Maritime Apartments Ltd (in liquidation) v Christian
[2021] NZHC 1219
•27 May 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-1702
[2021] NZHC 1219
UNDER Sections 138 and 143 of the Land Transfer Act 2017 and Part 19 of the High Court Rules BETWEEN
THE MARITIME APARTMENTS LTD (in
liquidation) Applicant
AND
RACHELLE LINDA CHRISTIAN
First Respondent
MARTIN KENNETH KELLS
Second Respondent
Hearing: 14 December 2020 Counsel:
D Grove for the Applicant/Second Respondent
AS Ross QC and KM Wakelin for First Respondent/Applicant
Judgment:
27 May 2021
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 27 May 2021 at 4pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Foy & Halse, Auckland
D Grove, Barrister, Auckland
Grove Darlow, Auckland
AS Ross QC, Barrister, Auckland
THE MARITIME APARTMENTS LTD (in liq) v CHRISTIAN [2021] NZHC 1219 [27 May 2021]
Introduction
[1] The second respondent, Mr Martin Kells, has applied to restrain Grove Darlow & Partners (“Grove Darlow”) from acting for the applicant, The Maritime Apartments Ltd (in liquidation) (“Maritime”).
[2] Grove Darlow acted for Mr Kells and related entities for 12 years until 2009. Their solicitor/client relationship ended in 2009 when Mr Howard Morrison from Grove Darlow deposes it became “untenable” for Grove Darlow to continue acting.
[3] Grove Darlow has now accepted instructions to act for Maritime and its liquidators in proceedings against the first respondent, Ms Rachelle Christian, and Mr Kells.
[4] Mr Kells objects to Grove Darlow acting and has brought an application to restrain them from continuing.
[5] The liquidators submit that to make such an order would unjustifiably deprive them of their choice of solicitor and that Grove Darlow does not possess any confidential information that might be relevant to the issues in the proceeding.
[6] Ms Christian, the former wife of Mr Kells, neither consents to nor opposes the application. Appearances on her behalf were excused from the hearing. A short memorandum was filed on her behalf, however, raising issues with the accuracy of the factual summary in Maritime’s written submissions filed in opposition to this application as discussed further below.
[7] The issue to be determined on this application is whether there is more than a negligible risk of disclosure of confidential information by Grove Darlow so as to justify an order that Grove Darlow should be restrained from acting.
Background
[8] The proceeding is an originating application by Maritime for orders that a caveat not lapse. The caveat has been lodged by Maritime over a property at 31 Success Court, Omaha (“Omaha Property”).
[9] The first and second respondents are the registered proprietors of the Omaha Property. They were married but are now separated. Whilst both respondents are recorded on the title as registered proprietors, the property is held in their capacity as trustees of the Iris Eva Trust. The second respondent resigned as trustee on 3 June 2020 but remains on the title.
[10] Counsel for Maritime submits that it was out of an abundance of caution that the second respondent was named as a respondent to the caveat application.
