Faxiang Yang v China United (SI) Corporation Ltd [2018] SBHC 31; HCSI-CC 494 of 2017 (9 March 2018)

FAXIANG YANG -V- CHINA UNITED (SI)
(Claimant) CORPORATION LTD
(Defendant)

HIGH COURT OF SOLOMON ISLANDS
(BROWN J)
Civil Case No.494 of 2017

Date of Hearing: 23 February 2018
Date of Judgment: 9 March 2018

W. K. Ghemu for claimant
C. Johnstone instructed by D. Marahare for defendant

Application to restrain solicitor from acting for a party to proceedings and to secure costs of proceedings.

Brown J:
In this case Mr. Johnston instructed by Mr. Marahare appears for the defendant. There are two claims before the court, the first seeks to restrain Mr. Gabriel Suri, counsel for the claimant and his firm from acting in these proceedings for the claimant and the second is to secure costs of the defendant.

It may appear from the fact that Mr. Ghemu of counsel has today appeared for the claimant that the first application is no longer necessary. Mr. Johnston however presses the application for in the absence of an order in the defendants favour he argues the previous lawyer, Mr. Gabriel Suri may step back “into the breach” were Mr. Ghemu to withdraw his representation. Mr. Ghemu would appear to concede that he has no proper instructions at this juncture in relation to these applications for he has only now been engaged although he does seek time to obtain proper instructions. I propose to deal with the two claims for they have been specifically listed for trial today having been filed quite some time ago; as a tactic the late withdrawal may not be held to the account of the defendant.

Mr. Johnston has, by written outline provided a succinct basis for both his client’s claims and has engaged with the court to elucidate the defendant’s arguments. I propose to utilize his submissions.

The restraint application is made pursuant to Rule 7.3 of the Civil Procedure Rules and Rule 11 (8) of the Legal Practitioners (Professional Conduct) Rules 1995 to restrain the partners and directors of Suri’s Law Practice (the firm) from continuing to act for the claimant, Faxiang Yang in these proceedings. The underlying reason is that Mr. Suri should be restrained from acting in a case against a former client. The defendant, CUSI had been party in earlier civil proceedings in this court, proceedings over a Chinese law contract entered into between the current director of CUSI, Mr. Zhou and one of the former directors, Mr. Shiyao Guo. As the result of subsequent proceedings before the Court of Appeal, the first claim in time was struck out while the second claim, cc. 322 of 2012, proceeded to trial before Commissioner Mildren. In that case, Mr. Zhou and an Australian company he controlled, Austree Enterprise Pty Ltd [Austree] as plaintiffs sought certain declaratory relief and orders that the contract between Mr. Zhou and Mr. Guo be specifically performed such that the register of CUSI be rectified to reflect the fact that Austree was the registered owner of 90% of the issued shares in CUSI.

The plaintiffs were wholly successful and on 11 July 2017 orders were made by Commissioner Meldren reflecting that success. Mr. Marahare deposes to the fact that Mr. Suri and his firm acted for CUSI in both proceedings from the commencement. A brief history of the convoluted proceedings is set out in Mr. Marahare’s statement.^[1] To quote again from Mr. Johnston’s submissions, the history of the proceedings included abandoned trial dates, multiple appeals and an application for stay of a decision not to accede to a request from CUSI not to adjourn the trial on the first day of the hearing on 28 March 2017 following which, counsel for each of the defendants, including Mr. Suri sought leave to withdraw. All but Mr. Suri were permitted to withdraw although he and his firm were required to remain on the record for the purposes of service. Mr. Suri later acted for all of the defendants in these proceedings for the purposes of address and submissions as to costs. He also acted for all of the defendants in their capacity as appellants in appeals held in the course of the trial of the proceedings. He and his firm continue to act for these parties in the appeal from the decision from Commissioner Mildren which appeal is set down for hearing in April 2018.
The court may presume, Mr. Suri continues to be on record for CUSI in those appeals.

