Council of the Law Society of New South Wales v Vaughan (No 2)
[2011] NSWADT 260
•11 November 2011
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Council of the Law Society of New South Wales v Vaughan (No 2) [2011] NSWADT 260 Hearing dates: 17 August 2011 Decision date: 11 November 2011 Jurisdiction: Legal Services Division Before: M Chesterman, Deputy President
N Isenberg, Judicial Member
R Fitzgerald, Non-judicial MemberDecision: 1. The Respondent is liable to pay compensation totalling $977.69 to the complainant AB.
2. No order as to costs.
Catchwords: Disciplinary application - solicitor - claim for compensation by complainant Legislation Cited: Administrative Decisions Tribunal Act 1997
Civil Liability Act 2002
Family Law Act 1975 (Cth)
Legal Profession Act 1987
Legal Profession Act 2004Cases Cited: Cachia v Hanes (1994) 179 CLR 403
Council of the Law Society of New South Wales v Vaughan [2011] NSWADT 118
Hungerfords v Walker (1989) 171 CLR 125
Law Society of New South Wales v Hill [2002] NSWADT 190
In the matter of Radin [1993] NSWLST 19Category: Separate question Parties: Council of the Law Society of New South Wales (Applicant)
AB (Complainant)
Michael John Vaughan (Respondent)Representation: Counsel
J Conomos (Respondent)
AB (Complainant - In person)
File Number(s): 102031 Publication restriction: Section 121 of the Family Law Act 1975 (Cth) to the publication of the complainant names.
decision
The course of these proceedings
(M CHESTERMAN (DEPUTY PRESIDENT), N ISENBERG (JUDICIAL MEMBER), R FITZGERALD (NON-JUDICIAL MEMBER)): On 26 November 2010, the Council of the Law Society of New South Wales ('the Law Society') filed an Application alleging that the Respondent, Michael John Vaughan ('the Solicitor'), while practising as a solicitor, engaged in unsatisfactory professional misconduct on the following Grounds: (1) failing to place monies in an interest bearing account (complaint by AB) and (2) failing to place monies in an interest bearing account (complaint by YZ). Particulars of the alleged conduct were supplied in a schedule to the Application.
In this description of the Application, the names of the two complainants have been replaced by the pseudonyms AB and YZ. The reason is that it was stated in the Application that they had been parties to Family Court proceedings. Publication of their names is therefore prohibited under section 121 of the Family Law Act 1975 (Cth).
The orders sought in the Application were that the Solicitor be reprimanded and that he pay the Law Society's costs. The Application also indicated that AB, one of the two complainants, sought an order for compensation.
On 8 March 2011, an Instrument of Consent, executed by the Law Society, the Solicitor and the Legal Services Commissioner (hereafter 'the Commissioner'), was filed in the Tribunal. It stated that the signatories gave their consent to the Tribunal (a) finding that the conduct of the Solicitor, described in an accompanying document headed 'Particulars of Agreed Facts', amounted to unsatisfactory professional conduct and (b) making the following orders, by consent:-
1. That the solicitor be reprimanded.
2. That the solicitor pay the Society's costs of and incidental to these proceedings, as agreed or assessed.
At the hearing before us, which took place on 21 April 2011, the only evidence admitted was an affidavit sworn on 17 November 2010 by Ms Anne-Marie Foord, the solicitor for the Law Society.
After hearing addresses by counsel for the Law Society, the Commissioner and the Solicitor, we made orders in the terms proposed in the Instrument of Consent, preceded by a finding that the Solicitor had engaged in unsatisfactory professional conduct. Those orders took effect on the date of the hearing and were incorporated in a Notice of Decision sent to the parties on the same day. We also gave directions relating to the disposal of the compensation claim brought by AB.
Subsequently, written reasons for our decision were published ( Council of the Law Society of New South Wales v Vaughan [2011] NSWADT 118 - hereafter 'the principal decision').
On 17 August 2011, we conducted a hearing relating to the compensation claim. AB, the complainant bringing this claim, appeared in person. Mr Conomos of counsel appeared for the Solicitor. In earlier directions hearings, both the Law Society and the Commissioner had been excused from attending.
