Shtrambrandt & Fenedisto Pty Ltd v Brott (No 2)
[2006] VSC 483
•15 December 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7374 of 2005
| ISSAC ALEXANDER BROTT (TRADING AS ISSAC BROTT & CO) | Plaintiff |
| v | |
| ELENA SHTRAMBRANDT AND OTHERS | Defendants |
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And between
No. 9368 of 2005
| FENEDISTO PTY LTD AND ARKADY SHTRAMBRANDT | Plaintiffs |
| v | |
| ISSAC ALEXANDER BROTT (TRADING AS ISSAC BROTT & CO) AND OTHERS | Defendants |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 3 November, 1 December 2006 | |
DATE OF JUDGMENT: | 15 December 2006 | |
CASE MAY BE CITED AS: | Shtrambrandt v Brott (No. 2) | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 483 | |
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Legal practitioners – alleged conflict of interest – public policy – inherent power of the Court to restrain solicitors and counsel from acting when restraint is required by the interests of justice.
Costs – whether costs should be paid by solicitor – solicitor continuing to act whilst in a position of conflict of interest – whether solicitor should pay costs of application to restrain client from retaining the solicitor – Supreme Court (General Civil Procedure) Rules 2005 r. 63.23.
Costs – substantive application not proceeded with because undertakings made it unnecessary – application for costs where no adjudication on the merits – relevant principles discussed – application for costs allowed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Dr K Hanscombe SC and | Alderuccio & Co |
| For the First Defendant | Mr A Sandbach | Issac Brott & Co |
| For the Third Defendant | Mr P Pryles, solicitor | Pryles & Co |
HIS HONOUR:
Background Facts
Mr Arkady Shtrambrandt and Mrs Elena Shtrambrandt were previously married and are now divorced. In the course of their marriage a number of properties were acquired by them and by a company, Fenedisto Pty Ltd, which is the trustee of a unit trust. The following properties are in issue in the proceedings. First, two properties and an accessory title in Cole Street, Brighton. The Cole Street properties are owned by Fenedisto. Second, a property in Curraweena Road, Caulfield. This property is owned jointly by Mr and Mrs Shtrambrandt. Third, a property in Brighton Road, Elwood. This property is owned jointly by Mr and Mrs Shtrambrandt, apparently on trust for their son, Loryan.
There were contested property division proceedings between Mr and Mrs Shtrambrandt in the Family Court of Australia (“the Family Court proceeding”). Mr Issac Brott initially represented Mrs Shtrambrandt in those proceedings; and also in relation to other proceedings in this Court commenced by Mrs Shtrambrandt against her former husband and related entities.
On 7 December 2000, Mrs Shtrambrandt signed a costs agreement with Mr Brott relating to the Family Court proceedings. The costs agreement contains a charging clause, under which Mrs Shtrambrandt granted a charge over her assets to Mr Brott to secure payment of her legal costs.
In 2004 and 2005 Mr Brott, acting pursuant to the charging clause in the costs agreement, lodged caveats over the properties in issue.
In early 2005, Mrs Shtrambrandt withdrew her instructions to Mr Brott to act for her and engaged alternative solicitors. Thereafter, a settlement of the property disputes between Mr and Mrs Shtrambrandt was negotiated and a binding financial agreement was signed by them. Under the binding financial agreement, amongst other things, Mrs Shtrambrandt agreed to transfer to Mr Shtrambrandt all of her unit holding in the Fenedisto Unit Trust and her interest as joint proprietor of the Curraweena Road property. Further, Mr and Mrs Shtrambrandt acknowledged that they held the Brighton Road property on trust for their son, Loryan, and it was agreed to transfer that property to him.
Mr Brott’s costs of acting for Mrs Shtrambrandt have not all been paid.
Disputes having arisen as to the validity of the caveats, Mr Brott commenced proceedings in this Court by originating motion seeking declarations that he has a caveatable interest in the properties. The defendants to these proceedings include Mr and Mrs Shtrambrandt, their son, Loryan, and Fenedisto (“the Brott proceeding”).
Pleadings were ordered in the Brott proceeding. In his statement of claim, Mr Brott made claims against:
(1)Mrs Shtrambrandt, for his costs of acting on her behalf in the Family Court proceedings and other proceedings.
(2)Mr Shtrambrandt, Mrs Shtrambrandt and Fenedisto, for declarations that he had an equitable interest in the properties capable of supporting a caveat.
(3)Mr and Mrs Shtrambrandt jointly, for a declaration that the binding financial agreement between them is void because it is the result of a conspiracy to deprive him of lawful recourse to the assets of Mrs Shtrambrandt to enable his costs of acting on her behalf to be paid.
