FEDERAL COURT OF AUSTRALIA
Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd [2014] FCA 1065
| IN THE FEDERAL COURT OF AUSTRALIA | |
| DEALER SUPPORT SERVICES PTY LTD (ACN 008 607 403) Applicant | |
| AND: | MOTOR TRADES ASSOCIATION OF AUSTRALIA LTD (ACN 008 643 561) Respondent |
| DATE OF ORDER: | |
| WHERE MADE: |
THE COURT ORDERS THAT:
1. The Respondent’s application filed on 30 July 2014 be dismissed.
2. Each party’s costs of and incidental to the Respondent’s application be its costs in the cause.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
| VICTORIA DISTRICT REGISTRY | |
| GENERAL DIVISION | VID 269 of 2014 |
| BETWEEN: | DEALER SUPPORT SERVICES PTY LTD (ACN 008 607 403) Applicant |
| AND: | MOTOR TRADES ASSOCIATION OF AUSTRALIA LTD (ACN 008 643 561) Respondent |
| JUDGE: | BEACH J |
| DATE: | 6 October 2014 |
| PLACE: | MELBOURNE |
REASONS FOR JUDGMENT
1 Dealer Support Services Pty Ltd (Dealer Support) has sued Motor Trades Association of Australia Ltd (MTAA) challenging the ownership of a registered trade mark no. 1163713 (the trade mark) and seeking the removal of the trade mark from the relevant register for non-use, and also alleging copyright infringement, conduct in contravention of the Australian Consumer Law (Sch 2 of the Competition and Consumer Act 2010 (Cth)) and passing off.
2 Dealer Support is represented in this proceeding by HWL Ebsworth Lawyers (HWL Ebsworth). A predecessor firm to HWL Ebsworth originally acted for MTAA in relation to the registration of the trade mark. The individual solicitors from HWL Ebsworth who are currently acting for Dealer Support have not previously acted for MTAA. The former individual solicitors who acted for MTAA on the registration of the trade mark are either not currently associated with HWL Ebsworth or have been quarantined from this proceeding.
3 MTAA has brought an application against Dealer Support seeking an injunction restraining it from continuing to retain HWL Ebsworth in this proceeding.
4 There are three potential bases by which the Court’s jurisdiction to restrain solicitors from acting against a former client or a new client from retaining such solicitors might be said to arise: (a) first, that there is a real risk of the misuse of confidential information; (b) second, that there is a breach of a duty of loyalty which has survived the termination of the prior retainer; (c) third, that the proper administration of justice requires that the solicitors should be prevented from acting to protect the integrity of the judicial process and the due administration of justice, including the appearance of justice.
5 In the present case, the first and third bases may be accepted in principle. I reject the asserted availability of the second basis as a matter of principle.
6 Further, as to the application of the first basis, it does not arise on the facts in the present case. MTAA has not put its case for disqualification on this basis. As to the application of the third basis, I am not satisfied that the circumstances warrant the disqualification of HWL Ebsworth.
7 Accordingly, there is no basis to restrain Dealer Support from continuing to engage HWL Ebsworth. MTAA’s application will be dismissed.
HWL Ebsworth’s and its predecessors’ involvement
8 There is little dispute as to the factual matrix.
9 MTAA was incorporated in 1988 and since that time (at least until 2011) has acted as the national peak body representing the trade interests of allied industries in the motor vehicle industry including the associated service and repair industries.
10 Further, since the late 1960s until recently, there has been an unincorporated association known as the “Australian Automobile Dealers Association” (AADA) which has represented interests specific to motor vehicle dealers; AADA had been formed when various state-based trade interests specific to the automotive industry formed a national association. Dealer Support was incorporated in 1985 and named “Australian Automobile Dealers Association Limited”. Since 19 March 2014 it has been known by its present name. Dealer Support asserts that it was formed to acquire the funds, property and other assets held by or for the unincorporated AADA. There is some dispute as to the timing as to whether it had this purpose on formation or only later, but at all events in or about August 2011 the assets of the unincorporated AADA were transferred to or acquired by Dealer Support.
11 Because of the unincorporated status of AADA, some of its assets were held by or in the name of MTAA on behalf of AADA. On 17 March 2011, the Board of MTAA resolved that all AADA assets held by MTAA on AADA’s behalf be transferred to Dealer Support. There is a dispute in this proceeding as to the ownership of the trade mark and whether it was an asset of MTAA in its own right or was an asset held only on behalf of AADA.
12 MTAA first engaged Gardini & Co, solicitors, in the mid-1990s. Gardini & Co provided MTAA with general commercial legal advice on an ongoing basis until 1 February 2004 when Gardini & Co merged with Home Wilkinson Lowry. After 1 February 2004, Home Wilkinson Lowry then acted for MTAA on an ongoing basis providing such advice until April 2008 when Home Wilkinson Lowry merged with Ebsworth & Ebsworth and became HWL Ebsworth. HWL Ebsworth then acted for MTAA until November 2010, but not thereafter.
13 The general nature of the work that HWL Ebsworth and its predecessors performed for MTAA over the timeframe mid-1990s to November 2010 involved commercial advice on dealership agreements for car franchises and motorcycles, intellectual property protection including the registration of trade marks, corporate governance, retail agreements and generally a plethora of commercial issues involving the motor car trade and allied industries.
14 On 20 December 2006, MTAA engaged Home Wilkinson Lowry to act on its behalf to prepare and lodge applications with IP Australia (the Commonwealth Government agency that administers aspects of the Trade Marks Act 1995 (Cth) (Trade Marks Act)) for the registration as trade marks of various logos. The engagement was by a three line letter addressed to Robert Gardini (Gardini), partner at Home Wilkinson Lowry, from Michael Delaney (Delaney), executive director of MTAA dated 20 December 2006 in the following terms:
I write to request that you act on MTAA’s behalf to prepare and lodge applications with IP Australia for the registration of logos for Australian Automobile Dealers of Australia (AADA) (sic).
A copy of each logo is attached. If you have any queries, please do not hesitate to contact me.
On 19 January 2007, Fanoula Galanakis (Galanakis), a senior associate of Home Wilkinson Lowry, sent a letter and draft application for registration of the trade mark to Delaney for signature; there were no communications in the interim. The letter stated, inter alia, “1. In line with your other trade mark applications and registrations, the applicant will be Motor Trades Association of Australia Limited” and “5. We confirm that you have not requested that we conduct trade mark searches or advise you on the availability or registrability of the logo”. On or around 13 February 2007, Delaney signed the trade mark application and returned it to Home Wilkinson Lowry; there were no communications in the interim. On 26 February 2007, Gardini under cover of a letter forwarded the application to IP Australia. His letter stated “We act on behalf of Motor Trades Association of Australia Ltd” and “We enclose our client’s Application…”. Success ensued and registration of the trade mark occurred on 11 October 2007. On 14 November 2007, Con Constanti (Constanti), another partner of Home Wilkinson Lowry, wrote to MTAA advising of this result and enclosing an account. The letter made reference to the exclusive rights that MTAA was given as the registered owner and advising as to the need to use the trade mark. It was accepted that these were the only substantive communications between Home Wilkinson Lowry and MTAA concerning the application for registration.
15 There are two matters of significance that should be addressed at this stage.
16 First, it was accepted by MTAA that Home Wilkinson Lowry had not given any specific advice to it on the ownership question of the trade mark at the time of the application for registration or later. MTAA now has Home Wilkinson Lowry’s file, which apparently demonstrates that no advice was given on that question. Moreover, that is consistent with the mechanical tenor of the letters of 20 December 2006 and 19 January 2007. Home Wilkinson Lowry just followed MTAA’s instruction. Half way through the closing address of counsel for Dealer Support, MTAA sought an adjournment of its application to obtain Home Wilkinson Lowry’s other files in relation to the “other trade mark applications and registrations” referred to in point 1 of the letter of 19 January 2007; I refused that adjournment for reasons discussed later. Generally, the evidence demonstrates that no advice was given on the ownership question relating to the trade mark; the ownership question is, however, an issue in this proceeding.
17 Second, Home Wilkinson Lowry’s legal work in relation to the trade mark registration concluded with the letter of 14 November 2007. However, Home Wilkinson Lowry was stipulated in the application for registration as the “address for service of correspondence within Australia” for the purposes of the application and any later correspondence or notifications post-registration (see s 215(1)(a) of the Trade Marks Act). Further, Home Wilkinson Lowry retained for safe keeping the original certificate of registration. Finally, in the letter of 14 November 2007, Home Wilkinson Lowry advised MTAA:
Registration is for an initial period of 10 years commencing on 27 February 2007 and ending on 27 February 2017. Thereafter, your registration can be renewed every 10 years by paying the applicable IP Australia renewal fees, currently $300.00 per trade mark per class. Although IP Australia will notify us when your trade mark is due for renewal and we will attempt to contact you at that time, we cannot accept responsibility for a failure to renew. Accordingly, it is essential that you diarise the renewal deadline of 27 February 2017, to ensure that you attend to the renewal of your trade mark in due course. Please let us know if you change your address or other contact details…
Home Wilkinson Lowry (or its successor) remained the address for service until 26 March 2014, about 2 months before this proceeding was commenced, but only a week before HWL Ebsworth’s letter of demand dated 1 April 2014 to MTAA; similarly, Home Wilkinson Lowry until 26 March 2014 had been the address for service of many other trade marks which it had applied for on behalf of MTAA. On and after 27 February 2014, when HWL Ebsworth opened the file on the matter the subject of this proceeding acting for Dealer Support, it did a conflict search, pursued subsequent investigations, and ascertained that it was still shown as the address for service for the trade mark. When that was appreciated, steps were taken to remove HWL Ebsworth as the address for service of the trade mark (and for other registered trade marks). There was about a month’s overlap of the period when HWL Ebsworth was acting for Dealer Support to take steps to challenge the ownership of the trade mark and the period when HWL Ebsworth/Home Wilkinson Lowry was still shown as the address for service.