At this hearing, we admitted, on the tender of AB, the following evidence: (a) two statements by him, dated 28 June 2011 and 8 August 2011 respectively; (b) a letter (with 'working papers' annexed) addressed to him and dated 16 August 2011, written by Ralu, a firm of accountants and taxation agents and setting out their calculation of interest due to him from the Solicitor; and (c) a bundle of documents chiefly comprising correspondence between him and the Law Society or the Commissioner. AB gave oral evidence, but Mr Conomos did not seek to cross-examine him.
Mr Conomos tendered, and we admitted, an affidavit sworn by the Solicitor on 25 July 2011. The Solicitor was cross-examined briefly by AB.
We then heard oral argument from both parties, in the course of which Mr Conomos advised us that the Solicitor admitted liability to pay compensation to AB, but disputed the amount that AB claimed.
The present decision sets out our conclusion, with reasons, regarding the compensation claim.
Relevant aspects of the evidence and of the parties' submissions
In the principal decision at [15], the Particulars of Agreed Facts, with the names of the two complainants replaced by the pseudonyms AB and YZ, were set out in full. For present purposes, it is sufficient to quote here the following extracts from these Particulars:-
In these Particulars:
"the husband" means the complainant AB
"the law practice" means Johnston Vaughan, of 1120 Montgomery Street, in Kogarah NSW.
"the solicitor" means Michael John Vaughan, the Respondent.
"the Society" means the Law Society of New South Wales.
"the wife" means the complainant YZ, who was the client of the solicitor.
A. At all material times, the solicitor was the principal of the law practice.
B. The solicitor represented the wife in family law proceedings against the husband.
C. On 29 November 2005 the Family Court ordered that, following the sale of the matrimonial property, the law practice is to "hold the balance of sale monies in trust pending further order of the Court" ...
E. By order dated 30 March 2006, Federal Magistrate Sexton discharged the previous Family Court Orders of 29 November and made the following order by consent:
That pending further order the whole of the balance of sale monies be held in an interest-bearing account in the name of both parties, to be administered by Michael John Vaughan of Johnston Vaughan, Solicitors at 1/20 Montgomery Street, Kogarah.
F. The proceeds of sale of the property were received on 15 June 2006...
H. On 26 June 2006, the solicitor placed the balance of the sale proceeds, amounting to $83,785.88 into his trust account.
I. On the same date (26 June 2006), amounts of $7,586.05 and $10,205.09 were deducted to pay credit card debts, leaving an amount of $65,994.74...
O. On 10 September 2007 Judgment was delivered and final orders made.
P. On 13 September 2007, $17,343.50 was paid to the husband in accordance with the final orders.
Q. On 20 September 2007, $15,703.65 was transferred as costs to the law practice.
R. Also on 20 September 2007, $32,947.59 was paid to the wife, leaving a nil balance.
S. At no time between 30 March 2006 and 20 September 2007 did the solicitor seek to vary or set aside the order referred to at E above by filing an Application or otherwise...
During January 2007, AB made a complaint to the Commissioner containing numerous allegations of improper conduct by the Solicitor in the course of the family law proceedings between AB and YZ. On 6 September 2007, the Law Society, having investigated this complaint, determined that it should be dismissed. The Commissioner subsequently reviewed the Law Society's file and confirmed this determination.
A second complaint by AB, being the complaint from which these proceedings are derived, was made to the Commissioner on 17 April 2008. In it, AB again made numerous allegations of improper conduct by the Solicitor in the course of the family law proceedings.
In a letter to AB dated 31 March 2009, the Law Society stated that a number of the issues raised in these allegations were 'within the supervision of' the court dealing with the family law proceedings and would therefore not be included in the Society's investigation of the complaint. The letter stated also that certain other allegations made in the complaint were unduly vague and broad and for that reason would not be investigated. It then indicated that the scope of the Society's investigation would be confined to only two of the allegations made against the Solicitor: failing to place funds received by him into an interest-bearing account and intentionally posting documents which AB should have received to an incorrect address.
In a letter to AB dated 7 April 2010, the Law Society advised him that as a result of further investigation the Professional Conduct Committee, acting under delegation from the Law Society, had determined that there was no reasonable likelihood that the latter allegation would provide the basis for a finding by the Tribunal of professional misconduct or unsatisfactory professional conduct and that the complaint, so far as it was founded on this allegation, would therefore be dismissed.
On 3 June 2010, the Professional Conduct Committee resolved that there was a reasonable likelihood that the former allegation would provide the basis for a finding by the Tribunal of professional misconduct or unsatisfactory professional conduct and that the present proceedings should therefore be instituted in the Tribunal pursuant to section 537(2) of the LP Act 2004.
