Volker and Anor & Dunwell and Anor
[2013] FamCAFC 169
•13 September 2013
FAMILY COURT OF AUSTRALIA
| VOLKER AND ANOR & DUNWELL AND ANOR | [2013] FamCAFC 169 |
FAMILY LAW – COSTS – Awarding costs against a solicitor – remitted for rehearing. |
| Family Law Act 1975 (Cth) s 117 |
| Cassidy and Murray (1995) 19 Fam LR 492 Coulton v Holcombe (1986) 162 CLR 1 Kallinicos v Hunt [2005] NSWSC 1181 Munday and Bowman (1997) 22 Fam LR 321 ReThe Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622 Westpac Banking Corporation v Newey [2013] NSWSC 533 |
| FIRST APPELLANT: | Mr Volker |
| SECOND APPELLANT: | Z Pty Limited |
| FIRST RESPONDENT: | Mr Dunwell |
| SECOND RESPONDENT: | Ms Dunwell |
| FILE NUMBER: | SYC | 8682 | of | 2007 |
| APPEAL NUMBER: | EA | 69 | of | 2012 |
| DATE DELIVERED: | 13 September 2013 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | May, Strickland & Ainslie-Wallace JJ |
| HEARING DATE: | 9 July 2013 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 11 May 2012 |
| LOWER COURT MNC: | [2012] FamCA 337 |
REPRESENTATION
| COUNSEL FOR THE FIRST & SECOND APPELLANTS: | Mr Jones SC with Mr Phillips |
| SOLICITOR FOR THE FIRST & SECOND APPELLANTS: | Gilchrist Connell |
| COUNSEL FOR THE FIRST RESPONDENT: | Mr Kearny SC |
| SOLICITOR FOR THE FIRST RESPONDENT: | Barkus Doolan Kelly |
| COUNSEL FOR THE SECOND RESPONDENT: | No appearance |
| SOLICITOR FOR THE SECOND RESPONDENT: | Swaab Attorneys |
Orders (as amended pursuant to Rule 17.02 on 16 September 2013)
The appeal be allowed.
The order of 11 May 2012 be set aside as against the First Appellant.
The husband’s application for costs against the First Appellant be remitted for rehearing by a Judge other than Justice Le Poer Trench.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Volker and Anor & Dunwell & Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 69 of 2012
File Number: SYC 8682 of 2007
| Mr Volker |
First Appellant
And
| Z Pty Limited |
Second Appellant
And
| Mr Dunwell |
First Respondent
And
| Ms Dunwell |
Second Respondent
REASONS FOR JUDGMENT
Introduction
Mr Volker (“the appellant”) appeals against orders made by Le Poer Trench J on 11 May 2012 that he jointly and severally with Ms Dunwell (“the wife”) pay the costs of Mr Dunwell (“the husband”) on an indemnity basis.
Earlier in the proceedings between the husband and the wife, Z Pty Ltd trading as X Firm and Ms James were joined as second and fourth Respondents and the appellant had been the third respondent. X Firm was the firm that employed the appellant. Ms James was also a solicitor in the firm and had been assisting the appellant with the carriage of the wife’s matter.
The wife did not appear on the appeal and no submissions were made on her behalf. The husband opposed the appeal and sought to maintain the trial judge’s orders.
The husband is in business with Mr G, his business associate. It was accepted that this business relationship was of significant financial value to the husband. It had been the husband’s case that maintenance of that business relationship was conditional on his maintaining confidentiality about their business affairs.
On 17 December 2007 the husband commenced proceedings for property settlement against the wife, and she engaged the appellant to act for her.
Before the application was filed there had been negotiations between the husband and wife. On 10 October 2007 the husband’s solicitors sent a confidentiality agreement to the appellant requesting that it be signed. The appellant replied to that letter, refusing to enter into the agreement. A second letter was sent on 22 October 2007 making the same request. Again the appellant refused and said: “Confidentiality is properly and adequately covered by the law and our client has no intention of using the financial material for any improper purpose as seems to be inferred by the repeated request” [14]. On 12 November 2007, by letter, the solicitors for the husband indicated that they would not insist on a confidentiality agreement.
It is uncontroversial that between 2007 and 2009 the husband through his solicitor provided the wife with “significant quantities of information regarding his financial affairs” [48].
On 11 May 2009 the appellant wrote to Ms W of W Firm, solicitors of Los Angeles who were then acting for Mrs G in her divorce litigation against Mr G. The letter and its asserted intention and consequences was the linchpin of the matter before the trial judge and we set it out in full:
We are lawyers who act for Mrs [Dunwell] in relation to her divorce from Mr [Dunwell]. We understand that you act on behalf of [Mrs G] in relation to her divorce from [Mr G]. You may be aware that Mr [Dunwell] and Mr [G] are long standing business partners. Mr [Dunwell] is the former accountant of Mr [G]. Both Mr [G] and Mr [Dunwell] have interests in various corporate entities, ....
In our investigations on behalf of Mrs [Dunwell] we have uncovered a very complex international group structure that we believe Mr [Dunwell] has an interest in. It is highly likely that Mr [G] also has an interest in some of these structures. The entities involve both companies and trusts, and expand across Australia, Los Angeles, the United Kingdom and the Jersey Islands.
We require the assistance of a lawyer in Los Angeles who may carry out searches in relation to some of these entities on behalf of our client. We would like to retain the services of your offices for the purposes of assisting our client in this regard.
Mrs [Dunwell’s] proceedings are already before the Family Court of Australia. Independent valuers have been appointed to the overseas entities and as a matter of urgency we require some assistance.
Mrs [Dunwell] is represented by Mr [Volker] (Principal of [X Firm]) and [Ms James] (practicing solicitor). You may contact [Ms James] on [number] or Mr [Volker] on [number]. Or you may email either of them as follows: [email addresses].
Some of the information that we have obtained in relation to the entities may also be of assistance to your client in relation to her proceedings. We are happy to assist your client in any way possible as well.