18 Before analysing the present proceeding, some observations should be made about the individual legal personnel that had previously acted for MTAA. None of Gardini, Galanakis and Constanti are acting in the present proceeding. Gardini has until recently been the chairman of partners of HWL Ebsworth and a capital partner. But from 15 August 2014 he has only been a salaried partner. Constanti resigned as a partner of HWL Ebsworth in June 2008. Galanakis has been on extended maternity leave since 2008. Further, HWL Ebsworth has not acted for MTAA in any capacity since November 2010, save for the “address for service” capacity referred to earlier. Minter Ellison, the current solicitors for MTAA in this proceeding, have been a “panel firm” for MTAA since March 2011.
19 In the present proceeding, the HWL Ebsworth individual legal personnel acting for Dealer Support are Evan Stents (Stents), partner, and Christian Teese (Teese) and Patrick Tydde (Tydde), employee solicitors; another partner, Nicholas Pullen, was the signatory to a letter dated 26 March 2014 to MTAA concerning the change of the address for service of the trade mark registration, but otherwise has had no involvement in this proceeding; there was also a hand-written reference to a Gina Tresidder in the notice of change of address, but she also has had no involvement in this proceeding. Stents and Teese have both been admitted to practice as Australian legal practitioners and officers of the Supreme Court of Victoria. Tydde has been admitted to practice as an Australian legal practitioner and an officer of the Supreme Court of Western Australia. None of Stents, Teese or Tydde have spoken to Gardini, Constanti or Galanakis concerning the registration of the trade mark and do not intend to. None of Stents, Teese or Tydde have looked at the physical or electronic file concerning the registration. In terms of the archive file relating to the registration, this was retrieved in a sealed bag and delivered to Minter Ellison on 28 April 2014. In terms of the electronic file, this was “locked” by HWL Ebsworth’s information technology department so that it could only be opened by the national information technology manager. That department copied the contents of the electronic file onto a computer disc which was also delivered to Minter Ellison. MTAA has not pointed to anything in these archived or electronic files showing that HWL Ebsworth or its predecessors gave any legal advice on the ownership of the trade mark. Further, none of Stents, Teese or Tydde have reviewed the content of any file or record held by HWL Ebsworth in relation to its previous representation of MTAA generally. None of Stents, Teese or Tydde have ever acted for MTAA or had any personal involvement with MTAA.
20 More generally, and to provide context, HWL Ebsworth is a national firm with 184 partners and 420 legal professional employees with offices in Melbourne, Sydney, Brisbane, Canberra, Adelaide and Perth.
21 There are several other factual matters to be addressed. As I have said, Home Wilkinson Lowry applied for registration of the trade mark and became the address for service. But contrary to what was suggested by MTAA, that did not involve them in any issue involving the maintenance of that registration. Further, MTAA sought to elevate the “address for service” issue as involving some substantial agency arrangement which continued and overlapped with the period when HWL Ebsworth was first instructed to act for Dealer Support in this proceeding. Now a number of matters. First, if there was such an agency, it was for a minor administrative purpose only. It was not an agency in terms of some substantial legal retainer. It was accepted that HWL Ebsworth or its predecessor had not been retained to act on any future renewal; all Home Wilkinson Lowry may have agreed to do at most was to diarise any renewal date (it charged for this service, although the letter of 14 November 2007 also sought to put such an obligation on MTAA) and to keep custody of the original certificate of registration. MTAA asserted that the “address for service” status had considerable value to HWL Ebsworth as they would be the first to be notified of any non-use or validity challenge. But this does not change the characterisation of this essentially minor administrative capacity of acting as the “address for service”. Second, MTAA asserted that for the period of the overlap of one month (see [17]) that this was not just a case of a solicitor acting for a former client. Rather, one had a more direct conflict where HWL Ebsworth was the agent for MTAA in relation to the address for service and also the solicitors concurrently acting for Dealer Support. Therefore it was said that there was for this period a direct conflict of duty and duty. This argument elevates form over substance. The agency was insubstantial concerning the “address for service”. Moreover, any direct conflict of duty and duty may be doubted. Moreover, any direct concurrency concluded by the end of March 2014. I agree that I should take this into account in terms of assessing the second and third bases, but the overlap is now of historic interest only. Such a direct conflict of duty and duty, if it existed, is no longer the position. MTAA made a number of other points. It is said that HWL Ebsworth unilaterally removed itself as the address for service without contacting MTAA (cf s 215 of the Trade Marks Act). That is accurate, but on one view it just confirms at least that HWL Ebsworth perceived that there was no direct agency relationship between HWL Ebsworth and MTAA. It is also said that there was something inappropriate concerning how HWL Ebsworth notified MTAA that it had so ceased to act. I disagree, but in any event the issue goes nowhere in relation to the issues to be decided.
The present proceeding
22 Dealer Support makes various claims in the present proceeding, only one of which potentially concerns Home Wilkinson Lowry’s prior retainer for MTAA in terms of registering the trade mark.
23 First, it is said that MTAA wrongfully registered and maintained in its own name the trade mark. It is said (at [13]-[14] of the fast track statement) that MTAA’s application to register the trade mark, and the registration and maintenance thereof was “without the licence, authority or consent” of Dealer Support and the prior unincorporated AADA. It is said at [16] that MTAA is not the “true owner”. It is said at [18] that MTAA has engaged in false suggestion or misrepresentation (within the meaning of s 88(2)(e) of the Trade Marks Act) in relation to ownership. Further, it is said at [21] that MTAA applied for and registered the trade mark on behalf of AADA, that MTAA charged AADA for procuring such registration and was reimbursed by AADA for such expenses including the legal fees that MTAA had incurred to Home Wilkinson Lowry; there was evidence adduced that supported such an allegation. Finally, it is said at [22] that the registration and maintenance of the trade mark registration by MTAA was as agent for AADA and/or that it was held on constructive trust for AADA (and consequently Dealer Support). Generally, MTAA denies these allegations. It is apparent that Home Wilkinson Lowry’s retainer to register the trade mark relates to or is part of the matter the subject of this proceeding.
24 Second, it is said that the trade mark is liable to be removed from the Register under s 92 for non-use (at [23]). This claim has only tangential relevance, if at all, to the prior retainer.
25 Third, there are claims made for the allegedly inappropriate registration and maintenance of registration of the domain name “aada.net.au” (see [24]-[28]). These claims have nothing to do with the prior retainer.
26 Fourth, there are claims made for copyright infringement (see [29]-[38]). These claims also have nothing to do with the prior retainer.
27 Fifth, various claims are made in relation to contraventions of the Australian Consumer Law (at [39]-[41]) and passing off ([42]-[45]) but they have nothing to do with the prior retainer.
28 In short, the prior retainer of Home Wilkinson Lowry for MTAA in relation to registering the trade mark only relates to one part of Dealer Support’s claims concerning the selection of MTAA as the applicant for such registration. That context is important in assessing and applying the asserted bases for disqualification of HWL Ebsworth.
The parties’ principal arguments
29 MTAA does not put a case based upon any risk of misuse of its confidential information. This is understandable. First, it is not shown that Home Wilkinson Lowry took any detailed instructions or gave any advice on the ownership point. Second, the HWL Ebsworth personnel currently acting are different from the Home Wilkinson Lowry personnel who previously acted on the registration. Third, the relevant archived file and a copy of the electronic file have been forwarded to Minter Ellison and access to the electronic file has been restricted within HWL Ebsworth. Generally, the necessary separation or quarantining of information has been maintained. Further, HWL Ebsworth is prepared to give undertakings to this effect. I have set these matters out because although the first basis for potential disqualification has not been pursued, nevertheless such matters are not irrelevant to my consideration of the third basis.
30 MTAA principally puts its case on the second basis, namely that HWL Ebsworth continuing to act for Dealer Support in this proceeding has put it in breach of some “duty of loyalty” owed to MTAA. It is said at [8] of its principal submissions that:
There can be no doubt that the present case involves HWL Ebsworth acting in respect of a matter which is the same or closely related to the matter for which they formerly acted for the Respondent: HWL Ebsworth are seeking to revoke or cancel the very registration which the Respondent paid them to obtain. Such circumstances ought to present a straightforward case of a breach of the equitable obligation of loyalty which forbids HWL Ebsworth acting against a former client in the same or a closely related matter.
31 Contrastingly, Dealer Support contends that there is no such freestanding duty of loyalty which binds a solicitor from acting against a former client. It also contends that the registration of the trade mark is not the same matter or a matter closely related to the present proceeding. It says that the trade mark ownership aspect is only one part of the case. Further, it says that Home Wilkinson Lowry’s retainer was no more than “an administrative, mechanical or clerical task of lodging forms to apply for registration of the trade mark” (written submissions at [25]).
