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Intracor Commodity v Schwarz Construction [2014] WSSC 28 (25 April 2014)

SUPREME COURT OF SAMOA

Intracor Commodity Ltd v Schwarz Construction [2014] WSSC 28

Case name: Intracor Commodity Ltd v Schwarz Construction

Citation: [2014] WSSC 28

Decision date: 25 April 2014

Parties: INTRACOR COMMODITY EXPORTS LIMITED a duly incorporated company having its registered office at 151B Marua Road Ellerslie, Auckland 1, New Zealand (plaintiff), SCHWARZ CONSTRUCTION LIMITED a duly incorporated company having its registered at Vaitele (defendant) OTIS ELEVATOR COMPANY LIMITED an incorporated company carrying business from Christchurch New Zealand (plaintiff) and SCHWARZ CONSTRUCTION LIMITED a duly incorporated company having its registered at Vaitele (defendant).

Hearing date(s):

File number(s): CP69/13, CP83/13

Jurisdiction: Civil

Place of delivery: Mulinuu

Judge(s): Justice Vaai

On appeal from:

Order:

Representation:
K Drake for plaintiff
R V Papalii for defendant

Catchwords:

Words and phrases:

Legislation cited:

Cases cited:
Rules of Professional Conduct for Barristers and Solicitors of Samoa
Taylor v A-G
Black v Taylor
Everingham v Ontario
Prince Jefri Bolkiah v KPMG
Kooky Garments v Charlton
Ethics in Law: Lawyers Responsibility and Accountability in Australia, 3^rd Edition, Butterworths
In Bar Association of Queensland v Lamb
Black v Taylor; Bomen v Stott

Summary of decision:

IN THE SUPREME COURT OF SAMOA

HELD AT MULINUU

BETWEEN

INTRACOR COMMODITY EXPORTS LIMITED a duly incorporated company having its registered office at 151B Marua Road Ellerslie, Auckland 1, New Zealand

Plaintiff

A N D:

SCHWARZ CONSTRUCTION LIMITED a duly incorporated company having its registered at Vaitele

Defendant

A N D:

OTIS ELEVATOR COMPANY LIMITED an incorporated company carrying business from Christchurch New Zealand

Plaintiff

A N D:

SCHWARZ CONSTRUCTION LIMITED a duly incorporated company having its registered at Vaitele

Defendant

Counsel: K Drake for Plaintiff

RV Papalii for Defendant

Judgment: 14 March 2014

JUDGMENT OF THE COURT

Introduction

1. The two plaintiffs represented by Drake & Co Solicitors filed separate actions against the defendant represented by Ms Papalii, Solicitor. Both firm of solicitors have filed applications for orders to restrain the other from acting on behalf of their clients.

Application by the defendant

2. Application by the defendant is premised on the basis that Drake & Co was not only previously engaged by the defendant it was also the solicitors for the defendant’s sole director and as a result Drake & Co has acquired knowledge and information about the defendant and its director which is or may be relevant to the present litigations. Being in possession of confidential information of the defendant which is at the risk of disclosure by acting for the plaintiffs against its former client, the defendant claims that Drake & Co is also in breach of rule 1.05 of the Rules of Professional Conduct for Barristers and Solicitors of Samoa. That rule states:

Rule 1.05:

“A practitioner must not act for a client against a former client of the practitioner when, through prior knowledge of the former client or his/her/its affairs which may be relevant to the matter, to so act would be or would have the potential to be to the detriment of the former client or could reasonably be expected to be objectionable to the former client.”

3. It is also alleged that Drake & Co are currently solicitors for the defendant in another litigation matter of which a decision of the Supreme Court is still pending so that the filing of the claims against the defendant is inconsistent with Drake and Co’s fiduciary obligation of loyalty to the defendant.

