Naczek & Dowler - [2011] FamCAFC 179

FAMILY COURT OF AUSTRALIA

NACZEK & DOWLER

[2011] FamCAFC 179

FAMILY LAW – APPEAL - LEGAL PRACTITIONERS - Conflict of interest – Where husband seeks an order that the wife’s solicitors be restrained from acting for her in the appeal - Where conflict alleged is a lien over a cost order under appeal and the wife is otherwise impecunious - Existence of the lien in favour of the solicitors over the costs for their unpaid fees does not of itself create a conflict.

FAMILY LAW – APPEAL – PROCEDURE – Interlocutory application in an appeal -Where husband filed a Notice of Discontinuance in relation to the Appeals - Substantive Appeals never proceeded to hearing – Reasons still published.

Family Law Act 1975 (Cth)
Family Law Rules 2004

Afkos Industries Pty Ltd v Pullinger Stewart (2001) WASCA 372
Carindale Country Club Estate Pty Ltd v Astill (1993) 42 FCR 307
Clay v Karlson (1997) 17 WAR 493
Fordham v Legal Practitioners' Complaints Committee (1997) 18 WAR 467
Fruehauf Finance Corp Pty Ltd v Feez Ruthning [1991] 1 QdR 558
Garrey & Crosby (2007) FamCA 696
Holborow v McDonald Rudder [2002] WASC 265
Kallinicos & Anor v Hunt & ors (2005) 64 NSWLR 561
Kooky Garments Limited v Charlton [1994] 1 NZLR 587
Macquarie Bank Ltd v Myer [1994] VR 350
Mallesons Stephen Jacques v KPMG Peat Marwick (1991) 4 WAR 357
Murray v Macquarie Bank Ltd (1991) 33 FCR 46
Newman v Phillips Fox (1999) 21 WAR 309
Oceanic Life Limited v HIH Casualty and General Insurance Limited [1999] NSWSC 272

APPELLANT:

Mr Naczek

RESPONDENT:

Ms Dowler

FILE NUMBER:

MLF

1222

2006

APPEAL NUMBER:

2009

DATE OF ORDER:

7 June 2010

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

Bryant CJ, Thackray and Bennett JJ

HEARING DATE:

7 May 2010

LOWER COURT JURISDICTION:

Family Court of Australia

LOWER COURT JUDGMENT DATE:

28 November 2008

LOWER COURT MNC:

[2008] FamCA

REPRESENTATION

COUNSEL FOR THE APPELLANT:

Mr J. St. John SC

SOLICITOR FOR THE APPELLANT:

Westminster Lawyers

COUNSEL FOR THE RESPONDENT:

Mr T. North SC

SOLICITOR FOR THE RESPONDENT:

Lander & Rogers

Orders

The husband’s application in the appeal filed on 27 April 2010 be dismissed.
That within 14 days of the publication of the Full Court’s reasons for judgment any party who seeks an order for costs file and serve their submissions on costs in relation to the application.
That within 14 days of service upon them of submissions in support of an application for costs, the party receiving same file and serve submissions in response.

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

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE

Appeal Number: SA 90 of 2009
File Number: MLF 1222 of 2006

Mr Naczek

Appellant

And

Ms Dowler

Respondent

REASONS FOR JUDGMENT

Bryant cj & Bennett J

introduction

The matter before us was an interlocutory application in an appeal. The genesis of this application was an appeal by the husband against the orders of Cronin J made on 28 November 2008 being property and parenting orders in relation to the two children of the marriage N aged 10 at the date of the orders and A then aged 7 (“the substantive appeal”). Sometime later, after costs issues had been determined, the husband also appealed against the costs orders.
Prior to the appeal being listed the husband brought an application before the Full Court in which he sought two orders. The most contentious part of the application sought an order that the wife’s solicitors be restrained from acting for her “in the proceedings”. The second order sought the consolidation of the appeal against the substantive parenting orders with the appeal against the subsequent cost order.
On 7 May 2010 the Full Court heard the husband’s interlocutory application. As the substantive appeal was ready to be heard and a decision needed with some urgency the Full Court made orders disposing of the application on 7 June 2010. Those orders were:
1.The husband’s application in the appeal filed on 27 April 2010 be dismissed.
2.That within 14 days of the publication of the Full Court’s reasons for judgment any party who seeks an order for costs file and serve their submissions on costs in relation to the application.
3.That within 14 days of service upon them of submissions in support of an application for costs, the party receiving same file and serve submissions in response.
The Full Court indicated that it would give reasons later. On 30 June 2010, within a few weeks of the orders, the husband filed a Notice of Address for Service, indicating that he was then representing himself. On 14 July 2010, his solicitors filed a Notice of Ceasing to Act and on 23 December 2010 the husband filed a Notice of Discontinuance in relation to the Appeals. Thus the substantive appeals never proceeded to hearing. Although the reasons for our decision no longer have any relevance to the parties to the litigation, we now publish our reasons.

