Restraining Lawyers from Acting Due to Conflict

In Farrell v Super Retail Group Limited (Cross-claim) [2024] FCA 1189 (8 October 2024), Lee J of the Federal Court of Australia considered whether to restrain legal practitioners from acting in the case, a relief said to be exceptional.

By way of background, the case involved employment disputes between two former executives, Rebecca Farrell and Amelia Berczelly, both represented by Harmers Workplace Lawyers (“Harmers”) against Super Retail Group Limited (“Super Retail Group”). Following an unsuccessful mediation, Super Retail Group released an announcement to the ASX about the workplace litigation that was expected to arise. Ms Farrell and Ms Berczelly responded with their own media release, on advice from Harmers that it was an “emergency disclosure in accordance with section 1317AAD of the [Corporations Act]” and thereby protected from civil and criminal liability. However, the media release was not, in fact, a protected “emergency disclosure”. Ms Farrell and Ms Berczelly were then terminated by Super Retail Group on the basis that the authorisation of the media release was a repudiation of their employment agreements. Subsequent settlement discussions were protracted and unsuccessful. Super Retail Group then served a “concerns notice” under Pt 3, Div 1 of the Defamation Act 2005 (NSW) on Ms Farrell and Ms Berczelly, together with Mr Harmers in his personal capacity, relating to defamatory imputations conveyed by the media statement.

In this application, Super Retail Group sought to restrain Ms Farrell and Ms Berczelly from retaining Harmers and/or that Harmers be restrained from representing them, based on conflicts of interest between Harmers and its clients.

In such an application, Super Retail Group was required to show “a satisfaction that the hypothetical referee would form the view that the proper administration of justice requires that the relevant representative be prevented from acting”. Lee J summarised the relevant principles at [42] to [54]:

“C         THE RELEVANT LAW

C.1       The Test

Save as to one (as it turns out immaterial) matter, the applicable principles are clear and were not in dispute.

As I explained as part of the Full Court in Porter v Dyer [2022] FCAFC 116; (2022) 402 ALR 659 (at 679–680 [113]) (in observations with which Besanko and Abraham JJ agreed):

1. the Court has an implied jurisdiction to ensure the due administration of justice, to protect the integrity of the judicial process and to restrain legal representatives from acting in a particular case, as an aspect of its supervisory jurisdiction;
2. the relevant test is whether a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires that a representative be prevented from acting in the interests of the protection of the integrity of the judicial process and the appearance of justice; and
3. the power to restrain is an exceptional one and should be exercised with caution.

As to the third point, as Pagone J noted in Finch v Heat Group Pty Ltd (No 2) [2016] FCA 791; (2016) 353 ALR 193 (at 198 [9]):

It is a high test with a heavy burden imposed upon a party making the application. The jurisdiction has been described as “extraordinary and protective” (Woodgate v Leonard [2007] NSWSC 495… at [37]), of an “exceptional nature” (TJ Board & Sons Pty Ltd v Castello [2008] VSC 91 at [30]) and to be applied only in a “clear” case (Bransdon v Davis & Gilbert (2007) 37 Fam LR 555; 212 FLR 28; [2007] FamCA 579 at [70]): see also GE Dal Pont, Lawyers’ Professional Responsibility (Thomson Reuters, 5th Edition) [17.20], p538.  There are many reasons for a heavy burden to be satisfied by the party making such an application.  One reason is that a court should not make an order that interferes with the relation between the opposing party and that party’s chosen and trusted legal practitioners.  Public confidence in the administration of justice depends in part upon litigants being able to choose who they have to represent them and in whom they place their trust and confidence.  The proper administration of justice is assisted by trust and confidence existing between litigants and their legal representatives.  The legal practitioner plays a crucial role in conveying the client’s case to a court for adjudication and the confidence and trust of the client in the chosen legal practitioner is an essential aspect of that role. An order restraining a legal practitioner from acting for a client interferes with that role, adversely affects the client and may unjustifiably interfere with the proper conduct of the client’s case. It may also have the effect of causing irreparable harm to the client’s case and is apt to undermine the proper administration of justice in all but the clearest cases. To restrain the legal practitioners from acting for a party in continuing proceedings may also confer an unjustifiable forensic advantage upon the party seeking the restraint.

As to the second point, the only possible issue of confusion in the case is whether the test to be applied is whether it is sufficient for relief that the hypothetical referee “might conclude” what the proper administration of justice requires or rather it is necessary that the hypothetical referee “would conclude” what the proper administration of justice requires. Apart from the fact that the Full Court explained the “would conclude” test is favoured by the weight of authority, the test expressed in this way also better reflects and gives effect to the exceptional nature of the power. A test requiring a high degree of satisfaction is apposite when one considers the rationale for the caution in exercising the power explained, with respect, clearly in Premier Capital (China) Ltd v Sandhurst Trustees [2012] VSC 611 (at [2] per Pagone J):

Applications by opposing parties for the removal of their opponent’s lawyers should not be made lightly and need scrutiny. The applicant who has no personal interest to protect (such as in the preservation of confidential information from a previous retainer) needs to show that the removal is necessary. A party seeking the removal of an opponent’s legal practitioner is not seeking to exercise a right but moving the Court to exercise its power over its own officers but doing so against the wishes of the opponent in adversarial proceedings and in a context in which a successful application may cause inconvenience to the opponent and a forensic advantage to the moving party. An applicant may have obligations to the Court when making such applications to satisfy the Court that the application is necessary and not made for collateral advantage.  Care must be taken to ensure that applications for removal of practitioners do not become a means by which opposing parties obtain forensic advantages which detract from, rather than advance, the policy for which the jurisdiction is properly to be exercised. It is, therefore, essential that an injunction to restrain a practitioner from acting on behalf of a client be firmly based upon the need for that to occur in the administration of justice.

