L&M Coal Holdings Limited v Bathurst Resources Limited
[2017] NZHC 2333
•26 September 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE WHANGANUI-Ā-TARA ROHE
CIV 2016-485-1770 [2017] NZHC 2333
BETWEEN L&M COAL HOLDINGS LIMITED
Plaintiff
AND
BATHURST RESOURCES LIMITED First Defendant
AND
BULLER COAL LIMITED Second Defendant
Hearing: 18 September 2017 Appearances:
M OʼBrien QC for Plaintiff/Respondent
M Colson and D MacKenzie for the Defendant/ApplicantJudgment:
26 September 2017
INTERLOCUTORY JUDGMENT OF DOBSON J
[application to disqualify plaintiffʼs solicitors]
CONTENTS
Scope of CT’s work for Bathurst ........................................................................[8] Bathurst’s objection ...........................................................................................[22] The test for disqualification...............................................................................[24] Bathurst confidential information ....................................................................[35] Risk of use? .........................................................................................................[52] Alleged breaches of the Client Care Rules .......................................................[62] Delay in bringing the application......................................................................[80]
[1] This judgment deals with an application bought on behalf of the defendants (Bathurst) to disqualify the plaintiff’s present solicitors, Chapman Tripp (CT) from acting further in the proceedings. CT acted for Bathurst on aspects of the transaction
at issue in the proceedings and on other matters to an extent that Bathurst now claims
L&M COAL HOLDINGS LIMITED v BATHURST RESOURCES LIMITED [2017] NZHC 2333 [26 September 2017]
CT has a conflict of interest sufficient to require the Court to disqualify that firm from acting.
[2] At issue in the proceedings are the terms on which the plaintiff (L&M) sold all the shares in the second defendant to Bathurst in 2010. The second defendant has mining permits to extract coal in the Denniston area in the South Island. The sale of all L&M’s shares to Bathurst was initially advanced by commercial negotiations between the parties from no later than November 2009. In the agreement for sale and purchase (ASP) completed by the parties and dated 10 June 2010, the total consideration for the shares was broken into an initial deposit of US$5,000,000, consideration of a further US$35,000,00 to be paid on settlement date, royalties payable on coal extracted from the permitted areas, and certain performance payments. The ASP required Bathurst to pay the first performance payment of US$40,000,000 within 30 days of the date on which the first 25,000 tonnes of coal had been shipped from the permit areas.
[3] Production from the permitted areas has exceeded 25,000 tonnes but Bathurst has denied liability to make the first performance payment, primarily on two grounds. First, that in the context of this contract, the reference to coal “shipped” means coal exported from New Zealand, and that the requisite volume of coal has not been exported.
[4] Secondly, Bathurst relies on an amendment to the ASP completed in 2012 which added a new clause, 3.10, in the following terms:
For the avoidance of doubt, the parties acknowledge and agree that a failure by the Purchaser to make, when and as due, a Performance Payment is not an actionable breach of or default under this Agreement for so long as the relevant royalty payments continue to be made under the Royalty Deed.
[5] Bathurst’s obligations to pay royalties were provided for in a separate royalty deed. Royalties were initially payable at the rate of 10 per cent of gross sales revenues until Bathurst had made payment in cash of the US$40,000,000 that became payable when 25,000 tonnes of coal had been shipped. Thereafter, the royalty rate would drop to five per cent and after payment of a second performance payment of US$40,000,000 that would become payable after total production
shipped reached one million tonnes, the royalty rate would drop further to 1.75 per cent of the gross sales revenues.
[6] Bathurst interprets these provisions as affording it an option to defer making the first performance payment of US$40,000,000, on the basis that the deferral of that payment prolongs the obligation to pay royalties at 10 per cent of gross sales revenues until the performance payment is made.
[7] L&M has pursued its claim on the basis that the effect of the amendment does not afford Bathurst an open-ended option. L&M will argue that for the ASP to work in its amended form an implication arises that Bathurst may only defer the obligation to make the performance payment while certain conditions are met. Those conditions include Bathurst continuing to produce from the mine and make substantive coal sales so that royalty payments provide commercial value for L&M while it is denied receipt of the performance payment that is otherwise owing.
Scope of CT’s work for Bathurst
[8] Bathurst is based in Australia and had its then Perth-based solicitors (Allion) acting for it on the negotiation of terms of the ASP. In 2010 L&M was a relatively longstanding client of CT and had CT acting for it on the ASP.
[9] On 4 May 2010 Mr John Holland, a partner in the Christchurch office of CT, emailed the managing director of Bathurst with a proposal for CT to act for Bathurst. The email included the following:
I attach our proposal to assist you with your initial capital raising activity and potentially as a provider of ongoing legal services.
We have had an initial discussion with L&M and advised we consider it unlikely once the current transaction with L&M is completed there would in the future be a legal dispute between the two clients. However, in the event of a legal dispute, we would request you agree that we could not act for Bathurst Resources in the dispute with L&M, and that you would not object to our Wellington office acting for L&M in relation to the dispute (on the basis they were the initial client). I trust this appears reasonable, and is satisfactory to you.
