By Hayley Hitch, a Solicitor of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.
It is never a good sign when a judgment begins with the fateful words “This is a cautionary tale for solicitors who hold money on trust…”
In Laurens & Laurens (No. 2)  FCCA 109, the wife’s solicitors, LL, initially acting solely on behalf of the wife in family law proceedings, consented to acting on behalf of both the husband and wife to sell real estate of the marriage, in accordance with orders made in the family law proceedings.
Upon the sale of the properties of the marriage, LL were required to hold the proceeds of sale on trust and in due course, proceeded to distribute the funds in accordance with orders made by the Family Court; whereby after payment of agents fees, mortgagee debt and business debts, the wife would obtain 70% of the remaining proceeds of sale and the husband would receive 30%.
However, upon settlement of the sale of properties, LL wrote to the husband’s solicitors adjusting the amount to be paid from the proceeds of sale so that the husband’s portion of $76,313.00 was reduced to $2,715.25. However the wife’s proceeds were not reduced – LL was reducing costs of the sale from the husband’s portion solely. The correspondence reducing the husband’s portion was sent on a Friday after 5pm requiring a response by the following Monday and noted that the absence of a response would be regarded as the husband providing “consent to the distribution of funds” in accordance with the LL letter.
Judge Harland found that LL’s letter was unreasonable as:
- The distribution of the proceeds of sale was a controversial issue and therefore a negative response should have been expected;
- Providing a single business day to respond was unreasonable;
- To assume that absence of a response, regarding a primary issue in the proceedings, provided authority to distribute funds held on trust for both the husband and wife, showed a lack of “appreciation of the seriousness of the role of trustee”; and
- The fact that LL’s letter was emailed to the husband’s solicitor after close of business was unreasonable, given the nature of the issues raised.
Furthermore, throughout the matter, LL withdrew funds from the proceeds held in trust from the sale of properties and provided such funds to the wife but refused to do so for the husband, showing a lack of understanding as LL’s role as trustee of the sale of properties and duties owed to both the husband and the wife jointly and severally.
LL viewed the interim orders and the final orders made in the proceedings as being enforceable concurrently, however this was not the case. From the final orders, the Australian Taxation Office was required to be paid a fixed sum from the proceeds of sale. LL declined to pay such amount until further orders were made as it was believed that the interim orders, which did not set out the requirement for this payment, took precedence over this payment. Final orders, at all times, take precedence over interim orders made throughout the proceedings that relate to the same issues.
Due to the conduct of LL, the husband was forced to file an application in a case to seek enforcement of the final orders of the proceedings by LL. The outcome of the husband’s application saw LL’s conduct reviewed by the Court.
LL responded to the Court focusing on the instructions of the wife. However the Judge did not find this an acceptable excuse. It is a solicitor’s responsibility to guide a client in Court proceedings, provide advice to a client on best course of action, advocate for the client but also inform their client where such requests are unreasonable or prejudicial to the matter.
LL did not take the necessary steps to either inform the client where instructions were unreasonable or to withdraw as solicitor where the client wished to proceed irrationally. It is a solicitor’s responsibility to act justly at all times and in the best interests of the Court. LL’s conduct forced the matter to be brought back before the Court and caused the parties to incur even more costs, thereby reducing the amount that would be received from any settlement.
Judge Harland made special note of the parties’ failure to provide properly paginated documents to the Court, especially for documents that exceeded 200 pages in length. Judge Harland also noted that LL made several typographical and case management errors which did not assist LL in the Court’s review of the relevant conduct.
The Court made orders for:
- the solicitor, LL to pay the husband’s costs of the proceedings fixed in the amount of $13,123.00.
- LL to provide submissions within 21 days as to whether or not the conduct should be referred to the Legal Services Commissioner.
It can be seen from Laurens case that solicitors should:
- Always ensure that when acting as trustee in respect of funds held on trust, they are aware of the rights, responsibilities, and duties as a trustee before accepting such a role;
- When accepting a role of trustee on on behalf of conflicting parties, there is a fundamental change in the scope and role of the solicitor’s duties to their client. As trustee the solicitor has fiduciary obligations to the beneficiaries of the trust – in this case, both parties on opposite sides of contested litigation! The scope for a conflict of the solicitor’s duties in such circumstances is extremely high, and a person accepting a role as trustee in such circumstances must be aware of the dangers of this potential conflict at all times.;
- Be aware of the difference between interim and final orders in a proceedings, and the significance of both as they relate to each other; and
- Always ensure that all documents prepared and filed with the Court are in an organised and helpful manner (including pagination, tabbing, etc.). Any delay caused by failing to prepare documents correctly, will not reflect well upon you during an attendance at Court;
Should you require any assistance regarding the case management of your matter, please contact our office.
Read the judgment here
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Hayley Hitch at firstname.lastname@example.org, or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or email@example.com
Stephen Mullette on (02) 9806 7459 or firstname.lastname@example.org