; JUDGMENT No. LL ZZ oat L225. TCHWORDS PRACTICE and PROCEDURE - Applicant and cross respondent retain the same firm of solicitors - whether leave required - whether interests are the same LAWYERS - conflict of interest if representing. more than one party in same litigation - whether question for the Court Corporations Law s 592(1) Federal Court Rules 045 r2 Blackwell v Barroile Pty Ltd & Ors [1994] 51 FCR 347 Re Burton, Danby v Burton [1901] WN 202 Nangus Pty Ltd v Charles Donovan Pty Ltd [1989] VR 184 ULF CONVEYOR SYSTEMS _P' LTD v_ A.C. WHALAN & CO PTY LTD & ORS No. G 751 of 1992 EINFELD J FEDERAL Co SYDNEY OF AUSTRA rN 26 MAY 1995 21 JAN 2003 LIBRARY IN THE FEDERAL COURT OF AUSTRALIA ) NEW _ SOUTH WALES DISTRICT REGISTRY ) GENERAL DIVISION Between: No. G 751 of 1992 ) GULF CONVEYOR SYSTEMS _P/T. ACN 002-795-342 First Applicant GLADSTONE INDUSTRIAL 'SUPPLIES P/L .. ACN 003-771-168 Second Applicant A.C. WHALAN CO _P/T, ACN 003-499-849 First Respondent ROBERT CHARLES WHALAN Second Respondent A.C. WHALAN & CO P/L ACN 003-499-849 First Cross—Applicant ROBERT CHARLES WHALAN Second Cross~Applicant F NVEYOR SYSTE P/L First Cross—Respondent GLADSTONE INDUSTRIAL SUPPLIES P/L Second Cross—Respondent COLIN BENJAMIN Third Cross-Respondent REASONS FOR JUDGMENT EINFELD SYDNEY 26 MAY 1995 In an interlocutory judgment in this matter on 25 November 1993 (the previous judgment), I set out in some detail and analysed the complicated set of facts which underlie these proceedings. There is no need to repeat them here. Since that time the legal -2- representation of the applicants (Gulf and Gladstone) has merged with what was then the separate representation of the third cross respondent Colin William Benjamin (Benjamin), so that one set of lawyers is now representing both. By motion dated 8 November 1994 the respondents (the Whalan interests)-have. challenged the dual representation of these parties by the same lawyers, calling in aid Order 45 rule 2 of the Federal Court rules which states: Where a solicitor or his partner acts as a solicitor for any party to any proceedings or as a party to any proceeding, the solicitor shall not, without the leave of the Court, act for any other party not in the same interest. This rule would seem to mean that leave is only required where the parties are not in the same interest. If they are, leave is not necessary. The Whalan interests submitted that this rule reflects a longstanding policy of the common law that the Court should have the benefit of separate counsel for parties with other than identical interests in the relevant litigation: Re Burton, Danby v_ Burton [1901] WN 202; Nangus Pty Ltd v Charles Donovan Pty Ltd [1989] VR 184. They seek a declaration that the interests of the applicants and Benjamin in the proceedings are not identical and that the lawyers need leave to represent them. The applicants and Benjamin deny that leave is required but have presented a motion for leave if it is held to be necessary. The respondents contend that leave should be denied. In the previous judgment which dealt with, amongst many other things, an application by the second respondent personally - 3 - (Whalan) for leave to commence a cross claim against Benjamin, I detailed the respective positions and roles of the parties in relation to each other, and outlined the subsequently permitted cross claim in this respect. In short Gladstone was at relevant times a company half owned by each. of the first respondent (Whalan Co) and a company controlled by Benjamin. | It is agreed that at these times Benjamin was a director and shareholder of Gulf (he is now and may then have been Managing Director), while Whalan certainly and Benjamin possibly were directors of Gladstone. As a result of certain commercial transactions between them, Gladstone is alleged to have come to owe Gulf in excess of $400,000. Gulf alleges that each time part of this debt was incurred, there were reasonable grounds to believe that Gladstone could not pay the amount involved. Gladstone being now insolvent, Gulf claims its debt from Whalan, as a director, under section 592(1) of the Corporations Law: Wheres: (a) a company has incurred a debt before the commencement of Part 5.7B; (b) immediately before the time when the debt was incurred; (i) there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or (ii) there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and (c) the company was, at the time when the debt was incurred, or becomes at a later time, a company to which this section applies; -4- any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred contravenes this subsection and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt. Whalan's cross claim against Benjamin is that if he is held liable to Gulf as a director of Gladstone, Benjamin as his co~- director is liable to contribute half the amount involved. Benjamin admits to being a director of Gladstone from and after September 1991 but not before, which is when all or most of the debt was incurred. Whalan argues that Benjamin had a much earlier and longer directorship, although he also alleges that in any event Benjamin "took part in the management of" Gladstone at the relevant times. Benjamin's contention in the earlier proceeding, summarised in the previous judgment, included that he cannot be liable because Whalan cannot be liable to Gulf. The respondents argued that the applicants and Benjamin are not "in the same interest" essentially for two reasons: 1. Gulf's interest is recovery of its debt. Gladstone's interest is to assist Gulf's recovery from Whalan. As disclosed by his defence to Whalan's cross claim, Benjamin's interest is to resist Gulf's claim against Whalan and avoid liability to contribute if it succeeds. 2. If Gulf's claim against Whalan fails, Gulf is disadvantaged but Benjamin succeeds. If Gulf succeeds against Whalan, Benjamin will be arguing that he should not be required to -5 - contribute to Whalan's liability. Depending upon Whalan's financial situation, Benjamin's success in this argument may redound to Gulf's detriment. The applicants and Benjamin submitted that. there must .be.a real and sensible possibility of conflict. They said that as a present controller of 65% of Gulf's shareholding and its current managing director, Benjamin is not an opposing party and has the same interests as his own company. As I see it, these reasons do not necessarily lead to that result but even if they did, the argument would not answer the issue raised by the respondents' motion. Their contention is that if the applicants' lawyers also represent Benjamin, the lawyers will have a conflict of interest which would embarrass the Court's hearing of the action. This matter turns on what the "action" is. As the previous judgment shows, the major part of the case concerns, not Benjamin's possible liability as a director of Gladstone for its debts to Gulf, but allegedly misleading and deceptive conduct by the Whalan interests against the applicants, breaches of fiduciary and statutory duties owed by the Whalan interests to Gladstone, breaches of certain contracts between Gulf and Whalan, a claim by Whalan Co as a secured creditor of Gladstone, Gulf's claim against the Whalan interests as a mortgagee in possession of Gladstone's property, and some others. In all those matters, Benjamin and the applicants are, as I see it, in the same interest. If Gulf succeeds in any of those claims against the Whalan interests, Gulf's role or interest in -6- the litigation will to all intents and purposes be finished, subject only to the cross claims where it or Gladstone is a party. Provided Gulf's success includes Whalan personally and not merely Whalan Co, Benjamin will then lock horns with Whalan personally on the issue of contribution. ...This confrontation will not involve Gulf as there is no claim between Gulf (or Gladstone) and Benjamin. There are problems for the resolution of the respondents' motion posed by these conclusions, firstly because what they really amount to is that there is at this point in time no apparent conflict of interest between the applicants and Benjamin on the central issues in the litigation. But that may not be the question posed by Order 45 rule 2 which presupposes a positive finding that the relevant parties are in the "same" interest. Secondly, they leave unanswered the ancillary or subsidiary claim by Gulf against Whalan as a director of Gladstone under section 592(1) of the Corporations Law. In my opinion, these are or ought not to be matters for the Court but for the dually represented parties themselves or the professional associations to which the applicants' lawyers belong. In this respect I note from the affidavit filed in support of the applicants' proposed motion for leave that Gulf resolved on 30 August 1994 to accept Benjamin's opinion that there was no conflict. Presumably the same view is held by the lawyers concerned. They are experienced professionals who know their obligations. At this stage I cannot see that the Court -7- will be embarrassed or disadvantaged in its conduct of the action by reason of the dual representation. Perhaps after some or all of the evidence is taken, such a decision could be made, but it is more likely that if anything of the kind arises, one or other of the parties may then feel that a conflict has arisen requiring separate representation. If this is a real possibility -- and at this stage the parties know much better than the Court what the evidence and the real issues are likely to be -- then it would certainly be preferable to separate now: see Blackwell v Barroile Pty Ltd & Ors [1994] 51 FCR 347. But it is quite a different matter for the Court to rule on the evidence on these motions that that stage has now been reached. The power which the respondents seek to have exercised is discretionary and for the reasons given, I decline to exercise it. In these circumstances, my present view is that the motion of the applicants and Benjamin for leave should be permitted to be filed but that both it and the respondents' motion should be dismissed. One alternative would be to adjourn both motions to the hearing when the matter may be more readily susceptible of resolution by the Court. I will hear the parties further on which of these or other orders should now be made, as well as on costs. The matter may be listed at a convenient time by arrangement with my Associate or, if preferred, be dealt with by written submissions on a timetable agreeable to the parties made available to the Associate. . | certify that this and the Si x* preceding pages are a true copy of the Reasons for Judgment herein of his Honour Justice Einfeld 4 , Assootate/(/ Ss Dated: as/s fas Stabe For the applicants For the respondents Date of hearing Written submissions completed Date of judgment J.R. Sackar QC and G.E. Underwood instructed by Gadens Ridgway Solicitors Peter Tomasetti instructed by Gregory J. Halpin, Solicitor 27 March 1995 21 April 1995 26 May 1995