Styles v O'Brien
[2007] TASSC 13
•21 March 2007
[2007] TASSC 13
CITATION: Styles & Anor v O'Brien & Ors [2007] TASSC 13
PARTIES: STYLES, Alan Alfred
A.A. & C.A. STYLES PTY LTD
v
O'BRIEN, Mark Augustine
WILLIAMS, Michael John
MATTHEWS, Gerald Desmond
VIMPANY, Richard Eric
MATTHEWS, Kevin Anthony
INVESTMENT NOMINEES LIMITED
TASMANIAN NOMINEES (LAUNCESTON) PTY LTD
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: LDR3/2007
DELIVERED ON: 21 March 2007
DELIVERED AT: Hobart
HEARING DATES: 23 February and 21 March 2007
DECISION OF: Master S J Holt
CATCHWORDS:
Professions and trades – Lawyers – Duties and liabilities to client – Former client – Confidential information.
A & Anor v The Law Society of Tasmania [2001] 10 TAS R 152 followed.
Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 applied.
Sent and Primelife Corporation Ltd v John Fairfax Publications Pty Ltd & Hills (2002) VSC 429 not followed.
Aust Dig Professions and Trades [96]
REPRESENTATION:
Counsel:
Plaintiffs: S Wartski
Defendants: K Stanton
Solicitors:
Plaintiffs: Horak Frankovich Rose & Cross
Defendants: S B McElwaine
Judgment Number: [2007] TASSC 13
Number of paragraphs: 21
Serial No 13/2007
File No LDR3/2007
STYLES & ANOR v O'BRIEN & ORS
REASONS FOR DECISION MASTER S J HOLT
21 March 2007
The plaintiffs have applied for the following order: "Shaun McElwaine the solicitor for the defendants be disqualified from acting as solicitor for the defendants".
The application is based upon former dealings between Mr McElwaine and the first named plaintiff. In order to understand it it is necessary for me to briefly summarise the claim the subject of the present action and to set out the former dealings.
The two plaintiffs are Alan Styles and a company which is the trustee of the Styles discretionary family trust. According to his affidavit Mr Styles was one of the six principals of the accounting firm known as Camerons Accountants and Advisors ("Camerons"). The Styles trustee company is the holder of units in two unit trusts which hold assets of the accountancy business. Further, according to Mr Styles' affidavit there are separate corporate structures for associated Camerons businesses, one a finance provider, known as Equity Finance and the other a financial planning business. There are seven defendants. The first five are the continuing principals of Camerons. The sixth is the company which Mr Styles says operates the finance business and the seventh defendant is the company which Mr Styles says holds the assets of the financial planning business.
Mr Styles who had been a principal of Camerons since 1997 retired as a principal effective from 1 July 2005. The dispute concerns exit entitlements. The plaintiffs' claim for relief includes a claim for:
"Orders for the making of all necessary enquiries and the taking of all necessary accounts in order to ascertain amounts to which the plaintiffs are entitled."
The evidence of Mr Styles is that in 1998 there was a dispute between a departing principal of Camerons and the remaining principals of which he was one. That dispute, like the present, concerned the exit entitlements of the departing principal and the valuation of the unit holdings of the departing principal's trustee company. The continuing principals of Camerons at that time included all or some of the first five defendants. (At the time the third and fourth defendants were salaried principals only whilst the first, second and fifth defendants were equity principals.) There were other principals of Camerons at the time, who are not parties to the present action. The sixth and seventh corporate defendants were in existence and part of the Camerons business structure in 1998.
In 1998 the continuing principals instructed the legal firm Bishops to provide advice as to the dispute. Bishops in turn retained Mr McElwaine to advise. Mr McElwaine provided advice, as requested. In his affidavit at par35, Mr Styles says of the 1998 dealings with Mr McElwaine:
"From my own knowledge and my belief from discussions with the principals at that time I say that Mr McElwaine was imparted with knowledge, inter alia, of the internal structure of Camerons and its component entities, business practices of Camerons, and negotiation strategies employed. I believe McElwaine was advised of the criteria the principals of Camerons considered to be relevant in determination and quantification of the unit price and exit entitlement."
There is also evidence from Mr Styles that in 1999, Mr McElwaine gave some advice to Camerons regarding a tax matter.
