Council of the Law Society of the Act v LP 12

[2019] ACAT 68

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

COUNCIL OF THE LAW SOCIETY OF THE ACT v LP 12 (David Chen) (Occupational Regulation) [2019] ACAT 68

OR 12/2016

Catchwords:               OCCUPATIONAL REGULATION – legal practitioner – the firm had charged and deducted fees from settlement proceeds which exceeded the agreed costs amount – whether there was misappropriation or dishonesty

Legislation cited:        Legal Profession Act 2006 ss 223, 419

Cases cited:Brereton v Legal Service Commissioner [2010] VSC 378

Briginshaw v Briginshaw (1930) 60 CLR 336
Council of the Law Society v The Legal Practitioner [2010] ACAT 2
Council of the Law Society of the ACT v Legal Practitioner 12 [2017] ACAT 52
Jones v Dunkel (1959) 101 CLR 298
The Council of the Law Society of the Australian Capital Territory v LP 12 [2018] ACTCA 60

Tribunal:Senior Member G Lunney SC

Member R Vassarotti

Date of Orders:  22 July 2019

Date of Reasons for Decision:      22 July 2019

AUSTRALIAN CAPITAL TERRITORY          )

CIVIL & ADMINISTRATIVE TRIBUNAL     )          OR 12/2016

BETWEEN:

COUNCIL OF THE LAW SOCIETY OF THE ACT

Applicant

AND:

LP 12

Respondent

TRIBUNAL:Senior Member G Lunney SC

DATE:22 July 2019

ORDER

The Tribunal orders that:

1.Charges 2A and 3A of the application are made out.

2.The application is listed for further directions on 5 August 2019 at 3:00pm.

………………………………..

Senior Member G Lunney SC

For and on behalf of the Tribunal

REASONS FOR DECISION

1.This application was commenced in December 2016. It sought orders for disciplinary action against the respondent legal practitioner.[1] He had acted for a client who complained to the ACT Law Society (Law Society) that his firm had charged and deducted fees from settlement proceeds of settled litigation which exceeded the agreed costs amount.

[1] This decision was previously anonymised and cited as Council of The Law Society of The Act v LP 12 [20219] ACAT 68 pursuant to section 423A of the Legal Profession Act 2006. As the appeal period has ended, the practitioner has now been identified in the citation of this decision. The reasons for decision otherwise remain unchanged from the date of publication.

2.There have been various stages in the subsequent litigation between the parties including amendment of the initiating process. The last amendment resulted in a further amended application (FAA), filed on 7 March 2017 the hearing of which concluded on 14 May 2019. This decision relates to that hearing.

3.The FAA contained five charges. One of those charges was dismissed following a ‘no case to answer’ application made by the respondent at the conclusion of the hearing of evidence on all five charges the applicant’s application. Following the conclusion of hearing of that interim application and decision that there was no case to answer on the first charge, the hearing resumed on the remaining four charges on 13 May 2019 and concluded on 14 May 2019.

4.The remaining charges 2, 2A, 3 and 3A are reproduced at Appendix 3.

Background

5.The respondent was a partner in a Canberra firm, (Firm A, firm). His practice included personal injury litigation. He acted for a client who had previously been represented by another firm, (Firm B). Fees for professional services were owing to that firm which was content to wait for successful termination of the proceedings in order to be paid.

6.The litigation came to a settlement conference on 27 June 2011 at which all cases were settled. A Motor Vehicle Accident (MVA) personal injury claim was settled for $330,000 inclusive of legal costs and disbursements and certain other statutory charges. There were two workers’ compensation claims also settled. One was settled on a nominal $1 basis with no order as to costs. The remaining one was settled with an award of $10,000 with legal costs and disbursements of $12,000.

7.On 5 July 2011, the client signed a document, ‘Settlement Instructions’, in which he gave the following instructions relating to the costs of the proceedings:

You have advised me that my legal costs for the two matters that I have now settled will be approximately $47,000 which include all disbursements paid, counsel fees, your fees, and [Firm B’s] fees. I authorise you to deduct from that sum from the settlement monies but withhold the portion for [Firm B’s] fees in your trust account pending a satisfactory resolution of my dispute…

8.The document bracketed together the two workers’ compensation claims he had as one, showing that the settlement of one was for $10,000 plus $12,000 in legal costs; and noting the nominal settlement of the other. Thus, the way in which the document was presented was on the basis that two matters had been settled at the settlement conference: the MVA claim and the two workers’ compensation cases considered as one case. That is why, presumably, the above quotation refers to the settlement of two matters.

