Shtrambrandt & Fenedisto Pty Ltd v Brott

Shtrambrandt & Fenedisto Pty Ltd v Brott - [2006] VSC 483 - VSC 2006 case summary — Zoe

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BACKGROUND FACTS

1 Mr Arkady Shtrambrandt and Mrs Elena Shtrambrandt were previously married and are now divorced. In the course of their marriage a number of properties were acquired by them and by a company, Fenedisto Pty Ltd, which is the trustee of a unit trust. The following properties are in issue in the proceedings. First, two properties and an accessory title in Cole Street, Brighton. The Cole Street properties are owned by Fenedisto. Second, a property in Curraweena Road, Caulfield. This property is owned jointly by Mr and Mrs Shtrambrandt. Third, a property in Brighton Road, Elwood. This property is owned jointly by Mr and Mrs Shtrambrandt, apparently on trust for their son, Loryan.

2 There were contested property division proceedings between Mr and Mrs Shtrambrandt in the Family Court of Australia ("the Family Court proceeding"). Mr Issac Brott initially represented Mrs Shtrambrandt in those proceedings; and also in relation to other proceedings in this Court commenced by Mrs Shtrambrandt against her former husband and related entities.

3 On 7 December 2000, Mrs Shtrambrandt signed a costs agreement with Mr Brott relating to the Family Court proceedings. The costs agreement contains a charging clause, under which Mrs Shtrambrandt granted a charge over her assets to Mr Brott to secure payment of her legal costs.

4 In 2004 and 2005 Mr Brott, acting pursuant to the charging clause in the costs agreement, lodged caveats over the properties in issue.

5 In early 2005, Mrs Shtrambrandt withdrew her instructions to Mr Brott to act for her and engaged alternative solicitors. Thereafter, a settlement of the property disputes between Mr and Mrs Shtrambrandt was negotiated and a binding financial agreement was signed by them. Under the binding financial agreement, amongst other things, Mrs Shtrambrandt agreed to transfer to Mr Shtrambrandt all of her unit holding in the Fenedisto Unit Trust and her interest as joint proprietor of the Curraweena Road property. Further, Mr and Mrs Shtrambrandt acknowledged that they held the Brighton Road property on trust for their son, Loryan, and it was agreed to transfer that property to him.

6 Mr Brott's costs of acting for Mrs Shtrambrandt have not all been paid.

7 Disputes having arisen as to the validity of the caveats, Mr Brott commenced proceedings in this Court by originating motion seeking declarations that he has a caveatable interest in the properties. The defendants to these proceedings include Mr and Mrs Shtrambrandt, their son, Loryan, and Fenedisto ("the Brott proceeding").

8 Pleadings were ordered in the Brott proceeding. In his statement of claim, Mr Brott made claims against:

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9 Mr Sandbach of counsel is briefed to represent Mr Brott in the Brott proceeding. Mr Levine of counsel has appeared on behalf of Mr Brott at a number of directions hearings in the Brott proceeding.

10 In response to the Brott proceeding, Mr Shtrambrandt and Fenedisto brought separate proceedings, by originating motion, under s. 90(3) of the Transfer of Land Act 1958 (Vic) for removal of the caveats ("the Fenedisto proceeding").

11 The proceedings in this Court have been on foot for over a year and are nearly ready for trial. On 16 October 2006, I directed that the proceedings be heard together and evidence in each case be taken to be evidence in the other. I directed the Listing Master to list the proceedings for trial with as much expedition as is able to be given.

THE RESTRAINT APPLICATIONS

12 Recently, Mr Brott re-commenced acting for Mrs Shtrambrandt, in the following circumstances.

13 First, Mr Brott filed a summons on behalf of Mrs Shtrambrandt seeking orders in the proceedings in this Court for Mrs Shtrambrandt to be released from her implied undertaking to the Court not to use affidavits filed by her husband for purposes other than the proceedings. The purpose of this application was to enable Mrs Shtrambrandt to use the affidavits, and information derived from them, in support of an application by her in the Family Court of Australia to set aside the binding financial agreement.

14 Second, Mr Brott filed a summons on behalf of Mrs Shtrambrandt seeking an order under the Jurisdiction of Courts (Cross Vesting) Act 1987 (Cth) that the proceedings in this Court be transferred to the Family Court of Australia.

15 Third, Mr Brott filed an application in the Family Court on behalf of Mrs Shtrambrandt, seeking to set aside the binding financial agreement.

16 Mr Brott briefed Mr Levine to appear on behalf of Mrs Shtrambrandt on the hearing of each of the summonses in this Court and Mr Levine appeared before me on the hearing of those summonses. Mr Levine was also briefed by Mr Brott in the Family Court application to set aside the binding financial agreement.

17 At the time Mr Brott filed the two summonses on behalf of Mrs Shtrambrandt in this Court, he had not filed an appearance on her behalf. In fact, no appearance had then been filed by or on behalf of Mrs Shtrambrandt.

18 On the hearing of the summonses issued by Mr Brott on behalf of Mrs Shtrambrandt, on 13 October 2006, I drew attention to Mr Brott's obvious conflict of interest in representing Mrs Shtrambrandt in proceedings in which he was also suing her as a defendant. In particular, I referred to the fact that Mr Brott was maintaining a conspiracy allegation against Mrs Shtrambrandt in the Brott proceeding. However, as no objection was taken to either Mr Brott or Mr Levine acting on behalf of Mrs Shtrambrandt for the limited purpose of prosecuting her applications for release from the implied undertakings and transfer of the proceedings to the Family Court, I entertained submissions from Mr Levine on behalf of Mrs Shtrambrandt, made on instructions from Mr Brott.

19 During the hearing on 13 October 2006, I stated that the Court would not countenance Mr Brott continuing to represent Mrs Shtrambrandt in the proceedings in this Court. I said that I expected an application to be made to remedy the situation if Mr Brott did not voluntarily cease acting for Mrs Shtrambrandt within a matter of days.

20 On 16 October 2006 I made orders releasing Mrs Shtrambrandt from her implied undertaking and dismissing her application to transfer the proceedings in this Court to the Family Court of Australia.

21 Also on 16 October 2006, Mr Brott abandoned his conspiracy claims against Mr and Mrs Shtrambrandt. I directed that the statement of claim be amended accordingly. At this time, I said:

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32 On 27 October 2006 I ordered, by consent, that Mr Brott and Mrs Shtrambrandt file and serve any affidavits and submissions in response to the summons by 2.00 pm on 1 November 2006. The hearing of the summons was fixed for hearing on 3 November 2006.

33 On Wednesday 1 November 2006, Mr Pryles of Pryles & Co was first approached to act for Mrs Shtrambrandt, in place of Mr Brott. The evidence does not disclose who made the approach to Mr Pryles, or whether it was limited to him representing Mrs Shtrambrandt in the Brott proceeding only. In any event, on 2 November 2006, Mr Pryles filed a "Notice of Change of Solicitor" in both proceedings in this Court, and also commenced acting for Mrs Shtrambrandt in the Family Court. No explanation was given in evidence of the delay between 26 October, when Mr Brott said that he would not act on behalf of Mrs Shtrambrandt in the Brott proceeding, and 1 November when Mr Pryles was first approached. Further, no explanation was proffered in evidence as to why, and in what circumstances, Mrs Shtrambrandt decided to instruct Mr Pryles, and not Mr Brott, to act for her in the Fenedisto proceeding, as indicated in Mr Brott's letter of 26 October.

34 On 2 November 2006, Pryles & Co filed an affidavit sworn by Mrs Shtrambrandt. In that affidavit, Mrs Shtrambrandt said that she would like the freedom to engage Mr Levine to act for her in the Brott proceeding and the Fenedisto proceeding.

35 Later on 2 November 2006, Mr Brott filed an affidavit sworn by him. The only fact deposed to was the sending of his 26 October letter.

36 The summonses came on for hearing on 3 November 2006. At that time, Mr Pryles informed me that Mr Levine had continued to act for Mrs Shtrambrandt until late on the previous afternoon, when Mr Levine informed him that he could not continue to act. Accordingly, although he had instructions to give an undertaking on behalf of Mrs Shtrambrandt that she would not engage Mr Brott in either proceeding, Mr Pryles said he had not had sufficient time to obtain instructions as to whether an undertaking would be given in respect of Mrs Shtrambrandt continuing to engage Mr Levine. I stood the matter down to enable Mr Pryles to obtain instructions.

