DANILOV & WYNN
[2020] FamCA 763
•17 September 2020
FAMILY COURT OF AUSTRALIA
| DANILOV & WYNN | [2020] FamCA 763 |
| FAMILY LAW – PRACTICE AND PROCEDURE – where the husband seeks the wife’s solicitor to be restrained from acting for the wife – whether the wife’s solicitor was privy to confidential or sensitive information from a previous transaction – application dismissed. |
| Family Law Act 1975 (Cth) s 117 Land Title Act 1994 (Qld) s 126 Solicitors Conduct Rules 2012 (Qld) r 10.1 |
| Antony & Joyce [2020] FamCA 150 Yunghanns & Ors v Elfic (unreported, Supreme Court of Victoria, Gillard J, 3 July 1998) |
| APPLICANT: | Ms Danilov |
| RESPONDENT: | Mr Wynn |
| FILE NUMBER: | BRC | 15350 | of | 2019 |
| DATE DELIVERED: | 17 September 2020 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Baumann J |
| HEARING DATE: | 19 June 2020 |
REPRESENTATION
| SOLICITOR FOR THE APPLICANT: | Mr P Cooke Barbeler & Cooke |
| COUNSEL FOR THE RESPONDENT: | Mr S Hegedus |
Orders
That the application by the husband made 20 April 2020 to restrain Mr Phillip Cooke from acting on behalf of the wife in these proceedings, is dismissed.
That if the wife seeks, at this time, to pursue an application for costs against the husband in respect of the discrete hearing conducted on 19 June 2020, she shall:
(a)file and serve within twenty one (21) days of this Order any written submissions in respect of such application including a quantification of such costs sought;
(b)the husband shall file and serve within forty two (42) days of this Order any written submissions in response; and
(c)unless otherwise ordered, the issue of costs on the discrete issue shall be determined on the papers in Chambers.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Danilov & Wynn has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 15350 of 2019
| Ms Danilov |
Applicant
And
| Mr Wynn |
Respondent
REASONS FOR JUDGMENT
Introduction
In the midst of property and financial matters commenced by the wife Ms Danilov against the husband Mr Wynn on 17 December 2019 in the Federal Circuit Court of Australia and transferred to this Court on 17 February 2020, the husband on 20 April 2020 filed an Application in a Case seeking an order, inter alia:
That Mr Phillip Cooke, solicitor, be restrained from acting on behalf of the Applicant [m]other in these proceedings.
The wife opposes such order and on 19 June 2020 the Court received written submissions and also oral submissions – with Mr Hegedus of Counsel (directly briefed) appearing for the husband and solicitor Mr Cooke appearing for the wife. Apart from the written submissions, the parties relied on the following further material:
a)The husband, on his Affidavits filed 20 April 2020 and 8 June 2020; and
b)The wife, on the Affidavit of her father Mr B filed 22 May 2020 and the two Affidavits of Mr Cooke filed 22 May and 4 June 2020.
The interlocutory hearing took place by telephone and without cross-examination of the parties, as is the usual practice.
For the reasons which follow, the application will be dismissed.
Principles
In Antony & Joyce [2020] FamCA 150, I set out the following principles:
4. In Osferatu (supra) at [20], the Full Court said:
“There are three established categories on the basis of which solicitors may be restrained from acting against their client or former client. They are: breach of confidence, breach of fiduciary duty and the inherent jurisdiction of a court over its officers and to control its process. Each category has its own principles which guide its operation. The third category may be involved in conjunction with either of the first two so there is clearly an overlap; nonetheless, the basis for the exercise of the jurisdiction in each is different (Kallinicos v Hunt (2005) 64 NSWLR 561).”
5.In Kallinicos v Hunt (supra) Brereton J summarised the relevant principles at [76]:
“…
However, the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice...
The test to be applied in this inherent jurisdiction is whether a fairminded, reasonably informed member of the public would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice.
The jurisdiction is to be regarded as exceptional and is to be exercised with caution.
Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause.
The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief.”
…
6. …
7. …
8.I accept that the authorities adopted and summarised in McMillan & McMillan (2000) FLC 93-048 require the husband in this case to:
“…give evidence that he has provided confidential information to the solicitor… The client does not have to divulge the content of that information.” At [87].
