Law Society of Tasmania v Piggott Wood & Baker
[2008] TASSC 16
•24 April 2008
[2008] TASSC 16
CITATION: Law Society of Tasmania v Piggott Wood & Baker [2008] TASSC 16
PARTIES: LAW SOCIETY OF TASMANIA
HAMILTON, Barry Kenneth
v
PIGGOTT WOOD & BAKER (a Firm)
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: M377/2001
DELIVERED ON: 24 April 2008
DELIVERED AT: Hobart
HEARING DATE: 19 February 2008
JUDGMENT OF: Tennent J
CATCHWORDS:
Professions and Trades – Lawyers – Fidelity and guarantee funds – Tasmania – Claims against defaulting practitioners – Default orders – How sought – Court's practice.
Legal Profession Act 1993 (Tas), s111, 112, 113, 114, 115 and 116.
Dobson v The Solicitors' Trust [2001] TASSC 99, followed.
Aust Dig Professions and Trades [1191]
REPRESENTATION:
Counsel:
Second Applicant: D J Porter QC
Respondents (Mills, Sealy, Foster,
Kench, Turner, Barnes & Wood): K E Read
Respondents (Courtney & Smith): P Barker
Colin Peter Hill In person
Solicitors:
Second Applicant: Toomey Manning & Co
Respondents (Mills, Sealy, Foster,
Kench, Turner, Barnes & Wood): Butler McIntyre & Butler
Respondents (Courtney & Smith): PWB Lawyers
Colin Peter Hill: In person
Judgment Number: [2008] TASSC 16
Number of paragraphs: 32
Serial No 16/2008
File No M377/2001
LAW SOCIETY OF TASMANIA and BARRY KENNETH HAMILTON
v PIGGOTT WOOD & BAKER (a Firm)
REASONS FOR JUDGMENT TENNENT J
24 April 2008
The subject of these reasons is the determination of a preliminary issue, namely the nature of an application brought by Barry Kenneth Hamilton ("the Second Applicant"). The determination will affect how the substantive proceedings are further dealt with. The parties appearing on the hearing of the application were the Second Applicant and respondents Roslyn Rebecca Dejong (now Courtney) ("Courtney"), David Michael Smith ("Smith"), Audrey Roselene Mills ("Mills"), Geoffrey Leigh Sealy ("Sealy"), Michael Graeme Foster ("Foster"), Grant Kench ("Kench"), John Turner ("Turner"), Kenneth Barnes ("Barnes"), Peter Wood ("Wood") and Colin Reginald Hill ("Hill"). All of the persons appearing as respondents were at some stage partners in the firm of Piggott Wood & Baker ("the Firm") which conducted a legal practice. The Second Applicant and all respondents, save Hill, were represented by counsel. Hill appeared in person, but adopted the submissions of counsel for the other respondents. I will therefore simply refer where appropriate to counsel for the respondents when dealing with submissions made.
Background
The Firm, for a number of years, operated a business as an adjunct of its legal practice. That business involved it in obtaining funds from people for investment and investing those funds in real estate secured by mortgages. On 13 December 2001, in proceedings commenced by the Australian Securities and Investment Commission against the Firm, an order was made by the Federal Court of Australia which related to that business. By that order, an entity described as a "Run-out Mortgage Business" was declared to be an unregistered managed investment scheme operating in contravention of the Corporations Act 2001 (Cth), the entity was wound up, and liquidators were appointed in respect of "all of the loans as described in the schedule marked 'A', a true copy of which is annexed to this application". The Run-out Mortgage Business was defined in the order as the managed investment scheme pertaining to loans made before 17 November 1999 by or on behalf of the respondents, which loans were secured by mortgages held on trust by or on behalf of the respondents. The liquidators appointed were the Second Applicant and John William Woods.
On 19 December 2001, an originating application was filed with this Court. The parties to that application were the Law Society of Tasmania ("the Society") as the only applicant and the Firm as respondent. By that application, the Society sought the following orders:
"1Declaring Piggott Wood & Baker to be in default pursuant to section 111 of the Legal Profession Act 1993.
2That a Court Fund be established in accordance with subsection (2) of section 111 of the Legal Profession Act 1993.
3 Such further or other orders as this Honourable Court deems appropriate.
4 That the further hearing of the application be adjourned sine die."
The members of the Firm to which that application was directed were Courtney, Smith, Mills, Sealy, Foster and Hill. A notice of appearance was filed on behalf of all of these persons save Sealy, but which included another person not named in the originating application, a Peter Warmbrunn ("Warmbrunn").
The application came on for hearing before Underwood J (as he then was) on 1 October 2002. It is unclear from the Court file precisely who was represented at that hearing. One counsel appeared for "the applicant" and one for "the respondents". There does not appear to be any dispute that at least some of the persons who are now represented before the Court in their capacity as former partners of the Firm were not served with the originating application in 2001 and were not represented on 1 October 2002. No consequential application has, however, ever been made by any former partner of the Firm on the basis they were not heard on the application challenging the validity of the orders ultimately made against the Firm, or indeed, any order made since in these proceedings. At the hearing, affidavits filed on behalf of the Society were read and submissions were made. His Honour then made a number of orders in the following terms:
"THE COURT ORDERS:-
1 That the firm of Piggott Wood & Baker is in default;
2That there be paid into the Court Fund such moneys standing to the credit of any trust bank account and trust deposit account of that firm relating to loans made to R Langridge (loan no 941128), T K Maxwell (loan no 952709) and L V Smith (loan no 942289);
3 That the following documents be kept confidential:-
(a)Exhibits BM1 and BM2 of the affidavit of Bridget McLaughlan dated 5 July 2000;
(b)Exhibit BM3 of the affidavit of Bridget McLaughlan dated 22 December 2000;
(c)Exhibit JMM2 of the affidavit of Janine Marcia Martin dated 6 July 2000;
(d)Exhibit PVM4 of the affidavit of Peter Van Manser dated 6 July 2000;
(e)Any other document to the extent of the duplication of all or part of such exhibits.
4 Costs of the application be reserved."
Counsel for the Society told Underwood J at the hearing that day:
"MR PORTER QC: I'll explain the materials that your Honour has, in a moment also, because there may be some doubt about why there is - bits and pieces are in the book. But I'll explain all that to your Honour in a moment. The particulars are set out in pages four and five. The application this morning is to proceed only in respect of the loans as against numbers two, three and four. That's Langridge, Maxwell and Smith. And I ask that the application in respect of loan number 951708 be adjourned sine die, in respect of which there's no opposition.
HIS HONOUR: Mm hm, all right. That will be done.
MR PORTER QC: So we're left this morning looking at three loans. But so as no one is under any misapprehensions about the purpose of this morning's proceedings, and what may follow, I should say that if your Honour makes the declaration that this will be the start of a process. Now if you use an expression, which was used by Evans J. in Dobson's case; that is, Dobson v The Solicitors Trust (2001) Tas SC 99, your Honour won't need to go to that at the moment, it's an initial default order, and the Society would propose subsequently adopting the process approved of in Dobson's case, and that is, to make further applications, or hopefully there will only be one further application, so that further loans will be made the subject of the Court fund which may be established this morning.
So it's a starting point. It's envisaged it will be enlarged to take into account quite a number of other loans. So there are discussions continuing in respect of other loans. Hopefully those other loans will become uncontroversial, and the Court fund will be enlarged by that process.
Now I should make the point also that by proceeding in that way, the investors in the loans before your Honour this morning don't have any advantage - will not have any advantage over the loans - sorry, over the investors, in the loans which may later become part of the Court Fund, which your Honour may establish this morning.
Now I mentioned a moment ago that discussions were continuing as to those other loans. It's the hope that they may become uncontroversial. The Society's application in relation to those three loans; that is, Langridge, Maxwell and Smith, is not opposed by my learned friend this morning. I still need of course to take your Honour through the material and satisfy your Honour. But there is no opposition from the firm in relation to the orders that the Society seeks."
An incidental matter which arises from the proceedings that day is that, despite his Honour having made an order adjourning the application for consequential orders insofar as it related to loan number 951708, that order did not make its way into the formal order ultimately taken out following the hearing. No issue is taken with that omission today.
On 3 September 2003, the Second Applicant, "as liquidator of the Piggott Wood & Baker Run-out Mortgage Business, appointed pursuant to Federal Court of Australia Order T42 of 2001 made 13 December 2001" filed an application by which he sought to be joined as an applicant in these proceedings. In an accompanying letter, his solicitors wrote:
"The Originating Application was before His Honour Justice Underwood on 1 October 2002 at which time some orders were made with the balance of the Originating Application being adjourned sine die. I request that matter be relisted. The hearing of that matter is estimated to take 3 to 4 days at which time the orders listed in the document entitled 'Further Orders Sought' will be sought."
The document headed "Further Orders Sought" was attached to that letter and set out the following orders:
"1That any money standing to the credit of any trust bank account or trust deposit account of Piggott Wood & Baker relating to the following loans be paid into the Court fund established by virtue of the order made by this Court on 1 October 2002:
(a) Dallas (Tas) Pty Ltd - Loan No 5 (972614);
(b) R & B Property Developments Pty Ltd - Loan No 6 (970427);
(c)PTK Pty Ltd and Banksia Homes & Developments (Tas) Pty Ltd – Loan No 18 (960671);
(d) Dallas (Tas) Pty Ltd - Loan No 19 (960616);
(e) D P Krushka - Loan No 21 (962124);
(f) D P Krushka - Loan No 21 (962734);
(g) D P Krushka - Loan No 21 (971216);
(h)PTK Pty Ltd, ACN 062 197 022 Pty Ltd and LPD Excavations Pty Ltd - Loan No 25 (942843);
(i)PTK Pty Ltd, ACN 062 197 022 Pty Ltd and LPD Excavations - Loan No 25 (951164);
(j) PTK Pty Ltd - Loan No 25 (962463);
(k) W & D Caminada - Loan No 27 (960775);
(1) P V Chugg, A J Chugg and V H Chugg - Loan No 28 (942073);
(m) Everworth Tas Pty Ltd - Loan No 32;
(n) D R Jones - Loan No 35 (960235);
(o) D R Jones - Loan No 36 (952746);
(p) M Kirik - Loan No 37 (951731);
(q) J K Krushka - Loan No 39 (960924);
(r) L J Krushka - Loan No 40 (960523);
(s) L J Krushka - Loan No 40 (962265);
(t) L J Krushka - Loan No 40 (971218);
(u) Mountains of Trout Tasmania Pty Ltd - Loan No 43 (911300);
(v) Mountains of Trout Tasmania Pty Ltd - Loan No 44 (911572);
(w) Mountains of Trout Tasmania Pty Ltd - Loan No 45 (911128);
(x) R & B Property Developments Pty Ltd - Loan No 46 (962844);
(y) R & B Property Developments Pty Ltd - Loan No 46 (971561);
(z) R & B Property Developments Pty Ltd - Loan No 47 (971563);
(aa) R & B Property Developments Pty Ltd - Loan No 48 (962542);
(bb) M R Ransley - Loan No 49 (931885);
(cc) G A & D E Shaw - Loan No 51 (921725);
(dd) F A Sherriff - Loan No 52 (952565);
(ee) N J & K Slater - Loan No 53 (940696);
(ff) N J & K Slater and Wribass Pty Ltd - Loan No 53 (950302);
(gg) G L & M E Sparkes - Loan No 57;
(hh) W & M Holdings Pty Ltd - Loan No 59 (932592);
(ii) W & M Holdings Pty Ltd - Loan No 59 (950407);
(jj) Weily's Quarries Pty Ltd - Loan No 61 (WEIL/QUA);
(kk) Weily's Quarries Pty Ltd - Loan No 61 (WElL/QUI);
(ll) Wribass Pty Ltd - Loan No 63 (951708);
(mm) Wribass Pty Ltd - Loan No 63 (970090);
(nn) Wribass Pty Ltd - Loan No 63 (980384);
(oo) F & H Bacic - Loan No 66 (941410);
(pp) D R Jones - Loan No 67 (961201); and
(qq) R & B Property Developments - Loan No 68 (971078).
2A declaration that there has been fiduciary default by the firm in respect of all investors in the loans R M Langridge - Loan No 41 (941128), T K Maxwell - Loan No 42 (952709) and L V Smith - Loan No 55 (942289) being the subject of the order pursuant to the Legal profession Act 1993, s 111(5)(a) made by this Court on 1 October 2002."
The loans referred to in order 1 sought above were not ones which had been the subject of the default order made on 1 October 2002 and had had no finding of fiduciary default made in respect of them. The loans referred to in order number 2 however were the subject of that earlier order and had had findings of fiduciary default made in respect of them.
On 18 November 2003, the Second Applicant was formally joined as an applicant in the proceedings and procedural orders were made for the purpose of progressing the application of which notice had been given in the document "Further Orders Sought" (as set out in par7). The application came on for hearing before Underwood J in June 2004 and orders were made on 16 - 18 June 2004, in the following terms:
"1That there be paid into the Court fund established by virtue of the order made on 1 October 2002 any money standing to the credit of any trust bank account or trust deposit account of Piggott Wood & Baker relating to:
(a) Dallas (Tas) Pty Ltd – Loan No 5 (972614);
(b) R & B Property Developments Pty Ltd – Loan No 6 (970427);(c)PTK Pty Ltd and Banksia Homes & Developments (Tas) Pty Ltd – Loan No 18 (960671);
(d) Dallas (Tas) Pty Ltd - Loan No 19 (960616);
(e) D P Krushka - Loan No 21 (962124);
(f) D P Krushka - Loan No 21 (962734);
(g) D P Krushka - Loan No 21 (971216);(h)PTK Pty Ltd, ACN 062 197 022 Pty Ltd and LPD Excavations Pty Ltd - Loan No 25 (942843);
(i)PTK Pty Ltd, ACN 062 197 022 Pty Ltd and LPD Excavations - Loan No 25 (951164);
(j) PTK Pty Ltd - Loan No 25 (962463);
(k) W & D Caminada - Loan No 27 (960775);(1)P V Chugg. A J Chugg and V H Chugg - Loan No 28 (942073);
(m) Everworth Tas Pty Ltd - Loan No 32;
(n) D R Jones - Loan No 35 (960235);
(o) D R Jones - Loan No 36 (952746);
(p) M Kirik - Loan No 37 (951731);
(q) J K Krushka - Loan No 39 (960924);
(r) L J Krushka - Loan No 40 (960523);
(s) L J Krushka - Loan No 40 (962265);
(t) L J Krushka - Loan No 40 (971218);
(u) R & B Property Developments Pty Ltd - Loan No 46 (962844);(v) R & B Property Developments Pty Ltd - Loan No 46 (971561);
(w) R & B Property Developments Pty Ltd - Loan No 47 (971563);(x) R & B Property Developments Pty Ltd - Loan No 48 (962542);
(y) M R Ransley - Loan No 49 (931885);
(z) G A & D E Shaw- Loan No 51 (921725);
(aa) F A Sherriff - Loan No 52 (952565);
(bb) N J & K Slater - Loan No 53 (940696);
(cc) N J & K Slater and Wribass Pty Ltd - Loan No 53 (950302);(dd)G L & M E Sparkes - Loan No 57 (SPAR/GM), (SPAR/GM1), (SPAR/GM2);
(ee) W & M Holdings Pty Ltd - Loan No 59 (932592);
(ff) Weily's Quarries Pty Ltd - Loan No 61 (WEIL/QUA);
(gg) Weily's Quarries Pty Ltd - Loan No 61 (WEIL/QUl);
(hh) Wribass Pty Ltd - Loan No 63 (951708);(ii) Wribass Pty Ltd - Loan No 63 (970090);
(jj) Wribass Pty Ltd - Loan No 63 (980384);
(kk) F & H Bacic - Loan No 66 (941410);(ll) D R Jones - Loan No 67 (961201); and
(mm) R & B Property Developments - Loan No 68 (971078).
2That the Exhibits 'DM-2', 'DM-3' and 'DM-4' exhibited to the affidavit of Daniel John McCartney sworn 19 December 2003 be kept confidential.
3The Originating Application dated 19 December 2001 be adjourned to a date to be fixed.
4 Costs of the Originating Application dated 19 December 2001 are reserved."
For the purpose of making the orders that he did, Underwood J made a finding in respect of each loan that he was asked to make orders about. In respect of each he made a finding that fiduciary default occurred in relation to it.
On 16 December 2004, the solicitors for the Second Applicant wrote further to the Court in the following terms:
"I refer to the most recent hearing of this matter from 16 to 18 June 2004.
In accordance with Order 3 made 18 June 2004, I request that the Originating Application dated 19 December 2001 be relisted at which time my client will be seeking orders in terms of the enclosed document, 'Further Orders Sought'.
In addition, the following order will be sought:
'That Order 1(t) of the orders made 16 to 18 June 2004 be vacated.'
The last order is sought because my client is not appointed as liquidator to that particular loan.
I request that the matter initially be listed for mention."
Another document also headed "Further Orders Sought" was attached to that letter. Then, on 19 February 2007, the solicitors for the Second Applicant filed with the Court a document headed "Amended Further Orders Sought". This document was substantially, but not entirely, in the same terms as that lodged under cover of the letter dated 16 December 2004. The document lodged in February 2007 provided as follows. The underlined portions show the changes made to the 2004 document:
"AMENDED FURTHER ORDERS SOUGHT
(pursuant to Originating Application dated 19 December 2001)
The secondnamed applicant seeks the following orders:
1A declaration that in relation to the following loans presently the subject of the Court fund established by order of this Court made on 1 October 2002, the firm is in further fiduciary default, in that it:
(a)charged to the borrower, and kept for itself, 'collection costs' higher than the per annum percentage amounts which the investor clients were advised would be charged;
(b)failed to disclose to the investor clients the charging of the additional collection costs; and
(c)failed to account to the respective investor clients for the additional collection costs charged.
LOANS
·Dallas (Tas) Pty Ltd - Loan No 5 (972614);
·R & B Property Developments Pty Ltd - Loan No 6 (970427);
·PTK Pty Ltd and Banksia Homes & Developments (Tas) Pty Ltd - Loan No 18 (960671);
·Dallas (Tas) Pty Ltd - Loan No 19 (960616);
·D P Krushka - Loan No 21 (962124);
·D P Krushka - Loan No 21 (962734);
·D P Krushka - Loan No 21 (971216);
·PTK Pty Ltd, ACN 062 197 022 Pty Ltd and LPD Excavations Pty Ltd - Loan No 25 (942843);
·PTK Pty Ltd, ACN 062 197 022 Pty Ltd and LPD Excavations – Loan No 25 (951164);
·PTK Pty Ltd - Loan No 25 (962463);
·W & D Caminada - Loan No 27 (960775);
·P V Chugg, A J Chugg and V H Chugg – Loan No 28 (942073);
·Everworth Tas Pty Ltd - Loan No 32 (941259);
·Everworth Tas Pty Ltd - Loan No 32 (942696);
·Everworth Tas Pty Ltd - Loan No 32 (950183);
·Everworth Tas Pty Ltd - Loan No 32 (952442);
·D R Jones - Loan No 35 (960235);
·D R Jones - Loan No 36 (952746);
·M Kirik - Loan No 37 (951731);
·J K Krushka - Loan No 39 (960924);
·L J Krushka - Loan No 40 (960523);
·L J Krushka - Loan No 40 (962265);
·R M Langridge - Loan No 41 (941128);
·T K Maxwell - Loan No 42 (952709);
·R & B Property Developments Pty Ltd - Loan No 46 (962844);
·R & B Property Developments Pty Ltd - Loan No 46 (971561);
·R & B Property Developments Pty Ltd - Loan No 47 (971563);
·R & B Property Developments Pty Ltd - Loan No 48 (962542);
·M R Ransley - Loan No 49 (931885);
·G A & D E Shaw - Loan No 51 (921725);
·F A Sherriff - Loan No 52 (952565);
·N J & K Slater - Loan No 53 (940696);
·N J & K Slater and Wribass Pty Ltd - Loan No 53 (950302);
·L V Smith - Loan No 55 (942289):
·G L & M E Sparkes - Loan No 57 (930274);
·G L & M E Sparkes - Loan No 57 (932491);
·G L & M E Sparkes - Loan No 57 (941690);
·W & M Holdings Pty Ltd - Loan No 59 (932592);
·Weily's Quarries Pty Ltd - Loan No 61 (WEIL/QUA);
·Weily's Quarries Pty Ltd - Loan No 61 (WEIL/QUl);
·Wribass Pty Ltd - Loan No 63 (951708);
·Wribass Pty Ltd - Loan No 63 (970090);
·Wribass Pty Ltd - Loan No 63 (980384);
·F & H Bacic - Loan No 66 (941410);
·D R Jones - Loan No 67 (961201); and
·R & B Property Developments - Loan No 68 (971078).
2(a) A declaration that in relation to the following loans the firm is in further fiduciary default, in that it:
(i)charged to the borrower, and kept for itself 'collection costs' higher than the per annum percentage amounts which the investor clients were advised would be charged;
(ii)failed to disclose to the investor clients the charging of the additional collection costs; and
(iii)failed to account to the respective investor clients for the additional collection costs charged.
(b)That money standing to the credit of any trust bank account or trust deposit account of the firm relating to the following loans in its mortgage register be paid into the Court fund established by order of this Court made on 1 October 2002.
LOANS
·W M & A F Stuart - Loan No 4 (970937);
·B J & M E Forsyth - Loan No 9 (930580);
·B J & M E Forsyth - Loan No 9 (932233);
·B J & M E Forsyth - Loan No 9 (940923);
·B J & M E Forsyth – Loan No 9 (952024);
·T R Howells Logging Co Pty Ltd - Loan No 10 (942664);
·Jiltre Pty Ltd - Loan No 11 (942836);
·Jiltre Pty Ltd - Loan No 11 (960822);
·T J & L M Smithurst - Loan No 15 (962484);
·Dallas Tas Pty Ltd - Loan No 19 (962156);
·Dallas Tas Pty Ltd - Loan No 20 (970188);
·L A J Trust - Loan No 22 (950875);
·R B Warfield - Loan No 23 (952711);
·M & S Walker- Loan No 24 (951524);
·Island Motels Pty Ltd - Loan No 34 (982271);
·D P & L J Krushka - Loan No 38 (951022)
·Mountains of Trout Tasmania Pty Ltd - Loan No 43 (911300);
·Mountains of Trout Tasmania Pty Ltd - Loan No 44 (911572);
·Mountains of Trout Tasmania Pty Ltd - Loan No 45 (911128);
·L V Smith - Loan No 54 (922381);
·L V Smith - Loan No 54 (930711);
·Wayne Dobson Homes Pty Ltd - Loan No 60 (950303);
·Wribass Pty Ltd - Loan No 62 (963028).
3The Solicitors' Trust take whatever action may be necessary to ascertain any prospective claimants against the Court Fund and to notify those prospective claimants that claims may be made against the Court Fund.
4Pursuant to s 111(5)(b) of the Legal Profession Act 1993 (Tas) the amount of $99,795.00 be paid from the Guarantee Fund into the Court Fund for the benefit of the investors in the loans referred to in paragraphs 1 and 2 in accordance with the annexed schedule.
5 Such further or consequential orders as the Court sees fit."
An examination of the orders sought as set out in par10 above shows:
(a)that the loans identified in par1 are all already the subject of either the original default order made in 2001 or findings of fiduciary default made in June 2004 and consequential orders to enlarge the Court fund; and
(b) that the loans identified in par2 are not presently the subject of any orders.
A consideration of the various applications and orders sought shows that order 2 sought by the Second Applicant in September 2003 is a similar order to that sought by order 1 in the February 2007 document in that it seeks a declaration as to fiduciary default in respect of loans already the subject of a default order. It is not apparent from the material before me whether, when he heard the 2003 application in June 2004, Underwood J made findings or declarations as to fiduciary default in respect of those loans identified in that order 2. He certainly did in relation to the loans identified in order 1 of the September 2003 application which had not previously been the subject of a default order.
Legislative provisions
The relevant legislation in this matter is the Legal Profession Act 1993 ("the Act"), Div5, Pt9. The title to that part is "Claims against defaulting legal practitioners" and it contains ss109 to 118A. The title of the Act, s111, is "Default order and Court fund".
The relevant sections provide as follows:
"111 (1) The following persons may apply to the Supreme Court for an order declaring a firm or legal practitioner corporation to be in default:
(a) the Society;
(b) a person who claims to have suffered loss or incurred liability of a kind referred to in section 112 as a result of a fiduciary default;
(ba) a person appointed as manager under section 119(2)(b);
(c) a firm or legal practitioner corporation who –
(i) has paid money to a person referred to in paragraph (b); or
(ii) has incurred liability as a result of a fiduciary default;
(d) a liquidator appointed in the circumstances referred to in section 108(2)(a)(iii).
(2) If a default order is made, a Court fund is to be established in the Supreme Court.
(3) If a Court fund is established in respect of a firm or legal practitioner corporation, a right to claim against the firm or legal practitioner corporation gives rise to an additional right to claim against that Court fund.
(4) If a Court fund is established in respect of a firm or legal practitioner corporation, the Supreme Court may make any order specified under section 119(2).
(5) There is to be paid into a Court fund established in respect of a firm or legal practitioner corporation –
(a) such money standing to the credit of any trust financial institution account and trust deposit account of that firm or legal practitioner corporation as the Supreme Court orders; and
(b) such money from the Guarantee Fund as is necessary to meet the requirements specified in section 112.
(6) The Trust must pay into a Court fund such amount from the Guarantee Fund as is sufficient to enable the payment of 100 cents in the dollar in respect of –
(a) compensation and exoneration specified in section 112 to each person entitled to make, and who makes, a claim on that Court fund in the amount accepted and in accordance with any terms or conditions imposed under section 114, subject to any orders made under section 115; and
(b) costs and compensation for lost interest directed by the Supreme Court under section 112(3).
(6A) The amount referred to in subsection (6) must be paid by the Trust notwithstanding that that amount exceeds the sum standing to the credit of the Guarantee Fund as at the close of business on the day on which an application was made for a default order in respect of which the Court fund was established.
(6B) The Trust may determine the time or times at which such amounts are to be paid.
(6C) In making a determination under subsection (6B), the Trust may take into account –
(a) any other known fiduciary default and the likely claims resulting from it; and
(b) the amount of any other Court fund and any claims made or likely to be made on it; and
(c) the Trust's obligations to make payments under section 108(2)(a); and
(d) the Trust's obligations to pay the remuneration of a manager appointed under section 119(2)(b) or to indemnify the manager against liability pursuant to an order made by a judge under section 119(2)(b).
(7) …
(8) If the Trust pays any amount into a Court fund under subsection (5), the Trust may make an application to the Supreme Court for an order that that amount or a lesser amount be paid to the Trust by a firm, a member or former member of a firm or a legal practitioner corporation.
(9) In determining whether to make an order on an application under subsection (8) or section 108(2C), the Supreme Court is to take into account –
(a) the management of the trust accounts of the firm or legal practitioner corporation; and
(b) any matter relating to a fiduciary default and any investigations into that default; and
(ba) the membership of the firm at any relevant time; and
(c) any other relevant matter.
(10) Any money paid into a Court fund is free from any equity which may affect a trust account or any property from which that money was derived.
(11) A Court fund is not subject to marshalling for the exoneration of any other fund which is not a Court fund to which a person claiming on the Court fund may resort.
112 (1) A Court fund in respect of a firm or legal practitioner corporation is to be applied by the Supreme Court in –
(a) the compensation to a client for the loss of trust money or other property as a result of a fiduciary default if –
(i)the loss occurred wholly in this State whether in the course of legal practice in this State or in a participating State by a legal practitioner; or
(ii)the loss occurred both in this State and a participating State whether in the course of legal practice in this State or in a participating State by a local legal practitioner; or
(iii)the loss occurred in this State or a participating State or both in the course of legal practice in this State or in a participating State by a local legal practitioner but it is not possible to determine where the loss occurred; and
(b) the exoneration of any property of a client which the firm, a member of the firm or a member of a legal practitioner corporation mortgaged, pledged or charged without the authority of the client and otherwise than for the benefit of the client; and
(c) the compensation for a firm or legal practitioner corporation who has paid money because of liability incurred as a result of a fiduciary default.
(2) Compensation payable under subsection (1) does not include compensation for the loss of interest unless the Supreme Court directs otherwise under subsection (3).
(3) A Court fund in respect of a firm or legal practitioner corporation may be applied as the Supreme Court directs after taking into account any recommendations of the Society in –
(a) the payment of the costs incurred by any person –
(i)in connection with any application relating to the making of a default order pursuant to which the Court fund was established; and
(ii)in any proceedings consequential to the making of the default order; and
(iii) in connection with any application in respect of the Court fund; and
(b) the payment of compensation for the loss of interest.
113 If a default order has been made in respect of a firm or legal practitioner corporation, the rights and interests of any person arising from any loss incurred in respect of which the default order was made are assigned to the Trust when an amount is paid out of a Court fund to that person and only to the extent of that amount.
114 (1) If a Court fund is established, the Supreme Court may order the Trust –
(a) to advertise in such manner as the Supreme Court directs for claims to be made against the Court fund within such period as the Supreme Court may specify; and
(b) to ascertain any prospective claimants and notify them that claims may be made against the Court fund.
(2) A claim is to be lodged with the Trust.
(3) On receipt of a claim, the Trust may –
(a) accept the claim; or
(b) reject the claim in part or in whole.
(3A) If the Trust is of the opinion that there is a reasonable possibility that the person lodging the claim may recover part or all of the loss to which the claim relates, the Trust may impose terms or conditions on the acceptance of the claim.
(4) If the Trust rejects a claim or imposes terms or conditions on the acceptance of a claim, it must notify in writing the person lodging the claim of the reasons for the rejection or the imposition of the terms or conditions.
115 (1) A person who is aggrieved by the decision of the Trust to reject a claim, or to impose terms or conditions on the acceptance of a claim, under section 114 may apply to a judge to review the decision.
(2) An application is to be made within a period of one month after receipt of a notification under section 114(4), or within any further period the judge determines.
(3) On the hearing of an application, a judge may –
(a) affirm the decision of the Trust to reject the claim, or to impose terms or conditions on the acceptance of the claim, in part or in whole; or
(b) quash that decision; or
(c) substitute another decision in place of that decision.
(4) A judge, in determining an application, may make such order for costs as the judge considers just.
(5) If an order for costs is made, the costs are recoverable only out of the Court fund in respect of which the application is made.
116 (1) In administering a Court fund, the Supreme Court may order –
(a) that an interim dividend be paid out of the Court fund to a person before all claims payable out of the Court fund have been determined; and
(b) that advance payments be paid out of the Court fund to a person who, in the opinion of the Supreme Court, is suffering personal hardship.
(2) An order is not subject to an appeal.
(3) The Trust may enter into an agreement for the compromise or settlement of –
(a) any claim made; or
(b) any right to make a claim –
against a Court fund whether or not the loss to which the claim relates has been ascertained.
(3A) The Trust may do all things necessary or convenient to enter into or perform an agreement under subsection (3) including entering into an agreement with a liquidator appointed in the circumstances referred to in section 108(2)(a)(iii) or a manager appointed under section 119(2)(b).
(4) If a surplus of money remains in a Court fund after all claims against the Court fund have been satisfied, that surplus is to be paid to the Trust."
Fiduciary default is defined in the Act in the following terms:
"Fiduciary default" is defined in the Act to mean:
"(a) a defalcation, misappropriation or misapplication of money or other property held on trust by a legal firm or legal practitioner corporation; or
(b) the failure of a firm or legal practitioner corporation to account for that money or property held on trust by that firm or legal practitioner corporation; or
(c) a breach of any duty by a firm or legal practitioner corporation as trustee in relation to money or property held on trust by that firm or legal practitioner corporation;"
The preliminary argument the subject of these reasons
Counsel for the Second Applicant submits that the February 2007 document headed "Amended Further Orders Sought" is an interlocutory application in the substantive proceedings commenced by the originating application dated 19 December 2001 and that what is effectively being sought is an enlargement of the Court Fund in accordance with the accepted practice of the Court. On the other hand, counsel for the respondents submits that what the document represents is not an interlocutory application but a fresh application by which different orders are sought in respect of different people. The respondents submit that the orders set out in that document amount to an amendment to the originating application and as such the Second Applicant requires the leave of the Court to amend which he has not sought.
The submissions by the parties call for consideration of the provisions of the Act already identified and the Court's practice in relation to applications for default orders and the administration of court funds established by its orders.
The Act and the Court's practice
The most common application of the provisions of the Act, Div5, has been in relation to mortgage funds operated by legal firms. In very general terms, firms have been found to have acted improperly in the operation of those funds and clients of the firm who have invested money in the funds have lost part or all of their investment. In such circumstances the provisions of Div5 have been utilised to enable investors who have suffered losses to access the Solicitors' Guarantee Fund to recover their losses.
The Act, s111, permits an application to the Court for an order declaring a firm or legal practitioner to be in default. Such an order is defined in the Act as a default order. An automatic consequence of the making of a default order is the creation of a court fund into which certain monies are paid to ultimately meet claims of investors who have suffered losses. Those monies are sourced from two places. The first is "such money standing to the credit of any trust financial institution account and trust deposit account of that firm or legal practitioner corporation" as the Court orders (the Act, s111(5)(a)), and the second is "such money from the Guarantee Fund as is necessary to meet the requirements specified in section 112" (the Act, s111(5)(b)). The Guarantee Fund was established under legislation which preceded the Act and its existence and administration have been continued under it. It is administered and managed by the Solicitors Trust ("the Trust"). The Trust may determine when the money required pursuant to s111(5)(b) is to be paid to the fund. The Trust may also, where it has paid money to a court fund, seek to recover that money from a member of the firm declared to be in default. This requires an application to the Court by the Trust (the Act, s111(8)).
The Act, s112, sets out how a court fund is to be applied by the Court. Relevantly, it is to be applied in "compensation to a client for the loss of trust money or other property as a result of fiduciary default" if the loss occurred in the course of legal practice by a legal practitioner and "the exoneration of any property of a client which the firm … mortgaged … without the authority of the client and otherwise than for the benefit of the client;". Section 113 provides that where a default order has been made, and a claimant who asserts he has suffered loss as a result of fiduciary default of the firm against whom that default order was made is paid money out of a court fund in satisfaction of his claim, the claimant's rights in respect of the loss are assigned to the Trust. Section 114 provides for claims against a court fund. Such claims are made to the Trust which will either accept or reject them. If the Trust accepts a claim, it will apply to the Court for monies to be paid out of the court fund to meet the claim. In the context of mortgage funds, the claimants are generally investors whose money the firm has invested in a mortgage loan and which has been lost in whole or in part.
What will usually happen is that the Society will make an application pursuant to the Act, s111, to the Court for a firm to be declared in default in respect of nominated mortgage loans. The Society will need to satisfy the Court, before it obtains such an order, that there has been fiduciary default by the firm in relation to each mortgage loan referred to in the application. If the Court is so satisfied, it will make a finding there has been fiduciary default in respect of each nominated loan and will then make an order that the firm is in default, that is, a default order. It is useful to note the distinction between a finding or declaration that there has been fiduciary default in respect of a loan and the actual order that a firm is in default. They are not the same, the former being a precursor to the latter.
A court fund is automatically created upon the making of a default order. The further order the Court usually makes is then pursuant to the Act, s111(5)(a), requiring that any money standing in a trust account of the firm in relation to the any of the loans designated in the default order be paid to the court fund. It is not usual for the Court to make any order pursuant to the Act, s111(5)(b) in respect of the Trusts contribution to a court fund. Such a contribution is required to be made by the Act and really requires no order. There is however often an order made requiring the Trust to advertise for claimants. The Trust thereafter deals with applications by those persons whose money was invested in the loans in respect of which findings of fiduciary default were made and who assert they have suffered a loss. If the Trust determines that such a person has suffered loss, it will apply to the Court for the payment of a sum to meet that loss out of the court fund. The Trust will pay into the fund from time to time from the Guarantee Fund such amounts as are necessary to enable accepted claims to be met.
From time to time, the Society, in the case of a firm in respect of which there has already been a default order and a court fund created, may seek to enlarge that fund by adding to it monies held in the firm's trust accounts in relation to loans other than those in respect of which the original default order was made. The Court has entertained those applications in the form of interlocutory applications in the substantive proceedings in which the default order was made. The Court will be asked to make findings that there has been fiduciary default in respect of the further loans and a consequential order pursuant to s111(5)(a) in relation to them.
There is no suggestion from any party to these proceedings that that is not the accepted practice of the Court. Where the difficulty in this matter arises is that the Second Applicant says "that is what I am doing", while the respondents say he is not. The respondents argue that what the Second Applicant is seeking is a new default order and, as such, it can only be sought by way of an amendment to the originating application filed in December 2001.
The orders sought in the present case
There are four substantive orders sought in the present matter. Order 1 relates to loans which are already the subject of the Court fund and in respect of which there have been findings of fiduciary default of a particular kind. What the Second Applicant is now seeking is a finding or declaration that there has been fiduciary default of a another kind by the Firm in relation to the same loans. Order 2 relates to loans which are not currently the subject of a default order. There has been no finding that the Firm is in fiduciary default in relation to them. What the Second Applicant seeks is such a finding, although it is described as a further finding. Order 3 is one requiring the Trust to advertise for claimants. The Second Applicant, by the remaining orders sought, is not seeking what might be described as the usual consequential order pursuant to the Act, s111(5)(a), in respect of the Firm. What he is seeking is an order in respect of the Guarantee Fund pursuant to s111(5)(b). The consequence of the application, if it is successful, will be to enlarge the Court fund, although not in the way traditionally done. The enlargement of the fund sought, insofar as order 1 is concerned, will not be by reference to the number of claimants as has usually been the case, but by reference to the amounts it is asserted have been lost by existing claimants.
Counsel for the Second Applicant referred to a number of passages in the judgment of Evans J in Dobson v The Solicitors' Trust [2001] TASSC 99. In that case an investor in a firm made a claim to the Trust in respect of an asserted loss. The loss had not been the subject of a finding of fiduciary default when a default order had been made in respect of the firm. The Court took the view that he was not entitled to make a claim. Evans J in his judgment analysed the legislative scheme in Div5. He concluded that it was necessary to identify and confine those who can make a claim against a court fund and that it was a necessary part of any application pursuant to s111 that claimants be specifically identified. He said at par17:
"It was necessary that Wright J specify the default or defaults in respect of which the order was made, in such a way as to make it possible to identify those suffering a loss in respect of which the default order was made. This enables the Trust to determine whether claims on the Court fund should be accepted or rejected. This task is vested in the Trust by s114, subject to the right of a person who is aggrieved by the decision of the Trust to reject a claim to seek a review of the Trust's decision by this Court, pursuant to s115. Additionally, unless the default is indicated in a manner which enables the loss which is the basis for the order to be identified, it is not possible to determine whose and what rights and interests arising from that loss are assigned to the Trust pursuant to s113."
The remarks of Evans J, there and in other parts of his judgment, were relied on as support for the proposition that, for there to be a successful claim by a claimant against a court fund, the fiduciary default which gave rise to the claim must be identified by the Court as part of the default order. I agree with that proposition. However that case concentrated upon the need to identify specific claimants when making a default order, rather than the extent of the fiduciary default, if there was more than one type, and the identification of the precise loss.
It is the Court which must determine how a court fund is to be applied. By reference to the Act, s112, a court fund is to be applied to compensate a client for a loss "as a result of a fiduciary default". Before, therefore, any order can be made by a Court for a payment out of a court fund to a claimant, the Court would need to be satisfied there had been a loss as a result of a fiduciary default. Generally, at the time at which the Trust makes application for orders for the payment of part of a court fund to a claimant, the Court will not need to consider whether or not there has been fiduciary default, because such a finding will already have been made when the original default order was made or the court fund enlarged by consequential order by reference to further fiduciary defaults. It seems to me, at least in relation to those loans referred to in the proposed order 1, that what the Second Applicant is seeking to do is obtain a finding that a specific fiduciary default has occurred. The consequences, if the application is successful, are an order enlarging the Court fund and the availability of funds for claimants who may have suffered as a result of the specific default. Another potential consequence is an increase in the amount the Trust might seek to recover from a partner of the Firm by reference to the Act, s111(8). If at some stage there are findings that fiduciary default as now alleged occurred, the Court fund is enlarged, payments are made out of it and the Trust seeks to recover monies, it will be open to any person from whom the Trust seeks to recover monies to raise issues relating to his or her personal liability in respect of that specific default.
Counsel for the respondents submits that the default canvassed in 2002 only affected certain partners of the Firm and that the defaults now alleged affect others who were partners then but not then involved in the proceedings. That may be so. There seems to have been no attempt in these proceedings to identify who were partners of the Firm at any given time. This certainly should have been done in 2001 if for no other reason than to ensure that all parties potentially affected by the proceedings were notified of them. However, as I have already remarked, there has never been any application by which any partner of the Firm has sought to challenge the validity of any order made to date and no suggestion that all interested parties are not now involved in the proceedings and aware of the potential consequences of them. I am unable in the circumstances to see that has a direct bearing on the question of whether the orders now sought are by way of amendment to the originating application or not.
Conclusion
Too much reliance has been placed on the precise wording of the document headed "Amended Further Orders Sought". There has also been confusion as to the steps identified by the Court as necessary in proceedings of this type. For there to be a default order in respect of specified loans, there must first be a finding that there has been fiduciary default in respect of those loans. If it is then sought to enlarge the Court fund thereby created by reference to further loans, the Court is obliged to make findings in relation to those further loans that there has been fiduciary default in relation to them. The Court does not, when dealing with these sorts of applications, make formal orders about the fiduciary default. It makes findings or declarations which then lead to the making of either a default order in the first instance and orders pursuant to the Act, s111(5)(a) or simply the consequential orders if a default order has already been made.
The orders sought in orders 1 and 2 of the document headed "Amended Further Orders Sought" are not, in my view, default orders. What is being sought is a finding of fiduciary default of a specific kind in relation to specified loans, some of which have already been the subject of a finding of fiduciary default of a different kind. What is then being sought is a consequential order which, while it is admittedly not one usually sought from and made by the Court, will have the effect of enlarging the Court fund. What the Second Applicant is asking the Court to do is enlarge the Court fund not only by reference to additional claimants, but also by reference to further fiduciary defaults which might increase the amount which might be claimed from the Court fund by an existing claimant.
I am unable to see why the Court should adopt a different practice from that usually adopted. The application contained in the document headed "Further Amended Orders Sought" lodged with the Court in February 2007 is to be treated as an interlocutory application in substantive proceedings commenced by originating application filed December 2001. There is no need for the Second Applicant to apply to amend that application before it pursues a hearing in respect of the orders sought.
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