Pinnacle Living Pty Ltd v Elusive Image Pty Ltd
[2006] VSC 202
•23 May 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 2022 of 2006
| PINNACLE LIVING PTY LTD | Plaintiff |
| V | |
| ELUSIVE IMAGE PTY LTD | Defendant |
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JUDGE: | WHELAN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 19 May 2006 | |
DATE OF RULING: | 23 May 2006 | |
CASE MAY BE CITED AS: | Pinnacle Living Pty Ltd v Elusive Image Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 202 | |
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Legal practitioners – application by plaintiff for order restraining continued involvement by defendant’s solicitors – defendant’s firm of solicitors had acted on behalf of a company related to the plaintiff whilst also acting for the defendant – risk of misuse of confidential information - duty of loyalty to former client – application refused.
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Spincode Pty ltd v Look Software Pty Ltd & Ors (2001) 4 VR 501, followed.
Sent & Primelife Corporation Ltd v John Fairfax Publication Pty Ltd & Hills [2002] VSC 429, cited.
Yunghanns v Elfic Ltd (1998) Butterworths Cases 9803031, cited.
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. Clarke | Piper Alderman |
| For the Defendant | Mr J. Tsalanidis | Russell Kennedy |
HIS HONOUR:
By a summons filed on 11 May 2006 the plaintiff, (“Pinnacle”), seeks an order that the solicitors for the defendant (“Elusive”), Russell Kennedy, be restrained from acting, or representing Elusive in this proceeding.
The Proceeding
By a share sale agreement dated 22 October 2004 Pinnacle agreed to purchase all of the shares in a company named TV Mews Pty Ltd from Elusive. TV Mews Pty Ltd owns a retirement village which is operated by its subsidiary. I will refer to TV Mews Pty Ltd and its subsidiary compendiously as “TV Mews”.
The parties also entered into a contract for the sale of some adjoining land.
The share sale settled on 23 December 2004. Contemporaneously with that settlement, Elusive lent Pinnacle a sum of $2,500,000 repayable in December 2005.
During the course of 2005 disputes emerged between the parties to the share sale agreement. The sum lent was not repaid when demanded, and in response to threatened enforcement action an agreement was made for the provision of a bank guarantee and this proceeding was issued by Pinnacle.
In this proceeding Pinnacle alleges misleading and deceptive conduct by Elusive, and breach of implied terms of the share sale agreement. Its allegations relate to the entitlement which TV Mews may or may not have to surplus of service fee payments, to the accuracy of the information memorandum in relation to certain particular units, to the method of calculation of deferred management fees, and to the dimensions of the units in the retirement village.
Involvement of Russell Kennedy.
Russell Kennedy acted on behalf of Elusive in the share sale transaction. Russell Kennedy also acted on behalf of Elusive in correspondence with Pinnacle during 2005 in the course of which Pinnacle's complaints, which are now the subject of this proceeding, or most of them, emerged. This latter matter was not referred to in the affidavit filed in support of this application, but was established by the affidavit sworn in response by a partner of Russell Kennedy, Mr Rowan David Harris.
Russell Kennedy had acted as solicitors for TV Mews prior to the sale share. Shortly prior to settlement of the share sale, the two partners of Russell Kennedy responsible for that transaction raised with the principal director of Pinnacle responsible for the matter, Mr Geoffrey Ian Reeve, the possibility that Russell Kennedy would continue to act, in the words of Mr Reeve, "on behalf of the retirement village." Mr Reeve told them that he and his fellow director intended to continue to use Russell Kennedy because of that firm's detailed knowledge and understanding of the retirement village.
In early 2005 another partner of Russell Kennedy, who Mr Reeve was told had conducted, or supervised, the legal work for the village in the past, Ms Wai Hwoon Low, met with Mr Reeve and one of his associates in the venture, Mr Olney-Fraser.
