Council of the Law Society of New South Wales v Bouzanis

[2017] NSWCA 330

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

Council of the Law Society of New South Wales v Bouzanis [2017] NSWCA 330

Hearing dates:

23 November 2017

Decision date:

15 December 2017

Before:

McColl JA at [1];
Basten JA at [23];
Simpson JA at [55]

Decision:

(1)   Allow the appeal and set aside the order made by the Tribunal on 26 May 2017 dismissing the application before it.

 

(2)   Order that there be a new hearing in the Tribunal of the application by the Council of the Law Society.

 

(3)   Order that the respondent pay the appellant’s costs of the appeal.

(4) Order that the respondent have a certificate under the Suitors’ Fund Act 1951 (NSW) with respect to the costs of the appeal.

Catchwords:

OCCUPATIONS – legal practitioners – application to remove solicitor from roll – whether disbursements or “transit money” payable to third parties are “costs due to the practice” – whether such money therefore not trust money under statute – solicitor deposited payment from clients into office account rather than trust account – solicitor spent money for his own purposes, with result that barrister and expert witness were not paid – whether solicitor misappropriated trust moneys

WORDS AND PHRASES – “legal costs” – “trust money” – Legal Profession Act 2004 (NSW), ss 4, 246(4)

Legislation Cited:

Interpretation Act 1987 (NSW), ss 5, 33, 34, 35
Law Practitioners Act 1892 (NZ), s 2
Law Practitioners Act 1908 (NZ), s 47
Law Practitioners Act 1931 (NZ), s 46
Legal Practitioners Act 1898 (NSW), s 41; Pt VII
Legal Practitioners Act 1970 (ACT), s 87
Legal Profession Act 1987 (NSW), s 61
Legal Profession Act 2004 (NSW), ss 4, 37, 150, 242, 243, 246, 253, 254, 255, 329, 337, 338, 527, 537, 540; Ch 3 Pt 3.1, Div 2’ Pt 4.2; Pt 7.3
Legal Profession Uniform Law Application Act 2014 (NSW), s 167; Ch 4

Cases Cited:

Betella v O’Leary [2001] WASCA 266
BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145; [2008] HCA 45
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384; [1997] HCA 2
Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1; [1981] HCA 40
Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390; [1955] HCA 27
Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297; [1981] HCA 26
Council of the Law Society of New South Wales v Andreone (No 1) [2014] NSWCATOD 49
Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417; [1932] HCA 22
Griffin v The Council of the Law Society of New South Wales [2016] NSWCA 364
In re a Practitioner of the Supreme Court [1941] SASR 48; [1941] SAStRp 11
Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12
Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613
Law Society of New South Wales v Davidson [2007] NSWADT 264
Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35
Legal Services Commissioner v Russo [2016] NSWCATOD 42
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28
Public Transport Commission (NSW) v J Murray-More (NSW) Pty Ltd (1975) 132 CLR 336; [1975] HCA 28
Qantas Airways Ltd v Chief Commissioner of State Revenue [2008] NSWSC 1049
Re John Frederick Lord v The Australian Elizabethan Theatre Trust (1991) 30 FCR 491; [1991] FCA 438
Re Robb (1996) 134 FLR 294
Russo v Legal Services Commissioner [2016] NSWCA 306
Stephens v The Queen (1978) 139 CLR 315; [1978] HCA 35
SZTAL v Minister for Immigration and Border Protection; SZTGM v Minister for Immigration and Border Protection (2017) 91 ALJR 936; [2017] HCA 34

Texts Cited:

Heydon and Leeming, Jacobs’ Law of Trusts in Australia, (8th ed, LexisNexis Butterworths) at 2-02

Category:

Principal judgment

Parties:

Council of the Law Society of New South Wales (Appellant)
Peter Bouzanis (Respondent

Representation:

Counsel:
Ms C A Webster SC/Mr G Johnson (Appellant)
Mr T Lynch SC (Respondent)

  Solicitors:
Law Society of NSW (Appellant)
Foulsham & Geddes (Respondent)

File Number(s):

2017/178456

 Decision under appeal 

Court or tribunal:

Appeal Panel, Civil and Administrative Tribunal

Jurisdiction:

Occupational Division

Citation:

[2017] NSWCATOD 84

Date of Decision:

26 May 2017

Before:

D Cowdroy QC ADCJ, PrincipalJ Wakefield, Senior MemberE Hayes, General Member

File Number(s):

2015/383882

headnote

[This headnote is not to be read as part of the judgment]

The respondent solicitor acted on behalf of a couple who were defendants in District Court proceedings in 2011 and 2012. Following the hearing and the delivery of judgment, on 23 May 2012 the respondent sent the clients a memorandum of fees and disbursements, showing an outstanding balance of $19,504.75. This amount included some $5,330 payable to an expert witness, as well as fees due to counsel appearing at the trial, and the respondent’s own fees.

On 21 June 2012, a cheque was received from the clients for the full amount due. This was deposited into the respondent’s office account. Over time, the majority of this money was spent by the respondent on his own expenses, rather than on those disbursements detailed in the memorandum. On 20 May 2013, the expert witness lodged a complaint against the respondent for non-payment of its fees.

The Council of the Law Society of New South Wales commenced disciplinary proceedings against the respondent in the NSW Civil and Administrative Tribunal, alleging professional misconduct in failing to deposit the cheque into his trust account, and misappropriating the funds. The application was dismissed by the Tribunal on the ground that the amount paid was not “trust money”, and that therefore the respondent was not required to deposit it into his trust account. The Council of the Law Society appealed to this Court against the decision of the Tribunal.

The question before this Court was whether, for the purposes of Pt 3.1 of the Legal Profession Act 2004 (NSW) (since repealed), money paid to a law practice to cover payments due to third parties, including counsel and expert witnesses, was “trust money” which is “entrusted to” the law practice and required to be deposited into a trust account.

The Court allowed the appeal and held:

By Basten JA, McColl JA agreeing:

1. The definition of “trust money”, using the terms “means … and includes” followed by specific categories, provides an “exhaustive explanation of the content of the term”, and indicates that money falling within the specific categories is always trust money, whether or not it would otherwise fall within the “general conception of” the term: [3], [37].

Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35, applied.

2. The definition of “trust money” does not cover the payment of fees due to the recipient, unless the fees are not yet due and owing. Where the payment of a lump sum by the client to the practitioner was in response to a memorandum setting out a number of specific disbursements due to third parties, the payment itself may confer implied authority to disburse the moneys in accordance with the memorandum. It was necessary, in order to comply with the scheme of the legislation, for the practitioner to pay the cheque into his trust account, before appropriating part of the sum to his office account, if contractually entitled to do so: [3], [38]-[39].

3. Statutory definitions are generally subject to qualifications where a defined term is used in a context which renders the definition inapplicable. Where context suggests that a different meaning should be adopted to give effect to the apparent purpose of a specific provision, to depart from the definition is to comply with the obligation to adopt a construction that would promote the purpose or object of the provision, rather than one which would not: [3], [17], [45]-[46].

Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613; Betella v O’Leary [2001] WASCA 266; Qantas Airways Ltd v Chief Commissioner of State Revenue [2008] NSWSC 1049, discussed.

4. (By McColl JA): In holding that the money the subject of the cheque was not “trust money”, the Tribunal failed to have regard to the text of s 246(4) taking into account its context and purpose: [16].

Law Society of New South Wales v Davidson [2007] NSWADT 264; Russo v Legal Services Commissioner [2016] NSWCA 306, discussed.

5. (By McColl JA): Before the Tribunal came to rely upon the heading to s 246(4) in interpreting the provision, it first had to determine its “ordinary meaning” by reference to its text, context and the purpose of the trust account provisions. The Tribunal failed to undertake that task: [18]-[19].

6. (By McColl JA and Basten JA): Section 246(4) of the Legal Profession Act 2004, which provides that money received for costs is not trust money, when read with the definition of “legal costs” in s 4, excludes from the definition of “trust money” payments of “costs due to the practice”. The exclusion does not extend to money received for payment to third parties for services rendered by them, which is “trust money” for the purposes of the legislation: [3], [20], [47]-[48]. The consequences of the construction the Tribunal applied should have assisted the Tribunal in determining against accepting it: [22].

(By Simpson JA, dissenting):

7. The money represented by the cheque did not fall into any of the four specific categories of “trust money” listed in s 243: [91]-[95].

BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145; [2008] HCA 45, discussed.

8. The clients’ cheque was not “entrusted to the law practice” within the meaning of s 243. It was paid to the law practice in satisfaction of the debt the clients owed to it; that debt included the fees payable by the law practice to the barrister and the expert witness. Further, it could not be said that the purpose of paying the practice’s disbursements was “not for the purposes of the practice itself”: [99].

Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35; Stephens v The Queen (1978) 139 CLR 315; [1978] HCA 35, discussed.

