FEDERAL COURT OF AUSTRALIA

Geelong School Supplies Pty Ltd v Dean [2006] FCA 1404

LEGAL PRACTITIONERS – application to restrain solicitor from acting for party to the proceedings – relevant legal principles – inherent jurisdiction of the Court to restrain solicitor from acting if it is in the interests of justice – whether fair-minded, reasonably informed member of the public would conclude that proper administration of justice requires that solicitor be restrained – where solicitor acting for joint venture company and interests of certain directors – where proceedings involve disputes between various interest-holders in joint venture

Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 considered

Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 considered

Sent v John Fairfax Publication Pty Ltd [2002] VSC 429 cited

Pinnacle Living Pty Ltd v Elusive Image Pty Ltd [2006] VSC 202 cited

Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd [2006] VSC 152 cited

Belan v Casey [2002] NSWSC 58 considered

British American Tobacco Australia Services Ltd v Blanch [2004] NSWSC 70 considered

Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550 cited

Wan v McDonald (1992) 33 FCR 491 cited

PhotoCure ASA v Queen’s University at Kingston (2002) 56 IPR 86 considered

Waiviata Pty Ltd v New Millennium Publications Pty Ltd [2002] FCA 98 cited

Bureau Interprofessionnel Des Vins De Bourgogne v Red Earth Nominees Pty Ltd (t/as Taltarni Vineyards) [2002] FCA 588 cited

Lincoln v Holmesglen Institute of TAFE [1999] FCA 601 considered

Grimwade v Meagher [1995] 1 VR 446 considered

Kallinicos v Hunt (2005) 64 NSWLR 561 applied

McVeigh v Linen House Pty Ltd [1999] 3 VR 394 cited

Oceanic Life Ltd v HIH Casualty & General Insurance Ltd (1999) 10 ANZ Ins Cas 61-438 cited

Newman v Phillips Fox (a firm) (1999) 21 WAR 309 cited

Bowen v Stott [2004] WASC 94 considered

Westgold Resources NL v St Barbara Mines Ltd [2002] WASC 264 cited

Mitchell v Pattern Holdings Pty Ltd [2000] NSWSC 1015 cited

Holborow v MacDonald Rudder [2002] WASC 265 cited

Western Australia v Ward (1997) 76 FCR 492 applied

Yunghanns v Elfic Ltd (unreported, Supreme Court of Victoria, Gillard J, 3 July 1998) cited

Re Homer District Consolidated Gold Mines; Ex parte Smith (1888) 39 Ch D 546 cited

Toole v Flexihire Pty Ltd (1991) 6 ACSR 455 cited

Bell v Burton (1993) 12 ACSR 325 cited

Barren v Potter [1914] 1 Ch 895 cited

Petsch v Kennedy [1971] 1 NSWLR 494 cited

GEELONG SCHOOL SUPPLIES PTY LTD AND LANDMARK SCHOOL SUPPLIES PTY LTD v GEOFFREY WAYNE DEAN, MARIA CHRISTINA DEAN, DEAN SCHOOL SUPPLIES PTY LTD, GEE DEE INVESTMENTS PTY LTD, HEDLEY EDUCATIONAL BOOK CENTRE PTY LTD, PATRICIA RUTH SMITH AND LEEANNE CAROLE WESTMAN

VID 691 OF 2006

YOUNG J

31 OCTOBER 2006

MELBOURNE

THE COURT ORDERS THAT:

1.                  Wakefield & Vogrig Lawyers be restrained from acting as solicitor for the first applicant in these proceedings.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     By notice of motion dated 2 October 2006, the first, second and third respondents have applied for an order restraining Wakefield & Vogrig Lawyers (‘WVL’) from acting for the first applicant, Geelong School Supplies Pty Ltd (‘GSS’), in these proceedings. The application is not based on any contention that there is a danger that WVL will misuse confidential information belonging to the first, second or third respondents or upon any contention that WVL previously acted as their solicitor. The application is founded on the Court’s inherent jurisdiction to control the conduct of its own officers so as to ensure the due administration of justice and the integrity of the judicial process.

2                     These proceedings, and the present application for injunctive relief, arise out of the breakdown of a joint venture relationship that previously existed between the second applicant, Landmark School Supplies Pty Ltd (‘Landmark’) and the fourth respondent, Gee Dee Investments Pty Ltd (‘GDI’). GDI is the trustee of the Dean family trust. The joint venture business was previously conducted through GSS.

