DECOLA & DECOLA
[2020] FamCA 884
FAMILY COURT OF AUSTRALIA
| DECOLA & DECOLA | [2020] FamCA 884 |
| FAMILY LAW – TRUSTEE-IN-BANKRUPTCY – application to join – application granted. FAMILY LAW – INJUNCTION TO RESTRAIN SOLICITOR – from acting for trustee-in-bankruptcy – solicitor formerly acting for husband – liquidator suing husband for uncommercial transactions and insolvent trading – administration of justice – held, restrained. FAMILY LAW – MONEY HAD AND RECEIVED – no longer separately maintainable – part now of a broader restitutionary claim – Australian Financial Services & Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 considered. |
| Bankruptcy Act 1966 (Cth) Corporations Act 2001 (Cth) ss 588FB, 588FC, 588FDA, 588G Family Law Act 1975 (Cth) ss 79, 92 Family Law Rules 2004 (Cth) rr 6.05, 15.09 Legal Profession Uniform Law Australian Solicitors Conduct Rules 2015 (NSW) r 12 |
| ACN 092 675 164 Pty Ltd v Suckling (2018) 56 VR 448 Black v Taylor [1993] 3 NZLR 403 Bolitho v Banksia Securities Ltd (No. 4) [2014] VSC 582 Newman v Phillips Fox (1999) 21 WAR 309 Official Trustee-in-Bankruptcy v Lopatinsky (2003) 30 Fam LR 499 Yunghanns v Elfic Ltd [1998] VSC 374 |
| Ian Dallen, Restraining a lawyer from acting in and of the administration of justice – exceptional circumstances and caution prevail (2017) 6 JCivLP 31 Patrick Parkinson, Why are Decisions on Family Property So Inconsistent (2016) 90 ALJ 498 |
| APPLICANT: | Mr Decola |
| RESPONDENT: | Ms Decola |
| FIRST INTERVENOR: | Mr A (as liquidator of B Pty Ltd (ACN …) (in liquidation)) |
| SECOND INTERVENOR: | B Pty Ltd (ACN …) (in liquidation)) |
| TRUSTEE-IN-BANKRUPTCY: | Mr C as Trustee of Bankrupt Estate of Mr Decola |
| FILE NUMBER: | MLC | 8877 | of | 2018 |
| DATE DELIVERED: | 22 October 2020 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Wilson J |
| HEARING DATE: | 15 October 2020 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Not applicable |
| SOLICITOR FOR THE APPLICANT: | Not applicable |
| COUNSEL FOR THE RESPONDENT: | Mr J. Werner |
| SOLICITOR FOR THE RESPONDENT: | KHQ Lawyers |
| COUNSEL FOR THE FIRST INTERVENOR: | Mr P. Fary SC |
| SOLICITOR FOR THE FIRST INTERVENOR: | Mills Oakley Lawyers |
| COUNSEL FOR THE SECOND INTERVENOR: | Mr P. Fary SC |
| SOLICITOR FOR THE SECOND INTERVENOR: | Mills Oakley Lawyers |
| COUNSEL FOR THE TRUSTEE-IN-BANKRUPTCY: | Mr G. Moloney |
| SOLICITOR FOR THE TRUSTEE-IN-BANKRUPTCY: | Lennon Lawyers |
Orders
Lennon Lawyers is restrained from continuing to act for the trustee-in-bankruptcy.
Leave is granted for the trustee-in-bankruptcy to be joined as a party to this proceeding.
I direct that the parties formulate orders for the ongoing case management of this proceeding.
On or before 4pm on 29 October 2020 the parties must send to my associates a minute of consent orders giving effect to these orders.
This proceeding is added to my docket.
This proceeding is listed for directions on 11 November 2020 at 9am.
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 Decola & Decola 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 MELBOURNE |
FILE NUMBER: MLC 8877 of 2018
| Mr Decola |
Applicant
And
| Ms Decola |
Respondent
And
| Mr A (as liquidator of B Pty Ltd (ACN …) (in liquidation)) |
First Intervenor
And
| B Pty Ltd (ACN …) (in liquidation)) |
Second Intervenor
And
| Mr C as Trustee of Bankrupt Estate of Mr Decola |
Trustee-in-Bankruptcy
REASONS FOR JUDGMENT
Introduction
By initiating application filed on 3 August 2018, the applicant sought orders altering the legal and equitable interests of the parties in property pursuant to s 79 of the Family Law Act.
In this latest round of skirmishes the wife and the husband’s trustee-in-bankruptcy joined issue on two main fronts. They were –
a)the wife’s opposition to the joinder of the trustee-in-bankruptcy; and
b)the wife’s assertion that Lennon Lawyers should not be permitted to represent the trustee-in-bankruptcy on the basis that it is inimical to the administration of justice for such an situation to prevail.
Synopsis
For reasons that follow, in my judgment –
a)an order restraining Lennon Lawyers must be made enjoining that firm from continuing to act for the trustee-in-bankruptcy;
b)leave should be given for the trustee-in-bankruptcy to be joined as a party to this proceeding;
c)orders must be made for the ongoing case management of this proceeding; and
d)minutes must be brought in within seven days for that purpose.
Short history of relevant background
Despite this proceeding having been on foot for over two years, it has progressed very little distance on the path to trial.
On 9 July 2020 Mr C was appointed as the trustee-in-bankruptcy of the applicant’s bankrupt estate.
The applicant at one time was a director of and shareholder in B Pty Ltd through which the applicant carried on a building supply business.
BB Pty Ltd was at all relevant times owned and controlled by its single director and shareholder, the respondent.
The respondent at all relevant times was also the sole director of and shareholder in D Pty Ltd.
Prior to their separation in June 2018 the parties operated a trust known as D Trust.
Using funds from the respondent’s company BB Pty Ltd the applicant said in his affidavit made on 3 August 2018 that D Pty Ltd invested a one third interest in a suburban property development project described as E Development. He said in his affidavit that the parties or their various corporate emanations expected to receive around $2 million from E Development.
He mentioned a further company, BC Pty Ltd. No ASIC company searches were exhibited by the applicant to verify the true shareholdings in and directorships of those respective companies.
By July 2018 the parties and their companies owed substantial debts to revenue authorities.
In his affidavit made 3 August 2018 filed in support of his application to prevent dissipation of the property pool, the applicant deposed to the total assets owned by the parties or entities owned or controlled by one or other of them being in the order of $10m and liabilities against those assets resulting in a net asset position of a little over $700,000.
The respondent sought orders for the proceeds of the sale of E Development to be paid into trust to be disbursed by court order in default of agreement. She also sought orders for the sale of a luxury motor vehicle 2 and three 4WD vehicles, she sought orders for the sole use and occupation of one parcel of real estate and for the control of rental over other parcels of real estate.
By way of responding affidavit sworn 10 August 2018 the respondent deposed to facts to support her application for the orders she sought in her response filed 13 August 2018 to the husband’s initiating application. Relevantly distilled, she deposed to the following –
a)the applicant was a director of and shareholder in F Pty Ltd;
b)the applicant incorrectly stated that the respondent was the sole director of and shareholder in BB Pty Ltd as he was also a director of and shareholder in it;
c)the applicant controlled the parties’ finances throughout the marriage;
d)she disagreed that the parties’ liabilities exceeded their assets;
e)she acknowledged that significant tax liabilities were owing although as to the precise figure she was unable to say;
f)she agreed she was the sole director of D Pty Ltd;
g)the applicant owned a luxury motor vehicle 1;
h)one of the three 4WD vehicles vehicles was used by the applicant, another by his accountant and the third by the applicant’s mother;
i)she was unable to estimate the asset pool’s value in the absence of satisfactory disclosure; and
j)plant and equipment owned by B Pty Ltd was said to be worth over $2 million.
Consent orders were made by a registrar of this court on 13 August 2019 pursuant to which the proceeds of sale of the E Development received by D Pty Ltd were to be held in the applicant’s solicitor’s trust account pending further order. The parties agreed to value their properties. The registrar ordered the parties to attend a conciliation conference on 26 October 2018.
The proceeding did not settle at the conciliation conference.
By application in a case filed 9 November 2018 the applicant sought orders for the disbursement of the proceeds of sale of the E Development held by the applicant’s solicitors to the ATO in satisfaction of debts due to the ATO due from BB Pty Ltd and B Pty Ltd.
The applicant made an affidavit on 8 November 2018 in which he deposed in greater detail to the tax liabilities the various companies in the building supply operation owed. Relevantly distilled, he deposed to the following –
a)B Pty Ltd was registered on 20 May 2016;
b)the applicant and his accountant were directors of and shareholders in B Pty Ltd;
c)the ATO demanded from B Pty Ltd the sum of $1,240,829.45;
d)in truth, according to the applicant, B Pty Ltd owed the ATO $1,578,439.96;
e)his solicitors held $1,264,828.98;
f)he sought orders applying that sum of $1,246,828.98 in part satisfaction of outstanding tax debts;
g)the ATO was contacting him weekly; and
h)he gave detailed information about the way his tax obligations were made up.
In her response[1] to the applicant’s application in a case the respondent sought spousal maintenance and an order for the applicant’s immediate sale of the luxury motor vehicle 2 and other luxury motor vehicles 1. She also sought orders conferring upon her sole authority to sell four parcels of real estate and other orders.
[1] Sealed by the court on 15 March 2019.
