Legislation: Legal Profession Act 2006 (ACT), s 394, s 413

Legal Profession (Solicitors) Rules 2007 (ACT), r 20

Cases: Clyne v NSW Bar Association [1960] HCA 40; (1960) 104 CLR 186

AND: LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY

TRIBUNAL: The Hon J F Gallop, QC, Presiding Member

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1. This is an appeal from a decision of the Law Society of the Australian Capital Territory given on 3 June 2008 and which was made in relation to a complaint to the Society by two complainants. The complaint concerned the professional conduct of the legal practitioner in acting for a husband in Family Court proceedings relating to property settlement. The complainants were an individual and a company related to the individual.

2. The wife was represented in the Family Court proceedings by another firm of lawyers in Canberra. The individual complainant was the sister of the wife in the marriage. Neither complainant was ever made a party to those proceedings. However they did become involved in the litigation in a way that will be explained later.

3. The complaint was made in a letter of 23 October 2007 to the Law Society of the Australian Capital Territory, (the Law Society). The letter was written by T A Williams, Solicitor and Barrister of Level 13, 99 Elizabeth Street, Sydney NSW. The complaint was made under s 394 of the Legal Profession Act 2006 (ACT). There was a further letter of 6 November 2007 which corrected two factual errors in the first letter.

4. The original complaint raised an issue of conflict of interest. This issue was not pursued in this appeal.

5. The complaint ran to 17 pages, and was accompanied by a number of attachments. Early in the exposition of the complaint there was a succinct summary of the complaint, as follows.

The conduct of which my client complains may shortly be described as the making of allegations against my client, a non party in family law proceedings, of impropriety, and criminal conduct, in circumstances where (the practitioner) could have had no reasonable basis upon which to believe that there was evidence to support the making of such allegations or that they could have had any relevance to the proceedings in which he was retained other than for the purpose of a concerted campaign against my client's credit and reputation.

6. The complaint goes on to suggest that the practitioner made a number of applications, and issued a number of subpoenas during the course of the proceedings without forensic purpose, thus subjecting his clients to expense. He asserted that this had amounted to an abuse of process.

7. The proceedings that the complaint referred to were property proceedings between husband and wife in the Family Court. The case was heard by Faulks DCJ, with judgment being given on 1 March 2007. His Honour had also managed the case prior to the hearing.

8. The marriage was one of relatively short duration. The parties had commenced living together in 1998, and had married on 10 August 2002. The date of separation was in dispute, but it seems that they separated under the one roof during 2004, continuing to live in the same property until February 2005. There was a dispute relating to the three children of the marriage, however this was resolved in February 2006.

9. The husband sought to include in the property in dispute a holding of 201 shares in the complainant company of which the individual complainant was the substantial shareholder. Another similar number of shares were also held by that complainant's brother. There was a share transfer document transferring the wife's shares to the individual complainant which was dated 1 August 2002. This was days prior to the marriage of the husband and the wife.

10. After the commencement of proceedings in the Family Court, the practitioner filed an application which included an application for leave to serve a subpoena on the complainant company. There then followed a number of applications and interlocutory hearings in the court in the course of which the conduct complained of occurred.

11. The complainants assert that allegations of impropriety and criminal conduct were made against them by the legal practitioner in circumstances in which he could have had no reasonable basis for making them. They rely on the judgment of the High Court in Clyne v NSW Bar Association [1960] HCA 40; (1960) 104 CLR 186 and sub-rules 20.1, 20.2, 20.3, 20.4, 20.6, and 20.7 of the Legal Profession (Solicitors) Rules 2007 (ACT).

12. Sub-rules 20.2, 20.3, 20.4, and 20.6, were referred to by the Law Society in its decision given on 3 June 2008. These rules deal with specific court room circumstances not applicable to the behaviour alleged in the complaint, and the Tribunal is satisfied that they do not form a basis for the complaint.