[11] There are two bases on which Maritime says it has a caveatable interest in the land. The first is relatively complicated. I set out in full the pleadings in this respect from Maritime’s caveat application. Maritime alleges:
(a)on 18 May 2018 the respondents, Ms Christian and Mr Kells, entered into a deed of acknowledgement of debt and agreement to mortgage (“Deed of Acknowledgement of Debt”) with House of Nautica Ltd (“HONL”) whereby the respondents granted HONL a mortgage over the Omaha Property as security for a debt said to be owed to HONL;
(b)Christian-Kells Trustee Ltd (“Trustee Company”), a company controlled by the respondents, was also a party to the Deed as covenantor, in its capacity as trustee for the Christian-Kells Trust (“Trust”) and granted HONL a mortgage over another property at 5M The Prom, Coatesville (“Coatesville Property”);
(c)by the terms of the Deed of Acknowledgement of Debt, the respondents and the Trustee Company:
(i)acknowledged that the respondents were indebted to HONL in the principal sum of $647,284.55;
(ii)agreed to pay interest on the principal sum of 12 per cent per annum;
(iii)agreed to grant to HONL security over the Omaha and Coatesville Properties;
(iv)agreed that HONL could lodge a caveat over the titles of the Omaha and Coatesville Properties; and
(v)agreed, if required by HONL, to execute any documentation required, including a formal mortgage to better secure the obligation to repay the principal sum and interest;
(d)the Trustee Company made payment of $407,815.17 on 20 December 2019 (being the amount then owed) to HONL, discharging the respondents’ indebtedness to HONL leading to HONL withdrawing its caveats over the Omaha and Coatesville Properties;
(e)by virtue of having discharged the respondents’ indebtedness, the Trustee Company is subrogated to, and has taken an assignment of, HONL’s securities, including the agreement to mortgage the Omaha Property;
(f)the Trustee Company was placed into liquidation by order of the High Court on 30 November 2018;
(g)the first respondent is indebted to Maritime for at least the following amounts, totalling $201,854.24:
(i)$12,854.24 which was paid to HONL on 3 August 2015; and
(ii)$188,248.75 which was paid to HONL on 9 February 2017. (together, “the Debt”);
(h)the payments comprising the Debt were made from Maritime’s facility with its second ranking financier, FE Investments Ltd (now in liquidation and receivership), to HONL, at a time when the first respondent was a trustee of the Trust, and for the benefit of the Trust;
(i)the first respondent incurred the Debt in her capacity as a trustee of the Trust;
(j)the first respondent has a right of indemnity from the Trust’s assets in respect of any liabilities incurred on behalf of the Trust;
(k)the right of indemnity confers a proprietary charge or lien over the Trust’s assets, to the extent of the indemnity;
(l)the Trustee Company is now the corporate trustee of the Trust;
(m)the Trustee Company, as a successor trustee, assumes the obligations of the first respondent as former trustee upon appointment, which includes repayment of the Debt, and has a corresponding right of indemnity from the Trust’s assets;
(n)the first respondent is insolvent;
(o)the Trustee Company is insolvent;
(p)Maritime, as a creditor of the first respondent, is entitled to be subrogated to the first respondent’s charge or lien;
(q)Maritime, as a creditor of the Trustee Company, is entitled to be subrogated to the Trustee Company’s charge or lien.
[12] Maritime further alleges that it has a separate and distinct caveatable interest, which arises as follows:
(a)the payments referred to in para 11(g) above are misappropriated funds of Maritime, applied by Maritime’s director, Mr Kells, to discharge debts owed by the first respondent and second respondent to HONL, in breach of his fiduciary duties to Maritime;
(b)as a consequence of the above, the first and second respondents have been unjustly enriched, as a part of the secured debt has been discharged;
(c)in the circumstances, Maritime is subrogated to the position of HONL, including its security, as against the first respondent and the second respondent.
[13] The second respondent is the sole director of Maritime which was incorporated on 10 July 2015, after the solicitor/client relationship with Grove Darlow had ended.
[14] The first and second respondents have both filed notices of opposition denying both bases upon which the caveat has been lodged. As an alternative to the caveat being discharged, Ms Christian seeks an order that the caveat be sustained on condition that the applicant files proceedings to substantiate the interest claimed in the caveat within 10 working days, and the liquidators provide an undertaking as to damages. The second respondent’s opposition is silent as to whether he supports this proposal.
[15] No substantive proceedings have yet been brought in respect of the claims on which the caveat is based.
Legal principles
[16] In Black v Taylor,1 the Court of Appeal held that the Courts have an inherent jurisdiction to disqualify a solicitor from acting against a former client.
1 Black v Taylor [1993] 3 NZLR 403 (CA).
[17]The Court of Appeal has recently confirmed this jurisdiction in Li v Liu:2
The essential applicable principles are not in debate. The court has inherent jurisdiction to disqualify counsel or solicitors from acting where to allow them to do so would impair the integrity of the judicial process. That said, the court should not lightly interfere in a party’s fundamental right to counsel of their choice, particularly where considerations of delay in the application, inconvenience, or sunk cost favour the affected party. Further, the court should be vigilant in preventing objections whose purpose is only to disrupt or inconvenience the other side. To allow the judicial process to be played in this tactical fashion would itself be an unacceptable impairment.
