Re IPM Group Pty Ltd

[2015] NSWSC 240

Supreme Court

New South Wales

Medium Neutral Citation:	In the matter of IPM Group Pty Ltd [2015] NSWSC 240
Hearing dates:	23 December 2014, 17 February 2015
Decision date:	18 March 2015
Jurisdiction:	Equity Division - Corporations List
Before:	Black J
Decision:	Application dismissed with costs. No order restraining solicitors acting in proceedings.
Catchwords:	PROFESSIONS AND TRADES – lawyers – duties and liabilities – duty of loyalty – duty of confidentiality – whether duty of loyalty extended beyond termination of the retainer – whether risk of a breach of the duty of confidentiality. PROFESSIONS AND TRADES – lawyers – application under Court’s inherent jurisdiction to restrain solicitors from acting – where proceedings progressed significantly prior to application for restraint was brought – whether interests of justice now influenced by progression of proceedings – warranted declining to make order restraining solicitors from acting.
Legislation Cited:	- Corporations Act 2001 (Cth) ss 233, 461 - Evidence Act 1995 (NSW) s 140 - New South Wales Professional Conduct and Practice Rules 2013 rr 11, 33 - Professional Conduct Practice Rules r 10
Cases Cited:	- Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550 - Beach Petroleum NL v Kennedy [1999] 48 NSWLR 1 - Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2013] SASC 180 - Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336 - Buick v Boesten [2013] FamCA 208 - Byrne v Production Magic Pty Ltd and Anor [2012] ACTSC 6 - Cleveland Investments Global Ltd v Evans [2010] NSWSC 567 - Colonial Portfolio Services Ltd v Nissen [2000] NSWSC 1047; (2000) 35 ACSR 673 - Cooper v Winter [2013] NSWCA 261 D&J Constructions Pty Ltd v Head t/as Clayton Utz (1987) 9 NSWLR 118 - Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd [2014] FCA 1065 - Durban Roodepoort Deep Ltd v Reilly [2004] WASC 269 - Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd [1995] 1 VR 1 - Geelong School Supplies Pty Ltd v Dean [2006] FCA 1404 - Harris v Stiefel Research Australia Pty Ltd [2013] VSC 90 - Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 - Maxwell-Smith v S&E Hall Pty Ltd [2014] NSWCA 146 - Mitchell v Burell [2008] NSWSC 772 Mitchell v Pattern Holdings Pty Ltd [2000] NSWSC 1015 - Prince Jefri Bolkiah v KPMG [1999] 2 WLR 215 - Re The Consortium Centre Pty Ltd [2012] NSWSC 898 - South Blackwater Coal Ltd v McCullough Robertson (a firm) (Supreme Court (QLD), Muir J, 8 May 1997, unrep) - Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 - TJ Board & Sons Pty Ltd v Castello [2008] VSC 91 - UTi (Aust) Pty Ltd v Partners of Piper Alderman [2008] NSWSC 219 - Woodgate v Leonard [2007] NSWSC 495
Category:	Procedural and other rulings
Parties:	Balzan Group Pty Ltd as trustee for the Balzan Family Trust (Plaintiff)
Representation:	Counsel: J R Clarke SC/J Williams (Plaintiffs) J T Johnson (Second Defendant) L Robberds QC (Third Defendant) Solicitors: Carmody Lawyers (Plaintiff) Rockliffs (Second Defendant) O’Neill Partners (Third Defendant)
File Number(s):	2014/199938

Judgment

1. By Interlocutory Process filed on 27 October 2014, the Plaintiff, Balzan Group Pty Limited (“Balzan Group”) as trustee for the Balzan Family Trust (“Trust”) seeks interlocutory orders that, first, the firm of Rockliffs Solicitors & IP Lawyers (“Rockliffs”) be restrained from acting for the solicitors for the Second Defendant, NA Merchant Pty Ltd (“NA Merchant”) and Mr Nathan Merchant in respect of any application brought by NA Merchant for Balzan Group to provide security for costs in the proceedings and, second and more widely, that Rockliffs be restrained from acting as the solicitors for NA Merchant and Mr Merchant in the proceedings generally. Mr Merchant and his wife have sought independent advice and seek to continue to retain Rockliffs to act for them in the proceedings in respect of the interests of NA Merchant. That is not, however, an answer to the claim by Mr Balzan or Balzan Group that that firm should not be permitted to continue to act in that capacity.

2. Balzan Group was represented by Mr Clarke and Ms Williams and NA Merchant was represented by Mr Johnson in this application. Rockliffs and Mr Stephen Rockliff, a partner in that firm, were represented separately by Mr Robberds QC at the hearing, and were joined as a party to the interlocutory process seeking to restrain their acting in the proceedings. Mr Robberds submitted that the standard under s 140 of the Evidence Act 1995 (NSW), which broadly reflects the Briginshaw standard (Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336) should be applied in determining this application. I accept that standard would have application to any findings of fact that would be significantly adverse to the solicitors’ reputation.

Factual background

3. I should first say something further about the relationship between Mr Balzan and Rockcliffs and the origin and history of the substantive proceedings. IPM Group Pty Ltd (“IPM”) was established in 2007 by Messrs Balzan and Merchant who were the directors of IPM. Balzan Group as trustee for the Balzan Family Trust and NA Merchant as trustee for the Merchant Family Trust each own half of the shares of IPM. Mr Balzan is the sole director of Balzan Group and Mr and Mrs Balzan were the appointors of the Balzan Family Trust.

4. Rockcliffs has represented, at various times, Mr Merchant, Mr Balzan, their respective companies and IPM. Mr Rockliff acted for Messrs Balzan and Merchant in setting up IPM and has been the solicitor for IPM since that time. Prior to the firm’s engagement for NA Merchant and Mr Merchant in the dispute with Mr Balzan and these proceedings, it had acted for Mr Balzan and his wife in respect of the preparation of wills and trust arrangements. Mr Rockliff’s evidence was that his partner, Ms Nicole Rockliff, prepared identical trust deeds, powers of attorneys and wills for both Mr and Mrs Balzan and Mr and Mrs Merchant and that he was not involved in preparing Mr Balzan’s will, although he witnessed its execution (T21). A footer on a document was put to Mr Rockliff in the course of cross-examination, to support a proposition that Mr Balzan was his client. His evidence, which I accept, is that he did not take instructions from Mr and Mrs Balzan or Mr and Mrs Merchant to prepare their wills or deeds of discretionary trust or powers of attorney which was handled by Ms Rockliff (T22). However, little may ultimately turn on that matter so far as the position of the firm is concerned.

5. By the end of 2013 or early 2014, a dispute had arisen between Mr Balzan and Mr Merchant in relation to the circumstances in which IPM had ceased to trade. They agreed that IPM Group should cease trading in early April 2014, and it ceased trading during that month. Rockcliffs have acted for Mr Merchant and NA Merchant in respect of that dispute and these proceedings. Mr Rockliff gives evidence of voluminous correspondence in respect of the matter, including matters relating to a sale of a property which was attempted, without success, by agreement of the parties.

6. Rockcliffs acted for Mr Balzan in a family law dispute with his wife in March and April 2014 (Carmody 27.10.2014 [9]). Mr Balzan was represented in that dispute by Ms Anthi Balafas, a partner in the firm, although it appears that she was assisted from time to time in the conduct of that matter by Ms Williamson, who is now the solicitor acting for NA Merchant in these proceedings under Mr Rockliff’s supervision.