13. Sub-rules 20.1, 20.7 and the principles referred to by the High Court in Clyne establish that a practitioner in court should have an evidentiary basis in order to found any allegation of fraud or criminal behaviour. The policy considerations supporting this are evident. Practitioners should be prevented from abusing the privilege which attaches to their statements in court.

A practitioner must, when exercising the forensic judgments called for throughout a case, take care to ensure that decisions by the practitioner or on the practitioner's advice to invoke the coercive powers of a court or to make allegations or suggestions under privilege against any person:

(a) are reasonably justified by the material then available to the practitioner;

(b) are appropriate for the robust advancement of the client's case on its merits;

(c) are not made principally in order to harass or embarrass the person; and

(d) are not made principally in order to gain some collateral advantage for the client or the practitioner or the instructing practitioner out of court.

A practitioner must not suggest criminality, fraud or other serious misconduct against any person in the course of the practitioner's address on the evidence unless the practitioner believes on reasonable grounds that the evidence in the case provides a proper basis for the suggestion.

**16. The practitioner was never in a formal sense "addressing on the evidence". He did, however, refer to evidence in making submissions to the judge in the course of the various interlocutory applications. It seems to the Tribunal that r 20.1 is broadly stated and extends to prohibiting a practitioner from suggesting criminality, etc in the course of argument or submissions made in the course of dialogue with a judge subject to the care to be taken referred to in r 20.1.

17. Although the transfer was dated 1 August 2002, it also bore an endorsement indicating that stamp duty had been paid on the transfer in September 2004. The husband and his solicitors perceived that this document raised a number of issues which required investigation. A company search was carried out on 11 January 2005. A copy of it is annexed to the husband's affidavit of 10 May 2005. This indicated that the wife had been a shareholder in the company, but was no longer at the time of the search. The shares had been held beneficially.

18. The practitioner wrote to the solicitors then acting for the wife on 7 February 2005 asserting that there had been a failure to disclose the shareholding in a form 13 financial statement in the family law proceedings. He requested some information about the company and consideration received for the transfer of the shares.

19. There was a conciliation conference on 7 April 2005 and later the practitioner wrote to the wife's solicitor requesting a copy of the share transfer which was then supplied under cover of a letter of 28 April 2005.

20. The practitioner briefed counsel to advise: "... on the prospects of having the wife's share transfer to her sister set aside and 1/3 share of the assets of the company included in the asset pool". The observations to counsel were dated 24 March 2005. Counsel's memorandum of advice is dated 8 April 2005. These documents were admitted into evidence on appeal as exhibit 3.

21. Counsel in fact advised against the suggested course. He said that it was unlikely that $201.00 represented adequate consideration for the share transfer. He concluded his Advice:**

Until further information is received about the circumstances of the transfer of the shares, it would be premature to seek an order in the current proceedings that B holds the shares upon trust for the wife. It may be that upon receipt of the information to be requested that this issue will need to be reconsidered when we are better informed as to the circumstances of the transaction.

**22. As well as the advice of counsel, the practitioner has detailed a number of matters associated with the transfer document which made the husband decide to seek more information about the share transfer transaction. Those issues were referred to in an affidavit by the husband, [14], filed on 11 May 2005. They were:

1. The transfer bore the date 1 August 2002 and was signed by the wife in the name Bertoldo (her husband's surname), when the marriage was not until 10 August 2002.

2. The transfer is stamped 24 September 2004, shortly after a settlement offer had been put.

3. The Annual Return of the company lodged on 14 October 2002 shows the wife as the beneficial holder of 201 shares.

4. Annexure 'H' to the husband's affidavit shows that the change in share holding was not notified until 29 September 2004. It shows that the date of change was 24 September 2004 and that the amount paid for the shares was $201.00.

23. There was a process of investigation of the share holding and transfer by the issuing of subpoenas and making applications to the court. This process did not find favour with Faulks DCJ who made a number of adverse comments and costs orders in the course of the interlocutory process.