Firstly, on behalf of the plaintiffs it was asserted that Mr McElwaine has a conflict of interest and his continued involvement for the defendants amounts to a breach of fiduciary duty. On 17 December 2006 a facsimile transmission was sent from the plaintiffs' solicitors to Mr McElwaine in the following terms:
"Mr Shaun McElwaine, Solicitor
52 Elizabeth StreetLAUNCESTON, TASMANIA. 7250
Attention Mr McElwaine:
Re: Styles v O'Brien and Others, Matter Number 485 of 2006
Supreme Court of Tasmania, Hobart Registry.We refer to the above matter and our advices that you are unable to act in this matter and that you have a very serious conflict of interest.
A conflict of interest of which you are fully aware and are not able to deny.
We now have documents in our possession which are conclusive of your conflict of interest.
If you further purport to act for the Defendants in any way whatsoever, you will be continuing to breach all rules of Professional Practice and Ethics.
Take Notice:
That in the event that you do not immediately withdraw we are instructed to restrain you by way of an injunction personally, and shall claim costs against you on a full indemnity basis.
Further you [sic] actions will be preventing, and delaying the adjudication of these matters, our client will thereby be claiming Special Costs and Damages against you personally and may claim contribution by way of Specific Joinder.
This matter will also be referred to the Law Society immediately unless we have a written undertaking from you by 4pm, 18th December 2006 that you will no longer act and shall withdraw forthwith.
We shall further require a copy of your filed Notice of Withdraw [sic] and or Notice of Ceasing to act.
As to the interlocutory application which you advised you are preparing may we suggest you save yourself further embarrassment.
Yours faithfully
HFRC
Specialist Lawyers & Consultants
per Jan A A Horak
(Notary Public)"
[original emphasis]
This conflict of interest assertion was recognised as hopeless and abandoned after counsel for the plaintiffs acknowledged that the plaintiffs were not existing clients of Mr McElwaine. In such a circumstance the position is clearly set out in the speech of Lord Millett in Prince Jefri Bolkiah v KPMG [1999] 2 AC 222, where he said at 234 – 235:
"… a fiduciary cannot act at the same time both for and against the same client, and his firm is in no better position. A man cannot without the consent of both clients act for one client while his partner is acting for another in the opposite interest. His disqualification has nothing to do with the confidentiality of client information. It is based on the inescapable conflict of interest which is inherent in the situation.
…
Where the court's intervention is sought by a former client, however, the position is entirely different. The court's jurisdiction cannot be based on any conflict of interest, real or perceived, for there is none. The fiduciary relationship which subsists between solicitor and client comes to an end with the termination of the retainer. Thereafter the solicitor has no obligation to defend and advance the interests of his former client."
The plaintiffs next asserted that Mr McElwaine should be restrained from continuing to represent the defendants as an enforcement of his duty to preserve the confidentiality of communications made in the course of the former dealings.
This claim, like the conflict of interest claim is hopeless. There was no suggestion, nor could there have been any suggestion, that Mr Styles and Mr McElwaine had communications in 1998 or 1999 which were confidential in the sense that they were to be kept from the other principals of Camerons. Information imparted by Mr Styles had to be disclosed to the other principals and vice versa. As counsel for the defendants pointed out authority for this proposition is to be found in Farrow Mortgage Services v Webb (1996) 39 NSWLR 601. There Sheller JA, with whom Waddell A-JA agreed said at 608:
"Two or more persons may join in communicating with a legal adviser for the purpose of retaining his or her services or obtaining his or her advice. The privilege which protects these communications from disclosure belongs to all the persons who joined in seeking the service or obtaining the advice. The privilege is a joint privilege. So is it also if one of a group of persons in a formal legal relationship communicates with a legal adviser about a matter in which the members of the group share an interest. Communications by one partner about the affairs of the partnership or a trustee about the affairs of the trust are examples. Implicit in the relationship is the duty or obligation to disclose to other parties thereto the content of the communication. Accordingly no privilege attaches to such communications as against others who, with the client, share an interest in the subject matter of communication."