Council of the Law Society v Andreone (No 1) [2014] NSWCATOD 49; Legal Services Commissioner v Russo [2016] NSWCATOD 42; Russo v Legal Services Commissioner [2016] NSWCA 306; Re Robb (1996) 134 FLR 294, distinguished.

9. None of the money represented by the clients’ cheque was trust money within the meaning of Pt 3.1 of the Act, and the Tribunal was correct so to hold: [111].

Judgment

1. McCOLL JA: The Council of the Law Society of New South Wales (Council) appeals against a decision of the Occupational Division of the New South Wales Civil and Administrative Tribunal (Tribunal) dismissing an application filed by the Council alleging the respondent, Peter Bouzanis (the solicitor), had breached s 255 and/or s 254 of the Legal Profession Act 2004 (NSW) (2004 Act). [1]

   1. Council of the Law Society of New South Wales v Bouzanis [2017] NSWCATOD 84 (Tribunal decision).

2. The 2004 Act was repealed on and from 1 July 2015 by s 167(a) of the Legal Profession Uniform Law Application Act 2014 (NSW) (Uniform Law). The proceedings in the Tribunal were commenced after the repeal of the 2004 Act, but concerned a complaint made pursuant to Ch 4 of that Act prior to its repeal. By reason of transitional provisions in the Uniform Law, the effect of which is that a complaint is not “disposed of” until orders are made by the Tribunal in proceedings commenced with respect to the complaint, the 2004 Act was the relevant legislation for the purposes of dealing with the complaint. [2]

   2. See Griffin v The Council of the Law Society of New South Wales [2016] NSWCA 364 (at [63] – [72]) per Sackville AJA (Ward and Gleeson JJA agreeing).

3. The background to the proceedings and the relevant provisions are set out in the judgment of Basten JA which I have had the advantage of reading in draft. I agree with the orders his Honour proposes for the reasons his Honour gives and also for the following reasons.

4. The Tribunal’s reasons for its conclusion that, on the proper interpretation of s 246(4) of the 2004 Act, the cheque the solicitor received from his clients and deposited into his office account were not “trust monies” and, accordingly, not required to be placed in his trust account, were comparatively brief. It set out the definition of “trust money” in s 243(1), of “costs” in s 4 and the terms of s 246(4). [3]

   3.    Tribunal decision (at [38] – [40]).

5. The Tribunal rejected the Council’s submission that the reference to “costs” in s 4 of the 2004 Act did not apply to the monies the client paid to the solicitor, because the cheque comprised disbursements to meet third party expenses which were entrusted to the solicitor to meet the disbursements shown in his final invoice and, accordingly, were “trust money”. In the Tribunal’s view, although the cheque was paid to the solicitor to meet third party charges, it fell within the definition of “legal costs” under the 2004 Act, being an amount the client was liable to pay the law practice for the provision of legal services as a disbursement. [4]

   4.    Ibid (at [41]).

6. The Tribunal also referred to three decisions, Council of theLaw Society of New South Wales v Andreone (No 1),[5] Legal Services Commissioner v Russo [6] (in which Andreone was applied) and Law Society of New South Wales v Davidson,[7] in each of which it was held that when payment was made by a client to a solicitor for counsel’s fees, such monies became trust funds and that if the monies were paid into an office account, there was misappropriation. [8] The Tribunal observed that it was not apparent that either Andreone or Russo considered the operation of s 246(4) of the 2004 Act. [9] I consider its treatment of Davidson later in these reasons.

   5. [2014] NSWCATOD 49 (Andreone).

   6. [2016] NSWCATOD 42 (Russo).

   7. [2007] NSWADT 264 (Davidson).

   8.    Tribunal decision (at [45]).

   9.    Ibid (at [46]).

7. The Tribunal also distinguished decisions in other jurisdictions, such as Re Robb,[10] which concerned the characterisation of monies received by a solicitor on account of counsel’s fees on the basis that their legislation did not include a provision such as s 246(4). [11]

   10. (1996) 134 FLR 294.

   11. Tribunal decision (at [46] – [47]). In fact, s 87(3) of the Legal Practitioners Act 1970 (ACT), which is set out in Re Robb (at 312 – 313), was similar to s 246(4).

8. The Tribunal then said:

“[48] The Tribunal has considered the heading to s 246(4) in the aid of its interpretation, as is permissible pursuant to s 35(2)(a) of the Interpretation Act 1987 (NSW). Its intent is plain. … In the circumstances the Tribunal is driven to the conclusion that giving effect to the intent of s 246(4), the monies received by the solicitor for disbursements already incurred by him did not constitute trust monies. Certainly a moral obligation existed on the solicitor to make payment of the disbursements, but this does not, in view of the subsection, rise to a legal obligation as between the client and the solicitor.”

9. The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. [12] The meaning of s 246(4), accordingly, was to be discerned from its text, context and purpose, regarding context in its widest sense, as including such things as the mischief which one may discern the 2004 Act was intended to remedy. [13] Further, “the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed.”[14]

   12. Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28 (at [69]) per McHugh, Gummow, Kirby and Hayne JJ.

   13. SZTAL v Minister for Immigration and Border Protection; SZTGM v Minister for Immigration and Border Protection (2017) 91 ALJR 936; [2017] HCA 34 (at [14]) per Kiefel CJ, Nettle and Gordon JJ, referring with approval to CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 (at 408) per Brennan CJ, Dawson, Toohey and Gummow JJ; [1997] HCA 2.

   14. Commissioner for Railways (NSW) v Agalianos (1955) 92 CLR 390 (at 397) per Dixon CJ (Williams, Webb and Taylor JJ agreeing); [1955] HCA 27.

10. Section 246(4) appeared in Pt 3.1 (Trust money and trust accounts), Div 1 (Preliminary) of the 2004 Act. The purposes of Pt 3.1, as explained in s 242, included “ensur[ing] trust money is held by law practices in a way that protects the interests of persons for or on whose behalf money is held…”. “Trust money” was defined in s 243(1) relevantly to mean “money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice”, a definition which also included reference to some specific illustrations of the term. [15] The “general explanation” in the definition covers “any money confided to the care or disposal of the law practice in circumstances which indicate that the money has been earmarked for purposes not being purposes of the practice itself”. [16]

    15. See Basten JA (at [37]) and Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35 (Gillespie-Jones) (at [17] – [18]) per French CJ, Hayne, Crennan and Kiefel JJ to which his Honour also refers; see also (at [96]) per Bell, Gageler and Keane JJ.

    16. Gillespie-Jones (at [96]). Gillespie-Jones concerned the Legal Profession Act 2004 (Vic), however, the definition of “trust money” in that Act was relevantly on all fours with the definition of “trust money” in the 2004 Act.

11. Part 3.1, Div 2 of the 2004 Act dealt with “Trust accounts and trust money”. Section 253(1) obliged a law practice which received trust money to which Pt 3.1 applied to maintain a general trust account. Section 254(1) obliged a law practice which received trust money to deposit the money in a general trust account of the practice as soon as practicable after its receipt. Section 255(1)(a) obliged a law practice to “hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received”.

12. As Basten JA has explained, the trust account provisions of the 2004 Act have a long legislative history. That legislative history underscored the importance of the trust account. In In re a Practitioner of the Supreme Court,[17] the Full Court of the Supreme Court of South Australia observed “trust account[s] should be sacred, so that moneys paid into the account should only be paid out to the persons to whom the money belonged, or as they directed”.

    17. [1941] SASR 48 (at 51); [1941] SAStRp 11 (Murray CJ, Angas Parsons and Richards JJ).

13. Although it was the case, as the Tribunal observed, that neither Andreone nor Russo considered s 246(4), in Davidson, the solicitor sought to rely upon it. It was inapplicable because it was not in force at the time of the conduct complained of. However, the Tribunal in Davidson observed that it would not have assisted the solicitor had s 246(4) been in force, as it “merely legislatively confirms the view that moneys received for a solicitor’s costs are not trust moneys”. [18] Although the Tribunal in this case referred to paragraph [134] of Davidson, it did not set out the critical portion of the paragraph I have extracted. Rather, the Tribunal said it did not consider Davidson assisted “in the absence of any considered argument in relation to it.” [19]

    18.    Davidson (at [134]) – the Tribunal in Davidson mistakenly referred to s 246(4) as “s 264(4)”.

    19.    Tribunal decision (at [47]).

14. In my view, although obiter, paragraph [134] of Davidson was clearly relevant to the Tribunal’s consideration of the meaning of s 246(4) in this case. It was consistent with the case the Council was advancing, with which, as Basten JA has observed, the solicitor agreed until the Tribunal raised the s 246(4) issue. The Tribunal could have called for short written submissions on Davidson if it thought that necessary before it could determine the case.

9. I would also observe that the Tribunal’s decision in Russo was over-turned on the question of penalty in the Court of Appeal in Russo v Legal Services Commissioner. [20] However, this Court expressly re-affirmed the proposition that moneys paid for counsel’s fees were properly to be regarded as trust moneys. [21] The Tribunal did not refer to the Court of Appeal’s decision, even though it had been drawn to its attention in the Council’s written submissions.

