Miro Property Holdings Limited v Fletcher Construction Company HC Wellington CIV-2010-485-2540 [2011] NZHC 401 (5 April 2011)

Last Updated: 16 June 2011

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

_{CIV-2010-485-2540}

BETWEEN MIRO PROPERTY HOLDINGS LIMITED Plaintiff

AND THE FLETCHER CONSTRUCTION COMPANY

First Defendant

AND THE BUILDING INTELLIGENCE GROUP LIMITED

Second Defendant

AND HENRIETTE RISSEEUW Third Defendant

Hearing: By Telephone Conference on 29 March 2011

Counsel: J.C. La Hatte and R. Palu - Counsel for Plaintiff

J.R.J. Knight - Counsel for First Defendant

S. Galloway - Counsel for Second Defendant

Judgment: 5 April 2011 at 3:00 PM

_{JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL}

This judgment was delivered by Associate Judge Gendall on 5 April 2011 at 3.00 pm under r 11.5 of the High Court Rules.

Solicitors: Mike Garnham, Solicitors, PO Box 10240, Wellington Simpson Grierson, Solicitors, Private Bag, Auckland Hazeltown Law, Solicitors, PO Box 5639, Wellington

MIRO PROPERTY HOLDINGS LIMITED V THE FLETCHER CONSTRUCTION COMPANY HC WN CIV-

2010-485-2540 5 April 2011

Introduction

[1] This is an application by the plaintiff, a property development company, for the leave of the Court to allow Ms Palu and Mr LaHatte solicitor and counsel for the plaintiff respectively to continue acting for the plaintiff in this proceeding. The application arises from r 13.5 of the Lawyers and Conveyancers Act (Lawyers Conduct and Client Care ) Rules 2008. Mr Mike Garnham with his wife the sole directors of the plaintiff and trustees of a trust that holds shares in the plaintiff, is the principal of a legal firm that employs Ms Palu and Mr LaHatte. Mr Garnham will be giving contentious evidence in these proceedings. The present leave application is opposed by the first defendant and the second defendant.

Factual Background

[2] This application relates to proceedings which form part of an ongoing series of litigation between Miro Property Holdings Limited (the plaintiff), and various parties including the three defendants in this proceeding. Although the present proceedings were begun only in December 2010, they relate to various disputes concerning largely the same factual background which have been continuing since

2006.

[3] The shares in the plaintiff company are owned by two family trusts. Mr Garnham is a trustee of one of those trusts. As I have also noted, Mr Garnham and his wife are the only directors of the plaintiff. Mr Garnham was directly involved in the property development project that forms the factual basis for these proceedings. He is to give evidence in the proceedings, and it is conceded that the evidence he will give is contentious. The plaintiff is represented in these proceedings by Ms Palu as solicitor and Mr LaHatte as counsel. They are both employed by the firm known as “Mike Garnham Lawyers” or alternatively “Garnham Law”, the sole principal of which is Mr Garnham.

[4] The new Conduct and Client Care Rules came into force in 1 August 2008. The Rules provided, under the heading “Independence in litigation”:[1]

13.5 A lawyer engaged in litigation for a client must maintain his or her independence at all times.

13.5.1 A lawyer must not act in a proceeding if the lawyer may be required to give evidence of a contentious nature (whether in person or by affidavit) in the matter.

13.5.2 If, after a lawyer has commenced acting in a proceeding, it becomes apparent that the lawyer or a member of the lawyer's practice is to give evidence of a contentious nature, the lawyer must immediately inform the court and, unless the court directs otherwise, cease acting.

[5] The rule relied upon in this case is 13.5.2. As noted above, this provides that if, once a lawyer begins acting in a proceeding, it becomes apparent that they or another member of their firm are to give contentious evidence in the proceeding, then they must immediately advise the court and cease to act unless the court directs otherwise. The new rule is more restrictive than the approach taken under the previous rules, as now the prima facie position is that in the case of conflict a lawyer cannot act, whereas under the previous approach the lawyer was given discretion to decide whether to act or not.