Application by Drake & Co

4. Drake & Co applies for an order restraining Ms Papalii from acting on behalf of the defendant not on the basis that Ms Papalii is in possession of confidential information of the plaintiffs which is at risk of disclosure but on the basis that, in its supervisory jurisdiction, the court should prevent Ms Papalii from acting due to Ms Papalii’s defacto relationship with the sole director of the defendant which not only creates a conflict of interest between counsel and client but it also prevents counsel from acting objectively; conducting herself as an officer of the court, and in breach of rule 1.03 of the Rules of Professional Conduct for Barristers and Solicitors of Samoa.

Rule 1.03:

“A practitioner must not act or continue to act for any person where there is a conflict of interest between the practitioner and his/her own interests on the one hand, and an existing or prospective client and his/her/its interests on the other hand.”

Case for the defendant

5. It is common ground that Drake & Co has been the Solicitors for the defendant and its sole director in the past which involved the incorporation of the defendant company, land acquisitions, bank securities, litigations and wills. The last litigation conducted by Drake & Co for the defendant was completed in 2006 and concerned a claim by the defendant for damages for breach of contract and for which a decision is still pending. The last time the managing director of the defendant visited the office of Drake & Co was in the year 2011 concerning a separation agreement with his wife which was drafted by Ruby Drake.
6. The concerns of the managing director of the defendant is expressed in paragraph 13 of his affidavit in support:

“I am gravely concerned that Drake & Co will use to their client the plaintiff’s advantage the knowledge, information they have gathered on file about my company, myself and so forth. This will be detrimental to me.”

Case for Drake & Co

7. As the application to disqualify Ms Papalii from representing the defendant was initiated not by the plaintiffs themselves but by Drake & Co itself, I have therefore deliberately omitted using the names of the plaintiffs as parties in this judgment. How this application came about is mirrored in the affidavit of the defendant’s director at paragraphs 11 & 12 and the oral admission by Ms Drake that the Drake & Co application was filed in response to the application by the defendant.

“11. In fact when Ms Kruse first wrote to me, about this matter I raised with her my concerns about their firm acting against me. She chose to ignore it and did not address it.”

“12. Recently she emailed my lawyer and asked her to disqualify herself from acting alleging she has a conflict of interest because of her personal relationship with me. I was surprised she raised this given she never addressed my concerns about their firm acting against me when they acted for me ...”

8. Basically Mrs Drake’s affidavit in support of the application speaks of the defacto relationship between the defendant’s director and Ms Papalii creating a conflict of interest resulting in Ms Papalii neglecting to act objectively and in breach of rule 1.03 of the Rules of Professional Conduct for Barristers and Solicitors.

Jurisdiction to restrain lawyers from acting

9. The court’s jurisdiction to intervene and restrain a solicitor from acting for a party in litigation is for a conflict or apparent conflict of interest. It is based on the inherent jurisdiction of the court to control the conduct of proceedings before the court. Woodhouse J in the NZ Court of Appeal decision in Taylor v A-G (1975) 2 NZLR 679 at 689 reaffirmed the court’s inherent jurisdiction:

“The inherent jurisdiction of the court arises in relation to and for the purpose of giving proper support for the functioning of the Court as a Court of justice. It is not part of the substantive but of the procedural law.”

10. In another NZ Court of Appeal decision in Black v Taylor (1993) 3 NZLR 403 both McKay J and Richardson J agreed that the position in NZ is accurately expressed in the judgment of a Divisional Court the Ontario (General Division) in Everingham v Ontario (1992) 88 DLR (4h 755 at 761:

“It is within the inherent jurisdiction of a superior court to deny the right of audience to counsel when the interests of justice so require by reason of conflict or otherwise. This power does not depend on the rules of professional conduct made by the legal profession and is not limited to cases where the rules are breached.”

