Council of the Law Society of the Act v Legal Practitioner ‘S'
[2016] ACAT 72
•4 July 2016
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
COUNCIL OF THE LAW SOCIETY OF THE ACT v LEGAL PRACTITIONER ‘S’ (Occupational Discipline) [2016] ACAT 72
OR 40/2015
Catchwords: OCCUPATIONAL DISCIPLINE – legal practitioner – professional misconduct – excessive costs – failure to inform client of increasing costs –client not treated fairly and in good faith – whether letter from client enclosing cheque constitutes a ‘final offer’ – failure of practitioner to reach a standard of competence and good faith
Legislation cited: Legal Profession Act 2006 ss 210, 225, 229, 276, 277, 282, 300, 304, 386, 387, 389, 400, 409, 419
Subordinate
Legislation:Legal Profession (Solicitors) Rules 2007 r 1.1, 39.2
Cases cited:Allinson v General Council of Medical Education and Registration [1894] 1 QB 750
Briginshaw v Briginshaw (1938) 60 CLR 336
Chamberlain v Law Society of the ACT [1993] FCA 527
O’Reilly v Law Society of New South Wales (1988) 24 NSWLR 204The Council of the Law Society of the ACT v Legal Practitioner P4 [2014] ACAT 64
List of
Texts/Papers cited: Butterworths, Riley Solicitors Manual
TRIBUNAL: Senior Member G Lunney SC
Senior Member M Brennan
Member D Lucas
Date of Orders: 4 July 2016
Date of Reasons for Decision: 4 July 2016
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) OR 40/2015
BETWEEN:
COUNCIL OF THE LAW SOCIETY OF THE ACT
Applicant
AND:
LEGAL PRACTITIONER ‘S’
Respondent
TRIBUNAL: Senior Member G Lunney SC
Senior Member M Brennan
Member D Lucas
DATE: 4 July 2016
ORDER
The Tribunal finds that:
the respondent’s conduct has involved a substantial or consistent failure to reach or to maintain a reasonable standard of competence and diligence such that his conduct constitutes professional misconduct; and
this is an appropriate case for submissions in relation to penalty, a compensation order, and costs.
The Tribunal orders that:
The application is to be listed for hearing of further submissions from the parties on a date to be advised.
………………………………..
Senior Member G Lunney SC
for and on behalf of the Tribunal
REASONS FOR DECISION
Introduction
These reasons relate to the hearing of an application for disciplinary action brought by the ACT Law Society, (the applicant) against the legal practitioner ‘S’, (the respondent).
The application was filed on 20 October 2015. Attached to it was a description of the basis of the application set out in the style of a statement of claim. The application was brought under section 419 of the Legal Profession Act 2006 (the LPA). It sought findings of professional misconduct or unsatisfactory professional conduct.
Details of the factual background to the application will emerge later in these reasons, however a condensed version follows. The respondent was the principal and sole director of an incorporated Canberra law firm, (the firm) which employed a practitioner with an unrestricted practising certificate, (Mr RY) who acted for a client (the complainant) on the conveyance of a residential unit in Canberra.
Fees for acting on the conveyance were to be assessed on the basis of an agreed lump sum fee. Contractual documents sent to the complainant at the time of the retainer foreshadowed the possibility of additional work for which further charges would be made. Additional work was done during preparation for the transfer and because a settlement cheque went astray after the settlement some further work was done after settlement. A final account was rendered which was significantly in excess of the amount of the agreed fee.
The complainant objected to the amount of the final account. By 8 April 2010 some settlement negotiations had taken place between the complainant and the firm and the complainant wrote to the firm offering the sum of $3,000.00 as his ‘final offer’ and enclosing a cheque for that amount. The firm presented the cheque. Nearly a month later it advised the complainant that his offer was rejected and lodged a bill of costs in the Supreme Court for $8,007.40.
On 22 May 2010, the complainant lodged a written complaint with the applicant relating to the total amount charged by the firm and also for presenting the cheque without accepting the complainant’s final offer. The applicant commenced an investigation.
In February 2013 the respondent and the complainant entered into a written agreement to settle the dispute. A term of the agreement was that the complainant would withdraw his complaint to the applicant.
The grounds of complaint
The application seeks one of two disciplinary orders: either a finding of professional misconduct or unsatisfactory professional conduct. Both are defined in the LPA, and are subject to common law definition and explanation in many reported cases.
The application recites the factual background relied upon by the applicant, makes reference to the legal context, and sets out six grounds upon which it relies to support the orders sought. The first two grounds are put in the alternative, as are the third and fourth. The fifth and sixth are separate grounds but arise out of the same factual matrix as the earlier ones.
The grounds are as follows. References to paragraph numbers are to the numbered paragraphs of the recitation of the factual background set out in the application.
Ground 1:The Respondent has deliberately charged, or alternatively, deliberately or recklessly permitted his employed solicitor, [Mr RY], to charge, excessive legal costs within section 389(b) of the Act, namely, the invoice referred to in paragraph 14 in the sum of $6,943.95.
Particulars
1.1The Society repeats the matters set out in paragraphs 1 to 16 above.
Ground 2:In the alternative to Ground 1, if (which is denied) the Respondent is not personally responsible for the charging of the said fees by [Mr RY], he failed properly to supervise [Mr RY] before [Mr RY] sent out the said invoice in the sum of $6,943.95, and is guilty of either professional misconduct or unsatisfactory professional conduct by reason thereof, and by reason of section 108(1)(a) of the Act
Particulars
2.1The Society repeats the matters set out in paragraphs 1 to 16 above.
Ground 3:In breach of s 276 of the Act, the Firm failed to disclose to the complainant the significant increase in costs which [the Firm] proposed to charge [the Complainant], and the Respondent as the sole principal of the Firm and the supervisor of [Mr RY] on the matter was “involved in the failure” within the meaning of section 277(7) of the Act.
Particulars
3.1The Society repeats the matters set out in paragraphs 1 to 16 above.
Ground 4:In the alternative to Ground 3, if (which is denied) the Respondent is not personally responsible for the failure to disclose, he failed properly to supervise [RY] or otherwise to take reasonable steps to ensure that [Mr RY] would give the appropriate disclosure and is, by reason thereof and by reason of section 108(1)(a) of the Act, guilty of either professional misconduct or unsatisfactory professional conduct
Particulars
4.1The Society repeats the matters set out in paragraphs 1 to 16 above.