32 MTAA also puts its case on the third basis. It says that a fair minded reasonably informed member of the public would conclude that the proper administration of justice and the appropriate supervision by the Court would dictate that HWL Ebsworth be restrained from acting or Dealer Support be restrained from continuing to engage HWL Ebsworth. Dealer Support accepts the relevant principle, but denies that disqualification is justified in the present case.
Three Potential Bases for Disqualification
33 There are three potential bases that might justify the exercise of jurisdiction either to enjoin a solicitor from acting against a former client or to enjoin the new client from retaining such a solicitor. In terms of my discussion of principle there is no relevant difference between either context for present purposes.
34 The first and usual potential basis for enjoining a solicitor from acting against a former client is that there is a “real and sensible possibility of the misuse of confidential information” (Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd [1995] 1 VR 1 at 5 per Hayne J; see also Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 (Prince Bolkiah) at 237 per Lord Millett). There are differences in emphasis in the authorities as to the degree of risk, the onus of proof and what needs to be shown by the former client before any evidentiary onus shifts to show that there is no real risk. But I do not need to trouble myself further with such matters. MTAA accepts that there is no such risk in this case. It has eschewed putting this first basis for disqualification to justify enjoining Dealer Support from continuing to engage HWL Ebsworth.
35 But before moving from this first basis, a number of observations should be made. The first basis is not generally seen as being founded upon any fiduciary duty owed by the solicitor to the former client which is said to survive the termination of the solicitor’s retainer. Rather, it is usually seen as being founded upon a contractual or equitable duty to preserve the client’s confidential information, which survives the termination of the retainer (Prince Bolkiah at 234-235 per Lord Millett); it may be an express or implied term of the contract of retainer or it may be an equitable obligation that arises from the imparting of information in confidence as part of the solicitor/client relationship (but not a fiduciary obligation as such, although one could perhaps so link it; see [78]-[80] below). Further, the first basis appears to have been adequate to address the concern arising from a solicitor acting against a former client in the vast majority of cases, without any need for the creation of any second basis for disqualification involving a surviving duty of loyalty or resort to the third basis for disqualification involving the Court’s inherent jurisdiction concerning the administration of justice.
36 The second potential basis for enjoining a solicitor from acting against a former client, where the client has terminated the retainer or the subject matter of the retainer has been completed, is said to arise out of a duty of loyalty owed by the solicitor to the former client (duty of loyalty). This surviving duty of loyalty is characterised as a fiduciary obligation owed by the solicitor that is said to survive termination of the retainer (Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 (Spincode) at [59]-[60] per Brooking JA but rejected in Prince Bolkiah). MTAA relies on this second basis for disqualification. In my view, there is no such surviving duty of loyalty in the terms expressed by Brooking JA. Further, Brooking JA’s views were obiter. Moreover, the distinguished commercial jurist, Ormiston JA, did not subscribe to such views (at [61]). Further, the language of Chernov JA, that Brooking JA had made “a compelling case” (at [63]), falls short of acceptance. The explanation for their positions is provided by the context. As Ormiston JA said, the “issues [were] only touched upon in argument” and the source “authorities and papers… were not discussed in argument” (at [61]). Brooking JA had put a case for a duty of loyalty, but this had not been tested by the necessary adversarial contest nor needed to be tested.
37 The third potential basis for disqualification arises from the Court’s inherent jurisdiction to ensure the due administration of justice, to protect the integrity of the judicial process and to restrain solicitors from acting in a particular case as part of its supervisory jurisdiction (Grimwade v Meagher [1995] 1 VR 446 at 452 per Mandie J and fortified by Brooking JA in Spincode at [32]-[44], [48] and [60]). In this context, the test to be applied is “whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice required that [the solicitors] be so prevented from acting, at all times giving due weight to the public interest that a litigant should not be deprived of his or her choice of [solicitors] without good cause” (at 452 per Mandie J). I accept this potential basis for disqualification and both Mandie J’s and Brooking JA’s exposition of principle. The real question in the present case is the application of that principle.
38 In summary, the first basis does not arise for consideration, the second basis is not available as a matter of principle, and the third basis is available in principle but its application is contentious.
39 Given that MTAA relies on the second and third bases for disqualification, it is appropriate to address each in turn.
The Second Basis for Disqualification – a Duty of Loyalty
40 The source for this second basis for disqualification, which is based upon a duty of loyalty said to survive termination of the solicitor’s retainer, is principally Brooking JA’s analysis in Spincode.
41 There are fleeting references to this second basis in the authorities prior to Spincode, but it is Brooking JA’s analysis that sought to synthesise a secure principle.
42 In summary, I do not accept this second basis. First, this second basis did not have a secure foundation in the authorities prior to Spincode. Second, Brooking JA’s analysis in Spincode was obiter, and accordingly has diminished force. Third, the Victorian cases that have followed Spincode have not added further to its conceptual foundations. Fourth, NSW cases have not followed Spincode. Fifth, Federal Court cases have either not followed Spincode on this aspect or been equivocal. Sixth, there is no need for this second basis for disqualification given the first and third bases. Seventh, and relatedly, there are conceptual problems with this second basis. I will address each aspect in turn.
Spincode v Look Software
43 Brooking JA analysed the case law and literature on the subject of restraints on solicitors acting against former clients (see at [25]-[59]) before concluding that such a second basis for disqualification existed, which was freestanding from the first and third bases. In my view, support for this second basis prior to Spincode is less than compelling.
44 First, the English cases cited by Brooking JA at [26]-[32] that pre-dated Prince Bolkiah provided little support for this second basis for disqualification based upon a duty of loyalty surviving the termination of the solicitor’s retainer, where the retainer had been terminated by the client or the retainer’s subject matter had been completed.
45 There had been considerable debate as to the precise ambit of the ratio of Earl Cholmondeley v Lord Clinton (1815) 19 Ves Jun 261; 34 ER 515 at 520 (Cholmondeley). Later cases expressed or manifested a lack of clarity as to whether the ratio embraced or required an element of the first basis, viz, a risk of the misuse of confidential information (Beer v Ward (1821) Jac 77; 37 ER 779 at 781; Bricheno v Thorp (1821) Jac 300; 37 ER 864 at 865; Hutchins v Hutchins (1825) 1 Hog 315 at 317; Johnson v Marriott (1833) 2 C & M 183; 149 ER 725 at 727-8; Griffiths v Griffiths (1843) 2 Hare 587; 67 ER 242 at 243-4; Parratt v Parratt (1848) 2 De G & Sm 258; 64 ER 116 at 118; In re John Holmes (a Solicitor); In re The Electric Power Co Ltd (1877) XXV WR 603 at 603-4; Rakusen v Ellis, Munday and Clarke [1912] 1 Ch 831 (Rakusen) at 837 per Cozens-Hardy MR). But on any view of Cholmondeley’s ratio, it did not embrace the notion of a duty of loyalty surviving termination of the retainer, where the termination was brought about otherwise than by the solicitor’s own conduct of unilateral termination. The narrow view of the ratio is that a solicitor acting for Party A in a matter, who ceases to act for Party A and then acts for Party B in the same matter, where such a retainer has been terminated by the act of the solicitor, will be enjoined. But such a ratio does not support a duty of loyalty surviving the termination where the termination was not brought about by the solicitor’s own act. Further, if the other and broader view of the ratio is correct, viz, that it includes an element of a risk of the misuse of confidential information, then one is dealing with the first basis of disqualification rather than the second basis.
46 There is another dimension to these pre-Prince Bolkiah English cases, putting to one side a lack of clarity of the ratio of Cholmondeley. None of them in any event support the view of a solicitor being enjoined on the basis of some duty of loyalty surviving termination of the retainer, where the retainer has been terminated by the client or lapses due to its subject matter being completed. In such a scenario, such cases required addressing the issue of substance in terms of the risk of misuse of information; what those cases really debated were questions of the magnitude of risk, proof of risk and who bore the onus, but all through the lens of analysing a risk of misuse of confidential information. What is apparent is that they all implicitly rejected the idea that some strict duty of loyalty disqualification rule should apply divorced from the risk of misuse of confidential information (see, for example, Rakusen at 843 per Buckley LJ).
47 Second, Brooking JA points out at [32] that some of the English cases make reference to a Court’s supervisory jurisdiction over the conduct of its officers, viz, solicitors and also barristers (see also Davies v Clough (1837) 8 Sim 262; 59 ER 105 (Davies v Clough) at 106-7). But such references, including aspects of the appearance of propriety or impropriety, support the third basis of disqualification, rather than a freestanding second basis. Such observations say little as to this second basis of duty of loyalty. In any event, care needs to be applied in assessing these observations addressing the third basis. For example, Fletcher Moulton LJ in Rakusen at 840-841 suggested that the fundamental principle remained the same, whether a solicitor or not, in terms of being required to demonstrate the mischief or potential misuse of information, but that because of the higher standard of behaviour expected of officers of the Court, the Court might interfere more readily on less proof. So, on one view, this was a reinforcement of the first basis, rather than even recognising a freestanding third basis. But for my part, the preponderance of Australian authority rightly recognises such a third and broader basis of disqualification, which is freestanding from the context of any risk of misuse of confidential information.
