Village Roadshow Ltd v Blake Dawson Waldron
[2003] VSC 505
•23 December 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST
No. 9078 of 2003
IN THE MATTER OF VILLAGE ROADSHOW LIMITED
ACN 010 672 054
| VILLAGE ROADSHOW LIMITED ACN 010 672 054 | Applicant |
| v | |
| BLAKE DAWSON WALDRON | Respondent |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18, 19 and 22 December 2003 | |
DATE OF JUDGMENT: | 23 December 2003 | |
CASE MAY BE CITED AS: | Village Roadshow Ltd v Blake Dawson Waldron | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 505 | First Revision 23/2/2004 |
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Legal Practitioner – conflict of interest – duty of loyalty – whether practitioner may act for party with interest adverse to former client.
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APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr N. O'Bryan SC | Minter Ellison |
| For the Respondent | Dr Gavan Griffith QC with Mr P. Clarke | Blake Dawson Waldron |
HIS HONOUR:
Before the Court is an application for orders restraining the firm of solicitors, Blake Dawson Waldron, (“BDW”) from acting for the holder of 1,000 ordinary and 1,000 preference shares in Village Roadshow Limited in this proceeding and in Proceeding No. 7620 of 2003. The application is brought by Village Roadshow by summons filed on 16 December 2003. The shareholder is Boswell Filmgesellschaft MBH whom I shall refer to simply as Boswell. The grounds of the application depend upon the fact that BDW had previously been retained by Permanent Trustee Company Limited, whose interest is adverse to that of Boswell. The circumstances giving rise to the application may be stated as follows.
On 28 July 2003 Village Roadshow announced its intention to propose to buy back all of its A Class preference shares pursuant to an arrangement to be made under Part 5.1 of the Corporations Act. The consideration for the buy back was to be, in part, 25 cents per share in cash and the balance by the issue of an unsecured note of face value $1. The issuing of these notes required Village Roadshow to enter into a trust deed with a trustee in compliance with Chapter 2L of the Act.
In due course the documentation for the arrangement and the trust deed were prepared by Minter Ellison (“Minters”), the solicitors for Village Roadshow, and on 26 September 2003 the Court, in Proceeding No. 7620 of 2003, made an order for meetings. On 11 September 2003 Permanent Trustee had agreed to be the trustee of the trustee deed and the deed itself was executed on 26 September 2003.
In its announcement of 28 July Village Roadshow said that the preparation of formal documentation "will commence". There is before me no evidence as to when this work in fact commenced. It was certainly under way on 12 September, for on that day the respondent to this application, BDW, sent an email to Minters announcing that they had been instructed by Permanent Trustee to act on its behalf in relation to the unsecured note trust deed.
On that date there were in existence drafts 8 and 9 of the trust deed and the draft scheme booklet. The partner of BDW responsible for the work prior to her retirement on 28 November 2003, was Philippa Marshall. Ms Marshall was not called. Evidence of her involvement was that of Gavin James Richard Forrest who recounted what another partner, Gail Owens, told him about Ms Marshall's involvement. Mr Forrest himself had no knowledge of the file, so that his scant account of the firm's involvement was at least second hand and could not be further explored
In his affidavit sworn 17 December 2003, Mr Forrest says of the retainer of his firm by Permanent Trustee, only that the work was "in connection with the subordinated unsecured notes trust deed, the supplemental trust deed and the scheme booklets relating to the original scheme and the new scheme".
An examination of BDW's memorandum of account to Permanent Trustee shows that Ms Marshall spent a total of 28 hours and 15 minutes on the file between 12 September and 25 September 2003. The description of her work shows that for the most part it involved reviewing the draft trust deed and the scheme booklet, and advising Permanent Trustee on these matters. On 24 September she is also shown as having discussions with officers of Permanent Trustee regarding "trustee due diligence", but this was not further explained.
The scheme booklet was on 23 September sent to BDW "for your attention". On 24 September Minters sought from BDW advice that the trust deed was acceptable to Permanent Trustee and its comments on the scheme booklet. This was apparently draft 12 of the scheme booklet.
I have set out in some detail all there is of this evidence which is relied upon as establishing the confidential information relating to Village Roadshow's activities, which information was in the hands of BDW. It should be noted, too, that BDW's professional costs for doing this work had been agreed to be paid by Village Roadshow.
