New South Wales Supreme Court CITATION : Worth Recycling Pty Limited v Waste Recycling and Processing Pty Limited [2009] NSWSC 356 HEARING DATE(S) : 1/05/09 JUDGMENT DATE : 5 May 2009 JURISDICTION : Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Reasons given for particular solicitor to remove himself completely from being involved with any aspect of current litigation. Parties to liaise in attempt to reach an accommodation to permit plaintiff's firm of solicitors to continue to act. CATCHWORDS : Legal practitioners - Plaintiff's solicitors retained by other parties against defendant in proceedings which settled following mediation - Plaintiff's solicitors then approached to act for other clients against same defendant - New proceedings contain virtually identical pleadings to those mobilised in the earlier proceedings - Application by defendant to restrain plaintiff's solicitors from acting for plaintiff in the new proceedings - Various grounds on which order may be made - Whether any ground made out - Threatened breach of duty of confidence in relation to information disclosed during course of mediation and in relation to information disclosed via confidential Deed of Release - Courts inherent jurisdiction to control solicitors to prevent the integrity of the judicial process and the due administration of justice - Threatened breach of implied Harman undertakings to the Court LEGISLATION CITED : Civil Procedure Act 2005 (NSW) Trade Practices Act 1974 (Cth) CATEGORY : Procedural and other rulings Asia Pacific Telecommunications Limited v Optus Networks Pty Limited [2007] NSWSC 350 AWA Ltd v Daniels (1992) 7 ACSR 463 Black v Taylor [1993] 3 NZLR 403 CASES CITED : Carter Holt Harvey Forests Ltd v Sunnex Logging Ltd [2001] 3 NZLR 343 Mitchell v Pattern Holdings Pty Limited [2000] NSWSC 1015 Tricontinental Corporation Pty Limited v Holding Redlich (Supreme Court of Victoria, Mandie J, 22 December 1994, unreported) Williamson v Schmidt [1998] 2 Qd R 317 PARTIES : Worth Recycling Pty Limited (Plaintiff) Waste Recycling and Processing Pty Limited (Defendant) FILE NUMBER(S) : SC 50273/08 COUNSEL : Mr R J Webb SC (Plaintiff) Mr S W Climpson (Defendant) SOLICITORS : Holman Webb (Plaintiff) Gilbert & Tobin (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Tuesday 5 May 2009 50273/08 Worth Recycling Pty Limited v Waste Recycling and Processing Pty Limited JUDGMENT The notices of motion 1 The defendant moves on a Notice of Motion dated 6 March 2009. The primary relief claimed is to restrain Mr Dermot Maxwell and the firm Holman Webb ("the solicitors"), from acting for the plaintiff in the proceedings. The Motion also seeks relief restraining the solicitors from disclosing confidential information obtained in the mediation process and the delivery up of relevant documents and restraining the disclosure of information obtained in prior proceedings (the subject of an applied undertaking to the Court) and the delivery up of documents the subject of that implied undertaking. Other incidental relief is also claimed. 2 The plaintiff has also filed a Notice of Motion dated 24 December 2008 seeking leave pursuant to UCPR 21.7 to disclose and use information and documents discovered in prior proceeding (which would otherwise be the subject of the implied undertaking to the court). Competitors 3 The plaintiff and the defendant are competitors in the waste recycling and processing industry. The background 4 On 4 April 2005, proceedings were commenced by Veolia and other parties against the defendant ("the Veolia proceedings"). The plaintiffs in those proceedings (hereafter referred to as "Veolia") were represented by the solicitors. Veolia was also a competitor of the defendant. 5 The Veolia proceedings claim that the defendant represented to the public and others, and to the Environmental Protection Authority, that it was carrying on its business lawfully. 6 More specifically, it was alleged that the defendant represented that it was carrying on its business in accordance with and in compliance with its obligations under the relevant environmental legislation and licences which govern its operations. 7 It was alleged that the defendant engaged in conduct which was misleading and deceptive or likely to mislead or deceive in trade or commerce because, it was alleged, the defendant carried on its business in breach of its licence conditions and the relevant environmental legislation. 8 Veolia claimed that they had suffered loss and damage by the conduct because, in general terms, the defendant was able to attract business which would have otherwise gone to Veolia. It was also claimed that, had the EPA not been misled, it would have put a stop to the defendants continued operations of its liquid treatment plant and/or put a stop to the defendants' disposal of wastes, which are said to be hazardous wastes. It was contended that the effect of this would have been that the defendant would have not been competitive in the market place for transporting liquid wastes and Veolia would not have lost business to the defendants. The course of the Veolia proceedings 9 Between June 05 and February 08, the defendant gave extensive discovery pursuant to orders given by the court. Between August and September 2008, the defendants served their witness statements. 