48 Third, Brooking JA at [39]-[40] discussed at length some New Zealand and Canadian authorities. But the cases he cited referred to the third basis for disqualification, rather than reinforcing any duty of loyalty second basis. See, for example, Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 590 per Thomas J and Black v Taylor [1993] 3 NZLR 403 (Black v Taylor) at 406 per Cooke P, at 408-412 per Richardson J and at 418-419 per McKay J; Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 (Farrington) is a concurrent conflicts scenario analogous to a solicitor acting on both sides of a conveyancing transaction, not a solicitor/former client context (see Brooking JA’s reference at footnote 36 of Spincode). The Canadian cases referred to by Richardson J in Black v Taylor also accepted this third basis (for example Everingham v Ontario (1992) 88 DLR (4th) 755 at 761). Brooking JA made reference at [39] to the fact that those cases were not discussed in Prince Bolkiah. Perhaps this is unsurprising when one considers that the court’s inherent jurisdiction to supervise its own officers was not in play in Prince Bolkiah. The third basis for disqualification was not relevant to that context. Prince Bolkiah considered the basis for disqualification of KPMG, an accounting/audit firm. True it is that in assessing the services provided by KPMG, they were aligned with legal services and the position of solicitors was accordingly discussed. But, as KPMG were not officers of the Court, the third basis for disqualification may have been considered to be inapplicable; the reference by Lord Millett at 235 to “[t]he only duty to the former client which survives the termination…” indicates perhaps that he was not considering the third basis, which is not described as a “duty to the former client”. Perhaps this is why the New Zealand and Canadian cases cited by Brooking JA were not referred to; the House of Lords did, however, discuss other New Zealand and Canadian authority relevant to the first basis for disqualification. But there is another explanation. It may be that, implicitly, the House of Lords took the view that even if the court’s inherent jurisdiction to protect the administration of justice or to supervise its own officers had been invoked, that nevertheless if there was no risk of the misuse of confidential information, then there was nothing to enjoin under this third basis either; hence Lord Millett’s statement at 234 that “the court’s intervention is founded not on the avoidance of any perception of possible impropriety but on the protection of confidential information”. At all events, whatever the explanation for why the New Zealand and Canadian cases cited by Brooking JA were not discussed in Prince Bolkiah, they did not reinforce any free-standing second basis for disqualification based upon a duty of loyalty in any event.
49 Fourth, reference was made by Brooking JA (at [48] and [49]) to two judgments of JD Phillips J in Macquarie Bank Ltd v Myer [1994] 1 VR 350 (Macquarie Bank) at 359 and Holdsworth v MR Anderson & Associates Pty Ltd (unreported, Supreme Court of Victoria, JD Phillips J, 26 August 1994) (Holdsworth). But as to Macquarie Bank, first, that was not a case of a solicitor acting against a former client and, second, JD Phillips J’s observations were made more in the context of the third basis for disqualification in any event. Further, Marks J’s observations are not consistent with the second basis for disqualification based upon any duty of loyalty (at 352). The third member of the Court, Eames J agreed with both. Moreover, the second basis was neither identified nor argued by counsel in the case. One can agree with Brooking JA at [48] when he says that Macquarie Bank supports the proposition that misuse of confidential information is not the only basis on which “successive adverse representation” will be checked. But accepting that to be so, the case at most supports the third but not the second basis for disqualification. As to Holdsworth, which was delivered ex tempore, it is accepted that several of JD Phillips J’s observations do support this second basis for disqualification (see at 17-19). Given his Honour’s pre-eminence in equity jurisprudence, his observations generally in this area carry great weight. His Honour supported a basis for disqualification where the retainer of the solicitor had been terminated, which disqualification did not invoke either the first or third bases for disqualification. His Honour did, however, acknowledge that “this case is made the more difficult for lack of any direct authority” (at 19). His Honour nevertheless referred to two authorities. The first authority was Davies v Clough. But Davies v Clough was expressed as a case invoking the third basis of disqualification. As the Vice-Chancellor made apparent at 106, and in the passage quoted in Holdsworth at 20-21 by JD Phillips J, the Court was considering “exercis[ing] an authority over [its] own officers as to the propriety of their behaviour”. Moreover, it is not entirely clear that the Vice-Chancellor divorced from his consideration any question of the risk of misuse of confidential information. The second authority was Wan v McDonald (1991) 33 FCR 491 (Wan). Wan was not a case where an injunction was sought to restrain a solicitor from acting against a former client. Rather, the question was whether there was a cause of action for breach of fiduciary duty. But Burchett J did hold (at 516) that it was a breach of fiduciary duty “where the one solicitor, having acted for both parties, seeks to act against one of his former clients, and in the interest of a preferred client, in litigation arising out of the very matter in which he himself acted for both” (at 513). In that case, the “issues of loyalty and propriety” were said to loom large (at 515). Given that his Honour was not addressing the injunction context, it is understandable that there was little consideration given to the third basis for disqualification. Moreover, care must be exercised in using this case; part of the genesis of the dispute involved the solicitor acting on both sides of the relevant transaction at the same time and also where personal interest may have been involved (at 502). Nevertheless, in relation to the second basis for disqualification, it is some authority for the proposition that a duty of loyalty can survive the termination of a retainer where the client has terminated the retainer or its subject matter has concluded (cf Cholmondeley where the conduct of the solicitor had terminated the retainer).
50 Fifth, reference was made by Brooking JA (at [50]-[51]) to McVeigh v Linen House Pty Ltd [1999] 3 VR 394 (McVeigh). First, in McVeigh, the Court of Appeal were not referred to Prince Bolkiah and did not discuss it. Accordingly, it has diminished force. Second, the decision was delivered ex tempore, which partly explains the first point. Third, although the Court did state the existence of the second basis for disqualification, there seems to have been no debate or submissions on the contentious point now being discussed (see [29]). Fourth, the Court based its position on Holdsworth and Wan (at [23]-[26]). But both Holdsworth and Wan are only limited support for the second basis for disqualification. Fifth, the result in McVeigh could have been justified under the third basis for disqualification in any event (Batt JA at [30]). In the circumstances, in my view, McVeigh provides limited support for the second basis for disqualification.
51 In summary, the preponderance of the authorities relied upon by Brooking JA support the first and third bases for disqualification, but not the second basis. But it must be accepted that Wan, Holdsworth and McVeigh provide some support for the second basis, albeit that their force is diminished by their particular contexts and limitations; two of these decisions were ex tempore and, like Spincode, the point does not seem to have been fully argued; the third case, Wan was not a direct solicitor injunction restraint case and the genesis of the issue had certain peculiar features not relevant to the present context.
52 Brooking JA also drew on the writings of Professor Finn (as he then was). But Finn’s writings did not support such a free-standing second basis.
53 First, there is nothing in Finn’s Fiduciary Obligations (Law Book Co Ltd, 1977) referring to a duty of loyalty that is owed by a solicitor to a former client, which continues after the termination of the solicitor’s retainer by the client or where the subject matter of the retainer has been completed. The general basis discussed by Finn in chapter 19 at [312] (at p 139) is rather that the duty to maintain confidentiality continues after the professional relationship has ceased. There is a reference, however, to Cholmondeley, which may be said to provide a basis for disqualification outside the risk of misuse of information context, and as so referred to by Finn (see Brooking JA at [34]). But as Finn explains, that was where a solicitor “discharges himself for the purpose of acting for the opponent”. That was the only exception, as Finn makes clear. The usual basis is the duty to maintain confidence. The full text of [312] (incorporating the footnotes into the text) states:
312. It should further be emphasised that the duty [of confidence] continues after the professional relationship has ceased. The continuing nature of the duty has created problems particularly in solicitor-client cases. There is no rule of law, for example, that a solicitor who has acted in a particular matter for a client, cannot subsequently act in the same matter for his old client’s opponent (Rakusen v. Ellis, Munday & Clarke supra; Johnson v. Marriott (1833) 2 CR. & M. 183). The courts will restrain a solicitor if he discharges himself for the purpose of acting for the opponent (Earl of Cholmondeley v Lord Clinton (1815) 19 Ves. 261 as explained in Bircheno v. Thorp (1821) Jac. 300; and cf In re Flint; Coppock v. Vaughan [1885] W.N. 163).
But otherwise the courts will only restrain a solicitor from acting for the opponent or against a former client if he actually discloses the secrets of his former client of if in the circumstances of a particular case that “mischief is rightly anticipated” (Rakusen v. Ellis, Munday & Clarke supra, at 841 per Fletcher Moulton L.J.; Parratt v. Parratt (1848) 2 De G. & S. 258; Hutchinson v. Newark (1850) 3 De G. & S. 727; In re John Holmes; In re The Electric Power Co. (1877) 25 W.R. 603; Davies v. Clough (1837) 8 Sim. 262; Lewis v. Smith (1849) 1 Mac & G. 417).
