Marine Mooring Consultants Ltd v Munro

[2004] NZCA 282

IN THE COURT OF APPEAL OF NEW ZEALAND

CA4/04

BETWEENMARINE MOORING CONSULTANTS LIMITED

Appellant

ANDSTEPHEN CHARLES MUNRO

First Respondent

ANDKATHRYN MARY BECK

Second Respondent

Hearing:4 November 2004

Court:Anderson P, W Young and O’Regan JJ

Counsel:K L Peebles for Appellant

V S Cress for First and Second Respondents

Judgment:17 November 2004 

JUDGMENT OF THE COURT

We dismiss the appeal.  The respondents are entitled to costs of $6,000, together with reasonable disbursements (including the travel and accommodation costs of Ms Cress) to be agreed by counsel or failing agreement to be fixed by the Registrar.

REASONS

(Given by O’Regan J)

[1]       This is an appeal against the decision of Williams J (Kawhia Offshore Services Limited v Rutherford and Marine Mooring Consultants Limited HC HAM CP61/99 3 December 2003) in relation to applications by the appellant (“Marine”) for relief against two solicitors, Mr Munro and Ms Beck for alleged breaches of undertaking.  Williams J found that there was inadequate proof that any of the undertakings given by Mr Munro and Ms Beck to the Court had been breached.  Accordingly he dismissed Marine’s application for relief.  Marine appeals against that finding.

Background

[2]       The undertakings arose in the context of litigation between Kawhia Offshore Services Limited (“Kawhia”) as plaintiff, Alan James Rutherford as first defendant and Marine as second defendant (HC HAM CP61/99).  Kawhia alleged that Mr Rutherford and Marine were liable for breach of a fiduciary duty owed to it and breach of confidentiality.

[3]       The solicitors for Kawhia were Haigh Lyon.  Mr Munro was then an employee of Haigh Lyon, and he was primarily responsible for the case within that firm.  Ms Beck is a partner in Haigh Lyon.

[4]       The solicitors acting for both Mr Rutherford and Marine were O’Sheas of Hamilton.  Mr O’Shea was primarily responsible for the file.

[5]       In June 2000, Kawhia filed an application for Marine to answer interrogatories. Two of the interrogatories required Marine to disclose information about payments to be made by its major customer (a former customer of Kawhia).  Marine considered this information to be commercially sensitive and therefore resisted answering the relevant interrogatories.  At a telephone conference in July 2000, Associate Judge Faire directed that Marine answer these interrogatories “on receipt of Mr Munro’s undertaking that the answers will be kept confidential to himself.”  The requirement for such an undertaking put Mr Munro in a difficult position, because, depending on the relevance of the information to his client’s case, the undertaking had the potential for creating a conflict between his duty to his client and his obligation to the Court.  No doubt recognising this difficulty, the Associate Judge reserved leave to Kawhia and Mr Munro to apply to vary the undertaking or to be released from the undertaking on 3 days notice.

[6]       Notwithstanding the clear terms of the direction by the Associate Judge, there was an ongoing dispute between the solicitors as to the form of the undertaking to be given by Mr Munro.  This culminated in the matter being brought back before Associate Judge Faire at a telephone conference in September 2000.  The Associate Judge varied the form of the undertaking required by his earlier minute.

[7]       In accordance with the September minute, Mr Munro and Ms Beck gave an undertaking to the Court in the following form:

In accordance with the directions of Master Faire, I undertake to keep the answers given by the Second Defendant to Interrogatories numbers 3 and 7, confidential to myself and:-

1.I will not disclose nor permit to be disclosed to any person or entity the said answers nor any information from which the answers may be ascertained and;

2.Keep the information in a secure place.

“S.C. Munro”
  Counsel for Plaintiff

I KATHRYN MARY BECK being a partner in the firm of Haigh Lyon, Solicitors, of Auckland being the solicitors for the abovenamed Plaintiff hereby acknowledge the within undertaking and confirm that Haigh Lyon will give all assistance to ensure that the undertaking is honoured.