10 Subpoenas were issued to a number of third parties and documents were produced in answer to them. 11 In the Veolia proceeding the plaintiff had filed and served an affidavit made by Mr Bob Cooper, an executive of the current plaintiff, and had served a subpoena on him to attend to give evidence at the trial. 12 On 22 September 2008, the parties to the Veolia proceeding (including the solicitors on behalf of Veolia) attended a mediation before R Hunter QC. The defendant provided a position paper and agreement was reached in principle. A Deed of Release was signed on 25 September 2008. During October 2008, the Veolia proceedings were dismissed by consent pursuant to the Deed of Release. 13 On 30 September 2008, after the Veolia proceedings had settled, Holman Web wrote to the witnesses who had been subpoenaed advising that they would not be required to attend to give evidence at the hearing. Mr Cooper was amongst those who were thus advised. He thereupon contacted Mr Maxwell at Holman Web and in due course that firm was engaged to act for the current plaintiff in a claim against the current defendant for damages in respect of the same contraventions of Part V of the Trade Practices Act 1974 as were alleged in the Veolia proceedings. 14 On 24 December 2008, the plaintiff in these proceedings filed a summons in virtually identical terms to the Veolia summons. The plaintiffs were represented by the solicitors. The primary relief sought in the defendant's Notice of Motion 15 The primary relief in the defendant's Notice of Motion is sought on three grounds: i. a threatened breach of a duty of confidence in relation to information disclosed during the course of the mediation and the subsequent confidential Deed of Release; ii. the Court's inherent jurisdiction to control solicitors to protect the integrity of the judicial process and the due administration of justice. iii. a threatened breach of the so-called Harman undertaking to the Court arising during the Veolia proceeding (relating to information obtained from the discovery given by the defendant and the statements of evidence provided) The subject confidential information 16 The confidential information is defined with particularity in the schedule to the Notice of Motion dated 6 March 2009 : i. Paragraph (a) of the definition is a reference to the position paper which is confidential exhibit "TRC7". ii. Paragraph (b) of the definition is a reference to the mediation which took place on 22 September 2008. iii. Paragraph (c) of the definition is a reference to the agreement which is confidential exhibit "TRC9". iv. Paragraph (d) of the definition is a reference to confidential exhibit "TRC10". Dealing with the defendant's notice of motion Duty of confidence 17 I accept that the solicitors have a duty of confidence in relation to information disclosed by the defendant during the mediation. This includes settlement offers made during the course of the mediation; information contained in the principal agreement reached that day and the information contained in the Deed of Release signed by the parties on 25 September 2008. That information (and other relevant information) is referred to as "confidential information" in the Notice of Motion. 18 The duty of confidence arises out of the terms of the Mediation Agreement [Exhibit TRC 8; particularly at clauses 10 and 11]; the Heads of Agreement reached at the mediation [Confidential Exhibit TRC9 (which contemplates a deed of settlement providing for confidentiality)] and the Deed of Release [Exhibit TRC10, particularly clauses 5.1-5.3]. In addition to those express provisions, there is authority to the effect that an obligation of confidentiality arises from a party's presence at a mediation [Williamson v Schmidt [1998] 2 Qd R 317 at 336; Tricontinental Corporation Pty Limited v Holding Redlich (Supreme Court of Victoria, Mandie J, 22 December 1994, unreported). In addition, the position paper included the following words on each page: "Without Prejudice, Private & Confidential, Prepared for the Purpose of." 19 The terms of the Mediation Agreement need to be construed in the context that it is essential in mediations that parties be able to disclose matters without an apprehension that the disclosure may be improperly used against them. As Rogers CJ said in AWA Ltd v Daniels (1992) 7 ACSR 463: "It is of the essence of successful mediation that parties should be able to reveal all relevant matters without an apprehension that the disclosure may subsequently be used against them. As well, were the position otherwise, unscrupulous parties could use and abuse the mediation process by treating it as a gigantic, penalty free discovery process." [This decision was referred to in Williamson v Schmidt [1988] 2 Qd R 317 at 335- tab 4 of the defendants authority bundle] 20 Indeed both Mr Maxwell and Ms Yeo accepted and confirmed to the defendant that they accept, that they bear an obligation to preserve the confidentiality of any confidential information imparted to them in the course of the mediation and of the terms of the settlement recorded in the heads of agreement and deed of release which effected the settlement of the Veolia proceedings. Examining some of the authorities 21 Bergin J in Mitchell v Pattern Holdings Pty Limited [2000] NSWSC 1015 described the relevant test as whether there was a "real and sensible possibility of the misuse of the confidential information" [at 40]. 