Wilson v Gilles

[2020] NSWSC 657

Supreme Court

New South Wales

Medium Neutral Citation:	Wilson v Gilles [2020] NSWSC 657
Hearing dates:	20 May 2020
Date of orders:	20 May 2020
Decision date:	20 May 2020
Jurisdiction:	Equity
Before:	Rees J
Decision:	Refuse to order solicitors to pay money in trust account to husband, in absence of direction also from wife
Catchwords:	LEGAL PROFESSION – trust accounts – monies held for two clients – husband and wife, separated – sell former matrimonial home – instruct solicitors to hold proceeds in trust account until they agree what to do – husband seeks his share of proceeds – no consent from wife – solicitor cannot pay monies without direction from both – whether to order otherwise – refuse order
Legislation Cited:	Interpretation Act 1987 (NSW), s 8(b) Legal Profession Uniform Law (NSW), Rule 8.1, ss 135(1), 138 Australian Conduct Rules 2015 (NSW), rr 36(2)(e), 44(1)(e) and (f)
Cases Cited:	Australian Broadcasting Commission v Lenah Game Meats Pty Limited (2011) 208 CLR 199 Price v ACN 627087030 Pty Limited t/as Yates Beaggi Lawyers [2020] NSWSC 584 Simone v Kola (No 2) [2017] NSWSC 821 Wexford Pty Limited v Praveen Meckraj Doolub [2008] NSWSC 1233
Category:	Principal judgment
Parties:	Paul Wilson (Plaintiff) Joseph Gilles (First Defendant) Gregory Eliades (Second Defendant) Rena Wilson (Third Defendant)
Representation:	Counsel: Mr G George (Plaintiff) Mr L Fermanis (First and Second Defendants) Mr J Horowitz (Third Defendant)   Solicitors: The Law Shoppe (Plaintiff) Giles, Payne & Co (First and Second Defendants)
File Number(s):	2020/143909

ex tempore Judgment

1. HER HONOUR: The plaintiff, Paul Wilson, seeks an interlocutory order that the first and second defendants, law firm Giles Payne & Co, pay 75% of the proceeds of sale of a property in Hillsdale to him, such moneys being presently held in the solicitors’ trust account. The Hillsdale property was owned by Mr Wilson and his wife, the third defendant, Rena Wilson. They are separated. Alternatively, an order is sought that the monies be paid to Mr Wilson on an undertaking that his solicitor will retain 25% of the proceeds of sale in a controlled monies account.

Facts

2. In 1997, the Hillsdale property was purchased by the husband, the wife and the husband’s mother, Ellen Wilson. Title to the property was held as tenants in common, with Ellen Wilson as to one half and the husband and the wife as to one quarter each. In 1999, the husband and wife married. In 2000, Ellen Wilson passed away and the husband inherited his mother's interest in the Hillsdale property. Thus, title to the Hillsdale property was then held as tenants in common, with the husband as to three-quarters and the wife as to one quarter.

3. In 2018, the husband and wife separated. In June 2019, they instructed Giles Payne & Co to act on the sale of the Hillsdale property. Margaret Howes, a paralegal employed by Giles Payne & Co, said that she received a telephone call from the husband who said he wanted to sell the matrimonial home; his wife had moved out seven months earlier and he was paying her rent and the mortgage; he had lost his job and was under financial stress. The husband came to the office later that day and collected a costs agreement which was later returned signed by the husband and wife. The husband and wife then both came to the office and completed a vendor questionnaire.

4. According to the husband, he and his wife instructed Giles Payne & Co that they were the registered owners of the property; the husband had a 75% interest and the wife had a 25% interest respectively; the property was their former matrimonial home; they had separated and wished to sell the property. According to the wife, the husband mostly had contact with Giles Payne & Co. The wife denies that she instructed the solicitors as to their respective interests in the property and denies that she told Giles Payne & Co that she wished to sell the property because they had separated. It thus appears that the wife accepts that the solicitors were instructed that she and her husband were the registered proprietors of the property, that it was their former matrimonial home and they wished to sell it.

5. Before the Hillsdale property was sold, the wife says that she spoke to her husband about how they would divide the proceeds of sale “on a final basis”. The wife agreed to divide the proceeds equally so long as the property sold for at least $1.9 million. In September 2019, the Hillsdale property was sold but for $1,520,000. Thus, the wife considered that her agreement to divide the proceeds of sale equally did not apply.

