Stevenson v Hall
[2023] TASSC 11
•24 May 2023
[2023] TASSC 11
| COURT: | SUPREME COURT OF TASMANIA |
| CITATION: | Stevenson v Hall and anor [2023] TASSC 11 |
| PARTIES: | STEVENSON, Salman Charles |
| v | |
| HALL, Stuart McKenzie | |
| BAGGETT, Malia | |
| FILE NO: | 2769/2022 |
| DELIVERED ON: | 24 May 2023 |
| DELIVERED AT: | Hobart |
| HEARING DATE/S: | 24 March and 5 May 2023 (written submissions closed 19 May 2023) |
| JUDGMENT OF: | Holt AsJ |
| CATCHWORDS: |
Professions and Trades – Lawyers – Duties and liabilities – Solicitor and client – Acting against former clients
– When a solicitor may be restrained – Courts inherent jurisdiction – Public policy – Solicitor as potential
witness – Solicitors actions under scrutiny – Restraint order made
Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 applied.
Aust Dig Professions and Trades [1156]
REPRESENTATION:
Counsel:
Applicant: B McTaggart SC and G O'Rafferty Respondents, R Griggs and Fitzgerald and Browne Lawyers: A Walker
Solicitors:
Applicant: Leonard Fernandez Barristers & Solicitors Respondent: Fitzgerald and Browne Lawyers
| Judgment Number: | [2023] TASSC 11 |
| Number of paragraphs: | 36 |
Serial No 11/2022 File No 2769/2022
SALMAN CHARLES STEVENSON v STUART McKENZIE HALL AND MALIA
BAGGETT
| REASONS FOR JUDGMENT | HOLT AsJ 24 May 2023 |
| An application to restrain the respondents' lawyers from acting in the proceedings |
1 The applicant in proceedings for a decree dissolving a partnership and the taking of the partnership accounts has applied for an order restraining the respondents' Fitzgerald and Browne Lawyers (the legal firm) and a solicitor (now a partner of the legal firm) Mr Richard Griggs from continuing to represent the respondents in the proceedings.
2 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. Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 at [76].
3 The restraint application is brought on two grounds.
4 The first ground is that a reasonable observer aware of the relevant facts would think that there is a real possibility that confidential information imparted by the applicant, being a former client of the legal firm, might be used by the legal firm to advance the interests of the respondents to the detriment of the applicant. Carindale Country Club Estate Pty Ltd v Astill [1993] FCA 218; 115 ALR 112, 42 FCR 307 at [22]-[27].
5 The second ground is underpinned by the assertion that there is potential that one of the solicitors, Mr Richard Griggs, might be a material witness in the case which it is said is likely to involve an evaluation of his conduct. He will have an obligation of loyalty to his clients, an interest in exonerating his conduct as a solicitor and a duty to the Court to be frank, with the result that a fair minded reasonably informed member of the public would conclude that the independent objectivity of Mr Griggs is compromised by conflict. The result being that in aid of the proper administration of justice the solicitors should be prevented from acting to protect the integrity of the judicial process and the due administration of justice, including the appearance of justice. Kallinicos at [63]-[64], [86] and [90]-[91].
The background to the substantive dispute
6 The first respondent is an architect with a builders licence and is married to the second respondent. The applicant wished to purchase his first home. In 2010 the applicant and the two respondents orally agreed to find a suitable block of land and to purchase it with 50% of the purchase price to be borne by the applicant and 50% of the purchase price to be borne by the respondents. A parcel of land at 17 Aotea Road Sandy Bay was found with the plan being to split it in to three strata titles. A house was to be constructed on one of the strata titles and then sold with the proceeds to be distributed to the parties to help fund the cost of building houses on the two other lots, one for the applicant and one for the respondents.
