the principal proceedings.  In those circumstances, I had to assume that he did have authority to cause Manna Hill Mining to bring these proceedings.

29. In his affidavit, Mr Iles denied that he had any confidential information as a result of acting for Mr Moore or Manna Hill Mining, or that he was aware of any thoughts or strategies which Mr Moore might adopt in relation to business matters and disputes.

30. He said that the principal proceedings concerned discrete matters which occurred after he ceased to act for Mr Moore and for Manna Hill Mining and related to the actions of directors in meetings on 12 June 2003 and subsequently.  In those circumstances, he said, even if he did possess confidential information, none of it was relevant to the issues in the principal proceedings.

31. Mr Iles also claimed that the applicants in these proceedings had been aware for some time that he and his firm were acting for the applicants in the principal proceedings and had not objected and, in those circumstances, the applicants had waived any rights which they may have had.

32. He said that the application had been brought in order to delay the hearing of the principal proceedings.  The last two matters may be correct but it did not seem to be appropriate to have a contested facts hearing to determine the applicants’ bona fides since I was to be the trial judge in the principal proceedings.

33. A consideration of waiver would also have necessitated a hearing on the facts and might have required findings of credit.  That also seemed to me something that the trial judge in the principal proceedings should avoid if possible.

34. The preferred course of action seemed to me to be to determine on the papers whether there was any confidential information in the possession of the respondent.  If there was, then I would have needed to determine whether if Iles Selley acted for the applicants in the principal proceedings there was a risk that confidential information might be misused.

35. Therefore, during argument, I invited the applicants’ counsel in these proceedings to identify any confidential information in the possession of Iles Selley which might impact upon the principal proceedings.

36. I was advised that the only confidential information that could be identified was that contained in paragraph 12 of Mr Moore’s affidavit, which is set out at [11].

37. The applicants’ counsel was not able to identify how any of that information would impact, for example, upon a claim that a meeting of directors occurred on 12 June 2003 and, at that meeting, resolutions claimed by Mr Moore to have been passed were not passed.

38. It cannot be doubted that the power exists in the Court to restrain a solicitor from acting against a former client where it would be inappropriate for the solicitor so to act.

39. However, a solicitor is not precluded from accepting a retainer from a client simply because that retainer requires the solicitor to commence or to defend proceedings against a former client.

40. In Yunghanns v Elfic Ltd (formerly known as Elders Finance and Investment Co Ltd), Gillard J of the Supreme Court of Victoria said at 6:

    ‘The authorities establish that there are three different bases for the grant of an injunction to restrain a solicitor acting against his former client.

    (i)That the relationship between solicitor and client is one of confidence and solicitors are not permitted to reveal any information obtained during the course of that confidential relationship without the express or implied approval and consent of their client.  Some of the confidential information may be protected from all disclosure because of legal professional privilege.  The former may be disclosed where a court directs, whereas the latter may only be disclosed with the client’s consent.

    (ii)That the relationship between solicitor and client is a fiduciary one and this imposes obligations of trust, integrity and confidence.

    (iii)The administration of justice factor.  The fiduciary relationship is one based on trust.  The client relies upon his legal practitioner not to abuse that trust.  The obligation to maintain it exists even after the cessation of the retainer.  It is vital to the proper administration of justice that clients are confident in the expectation that the confidence and trust will be maintained.  To permit a legal practitioner to put that obligation at risk by permitting him to act against his former client requires the court to approach the task with caution.  To permit a legal practitioner to change sides is an act which cuts across what the average person would consider was right and proper and has the potential to bring the legal profession into disrepute.’

41. The third basis identifies the circumstances in which a legal practitioner operates.  It is not only the courts which are concerned in the administration of justice.  All legal practitioners have a duty to assist in the administration of justice and a duty to further the interests of justice.  It would be contrary to the interests of justice and thereby the administration of justice to allow a legal practitioner to act in circumstances where the legal practitioner betrayed that legal practitioner’s obligations to a former client.

1. A solicitor owes a fiduciary duty to his client and that fiduciary duty includes obligations of trust, integrity and confidence.

2. In those circumstances, where a legal practitioner has come into information whilst acting for a client, which is confidential to that client, the legal practitioner has an immediate and ongoing duty not to communicate that information to any other party except for the purpose of advancing his or her client’s interests.

3. It follows, therefore, as Gillard J has said in reference to the first basis, that a solicitor is not permitted to reveal any information received or obtained during the course of that solicitor’s retainer with a client, which is confidential to that client, without the express or implied consent of that client.

4. In this case, however, the applicants were not able to identify any information which had been obtained by Iles Selley which was confidential to the applicants and which might be communicated by Iles Selley to the applicants in the principal proceedings.

5. Mr Moore claimed in paragraph 9 of his affidavit that Mr Iles ‘knows well my thoughts, strategies and approach regarding business matters and disputes and my personal circumstances’.  No attempt was made to identify ‘the thoughts, strategies and approach …’ which had become confidential information in the hands of Iles Selley.

6. The application had to fail because the applicants in these proceedings were not able to prove that there was any confidential information which might be communicated to the applicants in the principal proceedings.

7. There was no reason to grant an injunction restraining Iles Selley from acting because there was no risk that Iles Selley would breach the fiduciary duty it owed to the applicants.

8. For those reasons, I dismissed the application.

I certify that the preceding forty nine (49) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Associate:

Dated:            9 September 2004

Counsel for the First and Second Applicants:	D Riggall
Solicitor for the First and Second Applicants:	Duncan Basheer Hannon
Counsel for the Respondent:	M Abbott QC
Solicitor for the Respondent:	Iles Selley Lawyers
Amicus Curiae:	H Heuzenroeder
Date of Hearing:	21 November 2003
Date of Judgment:	9 September 2004