37 When the matter was called on for hearing later in the day, Mr Pryles proffered, and I accepted, undertakings by Mrs Shtrambrandt that she would not engage either Mr Brott or Mr Levine to act for her in the two proceedings in this Court.

38 Next, on 3 November 2006, I heard submissions as to the costs of the summonses. Mr Brott was represented by Mr Sandbach of counsel. He made submissions that Mr Shtrambrandt and Fenedisto, and not Mrs Shtrambrandt, should pay the costs of the summonses because: (1) the summons in the Brott proceeding had been issued prematurely, before Mr Brott had a reasonable opportunity to obtain advice as to whether he should continue to act for Mrs Shtrambrandt in the Brott proceeding; and (2) Mr Brott was entitled to continue to act for Mrs Shtrambrandt in the Fenedisto proceeding because he and Mrs Shtrambrandt were co-defendants in that proceeding. Further, it was submitted on behalf of Mr Brott that, in the event that Mrs Shtrambrandt was ordered to pay the costs of the summonses, Mr Brott should not be ordered, under r. 63.23, to pay to Mrs Shtrambrandt the amount of any costs order against her.

39 As the summonses sought relief under r. 63.23, Mr Brott was given a reasonable opportunity to be heard on the application that he pay the costs of the summonses. Further, Mr Brott filed an affidavit and was represented on the hearing of the summonses. Accordingly, the requirement of r. 63.23(3) was satisfied.

40 After hearing full argument as to the costs of the summonses, including as to whether an order should be made against Mr Brott under r. 63.23, I reserved my decision.

THE RE-OPENING APPLICATION

41 Later on 3 November 2006, Mr Brott sent a letter by facsimile to my associate and to the other parties. The letter stated:

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51 The re-opening application has caused me some difficulty. On the one hand, the reasons advanced by Mr Brott for not adducing the evidence which he now seeks to adduce are unsatisfactory. The summonses unambiguously claimed orders under r. 63.23 against Mr Brott personally. Mr Brott obviously understood this, as he considered it appropriate to swear an affidavit and brief counsel to appear on his behalf on 3 November to oppose orders being made against him under r. 63.23. In these circumstances, it is difficult to understand how it did not occur to Mr Brott that the evidence which he now seeks to rely upon would be relevant to that matter. In this regard, the conduct of Mr Brott was incompetent to a high degree. However, I am not prepared to infer that it involved a deliberate decision not to call the evidence.

52 On the other hand, subject to orders being made as to costs, it is difficult to see how Mr Shtrambrandt and Fenedisto have been prejudiced by Mr Brott's failure to adduce all of the evidence upon which he wishes to rely. The evidence is obviously relevant to the application against Mr Brott under r. 63.23.

53 In all of the circumstances, I will exercise my discretion to allow Mr Brott to rely upon the further evidence and to re-open the costs argument to consider submissions concerning the further evidence. Any embarrassment or prejudice to Mr Shtrambrandt and Fenedisto can be properly compensated for by ordering that Mr Brott pay the costs of the re-opening application, including all of the costs related to the hearing before me on 1 December 2006. Further, having regard to the unsatisfactory excuse given by Mr Brott for his failure to file the evidence which he now seeks to rely upon in time for the hearing on 3 November, I will order that these costs be paid by Mr Brott on an indemnity basis. Otherwise, there will be prejudice to Mr Shtrambrandt and Fenedisto. That should not be the case.

COSTS OF THE RESTRAINT APPLICATION

54 The first question is whether Mr Shtrambrandt and Fenedisto are entitled to an order for costs in their favour. In my view, they are.

55 First, by a combination of Mrs Shtrambrandt engaging Mr Pryles to act for her, and her undertakings, the relief sought by Mr Shtrambrandt and Fenedisto in the summons has been obtained.