[10] On 19 May 2010 the managing director of Bathurst replied to Mr Holland with a copy to the relevant principal at Allion, Mr Philip Lucas. That email began:
We have reviewed your proposal and are comfortable with the understanding that in the event that there is a dispute with L&M you would be unable to act for us. We would therefore like to move forward.
[11] Within minutes of that email being despatched, Mr Lucas at Allion emailed Mr Holland recording his understanding that Mr Holland had been appointed to act for Bathurst in New Zealand. The email attached two draft versions of the ASP including Allion’s comments and suggested edits. Mr Lucas requested:
Would you be available for a conference call to discuss the [ASP] and in particular any edits required from an NZ resources perspective?
[12] The only evidence of the provision of advice by Mr Holland to Bathurst between 19 May and 10 June 2010 is a single email on 19 May 2010 despatched by Mr Holland. Bathurst have claimed solicitor/client privilege in respect of that communication and it was not among the documents in evidence on the application before me. During the argument I invited Mr Colson to take instructions on whether Bathurst would be prepared to provide a copy of that communication to me on the basis that it would not be available to those acting for L&M. In the course of his submissions, Mr O’Brien QC had criticised the absence of that initiative given the focus that L&M insisted should be given to the scope of any confidential information claimed to provide grounds for Bathurst to bring the present application.
[13] Bathurst elected to provide the document for me and I received the relevant exchange attached to a memorandum from Bathurst’s counsel on 22 September
2017. I sought clarification of the extent to which privilege was claimed for the documents. My questions were answered promptly which clarifies the status of the documents. In the end, the extent of privilege claimed is not relevant to the issues I presently have to resolve.1
[14] Mr Holland’s email made eight comments about the implications for specific
provisions in the draft ASP that arose because of matters of New Zealand law. It
1 The terms of clarifications provided informally by Bathurst’s solicitor produced a memorandum in response on behalf of L&M dated 25 September 2017. No additional comment is required.
does not reflect possession by Mr Holland of any more information about the transaction than he would have gleaned from a consideration of the then drafts of the ASP. Nor does his response seek any information from Bathurst.
[15] The ASP was conditional on Bathurst obtaining necessary consents under the Overseas Investment Act 2005 (OIA) and also ministerial consents under s 41 of the Crown Minerals Act 1991. Those matters were attended to between execution of the agreement on 10 June and settlement.
[16] Ms Brigid McArthur, then a partner in CT’s Wellington office, drafted the OIA application for Bathurst. For the most part, that work and the similar work in obtaining consents to the transaction under the Crown Minerals Act was undertaken on a cooperative basis between the parties although some details, such as the shareholdings in L&M, were conveyed by CT on a unilateral basis to the authorities and were not copied to Bathurst.
[17] The OIA application was lodged on 28 July and consent granted on 7 October
2010. The other necessary regulatory consents were also obtained.
[18] Settlement of the transaction was scheduled for 9 November 2010. In anticipation of that on 27 October 2010 Mr Holland emailed Ms McArthur to inquire about his being involved in a limited way for Bathurst on settlement. His email contained the following:
I understand your settlement with Bathurst is on 9 November and Phil [Mr Lucas of Allion] told me physical settlement would be in Christchurch. Assuming Phil and you have sorted everything out prior to settlement, it is not his intention to fly to Christchurch from Perth for settlement, and he wants me to act as Allion’s agent on settlement to collect the settlement documentation etc.
If I tell Phil we could act just as agent, is that going to be okay with L&M? it would have to be made very clear if there was a problem at settlement he would need to be directly involved.
[19] Later the same day Ms McArthur responded to Mr Holland in the following terms:
Yes that will be fine; I have already checked with L&M and they are OK with that provided it’s that sort of role (I was conscious of the basis on which they agreed to us acting for [Bathurst]). And yes, we’ll exchange docs etc in advance as drafts so should be pretty smooth.
[20] In July 2012 Bathurst requested an amendment to the ASP in the terms described at [4] above. By that time Ms McArthur had left CT and was with Greenwood Roche Chisnall. She was instructed by L&M to prepare the amendment. An email from her on 23 July 2012 to Bathurst personnel, copied to Mr Greg Hogan at L&M, annexes a draft of the deed of amendment which had been approved by L&M and was for Bathurst’s consideration.
[21] In 2013 Bathurst instructed Russell McVeagh to act for them on a capital raising in New Zealand. Mr David Clarke at Russell McVeagh sought a discussion with Ms McArthur (still in practice at Greenwood Roche Chisnall) to confirm L&M’s understanding of the ongoing payment obligations that Bathurst had assumed under the ASP. With L&M’s agreement, such a meeting took place and emails have been discovered that record Russell McVeagh’s understanding of Ms McArthur’s then view of the effect of the amendment to the ASP. This was to the effect that deferral of the performance payment could occur subject to Bathurst continuing to pay royalties at the higher rate. Although the documents are not explicit on the point, for present purposes I infer that Ms McArthur was copied in with Russell McVeagh’s understanding of her view of the relevant commitment at the time.