   20. [2016] NSWCA 306 (Ward, Leeming and Payne JJA).

   21. Ibid (at [81]).

10. In my view, in holding that the monies the subject of the cheque were not “trust money”, the Tribunal failed to have regard to the text of s 246(4) taking into account its context and purpose. Rather, it effectively limited its interpretative exercise to a consideration of the definition of “costs” and the heading to s 246(4) (Money received for costs not trust money).

11. Insofar as the definition of “costs” is concerned, as Basten JA has explained, when considering definitions, it is always necessary to have regard to context. Departure from a definition’s literal meaning when read into a particular provision,[22] is consistent with the requirement to adopt a construction that would promote the purpose or object underlying the Act. [23]

    22. Kelly v The Queen (2004) 218 CLR 216; [2004] HCA 12 (at [103]) per McHugh J.

    23.    See Basten JA (at [45] – [46]).

12. As to the use of the heading to s 246(4), s 35(2)(a) of the Interpretation Act 1987 (NSW) (Interpretation Act) relevantly provides that a heading to a provision of an Act shall be taken not to be part of the Act. It had the opposite effect to that referred to in paragraph [48] of the Tribunal decision. However, s 35(5) relevantly provided that s 35 did not limit the application of s 34 of the Interpretation Act in relation to the use of any heading in the interpretation of s 246(4). The Tribunal did not advert to s 34. It might be accepted that pursuant to s 34(1)(a), the heading to s 246(4) could be considered if capable of assisting in the ascertainment of its meaning “to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision (taking into account its context in the Act … and the purpose or object underlying the Act…)”. Section 34(1)(a) reflects the principles of contextual statutory interpretation to which I have referred.

13. Accordingly, before the Tribunal came to rely upon the heading to s 246(4), it first had to determine its “ordinary meaning” by reference to its text, context and the purpose of the trust account provisions. As I have said, in my view, the Tribunal failed to undertake that task.

14. The purposes of the trust account provisions identified in s 242 of the 2004 Act emphasise their protective nature. A construction of s 246(4) of the 2004 Act which would enable a solicitor to deposit into the office account a cheque representing moneys paid to the practice by a client on receipt of a memorandum calling for the payment of third party expenses does not reflect the meaning of “trust moneys” in the 2004 Act as read into ss 253, 254 and 255 of the 2004 Act, nor further the purposes of Pt 3.1. [24]

    24.    Cf Gillespie-Jones (at [102]).

15. It could not be doubted that such moneys were, as Bell, Gageler and Keane JJ said in Gillespie-Jones, “money confided to the care or disposal of the law practice in circumstances which indicate that the money has been earmarked for purposes not being purposes of the practice itself”. [25] As the Council submitted, it might be expected that, had the Legislature intended to displace that proposition in enacting the 2004 Act, it could be expected it would have done so in clear and express terms.

    25.    (At [96]).

16. Finally, the Tribunal also failed to consider the consistency and fairness of the construction it attributed to s 246(4). As the final sentence of its dispositive reasons recognised, the interpretation it attributed to s 246(4) was anomalous. The consequences of the construction the Tribunal applied should have assisted the Tribunal in determining against accepting it. [26]

    26. Cooper Brookes (Wollongong) Pty Ltd v Federal Commissioner of Taxation (1981) 147 CLR 297 (at 320 – 321) per Mason and Wilson JJ; [1981] HCA 26; see also Public Transport Commission (NSW) v J Murray-More (NSW) Pty Ltd (1975) 132 CLR 336 (at 350) per Gibbs J; [1975] HCA 28.

17. BASTEN JA: In 2011 and 2012 the respondent solicitor, Peter Bouzanis, acted for a couple who were defendants in proceedings in the District Court. On 7 May 2012 the clients paid an amount of $27,400 which was deposited in the respondent’s trust account. The hearing in the District Court proceeded over five days, being 9-11, 14 and 15 May 2012; judgment was delivered on 16 May 2012. On 23 May 2012 the respondent sent the clients a memorandum of fees and disbursements showing an outstanding balance payable by the clients of $19,504.75. A cheque was received from the clients for that amount and was deposited in the respondent’s office account on 21 June 2012. The bulk of the funds in the office account was dissipated by payment of expenses other than the disbursements listed in the memorandum of fees and disbursements.

18. One of the unpaid accounts, in an amount of some $5,330, involved a fee payable to a consulting engineer who had appeared as an expert witness at the trial. On 20 May 2013, having failed to reach satisfactory arrangements with the respondent for payment of its account, the engineering firm lodged a complaint with the Legal Services Commissioner. That complaint ultimately led to the Council of the Law Society commencing disciplinary proceedings against the respondent in the NSW Civil and Administrative Tribunal (“the Tribunal”). Those proceedings alleged that the respondent was guilty of professional misconduct, in substance for failing to deposit the cheque received from the clients into his trust account and for misappropriating the proceeds of the cheque.

19. The application was dismissed by the Tribunal on the ground that the proceeds of the cheque were not “trust moneys” and were therefore not required to be placed in the respondent’s trust account. Curiously, the Tribunal did not identify the allegation that the funds had been misappropriated as part of the separate question. [27] Nor did it make any findings of fact, beyond impliedly accepting the uncontroversial matters set out at [23] above.

    27. Council of the Law Society of New South Wales v Bouzanis [2017] NSWCATOD 84.

20. The broad proposition accepted by the Tribunal was that moneys paid to a law practice to cover payments due to third parties, including counsel and expert witnesses, are not moneys “entrusted to” the law practice and required to be paid into a trust account. That proposition, which would no doubt surprise many solicitors, not to say third parties who depend upon solicitors for payment of their fees, was said to flow from s 246(4) of the Legal Profession Act 2004 (NSW), which, it was said, was not in terms replicated in other similar legislation common throughout the country over many decades.

21. There is some irony in the fact that neither the Law Society nor the respondent contended for such a proposition before the Tribunal. Rather, the question whether the client’s payment was not in fact “trust moneys” was raised by the Tribunal. The Law Society then sought, over the opposition of the respondent, an adjournment of the proceedings which had been listed for hearing in October 2016, so that it could properly address the issue. As a result the respondent incurred additional costs because the matter was adjourned until 7 March 2017. In addition to the discussion on 10 October 2016 (no witness being called on that day) both parties filed supplementary submissions in the Tribunal in December 2016, February 2017 and, specifically in reference to s 246(4) of the Legal Profession Act 2004, in April 2017. The decision of the Tribunal was delivered on 26 May 2017.

22. On 15 June 2017 the Law Society filed a notice of appeal from that decision. The sole question for this Court is whether the Tribunal correctly construed the requirements of the Legal Profession Act 2004, as in force in June-July 2012, but since repealed.

23. For the reasons set out below, the decision of the Tribunal was wrong as a matter of law and must be set aside. The unresolved disciplinary proceedings brought by the Law Society must be reheard by the Tribunal, findings of fact as to any relevant instructions made and the complaint determined in accordance with the legal principles set out below.

Statutory scheme

30. Before addressing the specific statutory provisions relied on by the Tribunal, it is convenient to note aspects of the relevant legislative history.

31. The Legal Practitioners (Amendment) Act 1935 (NSW) inserted in the Legal Practitioners Act 1898 (NSW) a new Pt VII headed “Trust accounts”, s 41 of which relevantly read as follows:

41.   (1)   All moneys received for or on behalf of any person by any solicitor shall be held by him exclusively for such person, to be paid to such person, or to be disbursed as he directs, and until so paid or disbursed the moneys shall be paid into a bank in New South Wales to a trust account, whether general or separate.

…

(3)   Nothing in this section shall be construed to take away or affect any just claim or lien which any solicitor may have against or upon any of the moneys, and nothing in this section shall apply to moneys receivable by a solicitor for or on account of legal costs, whether already due or to accrue due.

32. This provision was based on s 46 of the Law Practitioners Act 1931 (NZ). New Zealand had in fact had a similar requirement to deposit money in a general or separate trust account since the Law Practitioners Act 1892 (NZ), s 2, which was repeated in the Law Practitioners Act 1908 (NZ), s 47.

33. The 1898 NSW Act was eventually replaced by the Legal Profession Act 1987 (NSW). The s 61 of the 1987 Act required that money received by a solicitor on behalf of another person either be placed in a general trust account or dealt with as “controlled money”. Section 61(2) and (8) introduced the concept of “controlled money”, which, on direction of the client, could be held otherwise than in a trust account, but required that the money should only be disbursed as directed by the person on whose behalf it was held. Further, s 61(3)(b) provided that the section “does not operate … in relation to money due, or to accrue due, to the solicitor for costs, if the prescribed procedure is followed.” It was later amended so that, by the time of its repeal in September 2005, subs (3) provided that the section:

“(b)   does not prevent a solicitor from withdrawing or receiving, from trust money or controlled money:

(i)   reimbursement for disbursements paid by the solicitor, or

(ii)   money for disbursements to be paid by the solicitor, or

(iii)   money due, or to accrue due, to the solicitor for costs,

so long as the procedure prescribed by the regulations is followed…”.

