Sutherland v Sutherland HC Napier Ap4/01

[2001] NZHC 1262

IN THE HIGH COURT OF NEW ZEALAND
NAPIER REGISTRY AP4/01

BETWEEN DIANNE HELEN SUTHERLAND
Appellant

AND GRAEME JESSE SUTHERLAND
First Respondent

AND SELF HELP LIMITED, SUTHERLAND INVESTMENTS LIMITED, THE BENJAMIN DONNELL SUTHERLAND TRUST, THE NICHOLAS JAMES SUTHERLAND TRUST AND THE DEANNA JANE SUTHERLAND TRUST
Second Respondents

Hearing (at Wellington): 13 December 2001

Appearances: C Withnall, QC, for appellant
First respondent in person
J M Morrison with S Meikle for second respondents

Judgment: 14 December 2001

JUDGMENT OF DOOGUE J

Solicitors:
Farry & Co, Dunedin, for appellant
S Meikle, Wellington, for second respondents

Introduction

[1] This is an appeal from an order of the Family Court preventing the appellant’s lawyers, Farry & Co, from acting further as solicitors or counsel for the appellant (“the wife”) in the proceeding before the Family Court. The wife is at present legally aided.

[2] In the proceeding before the Family Court the wife is the applicant for relief under the Matrimonial Property Act 1976 (“the Act”). The first respondent (“the husband”) is the respondent to those proceedings. The second respondents are trusts and companies (“the trusts”) which hold property in part the subject-matter of the matrimonial property proceedings.

[3] The husband adopted the submissions for the trusts and made no independent submissions.

Background

[4] The wife obtained a judgment against the husband for spousal maintenance. The judgment is unsatisfied. In 1997 the wife apparently assigned part or all of her interest in that judgment to Farry & Co in respect of or on account of their legal fees. Notice of that assignment was given to the husband and the trusts in 1999. Neither the judgment nor the assignment are before this Court. None of the facts relating to them are before this Court. However, it is accepted that, as a result of the assignment and of notice being given of it to the husband, Farry & Co have rights against the husband.

[5] The husband commenced matrimonial property proceedings in 1993. The marriage of the husband and wife was dissolved in December 1994. The husband became bankrupt in September 1997. As a result, the wife brought fresh proceedings under the Act which were challenged by the husband and the trusts as being out of time, but that challenge did not succeed.

[6] Farry & Co’s standing in the proceedings was questioned. In June 2000 Farry & Co made the following document of the wife (“the document”) available to interested parties, including the Family Court:

“I DIANE HELEN SUTHERLAND instruct as follows:

1. I have not dismissed you as my solicitors and confirm that I wish for you to continue to act on my behalf.

2. I did not authorise Graeme Sutherland to communicate with the Family Court on my behalf. Graeme Sutherland has never had authority to communicate with the Family Court on my behalf.

3. I confirm that Farry and Co and only Farry and Co are authorised to conduct negotiations on my behalf and to communicate with the Court and/or any other solicitors in this matter.

4. I have reached no settlement agreement with Graeme Sutherland in respect of spousal maintenance or matrimonial property and in particular the terms he has referred to the Court are not acceptable to me.

5. I require any settlement arrangement between myself, Graeme Sutherland and the third parties to include provision for Graeme Sutherland and/or the third parties to settle with Farry and Co to Farry and Co’s reasonable satisfaction in respect of the spousal maintenance debts (which I have previously assigned to Farry and Co) and my costs and disbursements incurred prior to me obtaining a grant of legal aid.”

[7] At some stage the wife received independent advice from a solicitor unconnected with Farry & Co. It is not clear when.

[S] Because of the content of paragraph 5 of the wife’s document, the trusts, supported by the husband, asked the Family Court to rule on the propriety of Farry & Co continuing to act on behalf of the wife in the matrimonial property proceedings. It was claimed by counsel for the trusts that there was an apparent conflict of interest between the wife and Farry & Co.