The Joint Venture Business

3                     The joint venture was created pursuant to an agreement between Landmark and GDI that was entered into in October 1992. Landmark and GDI agreed to establish a new company and trading trust which would be owned 50 per cent by the Dean family trust and 50 per cent by Landmark. The joint venture business involved the sale and distribution of text books and stationery, principally to schools, students and parents of students, in the Geelong region. Pursuant to the joint venture agreement, new products were supplied and sold by Landmark to GSS for on sale to GSS’ customers. GSS also acquired and resold second hand text books in the Geelong region.

4                     GSS has two issued shares and a paid up capital of $2. One share is held by Russell Porch, a director of Landmark, in trust for Landmark. The other share is held by Geoffrey Dean on trust for GDI. At all relevant times GSS has had four directors: Russell Porch and Sandra Porch (‘the Porchs’) are the directors appointed to represent Landmark; and Geoffrey Dean and Maria Dean (‘the Deans’) are the directors appointed to represent the Dean family trust.

5                     GSS is the trustee of a unit trust known as the Geelong School Supplies Unit Trust (‘the GSS Unit Trust’) which was established by a trust deed entered into on 19 November 1992. There are only two issued units in the GSS Unit Trust. One unit is held by Landmark; and the other unit is held by GDI in its capacity as trustee of the Dean family trust.

6                     GSS carried on business as a seller and distributor of educational products in the Geelong area from about 23 September 1992 until about 1 June 2005. The business was managed by Geoffrey Dean. It appears that in 2004 various disputes arose between the joint venture partners. On 28 October 2004, Landmark, the Porchs, GDI and the Deans participated in a voluntary mediation with a view to resolving their differences. The mediation resulted in a settlement agreement under which the parties agreed that the joint venture business would be terminated by 1 June 2005 and GSS would be wound up as soon as practicable after that date. The terms of settlement are set out in a handwritten document entitled ‘Heads of Agreement’.

7                     The joint venture business has come to an end and the joint venturers have gone their separate ways. The evidence contains a set of financial statements for GSS and the GSS Unit Trust for the 12 months ended 30 June 2006 which were prepared at the instigation of Landmark. Not surprisingly for a bare trustee company, the accounts show that GSS has total equity of $2. The profit and loss statement for the GSS Unit Trust shows that it made a net loss after trading and the sale of its assets of $6005 for the year ended 30 June 2006. There were no distributions to beneficiaries in the year ended 30 June 2006. The balance sheet shows that the trust has a net deficiency in assets of $6004. In the previous year, the trust made a net loss of $346 350. The accounts therefore show that GSS has no funds of its own to finance its participation in this litigation.

8                     The statement of claim indicates that the proceedings arise from events that occurred after Landmark, the Porchs, GDI and the Deans agreed to terminate the joint venture business in October 2004 and during the course of winding up the business. The statement of claim alleges that the Deans breached duties which they owed to GSS as directors by, inter alia, providing confidential information pertaining to the operation of GSS’ business to the fifth respondent, Hedley Educational Book Centre Pty Ltd (‘Hedley’), and by assisting Hedley to obtain the business of former clients of GSS. The statement of claim also alleges that the Deans owed a fiduciary duty to Landmark as one of the two unit holders in the GSS Unit Trust. It is alleged that the Deans breached this fiduciary duty by the same course of conduct. The applicants seek an account of profits, alternatively damages, from the Deans.

Landmark and WVL

9                     In August 2005, Anthony Vogrig (‘Vogrig’) was a partner in the firm of O’Halloran Davis (‘OHD’). It appears that by about March 2006 Vogrig had become a partner of WVL whose offices were located in Drouin, Victoria. Since at least 1 August 2005, Vogrig has acted as solicitor for Landmark and its two directors, the Porchs, in relation to disputes between them and the Deans, including the disputes which are the subject of these proceedings.

10                  By a letter dated 1 August 2005, which bears Vogrig’s reference, OHD advised the solicitors acting for the Deans, Harwood Andrews Lawyers (‘HAL’), that they had received instructions to act on behalf of the Porchs in their capacity as members of GSS. The letter alleged that Geoffrey Dean had improperly used his position as a director of GSS to gain an advantage for himself and in the process had caused a detriment to GSS. The letter threatened that proceedings would be commenced against Mr Dean in the Supreme Court of Victoria based on alleged breaches of director’s duties.

