Laurens and Laurens (No.2)
[2017] FCCA 109
•24 January 2017
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LAURENS & LAURENS (No.2) | [2017] FCCA 109 |
| Catchwords: FAMILY LAW – Application for costs against respondent’s solicitor after enforcement application. |
| Legislation: Family Law Act 1975, ss.75(2), 79A, 92, 117(1), 117(2A) Federal Circuit Court Rules 2001, r.21.07, sch.1, pt.21 |
| Cases cited: Laurens & Laurens [2015] FCCA 2754 Varley & Varley [2016] FCCA 2609 Tang & Keats [2016] FamCA 99 |
| Applicant: | MR LAURENS |
| Respondent: | MS LAURENS |
| File Number: | MLC 8464 of 2014 |
| Judgment of: | Judge Harland |
| Hearing date: | 19 October 2016 |
| Date of Last Submission: | 9 December 2016 |
| Delivered at: | Melbourne |
| Delivered on: | 24 January 2017 |
REPRESENTATION
| Counsel for the Applicant: | Ms Marshall |
| Solicitors for the Applicant: | Anthonys Solicitors |
| Counsel for the Respondent: | Mr Alexander |
| Solicitors for the Respondent: | Lanham Lawyers Pty Ltd |
ORDERS
That within 60 days of the date of these orders Jodie Maree Lanham pay the husband’s costs in the sum of $13,123.00.
That within 21 days Ms Lanham file submissions with respect to whether or not her conduct should be referred to the Legal Services Commissioner of Victoria.
IT IS NOTED that publication of this judgment under the pseudonym Laurens & Laurens (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 8464 of 2014
| MR LAURENS |
Applicant
And
| MS LAURENS |
Respondent
REASONS FOR JUDGMENT
This is a cautionary tale for solicitors who hold money on trust for the benefit of both parties in family law proceedings.
By agreement the wife’s solicitors acted on the sale of property on behalf of both parties after a bitterly contested property hearing. It is not unusual for one of the parties’ solicitors to agree to conduct the sale. This is particularly the case where one or both of the firms does conveyancing work as well as family law. No doubt this is a costs saving exercise for the parties. However solicitors need to be very mindful that when agreeing to do the conveyancing which necessarily involves implementing orders. This is because in this aspect they are not simply acting for their client. If they hold proceeds of sale they do so as trustee for both parties. This is what happened here.
The present application before me seeks an order that the wife’s solicitors pay the husband’s costs of bringing an enforcement application on an indemnity basis.
Parties’ positions with respect to costs
The husband seeks an order that Lanham Lawyers (“Lanham”) pay his costs on an indemnity basis in the sum of $13,123.00 or alternatively on a party/party basis. He does not seek costs from the wife.
The written submissions were prepared by counsel. Lanham seeks either an order that the parties pay their own costs or in the alternative that Lanham pay the husband’s costs on a party/party basis. “Such costs to be taxed in default of Agreement.”
Neither party seeks that costs should be in accordance with the Federal Circuit Court scale of costs. This is surprising in the case of Lanham but it may be because the written submissions prepared by counsel on Lanham’s behalf do not appreciate that this case is before the Federal Circuit Court and not the Family Court of Australia (“Family Court”).
Both written submissions have lengthy annexures. The applicant’s submissions are not paginated at all. The respondent has filed lengthy written submissions with annexures which are over 200 pages. Only some are paginated. Some of the numbering is cut off in the photocopying. After page 150 the numbering stops. This is most unhelpful.
Both submissions annex the parties’ affidavits filed in support of the application of a case. This is redundant, particularly as the costs application arises out of the application in a case. Given the factors the Court must consider when determining a costs application in section 117(2A) of the Family Law Act 1975 (Cth) (“Family Law Act”) the Court must refer to the material filed in the application in case. It is part of the court file, as are the orders and my judgment in the property proceedings. It is much more efficient for parties to identify the documents they seek to rely on and only annex document which are not already part of the court file.
These are basic aspects of case preparation and presentation. It should not be necessary to comment on them.
The husband’s affidavit filed on 16 November 2016 annexes the costs agreement and bill of costs associated with the application for enforcement and the costs application totalling $13,123.00. The costs claimed commence on 3 June 2016 with respect to receipt of the first letter from Lanham refusing to distribute the proceeds of sale in accordance with the final orders. A significant portion of fees is for counsel’s fees. It is apparent from the bill that counsel was involved in advice work before bringing the application to court. That is quite proper. The costs include costs of preparing the costs submissions. Lanham does not take issue with this.
The applicant submits that the conduct of Lanham solicitors resulted in him having to bring the application in a case. He says that Lanham breached their obligations as trustees on the sale of the properties and also pressured the applicant to accept a much reduced settlement amount which was not provided for in the final orders.
The thrust of the applicant’s submissions is that the enforcement application was only necessary because of Lanham conduct in failing to distribute the proceeds of sale in accordance with the final orders.
Property proceedings, final orders and reasons
I determined final property adjustment orders on 9 October 2015 after a one day contested hearing. I refer to paragraphs 9 to 20 of my reasons for judgment dated 9 October 2015 with respect to the conduct of the proceedings.[1]
[1] Laurens & Laurens [2015] FCCA 2754.
