Naillon & Naillon
[2022] FedCFamC2F 140
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Naillon & Naillon [2022] FedCFamC2F 140
File number: ADC 3408 of 2021 Judgment of: JUDGE JENKINS Date of judgment: 18 February 2022 Catchwords: FAMILY LAW – Practitioners conflict of interest – Legislation: Family Law Act 1975 (Cth)
Partnership Act 1891 (SA)
Wills Act 1936 (SA)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)
Cases cited: Asia Pacific Telecommunications Ltd v Optus Networks Pty Limited [2007] NSWSC 350
B Pty Ltd v K (2008) 219 FLR 107
Billington & Billington (No 2) [2008] FamCA 409
Bransdon and Davis and Gilbert (2007) FLC 93 - 328
Dalton & Dalton (2017) FLC 93-773
Giannarelli v Wraith (1988) 165 CLR 543
Kallinicos v Hunt [2005] NSWSC 1181
Mann v Carnell (1999) 201 CLR 1
Holborow v Rudder [2002] WASC 265
Osferatu & Osferatu (2015) FLC 93-666
Division: Division 2 Family Law Number of paragraphs: 66 Date of hearing: 25 January 2022 Place: Adelaide Counsel for the Applicant: Mr Heinrich Counsel for the Respondents: Ms James Solicitor for the Applicant: Mildwaters Lawyers Solicitor for the Respondents: Bambrick Legal ORDERS
ADC 3408 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MS NAILLON
Applicant
AND: MR NAILLON
First Respondent
MR B NAILLON
Second Respondent
MS C NAILLON (and another named in the Schedule)
Third Respondent
ORDER MADE BY:
JUDGE JENKINS
DATE OF ORDER:
18 FEBRUARY 2022
THE COURT ORDERS THAT:
1.The applicant be restrained and an injunction granted restraining the applicant from instructing Ms Mildwaters and Mildwaters Lawyers from acting for the applicant in these proceedings.
2.Ms Mildwaters and Mildwaters Lawyers be restrained and an injunction granted restraining Ms Mildwaters and Mildwaters Lawyers from providing any information confidential to the respondents to the applicant or to any solicitors who may accept instructions to represent the applicant in the future.
3.The first, second, third and fourth respondents be restrained and an injunction granted restraining them from instructing any of Suzi Cengarle, Bambrick Legal and Bambrick Legal Pty Ltd as their lawyers in these proceedings.
4.That an injunction be granted restraining the first respondent on the one part and the second, third and fourth respondents on the other part from jointly instructing the same lawyer or law practice as their lawyers in these proceedings.
5.Within 45 days the applicant make, file and serve a statement of claim with respect to any equitable interest she has in the farm property situate at and known as lot … and described in Certificate of Title Register book Volume … Folio … .
6.The matter be otherwise transferred to the Federal Circuit and Family Court of Australia Division One.
7.The costs of all parties is reserved.
8.The operation of these orders is stayed until 5 pm this day.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym Naillon & Naillon has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE JENKINS
By application in a proceeding filed on 8 November 2021, the husband sought to restrain the wife's solicitors from acting for her in the substantive property settlement proceedings between them and from providing any information confidential to the Respondents to the Applicant or to any solicitors who may accept instructions to represent her.
By response to an application in a proceeding filed on 1 December 2021, the wife sought dismissal of the husband's application. The wife also sought further orders that the respondents be restrained from instructing their current lawyer or any lawyers from Bambrick Legal in these proceedings or otherwise instructing the same lawyer.
By responses filed 12 August 2021 the second, third and fourth respondents sought interim orders to be removed from the proceedings.
Evidence
The applicant relied upon an outline of case document filed 21 January 2022 which sets out at Part B the documents to be relied upon.
The respondent relied upon an outline of case which likewise sets out at Part B the documents the respondents relied upon.
Relevant Factual History
The second respondent's father died in 2004. Following his death he engaged Germein Reed Lawyers to assist with the administration of his father's estate.
In or about February 2005 the firm changed its name to Germein Reed Mildwaters.
Ms Kylie Mildwaters was instructed to assist with the administration of the estate. As part of the division of the estate the second respondent inherited an interest in certain lands in the Town E area ("the farm").
The second respondent's father's will was not executed in accordance with the formalities required by section 12 (2) of the Wills Act 1936 (SA).