Thereafter Russell Kennedy acted on behalf of TV Mews in relation to a number of transactions concerning the operation of the retirement village. One of those transactions - the sale of Unit 104 and consequent amendments to the deferred payment deed - concerned one issue now raised in this proceeding, being the calculation of the entitlement to deferred management fees.
Russell Kennedy's retainer on behalf of TV Mews was terminated by Mr Reeve in April 2006 shortly after this proceeding was instituted.
There is no evidence that Mr Reeve raised any concern or complaint as to Russell Kennedy concurrently acting on behalf of Elusive in relation to matters concerning the share sale, and on behalf of TV Mews in matters concerning the operation of the retirement village, prior to the issuing of this proceeding.
Applicable principles
There was no contention between the parties as to the applicable principles. Counsel for both parties accepted the correctness of the principles enunciated by Justice Brooking in Spincode Pty Ltdv Look Software Pty Ltd & Ors[1] (As to the different approach in New South Wales, see the discussion in Sent &Primelife Corporation Ltd v John Fairfax Publication Pty Ltd and Hills[2] and in Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd[3]).
[1] (2001) 4 VR 501(“Spincode”)
[2] [2002] VSC 429 at [98] – [104] (“Sent”)
[3] [2006] VSC 152 at [25] and [35]-[37]
The applicable principles are:
(1)The Court will restrain a legal practitioner from continuing to act for a party to litigation if a reasonable person informed of the facts might reasonably anticipate danger of misuse of confidential information of a former client, and that there is a real and sensible possibility that the interest of the practitioner in advancing the case in litigation might conflict with the practitioner's duty to keep the information confidential and to refrain from using that information to the detriment of the former client.[4]
(2)The danger of misuse of confidential information is not the sole touchstone for curial intervention where a solicitor acts against a former client. There is also an independent equitable obligation of loyalty which forbids a solicitor acting against a former client in the same or a closely related matter. Intervention may also be justified on this ground in the exercise of a Court's supervisory jurisdiction over its own officers.[5]
(3)There is an overriding jurisdiction to intervene so as to protect the due administration of justice arising where a reasonable informed member of the public would conclude that solicitors should be prevented from acting.[6]
[4]Sent[2002] VSC 429 at [33],
[5]Sent[2002] VSC 429 at [98]-[104]; Spincode (2001) 4 VR 501 at 508-524 [25]-[53]
[6]Sent [2002] VSC 429 at [111]-[114]; Spincode (2001) 4 VR 501 at 522-525 [54]-[60]
Whilst it was contended on behalf of Pinnacle that Russell Kennedy's advice and conduct would be the subject of evidence in the trial of the proceeding, it was not contended, quite properly in my view, that the issues of public policy, which may arise where solicitors are potential witnesses, dealt with in cases such Kallinicos v Hunt[7] arose here.
[7] [2005] NSWSC 1181
In its submissions Elusive also relied upon those passages in the authorities which indicate that in applications of this kind due weight must be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause.
Confidential information
The only specific confidential information which counsel for Pinnacle was able to identify as being revealed to Russell Kennedy whilst acting for TV Mews was that referred to in paragraphs 27 and 28 of the affidavit sworn by Mr Reeve in support of the application. In those paragraphs Mr Reeve deposed to discussions he had had with Ms Low concerning marketing material for the village, and concerning plans he had to improve the financial performance of the village.
Mr Reeve deposed that these discussions:
"were confidential and will be important to this proceeding, because the plaintiff contends that it paid too much for the village. The plans and discussion will be important, because the plaintiff will want to show that it is these plans that have caused the increase in value of the village."
It seems that the plaintiff's own valuations indicate that the value of the village has increased substantially since the share sale was settled, and that the value is well above the price paid. Elusive has not yet filed a defence, but the plaintiff anticipates that it will rely on these circumstances and that that matter will become an issue in the proceeding. It seems to me that the plaintiff's anticipation in this respect is likely to be realised. The plaintiff does not contend that the valuations it has obtained are themselves confidential and indeed Mr Reeve has exhibited them to his affidavit.