34. The 2004 Act, in Pt 3.1, made more detailed provision with respect to trust money and trust accounts. The obligation to maintain a general trust account was set out in s 253(1) and the obligation to deposit “trust money” in a general trust account as soon as practicable after receiving the money was to be found in s 254(1). Section 255 then provided:

255   Holding, disbursing and accounting for trust money

(1)   A law practice must:

(a)   hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and

(b)   disburse the trust money only in accordance with a direction given by the person.

Maximum penalty: 50 penalty units.

35. The 2004 Act contained the following definitions:

243   Definitions

(1)   In this Part:

…

controlled money means money received or held by a law practice in respect of which the practice has a written direction to deposit the money in an account (other than a general trust account) over which the practice has or will have exclusive control.

Note. See section 256 (6) (Controlled money), which prevents pooling of controlled money.

…

transit money means money received by a law practice subject to instructions to pay or deliver it to a third party, other than an associate of the practice.

…

trust money means money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice, and includes:

(a)   money received by the practice on account of legal costs in advance of providing the services, and

(b)   controlled money received by the practice, and

(c)   transit money received by the practice, and

(d)   money received by the practice, that is the subject of a power, exercisable by the practice or an associate of the practice, to deal with the money for or on behalf of another person.

36. These provisions, which may broadly be traced back to the 1892 New Zealand Act, dealt with money “entrusted to” the practitioner, to be held on his or her account and to be disbursed only as the client directed. The definition of “trust money” in the 2004 Act was restricted to money entrusted to the law practice “in the course of or in connection with the provision of legal services by the practice”; that limitation no doubt reflected the fact that solicitors may provide services which extend beyond “legal services”; the trust account provisions were not intended to catch such moneys. The other semantic change in the 2004 Act was the creation of a new term “transit money” which would clearly catch moneys required to meet, for example, payments to counsel and to witnesses or experts preparing reports, being payments commonly described as disbursements.

37. There is a question whether the definition of “trust money”, using the terms “means … and includes” followed by specific items, identifies examples which expand the opening words of the definition or which are qualified by the opening words of the provision. [28] This language was considered by the High Court in Legal Services Board v Gillespie-Jones,[29] a case determining that a barrister was not entitled to make a claim against the Legal Practitioners Fidelity Fund in Victoria with respect to moneys which had been paid by the client to the solicitor, but misappropriated by the latter. The Court held that the barrister was not entitled to compensation from the Fund. The principal judgment based that conclusion on the absence of any direction given by the client to the solicitor to pay the barrister’s fees. Three members of the Court (Bell, Gageler and Keane JJ) held that the barrister failed because he did not have a beneficial interest in the trust money held by the solicitor. In relation to the definition of “trust money”, and its component parts, which were materially the same as the definitions set out above in s 243(1) of the 2004 Act, Bell, Gageler and Keane JJ stated:[30]

“That definition of ‘trust money’ within Pt 3.3 is structured in a way that ‘indicates an exhaustive explanation of the content of the term’ and that ‘also … make[s] it plain that otherwise doubtful cases do fall within its scope’. [31] The general explanation that the term ‘means’ money ‘entrusted’ to a law practice in the course of or in connection with the provision of legal services by the practice cannot be read narrowly or technically so as to cover only circumstances which would give rise to a relationship of trust independently of the operation of the Act. The word ‘entrusted’ is rather to be read according to its ordinary meaning in such a context. The general explanation is therefore to be read as covering any money confided to the care or disposal of the law practice in circumstances which indicate that the money has been earmarked for purposes not being purposes of the practice itself. [32] The further explanation that the term ‘includes’ money received by the law practice within four specified categories indicates that money within those categories is always trust money, whether or not it would otherwise fall within the general conception of money entrusted to the law practice.”

28. BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145; [2008] HCA 45 at [32].

29. (2013) 249 CLR 493; [2013] HCA 35 at [17]-[18].

30. Gillespie-Jones at [96].

31. BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145 at 159 [32]; [2008] HCA 45.

32. Stephens v The Queen (1978) 139 CLR 315 at 333; [1978] HCA 35; Francis v Law Society of New South Wales [1982] 2 NSWLR 191 at 200.

38. It may readily be inferred from the reference to money being “entrusted” that the definition does not cover the payment of fees due to the recipient, unless the fees are not yet due and owing. A solicitor, whilst required to place money for disbursements in a trust account, will be empowered to make payments to third parties from those funds in accordance with the directions of the client on whose behalf the funds are held. Where the payment of a lump sum by the client to the practitioner was in response to a memorandum setting out a number of specific disbursements due to third parties, the payment itself may confer implied authority to disburse the moneys in accordance with the memorandum, depending on the terms of the retainer. Similarly, where an amount paid includes costs payable to the practitioner himself or herself, it may follow from the terms of a retainer that the practitioner is authorised to appropriate that part of the lump sum for his or her own benefit.

39. If the client had forwarded separate cheques for the amount of costs claimed by the practitioner and the amount of the disbursements, arguably the former could have been deposited directly into the practitioner’s office account. However that did not happen. Accordingly, it was necessary, in order to comply with the scheme of the legislation, for the practitioner to pay the single cheque into his trust account, before appropriating part of the sum (in this case some $15,800) to his office account, if contractually entitled to do so.

40. That understanding of the operation of the legislation would reflect the operation of trust account legislation over more than a century, as explained above. That approach was rejected by the Tribunal on the basis that s 246(4) of the 2004 Act provided otherwise when read with the definition of “legal costs” in the Act. It is therefore necessary to turn to these provisions. First, s 246, which relevantly provided:

246   Application of Part to law practices and trust money

(1)   Trust money received in this jurisdiction

This Part applies to the following law practices in respect of trust money received by them in this jurisdiction:

…

…

(4)   Money received for costs not trust money

Money received in the course of or in connection with the provision of legal services by a law practice for or on behalf of another person for the payment of costs due to the practice (including costs that have been awarded by a court, tribunal or other body that has power to award costs), is not trust money for the purposes of this Act.

41. This provision identified certain moneys which are “not trust money” for the purposes of the Act. The question is whether the moneys so identified included moneys received for payment to third parties for services rendered by them. The Tribunal’s conclusion that s 246(4) should be so read depended upon the statutory definition of “legal costs”, although that phrase does not appear in s 246(4). Rather, that section referred to “costs due to the practice” and, more extensively, money received “for the payment of costs due to the practice”.

42. Neither the term “costs”, nor the term “legal costs” is a defined term within Pt 3.1 of the 2004 Act. However, there are certain definitions in s 4 of the Act which apply to the whole Act. As to “costs”, s 4 merely says “see definition of legal costs”. The phrase “legal costs” is defined in the following terms:

legal costs means amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements but not including interest.

43. Two general principles are relevant in this context. The first concerns the variable meaning of particular terms. Thus, it is unclear whether the reference in s 4 to “costs” is intended to convey that the term “costs”, wherever used in the Act, has the same meaning as “legal costs”. It is by no means certain that such an equation is intended. For example, there are caps on that which may be charged as “costs for legal services”. [33] It is by no means clear that the “costs for legal services” necessarily include disbursements paid to experts or other witnesses. The phrase “costs for legal services” appears to have been used in contradistinction to “legal costs”.

    33. Legal Profession Act 2004, ss 329, 337, 338.

44. Similarly, “disbursements” (referred to in the definition of “legal costs”) may have a variable meaning depending on context. There are a number of different categories of disbursements which may be incurred in the provision of legal services. First, it is not uncommon for solicitors to charge separately for their own disbursements (as occurred in the present case) including photocopying fees, telephone calls, bank charges and postage. Secondly, there are the payments made to other providers of legal services, including barristers. Thirdly, there are payments made to other professionals retained on behalf of the client, including valuers, engineers and other experts. Fourthly, there are fixed costs payable to other bodies, including registration fees, stamp duty and court costs.

45. The second principle is that statutory definitions are generally subject to qualifications where a defined term is used in a context which renders the definition inapplicable. Section 5(2) of the Interpretation Act 1987 (NSW) expressly provides that that Act applies “except in so far as the contrary intention appears in this Act or in the Act or instrument concerned.” It is generally accepted that a similar qualification may be implied in the absence of an express statement to that effect. As Viscount Maugham observed in Knightsbridge Estates Trust Ltd v Byrne:[34]

“It is perhaps worth noting that the words ‘unless the context otherwise requires,’ which we find in the consolidating Act of 1929, are not to be found in the amending Act of 1928. I attribute little weight to this fact, for in my opinion some such words are to be implied in all statutes where the expressions which are interpreted by a definition clause are used in a number of sections with meanings sometimes of a wide and sometimes of an obviously limited character.”