The order for meetings then was made on 26 September. The documentation was sent to shareholders and was made available to any interested person. In the second half of October 2003 BDW commenced acting for Boswell, apparently with a view to opposing the preference share buy back. The partner handling the matter was and is Marie Elizabeth McDonald.
Boswell has pursued its objective with considerable energy and with some success. By letter dated 30 October 2003 BDW wrote to Minters contending that the scheme booklet contained misleading and deceptive information regarding the voting rights of members. Although this booklet contains a summary of the trust deed and of the rights and obligations of note holders, it does not contain a copy of the deed itself. The criticisms of BDW in its letter were not directed to the unsecured notes, but to other aspects of the proposed scheme. Minters responded to this letter by fax of the same date rejecting the criticisms of BDW.
On 31 October an application of Boswell to restrain the holding of the meetings or to adjourn them was dismissed. The necessary resolutions were then passed at the meetings which were held on 3 November. On 18 November in proceeding No. 7260 of 2003 Boswell obtained an order dismissing Village Roadshow's application for approval of the arrangement, which had been approved at the meetings. BDW acted for Boswell in all of these applications.
The order of 18 November 2003 is subject to appeal to the Court of Appeal. The application before me insofar as it concerns Proceeding No. 7620 of 2003 would have BDW not act for Boswell, the respondent to the appeal. It may be that this order ought to have been sought by application in that proceeding, but this procedural matter was not explored in argument and I say nothing further about it.
On 20 November 2003 Village Roadshow announced its intention to pursue a second arrangement in order to achieve its original share buy back scheme. For this purpose the scheme booklet was modified and a supplemental trust deed was prepared and executed on 10 December. The involvement of BDW in this revised documentation appears to have been minimal. Its memorandum of account shows that Ms Marshall was involved for only one hour and 20 minutes between 24 November and 26 November.
On 12 December in Proceeding No. 9078 of 2003 I made an order for meetings to be held on 21 January 2004. The documents prepared for the second arrangement, too, were shortly thereafter available in the public domain. On the same day, 12 December 2003, Minters wrote to BDW expressing its concern at BDW acting both for Permanent Trustee and for Boswell in this matter, and asserting that BDW had been provided with confidential information and that it had a conflict of interest. The application presently before me was brought four days later, on 16 December seeking that BDW not act for Boswell further in relation to the second arrangement.
The evidence of Mr Forrest shows that BDW's work with respect to both arrangements has been completed and no other instructions have been received from Permanent Trustee which are in any way relevant to its original retainer with respect to the arrangement and the second arrangement.
This information, as I have mentioned, was given to him by Ms Owen. What is surprising is that upon the retirement of Ms Marshall on 28 November, Ms Owen became responsible for the work. This suggests that after the completion of the documentation on 26 November, BDW saw itself as having some ongoing involvement in the trust deed.
The work for Permanent Trustee and that for Boswell was handled by the Corporate Advisory Group of BDW in Melbourne. This group comprises some 20 partners and 50 to 60 employee solicitors, all of whom work from the same floor of the BDW office in Collins Street. The work for Permanent was, as I have mentioned, conducted under the supervision of Ms Marshall until 28 November and thereafter by Ms Owen. The work for Boswell was conducted under the supervision of Ms McDonald.
Ms McDonald says that prior to Minters letter of 12 December, she was unaware that BDW had been acting for Permanent Trustee with respect to the arrangement. I accept that this is so. No corresponding evidence was given as to the knowledge of Ms Marshall or Ms Owen.
If this is surprising, no less so is the state of mind of those handling the file at Minters on behalf of Village Roadshow. They were of course aware that BDW acted for Permanent Trustee in the preparation of the scheme documentation. It must have been apparent, too, to the person responsible for the file that in late October 2003 there was a determined opponent of the proposed arrangement, and that BDW was acting for this opponent.
Minters responded to the BDW initial letter of 30 October by a fax of the same date signed by Bart Frederick Oude-Vrielink, the partner of Minters' Corporate and Commercial Group who "had the principal role of advising" Village Roadshow with respect to the arrangements.
