TJ Board & Sons Pty Ltd v Castello
[2008] VSC 91
•18 March 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL LIST
No. 8960 of 2007
| TJ BOARD & SONS PTY LTD | Plaintiff |
| v | |
| SAMUEL CASTELLO & ORS | Defendants |
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JUDGE: | HOLLINGWORTH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 17 March 2008 | |
DATE OF RULING: | 18 March 2008 | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 91 | |
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Legal practitioners – Solicitors – Applications to restrain solicitors from acting – Inherent jurisdiction – Whether risk of misuse of confidential information – Whether solicitors likely to be a material witness – Whether solicitors have personal interest in outcome of litigation – Applications refused.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr I.R. Jones, SC | Kliger Partners |
| For the Defendants | Mr W.T. Houghton, QC with Mr C. Northrop | Bazzani Scully Brand Lawyers |
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HER HONOUR:
The plaintiff is a real estate agent. The second to ninth defendants own various hotel businesses or the land on which the businesses are conducted. The first defendant, Mr Castello, is a director of each of the other defendants. In this proceeding, the plaintiff seeks to recover $13.2m from the defendants, primarily by way of commission pursuant to an agreement between the plaintiff and the defendants made on or about 6 April 2007 (“the agency agreement”).
In the applications currently before me, each side is seeking orders which would have the effect of removing the other side's solicitors from continuing to act in the proceeding.
There was no dispute between the parties as to the general grounds on which a court may restrain a legal practitioner from continuing to act for a party, namely:
(a) Where there is a danger of misuse of confidential information;
(b) Where there is a breach of a fiduciary duty of loyalty not to act against a former client in the same or a closely-related matter;[1] and
(c) Under the court’s inherent jurisdiction to control the conduct of solicitors as officers of the court.
[1]There is a divergence between Victorian and NSW courts as to whether such a fiduciary duty can survive the termination of the relationship. It is not necessary to consider this as a matter of principle, as neither side relies upon this ground.
In Kallinicos v Hunt[2], Brereton J undertook a comprehensive examination of the authorities concerning the court’s supervisory jurisdiction over lawyers. In relation to the inherent jurisdiction, his Honour helpfully summarised the following principles from the authorities:
[2](2005) 64 NSWLR 561 at 582-3.
(a) The test to be applied in the inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a lawyer 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;
(b) The jurisdiction is exceptional and is to be exercised with caution;
(c) 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; and
(d) The timing of the application may be relevant, in that the cost, inconvenience and impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief.
Plaintiff’s application
By a summons dated 6 March 2008, the plaintiff seeks an order that the defendants be enjoined from retaining the law firm Bazzani Scully Brand (“BSB”) as the solicitors acting for it in this proceeding, and forthwith cease the retainer of BSB. Such an order is sought under the court’s inherent jurisdiction.
According to the plaintiff's written outline and supporting affidavit, the plaintiff seeks the order because of:
(a)The importance of Mr Scully, a partner in BSB, as a witness of substance in the proceeding; and
(b)The interest of BSB in the outcome of the proceeding.
In oral submissions in reply, the plaintiff’s counsel also relied on the fact that Nicholas Brand, the litigation lawyer at BSB with the conduct of this proceeding, had some involvement in events prior to the commencement of the proceeding.
There is no dispute that where a solicitor for a party is personally interested in the outcome of proceedings, or is likely to be a substantive witness for a party at the trial (not merely giving evidence as to formal or uncontested matters), it may be inappropriate for the solicitor to continue to act for the party. Whether that will be so obviously depends on the facts of each case.
In none of the cases to which I was referred by the plaintiff’s counsel, Mr Jones SC, was a solicitor or their firm removed merely because they were likely to be a witness; in each case there was some additional factor. For example, in Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd[3], not only was the solicitor a potential witness whose own conduct may be challenged, but at the relevant time he had been acting for the company which was now his client’s opponent in the litigation.[4] A similar former-client conflict situation arose in Geelong School Supplies Pty Ltd v Dean.[5] In Clay v Carlson[6], the firm of solicitors was found to have a personal interest in the outcome of the action, because they had drawn the much-criticised codicil which was the subject of the litigation.