This passage was cited with approval by Burchett AUJ (Wallwork and Wheeler JJ agreeing) in Betella v O’Leary. [35] In Qantas Airways Ltd v Chief Commissioner of State Revenue,[36] Handley AJ (sitting in the Equity Division) stated that “[t]here is a presumption that defined words in a statute have their defined meanings which is not to be displaced without good reason”. [37]

34. [1940] AC 613 at 621.

35. [2001] WASCA 266 at [13].

36. [2008] NSWSC 1049.

37. Qantas Airways at [38].

46. That a statutory definition should not readily be put aside may be accepted, but where context suggests that a different meaning should be adopted to give effect to the apparent purpose of a specific provision, to depart from the definition is to comply with the obligation to adopt a construction that would promote the purpose or object of the provision, rather than one which would not. [38] The primary purpose of Pt 3.1 of the 2004 Act was “to ensure trust money is held by law practices in a way that protects the interests of persons for or on whose behalf money is held, both inside and outside this jurisdiction”. [39]

    38. Interpretation Act 1987, s 33.

    39. Legal Profession Act, s 242(a).

47. Although the term “disbursements” (which appears in the definition of “legal costs”) is not expressly used in the definition of “trust money”, it may be encompassed by the new concept of “transit money”. To import the whole definition of “legal costs” into par (a) of the definition of “trust money” would tend to render par (c) otiose. Further, the reference in par (a) to money received by the practice “on account of legal costs in advance of providing the services” is apt to identify money paid by way of costs for legal work not yet undertaken by the law practice itself, rather than including work to be undertaken by third parties. The law practice does not provide the services of the expert or the barrister; it contracts with others to provide those specialist services.

48. Consistently with that construction of the definition of “trust money”, s 246(4) excludes from that definition amounts received “for the payment of costs due to the practice”. Again, that language is not apt to refer to payments due to third parties; rather, the natural meaning of “costs due to the practice” is costs due and payable for legal services provided by the practice.

49. On this basis, s 246(4) is consistent with the definition of “trust money”, par (a), in the sense that costs which are due are likely to be for services which have been provided. That exclusion complements the inclusion in the concept of trust money of amounts received “in advance of” the provision of the services. The reference in s 246(4) to “costs due to the practice” does not naturally include transit money payable to a third party but rather, like par (a) of the definition of “trust money”, more naturally speaks to the cost of services provided by the law practice. To take but one example, in relation to a court hearing, the services provided by the law practice will include the briefing of counsel and the attendance by the solicitor in court to assist counsel; the service provided by counsel is not a service provided by the law practice; the attendance of the solicitor is.

50. It is not necessary in this case to determine the meaning of “due” in this provision. That term can mean due and payable or it can mean owing in the sense that a legal liability to make the payment has arisen, although the date for payment has not yet arrived. [40] This case is not concerned with whether the solicitor’s professional costs were owing or due and payable. It is sufficient that the relevant services had been rendered.

    40. Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 8 (Gibbs CJ), 15 (Mason J) and 24 (Brennan J); [1981] HCA 40.

51. On this understanding of the operation of the 2004 Act, there may have been a variation of the existing law, but not in the way proposed by the Tribunal. The Tribunal would construe the definition of “trust money”, when the definition is read with s 246(4), as excluding all disbursements payable by the law practice. That would involve a substantial loosening of the regulatory scheme. The construction adopted above would involve a tightening of the scheme with respect to solicitors’ fees which are paid in advance. Since 1935, solicitors in this State had been entitled to receive moneys into their office accounts on account of their legal costs, whether already due or “to accrue due”. The effect of the 2004 definition of “trust money” was to impose a significant tightening of that regulation by requiring that moneys paid “in advance of” the provision of services be held in the trust account, subject to the exclusion of amounts received by way of “costs due to the practice”.

52. It is also not necessary to address the scope and operation of s 254 which excludes certain moneys, including transit moneys, from the obligation to deposit them in a general trust account. As noted in Gillespie-Jones, that exception “is no doubt because it is subject to a specific instruction to pay a third party.” [41]

    41.    Gillespie-Jones at [21] (French CJ, Hayne, Crennan and Kiefel JJ).

Conclusion

53. It follows that, on the existing findings of fact, the solicitor was correct to concede that the cheque received from the clients for some $19,500 on 21 June 2012 should have been paid into his trust account. Subject to express authority, that amount, together with the amount already held in the trust account, could have been disbursed in payment of the fees to third parties listed in the memorandum of costs and disbursements. Assuming there were no other outstanding fees payable to third parties, payment of which had been authorised by the clients, the balance was available to be appropriated as the solicitor’s professional costs identified in the same memorandum.

54. For these reasons following orders should be made:

1. Allow the appeal and set aside the order made by the Tribunal on 26 May 2017 dismissing the application before it.

2. Order that there be a new hearing in the Tribunal of the application by the Council of the Law Society.

3. Order that the respondent pay the appellant’s costs of the appeal.

4. Order that the respondent have a certificate under the Suitors’ Fund Act 1951 (NSW) with respect to the costs of the appeal.

55. SIMPSON JA: The issue in this appeal is a narrow one. It is whether, for the purposes of Pt 3.1 of the Legal Profession Act 2004 (NSW), money paid by clients to a law practice for the payment of:

(i)  counsel’s fees; and/or

(ii)  fees payable to an expert witness retained by the law practice for the purpose of legal proceedings

is trust money which ought to be deposited in the law practice’s trust account.

56. I find myself in the unenviable position of considering that the issue ought to be determined on a basis other than that propounded by either party, and therefore not debated either at first instance or on appeal. I am fully conscious of the significant disadvantage to the persuasiveness of the reasons that this creates, and the potential injustice to the parties. However, as the issue is one of statutory construction, I am unable to proceed on what I consider to be a false basis. Were it not for the fact that this is a minority judgment, I would have been in favour of affording the parties the opportunity to make further submissions addressing the questions raised.

57. Resolution of the issue I have identified depends upon the construction of certain legislative provisions. The applicable legislation is the Legal Profession Act 2004 (NSW) (“the Act”). The relevant provisions are primarily to be found in Ch 3, headed “Conduct of legal practice” and, in particular, Pt 3.1 thereof, entitled “Trust money and trust accounts”. Also relevant are three definitions to be found in the general interpretation section, s 4. The first is a rather curious reference to “costs” of which is said, merely, “see definition of legal costs”; “legal costs”, in turn, is defined as:

“… amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services including disbursements but not including interest.”

“Legal services” is defined as meaning:

“… work done, or business transacted, in the ordinary course of legal practice.”

58. With those definitions in mind, it is Pt 3.1 to which primary attention must be directed. Section 242 sets out the purposes of Pt 3.1 as:

“(a)  to ensure trust money is held by law practices in a way that protects the interests of persons for or on whose behalf money is held, both inside and outside this jurisdiction,

(b)  to minimise compliance requirements for law practices that provide legal services within and outside this jurisdiction,

(c)  to ensure the Law Society Council can work effectively with corresponding authorities in other jurisdictions in relation to the regulation of trust money and trust accounts.”

59. Section 243 contains definitions specifically referable to Pt 3.1. It defines “trust money” as meaning:

“… money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice, and includes:

(a)  money received by the practice on account of legal costs in advance of providing the services, and

(b)  controlled money received by the practice, and

(c)  transit money received by the practice, and

(d)  money received by the practice, that is the subject of a power, exercisable by the practice or an associate of the practice, to deal with the money for or on behalf of another person.”

“Controlled money” is defined as meaning:

“… money received or held by a law practice in respect of which the practice has a written direction to deposit the money in an account (other than a general trust account) over which the practice has or will have exclusive control.”

“Transit money” is defined as meaning:

“… money received by a law practice subject to instructions to pay or deliver it to a third party, other than an associate of the practice.”

60. Section 246 is headed “Application of Part to law practices and trust money”. Sub-section (1) provides that Pt 3.1 applies to certain categories of law practices. A note explains that it is intended that the Part applies to a law practice that receives trust money in “this jurisdiction”, that is, New South Wales. It is sub-s (4) that is presently material. That sub-section is headed “Money received for costs not trust money”. The terms of the provision are as follows:

“Money received in the course of or in connection with the provision of legal services by a law practice for or on behalf of another person for the payment of costs due to the practice (including costs that have been awarded by a court, tribunal or other body that has power to award costs), is not trust money for the purposes of this Act.”

61. Section 254(1) provides:

“254  Certain trust money to be deposited in general trust account

(1)  Subject to section 258A, as soon as practicable after receiving trust money, a law practice must deposit the money in a general trust account of the practice unless:

(a)  the practice has a written direction by an appropriate person to deal with it otherwise than by depositing it in the account, or

(b)  the money is controlled money, or

(c)  the money is transit money, or

(d)  the money is the subject of a power given to the practice or an associate of the practice to deal with the money for or on behalf of another person.