[6] Rule 13.5.2 has been considered in several cases since the new Rules came into force. I first considered the issue in Pioneer Insurance Company Ltd v Anderson.[2] In that case, the proceedings had begun under the old Rules, but ten months into the litigation, the new Rules came into force. Counsel acting for the plaintiff was a member of the firm of solicitors known as Stace Hammond. Another member of that firm, Ms Toy-Cronin was to give evidence in the proceeding as to the content of discussions that she had with the defendant. The content of those

_{discussions was contentious.}

[7] In that proceeding at [24], I described the purpose of r 13.5.2 as:

The intent of the new r 13.5.2 might well be seen as addressing the risk and/or perception of a loss of independence on the part of counsel, and consequential damage to the reputation and operation of the judicial process, rather than the risk of more direct prejudice to other parties to the proceeding.

[8] The issue was next considered in Greenmount Manufacturing Ltd v Southbourne Investments Ltd.[3] There, Justice Harrison commented at [16] and [19] that:

[16] In summary, I respectfully agree with Associate Judge Doogue that the policy underlying the Rules is founded on the recognition that a lawyer places himself or herself in a position of conflict where he or she acts concurrently in the role of solicitor for a party and as a witness for the client in the same proceeding: at para 29. The conflict is obvious and fundamental, and must always be resolved in favour of the obligations which the witness assumes to the Court. The solicitor’s instruction of independent counsel does not mitigate this conflict.

and [19] I would add that as a general rule it is inappropriate for a lawyer to act as solicitor on the record wherever he or she is likely to be required to give evidence in the same proceeding, irrespective of whether or not that evidence is to be “of a contentious nature”. The very existence of duality of roles gives the appearance of undermining the cardinal importance of a solicitor’s independence.

[9] This would tend to indicate that in applying the rule, it is important to keep in mind the general requirement for independence, of which r 13.5.2 is a particular example. Furthermore, the extracts from both cases noted above show that independence itself is the quality that is sought to be protected, rather than the avoidance of any specific prejudice in the particular proceedings.

[10] In Greenmount, however, the application to continue to act was granted, on the basis that the scope of contention in the evidence of counsel was minimal, the trial was just about to start and counsel had been acting for the defendant for a

_{number of years.}

[11] Before me, counsel for the plaintiff emphasised that the overriding duty of Ms Palu and Mr LaHatte, as officers of the court, is to the court. He submitted that that duty would not be compromised in the present circumstances. Therefore, he suggested independence will not be lost simply because Mr Garnham is to give contentious evidence, and no real loss of independence has been shown here. Furthermore, counsel contended the plaintiff will suffer prejudice if it is required to appoint different counsel, while the defendants will suffer no prejudice if counsel is allowed to continue to act. Finally, counsel for the plaintiff drew attention to my decision in Strachan v Denbigh Property Limited (High Court, Palmerston North,

30/11/2010, Associate Judge D.I. Gendall) where consent was granted to a solicitor, Mr RA Moodie to continue acting for the Moodie Family Trust as a shareholder in the defendant and interested party, notwithstanding he was to give evidence in the proceeding itself. In that case, however, I found that Mr Moodie was effectively acting for himself as a self-represented litigant and the prohibition in r 13.5.1 did not apply. That Mr Moodie was technically also acting for his wife as a joint trustee of the Moodie Family Trust made little difference as their interests as trustees were effectively the same. The Strachan decision, in my view, would not therefore assist the plaintiff’s position which is quite different here.

[12] Counsel for the first defendant before me made detailed submission on this application, and the second defendant generally supported those submissions. The third defendant did not appear. The first defendant contends that this case involves a clear breach of r 13.5.2. It submits that Mr Garnham will give “extensive evidence on the substantive issues, and that such evidence will also be highly contentious.” That does not seem to be disputed by the plaintiff. Furthermore, Mr Garnham has a personal interest in the outcome of the litigation, as a shareholder (as trustee and beneficiary) and director of the plaintiff. As the rule on its face has been breached, there must be special circumstances justifying an order that counsel may continue to act, and counsel argued that no such factors have been established here.