6. In preparation for completion of the sale, the husband and wife met with Ms Howes again. According to the husband, he gave instructions that the sale proceeds could be deposited into Giles Payne & Co’s trust account "until Rena and I work out what to do with it", to which the wife agreed. The wife does not demur from this account. According to Ms Howes, she asked the husband and wife whether they both agreed that the balance of the sale proceeds would be deposited into Giles Payne & Co's trust account and both said yes. This is corroborated by the law firm’s itemised bill of costs which records that, on 11 October 2019, Ms Howes attended on the husband and wife: "…confirmed with them both that the surplus funds would be deposited into our trust. Rena agreed”. Thus, the solicitors were given instructions by the husband and wife to hold the net proceeds of sale in their trust account on behalf of the husband and wife.

7. On 23 October 2019, the sale completed and the net sales proceeds of $783,753.87 were deposited in the solicitors’ trust account. On 24 October 2019, the solicitors wrote to the husband and wife:

We confirm you both have instructed us to retain the sale proceeds in our trust account on your behalf until you provide us with your further instructions.

The letter is consistent with the husband’s description of the instructions given to Ms Howe to hold the sale’s proceeds “until Rena and I work out what to do with it”.

8. According to the husband, in early November 2019 the wife told the husband that Giles Payne & Co had said that they could get more than 50% of the proceeds of sale for her if she took it to the Family Court, and said they could help her do this. The wife had decided to retain Giles Payne & Co to act for her and suggested that he get a lawyer. The husband said that he was happy to divide the proceeds of sale equally and suggested that they should not waste money on lawyers. His wife replied that she was only taking the advice she had received from Giles Payne & Co. The wife denies the conversation.

9. On 18 November 2019, the husband’s solicitor wrote to Giles Payne & Co proposing that 50% of the proceeds of sale be released to each of the husband and wife in settlement of their matrimonial dispute. It would appear that, at this stage at least, the husband was content for Giles Payne & Co to act for his wife in relation to family law matters notwithstanding that the firm had previously acted for both of them on the conveyance.

10. By the beginning of December 2019, the husband did not have further funds to continue to engage a family law solicitor and, on 5 December 2019, the husband’s solicitor sent an email to Giles Payne & Co to that effect. Giles Payne & Co provided the husband directly with their letter of reply on behalf of the wife, suggesting that she was entitled to more than half of the proceeds of sale by reason of her financial and non-financial contributions throughout the marriage but requesting financial disclosure before the parties determined how the proceeds of sale would be distributed. In the meantime, Giles Payne & Co proposed an interim distribution of $5,000 to each of the husband and wife.

11. The husband then attempted to negotiate with his wife directly to finalise the matter. The husband tendered various text messages which suggest that an agreement was reached that the wife would accept $480,000 from the proceeds of sale, but the wife denies such an agreement.

12. On 21 January 2020, the husband wrote to Giles Payne & Co objecting to the firm acting for his wife in the family law matter in circumstances where the firm had formerly acted for them both on the sale of the Hillsdale property and continued to hold the proceeds of sale in their trust account. The husband requested the release of his 75% share of the proceeds of sale, failing which he proposed to refer the firm to The Law Society of New South Wales. On 22 January 2020, Giles Payne & Co disagreed, suggesting that the family law matter was completely separate from the sale of the Hillsdale property and that there was no conflict of interest. (emphasis in original)

We are at liberty to act for Rena Wilson and there is no conflict of interest …

It should be understood that whether our firm acts for Rena or any other firm, the protocol would be that the net sale proceeds will be held in trust until an agreement and Orders are entered.

Therefore, the net proceeds will remain in our trust account until we have an agreement between you and Rena as to how those funds will be dispersed [sic] or until orders are obtained from the Court.

13. On 27 April 2020, the Ethics Committee of the Law Society provided guidance, resolving that “while Giles Payne & Co continue to hold trust money for the husband and wife, they should not act for the wife”. The guidance was sent to the husband’s new solicitor and also to Giles Payne & Co.