Paragraph [312] appears in a section beginning at [308] headed “The Duty of Confidence: The Nature of the Relationship”. Finally, there is a single word reference to “loyalty” at the start of chapter 22 headed “Conflict of Duty and Duty”, where the proposition is stated in generality at [580]:
580. To ensure a loyalty which is undivided the courts have prohibited a fiduciary from serving “two masters” at the same time in the same matter or transaction unless he has first obtained the informed consent of both “masters” to his so acting… [my emphasis]
But apart from that one reference, that chapter does not use the word “loyalty” and nor does it discuss the scenario where a fiduciary relationship/retainer has ceased; no other chapter discusses it either. There is nothing in Finn’s 1977 work which refers to the second basis for disqualification in relation to a solicitor acting against a former client, where the client has terminated the retainer or the retainer’s subject matter has been completed.
54 Second, there is nothing in Finn’s 1987 paper “Conflicts of Interest and Professionals” Legal Research Foundation Inc Seminar on Professional Responsibility (Legal Research Foundation Inc, University of Auckland, 28-29 May 1987) which indicates any change of position by Finn on that aspect (see Brooking JA’s discussion at [44]-[47]). If Finn held the view that the basis for disqualification of a solicitor acting against a former client was sourced to a fiduciary obligation or duty of loyalty, apart from any consideration of the risk of misuse of confidential information, one would have expected to see that in his discussion on the subject of solicitors acting against former clients, particularly at 16-20 where he discusses Rakusen and suggests alternative approaches to Rakusen (see his three possibilities at 20). His reference at 16 to “primarily” and the footnote reference to Cholmondeley is to be taken in the limited context discussed earlier. It cannot be extrapolated more broadly, otherwise it would be inconsistent with Finn’s discussion at 19-20. If Finn had taken the approach advocated by Brooking JA, 19-20 would have been differently expressed. Finn does refer to duty of loyalty at 13, but this is not mentioned throughout 16-20. Such a duty is later expanded upon, but outside the context which is presently being addressed (see, for example, at 24, 32 and 36).
55 Third, there is nothing in Finn’s 1988 chapter “The Fiduciary Principle” in Youdan TG (ed), Equity, Fiduciaries and Trusts (Carswell, 1989) at 4 and 27, that expresses any different view (see Brooking JA’s reference at [42]). I discuss this chapter later (at [76]).
56 Finally, reference was made to Finn’s chapter “Fiduciary Law and the Modern Commercial World” in McKendrick E (ed), Commercial Aspects of Trusts and Fiduciary Obligations (Oxford University Press, 1992) at 7. But this does not support this second basis. At 22-23, Finn stated:
2. Former-client conflict, i.e. where a firm or company, having acted for a client in a particular matter, subsequently acts against that client in the same or in a related matter. Much the most commonly litigated instance of this relates to law firms – bodies not of immediate concern to the purposes of this volume. The critical issue in this type of conflict is the protection of the former client from the possibility of information abuse.” [my emphasis]
His discussion separates out this heading 2 from heading 1 (“Same-matter conflicts”), heading 3 (“Separate-matter conflicts”) and heading 4 (“Fair-dealing conflicts”). Finn elaborates on each of these headings. Heading 2 “Former-client conflicts” is then discussed in detail in section 3.2 at 27-30. At 28, he discusses three issues of legal principle which attend this type of conflict. None relate to any freestanding surviving duty of loyalty. They all relate to the confidential information context.
57 In summary, a review of Finn’s work that was referred to by Brooking JA does not indicate express support for this second basis for disqualification where the retainer has been terminated by the client or the subject matter of the retainer has concluded; in some of his works there is a footnoted reference to Cholmondeley to indicate that in the situation covered by its ratio there may be an independent ground, but that is a situation not relevant to the present context. The other English and Australian texts referred to by Brooking JA in footnotes 36, 38 and 39 are not inconsistent with Finn’s position.
58 Now Brooking JA recognised but sought to cover off the limitation in Cholmondeley by saying that “… I should be sorry to think, and reluctant to hold, that whether a solicitor’s fiduciary duty of loyalty stood in the way of acting against a former client in the same matter depended on whether the solicitor had, in Lord Eldon’s words, ‘discharged himself’” (at [59]). But a number of points. First, that was the ratio of Cholmondeley. Second, no English case extrapolated further, unless it was into the confidential information territory and the first basis for disqualification. Third, Finn did not extrapolate further. Fourth, it is difficult to see why one would be concerned with such a limitation. The first and third bases for disqualification more than adequately cover the field anyway, as I will discuss shortly. Fifth, and relatedly, if such a concern is intended to reflect judicial opprobrium in the context of the administration of justice and the Court’s inherent jurisdiction over the behaviour of its own officers, because perceived egregious conduct might escape the net with such a perceived limitation, it would be caught within the third basis. In any event, as a matter of substance, Cholmondeley’s limitation is apposite.
59 There is a difference between a solicitor who has been retained in a matter for Client A saying half way through that he wants to terminate the retainer and to then go and act for Client B in the same matter. The act of termination is an act of disloyalty. The act of preferring Client B to Client A, who still desires to retain him, is an act of disloyalty. The state of mind of that solicitor is one of a disloyal fiduciary. There may also be other cases where a fiduciary obligation survives termination, particularly in “instances in which a fiduciary has sought to circumvent fiduciary doctrine’s protection” (Conaglen M, Fiduciary Loyalty (Hart Publishing, 2010) (Conaglen) at 188) including where the termination is motivated by the desire to obtain or retain a benefit in breach of fiduciary duty (see Edmonds v Donovan (2005) 12 VR 513 at [56]-[61] per JD Phillips JA; Leeming M, “The Scope of Fiduciary Obligations: How contract informs, but does not determine, the scope of fiduciary obligations” (2009) 3 Journal of Equity 1 (Leeming) at 10). Now contrast such cases with the situation where the solicitor has been retained for Client A in a matter. Client A pays the solicitor for his present services but does not pay for any option or first right of refusal for his future services. Say the matter is concluded. Five years later, Client B comes along and retains the solicitor in that or a related matter. Assume also that Client A independently has chosen to engage a different solicitor in any event. Is it suggested that these two situations should be treated in the same terms of this duty of loyalty? In my view, they should not be. Moreover, if there was an issue arising in that latter scenario, that would be adequately addressed by the first and third bases for disqualification in any event. And if it was not covered by those bases, what substance would there be in seeking to justify nevertheless the solicitor’s disqualification? It would be a restraint in the absence of a vice (the hypothesis is that the first basis for disqualification does not apply). It would be a restraint in the absence of the client paying for the privilege of some indefinite restraint when it first engaged the solicitor; any well informed client would know that they had not paid for that privilege. It would be a restraint that had little to do with the administration of justice (the hypothesis is that the third basis for disqualification does not apply). There is little to support such a free-standing second basis for disqualification.
60 More generally, in terms of analysing the extent to which a fiduciary obligation terminates with the retainer or survives such termination, the context and the nature of the fiduciary obligation are all important. No doubt equity considers the actual conduct of the parties rather than follows the rules of contractual formation and termination (Leeming (supra) at 10); termination of the retainer may provide evidence of the conclusion of the fiduciary relationship, but it is not conclusive (see Goubran S, “Conflicts of Duty: The Perennial Lawyers’ Tale” (2006) 30(1) MULR 88 at 129-130). No doubt where the termination is motivated by the fiduciary’s desire to obtain or retain a benefit in breach of the fiduciary obligation, then the obligation may survive the termination. For example, where the termination is motivated by the desire of the fiduciary to self deal, then the relevant obligation would survive termination, although in such a case one may also be in the territory of the first basis where there has been a misuse of confidential information. No doubt a fiduciary obligation can survive termination in the scenario dealt with in Cholmondeley. Perhaps indeed the fiduciary relationship as distinct from the obligation can survive the contractual termination if the relevant relationship of trust and confidence continues (Goubran at 130). But to agree to all such propositions does not carry with it acceptance of the second basis. Finn has recently discussed this question of the survival of fiduciary obligations and liabilities in his article “Fiduciary Reflections” (2014) 88 ALJ 127 at 134. He distinguished between “misuse liability” on the one hand and “conflict of duty liability” on the other hand (although his discussion principally concerned conflict of duty and interest rather than conflict of duty and duty); the “misuse liability” includes the misuse of confidential information. He said:
To put the matter shortly, the duration of the conflict of duty and interest liability is that of the relationship which enlivens it. The misuse liability, in contrast, endures for as long as the circumstances are such that the potential for misuse of fiduciary position or knowledge or opportunity resulting from it subsists.
Interestingly, in footnote 66 he was careful to separate out solicitors in relation to one of his observations, but the scenario he referred to does not appear to have relevance to the second basis; it seems more to be saying that a solicitor can be in a fiduciary relationship with an existing client where there is no formal retainer, but where there has been “a continuing relationship of trust and confidence as a result of a prior retainer or retainers” (see McMaster v Byrne [1952] 1 All ER 1362 at 1367-8 per Lord Cohen).
61 Generally, to accept that a fiduciary obligation, indeed a fiduciary relationship itself, may survive termination of a contractual retainer in some contexts does not support survival of a duty of loyalty in the present context; see also Dal Pont GE, “Conflicts of Interest: The Interplay between Fiduciary and Confidentiality Law” (2002) Australian Mining and Petroleum Law Association Yearbook 583 at 598. I agree with the view expressed by Conaglen (supra) at 194-195 that the second basis arguably distorts fiduciary principles and that apart from the first basis for disqualification, the third basis is a better approach “ensuring that fiduciary doctrine is not stretched too far out of shape in the pursuit of an objective that is not one of its core purposes”.