7. On 13 March 2014, Ms Balafas wrote to Mr Balzan requesting information including a list of Mr and Mrs Balzan’s assets and liabilities at the time of commencement of his and his wife’s cohabitation, a list of their current assets and liabilities and copies of any trust deeds in respect of any property of the parties held by a trust. It is not clear what information was provided in response to that request. However, it appears that, by 25 March 2014, Ms Williamson, or possibly Ms Balafas, had reviewed a deed of discretionary settlement establishing the Balzan Family Trust, which was then held in Rockliffs’ safe, and Ms Balafas was anticipating advising as to issues in respect of the Trust by the end of that week. A letter of that date from Rockcliffs to Mr Balzan sought further information as to the balance of a bank account, a half share of which was an asset of the Trust, although it is also not clear whether that information was provided. Mr Rockliff’s evidence was that, at the time the 25 March letter was sent, Ms Balafas was away from the office and his understanding was that she drafted the relevant letter and asked Ms Williamson to send it during her absence (T20). He accepted that Ms Williamson was working with Ms Balafas on Mr Balzan’s family law matter “to a limited extent” and his evidence was that he did not know whether Ms Williamson was responsible for reviewing any documents sent by Mr Balzan relating to his financial affairs (T20). Mr Rockliff’s evidence was also that it would be Ms Balafas rather than Ms Williamson’s responsibility to consider financial information provided by Mr Balzan, and that Ms Williamson was just acting as a “conduit” for Ms Balafas during the latter’s absence (T25).

8. Also on 25 March 2014, the solicitor now acting for Balzan Group, Mr Carmody, was retained by Mr Balzan to act on his behalf and on behalf of the Balzan Group in relation to the dispute with Mr Merchant and NA Merchant regarding the cessation of trading by IPM (Carmody 27.10.2014 [3]). Mr Carmody’s evidence is that he became aware, at least from late March 2014, several months before the present application was brought, that Rockliffs had acted for Mr Balzan in preparing wills and family trust arrangements and in the family law dispute between Mr Balzan and Mrs Balzan in March and April 2014.

9. On 28 March 2014, Mr Rockliff and Mr Balzan had a telephone conversation, referred to in a letter dated 28 March 2014 from Ms Williamson of Rockliffs to Mr Balzan, relating to the firm’s seeking confirmation from Mr Balzan’s wife as to the firm’s ability to act for Mr Balzan in the family law matter. In cross-examination, Mr Rockliff accepted that, on the face of that letter, he had a conversation with Mr Balzan on that date, although he did not recall it. It was put to Mr Rockliff in cross-examination that his involvement extended more widely to a review of the trust deed for the Balzan Family Trust to which reference was made in that letter and to inquiries being made as to the balance of the bank account which was an asset of the Balzan Family Trust. Mr Rockcliff did not accept that the second, third and fourth paragraphs of the letter referred to matters that he had discussed with Mr Balzan. His evidence in cross-examination was that he would be more likely to have recalled that conversation, if it had been a detailed conversation as to Mr Balzan’s matrimonial affairs, and he did not believe that such a conversation had occurred (T25 – 26). The letter does not, on its face, indicate that the balance of the matters referred to in it, as distinct from the firm’s ability to act for Mr Balzan, were discussed between Mr Rockliff and Mr Balzan. It seems to me that the additional matters referred to in that letter were more likely to reflect work undertaken by Ms Balafas, or possibly Ms Williamson, rather than Mr Rockliff. Again, little may turn on that matter so far as the position in respect of the firm, as distinct from Mr Rockliff personally, is concerned.

10. By letter dated 4 April 2014, Carmody Lawyers advised Mr Merchant that they were acting for Mr Balzan. In a telephone conversation on 4 April 2014, Mr Carmody raised a possible conflict with Mr Rockliff arising from the fact that Rockliffs was also acting for Mr Balzan in the family law matter, and Mr Rockliff responded that the firm “need[ed] to make some decisions about whether we can continue acting for [Mr Balzan]” (Carmody 27.10.2014 [7]).

11. Mr Rockliff gives evidence, on information and belief, of a conversation between Mr Balzan and Ms Williamson on 8 April 2014, in which Mr Balzan inquired as to the progress of a family law settlement with his wife and Ms Williamson responded:

“We can’t do anything until your business affairs are sorted out. The family law matter and the business affairs are all tied up. What’s happening in regard to the business? Do you have any updates.”

Mr Balzan responded with reference to a meeting with Mr Merchant and their accountant and to the possibility the matter could take a “few weeks” to resolve. That conversation indicates a recognition on Ms Williamson’s part of a connection between Mr Balzan’s family law matter and the winding up of IPM Group’s business.

12. By letter dated 8 April 2014 sent to Mr Balzan, Rockliffs, by Ms Williamson, recognised that issues as to the sale of Mr Balzan’s business and assets would have a significant impact on the proposed property settlement involving Mr Balzan and his wife and upon his income earning capacity. That letter referred to a telephone call by Mr Balzan to Ms Williamson at 3.14am, a time which Balzan Group contended was indicative of Mr Balzan’s then state of mind. Mr Rockliff, in cross-examination, suggested that that reference was a misprint. It is not possible to determine that matter, particularly where neither Mr Balzan nor Ms Williamson gave evidence in the application.

13. Mr Rockliff fairly accepted in cross-examination that there was a connection between the family law dispute involving Mr Balzan and the business dispute with Mr Merchant at April 2014 and he recognised that matter at that time (T31). That recognition was plainly implicit in the firm’s termination of its retainer in the family law matter, to which I will shortly refer. Mr Rockliff also acknowledged in cross-examination that he recognised the difficulty of the firm acting in both the family law matter and these proceedings in April 2014 (T35). Mr Rockliff did not, however accept that that connection arose from any relevance of financial information in the family law dispute to the business dispute with Mr Merchant (T31). That distinction seems to me to be well-founded, because it is by no means apparent that information as to the Balzan Family Trust has any connection with whether the IPM Group should be wound up by reason of the breakdown of the relationship between its shareholders or on other grounds, although (as I noted above) the terms of the resolution of the business dispute would no doubt impact on Mr Balzan’s capacity to fund a settlement in the family law matter.

14. On or about 2 May 2014, Mr Balzan took the position, confirmed by Ms Balafas by email, that he had no objection to Ms Balafas (and, by extension, Rockliffs) acting on his behalf in the family law matter. The email added “this will depend as to how far your partnership goes”, although it is not clear whether that reservation was added by Mr Balzan or Ms Balafas (Rockliff 12.11.2014 [7.2.3]).

15. By email dated 5 May 2014, Ms Balafas advised Mr Balzan:

“After having now conferred with Mr Rockliff, it appears that we will not be in a position to act for you in respect of the Family Law matter whether it is property or children’s issues or both, as we now clearly have a conflict of interest whilst your partnership dispute is ongoing.

Therefore, in the above circumstances we cannot act for you until at least your partnership dispute has been resolved.” (Rockliff 12.11.14 [7.2.5])

16. By email dated 9 May 2014, Mr Balzan indicated that he did not accept Rockcliff’s withdrawal from the family law matter and expected the firm to complete that matter and would “wait until the Dispute is over with IPM” (Rockliff 12.11.2014 [7.2.6]). Mr Rockliff’s evidence is that, on 20 May 2014, he again informed Mr Balzan’s solicitor that Rockliffs would not be acting for Mr Balzan in relation to his matrimonial affairs (Rockliff 12.11.2014 [7.2.7]).

17. By letter dated 4 June 2014, Rockliffs recorded that Mr Balzan’s solicitors, Carmody Lawyers, and the solicitor acting for Mrs Balzan were informed that Rockcliffs were no longer acting for Mr Balzan in the family law matter on 20 May 2014. NA Merchant relies on that matter to characterise the present issue as one arising between a current client of Rockliffs (NA Merchant) and a former client (Mr Balzan). It seems to me that that characterisation requires a significant qualification. At the time the issue arose, Mr Balzan was a current client of Rockliffs and Mr Merchant and NA Merchant were either clients of the firm or, possibly, prospective clients so far as these proceedings are concerned. In the course of submissions, Mr Johnson fairly accepted that Ms Balafas, in terminating the retainer in Mr Balzan’s family law matter, appeared to be proceeding on the basis that the retainer was being terminated by reason of a current client conflict (T60). It seems to me that a conflict of duty and duty had arisen at that time, as Rockliffs appear to have recognised in seeking to terminate their retainer for Mr Balzan in the family law matter. That conflict at least existed in that so far as Mr Balzan perceived it to be in Balzan Group’s interests to proceed to a winding up of IPM, and Mr Merchant perceived it to be in NA Merchant’s interests to resist that winding up, and Rockliffs could not at once promote Mr Balzan’s interests in the winding up and Mr Merchant’s interest in resisting the winding up.