24. In a judgment given on 13 February 2006 following an interlocutory application heard on 14 September 2005 at which the husband, the wife, and the complainants were separately represented by counsel, his Honour said, in relation to one of the subpoenas to which objection had been taken:**

The subpoena directed to the Commissioner of News South Wales [Police] was issued because it was asserted by [the individual complainant] at some point in the proceedings that some records that she had kept at her house had been stolen. The purpose of the subpoena it was asserted by [the legal practitioner] was to obtain police records, to see whether there was any corroboration of the reported break-in. In my opinion this is not fishing - it is deep sea trawling. It is a subpoena issued in hope rather than expectation that something might be derived which might and could be used in cross examination. It is an impermissible use of the court's process and the subpoena should be struck out.

**25. Later in the same judgment, his Honour referred to a "serious error of judgment on the part of the husband's lawyers" when speaking of the awarding of costs being on an indemnity basis.

26. The context in which the complaint has arisen was an attempt by a party to unearth information regarding a transaction in which a party to litigation had divested herself of property. The party seeking the information briefed counsel for advice regarding the course of action to be followed. After that, investigations revealed little information and the share holding and subsequent transfer became a side issue by the conclusion of the hearing.

27. It can be seen that there are two issues which are alleged.

28. The first is whether there has been some form of campaign mounted against the complainants, the motivation for which was some form of collateral advantage.

29. The second is whether unjustified allegations of fraud or criminality were made by the practitioner in the course of the proceedings.

30. As to the first, the Tribunal takes the view that there is no evidence of a campaign against either complainant. The Tribunal takes "campaign" to mean taking a concerted course of action against a person, including a company, with a view to inflict some form of harm or discomfort to that person. All steps that were taken by the practitioner were steps available to a practitioner in the course of preparation of a case for hearing and were being actively case managed by the court in the person of the judge who eventually heard the case. The manner of taking those steps did not find favour with the judge and this was reflected in the costs orders he made favouring the complainants. These orders were made on technical grounds, eg that the subpoenas were cast too widely.

31. Pursuant to sub-rule 20.1(c), allegations or suggestions should not be made principally in order to harass or embarrass the complainants. The Tribunal perceives a significant difference between action taken in court with a view to harass or embarrass and action taken in robust advancement of a client's case. The difference is evident from the wording of sub-rule 20.1 itself. There was no evidence that the action that was taken by the practitioner was calculated to achieve any purpose other than the advancement of his client's case. The fact that the judge did not accede to the majority of the applications and that comments of the type referred to above were made are not necessary indications that there was a particular intent on the part of the practitioner of the type mentioned in the sub-rule. There is a total absence of any evidence that there was any intent to harass or embarrass the complainants in taking the interlocutory steps adopted by the practitioner.

32. The indications that there are point to a considered approach commencing with the seeking of advice from counsel. It is possible that the practitioner could be criticised for being over zealous and persistent when others may have seen the futility of further action. That, however, is a matter of the practitioner's judgment rather than going to the factors referred to in sub-rule 20.1. In his judgment, Faulks DCJ made the following observation which has relevance to the complainants' allegation that the actions of the practitioner were baseless:**

I listened carefully to the evidence before the Court and in particular to the cross-examination of the wife and of her sister, B. The physical evidence presented relating to share transfers and the like may reasonably have generated suspicion in the mind of a reasonable and objective bystander. However explanations were offered for each of the relevantly "suspicious" events and on this matter I accept the evidence of B and Ms Gilmore. Their sworn evidence (which I accept) is that the wife has no interest and had no beneficial interest in the company.

**33. It was suggested that the campaign was mounted with the collateral purpose ([12] complainants' submissions on appeal,) of maximising the possibility of an outcome of those proceedings favourable to the client. It seems unlikely that this could be seen as a collateral purpose because that was the result that the practitioner was engaged to achieve.

34. The Tribunal is of the view that no breach of sub-rules 20.1(c) or (d) occurred. More relevantly, the Council of the Law Society was correct in concluding that there was no reasonable likelihood that the practitioner would be found guilty by the Disciplinary Tribunal of either unsatisfactory professional conduct or professional misconduct in relation to this aspect of the complaint.