In his statement dated 28 June 2011 (supplemented in some respects by his statement of 8 August 2011) and in his oral evidence, AB claimed to be entitled to a total sum of $15,253. He identified five components of his claim, together with the amounts that according to him represented proper compensation for each of these components. These were as follows.
First, relying on calculations provided in the letter of 16 August 2011 (with annexed documents) from Ralu, he claimed that the amount due to him for interest was $1,733.00. He maintained also that an interest rate of 25% had been stipulated by the Federal Magistrates Court during 2007. He claimed elsewhere in his affidavit, however, that a rate of 8% was appropriate.
Secondly, he maintained that since 2008 he had written 15 times to the Law Society or the Commissioner, that each letter took two hours to write, that he should be compensated for earnings forgone at an hourly rate of $120 and that he should therefore recover $3,600 under this head.
Thirdly, with respect to four attendances at the Tribunal, each lasting nearly three hours, he claimed a total of $1,920, applying the same hourly rate.
Fourthly, he alleged that his dispute over the past few years with the Solicitor had caused him 'enormous pain and suffering' and 'undue anxiety stress and lack of proper concentration at work and in social life'. Under this head, he claimed 'a minimum' of $3,000.
Fifth and finally, he asserted that during 2006 the Solicitor, without the consent of the court, had improperly transferred a sum of $10,000 out of the proceeds of sale of his and YZ's former home (hereafter 'the proceeds of sale'). He claimed to be entitled to one half of this sum.
AB also testified that he was a qualified civil engineer and was employed in that capacity. He also made a number of other allegations to the effect that the Solicitor, while acting for YZ in the family law proceedings, had improperly caused the proceeds of sale to be depleted, thereby depriving him of funds to which he was entitled.
A further allegation made by AB was that on 1 June 2011, shortly before this matter came up for directions at the Tribunal, he had offered to the Solicitor to settle his compensation claim for $3,500, but that the Solicitor said he was only prepared to pay $738.
In his affidavit and during cross-examination, the Solicitor gave various reasons (which he had previously put before the Law Society during its investigation of the complaints by AB and YZ) why he had not placed the proceeds of sale into an interest-bearing account. One of these was that in order to establish such an account he needed to have the co-operation of AB, but AB refused to provide this. Because, as indicated above, the Solicitor admitted both the matters set out in the Particulars of Agreed Facts and his liability to pay compensation to AB, it is not necessary to outline further evidence that was put before us on this topic.
The Solicitor's affidavit also contained a denial of AB's claim to have attended the Tribunal on four occasions. It stated instead that to the Solicitor's knowledge AB had attended only twice.
An annexure to the affidavit contained a schedule, prepared by an officer of the Commonwealth Bank and sent to the Solicitor by email on 10 December 2010, showing a number of different rates of interest for each month between June 2006 and September 2007. In his affidavit, the Solicitor indicated that when requesting this schedule he asked for the rates that the Bank had applied during this period to funds deposited in a controlled money account and available at call. He explained that the interest-bearing account into which he should, pursuant to the order of the Federal Magistrates Court, have placed the proceeds of sale would have had to be an 'on call' account because the term of the deposit was uncertain.
A further annexure to the affidavit showed the Solicitor's calculation, applying these differing rates, of the interest earned on $17,343.50 (being the principal amount ordered to be paid to AB out of the proceeds of sale) during the relevant period (15 June 2006 to 13 September 2007). The calculation was of simple interest only. The total amount of the interest so calculated was $792.57.
Also annexed to the affidavit were copies of two letters. The first, dated 12 May 2011, was from the Solicitor's firm, Johnston Vaughan, to AB. It enclosed a copy of the Commonwealth Bank's 'printout'. It stated that this document showed the amount of interest payable by the Solicitor at that time to be $789.14. It also gave reasons why the rates for an 'on call' account, not a fixed term deposit, were applicable and conveyed an offer to pay $789.14 to AB in settlement of the compensation claim. In the second letter, dated 26 May 2011 and addressed to the Solicitor, AB rejected this offer, claiming that this was not 'fair and reasonable compensation' and repeating his allegation that the Solicitor had transferred $10,000 out of the proceeds of sale without authorisation from the court.
Finally, the Solicitor in his affidavit denied the allegation that shortly before the directions hearing on 1 June 2011 AB had offered to settle the compensation claim for $3,500. He said that AB had instead insisted that he should be compensated for pain and suffering and that he should receive $10,000. The Solicitor stated further that at the directions hearing he advised the Tribunal that this was the amount that AB 'wanted' and that AB had then 'expanded upon his claim'.
In his record of this directions hearing, the Tribunal member presiding (Justice Haylen, Deputy President) noted as follows:-
Compensation claim of $789.14 (interest only) owed to complainant. Complainant seeking $10,000 compensation. Settlement discussions unsuccessful.
Two answers given by Mr Conomos to questions put to him by us should be mentioned. First, he indicated that the offer to settle contained in the Solicitor's letter of 12 May 2011 to AB was the first offer of settlement that the Solicitor had conveyed. The reason, he said, was that AB had just asked for the first time that the Solicitor should suggest a 'ballpark figure' to him. Secondly, Mr Conomos submitted that the sum that we should order to be paid by the Solicitor to AB should not include any amount for pre-judgment interest. There was, he said, no provision for such interest in the LP Act 2004, and at common law there had been no rule until 'recently' requiring interest to be included in a court order for the payment of money.
Further submissions put to us by AB and by Mr Conomos on the question of costs are outlined below.
Relevant statutory provisions
The following provisions of Chapter 4 of the Legal Profession Act 2004 ('the LP Act 2004') regulate the making of compensation orders by the Tribunal:-
495 Definitions
In this Chapter:
compensation order means an order under Part 4.9 (Compensation).
complaint means a complaint under this Chapter.
conduct means conduct whether consisting of an act or omission...
loss means loss of a pecuniary nature, but does not include non-economic loss within the meaning of the Civil Liability Act 2002 .
503 Complaints
(1) A complaint may be made under this Part about an Australian legal practitioner's conduct...
(3) A complaint that is duly made is to be dealt with in accordance with this Part.
504 Making of complaints
(1) A complaint about an Australian legal practitioner may be made by:
(a) a client of the practitioner, or
(b) a Council, or
(c) the Commissioner, or
(d) any other person.
(3) A complaint must:...
(c) describe the alleged conduct the subject of the complaint.
570 Request by complainant for compensation order
(1) A complainant may request a compensation order in respect of loss suffered by:
(a) the complainant, or
(b) another person who is a client of the law practice to which the Australian legal practitioner concerned belongs,
(or both) because of the conduct the subject of the complaint. The complainant, or other person, suffering the loss is referred to in this Part as an aggrieved person .
(2) A complainant who makes such a request must describe the loss suffered by the aggrieved person and the relevant circumstances.
(3) Such a request may be made in the complaint. The request may also be made, by notice in writing to the Commissioner or the relevant Council, at any time after the making and before the disposal of the complaint.
571 Compensation orders
(1) A compensation order is an order, made in respect of a complaint against an Australian legal practitioner, to compensate the aggrieved person for loss suffered because of conduct that is the subject of the complaint.
(2) A compensation order consists of one or more of the following:...
(c) an order that the practitioner pay to the aggrieved person, by way of monetary compensation for the loss, a specified amount.
572 Prerequisites to making of compensation orders
(1) Unless the complainant and the Australian legal practitioner concerned agree, a compensation order is not to be made unless the person or body making it is satisfied:
(a) that the aggrieved person has suffered loss because of the conduct concerned, and
(b) that it is in the interests of justice that the order be made.
(2) A compensation order is not to be made in respect of any loss for which the aggrieved person has received or is entitled to receive:
(a) compensation received or receivable under an order that has been made by a court, or
(b) compensation paid or payable from a Fidelity Fund of any jurisdiction, where a relevant claim for payment from the Fund has been made or determined.
573 Making of compensation orders
(1) If the Tribunal has found that an Australian legal practitioner has engaged in unsatisfactory professional conduct or professional misconduct in relation to a complaint, the Tribunal may:
(a) make a compensation order, or
(b) refer the matter to the Commissioner for the making of a compensation order.
(7) A compensation order may specify the person to whom monetary compensation is payable, whether to the aggrieved person or to another person on behalf of the aggrieved person.