11. Three grounds were normally advanced for the granting of injunctions to restrain and remove a solicitor from further acting for a party in litigation.
    • (i) The first was for breach of confidence, where to permit the solicitor to continue to act (usually against a former client) would involve a risk that the solicitor might use information which the solicitor obtained and held subject to a duty of confidence to the former client.
    • (ii) The second was a breach of a duty of loyalty, where acting against a former client was said to be inconsistent with the solicitor’s fiduciary obligation of loyalty to the former client.
    • (iii) And the third was the court’s inherent supervisory jurisdictions over solicitors as officers of the court.
12. Lord Millet who delivered the leading judgment of the English House of Lords in Prince Jefri Bolkiah v KPMG ( A Firm) [1998] UKHL 52; (1999) 2 AC 222 affirmed the basis of the court’s jurisdiction to intervene at the suit of a former client to be the protection of confidences. It could not be based on any conflict of interest, because there was none, as the fiduciary relationship formerly subsisting between solicitor and client had come to an end with the termination of the retainer, and the solicitor thereafter had no obligation to defend and advance the interests of the former client, to whom the only surviving duty was one to preserve the confidentiality of information imparted during the duration of the relationship.
13. Which therefore follows that a former client who seeks to restrain its former solicitor from acting against it must, according to Prince Jefri Bolkiah v KPMG, show:
    • (i) that the solicitor is in possession of the former client’s confidential information, the disclosure of which the former client has not consented; and
    • (ii) that the information is or may be relevant to the new matter, in which the interests of the solicitor’s new client may be adverse to those of the former client.
14. Where the court’s intervention is sought by an existing client Lord Millet stated that the solicitor’s disqualification from acting has nothing to do with the confidentiality of client information but is based on the inescapable conflict of interest inherent in the situation of acting both for and against the same person.

Discussion of application to restrain Drake & Co

15. The claims filed by the plaintiffs against the defendant company are for breach of contract namely for recovery of costs of materials and labour rendered by each plaintiff against the defendant. In respect of the plaintiff Otis Elevator Co. Ltd the defendant accepts the amounts owing to the plaintiff but disputes Drake & Co’s costs as solicitors for the plaintiff as excessive and unreasonable. In reality then it is only the claim by the plaintiff Intracor Co. Exports Ltd which is contested by the defendant.
16. It is accepted that Drake & Co was for many years the solicitors for the defendant and the defendant’s managing director and the retainers were confined to incorporation of family companies of the defendant’s managing director, land purchases, bank securities documentation, litigation, wills, and a draft separation agreement. I also accept that Drake & Co did not receive informations, instructions or tendered advice involving personal or corporate financial details, activities, and plans for the defendant or its managing director.
17. Ms Papalii in her oral submissions conceded that although the informations received by Drake & Co may not be adverse to the defendant in defending the claim by the plaintiffs it will be adverse if judgment is entered against the defendant and the plaintiff proceeds to enforce judgment. The simple answer to the submission is that the details of the defendant contained in the files with Drake & Co are also available at the Companies Registry office and can be accessed by the plaintiff even if Drake & Co was not its solicitor.
18. It follows that the application against Drake & Co must fail.

