Federal Court of Australia

Monarch Advisory Group Pty Ltd v Puxty (No 2) [2021] FCA 801

ORDERS

THE COURT ORDERS THAT:

1.    The respondents’ interlocutory application filed on 8 December 2020 (Interlocutory Application) is dismissed.

2.    The applicant is to file its submissions on the question of the costs of the Interlocutory Application, not exceeding three pages in length, by 30 July 2021.

3.    The respondents are to file their submissions on the question of the costs of the Interlocutory Application, not exceeding three pages in length, by 13 August 2021.

4.    Unless either party requests an oral hearing, the question of costs of the Interlocutory Application will be dealt with on the papers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MARKOVIC J:

1    This is an application made by Brett James Puxty, Francis Coggan and Odyssey Advisory Services Pty Ltd, the respondents in this proceeding, against the applicant, Monarch Advisory Group Pty Ltd, for an order “removing and or barring” Monarch’s lawyers, Madison Marcus Law Firm Pty Ltd, from acting for it in this proceeding.

2    The grounds for the application appear to be first, the risk of misuse of confidential information said to be provided by Mr Puxty to Madison Marcus when that firm was retained to act for him and Monarch; and secondly, to protect the due administration of justice in the interests of preserving the integrity of the judicial process in circumstances where it is alleged that Madison Marcus acted for Mr Puxty and that it owes Mr Puxty an obligation of loyalty.

background

3    These reasons should be read together with Monarch Advisory Group Pty Ltd v Puxty [2021] FCA 341 (Monarch (No 1)) at [2]-[10] where part of the background to the proceeding and this application is set out.

Consolidated Corporate Pty Ltd becomes a shareholder in Monarch

4    Tatiana Coulter is the sole director of Monarch which operates a financial planning business. Prior to 13 March 2018, and currently, Ms Coulter was and is Monarch’s sole shareholder.

5    As set out at [4] of Monarch (No 1), between 13 March 2018 and 4 April 2019, Consolidated Corporate Pty Ltd was a 50% shareholder of Monarch. Consolidated is the parent company of Madison Marcus.

6    Consolidated was registered on 2 March 2011. As at 2018 its directors were Ramy Qutami, Bechara Shamieh, Denis John Hall and Therese Armstrong. Madison Marcus was registered on 26 June 2013. As at 2018 its directors were Messrs Qutami, Shamieh and Hall and Ms Armstrong.

7    Ms Coulter was introduced to Mr Shamieh, managing director of Madison Marcus, in about early 2017 through a mutual connection. Thereafter, Ms Coulter and Mr Shamieh met on numerous occasions to discuss business opportunities between Monarch and Madison Marcus.

8    In about early 2018 Ms Coulter had discussions with Messrs Shamieh and Qutami and Mario Kardum, group general manager at Madison Marcus, about a potential purchase of shares by Consolidated in Monarch.

9    Monarch and Consolidated joined in partnership by Consolidated becoming a 50% shareholder in Monarch with the intention of creating a cross-referral process for clients of Madison Marcus to be offered financial services by Monarch. While Consolidated had a 50% shareholding, the day to day running of Monarch’s business was undertaken by Ms Coulter as its sole director.

Negotiations with Mr Puxty

10    It is not in dispute that in or about December 2018, Mr Puxty entered into an employment agreement with Monarch (Puxty Employment Agreement). Prior to that time Mr Puxty was employed by WiZDOM Advisory as a senior financial advisor and, before that, by AON ‍Hewitt Australia and Mr Coggan was employed by WiZDOM as a senior paraplanner. The available evidence in relation to the events leading up to the entry into of the Puxty Employment Agreement is set out below.

11    In about mid 2018 Ms Coulter and Mr Puxty discussed opening a Monarch branch in Newcastle and expanding the business. Ms Coulter recalls that at the time she informed Mr Puxty that she had recently joined up with Madison Marcus and would need to consult with it first. Mr Puxty informed Ms Coulter that he had a number of clients from AON with recurring revenue of approximately $200,000 of which he had taken approximately $50,000 over with him to WiZDOM (AON Clients) and that he did not have a restraint with WiZDOM over the AON Clients. Shortly thereafter Ms Coulter informed Messrs Kardum, Shamieh and Qutami that she was looking at investing in a secondary branch for Monarch in Newcastle and bringing Messrs Puxty and Coggan on board. She informed Mr Kardum about Mr Puxty’s revenue stream and Mr Kardum, in turn, said that he would like to understand the benefit Messrs Puxty and Coggan could bring to Monarch.

12    Mr Puxty says that prior to entering into the Puxty Employment Agreement Ms‍ Coulter said words to the following effect to him:

Brett I have merged with [Madison Marcus]. [Madison Marcus] is a big Sydney law firm operating from the middle of Sydney. They will be providing Monarch with $1,000,000 of new business revenue each year to build the business to a value of $6,000,000.00 in five years at which time they will be looking at listing Monarch. You must join Monarch.