C.2       The Attributes of the Fair-Minded, Reasonably Informed Member of the Public

As has been remarked more than once in the different context of apprehended bias, a powerful criticism of the relevant test is that it requires consideration through the attribution of knowledge of matters to a hypothetical lay observer notwithstanding this amounts to a fiction used to connote a degree of detachment or objectivity to a process which inevitably involves the application of normative standards of behaviour determined by the Court itself: Commonwealth Bank of Australia v Jackson McDonald (a firm) [2014] WASC 301 (at [24] per Martin CJ); McKenzie v Cash Converters International Ltd (No 3) [2019] FCA 10 (at [28]–[29] per Lee J)

As Professor Young notes in his article “The Evolution of Bias: Spectrums, Species and the Weary Lay Observer” (2017) 41 Melbourne University Law Review 928 (at 929):

We may be nearing (or perhaps returning to) the point of admission that in many circumstances the ‘lay observer’ test, despite the deliberate terminology, is in truth the law’s own sophisticated assessment of what the system can bear.

It is not in dispute that the fair-minded observer in this case knows all the circumstances of the case and is neither complacent, nor suspicious but, like with apprehended bias, the hypothetical observer must also be attributed with a knowledge and understanding of the culture and norms regulating the legal profession and what the administration of justice requires in the circumstances of the case. In this regard, the construct required to be applied is open to the criticism of attributing to the fair-minded observer a detailed knowledge of the workings of the legal profession an outsider may not have: for a discussion of these matters see Australian Law Reform Commission, Judicial Impartiality: The Fair-Minded Observer and its Critics (Background Paper J17, April 2021).

In any event, the law is to be applied as stated in the authorities and I am required to examine the matter through the lens of the hypothetical referee armed with the necessary knowledge to make a reasonable assessment.

C.3       A Discretionary Decision?

I was taken to two decisions suggesting that the “inherent” jurisdiction to retain a solicitor from acting is “discretionary”. In reliance on what was said by Brereton J in Kallinicos v Hunt [2005] NSWSC 1181; (2005) 64 NSWLR 561 (at 586 [92]), Lyons J in Dugan Process Holdings Pty Ltd [2021] VSC 555 (at [63]) said:

Further, the Court’s inherent jurisdiction to restrain a solicitor from acting is discretionary.  In exercising that discretion, the Court must take into account the prima facie right of a party to be represented by the lawyer of his or her choice, the inconvenience, cost and disruption which might be caused in requiring a party to change lawyers, and the exceptional nature of the Court’s jurisdiction.

Although it is unnecessary to decide for present purposes, I confess that I have some misgivings as to whether this characterisation of the nature of the decision required is correct. The exercise of a judicial discretion generally allows a judge to make a choice between lawful, but different courses of action and the concept necessarily implies choice: R&B Investments Pty Ltd (Trustee) v Blue Sky (Reserved Question) [2024] FCAFC 89 (at [3] per Murphy, Beach, Lee JJ).  

The process upon which I am presently engaged seems to me better characterised as an evaluative normative assessment, albeit conducted by reference to the hypothetical construct of the reasonable observer. If I am satisfied based on the evidence that a fair-minded, reasonably informed member of the public would conclude that the proper administration of justice requires a solicitor be prevented from acting to protect the integrity of the judicial process, it does not seem to me that there is any discretion then involved as to whether relief should follow. If the Court is satisfied that the step is required, then the only option is to make an order providing the solicitor not act. Hence, any review of the decision whether to grant such an order would be subject to review by reference to the correctness standard. The analogy to the nature of a determination as to the actual or apprehended bias of a judicial officer is far from perfect but illustrates the point: the disqualification is required to ensure justice is done or is seen to be done.

The expressions in the cases that the power to restrain is an exceptional one and should be exercised cautiously are, it seems to me, not admonitions as to how the discretion must or should be exercised, but rather reflect that such an application is a serious matter and the reasons advanced in support of it need scrutiny given that if an order is to be made one is required to reach the level of satisfaction the hypothetical referee would conclude that the proper administration of justice requires that a representative be prevented from acting in the interests of the protection of the integrity of the judicial process and the appearance of justice.

For reasons that will become evident, it is unnecessary to express a concluded view in relation to this issue.”