This passage was referred to with approval by Warren J in Yunghanns v Elfic Pty Ltd [2000] 1 VR 92 at par30. Warren J went on to say at par35:
"Sheller JA in Farrow Mortgage Services (at 609) observed, in any event, that common interest is not a rigidly defined concept. The same observation was echoed in the 14th edition of Phipson on Evidence (1990) p515 para 20-28 where the authors observed:
'No privilege attaches to communications between solicitor and client as against persons sharing a joint interest with the client in the subject-matter of the communication, eg as between partners; a company and its shareholders; trustee and cestui que trust; lord and tenants of a manor as to customs of manor; a lessor and lessee as to production of the lease; reversioner and tenant for life as to common title; two persons stating a case for their joint benefit; or a husband and wife who are not genuinely, but collusively, in contest. Nor does any privilege attach as between joint claimants under the same client - eg between claimants under a testator as to communications between the latter and his solicitor.
Thus where two persons agree to divide the profits made by one of them on contracts made with third parties, the person who does not make the contracts is entitled to production from the person who does of, for example, the opinions of counsel relating to litigation between the contractor and a third party.
But where the communications relate to matters outside the joint interest, they are privileged even as against a person bearing the expense of the communications - eg communications between a plaintiff corporation and its solicitors, against a defendant ratepayer as to matters not connected with rates; or between a company and its solicitors consisting of confidential advice to the former in an action against a shareholder; or between a trustee and his solicitor as against the cestui que trust, where the communication is not made for the former's guidance in the trust, but to enable him to resist litigation by the latter; or where it concerns his character, not as trustee, but as mortgagee of the client.
Though the privilege does not protect one person with a joint interest from disclosing to the other matters which are the subject of that interest, both parties are entitled to maintain the privilege against the rest of the world. But the rest of the world for these purposes does not include the trustee in bankruptcy of one of the parties, or his successor in title.
In case of joint interest, it is sufficient, as against third persons, if one only of the interested parties claims the privilege, though all must concur in waiving it.
A joint interest for these purposes is not a rigidly defined concept. It is apparent that those categories described above, such as partners and the like, come within these principles. But a mere common interest in that outcome of litigation will be sufficient to enable any party with that interest to rely on it.'"
Against these propositions counsel for the plaintiffs submitted that relief could still be given based on an obligation of confidence and said that the facts here were similar to the facts of Spincode Pty Ltd v Look Software Pty Ltd & Ors [2001] 4 VR 501. I disagree. This is a case where the legal professional privilege protecting the disclosure of confidential communications between solicitor and client is a joint privilege as explained in Farrow Mortgage Services. There was no joint privilege in Spincode. There the evidence was that a firm of solicitors had acted for a company ever since its incorporation in all legal matters, including disputes between the shareholders of a type which if not resolved would naturally culminate in an application to wind up the company of a type that was ultimately made in an oppression suit. Plainly, at the time of the advice the interest of the company and the interests of the shareholders did not coincide. Notwithstanding this the solicitors then acted for a shareholder of the company in an oppression suit against the company and the other shareholders. Confidential communications had occurred between the company and its solicitors in respect of matters which may have been material to the shareholder's oppression suit. Warren J, as she then was, at first instance found that the shareholder bringing the oppression suit had failed to show that there was no real risk of misuse of the confidential information. Based upon the principles referred to in Prince Jefri Bolkiah (set out later in these reasons) an injunction was granted restraining the solicitors from continuing to act for the plaintiff. The Court of Appeal dismissed the appeal deciding that no error had been demonstrated in the reasoning of the judge at first instance. The case does not assist the plaintiffs.
Counsel for the plaintiffs also submitted that the communications between Mr McElwaine and Camerons in 1998 and 1999 were for the limited purposes of advice being given regarding the 1998 dispute with a then retiring partner and the 1999 tax advice. It was submitted that the obligation of confidence prevents Mr McElwaine from using the communications for any other purposes and in particular for purposes relating to the present litigation. Counsel referred to Smith Kline & French Laboratories (Aust) Ltd & Ors v Secretary Department of Community Services and Health & Anor (1990 – 1991) 99 ALR 679, a decision of the Full Court of the Federal Court of Australia. There a pharmaceutical company had provided confidential information to the department for the purpose of securing approval to import a particular drug. The finding of the judge at first instance was that although the duty of confidentiality prevented the information leaving the department it did not extend so far as to require departmental officers to confine their use of the information to the assessment of the pharmaceutical company's applications. It was held that the information could also be used within the department for the purpose of considering applications by other persons. It was held that the judge at first instance had made no error. I do not see how this case possibly assists the plaintiffs here. The starting point in Smith Kline was that there was in fact confidential information. The issue was as to the extent to which it could be used by the recipient. Here, for the reasons explained in Farrow Mortgage Services there is no confidential information as between the plaintiffs and defendants and so there is nothing to which a limitation as to use might be attached. I was not referred to anything which might even remotely be characterised as legal support for the proposition of counsel for the plaintiffs that although all of the current litigants are free to use the 1998 and 1999 communications with Mr McElwaine as they wish in this litigation, Mr McElwaine cannot be involved.