…”

62. Section 255 relevantly provides:

“255  Holding, disbursing and accounting for trust money

(1)  A law practice must:

(a)  hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received, and

(b)  disburse the trust money only in accordance with a direction given by the person.”

63. Chapter 4 of the Act, entitled “Complaints and discipline” may also be noted. Part 4.2 provides for complaints to be made about Australian legal practitioners and sets out a procedure to be followed when such a complaint is made. It unnecessary to go into the complex structure of Ch 4. It is sufficient to say that, after the required procedures have been followed, (where the complaint concerns a solicitor) it may be considered by the Legal Services Commissioner (see Pt 7.3) or Council of the Law Society (“the Council”) (s 150), which may conduct a preliminary assessment, and must, subject to that assessment, conduct an investigation (s 527).

64. By s 537(1), after investigation, the Council must:

“(a)  commence proceedings in the [Civil and Administrative] Tribunal under this Chapter, or

(b)  dismiss the complaint under this Part, or

(c) take action under section 540.”

(Section 540 permits, in certain circumstances, summary disposal of complaints.)

Background facts and circumstances

65. The issue for determination in the appeal arises in the following way.

66. In 2011-2012 the respondent was a legal practitioner operating a law practice as a sole practitioner solicitor in a Sydney suburb. In about 2011 he was retained by clients who were defendants in proceedings in the District Court arising out of a home building contract. For the purposes of the proceedings he briefed a barrister (Mr R Parsons), and retained, for the purposes of giving expert evidence, a consulting engineer (Mr Art Candarakis) who operated through a company, BSPR Pty Ltd (“BSPR”). In doing so, the respondent became liable for the fees charged by them.

67. The hearing of the proceedings took place over three days in May 2012, and terminated adversely for the clients. No issue arises as to the conduct of the proceedings.

68. On 23 May 2012 the respondent sent the clients a memorandum of fees. It was headed “Memorandum of Costs and Disbursements” and was divided into two parts. The first part was identified as being “To our professional costs in the above proceedings” and claimed “profit costs” for attending the hearing on three separate days, and attending and taking judgment on a fourth. The total amount claimed in this respect was $15,840. The second part of the memorandum was headed “Disbursements” and listed seven items, as follows:

“1  Fees payable to [the barrister] …	$22,068.75
2  Fee payable to Vekta Pty Ltd …	$1,369.50
3  Fee payable to BSPR Pty Ltd for providing report …	$1,540.00
4  Fees payable to BSPR Pty Ltd for court attendance as expert witness …	$5,329.50
5  Parking fees for attending court on [six days]	$248.00
6  Photocopying fees	$302.50
7  Sundries including telephone calls, facsimile transmissions, bank charges, bank fees, postage etc …	$206.50”

The total claimed for disbursements was $31,064.75.

69. The total claimed for costs and disbursements was $46,904.75.

70. The Memorandum recorded that a sum of $27,400 had been transferred from the law practice’s trust account, leaving a “total amount payable to this firm” of $19,504.75.

71. In early June the client sent a cheque in that amount to the law practice. It was deposited into the office account on 12 June. (The respondent said that that was done by error of a personal assistant who was employed by him.)

72. Drawing on the office account, the respondent paid $12,068.75 to the barrister, leaving an outstanding amount of $10,000. He did not make payment to BSPR. Eventually, BSPR made a complaint to the Council concerning non-payment of the fees owing, which resulted in a part payment of $4,050. The complaint was dealt with by the Council, which ultimately resolved, under s 537(1)(a) to commence proceedings in the Civil and Administrative Tribunal (“the Tribunal”).

73. By Amended Application in the Tribunal the Council sought an order removing the respondent’s name from the Roll of Lawyers (see s 37 of the Act) on the basis that he was guilty of professional misconduct by breaches of ss 254 and 255 of the Act, and for “misappropriation”. It gave particulars of the application, which essentially set out the history I have recounted above. The substance of the application was that the money represented by the clients’ cheque was trust money that was required, by s 254, to be deposited in a general trust account, and, by s 255, to be held exclusively for the person (or persons) on whose behalf it was received, and disbursed only in accordance with a direction (or directions) given by that person (or persons).

74. A hearing was listed in the Tribunal on 10 October 2016. At the commencement of the hearing, the Tribunal raised a question concerning the characterisation of the money as trust money. The proceedings were adjourned to enable the parties to address that issue.

75. The respondent did not contest any of the factual matters alleged by the Council. From the time that he first responded to the Council’s resolution, he accepted that his conduct in failing to deposit the cheque into the practice’s general trust account was a contravention of ss 254 and 255 of the Act. He never departed from that position until a question concerning s 246(4) was raised by the Tribunal.

76. Thereafter, the Council somewhat refined its position. It accepted that that part of the money paid that was referable to the respondent’s fees for work already performed was not trust money, but maintained that that part of the money that represented unpaid counsel’s fees was trust money. For the latter proposition it cited Council of the Law Society v Andreone (No 1) [2014] NSWCATOD 49. It therefore contended that the money ought to have been apportioned (although it did not explain how money paid by a single cheque could be apportioned before deposit into an account). Whether it was intended to include that part of the money that was referable to BSPR’s fees in that categorisation is not clear.

69. A resumed hearing in the Tribunal took place on 7 March 2017. It was apparent that the Council’s application could not succeed unless it established that at least part of the money represented by the cheque was, within the meaning of the Act, trust money.

70. The Tribunal delivered judgment on 26 May 2017. It concluded that the money represented by the clients’ cheque and paid into the law practice’s office account was not trust money. Accordingly, there was no breach of ss 254 or 255. It expressly found that there had been no misappropriation.

71. The Tribunal therefore dismissed the Council’s application.

The reasoning of the Tribunal

80. A significant part of the Tribunal’s reasoning process involved s 246(4). The Tribunal considered that, by s 35(2)(a) of the Interpretation Act 1987 (NSW), it was permissible to take into account the heading to the sub-section, that is “Money received for costs not trust money” as providing some guidance to its meaning, and said:

“48  … Its [whether this is a reference to the heading or the substance of the subsection is not clear] intent is plain. Further, there is no mandate for any apportionment to be made as is suggested in the Council’s submission. In the circumstances the Tribunal is driven to the conclusion that giving effect to the intent of s 246(4), the monies received by the solicitor for disbursements already incurred by him did not constitute trust monies. Certainly a moral obligation existed on the solicitor to make payment of the disbursements, but this does not, in view of the subsection, rise to a legal obligation as between the client and the solicitor.

Conclusion

49  The Tribunal concludes that the provisions of s 246(4) must be given its natural and ordinary meaning. By applying such meaning to the facts in the present circumstances, the Tribunal concludes that the monies received from the client for disbursements which had already been incurred and the liability for which rested on the solicitor, not the client, were not trust monies as defined. In view of such finding there was no obligation on the part of the solicitor to deposit the cheque from the client in the solicitor’s trust account.”

81. The Tribunal considered that the money received by the law practice was received “for the payment of costs due to the practice”, and was, therefore, by reason of s 246(4), not trust money. What the Tribunal did not address was the anterior question of whether, absent the exclusion provided by s 246(4), the money constituted trust money.

The appeal

82. By Notice of Appeal filed on 15 June 2017 the Council appeals (as of right) against the Tribunal’s decision. It pleaded two grounds, as follows:

“1  The Tribunal erred in applying an improper construction of s 264(4) [sic – s 246(4)] of the Legal Profession Act 2004 (LPA 2004) to the facts, namely that monies received by the respondent solicitor from a client on account of disbursements which had already been incurred and the liability for which rested on the respondent solicitor and not the client, were not ‘trust monies’ as defined, so that there was no obligation on the part of the respondent to deposit the cheque from the client in the respondent’s trust account: reasons for decision at [49].

2 The Tribunal ought to have held that monies received by the respondent from a client on account of unpaid third party disbursements (counsel’s fees and fees due to an expert witness) were trust monies and required to be paid into the respondent’s trust account, so that the failure to have done so could amount to breach of ss 254 and 255 of the LPA 2004 and misappropriation as alleged in the Disciplinary Application.”

It sought orders setting aside the orders of the Tribunal and for a new hearing in the Tribunal.

83. The grounds of appeal as formulated accurately encapsulate the position that the Council advanced on appeal. In its essence, it is that the money represented by the clients’ cheque (or at least that part of it attributable to the fees payable to the barrister and to BSPR) was trust money, and therefore to be dealt with as required by ss 254 and 255, and paid into the law practice’s trust account. In its written submissions, the Council contended:

“50  Consistent with longstanding authority, the [Council] submits that a solicitor who receives money from a client in response to a request for funds to pay fees owing to a third party (such as counsel) holds those funds on trust for the benefit of the client.” (italics added)

84. The authorities cited for that proposition were Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35 at [96], and the cases cited therein, and Re Robb (1996) 134 FLR 294. The submissions of the Council focussed upon the construction to be placed on those parts of s 246(4) that concern “the provision of legal services” and “payment of costs due to the [law] practice”. The submission was:

“77  … that the natural reading is that this exclusion from ‘trust money’ (which must be paid into a trust account) is only in respect of money received by a Solicitor for fees due to the Solicitor in respect of legal services provided by the Solicitor. The complication for the Tribunal arose in its consideration of the definition of ‘costs’ without regard for the purpose of the exclusion.”