11                  I infer from other correspondence which is in evidence that OHD wrote a second letter dated 1 August 2005 on behalf of GSS that was in substantially similar terms and made the same allegations against Mr Dean. This letter was not exhibited to Mr Anderson’s affidavit of 29 September 2006. In its response dated 15 August 2005, HAL referred to two letters dated 1 August 2005 from OHD: one written purportedly on behalf of GSS and the other on behalf of the Porchs. In their letter, HAL denied the allegations against their client. In addition, they informed OHD that it did not have authority to act on behalf of GSS. It stated that the Deans were not consulted by their fellow directors of GSS in relation to any appointment of OHD and that, in any event, OHD had a clear conflict of interest in acting on behalf of GSS when it had previously acted, and still acted, on behalf of the Landmark interests.

12                  Counsel for the first to fourth respondents (‘the Dean interests’) submitted that Vogrig and OHD had also acted for the Landmark interests at the voluntary mediation on 28 October 2004. There is, however, nothing in the affidavit material to support that submission. So far as the evidence before me goes, there is no evidence, one way or the other, as to whether OHD or Vogrig acted for the Landmark interests at the time of the voluntary mediation in October 2004. However, nothing turns on this as it is clear that Vogrig and OHD were acting for the Landmark interests and the Porchs from at least 1 August 2005.

13                  The fact that OHD was purporting to act for GSS in August 2005 is confirmed by its letter of 9 August 2005. In this letter, it advised HAL that unless Mr Dean immediately takes certain steps the only option the company and its directors will have is to issue the proposed proceedings. OHD also sent a letter dated 8 September 2005 to Walter L Carr & Sons Pty Ltd, a firm which conducted a clearing sale of GSS’ plant and equipment, which explicitly stated that OHD acted for GSS. In its letter of 9 September 2005 to OHD, HAL referred to this letter and again pointed out that OHD had no authority to act for GSS. The letter added that OHD appeared to be purporting to act for GSS on instructions from Mr Porch without any authority from the Deans.

14                  By letter dated 30 September 2005, OHD responded to HAL. The letter bears Vogrig’s reference. The final paragraph of the letter stated:

‘[F]inally, we advise that we have never received instructions to act for GSS in any capacity.’

It is impossible to reconcile this statement with the earlier correspondence in which OHD claimed to act for GSS and made various demands on behalf of GSS. Throughout October 2005, HAL continued to complain to OHD that OHD had purported to act on behalf of GSS when it had no proper authority to do so.

15                  The exchanges of allegation and counter-allegation between OHD and HAL came to a temporary end in October 2005. The next development occurred on 7 June 2006 when WVL wrote to HAL enclosing a notice of a meeting of directors of GSS. The notice stated that the meeting would be held at 9.30am on 16 June 2006 at Warragul and stipulated that the business of the meeting would be ‘[t]o consider a resolution that the Directors approve the company commencing legal proceedings in the Federal Court of Australia forthwith, in the form of the attached Statement of Claim and Application’. The notice of meeting was signed by Russell Porch in his capacity as a director of GSS. The attached statement of claim was in substantially the same form as the statement of claim filed in these proceedings. Although the notice of meeting was forwarded on 7 June 2006, the attached draft statement of claim was dated March 2006.

16                  By letter dated 14 June 2006, HAL responded to WVL on behalf of the Deans. They advised that the appointed time for the meeting of Friday 16 June 2006 at Warragul did not give the Deans sufficient time to arrange their attendance, especially as Mr Dean was interstate and would not be returning before approximately 20 July 2006. They requested that the meeting be adjourned until 20 July 2006 or soon after. The letter also noted that the statement of claim attached to the notice of meeting was dated early March and had clearly been under consideration for some time and the Deans needed time to consider it.

17                  On 15 June 2006, WVL wrote to HAL rejecting the request to adjourn the meeting. Their letter asserted that the fact that the institution of proceedings against the Dean interests had been under consideration by Landmark for some time was irrelevant.

18                  HAL immediately responded by letter dated 15 June 2006. They objected that the Deans were entitled to reasonable notice of the meeting and the proposed meeting allowed inadequate time for them to attend. HAL also drew attention to the fact that the Heads of Agreement had provided that GSS would be wound up as soon as practicable after 1 June 2005. They said that the Deans had been pressing for the appointment of a liquidator but this had been resisted by the Landmark interests. HAL concluded by saying that, in the event the meeting proceeds, they anticipated receiving instructions to apply to the Court for an order restraining any party from acting on any purported resolution of GSS to the extent that it enables GSS to institute the foreshadowed proceedings, and for a further order that GSS be wound up.

19                  On 19 June 2006, WVL forwarded a notice pursuant to s 237(2) of the Corporations Act 2001 to HAL. The notice was directed to the Deans and was signed by the Porchs. The notice said that the Porchs intended to apply to the Federal Court for leave to issue proceedings on behalf of GSS in the form tabled at the directors’ meeting conducted on Friday 16 June 2006. The notice concluded by stating:

‘The directors having failed to reach agreement on the resolution put to the Meeting of Directors, it is therefore probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them.’