Other State cases
62 Cases in Victoria post-Spincode have accepted this second basis for disqualification. But the cases which have followed Spincode have not set out any additional analysis which adds to its conceptual foundations. As to these authorities:
Some cases cite Spincode, but only refer to the second basis by way of obiter because they turned on the first basis for disqualification (Sent v John Fairfax Publication Pty Ltd [2002] VSC 429 (Sent) at [94]-[95] per Nettle J; Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd [2006] VSC 152 (Adam 12) at [33] per Whelan J).
Some cases cite Spincode, but only refer to the second basis by way of obiter because they turned on the third basis for disqualification (Sent at [115]-[116] per Nettle J; Adam 12 at [38] per Whelan J; Sharp v Rata International Pty Ltd [2013] VSC 328 at [35] per Almond J).
Some cases cite Spincode and apply the second basis, but where the principle was not contested, unsurprisingly given the eminence of the obiter (Dale v Clayton Utz (a firm) (No 2) [2013] VSC 54 at [125] per Hollingworth J; Pinnacle Living Pty Ltd v Elusive Image Pty Ltd [2006] VSC 202 at [13] per Whelan J; Village Roadshow Ltd v Blake Dawson Waldron [2003] VSC 505 at [40] per Byrne J; Connell v Pistorino [2009] VSC 289 (Connell) at [25]-[29] per Byrne J).
No Victorian case analyses the foundational support for the second basis addressed in Spincode in a manner which fortifies its conceptual foundations. Nettle J (as he then was) in Sent only went so far as a succinct attempt to negative the New South Wales negativity. Habersberger J in Australian Liquor Marketers Pty Ltd v Tasman Liquor Traders Pty Ltd [2002] VSC 324 only went through the same authorities that Brooking JA analysed, with one addition, the decision of Mandie J in Westend Entertainment Centre Pty Ltd (formerly Minneken Pty Ltd) v Equity Trustees Ltd (2000) V ConvR 54-619; [1999] VSC 514. But in that case, Mandie J referred to the appearance of disloyalty (at 64,429); that suggests a possible third basis description rather than a second basis description. Further, Mandie J’s foundation was itself only McVeigh and Wan (discussed in Spincode and above at [49]-[50]).
63 In summary, the conceptual foundations for the second basis for disqualification have not been added to.
64 Interestingly, the Victorian Court of Appeal in Watson v Ebsworth & Ebsworth (a firm) (2010) 31 VR 123 at [145]-[150] were given the opportunity to fortify the second basis, but did not avail themselves of that opportunity.
65 Cases in NSW post-Spincode have not accepted this second basis for disqualification (see, for example, Belan v Casey [2002] NSWSC 58 at [15]-[21] per Young CJ in Eq; British American Tobacco Australia Services Ltd v Blanch [2004] NSWSC 70 at [97]-[108] per Young CJ in Eq; Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550 at [51]-[55] per Bergin J; Kallinicos v Hunt (2005) 64 NSWLR 561 at [76] per Brereton J; Cleveland Investments Global Ltd v Evans [2010] NSWSC 567 at [38]-[49] per Ward J). See also Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1 at [204]-[205] per Spigelman CJ, Sheller and Stein JJA and Colonial Portfolio Services Ltd v Nissen (2000) 35 ACSR 673; [2000] NSWSC 1047 at [140]-[151] per Rolfe J that have applied Prince Bolkiah.
66 Other States have also not definitively followed Spincode on this second basis. See, for example, Ismail-Zai v State of Western Australia (2007) 34 WAR 379 (Ismail-Zai) at [20]-[25] per Steytler P (with the concurrence of Wheeler JA), but cf [63]-[75] per Heenan AJA and Flanagan v Pioneer Permanent Building Society Ltd [2002] QSC 346 at [10]-[11] per Dutney J, referring to Fruehauf Finance Corp v Feez Ruthning [1991] 1 Qd R 558 at 570 per Lee J, which picks up the passage from Finn’s Fiduciary Obligations which I have set out at [53] above.
67 In summary, first, the authorities referred to in Spincode only provided tenuous support. Second, the Victorian cases that have followed Spincode have not fortified any conceptual theme. Third, apart from Victoria, there is little support in the other States.
68 What is the Federal Court authority on the subject?
Federal Court cases
69 Goldberg J in PhotoCure ASA v Queen's University at Kingston (2002) 56 IPR 86; [2002] FCA 905 appears to have rejected this second basis for disqualification and followed Prince Bolkiah (see at [53]-[55]). It may be apparent from what I have said earlier that I am inclined towards his position. However, there is an element of Goldberg J’s analysis dealing with the third basis (at [56] and [60]) that I do not agree with, which I address later (see at [96]).
70 So far as other Federal Court authority is concerned, there are other cases which appear to have rejected the second basis (Bureau Interprofessionnel Des Vins De Bourgogne v Red Earth Nominees Pty Ltd (t/as Taltarni Vineyards) [2002] FCA 588 at [17]-[18] per Ryan J). Alternatively, other cases have made reference to the second basis but have found it unnecessary to decide the point (Geelong School Supplies Pty Ltd v Dean (2006) 237 ALR 612; [2006] FCA 1404 (Geelong School Supplies) at [24]-[27] per Young J; Fonterra Brands (Australia) Pty Ltd v Viropoulos (2013) 304 ALR 332; [2013] FCA 657 at [28] per Robertson J; Waiviata Pty Ltd v New Millenium Publications Pty Ltd [2002] FCA 98 at [9]-[10] per Sundberg J).
71 Contrastingly, there are some Federal Court authorities that appear to have accepted this second basis (Farrington v Deputy Commissioner of Taxation (2002) 50 ATR 429; [2002] FCA 1013 at [53]-[54] per Kenny J; Mintel International Group Ltd v Mintel (Australia) Pty Ltd (2000) 181 ALR 78; [2000] FCA 1410 at [41]-[43] per Heerey J and Wan (discussed earlier)).
72 Finally, there are some Federal Court authorities that simply make no reference to this second basis (see Carindale Country Club Estate Pty Ltd v Astill (1993) 42 FCR 307 at 309-313 per Drummond J (although he generally refers to Wan) and Western Australia v Ward (1997) 76 FCR 492 (WA v Ward) at 498-499 per Hill, Branson and Sundberg JJ, although the absence of reference is unsurprising given the context of the latter case).
73 Generally, the preponderance of Federal Court authority is either unsupportive or equivocal.
74 Given that I am obliged to deal with the point, the spectrum of choice available to me from the Federal Court jurisprudence is not limiting. There is no one case that I am obliged to select for the purposes of then being obliged to follow it unless I consider it to be plainly wrong. Alternatively, if I had to make such a selection it would be Photocure, with one qualification.
Other conceptual problems
75 There are a number of other conceptual issues with this asserted surviving duty of loyalty and the vagueness of its content and use.
76 First, loyalty is a term of generality rather than precision. Indeed it has the flavour of a unifying theme or a general foundation underpinning the essence of what is required from a fiduciary from which other more specific obligations arise. As Finn explains in his chapter “The Fiduciary Principle” (1989), the language of phrases such as loyalty “tends to overwhelm – but not to illuminate” (at p 2). As he describes it, “[t]he ‘fiduciary’ standard for its part enjoins one party to act in the interests of the other – to act selflessly and with undivided loyalty” (at p 4). As he went on to say, “the true nature of the fiduciary principle is revealed” such that “[t]o maintain the integrity and the utility of those relationships in which the (or a) role of one party is perceived to be the service of the interests of the other, it insists upon a fine loyalty in that service” (at p 27). Further, and consistent with the generality of the theme, “one must ascertain in each given case what is the matter or matters in respect of which loyalty is to be given” (at p 41). In other words, to use the label “loyalty” may not illuminate its application in the precise context to inform the precise content of a fiduciary duty which is then said to have been breached.
77 Other authority also suggests that loyalty is a meta-obligation rather than a precise prescription. For example Millett LJ in Bristol and West Building Society v Mothew [1998] Ch 1 stated at 18:
The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr. Finn pointed out in his classic work Fiduciary Obligations (1977), p. 2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary.
78 Second, as Finn explains in his article “Professionals and Confidentiality” (1992) 14 Syd LR 317 at 326, if loyalty or fiduciary law’s conflict of duty rules are used in the present context, they are used to protect former-client confidences. In other words, any talk of the preservation of loyalty, if one was to talk in such language, is arguably addressed to the first basis for disqualification, rather than some independent stand-alone second basis.
79 Another way to express the point is to focus on one dimension of loyalty, viz, an obligation to avoid conflicts of duty and duty. In the scenario where a solicitor is acting for a new client against an old client and has confidential information of the former client that may be at risk of being used for the benefit of the new client, one has the potential of a conflict of duty and duty. But that is one justification for the first basis of disqualification. But it does not extend more broadly.
80 It might be said that a solicitor is acting in a perfectly loyal fashion where he has faithfully discharged his obligations under one retainer for one client, and in relation to a later retainer for a new client involving the same or a related matter, makes sure that there is no risk of any misuse of the first client’s confidential information so that a conflict of duty and duty is avoided. A fortiori if the same firm is acting, but different individual solicitors are acting for the new client from those that acted for the old client.
