Legal Practitioners Act v the Law Society of SA No. Scgrg-00-575

LEGAL PRACTITIONERS ACT 1981 V THE LAW SOCIETY OF SOUTH AUSTRALIA

[2000] SASC 415

Civil

LANDER J. On 27 June 2000 the Law Society of South Australia Inc (Law Society) applied, by ex parte summons, pursuant to r 63.02 of the Supreme Court Rules, seeking an order by way of directions as to:
“1The proper interpretation of the powers of Denise Jean Watkins pursuant to her appointment as a manager of the practice of (“the practitioner”) pursuant to s 45 of the Legal Practitioners Act 1981, particularly:

1.1Whether or not, in her capacity as manager of the said practice, she has power to institute and conduct or otherwise take over and assumed control of the defence to any proceedings brought against the practitioner for alleged professional negligence in his conduct of the practice.”

Originally the application also sought an order:
“1.2. If yes to 1.1, whether or not, in her capacity as manager of the said practice, she owes a duty of care or other obligation with the practitioner when determining whether or not to institute or conduct or otherwise take over and assume control of any such defence.”
Being an ex parte summons, the proceedings were not served on the practitioner identified in the application.
The matter first came before me on 6 October 2000.
Two preliminary questions arose. The first was the status of the Law Society to make this application. The second was whether the proceedings ought to be heard ex parte or whether there should be a direction that the practitioner be served.
Ms Watkins is the Director of Professional Standards at the Law Society. A resolution of the Council of the Law Society made on 7 August 1998 appointed her the Manager of the legal practice conducted by the practitioner and the Supervisor of his practice trust account.
Her appointment as manager was pursuant to a power conferred upon the Law Society by s 45 of the Legal Practitioners Act (the Act) and her appointment as supervisor was pursuant to a power conferred upon the Law Society pursuant to s 44(2) of the Act.
Section 45 of the Act provides that the Law Society may, by resolution of the Council, appoint a legal practitioner as a manager in respect of the practice of a legal practitioner or former practitioner if the Law Society knows or suspects on reasonable grounds any of the matters in s 45(1) of the Act.
In this case Ms Watkins’ appointment as manager was in the following terms:
“TAKE NOTICE that on the 7th day of August 1998 the Council of the Law Society of South Australia RESOLVED that it knew or suspected on reasonable grounds that:
(i)(The practitioner) is not attending or is unable to attend promptly to the affairs of his practice due to ill health;
and
(ii)a serious irregularity has occurred in the course of his practice
and appoints DENISE JEAN WATKINS pursuant to s 45 of the Legal Practitioners Act 1981, to act as Manager in respect of the practice of the said (practitioner) a practitioner in the Supreme Court of South Australia and in particular is authorised to take all steps necessary to audit the files and records of the practice and determine what if any matters require further work to be undertaken and subject to the approval of clients refer files formerly being conducted by the said practitioner to other legal practitioners if that be necessary.”
Ms Watkins’ appointment appears to be in accordance with the power of appointment given to the Law Society under s 45.
Section 45(3) provides:
“A manager appointed under this section has full power -
(a).. to transact any urgent business of the legal practitioner or former legal practitioner; and
(ab)to dispose of trust money to persons entitled to the money, or in accordance with the Unclaimed Moneys Act 1981, and to execute cheques or other instruments for the purpose; and
(ac).. to pay to the Society any amounts that the Society is entitled to recover from the legal practitioner or former legal practitioner under s 48; and
(b)with the approval of clients of the legal practitioner, or former legal practitioner, to transact any other business on their behalf; and
(c).... to perform any other act relating to the practice of the legal practitioner or former legal practitioner that the manager may be authorised to perform by the Society.”
In this case Ms Watkins has been given, pursuant to s 45(3)(c), the further powers identified in her appointment being:
“(1).. to take all steps necessary to audit the files and records of the practice; and
(2)to determine what if any matters require further work to be undertaken; and
(3)subject to the approval of clients refer files formerly being conducted by the practitioner to the legal practitioners if that be necessary.”
Since her appointment Ms Watkins has become aware that former clients of the practitioner have commenced proceedings against the practitioner and other parties. It is claimed by the former clients that the practitioner acted where he had a conflict of interest, was negligent, failed to prepare a proper contract; and as a result the former clients have suffered damage. They identify their claim for damages in the Statement of Claim.
Ms Watkins also became aware, as manager of the legal practitioner’s practice, of a number of letters from the former clients seeking to recover the losses referred to in the Statement of Claim.
She forwarded copies of the letters of claim and the proceedings, which were subsequently issued, to the practitioner’s Professional Indemnity Insurer. The practitioner is apparently insured pursuant to the scheme under the Act.
Ms Watkins has been advised by the Professional Indemnity Insurer that the insurer has not been able to obtain sufficient instructions from the practitioner to enable the insurer to make a decision as to whether or not it will indemnify the practitioner and has therefore reserved its rights and advised her and the practitioner that they should behave as a “prudent uninsured”.
Ms Watkins has made inquiries of medical practitioners who have treated the practitioner. A medical practitioner has advised her that the practitioner is not capable of attempting to conduct litigation on his own behalf because of significant medical risks.
The Law Society has apparently retained solicitors to file a defence on the practitioner’s behalf relying upon information which has been provided to the Law Society by Ms Watkins. The solicitors took instructions directly from the practitioner. These solicitors have now ceased to act for the practitioner.
In any event it is for those reasons that the Law Society has sought directions.
There is no doubt, in my opinion, that Ms Watkins has status to make this application. Indeed s 47 of the Act provides:
“(1).. A supervisor or manager appointed under this Division may apply to the Supreme Court for directions in relation to any matter affecting his or her duties or functions under this Division.”
However it was not Ms Watkins who brought these proceedings. Originally the proceedings were brought by the Law Society.
The Law Society does not have a statutory right to make this application. If it has any right it must be derived from the Rules itself.
It relied upon r 63.02 but, in my opinion, that rule does not provide it with power to make this application. The Law Society, whilst it is the appointor of a Supervisor or Manager under the Act, whose rights would be affected by the appointment, is not thereby authorised to make this application.
Once the manager was appointed pursuant to s 45 it is the manager who has the responsibility of exercising the powers given under s 45(3). It is a matter for her to determine whether she has power to conduct any defence brought against the practitioner personally.
It was for her if she was unsure, to make an application under s 47.
In my opinion, the Law Society does not have standing to make this application.
I drew these matters to the attention of counsel for the Law Society. He sought an adjournment and an application was made to amend the summons to join the manager as a party. As I have already indicated, in my opinion, the manager does have standing to make this application. I accordingly allowed the amendment of the summons to join the manager, Denise Jean Watkins, as a party to these proceedings.
The second matter was whether these proceedings should be served upon the practitioner.
The direction which is sought from this Court if it was answered affirmatively, would allow the manager to conduct the practitioner’s defence to the claim for professional negligence. If it was answered negatively it would mean that the practitioner would have to make his own arrangements, if he could, to conduct his own defence. Either way, it seems to me, the practitioner’s rights will be affected by any direction given by this Court on the matter raised and in those circumstances he should at least be given the opportunity to be heard on this application. He is, in my opinion, an interested person.
In those circumstances I was of the opinion that the proceedings ought to be served upon the practitioner.
The proceedings were served and the practitioner advised Ms Watkins that he did not wish to be involved in the proceedings. He confirmed that in writing on 23 October 2000.
In a later hearing I raised with counsel whether the practitioner was a person under a disability within the meaning of the Rules and whether therefore a guardian ad litem should be appointed.
A person under a disability is defined in the following terms in r 5:
“Means an infant, and any person, who by reason of physical weakness or intellectual or mental impairment or other condition whether temporary or permanent, is unable to give sufficient instructions to take, defend or compromise proceedings.”
In Ms Watkins’ most recent affidavit she has deposed that the practitioner appears by reason of a mental condition to have difficulty in instructing solicitors. If he is a person under a disability then he must defend proceedings by way of guardian ad litem; r 35.01.
In the end I was persuaded that no appointment need be made because, although the practitioner was a person interested in the proceedings in the sense which I have mentioned he is not a party to the proceedings. Moreover it appears on the evidence that he well understands the nature and affect of the proceedings, even though he may have difficulty giving instructions.
The appointment of a manager, of course, is a statutory creation and she can have no greater powers than those contained in s 45(3) including those given to her by the Law Society by the power given in s 43(3)(c).
The manager is appointed “in respect of the practice of the practitioner or former practitioner.”
He or she is appointed where the Society knows or suspects any of the manners in s 45(1).
Those matters include the death of a legal practitioner or, where a legal practitioner is not attending properly, or unable to attend properly, to the affairs of his or her practice or, the legal practitioner has committed a serious irregularity in the course of practice or, a serious irregularity has occurred in the course of practice, or a person has ceased to be a legal practitioner without making proper provision of winding up the affairs of his or her practice.
The appointment is to the practice, in circumstances where the practitioner is not attending properly to the practice for any of the reasons I have already mentioned.
Of course the appointment of a manager to the practice does not carry with it the power to act in the affairs of the legal practitioner outside the practice.
The purpose of the power is to protect the clients of the legal practitioner and to ensure that those clients are in no way prejudiced because of the practitioner’s inability to attend to the practice. The purpose is not to protect the practitioner.
The powers given in s 45(3), which are in terms very wide, however must be understood as powers of the manager “in respect of the practice of the practitioner” as identified in s 45(1). It is only in respect of the practice which the manager is appointed and therefore the powers which are to be exercised after appointment can only also be in respect of the practice. A claim for professional negligence arising out of past conduct on the part of the practitioner is not in respect of the practice. It may arise out of the practice but it is not in respect of the practice.
Practice is not defined in the Act but reference in the definition section is given to s 21 of the Act. Section 21 provides that a person must not practise the profession or hold himself or herself out as being entitled to practise the profession unless he or she is a legal practitioner. The Act also provides that the legal practitioner, to practise the law, must hold a practising certificate. Section 21 provides for various circumstances where it is deemed that a person is practising the law and s 21(3) provides for circumstances where a person is not prevented from carrying on certain activities by reason of s 21(1). In the end result s 21 does not address the matter with which this application is concerned.
In my opinion, whether or not the manager is entitled to instruct the solicitors to act on behalf of the practitioner depends upon a construction of s 45 itself.
I agree with counsel’s submission that the power of appointment constitutes a very serious intrusion into a practitioner’s affairs and in accordance with general principles of construction will necessarily be construed as narrowly as possible whilst still giving effect to the statutory purpose.
In my opinion, s 45 does not empower the manager to act in connection with the personal affairs of a practitioner, even if the practitioner is sued for professional negligence arising out of his previous practise of the law.
In my opinion, s 45 does not contemplate that the appointment of a manager carries with it the power for the manager to defend legal proceedings brought against the practitioner arising out of his previous practise of the law.
During submissions I raised with Ms Watkins’ counsel whether it could be said that a member of the public, who is suing a practitioner for professional negligence, might be prejudiced if the legal practitioner failed to defend or adequately defend the claim in that the underwriters might decline to indemnify the practitioner and thereby affect the recoverability of any judgment against the practitioner.
I asked counsel whether in those circumstances might s 45, which has in its contemplation the protection of the public, be frustrated.
Counsel directed my attention to the Professional Indemnity Insurance Scheme, which does not allow the Society, in respect of that aspect of the scheme to which the Society is a party, from avoiding indemnity upon any ground except fraud. In particular the Society is not entitled to avoid, repudiate or rescind the indemnity offered under the policy upon the ground of non disclosure or misrepresentation. If a practitioner is in breach of any condition of the scheme which results in substantial prejudice to the Society the practitioner may be called upon to reimburse the Society the difference between the sum payable by the Society in respect of that claim and the sum which would have been payable in the absence of such prejudice. The same conditions apply in respect of the Master Policy taken out by the Law Society with underwriters.
It would appear therefore that the general nature of the insurance scheme would protect a practitioner’s former clients even where the practitioner fails to co-operate with the Society or the underwriters.
Moreover, counsel pointed to the provisions of Part 5 of the Act which allows for claims against the guarantee fund.
Section 60 allows for a person who has suffered loss, as a result of a fiduciary or professional default on the part of his or her solicitor, where there is no reasonable prospect of recovering the full amount of that loss to claim compensation against the guarantee fund.
Whilst s 60(4)(b) does not allow for a claim against the guarantee fund in respect of a liability for which indemnity is provided under a scheme of Professional Indemnity Insurance, that exception, of course, would not apply in the circumstances under consideration, because it must be assumed that claims are available against the guarantee fund in circumstances where the practitioner is not entitled to or not provided with indemnity under a policy of Professional Indemnity Insurance.
It seems therefore that there is adequate protection for former clients of a legal practitioner who might bring proceedings against the legal practitioner in the insurance scheme itself and, if necessary, by claim against the guarantee fund.
I would answer the question:
The Manager of the legal practitioner’s practice has no power to institute and conduct or otherwise take over or assume control of the defence to any proceedings brought against the practitioner for alleged professional negligence in the conduct of his practice.

[2000] SASC 415

15 December 2000