18. There is also a question whether the manner of termination of that retainer was consistent with rule 11 of the New South Wales Professional Conduct and Practice Rules 2013 (Solicitors’ Rules), which contemplates that, relevantly, a law practice may only act for two or more clients in related matters, if the clients’ interest are adverse and there is a conflict or potential conflict of the duties to act in the best interests of each client, if each client has given informed consent to the law practice so acting. It appears that Mr Balzan’s family law matter, on the one hand, and the dispute between Mr Balzan, Balzan Group, Mr Merchant and NA Merchant might well be “related matters” for the purposes of that rule. Rule 11.5 in turn provides that, if a law practice acts for more than one client in a matter, and an actual conflict arises between the clients, the law practice may only continue to act for one of the clients if the duty of confidentiality to other clients is not put at risk and the parties have given informed consent. Rule 11.5 does not, in terms, address the position in respect of “related matters” but provides no reason to think that a conflict between two clients in related matters could be resolved by terminating the retainer with one client in one matter and continuing to act for the other client in the other matter without the former client’s consent. It is not necessary to express a final view as to that question for the purposes of this application.

19. A mediation took place in May 2014, pursuant to a notice of dispute given by Mr Balzan or Balzan Group under a Shareholders Agreement in relation to IPM Group. Mr Rockliff’s evidence is that neither Mr Balzan nor Mr Carmody objected to him or his firm representing Mr and Mrs Merchant and NA Merchant at that mediation (Rockliff 12.11.2014 [5.6]).

20. Mr Carmody’s evidence is that he was again instructed by Mr Balzan to write to Rockliffs outlining concerns as to conflict of interest and confidentiality on 30 May 2014 (Carmody 27.10.2014 [10]). That letter raised allegations of conflict of interest and the possession of confidential information with Mr Rockliff, stating that:

“In circumstances where the issue of winding up the company is to be ventilated in Court, our client has serious concerns about your continuing to act for your client. You have also acted for our client and his wife for a number of years. You have acted for our client recently in his family law dispute. You are in possession of confidential information about our client that might be detrimental to our client and his wife in these proceedings.”

That letter also referred to rule 10 of the revised Professional Conduct and Practice Rules 1995 of the Law Society of NSW (which had by that time been replaced by the Solicitors Rules) and made clear that Mr Balzan did not consent to Rockliffs continuing to act for Mr Merchant in the forthcoming proceedings. In the course of submissions, Mr Johnson, who appeared for NA Merchant, sought to distinguish between the position in respect of Mr Balzan and the position in respect of Balzan Group. I accept that the distinction between a company and its shareholders is a matter of substance, so far as corporate law is concerned. It seems to me that distinction is of lesser significance, in respect of a closely held proprietary company and its principal, so far as the issues arising in these proceedings are concerned.

21. Mr Rockliff, on behalf of his firm, responded by a lengthy letter dated 2 June 2014, which stated that Mr Rockliff had not acted for Mr Balzan or his wife and that he was not in possession of any confidential information regarding Mr Balzan or his affairs. It seems to me that that observation did not adequately address the position of the firm, as distinct from the position of Mr Rockliff personally. That letter also referred to instructions that had been given by Mr Balzan to Ms Williamson in respect of the family law matter. That reference indicated that Ms Williamson had disclosed matters communicated in the course of the family law matter to Mr Rockliff, which is not a matter for criticism of her where she was an employee and he was a principal of the firm and there was then no relevant information barrier (or “chinese wall”) in place within the firm. Mr Clarke, who appears for Balzan Group, contends that Rockcliffs’ reference to the communication by Mr Balzan to Ms Williamson in the correspondence with Balzan Group’s solicitor was use of that information in a manner adverse to the interests of Balzan Group. Mr Rockliff’s evidence was that he drew that communication to Mr Carmody’s attention for a particular reason, which was not disclosed, and Mr Clarke, who cross-examined Mr Rockliff, shaped his questions to preserve that position. In circumstances that the Court has been left with a manifestly incomplete understanding of the circumstances of that communication, it seems to me it would be unfair both to NA Merchant and to Mr Rockliff and his firm to draw any adverse inference from that communication, and I do not draw any adverse inference from that matter.

22. Mr Carmody’s evidence is that Mr Balzan was dissatisfied with Rockliffs’ response of 2 June 2014 and instructed that a further letter be sent on 3 June 2014 (Carmody 27.10.2014 [12]).

23. Rockliffs replied to Carmody Lawyers on 4 June 2014. That letter indicated Rockliffs had previously advised Mr Balzan that:

“[Rockliffs] would not act for [Mr Balzan] in respect of his family law matter, unless the dispute between [Mr Merchant] and [Mr Balzan] was resolved. [Mr Balzan] has been advised by the writer’s partner, Anthi Balafas, as you should be aware that is [sic] firm is unable to act for him. In fact, both you and [Mrs Balzan’s solicitor] were informed of this on 20 May 2014.

This firm does not continue to act for [Mr Balzan] and his wife Kylie in respect to wills and estate matters.”

The letter reconfirmed that Rockliffs did not have confidential information relating to Mr Balzan or his wife. All of this correspondence occurred prior to Balzan Group filing these proceedings, and long before any application was made to restrain Rockliffs from continuing to act in the proceedings.

24. The substantive proceedings were commenced by Originating Process filed in early July 2014, by which Balzan Group sought an order that IPM be wound up, inter alia, under ss 233 and 461 of the Corporations Act 2001 (Cth) and substantial steps were thereafter taken to prepare the proceedings for hearing.

25. Mr Merchant and NA Merchant filed affidavits of Mr Merchant, Mrs Merchant, who is a shareholder of NA Merchant, and Mr Dominic Ramondino on 1 August 2014, in support of an application by them to intervene in the proceedings for the purpose of taking responsibility for them on behalf of IPM. Rockliffs acted in respect of the preparation of those affidavits, as was apparent from their face. On 18 August 2014, the parties agreed consent orders as to aspects of the proceedings, including as to the joinder of NA Merchant as Second Defendant in the proceedings. On that occasion, NA Merchant was represented by Counsel, instructed by Rockliffs, and the consent orders were signed by Ms Williamson on its behalf. It seems to me that any issue as to Rockliffs’ role was plainly relevant to the application brought by Mr Merchant and NA Merchant that they be granted leave to intervene in the proceedings for the purpose of taking responsibility on behalf of IPM Group, since it was plain that NA Merchant was then represented by Rockliffs. Balzan Group did not raise any concern as to that matter with the Court in that application.

26. By letter dated 25 August 2014, Mr Carmody again advised Mr Rockliff that Mr Balzan did not consent to Rockliffs acting for Mr Merchant or IPM in the proceedings. However, on 27 August 2014, Ms Williamson mentioned the proceedings, in respect of a return of subpoena, on behalf of Balzan Group’s solicitors.

27. Further orders for the conduct of the proceedings were made on 16 September 2014 after a directions hearing before Brereton J. The Court granted leave to file an affidavit of Mr Balzan dated 14 September 2014 and noted that the evidence was complete, other than in narrow respects, and that neither party could rely at a hearing on any affidavit evidence other than affidavit evidence strictly in reply served by Balzan Group by 22 September 2014.

28. On 2 October 2014, NA Merchant filed an Interlocutory Process seeking access to medical records of Mr Balzan produced on subpoena. Ms Williamson swore an affidavit in support of that application. A further detailed affidavit of Mr Merchant was filed on 2 October 2014 and Rockliffs again acted in respect of that affidavit. On 20 October 2014, that matter was listed before Robb J, and, on 30 October 2014, his Honour ordered that NA Merchant’s application for that access be dismissed. NA Merchant was again represented by Rockliffs in respect of that application.