56 Second, I am satisfied that this is not a case where, the relief sought having been rendered futile by the change of solicitor and undertakings, the court should not inquire into the merits but should order that each party pay their own costs. I refer in this regard to Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin[5] and Jeruth Pty Ltd v Haybale Pty Ltd.[6] In my view, this is a case where the application would obviously have been successful and, further, Mr Brott has acted unreasonably in the conduct of the application. This takes the case outside the general principles discussed in these cases.

57 Third, the application would have succeeded because the facts demonstrate that each of Mr Brott and Mr Levine was in a position of conflict of interest in representing Mrs Shtrambrandt, in both the Brott proceeding and the Fenedisto proceeding. Further, I am of the strong view that the interests of justice required that this Court, in its inherent jurisdiction to control the conduct of solicitors and counsel, not countenance either of them continuing to act for Mrs Shtrambrandt.

58 As to the conflict of interest, it was always obvious. Mr Brott is suing Mrs Shtrambrandt in the Brott proceeding. The abandonment of the conspiracy allegations has not changed this. Mr Brott has instructed Mr Levine to act on his behalf in the Brott proceeding. The Fenedisto proceeding, although separate in form, obviously relates to the same subject matter. It is in the nature of a counter-claim by Mr Shtrambrandt and Fenedisto to Mr Brott's claims in the Brott proceeding for declarations that he has a caveatable interest in the properties. It is wholly artificial to argue that there is no conflict of interest involved in Mr Brott and Mr Levine acting against Mrs Shtrambrandt in the Brott proceeding and for her, as a "co-defendant," in the Fenedisto proceeding. There is in truth one dispute as to the interests claimed by Mr Brott in the properties.

59 It was submitted on behalf of Mr Brott that it was for Mrs Shtrambrandt to choose where she wishes to place to allegiance in respect of this dispute. I agree. However, in coming to that choice, Mrs Shtrambrandt is in need of independent advice. Neither Mr Brott nor Mr Levine was ever in a position to give Mrs Shtrambrandt independent advice on that question. This should have been immediately obvious to Mr Brott, who is a solicitor of considerable experience, when the issue was first raised.

60 As to the inherent power of the court, irrespective of any conflict of interest, the authorities were reviewed recently in Geelong Schools Supplies Pty Ltd v Dean.[7] In that case, Young J removed a solicitor from acting because he was satisfied that a fair-minded reasonably informed member of the public would conclude that the solicitor was not in a position to give objective and dispassionate advice to the client. This situation afforded a sufficient basis for the grant of injunctive relief.[8]

61 In this case, Mrs Shtrambrandt is in desperate need of objective and dispassionate advice which is uninfluenced in any way by Mr Brott or counsel previously engaged to represent his interests. Mr Pryles and any counsel briefed by him can give that advice. For example, it is possible that it may be in Mrs Shtrambrandt's interests to seek to set aside the costs agreement and the charge contained in it. That is a matter for her, after receiving truly independent advice. There is no prospect of Mr Brott giving that advice.

62 I conclude that Mr Shtrambrandt and Fenedisto are entitled to the costs of the summonses. They were entitled to the relief sought against Mrs Shtrambrandt. Accordingly, Mrs Shtrambrandt is liable to pay the costs of the summonses. As to the basis upon which the costs should be ordered, it is apparent from what I have said that I am of the firm opinion that Mrs Shtrambrandt, if properly advised, would have realised that she had no reasonable chance of success in opposing the summonses. Accordingly, special circumstances have been shown for the making of an order that the costs be paid on an indemnity basis and I will so order.

APPLICATION AGAINST MR BROTT

63 The second question is whether Mr Brott should pay the amount of those costs to Mrs Shtrambrandt, so as to ensure that she is not out of pocket. In my view, he should.

64 Rule 63.23(1) relevantly provides:

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65 It was submitted on behalf of Mr Brott that it was not unreasonable for him to maintain at all times that he was entitled to represent Mrs Shtrambrandt in the Fenedisto proceeding, for the following reasons.

66 First, it was submitted that there was a clear distinction to be drawn between the Brott proceeding and the Fenedisto proceeding. For the reasons given above, I do not accept this. The distinction sought to be drawn is highly artificial and this ought to have been obvious to Mr Brott.

