Nasr v Vihervaara - [2005] SASC 83

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
NASR v VIHERVAARA
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Vanstone and The Honourable Justice White)
15 March 2005
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INJUNCTIONS FOR PARTICULAR PURPOSES - TO RESTRAIN BREACH OF FIDUCIARY DUTY
EQUITY - EQUITABLE REMEDIES - INJUNCTIONS - INJUNCTIONS FOR PARTICULAR PURPOSES - TO RESTRAIN BREACH OF CONFIDENCE
Appeal from an order of a Judge of the District Court restraining the solicitors of the appellant from acting in a District Court matter against the respondent - the appellant's solicitors had previously acted for the respondent - possession of confidential information - relevance of confidential information - risk of use of confidential information - disclosure of confidential information to client's detriment - conflict of fiduciary duties - competing values in the administration of justice - whether appropriate to grant an injunction in particular circumstances - appeal allowed.
De Facto Relationships Act 1996 (SA) s 9, referred to.
Carindale Country Club Estate Pty Ltd v Astill (1993) 115 ALR 112, applied.
Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501, discussed.
Martin v Gray (1990) 77 DLR (4th) 249; D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118; Thevenaz v Thevenaz (1986) 84 FLR 10; (1986) 11 Fam LR 95; McMillan v McMillan [2000] Fam CA 1046; [2000] FLC 93-048; Mintel International Group Ltd v Mintel (Australia) Pty Ltd (2001) 181 ALR 78, considered.

NASR v VIHERVAARA
[2005] SASC 83
Full Court: Doyle CJ, Vanstone and White JJ

DOYLE CJ: On 21 October 2004 Ms Vihervaara instituted proceedings against Mr Nasr in the District Court. She alleged that she had cohabited with Mr Nasr “as husband and wife in a de facto relationship” for a number of years. On that basis she applied for an order for division of property under s 9 of the De Facto Relationships Act 1996 (SA) (“the Act”).
On the same day she issued an application for an order restraining Von Doussas, a firm of solicitors, from acting for Mr Nasr.
Affidavits were filed in support of the application and in opposition. Mr Nasr has not yet filed a Defence.
On 2 November 2004 a Judge of the District Court heard the application. The Judge ordered that Von Doussas and Mr Carabelas, a member of the firm, be restrained from acting for Mr Nasr in the proceedings.
Mr Nasr has appealed against that order.
The injunction application
Ms Vihervaara swore an affidavit in support of her application. Correspondence exhibited to her affidavit indicates that before the proceedings were instituted Von Doussas were acting for Mr Nasr in connection with the claim that Ms Vihervaara proposed to make. In response to a letter from Ms Vihervaara’s solicitors to Mr Nasr, formulating a claim, Mr Carabelas wrote on 19 July 2004. He stated that he acted for Mr Nasr. He added that he had acted for Ms Vihervaara in “relation to two or three matters concerning disputation over a boundary issue and the conduct of a neighbour of our respective clients …”. This was in the context of it not having been disputed, I gather, that the parties had lived in the same house for some time. However, as the letter went on to say, Mr Nasr denied that the parties had lived in a de facto relationship, and denied that Ms Vihervaara had any entitlement under the Act.
In her affidavit Ms Vihervaara said that Mr Carabelas had acted for her in relation to a claim for damages relating to an assault, and in relation to a “civil claim relating to a building dispute”. Other material before the Judge indicated that each of these matters arose out of a dispute between Ms Vihervaara and Mr Nasr on the one hand, and a neighbour in a house adjoining the house in which Ms Vihervaara and Mr Nasr were living. In the same affidavit Ms Vihervaara said that in connection with the matters referred to she had “attended upon Mr Carabelas and provided him with instructions and he attended at my home for the purpose of taking instructions”. She asserted that she would be prejudiced if Von Doussas were to act for Mr Nasr.
A letter from Mr Carabelas to Ms Vihervaara’s solicitors acknowledged that he had acted for her in the two matters referred to, referring to the building dispute as being “a fencing dispute”. Mr Carabelas said that he had not obtained any information relevant to any of the issues that might arise in the claim under the Act.
In a letter in reply Ms Vihervaara’s solicitor asserted that her client had “a real and rational apprehension that the information you have had access to and the acquaintance you made of her during the course of the conduct of the matter she instructed you on, now means that she will be prejudiced if you act on behalf of the other side in these proceedings”.