[9] As a result of directions made by the Family Court Judge in October 2000, submissions were filed by the husband, counsel for the wife, and the trusts and an affidavit was lodged by the wife. On 19 December 2000 the Family Court Judge gave the judgment which has given rise to the present appeal: Sutherland v Sutherland (2000) 20 FRNZ 281. It is a carefully considered judgment which traverses the background already outlined, the submissions of counsel, the power of the Family Court to make an order where it is alleged there is a conflict of interest between a party to the proceedings before it and that party’s lawyers and the issue of whether there was any such conflict of interest. The arguments raised in respect of these issues and the Judge’s views are best discussed in the context of the issues and arguments put before this Court. The Judge reached the conclusion that Farry & Co should not act further as solicitors for the wife and that no member of that firm should act further as her counsel. Certain ancillary orders of no moment for the present appeal were also made.

[10] Although it is questionable whether there was ever an interlocutory application before the Family Court, the parties agree for present purposes that the material put before the Family Court should be treated as such an application and the order made by the Family Court be treated as an interlocutory order capable of appeal to this Court. That is undoubtedly a practical approach as in one way or another the issues which have arisen could have been brought to this Court.

The principles applicable to this appeal

[11] This appeal is against the exercise of a purported power by a Judge of an inferior court in the control of that court’s process. Such a decision must of its nature be a discretionary decision. The consequence is that the appeal in this Court must proceed upon the basis that the wife must show that the Judge either had no power or exercised the power upon a wrong principle or took into account irrelevant considerations or failed to take into account relevant considerations or was plainly wrong.

Points on appeal

[12] The wife’s points on appeal are:

1. The Family Court had no jurisdiction to enquire into an alleged conflict of interest between a client and her solicitor at the instance of a party to whom the solicitor owes no duty and contrary to the wishes of the solicitor’s client.

2. In any event, on the facts as found by the learned Family Court Judge, there was and could be no conflict of interest (or any appearance of conflict of interest) between the [wife] and her solicitors. In particular:

(a) The position of the client regarding settlement as set out at paragraph 40 of the learned District Court Judge’s decision is more advantageous to the solicitor than the solicitor’s position as set out in the same paragraph, and the instructions of the client therefore do not conflict with, but advance, the solicitor’s interest in being paid outstanding fees; and

(b) The existence of a debt for outstanding legal fees could not possibly give rise to a conflict of interest between the [wife] and her solicitor in the solicitor’s conduct of the substantive matrimonial property proceedings before the [Family] Court.

[13] The points of appeal appear to give rise to the following issues:

1. Has the Family Court power to enquire into an alleged conflict of interest between a client and that client’s legal advisers and, if so, when?

2. Did the Family Court have power in the present instance to intervene?

3. Can there be a conflict of interest between a client and a legal adviser where

(a) The client’s solicitors have rights against a party to the client’s claim; and

(b) The proposed settlement of the client’s claim is made dependent upon provision being made to the satisfaction of the legal advisers for the payment of their fees?

First issue: Has the Family Court power to enquire into an alleged conflict of interest between a client and that client’s legal advisers and, if so, when?

[14] The Family Court and the District Court, like other courts which are constituted by statute, do not possess inherent jurisdiction. See, for example, Prior v Parshelf 45 Ltd (In Receivership) [2000] 1 NZLR 385, (CA), para [32], where the Court of Appeal held that it had no inherent jurisdiction.

[15] The inherent jurisdiction of the High Court to regulate the conduct of barristers and solicitors arises from their being officers of this Court and because of this Court’s inherent jurisdiction, this being the only New Zealand court with an inherent jurisdiction: see Nicholls v Registrar of the Court of Appeal [1998] 2 NZLR 385, 428; Gazley v Lord Cooke of Thorndon [1999] 2 NZLR 668, 674.

[16] There is no question that the Family Court has no inherent jurisdiction to regulate the conduct of barristers and solicitors. The issue is rather whether it has inherent powers entitling it to do so and, if so, when.