BDW acted as solicitor on the record on the unsuccessful application to restrain the meetings for the first arrangement on 31 October and on the unsuccessful application for approval which was before the Court on 7, 14, 18 and 20 November.
Notwithstanding his fax of a month previously, Mr Oude-Vrielink says that it was not until 22 November that he became aware that BDW was acting for both Boswell and Permanent Trustee, when it was brought to his attention by Greg Bassa, an officer of Village Roadshow. He offers by way of explanation for this, the remarkable statement that it was "due to inadvertence that I did notice this before".
The terms in which the matter was brought to his attention suggest an urgent consideration of it was required. Mr Bassa, whose company it will be recalled, paid BDW's fees, said this:
"How can a firm act for a trustee of a scheme, review the scheme booklet, and then act for another party against the interests of the trustee and challenge the scheme! Shouldn't we have picked this up? What can be done now?"
There is no evidence that Minters responded to these queries, or indeed that they did anything. Mr Oude-Vrielink says he was too busy to address this matter for some 18 days - until 10 December - when he instructed employee solicitors to prepare the Minters letter of 12 December.
The consequence of this inadvertence and subsequent failure to act is that no step was taken to stop BDW considering the revised scheme booklet and supplemental trust deed in the period from 20 November when the second arrangement was announced, to 12 December when the documents were placed before the Court.
I was pressed on behalf of BDW with this delay both as a discretionary basis for refusing relief and as leading to an inference that this application, brought on the eve of the Christmas break, was but a tactical manoeuvre to disadvantage Boswell.
Before I turn to the submissions, I should remark on one further matter arising from the evidence or lack of it. Counsel for Village Roadshow asserted a concern that the conflict which BDW had permitted to arise would be to the disadvantage of its first client, Permanent Trustee. I was pressed with an argument relying on the confidential information in its hands as solicitor for Permanent Trustee which might leak to those acting for Boswell at BDW. I was presented with the unsavoury spectacle of a solicitor acting now for a client whose objective was to strike down an arrangement which another client or former client had an interest in upholding. These submissions and inferences were, naturally enough, resisted on behalf of BDW.
When the matter of possible conflict was raised on Friday, 12 December, BDW on Monday, 15 December, contacted its client Boswell, bringing the matter to its attention. Boswell advised that it wanted BDW to continue to act, and it instructed the solicitors that they were under no obligation to disclose to it information received in the course of their retainer by Permanent Trustee.
Contrast the attitude of BDW towards its other client, Permanent Trustee. It did nothing to clarify this client's attitude. It was the client who contacted Ms Owen of BDW on 15 December, having been alerted to the difficulty by Village Roadshow. This fact, which was deposed to in her affidavit sworn on 19 December, was altogether omitted from the hearsay affidavit of Mr Forrest. I was told by counsel for BDW, and accept, that this omission was not deliberate; he has no recollection of having been told this by Ms Owen.
Ms Owen now discloses that Mr Silavecki, who was handling the matter at Permanent Trustee, suggested the matter might go away if BDW ceased to act for Boswell. Her response to him was non-committal if not evasive; he was told a decision as to this would be made shortly. It would seem that a decision to continue to act for Boswell was in fact made, but it does not appear to have been communicated to the client. Permanent Trustee was not even informed of the present applications until 19 December after I had expressed an interest in knowing its attitude. The result of this is that Mr Silavecki says that he does not believe that Permanent Trustee would support or oppose the Village Roadshow application. As an example of a solicitor's conduct towards its client or former client, this leaves much to be desired. When the question of Permanent Trustee's attitude was raised by me, counsel for BDW said that it was for Village Roadshow as applicant to show that Permanent Trustee objected. I do not agree.
Solicitors acting in the nature of a fiduciary, when faced with an allegation of conflict, should show the client's consent to the course that they would follow. And as officers of the court, they should do so with a candour which I regret was not here present.
The first submission on behalf of Village Roadshow was based on the risk or the perception of risk that confidential information obtained by BDW when acting for Permanent Trustee might be used to its disadvantage, and to the advantage of Boswell. The legal principle was not in issue.