Under the heading 'Costs', subsections (1) and (5) of section 566 of the LP Act 2004 state:-
(1) The Tribunal must make orders requiring an Australian legal practitioner whom it has found to have engaged in unsatisfactory professional conduct or professional misconduct to pay costs (including costs of the Commissioner, a Council and the complainant), unless the Tribunal is satisfied that exceptional circumstances exist.
(5) The Tribunal may make orders requiring a person to pay costs (including, as appropriate, the costs of the Commissioner, a Council, the complainant and the Australian legal practitioner against whom the complaint was made), if satisfied that:
(a) the person, whether before or during the proceedings, failed to produce or delayed in producing any document required or requested to be produced, and
(b) the failure or delay contributed to delay in commencing, conducting or concluding the proceedings in such a way as to warrant the making of the orders.
The scope of the 'loss' for which compensation is payable
As just indicated, sections 570(1) and 571(1) describe the 'loss' for which a complainant may claim compensation under the former provision as the loss suffered by the complainant, or by another 'aggrieved person', because of 'conduct that is the subject of the complaint'. In addition, the phrase 'conduct the subject of the complaint' appears in section 504(3)(c).
According its natural interpretation, this phrase identifies the scope of the loss for which a complainant may seek compensation as any loss caused by the conduct of the relevant legal practitioner about which the complainant has complained in his or her complaint, made under section 503(1). This conduct may differ materially from such conduct of the practitioner that the Tribunal subsequently finds to have been alleged in the disciplinary application and established by the evidence, and to amount to professional misconduct and/or unsatisfactory professional conduct. Typically, as in this case, the conduct of a practitioner about which a complainant complains covers a wider range of acts and/or omissions than the conduct that is ultimately alleged, proved and held to constitute either or both of these forms of improper conduct.
In section 171D of the Legal Profession Act 1987 ('the LP Act 1987'), which contained provisions similar in general terms to sections 571 and 573(1)(a) of the LP Act 2004, the conduct of the respondent practitioner in relation to which a compensation could be made was defined in a significantly different way. The relevant parts of section 171D stated:-
(1) If, after it has completed a hearing relating to a complaint against a legal practitioner, the Tribunal is satisfied that the legal practitioner is guilty of unsatisfactory professional conduct or professional misconduct and that the complainant has suffered loss because of the conduct concerned (emphasis added), the Tribunal may do any one or more of the following to compensate the complainant:...
(d) order that the legal practitioner pay to the complainant by way of monetary compensation for the loss the amount specified in the order.
In Law Society of New South Wales v Hill [2002] NSWADT 190 at [83] and [88 - 90], the Tribunal made the following observations regarding these provisions:-
83 Under Section 171D(1) the Tribunal has to find as a threshold issue that the complainant has suffered loss because of the conduct concerned before it may do any one or more of the four nominated orders to compensate the complainant....
88 The Tribunal was concerned as to whether the matters complained of by Mesdames Vuic and Anon actually fell within the complaints particularised by the Society. The Tribunal did not have the assistance of any guidance from Counsel in relation to the compensation matters. The Tribunal is aware of only two reported matters in recent times dealing with compensation under the Act. The most recent of these is Legal Services Commission -v- Musgrave [2000] NSW ADT 149 where an order for payment of $10,000.00 compensation was made. That decision did not assist the Tribunal as the order was made by consent.
89 The other matter was a matter of Radin [1993] NSWLST 19. The Tribunal in that matter found in considering the prior equivalent of S171D [that is, the old S163]
"Before it can make an order for compensation against the solicitor it [the Tribunal] must be satisfied:
(1) that the legal practitioner has been guilty of unsatisfactory professional conduct or professional misconduct in relation to the subject of the claim for compensation and
(2) that the complainant has suffered loss arising out of this conduct."
90 The Tribunal adopts that same view as it did in Radin and finds that the conduct giving rise to the claim for compensation must be conduct that is both particularised in the complaint and found to constitute unsatisfactory professional conduct or professional misconduct by the Tribunal.
In relation to Radin , the following phrase within 'the old section 163' should be quoted:-
(3) If after it has completed a hearing into a complaint the Tribunal is satisfied that the legal practitioner is guilty of unsatisfactory professional conduct or professional misconduct and the complainant has suffered loss as a consequence of the conduct or misconduct (emphasis added)...