(footnotes omitted)
[18] Counsel for Grove Darlow relied on the summary of the law set out in Torchlight Fund No 1 LP (in rec) v NZ Credit Fund (GP) 1 Ltd.3 In Torchlight, Mr George Kerr applied to restrain Buddle Findlay from acting in proceedings brought against him in 2014, when Buddle Findlay had acted for Mr Kerr and his related entities for 14 years up until 2012. Counsel for Buddle Findlay accepted that Buddle Findlay held confidential information belonging to Mr Kerr but did not accept that there was more than a negligible risk of disclosure. The Court, however, disagreed and restrained Buddle Findlay from acting.
[19] The Court in Torchlight referred to Black v Taylor4 and the English decision, Prince Jefri Bolkiah v KPMG (a firm).5 Gilbert J relied on the test in Prince Jefri Bolkiah where Lord Millett held:6
Accordingly, it is incumbent on a plaintiff who seeks to restrain his former solicitor from acting in a matter for another client to establish (i) that the solicitor is in possession of information which is confidential to him and to the disclosure of which he has not consented and (ii) that the information is or may be relevant to the new matter in which the interest of the other client is or may be adverse to his own. Although the burden of proof is on the plaintiff, it is not a heavy one. The former may readily be inferred; the latter will often be obvious.
[20] Lord Millett, therefore, considered that the burden on a party seeking to restrain their former solicitor from acting is not a heavy one.
2 Li v Liu [2018] NZCA 528, [2019] NZAR 259 at [23].
3 Torchlight Fund No1 LP (in rec) v NZ Credit Fund (GP) 1 Ltd [2014] NZHC 2551, [2014] NZAR 1486.
4 Black v Taylor, above n 1.
5 Prince Jefri Bolkiah v KPMF (a firm) [1999] 2 AC 222.
6 At 235.
[21] In Black v Taylor Cooke P discussed the type of confidential information the courts are concerned with, adopting a passage from McGechan J’s reasons (the judge at first instance):7
Last, the lawyer (and particularly the family solicitor) gets to know personalities. He gets to know something, and often a good deal, of a former client’s weakness, fears and reactions. It is as much information passed on as is verbal or written description. Like all information, it can be misused for another person. There could be cases, perhaps, with a former client witness’ credibility crucial, where such knowledge of personality inevitably acquired by virtue of the former solicitor/client relationship could amount to a real information consideration. There will be cases where former client’s very real fears that he will be cross-examined from a position of unclear superiority should be given due consideration.
[22]Cooke P went on to say:8
Whether that kind of consideration should be put exclusively under the heading of confidential information is in my view unimportant. As to those who may be allowed to represent parties to argue cases, the courts have an inherent jurisdiction…The jurisdiction extends to the propriety of a representative appearing in a particular case: it is not then a question of the right of practice generally, which is governed in New Zealand by statute, but a question concerning what is needed or may be permitted to ensure in a particular case both justice and the appearance of justice.
[23] In his judgment in Black v Taylor Richardson J also referred to the fundamental concern that justice should not only be done but should manifestly and undoubtedly be seen to be done.9 Richardson J then concluded:10
The decision to disqualify is not dependent on the finding of any 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 the wider interests of justice.
[24] The rules regulating professional practice are, however, to be applied as part of determining the standard against which the courts are to discharge their functions in the administration of justice.11 The relevant rules now are the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, which set out a
7 Black v Taylor, above n 1, at 406.
8 At 406.
9 At 412.
10 At 412.
11 Black v Taylor, above n 1 at 409.
lawyer’s obligations and so provide guidance for what is appropriate conduct and the nature of confidential information.
[25]Rule 8 provides:
A lawyer has a duty to protect and hold in strict confidence all information concerning a client, the retainer, and the client’s business and affairs acquired in the course of the professional relationship.
[26] The footnote to this rule emphasises the broad class of information subject to the duty to protect:
Information acquired in the course of the professional relationship that may be widely known or a matter of public record (such as the address of the client, criminal convictions, or discharged bankruptcy) will nevertheless be confidential information.