It is sufficient to cause the Court to act if
"A reasonable person informed of the facts might reasonably anticipate a danger of misuse of confidential information of a former client and that there is a real and sensible possibility that the interest of the practitioner in advancing the case in the litigation might conflict with the practitioner's duty to keep the information confidential, and to refrain from using that information to the detriment of a former client.”[1]
[1]Sent & John Fairfax Publishing Pty Ltd [2002] VSC 429 at [33] per Nettle J.
In Prince Jefri Bolkiah v KPMG[2], Lord Millet expressed the view, apparently adopted by Brooking JA in Spincode Pty Ltd v Look Software Pty Ltd[3], that:
"Once it appears that a solicitor is in receipt of information imparted in confidence, the burden shifts to the solicitor to satisfy the Court on the basis of clear and convincing evidence that all effective measures have been taken to ensure that no disclosure will occur.'"
[2][1999] 2 AC 222.
[3](2001) 4 VR 501 at 508 [24].
It is not necessary that I resolve the apparent conflict between this statement of principle and that of Hayne J in Farrow Mortgage Services Pty Ltd v Mendell Properties Pty Ltd, that an injunction will go if there is "a real and sensible possibility of the misuse of confidential information."[4]
[4][1995] 1 VR 1 at 5.
In applying the principle it may not be possible for the client to point to a specific item of confidential information. It may be that such a requirement would defeat the very purpose of the duty of confidentiality by disclosing to the court and to the other party the information in question and its significance. It may be that this information comprises no more than the knowledge of the client's thinking, its attitudes and of the personalities involved. Given the relationship between solicitor and client and the ambit of professional confidence of which professional privilege is a manifestation, the court should, in my view, not be slow to accept the existence of such confidential communication.
In the present case it was put on behalf of Village Roadshow that this information is contained in the drafts of the documentation which passed to BDW in September and again in November. These would, it was said, shed light on the thinking of Permanent Trustee and of Village Roadshow and of the intent of the documents.
Even accepting that I should approach this aspect of the case generously, I am unable to see or to imagine that such confidential information was given to BDW. This is particularly in the context of the use which might be made of it in the appeal from the refusal of this court to approve the first arrangement or in the likely issues which may arise when the second arrangement comes back to the court, if it does come back to the court.
For this reason I reject the submission based on the apprehension of leakage of confidential information. If I were of the contrary view, I would have found that BDW has not discharged the burden which lies of it, of showing no real and sensible possibility of misuse. But it is not necessary that I say anything further about this.
I have been more troubled by the alternative submission based on the practitioner's duty of loyalty to its client and its former client and the need to uphold the special relationship between a solicitor and client. This principle, which has been usefully explored by Brooking JA in Spincode's case[5], was accepted as a correct statement of law by the parties before me. The principle does not depend upon any risk of leakage of confidential communication, it depends upon an equitable duty reposed in a practitioner, even after the client's retainer has concluded, not to act for another person in the same matter or in a closely related matter against the interests of the former client.[6] In his analysis, Brooking J likened this obligation to that of a fiduciary. As such, the solicitor might be permitted so to act, where it establishes that the former client has given an informed consent for it to do so.
[5](2001) 4 VR 501.
[6](2001) 4 VR 501 at [53].
What was said on behalf of Village Roadshow before me was that BDW in acting for Boswell in its efforts to overturn the second arrangement and to maintain its judgement to the same effect with respect to the first arrangement was in breach of its duty of loyalty to Permanent Trustee which had retained it to act in the preparation of the same arrangement. It was said that for a firm of solicitors to take money from a client for erecting a legal edifice, it should not then take a fee from some other to dismantle it.
Associated with this perhaps, is the further public policy consideration discussed by Nettle J in Sent's case.[7] This involves a consideration of what a fair minded reasonably informed member of the public might think of the administration of justice which permitted this to occur.
[7][2002] VSC 429 at [111]-[116].
The first question is whether the matter for which BDW was retained by Permanent is the same matter or is related to the subject matter of the Boswell retainer. This question should not be determined by the taking of fine distinctions. The principle which underlies this question requires an examination of the substance of the relationship.
It is clear enough that Permanent Trustee is part of a team of consultants who have come together to create and implement the arrangements. It appears as such in the scheme booklet. Its legal fees for this purpose were paid by Village Roadshow. Its interest as a member of this team is antithetical to that of Boswell whose interest it is to defeat the arrangements.