7 The legal firm was engaged by the parties to undertake the conveyancing work on the purchase of the land. The applicant and the respondents executed a purchase contract. The applicant and the respondents borrowed $188,000 from a bank secured by a mortgage over the land. The conveyance was
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completed in 2011 with the applicant and the second respondent being registered proprietors as tenants
in common in equal shares.8 In 2013 funds to commence building, being $140,000, were lent to the parties by the applicant's parents. In 2014 a building contract was signed for the construction of the first house which was to be sold. The applicant and the second respondent were the principals and the first respondent, through a firm name, was the builder under the contract. The contract price was $374,990 with the house to be completed within 280 working days. There were attempts to settle the terms of a written partnership agreement. In January 2016 the first respondent circulated a document purporting to set out the agreed terms of the partnership. The document remains unsigned. The applicant and the second respondent re- financed including obtaining further funds to pay for the construction. The house was substantially completed in 2016 with the respondents occupying it rent free. In August 2017 a certificate of occupancy for the house issued but further work was required to complete the house to a standard which would secure an appropriate purchase price. The applicant contributed a further sum of $99,000 towards construction costs. In September 2019 a market appraisal was undertaken by a real estate agent who considered that the house could be sold at the time for between $1.4m and $1.7m.
9 In October 2019 the house was still not ready for sale and further funds were obtained from a financer. The legal firm was engaged to review the documentation and a further advance was made in 2020.
10 In December 2020 solicitor, Mr Griggs, commenced employment with the legal firm and took over the file concerned with the re-financing. Mr Griggs subsequently became a partner of the firm in 2022.
11 In February 2021 the parties wished to re-finance once again, this time with the Commonwealth Bank of Australia. The re-financing was for the purposes of paying off debts and to secure extra funding so that construction work on the house to be sold could proceed. The first respondent asserted that the CBA wanted his name on the title for the purpose of the provision of security for the loan and the first respondent advised the legal firm accordingly with it to arrange for the title to be amended to record him as owning a 1/10,000 share in the property. By this time Mr Griggs had taken over matters concerning the parties. Mr Griggs undertook the conveyancing work which resulted in the name of the first respondent being recorded as the registered proprietor of a 1/10,000 share. Mr Griggs appears to have accepted that the change to the title was a requirement of the CBA, although there was no objective evidence to support this and that it would result in the applicant losing an advantageous position to secure a court ordered sale of the property under the Partition Act 1869, s 4.
12 The mortgage was registered and the funds secured by it advanced. After some payments the surplus funds, being $279,482.71, were paid by the CBA into the trust account of the legal firm. The $99,000 contribution made by the applicant was not reimbursed. The legal firm paid the whole of the surplus funds into an account wholly controlled by the first respondent. The applicant contends that he gave no authority for this to occur. The applicant complained to Mr Griggs but the file was closed in April 2021 and nothing further was done about the complaint concerning the distribution of the surplus funds. Mr Griggs contends that the Partnership Act 1891, s 10 applies so that any one or more of the partners could give authority for the disbursement of the funds acting as agent or agents for all partners. The applicant contends that the Legal Profession Act 2007, s 243 required, in the circumstances, that the express and individually given authority of all three partners was required.
13 The respondents continued to reside in the property with the applicant having no ability to directly control the withdrawal of funds from the first respondent's account. The applicant ceased contributing to mortgage payments in August 2022. There had been stress between the applicant and the respondents for at least a couple of years prior due to the slow progress of the building work, the
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cost overruns and the respondents' continued occupancy of the constructed house, which in a recent
market appraisal an asking price of $2.4m had been suggested.
The scope of the substantive dispute
14 The application for a decree dissolving the partnership and the taking of accounts was filed on 11 October 2022. On 16 November consent orders were made for the filing and service of affidavits intended to be relied upon for the purpose of the taking of the account. On 30 November the respondents filed their affidavits and on 8 December the applicant filed his affidavit. The affidavits, at least in part, disclose the ambit of the dispute.
15 The dispute includes the following matter:
Whether the January 2014 building contract for $374,990 subsists or whether the alleged January 2016 partnership agreement supersedes it and, if so, what are the relevant terms? The respondents claim that a further sum of $357,312.50 is owing to them by the applicant for their labour in the house construction pursuant to the terms of the partnership agreement.