We look forward to hearing from you and trust that you will keep this confidential.
The appellant received no response to that letter, provided no further information, and sent no documents to Ms W.
The wife sent an email to Mrs G on 21 May 2009 attaching a draft copy of the appellant’s letter to Ms W. Mrs G sent a copy of the appellant’s letter to the husband in these proceedings. The husband came into possession of the May 2009 letter on 10 September 2009. This prompted correspondence from the husband’s solicitor alleging in effect that the letter of May 2009 indicated a “clear willingness to disseminate confidential information” and thus the appellant should cease acting. The appellant denied that any confidential information had been provided to Ms W.
By application filed on 7 December 2009 and amended on 24 February 2010, the husband brought an application for an injunction restraining both the appellant from acting for the wife and the wife from continuing to retain the appellant [21]. A hearing of that application commenced in March 2010 but the proceedings were then interrupted. During the interregnum the wife first terminated her retainer of the appellant and on 6 February 2012, she and the husband entered into consent orders that she would be restrained from retaining the appellant and that she would enter into a confidentiality agreement with the husband before he made any further financial disclosure [26] and [5]. As a result of that agreement with the wife, the husband discontinued his application for injunction against her. The application against the appellant was not pressed.
We set out the terms of the orders made by consent on 6 February 2012.
1.That the wife be restrained by injunction from instructing [X Firm] and/or [Mr Volker] and/or [Ms James] to act for her in these proceedings.
2.That the husband be excused from further compliance with all of his discovery and financial disclosure obligations in these proceedings until:
2.1The wife executes and causes to be delivered to the husband’s solicitors a Confidentiality Agreement in the terms agreed between the husband and the wife;
2.2Any further solicitors instructed by the wife enter into a Confidentiality Agreement in terms agreed between the husband and the wife.
3.That the wife be restrained by injunction from providing any information, financial documents or financial disclosure that she may receive from the husband to [Firm X] and/or [Mr Volker] and/or [Ms James].
4.NOTED that, in respect of the Amended Application in a Case filed 24 February 2010, there remains outstanding:-
4.1Applications by the Applicant against all other Respondents except the wife;
4.2 Issues as to costs.
It is important to appreciate that the consent orders were entered into between the husband and wife, not the solicitors and in particular not the appellant. Ms James had also been a respondent but was not involved in the subsequent proceedings concerning costs of the injunction application. We understand she had left the firm.
It is apparent from paragraph 238 of the reasons of the trial judge that his Honour considered that the solicitors and the appellant had “conceded to [these] orders”, but that was incorrect.
What then remained was an application by the husband against the appellant that he pay the husband’s costs of bringing the application for injunction and that he pay those costs on an indemnity basis. In a very lengthy judgment the trial judge determined that the appellant should pay the husband’s costs on an indemnity basis. He ordered:
1. The wife and [Mr Volker] jointly and severally are to pay the husband's costs of and incidental to the husband’s application in a case filed 7 December 2009 and amended on 24 February 2010, on an indemnity basis.
2. The wife and [Mr Volker] jointly and severally are to pay the husband's costs thrown away as a consequence of any duplication of work that is required upon the wife providing instructions to any further lawyers to act for her in these proceedings.
3. The wife and [Mr Volker] have leave to apply to seek orders as to the apportionment of the costs to be paid by each of them, on terms that the husband shall not be a party to any such proceedings.
The trial judge’s reasons
As we have already explained, the letter to the American lawyers was central to his Honour’s determination. In paragraph 172 the judge said:
If the letter should be found to be improper, it will have its own consequences, which would be that it must be accepted that the application of the husband was properly brought, and therefore the costs order of the husband must be granted.
After setting out the evidence before him, the trial judge turned to the provisions of s 117 of the Family Law Act 1975 (Cth) (“the Act”) and the relevant Family Law Rules 2004 (Cth) (“the Rules”) at [185].
His Honour then turned to the issue of indemnity costs. His Honour set out and considered extracts from well known authorities, and at [190] quoted from Munday and Bowman (1997) 22 Fam LR 321 which sets out matters that may be taken into account in determining to make an order for indemnity costs. It is as well to set out the quoted section:
The decision of Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225; 118 ALR 248 is discussed in Munday and Bowman and gives the following examples where indemnity costs might properly be awarded at [250]:
(xii) The question must always be whether the particular facts and circumstances of the case warrant the making of an order for payment of costs other than on party and party basis. Circumstances warranting the exercise of the discretion to award indemnity costs include:
(a) Where it appears that an action has been commenced or continued in circumstances where a party properly advised should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts.
(b) Making allegations of fraud, knowing them to be false, and the making of irrelevant allegations of fraud.
(c) Evidence of particular misconduct causing loss of time to the court and to other parties.
(d) The making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions.
(e) An imprudent refusal of an offer to compromise.
(Citations omitted)
His Honour then discussed family law cases in which the issue of awarding costs against a solicitor had been considered and concluded, speaking of Cassidy and Murray (1995) 19 Fam LR 492:
202. What may be drawn from this judgment is that the Court must determine both that a solicitor acted inappropriately or improperly in the course of their representation of their client and that that improper or inappropriate action was the cause of costs being wasted by a party.
His Honour then continued to refer to cases on the point and quoted extensively from the husband’s submissions.
At [216] the trial judge commenced a consideration of the various paragraphs of s 117(2A) of the Act.
Turning to paragraph (c), the conduct of the parties to the proceedings, the
trial judge observed that:
228. As I have stated earlier, the main issue at play in this Application is the breach of confidence alleged to have taken place in the letter of 9 May 2009 from [X Firm] to [W Firm].
When dealing with paragraph (e), whether any party to the proceedings had been wholly unsuccessful, the trial judge referred to the consent orders made on the application of the husband and wife [237] and said:
238. It is apparent, after comparing the Orders sought by the husband and the Consent Orders entered into by the Parties on 6 February 2012 that the respondents have conceded to the orders sought by the husband.