(4)Mr and Mrs Shtrambrandt, for exemplary damages based on the alleged conspiracy.
Mr Sandbach of counsel is briefed to represent Mr Brott in the Brott proceeding. Mr Levine of counsel has appeared on behalf of Mr Brott at a number of directions hearings in the Brott proceeding.
In response to the Brott proceeding, Mr Shtrambrandt and Fenedisto brought separate proceedings, by originating motion, under s. 90(3) of the Transfer of Land Act1958 (Vic) for removal of the caveats (“the Fenedisto proceeding”).
The proceedings in this Court have been on foot for over a year and are nearly ready for trial. On 16 October 2006, I directed that the proceedings be heard together and evidence in each case be taken to be evidence in the other. I directed the Listing Master to list the proceedings for trial with as much expedition as is able to be given.
The Restraint Applications
Recently, Mr Brott re-commenced acting for Mrs Shtrambrandt, in the following circumstances.
First, Mr Brott filed a summons on behalf of Mrs Shtrambrandt seeking orders in the proceedings in this Court for Mrs Shtrambrandt to be released from her implied undertaking to the Court not to use affidavits filed by her husband for purposes other than the proceedings. The purpose of this application was to enable Mrs Shtrambrandt to use the affidavits, and information derived from them, in support of an application by her in the Family Court of Australia to set aside the binding financial agreement.
Second, Mr Brott filed a summons on behalf of Mrs Shtrambrandt seeking an order under the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth) that the proceedings in this Court be transferred to the Family Court of Australia.
Third, Mr Brott filed an application in the Family Court on behalf of Mrs Shtrambrandt, seeking to set aside the binding financial agreement.
Mr Brott briefed Mr Levine to appear on behalf of Mrs Shtrambrandt on the hearing of each of the summonses in this Court and Mr Levine appeared before me on the hearing of those summonses. Mr Levine was also briefed by Mr Brott in the Family Court application to set aside the binding financial agreement.
At the time Mr Brott filed the two summonses on behalf of Mrs Shtrambrandt in this Court, he had not filed an appearance on her behalf. In fact, no appearance had then been filed by or on behalf of Mrs Shtrambrandt.
On the hearing of the summonses issued by Mr Brott on behalf of Mrs Shtrambrandt, on 13 October 2006, I drew attention to Mr Brott’s obvious conflict of interest in representing Mrs Shtrambrandt in proceedings in which he was also suing her as a defendant. In particular, I referred to the fact that Mr Brott was maintaining a conspiracy allegation against Mrs Shtrambrandt in the Brott proceeding. However, as no objection was taken to either Mr Brott or Mr Levine acting on behalf of Mrs Shtrambrandt for the limited purpose of prosecuting her applications for release from the implied undertakings and transfer of the proceedings to the Family Court, I entertained submissions from Mr Levine on behalf of Mrs Shtrambrandt, made on instructions from Mr Brott.
During the hearing on 13 October 2006, I stated that the Court would not countenance Mr Brott continuing to represent Mrs Shtrambrandt in the proceedings in this Court. I said that I expected an application to be made to remedy the situation if Mr Brott did not voluntarily cease acting for Mrs Shtrambrandt within a matter of days.
On 16 October 2006 I made orders releasing Mrs Shtrambrandt from her implied undertaking and dismissing her application to transfer the proceedings in this Court to the Family Court of Australia.
Also on 16 October 2006, Mr Brott abandoned his conspiracy claims against Mr and Mrs Shtrambrandt. I directed that the statement of claim be amended accordingly. At this time, I said:
There is one other thing that I should mention. It does seem to me that now that Mr Brott has withdrawn his conspiracy allegation there would be no difficulty in him continuing to act for Mrs Shtrambrandt in the Family Court.[1]
[1]Transcript, 16 October 2006 (emphasis added).
By letter dated 17 October 2006, Mr Shtrambrandt’s solicitors requested Mr Brott to cease acting for Mrs Shtrambrandt by close of business on 18 October 2006. In the absence of Mr Brott ceasing to act, an application to the Court was foreshadowed.
By letter dated 18 October 2006, Mr Brott responded that the request for him to cease to act had been referred to counsel and Mrs Shtrambrandt “and no doubt we shall be able to convey our client’s instructions subsequent to counsel’s advice to you shortly.” The letter was otherwise in extraordinary terms and I will not refer to it further.