That is a summary of the material before the Judge. In effect he had an assertion by Ms Vihervaara in an affidavit that she had given instructions to Mr Carabelas in connection with a damages claim against a neighbour, and a building dispute of some kind with the neighbour, and the Judge also had some correspondence between solicitors containing some similar assertions on behalf of Ms Vihervaara, and containing denials by Mr Carabelas that any information relevant to the claim in the District Court had been imparted to him.
On that basis it was open to the Judge to find that Ms Vihervaara and Mr Nasr had shared a house for some years; that Mr Nasr disputed that they had had a de facto relationship; that Mr Carabelas had previously acted for Mr Nasr; that Mr Carabelas had acted for Ms Vihervaara in connection with a claim for damages for an alleged assault by a neighbour, and in connection with a fencing or building dispute with the neighbour; that Ms Vihervaara had given instructions on several occasions to Mr Carabelas in connection with those matters; that on one occasion Mr Carabelas had gone to the shared home to obtain instructions, and that Mr Carabelas denied that he had obtained instructions on any matter relevant to the claim now before the District Court.
The Judge gave brief oral reasons for making the order. Referring to Mr Carabelas he said:
“… there [k1]is a danger that his contact with the parties and in particular the plaintiff in connection with the [k2]two previous matters could give rise to a possibility of confidential information being used.”
He added:
“I think that the reasonable perception would be that this is a conflict of interest and a division of loyalties which is inconsistent with the fiduciary relationship that a solicitor owes his client.”
The relevant principles
I have set out above the findings of fact that, in my opinion, it was open to the Judge to make. The appeal is to be decided on the basis of those facts.
The relationship between solicitor and client is a fiduciary relationship. The solicitor must act in the interest of the client. The solicitor must preserve the confidentiality of confidential information provided by the client, or that is gained through, or as a result of, the existence of the solicitor-client relationship. In particular, a solicitor must not disclose confidential information furnished to the solicitor by the client. The obligation to act in the interests of the client means that the solicitor must inform the client of everything which the solicitor believes will be of assistance to the client in relation to matters on which the solicitor acts for the client.
A solicitor cannot act for a client against a former client if to do so will give rise to a conflict of duties. That is, if the acceptance of the retainer will give rise to a conflict between a duty owed to the former client and the duty owed to the current client. In particular, if a solicitor possesses confidential information as a result of acting for the former client, and it would be in the interests of the new client that the information be made available for use by the new client, there is an obvious conflict between the duty of confidentiality owed to the former client, and the duty to bring to the attention of the new client information which might advance the interests of the new client.
These appear to me to be the relevant general principles, although their application to the facts of the case requires some further consideration.
The relevant principle was considered in some detail by Drummond J of the Federal Court in Carindale Country Club Estate Pty Ltd v Astill (1993) 115 ALR 112. After considering case law in England, Canada and Australia, and an apparent trend in the Australian case law to a stricter approach than had been taken in earlier English cases, he summarised the position as follows at 118-119:
“In recognition of the special position of the solicitor as a fiduciary and of the importance now placed on the need for the appearance of integrity on the part of solicitors, as repositories of confidences, in the role they play in the administration of justice, I think that the stringent approach to when a solicitor will be free to act adverse to the interests of a former client that has been taken in recent cases is preferable to the more lenient approach that was generally, but by no means invariably, adopted in past times. In my opinion, a solicitor is liable to be restrained from acting for a new client against a former client if a reasonable observer, aware of the relevant facts, would think that there was a real, as opposed to a theoretical possibility that confidential information given to the solicitor by the former client might be used by the solicitor to advance the interests of a new client to the detriment of the old client.