9.The respondent attended the client on 5 July 2011 when the authority was signed. The client at that time sought a reduction in the Firm B fees by $5,000.

10.The client rang the respondent’s firm on 14 July 2011 and spoke to the respondent’s assistant expressing dissatisfaction regarding costs. The respondent had gone on leave at that time and the next day, Mr Q, a partner in the firm called the client who again expressed dissatisfaction and Mr Q made an arrangement to call him back on Tuesday 19 July 2011.

11.Mr Q and the client spoke by phone on 19 July 2011. Mr Q made notes of the conversation. His note indicates that he told the client that Firm B was willing to reduce its fees to some extent and there was the possibility of further movement. The abbreviation Cl. is interpreted as ‘client’ in the following translation of Mr Q’s file note of the conversation:[2]

Client wants resolution today. Needs RTW.

Too busy.

Proposed 10% - $4,700-

Client wants $5K off

Agreed.

$42K inc costs & disbursements [Firm B] & [Firm A]

Me to confirm

[2] Court Book Volume 1 at page 235

12.Mr Q then wrote a letter confirming the conversation dated 19 July 2011.[3] That letter with anonymising redactions is reproduced at Appendix 1.

[3] Court Book Volume 1 at page 238

13.Mr Q had sworn an affidavit in the proceedings on 2 November 2016. It was tendered by the respondent at the hearing. He was called to give evidence. In the affidavit he said that he had spoken to the client on 19 July 2011, and “came to agreement with him on his costs” and annexed a copy of his file note to the affidavit. He also said that he “wrote to [the client] confirming that agreement” in a letter annexed to the affidavit. He was cross examined very briefly, but not in relation to the conversation with the client.

14.The client also swore an affidavit in the proceedings on 12 September 2016. This was tendered in the course of the applicant’s case. He was not required for cross examination. He said he had an initial conference with the respondent on 20 October 2010 at which his litigation was discussed. He did not recall having another face to face meeting with the respondent until the settlement conference about 27 June 2011. There were phone conversations in which he disclosed some concern about legal costs as a result of having to change firms of solicitors.

15.He said that at the settlement conference he told the respondent that he wanted his costs reduced by at least $5,000. He was told by the respondent that he would try to have Firm B discount their costs by $5,000.

16.At paragraph 17 of his affidavit of 12 September 2016, the client speaking of the settlement conference of 27 June 2011 said the following:

17     At the conclusion of the settlement conference I understood that my fees and disbursements, with minor adjustments for both [Firm A] and [Firm B], would be approximately $47,000.00 although it was my understanding that [the respondent] was going to negotiate [Firm B]’s costs down.

17.The client had previously expressed dissatisfaction with the legal costs generally, particularly because he perceived that the changeover between the two firms would lead to duplication of costs. He said that on 15 July 2011 he telephoned Firm A in order to speak to the respondent. Because the respondent was away he spoke to Mr Q. At paragraph 25 of his affidavit he gave the following account of the conversation. It is clear that the conversation happened on 19 July 2011, but he refers to it as having occurred on 15 July 2011 when there was an earlier call with Mr Q who then arranged the 19 July 2011 call.

25     [Mr Q] and I had a long discussion as to [Firm A] and [Firm B]’s costs. I recall expressing to [Mr Q] my dissatisfaction with the whole question of costs and general state of uncertainty as to how they had been calculated. On that occasion I recall an exchange in words to the following effect:

Me: “the total costs are too high due to the costs incurred by [Firm A] and by [Firm B] I want my fees reduced by at least $5000.

[Mr Q]: “we will limit the total legal costs, including [Firm B]’s costs, inclusive of GST, to $42,000”.

Me: “I need to get this finalised. I am running out of money. I am looking after my mother and I am only receiving a carers pension. I am not able to go back to work yet

26     I sought the $5,000.00 reduction as that was the amount the respondent (at settlement) said he would endeavour to have [Firm B] reduce their costs by.

…

28     I recall receiving a letter dated 19 July 2011 confirming that an agreement had been reached for $42,000.

…

30     In or around 12 August 2011, I had a meeting with the respondent at [Firm A]’s offices in Canberra in which [ the respondent] pleaded with me to change my mind as to the costs payable to [Firm A] of an amount of $42,000 on that occasion I recall a conversation he and I had in words to the following effect:

[respondent]: Will you agree to $47,000? If you do not some funds Will have to come from my pocket and my partnership agreement will be affected

Me: “I do not agree to reinstate the $47,000 in costs. I will pay $42,000.

“Your partnership being affected does not involve me. That is your business and not mine.”

…

32     I did not agree to restore the amount of total costs and disbursements payable to $47,000.00 on or around 12 August 2011 or any time after that conference. That conference was the last conversation, whether face to face or over the phone, I had with the respondent.

Applicable principles

Standard of proof

18.These are disciplinary proceedings, and important issues arise both for the applicant as well as the respondent. The criminal standard does not apply, however a high standard of probability is required due to the gravity of the allegations in issue. This is a principle which finds its origins in the High Court case of Briginshaw v Briginshaw (1930) 60 CLR 336. It has been applied in a number of cases in this tribunal, one of them being Council of the Law Society v The Legal Practitioner [2010] ACAT 2 at paragraph 12 as follows:

Rich J’s test of “comfortable satisfaction” provides a succinct description of the standard to be applied in such cases. Proof beyond reasonable doubt is not required; but the standard requires more than a mere balancing of the scales. The evidence must be weighed, according to the gravity of the facts to be proved, to the extent that a conclusion is reached about those facts with a feeling of comfortable satisfaction that it is just and correct. (footnotes omitted)

19.The Tribunal will apply the above statement of principle in reaching its decision in this case.

Misappropriation and dishonesty

20.Consideration of Charge 3 requires reference to a statement by Bell J in the Victorian Supreme Court case of Brereton v Legal Service Commissioner [2010] VSC 378 which was referred to by the tribunal in its decision in the ‘no case’ proceedings.[4]

[4] Council Of The Law Society Of the ACT v Legal Practitioner 12 [2017] ACAT 52

21.The following short excerpt from paragraph 53 of the judgment of Bell J is appropriate for present purposes:

While an allegation of dishonesty requires consideration of the person’s mental state, in neither the criminal nor the civil context is it necessary to establish that the person subjectively knew or believed that the actions concerned were dishonest. What must be established is that the person subjectively intended to do the acts which are said to be objectively dishonest by the ordinary standards of reasonable and honest people.

22.The applicant submits that in this case, the respondent intentionally made the transfers which exceeded the agreed authorisation in circumstances to which the above principles applied and involved objective dishonesty.

The applicant’s submissions

23.The applicant submitted that its case against the respondent was a simple one. There was an agreement between Mr Q on behalf of the firm and the client that his costs of the settled litigation including the firm’s costs and Firm B’s costs, would be reduced from approximately $47,000 to $42,000. That agreement was the authorisation to deduct only that sum in total from the trust account. In breach of that agreement the respondent deducted approximately $47,000.

24.The applicant also made submissions regarding the failure of the respondent to give evidence, and referred to the case of Jones v Dunkel (1959) 101 CLR 298 (Jones v Dunkel).

25.The applicant also referred to the content of letters written by the respondent to the Law Society in the course of its investigations after the client’s complaint had been received. In those letters he had made a number of exculpatory statements, and the applicant referred to these in some detail. They included statements relating to the following aspects of the conduct the subject of the charges:

(a)His having overlooked counsel’s fees in calculation of costs.[5]

(b)There was reinstatement of the $47,000 amount in a conversation with the client on 12 August 2011.[6]

(c)There had been misrepresentation by the client to Mr Q in the 19 July 2011 conversation.

[5] Court Book Volume 2 at page 669

[6] Court Book Volume 2 at page 438

26.In addition to the above matters, the applicant submitted that the 19 July 2011 agreement was not confined to the funds received under the MVA settlement. The applicant also dealt with a possible defence by the respondent that the $12,000 in costs obtained for the workers compensation settlement was by operation of law Firm A’s.