22 In Mitchell v Pattern Holdings Pty Limited, Bergin J refused to grant an injunction restraining Blake Dawson Waldron from acting for the plaintiff because there was a failure to adduce evidence of the contents of the Terms of Settlement which had been agreed on a confidential basis [at 42]. 23 In Tricontinental Corporation v Holding Redlich, Mandie J declined to grant relief restraining the solicitors from acting for the plaintiff because he was not satisfied there was a "real and sensible possibility of misuse of confidential information, conscious or unconscious". In this respect, he made particular mention that the likely differences in the issues and evidence between the two sets of proceedings would be such as to render knowledge of the history of negotiations of negligible use or relevance [VC9400946 at 9]. 24 As the defendants have contended Carter Holt Harvey Forests Ltd v Sunnex Logging Ltd [2001] 3 NZLR 343 is a decision more relevantly in point. In that case: i. Sunnex had issued proceedings against Carter Holt Harvey Forests (CHHF) arising out of the termination of certain contractual arrangements. ii. The claim was similar to an earlier claim against CHHF brought by Rua. Many of the paragraphs in both statements of claim were identical. iii. The solicitors for Sunnex also acted for Rua. Rua's proceedings were settled at mediation. iv. The lawyers for Rua participated in the mediation and signed a confidentiality agreement. CHHF applied to restrain the lawyers from acting for Sunnex on the grounds there would be an unacceptable risk that information confidentially divulged by CHHF during the mediation would be disclosed to Sunnex, or consciously or unconsciously used by the lawyers to the advantage of Sunnex. v. The Judge at first instance held that the lawyers were in possession of confidential information obtained in confidence; that the disclosure of the settlement terms could adversely affect CHHF in the future settlement negotiations with Sunnex; and that there was a real risk the settlement terms would be disclosed if the lawyers participated in any settlement discussions. vi. However, the Judge at first instance did not accept that the information held by the lawyers would otherwise adversely affect CHHF in the conduct of litigation as a whole and held that the lawyers could continue to act as long as they took no part in the settlement negotiations. 25 On appeal, the New Zealand Court of Appeal upheld an appeal to find that the lawyers should be restrained from acting. The Court of Appeal referred to an inherent incompatibility between lawyers' participation in a confidential mediation for one client, and acting for other clients in parallel litigation against the same defendant. The Court of Appeal held that that could not be satisfactorily resolved by means of an undertaking to preserve confidentiality. 26 At paragraph 28, the Court of Appeal, referring to onus of proof, said: "It is therefore appropriate when a plaintiff in the position of CHHF, facing a number of potential claims, has been able to show that there appears to be a common factual element underlying those claims, that the burden should shift to the person who has promised to preserve confidentiality to demonstrate that there is no danger of disclosure or misuse of knowledge gained in the course of the mediation. Unless the court can be satisfied that the claim in which the lawyer wishes to act is sufficiently dissimilar that the course of the prior mediation has no relevance to it, the lawyer should be prohibited from acting. The threshold having been surmounted, it is for the lawyer to negative that risk." [It should be noted that Carter Holt Harvey was a case which was determined on the duty of confidence (not the inherent jurisdiction to control the conduct of solicitors)]. Addressing some of the evidence adduced by the defendant on the instant application 27 Leave was granted to the defendant to cross-examine Mr Maxwell. The cross examination extended to dealing with a memorandum [Exhibit GT2] from Mr Maxwell to Mr Dunworth and Mr Cooper of Worth Recycling. 28 The fourth paragraph of that memorandum refers to a telephone conversation between Mr Maxwell and Mr Cooper of Worth "shortly after" 30 September 2008. 29 Mr Maxwell's affidavit at paragraph 3 says of that conversation: "He [Cooper] told me that he and his fellow director and shareholder of Worth Recycling, Mr David Dunworth, considered that they as a competitor of WSN in the industrial liquid waste industry had a claim against WSN, and wished to come to see me to discuss that claim." 30 The memorandum of Mr Maxwell (exhibit GT2) summarises that telephone conversation as follows: "Bob and I spoke over the telephone. He indicated that Worth Recycling assumed that the resolution of the case had been favourable to Veolia and that they wished to pursue their own claim against WSN. I said to him that the terms and details of the resolution between Veolia and WSN were confidential. He asked me whether Veolia was happy with the resolution. I said that I believed it was. He said that he would immediately make arrangements to, with David Dunworth, talk to Doug Dean of Veolia about their desire to instruct me to pursue their claim. I said they should get in touch with Doug direct ." 