In order to satisfy that section, special application had to be made to the Supreme Court of South Australia seeking an order that the document be admitted to probate with evidence from anyone who knew about the testamentary intentions of the deceased at the time of signing. This required Ms Mildwaters to obtain sworn evidence from various witnesses including the second and third respondents.[1]
[1] Affidavit of Ms Kylie Mildwaters filed 1 December 2021 [20]-[21].
It appears common ground that Ms Mildwaters dealt directly with the second and third respondents in relation to the winding up of the estate.
The estate was not wound up until 2012. Ms Mildwaters remained with the firm until in or about July 2011.
The applicant wife had her first appointment with Mildwaters Lawyers on 9 September 2019. Ms Mildwaters took over the applicant’s family law file in or about October 2019.[2]
[2] Affidavit of applicant filed 1 December 2021 [7]-[8].
Ms Mildwaters filed an application on behalf of the applicant wife seeking property proceedings against the first, second, third and fourth respondents on 15 July 2021.
Ms Mildwaters continues to act on behalf of the applicant wife in these proceedings.
ISSUE ONE - RESTRAINT ON THE APPLICANT ENGAGING HER SOLICITOR
The Law
It is apparent from each of the outlines of case that the parties are in agreement as to the applicable law, that being the principles set out by the Full Court in Osferatu & Osferatu (2015) FLC 93-666 (‘Osferatu’) as approved in Dalton & Dalton (2017) FLC 93-773 (‘Dalton’).
The Full Court in Dalton at paragraph 14 said the following:
It is well settled that the jurisdiction to restrain a solicitor from acting for a client is exceptional and to be exercised with caution, having regard to the totality of the evidence (Billington & Billington (No 2) [2008] FamCA 409). Due weight is to be given to the public interest in a client not being deprived of their lawyer of choice without due cause. The public interest is also predicated on a client knowing that confidential information imparted to a lawyer will not be given to an opposing party unless the law requires its production. These public interests lie at the heart of the system of justice (Asia Pacific Telecommunications Ltd v Optus Networks Pty Limited [2007] NSWSC 350 at [42]).
The Full Court in Osferatu stated:
A balancing of the nature of the information against a consideration of the person to whom the information was given, when the information was given, the relevance of that information to the current proceedings, the risk of disclosure and any proposed protective measures is required before any determination can be made as to whether any relief is required and, if so, what is the appropriate relief.[3]
Discussion
[3] Osferatu at [35].
Confidential Information
The second respondent asserts that a professional relationship was built between himself, his wife (the third respondent) and Ms Mildwaters. He says he had numerous face-to-face and telephone conversations with Ms Mildwaters.[4]
[4] Affidavit of second respondent filed 5 November 2021[20].
The second respondent asserts that during the administration of the estate “Ms Mildwaters took instructions about the farm structure and its operation in great detail, due to the fact that there was a four way partnership between my parents and Ms C Naillon and me”.[5]
[5] Ibid [25].
He states that Ms Mildwaters:
had many conversations with me regarding the farming land and operations generally, and would often question me about the accounting of the farming business,[6] [and that she] gained a deep understanding of the farm, how my father operated it, how it was to be operated following his death and my inheritance under the will.[7]
[6] Ibid [27].
[7] Ibid [28].
Ms Mildwaters denies having substantive conversations about the farm or its operations.[8] She further denies “gaining a deep understanding of the farm, how Mr B Naillon's [the second respondent] father operated it and how it was operated following Mr B Naillon's father's death.” [9]
[8] Affidavit of Ms Kylie Mildwaters filed 1 December 2021[33(a)].
[9] Ibid [36(a)].
The second respondent obtained the file from Germein Reed which related to the administration of his father's estate (“the Germein Reed file”). In his evidence the second respondent refers to specific documents from that file which he says constitute confidential information but has not annexed them or otherwise provided them to the applicant.[10]
[10] Affidavit of second respondent filed 5 November 2021 [46]-[66].
The applicant sought for those documents to be disclosed on various grounds. These included that by referring to them in the affidavit the respondent was obliged to provide them and/or that by referring to them he has waived any privilege or confidentially that might otherwise be attached to them.