BACKGROUND

The proceedings involve the husband and wife who are the parents of two children, aged 12 and 9 at the date of hearing this application. The husband is a citizen of the United States who has extensive experience in international law and has been employed in the petroleum industry. The wife was born in Australia and has lived in the United States and the United Kingdom. The children, who are not biological siblings, were born in Europe and were adopted by the parties at a young age. N has had significant developmental problems and has been diagnosed with a learning disorder.
When the parties separated they were living in the United Kingdom and proceedings were commenced in that jurisdiction. While their case was being conducted in the United Kingdom the wife sought permission from the English court to relocate the children to Australia which she was ultimately given, with the husband’s consent. In late 2005 orders were made permitting the wife to travel to Australia and significant undertakings were given by the wife to the English court about the husband’s ongoing telephone relationship with the children. In addition, orders mirroring the United Kingdom orders were made in the Family Court of Australia for enforcement purposes.
Within a short time of the wife relocating with the children to Australia the telephone arrangements failed and the husband commenced proceedings on 14 August 2006 in the Family Court of Australia in which he sought that the two children live with him and that he be permitted to take the children from Australia back to England on a permanent basis.
The hearing of that application commenced before Cronin J on 11 April 2007 and continued for a total of 15 days over a period of 11 months “with substantial breaks required because of the time required to conclude the evidence and the availability of the Trial Judge”. The delays were further exacerbated by an application by the wife made on 17 August 2007 for an adjournment of the hearing to enable her to pursue therapeutic psychotherapy following a diagnosis by a single expert psychiatrist that the mother suffers from Borderline Personality Disorder.
At the conclusion of the evidence on 20 February 2008 the trial judge made directions to the parties to provide written submissions. In May 2008 the father sought to reopen his case but that application was dismissed. Judgment was delivered by Cronin J on 28 November 2008. The effect of the judgment, which discharged previous parenting orders, was that:
·The parents have equal shared parental responsibility for the children.
·The children live with the wife in Australia.
·The children spend specified time with the husband.
The husband’s time with the children was predicated on the basis that he was then living and working in the United States.
On 30 December 2008 the father filed a Notice of Appeal against the orders of Cronin J, save for the order for equal shared parental responsibility of the children, seeking that all other orders be discharged and the husband’s application that the children live with him be remitted for rehearing.
On 24 March 2009, O’Ryan J granted leave to the appellant father to file and serve an Amended Notice of Appeal.
On 26 June 2009, Bryant CJ adjourned the hearing of the appeal on the unopposed application of the appellant. One of the main reasons for seeking the adjournment was that Cronin J had not then dealt with the issue of costs arising from his decision and it was contended that if there was to be an appeal arising from his decision then there would be considerable overlap between the substantive appeal and the costs appeal which would suggest the appeals should be consolidated.
After the adjournment of the appeal, Cronin J dealt with competing applications from the husband, wife and Independent Children’s Lawyer for costs arising out of the parenting hearing.
On 9 October 2009 his Honour ordered:
(1)That the husband pay towards the costs of the wife, one half of her costs for the period from and including 21 April 2007 by agreement, and failing agreement, as may be assessed.
(2)That the husband pay the costs of the Independent Children’s Lawyer for the entire proceedings as agreed and in default of agreement, as assessed.
(3)That the husband’s application that the wife make a contribution towards his costs is dismissed.
(4)That the wife’s application in a case filed 1 June 2009 is otherwise dismissed.
The husband has filed a Notice of Appeal in relation to the costs judgment seeking that Orders 1, 2 and 3 be discharged and the wife pay to the husband all costs thrown away by him on an indemnity basis and alternatively on a party-party basis arising from the filing by the wife of the affidavits of her and her witnesses on 8 March 2007.
As noted, one of the orders sought by the husband in the application before us is for a consolidation of the two appeals.
In the course of his judgment in relation to costs, Cronin J discussed the financial position of each of the parties as he is required to do pursuant to s 117(2A) of the Family Law Act 1975 (“the Act”). In relation to the husband’s position as described in paragraph 82 of the Reasons for Judgment his Honour said as follows:
82.From his income, the husband pays tax, mortgage commitments and maintenance before his living expenses all of which would indicate that he is living way beyond his income. His property consists of the residence in the United States with an equity of about $700,000, savings of about $240,000 and investments of $377,000. He faces liabilities however in excess of $300,000 for tax. He has superannuation of $1.5 million and deferred compensation of $875,000 about which he said little but I have presumed that that has something to do with his departure from his employment. Unlike the wife however, he does not have any outstanding legal costs due to his own lawyers.
83.The wife described her occupation as home duties. Her only source of income is maintenance from the husband. Whilst there may be some inconsistency with the evidence that she gave in the proceedings, I think it matters little. The wife’s income is used to meet her living expenses but they are not completely covered. She has a house with limited equity and a motor car. The wife’s outstanding legal fees and debt for a litigation loan exceeds $1 million.
In the course of placing material before the Court in order to determine the competing applications for costs, the wife deposed to having property valued at $941,066 and having liabilities of $1,655,356. She deposed that her principal creditors were her solicitors, to whom she owed a substantial sum in respect of legal costs and disbursements incurred in relation to the proceedings.
The wife’s solicitor filed an affidavit in which he deposed to the fact that the wife had incurred fees of approximately $1,227,176 with his firm, $830,387 of which remain unpaid. He deposed to the fact that the wife had taken a loan of $100,000 to pay fees for the proceedings in respect of which $165,404 was owing as at 28 May 2009.
During the argument in relation to costs before Cronin J, senior counsel for the husband submitted that there should be, amongst other things, no indemnity costs paid, and submitted that:
the wife has potential complaint as to the reliance by her solicitors upon the Costs Agreement and\or as to the quantum of costs generally. Further, if she is truly insolvent (which is not admitted but which her solicitors, her asserted principal creditors maintain), then she has recourse under the bankruptcy legislation. In short, her solicitors are in a position of conflict and/or potential conflict with the interests of the Wife and should not be acting in the matter.
Cronin J did not refer in his judgment to the husband’s complaint about the wife’s solicitors continuing to act for her. One of the grounds in this appeal asserts that the trial judge failed to give reasons in relation to the husband’s submission that the wife’s solicitors were in a position of conflict in pursuing the application for costs for the wife.
The husband’s solicitors apparently then learned that the wife’s solicitors asserted an equitable lien over the proceeds of the costs order made by Cronin J in favour of the wife. The husband’s solicitors then wrote to the wife’s solicitors suggesting that they should cease acting for the wife within 7 days as a result of an alleged conflict, otherwise they would direct the matter to the Ethics Committee of the Law Institute of Victoria for a ruling.
Subsequently, a letter was sent by the husband’s solicitors to the Ethics Committee of the Law Institute of Victoria for a ruling as to whether the wife’s solicitors had a conflict between their own interests and the interests of their client and should cease to act for her. The wife’s solicitors took the position that they did not agree to be bound by any ruling of the Ethics Committee and did not consent to the Committee’s process. The Professional Standards Department of the Law Institute of Victoria advised that a determination be made that the matter would not be referred to or dealt with by the Ethics Committee and in doing so explained that the decision had taken into account:
·The wife’s solicitor’s refusal to be bound by the decision;
·Current Court proceedings in which the matter could be raised.
·The long and complex history of the matters between the parties making it more appropriate for the Court to determine this issue.