The respondent’s submissions

27.The respondent firstly submitted that the particulars of the charges found in the application contend that the direction to pay under section 223 of the Legal Profession Act 2006 (Act) is found in the agreement in the 19 July 2011 letter to the respondent. For that proposition he cites paragraphs 34, 36 and 37 of the FAA. The respondent claimed that the agreement and direction was that the firm was authorised to deduct $42,000 only from the proceeds of the MVA claim of $330,000. The submission noted that the $12,000 allowance for costs of the settled workers’ compensation claim had been ‘gifted’ to the client.

28.This submission then continued to set out a chronology of payments both into and out of the firm’s trust ledger.[7] The chronology commences with the deposit from a nil balance of $225,246 being the settlement proceeds of the $330,000 MVA case after deduction of authorised payments by the insurer. The amounts of $12,000, costs; and, $10,000 settlement sum were deposited later as received from a different insurer.

[7] A reproduced anonymised version of the trust ledger from CB2 390 is attached at Appendix 2

29.The chronology continues for each entry in the ledger past the deduction of the firm’s costs on 30 August 2011 of $22,378.14, until the entry for payment of Firm B’s agreed costs of $16,400 on 14 September 2011 when the ledger shows that amount deducted from the running balance. This is the penultimate entry: the last being payment of the remaining balance, $20,149.22 to the client leaving a nil balance.

30.Up to that date, the chronology has made a running balance of costs, disbursements and Firm B’s costs made from the agreed amount of $42,000.00 as defined in [26] above. Their calculations indicate that the sum of $11,303.32 remained available from the $42,000 after payment of all listed costs and disbursements for payment of the final authorised disbursement. If the full amount of $16,400 was paid out of the notional amount left of the $42,000, which the submission asserts was authorised for payment out of the MVA settlement amount, then there would be a payment exceeding that authorised amount by $5,096.78. The chronology solves the problem as follows.

14 September 2011      [Firm A] remits from Trust Account to [Firm B] the amount of $16,400.00 on account of their fees, which is paid from the remaining $11,303.22 from the MVA settlement sum and the remaining $5,096.78 was deducted from the $12,000.00 of monies paid to [Firm A] from which it paid monies the complainant owed to [Firm B].

31.On the above calculations, the respondent submits that the direction to pay $42,000 out of the MVA settlement proceeds was strictly adhered to.

32.The submissions go on to deal with submissions regarding the use of Jones v Dunkel in the case.[8]

Conclusion

[8] Transcript of proceedings 13 March 2019 at pages 31, 37-28 and 51; transcript of proceedings 14 March 2019 at pages 10-12 and 23

33.The Tribunal agrees with the submissions of the applicant and with the ACT Court of Appeal[9]: this is a simple case, based on a simple complaint.

[9] The Council of the Law Society of the Australian Capital Territory v LP 12 [2018] ACTCA 60 at [56]

34.The agreement of 19 July 2011 was an oral one which was confirmed by a letter of the same date. The agreement was not made by the letter, the letter was evidence of the prior oral agreement reached on the telephone.

35.That agreement was set in the context of the written agreement of 5 July 2011 signed by the complainant which made it clear that the costs were all the costs of all the claims which were settled at the conference of 27 June 2011, (see [7] above) estimated to be $47,000 approximately.

36.The agreement of 19 July varied that previous written instruction so that the costs of all matters were to be approximately $42,000. The Tribunal rejects the respondent’s submission to the contrary: the evidence of the parties to the conversation and the terms of the original instructions of 5 July 2011 make the Tribunal’s finding clear.

37.The Tribunal also does not accept the submissions of the respondent involving calculations based on an agreement that costs of $42,000 were solely to come from proceeds from the motor vehicle accident claim, but any costs above that sum could be deducted from another source, particularly one which the respondent conceded had been ‘gifted’ to the respondent. This submission is based on a misconception of the substance of the agreement of 19 July 2011.

38.The respondent authorised deduction of the firm’s costs in an amount that resulted in a deduction of Firm A’s costs, disbursements and Firm B’s costs of an amount of $5,096.78 more than the agreed $42,000.