I am satisfied that the work of BDW in the preparation of the trust deed is sufficiently related to its work in opposing the arrangement of which the deed is part to attract the principle presently under consideration.
The focus then turns to the reaction of the supposed well-informed reasonable bystander. Such a person is presumed to know that the duty of a solicitor to its client is to bring to the interests of the client all of its skill and knowledge. It is difficult to reconcile this obligation with the reservation of a compartment of this knowledge. The suppositious person would doubtless know that the law protects his or her confidential communications with a solicitor in various ways. An apprehension that the solicitor might act in a related transaction for a person with an adverse interest, would be likely to erode this confidence. Finally, the person is likely to find it distasteful that a solicitor, having accepted a client's coin for its labours, can on its client's behalf, go over to the other side and accept a fee for striving to disadvantage the client in the same or a similar matter.
Nor is this reaction likely to be affected by the solicitor's promise, as is offered by BDW in the present case, that it "Will not act for any party other than Permanent Trustee as to any matter arising out of the trust deed." Who is to be the judge of this? the bystander might wonder. To this might be added the question: where does the duty of the solicitor would lie if, in the course of the next few months, an issue concerning the trust deed became exposed in the course of litigation which might be expected to ensue?
The answer of the bystander to these questions is that suggested by Mr Selaveki to Ms Owen on 15 December: the whole matter would go away if BDW ceased to act for Boswell.
I was pressed with the difficulties which are faced by large firms of solicitors in identifying the similarity of a matter in order to decide whether to accept instructions. It is a notorious fact that a good deal of commercial litigation in this state is conducted by a handful of very large firms. How is a client to obtain the services of one of them if the conflict rule is applied too strictly? To my mind, this is the price which the clients of such firms and the firms themselves must pay. The firms have found it commercially convenient to become large. This is but one disadvantage of this trend. It is certainly no reason for the courts to weaken the traditionally high standard of a practitioner’s loyalty to the client which have characterised the practice of law in this State.
I conclude therefore that in accepting the retainer from Boswell in October, BDW was in breach of its duty of loyalty to Permanent Trustee.
The relief sought is discretionary. On behalf of BDW I was pressed to doubt the bona fides of the application. It was brought late and without convincing explanation and at a time which strongly suggests that it was but a tactical ploy to disadvantage Boswell. I am inclined to agree. The protestations of Village Roadshow of its concerns for the interests of Permanent Trustee certainly have a hollow ring.
It was pointed out that Permanent Trustee has made no complaint about the prospect that BDW would continue to act for Boswell. I remind myself that it has not positively consented to this course. I was invited in these circumstances to defer to the commercial judgment of experienced and well-advised commercial organisations in an essentially commercial dispute and, in particular, to the non-opposition of Permanent Trustee.
The force of this submission is somewhat diminished by the evidence of the actual attitude of Permanent Trustee. The immediate reaction of Mr Selaveki when informed on Friday last of the application, was that Permanent would not want "to be dragged into" this application. It is further diminished when it is appreciated that what is here in issue is the concern of the court to uphold the public confidence in a solicitor/client relationship where the client does not affirmatively approve the conduct of its solicitor.
It was put that Permanent Trustee and Village Roadshow had acquiesced in relation to BDW acting in the past and continuing to act for Boswell in the future.
As to Permanent Trustee, it is difficult to see any acquiescence. The acquiescence of Village Roadshow, if it be relevant, depends upon my rejection of the evidence that Minters were unaware of the conflict. Mr Bassa of Village Roadshow certainly protested in his email of 22 November.
I was referred to the Queensland case of South Black Water Coal Ltd v McCulloch Robertson[8] where Muir J found that the client, being aware of the possible conflict arising out of the solicitor advising its opponent, nevertheless decided not to complain about this and in fact, communicated this fact to the opponent. In these circumstances, His Honour, not surprisingly, declined to make an order at the behest of the client restraining the solicitor from acting. This is not such a case.
[8]Unreported, 8 May 1997.
I have been gravely troubled by this case, but in the end I have formed a clear view that the work of BDW for Permanent Trustee is so closely related to the interests of Village Roadshow that it would be unacceptable that the firm continue to act for Boswell, at least without the clear approval of its earlier client. I will make the orders sought.
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