81 In summary, broad notions of duty of loyalty are not that helpful. Greater precision is required. And when one uses greater precision, any obligation of loyalty might be quite readily discharged in circumstances such as those set out in the preceding paragraph.
82 Third, there is a further problem with how loyalty has been discussed in some of the authorities. As Steytler P in Ismail-Zai at [23]-[25] discusses, many cases confuse the application of this second basis with the third basis by discussing the appearance of disloyalty. The question of appearance as distinct from the reality of disloyalty can only be a third basis situation.
83 Fourth, Steytler P points out at [24]:
In any event it seems to me that there may be little distinction, for any practical purpose, between the question whether there is a breach of a continuing duty of loyalty, on the one hand, and the questions whether there is a real risk of a breach of confidence and whether there is or will be other impropriety of a kind that is likely to undermine the integrity of the judicial process and the due administration of justice (which comprehends the appearance of justice), on the other hand. The cases suggest that there will be a breach of a continuing duty of loyalty if a solicitor acts against a former client in the same or a closely related matter: Fordham (at 489-490); Spincode (at [53]) per Brooking JA. I find it difficult to envisage circumstances in which a lawyer who acts in the same or a closely-related matter against a former client will neither be in a position in which there is a real risk of a breach of a duty of confidence nor be acting in such a way as to undermine the integrity of the judicial process or the due administration of justice.
In other words, there is little demonstrated need for this second basis. The first and third bases cover any actual or perceived vice. Indeed, what would justify any disqualification on this second basis only, but where the first and third bases did not justify disqualification? Perhaps nothing more than censorious rectitude.
84 Fifth, on one view, the exposition of this second basis arguably propounded a new normative standard for solicitors’ behaviour. But if one was to do this, it ought only to have been done after consideration of the professional conduct and practice rules that governed solicitors’ behaviour. Now such rules cannot be determinative of normative standards that a court should expound or apply in the context of fiduciary obligations, but they are not irrelevant (Maguire v Makaronis (1997) 188 CLR 449 at 465-6 per Brennan CJ, Gaudron, McHugh and Gummow JJ; Farrington at 92 per Richardson J). But in the absence of such a consideration one should be circumspect about the revelation of such a largely unchartered normative standard; I am not dealing here with the third basis for disqualification, which is a matter for the Court. For example, there is nothing in rr 4 or 8 of the Professional Conduct and Practice Rules 2005 (Vic), r 10 of the Professional Conduct and Practice Rules 2013 (NSW) or r 10 of the model Australian Solicitors’ Conduct Rules 2011 (Law Council of Australia) which support this second basis. Further, such rules were no more stringent at the time Spincode was decided; when one considers the then ethics texts at the time of Spincode, they did not support any free-standing surviving duty of loyalty post the termination of the retainer. MTAA relied upon s 15 of the Code of Conduct for Patent and Trade Mark Attorneys 2013 (Cth) in this context, but it does not directly assist on this aspect. HWL Ebsworth is not an incorporated patent or trade marks attorney. Moreover, the relevant individual solicitors are not registered patent or trade mark attorneys within the meaning of that Code. Further, s 15 is not entirely clear. Section 15(4) refers to former clients, but it only deals with a conflict between duty and interest rather than between duty and duty. Moreover, s 15(1) seems to relate to concurrent clients rather than dealing with former clients. True it is that the explanatory statement says that s 15 “encompasses former clients”, but that may be a reference to s 15(4). Moreover, s 15(1) relates to situations dealing with one and the same matter. Further, the language of s 15(1) is “a client” rather than “former client” (cf s 15(4)(b)). I do not find reference to the Code to be of assistance.
85 There is another reason to be circumspect. The Legal Profession Uniform Law (Sch 1 to the Legal Profession Uniform Law Application Act 2014 (Vic)) received assent in Victoria on 25 March 2014 (20 May 2014 in NSW for its equivalent). The aspiration is that there will be a national practice of law (see for example s 42 of the Legal Profession Uniform Law). This proposed model for uniformity, although it has only tangential reference to the scope and duration of fiduciary obligations, suggests that any enthusiasm for applying a Victorian standard in preference to the other States’ positions should be tempered, unless such a fiduciary canon was compelling, which it is not.
86 Sixth, MTAA has also submitted that under s 55B of the Judiciary Act 1903 (Cth) (Judiciary Act), the entitlement of a Victorian solicitor to appear in this Court is contingent upon his or her entitlement to practice as a solicitor of the Supreme Court of Victoria. It was then said to follow “that solicitors admitted to practice by the Supreme Court of Victoria ought to be held to the standard of loyalty required of them as officers of that Court … when they rely on that admission to appear in the Federal Court” (see MTAA’s written submissions dated 12 September 2014 at [39]). Mr Stents and Mr Teese of HWL Ebsworth were so admitted. Now there are a number of difficulties with this argument.
87 First, the second basis is not addressing the question of a Court’s supervision of the legal advisers before it. That is the third basis. Second, the second basis is dealing with principles of equity. As to that, there is only one Australian common law (including equity) (see Lipohar v R (1999) 200 CLR 485 at [43]-[57] per Gaudron, Gummow and Hayne JJ); it need hardly be said that s 79 of the Judiciary Act can also be put to one side. Third, MTAA’s parochial argument is unattractive to a national court dealing with national subject matter. Fourth, numerous conundrums could arise if MTAA’s argument was accepted. HWL Ebsworth is a national firm. A firm may contain lawyers admitted in different states. If lawyer X admitted in Victoria commences proceedings in the Federal Court in the NSW registry, does that mean that the Spincode duty of loyalty applies or not? If he or she does so in the Victorian registry, is there a different answer? If firm A based in South Australia with lawyer Y admitted there commences proceedings in the Victorian registry, does that mean that Spincode applies or not? Does the answer change if he or she commences proceedings in the NSW registry? What if two lawyers are acting, but are admitted in different states or a new lawyer takes over who is admitted in a different state? Finally, once a solicitor practices in this Court, he or she is subject to the standards and duties imposed by this Court rather than any imposed by the State court which historically admitted the practitioner.
88 Seventh, if this surviving duty of loyalty argument had any allure, it might be attractive where you were dealing with one and the same individual who had acted for the former client and then sought to act against that client (see Sent, Connell and Adam 12 for example). But it hardly has allure when one is artificially seeking to invoke such a principle in relation to firms, notwithstanding standard default positions such as “the knowledge of one is the knowledge of all” and “the partner acting is the firm acting” and the like. Firms merge with other firms locally, nationally and internationally. Large commercial firms produce economies of scale and scope. Mergers and looser alliances are to be encouraged. They produce such economies and enhanced expertise flowing from increased specialisation. Further, there is an accelerating flow of individual movements between firms. Further, clients themselves shop around. There is less loyalty from their side. Not only do they switch firms more regularly, using modern commercial tools such as tenders and expressions of interest, but they will use different firms for different purposes. Both sides of the equation desire and demand free flow of movement. Indeed, there may be a public interest in promoting such fluidity (see Glover J, Commercial Equity: Fiduciary Relationships (1995, Butterworths) at p 203)). In this dynamic and complex environment, including the world of the corporatised firm that has floated at a premium, a basis for disqualification should have its foundation in a real vice or it should not be propounded. And if there is any reality to justifying a basis for disqualification based upon appearances, then this is adequately addressed by the third basis.
Summary
89 For all the above reasons, I do not accept the second basis for disqualification. If the theory that this second basis existed immediately prior to Spincode was true, I would have expected to have observed numerous cases expounding and applying the principle prior to Spincode, considerable academic discussion of this basis prior to Spincode and professional conduct and practice rules at the time of Spincode embodying such a basis. I made none of those observations. Contrastingly, if this theory was false, I would have expected to have observed not only the negative of each such observation, but considerable resistance in academic writings and jurisprudence as to this basis following Spincode. That is precisely what can be observed.
90 Alternatively, if contrary to what I have said, there is any such surviving duty of loyalty, then arguably it is imposed only on the individual solicitors involved, and extending to the precise firm at that time, Home Wilkinson Lowry. But if that is the position, the duty is not breached in this case. Gardini is not currently acting. Moreover, that precise firm no longer exists. For MTAA to succeed, it must demonstrate a principle which says that a newly constituted partnership is necessarily to be treated in equity as being saddled with all the fiduciary obligations of an earlier subset of partners. Say you have a two member Victorian partnership that is bound by this surviving duty of loyalty to client A in relation to a matter. Say this firm merges with a 100 member national partnership to form a new 102 member partnership. MTAA must contend, without more, that the additional 100 members are all saddled with this surviving duty of loyalty to client A in relation to the matter. Moreover, what if the 100 member national partnership prior to the merger always acted for client B, being the counterparty to the same matter? No authority was cited to me supporting such an inherited fiduciary duty of loyalty of the entire 102 member partnership to client A; we are not here dealing with proprietary interests or the “knowledge of one being the knowledge of all” type scenarios where other “transmissible” equitable obligations might protect to bind the new partnership. The two members of the prior Victorian partnership may continue to be bound in equity, and if they breached that fiduciary obligation of loyalty in their capacity as partners of the new 102 member partnership, then all might be liable for that breach; but the obligation itself and its breach by the two members may need to be shown before the liability then became that of all.