Pinnacle's material does not establish the existence of any specific confidential information which has been disclosed to Ms Low with sufficient precision to warrant intervention on that ground. Mr Reeve's affidavit, in the passages relied upon, merely refers to the subject matter, and describes, or purports to describe, the information in global terms. This is not sufficient(Sent)[8].
[8]Sent [2002] VSC 429 at [65]-[71]
That is not the end of the matter. Counsel for Pinnacle also relied upon the observations of Gillard J in Yunghanns v Elfic Ltd[9] quoted with approval by Nettle J in Sent[10], to the effect that when acting for a party a solicitor, in addition to becoming aware of specific confidential information, may also become privy to information which is less easy to define, but which is nevertheless confidential and entitled to be protected. This is information about the nature and character of the client, the client's strengths and weaknesses, the client's attitude to litigation and tactics, and other such information. Gillard J described these as "getting to know you factors”.
[9]Yunghanns v Elfic Ltd (1998) Butterworths Cases 9803031 at [10]-[11].
[10]Sent [2002] VSC 429 at [68]-[69]
A problem of the protection of information of this "getting to know you" character does potentially exist here. By its very nature information of this kind is difficult, if not impossible, to categorise or define.
The fact that Russell Kennedy is now acting for Elusive against Pinnacle, and that it gained whatever “getting to know you” knowledge it has which is relevant to this application whilst acting for TV Mews, not for Pinnacle, does not appear to me to be significant in this context. The material establishes that Mr Reeve was the person with whom Ms Low dealt when acting for TV Mews, and Mr Reeve is clearly the principal protagonist on the Pinnacle side of the share sale dispute.
On the other hand, the significance of this factor is lessened in this case by two matters.
First and foremost, such knowledge as Ms Low has gained of Mr Reeve whilst acting for TV Mews has been gained in circumstances where Mr Reeve was aware that Russell Kennedy was continuing to act on behalf of Elusive in matters concerning the share sale transaction. Insofar as he has revealed matters concerning himself and his approach to Ms Low when acting as an officer of TV Mews, he has done so knowing that her partners were continuing to act on behalf of Elusive in relation to dealing with him when he was acting as an officer of Pinnacle.
Secondly, the transactions in which Ms Low was involved were of a different character to the share sale transaction and to the litigation in which Elusive and Pinnacle are now engaged. Mr Harris, in Elusive’s responding affidavit, described the matters in which Russell Kennedy acted for TV Mews after the share sale settlement as being "routine matters." With one exception, on the material before me that seems an apt general description. The share sale transaction and the litigation are not matters of that kind. Knowledge of Mr Reeve in one context would not necessarily translate to the other.
The one exception concerns the issue of calculation of the deferred management fees. This issue began as a routine matter, but seems to me to have become something more. Ms Low dealt with Mr Reeve on the meaning of the relevant provision concerning calculation of deferred management fees in the agreements between TV Mews and residents, and then drafted, or supervised the drafting, of a proposed amendment. One of the allegations in the proceeding is that Elusive misled Pinnacle by not informing it that it had waived TV Mews' contractual entitlement to deferred management fees. The material before me does not establish that specific confidential information on this issue has been disclosed to Ms Low, but the existence of this issue leaves me with a lingering uncertainty that some matter could arise in the case where Ms Low's prior involvement will create a real concern.
With some hesitation, I conclude that I should not intervene on the basis of this aspect of the risk of disclosure or misuse of confidential information at this stage. When the case is further advanced it may be that that matter will need to be reconsidered.
Duty of loyalty and public policy
Counsel for Pinnacle frankly conceded that the circumstances here could not be accurately described in the terms Brooking J employed in Spincode where a solicitor "changes sides" and decides to "take up the cudgels against a former client"[11]. But he submitted that what was important here was that Russell Kennedy had sought out Mr Reeve in order to obtain the work of TV Mews. He submitted that if a fair minded reasonably informed member of the public was told that Russell Kennedy had sought out Mr Reeve and as a consequence had dealt with him as an officer of TV Mews on issues which are now relevant in a proceeding in which they intend to continue to act for Elusive, that fair minded member of the public would say that that should not occur.
