Legal Services Board v Gillespie-Jones

[2013] HCATrans 126

[2013] HCATrans 126

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne       No M27 of 2013

B e t w e e n -

LEGAL SERVICES BOARD

Appellant

and

SIMON GILLESPIE‑JONES

Respondent

FRENCH CJ
HAYNE J
CRENNAN J
KIEFEL J
BELL J
GAGELER J
KEANE J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 4 JUNE 2013, AT 10.15 AM

Copyright in the High Court of Australia

MR N.J. YOUNG, QC:   May it please the Court, I appear with MR S.R. SENATHIRAJAH, for the appellant.  (instructed by Legal Services Board)

MR M.F. WHEELAHAN, SC:   If the Court pleases, MR M.J. FLEMING, SC and I appear with our learned friend, MR B.J. McCULLAGH, for the respondent.  (instructed by Billings Cloak)

FRENCH CJ:   Yes, Mr Young.

MR YOUNG:   In this matter, the facts are not in contention.  The basic facts are summarised in the appellant’s outline of submission commencing at paragraph 6.  They are also gathered in an agreed summary that was presented to the Court of Appeal which is found in the appeal book at page 95.  In this case, the claim that was advanced to the Legal Services Board by the barrister was a claim that accepted that the client paid the money to the solicitor for legal services including disbursements, instancing barrister’s fees and other out‑of‑pocket expenses.  That appears within the claim form at page 28 of the appeal book and that was verified by the barrister’s statutory declaration.  It is about line 25.

The challenge that the barrister mounted in the County Court to the decision of the Legal Practices Board was based on a contention that the money in question was “transit money”.  That appears at page 5 of the appeal book in paragraph 6G.  That claim was rejected by the County Court judge and was not thereafter pursued.  The trial judge found that the moneys were in fact held on trust for the client and that the barrister had no proprietary interest in the moneys but nonetheless the trial judge found that it was not necessary to establish a proprietary interest by the barrister in the moneys when held by the solicitor in the trust account to support a claim against the fidelity fund.

Now, that is no longer pursued.  That was rejected by the Court of Appeal.  The Court of Appeal analysed the matter and drew conclusions on the basis of the decision in the Quistclose Case finding an express trust to hold the moneys for the barrister.  There were no submissions at any stage, either at trial or before the Court of Appeal, contending for such a trust.  It is our case on appeal that the Court of Appeal’s analysis and conclusions are not supported by the facts and are inconsistent with the requirements and the scheme of the Legal Profession Act 2004.

HAYNE J:   How does the Law of Trusts intersect at all with the provisions about the fidelity fund?  Why is the claim against the fidelity fund not a claim in debt as money due under a statute?

MR YOUNG:   The scheme of the Act, as the Court of Appeal found, establishes that a claimant against the fidelity fund must establish that the moneys in question are held for or on his behalf or her behalf.

HAYNE J:   Well, that is a conclusion about the construction of the Act, is it?

MR YOUNG:   That is a conclusion about a requirement of the Act which is a precondition to a sustainable claim against the fidelity fund.  That is accepted by both sides in this argument and it was the basis of the Court of Appeal’s finding.  To establish that the moneys were held for and on the barrister’s behalf within the meaning of the Act it is necessary to establish an entitlement, a legal entitlement in those moneys, and that leads to the requirement articulated by the Court of Appeal that the barrister must establish a proprietary interest in the moneys in the hands of the solicitor in the solicitor’s trust account.

FRENCH CJ:   We have to construe a statute, do we not?

MR YOUNG:   Yes, your Honour, that is the fundamental ‑ ‑ ‑

FRENCH CJ:   Regardless of what agreement the parties might have reached about what it means.

MR YOUNG:   Once you construe the statute, your Honour, then it is a question of determining what is the requirement of the statute for a valid claim against the fund.  If the requirement of the statute is a matter of proper construction, is that the moneys in the fund – the moneys in the solicitor’s trust account must be held for and on behalf of the claimant - that requires an analysis of whether, on the facts, the moneys were held for and on behalf ‑ ‑ ‑

FRENCH CJ:   I understand once you get to that point.  I would just like you perhaps to take us to that point.

MR YOUNG:   Yes, of course, your Honour.  I think it is necessary to start then with the Act.  I was going to start with some of the factual findings but I will come back to them.  The scheme of the Act ‑ ‑ ‑

HAYNE J:   Which version is the version to which we should be looking?

MR YOUNG:   It is the version in place in 2006 and early 2007.

HAYNE J:   We have the version as at 6 June 2006 and the version as at 8 November 2007.

MR YOUNG:   It would be the second of the two, your Honour.

HAYNE J:   The November one?

MR YOUNG:   Yes, because ‑ ‑ ‑

HAYNE J:   2007?

MR YOUNG:   The Court needs the Act that applied during the period from December 2006 to the end of May 2007.

KEANE J:   So that is the 6 June version, is it not, version No 12?

MR YOUNG:   I am sorry, I may have missed Justice Hayne’s dates.

CRENNAN J:   Version No 12 as at 6 June 2006.

MR YOUNG:   No, the relevant dates are December 2006 to May 2007.

CRENNAN J:   Well, the other version we have is as at 8 November 2007, version No 22.  Perhaps we do not have the version to which you want to make reference?

FRENCH CJ:   When were the amendments in 2007?

MR YOUNG:   I have the number of the Act, but not the date they became effective.  They commenced on 9 May 2007.

FRENCH CJ:   So the Act as at 6 June 2006 is the Act up to 9 May 2007?

MR YOUNG:   Yes.  The last of the payments into the fund occurred on 9 May 2007.  The Act, in our submission, establishes a scheme that tightly controls the way in which solicitors can deal with trust money and it does so to protect the persons for and on whose behalf trust money is held.  That follows as a matter of the general scheme and object of the provisions from a number of introductory provisions.

First, section 3.1.1 provides an overview.  It is described as a guide.  It may be of limited assistance, but for completeness I refer to it.  Next, the purpose of Part 3.3 dealing with trust money is set out in section 3.3.1, particularly paragraph (a).  That is the provision where the phrase “for or on whose behalf money is held” is referred to:

The purposes of this Part are‑

(a)to ensure that trust money is held by law practices and approved clerks in a way that protects the interests of persons for or on whose behalf money is held –

I will come back to the relevant definitions when I come to the substantive provisions that call them into play.  Section 3.3.11 sets out the requirement for the maintenance of a general trust account. 

By way of introduction to these provisions, I note as a matter of fact that the payments were in three tranches, if I can call it that.  There were initially some cash payments of $21,700 before the barrister was retained.  Those cash payments, so far as the evidence went, do not appear to have made it into the solicitor’s trust account.  They may have been appropriated before that happened, but under the Act they were required to be deposited into the trust account for reasons I will come to.

The second payment was directly to Mr Richter’s clerk and then there was a refund of some $8,600 which again the solicitor was required to pay into the trust account but there is no evidence that he did.  The last group of payment consists of two sections of electronic transfers that went directly electronically into the solicitor’s trust account.  So the moneys in question were either required to be paid into the trust account or they were in fact paid into the trust account.

Section 3.3.11 sets out the obligation to maintain a trust account when a solicitor receives trust money. That is complemented by section 3.3.13 which deals with cash receipts. They must “be deposited in general trust account” which is why I said what I did. For reasons I will come to, none of the exceptions apply. The money was neither “transit money” nor the money “subject to a power”. The next substantive provision is section 3.3.14:

A law practice or an approved clerk must –

(a)hold trust money deposited in a general trust account of the practice or clerk exclusively for the person on whose behalf it is received –

The trial judge found that the person on whose behalf it was received was the client.  The second part of the subsection is (b), must –

disburse the trust money only in accordance with a direction given by the person.

So once the money is in the trust account, and this would also apply to money required to be in the trust account, it is held exclusively for the person on whose behalf it is received and it can only be disbursed in accordance with that person’s directions.

FRENCH CJ:   That does not have to be a subsequent direction, of course.

MR YOUNG:   No, but provided it is a direction for the disbursement of money from the trust account, your Honour, yes, but there are controls that follow as to the way in which moneys in a trust account can be applied.  The next provision is section 3.3.18.  This is a limitation on the use that may be made of money in a trust account.  Subsection (1) provides that:

Money standing to the credit of a trust account . . . is not available for the payment of debts of the practice –

In this case, the barrister’s fees were a debt of the practice because the finding of the trial judge was that the solicitor engaged the barrister acting as a principal and not as the agent of a client.  Hence, the barrister’s fees, if and when he provided a memorandum of fees complying with the Act, et cetera, would represent a debt due from the solicitor to the barrister.

HAYNE J:   How does that stand with the definition of “trust money” at, in particular, paragraph (a) of that definition:

money received . . . on account of the legal costs of one or more barristers in advance of –

providing the services?

MR YOUNG:   In our submission, your Honour, it is entirely consistent for the reason I am about to come to.  Section 3.3.18(3) provides that the constraint in subsection (1):

does not apply to money to which a law practice . . . is entitled.

So if the law practice has satisfied the requirements of the Act and is entitled to legal costs and/or disbursements then the money standing to the credit of the trust account can be applied to satisfy that entitlement to legal costs and disbursements, but until there is an entitlement the money is not available to satisfy any debts of the practice, including debts of the practice owed to a barrister because the solicitor has engaged the barrister as a principal.

Also relevant is, in the context of your Honour’s question, the definition of “legal costs”.  That is in section 1.2.1.  Legal costs include disbursements and a debt owed by the solicitor to a barrister in respect of the client’s defence constitutes a disbursement which the solicitor would include in his bill of costs as a charge to the client.  So to answer your Honour’s question, trust money entrusted to the law practice by the client includes money received by the practice on account of legal costs in advance of providing the services. 

So it is trust money.  It is held for the client who entrusted it to the practice but it is not available for the payments of the debt – payment of the debts of the practice including disbursements - until an entitlement arises in accordance with the requirements of the Act.  It is not relevant at the moment but the other subsection of 3.3.18 is that the money in the trust account is not liable to be attached, et cetera, to satisfy a judgment against the practice which is consistent with the submissions I have just made. 

Now, when is a practice entitled to draw down on moneys in a trust account to meet legal costs and disbursements?  That is addressed by section 3.3.20.  It does two important things.  It authorises the law practice to draw down moneys held in trust to meet legal costs, which is defined to include disbursements, but before I come to that, it creates a lien - subsection (1)(a) - so the moneys held in trust are the subject of a lien in favour of the law practice:

for the amount of legal costs reasonably due and owing by the person to the practice –

and again “legal costs” is defined to include disbursements.  So that lien operates for the benefit of the solicitor and through the solicitor for the benefit of any barrister engaged by the solicitor.  If moneys are paid into a trust account within the meaning of paragraph (a) of the definition in advance of legal costs but for those future legal costs, they are immediately the subject of a lien for the amount of legal costs and that operates for the benefit and protection of both the solicitor and the barrister he may engage as principal.  For that reason alone, the client cannot withdraw the money at will.  The solicitor has the benefit of this lien.  The second requirement, subsection (1)(b) enables a solicitor to:

withdraw money for payment to the practice’s account for legal costs owing to the practice –

that includes disbursements in respect of barristers’ fees:

if the relevant procedures or requirements prescribed by this Act and the regulations are complied with –

but until they are complied with, there is no entitlement to withdraw the money within the meaning of section 3.3.18(3) and until that entitlement arises the money is not available for the payment of the debts of the practice.  The particular application here is that the money in the trust account was not available for the payment of the debt owed by the solicitor to the barrister in respect of the barrister’s fees until the requirements of the Act were met.

Section 3.3.20 picks up a series of protective requirements that are in place for the benefit of the client paying money into a trust account in respect of future legal costs.  Those requirements include the cost disclosure provisions concerning cost agreements; that is section 3.4.9:

A law practice must disclose . . . 

(a)the basis on which legal costs . . . 

(c)an estimate of the total legal costs –

et cetera.  Section 3.4.10, those disclosure requirements apply to a barrister; that is to say:

A law practice retained . . . on behalf of a client by another law practice –

3.4.10(1) and (2).  The time for disclosure is 3.4.11.  Then 3.4.17 provides for the consequences of a failure to disclose.  Subsection (1):

If a law practice does not disclose . . . the client or associated third party . . . need not pay the legal costs unless they have been reviewed under Division 7.

So unless those disclosures are made there is no entitlement and there is no availability of the funds within the meaning of section 3.3.18.  Those provisions extend to the barrister’s fees under subsection (5).

HAYNE J:   Sorry, subsection (5) of?

MR YOUNG:   Subsection (5) of 3.4.17.  I apologise, your Honour.

CRENNAN J:   We do not have ‑ ‑ ‑

HAYNE J:   Well, when did that go in?  It is not in the June 2006?

MR YOUNG:   Yes, I apologise, your Honour.  The other provision that completes this set of requirements within the Act is section 3.4.19.  So that is a group of requirements that would have to be satisfied to draw down ‑ ‑ ‑

HAYNE J:   What is the significance in that connection of the agreed fact that the fees to the barrister were reasonable?  The last, I think, of the agreed facts before the Court of Appeal was, was it not, to the effect that there was no dispute that the fees were reasonable?

MR YOUNG:   Your Honour is correct.

HAYNE J:   What is the significance of that in connection with the provisions to which you are presently taking us?

MR YOUNG:   The agreed fact at page 97, paragraph 24, was that:

The reasonable value . . . has been agreed between the parties and is not an issue for resolution in this Honourable Court.

That does not alter the fact that as at May 2007, for instance, there was no entitlement to draw down the moneys to pay the barrister’s fees because at that point of time there was no costs agreement either with the barrister or the solicitor. The client had not received any invoices or memoranda of fees, the amount of the barrister’s fees had not been agreed as reasonable at that point of time, so that agreed fact does not change the position as at May 2007.

HAYNE J:   You will come later to show why May 2007 is a critical time, but that is something to which you will no doubt have to come?

MR YOUNG:   Yes, the barrister’s case as we understand it is that the barrister had a proprietary interest in moneys in the trust account, being moneys paid up to in the period that finished in May of 2007.