9.When considering how appropriate weight must be given “to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause (see Billington & Billington (No. 2) [2008] FamCA 409, this must be balanced against the competing interests of the client which were described by Lord Millett in Prince Jefri Bolkiah v KPMG (a firm) [1999] 2 AC 222 at [236] as follows:
“It is of overriding importance for the proper administration of justice that a client should be able to have complete confidence that what he tells his lawyer will remain secret. This is a matter of perception as well as substance. It is of the highest importance to the administration of justice that a solicitor or other person in possession of confidential and privileged information should not act in any way that might appear to put that information at risk of coming into the hands of someone with an adverse interest.”
10.When considering Lord Millett’s judgment, Goldberg J in PhotoCure ASA v Queen’s University at Kingston [2002] FCA 905 at [50] – [51] said inter alia:
“50. It is apparent from Lord Millett’s judgment that there are three stages
which need to be considered:
·whether the firm is in possession of information which is confidential to the former client;
·whether that information is, or may be, relevant to a matter in which the firm is proposing to act for another party with an interest adverse to the former client;
·whether there is any risk that the information will come into the possession of those persons in the firm working for the other party.
51. The burden of establishing the first two propositions is upon the former client but the burden of establishing the third proposition moves to the firm proposing to act once the first two propositions are satisfied.”
11. Again at [35] in Osferatu (supra) the Court said:
“A balancing of the nature of the information against a consideration of the person to whom the information was given, when the information was given, the relevance of that information to the current proceedings, the risk of disclosure and any proposed protective measures is required before any determination can be made as to whether any relief is required and, if so, what is the appropriate relief.”
Contextual History
The husband and wife commenced cohabitation in 2006; married in 2012 and separated in June 2019. They have three children aged seven, five and three years of age.
Relevantly the wife’s step-father is Mr B, a company director/developer who has been a client of Mr Phillip Cooke for many years, as have entities controlled by Mr B, including C Pty Ltd as Trustee for the B Trust (“C Pty Ltd”).
In March 2015 the husband entered into a contract to acquire land described as 1, 2 and 3 D St, Suburb E ultimately through the husband’s nominee, 1D Pty Ltd as Trustee for the 1D Unit Trust which was established in November 2015 (“1D Pty Ltd”).
The acquisition was financed in part by the National Australia Bank (“NAB”) and also with substantial funds lent by C Pty Ltd. Mr B says he also provided his personal guarantee to NAB as well as a mortgage over his family home. He is married to the wife’s mother Ms F, who has also made a claim in the matrimonial proceedings for funds she says she lent to facilitate the acquisition.
The husband was the sole Director of the Trustee for 1D Pty Ltd and the intention of the joint venture was to secure sufficient equity capital to allow a proposed townhouse development to be undertaken.
Mr Cooke says (having corrected an early Affidavit) in his Affidavit sworn 4 June 2020 that his firm records confirm that he prepared an Option Agreement dated 4 April 2016 on the instructions of the husband on behalf of 1D Pty Ltd. The Option Agreement to a third party granted a right to purchase the land, but the grantee did not exercise the option. Mr Cooke confirms that his firm did create a file and provided 1D Pty Ltd with an invoice for services on 30 May 2016.
Subsequently 1D Pty Ltd entered into a joint venture with a company known as G Pty Ltd Pty Ltd in the latter half of 2016 with a view to completing the development envisaged and Mr Cooke says (and the husband agrees) that Mr Cooke was not retained to act for 1D Pty Ltd in the creation of the joint venture. G Pty Ltd was required to secure and provide funding of $5.1 million by October 2016 under the terms of the joint venture.
Mr B’s entity was owed in excess of $1.2 million (the exact sum is disputed by the husband) and he says his Family Trust was also servicing the NAB mortgage “at the rate of approximately $26,000.00 per month from June, 2018 until the settlement of the sale of the land in January, 2019”. It is obvious that having provided significant support for the acquisition by 1D Pty Ltd, Mr B was concerned by at least May 2018 that his security was at risk as the husband’s joint venture partner G Pty Ltd had failed to secure the required $5.1 million.