35. The complainants also asserted that allegations made by the practitioner in the course of conduct of the case in court were "not reasonably justified by the material then available to the practitioner", in the words of sub-rule 20.1(a).

36. The allegation of backdating the share transfer so as to remove the shares from the asset pool of the husband and wife in the family law proceedings was first asserted in the Family Court on 21 July 2005 by Mr Allen, a solicitor in the practitioner's firm, in proceedings to have the shares valued. It was asserted that the consideration for the transfer of the shares from the wife to her sister (the individual complainant) was grossly under market price.

37. By letter dated 21 December 2007, the present complainants made a complaint to the Law Society against Mr Allen. The Council of the Law Society resolved that there was reasonable likelihood that Mr Allen would be found guilty by the Disciplinary Tribunal of unsatisfactory professional conduct. It resolved that Mr Allen be cautioned under s 413 of the Legal Profession Act 2006 (ACT).

38. The context of all statements made by the practitioner in court was justification of the interlocutory orders that were being sought. They were statements to explain what might be found depending what information was revealed as a result of the service of a subpoena, the appointment of an expert, or the answering of written questions. With one exception, they were not allegations or suggestions that certain actions had previously taken place. They were statements of what might have happened and the processes of the court were required to establish what had occurred. There was no characterisation of activity as being fraudulent or criminal. That characterisation was imposed by the complainants.

39. On 1 August 2005 an application was heard by Faulks DCJ in relation to valuation and inspection of properties of the company. During the course of that application, commencing at page 9 of the transcript, the following exchange took place between the judge and the practitioner:**

THE LEGAL PRACTITIONER: If I could address you about it. It's a matter of, as far as I know, agreement and history and record, public record, that the wife was a director of this company. That is not a matter of dispute, though the wife chooses not to file material in this Court deposing to any of these matters. So we only assert what we understand to be acknowledged rather than what is on the record as acknowledged. The fact that she received director's fees therefore doesn't surprise us and wouldn't surprise anybody one would have thought. The real issue before you is not about whether she was a director, it's about whether she owned shares in the company which is not, I gather, in dispute. But moreover, when did she dispose of those shares? We say that the material filed on behalf of the husband demonstrates, and you should be satisfied for the purpose of the orders you're being asked to make today, that she disposed of those shares after the parties separated. We say that it's not more than a prima facie establishment of that proposition for these reasons.

You not only have read the material that indicates that she signed it in her married name when she wasn't married and wasn't using that name, but it was stamped in 2004 after the parties separated, that in the intervening two-year period the company lodged with ASIC annual returns describing her as shareholder and that Mr Barrack's affidavit indicates that she told him that - that the majority shareholder, the wife's sister, told him during 2004 that the wife was a shareholder.

HIS HONOUR: Let me just ask you this, as I did Mr A, and it seems a pity we have to go back over all this territory again. What in the end is your client's claim about this matter, because if I assume all of those things in his favour he [may] or may not get some mileage as far as credit in the final hearing is concerned, but at the end of the day, if you're not applying to set aside the transaction - and that's what Mr A clearly repeated to me twice - we're left with a situation where there has been a transaction which occurred, on your evidence you would suggest, some time in September 2004 whereby an asset that the wife owned at that time was disposed of, apparently for $5000 which was paid to her.

THE LEGAL PRACTITIONER: Can I stop you there. Clearly if the transaction took place in 2004 it wasn't for a consideration of $5000.

HIS HONOUR: I thought it was common ground that that's what the consideration would be.

THE LEGAL PRACTITIONER: There is an assertion that in 2002 the company paid through the wife's bank account to relatives - both the wife and her sister - some money which is asserted to be part of the 5000 consideration. There is no evidence that any money changed hands in 2004 when we say the transfer took place.

HIS HONOUR: As I understand this, complicated by the fact that the documents don't apparently accord with what you suggest, the documents suggest that the transfer was for a consideration of $5000.