[3][2006] VSC 152 per Whelan J.
[4]Ibid at [38]-[39].
[5][2006] FCA 1404 per Young J, especially at [45] and [52].
[6](1997) 17 WAR 493 per Templeman J.
Kallinicos v Hunt was also a very different kind of case. In that case, the solicitor had acted on behalf of a partnership company in respect of transactions which were highly contentious in the later litigation. The directors and shareholders of the company were the plaintiff and the defendant. In preventing the solicitor from continuing to represent one set of interests only, Brereton J, concluded that not only was the solicitor almost certainly a material witness, but he might well be exposed to suit and have an interest in how the evidence turned out. He was in a clear position in which his client’s interest, his own interest and his obligation to the court may well be in conflict. There were serious allegations of wrongdoing and the possibility of the solicitor being implicated in improper conduct. That the solicitor was prevented from acting in those circumstances is not surprising.
A substantive witness?
The first question for consideration is whether solicitors for BSB, in particular, Mr Scully, are necessary witnesses of substance in this proceeding.
The key affidavit relied upon by the plaintiff in support of this application was the affidavit of Darren Frank Cain, sworn 6 March 2008. Mr Cain is a principal lawyer with Kliger Partners, the plaintiff’s solicitors. Much of his affidavit consisted of referring to discovered documents, in order to show that Mr Scully was the author of various correspondence or made various file notes, particularly during the period May to September 2007.
The defendants do not dispute that Mr Scully was involved during that period, however, they say that his evidence, if any, is likely to be non‑contentious and not of great importance to the proceeding.
As mentioned earlier, the plaintiff seeks to recover $13.2m as commission. Under the terms of the agency agreement, the plaintiff was entitled to commission in the event that the various hotel properties were sold by the obtaining of a “binding offer”, being an offer which “would (or does) result in a contract enforceable against the purchaser”. The plaintiff alleges that there was such a binding offer, constituted by a three-page heads of agreement document dated 12 April 2007, as varied by a one-page offer to purchase document dated 11 May 2007 (“the disputed agreements”). The defendants deny that the disputed agreements were so enforceable.
Although BSB were nominated as the vendors’ solicitors in the first of the disputed agreements, it is apparent that Mr Scully and BSB were not involved in the negotiation, preparation or execution of either of those documents; it seems that the parties prepared them without any legal advice or assistance. So, unlike some of the cases to which I was referred, this is not a case in which a solicitor drew the transaction documents and is likely, in his or her capacity as a witness, to try to defend that drafting.
The plaintiff argues that Mr Scully would be required to give evidence in relation to the matters pleaded in paragraphs 21A and 21B of the amended defence, namely, the defendants’ assertion that the disputed agreements were not enforceable contracts. I do not accept that submission. Whether or not the heads of agreement or the offer to purchase documents are enforceable contracts will be determined by the evidence of the relevant matters as at the date of those documents, not by what transpired thereafter. In particular, it will not be determined by reference to later advice given by Mr Scully or BSB as to the enforceability of the disputed agreements.
Paragraphs 21C and 21D of the amended defence raise an alternative argument: if either of the disputed agreements did constitute an enforceable contract, then the contract was subject to a number of conditions, which were not satisfied. The particulars of the latter allegation include the following:
There were negotiations for the sale of the businesses and land between May and September 2007. The negotiations were conducted by [BSB] as solicitors for the vendors and Mills Oakley as solicitors for the proposed purchasers.
Differences arose between them, as to the validity of the heads of agreement document and offer to purchase document and the obligations of the parties under them.
By a deed of settlement and release dated 20 September 2007 [“the September deed”], the parties determined to bring to an end their negotiations.
The plaintiff says that Mr Scully (and other unidentified solicitors at BSB) will need to give evidence about these matters. However, much of what happened in that period is simply not contentious and is recorded in the solicitors’ correspondence between BSB and Mills Oakley. It is quite clear that, throughout the relevant period, the defendant vendors were asserting that the disputed agreements were not binding and the purchasers were alleging that they were. However, it does not appear that there will be any contest about the content of the communications between the purchasers’ and vendors’ solicitors between May and September 2007. On the material presently before me, it seems that the real argument will not be as to what actually happened during that period, rather, whether the effect of what happened was that any necessary conditions were not satisfied.