This notice suggests that no resolution was passed at the meeting on 16 June 2006.

20                  On 26 June 2006, WVL wrote to HAL and advised that at the meeting of directors on 16 June 2006 the two directors present, the Porchs, unanimously passed a resolution that GSS commence proceedings in the Federal Court. The letter forwarded minutes of the meeting recording that the resolution was put to a vote and carried unanimously by the two directors in attendance.

21                  The contradictory nature of WVL’s letters of 19 and 26 June raises questions as to what actually transpired at the meeting and why the earlier notice under s 237(2) of 19 June 2006 was signed by the Porchs and forwarded to HAL.

22                  By letter dated 28 June 2006, HAL wrote to WVL and drew attention to the conflicting explanations given in the letters of 19 June and 26 June. The letter also objected that WVL faced a position of inherent conflict in acting for the Landmark interests and GSS as the dispute was in substance one between the Deans and the Porchs. The letter concluded with a statement that HAL anticipated being instructed to make application to the Court to stay the proceeding pending an application to wind up GSS in accordance with the mediation agreement.

23                  Despite the position adopted in its various letters, the Deans have not made any application, as yet, to restrain GSS acting on the resolution of 16 June 2006. Nor have they made any application to the Court to stay the proceedings pending an application to wind up GSS in accordance with the mediation agreement. Instead, the Deans have filed the present motion.

Relevant Legal Principles

24                  In Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501 (‘Spincode’) at 521-524 [52]-[58], Brooking JA identified three possible grounds for restraining a solicitor or counsel from acting for a particular party to litigation: the danger of misuse of confidential information; a breach of a fiduciary duty of loyalty not to act against a client, or against a former client in the same matter or a closely related matter; and the inherent jurisdiction of the court to control the conduct of solicitors and counsel as officers of the court. These three grounds represented the orthodox legal position in Australia prior to the decision of the House of Lords in Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 (‘Bolkiah’) which held that the duty of loyalty did not survive the termination of the relationship with the client. Brooking JA’s analysis in Spincode has been consistently followed and applied in Victoria: see Sent v John Fairfax Publication Pty Ltd [2002] VSC 429; Pinnacle Living Pty Ltd v Elusive Image Pty Ltd [2006] VSC 202; and Adam 12 Holdings Pty Ltd v Eat & Drink Holdings Pty Ltd [2006] VSC 152. But it has not been followed in New South Wales.

25                  In Belan v Casey [2002] NSWSC 58 (‘Belan’) at [15]-[21], Young CJ in Eq held that since the House of Lords decision in Bolkiah the overwhelming weight of authority establishes that the jurisdiction of the court to intervene at the suit of a former client to restrain a solicitor from acting is founded solely on the real risk of disclosure of confidential information, and is not connected with some principle of conflict of interest. The decision in Belan has been followed and applied in New South Wales: British American Tobacco Australia Services Ltd v Blanch [2004] NSWSC 70 (Young CJ in Eq) at [97]-[104]; Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550 (Bergin J) at [51]-[55].

26                  Although the Supreme Court of New South Wales has declined to follow Spincode, insofar as Brooking JA held that the equitable obligation of loyalty owed by a solicitor to his or her client survives the termination of the retainer, the decisions in New South Wales do not cast any doubt upon the court’s inherent power to restrain solicitors from acting in a particular case having regard to the interests of the administration of justice. Similarly, the court’s inherent supervisory jurisdiction over solicitors and counsel was not relevant to the House of Lords decision in Bolkiah.

27                  For the purposes of this case, the controversy concerning the duty of loyalty, and whether it extends beyond termination of the retainer, can be put to one side. Counsel for the Dean interests does not contend that his clients were formerly clients of Vogrig or WVL. No question arises of confidential information or its potential misuse. As I have already mentioned, the sole ground for injunctive relief is the third ground identified in Spincode, namely the inherent power of the court to restrain its officers from acting for a particular client in litigation when such a restraint is required by the interests of justice. There is, accordingly, no need for me to consider whether the weight of authority in the Federal Court supports the Victorian approach rather than that adopted in New South Wales: see Wan v McDonald (1992) 33 FCR 491 at 512-513; PhotoCure ASA v Queen’s University at Kingston (2002) 56 IPR 86 (‘PhotoCure’); Waiviata Pty Ltd v New Millennium Publications Pty Ltd [2002] FCA 98 at [10]; Bureau Interprofessionnel Des Vins De Bourgogne v Red Earth Nominees Pty Ltd (t/as Taltarni Vineyards) [2002] FCA 588 at [18]; and Lincoln v Holmesglen Institute of TAFE [1999] FCA 601 (‘Lincoln’).

28                  In mounting a case based on the inherent powers of the Court to control the conduct of solicitors and counsel, counsel for the Dean interests relied on the principle enunciated by Mandie J in Grimwade v Meagher [1995] 1 VR 446 (‘Grimwade’) at 452:

‘In my view it cannot be doubted that this court likewise has an inherent jurisdiction to ensure the due administration of justice and to protect the integrity of the judicial process and as part of that jurisdiction, in an appropriate case, to prevent a member of counsel appearing for a particular party in order that justice should not only be done but manifestly and undoubtedly be seen to be done. The objective test to be applied in the context of this case is whether a fair-minded reasonably informed member of the public would conclude that the proper administration of justice required that counsel 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 counsel without good cause.’

In Grimwade, the restraining order was directed to senior counsel who had previously prosecuted the plaintiff in criminal proceedings and who proposed to act against him in civil proceedings. There was no question of the plaintiff being a client or former client of the senior counsel. In what Mandie J described as unique, extraordinary and highly exceptional circumstances, he made an order restraining senior counsel from acting in the civil proceedings. He did so on the basis that there was a real and sensible risk of a lack of objectivity by the first defendant which not only gave rise to an undue risk of unfairness or disadvantage to the plaintiff but also gave rise to a substantial concern that a fair trial would not be had: at 455.

29                  Counsel for Landmark argued that there is no proper basis for granting an injunction in this case as Vogrig and WVL have never acted for the Dean interests, and there is no risk of misuse of confidential information. Landmark relied on Goldberg J’s judgment in PhotoCure and the New South Wales decisions to which I have referred. This argument is misconceived. It is based on the false premise that the authorities that have rejected Brooking JA’s view that a solicitor’s duty of loyalty survives termination of the solicitor’s retainer also rejected the third ground for judicial intervention. This is not the case. A long line of authorities makes it very clear that the third ground for judicial intervention remains in full force and effect, both in New South Wales and elsewhere in Australia.

30                  In Kallinicos v Hunt (2005) 64 NSWLR 561 (‘Kallinicos’), Brereton J undertook a comprehensive examination of the authorities concerning the court’s supervisory jurisdiction over solicitors. His Honour concluded that there are many authorities which maintain the same view of the court’s supervisory jurisdiction as that which had been expressed in the cases prior to Bolkiah: see eg McVeigh v Linen House Pty Ltd [1999] 3 VR 394, Oceanic Life Ltd v HIH Casualty & General Insurance Ltd (1999) 10 ANZ Ins Cas 61-438; Newman v Phillips Fox (a firm) (1999) 21 WAR 309; Bowen v Stott [2004] WASC 94 (Hasluck J) (‘Bowen v Stott’); see also Westgold Resources NL v St Barbara Mines Ltd [2002] WASC 264.

31                  In the course of his examination of the authorities, Brereton J referred to the observations of Bergin J in Mitchell v Pattern Holdings Pty Ltd [2000] NSWSC 1015 (‘Mitchell’), Heenan J in Holborow v MacDonald Rudder [2002] WASC 265 (‘Holborow’) and Hasluck J in Bowen v Stott. In Mitchell, Bergin J stated that, as an incident of its inherent jurisdiction, the court may decide upon the propriety of a legal practitioner representing a party in a particular case to ensure justice and the appearance of justice: at [34]. In Holborow, Heenan J said that this power had been invoked in cases where there was a potential that the legal practitioner might be a witness; where the subject matter of the litigation was likely to involve an evaluation of the conduct of the solicitor; and where the efficacy of documents prepared by the solicitor was likely to be in issue: at [23]. In Bowen v Stott, Hasluck J said that it may be appropriate to invoke the inherent power in cases where the solicitor had some direct pecuniary interest in the outcome of the case, where the solicitor might feel impelled to justify or defend his conduct in representing a client, or where the practitioner’s credibility is at stake as a potential witness: at [47], [53] and [55].

32                  Brereton J concluded his discussion of the authorities by enunciating the following principles (at 582-583 [76]):

‘… the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice (Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode Pty Ltd; Holborow; Williamson v Nilant; Bowen v Stott; Law Society v Holt). Prince Jefri Bolkiah does not address this jurisdiction at all. Belan v Casey and British American Tobacco Australia Services Ltdare not to be read as supposing that Prince Jefri Bolkiah excludes it. Asia Pacific Telecommunications Ltd appears to acknowledge its continued existence.

·           The test to be applied in this inherent jurisdiction is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice (Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Holborow;Bowen v Stott; Asia Pacific Telecommunications Ltd).

·           The jurisdiction is to be regarded as exceptional and is to be exercised with caution (Black v Taylor; Grimwade v Meagher; Bowen v Stott).

·           Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause (Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott).

·           The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief (Black v Taylor; Bowen v Stott).’

33                  In this Court, there is unambiguous authority that the Federal Court has the inherent power to restrain solicitors or counsel acting in a particular matter for a particular client where such a course is required by the interests of justice. In the Full Court’s decision in Western Australia v Ward (1997) 76 FCR 492, Hill and Sundberg JJ said at 498:

‘Enough has been said to show that the requirements of natural justice do not involve an absolute right to the legal adviser of a party's choice. The instances in which courts have prevented chosen counsel or solicitors from acting have involved misconduct, potential use of confidential information and a real risk of lack of objectivity and of conflict of interest and duty: Grimwade v Meagher. The present case is only another example of situations in which the “integrity of the judicial process”, the “interests of justice”, and the “need to preserve confidence in the judicial system”, to use some of the notions that lie behind the inherent jurisdiction to exclude counsel or solicitors, may override the public interest that a litigant be able to be represented by the lawyer of its choice. That public interest is “an important value”: Black v Taylor at 408.’

In Lincoln, Goldberg J referred to this passage with approval and applied the test stated by Mandie J in Grimwade: at [10]. His Honour did not doubt that this Court has inherent jurisdiction in an appropriate case to prevent practitioners appearing for a particular party in order that justice should not only be done but should be seen to be done.

34                  In PhotoCure, Goldberg J did not refer to his earlier decision in Lincoln. This is not surprising because there is no conflict between the two decisions. PhotoCure concerned an application by a former client based primarily on the risk of misuse of confidential information. His Honour’s discussion of Bolkiah, Belan v Casey and Spincode was directed to the question whether a former client was confined to the ground of misuse of confidential information, or whether the client could also rely upon the ground of breach of a duty of loyalty as suggested by Brooking JA in Spincode. Goldberg J did not express any concluded views concerning the Court’s supervisory jurisdiction. At 98 [57], his Honour said that:

‘Even if the basis of loyalty to the client or supervision by the court of solicitors as officers of the court is relevant, there is no room for the operation of those principles in the present circumstances as none of the persons who were involved in the receipt of instructions from, and the giving of advice to, PhotoCure between November 1999 and May 2000 are involved in acting for Dusa in relation to the present proceeding.’

His Honour also said at 98 [58] that he was troubled because an initial reaction to the issue was that it was inappropriate for a solicitor to act against a former client where the subject matter of the retainer is the same as the retainer by the former client. In my opinion, nothing in PhotoCure should be read as foreclosing this Court’s power to exercise inherent jurisdiction over the conduct of solicitors and counsel in litigation in this Court.

35                  The crucial question, therefore, is whether on the evidence before me a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that Vogrig and WVL be restrained from acting for GSS in these proceedings. In answering this question it must be borne in mind that this is an application for a permanent injunction: Yunghanns v Elfic Ltd (unreported, Supreme Court of Victoria, Gillard J, 3 July 1998). It must also be borne in mind that the Court’s jurisdiction is an exceptional one; it is to be exercised with appropriate caution and due weight must be given to the public interest in a litigant not being deprived of the solicitor of its choice without due cause.

Disposition of the Case

36                  In a very real sense, the dispute that lies at the heart of this litigation represents a dispute between the Dean interests and the Landmark interests, including the Porchs. The dispute erupted in about August 2005 as the business operations of the joint venture were being wound down. Under the Heads of Agreement, it was agreed that the jointly owned land would be sold and that GSS would be wound up. But there was no express agreement between the joint venturers about what would happen once GSS ceased to operate concerning GSS’ business records or its former clients. The nub of the dispute concerns what happened to these records and clients.

37                  At that time that GSS’ business was being shut down, Vogrig personally acted for Landmark and the Porchs. He also purported to act for GSS when he must have known that he had no proper authority from the board of directors of GSS to do so. When HAL protested on behalf of the Deans that he had no authority to act for GSS, he gave the disingenuous response that his then firm had never received instructions to act for GSS in any capacity. That proposition is denied by the correspondence which is in evidence in these proceedings.

38                  I infer from the evidence that in about March 2006, Vogrig instructed counsel to draw a statement of claim on behalf of GSS and Landmark. He gave those instructions at a point of time when he must have known that he had no authority to act for GSS. Of course, it may be that instructions were given to him by Landmark or the Porchs that asked him to assume that instructions would also be forthcoming from GSS.

39                  By June 2006, Vogrig had joined the firm of WVL. I infer that Vogrig advised the Porchs in relation to the meeting of the board of directors of GSS that was notified for 16 June 2006. WVL forwarded the notice of meeting which allowed only one week’s notice for the convening of the meeting. He rejected, or on his advice the Porchs rejected, the Deans’ request for an adjournment of the meeting until 20 July 2006 or a mutually convenient date thereafter. The articles of GSS do not prescribe any time for the convening of directors’ meetings. In such a case, the law requires that the period of notice for the convening of the meeting be fair and reasonable: Re Homer District Consolidated Gold Mines; Ex parte Smith (1888) 39 Ch D 546; Toole v Flexihire Pty Ltd (1991) 6 ACSR 455 at 461 (‘Toole’); Bell v Burton (1993) 12 ACSR 325 at 329. In deciding what is fair and reasonable, the nature of the company and its practices are important factors. So too is the nature of the business to be transacted at the meeting: Toole at 461. Proper notice is a prerequisite of a validly constituted meeting: Barren v Potter [1914] 1 Ch 895.

40                  On the limited evidence before me, there is a serious question as to the validity of the meeting and the resolution passed at it. The proposed resolution involved a grave matter and required consideration of a detailed set of allegations in the draft statement of claim. The correspondence does not disclose any compelling reason why the request for an adjournment until 20 July was not acceded to or any difficulties that would arise for the Porchs if the meeting were to be adjourned as requested. In their letter of 15 June 2006, HAL drew the relevant legal requirements to the attention of WVL, pointing out that reasonable notice must be given of any directors’ meeting, and that what is reasonable must be determined in the light of the company’s particular structure, practice and affairs (citing Petsch v Kennedy [1971] 1 NSWLR 494).

41                  The letter from HAL to WVL of 15 June 2006 foreshadowed that an application may be made to the Court for an order restraining any party from acting on any purported resolution of GSS passed at the meeting of 16 June 2006. No such application has been made. At this stage, the Deans’ defence in these proceedings does not contain any allegation that the resolution that purported to authorise the institution of these proceedings by GSS was invalid. There is no counterclaim to that effect by the Deans. However, counsel for the Deans foreshadowed that the claim would be raised in these proceedings. He also said that his clients proposed to take separate proceedings to apply for a winding up order against GSS.

42                  In these circumstances, the question arises whether I should assume that the proceedings will be extended to include allegations that the meeting and resolution were invalid, as foreshadowed by counsel for the Deans. In Bowen v Stott, Hasluck J confronted a similar situation. In that case, the proposed amendment raised issues concerning the alleged settlement of earlier proceedings. Hasluck J said that if the pleadings were amended as proposed and the matter proceeded to trial, there would be an evidentiary issue as to whether a settlement was effected, and on that issue it was likely that evidence would be required from the solicitor and counsel involved in the negotiations. In his Honour’s view, it would be almost inevitable that they would be challenged about the relevant events. In these circumstances, Hasluck J proceeded on the basis that the pleadings would be amended as proposed, and granted an injunction restraining the relevant counsel and solicitors from acting in the matter. The position in Kallinicos was not dissimilar. The application for an injunction was made at an early stage of the proceedings before a defence had been filed. The evidence before Brereton J indicated, nonetheless, that the solicitor was likely to be a material witness on issues of substance which appeared to be controversial: at 584 [84]. Brereton J took these matters into account in granting the injunction.

43                  As to what transpired on 16 June 2006, the evidence shows that on 19 June 2006 the Porchs signed a notice of intention to apply to the Federal Court of Australia for leave to issue proceedings under s 237(2) of the Corporations Act as the directors failed to reach agreement on the resolution put to the meeting of directors on 16 June 2006. This notice was forwarded to HAL by WVL on 19 June 2006. Having regard to the contents of the notice, I infer that it was prepared by, or on the advice of, WVL. One week later, WVL advised HAL that the meeting of directors had proceeded on 16 June 2006 and that the two directors present, the Porchs, had unanimously passed a resolution that GSS commence proceedings in the Federal Court.

44                  In the event that the Deans file a counterclaim as foreshadowed, the events that transpired on 16 June 2006 will be put directly in issue. Likely evidentiary issues include the following: did the directors fail to agree and did the two directors decide to make a leave application to the Federal Court as suggested by the notice of 19 June 2006; or did the directors pass a resolution as described in WVL’s letter of 26 June 2006? If these matters are put in issue, Vogrig will almost certainly be a material witness.

45                  The application for injunctive relief also raises more general issues. Having acted for the Porchs and the Landmark interests throughout the dispute since about August 2005, I am satisfied that a fair-minded, reasonably informed member of the public would conclude that Vogrig, and his firm WVL, are not in a position to give objective and dispassionate advice to GSS in the interests of both its unit holders in relation to the conduct of these proceedings. This affords a sufficient basis for the grant of injunctive relief. In addition, I have had regard to the submissions made to me by counsel for the Dean interests as to the foreshadowed challenge to the validity of the 16 June 2006 meeting and resolution in these proceedings. If this challenge proceeds as foreshadowed, Vogrig’s position is further compromised by the fact that he is likely to be a material witness in relation to foreshadowed counterclaim challenging the validity of the resolution of 16 June 2006.

46                  The position of Vogrig and WVL is rendered more difficult by GSS’ deadlocked board of directors and the insolvency of the GSS Unit Trust. GSS has four directors, the Deans and the Porchs. The board is effectively deadlocked. As GSS does not have a functioning board of directors, WVL cannot obtain properly authorised instructions as to the conduct of these proceedings on behalf of GSS. Counsel for the Dean interests illustrated the point by asking what would be the position if a settlement proposal were to be put to GSS. From whom would WVL take instructions? Counsel for Landmark submitted that WVL can properly take instructions from the Porchs as to the ongoing conduct of the proceedings and any settlement thereof. However, two directors do not have authority to give instructions of that kind against the wishes and without the approval of the other two directors. Past history suggests that WVL would take their instructions from the Porchs, just as counsel for Landmark submitted. But that would be to act improperly and in a manner that is not consistent with the due administration of justice in this Court.

47                  There is also the question of how GSS is funding its participation in this action. Neither GSS nor the GSS Unit Trust has any funds. I have no evidence before me on the issue, but one possibility is that it is being funded by Landmark. The board resolution of 16 June 2006, assuming it to be valid, did not authorise GSS to borrow any funds to finance its share of the costs of the proceedings.

48                  It is also material that, by participating in this proceeding, GSS is not only exposing itself to the costs incurred by its own solicitors, which it cannot meet out of its own funds, but if the action fails it also has potential costs exposure to the respondents (including the fifth, sixth and seventh respondents who have no interest in GSS). Costs liabilities of these kinds would ultimately fall on the unit holders of the trust, in circumstances where two directors did not approve the institution and prosecution of the proceedings.

49                  These difficulties stem from the deadlocked position of GSS and the insolvent position of the unit trust. The difficulties would be ameliorated, at least to some extent, if a liquidator were to be appointed to GSS, as the parties intended at the time of the Heads of Agreement. This course was foreshadowed in the course of correspondence between the solicitors for Landmark and the Deans. As matters stand, the Deans and GDI have not as yet made any application to wind up GSS, whether on the just and equitable ground or otherwise, but propose to do so.

50                  The present application to restrain WVL from acting for GSS will not resolve the unsatisfactory position of GSS. If WVL is restrained from acting for GSS, GSS may not be in a position to retain new solicitors. If a liquidator is appointed to GSS, the liquidator would be able to consider, independently and objectively, whether the proceedings should continue. If the liquidator is so minded, he or she would then have to secure appropriate arrangements to fund the action.

51                  The inherent jurisdiction of this Court is discretionary. Appropriate weight must be given to the exceptional nature of the jurisdiction and to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause. I have also taken into account Brereton J’s reminder in Kallinicos that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief. Here, the consideration that I must bear in mind is that if WVL is restrained from acting for GSS, it may not be able to obtain replacement lawyers because of its deadlocked and insolvent position. That circumstance may, of course, hasten an application for the winding up of GSS. Bearing these factors in mind, I have nonetheless concluded that this is an exceptional case that warrants intervention.

52                  On the whole, I am satisfied that a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that WVL be restrained from acting for GSS. In view of Vogrig and WVL’s past conduct and their retainer to act for Landmark and the Porchs, there is a fundamental difficulty in WVL continuing to act for GSS against the Dean interests, when GSS represents the beneficial interests of both Landmark and the Dean interests. These matters warrant the grant of injunctive relief even if no account is taken of WVL’s position in relation to the meeting and resolution of 16 June 2006.

53                  Accordingly, the order of the Court will be that WVL be restrained from acting as solicitor for the first applicant in these proceedings.

Associate:

Dated: 31 October 2006