The relevant conflicts of interest in this case were categorised by Lee J into two distinct aspects which originated from the publication of the media release:

1. A conflict arising from the possibility that defamation proceedings would be commenced by parties other than Super Retail Group against Ms Farrell, Ms Berczelly, and/or Mr Harmer (and the solicitors’ interests in avoiding any such direct liability of Mr Harmer as a publisher, or a liability of Harmers to their clients in contribution or indemnity); and
2. A conflict arising from the authorisation of the media statement (relied upon as repudiatory conduct) which would have real significance in the employment case as it was the basis upon which Super Retail Group terminated the employment of Ms Farrell and Ms Berczelly (when an alleged failure to advise may expose the solicitors to a claim in negligence).

In other words, the conflicts of interest were created by the fact of civil liability of Harmers as the publisher of defamatory material (i.e. the media release), the failure of Harmers to advise Ms Farrell and Ms Berczelly that the media release was not a protected “emergency disclosure” and the failure of Harmers to advise that the authorisation to publish that media release could be characterised as repudiatory conduct.

During the application, Ms Farrell and Ms Berczelly sought to retain Harmers as their solicitors, for reasons including trust and confidence.  

Lee J applied the relevant factors at [115] to [123]:

“E.6      The Six Factors

Turning back to the six factors which were identified in the submissions as being of particular importance (at [55]), it is worth making the following comments.

I           Weight of Being Deprived of Choice of Legal Representation

This is a factor the importance of which should not be diminished. This is hard-fought and, regrettably, somewhat acrimonious litigation. It would be a far from insignificant thing, on the evidence before me, to deprive the applicants from retaining the solicitors of their choice, particularly given the high personal stakes in this litigation. As Pagone J has noted (see above (at [45])), the SRG Parties are not seeking to exercise their rights but rather moving the Court to exercise its power over its own officers but doing so against the wishes of its opponents in adversarial proceedings and where a successful application would cause inconvenience to Ms Farrell and Ms Berczelly and confer a forensic advantage on the SRG Parties. Although it is not suggested the application is being made to seek a collateral advantage, I would not grant relief unless I had a belief it was required in the administration of justice.

Although I have some hesitation in being reasonably satisfied of some of the extraordinary consequences that Ms Farrell and Ms Berczelly allege would flow in the event that the injunction was granted, I am fully cognisant of the extent of the desire of Ms Farrell and Ms Berczelly to continue to retain Harmers following receipt of independent advice.   

II          Timing of the Application

I accept the submission of the SRG Parties that the application was both foreshadowed and made at the earliest available opportunity and that although there would be not insignificant cost, inconvenience and impracticality of requiring lawyers to cease to act in circumstances where the Settlement Case is listed for hearing in the second week of December this year, there has been no relevant tardiness on behalf of the SRG Parties. 

III         The Possibility of a Claim for Contribution

I have dealt with this factor above. There is a non-fanciful possibility of a claim for contribution, and although this points to the existence of a pecuniary and representational interest in the litigation over and above obtaining legal fees, this factor must be judged in the context of all the circumstances.

IV         The Provision of Independent Advice

As I have noted above, whatever shortcomings previously existed as to a want of independent advice (following the refusal of Ms Farrell and Ms Berczelly to heed the advice to obtain independent advice), it has now been obtained, albeit belatedly. At the risk of repetition, an independent reasonable observer would take comfort in the fact that the administration of justice will take in place in a context where, after having been being fully informed of their rights by an experienced silk, Ms Farrell and Ms Berczelly very much wish Harmers to act. The reasonable observer should also be taken to be aware of the unusual level of sophistication, legal knowledge and understanding of conflicts of Ms Farrell and Ms Berczelly. I accept that independent advice will not always “cure” public concern for the proper administration of justice, but, again, its existence is a matter to be assessed contextually.

V          The Content of Applicable Professional Conduct Rules

Although, as I have noted earlier (at [58]), this factor was not developed by the SRG Parties in their submissions, there is nothing in the material before me which would demonstrate that there would be a firm foundation for reaching a conclusion that the media statement constituted public comment which prejudiced a fair trial or was necessarily prejudicial to the administration of justice (and, I repeat, I am not urged to make such a finding). Although it is undesirable that a solicitor give material evidence in proceedings when the firm acts (and indeed is a submitting party), that does not amount, in and of itself, to a breach of any conduct rule. 

VI         Lack of Independence

I have already dealt with the existence of conflicts. One thing that has concerned me is the occasions (both in correspondence and also in pleading) where Harmers has not accepted the fact that conflicts have arisen, rather than taking the more appropriate course of recognising the existence of conflicts and only then going on to assert their clients have given fully informed consent.  

I am satisfied, however, following my exchanges with senior counsel that there is, at least now, a recognition of the existence of non-fanciful conflicts. This is of comfort and I consider a reasonable observer would conclude the lawyers can act with appropriate independence in circumstances where the clients are fully aware of the nature of the conflicts that have arisen (such as they are), and now after having taken proper advice, are not only are prepared to have Harmers act, but are insistent that this is the course they believe ought to occur.”

For the reasons above, Lee J dismissed the application.

The link to the case is here.