29. Orders granting leave to the Balzan Group to file an Amended Originating Process were made, by consent, in mid-October 2014. On 15 October 2014, Rockliffs wrote to Balzan Group seeking copies of the financial statements for the Balzan Family Trust for the financial years ended 30 June 2013 and 30 June 2014 or drafts of them, so that the firm could advise NA Merchant whether it should apply for security for costs. By letter dated 16 October 2014, Carmody Lawyers advised that Balzan Group would not provide the financial statements that had been requested and contended that:

“The promulgated security for costs application is unnecessary and unreasonable and will only stultify the progress of [the] matter – proceedings were commenced in July and have now progressed to a stage where the parties have filed their evidence and are awaiting a hearing date.”

There was considerable force in that observation, so far as a security for costs application was made at a late stage in the proceedings, when they were otherwise ready for hearing. However, that difficulty also arises in respect of this application, and I will return to the significance of that matter below.

30. Also on 16 October 2014, NA Merchant, again represented by Rockcliffs, filed an interlocutory application seeking security for costs which was supported by an affidavit sworn by Ms Williamson. That affidavit referred to affidavit evidence led by Mr Merchant in the proceedings and to correspondence between the parties in respect of the unsuccessful sale of a particular property and set out an estimate of the costs of defending the proceedings, and did not refer to any of the confidential information of Mr Balzan or Balzan Group which Rockliffs is alleged to hold. Nonetheless, Mr Rockcliff accepted in cross-examination that financial information held by the firm in the family law dispute became relevant to the security for costs application (T31). (I note, for completeness, that the relevance of that matter may now have been reduced by the fact that Balzan Group’s submissions in this application proceeded on the basis that Balzan Group is in a “precarious financial position” and that matter can arguably no longer be either confidential or genuinely in dispute. The onus would also be on Balzan Group to establish the evidentiary basis of any contention, in opposition to a security for costs application, that an order for such security would stultify the proceedings. However, I place no reliance on those matters in this judgment, beyond noting them, where they were not relied on in NA Merchant’s or Rockcliffs' submissions in this application.)

31. The interlocutory application by Balzan Group seeking to restrain Rockcliffs from acting was filed and served on 27 October 2014 and initially listed for hearing on 23 December 2014, but could not proceed to a substantive hearing on that date, since issues then arose in respect of the confidentiality of a document on which Balzan Group relied in support of the application. On 23 December 2014, Mr Rockliff and Ms Williamson gave undertakings through Counsel to the Court, inter alia, directed to preserving the claimed confidentiality of the documents in issue in the proceedings. The parties also agreed a regime that permitted those documents to be made available to Mr O’Neill, a solicitor from another firm who represented Rockcliffs in the application. The application was heard before me on 17 February 2015.

Duty of Loyalty

32. In their written outline of opening submissions, Mr Clarke and Ms Williams made extensive submissions as to the nature of a solicitor’s duty of loyalty. Without disrespect to the detail of that aspect of their submissions, it is not necessary for me to address that issue. It is common ground that, at least on the approach adopted in this state, such a duty did not subsist beyond the termination of Mr Balzan’s retainer of Rockcliffs in the family law matter, nearly a year ago: Prince Jefri Bolkiah v KPMG [1999] 2 WLR 215 at 234-235; Beach Petroleum NL v Kennedy [1999] 48 NSWLR 1 at 47-48; Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550 at [32] – [33]; Kallinicos v Hunt [2005] NSWSC 1181 at [32]; (2005) 64 NSWLR 561. The proposition that a duty of loyalty ceases with termination of the retainer was confirmed by the Court of Appeal in Cooper v Winter [2013] NSWCA 261, which was cited with approval by the Court of Appeal in Maxwell-Smith v S&E Hall Pty Ltd [2014] NSWCA 146 at [24]. A similar view as to the cessation of the duty of loyalty, on termination of the retainer, was taken by Beach J in the Federal Court of Australia in Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd [2014] FCA 1065 at [40]ff. No submission was put that that approach was not applicable in the case of a wrongful termination of retainer, or where the retainer was terminated so to allow Rockcliffs to accept or continue with instructions from Mr Merchant or NA Merchant, and without Mr Balzan's consent. It is not necessary or appropriate for me to address that possibility where it was not raised in the application.

Confidentiality

33. Mr Clarke and Ms Williams submit that Rockcliffs should be restrained from acting as the solicitors for NA Merchant, in the security for costs application and generally, first, because its acting against Mr Balzan (or, more precisely, Balzan Group) creates a risk that it might use, or be bound to use, information which is subject to a duty of confidence to Mr Balzan. They draw attention to the observation of Hayne J in Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd [1995] 1 VR 1 at 5 that:

“Although it is necessary to be acutely conscious of the fact that the court is asked to interfere with the right of a litigant to be represented by the solicitor of the litigant's choice, it is not necessary to conclude that harm is inevitable (or well nigh inevitable) before acting to restrain a possible breach of the duty that a solicitor owes to clients and former clients to keep confidential information given to the solicitor in confidence and not use that information against the interests of the client who gave it to the solicitor. …It is enough to say that I consider that injunction should go if there is a real and sensible possibility of the misuse of confidential information.”

The test of a real and sensible possibility of the misuse of confidential information was followed in Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd above per Beach J at [34]. In Cooper v Winter above, while approving the observation in Kallinicos v Hunt above that no equitable or contractual duty of loyalty continued after the termination of a solicitor’s retainer, Ward JA (with whom McColl and Barrett JJA agreed) also observed (at [97]) that:

“There is nothing novel in the proposition that a solicitor, after termination or conclusion of a retainer, has an ongoing duty to preserve the confidentiality of confidential information disclosed by a former client and would be in a position of conflict if his or her duty to do so conflicted with a duty to another client on another matter.”

That observation depends, of course, on it being established that the solicitor holds confidential information of the relevant character.

34. It is therefore necessary to identify the confidential information that is sought to be protected by the relevant duty. It does not seem to me that there can be any realistic claim that the content of the wills and trust arrangements prepared by Rockcliffs for Mr and Mrs Balzan is confidential, as against Mr Merchant and NA Merchant, where the evidence is that they were identical with those prepared for Mr and Mrs Merchant, who would therefore know their content.

35. Balzan Group primarily relies on a claim that, while Ms Balafas and Ms Williamson were acting for Mr Balzan, they received confidential information about Mr Balzan’s financial position, including about the assets held by the Balzan Family Trust and by him and his wife personally. The former submission turns on an assessment of whether the information held by Rockliffs in respect of the financial statements of the Balzan Family Trust was confidential in character. The latter submission was not established by the evidence, which was that such information was requested, not that it was provided.

36. I turn now to address whether the documents relating to the Balzan Family Trust are confidential in character. It will be necessary to say something as to the content of those documents without disclosing any detail which may be confidential. Those documents are a letter dated 25 March 2014, an email dated 19 March 2014 from Mr Rankin (the accountant acting for Mr Balzan, and also, in other matters, for Mr Merchant) to Ms Balafas of Rockliffs and accounts of the Balzan Trust. Those documents were tendered as Confidential Exhibit A2 in the proceedings, and access was limited to Counsel and solicitors. Mr Johnson, the Counsel who appears for NA Merchant, elected not to have access to those documents. Mr Rockliff and Ms Williamson, the solicitors acting for NA Merchant in the proceedings, also did not access those documents in the course of these proceedings, although I will need to address the question as to access which they may have previously had to those documents below.

37. The email dated 19 March 2014 from Mr Rankin to Ms Balafas referred to certain assets of the Balzan Family Trust. The evidence does not suggest that either the identification of those assets or the sole reference to value, in respect of a half share of a property, was confidential. That email also attached a balance sheet dated 30 June 2013 and referred to the need for current bank balances, although pointing out that half of those balances belonged to the Merchant Family Trust, which must therefore have been entitled to know those balances. There was also reference to ownership of the shares in IPM but there is no suggestion that NA Merchant would not have known that information, given its shareholding in IPM. There was further reference to two other entities and to Balzan Group. There was also reference to the value of a home, although the position as to who owned it and in what proportion was left unclear, the current balance on the home loan and certain desires expressed by Mr Balzan in respect of the treatment of the lower Portland property and the terms of a possible property settlement between Mr Balzan and his wife. Mr Balzan has since provided a copy of that email to the Office of the Legal Services Commissioner, under cover of a letter which did not seek to preserve its confidentiality, and the Office of the Legal Services Commissioner has in turn provided it to Mr Rockliff, although marking its letter “private and confidential”. I do not treat the provision of that information to Mr Rockliff on that basis as defeating any confidentiality that it may otherwise have had.

