Greco & Greco

[2008] FamCA 501

FAMILY COURT OF AUSTRALIA

GRECO & GRECO [2008] FamCA 501

FAMILY LAW – LEGAL PRACTITIONERS – Conflict of interest

McMillan (2000) FLC 93-048
Thevanaz (1986) FLC 91-748
Magro (1989) FLC 92-205
Gagliano (1989) FLC 92-012
Griffiths (1992) FLC 92-223
Kossatz (1993) FLC 92-386
Rakusan v Ellis Munday & Clark (1912) 1 Chancellery Reports 831

APPLICANT: MS GRECO

RESPONDENT: MR GRECO

FILE NUMBER: PAC 4154 of 2007

DATE DELIVERED: 20 June 2008

PLACE DELIVERED: Parramatta

JUDGMENT OF: Collier J

HEARING DATE: 19 June 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT: MR SANSOM

SOLICITOR FOR THE APPLICANT: WATTS MCCRAY LAWYERS

COUNSEL FOR THE RESPONDENT: MR REEVE

SOLICITOR FOR THE RESPONDENT: MARSDENS LAW GROUP

Orders

1. That Mr Thomas Reeve, solicitor, of Marsdens Law Group is hereby restrained from continuing to represent the husband in these proceedings.

2. That the husband in these proceedings is hereby restrained from continuing to instruct Mr Thomas Reeve, solicitor, or any solicitor of Marsdens Law Group to act in these proceedings.

3. That the matter be stood over to 9.30am on Thursday, 24 July 2008 to allow the husband to obtain new legal representation.  On that occasion directions will be made for the further conduct of this matter.

4. That the wife’s application for costs be stood over for further mention on that next occasion.

IT IS NOTED that publication of this judgment under the pseudonym Greco & Greco is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT  PARRAMATTA

FILE NUMBER: PAC4154 of 2007

MS GRECO

Applicant

And

MR GRECO

Respondent

REASONS FOR JUDGMENT

Introduction

1. As so often happens the matters that occupy the least time in presentation are the most difficult.  This matter concerns an application for the disqualification of a practitioner, by that I mean, an order that a practitioner is restrained from acting, or a party is restrained from instructing a particular practitioner.  The wife in this case seeks orders that prevent the husband's current lawyers from continuing to act on his behalf.

2. The wife commenced this current round of proceedings by an application in a case filed on 6 June 2008.  The wife commenced proceedings for final orders on 23 July 2007 and the husband filed a response to that application on 26 July 2007.  Since then, steps have been taken to advance the matter but as yet no final hearing date has been fixed.

Background

1. The brief history of the matter is as follows: 

   ·The husband is 66 years of age;

   ·The wife is 64;

   ·The parties married in September 1967; 

   ·There are three surviving adult children; 

   ·The parties from the 1970's and onward have been involved in property investments; 

   ·There have been a number of entities created to facilitate their involvement in this field which I set out as follows:

   oA partnership Greco and C partnership;

   oA company Greco Holdings Pty Ltd (Greco) in which both parties are shareholders, the wife is secretary and the husband sole director;  and

   oR Investments Pty Ltd (R) in respect of which the parties are both directors and shareholders.

2. In about 2001 Greco acquired an interest in a company P Pty Ltd (P).  The interest of Greco Holdings in that company appears to be a one-third interest.

3. At about the same time Greco became involved with a company D Pty Ltd (D).  I am informed and have no reason to doubt that the manner in which the company Greco holds an interest, is that it holds one third of the issued A class redeemable preference shares.  The husband is a director of that company with two others. 

4. The parties separated in December 2005 and at that time they appeared to own:

   ·the former matrimonial home at L1; 

   ·the five acre property at T; 

   ·a one-third interest in a property at B; 

   ·the half interest in the partnership which I have already made reference to and that partnership as I understand it, in turn owns industrial units at:

   oE1;

   oE2; and

   oE3; 

   ·the party's interest in Greco; 

   ·the party's interest in R which I am instructed owns:

   ofive industrial units at E4; 

   ocommercial office space at L2;

   ocommercial office space at L3; and

   ocommercial office space at L4.

5. The material of the parties before me is silent as to the value of the real estate holdings or a valuation of the company structures. 

