Dalton and Dalton

[2016] FamCA 174

FAMILY COURT OF AUSTRALIA

DALTON & DALTON [2016] FamCA 174

FAMILY LAW – PRACTICE & PROCEDURE – Interlocutory Application – Where the husband contended he imparted confidential information to solicitors about his financial affairs and those solicitors now act for the wife – Where the husband sought to restrain the wife’s solicitors from acting for her in the substantive property settlement proceedings between them – Where the wife sought dismissal of the husband’s application – Where there is a real chance the wife’s solicitor will become seized of the confidential information imparted by the husband which could be used to his disadvantage in the proceedings – Where adherence to an undertaking given by the wife’s solicitor will eradicate any future risk of misuse of the husband’s confidential information – Where the husband unreasonably delayed his application – Where the prejudice to the wife if the injunction is granted is considerably greater than the prejudice to the husband if the injunction is refused – Husband’s application dismissed

Family Law Act 1975 (Cth), ss 117

Osferatu & Osferatu (2015) FLC 93-666

APPLICANT: Mr Dalton

RESPONDENT: Ms Dalton

FILE NUMBER: NCC 1909 of 2015

DATE DELIVERED: 14 March 2016

PLACE DELIVERED: Newcastle

PLACE HEARD: Newcastle

JUDGMENT OF: Austin J

HEARING DATE: 11 & 14 March 2016

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Lloyd SC

SOLICITOR FOR THE APPLICANT: Marshall Law

COUNSEL FOR THE RESPONDENT: Mr Tregilgas

SOLICITOR FOR THE RESPONDENT: Paton Hooke Lawyers

Orders

IT IS ORDERED THAT

1. The Application in a Case filed on 10 December 2015 is dismissed.

2. No order as to costs.

BY CONSENT, IT IS FURTHER ORDERED THAT

1. The wife’s application for interim orders 2 and 3 set out within her Response to an Application in a Case filed on 7 March 2016 is listed for hearing at 10am on Friday, 29 April 2016.

NOTATION

A.The proceedings remain listed before the Registrar for further procedural directions on 29 March 2016.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Dalton & Dalton has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT NEWCASTLE

FILE NUMBER: NCC 1909 of 2015

Mr Dalton

Applicant

And

Ms Dalton

Respondent

EX TEMPORE

REASONS FOR JUDGMENT

1. By Application in a Case filed on 10 December 2015, the husband sought to restrain the wife’s solicitors from acting for her in the substantive property settlement proceedings between them. 

2. By Response to an Application in a Case filed on 7 March 2016, the wife sought dismissal of the husband’s application.  She wants to retain the solicitors of her choice. 

3. The wife also sought a number of other orders relating to possession and use of a caravan and the husband’s payment to her of $100,000, but it was agreed her application for those orders would be deferred for consideration on another day. 

4. The sole issue for interim determination was the proposed injunction pertaining to the wife’s current solicitors.

Evidence

1. To prosecute his application, the husband relied upon:

   (a)his affidavit filed on 10 December 2015 (to which some objections were successfully taken by the wife);

   (b)paragraph 60 of the wife’s affidavit filed on 7 March 2016 (Exhibit H1);

   (c)a letter dated 9 October 2015 from the wife’s solicitors to the husband’s solicitors (Exhibit H2). 

2. To defend the husband’s application, the wife relied upon:

   (a)parts of her affidavit filed on 7 March 2016 (being paragraphs 1-6, 43-50, 61-62, 64, 68-79, 104-172, together with the annexures referred to in those paragraphs);

   (b)paragraphs 16, 44, 45, and 55 of the husband’s financial statement filed on 3 September 2015 (Exhibit W1);

   (c)

   paragraphs 3-4, 9-10, and 13-16 of the husband’s affidavit filed

   
   

   3 September 2015 (Exhibit W2);  and

   (d)an undertaking signed by Mr Paul Lewers, a solicitor of the legal firm presently representing the wife in these proceedings (Exhibit W3).

The Law

1. There was no dispute between the parties about the applicable law, the principles of which were most recently collected and discussed by the Full Court in Osferatu & Osferatu (2015) FLC 93-666.

2. As was the case in Osferatu, it was alleged here by the husband that there would be a prospective misuse of confidential information.  He contended he imparted confidential information to solicitors about his financial affairs and those solicitors now act for the wife in this litigation.  He contended the risk of that information being divulged and/or used by the solicitors to his disadvantage in this litigation warranted their restraint from further representation of the wife. 

3. As the Full Court has observed, it is not the subjective fear of the husband that is determinative of whether the injunction should be granted.  It is an objective test: whether a fair-minded and reasonably informed member of the public would conclude that the proper administration of justice requires that the solicitors should be prevented from acting. 

