Trustee of sale proceeds breaches duties

Trustee of sale proceeds breaches duties

Laurens & Laurens (No.2)

85. There are a number of concerning aspects of Ms Lanham’s conduct in these proceedings.
86. The level of distrust between the parties must have been obvious to the wife’s solicitor. It was a feature of the litigation and not limited to the enforcement proceedings. This should have alerted her to the delicate position she placed herself in by agreeing to act for both parties on the conveyancing of the properties in order to implement the final property orders. A solicitor acting for both parties in these circumstances falls within the scope of r.11.3 of the Legal Profession Uniform Law Australian Solicitors Conduct Rules 2015.^[8] It is permissible to act for both when there is informed consent.^[9] There is no suggestion that that was not the case here. Rather the husband complains that he assumed that Lanham would act in accordance with their duties as trustee for both.
87. It is of some significance to note that despite Ms Lanham’s position of having conflicting instructions from clients for whom she held money on trust, she did not bring the matter back to Court. If her client was not willing to do so she could have sought to bring an application seeking direction from the Court in her capacity as trustee how to distribute the funds she held on trust. Of course her client may not have seen any greater urgency in needing to bring an application to the court given that she had received her payment of the funds. If that was the case Ms Lanham should have brought an application herself promptly.
88. Ms Lanham should have identified the position of conflict she was in as trustee for both parties. An appropriate course of action for her would have been to bring an application to the court promptly to seek direction as to the distribution of funds given the conflict between the husband and wife. She could have sought to intervene pursuant to s.92 of the Family Law Act.
89. Particularly when the reasons for judgment is considered, which give context to the final orders, and noting that Lanham’s were the solicitors on record for the wife throughout the proceedings, the position taken by the wife, presumably in accordance with advice, was unreasonable and unsustainable.
90. Ms Lanham held the proceeds of sale in her trust account on trust for both the husband and the wife not for her client alone. Much has been written about the duties of trustees and fiduciary duties generally. There is no doubt that Lanham acted for both parties on the conveyancing. This is not changed by the fact that the husband still had the services of his family law solicitor and that correspondence was exchanged via the solicitors. This is the usual course in this situation and quite proper.
91. However this does not change the fact that the wife’s solicitors held the proceeds of sale on trust as trustee for both parties and as such needed to ensure that she had clear written instructions from both parties with respect to the release of those funds. In this scenario it is a dangerous position to adopt silence as being consent. Whilst the solicitors’ rules with respect to payment of costs enables solicitors to take this approach provided that certain preconditions are met, this situation is not an analogous.^[10]
92. The decision of Victorian Legal Services Commissioner v Galatas (Legal Practice) [2016] VCAT 395 is instructive. In that case a lawyer held funds on trust on behalf of both husband and wife in a family law dispute. The solicitor deducted his fees for the husband from the funds held in trust. He obtained the husband’s written consent but not the wife’s. The Tribunal made the following comment at paragraph 12 which his equally applicable to this case:

The obligation to obtain consent for payment of fees out of trust moneys is all the more acute in circumstances where the solicitor is acting for one party in a dispute, yet holds substantial moneys in trust not only on behalf of his client, but on behalf of his client’s adversary as well. Trust account moneys are ‘sacred’ and this was a serious breach of Ms Galatas’ obligations. This is so regardless of the fact that ultimately the wife did not suffer financial loss arising out of the taking of the trust moneys.”
(Footnote omitted)

93. This case highlights the cautions practitioners need to take when acting for the both parties on the sale of properties in compliance with family law orders. Practitioners need to appreciate that at all times they are acting for both parties. In many instances it may be uncontroversial but there are circumstances where a conflict can arise, as was the case here. In those circumstances when holding funds on trust for the parties the obligations the solicitor has as trustee are strict. It is quite clear from correspondence annexed to the wife’s submissions that the distrust between the parties was apparent with respect to various issues concerning the conveyancing aspect of the settlement including the signing of discharge authorities and the like. That issue would not have arisen for the family law practitioners if an independent firm had acted on the conveyancing.
94. The application in a case was necessitated by the wife taking a position which could not be sustained. I accept that Lanham acted on instructions but it is apparent that those instructions were based on advice that with respect to the interim orders was misguided. The wife’s solicitors were on notice of this but still pursued that course. Compounded with this is a lack of understanding of their obligations when holding money on trust.
95. The matter was not resolved until the first court date. The wife’s counsel asked that I express a preliminary view. It was only then that the matter resolved. The wife’s position was untenable. This should have become obvious to the wife’s solicitor long before it did.
96. I am satisfied that the circumstances of this case justify a costs order being made against Ms Lanham.

What costs should be ordered?

97. There is no provision under the Federal Circuit Court Rules for costs to be assessed. The Federal Circuit Court scale of costs is event based. The Family Court scale of costs set out in sch.3 of the Family Law Rules 2004 (Cth) (“Family Law Rules”) is different and provides for various charges for time of work done and amount of time spent in engaging in those tasks which is far more involved than the Federal Circuit Court Rules. The Family Court rules also provide an assessment process where costs are disputed: see Part 19.6 of the Family Law Rules.
98. If I were to order that costs be awarded in accordance with the Family Court scale of costs rather than the Federal Circuit Court Rules that would enable the parties to have the costs assessed. This would involve further costs for the parties, both with respect to preparing a bill in accordance with the family court scale and the assessment itself. That is not an attractive option. I have a discretion to fix the costs, in the event I am not satisfied that an order for indemnity costs is warranted. That is the preferable course.
99. I am also satisfied that it is appropriate to depart from the Federal Circuit Court scale. It is important to emphasise that I do not make the costs order to punish the solicitor. The costs order is to compensate the husband for costs he has incurred unnecessarily.

Should indemnity costs be ordered?

100. The case law with respect to indemnity costs is clear.
101. In the Marriage of Kohan (1992) 16 Fam LR 245, the Full Court of the Family Court stated that the judge should understand that an indemnity costs order is such a great departure that it is necessary to know the impact on the financial position of each of the parties and to know the terms of the agreement which exceed the costs scale. It is necessary to know the extent of the departure from the scale and its likely impact on the parties’ financial circumstances. By fixing a scale it must be understood that the scale contains the normal rates of charges. Indemnity costs are the exception in this and other jurisdictions.
102. In Prantage and Prantage [2013] FamCAFC 105, the Full Court stated when considering whether or not to make an indemnity costs order it is necessary to know what the departure is from the scale.^[11] I have that information.
103. In the Marriage of Monday & Bowman (1997) 22 Fam LR 321, Holden CJ gave some examples of where indemnity costs may be justified including:
     1. Where an action was commenced or continued in circumstances where a party properly advised should have known the proceedings had no prospect of success;
     2. Making allegations knowing them to be false;
     100. Evidence of misconduct that caused loss of time to the Court and other parties;
     4. Making allegations which ought not to have been made.
104. The Court was referred to the decision of Medlon v Medlon (No.6) (Indemnity Costs) (2015) FLC 93 – 664. In that case, the Court found it was appropriate to make an order for indemnity costs against the applicant who brought an application which should never have been brought. The compounding factor in that case was that the applicant was a legal practitioner.
105. If there had been a careful analysis of the orders and reasons for judgement a reasonably experienced practitioner would have realised that, apart from the issue of the car being repossessed, the wife was not prejudiced by the way the orders crafted. The reasons make it clear that the wife received an increased adjustment of the pool because of the husband’s conduct and it was also the reasoning behind providing for specific payments to be made with the husband to be responsible for any additional payments rather than those being visited upon the wife. If this had been done then the delay and the costs it incurred could have been avoided. It is of some significance to note that it was not the wife or her solicitor who brought the proceedings back to court seeking to resolve this issue at a much earlier time.
106. Ms Lanham has clearly breached her obligations as trustee. She shows no appreciation of this. I have pointed out areas where her conduct was concerning and has resulted in the husband incurring costs for which he should not have to be responsible.

Conclusion

107. I am satisfied that the circumstances in this case are exceptional which justify ordering costs on an indemnity basis.
108. Regrettably, I am of the view Ms Lanham’s conduct that falls short of what is expected of reasonably competent solicitor. It is not clear to me as to whether or not the husband eventually made a complaint to the Legal Services Commissioner. Assuming that no complaint has been lodged I will give Ms Lanham the opportunity to be heard as to whether or not her conduct should be referred and will give her 21 days to lodge submissions.