Submissions in relation to the application

Senior counsel for the wife, while accepting that it was not unusual for a client to owe a lawyer costs while the lawyer was acting for them in a particular matter, contended that three factors made this case different from others in which a client might owe their lawyer money from time to time. The three factors were asserted to be:
(a) the vast sums owed, being in excess of $800,000;
(b)that the wife, on her own evidence and that of her solicitor, is technically insolvent; and
(c) that the solicitors are asserting an equitable lien over the order for costs.
The third factor, it is contended, would appear to give a contractual right to the fruits of a costs order if one were made.
It is convenient to identify in more detail the submissions put on behalf of the husband and the authorities relied upon to support those submissions.
The summary of argument on behalf of the husband raised essentially three grounds, which were expanded into four, on which it was argued that the Court could interfere to restrain solicitors from acting for a party.
The first identified was breach of confidence, which senior counsel for the husband conceded is not a matter which arises in this case. Secondly, where there is a conflict between the solicitor and client and an associated fiduciary duty which is likely to be breached, which it is argued in part applies in this case. Thirdly, where the administration of justice requires that the solicitors be restrained from acting.
The argument in this case was based largely on the third ground, which senior counsel for the husband described as “a duty owed by the legal practitioner to the Court.” He submitted that relevant cases identified that there is a duty owed by the legal practitioner to the court and that the court should be satisfied that the legal practitioner is a disinterested party if they are to represent a party in the proceedings. It was asserted that in this case, the lien over any costs order, coupled with the amount of the costs owed, removes the legal practitioner from being disinterested in the outcome of the proceedings and gives them a direct interest in the proceedings.
It was submitted that, specifically in this case, that interest would mean that the legal practitioners would wish the wife to retain any costs orders in her favour and thus they might promote opposition to any cost order being discharged if an appeal was successfully prosecuted, and/or to encourage the wife to reject any offers to compromise the proceedings if they involved discharge or variation of the costs orders over which the lien was held.
It was further argued that the solicitors in this case not only had a hypothetical conflict but that there were elements of an actual conflict arising as a result of confidential offers having been made by the husband’s solicitors meeting with no response from the wife’s solicitors, and failure to file documents in the appropriate timeframe in relation to the appeals.
Senior counsel for the husband also argued that the matter was a serious and not frivolous issue, which could be inferred from the fact that when it was raised, the legal practitioners advised the wife to take independent legal advice in relation to the issue.
In support of his proposition that the case fell within a line of authority which entitled the Court to restrain legal practitioners from acting where to do so would be contrary to the broader interests of justice, senior counsel for the husband first referred to the decision of Heenan J in Holborow v McDonald Rudder [2002] WASC 265 (15 November 2002). The case involved the defendant to proceedings in the Supreme Court of Western Australia seeking to restrain a solicitor, who had previously acted for the plaintiffs and been the solicitor on the record for them in the present and associated proceedings, from further acting for them. He was not, however, the solicitor on the record at the time of the application before Heenan J. Leaving aside some procedural issues which were involved in the case, the application was to restrain the legal practitioner, not merely from acting as solicitor on the record for the plaintiffs in those and related proceedings, but to prevent him from being involved in any way, other than as a witness. This, his Honour pointed out at paragraph 5, “seeks to invoke the power of the court to control the conduct of its own officers in order to protect the due administration of justice and the integrity of the judicial process.”
The background to the application involved the legal practitioner’s firm becoming the solicitors on the record for the plaintiff in Federal Court native title proceedings. The defendants were a firm of solicitors who had previously acted for the plaintiff prior to the legal practitioner’s firm.
The change of solicitors and accompanying handover of documents and files became contentious. They involved serious allegations of breach of duty to their clients by the defendants during the period when they were acting for the plaintiffs but prior to the legal practitioner’s firm acting. Equally, they included allegations by the defendants of serious breaches of professional duty by the legal practitioner in relation to allegations that he had made and pursued on behalf of the plaintiffs in the present proceedings in connection with them. There was evidence that the defendant had complained to the Legal Practitioners Complaints Committee (“the LPCC”) about the alleged conduct of the legal practitioner and the legal practitioner had also complained to the LPCC about the alleged conduct of the defendant when acting for the plaintiffs. It was submitted to his Honour that “the pendency of these complaints to the LPCC produces a situation which requires the court to prevent Mr Williams from becoming involved any further in the present proceedings because of the possibility that the eventual outcome of these proceedings may influence the determination of those complaints”.