Ms Coulter disputes this conversation. Her evidence is that she would have never said “[y]ou must join Monarch”. Ms Coulter recalls that she and Mr Puxty had discussed on a number of occasions that he should come across to Monarch but those discussions would not have occurred just prior to entering into the Puxty Employment Agreement. According to Ms ‍Coulter, Messrs ‍Puxty and Coggan were given time to consider their respective employment agreements with Monarch and she recalls that they requested various changes to them.

13    Mr Puxty’s evidence is that Ms Coulter also informed him that she was in a venture with Madison Marcus which owned 50% of the shares in Monarch and that she said words to the following effect:

Brett [Madison Marcus] will be bank rolling, bringing you guys on board and paying for the expansion of Monarch for the first 12-18 months as they know it will cost before turning it to profit. They will be funding the acquisition of your clients by Monarch we will discuss this with them.

Mr Puxty says he relied on these conversations and that they persuaded him to join Monarch.

14    On 23 August 2018 Ms Coulter sent an email to Messrs Kardum and Puxty in order to introduce them to each other. On the same day Mr Puxty also received a text message from Ms Coulter stating “[t]hey are KEEN to start talking to you guys”.

15    Shortly thereafter, Messrs Puxty and Kardum had a conversation to the following effect:

Mr Kardum:    Brett what is you (sic) background and experience in the industry? What will you be bringing to the Monarch/MM business?

Mr Puxty:        I am looking at more than merely writing insurance. I want to use my extensive experience in most areas of financial advice to benefit Monarch.

Mr Kardum:    We are looking for a Financial Adviser, not just an insurance writer and you look to be a good fit.

16    On 27 August 2018 Ms Coulter sent Mr Puxty an email with background information on Madison Marcus to enable Mr Puxty to provide assistance to Madison Marcus with its business insurance. It is not necessary to set that email out in detail. It included the “business value” of the Madison Marcus group and a description of “key persons”.

17    On 6 September 2018 Mr Puxty met with Ms Coulter and Mr Kardum. Ms Coulter says that initially the discussion at the meeting focussed on employing Messrs Puxty and Coggan and the revenue structures they would put in place. She also says that Mr Puxty was advised that there was a contingency for him to also obtain 5% equity in Monarch which was subject to him meeting various targets, including bringing recurring revenue to Monarch and transferring the AON Clients to Monarch. Ms Coulter recalls that during the meeting Mr Kardum requested Mr Puxty to put together some figures to demonstrate how the Newcastle branch could work so that Monarch could then consider if it was viable. According to Mr Puxty, during the course of that meeting Messrs Puxty and Kardum had a conversation to the following effect:

Mr Kardum:    Brett we want to purchase your clients. We need to be sure that you can transfer the clients, are you under restraint?

Mr Puxty told Mr Kardum that he could transfer his clients.

Mr Kardum:    We will be offering you a share in the business and pay you twice the value of the income from the clients. When the business is work $6,000,000.00 in five years your stake will be worth a lot.

Mr Puxty:       This sound (sic) good to me, I am definitely interested.

Mr Kardum:    We need to further look at the figures and discuss but in principle it sounds good.

18    On 7 September 2018 Ms Coulter sent Mr Puxty the following text message:

Mario hinted again that they may be looking to acquire a law firm in Newcastle. … They may have a preference to be based there vs Maitland. Good renting in Maitland $20k pa.

19    According to Ms Coulter, shortly after the meeting referred to at [17] above and following further discussions with Mr Puxty, it became apparent that under his employment agreement with WiZDOM there was a restraint over the AON Clients and that WiZDOM was not willing to release those clients should Mr Puxty terminate his employment agreement with it. Ms Coulter says that the directors of Consolidated were hesitant to bring Mr Puxty on as an employee, let alone give him an opportunity to earn equity, as they did not want any legal action commenced against Monarch by WiZDOM.

20    On 4 October 2018 Ms Coulter forwarded to Mr Puxty an email chain between her and Messrs Kardum and Qutami of the same date. The emails concerned the establishment of the proposed Newcastle financial planning business, of which Mr Puxty was to be a part, and the need for her to provide a cash flow forecast for the proposed business. The email exchange included:

(1)    an email sent by Mr Kardum to Ms Coulter at 12.21 pm in which he requested the preparation of month by month cash flow forecast;

(2)    an email sent by Ms Coulter to Mr Kardum at 1.53 pm and copied to Mr Qutami in which Ms Coulter noted, among other things, that she had requested that Mr Puxty provide her certain information, that she was going to arrange a planning afternoon the following Thursday and that she and Mr Puxty would work on the cash flow forecast. Ms Coulter’s request for information was made by way of her email dated 3 October 2018 to Mr Puxty and was in the following terms:

Can you please email me an indication of the following:

•    staff to bring over

•    approx salaries

•    how you think the structure should look including Rex getting out at 2024 and needing a succession plan; inc getting Frances in as AR pre Jan 2019 etc

•    how long you think it will be until you/Rex will bring the funds across

•    expected ongoing remuneration

•    when you can: what yours and Rex's client base that you can bring across, looks like. For example:

•    # of clients, approx demographic; ave time as client of yours

•    would Rex be able to bring across soft copies of SOAs?

