Glenorcy Pty Limited v Law Society of New South Wales

[2004] NSWSC 464

CITATION:	GLENORCY PTY. LIMITED & ORS v. LAW SOCIETY OF NEW SOUTH WALES [2004] NSWSC 464
HEARING DATE(S):	Tuesday 29 July 2003
JUDGMENT DATE:	31 May 2004
JURISDICTION:	Common Law
JUDGMENT OF:	Greg James J at 1
DECISION:	Appeal upheld; claims allowed.
CATCHWORDS:	Nature of appeals to the court from disallowance of claims on Law Society Fidelity Fund - meaning of "entrust" and "failure to account" - nature of function of Law Society in determining whether connection between claims and New South Wales practice not "sufficient" - sufficiency a matter of objective fact for judgment - whether Supreme Court could or should substitute its own order when error detected - errors of fact and law found - not necessary or desirable to remit.
LEGISLATION CITED:	Legal Profession Act 1987 Queensland Law Society Act 1952 Mutual Recognition Act 1992 Supreme Court Act 1970
CASES CITED:	House (1936) 55 CLR 499 Victorian Stevedoring & General Contracting Co. Limited v. Dignan (1931) 46 CLR 73 Builders Licensing Board v. Sperway Constructions (Syd.) Pty. Limited (1976) 135 CLR 616 Histollo Pty. Limited v. Director-General of National Parks & Wildlife Service (1998) 45 NSWLR 661 Veghelyi v. Council of Law Society of New South Wales (1989) 17 NSWLR 669 Smith [2000] NSWCCA 140 Smith (Court of Appeal, unreported 12 October 2001) Francis v. Law Society of New South Wales (1982) 2 NSWLR 191 Aslimoski v. Law Society of the ACT [2001] ACT AAT 28 (17 October 2001)
PARTIES :	GLENORCY PTY. LIMITED & ORS v. LAW SOCIETY OF NEW SOUTH WALES
FILE NUMBER(S):	SC No. 11678 of 2000
COUNSEL:	Pltff: G. Lindsay, SC./M. Herschderfer Deft: S. Epstein, SC.
SOLICITORS:	Pltff: Freehills Deft: A.S. Brown

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

GREG JAMES, J.

MONDAY 31 MAY 2004

No. 11678 of 2000

GLENORCY PTY. LIMITED & ORS v. LAW SOCIETY OF NEW SOUTH WALES

JUDGMENT

1 HIS HONOUR: By summons filed on 30 June 2000, the three plaintiffs, who assert the entrusting of monies on their account to a solicitor who misapplied those monies, claim orders allowing an appeal against that part of the decision of the defendant Law Society contained in a letter dated 30 May 2000. The claims were that of:-

“1. The first plaintiff against the Solicitors’ Fidelity Fund in relation to transactions involving:-
• $100,000.00 in October 1994,
• $19,566.65 in February 1995,
• $42,120.00 and $100,000.00 in March 1995,
• $140,000.00 and $60,000.00 in September 1995;
• $58,313.35 in December 1995,
• $83,350.00, $6,700.00 and $8,948.95 in August 1996.
2. The second plaintiff against the Solicitors’ Fidelity Fund in relation to transactions involving:-
• $34,000.00, $45,000.00 and $3,000.00 in September 1993, and
• $18,000.00 in August 1994.
3. The third plaintiff against the Solicitors’ Fidelity Fund in relation to transactions involving:-
• $30,000.00 in July 1986,
• $150,00.00 in 1989,
• $40,000.00 in January 1991 and
• $36,968.00 in September 1994.”

2 The plaintiffs also claim a declaration that the defendant erred in law and/or fact in the decisions and orders for interest and costs.

3 The grounds of appeal asserted in the summons contend that the defendant (1) erred in failing to determine that the amounts of money were “entrusted” within the meaning of that term in s.79A of the Legal Profession Act 1987 (which Act makes provision for the Solicitors’ Fidelity Fund); (2) erred in failing to find that there was a ”failure to account” within the meaning of that term as used in the Act; and (3) erred in finding that pursuant to s.80(4) of the Act there was not a sufficient connection with the practice of the solicitor in New South Wales. Each of those considerations reflects an asserted basis for the disallowance of the claims by the defendant.

4 At the hearing, evidence was tendered by affidavit. Certain objections were taken and resolved. Material in the affidavit of Barry Joseph de Hayr sworn 25 July 2002 was originally admitted provisionally pending the determination of other matters and thereafter admitted. There was no cross-examination. Extensive written submissions were provided, addressed orally and subsequently added to. I thank all counsel for their extremely valuable assistance.