Order 2 of the final property orders I made on 9 October 2015 required two pieces of real estate to be sold. Orders 4 and 5 address the disbursement of the proceeds of sale. The orders addressed the fact that it was unknown at the time of making the orders which property would sell first.
(4) That the proceeds of sale of the properties referred to in order 2 be disbursed as follows:
(a) the payment of agent’s commission, advertising costs and legal fees;
(b) in discharge of mortgage secured on the first property which sells;
(c) the balance of the proceeds of sale from the first property to sell is to be applied to discharge or reduce the business debts, being:
(i) Fighting Laurens loan #(omitted) of $155,289.97;
(ii) Fighting Laurens business one #(omitted) of $3,343.95;
(iii) Fighting Laurens overdraft #(omitted) of $31,503.27;
(iv) Fighting Laurens ATO debt of $32,429.60;
(d) the payment of agent’s commission, advertising costs and legal fees;
(e) in discharge of the mortgage secured on the second property to sell;
(f) in payment of any of the remaining business debts referred to in order 4(c) above; and
(g) the remaining balance be distributed as to 70% to the wife and 30% to the husband.
(5) That in the event that Property G, and being the whole of the land comprised in title reference volume (omitted) fails to be sold by private treaty within a period of three (3) months hereof, then each party take all necessary steps and execute all necessary documents to cause the said property to be sold by auction at the earliest possible date at a reserve to be agreed upon between the parties and failing such agreement to be determined by the proper officer of the Real Estate Institute or his nominee and that the proceeds of the said sale be disbursed as follows:
(a) the payment of agent’s commission, advertising costs and legal fees;
(b) in discharge of mortgage secured on the first property which sells;
(c) the balance of the proceeds of sale from the first property to sell is to be applied to discharge or reduce the business debts, being:
(i) Fighting Laurens loan #(omitted) of $155,289.97;
(ii) Fighting Laurens business one #(omitted) of $3,343.95;
(iii) Fighting Laurens overdraft #(omitted) of $31,503.27; and
(iv) Fighting Laurens ATO debt of $32,429.60.
(d) he payment of agent’s commission, advertising costs and legal fees;
(e) in discharge of the mortgage secured on the second property to sell;
(f) in payment of any of the remaining business debts referred to in order 5(c) above; and
(g) the remaining balance be distributed as to 70% to the wife and 30% to the husband.
The wife complains that the husband did not comply with various interim orders. This is relevant to the enforcement application and the conduct of the wife’s solicitor. The final hearing was listed before me on 24 July 2015. The wife filed a contravention application with respect to interim financial orders on 23 July 2015. The interim orders addressed various issues including the sale of one of the properties (which did not occur), car payments and maintenance. The issue has never been argued before the Court.
That application was given a return date of 23 September 2015. I said this at paragraph 17 of my reasons for judgment:
The wife filed a contravention application a day prior to the hearing. She chose to withdraw that application at the final hearing. If she had not done so, the final hearing would have had to have been adjourned as the husband had not been on sufficient notice of the application. Necessarily, the contravention would have had to have been determined either before or at the same time as the final hearing. This is because the contravention concerned interim orders which would no longer be operative once final orders were made. If the wife seriously wanted to pursue her contravention application, she would have filed it much earlier.
The wife filed a further contravention application on 6 October 2015. It was given a return date of 9 December 2015. No attempt was made by the wife’s lawyers to bring this matter to the attention of chambers. I handed down my reasons for judgment on 9 October 2015. The contravention application complains about the husband not making loan repayment on the Ford Territory, which was in the husband’s name resulting in it being repossessed. The wife alleges that the husband contravened order 6 of the interim orders made on 16 December 2014. She made the same complaint in her first contravention application. Order 7 of the final orders required the husband to discharge the liability on the car and transfer it to the wife. At paragraph 52 of my reasons I set out the parties’ assets and liabilities as best as I could determine on the evidence. At paragraph 73 I said:
I will order the Ford Territory be transferred to the wife subject to the encumbrance. The wife will need to either take over the debt or discharge it. On the available figures, the equity in the Ford Territory is $5,685.96.
In the context of the overall dispute this represented a small fraction of the parties’ property. The proper course for the wife would have been to make an application to re-open the proceedings so that this new circumstance could have been addressed before judgment was delivered.
Once final property orders are made the interim orders are defunct. Even if this was not obvious to the wife’s solicitor when she filed the second contravention application it, should have been once she received judgment. Despite this, the contravention application remained on foot. Both parties briefed counsel to appear at the first return date of the application on 9 December 2015. I struck out the application. I pointed out to counsel for the wife that the application was fatally flawed given the interim orders no longer existed. The husband did not seek costs with respect to that application.
It is significant to note that the wife did not appeal the final orders, nor did she file an application pursuant to s.79A of the Family Law Act until she filed a response to the husband’s enforcement application. This is not an appropriate application to make in an application in a case or response to one. I will not repeat the comments I made in Varley & Varley [2016] FCCA 2609 here. I do observe though that in the response the wife sought an adjustment of the matrimonial pool of 60% in her favour. The orders I made provided for her to receive 70% of the net proceeds of sale, which represented the most significant part of the pool. At the return date of the enforcement application the wife’s counsel advised that this was a typographical error and should have read 70%. Given that the net proceeds of sale formed the majority of the property to be divided this does not make much sense. It did not appear to be properly thought through.
Further to this and what makes it even more curious is the statement of the wife at paragraph 14 of her affidavit filed on 14 October 2016 in support of her response to the application in a case. She says “I am not disputing the Final Orders of this Honourable Court or the basis of the division of the matrimonial assets contained therein…” She then goes on to talk about not becoming aware of the husband’s behaviour in defaulting on business debts until May 2016 and states that by then the time to appeal the orders had expired. If she thought she was justified she could have sought leave to appeal out of time.
Again it is important to look at the orders and the reasons for judgement. The orders are deliberately specified that amounts to be paid with respect to both business debts and debt to the Australian Taxation Office (“ATO”).
At the final hearing there was a real dispute between the parties as to whether the husband had actually sold the business or whether in reality he was going to continue with the business but what was clear was that the wife no longer had any interest in the business. I also note that I requested that the Principal Registrar of the court to refer the judgment and court documents to the ATO because it appeared that the parties may not have declared all of the cash income earned through the business to the ATO. The wife’s evidence was that she was responsible for the paperwork and was aware that an issue with the ATO had arisen previously because she had defaulted on an instalment arrangement for payment of an ATO debt. There is no doubt that the wife was no longer recorded on any Australian Securities & Investments Commission (“ASIC”) records as being an officeholder of the business.
At paragraphs 69 and 70 of my reasons for decision I made the following observations:
In her case outline, the wife seeks orders for the husband to refinance the business loans into his sole name and to indemnify the wife. That order is unrealistic. The husband will not have either real estate to provide as security. The business debt is $194,556.79. Whilst I accept that the figure of $15,000 is not the value of the business, nor is the financial health of the business such that if the husband did sell the business he received a sum that would greatly reduce that debt. The wife has also has to take some financial responsibility for the amount of debt. The parties entered into the business together. The wife controlled the finances. Clearly neither party is a sophisticated business person.
The husband should be responsible for a greater proportion of the debts because of his reckless dealings with the business post separation and his lack of disclosure. This will be addressed by way of adjustment in favour of the wife under s.75(2).
The animosity and distrust that was apparent between the parties at the final hearing continued after the hearing. This is clear from the correspondence between the parties’ solicitors and the further affidavits the parties have filed.
For example the husband complains that the wife’s conduct during the sale of the properties caused delay in selling the property and that as a result extra interest was incurred.[2] The wife complains that the husband delayed the settlement of the sale of the properties.[3] The parties raise various complaints about each other’s conduct with respect to the sale of the properties and other issues. It does not go all one way.
[2] Paragraph 18 of the husband’s affidavit filed on 8 September 2016.
[3] Paragraph 5 of the wife’s affidavit filed on 14 October 2016.
These are not matters that need to be resolved as the only outstanding issue is the husband’s costs. I make these observations because Lanham’s submissions refer to the husband not coming to the Court with clean hands. I observed that in my reasons I found that neither party was a reliable witness. It is not as simple as Lanham would have it. It is also apparent that Lanham either ignored or failed to appreciate the import of my reasons for judgment including what I have extracted at paragraph 24 above.
Events from the settlement of the properties and the filing of the enforcement application
The second of the two properties settled in late May 2016.
Lanham sent a letter to Anthonys Solicitors (“Anthonys”) dated Friday 3 June 2016. In that letter Lanham sought to make various adjustments to the amount the husband was due to receive in accordance with the final orders. This includes significant adjustments for what the wife contended were breaches of interim orders. According to their calculations they were proposing that the husband receive a payment of $2,715.25 instead of $76,313. The penultimate paragraph required a response by close of business on Monday 6 June 2016 and “we will take absence of a response as your clients (sic) consent and attend (sic) to the distribution of funds as per the attached distribution statement.”
The letter from Lanham is concerning in a few respects. Firstly Lanham must have known that these were controversial issues, unlikely to result in a positive response. Secondly the timeframe was unreasonable, particularly given the nature of the issues raised in that correspondence. Thirdly to assume that a non-response to substantive and controversial issues could be taken as consent to a distribution of money held on trust suggests a lack of appreciation of the seriousness of the role of trustee.
Anthonys responded in a letter dated 6 June 2016. They noted that Lanham’s letter was emailed after business hours on Friday. They advised that their client did not consent to the distributions outlined in their letter and required them to hold all monies on trust until resolved by consent or by court order.
Anthonys sent a further substantive response on 6 June 2016 addressing those issues and pointing out that some of them, particularly with respect to the interim orders had been unsuccessfully raised previously at the final hearing and in the two contravention applications.
Lanham sent a further letter dated 10 June 2016 addressing various issues. Significantly it said that given that the husband agreed to some items being paid, being for cleaning and the like, those amounts “will forthwith be reimbursed to our client, together with 70% of the net sale proceeds less same and the taxation liability as provided for in the Final Orders, noting that such sums are not in dispute”. Again this approach is concerning. Particularly in the context of a family law dispute it is difficult to see how Lanham could view the release of funds to their client being uncontroversial whilst at the same time they were refusing to release funds to the husband. It also indicates a lack of understanding of their obligations as trustee.
Anthonys sent a letter on 16 June 2016 repeating their client’s instructions that he did not consent to the distribution of funds from trust. They also made a further request for a trust account statement, noting they had previously requested it on 6 and 10 June 2016. A solicitor holding funds on trust for a client is obliged to provide a trust account statement as soon as practicable after the person for whom it is held makes a reasonable request during the course of the matter.[4] Lanham did not do this. It appears from the chain of correspondence that Lanham only provided the trust account ledger upon receipt of the letter from Anthonys dated 21 June 2016 raising their clients concern that Lanham had improperly dealt with trust funds duties and the failure to comply with his request for a trust account ledger heightened his concern. The letter also says if Lanham did not produce the trust account statement their client would lodge a complaint with the Legal Services Commissioner.
[4] Legal Profession Uniform General Rules 2015, r.52(4).
In her letter of 21 June 2016 Ms Lanham wrote that the husband had no basis for disputing a distribution to her based on the final orders and advises that she made an interim distribution to her client of $50,000 on 6 June 2016. This was a serious breach of her obligations as a trustee for both parties. She made that distribution without authority. She did nothing to rectify this and gives no indication; even in the written submissions, that she appreciates that she breached her trustee obligations.
It was not appropriate for Ms Lanham to distribute funds to her client without distributing funds to the husband. The terms of the correspondence from the husband’s solicitor was clear. She was not entitled to pick and choose what items she would distribute and which she would not.
Lanham sent a letter on 30 June 2016 wherein they stated that as the only dispute was with respect to the husband’s entitlements the husband has “no basis to object to the release of our client’s entitlement.” The letter goes on to make other complaints including the fact that the husband had not made a proposal for resolving the issues. Of course this is not surprising given the fact that the wife’s position had no basis in law to insist on departing from the adjustment between the parties provided by the final orders.
The correspondence between the solicitors on 1 July 2016 is significant. The first letter from Anthonys said “our client instructs us that he consents for the following being paid from the monies held in trust.” It then lists the items numbered 1 to 7 which deals with all of the funds being held on trust. It is clear from the plain reading of that letter that those items dealt with the whole of the funds held on trust by Lanham. The last sentence reads the “given that you have given the wife an interim distribution of trust fund monies without our client’s consent, we hope that you will attend to the matter of payment of the above immediately.”
Lanham’s response also dated 1 July 2016 indicates that they will pay items one, two and five whilst they continue to dispute the other items. They further say that they will attend to paying items one, two and five that day. It was simply not open to Lanham to interpret the letter from Anthonys solicitors as authorising them to pay some of the items listed and not all of them. The terms of the letter are clear.
Anthonys sent a further letter on 1 July 2016 advising that their client did not consent to Lanham:
Mischievously selecting to make distribution payments of trust fund monies for your client’s benefit. We remind you that as trustee of the trust fund, you do not act for the wife but for both the husband and wife who are the beneficiaries of the monies held in trust.
This is a correct statement of the law. The letter goes on to state that either they should distribute all of the funds in accordance with the agreement or none of them.
In her affidavit Ms Lanham says that she did not see the second letter from Anthonys until 4 July 2016. It is quite clear from the balance of her affidavit that she sees nothing wrong in her conduct. She says that she only distributed funds in accordance with the final orders but then says at paragraph 24 that she could not release the remaining funds as her client was objecting to those being replaced on the basis that “doing so will result in a division of the matrimonial property contrary to that as provided for in the final orders.” This is simply not correct and at best reflects a misunderstanding of the orders and reasons for judgment.
Furthermore it is difficult to see how a reasonably experienced practitioner could think that the distribution to her client would not be controversial when the distribution to the other party was being withheld. In her affidavits filed on 14 October 2016 Ms Lanham says that the amount payable to her client was never in dispute that therefore there was no detrimental impact either parties’ entitlements pursuant to the final orders. This misses the point and fails to appreciate her obligations as trustee for both parties, something which Anthonys raised with her months before.
It would be reasonable for the husband to interpret Ms Lanham’s actions as providing her client with a “fighting fund” with respect to the implementation of the orders whilst refusing to make any payment to the husband.
The impasse continued.
Another aspect of the controversy was with respect to the payment of the ATO debt. Again Ms Lanham’s position reflects a misreading of the final orders. This was pointed out to her in clear terms by Anthonys on 12 July 2016. As with the payments of the other debts I deliberately specified the amount that was to be paid to the ATO. My reasons for judgment make clear why this was the case.
There was no need for Ms Lanham to hold onto those funds pending clarification with the ATO as to the amount owing. Even after this was pointed out to her she continued to refuse to pay that sum, resulting in interest continuing to accrue. Ms Lanham continued to agitate the issue of the tax debt even though she acknowledged in her letter of 27 July 2016 that the final order provided for the payment of the tax debt in the amount of $32,429.60. Despite this she continued to refuse to pay this debt until I made a further order. The ATO statement tendered in evidence at the final hearing showed interest was running on the debt at the time of the hearing. She provides justification for this but what she says does not make sense.
Furthermore it is necessary to point out some inconsistencies in Ms Lanham’s position with respect to the ATO debt. The orders clearly read that the ATO debt was to be paid before the distribution of the remaining funds to the husband and wife. If concern was that she could not pay the amount owing to the ATO without knowing exactly what was owing then surely that would have been a basis for not releasing all of the wife’s entitlements pending that amount becoming known.
There was further correspondence between the solicitors. Eventually the husband filed his application in a case seeking enforcement of the final orders on 8 September 2016.