Mr Shtrambrandt’s solicitors replied on the same day. They extended the deadline for Mr Brott to cease acting until midday on 20 October 2006. In the absence of Mr Brott ceasing to act, an application for indemnity costs was foreshadowed.
On 20 October 2006, Mr Brott replied:
Further to your correspondence of 18 October 2006 we will be in a position to reply once we receive the transcript of the hearing before his Honour Hargrave J on 16 October 2006 and considered same, obtained advice and the client’s instruction.
Indeed it may be a matter of consultation with the Ethics Committee.
On 24 October 2006, Mr Shtrambrandt and Fenedisto filed summonses seeking to restrain from Mrs Shtrambrandt from continuing to retain Mr Brott and Mr Levine. A separate summons was filed in each of the Brott proceeding and the Fenedisto proceeding. In each summons, an order was sought that Mrs Shtrambrandt, alternatively Mr Brott personally,[2] pay the costs of the application on an indemnity basis.
[2]Pursuant to r. 63.23 of the Supreme Court (General Civil Procedure) Rules 2005.
In response the summons, Mr Brott wrote to Mr Shtrambrandt’s solicitors on 26 October 2006. In that letter, Mr Brott said that he had now considered the transcript of the hearing on 16 October 2006, obtained the advice of counsel and spoken to Mrs Shtrambrandt. Based on these matters, Mr Brott stated:
As you observed in your letter of 17 October 2006 Mrs Shtrambrandt has never had a solicitor on the record in respect of either proceedings. We have no intention of acting for Mrs Shtrambrandt in [the Brott proceeding].
As we have never gone on the record for Mrs Shtrambrandt in that proceeding we consider that nothing more than such indication is required.
We enclose Notice of Appearance of Solicitor on behalf of Mrs Shtrambrandt in [the Fenedisto proceeding].
The question of whether Mrs Shtrambrandt ought be at liberty to retain Mr Levine of Counsel to act for her is a matter which you will need to take up with her.
Insofar as your Summons in [the Brott proceeding] is directed to [Mr Brott] it is clear that the making of the Application was premature in the light of the substance of our letter to you of 20 October 2006.
In the event that you withdraw that Summons as against the Plaintiff by 2.00 pm on 31 October 2006 we shall refrain from seeking our costs of that Application.
In the event that you do not do so we shall produce this letter to the Court on the Application generally and in particular on the question of costs. If you do not withdraw your Summons as against the Plaintiff by 2.00 pm on 31 October 2006 we shall seek our costs of the Application on an indemnity basis.
It is apparent that your Application in [the Fenedisto] proceeding in which our Mr Brott and Mrs Shtrambrandt are co-defendants is completely misconceived. We invite you to withdraw that Summons by 2.00 pm on 31 October 2006.
In the event that you do not do so, we shall seek the costs of that Application on an indemnity basis.
At no time did Mr Brott file an Appearance on behalf of Mrs Shtrambrandt in the Fenedisto proceeding. The “Notice of Appearance” referred to in Mr Brott’s 26 October 2006 letter was not in evidence. However, Mr Brott continues to maintain that he was entitled to represent Mrs Shtrambrandt in the Fenedisto proceeding for the reasons stated in his 26 October letter.
By letter dated 27 October 2006, Mr Shtrambrandt’s solicitors responded. The letter referred to the numerous steps taken by Mr Brott on behalf of Mrs Shtrambrandt in the Brott proceeding. The indication that Mr Brott had no intention of acting for Mrs Shtrambrandt in the Brott proceeding was noted, but not accepted. An undertaking was sought from Mrs Shtrambrandt, for whom Mr Brott said he was acting in the Fenedisto proceeding, that she would not continue to retain either Mr Brott or Mr Levine to represent her in the Brott proceeding. It was submitted that this undertaking was required due to the uncertainty created by the irregularity of Mr Brott acting on behalf of Mrs Shtrambrandt without filing an appearance on her behalf.
As to the Fenedisto proceeding, Mr Shtrambrandt’s solicitors said that the application to restrain Mr Brott and Mr Levine from acting would be persisted with. Attention was drawn to the artificiality of Mr Brott’s assertion that the Fenedisto proceeding was a separate proceeding in which he and Mrs Shtrambrandt were co-defendants. The letter stated:
As to [the Fenedisto proceeding], although you and Mrs Shtrambrandt are co-defendants, your proposal that your firm should represent her in that proceeding is unacceptable. Since the commencement of [the Fenedisto proceeding], orders in that proceeding have expressly affected [the Brott proceeding]. This was inevitable since the subject matter of the two proceedings is inextricably intertwined. Most recently, the proceedings have been ordered to be heard together, and evidence in one is to be evidence in the other. To propose that Mrs Shtrambrandt might have two separate sets of legal representatives in one set of proceedings is plainly unworkable, and contrary to authority.