Bathurst’s objection
[22] Those involved in the litigation for Bathurst claim to have only discovered relatively recently the extent to which CT acted for it on the transaction and related matters. They pursued an objection to CT continuing to act against Bathurst. CT refused to remove itself from the proceedings and the present application was filed on 25 August 2017. The grounds for the Bathurst application are CT’s alleged breaches of provisions in the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Client Care Rules) that require practitioners to maintain their independence, and which regulate the protections lawyers must maintain to preserve the confidentiality of information received from or conveyed to former clients. Bathurst claimed that CT has not maintained adequate protections for the
confidential information derived from Bathurst in the course of acting for it Further, Bathurst intends calling evidence from Ms McArthur and, on the basis she was at CT at material times, CT could not cross examine Ms McArthur without the Court’s consent which ought not to be granted.
[23] In addition, Bathurst relies on the Court’s inherent jurisdiction to supervise the fairness and appearance of fairness in proceedings where that might be compromised by solicitors acting against former clients.
The test for disqualification
[24] Any non-compliance with professional rules such as the Client Care Rules cannot dictate the outcome in the assessment of the entitlement of CT to act. In formal terms the finding of a breach and consequences of it would be a disciplinary matter for the Law Society. However the observation of Richardson J in Black v Taylor remains apposite that such rules express the profession’s own collective judgement as to the standards to be expected and they do reflect some indication of
relevant public policy concerns.2 More recently the Court of Appeal has recognised
that the current Client Care Rules may be relevant to a court’s decision to debar counsel.3 I will assess each of Bathurst’s allegations of CT’s non-compliance with Client Care Rules as a measure of what might reasonably be expected of the firm in conducting litigation.
[25] The outcome depends on a wider evaluation, as Richardson J put it in Black v
Taylor:4
Disqualification will ordinarily be the appropriate remedy where the integrity of the judicial process would be impaired by counsel’s adversarial representation of one party against the other. The decision to disqualify is not dependent on any finding of culpable conduct on the lawyer's part. Disqualification is not imposed as a punishment for misconduct. Rather it is a protection for the parties and for the wider interests of justice. The legitimacy of judicial decisions depends in large part on the observance of the standards of procedural justice. Where the integrity of the judicial process is perceived to be at risk from the proposed or continuing
2 Black v Taylor [1993] 3 NZLR 403 (CA) at 409.
3 Accent Management Ltd v Commissioner of Inland Revenue [2013] NZCA 155, [2013] 3 NZLR
374 at [33].
4 Above n 2, at 412.
representation by counsel on behalf of one party, disqualification is the obvious and in some cases the only effective remedy although considerations of delay, inconvenience and expense arising from a change in representation may be important in determining in particular cases whether the interests of justice truly demand disqualification.
[26] In Black v Taylor the challenge was to participation by counsel who had acted for various members of the Taylor family for a substantial number of years. The breadth of instructions would have given that counsel a familiarity with the financial circumstances of the plaintiff, the complexity of family relationships and strategic reasons for the plaintiff ’s conduct in business matters. Counsel had elected to act for defendants in family related proceedings.
[27] Mr Colson argued that the same approach and standards should apply in analysing Bathurst’s presents concerns. For L&M, Mr O’Brien resisted that analogy. He submitted an informed observer would perceive a stark difference between the present litigation and litigation where counsel had a longstanding role as a family’s lawyer but then took sides to oppose intra-family claims brought by a family member who was among those counsel had acted for. The present litigation involves a commercial contract dispute where a measure of overlap in provision of legal services at an earlier point was efficient, and was agreed to on terms that did not compromise a much longer standing solicitor/client relationship between L&M and CT.
[28] Some five years after Black v Taylor the Court of Appeal considered the approach to disqualifying solicitors acting on transactions in Russell McVeagh McKenzie Bartleet & Co v Tower Corp.5 In that case Russell McVeagh was acting for GPG in an attempted hostile takeover of Tower. Russell McVeagh had previously provided advice to Tower on a tax dispute which was dealt with by a partner in the firm’s Wellington office. Sometime before the tax dispute was resolved, the firm’s Auckland office was approached to act for GPG on its hostile takeover initiatives. The Wellington tax partner advised those considering whether
to accept GPG’s instructions that his role was a specialised and narrow one and he
saw no reason why others, excluding him, should not act for GPG. Once Russell
McVeagh’s involvement was known and Tower objected, Russell McVeagh instituted
5 Russell McVeagh McKenzie Bartleet & Co v Tower Corp [1998] 3 NZLR 641 (CA).
arrangements to segregate the Wellington tax team so that no information should leak to those acting for GPG.
[29] By the time Tower’s objection reached court the hostilities between Tower and GPG had generated “litigation on several fronts”. Tower’s application to disqualify Russell McVeagh sought a general prohibition, not restricted to their appearing in litigation between the parties. Mr Colson submitted that the broader scope of the disqualification sought was a relevant distinction from the present circumstance because, in Russell McVeagh, the sole issue was the risk of Tower’s confidential information as conveyed to Russell McVeagh being applied against Tower’s interests in Russell McVeagh’s work for GPG. Where an application for disqualification is confined to the conduct of litigation, Mr Colson suggested there is an overlay of the Court’s concern that justice should not only be done, but that it should be seen to be done.