31 Mr Maxwell's evidence was that, after the above telephone conversation, he had a conference with Messrs Cooper and Dunworth of Worth on 7 October 2008. I accept that the likelihood is that, encouraged by Mr Maxwell's remarks, before the conference on 7 October 2008, Mr Cooper contacted Doug Dean of Veolia concerning whether the resolution was "favourable" and whether he was "happy" with the resolution and their instructing of Holman Webb. 32 The risk of misuse of the information is highlighted by Worth's desire to retain Holman Webb because they had attended the mediation and Veolia was "happy" with the terms of the settlement that resulted from the mediation. 33 Such is apparent from that part of Exhibit GT2 quoted above as well as from the fact that on 7 October 2008 (the same day as the meeting referred to in exhibit GT2), Holman Webb was retained on terms which included: "The person responsible for the work we do for you is Dermot Maxwell. You may contact him in regard to your matter or in relation to your legal costs. He may be assisted in the day to day running by Melissa Yo and Sarah Zee." [it is to be recalled that Mr Maxwell and Ms Yeo both were present at the mediation] 34 On 17 November 2008, Messrs Cooper and Dunworth of the Plaintiff discussed with Mr Maxwell "whether the mediator used by Veolia could be used in any mediation between Worth and WSN". 35 The above material points up a desire by Messrs Cooper and Dunworth to use the same mediator of the Veolia proceedings in the proceedings between Worth and WSN (even before the current proceedings had been commenced). Decision 36 I am satisfied that there is a real and sensible possibility of misuse (albeit unconsciously) of the confidential information obtained by Mr Maxwell. It appears to be the case that Ms Yeo is in the same position as Mr Maxwell in this regard. Depending on precisely which other staff within Holman Web may have received or been privy to the same confidential information [or similar confidential information] there may be a real and sensible possibility, also by them, of misuse of that information. The information obtained certainly by Mr Maxwell as I understand it, critically included the process of offer and acceptance and the settlement sum. That fact alone, together with the virtually identical pleading of these proceedings with the Veolia proceedings is sufficient in itself to demonstrate the real and sensible possibility of misuse. 37 There is also the real possibility of Mr Maxwell making use of the negotiation moves and strategies that were adopted during the mediation; and what was said during the course of the negotiations (including strengths and weaknesses; offers and counter offers). Here again the position of other staff requires to be treated with. 38 As the defendants have submitted, the real and sensible possibility of misuse of the information becomes apparent when one asks what the likely course of events would be in a mediation between the parties to the current proceeding if, during closed session, the plaintiff in these proceedings were to say to Mr Maxwell or Ms Yeo "should we take that offer?" or "what offer should we make?". To suggest that an answer by either of them to that question would not, in all likelihood, involve the real and sensible possibility of misusing the information gained in the Veolia mediation is quite unrealistic. The plaintiffs attempt to limit to reach of the obligation imposed by the mediation agreement 39 I do not accept the plaintiffs submission that the mediation agreement only imposes an obligation to preserve as confidential, all information properly characterised as such under general law 40 Apart from clause 10(a) of the Mediation Agreement (exhibit TRC8), clause 11(b) provides that no admission, concession, proposal or other statement in connection with the mediation will be disclosed after mediation. 41 Clause 11(c) provides that every admission, concession, proposal and other statement disclosed in connection with the mediation will be entirely "without prejudice" and will retain the benefit of any privilege that would otherwise have applied. 42 In addition, the mediator said to all in attendance at the mediation words to the effect that discussions at the mediation were confidential and without prejudice and that, accordingly, the parties should feel able to speak freely. Inherent jurisdiction 43 Although it is strictly unnecessary to deal with the inherent jurisdiction, at least the following may be said: i. Bergin J in Asia Pacific Telecommunications Limited v Optus Networks Pty Limited [2007] NSWSC 350 restrained Clayton Utz from acting for the defendant against the plaintiff. Bergin J noted that "the Court's jurisdiction over its officers is of course accepted both to its existence and its depth" and then stated: "The principle that justice should not only be done but manifestly and undoubtedly be seen to be done is the relevant test to be applied." and "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 the relief should be granted in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice. The parties accept that such jurisdiction is to be regarded as exceptional and exercised with caution and that due weight should be given to the public interest in a litigant not being deprived of a lawyer for his or her choice