XX Firm and ZZ Firm and Ors
[2013] FamCA 1007
•19 December 2013
FAMILY COURT OF AUSTRALIA
| XX FIRM & ZZ FIRM AND ORS | [2013] FamCA 1007 |
| FAMILY LAW – PRACTICE AND PROCEDURE – Inherent jurisdiction of the Court to control its own process – Where the substantive proceedings pursuant to s 79 have been determined – Where money was paid into trust – Where a previous order required the money to remain in trust pending determination of proceedings in another court – Where the money was disbursed prior to determination of those proceedings – Where the Applicant solicitors seek orders restoring the money to trust – Where the Respondent solicitors acted unprofessionally and with relative impropriety. |
| Family Law Act 1975 (Cth) ss 80, 79A Trust Accounts Act 1973 (Qld) s 11 Supreme Court of Queensland Act 1991 (Qld) Civil Proceedings Act 2011 (Qld) |
| Collins & Collins (1985) FLC 91-603 King & King (1977) FLC 90-299 Twigg and Twigg & Keady and Keady (1996) FLC 92-712 Philippa Power & Associates v Primrose Couper Cronin Rudkin [1997] 2 QdR 266 Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liquidation) (1965) 113 CLR 265 Stevenson v Moloney & Geroff & Boodle [2003] FamCA 1387 |
| APPLICANT: | XX Firm |
| FIRST RESPONDENT: | ZZ Firm |
| SECOND RESPONDENT: | Mr ZZ |
| THIRD RESPONDENT: | Mr Baglio |
| FILE NUMBER: | BRC | 7965 | of | 2009 |
| DATE DELIVERED: | 19 December 2013 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Forrest J |
| HEARING DATE: | 18 November 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Hackett |
| SOLICITOR FOR THE APPLICANT: | XX Firm |
| COUNSEL FOR THE FIRST AND SECOND RESPONDENTS: | Mr Blond |
| INSTRUCTOR FOR THE FIRST AND SECOND RESPONDENTS: | Lexon Insurance |
| FOR THE THIRD RESPONDENT: | Mr Baglio in Person |
Orders
That the First Respondent and/or the Second Respondent forthwith repay to the First Respondent’s trust account the sum of $93,000 to be held on account of the Third Respondent husband pending either written agreement between the Applicant and all three Respondents as to its disbursement or earlier order of this Court.
IT IS NOTED that publication of this judgment by this Court under the pseudonym XX Firm & ZZ Firm and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: BRC 7965 of 2009
| XX Firm |
Applicant
And
| ZZ Firm |
First Respondent
And
| Mr ZZ |
Second Respondent
And
| Mr Baglio |
Third Respondent
REASONS FOR JUDGMENT
Many months after parenting and property adjustment proceedings between a former married couple were concluded in this Court by judgment that included an order for payment by the wife to the husband of the amount of $93,000, an order that the wife duly complied with, two firms of solicitors, one who previously acted for the husband in the proceedings and one who subsequently acted for the husband in the same proceedings, are now locked in dispute arising out of what happened to that $93,000 after the wife paid it to the husband.
The firm of solicitors who have represented the husband for almost three years now received the $93,000 paid by the wife into their trust account on behalf of the husband. They then transferred it to their own account in partial discharge of the husband’s liability to them for legal fees and outlays. They say the husband still owes them more money for the work they did for him.
The firm of solicitors who formerly represented the husband seek an order from this Court that the firm of solicitors who now act for the husband repay the sum of $93,000 to their trust account, so as to preserve the first firm’s ability to recover money still owed to them by the husband for the work they did for him. That first firm also seeks an order that the latter firm pays them the sum of $61,344.50 being monies the first firm asserts the latter firm now owes them. It also seeks an order that the husband pay it that same amount being monies they assert he owes to them as well. The application also seeks a number of other orders as to costs.
Determination of the application raises a number of issues. I consider those to be:
(i)Does this Court have the jurisdiction and the power to make any of the orders the Applicant firm of solicitors seeks when the substantive parenting and property adjustment proceedings that were before the Court have been finalised?
(ii)If the Court does have the jurisdiction and the power to do it, should it make the order that the husband’s current solicitors pay $93,000 (or any other amount) into their trust account?
(iii)If the Court does have the jurisdiction and the power to do it, should it make the order that the husband’s current solicitors pay the Applicant firm the sum of $61,344.50 (or any other amount)?
(iv)If the Court does have the jurisdiction and the power to do it, should it make the order that the husband pay the Applicant firm the sum of $61,344.50 (or any other amount)?