239. With order 1 of the husband’s application ultimately being conceded, there was no necessity to have an order made as sought by the husband in paragraph 7 of that application. Any provision of information held by [X Firm] to any third party without the specific instruction of the wife would amount to malpractice on the part of the firm. Given that the wife was restrained from continuing to instruct that firm to act for her in the proceedings in this court, it would not be possible for [X Firm] to accept any instruction from her during the continuation of that order.
In considering paragraph (g), such other matters as the court considers relevant, his Honour said:
244. There are two distinct aspects of conduct which it seems to me need to be considered in the determination of this application. The first is whether the sending of the letter by the respondents to Ms [W] breached the implied obligation of Mr [Volker] and the wife, not to make use of any document or information obtained from the husband via the process of disclosure, otherwise than for the purpose for which it was given. The second aspect to be considered is whether the sending of that letter to Ms [W] was such an inflammatory, provoking, reckless or potentially hazardous action (relative to the continued ability of the husband to do business with his long term business partner) as to amount to behaviour which should give rise to an order for costs.
245. Such costs order which could arise because the action of sending the letter itself may ground the injunctive orders sought against the respondents as part of the orders the Court may have had at its disposal had the proceeding initiated by the wife and the remaining respondents proceeded to conclusion. As it has transpired the order sought by the husband has been granted unopposed.
246. Ultimately I consider it unnecessary to determine if the letter to
Ms [W] breached Mr [Volker’s] implied obligation not to disclose information obtained from the husband’s disclosure. I note that Mr [Volker] did not provide specific evidence to satisfy the Court that all the information in the letter had come from publicly available documents rather than any disclosure from the husband. Rather he asserted that no document of information of a confidential nature was disclosed. Clearly when the letter is closely examined that is not the case.The trial judge then referred to “aspects of the behaviour of [the appellant] which [he found] very troubling” at [247]. His Honour referred to the “lengths [to which] the husband went in order to achieve confidentiality” [248] and observed that even had the appellant not necessarily accepted that these requests for confidentiality were genuine but were a means to avoid proper disclosure, the appellant had a duty to the wife to be alive to the possibility that what the husband was asserting was correct and Mr G may elect to terminate his business relationship with the husband, thereby “killing the goose which laid the golden egg”.
In paragraph 249 in several bullet points, the trial judge elaborated on the matters that “troubled” him about the letter. He concluded that in sending the letter the appellant “either did know or should have known” that the husband would be very distressed when he became aware of the letter; that there were other lawyers in America from whom he could have sought assistance; that he had provided “superfluous” information to Ms W when she was not in a professional relationship with the appellant or the wife and was then under no obligation to keep confidentiality. His Honour then said:
The provision of the following information may not have been capable of being established as contained in public documents and therefore the sources of the information would need to be identified if Mr [Volker] was challenged. Some of that information may have been sourced only in documents photocopied by the wife without the knowledge or permission of Mr [Dunwell] or from documents provided by the husband as part of disclosure.
(a) That Mr [Dunwell] and Mr [G] are long standing business partners.
(b) Mr [Dunwell] is the former accountant of Mr [G].
(c) Both Mr [G] and Mr [Dunwell] have interests in various corporate entities including I [Business].
(d) We have uncovered a very complex international group structure that we believe Mr [Dunwell] has an interest in.
(e) It is highly likely that Mr [G] also has an interest in some of these structures. (This suggests that [X Firm] had not at the time of the letter, carried out sufficient investigations to ascertain who the share holders were of the “complex international ground”).
(f) The entities involve both companies and trust and expand across Australia, Los Angeles, the United Kingdom and the Jersey Islands.
His Honour continued the list of matters that he found “troubling” about the appellant’s letter, including a finding that the final exhortation was “touting for business” which, his Honour found “must be seen as collateral to the purpose for which information obtained from the husband about his business affairs could be legitimately used”. The other aspects to which his Honour there referred do not need to be here set out but for the last bullet point in that paragraph in which the trial judge said:
The use of the words “We are happy to assist your client in any way possible as well” is unqualified. Mr [Volker] may well have assumed
Mrs [G] and Ms [W] would understand such information would be conveyed only for reward within a relationship of solicitor and client. However, it could not be anticipated that the husband in these proceedings would have that understanding if he applied the ordinary meaning to those words. Further, if Mr [G] was to see the letter there is no reason to suspect he would understand that there were unwritten qualifications to the offer. The risk that he might see the letter and consider he should urgently sever his relationship with the husband must be assessed as high.
In any event, his Honour then indicated at [250] that the husband has:
… been successful in his application against the respondents and on that ground, all other considerations being equal, may well be entitled to an order for costs (putting aside at this stage the type of cost order which might be ordered). The question I am now considering is whether the above mentioned matters which fall for consideration under subsections (c) and (g) of section 117(2A) add further to the compulsion to make an order for costs against the respondents or any particular respondent. In my mind they do.
His Honour then set out a series of conclusions. He observed that, in his view, the letter should never have been written to Ms W and that the “extent of the provision of information provided…which required the preservation of confidentiality, was reckless….and in the circumstance, improper and unreasonable conduct” [251].
His Honour found that when sending the letter, the appellant must “clearly have anticipated the husband’s reaction or at the very least to have understood the husband would be very concerned about the consequences to his business relationship with Mr [G]” and in so doing caused the husband to institute proceedings for the injunction and incur costs [253].
At [254] the trial judge observed:
Another matter which was raised in submission by the husband was the fact that Mr [Volker] failed to go into evidence about the circumstances in which the letter to Ms [W] was written and the fact that there had been no further communication between he and Ms [W]. He could also have given evidence that no documents or information had been provided to Ms [W], nor had he received instructions from Ms [W] or Mrs [G]. He could have offered an undertaking to the Court not to have any further communication with Ms [W] or her firm. There are probably other actions he could have taken, all of which the Court may well have accepted, even if the husband did not. The absence of evidence from Mr [Volker] about the letter and any subsequent actions relative to the supply or otherwise of information or documents sourced from disclosure by the husband had the potential to be fatal to the wife’s opposition to the husbands Application in a Case.