Counsel for the applicant took some time to go through each reference to these documents. In many cases it was argued that the documents were not confidential because they were on the public record and/or because the information was no longer confidential as the information was within the knowledge of the applicant and could be provided to her solicitor. It was also argued that a number of the documents were not confidential as they were required to be disclosed by the respondents in the ordinary course of these proceedings.
I note and accept that documents relating to matters such as probate and the distribution of the inheritance including the shares would be largely publicly available and/or their values could be deduced from publicly available information. I also note the assertions of the wife that she was privy to conversations about the estate and the second respondent's inheritance.[11]
[11] Affidavit of applicant filed 1 December 2021 [19].
In regard to the operations of the farm I also accept the wife is likely to have gained substantial knowledge from her involvement running the farm and operating the farming business,[12] as well as through her Diploma of Agribusiness management.[13]
[12] Ibid [20].
[13] Ibid[12(d)] [13]-[16]
Counsel for the applicant argued that because it was evident that the majority of documents referred to as confidential were in fact not, that I should infer that where it was not clear, the remaining documents were unlikely to be confidential as well. Further to this, and by extension, that where the second respondent asserts that he has otherwise had confidential conversations I should find that this was unlikely to be true.
The applicant otherwise argued that the assertions as to confidentiality were too broad and lacked sufficient particularisation.
In this regard I note the second respondent annexes to his affidavit correspondence from his solicitors Bambrick Legal to Ms Mildwaters on 8 September 2021.[14] In that correspondence the second respondent’s solicitors state they have inspected the Germein Reed file and that contained within it were:
(a)An itemised account referencing “numerous meetings” and “extensive telephone conversations” Ms Mildwaters had with the second and third respondents;
(b)Facsimilies sent by Ms Mildwaters to the Registrar of Probates on 16 and 18 June 2009 detailing Ms Mildwaters' assessment of the third respondent’s ability to give evidence, including her health and record keeping habits, and therefore her preference for the third respondent as a witness;
(c)A letter sent by Ms Mildwaters to Mr F on 16 May 2006 providing her assessment of both the second and third respondents as potential witnesses.
[14] Affidavit of second respondent filed 5 November 2021, annexure ‘-2’.
I find that the information in the preceding paragraph was sufficiently detailed. The second respondent is of course walking the line between providing enough particulars without entirely revealing the information. Furthermore, I find that it constitutes confidential information.
In such circumstances, it is unnecessary for me to address whether the documents referred to in paragraphs 44 to 66 of the second respondent’s affidavit also constituted confidential information, although I accept the argument of the applicant that a number of these documents on the face of it appear to be publicly available and/or would be captured by the respondent's duty of disclosure and therefore not confidential. Following from this I do not need to determine whether these documents should be provided to the applicant for the purposes of this application.
Relevance
The farm property and operation of the farm are live issues in this case. Furthermore the second and third respondents will be witnesses in these proceedings and therefore their credibility and ability to give evidence will be central to the matter.
Likelihood that the Applicant's solicitor will rely on the confidential information
I must assess the degree of risk that the confidential information will be disclosed or misused. I note the risk must be real, not fanciful or theoretical.
Unlike in the cases of Dalton and Osferatu, in this matter the solicitor seized of the confidential information is directly involved with the applicant. There is not only a risk that she will use the confidential information but she has an obligation to her client to use this information if it will assist her client's case.
Is it possible to attenuate that risk?
Given the direct involvement of the solicitor it is not possible for the risk to be attenuated by way of, for example, an undertaking not to disclose information.
Delay/implied waiver
As set out by the Full Court in Dalton at paragraph 19:
the point of implied waiver is that even though the holder of the privilege (or right) does not intend to give it up, intention to waive is imputed. In Mann v Carnell (1999) 201 CLR 1 at 13, the plurality of the High Court summarised the position as follows:
…This means that the law recognises the inconsistency and determines its consequences, even though such consequences may not reflect the subjective intention of the party who has lost the privilege ... What brings about the waiver is the inconsistency, which the courts, where necessary informed by considerations of fairness, perceive, between the conduct of the client and maintenance of the confidentiality; not some overriding principle of fairness operating at large.
It was argued on behalf of the applicant that the second and third respondents have waived the right to any confidentiality by virtue of their delay in bringing these proceedings.
The applicant first engaged the offices of Germein Reed Mildwaters on 9 September 2019. She attests that due to the complexities relating to the property aspect of the case, Ms Mildwaters took over the file at the end of October 2019. She says that the respondents first received notice of that by letter dated 12 November 2019.[15]
[15] Affidavit of Ms Kylie Mildwaters filed 1 December 2021 [4].