(v)What then of the other costs applications?
Some Background Facts
XX Firm (“the Applicant firm”) is the firm of solicitors who previously acted for the husband, Mr Baglio, in the parenting and property adjustment proceedings pursuant to the Family Law Act 1975 (Cth) (“FLA”) that were conducted initially in the Federal Magistrates Court (as it then was) and then in this Court. The Applicant firm represented the husband in those proceedings for a period of time during 2010 whilst the proceedings were still in the Federal Magistrates Court. The Applicant firm also acted for the husband during the same period of time in relation to domestic violence proceedings pursuant to State legislation in the State Magistrates Court.
The Applicant firm and the husband fell into dispute and the Applicant firm ceased acting for the husband around the end of 2010 whilst the parenting and property adjustment proceedings remained on foot in the Federal Magistrates Court.
ZZ Firm (“the Respondent firm”), a firm of solicitors of which the Second Respondent, Mr ZZ, is the Principal, began acting for the husband in respect of the same parenting and property adjustment proceedings very early in 2011. At around that time, Mr ZZ and Mr XX, the Principal of the Applicant firm, had communication and Mr XX put Mr ZZ on notice at that time that the Applicant firm was still owed money by the husband for work they did for him and that they intended to take legitimate steps to recover it.
Soon thereafter, the Applicant firm commenced proceedings in the state Magistrates Court in which they sued the husband for the money they said he owed them. The Respondent firm did not represent the husband in those proceedings but gave him some advice in respect to them from time to time. The husband contested those proceedings with vigorous determination but little apparent prospects of success.
On 14 July 2011, the state Magistrates Court ordered, pursuant to rule 743 of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”), the disputed costs be assessed, and the husband was ordered to pay the Applicant firm’s costs of the application for that order in the amount of $535.
During 2011, when those debt recovery proceedings were pending in the Magistrates Court, the Applicant firm sought an undertaking from the husband that he would pay them the money he owed them out of any money he was ultimately paid in the property adjustment proceedings that were still pending in the Federal Magistrates Court. They sought that undertaking through correspondence with the Respondent firm. The husband would not give the undertaking that the Applicant firm sought, so the Applicant firm then made application to intervene in the property adjustment proceedings in the Federal Magistrates Court.
On 21 September 2011, that application for leave to intervene was before Federal Magistrate Coates (as his Honour then was). The husband was represented on that day by the Respondent firm. The wife was represented by another firm and the Applicant firm was represented by counsel. The matter was resolved by the giving of an undertaking to the court by the husband and by interim consent orders.
The husband’s undertaking to the Court was:
That the husband shall keep [the Applicant firm] appraised, in writing, of the progress of the matter and/or any settlement negotiations or terms of settlement being entered into between the husband and wife with respect to property.
The orders that the Court made that day with the consent of the parties were as follows:
1.That the Intervenor [the Applicant firm] be granted leave to intervene in the proceedings.
2.That any entitlement of the husband to any property settlement outcome or s.79 property adjustment order be paid to the Trust Account of [ZZ Firm], pending determination of the Magistrates Court of Queensland proceedings M….
3.That the husband and wife be hereby excused from the requirement to serve upon the Intervenor Court documents filed in the proceedings.
4.That the Intervenor’s costs be reserved.
Federal Magistrate Coates (as his Honour then was) then transferred the proceedings to this Court.
Later that year (or even very early in 2012) a legal costs assessor filed an Amended Certificate of Costs pursuant to rule 737 of the UCPR in the state Magistrates Court. The costs assessed as owing by the husband to the Applicant firm were $16,547.50.
After several months, a judgment issued by consent in the state Magistrates Court on 30 August 2012. The Court ordered, by consent, as follows:
1.Judgment for the [Applicant firm] in the sum of $16,547 plus costs on the standard basis.
2.Proceedings including the counterclaim dismissed.
3.The court notes the agreement of the parties that the [Applicant firm] will accept the sum of $14,500 in full and final satisfaction of the judgment if that sum is paid by the [husband] by 4:30 pm on Tuesday 4 September 2012.
Paragraph 3 of those orders is, at least in my view, not really an order of the Court but rather a notation of an agreement reached by the parties.
The trial of the parenting and property adjustment proceedings in this Court took place on 3, 4 and 5 September 2012 before Justice Murphy. The Applicant firm, although having been granted leave to intervene in those proceedings and being a judgment creditor of the husband at that time, did not appear at that trial. Furthermore, the list of liabilities of the husband and the wife that Murphy J included in his reasons for judgment did not include any debt to the Applicant firm. Mr ZZ deposes in the affidavit he swore and filed in the application before me that “no mention is made in the judgment of the [Applicant firm] having any interest in the proceedings.”