True it is that BSB were involved in the negotiation and drafting of the September deed. But there is no dispute as to the meaning and effect of the September deed. The fact that the vendors and purchasers ultimately did not proceed with the transaction, as a result of the September deed, is not relevant to the plaintiff’s claim that it is entitled to commission because the disputed agreements amounted to a “binding offer”.
The plaintiff argues that Mr Scully (or other unidentified solicitors at BSB) will need to give evidence relating to the breach of an alleged implied term. In paragraph 18 of the further amended statement of claim, the plaintiff pleads that there was an implied term of the agency agreement that the defendants would not act or conduct themselves so as to deprive the plaintiff of the benefit of the agency agreement. Paragraph 29 of the further amended statement of claim alleges that the defendants brought the disputed agreements to “an untimely end” (whatever that is meant to mean as a matter of contract law), and have thereby deprived the plaintiff of the benefit of the agency agreement. This is a curious claim, and it is not clear how it is said to give rise to a claim for loss and damage. If, as the plaintiff asserts, the disputed agreements constituted a “binding offer”, then the plaintiff became entitled to its commission, and no conduct by the defendants thereafter could deprive the plaintiff of that entitlement.
At several places in the Cain affidavit it is asserted that Mr Scully will be an important witness for the defendants, to give evidence that his conduct in seeking to incorporate various terms into the deal, and in drawing and negotiating the September deed, was no more than ongoing negotiation, as opposed to repudiatory conduct by the defendants. This is another curious assertion, given that the further amended statement of claim contains no pleading of repudiation. True it is that paragraph 11 of the reply refers to repudiation, but, like the implied terms allegation, that is a pleading which seems to go nowhere.
Mr Houghton QC, who appeared with Mr Northrop for the defendants, informed the court that, as the matter presently stands, he sees no need to and does not intend to call Mr Scully as a witness to give evidence in relation to events between May and September 2007.
Given the seemingly peripheral relevance of Mr Scully to the primary disputed issues in this proceeding discussed above, I would also not regard him as likely to be a significant witness at trial, if he gives evidence at all.
Finally, in relation to Mr Scully, I note that he does not have the carriage of this litigation. He will not be in a position in which there is likely to be a conflict between his position as a witness and his duties to the court.
The position is even weaker in relation to any other solicitor at BSB. The fact that the litigation partner, Mr Brand, wrote a letter in mid 2007, in which he asserted his clients’ attitude to the enforceability of the disputed agreement, does not make him a substantive witness either. The plaintiff’s case is even weaker in so far as it seeks to remove BSB on the basis that other, unidentified solicitors at BSB must have been involved in relevant events and will need to be called at trial.
An interest in the litigation?
The plaintiff also claims that Mr Scully and BSB have an interest in the outcome of the litigation, because they advised that the disputed agreements were not binding, and that advice has “driven” the defendants’ later actions. It is said that BSB “obviously has a personal interest in the proceeding in sustaining that advice.”
Examples of other cases in which a solicitor is alleged to have had an interest in the outcome of litigation include: where the solicitors are themselves parties to the proceeding; where they have a financial interest in the proceeding; and where they were involved in the very transaction which is the subject of the proceeding. In each case, the potential for conflict between the solicitor’s interest and the client’s interest is readily apparent. This is not such a case.
As previously mentioned, neither Mr Scully nor BSB had any involvement in drafting the disputed agreements. After they were retained, they advised their clients that there was no binding offer. Their clients appear to have accepted and proceeded in accordance with that advice.
That is really no different to a situation that commonly arises in litigation. Lawyers are often brought in after the disputed events and asked to advise as to the enforceability of documents or the legal effect of a transaction. Clients may then act in a particular way based on that advice. It could not seriously be suggested that, merely by doing so, the lawyers thereby had a relevant personal interest in any subsequent litigation. Furthermore, it is no more accurate to say that BSB's advice and opinion is “driving the position taken by the defendants”, than it is to say that the plaintiff's position is being driven by whoever has given it the advice or expressed the opinion that there is a binding offer.