His Honour found “[i]t is only to the extent that the actual conduct of this litigation might, if at all, be influenced by such a factor that there may be any basis for restricting the conduct of Mr Williams. That is the issue which, ultimately, must be answered by this decision.” (our emphasis)
Discussing the particular differences between the parties, his Honour said (at paragraph 19):
This is a situation not uncommonly found in contested litigation as, for example, in cases where there are allegations of fraud, malicious conduct, wilful breach of trust or similar serious misconduct. Of course, were such a serious allegation to be made and maintained by a legal practitioner for a party to proceedings, in circumstances where there was no justification for that to be done, that may involve the individual practitioner in professional misconduct and expose him to professional discipline, the consequences of which might be very severe. However, the question of the evaluation of the professional conduct of a legal practitioner in the course of litigation is usually, but perhaps not invariably, left for examination after the principal proceedings have been concluded. There are very good reasons for this cautionary practice. As already indicated, it is usually neither possible nor desirable to make a determination of the rights of the parties, whether provisional or otherwise, when they are still joined in issue on the very matters that the court will eventually have to decide. Associated with this consideration is the expectation that it will usually prove very difficult, if not impossible, to undertake a dispassionate and objective consideration of the conduct of the parties while they continue to be embroiled in the very litigation which has generated their mutual hostility. Finally, and by no means the least significant consideration, is the need to ensure that one or both of the opposing parties to the litigation cannot gain some forensic advantage against the other by making attacks against the solicitors acting on the other side which may produce the effect, directly or indirectly, of handicapping the clients by depriving them of access to, or to representation by, a legal practitioner of their choice. Equally unacceptable would be a result which may inhibit or be likely to inhibit, the manner in which the practitioner may properly discharge his professional duties to his clients.
His Honour concluded that as the solicitor was no longer acting for the plaintiff there was no basis for an injunction. That distinguished the case from considerations such as gave rise to the relief granted in Mallesons Stephen Jacques v KPMG Peat Marwick (1991) 4 WAR 357 or Newman v Phillips Fox (1999) 21 WAR 309, or which resulted in adverse disciplinary findings against a solicitor in Fordham v Legal Practitioners' Complaints Committee (1997) 18 WAR 467.
His Honour went on to say, however, at paragraph 22:
However, in view of the submissions put on behalf of the defendant, it is perhaps necessary to examine them more fully.
It is upon his Honour’s analysis of the relevant cases that the applicant in this case relies. Of particular relevance to this matter in our view are his Honour’s comments, at paragraph 26, where his Honour said:
Consequently, when an application is made to restrain a legal practitioner from acting in a cause for reasons other than the risk of disclosure or misuse of information provided to the practitioner in confidence by the former client, it is of importance to identify precisely what obligation towards the former client or to the court may be breached or imperilled by the practitioner acting in the cause or against the former client. This approach is important because, otherwise, there may imperceptibly develop an expectation that the freedom of a client to engage a legal practitioner of his or her own preference, and the freedom of a legal practitioner to act even against a former client, where such a course does not involve any breach of his fiduciary obligations arising from the earlier retainer, is open to adventitious challenge as a means of harassing an opponent in a cause.
Further at paragraphs 28 and 29 his Honour said:
28.If there are circumstances which are likely to imperil the discharge of these duties to a court by a legal practitioner acting in a cause, whether because of some prior association with one or more of the parties against whom the practitioner is then to act, or because of some conduct by the practitioner, whether arising from associations with the client or a close interest which gives rise to the fair and reasonable perception that the practitioner may not exercise the necessary independent judgment, a court may conclude that the lawyer should be restrained from acting, even for a client who desires to continue his service - Clay v Karlson (supra); Wan v McDonald (1992) 33 FCR 491; National Mutual Holdings Pty Ltd v Sentry Corp (1989) 22 FCR 209 and Afkos Industries Pty Ltd v Pullinger Stewart [2001] WASCA 372.
29.From the wider viewpoint, including the perspective of the legal practitioner's duty to the court, it can readily be perceived that this situation justifies intervention by the court because of an actual or sufficiently material threatened conflict of interest by the practitioner, as an officer bearing fiduciary obligations, between his obligations to the court, and his obligations to the client or to some other interest. So it has long been accepted that a legal practitioner, who is likely to be a witness in a case should not act as counsel, or continue to act as counsel if a situation arises where he is unexpectedly required to give evidence. The reason being is that the personal integrity of the practitioner may be put in issue if his credibility is at stake as a witness, and that this will, or may, constitute a personal interest inconsistent with the practitioner's duty to the court or to the client. Other similar conflicts of interest can arise if, for example, the counsel or solicitor had a substantial personal stake in the litigation such as, for example, if he or she were to be a partner in a firm which was a party to the litigation, or a substantial shareholder in a corporation which was a party (our emphasis)
At paragraph 30 his Honour said:
A feature which emerges from the decision of this Court in Afkos Industries Pty Ltd v Pullinger Stewart (supra), is that while a properly informed and advised client, not under any disability, may waive or ratify any breach of duty due to it by the legal practitioner, the practitioner's duty to the court cannot be waived, so that if the particular disqualifying feature involves a conflict between the interests of the practitioner and his duty to the court which could give rise to a situation where the independent administration of justice may be put in jeopardy, the court will restrain the practitioner notwithstanding the wishes or interests of the client. However, it by no means follows that every conflict of interest between the legal practitioner and a client will give rise to a concurrent conflict of interest between the legal practitioner and his duty to the court, or, even where it does, that there is a risk that the practitioner will disregard his overriding duty to the court in favour of his client's interest. It seems to me that if it can be demonstrated that there is a risk that a practitioner will disregard his overriding duty to the court that this will usually, if not always, require action by the court to avoid such a risk by preventing the practitioner from acting even if the relief is sought by an opposing party in the litigation. But these principles do not render counsel or solicitors generally examinable at the suit of their client's opponents. The duty of the legal practitioner is not to his client's opponent and he is not answerable to his client's opponent. His duty is to the court and he is certainly answerable to the court and to his or her professional and disciplinary bodies.
His Honour continued at paragraph 31:
Consequently, if an opposing party asserts that a legal practitioner should be restrained from acting for his opponent it is necessary for a clear case to be made that the practitioner concerned is in a position where he is fixed with an interest which conflicts with his duty to the court and that that interest is one of such a nature that the solicitor or counsel may fail in his overriding duty to the court.
Senior counsel for the husband relied upon paragraph 29 of Heenan J’s reasons in particular and contended that the solicitor in this case had a substantial stake in the litigation.
However, in argument before us senior counsel for the husband did concede [transcript page 39]:
I don’t say the instant circumstances are on all fours of what his Honour was talking about. What I am saying is that his Honour was making general comment and giving examples of a situation in which there was a substantial personal stake in the litigation.
After further discussion with the Court, senior counsel for the husband put his argument in this way [transcript page 41 and 42]:
BRYANT CJ:          I mean, your position really is, isn’t it, Mr St. John, that once a party – and I appreciate you’re talking about the magnitude in this case, and it might be different if it is somewhat of a different size – the principle might change. But you’re saying, once a party has no[tice] – stands to get no benefit, then the solicitor loses their disinterest, is that right, and becomes the interested party? Is that how it’s put?
MR ST. JOHN SC:    Well they have an interest throughout, but the question is when is the conflict likely to occur?
BRYANT CJ:  Yes.
MR ST. JOHN SC:    And the conflict is likely to occur with the amount of costs they are likely to receive may be reduced or eliminated because the most they could hope for, of course, under the lien is to get the full order, but as soon as there is a – if there was an offer of compromise which the client may wish to accept, or may be in the [sic] best interests to accept, the tension arises, where, of course, the amount might be payable under the order for costs, if any amount is payable.