14. On 4 May 2020, the husband’s solicitor wrote to Giles Payne & Co demanding that his share of the proceeds of sale be paid to him failing which an application would be made to the Equity Duty Judge. Orders for the payment of interest and indemnity costs would be sought from Mr Gilles personally. Giles Payne & Co promptly replied:

As previously advised, our office are stakeholders of the sale proceeds from … Hillsdale for the parties.

We are unable to release those funds without the written authorisation of both parties. We refer to Section 138 of the Legal Profession Uniform Law (NSW).

Your client asserts that his legal entitlement to such funds is 75% and that our client’s share is 25%. Irrespective of this assertion, the funds are held for them jointly and we cannot release those funds by the application of Family law principles.

Should your client commence proceedings in the Supreme Court seeking an injunction, our client will immediately commence proceedings in the Family Court for the property settlement. It is our previous experience, once the Supreme Court is advised of Family Court proceedings, it will refrain from making any decision until the matter is dealt with by the Family Court.

If you persist with this action in these circumstances, then our client will be seeking indemnity costs in respect of the Supreme Court proceedings.

It is a little surprising that, notwithstanding the Law Society’s guidance, Giles Payne & Co continued to act for the wife.

15. On 14 May 2020, the husband commenced these proceedings by summons before the Equity Duty Judge and yesterday, 19 May 2020, the wife commenced proceedings in the Family Court of Australia seeking a property settlement with the husband. Today, the wife was separately represented from Giles Payne & Co. The husband deposed that he does not have money to pay rent, food, school fees or day to day expenses. He has had to borrow money from his friends and colleagues to engage a solicitor and to get by. The husband says that he is currently unemployed and needs access to the funds in order to start his own home care and landscaping business.

Submissions

16. The husband submitted that he needed to establish the requirements for an interlocutory injunction being a serious question to be tried, whether damages were an inadequate remedy, and that the balance of convenience favoured the orders sought: Australian Broadcasting Commission v Lenah Game Meats Pty Limited (2011) 208 CLR 199; Price v ACN 627087030 Pty Limited t/as Yates Beaggi Lawyers [2020] NSWSC 584. As to whether there was a serious issue to be tried, the husband submitted that he had established that Giles Payne & Co had no right whatsoever to retain his share of the proceeds of sale. It was said to be a nonsense for Giles Payne & Co to suggest that the proceeds of sale were jointly owned by the husband and wife as there had been no change in the legal ownership of the funds when they were paid into the trust account. There had been no assignment, gift or disposition to alter their legal interests in those funds. It was submitted that it was not until the wife obtained an order in the Family Court proceedings that she obtained an equitable interest in the monies greater than her legal interest, referring to Trajkovski v Simpson [2019] NSWCA 52 per Brereton JA at [145]-[146].

17. It was submitted that, as the husband had a legal interest in 75% of the funds held on trust, he was entitled to give a direction in respect of that portion of the funds, with which Giles Payne & Co were obliged to comply under section 138(1) of the Legal Profession Uniform Law. Rule 8.1 of the Uniform Legal Profession Law Australian Conduct Rules 2015 (NSW) obliged the solicitor to follow a client’s lawful, proper and competent instructions. Thus it was said that there was no serious issue to be tried that Giles Payne & Co had a right to retain the husband’s 75% share of the proceeds of sale.

18. Further, it was submitted that the problem had occurred because Giles Payne & Co acted for the wife in circumstances where there was a conflict between the duties owed by the firm to the husband on the one hand and the wife on the other. Whilst acting for the wife in family law proceedings, Giles Payne & Co had control of the proceeds of sale and were exercising that control to preserve the proceeds of sale against the husband’s wishes. This clearly benefited the wife as it kept the proceeds of sale intact and provided a fund which Giles Payne & Co knew was available to pay their fees in those proceedings. The solicitors’ conduct had the result of putting pressure on the husband to settle any family law proceedings on the best possible terms for the wife by driving the husband to penury. It was said that Giles Payne & Co knew that the husband was desperate for funds. Further, it was submitted that the wife’s family law proceedings were unlikely to be heard for some years and there was no evidence to suggest that the husband would act in any way to frustrate a judgment of the Family Court such that what was effectively a freezing order should be imposed.