Finally, I bear in mind the exceptional nature of the court’s inherent jurisdiction, and the need to give appropriate weight to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause. I am not persuaded that a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that BSB should be prevented from continuing to act for the defendants, in the interests of the protection of the integrity of the judicial process and the due administration of justice.
Defendants’ application
By a summons dated 6 March 2008, the defendants seek an order that Kliger Partners cease acting for the plaintiff in this proceeding. The defendants’ application arises out of a meeting which occurred on or about 14 May 2007, during which the defendants say that certain confidential information was imparted to a Kliger Partners solicitor. The application is made either on the basis of potential misuse of confidential information, or under the court’s inherent jurisdiction.
It is common ground that in May 2007 the first defendant, Mr Castello, his son‑in‑law and the executive general manger of the Castello group, Joe Giustanino, and the defendants’ accountant, Ken Eagle, attended Kliger Partners’ offices and met with Mark Yaskewych, a senior associate of that firm. It is also common ground that the meeting had been arranged by Steve Cropley, a director of the plaintiff. There is no dispute that the meeting was relatively short, lasting only about 20 minutes, and was introductory in nature.
Mr Yaskewych gave evidence in relation to the meeting, in an affidavit sworn 12 March 2008. None of the persons who attended the meeting on behalf of the defendants gave evidence about it. Instead, Mr Brand swore an affidavit on behalf of the defendants, dated 6 March 2008. Mr Brand was cross-examined about his affidavit, but, not having been present at the meeting himself, was very limited in the evidence he could give. The defendants did not seek to cross-examine Mr Yaskewych.
Mr Yaskewych's uncontested evidence is that in or about May 2007, Mr Cropley telephoned him, and advised him that he wanted to refer to Mr Yaskewych a vendor who was selling a number of hotel businesses. Mr Cropley asked whether Mr Yaskewych was available to meet with the vendor at short notice that afternoon, to discuss potentially acting for him. Mr Cropley advised that the vendor had a current solicitor acting, but may be considering changing solicitor. Mr Cropley believed it would be worthwhile to at least introduce Mr Yaskewych to the vendor in case the vendor decided to change solicitor. Mr Yaskewych told Mr Cropley he was available to meet the vendor. During that conversation Mr Cropley gave him no particulars of the transaction. Although Mr Cropley was to have attended the meeting, he did not arrive. He later called Mr Yaskewych to apologise.
There is no dispute as to the identity of the three persons who attended the meeting on behalf of the defendants. However, Mr Yaskewych is unable to recall the exact meeting date in May 2007. He did not enter the date in his diary, nor did he take any notes at the meeting, because no specific instructions were given and it was merely an introductory meeting.
There is a dispute between Mr Yaskewych and Mr Brand as to some aspects of what was said during the meeting.
Mr Yaskewych's evidence is that Mr Castello informed him only in the briefest of terms that he was the owner of a number of hotels, and that he was selling a number of them. Mr Yaskewych deposed that Mr Castello did not give him any specific details concerning the sales. In particular, Mr Yaskewych says it was not explained to him which freeholds and businesses were the subject of the sales, nor which corporate entities were the current owners of the freeholds and businesses the subject of the sales.
Mr Yaskewych deposed that either Mr Eagle, or Mr Castello, wanted to know whether, if the terms of sale of those businesses and freeholds were very similar in nature, it would be possible for a single generic sale document to be drafted to be used for each sale of business and freehold in order to save costs. Either Mr Eagle, or Mr Castello, asked whether the legal fees could be contained to around $20,000. Mr Yaskewych deposed that he informed Mr Eagle that, without more information about the sales, he could not possibly give any accurate estimate of legal fees. Mr Yaskewych also deposed that he gave no evidence regarding the structure of the sales, as he had not been given any particulars such as would have enabled him to give such advice. This evidence is consistent with a letter from Kliger Partners to BSB dated 16 November 2007.