Mr Shtrambrandt’s solicitors concluded:
The activity of your firm in representing [Mrs Shtrambrandt] as well as yourself in these two proceedings has already taken considerable time and money. These issues require final resolution. Accordingly, our clients propose to proceed with their applications filed 24 October 2006.
On 27 October 2006 I ordered, by consent, that Mr Brott and Mrs Shtrambrandt file and serve any affidavits and submissions in response to the summons by 2.00 pm on 1 November 2006. The hearing of the summons was fixed for hearing on 3 November 2006.
On Wednesday 1 November 2006, Mr Pryles of Pryles & Co was first approached to act for Mrs Shtrambrandt, in place of Mr Brott. The evidence does not disclose who made the approach to Mr Pryles, or whether it was limited to him representing Mrs Shtrambrandt in the Brott proceeding only. In any event, on 2 November 2006, Mr Pryles filed a “Notice of Change of Solicitor” in both proceedings in this Court, and also commenced acting for Mrs Shtrambrandt in the Family Court. No explanation was given in evidence of the delay between 26 October, when Mr Brott said that he would not act on behalf of Mrs Shtrambrandt in the Brott proceeding, and 1 November when Mr Pryles was first approached. Further, no explanation was proffered in evidence as to why, and in what circumstances, Mrs Shtrambrandt decided to instruct Mr Pryles, and not Mr Brott, to act for her in the Fenedisto proceeding, as indicated in Mr Brott’s letter of 26 October.
On 2 November 2006, Pryles & Co filed an affidavit sworn by Mrs Shtrambrandt. In that affidavit, Mrs Shtrambrandt said that she would like the freedom to engage Mr Levine to act for her in the Brott proceeding and the Fenedisto proceeding.
Later on 2 November 2006, Mr Brott filed an affidavit sworn by him. The only fact deposed to was the sending of his 26 October letter.
The summonses came on for hearing on 3 November 2006. At that time, Mr Pryles informed me that Mr Levine had continued to act for Mrs Shtrambrandt until late on the previous afternoon, when Mr Levine informed him that he could not continue to act. Accordingly, although he had instructions to give an undertaking on behalf of Mrs Shtrambrandt that she would not engage Mr Brott in either proceeding, Mr Pryles said he had not had sufficient time to obtain instructions as to whether an undertaking would be given in respect of Mrs Shtrambrandt continuing to engage Mr Levine. I stood the matter down to enable Mr Pryles to obtain instructions.
When the matter was called on for hearing later in the day, Mr Pryles proffered, and I accepted, undertakings by Mrs Shtrambrandt that she would not engage either Mr Brott or Mr Levine to act for her in the two proceedings in this Court.
Next, on 3 November 2006, I heard submissions as to the costs of the summonses. Mr Brott was represented by Mr Sandbach of counsel. He made submissions that Mr Shtrambrandt and Fenedisto, and not Mrs Shtrambrandt, should pay the costs of the summonses because: (1) the summons in the Brott proceeding had been issued prematurely, before Mr Brott had a reasonable opportunity to obtain advice as to whether he should continue to act for Mrs Shtrambrandt in the Brott proceeding; and (2) Mr Brott was entitled to continue to act for Mrs Shtrambrandt in the Fenedisto proceeding because he and Mrs Shtrambrandt were co-defendants in that proceeding. Further, it was submitted on behalf of Mr Brott that, in the event that Mrs Shtrambrandt was ordered to pay the costs of the summonses, Mr Brott should not be ordered, under r. 63.23, to pay to Mrs Shtrambrandt the amount of any costs order against her.
As the summonses sought relief under r. 63.23, Mr Brott was given a reasonable opportunity to be heard on the application that he pay the costs of the summonses. Further, Mr Brott filed an affidavit and was represented on the hearing of the summonses. Accordingly, the requirement of r. 63.23(3) was satisfied.
After hearing full argument as to the costs of the summonses, including as to whether an order should be made against Mr Brott under r. 63.23, I reserved my decision.
The Re-opening Application
Later on 3 November 2006, Mr Brott sent a letter by facsimile to my associate and to the other parties. The letter stated:
We have this afternoon been informed by Mr Sandbach of the course of argument in respect of Mr Shtrambrandt’s application for costs against the principal of this firm personally.
The basis of the application had not been set out in the written outline of argument served by Mr Shtrambrandt’s solicitor.