HAYNE J:   I will want to know at some point in your argument why May 2007 is statutorily important.  I understand the way the argument has developed, but at its root this is a claim made under a statute.

MR YOUNG:   Yes, I will come back to that, your Honour.  The short reason I will develop is that the barrister’s claim depends on establishing an entitlement to the moneys.  That includes moneys paid in.  It includes the moneys paid in on 9 May 2007, so that date is relevant to the establishment of the entitlement.  It may not be the only date, your Honour, because there may be earlier dates where the same point has to be established by the client – sorry, by the barrister, but it is the ‑ ‑ ‑

HAYNE J:   I would have thought the critical date was the date of default, but this is something to which you will no doubt have to come and I do not seek to divert you.

MR YOUNG:   Yes, your Honour. I was about to complete the references to the requirements that are referred to in section 3.3.20 by going to the regulations. The regulation I want to go to in particular is 3.3.34. These are the Legal Profession Regulations 2005. This sets out requirements for the payment of legal costs owing to the practice and describes the circumstances in which trust money may be withdrawn. Sub‑regulation (3) provides that it may be withdrawn if a number of conditions are met:

in accordance with a costs agreement.

The second is:

in accordance with instructions that have been received by the practice and that authorise the withdrawal –

The third is:

the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person –

Those three requirements attract, each of them, the third requirement:

before effecting the withdrawal, the practice gives or sends to the person‑

(i)a request for payment, referring to the proposed withdrawal; or

(ii)a written a notice of withdrawal.

There is no evidence of any of those matters happening.  Another alternative is:

the practice may withdraw the trust money:

(i)if the practice has given the person a bill relating to the money –

and “the person has not objected” or “the money otherwise legally becomes payable”.  Now, these are protections put in place for the benefit of the client so that moneys in a trust account cannot be withdrawn without satisfying these matters.  Until there is an entitlement to withdraw the money and to apply it to the practice’s own debt in the form of the disbursement to the barrister, there is no possibility, in our submission, of the barrister having an entitlement or a proprietary interest in the moneys in the trust fund.  I will come to this as well. 

The fidelity provisions are found in another part of the Act.  It is in Part 3.6 dealing with fidelity cover.  The purpose is stated in 3.6.1:

to compensate clients for loss arising out of defaults by law practices arising from acts or omissions of associates and defaults by approved clerks.

There is a definition then in section 3.6.2 of “default” meaning - and I will not read it all - subparagraph (a)(i) is:

a failure of the practice to pay or deliver trust money or trust property that was received by the practice in the course of legal practice . . . that involves dishonesty –

There is also a definition of “pecuniary loss”:

in relation to a default, means –

(a)the amount of trust money, or the value of trust property, that is not paid or delivered; or

(b)the amount of money that a person loses or is deprived of, or the loss of value of trust property –

The trial judge found that these provisions could be satisfied without the barrister establishing any entitlement to the money or any proprietary interest in the money.  The Court of Appeal disagreed and found that the barrister had to establish an entitlement to the money in the form of a contingent proprietary interest at least.

HAYNE J:   What work would that give paragraph (b) of the definition of “pecuniary loss”?  If it is right to say that there is a claim if but only if there is a proprietary interest in the money would not (a) then cover the whole of the field?

MR YOUNG:   No, your Honour, because (b) is concerned with trust property that may suffer, for instance, a diminution in value because of something that has occurred that amounts to a default whereas (a) is concerned with trust money not paid or delivered.

HAYNE J:   In respect of the amount of money that a person loses, what work would be given to that if you must show proprietary entitlement to part of the trust - what ought to have been in the trust bank account?

MR YOUNG:   A person will lose money in relation to a default when a person has some entitlement to that money.  It cannot be simply that anyone who is expecting to be paid - take a photocopy supplier to a solicitor - anyone who is expecting to be paid by a solicitor out of moneys held by the solicitor from the client does not have a claim for indemnity under these provisions simply because that expectation is disappointed.

CRENNAN J:   Can a client give money to the solicitor and proleptically require that that money be paid to the barrister when the barrister’s costs come in, when the bill is rendered?

MR YOUNG:   Yes, that is the ordinary case ‑ ‑ ‑

CRENNAN J:   That is the ordinary payment on account of ‑ ‑ ‑

MR YOUNG:   Well, it is the ordinary case where moneys are paid to a solicitor on account of costs and ‑ ‑ ‑

CRENNAN J:   To be incurred.

MR YOUNG:   But the client is not forgoing by such an arrangement his entitlement to the statutory protections that there must be disclosure, bill of costs and so forth, and moreover, the debt in question there is a debt owed by the solicitor to the barrister. It is a disbursement.  In the case your Honour gives me, it is simply the standard case of a client depositing money into a solicitor’s trust account on account of future costs, to be drawn down if and when the requirements of the Act and the various protections are satisfied.  That does not create an immediate interest.

CRENNAN J:   Why does not the client in those circumstances, as I say, proleptically consent to the money being drawn down at the appropriate time?  What if the client does not want a fees agreement or does not wish to get a notice about when the bill is due?

MR YOUNG:   The client can consent to the money being drawn down.  That is one of the limbs within the regulation to which I referred - 3.3.34.  But the mere fact that the client consents to a drawdown does not mean that the solicitor has assumed a trust relationship with the barrister under which the barrister has immediate interest in those moneys, under which the barrister is entitled to payment out of moneys in the trust account.  It is simply an acknowledgement that these moneys can be drawn upon subject to satisfaction of the requirements of the Act that allows the solicitor to use those moneys to pay the solicitor’s debt to the barrister.  But it ought not to be inferred that the solicitor is forgoing any of his rights and protections under the Act.

CRENNAN J:   The client, you mean?

MR YOUNG:   I am sorry, the client, your Honour.

HAYNE J:   But this brings us, does it not, to this point.  Is it the case of the Legal Services Board that the money stolen should be paid to the client, not to the barrister, or is it the case of the LSB that it owes neither?

MR YOUNG:   No, the case of the Legal Services Board was that the moneys in the trust account were held on trust for the client.  The client was the only party with a proprietary interest or entitlement to those moneys, leaving aside the lien created by section 3.3.21(a).  The barrister, in advance of the solicitor satisfying all of the requirements of the Act, did not have an entitlement to those moneys in the trust account.  He did not have a right to be paid those moneys and those moneys were not held for or on his behalf by the solicitor.

CRENNAN J:   But if the client makes no claim on the fidelity fund, the client in a sense is accepting that the moneys held by the solicitor in the trust account were held for payment of such disbursements as the barrister’s fees.

MR YOUNG:   No, your Honour, the client has made no claim on the fidelity fund.  The client could.  The fact that the client has not to this stage does not mean that that gives the barrister an entitlement to make a direct claim against the fidelity fund.  If this claim fails, the client would still be in a position to say that it has suffered a loss by virtue of the default of the solicitor.

BELL J:   Mr Young, does it make any difference to your argument if the solicitor had rendered an account, conformable with the requirements of the regulation, and if Mr See had not made an objection within the period limited by the regulation, would the barrister then be a person of whom it could be said there had been a failure to pay or deliver trust money for the purposes of the definition of a default?  Might he then be a person who had suffered pecuniary loss?

MR YOUNG:   We do not think so, your Honour, for this reason.  The barrister was engaged by the solicitor.  The debt in respect of his fees had crystallised because the requirements of the Act had been met and so the client owed the solicitor an amount of money in respect of the solicitor’s disbursement.  The solicitor owed the money to the barrister.  Those circumstances do not give, in our respectful submission, the barrister a direct claim against the fidelity fund.

CRENNAN J:   What about in Justice Bell’s scenario where the moneys do become legally payable because all the requisite notices have been given and the client has not objected to the payment being made?

MR YOUNG:   Well, in those circumstances, the moneys would be payable on the solicitor’s bill of costs and then payable by the solicitor to the barrister.

HAYNE J:   Would there not be a failure of the practice to pay that involved dishonesty?

MR YOUNG:   There may be, your Honour, that is why I qualified it by saying we do not think so.

HAYNE J:   If there is, there is a default.

MR YOUNG:   There is a default.  Yes, your Honour, there is a default in failing to pay by virtue of dishonesty, but it is – well, can I just add one aspect to my answer to Justice Bell first and then I will answer your Honour’s question.  The blockage created by 3.3.18 has to be addressed otherwise the money by force of statute is not available to pay the disbursement.  Once one assumes the requirements of the Act are met then the money can be drawn down to pay the disbursement. 

That is not the situation that this case fits within because there is a statutory prohibition on making the money available to pay either the barrister directly or the disbursement because the requirements of the Act had not yet been met.  If we assume they are met, well then obviously the barrister has a much stronger case to say he suffered a loss by virtue of dishonesty of the solicitor because there was a crystallised payment obligation which in succession bound the solicitor and because the solicitor had rendered a bill of cost to the client bound the client.

BELL J:   Nonetheless, in terms of the analysis, the barrister would not have a proprietary interest in the money in the trust account.

MR YOUNG:   Well, in those circumstances, the – if I can add a further fact – let us assume by virtue of what has happened the client is taken to have directed payment of that disbursement, all of the requirements having been satisfied, then in those circumstances there will be a failure to pay in accordance with the direction of the client on a crystallised bill of costs and the barrister may be in a position to say he suffered loss by virtue of that failure to pay to the solicitor to satisfy the barrister’s debt.

BELL J:   All of this is an analysis of the statutory scheme looking at Part 3.6 and it does not take us back to a consideration of the kind that the Court of Appeal engaged in of whether or not the trust money was held for or on behalf of the barrister.

MR YOUNG:   Not entirely, your Honour.  The Court of Appeal’s analysis was that the scheme of the Act was such that the basic objective of protecting the person on whose behalf the money is held applied both to Part 3.3 and Part 3.6.  In other words, the construction of 3.3 flowed through and effected the concepts of default and pecuniary loss in 3.6.  I can refer to those passages, if that ‑ ‑ ‑

BELL J:   The matter I am taking up with you, it seemed in the last exchange your acknowledgement that the barrister’s claim would be stronger because the barrister would then be a person of whom it could be said there had been a failure of the law practice to delivery trust money.

MR YOUNG:   In circumstances where the assumed facts your Honour has given me established that the client had directed payment of that disbursement, there was no – both the solicitor and the barrister were entitled to payment of that disbursement.  There was no barrier created by section 3.3.18 or 3.3.20, all those requirements having been satisfied.

Now, if you assume all that - which is not our case – then, in those circumstances, it may be that the failure of the practice to pay the disbursement because of the dishonesty of the solicitor might fall within these provisions but that is because at that point of time with those assumptions the barrister has an entitlement to be paid and the solicitor has been directed to pay and the solicitor is entitled to draw down the money to pay what at the end of the day is his own debt to the barrister because the requirements attracted by 3.3.18 have been met.

HAYNE J:   Which drives us, does it not, to the important question of timing?  When are these questions to be asked and answered because this Act must intersect - by its very nature these provisions of the Act have to intersect with fraudulent behaviour.

MR YOUNG:   Yes, your Honour.

HAYNE J:   So we are dealing with behaviour of a kind where it is unlikely that every box that ought to have been ticked has been ticked.  I think we can safely assume that.

MR YOUNG:   I think we can safely assume, your Honour, that there were not many ticks at all.

HAYNE J:   Exactly, but we have therefore to give the Act some realistic operation.

MR YOUNG:   Yes, your Honour, but the facts so far as they were available to the courts indicate that there were a series of misappropriations of money.  That is clear from the trial judge’s findings.  Can I go to those briefly?

HAYNE J:   Before you do, can you go to them bearing in mind what 3.6.3(3) says.  What is the effect of section 3.6.3(3), which is fixing the time of default, is it not?

MR YOUNG:   Yes, your Honour.

HAYNE J:   At some point can you identify for me in this case what is the relevant time of default as so identified?

MR YOUNG:   Yes, your Honour, I was about to attempt to do that by reference to the findings.  Can I take the Court to the trial judge’s judgment at appeal book page 60?  I described briefly earlier that there are a number of tranches of payments.  In paragraph 29, the trial judge deals with the first set, cash payments totalling $21,700.  They were made between August 2006 and September 2006.  That was prior to the engagement of the barrister. 

The barrister was engaged in December of 2006.  That appears from the barrister’s own statement of claim, paragraph 6C at page 3, from the agreed summary page 10, at page 96 of the appeal book and from the trial judge’s judgment at paragraphs 1 and 31.  What follows indicates that those moneys were misappropriated at an early point, probably before the barrister was engaged. 

The second payment is dealt with in paragraphs 30 to – well, paragraph 30 will do for the moment.  In this case, the client paid Mr Richter’s clerk directly.  A cheque was made out payable to Mr Richter or his clerk.  The cheque was greater than the fees rendered by Mr Richter - $8,400 was refunded to Mr Grey on 21 September 2006.  That money, likewise, disappeared.  That date was before the date of retainer of the barrister. 

Now, it is clear that that money was misappropriated at that early point of time for the reasons mentioned by the trial judge in paragraph 32.  There were no moneys in the trust account representing either those cash payments or the refund of the cheque written out to Mr Richter.  So it was all misappropriated before the barrister was retained.

Next, there are two groups of electronic transfers described in paragraphs 34 and following.  These do follow the barrister’s being briefed.  There is the first group of seven.  They are electronic transfers directly into the trust account, so they attract the protections and the requirements that must be met to draw down moneys in a trust account.  They have gone straight into the trust account.  There were seven groups of $5,000.  The description was “Grey ‘&’ the plaintiff” in various ways.  The actual – and this is one of the few contemporaneous records – the actual bank account statement is at page 18.

FRENCH CJ:   Are those designations on the electronic transfers inputs by the client?