The better view may be that the mere threat of disclosure of information given in confidence will ordinarily be enough to enliven the jurisdiction to restrain the disclosure and that it is not necessary to prove that disclosure would result in a detriment to the source of the information. See Meagher, Gummow and Lehane, Equity Doctrines & Remedies, 3^rd ed, 1992, para 4110; Essays in Equity, (ed Finn), p 112; Gurry, Breach of Confidence, pp 407-8 and Dean, The Law of Trade Secrets, pp 177-8. However, the cases all indicate that before a solicitor will be restrained from acting for a new client at the behest of an old client, not only must there be a threat of disclosure of information given in confidence, but there must be evidence that such disclosure will be to the former client’s disadvantage. The requirement of proof of detriment is at the core of the ruling in Rakusen. It is emphasised as a requirement in the later cases: see, eg, D & J Constructions Pty Ltd v Head, trading as Clayton Utz, supra, at 124; Murray v Macquarie Bank Ltd, supra, at FCR 49 and MacDonald Estate v Martin, supra, at 267. There may be justification for insisting upon proof of detriment where it is sought to prevent a solicitor acting for a new client. A solicitor should not too readily be disqualified from acting for a new client who wants his services: it is in the public interest that the services of solicitors (who, together with barristers, have a monopoly in the provision of legal services) should be freely available: cf Fruehauf Finance Corporation Pty Ltd v Feez Ruthning [1991] 1 Qd R 558 at 566 and MacDonald Estate v Martin, supra, at 270. This public interest will be unnecessarily intruded upon unless it is shown that disclosure by the solicitor of confidential information will disadvantage the confiding client.”
I am content to adopt what his Honour says as a summary of the current position.
In short, the basis for the grant of an injunction would ordinarily be a finding of fact that the solicitor is in possession of confidential information disclosed by the former client, and a real rather than a theoretical possibility that the confidential information might be used to advance the interests of the new client and to the former client’s disadvantage, if the solicitor discharges the fiduciary duty owed to the new client.
As to the finding of fact, I agree with the observation by Drummond J in Carindale (at 120) that an assertion by the former client that the solicitor has relevant confidential information is not conclusive. If this is denied by the solicitor, the court must consider whether the assertion is persuasive, having regard to the relevant circumstances.
I add that in my opinion this approach does not require a prediction by the Court that the solicitor will prefer the interests of the new client to those of the former client, and will use confidential information gained from the former client to the disadvantage of that client and to the benefit of the new client. It is the possession of confidential information obtained from the former client, and the conflict between the duty owed to the former client and to the new client, that is the basis for the grant of an injunction. The possibility of the misuse of confidential information to the disadvantage of the former client, referred to by Drummond J, is the possibility that arises because of the conflicting duty owed, not because of a prediction about how the solicitor will deal with the conflict.
The adoption of this relatively strict approach is supported by the consideration that the solicitor is an officer of the court, and in discharging the solicitor’s duties, at least in connection for litigation, the solicitor plays an integral part in the administration of justice: Carindale at 117. As well, public confidence in the legal profession, and in the administration of justice, would be undermined if a solicitor were permitted to act for a client despite the existence of a conflict between the duty owed to a client and the duty owed to a former client.
These factors all support the approach taken by Drummond J. I consider that that approach also satisfactorily accommodates the “competing values” identified as relevant by Sopinka J in Martin v Gray (1990) 77 DLR (4^th) 249 at 254:
“There is first of all the concern to maintain the high standards of the legal profession and the integrity of our system of justice. Furthermore, there is the countervailing value that a litigant should not be deprived of his or her choice of counsel without good cause. Finally there is the desirability of permitting reasonable mobility in the legal profession.”
It is appropriate to emphasise that the principle outlined by Drummond J in Carindale applies when the solicitor is in possession of confidential information obtained from or derived through a former client, that might be used to the advantage of the present client and to the disadvantage of the former client. The Court must be satisfied that confidential information has been obtained by the solicitor, and that its disclosure might be to the disadvantage of the former client.
In the present case it is not necessary to consider whether and when measures taken by a firm of solicitors to prevent the deliberate or inadvertent or even subconscious misuse of confidential information, by means such as “chinese walls”, will persuade a court not to grant an injunction. In the present case if relevant confidential information has been imparted to Mr Carabelas, and that information might be used to the advantage of Mr Nasr and the disadvantage of Ms Vihervaara, then it is appropriate to grant an injunction. It is not possible for Mr Carabelas to compartmentalise the information that he possesses.
I have expressed the approach to be taken and the duty of a solicitor in terms appropriate to the case now before the Court. While the fundamental principle must be constant, the formulation of the duty may depend to some extent upon the nature and circumstances of the particular case.
Before applying these principles to the facts, I refer to a helpful discussion by Brooking JA in Spincode Pty Ltd v Look Software Pty Ltd [2001] VSCA 248; (2001) 4 VR 501. He reviewed the English and Australian case law. He said at [52] that “the danger of misuse of confidential information” was a basis for the grant of an injunction. But he went on to consider whether there was a wider basis for the grant of an injunction. He said at [52] that:
“… it may be said to be a breach of duty for a solicitor to take up the cudgels against a former client in the same or a closely related matter”.