Ground 5.1: In breach of rule 1.1 of the Rules, or alternatively in breach, of the general ethical duty pleaded in paragraph 24 above, the Practitioner improperly:
(a)accepted and banked, or permitted to be banked, a sum of money, namely $3,000.00, from his client, and
(b)then proceeded to seek to recover a yet greater sum of $8,007.40 (less the $3,000.00)
Particulars
5.1 The Society repeats the matters set out in 17 to 20 above.
Ground 6:In breach of his ethical duty not to hinder or interfere with the complaint investigation process (as expressed in paragraph 29 above), the Respondent by negotiating and entering into the Settlement Agreement referred to in paragraph 22 above, wrongfully attempted to interfere with and hinder that complaints process by (purportedly) obtaining an agreement from the complainant to withdraw his complaint to the Applicant Law Society.
Particulars
6.1 The Society repeats the matters set out in 21 to 22 above.
A response was filed by the respondent on 23 December 2015. While denying the grounds, this indicated that little was in dispute factually in the application.
Standard of proof
There are a number of decisions of this tribunal which acknowledge the significance of the High Court decision of Briginshaw v Briginshaw in relation to standard of proof. It was described in The Council of the Law Society of the ACT v Legal Practitioner P4 [2014] ACAT 64 as follows:
The standard of proof applicable in these proceedings remains on the balance of probabilities, however, in disciplinary (and other) matters the potential consequences for the respondent must be taken into account in determining whether a complaint has been made out.
In O’Reilly v Law Society of NSW (1988) 24 NSWLR 204 Kirby P said that a “high degree of satisfaction” was required.
The Tribunal will apply these principles in reaching its decision in this case.
History
The respondent’s conveyancing file indicates that the firm received initial advice of the sale of the unit to the complainant by letter from the vendor’s agent dated 26 June 2009. The complainant dealt with Mr RY at the outset of his contact with the firm and it was he who did the conveyancing work. The contract for sale was sent to the complainant with a covering letter of 30 June 2009. On 2 July 2009, the respondent’s firm’s contractual documents were sent to the complainant.
Those contractual documents consisted of a covering letter dated 2 July 2009; a document headed ‘Cost Disclosure Purchase/Sale of Residential Property’; and another headed ‘Fee & Expenses Schedule Purchase/Sale of Residential Property’.
The documents sent to the complainant referred to his purchase of a unit in the suburb of Gordon in the ACT, and that he had instructed them to act in the purchase on his behalf. The letter covering the documents listed a number of activities which the letter said were included in the work they would undertake. The letter referred to an ‘Agreed Fee’ of $940.00 plus GST for doing that work. It warned that some additional work might be necessary in circumstances referred to which would be charged for on an additional basis. The following sentence was included in the letter:
If there are any changes to the billing arrangements for any reason, you will be immediately notified.
Disbursements were to be additional to the professional fees previously referred to.
There was reference to a ‘credit limit’ as follows.
Credit Advice
Please note that your Credit Limit is $1,500.00. If at any time your total fees and disbursements (including work in progress) exceed your credit limit, work on your file will be put on hold until such time as your fees are paid in full, and a further amount is deposited into our Trust Account in anticipation of further fees and disbursements. We will notify you once you have reached your limit.
The complainant swore an affidavit on 17 February 2016, which was tendered in the proceedings. At paragraph 9 he said that the purchase of the property was settled on 6 October 2009. He said that he was not provided with an invoice or any information about additional fees at that time.
At paragraph 11 he said that the first time that he had been advised that any additional work had been conducted on his file was when he received an email from Mr RY of 5 November 2009. He also said that he had not been provided with an estimate of extra fees, nor advised that the fees by that time had already exceeded the $1,500.00 credit limit after which work was to cease. He was advised in that letter that a cheque which had been posted as part of the settlement payments had gone astray. He was told in the letter:
If I [Mr RY] clear this matter up I am going to have to charge you, so you may wish to attend to it yourself.
Mr RY on 23 November 2009 wrote to the complainant advising him that the firm had done additional work, estimating the professional fees involved would be in the range $5,000.00 - $6,000.00. He also said that when a final account was rendered there would be a fully itemised account.
The complainant then received a tax invoice dated 30 November 2009 for professional services of $5,950.00 plus GST. In addition to that disbursements and administrative services brought the total without GST to $6,318.68. GST was $625.27. After deduction of an initial payment in the form of a deposit of $450.00, the total was $6,493.95 inclusive of GST. Adding the $450.00 ‘deposit’ back in the total costs were $6,943.95. It seems likely that the invoice was sent on 3 December 2009 although dated 30 November 2009.
The original estimate had been $940.00 plus GST or $1,034.00.
The tax invoice was not itemised as promised. It gave a list of activities justifying the charge which read as follows:
To our professional costs herein of and incidental to the purchase of [the property]
To our professional costs herein of and incidental to liaising with St George Bank re your proposed advance up to time of your retaining the services of ABC Mortgages to broker loan with RAMS
To our professional costs herein of an incidental to assisting with your First Home Owners Grant and First Home Buyers Stamp Duty Concession, including liaising with your mortgage broker and accountant and answering various requisitions by ACT Revenue Office
To our professional costs herein of and Incidental to liaising with the Vendor’s solicitor and your rental agent re Letter of Attornment
To our professional costs herein of and incidental to Liaising with Ray White Strata re non-received cheque for Owners Corporation of Units Plan 724, arranging Mortgage Settlements Australia for replacement cheque to be issued and forwarding same to Ray White Strata
No dates were given to identify when these services were provided, however, a time costing document in the firm’s file which was exhibited to the respondent’s affidavit indicates that all work other than the lost cheque item was done up to or at about the time of settlement.
Mr RY gave evidence and was cross examined on his affidavit dated 17 March 2016. He said that he was involved in the preparation of the tax invoice after receiving a draft from the practice manager prepared from time costing records.
He said that there was a charge of $940.00 plus GST for the standard conveyancing work done however other additional work ‘outside the standard conveyance’ was charged at a higher rate.[1] In his affidavit of 17 March 2016 at [21] he explained the method of charging adopted in the invoice as follows:
21. It was the practice of the firm that all attendances relating to the standard conveyancing aspects of the conveyance were recorded at the ‘D’ rate of $150.00 per hour plus GST. All other attendances were recorded at the ‘A’ rate of $325.00 per hour plus GST. If the work was charged and not written off, it was either:
(a)grouped and charged at the “agreed fee”; or
(b)grouped and charged at the relevant rate; or
(c)charged at the relevant rate by way of an itemised tax invoice showing the work undertaken.