The Material of the Parties Before Me

1. In dealing with this matter I have read the wife's affidavit of 6 June 2008, paragraphs 1 to 27 of that affidavit particularly, and the annexures that arise from those paragraphs.  I have read the wife's further affidavit of 19 June and the affidavit of Mr D Greco of 19 June.

2. I have read the husband's affidavit of 19 June 2008. 

The Parties’ Submissions

1. I have heard submissions by counsel for each of the parties.  The wife's counsel submits that the firm Marsdens Law Group act for the husband and for the structures G, R and D.  It is clear that that is so.  Mr Sansom asserts that of itself is a conflict of interest.  He relies so far as is necessary on annexure B to the wife's affidavit, that is her first affidavit, which is a letter of 16 January 2008 written on behalf of the company R.

2. That document encloses a lease for execution by the wife.  This document was the subject of considerable argument.  The husband asserted in his affidavit at paragraph 17, as I understand it, that the document annexed as part of annexure B to the wife’s affidavit being the document that was asserted to have been already signed by someone purporting to be the wife, was not the document forwarded by his solicitors under cover of the letter of 16 January 2008.  Again as I understand it, he later withdrew this assertion.  I was taken to annexures C and D to the wife's affidavit in which she sought comments from the husband in this regard and I accept that no answer was forthcoming. 

3. The wife's counsel asserts that the husband's solicitor has a duty to the Court and a duty to his client.  He asserts that there is an obligation to ensure that the client makes a full disclosure.  Indeed, in addition to the general duty to disclose imposed upon parties in litigation, there are the specific requirements imposed pursuant to Chapter 13 of the Family Law Rules, which I do not propose to set out in detail.  However, I note Rule 13.01 requires that each party has a duty to the Court and to each other party to give full and frank disclosure of all information relevant to the case in a timely manner. 

4. It is asserted by the wife's counsel that there are difficulties arising in respect of material produced in answer to a subpoena that was issued by the wife.  What is asserted is that the covering letter enclosing the material produced in answer to that subpoena is dated the 9 May, whilst material contained within the bundle of documents produced is clearly dated 20 May.  The husband's counsel says that the date, 9 May is clearly a mistake and nothing more.

5. The wife's counsel asserts that the documents themselves as produced, are deficient in that they contain no documents generated by D and indeed consist only of documents generated externally by a third party lender.  The subpoena was in quite specific terms.  It sought the production of material in respect of a particular registered mortgage.  The documents sought were documents that might normally be anticipated or expected, at least as to some of them, to be maintained by any person or corporation entering into significant borrowings.  However, it is asserted that the documents produced are the only documents in the possession and control of the husband. 

6. Of course, there is a dispute between the husband and another director, as against the third director of D, involving Supreme Court litigation.  I am not able to be satisfied what documents if any, the third director might hold.  The dispute between those directors has matured into Supreme Court proceedings.  In addition, that company D, has entered into a significant development in W, and presumably it is that development that requires the borrowings to which I have already referred.

7. It is the wife's case and seems to be undisputed that the husband has not informed her in a timely fashion or at all, of the litigation presently on foot in the Supreme Court or of the W development.  Clearly the firm of solicitors that the husband instructs in the proceedings of this Court are the solicitors acting for him and, as I understand it, the company in the Supreme Court proceedings.  They also act for the husband and the company in respect of the W development.  It is put strongly by counsel for the wife that the husband had a duty to disclose those facts to the wife.

8. The submission by the husband’s legal representatives was that the interest, being the A-Class redeemable preference shares in D, was such that a disclosure was not required.  The husband’s solicitor referred to the twin duties of a legal practitioner; to the client and to the Court.  He asserted that the Court and the other party must not be mislead.  With that I agree. 

9. To my mind it is not open to the husband to say that the preference shares were of so little significance that they could and indeed should, as they were, be ignored when it came to any information being passed to the wife.  I am satisfied that the husband had a duty of disclosure, which he has not met.  Accordingly I reject that submission.

10. So far as the assertion by the husband that the document forwarded to the wife for signature was indeed not the document that was subsequently annexed to her affidavit, that assertion was, as I understand it, subsequently withdrawn.