He said that a possible source of such a duty, which appeared to relate to the “holding of two inconsistent engagements by different clients in the same matter” was an obligation of “loyalty” owed by a solicitor to a former client: at [53]. He regarded that obligation as an equitable one: at [54]. He also contemplated the Court exercising its power to restrain a solicitor from acting against the interests of a former client by exercising the power which it has over a solicitor as an officer of the Court. He agreed with an observation by Bryson J in D & J Constructions Pty Ltd v Head (1987) 9 NSWLR 118 at 123 as to the subversive effect, on the appearance that justice is being done, of a lawyer readily changing sides: at [41]. At [58] he said, referring to the conduct of the solicitors in the case before him, that it was:
“… so offensive to common notions of fairness and justice that they should, as officers of the Court, be brought to heel notwithstanding that they have not … infringed any legal or equitable right.”
The other two members of the Court agreed in the result with Brooking JA, but were content to base their conclusion on the danger of misuse of confidential information, without adopting either of the broader bases for the making of an order suggested by Brooking JA: see Ormiston JA at [61] and Chernov JA at [63].
It appears that the Family Court may be prepared to intervene on a wider basis than the basis identified by Drummond J in Carindale.
In McMillan v McMillan [2000] Fam CA 1046; [2000] FLC 93-048 the Full Court of the Family Court, after an extensive review of the case law, approved the approach taken in Thevenaz v Thevenaz (1986) 84 FLR 10; (1986) 11 Fam LR 95. There Frederico J said that the solicitor in question was in possession of materials that related “to the confidences exchanged in the course of the former firm previously acting on behalf” of both husband and wife, and in those circumstances he said (FLR at 13) that the firm should be enjoined from acting for the wife against the husband because:
“… there is a risk which may well be merely theoretical but still exists, that justice might not appear to be done.”
In McMillan at [54] the Full Court of the Family Court said that “a theoretical risk of the misuse of the confidential information” was a sufficient basis for the grant of an injunction, relying in part on the “sensitive nature” of the jurisdiction exercised by the Family Court.
Mr Whittle, counsel for Ms Vihervaara, relied on this line of authority to support the decision of the District Court Judge. Mr Stanley, counsel for Mr Nasr, on the other hand relied on the approach taken by Drummond J in Carindale.
As I have said, it appears to me that the approach taken by Drummond J is supported by authority, and is the approach that should be taken by this Court. The wider bases for intervention by the Court suggested by Brooking JA have not yet received authoritative support, as far as I am aware. I am also of the view, with all respect to the Family Court, that the approach taken by Drummond J is preferable to the approach taken in that Court. However, in the end there might be little difference between the two approaches. If a solicitor is in possession of confidential information provided by a former client, being information relevant to a matter in which the solicitor now proposes to act against that client, and which might be used to the advantage of the proposed new client and to the disadvantage of the former client, then I consider that an injunction should be granted, on the basis of the risk that the information might be misused as a result of the conflicting duties now imposed on the solicitor. In that sense it might be said that the Court acts on the basis of a theoretical risk, because it does not concern itself with what the solicitor will actually do. But I do not agree that the Court should intervene on the basis of a theoretical risk that the solicitor has confidential information from the former client that might be used to the disadvantage of that client. My view is that there must first be a finding of fact about the imparting of relevant confidential information, before the Court can intervene.
Application of principles to the facts

The nature of the claim made by Ms Vihervaara against Mr Nasr is far removed from the nature of the matters in which Mr Carabelas previously acted for her.
On the one hand, there are the personal injury claim and the building or boundary dispute with neighbours, and on the other hand a claim based on the relationship between Ms Vihervaara and Mr Nasr. There appears to be little prospect of any common factual ground between the first two matters and the matter currently before the Court. Even one of the wider bases for intervention identified by Brooking JA was limited to inconsistent engagements, by which he meant a continuing engagement in the same matter or in a closely related matter: Spincode at [53]. The matters in which Mr Carabelas acted for Ms Vihervaara do not appear to me to be closely related to the current matter.