85. The Council’s submissions attacked the conclusion of the Tribunal that the disbursements payable to the barrister and to BSPR came within the definition of “legal costs” in s 4 of the Act. That conclusion, the Council submitted, was factually wrong because:

“80  … There was no evidence before the Tribunal that the Solicitor’s clients were liable for the third party disbursements of [sic – to] [the barrister] and BSPR.

81  At least in respect of [the barrister], contractually a client is not normally beholden to counsel for the payment of counsel’s fees where a solicitor engaged by the client retained counsel. Amounts charged by counsel for work conducted on a client’s case where a solicitor is engaged are (subject to the costs agreement in place between the solicitor and counsel) payable by the solicitor. In other words, it is the solicitor, and not the client, who is liable to meet the payment to counsel …”

86. With respect to the fees payable to BSPR, the Council submitted:

“83  … an expert’s fees would not (even if the fee featured on an invoice issued by a solicitor to a client seeking payment of the amount) be an ‘amount that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services’. An expert witness ordinarily does not (and certainly did not in the present case in respect of BSPR) provide legal services.

84 Thus money paid by a client to a solicitor to enable a solicitor to pay an expert’s fees incurred in a legal proceeding would not constitute a payment for legal services, and therefore must fall outside of the definition of ‘legal costs’ in s 4.” (bold in original)

87. The Council further contended that the definition of “legal costs” is ambiguous, and should be construed as though it read as follows:

“Amounts that a person has been or may be charged by, or is or may become liable to pay to, a law practice for the provision of legal services [by the law practice] including disbursements but not including interest.” (bold in original)

88. Finally, the Council contended that the Tribunal fell into error by calling in aid the heading to s 246(4) of the Act; this, it was said, was because s 33 of the Interpretation Act requires that preference be given to a construction that promotes the purpose or object of the Act. By inference the Council’s position was that the construction given to s 246(4) by the Tribunal failed to promote the purposes or objects of the Act.

Determination

89. Although, for the reasons given by McColl JA, I agree that it was an error to take into account the heading to s 246(4), I have otherwise come to a view different from those stated by Basten JA and McColl JA. In my opinion, no part of the money represented by the clients’ cheque was trust money within the meaning of Pt 3.1 of the Act. My reasons are as follows.

90. As was common ground in the hearing in the Tribunal, and firmly maintained by the Council on appeal the liability to pay the barrister and BSPR lay exclusively on the respondent. The clients themselves had no direct liability either to the barrister or to BSPR, and (at least) the barrister had no legal recourse against the clients in the event of non-payment. I say “at least the barrister” because, in Re Robb, to which reference will be made below, a contrary suggestion was made in respect of debts incurred by a solicitor on a client’s behalf. It is not necessary to explore this further. The liability of the clients in this case was to pay the fees and disbursements they had agreed to pay to the respondent. The disbursements included the fees payable to the barrister and to BSPR. I would reject as plainly incorrect the submission of the Council in par 80, extracted above. The clients were liable for those disbursements, but to the respondent, not the barrister or BSPR.

91. I turn now to the definition of “trust money” in s 243. The definition is of the not unfamiliar kind that begins with a broad statement (“means”) to which is added (“and includes”) additional items that may not otherwise be seen to be included. Of this kind of definition, the High Court in BHP Billiton Iron Ore Pty Ltd v National Competition Council (2008) 236 CLR 145; [2008] HCA 45 said:

“32  … As a general proposition, the adoption of the definitional structure ‘means and includes’ indicates an exhaustive explanation of the content of the term which is the subject of the definition, and conveys the idea both of enlargement and exclusion.  In doing so, the definition also may make it plain that otherwise doubtful cases do fall within its scope.” (internal citations omitted)

92. It is convenient to begin with the four specific instances of money received that are included in, and expand, the definition. The first is:

“(a)  money received by the practice on account of legal costs in advance of providing the services.” (italics added for emphasis)

The money received was not of this kind; when the Memorandum of Fees was sent and the cheque paid, all the services had been provided. The money in question was not money paid “in advance of” the provision of the services. It was therefore not trust money of this species.

93. The second specific instance of “trust money” in the definition is:

“(b)  controlled money received by the practice.”

“Controlled money” is:

“… money received or held by a law practice in respect of which the practice has a written direction to deposit the money in an account … over which the practice has or will have exclusive control.”

There was, in this case, no evidence of any written direction as to the depositing of the money. The money in question was not “trust money” by reason of this part of the definition.

94. The third instance of money that is “trust money” by reason of the expanded definition is:

“(c)  transit money received by the practice.”

“Transit money” is:

“… money received by a law practice subject to instructions to pay or deliver it to a third party, other than an associate of the practice.”

There was no evidence of any instruction by the clients to the solicitor to pay or deliver the money to the barrister or BSPR. The money in question does not come within this part of the definition of “trust money”. (In Gillespie-Jones, to which further reference will also be made below, the absence of an instruction by the client to pay a barrister was a reason that French CJ and Hayne, Crennan and Kiefel JJ found that the barrister was not a person who had suffered pecuniary loss by reason of a failure on the part of a solicitor, to whom money had been paid for legal costs, to pay the barrister’s fees and was therefore not entitled to be compensated by the Fidelity Fund.)

95. The fourth instance of trust money given in the definition is:

“(d)  money received by the practice, that is the subject of a power, exercisable by the practice or an associate of the practice, to deal with the money for or on behalf of another person.”

There was no evidence of any power to deal with the money exercisable by the law practice (or the respondent). The money does not come within this part of the definition.

96. That disposes of the inclusive aspect of the definition. The remaining question is whether the money was, within the opening words of the definition:

“… money entrusted to [the] law practice in the course of or in connection with the provision of legal services by the practice …”

97. In Gillespie-Jones, the High Court had under consideration a definition in identical terms in the corresponding Victorian legislation. Bell, Gageler and Keane JJ said:

“96  That definition of ‘trust money’ … is structured in a way that ‘indicates an exhaustive explanation of the content of the term’ and that ‘also … make[s] it plain that otherwise doubtful cases do fall within its scope’. [Their Honours cited the passage from BHP Billiton extracted above.] The general explanation that the term ‘means’ money ‘entrusted’ to a law practice in the course of or in connection with the provision of legal services by the practice cannot be read narrowly or technically so as to cover only circumstances which would give rise to a relationship of trust independently of the operation of the Act. The word ‘entrusted’ is rather to be read according to its ordinary meaning in such a context. The general explanation is therefore to be read as covering any money confided to the care or disposal of the law practice in circumstances which indicate that the money has been earmarked for purposes not being purposes of the practice itself. [Their Honours cited Stephens v The Queen (1978) 139 CLR 315; [1978] HCA 35 and Francis v Law Society of New South Wales [1982] 2 NSWLR 191 at 200.] The further explanation that the term ‘includes’ money received by the law practice within four specified categories indicates that money within those categories is always trust money, whether or not it would otherwise fall within the general conception of money entrusted to the law practice.” (bold added)

98. Stephens v The Queen (1978) 139 CLR 315; [1978] HCA 35, cited in this passage, involved a criminal prosecution for fraudulent conversion under South Australian legislation. Proof of the charge required (inter alia) proof that the accused had been “entrusted” with property. Gibbs J (as he then was) said (at p 333):

“One of the ordinary meanings of the word ‘entrust’ is ‘to confide the care or disposal of’ (see Shorter Oxford English Dictionary) and it is in that sense that the word is used in the section. To bring the case within the section the property must have been entrusted to the accused either for safekeeping or to be applied, paid or delivered for a particular purpose or to a particular person. In other words it must have been earmarked for certain purposes which are not purposes of the accused himself … It is necessary to consider the terms on which the property was received …” (bold added)

99. Two circumstances persuade me that the clients’ cheque was not “entrusted to the law practice” within the meaning of the opening words of the definition. First, it seems to me to be clear that the money was not “entrusted” to the law practice; rather, it was paid to the law practice in satisfaction of the debt the clients owed to it; that debt included the fees payable by the law practice to the barrister and BSPR. The second circumstance is that, while it might be said that the money was “earmarked” for the purpose of payment to the law practice’s disbursements, it could not be said that the purpose was “not for the purposes of the practice itself”. It clearly was, in my opinion, earmarked for the purposes of the law practice in discharging its obligation to the barrister and BSPR. That is entirely consistent with the Council’s insistence that the liability to pay the barrister’s fees and those of BSPR lay with the respondent. That it was not, in the result, deployed for the purpose, does not bear upon the purpose for which it was paid.