[27] The Conduct and Client Care Rules expressly provide that a solicitor has a continuing obligation to protect a former client’s confidential information, with r 8.1 stating that the duty of confidence “continues indefinitely”. This obligation was described in Torchlight as being of fundamental importance and something that was to be strictly observed.12
[28] Rules 8.2 and 8.3 provide for when disclosure is required and r 8.4 for when disclosure is permitted. The list of categories for permitted disclosure includes where the client expressly or impliedly authorises the disclosure. Rule 8.6 provides that the references to ‘client’ in r 8.4 include a former client.
[29] Rule 8.7.1 specifically provides, in relation to acting against former clients, that:
A 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 lawyer in the practice holds information confidential to the former client; and
(b)disclosure of the confidential information will be likely to affect the interests of the former client adversely; and
12 Torchlight Fund No1 LP (in rec) v NZ Credit Fund (GP) 1Ltd, above n 3, at [19].
(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.
Analysis
[30]The questions that I need to answer are:
(a)Does Grove Darlow hold confidential information about Mr Kells?
(b)If so, is that information relevant to the proceeding?
(c)If so, has Mr Kells consented to the disclosure of the information?
(d)If so, is there more than a negligible risk of disclosure of the confidential information if Grove Darlow continues to act for the liquidators?
Issue (a) – Does Grove Darlow hold confidential information about Mr Kells?
[31] There is no question in this case that Mr Kells is a former client of Grove Darlow. The evidence of Mr Morrison, a partner at Grove Darlow, is that he first met Mr Kells in 1997 when he was working at another firm and was acting for a company by the name of KCM Ltd (“KCM”). The directors of KCM were Mr Kells, his father, Mr Ken Kells and brother, Mr Craig Kells.
[32] When Mr Morrison moved to Grove Darlow in 1999, he continued to receive instructions from KCM and developed a working relationship with the second respondent, his father and brother.
[33] Mr Kells deposes in his affidavit that he is a property developer and, as such, has always had complicated financial affairs involving numerous companies set up on a development basis and many trusts. He instructed Mr Morrison for commercial matters and annexed to his affidavit a printout from the Companies Register of the companies which he has been involved in, marking with a cross those which were set up or dealt with by Mr Morrison.
[34] Mr Morrison agrees that he acted for 37 of the 39 companies marked with a cross by Mr Kells. Furthermore, Mr Morrison agrees that he acted on the formation of several trusts, including the Christian-Kells Trust, formed on 16 October 2007.
[35] At the time of swearing his affidavit, Mr Kells had not been able to obtain his files from the time he was instructing Grove Darlow but he recalled that Mr Tim Allen, a litigation partner of Grove Darlow, acted for him and his related entities on at least five litigation matters that included litigation with liquidators of companies including settling such litigation.
[36] Mr Allen, who is acting for Maritime in this caveat proceeding, has not filed an affidavit and so has not deposed to his knowledge or recollection of the work he completed for Mr Kells or his knowledge or recollection of Mr Kells’ financial, personal or family affairs.
[37] Mr Morrison deposes that Mr Allen only acted for Mr Kells personally three times, and that none of the matters in which Mr Allen acted ever concerned conduct relating to invoices as relied on in the caveat application and exhibited to Mr Maginness’ affidavit. Mr Morrison does not respond to Mr Kells’ evidence that Mr Allen acted for him and his related entities in litigation with liquidators of companies including settling such litigation, so it remains uncontroverted.
[38] The solicitor/client relationship between Mr Kells and Grove Darlow ended in 2009 following a police investigation into transactions related to the sale of The Docks apartments, a property development on which Grove Darlow acted. The police were concerned that a document providing a rebate to purchasers may give rise to mortgage fraud.
[39] Following interviews with a legal executive and Mr Morrison of Grove Darlow, the police confirmed that no further enquiries would be made, and no one was charged with any offence.
