SEXTON and BARTON

[2015] FCWA 38

JURISDICTION : FAMILY COURT OF WESTERN AUSTRALIA

ACT: FAMILY LAW ACT 1975

LOCATION: PERTH

CITATION: SEXTON and BARTON [2015] FCWA 38

CORAM: CRISFORD J

HEARD: 12 MAY 2015

DELIVERED : 3 JUNE 2015

FILE NO/S: PTW 483 of 2014

BETWEEN: MR SEXTON

Applicant

AND

MS BARTON
Respondent

Catchwords:

FAMILY LAW - LEGAL PRACTITIONERS - Conflict of interest - Where the wife seeks an order that the husband’s solicitors be restrained from acting for him - Where the solicitors had involvement with both parties throughout their relationship - Where the wife says she thought the solicitors were acting on her behalf when the solicitors prepared documents excluding her from entities in which she had an interest - Where the Court considers the solicitors should be restrained from acting for the husband.

Legislation:

Family Law Act 1975 (Cth)

Category: Not Reportable

Representation:

Counsel:

Applicant: Mr H Moser

Respondent: Ms N Hossen

Solicitors:

Applicant: Law Firm A

Respondent: Law Firm B

Case(s) referred to in judgment(s):

Clay v Karlson (1997) 17 WAR 493

Holborow v Macdonald Rudder [2002] WASC 265

McGillivray v Mitchell (1998) FLC 92-818

McMillan and McMillan (2000) FLC 93-048

Mitchell v Burell [2008] NSWSC 772

Naczek & Dowler [2011] FamCAFC 179

WORDS IN SQUARE BRACKETS REPLACE WORDS USED IN THE ORIGINAL JUDGMENT - PARTIES’ NAMES AND IDENTIFYING DETAILS HAVE BEEN CHANGED

1On 17 November 2014 [Law Firm A] filed an initiating application on behalf of [Mr Sexton] (“the husband”). On 8 January 2015 [Law Firm B] filed a response on behalf of [Ms Barton] (“the wife”). At a hearing on 23 January 2015 the presiding Magistrate disqualified himself and the matter was adjourned to a hearing on 12 May 2015.

2The current issue before the Court is the wife’s application for the husband’s solicitors to be restrained from acting for him and his various entities in these proceedings.

Background

3The parties commenced cohabitation on 13 February 2005 and were married [in] 2006. [In] 2008 their son, [C], was born. The parties separated initially on 6 October 2012, when the wife temporarily moved out of the matrimonial home. The parties began attending marriage counselling on 16 October 2012 and the wife moved back into the matrimonial home on 30 October 2012. The parties separated for the final time on 13 January 2013.

4The husband is employed as [a Company Director] at [Company W], a business in which he has a 50 per cent interest. The wife is an office [administrator].

5The parties have an interest in multiple entities which include the [S Investment Trust] (“the Trust”); [S Corporation Pty Ltd] (“the Corporation”); and the [S Superannuation Fund]. The Trust was constituted by a Deed of Settlement dated 28 May 2009 with the wife as the Trustee. The husband is the sole director and secretary of the Corporation. The husband and the wife are the only shareholders; each holding one share.

The involvement of Law Firm A

6The husband’s current lawyers were engaged by both parties in 2008 for the drafting of their wills. The solicitor was [Mr M].

7In 2009 Law Firm A opened a file described as “S Investments Trust”, managed by Mr M and with the husband listed as the client in a Matter Input form. The file information sticker attached to the front of the file describes both parties as clients.

8In 2012 Law Firm A prepared a “Deed of Appointment of New Trustee and Variation of the [S]”, which was signed by the wife in June 2012.

9In 2013 Law Firm A opened a file, managed by Mr M, listing [Company W Consulting Pty Ltd] as the client.

10In 2014 Law Firm A opened a file managed by Mr M described as “wills” with the husband as the client. Also in 2014 Law Firm A prepared a “Deed in Relation to [S] Investment Trust”. The main effect of this Deed would be to remove the wife as Guardian and Appointor of the Trust and for her to transfer her shares in the Corporation to the husband. The Deed was presented to but not signed by the wife.