Ms Mildwaters says that proceedings were issued between the husband and wife in 2019 and the third respondent filed an affidavit on 2 December 2019 in those proceedings which she asserts means it is likely that by that time the second and third respondents were aware her firm was acting.[16]
[16] Ibid [5].
However what is not clear from the evidence before the court is whether the second and third respondents were made aware prior to the filing of the application in these proceedings on 15 July 2021 that the wife was claiming an interest in the farm land or that the interests of the second and third respondents would in any other way be affected. I note that correspondence from 12 November 2019 was not annexed to the affidavit.
What is clear is that after having been served with the application filed on 15 July 2021 the second and third respondents sought to inspect the Germein Reed file with respect to the administration of the estate and Ms Mildwaters' involvement.
It is also evident that having perused the Germein Reed file, the second respondent's solicitors wrote to Ms Mildwaters on 8 September 2021 identifying what was said to be the conflict of interest and requesting Ms Mildwaters cease to act.[17] I note that in that correspondence the inspection of the Germein Reed file was central to their argument about the conflict and arguably necessary to be able to provide the required particularisation.
[17] Affidavit of second respondent filed 5 November 2021 [41] and annexure ‘-2’.
Factoring in the time for service on the respondents, the time needed to request and inspect the file and the time required to provide instructions, it is my view that there was no undue delay between the filing of the property application and the letter sent to Ms Mildwaters requesting her to cease to act. There was therefore by extension no implied waiver of confidentiality. In any event, I note the applicant states that this conflict was raised by the respondent’s solicitors by email as early as 19 July 2021.[18]
[18] Affidavit of applicant filed 1 December 2021 [10].
This case can also be distinguished from the facts in Dalton, because firstly the respondents did provide detailed information to Ms Mildwaters as to the conflict at an early stage in the proceedings and secondly they did not seek to actively engage in negotiations in spite of the conflict of interest.
Prejudice to the wife
In Dalton the court noted the judge at first instance appears to have misinterpreted Osferatu as invoking a balance of convenience test.[19]
[19] Dalton [12].
In Dalton the Full Court instead preferred the approach as set out in Asia Pacific Telecommunications Limited v Optus Networks Pty Ltd per Bergin J at [42]:
…The parties accept that such jurisdiction is to be regarded as exceptional and exercised with caution and that 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 v Hunt at [76]. In some cases the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a basis for refusing relief: Kallinicos v Hunt at [92]. However in my view if the court is otherwise of the view that the protection of the integrity of the judicial process and the due administration of justice, including the appearance of justice, requires the lawyers to cease to act there would have to be evidence of a most compelling nature as to the cost, inconvenience and impracticality to avoid an order restraining the lawyers from acting further. There is no evidence in this case of such cost, inconvenience or impracticality.[20]
[20] Ibid [62].
The wife asserts in her affidavit of 1 December 2021 that by the time she was informed that the respondents were alleging a conflict of interest, being 19 July 2021, she had spent approximately $64,000 with Ms Mildwaters. Furthermore, since that date (at least as at 1 December 2021) she had spent a further $9,000 with her lawyer defending the conflict-of-interest application. She asserted, and I accept, that if she had to change lawyers it would cost her a significant amount of money as the new lawyer “would have to spend a substantial amount of time getting up to speed with the history of this matter”. I note she also asserts that instead of seeing a lawyer in the same town in which she lives, it is likely she would need to retain a lawyer in Adelaide which would require her to travel two hours to Adelaide each time and that this would “cause significant inconvenience and increased expense” which she could ill afford due to her low income.[21]
[21] Affidavit of the applicant filed 1 December 2021 [6].
However I do not find that the evidence of the applicant’s legal costs and inconvenience constitutes evidence of a most compelling nature such as to avoid an order restraining the applicant's solicitor.
ISSUE TWO- RESTRAINT ON THE RESPONDENT’S SOLICITOR ACTING FOR THE SECOND, THIRD AND FOURTH RESPONDENTS
The applicant seeks an injunction restraining all respondents instructing the same solicitors.
The Law
The applicant relies upon the decision in Bransdon and Davis & Gilbert (2007) FLC 93 - 328 ("Bransdon").