[30] I bear that additional consideration in mind, but am not persuaded that it materially reduces the relevance of the approach adopted in the Court of Appeal’s analysis in Russell McVeagh. The majority of a five Judge court, including Richardson P whose judgment in Black v Taylor is helpful in illustrating the approach, distinguished Black v Taylor on the basis that the factual situation and the legal implications in Black v Taylor were far removed from the positions of Tower
and Russell McVeagh.6
[31] After reviewing the approach in other jurisdictions, the majority in Russell
McVeagh approached the issue in the following way:7
Three questions emerge. The first is whether confidential information is held which if disclosed is likely to affect the concerned (former) client’s interest adversely. The second is whether in the particular factual circumstances, viewed objectively there is a real or appreciable risk that the confidential information will be disclosed. The third, which arises if the first two questions are answered affirmatively, is whether recognising the significance and importance of the special fiduciary relationship which gives rise to the duty of protection, the Court’s discretionary power to disqualify should be exercised.
6 At 649.
7 At 651.
[32] Shortly after the Court of Appeal decision in Russell McVeagh the House of Lords rejected the component requiring an assessment of a real or appreciable risk. In Prince Jefri Bolkiah v KMPG Lord Millet treated the balancing exercise inherent in that assessment as inappropriate.8
[33] With the exception of the nature of the perceived risk of disclosure, as it is to be assessed, the House of Lords adopted a consistent approach. I am not persuaded that the point of difference requires the Court to qualify the approach adopted in Russell McVeagh.
[34] In adopting the approach used by the majority of the Court of Appeal in Russell McVeagh the focus is on the former client’s expectation of protection of its confidential information. After applying that approach a residual consideration is to reflect whether an outcome confined to the need for protection of Bathurst’s confidential information adequately addresses the perception of justice being done in the particular litigation.
Bathurst confidential information
[35] CT’s notice of opposition disputed that the firm had been provided with confidential information by Bathurst that could be relevant in respects that were adverse to Bathurst’s interests in the litigation. That challenge was maintained strongly by Mr O’Brien in his submissions opposing the application. He criticised the lack of any specific examples of such information that had been conveyed, or any list of the types of information involved.
[36] Mr Colson resisted any obligation to identify specific information, or topics on which Bathurst had conveyed confidential information to CT in the course of instructions given to the firm. He submitted that it necessarily followed from Bathurst instructing CT in relation to the ASP that the communications between them would inevitably involve confidential disclosures by Bathurst personnel. They would logically relate to its views about the ASP, and were therefore relevant to the disputed interpretation of its terms that is now the subject of the litigation.
[37] I am not prepared to make an assumption that relevant confidential information must necessarily have been conveyed as a matter of course simply from the fact that CT was instructed to act. This factual assessment needs to be undertaken on all the detail that is known of the relevant solicitor/client relationship. I agree with Lord Millet’s approach in Prince Jefri that there is a burden of proof on
the applicant for a disqualification order, although “it is not a heavy one”.9
[38] Although the extent to which confidential information passed to solicitors or conveyed by them will necessarily depend on the context of the solicitor/client relationship and the instructions in each case, my expectation that Bathurst provides some indication of the types and extent of confidential information conveyed is consistent with the approach adopted in other cases.
[39] In Russell McVeagh the instructions Tower provided to the firm were confined to the matters arising in the tax dispute on which it was asked to act. It appears that Tower’s regular solicitors had some involvement in the tax dispute being referred to Russell McVeagh. Tower claimed that the information conveyed to the tax partner gave him insights into the way in which Tower operated its business affairs, how it approached negotiations, its management mores and corporate culture, the management structure and its interface with other advisers. The Court of Appeal tested that claim against specific information identified in evidence filed in support of the disqualification application. The Court undertook an analysis of the relevance and sensitivity of the information, rejecting some of Tower’s claims for its relevance.
[40] In the Torchlight Fund litigation an interlocutory application was brought successfully to restrain Buddle Findlay from acting further in proceedings.10 In that case Buddle Findlay had accepted instructions to sue a prominent Christchurch businessman, Mr Kerr, and related entities after having acted for him for 14 years. During that period he had been a major client of the firm, which had handled
hundreds of files for him and his entities.
9 At 235.
10 Torchlight Fund No 1 LP (in rec) v NZ Credit Fund (GP) Ltd [2014] NZHC 2552, [2014] NZAR
1486.
[41] Mr Kerr complained that he had worked with a number of lawyers at the firm, and that the firm had gained an intimate knowledge of him personally, his business activities, his assets and their location, and his mode of operating. The evidence and the pleadings in those proceedings were sufficient for the Judge to make a finding that the confidential information held by Buddle Findlay could be relevant in respects adverse to Mr Kerr’s interests in the litigation. The extent of the instructions fixed Buddle Findlay with knowledge, particularly concerning Mr Kerr’s borrowing and lending activities, which were relevant to the issues in the proceedings.