As the communications the subject of the plaintiffs' confidentiality claim were all concerned with matters of joint interest as between the plaintiffs and several of the defendants, the plaintiffs' claim for protection based on confidential communications must fail, for the reasons set out in Farrow Mortgage Services.
Next counsel for the plaintiffs called in aid a contention that Mr McElwaine's involvement amounted to a breach of a duty of loyalty. Again, this claim was without prospect of success. It has been decided in this State that no duty of loyalty exists. In A & Anor v The Law Society of Tasmania [2001] 10 TAS R 152, Underwood J, as he then was, referred to the speech of Lord Millett in Prince Jefri Bolkiah and said at 164 and 165:
"With respect to a solicitor acting against a former client his Lordship said, at 235:
' … The only duty to the former client which survives the termination of the client relationship is a continuing duty to preserve the confidentiality of information imparted during its subsistence.
Accordingly, it is incumbent on a plaintiff who seeks to restrain his former solicitor from acting in a matter for another client to establish (i) that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and (ii) that the information is or may be relevant to the new matter in which the interest of the other client is or may be adverse to his own.'
With respect to the test to be applied, his Lordship said at 236, that if there is no risk of disclosure of confidential information, no injunction will issue.
…
The decision of Prince Jefri Bolkiah v KPMG (1999) 2 AC 222, was considered by the Full Court of South Australia in Pradham v East Side Day Surgery Pty Ltd (1999) SASC 256, unreported, delivered on 18 June 1999. In that case, the court held that the principles stated by Lord Millett should be applied in South Australia. In Newman as Trustee for the Estates of Littlejohn v Phillips Fox (a firm), unreported, delivered on 15 September 1999, Steytler J, in the Supreme Court of Western Australia, helpfully discussed all the authorities and also concluded that the test laid down by the House of Lords should be applied in Western Australia. The same approach was taken in Victoria by Gillard J in World Medical Manufacturing Corporation v Phillips Ormonde & Fitzpatrick Lawyers & Anor [2000] VSC 196. I see no reason why this Court should not do likewise."
In Victoria shortly after the decision in A & Anor v The Law Society of Tasmania, Brooking JA in some obiter observations in Spincode Pty Ltd v Look Software Pty Ltd & Ors [2001] 4 VR 501, considered that Australian law had diverged from the English law as stated in Prince Jefri Bolkiah. In particular that whether, in the case of a former client, there is a risk of disclosure of confidential information is not the sole consideration. Counsel for the plaintiffs relied upon a decision of Nettle J in Sent and Primelife Corporation Ltd v John Fairfax Publication Pty Ltd & Anor [2002] VSC 429, who agreed with what Brooking JA had said in Spincode. At pars98 –104 Nettle J said:
"In Spincode Pty Ltd v Look Software Pty Ltd, Brooking JA observed that the law in Australia had diverged from that in England to the extent that the danger of misuse of confidential information is no longer the sole touchstone for curial intervention where a solicitor acts against a former client. His Honour held that there is also an independent equitable obligation of loyalty which forbids a solicitor acting against a former client in the same matter or in a closely related matter.
The plaintiffs have invoked those observations as support for their contention that the defendants should be enjoined from continuing to retain Mr Sher. The plaintiffs contend that this proceeding should be regarded as closely related to the matter on which Sent took advice from Mr Sher.
The defendants have responded that Brooking JA's observations were obiter, and were not supported by other members of the court, and should not be followed because they are inconsistent with decisions of the highest authority in England and decisions in New South Wales.
It must be accepted that Brooking JA's observations appear to take the law further than it has thus far been held to go in England or New South Wales.
But that does not mean that Brooking JA was wrong. Nor is it altogether correct to say that Brooking JA was unsupported by other members of the court. Certainly Ormiston JA expressed no view on the point but Chernov JA, although noting that it was unnecessary to decide, considered that Brooking JA had made a compelling case for the view which he expressed.