38. Accounts of the Balzan Family Trust were attached for the year ended 30 June 2013, including a trading account, a profit and loss account and a balance sheet as at 30 June 2013. Mr Clarke submitted that the financial statements of the Balzan Family Trust were confidential, on their face, relying on their character as a set of financial statements relating to a corporate trading trustee (T66). Those accounts contain certain information concerning the Trust. Mr Clarke also pointed to the common statement contained in the covering email to those accounts that the email “may contain privileged and confidential information”. I place no weight on that statement, which identifies no more than a possibility that the information contained may or may not be confidential. The fact that this information was sent by Ms Balafas, at the time the firm was acting for Mr Balzan, is certainly consistent with such confidentiality; it is not, however, evidence of such confidentiality, as Mr Clarke submits, because information that is not confidential can also be provided to a solicitor.

39. Mr Robberds SC, in submissions, relied on the practice adopted by IPM, NA Merchant and Balzan Group in respect of their financial records between 2000 and 2013 as excluding any claim for confidentiality in respect of the documents. There is some evidence that the relevant information was known to NA Merchant and Mr Merchant because of the practice by which information was shared between Mr Balzan, Mr Merchant and their wives in connection with the business of the IPM Group, although that issue is in dispute between the parties. Mr Rockliff’s evidence, on information and belief, is that he is informed by Mr Merchant and verily believes that at yearly meetings with an external accountant, Mr Rankin, the accountant presented to each of Mr Merchant and Mr Balzan financial statements for IPM Group, the Balzan Family Trust, the Merchant Family Trust and the personal income tax returns for Mr Merchant, Mr Balzan and their respective wives and BAS returns “leading to an open discussion in relation to the same” (Rockliff 12.11.2014 [4.7]). If that evidence stood alone, its generality is such that it would not have allowed a determination as to the extent, if any, of which particular information in respect of the family trust had been disclosed at that meeting.

40. Conversely, Mr Carmody’s evidence, on information and belief from Mr Balzan, is that:

“Whenever Mr Rankin distributed financial statements to [Mr Merchant] and [Mr Balzan] at the quarterly meetings, I regarded the financial statements of Rafmel Pty Limited, the Balzan Family Trust and Troyky Pty Ltd to be personal confidential documents belonging to my wife Kylie and I.” (Carmody 16.2.15 [7])

Mr Carmody’s evidence, on information and belief, is also that Mr Rankin discussed the financial statements of Mr Merchant’s personal companies and family trust with Mr Merchant and the financial statements of Mr Balzan’s family companies and the Balzan Family Trust with Mr Balzan at the quarterly meetings. Notably, no evidence was led as to whether that discussion took place in the presence or absence of Mr Merchant, nor the detail of what was said. Mr Balzan does not contest that the financial statements for the Balzan Family Trust and two other entities were filed at IPM’s office, but Mr Carmody’s evidence, again on information and belief from Mr Balzan, is that Mr Balzan did not give permission for Mr Merchant to have “free access” to the documents or to “copy and distribute” the documents. Mr Carmody also gives evidence, on information and belief, that Mr Balzan’s and his wife’s personal financial records were not distributed or discussed at the quarterly meetings and his financial records previously stored at IPM’s offices are now held elsewhere. It appears that, in any event, Mr Merchant has copies of the relevant documents of the Balzan Family Trust and, indeed, they have been provided to a solicitor, Mr O’Neill, who has sworn an affidavit on behalf of Rockliffs and Mr Rockliff in the proceedings. Mr Balzan has in turn written to Rockliffs complaining as to that matter and demanding that the documents be returned to him.

41. As I noted above, I would not have held that this generalised evidence was sufficient to establish that the particular information in issue was disclosed at these meetings, or by the manner in which it was retained at the offices of the IPM Group. However, there is also specific evidence of recent disclosure of the financial information relating to the Balzan Family Trust to Mr Merchant, which seems to me to defeat any claim that it is confidential as against Mr Merchant or NA Merchant. Mr O’Neill’s evidence, on information and belief from Mr Merchant, is that a Heads of Agreement dated 20 May 2014 reached between the parties following mediation had provided for Mr Merchant, his wife and Mrs Balzan (and Mr Balzan if he elected to do so) to review certain credit card statements and that Mr Merchant and Mrs Balzan also viewed financial statements of the Balzan Family Trust held at IPM’s offices, including the financial statements of the Balzan Family Trust for the period ending 30 June 2013, for the purposes of that review. No attempt was made to require that Mr Merchant be made available for cross-examination as to that evidence and no evidence was led by Balzan Group to seek to contradict it. The disclosure of that information between the parties seems to me to exclude any claim for confidentiality in it as between them.

42. As I noted above, orders made by the Court provided for the confidential information on which Balzan Group relies to be provided to a solicitor acting for Rockcliffs, Mr O’Neill, subject to restrictions as to its use. Mr O’Neill has expressed the view in correspondence that the relevant documents were not, in all the circumstances, the subject of confidential information that would preclude Rockliffs and Mr Rockliff from representing the interests of NA Merchant and Mr Merchant in the proceedings. Although I admitted that correspondence, it seems to me to be of limited weight, since an assessment of the confidentiality of the documents must turn upon an assessment of factual matters that are matters for the Court.

43. NA Merchant also seeks to establish that Ms Williamson has limited knowledge and that Mr Rockcliff personally does not have knowledge of the relevant information, although that may not have taken the matter further where the firm held that information and no information barrier was in place. Mr Rockcliff’s evidence, which I accept, is that he has not seen the financial accounts which Balzan Group contends are confidential, and Mr Rockliff and Ms Williamson have given an undertaking to the Court not to access the file within which they are contained. Mr Rockliff’s evidence, on information and belief from Ms Williamson, is that:

“She did not view in detail financial statements of the Balzan Family Trust provided by the external accountant for the parties to these proceedings, Andrew Rankin.”

I do not place substantial weight on that evidence as to Ms Williamson’s review given the uncertainty of the standard which Ms Williamson is applying to determine whether her review was or was not a detailed one.

44. Mr Clarke and Ms Williams submit that Ms Williamson, as solicitor for NA Merchant or Mr Merchant, was, both before and after her fiduciary relationship with Mr Balzan came to an end, under a duty to put at Mr Merchant’s disposal her knowledge of Mr Balzan’s financial affairs, so far as it was relevant in relation to Mr Balzan’s dispute with Mr Merchant. I broadly accept that proposition, where neither NA Merchant nor Rockcliffs led any evidence of any express or implied narrowing of their retainer with NA Merchant or Mr Merchant to avoid that result. Mr Clarke and Ms Williams also submit, and I also accept, that it is clear from the communications between Rockliffs and Mr Balzan that there were no, or no effective, Chinese walls in place to prevent those at Rockliffs who were acting for Mr Merchant from coming into receipt of confidential information concerning Mr Balzan, to the extent the firm held such information. However, those propositions do not assist Balzan Group to the extent that information as the financial position of Balzan Group and the financial reports of the Balzan Family Trust had been disclosed to Mr Merchant, as noted above, and was not confidential as between Mr Balzan and Balzan Group on the one hand and Mr Merchant and NA Merchant on the other. A duty owed by Rockcliffs to put information at NA Merchant’s or Mr Merchant’s disposal also cannot extend to a disclosure of information to NA Merchant or Mr Merchant in breach of the undertaking that Mr Rockcliff and Ms Williams have given to the Court, since that retainer would include an implied term (whether implied by law or in fact) that Mr Rockcliff and Ms Williams need not act unlawfully or in breach of his or her obligations as an officer of the Court.