[1] Transcript of proceedings 21 March 2016 page 55
He said that he was not permitted to reduce the amount on a draft invoice by more than 10% without the approval of the practice manager.
In his affidavit, Mr RY said that after receiving the draft invoice he discussed it with both the practice manager and the respondent. He said that in his conversation with the respondent he said the following:
We can’t charge the amount on this bill for this matter which is $6,227.57. It needs to be reduced by significantly more than 10%
In the application that was filed, paragraph 13 alleges that the invoice dated 30 November was sent to the complainant with the knowledge and authority of, and at the direction of the respondent.
The response did not admit the allegation that the invoice was sent at the direction of the respondent, but otherwise admitted the allegations of paragraph 13.
At the hearing, paragraph 13 was amended by the respondent so that it read:
The respondent admits that he had knowledge that [Mr RY] had authority to send out tax invoices but the respondent denies that he knew that the invoice for $5,950.00 +GST to [the complainant] was to be sent out or that he directed it to be sent out.
The respondent gave evidence about the conversation alleged by Mr RY, and in examination in chief, the following exchange is recorded:
…..If [the respondent] could just see [Mr RY’s] affidavit and you, [respondent], would turn to paragraphs 23 through to 25?
...I've read those now.
What do you say about [Mr RY’s] evidence in paragraph 23 that he had a conversation with you about the invoice on or about 15 November and that he may have said to you words to the effect, "We can't charge the amount on this bill for this matter, which is $6,227.57," and importantly, "It needs to be reduced by significantly more than 10 per cent." What do you say about that?
...I say that did not happen.
Did you have a practice of reviewing [Mr RY’s] invoices before they were sent out?
...I did not.[2]
[2] Transcript of Proceedings 22 March 2016 page 88
In cross examination the following answers were given:
Isn't this right, [respondent], that [Mr RY ] did indeed raise his concerns about the quantum of the bill with you as he has said on several occasions now before the bill was sent out on about 30 November 2009? That's right, isn't it?
...I do not recall him doing that.
You cannot exclude the possibility that he did though, can you?
...I do not recall him doing that.
Please answer my question. You cannot exclude the possibility that he did so, can you?
...I could not absolutely exclude the possibility, no. [3]
[3] Transcript of proceedings 22 March 2016 page 107
After receiving the invoice around 3 December 2009, the complainant indicated to the firm that he was not happy with the amount charged. A meeting between the practice manager, Mr RY and the complainant was held on 22 January 2010. This failed to resolve the dispute. However by that time, an itemised summary of time costing had been prepared which was discussed with the complainant.
On 11 February 2010 the complainant emailed the practice manager reiterating his view that the charge was unreasonable, but offering $2,000.00 in settlement of the account.
The respondent then wrote to the complainant on 17 February 2010. He commenced the letter as follows:
Despite having had oral and written advice as to costs (in accordance with the Legal Profession Act) and itemised invoices you have not identified what it is that should be reduced as part of your invoice. For example, was there a phone call not undertaken or an action invoiced not having been completed.
He pointed out the part of the initial letter sent to the complainant previously referred to permitting additional work, and even quoting that part referring to immediate notification in the case of changes in billing arrangements.
The complainant emailed again on 26 February 2010 advising that he did not consider that any more than $3,000 was reasonable for the work undertaken. The respondent emailed the complainant on 1 April 2010 threatening legal proceedings without further notice “unless payment for our outstanding invoices is made by next Tuesday 6 April 2010.”
The complainant wrote to the respondent on 8 April 2010 enclosing a cheque for $3,000.00 as a ‘final offer’ of settlement of the dispute. The firm banked the cheque and lodged a bill of costs in the Supreme Court registry. A copy of that letter is Annexure ‘A’ to this decision.
The complainant lodged a complaint with the applicant on 22 May 2010.
The respondent pursued that application for assessment of the firm’s costs, and a hearing took place before a Deputy Registrar. A letter from the respondent to the applicant of 11 January 2011 indicates that the assessment was stayed as a result of the operation of section 304 of the LPA which provides that such a costs assessment may not proceed where a client complains to the applicant about the costs charged. The same section permits the applicant to apply for an assessment under section 409 as part of the complaints investigation process.
In the 11 January 2011 letter, the respondent requested the applicant apply to the Court under section 409 in order for the costs to be assessed. Such an application was made on 19 November 2012.
The process of assessment commenced and experts were retained to provide reports. However, on 20 February 2013, the complainant and the respondent entered into an agreement to settle the costs issue for payment by the respondent to the complainant of $2,000.00 and the provision of $1,500.00 credit for future legal services to be provided in any way the complainant wished. The assessment process in which the applicant was the Law Society of the ACT with the incorporated firm as the respondent, continued.
During the course of those proceedings, the Deputy Registrar of the Court referred a legal issue to the Court for determination. The issue was as follows:
Is there an enforceable cost agreement in place between the respondent and its client [the complainant] such that I must assess the disputed legal costs by reference to that agreement?
The matter was heard on 23 September 2013 by Master Mossop who gave judgment on 27 September 2013, answering the question ‘no’.
In his judgment he dealt with three submissions put by the applicant Law Society.
The first of these was that the documents sent by the firm to the complainant covered by the letter of 2 July 2009 do not comprise a costs agreement. The basis of this submission was that the documents did not constitute an offer to enter into a costs agreement as required by section 282(4) of the Act. Although they may have been an offer to enter into a contract, an ‘engagement’ or retainer is not the same thing as a costs agreement.
The Master essentially agreed with the submission of the applicant. He regarded the documentation sent to the complainant as “a confusing mass of documentation” which did not amount to a clear statement that it constituted an offer to enter into a costs agreement.
Having answered the question in the negative, it was unnecessary for him to deal with the two remaining submissions, however he proceeded to deal with the second submission.
The second submission was based on alleged non-compliance with section 300(1)(a) of the LPA which requires that “the costs agreement specifies the amount, or a rate or other means of working out the amount, of the costs.”