11On 17 November 2014 Law Firm A instituted these proceedings on the husband’s behalf.

The wife’s position

12The wife says that throughout the parties’ relationship she viewed Law Firm A and Mr M in particular, as lawyers for both parties. She says she attended Law Firm A’s offices to give instructions on legal matters. The wife says that whilst she was the Appointor and Trustee of the Trust all documentation was prepared by Law Firm A. She says her Will was prepared by Law Firm A in 2008. She had referred a friend to the firm for matrimonial advice. She was also invited to firm events as its client. She deposes to socialising with Mr M.

13The wife says that in early June 2012 the husband approached her and informed her that the Trust was no longer in use and he wanted to change it to a Corporation. On 7 June 2012 she says the husband brought a document home and asked her to sign it. She says at this time she viewed Law Firm A as her solicitors and as the document was prepared by them she thought it acceptable to sign the document and did not seek independent legal advice. She was not advised to do so.

14The document signed by the wife was prepared by Law Firm A and titled “Deed of Appointment of New Trustee and Variation of the [S] Trust”. This resulted in the wife’s removal as Trustee of the Trust and for the appointment of the Corporation in her stead.

15The wife notes that after she signed the new Deed the husband increased the debt of the Trust by $452,000.

16Counsel for the wife, Ms Hossen, says that the solicitors for the husband cannot act independently in these proceedings as a result of their involvement with the wife throughout the parties’ relationship. She says that an issue also arises in relation to Mr M personally. There is a real possibility that Mr M will be required to give evidence in these proceedings.

The husband’s position

17The husband contends that there is no valid reason that would prevent Law Firm A from continuing to represent him in these proceedings.

18The husband’s position is that although during their relationship the wife was involved in giving instructions to the firm, confidential information was not imparted.

19Counsel for the husband, Mr Moser, says that the wife did not raise the issue of a conflict of interest at the earliest opportunity. There has been a significant delay in her seeking the injunction that the solicitors be prevented from representing the husband.

Discussion

Delay

20It is useful to commence the discussion by dealing with the issue of delay. The husband maintains that if the wife’s concern about his use of their former legal advisor was an issue, such issue needed to be raised by her immediately upon becoming aware of Law Firm A’s involvement. Her failure to do so suggests her concern is less than genuine and that it is now too late to complain.

21The issue of delay, as raised by counsel for the husband, was referred to in the decision of McGillivray v Mitchell (1998) FLC 92-818 where it was said at [36]:

It is our opinion that if a family law litigant has a genuine concern about a former legal adviser acting against him or her in later family law litigation, the litigant must take the point at least in correspondence with the other side at the earliest possible opportunity. If he or she does not do so, then he or she is possessed of a weapon which can later be used as a delaying tactic at some point in the proceedings convenient to his or her position. Furthermore a failure to take the point initially must also cast doubt on the bona fides of any later complaint concerning the existence of confidential information in the practitioner in question, and on the bona fides of any alleged apprehension regarding the possible mis-use of such confidential information.

22Law Firm A, by solicitor [Mc C], wrote to the wife on 13 February 2013 raising, inter alia, its client’s hopes that a property settlement could be amicably negotiated. There was a suggestion that mediation might be appropriate in order to progress matters and that the wife should seek independent legal advice.

23On 7 April 2013 Law Firm B, on behalf of the wife, responded to that letter. It was confirmed that the wife also hoped to reach an amicable agreement. The wife’s preparedness to attend mediation once all appropriate disclosure had been exchanged was made clear. The standard pre-action disclosure in relation to the parties’ entities was sought so that proposals for settlement could be formulated. This took some time.

24[Ms R] of Law Firm A deposes on 23 January 2015:

4.From the file it appears that the potential conflict was not raised by the wife’s solicitors until their letter was sent to [Law Firm A] in respect to disclosure on 16 October 2014 and as referred to in paragraph 46 of the wife’s affidavit sworn in these proceedings.

25The application initiating proceedings was filed one month later on 17 November 2014. The response to that application filed on 8 January 2015 specifically sought to restrain Law Firm A from acting for the husband and his various entities in relation to these proceedings.