[17] It is not in dispute that the inherent powers of the inferior court extend to regulate the proceedings of the court so as to prevent an abuse of process. In Cocker v Tempest (1841) 7 M & W 502, 503-504; 151 ER 864, 865, Alderson B said this:

“The power of each court over its own process is unlimited; it is a power incident to all Courts, inferior as well as superior; were it not so, the Court would be obliged to sit still and see its own process abused for the purpose of injustice.”

[18] Nor is it in dispute that such an abuse of process can arise where counsel has a clear conflict of interest. In such cases the principle is equally well established. In Davies v Clough (1837) 8 Sim 262, 267-268; 59 ER 105, 106, Shadwell VC said this:

“The cases, however, appear to afford this general principle, namely, that all Courts may exercise an authority over their own officers as to the propriety of their behaviour; for applications have been repeatedly made to restrain solicitors who had acted on one side from acting on the other, and those applications have failed or succeeded upon their own particular grounds, but never because the Court had no jurisdiction.”

[19] That those old statements of the law continue to be the law in New Zealand is confirmed by statements of the Court of Appeal. In McMenamin v Attorney-General [1985] 2 NZLR 274 (CA), Somers J, in giving the decision of the Court, said this at 276:

“An inferior Court has the right to do what is necessary to enable it to exercise the functions, powers and duties conferred on it by statute. This is implied as a matter of statutory construction. Such Court also has the duty to see that its process is used fairly. It is bound to prevent an abuse of that process. All this is well understood. See eg Moevao v Department of Labour [1980] 1 NZLR 464, New Zealand Social Credit Political League Inc v O’Brien [1984] 1 NZLR 84, and Bryant v Collector of Customs [1984] 1 NZLR 280. The latter case and Bosch v Ministry of Transport [1979] 1 NZLR 502 were both concerned with inferior Courts.”

[20] That is also consistent with an earlier statement by the Court of Appeal in Clifford v Commissioner of Inland Revenue [1966] NZLR 201, 203.

[21] Such statements are equally consistent with the dicta of Lord Morris the House of Lords in Connelly v Director of Public Prosecutions [1964] AC 1254 at 1301; [1964] 2 All ER 401 at 409, where he said:

“There can be no doubt that a court which is endowed with a particular jurisdiction has powers which are necessary to enable it to act effectively within such jurisdiction. I would regard them as powers which are inherent in its jurisdiction. A court must enjoy such powers in order to enforce its rules of practice and to suppress any abuses of its process and to defeat any attempted thwarting of its process.”

[22] These statements have been followed by this Court in such cases as Department of Social Welfare v Stewart [1990] 1 NZLR 697 and Watson v Clarke [1990] 1 NZLR 715. Those cases refer to other decisions of this Court where this Court has confirmed that the District Court, and hence the Family Court, does have power to prevent abuse of its own process and to see that its process is used fairly.

[23] As already noted, the power of this Court to control its own officers is not in question. As McKay J, with whom Cooke P and Richardson J agreed, in Black v Taylor [1993] 3 NZLR 403, 418, said:

“It is essential to the functioning of the Court as a Court of justice that it must be able to prevent a barrister acting as counsel in a matter in which he has a conflict of interest, or in which he appears to have a conflict of interest such that justice will not be seen to be done. The fact that a barrister who so acted would be subject to the disciplinary powers contained in Part VII of the Law Practitioners Act 1982 does not in any way diminish the inherent jurisdiction of the Court to control proceedings before it in such a way as to enable justice to be done and to be seen to be done.”

[24] In the present case the trusts and the Family Court Judge placed reliance not only on Black v Taylor but on what was said by Thomas J in Kooky Garments Ltd v Charlton [1994] 1 NZLR 587, 590:

“The Court has an inherent jurisdiction to supervise the conduct of counsel in Court, and this includes the ability to intervene where it appears that the conduct of counsel outside the courtroom may have a bearing on the conduct of the case. (See eg, Re a Solicitor (1987) 131 SJ 1063n; Davies v Clough (1837) 8 Sim 262; 59 ER 105, Re a firm of Solicitors [1992] 1 All ER 353, and for a recent case in which the perception of a law firm as a single entity was convincingly endorsed, see Mallesons Stephen Jacques v KPMG Peat Marwick (1990) 4 WAR 357, per Ipp J, especially at pp 371-375. For a comprehensive article on the topic, see Miriam Dean and Christopher Finlayson, “Conflicts of interest: When may a lawyer act against a former client?” [1990] NZLJ 43.) Davies v Clough confirmed the general principle that all Courts may exercise an authority over their own officers as to the propriety of their behaviour. . . .