...
MR ST. JOHN SC     The possibility arises, is simply where – the conflict in my submission arises simply where the prospect of there being a lesser financial amount than that presently expected or anticipated by virtue of the prevailing order for costs becomes the issue in question.
Senior counsel for the husband then referred us to Clay v Karlson (1997) 17 WAR 493 (“Clay v Karlson”). This case involved an application by the plaintiff to restrain a firm of solicitors from continuing to act as solicitors for the second defendant in an action. The action was brought by the plaintiff against two defendants who were executors of a will. The allegation was that the will was prepared by the solicitor on the instructions of the second defendant without contact with the testator prior to execution. The solicitor’s firm was not the testator’s usual solicitors and had not acted for him previously. The second defendant was the residuary beneficiary and the person who benefitted from the amendments to the will made by the codicil. It was alleged that when he executed the codicil, the testator was not of sound mind and understanding, and that he received no independent legal or financial advice in relation to the codicil.
Templeman J held that the court has power to restrain a solicitor from continuing to act as part of its jurisdiction to supervise the conduct of legal practitioners. He found that in this case it was undesirable for a practitioner who is aware he is likely to be called as a witness in proceedings to continue to represent his client in those proceedings. The solicitor, who had a personal interest in the outcome of the action, was more than simply a witness. In such a case the argument was even stronger against the solicitor continuing in the action. Templeman J pointed out that the solicitor’s professional conduct in the preparation and execution of the codicil was the subject of serious criticism. In that way, his Honour found the solicitor had an interest in the outcome of the action. This made it inappropriate for him to continue to act as solicitor for one of the parties in the action.
Senior counsel for the wife referred us to a passage in the judgment in which Templeman J quoted from Paul Seaman QC’s Civil Procedure Western Australia. His Honour then said:
I emphasise that Seaman refers to the fact that it is generally unwise for a practitioner who is likely to be called as a witness to continue to represent his client in those proceedings. It must follow, I think, that the case is even stronger against the solicitor acting who has a personal interest in the outcome of the action: he is more than simply a witness.” At page 98 his Honour then said: “It seems to me therefore that the interests of justice, which require a solicitor not to act in a situation in which he has a personal interest, far outweigh any small inconvenience which might be suffered by the second defendant as a result of a change of solicitors. That is particularly so at this stage of the action in which the matter has progressed little further than discovery.
We will return to the question of the detriment to the wife in the present case but in our view, the comments of Templeman J in Clay v Karlson went no further than to describe the fairly common situation of the conflict where a solicitor has a direct interest in the outcome of proceedings, such as being subject to a claim for professional negligence or professional misconduct or otherwise being called as a witness. None of those features are pertinent to this case.
Senior counsel for the husband then referred us to Afkos Industries Pty Ltd v Pullinger Stewart (2001) WASCA 372 (“Afkos Industries”), a decision of the Full Court of the Supreme Court of Western Australia. The facts in that case were that the appellant had sued the respondent, who had previously been their solicitors, claiming that in breach of its fiduciary duty the respondent had failed to advise the appellant that the appellant was not required to sign a costs agreement governing the bulk of the relationship of solicitor and client, which had applied until the termination of their retainer. It was further claimed the respondent was negligent in the performance of their professional duties in relation to what the outcome about costs might be. The respondent pleaded as part of its defence that the appellant had failed to mitigate its damages through the actions of the solicitors then acting for the appellant. The respondent then applied to the court for an interlocutory injunction restraining the appellant from retaining their existing solicitors and a judge at first instance granted the injunction. Miller J, the first instance judge, noted that it remained an open question whether or not the principals of the appellant’s solicitors would need to give evidence at trial but his Honour thought that it was at least potentially the case that they would be required to give evidence.
Germane to the decision to dismiss the appeal, Murray J (with whom Anderson and Steytler JJ agreed) said at paragraph 28:
The question therefore before Miller J was whether there was a serious question to be tried which would support the grant of the injunction sought on the ground that it was asserted in the action by the respondent that the appellant failed to mitigate its loss because its solicitors could have sought but did not seek an order of the kind contemplated by O66 r12. Did the fact that that issue was raised in the litigation arguably give rise to the need for the court to exercise its undoubted inherent jurisdiction to control legal practitioners acting in litigious matters so as to prevent them from acting on the ground that there was actually or potentially a conflict of interest between solicitor and client, or the circumstances were such that the necessary independence and objectivity of the legal practitioner would be compromised?
At paragraph 29, Murray J said:
As to that matter, Miller J found useful guidance in the formulation of the principles by Thomas J of the New Zealand High Court in Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 at 589 - 90 as follows:
Unfortunately, this is a situation which is not all that uncommon. Representatives of law firms appear for clients where there is an actual or potential conflict of interest often enough for it to be a matter of grave concern to the Court. Where the acts or omissions of the law firm, including situations where the actions of the client are based on advice given by the solicitors, are at the heart of the question in issue, the firm is, in a real sense, 'defending' its actions or advice. There is, in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the Court demands, There is no sound reason to presume or accept that the solicitors must first have the opportunity to clarify whether their client is liable as a result of their actions or of acting on their advice before confronting the conflict.
What I have said, of course, does not apply where the advice given is unrelated to liability or the question in dispute. Advising a client to prosecute or defend a claim does not attract these observations. They are restricted to the situation where the acts or omissions of the solicitors are an integral part of the other party's complaint or the client has been sued in circumstances where he or she was acting on the advice of their solicitors and it is effectively that advice which is in issue.
In such cases, apart altogether from the position of the client, the Court is not receiving the assistance of counsel who are observably independent. Independence is a function of counsel. The Court is entitled to assume that solicitors and counsel appearing before it possess that independence. Solicitors not only owe a duty to their clients to do their best for them but also owe an overriding duty to the Court. The same overriding duty is owed by counsel who have been granted a right of audience to appear in this Court. As part of their professional responsibility, therefore, solicitors and counsel must ensure that they do not appear in a matter in which they have an actual or potential conflict of interest or where, by reason of their relationship with their client, their professional independence can be called in question.
In finally determining that the appeal should be dismissed, Murray J at paragraph 32 said:
… In a real sense, the fact that their conduct was so integrally identified with an issue put against the appellant by the respondent in the litigation made manifest the danger against which it was proper for the Court to guard by the injunction it granted.
Again, we think it clear from the comments that the principle expressed in Afkos Industries is, as Murray J said, not applicable if the advice given “is unrelated to liability or the question in dispute” and is restricted to the situation “where the acts or omissions of the solicitors are an integral part of the other party's complaint or the client has been sued in circumstances where he or she was acting on the advice of their solicitors and it is effectively that advice which is in issue.”
The comments which followed that quote, which were expressed in more general terms, must be seen in the context of the passage to which we have referred and the facts of the case. We do not consider that they assist the argument of senior counsel for the husband in this case.
Finally, senior counsel for the husband referred us to Garrey & Crosby (2007) FamCA 696, a decision of Judicial Registrar Johnston (as he then was) dealing with an application in which the wife sought an order to the effect that a particular firm of solicitors be restrained from further acting for the husband. The case related to a situation where a solicitor had been acting for the husband in family law matters concerning his former wife prior to the marriage to the wife in the proceedings and she had attended a conference with him. There was an issue between the parties about whether the firm had given advice to the wife.