It is clear that, at this time; the husband and his entity 1D Pty Ltd had retained the legal firm H Lawyers. On 15 May 2018 the husband emailed Mr B confirming that it was the “understanding of all the lawyers that your [Mr B’s] security position over the land is detrimentally at risk”. The husband’s entity 1D Pty Ltd effectively offered to enter into a second mortgage over the land in favour of C Pty Ltd to protect its “significant investment” in the 1D Pty Ltd project.
On 17 May 2018, H Lawyers wrote to Mr B and stated inter alia that the firm had been retained by the husband and 1D Pty Ltd and that the first order of priority for 1D Pty Ltd “is to grant your company C Pty Ltd … a mortgage to secure its loan”. Although the husband suggested by email to Mr Cooke that he prepare the second mortgage, the firm H Lawyers prepared the second mortgage and although the husband did execute the mortgage documents at the offices of Mr Cooke on 18 May 2018, I am satisfied that in respect of the second mortgage at all times Mr Cooke acted for Mr B and C Pty Ltd and H Lawyers acted for the husband and 1D Pty Ltd. I accept a degree of cooperation was required to perfect preparation and registration urgently, so as to ensure if possible priority over any claims by the husband’s joint venture G Pty Ltd.
After registration of the second mortgage the husband’s company defaulted and as permitted a Notice of Exercise of Power of Sale, prepared by Mr Cooke on behalf of his mortgage client C Pty Ltd, was served in June 2018 on 1D Pty Ltd.
In October 2018 a Contract of Sale of the development land was executed by Mr B. The contract was tendered as Exhibit 2. It names the “Seller” as 1 D P/L as Trustee and the “Seller’s solicitor” as Mr Cooke’s firm. Although Mr B signed the contract it is confusing on what authority he did so, however, I am satisfied that Mr B was in control of the sale, he says “effectively as mortgagee in possession”. The unusual way in which the contract was signed did not, it seems, prevent the transfer of the land occurring, with the husband executing the transfer as Director of 1D Pty Ltd and with a settlement occurring on 18 January 2019.
In the period between execution of the contract on or about 15 October 2018 and settlement on 18 January 2019, an issue arose that could have impeded settlement. An investor in G Pty Ltd had lodged a caveat over the land. The husband (at paragraph 20 of his Affidavit) says he met Mr Cooke at his office to discuss the caveat. Mr Cooke says a meeting at his office took place on 20 December 2018. On that day, the husband prepared, signed and sent a notice to the solicitor for the caveator to commence proceedings to establish their caveatable interest, pursuant to s 126(2) of the Land Title Act 1994 (Qld). The letter signed by the husband (see “CDL 10”) inappropriately threatened that he would report the lawyer to the Legal Services Commission for Professional Misconduct “for deliberately interfering with the sale of the land”. Although the husband says Mr Cooke “assisted me to draft a Notice … and the General Request FORM 14”, Mr Cooke denies he assisted the husband. I find it difficult to accept Mr Cooke would have advised the husband to make the “threat” the husband included in his letter. In any event, the caveat was withdrawn and the settlement proceeded to finalisation.
By Order of the Supreme Court made 16 July 2019, 1D Pty Ltd was wound up. Public examinations of persons connected with 1D Pty Ltd are anticipated and Mr Cooke concedes he is likely to give evidence in relation to the liquidation of 1D Pty Ltd as he acted for C Pty Ltd in relation to the registration of the second mortgage and on the sale of the land.
Husband’s case for restraint of wife’s solicitor Mr Cooke
The husband contends that:
a)even though he had retained H Lawyers solicitors, when executing the second mortgage on 20 May 2018, in the office of Mr Cooke, he called Mr B “to discuss various items pertaining to the mortgage, specifically seeking instructions of whom was to sign the documents on Mr B’s behalf (C Pty Ltd). Mr B confirmed Mr Cooke was able to undertake this on behalf of C Pty Ltd”, and he did so. The husband says Mr Cooke was in the room when he spoke to Mr B and he says he believed those discussions were relevant “to the nature and characterisation of 1D Pty Ltd and its assets and its creditors”;
b)although Mr Cooke, at paragraph 14 of his Affidavit, denies he was privy to “sensitive information” and denies the husband’s assertion at paragraph 17 that the husband “was assisting me [Mr Cooke] with sensitive matters pertaining to the second mortgage amongst other things at the time”, what the so described “sensitive matters” were are not particularised. The husband says at paragraph 33 that:
33.The disclosures and confidential information provided to Mr Cooke during the conveyancing of 1D Pty Ltd and further from the period May 2018 to January 2020, causes an inherent tension between the duty to maintain the confidence of one client and the duty of loyalty to the other client and arguably impossible to satisfy both simultaneously. Mr Cooke learnt a great deal about my personality, weaknesses and strengths and honesty which will prejudice me during cross examination by Mr Cooke.