In finding that the second submission resulted in a ‘no’ answer to the question presented, the Master made the following comments:
38 The July documents are a confusing amalgam. The Costs Disclosure document appears to be a combination of a form for a statutory costs disclosure and a form for a costs agreement. The applicant is correct in saying that there is no specific text which says that the hourly rates identified in the Fee & Expenses Schedule will apply in relation to “additional work” referred to in the Covering Letter. Rather, the only text which makes specific reference to the application of those hourly rates is that at passages [17] and [19].
39 The respondent’s submission that when one looks at the collection of documents as a whole, notwithstanding the difficulties of their drafting, it can be discerned in accordance with ordinary principles of contractual interpretation that the hourly rates would apply to the additional work is one that might have been accepted if it was not for the terms of the Covering Letter. In relation to that letter the following features are of significance.
(a) At passage [2] the letter does refer to the “Fee Rate and Expenses Schedule” (intending to mean the Fee & Expenses Schedule) but does not state which part of the schedule is applicable or make any reference to the application of hourly rates.
(b) The first sentence of passage [3] identifies that “Professional Fees” will be on the “Agreed Fee” basis. That is consistent with the heading in the Fee & Expenses Schedule and the bolded figure of $1,034 in that schedule since $940 + GST is $1,034. The next sentence contemplates that additional fees may be charged but does not specify the rates at which they are to be charged. The third sentence, as I have interpreted it, means that there will be immediate notification if there is any change from the Agreed Fee method of charging. Once again it does not specify the basis upon which those additional fees will be charged and makes no reference to the Costs Disclosure or the Fee & Expenses Schedule.
(c) The text in passage [4], refers to the “Costs Disclosure and Expenses Schedule” is clearly limited to “disbursements” (although query whether that is what was intended having regard to the capacity to time charge for administrative costs referred to in the Expenses Schedule part of the Fee & Expenses Schedule).
(d) The text under the “Credit Advice” heading (passage [5]) is consistent with the limitation on “Professional Fees” to $1,034 and the statements at passage [3] that there will be immediate notification if there are to be any additional fees charged. I note however that there is substantial room for confusion as to whether or not the $1,500 credit limit is in addition to or inclusive of the amount of $450 described as for “legal costs and disbursements” or alternatively for “initial fees and disbursements” which is identified in the immediately preceding paragraphs.
Master Mossop decided that the question would be answered ‘no’ as a result of the second submission also.
It was not essential for the Master to determine the third submission in order to answer the question posed by the Deputy Registrar, and he did not attempt to do so.
The assessment proceedings were then settled by consent on 26 November 2013. The consent order was as follows:
The fair and reasonable costs of the [Respondent] in acting for [the complainant] are $2,000.00.
The respondent was ordered to pay the applicant’s costs.
The applicant’s investigations continued, and solicitors acting for it wrote to the solicitor then acting for the respondent on 2 June 2015. Attached to that letter were two signed draft statements by Mr RY with the request that the respondent provide any comments on the contents of the statements within 14 days. One of the statements contained material which was reproduced in Mr RY’s affidavit filed in these proceedings and in particular the reference to the conversation with the respondent after he received the draft invoice on about 15 November 2009.
No reply was received. There was a follow up letter of 17 June 2015 which had not been included in the filed material. This became exhibit A6.
The applicant’s lawyers wrote again on 22 June 2015 to advise that the Society required a response to the earlier letters and drawing the attention of the respondent’s solicitor to rule 39.2 of the Legal Profession (Solicitors) Rules 2007 reproduced below.
39.2 A practitioner should respond within a reasonable time and in any event within 14 days (or such extended time as the Society may allow) to any requirement of the Society for comments or information in relation to the practitioner’s conduct or professional behaviour and in doing so the practitioner should furnish in writing a full and accurate account of his or her conduct in relation to the matter.
The respondent’s former lawyer wrote to the applicant on 1 October 2015 proposing a resolution of the complaints.
This application was filed on 20 October 2015.
Consideration
Grounds 1 & 2
Ground 1: The Respondent has deliberately charged, or alternatively, deliberately or recklessly permitted his employed solicitor, [Mr RY], to charge, excessive legal costs within section 389(b) of the Act, namely, the invoice referred to in paragraph 14 in the sum of $6,943.95
Particulars
1.1The Society repeats the matters set out in paragraphs 1 to 16 above.
Ground 2:In the alternative to Ground 1, if (which is denied) the Respondent is not personally responsible for the charging of the said fees by [Mr RY], he failed properly to supervise [Mr RY] before [Mr RY] sent out the said invoice in the sum of $6,943.95, and is guilty of either professional misconduct or unsatisfactory professional conduct by reason thereof, and by reason of s 108(1)(a) of the Act
Particulars
2.1The Society repeats the matters set out in paragraphs 1 to 16 above.
The first issue is whether the costs charged were excessive. Section 389 of the LPA provides that the charging of excessive legal costs in connection with the practice of law can be unsatisfactory professional conduct or professional misconduct. Most of the authorities from other jurisdictions refer to ‘gross’ overcharging. The requirement in the ACT is different. The description ‘excessive’ gives an indication that it involves a significant departure from what might be regarded as fair and reasonable.
The applicant submits that the sophistication and vulnerability of the client are relevant considerations as well as comparison with expert assessment, and in this case the circumstance that warnings of the increasing costs were not given.
The respondent submits that the Tribunal should not concentrate on measurement of disparity between the charges and the consent orders that were entered. He suggests that it is very easy to achieve a large percentage when calculating off a small base, suggesting that does not take many hours of work by a senior solicitor to generate a high percentage increase on standard conveyancing work.
Further the respondent submits that the assessment entered in the Supreme Court occurred without a contested hearing, and was done by the firm on a commercial basis. An order entered by consent does not establish an issue estoppel when there has been no trial on the merits.
There are a number of considerations which support the submissions of the applicant.
The additional work that was done by Mr RY was done at the A rate. This was a rate which was a multiple of the rate for the basic conveyancing work. In the view of the Tribunal the additional work differed in no respect of complexity or legal skill from the work attracting the lesser charge.