•    indication of your expectation of leads from MAG/MM

•    your expectation of leads you can bring to MAG

•    COIs you think you can bring across (high level ie 2 x Accountant; 1 x GI etc)

•    anything else you think would be useful for the plan of attack

High level is fine

This would be helpful so I can present to MM.

Also let me know if you would have time next week for a planning day/half day etc. Understand you will be on holidays which will make it difficult.

(3)    an email sent by Mr Kardum to Ms Coulter at 3.32 pm and copied to Mr Qutami in which Mr Kardum indicated that the “extra detail and the month by month cash flow would be great for us to review together once the planning afternoon has taken place”.

21    On 11 October 2018 Mr Puxty met with Ms Coulter and Mr Kardum over Zoom. Mr Puxty says that they discussed figures for the business venture and that he disclosed confidential information about his business activities using a spreadsheet via a shared screen. In the course of the meeting Mr Kardum said words to the following effect:

Where we have said that we will provide referrals of $1 million we will only need about $644,000 to achieve a value of $6 million in 5 years if a multiple of 3 is used. If the referral value is R1 million we will reach the goal sooner and have an even higher valuation at the 5-year mark.

22    On 9 November 2018 Mr Puxty had a conversation with Mr Kardum to the following effect:

Mr Kardum:    Brett we need to discuss you (sic) Wizdom employment contract and discuss you bringing over your clients to Monarch. Hopefully, these clients are excluded.

Mr Puxty:      No the clients are not excluded in the contract but Clint, the owner of Wizdom, will release these clients when I leave. I will discuss this with Clint and try to get something in writing.

And:

Mr Kardum:    Are you comfortable with a 6% equity offering and period of responsibility?

Mr Puxty:       I am OK with that and I am happy with payment for clients occurring in stages when client values reach $50,000 lots.

Ms Coulter recalls that at this meeting there was a concern raised about the restraints imposed by Mr Puxty’s employment contract with WiZDOM but that Mr Puxty assured them that he would be able to bring his clients to Monarch and that he would sort it out.

23    Ms Coulter’s evidence is that, following continued discussions with Mr Puxty about the restraint, it became increasingly clear that he would not be able to obtain a release from WiZDOM in relation to the AON Clients in the near future. That being so, Madison Marcus and Ms Coulter felt that they could still employ Mr Puxty but that his employment agreement would include a number of incentives and strict guidelines to which, according to Ms Coulter, Mr Puxty was happy to agree.

24    On 3 December 2018 Mr Puxty received an SMS from Ms Coulter indicating that she had had discussions with Mr Shamieh and that the employment agreement should be ready on Wednesday.

25    On 7 December 2018 Ms Coulter forwarded to Mr Puxty an email she had received from Matthew Sutherland, human resources manager at Madison Marcus, to which an employment agreement and incentive addendums were attached with a message “just sign!”

26    Messrs Puxty and Coggan commenced their employment with Monarch on or about 20 December 2018.

27    On 11 January 2019 Mr Puxty sent an email to Ms Coulter and Mr Kardum attaching a letter dated 9 January 2019 from WiZDOM to him concerning the agreement to contact and transfer clients Mr Puxty had introduced to WiZDOM.

Mr Puxty’s understanding of the relationship between Monarch and Madison Marcus

28    Mr Puxty had the following understanding about the relationship between Monarch and Madison Marcus:

(1)    Madison Marcus was to provide significant lead flow to Monarch. Mr Puxty relies on an email dated 11 February 2019 from Ms Coulter to Messrs Qutami and Shamieh which includes:

I trust you are both well.

After considerable reflection I would like to start proceedings to cease our partnership.

…

The reasons for entering into an agreement with MM were very clear to me and I believed that we were very aligned for the future aspirations for the business. Our discussions that we had leading up to the signing of our agreement 12 months ago, centred around that MM was going to provide significant lead flow to [Monarch]. …

As we both acknowledge, the lead flow has not presented itself and has therefore necessitated a different strategy from MM. …

(2)    Madison Marcus was to fund and provide Messrs Puxty and Coggan with computers and to provide Monarch space in its CBD office from which Ms Coulter and a paraplanner could work. Mr Puxty relies on an email dated 14 December 2018 from Mr Kardum to Ms Coulter which includes (as written):

I spoke to MICIS (one of our IT providers that will be providing the computers. They are sourcing 6 computers for us which will be available for Brett & Francis initially and yourself, Aleks, Rex and Rhonda subsequently. The computers for yourself and Aleks will be set-up in the MM CBD office in anticipation of your new year arrival to work from our office.

(3)    Mr Qutami managed and advised all parties how the business should be planned and structured. Mr Puxty relies on an email dated 14 December 2018 from Ms Coulter to Mr Qutami, copied to Mr Kardum, which includes:

A quick update: Brett is signing a new client for us on Monday. I have Aleks doing an urgent Statement of Advice for him today. It is her day off, so I will have to put a half day payment in for her.