In her affidavit Ms Vihervaara says only that she instructed Mr Carabelas in the two claims referred to. She does not identify or allude to confidential information imparted to him that might be relevant to the proceedings presently before the District Court, and which could potentially be used to advance the interests of Mr Nasr and to disadvantage her interests. A letter from her solicitor to Mr Carabelas asserts that Mr Carabelas “had the opportunity of becoming acquainted with a number of matters relating to my client’s circumstances and presentation”, but does not identify the nature of those matters. My view is that this bald assertion is not a sufficient basis for the Court to conclude that Mr Carabelas is in possession of relevant confidential information. The same applies to an assertion in another letter that “information” in Mr Carabelas’s possession, and “the acquaintance” that he made of her, means that she will be prejudiced if Mr Carabelas were to continue to act.
Mr Whittle invited the Court to infer that relevant confidential information had been imparted, in particular when Mr Carabelas visited Ms Vihervaara’s home on one occasion to obtain instructions. But I can see no basis for concluding that relevant confidential information was imparted simply because Mr Carabelas visited Ms Vihervaara’s home in connection with a dispute with her neighbours. I emphasise that it is not sufficient, for the Court to intervene, that Mr Carabelas has acquired confidential information from Ms Vihervaara while acting for her. The Court also needs to make a finding that the information might be used to the advantage of Mr Nasr and the disadvantage of Ms Vihervaara. For example, Mr Carabelas might have observed that Ms Vihervaara and Mr Nasr were living in the same house. That is information about their relationship but is hardly confidential information. Nor could it be used to Ms Vihervaara’s disadvantage.
As I see things, there is no basis for a finding of fact that while acting for Ms Vihervaara, Mr Carabelas acquired confidential information that could be used to her prejudice and to advance the interests of Mr Nasr. I am prepared to accept that he is likely to have acquired some confidential information in connection with the personal injury claim, but as Drummond J said in Carindale at 119, the Court will not intervene:
“… if it is clear that the confidential information in question relates only to matters which are remote from the matters relevant to the discharge by the solicitor of his retainer for his new client.”
For that reason I consider that the injunction cannot be supported in this case.
Nor would the fiduciary duty of loyalty referred to by Brooking JA be a sufficient basis for an injunction here. As I have said, the matter now before the District Court is not so related to the matters in which Mr Carabelas previously acted that a duty of loyalty would be broken by him acting for Mr Nasr.
Nor is the case one in which the appearance of justice being done is undermined by Mr Carabelas acting for Mr Nasr. Many solicitors would think it better not to act in the circumstances in which Mr Carabelas is acting. But I am not able to say that, in the language of Brooking JA, the conduct of the solicitor is “offensive to common notions of justice and fairness”: Spincode at 524. That is mainly because the matters in which Mr Carabelas previously acted for Ms Vihervaara are, to my mind, far removed from the matter in which he now proposes to act.
In Mintel International Group Ltd v Mintel (Australia) Pty Ltd [2000] FCA 1410; (2001) 181 ALR 78 Heerey J adopted the view expressed by Gillard J in an unreported case to the effect that confidential information can embrace knowledge that a solicitor learns about a client, the client’s strengths and weaknesses, how the client reacts to situations and in particular the client’s approach to litigation: Mintel at [39]. But he also accepted that this approach cannot be accepted “too literally”. There was nothing before the District Court Judge to provide a basis for a finding that Mr Carabelas had that sort of confidential information about Ms Vihervaara.
Conclusion
In my respectful opinion the District Court Judge erred. The material before him did not support a finding that Mr Carabelas had acquired confidential information as a result of acting for Ms Vihervaara that might be used to the advantage of Mr Nasr and to the disadvantage of Ms Vihervaara. There were no reasonable grounds for thinking that Mr Carabelas would be in breach of a duty of loyalty owed to Ms Vihervaara were he to act for Mr Nasr. It might be said that there was a theoretical possibility of the use of confidential information to the advantage of Mr Nasr and the disadvantage of Ms Vihervaara, but that could be said only in the sense that there is a theoretical possibility (although not a real possibility on the information before the Court) that Mr Carabelas had acquired some confidential information which might be used to the advantage of Mr Nasr and to the disadvantage of Ms Vihervaara. That theoretical possibility is not a sufficient basis for the making of the order made by the District Court Judge.
I would allow the appeal, and set aside the order made by the District Court Judge on 2 November 2004.
VANSTONE J: I agree.
WHITE J: I agree with the order proposed by the Chief Justice and with his reasons.
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