As far as we are aware, none of the comparatively few decisions that have been given on compensation orders under the LP Act 2004 has examined the implications of this change in the statutory definition of the 'loss' for which a complainant may compensation. We see no reason to doubt the Tribunal's ruling, in paragraph [90] of its decision in Hill , that the 'loss' for which a complainant could obtain compensation under section 171D(1) of the LP Act 1987 was confined to his or her loss caused by 'conduct that is both particularised in the complaint and found to constitute unsatisfactory professional conduct or professional misconduct by the Tribunal'. But the phrase used to define compensable 'loss' in the LP Act 2004 - namely, the loss suffered by the complainant (or another 'aggrieved person') 'because of the conduct the subject of the complaint' - has in our opinion the different, and normally wider, connotation that we have endeavoured to formulate above at [39]. It is, as we said there, 'any loss caused by the conduct of the relevant legal practitioner about which the complainant has complained in his or her complaint'.
In the present case, as we have indicated above at [15 - 18], the conduct of the Solicitor about which AB complained in his complaint of 17 April 2008 (from which these proceedings stemmed) went well beyond the single instance of conduct - namely a failure to place funds in an interest-bearing account - that was subsequently alleged, found proven and held to constitute unsatisfactory professional conduct in these proceedings. AB alleged that in the course of the family law proceedings between himself and YZ the Solicitor had acted improperly in many other different ways. The Law Society determined that it should not investigate a large proportion of the issues raised in these allegations. It confined its investigation to only two of AB's allegations. Having determined that the evidence was insufficient to justify proceedings based on one of these, it based its disciplinary application on the sole remaining allegation, that of failing to place the proceeds of sale in an interest-bearing account.
Neither AB nor Mr Conomos addressed us on this question of interpretation of the 2004 provisions. But for one factor that we will now identify, we would be obliged to resolve it without the benefit of their assistance or to seek further submissions from them. We are satisfied, however, that in these proceedings it is sufficient for us only to raise this question about the scope of the loss for which compensation may be payable under the LP Act 2004 and to express our opinion (as we have already done, in the penultimate paragraph) as to how it should be answered.
The reason why we may take this course is that AB did not adduce any evidence on which we could make a finding in his favour with regard to any of his allegations of improper conduct in the complaint (leaving aside the specific allegation which the Law Society repeated in the Application and the Solicitor admitted). The documents that we admitted on the tender of AB contained some letters and other material prepared by him in which a number of these allegations were repeated and elaborated upon. But no tangible evidence substantiating them was included. In the absence of any such evidence, no compensation for any 'loss' suffered 'because of' such alleged conduct of the Solicitor can be awarded.
For these reasons, we disallow the fifth of the five components of AB's claim for compensation: namely, his claim for one-half of a sum of $10,000 that, according to him, the Solicitor transferred improperly from the proceeds of sale (see [24] above).
The categories of 'loss' for which compensation is payable
As indicated above, the term 'loss', for the purposes of Chapter 4 of the LP Act 2004, is defined in section 495 to mean 'loss of a pecuniary nature', excluding 'non-economic loss within the meaning of the Civil Liability Act 2002'.
In section 3 of the later Act, 'non-economic loss' is defined to mean any one or more of the following: (a) pain and suffering; (b) loss of amenities of life; (c) loss of expectation of life; and (d) disfigurement.
By virtue of these provisions, we disallow the fourth of the five components of AB's claim for compensation: namely, his claim for 'pain and suffering... anxiety stress and lack of proper concentration' (see [23] above). It is not within the concept of 'loss' as defined in the LP Act 2004.
Two further components of AB's claim - the second and the third - related respectively to the earnings that he allegedly lost through being required to spend time writing letters to the Law Society or the Commissioner and attending Tribunal hearings (see [21] and [22] above).
In our opinion, the well-established principle that litigants in person, such as AB, cannot obtain awards of costs by virtue of spending periods of time instituting and maintaining proceedings applies equally to prevent them obtaining compensation for earnings foregone during these periods. In the leading case on this topic, Cachia v Hanes (1994) 179 CLR 403, the majority (Mason CJ, Brennan, Deane, Dawson and McHugh JJ) stated at 417 that to treat 'the loss in earnings of a litigant incurred in the course of the presentation or conduct of his case as a disbursement... is merely an indirect way of recompensing a litigant for time spent in the preparation or conduct of his case which, if it is not contemplated by the relevant legislation or rules, is not permissible'. There is nothing in the LP Act 2004 to suggest that this general principle stated by the Court is inapplicable in the present context.