19. As to adequacy of damages, the husband submitted that, if an injunction was not ordered, then he faced significant hardship: he had no funds to live on and was borrowing money from so that he and his children could support themselves. As to the balance of convenience, it was submitted that failure to grant an injunction would have dire financial consequences for the husband. His plans to start a business using some of the proceeds of sale would also have to be deferred. As matters presently stood, some $770,000 was lying idle and earning no interest. The money should be available to the husband and the wife for them to re-establish their lives following the end of their marriage.

20. Giles Payne & Co submitted that the motion was in effect seeking final relief rather than interlocutory relief. Counsel submitted that there was ample evidence that the law firm was instructed by both the husband and wife to hold the proceeds of sale subject to the agreement of the parties. It was said that these instructions were consistent with the subsequent conduct of the parties in drawing down small amounts pending an agreement. I do not place much weight on the husband’s subsequent conduct in requesting and accepting various small payments as it is apparent that he had no real alternative. The husband requested 75% of the net proceeds of sale but, when refused, accepted smaller amounts offered. This conduct seems to have been referable to financial need. But I agree that the evidence indicates that the law firm was instructed by both the husband and wife to hold the proceeds of sale subject to the agreement of the parties.

21. Alternatively, Giles Payne & Co submitted that there was no serious case to be tried in respect of the motion as the requirements of section 135 and 138 of the Legal Profession Uniform Law (NSW) made plain that the solicitors could not deal with the trust monies absent a direction by both clients. The balance of convenience was said to favour the wife given that she had now commenced proceedings in the Family Court seeking an alteration in property interests. The most appropriate course would have been for the husband to commence proceedings in the Family Court to seek a property distribution. These submissions were adopted by the wife’s barrister.

Consideration

22. The question is whether the husband is entitled to an order from this Court that 75% of the proceeds of sale be paid to him from the solicitors’ trust account, notwithstanding that his wife has not consented to this course. I agree that the relief sought is more of a final than interlocutory nature and considerations of prima facie case and balance of convenience do not assist greatly. The question is whether the husband is entitled to have the monies paid to him at this time.

23. As the husband’s counsel pointed out, section 135(1) of the Legal Profession Uniform Law (NSW) provides:

A law practice must deal with trust money in accordance with this Law and the Uniform Rules and not otherwise.

Civil penalty: 50 penalty units.

24. Section 138 of the Legal Profession Uniform Law (NSW) provides:

Section 138 Holding, disbursing and accounting for trust money in general trust account

(1)   Except as otherwise provided in this Part, a law practice must—

(a)   hold trust money deposited in the law practice’s general trust account exclusively for the person on whose behalf it is received; and

(b)   disburse the trust money only in accordance with a direction given by the person.

Civil penalty: 50 penalty units.

(2)   Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law.

(3)   The law practice must account for the trust money as required by the Uniform Rules.

Civil penalty: 50 penalty units.

25. Section 138(1) refers to “person”, singular. However, section 8(b) of the Interpretation Act 1987 (NSW) provides:

Section 8   Gender and number

In any Act or instrument—

…

(b)   a reference to a word or expression in the singular form includes a reference to the word or expression in the plural form,

26. Thus, where a solicitor receives trust monies for a person, section 138(1) provides that the solicitor must not disburse those monies unless they have a direction given by that person. When the trust money is received on behalf of more than one person, then each of those persons must give a direction to the solicitor to disburse the monies.

27. The language of the Legal Profession Uniform General Rules 2015 in respect of trust money and trust accounts also uses the singular form, for example, rule 36(2)(e) requires the receipt for trust monies to contain “the name of the person from whom the money was received”. Likewise, rules 44(1)(e) and (f) require the law practice to keep a trust account receipts cash book which records “the name of the person from whom the money was received” and “the name of the client in respect of whom the money was received …”. But, obviously enough, law firms often receive trust monies from more than one person or for more than one client. Where that occurs, the rules must be read as requiring that each of those persons or clients be recorded.