39.The Tribunal rejects evidence of the respondent contained in letters he wrote to the Law Society in the course of its investigation of the complaint. It is unreliable since it was presented in an argumentative context in order to try to avoid action being taken under section 419 of the Act against him without further reliance on those allegations or action being taken to further them after the application was filed; was not given under affirmation or oath; and was not tested in cross examination. Other matters of defence raised in the amended response or otherwise in the prolonged course of this case have not been pursued in this phase of the presentation of the respondent’s case in the attenuated hearing process.

40.There is no utility in the Tribunal exploring the applicability of the Jones v Dunkel principles. It is unnecessary to do so.

41.Having made those finding, we turn to the individual charges.

Charges 2 and 2A

42.The Tribunal is of the view that the conduct occurred when the final payment, the payment to Firm B on 14 September 2011 was made. This was the time when there was no doubt that the amount that was paid by the firm exceeded the respondent’s direction that had been given by the respondent on 19 July 2011.

43.The Tribunal finds charge 2A made out.

Charges 3 and 3A

44.The evidence of the complainant contained in his affidavit of 12 September 2011 and upon which he was not cross examined was that he had a conversation with the respondent on 12 August 2011. In that conversation the respondent asked him to change his mind about the costs payable to the firm, asking him to agree to pay $47,000. He said he denied that request. The Tribunal accepts that evidence. The respondent was aware that there had been agreement for $42,000 in total including Firm B’s costs and that the client was not willing to pay more.

45.It is not challenged that the respondent deliberately authorised the disbursement of the funds as set out in the trust account ledger. It is the view of the Tribunal that at the time he authorised the payment of Firm B’s fees, he knew that a member of his firm had agreed to limit all costs to $42,000, and that the client did not agree to any alteration of the previous agreement. The Tribunal concludes that the final payment made on 14 September 2011 resulted in total costs and disbursement  to be withdrawn from trust which exceeded the agreed sum of $42,000 by $5096.78, and was a deliberate act which would be regarded by reasonable and honest people as dishonest.

46.Therefore the Tribunal finds that charge 3A is made out.

Order

47.The orders of the Tribunal therefore is that charges 2A and 3A of the application are made out. The application should be set down for further directions as soon as possible.

………………………………..

Senior Member G Lunney SC

For and on behalf of the Tribunal

Appendix 1

[The Client]  19 July 2011

[The Client’s address]

Dear [Client],

Your Matter

I refer to our telephone conversations on 15 and 19 July 2011.

I understand that your motor vehicle accident claim settled on 27 June 2011 for $330,000.00 inclusive of:

1.all amounts paid to you (that is all worker’s compensation benefits paid to you, which need to be repaid);

2.all amounts payable by you (that is any amounts to be reimbursed to medicare or health care providers for health services you have received but not yet paid for); and

3.your legal costs and disbursements.

I refer to [LP 12’s] correspondence for details of 1 and 2 above.

In relation to 3, I have offered, and you have agreed, to pay $42,000.00 in total for all legal costs and disbursements.

That means that from $330,000.00, $42,000.00 only will be deducted for payment of your legal costs and disbursements.

Please contact me urgently with any query regarding this letter, otherwise [LP 12] returns on Thursday, 21 July 2011 and you should contact him from that date.

Yours faithfully,

[Mr Q]

[FIRM A]

Appendix 2

08/02/12 4:21pm [FIRM A] Page 1 of 1

Matter 210578

TRUST LEDGER

Dates to 08/02/12 (All)
[The client]
[The client’s address]
Telephone: (W) (02) [number] (Fax)  (H)  (M)[number]
Email   Partner: DLC
Motor Vehicle Accident  Fee Earner: DLC
Re: MVA – ACT
Comments:

Trans Date (Post Date)	Ref.	Paid to/Received from Particulars	Debit	Credit	Balance
23/08/11 (24/08/11)	R64 T/T	TAC Settlement Proceeds	$224,246.00	$224,246.00cr
[date obscured]	C13892	[the client] Part settlement monies	$180,000.00	$45,246.00cr
[date obscured]	E10837	[Firm A] Costs [Bank account details]	$22,378.14	$22,867.86cr
30/08/11	E1083B	[Firm A] Dr Miniter report 30 Nov 10 [Bank account details]	$689.04	$22,178.82cr
30/08/11	C13924	Dr Griffith Medical Report 16 Mar 11	$2,789.60	$19,389.22cr
30/08/11	C13925	[name of counsel] Counsel Fees	$4,840.00	$14,549.22cr
06/09/11	R82 Cheque	Westpac Banking Corporation Costs received from Sparke Helmore	$12,000.00	$26,549.22cr
09/09/11	R93 Cheque	Westpac Bank Settlement Proceeds	$10,000.00	$36,549.22cr
14/09/11	C13962	[Firm B] Final settlement of account 14/10/10	$16,400.00	$20,149.22cr
[date obscured]	C13963	[client] Balance of settlement monies	$20,149.22	$0.00
TOTALS	$247,246.00	$247,264.00	$0.00

Appendix 3

Charge 2: Disbursing trust money in breach of [the client’s] direction

61. By reason of the matters pleaded in paragraphs 30 to 52 the Respondent breached s223 of the Act by causing the disbursement of trust money from the Trust Account contrary to [the client’s] instructions by causing [Firm A] to withdraw either or both: (1) $22,378.14 on 30 August 2011 from the Trust Account on account of [Firm A’s] costs. When [Firm A] was only authorised by [the client] to withdraw $17,378.14 for its costs, and even then only from on or about 13 September 2011 when [Firm B] agreed to reduce its costs by $5,000 to $16,400; and (2) total of $47,000 for [Firm A’s] and [Firm B’s] costs, and disbursements when the client had only authorised the withdrawal by [Firm A] from its trust account the total sum of $42,000 for all costs and disbursement inclusive of [Firm B’s] costs.

Charge 2A: Disbursing trust money in breach of [the client’s] direction

61A. By reason of the matters pleaded in paragraphs 30 to 52 the Respondent breached s223 of the Act by causing the disbursement of trust money from the Trust Account contrary to [the client’s] instructions by causing [Firm A] to withdraw a total of $47,096.78 for [Firm A’s] and [Firm B’s] costs, and disbursements when the client had only authorised the withdrawal by [Firm A] from its trust account the total sum of $42,000 for all costs and disbursement inclusive of [Firm B’s] costs.

Charge 3: misappropriating $5,096.78 from the Trust Account

62. By reason of the matters pleaded in 30 to 53 the Respondent breached s223 of the Act by causing [Firm A] to misappropriate from the client the sum of $5,000 $5,096.78 from the Trust Account by causing [Firm A] to withdraw either or both: (1) $22,378.14 on 30 August 2011 from the Trust Account on account of [Firm A’s] costs when [Firm A] was only authorised by [the client] to withdraw $17,378.14 for its costs and even then only from on or about 13 September 2011 when [Firm B] agreed to reduce its costs by $5,000 to $16,400, and (2) a total of $47,000 for [Firm A’s] and [Firm B’s] costs, and  disbursements  when  the  client  had  only  authorised  the withdrawal by [Firm A] from its trust account the total sum of $42,000 for all costs and disbursement inclusive of [Firm B’s] costs.

Charge 3A: misappropriating $5,096.78 from the Trust Account

62A. By reason of the matters pleaded in 30 to 53 the Respondent breached s223 of the Act by causing [Firm A] to misappropriate from the client the sum of $5,096.78 from the Trust Account by causing [Firm A] to withdraw a total of $47,096.78 for [Firm A’s] and [Firm B’s] costs, and disbursements when the client had only authorised the withdrawal by [Firm A] from its trust account the total sum of $42,000 for all costs and disbursement inclusive of [Firm B’s] costs.

HEARING DETAILS

FILE NUMBER:

OR 12/2016

PARTIES, APPLICANT:

Council of the Law Society of the ACT

PARTIES, RESPONDENT:

Legal Practitioner 12

COUNSEL APPEARING, APPLICANT

Mr Beaumont SC and Ms Withana

COUNSEL APPEARING, RESPONDENT

Mr Menzies QC and Ms Nolan

SOLICITORS FOR APPLICANT

McInnes Wilson Lawyers

SOLICITORS FOR RESPONDENT

Capital Lawyers

TRIBUNAL MEMBERS:

Senior Member G Lunney SC

Member R Vassarotti

DATES OF HEARING:

13 May 2019

14 May 2019