I am primarily concerned in this case with the principle of protecting the integrity of the judicial process. That integrity is undermined if solicitors or counsel do not possess the objectivity and independence which their professional responsibilities and obligations to the Court require of them. (See also Rules of Professional Conduct R 8.10.)”

[25] The Family Court Judge in the present case, after finding that the Family Court had a right to exercise supervisory jurisdictional power over barristers and solicitors in reliance on Kooky Garments Ltd and Black v Taylor, said this:

“[32] . . . Quite apart from that, there seems to me to be no logic in the suggestion that Courts of inferior jurisdiction do not have the same power as any superior Court to supervise the conduct of solicitors or counsel where it becomes clear that such conduct is in breach of counsel’s duty to his or her client and/or to the Court.”

[26] For the wife it is submitted that neither Black v Taylor nor Kooky Garments Ltd was referring to the powers of an inferior court but was clearly referring to the inherent jurisdiction of this Court. It is submitted that barristers and solicitors in New Zealand are not “officers” of the Family or District Courts but “officers” of the High Court. Thus it is submitted that, while this Court has the powers referred to in those cases, the Family Court has no corresponding powers unless it is necessary to prevent an abuse of process. I accept that technically that may be correct. However, the principles expounded in Davies v Clough, Black v Taylor and Kooky Garments Ltd must equally enable an inferior court to control those appearing before it and to apply the same principles to them in respect of proceedings before it. This does not vest in the inferior court any general inherent jurisdiction to regulate the conduct of barristers and solicitors.

[27] It is further submitted for the wife that in any event in Kooky Garments Ltd the Court was concerned with the conduct of proceedings by a firm of solicitors that would amount to an abuse of the process of the Court. The passages upon which reliance was placed by the Family Court Judge, set out above in paragraph [24], were preceded by a discussion of the circumstances of the case. The circumstance involved the legal advisers supporting their own action and advice with “a potential conflict of interest” between them and the client. The Judge held there was an actual conflict. Thomas J made clear, at 589, that what he was saying did not apply “where the advice given is unrelated to liability or the question in dispute”.

[28] It is submitted for the wife that the Family Court Judge here relied upon Kooky Garments Ltd for the proposition that the Family Court had power to regulate the actions of legal advisers outside the courtroom, regardless of whether they had any bearing on the conduct of the proceedings before it.

[29] It is accordingly submitted for the wife that the Family Court Judge failed to examine whether the alleged conflict between the wife and Farry & Co could or would result in the process of the Family Court being abused. It is submitted that instead he proceeded upon the erroneous basis that he had the same wide inherent jurisdiction over the conduct of barristers and solicitors as this Court has. Because of the way the case was put in the Family Court, I see some substance in this submission. An inferior court has no inherent jurisdiction to supervise the legal profession. It only has power to control actions or omissions which impact on its own process in respect of the proceedings before it.

[30] The issue ultimately becomes one which was not, on the face of it, clearly before the Family Court Judge. There is no dispute that he had a power to control any abuse of process of his court. That would be so even if the abuse of process related to something connected with the proceedings outside the courtroom. The question is rather whether the wife’s wishes in respect of any settlement of her claim which was being pursued outside the court could give rise to an abuse of process in respect of the proceeding before the court.

[31] For there to be a power to intervene in the present case, there had to be a step taken by Farry & Co in respect of the proceedings before the Family Court which entitled that court to intervene upon the basis of an apparent conflict of interest and a consequent abuse of process, whether actual or potential.

Second issue: Did the Family Court have power in the present instance to intervene?