4. That determination is reached in several steps. 

5. First, the complainant must prove the solicitor is seized of his confidential information which is or may be relevant to the litigation. 

6. Secondly, the degree of risk that the confidential information will be disclosed or misused must be evaluated.  The risk must be real, not fanciful or theoretical. 

7. Thirdly, consideration must be given to how, if at all, the risk can be satisfactorily attenuated.  If it cannot be, then the injunction will follow. 

8. There is a final consideration of relevance to the current application.  It is incumbent upon the complainant to press his or her application for restraint of the solicitors in a timely way.  Acquiescence to the solicitors’ continuing representation of the other litigant may amount to waiver of the right to prosecute the injunction application.

Relevant Factual History

1. In 2012, the husband consulted two solicitors at Paton Hooke Lawyers about his financial arrangements, including the possible set-up of a new trust structure, review of the testamentary dispositions in his will, and the possibility of making some inter vivos gifts to the wife and third parties. The two solicitors he consulted were Mr Tony Marshall and Mr Paul Lewers. 

2. The husband later conferred with his accountant over the advice given by the solicitors in response to his instructions, and ultimately he did not act upon the solicitors’ advice. However, the husband’s discussions with the solicitors covered corporations, trusts, and assets which are the subject of direct scrutiny in this litigation under Part VIII of the Family Law Act 1975 (Cth) (“the Act”). As the husband correctly submitted, those facts are uncontroversial.

3. The parties separated about two years later, in December 2014, and the wife commenced these proceedings in July 2015.  Paton Hooke Lawyers advised the wife and instituted these proceedings for her.  When served with the wife’s process, the husband sought advice from Mr Marshall, who had left Paton Hooke Lawyers and commenced practice on his own account under the name Marshall Law.  The solicitor representing the wife at Paton Hooke Lawyers was and is Mr James Paton. 

4. On 3 August 2015, Mr Marshall wrote to Mr Paton, drawing attention to the alleged conflict of interest confronting Paton Hooke, namely, having formerly advised the husband in commercial dealings and now acting for the wife against him in property settlement proceedings. 

5. Not unreasonably, on 5 August 2015 Mr Paton wrote back to Mr Marshall, asking for more detail about the alleged conflict of interest so Paton Hooke could form their own conclusions about the validity of the asserted conflict of interest. 

6. On 7 August 2015, Mr Marshall wrote back, giving only very generalised details, but naming Mr Lewers as the person who was originally delegated to draft a new will for the husband.  It is common ground Mr Lewers was and remains a director of Paton Hooke Lawyers.  Mr Marshall asserted the husband “reserves his rights generally” in respect of the alleged conflict but would press on with the litigation in the meantime. 

7. Importantly, the details of the alleged confidential information and communications that previously passed between the husband and Mr Lewers at Paton Hooke were much more sparse in the correspondence that passed between the lawyers in August 2015 than the details to which the husband later deposed in his affidavit filed in December 2015.  In response to Mr Marshall’s demand, Paton Hooke surrendered to Mr Marshall all documents related to the husband held by that firm. 

8. At this juncture, it is worthwhile pointing out three things. 

9. First, Paton Hooke has no conflict of interest based on what the husband formerly told Mr Marshall, because Mr Marshall left Paton Hooke and now represents the husband in these proceedings.  Consequently, the conflict only potentially arises because of the confidential information given by the husband to Mr Lewers. 

10. Secondly, according to the contemporaneous correspondence in August 2015, Mr Lewers’ role was apparently confined to the preparation of a new will for the husband, which did not ever eventuate.  In his affidavit filed in December 2015, the husband said he discussed with Mr Lewers concerns he had about the distribution of his estate upon death and prospective inter vivos gifts. 

11. Thirdly, none of the husband’s discussions with Paton Hooke involved

    
    

    Mr Paton. 

12. Paton Hooke declined to voluntarily cease representation of the wife in the proceedings.  The husband then expressly instructed Mr Marshall to desist from making any application to restrain Paton Hooke from acting for the wife.  His explanation for that was as follows:

    At this time, I felt that I was struggling emotionally with the shock and distress as a result of being served with the application.  At that time, I felt that it was more important to try and address the current application rather than complicate things further.

13. Thereafter, the parties, through their solicitors, pressed ahead with the litigation. Dozens of letters passed between the solicitors and there were numerous further substantive steps taken in the litigation. 