“K M Beck”
  Partner

[8]       It is not immediately clear to us why an additional undertaking was required from Ms Beck.  In correspondence with Haigh Lyon Mr O’Shea suggested that this additional was “to avoid any conflict of duty which Mr Munro may have”.

[9]       Marine then answered the interrogatories requiring the provision of confidential information, relying on the undertaking.

[10]     In February 2001, a judicial settlement conference was convened before Associate Judge Faire.  Those present at the settlement conference were Mr Stephen Watts, representing Kawhia, Mr Munro, Ms Georgina Paulin who was also a solicitor from Haigh Lyon, Mr Rutherford in his capacity as first defendant and as an officer of Marine, Mr Rutherford’s wife and Mr O’Shea. 

[11]     Mr Munro says that there was a discussion at the settlement conference which included discussion of the confidential material disclosed in the interrogatories.  There is a dispute about what happened at the settlement conference to which we will advert later. 

[12]      In July 2001, Mr Munro sent a draft brief of Mr Watts’ evidence by email to Mr O’Shea.  The accompanying email message said:

You will recall that the writer gave an undertaking regarding some answers to interrogatories by Mr Rutherford.  As we discussed those answers at the settlement conference I have assumed that you have no objection to the answers being referred to in Mr Watts’ evidence.

[13]     Mr O’Shea accepts that his office received the email from Mr Munro attaching the draft brief of evidence but said that his staff could not access the attached brief and that he did not understand the reference to an undertaking.  He did not respond to this email message. 

[14]     In late August 2001, Mr Watts’ signed brief of evidence was served on Mr Rutherford and Marine.  As with the draft brief which had been sent in July, this brief included reference to some of the confidential material which had been disclosed in the answers to interrogatories provided by Mr Rutherford. 

[15]     In September 2001, Mr Rutherford and Marine filed an interlocutory application for relief against Mr Munro and Ms Beck for breach of their respective undertakings.  It was alleged that Mr Munro had disclosed the confidential material revealed in the answers to the interrogatories to Mr Watts, and that this disclosure involved a breach of Mr Munro’s undertaking not to disclose and Ms Beck’s undertaking to give assistance to ensure the undertaking was honoured.  The application did not specify what conduct on Ms Beck’s part constituted a breach of her undertaking.  The application was adjourned indefinitely to allow the substantive proceeding to be heard. 

[16]     Immediately following the adjournment Mr Munro and Ms Beck gave another undertaking to the Court in the following form:

We undertake to keep the answers given by the second defendant to Interrogatories numbers 3 and 7 confidential to ourselves and not to divulge them nor permit them to be divulged to any person or entity nor any information from which the answers may be ascertained.

This undertaking is given without prejudice to the plaintiff’s claim that the second defendant has waived any claim to confidentiality.

[17]     At the same time an undertaking in essentially the same form was given by Mr Watts, to whom the confidential information had, by then, been disclosed.  Mr Watts says in his affidavit that he has not disclosed the confidential information to anyone, including the accountant undertaking an account of profits, to whom reference is made in para [18] below.

[18]     The substantive proceeding went to trial in October 2001 before Glazebrook J.  She gave judgment for Kawhia, finding that both Mr Rutherford and Marine were liable for breach of confidentiality and breach of a fiduciary duty they owed to Kawhia.  She directed an account of profits.  This is being undertaken by an accountant but it has not yet been concluded.

[19]     The hearing of the interlocutory application for relief against Mr Munro and Ms Beck occurred on 25 November 2003.  It is unclear why there was such delay in bringing the issue before the Court.

Judgment of Williams J

[20]     Marine’s application sought a number of remedies.  These included an order directing the attendance of Mr Munro and Ms Beck before the Court, an injunction prohibiting any further disclosure by Kawhia’s present or future solicitors or counsel or Mr Watts of the confidential information and an inquiry into damages for losses suffered.  These included legal costs said to have arisen as a result of the breach of undertaking (including the fees of the QC engaged to undertake the main proceeding, the need for which is said to have resulted from the breach of undertaking) and certain personal costs incurred by Mr Rutherford.