MR YOUNG:   Yes, and they then appear in the bank statement, your Honour, which is why I referred to page 18.  At page 18 at about line 42, the Court will see the first of them, 19 December, “Mic Grey & S Jones”, and the next words are the client’s name, and so on in the bottom half of that page.  Then there were four further electronic transfers, again directly into the trust account, so they attract the protections concerning drawdowns; four transfers of $5,000 each.  Out of those four transfers, the plaintiff was in fact paid $18,000 of the $20,000 on 25 May - $2,000 was appropriated otherwise.

I should have mentioned paragraph 36 at page 61.  That indicates that the group of seven transfers of $5,000 was misappropriated at some point - it looks like prior to the end of May 2007 – and the $2,000 was appropriated presumably some time in May but it is not possible in respect of these transfers to be any more precise than to say the first seven payments may have been misappropriated some time close to when they were made in about December or January or possibly a bit later and as to the four payments in May, $18,000 was paid to the barrister by the solicitor and $2,000 was misappropriated elsewhere, presumably on a date in May.

BELL J:   Can I just inquire on the maths, Mr Young?

MR YOUNG:   Yes.

BELL J:   You see that the primary judge – this at appeal book 61 going over to 62 – notes the concession by the Board that $55,000 had been paid to the solicitor and that only $22,070 had been paid to the barrister with the balance of $32,930 having been appropriated by the solicitor.

MR YOUNG:   Yes.

BELL J:   When one does the maths by reference to the agreed facts, it rather looks as though the $18,000 is not accounted for if one is to accept that figure of around about the $32,000 mark.  All I am raising with you, Mr Young, is what is said to be the amount due to the barrister?  Is it around about $13,900 or ‑ ‑ ‑

MR YOUNG:   No – yes, the barrister was claiming some 31 ‑ ‑ ‑

BELL J:   I understand that is what the barrister was claiming.  When I did the maths I could not understand how that came about if one gave credit for the $18,000 that is an agreed fact.

MR YOUNG:   These passages at page 61, your Honour, record two payments to the barrister.  In paragraph 36, $4,070 is paid to the barrister on 8 January 2007 and then on 25 May $18,000 is paid to the barrister.  That leads to the figure of $22,070 referred to at the top of page 62, being the total paid to the barrister.  The balance there, $32,930, is the difference between $22,070 and $55,000.

BELL J:   I understand all that but when one goes to the agreed facts and one looks at the amounts claimed by the barrister and the amounts received by the barrister one does not get to a figure of that order.  That is the only question, Mr Young.

MR YOUNG:   Can I take that on notice?

BELL J:   Yes.

MR YOUNG:   I just have not fully done those maths, your Honour, and I am not sure I should delay things right now to try and do it, if I may.  To answer your Honour Justice Hayne, the date of default in respect of the misappropriations before December 2007 appears to have been firstly one or more defaults in the period between 9 August and 15 September, then a default in respect of the refund from Mr Richter’s clerk shortly after 21 September 2006, then defaults in respect of the first seven transfers.  There appear to have been defaults at a point of time between December and January – possibly later but most likely in that period, December to January - and then in respect of the final $2,000 out of the final $20,000 that is likely to have been the subject of the default in May 2000.

GAGELER J:   Mr Young, can I relate that to the definition of “default” in section 3.6.2?

MR YOUNG:   Yes, your Honour, of course.

GAGELER J:   I think in that explanation you are equating misappropriation or pocketing the money with default.  Now, is that paragraph (a)(i) or paragraph (a)(ii)?

MR YOUNG:   Paragraph (a)(i) is what I had in mind, your Honour.  One needs to identify what the failure of the practice is.

GAGELER J:   Yes, and it is “a failure of the practice to pay or deliver trust money” which has a certain quality.

MR YOUNG:   Yes.

GAGELER J:   Does one not need to find an obligation to pay or deliver trust money existing at a particular time for there to be said to be a failure to pay or deliver trust money within the meaning of (a)(i)?

MR YOUNG:   Yes, your Honour, but it is satisfied in this way, if I may.  As at those dates I have just been through, when the client paid money into the trust account, or to the solicitor to put into the trust account, the solicitor at that point of time held those moneys on trust for the client and was obliged (a) to pay them into the trust account in respect of the early payments, or (b) in respect of the later payments that went into the trust account, not to use or draw down those moneys in the trust account for any purpose, including meeting his own debts, unless the requirements of the Act were satisfied.

So the failure to pay or deliver was the taking of the money from the trust account, or taking money that ought to have been in the trust account, so in respect of the first tranche it is enough to have a default that moneys required to be paid into the trust account for the benefit of the client were not.  They were not delivered into the trust account, they were misappropriated.  In relation to the electronic transfers, they were required to be maintained in the trust account and not applied to the barrister’s own debts, including barrister’s fees, and not otherwise dealt with, save and except in accordance with the requirements of the Act.  There was a failure to do that and that was default within the meaning of paragraph (a)(i).

HAYNE J:   That proposition is that there can only be one default.  Can there not be a series of defaults in respect of the same moneys?

MR YOUNG:   If we take a particular amount of money, your Honour, the failure I am dealing with – can I start again?  It is possible there might be ‑ if we take the case of, let us say, the refund to the solicitor from Mr Richter’s clerk, there was default in not paying that into the trust account.

HAYNE J:   Plainly.

MR YOUNG:   Yes.  That is probably the first default.  There is probably a second default in appropriating it elsewhere and not paying it to the benefit of the client.

HAYNE J:   Is not the relevant question not – go back a stage.  The questions you have been answering are questions that are answered in terms of when there was first a default in respect of receipts.  Is that right?

MR YOUNG:   Not entirely, your Honour.  I accept that – my answer would be the same even if I take into account additional defaults by the solicitor.  They occurred – they were both defaults in respect of obligations owed to the client under the Act.  They occurred at much the same point of time.  All of the defaults I have identified relate to default in obligations to pay or deliver trust money because obligations owed to the client in respect of that trust money were breached. 

HAYNE J:   But the question in this litigation is whether the barrister can show that he is a person who has lost an amount of money.  Looking for the causal connection I think it is by “reason of”, is it not - because of a default?
Is not the relevant question whether there was a default that the barrister can demonstrate, not whether there were other defaults of which the client may or may not have claims but can the barrister show there was a default because of which the barrister suffered a loss?

MR YOUNG:   Our respectful submission, your Honour, is that it must be a default in respect of an obligation that is owed to the barrister to bring the barrister within these provisions.  If there were a duty to pay the barrister the amount of money you might get to first base in saying there is a loss because of a default, the default being a failure of the practice to pay or deliver trust money.  The defaults in question here were all defaults in relation to obligations owed to the client.

HAYNE J:   I understand that is your case and I am not for a moment denying that it may have great force, maybe determinative force, but my question is, is not the complaint of the barrister that there was an omission to pay him?  Now, that is at its most neutral characterisation.  He was not paid.  He says there was an omission to pay him.  That omission makes me look at 3.6.3(3) and see whether that can or should or should not be connected with the first element of the definition of “default”.  Now, it may be it cannot but that is the area that is presently troubling me. 

MR YOUNG:   Yes, I understand, of course, your Honour, but we would add to your Honour’s inquiry – further inquiry, omission by whom?  The barrister points to the omission by the solicitor to pay the debt that the solicitor owed to the barrister.  Now, that is not a failure of the practice to pay or deliver trust money.  That is an omission by the solicitor to pay the solicitor’s debt to the barrister.

The barrister must take the further step of demonstrating that he has suffered loss under 3.6.7 because of a default to which the part applies.  To demonstrate that nexus he has to demonstrate that there was a failure of the practice to pay or deliver trust money, being a failure in respect of an obligation that was owed to him in relation to the delivery of trust money.

HAYNE J:   Let me spell it out.  The omission to pay trust money that is presently fussing me, and you say completely unnecessarily, is a failure to pay money received on account of legal costs in advance of providing the services.  That is a species of trust money; see the definition of “trust money”.  There has been an omission to pay to him a species of trust money, namely money received on account of, et cetera, in advance.

MR YOUNG:   Your Honour, if I can go to that point and look at the definition of “trust money”, 3.3.2, it is “money entrusted to the law practice” and includes:

(a)money received by the practice on account of legal costs in advance of providing the services –

The receipt was by the solicitor.  The entrusting was by the client.  That aspect of the definition of “trust money” applies to the money in the hands of the solicitor.  That is why it is trust money.  It was entrusted to him by the client and received by the solicitor on account of legal costs in advance of providing the services.

HAYNE J:   One species of legal costs, as you have pointed out to us, is disbursements.

MR YOUNG:   Yes, so we are on common ground, your Honour.  The solicitor has received the money on account of legal costs and disbursements, but the obligation to pay or deliver that money is then governed by the provisions of the Act, which says the moneys are not available to pay disbursements, being a debt of the solicitor, unless certain requirements are met.  Now, there is no failure to pay or deliver that causes loss to the barrister in the relevant sense that those words should bear in this Act, unless he has an entitlement to be paid out of the trust moneys, and he did not at any relevant time, including at the time of the default by the solicitor in this case.

CRENNAN J:   That all turns on the client not being asked under the rules, given notice about the payment, and having a chance to respond within so many days, and so on.

MR YOUNG:   It turns on there being no entitlement on the solicitor to draw down because those things have not occurred.

HAYNE J:   You added “at the time of default”, which is the symmetry of circularity, because you have identified the time of default.

MR YOUNG:   Well, the causal question – I identified that because of the causal question.  The barrister must establish that he suffered a pecuniary loss because of the default, being a failure to pay or deliver trust money.  The mere fact that the solicitor did not pay the barrister the debt that the solicitor owed to the barrister does not establish the requisite causal nexus as it should be interpreted in the Act.

GAGELER J:   Your use of language “failure to pay” in the sense of there being an omission to perform the act of payment that should in law have been performed, is that the way “failure” is used in this language?

MR YOUNG:   No, it is a bit more than that, your Honour.  A failure of the practice to pay or deliver may include not paying the money into the trust account but paying it elsewhere.  That would be a failure to pay or deliver trust money but that would be in respect of an obligation owed to the client.

FRENCH CJ:   How does the fraudulent dealing limb of default fit into this scheme of – is fraudulent dealing a significantly narrower concept than failure to pay arising out of an act of dishonestly?

MR YOUNG:   No, it may be broader, your Honour.  Trust property might be dealt with fraudulently.

FRENCH CJ:   Let us say we are talking trust money for the moment.

MR YOUNG:   I went to trust property because that is where the words “fraudulent dealing” appear.

FRENCH CJ:   I am just looking at –

default means –

(a)       in the case of a law practice –

 . . . 

(ii)a fraudulent dealing with [trust money or] trust property ‑ ‑ ‑

MR YOUNG:   Yes.  A fraudulent dealing may be different, your Honour, from a failure to pay or deliver.  A fraudulent dealing may encompass a failure to pay or deliver but there might be other species of fraudulent dealing ‑ ‑ ‑

FRENCH CJ:   So if the client pays me money and I put it into my own wallet instead of into the trust account and then spend it for my own purposes does that constitute a fraudulent dealing with trust money?

MR YOUNG:   Yes, we would say that it does, but associated with it, your Honour, there may be failures to pay as well because the client may have instructed that the money goes somewhere.

FRENCH CJ:   Yes, that is right, it might ‑ ‑ ‑

MR YOUNG:   Take a settlement cheque, your Honour, if that is pocketed – a bank cheque for settlement if that is pocketed and the instruction was pay it to the vendor at settlement.

GAGELER J:   But I thought you put that a failure to pay into the trust account in accordance with the statutory obligation would be a failure to pay within the meaning of section 3.3.17A(1)?

MR YOUNG:   Yes.

GAGELER J:   You put that as well?

MR YOUNG:   Yes, your Honour.

BELL J:   This was on the point about misappropriation can constitute a default which Justice Gageler was asking you about?

MR YOUNG:   Yes.  A misappropriation – would it be a default – but it is not the only possible form of default.

KIEFEL J:   On your construction, you do not equate default with the claimant’s pecuniary loss?  They do not have to be the same thing, do they?

MR YOUNG:   No.

KIEFEL J:   In fact they are not, there is the causal connection.

MR YOUNG:   Yes.  We do not do that, your Honour.

KIEFEL J:   Does the question then turn on how wide the notion of loss might be?  You equate it with an entitlement but could a loss be suffered because the means to pay has been removed?

MR YOUNG:   Your Honour, we submit not, and the reason we do is because on an overall construction of the provisions of the Act the causal requirement “because of a default” is to be read in light of the fundamental requirement that these provisions are for the protection of persons on whose behalf ‑ ‑ ‑

KIEFEL J:   You have identified the default as the moneys not finding their way into the trust account and that puts the money out of the question to meet the barrister’s bill.  Is that not a loss?

MR YOUNG:   Well, we say it is not a loss within the meaning of the definition or 3.6.7.  It is true that the solicitor does not have funds to meet his debt to the barrister, but that is different from satisfying the causal requirement in section 3.6.7.  That is the analysis that the trial judge embraced, namely, that you read the causal connection so widely that it is simply enough that but for the misappropriation the solicitor does not have the money to discharge his debt to the barrister.

KIEFEL J:   Well, it is claims about defaults, so that suggests a connection rather than equating the loss with the default.

MR YOUNG:   I am not equating the loss with the default.

KIEFEL J:   You are saying that there has to be an entitlement for there to be a loss, an entitlement to the money.

MR YOUNG:   Our submission, your Honour, is that a person will suffer a pecuniary loss because of a default when the person was entitled to payment or delivery and that entitlement has been breached or not satisfied because of the default.  We advance the same causal connection that the Court of Appeal found was requisite.

FRENCH CJ:   Causal analysis of the primary judge is at, I think, paragraph 110 of her judgment, is it not, on page 76?

MR YOUNG:   I am sure your Honour is right. Yes, but could I fill that out by going back one step, your Honour? At page 74 the trial judge addressed the requirement of section 3.3.14 which posed the question, who was the trust money held for? Her Honour’s conclusion was that it was held for the client. That follows from paragraphs 96 and 97; paragraph 96 states the section. Who was the person on whose behalf it is received and who was the person entitled to give directions? Her Honour answers that in paragraph 97; it is the client entitled to give directions. Her Honour confirms that in paragraph 99, “disbursed only in accordance with Mr See’s directions”.