c)whilst the husband admits that Mr Cooke never “formally acted for Mr Wynn in a personal capacity”, the husband as sole director of 1D Pty Ltd “issued instructions to Mr Cooke on behalf of 1D Pty Ltd”. As such Mr Cooke by receiving those instructions came into possession of information “which is confidential to” the husband;
d)Mr Wynn’s evidence should be preferred to Mr Cooke’s on issues of fact (see paragraph 28 of submissions);
e)the husband was the sole director of 1D Pty Ltd, and Mr B and the husband’s actions in respect of 1D Pty Ltd and C Pty Ltd are currently the subject of liquidation proceedings, which have “the potential to result in a range of outcomes to the benefit or detriment of both Mr Wynn and Mr B separately and which may also impact the asset pool in these family law proceedings”. Mr Cooke is a witness called for public examination and may be a witness in the family law proceedings, as a result;
f)the restraint sought can be justified by the Court exercising its “inherent jurisdiction over its officers and to control its process in aid of the administration of justice”. At paragraph 36, it is submitted that Mr Cooke “being called to give evidence … surrounding the liquidation of 1D Pty Ltd should give pause for the [C]ourt to consider whether Mr Cooke may be placed in a position where any evidence that he could give in such an examination may be at odds with his client’s position in these family law proceedings” and further his “conduct as a solicitor, or the advice that he has given, in acting for 1D Pty Ltd and also for C Pty Ltd, as the mortgagee in possession of the land owned by 1D Pty Ltd, may be called into question”. The husband asserts that Mr Cooke’s advice “in respect of the ultimate sale of the land in 2019 and the issue of whether GST is payable by 1D Pty Ltd … appears to be a live issue before the liquidator”. This means “the integrity of the judicial process requires that Mr Cooke not continue to act” for the wife; and
g)finally, Counsel for the husband referred the Court to the decision of Gillard J in the Supreme Court of Victoria case of Yunghanns & Ors v Elfic (unreported 3 July 1998) where his Honour, discussing the general rule that it is necessary to identify and establish that there was some confidential information provided said:
But the degree of particularity of the confidential information must depend upon all the circumstances. Often it cannot be identified for fear of disclosure. In considering this factor it must be borne in mind that a solicitor makes notes, forms views and opinions of clients and observes things that the client may have forgotten or overlooked. In some cases the circumstances of the retainer and the nature of the legal work will be sufficient to establish the nature of the confidential information. In this regard the relationship between solicitor and client may be such that the solicitor learns a great deal about his client, his strengths, his weaknesses, his honesty or lack thereof, his reaction to crisis, pressure or tension, his attitude to litigation and settling cases and his tactics. These are factors which I would call the “getting to know you” factors. The overall opinion formed by a solicitor of his client as a result of his contact may in the circumstances amount to confidential information that should not be disclosed or used against the client.
This single Judge decision involved a solicitor/company director who complained that a firm acted for him and his “group” for a long period of time and in respect of transactions where the firm of solicitors had acted for the interests of both groups of parties for 24 years. In ordering the firm (a large national firm) be restrained from acting further, the Court rejected the submission that the risk of seepage of confidential information within the firm could be avoided by Chinese Walls. As can be immediately observed, the facts of the case before me is very different to the Yunghanns case (supra).
Discussion
It is a primary starting point for my consideration of the Applicant’s position to identify the actual nature of the relationship between Mr Cooke and the husband and 1D Pty Ltd.