His Honour concluded that based on the foregoing matters, the husband was entitled to an order for costs [259].
Turning to whether the foreshadowed costs order should be made against only the appellant or the appellant and the wife, his Honour concluded that they should be jointly and severally responsible for the costs order [270].
His Honour then considered whether an order for indemnity costs should be made. He determined that it should saying at [271]: “I conclude that the case illustrates facts of an exceptional kind. The letter sent by the wife and her lawyer to Ms [W] was without due regard to the possible consequences to the husband’s livelihood and future ability to generate income. There was no good reason to send the letter to that firm and every proper reason not to do so.”
Further at paragraph 274 his Honour said:
Failing to give the wife proper advice before the letter was sent would, in the circumstances of this case, be sufficient causation to found an order for indemnity costs.
The appeal
Ten grounds of appeal were raised in challenge to his Honour’s findings and determination. Written submissions addressed those 10 grounds. At the appeal hearing, senior counsel for the appellant provided further written submissions in the appeal. Those submissions did not appear to relate at all to the asserted grounds of appeal. When challenged about this senior counsel described those submissions as giving “context” and “background” to the appeal. As a result there was no change to the grounds of appeal, and senior counsel adopted the submissions previously filed in support of them by the counsel who was then briefed for the appellant.
Senior counsel for the husband took no objection to the reliance on these supplementary submissions and we will consider the grounds of appeal, the written submissions of each party and these supplementary submissions together with oral argument in determining the appeal. We observe that the matters of context to which the supplementary submissions refer are of assistance in our consideration of the appeal.
We add that senior counsel for the husband did not take issue with the statements of legal principle to which the appellant referred in the supplementary submissions.
The contextual submissions
It is uncontroversial that by early 2012 the wife had withdrawn her instructions from the appellant and by February 2012, she had consented to the husband’s application that she be restrained from instructing the appellant in the proceedings with the husband.
As already mentioned it is important to bear in mind that the appellant was not a party to the orders of February 2012. The solicitors did not concede the propriety of the husband’s application and the wife’s acquiescence to the orders could not be regarded as having that effect so far as the appellant was concerned. The terms of the consent orders acknowledge that the husband’s application for injunction against the appellant remained in issue as did that of costs. Of course, by the time the trial judge came to consider the question of the husband’s costs, the wife’s actions had rendered the husband’s application against the solicitors for an injunction futile. However, we accept the argument advanced on behalf of the appellant that this fact did not rob the proceedings before the trial judge for a costs order of their fundamental nature being whether a costs order consequent on the husband’s application for an order restraining the appellant from acting for the wife should still be made.
We accept the argument of the appellant that the issue for his Honour’s determination was whether the husband was justified in bringing the application and maintaining it after the wife, through her actions, had rendered it otiose, and whether overall the appellant was reasonably entitled to defend it.
The appellant argued, and it was not controversial, that the determination of an application for costs in the absence of a defended hearing requires a court to consider the reasonableness of the parties’ conduct.
In ReThe Minister for Immigration and Ethnic Affairs of the Commonwealth of Australia; Ex parte Lai Qin (1997) 186 CLR 622, McHugh J said of the determination of costs after disposing of a matter by consent orders (from page 624):
In most jurisdictions today, the power to order costs is a discretionary power. Ordinarily, the power is exercised after a hearing on the merits and as a general rule the successful party is entitled to his or her costs. Success in the action or on particular issues is the fact that usually controls the exercise of the discretion. A successful party is prima facie entitled to a costs order. When there has been no hearing on the merits, however, a court is necessarily deprived of the factor that usually determines whether or how it will make a costs order.
In an appropriate case, a court will make an order for costs even when there has been no hearing on the merits and the moving party no longer wishes to proceed with the action. The court cannot try a hypothetical action between the parties. To do so would burden the parties with the costs of a litigated action which by settlement or extra-curial action they had avoided. In some cases, however, the court may be able to conclude that one of the parties has acted so unreasonably that the other party should obtain the costs of the action. In administrative law matters, for example, it may appear that the defendant has acted unreasonably in exercising or refusing to exercise a power and that the plaintiff had no reasonable alternative but to commence a litigation. Thus, for example, in R v Gold Coast City Council; Ex parte Raysun Pty Ltd, the Full Court of the Supreme Court of Queensland gave a prosecutor seeking mandamus the costs of the proceedings up to the date when the respondent Council notified the prosecutor that it would give the prosecutor the relief that it sought. The Full Court said that the prosecutor had reasonable ground for complaint in respect of the attitude taken by the respondent in failing to consider the application by the prosecutor for approval of road and drainage plans.
Moreover, in some cases a judge may feel confident that, although both parties have acted reasonably, one party was almost certain to have succeeded if the matter had been fully tried. This is perhaps the best explanation of the unreported decision of Pincus J in South East Queensland Electricity Board v Australian Telecommunications Commission where his Honour ordered the respondent to pay 80 per cent of the applicant’s taxed costs even though his Honour found that both parties had acted reasonably in respect of the litigation. But such cases are likely to be rare.
If it appears that both parties have acted reasonably in commencing and defending the proceedings and the conduct of the parties continued to be reasonable until the litigation was settled or its further prosecution became futile, the proper exercise of the cost discretion will usually mean that the court will make no order as to the cost of the proceedings. This approach has been adopted in a large number of cases.
The critical question in this case then is whether or not the prosecutrix acted reasonably in bringing these proceedings and whether the respondents acted so unreasonably in not informing the prosecutor that an application to review the decision to refuse a visa was being considered that it would be proper for the Minister to pay the whole or part of the cost of the proceedings… (Footnotes omitted)
Counsel for the appellant argued that although the above quoted authority says that the court in determining the issue “cannot try a hypothetical action”, because of the way in which the application proceeded, with extensive cross examination of the appellant on the circumstances in which the letter had been written, the trial judge had heard sufficient evidence on the merits of the husband’s injunction application and was in a position to assess its merits.