The respondent made an affidavit on 15 March 2019. Relevantly paraphrased the respondent gave the following evidence in that affidavit –
a)she and the applicant have three daughters aged 16, 14 and 10;
b)the children live with their mother and spend time with their father by agreement although, so she said, the father had not spent significant time with the children;
c)BB Pty Ltd was the respondent’s father’s company, initially registered in 2009;
d)between May 2010 and June 2018 the applicant and the respondent were each appointed and removed as directors of that company culminating in the applicant’s accountant and the applicant being joint directors until the accountant was removed leaving the applicant as sole director;
e)the respondent was not aware of the appointments and removal of directors as she had at no time substantial control over BB Pty Ltd;
f)B Pty Ltd was registered on 20 May 2016, the directors and shareholders being the applicant and his accountant;
g)the applicant had previously been bankrupted in 2008 or 2009;
h)in June 2018, the applicant and respondent separated on a final basis;
i)their relationship was in decline in 2016 and 2017;
j)the respondent read an affidavit made by a claimant in an unfair dismissal proceeding brought against B Pty Ltd in which the deponent of that affidavit asserted that the deponent was having an affair with the applicant;
k)the respondent was concerned that the applicant had divested himself of 50% of the business for no apparent reason;
l)between April and July 2018 she said the sum of $142,861.50 was paid from accounts maintained by B Pty Ltd into the applicant’s personal credit card account during which period the applicant spent over $16,000 on restaurants, bars and cafés, $10,000 on clothing, over $10,000 on furniture and other items characterised as discretionary spending;
m)she was reliant upon money borrowed from family and friends;
n)G Pty Ltd commended a proceeding in the County Court of Victoria against the respondent and the applicant;[2] and
o)deficiencies in the applicant’s disclosure hampered the respondent in her preparation of this case.
[2] It was unclear whether additionally D Pty Ltd and B Pty Ltd were also parties.
By consent, on 7 December 2018, a registrar of this court ordered that funds be disbursed from the trust account kept by the applicant’s solicitors to pay funds owing to the ATO –
a)in satisfaction of the amount due from BB Pty Ltd pursuant to the ATO’s winding up application; and
b)in part satisfaction of the debt due to the ATO by B Pty Ltd.
The registrar also ordered payment to the wife of $50,000 by way of part property settlement.
On 19 August 2019 the respondent filed an application in a case returnable on 22 August 2019.
In it she sought orders for the sale of two properties in Suburb M and the payment of the proceeds thereof in the manner set out in paragraph 5 of her application.
She supported her application with her affidavit made 14 August 2019. So far as is presently relevant, the more important matters that emerged from that affidavit were the following –
a)she is the sole director of and shareholder in D Pty Ltd ;
b)the applicant is the sole director of BB Pty Ltd;
c)D Pty Ltd is the sole shareholder in BB Pty Ltd;
d)the applicant and his accountant are the directors of and shareholders in B Pty Ltd;
e)B Pty Ltd was placed into liquidation (inferentially, on some unspecified date prior to 14 August 2019 being the date of the affidavit);
f)D Pty Ltd is the holder of one third of the issued shares in the capital of E Development Group Pty Ltd, a Suburb H apartment developer;
g)she believed the parties’ net asset position was $7,024,911; however
h)without full disclosure she was unable to verify the true position.
The applicant’s solicitor swore an affidavit on 22 August 2019 in advance of the return of the respondent’s application in a case before Macmillan J on 22 August 2018. He made that affidavit in opposition to the wife’s application for litigation funding of $100,000 and for an interim part property settlement. He described himself as “an extremely experienced family lawyer.” He said his firm had charged his client, the applicant, over $63,000 in fees since taking over the conduct of the applicant’s case, although he did not say when that was. He said his firm required the sum of $100,000.
The applicant filed an affidavit made 22 August 2018. In it he deposed to the appointment on 7 August 2019 of Mr A as liquidator of B Pty Ltd (in liq). The applicant asserted he had no money.
The wife’s solicitor swore an affidavit on 21 August 2019 in support of the wife’s application for a partial property settlement and litigation funding.
On 22 August 2019 Macmillan J made consent orders –
a)conferring power on the wife to list two parcels of land in Suburb M for sale; and
b)fixing the reserve prices.
Her Honour otherwise made orders addressing the application of net sale proceeds and adjourning the further hearing of the proceeding to 13 November 2019.
Further consent orders were made on 13 November 2019 by Johns J.
On 28 January 2020 the respondent filed a further application in a case, mostly relating to caveat removals. The application sought orders against J Pty Ltd and Mr K who had lodged caveats. She supported her application with her affidavit sworn on 20 December 2019. Relevantly paragraphed, in that affidavit the respondent deposed to the following –
a)J Pty Ltd and Mr K had lodged caveats against the titles of the properties that had been sold pursuant to orders made on 21 August 2019;
b)following the placement of BB Pty Ltd (in liq) and B Pty Ltd (in liq) into liquidation, creditors of those companies lodged caveats relying on guarantees given by the applicant and his accountant;
c)settlement of the sale of the two Suburb M properties and the premises owned by the wife where she and the children live must be completed;
d)the applicant’s accountant claimed $2.3m allegedly in unpaid loans in respect of which he produced no loan documentation yet interest at 13% was allegedly owed;
e)the applicant’s accountant asserted the existence of an “implied, resulting or constructive trust” to support one caveat;
f)the applicant’s accountant’s solicitors (when they acted) and the applicant’s accountant personally have refused to respond to the wife’s request for the removal of caveats;
g)the applicant’s caveats on the title to the Suburb M properties have not been removed despite request;
h)J Pty Ltd asserted the existence of a charge in its favour and that it is the judgment creditor in relation to a judgment debt of $504,000 against the applicant and his accountant jointly;
i)J Pty Ltd through its solicitors have said it will not hold up the settlement but it will seek payment from the proceeds of sale;
j)E Development Group Pty Ltd was to be dissolved[3] and one of the properties in the development would be transferred to D Pty Ltd; and
k)she said that according to information in her possession the applicant was not cooperating with the liquidators in relation to the location of the luxury motor vehicle 1 and luxury motor vehicle 2.
[3] Her choice of words may not have been correct in law as “dissolving” a company under the Corporations Act has a precise meaning.
In an affidavit affirmed on 19 February 2020 the applicant deposed to the caveats lodged by his accountant. The applicant stated his accountant was no longer his accountant yet the former accountant asserted an entitlement to fees in the order of $2.3m plus interest. No documents were produced by the former accountant to verify his entitlement to that amount of $2.3m or the legal basis for his entitlement to lodge a caveat.
On 10 March 2020 Williams J granted leave to J Pty Ltd to file and serve an affidavit and her Honour granted leave to the wife’s solicitors to serve on the liquidators of BB Pty Ltd (in liq) and B Pty Ltd (in liq) certain documents.
On 30 March 2020 a variety of applications were filed. In no particular ranking they were –
a)a notice of intervention filed on behalf of Mr A as liquidator of B Pty Ltd (in liq);
b)an application in a case filed on behalf of the liquidator of B Pty Ltd (in liq); and
c)an affidavit of Mr A made 24 March 2020.
Mr A also made another affidavit on 26 April 2020 the details of which are addressed below.
The liquidator’s notice of intervention was in standard form.
The court file contained two versions of the liquidator’s application in a case, only one of which had been sealed in the usual manner. Part D in each was different. The one that was not stamped with the court stamp had five orders sought, namely –
1.That this matter be listed for hearing before this Honourable Court on 5 May 2020.
2.That pursuant to section 92 of the Family Law Act 1975 (Cth), Mr A (as liquidator of B Pty Ltd (ACN …) (in liquidation)) (Liquidator) and B Pty Ltd (ACN …) (in liquidation), both of c/- Z Associates, N Street, Suburb O VIC (Company), have leave to intervene in the proceedings and/or be joined as a party to it.
3.That Mr K be joined as a party to the proceedings.
4.As between the Liquidator and the Company and Mr K:
a.The Court declare that Mr K has contravened s 588G of the Corporations Act 2001 (Act);
b.Pursuant to s 588M of the Act, the Court order that Mr K pay to the Liquidator and/or the Company the sum of $4,072,380.13 plus interest.
5.The Court give directions in relation to the determination of the claims in (a) and (b)).
The Act there mentioned was the Corporations Act. The liquidator sought an order that the applicant’s former accountant pay the liquidator the sum of $4,072,380.13. The liquidator also sought a declaration that the applicant’s former accountant had contravened s 588G of the Corporations Act.
In the version of the application in a case that bore the court stamp, the relief sought by the liquidator was expressed entirely differently. It was as follows –
1.That all relevant times for the filing and service of this application be abridged and that this matter be listed for hearing before this Honourable Court as soon as practicable.
2.That pursuant to Section 92 of the Family Law Act 1975 (Cth) and rule 6.05 of the Family Court Rules 2004 (Cth), Mr A (as liquidator of B Pty Ltd (ACN …) (in liquidation) of c/- Z Associates, N Street, Suburb O VIC ("Liquidator") and B Pty Ltd (ACN …) (in liquidation) of c/- Z Associates, N Street, Suburb O VIC ("Company") and have leave to intervene in the proceedings and/or be joined as a party to it.
3.As between the Liquidator and the Company and the Husband:
a.The Court declare that the Husband has contravened s 588G of the Corporations Act 2001 (Cth) ("Act").
b.Pursuant to s 588M of the Act, the Court order that the Husband pay to the Liquidator and/or the Company the sum of $4,072,380.13 plus interest.
c.Declare that the Company has a charge or interest in the net proceeds of sale remaining from the sale of 2 L Street, Suburb M in the State of Victoria ("2 L Street") after the application of funds provided for in Orders 4(i) — (vi) and Order 5 of the Orders made in this Honourable Court on 22 August 2019 ("the 2 L Street Proceeds") as to the sum of $677,844.99 ("Charge").
d.The Court give directions in relation to the determination of the claims in (a) to (c).