[42] Bathurst has not provided any evidence from any of the personnel involved at the time as to the confidential information conveyed to CT. Nor have any documents been produced which contain or identify any information provided. The present general counsel for Bathurst has deposed that Bathurst’s principal executive who negotiated the ASP, Mr Hamish Bohannan, left Bathurst in March 2015 and all his emails were deleted after his departure. Turnover in personnel does not excuse Bathurst from having to establish at least an outline of the information that was conveyed confidentially.
[43] The communications that have been disclosed do not identify any topics on which confidential information would have passed to CT up to the point at which the terms of the ASP were settled and it was signed.
[44] It was argued for CT that the communications from that time that are available point away from the retainer being one that would extend to relevant confidential information. Mr Holland’s initial 4 May 2010 offer to act for Bathurst did not contemplate the provision of advice on the terms of the ASP. 11
[45] Allion remained the principal advisers to Bathurst on the ASP. The then drafts were referred by Mr Lucas to Mr Holland on 19 May 2010 suggesting that there be a particular focus for CT on “any edits required from an NZ resources perspective”. Mr Holland’s email did that. When anticipating settlement Mr Holland’s email exchange with Ms McArthur suggested a limited role as agent for
Allion with that firm retaining full responsibility for dealing with any issues that arose at the settlement.
[46] The dominant role retained by Allion and the limited scope on which Mr Holland volunteered he might act, in a context where CT stated that it would prefer L&M’s interests over Bathurst and would act for L&M in the case of a dispute do suggest a limited role for CT on this transaction. Certainly the circumstances as best they can be reconstructed fall substantially short of justifying an assumption that the relationship necessarily involved Bathurst conveying to CT confidential information that related to the ASP.
[47] Bathurst also relies on work undertaken for it by CT after the ASP was signed as outlined at [16] and [17] above. Bathurst have been provided with all files maintained for them by CT, apparently including the file or files maintained in relation to the OIA application. Again, no specific items of information that Bathurst claims to be confidential have been identified in the course of that work by CT. Nor have specific topics on which confidential information was likely to be shared been suggested.
[48] For the most part, procuring the necessary regulatory consents was a collaborative process because both parties shared an interest in the approval being obtained so that the transaction could proceed.
[49] Ms Eleanor Milne, a solicitor at Minter Ellison Rudd Watts (Minters) involved in the proceedings for Bathurst, has produced a summary of the contents of all the CT files for its work of various types done for Bathurst. That has been annexed as schedules to an affidavit she has sworn in support of the application. Mr O’Brien was critical of the schedules for having conflated various categories of work (most particularly work advising on the ASP, and on settlement). Superficially those schedules suggest relatively extensive work. The evidence is that Bathurst paid CT a total of some $2.4 million for legal work undertaken between November
2011 and July 2014.
[50] Ms Milne’s list of tasks includes participation in due diligence, advice on L&M giving “financial assistance” to Bathurst to purchase L&M’s shares, providing advice and assistance on incorporating a New Zealand subsidiary, and participation in the applications needed for the transaction to be completed. The scope of those tasks raises a likelihood that Bathurst conveyed confidential information to CT that may have had relevance to the transaction. However the prospect of that occurring without there being any record or reference to it in all of the files that have been provided and analysed by Ms Milne is a relatively remote one. Her summary is not enough to discharge the onus on Bathurst to establish the nature and extent of confidential information on relevant topics that was provided to CT.
[51] Accordingly my answer to the first of the three questions posed in Russell McVeagh is that Bathurst has not established that CT holds any confidential information obtained from or provided to Bathurst that might apply adversely to its interests in the proceeding.
Risk of use?
[52] In the event that I am wrong to reject Bathurst’s claims that CT must necessarily have been in possession of confidential information relevant to issues in the proceeding, I also consider the risk that such confidential information has been or could be used adversely to Bathurst’s interests in the proceedings.
[53] None of the CT personnel working on the proceedings had any involvement with Bathurst before instructions were received on the present claim.
[54] Mr Daniel Kalderimis, the Wellington litigation partner responsible for this proceeding, has completed an affidavit explaining the lack of access that he and those in his team working on the proceeding could have had to any of the files maintained by CT for Bathurst. Mr Kalderimis states that one of his commercial partners, Mr Bradley Kidd, has been acting for L&M adversely to Bathurst on the commercial issues that evolved into this dispute. Mr Kalderimis took over authorship of the pre-proceedings correspondence in early November 2016. Mr Richard Gordon, a litigation partner at Minters, fulfilled the equivalent role for Bathurst from late November 2016.
[55] At the outset of his involvement, Mr Kalderimis raised with Mr Kidd and CT’s Wellington managing partner whether a formal conflict check was required. They decided it was not, given the length of time that the firm had already been acting adversely to Bathurst.
[56] Mr Kalderimis was aware that CT had acted for Bathurst on resource consent issues. That had involved litigation managed by Ms Jo Appleyard of the Christchurch office in which Mr Jack Hodder QC (senior counsel for Bathurst in the present litigation) had also appeared. Ms Appleyard did not convey any concerns when Mr Kalderimis discussed the matter with her.