Master Mossop in agreeing with the submission of the applicant that the contractual documents did not fulfil the requirements of section 300A of the LPA said the following:
42 Section 300A(1)(a) is a limitation that applies in relation to the “disputed legal costs” referred to in the opening words of subsection (1). In the present case there is, as I understand it, no dispute about the fixed fees of $1,034. The disputed costs are those which go beyond those fixed fees. In my opinion there is no “provision of the costs agreement that specifies ... a rate or other means of working out the amount” of those disputed costs. Therefore there is no obligation on the Court to assess the disputed legal costs by reference to the provisions of the costs agreement under s 300A.
Thus, there was no justification for the costs being calculated by the firm at the higher rate which Mr RY used nor for using six minute intervals as a criterion for assessment.
The firm consented to an order of the Court that an assessment of costs significantly under that charged by the firm was fair and reasonable. It may not have been an issue estoppel between the parties, but remains an enforceable order of the Court, and was consented to on the respondent’s instructions. The Tribunal regards the amount of the order as being a useful and valid comparison point.
The Tribunal considers that the complainant’s age, limited commercial experience and financial capacity are relevant considerations. Those considerations are of particular significance here where the complainant was entitled to take the view that he was protected by the ‘safety nets’ provided for him of the $1,500.00 credit limit and the assurance that he would be ‘immediately notified’ of any change in billing arrangements. Not only was the credit limit exceeded, it was exceeded multiple times by the time the complainant was told there was an amount payable for additional work. Indeed, he says that he was not aware that additional work was being done until receiving the email referred to above on 5 November 2009.
The respondent himself during cross examination said that with hindsight he believed that there had been some overcharge.[4] On the next page he agreed that the amount of the original quote given to the client was relevant to consideration of whether there had been an overcharge. He also said that Mr RY “may have taken some time longer than he should have.”
[4] Transcript of proceedings 22 March 2016 page 95
Comparison of the differential between the initial costing of the work and the amount of the final invoice is significant in the view of the Tribunal. The invoiced amount is also in the opinion of the Tribunal well in excess of what might be usually expected for the conveyance of a then $315,000.00 home unit for a first home buyer.
Further, the Tribunal notes that no estimate of the increased fees had been given.
The Tribunal therefore takes the view that the charges were excessive.
The next issue is the state of the respondent’s knowledge at the time that the invoice dated 30 November 2009 was issued on the likely date of 3 December 2009. He had not been involved in the provision of legal services to the complainant, and on the evidence given by RY, his knowledge about the existence of the invoice and its contents was the conversation Mr RY reports he had with him shortly after 30 November 2009.
Both Mr RY’s evidence and the respondent’s evidence has been referred to. It is likely that Mr RY would have better recall of the occurrence of the conversation and its content than the respondent. Mr RY had just received the draft invoice and had apparently spent some time working on it. He knew that he could only discount the account by 10% and considered that it should be discounted more than that. In order to do so he would have to speak to the respondent and the practice manager since his capacity to discount was limited. He said that he spoke to both without success, being directed by the practice manager to send out the invoice unaltered.
In preparation for the hearing, the respondent did not deny that the invoice had been issued with his authority, and in fact his pleading actively admitted that allegation. He was also cross examined about other opportunities to make that denial before the hearing when he was asked to comment on the evidence of Mr RY. It is difficult to understand his silence given the request to comment on important evidence even in the face of the requirement under Rule 39. His answers in cross examination on this topic were unsatisfactory and threw no light on the reason for his silence. It was not until the hearing that he made a denial in response to a direct question in examination in chief. Following that answer, the relevant part of the response was amended without opposition. As has been pointed out above, the respondent in cross examination modified his earlier denial to a position of uncertainty as to whether the conversation had taken place.
The Tribunal accepts the evidence of Mr RY as to the conversation he had with the respondent prior to the issue of the invoice. The consequence is that the respondent had been told that the invoice was for the sum detailed by Mr RY in the conversation and Mr RY proposed that it should be modified by more than 10%. The invoice was sent out without modification after the practice manager told Mr RY that it should not be amended.
The Tribunal concludes that after the respondent’s conversation with Mr RY, he knew of the amount proposed to issue on the invoice, and that Mr RY considered that there should be a discount for the complainant of greater than 10%. The statement by Mr RY should have alerted him to the likelihood that the invoice was unduly high carrying with it the possibility that it constituted an excessive charge. At that stage the respondent should have investigated the contents of the draft invoice and made his own decision about its quantum. In those circumstances, the Tribunal is of the view that his permitting the invoice to issue was reckless, since he did not take the step of ensuring for himself that the charge was justified. He took the risk that the charge was excessive thus exposing himself to possible disciplinary action.
Having reached that conclusion, it is not necessary to deal with Ground 2.
Grounds 3 and 4
Ground 3:In breach of s 276 of the Act, [the firm] failed to disclose to the complainant the significant increase in costs which [the firm] proposed to charge the Respondent, and the Respondent as the sole principal of [the firm] and the supervisor of [Mr RY] on the matter was "involved in the failure" within the meaning of s 277(7) of the Act.
Particulars
3.1The Society repeats the matters set out in paragraphs 1 to 16 above.
Ground 4In the alternative to Ground 3, if (which is denied) the Respondent is not personally responsible for the failure to disclose, he failed properly to supervise [Mr RY] or otherwise to take reasonable steps to ensure that [Mr RY] would give the appropriate disclosure and is, by reason thereof and by reason of s 108(1)(a) of the Act, guilty of either professional misconduct or unsatisfactory professional conduct.
Particulars
4.1The Society repeats the matters set out in paragraphs 1 to 16 above.
Ground 3 alleges breach of section 276 of the LPA and refers to Section 277(7). Both sections appear in Division 3.2.3 of the Act. That division imposes obligations on a law practice to make disclosure of many aspects of the costs to be charged, commencing with the basis upon which costs are to be calculated. These sections are reproduced below.
276 Ongoing obligation to disclose etc
(1) A law practice must tell the client in writing of any substantial change to anything included in a disclosure under this division as soon as is reasonably practicable after the practice becomes aware of the change.
(2) The legal profession rules may require a law practice to make other disclosures to a client.
277 Effect of failure to disclose
(7) Failure by a law practice to comply with this division can be unsatisfactory professional conduct or professional misconduct on the part of any Australian legal practitioner or Australian-registered foreign lawyer involved in the failure.
Section 276 imposes an obligation on a law practice to disclose changes in financial arrangements as soon as practicable after becoming aware of the change. This was not done in this case and thus there was a failure to comply for the purposes of section 277(7). However the Act and the uniform legislation require the involvement of a legal practitioner in the failure if disciplinary proceedings are to be maintained.
