Spincode Pty Ltd v Look Software Pty Ltd
[2001] VSC 287
•17 August 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 6089 of 2001
IN THE MATTER of LOOK SOFTWARE P/L (ACN 071 351 776)
| SPINCODE PTY LTD | Plaintiff |
| v | |
| LOOK SOFTWARE PTY LTD AND ORS | Defendants |
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JUDGE: | Warren J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 26 July 2001 | |
DATE OF JUDGMENT: | 17 August 2001 | |
CASE MAY BE CITED AS: | Spincode Pty Ltd v Look Software Pty Ltd & Ors | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 287 | |
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Solicitors – removal or restraint from acting against a former client – breach of retainer – breach of fiduciary duty.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A. Panna | Macpherson & Kelley |
| For the Defendants | Mr T. Walker | Logie-Smith Lanyon |
HER HONOUR:
These proceedings relate to a company, Look Software Pty Ltd ("the company"). The plaintiff ("Spincode") is a major shareholder in the company, together with the second to fourth defendants. The company is engaged in the business of developing computer programmes.
Spincode relies upon s.233 and s.461K of the Corporations Act. It has instituted the proceeding seeking the winding up of the company on the just and equitable ground. Alternatively, Spincode seeks orders that the 2nd to 4th defendants who are shareholders in the company purchase the shares of Spincode.
The solicitors for Spincode are Macpherson and Kelley. Shortly after the commencement of the proceeding the defendants filed an interlocutory process seeking orders that Macpherson and Kelley be removed from the record as solicitors for the plaintiff, alternatively, orders that Macpherson and Kelley be restrained from acting as solicitors for the plaintiff or any of its officers including one Robert Louis Moore.
Background
Robert Louis Moore is a director of Spincode. It holds 50 shares equivalent to 33.3 per cent of the shares in the company. In the first half of the 1990s Mr Moore and one Gavin Rogers created particular software programmes. Their work culminated in the incorporation of the company on 16 October 1995. Mr Rogers became the secretary and a director of the company. After the incorporation of the company one Marcus Dee, the second defendant, was employed by the company. Subsequently, on 21 August 1996, Mr Dee was appointed a director of the company and issued 50 shares. Mr Rogers' company, G-Wiz Pty Ltd, the third defendant, held 49 shares in the company. From 9 September 1996 onwards the shares in the company were equally divided as to 50 shares each as between Spincode, G-Wiz and Mr Dee.
In about April 1996, Mr Brendan Kay, the fourth defendant, and Mr David Kay, the fifth defendant, were employed by the company. Subsequently, the Kays were each allocated 7.5 per cent of the shares in the company.
By the late 1990s the business of the company was profitable and it was making significant sales and income. In 1999 it made sales of about $800,000. By mid 2000 it made further sales of about $1,200,000.
Eventually, by early 2001, a falling‑out occurred between the various directors of the company. A meeting of directors was held on 7 February 2001 and Mr Moore was removed as a director. From the time of the falling‑out in early 2001 onwards the defendants retained Logie-Smith Lanyon as solicitors for the company and the other defendants. The circumstances of the falling‑out led, ultimately, to Spincode issuing the present oppression proceedings.
The Application for Removal of the Solicitors
Mr Rogers, in his capacity as a director of the company, deposed in an extensive affidavit as to the history of the relationship between he and Mr Moore and the incorporation of the company. There were a number of facts that he relied upon in support of the application for removal of the solicitors but, in particular, the fact that Macpherson and Kelley acted in relation to the incorporation of the company.
In a further affidavit Mr Dee, as a director of the company, deposed to the following matters:-
(1)Macpherson and Kelley were engaged by Mr Rogers and Mr Moore to act in relation to the incorporation of the company.
(2)Macpherson and Kelley acted for both Mr Moore and Mr Rogers through their respective corporate entities, namely, Spincode and G-Wiz.
(3)During the time of the formation of the business of the company and its incorporation, one Damien Paul and Mr Sven Bier of Macpherson and Kelley acted in relation to a separate dispute with an entity known as JBA.
(4)The solicitors acted in relation to all legal matters concerning the company including the drafting of the memorandum of association, the drafting of software licence agreements, the drafting and reviewing of distributor agreements and application service provider agreements, the registration of trademarks and other agreements.
(5)Mr Dee engaged in extensive contact with Macpherson and Kelley in the preparation of a heads of agreement for a distributor of the company during January 1996.