[57] In April 2017 Mr Kalderimis became aware from Land Information New Zealand’s website that Ms McArthur was listed as a contact person for Bathurst in the OIA application made in 2010. He did not consider the work involved in what appeared to be a routine administrative application gave rise to any conflict of interest. However he recognised that any confidential communications between Ms McArthur and Bathurst that might be recorded on CT’s file for that work should not be accessible to him. He therefore requested that an information barrier be put in place to prevent anyone on his team having access to Bathurst’s OIA application file. That barrier was extended to any other files that CT may have held for Bathurst.
[58] Mr Kalderimis subsequently became aware of the prospect that information might separately be held relating to work undertaken for Bathurst in the name of its subsidiary (the second defendant). Once the existence of such files was confirmed, Mr Kalderimis directed that the information barrier be extended to those files.
[59] Mr Kalderimis confirmed in his affidavit that neither he nor any member of his team had seen any part of the CT files maintained for Bathurst. Nor have they sought any access to any of them. Nor have any of the personnel involved in these proceedings sought to discuss the matter with Mr Holland or with Ms McArthur.
[60] Mr Colson acknowledged that Bathurst does not dispute Mr Kalderimis’ unqualified assurances that no confidential information provided by Bathurst has been accessed by any of those working on the proceeding. However Mr Colson
submitted that the test should not be resolved by self-certification on behalf of the firm allegedly conflicted by possession of relevant confidential information derived from a former client against whom it was now acting. Arguably a sufficient conflict of interest arose because CT was in a position where it could access Bathurst’s confidential information, and that conceptual possibility should be sufficient to require CT’s disqualification.
[61] Mr Colson supported this stance by his arguments on the extent to which CT’s conduct was allegedly in breach of the Client Care Rules, and also by citing the requirement where conflicts arise in litigious situations that justice needs to be seen to be done.
Alleged breaches of the Client Care Rules
[62] Mr Colson submitted that the extent of breaches of the Client Care Rules he attributed to CT made it untenable for it to continue so that an order disqualifying CT from further participation was justified. First he cited alleged breaches of the prohibition in r 8.7 on use of confidential information. A number of the provisions in that Rule were raised in argument. It provides as follows:
8.7A lawyer must not use information that is confidential to a client (including a former client) for the benefit of any other person or of the lawyer.
8.7.1A lawyer must not act for a client against a former client of the lawyer or of any other member of the lawyer’s practice where–
(a) the practice or a lawyer in the practice holds information confidential to the former client; and
(b) disclosure of the confidential information would be likely to affect the interests of the former client adversely; and
(c) there is a more than negligible risk of disclosure of the confidential information; and
(d) the fiduciary obligation owed to the former client would be undermined.
8.7.2Rule 8.7.1 is not breached where there is an effective information barrier between the lawyer who holds the
confidential information of the former client and the lawyer who proposes to act for the new client.
8.7.3 An information barrier is effective when, in all the circumstances, there is a negligible risk that the confidential information in respect of the former client will be or has been disclosed to the new client or to any lawyer acting for the new client.
8.7.4Unless the lawyer is unable to contact the former client, particulars of any information barrier must be disclosed to the former client prior to the lawyer commencing to act for the new client.
8.7.5For the purposes of this rule 8.7, confidential information is presumed to be held by a practice when any lawyer who is a member of the practice has been a member of another practice that held the confidential information when that lawyer was a member, unless the lawyer concerned can demonstrate that he or she is not aware of the relevant confidential information.
[63] Mr Colson argued that r 8.7.1 applied on the premise that the extent of work done by CT for Bathurst must inevitably have resulted in CT holding information that was confidential to Bathurst as a former client. Further, he argued disclosure of that information was likely to be adverse to Bathurst’s interests and that there was a more than negligible risk of such disclosure.
[64] I am not satisfied that Bathurst has made out a breach of that rule by CT. Bathurst has been unable to identify confidential information that it provided to CT, the disclosure of which would be likely to adversely affect Bathurst’s interests. Without any argument to the contrary, I have accepted CT’s unqualified assurance that no resort has been had to any such confidential information as may be held, and the information barriers now in place do not leave scope for any more than a negligible risk of disclosure in the future.
[65] Information barriers have only been put in place within CT for the files maintained for Bathurst since April 2017, and for the second defendant since June or July 2017. Mr Colson argued that the delay between Mr Kidd accepting instructions, and more particularly Mr Kalderimis taking over the instructions for L&M when litigation was commenced (that is, 2015 and late 2016 respectively), put CT in
breach of r 8.7.4 because the information barrier was not put in place and disclosed to Bathurst prior to CT accepting instructions to act on the claim for L&M.
[66] Because the information barriers were not in place when CT accepted the instructions to act on this claim, arguably CT could not bring itself within rr 8.7.2 and 8.7.3 and those provisions therefore cannot be used to establish that there is a reduction to a negligible risk of disclosure of confidential information.