(4)    Madison Marcus had to approve any financial expenses and the reimbursement of expenses incurred by Mr Puxty. Mr Puxty relies on emails dated 4 February 2019 and 13 February 2019 between him and Ms Coulter. For example in the email exchange on 13 February 2019 Mr Puxty provided a list of expenses to Ms Coulter. She responded in the following terms:

It’s in the system for MM approval.

(5)    all agreements relating to Mr Puxty’s employment and his relationship with Monarch which required approval were approved by the board of Madison Marcus.

29    Mr Puxty says that at no stage during his involvement with Monarch did he ever attend a meeting where he was introduced to any person purportedly acting on behalf of Consolidated, speak to any person acting on behalf of Consolidated and/or receive an email or any correspondence from any person acting on behalf of Consolidated. Similarly he says that at no time during any negotiations with Mr Kardum and Ms Coulter did Messrs Kardum or Qutami or Ms Coulter make any reference to Consolidated.

30    Mr Puxty said that at various stages prior to entering into the Puxty Employment Agreement and other agreements with Monarch he was prompted by Ms Coulter to provide information to be presented to Monarch. Mr Puxty refers to the email dated 3 October 2018 from Ms Coulter (see [20(2)] above).

31    Mr Puxty says that as a result of the negotiations which he has identified he provided Madison ‍Marcus with private and confidential information in commercial negotiations which he would not have provided if he thought that the information was going to be used for purposes other than a commercial negotiation.

Other evidence of the relationship between Madison Marcus and Monarch

32    Ms Coulter says that Madison Marcus only ever consulted with Mr Puxty in relation to his suitability to be an employee of Monarch; Madison Marcus never represented or acted for Mr Puxty and that at all times Madison Marcus represented Monarch in its dealings with Mr Puxty; Madison Marcus was never intended to be a partner of a newly formed business venture; discussions were limited to the potential for Mr Puxty to obtain equity in Monarch on meeting various targets as set out in the Puxty Employment Agreement; and Mr Puxty never met Messrs Qutami or Hall or Ms Armstrong and only met Mr Shamieh on one occasion in passing at the offices of Madison Marcus when attending a meeting. The only person Mr Puxty ever engaged with from Madison Marcus was Mr Kardum who is no longer employed by Madison Marcus.

33    Based on information given to him by Messrs Shamieh and Qutami and Ms Coulter, John De La Hoyde, a solicitor in the employ of Madison Marcus with the day to day carriage of this matter on behalf of Monarch under the supervision of Mr Shamieh, deposes to the following matters:

(1)    in about early 2018 Mr Kardum, at the time general manager of Madison Marcus, and Messrs Shamieh and Qutami of Consolidated held preliminary discussions with Ms Coulter about a potential acquisition of shares in Monarch by Consolidated;

(2)    following those discussions Consolidated acquired 50% of the shares in Monarch. It held those shares between 13 March 2018 and 4 April 2019;

(3)    in about June 2018 Ms Coulter informed Mr Kardum that she was interested in hiring two financial planners to work for Monarch, being Messrs Puxty and Coggan;

(4)    Mr Kardum was involved in discussions with Ms Coulter and Mr Puxty on behalf of Consolidated in relation to Messrs Puxty’s and Coggan’s suitability as employees of Monarch. Messrs Qutami and Shamieh were not involved in any direct discussions with Messrs Puxty or Coggan;

(5)    Mr Kardum ceased employment with Madison Marcus in or about December 2019. He is not a practising lawyer and has never held a practising certificate;

(6)    Mr Shamieh met Mr Puxty once and only in passing. Mr Qutami has never met Mr Puxty. Neither Mr Shamieh nor Mr Qutami were ever engaged in discussions with Mr Puxty and neither of the other two directors of Madison Marcus at the time, Mr Hall and Ms Armstrong, ever met or corresponded with Mr Puxty;

(7)    Madison Marcus has never acted for Messrs Puxty or Coggan or any of their related entities;

(8)    insofar as Mr Puxty alleges that he disclosed potential revenue streams and cost structures to Mr Kardum, that information was provided for Monarch and Consolidated to assess the suitability of employing Messrs Puxty and Coggan and is unrelated to the issues in dispute between the parties in this proceeding;

(9)    in about December 2018 Madison Marcus was engaged by Monarch to prepare employment agreements for Messrs Puxty and Coggan in anticipation of the commencement of their employment with Monarch. This is irrelevant in the context of the proceeding generally and particularly in circumstances where the respondents allege that the employment agreements were superseded by other agreements; and

(10)    Mr Puxty’s employment agreement identifies Mr Shamieh as a director of Monarch which is a drafting error. Mr Shamieh was not and has never been a director of Monarch and did not sign the employment agreement on behalf of Monarch.

The pleaded case

34    The nature of Monarch’s claim against the respondents is set out at [12]-[13] of Monarch (No 1). In summary, Monarch alleges that Messrs Puxty and Coggan breached various terms of their respective employment agreements, including in relation to restraint of trade and confidentiality, and their fiduciary duties owed to Monarch and that they contravened s 182(1) and s 183(1) of the Corporations Act 2001 (Cth) (Corporations Act). Monarch alleges that Odyssey was involved in the alleged breaches by Messrs Puxty and Coggan of their fiduciary duties and of the Corporations Act. Monarch also claims that the respondents made representations to its clients in contravention of s 18 of the Australian Consumer Law being Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL) and that they engaged in conduct which amounted to passing off. In effect, the respondents each deny the allegations made against them.