67 Second, it was submitted on behalf of Mr Brott that it cannot have been unreasonable for him to maintain an entitlement to continue to act for Mrs Shtrambrandt in the Fenedisto proceedings in circumstances where he had obtained the advice of senior counsel that it was appropriate for him to continue to act on behalf of Mrs Shtrambrandt in both the Brott proceeding and the Fenedisto proceeding. In this regard, it was submitted that Mr Brott had acted cautiously in accepting Mr Sandbach's advice that he should not act in the Brott proceeding, notwithstanding the advice of senior counsel that he could. I do not accept this submission, for the following reasons.

68 First, this submission ignores the considered ruling given by the Ethics Committee of the Law Institute of Victoria that there was a risk that Mr Brott had a conflict of interest in acting for Mrs Shtrambrandt in the proceedings in this Court. In this regard, I note that the proceedings in this Court were presented to the Ethics Committee as involving a single dispute relating to Mr Brott's caveatable interest in the properties. Also, the Ethics Committee was not informed of the conspiracy allegations made by Mr Brott against Mrs Shtrambrandt.

69 Second, the oral advice of senior counsel was obtained in the course of a brief telephone conversation. I asked Mr Sandbach whether a brief was ever delivered to senior counsel, and he informed me that it was not. Further, he informed me that no fee was paid for the advice. Further, it is apparent that no documents were given to senior counsel and he did not have any time for considered reflection.

70 Third, senior counsel was not informed of a highly relevant fact. There is no evidence that senior counsel was informed that Mr Brott had sought and obtained a ruling from the Ethics Committee, to the effect that there was a risk of conflict of interest in him continuing to act for Mrs Shtrambrandt in the proceedings in this Court. The reason for withholding this information from senior counsel was not explained.

71 In all of the circumstances, it was unreasonable of Mr Brott to rely upon the brief oral advice of senior counsel as a complete antidote to the ruling which he had received from the Ethics Committee.

72 In my view, for the reasons stated, the conduct of Mr Brott in connection with his representation of Mrs Shtrambrandt, and his instructions to Mr Levine to represent Mrs Shtrambrandt, has been unreasonable and incompetent. At all times when Mr Brott acted for Mrs Shtrambrandt, he ought to have known that he had a conflict of interest, for the reasons stated above. As I have said, the withdrawal of the conspiracy allegations in the Brott proceeding did not bring an end to that conflict.

73 Further, it is obvious that Mr Brott himself had grave concerns about his ability to act for Mrs Shtrambrandt. This is why he sought advice from the Ethics Committee of the Law Institute of Victoria. However, he did not wait for that advice before commencing to act for Mrs Shtrambrandt and, when that advice was received, he ignored it in favour of unconsidered oral advice from senior counsel as described above.

74 I infer that Mr Brott's conduct in and about acting for Mrs Shtrambrandt has been motivated, at least in substantial part, by his primary desire to have his costs paid from the assets of Mr Shtrambrandt or Fenedisto, in circumstances where Mr Brott believes that Mrs Shtrambrandt does not have the funds to pay him.

75 I reject the submission made on behalf of Mr Brott that the summons in the Brott proceeding was issued prematurely, given the content of his 26 October letter. First, Mr Brott was not entitled to the luxury of time to consider his position in respect of his representation of Mrs Shtrambrandt in the Brott proceeding. He was a plaintiff suing her. A solicitor of his experience did not need advice to realise that he had a conflict and could not continue to act. Second, it does not lie in the mouth of Mr Brott to contend that the summonses were issued prematurely in circumstances where his 20 October letter was misleading. If Mr Brott had stated in his letter that he was awaiting a ruling from the Ethics Committee, as was the fact, there may have been a basis for this argument. However, he did not do so. Further, Mr Brott's latest affidavit discloses that he did not accept that ruling when it was received, but rather ignored it and sought a brief oral opinion from senior counsel in the circumstances described above.

76 In my view, this is a case where it is necessary, in order to protect Mrs Shtrambrandt and the integrity of the judicial process, that Mr Brott pay to Mrs Shtrambrandt the costs of the summonses which I will order that she is liable to pay. Having never had the benefit of the independent advice to which she is entitled, Mrs Shtrambrandt ought not be out of pocket.

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