[21]     Williams J reviewed the relevant law and concluded that the Court has supervisory jurisdiction over those who give undertakings to the Court, particularly solicitors as officers of the Court.  This extends to employed solicitors.  He said that, because breach of an undertaking is prima facie professional misconduct or serious dereliction of professional duty, the Courts exercise their jurisdiction in relation to breaches of undertaking only in clear cases.

[22]     Williams J then reviewed the evidence, particularly the conflict in the evidence as to what occurred at the settlement conference in February 2001.  Having done so he concluded that the proof of the suggested breach of undertakings fell well short of the clear proof shown by authority to be necessary in matters of this kind. 

[23]     The Judge said that even if there had been proof of breach by Mr Munro, it was difficult to see how the same finding could extend to Ms Beck when it seemed likely she was unaware of the settlement conference and unaware that confidential figures were likely to be discussed.  He said that even if a breach had been found there would be need for a vigorous examination of the losses claimed to have been justified. 

[24]     Williams J dismissed the application with costs.

Legal issues

[25]     There is no dispute that the High Court has an inherent supervisory jurisdiction over solicitors as officers of the Court which includes enforcing undertakings provided by solicitors.  The Court will consider such matters in its summary jurisdiction and this means the solicitor said to have breached the undertaking is deprived of many of the advantages given to a defendant at trial: Papillon Holdings Limited v Boonham & Anor HC AK N1434/90 5 December 1990 Barker J at 10.  Accordingly the jurisdiction should be exercised only in a clear case.  The breach of undertaking must be misconduct in serious dereliction of duty: Countrywide Banking Corporation Limited v Kingston [1990] 1 NZLR 629 at 639.

[26]     There was some dispute between counsel as to the standard of proof to apply in cases such as the present.  On behalf of Marine, Ms Peebles submitted that the appropriate standard was the ordinary civil standard on the balance probabilities, citing Country Colours Limited v Resene Paints Limited (1992) 6 PRNZ 506 at 509 and Douglas Pharmaceuticals Limited v Nutripharm New Zealand Limited (No. 2) (1998) 12 PRNZ 176.  In the former case, Anderson J said that, in a case of contempt arising from a breach of an injunction, the standard of proof may vary depending on the remedy sought.  He said that proof beyond reasonable doubt that the respondent’s conduct is in breach of the order and deliberate will be required in order to find the party liable to criminal sanctions of committal or to a fine or sequestration.  But where the applicant is able to prove on the balance of probabilities that conduct of the respondent is in breach of an injunction, costs and, where proven, damages may be awarded against the party in breach.  That position was adopted by Randerson J in the Douglas Pharmaceuticals case at 183.

[27]     On behalf of Mr Munro and Ms Beck, Ms Cress supported the position adopted by the High Court Judge.  In essence that position was that, where there are factual conflicts and insufficient clarity as to the terms of the undertaking or the breach, the Court’s supervisory jurisdiction should not be exercised against a solicitor, particularly since cross-examination on the parties affidavit is permitted only in rare cases.  In that regard she relied on an observation in similar terms in the Papillon Holdings case at 11.

[28]     We agree with Williams J that clear proof of a breach of an undertaking is required.  In particular, we agree with his conclusion that, where there is a conflict of evidence on the affidavits before the Court, which cannot be resolved, it would be inappropriate to make a finding that a party was in breach of an undertaking.  In the present case no application was made for cross-examination, notwithstanding the conflicting positions taken in the affidavits.  Of course, cross-examination would be permitted only rarely in the Court’s summary jurisdiction, and it may be that no application for cross-examination was made because of that.  Whatever the position may be, the position with which the High Court Judge had to deal was one where he had conflicting evidence before him and no proper basis on which to resolve the conflict.