The failure to comply consisted of Mr RY’s failure to tell the complainant that additional work was being done which was accruing charges. This had taken place prior to the invoice being drafted by the practice manager, so that the respondent had not been actively involved in the work for the complainant at all prior to and including the preparation of the invoice.
The applicant submits that the respondent’s involvement in the failure to disclose was by virtue of not having any system in place to prevent a failure to provide ongoing disclosure.
When one looks for the cause or causes of the failure of the practice to warn the complainant of the mounting costs in relation to the conveyance, there appear to be more than one cause. The immediate cause was the failure of Mr RY to advise the complainant of the developing situation. There were at least four reasons why he should have done so. The first two were the two warnings in the letter that had been sent to the complainant at the end of June 2009: one of immediate notification of financial arrangement change and the other related to the credit limit. The third of those reasons was the requirement to notify changes in financial matters in accordance with section 276 in writing. Finally the client should have been advised of his financial situation and the mounting charges, arising out of the requirement for fairness and good faith.
A contributing cause was the failure of the firm to have a system for ensuring that section 276 was complied with. A system which would guide the solicitors and remind them not only of the obligation that existed, but also to provide a means by which information was compiled and appropriately passed on to a client. There was no evidence of any system in place for this purpose. A minimal step in the right direction would have been a conversation between the respondent and Mr RY to ensure that he was familiar with the provisions of section 276 of the ACT Act, he having formerly practised in New South Wales.
It was up to the respondent as the sole director to undertake or initiate such preventive action. It can be seen that he was involved in the default. Ground 3 is therefore made out and it is unnecessary to deal with the alternative ground.
Ground 5
Ground 5.1: In breach of rule 1.1 of the Rules, or alternatively in breach, of the general ethical duty pleaded in paragraph 24 above, the Practitioner improperly:
(a) accepted and banked, or permitted to be banked, a sum of money, namely $3,000.00, from his client, and
(b) then proceeded to seek to recover a yet greater sum of $8,007.40 (less the $3,000.00).
Particulars
5.1 The Society repeats the matters set out in 17 to 20 above.
Paragraph 24 referred to sets out an argument based on rule 1.1 of the Legal Profession (Solicitors) Rules 2007. This rule provides as follows.
A practitioner should treat his or her client fairly and in good faith, giving due regard to the client’s position of dependence upon the practitioner, his or her special training and experience and the high degree of trust which a client is entitled to place in a practitioner.
The basis of this ground is a letter which was sent by the complainant to the respondent on 8 April 2010. There had previously been some negotiation to try to settle the costs dispute without success. The letter enclosed a cheque for $3,000.00 which was described by the complainant as his final offer. A depersonalised copy of the letter is attached to these reasons as Annexure A.
The Tribunal was referred to a number of authorities dealing with contractual cases discussing principles such as accord and satisfaction and offer and acceptance in circumstances in which an offer or offer expressed to be final was put together with a means of accepting the cash amount of the ‘offer’. The result varied according to circumstances and perhaps age of the case. The Tribunal found these cases and discussion of contractual principle to be of some guidance but far from determinative of the issue.
The Tribunal is dealing with an allegation of a professional impropriety and different considerations and principles apply to those involved in contract cases. Put simply, the issue is whether the respondent breached his duty of fidelity to his client as expressed in rule 1.1 by accepting his cheque which was tendered as a ‘final offer’ when there had been some earlier negotiation.
The respondent gave evidence that he had asked an employee to conduct some research which apparently turned up some of the contractual cases referred to. He said that he had found the complainant’s letter ambiguous. In correspondence and in submissions, the respondent emphasised that the letter from the complainant did not contain the words ‘in full and final satisfaction’ as if they were some sort of talisman.
In submissions, the respondent relied heavily on the contractual cases, and as to the ethical issue submitted that the applicant had to show more than a mistaken judgment for there to have been a disciplinary infraction. “Mere negligence is not enough to constitute professional misconduct.”
The applicant submitted as follows:
…. [the complainant] writing a letter as an immediate past client of a firm should be treated in the same way as a client of the firm and should be treated in a manner that we had pleaded and set out in paragraph I think 99 of our written submission. He should be treated fairly and in good faith and not treated in any negotiation or resolution of the cost dispute in other than an honourable and reputable manner. [5]
[5] Transcript of proceedings dated 22 March 2016 page 138
The Tribunal agrees with those submissions.
The letter written by the complainant came at what was the end of a phase of some attempted settlement of the costs dispute between solicitor and client. In the opinion of the Tribunal it contains only one meaning, and that is that he was making an offer of settlement expressed to be final of $3,000.00. In the circumstances of the case the possibility that he was offering to make a down payment of $3,000.00 against some greater settlement amount is not available. The Tribunal unreservedly rejects the following submission made by the respondent. The submission commences by pointing out that the complainant’s letter was not expressed to be a ‘full and final offer’ and continued as follows.
The lack of appreciation of this difference is clear in the letter [from the solicitor for the applicant to the solicitor for the respondent dated 7 May 2013] which misstates [the complainant’s] letter claiming incorrectly that it said ‘in full and final satisfaction of this account’. It did not say that at all.
This takes away the ‘ethics’ point. The letter says what it says. If it was not a letter proposing accord and satisfaction, there was nothing unfair in treating it as it was written. There nothing unfair in a practitioner using the law to recover a debt. A practitioner is not required to say, ‘We agree you owe me some money but we disagree on the amount so take back the amount that you are prepared to pay so that rather than suing you for the balance I will sue you for the total sum’.[6]
[6] Respondent’s submissions page 8
The respondent’s view of the application of the contractual law could not be regarded as beyond doubt or for that matter even correct. The Tribunal does not find the terms of the letter in any way ambiguous when considering the complainant’s intent in writing the letter. He, a layman was making a final offer and fortifying his sincerity by tender of the offered amount. He was not aware of any possible term of art in drafting the letter that might hold some particular significance for the respondent. He was writing in the protected circumstances of Rule 1.1 and was entitled to rely on the integrity of the respondent in observing that rule. He was not making an offer in a commercial at arm’s length environment where risks lurk and ethics give way to commercial reality. His intention in tendering the cheque was clear, and it was wrong of the respondent to ignore that intent and to rely on his interpretation of the formal legal context. In the Tribunal’s view the duty of fidelity expressed in rule 1.1 of the Solicitors’ Rules was breached when the cheque was presented and the proceeds retained. Ground 5 is made out.