Upon hearing the way the application was put it is apparent to us that the steps by our Mr Brott to obtain advice and the response received from the Ethics Committee of the Law Institute of Victoria and the advice received from Senior Counsel would certainly be relevant to his Honour’s consideration of the arguments advanced on behalf of Mr Shtrambrandt.
Accordingly, we would wish to let his Honour know that we will make application for leave to serve further Affidavit dealing with this matter and we would ask that his Honour refrain from delivering his reserved judgment until we have had the opportunity to make application for leave to rely on such material.
Following a directions hearing, Mr Brott issued a summons in each of the proceedings seeking leave to file and serve an affidavit sworn by him on 14 November and an order that the hearing of the costs argument be re-opened.
On 1 December 2006, I heard Mr Brott’s application for leave to re-open the costs argument. For convenience, and in order to save costs in the event that I decided to grant leave, I also heard the submissions of the parties on the assumption that leave was granted. I reserved my decision on the re-opening application, and said that I would deliver my reasons in respect of it at the same time as dealing with the costs arguments as a whole.
Mr Brott’s re-opening application is based upon his affidavit sworn 14 November 2006. Mr Brott also swore an affidavit in 1 December in which he gave particulars of other matters he was attending to in the period leading up to the hearing on 3 November. It is unnecessary to refer to the details of this affidavit.
In this 14 November affidavit, Mr Brott states the following:
(1)Mrs Shtrambrandt approached him “out of the blue” in May 2006 and asked that he act for her in the proceedings in this Court and in setting aside the consent orders in the Family Court based on the binding financial agreement.
(2)On 2 May 2006, Mr Brott wrote to the Ethics Committee of the Law Institute of Victoria seeking a ruling as to whether he could act for Mrs Shtrambrandt.
(3)On 16 October 2006, when I delivered reasons for judgment on the applications filed by Mr Brott on behalf of Mrs Shtrambrandt for release from the implied undertakings and to cross-vest the proceedings in this Court to the Family Court, Mr Brott was advised by Mr Levine that I had said in court that there was no reason why Mr Brott could not continue to act for Mrs Shtrambrandt in the proceedings in this Court. In fact, as noted above, that was not correct. My statement was limited to Mr Brott continuing to act “in the Family Court.” Mr Brott says that he has subsequently discovered that the advice he received from Mr Levine was incorrect, by reference to the transcript of the hearing on 16 October 2006. Mr Brott has not said when he obtained a copy of that transcript.
(4)On 23 October 2006, the Ethics Committee of the Law Institute of Victoria finally responded to Mr Brott’s request for a ruling. The ruling states, amongst other things:
The Committee has made the following ruling:
(1) ...
(2)In relation to the Supreme Court caveat proceedings there is a risk that Issac Brott & Co may have a conflict of interest in acting for [Mrs Shtrambrandt].
The role of the Ethics Committee is restricted to matters of an ethical nature only. You are reminded that Ethics Committee rulings are non-binding and do not have the force of law. However, a ruling does represent the view of a group of senior and experienced practitioners and you would be prudent to follow it.
(5)On 24 October 2006, Mr Brott gave further consideration to the issue of conflict. He made a handwritten file note of a conference at his office with Mr Levine and of a telephone call by him and Mr Levine to senior counsel to discuss whether Mr Brott and Mr Levine could continue to act for Mrs Shtrambrandt. This handwritten file note contains the annotation “x 1 Unit 15m.” This indicates that the conference with Mr Levine and the telephone call to senior counsel all took place within a 15 minute period. The date of the handwritten file note is in error. It is dated “24/11/06.”
(6)On 25 October 2006, Mr Brott dictated a memorandum recording his conversation with Mr Levine and senior counsel. This memorandum was not typed until 31 October 2006. The typed memorandum mistakenly refers to a conversation with Mr Levine and senior counsel on 31 October 2006. It bears the handwritten annotation “Printed off disc 10/11/06.” On an inspection of discovered documents in relation to the re-opening application, Mr Brott’s employees were unable to locate an electronic copy of this memorandum.
Based upon the misdating of the handwritten file note, and the inability to produce an electronic copy of the typed memorandum, it was submitted on behalf of Mr Shtrambrandt and Fenedisto that there were reasons to doubt the authenticity of the file note and memorandum. However, Mr Brott was not cross-examined. In these circumstances, notwithstanding the unexplained irregularities concerning the file note and memorandum, I am not prepared to find that the file note and memorandum are not authentic. I will proceed on the basis that they are contemporaneously prepared documents, as deposed to by Mr Brott.