Written submissions of the applicant’s solicitors
The husband submits that Lanham imposed unreasonably short deadlines on obtaining responses from the husband and seeking to gain his consent to distributions in the absence of a response from him and by imposing a very short time frame. The husband refers to the correspondence between the parties and argues that Lanham had no basis in law for making the demands that it did that the husband received less than he was entitled to pursuant to the final property orders. The husband’s lawyers pointed out these issues to Lanham including the fact that they were acting for both parties and not just the wife with respect to the funds held on trust.
The husband makes the point at paragraph 30 of the submissions that Lanham did not at any stage make an application to the Court for it to determine the dispute and said that it appeared that the reason for this was that they had paid the client her entitlements. It is of some significance that the husband’s lawyers pointed out these issues to the wife’s lawyers at the time which should have prompted them to reconsider the correctness of their position.
The husband submits that Ms Lanham breached her obligations as trustee in making payment to the wife whilst not paying the husband and notes that she says that the partial distribution was made to her client prematurely in error but she did nothing to rectify this error. This is inconsistent with the wife’s evidence in paragraph 6 of the wife’s affidavit sworn on 13 October 2016 where she says she received a part payment for settlement monies.
The husband submits that Lanham demonstrated a wilful disregard for the law and the facts and that the conduct went beyond incompetence which was designed to exert pressure in an inappropriate manner on the husband in order to obtain further funds for their client. Further, the husband submits that Ms Lanham failed in her obligations as an officer of the court and her obligations as a trustee holding funds for both parties. The husband says the conduct of Lanham was reprehensible or at the very least “improper or unreasonable”. He says the facts of this case are exceptional and justify indemnity costs.
Written submissions of the respondent’s solicitors
The submissions filed on behalf of Lanham show a lack of appreciation of the seriousness of her conduct. With respect to the letter of 3 June 2016 she says she raised these concerns in a letter of 28 April 2016 and the husband’s solicitors did not respond to that. That does not answer the concerns about the timeframe imposed with respect to the 3 June letter. Furthermore the real concerns are with respect to her position as trustee and failure to understand the obligations that placed on her.
She says that the order with respect to the ATO debt could be read in two ways. With respect that is simply not the case. The order is clear. The judgment provides context. She says she held a genuine and reasonable belief with respect to the ATO debt. Whilst it may have been genuine, it was not reasonable.
At paragraph 33(d) of the submissions, Lanham says the proceedings were finalised and Lanham were not wasting court time or engaging in an abuse of process but were following their client’s instructions in seeking a variation of quantum for what was to be paid to the applicant.
At paragraph 30, her submissions refer to the fact that lawyers are expected to negotiate robustly on behalf of their clients and that the concept of lawyering has been held to encourage lawyers to act zealously for their clients.[5] What the submissions fail to appreciate is the fact that she was in the position of acting for both parties and holding funds on trust as trustee for both parties. This was pointed out to her more than once in the correspondence from Anthonys yet she shows no understanding of this even in the written submissions made on her behalf.
[5] The footnotes include a reference to the textbook by Yasiah Ross entitled Ethics in Law Lawyers Responsibility and Accountability in Australia, sixth edition, 2013. The page reference in the footnote is incorrect.
At paragraph 41 she states that Lanham did not deal with trust monies in any way other than what was expected of them as trustee and refers to yet again the payment to the respondent not been disputed by the applicant. This shows a fundamental lack of understanding of the role of trustee and is very concerning given Ms Lanham is the principal of a law firm.
Her conduct shows firstly a lack of understanding as to the effect of interim and final orders, and of the obligations of a lawyer acting as trustee. This falls outside of the conduct of a solicitor acting on instructions on the basis of the mistaken but reasonable belief or simply an optimistic view of her client’s prospects of success. It shows a level of competency in this case that falls short of what is expected of reasonably experienced practitioners.
Ms Lanham filed an affidavit on 14 October 2016 in support of the wife’s response to the husband’s enforcement application. At paragraph 15 she says that the $50,000 partial distribution to her client was in error. She goes on to say that there was no dispute about her client’s entitlements and no detriment. This shows a lack of understanding of the nature of her obligations as a trustee. She made this interim distribution to her client without seeking any consent at all from the husband. This act in itself was a serious breach of her obligations as a trustee. She went on to commit further breaches of trust.
Ms Lanham’s conduct resulted in a delay in the husband receiving what he was entitled to pursuant to final orders by some months. It was aggravated by her having released the funds to the wife. It is likely that the husband has incurred additional experience not covered by the costs order; such as additional interest on the ATO debt.
Legal principles with respect to ordering costs against solicitors
Rule 21.07 of the Federal Circuit Court Rules 2001 (Cth) provides that the Court may orders costs against a lawyer who has caused costs to be incurred by a party or another party or to be thrown away because of “undue delay, negligence, improper conduct or other misconduct or default.” These factors are present in this case.
There are several cases where costs have been ordered against a solicitor. Justice Cronin ordered that the wife and her solicitor be jointly inseparable be liable for costs in the matter of Tang & Keats [2016] FamCA 99 (“Tang & Keats”). The comments of the Justice Cronin at paragraph 37 are worth setting out. He said:
Parties rely very heavily on legal practitioners to marshal facts, understand the applicable law and present their cases so that there is a reasonable prospect of the court making a decision which is just.