[40] Mr Kells then made an allegation to Mr Allen, the litigation partner at Grove Darlow, that Mr Morrison was the author of the document that caused the police concern. Mr Morrison deposes in his affidavit that this was false and that it made any relationship of solicitor/client with Mr Kells or interests with which he was associated untenable. It was for that reason the solicitor/client relationship ended in 2009.
[41] Mr Morrison states in his affidavit that Mr Kells never conveyed any ill feelings towards him and that, although he was disappointed at the time by Mr Kells’ conduct, he does not hold any sort of grudge against him.
[42] Mr Morrison deposes that since 2009 he has not acted for Mr Kells and he has no knowledge of the second respondent’s confidential, personal, financial or family affairs or traits now. Further, he does not have any recollection of the first or second respondents’ confidential, personal, financial or family affairs as existed at the time he ceased to act in 2009. He goes on to say that any information he now knows about the second respondent is solely derived from his capacity as solicitor acting for the liquidators in Summit Construction Ltd (in liquidation), Sky City View Apartments Ltd (in liquidation) and The Maritime Apartments Ltd (in liquidation).
[43] Mr Morrison further deposes that the deeds and documents belonging to Mr Kells were returned to him in May 2011 and annexes a letter to his affidavit dated 12 May 2011 which is headed “Kells’ Documents”. The letter lists documents relating to many trusts, deeds of acknowledgement of debt, general security agreements, leases, settlements, taxation and so forth which had been retained. The documents date from 1997 until September 2009. The letter sets out abbreviations for 29 different entities referred to and the list of documents covers four pages.
[44] Mr Morrison says that the second respondent must have collected the files because Mr Kells subsequently returned some files in 2014 relating to a development which had been undertaken in Whitianga. Mr Morrison does not give any further explanation as to why those documents needed to be returned or whether Grove Darlow still retains them. But he says that it was at that time that Mr Kells apologised to him for alleging that Mr Morrison had been the author of the document that provided
a rebate to purchasers. Mr Morrison says Mr Kells acknowledged the allegation was false. The allegation was made in 2009 so this apology was five years later.
[45] Counsel for Mr Kells submitted that the instructions previously given to Grove Darlow in relation to commercial, company and trust litigation matters are highly confidential, the instructions were over a long period and that Mr Morrison and Mr Allen both had detailed knowledge as to Mr Kells’ financial position, his assets structure, the manner in which he undertakes litigation, including with liquidators, and the manner in which he settles litigation.
[46] Counsel for Maritime relied on Morris v Morris13 where Edwards J distinguished Black v Taylor14 and Torchlight15 on the basis that there was no evidence of the kind of confidential information of family or business affairs or a close confidential relationship built up over a number of years as had arisen in those cases. In Morris v Morris Edwards J accepted that the firm concerned would have gleaned information about the former client’s personality as a result of work done, but that it was of a generalised nature and not in the same category as that in Black v Taylor.16 Her Honour also accepted that such generalised information as to the former client’s character would not be relevant where the substantive issues were likely to be determined on the basis of expert accounting evidence.17
[47] Counsel for Maritime submitted that the present situation is analogous to the facts in Morris v Morris as there is no evidence of any particular information or insight about the character or personality traits of the second respondent held by Grove Darlow, nor is there any suggestion that any such information is relevant to the issues to be determined in the caveat application.
[48] Counsel for Mr Kells, however, highlighted the differences between Morris v Morris and this case, submitting that the analysis of the relationship in Morris v Morris18 shows that the relationship is not on foot with the relationship between Mr
13 Morris v Morris [2015] NZHC 2315, (2015) PRNZ 604.
14 Black v Taylor, above n 1.
15 Torchlight Fund No1 LP (in rec) v NZ Credit Fund (GP) 1 Ltd, above n 3 at [30]-[31].
16 At [32].
17 At [33].
18 At [29]-[33].
Kells and Grove Darlow. In Morris v Morris the lawyer had acted for Mr Morris 12 years previously in relation to a contracting out agreement for a de facto relationship. Another solicitor at his firm had acted on another contracting out agreement for Mr Morris in 2006. A trust deed had been sent to Mr Morris in 2012 so that Mr Morris could obtain advice from another solicitor on a power of attorney, change of will and trust deed which did not involve any advice to or even consultation with Mr Morris. The firm also acted for a partnership between Mr and Mrs Morris but the only retainer for the partnership in recent times had been to undertake conveyancing work in relation to the sale of four properties belonging to the partnership, with the last property sold in 2012.