Senior counsel for the wife accepted that the facts were not on all fours, but submitted the case provided a convenient summary of the relevant authorities in relation to restraint on legal practitioners from acting. As the case clearly involved an issue about whether confidential information had been conveyed, and that circumstance as a matter in which the Court could act to grant an injunction was not in issue, the case does not assist the husband’s argument.
In summary, senior counsel for the husband submitted to us that on any view the solicitors in the present matter had an interest in the outcome of the proceedings. That interest is the assertion of an equitable or proprietorial right to costs from an order which is in favour of their client and that that creates a real conflict, which is a conflict which should cause the Court concern and goes to the question of the administration of justice. Further, senior counsel submitted that the fact that the wife had agreed or consented, having obtained independent legal advice, to her solicitors continuing to act, was not a relevant matter because it was a duty her solicitors owed to the Court, not a matter for the wife to waive.

Summary of the relevant principles

In Kallinicos & Anor v Hunt & ors (2005) 64 NSWLR 561, Brereton J discussed all the relevant authorities and set out the circumstances in which the court would intervene to restrain a solicitor from acting for a client. His Honour nominated four. We need not deal with the first three, as they do not apply in this case. It is only the last of the four matters identified by Brereton J at [76] which has relevance in this case, namely, that the court always has inherent jurisdiction to restrain solicitors from acting in a particular case, as an incident of its inherent jurisdiction over its officers and to control its process in aid of the administration of justice.
The duty to the court arises from the court’s concern that it should have the assistance of independent legal representation for the litigating parties. Preserving the integrity of the administration of justice, and in the appearance as well as the reality of independence, the duty underpins the court’s practical approach to its supervisory discretion: Kallinicos & Anor v Hunt & ors (supra); Fruehauf Finance Corp Pty Ltd v Feez Ruthning [1991] 1 QdR 558; Murray v Macquarie Bank Ltd (1991) 33 FCR 46; Carindale Country Club Estate Pty Ltd v Astill (1993) 42 FCR 307; Macquarie Bank Ltd v Myer [1994] VR 350; Kooky Garments Limited v Charlton [1994] 1 NZLR 587; Oceanic Life Limited v HIH Casualty and General Insurance Limited [1999] NSWSC 272. The authorities however also caution concern in the exercise of this discretion where the discretion being exercised is that in the court’s inherent jurisdiction to control its process in the aid of the administration of justice.
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: Grimwade v Meagher [1995] 1 VR 446; Holborow v MacDonald Rudder [2002] WASC 265; Bowen v Stott [2004] WASC 94; Asia Pacific Telecommunications Limited v Optus Networks Pty Limited [2005] NSWSC 550.
The jurisdiction is to be regarded as exceptional and is to be exercised with caution: Kallinicos & Anor v Hunt & ors (supra); Black v Taylor [1993] 3 NZLR 403; Grimwade v Meagher (supra); Bowen v Stott (supra).
Due weight should be given to the public interest in a litigant not being deprived of the lawyer of his or her choice without due cause: Kallinicos & Anor v Hunt & ors (supra); Black v Taylor (supra); Grimwade v Meagher (supra); Williamson v Nilant [2002] WASC 225; Bowen v Stott (supra).
The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief: Black v Taylor (supra); Bowen v Stott (supra).
It is important to identify precisely the obligation towards the former client or towards the court that may be breached or imperilled by the practitioner acting in the cause or against the former client: Kallinicos & Anor v Hunt & ors (supra); Holborow v MacDonald Rudder (supra) per Heenan J at [26]. Heenan J went on to say that:
26.… This approach is important because, otherwise, there may imperceptibly develop an expectation that the freedom of a client to engage a legal practitioner of his or her own preference, and the freedom of a legal practitioner to act even against a former client, where such a course does not involve any breach of his fiduciary obligations arising from the earlier retainer, is open to adventitious challenge as a means of harassing an opponent in a cause.
A practitioner’s duty to the court cannot be waived so if the particular disqualifying feature involves a conflict between the interests of the practitioner and his duty to the court could give rise to a situation where the independent administration of justice could be put in jeopardy the court will restrain the practitioner notwithstanding the wishes or interests of the client: Afkos Industries (supra).
As to the exercise of discretion we think it important to highlight the cautionary observations made by Heenan J in Holborow v MacDonald Rudder (supra) at [30], which we note were also cited by Brereton J in Kallinicos & Anor v Hunt & ors (supra):
30.… However, it by no means follows that every conflict of interest between the legal practitioner and a client will give rise to a concurrent conflict of interest between the legal practitioner and his duty to the court, or, even where it does, that there is a risk that the practitioner will disregard his overriding duty to the court in favour of his client's interest. It seems to me that if it can be demonstrated that there is a risk that a practitioner will disregard his overriding duty to the court that this will usually, if not always, require action by the court to avoid such a risk by preventing the practitioner from acting even if the relief is sought by an opposing party in the litigation. But these principles do not render counsel or solicitors generally examinable at the suit of their client's opponents. The duty of the legal practitioner is not to his client's opponent and he is not answerable to his client's opponent. His duty is to the court and he is certainly answerable to the court and to his or her professional and disciplinary bodies.