The written submissions filed by Lanham also referred to her acting zealously for her client and refers to the comments of the Full Court of the Family Court in the decision of Limousin and Limousin (Costs) [2007] FamCA 1178 (“Limousin”). At paragraph 53:
In determining whether to make a personal costs order against a solicitor the Court must balance certain public interests. As was said in Ridehalgh v Horsfield [1994] 3 All ER 848 at 855 – 856:
… [L]awyers should not be deterred from pursuing their client’s interests by fear of incurring a personal liability to their client’s opponents; that they should not be penalised by orders to pay costs without a fair opportunity to defend themselves; that wasted costs order should not become a back-door means of recovering costs not otherwise recoverable by a legally-aided or impoverished litigant; and that the remedy should not grow unchecked to become more damaging than the disease. The other public interest, recently and clearly affirmed by Act of Parliament, is that litigants should not be financially prejudiced by the unjustifiable conduct of litigation by their or their opponent’s lawyers. The reconciliation of these public interests is our task in these appeals. Full weight must be given to the first of these public interests, but the wasted costs jurisdiction must not be emasculated.
These are important concepts. It is a balancing exercise, as the above passage sets out.
In the case of Limousin the Full Court at paragraph 64 inferred that the solicitor was acting on instructions “and pursuant to a genuine, if unduly optimistic, appreciation of the merits of his client’s appeal.” There is also no suggestion in this case that Ms Lanham was acting contrary to instructions. It must be borne in mind that clients, not versed in law, rely on the advice of their solicitors.
In Cassidy & Murray [1995] FLC 92-633 the Full Court said the following:
Whereas some of the cases say that there must be “a serious dereliction of duty” by the solicitor before a costs order can be made against that solicitor, in our view the matters identified by the Master of the Rolls in Ridehalgh v. Horsefield accurately reflect the law, which, in its application to this jurisdiction, can be set out as follows:
1. Pursuant to s.117(2) Family Law Act, the Court has jurisdiction to make an order for costs against a solicitor or a non-party.
2. The court should not make such an order without giving the person to be affected by the order an opportunity to be heard.
3. The Court may make an order for costs against a solicitor without the necessity to establish that the solicitor has been guilty of serious professional misconduct.
4. The solicitor has a duty to the Court to promote the interests of justice whilst at the same time attending to the needs of the solicitor's client.
5. A mistake or error of judgment would not justify an order for costs against a solicitor. However, misconduct, default or negligence, any of which are found by a Court to be of serious nature, may be sufficient to justify an order.
6. The jurisdiction is compensatory.
Whilst the English cases talk of the conduct needing to be serious or gross", it adds nothing to set the threshold at “serious or gross”’ rather than at “serious”, “gross” being a more extreme rather than “serious”. We think that this represents an appropriate balance between the competing public interests involved, namely, the concern that lawyers should not be deterred from pursuing their clients' interests for fear of being made personally subject to orders for costs, and the principle that innocent parties should not be occasioned costs, for which they would not otherwise be liable as a result of the inappropriate conduct of solicitors.
In Martin & Harris & Ors [2010] FamCA 239 Justice Fowler made the following comments at paragraphs 33 and 34:
It would be assumed by me, in the absence of any evidence to the contrary (and none is adduced) that the solicitor was acting on instructions either general or particular in the way in which he conducted the case. He, however, can gain no comfort from that.
A solicitor has an obligation to act competently and in accordance with his obligations as an officer of the court. There was regrettably in this case a failure in achieving that standard. A solicitor must not act for a client in a way which puts him in conflict with that duty, no matter how strongly insistent the client might be, nor how much the action is on specific instructions. In those circumstances, if there is a conflict of the proportions that arose in this case, the solicitor should inform the client that if he insists on so instructing then the solicitor will have to cease to act and then do so if the client continues to so insist.
These comments are relevant here. There is nothing in this case to suggest that Ms Lanham was not acting on instructions. The difficulty is Ms Lanham’s failure to appreciate the status of interim orders after final orders are made, the effect of the final orders, and her obligations as trustee for both parties.
In family law matters generally each party bear their own costs.[6]
[6] See FamilyLaw Act, s.117(1).
The court does have power to make an order for costs if there are justifying circumstances.[7]
[7] See Family Law Act, s.117(2).
To make a costs order at all is a departure from the ordinary rule. Schedule 1 of the Federal Circuit Court Rules sets out a scale of costs to be applied in family law proceedings and in general Federal Law proceedings. It is an events based costs scale. Part 21 of the Federal Circuit Court Rules deals with costs and disbursements. If the Court decides that it is appropriate to order costs, then in usual cases the scale of costs should apply.
Section 117(2A) sets out circumstances the Court must have regard to when considering whether or not there are circumstances which justify an order for costs being made in the party’s favour.
(a) The financial circumstances of each of the parties to the proceedings
The property available for division between the parties was modest. The details are set out in the primary judgment were delivered on 9 October 2015.
Ms Lanham does not raise any issue with respect to her capacity to pay costs.
(b) Whether any party to the proceedings is in receipt of assistance by way of legal aid
Neither party is in receipt of legal aid.
(c) The conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters
Her submissions quote The Best Practice Guidelines for Lawyers Doing Family Law Work, Family Law Council and Family Law Section of the Law Council of Australia, second edition, 2010 with respect to exploring options for settlement before commencing proceedings. This mischaracterises and shows a misunderstanding of the circumstances of the parties.