However, his Honour then did not proceed to determine this issue. As the appellant argued in his summary of argument:
21.By not deciding the issue of breach of implied undertaking and focussing on the second issue [viz whether the sending of the letter was “inflammatory, provoking, reckless or potentially hazardous action” as to give rise to an order for costs], the primary judge thereafter abandoned any semblance of consideration of the principles that ought to be applied on an application to restrain a solicitor from acting.
The principles to be considered in determining an application to restrain a solicitor from acting are uncontroversial and were set out in the appellant’s written submissions at paragraph 22. They bear repeating here:
The principles involved in the application to restrain the solicitor from acting for the opposing party were discussed at length by Brereton J in Kallinicos v Hunt [2005] NSWSC 1181; 64 NSWLR 561 at [31]-[76]; and ultimately summarised by him at [76] as follows:
·During the subsistence of a retainer, where the court’s intervention to restrain a solicitor from acting for another is sought by an existing client of the solicitor, the foundation of the court’s jurisdiction is the fiduciary obligation of a solicitor, and the inescapable conflict of duty which is inherent in the situation of acting for clients with competing interests [Prince Jefri].
·Once the retainer is at an end, however, the court’s jurisdiction is not based on any conflict of duty or interest, but on the protection of the confidences of the former client (unless there is no real risk of disclosure) [Prince Jefri].
·After termination of the retainer, there is no continuing (equitable or contractual) duty of loyalty to provide a basis for the court’s intervention, such duty having come to an end with the retainer [Prince Jefri; Belan v Casey; Photocure; British American Tobacco; Asia Pacific Telecommunications; contra Spincode; McVeigh; Sent].
·However, 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 [Everingham v Ontario; Black v Taylor; Grimwade v Meagher; Newman v Phillips Fox; Mitchell v Pattern Holdings; Spincode; Holborow; Williamson v Nilant; Bowen v Stott; Law Society v Holt]. Prince Jefri does not address this jurisdiction at all. Belan v Casey and British American Tobacco are not to be read as supposing that Prince Jefri excludes it. Asia Pacific Telecommunications appears to acknowledge its continued existence.
·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 [Everingham v Ontario, Black v Taylor; Grimwade v Meagher; Holborow; Bowen v Stott; Asia Pacific Telecommunications].
·The jurisdiction is to be regarded as exceptional and is to be exercised with caution [Black v Taylor; Grimwade v Meagher; Bowen v Stott].
·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 [Black v Taylor; Grimwade v Meagher; Williamson v Nilant; Bowen v Stott].
·The timing of the application may be relevant, in that the cost, inconvenience or impracticality of requiring lawyers to cease to act may provide a reason for refusing to grant relief [Black v Taylor; Bowen v Stott].
It is said that his Honour’s focus ought to have been whether “the proper administration of justice” required the appellant be restrained from acting for the wife. However, that cannot be determined in a vacuum and what was said by Pembroke J in Westpac Banking Corporation v Newey [2013] NSWSC 533 at [22] is particularly resonant in this case:
The law and lawyers would be held in disrepute if judges acceded too readily and too often to such applications. Before doing so, there must be some realistic sense of impropriety about the circumstances; something that sensibly justifies the conclusion that unless an injunction were granted, the integrity of the judicial process would be impaired. The basis for the second defendant's application existed only in the clouds, at an abstract theoretical level. The facts on which it relied were thin and the speculation on which it depended was unconvincing. On the other hand, the grant of an injunction must be grounded in pragmatism, reflecting the practical commercial reality, paying due regard to established legal principle and acknowledging norms of acceptable behaviour.
His Honour proceeded to determine costs against the appellant, on the mistaken acceptance that the consent orders operated as a finding that the husband’s application was both appropriate and would have succeeded against the solicitors. Counsel for the appellant submitted that it was neither of these things. We accept that submission.
At no point in the reasons did the trial judge turn his mind to the issue of whether the husband’s application either when it was first advanced or after the consent orders of February 2012, would have resulted in the sought injunction. We suggest that had his Honour directed his mind to what we regard as the true issue for determination, he may not have come to the same finding.
It is against this background, and in consideration of only the second issue, that the trial judge determined to make an indemnity order for costs against the appellant. However, as can be seen there was no ground of appeal to which that submission was directed, and thus we turn to the actual grounds of appeal.
The Grounds of Appeal
As we have already indicated, the appellant relied on 10 grounds of appeal contained in the Notice of Appeal. The grounds were supported by written argument filed by counsel other than counsel who appeared on the appeal. The written arguments in support of these grounds consider them in groups as shall we.
Grounds 1-4
Ground 1. His Honour erred in finding that the letter sent from [Firm X] to Ms [W] dated 11 May 2009 was reckless, a breach of Mr [Volker’s] undertaking to the Husband and was improper and unreasonable.
Ground 2. In coming to that view his Honour erred in finding, to the extent that his Honour did so, and in taking into account the fact the information contained in the letter “may” have been, or was, sourced from the documents photocopied by the Wife without the permission of the Husband or from documents provided by him as part of disclosure.
Ground 3. His Honour erred in finding that the letter disclosed any confidential information whatsoever or did so improperly.
Ground 4. His Honour erred in finding, to the extent that his Honour did so, and in taking into account that the letter actually disclosed confidential information, rather than merely containing an offer to provide confidential information, in circumstances where no suggestion to that effect was made by the Husband in closing submissions.
In order to address these grounds, the submissions invite the court to consider the evidence before the trial judge about the letter.
The husband’s evidence was that he was concerned about “commercially sensitive information… [falling] into the hands of competitor businesses”; he was concerned about the confidentiality of Mr G’s “circumstances” being “prejudiced” and he alleged that the wife had threatened to “expose” information about him and Mr G. The husband had identified his concerns being what information the appellant may have provided already “to any other firms of lawyers” and sought the court’s assistance to maintain “the integrity of these proceedings” (Husband’s affidavit filed 7 December 2009, paragraphs 2, 3, 5, and 17).