Analysis of the husband’s contentions

A summary of the husband’s submissions underpinning the factual basis for the disqualification is as follows:
(a)The wife’s solicitors are her principal unsecured creditors in circumstances where her available assets are said to be vastly exceeded by her outstanding legal costs. The wife’s solicitors contend that they cannot be paid from other assets or from income of the wife and in that sense it is asserted they have a direct interest in the outcome of the proceedings.
(b)The solicitors are asserting an independent lien in their own right over the fruits of the existing costs order. The lien arises by virtue of common law and by virtue of the terms of the cost agreement said to have been entered into with the wife.
(c)The wife’s solicitors do not have standing to be represented in the appeals to protect their own position save in circumstances where it is asserted the parties may act collusively to defeat a costs order which is not the situation here.
(d)The wife’s solicitors have failed to file an outline of argument and have failed to respond to correspondence from the husband’s solicitors in recent months.
(e)No reason is advanced why the solicitors continue to represent the wife when she is hugely indebted to them. The fair inference is their own interests are best served by continuing to remain on the record as her solicitor.
(f)The ongoing involvement of the wife’s solicitors is a device to enable them to seek to protect their own financial interests during the course of the appeals before the court in circumstances where they would not otherwise have standing to do so.
(g)The conduct of the wife’s solicitors is subject to criticism in the appeal in relation to costs and as such they have an interest in the outcome of the proceedings.
(h)The solicitors have a conflict between their own position and their duty to the court to provide disinterested legal representation.
(i)Despite the fact that the wife has obtained separate legal advice and wished the firm to continue to act, this is no answer to the conflicted position of the firm.

Is there an actual conflict between the position of the solicitors and that of the client?

The conflict asserted by senior counsel for the husband is that the ongoing representation of the wife by her current solicitors is a device to enable them to seek to protect their own interests (i.e. the wife’s costs order over which they have a lien in circumstances where they have no other realistic means of having their costs met).
It is further submitted that the evidence of this device is to be inferred from the fact that:
·    The solicitors are her principal unsecured creditor where she has no other assets and thus they have a direct interest in the proceedings.
·    They have been unresponsive in relation to filing documents in the appeal and in responding to correspondence particularly offers of compromise.
·    They have no other means of protecting their costs orders.
Conflict arises, it is submitted where the amount of costs they are likely to receive may be eliminated – either by an adverse decision on appeal or by compromise which it might be prudent to accept.
The husband did not assert a conflict in the appeal relating to parenting orders but only in relation to the costs appeal. However, counsel resisted the proposition that the two should be heard independently and asserted a “fundamental linking”. The effect of this would be to prevent the solicitors from acting for the wife in both the costs appeal and the substantive parenting appeal.
The assertion by senior counsel is that it makes no difference to the wife whether or not she pays outstanding costs to the solicitors because she is insolvent. Ultimately counsel invited us to speculate about what confidences may have passed between solicitor and client and their various motives. Counsel invited us to speculate that the wife may not have wanted to defend the costs appeal because she could not pay her solicitors other than through the costs order, or may have been indifferent to them being paid. Alternatively she might have wanted to compromise the costs appeal and the solicitors are preventing her from doing so.
Counsel further submitted that an inference should be drawn that the solicitors were acting to the wife’s disadvantage by:
(a)Failing to answer correspondence particularly in response to an offer of settlement; and
(b)Failing to file their summary of argument on the due date fixed by directions by the Appeals Registrar.
Counsel for the wife ultimately conceded the highest that he could put his case was that there was no known reason why the wife’s solicitors would continue to act for her in relation to the appeals.
We reject these submissions.
The observations of Heenan J in Holborow v MacDonald Rudder (supra) adopted by Brereton J in Kallinicos & Anor v Hunt & ors (supra) are instructive. At [26] Heenan J said:
26.Consequently, when an application is made to restrain a legal practitioner from acting in a cause for reasons other than the risk of disclosure or misuse of information provided to the practitioner in confidence by the former client, it is of importance to identify precisely what obligation towards the former client or to the court may be breached or imperilled by the practitioner acting in the cause or against the former client. ...
And at [30]:
30.It seems to me that if it can be demonstrated that there is a risk that a practitioner will disregard his overriding duty to the court that this will usually, if not always, require action by the court to avoid such a risk by preventing the practitioner from acting even if the relief is sought by an opposing party in the litigation. But these principles do not render counsel or solicitors generally examinable at the suit of their client's opponents. The duty of the legal practitioner is not to his client's opponent and he is not answerable to his client's opponent. His duty is to the court and he is certainly answerable to the court and to his or her professional and disciplinary bodies.
And at [31]:
31.Consequently, if an opposing party asserts that a legal practitioner should be restrained from acting for his opponent it is necessary for a clear case to be made that the practitioner concerned is in a position where he is fixed with an interest which conflicts with his duty to the court and that that interest is one of such a nature that the solicitor or counsel may fail in his overriding duty to the court. … Consequently, although a court will always be alert to consider whether or not these are in jeopardy, in my view it would usually take an unequivocal situation to justify restraining a practitioner from acting on these grounds.
The matters submitted in support of the husband’s contention that there is an actual conflict between the solicitors and the wife fall far short of unequivocal facts. In fact he relies upon speculation as to motive and the confidential confidences that have passed between the solicitors and the wife. The success of the submission calls for the court to draw inferences on the balance of probabilities from facts which lend themselves equally to other inferences being drawn.
Indeed all of the inferences sought to be drawn impute motives to the solicitors contrary to the interests of their client. Senior counsel for the husband submits that we should draw inferences adverse to the solicitors rather than to impute or infer beneficial inferences, for example, that the wife would like to defend the appeal and the costs appeal in a desire to see her solicitors paid rather than not see them paid.
Not only is there no justification for preferring such inferences over others, there is no basis upon which we could reasonably draw the inferences imputing motives contrary to the interests of their client by her solicitors which counsel urges us to do. In the end senior counsel conceded that the highest he could put his case was that there is no reason known to him why the solicitors would continue to act. That proposition falls far short of the unequivocal situation justifying restraining a solicitor from acting on the grounds of actual conflict.

Notwithstanding that no actual conflict can be identified should the wife’s solicitors be restrained from continuing to act for her by reason of breach of their duty to the court?

To succeed in obtaining a disqualification on this basis the husband would need to establish that the solicitor has a conflict between his personal interests and the duties owed to the court. The husband submits that because the solicitors have a lien over the costs order for a large amount, they have an interest in the litigation which prevents them from providing disinterested legal representation and creates a conflict between their own position and their duty to the court to provide disinterested legal representation.
Counsel for the husband acknowledged that whenever a solicitor acts for a client in circumstances where there are outstanding costs that they are in a relationship of debtor and creditor. Further, he accepted that there may be instances in which the only means of satisfying all or part of the solicitor’s costs would be from the fruits of an order for costs obtained against the other party. However he submitted in this case that there were two significant differences. First, that the solicitors had a lien over the costs orders and, second, that the amount involved took it outside the ordinary case.
We accept that in the relationship between solicitor and client and counsel, tensions may emerge between the duties owed to the client and the duties owed to the court. Senior counsel for the husband accepted that he could find no authorities which related to the conflict being asserted in this case and that where a conflict was asserted it was generally in relation to cases where by reason of matters put in issue on the pleadings, a solicitor or counsel might be a necessary witness in respect of a contentious matter or where that person’s professional conduct is in issue. Similarly there is a clear distinction to be made between this case and a case involving a financial interest by reason of being directly entitled because of shareholding or otherwise in the fruits of the litigation.
In this case, the wife has a judgment in the substantive matter and a judgment for her costs. She is entitled to oppose the appeals and to endeavour to maintain those judgments. In our view, the fact that the solicitors have a lien over the costs for their unpaid fees does not of itself create a conflict such that the court might be concerned that the solicitors were unable to conduct the response of the wife to the appeal in order to discharge their obligation to their duties to the court. Whilst they may have a separate interest from that of the wife, their interest does not conflict with that of the wife in the opposition to the appeal. There would be many litigants before courts in this country and others, where capacity to pay legal fees would depend, in part at least, on ultimate success in obtaining a costs order, or as in this case in maintaining it on appeal. The existence of the lien in favour of the solicitors does not of itself give rise to any risk. The solicitors would in any event have a common law lien over the judgment. Debts between litigants and solicitors arise in civil courts on a daily basis. In our view it is difficult to envisage that the test could be met in this case. Namely that a fair-minded and reasonably informed member of the public would conclude that the proper administration of justice including the appearance of justice, required the court granting an injunction to restrain the wife’s chosen legal advisers from acting for her. Indeed, we suggest that a fair minded and reasonably informed member of the public might be surprised at an outcome which saw the wife’s longstanding (and successful) legal representatives prevented from acting for her in the final part of her proceedings because she depended on the fruits of a costs order to pay their fees.
But even if we were wrong in our assessment, the matter is a discretionary one and factors that we consider relevant would include:
·    The need to ensure that the husband did not gain a forensic advantage by disqualifying the solicitors on the other side, which might produce the effect of handicapping the wife by depriving her of access to representation by a legal practitioner of her choice.
·    Given the impecuniousity of the wife and her present lawyers being willing to act for her, there must be a realistic likelihood that she would not be able to afford or obtain other legal representation leaving her significantly disadvantaged in the litigation.
·    The timing of the application is relevant because of the length of time the wife’s legal practitioners have acted for her and their knowledge of the proceedings.
Having regard to all of these matters we were not satisfied that the husband established a basis upon which we should exercise our discretion to restrain the wife’s solicitors from acting for her.

Thackray J

I have had the advantage of reading in draft the reasons of the Chief Justice and Bennett J. I agree with their Honours reasons. There is nothing I would wish to add.

I certify that the preceding eighty-seven (87) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Bryant CJ, Thackray and Bennett JJ)

Legal Associate:

Date: 2 September 2011