14. On 3 September 2015, with the parties’ consent, the Registrar made orders dealing with:

    (a)the husband’s payment to the wife of $100,000 by way of partial property settlement;

    (b)the parties’ permission to draw down their superannuation entitlements by way of partial property settlement;

    (c)the division of funds held in a bank account between the parties;

    (d)restraint of the parties from dealing with corporations, a trust fund, and a retirement fund;  and

    (e)restraint of the husband from dealing with two other corporations.

15. Significantly, those corporations and trusts were entities the husband had formerly discussed with Paton Hooke in 2012, but the husband had no objection to Paton Hooke representing the wife in proceedings which resulted in interim orders being made in respect of those entities.  As a consequence of those interim consent orders being made on 3 September 2015, the interim hearing fixed for 7 September 2015 was vacated. 

16. The husband filed his Response on 3 September 2015.  He did not take the obvious opportunity to seek orders in his Response, on either an interim or final basis, to restrain the wife’s solicitors from further representation of the wife.  That was a perfect opportunity eschewed by the husband. 

17. About two weeks later, the parties divided some other chattels between them following further correspondence between their solicitors. 

18. The parties, through their respective solicitors, also continued to negotiate the terms under which single expert valuation evidence would be procured for the litigation and the prospect of their engagement in mediation. 

19. The husband’s solicitors revived the complaint about the conflict of interest allegedly experienced by the wife’s solicitors in correspondence in October 2015, but the wife’s solicitors continued to rebuff the complaint. The husband’s solicitors asserted the conflict became even more overt because Mr Lewers signed a letter on behalf of Mr Paton which issued on the wife’s behalf from Paton Hooke’s office, but I do not accept that fact materially changes the complexion of the dispute. 

20. On 1 December 2015, the Registrar made more procedural orders about forward progress of the litigation. 

21. I accept the husband had held out hope of the parties’ participation in mediation and the settlement of their dispute, but that is hardly a satisfactory explanation for him doing nothing to press his complaint about the wife’s solicitors’ asserted conflict of interest.  All the while, steps continued to be taken in the litigious process.  It was not until 10 December 2015 that the husband filed his Application in a Case seeking the injunction against the wife’s solicitors.

Conclusions

1. Although not free from doubt, the evidence adduced by the husband in his affidavit filed in December 2015 suggests he imparted confidential information to Mr Lewers that could be divulged to Mr Paton and might be used to his disadvantage in these proceedings. 

2. The wife contended such a conclusion could not be reached because the husband’s evidence about the nature of the confidential information lacked sufficient specificity and cogency. The evidence did not have the degree of specificity it could have had, but the husband was no doubt conscious of the danger of revealing the confidence he wanted to protect.  A comprehensive explanation of the detailed information that passed between him and

   
   

   Mr Lewers might, paradoxically, render the privacy of the information otiose. 

3. Erring on the side of caution, I am satisfied the discussion with Mr Lewers, albeit in the context of inter vivos gifts and testamentary dispositions, about corporations, trusts, and assets that will be the subject of attention in these property settlement proceedings placed Mr Lewers in a position of conflict. 

4. Since Messrs Lewers and Paton conduct business together in Paton Hooke Lawyers, Mr Lewers’ conflict affects Mr Paton’s representation of the wife.  There is a real chance Mr Paton will become seized of the confidential information imparted by the husband to Mr Lewers, which could be used to the husband’s disadvantage in these proceedings. 

5. The salient question, though, is whether the risk of that occurrence can be attenuated. The husband submitted it could not, but the wife contended it could. 

6. The wife tendered an undertaking given by Mr Lewers, which undertaking he proffered collectively to the Court, to the husband, and to the husband’s solicitors.  Mr Lewers undertook not to speak to the wife or any other person within Paton Hooke Lawyers about the husband’s affairs, and further, not to participate in this litigation.

7. I accept that his adherence to the undertaking will eradicate any future risk of misuse of the husband’s confidential information.  The husband did not submit the undertaking should be disregarded, so he must be taken to concede that the undertaking will erect an “information barrier” of the type discussed in the authorities. 

8. However, the husband contended the risk of misuse of the confidential information may have already been realised.  To vindicate that submission, the husband pointed to the letter sent in October 2015 on behalf of the wife that was signed by Mr Lewers.  It was contended the letter verified Mr Lewers’ descent into the dispute and his direct confrontation with the conflict of interest between maintenance of the husband’s confidentiality and proper advancement of the wife’s interests in the litigation.

9. I cannot objectively accept that construction of events, though I accept the honesty of the husband’s subjective apprehension.  The letter dealt with the simple mechanics of how a real property and a corporation would be independently valued and the use to which the wife might put her superannuation interest.  In a responsive letter sent by Mr Marshall for the husband in October 2015, he acknowledged the letter from the wife’s solicitors had been signed by Mr Lewers in the temporary absence of Mr Paton, so

   
   

   Mr Lewers’ involvement in the litigation was transient and tangential. 

