FEDERAL COURT OF AUSTRALIA Wainter Pty Ltd, in the matter of New Tel Limited (in liq) [2006] FCA 656 EQUITY – interlocutory injunction – serious issue to be tried whether law firm has interest affecting its independence not made out – balance of convenience not favouring grant of injunctive relief CORPORATIONS – examinations – examinee a partner in law firm – application for interlocutory injunction restraining examinee's solicitors from acting –– solicitors volunteering and making discovery of documents in their possession, custody or control – possible future claim by plaintiff against solicitors as yet unformulated – possible future claims by plaintiff of failure by solicitors to make full disclosure – plaintiff's concern that examinee not answerable in respect of law firm's documents – scope of subpoena in issue between the parties absence of pleadings delineating any interest of solicitors – conflicting interest not established Held: law firm has no interest in proceeding creating conflict with client or litigation Corporations Act 2001 (Cth) ss 596A, 596B Afkos Industries Pty Ltd v Pullinger Stewart (a firm) [2001] WASCA 372 Air Pacific Ltd v Transport Workers' Union of Australia (1993) 40 FCR 1 Clay v Karlson (1996) 17 WAR 493 Dorajay Pty Limited v Aristocrat Leisure Limited [2006] FCA 335 Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 Pegasus Gold Australia Pty Ltd v Kilborn Engineering Pacific Pty Ltd (2000) 33 ACSR 752 Re New Tel Ltd (in liq); Evans v Wainter (2005) 145 FCR 176 Rochfort v Trade Practices Commission (1982) 153 CLR 134 IN THE MATTER OF NEW TEL LIMITED (IN LIQUIDATION) THE APPLICATION OF WAINTER PTY LTD WAD 35 of 2004 NICHOLSON J 29 MAY 2006 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 35 OF 2004 IN THE MATTER OF NEW TEL LIMITED (IN LIQUIDATION) ACN 009 068 955 AND: THE APPLICATION OF WAINTER PTY LTD ACN 008 725 586 Plaintiff PAUL DOMINIC EVANS AND DAVID WOOLFE Examinees JUDGE: NICHOLSON J DATE OF ORDER: 29 MAY 2006 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The plaintiff's notice of motion filed on 26 April 2006 for an interlocutory injunction be dismissed. 2. The plaintiff pay the defendant's costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAD 35 OF 2004 IN THE MATTER OF NEW TEL LIMITED (IN LIQUIDATION) ACN 009 068 955 AND: THE APPLICATION OF WAINTER PTY LTD ACN 008 725 586 Plaintiff PAUL DOMINIC EVANS AND DAVID WOOLFE Examinees JUDGE: NICHOLSON J DATE: 29 MAY 2006 PLACE: PERTH REASONS FOR JUDGMENT 1 This is an application for an interlocutory injunction restraining the examinee, Paul Dominic Evans ('Mr Evans'), a partner in Freehills, from engaging Freehills to act as his solicitors and any partner, director, consultant or employee of Freehills acting as his counsel in relation to (1) this proceeding; (2) the examination of Mr Evans as former director of New Tel Limited ('New Tel') pursuant to the summons for examination issued against him dated 10 March 2004; and (3) any other proceeding in this Court arising by way of appeal from any order or judgment made in this proceeding. It is proposed on the grant of the interlocutory relief that Mr Evans would be provided with liberty to apply, on three days notice to the plaintiff's solicitors, to dissolve or vary the injunction. 2 The plaintiff has applied to restrain Mr Evans from retaining Freehills on the grounds that Freehills has a personal interest in this action and are not sufficiently independent and objective to discharge the duties they owe to the Court as solicitors on the record and as counsel. The plaintiff relies on the evidence of Mr Mark Alan Richard Blundell in an affidavit sworn on 26 April 2006. Mr Evans relies upon an affidavit of Mr David Ronald Goodman sworn on 22 May 2006 in response to Mr Blundell's affidavit. 3 Freehills act on behalf of the examinees, Mr Evans and David Woolfe ('Mr Woolfe'). No restraint is sought in respect of them acting in respect of Mr Woolfe, who is no longer a member of Freehills. Each of them were served with summonses for examination under s 596A and s 596B of the Corporations Act 2001 (Cth) dated 10 March 2004. The circumstances of their examination have been set out in the reasons for judgment of the Full Court in Re New Tel Ltd (in liq); Evans v Wainter (2005) 145 FCR 176 at 183, at [34] per Lander J. There it was said that the plaintiff's purpose in applying for summonses was to assist in respect of a substantial contemplated claim against Freehills. 4 The law on which the plaintiff relies as stating the duties of solicitors to be independent and objective were described in the written submissions in the following terms: '4. "The Court is entitled to assume that solicitors and counsel appearing before it possess … independence. Solicitors not only owe a duty to their clients to do the best for them but also owe an overriding duty to the Court. The same overriding duties are owed by counsel who have been granted a right of audience to appear in [the] Court. As part of their professional responsibility, therefore, solicitors and counsel must ensure that they do not appear in a matter in which they have an actual potential conflict of interest or where, by reason of their relationship with their client, their professional independence can be called in question": Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 590 per Thomas J, approved in Afkos Industries Pty Ltd v Pullinger Stewart (a firm) [2001] WASCA 372 at [29] per Murray J with whom Anderson and Steytler JJ agreed. "Legal practitioners who have a personal interest in the outcome of an action do not have that singular interest which as his Honour said, gives the fundamental utility and credence to the system": Clay v Karlson (1997) 17 WAR 493 at 495 per Templeman J. "Litigants, members of the public and the Court itself require the assurance that practitioners performing their important role in representing clients and as officers of the Court will not do so in circumstances where their conduct of litigation may be distorted by a personal interest in the outcome, which must have the effect of detracting from their independence": Afkos at [33]. The common law and statute law of Western Australia are applicable in this matter by reason of ss. 79 and 80 of the Judiciary Act 1903. 5. The Court has an inherent jurisdiction to "exercise authority over officers of the Court as to the propriety of their behaviour" and to "control and deal with members of the legal profession and to ensure that the administration of justice is not brought into disrepute by the conduct of those members": Newman v Phillips Fox (1999) 21 WAR 309 at 315 per Steytler J. Consequently, the Court can grant an injunction restraining solicitors acting for a party in circumstances where those solicitors lack the requisite qualities of independence and objectivity. "There can sensibly be no closed list of circumstances which would justify the exercise of what, on any view, must be regarded as an exceptional jurisdiction or power": Tottle Christensen v Westgold Resources NL [2003] WASCA 224 at [4] per Malcolm CJ, Murray and Anderson JJ. It is no answer that the solicitors' interests coincide with the client's interests: Clay v Karlson at 496. This Court has implied power to regulate the conduct of legal practitioners appearing before it to the extent necessary to ensure observance of their duties to the Court and the integrity of its procedures: De Pardo v Legal Practitioners Complaints Committee [2000] FCA 335, 97 FCR 575 at 595 [53] per French J, with whom Whitlam J agreed at 598 [60].' The defendant does not take exception to the content of this statement of relevant law, only to its applicability in the circumstances. 5 The evidence upon which the plaintiff relies to establish that Freehills has an interest in the proceeding sufficient to attract the application of the abovementioned statements of the law and the grant of interlocutory relief is as follows: (1) It is asserted that Freehills has intervened on their own behalf in respect of their concern with media publicity about Freehills that has arisen as a result of Mr Evans' examination. This is a reference to a letter from Mr Goodman of 3 November 2005 in which it was stated that accurate reporting was 'of significance to us'. It is said that by this, Freehills took a position of protecting their own interests without any reference to the position of either of their clients. The reference 'of significance to us' appears in the course of a letter addressed from Mr Goodman to a Deputy District Registrar of the Court. It refers to three matters of concern to Freehills. Read in its context, I do not consider that the reference to 'we' or to 'us' is necessarily to be understood only as a reference to Freehills and not to their clients. (2) Next it is said that Freehills has asserted Freehills, not Mr Evans, is authorised to make a decision as to whether to produce to the Court documents addressed by the summons to Mr Evans that are in Freehills' possession. The plaintiff seeks support for this in [4.1] of a facsimile from Mr Goodman to Mr Blundell dated 8 February 2006 in which he stated that '[A]t this stage, of the documents thus far reviewed, no privilege is claimed by Mr Evans or by Freehills'. At [6.1] of the same facsimile it was stated: '… Secondly, as you know, we contend that Mr Evans has no power or obligation to produce documents not under his power or control or otherwise properly asked for from him. The only reason this point, which remains outstanding, has not been argued, is that we recognise that if we succeed, your client will issue another summons to the correct people, so that little (other than expense) will be achieved by taking the point. This has been raised on many occasions.' In [6.2] of the facsimile it was stated that it was incorrect to assert that Mr Evans was delegating to Freehills compliance with the orders of the Court. In [6.3] it was purported to be reiterated that all of the documents in Mr Evans' possession, custody and control (described as the director's documents) were produced to the Court on 9 December 2005. Further, at [6.4] it was stated that Freehills will produce 'the Freehills documents' subject to any claim of legal professional privilege which may be exercised by its clients. At [6.5] it was stated that Mr Evans has no authority to compel the production of the Freehills documents. These statements are reflective of issues which had arisen in the course of examination to the text of which it is not necessary to go, save to say Mr Evans, when asked whether the records of Freehills relating to New Tel were in his possession, custody or control answered only that this was putting a legal question to him which it was not proper for him to answer. That is, the allegedly undecided issue is whether Mr Evans, as a partner of Freehills, is a person who has in his possession, custody or control relevant documents for discovery (in the application described as the Freehills documents) being documents other than the director's documents. The plaintiff also relies on a letter from Mr Goodman dated 27 February 2006 in which it was stated that Mr Evans had produced all the documents required of him as a director and that Freehills was producing the other documents after reviewing files and extracting relevant documents, a time consuming and resource intensive process. In his affidavit Mr Goodman describes the Freehills documents as follows: 'I have been advised by Linlee McCormack, a solicitor in the employ of Freehills involved in the production of the documents, that more than 1200 documents, extracted from Freehills' files have been produced to the Court. That review of the 205 potentially relevant Matters comprising in excess of 171 files and 131 boxes is now substantially complete. Documents from the files of eight matters have been produced to the Court, including the CAT file which appears to be the Matter most relevant to Wainter's alleged claim. The remaining relevant documents are being compiled for the solicitors of the Liquidator to inspect for the purpose of determining whether to assert privilege, after which those documents will be prepared for production to the Court. It is anticipated that the last of the Freehills documents will be supplied to the liquidators' solicitors by 26 May 2006 so that they can consider whether they wish to assert claims for legal professional privilege. To date their advice has followed fairly quickly from the furnishing of the documents and privilege has not yet been claimed over any document.' On 28 February 2006, the solicitors for the plaintiff replied to Freehills that they considered that it was Mr Evans who must respond to the summons and who, at the examination, must answer (whether based on information or otherwise) questions concerning the production of documents in compliance with the summons. On 13 March 2006, Mr Goodman of Freehills sent a facsimile to the plaintiff's solicitors to the effect that Freehills had adopted the position that it would allow Mr Evans to produce the Freehills documents but did not concede that the summons required Mr Evans to be personally responsible for the production of those documents. The issue of the scope of the summons, that is, whether it extends to Mr Evans not only in his capacity as a former director of New Tel but also as a partner in Freehills, is not before the Court for decision. The relevance of the evidence just referred to is that the dispute between the parties on the issue is a factual circumstance from which the Court is asked to infer that Freehills have an interest in the proceeding. If it is the case that Freehills may ultimately be the subject of a proceeding brought by the plaintiff, the present approach of Freehills is not one that would lead to any inference that they were endeavouring to protect that interest. Rather, they have volunteered to make available all the documents subject to any claims of legal professional privilege. The residual issue, and that which concerns the plaintiff, is that Mr Evans as a witness is not able to speak to how the documents are assembled, what may have been omitted and generally to answer questions in cross-examination concerning the discovery. That, however, is not of itself a basis for inferring that Freehills have an interest which is causing them to take some inappropriate step. On the contrary, on the present evidence, they have opted for full disclosure subject to the laws of legal professional privilege. (3) This repeats aspects of issue (2). It is said that Freehills have asserted that Freehills, and not their client Mr Evans, have produced and are producing the Freehills documents to the Court, so that Freehills thereby contradicted an earlier assertion in December 2005 by Mr Evans that he was responsible for producing the Freehills documents. Certainly in the plaintiff's view there has been back tracking by Freehills from the position that Mr Evans would be responsible for the production to the position that Freehills would be responsible for the production of the Freehills documents. (4) Next the plaintiff relies on the circumstance that Freehills has asserted that the reason for them producing the Freehills documents to the Court is that if Freehills do not do so the plaintiff will seek to have summonses for examination issued to multiple, perhaps a great number of, partners of Freehills which would result in, inter alia, incurring expense. I am unable to see how this would found an inference that Freehills has a separate interest. It is a statement of fact as to what would be the position if the plaintiff, who formulated and cast the terms of the present order for examination, considered that it was necessary to issue summonses in that way. (5) The plaintiff next asserts that Freehills has expressly reserved, separately, their own rights and Mr Evans' rights when producing documents to the Court. This is said to be a reference to a letter dated 10 March 2006 from Mr Goodman on behalf of Freehills to the associate to a Deputy District Registrar of the Court. It commenced by stating '[W]ithout prejudice to any of the rights or contentions of Freehills or Paul Dominic Evans', reference was then made to certain correspondence and box of documents enclosed. Reliance is also placed on a letter of 14 March 2006 from Mr Goodman to the same associate commencing in the same way and enclosing a further box of documents. If it is the case that the summons as applicable to Mr Evans, not only as a former director of New Tel but also in relation to his membership of the partnership of Freehills, the reservation of rights in respect of both him and the partnership is understandable. If, however, the summons does not have that scope and Freehills are voluntarily providing the Court the reservation of rights, this is equally understandable. It does not, however, necessarily mean that Freehills has an interest of the type which would fall within the law earlier referred to. (6) Then it is contended that Freehills has asserted that Mr Evans is not producing documents to the Court in his own right; rather, he is acting as a vehicle or conduit for Freehills to produce the documents. That would not appear to support any inference of an identifiably separate interest. (7) Next, the plaintiff contends that Freehills has made a number of statements, largely in correspondence, of alternative and inconsistent positions such that it is unclear what position is ultimately adopted by Freehills, on the one hand, and their client, Mr Evans on the other, in respect of the production of the Freehills documents. If that is the case, it does not seem to support a necessary inference that Freehills has an interest in the proceedings. More likely it discloses different comprehensions of the scope of the summons. (8) Finally it is said by the plaintiff that what is clear is that Freehills is attempting to control the production of their own documents to the Court without submitting to the jurisdiction of the Court or otherwise accepting any responsibility in respect of such production. That must be taken as a submission. There was a further submission from the bar table that on evidence which may subsequently be produced but which is not presently available, when discovery is complete it will be seen that Freehills has not made (subject to any claim of legal professional privilege) full and frank disclosure of documents. No evidence of that is presently before the Court. 6 Based on the above circumstances the plaintiff contends that it should be seen that Freehills clearly has an interest in the subject matter of the proceedings. While not being a party to the action and not the recipient of the summons, they have, it is submitted, expressly asserted their rights in this action and have produced documents to the Court of their volition. Therefore, it should be concluded by the Court that Freehills are not acting for Mr Evans with the requisite degree of independence and objectivity. 7 To consider the implication of these submissions it is necessary to examine the factual situations which were in issue and some of the authorities relied upon by the plaintiff. 8 In Afkos Industries Pty Ltd v Pullinger Stewart (a firm) [2001] WASCA 372, the Full Court of the Supreme Court of Western Australia (Murray, Anderson and Steytler JJ) dismissed an appeal from a decision of Miller J granting an interlocutory injunction restraining the appellant from retaining a law firm to act for it in the action as solicitors or counsel. The appellant had sued its former solicitors claiming breach of fiduciary duty and negligence in certain respects. The pleading by way of defence made the conduct of the appellant's solicitors on the issue of how costs had been compromised a matter in issue in the proceeding between the appellant and the respondent. Murray J, with whom Anderson and Steytler JJ agreed, said that while the pleading remained on foot it was sufficient that it be evaluated in its own terms. Those terms were capable of raising the issue of whether the appellant, by the conduct of its solicitors leading to the compromise in respect of costs, could be said to have failed to mitigate its loss arising from its assertion that due to the fault of the respondent it had been deprived of 30 per cent of its costs, although generally successful in the arbitration. 9 Murray J in the course of his reasons referred to the decision of Thomas J of the New Zealand High Court in Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 589–590, on which Miller J had relied. Thomas J had there stated that '[W]here the acts or omissions of the law firm, including situations where the actions of the client are based on advice given by the solicitors, are at the heart of the question in issue, the firm is, in a real sense, 'defending' its actions or advice'. He said, therefore, there were in such circumstances a danger that the client would not be represented with the objectivity and independence which the client is entitled to and which the Court demands. 10 In Clay v Karlson (1996) 17 WAR 493, a plaintiff applied to restrain a firm of solicitors from continuing to act for the second defendant in an action where it was apparent that it was likely that employees or partners or former employees and partners of the law firm would be called to give evidence at the trial in respect to issues concerning a will. Those actions emerged from a statement of claim and a defence. 11 In the present proceeding there are no pleadings delineating any interest of Freehills. In such circumstances it is therefore necessary to look to all the circumstances to consider what is the nature of the relationship of Freehills both to their client and to the other party. 12 The critical question therefore is, in the absence of a pleading delineating the interest affecting independence, what can that interest be said to be? 13 The first possibility is that in some unformulated and unspecified way there is an ultimate possibility asserted by the plaintiff that if the evidence gives foundation for it, it will bring an action against Freehills. That does not formulate any conflicting interest. It may never occur or be supportable. Furthermore, the action of Freehills in making full disclosure of the so called Freehills documents, subject to any claims for legal professional privilege, entirely mitigates against Freehills endeavouring to avoid disclosure of the true facts and hence to face the possibility of any claim against it being formulated in pleadings. 14 Likewise, references from the bar table to Freehills having in some way failed to make full disclosure of the Freehills documents in the manner which they assert they are doing is entirely without any evidentiary foundation appropriate to disclosing any genuine basis for establishing an interest in conflict. 15 The references by Freehills in correspondence to 'we' and 'us' are not in every circumstance to be read as a reference to the assertion by Freehills of any rights concerning its own position. However, even if that view is not accepted or where it is not applicable, it is appropriate that Freehills make such statements. This is because it has embarked on the provision of documents which it considers would normally be made available in response to a summons directed to each of the relevant partners of the firm. However to avoid the cost, time and expense of such a move, Freehills is making available the so called Freehills documents. 