26I do not accept that the matter was raised unacceptably late. It was raised by the wife before proceedings were instituted. It was again raised in responding documents. It reflected the position put on her behalf to Law Firm A a month before it instituted proceedings.

27Prior to it being raised there were attempts at negotiation and mediation in order to avoid legal proceedings and the ongoing involvement of lawyers. I do not consider it unreasonable for the wife to attempt some form of negotiation prior to making her complaint. In the context of Family Court proceedings I consider this a prudent course.

28The Court has dealt with this matter very early in the proceedings. I was not drawn to any particular prejudice save for the husband wanting the solicitor of his choice. I am not satisfied that the wife is barred from raising this matter by any issue of delay.

29I will move on to the issues complained of by the wife. Ms Hossen identified what she considered the two main issues as:

•It is highly likely that Mr M will be called by the wife to give evidence at trial; and

•The firm, Law Firm A knew a great deal about the wife.

A potential witness?

30Some background to the assertion that Mr M is likely to be called as a witness can be gleaned from the affidavit material.

31The wife deposes that the parties had experienced difficulties in their relationship since the birth of their child in 2008. By early 2010 the wife says she was no longer sleeping in the marital bed but had removed herself to the couch in the lounge room. She said that in June 2012 she asked the husband for some time apart.

32In June 2012 at the request of the husband the wife signed a variation of the Trust Deed with the result she was no longer the Trustee of that entity. It appears that this document was prepared in relation to the file described as “[S Investments Trust]”. The husband was listed as the client in the Matter Input Form although it appears there was some confusion because on the front of the file both parties are described as clients. This is understandable given it is common ground both the wife and husband attended Mr M at least from time to time when instructions were provided.

33The wife deposes that given her history with the firm she did not question whether the Deed she was being asked to sign was anything other than in her interest. She expected the lawyers to include her interests in their consideration given her history with the firm and place within the Trust.

34She further deposes:

62.I am of the view that the applicant knew exactly what he was doing and engaged in a course of conduct designed to ensure that I had no power or control of the assets in any of the entities upon separation.

35This brings into question the dealings between the husband and Law Firm A in relation to an entity the wife had an interest in and had been involved with the husband and Law Firm A previously.

36The matter is further complicated because, after separation, there was a further attempt to change the Trust Deed with the effect the wife was further distanced from its operation.

37As a general statement in relation to the issues here Brereton J observed in Mitchell v Burell [2008] NSWSC 772, at [3]:

… The test to be applied is whether a fair minded, reasonably informed member of the public – a concept substantially equivalent to the reasonably informed lay observer used in the context of applications for disqualification of judicial officers for apprehended bias – would conclude that the proper administration of justice requires that a legal practitioner should be prevented from acting, in order to protect the integrity of the judicial process and the due administration of justice, including the appearance of justice.

38His Honour deals at [20] with the possibility of the likelihood of a solicitor giving evidence and observed:

… I do not accept that the mere circumstance that a solicitor will be a material witness, even on a controversial matter, of itself justifies restraining the solicitor from continuing to act. … that the line is crossed only when the solicitor has a personal stake in the outcome of the proceedings or in their conduct, beyond the recovery of proper fees for acting, albeit that the relevant stake may not necessarily be financial, but involves the personal or reputational interest of the solicitor, as will be the case if his or her conduct and integrity come under attack and review in the proceedings. The presence of such circumstances will be a strong indication that the interests of justice – which in this field involve clients being represented by independent and objective lawyers unfettered by concerns about their own interest – require the lawyer to be restrained from continuing to act.

39The authorities are at one in affirming that the jurisdiction to exclude a practitioner from acting should be exercised with caution.

40In a case dealing with courts restraining legal practitioners from acting where to do so would be contrary to the broader interests, Justice Heenan in Holborow v Macdonald Rudder [2002] WASC 265 said at [26]:

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. 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.

…

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 WASCA 372.

29.From the wider view point, 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.

41This matter was also dealt with by Justice Templeman in Clay v Karlson (1997) 17 WAR 493 where it was 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. His Honour said that 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 especially where he has a personal interest in the outcome of the action and thus is more than simply a witness. In such a case the argument was even stronger against the solicitor continuing in the action.