35    Mr Puxty alone has filed a cross-claim against Monarch. Among other things, he alleges that:

(1)    in December 2018 he and Monarch concluded a joint venture agreement (JVA) in relation to which Mr Kardum and Ms Coulter, as authorised representatives, represented Monarch and Mr Puxty represented himself;

(2)    Monarch failed to comply with its obligations under the JVA in that it failed to make payments of the recurring revenue as agreed in the JVA and the performance review and bonus document (PRB) and failed to maintain the trust payments as agreed under the PRB;

(3)    on or about 20 April 2019 the Puxty Employment Agreement was terminated by mutual written consent between Monarch and Mr Puxty or, alternatively, by the entry into of a new joint venture agreement (2019 JVA) that superseded and was incompatible with the Puxty Employment Agreement;

(4)    on or about 20 April 2019 Mr Puxty, representing himself, and Ms Coulter, representing Monarch, entered into the 2019 JVA which was partly in writing and partly oral;

(5)    on or about 31 January 2020 Mr Puxty and Ms Coulter agreed that the 2019 JVA and the Puxty Employment Agreement would be terminated (2020 Termination Agreement). The 2020 Termination Agreement was partly in writing and partly oral;

(6)    on or about 26 July 2020 Mr Puxty paid $30,000 to Monarch (Loan Amount) at Monarch’s special insistence and request;

(7)    the Loan Amount was repayable on demand or alternatively within a reasonable time;

(8)    notwithstanding demand and/or lapse of a reasonable time, Monarch has failed and/or neglected to repay the Loan Amount or any part thereof to Mr Puxty;

(9)    as a result of Monarch’s breaches of the 2020 Termination Agreement Mr Puxty has suffered loss and damage;

(10)    in the event that the Court finds that the Puxty Employment Agreement has not been terminated, Mr Puxty alleges that in negotiating the Puxty Employment Agreement Monarch, represented by Mr Kardum and Ms Coulter, made a number of representations to him. Those representations were made in trade or commerce, were not true and/or were deceptive and/or likely to mislead within the meaning of s 31 of the ACL and, as a result of Monarch’s misleading and deceptive conduct, Mr Puxty suffered damage; and

(11)    Monarch also made representations in trade or commerce to Mr Puxty about the JVA, the 2019 JVA and the 2020 Termination Agreement. In making the representations Monarch engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the ACL and Mr Puxty relied on the representations which were not true and as a result of relying on the representations, Mr Puxty has suffered loss.

legal principles

36    In Jing Li v Jin Lian Group Pty Ltd [2018] NSWSC 479 (Jing Li) Gleeson JA considered an application by the defendant, JLG, to restrain Mills Oakley Lawyers Pty Ltd and its employed solicitors from acting for the plaintiff in the proceeding before the court, which was an application to wind up JLG. JLG advanced two bases for its application: first, the Court’s inherent jurisdiction to restrain a solicitor from acting in the interests of the protection of the integrity of the judicial process and the due administration of justice, which JLG contended arose from the potential for solicitors from Mills Oakley to be witnesses in the proceeding; and secondly, the threatened misuse of confidential information alleged to have been provided by JLG to Mills Oakley.

37    At [7]-[12] Gleeson JA set out the relevant principles as follows:

[7]    The Court’s jurisdiction to restrain a legal practitioner from acting in proceedings is an exceptional one and discretionary. The jurisdiction must be exercised with appropriate caution and due weight must be given to the public interest in a litigant not being deprived of the legal practitioner of his or her choice without due or good cause: Bahonko v Nurses Board of Victoria (No 3) [2007] FCA 491 at [2] (Middleton J), citing Grimwade v Meagher [1995] 1 ‍VR 446 at 452; Geelong School Supplies Pty Ltd v Dean [2006] FCA 1404 at [35] and [51].

[8]    The Court must also be mindful that sometimes such applications may be misused or quite inappropriately pursued by a party to proceedings: Bahonko v Nurses Board of Victoria (No 3) at [3].

[9]    Following a detailed review of the authorities in Kallinicos v Hunt (2005) 64 NSWLR 561; [2005] NSWSC 1181, Brereton J summarised the position as follows at [76] (omitting full case citations):

76    The foregoing authorities establish the following:—

•    During the subsistence of a retainer, where the court’s intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court’s jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests [Prince Jefri Bolkiah].

•    Once the retainer is at an end, however, the court’s jurisdiction is not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure) [Prince Jefri Bolkiah].

•    After termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court’s intervention, such duty having come to an end with the retainer [Prince Jefri Bolkiah; Belan v Casey; Photocure ASA; British American Tobacco Australia Services Ltd; Asia Pacific Telecommunications Ltd; contra Spincode Pty Ltd; McVeigh; Sent ].

•    However, 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 Ltd are 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].