Finally, Mr Yaskewych deposed that during the meeting Mr Eagle and Mr Castello were principally interested in his experience in applications relating to transfers of gaming and liquor licenses. That is not contested in any opposing affidavit.
On the other hand, Mr Brand deposed that Mr Castello told him the following matters, all of which are expressly denied by Mr Yaskewych:
(a)Mr Eagle explained "the structure of the deal” to Mr Yaskewych. He explained "which freeholds and businesses were the subject of the proposed sale and which corporate entities were the current owners of the freeholds and businesses the subject of the proposed sale";
(b)Mr Eagle asked Mr Yaskewych for his advice as to what he considered was the best way for the defendants to structure the contracts for the transaction;
(c)Mr Yaskewych advised that, in his opinion, there was no need for each business and freehold sale to be the subject of individual contracts with the respective owners, rather he could draft one agreement which would encompass the sale of the various freeholds and businesses and therefore he considered he could keep the proposed transaction uncomplicated; and
(d)As far as costs were concerned, Mr Yaskewych advised that he estimated Kliger Partners’ costs for the transaction might be approximately $26,000.
Mr Brand deposed that, after the meeting, the defendants decided not to engage Kliger Partners, because they knew that the firm acted for the plaintiff.
There is obviously a direct conflict between the evidence of Mr Yaskewych and the hearsay evidence of Mr Brand, as to whether Mr Yaskewych was told the identities of the freeholds and businesses, whether a specific costs figure was mentioned and whether Mr Yaskewych advised that one or several contracts would be needed. Without cross-examination of Mr Yaskewych, or the defendants’ representatives who were actually at the meeting, it is not possible for me to resolve the conflicting credit issues on this application.
Although it is tempting to criticise the defendants for not putting forward an affidavit from any person who was actually present at the meeting, I bear in mind the comments of Nettle J in Sent v John Fairfax Publication Pty Ltd,[7] about the dangers of drawing such a conclusion, particularly where it may be unreasonable to expect a party to go on oath at an early stage of the proceeding.
[7][2002] VSC 429, particularly at [42] to [52].
That said, there are several unsatisfactory features of the evidence put forward by the defendants. They arise out of a letter from the defendants’ solicitors to the plaintiff’s solicitors dated 13 November 2007, in which the defendants’ solicitors asserted as follows:
4.At the meeting Mr [Yaskewych] gave advice in relation to the Proposed Agreements after taking instructions as to the proposed transaction.
5.Mr [Yaskewych] said that he had reviewed the Proposed Agreements and that he could draw the contractual documents required to give legal effect to the proposed transaction. Mr [Yaskewych] said that he did not consider the brief to be difficult and that the proposed transaction could be contained in one contract document notwithstanding the many parties, properties and businesses. Mr [Yaskewych] further advised that [the] firm's costs for acting would be in the vicinity of $20,000.00.
There are a number of significant differences between what was asserted in that letter and what ultimately made its way into Mr Brand's affidavit. In particular, the 13 November letter asserted that Mr Yaskewych said that he had reviewed the disputed agreements and gave advice about them. No such allegation found its way into Mr Brand's affidavit and Mr Yaskewych expressly deposed that he never saw the disputed agreements until around November 2007. No explanation was offered to the court as to why this very important matter was alleged in the letter, but not sworn up to in support of the application.
A further inconsistency is that the letter refers to the firm’s costs as being “in the vicinity of $20,000”, whereas the Brand affidavit explicitly asserts that Mr Yaskewych had said that the costs would be “approximately $26,000”.
Given that Nicholas Brand was the author of the 13 November letter and the only deponent put forward by the defendants, these discrepancies may have some significance.
However, at the end of the day, it is not necessary for me to resolve any discrepancies between the affidavits of Messrs Brand and Yaskewych, or between the defendants’ own material. Even if I accepted in its entirety what is set out in Mr Brand’s affidavit, I would not be minded to remove Kliger Partners from acting for the plaintiff. There are a number of reasons for this.
First, Kliger Partners were not then and have never been retained as the defendants’ solicitors. The meeting was very much an introductory “meet and greet” session, to see whether the defendants wished to change solicitors. In all of the cases to which I was referred, the person who was sought to be prevented from acting had in fact acted as the party’s lawyer, even if just for a brief period. That is not the case here.