42Here the wife levels serious criticism at the husband’s actions in engaging solicitors, who also acted for her, to change a Trust Deed in which she had a financial interest. In the context of the breakdown of the relationship where a division of assets is of significance it is, at the very least, imprudent for the lawyers to continue to act. Given the history of the matter and the indication by the wife’s counsel that Mr M would likely be called to give evidence I accept the solicitor may well have an interest in the outcome of the action other than simply securing his legal costs.

What did Law Firm A know?

43Mr Moser says that although the wife was involved in giving instructions she did not impart confidential information.

44There can be no doubt that Law Firm A acted for the wife in a number of financial matters. The solicitor dealt with legal aspects of the parties’ business. He had obtained detailed information from both parties about entities in which each had an interest. He was involved in the drawing of the wife’s will. It would not be uncommon to discuss her assets at least during the attendance relating to the will. It is difficult, however, to really analyse the nature of the information provided, confidential or otherwise.

45True it is that the solicitor acted for both the parties and also for entities in which each had an interest. In relation to the business dealings as opposed to the drawing of wills it may well be assumed that there was no confidential information imparted. The same can not necessarily be said in relation to the wills. One question to be posed is whether the solicitors may have confidential information arising out of the solicitor-client relationship which could be used to the advantage of their present client or to the disadvantage of a former client.

46Counsel each referred the Court to numerous authorities. Both referred to the decision of the Full Court in McMillan and McMillan (2000) FLC 93-048. At [38] the Full Court said:

It has been accepted in this Court, at least since the decision in June 1986 of Frederico J. in Thevenaz (1986) FLC 91-748, that the Court “has power to make orders restraining a firm of solicitors from continuing to act for one of the parties to proceedings in this Court, if it is of the view that it would be likely that those solicitors may have confidential information relating to the other party to the proceedings arising out of a former relationship of solicitor and client with that party which may be used to the advantage of the present client or to the disadvantage of the former client in the current proceedings” (per Lindenmayer J. in the unreported decision of Stewart (17 April 1997)).

47The Full Court also said at [42]:

…this Court has placed [reliance] on the decision in Mills [Mills v. Day Dawn Block Gold Mining Company Limited; In re Marsland (1882) QLJ 62] in the development of this Court’s approach to the question of when a solicitor will be restrained from acting against a former client (or a former client of his or her partner or employee). The significant feature of this approach is that for the client to succeed, he or she need only give evidence that he or she has imparted information of a confidential nature to the practitioner in question and that there is at least a theoretical possibility that it could be used against him or her.

48The Full Court also considered the issue of conflict of interest in Naczek & Dowler [2011] FamCAFC 179, relevantly:

60. … 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.

61. 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… 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.

62. 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…

63. The jurisdiction is to be regarded as exceptional and is to be exercised with caution…

49I accept there is evidence to suggest that Law Firm A may have had information which was prejudicial to the wife.

Conclusion

50There is no doubt that the court relies on lawyers exercising an independent judgement in conducting and managing litigation. Such independence may not be present if the lawyer has an actual or potential conflict of interest. Such conflict may arise where the lawyer is likely to be called as a witness in a client’s case, or otherwise has an interest in the outcome of the case.

51The wife says that solicitors she thought were acting on her behalf prepared documents excluding her from certain entities in which she had an interest. She has some justification for that view. Although I am unsure if the solicitors had confidential information relating to her, when I consider all the matters together I find it proper for the husband to obtain alternate legal representation.

52I also add that in my opinion a reasonably informed and fair minded member of the public would conclude that Law Firm A, by Mr M, was compromised by the manner in which the previous dealings with both parties had been conducted.

Orders

53I will hear from Counsel in relation to any further programming orders. Otherwise I make an order in the following terms:

1.LAW FIRM A be restrained and an injunction is hereby granted restraining them from acting for the Applicant, [MR SEXTON], in these proceedings.

I certify that the preceding [53] paragraphs are a true copy of the reasons for
judgment delivered by this Honourable Court

Associate