In Bransdon at paragraph 27 the Full Court said:
Reference to r 8.03, the many authorities on conflict of interest and ethical rules of the various professional associations makes it clear that acting for two parties who are before the Court where there is a potential conflict is fraught with difficulty. Authority, prudent practice and experience dictates separate legal representation should almost inevitably occur.
Although the Full Court in Bransdon went on to find:
We agree with the discussion and findings of Heenan J in Holborow v Rudder [2002] WASC 265 and adopt, with respect, his Honour's view that the court would only restrain the appearance of a legal representative because of his or her duty to the court in a clear case. We are not satisfied this case, for the reasons set out above, was a "clear" case.[22]
[22] Bransdon [70].
Discussion
This case can be distinguished from the facts in Bransdon because in Bransdon there was no apparent evidence at the commencement of the trial of any actual conflict of interest. The judge in that case asked if there was a conflict of interest at the commencement and although the potential for conflict was identified, all parties agreed that the case should proceed and that there was no actual application to restrain the parties from engaging the same counsel.
In this case there is an application to restrain, and it is argued in this case that the evidence shows an actual conflict. In particular, the parties' evidence as to the farming of the land. The husband states that as of January 2020 the farm had been in drought for three years and was not being farmed,[23] whereas the applicant argues that the second and third respondents state that the farm was being operated.[24] I note that what is said in their affidavits is that the partnership operated and managed the farmland and thus what is unclear is whether this meant the farmland was being 'farmed' and if so at what point in time. It is also unclear to what degree the issue of whether the farm was being farmed at any given time would impact on the ultimate decision in this matter. I am concerned that this is indicative of the kind of factual issues that might give rise to a conflict of interest argument mid trial. I note also that counsel for the applicant raised a breach of the Partnership Act 1891 (SA) and that the parties may have differing evidence about who was responsible.
[23] Affidavit of the respondentfiled 12 August 2021[50]
[24] Affidavit of the second and third respondent filed 12 August 2021 [9]
It is therefore foreseeable that the situation could arise in this matter as occurred in the case of Bransdon where legal representation had to cease to be involved midway through the trial. On that basis I will grant the injunction restraining the respondents from instructing the same solicitors.
I note that each of the respondents has signed an agreement to engage with the same solicitor in spite of any potential conflict of interest however the conflict in this matter arises from the solicitor's duty to the court and this is not something that the parties can waive. See Giannarelli v Wraith (1988) 165 CLR 543.
ISSUE THREE - APPLICATION BY THE SECOND, THIRD AND FOURTH RESPONDENTS TO BE REMOVED AS PARTIES
The second, third and fourth respondents sought to be removed as parties to this proceeding.
The Law
Rule 3.05 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) enables a party to apply to be removed from a proceeding by filing an application in a proceeding.
The respondents argue that the applicant has failed to demonstrate sufficient facts that if proven the law would provide the relief sought. B Pty Ltd v K (2008) 219 FLR 107 at 52.
Discussion
The argument put for the respondents is that the applicant and the first respondent do not have any equitable, legal or beneficial interest in the farm and that the husband and wife were merely parties to a partnership created for the purposes of running the farm.
The applicant argues that the second and third respondents are necessary parties based upon
proprietary and promissory estoppel arising from the representations and assurances given by them to the first respondent and applicant during the course of the marital relationship that the farm and farming business will eventually be theirs to operate.[25]
[25] Applicant’s Outline of Case [60].
It is unclear exactly how the wife puts her case with respect to an interest in the land itself, rather than the farming business. Accordingly I intend to order the wife to file a statement of claim setting out the basis for the equitable relief that she seeks.
Further to this, given the number of parties and the length of time this case is likely to take, including the assertion by the applicant that there is an issue with respect to there being a breach of the Partnership Act 1891 (SA), it is appropriate to transfer this matter to Division One of this Court.
In such circumstances I will defer the second, third and fourth respondents’ application to be removed from these proceedings for further consideration by Division One of this Court and following the filing of the wife’s statement of claim.
I now pronounce final orders as published at the commencement of these reasons.
I certify that the preceding sixty-six (66) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Jenkins. Associate:
Dated: 18 February 2022
SCHEDULE OF PARTIES
ADC 3408 of 2021 Respondents
Fourth Respondent:
D PTY. LIMITED
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