Linfen Ltd and Ors -v- Rocca and Ors High CourtJudgment was delivered on March 3rd, 2009, by Mr Justice John MacMenamin.
Judgment
In a dispute between Linfen Ltd and the Rocca tile companies, the plaintiffs were granted discovery of documents in the possession of Arthur Cox solicitors, who had acted for both sides in the transaction and against whom allegations that they had acted negligently and in breach of contract were made.
Background
The proceedings arose out of the sale of two companies, Rocca Tiles Ltd and Tilebusters Ltd in May 2000 to Linfen.
The plaintiffs made a number of claims of breaches of warranty, misrepresentation and deceit against the vendor companies.
These allegations were not examined during these proceedings, which were only concerned with claims against Arthur Cox solicitors.
The firm had acted for both sides, with one partner in the firm, Michael Meghen, acting on behalf of the purchasers and another, Rory Williams, acting for the vendors.
“It is said that this arrangement allowed for a ‘Chinese wall’ between the solicitors who were acting for the parties to the sale,” Mr Justice MacMenamin said.
The purchasers claimed that the solicitors had acted in breach of contract and negligently in the transaction.
They claimed that a conflict of interest arose in that Mr Williams, who acted for the vendors, was aware of a dispute between the Rocca companies and their largest trade debtor, Patrick O’Connor, prior to the completion of the sale and that this dispute was not disclosed to the purchasers.
Arthur Cox responded that the solicitors for the parties to the sale performed their obligations to their respective clients in a manner entirely consistent with the professional and fiduciary duties.
In pursuing their claim, the purchasers sought discovery of 12 categories of documents concerning the relationship between Arthur Cox and both sets of clients, internal communications within the firm and communications with financial consultants and a bank.
The firm provided its full file to the plaintiffs, but additional discovery was sought.
The master of the High Court ordered the discovery of four categories of documents, relating to internal memorandums between Mr Meghen and Mr Williams, correspondence between Mr Meghen and the National Irish Bank, correspondence with the financial consultants and any document upon which Coxes would rely concerning its alleged failure to check the performance of the Rocca companies.
Both the bank and the financial consultants were said to hold information on the companies before the sale.
The plaintiffs appealed the master’s discovery orders on the grounds that they were too narrow and sought their extension.
They specifically sought internal communications within Arthur Cox and information on the dispute between the Rocca companies and Mr O’Connor.
Decision
Referring to internal communications, Mr Justice MacMenamin said there was evidence there was significant contact between the plaintiffs, the defendants and Arthur Cox before any formal engagement for the purposes of the contract negotiations.
“It is not sufficiently clear that all or any relevant Arthur Cox ‘Chinese walls’ protocols which were devised fall within the category as orders or not,” he said.
The documents were prepared by Arthur Cox for its own assistance and were prima facie discoverable on the basis of the allegations made against the firm of solicitors.
“They relate to the issue as to whether there was an irreconcilable conflict of interest in the roles of the respective solicitors in the firm.”
The order should also be varied to include documents relating to the retainer of Arthur Cox by the Rocca defendants, Mr Justice MacMenamin said.
Turning to another discovering order from the master, he said he did not think discovery should be limited to any document upon which Arthur Cox “will rely” in claims of negligence concerning their advice on financial issues, as that would be a subjective test focusing on them.
The gist of this category of documents related to work it did “in a fiduciary relationship”. The fact that this related to allegations of negligence and breach of duty weighed heavily in favour of such an order.
Mr Justice MacMenamin then turned to documents relating to the dispute and litigation between the Rocca companies and Mr O’Connor.
Arthur Cox said it was “not admitted” that Mr Williams, who acted for the Rocca companies, was aware of this dispute, or that he had advised the companies to disclose this issue to the purchasers.
“This category goes to the kernel of the plaintiffs’ case against the respondent,” Mr Justice MacMenamin said. “However elegantly pleaded, the fact is that the respondents deny that they owe a duty of care.”
This arose independently of any issue of privilege, he said, and was to be decided in its factual context, based on what an adviser knew and when he knew it.
“It relates the question of whether there was a specific duty in the solicitors qua adviser rather than as agent . . . It goes to a material question of whether there was a legal duty on the solicitors acting for the vendor to disclose matters to the purchaser,” he said.
He ordered the disclosure of the information, not only on the basis of the claim of conflict of interest, but on the basis of an allegation and denial of failure in a duty of disclosure.
He added that he was sure Arthur Cox would undertake to maintain and protect the originals of all documents in its possession.
The full judgment is on www.courts.ie
Giles Kennedy for Linfen; McCann Fitzgerald for Coxes