The Law to be Applied

1. Those would seem to be the submissions and the basis of this matter that now comes before me.  It is an unusual application.  I have looked at the Authorities as they appear to exist in this Court and generally.  Within this Court and elsewhere, the conflict that is referred to in the Authorities to which I will shortly make reference, seen inevitably to arise, or to be a conflict said to arise, where a legal practitioner or quasi legal person has either (a) prior knowledge of the other party's affairs from having acted for him or her at an earlier stage or, (b) as was the case in a number of matters, a solicitor who has acted for one party or has been involved in a firm which has acted for one party, changes firms and employment, and commences to act for solicitors having carriage of the matter for the other party.

2. In the decision of the Full Court of McMillan[1], their Honours from paragraph 41 onwards of that judgment, examined a series of earlier judgments that dealt with the issue.  Those cases may be briefly described as follows:  the matter of Thevenaz[2] which was dealt with by his Honour, Frederico J in the very early days of the Act.  Following that, there were the cases of Magro[3] in a single Judge decision, Gagliano[4] again a single Judge decision, Griffiths[5] a single Judge decision and Kossatz[6].

   [1] (2000) FLC 93-048

   [2] (1986) FLC 91-748

   [3] (1989) FLC 92-205

   [4] (1989) FLC 92-012

   [5] (1992) FLC 92-223

   [6] (1993) FLC 92-386

3. In McMillan (supra) the Full Court examined, and with respect, drew together what, until then had been differing methods within this Court, and at law generally, as to what was required before a Court would intervene and act in certain circumstances.  The common law at that stage appears to have been the line of authority that commenced in Rakusan v Ellis Munday and Clark[7]. 

   [7] (1912) 1 Chancellery Reports 831

4. In that report the following passage appeared:

   We must treat each of these cases not as a matter of form, not as a matter to be decided on the mere proof of a former acting for a client, but as a matter of substance before we allow this special jurisdiction over solicitors to be invoked we must be satisfied that real mischief and real prejudice were in all human probability of result if the solicitor is allowed to act.

5. Again in McMillan (supra), their Honours refer to a decision of Bryson J in the equity division of the Supreme Court of New South Wales.  In DNJ Constructions Pty Ltd v Head[8].  In that case, it seems his Honour did prefer to follow the Rakusen line of authority which, if I might put it in my own clumsy words, seemed to impose a test of actual harm rather than a test of possible harm. 

   [8] (1987) 9 NSWLR 118

6. In my view what emerges from McMillan (supra) is that in this Court the test that ought be applied is the test of possibility rather than actuality.  In other words it is not as strict a situation to have an order made or alternatively. as some of the authorities put it, the test is stricter when it is imposed against the practitioner in that it need only establish that there is a possibility rather than an actuality before the Court's inherent jurisdiction will be invoked.

7. That which has been accepted and followed in McMillan (supra) makes it clear that there is inherent power in the Court to restrain or injunct in appropriate circumstances. 

8. I have also had the opportunity of reading and considering the judgment of his Honour, Brereton J in Kallinicos v Hunt reported in the New South Wales reports and certainly described as DC(2005)10050.  I do not propose to set out the judgment in any detail.  Suffice it to say, his Honour as is his want, in a clear and concise exposition of the law, examined the situation that applies in jurisdictions other than the Family Court.

9. It must be remembered that in DNJ Constructions Pty Ltd v Head (supra), even though Bryson J indicated that he would follow the Rakusen test, he made special reference to the Family Court having different considerations needing to be applied because of the sensitive nature of such litigation.  Indeed, he dealt with this in similar terms to those used by Frederico J in Thevanaz (supra).

10. For my purposes, the critical part of Brereton J's judgment is to be found at paragraph 76 where his Honour sets out a clear and concise summary and statement of the law.  I quote:

    However, the Court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as reason of it's inherent jurisdiction over it's officers and to control it's process in aid of the administration of justice.

11. His Honour goes on to give a number of authorities in respect of that proposition.  Significantly, his Honour goes on to say:

    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.

12. The jurisdiction, his Honour goes on to say:

    Is to be regarded as exceptional and has to be exercised with caution.  Due weight should be given to the public interest in litigant not being deprived of the lawer of his or her choice without due cause.

13. And finally:

    The timing of the application may be relevant in that cost, inconvenience or impracticality have required in lawyers to cease to act, may provide a reason for refusing to grant relief.