At paragraph 40 of Ms Lanham’s submissions she refers to involving the respondent in further costs without exploring the possibility of negotiating an outcome would be in the best interests of the respondent. Again it is extremely concerning that she fails to recognise firstly that final orders had been made, which her client had not appealed or sought to be set aside and which set out very clearly the parties’ respective entitlements. By distributing funds to her client but not the husband she had created an uneven playing field. This is not an ordinary situation of seeking to negotiate an outcome before commencing family law proceedings.
The submissions also seek to distinguish Tang & Keats and the comments of Justice Cronin that s.117(2A) requires consideration of conduct as a litigant. She submits that Langham’s conduct was not as a litigant as litigation had ceased on the pronouncement of the orders. This is an artificial distinction given that the enforcement proceedings were necessary because of her failure to implement the final orders. The very fact that applications for enforcement are properly commenced by way of an application in a case rather than an initiating application reflect the fact that the enforcement proceedings are arising out of and are connected to the primary proceedings.
(d) Whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court
The enforcement proceedings were necessary because of Lanham’s refusal to distribute funds owing to the husband and to the ATO until the further order was made on the first return date of the enforcement application. This is compounded by the fact that the husband had to bring the application because neither the wife nor Lanham did.
(e) Whether any party to the proceedings has been wholly unsuccessful in the proceedings
The wife was wholly unsuccessful.
(f) Whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer
Ms Lanham relies on the fact that her client made offers of compromise in attempt to resolve the dispute before taking it back to court. In ordinary circumstances this would be highly relevant. However it is important to understand that these were enforcement proceedings. There were already final orders in place. Enforcement proceedings are quite different to ordinary proceedings being commenced for property orders.
Enforcement proceedings necessarily arise because of an alleged default by a party. This has been established in this case.
In the circumstances of this case the husband was entitled to insist on compliance with the final orders. The offers the wife made to resolve the issue were misconceived.
(g) Such other matters as the court considers relevant.
There are a number of concerning aspects of Ms Lanham’s conduct in these proceedings.
The level of distrust between the parties must have been obvious to the wife’s solicitor. It was a feature of the litigation and not limited to the enforcement proceedings. This should have alerted her to the delicate position she placed herself in by agreeing to act for both parties on the conveyancing of the properties in order to implement the final property orders. A solicitor acting for both parties in these circumstances falls within the scope of r.11.3 of the Legal Profession Uniform Law Australian Solicitors Conduct Rules 2015.[8] It is permissible to act for both when there is informed consent.[9] There is no suggestion that that was not the case here. Rather the husband complains that he assumed that Lanham would act in accordance with their duties as trustee for both.
[8] These rules came into effect on one July 2015 and applied to solicitors practising in New South Wales and Victoria.
[9] See rule 11.3.2.
It is of some significance to note that despite Ms Lanham’s position of having conflicting instructions from clients for whom she held money on trust, she did not bring the matter back to Court. If her client was not willing to do so she could have sought to bring an application seeking direction from the Court in her capacity as trustee how to distribute the funds she held on trust. Of course her client may not have seen any greater urgency in needing to bring an application to the court given that she had received her payment of the funds. If that was the case Ms Lanham should have brought an application herself promptly.
Ms Lanham should have identified the position of conflict she was in as trustee for both parties. An appropriate course of action for her would have been to bring an application to the court promptly to seek direction as to the distribution of funds given the conflict between the husband and wife. She could have sought to intervene pursuant to s.92 of the Family Law Act.
Particularly when the reasons for judgment is considered, which give context to the final orders, and noting that Lanham’s were the solicitors on record for the wife throughout the proceedings, the position taken by the wife, presumably in accordance with advice, was unreasonable and unsustainable.
Ms Lanham held the proceeds of sale in her trust account on trust for both the husband and the wife not for her client alone. Much has been written about the duties of trustees and fiduciary duties generally. There is no doubt that Lanham acted for both parties on the conveyancing. This is not changed by the fact that the husband still had the services of his family law solicitor and that correspondence was exchanged via the solicitors. This is the usual course in this situation and quite proper.
However this does not change the fact that the wife’s solicitors held the proceeds of sale on trust as trustee for both parties and as such needed to ensure that she had clear written instructions from both parties with respect to the release of those funds. In this scenario it is a dangerous position to adopt silence as being consent. Whilst the solicitors’ rules with respect to payment of costs enables solicitors to take this approach provided that certain preconditions are met, this situation is not an analogous.[10]
[10] See r.42 of the Legal Profession Uniform General Rules 2015. I note that rule 42(3)(a) requires the solicitor to wait for seven business days after sending a bill to a client before deducting their costs from the monies held in the trust account.
The decision of Victorian Legal Services Commissioner v Galatas (Legal Practice) [2016] VCAT 395 is instructive. In that case a lawyer held funds on trust on behalf of both husband and wife in a family law dispute. The solicitor deducted his fees for the husband from the funds held in trust. He obtained the husband’s written consent but not the wife’s. The Tribunal made the following comment at paragraph 12 which his equally applicable to this case:
The obligation to obtain consent for payment of fees out of trust moneys is all the more acute in circumstances where the solicitor is acting for one party in a dispute, yet holds substantial moneys in trust not only on behalf of his client, but on behalf of his client’s adversary as well. Trust account moneys are ‘sacred’ and this was a serious breach of Ms Galatas’ obligations. This is so regardless of the fact that ultimately the wife did not suffer financial loss arising out of the taking of the trust moneys.”
