K and G and Anor
[2004] FMCAfam 430
•2 September 2004
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| K & G & ANOR | [2004] FMCAfam 430 |
| FAMILY LAW – Enforcement summons – solicitors lien – solicitor deducts husbands outstanding costs from sale of asset subject to injunction in favour of wife – husband and solicitor have notice of orders in wife’s favour – husband has no power to discharge his own liabilities from monies payable to the wife – joinder – solicitor ordered to pay money to the wife together with interest – prima facie breach s.132 Legal Profession Regulations – wife’s solicitor has obligation to notify President of the Law Society. |
Family Law Act 1975, s.106B
Federal Magistrates Act 1999, s.42
Federal Magistrates Court Rules 2001, Part 11, Division 11.1 r11.02
Family Law Rules, O 33r2
Gould and Gould; Swire Investments Ltd (1993) FLC 92-434
Twigg v Keady (1996) FLC 92-712
Kelso v McCulloch [1994] ACL Rep 185 NSW 31
Nol & Nol 2000 FamCA 688
| Applicant: | G H K |
| First Respondent: | N M G |
| Second Respondent: | The Solicitor |
| File No: | PAM3000 of 2003 |
| Delivered on: | 2 September 2004 |
| Delivered at: | Parramatta |
| Hearing date: | 11 December 2003, 26 February 2004 and written submissions dated 21 March and 8 April 2004 |
| Judgment of: | Ryan FM |
REPRESENTATION
| Solicitor Advocate for the Applicant: | Mr O. Prosilis |
| Solicitors for the Applicant: | Browns The Family Lawyers |
| Solicitor Advocate for the First Respondent: | The Solicitor (on 11 December 2003) and Mr S. Ek (on 26 February 2004). |
| Solicitors for the First Respondent: | The Firm (on 11 December 2003) and Eric Hong & Associates (on 26 February 2004). |
| Second Respondent: | The Solicitor |
ORDERS
That the solicitor has leave to rely on his affidavit filed 22 March 2004.
The firm pay to the wife or as she directs $15,000 together with interest calculated in accordance with the Family Law Rules from 10 December 2002.
The monies due pursuant to order (2) above shall be paid within fourteen (14) days.
Any application for the costs of these proceedings as between the wife and the solicitor shall be made by written submissions within fourteen (14) days.
Any submissions in reply to be filed within a further fourteen (14) days and submissions in response within a further seven (7) days.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PARRAMATTA |
PAM3000 of 2004
| G H K |
Applicant
And
| N M G |
First Respondent
And
| The Solicitor |
Second Respondent
REASONS FOR JUDGMENT
The application
This is an application by G H K seeking to enforce property orders made on 12 April 2002 in the Family Court of Australia. Those orders have been registered in this court and thus this court has jurisdiction to enforce them: s.105(2) Family Law Act 1975.
The relevant orders for the purpose of this application are as follows:
(2)That the husband pays to the wife, within six weeks of the date of these orders, the sum of $233,745.
(3)(a) That pending payment by the husband to the wife of such sum of $233,745 the husband be restrained from:
(i)withdrawing an amount in excess of $500 per week from any bank account which he operates including, but no limited to Commonwealth Bank Account 21855004998, Commonwealth Bank Account no 213050187074 and his St George Bank account, and
(ii) Selling, transferring or otherwise disposing of or encumbering the business known as “Burger Express” except for the purpose of compliance with order 2 hereof
(b) that upon payment in full by the husband to the wife of such sum of $233,745, order (3)(a) hereof shall stand discharged.
When the time for payment of the $233,745 by the husband to the wife had passed without payment, the wife’s solicitors issued an enforcement summons in the Family Court of Australia. The summons was served on the husband’s solicitors, “the firm” in early July 2002. These are the same solicitors who appeared on his behalf when the orders referred to above were entered. The husband’s solicitors posted the enforcement summons to the husband on 11 July 2002. At the wife’s behest, the enforcement summons was adjourned until 30 August 2002. Eventually, the matter was listed before the original trial judge, Justice Stevenson, on 6 December 2002. By letter dated 18 November 2002 the husband’s solicitors were advised that when the matter was next before the court, the wife sought the appointment of a trustee or receiver for the sale of a car and the business trading as “Burger Express” Glenquarie. In response, on 22 November 2003, the solicitor’s firm (“the firm”) wrote to the wife’s solicitors advising that they no longer acted on the husband’s behalf and clarifying that the wife proposed the appointment of a trustee to the husband’s, and not the solicitor’s, property.
At some stage the husband paid the wife about $110,000. By
6 December 2002 there remained $123,188.26, together with interest, outstanding. On 6 December 2002 Justice Stevenson appointed R J Porter trustee for the sale of the husband’s business “Burger Express” Glenquarie and also an IS Lexus motor vehicle. Later it became clear that the car was leased and that the husband had no equity in it. These orders completed the enforcement summons and there were then no current proceedings.
Unknown to the wife’s solicitor or the court, shortly before the matter came before Justice Stevenson, the husband sold the burger business. On 6 December 2002 he attended the firm’s office with two bank cheques, one for $90,000 and another for $10,000, both of which were payable to the firm. Together these comprise the entire sale proceeds of the burger business. At that stage the husband owed his solicitors about $15,000 for outstanding legal fees, including counsel’s fees and other disbursements. These related to $14,235.35 for his costs incurred in the final hearing that culminated in the orders made
12 April 2002. The balance concerned work performed relating to compliance with the orders and enforcement action. As the husband did not take issue with the form of his bill, it matters not that the bill rendered by the solicitor was not in taxable form. Given the nature of the work undertaken by the solicitor, on its face the bill appears reasonably modest.
From the $100,000 paid to him by the husband, the solicitor kept $15,000 for his outstanding fees and on 10 December 2002 paid $85,000 to Mr Porter. It is quite plain from the solicitor’s letter to the trustee dated 11 December 2002 that the solicitor was acutely aware that at least $38,188.25 plus interest remained outstanding to the wife. I infer that as he was aware of this fact on 11 December 2002 he was aware of it at the time that he retained the $15,000 a few days earlier. The wife contends that by virtue of Justice Stevenson’s orders, including the injunction concerning disposition of the sale proceeds of “Burger Express”, that the solicitor took money to which he was not entitled. The wife submits that the husband was entitled to have only that share of the sale proceeds that remained after payment in full had been made to the wife. Because the sale did not produce sufficient funds to pay the wife in full she says that the husband had no interest in the sale proceeds. Thus could not use any part of the sale proceeds to pay his debt to the solicitor.
Did the solicitor retain money to which he had no entitlement?
When the solicitor retained the $15,000 he says he did so in reliance upon the husband’s authority. The question that I must consider is whether the husband had the power to authorise his solicitor to discharge the husband’s debt to him. If he did not have that authority the next question to consider is whether the solicitor had a right by virtue of the work undertaken for the husband to the $15,000. The effect of the injunction concerning the business was to restrict the husband’s use of the business income and assets and also charge his interest in the business to the extent needed to ensure the payment of the $233,745 and interest. This extends to the proceeds of the sale of the business. Upon payment of the monies due, the wife’s interest in the business was extinguished. When the husband received the monies he did so subject to the wife’s interest. Thus, when the husband paid the monies to the solicitor, at a time when both had notice of the orders made on 12 April 2002 and that there were still monies due to the wife, the husband had no option other than to direct payment of the entire sale proceeds to the wife. This means that the husband did not have the authority to direct the solicitor to retain any part of the sale proceeds.
Although the solicitor does not make submissions concerning a lien, I have considered the issue. To the extent that the solicitor may claim a non-possessory lien or an equitable right to the sale proceeds because he has acted for the husband, this right is no greater than the husband’s interest in the money. This follows from the conclusion reached by Justice Kay in Twigg v Keady (1996) FLC 92-712 where His Honour concludes, “The cases discussed establish that if, as the result of legal proceedings in which the solicitor has acted for the client, the client obtains a judgment for the payment of money, the solicitor has an equitable right, sometimes termed “a non-possessory lien”, to payment of costs out of the judgment moneys. It is clear law that the solicitor is not prevented from asserting the lien simply because he has ceased to act for the client prior to receipt of the judgment monies: Kelso v McCulloch [1994] ACL Rep 185 NSW 31 and that taxation of the costs is not a pre-requestion to that right’s arising: Johns v Cassel (supra).” Simply put the solicitor had no right to keep the $15,000.
The second enforcement summons and action against the solicitor
The wife issued a second enforcement summons, being the application that started these proceedings. Although he had been served the husband failed to appear. As a consequence on 3 October 2003 I issued an arrest warrant. The husband appeared with the solicitor on
7 November 2003 and was released on his own recognizance upon the following conditions.
1. He does no attempt to depart from the Commonwealth of Australia pending completion of these proceedings.
2. That he surrenders to the Registry Manager at this registry, his current Australian passport by no later than 4.00 pm on 11 November 2003.
3. That he abides all by all orders for the production of documents in his possession and/or control; and
4. That he attends court in person on each and every occasion that this matter is before the court and until it is completed.
On the husband’s application, made by the solicitor, the enforcement summons was adjourned until 11 December 2003. In his affidavit sworn 22 March 2004 the solicitor says that he has not acted for the husband since 11 July 2002. Although he has “On a number of occasions tried to assist this Honourable Court and to assist Browns the Family Lawyers, in having the judgment orders fulfilled by the respondent N M G”. Further on the solicitor says, “I was not instructed to appear at any enforcement proceedings in this Honourable Court except after N M G attending our office and stating that he had received phone calls from the Australian Federal Police that he would be arrested, and I was instrumental in having N M G the respondent, physically brought to the Court at Parramatta to be arrested by the Australian Federal Police. I was not instructed by N M G in respect of Court proceedings thereafter, but assisted N M G in relation to the enforcement proceedings and having a recognizance entered into, surrendering his passport and that he would appear at any future date that was required”.
This is regrettably misleading. The record shows that on 11 December 2003 the solicitor appeared for the husband. The solicitor announced his appearance on the husband’s behalf. Throughout the hearing the husband was referred to as the solicitor’s client without any qualification from the solicitor that he appeared in another or limited capacity. the solicitor called the husband to give evidence in chief and appeared for him throughout his examination. When cross-examination was completed the solicitor re-examined the husband. After the witness withdrew, the wife’s solicitor submitted, “In terms of where the matter goes from here, there is an issue that has arisen as to first, the sale of the business, and the proceeds of that sale. The evidence has been that there was $100,000 paid for it, and that was by way of a bank cheque, and that entire amount has been given to his solicitor at that time. The amount that has subsequently been given to the trustee and is in trust is $85,000. It would be my submission that pursuant to the orders made on 6 December by Stevenson J, that my client is entitled to the full amount of $100,000 and that an order should stand and that the $15,000 that has been taken from it should in fact be reimbursed to my client.”
The solicitor made submissions concerning an alternate proposal for payment of the outstanding monies. The wife’s solicitors rejected the proposal basically because it was plain that nothing would in fact come of it in terms of payment of any outstanding monies. The court then summarised the wife’s position as being in simple terms that she wanted the $15,000 that had been kept by the solicitor. After further exchanges concerning priorities, in particular legal fees, the matter was adjourned. The solicitor opposed the adjournment, however when it became apparent that the wife’s solicitor would be given the opportunity to provide relevant authorities, there was discussion concerning the adjourned date. Initially the court proposed that the matter would adjourn overnight. However the wife’s solicitor wanted a longer period, until January 2004. The solicitor emphasised that he was not available until late January 2004, and to suit his convenience a later date was proposed. It was agreed that the matter would then adjourn until 26 February 2004 at 10 am, a date that the wife’s solicitor and the solicitor indicated was suitable to them both. Thus, when the matter was adjourned in December 2003 both the husband and the solicitor had notice that the wife sought an order setting aside the transaction whereby the solicitor kept $15,000 from the proceeds of sale of “Burger Express” and payment of those monies to her.
Joinder of the solicitor to the action
The Federal Magistrates Court Rules 2001, Part 11, Division 11.1 at 11.02 provides that a party to a proceeding may include any person as a party by naming the person in the application, response or reply and serving that document and all other relevant documents filed in the proceedings. A party may not include a person as a party after the first court date without the leave of the court. By Rule 1.6 the court may dispense with the rules in the interests of justice. If the court gives a direction or makes an order that is inconsistent with any of the FMCR the direction or order of the court prevails in that proceeding. These are all rules concerning due process and must be interpreted consistent with s.42 of the Federal Magistrates Act 1999, which provides, “In proceedings before it the Federal Magistrates Court must proceed without undue formality and must endeavour to ensure that the proceedings are not protracted”. In Gould and Gould; Swire Investments Ltd (1993) FLC 92-434 the Full Court was concerned with joinder of third parties to proceedings between a husband and a wife invoking the Family Law Act 1975. Having determined that the appropriate course was other than that adopted by the wife against the third parties the court held, “Putting aside the question of service, there is no suggestion that the third parties are not fully cognisant of the nature of the orders sought against them and the basis of those claims, and there is no suggestion that they have been denied a full right to participate in these proceedings or that such right is likely to be under challenge in the future.” The effect of this is that although the wife’s solicitor did not file an initiating application in which it was sought to make the solicitor a party to the proceedings and then set aside the transaction, whether in reliance upon Order 33 or s.106B, the defect is not fatal. That is because the solicitor had adequate notice of the orders sought concerning him. Had the wife made a written application naming the solicitor as a party he was made a party. The difference is one of form and not substance. The solicitor knew that in addition to her rights pursuant to Order 33 if she needed it the wife sought to set aside the transaction involving the solicitor. Indeed the proceedings were adjourned for the primary purpose of taking further submissions from the wife’s solicitor, the husband and the solicitor. Although the correct procedure was not followed it is clear that the matter proceeded on the basis that the solicitor had been joined as a party and that he had the right to fully participate in the action.
When the matter resumed on 26 February 2004 the husband appeared instructing Mr Ek of Eric Hong & Associates, Lawyers. The solicitor did not appear, although early in the day, “an observer” from his firm made himself known to the solicitors appearing on behalf of the husband and the wife. That day the court made the following orders:
THE COURT ORDERS BY CONSENT:
1.It is declared that the husband failed to pay the monies due under Order 2 of the Orders made in the Family Court on 12 April 2002.
2.The Court declares that the amount of $43,216.81 remains payable pursuant to the Orders as at 11 December 2003.
THE COURT FURTHER ORDERS:
3.That the solicitor for the Applicant give written notice to the firm within fourteen (14) days of the orders sought against them, in accordance with paragraph 2 of exhibit A, tendered today: “That the firm pay to Browns Family Lawyers the sum of $15,000 plus interest as calculated pursuant to the Family Law Rules within 10 days of the date of the making of these orders”.
4.That the firm provide written submissions in reply and/or file an application no later than 4:00pm on 18 March 2004.
5.That the applicant’s costs of today as against the firm are reserved.
In accordance with the courts direction the wife’s solicitors gave notice to the firm. The firm responded on 8 March 2004 requesting documents and other information concerning jurisdiction. In reply the wife’s solicitors sent a letter on 9 March 2004. In response to questions concerning jurisdiction the wife’s solicitor wrote, “The Federal Magistrates Court has (a) jurisdiction to hear and determine enforcement proceedings under the Family Law Act 1975 generally s.105(1). The application under the form 43 is brought under Order 33 of the Family Law Rules. We also rely on the authorities of Gould and Gould; Swire Investments Limited (1993) FLC 92-434 and Twigg and Keady Appeal No. EA9 of 1996 No. SY6017 of 1998”. This provoked a submission from the firm’s counsel[1], to the effect that s.105 does not of itself give a source of power sufficient to grant the relief sought. Learned counsel emphasised that the section does no more than provide for enforcement in accordance with the methods provided for by the regulations and the rules. See Nol & Nol (2000) FamCA 688. In that decision the Full Court rejected the contention that the section, “May be seen as a general warrant for the court to enforce any of its orders in any way that it deems appropriate, just and equitable”.
I accept counsel’s contention that the section is not an independent source of power to make an order, which would have the effect of depriving or adversely affecting the right of third parties. However, I am satisfied that the firm had been joined as a party to the proceedings on 11 December 2003. Thus the limitation on the court’s power viz third parties is not relevant here.
[1] Dated 21 March 2004
While the primary order is clearly one which attracts Order 33 Rule 2 insofar as it relates to the husband, the order did not require that the solicitor pay monies to the wife. I accept the solicitor’s claim that he does not hold any money on the husband’s behalf. The point however is that he has the wife’s money in breach of orders made under the Family Law Act. Money received from the husband and kept on his authority. Because of the manner in which the solicitor received the money I am satisfied that Order 33 applies and the court has the power, on the enforcement summons to order the solicitor to pay the wife.
Section 106B gives the wife an additional remedy
Because the solicitor received and retained monies to which the wife was entitled the provisions of s.106B apply. This is where Twigg v Keady becomes relevant. Dealing with the s.85 issue Justice Kay concluded, “I am further satisfied that the disposition of judgment monies from the wife to the respondents had the effect of defeating the appellant’s claim to enforcement of their taxed costs as against the wife.” Later in the judgment His Honour says: “I am thus satisfied that the proceedings disputing costs commenced by the wife are proceedings under the Act for the purposes of s.85”. In my opinion there is a strong analogy in the facts of this case. Here, the wife has an existing order made under the Act for the payment of money. The husband and the solicitor both had notice of the relevant orders and effect of their actions. Their action viz the wife’s entitlement pursuant to the order defeats her claim to the extent of $15,000.If I in error about the use of Order 33, the wife can have her remedy pursuant to s.106B.
Conclusion
To the extent that the solicitor had a lien or interest in the sale proceeds of Burger Express it was subject to the wife’s entitlement pursuant to the orders. Therefore any lien only attached to those monies that remained after the wife had been paid her full entitlement. As I have already found I am satisfied that the solicitor withheld monies to which he was not entitled and which belong to the wife. He must immediately pay the money due to her. To the extent needed the transaction by reason of which he retained $15,000 is set aside.
In his written submissions, the solicitor’s counsel sought the opportunity to make further submissions in the event that his argument concerning third parties and s.105 failed. With respect, the solicitor has been on notice of the nature of the wife’s claim since December 2002 and has had the wife’s money for far too long. His request to delay the matter even further reflects poorly upon his professionalism. Although the basis of the claim as set out in the letter from Browns Family Lawyers dated 8 March 2004 may be said to be confusing, the effect of the submission was plain in December 2003. The solicitor has had ample opportunity in particular on 11 December 2003, on
26 February 2004 and then by written submission to address all arguments he wished to make. He took a narrow course and I do not intend to prolong this matter any further. Further submissions will add costs and delay unnecessarily. It is now time for this matter to be brought to an end.
Because the solicitor has retained monies to which he had no entitlement interest in accordance with the rules shall apply. Interest will run from the date upon which the solicitor retained the monies. One cannot overlook that as a solicitor there are special obligations that arise concerning the handling of other people’s money. In my opinion this solicitor has demonstrated an unfortunate disregard for his professional obligations. He has obligations under the Legal Profession Regulations that he may well have breached. Section 132 of these regulations casts a clear obligation on the wife’s solicitors to report this matter to the President of the Law Society of NSW. Because the wife’s solicitor’s obligation is mandatory I see no purpose in duplicating the referral.
For these reasons I make the orders identified at the start of this judgment.
I certify that the preceding twenty-one (21) paragraphs are a true copy of the reasons for judgment of Ryan FM
Associate: S. Mashman
Date: 2 September 2004
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