4.The Husband and/or the Wife give to the Company and the Liquidator at least 14 days written notice prior to dealing with the 2 L Street Proceeds or other assets forming part of the matrimonial pool, including dealing by way of:
a.Binding Financial Agreement; and/or
b.consent to the making of interim or final orders under under (sic) s 79 of the Family Law Act 1975 (Cth) ("F LA") or otherwise.
5.Prior to the making of any interim or final orders in these proceedings, this Honourable Court:
a.Take into account the liability of the Husband to the Company in the sum of $4,072,380.13 owed to the Company ("the Debt") as particularised in the letter from Mills Oakley to Lennon Lawyers dated 5 March 2020, a true copy of which is annexed hereto and marked "A";
b.Take into account the sums paid by the Company to discharge or reduce the debts of BB Pty Ltd (ACN …) (in liquidation) and/or D Pty Ltd (ACN … (in its own capacity and as trustee for the D Trust ABN …) and/or any party pursuant to the Corporate Guarantee and Indemnity dated 9 November 2017, General Security Agreement dated 9 November 2017, and Letter of Offer from ANZ dated 30 October 2017, or otherwise;
c.Make provision for the payment of the Debt to the Company prior to any adjustment of property in favour of, or distribution to, the Husband and to the Wife.
6.Such further or other orders as this Honourable Court deems fit to make.
Unlike in the unstamped version of the liquidator’s application in a case, in the stamped version no remedy was sought against the applicant’s former accountant.
The liquidator’s 24 March 2020 affidavit was supported by 31 exhibits. Relevantly paraphrased, the liquidator deposed to the following matters –
a)he was appointed as liquidator of B Pty Ltd (in liq) by order of the Supreme Court of Victoria made on 7 August 2019;
b)the applicant and Mr K are directors of and equal shareholders in B Pty Ltd (in liq);
c)ANZ had a registered security interest on the PPSR over all present and after-acquired property of the company as collateral to other security instruments;
d)the respondent is the sole director of and shareholder in D Pty Ltd , it being the sole shareholder in BB Pty Ltd (in liq);
e)on 10 October 2029 Mr P was appointed liquidator[4] of BB Pty Ltd (in liq);
[4] Mr A did not say how Mr P came to be appointed as the liquidator of that company, whether by court order or otherwise.
f)he said he held an equitable lien over assets, plant and equipment of BB Pty Ltd (in liq) and the proceeds (as defined) in accordance with the decisions in Universal Distributing Co Ltd (in liq)[5] and Stewart v Atco Controls Pty Ltd (in liq);[6]
g)Mr P asserted that BB Pty Ltd (in liq) had an interest in some or all of the assets of B Pty Ltd (in liq);
h)Mr A took the view that all of the assets of B Pty Ltd (in liq) are owned by that company or are vested in it for reasons he set out in paragraph 10 of his affidavit;
i)Mr P had not advanced evidence to refute Mr A’s propositions in paragraph 10 of his affidavit;
j)the majority of the assets of B Pty Ltd (in liq) have been sold by public auction and the proceeds thereof have been placed in the trust account of Mr A’s solicitors;
k)the company has a claim for an equitable interest in 2 L Street Suburb M on the basis of $677,844.99 in contributions to improvements including fixtures and fittings;
l)the company has claims against the applicant and Mr K for insolvent trading;
m)in Mr A’s view, when in 2018 the applicant paid creditors of BC Pty Ltd (in liq) using funds owned by B Pty Ltd (in liq) in amounts of $1.846m, the applicant engaged in uncommercial transactions and unreasonable director related transactions contrary to part 5.7B of the Corporations Act;
n)Mr A wishes to be heard in this litigation; and
o)he sought an order for his own joinder.
[5] (1933) 48 CLR 171.
[6] (2014) 252 CLR 307.
In his affidavit made 28 April 2020, Mr A deposed to matters in support of his application to pursue Mr K and the applicant for insolvent trading. In paragraph 4 and 5 of that affidavit Mr A swore to the following –
4. In my view, it is appropriate that this court determine the question of whether both the Husband and Mr K traded the Company whilst insolvent for the following reasons:
(a) the insolvent trading claims against the Husband and Mr K are coordinate liabilities;
(b)the question of insolvent trading by the Husband and Mr K should be determined in one court rather than a separate proceeding in another court;
(c)each of the Husband, Mr K, the Company and I have already become involved in this proceeding, and it would be most cost effective for the parties to avoid multiplicity of proceedings.
5. For these reasons, I seek to be joined to this proceeding as an intervener under s92 of the Family Law Act 1975 (Cth) or party to the proceeding to pursue the insolvent trading claims against both the Husband and Mr K.
Strictly speaking, those observations were the expression of opinion as opposed to statements of fact.[7] However, in the context of insolvent trading, uncommercial transactions and alleged contraventions of s 588G of the Corporations Act, I regarded those comments as being of assistance to me so I received that evidence.
[7]Family Law Rules 15.09(1).
In pursuance of the orders made by the Chief Justice in March 2020, this proceeding was heard before a registrar on 29 April 2020. On that day Registrar Moser ordered the liquidator to file and serve a statement of claim by 29 May 2020, the registrar made other procedural orders and otherwise adjourned the proceeding to the Judicial Duty List on 21 July 2020.
Ahead of that hearing the respondent filed and served her affidavit sworn 2 June 2020. To that affidavit the respondent exhibited documentary exhibits of considerable utility in ascertaining the basis of various parties’ claims and cross claims. It is purposeful to record some of the more important matters that emerged from that affidavit.
The respondent addressed the position of BB Pty Ltd (in liq). According to the liquidator of that company whose letter of 24 February 2020 the respondent exhibited to her affidavit, the company was ordered to be wound up pursuant to an order made by the Supreme Court of New South Wales on 10 October 2019 and Mr P was appointed liquidator. Mr P summarised the claim against D Pty Ltd in the following terms –
My investigations have revealed that the Company was insolvent from at least 30 June 2017 or perhaps earlier. D Pty Ltd as trustee for the D Trust is the registered sole shareholder and acted as the holding company of the Company. Pursuant to s588V of the Corporations Act 2001 (“the Act’), a holding company is liable for the Company’s unpaid debts whilst it was insolvent. Accordingly, you are liable for the amount of $3,163,101.51 in accordance with the provisions of the Act as set out hereunder.
The liquidator informed the respondent that she had been the sole shareholder in D Pty Ltd since its incorporation and she was its current director. The liquidator stated that the company ceased trading in June 2017 and that prior to its being placed in liquidation BB Pty Ltd’s assets were transferred to a related entity, B Pty Ltd, now in liquidation. Mr P stated that for the financial years ended 30 June 2017 and 30 June 2018 BB Pty Ltd (then not in liquidation) incurred combined losses of more than $655,000 a large portion of which was incurred prior to its cessation of trading. The liquidator stated the following –
Based on the foregoing, I am of the view that the Company was insolvent from at least 30 June 2017 and possibly earlier. This date has been determined on mainly the fact this was when the Company began to wind-down its operations and there was significant decline in profits. However, it is apparent that prior to or around this date, the Company attempted to obtain further finance from the National Australia Bank ("NAB") for a joint property development, however, was rejected on a number of factors that NAB was concerned about in respect to the Company's ability to meet repayments. These factors included, ATO accounts in arrears, debt servicing shortage, lack of working capital and caveat over other assets from supplier. These combined with the comments above provide a definitive pinpoint to the date of the Company's insolvency.
Accordingly, I am satisfied that you have breached subsection 588Vof the Act by allowing the Company to trade whilst insolvent, and as a result the creditors of the Company have suffered damage equal to the value of the unpaid creditor claims incurred from 30 June 2017 onwards, currently estimated to total $3,163,101.51. The table hereunder summarises the damages suffered by the Company.
Creditor name
Balance Owing
Portion of Insolvent Trading Claim
Q Company
5,413.59
5,413.59
ANZ Banking Group Limited
840,984.54
840,984.54
Petitioning Creditor
380,922.48
380,922.48
Car Finance Company
310,925.61
310,925.61
Finance Company 1
3,520.89
3520.89
R Pty Ltd
40,000.00
40,000.00
B Pty Ltd
711,252.40
711,252.40
S Company
657.00
657.00
Mr K
869,425.00
869,425.00
TOTAL
3,163,101.51
3,163,101.51
Mr P made a demand upon D Pty Ltd for $3,163,101.51.
On 1 June 2020 the liquidator of B Pty Ltd (in liq) filed and served his statement of claim. It will be necessary at a later juncture to examine the nature and quantum of the claims brought by the liquidator of B Pty Ltd (in liq). Suffice it to say at present, in the statement of claim filed 11 June 2020, the liquidator alleged as follows (relevantly synthesised) –
a)on the application of State Revenue Office, by order of the Supreme Court of Victoria B Pty Ltd was ordered to be wound up in insolvency and Mr A was appointed as its liquidator for that purpose;
b)the relation back period commenced on 20 May 2019;
c)between June 2017 and August 2017 the company incurred debts of $4,938,552;
d)when those debts were incurred the company was insolvent;
e)when the company was insolvent and it incurred the debts totalling over $4.9m, the applicant and Mr K failed to prevent the company incurring those debts and they were aware of grounds for suspecting the company was involvement or would become insolvent;
f)alternatively, a reasonable person in the position of the applicant and Mr K would have been aware of grounds for suspecting the company’s insolvency;
g)under s 588G of the Corporation Act the applicant and Mr K were bound by a duty to prevent the company from trading while insolvent;
h)each contravened s 588G;
i)each unsecured creditor of the company has suffered loss and damage by reason of the company’s insolvency; and
j)the applicant and Mr K have failed to repay the company the amount of loss it suffered, despite demand.
That was the essence of the claim by the liquidator against the applicant and Mr K, the applicant’s former accountant.
The liquidator also made a claim against D Pty Ltd. That claim was for $814,868.19. In advancing his claim against D Pty Ltd the liquidator asserted as follows –
a)the respondent wife is the appointor of the D Trust of which the husband and wife are beneficiaries;
b)D Pty Ltd is the trustee of the D Trust, it was a “close associate” of the applicant for the purpose of s 9 of the Corporations Act and it was a “related corporation” to B Pty Ltd (in liq);
c)upon the sale of 2 L Street Suburb M and 4 L Street Suburb M the net proceeds were deposited in the trust account of the respondent’s solicitors;
d)between 2017 and 2018 B Pty Ltd[8] installed fixtures and fittings to 2 L Street Suburb M, it engaged third parties to install fixtures and fittings and it paid $814,868.19 to or for the benefit of D Pty Ltd in relation to that fit out;
e)a reasonable company in the position of B Pty Ltd would not have performed the transactions in the immediately preceding sub paragraph;
f)by performing those transactions, those activities were uncommercial for the purpose of 588FB of the Corporations Act;
g)they were also transactions entered into when B Pty Ltd was insolvent and therefore contravened s 588FC of the Corporations Act;
h)they were also payments or transfers for the benefit of the wife being a “close associate” of a director of B Pty Ltd contrary to s 588FDA of the Corporations Act; and
i)the transactions were voidable preferences.
[8] Then, not in liquidation.
So far as the $814,868.19 amount was concerned, the liquidator alleged that D Pty Ltd was liable to repay that sum as money had and received.
Pausing in that point in the narrative, it is necessary at this juncture to say something about the asserted claim to money had and received.
The doctrine of restitution and the equitable basis of it has enjoyed something of a renaissance in recent years. The claim of money had and received which underpinned holdings of sweeping ramifications in such cases as Pavey & Matthews Pty Ltd v Paul[9] was restated by the High Court in Australian Financial Services & Leasing Pty Ltd v Hills Industries Ltd.[10] I considered it in my own decision in Karjala & Gallard.[11] It may now be acknowledged that money had and received as a separate cause of action has been subsumed into the broader genus of restitution.
[9] (1987) 162 CLR 221.
[10] (2014) 253 CLR 560.
[11] [2020] FamCA 110.
This point is yet to be traversed by a Full Court of the Family Court so the metes and bounds of its transposition into litigation in the Family Court of Australia has yet to be explored. The comments below will therefore be relevant.
Similar comments apply in relation to a claim to unjust enrichment. Such a claim must now be examined under the rubric of a restitutionary claim. As recently as 9 October 2019 the High Court pronounced on point in Mann v Paterson Construction Pty Ltd.[12] The decision calls for very careful examination. The joint judgment of Nettle, Gordon and Edelman JJ is particularly instructive.[13] It is useful to record paragraph 199 of those reasons as follows –
Moreover, as Gummow J was at pains to point out in Roxborough v Rothmans of Pall Mall Australia Ltd,[14] ours is not a system in which the theory of unjust enrichment comes first and decisions must then be made to comply with it. It is a common law system of stare decisis that develops over time and through which general principle is derived from judicial decisions. Unjust enrichment may be conceived of as a “unifying legal concept”[15] which serves a “taxonomical function”[16] that assists in understanding why the law recognises an obligation to make restitution in particular circumstances. But it is in no sense an all-embracing theory of restitutionary rights and remedies pursuant to which existing decisions are to be accepted or rejected by reference to the extent of their compliance with its proportions.[17] Consequently, where a doctrine of the common law has grown up over several centuries – as has the availability of restitutionary relief for work and labour done under a partially completed entire obligation following termination of a contract for breach – and the doctrine remains principled and coherent, widely accepted and applied in kindred jurisdictions, it can hardly be regarded as a sufficient basis to discard it that some of the conceptions which historically informed its gestation have since changed or developed over time. Whatever doubts might remain about the theoretical underpinnings of the doctrine by reason of the problematic nature of its origins or subsequent developments in the law of contract, it is too late now for this Court unilaterally to abrogate the coherent rule simply in order to bring about what is said to be a greater sense of theoretical order to the range of common law remedies.
[12] (2019) 93 ALJR 1164.
[13] (2019) 93 ALJR 1164 (at [150], [181], [183], [198], [199], [212] and [213]).
[14] (2001) 208 CLR 516 at 544 [72]‑[73].
[15] Pavey & Matthews (1987) 162 CLR 221 at 256‑257 per Deane J; David Securities v Commonwealth Bank of Australia (1992) 175 CLR 353 at 375 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ; Lumbers v W Cook Builders Pty Ltd (in liq) (2008) 232 CLR 635 at 665 [85] per Gummow, Hayne, Crennan and Kiefel JJ.
[16] EquuscorpPty Ltd v Haxton (2012) 246 CLR 498 at 516 [30] per French CJ, Crennan and Kiefel JJ; Australian Financial Services & Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 579 [20] per French CJ, 618 [138] per Gageler J.
[17]Roxboroughv Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 at 543 [70] per Gummow J.
And this –
Until recently, one view of English restitutionary jurisprudence was to treat the concept of unjust enrichment as if it were a definitive legal principle that supplies a sufficient premise for direct application by rigid, uniform application of questions concerning whether there is (1) an enrichment, (2) at the plaintiff's expense, (3) in circumstances of an unjust factor, and (4) subject to defences. Within that rigid approach, there was something of a tendency to treat tests for and measures of “enrichment” as governed by a single principle; thus encouraging a view of the benefit abstracted from the contract price. More recently, some members of the Supreme Court of the United Kingdom have cautioned against mechanical application of the “four questions” of enrichment, expense, injustice and defences. In Swynson Ltd v Lowick Rose Llp, Lord Sumption JSC denied[18] that English law had a universal theory which explains all of the cases in which restitution is available. In view of those developments, it may be that the law of restitution in the United Kingdom and the law of restitution in Australia are no longer quite as far apart as was previously imagined.
Whether or not that is so, however, in this country restitution arises in recognised categories of case and is not necessarily available whenever, and to the extent that, a defendant is enriched at the plaintiff's expense in circumstances that render the enrichment unjust.[19] Although, over time, novel categories of case may come to be recognised, or existing categories refined, that must occur in accordance with the common law's ordinary process of incremental development: by analogy with decided cases, albeit that, within that process of development and refinement, the four questions may serve to focus attention on the nature, availability and measure of restitutionary relief, and so assist in structuring understanding as to avoid the development of the law of unjust enrichment degenerating into an exercise in idiosyncratic discretion.
[18] [2018] AC 313 at 326 [22].
[19] David Securities (1992) 175 CLR 353 at 378‑379 per Mason CJ, Deane, Toohey, Gaudron and McHugh JJ; Australian Financial Services & Leasing Pty Ltd v Hills Industries Ltd (2014) 253 CLR 560 at 595 [73]‑[74] per Hayne, Crennan, Kiefel, Bell and Keane JJ, 618 [139] per Gageler J.
That is to highlight that it may not be correct to characterise a claim as one of money had and received because the claim is now best characterised as one in restitution.
Returning to the facts of this case, on 2 June 2020 the respondent amended her application in a case to seek orders permitting funds to be released to meet her solicitor’s fees of $119,557.49.
The respondent made a further affidavit on 2 June 2020. It was a useful document updating relevant events. She deposed to the following –
a)the liquidator of B Pty Ltd (in liq) brought a claim against the applicant and Mr K for insolvent trading for which the liquidator seeks $4,072,380;
b)the liquidator of BB Pty Ltd (in liq) has asserted an entitlement to make a claim from the applicant and D Pty Ltd for insolvent trading in the aggregate amount of $2,322,801.20, although the liquidator of that company had not prepared a statement of claim;
c)J Pty Ltd had obtained a default judgment against the husband and Mr K for $514,528.72;
d)the total of those three amounts is $6,909,709.92;
e)the application by the liquidator of B Pty Ltd (in liq) to intervene is pending;
f)her income is $575 fortnightly;
g)she has received only two child support payments, each of a little over $1000 since separation;
h)she has pressing debts of almost $30,000; and
i)she has unpaid legal fees of $289,884.49.
On behalf of J Pty Ltd, its solicitor Ms T made an affidavit on 6 March 2020 in relation to the application returnable before Williams J on 21 July 2020. Ms T deposed to the following –
a)on 21 September 2017 the applicant and Mr K gave a guarantee to J Pty Ltd to guarantee payment to J Pty Ltd of any moneys owing by B Pty Ltd to J Pty Ltd;
b)the guarantee given by the applicant and Mr K contained a charging clause;
c)on 13 September 2018 J Pty Ltd lodged caveats on property owned by Mr K in Suburb U and on property owned by the wife in Suburb V;
d)J Pty Ltd lodged the caveats over Suburb V because the applicant lodged his own caveat on that land asserting the existence of an implied, resulting or constructive trust;
e)she asserted “the caveat lodged by J Pty Ltd charged (the applicant’s) interest in the property registered in the name of the wife”;
f)with costs the judgment debt obtained in the County Court by J Pty Ltd against the applicant and Mr K was $514,528.72 as at 25 October 2019; and
g)J Pty Ltd later agreed not to hold up settlement of the two properties.
On 3 July 2020 J Pty Ltd applied to intervene in this litigation.
On 3 July 2020 Mr AA a solicitor and member of the firm of solicitors acting for J Pty Ltd swore an affidavit filed on 3 July 2020. The cover of the affidavit records, erroneously, that the affidavit was made by one Ms DD. In the affidavit Mr AA provided documentary evidence to support J Pty Ltd’s contention about –
a)the credit application to it from B Pty Ltd;
b)the guarantee given by the applicant and Mr K; and
c)J Pty Ltd’s caveats.
Mr AA swore that by orders made in this litigation on 10 March 2020 J Pty Ltd was ordered to withdraw its caveats. Consent orders were made by Williams J to that effect. He said J Pty Ltd wished to be joined as a party. Greg Oliver of KHQ, the wife’s solicitors, affirmed an affidavit on 17 July 2020 in which he pointed out that J Pty Ltd had not provided invoices to support J Pty Ltd’s claim for $504,006.67.
On 21 July 2020 Williams J heard the return of various applications. The order recorded that counsel for Mr A also appeared for B Pty Ltd (in liq).[20] Ms Vairawanathan, a solicitor, appeared for the trustee-in-bankruptcy and Mr Oliver, a solicitor, appeared for the husband and D Pty Ltd. Her Honour made consent orders as follows –
a)Mr A and B Pty Ltd (in liq) were granted leave to intervene and be joined in this proceeding;
b)Mr A and B Pty Ltd (in liq) had leave to file and serve an amended statement of claim;
c)the trustee-in-bankruptcy was required to file material in support of his application to intervene;
d)the wife withdrew[21] her applications in a case filed 19 August 2019, 28 January 2020 and 2 June 2020; and
e)the husband withdrew his application in a case filed 13 November 2019.
[20] Strictly speaking at no stage was Mr A appearing in his personal capacity as he was involved in this proceeding as a liquidator and to that end, by reason of the appointment of Mr A as liquidator, B Pty Ltd (in liq) had no separate standing to appear as second intervenor.
[21] Strictly speaking those applications were better described as being dismissed without adjudication on their merits as there is doubt about the entitlement under the Family Law Rules to “withdraw” an application.
All other applications were adjourned to the Judicial Duty List on 21 September 2020. I heard that.
The liquidator of B Pty Ltd (in liquidation) made minor amendments to his statement of claim on 15 July 2020. No substantive amendments were made to the statement of claim.
Yet further amendments were made to the liquidator’s statement of claim on 24 July 2020. In essence, by those further amendments, the liquidator abandoned claims against Mr K. The liquidator did not press his claim that between 2017 and 2019 the company incurred unsecured debts totalling $4,938,552.01 and that the husband and Mr K failed to prevent the company from incurring those debts with the consequence that the liquidator did not press his claims for relief under s 588G of the Corporation Act against the husband and Mr K.
Other affidavit material continued to unfold. Shortly after 21 July 2020, Williams J requested me to take this case, which I did.
The husband made an affidavit on 13 August 2020. In it, and relevantly condensed, he deposed to the following –
a)the total net assets to be divided in this case was $2,014,529;
b)the mother was the primary carer for the children;
c)he was the main financial contributor;
d)he is bankrupt;
e)he hopes for a shared care arrangement with the children
f)he owes Lennon Lawyers, his solicitors, $221,011.96 in unpaid legal fees; and
g)he owes another firm of solicitors about $45,000 in unpaid legal fees in relation to a proceeding brought by the Environmental Protection Authority against him.
Mr C, the applicant’s trustee-in-bankruptcy made an affidavit on 13 August 2020 in support of orders granting him leave to intervene in this proceeding. Mr C stated that the bankrupt was indebted to Lennon Lawyers for $141,792.08. Mr C expressed the hope for resolution of this proceeding to avoid the costs of trial.
Patrick Lennon made an affidavit on 13 August 2020. He said the bankrupt had paid him $5230 only of the sum of $228,011.96 owing. He said he had been requested to act for the trustee-in-bankruptcy. He said he takes the view that no conflict of interest exists. He said he anticipated that future fees would amount to $100,000.
The wife updated the information on which she wished to rely by making a further affidavit on 31 August 2020. In it she repeated many of her earlier statements, especially about the debts owed by the husband’s bankrupt estate totalling $6,909,709.92. She also stated that BB Pty Ltd (in liq) had not applied to intervene yet it had claims against the husband and against D Pty Ltd which holds, so she said, the majority of the parties’ assets.
On behalf of the liquidator of B Pty Ltd (in liq), Amy Dawn Sheggerud-Woods made an affidavit on 21 September 2020 to which she exhibited correspondence on the question of Lennon Lawyers’ entitlement to act having regard to the liquidator’s contention that a conflict of interest existed between Lennon Lawyers in previously acting for the husband yet that firm wanted to now represent the trustee. At its core, the liquidator contended that a conflict existed because –
a)Lennon Lawyers acted for Mr Decola in the Family Court Proceeding during the period of August 2018 to July 2020;
b)as principal of Lennon Lawyers, Mr Lennon had deposed on oath that he had the care and conduct of the Family Court proceeding on behalf of Mr Decola together with Ms Melanie Vairawanathan;
c)throughout the course of its retainer, Lennon Lawyers –
i)gained considerable knowledge as to Mr Decola’s personal circumstances; and
ii)received confidential information about Mr Decola and in particular his financial circumstances
all of which –
iii)was relevant to the trustee (whose role was to realise Mr Decola’s assets with the aim of achieving a dividend payable to Mr Decola’s creditors); and
iv)could be used to unfair advantage against Mr Decola.
The merits of those contentions are canvassed below.
Patrick Lennon of Lennon Lawyers made a responding affidavit on 25 September 2020. Relevantly paraphrased, Mr Lennon stated that he was satisfied no conflict existed. Of the more important reasons asserted were the following –
a)to the extent that the issue of informed written consent has been raised, Mr Decola provided informed written consent;
b)Mr Lennon had considered it to be of assistance to creditors and to the economic disposition of the proceeding for the applicant to cooperate with his bankruptcy trustee;
c)the applicant had struggled to provide Lennon Lawyers with detailed instructions about the financial circumstances of the matrimonial pool of assets and the businesses, the main reason that the respective liquidators, BB Pty Ltd and B Pty Ltd, seized documents and each of the liquidators was asserting that the applicant had or ought to have had certain books, records and documents;
d)even at the date of the bankruptcy Mr Lennon was investigating various issues pertaining to the pool inclusive of D Pty Ltd acquiring the property in Suburb Y, as well as the disposition of monies relating to that transaction; and
e)Mr Lennon did not understand the benefit of the trustee’s intervention.
A debate emerged about whether a particular case said by Ms Sheggerud-Woods to be relevant was distinguishable.
Self-evidently Mr Lennon was very keen to remain in the case.
On 25 September 2020 Mr C made another affidavit. Significantly, Mr C exhibited to his affidavit a list of potential creditors of the husband’s bankrupt estate known to the husband as at the date he completed his statement of affairs. Mr C deposed as follows –
I believe based on the advice that I received, the Husband is likely to be entitled to an adjustment of the property of the Husband and his Wife in his favour in the present proceedings. The net proceeds of any such order made in favour of the Husband would be vested in me to meet the amounts owed to the Husband's bankrupt estate, its creditors and to be distributed in accordance with the provisions of the Bankruptcy Act 1966. From the information that I have received to date from the Husband I do not believe that the Wife's assertions in her affidavit that there are no assets in the Husband's bankrupt's estate or that he does not hold interest or entitlements to material assets in the matrimonial pool. The Husband has expressed that his assets held in the business premises of B Pty Ltd (In Liquidation) have gone missing and they were worth approximately half a million dollars. I have not received any evidence as at the date of the Affidavit.
Prior to 21 September 2020, various parties had on foot an array of applications for determination by me in the Judicial Duty List. They include the following –
a)the application in a case filed on 19 August 2020 by Lennon Lawyers on behalf of the applicant’s trustee-in-bankruptcy for leave to the trustee-in-bankruptcy to intervene;
b)the trustee-in-bankruptcy’s application for the division of the net pool of this case as to 55% to the wife and 45% to the trustee, the trustee thereafter distributing that 45% to unsecured creditors of the bankrupt estate of the husband;
c)the wife’s contentions that the trustee’s application in a case be dismissed;
d)alternatively, the wife’s application for orders restraining Lennon Lawyers from acting for the trustee-in-bankruptcy if the trustee’s application for joinder were granted; and
e)the wife’s application for the trustee to remove caveats on properties in Suburb V and Suburb H.
The appearances on 21 and 29 September 2020
The appearances on 21 September 2020 resulted mainly in procedural orders requiring the parties to file and serve further affidavit material and submissions.
I gave the parties a week within which to undertake the further steps ordered and I adjourned the proceeding to 29 September 2020.
On 25 September 2020 the solicitors for the wife wrote to Lennon Lawyers stating that the trustee-in-bankruptcy had not provided a statement of claim in accordance with paragraph 5(b) of the orders made by Williams J on 21 July 2020. The wife’s solicitors proposed a two week adjournment to enable the trustee to provide that statement of claim. Mr G. J. Moloney of counsel told me he was unaware of that letter when he appeared before me on 29 September 2020. Ms Bryan of counsel who appeared for the wife pressed with some force for her client’s opposition to the trustee’s intervention application. She also pressed for the conflict application involving the trustee’s solicitors to be determined. The trustee’s statement of claim had not then been prepared so the way the trustee cast his case was largely unknown. I made orders extending the date for the provision of the trustee’s statement of claim to 13 October, for submissions to be filed by 14 October and for a hearing to proceed on 15 October 2020.
The parties duly prepared submissions.
The Trustee’s contentions
On behalf of the trustee-in-bankruptcy Mr Garrie Moloney of counsel provided written submissions dated 25 September 2020 and further submissions dated 15 October 2020. Each was a particularly helpful distillation of relevant factual matters and applicable legal principles. In order to prevent these reasons from being unduly expansive, it is necessary to synthesise the main points recorded in Mr Moloney’s two written submissions. The key points were as follows –
a)s 92(1) of the Family Law Act and Rule 6.05 of the Family Law Rules governed this application;
b)according to the decision in In the Marriage of Harris; re Banaco Pty Ltd,[22] s 92 preserves the fundamental principle of natural justice and provides that a person against whom a claim is made or against whom an order is proposed to be made shall have a reasonable opportunity of appearing and presenting his case;
c)according to Barro & Barro[23] as well as Karllsson & Karllsson[24] and John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd[25] it is necessary to identify the interest of a third party in a particular case and to make orders which do justice in the circumstances;
d)in this case, the husband will no longer participate in the property proceeding in this case in view of the sequestration order made against his estate;
e)the trustee is a necessary party without whose intervention no party will contradict or test the respondent’s claims, as was canvassed in Kanelos & Kanelos;[26]
f)in Panwar & Panwar,[27] the authorities such as Official Trustee-in-Bankruptcy v Lopatinsky[28] and Trustee of the Property of Lemnos (a bankrupt) v Lemnos[29] were considered; and
g)the wife in this case is not prejudiced by the trustee’s intervention.
[22] (1980) 6 Fam LR 450.
[23] (1982) FamCA 77.
[24] (2015) FamCA 51.
[25] (2010) 241 CLR 1.
[26] [2018] FamCA 524.
[27] [2020] FamCA 480.
[28] (2003) 30 Fam LR 499.
[29] (2009) 41 Fam LR 120.
The wife’s contentions
As has already been recorded, the wife opposed the trustee’s grant of leave to intervene in this proceeding. She advanced two principle grounds, namely –
a)the orders made by Williams J for the filing of the trustee’s statement of claim had not been complied with; and
b)“the trustee’s intervention is not in a matrimonial cause.”[30]
[30] This was the nomenclature used by the counsel for the wife.
Before descending to a detailed consideration of the wife’s contentions, it is utile to point up that in Panwar & Panwar[31] I examined in very considerable detail the interrelationship between a claim made by one spouse under s 79 and a claim by a trustee-in-bankruptcy or creditors generally and the correct way a court should proceed.[32] Those passages should be taken to be incorporated into these reasons for judgment. As it happened, counsel for the trustee-in-bankruptcy in Panwar is also counsel for the liquidator of B Pty Ltd (in liq) in this case. Be that as it may, certain points in overview may be extracted from my distillation of the prevailing learning as was espoused in Panwar. Among them is the following –
a)the decisions in In the Marriage of Prince,[33] In the Marriage of Rowell; Deputy Commission of Taxation (Intervenor),[34] and In the Marriage of Biltoft[35] stand for the proposition that where it is not possible to quantify the debts owing to others the court must ascertain the value of the property by deducting the total liabilities from the gross value of the assets;
b)among the many propositions for which the High Court decision in Ascot Investments Pty Ltd v Harper[36] stands is the notion that the court must find and the Family Court cannot ignore the interests in property held by third parties; and
c)the decision in In the Marriage of Biltoft and Re Chemassie & Commissioner of Taxation (No 3)[37] stands for the proposition that a party to a marriage in a s79 application does not enjoy a priority over the rights of third parties.
[31] [2020] FamCA 480.
[32] Those observations are between [109] and [133] of my reasons for judgment in Panwar & Panwar [2020] FamCA 480.
[33] (1984) 9 Fam LR 481.
[34] (1989) 96 FLR 449.
[35] (1995) 19 Fam 82.
[36] (1981) 148 CLR 337; applied in In the Marriage of Bittolft (1995) 19 Fam LR 82.
[37] (1990) 13 Fam LR 724.
It then became necessary to record and examine the contentions alleged on behalf of the wife. They may be condensed into the following points –
a)the trustee claims 45% of the net asset pool;
b)certain evidence exists in this case, presently contested, that the husband does not own any property in his own name aside from his personal effects;
c)the trustee has not adduced any evidence about any property vested in the trustee pursuant to provisions of the Bankruptcy Act;
d)the two companies previously operated by the husband namely B Pty Ltd and BB Pty Ltd are in liquidation and only the first has intervened in this proceeding;
e)so the wife asserted, the property adjustment contemplated by the trustee could only entail a transfer to the bankrupt estate of property held by the wife or controlled exclusively by her, namely the assets and undertaking of D Pty Ltd;
f)citing Johnson & Johnson[38] and using the wording of counsel for the wife “ s 79 does not confer upon the trustee any cause of action against a non-bankrupt spouse”; and
g)the most a trustee-in-bankruptcy can hope to achieve, according to counsel for the wife in a s 79 proceeding is the preservation of the bankrupt estate as the trustee finds it since the trustee is appointed and here, no vested property is alleged.
[38] (1999) 26 Fam LR 475.
Before analysing those contention it is relevant to point up that it is erroneous to describe a s 79 application as a “cause of action” as counsel for the wife contended in paragraph 19 of her written submissions dated 25 September 2020. Section 79 is headed “alternation of property interests” and the body of the section itself speaks of “property settlement proceedings.” The phrase “cause of action” does not appear in s 79.[39]
[39]Dougherty v Dougherty (1987) 163 CLR 278.
It seems to me that the proper analysis of the trustee’s participation in this litigation begins with an understanding of the role and function of the trustee-in-bankruptcy. Mr C was appointed as trustee of the bankrupt estate of the husband on 9 July 2020 by order of Registrar Belcher. One of the more fundamental roles of a trustee-in-bankruptcy is to get in assets to which the trustee is entitled and to rateably distribute those assets among the unsecured creditors, pari passu. Frequently, a trustee-in-bankruptcy becomes embroiled in family law litigation and the Family Law Act contains specific provisions that recognise the consequences of a party to family law litigation becoming a bankrupt during the interlocutory course of the family law litigation. The trustee-in-bankruptcy advances the interests of the bankrupt’s unsecured creditors. Where prior to his or her bankruptcy the bankrupt engaged in nefarious conduct in relation to his or her assets, the trustee possesses power under the Bankruptcy Act to examine the bankrupt. The trustee is independent of the bankrupt and owes fiduciary duties to various persons and is an officer of the court.
Section 79(11) of the Family Law Act, mandatory in terms, requires a trustee-in-bankruptcy to be joined as a party to a s 79 proceeding. That section is more convoluted than it needed to be. But it essentially amounts to a mandatory requirement that the trustee be joined as a party where –
a)in a s 79 application;
b)after the proceeding is commenced and before it is tried one party becomes bankrupt;
c)the trustee of the bankrupt party applies to the court to be joined;
d)the court considers the interests of the bankrupt’s creditors may be adversely affected by any order made following the s 79 trial.
Once the trustee-in-bankruptcy is joined as a party, pursuant to s 79(12) the bankrupt has no standing in relation to vested bankrupt property in relation to the bankrupt. I addressed this issue in Walford & Bantock[40] and my decision was upheld on appeal.[41] The mandatory foreclosure on any entitlement of the bankrupt to participate in the proceeding once a trustee is appointed is restated in s 79(13), subject to there being exceptional circumstances.
[40] [2020] FamCA 78.
[41]Walford & Bantock and Anor [2020] FamCAFC 210.
Having regard to those considerations, it seemed to me that the arena of debate boiled down to whether I could be satisfied under s 79(11)(d) that “the interests of the bankrupt’s creditors may be affected by the making of an order” under s 79. If so, s 79(11) mandated that the trustee be joined.
Importantly, the words “the bankrupt’s creditors may be affected” appear in s 79(11). It seemed to me the creditors may be affected in this case.
Then it became relevant to ascertain the composition of the bankrupt’s creditors. Mr C swore to the existence of creditors whose debts aggregated as to $812,837.00 in value. While they will obtain no priority in this case, those creditors’ interests “may be affected” by the making of a s 79 order. It is not such a leap in logic to observe that any order in favour of the wife commensurately erodes whatever distribution they may legitimately expect to receive under the Bankruptcy Act.
In my view s 79(11) was enlivened in the circumstances of this case. An order should be made for the joinder of the trustee-in-bankruptcy.
Before leaving the joinder question, it is necessary to say something about the submissions of the wife’s counsel concerning the decisions in Trustee of the Property of G. Lemnos (a bankrupt) v Lemnos[42] and Johnson v Johnson.[43]
[42] (2009) 41 Fam LR 120.
[43] (1999) 26 Fam LR 475.
First, as I held in Panwar v Panwar, encapsulating a neat synthesis of the ratio decidendi for which Lemnos stands is not an altogether straight forward exercise. Between paragraphs 118-126 I analysed each judge’s reasons. I also examined Professor Parkinson’s criticism of those cases[44] in paragraph 128 of my reasons in Panwar.
[44] Patrick Parkinson, Why are Decisions on Family Property So Inconsistent (2016) 90 ALJ 498, 502.
Second, and by far more importantly, in Panwar I pointed out that several other decisions call for examination beyond Lemnos and Johnson. If I do not consider those other cases in the hereafter in this litigation, as counsel for the wife invited me to do so, the resultant error would lead axiomatically to appealable error and I do not wish to do that.
I order the joinder of the trustee.
The Conflict Application
The wife advanced the contention that Lennon Lawyers was a significant creditor of the bankrupt and as such it was inappropriate for that firm to represent the trustee-in-bankruptcy.
Counsel for the wife relied on authorities in this court, the oft-cited decision of Brereton J in Kallinicos v Hunt[45] and the West Australian decision of Holborow v Macdonald Rudder.[46] As so often happens in this jurisdiction, counsel relied only or predominately on authorities of this court. This court has been in existence since 1975. The jurisprudence of courts restraining solicitors from acting against former clients or acting where the administration of justice is put in jeopardy is of such undisputed veneration as may not be not doubted. But that jurisprudence emerged from other courts, it emerged centuries ago. Yet here, counsel for the wife omitted altogether cases that paved the learning in this area. Those cases include the 17th century decision of Lord Eldon LC in Earl of Cholmondeley v Lord Clinton,[47] Talbot v General Television Corporation Pty Ltd,[48] Hayne J’s decision in Farrow Mortgage Services Pty Ltd (in liq) v Mendall Properties Pty Ltd [49] and Lionheart Management Group Pty Ltd v Stanley[50] to name but a few. Sandro Goubran SC has written in learned terms on point in Conflicts of Duty: the Perennial Lawyers’ Tale.[51]
[45] (2005) 64 NSWLR 561.
[46] [2002] WASC 265.
[47] [1815] 34 ER 515.
[48] [1980] VR 224.
[49] [1995] 1 VR 1, 5.
[50] [1999] VSC 502.
[51] (2006) 30 Melbourne University Law Review 88.
It cannot be assumed that the learning is exhaustively captured by the authorities on which the wife relied.
On behalf of the wife, several propositions were urged in support of the contention that the injunction she sought should be ordered. They include the following –
a)Mr Lennon said the bankrupt owed his firm $228,012;
b)in advancing the interests of creditors, it is conceivable that his personal interests in pursuing the debt owed to him may conflict, for example, if the general body of unsecured creditors wished to settle yet Mr Lennon wished to press on;
c)under s 79(10A) ordinarily general creditors are not permitted to participate;
d)rule 12 of the NSW Legal Profession Uniform Law Australian Solicitors Conduct Rules, applicable in Victoria, forbids conflict and interest;
e)no exceptions to that rule apply here;
f)at first blush Mr Lennon is contravening rule 12;
g)consent of the client does not cure the conflict;
h)financial self-interest and a position of influence could well impair the duty that Mr Lennon owes the court;
i)a fair minded observer may conclude that the proper administration of justice is compromised by permitting Mr Lennon to represent the trustee while the applicant owed Mr Lennon such a large sum; and
j)the trustee should be independently represented.
Mr G. J. Moloney who represented the trustee before me made detailed submissions on the point. He submitted as follows –
a)the learning in this court is to be found in Osferatu & Osferatu;[52]
b)in Billington & Billington[53] it was held that the grant of injunctive relief should be exercised with great caution;
c)the wife has no standing to seek the restraint she wishes ordered;
d)the wife pointed to no evidence to support her application;
e)the trustee’s interests are directly aligned with those of the husband;
f)nothing Lennon Lawyers will do could be said to involve that firm acting against the interests of the husband, citing Makfam Pty Ltd v CV Australia Pty Ltd[54] and ACN 092 675 164 Pty Ltd v Suckling;[55] and
g)the administration of justice ground is not made out in the circumstances of this case.
[52] (2015) 53 Fam LR 433.
[53] [2008] FamCA 409.
[54] [2020] VSC 296.
[55] (2018) 56 VR 448.
Consideration
Various observations in Naczek & Dowler[56] can be construed as meaning that the fact of solicitors enjoying a lien does not represent an impairment in the exercise of their duty to the court. As to the correct construction of a lien generally, sometimes wrongly termed a “fruits of judgment lien” I repeat my observations in Wei & Wei (No 3)[57] and prefer the analysis there set out.
[56] [2011] FamCAFC 179.
[57] [2020] FamCA 98.
At all events, in this case the administration of justice ground is of particular importance. So is the ground of imparting confidential information. It became necessary to examine each.
One of the most learned treatments of the subject of the court controlling solicitors where a risk exists of their contravening the duties they owe is to be found in the reasons for judgment of the Court of Appeal of the Supreme Court of Victoria[58] in Spincode Pty Ltd v Look Software Pty Ltd,[59] judgment in which was handed down on 21 December 2001, that is to say almost four years earlier than the decision of Brereton J in Kallinicos v Hunt.[60] The following is a brief examination of the reasons in Spincode –
a)early considerations of circumstances where solicitors changed sides were given in cases that included Earl of Cholmondeley v Lord Clinton,[61] Beer v Ward,[62] Bricheno v Thorp,[63] Hutchins v Hutchins,[64] Johnson v Marriott,[65] Griffiths v Griffiths,[66] Parrat v Parrat,[67] and Dietrichson v Cabburn;[68]
b)in those cases the jurisdiction to restrain a solicitor from acting against a former client was grounded in two sources – one, irreparable injury which supports an injunction – and two, the general jurisdiction that a superior court of record exerts over an officer of the court, as was made plain by Sir Lancelot Shadwell VC in Davies v Clough;[69]
c)many authorities exist to support the view that a solicitor, as an officer of the court, may be prevented from acting against a former client even though a likelihood of danger of misuse of confidential information is not shown, those authorities including Earl of Cholmondeley v Lord Clinton, Beer v Ward, Bricheno v Thorp, and Grimwade v Meagher;[70]
d)the duty of loyalty canvassed in such cases as Farrington v Row,[71] McBride & Partners,[72] Wan v McDonald,[73] Carindale Country Club Estate Pty Ltd v Astil,[74] McVeigh v Linen House Pty Ltd[75] and Pilmer v Duke Group Ltd[76] may well support an order preventing a solicitor who has acted for one client from acting for another;
e)the view that is fair and just is that the equitable obligation of loyalty is not observed by a solicitor who acts against a former client in the same matter; and
f)it is possible to contend on principles of implied terms in a contract of retainer between the solicitor and his client[77] that the solicitor would not act against the client in the dispute in relation to which the solicitor had been first retained.
[58] Brooking, Ormiston and Chernov JJA.
[59] (2001) 4 VR 501.
[60] (2005) 64 NSWLR 561.
[61] [1815] 34 ER 515.
[62] [1821] 37 ER 779.
[63] [1821] 37 ER 864.
[64] (1825) 1 Hog 315.
[65] [1833] 149 ER 725.
[66] [1843] 67 ER 242.
[67] [1848] 64 ER 116.
[68] [1846] 41 ER 861.
[69] (1837) 59 ER 105.
[70] [1995] 1 VR 446, that case involved counsel not a solicitor, but the distinction is immaterial in my view.
[71] [1985] 1 NZLR 83.
[72] [1985] 1 NZLR 83.
[73] (1992) 33 FCR 491.
[74] (1993) 42 FCR 307.
[75] [199] 3 VR 394.
[76] (2001) 207 CLR 165.
[77]BP Refinery (Westernport) Pty Ltd v Hasting Shire Council (1977) 180 CLR 266.
Ormiston and Chenov JJA agreed with Brooking JA’s reasoning.
As is immediately apparent from that examination of Spincode, the main import was on the equitable principles that restrain a solicitor from acting against a former client. It could fairly be said that in this case the wife’s complaint is not so much a complaint grounded in that contention but rather a complaint grounded in a conflict of duty and interest or a complaint based on the administration of justice ground. To my mind, it became necessary to examine each.
The wife placed store on the conflict of duty and interest proposition. In essence, she said –
a)Mr Lennon was owed a substantial unpaid sum for fees for having acted for the bankrupt prior to his bankruptcy;
b)Mr Lennon did not say whether he lodged proof of debt with the trustee;
c)Mr Lennon will or may conduct this litigation with a view to obtaining for himself a favourable return in the recovery of amounts owed to him; and
d)that may have the effect of compromising his duty to the court and his duty to his client (the trustee) and it may also increase the likelihood that Mr Lennon will or may impart to the trustee information obtained by Mr Lennon in confidence from the bankrupt.
So far as the administration of justice ground was concerned, the wife relied on the observations of Brereton J in Kallinicos v Hunt. There Brereton J undertook an examination of the authorities of the three bases in which solicitors may be restrained from acting. While his Honour’s review was deep and it has been widely embraced, in my view the examination given to the subject by Brooking JA in Spincode was more jurisprudentially exhaustive. Be that as it may, Brereton J referred to and relied on the decision of Gillard J in Yunghanns v Elfic Ltd[78] where Brereton J held as follows –
[78] [1998] VSC 374.
In Yunghanns v Elfic Ltd (formerly known as Elders Finance & Investment
Co Ltd) (Supreme Court of Victoria, Gillard J, 3 July 1998, unreported),
Gillard J thought that the authorities established three bases for the grant of a injunction to restrain a solicitor acting against his former client: protection of confidences; breach of fiduciary obligations of trust and integrity; and the
administration of justice. With respect to the third basis his Honour said (at 9) that the court had an inherent power to control and deal with members of the legal profession and to ensure that the administration of justice was not brought into disrepute by the conduct of members of the profession.
Then, drawing the authorities together, especially those relating to the administration of justice ground, Brereton J postulated eight bullet points. They were as follows –
The foregoing authorities establish the following:
·during the subsistence of a retainer, where the court's intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court's jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests;[79]
[79]Bolkiah, Prince Jefri v KPMG [1999] 2 AC 222.
·once the retainer is at an end, however, the court's jurisdiction is not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure);[80]
[80] Ibid.
·after termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court's intervention, such duty having come to an end with the retainer; [81]
[81] Bolkiah, Prince Jefri v KPMG [1999] 2 AC 222; Belan v Casey [2002] NSWSC 58; PhotoCure ASA v Queen’s University at Kingston (2002) 56 IPR 86; British American Tobacco Australia Services Ltd v Blanch [2004] NSWSC 70; Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550; contra Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501; McVeigh v Linen House Pty Ltd [1999] 3 VR 394; Sent v John Fairfax Publication Pty Ltd [2002] VSC 429.
·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.[82] Prince Jefri Bolkiah does not address this jurisdiction at all. Belan v Casey and British American Tobacco Australia Services Ltd are not to be read as supposing that Prince Jefri Bolkiah excludes it. Asia Pacific Telecommunications Ltd appears to acknowledge its continued existence;
[82] Everingham v Ontario (1992) 88 DLR (4th) 755; Black v Taylor [1993] 3 NZLR 403; Grimwade v Meagher [1995] 1 VR 446; Newman v Phillips Fox (1999) 21 WAR 309; Mitchell v Pattern Holdings Pty Ltd [2000] NSWSC 1015; Spincode Pty Ltd v Look Software Pty Ltd (2001) 4 VR 501; Holborow v Rudder [2002] WASC 265; Re; Williamson v Nilant [2002] WASC 225; Bowen v Stott [2004] WASC 94; Law Society (NSW) v Holt [2003] NSWSC 629.
·the test to be applied in this inherent jurisdiction is whether a fair-minded, 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;[83]
·the jurisdiction is to be regarded as exceptional and is to be exercised with caution;[84]
·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;[85]
·
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.[86]
[83] Everingham v Ontario (1992) 88 DLR (4th) 755; Black v Taylor [1993] 3 NZLR 403; Grimwade v Meagher [1995] 1 VR 446; Holborow v Rudder [2002] WASC 265; Bowen v Stott [2004] WASC 94; Asia Pacific Telecommunications Ltd v Optus Networks Pty Ltd [2005] NSWSC 550.
[84] Black v Taylor [1993] 3 NZLR 403; Grimwade v Meagher [1995] 1 VR 446; Bowen v Stott [2004] WASC 94.
[85] Black v Taylor [1993] 3 NZLR 403; Grimwade v Meagher [1995] 1 VR 446; Bowen v Stott [2004] WASC 94; Re; Williamson v Nilant [2002] WASC 225.
[86] Black v Taylor [1993] 3 NZLR 403; Bowen v Stott [2004] WASC 94.
To my mind the third last, second last and final points are key in the determination of the fate of the wife’s application to restrain Lennon Lawyers from continuing to act for Mr C.
Many of the decisions surveyed above arose in part on account of the fact that the courts concerned were courts of unlimited jurisdiction, possessed of “a well of undefined powers” on which they might draw as part of their inherent jurisdiction to ensure the proper administration of justice.[87] As the Family Court’s powers derive from statute, the width and scope of its powers including such powers as are incidental and necessary to the exercise of the jurisdiction or the powers so conferred is a matter of statutory construction, according to the High Court in DJL v The Central Authority.[88] This court has previously held in Sellers v Burns[89] that that the administration of justice ground applies in this court as a basis for enjoining a solicitor from acting.
[87] Statements to that effect emerge in cases such as Grasby v The Queen (1989) 168 CLR 1, 16, R v Forbes; ex parte Bevan (1972) 127 CLR 1, 72 and DJL v The Central Authority (2000) 20 CLR 226. See also Ian Dallen, Restraining a lawyer from acting in and of the administration of justice – exceptional circumstances and caution prevail (2017) 6 JCivLP 31.
[88] (2000) 201 CLR 226.
[89] (2019) 59 Fam LR 593, 612.
The fair minded reasonably informed member of the public test is an objective one, as was held by the Court of Appeal of the Supreme Court of Western Australia in Tottle Christensen v Westgold Resources NL.[90]
[90] [2003] WASCA 224.
The administration of justice ground for enjoining solicitors from acting also has at its core the solicitor’s overriding duty to the court. That duty incorporates duties of honesty, candour and fairness. The duty owed to the court overrides a solicitor’s duty to his or her client, as was held by the High Court in Giannarelli & Shulkes v Wraith.[91] In The Council of the Queensland Law Society Inc v Wright[92] the Court of Appeal held that the effective administration of justice and public confidence in it substantially depends on the honestly and reliability of its practitioners including their submissions.
[91] (1988) 166 CLR 543.
[92] [2001] QCA 58.
Of course, the consequence of enjoining a solicitor from acting for his or her client is the client’s deprivation of his, her or its solicitor of choice. Such an order is usually maintainable where there is a real and sensible risk of lack of objectivity on the part of the legal practitioner as was held in Grimwade v Meagher and Kallinicos v Hunt. A legal practitioner having a personal interest in the outcome of a proceeding is also a recognised ground as was held in Mitchell v Burell[93] and Bolitho v Banksia Securities Ltd (No. 4).[94]
[93] [2008] NSWSC 772.
[94] [2014] VSC 582.
I entertain no doubt whatsoever that an injunction must be granted to restrain Lennon Lawyers from acting hereafter for the trustee-in-bankruptcy. In my view a fair minded reasonably informed member of the public would conclude that the proper administration requires that Lennon Lawyers should be prevented from acting, in the interests of the protection of the integrity of the judicial process and the due administration of justice. For that matter, the trustee is likely to be concerned that Mr Lennon may not be providing wholly independent advice, influenced by Mr Lennon’s concerns that the fees due to Mr Lennon may be at risk. Further, to the extent that a question ever arose hereafter about whether the promotion of the interests of the general body of unsecured creditors conflicted with Mr Lennon’s recovery of fees due to him, the fair minded reasonably informed member of the public would conclude that the proper administration of justice required Mr C to be independently represented.
On saying that I have taken into account the submissions urged oh behalf of Mr Lennon. Whether or not expense will be occasioned to Mr C in retaining new practitioners is beside the point. I do not share Mr Lennon’s enthusiasm for the proposition that he can more effectively represent the trustee in view of the fact that Mr Lennon already is seized of considerable knowledge in the overall of this case. Mr C’s interests are best promoted by his having independent, objective, detached advice from a new solicitor. If that means he will incur additional costs, then to my mind that factor cannot and does not predominate over the need for the trustee-in-bankruptcy to be represented by a solicitor who will not risk a conflict between interest and duty.
In an affidavit made by Mr Lennon he deposed to his considerable experience as a legal practitioner over many years with particular skills in family law and bankruptcy. One might doubt those skills in view of the point now ruled adversely against him. Mr Lennon should have recognised the position in which he found himself long ago. That may have a bearing on the costs application that the wife foreshadowed.
In making the above observations, I should not be taken to ignore decisions of this court on orders straining solicitors. The Full Court has addressed that in Osferatu v Osferatu.[95] Many of the authorities canvassed above were not mentioned in Osferatu, it should be observed.
[95] (2015) 53 Fam LR 433.
Counsel for the liquidator of B Pty Ltd (in liq) (“B Pty Ltd”) raised additional reasons that in my view quite properly support the restraint of Lennon Lawyers acting for the trustee-in-bankruptcy. Mr Fary SC for the liquidator of B Pty Ltd submitted that the trustee cannot act impartially regarding B Pty Ltd’s claim against the husband’s estate if he is being advised by the same solicitor who formally acted for the husband in opposing B Pty Ltd’s liquidator’s insolvent trading claims against the husband while that same firm of solicitors, Lennon Lawyers, also acted for B Pty Ltd. Mr Fary SC called in aid the High Court’s decision in Tanning Research Laboratories Inc v O’Brien.[96] He also relied on the Federal Court’s decision in Re Bankrupt Estate of Temple; Southern Hotels Pty Ltd[97] to the effect that the trustee’s obligation to act honestly and impartially must extend to the trustee’s advisors.
[96] (1990) 169 CLR 332.
[97] [2000] FCA 1406.
I agree with Mr Fary’s contention where he argued that it is completely unsatisfactory that the solicitor advising the trustee in relation to the litigation in which B Pty Ltd’s claims to be a creditor is likely to arise is the same solicitor who acted for the husband and B Pty Ltd prior to bankruptcy as well as during a time when the insolvent trading is said to have occurred.
Conclusions
For the above reasons, I take the view that –
a)the trustee should have leave to intervene; and
b)Lennon Lawyers must be restrained from continuing to act for the trustee.
There remains ongoing directions for the case management of this proceeding. Counsel for the wife has alerted me to a costs application being made. The liquidator’s claims need regularising. It seems to me that the ongoing conduct of this case must be kept in close check.
I direct the parties bring in minutes in seven days that give effect to these reasons. Those minutes should plot a course for directions to get this case to trial. This proceeding will be added to my docket and I will list this case for directions on 11 November 2020 at 9am.
I certify that the preceding one hundred and twenty-nine (129) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Wilson delivered on 22 October 2020.
Associate:
Date: 22 October 2020
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