(6)The solicitors provided advice to Mr Moore concerning the shareholders of the company and, in particular, a shareholders agreement.
(7)The solicitors through Mr Kirton attended meetings and provided advice in relation to the shareholder agreement and a number of shareholder issues in dispute. As a result Mr Kirton was instructed to prepare a shareholder agreement and employer share plan.
(8)On 15 December 2000 Mr Kirton attended a shareholders meeting and provided advice in relation to the shareholders agreement.
(9)In due course in November 2000 or thereabouts Macpherson and Kelley prepared a shareholders agreement and an employee share plan.
(10)Throughout his involvement Mr Kirton represented himself as acting for the company as distinct from Mr Moore or any other individual.
(11)On 29 January 2001 Mr Dee spoke to Mr Kirton of Macpherson and Kelley in relation to the shareholders dispute and alleges that Mr Kirton assured him he would not act on behalf of individual equity holders in any action that involved the company.
On 1 February 2000, Macpherson and Kelley wrote to Mr Dee in his capacity as managing director of the company advising that the solicitors acted on behalf of Mr Moore and Spincode and that Mr Bier would represent Mr Moore at a proposed meeting of members on 7 February 2001. As a consequence of that advice, Mr Dee contacted Mr Kirton expressing surprise and concern that Macpherson and Kelley were purporting to act for Mr Moore. Following this development it appears that the company retained its present solicitors Logie-Smith Lanyon in substitution for Macpherson and Kelley. Subsequently these proceedings were issued with Macpherson and Kelley appearing as the solicitors on the record for Spincode.
Mr Dee deposed as to his belief that Macpherson and Kelley are in possession of information in relation to the business of the company that is commercial and confidential and matters that might reasonably be expected to be contentious between the parties relating to ownership of certain intellectual property. In particular, Mr Dee adverted to the fact that Macpherson and Kelley drafted distributor agreements for the company asserting that it owned the intellectual property in certain matters, especially software.
Mr Dee deposed, further, that he envisaged that Macpherson and Kelley would be required to give evidence as to instructions provided by the company and its members in preparation of distributor agreements between the company and its distributors of product. He relied upon the fact that the distributor agreement was prepared by Macpherson and Kelley. The ownership of the intellectual property appears to be an issue in dispute between the parties, Mr Moore in his affidavit asserting that he holds at least half of the intellectual property in the subject matter. As a consequence, Mr Dee believes that Macpherson and Kelley will be required to give evidence in relation to the ownership issue. Furthermore, Mr Dee believes that the company will call members of the firm of Macpherson and Kelley to give evidence as to the instructions of the company in relation to the preparation of documents concerning the shareholders agreement and the implementation of that agreement.
Mr Dee deposed, further, that it is the intention of the company to seek access to files held by Macpherson and Kelley. Indeed, subpoenas were issued and documents produced thereunder in this court by the solicitors in response to such subpoenas. As a result, a bundle of records of Macpherson and Kelley were tendered. The documents consisted of a variety of papers including procedural file Octobers, invoices and correspondence. The documents revealed consistent reference to or description of the company, Look Software P/L as being the client of Macpherson and Kelley.
Mr Dee relied upon the fact that Macpherson and Kelley have rendered invoices to the company throughout the relevant period. He relied upon the fact, also, that at no stage during meetings and conversations with Mr Kirton did he clarify his position or purport to act for Mr Moore. Rather, Mr Dee deposed that it was his view and belief that at all times Mr Kirton represented the company.
Since 5 February 2001 the solicitors have been on notice that the company considers Macpherson and Kelley have a conflict of interest in relation to the current dispute. The solicitors have refused to cease to act for Mr Moore and Spincode. Indeed, Macpherson and Kelley assert that Mr Kirton was acting for Mr Moore and not the company and, further, that his area of practice did not include shareholder disputes.
In an answering affidavit sworn by Mr Kirton he described himself as being authorised to make the affidavit on behalf of the plaintiff. In answer to the affidavit of Mr Dee, Mr Kirton described circumstances somewhat differently. He recited that on 27 September 2000 he was telephoned by Mr Moore who told him that he wanted to change the shareholding arrangements of the company and to have a shareholder agreement prepared. Subsequently, on 10 October 2000, Mr Kirton said that he met with Mr Moore, Mr Dee and one Jim Milligan. Mr Kirton said that during the meeting there were general discussions about shareholders' arrangements but that he was not instructed to prepare a shareholders' agreement or an employee share plan. Mr Kirton recited that on 16 October 2000 he was telephoned by Mr Moore who advised him that Mr Rogers was still to be involved in the company and that another meeting would be arranged in November 2000 to discuss a shareholders' agreement.