Ground 6
Ground 6:In breach of his ethical duty not to hinder or interfere with the complaint investigation process (as expressed in paragraph 29 above), the Respondent by negotiating and entering into the Settlement Agreement referred to in paragraph 22 above, wrongfully attempted to interfere with and hinder that complaints process by (purportedly) obtaining an agreement from the complainant to withdraw his complaint to the Applicant Law Society.
Particulars
6.1 The Society repeats the matters set out in 21 to 22 above.
This ground refers to the respondent attempting to hinder and interfere with the applicant’s statutory complaint investigation process. The act of the respondent which was alleged to hinder and interfere was agreeing with the complainant that he would withdraw his complaint as part of a general agreement which settled the dispute.
The invoice in which the costs charged were made was dated 30 November 2009. The date of the agreement made between the respondent and the complainant was dated 20 February 2013.[7] There had been various attempts at settlement prior to that and there can be no doubt that settlement was at all times desirable and a great relief to the parties when eventually attained.
[7] Affidavit of Legal Practitioner S page 266
The essence of the ground therefore is not that there were settlement negotiations, but that there was a term in the settlement agreement that required the complainant to withdraw his complaint. The relevant clause is as follows:
That each party will now no longer pursue any claim or complaint and will now withdraw any current claims or complaints against the each other and will do all things necessary to give effect to this agreement.
There has been no evidence of any interference with the process. The complaint was made on 22 May 2010. The respondent’s firm had lodged a bill of costs in the Supreme Court on 5 May 2010. The respondent filed an application in the Supreme Court for assessment of costs under section 409 of the LPA on 19 November 2012. The application in these proceedings was filed on 20 October 2015. These dates indicate that there has been delay in the process of investigation and then commencement of proceedings, but no delay is alleged as being due to the agreement in February 2013.
Nor is there evidence that the agreement was entered into with the purpose, not necessarily the dominant purpose, of interfering with the applicant’s activities.
A complaint to the applicant sets in train a process set out in the LPA. There are a number of outcomes of the process, however although the process is triggered by the lodging of a complaint the continued existence of the complaint is not necessary for the statutory processes to run their course.
The terms of section 400 which is reproduced below, make it unlikely that continued existence of the initiating complaint has any bearing on the course of investigations which the applicant is required to carry out. Section 400 is part of part 4.2 of the LPA, ‘Complaints about Australian Legal Practitioners’
400 Withdrawal of complaints
(1) A complaint under this chapter may, subject to this section, be withdrawn by the complainant.
(2) Withdrawal of a complaint may be made by oral or written communication to the relevant council.
(3) If a complaint is withdrawn orally and the complaint was made by a person other than a council, the relevant council must—
(a) make a written record of the withdrawal; and
(b) give the complainant a copy of the record, or send a copy of it addressed to the complainant at the last address of the complainant known to the council.
(4) Subsection (3) does not apply if the complainant has previously given the relevant council written confirmation of the withdrawal.
(5) A complaint may be withdrawn even though the relevant council has started or finished an investigation of the complaint.
(6) If a complaint is made by a person other than a council, a further complaint about the matter that is the subject of the withdrawn complaint cannot be made unless the relevant council is satisfied that it is appropriate to make a further complaint in the circumstances.
(7) If a complaint is properly withdrawn, no further action may be taken under this part in relation to the complaint, unless the relevant council is satisfied that investigation or further investigation of the complaint is justified in the particular circumstances.
(8) Withdrawal of a complaint does not prevent—
(a) a council making a complaint or further complaint about the matter that is the subject of the withdrawn complaint (whether or not after investigation or further investigation mentioned in subsection (7)); or
(b) action being taken on any other complaint properly made in relation to the matter.
(9) This section extends to the withdrawal of a complaint so far as it relates to some only or part only of the matters that form the subject of the complaint.
The applicant submitted that the agreement plainly required the complainant to withdraw his complaint. It conceded that any attempt to hinder or interfere with the applicant’s processes failed, but submitted that the respondent “plainly was attempting to have the complainant withdraw his complaint to the applicant.”
The applicant went on to submit as follows:
It is plainly inappropriate to offer a financial inducement to a complainant in return for a complainant, inter alia, withdrawing a disciplinary complaint to the Law Society. The status of that complaint should have formed no part of the negotiations and no part of the agreement.[8]
[8] Applicant’s submissions at [149]
The Tribunal agrees that it was improper in the circumstances for the respondent to include the clause in the agreement. However it does not agree that its inclusion in the agreement is evidence of the offering of a financial inducement to the complainant to withdraw his complaint, nor, without more, supports an inference that the respondent’s intention was to attempt to interfere with the processes of the applicant. The dispute had been ongoing for such a long time that the existence of the complaint having triggered the investigative process, was no longer a driving force in the continuation of the investigation. In any event the investigation progressed in the form of the assessment until the respondent, a party to those assessment proceedings, itself settled those proceedings for a sum lower than the previously negotiated level. That part of the applicant’s investigative process had been achieved to its satisfaction and the next step was the rather slow process leading to issue of these proceedings.
The respondent was a legal practitioner, and included a clause in the settlement agreement that could be regarded as a standard inclusion in that kind of agreement. The Tribunal bearing in mind the Briginshaw principles is not satisfied that there is sufficient evidence to conclude that the respondent intended to hinder or interfere with the investigative processes of the respondent. The sixth and final ground is not made out.
Categorisation of conduct
The LPA gives the Tribunal power to make orders to discipline legal practitioners where the Tribunal is satisfied that a practitioner is guilty of either unsatisfactory professional conduct or professional misconduct. These terms are defined in sections 386 and 387 of the LPA respectively. The definitions are inclusive definitions. They add to the relevant common law rather than replace it.
The statutory definition of unsatisfactory professional conduct set out in section 386 includes conduct that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent practitioner.
It is described in Riley Solicitors Manual in this way:
These standards are not to be determined by reference to lawyers who are without fault, but of the reasonably competent lawyer. As such, the standard of reasonableness invoked by the definition aims to distinguish between conduct that falls within a tolerable range of human error and bad professional work which falls below reasonable standards of competence and diligence.