Factual issues

[29]     Ms Peebles urged us to review the factual findings made by Williams J, and to conclude that there was sufficient evidence in this case that a breach of undertaking had occurred by Mr Munro.  However, after discussion with the bench, she accepted that there was no evidential basis for an argument that there had been a breach of undertaking by Ms Beck.  She said that we were in the same position as the High Court Judge to make factual findings, in that we had the same affidavits before us as he had before him, and we did not suffer from the normal disadvantage of an appellate court, which would normally defer to the first instance judge who had seen and heard witnesses, and been able to observe their demeanour.  She said that the evidence established that the confidential information had been disclosed by Mr Munro to Mr Watt, the undertaking was in force at the time the disclosure occurred, and there was therefore a breach of the undertaking. 

[30]     On behalf of the respondent, Ms Cress argued that Williams J was correct in holding that the evidence was not sufficiently clear in this case to establish the breach of undertaking alleged.  She noted that Marine had elected not to seek to cross-examine any witness in the present case.

[31]     Ms Peebles took us through a detailed review of the facts as outlined in the competing affidavits.  The object of this exercise was to convince us that Williams J was wrong to have concluded that there was not clear proof of the breach of the undertaking. 

[32]     Much of this discussion focussed on the settlement conference.  That was important because Mr Munro claimed there was, with the concurrence of the Associate Judge, discussion of the confidential information in the presence of Mr Watt at the settlement conference.  He argued that this discussion took place in circumstances that effectively amounted to a waiver of confidentiality or a release from the undertaking for the purpose of the conduct of the litigation.

[33]     Mr and Mrs Rutherford and Mr O’Shea all maintained that there was no discussion relating to the undertaking or the confidential information at the settlement conference.  They say that there would have been a very strong reaction by them if that had occurred, given the importance to them that the confidentiality of the answers given in the interrogatories be maintained.

[34]     On the other hand, Mr Munro is adamant that confidential figures were discussed at the settlement conference after the Associate Judge had been advised that this would be necessary.  He said this discussion took place while Mr O’Shea, Mr Rutherford and Mr Watts were all present in the room.  Mr Watts confirms Mr Munro’s recollection of events.  The junior solicitor from Haigh Lyon who was present, Georgina Paulin, prepared a file note immediately after the settlement conference in which she refers to discussions about the undertaking and the profits of Marine taking place.  She says in her affidavit that she cannot now remember details.  However this file note refers to these discussions being carried out between solicitors and the Master (now Associate Judge) with the parties having left the room. 

[35]     The email message sent by Mr Munro to Mr O’Shea with the draft of Mr Watt’s brief of evidence lends some support to his version of events.  Mr O’Shea did not take issue with this at the time it was sent, but now says he did not realise its significance at that time. 

[36]     We agree with the High Court Judge that it is not possible to resolve this conflict of evidence in summary proceedings, and we therefore concur with his conclusion that the case for breach of undertaking had not been made out.  In circumstances where Mr Munro denies any breach of undertaking, it would not be appropriate to make a finding of breach, in the absence of cross-examination allowing for factual findings to be made, unless such a breach can be established on the basis of Mr Munro’s own evidence and the evidence of Mr Watts and Ms Paulin.  That is clearly not able to be done in this case.  We therefore uphold the decision of Williams J in relation to Mr Munro. 

[37]     The position in relation to Ms Beck is quite different.  There is, in fact, no evidence of any breach of undertaking on the part of Ms Beck at all, and therefore no basis for any finding of breach on her part.  If the breach of undertaking occurred during a discussion at the settlement conference, Ms Beck was not even present at the settlement conference and there is no evidence that she even knew it was taking place.  If the breach is said to have taken place during the preparation of Mr Watts’ brief in July/August 2001, there is no evidence that Ms Beck had any involvement in that exercise at all.  In those circumstances there was no basis for any application to be made against Ms Beck and no such application ought to have been made.

[38]     For these reasons, we dismiss the appeal.

Solicitors:
O’Sheas, Hamilton for Appellant
McElroys, Auckland for Respondents