In argument, Mr Brott’s counsel did not rely upon the handwritten file note. Reference was only made to the typed memorandum. In that memorandum, Mr Brott records that he explained the background facts to senior counsel and that senior counsel advised:
there was absolutely no basis for any application to restrain Mr Levine and he could not imagine why anyone would make such an application....
... that there was a commonality of interest between Mrs Shtrambrandt and I, as she was primarily liable for my fees and the proceedings would reduce her indebtedness to me. He further stated that, if both Mrs Shtrambrandt and I were sui generis (sic), any conflict would be waived. Mr Levine asked [senior counsel], why would the husband have any standing to complain? [Senior counsel] agreed and he stated that he could not imagine how the husband had any standing and he couldn't understand the basis of the application.
Mr Brott says that he did not tell Mr Sandbach, who was briefed to appear on his behalf on the application against him for an order under r. 63.23, of the above matters because he was busy on other work and did not appreciate “the thrust of Mr Shtrambrandt’s attack on me.”
In addition to the 14 November Brott affidavit, Mr Sandbach informed me from the bar table, without objection, that he gave Mr Brott contrary advice in respect of Mr Brott continuing to act on behalf of Mrs Shtrambrandt in the Brott proceeding. According to Mr Sandbach, Mr Brott followed that advice and this explains why Mr Brott adopted the position in his 26 October letter of stating his intention not to act for Mrs Shtrambrandt in the Brott proceeding, but to continue to act for her in the Fenedisto proceeding.
The parties accepted that the relevant principle to be determined in deciding the re‑opening application was that stated by the High Court in Smith v New South Wales Bar Association.[3] In that case, Brennan, Dawson, Toohey and Gaudron JJ summarised the approach to be taken to a re-opening application in the following way:
If an application is made to re-open on the basis that new or additional evidence is available, it will be relevant, at that stage, to enquire why the evidence was not called at the hearing. If there was a deliberate decision not to call it, ordinarily that will tell decisively against the application. But assuming that that hurdle is passed, different considerations may apply depending on whether the case is simply one in which the hearing is complete, or one in which reasons for judgment have been delivered. It is difficult to see why, in the former situation, the primary consideration should not be that of embarrassment or prejudice to the other side...
Not every case involving error will invite further evidence: it will depend entirely on the issue that is opened up. If the issue is one that invites further evidence, then, prima facie and subject to the ordinary rules of evidence, that evidence should be allowed. We say prima facie because there may be situations in which the particular evidence involved would cause embarrassment or prejudice such that, in the circumstances, it would be unfair to allow it.[4]
[3](1992) 176 CLR 256.
[4](1992) 176 CLR 256, 266-7 (citations omitted).
The re-opening application has caused me some difficulty. On the one hand, the reasons advanced by Mr Brott for not adducing the evidence which he now seeks to adduce are unsatisfactory. The summonses unambiguously claimed orders under r. 63.23 against Mr Brott personally. Mr Brott obviously understood this, as he considered it appropriate to swear an affidavit and brief counsel to appear on his behalf on 3 November to oppose orders being made against him under r. 63.23. In these circumstances, it is difficult to understand how it did not occur to Mr Brott that the evidence which he now seeks to rely upon would be relevant to that matter. In this regard, the conduct of Mr Brott was incompetent to a high degree. However, I am not prepared to infer that it involved a deliberate decision not to call the evidence.
On the other hand, subject to orders being made as to costs, it is difficult to see how Mr Shtrambrandt and Fenedisto have been prejudiced by Mr Brott’s failure to adduce all of the evidence upon which he wishes to rely. The evidence is obviously relevant to the application against Mr Brott under r. 63.23.
In all of the circumstances, I will exercise my discretion to allow Mr Brott to rely upon the further evidence and to re-open the costs argument to consider submissions concerning the further evidence. Any embarrassment or prejudice to Mr Shtrambrandt and Fenedisto can be properly compensated for by ordering that Mr Brott pay the costs of the re-opening application, including all of the costs related to the hearing before me on 1 December 2006. Further, having regard to the unsatisfactory excuse given by Mr Brott for his failure to file the evidence which he now seeks to rely upon in time for the hearing on 3 November, I will order that these costs be paid by Mr Brott on an indemnity basis. Otherwise, there will be prejudice to Mr Shtrambrandt and Fenedisto. That should not be the case.
Costs of the Restraint Application
The first question is whether Mr Shtrambrandt and Fenedisto are entitled to an order for costs in their favour. In my view, they are.
First, by a combination of Mrs Shtrambrandt engaging Mr Pryles to act for her, and her undertakings, the relief sought by Mr Shtrambrandt and Fenedisto in the summons has been obtained.