Professional misconduct is defined in section 387 as including unsatisfactory professional conduct that involves a substantial or consistent failure to reach or to maintain a reasonable standard of competence and diligence. It also includes conduct that justifies a finding that the practitioner is not a fit and proper person to engage in legal practice.
The common law definition of professional misconduct is drawn from a test formulated in the English medical profession case of Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 at 763.5-7. In summary, the test provides that a professional engages in professional misconduct if his or her behaviour would reasonably be regarded as disgraceful or dishonourable by professional colleagues who are of good repute and competency. The test has been recognised as applying to Australian legal practitioners in a long line of authorities, such as Chamberlain v ACT Law Society[1993] FCA 527 at 58-9.
The application relates to conduct which extends from about the time that the complainant engaged the firm to undertake the conveyancing work in about July 2009. The components of the allegations relating to excessive charging were completed shortly after the conveyance was settled.
The application for a disciplinary order has been found to be supported by three of the six grounds relied on. One of the six grounds was found not to be made out. Two grounds did not have to be examined because they were put in the alternative to grounds which were found to be established.
The first two grounds relate to the allegation of excessive charging. This occurred in the period commencing early in July 2009 and concluding at the end of December 2009. The third and last one related to an action taken by the respondent in about April 2010 and was directly related to the fees charged. All relevant conduct arises out of the respondent’s involvement in charging for the conveyancing work done by the respondent’s firm for the complainant. The Tribunal considers that the three instances of conduct are sufficiently related in both subject matter and in time to be dealt with together for disciplinary purposes.
The evidence has focussed on the grounds alleged in the application, and it can be seen that the initial failure to have procedural safeguards in place led to a situation in which if proper attention had been given to warning signs of possible excessive charging, a problem could have been averted. Instead, and ignoring the information to hand, the invoice was sent out and the respondent pursued the debt he considered was owing. He again failed in his duty to his client when the opportunity to gain an advantage by cashing the offered cheque arose.
Considered separately, the grounds do not involve equally blameworthy conduct, and it is appropriate to examine each in order form an assessment of the course of conduct as a whole as referred to above.
The first ground includes having been told of the amount of the proposed charge and permitting it to be imposed knowing that the responsible employee recommended a discount greater than he was permitted to make. Earlier in these reasons, the Tribunal refers to the relevance to its findings of the complainant’s personal circumstances, sophistication and knowledge. In categorising this conduct, the Tribunal finds that the respondent’s neglect of those factors when permitting the invoice to be sent out without examination and contrary to the recommendation of Mr RY, to involve a serious breach of his duty to his client the complainant.
Also serious but at a lesser level is the failure to establish procedures to ensure that charges were not made without the active knowledge and consent of the client.
It is the third established ground which involves the most serious ethical breach in the Tribunal’s opinion. His attempt to justify his action by resort to contractual concepts without reference to his ethical duty to the client shows a serious absence of insight into his professional role.
The Tribunal has included as Annexure ‘A’ a copy of the letter written by the complainant to the respondent’s firm. That has been done in order to illustrate the Tribunal’s view that the letter shows that the complainant was indicating as clearly as he could in layman’s language that he wished to finally settle the dispute that existed. He indicated that the amount which he was willing to settle for, and which was the final amount that he would be willing to go to was $3,000.00. Further, as an indication of his sincerity, his capacity to pay, and the finality of his position he was tendering the amount in the accessible form of a cheque. It is clear that he did not consider that he was in any jeopardy of the respondent taking the money offered without agreeing to settle his claim for that amount and to that extent was reposing his trust in the respondent in enclosing the cheque with the letter.
That view of the content of the letter is entirely independent of any legal interpretation of the contractual rights of the two parties to the dispute and arises out of the former relationship of solicitor and client. In the circumstances, the respondent was precluded from taking any contractual advantage which would lead to breach of his duty of fidelity to his client.
As noted above, the Tribunal does not find there was any ambiguity in the letter sent by the complainant who made a very genuine and reasonable attempt to finally resolve the outstanding costs dispute between he and the respondent. The impact on the complainant can be gauged by his response which was to file a formal complaint with the Law Society.
While acknowledging that all conduct involved is not of equal gravity, the Tribunal takes the view that peers of the respondent would regard the conduct found established as a whole to be disgraceful and dishonourable. The Tribunal finds it to constitute professional misconduct.
The parties will have now have an opportunity for submissions in relation to both penalty and costs at a later date after they have considered these Reasons for Decision.
………………………………..
Senior Member G Lunney SC
for and on behalf of the Tribunal
ANNEXURE A
Dear [Legal Practitioner ‘S’]
8th April 2010
Following our recent telephone conversation, I have enclosed a cheque for $3,000. This is my final offer for what I consider to be reasonable costs for services provided by [Mr RY].
My reasoning for arriving at this figure is the same as my email to you on 26 February 2010.
I was disappointed that you did not respond to that email. I believe I put reasonable arguments for not agreeing to pay the full fee of $6,493.95. I also requested we meet to try and resolve the matter. Again, your lack of a response suggests you were not interested in discussing the matter further.
I would like to put on record that I always intended to pay for the services provide by [Mr RY]. I was also aware there would be additional costs above the basic cost of $940 (your letter dated 2 July 2009 made this clear).
However, my point is that it was not until 23 November 2009 that I was advised these additional costs would be in the range of $5,000 - $6,000.
Being over 6 times greater than the original agreed fee, I believe this is unreasonable. Had I been advised earlier that the extra costs would be of this magnitude, I would not have continued to retain [Mr RY’s] services.
Yours sincerely,
[The complainant]
HEARING DETAILS
FILE NUMBER: | OR 40/15 |
PARTIES, APPLICANT: | Council of the Law Society of the ACT |
PARTIES, RESPONDENT: | Legal Practitioner S |
COUNSEL APPEARING, APPLICANT | Mr Beaumont SC, Ms Power |
COUNSEL APPEARING, RESPONDENT | Mr Walker SC |
SOLICITORS FOR APPLICANT | Phelps Reid |
SOLICITORS FOR RESPONDENT | The Firm |
TRIBUNAL MEMBERS: | Senior Member G Lunney SC, Senior Member M Brennan, Member D Lucas |
DATES OF HEARING: | 21 & 22 March 2016 |
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