45. Mr Clarke and Ms Williams submit that the issue as to confidentiality “came to a head” when NA Merchant served its security for costs application against Balzan Group, and contend there was a real and sensible possibility of the misuse of confidential information in relation to that application. They submit that:

“Accordingly, the conflict of duties came to a head when the defendants’ foreshadowed an application for security for costs against [Balzan Group]. By advising Nathan Merchant in relation to this application, Rockliffs was necessarily in an untenable and irreversible conflict between upholding their duty of confidence towards Troy and their duty of loyalty towards [Mr Merchant]. Further, there existed a real possibility that [Ms] Williamson and others at Rockliffs who had received the confidential information, would use that information, either consciously or unconsciously, when advising Nathan in relation to the application.”

46. Mr Clarke and Ms Williams also submit that there exists a real risk, as identified in Blong Ume Nominees Pty Ltd v Semweb Nominees Pty Ltd [2013] SASC 180 at [34] per Dart M, that:

“a solicitor, notwithstanding using best efforts to be impartial and objective, might adjust his or her evidence in a way to procure a result that suited his or her interests.”

I do not accept that submission, given the formal character of the evidence led by Ms Williamson in respect of the security for costs application, to which I have referred above. Mr Clarke and Ms Williams also submit that NA Merchant’s decision to apply for security for costs against Balzan Group may have been informed by Rockliffs’ knowledge of Balzan Group’s “precarious financial position”, to use their description of that position. I do not accept any submission that Rockcliffs in fact misused that information for that purpose, which was not squarely put to Mr Rockcliff in cross-examination, and the open reference to that position in submissions is hardly consistent with its continuing confidentiality (although, as I noted above, I have not relied on that obvious matter in determining this application).

47. Mr Johnson emphasised, in oral submissions, that the Plaintiff in these proceedings is Balzan Group, whereas any previous client relationship was between Mr Balzan personally and Rockliffs. So far as a duty of confidentiality is concerned, it seems to me that the Court has jurisdiction to restrain conduct of the solicitor that would amount to a breach of its duty of confidentiality owed to Mr Balzan, notwithstanding that that breach might occur in proceedings commenced by Balzan Group or, indeed, by a third party.

48. Mr Clarke and Ms Williams also submit that Rockliffs has the benefit of information, confidential or otherwise, which could lead to unfairness or perceived unfairness in permitting NA Merchant to continue to retain that firm and refer in that respect to Harris v Stiefel Research Australia Pty Ltd [2013] VSC 90 at [53] per Almond J. They also submit that a reasonable objective observer might well take the view that Rockliffs has “knowledge of such things as the personalities and reactions of participants”, referring to Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 at [58] per Brooking JA, and that this may well be a case where, as recognized by Harper M in Byrne v Production Magic Pty Ltd [2012] ACTSC 6 at [20]:

“the knowledge of the firm of the vulnerabilities and strengths of the plaintiff may be of use to those conducting the litigation.”

I should note, however, that the fact that Mr Balzan suffers from a particular medical condition, has been disclosed in his evidence given in the substantive proceedings. I am not otherwise satisfied that a real and sensible possibility of misuse of information of this kind exists in a relatively narrow application for a winding up of a company where the relationship between its shareholders has broken down.

49. In summary, I am not satisfied that a real and sensible possibility of misuse of information provided by Mr Balzan to Rockcliffs in these proceedings, or in the security for costs application, has been established, having regard to the nature of that information and the issues in the substantive proceedings and the evidence that the financial statements of the Balzan Family Trust were reviewed by Mr Merchant and Mrs Balzan in connection with the process contemplated by the Heads of Agreement.

The Court’s inherent jurisdiction

50. Mr Clarke and Ms Williams also submit that Rockcliffs should be restrained from acting as the solicitors for NA Merchant, in the security for costs application and generally, in the interests of the protection of the integrity of the judicial process and the appearance of justice, having regard to the supervisory jurisdiction the Court exercises over solicitors as officers of the Court.

51. It is well-established that the Court has an inherent power to restrain a legal practitioner from representing a party in a particular case to ensure justice and the appearance of justice. I am conscious of, and give weight to the observation of Bryson J in D&J Constructions Pty Ltd v Head t/as Clayton Utz (1987) 9 NSWLR 118 at 123 that, although caution by the Court in this jurisdiction is appropriate, nonetheless:

“the spectacle or the appearance that a lawyer can readily change sides is very subversive of the appearance that justice is being done.”

That observation was cited, with approval, by Ward J in Cleveland Investments Global Ltd v Evans above at [6]. Similarly, in Mitchell v Pattern Holdings Pty Ltd [2000] NSWSC 1015 at [34], Bergin J referred to the Court’s power to restrain a legal practitioner from representing a party in a particular case to ensure justice and the appearance of justice, as an incident of its inherent jurisdiction. In Kallinicos v Hunt above at [76], Brereton J noted, by reference to authority, that 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; and 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. Importantly, his Honour also noted that 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. I will return to that proposition below.

52. In Geelong School Supplies Pty Ltd v Dean [2006] FCA 1404 at [26], Young J also referred to the Court’s inherent power to restrain solicitors from acting in a particular case having regard to the interests of the administration of justice and also emphasised that the Court’s jurisdiction was exceptional and was to be exercised with appropriate caution and due weight should be given to the public interest in a litigant not being deprived of the solicitor of its choice without due cause.

53. In Mitchell v Burell [2008] NSWSC 772 at [3], Brereton J summarised the principles applicable to this jurisdiction as follows:

“The jurisdiction invoked is that discussed in Kallinicos v Hunt [above]. As was said in that case (at [76]) the Court has always had 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 is whether a fair minded, reasonably informed member of the public — a concept substantially equivalent to the reasonably informed lay observer used in the context of applications for disqualification of judicial officers for apprehended bias — would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in order to protect the integrity of the judicial process and the due administration of justice, including the appearance of justice. The jurisdiction is an exceptional one and is to be exercised with caution, and due weight must be given to the public interest in a litigant not being deprived of the lawyer of his or her choice. Particularly in this respect, the timing of the application may be relevant, in that the cost, inconvenience or impracticability of requiring lawyers to cease to act when proceedings are well advanced may provide strong reason for refusing to grant relief.”

I will again return to the significance of the final observation in that paragraph below.

54. The principles set out by Brereton J in Kallinicos were in turn followed by Ward J in Cleveland Investments Global Ltd v Evans above. The Court’s power to restrain a solicitor from acting on this basis has independent scope and may be established, notwithstanding that a risk of misuse of confidential information is not established, since it is directed to preserving the administration of justice, the public interest and the appearance of propriety of officers of the Court: Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd above at [96].

55. Mr Robberds also drew attention to, and several decisions emphasise, the “extraordinary” and “exceptional” nature of the jurisdiction to restrain a solicitor from acting and the public interest in a client being permitted his or her choice of legal representative: Woodgate v Leonard [2007] NSWSC 495 at [37]; UTi (Aust) Pty Ltd v Partners of Piper Alderman [2008] NSWSC 219 at [52]; TJ Board & Sons Pty Ltd v Castello [2008] VSC 91 at [30]. In Re The Consortium Centre Pty Ltd [2012] NSWSC 898 at [12], I observed that:

“the principle would not be applied to exclude a solicitor from acting unless a fair-minded, reasonably informed member of the public would in fact conclude that there was reason to restrain the practitioner from acting, or need to do so in the interests of the protection of the integrity of the judicial process or the due administration of justice.”