Mr. Johnston goes on to say for present purposes it is important to observe that Mr. Shiyao Guo who was the first defendant in the cc. 322 of 2012 proceeding and Mr. Junbin Guo, who was the fourth defendant in that proceeding, and for both of whom Mr. Suri continues to act in the appeal, are persons who Mr. Yang claims, signed the contract the subject of his claim-Mr. Shiyao Guo purportedly signing on behalf of CUSI and his son Mr. Junbin Guo being named as one of the “contractors”.^[2]

Mr. Marahare and Mr. Coates also swear^[3] to the fact that neither Mr. Suri nor the law firm in Australia from whom he received his instructions, being KH Legal, have complied with requests from Mr. Marahare to Mr. Suri or from Mr. Coates law firm to KH Legal to deliver to CUSI their files relating to CUSI. Relevantly in the case of Mr. Suri, he has not responded to the request of Mr. Marahare even to acknowledge receipt of the request for the files. As Mr. Coates explains, other than a copy of the contract (in Chinese script ) the subject of the claim, the records of CUS delivered up to the new directors of CUS do not contain any board minute approving the execution of that document or any other documents relating to the purported contract, or explaining its purpose. No document recording the performance of any service by Mr. Yang was included in the record delivered up. In Mr. Marahare’s statement of 20 February 2018 an exhibited statement of Mr. Zhou, the current director of CUSI stated to the effect that Mr. Zhou is very concerned that Mr. Suri is now acting for Mr. Yang against CUSI. Mr. Zhou explains that he still does not have the full company records and documents of CUSI and that Mr. Suri may have, or may have had, access to documents of CUSI which Mr. Zhou has not. Mr. Zhou’s concern is exacerbated by the apparent association between Mr. Yang and Mr. Junbin Guo. The association is deposed to by Mr. Marahare.
As a consequence Mr. Johnston argues this is a case where the obligations of Mr. Suri and his firm to CUSI as the former client are clearly in conflict with his obligations to Mr. Yang. Mr. Suri’s “switching of sides” appears to be subversive, he is acting in complete disregard of his duty of loyalty to CUSI. The original proceedings were lengthy, complex, hard fought, and expensive. It is continuing. As a matter of policy and in the interests of justice, Mr. Suri and his firm should be restrained from continuing to act.

As a consequence of the relationship shown by the foregoing, Mr. Johnston argues that this court has jurisdiction to restrain a solicitor from acting against a former client if the solicitor possesses confidential information of that former client.^[4] He goes on to argue that a solicitor ought to be restrained from acting against a former client if there is a risk that the solicitor will disclose the information to the new client or if there is a risk that the solicitor will use the confidential information against the former client.^[5] Similarly it is not a consideration whether the legal practitioner in fact recalls the confidential information that was imparted in the course of the previous retainer.^[6] Importantly, the confidential information may include information concerning the strategy for running the case, the way in which the former client understands the case, or the evidence in the case.^[7] It is not necessary to show a substantial risk of misuse or disclosure of confidential information. The risk must be real, as opposed to fanciful or theoretical.^[8]

On the material relied upon by the applicant, I am satisfied since Mr. Suri had been conversant with CUSI’s long running case as its solicitor and in-country legal representative agent, and in the absence of any evidence whatsoever to suggest distance from knowledge of the matter going to issue in the case before me, there is a real risk of misuse or disclosure of confidential information gleaned by him whilst he was engaged by CUSI. Whilst the earlier English Court of Appeal decision of Rakusen v Ellis Munday and Clarke as expressed by Couzens-Hardy, MR was that the court “must be satisfied that real mischief and real prejudice will in all human probability result if the solicitor is allowed to act”, the test now to be applied may be said to be that stated by Hayne J in Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties^[9];
“Although it is necessary to be acutely conscious of the fact that the court is asked to interfere with the right of a litigant to be represented by the solicitor of the litigants choice, it is not necessary to conclude that harm is inevitable (or well-nigh inevitable) before acting to restrain a possible breach of the duty that a solicitor owes to clients and former clients to keep confidential information given to the solicitor in confidence and not use that information against the interests of the client who gave it to the solicitor. For present purposes I do not need to consider whether anything turns on the difference in expression of the test is given by Parker, LJ and Ipp, J. It is enough to say that I consider that injunctions should go if there is a real and sensible possibility of the misuse of confidential information.”

This expression of principle was adopted by Gillard J in Yunghanns and Ors v LFIC Ltd (formally known as Elders Finance and Investment Co Ltd)^[10] who accepted the earlier test in Rakusen had been changed by a later English Court of Appeal decision of In A firm of solicitors ^[11] where the Appeal Court held the test to be, “whether a reasonable man informed of the facts might reasonably anticipate such a danger” of a breach of the duty not to communicate confidential information.