[49] The limited nature of the instructions led Edwards J to conclude that whilst the solicitor in that case may have gleaned general information about Mr Morris’ personality as a result of the work undertaken, the information was not in the same category as the information derived from a close confidential relationship built up over a lengthy period as was the position in Black v Taylor.
[50] In this case, by contrast, it is clear from the evidence that there was a close confidential relationship between the parties more in the nature of the relationship in Black v Taylor and Torchlight. Furthermore, that relationship included advice in relation to the structure of Mr Kells’ affairs and one of the trusts involved in the caveat application, the Christian-Kells Trust, was set up by Mr Morrison. Mr Allen acted for Mr Kells in litigation involving liquidators including settling that litigation. The relationship continued for 12 years and Mr Kells and his related entities entrusted Grove Darlow with considerable confidential and privileged information in the course of providing instructions on many matters.
[51] In this case Mr Morrison has deposed that he no longer has any recollection of the confidential information from that time, but Mr Allen has not sworn an affidavit as to his recollection. As far as Mr Morrison’s recollection is concerned, I refer to Hana New Zealand Ltd v Stephens,19 where the plaintiff also deposed that he had no
19 Hana New Zealand Ltd [2007] 1 NZLR 833 (HC).
specific recollection of the events or the particular details of the instructions he received from his former client. Asher J held:20
…memory can develop and improve with focus and thought. Concentration on specific reference points in the past can trigger new recollections. Memory can come back. It will be seldom that general disclosure, or the claimed forgetting of relevant material, will comfort a court faced with a conflict assertion.
[52] When Hana New Zealand Ltd v Stephens was decided the regulation in relation to confidential information of former clients was worded differently, but that does not affect the point that Asher J makes in respect of memories being triggered.
[53] The answer to the first question is, therefore, yes, Grove Darlow does hold confidential information.
Issue (b): If so, is that information relevant to issues in the proceeding?
[54] In my view there is no question that the information held is relevant to the issues in the proceeding.
[55] The first basis on which the caveat application is made relates to subrogation and assignment of HONL’s securities including the agreement to mortgage the Omaha Property in the Deed of Acknowledgment of Debt.
[56] Furthermore, the knowledge of the second respondents’ affairs and his approach to litigation with liquidators and how he is likely to settle any litigation is relevant to the proceeding.
[57] In Torchlight, Gilbert J held that Buddle Findlay’s knowledge of Mr Kerr’s assets would be relevant to recovery. The question of relevance is therefore not confined to the issues arising in the proceeding but to the proceeding as a whole.
[58] The situation in Torchlight can be distinguished on the basis that Buddle Findlay had acted for Mr Kerr until two years prior to acting in litigation against him whereas here Grove Darlow stopped acting for Mr Kells 12 years previously. I discuss
20 At 837.
the relevance of this longer time period below in relation to whether there is more than a negligible risk of discovery. But as far as the relevance of the information held by Grove Darlow, that information would be relevant in the same way Gilbert J held Buddle Findlay’s knowledge was relevant. Furthermore, it is not correct to say that the litigation concerns only a trust that Grove Darlow has not acted in relation to or that the proceedings relate to invoices. The proceedings here also involve the Christian-Kells Trust, which Grove Darlow set up and provided advice on, and the proceedings do not appear to relate just to invoices.
[59] I conclude, therefore, that the confidential information held by Grove Darlow is relevant to the proceeding.
Issue (c): Has Mr Kells consented to the disclosure of the information?
[60] Counsel for Maritime submitted that Grove Darlow had acted against the second respondent or interests related to him without objection from either the second respondent or his solicitors on several previous occasions.