In my respectful view too, Brooking JA's analysis makes a compelling case for the view which he expressed. It accords with the weight of authority in Canada and New Zealand, and it accords with equitable principle, and none of the judges' that have refused to follow Brooking JA's observations have directed themselves to an analysis of principle of the kind which his Honour undertook.
If it were necessary to make a choice about the matter, I would respectfully choose to follow Brooking JA's analysis in Spincode."
Spincode was considered by Young CJ in Belan v Casey [2002] NSWSC 58. There the Chief Justice said at pars18 and 21:
"Prince Jefri has been followed on almost every occasion when the present situation has arisen, except in Victoria. … The Court of Appeal followed it in Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1, 48 as did the Full Court of South Australia in Pradhan v Eastside Day Surgery Pty Ltd [1999]SASC 256 (Bleby J with whom Doyle CJ and Prior J agreed). It was followed in New Zealand in Carter Holt Harvey Forests Ltd v Sunnex Logging Ltd [2001] 3 NZLR 343, and (though he slightly modified proposition (a)) by Steytler J in Newman v Phillips Fox (1999) 21 WAR 309, 315, by Conti J in Mark Foys Pty Ltd v TVSN (Pacific) Ltd (2000) 178 ALR 322, by Rolfe J in Colonial Portfolio Services Ltd v Nissen (2000) 35 ACSR 673 and by Gillard J in World Medical Manufacturing Corp v Phillips Ormonde & Fitzpatrick Lawyers [2000] VSC 196.
…
In my view, the overwhelming weight of authority is to the effect that where the applicant to restrain a solicitor is a former client, the sole consideration is whether there is a real risk of disclosure of confidential information and one does not delve into matters of conflict of interest or conflict of duty."
It is pointless for me to analyse the matter further. I am bound by the decision in A & Anor v The Law Society of Tasmania. There is no duty of loyalty recognised in this State and so no relief based upon such an asserted duty can be given.
Finally, counsel for the plaintiffs submitted that jurisdiction to grant the injunction sought was nonetheless available based on public policy. Counsel again relied on the judgment in Sent. There, Nettle J said at pars111 to 116:
"I turn finally to the question of public policy and the third way in which the application was put.
In Grimwade v Meagher (1995) 1 VR 446, Mandie J held that the court has inherent jurisdiction to ensure the due administration of justice and to protect the integrity of the judicial process and, as part of that jurisdiction, to prevent a member of counsel appearing for a particular party in order that the jurisdiction [sic] should not only be done but be seen to be done.
The objective test to be applied, his Honour held, is whether a fair minded reasonably informed member of the public would conclude that the proper administration of justice requires that counsel be prevented from acting; giving due weight to the public interest that litigants should not be deprived of their choice of counsel without good cause.
The decision has been followed and applied by other judges of this court, by judges of the Federal Court, and by a judge of the Western Australian District Court. See Caruso v Tartaglia (2002) VSC 91; Uncle Toby's supra; Lincoln v Holmesglen Institute of TAFE (1999) FCA 601; Grey v Alexander (2000) Australian and New Zealand Conveyancing Reports 386. The decision was also referred to with evident approval by Brooking JA in Spincode, above at paragraph 40. If it were necessary in order to decide this application, I would, with respect, also follow the decision.
That being so, I ask then, what would a fair minded reasonably informed member of the public say of the requirements of the administration of justice in this case if told that some 14 years ago Mr Sher advised a client in conference on the Allied Fisheries matter, albeit that he has no present recollection of so doing, and now is to act for John Fairfax against the former client in a defamation proceeding concerning articles, inter alia, about the Allied Fisheries matter, published of and concerning the former client.
My conclusion is that the fair minded reasonably informed member of the public would say that should not occur."
The cases in support of the proposition that superior courts have inherent jurisdiction to disqualify from a case a lawyer in order to protect the integrity of the judicial process are set out in Grimwade v Meagher (1995) 1 VR 446. However, there is nothing in the circumstances of this case to cause me to conclude that a fair minded reasonably informed member of the public would think that the proper administration of justice requires that Mr McElwaine be prevented from acting. I am not persuaded that there is any reason to deprive the defendants of their choice of legal practitioner.
The application is dismissed.
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