[32] The first question for the Family Court not directly addressed before it was whether the wife’s instruction to Farry & Co in respect of the settlement of her claim was an action or omission by Farry & Co in respect of the proceeding before the Family Court that entitled that court to intervene.

[33] For the wife it is said that there was no action by Farry & Co in respect of the Family Court proceedings which could give rise to the Family Court intervening. The action upon which the Family Court relied was a statement by the wife as to her intentions in respect of the settlement of her claim. It was not a statement by Farry & Co. It was not an action by Farry & Co. It related to nothing within the court process but as to the wife’s wishes in respect of the settlement of her claim outside the court process. Any settlement had to be by agreement. If there was no settlement, the wife’s claim would be dealt with within the course of the court process. The court would not normally know what settlement proposals were made by parties. The existence of the settlement proposals could in no way affect the court’s process. Farry & Co had explicitly said they would follow the wife’s instructions. There was no conflict of interest, actual or apparent, in respect of her matrimonial property proceedings.

[34] For the trusts it was submitted that Farry & Co had procured the wife’s instructions and put them before the court and therefore they became part of the court process. As a result of Farry & Co lodging the wife’s document with the court and sending copies of it to the parties, it is said there was the appearance of a conflict of interest between its position and that of the wife. It is submitted that the document purportedly included an entitlement by Farry & Co to stipulate a term for their own commercial advantage, namely the realisation of the value of the assigned debt, as part of any settlement of the matrimonial property proceeding before the Family Court. It is said that the trusts’ initiative in respect of the matrimonial property proceedings before the Family Court was derailed by the response that included a requirement that the spousal maintenance debt be settled at the same time. It is submitted that the court’s process would be abused if it allowed its matrimonial property proceedings to be used as a vehicle for recovery of an unrelated debt claimed by Farry & Co. It is further submitted that the settlement of the proceeding before the Family Court was part of the court process. It is also submitted that the Family Court was fixed with knowledge of the position taken by the wife and therefore entitled, and indeed bound, to intervene.

[35] With all respect to the Judge, I find it difficult to see how the wife’s document relating to her proposals for settlement of her claim can give rise to an apparent abuse of process on the part of Farry & Co. The settlement proposal should never have been before the court. That it was appears to have been the result of some earlier action by the husband which was not spelt out in the judgment of the Family Court. No steps were taken by Farry & Co in respect of this proceeding that conflicted with the wife’s interest. There is no suggestion that the document was not the wife’s document. It was not Farry & Co’s document. All the information before the Family Court made clear that Farry & Co intended to comply with the wife’s instructions. There was nothing to show that Farry & Co intended to pursue any interest of their own in the proceedings that could be in conflict with the interests of the wife.

[36] I have yet to turn to whether there was a possible conflict of interest arising from the assignment of part or all of the spousal maintenance judgment debt to Farry & Co. However, at this stage it is sufficient to say that from the perspective of the wife there was every reason for her to believe that she may have a costs liability to Farry & Co which she should seek to see satisfied in her settlement negotiations with the husband and the trusts.

[37] It is for the parties to determine what they seek in negotiation. It is for the parties to determine whether what they seek extends beyond the subject-matter of the particular litigation or not. It must be common-place that parties will often seek to resolve all outstanding issues between them in negotiations rather than just the subject-matter of the proceedings. The wife in negotiations was entitled to seek an assurance that all her legal expenses would be met. There is no evidence that Farry & Co had any conflict of interest, actual or apparent, with the wife in respect of the determination of the matrimonial property proceedings. If the negotiations did not succeed, those proceedings would continue as before. Farry & Co would have no conflict of interest, actual or apparent, with the wife in the pursuing of those proceedings. The issue of the spousal maintenance judgment would remain separate and not be part of those proceedings.

[38] In those circumstances I can see no action or omission of Farry & Co in respect of the matrimonial property proceedings which could constitute an actual or potential abuse of the Family Court’s process, and no basis therefore for the Family Court to intervene.

Third issue: Can there be a conflict of interest between a client and a legal adviser where (a) The client’s solicitors have rights against a party to the client’s claim; and (b) The proposed settlement of the client’s claim is made dependent upon provision being made to the satisfaction of the legal advisers for the payment of their fees?

[39] I have proceeded thus far upon the basis that there was a justification for the Family Court Judge determining that there was a potential conflict of interest between the wife and Farry & Co arising out of the assignment of part or all of the spousal maintenance judgment to Farry & Co. However, that further issue is far from clear. It turns on questions of unknown fact to which no answer is possible by this Court and no answer was given by the Family Court Judge.

[40] As already mentioned, the assignment is not before the Court. The position in relation to its nature is ambiguous. On the face of the wife’s letter and of parts of the judgment under appeal, the assignment was an equitable assignment to secure Farry & Co’s position in respect of its legal costs. If it was an equitable assignment, it certainly did not discharge the wife’s indebtedness to Farry & Co in respect of such legal costs. In that event the interest of the wife and Farry & Co in achieving recovery of such costs from the husband or the trusts coincided. There could be no conflict of interest. There could be no basis for intervention in any event.

[41] The trusts suggest that the assignment was an absolute one. There is no evidence of this. However, it is submitted that if it is an absolute one then the wife no longer had an interest in the spousal maintenance judgment and there had to be an apparent conflict of interest between her and Farry & Co in respect of the husband’s meeting of the indebtedness in respect of that judgment. The apparent conflict of interest was said to arise because of the prospect that Farry & Co could put its interest in respect of the collection of that judgment debt ahead of the interests of the wife in relation to the settlement of the matrimonial property proceedings.

[42] Because there is no evidence as to the nature of the assignment, there is no basis for finding there was any apparent conflict of interest in respect of it. Even if it were an absolute assignment, it could not impact directly upon the wife’s matrimonial property proceeding. There would be different interests in respect of different subject-matters. An apparent conflict of interest could only arise in respect of the satisfaction of any judgment sum achieved by the wife in respect of the matrimonial property proceedings against the husband. There is no evidence before the Court that enables an evaluation of that issue. There may be no judgment against the husband. He may be penniless. The facts that the spousal maintenance judgment has not been met and that the husband was a bankrupt may point in that direction. However, the present status of the husband is not before the Court. There is nothing before the Court as to the ability of the husband to meet any judgments from which any inference could be drawn as to whether there is any apparent conflict between the interests of Farry & Co and the wife as possibly unsecured creditors of the husband.

[43] The gravamen of the trusts’ complaint was that Farry & Co was seeking to achieve a commercial advantage through realising value for the assigned debt. On the information before the Court there is nothing to support the assertion that any commercial advantage was being sought by Farry & Co in apparent conflict with the position of the wife. Such information as is before the Court suggests that that was not the case. Rather the interests of the wife and Farry & Co appear to coincide. Thus, even if the settlement negotiations were germane to the Family Court’s process, there was no apparent conflict of interest between Farry & Co and the wife entitling the Family Court to intervene.

Conclusions

[44] I must therefore conclude that the Family Court Judge erred in principle in finding that there were actions by Farry & Co germane to the matrimonial property proceedings which could constitute an apparent abuse of process of these proceedings entitling him to intervene and that, in any event, on the facts before him he was wrong in determining there was an apparent conflict of interest between the wife and Farry & Co.

[45] For the reasons given the appeal must be allowed. The order made by the Family Court Judge is discharged. Farry & Co is not barred from acting for the wife in the matrimonial property proceedings.

Costs

[46] The wife is entitled to her costs in the proceedings in this Court and the Family Court against the trusts. They are to be fixed in this Court in accordance with category 2 of the Second Schedule and column B of the Third Schedule of the High Court Rules. The wife is entitled to her reasonable disbursements in this Court, including the reasonable travel and accommodation costs of counsel. In the event of there being any disagreement as to such costs and disbursements, they are to be fixed by the Registrar. In the event of the costs and disbursements in the Family Court not being able to be agreed, they are to be determined by that Court.