CRENNAN J:   It seems to operate on the basis that the direction has been given by the client.

MR YOUNG:   No, your Honour is ‑ ‑ ‑

CRENNAN J:   Paragraph 97.

MR YOUNG:   Yes, the direction was to pay his legal costs out of the money, so that direction is contravened.  That is the premise of 97 and 99.

FRENCH CJ:   That is your identification of default?

MR YOUNG:   Yes, but that is a default.

FRENCH CJ:   I appreciate that is a – maybe you could argue about what is the default.  It is just the causal analysis I was interested in, that was ‑ ‑ ‑

MR YOUNG:   Yes, but the default is not complying with the client’s directions to hold this money available for the payment of legal costs in accordance with the requirements of the Act.  There is no reason to suppose that the client by giving a direction that this be applied to all his legal costs was forgoing all of the protections of the Act.  That is one of the objective circumstances.  But the trial judge’s analysis was that, effectively in paragraph 98 and then in 99, notwithstanding that the moneys were held on trust for the client to pay his legal costs in accordance with the Act, there can still be a default, a relevant default and a relevant pecuniary loss. 

Now, in our respectful submission, that goes too wide and her Honour’s – that is the backdrop to her Honour’s causal analysis which is simply that but for the default, there were insufficient funds held by the solicitor to discharge the solicitor’s debt.  That is paragraph 111 at page 77.  That is not the Court of Appeal’s analysis.  The Court of Appeal’s analysis was that both Parts 3.3 and 3.6 were to be read as subject to a fundamental requirement that they were for the protection of the interests of persons for or on whose behalf the money was held.  That is paragraphs 33, 36, 48 and 50.  If I can direct the Court to paragraph 36 for a moment at page 108, in the second sentence, the Court said:

Part 3.6 is logically to be seen as affording protection to all persons for or on whose behalf the trust money the subject of the default was held.

BELL J:   Can I just make an inquiry about how one reconciles that view with the provision under 3.6.28 for a claim by an associate of the law practice?  That seems to contemplate that when a partner makes off with the trust moneys the innocent associates of the practice might have a claim on the fund.  Is that right?

MR YOUNG:   That seems to be so, your Honour.  It is difficult to think of other circumstances that might attract it.

BELL J:   That rather takes away from an analysis that requires that a person be entitled to payment or delivery from the fund in the way you put it a few moments ago. 

MR YOUNG:   Yes, what your Honour says we would put this way, your Honour.  I think the Court of Appeal said something similar, 3.6.28 is the specific statutory exception and does not derogate from the general thesis that save and except for that special provision, the concept of default is to be understood across Parts 3.3 and 3.6 in the way the Court of Appeal did.  I think – I am assisted by Mr Senathirajah - I think it is paragraph 39.

CRENNAN J:   Well, I think there the Court of Appeal indicates that there are two ways of looking at 3.6.28 in terms of construction when one looks at the statutory scheme.

FRENCH CJ:   It does tell you something about the range of the notion of pecuniary loss because of a default, does it not?

MR YOUNG:   Well, if this situation, your Honour, were encompassed just by the words of 3.6.7, there would be no need for 3.6.28 to provide a special rule for this situation.  Anyone who is consequentially affected because a solicitor has incurred debts in relation to a legal matter - the solicitor cannot pay those debts - would then be able to make a claim against the fidelity fund if that view prevailed generally.

HAYNE J:   I am not sure that that proposition would be right as a matter of partnership law.  There is, after all, a deal of history about the Solicitors Guarantee Fund and there is a deal of history about “innocent” partners being bankrupted on account of the default of one fraudulent partner by operation of ordinary laws of partnership, which I think might, but for this provision, have stood in the way, would they not, of the so‑called innocent partner claiming against the fund?

MR YOUNG:   That may explain why the special rule is there, your Honour, but I ‑ ‑ ‑

HAYNE J:   I think the vicarious responsibility of the partner would be the path in that would bar the so‑called innocent partner.

MR YOUNG:   Yes, but I was making a different point, which is that if the general position under 3.6.7 is to be interpreted as one where any creditor of a solicitor in respect of a debt incurred in connection with a legal matter run by the solicitor, if the wide view is correct, then any creditor could make a claim against the fidelity fund simply because the solicitor is out of funds.

FRENCH CJ:   You are not suggesting, are you, that 3.6.28 effects a widening of the definition or the concept of “pecuniary loss” because of a default?

MR YOUNG:   No, your Honour.

FRENCH CJ:   Because it just picks that up.

MR YOUNG:   I am suggesting that this is a special rule for the case dealt with in 3.6.28, and that is why there is a need to spell out at 3.6.28 the proposition that a claim can be made in these circumstances.

FRENCH CJ:   I appreciate what you are saying in that response is that it may say something about the appropriateness of the causal analysis adopted by the primary judge without the need for the interposition of entitlement.

MR YOUNG:   Well, your Honour, on the primary judge’s causal analysis, any disappointed creditor of a solicitor in respect of a legal matter could make a claim against the fidelity fund.

HAYNE J:   No, could make a claim to the extent to which the solicitor was put in funds for the satisfaction of those third party creditors and if the amount to which the solicitor is put in funds is insufficient to meet all disbursements would have a rateable claim, I would have thought, not 100 cents in the dollar unless the solicitor is put in funds.

MR YOUNG:   Your Honour, yes, I accept that but it does not follow, in our respectful submission, that that really changes the proposition I am advancing.  The mere fact that a solicitor has put in funds for future legal costs means that he holds those funds in trust for the client, subject to all of the protections of the Act.  It does not create any immediate obligation to apply those moneys to the payment of, for instance, an expert witness or a barrister.  To do that the requirements of the Act have to be met and the client has to give an instruction that those moneys can be drawn down and applied for that purpose.

The proposition here is that those further steps that I have just articulated are irrelevant.  A disappointed creditor has a claim against the fidelity fund, on the trial judge’s analysis, even though those further steps had not been taken before the time of default.

CRENNAN J:   Not every disappointed creditor.  It would only be those creditors in respect of whom money was held, subject to certain directions being given by the client when paying the money for the purposes of having it paid into a trust account.  The conundrum seems to me to be this, that the money is held when it is given by the client to the solicitor on account of future legal costs.  It can be held subject to that direction and, accepting for the purposes of your argument, subject to the protections, but you have to make this Act work in relation to both those aspects of the money being paid over to the solicitor.

MR YOUNG:   Yes, of course, your Honour, but insofar as the solicitor is ‑ ‑ ‑

CRENNAN J:   So the barrister/creditor is in a very different situation from the personal assistant creditor of the solicitor, for argument’s sake.

MR YOUNG:   No, with respect not, your Honour.  On the facts here the moneys were paid on account of all legal costs and disbursements, anybody that would come and assist in the defence.  Those persons were not identified fully or completely at the time the moneys are paid into the trust account, and it includes future legal costs.  So there may be costs for an expert witness, there may be a forensic report, there may be photocopying expenses and so forth. 

Many of those are in fact disbursements of the solicitor and the money is not available to pay disbursements of the solicitors until the entitlement arises, so to recognise a claim against the fidelity fund in 3.6.7 would be to enormously widen the scope of people who can make a claim because anyone who is in due course the supplier of goods to the solicitor are debts incurred by the solicitor to that person would say, “Well, the only reason my debt hasn’t paid is that the solicitor is out of funds” and that can be all traced back to a default.

KIEFEL J:   When did the barrister’s entitlement arise?

MR YOUNG:   It had not ‑ ‑ ‑

KIEFEL J:   You must be able to say, “At the latest, X”?

MR YOUNG:   No, well, during the relevant period of time, your Honour, the barrister’s entitlement had not crystallised because he had not satisfied the requirements of the Act for an enforceable bill.  He had rendered fee slips but he had not provided a costs agreement and the provision ‑ ‑ ‑

KIEFEL J:   The solicitor had not?

CRENNAN J:   Say the money had been in a trust account, no wrongful dealings with the money.  There is no fees agreement.  Barrister sends his bill, solicitor pays it.  Has the solicitor done something wrong in relation to those trust moneys?

MR YOUNG:   If the moneys are sitting in the trust account, the barrister renders a fee.  Section 3.4.17 and 3.3.18, their combined effect is that until the barrister satisfies the requirements of the Act the client need not pay the barrister’s bill and the solicitor is precluded from drawing down on trust funds to pay the barrister’s bill.  That is the effect of sections 3.3.18 and 3.4.17.  So, there is not a crystallised entitlement to payment.

KEANE J:   Unless the client gives a specific direction.

MR YOUNG:   Yes, unless the client gives a specific direction that notwithstanding those matters, the funds can be drawn down.  That did not happen in this case.  So, to answer your Honour Justice Kiefel, the barrister’s entitlement to be paid his fees out of the trust fund had not crystallised. 

HAYNE J:   By what date?  You say the relevant period – what is the relevant period to which you refer?

MR YOUNG:   It had not crystallised at any point of time during the period between December, when he was engaged, and the end of May.

HAYNE J:   Why is that the relevant time?  That is the date of receipt of the moneys, I understand that.

MR YOUNG:   No, I picked that period of time to encompass the period during which the moneys were received and the default – any relevant default occurred.  Now, if defaults occurred later, then it is a later period of time as well, at no relevant point of time that the barrister satisfied the statutory requirements.

HAYNE J:   That is coming back to this one default argument, it seems to me, Mr Young.  There has already been a default.  The clock stopped.

MR YOUNG:   No, your Honour.  I am looking at each possible default and saying at the date of each possible default the barrister had not a crystallised entitlement to the payment of his fees from the solicitor or from the client or out of the trust funds.  Can I deal with the Court of Appeal’s reasoning relating to the trust analysis?  I appreciate the Court has been focused differently but that is, after all, the judgment we are appealing against.

KIEFEL J:   Just before you do, forgive me for interrupting you.  You have been talking about the entitlement in the context of an entitlement to be paid out of the trust account but the barrister’s loss is that he is not paid by the solicitor.  His entitlement as against the solicitor arises immediately he sends his account for fees.  When was the account for fees sent?

MR YOUNG:   There is a list of them in the appeal book, your Honour, at pages 50 and 51.

KIEFEL J:   Thank you.

MR YOUNG:   Your Honour, it may be that some of these provisions do affect the contract as between the barrister and the solicitor.  Most are obviously directed at the protection of the client, but section 3.4.17 – no, I withdraw that.  I will reflect on what your Honour put, but on its face 3.4.19 seems to be quite broad.  It speaks about legal costs not being recoverable.  I wanted to go to the Court of Appeal’s analysis.

KEANE J:   If that were not right you would have a disconnect, would you not, in a situation where the solicitor would be obliged to pay but could not reimburse himself?

MR YOUNG:   Yes, you would, your Honour, and I also had in the back of my mind the – there is a regulation 3.3.35 which applies the same requirements to a barrister’s clerk.  A barrister’s clerk cannot draw on money to pay the barrister’s fees unless the requirements of the Act are satisfied and those requirements in that regulation match the requirements that apply to a solicitor under regulation 3.3.34, so it may be that the contract as between the barrister and the solicitor are affected by similar statutory requirements.

CRENNAN J:   Section 3.4.19(c) seems to provide for some sort of quantum meruit arrangement, a statutory quantum meruit.

MR YOUNG:   It does.  The Court of Appeal’s analysis commences at paragraph 54 on page 114.  The starting point was that the trial judge’s finding that the moneys had been paid:

to the solicitor to be held by the solicitor to satisfy legal costs to be charged by the solicitor –

so the solicitor had an interest in the moneys –

and to pay counsel and other persons retained to assist with the defence.

The court then said that the trial judge:

did not go on to characterise the nature of the relationship –

That is not entirely accurate.  The trial judge did characterise the relationship, in passages I have been to at page 74, finding that the moneys were held on trust for the client and that it was only the client who could give directions as to their drawdown.  The next step in the court’s ‑ ‑ ‑

FRENCH CJ:   Held on trust for the client, that was in the statutory sense?

MR YOUNG:   Well, no, in fact ‑ ‑ ‑

FRENCH CJ:   The characterisation that the trial judge applied.

MR YOUNG:   The trial judge was looking at 3.3.14, which asked on whose behalf was the money received and who could give directions about it.

FRENCH CJ:   She is talking about statutory framework, not equitable framework.

MR YOUNG:   She is talking statutory framework, yes, your Honour.  In paragraph 56 the Court of Appeal then states that there are two conditions “critical to the establishment of the trust” of the kind described in the Barclays Bank v Quistclose decision.  One is:

an intention that the moneys are advanced for an exclusive and specific purpose –

and the second is that the:

funds are not to form part of the assets of the trustee.

I will deal with the second of those critical conditions first, if I may, because it is simpler to do so.  That is a narrower rendering of what the authorities in fact require.  The requirement in the cases is that the trustee - in this case the solicitor to whom the moneys are paid – must not have been intended to have a beneficial interest in any of the moneys paid to him.  Now, that is not satisfied here.  It is clear that the moneys were paid to meet all future legal costs including the solicitor’s own costs and disbursements.  So that condition could not be satisfied.

I say it is a narrower rendering of what the authorities require because the authorities are clear that for this kind of trust to arise there must be a mutual intention of the payer and the person in the position of the trustee that the moneys are held “exclusively for payment of a particular class of creditors”.  I am there using Lord Wilberforce’s language in Quistclose at page 580 of the judgment in [1970] AC 567.

Justice Gummow applied that requirement that they be held exclusively for a stipulated class of creditors as a matter of mutual intention in the Elizabethan Theatre Trust Case 30 FCR 491 at 499 point 6 and 501 point 6. So did the Court of Appeal in Victoria in Legal Services Commissioner v Brereton which is unreported. It is [2011] VSCA 241. Can I ask the Court to go to that for one moment simply because it gathers the cases I have just described. Justice Tate delivered the judgment of the ‑ ‑ ‑

FRENCH CJ:   I am sorry, just before you do, so that I understand how the court is fitting this into the statutory setting, looking back at paragraph 53 their Honours accord a wide understanding to the notion of “interests” and correspondingly a “protean connotation”, as they call it, to the phrase “for or on behalf of”.  So they are approaching this analysis, are they not, on the basis that they are not looking for a necessary characterisation of the relationship, they are looking for one which is sufficient to fit within that protean classification of “on behalf of”?