Second, I am satisfied that this is not a case where, the relief sought having been rendered futile by the change of solicitor and undertakings, the court should not inquire into the merits but should order that each party pay their own costs. I refer in this regard to Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin[5] and Jeruth Pty Ltd v Haybale Pty Ltd.[6] In my view, this is a case where the application would obviously have been successful and, further, Mr Brott has acted unreasonably in the conduct of the application. This takes the case outside the general principles discussed in these cases.
[5](1997) 186 CLR 622, 624-5.
[6][2004] VSC 319, [4]–[6].
Third, the application would have succeeded because the facts demonstrate that each of Mr Brott and Mr Levine was in a position of conflict of interest in representing Mrs Shtrambrandt, in both the Brott proceeding and the Fenedisto proceeding. Further, I am of the strong view that the interests of justice required that this Court, in its inherent jurisdiction to control the conduct of solicitors and counsel, not countenance either of them continuing to act for Mrs Shtrambrandt.
As to the conflict of interest, it was always obvious. Mr Brott is suing Mrs Shtrambrandt in the Brott proceeding. The abandonment of the conspiracy allegations has not changed this. Mr Brott has instructed Mr Levine to act on his behalf in the Brott proceeding. The Fenedisto proceeding, although separate in form, obviously relates to the same subject matter. It is in the nature of a counter-claim by Mr Shtrambrandt and Fenedisto to Mr Brott’s claims in the Brott proceeding for declarations that he has a caveatable interest in the properties. It is wholly artificial to argue that there is no conflict of interest involved in Mr Brott and Mr Levine acting against Mrs Shtrambrandt in the Brott proceeding and for her, as a “co-defendant,” in the Fenedisto proceeding. There is in truth one dispute as to the interests claimed by Mr Brott in the properties.
It was submitted on behalf of Mr Brott that it was for Mrs Shtrambrandt to choose where she wishes to place to allegiance in respect of this dispute. I agree. However, in coming to that choice, Mrs Shtrambrandt is in need of independent advice. Neither Mr Brott nor Mr Levine was ever in a position to give Mrs Shtrambrandt independent advice on that question. This should have been immediately obvious to Mr Brott, who is a solicitor of considerable experience, when the issue was first raised.
As to the inherent power of the court, irrespective of any conflict of interest, the authorities were reviewed recently in Geelong Schools Supplies Pty Ltd v Dean.[7]In that case, Young J removed a solicitor from acting because he was satisfied that a fair-minded reasonably informed member of the public would conclude that the solicitor was not in a position to give objective and dispassionate advice to the client. This situation afforded a sufficient basis for the grant of injunctive relief.[8]
[7][2006] FCA 1404.
[8][2006] FCA 1404, [45].
In this case, Mrs Shtrambrandt is in desperate need of objective and dispassionate advice which is uninfluenced in any way by Mr Brott or counsel previously engaged to represent his interests. Mr Pryles and any counsel briefed by him can give that advice. For example, it is possible that it may be in Mrs Shtrambrandt’s interests to seek to set aside the costs agreement and the charge contained in it. That is a matter for her, after receiving truly independent advice. There is no prospect of Mr Brott giving that advice.
I conclude that Mr Shtrambrandt and Fenedisto are entitled to the costs of the summonses. They were entitled to the relief sought against Mrs Shtrambrandt. Accordingly, Mrs Shtrambrandt is liable to pay the costs of the summonses. As to the basis upon which the costs should be ordered, it is apparent from what I have said that I am of the firm opinion that Mrs Shtrambrandt, if properly advised, would have realised that she had no reasonable chance of success in opposing the summonses. Accordingly, special circumstances have been shown for the making of an order that the costs be paid on an indemnity basis and I will so order.
Application against Mr Brott
The second question is whether Mr Brott should pay the amount of those costs to Mrs Shtrambrandt, so as to ensure that she is not out of pocket. In my view, he should.
Rule 63.23(1) relevantly provides:
Where a solicitor for a party, whether personally or through a servant or agent, has caused costs to be incurred improperly or without reasonable cause or to be wasted by a failure to act with reasonable competence and expedition, the court may make an order that –
(a)all or any of the costs between the solicitor and the client be disallowed or that the solicitor repay to the client the whole or part of any money paid on account of costs;
(b)the solicitor pay to the solicitor’s client all or any of the costs which the client has been ordered to pay to any party;
(c)the solicitor pay all or any of the costs payable by any party other than the client.