[10]    As to the claim of breach of confidence, it is useful to recall some basic principles. The elements of an action for breach of confidence are: first, identification with specificity, and not merely in global terms, of the information claimed to be confidential; second, the information which forms the basis of the confidence must have the quality of confidentiality; third, the confidential information must be disclosed in circumstances which impose on the recipient an obligation to respect the confidentiality of the information; and fourth, there is an actual or threatened misuse of that information by the recipient, without the consent of the plaintiff: Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services & Health (1990) 22 FCR 73 (Smith Kline & French) at 87 (Gummow J), citing Corrs Pavey Whiting & Byrne v Collector of Customs (Vic) (1987) 14 FCR 434 at 443 . See also Coco v AN Clark (Engineers) Ltd (1969) RPC 41 at 47; Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104 at 117 .

[11]    With respect to the obligation of confidence, it is relevant to enquire whether the information was disclosed or imparted for a limited purpose: Castrol Australia Pty Ltd v EmTech Associates Pty Ltd (1980) 33 ALR 31 at 46; Ackroyds (London) Ltd v Islington Plastics Ltd (1962) RPC 97 at 101 and 104. Where information has been imparted for a limited purpose, the obligation is not to use or disclose that information for any other purpose. The obligation of confidence is imposed where the circumstances show that the recipient knew or ought to have known that the information was imparted for a limited purpose: Smith Kline & French at 95–96; Half Court Tennis Pty Ltd v Seymour (1980) 53 FLR 240 at 255; Coco v AN Clark (Engineers) Ltd at 48; Mense v Milenkovic [1973] VR 784 at 801.

[12]    One further matter should be mentioned. JLG drew attention to the remarks of Hayne J in Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd [1995] 1 VR 1 at 5 that:

Although it is necessary to be acutely conscious of the fact that the court is asked to interfere with the right of a litigant to be represented by the solicitor of the litigant’s choice, it is not necessary to conclude that harm is inevitable (or well nigh inevitable) before acting to restrain a possible breach of the duty that a solicitor owes to clients and former clients to keep confidential information given to the solicitor in confidence and not use that information against the interests of the client who gave it to the solicitor. …It is enough to say that I consider that injunction should go if there is a real and sensible possibility of the misuse of confidential information.

In Re IPM Group Pty Ltd [2015] NSWSC 240 at [33], Black J, after referring with approval to these remarks in Farrow Mortgage Services v Mendall Properties, went on to observe that the test of a real and sensible possibility of the misuse of confidential information was followed in Dealer Support Services Pty Ltd v Motor Trades Association of Australia Ltd [2014] FCA 1065 at [34] (Beach J). Mills Oakley and Mr Li did not dispute that this was the appropriate test in the present case.

38    The principles were also recently summarised by Thawley J in Dyer v Chrysanthou (No 2) (Injunction) [2021] FCA 641 (Dyer) at [74]-[78] in relation to misuse of confidential information and at [133]-[138] in relation to the administration of justice.

consideration

39    The respondents’ submissions were plagued by a lack of clarity as to the case they sought to advance. The application was said to be made on the basis that a solicitor who engages in a business structure with its client should not be permitted to act as its solicitor if there is a dispute between the client and the party who is invited into the dispute. However, the respondents appear to seek to restrain Madison Marcus from continuing to act for Monarch on three bases.

40    First, Madison Marcus is said to have a conflict of interest because it was a party to and partner in the joint venture between Monarch and the “respondent”. It is not clear who the “respondent” is in this context: Mr Puxty or Messrs Puxty and Coggan and Odyssey. It is contended that Madison Marcus failed to perform its obligations under the joint venture and caused it to fail; that Madison Marcus acted for all parties in the joint venture, including itself; and that Madison Marcus owes a duty of loyalty to two disputing parties for whom they acted.

41    Secondly, the respondents alleged that Madison Marcus is likely to be a compellable and essential witness to resolve the dispute between the parties or, alternatively, may be joined as a party.

42    Thirdly, the respondents alleged that Madison Marcus received confidential information as commercial in confidence, did not advise Mr Puxty to obtain independent legal advice and gave legal advice to the joint venture partners.

43    The respondents submitted that Madison Marcus were solicitors appointed to act for and on behalf of Monarch and “the respondent” in drafting several agreements to form a new entity. It is not clear who the “respondent” is in the context of this submission although the balance of the submissions focused on Mr Puxty’s role and it is only Mr Puxty who gave evidence in support of the application.

44    The respondents contended that Mr Puxty received advice from Madison Marcus and provided it with confidential information about the revenue streams and costs and expenses of his business which included data about his confidential client base. They submitted that some of the drafted agreements may be in contention in this proceeding.

45    The respondents submitted that knowledge of Mr Puxty’s private and confidential information gives Madison Marcus and Monarch, for whom it acts, an unfair advantage over Mr Puxty when acting for Monarch. They submitted that the relationship of engaging with a party to draft an agreement and in that process gaining access to private and confidential information is based on trust, referring to Waimond Pty Ltd v Byrne (1989) 18 NSWLR 642 at 643.

46    The respondents submitted that the relationship between the parties is one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. They said that the expressions “for”, “on behalf of” and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility.