(Footnote omitted)
This case highlights the cautions practitioners need to take when acting for the both parties on the sale of properties in compliance with family law orders. Practitioners need to appreciate that at all times they are acting for both parties. In many instances it may be uncontroversial but there are circumstances where a conflict can arise, as was the case here. In those circumstances when holding funds on trust for the parties the obligations the solicitor has as trustee are strict. It is quite clear from correspondence annexed to the wife’s submissions that the distrust between the parties was apparent with respect to various issues concerning the conveyancing aspect of the settlement including the signing of discharge authorities and the like. That issue would not have arisen for the family law practitioners if an independent firm had acted on the conveyancing.
The application in a case was necessitated by the wife taking a position which could not be sustained. I accept that Lanham acted on instructions but it is apparent that those instructions were based on advice that with respect to the interim orders was misguided. The wife’s solicitors were on notice of this but still pursued that course. Compounded with this is a lack of understanding of their obligations when holding money on trust.
The matter was not resolved until the first court date. The wife’s counsel asked that I express a preliminary view. It was only then that the matter resolved. The wife’s position was untenable. This should have become obvious to the wife’s solicitor long before it did.
I am satisfied that the circumstances of this case justify a costs order being made against Ms Lanham.
What costs should be ordered?
There is no provision under the Federal Circuit CourtRules for costs to be assessed. The Federal Circuit Court scale of costs is event based. The Family Court scale of costs set out in sch.3 of the Family Law Rules2004 (Cth) (“Family Law Rules”) is different and provides for various charges for time of work done and amount of time spent in engaging in those tasks which is far more involved than the Federal Circuit Court Rules. The Family Court rules also provide an assessment process where costs are disputed: see Part 19.6 of the Family Law Rules.
If I were to order that costs be awarded in accordance with the Family Court scale of costs rather than the Federal Circuit Court Rules that would enable the parties to have the costs assessed. This would involve further costs for the parties, both with respect to preparing a bill in accordance with the family court scale and the assessment itself. That is not an attractive option. I have a discretion to fix the costs, in the event I am not satisfied that an order for indemnity costs is warranted. That is the preferable course.
I am also satisfied that it is appropriate to depart from the Federal Circuit Court scale. It is important to emphasise that I do not make the costs order to punish the solicitor. The costs order is to compensate the husband for costs he has incurred unnecessarily.
Should indemnity costs be ordered?
The case law with respect to indemnity costs is clear.
In the Marriage of Kohan (1992) 16 Fam LR 245, the Full Court of the Family Court stated that the judge should understand that an indemnity costs order is such a great departure that it is necessary to know the impact on the financial position of each of the parties and to know the terms of the agreement which exceed the costs scale. It is necessary to know the extent of the departure from the scale and its likely impact on the parties' financial circumstances. By fixing a scale it must be understood that the scale contains the normal rates of charges. Indemnity costs are the exception in this and other jurisdictions.
In Prantage and Prantage [2013] FamCAFC 105, the Full Court stated when considering whether or not to make an indemnity costs order it is necessary to know what the departure is from the scale.[11] I have that information.
[11] The same would apply when departing from the scale in order to make party/party costs presumably.
In the Marriage of Monday & Bowman (1997) 22 Fam LR 321, Holden CJ gave some examples of where indemnity costs may be justified including:
a)Where an action was commenced or continued in circumstances where a party properly advised should have known the proceedings had no prospect of success;
b)Making allegations knowing them to be false;
c)Evidence of misconduct that caused loss of time to the Court and other parties;
d)Making allegations which ought not to have been made.
The Court was referred to the decision of Medlon v Medlon (No.6) (Indemnity Costs) (2015) FLC 93 – 664. In that case, the Court found it was appropriate to make an order for indemnity costs against the applicant who brought an application which should never have been brought. The compounding factor in that case was that the applicant was a legal practitioner.
If there had been a careful analysis of the orders and reasons for judgement a reasonably experienced practitioner would have realised that, apart from the issue of the car being repossessed, the wife was not prejudiced by the way the orders crafted. The reasons make it clear that the wife received an increased adjustment of the pool because of the husband’s conduct and it was also the reasoning behind providing for specific payments to be made with the husband to be responsible for any additional payments rather than those being visited upon the wife. If this had been done then the delay and the costs it incurred could have been avoided. It is of some significance to note that it was not the wife or her solicitor who brought the proceedings back to court seeking to resolve this issue at a much earlier time.
Ms Lanham has clearly breached her obligations as trustee. She shows no appreciation of this. I have pointed out areas where her conduct was concerning and has resulted in the husband incurring costs for which he should not have to be responsible.
Conclusion
I am satisfied that the circumstances in this case are exceptional which justify ordering costs on an indemnity basis.
Regrettably, I am of the view Ms Lanham’s conduct that falls short of what is expected of reasonably competent solicitor. It is not clear to me as to whether or not the husband eventually made a complaint to the Legal Services Commissioner. Assuming that no complaint has been lodged I will give Ms Lanham the opportunity to be heard as to whether or not her conduct should be referred and will give her 21 days to lodge submissions.
I certify that the preceding one hundred and eight (108) paragraphs are a true copy of the reasons for judgment of Judge Harland
Date: 24 January 2017
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