The next problem for the defendants is that the information said to have been communicated to Mr Yaskewych is identified only at the most general level and does not have the necessary character of confidentiality.
In Carindale Country Club Estate Pty Ltd v Astill[8], Drummond J defined the degree of precision demanded in an application such as this in the following terms:
It is a basic requirement that before material will be recognised as having the character of confidential information, the information in question must be identified with precision and not merely in global terms. … The requirement is insisted upon even though it may necessitate disclosing to the court the very information the confidentiality of which it is sought to preserve by the action. This requirement has its foundation in the need for the court to be able to frame a clear injunction, should relief against misuse of confidential information be granted.[9]
[8](1993) 42 FCR at 314-315.
[9]Cited with approval by Nettle J in Sent at [66].
Here, the main information alleged to have been communicated by the defendants’ representatives to Mr Yaskewych was the names of the freeholds and businesses which were the subject of the sale, and the corporate owners of those freeholds and businesses. But, there is simply no evidence that such information was in any way confidential. The disputed documents clearly identified the hotels which were to be sold, and their addresses. The ownership of the businesses and the freeholds was almost certainly a matter of public record, as ASIC and Land Titles Office searches would reveal.
The only other matter said to have been communicated to Mr Yaskewych was that Mr Eagle explained “the structure of the deal” to Mr Yaskewych. No attempt was made on behalf of the defendants to indicate what was actually said or to suggest that anything confidential was in fact communicated in that regard.
Insofar as any advice is said to have been given by Mr Yaskewych, it is put no higher than advice as to whether there should be more than one contract if the various transactions were similar. Once again, such advice, even if it were given, does not appear to have the requisite quality of confidentiality.
This is not a case where it is suggested that there were additional confidential communications, which have not been set out in the supporting affidavit in an attempt to preserve their confidentiality.
I am not satisfied that the defendants have identified the relevant information with precision, not merely in global terms, or that they have established confidentiality.
Even if specific confidentiality is not made out, the defendants argued that Kliger Partners should be removed under the court’s inherent jurisdiction, because it would be unfair to allow Kliger Partners to continue to act after Mr Yaskewych has had an opportunity to assess Mr Castello and work out “what sort of man he is”. This was argued by analogy with the “getting to know you factors”, which were discussed by Gillard J in Yunghanns v Elfic Ltd[10] and quoted with approval by Nettle J in Sent.[11]
[10]Supreme Court of Victoria, 3 July 1998, BC9803031 at [10]-[11].
[11]Op cit at [68] to [69].
In Yunghanns, Gillard J had observed that, when acting for a party, a solicitor, in addition to becoming aware of specific confidential information, may also become privy to information which is less easy to define, but which is nevertheless confidential and entitled to be protected. This is information about the nature and character of the client, the client’s strengths and weaknesses, the client’s attitude to litigation and tactics, and similar information. Gillard J described these as “getting to know you factors”.
However, the situation that was before Gillard J in Yunghanns was completely different from the situation here. In that case, the solicitors had acted for the relevant party in a number of other proceedings. During the course of acting for the party they had acquired information about the nature and character of the clients, their attitude to litigation and similar matters. Unsurprisingly, his Honour thought that there would be an unfairness in them acting against their former client, given that they had such information. That is a very different matter from whatever brief impressions Mr Yaskewych may have formed about Mr Castello, during a 20 minute introductory meeting. It is not suggested, for example, that Mr Castello disclosed anything about his attitude to disputes, or his views about anything which might be relevant to this litigation. The general impression which Mr Yaskewych could have formed of Mr Castello is probably no different to the impression which many solicitors form of opposing parties when they meet them at a mediation or a conference.
For these reasons, I am not satisfied that there is any risk of communication of confidential information. Further, in my opinion, a fair-minded, reasonably informed member of the public would not conclude that Kliger Partners should be prevented from acting; I would not order their removal under the court’s inherent jurisdiction either.
Conclusion
It follows that there will be orders that both applications be dismissed.
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