56. Several factors in this case would support a concern that for Rockcliffs to continue to act for NA Merchant and against Balzan Group would potentially be inconsistent with the administration of justice. Mr Clarke and Ms Williams submit that Rockliffs acted simultaneously for Mr Merchant in relation to his dispute with Mr Balzan in respect of IPM Group and for Mr Balzan in relation to his family law dispute before Rockliffs terminated its retainer with Mr Balzan, and that Mr Balzan was put in a position where he was unable to keep his first choice of solicitors for his family law dispute. Mr Clarke and Ms Williams also submit that a fair-minded, reasonably informed member of the public might well conclude that the proper administration of justice requires that Rockliffs be prevented from acting for NA Merchant and Mr Merchant in the interests of the protection of the integrity of the judicial process and the appearance of justice, and may well see this as inherently unfair, especially in circumstances where Ms Williamson, who previously dealt with Mr Balzan is now assisting Mr Rockliff representing NA Merchant. It seems to me that there is force in that submission, although the interests of justice must also now take into account the extent to which the proceeding had progressed before this application was brought. As I noted above, Mr Johnson emphasised, in oral submissions, that the Plaintiff in these proceedings is Balzan Group, whereas any previous client relationship was between Mr Balzan personally and Rockliffs. So far as the Court’s inherent jurisdiction is concerned, it does not seem to me that the distinction between a proprietary company and a major shareholder, notwithstanding its significant importance in corporate law, would provide a complete answer to the exercise of that jurisdiction, although it is a matter that may be relevant to the exercise of that jurisdiction.

57. Balzan Group also emphasised, in its submissions, that its solicitor had repeatedly raised the question of a conflict affecting Rockcliffs with that firm, essentially from the time at which he was engaged. It may well have been preferable had Rockcliffs responded in a more considered way to the issues which had been raised, including, at least, considering whether, for example, Ms Williamson should cease to act in the matter and a structured informational barrier should be established within the firm and, possibly, ceasing to act for NA Merchant before the proceedings were well-advanced and significant costs had no doubt been incurred by its client. Regrettably, that did not occur. It is likely that I would have made orders restraining Rockcliffs from acting, given that they continued to act for Mr Merchant or NA Merchant after a current client conflict had arisen, without Mr Balzan’s consent, had an application been promptly brought seeking such relief. That is, however, not the case here.

58. Before turning to the question of deIay, I should address two other matters for completeness. First, Mr Rockliff was cross-examined as to whether certain communications referred to in his affidavit evidence filed in this application were privileged, as between Rockliffs and Mr Balzan. No objection was taken to those paragraphs on the basis of any claim for legal professional privilege, and neither party made submissions as to the circumstances in which an implied waiver of legal professional privilege may arise from the client bringing an application that places the propriety of the solicitor’s conduct in issue. Absent adequate submissions as to that matter, I do not place any weight on this matter.

56. Second, Balzan Group tendered a bundle of emails sent by Mr Merchant to Mr Balzan on 18 January 2015 and subsequent correspondence between the solicitors for Balzan Group and NA Merchant concerning that matter (Ex A3). Particular complaint was made about an email dated 18 January 2015 which reads as follows:

“Hi Troy

I confirm that I agree to the listing of the items at the lower Portland property on Grays on Line, including the social ski boat and the sit-on lawn mower, but excluding the items in the inventory annexed to the contract for the sale of the property, on the basis that you will be responsible for the costs of the Grays on Line listing such items for sale. If Grays on Line wants me to sign an authority, please have them send it to me.

I take it you are not prepared to assist in maintaining the property pending completion of the sale of the property, nor are you prepared to honour your commitment to pay $4k into the River Account to meet the repayments to the Commonwealth Bank, pending the sale of the property.”

That email was sent by Mr Merchant, but contained a signature block “Regards Stephen Rockliff”.

60. That email provoked a letter from Balzan Group’s solicitor which stated that:

“We are concerned about what appears to be Mr Merchant sending correspondence directly from you to our client which would serve to circumvent the protection that our legal representation otherwise provides to our client. The email specifically invites our client to make particular admissions and it is signed off in your name.”

Mr Rockliff responded by noting, sensibly enough, that the email was simply dealing with certain matters in respect of the relevant property which both parties had agreed should be sold. Balzan Group’s solicitor in turn responded, by letter dated 28 January 2015, noting that Mr Rockliff’s response had not “alleviate[d] our concerns that you have apparently been sending correspondence directly to our client through your client Nathan Merchant”. That letter alleged an ongoing breach of rule 33 of the Solicitors’ Rules, which prevents a lawyer directly contacting another solicitor’s client, and made the further observation that it appeared, from the review of emails sent directly by Mr Merchant to Mr Balzan, that Mr Rockliff may have been drafting those emails. When that bundle of emails was tendered in the course of the hearing before me, the allegation of breach of rule 33 of the Solicitors’ Rules was repeated.

61. It does not seem to me that that allegation had substance. The proposition that the prohibition on direct contact between a solicitor and another solicitor’s client prohibits the solicitor from drafting an email, for review by his client and for the client to send directly to the other party if he or she considers it appropriate to do so, does not seem to me to reflect either the terms or the purpose of the rule. There will be occasions on which direct contact between clients will facilitate the resolution of matters in issue between them, and a solicitor’s assistance in drafting correspondence to be sent by a client in that process may be of considerable assistance to his or her client. The proposition that direct correspondence between parties, in the course of substantial litigation, would not or should not be drafted with the assistance of their solicitors strikes me as verging on the absurd. The fact that the email sent by Mr Merchant to Mr Balzan contained Mr Rockliff’s signature block should have been treated as a minor embarrassment and nothing more.

62. In closing submissions, Mr Clarke put the position in respect of this email differently from the manner in which his solicitor had put it in correspondence with Rockcliffs, and he had previously put it in tendering the document, as concerning a use of Mr Rockliff’s “significant background knowledge” of Mr Balzan in drafting email correspondence on Mr Merchant’s behalf. It does not seem to me that it has been established that Mr Rockliff, as distinct from other persons within his firm, has any significant background knowledge of Mr Balzan. The email also does not seem to me to contain any indication of the use of any such knowledge, whether significant or otherwise.

Delay

63. The case law has emphasised the significance of delay as a matter which tends against an order restraining a solicitor form continuing to act. In South Blackwater Coal Ltd v McCullough Robertson (a firm) (Supreme Court (Qld), Muir J, 8 May 1997, unrep), to which Rolfe J referred in Colonial Portfolio Services Ltd v Nissen [2000] NSWSC 1047; (2000) 35 ACSR 673 at [164]ff, Muir J held that, although a solicitor had placed himself in a position where there was a significant possibility of conflict of duty and interest, and that position extended to the firm in which he was a partner, that solicitor should not be restrained from acting, where the plaintiff had communicated its decision not to object to the solicitor acting for the other party. I accept that that decision is readily distinguishable, as a case of acquiescence, by contrast with this case where Balzan Group had repeatedly objected to Rockliffs acting.

64. In Colonial Portfolio Services Ltd v Nissen above, to which I drew Counsels’ attention in submissions, and as to which the parties had an opportunity to make supplementary submissions, Rolfe J emphasised the significance of principles of acquiescence (which is not relevant here), delay, waiver and election in any application to restrain a solicitor from acting. Both Muir J in South Blackwater Coal and Rolfe J in Colonial Portfolio Services Ltd v Nissen (at [171]) accepted, as common sense would suggest, that, although much of the cost of work done by a former solicitor would not be thrown away if a party had to engage new solicitors, it was inevitable that a substantial amount would be, and that there would be delay in prosecution of the action and loss of a party’s time taken up in briefing new solicitors as to matters within its knowledge. The judgment of Rolfe J in Colonial Portfolio Services Ltd v Nissen was in turn cited, with approval, by Beach J in Dealer Support Services Pty Ltd v Motor Traders Association of Australia Ltd above at [65].

65. Balzan Group seeks to distinguish the decision in Colonial Portfolio Services Ltd v Nissen, pointing out that the relevant firm had there inadvertently acted for both parties for a period and, when notified of the conflict, had returned their file to one party which then retained new solicitors. Rolfe J had there pointed out that a conflict of interest had been known to all parties by an early date, including the client who had expressed his concern about it. That is plainly also the case here, since both Mr Balzan and his solicitor were raising that issue from at least April 2014. Balzan Group points out that the solicitor in Colonial Portfolio Services Ltd v Nissen did not raise any issue with the other firm for some months, and I accept that there is a real distinction in that respect, since Balzan Group’s solicitor repeatedly raised that matter in correspondence. Rolfe J also pointed out that there had been voluminous correspondence between the firms as to the progress of the matter, a comment which can also be made in these proceedings. His Honour observed that he would have, in the exercise of discretion, refused the application to restrain the firm from acting on the basis of the delay in bringing the application at [174]. Balzan Group submits that observation was obiter, because his Honour found that any risk that the solicitors had passed on or would pass on confidential information was “fanciful or theoretical”. However, his Honour’s observations as to the significance of delay were seriously considered observations, following an extensive review of authority, by a Judge of this Court with extensive experience in commercial matters. In the present case, I have noted above, a real and sensible risk of misuse of confidential information has also not been established. I nonetheless accept Balzan Group’s submission that the significance of delay in any case needs to be balanced against other relevant considerations.