16 Counsel for the respondent has submitted that the dispute at the initial stage will not include a determination of the above matter. It will be left for falsification or surcharge on the taking of the account. I do not accept that the initial hearing would be so confined. The trial judge will have to ascertain the relevant terms of the partnership agreement in order to formulate the terms of any order for the taking of an account which might be made.
17 The disbursement of the surplus funds on the CBA re-financing to an account solely controlled by the first respondent, which the applicant says he did not authorise, is likely to be scrutinised in the substantive proceeding. This aspect, along with whether in fact the CBA required a title change, may have a bearing on the assessment of the honesty of the respondents generally and in particular when they give their account of what comprised the partnership agreement. The assessment may also be influenced by the evidence of Mr Griggs, if he is called by any of the parties to give evidence, as to the information, if any, he received from the respondents as to partnership arrangements during the course of facilitating the change in title and the refinancing.
18 There may be an attack on Mr Griggs as to whether he was impartial in his dealings between the partners based upon his admitted failure to advise the applicant at the time the first respondent's name was put on the title that the applicant would lose his advantageous position under the Partition Act 1869 to cause a sale of the land and his failure to advise that perhaps the title change was unnecessary.
Is there a possibility that confidential information disclosed by the applicant to the legal firm might be used against him?
19 Mr Griggs met with the applicant alone on 1 March 2021. The applicant attended Mr Griggs' office for the purpose of executing a transfer so as to put the name of the first respondent on the title in furtherance of the asserted requirement of the CBA for this to occur. The applicant says that the meeting lasted for about 30 minutes. Mr Griggs' time costing sheet indicates that the total duration of the meeting was 18 minutes or less. Mr Griggs' evidence is that he has no recollection of the conversation and the only note which he made was as follows:
"Witness signatures by each transferor and met with clients to discuss CBA's likely
requirements."4 No 11/2022
20 The applicant deals with this meeting in his first affidavit but does not dispute that at the time Mr Griggs was acting for all the parties as the transaction was a partnership matter and he does not assert that he expected any conversation which he had with Mr Griggs to be kept confidential so as not to be disclosed to the respondents. He says that he told Mr Griggs that the parties were keen to complete the project through the use of the CBA funds and to pay back the loan given to the parties by the applicant's parents who "had suffered enough".
21 The applicant, in his affidavit intended to be used at the trial, says that by 2019 he and his wife had "experienced significant financial hardship, struggling to cover two mortgages, family loans and significant expenses". Accordingly, if the applicant disclosed information about his financial position to Mr Griggs, he does not maintain that such information is confidential and the statement that the parties were keen to complete the project cannot possibly be regarded as being of a confidential nature.
22 The applicant, through counsel, refers to "getting to know you" factors, such that a legal representative might learn about matters such as the client's strengths and weakness, honesty or lack thereof, reactions to crisis, pressure or tension and his attitude to litigation and settling cases. Yunghanns v Elfic Ltd (unreported Supreme Court of Victoria, Gillard J, 3 July 1998 at [10]-[11]). The applicant's report of his meeting with Mr Griggs gives no sufficient information to support a conclusion that Mr Griggs was by reason of the meeting put in a position to assess the applicant in any of the ways described above such that a reasonable observer might think that there is a real possibility that observations were made which could be used to the detriment of the applicant.
23 I am not persuaded that there was any relevant confidential information imparted by the applicant to Mr Griggs and so this ground of the application for a restraint order must fail.
The former solicitor for the applicant and the respondents who now represents only the respondents as a potential witness
24 The terms of the partnership agreement between the applicant and the respondents is a matter which will have be ascertained following the presentation of evidence at the trial in the substantive proceedings as there is no executed partnership agreement. The respondents contend that the parties acknowledged that the agreement between the parties "would be updated as the work of the partnership progressed". The conveyancing work undertaken by Mr Griggs in registering the first respondent as a part owner of the land and the payment of the surplus funds by Mr Griggs in to the personal bank account of the first respondent had two significant consequences for the applicant. Firstly the applicant's ability to force a sale of the land under the Partition Act 1869, s 4 was compromised. Secondly the applicant missed the opportunity to authorise account transactions on a day to day basis.