Our Court of Appeal, in Cheung v Tanda^[12] accepted English decisions made after 7 July 1978 will be binding on this court if they are merely declaratory of what the law was before that date. By schedule 3 to the Constitution;
“2-(1) Subject to this paragraph, the principles and rules of the common law and equity shall have effect as part of the law of Solomon Islands, save in so far as:-[b] they are inapplicable to or inappropriate in the circumstances of Solomon Islands from time to time; or”

I accept that Rule 11 of the Conduct Rules effectively takes this claim outside the earlier test propounded by Rakusen.
“Rule 11(8) Where- [a] a legal practitioner has represented a client; or
[b] because of a legal practitioners Association with a law firm he has had access to a client’s confidences, that legal practitioner shall not thereafter use such information against his client’s interest or for the benefit of any other person.”
As the applicant says, this rule reflects the current position at common law. The principle in Rakusen may accordingly be said to have been varied after 7 July 1978 and is now more appropriately stated in the Court of Appeal decision, In a firm of solicitors, above and that expressed test by Hayne J.
For by referencing various Australian authorities Mr. Johnstone has shown the reasoning underlying the present principle;
“In Mintel International Gp v Mintel (Australia) Pty Ltd^[13], Heery J endorsed the approach of Gillard J and the authorities cited in Yunghanns as follows:
[40] Gillard J referred to a number of authorities. In D and J constructions Pty Ltd v Head (1987) 9 NSWLR 118 at 123, Bryson J noted, inter alia, that
..the spectacle or the appearance that a lawyer can readily change sides is very subversive of the appearance that justice is being done. The appearance which matters is the appearance presented to a reasonable observer who knows and is prepared to understand the facts.
[41] In McVeigh v Linen House Pty Ltd ([1999] VSCA 138; 1999) 3 VR 394 at 398, Batt JA said:
Authority is established that a court will restrain a solicitor from acting for a litigant not only in order to prevent disclosure of confidences of a client or former client, but also to ensure that the solicitors duty of loyalty to the former client is respected, notwithstanding termination of the retainer, and to uphold as a matter of public policy the special relationship of solicitor and client.
[42] In Wan v McDonald [1992] FCA 4; (1992) 33 FCR 491 at 512-13; [1992] FCA 4; 105 ALR 473 at 494, Burchett J said:
The emphasis in the judgment was placed on the solicitor’s duty to safeguard confidential information of his client. But there are at least two other aspects of the problem to which attention has more recently been drawn: a solicitors duty of loyalty, which cannot be treated as extinguished by the mere termination of the period of this retainer, and the important consideration of public policy which gives a special quality to the relationship of solicitor and client that the law will not generally prevent to be stained by the appearance of disloyalty...”

So it has been said, when addressing limits and qualification of “principles”;
“Such limitation of principles previously announced and such express disapproval of dicta are often necessary. It is an unavoidable incident of the search by courts of last resort for the true rule. The process of inclusion and exclusion, so often applied in developing a rule, cannot end with its first enunciation. The rule as announced must be deemed tentative. For the many and varied facts to which it will be applied cannot be foreseen. Modification implies growth. It is the life of the law.”^[14]
For these reasons the application of the earlier expressed principle in Rakusen’s case in the Solomon Islands is no longer relevant.

I accept Mr. Johnstone’s submission where he said, in a fused profession such as Solomon Islands there is no material difference between the authorities as they apply to solicitors and as they apply to legal practitioners. Further, in the present proceeding, Mr. Suri has usually acted in the role of solicitor instructing a variety of counsel from Australia.
Whilst Mr. Suri no longer acts in this case, (although no leave has been sought of this court to withdraw) and in the absence of his appearance or explanation for his non-responsive approach to the correspondence sent to him by the applicant’s solicitors, I am wholly satisfied the applicant has made out his case for the restraining order to prevent Mr. Suri or his firm from acting for Faxiang Yang in these proceedings now or in the future.
Security for Costs.
The Civil Procedure Rules by Rule 24.52 provides for Security of Costs in a proceeding only if (relevantly);
[b] the claimant’s address is not stated in the claim, or is not stated correctly, unless there is reason to believe this was done without intention to deceive; or
[e] the claimant is ordinarily resident outside Solomon Islands; or
[f] the claimant is about to depart Solomon Islands and there is reason to believe the claimant as insufficient fixed property in Solomon Islands available for enforcement to pay the defendants costs if ordered to be paid them; or
[g] the justice of the case requires the making of the order.