MR YOUNG:   That is not the full ambit of their reasoning, your Honour, because ‑ ‑ ‑

FRENCH CJ:   No, I am just looking at the way they are entering it.  They are coming out of paragraph 53 on that basis, it seems to me.

MR YOUNG:   Yes.  That passage is directed towards the submission at paragraph 52 that, “the money was held by the solicitor on trust for the client” and in particular at about line 47 at page 113 that:

As the appellant would have it, the client could have called for the repayment of the money to him at any time –

That was what was being addressed.  It was that submission that was rejected.  The proposition that:

the client could have called for the repayment of the money to him at any time –

is not correct, having regard to the lien imposed by section 3.3.21A but I said it is not the full extent of their Honour’s reasoning because of what appears at paragraph 48 and then 50 at page 112 dealing with the actual ambit their Honours give to the expression, “for or on whose behalf trust money or trust property was held”.  In paragraph 50 they address that matter as well.  Their Honours are approaching these questions on a slightly wider basis than paragraph 53 indicates.

I was dealing with the second of these matters said to be critical.  I was just about to go to Brereton, if I may.  Her Honour gathers the relevant authorities.  At page 33 of the print in paragraph 94 her Honour extracts the relevant passage from Quistclose.  The essence is captured by the last three lines at the bottom of 33 and the first lines at the top of 34.  Her Honour then points out that:

the decision rested upon the mutual intention of the parties, of which the Court had unequivocal evidence.

Then her Honour says that “A Court will not readily infer” that kind of trust.  Over the page, at the top of page 35, again a reference to:

mutual intention that funds . . . will be earmarked for use exclusively in accordance with an agreed purpose.

I am sorry, I have referred your Honour to the unreported version. Mr Wheelahan assists me. It is, in fact, reported, I apologise to the Court, at (2011) 33 VR 126 and the passages I went to were at pages 149 to 152.

There is a further reason why this condition is not satisfied.  The barrister was engaged by the solicitor acting as principal.  His fees represented a debt of the solicitor.  So any application of the moneys in respect of that debt necessarily meant that the solicitor had beneficial interest in the moneys for that reason as well as the fact that they were paid to him for the payment, amongst other things, of his own costs – his own legal costs as well as his own disbursements. 

The fact that this condition is not satisfied is also borne out by the conclusion the Court of Appeal ultimately reached as to the nature of the trust at page 118, paragraph 65.  This deals with the solicitor’s retainer of the respondent as principal.  It affected the trust, the Court found, namely the trust for payment from the moneys in trust to the respondent of what was due by the solicitor to the respondent on account of the respondent’s defence of the client.  That is a trust for payment of moneys and the satisfaction of the debt of the solicitor.  So the solicitor had a beneficial interest and that could not meet the requirement of a Quistclose trust that the moneys were held in trust exclusively for a specified beneficiary or class of beneficiaries.

Can I go back to the other requirement in paragraph 56 that the moneys were advanced for an exclusive and specific purpose?  The case was one in which all of the facts, all of the objective facts indicated that the moneys were paid on account of all future legal costs and disbursements including those of the solicitor himself, expert witnesses and barrister and so forth.  That means that the trustee has an interest and that is not the kind of trust contemplated in Quistclose. 

The trial judge made some findings of fact concerning the payments that I should refer to at page 62, paragraphs 39 and 40.  The evidence in paragraph 39 is not evidence of subjective intention.  It is a recounting by the client of conversations he had with the solicitor, in which conversations it was made clear that the payments were to meet future legal costs of various people, including the barrister but not limited to the barrister.  That appears from, for instance, the exchange at line 30, and then lines 48 to 52.

So there was objective evidence that was paid for the legal costs of, amongst others, the solicitor and the barrister.  Other objective factors are that these moneys, particularly the electronic transfers, were paid directly into the solicitor’s trust account, attracting the legal framework protecting such moneys.  The actual inscriptions on the electronic transfer incorporate the solicitor as well as the barrister, and it is relevant that the client knew how to pay a barrister directly because he had actually paid Mr Richter in that fashion, but in respect of these payments, he paid them to the solicitor to meet future legal costs for various people, including the solicitor.

Can I then go on to deal with the inferences that the court drew as to why a trust should be inferred, contrary to the view of the trial judge?  The reasoning commences at paragraph 57.  There seemed to be a series of implications or inferences.  The first is in paragraph 57.  It is in this paragraph that the court says that it would be necessary for the barrister to establish some kind of entitlement in respect of the money.

But it is the next paragraph that I want to draw attention to, paragraph 58 at 116.  Rather than looking at the objective facts I have just listed, or the evidence as to the exchanges between the client and the solicitor about the payments, the court engages in a number of speculative inferences, with respect to their Honours.  Paragraph 58 commences with:

Presumably, the purpose of the arrangement was to persuade the solicitor to retain counsel –

There was no evidence or objective fact to support that.  The second inference is –

Possibly, it was also to enable the solicitor to assure counsel that the funds to pay counsels’ fees were safely in hand –

There was nothing in the evidence to support that, and the next proposition does not follow –

Either way, the purpose would have been defeated if the client could have demanded the return of the moneys –

That is unsound because the act gives the solicitor a lien on the moneys in respect of future legal costs, so by force of statute the client cannot demand the return of the moneys when legal costs have been incurred.  The purpose would not have been defeated.  The purpose is protected by the lien conferred by section 3.3.20.

Therefore, we do submit that there is no sound basis for what follows, namely, that the logical and most probable inference is that the client impliedly put the funds beyond his power of immediate recall and thus subjected them to a trust for payment to counsel and the other persons retained to assist him.  That, in our submission, is inconsistent with the facts, it is inconsistent with all of the objective facts, in fact, and it is in conflict with the scheme of the Act to recognise such a trust for the reasons – or for the kind of inferences that the court drew here.

GAGELER J: Well, could a trust in those terms exist consistently with section 3.3.14 of the Act?

MR YOUNG:   It cannot, and we would add 3.3.18 and 3.3.20.

GAGELER J:   Yes.  Why I am focusing on 3.3.14 is that it appears that money held in a general trust account, as distinct from other trust accounts, is held exclusively for one person and is able to be disbursed only in accordance with the direction of that person.

MR YOUNG:   Yes, your Honour.

GAGELER J:   So a Quistclose trust of the sort being contemplated here is a trust that has sequential beneficiaries.

MR YOUNG:   Two limbs. Yes, your Honour, one of which is the client. So such a trust is not compatible with section 3.3.14. Moreover, the trial judge found, and all the objective evidence supported the finding, that the person on whose behalf it was received and the person for whom it was held exclusively was the client.

Now, I might add their Honours’ footnote the New Zealand case in footnote 36 to paragraph 58, General Communications. That is a case in which there was evidence from the solicitors in the position as trustee and the payer of the money that they communicated with each other and agreed that the money would be used by the solicitors to pay certain supplies to its client. It was not a solicitor’s trust account situation dealing with legal costs and there was explicit evidence supporting the finding of the trust rather than a series of speculative inferences. The passage to which I have just referred is at 418 of the General Communications Case.  I do not propose to go to it.

What the Court of Appeal then did is the court went on to imply a series of terms into the trust to attempt to replicate the protections of the Act.  I will not go through it in detail but those implications include those at paragraph 59 at 116, a requirement that there was:

an obligation to pay the respondent out of the fund when and if the respondent rendered a memorandum of fees in enforceable form.

There was another implied limitation in paragraph 68 that the trust was only to pay out so much as the respondent might lawfully have charged under the provisions of the Act.  There is a further implication in paragraph 69 ‑ ‑ ‑

FRENCH CJ:   That seems at 68 that they do not actually make that implication.  There just seems to be some sort of commentary that it may have been.

MR YOUNG:   I am not sure I caught all of your Honour’s question, I apologise.

FRENCH CJ:   They do not seem to make the implication.

MR YOUNG:   It may have been, yes, your Honour.

FRENCH CJ:   It “might be thought”, et cetera.

MR YOUNG:   But can I draw – nonetheless their Honours go on in paragraph 69 to say that there was:

an immediately binding obligation to pay the respondent out of the trust moneys –

That is line 20 in paragraph 69.  In paragraph 70, their Honours say:

Perhaps it would have been different in this case if it had been a term of the Quistclose trust that the solicitor not pay out any fees to the respondent until and unless the fair and reasonable value of the fees had been determined by review under Division 7.  But we see no reason to imply a term of that kind.

What that means is that their Honours are engaging in a series of implications to try and match some of the protections in the Act, but it is clear from paragraph 70 that their implied terms fall short of the full range of protections afforded by the Act because the Act in fact says that the moneys cannot be paid out until the requirements of the Act have been satisfied.  Their Honours also misapprehended the scope of section 3.3.20.  That appears at paragraph 64.  Their Honours note at line 11 section 3.3.20 and the associated regulation.  At line 19 their Honours say:

neither provision has anything to do with a solicitor withdrawing trust money from a general trust account or controlled trust account for payment of legal costs owed by the solicitor to a barrister. 

That is not accurate because that provision applies to the use of moneys in a trust account to pay legal costs and disbursements, the disbursements including moneys due from a solicitor to a barrister.

BELL J:   The general retaining lien under 3.3.20 is for an amount of legal costs reasonably due and owing by the person to the practice.  Now, it is an agreed fact that Mr See as at 20 April 2007 expected to be repaid some of the money that he had paid because he understood he had paid more than the amount of his actual costs. 

Now, presumably, the lien permits the solicitor to retain an amount reasonably due in the sense the solicitor may not have rendered an account conformable with the regulation but the lien could not extend beyond an amount that was reasonably due as at the date the demand is made by the client for the return of the funds held on trust. 

MR YOUNG:   Yes.

BELL J:   I just raise that because in light of paragraph 19 of the agreed facts at page 97, the Court of Appeal’s conclusion that Mr See had put the money beyond power of recall seems to be something of a leap.  The lien is not a complete answer to ‑ ‑ ‑

MR YOUNG:   Your Honour, that putting the funds beyond recall was a proposition that the court used to say there is a real need to impose a trust.

BELL J:   I understand that.  I am just saying - you have taken us to the provision of 3.3.20 dealing with liens.  You had earlier put a submission suggesting that that was a plank in the analysis that the court had overlooked, as it were.  I am just raising with you the accuracy of that analysis. 

MR YOUNG:   Our response would be this, your Honour.  The way the court used it was to say the purpose of the client in paying the moneys to the solicitor in advance of legal costs would have been defeated if the client could have demanded the return of moneys at will.  The purpose would not be defeated.  The client cannot demand the return of moneys in respect of work in progress to the extent to which there is an amount of money reasonably due and owing in respect of that work.

BELL J:   Indeed, but he can require the return of moneys in excess of that.

MR YOUNG:   Yes, but the court was assuming that the entirety of the money could be pulled back.

BELL J:   But that seems to be rather contrary to the agreed facts?

MR YOUNG:   It is, your Honour.  It takes no account of the provisions of the Act, effectively.

FRENCH CJ:   The lien referred to there is a lien which arises by operation of law.  It is not actually created by the statute itself, is it?  The statute seems to assume its existence - 3.3.20(1)(a).  It may not make a difference to anything.  I do not want to detain you.

MR YOUNG:   Yes, your Honour may be right.  It is exercise a lien but it would arise as a matter of general law, in any event.

CRENNAN J:   Does it operate irrespective of satisfying the requirements about a cost agreement and so forth?

MR YOUNG:   To this extent, your Honour, that the “lien” spoken of in 3.3.20 is to protect the solicitor effectively in respect of work in progress and there are various ways in respect of which the solicitor in due course can make a valid claim under the Act in respect of those costs.  He can, in due course, I guess, enter into a costs agreement.  There may not have been a timely disclosure but he can establish an entitlement to be paid for costs by various pathways under the Act.

There is one minor matter I will deal with next and then I need to make a further point about the compensation provision in 3.6.7.  Our learned friends in their argument suggest that the money in question that was paid to the solicitor was money received, the subject of a power rather than trust money within paragraph (a) of the definition.  In our submission, that is not correct.  The definition is in section 3.3.2.  The money, on the facts, clearly fell within paragraph (a) and the trial judge said so.  The respondents rely upon (d) in their submissions.

When one has regard to other provisions, (d), in our submission, is inapplicable.  It is directed to powers that the solicitor might possess as an executor or under a power of attorney or like situations.  That is indicated on the same page in a very limited fashion by the definition of “power” but more particularly it is indicated by some regulations.  If the Court goes to regulations 3.3.31 and 3.3.32 - 3.3.31 is concerned with the maintaining of records of dealings under a power, sub‑regulation (2) but perhaps more assistance is provided by 3.3.32(1):

A law practice must maintain a register of powers and estates in respect of which the law practice or an associate of the practice is acting or entitled to act –

The other matter I wanted to say is this, the trial judge referred to paragraph (d) at page 73 – paragraph 92 - of her reasons.  The reasons that her Honour gave for concluding that both paragraphs (a) and (d) of the definition of “trust money” applied were identical.  In relation to paragraph (d) - paragraph 92 - her Honour there says:

the money was received subject to a power to deal with the money for or on behalf of [the client] for the payment of the legal costs of his defence, including by way of payment to third parties –

That is exactly what is captured by paragraph (a), so to apply paragraph (d) in that situation would exhaust what is intended to be covered by (a).  In our respectful submission, paragraph (d) is aimed at something else other than the payment of money on account of legal costs in advance of providing the services.  I think I have largely addressed the 3.6.7 ‑ ‑ ‑

FRENCH CJ:   The notion of money controlled by the law practice, does that fit in with the definition of “controlled money” as a subset of “trust money”?