[11]Spincode [2001] 4 VR 501 at 521-522 [52]
In response, counsel for Elusive relied upon a number of circumstances.
One matter raised in submissions and in Mr Harris's resonding affidavit concerned the merits of Pinnacle's claims in the proceeding. I am in no position to assess the merits.
● Russell Kennedy had never acted for Pinnacle.
●Russell Kennedy continued to act for TV Mews after the share sale agreement with the knowledge and consent of both Elusive and Pinnacle.
●Russell Kennedy's work for TV Mews after the share sale agreement was mainly in respect of routine matters.
●Russell Kennedy obtained no confidential information whilst acting for TV Mews which is relevant to the proceeding.
●Pinnacle made no complaint until the proceeding was instituted, in circumstances where throughout 2005 Russell Kennedy acted on behalf of Elusive in relation to the share sale agreement, and in relation to matters now the subject of this proceeding. Correspondence was produced by Mr Harris (“RDH5”), in which Mr Reeve on behalf of Pinnacle and Russell Kennedy on behalf of Elusive agitated the issues now raised in this proceeding, or most of them, throughout the course of 2005.
Counsel for Elusive submitted that in the circumstances the court should not interfere with Elusive's right to be represented by the solicitors of its choice; the solicitors who have acted for it in relation to this transaction from the outset.
This is not a case properly described as a solicitors’ firm seeking to "change sides", and, as I have indicated above, counsel for Pinnacle did not contend that it was. The essence of Pinnacle's complaint, as put in the oral submissions, was that Russell Kennedy had created the problem by seeking out Mr Reeve, and concurrently acting for both TV Mews, where they were on Mr Reeve's side, and for Elusive, where they were against him. Counsel described Russell Kennedy's position as "schizophrenic", meaning that they had put themselves in a position where they had inconsistent loyalties.
I accept the submission that the present problem has been created by Russell Kennedy's desire to take up the commercial advantages of concurrently acting both for and against companies associated with Mr Reeve.
It is nevertheless most important that there has not been any real changing of sides. Strictly speaking, Russell Kennedy have continued acting for the same clients throughout, the only change being a change in control of the client TV Mews. There may be cases where such a distinction would be artificial, but it seems to me that the distinction is not artificial here because Mr Reeve was aware at all relevant times that that was precisely what was happening.
Given that Russell Kennedy did not and have never acted for Pinnacle, given that Russell Kennedy's engagement for TV Mews has been in substance the continuation of their prior work on mainly routine matters, and, most importantly, given Mr Reeve's conduct in engaging and continuing to engage Russell Kennedy on behalf of TV Mews throughout 2005 whilst he was at the same time corresponding with them as Elusive's solicitors on behalf of Pinnacle without complaint and on the very issues now raised in the proceeding, or most of them, I conclude that the duty of loyalty owed to TV Mews does not require Russell Kennedy to now cease acting for Elusive, and that a fair minded member of the public would not say that that should occur.
The course Mr Reeve chartered, and the dealings Mr Reeve participated in, throughout 2005 whereby Russell Kennedy acted for TV Mews whilst continuing to also act for Elusive does not seem to me to be relevantly distinguishable from the conduct Mr Reeve and Pinnacle now seek to enjoin.
This matter differs from other reported cases in this area in two important respects.
First, the issue concerns concurrent retainers for related companies not “changing sides”.
Second, the complainant was a willing party to the creation and continuation of the concurrent retainers both before and after the issues now the subject of the proceeding were revealed to be contentious.
Conclusion
My conclusion is that this application should be dismissed. As I indicated earlier the issues in the proceeding are as yet undefined, and I continue to have an uncertainty in relation to the deferred management fee issue. It may be that when the issues are defined, and the nature of the case and the evidence becomes clearer, the position in that respect might have to be reconsidered.
The order I will make on the application is that the summons of 11 May 2006 is dismissed.
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