[61] The first occasion was in respect of a debt owed to Summit Construction Ltd (in liquidation) (“Summit”) under a construction contract with 18 St Martins Lane Ltd (“St Martin”). Mr Maginness was the liquidator of Summit and the second respondent was the director of St Martin. From the documents, settlement appears to have been negotiated directly between the liquidator and Mr Kells. St Martin failed to comply with the terms of the settlement agreed and Summit issued liquidation proceedings against St Martin. Mr Allen from Grove Darlow acted for Summit in the liquidation proceedings and the second respondent did not object. St Martin, however, paid the amount agreed and the liquidation proceedings were discontinued.
[62] The second occasion related to the liquidation of Sky City View Apartments Ltd (“Sky City View”). Mr Maginness was the liquidator and the second respondent was the sole director of Sky City View. A show home that was an asset of Sky City View was relocated onto the Omaha Property. A deed of trust had been entered into in 2016 which recorded that the show home was held by the registered proprietors of the Omaha Property as bare trustee for Sky City View, with the second respondent
guaranteeing the obligations of the trustees. The liquidator of Sky City View required the parties to account for the show home in terms of the trust deed. On the documents, a settlement agreement was reached following an email directly from Mr Maginness to the second respondent. The solicitor acting for the second respondent at the time sent a letter to Mr Maginness, accepting the offer made and asking whether anyone was acting for him. There was then email correspondence with Grove Darlow. Again, the terms of the settlement agreement appear to have been reached directly with the liquidator.
[63] The third occasion relates to Grove Darlow acting for the liquidators both prior to their appointment as liquidators of Maritime and once appointed. Counsel for Maritime submitted that neither the second respondent nor his lawyer objected to Grove Darlow acting. Initially, however, the liquidator was not bringing proceedings against the second respondent. It is also not clear from the documents annexed to Mr Maginness’ affidavit how much involvement the second respondent’s lawyer had once it became clear that a claim was being made against the second respondent.
[64] These proceedings were filed on 18 September 2020. On 25 September 2020 Mr Grove sent an email to Mr Allen at Grove Darlow asking Mr Allen to advise the basis on which Mr Allen considered he could act given Grove Darlow had previously acted for Mr Kells for over a decade. There was, therefore, an objection by the second respondents’ lawyers as soon as proceedings were brought.
[65] None of these occasions support the submission that Mr Kells has consented to the disclosure of his confidential information. The settlement negotiations in the first two matters were short and appear to have been directly with the liquidator. Furthermore, in my view, even if a party agrees in one matter for former lawyers to act, they may have the right to decide in another matter that they do not agree to their acting. The risk of disclosure of confidential information obtained as their legal advisers will depend on all of the circumstances.
[66] It is important to consider, however, the possibility that the application to restrain is being brought for tactical reasons. Counsel for Maritime submitted that Mr Kells is no stranger to lawyers and is familiar with his rights. It is clear, therefore, this is a tactical step taken when other attempts at settlement had failed.
[67] It is difficult to see, however, what tactical advantage there is in the second respondent’s application. The application to restrain was brought very early in the proceeding. Although there had been negotiations between the liquidator and the second respondent directly for some months prior to the proceedings being served, it does not appear that Mr Kells was legally represented at that time. Furthermore, the caveat application is not an area of specialist expertise and the application only adds to the costs for the second respondent.
[68] In answer to the third question I, therefore, conclude that Mr Kells has not expressly or impliedly agreed to the disclosure of his confidential information and that his lack of previous objection does not prevent an order to disqualify from being made.
Issue (d): Is there more than a negligible risk of disclosure of the confidential information if Grove Darlow continues to act for the liquidators?