[67] I am not satisfied that the evidence establishes any substantial or meaningful breach of these Rules. No grounds were suggested for rejecting Mr Kalderimis’ evidence that those involved in pursuing the claim for L&M were unaware of the extent of prior instructions CT had received from Bathurst. Once it is accepted that there was no leakage of confidential information to those acting on the claim, which is the relevant focus for concerns to protect a former client’s interests, I consider that any non-compliance with these Rules is in technical or minor respects. The purpose of the Rules is to emphasise the importance of protecting the confidentiality of information retained on behalf of a former client. No compromise of its confidentiality has been made out as a live issue.
[68] Mr Colson relied on two aspects of r 13.5 of the Client Care Rules, in particular these provisions:
13.5A lawyer engaged in litigation for a client must maintain his or her independence at all times.
…
13.5.2 If, after a lawyer has commenced acting in a proceeding, it becomes apparent that the lawyer or a member of the lawyer’s practice is to give evidence of a contentious nature, the lawyer must immediately inform the court and, unless the court directs otherwise, cease acting.
13.5.3 A lawyer must not act in a proceeding if the conduct or advice of the lawyer or of another member of the lawyer’s practice is in issue in the matter before the court. This rule does not apply where the lawyer is acting for himself or herself, or for the member of the practice whose actions are in issue.
[69] First, on Bathurst’s analysis, L&M’s perceived need to imply a term as to the scope of the additional cl 3.10 (as quoted at [4] above) means that the document as completed did not reflect all of L&M’s requirements to record the terms of the transaction. That suggests an inadequacy on CT’s part so that it will be participating in the litigation with a view to defending its own conduct and avoiding the consequences of a finding that its drafting was inadequate. Bathurst relies on the decision of Thomas J in Kooky Garments Ltd v Charlton in which the Court ordered the disqualification of a law firm where its appearance in the proceedings would, in a
real sense, amount to its defending its own actions or advice. 12
[70] Secondly, Bathurst intends to call evidence from Ms McArthur. On the basis that for present purposes she should still be considered a member of CT, r 13.5.2 will arguably preclude CT acting in the proceeding without a direction from the Court.
[71] Bathurst’s submissions foreshadowed contentious evidence from Ms McArthur because of the role she played at various stages: in 2010 acting for L&M on the ASP and for Bathurst in obtaining OIO consent; in 2012 advising L&M on the amendments to the ASP; and then in August 2013 advising L&M when Bathurst sought its agreement about the description of the ASP arrangements for inclusion in capital raising documents that were being drafted at the time.
[72] As to the first of these points, CT denies that the proceeding will involve any need to defend its own conduct. The need for the implication into the new cl 3.10, or an implied term to be read alongside it, arguably arose only from the terms of that amendment. CT was not involved at that stage with the legal work, which was done by Ms McArthur in her capacity as a partner of Greenwood Roche Chisnall. No alleged inadequacy in the terms of the original ASP has arisen, so it is not, on CT’s analysis, a situation as arose in the Kooky Garments case where a law firm would need to defend its own conduct.
[73] As to the second issue and the prospect of Bathurst calling Ms McArthur, CT’s responses were, first, she is no longer a member of its practice so that the provisions of r 13.5.2 do not apply. Secondly, L&M questions whether the Court
would issue a subpoena for her to appear because there is no relevant evidence she could give as a result of her instructions from Bathurst. Ms McArthur would be obliged to claim privilege for all her involvement on L&M’s behalf and her involvement for Bathurst is adequately recorded in admissible documents, so any admissible evidence would in any event be uncontentious. Thirdly, CT might reasonably expect the Court to direct that her appearance as a witness for Bathurst did not require CT to disqualify itself from the whole proceeding given the arrangement in place for senior counsel instructed, Mr Galbraith QC, to conduct any cross-examination that may become necessary.
[74] It is impossible to rule out the prospect that CT’s representation of L&M in the drafting of the ASP, and other matters relevant to the present attempt to enforce the performance payment provision, might give rise to questions over the competence of the relevant work. However that prospect is relatively remote and certainly does not arise on the present state of the issues so as to characterise CT as necessarily defending its own position in pursuing the claim. This is not comparable to the position of the lawyers who were disqualified in the Kooky Garments case.
[75] Nor do I consider the prospect of Bathurst requiring evidence from Ms McArthur brings r 13.5.2 into play. Her involvement in drafting the OIA application for Bathurst appears to be non-contentious work in which the parties had a common interest. Nor has any relevance been attributed to the terms on which that application was lodged in relation to the contested issues of interpretation of the payment provisions in the ASP. The remainder of her involvement in 2010 seems likely to be covered by solicitor/client privilege that L&M can invoke. Her next involvement in 2012 is not activity undertaken whilst she was with CT. In addition it resulted from instructions from L&M and again they would be entitled to invoke solicitor/client privilege to prevent her giving evidence of the terms of those instructions.
[76] Where a degree of separation such as exists between Ms McArthur and CT arises in evidentiary situations, the Court is inclined to facilitate continued representation by solicitors acting, if any cross-examination is able to be conducted by independent counsel such as is foreshadowed here.
