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Pangia Constructions Pty Ltd v Papua New Guinea Banking Corporation [1995] PGNC 69; N1338 (22 June 1995)

N1338

Papua New Guinea
[National Court of Justice]

WS NO. 452 OF 1995

BETWEEN:

PANGIA CONSTRUCTIONS PTY LIMITED
-Plaintiff-

AND:

PAPUA NEW GUINEA BANKING CORPORATION
-Defendant-

Waigani: Brown J.
1995: 21 & 22 June

Lawyers - Duty - Conflict of interest - Duty of confidentiality to client - Client, company and director of such company - Company now in receivership - Lawyers acting for bank which appointed receiver and the receiver - No longer acting for director (and major shareholder) - Director seeking to restrain lawyers from acting fro receiver and bank - Whether "reasonable man in the commercial milien would see lawyers as breaching duty of confidence to director and company - Whether lawyers should be restrained from acting for receiver and bank.

The facts appear from the judgment.

Held:

(I) On the facts a reasonable man would have no feeling of disquiet for the interests of the bank, receiver, company and director are conjoint to the extent that all seek the best monetary results from the acts of the receiver in getting in the assets.

Cases referred to in the judgment -
Re a firm of Solicitors (1992) 1 All.E.R. 352
E. Watts v. Midland Bank Ltd (1986) B.C.L.C. 15
Newheart Development v. Co-op Commercial Bank Ltd (1978) 2 All.E.R. 89

Notice of Motion

R. Thompson, for the Plaintiff
J. Briggs, for the Defendant

Reasons for Decision

22 June 1995

BROWN J.: The Plaintiff comes by way of Notice of Motion seeking an order that the legal firm of Blake Dawson Waldron be restrained from continuing to act for the Defendant bank and the Receiver appointed by the Bank to the assets of "Pangia" on the 7 June last.

Ms Royale Thompson, for the Plaintiff says the lawyers owe a duty of confidentiality to the Plaintiff. She said there could be seen to be the possibility of the firm disclosing information of the company previously given in good faith in the course of and earlier lawyer/client relationship. The Courts will grant an injunction to prevent lawyers continuing to act in those circumstances. The test she says, is not whether in fact there is a real risk of the breach of confidentiality, but rather if a reasonable man would have a sense of disquiet. She referred me to Halsbury Laws of England, 3rd Edit. Vol. 36 @ 97 and to Re a firm of Solicitors (1992) 1 All ER 353. In that case, despite the erection of a "Chinese Wall", the English Court of Appeal held that a firm of solicitors was precluded from acting against a former client where a reasonable man with knowledge of the facts would reasonably anticipate that there was a danger that information gained while acting for the former client would be used against him or there was some degree of likelihood of mischief.

Anticipating the banks objection to a director of Pangia claiming to proceed in the name of the company after the appointment of a receiver, Ms Thompson pleaded the residual powers of a director in this case, to sue in the company name. She relied on the authorities touched on in O’Donnovan; Company Receivers & Managers 2nd Edit, @ 2820 and case law, particularly Newheart Develop v. Co-op Commercial Bank Ltd. (1978) 2 All ER 89 and E Watts v. Midland Bank Ltd. (1986) BCLC 15. The latter case is an example of the right of a company in receivership to maintain an action against a receiver for the improper discharge of his duties. There, the plaintiffs, as shareholders brought a derivative action on the company in receivership’s behalf, for a declaration that an earlier sale agreement entered into by the receiver was not binding on the company and for an order setting it aside. Of course, it turned on its own facts, but the case does illustrate the derivative right in particular circumstances for shareholders to act on behalf of the company in receivership. The Co-op Commercial Bank case, on the other hand, was an English Court of Appeal decision, again touching on the right of directors to institute proceedings on the company behalf without the receivers consent or concurrence "providing that the proceedings not interfere with the receivers function of getting in the company’s assets, or prejudicially affect the debenture holders by imperilling the assets". Ms Thompson says the receiver (who is represented also by Mr Briggs although not named in the suit) appointed by the Bank has not authorised or concurred in the action but the receiver is not in a position to determine the lawyers duties or appreciate the possibility of competing interests. Hense the right claimed to sue in the company name.

Finally, again anticipating the lawyers argument that Mr Fallon (a director and major shareholder of Pangia through Mana No.5 Pty Ltd.) is estopped from now complaining about the continued use of Blakes, lawyers by the Bank and the Receiver so long after the appointment, when Mr Fallon was a party to negotiations after the appointment in any event. Ms Thompson cogently pointed to the principles of estoppel and argued that on the facts, here, estoppel cannot arise.

Mr Briggs appeared for the Bank which made the appointment. He argued that the company had no right, in any event to institute proceedings of this nature for they did not arise out of any substantive action before the Court. There had been proceedings instituted by statement of claim by the company in a Writ of Summons in this suit seeking a declaration that the proposed appointment of a receiver (prior to a date in July when asset sold would be likely to have resolved a liquidity problem) was harsh and oppressive. That claim for relief had not been dealt with before the appointment took effect.

I propose to deal with the preliminary point. In my view the right in the company to come back to the Court seeking this relief by way of motion does arise out of the writ for it follows from the appointment of the receiver originally sought to be prevented. In any event O.14 r8 permits a motion in particular cases and I would exercise my discretion to allow the motion to proceed for it clearly goes to a consideration of the derivative rights of a director and substantial shareholder.