On 18 October 2000, Mr Kirton forwarded a letter to the company marked for the attention of Mr Moore. It was a standard form letter intended to satisfy the requirements of the Legal Practice Act 1996. The letter set out the hourly rate for the services of Mr Kirton and provided an estimate of the time likely to be incurred in providing the advice required. Mr Kirton deposed that on 21 November 2000 he was contacted by Mr Moore who requested him to arrange a meeting to discuss the terms of a shareholders' agreement. He described that on 24 November 2000 he attended a meeting with Mr Moore at which a possible structure for shareholding in the company was considered and also the topic of employee class shares to be issued as a reward for performance. Mr Kirton deposed that as a result of the meeting on 24 November 2000 he was instructed by Mr Moore to prepare a shareholder agreement and a summary of how an employee share plan and service trusts arrangement could operate. Mr Kirton deposed that on 24 November 2000, also, he telephoned Mr Moore to provide advice about the subject of removal of directors. There were apparently other conversations the substance of which Mr Kirton cannot recall.
Mr Kirton deposed that he prepared the draft shareholders' agreement and sent it to Mr Moore by e-mail transmission on 29 November 2000. He deposed that Mr Moore contacted him about some changes to the draft document as a result of which Mr Kirton forwarded an amended agreement to Mr Moore again by e-mail transmission on 29 November 2000. In addition to preparing the draft shareholders' agreement, Mr Kirton wrote to Mr Moore on 29 November 2000, setting out the main features of an employee share plan and a service trust. Mr Kirton deposed that, subsequently, on 15 December 2000, he attended a meeting together with Mr Moore, Mr Dee, Mr Rogers and the Kays. An agenda was produced at that meeting. It lasted for approximately three hours. During the course of the meeting Mr Kirton deposed that he raised some preliminary matters in relation to a document concerning shareholders tabled by the Kays. Mr Kirton deposed that during the meeting he formed the view that the parties would not agree upon the terms of the shareholders' agreement. He deposed, further, that he was not privy to any of the events or information in respect of any agreement between the parties about the shareholding arrangements. He deposed that he prepared the draft shareholder agreement on the instructions of Mr Moore. He does not recall making a statement that he was acting on behalf of the company or on behalf of anyone else in particular. On the other hand, I observe that Mr Kirton does not go so far as to deny the assertion in Mr Dee's affidavit that Mr Kirton stated that he was acting on behalf of the company at the meeting.
Mr Kirton deposed that after the meeting he received various communications from Mr Milligan including a spreadsheet document entitled "Details of payments made to shareholders since Feb '97 and provided by Pratt Petersen". Mr Kirton deposed that he settled certain documents and attachments by e-mail and prepared a document called a "draft minute of issues" for the parties to consider at the next meeting. Mr Kirton deposed that the minute was not intended as advice but was a guide only. Mr Kirton was informed, subsequently, on 2 January 2001 by Mr Moore that no agreement was reached about a shareholders' agreement. He deposed, also, that he was contacted by Mr Dee on about 29 January 2001 but denied that he assured Mr Dee that his firm, Macpherson and Kelley, would not be acting on behalf of individual equity holders in any action that involved the company. Mr Kirton deposed that he told Mr Dee he would not become involved in any dispute because it was not the type of work that he did. He deposed, also, that he was unaware of a facsimile transmission forwarded by Mr Bier of Macpherson and Kelley on about 2 February 2001. Mr Kirton deposed that he only received instructions from Mr Moore in relation to the draft shareholders' agreement. He denied that he received instructions from anyone else.
Ultimately, it was the position of Mr Kirton that during his time of involvement in relation to the affairs of the company he attended meetings as the legal representative of Mr Moore and that the only issues discussed were a possible shareholders' agreement, an equalisation proposal, a service trust and an employee incentive plan. Mr Kirton deposed, further, as to his belief that neither he nor Macpherson and Kelley have in their possession or knowledge any information that was conveyed to them by the defendants to the present proceeding in confidence. He deposed that all documents prepared by Macpherson and Kelley are available for inspection by the parties. He deposed, also, that to the extent that he was a witness to various conversations between the defendants concerning the shareholders' agreement, Mr Moore was present at all times throughout those conversations and the issues centred around the shareholders' agreement.
Mr Kirton was cross‑examined. He conceded that documents on the Macpherson and Kelley file noted company as "the client". He conceded that he did not intend to identify Mr Moore or Spincode as being liable for solicitors' account. Mr Kirton admitted having discussions in his capacity as a solicitor with Mr Rogers and others including at a shareholders' meeting. He acknowledged, even if only tacitly, that he performed solicitors' work for the benefit of the company. Mr Kirton acknowledged that he drew company documents on the instructions of Mr Moore but was uncertain whether the work performed was in the interest of Mr Moore or not. He stated that he did not know what the interests of Mr Moore would have been.
A further affidavit was sworn on behalf of the plaintiff by Sven Bier. He deposed that he was a partner of Macpherson and Kelley and that he had the care and conduct of the proceeding for the plaintiff. He deposed that he acted earlier for Mr Moore in 1994 in relation to a dispute between Spincode and G-Wiz in relation to software and the provision of software services. This was referred to as the JBA dispute. Mr Bier deposed that the software and software services that were the subject of the JBA dispute were not the software products being sold by the company. He deposed that in the JBA dispute he took most of his instructions from Mr Moore and met Mr Rogers on a few occasions. He stated that he had never met any of the other defendants in the proceeding. He deposed that he was instructed by Mr Moore on 30 January 2001 to act for him and Spincode. He had no recollection of the topic of conflict of interest being raised.
In a further affidavit filed on behalf of the company, Mr Moore rebutted by and large most of the allegations contained in the affidavit of Mr Rogers.
The Defendants' Grounds
The defendants relied upon a number of grounds in support of their application to have the solicitors Macpherson and Kelley removed from the record or restrained from acting. First, the defendants submitted that the circumstances of the matter were such that they fell within the category of case in which courts intervene to restrain solicitors because of an actual or potential conflict of interest. The second ground relied upon by the defendants was the assertion that the circumstances of the case were such that the solicitors should be removed in order to avoid an appearance of disloyalty. In this respect the defendants relied upon certain facts: that Macpherson and Kelley have threatened legal proceedings to recover expenses incurred on behalf of the company; the solicitors have asserted that the company should be wound up; further, those solicitors have issued a challenge to the use of copyright which it asserts is owned by Mr Moore and have threatened to terminate the licence of copyright alleged to have been given to the company; and that the solicitors have asserted against shareholders for whom they have acted previously that those shareholders owe fiduciary duties to provide information to Mr Moore as a member of the company. The third matter relied upon by the defendants is that it the case falls within the category where confidential information has been imparted that relates to matters that are the subject of the present proceeding.
The plaintiff refuted these allegations and grounds. So far as the solicitors Macpherson and Kelley were concerned, I was informed by Mr A. Panna who appeared for the plaintiff that the solicitors adopted a neutral stance to the application.
Legal Principles
It is well established that the Court has jurisdiction to order that solicitors cease to act for a party where the prerequisite circumstances arise: Black v Taylor (1993) 3 NZLR 403, 406, 408-12; Grimwade v Meagher (1995) 1 VR 446, 452; Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd (1995) 1 VR 1[1].
[1]See also Tricontinental Corporation Limited v Holding Redlich (a firm), unreported judgment of Mandie J, 22 December 1994; Holdsworth and Ors v M.R. Anderson and Associates Pty Ltd and Ors, unreported judgment of J.D. Phillips J dated 26 August 1994; JNS Technologies (MSDN) BHD v JNS Electronic Industries Pty Ltd and Ors, unreported judgment of Beach J dated 12 May 1998.
In National Mutual Holdings Pty Ltd v The Century Corporation (1989) 22 FCR 209 at 229, Gummow J considered that the proper test may well be that which applies to fiduciaries according to the principles stated in Boardman v Phipps [1967] 2 AC 46 at 103-104 and Chan v Zacharia (1984) 154 CLR 178 at 199, viz, a "significant possibility of conflict" between duty and personal interest would suffice. Gummow J observed:
"But even among fiduciaries, solicitors stand in a special position. There is an underlying principle that a person should be entitled to seek and obtain legal advice in the conduct of his affairs without the apprehension of his being thereby prejudiced; the concern is with the general preservation of confidentiality and encouragement of full and frank disclosure between client and solicitor: Baker v Vampbell (1983) 49 ALR 385; 153 CLR 52 at 114-15 per Deane J."