We accordingly reject the second and third components of AB's claim. They are not forms of 'loss' to which section 570 of the LP Act applies.
The remaining component of AB's claim - the first, in the above outline (see [20]) - is the loss that he claimed because of the Solicitor's failure to deposit the proceeds of sale in an interest-bearing account. It is a 'loss of a pecuniary nature', for which the Solicitor has admitted liability. We are satisfied of the matters specified in section 572(1) of the LP Act, namely that AB sustained this loss and that it is in the interests of justice that a compensation order should be made.
We turn now to the question of how AB's loss is to be quantified.
The amount of interest lost by AB
As indicated above, AB relied on a letter, supplemented by 'working papers', provided to him by Ralu, a firm of accountants and taxation agents. The figure that they gave for the interest due to him was $1,137.83 (though in his affidavit he claimed the larger sum of $1,733.00).
We have not found this evidence to be at all helpful. The covering letter from Ralu stated that the total of $1,137.83 for interest was calculated 'from 10 July 2007 to 28 February 2011' and that AB 'was originally entitled to 25% of $3,732.63 but was never paid this amount'. It was not explained why either of these dates or this figure of $3,732.63 was relevant. Furthermore, nowhere in the letter or the 'working papers' was there any reference to the amount of $17,343.50 that AB received from the proceeds of sale, or to the period (15 June 2006 to 13 September 2007) during which interest should have been earned on this sum.
AB also claimed variously that interest rates of 25% and 8% were applicable. No credible grounds were suggested for either of these rates.
The Solicitor relied on a schedule, prepared by an officer of the Commonwealth Bank, showing the different rates of interest that the Bank had applied for each month between June 2006 and September 2007 to funds deposited in a controlled money account and available at call. Applying these rates during the relevant period (15 June 2006 to 13 September 2007) to the principal amount ($17,343.50) ordered to be paid to AB out of the proceeds of sale, and calculating simple interest only, the Solicitor arrived at a figure of $792.57.
We agree with the Solicitor that the relevant period is the period of about 15 months that he chose, that the amount on which interest should be calculated is the amount that AB received from the proceeds of sale and that the monthly rates advised by the Commonwealth Bank are applicable. But on our understanding of bank practice, compound interest at monthly rests would have been earned on funds deposited in an account of the relevant kind, even though any or all of these funds could be withdrawn at any time. At the end of each calendar month, the interest earned during that month would have been credited to the account.
The interest rates furnished by the Commonwealth Bank were as follows:-
June to August 2006 (inclusive): 3.45%
September to November 2006: 3.60%
December 2006 to August 2007: 3.75%
September 2007: 3.90%
Applying these rates, the total amount of compound interest on $17,343.50 during the period from 15 June 2006 to 13 September 2007,with interest added at the end of each month, is $809.75.
In our judgment, this total more accurately represents AB's loss, as at 13 September 2007, than the amount of $792.57 calculated by the Solicitor.
Pecuniary loss since the proceeds of sale were distributed
As indicated above, we raised at the hearing the question whether AB was also entitled to pre-judgment interest, or alternatively to damages for being deprived of the amount of interest that should have accrued to his share of the proceeds of sale, during the period between 13 September 2007 and the date of our decision.
Having further investigated this matter, we are satisfied that, contrary to Mr Conomos's submission, an award should be made. There is, as he said, no provision for pre-judgment interest in the LP Act 2004. But the High Court made it clear in Hungerfords v Walker (1989) 171 CLR 125 that at common law, the loss suffered by a persons who through being wrongfully deprived of a sum of money is rendered incapable of investing or otherwise applying it to generate income, or is required to borrow money to replace it, should in the ordinary course form part of any compensation paid to him or her by the wrongdoer. In their judgment at 144, for instance, Mason CJ and Wilson J said:-
The truism that there is no cause of action for the late payment of damages is sometimes proffered as a justification for not compensating loss by way of incurred expense and opportunity cost for money paid away or withheld. True, a defendant commits no tort by contesting the plaintiff's claim for damages or for that matter by contesting the plaintiff's claim to recover a debt. But the problem is not concerned with finding a cause of action; rather it is a problem of defining the limits of recoverable damages for an established cause of action. The argument for denying the recovery of incurred expense and opportunity cost in the sense already discussed rests on the more limited proposition that a plaintiff is not entitled to compensation for late payment of damages otherwise than in the form of interest in accordance with the relevant statutory provisions. As a matter of logic and principle, as well as commercial reality, this proposition has little to commend it in the circumstances of the present case.