10. Even if the husband’s confidential information was misused at some point in the past – which I am not satisfied did occur – the husband waived his chance to object. He submitted to the wife’s continuing use of Paton Hooke Lawyers as the litigation progressed for several more months.

11. The husband’s belated prosecution of his application to restrain the wife’s solicitors from further involvement in the proceedings entails comparison of the prejudice that would be respectively occasioned to them.  Given acceptance of Mr Lewers’ undertaking, there can be no further risk of misuse of confidential information.  If there was a risk of such misuse in the past, it was a risk the husband was prepared to run by his decision to desist from pressing his application until it suited him to do so. All the while, the litigation has progressed through numerous court events, the making of numerous substantive and procedural orders, and the accumulation of single expert valuation evidence. 

12. The wife has conferred with the counsel of her choice, and, although the husband’s application does not extend to an injunction against that counsel, it is difficult to see how he would not be similarly compromised if Mr Paton was compromised.  The wife deposed to her expenditure so far of $45,000 in legal fees (exclusive of counsel’s fees).  Much of that expenditure will have been wasted if she is now compelled to engage new solicitors in the litigation.  The wife’s financial circumstances are not so favourable that she is able to afford such waste. The husband’s financial circumstances are far superior to the wife’s.  Her income from superannuation comfortably covers her recurring expenses, but she only has $10,000 in the bank.  Otherwise, her property interests are locked in two encumbered real properties, one of which she occupies with her son.  By comparison, the husband deposed to ownership of assets with a net value of $7.5 million and a superannuation interest of $1.8 million. 

13. The prejudice to the wife if the injunction is granted is considerably greater than the prejudice to the husband if the injunction is refused. 

14. For the sake of completeness, it should also be mentioned that the husband submitted as follows:

    It is submitted the wife’s solicitors are in possession of a great deal of confidential and relevant information, including the husband’s strengths, weaknesses, his honesty (or lack thereof), his reaction to crisis, pressure or tension, his attitude to litigation and his tactics (see Younghanns & Others & Elfic Limited (VSC unreported 3 July 1998)).

15. There was no evidence at all that Mr Lewers (or Mr Paton) was or could be aware of the husband’s strengths, weaknesses, honesty, reaction to crisis, pressure or tension, attitude to litigation or his tactics.  Nor was it explained how Mr Lewers (or Mr Paton) could have been appraised of such information.  At its highest, the evidence established the husband consulted Mr Lewers about potential alterations to his will and commercial arrangements.  Litigation was not a topic or feature of their discussions. 

16. For those reasons, I make the following orders.

ORDERS DELIVERED

1. I will make the following notation: the proceedings remain listed before the Registrar for further procedural directions on 29 March 2016.

ORDERS DELIVERED

1. In relation to Order 2, I offer the following reasons. 

2. Following the delivery of reasons dismissing the husband’s Application in a Case filed on 10 December 2015, the wife pressed her application for costs against the husband. The sole basis upon which the application was pressed was, apparently, the fact the husband’s application was wholly unsuccessful. 

1. Section 117(1) of the Act provides that parties ordinarily bear his and her own costs of proceedings under the Act. For a costs order to be made, the Court must be satisfied, pursuant to ss 117(2) and 117(2A), that reasons justify a departure from the orthodoxy.

2. The evidence before the Court is that neither party is the recipient of a grant of legal aid. 

3. Although the husband’s financial circumstances are significantly superior to the wife’s, it could not be said that the wife is impecunious.  As I have already remarked, she has $10,000 in the bank and she has an interest in two encumbered real properties. 

4. The issues addressed by the solicitors for both parties in the costs dispute were the conduct of the parties and the husband’s lack of success.

5. I am not satisfied that the conduct of either party is such as to warrant alteration of the ordinary rule imposed by s 117(1) of the Act. For reasons I have already given, the husband had reasonable grounds upon which to object to the wife’s solicitors continuing to represent her in these proceedings. The matter was raised at an early time in correspondence with the wife’s solicitors and at no stage in the correspondence did the wife’s solicitors explain why they declined to cease their representation of the wife. It was therefore necessary for the husband to prosecute the application seeking a court order restraining the wife’s solicitors but, for reasons already given, the husband unreasonably delayed his application and by the time the application was ultimately pursued the wife’s solicitors provided an undertaking which erected a satisfactory “information barrier”, obviating the risk of any further misuse of the husband’s confidential information.

6. For those reasons, the wife’s costs application against the husband is dismissed.

I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Austin J delivered on 14 March 2016.

Associate: 

Date:  22 March 2016