It was further argued by the appellant, and it appeared uncontroversial, that the husband never asserted in any correspondence that confidential information obtained through disclosure in the proceedings was contained in the letter of 11 May 2009, but rather that the appellant, based on the terms of the letter “was prepared to disseminate information obtained in the proceedings”.
We accept the submission that the husband’s concerns as revealed by the evidence could be summarised as being of a fear of future disclosure, and not of any actual disclosure in the letter of 11 May.
The wife’s evidence, accepted by the trial judge, was that she denied she had disclosed confidential information about the husband’s financial interests, his business interests with Mr G or Mr G’s financial interests. She said that no response had been received from Ms W and she instructed the appellant to engage another solicitor in America, which was then done.
Although at the commencement of the proceedings the appellant had not put on any evidence, after the interruption in the proceedings he swore an affidavit in which he said that he was aware of being subject to an “implied undertaking not to provide to Ms [W] any documents that had come into his possession as a result of disclosure or production by the husband.” He further deposed that he was aware that he could provide to Ms W information that had come from his client or from publically available documents. He did not intend, in the May letter, to convey any suggestion that he would provide documents in breach of that implied undertaking and had not knowingly provided any documents the subject of that implied undertaking to any other person for the purposes of the proceedings [Husband’s affidavit filed 31 January 2012].
While the trial judge said that he found the appellant’s evidence in cross examination to be “unsatisfactory”, his Honour made no adverse findings as to the appellant’s credit and did not reject his evidence wholly or in part. Rather, he appears to have attributed the nature and quality of his evidence to nervousness [27].
We observe this is particularly important given the appellant’s denials of any ulterior or improper purpose in sending the letter, and his evidence that his purpose in sending the letter was to request Ms W to undertake searches in relation to the wife’s case, and that he had not nor was he proposing to provide Ms W with confidential information made available to him by the husband through disclosure.
We also note that at no point in the extensive cross examination of the appellant was it suggested to him that he had provided information to Ms W that was in breach of his implied undertaking. Further it was not put to him that any specific document had been provided to Ms W that was the subject of his implied undertaking.
Although in submissions for the husband it was asserted that the appellant had disclosed confidential information, in the absence of evidence either from the husband to that effect or concession from the appellant in cross examination, the submission is baseless. Counsel for the respondent in the appeal was unable to point to any part of the evidence where this was put to the appellant or where the husband asserted any confidential document or class of documents or any confidential information had in fact been disclosed to
Ms W in breach of the solicitor’s implied undertaking.
Given that the husband’s evidence was that he was concerned that the appellant might disclose confidential information in the future not that he had in fact done so, the absence of cross examination to suggest that he had breached his implied undertaking is understandable.
Given this background, the appellant submitted that his Honour erred in finding that the letter contained confidential information. There was no evidence to support this finding and, until closing argument, it had not before been suggested that the letter was anything other than an “offer to provide confidential information”.
The husband submitted (page 6 paragraph 29 Written submissions):
…that unless the content of the [letter to [Firm W]] could be accepted to be entirely speculative (which was not suggested on behalf of the Appellants or the Respondent Wife), it must have been based upon and related to information provided to the Appellants and the Respondent Wife in the course of the proceedings being information to which obligations of confidentiality attach.
Further, it was suggested by the husband that, given the trial judge’s “adverse findings as to the First Appellant’s credit and the entirety of the evidence”, it was open to his Honour to make the findings he did about the letter and to which grounds 1-4 relate.
We do not accept the husband’s argument for three reasons. First, it rests on a contention not argued before the trial judge, nor indeed was it part of the husband’s case at trial, and that is that the letter did disclose confidential information (see Coulton v Holcombe (1986) 162 CLR 1).
Secondly, it proceeds on the assumption that his Honour made credit findings adverse to the appellant and, as we have indicated, his Honour made no such findings.
Thirdly, although his Honour found that the letter did disclose information in breach of the appellant’s implied undertaking, he gave no reasons for so finding, and nor did he identify what document or information his “close examination” revealed to be disclosed in breach of the appellant’s implied obligation.
We set out what was said by his Honour:
246. …I note Mr [Volker] did not provide specific evidence to satisfy the Court that all the information in the letter had come from publicly available documents rather than any disclosure from the husband. Rather he asserted that no document or information of a confidential nature was disclosed. Clearly when the letter is closely examined that is not the case.
In this paragraph his Honour appears to reverse the onus of proof. The husband, as applicant for the injunction, bore the onus of proof. The appellant was not obliged to prove that he had not provided confidential information or documents in breach of his implied obligation.
Again, as the appellant argued in his written summary:
10. The finding that the [letter to [Firm W]] contained confidential information appears to have been made on the basis that it may have been confidential and in the absence of evidence to the contrary from Mr [Volker], the First Appellant, it was therefore safe to assume that the information was in fact confidential … Such an approach effectively reversed the onus of proof and in any event there is no need for the Appellant’s to lead such evidence in the absence of an assertion that the letter contained confidential information.
We accept the appellant’s contentions in relation to the impugned findings and the trial judge’s reliance on them cannot stand. These grounds of appeal have been made out.
Ground 5
Ground 5. His Honour erred in taking into account:-
(a) His finding that the Husband would be very distressed if he saw the letter and would take the action that he did.
(b) That there were other agents in the United States that could have been instructed.
(c) That information in the letter was collateral to the purpose for which the letter was being written.
(d) That Ms [W], acting ethically, could not provide information that was sought by Mr [Volker].
(e) That Mr [Volker] would be unable properly to provide any information that was part of the [Dunwell] case, from whatever source, to Ms [W].
(f) That the phrase “we are happy to assist your client in any way possible as well” was unqualified.