The relevant legal principles have been set out conveniently by Gillard J in two authorities: Yunghanns and Anor v Elfic Limited, unreported judgment delivered 3 July 1998, and World Medical Manufacturing Corp v Phillips Ormond & Fitzpatrick Lawyers (a firm) and Anor [2000] VSC 196 delivered 18 May 2000. Broadly speaking, there are three principles. First, the relationship between a solicitor and client is one of confidence that obliges a solicitor not to disclose information obtained during the course of the relationship without the express or implied approval and consent of the client. Second, the relationship between solicitor and client is a fiduciary one imposing obligations of confidence, trust and integrity. Third, in the proper administration of justice clients are entitled to the expectation that their confidence and trust with their solicitor will be maintained.
In World Medical Manufacturing Gillard J expressed the view (at para 90) that
" … the main and important basis for the jurisdiction is the necessity of maintaining a confidence."
In Yunghanns and Ors v Elfic Limited and World Medical Manufacturing Gillard J adopted and applied the test of Hayne J stated in Farrow Mortgage v Mendall Properties, supra, where his Honour (at 5) said:
"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 (all 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 a 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."
Hayne J (at 8-9) concluded:
"It is clear, in my view, that a reasonable person, informed of the facts, might reasonably anticipate a danger of the misuse of confidential information and that there is a real and sensible possibility that the interest of the firm in advancing the case of the third and fourth defendants in the present proceeding might conflict with its duty to keep the information given to it by its former client confidential and to refrain from using that information to the detriment of its former client … "
The test stated by Hayne J in Farrow Mortgage Services is consistent with and arguably stricter than the test now laid down by the House of Lords in Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 where (at 237) Lord Millett (who gave the leading speech) stated the test as follows:
"I prefer simply to say that the Court should intervene unless it is satisfied that there is no risk of disclosure. It goes without saying that the risk must be a real one, and not merely financial or theoretical. But it need not be substantial." (Emphasis added).
Subsequently, at 237, Lord Millett referred to the onus of proof and observed that, once the former client had established that the respondent solicitors were in possession of information imparted in confidence and that the solicitors were proposing to act for another party with an adverse interest in a matter in which the information is or may be relevant:
"… the evidential burden shifts to the defendant firm to show that even so there is no risk that the information will come into the possession of those now acting for the other party."
In Colonial Portfolio v Nissen [2000] NSWSC 1047 Rolfe J (at [140]) followed the test laid down in Prince Jefri Bolkiah, observing (at [144]) that this was "very close to, if not totally congruent with, the test propounded by Hayne J in Farrow". In World Medical Manufacturing, Gillard J considered (at [115]) that the test laid down in Prince Jefri Bolkiah went further than what Hayne J said in Farrow Mortgage Services, in that the former case placed a heavy burden upon the respondent solicitors to show that there was no risk that information in their possession could "unwittingly or inadvertently" be put to use against the former client's interests.
There is also the question of the duty of loyalty. As Batt JA noted in McVeigh v Linen House P/L [1999] 3 VR 394 (at [23]):
"(t)he authorities establish that a court will restrain a solicitor from acting for a litigant not only in order to prevent disclosure of confidences of a client or former client, but also to ensure that the solicitor's duty of loyalty to the former client is respected, notwithstanding termination of the retainer, and to uphold as a matter of public policy the special relationship of solicitor and client".[2]
[2]See also Wan v McDonald (1982) 33 FCR 491 at 512-513; Westend Entertainment Centre Pty Ltd v Equity Trustees [1999] VSC 514 per Mandie J at [27].
In the category of case where the application is to restrain a solicitor formerly the subject of a common retainer for different parties in respect of the same transaction, where subsequently that legal representative continues to act for one or other of the parties who commonly retained him, in Holdsworth & Ors v M.R. Anderson & Associates, unreported judgment dated 26 August 1994 (at pp.16-17) J.D. Phillips J considered that there is no absolute rule that a solicitor may not subsequently act against one who was formerly his client, but he was strongly disposed to the view that the solicitor ought not to act, and he did not think that that depended upon the existence or not of confidences imparted on the earlier occasion that now merits protection. He considered that it depended rather upon the existence of the contract of retainer that was made in the first place:[3]
"It is surely part of the contract of retainer that the solicitor will use his best endeavours in the interests of his client and he does not do that by placing his own particular knowledge of events in which he took part as the agent of both at the disposal of one to the exclusion of the other … [4]
The common interest of both sides does, I think, make it less likely that the defendants made disclosures in confidence now deserving protection, because whatever they said to the solicitors at the time was doubtless said to them as solicitors for both plaintiffs and defendants and (unless subject to restriction by some special stipulation or by virtue of some other conduct) could be expected to be used by the solicitors to the mutual advantage of both plaintiffs and defendants. After all, that was the whole point of the common retainer … ".[5]
[3]At p.17.
[4]At p.18.
[5]At p.19 J.D. Phillips J (at pp.20-24) went on to support this statement of the test by reference to Davies v Clough (1837) 8 Sim. 262; 59 ER 105: Wan v McDonald (1991) 33 FCR 491.
In the category of case where the application to restrain a legal representative from acting for a particular party is at the behest not of a former client but of an adverse party, there is some guidance in the two decisions of Mandie J previously cited[6], as to the appropriate test to be applied. In Grimwade v Meagher, Mandie J emphasised that he exercised the Court's jurisdiction in favour of the applicant in that case in what he described as the "unique, extraordinary and exceptional circumstances" obtaining in the various criminal proceedings brought against Sir Andrew Grimwade and in which Mr Meagher QC acted as prosecutor. After describing the Court's inherent jurisdiction as one "to ensure the due administration of justice and to protect the integrity of the judicial process and as part of that jurisdiction, in an appropriate case, to prevent a member of counsel appearing for a particular party in order that justice should not only be done but manifestly and undoubtedly be seen to be done",[7] Mandie J stated the test to be applied as an objective one of "whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice required that counsel be so prevented from acting, at all times giving due weight to the public interest that a litigant should not be deprived of his or her choice of counsel without good cause."
[6]Tricontinental Corporation Ltd v Holding Redlich (A Firm) (Supreme Court of Victoria, Mandie J, 22 December 1994, unreported) and Grimwade v Meagher [1995] 1 VR 446.
[7]at 452. Also, this view coincides with that of Drummond J in Carindale Country Club Estate Pty Ltd v Astill (1993) 115 ALR 112 at 118.
An overview of the authorities reveals a number of matters that are relevant to the present proceeding:
(1)Were Macpherson and Kelley solicitors for the company and any of the other defendants? In my view there is sufficient evidence on the affidavits filed to disclose that the solicitors were so acting. Furthermore, so much is borne out by the documents extracted from the solicitor's file and tendered in evidence. Furthermore, having heard Mr Kirton in cross‑examination I conclude that he never turned his mind to whom precisely he was acting for, whether it be Mr Moore, the company, others or related interests. However, I conclude upon the evidence of Mr Kirton and the extracts from the solicitors' file that Mr Kirton and his firm acted at a critical time for the company.
(2)Is there, in any event, a real and sensible possibility of the misuse of confidential information? In my view there is. As a result of the involvement of the solicitors in relation to the shareholders' agreement and related matters and the removal of Mr Moore as a director and, more fundamentally, their involvement in the formation of the company, I consider that there must inevitably be a risk of misuse of confidential information.
(3)Is there a risk of disclosure? In my view there is. It is not sufficient that Macpherson and Kelley say that a different solicitor, namely Mr Bier, will act in relation to the current proceeding on behalf of Spincode. As Gillard J observed in Yunghanns v Elfic Pty Ltd (in liq), supra, at 25-8 whilst firms of solicitors may erect "Chinese walls" by way of having separate solicitors within the firm act on behalf of parties to avoid potential conflicts of interest such walls are sometimes more aptly described as a "Dutch dyke: a good barrier to water but involving the ever present risk of seepage leading to a leak".
(4)Do the solicitors owe a duty of loyalty to the company or the defendants? On the basis of my finding that the solicitors acted for the company and the defendants they, therefore, owe a duty of loyalty to those parties. I consider that by continuing to act for the plaintiff against the defendants there is an actual or, at least, potential breach of the duty of loyalty owed to their former clients.
Inevitably in these types of applications are a matter of impression. Ultimately, I have formed the view that Macpherson and Kelley should cease to act as solicitors for the plaintiff in the proceeding.
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