66. I also referred above to Kallinicos, where Brereton J noted that the timing of the application to retain a solicitor from acting 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. In Mitchell v Burell above at [3], Brereton J again noted that the timing of an application to restrain a solicitor from acting may be relevant, in that the cost, inconvenience or impracticability of requiring lawyers to cease to act when proceedings are well advanced may provide strong reason for refusing to grant relief. In Buick v Boesten [2013] FamCA 208, the Family Court of Australia declined to restrain a solicitor from acting, by reason of delay, emphasising the adverse impact upon the solicitor’s client and the disadvantage to that client, both in relation to costs and her general right to choose her own lawyer, from such a restraint.

67. On the other hand, Balzan Group refers to the decision in Durban Roodepoort Deep Ltd v Reilly [2004] WASC 269, where La Miere J observed (at [102]) that he would:

“not refuse to grant injunctive relief on the ground of delay if the defendants had established that [the solicitors] possessed confidential information which is or might be relevant to the current proceedings and the plaintiff had not shown that there was no risk of disclosure.”

That proposition plainly depends on the extent of any real and sensible risk of misuse of confidential information and the materiality of the information to the proceedings, which I have addressed above, and should not be read as excluding the relevance of delay in any assessment of what will advance the interests of justice in the particular case, which has been emphasised in the other cases to which I referred above.

68. Mr Johnson submits that Balzan Group here delayed taking any step to restrain Rockliffs from acting, from the beginning of April 2014 until the end of October 2014, notwithstanding that Mr Balzan and his legal representatives had raised concerns as to that matter from the commencement of Rockcliffs’ retainer. Mr Johnson also refers to Rockliffs’ involvement in the range of steps which have been taken in the proceedings, to which I have also referred in the chronology of the dispute and the proceedings set out above. Mr Johnson also submits that significant costs have undoubtedly been incurred by NA Merchant in the matter and that the retainer of new solicitors would involve significant costs for NA Merchant, and that it would suffer considerable prejudice by the exclusion of Rockliffs, given the history of the conduct of the dispute between Mr Balzan and Mr Merchant since early April 2014.

69. Mr Clarke and Ms Williams recognise that Balzan Group’s current solicitor “immediately appreciated” the potential prejudice that could be caused to Mr Balzan or Balzan Group by Rockliffs acting for Mr Merchant or NA Merchant and raised that matter on 4 April 2014, and that does not assist Balzan Group so far as the question of delay is concerned. Balzan Group submits that it was appropriate for Mr Balzan to attend the mediation that took place in May 2014, pursuant to the Shareholders Agreement, without taking any further step to restrain Rockliffs from acting, because it would have “simply escalated costs and undermined the parties’ ability to reach a compromise”. I will assume, without deciding, that that proposition is correct, although it seems to me to have the difficulty that it involves Balzan Group taking that position while NA Merchant incurred further costs in respect of its retainer of Rockliffs. Even if that proposition is accepted, it provides no explanation for Balzan Group’s not raising the matter with the Court when NA Merchant and Mr Merchant sought leave to represent IPM, Rockliffs appeared at many directions hearings, including mentioning the matter on behalf of the solicitors for Balzan Group, and took steps to complete the evidence necessary for the matter to proceed to a hearing.

70. Mr Clarke and Ms Williams also submit that the cost to Balzan Group of replacing Rockcliffs would be reduced because the evidence was now complete, and because Mr O’Neill, who acted for Rockliffs in this application, could be retained by NA Merchant. There seemed to me to be at least two difficulties with that submission. The first is that Mr O’Neill has had, in the course of this application, access to the allegedly confidential documents on which Balzan Group relies to restrain Rockliffs from acting. It would be perverse if Rockliffs were restrained from acting, where Mr Rockliff had not himself reviewed those documents, in order to be replaced by a solicitor who had reviewed them, or who could then be restrained from acting on the same basis. Second, the proposition that the wasted costs could be reduced in that manner, at least if the new solicitor was prepared to rely on the former solicitor’s work without substantial verification, is not an answer to the fact that they could have been avoided had this application been brought promptly, after it became clear that Rockcliffs did not propose to withdraw from the matter.

71. Balzan Group submits that delay is less significant where prior warning has been given to the intention to take the relevant action. I accept that proposition, so far as it goes, in that the risk of prejudice to the other party is plainly greater if it was not on notice of the relevant application. Having said that, it seems to me that the raising of complaint, combined with inaction over a considerable period, does not obviate the prejudice suffered by a party which incurs substantial costs and takes substantial steps to bring a proceeding to a state of readiness for hearing, if its solicitors are then excluded shortly before the matter would otherwise go to hearing. Balzan Group also submits that, for delay now to provide an answer to this application would permit Mr Rockliff to benefit from his assurance to Balzan Group’s solicitor that there was no conflict or concern in respect of confidential information. I do not accept that submission, since neither Balzan Group nor its solicitor ever accepted either proposition, having repeatedly asserted the contrary.

72. It seems to me the fact that Balzan Group recognised the relevant issues since at least April 2014, prior to the commencement of the proceedings, and took no step to raise them with the Court prior to the completion of evidence in the proceedings, and until the threatened security for costs application, tends strongly against the grant of the relief it now seeks. It is plain that Rockcliffs have undertaken substantial work, and I infer that NA Merchant has incurred substantial costs in respect of that work, in respect of the dispute and the proceedings. Mr Rockliff’s evidence is that his firm has received or sent over 1400 facsimiles, letters or emails in relation to the dispute, and that level of correspondence plainly involves a significant investment of resources. (I add, for completeness, that neither party suggested that that level of activity was disproportionate to the issues involved in the proceedings.) There have, as I noted above, been numerous occasions on which the matter has been before the Court. The delay in bringing this application was substantial, and it seems to me that substantial inconvenience and wasted costs would result if Rockcliffs were now restrained from acting after the evidence has been finalised and the proceedings are, subject to the issue of security for costs, ready for allocation of a hearing date. The prejudice to NA Merchant in granting the application seems to me to be more substantial than any risk of misuse of confidential information by Rockcliffs, where Mr Merchant has seen the relevant financial reports of the Balzan Family Trust in the recent past in connection with the process under the Heads of Agreement. To the extent that the Balzan Group is concerned as to Rockcliffs’ knowledge of the personality of Mr Balzan, the nature of his illness is already in evidence in the proceedings, that risk has also existed since prior to the commencement of the proceedings, and the delay in taking any steps to address it is again substantial.

73. In these circumstances, the delay in Balzan Group seeking relief, and the prejudice to NA Merchant of granting that relief after that delay, is such that I would not now exercise the discretion to grant relief in respect of any risk of breach of confidentiality, particularly where Mr Rockcliff and Ms Williamson have given the undertaking to the Court to which I have referred above. I do not consider that it would now be in the interests of justice to restrain Rockliffs from acting; indeed, it seems to me that that course would be destructive of those interests, where that restraint is only sought after the substantive evidence has been filed in the proceedings and the proceedings are ready for hearing, other than for the security for costs application.

74. For these reasons, the application is dismissed with costs. It seems to me that a question as to the costs of the first day of the hearing, as to which Mr Johnson indicated that NA Merchant wished to be heard, does not arise since it has an order for its costs of the application. However, I reserve liberty to apply against the contingency that the parties take a different view.

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Decision last updated: 19 March 2015