[13] As to prejudice to the plaintiff, the first defendant notes that this conflict issue

was brought to the plaintiff’s attention when Mr Garnham’s first piece of contentious

evidence was received by the first defendant, only three months into these proceedings. With respect to the background proceedings, the first defendant submits that the only other proceedings of relevance were in 2007, and that the plaintiff instructed independent counsel on those issues. It argues that other background preparation cannot be relevant here.

Discussion

[14] Here, in my view, the requirements of r 13.5.2 are met. Mr Garnham is a member and principal of the same firm which employs Ms Palu and Mr LaHatte, and he is giving evidence in this proceeding that it is conceded will be contentious. In comparison with Greenmount, it does not seem that the evidence in question here can be classified as minimal, and nor can the extent of the dispute over that evidence be seen as minor. Rather, Mr Garnham’s evidence is as a property developer/ business person who was primarily involved in the development project in question, rather than merely evidence of a solicitor of some matter that occurred during his acting as such.

[15] As to the issue of a potential conflict of interest, it seems to me that the conflict here is greater in extent than that in either of the two cases cited at [6] and [8] above. Here, there is not simply a conflict between Mr Garnham’s role as witness and the roles of Ms Palu and Mr LaHatte as solicitor and counsel. There is the additional factor of the employment relationship between Mr Garnham on the one hand and Ms Palu and Mr La Hatte on the other. Mr Garnham is their employer, and there is a legal relationship between them that brings certain duties with it. Those duties, which are fiduciary in nature, necessarily impact upon Ms Palu and Mr LaHatte’s ability to remain independent in their conduct of this litigation before the court. That conflict, which as I see it, goes somewhat beyond the terms of r 13.5.2, engages the general principle that counsel must maintain independence in litigation.

[16] Furthermore, it is not simply actual independence which is of concern here, but also the appearance of independence. The importance of that aspect is noted at [7] and [8] above. And, it is an issue concerned with maintaining the integrity of the legal profession, rather than being concerned particularly with specific prejudice in

the proceedings in question. In that respect, while in a less clear case, the fact that no particular prejudice to the defendants can be pointed to might weigh in favour of granting an application to continue acting, in a case such as the present where there is a clear conflict of duties, in my view, it cannot carry much weight.

[17] As to prejudice to the plaintiff in having to engage other counsel, I consider the first defendant’s submission in this respect to carry some weight. To a certain extent any prejudice must have been foreseeable when these proceedings were instituted in December 2010, as it would have been clear to the plaintiff’s counsel at that point that Mr Garnham was intimately involved in the business and development decision-making aspects of this case and he would need to give evidence of a contentious nature. While there is ongoing background between the parties, the knowledge of that background resides as much in Mr Garnham as in present counsel. The actual proceedings have only been on foot for a little over three months, and actions taken prior to that by the plaintiff cannot affect this determination. Any prejudice here, as I see it, is essentially the same as would be incurred by any party to litigation who needed to change counsel by virtue of the professional conduct rules. No special circumstances have been shown.

[18] In my view, what has occurred in the present case is not a technical breach of the rule. The evidence to be given is contested, and is being given by someone who is at the heart of the case. That person is also the sole principal of the firm which employs the two lawyers who are acting for the plaintiff. The independence of counsel is clearly impaired, and they are put in a position of conflicting personal and professional obligations. In that situation, it would not be appropriate to grant them leave to continue to act.

[19] Accordingly, the present application for leave is refused.

[20] Costs are reserved. If they are in issue and counsel cannot agree, they may file memoranda on costs (sequentially) and, in the absence of either party indicating they wish to be heard on the question. I will decide costs based upon the material before the Court.

‘Associate Judge D.I. Gendall’

---

[1] _{Lawyers and Conveyancers Act (Layers Conduct and Client Care) Rules 2008 r 13.}
[2] Pioneer Insurance Company Ltd v Anderson HC Napier CIV 2007-441-882, 22 October 2008.

[3] Greenmount Manufacturing Ltd v Southbourne Investments Ltd HC Auckland CIV 2005-404-6675,

20 November 2008.