MR YOUNG:   I think so, your Honour, yes.  There are a group of provisions that deal with ‑ ‑ ‑

FRENCH CJ:   Controlled money accounts.

MR YOUNG:   ‑ ‑ ‑ controlled money accounts, yes, your Honour.  There is no suggestion here that those provisions are relevant - 3.3.15 and 3.3.15A deal with controlled money.  In relation to the application of 3.6.7 – that is the provisions concerned with claims for pecuniary loss because of a default – the Court of Appeal addressed that issue briefly at page 117 of the appeal book.  The Court of Appeal concluded that those provisions were satisfied solely because of its trust analysis to the effect that the respondent had a trust interest in the moneys and therefore the moneys in the trust fund were held for and on behalf of the respondent.  That is clear from paragraph 60 at the top of page 117.  In relation to actual pecuniary loss, in paragraph 62 at line 39, the court said the value of the barrister’s:

right to be paid for fees out of the fund was reduced in pecuniary value to the extent of the misappropriation of the fund.

So again the reasoning of the Court of Appeal depended on the finding that the barrister had a trust interest giving him a right to be paid the fees out of the fund; not just by the solicitor, but out of the fund.  As I have submitted already, we submit that the provisions in Part 3.6 are to be construed on the basis that they are concerned with the same protection that 3.3 is concerned with, namely, the protection of persons on whose behalf the money in the fund is held, and that reflects the overall scheme of the Act.  That informs, in our respectful submission, the interpretation to be given to the words “default” and “pecuniary loss”.

It also affects the causal concept in 3.6.7.  It is not enough that the solicitor is out of funds to discharge his debt to the barrister.  A person will suffer pecuniary loss because of the default if the moneys, the subject of the default, are held for the benefit of the barrister in the sense that the barrister is entitled to payment from those funds.

GAGELER J:   If there was a direction from the client to the solicitor to pay trust money to the barrister that would be sufficient to give rise to the default, would it not, if the moneys were not paid?

MR YOUNG:   If it was a direction complying with 3.3.14, and because there is a more specific provision about legal costs, if there were a direction in terms of the regulation 3.3.34, yes, your Honour, because that would generate an entitlement ‑ ‑ ‑

GAGELER J:   It would be an entitlement that would arise independently of the barrister having an interest in the fund.

MR YOUNG:   I am not entirely sure about that, your Honour, because the direction to draw down the money in the trust fund and pay it directly to the barrister in satisfaction of his fees perhaps regardless of unsatisfied requirements of the Act, of and by itself that may give the barrister an entitlement to be paid.

HAYNE J:   If the client gives the direction the solicitor must obey it, regardless of whether other requirements of the Act have been met or not met.  Is that not right?

MR YOUNG:   Yes, but I am trying to make the point, your Honour, the direction would have to be clear that this is a payment that should be made, notwithstanding certain provisions of the Act because ‑ ‑ ‑

HAYNE J:   Why is it not enough that the client simply says you are to pay this bill?

MR YOUNG:   Because of 3.3.18 - under the scheme of the Act the solicitor is not free to use moneys in the trust fund to pay a debt he owes the barrister unless he is entitled to do so, and he is entitled to do so if there is a direction that meets the requirements of regulation 3.3.34.  If I assume all that follows, yes, the solicitor is entitled to draw down the money, he is entitled to apply the moneys to pay the barrister.  It is only when those series of hurdles are jumped that one can say ‑ ‑ ‑

HAYNE J:   What I am suggesting to you is that the hurdles are of no content.  What is it about regulation 3.3.34 which stands in the way in the light of 3.34.3(a)(ii)?

MR YOUNG:   A need to comply as well with 3(b).

HAYNE J:   So you say the client gives the instructions and the solicitor must reply with a request for payment?

MR YOUNG:   Or a written notice of withdrawal.  It may be a minor requirement but that is the scheme of these provisions.

HAYNE J:   A very odd reading of the regulations, I would have thought where the client gives a – let it be assumed the client in writing says you are to pay this money.  You say the solicitor has to jump through a series of hoops before the solicitor can. 

MR YOUNG:   That seems to be to us, your Honour, an aspect of the requirement of subsection (3), but let me assume it is not.  There was, in this case, in our respectful submission, no such direction that would lift the embargo of 3.3.18 giving the solicitor an entitlement to draw down and use the moneys to pay the debt he owed to the barrister.  There was no entitlement of the barrister to be paid in that fashion at any relevant date of default.  In those circumstances, in our respectful submission, the causal requirement of 3.6.7 has not been satisfied. 

BELL J:   Coming back to the matter that Justice Gageler raised with you, assume a valid direction complying with the regulations that you accept would be sufficient by way of entitlement, to use the word that you have used, it would nonetheless not – it would remain that the barrister was not a person for or on whose behalf the money is held.  So the analysis that takes you back to Part 3.3 falls down at that point, does it not?

MR YOUNG:   No, your Honour.  Assuming those matters, there is a direction, that entitles the solicitor to draw down the money to pay the barrister’s fees and thereby discharge the solicitor’s own debt.  Now, there remains a question whether in those circumstances the barrister has suffered pecuniary loss that is claimable because of the default, the default being that the money has been diverted by the solicitor.  In our submission, there is the further requirement on the overall construction of the Act that not only must the solicitor be cleared to pay him but the barrister must go a further step and demonstrate that he is a person for or on whose behalf the money is being held by the solicitor. 

Now, it may be said to me that that is sufficiently demonstrated by the clear‑cut direction that I have assumed in that analysis.  The Court of Appeal thought you need to demonstrate – the barrister needs to demonstrate an entitlement to be paid out of the fund and, in our respectful submission, that is the correct analysis, but even if that is going one step too far, the other matters I have assumed away are not satisfied on the facts of this case.

HAYNE J:   But they are not satisfied if the facts of this case are understood as, “Here is money out of which you are to pay all proper costs and disbursements”.

MR YOUNG:   That does not address the fact that the debt is a debt owed by the solicitor.  The solicitor has an interest in those costs.  The solicitor’s ability to draw down for the payment of costs and disbursements is limited by section 3.3.18 which stipulates there must be entitlement to do so.  Your Honour’s assumption, in our submission, does not satisfy those requirements of the Act.

BELL J:   Just looking more broadly for a moment, the scheme of this Act is such as to make specific provision in 3.6.28 for an innocent associate of a firm to make a valid claim on the fidelity fund.  Here, as I understand it, you say well, Mr See could make a valid claim on the fidelity fund and if he did and he recouped the trust moneys from the fidelity fund the barrister could have no claim against him because there is not a relationship between them, the barrister’s claim is against Mr Grey.  It is just a curious result, given that the innocent associate is able to claim against the fund in such a circumstance.

MR YOUNG:   Yes, but what I put about the client having a valid claim was not intended to suggest that the clients in some way foreclosed from accommodating the barrister.

BELL J:   It might accommodate him out of a feeling of doing the right thing but we are looking at legal obligation here.

MR YOUNG:   Yes, but, your Honour, we are concerned at the other end of the spectrum, that is to say, if one takes an ordinary case that a client simply pays money into the solicitor’s trust account on account of future legal costs and the moneys are then appropriated by – misappropriated by the solicitor, does that mean that every potential or every supplier of services to the barrister in respect of that client’s matter then has a claim against the fidelity fund for whatever consequential losses they have suffered, as well as the client having a claim?  The consequence of that would be, in effect, that the fidelity fund faces a range of claims from various parties that may exceed the relevant moneys that were paid in in the first place.

HAYNE J:   But this duplex case that you put is not this case?

MR YOUNG:   No, it is not this case, your Honour, I accept that but the issue at the end of the day is ‑ ‑ ‑

HAYNE J:   The fidelity fund says it owes nothing to the barrister and the client has made no claim.

MR YOUNG:   The client has made no claim as yet. 

HAYNE J:   Has the time for claims expired?

MR YOUNG:   I will check back, your Honour.  Unless I can assist the Court further, those are the appellant’s submissions.

FRENCH CJ:   Yes, thank you, Mr Young.  Yes, Mr Wheelahan, we might just get you started.

MR WHEELAHAN:   Your Honours, the statutory concept of “trust money” in the definition in section 3.3.2 we submit is a statutory construct.  The Parliament has not chosen to employ the general law concept that trust money is money held on trust.  It is an example of the way in which Parliament from time to time creates its own lexicon.  Under general law principles, a trust is created when the legal interest in property is held by the trustee for the benefit of another, but there are two examples which I can proffer which would attract the definition of “trust money” in this Act which would not involve the creation of a trust.

Firstly, a client may pay a solicitor or, indeed, any professional a sum of money in advance of the provision of professional services, but the mutual intent is that the provider of the services obtains an immediate beneficial interest in the fund.  But the effect of this Act is that such moneys are treated as trust money with the consequence that there are provisions in the Act which relate to the banking of such money and the dealing with such money in the general trust account.

The second example is transit money.  An articled clerk might be given a bank cheque to take to the settlement of a conveyance.  The articled clerk obtains no legal interest in the bank cheque apart from a temporary right to possession of the bank cheque which would be defeated by a superior right to possession by the client, but the articled clerk obtains no legal interest in either the bank cheque or the chose in action which it represents.  Yet under this Act that is treated as trust money.

An allied point can be made in relation to the definition of “trust property” in section 1.2.1.  “Trust property” is defined as being “property entrusted to” the legal practice.  Now, property may be entrusted to a legal practice in terms involving no more than a common law bailment.  An example would be a trust deed or other personal property which would be given to the legal practice.

I make those points to support the submission that when one looks at the provisions of the Act one must start from the premise that “trust money” is a statutory concept which is not necessarily concerned with the creation of a trust interest and therefore when one looks at the purpose provision in section 3.3.1 and its reference to the protection of the interests of persons who are entitled to the benefit of trust money or trust property, those interests are not necessarily in the nature of an interest of a beneficiary of a trust, and therefore the Court of Appeal was correct to give that idea a broad interpretation.

Just whilst I am on section 3.3.1, I have made the submission that it is a purpose provision and the purpose of protecting the interests of, say, a client for whom money is held on trust either subject to a lien, a general law lien, the terms of which are that the money is to be applied in the payment of barrister’s fees or, alternatively, on terms that there is a purpose trust of the nature described by the Court of Appeal.

FRENCH CJ:   Mr Wheelahan, you make the point right up front that we are dealing with statutory concepts.

MR WHEELAHAN:   Yes.

FRENCH CJ:   Just before we rise, can I ask, is it a necessary premise of your argument – just glancing at your outline – that in order to recover your client had to have some proprietary or contingent proprietary interest of the kind identified by the Court of Appeal?

MR WHEELAHAN:   That is the argument we have advanced in our written submissions.

FRENCH CJ:   Is that the premise of the entitlement?

MR WHEELAHAN:   It is the premise we have advanced in our written submissions, yes.  Is that a convenient time, your Honour?

FRENCH CJ:   Yes.  We will adjourn until 2.15.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

FRENCH CJ:   Yes, Mr Wheelahan.

MR WHEELAHAN:   Your Honours, the respondent seeks leave to file a notice of contention.  We have prepared a draft and provided a copy to our learned friends.

FRENCH CJ:   Mr Young.

MR YOUNG:   Your Honour, there are several things - I can be very brief.  The ground goes wider than the question your Honour the Chief Justice asked my learned friend before lunch.  Secondly, the questions raised by this notice of contention have not previously been in contest and there are matters that we would have addressed had they been in issue.  Accordingly, your Honour, what we would seek if leave is to be granted is the opportunity to file a further written submission within 10 days addressing the notice of contention.

FRENCH CJ:   Thank you, Mr Young.  Well, Mr Wheelahan, you will have leave to file a notice of contention on the condition requested by

Mr Young and, of course, there would be an opportunity for you then to reply.  I would think if Mr Young files within – you said within 10 days?

MR YOUNG:   Within 10 days, yes, your Honour.

FRENCH CJ:   Perhaps you can file within ‑ ‑ ‑

MR WHEELAHAN:   Yes, a shorter period.  May we file by the ‑ ‑ ‑

FRENCH CJ:   Within seven days of that?

MR WHEELAHAN:   Yes, that would be convenient.

FRENCH CJ:   All right.  Yes, proceed on that basis.

MR WHEELAHAN:   Your Honours, having regard to the fact that section 3.3.1 is a purpose provision, in our submission it ought to be construed in the same way that the Court of Appeal construed section 3.6.1 in holding that the provisions relating to the fidelity fund were not solely for the benefit of clients.  Our submission is that the purpose of protecting the interest of persons for whom or on whose behalf money is held as trust money is fulfilled by paying compensation to persons for whose benefit in the broader sense that money was held. 

So having regard to what, in our submission, is the broad nature of the definition of “trust money”, the fact that it is not linked to beneficial interests in the sense known to the general law, the Court of Appeal was correct at paragraph 53 of its reasons for judgment, which is at page 114 of the appeal book in holding that:

The phrase ‘for and on behalf of’ conveys a similarly protean connotation.

We go further and we say that if the Court of Appeal was in error in holding that the purpose provision in section 3.3.1 governed and limited the operation of Part 3.6 of the Act, then it is not necessary for a person making a claim to show any proprietary interest in the trust money.  Rather, the nexus between the claim and the entitlement to compensation is found in the text of the operative provisions of the Act and in particular the interrelationship between the definition of “default”, the definition of “pecuniary loss” and the entitlement to make the claim under section 3.6.7 which deploys the causal nexus “because of”.

HAYNE J:   Do I understand that to be that money held for A, as used in 3.3.1, and ensuring that money held for A is dealt with, according to the interests of that person, includes payment for and at the request of A and satisfaction of A’s debts when they arise in the future to the person who holds the money?

MR WHEELAHAN:   Yes, and the interests of that person may be furthered by the fund paying compensation to the creditor.

GAGELER J:   To the creditor of who?