100. In support of the proposition that money paid to a solicitor for counsel’s fees constitutes trust money, the Council relied on a number of previous decisions. One of these was Andreone, in which the Tribunal said:

“66  The evidence is that the Counsel’s fees had not been paid by the Firm when each of the amounts were received. The funds were for payment of Counsel’s fees and were therefore trust funds …”

101. Another was Legal Services Commissioner v Russo [2016] NSWCATOD 42, in which the Tribunal said:

“26  Notwithstanding the submissions by Mr Russo to the contrary, where P paid an account of the law practice that included unpaid counsel’s fees, then, to the extent of the counsel’s fees, the funds received by the law practice were trust monies …”

Andreone was cited as authority for that proposition.

102. The decision in Russo was appealed to this Court which said:

“81  … Mr Russo’s misconduct involved obvious deficiencies in his application of trust moneys (and a failure to recognise that moneys paid for counsel’s fees were properly to be regarded as trust moneys).”: (Russo v Legal Services Commissioner [2016] NSWCA 306)

103. In none of these cases was the characterisation of money paid to a solicitor in respect of counsel’s fees argued.

104. The decision of the Supreme Court of the Australian Capital Territory in Re Robb is instructive. That was a case in which two partners of a law firm in the ACT were alleged to have been guilty of professional misconduct. The circumstances were as follows. The law firm conducted a litigation practice, which included personal injury claims. The practice of the firm was, when claims were settled, to have the clients authorise payment of the settlement money (which included a component for the costs of the proceedings) to them, and to authorise payment from that money of legal costs and disbursements. The settlement money was paid, as required by the relevant legislation, into a general trust account from which was transferred into the firm’s general account that amount that was authorised for payment of legal costs and disbursements. There was then a lengthy delay in payment of counsel’s fees, although, in at least some cases, cheques on the office account were written but not delivered for some time.

105. There was no issue in that case that the settlement money received by the solicitors was trust money. That was in accordance with s 87(1) of the Legal Practitioners Act 1970 (ACT) which provided:

“(1)  All moneys received by a solicitor, in connection with the solicitor’s practice in the Territory, from, or on behalf of, a client of the solicitor shall, for all purposes, be deemed to be held in trust for that client to be disbursed, or otherwise dealt with, by the solicitor in accordance with the instructions of the client.”

106. Section 94(2) provided:

“(2) Subject to subsection (3) and to Division 8, a solicitor shall not withdraw any money from a trust bank account except for the purposes of payment to, or disbursement according to the direction of, the person for whom the money is, by virtue of section 87, to be deemed to be held in trust.”

107. The professional misconduct alleged against the solicitors was particularised as including:

• failure to apply the money transferred from the trust account to the office account for the purposes of payment to third parties within a reasonable time of the transfer; and

• failure to comply with the instructions of clients to disburse moneys in payment of fees of third parties.

(There were other particulars which it is not necessary here to note.)

108. The Court found that the solicitors were in breach of ss 87(1) and 94(2). (The Report states, at p 328, that they were in breach of s 92(2) but this is plainly a typographical error.) The basis for that conclusion was that the solicitors at all times were under a fiduciary duty to the clients, which required them to pay counsel on receipt of settlement money (p 309). The Court noted and rejected as “totally unjustified” an assumption made by the solicitors that money:

“… received on trust for the client and transferred to the office account for the very purpose of paying counsel, were not affected by their fiduciary duties to the client and were their moneys to pay counsel fees when they chose and that any delay was simply a matter between counsel and themselves.”

109. As I have noted above, there was no issue that when the settlement money was received by the solicitors, it was trust money. By s 87(1) it remained trust money until disbursed in accordance with the instructions of the client. The professional misconduct found was breach of s 87(1) (although, s 87(1) is a deeming provision) and s 94(2) (withdrawal of trust money otherwise for the purpose of payment in accordance with the instructions of the client). The essence of the misconduct lay in the retention of funds for lengthy periods after withdrawal from the trust account.

110. The reasoning in Re Robb does nothing to persuade me that the clients’ cheque paid to the respondent was trust money as that term is defined in the Act. While it may be accepted that the relationship between solicitor and client involves fiduciary duties, a fiduciary relationship is not coextensive with a trust relationship: see Heydon and Leeming, Jacobs’ Law of Trusts in Australia, (8th ed, LexisNexis Butterworths) at [2-02].

111. The consequence of these conclusions is that none of the money represented by the clients’ cheque was trust money within the meaning of Pt 3.1 of the Act, and the Tribunal was correct so to hold (although it did so for different reasons). That is sufficient to dispose of the appeal.

112. Notwithstanding that conclusion, it is nevertheless necessary to consider the effect (if any) of s 246(4). That is because that sub-section played a significant role in the Tribunal’s decision, and was a focus of the Council’s submissions in this Court. It seems that s 246(4) has no counterpart in any other Australian jurisdiction, and has not been the subject of any judicial analysis, at least at appellate level.

113. Section 246(4) adds an exclusionary element to the definition of “trust money”. It excludes from the concept of “trust money” money that:

• is received by a law practice;

• in the course of, or in connection with, the provision of legal services;

• for or on behalf of another person;

• for payment of costs due to the practice.

For the exclusion to operate, the money must have all four characteristics.

114. The first point to make is that, for the reasons I have already given in relation to the s 243 definition, the money was received for the law practice’s own obligation to pay the barrister and BSPR, and not “for or on behalf of another person”. That means s 246(4) is inapplicable.

115. However, if that is wrong, and it could properly be said that the money was received “for or on behalf of” the barrister and/or BSPR, in my opinion the money would come within the exclusion provided by sub-s (4).

116. The Council’s submission, in the Tribunal and on appeal, was that:

“79 … Third party disbursements of a solicitor for which payment is requested by a solicitor from the client are not within the definition of ‘legal costs’ under s 4 of [the Act].”

117. The Tribunal (correctly in my opinion) rejected that submission. I have extracted above the Council’s submission at pars 80 and 81. It was in this context that the Council relied upon the convention that it is solicitors, not clients, who have direct liability to pay counsel’s fees (and, by implication, those of expert witnesses retained by them).

118. So much may be accepted. It does not mean, however, that the clients were not liable for the solicitor’s third party disbursements. In my opinion they clearly were. I reject the Council’s submission that the definition of “legal costs” should be read as though additional words (“by the law practice”) were inserted after “provision of legal services” (see [87] above). I see no ambiguity in the definition, and no call for the addition of words the legislature has not used. Moreover, the submission that the fees owing to the barrister and BSPR do not come within the definition of “legal costs” ignores the words “including disbursements” in the definition.

119. The Council separately argued that the fees payable to BSPR did not come within the definition of “legal services” and therefore within the exclusion provided for by s 246(4). I find that submission difficult to accept, in the light of the words “in connection with” that precede “the provision of legal services” in the sub-section. The fees owing to BSPR were, in my opinion, incurred “in connection with” the provision of legal services by the respondent, and the money received by the respondent for those fees was received by the respondent “in connection with” the provision of what were undoubtedly legal services.

120. Even if the money would otherwise have been classified as trust money, it was excluded by s 246(4).

121. The position would almost certainly have been different had the money been paid prior to the delivery of the legal services. In that case, it would come within paragraph (a) of the definition.

122. It may also be argued that that part of the money that was referable to fees payable to the barrister and BSPR was subject to an implied instruction to pay or deliver it to the barrister and BSPR. (No such instruction was implied by the High Court in Gillespie-Jones.) If such a direction were to be implied, the money would have been “transit money”, and excluded, by s 254(1)(a) from the obligation to pay it into a trust account. In that event, the Council’s complaint under s 254 would necessarily fail.

123. Nor could it be said to be subject to the obligation imposed by s 255, which requires that trust money “deposited in a general trust account” be held and disbursed in accordance with the section.

124. The reasoning in Re Robb does, however, open further questions about the fiduciary relationship between the respondent and the clients, and any obligations falling short of trustee duties that might have arisen: see, for example Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417; [1932] HCA 22; Re John Frederick Lord v The Australian Elizabethan TheatreTrust (1991) 30 FCR 491; [1991] FCA 438 (“AETT”).

125. My conclusion does not mean that the respondent’s conduct is unimpeachable. He may well be answerable for failures of his fiduciary duty to the clients who, it may be assumed, paid the cheque in the expectation that the disbursements would be made in accordance with the Memorandum of Fees (see the analysis by Dixon J in Countess of Bective, made by reference to gifts, but accepted by Gummow J in AETT as of wider application). But the allegations based as they were on breaches of ss 254 and 255, and dependant on the money received from the clients being “trust money” cannot be sustained.

126. In my opinion the appeal should be dismissed with costs.

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Endnotes

Decision last updated: 15 December 2017