Is there a risk of misuse of confidential information?

47    It is convenient to consider first the contention that Madison Marcus received confidential information and that it should be restrained from acting because of the potential for misuse of that information including because it will give Monarch an unfair advantage in the conduct of the litigation.

48    In Dyer, in considering the possibility of misuse of confidential information in the context of an application to restrain counsel from continuing to act, Thawley J broadly adopted the approach of Anderson J in Nash v Timbercorp Finance Pty Ltd (2019) 137 ACSR 189 (Nash) at [64] (with whom Griffiths J agreed in Mumbin v Northern Territory of Australia (No 1) [2020] FCA 475 at [38]) by responding to the questions his Honour there identified but supplemented by looking at the scope of the lawyer-client relationship. The relevant questions as identified at [64] of Nash are:

(a)    What is the relevant information?

(b)    Is that information confidential?

(c)    Does the legal practitioner have possession of that information?

(d)    Is the legal practitioner proposing to act “against” the former client in the requisite sense?

(e)    Is there a real risk that the confidential information will be relevant?

(f)    Is there no real risk of misuse of the confidential information?

His Honour emphasised that these questions provide a framework for analysis as opposed to supplanting the test. I will, noting that cautionary remark, adopt the same approach suitably adapted in considering the question as it arises in this case.

49    As was the case in Dyer the first question to be examined here is whether there was a lawyer-‍client relationship between Mr Puxty and Madison Marcus. Mr Puxty contends that there was. No contention is made that any such relationship existed between Mr Coggan or Odyssey and Madison Marcus.

50    I am unable to conclude that Mr Puxty and Madison Marcus were at any time in a lawyer-client relationship.

51    There is no evidence of the usual indicia of a lawyer-client relationship. Mr Puxty has not tendered an engagement letter or a tax invoice rendered by Madison Marcus for legal work performed for him in drafting the Puxty Employment Agreement or any other agreement. In cross-examination he confirmed that he never received an engagement letter or tax invoice from Madison Marcus and that at no stage did Mr Qutami or Mr Shamieh provide him with legal advice. Mr Kardum is not a lawyer and so was not able to provide Mr Puxty with legal advice. In any event it is not asserted by Mr Puxty that he did so. Mr Puxty does not otherwise identify who at Madison Marcus acted for him, or the work undertaken on his behalf, beyond a broad assertion that Madison Marcus drafted agreements. He does not say who drafted those agreements, whether he gave instructions on or received advice about them and, if so, when and how he gave those instructions and/or received any advice. The only evidence he gives is that an agreement, which emanated from Madison Marcus, was provided to him by Ms Coulter.

52    On the other hand Ms Coulter’s evidence, which is not challenged, is that Madison Marcus acted for Monarch, not for Mr Puxty, and that Messrs Puxty and Coggan were given an opportunity to consider their employment agreements and sought changes to them before signing them. Nothing in Ms Coulter’s evidence suggests that those changes were sought as a result of any advice provided by Madison Marcus to Messrs Puxty and Coggan.

53    This is not case where a lawyer-client relationship arises despite there being no formal retainer agreement. There is simply no basis on which I could conclude that such a relationship existed between Mr Puxty and Madison Marcus.

54    The next question that arises is identification of the relevant information, which must be identified with precision: see Dyer at [82]-[83]; Jing Li at [43]. However, Mr Puxty has not done so. He points to the information sought by Ms Coulter in her email dated 3 October 2018 (see [20(2)] above) and the names, details and revenue from his clients that were requested. Although he has not in fact put that information before the Court, I will proceed on the basis that it was in fact provided. Other information is referred to in the written submission filed on behalf of Mr Puxty but in such broad terms that I am unable to identify it by reference to the evidence relied on by Mr Puxty.

55    It is then necessary to consider whether the information is confidential. On Mr Puxty’s case the information was provided to Monarch and Madison Marcus. As I have already observed, there is no evidence that the information sought by Ms Coulter in her 3 October 2018 email was in fact provided or, if such information was provided, in what form and to whom. Again, assuming in Mr Puxty’s favour that the information was provided to both Monarch and Madison Marcus, I am unable to conclude that it has the necessary characteristics to make it confidential. As there was no retainer between Mr Puxty and Madison Marcus it could not be said that a duty of confidentiality arose between those parties as a matter of contract or that the information was otherwise provided to Madison Marcus as part of a lawyer-client relationship.

56    Accepting Ms Coulter’s evidence that Madison Marcus acted for Monarch in drafting employment agreements, she was, in the absence of an express agreement for her not to do so and of which there is no evidence, entitled to share that information with her lawyers. If she did, then they received the information as the lawyers acting for Monarch and owe no duty to Mr Puxty in relation to it.

57    Mr Puxty may well have considered the information to have been commercial in confidence. Putting to one side whether Mr Puxty made clear that he was providing the information to Monarch on that basis, to the extent that Monarch shared the information with: Mr Kardum, he is not a lawyer, is a former employee of Madison Marcus and appeared to be assisting Monarch to assess the viability of opening a Newcastle office; or Mr Qutami and/or Mr Shamieh, they were directors of Consolidated, a 50% shareholder in Monarch.