This ground relates to the trial judge’s findings in [249] and [251]. We set out those paragraphs in full although we have already referred to them in part:
249.In the light of that background it is very troubling to see the letter which Mr [Volker] penned to Ms [W]. In sending that letter
Mr [Volker] either did know or should have known the following:
·If the husband became aware of the letter he would be very distressed and take the action he did against the wife and Mr [Volker].
·There were many other attorney agents in the United States who could have been engaged who had no connection with the [G’s] matrimonial disputes. This is a fact acknowledged by Mr [Volker] in his oral evidence.
·He provided information to Ms [W] which was superfluous to the task of asking her to accept an appointment as agent for [Firm X] in circumstances where she was not in a professional relationship with [Firm X] or the wife and thereby not obliged to keep confidential.
·The provision of the following information may not have been capable of being established as contained in public documents and therefore the source of the information would need to be identified if Mr [Volker] was challenged. Some of that information may have been sourced only in documents photocopied by the wife without the knowledge or permission of Mr [Dunwell] or from documents provided by the husband as part of disclosure.
(a)That Mr [Dunwell] and Mr [G] are long standing business partners.
(b)Mr [Dunwell] is the former accountant of Mr [G].
(c)Both Mr [G] and Mr [Dunwell] have interests in various corporate entities including [I Business].
(d)We have uncovered a very complex international group structure that we believe Mr [Dunwell] has an interest in.
(e)It is highly likely that Mr [G] also has an interest in some of these structures. (This suggests that [Firm X] had not, at the time of the letter, carried out sufficient investigations to ascertain who the share holders were of the “complex international group”).
(f)The entities involve both companies and trusts and expand across Australia, Los Angeles, the United Kingdom and the Jersey Islands.
·In saying “Some of the information that we obtained in relation to the entities may also be of assistance to your client in relation to her proceedings” Mr [Volker] (according to his own oral evidence) was touting for business and anticipated his firm may be instructed to act as Australian lawyers for Mrs [G] or as agents for Ms [W] in relation to those proceedings. Such a purpose must be seen as collateral to the purpose for which information obtained from the husband about his business affairs could be legitimately used.
·He should have appreciated that if Ms [W] agreed to act for the wife or to act as agent for [Firm X], she would not, if she acted ethically, use the information obtained from the [Dunwell and Dunwell] case on the [G and G] case.
·Mr [Volker] should have realised that if he was asked to act for Ms [W] or for Mrs [G] in relation to Australian interests of that lady, he would be unable to use the information obtained from acting for Mrs [G] in the [Dunwell] case without her express authority. The chances of finding himself in a point of conflict in acting for the two women was high.
·Further given the undertaking he had given to the husband through correspondence in 2007 he would be unable to provide any information to Ms [W] or Mrs [G] which he had acquired as part of the [Dunwell] case even if Mrs [Dunwell] was to authorise him to do so.
·The use of the words “We are happy to assist your client in any way possible as well” is unqualified. Mr [Volker] may well have assumed Mrs [G] and Ms [W] would understand such information would be conveyed only for reward within a relationship of solicitor and client. However, it could not be anticipated that the husband in these proceedings would have that understanding if he applied the ordinary meaning to those words. Further, if Mr [G] was to see the letter there is no reason to suspect he would understand that there were unwritten qualifications to the offer. The risk that he might see the letter and consider he should urgently sever his relationship with the husband must be assessed as high.
251.In my view the letter to Ms [W] should never have been written. Other attorneys should have been selected. The wife had already obtained a number of searches of companies and interests in the United States and other countries around the world through the efforts of Mr [K], who filed an affidavit annexing all his work on 20 March 2009. Further, assuming for one moment that there was nothing unwise, imprudent or dangerous to the wealth of the [Dunwell] family constituted by seeking to engage Ms [W] to act for the wife or as agent for Mr [Volker’s] firm, then the extent of the provision of information provided to a person who held no relationship with the writer of the letter, or the wife, which required the preservation of confidentiality, was reckless, a breach of Mr [Volker’s] written undertaking to the husband and in the circumstance, improper and unreasonable conduct.
In relation to this ground, the appellant argued that while the trial judge listed a number of matters of which the appellant “either did know or should have known” and on which he relied in support of his finding at [251] that the letter to Ms [W] “should never have been written”, his Honour did not provide reasons why the matters listed were known or ought to have been known. Further it was argued that of the matters listed, those to which the ground relates were either incorrect or unsupported by the evidence.
In support of these findings, the husband argued that the trial judge, in these passages, was setting out matters which were relevant to an assessment of the reasonableness of the husband in bringing the application and the appellant’s resistance of it.
It was argued on behalf of the husband that it was open to the trial judge to find and rely upon the husband’s reaction to the letter and further to find that it was “provocative” of the husband for the appellant to have written the letter.
In our view it is unnecessary to consider the competing arguments about what his Honour may have intended or whether his findings were open to him. We are of the view that his Honour misdirected himself as to the nature of the enquiry which was not whether the letter was “provocative” or “reckless” but whether, based on the principles governing an application to restrain a solicitor from further acting, there was a sound basis for the husband to seek the injunction. Whether the husband was “distressed” or not in circumstances where his case did not assert a breach of the appellant’s implied obligation of confidentiality but which at its highest asserted that he was “concerned” that the appellant might breach that obligation in the future could, in our view, never have been relevant to the trial judge’s determination.
The impugned findings were thus, irrelevant. This ground of appeal is made out.
Ground 6
Ground 6. His Honour erred in finding and in taking into account that the Husband had been successful in his application against the Respondents in circumstances where the Second and Third Respondents opposed it, the wife consented to parts of it and it had not been determined on its merits.
This ground concerns several passages in his Honour’s reasons and, although we have earlier set them out in these reasons, we repeat them for convenience.
After setting out the terms of the consent orders made on 6 February 2012, his Honour said:
238. It is apparent, after comparing the Orders sought by the husband and the Consent Orders entered into by the Parties on 6 February 2012, that the respondents have conceded to the orders sought by the husband.