It was submitted on behalf of Mr Brott that it was not unreasonable for him to maintain at all times that he was entitled to represent Mrs Shtrambrandt in the Fenedisto proceeding, for the following reasons.
First, it was submitted that there was a clear distinction to be drawn between the Brott proceeding and the Fenedisto proceeding. For the reasons given above, I do not accept this. The distinction sought to be drawn is highly artificial and this ought to have been obvious to Mr Brott.
Second, it was submitted on behalf of Mr Brott that it cannot have been unreasonable for him to maintain an entitlement to continue to act for Mrs Shtrambrandt in the Fenedisto proceedings in circumstances where he had obtained the advice of senior counsel that it was appropriate for him to continue to act on behalf of Mrs Shtrambrandt in both the Brott proceeding and the Fenedisto proceeding. In this regard, it was submitted that Mr Brott had acted cautiously in accepting Mr Sandbach’s advice that he should not act in the Brott proceeding, notwithstanding the advice of senior counsel that he could. I do not accept this submission, for the following reasons.
First, this submission ignores the considered ruling given by the Ethics Committee of the Law Institute of Victoria that there was a risk that Mr Brott had a conflict of interest in acting for Mrs Shtrambrandt in the proceedings in this Court. In this regard, I note that the proceedings in this Court were presented to the Ethics Committee as involving a single dispute relating to Mr Brott’s caveatable interest in the properties. Also, the Ethics Committee was not informed of the conspiracy allegations made by Mr Brott against Mrs Shtrambrandt.
Second, the oral advice of senior counsel was obtained in the course of a brief telephone conversation. I asked Mr Sandbach whether a brief was ever delivered to senior counsel, and he informed me that it was not. Further, he informed me that no fee was paid for the advice. Further, it is apparent that no documents were given to senior counsel and he did not have any time for considered reflection.
Third, senior counsel was not informed of a highly relevant fact. There is no evidence that senior counsel was informed that Mr Brott had sought and obtained a ruling from the Ethics Committee, to the effect that there was a risk of conflict of interest in him continuing to act for Mrs Shtrambrandt in the proceedings in this Court. The reason for withholding this information from senior counsel was not explained.
In all of the circumstances, it was unreasonable of Mr Brott to rely upon the brief oral advice of senior counsel as a complete antidote to the ruling which he had received from the Ethics Committee.
In my view, for the reasons stated, the conduct of Mr Brott in connection with his representation of Mrs Shtrambrandt, and his instructions to Mr Levine to represent Mrs Shtrambrandt, has been unreasonable and incompetent. At all times when Mr Brott acted for Mrs Shtrambrandt, he ought to have known that he had a conflict of interest, for the reasons stated above. As I have said, the withdrawal of the conspiracy allegations in the Brott proceeding did not bring an end to that conflict.
Further, it is obvious that Mr Brott himself had grave concerns about his ability to act for Mrs Shtrambrandt. This is why he sought advice from the Ethics Committee of the Law Institute of Victoria. However, he did not wait for that advice before commencing to act for Mrs Shtrambrandt and, when that advice was received, he ignored it in favour of unconsidered oral advice from senior counsel as described above.
I infer that Mr Brott’s conduct in and about acting for Mrs Shtrambrandt has been motivated, at least in substantial part, by his primary desire to have his costs paid from the assets of Mr Shtrambrandt or Fenedisto, in circumstances where Mr Brott believes that Mrs Shtrambrandt does not have the funds to pay him.
I reject the submission made on behalf of Mr Brott that the summons in the Brott proceeding was issued prematurely, given the content of his 26 October letter. First, Mr Brott was not entitled to the luxury of time to consider his position in respect of his representation of Mrs Shtrambrandt in the Brott proceeding. He was a plaintiff suing her. A solicitor of his experience did not need advice to realise that he had a conflict and could not continue to act. Second, it does not lie in the mouth of Mr Brott to contend that the summonses were issued prematurely in circumstances where his 20 October letter was misleading. If Mr Brott had stated in his letter that he was awaiting a ruling from the Ethics Committee, as was the fact, there may have been a basis for this argument. However, he did not do so. Further, Mr Brott’s latest affidavit discloses that he did not accept that ruling when it was received, but rather ignored it and sought a brief oral opinion from senior counsel in the circumstances described above.
In my view, this is a case where it is necessary, in order to protect Mrs Shtrambrandt and the integrity of the judicial process, that Mr Brott pay to Mrs Shtrambrandt the costs of the summonses which I will order that she is liable to pay. Having never had the benefit of the independent advice to which she is entitled, Mrs Shtrambrandt ought not be out of pocket.
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