Mr Briggs says the central issue is whether the firm of Blakes could be said to have confidential information of the company which will conflict with present interests of the company through the receivers, in realising the assets of the company. Mr Briggs says that mere assertions of a conflict of interest are not enough and the plaintiff has not been able to show what interest may give rise to a conflict. He says the directors of the company always have had an obligation to disclose the true state of affairs of the company to the Bank in any event under the terms of the Banks accommodation (although not in evidence directly); they are conjoint interests in that the directors, on appointment of a receiver are obliged to avoid stultifying the receiver’s function in getting in the assets and that any commercially sensitive information, gleaned through the solicitor/client relationship in the past must, through effuxion of time, be no longer of commercial value and thus in any event, the primary function of the receiver, per se, cannot give rise to a conflict of interest situation in the lawyers office.

The letter to Young & Williams lawyers, (for the Applicant here) of the 20 June under hand of Mr Glenn, a partner in Blakes, sets out that firms position. That letter forms part of Mr Glenn’s affidavit read in evidence.

The plaintiff’s case rests on an affidavit of Mr Mark Fallon sworn on the 20 June and read also. He is the Managing Director of Pangia and principal shareholder in various other companies, by virtue of which he effectively holds some 85% of the shares of Pangia. Between 1969 and 1994 Blakes acted for the company. He instructed Blakes in relation to legal proceedings instituted by Koki Bangilo and others in proceedings WS 173/93. Those proceedings are serious and wide ranging from Pangia and Mr Fallon’s point of view, and are being litigated presently in the National Court before another judge. The company is there represented by Messrs Gadens, Ridgeway lawyers.

Blake’s had prepared a defence and cross claim. Messrs. Gadens Ridgeway took over conduct of those proceedings on the 9 June 1994.

Importantly as a result, Blakes had access to commercially confidential information and financial information of Pangia Mana No.5 and personal to Mr Fallon, as illustrated by various memo’s, both internal to Blake’s; from Blakes to Mr Fallon for Pangia; from Pangia to Blakes and other letters relating to the proceedings WS 173/93. For instance in March 1994 Mr Fallon wrote to Blakes, in relation to the litigation proceedings, a letter which sets out a short resume of the companies intentions in relation to job prospects in the Highlands and Fiji and the need to move equipment; rationalize properties; work for which bids are in process; major works; current tenders; work recently completed and work in progress. No real detail was included, rather an over view was provided with estimates. Nevertheless I am prepared to accept that there was commercially sensitive information; financial information personal to Mr Fallon; Mana No.5 and the company which could reasonably be seen as having come to Blakes in the course of its lawyer relationship.

I do not accept that, with the passage of time that the commercial information could now be "sensitive" in the sense that it would be of practical value to a rival construction firm for since then the currency has devalued and costs have been affected. So far as the financial affairs are concerned the company’s affairs continue to be the responsibility of the directors in particular respects but that while the interests of the directors and major shareholders for instance may diverge from that of the bank (on the one hand the wish to continue, and on the other the wish to liquidate assets to cover debt) I do not believe it can be said a conflict of interest could be envisaged of Blakes in the sense understood in Re a firm of solicitors. In that case the solicitors were acting against a former client, here the firm acts for the receiver and bank but the interests of the receiver, bank and the company are conjoint to the extent that all seek the best monetary results from the acts of the receiver in getting in the assets. In those circumstances no reasonable commercially astute man could feel disquiet were Blakes to continue to represent the receiver and Bank. To the extent that Blakes have confidential financial information, the fact is that the guarantees for instance, are common to the Bank, the company and Mr Fallon so that the Bank is constrained by the terms of the documents in any event. Mr Glenn in his letter specifically identifies the nature of work undertaken by the firm. He says, in relation to the appointment of the receiver "we have advised PNGBC as to its legal entitlements to make the appointment and we have settled the appropriate documents". So far as financial information is concerned he says "we have also advised on a proposed refinancing". He goes on, "whilst our instructions from PNGBC have ceased, we do continue to represent PNGBC in relation to its interests as guarantor in relation to certain of Pangia Construction contracts".

As I say any guarantees are common knowledge and cannot go to any supposed confidentiality obligation reposing in the lawyers. The receiver has power I presume under the terms of his appointment to run the company. It is that appointment which predicates his actions. Nothing which springs from the firm Blakes, position as lawyer can be said to imping on the receiver or banks duties or responsibilities in the circumstances of the receivership.

Nothing on the strength of the affidavit of Mr Fallon can, in my view be seen to give rise to a feeling of disquiet in a "reasonable man", that any duty of confidentiality would be relevant or threatened in the circumstances deposed. There are no proceedings by the receiver against the directors for instance.

There is no need to consider any question of estoppel, which cannot arise, (rather as Mr Briggs put it, latches may be a better description) for had there been a breach of the lawyers duty, that breach cannot be cured by latches.

There is consequently no need for me to deal with the argument about the plaintiff’s failure to offer an undertaking as to damages.

The motion is refused and struck out.

Where a director and major shareholder purports to proceed by way of suit in the company name and is unsuccessful then I consider it only fair that in this case, that the company, in receivership not be visited with the costs.

Consequently costs will follow the event but that the director Mr Mark Fallon shall be liable for the defendants costs on the hearing of the motion.

___________________________________________

Lawyer for the Plaintiff: Young & Williams
Lawyer for the Defendant: Blake Dawson Waldron