[69] Before considering whether there is more than a negligible risk of disclosure of any confidential information, it is useful to consider the discussion of this aspect of the test in the relevant cases. In Prince Jefri Bolkiah21 Lord Millett emphasised the fundamental importance of protecting a former client from any avoidable risk of inappropriate disclosure of confidential information, particularly where the information is privileged, stating:22
It is in any case difficult to discern any justification in principle for a rule which exposes a former client without his consent to any avoidable risk, however slight, that information which he has imparted in confidence in the course of a fiduciary relationship may come into the possession of a third party and be used to his disadvantage. Where in addition the information in question is not only confidential but also privileged, the case for a strict approach is unanswerable. Anything less fails to give effect to the policy on which legal professional privilege is based. It is of overriding importance for the proper administration of justice that a client should be able to have complete confidence in what he tells his lawyer will remain secret. This is a matter of
21 Prince Jefri Bolkiaha v KPMG (a firm), above n 5.
22 At 236.
perception as well as substance. It is of the highest importance to the administration of justice that a solicitor or other person in possession of confidential and privileged information should not act in any way that might appear to put that information at risk of coming into the hands of someone with an adverse interest.
[70] Lord Millett went on to say that many different tests had been proposed in the authorities for whether a risk was an appreciable risk or an acceptable risk. Lord Millett regarded such expressions as unhelpful preferring:23
…simply to say that the court should intervene unless it is satisfied that there is no risk of disclosure. It goes without saying that the risk must be a real one, and not merely fanciful or theoretical. But it need not be substantial.
[71] Counsel for Grove Darlow submitted that the second respondent had failed to identify any specific confidential information that Grove Darlow holds despite requests to do so. But requiring a former client to point to specific confidential information that the former client is concerned that its former solicitor has is obviously problematic. This is particularly so in circumstances where one of the former solicitors says he has no recollection of the client or associated work, because pointing out such information may highlight the material, potentially to the former client’s disadvantage.
[72] One other aspect that is relevant to whether there is more than a negligible risk is the time period since Grove Darlow acted. Counsel for Maritime submitted that Grove Darlow clearly did know a lot about Mr Kells’ affairs when it acted for him but that it ceased acting a long time ago and so there was no longer any risk of disclosure of confidential information.
[73] In Re Z,24 the solicitors had acted nine years prior to the application to disqualify. The judge commented on that period of time, saying it was much longer than in any other reported case. His Honour noted, however, that the solicitor in question had acted for the husband for a “relatively long period” (though I note that the solicitor had acted for only a year). Bodey J went on to say:25
23 Prince Jefri Bolkiaha v KPMG (a firm), above n 5, at 237.
24 Re Z [2009] EWHC 3621 (Fam).
25 At [41].
During that time she was likely to have been privy to privileged/confidential information and she would also have got to know his sensitivities and feelings, his likely reactions, the sort of person he is and how to handle him, particularly in light of their social relationship.
[74] The solicitor in Re Z, like Mr Morrison in this case, deposed that she had no current recollection. Bodey J, like Asher J in Hana New Zealand Ltd v Stephens referred to above, commented that it is well recognised in the authorities that memories may be triggered. After considering all of the factors, the judge held the former client had satisfied the burden of proof on him that the former solicitor was in possession of confidential information “in the triggerable sense”, that such information may have been relevant to the present litigation and would or could compromise the fairness of the process if disclosed. Bodey J concluded:26
Further, I am of the view that this risk, although modest, is a real one. It is clearly not substantial, but it does not need to be. It is, I find, a risk which is not merely fanciful nor theoretical.
[75] The Court then considered whether proposed undertakings by the former solicitor would be effective to ensure that no disclosure would occur. The Judge was not persuaded that they would be and the application to restrain was granted.
[76] In this case, the former solicitor is personally acting in the proceedings against Mr Kells. It is not a question, therefore, of information barriers or undertakings, and nor could it be in a firm the size of Grove Darlow.
[77] Given the period of time over which Grove Darlow acted, the intensity of the solicitor/client relationship over that time and in the absence of evidence from Mr Allen as to his recollection, I find that there is more than a negligible risk of disclosure of confidential information.
Result
[78] The second respondent’s application to debar Grove Darlow from acting is granted.
26 At [42].
[79] This matter is to be listed in the Chambers List on 2 July 2021 at 2.15pm, prior to which memoranda are to be filed (preferably joint) proposing a timetable for next steps.
Costs
[80] The second respondent has succeeded and so, in the usual course, is entitled to costs. If they are unable to be agreed between the parties, memoranda of no more than five pages are to be filed.
Associate Judge Sussock