16 Mr Evans has himself declined to say on the basis that a legal issue is involved, whether he has in his possession, custody or control the Freehills documents in addition to his director's documents. Given that the issue of the proper construction of the summons is not before the Court, the Court has not heard argument on that issue. Reference was made to a number of authorities touching on the issue. One was Dorajay Pty Limited v Aristocrat Leisure Limited [2006] FCA 335. There Stone J dismissed a motion so far as it sought orders requiring PricewaterhouseCoopers to produce documents held by its affiliated practices, including overseas practices, where those documents fell within a subpoena and related to work undertaken by the affiliated practice on behalf of, or at the request of, PricewaterhouseCoopers. Stone J was not satisfied on the evidence that the documents held by PricewaterhouseCoopers' overseas affiliates were in the possession, power or control of PricewaterhouseCoopers or that PricewaterhouseCoopers could produce those documents. Her Honour referred to the authorities having made plain that the addressee of a subpoena must produce that which he or she has in his or her possession, power or control but that he or she is not obliged to take steps to bring documents that do not fall within those concepts into his or her power or control: Air Pacific Ltd v Transport Workers' Union of Australia (1993) 40 FCR 1 at 6–7, Pegasus Gold Australia Pty Ltd v Kilborn Engineering Pacific Pty Ltd (2000) 33 ACSR 752. Her Honour said that consistent with what the High Court had said in Rochfort v Trade Practices Commission (1982) 153 CLR 134, a practical solution was required in relation to the obligations of an addressee of a subpoena and that arid technical debate should be avoided. 17 Here, as has been said, the Court is not deciding the scope of the summons. It is sufficient to say, however, that the authorities canvassed by Stone J in Dorajay show that there is at least an arguable possibility in the law that, depending entirely upon the terms of the summons for examination, it may not extend to documents not in the power, control or possession of Mr Evans. The position may in fact be otherwise if the matter was fully argued and evidence brought as to his position as a partner. All that can be said here however is that there is an arguable possibility that Freehills has taken steps to deal in a practical way with an issue arising as a consequence of the way in which the summons has been formulated. In my view that does not create for them an interest in conflict, either with that of their client or with the litigation. 18 At the root of the plaintiff's case seems to lie the suspicion that Freehills in some way are directing Mr Evans to not take responsibility for the production so that there will be no party to the examination capable of answering for the production of the documents. Freehills' response to that is that they are endeavouring to assist the progress of the examination by making available the Freehills documents, subject to any claim for legal professional privilege. If it is the case that Mr Evans has changed his approach to the provision of documents in his possession, power or control (as to which I cast no opinion) there is no foundation for a proper inference that this in some way establishes an interest being asserted by Freehills. On the contrary, it arguably represents a statement based on a true understanding of the law subject to the interpretation of the scope of the summons. 19 There is a further aspect which goes to balance of convenience considerations. It seems to be implied that in the event that Freehills are injuncted in the way sought by the plaintiff, Mr Evans will then be able to assume in the witness box a different response to the question of responsibility for the provision of not only the director's documents but also the Freehills documents, in his capacity as a partner of Freehills. There is no foundation for such an assumption if it exists. 20 It follows that I do not consider that the plaintiff's case has made out a serious issue to be tried which the balance of convenience favours. The motion should therefore be dismissed. 21 That decision does not of course preclude the plaintiff, should it so wish, from properly seeking an interpretation of the scope of the subpoena. Alternatively, the plaintiff may consider the issue of summonses to the partners of Freehills to overcome the issue which seems to be at the core of the plaintiff's disturbance, namely, that there is no person available to take responsibility in the witness box for the Freehills documents. Alternatively again, it may rest with the present position. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholson. Associate: Dated: 29 May 2006 Counsel for the Plaintiff: Mr DH Solomon Solicitor for the Plaintiff: Solomon Brothers Counsel for the Examinees: Mr J Gilmour QC and Ms C Butt Solicitor for the Examinees: Freehills Date of Hearing: 26 May 2006 Date of Judgment: 29 May 2006