Discussion of application to restrain Ms Papalii

19. The application by Drake & Co is rather unusual simply because it was filed not for the purpose of protecting its clients, the plaintiffs, but as a response to the application filed by Ms Papalii as solicitor for defendant to disqualify Drake & Co from representing the plaintiff. By premising the application on Ms Papalii’s defacto relationship with the managing director of the defendant Drake & Co says such relationship:
    • (i) creates a conflict of interest between counsel and the defendant, and
    • (ii) would prevent Ms Papalii from acting objectively and in the best interests of her client
20. The affidavit in support of the application and the submissions of counsel did not specify or indicated the conflict of interests alleged. Neither did counsel cite authorities in support of her submissions although she did attach a paper titled Conflicts of Interest presented by Justice Glazebrook of the NZ Court of Appeal to the 23^rd Annual Banking & Financial Services Law and Practice Conference. The title of the conference and the topic of the paper indicates that the paper though well researched was totally irrelevant to the issue before the court.
21. Ms Papalii is not in breach of rule 1.03 of the Rules of Professional Conduct for Barristers and Solicitors as alleged by Drake & Co. The first sentence of the commentary to the rule says that the rule is based on the fundamental principle that a person who occupies a position of trust should never permit his/her personal interest to conflict with the interests of the client whom it is that person’s duty to protect. Other than the defacto relationship other situations which create or may create grounds for any conflict of interest have not been forthcoming.
22. In reality the only basis for court intervention which Drake & Co could invoke is the inherent jurisdiction of the court over solicitors as officers of the court.
23. It is true that the defendant should be represented with the objectivity and independence which the client is entitled to and which the court demands. One example of a situation in which a solicitor was held not to be acting objectively and independently was dealt with by Thomas J in the High Court of New Zealand in Kooky Garments v Charlton (1994) 1 NZLR 587. It concerned a claim against a defendant (a tenant) whose conduct and liability under the claim against her was dependant on the advice given by her solicitor. A solicitor of the law firm which advised the defendant represented the defendant in the lower court and on appeal to the High Court. Thomas J held that it was inappropriate for the solicitor of the same firm to represent the client. He said at page 589 line 40:

“Where 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. There is in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the court demands ...”

He went on to say at page 590 line 1:

“In such cases, apart altogether from the position of the client, the court is not receiving the assistance of counsel who are observably independent. Independence is a function of counsel. The court is entitled to assume that solicitors and counsel appearing before it possess that 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.”

24. The Rules of Professional Conduct for Barristers and Solicitor is silent on the issue raised by Drake & Co, namely the sexual relationship between the solicitor and client. In his book, Ethics in Law: Lawyers Responsibility and Accountability in Australia, 3^rd Edition, Butterworths, Ysaiah Ross noted at page 162 paragraph 7.32 that the Bar Association of the state of California included in its Professional Conduct Rule a rule to regulate sexual relationship between lawyer and client. Rule 3 – 120 (B) (3) states:

“A member shall not; ... continue representation of a client with whom the member has sexual relations if such sexual relations cause the member to perform legal services incompetently ...”

25. At page 160 paragraph 7.26 Ysaiah Ross refers to a decision of the Queensland Supreme Court in In Bar Association of Queensland v Lamb (1972) ALR 285 which concerned a solicitor who had a sexual relationship with a client after the decree absolute was granted in the divorce case but before the decision was given on custody and maintenance. Shortly after when the solicitor was applying for admission as a barrister, the Supreme Court of Queensland held that his misconduct did not disqualify him from admission to the bar. On appeal by the Bar Association to the High Court, it was held that while his conduct was reprehensible it fell short of unprofessional misconduct showing an unfitness to practice.
26. In controlling the proceeding before it in the exercise of its inherent jurisdiction, the court’s concern is with the administration of justice and the need to preserve confidence in the judicial system. It is not a question of the right of practice which is governed by statute, but a question concerning what is needed or may be permitted to ensure in a particular case both justice and the appearance of justice.
27. The assessment of the appearance of justice turns on how the conduct in question - here Ms Papalii’s representation of the defendant - would appear to those reasonable members of the community, who know of the relationship between the defendant’s managing director and counsel, would be satisfied that justice will be done.
28. 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 counsel 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. Black v Taylor; Everingham v Ontario.
29. The jurisdiction is to be regarded as exceptional and is to be exercised with caution; and 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; Everingham v Ontario.
30. 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; Bomen v Stott; (2004) WASC 94.
31. The claim by one of the plaintiffs is admitted. The dispute with the other plaintiff is governed by the regular law of contract. I am not satisfied the integrity of the judicial process is perceived to be at risk from the continuing representation by Ms Papalii of the defendant.

Result

(i) The two applications for orders to solicitors for the plaintiff and the solicitor for the defendant from continuing to act on behalf of their clients are both dismissed.
(ii) The two actions are to be listed for mention on the 19^th May 2014 for the defendant to file responses.
(iii) Each party will bear its own costs.

JUSTICE VAAI