THE LEGAL PRACTITIONER: We dispute that.

HIS HONOUR: I'm saying that's what the transaction purports to be. Let's assume that the shares were in fact worth a lot more than that. Where does that get you?

THE LEGAL PRACTITIONER: Your Honour, firstly, the transfer having taken place after the parties separated the Court is confronted with a number of possibilities. We would be, depending on the value or the undervaluing of those shares, entitled, with respect, to assert that it's a Townsend situation.

HIS HONOUR: But the Townsend situation gets you an add-back of $5000.

THE LEGAL PRACTITIONER: With respect, it doesn't if the Court is satisfied upon the hearing of the matter that the consideration expressed on the transfer bears no relationship to the actual value of the shares, nor the consideration that ultimately will pass between the transferor and the transferee. If I give away for a nominal insignificant amount of money an asset which is of substantial value, then it is still possible to assert an equitable interest in that asset.

HIS HONOUR: Unless of course you transfer it to a close relative and the presumption of advancement applies.

THE LEGAL PRACITIONER: We say there's no presumption of advancement between a sister and a sister. Furthermore, your Honour, we say the evidence will show - and at this point in time your Honour is entitled to infer on a prima facie basis - that the transfer has been concocted for the purposes of removing those assets - - -

HIS HONOUR: Yes, but that's an irrelevant consideration. The only consideration, given that you've said you're not going to apply to set aside the transaction, is what value the wife may have as a resource.

THE LEGAL PRACTITIONER: With respect, we say it's property - - -

HIS HONOUR: That's what Mr A told me. So he was wrong, was he?

THE LEGAL PRACTITIONER: He was.

HIS HONOUR: I see. Why is he coming down and presenting this matter in circumstances where I spent the best part of an hour going through this when he wasn't right about what he was putting to me?

THE LEGAL PRACTITIONER: Your Honour, on the last occasion when the matter was before you I had spoken to Mr C and it was my understanding, and I think his, that the matter was to [be] put over to a date for the company to be able to appear.

HIS HONOUR: This is a matter in which the parties have already spent, as they told me on the last occasion - I've forgotten the amount involved, I think it was $50,000 or thereabouts per person - we're not even at the stage of drawing of documents and the amount involved is asserted on both sides to be relatively small. All I can see is we're going to spend a lot of time and a lot of money in dealing with interlocutory questions and finally getting rid of any money that may have been available to look after the children - - -

THE LEGAL PRACTITIONER: I trust your Honour is not addressing those comments to our side.

HIS HONOUR: I'm addressing them to the fact that this is the second time it's before the Court. When it was before me last time I endeavoured to determine what the nature of the dispute was so that we could save any further reiteration of a whole range of things which seemed to be directed to determining what it is the parties were fighting about. It appears now that when I tried to do that I was given information which was not correct.

THE LEGAL PRACTITIONER: Unfortunately that's so, your Honour. This is property, we say, it is property that - - -

HIS HONOUR: So you're saying it's property that's part of the proceedings.

THE LEGAL PRACTITIONER: Yes, your Honour. We say that it will either be added back on a Townsend basis or the wife will be deemed to have - the wife's sister will be deemed to hold those shares in trust for the wife on the basis that this was essentially a gift without consideration.

THE LEGAL PRACTITIONER: You can't do that. Your argument has to be surely this if it's going to be anything, and I want to make sure that I understand it exactly, that we don't go through this yet again and again. If the transaction occurred after separation, then the best you're going to get out of it is that the transaction generated a trust in favour of the wife and that she has an equitable interest in the shares. Isn't that so?

THE LEGAL PRACTITIONER: Well - - -

HIS HONOUR: If you're not applying to set aside the transaction, either the physical amount that was received for the transaction, the consideration that it was either nominally paid or was paid, depending on which construction it's based on, is added back, or alternatively, the property that exists to be dealt with to be added back is the wife's equitable interest by way of what you would describe as a constructed, as opposed to constructive, or resulting trust as a result of the transaction.