25 Counsel for the respondents, for Mr Griggs and for the legal firm submits that any complaint about Mr Griggs, although possibly relevant to a hypothetical subsequent action against the legal firm, is irrelevant in the present proceedings.
26 The conduct and credibility of the respondents might be assessed against whatever evidence Mr Griggs is able to give in relation to his conversations and dealings with the respondents while the legal firm was acting for all parties in the CBA re-financing arrangements between February 2021 and April 2021. Questions about Mr Griggs' duties to the applicant and the way in which he discharged them may arise, at least incidentally. It follows that I reject the argument that evidence touching upon Mr Griggs' professional conduct cannot arise in the present proceedings. Mr Griggs as a partner of the legal firm will have a duty of loyalty to his clients as their legal representative and an objective decision will need to be made as to whether he should be called by the respondents as a witness.
27 The primary authority relied upon by the applicant is Kallinicos v Hunt. The facts of that case, which bear similarities to the present situation were, in brief terms, as follows. The plaintiffs in the substantive proceedings sought a declaration that a partnership had been determined, the appointment
5 No 11/2022
of a receiver and the taking of accounts between the parties. The partnership business involved the acquisition of various properties with a view to selling them at a profit with or without development. A property was acquired for the development of strata lots with the development funded in part by funds provided by finance companies secured by mortgages over the land. Some lots were sold with solicitor, Mr Maloney, acting for the vendor. The first plaintiff engaged his own solicitor who sent a letter to Mr Maloney's firm foreshadowing the commencement of proceedings. On the sale of several of the lots Mr Maloney distributed sale proceeds allegedly without the plaintiff's authority. Mr Maloney accepted instructions to act for the defendants in the substantive proceedings and the first plaintiff applied for an order restraining him from continuing to act.
28 The restraint application was granted by Brereton J who, after carefully examining the
authorities, said:
"81 There are a number of hypothetical possibilities. One, as Mr Ireland posits, is that Mr Kallinicos in fact authorised Mr Hunt to deal with the proceeds in the manner in which they were applied. But as Mr Ireland acknowledged, there is a live issue as to authority; and Mr Kallinicos disputes that he gave any such authority, which only serves to highlight the centrality of Mr Moloney's evidence.
85 Moreover, there is a high degree of probability that Mr Moloney’s evidence and/or
conduct will come under scrutiny. It seems almost inevitable that Mr Kallinicos would query how being on notice of the interest and claims of Mr Kallinicos, Mr Moloney could accept instructions to distribute the entire balance of proceeds for the benefit of Mr Hunt. There may be a perfectly good explanation, but one can anticipate that it will be the subject of rigorous testing.
86 Thus, the propriety of Mr Moloney’s conduct is likely to be examined in the
proceedings, and his evidence is likely to be material. He will be in a position in which his client's interest, his own interest, and his obligation to the Court may well be in conflict. Mr Moloney will owe obligations of loyalty to his present client Mr Hunt, he will have an interest in presenting the facts in a manner which exonerates himself, and he will have a duty to the court to be frank. His evidence may crucially corroborate orrefute Mr Hunt’s version, and his own position and conduct may come under scrutiny.
Yet Mr Moloney would not likely be called in Mr Hunt’s case to prove that Mr Hunt
had given false instructions. If he continues to act, loyalty to his client would be a disincentive to give evidence if those were the circumstances. Yet failure to give evidence would result in submissions being made that his evidence would not have
assisted his own client’s case.90 In my opinion a fair-minded, reasonably informed member of the public would conclude that the independent objectivity of Mr Moloney as solicitor and/or witness was compromised by conflicts between his obligation of loyalty to his client Mr Hunt, his role and knowledge as a witness of material facts, and his potential personal interest. Although I do not think that fair-minded and reasonably informed members of the public conceive that legal representatives are entirely impartial, as most would see them as aligned with the parties whom they represent, and while it needs be borne in mind that the alternative to legal representation is self representation, in which case none of the controls which legal representation imposes on the conduct of litigation would apply, nonetheless, fair-minded and reasonably informed members of the public expect that lawyers will provide advice to their clients, and conduct litigation in which they act, free of and unaffected by any personal interest in the outcome.
91 I have taken into account the circumstance that Mr Moloney would not be the sole legal representative for the defendants: senior and junior counsel have been retained, and the court can have confidence that appropriate independent judgments will be made in the conduct of the defence. I have also taken into account that the concerns which
might be entertained as to the objectivity of Mr Moloney’s evidence will not evaporate
if he ceases to act for the defendants, nor would he thereupon become a witness available to all parties - his obligations to Mr Hunt will continue to require him to keep confidential, and treat as privileged, communications between him and Mr Hunt, and it cannot be anticipated that he will feel free to discuss them with those acting for Mr
6 No 11/2022
Kallinicos. It follows that requiring Mr Moloney to cease to act is not a panacea for all the associated difficulties. But ultimately these considerations are not weighty: they do not alter the fundamental problem, that the fair-minded reasonably informed observer
would think that Mr Moloney’s independence and objectivity as a solicitor would be
comprised. The scrutiny which Mr Moloney’s conduct will attract, and his knowledge
of the instructions for the disbursement of the proceeds of the relevant units, means that in the context of this case, fair-minded members of the public would perceive Mr Moloney as not being able, however well intentioned, to advise his client and conduct the proceedings free of and unaffected by the impact of personal interest. In my opinion, therefore, fair-minded, reasonably informed members of the public would conclude that the proper administration of justice requires that Mr Moloney not act for the defendants in these proceedings."
29 Notwithstanding that Kallinicos involved the distribution of partnership assets following sales, in my opinion this case is sufficiently similar to that in Kallinicos to compel the conclusion that a fair minded reasonably informed member of the public would conclude that the independent objectivity of Mr Griggs and the legal firm is compromised.
Should the legal firm be restrained from continuing to act for the respondents?
30 Shortly before the proceedings were commenced the respondents engaged Mr Griggs of the legal firm to provide advice to them as to partnership matters. The originating application seeking dissolution and the taking of partnership accounts issued on 11 October 2022 and the respondents through the legal firm entered a notice of appearance on 24 October. On 16 November consent orders were made including an order that by 30 November the parties exchange affidavits intended to be relied upon by them for the purposes of taking accounts. The respondents' affidavits were filed on 30 November and on the same day the applicant's solicitor sent a letter to the legal firm demanding that it cease to act for the respondents. The letter included an assertion that the proper administration of justice required the legal firm to be prevented from acting in the interest of the protection of the integrity of the judicial process. On 8 December the application for the restraint order was filed. As soon as the ambit of the dispute had been disclosed by the contents of the respondents' affidavits the letter of demand issued and a little over a week later the application was filed. There was no sufficient delay such as to potentially cause material prejudice to the respondents or to indicate that the application had not been brought in good faith.
31 There has been no suggestion by the respondents that if a restraint order is imposed they will have difficulty in obtaining alternative appropriate legal representation.
32 There is a public interest that litigants not be deprived of their choice of legal representation without good cause. Although removing the legal firm as the respondents' solicitors will not provide a complete remedy, as in Kallinicos, I conclude that fair minded and reasonably informed members of the public would expect that lawyers will conduct litigation free of and unaffected by the impact of personal interest such that the protection of the integrity of the judicial process requires the imposition of the restraint sought notwithstanding that restraint will deprive the respondents of the legal representation of their choice.
33 Finally, as in Kallinicos, I do not consider that the engagement of counsel by the respondents will remedy the situation even though counsel can be expected to make appropriate independent judgments as to the conduct of the case.
34 The relief sought should be granted.
| Order | |
| 35 | I make the following order: |
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Richard Griggs and Fitzgerald and Browne Lawyers cease to act as solicitors for the respondents in the proceedings.
36 Upon request I will hear the parties as to the costs of the application.
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