Rule 24.53 provides that where one or more of the elements, above, are present the factors which a court need consider in determining whether to exercise its discretion to grant the application, are set out. These factors have been detailed in the applicants written submissions and importantly touch on factors going to the lawfulness or otherwise of the claimants’ entitlement to remain in the Solomon Islands as a non-resident. He has exhibited a work permit valid until 25^th of October 2018 which names the employer as CUSI. By his sworn statement of 18 October 2017, Mr. Yang says he is a citizen of the People’s Republic of China and that he resides there and that he was “chased out” by his employer, CUSI some time prior to 6 October 2017. In those circumstances he may be presumed to have no lawful right to work in the Solomon Islands and consequently is at risk of being determined an “unlawful non-resident” by the Immigration authorities.

Mr. Marahare on behalf of CUSI wrote to Mr. Suri on 19 December 2017 and said that it appeared Mr. Yang has no significant assets in Solomon Islands and sought an indication as to whether Mr. Yang would consent to providing security for costs on that basis. Mr. Suri did not respond.
The applicant says in the circumstances factors in Rule 24.52 [b], [e], & [g] are satisfied.

Those factors are;
[a] the prospects of success of the proceedings;
[b] Whether the proceeding is genuine;
[c] whether the claimants lack of means is because of the defendant’s conduct;
[d] whether the order would be oppressive or stifle the proceeding;
[e] whether the proceeding involves a matter of public importance;
[f] whether the claimants delay in starting the proceeding has prejudiced the defendant;
[g] the likely costs of the proceeding.

Mr. Johnston concedes that no real assessment can be made of the prospects of the claimant’s success in the proceedings since the contract is governed by Chinese law and therefore it is not clear whether, as a matter of Chinese law such a contract is enforceable similarly the genuineness of the proceeding is difficult to assess. Mr. Yang has not led any evidence that he is impecunious or that an order for security would stifle the proceeding. The proceeding does not involve a matter of public importance and delay is not alleged by CUSI. The costs of the proceedings are likely to be significant and Mr. Marahare has by his fourth sworn statement given a conservative estimate that the tax costs of these proceedings are likely to exceed $150,000. Reasons going to support the estimation allow me assurance that these costs are a fair estimation.

Mr. Johnston’s supposition that there is a very real risk should an adverse costs order be made against Mr. Yang at the conclusion of these proceedings the amount of the costs will exceed $150,000 and the defendant will be left with no avenue to recover those costs against Mr. Yang is made out on the evidence or rather the absence of evidence by Mr. Yang in answer to the claim.

In its discretion the court orders security for costs in the sum of $150,000 to be paid into court within 14 days by the claimant. These proceedings shall be stayed pending compliance with this order. The applicant shall have its costs of these proceedings to date on the third schedule basis to be assessed or taxed and paid within 21 days of such assessment or taxation. I certify for overseas counsel.

__________________
BROWN J

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^[1] Sworn statement of Marahare dated 17 January 2018.
^[2] sworn statement of Marahare dated 17 January 2018
^[3] sworn statement of Marahare dated 22 February 2018; sworn statement of Mr. Coates dated 21 February 2018
^[4] Rukesen v Ellis; Munday & Clarke [1912] UKLawRpCh 47; [1912] 1 Ch 831 at 835 (Cozens-Hardy MR); at 840 (Fletcher-Moulton LJ); at 842 (Buckley LJ); Ismail-Zai v Western Australia [2007] WASCA 150; (2009) 34 WAR 379 at [19].-
^[5] Prince Jefri Bolkiah v KPMG (a firm) [1998] UKHL 52; [1999] 2 AC 222 (Lord Millett at 235-236)
^[6] Ismail-Zai v Western-Australia [2007] WASCA 150; (2007) 34 WAR 379 at [27]
^[7] Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd [1995] 1 VR 1
^[8] PDP Group Pty Ltd & Anor v Bennett & Philip [2013] QSC 231 at [49]
^[9] [2000] FCA 1410 at 39
^[10] (unreported SC(Vic), 3 July 1998, BC9803031
^[11] (1992) QB 959
^[12] (1984) SILR 108
^[13] (2000) FCA 1410 at [39]
^[14] State of Washington v W.C. Dawson & Co., 264 U.S.219 at 236 (1924) per Brandeis J., dissenting