91 But assume I am wrong on this question of contagion and any surviving duty of loyalty of Gardini and the original partners of Home Wilkinson Lowry binds all current partners of HWL Ebsworth, then there has been a breach; I reject Dealer Support’s argument that there is not a similarity of matter (see at [101]). But in that scenario, the question then arises as to my discretion to grant or refuse an injunction. I would, in that eventuality, exercise my discretion against the grant of such an injunction for all the same reasons that demonstrate that the first and third bases for disqualification are not established. If only the second basis was left, one would have a desiccated breach. Conceptual dogmatism would not justify a draconian remedy in the absence of a real vice.
92 Let me now address the third basis.
The Third Basis for Disqualification – Administration of justice
93 I accept this third basis in principle as expounded by Mandie J in Grimwade at 452, Brooking JA in Spincode at [40]-[41] and [60] and Young J in Geelong School Supplies at [29], [33] and [35].
94 First, the test to be applied is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a solicitor be prevented from acting in the interests of the protection of the integrity of the judicial process and the appearance of justice.
95 Second, due weight should be given to the public interest in a client not being deprived of the solicitor of its choice. That public interest is an important value, although it can be over-ridden with due cause (WA v Ward at 498 per Hill, Branson and Sundberg JJ).
96 Third, this third basis is not discharged by it being demonstrated that the first basis does not apply (cf Photocure at [56] and [60] per Goldberg J). It has independent scope. The third basis deals not just with private fiduciary relationships and inter-partes fiduciary obligations, but rather the administration of justice, the public interest and the appearance of propriety of officers of the court. The third basis is not only justified, but its justification explains its additional scope.
97 Fourth, nevertheless this jurisdiction is an “exceptional one” and is “to be exercised with appropriate caution” (Young J in Geelong School Supplies at [35] and Brereton J in Kallinicos at [76]).
98 The principles are clear enough. Their application is another question.
99 MTAA has submitted that HWL Ebsworth should be disqualified on this third basis.
100 First, it relies upon HWL Ebsworth having simultaneously acted as agent for MTAA (and holding itself out as such) in terms of being the address for service of the trade mark registration and having acted at the same time for Dealer Support. But such an overlap was for a short period and has now ceased. Moreover, HWL Ebsworth’s agency in having acted as the address for service had a substantive non-legal characterisation and did not touch and concern the administration of justice. MTAA has also criticised HWL Ebsworth’s communications with MTAA at the time it removed itself as the address for service. Even if the criticisms have some force, in substance they have little to do with this third basis.
101 Second, it is said that the matter upon which Home Wilkinson Lowry advised concerning the application for registration of the trade mark is the same matter or part of the same matter raised in the present proceeding concerning the ownership of the trade mark. Dealer Support contended otherwise. Generally, determining such a question is a problematic exercise. Questions of fact and degree are involved. And fine distinctions are to be avoided. But I agree with MTAA that the application for registration does relate to one aspect of the claims now made by Dealer Support in the present proceeding. But the overlap is only as to one aspect. Further, there is no evidence that any advice as to ownership was given by Home Wilkinson Lowry at the time of the application for registration. Further, you have entirely different personnel now acting with no risk of any misuse of confidential information.
102 Part way through the closing address of Dealer Support, MTAA sought an adjournment in order to obtain Home Wilkinson Lowry’s other files concerning the other trade mark registrations (some 25) to see whether advice had been given at an earlier time on the issue of the ownership (see point 1 of the letter dated 19 January 2007 at [14] above). I refused the adjournment. MTAA had had adequate time to pursue these lines of enquiry. Further, this matter is a “fast track” proceeding. Further, the nature of the proposed enquiry suggested an element of speculation. Further, the fragmentation and delay involved in such an adjournment was inconvenient and unfair to Dealer Support and, generally, contrary to the overarching purpose set out in s 37M of the Federal Court of Australia Act 1976 (Cth).
103 In my view, there are powerful reasons pointing against any disqualification.
104 First, it is not irrelevant that the first basis for disqualification is not satisfied. There is no real risk of the misuse of confidential information.
105 Second, the individual solicitors currently acting for Dealer Support on the matter are quite different from the individual solicitors who previously acted for MTAA. Further, the individual solicitors currently acting have never had any prior association with MTAA.
106 Third, MTAA ceased to utilise the services of HWL Ebsworth in November 2010 and made its own commercial decision to retain new solicitors for its range of work from that time. Minter Ellison was chosen in March 2011 as a panel firm. There was no expectation or desire on the part of MTAA to engage HWL Ebsworth, whether for this matter or any other legal work. MTAA filed no evidence to suggest that it would have liked to have engaged HWL Ebsworth on this or any other matter if it had had the opportunity.
107 Fourth, any substantive work by Home Wilkinson Lowry on the trade mark application ceased in November 2007. The involvement thereafter as an address for service was administrative. Further, the work undertaken by Home Wilkinson Lowry for the application does not appear to have involved any advice on ownership.
108 Fifth, there is no actual conflict of duty and duty or conflict of duty and interest associated with HWL Ebsworth now acting.
109 Sixth, the ownership dispute concerning the trade mark is only one limited part of this proceeding.
110 Seventh, to restrain Dealer Support from engaging HWL Ebsworth would cause unnecessary cost and inconvenience.
111 Dealer Support asserted that there were other factors in its favour that would point against disqualification. First, it was said that MTAA’s application was no more than an opportunistic challenge to gain some forensic advantage either by delay or to deprive Dealer Support of the lawyers of its choice. That submission has no substance. MTAA has raised an important issue that warranted investigation. Moreover, Dealer Support did not seek to cross-examine Brenton Priestley, a solicitor employed by Minter Ellison, on such a thesis. Second, it was said that there was evidence that MTAA had always considered that the registration of the trade mark was done on behalf of Dealer Support/AADA and that the latter had been on-charged by MTAA (and paid) for the legal fees paid by MTAA to Home Wilkinson Lowry. Accepting that to be so, that just goes to the merits of the substantive issue as to ownership, which is in contest. I do not see how demonstrating that Dealer Support might have a strong case goes directly to the issues I need to address.
112 Finally, there are several matters that have troubled me which evolved during the hearing. First, HWL Ebsworth on behalf of Dealer Support now challenges the ownership of the trade mark. Home Wilkinson Lowry was involved in applying for and procuring registration of the trade mark in the name of MTAA. As I have said, there is no evidence that Gardini (or others) gave advice on ownership at the time. Nevertheless, Gardini is a person that MTAA would want to speak to. But Gardini is still a partner of HWL Ebsworth. Will Gardini speak with MTAA and Minter Ellison? Is he likely to be less cooperative with MTAA given that HWL Ebsworth is acting for Dealer Support? Second, and more generally, is it unseemly for HWL Ebsworth to be acting for a party against a former client where the work of a current partner (Gardini) in relation to the former retainer may potentially be called into question?
113 As to the first matter, MTAA and Minter Ellison had not sought to speak to Gardini prior to this hearing to gauge the level of his cooperation. The adjournment application referred to earlier was also made in order to enable this to occur. I refused that adjournment for the reasons referred to earlier. In any event, in my view, Gardini would be bound to cooperate with MTAA if it made such a request. MTAA asserted that because Gardini was a partner of HWL Ebsworth that he might be under a duty to Dealer Support not to so cooperate. Alternatively, he might perceive a loyalty to his co-partners justifying such non-cooperation. I doubt this. His first duty would be to the former client. As a consequence of the raising of this issue during the hearing, I encouraged Dealer Support to get instructions on two aspects: (a) first, Gardini’s preparedness to cooperate; (b) second, express acknowledgment from Dealer Support on the priority issue. Subsequent to the hearing, Dealer Support produced two undertakings and one formal statement of position. The first undertaking, from Gardini, is in terms that he will on request “provide any reasonable assistance” to MTAA or Minter Ellison regarding the registration of the trade mark. So much seems to be his obligation in any event. The second, from Galanakis, is in similar terms. The other individual, Constanti, is no longer with the firm. The statement of position, from Dealer Support, confirms the priority position referred to earlier. I consider these undertakings and statement to be sufficient to address any concern. Moreover, as I have said, the material does not indicate that any advice was given on the question of ownership in any event.
114 As to the second matter, whether it is unseemly for HWL Ebsworth to be acting for a party against a former client, where the work of Gardini in relation to the former retainer might be called into question, I do not like this atmospheric. But several points. First, it is not shown that Gardini gave any substantial advice on the ownership question. Second, Gardini has been quarantined. Third, Gardini has undertaken to cooperate with MTAA. Weighing up such matters and all the foregoing factors (at [100]-[113]), I am not satisfied that this third basis has been established.
115 On balance, the present case is not such an exceptional case to warrant the disqualification of HWL Ebsworth or Dealer Support being restrained from continuing to engage HWL Ebsworth. MTAA’s application will be refused.
116 For completeness, I should note one final point. If new material comes to light from discovery, say, in relation to the other trade mark registration files, showing a changed factual landscape in relation to the position of Gardini from what has been set out earlier in these reasons, then a further application can be made by MTAA as it is so advised.
| I certify that the preceding one hundred and sixteen (116) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach. |
Associate:
