The Ethics Committee reminds practitioners of their ethical obligations in relation to using otherwise confidential or privileged information obtained in the course of acting for clients to pursue recovery of their own costs and fees.
Practitioners should also be cognisant of their ethical obligations when taking action to pursue their own costs.
A breach of the Australian Solicitors’ Conduct Rules (ASCR) may amount to unsatisfactory professional conduct or professional misconduct. Alternatively, inappropriate actions could result in a personal costs order against a practitioner being made by a Court in any proceeding.
Rule 9 of ASCR –Confidentiality; provides that unless the specific exceptions apply, a practitioner must not disclose any information which is confidential to a client and acquired by the practitioner during the client’s engagement.
Two recent cases Sithakoul v Su [2022] NSWSC 132 (Sithakoul) and Eden King Lawyers Pty Ltd v Makari (No 2) [2022] NSWSC 479 (Eden King) reinforce the importance of the care that needs to be taken by a practitioner when using confidential information in relation to a client or former client; obtained in the course of acting for that client. Both decisions also concern the manner in which practitioners conduct themselves in such matters.
In Sithakoul, the plaintiff, lodged an application against her former solicitors (Bridges) for documents from the former solicitor’s file. The former solicitors had issued bills to the plaintiff which included counsel’s fees and disbursements, of which there had been part payment. the plaintiff having become dissatisfied with the former solicitors and executed an authority to release, addressed to the former solicitors to transfer the file for proceedings in progress and any funds held in the solicitor’s trust account to the new lawyers, Longton.
The former solicitors responded stating that until all amounts outstanding were paid in full, they would be asserting a solicitor’s lien in respect of the file. The former solicitors continued to assert its right to maintain the lien and would only release the documents if security was provided. There were significant amounts of communications between the parties and submissions by both firms to the Court including:
(a) the offer of security in the form of an undertaking by the new lawyers, on the basis of payment of the outstanding fees would be paid out of the net proceeds of the proceedings;
(b) the refusal of the offer of security by the former solicitors;
(c) the new lawyers’ accusation of the former solicitors of breaching the Civil Procedure Act 2005 (NSW) ss56-60 (CPA); and
(c) the new lawyers’ submission that the Court had powers to make orders under S99 CPA against the former solicitors by finding that costs were incurred from solicitors amounted to serious neglect, incompetence or unreasonable conduct.
The attacks and counter-attacks during the dispute were adjudged by the Court to be unfounded and the costs incurred by the plaintiff were unfounded. The Court also commented that, “In retrospect the whole dispute with Bridges has proved to be a wasteof time and money”. The Court found that it was clear that the plaintiff “always had sufficient assets to be able to provide security for the sums claimed by the former solicitors”.
The Court further found that the new lawyers should have advised the plaintiff of the costs implications, and awarded costs in favour of the former solicitors. The Court ordered that the plaintiff pay the former solicitors costs of the motion.
The Court did not make any findings of disciplinary nature against the new lawyers, , commented that solicitors should heed the conclusion of Parker J, who stated, “I do not know what advice Ms Sithakoul was given, but on the face of it costs have been unnecessarily incurred. I propose, in the exercise of the Court’s powers under s 99of the Civil Procedure Act, to require Longton to show cause why the Court should not order that any costs charged to Ms Sithakoul in connection with Longton’s dealings with Bridges after 19 October be disallowed, and why Longton should not be required to indemnify Ms Sithakoul against her liability to Bridges.”
In Eden King, a potential professional conduct issue arose whereby a practitioner had to show cause why her conduct should not be referred to the Law Society. Parker J was concerned that the practitioner used information provided to her in the course of her retainer for her own advantage in pursuing her former client for unpaid fees, such that it may have constituted a breach of the practitioner’s professional obligations to her former client.
This issue arose out of a proceeding between a law practice, Eden King Lawyers and its former client, Ms Makari. In the course of preparing reasons for judgment, his Honour identified a possible professional conduct issue involving Ms Gazi, the solicitor-director of the law practice, and he directed that the solicitor-director show cause as to why he should not refer the issue to the Law Society.
The solicitor-director of the law practice acted for the former client in a family law matter. The matter was settled and under the terms of the settlement, the former client was to receive a settlement sum to be paid to her from her former husband’s solicitors.
Following the settlement agreement, but before the time came for the settlement monies to be paid, the solicitor-director issued the former client with a bill for the firm’s fees. The former client thought that the bill was excessive and after some discussions with the solicitor-director, the former client wrote directly to her former husband’s solicitors advising that the solicitor-director was no longer acting for her and asked that the settlement funds be paid directly to her.
The former client did not tell the solicitor-director that she was sending this letter and at the time the letter was sent, the retainer with the firm had not been terminated. Unaware of this, the other law firm paid the settlement sum over to the former client.
When the solicitor-director discovered what had happened, the law practice commenced proceedings to obtain ex parte orders freezing the settlement monies in the former client’s hands. The former client then paid the settlement sum into Court. The proceedings were eventually resolved between the parties but his Honour was concerned with parts of the evidence which the solicitor-director gave in support of the ex parte application for a freezing order where she made a statement about the former client’s financial position, stating:
“… The Plaintiff during the course of the family law proceeding became aware that the former client has no other significant assets other than the funds that she has now received.”
His Honour thought that this sentence (and other parts of the affidavit) suggested that the solicitor-director had used information provided to her in the course of the retainer for the law practice’s own advantage in pursuing its claim against the former client for unpaid fees and was concerned that there might have been a breach of the solicitor-director’s professional obligations to the former client.
The solicitor-director explained that both she and the former client are members of the same church community and that the former client made the existence of her dispute with her ex-husband known within the community and as such, even before she started acting, the solicitor-director was aware that the former client was, or at least was claiming to be, short of money.
In her show-cause affidavit, the solicitor-director also suggested that the information in her ex parte affidavit, at least in part, reflected matters which had been disclosed on the former client’s behalf in open Court at an earlier stage of the proceedings, before the solicitor-director had been retained. The solicitor-director exhibited to her affidavit some Family Court documents and asked in her affidavit that this evidence be treated as confidential.
However, the documents exhibited by the solicitor-director to her affidavit were copies of Court documents which she had obtained as a result of taking the file over from previous solicitors, or copy documents that she had added to the file herself. As such, they were documents which had been obtained by the solicitor-director in her capacity as the former client’s solicitor.
His Honour considered that the use of the documents in these circumstances to advance the solicitor-director’s own personal interests at the show-cause hearing was problematic. There was no suggestion that the former client’s permission had been sought to use them in this way. The solicitor-director did not say that when she prepared her ex parte affidavit she tried to put information she had obtained in the course of acting for the former client out of her mind.
By the end of the show-cause hearing, his Honour formed the impression that the solicitor-director simply made use of whatever information she had which she thought would assist her in her application for a freezing order. His Honour also found that the solicitor-director appeared not to have turned her mind to the question of confidentiality at all.
His Honour noted that it is easy to understand the solicitor-director’s frustration with the former client’s conduct and ultimately did not refer the matter to the Law Society. However, the facts of this case illustrate how insidious conflicts can be between solicitors’ duties to their clients and the pursuit of their own interests. Documents on the file, such as the Family Court documents, were the client’s documents, not the solicitor’s. Upon the termination of the former client’s retainer, her prima facie obligation was to hand the documents over with the rest of the file to the former client.
Before using any confidential information obtained in acting for a client to assist with recovery of your outstanding fees and costs, practitioners should consider what information they are using in pursuing such recovery.
Practitioners should be mindful of the rules relating to liens over files and to consider the reasonableness of any security that is offered by a client or former client for the law practice’s costs.
The Law Society’s Professional Support Unit provides free and confidential guidance and educational materials to legal practitioners about their obligations under the NSW legal profession legislation in the areas of costs, ethics and regulatory compliance. If you have any inquiry, please contact:
Costs [email protected] (02) 9926 0116
Ethics [email protected] (02) 9926 0114
Regulatory compliance [email protected] (02) 9926 0115