At [239] he said:
With order 1 of the husband’s application ultimately being conceded, there was no necessity to have an order made as sought by the husband in paragraph 7 of that application. …
In [250] of the reasons, his Honour, in discussing matters under the rubric of s 117(2A)(g) “such other matters as the court considers relevant”, said:
As it transpired, the husband has been successful in his application against the respondents and on that ground, all other considerations being equal, may well be entitled to an order for costs (putting aside at this stage the type of cost order which might be ordered)…(our emphasis)
Plainly, his Honour has erred, first in making the finding that the husband was successful against the solicitors in relation to the injunction, and secondly in proceeding on the basis that that was sufficient to warrant an order for costs.
As referred to above, the appellant did not consent to any order; only the wife did. Thus as against the appellant the husband has not thereby been successful. There had also been no determination on the merits, and where that is the case, costs should only be awarded if his Honour was satisfied that one party had acted “so unreasonably as to justify costs or that one party was certain to win” (Re Minister for Immigration and Ethnic Affairs; Ex Parte Lai Qin). As identified above his Honour failed to approach the application for costs on that basis.
The husband’s submissions argued that “there can be no issue that the Orders of 6 February 2012 provided the Respondent Husband with the substance of the relief sought by him in the injunction proceedings”. We agree.
The husband’s written argument continued:
34.That this position came about as a result of the consent of the Respondent Wife and in the absence of opposition from the Appellants does not derogate from the relevance of such matter to the determination of the application for costs….
We do not accept this argument. It is uncontroversial that by the time the wife consented to the husband’s application she had already terminated the appellant’s retainer. Quite how the appellant could have “opposed” her consent to the orders is not clear to us.
Obviously and practically, the actions of the wife had rendered the husband’s application against the appellant futile. However if, as it appears, the trial judge regarded the wife’s consent as having some effect on the appellant’s position as to costs, he was in error.
It was also argued for the husband that the trial judge did not regard that issue as determinative of the question. Whether the husband had been “wholly successful” may not have been determinative of the issue but his Honour said that of itself it “may well” have entitled him to a costs order. It would strain a reading of the judgment as a whole and his Honour’s reasoning process to try and sequestrate that finding from his ultimate determination of the costs issue.
We find merit in this ground of appeal.
Grounds 7 and 8
Ground 7.
His Honour erred in finding and in taking into account that
Mr [Volker] should have provided evidence at an early stage that he did not provide any information to Ms [W].
Ground 8. His Honour erred in considering that whether any documents or information were provided to Ms [W] was a relevant issue, rather than whether the Husband had reason to believe that such documents or information had been provided.
We have considered the substance of these two grounds in our determination of grounds 1-4.
The appellant argued that it was the husband who bore the onus of demonstrating that the letter to Ms W disclosed confidential information and there was no obligation on the appellant or the wife to provide that evidence.
The husband’s contention that it was incumbent on the wife or the appellant to bring evidence “that that which they had offered to do had not in fact occurred”.
We do not accept the husband’s argument. First, it was the husband who bore the onus of establishing the basis for the injunction which was that the letter to Ms W contained information in breach of the implied undertaking as to confidentiality. Secondly, in light of the husband’s evidence to which we have referred, it is hardly surprising that neither the wife nor the appellant saw the need to bring evidence of a matter not in issue. Thirdly, the argument proceeds on an incorrect assumption, that is, that the letter had in fact disclosed confidential information, a matter not asserted by the husband.
The trial judge’s findings both reversed the onus of proof and elevated the husband’s case to one not advanced by him. In both respects, the trial judge erred.
These grounds are made out.
Grounds 9 and 10
Ground 9. His Honour erred in finding that the conduct was of such a nature that warranted the costs being ordered to be paid on an indemnity basis.
Ground 10. His Honour erred in taking into account conduct of the Second and Third Respondents vis a vis their client, the Wife, particularly in circumstances where:
(a)any intention by the Husband to rely on that conduct was not clearly pleaded or otherwise communicated to the Second and Third Respondents so as to enable them to respond to those allegations; and
(b)the Second and Third Respondents could not lead evidence in response to those allegations without the Wife first agreeing to waive privilege.
As to both of these grounds, having found the appellant’s challenges in the preceding grounds made out, it is unnecessary to consider them further. That is because on that basis no costs order should have been made let alone an indemnity costs order.
Conclusion
We have found merit in the grounds of appeal, although it has been unnecessary to address Grounds 9 and 10. As a result the appeal must be allowed.
Disposition
In the written submissions for the appellant, it was suggested that the
Full Court, rather than remitting the matter for re-hearing, would re-exercise the discretion and determine the issue by replacing the order made below with an order that the husband pay the appellant’s costs.
We are not disposed to follow that course (which we observe was not pressed in oral argument); there is a lack of relevant findings and a lack of reasons on the part of the trial judge as identified above.
It may be that the husband is content to let the issue rest and not seek a further determination of the matter.
However, we will set aside his Honour’s order as it relates to the appellant and provide that the matter be remitted for rehearing by a judge other than the trial judge.
There was no appeal by the wife, and she has not sought to be involved in this appeal. Thus his Honour’s order insofar as it relates to her must remain in place.
Costs
As is customary, we sought submissions on costs from the parties at the close of the appeal hearing. Counsel for the appellant argued that if the appeal succeeded and the Court was of the view that it would not otherwise make an order for costs, it would be appropriate to order a costs certificate.
The course of this litigation was fraught with conflict, not just between the parties but also the lawyers. There are no circumstances which would justify an order for costs of the appeal in favour of the appellant against the husband.
We have some concern that the way in which the trial was run on behalf of the husband may have led his Honour into the error which has caused the appeal to succeed, and hence we will not make an order for costs certificates for the appeal and any re-hearing.
I certify that the preceding one hundred and five (105) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (May, Strickland, & Ainslie-Wallace JJ) delivered on 13 September 2013.
Associate:
Date: 13.09.2013
5
6
1