Wilson v Gilles

Facts

1. Giles Payne & Co was initially retained by the husband and wife to act on the sale of their former matrimonial home in circumstances where they had separated. The husband and wife gave instructions that the proceeds of sale be held in the solicitors' trust account until the husband and wife "work out what to do with it". Initially at least, the husband was content for Giles Payne & Co to act for his wife in relation to family law matters notwithstanding that the firm had previously acted for both of them on the conveyance. However, by January 2020, this had changed. On 21 January 2020, the husband wrote to Giles Payne & Co objecting to the firm acting for his wife in the family law matter in circumstances where the firm had formerly acted for them both on the sale of the Hillsdale property and continued to hold the proceeds of sale in their trust account. The husband requested the release of his 75% share of the proceeds of sale, failing which he proposed to refer the firm to The Law Society of New South Wales. On 22 January 2020, Giles Payne & Co disagreed, suggesting that the family law matter was completely separate from the sale of the Hillsdale property and that there was no conflict of interest. (emphasis in original) We are at liberty to act for Rena Wilson and there is no conflict of interest … It should be understood that whether our firm acts for Rena or any other firm, the protocol would be that the net sale proceeds will be held in trust until an agreement and Orders are obtained. Therefore, the net proceeds will remain in our trust account until we have an agreement between you and Rena as to how those funds will be dispersed [sic] or until Orders are obtained from the Court. This letter tended to blur why it was said that the solicitors could not release the trust monies being: firstly, their obligation to hold the trust monies in accordance with the Legal Profession Uniform Law (NSW); and, secondly, the wife's instructions or interests as their client in the family law dispute.
2. There is no doubt that, depending on the extent to which Giles Payne & Co had previously acted for the husband, the firm may not have come into possession of confidential information such as to preclude the firm from acting for the wife in family law proceedings or, even if the firm had such information, the husband may not object to the firm so acting. As to the former, nothing is known. As to the latter, the husband must be taken to have initially been content for the firm to act for the wife. The husband was no longer content for Giles Payne & Co to act for the wife given the firm's prior joint retainer. More importantly, the husband was now giving instructions in respect of the monies held in the trust account with which the law firm was not willing to comply. There were now two potential conflicts of interest for Giles Payne & Co: a potential conflict of interest between the duties owed to the husband as a former client and the wife as a current client; and, a potential conflict of interest between the duties owed to their clients and the firm's own interests. A disagreement as to the basis on which the firm held the trust monies may require the firm to give its own account, as it did in these proceedings, as to the instructions it received from the husband and wife to hold the monies and as to subsequent events.
3. On 27 April 2020, the Ethics Committee of the Law Society provided guidance, resolving that "while Giles Payne & Co continue to hold trust money for the husband and wife, they should not act for the wife". Giles Payne & Co continued to act for the wife nonetheless. On 4 May 2020, the husband's solicitor wrote to Giles Payne & Co demanding that his share of the proceeds of sale be paid to him failing which an application would be made to the Equity Duty Judge. In Giles Payne & Co's reply of 4 May 2020, the firm made plain that it continued to act for the wife in the family law dispute, stating: (emphasis included) As previously advised, our office are stakeholders of the sale proceeds from … Hillsdale for the parties. We are unable to release those funds without the written authorisation of both parties. We refer to Section 138 of the Legal Profession Uniform Law (NSW). Your client asserts that his legal entitlement to such funds is 75% and that our client's share is 25%. Irrespective of this assertion, the funds are held for them jointly and we cannot release those funds on the direction of one (1) party alone. Further to this, your client has failed to take into consideration that our client has an equitable interest in those funds by the application of Family law principles. Should your client commence proceedings in the Supreme Court seeking an injunction, our client will immediately commence proceedings in the Family Court for a property settlement. It is our previous experience, once the Supreme Court is advised of Family Court proceedings, it will refrain from making any decision until the matter is dealt with by the Family Court. If you persist with this action in these circumstances, then our client will be seeking indemnity costs in respect of the Supreme Court proceedings. Again, the solicitors based their refusal to pay the trust monies on the Legal Profession Uniform Law (NSW) and also the wife's interest in the monies as pressed in the family law dispute.

Submissions

1. Two grounds were advanced in support of the cost orders sought. First, it was said that the relief sought by the husband in his motion had no prospects of success. Giles Payne & Co relied on Colgate-Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 per Sheppard J at 256-257 and Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Ltd (1988) 81 ALR 397, where Woodward J said at 400-1: … it is appropriate to consider awarding ′′solicitor and client" or ′′indemnity" costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.
2. The law firm submitted that the relief in the husband's motion fell squarely within the factors outlined in Colgate-Palmolive and Fountain Selected Meats as the application was commenced in circumstances where the husband, properly advised, should have known that he had no chance of success in circumstances where the central reason why the Court dismissed the motion was due to an obligation imposed on solicitors holding trust monies. Further, the proceedings were commenced in wilful disregard of known facts or clearly established law. It was submitted that the Court found that the law firm could not release the funds as requested by the husband as the nature of the retainer between the law firm, the husband and wife was such that the proceeds of sale of the Hillsdale property were to be held by the law firm on trust to be released as agreed by the husband and wife; the law firm could only release the funds jointly in accordance with its obligations prescribed by section 138 of the Legal Profession Uniform Law (NSW). It was submitted that the orders sought in the motion were in the nature of final relief. Given the ambit of the dispute and the evidence of the defendants, namely, that no agreement had been reached in respect of the distribution of the funds in light of the family law property dispute between the husband and wife, the task set by the husband for the Court was said to be impossible.
3. Second, on 4 May 2020, Giles Payne & Co placed the husband on notice that an indemnity costs order would be sought in the event that the husband's motion failed. It was submitted that the law firm's contentions in their letter were accepted by the Court. Despite the law firm placing the husband on notice of the fatal flaw in his position with a threat of indemnity costs, the husband persisted with his motion.
4. The law firm submitted that its costs should be payable forthwith in exception to rule 42.7 of the Uniform Civil Procedure Rules 2005 (NSW) because the application in respect of which the costs order was sought represented the determination of a separately identifiable matter; the husband was unreasonable in bringing the application; and, having regard to the nature of the final relief sought by the husband against each of the defendants, it is likely that there will be a significant amount of time before final determination of those issues: Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1 at 4 and 5. The wife adopted the law firm's submissions.

Consideration

1. The costs of interlocutory applications are dealt with by rule 42.7 of the Uniform Civil Procedure Rules 2005, which provides: (1) Unless the court orders otherwise, the costs of any application or other step in any proceedings … are to be paid and otherwise dealt with in the same way as the general costs of the proceedings. (2) Unless the court orders otherwise, costs referred to in subrule (1) do not become payable until the conclusion of the proceedings.
2. As explained in Australiawide Airlines Ltd t/as Regional Express v Aspirion Pty Ltd [2006] NSWCA 365, albeit in the context of a different costs rule in the UCPR, such rules create a starting point as to what the costs order is to be unless that outcome is displaced by a discretionary decision: at [48]. In this case, the starting point is that the costs of the motion are the parties' costs in the cause. Australiawide Airlines makes plain that the Court should observe the starting point in the relevant rule and only make a different order if that starting point is displaced by a discretionary decision. As I said in Mundi v Hesse [2018] NSWSC 1548 at [58]: … Rule 42.7 appears to be directed to discouraging parties from expending further resources on such costs disputes and to focus on the substantive proceedings. If I might use an imperfect sporting analogy: if litigation is compared to a sporting match, then r 42.7 indicates that the normal result after an interlocutory application is that the parties should "play on" until the final hearing.
3. As Pepper J elaborated in Verde Terra Pty Limited v Central Coast Council (No 5) [2020] NSWLEC 48 at [20]-[21]: [20] Of course, circumstances can arise where there is some aspect of the conduct of the proceedings by one or more parties that, to extend the sporting analogy adopted [in Mundi v Hesse], requires the referee to blow the whistle and award a free kick. It is for this reason that a broad discretion is retained in r 42.7 by the words "unless the court orders otherwise". [21] Rule 42.7 of the UCPR is therefore the starting point in determining the appropriate cost order in interlocutory applications (or in relation to "other steps in the proceedings"). The default position of costs in the cause may, however, be displaced by the express discretionary power contained in that rule. That power, although unfettered (His Eminence Metropolitan Petar, Diocesan Bishop of the Macedonian Orthodox Church of Australia and New Zealand v Macedonian Orthodox Community Church St Petka Incorporated (No 2) [2007] NSWCA 142 at [28]), must be exercised judicially having regard to established principle (Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 at [134]).
4. As to the first submission advanced by the law firm as to the absence of prospects of success of the husband's motion, there is surprisingly little case law which would have assisted the husband's legal representatives to understand how section 138 of the Legal Profession Uniform Law might apply in the situation to hand. Certainly, no authority was cited by counsel at the hearing. Even if the law firm's reliance on section 138(1) of the Legal Profession Uniform Law was well-founded, as I found it to be, that did not preclude the husband seeking an order from a court of competent jurisdiction requiring the law firm to disburse the trust funds other than in accordance with that section: section 138(2) of the Legal Profession Uniform Law. That was essentially what the husband was seeking by his motion and it could not be said that that had no prospect of success.
5. As to the second submission advanced by the law firm as to putting the husband on notice that an order for indemnity costs would be sought, it is true that the law firm put the husband on notice by their letter of 4 May 2020. I do not consider that the letter, without more, justifies an indemnity costs order. There must be something unreasonable in the husband's conduct in bringing his motion, or persisting in it, ultimately unsuccessfully.
6. It appears to me from the sequence of events set out at [3] to [5] that a significant catalyst for the husband's motion was the law firm's actions in continuing to act for the wife notwithstanding the Law Society's guidance. It was only when, by the law firm's letter of 4 May 2020, it was made clear that the law firm was going to continue to act for the wife notwithstanding that guidance, that the husband filed his motion. In these circumstances, I am not prepared to make the costs order sought or indeed any costs order.
7. The wife's application for an order for indemnity costs payable forthwith is also unmeritorious. The wife commenced proceedings in the Family Court only after the husband had commenced these proceedings. The wife proposes to transfer these proceedings to the Family Court. The Family Court of Australia is, ordinarily, a costs neutral jurisdiction: section 117(1) of the Family Law Act 1975 (Cth). I see no reason - by reference to rule 42.7 of the Uniform Civil Procedure Rules or section 117 of the Family Law Act or otherwise - to depart from the default position prescribed by those provisions.
8. For these reasons, I make no orders in respect of the defendants' costs of the plaintiff's motion filed on 14 May 2020.

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