Law Society of New South Wales v Glenorcy Pty Ltd

[2006] NSWCA 250

Reported Decision: 67 NSWLR 169

Court of Appeal

CITATION:	LAW SOCIETY OF NEW SOUTH WALES v GLENORCY PTY LTD & ORS [2006] NSWCA 250
HEARING DATE(S):	10 March 2006
JUDGMENT DATE:	12 September 2006
JUDGMENT OF:	Mason P at 1; McColl JA at 85; Basten JA at 86
DECISION:	Appeal allowed in part.
CATCHWORDS:	EXTRA-TERRITORIALITY – Application of State legislation – Legal profession legislation – Solicitor admitted to practice in both New South Wales and Queensland – Living in New South Wales but office in Queensland – Client from New South Wales but entrustments deposited in Queensland bank – Failure to account – Misappropriation of funds – Whether sufficient connection with practice as a New South Wales solicitor – Whether claim permitted against New South Wales Fidelity Fund – Legal Profession Act 1987, ss 76, 79, 79C, 80, 80A, 86. - LEGAL PRACTITIONERS – Solicitors’ Fidelity Fund – Claim against by client – Solicitor’s failure to account - Whether claim permitted against New South Wales Fidelity Fund when failure occurred in Queensland. - DAMAGES – Compensation – Measure of – Solicitor’s failure to account for moneys advanced by client – Advance made under mortgage lending scheme whereby solicitor to lend out moneys – Misappropriation of funds by solicitor – Solicitor remitting purported interest payments to client out of pocket or from other funds – Claim against Fidelity Fund – Whether claim to be reduced by interest payments received – Rule against double-compensation. (D)
LEGISLATION CITED:	Interpretation Act 1987 Legal Practitioners Act 1970 (ACT) Legal Profession Act 1987 Legal Profession Amendment Act 1996 Legal Profession Act 2004 (NSW) Queensland Law Society Act 1952, s24(1C)
CASES CITED:	Aslimoski v Law Society of the Australian Capital Territory [2001] ACTAAT 28 Boncristiano v Lohmann [1998] 4 VR 82 Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR(NSW) 159 Franklins Self Serve Pty Ltd v Wyber (1999) 48 NSWLR 249 Francis v Law Society of New South Wales [1982] 2 NSWLR 191 Glenorcy Pty Ltd v Law Society of New South Wales [2004] NSWSC 464 Midland Montagu Australia Ltd v Harkness (1994) 35 NSWLR 150 The National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569 Travel Compensation Fund v Tambree [2005] HCA 69 Vassiliadis v Law Society of New South Wales (1997) 41 NSWLR 383 Veghelyi v Council of the Law Society of New South Wales (1989) 17 NSWLR 669 Wyong Shire Council v MCC Energy Pty Ltd (No 2) [2005[ NSWCA 196
PARTIES:	LAW SOCIETY OF NEW SOUTH WALES GLENORCY PTY LTD RAYMOND GEORGE DE HAYR BARRY JOHN JOSEPH DE HAYR
FILE NUMBER(S):	CA 40413/05
COUNSEL:	Appellant: S Epstein SC/ K Rees Respondents 1-3: G C Lindsay SC/ M Herschderefer
SOLICITORS:	Appellant: A S Brown Respondents 1-3: Freehills
LOWER COURT JURISDICTION:	Supreme Court - Common Law Division
LOWER COURT FILE NUMBER(S):	SC 11678/2000
LOWER COURT JUDICIAL OFFICER:	Greg James J
LOWER COURT MEDIUM NEUTRAL CITATION:	[2004] NSWSC 464

CA 40413/05
SC 11678/2000

MASON P
McCOLL JA
BASTEN JA

Tuesday 12 September 2006

THE LAW SOCIETY OF NEW SOUTH WALES v GLENORCY PTY LTD & Ors

Section 80 of the Legal Profession Act 1987 relevantly provided:

(1) 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…
…

(4) If a solicitor has failed to account or made a dishonest default, the Law Society Council may wholly or partly disallow a claim:

(a) if satisfied that the claim does not have sufficient connection with practice as a New South Wales solicitor in Australia (for example, because the claim arises from the receipt or entrustment of money or valuable property that was received by or entrusted to a solicitor outside Australia and the act or omission giving rise to the claim occurred outside Australia)….

A solicitor admitted to practise in both New South Wales and Queensland received funds in New South Wales advanced by his clients as part of a mortgage loan scheme whereby the solicitor lent out the funds and remitted interest to the client. The solicitor lived in New South Wales but his office was in Queensland and it was in Queensland that he had opened and maintained client trust accounts. The mortgages were false and the moneys misappropriated and deposited in Queensland bank accounts. The solicitor concealed his breaches by purporting to remit interest payments to his clients, paying for them out of pocket or from other misappropriated funds. When the clients realised the defalcations, they made a claim against the Queensland Fidelity Fund and were successful except that they were required to give credit for the receipt of purported interest on the fictitious loans. The shortfall was unsuccessfully claimed against the New South Wales fund. The clients were then successful in an appeal to the Supreme Court of New South Wales.

The Law Society appealed to the Court of Appeal, arguing two broad grounds, namely, (i) that the claim was rightly disallowed as it concerned failures to account occurring outside of New South Wales, or lacking sufficient connection with practise as a New South Wales solicitor, and (ii) the clients would be overcompensated if they were allowed to receive the equivalent of what was already paid to them as purported interest.

HELD:

(1) (Per Mason P, McColl JA and Basten JA agreeing) Section 80(4) does not require that the legal practice was conducted predominantly in or from New South Wales. (at [33])

(2) A legal practice is not to be equated with the office from which it primarily is conducted. (at [36])

(3) Section 80(4) does not require that the defalcation itself occurs in New South Wales; nor is interpretation legislation providing for implied references to a State so to be construed. (at [37]-[38], [44]-[45])

O’Connor v Healey (1967) 69 SR(NSW) 111 at 114, applied.

(4) The definition of “solicitor” as used in s 80 is defined in s 79 as one “required by s 76 to contribute to the Fidelity Fund”, which the solicitor in question was. He was therefore a New South Wales solicitor at the relevant time, and s 80 applied to the solicitor directly. (at [39], [25], [40])

(4) No question of whether the Act has extra-territorial effect, applying to “Queensland” solicitors, arises because the solicitor was a “New South Wales” solicitor. (at [47])

(5) The terms of s 80(4) recognise the Fund may be amenable to claims by New South Wales solicitors who practice anywhere in Australia. (at [41]-[42])

(6) The clients must bring to account such sums as are shown to have been paid to them in reduction of their loss. (at [74])

Boncristiano v Lohmann [1989] 4 VR 82 at 89, applied; Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR(NSW) 159 at 176, 187-188, Midland Montagu Australia Ltd v Harkness (1994) 35 NSWLR 150 at 159, Franklins Self Serve Pty Ltd v Wyber (1999) 48 NSWLR 249, referred to.

(7) The rule against double compensation does not ordinarily involve reference to the payer’s intent or the juridical reason for the payment. Money recoverable under one cause of action from one defendant may be reduced because a third party owing a different legal duty, or none at all, has paid money that is viewed by the law as covering the loss for which compensation is claimed. (at [75])

(8) The remits of interest should be brought into account in reduction of the clients’ claim. (at [76]-[77])

National Insurance Co of New Zealand Ltd v Espagne

(1961) 105 CLR 569 at

598-600, distinguished.

CA 40413/05
SC 11678/2000

MASON P
McCOLL JA
BASTEN JA

Tuesday 12 September 2006

THE LAW SOCIETY OF NEW SOUTH WALES v GLENORCY PTY LTD & Ors

JUDGMENT

1 MASON P: Claims against the Fidelity Fund with respect to a dishonest solicitor were partially rejected by the Law Society. An appeal to the Supreme Court was successful (Glenorcy Pty Limited & Ors v Law Society of New South Wales [2004] NSWSC 464, [2005] NSWSC 300). This appeal by the Law Society seeks to overturn that outcome in whole or in part.

2 The Law Society of New South Wales (the Society) raises two broad issues. Under the first (territorial) issue, it contends that the claims should have been rejected because the failures to account occurred outside New South Wales and/or did not have a sufficient connection with practice as a New South Wales solicitor.

3 The second (pecuniary loss) submission contends that the respondents’ loss was miscalculated in light of certain payments received from the solicitor and from the Queensland Fidelity Guarantee Fund.

The claims

4 The respondents were clients of Henry William Joseph Smith, a solicitor admitted to practise in both Queensland and New South Wales.

5 Smith lived within New South Wales but his office address was in Coolangatta prior to 13 September 1996, when he surrendered his practising certificate in Queensland. On 1 October 1996 he switched to an office in Tweed Heads a few blocks away. Only after this date did he commence operating a trust account in New South Wales.

6 The clients had provided funds to Smith for the purpose of being lent out under a mortgage lending scheme on land mainly in New South Wales. The solicitor represented that he had done so, even to the extent of producing forged memoranda of mortgage and remitting “interest” from time to time. In truth, the mortgages were fictitious and, shortly after receipt, the moneys were paid into bank accounts in Coolangatta controlled by Smith. Smith paid “interest” out of his own moneys or the misappropriated funds of other clients. The relevant misappropriations took place in the period when Smith held practising certificates in each State.

7 Smith was struck off the roll of solicitors in Queensland on 27 April 1998. He was subsequently convicted of various Queensland offences and imprisoned. It is not known whether the offences related to dealings with the respondents, but nothing turns on this.

8 The respondents knew nothing of these Queensland problems until after they learnt what later happened to Smith in New South Wales. When he surrendered his Queensland practising certificate Smith moved his office from Coolangatta to Tweed Heads and continued to operate from there until 6 March 1998 when his New South Wales practising certificate was suspended. He was later removed from the New South Wales roll of legal practitioners. He was also convicted and sentenced for New South Wales offences involving dishonesty (see Henry William Smith (2000) 114 A Crim R 8). Once again, it is not known whether they involved the respondents.

9 Claims were lodged by the respondents on the Fidelity Guarantee Fund of Queensland and the Fidelity Fund of New South Wales. The claims were in respect of $1,542,650, the total money that had been entrusted, and they were allowed to a considerable extent by the respective Law Societies.

10 This appeal is to be determined as if the Legal Profession Act 2004 (NSW) had not been enacted (see Schedule 9, cl 22 of that Act).

11 The Fund was established under Part 7 of the Legal Profession Act 1987 (the Act) (see now Part 3.4 of the Legal Profession Act 2004). It is the property of the Society, to be administered by the Law Society Council (the Council) and applied in accordance with the provisions of Part 7 (s70(2)).

12 A claim must be investigated by the Council and determined by wholly or partly allowing it or disallowing it (s80(3)). If the Council wholly or partly disallows the claim, it must give written notice to the claimant (s90D(2)).

13 The claimant may appeal to the Supreme Court, among other things against the Council’s decision to wholly or partly disallow a claim (s90D(3)(a)). On an appeal, the Supreme Court may make such order it thinks fit (s90D(4)).

14 The “appeal” to the Supreme Court is in the nature of a hearing de novo, except perhaps in those matters where the Society Council’s finding is declared to be final and conclusive (cf s79A(3). See Veghelyi v Council of the Law Society of New South Wales (1989) 17 NSWLR 669, Vassiliadis v Law Society of New South Wales (1997) 41 NSWLR 383 at 386-7). This matter was not really in issue before us, save that the Society submitted at one stage that these principles do not apply to its satisfaction that the claim did not have a sufficient connection with practice in this State (see s80(4)(a)) unless error is first found. (It will be seen that this question is academic, because such error did occur.)

15 The Council accepted claims from the respondents in respect of entrustments made after 13 September 1996, ie the date on which Smith ceased to be entitled to practice in Queensland. These have no relevance to the issues in this appeal save that the Council’s methodology for computing pecuniary loss for those claims was adopted by the primary judge as regards the “Queensland” claims.

16 The claims that were rejected were disallowed by the Council on 27 April 2000 in the following terms:

Glenorcy Pty Ltd

The claim was disallowed as it relates 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. The Committee was not satisfied that there was an entrustment of these amounts, or a failure to account, within the terms of section 79A of the Legal Profession Act 1987 .

The Committee noted that, even if there were a relevant entrustment and failure, it was satisfied, pursuant to section 80(4) Legal Profession Act, that the claim did not have a sufficient connection with practice as a New South Wales solicitor in Australia.
Raymond de Hayr

The claim was disallowed as it relates to transactions involving: $34,000.00, $45,000.00 and $3,000.00 in September 1993 and $18,000.00 in August 1994. The Committee was not satisfied that there was an entrustment of these amounts, or a failure to account, within the terms of section 79A of the Legal Profession Act 1987 .

The Committee noted that, even if there were a relevant entrustment and failure, it was satisfied, pursuant to section 80(4) Legal Profession Act, that the claim did not have a sufficient connection with practice as a New South Wales solicitor in Australia.

Barry de Hayr

The claim was disallowed as it relates to transactions involving: $30,000.00 in July 1986, $150,000 in 1989, $40,000.00 in January 1991 and $36,968.00 in September 1994. The Committee was not satisfied that there was an entrustment of these amounts, or a failure to account, within the terms of section 79A of the Legal Profession Act 1987.

The Committee noted that, even if there were a relevant entrustment and failure, it was satisfied, pursuant to section 80(4) Legal Profession Act, that the claim did not have a sufficient connection with practice as a New South Wales solicitor in Australia.

17 The transaction dates referred to were those on which the funds were first entrusted to Smith. They relate to entrustments made during the earlier period in which Smith was entitled to practise in both States and when his business office was in Coolangatta. The Society also relies on the fact that the moneys were misappropriated by Smith transferring them to his own bank accounts in Queensland during this earlier period. The Society accepts that these defalcations would be "failures to account" capable of engaging the New South Wales scheme were it not for the added problem of extraterritoriality stemming from Smith being a "Queensland" solicitor committing “Queensland” defalcations at the relevant time.

18 The clients knew nothing of the misappropriations until 1998 when they were informed that a receiver had been appointed in respect of Smith's practice in this State. Only then did they discover that the mortgage transactions never existed and that Smith had really been paying "interest" until 4 June 1998 using his own funds (or the misappropriated funds of other clients).

19 The respondents initially claimed against the Queensland equivalent of the Fund in respect of these transactions and they were partially compensated. They were, however, required to give credit for receipts of purported interest on the purported loans (Queensland Law Society Act 1952, s24(1C), set out below). The claims on the New South Wales Fund that were disallowed related to this shortfall.

20 In his first judgment (Glenorcy Pty Ltd v Law Society of New South Wales [2004] NSWSC 464), Greg James J found it unnecessary to decide the precise character of the “appeal” to the Supreme Court referred to in s90D(3). Nevertheless, he concluded that he should determine the facts, untrammelled by the views of the Society embodied in the “decision” under appeal. In doing so, he arrived at a different conclusion to the Council. He would in any event have found error in the Council’s decision were his appellate jurisdiction of a narrower category.

The territorial issue

21 The core provision of Division 3 is s80. It confers the right to make claims against the Fund, defining the types of claim allowable and the procedure to be followed. Section 80 relevantly provides:

(1) 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....

(4) If a solicitor has failed to account..., the Law Society Council may wholly or partly disallow a claim:
(a) if satisfied that the claim does not have sufficient connection with practice as a New South Wales solicitor in Australia (for example, because the claim arises from the receipt or entrustment of money or valuable property that was received by or entrusted to a solicitor outside Australia and the act or omission giving rise to the claim occurred outside Australia)....

22 Subsection (4) was inserted by the Legal Profession Amendment Act 1996 and it commenced to operate on 1 April 1997. It is nevertheless applicable in relation to claims, like the present ones, made after its commencement (see Schedule 8, cl 48 (1)). As indicated, the Council invoked this subsection when rejecting the present claims.

23 Since the inception of the Act in 1987, "failure to account" has been defined to include (relevantly) "a failure by a solicitor...to account for, pay or deliver money or other valuable property received by or entrusted to the solicitor... [but] only [if the] failure arises from an act or omission... which the Law Society Council has found to be dishonest...." (The definition was found in s79 between 1987 and 1993 when it was moved to section 79A.)

24 There is uncertainty whether the Council found that the instant failures to account were dishonest. Such finding was certainly made in relation to an identical pattern of misconduct after 1 October 1996 for which liability was accepted. Senior counsel for the Society acknowledged that a finding of dishonesty was inevitable.

25 Even during his period as a Queenland solicitor, Smith was also a “solicitor”, as defined in s79 of the Act for the purpose of Division 3, in that he was a solicitor required by s76 to contribute to the New South Wales Fidelity Fund.

26 The Society submits that Smith failed to account in relation to the subject transactions when, contrary to the mandate on which he had received the moneys, he deposited them in bank accounts under his control, thereby misappropriating them. There may have been subsequent failures to account in each transaction, but the Society is correct in this submission as to the nature, timing and (Queensland) location of the initial failures to account in each transaction (see Francis v Law Society of New South Wales [1982] 2 NSWLR 191 at 204-5; Travel Compensation Fund v Tambree [2005] HCA 69 at [6]).

27 Greg James J pointed to numerous factual links with New South Wales, touching these transactions, including Smith’s status as a “solicitor” as defined in s79, the clients’ annual “renewal” of the entrustment (presumably, as they received and relied upon the fictitious statements and “interest” payments remitted by Smith); Smith’s holding himself out in his office letterhead as a New South Wales solicitor; and the fact that Coolangatta and Tweed Heads were part of a single community (first judgment at [62]-[64]).

28 The Society’s decision and its submissions in the Supreme Court were found in error for overlooking that a connection with Queensland does not mean that there was not also a sufficient connection with New South Wales. The nub of his Honour’s reasoning as to the ambit of the Act appears from the following passages:

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….

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.

29 The learned judge was satisfied that there was a “sufficient connection with practice as a New South Wales solicitor in Australia” within s80(4)(a). In his view ([74]), dual status as a Queensland and a New South Wales solicitor:

… 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.

30 I agree with the reasoning referred to in the two preceding paragraphs, save that his Honour’s reference to s80(1A)(d) was inapt. That provision states:

(1A) Without limiting subsection (1), a claim lies against the Fidelity Fund for the purpose of compensating persons who suffer pecuniary loss:
(d) occurring in this State or a participating State, 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, …

31 The provision was enacted after Smith’s initial defalcations, unaccompanied by any relevant transitional provision. Furthermore, it does not appear that his Honour was informed that Queensland never became a “participating State” (as defined in s48N, which commenced in 1997). I have not relied upon this provision.

32 The primary judge applied the Act as it stood in 2004 (see also [55]-[56], [67]-[68]). He stated (at [57]) that these provisions commenced operation in 1997 “before the occurrence of the failures to account asserted by the plaintiff”. (The opposite is the case, although for reasons developed below nothing turns on this.)

33 On my understanding of its position, the Society does not dispute the finding of Greg James J who held, overturning the decision of the Council, that the claims had "sufficient connection with practice as a New South Wales solicitor in Australia" to make it inappropriate for them to be disallowed pursuant to s80(4). In any event, there were ample connections with this State and I agree with his Honour's conclusion in this regard. Section 80(4) does not require that the practice was conducted predominantly in or from New South Wales.

34 The Society's argument is that the claims for the period in which Smith held a Queensland practising certificate and practised from an office in Coolangatta (ie July 1986 to August 1996) were not claims within the Act. The main submission in this Court was that the Fund was not liable because the failure to account (ie defalcation) occurred outside New South Wales. At times, additional emphasis was placed on the contention that Smith's practice was said to be located in Queensland at the relevant time (CA Tr p6).

35 On either basis, the statutory springboard was said to be the definition of "failure to account". Textually, this submission involved reading the definition as if "in New South Wales" appeared after "failure" and/or "the solicitor's practice".

36 There is a factual difficulty with the argument that Smith practised in Queensland at the relevant time. A legal practice is not to be equated with the office from which it primarily is conducted. Smith held himself out in New South Wales as a solicitor on the New South Wales roll and he had a practising certificate in this State during this period. He dealt with the respondents in New South Wales.

37 More significantly, both submissions seeking to localise the definition of "failure to account" in the manner indicated contain the fallacy identified by Jacobs JA in O'Connorv Healey (1967) 69 SR(NSW) 111 where he said (at 114):

The submission, therefore, is that the site of the injury must be New South Wales, that the journey must be a New South Wales journey, and that the place of abode on the one hand and the camp or place on the other must all be related to New South Wales. In my view this is too strict an application of s17 of the Interpretation Act, [of 1897]. When there are a number of circumstances which have a local content, such as, in the present case, injury, journey, place of abode and place of work, I do not think that ordinarily it is possible to apply the terms of the Interpretation Act to each and every one of them as a matter of course. It seems to me that the intention of s17 is to provide the natural limit of legislation, so that it applies in its subject matter to those situations which have a nexus with New South Wales. However, it is not every aspect of every sentence or clause of legislation which can be given the local New South Wales connotation.

38 The current provision stating that references to New South Wales are to be implied is s12 of the Interpretation Act 1987.

39 In my view, the correct reading of both the definitional (s70A) and the operative (s80) provisions of Division 3 is to read "solicitor" as it is defined in s79, namely "a solicitor required by section 76 to contribute to the Fidelity Fund". Section 76 was amended twice by enactments passed in 1996 that commenced in 1997. But both before and after 1997 s76 has confined its operation to solicitors having a stated connection with this State, one that obviously made it appropriate for them to be required to contribute to the Fund. More importantly, that was the judgment of the Legislature.

40 Smith was required to contribute to the Fund in this State on the basis that he applied for and obtained a practicing certificate in this State. He was thereby a “solicitor” to whom s80 applied expressly (see s80(4)) and implicitly, (see s80(1), which picks up the definition of failure to account with its own reference to “solicitor”).

41 The terms of s80(4) further undercut the Society's argument, because they clearly recognise that the Fund may be amenable to claims by New South Wales solicitors who practice anywhere in Australia. Greg James J correctly found that the Council had misunderstood or misapplied this provision.

42 There is an obvious correlation between requiring a particular group of practitioners to contribute to the Fund and recognising that their misconduct will be the occasion for allowing claims on the Fund. There is no discernible purpose in reading the scheme in the cramped manner proposed by the Society.

43 My construction of the legislation satisfies the constitutional and other reasons that underpin the law's readiness to interpret statutes as having an identifiable nexus with the jurisdiction of the enacting Parliament. It also avoids the absurdities inherent in the Society's approach to the legislation, thereby promoting an interpretation consonant with the evident purpose of the statutory scheme.

44 To accept an interpretation that exempted the Fund from liability with respect to a solicitor enrolled in this State and having a local practising certificate, on the basis that the solicitor's failure to account occurred beyond the borders of the State, would ignore the nature of modern legal practice in this country. It is impossible to conceive why it would be just or sensible to construe the scheme as exempting a Sydney-based solicitor who while temporarily in the Australian Capital Territory took instructions by phone to deal with his or her client's money; or whose instructions given in Sydney were to deal with the money in a particular way while in that Territory.

45 Equally improbable is some presumed legislative intent that this scheme would not embrace clients who dealt with solicitors whose practice was similar to that of Smith or whose office was located near a State border. The legal profession in Australia has been moving towards both an interstate and national outlook for many years. In this, it has followed the needs and demands of its clientele as well as the realities of modern life. These developments have been particularly significant for both lawyers and clients who live near State borders, for obvious reasons.

46 It has not been necessary to consider whether there were continuing or subsequent failures to account referable to the 1986-96 transactions during the period after 1 October 1996 when Smith commenced to practise in New South Wales (according to the Society’s concession).

47 I do not accept the Society’s attempt to characterise the issue as being whether the Act has extraterritorial effect, enabling claims to be made with reference to “Queensland” solicitors. Smith was a “New South Wales solicitor” at the relevant time. To put it more precisely, he was a “solicitor” as defined in s79 whose failure to account as defined in s79A caused the respondents to suffer pecuniary loss within s80 (subject to the “pecuniary loss” issue discussed below).

48 Nor do I accept the Society’s submission that the claims must be rejected because the respondents have not identified any legitimate process of statutory interpretation in accordance with which they can have simultaneously become entitled to receive compensation under the Queensland and New South Wales legislation (Orange 46). This submission attempts to place the boot on the wrong foot. In truth, it is the Society that has failed to demonstrate how the mere concurrence of rights to go against both Funds provides a defence under the New South Wales scheme. The Act is concerned about double compensation (see ss80A and 86 discussed below), but it goes no further.

49 The Society placed reliance upon the decision of the Administrative Appeals Tribunal of the Australian Capital Territory in Aslimoski v Law Society of the Australian Capital Territory [2001] ACTAAT 28. That Tribunal was considering legislation containing no equivalent of the definition of “solicitor” in s79 or of s80(4)(a). Invoking the Australian Capital Territory equivalent of s12 of the Interpretation Act, the Tribunal found that any “failure to account” under the Legal Practitioners Act 1970 (ACT) had to occur in the course of conducting the solicitor’s practice in the Territory (see at [15]-[22]). I would not construe the New South Wales Act in this way, in light of the provisions I have referred to. Nor (if necessary) would I find that Smith committed his failures to account in the course of conducting his practice in Queensland.

50 In its original decision, the Council of the Society expressed itself, in terms of s80(4)(a), as satisfied that the claims did not have sufficient connection with practice as a New South Wales solicitor in Australia. This conclusion was vitiated in law because it stemmed from the interpretation of the scheme that I have rejected. Senior counsel for the Society conceded that if the Society failed on the “territorial breach of the legislation” it would follow that the Council’s determination suffered from legal error (CA Tr p33). In my view, the concession was correctly made. In any event, the nature of the Supreme Court’s jurisdiction in “appeals” is such that it is for the Court to make up its own mind, save perhaps (and it is unnecessary to resolve the point) in areas where the Council’s finding is given “final and conclusive” effect (eg s79A(3)).

The pecuniary loss issue

51 As indicated, the Fund is established to compensate “persons who suffer pecuniary loss because of a failure to account” (s80(1)). The meaning of “pecuniary loss” is elucidated in s79C subs (1) of which provides:

(1) For the purposes 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 judgments as at that date.

52 The Society submits that the respondents suffered no pecuniary loss in the relevant transactions. This is because of what they received from Smith by way of purported interest under the spurious loans and because of what they have recovered from the Queensland Fidelity Fund.

53 The issue can be illustrated by concentrating on the sum claimed by the respondent Mr Raymond de Hayr and awarded by the primary judge (together with a component to compensate for the delay in recovery: see below). Details of the capital loss claimed were as follows:

Purported Borrower	Date of Advance	Amount Advanced	Compensation Paid by Queensland Law Society	Receipts of purported interest (deducted from claim)
Rosidium Pty Ltd	01.09.93 01.08.94	$ 82,000 18,000 $100,000	$ 54,000	$ 46,000

54 In the accompanying statutory declaration, Mr de Hayr had claimed (Blue 100):

(a) Pecuniary loss of money entrusted to Smith - $100,000;
(b) legal costs;
(c) interest that the claimant would otherwise have received, but for the failure to account; and
(d) interest pursuant to s85 of the Act.

55 Smith had represented to Mr de Hayr that the entrusted money had been lent out on mortgage to Rosidium Pty Ltd, repayable with interest at 12%. There was in fact no such investment (Blue 267), but Smith proceeded for a time to remit to Mr de Hayr interest at the represented rate. Mr de Hayr received $46,000 in this manner. That sum represents 46 monthly payments at this rate between the date of the second entrustment (1.8.94) to the date when the last “interest” was remitted from Smith (1.6.98) (Blue 225). Mr de Hayr paid tax on these actual receipts of “income”. The “interest” rate was well above the current market rate for risk-free interest, according to Reserve Bank deposit and investment rates (Blue 300). But it was in line with what Mr de Hayr understood to be prevailing commercial rates of interest for moneys invested on mortgage through solicitors operating in the Tweed district (Blue 409).

56 When Mr de Hayr lodged a claim for $100,000 with the Queensland Society with respect to this transaction, he recovered $54,000. There appears to have been no interest component. $46,000 was deducted because of s24(1C)(b) of in the Queensland Law Society Act 1952. Section 24 relevantly provided:

Application of fund
(1) Subject to the provisions of this Act, the fund shall be held and applied for the purpose of reimbursing persons who may suffer pecuniary loss through stealing or fraudulent misappropriation committed by a practising practitioner….
(1B) Subsection (1C) applies if -
(a) before the commencement of this section, a practising practitioner, or the practising practitioner’s clerk or employee received an amount on trust for investing by way of loan; and
(b) the practising practitioner, or the practising practitioner’s clerk or employee –
(i) invested the amount in a loan; or
(ii) purported to invest the amount in a loan (the “purported loan” ); and

(c) a person suffers a pecuniary loss mentioned in subsection (1) in relation to the amount.
(1C) In working out the amount to be applied for reimbursing the person, the council may -
(a) have regard only to the amount invested, or purported to have been invested, as principal for the loan or purported loan; and
(b) deduct any amount, whether of principal, interest or another payment however described, paid in relation to the loan or purported loan, that the person has received.

57 The New South Wales Society’s rejection of all claims for the period of “Queensland” practice before 1 October 1996 meant that questions of quantifying pecuniary loss referable to these claims did not come to the fore until the proceedings moved into the Supreme Court.

58 During preparation of final orders in the Supreme Court, a dispute arose as to calculation of interest. The Society accepted that the pecuniary loss claim had an interest component, but baulked at the respondents’ calculations. Those calculations had used the methodology adopted by the Council with respect to the claims for post-October 1996 defalcations that the Council had accepted because they related to Smith’s admitted period of practice in this State. The Society’s methodology with reference to the claims that were allowed contained a component of 8% simple interest calculated up to the date of allowance.

59 In opting for the interest component to be assessed in this way, the former clients were possibly refraining from pressing their claim to its limits. It is at least arguable that s79C(1)(c) deals only with a failure to account for interest due under a genuine transaction.

60 The judge upheld the respondents’ various claims and, as requested, he computed pecuniary loss in the same manner as the Council had done with reference to the claims it had accepted. His Honour then added pre-judgment interest at Supreme Court rates to the date of his orders.

61 Accordingly, final orders were made on 27 April 2005 in the following terms:

1. ORDER that the decisions made by the Defendant on 27 April 2000:

a. to disallow so much of the First Plaintiff’s claim on the Solicitors’ Fidelity Fund (namely, $247,890.00) as had not been allowed by the Defendant on 23 March 2000;
b. to disallow so much of the Second Plaintiff’s claim on the fund (namely, $46,000.00) as had not been allowed by the Defendant on 23 March 2000;

and

c. to disallow so much of the Third Plaintiff’s claim on the Fund (namely $83,325.00) as had not been allowed by the Defendant on 23 March 2000,


be set aside.

2. ORDER that in lieu of these decisions, the respective claims of the Plaintiffs be allowed on the same terms, as to payment of the dividends and interest, as the Defendant allowed the balance of the Plaintiff’s claims; that is:

a. A payment on 27 April 2000 of a dividend equal to 50% of each claim, together with interest calculated at the rate of 8% per annum from 4 June 1998 to 27 April 2000.
b. A payment on 24 August 2000 of a dividend equal to 30% of each claim, together with interest calculated at the rate of 8% per annum from 4 June 1998 to 24 August 2000.
c. A payment on 22 February 2001 of a dividend equal to 20% of each claim, together with interest calculated at the rate of 8% per annum from 4 June 1998 to 22 February 2001.


3. ORDER that interest be allowed in favour of the respective Plaintiffs under s94 of the Supreme Court Act 1970 (at the rates for which Practice Note 92 dated 20 March 1997 provides) on each notional dividend from the date upon which that dividend would have been paid had the Plaintiffs’ claims on the Fund been allowed on 27 April 2000.

4. ORDER that in accordance with Orders 2 and 3 of these Orders:

a. Judgment be entered for the First Plaintiff in the sum of $419,445.37 (including interest calculated up to and including 15 April 2005).
b. Judgment be entered for the Second Plaintiff in the sum of $77,720.61 (including interest calculated up to and including 15 April 2005).
c. Judgment be entered for the Third Plaintiff in the sum of $140,952.83 (including interest calculated up to and including 15 April 2005).


5. ORDER that the Defendant pay the costs of the plaintiffs of and incidental to these proceedings, including those costs involved in the Plaintiffs making and proving their respective claims on the Solicitors’ Fidelity Fund.

62 The primary judge implicitly and correctly treated s24(1C) of the Queensland legislation as irrelevant to the task at hand. The respondents had to bring into account any money they recovered from the Queensland Fidelity Guarantee Fund, but the calculation of their claims against the New South Wales Fund had to be done in accordance with the New South Wales Act. Section 24(1C) of the Queensland Act provided no defence to the claims against the Fund in this State. If the receipts of purported interest were to be offset with regard to a claim against the New South Wales Fund this must be based on the New South Wales Act or the general law.

63 The New South Wales Act was concerned about the issue of double compensation. Sections 80A and 86 provided:

80A Reduction of claim
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.

86 Avoidance of double compensation

(1) If a claimant:
(a) receives a payment from the Fidelity Fund in respect of the claim, and
(b) receives or recovers from another source a payment on account of the pecuniary loss, and
(c) there is a surplus after deducting the amount of the pecuniary loss from the total amount received or recovered by the claimant,
the amount of the surplus is a debt payable by the claimant to the Law Society.
(2) If a claimant:
(a) receives or recovers a payment on account of the pecuniary loss from a source other than the Fidelity Fund, and
(b) recovers judgment against the Law Society, and
(c) there is a surplus after deducting the amount of the pecuniary loss from the total amount received or recovered by the claimant (including the amount of the judgment),
the amount of the judgment is reduced by the amount of the surplus.

64 The Society argued before Greg James J, and before us, that no recoverable pecuniary loss was suffered when the money paid by Smith was brought into account. Taking Mr Raymond de Hayr as an example, the $46,000 received from Smith by way of purported interest had to be treated as reducing the pecuniary loss stemming from the earlier defalcations now found to have been dishonest failures to account. This was so, even though New South Wales has no statutory equivalent of s24(1C)(b) of the Queensland Act.

65 In his second judgment, the primary judge rejected this submission on the following grounds ([2004] NSWSC 464 at [45]-[48]):

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 [s80A] 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 [in s79C] does [not?] 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.

66 Having thus found that Mr de Hayr’s primary loss was $46,000, because only $54,000 out of the $100,000 advance had been recovered, the judge then considered what further award should be made in recognition of the fact that Smith had stopped remitting “interest” in June 1988. As indicated, his Honour adopted the Society’s methodology with respect to the claims its Council had accepted, then awarded interest calculated at Supreme Court rates from the dates upon which the Society should have allowed the respective claims.

67 The judge rejected the submission that this involved payment of interest on interest in contravention of s94 of the Supreme Court Act. He held that that section did not govern. He considered the respondents’ calculations to represent a fair assessment of their pecuniary loss, one that he could adopt in making such order as he thought fit (cf s90D(4) of the Legal Profession Act 1987).

68 In this Court, the Society repeats its submission that no pecuniary loss was suffered, because Smith’s payments have to be brought into account along with the recoveries from the Queensland Fund. It is submitted that Greg James J erred in holding (at [45]) that Mr de Hayr did not receive back the whole of the $100,000 he had entrusted to the solicitor. The trial judge’s approach was said to have permitted double recovery. It is also said to have contravened the prohibition in s79C(1)(c) of the Act which caps any interest entitlement by reference to Supreme Court rates in respect of unpaid Supreme Court judgments.

69 The respondents support the reasoning of the primary judge. They submit that the Society’s argument ignores the fact that the payments made by Smith to the respondents had the character of “interest” in the hands of the respondents. The moneys paid to the respondents by Smith should not be treated as return of capital.

70 In my view, the respondents’ submission should be rejected. The Society is substantially, but not wholly, correct in its criticism of the reasoning of Greg James J.

71 There were in truth no mortgage transactions, nor renewals of the same, nor genuine interest payments. Smith misappropriated the clients’ money shortly after receipt. The clients lost that money and the right to contractual interest that, but for Smith’s failure to account, they would have enjoyed from having the money properly invested.

72 If applicable at all in the present circumstances, s79C(1)(c) allows recovery of interest not exceeding Supreme Court rates calculated to the date on which the claim succeeds. In the present situation, it did not succeed until final orders were made in the Supreme Court. The Society’s readiness to allow “pre-judgment” interest at the rate of 8 per cent simple interest would have complied with s79C(1)(c) in its capping aspects had the present claims been originally accepted.

73 And there was no error, in principle, in the judge’s allowance of interest at Supreme Court rates upon the sum the Society should have allowed, calculated from the date of the Council’s decision to date of judgment in the Supreme Court. I agree with his Honour’s reasoning on this particular matter. The judge did not err in holding that s94(2)(a) of the Supreme Court Act 1970 was not brought into play by s79C(1)(c) of the Legal Profession Act 1987. Section 94(2)(a) provides that s94 itself does not authorise the giving of interest upon interest. This stipulation does not concern the rate of interest.

74 The clients must, however, bring to account such sums as are shown by the Society to have been paid to them in reduction of their loss. In Boncristiano v Lohmann [1998] 4 VR 82 at 89, Winneke P referred to the “rule against double compensation” which he summarised in the following terms:

The law, which now embraces equity, will not permit a plaintiff, whatever procedural device is used, to recover more than the damages which have been suffered, no matter what the cause of action upon which he proceeds against the various defendants.
See also Castellan v Electric Power Transmission Pty Ltd (1967) 69 SR(NSW) 159 at 176, 187-188; Midland Montagu Australia Ltd v Harkness (1994) 35 NSWLR 150 at 159; Franklins Self Serve Pty Ltd v Wyber (1999) 48 NSWLR 249.

75 The rule against double compensation does not involve being captive to the payer’s intent or the juridical reason for the payment. Thus, money recoverable under one cause of action from one defendant may be reduced because a third party owing a different legal duty (or none at all) has paid money that is viewed by the law as covering the loss for which compensation is claimed.

76 In my opinion, Smith’s remittals of “interest” fell within these principles. The primary judge erred in not bringing them into account in computing the clients’ pecuniary loss stemming from the defalcations.

77 The payments were not within the exceptional classes identified by Windeyer J in his influential judgment in The National Insurance Co of New Zealand Ltd v Espagne (1961) 105 CLR 569 at 598-600. They were never made as part of some contract (like a contract of insurance) stating or implying that the remitted “interest” was to be provided nothwithstanding any right against the Fund. Nor were they made voluntarily and for the benefit of the clients in the sense that gifts to an injured plaintiff are disregarded in assessing tortious compensation.

78 Smith could not have been allowed to rely upon his own wrongdoing. He therefore would not have been allowed to reclaim these payments which were forwarded by him, purportedly in connection with the original capital advances and as recompense for the clients’ being kept out of the money they believed had been advanced to the mortgagors. Yet to allow the clients to pocket the benefit of those receipts, and claim on the Fund as if they had received nothing back from the dishonest solicitor, would be to allow form to triumph over substance. The “interest” payments received by the clients reduced their loss stemming from having been kept out of the misappropriated money.

79 I do not see why the fact that the clients mistakenly thought the receipts from the solicitor were on account of interest, and treated them as such in their income tax returns, should be decisive or even relevant.

80 The moneys remitted by Smith prior to 1 June 1998 were at “interest” rates higher than the 8 per cent simple interest rate adopted by the Society and the Court to compute loss of the use of the clients’ money to the date of the Council’s ruling on the claims. Those “interest” rates differed according to the rate represented at the time of the particular spurious mortgage transaction.

81 Since the claims on the Fund treat the capital moneys as misappropriated shortly after receipt by Smith the clients cannot themselves take advantage of the higher rates of “interest” actually received from Smith. A just compensation should follow the same logic, with the consequence that Smith’s “interest” payments at higher rates should be treated as accelerating the clients’ just entitlements. It was thus only some time after 1 June 1998 that the clients were entitled to be compensated by an award of interest for being kept out of their money in consequence of the defalcations. There will need to be a re-calculation referable to each monthly remittal of “interest”, calculated by reference to the difference between what was “remitted” and 8 per cent simple interest on the capital sum misappropriated by Smith. The “excessive” interest remitted by Smith on this theory also means that the notional account was in credit for some time after 1 June 1998, ie until entitlements calculated according to the Law Society’s approach would have failed to be met by what Smith had actually remitted before that date.

82 There was limited argument about whether there was a later or continuing failure to account within the Act, when the receivers appointed to Smith’s New South Wales trust property in 1998 may have informed the clients that the cupboard was bare, so to speak. It is unnecessary to resolve this issue in the circumstances.

83 Since the Society has failed on its primary point which was a matter of general importance to the Society I consider that the Society should pay 75% of the respondents’ costs of the appeal. The respondent is, nevertheless, entitled to a certificate under the Suiters’ Fund Act, in accordance with the principles stated in Wyong Shire Council v MCC Energy Pty Ltd (No 2) [2005[ NSWCA 196.

84 I therefore propose the following orders:

1. Appeal allowed in part.

2. Direct the parties within 28 days to recalculate the entitlements of the respondents in accordance with the reasons of the Court of Appeal and to present agreed short minutes of order to the Registrar. Failing agreement, the parties are to file and exchange within a further 28 days draft orders and submissions setting out their respective positions. The matter will then be addressed on the papers unless the Court otherwise orders.

3. Liberty to apply.

4. Appellant to pay 75% of the respondent’s costs of the appeal.

5. Respondent to have certificate under the Suiters’ Fund Act 1951 .

85 McCOLL JA: I agree with Mason P.

86 BASTEN JA: I agree with the orders proposed by the President and with his reasons therefor.

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