THE LEGAL PRACTITIONER: No, with respect, your Honour, we say we're not confined to those alternatives. The value of the shares can be taken into account on a Townsend basis as notional property, the value being the real value, not the nominated value on the share transfer. We say that it's not the case that the husband can be defeated from adducing evidence of the true value of those shares simply because the wife chose to transfer those to - - -

HIS HONOUR: I think your application at the moment is premature. It may mean that the trial has to be adjourned in the middle of it if you are successful in establishing the premise upon which it's based. I do not believe that you have at this point established that premise.

THE LEGAL PRACTITIONER: Your Honour, the relevant history of this matter is that the wife - - -

HIS HONOUR: I know what the relevant history is. The point I'm making is this: the determination of whether or not this has to be added back depends upon someone making findings about the credit of the parties, about the evidence that there is to support it and making a determination about whether the transfer occurred, as is asserted by the wife, prior to the marriage and after the relationship began, or, as you're asserting apparently, that it occurred after the parties had separated. That is an issue I cannot resolve on an interim or interlocutory basis. Upon that depends the rest of it because if in fact the wife's allegation is found to be so, then the rest of your arguments fall flat. The cost of accommodating this, the cost of trespassing on a third party's privacy is not a matter that really is to be undertaken until that's determined.

So the trial may begin, the issue will be determined and if it's necessary there will be an adjournment and no doubt the valuations will occur.

THE LEGAL PRACTITIONER: With respect, we submit that that's not an appropriate course of action. The rules - - -

HIS HONOUR: It may not be an appropriate course of action in your opinion, but I am managing the matter and that's the way I see it as occurring. If you want to appeal my determination, you can do so.

THE LEGAL PRACTITIONER: Your Honour didn't permit me to address you in relation to the relevant history that hasn't been raised.

HIS HONOUR: If there are any other matters that you want to raise, then you should [do] so.

THE LEGAL PRACTITIONER: Thank you. The wife has failed not only to file material in relation to this transaction, both on the last occasion and in response to this application, the wife has failed to respond to requests for particulars of the transaction. That's annexure C to the husband's affidavit; annexures B and C to the first affidavit that I've referred to sworn on 11 May, or filed on 11 May, and annexure D to the affidavit filed on 22 July. Ms B, the transferee, swore an affidavit in the proceedings before you in relation to the subpoena and she did not address that issue at all. In fact she said:

I understand the husband ... (reads) ... this matter in the wife's case.

She had not filed any affidavit material, she assiduously avoided dealing with the share transfer in that affidavit and in any responsive material to date; she hasn't filed anything. Your Honour is left only with the husband's sworn evidence in this regard.

HIS HONOUR: But the husband's sworn evidence is nothing more than pointing to a series of facts and saying, "These do not add up to the transaction occurring when it's asserted that it did".

**40. When this passage is read in the context of the submissions that were made by the practitioner commencing at page 9 of the transcript, it is clear that he had taken care to ensure that there was evidence to base his assertion that the transfer had been concocted. Indeed, his statement discloses his belief that there was a prima facie case for such an inference.

41. The Tribunal is satisfied that the assertion by the practitioner of concoction of the transfer was the making of an allegation or suggestion under privilege against the individual complainant, but that prior to making it, he had taken care to ensure that the suggestion or allegation was reasonably justified by the material then available to him. Further, the Tribunal is satisfied that the suggestion or allegation was appropriate for the robust advancement of his client's case.

42. The Tribunal is satisfied that the complaints are not made out, and that that there was no reasonable likelihood that the practitioner would be found guilty by the ACT Civil and Administrative Tribunal of either unsatisfactory professional conduct or professional misconduct in relation to the matters complained of. The appeal is dismissed.

43. The Tribunal will hear the parties' submissions regarding costs and any other matter which is raised.**

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DATE/S OF HEARING: 9-11 November 2009 PLACE: CANBERRA

DATE/S OF DECISION: 8 January 2010 PLACE: CANBERRA

FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )