So Systems Limited v Soluxury HMC
[2017] NZHC 280
•28 February 2017
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV-2016-485-604 [2017] NZHC 280
BETWEEN SO SYSTEMS LIMITED
Appellant
AND
SOLUXURY HMC Respondent
Hearing: 23 February 2017 Counsel:
V Nichols for Appellant
P D M Johns and T A Huthwaite for RespondentJudgment:
28 February 2017
JUDGMENT OF WILLIAMS J
Introduction
[1] The appellant, SO Systems Limited (SSL), is engaged in a dispute with the respondent, Soluxury HMC. The respondent applied to IPONZ to revoke the appellant’s trademark HOTELSO for non-use. The Assistant Commissioner of Trademarks granted Soluxury’s application and the appellant has appealed to this Court.
[2] The appellant also seeks leave to adduce fresh evidence in the appeal. The proposed evidence is that of David Henderson who instructed a trademark agent to prosecute SSL’s opposition to Soluxury before the Assistant Commissioner. The respondent opposes the admission of the new evidence partly on the basis that Mr Henderson’s evidence lacks veracity.
[3] It is in this context of that veracity challenge that the appellant asks the Court for an order removing Baldwins as counsel in the appeal. The appellant says
Baldwins:
SO SYSTEMS LIMITED v SOLUXURY HMC [2017] NZHC 280 [28 February 2017]
(a) acted for SSL in the past in relation to protecting the HOTELSO trademark, the subject of the appeal, and received SSL’s instructions in that respect via Mr Henderson;
(b)continues to receive instructions from Mr Henderson on behalf of an unrelated company on unrelated matters; and
(c) may have come into confidential information from or about Mr Henderson in the course of such retainers that may be deployed to the appellant’s disadvantage in the veracity challenge.
[4] The appellant says that a reasonably informed lay observer would draw no substantive distinction between Mr Henderson and the company (SSL) with which he has or had connections such that it would be seen as inconsistent with justice to allow Baldwins to challenge his credibility.
The law
[5] The applicable legal principles are not in dispute between the parties in this application and they may be briefly summarised. In this respect, I have found the synthesis set out by Edwards J in Morris v Morris particularly helpful, and I have borrowed from it liberally, if not exclusively.1
[6] This Court has inherent jurisdiction to control who may appear before it.2
The value that must be protected in exercise of that jurisdiction is ultimately the integrity of the judicial process itself. The courts will move to disqualify counsel from appearing or solicitors from acting if there is an appearance of conflict of interest such that to allow the situation to continue will prevent justice from being seen to be done.
[7] The issue is the misuse, or potential misuse of confidential information that has been imparted to the solicitor by the appellant in the context of a former or
1 Morris v Morris [2015] NZHC 2315.
2 Black v Taylor [1993] 3 NZLR 403 (CA).
ongoing but separate solicitor/client relationship. As Lord Millet noted in Prince
Jefri Bolkiah v KPMG:3
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.
[8] The same principle is to be found in r 8.7.1 of the Conduct and Client Care Rules 2008.4 That rule provides that a lawyer cannot act for a client against a former client if the lawyer or the practice holds confidential information, the disclosure would be likely to affect the interests of that former client adversely, and there is more than a negligible risk of disclosure in circumstances where the fiduciary obligation owed to that former client would be undermined.
[9] The long and short of it is the integrity of this Court’s processes would be at risk if information gained through a previous relationship of trust and confidence could be used by the receiver of that information against the person who imparted it in litigation.
[10] The burden is on the appellant to satisfy the Court that the respondent does hold such information and that it is, or may be, relevant to the current dispute before the Court. That said, Lord Millet made clear in Prince Jefri that the burden is not necessarily a heavy one. The former may be readily inferred and the latter will often
be obvious, he said.5
[11] There are two kinds of confidential information potentially relevant in this case. The first is particular information that may be relevant to the current proceeding. There is no allegation in that regard by SSL or Mr Henderson. He points to no specific piece of information imparted by him to Baldwins that is adverse to the interests of SSL and may be used to that effect.
[12] The second is a more diffuse kind of knowledge. It nonetheless may be deployed in a powerful way in a dispute. This is knowledge of personalities,
3 Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 (HL) at 236.
4 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008.
5 At 235.
characters and relationships drawn from the intimacy and insights available to a solicitor in whom a client reposes absolute trust and confidence during the course of the retainer. The classic example of this is found in Black v Taylor itself. In that case, the relevant solicitor/client relationship had endured for many years. This knowledge not just of a client but (in that case) the entire family engaged in the dispute created a real risk that the solicitor would be able consciously or unconsciously to draw on it when acting against a member of the family. Such risk also calls into question the integrity of the judicial process and so must be avoided even though there was no specific item of case specific confidential information that could be identified.
[13] In this case, it is that kind of risk that is the subject of SSL’s challenge.
[14] There is a counter value. That is, that clients are entitled to the counsel of their choice and ought not to be deprived of that choice without good cause. This is often expressed as a factor to be weighed in the balance on whether disqualification should be directed. For myself, I doubt whether that is the appropriate way to think about the place of that value in the overall assessment. On matters that go to the integrity of the processes of this Court, a bright line test is required. Discretionary grey areas to be weighed in the balance are problematic.
[15] In my view, this value is best expressed through the idea that the jurisdiction to disqualify counsel or a solicitor from acting in a matter must not be exercised on the basis of mere speculation. The risk of the misuse of confidential and usually privileged information must be a real one before a litigant is deprived of the right to counsel of their choice.
[16] In the end, the question is whether a fair minded observer, fully informed of the background, would perceive the prior relationship now created a conflict of interest.
The facts
[17] Baldwins acted for SSL in a 2013 dispute with another party. SSL claimed infringement of the HOTELSO trademark and copyright in the SSL’s system of
management and operation. Mr Henderson instructed Baldwins on behalf of SSL in that dispute. He was not at the time a director or employee of SSL, although he had in the past been a director before being declared bankrupt in 2010. In the 2013 retainer, he said he acted simply as SSL’s chosen agent in managing the dispute on its behalf.
[18] The Baldwins’ retainer was brief. A letter of engagement was sent to Mr Henderson by Baldwins on 13 November 2013, the same day that Baldwins wrote to the third party on the issue in dispute. Six days later on 19 November 2013, Baldwins reported to Mr Henderson that a response had been received from the third party and then a phone discussion took place between Baldwins and Mr Henderson. The matter, according to a file note, seems to have come to a resolution at that point with a letter to solicitors for the third party being sent by Baldwins the following day.
[19] There is no further correspondence or communication in relation to the matter and nothing on the file (which was disclosed to SSL’s solicitors) to suggest that Baldwins undertook any further work or had further correspondence or communications with Mr Henderson after that point. A final invoice was sent at the end of the financial year (April 2014), but this did not reflect any ongoing work in the period after 20 November 2013. It was a tidying up bill.
[20] A further issue arose in September 2014. Mr Henderson contacted Baldwins in relation to potential infringement by another hotel group but Baldwins indicated it may have a potential conflict because it also acted for the other hotel group. SSL decided to go elsewhere.
[21] Mr Henderson also does work for a company called Grace Motor Works (GMW). But again he is neither a director nor an employee of that company. Mr Henderson performed the function for GMW that he had for SSL. He instructed Baldwins in respect of intellectual property matters in 2013, and, I am advised, continues to do so.
[22] With that background in mind, I return to the present dispute. As noted, SSL
is currently engaged in a dispute with Soluxury over SSL’s trademark.
Mr Henderson instructed a trademark agent (who was neither a solicitor nor a patent attorney) to oppose revocation of its mark when the application came before the Assistant Commissioner of Trademarks. It seems that the trademark agent did a less than adequate job and, largely due to the quality of that performance, SSL’s opposition was rejected and the HOTELSO trademark registration was revoked. Particularly, the Assistant Commissioner of Trademarks found that the evidence the trademark agent sought to adduce in support of SSL’s opposition to Soluxury’s application, was inadmissible in its entirety. This meant SSL had no case.
[23] SSL has now appealed and the company seeks to fill the gap created by that finding of inadmissibility by adducing on appeal the evidence it says should have been admitted at first instance if SSL had been competently represented.
[24] In his affidavit in support of SSL’s application for leave to adduce further evidence, Mr Henderson claimed that he did not understand the jeopardy SSL was in as a result of Soluxury’s application. He said that correspondence from that trademark agent at the time had led him to believe the agent had the matter fully in hand. In particular, Mr Henderson said, he was unaware that IPONZ had warned the agent prior to the adjudication that the evidence filed in support of his case was inadmissible and would not be considered. SSL was, in this way, deprived of the ability to put a proper defence to the Assistant Commissioner, counsel argued.
[25] No formal notice of opposition to the application has been filed by the respondent, but correspondence between the parties establishes the respondent will argue that Mr Henderson’s foregoing explanation is not credible. The appellant pointed to the following from a letter dated 19 September 2016 from Baldwins to the appellant’s solicitors:
a.We have … obtained information that seriously calls into question your client’s representation of the facts, your witnesses’ credibility, and your clients’ application for leave to file further evidence generally. The information provided by your client is incomplete, inadequately corroborated, and in some instance potentially misleading.
b. We have already obtained information that sheds doubt on your
client’s account of events.
c.We now possess information that casts doubt on the credibility of your witnesses – particularly given that Mr Henderson appears to be acting as the director and representative for your client, despite being declared bankrupt, and despite various court orders in this regard.
[26] The appellant says the information about Mr Henderson that Baldwins claims to possess is likely to have been obtained from him when he was instructing Baldwins as agent either for SSL or GMW, and a fair minded observer aware of the factual background would consider that a conflict is created. The appellant says it does not need to prove actual use of confidential information from this source. It is sufficient that all of the circumstances make this a reasonable possibility. The appellant suggests that the information in question is likely to be of the Black v Taylor relationship kind about how Mr Henderson operates. It is unlikely to have come from any source other than personal knowledge from within Baldwins because discovery was not given by the appellant until after the above letter was sent.
[27] The appellant says it does not matter that Mr Henderson was not an employee or director of SSL. A fair minded observer would not distinguish between Mr Henderson and SSL. That distinction is too fine for a lay observer to see as significant.
[28] The respondent says its challenge to Mr Henderson’s credibility is not based on anything obtained as a result of past or ongoing solicitor/client relationships with him. Rather, it relies entirely on information that was gleaned from documents provided during the current dispute, or from open source information relating to Mr Henderson’s prior commercial disputes and bankruptcy.
[29] The respondent says the claim that any such information is relationship-type information from the prior SSL retainer is implausible. The retainer lasted from one week and involved communications between Mr Henderson and a principal at Baldwins. A fair minded lay observer would not consider it was possible for Baldwins to develop any of the intimate knowledge of Mr Henderson that was an issue in Black v Taylor or similar cases.
[30] The respondent accepts that the GMW retainer covers a much longer period and is indeed ongoing, but GMW is not a party in this proceeding and Mr Henderson
is simply a witness in which the appellant has no property when seen from that perspective.
[31] I accept that the superficial circumstances of this case justify this Court taking a close look at the risk to the interests of justice in allowing Baldwins to appear as counsel in light of the prior and ongoing relationship between Mr Henderson and that firm. But having undertaken such assessment, I am satisfied that there is no real risk that Baldwins will use – or more accurately misuse – confidential information obtained in that context.
[32] First, I accept that the prior SSL retainer could not have lead to Baldwins developing a strategically advantageous knowledge of Mr Henderson that could be later deployed against him. There was insufficient time and contact for that to be a real risk. Second, Mr Henderson’s ongoing association with Baldwins as an agent of GMW does not raise any issue of potential conflict that would trouble a fair minded lay observer. GMW has no fight with Soluxury and Mr Henderson is, from the SSL perspective, just a witness known to the lawyers on the other side.
[33] In the circumstances, there is no reason to view with scepticism Baldwins’ rejoinder that the information upon which the credibility challenge is based was either provided to the respondent in the current litigation or freely available open source information.
[34] The application is dismissed accordingly. Having said that, I am not minded to award costs. The issue raised was a serious one requiring careful consideration. It was appropriate in the interest of justice and the integrity of this Court’s processes, that the issue be aired. Costs will lie where they fall.
Williams J
Solicitors:
Saunders & Co, Christchurch for Appellant
Baldwins Law Limited for Respondent