MR WHEELAHAN:   Either A or the creditor of the trustee.  It does not matter for the purposes of this analysis.  Could I indicate to the Court I propose to change the order of the points in the speaking note, so I wish now to turn to the question of default which is referred to on page 2 under point C of the speaking note.  Could we hand to the Court a decision of the New South Wales Court of Appeal in Francis v Law Society of New South Wales [1982] 2 NSWLR 191?

We provide this to the Court not so as to divert attention from the text of the legislation but rather to suggest to the Court a genesis for the phrase “failure to pay or deliver trust money”. Section 56 of the Legal Practitioners Act 1898 (NSW) was substituted in 1974 so as to provide for compensation to persons who suffered pecuniary loss and the operative phrase was “by reason of failure to account”.

Could I ask the Court to go to page 204 of the reasons for judgment? That history is referred to by Mr Justice Yeldham commencing with the paragraph, “Under s 56(1) as it formerly stood,” and then in the fifth line of that paragraph his Honour stated:

There is not, so far as I am aware, any decision upon what constitutes such a failure to account or the time when it should be held to have taken place . . . But it is certainly sufficient for a person who alleges pecuniary loss of moneys entrusted to a solicitor to establish that the solicitor has dishonestly failed to pay them to or for the benefit of that person, or at that person’s direction, at a time when, in the ordinary course of his practice as a solicitor . . . they should have been so paid or applied.  In other words the “failure” which must be shown is a failure to pay or deliver moneys –

The New South Wales 1898 Act was repealed and replaced by the Legal Profession Act 1987, and that Act in section 79 as part of the definition of “failure to account” picked up the idea of failure to pay or deliver. That section was substituted by section 79A of the New South Wales Act in 1993. Then largely uniform legislation was enacted in most States and the two Territories of Australia, commencing with the Victorian and New South Wales Acts of 2004 with which we are dealing here.

Section 419 of the New South Wales Act contains provisions which reflect section 3.6.2 of the Victorian Act, and so the Victorian Act can be seen to have adopted the New South Wales concept of failure to pay or deliver trust money.  Now, I emphasise we do not seek to divert attention from the text of the Act, but we draw that history to the Court’s attention.

Now, in our submission, there is a distinction which Mr Justice Yeldham obviously recognises between the Act of defalcation and the failure to pay or deliver trust money.  Our submission is that if a solicitor commits an act of defalcation there then arises an immediate obligation to restore the fund, and from that time onwards it might be said that there is a failure to pay or deliver trust money.  The failure to pay or deliver does not need to be a failure to pay or deliver the money to a beneficial owner of the fund.  The obligation may simply be to restore the fund in some form.

In this case, a loss has occurred because the fund from which the barrister was to be paid has been destroyed, and by reason of the contractual arrangements between the barrister and the solicitor, pursuant to which there was no recourse to the client for the fees, the barrister has suffered a loss.  Now, in this context it is necessary to pay regard to section 3.6.23(3)(a) of the Act.  Where there is an appeal from “a decision of the Board”, as there was in this case, that paragraph provides that:

the appellant must establish that the whole or part of the amount sought to be recovered from the Fidelity Fund is not reasonably available from other sources –

and then when we go to paragraph (b), the court has power to:

stay the appeal pending further action being taken –

In our submission, the existence of that provision indicates that the fund is a last resort.  It is a last resort for a person, such as the respondent in this case, who is unable to recover the loss from any other sources and for that reason to adopt the interpretation of the provisions which we press upon the Court would not have the dire consequences to which our learned friend adverted.

Could I direct the Court’s attention to section 3.6.3(3) to which your Honour Justice Hayne referred before lunch?  That section is headed “Time of default”.  It is necessary to have regard to subsection (1) which provides that:

This section applies for the purpose of determining which jurisdiction’s law applies in relation to a default by a law practice.

Now, subsection (1) is read as governing what follows.  Subsection (3) does not have a broad operation so as to govern in all cases when the default is taken to have occurred.

GAGELER J:   Does it not apply for the purposes of section 3.6.8?

MR WHEELAHAN:   Section 3.6.8 refers to a time limit which is referable to the time at which “the prospective claimant becomes aware of the default”, in other words, knowledge of the default not the fact of the default.  One might say that to take the Court of Appeal’s trust analysis, if the solicitor had an obligation to pay or deliver trust money to the barrister the failure might occur within a reasonable time after the barrister renders the bill but that is not the only way in which a failure might be regarded in the circumstances of this case and for the reasons we have submitted that the failure might be contemporaneous with the defalcation.

Could I go now to other provisions of the Act, and we wish to make some submissions in response to some of the submissions that the appellant has made concerning the proper construction of relevant provisions of the Act. Can I start with section 3.3.14? It is necessary to bear in mind, in our submission, that “person” as used in 3.3.14, unless the context would require otherwise, includes the plural “persons” as a result of the Interpretation of Legislation Act (Vic).

If a solicitor has trust money which is held for the benefit of more than one person, this provision has to operate within that practical context and, in our submission, the section therefore has to be read that the person referred to in paragraph (1)(b) who may give the direction is a person with authority or power, that is, the legal capacity to give the direction.

It is worth noting also that the direction does not have to be a written direction, and that may be contrasted with section 3.3.13(1)(a) which concerns the deposit of trust money. The law practice is relieved from the obligation to deposit the trust money if there is a written direction. There is nothing in section 3.3.14 which, in our submission, would exclude an oral direction or a direction that arises by necessary implication as a result of the transaction which has occurred between the law practice and the relevant party.

Could I then note that there is a section 3.3.14A that was inserted by the 2007 amendments, and the effect of that provision is that a law practice may withdraw trust money from the trust account only by cheque or by electronic transfer. I will come back to that point.

Could I turn then to section 3.3.17?  Our submission is that power should not be read in the strict way which was the subject of our learned friend’s submission, and that is because of the definition of “power” in section 3.3.2 as including authority.  Once one recognises that power includes authority, it is not to be construed in a strict sense such as power exercisable by a trustee.  It is any form of authority, in our submission, which is given to the law practice to deal with the trust money.  In relation to section 3.3.18, we direct attention to the important exception in subsection (3):

This section does not apply to money to which a law practice, an associate of a law practice or an approved clerk is entitled.

“Entitled” has to be construed in its ordinary and natural meaning and not be given a strict legal meaning, having regard to other terms in the section.  Could I come now to section 3.3.20, and we wish to make a number of ‑ ‑ ‑

HAYNE J:   Just go back over this notion of some distinction between strict legal meaning and other meaning.  What is the distinction you are positing?

MR WHEELAHAN:   If the law practice is authorised to pay money from the trust account to the barrister, the consequence is that the law practice is entitled to that money.  So it is not that “entitled” should be construed as meaning entitled to deal with it.  It does not necessarily mean entitled to a beneficial interest in the money.  Turning to section 3.3.20 ‑ ‑ ‑

KEANE J:   So “entitled” in this context does not mean, you say, entitled as a creditor?

MR WHEELAHAN:   It includes entitled as a creditor, but it is not confined in that way.

KEANE J:   So what are the other grounds of entitlement?  Are we back to saying some sort of trust entitlement?

MR WHEELAHAN:   We are not confined to that, but the entitlement would be an entitlement to deal with the money by paying another person.

KIEFEL J:   That is to mean - to say that you simply have authority as agent?

MR WHEELAHAN:   Yes.

KIEFEL J:   But subsection (3) has to be read in light of subsections (1) and (2) and that is surely talking about a beneficial entitlement because it is talking about dealing with the funds for the firm’s benefit, is it not?

MR WHEELAHAN:   Yes, I accept that, that is correct, but if I can just sharpen the submission a bit.  The submission I am seeking to make is that the mere fact that the law practice pays a third party, in this instance the barrister, does not take a payment of that nature outside the exception in subsection (3) if it was the subject of an authorisation by the client or other person entitled to give such a direction.

KIEFEL J:   Is your submission that the section simply does not apply?  Is that really all you are saying?

MR WHEELAHAN:   Because of the exception, yes.  Turning then to section ‑ ‑ ‑

KEANE J:   Is the direction you are talking about not a direction given after the work has been done?

MR WHEELAHAN:   It is anterior.

KEANE J:   It is the same direction as the direction which establishes that the money is paid on behalf of your client?

MR WHEELAHAN:   Yes, having regard to all the objective facts and circumstances to which I will return.

BELL J:   How does that sit with subsection (1) in circumstances in which the scheme of the Act respecting the delivery of the bill and so forth has not been applied?

MR WHEELAHAN:   That invites attention to section 3.3.20, and I will be making two submissions about that.  First, that on its terms it does not apply, and I will develop that submission but, secondly, section 3.3.20 simply establishes procedures for the withdrawal of money from a general trust account which is a bank account, and compliance or that the requirement to comply with those procedures does not operate to defeat the interest of a person in respect of whom, if those procedures had been complied with, a payment of money would be made.  Could I start with the first submission?  Section 3.3.20(1) says that:

A law practice may do any of the following, in relation to trust money –

and we have the lien, we have secondly the withdrawal of money, thirdly dealing with the money as unclaimed money.

HAYNE J:   Well, if you cut off the chapeau at the words “trust money” I think you are leaving out the critical parts of the section; it is trust money held in a bank account - 3.3.20 is directed, is it not, to what is to be done with the bank account?

MR WHEELAHAN:   Yes, that is my submission.  It refers to “general trust account”, general trust account is defined, it is a bank account.  So when one looks at paragraph (b) and its reference to “withdraw money for payment to the practice’s account”, that likewise should be read as the practice’s bank account.  The general trust account is not a ledger or a book of account.  It is a bank account, and therefore the limitation in paragraph (b) does not apply to withdrawal of money for payment to some other account, say, the clerk’s bank account or the barrister’s bank account.

HAYNE J:   There would be a withdrawal for payment to the practice’s account if in the one‑person practice the person was entitled ‑ had gone through all the relevant hoops – was entitled to draw money for costs rendered and due and payable if the practitioner fronted at the bank and withdrew a cheque for an amount less than the amount of fees and put it in his or her pocket and went down to the TAB with it.  Why do you have to read “to the practice’s account” as referring to banking arrangements?  Is it not just to the benefit of, whereas the chapeau is certainly dealing with bank accounts?

MR WHEELAHAN: I mentioned earlier section 3.3.14A, which was introduced by the 2007 amendment, but if that is read together with section 3.3.20 the only means of withdrawal are cheque or EFT, it is not possible to withdraw the money as cash. So one should therefore regard the reference to “withdraw money for payment to the practice’s account” as being payment to the practice’s bank account, and for that reason the Court of Appeal was correct in holding that section 3.3.20 did not apply to the payment of the trust money to a third party such as a barrister.

Could I make another point about section 3.3.20?  Each of the paragraphs (a), (b) and (c) are concerned with dealings which may be undertaken without any immediate recourse to the person on whose behalf the money is held.  So, first, the exercising a lien - we make the submission that that paragraph presupposes the existence of a general law lien and provides the statutory remedy which is coupled with the general law lien but that does not require any recourse to the client or any other person for whom the money is held.

The same can be said about paragraph (b) and obviously the same can be said about paragraph (c).  Section 3.3.20 therefore is not a code dealing with the way in which moneys in the trust account in which they might be dealt with.  Could I turn then to Part 3.4 of the Act which is ‑ ‑ ‑

FRENCH CJ:   You mentioned 3.3.14A.

MR WHEELAHAN:   Yes.

FRENCH CJ:   That was a section which came into operation on 9 May, pursuant to Amendment No 12/2007.

MR WHEELAHAN:   Yes, that is correct.

GAGELER J:   When you say that section 3.3.20 is not a code as to the way moneys in a trust account can be dealt with, given the limitation that appears in paragraph (1)(b), that is the withdrawal of:

money for payment to the practice’s account for legal costs owing to the practice –

and then the qualification that occurs afterwards, would you read that as a code or a codification of the way in which money can be withdraw for payment to the practice’s account for legal costs owing to the practice?

MR WHEELAHAN:   Yes, I do, in the circumstance that the client’s express consent to that withdrawal is not obtained.  So it permits the withdrawal, if the procedure is complied with, and the procedure includes the service of a bill.  So the service of a bill on the client and then the passage of time – and we will see it when we come to the regulations, regulation 3.3.34 – then satisfies the condition in paragraph (b) but it is not the only way, in our submission, in which the law practice might lawfully transfer money to its own account.

BELL J:   By that you say a specific direction by the client to pay money to the barrister or in respect of a medical report or something of that character is another way?

MR WHEELAHAN:   Yes.  Yes, that is our primary submission and that is why the Court of Appeal was correct in its construction of 3.3.20.  Could I go then to Part 3.4 of the Act, which is concerned with cost disclosures, and in particular section 3.4.10?  The primary obligation of disclosure to the client rests on the law practice, in this case, say, the solicitor retaining the barrister.  The barrister has no obligation to disclose to the client.  Rather, the barrister under subsection (2) has an obligation to disclose to the solicitor that information which is necessary to enable the solicitor to disclose to the client.  So there is no evidence in this case that there was any disclosure to the client by the solicitor under section 3.4.10, but that is the solicitor’s default, not the barrister’s default.

Could I turn then to section 3.4.17?  It provides that the effect of the failure to disclose is not that the costs are not recoverable but rather that the client need not pay the costs unless they have been reviewed.  So it is a condition which the client is entitled to engage for the client’s benefit, but the failure to disclose does not have the consequence that the costs are not recoverable.  Now, in this case there was no costs agreement between the barrister and the solicitor or the client, for that matter, and there was no relevant scale, so the basis upon which the barrister’s costs were recoverable is that referred to in section 3.4.19(c).  Could I take the Court then to section ‑ ‑ ‑

FRENCH CJ:   So the solicitor might pay the barrister out of the solicitor’s own funds.

MR WHEELAHAN:   Yes.

FRENCH CJ:   But could not recover from the client, save by way of review under Division 7, absent a disclosure ‑ ‑ ‑

MR WHEELAHAN:   Yes, in respect of ‑ ‑ ‑

FRENCH CJ:   Absent compliance with the disclosure requirement?