without due cause." (paragraph 42) ii. Bergin J in Mitchell v Pattern Holdings also said at paragraph 43-44: "Accepting Mandie J's approach in Tricontinental Corp v Holding Redlich that a restraint may be imposed, it might be that the contents of the Terms of Settlement would disclose or would provide a basis upon which an inference would be drawn that there would be a real and sensible possibility of the inadvertent misuse of the confidential information. It may be that such material might demonstrate that BDW would probably not be able to resist giving advice to the present plaintiff to settle for anything less than that which was achieved by the plaintiffs in the first proceedings. The perception created may be that there would be an inadvertent misuse of confidential information, although much will depend on the facts. In those circumstances it seems to me that if the Court is persuaded such a risk existed, any restraint placed BDW would be based upon the principles enunciated in Black v Taylor rather than on the development of any duty to the defendant. However on the evidence called by the defendant the decision on that matter is not necessary." [See also Black v Taylor [1993] 3 NZLR 403 particularly at page 406, line 24, p412 line 41, p420 line 34] iii. The New Zealand Court of Appeal in Carter Holt Harvey Forest v Sunnex said at paragraphs 22 and 24: "Against a background in which CHHF's decision to operate only through key suppliers potentially exposed it to claims from more than one logging contractor, CHHF stipulated for total confidentiality when agreeing to mediate with Rua and when entering into a settlement of Rua's claim … The very nature of mediation requires that, in principle, it be conducted on a confidential basis, with the parties encouraged to "lay bare their souls" for the purpose of facilitating a conciliation and resolution of the dispute. Understandably, parties will be cautious about doing so if what they do and say can be used against them for a different purpose by lawyers who happen to be participating. …But it seems to us that the confidential atmosphere in which a mediation is ordinarily conducted must generally preclude participating lawyers from utilising what they learned for the purposes of advising and representing someone other than their client at the mediation. The particular agreement signed by the lawyers in this case is therefore consistent with the confidentiality implicit in any mediation." Resultant findings 44 In the result: i. The current circumstances throw up the need for Mr Maxwell to remove himself completely from being involved with any aspect of the current litigation : this may be achieved by appropriate undertakings to the Court or alternately by the grant of appropriate injunctive relief; ii. Likewise any other persons within Holman Web who were privy to such information should be treated in the same way. Ms Yeo seems to be such a person; iii. The importance of mediation in the judicial process is also without doubt. The importance of mediation procedures is emphasised in Part 4 of the Civil Procedure Act 2005 . Section 26 of that Act provides for the Court to order mediation in appropriate circumstances. Section 27 provides that each party has a duty to participate in good faith. The form of summons to be used in this list require the parties to identify whether they are willing to proceed to a mediation at an appropriate time; iv. A fair minded, reasonably informed member of the public would conclude that the proper administration of justice requires that Mr Maxwell and likely Ms Yeo be restrained from acting for the plaintiff in these proceedings; v. There is a clear inference to be drawn from the circumstances referred to above that there is a real risk that information obtained by Mr Maxwell and Ms Yeo during the mediation process is likely to be used (albeit unconsciously) in any attempts to settle these proceedings (including in any mediation). Further consideration of the orders sought by the defendant in its motion 45 Presently it does not seem to me that, subject certain undertakings to the court being provided by appropriate persons, the firm Holman Web may not continue to act as solicitors for Worth Recycling. During the hearing this matter was generally mentioned. It will be necessary for the parties to attempt to liaise in order to identify what undertakings should be given and by whom. The plaintiff' notice of motion 46 The degree of overlap in relation to the two motions, the limitations on the courts time available for hearing both motions last Friday, combined with the essential need for a decision on the defendant's motion, have resulted in a situation where the Court needs to know that the parties have reached a consensus qua the matters dealt with above before the Court can treat with the plaintiffs motion. 47 In the circumstances the parties will be given a proper opportunity to consider the above reasons following which the matter will have to be re-listed: i. so that the court can complete the making of appropriate orders or the taking in of appropriate undertakings concerning the defendant's notice of motion; ii. to arrange a timetable during which to deal with the plaintiff's motion. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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