Conclusion

1. How then do I apply those principles to this present case?  In this present case, the conflict alleged is not the conflict arising where a lawyer or other person has changed sides.  Rather, the wife's case here is that the firm of solicitors has a current and ongoing conflict in acting for the husband on the one hand, and the companies, Greco, R and D and the partnership on the other hand.  I am satisfied that the firm has acted and continues to act for all of those entities.

2. I must therefore determine whether the firm continuing to act, or having acted in the past, places the wife at a perceived forensic disadvantage that requires intervention by the Court.  As I have said, the husband has a duty of disclosure, both as a matter of general principle and particularly pursuant to the Rules of this Court.  I am satisfied that the wife has not been kept informed to an appropriate level of the actions and activities of D and R investments, particularly.

3. Those advising the husband in the family law proceedings have a duty to ensure so far as possible, that he fulfil his obligations of disclosure.  That is where I perceive the potential conflict of acting for the companies and the husband to lie.  The company's interest may well require that no disclosure be made of it's activities, whilst the husband's obligation at the same time require a full, fair and timely disclosure to be made. 

4. Further the value of the entities, G, R and the interest in D, together with the existing partnership, are live issues in these proceedings.  For the same firm to act for those companies and entities and the husband may well result in a dispute arising whereby the husband's position is different from the companies', for example; as to an issue of valuation, the methodology of valuation to be employed, and material that may have to be provided to enable proper valuations to be undertaken.

5. The firm as I have said before, clearly asserts it acts for R.  It asserts that it does so in a letter annexure B, absent any instructions from the wife at the time that letter was written, the wife being a shareholder and director of R.  The firm submitted a document in respect of which there has been some dispute, which I have endeavoured to resolve, involving a signature.  There is no suggestion that the wife's instructions were obtained prior to that document being created. 

6. A further investigation will be required in respect of what the circumstances of that document coming into existence really were.  It may well be that the position of the husband and the company could be in direct conflict.  As to the provision of material sought on subpoena, the material produced as I said includes no material of the company.  It is asserted that there is no such material.  Notwithstanding the obligation of the husband to make timely disclosures, it may well be that the company has no interest in making such material available which again in my view constitutes a potential conflict of interest. 

7. So far as Greco and R are concerned, for members of the firm to continue to act for these companies must mean that those members are, at the very least placing themselves in a position where they would need to be aware of the existence of the views of a shareholder and director, other than their client in R, and a secretary and shareholder in the case of Greco.

8. The firm has a duty to accept and act upon instructions from each of the parties in respect of the conduct of the companies.  Clearly in the past the wife has not been consulted or involved in making decisions affecting either company.  It seems inevitable that it will be necessary for a legal practitioner to obtain instructions from each of the husband and the wife, as to the future affairs of the company and the partnership.

9. The wife would need to be able to give instructions without concern that her instructions, or any of the information she conveyed, would not be passed to the husband, advertently or inadvertently, to the benefit of the husband and to her detriment.  In a case with the high degree of hostility this case possesses, I am completely satisfied that no Chinese Walls could be put in place that would be sufficient to remove an apprehension on the part of the wife, that what she said to a member of the firm may well be passed to, or become known to the husband to her disadvantage.

10. Further, the one firm acting for both the husband and the companies which are at the heart of this dispute, and with the firm appearing to take instructions from the husband only, to the exclusion of the wife, must of itself give rise to a perception or apprehension that the firm is going to do that which the husband instructs in respect of the company entities and the partnership.  That to my mind is an apprehension that cannot be allowed to exist if the case between the husband and the wife is to be conducted in a proper and efficient manner.

1. I am satisfied that the wife has acted in bringing this matter before the Court, within a time, which is in the circumstances, reasonable.  I am thus satisfied, that there is no delay which would prevent or mitigate against an order being made.  I accept that the loss of his solicitors at this time will cause the husband difficulties, hardship and probably expense. 

2. However, for the reasons I have set out above, I am satisfied that this is a case where a fair minded observer being reasonably informed would conclude that the proper administration of justice require that legal practitioners, in this case the firm of Marsdens Law Group, or any member or employee of that firm, should be prevented from acting for the husband, in the interests of the protection of the integrity of the Judicial process and the due administration of justice, including the appearance of justice, in this case.

I certify that the preceding forty-four (44) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Collier.

Associate: …

Date:  4 July 2008