There is no evidence that the Applicant firm even knew that the trial was taking place at that time. Included in the evidence relied upon by the Applicant firm is evidence that the husband, for whom the Respondent firm was acting, did not comply with his undertaking given to the Federal Magistrates Court on 21 September 2011 to keep the Applicant firm appraised in writing of the progress of the matter. Certainly, neither Mr ZZ nor the husband have deposed to facts that would demonstrate that the husband complied with that undertaking. Neither Mr ZZ nor the husband depose to having caused Murphy J to be informed that the Applicant firm had intervened in the proceedings or that the husband had disclosed the debt to the Applicant firm or the Applicant firm’s interest in the property adjustment proceedings to his Honour. I am satisfied that the Applicant firm was not advised that the trial of the matter was being heard over 3, 4 and 5 September 2012 by Justice Murphy.
At the same time as the trial before Murphy J was progressing, notwithstanding some very strange conduct by the husband in which he purported to pay the Applicant firm the sum of $14,500, the husband did not meet his obligation under the noted agreement with the Applicant firm and the judgment in the Magistrates Court proceedings between the husband and the Applicant firm stood at $16,547 plus costs on the standard basis.
The husband then brought an application to set aside that judgment, asserting that the signature on the consent document was not his. Before that was heard, Murphy J gave judgment on 27 February 2013 in the parenting and property adjustment proceedings that he had determined. Relevantly, his Honour’s orders included an order that the wife pay to the husband the sum of $93,000 within 42 days of the date of his Honour’s orders.
On 7 March, 2013, the Applicant firm, clearly by then having become aware of Murphy J’s judgment, wrote to the Respondent firm requesting that they confirm that they would comply with Order 2 of the orders of the Federal Magistrates Court of 21 September 2011 by retaining the amount of $93,000 in their trust account until the finalisation of the state Magistrates Court debt proceedings. The Respondent firm did not reply.
In communication between the Applicant firm and the wife, the wife advised the Applicant firm of her intention to deposit the sum of $93,000 into the Respondent firm’s trust account around Friday 5 April 2013.
On 20 March 2013, the Applicant firm again wrote to the Respondent firm, referring to their letter of 7 March 2013, and again requesting an undertaking from Mr ZZ not to release or otherwise deal with any of the money that the wife was going to deposit to the Respondent firm’s trust account until the Magistrates Court proceedings were finalised. The same day, Mr ZZ wrote back to the Applicant firm advising that there had been no response to the letter of 7 March 2013 as no such letter had been received.
Curiously, in that email from the Respondent firm to the Applicant firm, Mr ZZ says “nor do we have a copy of the Orders you refer to dated the 21 September 2011. We cannot comment therefore on the content of the Orders.” That is an extraordinary response given the Respondent firm was the firm representing the husband when the orders referred to dated 21 September 2011 were made, by consent.
In another email dated 21 March 2013 from Mr ZZ to the Applicant firm, Mr ZZ said “I have read the Order and I understand what it means.” He also stated “we have received no funds in regards to the [Baglio] Family matter and there has been no indication from Cooper Family Lawyers that the wife will pay the money ordered by the Court.”
On 21 March 2013, the Respondent firm received a notice from the Child Support Registrar pursuant to s 72A of the Child Support (Registration and Collection) Act. It was a notice requesting payment of the husband’s child support debt from monies to be received by the husband.
On 27 March 2013, the Respondent firm wrote back to the Child Support Registrar informing that the firm did not yet hold any money for the husband and, further, that the husband owed the respondent firm the sum of $121,996.30 for costs and disbursements. They advised that all of the funds that the firm was likely to receive on behalf of the husband “are subject to a solicitor’s lien for work performed and disbursements paid on behalf of [the husband].” The Child Support Registrar subsequently withdrew the notice. The Respondent firm’s intentions with respect to the money at that time are abundantly clear.
On 28 March 2013, the Applicant firm wrote to the Respondent firm and asked them to confirm that they would “strictly observe the terms of the Order of the Federal Magistrates Court made on 21 September 2011, and not release or otherwise deal with any of the funds, (retaining the total money that is paid to you by [the wife]) the [sic] [state] Magistrates Court proceedings have been finalised completely”. No response from the Respondent firm was received.
On 3 April 2013, the Applicant firm sent a letter to the Respondent firm and told them that the wife had informed them that she was going to pay $93,000 to the Respondent firm’s trust account on 5 April 2013. They again asked the Respondent firm to confirm in writing the undertaking of Mr ZZ that the funds would be retained until the state Magistrates Court proceedings had been finalised which they said would include the Court handing down its decision on the husband’s application to set aside the judgment and the total legal costs owing by the husband to the Applicant firm being assessed by a costs assessor and a costs certificate filed in the Court.
On 3 April 2013, the Respondent firm sent an email back to the Applicant firm informing them that Mr ZZ is not required to provide anyone with an undertaking and asserting that the request to provide one was “insulting”. Mr XX deposes to having been comforted by that response, believing it conveyed intent to ensure that paragraph 2 of the Orders of 21 September 2011 would be complied with.
On 9 April 2013, the state Magistrates Court dismissed the husband’s application to set aside the judgment in that Court’s proceedings and ordered the husband to pay the Applicant firm’s costs of that application on an indemnity basis. Those costs and the ‘standard costs’ ordered to be paid by the husband in respect of the substantive debt recovery proceedings were still to be assessed.
On 11 April 2013, the Applicant firm again wrote to the Respondent firm telling them of the outcome of the proceedings in the Magistrates Court and that costs were still to be assessed. They advised that once the costs were assessed, the husband would be asked to authorise the Respondent firm to release the total judgment sum and assessed costs to the Applicant firm with failure to do that resulting in a warrant of redirection to be issued to the Respondent firm in respect of the monies held in their trust account.
On that same day, 11 April 2013, the Respondent firm wrote back to the Applicant firm. In that letter, they noted that the husband’s application to have the judgment set aside was dismissed and that the husband was ordered to pay the Applicant firm’s costs on an indemnity basis with the quantum to be determined. They further acknowledged the Applicant firm’s intention to demand payment of the judgment sum from the Magistrates Court proceedings plus assessed costs from the husband and failing that then to seek it be paid from the money the wife paid into the Respondent firm’s trust account. The Respondent firm advised the Applicant firm that the husband has no entitlement to those funds “due to his indebtedness for legal expenses” to the Respondent firm. They further advised that the letter they were responding to failed to demonstrate a legal basis on which any indebtedness of the husband to the Applicant firm should take priority over his indebtedness to the Respondent firm. They asked for details of any such assertion to be provided.
On the same day, 11 April 2013, the Applicant firm wrote back again to the Respondent firm. Amongst other things, they said:
The legal basis upon with the indebtedness of [the husband] to pay our firm in priority over his indebtedness to pay your firm is the Order of the Federal Magistrates Court dated 21 September 2011.
You obviously are entitled to commence proceedings against [the husband] to recover your fees, however you would not be able to deal with any of the funds retained in your trust account and apply those funds towards your firm’s account. To do so would be in clear and unambiguous breach of Order (2) of the Federal Magistrates Court Order dated 21 September 2011. You could only deal with any funds that remain once the Magistrates Court proceedings have been finalised (which means that our firm has been paid and we have filed a Notice of Discontinuance).
On 17 April 2013, the Respondent firm, without any further communication with the Applicant firm or any notice of its immediate intent, transferred all of the amount of $93,000 out of its trust account “to pay Counsels fees and the invoices which had been sent to the husband during the course of the matter”.
On 7 June 2013, a Judicial Registrar in the state Magistrates Court ordered that the husband pay the Applicant firm’s costs of the husband’s application to set aside the judgment in that court on an indemnity basis fixed at $4,500. Although an assessment of the costs said to be owed by the husband to the Applicant firm on a standard basis had been prepared and filed in the state Magistrates Court prior to that determination, the Judicial Registrar determined the indemnity costs in respect to the unsuccessful application of the husband to set aside the judgment. It seems that the question of the standard costs of the substantive matter were not before the Judicial Registrar at that time.
On 11 June 2013, the Applicant firm sent a letter to the Respondent firm asking for payment of the judgment debt, the assessed indemnity costs, interest and the standard costs that had been assessed by the Applicant firm’s costs assessors. It was a total of $59,249.86. On that same day, 11 June 2013, the Applicant firm wrote to the husband demanding he pay them the same amount.
On 13 June 2013, Mr XX had a conversation with the husband who indicated he was disputing the cost assessor’s standard costs assessment of the amount owed. Further action would be needed in the state Magistrates Court matter before the costs issue was finalised.
There was then an email exchange between the two firms in which Mr ZZ advised Mr XX that the Respondent firm has “never agreed with your interpretation of the Family Court order and that has not changed.” Mr ZZ also advised that the Respondent firm did not hold any funds for the husband and that the funds had been held by the firm “until the matter between [the Applicant firm] and [the husband] was decided.” Mr ZZ made it clear to Mr XX that he believed he had complied with the orders and had not been required to hold the sum of $93,000 any longer in his trust account.
These proceedings were then commenced by the Applicant firm.
Does this Court have the jurisdiction and the power to order that the Respondent firm and/or Mr ZZ pay or reinstate to the Respondent firm’s trust account the sum of $93,000?
Counsel for the Applicant firm initially submitted that the Court had power to make the order sought under s 80 of the FLA. I respectfully do not accept that. It has long been held that s 80 is not itself a head of power but just gives the Court the ability to exercise various powers when making orders pursuant to another section of Part VIII of the FLA that actually confers power on the Court, such as s 74, s 78 or s 79.[1] This order the Applicant firm seeks is not an order under one of those sections.
[1] King and King (1977) FLC 90-299 at 76,580.
The Respondent firm was not a party to the property adjustment proceedings to which the Applicant firm joined as an Intervenor. Those property adjustment proceedings are now concluded, final orders having been made. Prima facie, then, the Respondent firm and its Principal, Mr ZZ, as non-parties to those proceedings, do not appear liable to orders such as this one sought by the Applicant firm.
However, the Full Court consisting of Evatt CJ, Pawley and Barblett JJ observed in Collins and Collins (1985) FLC 91-603 that there are exceptions to the principle that non-parties are not susceptible to costs orders. Their Honours observed that the most important of these exceptions is the power to order a solicitor of one party to pay costs incurred by the other party. Their Honours went on to state:
This arises from the inherent jurisdiction of the Court over solicitors in their capacity as officers of the Court and from the duty of the solicitor to conduct litigation with propriety. The jurisdiction has been held to be both punitive and compensatory in nature.
The Full Court in Collins[2] went on to say:
The principle that a solicitor act with propriety in the conduct of litigation, both towards his client and the other party, is one of general application. There is nothing in Australian law or in the Family Law Act which would displace this principle in its application to proceedings in the Family Court.
[2] (1985) FLC 91-603 at 91-603.
Although the first of the particular orders that the Applicant firm seeks is not an order that the Respondent firm or and/or Mr ZZ pay costs, it is the inherent jurisdiction over solicitors in their capacity as officers of the Court to which counsel for the Applicant firm ultimately referred as the source of the power the Court is being asked to exercise in making this particular order.
In this particular case, for the Applicant firm, it is submitted that the Respondent firm has acted without propriety in the conduct of the litigation. It is submitted that paragraph 2 of the Orders of Federal Magistrate Coates (as he then was) of 21 September, 2011 obliged the Respondent firm to hold any funds the husband received in the property adjustment proceedings (such as the $93,000 that the wife was ordered to pay him) in their trust account until the proceedings in the Magistrates Court of Queensland in which the debt was sought to be recovered were concluded and that, with notice that those proceedings had not yet been determined, the Respondent firm acted in flagrant disregard of the requirement of that earlier Order. It is submitted that the impropriety of the Respondent firm in so acting attracts the Court’s exercise of power derived from its inherent or implied jurisdiction to control its own process, to supervise the orders of the family law courts and supervise the conduct of solicitors in proceedings before the Court. It is submitted that the power extends to ordering the solicitor who has so acted to restore matters to what they were.
There is another limb to the Applicant firm’s argument as well. It is submitted that the Applicant firm had an equitable interest in the fruits of the judgment (the $93,000) which crystallized prior in time to that which the Respondent firm had and which, thereby, had priority over the Respondent firm’s interest in those fruits. As I understand this limb of the argument, the Applicant firm submits that this Court, using that same inherent or implied jurisdiction over solicitors in their conduct of litigation in the Court, can and should make the order sought, particularly where the Respondent firm had notice of the Applicant firm’s prior interest.
I will turn to consider this second limb of the Applicant firm’s argument first.
It has been accepted that where as a result of property adjustment proceedings in which a solicitor has acted for a client, the client obtains a judgment or compromise for the payment of money, the solicitor, upon the happening of the relevant event (the making of the order for the payment), acquires an equitable right to have his costs paid out of the money to which the client became entitled to receive by reason of the solicitor’s exertions on behalf of the client in the litigation.[3] Such a right exists without the necessity for an application to the Court. The equitable right is acquired by the solicitor at the time when the relevant moneys become payable to the client.[4]
[3]See Twigg and Twigg v Keady and Keady (1996) FLC 92-712 applying Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 and also Worrell v Power (1993) 46 FCR 214
[4]Twigg and Twigg v Keady and Keady (supra) per Finn J at 92-712, with which Fogarty J agreed.
Nothing in the Trusts Accounts Act 1973 (Qld) takes away or affects any lawful claim which any person has against or upon any moneys held in a trust account or against or upon trust moneys before such moneys are paid into a trust account.[5]
[5]Trusts Accounts Act 1973 (Qld) s 11.
In this particular case, it can be seen that two firms of solicitors, both having acted for the client in the property adjustment proceedings that ultimately produced the judgment, have acquired equitable rights to have their costs paid out of the money to which the client became entitled by reason of the exertions of both sets of solicitors in that litigation. The facts in this case are, in my view, distinguishable from the facts in the decision of Philippa Power & Associates v Primrose Couper Cronin Rudkin[6]in which both firms had acted for the same client in proceedings in this Court. In that case, the proceedings in which the first firm in time to act for the client had acted had terminated without any satisfactory result being achieved for the debtor client who was then sued for unpaid fees by the firm who acted initially. That firm then tried to enforce the judgment they obtained in the Magistrates Court against a fund that the second firm in time had managed to secure for the debtor client in subsequent litigation. The Queensland Court of Appeal held that the equitable interest of the second firm in time prevailed over the judgment debt of the first firm. The first firm had not exerted itself in producing the fruits of the judgment subsequently obtained by the client. Only the second firm had.
[6] [1997] 2 QdR 266.
However, in this case, both solicitors having had a role in producing by their exertion the judgment the debtor client obtained in the proceedings, I consider they both had competing equitable interests in that money when it went into the Respondent firm’s trust account. The extent of the Applicant firm’s equitable interest in that fund, being the equal of its costs for acting for the husband in respect of the property adjustment proceedings before their retainer was terminated, is not presently clear. The judgment it obtained in the state Magistrates Court is for legal costs and outlays for acting for the husband in domestic violence proceedings, parenting proceedings and property adjustment proceedings, not just for those for acting in the property adjustment proceedings. However, the equitable interest comes into existence at the time of the judgment that gives rise to the fund even if that is before the actual amount of the actual costs owed to the solicitor have been determined.[7]
[7] See again the same authorities referred to in footnote 3 hereof.
The Full Court of this Court in Twigg[8] held that a solicitor’s equitable interest in such a fund is good against an assignee of the fund who takes with notice of the solicitor’s interest and also held that “it would seem beyond doubt that [such an assignee] would hold the funds subject to the solicitors’ equitable interest” if found to have acted with the debtor in a way which might be described as “collusively to deprive the solicitors of their moneys”.
[8] See Finn J at 83,558 -83, 561 with which Fogarty J agreed.
In the present case, the Respondent firm, of course, would assert that having also had an equitable interest in the fund, they have acted to convert it to a legal interest by transferring all of the money from their trust account to pay their accounts. But is that action good against the Applicant firm’s equitable interest?
It is a question of determining priority. Applying the principle that a person who receives the fund with notice of the solicitor’s equitable interest holds the fund subject to that equitable interest, the Respondent firm, having clearly had notice of the Applicant firm’s interest would hold subject to that interest. The Respondent firm did, though, have their own equitable interest in the fund before they transferred all of the money from their trust account. How would those competing equitable interests stand against each other? Prioritising competing equitable interests is done by determining where the better equity lies and if the merits are equal, priority in time of creation is considered to give the better equity.[9]
[9] Latec Investments Ltd v Hotel Terrigal Pty Ltd (In Liquidation) (1965) 113 CLR 265.
In the circumstances of this case, I am not prepared to accept that the equitable interests of the two firms were equal when they arose, even if the Respondent firm’s equitable interest in the fund arose at the same moment in time as the Applicant firm’s interest in that fund. I am persuaded to that view because:
(i)from the moment the Respondent firm began acting for the husband in the same property adjustment proceedings that the Applicant firm acted for him in, they were aware of fees said to be owed by the husband to the Applicant firm and of an intent on the part of the Applicant firm to seek to recover them;
(ii)the Respondent firm was well aware of the proceedings going on in the state Magistrates Court in which the Applicant firm was seeking recovery of its fees from the husband;
(iii)the Respondent firm, I am satisfied, did not ensure that the husband, who they acted for in the Federal Magistrates Court and this Court, honoured his undertaking given to the Federal Magistrates Court to keep the Applicant firm appraised in writing of the progress of the property adjustment proceedings;
(iv)the Respondent firm, I am satisfied, did not ensure that the husband disclosed the existence of his debt to the Applicant firm or that firm’s intervention as a creditor in the property adjustment proceedings to this Court in the proceedings heard by Murphy J;
(v)the Respondent firm had notice of the judgment in favour of the Applicant firm obtained in the state Magistrates Court prior to their own equitable interest actually arising;
(vi)the Respondent firm had notice before the fund came into their trust account of the Applicant firm’s intention to enforce their claim to their own equitable interest in the fund.
In Twigg[10] the Full Court considered that the solicitor could utilise s 85 of the FLA (as the present s 106B then was) to have a third party divested of funds it had received that were subject to the solicitor’s equitable interest where costs taxation proceedings in this Court were still on foot as between the solicitor and his client. In this particular case, however, no reliance has been placed on s 106B by the Applicant firm, so I will not consider its potential application in the circumstances any further.
[10] (Supra) per Finn J at 83,563-83,565 with which Fogarty J agreed.
In that case of Twigg, the moneys (in which the solicitors claimed their equitable interest) had moved from the hands of the party who obtained them by judgment into the hands of third parties. To recover them from the third parties, the solicitor probably had to seek to rely on the Court’s powers contained in the statutory provision that was the former equivalent of the current s 106B. In this case under consideration, the funds that were subject to the solicitor’s equitable interest have gone into the hands of another solicitor who acted in the proceedings in this Court who is subject to this Court’s inherent or implied jurisdiction to supervise the conduct of the solicitors who appear before it.
In the circumstances, I am satisfied that the conduct of Mr ZZ and the Respondent firm, particularly as set out in paragraph 57 above, and then in ensuring that all of the funds that were subject to the Applicant firm’s equitable interest were transferred out of the Respondent firm’s trust account to the Respondent firm’s own use, fell short of the standards of professionalism and propriety expected of an officer of this Court. I am satisfied that alone justifies the Court using its inherent or implied power to order the Respondent firm and/or Mr ZZ to act in a way that restores matters to a position in which the Applicant firm’s interest is at least protected until the matters can be completely finalised.
Before turning to what such orders might actually require, I must consider what I observed to be the first limb of the argument for the Applicant firm being the submission that the Respondent firm and Mr ZZ simply acted in flagrant disregard of paragraph 2 of the orders of the Federal Magistrates Court of 21 September 2011.
For the Applicant firm, it is submitted that paragraph 2 of those earlier orders required the sum of $93,000 to be paid to the Respondent firm’s trust account and held there until the finalisation of the state Magistrates Court proceedings between the Applicant firm and the husband and that those proceedings are not yet finalised, the assessment of the Applicant firm’s costs of the substantive debt recovery proceedings on a standard basis not having yet been determined by the Magistrates Court.
For the Respondent firm, it seems to be conceded that the order required the funds to be held in the Respondent firm’s trust account until the proceedings in the Magistrates Court were concluded. They argue though that on the dismissal of the husband’s application for the Magistrates Court judgment to be set aside, the proceedings were concluded or “determined”, to use the language of paragraph 2 itself.
This case is yet another good example of the difficulties that present in drafting orders that are to take into account uncertain eventualities some distance into the future.
What is the proper interpretation of paragraph 2 of the orders of 21 September 2011?
The particular Magistrates Court proceedings are clearly identified. The question now to be answered involves determining the precise meaning of the phrase “pending determination of” those “proceedings”.
I am satisfied that the meaning of “pending determination” is uncontroversial. I consider that it means effectively “until the final resolution, conclusion or termination of” the “proceedings”. As I understand the parameters of the dispute under immediate consideration, the disagreement between the parties is as to the meaning of “proceedings”.
The term “proceeding” in the context of legal actions taking place in the State Courts of Queensland is defined in the dictionaries that are included in schedules to the Supreme Court of Queensland Act 1991 (Qld) and the Civil Proceedings Act 2011 (Qld) to mean:
A proceeding in a court (whether or not between parties), and includes-
(a)an incidental proceeding in the course of, or in connection with, a proceeding; and
(b)an appeal or stated case.
Clearly, an application to set aside a judgment already obtained in the Magistrates Court is, pursuant to that definition, a proceeding in the court and is indeed part of the same proceeding. Once that application was dismissed were the Magistrates Court proceedings M… determined? In the particular circumstances of this case, I do not consider that they were.
Chapter 17A Part 3 Divisions 1-6 of the UCPRs set out the rights, obligations and procedure for resolving disputes about costs that are ordered to be paid by one party in a proceeding to another party in the proceeding. If there is dispute about the amount of costs the party who is to be paid costs asserts they are entitled to, the UCPRs provide a process for the determination of that dispute that involves application to the Court and a further assessment process. Ultimately, once the dispute is determined pursuant to the procedure provided for in the UCPRs, a registrar of the Magistrates Court makes an order that then takes effect as a judgment of the court itself. That judgment, too, is liable to review on application. I am quite satisfied that such costs proceedings are incidental to, or in connection with, the same proceedings that gave rise to the costs order in the Magistrates Court.
Accordingly, I am satisfied that the Magistrates Court of Queensland proceedings M… were not “determined” at the time that the Respondent firm transferred the entirety of the funds from their trust account in payment of their own costs and outlays. In doing so, the Respondent firm has acquiesced in and facilitated a contravention of paragraph 2 of the orders of 21 September 2011. In the circumstances, particularly having had notice from the Applicant Firm that they were expected to retain the funds in their trust account as required by that order and without having first ensured that their client applied to the Court for discharge of the order or an interpretative ruling, I am satisfied the Respondent firm has acted unprofessionally and with relative impropriety. I am satisfied that the circumstances justify me using powers available to the Court through its inherent or implied jurisdiction to supervise the conduct of solicitors who appear before it to order the Respondent firm and/or Mr ZZ to reinstate sufficient funds at least to the firm’s trust account to protect the Applicant firm’s interests at this point in time.
What orders should be made?
The Applicant firm seeks an order that the full amount of $93,000 is returned to the trust account of the Respondent firm. The amount it says it is actually owed by the husband is $61,344.50 and it has actually asked, alternatively, for an order for that amount to be paid directly to it. However, quite correctly, counsel for the Applicant firm concedes that only some of that amount said by the Applicant firm to be owing to it by the husband has actually been determined at this point in time. I am of the view that it is not appropriate in such circumstances to make any order that such amount be paid by the Respondent firm or Mr ZZ to the Applicant firm. I will not do so.
The husband and the Respondent firm effectively assert that the amount of $25,779.26 is what the husband owes. In fact, just days before the hearing of this application, the husband sent a bank cashier’s cheque for that amount to the Applicant firm. The Applicant firm has not accepted that as payment of the debt it says it is owed by the husband. Just as it is inappropriate for me to determine that the amount owed is $61,344.50, it is similarly inappropriate for me to determine that the amount owed is $25,779.26. The actual amount owed is still to be determined in the state Magistrates Court proceedings pursuant to the procedure provided for in Chapter 17A of the UCPRs.
I cannot determine the actual amount that is owed by the husband to the Applicant firm at this point in time. As such, I do not consider it appropriate to make any order that the husband pay an amount to the Applicant firm at this point in time. I will not do so.
As the entirety of the $93,000 was transferred out of the Respondent firm’s trust account by the Respondent firm with the authority of the husband, I consider that the most appropriate order to make is for the Respondent firm to pay that entire sum back into its trust account and for it to be preserved there pending written agreement of all parties or further order of this Court. Once that amount is back in the trust account and preserved there, the exact amount of the debt owed by the husband to the Applicant firm can be determined by the appropriate procedure before all parties can consider what are the appropriate next steps to take next.
As final orders have been made in the property adjustment proceedings, it might be that the Applicant firm’s real remedy, where they then seek an order that the amount owed to them by the husband be paid to them from the $93,000 that will by then be again preserved in the Respondent firm’s trust account, may actually lie in proceedings brought pursuant to s 79A of the FLA given that they were a creditor who had intervened in the proceedings and who had not been informed of the progress of the matter to trial by the husband as he undertook to do, resulting in a miscarriage of justice.[11] How they proceed is, of course, a matter for them.
[11] See Stevenson v Moloney & Geroff & Boodle[2003] FamCA 1387.
Various costs applications
Counsel for the Applicant firm informed the Court at the hearing that the Applicant firm also sought its costs of and incidental to the Application to intervene in the property adjustment proceedings in the Federal Magistrates Court in 2011. Those costs, as I understand things, are sought against the husband. Those costs were reserved by the orders of 21 August, 2011.
That application was not made, as I see it, on proper notice to the husband as it was not an application included in the Application in a Case filed on 30 July 2013. I will not make any orders in respect of those costs without giving the husband an opportunity to be heard.
I also understand the Applicant firm to be seeking an order that the Respondent firm pay its costs of this Application in a Case on an indemnity basis. I will not make such an order without now giving all parties the opportunity to consider these reasons for judgment as well as the opportunity to be heard in respect of such application.
I certify that the preceding seventy-eight (78) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 19 December 2013.
Associate:
Date: 19 December 2013