Incurred expense and opportunity cost arising from paying money away or the withholding of moneys due to the defendant's wrong are something more than the late payment of damages. They are pecuniary losses suffered by the plaintiff as a result of the defendant's wrong and therefore constitute an integral element of the loss for which he is entitled to be compensated by an award of damages
In accordance with this statement of principle, the overall loss suffered by AB because of the Solicitor's failure to deposit the proceeds of sale in an interest-bearing account should be taken to include his pecuniary loss caused after distribution of the proceeds by the fact that the sum that he received was less, by an amount of $809.75, than it should have been.
There was no evidence before us as to how AB might have used this amount of $809.75 to generate further income or to reduce any liability (e.g. for interest on money borrowed) to which he was subject.
In these circumstances, the most appropriate course of action is, in our opinion, to apply the rate of interest that, under the LP Act 2004, applies to statutory claims of a kind broadly similar to the present claim. Under Part 3.4 of this Act, claims with respect to 'defaults' (as defined in section 419) by a legal practitioner may be brought against the Fidelity Fund. The overlap between such claims and compensation claims such as we are now resolving is noted in section 572(2) (this subsection is reproduced above at [36]). Section 446 provides that, until regulations establishing a different rate are promulgated, simple interest should accrue on the amount of a claim on the Fidelity Fund at the rate of 5%. No such regulation has been made.
Applying this rate of 5%, the additional amount payable by the Solicitor as compensation to AB for being deprived of the sum of $809.75 during the period since 13 September 2007 is $167.94.
The total amount of compensation for which the Solicitor is liable is therefore $977.69.
Costs
Both AB and the Solicitor sought orders for costs. AB argued that the Solicitor should pay costs because it was his conduct that gave rise to these proceedings. Mr Conomos argued that we should order AB to pay the Solicitor's costs because it would be 'fair' to do so within the meaning of section 88(1A) of the Administrative Decisions Tribunal Act 1997. He referred to the evidence showing that AB had rejected the Solicitor's offer of $789.14 (see [31] above).
Costs orders in proceedings under Chapter 4 of the LP Act 2004 are regulated by section 566 of that Act. We have set out the relevant parts of that section at [37] above.
According to section 566(1), we are obliged to order that the Solicitor, whom we have found to have engaged in unsatisfactory professional conduct to pay 'costs (including costs of... the complainant)', unless we are satisfied that 'exceptional circumstances' exist.
In our opinion, there are 'exceptional circumstances' in the present case. AB's insistence, as demonstrated at the directions hearing on 1 June 2011, that he should receive an amount as large as $10,000 because he was entitled to compensation for pain and suffering (see [32 - 33] above) effectively destroyed any reasonable possibility that his claim might be settled before the hearing date. Even though we have awarded to him an amount exceeding by approximately $200 the figure offered by the Solicitor, we still believe that the stance adopted by AB amounts to 'exceptional circumstances'. A further consideration in support of this conclusion is that any order for costs in AB's favour would have to be confined to the amount of any disbursements (regarding which he has put forward no evidence) that he has incurred in bringing his claim. A High Court case that we mentioned above at [52], Cachia v Hanes (1994) 179 CLR 403, rules out any costs order designed to compensate him for his time spent in instituting and maintaining the claim.
With reference to the Solicitor's application for costs, we observe first that the only provision within section 566 that provides grounds for a respondent practitioner to claim costs against a complainant is subsection (5). The present case does not fall within its provisions.
Section 88(1A) of the Administrative Decisions Tribunal Act 1997 can in limited circumstances operate as the foundation for a costs order in proceedings under the LP Act 2004. But it is expressly stated to be 'subject to any other Act or law', and in our opinion the question of costs orders as between a respondent practitioner and a complainant in proceedings under Chapter 4 of the LP Act must be regarded as wholly covered by section 566.
In case these conclusions are incorrect, there is another important reason why the Solicitor's application for costs should fail. This is that his offer of settlement, on which his claim for costs was based, was less advantageous to AB than the order that we have made. No other ground for holding that it would be 'fair' to order AB to pay costs is apparent to us.
For these reasons, there will be no order as to costs.
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Decision last updated: 11 November 2011
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