In my view the only transaction where 1D Pty Ltd could be properly described as a “client” of Mr Cooke, was when he prepared the Option Agreement in April/May 2016. At this time, I am satisfied the long standing “solicitor-client” relationship between Mr Cooke and Mr B (and his corporate entities including C Pty Ltd) was intact. Although there is no evidence that Mr Cooke gave advice as to the finance and support provided by Mr B and C Pty Ltd to 1D Pty Ltd, when the Option Agreement was prepared it is clear that a sale of the undeveloped land would meet the interests of both the husband and Mr B. No conflict of interest existed at that time.
Thereafter however, and consistent with Mr Wynn retaining H Lawyers Solicitors, I infer the husband’s commercial exit strategy initially relied upon the successful joint venture with G Pty Ltd.
By 22 May 2018, when the husband caused to issue a “Notice of Dispute” to G Pty Ltd (see Exhibit 1), it is clear that Mr B was concerned about the security and recoverability of his significant investment. The husband and 1D Pty Ltd had engaged, and continued to retain H Lawyers Solicitors.
The actions of Mr Cooke relating to the creation of the second mortgage; the limited advice relating to the caveat and the conveyancing related to the ultimate sale of the land, were all consistent with his retainer acting for Mr B and his interests. I am not satisfied during the period from May 2016 to settlement that the husband or 1D Pty Ltd was a “client” of Mr Cooke’s firm.
Where the husband suggests his aim was to protect Mr B’s funding, I would accept that he had discussions from time to time with Mr Cooke about how to protect those interests. Whether or not, with the liquidation of 1D Pty Ltd, the late securing of the finance creates a voidable preference or not is not a matter for this Court.
I am not satisfied that through the only brief retainer (relating to the Option Agreement) or through collateral discussions voluntarily provided by the husband (at times when he had other lawyers acting for him), that Mr Cooke obtained sensitive or confidential information.
The liquidation of 1D Pty Ltd and transactions relating to its demise will likely be fully ventilated. Nothing confidential will be protected so far as any information Mr Cooke may have – save for legal professional privilege (if it is asserted) arising from his solicitor-client relationship with Mr B and C Pty Ltd.
I accept that in the family law property proceedings, the liquidation of 1D Pty Ltd and any losses which flowed might become relevant, however the only evidence (not otherwise disclosable through public examination) Mr Cooke has relates to actions taken to secure the funds and sell the property – to recover some of those funds for his client C Pty Ltd.
I could not discount entirely that Mr Cooke, prevailed upon from time to time by the husband to assist him as he seemed to work through the financial issues of 1D Pty Ltd, might have formed some impressions of the husband – however, those impressions are more likely to have been formed in his position as the solicitor for Mr B and C Pty Ltd – not as a solicitor for the husband and 1D Pty Ltd.
Although the husband said he “issued instructions” to Mr Cooke from time to time – that would, in the circumstances set out above, more likely to be him expressing his views. The husband, save for the Option Agreement transaction was not in a position to “issue instructions” that Mr Cooke was bound to follow. In this respect, for these reasons, any reliance on r 10.1 of the Solicitors Conduct Rules cannot be sustained, in my view, because of the limited relationship the husband had as a “former client”.
It is highly speculative to find, as the husband contends, that Mr Cooke’s behaviour (acting for C Pty Ltd) or the fact that he will give evidence in a public examination, means he is likely to be required to give evidence in the family law proceedings. Whilst I accept Mr B might wish to do so (in either or both the financial or parenting proceedings), that does not create a conflict for Mr Cooke acting for the wife.
As the authorities earlier referred to make clear, a person should not be deprived of the lawyer of their choice without due cause.
The husband has not established, at this time, a basis for depriving the wife of her choice to retain Mr Cooke in the family law proceedings.
As a result, the husband’s application will be dismissed.
I make directions as to any pursued costs of the discrete application, in circumstances where the husband has been wholly unsuccessful. In saying this I acknowledge, of course, that is but one factor identified in s 117(2A) of the Family Law Act 1975 that the Court must consider before it can be satisfied circumstances exist to depart from the general rule under s 117(1) of the Act.
I certify that the preceding thirty seven (37) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Baumann delivered on 17 September 2020.
Associate:
Date: 17 September 2020
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