[77] In reliance on the cumulative impact of numerous breaches of the Client Care Rules which Mr Colson argued could be made out, he submitted that the standard of conduct by CT in failing to adequately protect the confidentiality of Bathurst’s information was sufficient to warrant disqualifying it from further participation. Arguably a characterisation of CT’s position as “no harm, no foul” missed the point. Mr Colson contended that there was a more than negligible risk that information confidential to Bathurst could have been disclosed to L&M. My analysis suggests that risk is not a realistic one.
[78] I am not persuaded that Bathurst’s claims that CT breached the Client Care Rules add materially to the arguments advanced that the risk of inadequate protection of its confidential information justifies an order disqualifying CT from acting in the proceeding.
[79] I have endeavoured to consider the competing positions in a common sense practical way by assessing the evidence.13 Standing back, I am not persuaded that the accumulated criticisms by reference to the Client Care Rules adds more to the practical analysis of the nature of the risk of material prejudice to Bathurst’s interests in the litigation. While an analysis of potential breaches of professional obligations may afford a relevant check on the standard I should attribute to the reasonable
observer, in this case I am not satisfied that a risk of material breaches is made out which ought to influence the outcome.
Delay in bringing the application
[80] Mr O’Brien raised concerns that the application was motivated by tactical reasons to delay the proceeding and disadvantage L&M, and that it had been unreasonably delayed. The proceedings were commenced in December 2016 and are set down for a substantive hearing for two weeks in February 2018. To the extent that the Court has any discretion in assessing the grounds for disqualification, or alternatively forming its judgment on the merits of the application, Mr O’Brien submitted that these factors counted against Bathurst’s application.
[81] He cited the following observations of the Court of Appeal in Accent
Management:14
Removal will usually be ordered where counsel will not be able to comply with his or her duties to the Court: where there is a conflict of interest, or where there is a real risk that a client will not be represented with objectivity. The threshold for removal is a high one, requiring something extraordinary. The Court should guard against allowing removal applications to be used as a tactical weapon to disadvantage the opposing party.
[82] Mr O’Brien criticised changes in the grounds relied on by Bathurst for its concerns about CT acting against it. He also questioned the reasonableness of the claim that Bathurst only became aware on 3 July 2017 that CT had acted for Bathurst on the ASP. That is the evidence of Ms Alison Brown, general counsel for Bathurst, who is based in Oamaru. The lack of an earlier awareness that CT had acted for Bathurst on the ASP is explained by changes in personnel, and extensive delays in getting access to the files maintained for Bathurst by Allion.
[83] L&M’s deponents dispute Ms Brown’s claims about the relatively recent discovery of the causes of concern about a conflict of interest. Mr Michael Brogan, a director of the plaintiff, has exhibited an email chain to which both he and Ms Brown were parties from October 2013. That email chain also included Mr Kidd, with his email address making it clear that he was at CT. Mr Brogan’s belief is the course of ongoing dealings have fixed Bathurst with ongoing knowledge that L&M use CT for matters including the commercial stage of negotiations between the parties that has developed into this litigation.
[84] I accept Ms Brown’s evidence of the state of her personal knowledge. However I am not persuaded that the unusual combination of circumstances in which current personnel at Bathurst remained unaware of CT’s acting for them on the ASP and other matters between 2010 and 2012 can provide a complete answer to CT’s objection that the application to disqualify the firm has been brought unreasonably late. The potential liability for an amount of US$40,000,000 is presumably a significant issue for Bathurst. It could reasonably be expected to have reviewed sufficient of the details of its entry into the transaction and the 2012 amendment to
the deed for it to have discovered substantially earlier than six months after proceedings were issued that it had retained CT on some aspects of the transaction.
[85] Mr Colson rejected the suggestion that the application was brought for tactical reasons by observing that Bathurst were content for the substantive fixture to proceed in February 2018, and would be ready to defend the claim at that time. However that does not address the matter of the significant tactical advantage that Bathurst would achieve if L&M was now required to change solicitors and start again with entirely fresh personnel from another firm. Mr O’Brien indicated that the discovery and inspection processes are substantially completed and that briefing of witnesses is underway. Clearly substantial additional work would be required and there is a risk that the quality of the case that L&M can muster might be weakened if CT was now disqualified. That risk could be addressed by an adjournment, but that is not within L&M’s contemplation.
[86] Had there been substantial merit in Bathurst’s application, I would not have been dissuaded from intervening solely on the grounds of the delay in bringing the application. However in assessing the overall concerns that justice must be seen to be done from the perspective of a fully formed observer, the extent of disruption that would be caused to the presentation of L&M’s case at a relatively late stage in preparation is a matter that would weigh in the balance.
[87] For all these reasons I am satisfied that an order disqualifying CT is not justified.
[88] CT has sought costs on an increased basis. The case for that is not made out and I order costs on a 2B basis in favour of CT.
Dobson J
Solicitors:
Chapman Tripp, Wellington
Minter Ellison Rudd Watts, Wellington
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