28. Counsel referred me to no authority. The absence of authority may indicate that this construction of section 138(1) goes without saying. In finalising this ex tempore judgment, I found one case which I include for completeness for anyone searching for authority on the point, albeit that it does not construe the legislation but rather proceeds on the basis that it means what I have set out at [26]. In Simone v Kola (No 2) [2017] NSWSC 821, a husband and wife and their company paid monies into a solicitor’s trust account and Magistrate Bradd concluded that the monies could only be disbursed in accordance with a direction which they gave: at [53]-[54]. On appeal, it was not suggested that this observation was incorrect. The husband, wife and company later provided an authorisation for the funds to be withdrawn; the wife was a director of the company and could authorise the withdrawal on behalf of the company: at [109], [112]. Schmidt J held that the solicitor was entitled to withdraw the money accordingly.

26. Here, more than one client entrusted the monies to the solicitors but only one client has given instructions that the money be disbursed. As in Simone v Kola, where a solicitor holds trust funds on behalf of more than one person, it may be that one of those persons has authority to give a direction on behalf of the other. But there is no suggestion here that the husband had the authority of the wife to give instructions in respect of the proceeds of sale. Thus the law firm was not authorised by section 138(1) of the Legal Profession Uniform Law (NSW) to disburse the monies only in accordance with the husband's instructions.

27. Section 138(2) provides that section 138(1) applies “subject to an order of a court of competent jurisdiction or as authorised by the law”. The husband’s motion essentially seeks such an order. As the husband submitted, he is, according to the title of the Hillsdale property when it was sold, legally entitled to 75% of the net proceeds of sale. As the plaintiff also correctly submitted, the fact that his wife may be entitled to an adjustment in her favour in the Family Court of Australia at the conclusion of proceedings recently commenced in that court does not mean that the wife is presently entitled to more that her 25% of the net proceeds of sale.

28. But what the husband’s submissions do not acknowledge is the circumstances in which the Hillsdale property was sold in the first place. It was in circumstances – disclosed to Giles Payne & Co at the time – that the husband and wife had separated and wished to sell the matrimonial home, with the proceeds of sale to be distributed as agreed between them, presumably to finalise their marriage including any property settlement. The instructions given by the husband to Ms Howes on 11 October 2019 set out at [6] are consistent with this, as is the letter from Giles Payne & Co of 24 October 2019 set out at [7] and the letter from the husband’s solicitor of 18 November 2019 proposing that the proceeds be divided equally in settlement of their matrimonial dispute. It is also consistent with the evidence of the husband and wife that they were communicating as to how the proceeds of sale should be divided, albeit that they gave different accounts as to when these conversations occurred and what was said.

29. The fact that an agreement was not reached does not appear to me to have the result that the husband is entitled to call for his legal share of the monies. On the basis of the limited evidence available on this motion, the husband and wife agreed to sell the Hillsdale property for a particular purpose, being to liquidate the asset into cash, to be divided in a manner to resolve their claims to receive a portion of the marital pool of assets following the end of their marriage. It is reasonable to think that the wife may not have agreed to the sale of the Hillsdale property at all if the proceeds were going to be distributed in accordance with the legal title without regard to her right to seek an adjustment of those property interests following the end of their marriage, or for that matter, the husband’s right to seek an adjustment in his favour.

30. Thus, as galling as it is for the husband to see the proceeds of sale of what is presumably the substantial asset of the marriage held in the trust account, that is the consequence of the husband having agreed to the monies being held in the trust account on behalf of both himself and the wife, to be held until he and his wife agreed what to do with the monies. In the absence of agreement, the solicitors are not at liberty to disburse the trust money in accordance with the direction given by him only. On the limited evidence available on this motion, I am not prepared to otherwise order.

31. For these reasons, I make the following orders and directions:

1. Grant leave to the third defendant to file in court a Notice of Appearance which is initialled by her Honour, dated today and placed with the papers.

2. Dismiss the Notice of Motion filed on 14 May 2020.

3. Stand the Summons over to the Equity Registrar on Monday 25 May 2020 at 9.30 am for further directions.

4. Grant liberty to the parties, should they wish to seek any order for costs in respect of the Notice of Motion, to provide written submissions, limited to 4 pages, to the Associate to Rees J by 4.00 pm on Friday 22 May 2020.

5. In the event that such submissions are filed, grant liberty to any affected party to file and serve submissions in reply, limited to 4 pages, by 4.00 pm on Wednesday 27 May 2020.

6. NOTE the parties agree to Rees J determining any question of costs on the papers.

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Decision last updated: 01 June 2020