The background facts

5 The circumstances giving rise to the claim sufficiently appear from the affidavits filed by Raymond George de Hayr. In his affidavit of 25 July 2002, Mr. Raymond de Hayr deposes to monies having been entrusted by himself and his brother from the estate of his late mother and by Glenorcy to Harry William Smith, a person whom it was believed to be a solicitor admitted to practice in both New South Wales and Queensland during the period from 1986 to and including 1997. The two personal plaintiffs, together with Mr. Smith, were the executors and trustees of the estate of the two personal plaintiffs’ mother, Doreen Elizabeth de Hayr. Apparently the monies were provided to Mr. Smith for the purposes of being lent out on mortgage on land particularly in New South Wales in a scheme administered by him. Instructions were provided, usually on an annual basis, and the proceeds of sale of real property were provided to Smith acting as the vendor’s solicitor to use for the purposes of loans under the mortgage lending scheme. Apparently, the solicitor did not so invest the monies, the mortgages and loans being fictitious. This was concealed for many years including after the solicitor was entitled to practice only in New South Wales, including by the payment by the solicitor to the plaintiffs of monies he asserted to be, and they believed to be, interest on the investments and the acceptance of the regular, mainly annual, instructions for re-investment.

6 On or about 22 June 1998, Mr. de Hayr was informed of the appointment of a receiver to the trust property of Smith’s practice pursuant to an order of this court. Smith had apparently surrendered his practising certificate in Queensland on 13 September 1996; admitted a charge of fraudulent misappropriation before a Queensland Statutory Committee when the determination was made for him to be struck off; and was struck off the role of solicitors in Queensland by the Supreme Court of Queensland on 27 April 1998.

7 Notwithstanding those matters and without them being known to the plaintiffs, upon surrendering his Queensland practising certificate, Smith left his former office from which he had practiced under the name of “H.W. Smith & Associates” at 30 Griffith Street, Coolangatta in the State of Queensland on Friday 13 September 1996, and thereafter had continued to practice from an office located at 24 Bay Street, Tweed Heads as and from 1 October 1996. He continued to practice from those premises until 6 March 1998.

8 Claims were lodged by the plaintiffs on the respective Fidelity Guarantee Funds in both New South Wales and Queensland in respect of the total monies said to have been entrusted in the sum of $1,542,650.00. Claims in respect of those monies were allowed to a considerable extent by both the Law Society of New South Wales and the Queensland Law Society. Sums referrable to monies claimed by Smith to be interest which were on the mortgage loans paid by him to the plaintiffs were, however, deducted from each claim paid by the Queensland Law Society and the Law Society of New South Wales partly disallowed the claims of each plaintiff leaving a shortfall. It is that shortfall the plaintiffs seek to recover by these proceedings.

9 In the letter of 30 May 2000 to the solicitors for the plaintiff, “RDH 8”, the Society gave in each case in respect of monies involved in transactions before October 1996, as the reasons for its disallowance that it was not satisfied “that there was an entrustment of these amounts, or a failure to account within the terms of s.79A of the Legal Profession Act 1987”. The Committee further noted that, even if there were a relevant entrustment and failure, it was satisfied that the claim did not have a sufficient connection with practice as a New South Wales solicitor in Australia.

10 The plaintiff now claims the balance of the claims together with interest and costs.

Rejection of the claims

11 The claims relate to entrustments initially made before 13 September 1996 when the solicitor held both Queensland and New South Wales practising certificates, the New South Wales Law Society having only met claims in respect of entrustments initially made after that date when only a New South Wales certificate was held.

12 The New South Wales Society by letter, part of Exhibit “RDH 11” responded to a request for clarification of its reasons for rejecting so much of the claims as were disallowed, contending that the amounts which were disallowed had been entrusted to Smith when he practiced as a solicitor in Queensland from an office located at Coolangatta; that the monies were “deposited to accounts in Queensland and misapplied at about that time”; that at that time Smith did not operate a trust account in New South Wales that there were never any genuine mortgages but the monies were misapplied at about the time of the deposit. This, it was said, occurred in Queensland.

13 It was contended that the statutory reference to failure to account only applied to a failure to account that arose from an act or omission of the solicitor which is dishonest and within the practice of a New South Wales solicitor. It was submitted s.79A properly construed should be read as so limited and further that the Society was satisfied that there was not a sufficient connection with practice as a New South Wales solicitor in Australia under s.80(4)(a).

14 The affidavit of 25 July 2002 contains a table of the claims that have been rejected by the Law Society of New South Wales. Those claims are not challenged as representing monies claimed to be losses incurred by the plaintiffs and as representing the balance of the losses originally claimed which losses have partially been the subject of indemnity (subject to the argument that I will later deal with which characterises the monies claimed as unpaid interest).

15 The affidavit provides further information to enable the tracing of the monies involved in each individual transaction and the total extent to which the plaintiffs have been indemnified by the Law Societies of New South Wales and Queensland. I was supplied with further information as to the amounts during the hearing and in the written submissions. Notwithstanding the amounts sought in the summons, the total effect of what has occurred is that the plaintiffs have received indemnity for all except a remaining total claim of $377,215.00 comprising, (a) a claim of $247,890.00 by the first plaintiff; (b) $46,000.00 by the second plaintiff; and (c) $83,325.00 by the third plaintiff. It is sought by this appeal to obtain orders that those monies be paid accordingly by the defendant. The references to the dates and amounts in the summons, affidavits and exhibits allow the identification of the entrustments and the tracing of the claims back to them.

16 The defendant denies any entitlement to that effect arises on a proper construction of the statute and asserts that if the appeal is to be allowed, the matter should be remitted to the Society to be re-determined rather than any order being made for payment.

Further facts

17 Certain further background facts should be noted. Smith had been admitted to practice as a solicitor in New South Wales on 22 November 1968 and had held a practising certificate continuously from that time until 6 March 1998 when his practising certificate was suspended. Between 6 March 1998 and 22 June 1998, when the solicitor had no practising certificate, he practiced under cover of the New South Wales practising certificate of another solicitor.

18 The investments the subject of the claim, were initially made between 1 July 1986 and 9 August 1996 and were thereafter rolled over until the appointment of a receiver.

19 On or about 1 October 1996, the solicitor opened an office in Tweed Heads and continued working as a solicitor from that office under the firm name “Smiths, Solicitors” until the appointment of the receiver of 22 June 1998.

20 As appears from the affidavit of Mr. Raymond de Hayr sworn 1 April 2003 and Annexure RDH27, it was believed by the plaintiffs that Mr. Smith lived in the Tweed District of New South Wales in the area of Terrranora and Banora Point; he used stationery describing his firm as “Solicitors and Attorneys, New South Wales and Queensland”; he acted on conveyancing transactions including mortgages in respect of property in New South Wales; and administered the estate of the personal plaintiffs’ deceased father, Ronald Raymond de Hayr, recording his address as Tweed Heads and signing documents as a solicitor. He used a New South Wales document exchange address; his New South Wales address was in close proximity to his former Queensland address, being a short walking distance apart, only a few blocks. He also had a document exchange at Ballina.

21 The solicitor had held a practising certificate entitling him to practice as a solicitor in the State of New South Wales from the 1968 to 1969 year, he having been admitted to practice on 22 November 1968, until 6 March 1998, albeit that he had informed the Law Society of New South Wales that he did not operate a New South Wales trust account in the period from 1 July 1986 to 6 March 1998. However, from 13 September 1996 until 6 March 1998 the solicitor practiced solely in New South Wales. There is no contest he fraudulently misapplied the monies to which the claims relate, although it is asserted he failed to account in New South Wales.

22 He was removed from the New South Wales roll of legal practitioners pursuant to the Mutual Recognition Act 1992 on a date no earlier than 27 April 1998 and no later than 17 February 2003.

23 It therefore appears that Mr. Smith was at all material times a legal practitioner in New South Wales bound by the provisions of the Legal Profession Act 1987, the holder of a practising certificate issued by the Law Society of New South Wales and held himself out to be such, taking instructions in New South Wales after 1996 to invest money in New South Wales securities.

24 The Law Society concedes that he was at all material times a solicitor within the meaning of that term as used in s.79 of the Legal Profession Act 1987.

25 In that context, the issues involved in the appeal were whether there was an entrustment to which the New South Wales statutory provisions applied, whether the solicitor fraudulently omitted to account in circumstances to which the Act applied and whether the Society appropriately held or, whether the court should appropriately hold, that the claims did not have a sufficient connection with the solicitor’s practice as a New South Wales solicitor in Australia. These matters raise questions as to the nature of these proceedings and what orders might be made.

The appeal provisions

26 The proceedings are brought as an appeal under s.90D(3). That appeal is an alternative to an action for debt under s.90D(5) in which the views of fact or law by the Law Society would not be determinative. It would be entirely incongruous if the right of appeal were, in contrast to the alternative to it, only available for error of law or error of fact or error in the exercise of discretion, or if matters, eg., the insufficiency of any connection with the solicitor’s practice only to be determined by the defendant as was originally submitted by the defendant.

27 Section 90D of the Legal Profession Act 1987 provides:-

“1. An action does not lie against the Law Society in relation to the Fidelity Fund except:-
(a) with the leave of the Law Society Council, or
(b) as provided by this section.
2. If the Law Society Council wholly or partly disallows a claim, it must (without delay) give written notice of the disallowance to the claimant.
3. A claimant may appeal to the Supreme Court against:-
(a) a decision by the Law Society Council to wholly or partly disallow a claim, or
(b) a decision by the Law Society Council to reduce the amount allowed in respect of a claim, by virtue of section 80A, or
(c) a failure by the Law Society Council to determine a claim within such period as is prescribed by the regulations.
4. On an appeal under this section, the Supreme Court may make such order as it thinks fit.
5. If the Law Society Council wholly or partly disallows a claim relating to a failure to account in respect of which a solicitor or an associate has been convicted of an offence involving dishonesty:-
(a) the claimant may take proceedings in the Supreme Court as for a debt due by the Law Society, and
(b) in any such proceedings, the defences that would have been available to the solicitor are available to the Law Society.
Any such claimant may take proceedings instead under subsection (3).”

28 The plaintiffs submitted that such an appeal was within the court’s original jurisdiction and was to be decided on the material as it is before the court. On such an appeal it was contended the court had the fullest amplitude of power to make any appropriate order. The defendants, whilst originally submitting the appeal only lay for error of fact or law or error as to the exercise of discretion in the sense described in House v. The King (1936) 55 CLR 499, finally submitted it was an appeal de novo but also submitted that error of law needed to be shown to overturn its determination of s.80(4) insufficiency and even then submitted there should be a remitter to the defendant to reconsider the matter.

29 The right of appeal conferred by s.90D(3) is unqualified by the provisions conferring it or by any other provision of the Act. There has been some debate in earlier cases to which I have been referred as to the nature of the right so conferred, whether this is an appeal or review of an administrative decision such that the court comes to its own original decision on the materials before it and has the powers of the body appealed from, whether it is an appeal de novo, whether it is an appeal by way of re-hearing such as is referred to in s.75A of the Supreme Court Act 1970, in which case the court again has the powers and duties of the original decision-maker, or whether it is an appeal for error of fact or an appeal stricto sensu or for error of law.

30 Even if the right be of the kind I have last referred to, the appeal would succeed if there is shown error in making a finding not reasonably open such as a finding of satisfaction as to the existence of a particular state of fact where the evidence does not enable that fact to be found (in this case the absence of a relevant connection) or error vitiating the exercise of discretion for error of law or principle or fact in the sense referred to in House (supra). In that event, both the express words of s.90D(4) and the general law would permit the court, where it has available the necessary materials, in making any appropriate order to do what the original decision-maker should have done. If error of that kind were found in respect of all three of the considerations raised and as appears to be the case, the necessary material are available, orders of the same kind could be made whatever the theoretical nature of the appeal.

31 The defendant asserts an administrative discretion has been conferred on it by s.80(4) whereby the statute peculiarly confides in it, due to its expert status the duty to determine insufficiency on matters to which it is peculiarly sensitive so that the general ambit of s.90D(4) in its submission is to be qualified in that the court has no power to make the decision or, if error is found, is required to, or should, remit for reconsideration. I do not accept those submissions. In my view, the subsection is plain. There is no such contrast with the right to sue under s.90D(5) as would indicate an intention that only the defendant or preferably the defendant should decide this question. I consider that there is not an administrative discretion involved but rather an administrative decision requiring the exercise of judgment in making a finding, if borne out by the materials, of an insufficiency of connection with practice in New South Wales.

32 Section 90(4) confers full power on the court, just as is conferred elsewhere in the Act where similar words are used and is conferred under other Acts, again where similar words are used. I do not see that there is any reason, having regard to my view of the proper construction of s.80(4) and my view that the concept of insufficiency to which it refers involves a matter of fact rather than a matter of subjective opinion why I should not decide the question. All the necessary materials are before me. For the court to determine the matter accords with the principles in House (supra), accords with the general law relating to review of an administrative decision and accords with s.63 of the Supreme Court Act 1970 which provides:-:-

“The court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided.”

33 With that in mind, since I conclude there were the necessary errors both in law and in fact and that the necessary materials are available, I consider it is not necessary here, having regard to the conclusions to which I have come, to distinguish between these appeal concepts and to determine the precise nature of the appeal right here conferred, although the analysis of that right in the light of the principles referred to in such cases as Victorian Stevedoring & General Contracting Co. Pty. Limited v. Dignan (1931) 46 CLR 73; Builders Licensing Board v. Sperway Constructions (Syd.) Pty. Limited (1976) 135 CLR 616; Histollo Pty. Limited v. Director-General of National Parks & Wildlife Service (1998) 45 NSWLR 661; Veghelyi v. Council of the Law Society of New South Wales (1989) 17 NSWLR 669 and the parties final submissions would all tend to indicate an appeal de novo in which the court has all the powers conferred on the original decision-maker and is unconstrained to find error whether of fact or law.

34 I have come to the conclusion I need not determine the precise nature of the appeal since, as will appear, I have concluded that the Law Society erred in law in adopting a construction of the relevant provisions of the statute as to the meaning of “entrust” and “failure to account” so as to disallow the plaintiffs’ claims by imposing on those concepts geographical and temporal limitations for which there is no support in the Act and further erred when it concluded that it was satisfied the claims did not have a sufficient connection with practice as a New South Wales solicitor. On the facts, in my view it was not open for it to so do. It also erroneously construed the term “sufficient” as though it conferred on the Society a right to determine the criteria as to whether a factual connection was such as to be characterised as warranting acceptance according to some unstated subjective standard. Alternatively, the Society purported to exercise a discretion otherwise than as governed by the statutory regime and its purpose.

35 I am satisfied that there were the relevant entrustments and failures to account as well as sufficient connection. Further, as will appear, I am satisfied the plaintiff suffered the pecuniary loss necessary for the claims to be allowed.

36 Thus, so far as I am exercising original jurisdiction, hearing a de novo appeal or a rehearing appeal, I would, on the material before me, which was available to the defendant, determine the issues in favour of the plaintiffs. Should I be hearing an appeal for error, I consider that the finding of relevant error I have referred to has been exposed and in exposing it I will show the basis for the conclusions I consider should have been reached by the defendant and which I reach which require the plaintiffs to have appropriate orders in their favour.

37 I will now turn to my reasons for reaching those conclusions.

Entrustment and failure to account

38 Part 7 of the Act is concerned with the Solicitors’ Fidelity Fund. Division 3 of that Part is concerned with claims. The scheme of Division 3 of that Part is as follows. Section 70 requires the Society to establish and maintain a solicitor’s fidelity fund which is to be applied in accordance with Part 7 of the Act. Section 73(1)(c) provides for payment from the fidelity fund “the amount of a claim (including interest and costs) allowed or established against the Law Society in respect of the Fidelity Fund”. Division 3 deals with claims on the fund.

39 Section 79 provides various relevant definitions. “Claim” means a claim against the fidelity fund that relates to a failure to account or to a dishonest default. Section 79(1) defines “dishonest default” to be a reference to a dishonest act or omission other than a failure to account for which judgment has been obtained which is not fully satisfied.

40 Failure to account is defined by s.79A. Section 79A(1) provides:-

“In this Division, a reference to a failure to account is a reference to a failure by a solicitor to account for, pay or deliver money or other valuable property received by, or entrusted to, the solicitor or an associate in the course of the solicitor’s practice (in the case of an associate, being money or valuable property under the direct or indirect control of the solicitor).”

41 Section 79A(2) is, in the circumstances of this case, satisfied in that it requires the failure to account to arise from an act or omission for which the solicitor or associate has been convicted of a crime or offence involving dishonesty. No issue here arises as to that circumstance, in particular, because of the convictions of Mr. Smith in New South Wales: see Regina v. Henry William Smith [2000] NSWCCA 140 and in Queensland Regina v. Henry William Smith (Court of Appeal, unreported 12 October 2001). Thus no issue arises as to the application of subsection (3) which makes a finding by the Law Society Council under subsection (2)(b) that an act or omission is or is not dishonest, final and conclusive. In passing, I note that the fact of Queensland convictions in respect of transactions giving rise to claims in New South Wales does not bar claims. The subject matter of discourse is different. There is no reason that convictions for Queensland criminality precludes there also being New South Wales failures to account, even if they relate to the same initial entrustment.

42 Section 79A(4) and (5) provide that the section applies whether the failure to account took place before or after the commencement of the Act.

Claimable loss

43 Section 79C defines pecuniary loss and limits it. Relevantly, s.79C(1) provides as follows:-

“For the purpose of this Division, pecuniary loss resulting from a failure to account includes:-
(a) the legal costs of a claimant that are due to the failure to account, and
(b) the legal costs involved in making and proving a claim, and
(c) interest that, but for the failure to account, would have been received by a claimant, calculated to the date on which the claim succeeds, being interest at a rate that does not exceed the rate prescribed by the Supreme Court Rules in respect of unpaid judgment as at that date.

44 Section 80A provides:-

“A person is not entitled to recover against the Fidelity Fund in respect of a failure to account or dishonest default an amount greater than the balance of the pecuniary loss suffered by the person because of the failure to account or dishonest default after deducting the amount or value of all money or other benefits which in the opinion of the Law Society Council might but for the person’s neglect or default have been received or recovered by the person from any source other than the Fidelity Fund in respect of the pecuniary loss.”

45 The plaintiffs have not received back the balance of the money they entrusted to the solicitor which is still outstanding after the part payment by the Law Societies of their claims.

46 It was argued in reliance on that section there was no loss because the plaintiffs received monies from Mr. Smith which he led them to believe were interest payments. The plaintiffs received no refund of capital from Mr. Smith but only what was asserted to be interest. In truth, those monies were provided by way of neither repayment of capital nor payment of interest. The Queensland Act by s.24(1C) permitted deduction of those monies from the claims met by the Queensland Law Society. There is no equivalent in New South Wales. The definition does exclude the plaintiffs being entitled to have the sums provided to the solicitor, costs and interest calculated in accordance with s.79C(1)(c) treated as pecuniary loss. I see no basis for treating those monies paid by the solicitor as capital nor do I consider that because of that receipt the application of s.79C would require me to deduct them or deduct them with interest from the original capital sum so as to find the plaintiffs have suffered no losses they might claim.

47 So far as the determination of loss is concerned, I do not see that these sums should be deducted, much less that they should be categorised as capital and the amount outstanding as interest. I reject the submission there was no loss within the meaning of s.79A.

48 Since what is claimed here was either not claimed against or disallowed by the Queensland Law Society, no double compensation as might have attracted s.86 could occur if the claims were upheld.

Transactions and the failures to account

49 I now turn to the submissions concerning the interstate nature of the relevant activities. It is instructive to note that s.86 contemplates the possible availability of recovery from more than one source and in such case only bars effective recovery from the New South Wales Law Society where actual recovery from the alternative source occurs. Dual status is obviously a matter relevant to these provisions.

50 Plainly, such a provision renders attractive an approach to the other provisions of the Division consonant with that provision.

51 Although it was not contended Mr. Smith was a contributing interstate legal practitioner, the reference to interstate practitioners and the geographical connections referred to in s.80 are important in considering the intended ambit of Division 3 of Part 7 of the Act and the asserted territorial limitations submitted to be implied or inherent in the references to entrustment and failure to account.

52 In considering the statutory scheme, reference should be made, in particular to the general purpose of the provisions which is expressed in s.80(1) which provides:-

“The Fidelity Fund is held, and is to be applied, by the Law Society for the purpose of compensating persons who suffer pecuniary loss because of a failure to account or a dishonest default.”

53 Section 80 is crucial to that scheme. Section 80(1A) provides:-

“Without limiting subsection (1), a claim lies against the Fidelity Fund for the purpose of compensating persons who suffer pecuniary loss:-
(a) occurring wholly in this State from a failure to account or a dishonest default (whether or not in the course of practising in this or another State) of a solicitor who is a local legal practitioner or a contributing interstate legal practitioner, or
(b) occurring both in this State and in another State or a Territory from a failure to account or a dishonest default (whether or not in the course of practising in this or another State) of a solicitor who is a local legal Practitioner, or
(c) occurring both in this State and in another State or a Territory from a failure to account or a dishonest default (in the course of practising in this State) of a solicitor who is a contributing interstate legal practitioner, or
(d) occurring in this State or another State or a Territory, or both, in circumstances in which it cannot be determined precisely where the loss occurred, from a failure to account or a dishonest default (whether or not in the course of practising in this or another State) of a solicitor who is a local legal practitioner, or
(e) occurring in this State or in another State or a Territory, or both, in circumstances in which it cannot be determined precisely where the loss occurred, from a failure to account or a dishonest default (in the course of practising in this State) of a solicitor who is a contributing interstate legal practitioner, or
(f) in any other circumstances in which an agreement or arrangement under section 48ZC provides that a claim is payable.”

54 By subsection (3), the Law Society Council is required to investigate the claim and to determine it either by allowing it in whole or in part, compromising it, settling it or disallowing it.

55 Subsection (4A) and (5) provide:-

“(4A) Subsection (4) does not limit the Law Society Council’s power to otherwise disallow a claim.
(5) A person is not prevented from making a claim just because, after the act or omission by a solicitor from which the failure to account or the dishonest default arises, the solicitor:-
(a) being a natural person, dies or ceases to be a legal practitioner or interstate legal practitioner, or
(b) (repealed)
(c) ceases to practice as a solicitor, or
(d) ceases to hold a current practising certificate or interstate practising certificate.”

56 Subsections 3, 4A and 5 are consonant with a purpose of the Act as intended to favour indemnity where the general statutory criteria are seen to be met.

57 Both s.80(1A) and s.80(4) commenced operation in 1997 before the occurrence of the failures to account asserted by the plaintiff. Although there may have been earlier failures, the section applies to failures to account as meaning failures to pay or deliver monies to or on behalf of a person entitled thereto which occur when the solicitor is liable to so repay and whilst that person is a solicitor: Francis v. Law Society of New South Wales (1982) 2 NSWLR 191 at 204F. As that case illustrates, such failures are capable of occurring during an extensive period and at any time during it. They are not necessarily fixed as occurring only on one determined day nor is the failure continuous. It occurs on each occasion the criteria are met. It is the date of that occurrence which is relevant to the application of these provisions, not the date of entrustment although a relevant entrustment under the Act is also necessary. That liability as Francis (supra) makes plain may extend right up to the time the solicitor loses his or her status.

58 Notwithstanding, s.80(1A)(b) clearly contemplates recovery in the case of a local legal practitioner whether the loss was caused in New South Wales or both in New South Wales and in another state.

59 It was submitted that “entrustment” and “failure to account” should be qualified in their meaning and limited to such circumstances as occurred in New South Wales by reference to general presumptions of statutory interpretations and the Interpretation Act. In particular, it was asserted that the statutory definition is s.79A(1) which refers to “in the course of the solicitor’s practice” has within it a requirement that the practice be a New South Wales practice to accord with a presumption against extraterritoriality. Such a requirement appears at first blush inconsistent with provisions such as s.80(4). It seems to me that the issue here involves not whether in some respect the Act might have extraterritorial operation but whether there are geographical qualifications implied to limit the Act’s application to the solicitor’s entrustments practices and failures to account referred to in the context of the Act’s express reference to temporal and geographical limitations to its effect.

60 Looking at the matters submitted in that light, I find no assistance in the submissions of the Society as to s.12 of the Interpretation Act or as to the effect of a general presumption against extraterritoriality. Nor do I consider the territorial limitations of the criminal law assist in the interpretation of these provisions and in determining the ambit of the statutory scheme. Plainly the provisions of Part 7 of the Legal Practitioners Act 1987 qualify, expressly by geographical limitations any provision to be read as so limited.

61 The express extension of the statutory regime to matters external to the State speaks against any such presumption or implication as was submitted. Where a provision is qualified geographically, express reference is made to that limitation, otherwise I consider the statutory scheme not only evinces no implication of such limitation it clearly evinces a contrary intention. Indeed to imply such a limitation where there are these express references would produce a scheme almost absurdly narrow in ambit.

Links with New South Wales

62 So far as the factual link with New South Wales is concerning, it is not to the point that the fictitious security properties were non-existent but were only supposedly located in New South Wales. Whilst Smith was a New South Wales solicitor he fraudulently misapplied monies to be invested by him as such solicitor on instructions they be invested, at least partially, in New South Wales properties. The investment (and the renewal) was attracted by those matters even if not by them exclusively.

63 This is not a case of Mr. Smith merely or only incidentally having a New South Wales practising certificate and no other or no other adequate connection with this State, eg., as in Aslimoski v. Law Society of the ACT [2001] ACT AAT 28 (17 October 2001). He plainly failed to account in this State between September 1996 and May 1998, wherever and whenever the initial entrustment occurred. I note that entrustment was renewed annually.

64 The existence of relevant failures to account are crucial to the statutory scheme. But even if there were earlier failures to account there was a failure to account in New South Wales at least from the time the solicitor abandoned his Queensland practice for an exclusively New South Wales one and in any event, in my view, during the whole of the period. So far as it might be necessary to show the link between the failure to account and New South Wales I accept the reasons submitted by the plaintiffs:-

“If (contrary to the plaintiffs’ contentions) it is necessary for them to identify some territorial connection between their investments through the solicitor, conduct of the solicitor and New South Wales there is an abundance of such connections, including the following:-
(i) The solicitor at all material times maintained a New South Wales practising certificate.
(ii) The solicitor at all material times held himself out to the public, and the plaintiffs, as a New South Wales solicitor. His stationery described his firm H.W. Smith & Associates as ‘Solicitors & Attorneys, NSW and Qld’.
(iii) Whether or not the solicitor maintained an ‘office’ in New South Wales he routinely did legal work in New South Wales (which, one assumes, is why he required a New South Wales practising certificate) and he operated a DX facility in New South Wales.
(iv) The properties offered by the solicitor as security for the plaintiffs’ investment were predominantly located in New South Wales.
(v) At all material times the solicitor himself lived in New South Wales and each of the plaintiffs (through a residence or property in Thompson Street, Tweed Heads) had a personal New South Wales connection.
(vi) Each of the offices of the solicitor (in Coolangatta before 13 September 1996 and in Tweed Heads thereafter) was part of a single community, albeit notionally on the border between New South Wales and Queensland.”

65 The plaintiff’s submissions and the plaintiff’s criticisms of the position taken by the defendant exposed the defendant’s position as follows:-

“The approach of the Law Society set out in its written reasons for decision (reproduced as part of Exhibit ‘RH 11’ on p.222, of the second plaintiff’s affidavit sworn 25 July 2002) appears to focus upon the facts that:-
(a) Each of the investments the subject of the plaintiffs’ disallowed claims on the Fidelity Fund was initially made before 13 September 1996 ( as set out in paragraph 29 of the second plaintiff’s affidavit sworn 25 July 2002), although they were all thereafter renewed from time to time (so that the invested monies remained invested on a continuous basis) until 22 June 1998, upon which date the Supreme Court of New South Wales appointed a receiver to the solicitor’s ‘property’ pursuant to s.92 of the Legal Profession Act 1987.
(b) Until 13 September 1996, the solicitor:-
(i) held a practising certificate in Queensland,
(ii) maintained an office in Coolangatta (Queensland), from which he practised under the firm name ‘H.W. Smith & Associates’,
(iii) apparently deposited the plaintiffs’ investment monies in bank accounts in Queensland,
(iv) apparently did not operate a trust account in New South Wales.
(c) Because (contrary to the solicitor’s representations to the plaintiffs) there never were any genuine mortgages in favour of the plaintiffs securing their investment monies, and the monies were apparently deposited by the solicitor in bank accounts in Queensland, the solicitor must be taken to have misapplied or misappropriated the monies at or about the times of those deposits occurring.
(d) In these circumstances, the solicitor’s failures to account must be taken to have occurred:-
(i) in Queensland (not in New South Wales),
(ii) in the course of the solicitor’s practice as a Queensland solicitor (not in the course of any practice as a New South Wales solicitor); and
(iii) without any material ‘connection with practice as New South Wales solicitor.”

66 The submissions of the defendant were amplified in further submissions to the same effect. However all of the defendant’s submissions in this regard were flawed in that they disregard the fact that an early failure to account does not mean that later there can be no further failure and that a connection with Queensland does not mean there was not also a sufficient connection with New South Wales.

67 It is apparent from the affidavit material that the plaintiffs dealt with the solicitor on the basis of substantial connection between his practice and New South Wales even if he also had an initially stronger connection with Queensland. Indeed after ceasing his Queensland practice the plaintiffs dealt with him as a solicitor practising exclusively in New South Wales. These facts are not disputed. Most importantly, s.80(1A)(d) seems to be directly applicable.

68 These provisions and the terms of s.80(4) (the effect of which expressly relates to the example of a solicitor whose activities are outside Australia) together with the lack of any limitation to New South Wales sufficiently indicates to me a statutory scheme requiring the provision of compensation where there is a substantial factual link between the New South Wales practice and the claim even if it cannot be determined where the loss occurred, provided the other statutory requirements are met.

69 In particular, there is no requirement that a current trust account be kept in New South Wales.

70 I do not consider, particularly in the light of the view I take of the meaning of s.80(4) that I should consider that s.79A should be construed as limited to an exclusively New South Wales practice. As I have said, so far as there is a territorial qualification, it is expressed in s.80.

71 The provisions look to the practice and its ambit. In my view they contemplate border practices where border crossing solicitors hold themselves out to practice and do so in two or more states. It would impose an intolerable burden on a claimant where such a solicitor has been entrusted with monies to invest in the course of carrying on such a practice to establish that it was exclusively the New South Wales aspect of the practice which attracted the investment. I do not consider the statute should be so construed as requiring any such thing.

72 In my view, the ordinary operation of s.80(4) was intended to impose the relevant geographical limitations on the subject matter of a claim. There are no other geographical limitations which would defeat an otherwise proper claim.

Was there insufficient connection?

73 It was submitted here that the monies were received in Queensland where the solicitor held a Queensland practising certificate and were misapplied by being deposited in Queensland bank accounts. It was submitted there was insufficient “connection with practice in New South Wales” notwithstanding that the solicitor had a New South Wales practising certificate, held himself out as practising in New South Wales and the investments were renewed at a time when the solicitor only had a New South Wales practice, office and practising certificate. It appears that it was thought that, because of the matters I have referred to and a number of others showing a connection with Queensland, the connection with New South Wales was excluded or rendered insufficient, notwithstanding the Act does not contemplate solicitors practising in jurisdictions exclusive of each other and seems to expressly contemplate dual status and practice even in the one transaction.

74 The question arises as to what “sufficient” means in s.80(4). The example expressly referred to in the section suggests there would be an insufficient connection where the fact that the solicitor was a New South Wales solicitor was almost, if not completely, immaterial to the receipt or entrustment in circumstances where there was no other connection with New South Wales other than the solicitor’s local status. In my view, dual status does not effect a disqualification from a sufficient connection where there is, as here, also a substantial factual link between the entrustment and a New South Wales practice and the failure to account and New South Wales.

75 That there were such factual links here even if there were also links with Queensland, is clear.

76 Was there a sufficient connection with New South Wales such that it was not open to the defendant to be satisfied there was not? This turns on the degree of factual connection which was plainly significant and in the individual circumstances of each transaction substantial notwithstanding until October 1996 there was also connection with Queensland. The defendant decided otherwise apparently on the erroneous basis that the degree of connection with Queensland before that time excluded there being a sufficient connection with New South Wales.

77 The use of the term “sufficient” in s.80(4) in my view does not confer a discretion on the Society to disallow a claim which had a substantial connection with the practice of a solicitor who practiced in New South Wales and who failed to account when exclusively practising in New South Wales. Whilst the language of s.80(4) suggests a discretion to disallow a claim, that discretion turns on the existence of a matter of fact which the Society must determine, ie., of which the Society must be satisfied, to exercise a discretion to reject the claim. The relevant fact is that the claim does not have a sufficient (ie., adequate) connection with the New South Wales practice. There is no discretionary, or to put the submitted test another way, unreviewable subjective content implied in that term.

78 I consider the term “sufficient” is used to distinguish between an adequate connection and an insubstantial or minimal one. It is to be contrasted with a substantial connection. Section 80(4) is to deal with those cases falling within the subsections of s.80 where there is inadequate connection between the loss and the New South Wales practice to warrant the New South Wales Law Society being liable, adequacy being determined not by whether practice was simultaneously carried on with that in another State or the degree of link to that other State but by the extent of the factual links between the loss and the New South Wales practice.

79 To the contrary of the defendant’s submissions, I conclude that on the admitted or unchallenged facts there was a significant and substantial New South Wales connection which it was not open to the defendant to be satisfied was “not sufficient” and which on what I accept is the proper construction of s.79A(1) and s.80(4) the Society fell into error in failing to recognise.

Conclusion

80 I conclude the Society erred in law in concluding otherwise, as all the evidence points to such a connection, even if it also points to an additional connection with Queensland for a time.

81 I therefore conclude that for the reasons I have given, the appeal should be upheld and that the appropriate orders should be made to allow the various claims of the plaintiffs. However, in case there is some necessary adjustment to the amount of those claims and for the purpose of ensuring the orders I will make are appropriate in form, I direct the parties to bring in short minutes to give effect that intent.

82 There appears no reason why the plaintiffs, having been fully successful, should not have an order for costs, but I will defer making that order to permit further argument if the parties consider it appropriate. Otherwise, costs should be provided for in the short minutes.

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Last Modified: 06/07/2004