58    Given my conclusion on those matters, it is not necessary for me to consider the other aspects of the framework for analysis identified in Nash. However, before leaving this issue I point out that, even if contrary to the conclusion I have reached Mr Puxty had established that the information was confidential, he has not articulated how the information is relevant to the claims made by Monarch or the allegations he makes in his cross-claim. It is not relied on by Monarch in its claim against the respondents. Nor could it be relevant to Mr Puxty’s cross-‍claim insofar as he makes claims for breach of s 18 or alternatively s 31 of the ACL which rely on representations allegedly made by Ms Coulter and Mr Kardum. The information he provided to Ms Coulter in response to her 3 October 2018 email has no role to play.

Will Madison Marcus solicitors be compellable witnesses

59    Mr Puxty contends that because members of Madison Marcus will be relevant and compellable witnesses in the proceeding it should be restrained from acting for Monarch. Mr Puxty contended that they will be critical witnesses for the resolution of three issues in dispute: first, the existence and terms of certain agreements which he says were entered into by himself, Monarch and Madison Marcus; secondly, the identity of the clients purchased by Monarch from him; and thirdly, the making of representations about referrals and the funding obligations of Madison Marcus.

60    Mr Puxty does not identify who from Madison Marcus might be a critical witness. The evidence establishes that the only person who was involved in discussions with Mr Puxty from Madison Marcus was Mr Kardum. Indeed, Mr Kardum is also the only person from Madison ‍Marcus who Mr Puxty alleges in his cross-claim made representations to him which were misleading or deceptive and which go to support the claim that Monarch was in breach of s 18 or s 31 of the ACL. In those circumstances, Mr Kardum may be a relevant witness. However, Mr Kardum is not a lawyer and, in any event, is no longer employed by Madison ‍Marcus.

61    Putting Mr Kardum to one side, on the case as pleaded there is no basis on which any lawyer or other individual from Madison Marcus could be said to be a potentially relevant witness. The respondents suggested that Madison Marcus or, more precisely, some of the solicitors in its employ, albeit not identified, would be relevant witnesses because Madison Marcus was a party to a commercial agreement. But there is no pleaded case to that effect or claim made against Madison Marcus.

62    For completeness I also note that at the hearing it was submitted by the respondents that Madison Marcus may be joined as a party to the proceeding. However, that is mere speculation. As at the time of the hearing the pleadings were closed and there was no draft pleading before me seeking to join Madison Marcus or any solicitor from that firm.

Was Madison Marcus in a joint venture agreement

63    The third basis on which the respondents contended that Madison Marcus should be restrained from acting for Monarch is because it was part of a joint venture or partnership with Monarch. While difficult to follow, the respondents seemed to contend that the issue was whether a solicitor who is engaging in a business structure with a client should be permitted to act if there is a dispute between the client, in this case Monarch, and the party being invited into the dispute, in this case the respondents.

64    This assertion seems to rely on Ms Coulter’s emails (see for example [20(2)], [20(3)] and [20(4)] above) where she referred to Madison Marcus. But, as I have already observed, no claim is made by the respondents against Madison Marcus and it is not a party to the proceeding. Nor does Monarch make any claim against it. Ms Coulter’s evidence, despite her emails, is that Madison Marcus was never involved in any discussions to be a part of any business venture.

65    Thus this contention is not a basis on which Madison Marcus ought to be restrained from acting for Monarch in this proceeding.

The administration of justice

66    The Court has an inherent jurisdiction to restrain solicitors from acting in a particular case. 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. The jurisdiction is to be regarded as exceptional: see Jing Li at [9] (at [37] above).

67    I have found that there was no lawyer-client relationship between Mr Puxty and Madison Marcus, no confidential information could have been given to Madison Marcus in that capacity and, even if Monarch did provide Madison Marcus with information which was commercially sensitive or confidential to Mr Puxty, it did so because that firm was acting for it. To the extent that Mr Kardum or members of Consolidated may have received the information or parts of it, that was for commercial reasons, namely as officers of a shareholder in Monarch to assess the viability of Monarch offering employment to Messrs Puxty and Coggan.

68    I have also found that, other than Mr Kardum, there is no basis on which it is likely that any solicitor or other individual from Madison Marcus will be a potential witness in the proceeding, no claim is made against Madison Marcus and there was no basis on which it could be said that Madison Marcus would become a party to the proceeding.

69    In light of those conclusions, in my opinion, a fair-minded reasonably informed member of the public would not conclude that the administration of justice required the Court to exercise its inherent jurisdiction to restrain Madison Marcus from acting for Monarch in this case.

conclusion

70    For those reasons the interlocutory application filed by the respondents on 8 December 2020 should be dismissed.

71    While costs would ordinarily follow the event, the parties requested that I reserve on the question of costs of the interlocutory application. Accordingly, I will make orders requiring the parties to file submissions on costs and, in the absence of any party requesting an oral hearing, will determine that issue on the papers.

72    I will make orders accordingly.

Associate:

Dated:    16 July 2021