MR WHEELAHAN:   Yes.  Could I take the Court then to section 3.4.33?  That defers the law practice’s entitlement to commence proceedings for a period of 65 days after a bill.  Section 3.4.34 provides that:

A bill may be in the form of a lump sum bill or an itemised bill.

So a barrister’s fee slip, in our submission, would comply with section 3.4.34 if it is signed by the approved clerk.  Section 3.4.39 ‑ ‑ ‑

FRENCH CJ:   Just before you leave 3.4.34 and 33, does 3.4.33 extend to the barrister’s bill to the solicitor?

MR WHEELAHAN:   Yes, in our submission it does.  The point of referring to 3.4.34(1) is it easily complied with, a fee slip signed by the clerk will be sufficient.  I referred to section 3.4.39, that entitles – I will use the term “solicitor” - to have the barrister’s costs reviewed.  It refers in that section to the taxing master.  The current version of the Act refers to the Victorian Costs Court.

The consequence of requesting a review – the consequences of that application are referred to in section 3.4.41(1)(b).  On the assumption that a solicitor requested a review of the costs the barrister could not commence proceedings to recover the costs until the review had been completed but one can see through these provisions a process of deferral of the entitlement to sue but at no stage does any of these sections disentitle the barrister to reasonable fees.  Could I turn then to the regulations to which the Court has already been taken and in particular regulation 3.3.34.  One can see from sub‑regulation (1) – it states that:

This regulation prescribes, for the purposes of section 3.3.20(1)(b) of the Act, the procedure for the withdrawal of trust money –

In our submission that is the correct way in which these provisions should be construed.  They are simply procedures.  They are not concerned with interfering with substantive rights.  They regulate the way in which moneys may be withdrawn from a general trust account.  Just while I am on the regulation, if we take the Court of Appeal’s trust analysis, the failure to comply with, say, sub‑regulation (3)(a)(ii) and (b) does not operate to defeat any interest which the barrister might have in the trust fund.  It is no more than a precondition to the solicitor’s ability to withdraw money from the trust account.

When one goes back to the definition of “default” and the failure to pay or deliver, if one regards the failure to pay or deliver as being the failure to pay the barrister that failure includes the solicitor’s failure to comply with the relevant regulations in order to put the solicitor in a position to pay the money.  The absence of compliance with the regulations surely cannot defeat the interest which the barrister has in the fund.

BELL J:   Is that putting it the wrong way round?  The barrister may not have an interest in the fund.  There is no question of the barrister’s claim being defeated against the solicitor.  The barrister has a claim against the solicitor for payment of the barrister’s fees, assuming that the contract is as accepted here.

MR WHEELAHAN:   Yes, or that the barrister has two parallel claims.  On the Court of Appeal’s analysis, the barrister has a claim in debt against the solicitor, that is a common law claim ‑ ‑ ‑

BELL J:   Yes.

MR WHEELAHAN:   ‑ ‑ ‑ but he also has a claim in equity against the fund.  As we understand the appellant’s submissions, unless that claim is immediately enforceable it does not exist.  Our submission is to answer that twofold.  Firstly, these are just procedures for withdrawing money from a bank account, and the second submission is having regard to the definition of “default”, if there is a failure to pay the money to the barrister the failure, in our submission, includes the failure to comply with the procedures and so it does not – the absence of compliance with the procedures does not operate to defeat the claim on the fund.

BELL J:   This is coming back to a view embraced by the Court of Appeal respecting the trust.

MR WHEELAHAN:   Yes, it is.

BELL J:   Yes, I understand.

MR WHEELAHAN:   Yes.

CRENNAN J:   Well, did you identify – I understand the distinction you have just made between the barrister qua creditor with a common law claiming debt and the barrister qua beneficiary in relation to the trust account.

MR WHEELAHAN:   Yes.

CRENNAN J:   Do you put the second point on a basis different from the Quistclose trust analysis of the Court of Appeal?

MR WHEELAHAN:   No, I made that point by reference to the way the Court of Appeal viewed the case.  Could I turn lastly in relation to the legislation to regulation 3.3.35?  Our learned friends make the submission that to adopt the Court of Appeal’s approach would enable provisions such as 3.3.35 to be circumvented.  We make the following submissions in response.  Firstly, regulation 3.3.35 is directed to limiting the ability of the clerk to transfer money beneficially to the barrister in the absence of a bill from the barrister or other notice that the money will be withdrawn.

Now, in this situation the relationship is between the solicitor and the barrister.  The solicitor pays money to the barrister in payment for legal services.  The solicitor retains control over the payment of the money.  The solicitor has a duty to the client.  Ordinarily the solicitor would not pay the barrister’s fees unless a bill is received from the barrister.  As we saw earlier, the solicitor has the capacity to have the barrister’s costs taxed.

Understood in that way, the mechanism contemplated by the Court of Appeal does not operate to circumvent the scheme contemplated by regulation 3.3.35.  The solicitor can have the cost taxed and there would be no question of the costs being paid without anybody’s knowledge that the costs are drawn down beneficially for the barrister.

Could I return then to the Court of Appeal’s analysis, and that is the trust analysis, and I want to make some brief submissions addressed to those questions.  Firstly, we have referred in the speaking note to this Court’s decision in Byrnes v Kendle in which the Court confirmed that for the purposes of ascertaining, firstly, whether a trust exists and, secondly, its terms, the Court looks at what is manifested by the conduct and language of the parties set in relevant circumstances, and we refer in particular to page 274, paragraph 55, in the reasons of Justice Gummow and your Honour Justice Hayne, and also the principles essayed from page 288, paragraph 102, to page 290, paragraph 114, in the reasons of Justice Heydon and your Honour Justice Crennan. 

Our submission is that the definition of “trust money” in section 3.3.2 likewise invites attention to objective facts and not subjective intentions of the parties.  Could I take the Court now to the evidence, commencing with paragraph 39 of the primary judge’s reasons at page 62 of the appeal book.

FRENCH CJ:   Byrnes v Kendle is a case about a trust.

MR WHEELAHAN:   Yes.

FRENCH CJ:   How does that have application in relation to this statutory definition of “trust money”?

MR WHEELAHAN:   If we take the definition as it existed prior to 9 May 2007, it referred to moneys received for and on behalf of.  Whether moneys are received for and on behalf of another person is to be determined objectively and not by reference to subjective intentions of either the solicitor or the person paying the money.

FRENCH CJ:   Well, that is just a matter of the statutory construction.

MR WHEELAHAN:   Yes.  At page 62 of the appeal book at paragraph 39, the primary judge set out some passages of transcript of evidence given by the client concerning the payments.  At line 18, the client stated in evidence:

The second lot of transfers, Michael told me he has to pay Simon.

Now, what Michael told the client is admissible evidence for the purposes of determining the outward manifestation of intention.  Likewise, at line 31 in relation to the doctor, the evidence was:

I think Michael Grey say that, you know, I need to pay him for more legal expenses.

That also is an outward manifestation.  However, the answers at lines 40 and 47 – if we take the answer at line 40:

I don’t know what I wrote, so I know that my intent – right, the intent is to pay Grey, to pay whoever that has been engaged.

That, in our submission, could only be a statement of subjective intention and is probably reconstruction of that.  The same might be said of the answer at line 47:

I assume it was to pay whoever, that he said he was going to pay.

BELL J:   Is this submission to in any way depart from the primary judge’s finding at paragraph 40 that Mr See:

was paying on account of any legal costs in relation to his defence, including “everybody that was to come and help him” in his defence.

MR WHEELAHAN:   The submission is directed towards characterising that finding, and that the finding is correctly characterised because it refers to the substance of Mr See’s evidence.  It is correctly characterised as a summary of Mr See’s subjective intent.  The objective intent revealed by the oral evidence, and the documentary evidence at pages 18 and 20 of the appeal book against the background circumstances is that there are only three potential beneficiaries, the three being the barrister, the doctor and the client himself in respect of any money left over.  There is no other person mentioned if one focuses only on the outward manifestations and not the client’s reconstruction of his subjective intention.

BELL J:   Was he not to pay his solicitor anything on account of the solicitor’s professional costs?

MR WHEELAHAN:   One of the objective facts which ought to colour this evidence is the circumstances of the earlier payments, that is, the payments in 2006 by cash and by cash cheque to the solicitor.  So one can see that where money had to be paid for a barrister, say, Mr Richter, the money was paid directly to the clerk.  Where money was paid for the benefit of the respondent in this case, the money was transferred to the trust account with the notations which appear on the bank account statements at pages 18 and 20.

In respect of that money which was for the solicitor’s own benefit, it was paid by cash and by cash cheques, and so those moneys are to be seen in a different light to the moneys that were the subject of the electronic funds transfers, and therefore the objective manifestation that we see in this oral evidence and also the documentary evidence takes some colour from the circumstances of the earlier payments which took a different form.

HAYNE J:   Be it so, what is the consequence that follows from this distinction that you would have us draw?

MR WHEELAHAN:   The objects of the trust are certain, they are identified.  In our submission, the appellant’s claim that the objects were uncertain falls away once one focuses on objective evidence.

HAYNE J:   Again, assume for the purposes of debate that that submission were to be accepted, what consequence follows?

MR WHEELAHAN:   It is one step along the way to establishing a trust relationship for the benefit of the barrister as a creditor of the trustee which was enforceable by the creditor.

HAYNE J:   You have just rolled together a couple of quite distinct ideas.

MR WHEELAHAN:   Yes.

HAYNE J:   Is it creditor, is it trustee, is it proprietary interest in an identified fund?  What is it?  Does not this show that we are erecting on the Act a superstructure that the Act will not bear?

MR WHEELAHAN:   The submission is necessary if this Court were to accept that a claimant must show an interest and perhaps even a proprietary interest in the fund.  If the Court does not accept that that is the correct construction of the Act this submission is unnecessary but ‑ ‑ ‑

HAYNE J:   It is to be observed that the definition of “trust money” in the Act focuses upon a particular time, the time of receipt.  The money takes its character as trust money according to whether it satisfies the statutory definition at the time of receipt.  That is an unsurprising observation to make about the regulation of lawyers receiving trust moneys, I would have thought, but it fastens at a particular point, does it not?  Money received?

MR WHEELAHAN:   Yes.

HAYNE J:   The question whether further rights and obligations arise after receipt may depend upon the way in which further events and future events spin out but where do we hook those future events into the relevant statutory definitions?  It seems to me, at least, an available point of view is that the Court of Appeal looks to be searching for a once for all characterisation of proprietary interests in a fund – I am not quite sure at what time – and if that is a proper characterisation what the Court of Appeal has done then there may be some difficulty, I would have thought in adopting it.

MR WHEELAHAN:   I commenced my submissions by contending that “trust money” is a statutory concept, so if money is received in circumstances that engage the definition of “trust money” it is then trust money for the purposes of the provisions of the Act.

HAYNE J:   Because what follows from that is where category 1 is money received on account of legal costs in advance of providing the services.  At the point of receipt I would have thought that the beneficial entitlement to the funds that hit the trust account would have rested wholly with the client.  There is no legal service been rendered, nothing has been done, you have just paid a whatever amount of money to the lawyer at that point and then as events unfold maybe you can identify different arrangements but the base question, Mr Wheelahan, at some point, that has to be answered in this case is so what?.  Is not the question was there a default in respect of which your client may complain?

MR WHEELAHAN:   Yes, that is the primary way we would put the case having regard to our notice of contention in respect of which we have been given leave to file.  I am seeking to address at the moment the way the Court of Appeal viewed the case.  The money is trust money at the time it is received.  The interests in the fund might vary from time to time.  To answer your Honour Justice Hayne’s proposition that the person for whose benefit the money is held must be the client, in our submission, turns on the mutual intention of the parties and that is to be seen in the objective evidence and in particular the bank statements at pages 18 and 20. 

The bank statement at page 20, for instance, refers to the barrister via the solicitor.  That would indicate that the person with the paramount interest in those moneys certainly is the barrister.  Paragraph (a) of the definition of “trust money” is, in our submission, neutral on the question for whose benefit will the money be held.

GAGELER J:   In the submission you are making - is it paragraph 12 of your outline – are you seeking to say that the objects of the trust are certain?  I am just trying to pick up where we are in your argument.

MR WHEELAHAN:   Yes.

GAGELER J:   Who are the certain beneficiaries and at what point are they certain?

MR WHEELAHAN:   They are certain at the time of the 11 payments and the three beneficiaries are the barrister, the doctor and the client in respect of any balance.

GAGELER J:   Not the solicitor?

MR WHEELAHAN:   Not the solicitor, not in relation to the 11 electronic funds transfers.  There is no suggestion in the client’s evidence as to the objective circumstances that the solicitor was to benefit from those payments.

BELL J:   In relation to the first tranche of the electronic payments set out at appeal book 96, being the payments made on and from 19 December through to 13 January, the payment description is “Mic Grey” or “Grey” “& S G Jones”.

MR WHEELAHAN:   Yes.  Our submission is that has to be taken in combination with the client’s oral evidence and the other circumstances and that indicates that the purposes for the payment of those sums, that is, the funds transfers, was for payment to the barrister and for the expert medical practitioner.

HAYNE J:   Why should we not construe all of the evidence as saying, “Here is enough money to pay whatever legal costs and disbursements are properly incurred in my defence” - start, middle, end.

MR WHEELAHAN:   Because, in our submission, that gives insufficient weight to the identified interest of the barrister in the bank account records and the way in which that was then explained by the client by reference to what the solicitor had told him at the time of the transfers.

FRENCH CJ:   So the Quistclose trust is an accident of the identification of the barrister?

MR WHEELAHAN:   That is one way of looking at it, yes.

FRENCH CJ:   That does not help us much with larger constructional questions.

MR WHEELAHAN:   No, it does not.

FRENCH CJ:   He could say, “Here is enough money, get me a good barrister and look after me”.

CRENNAN J:   Is there anything you can point to in the appeal book which shows that the 2006 payments by cash and cash cheque were exclusively for the legal costs of the solicitor?  You told us that when looking at the primary judge’s findings ‑ ‑ ‑

MR WHEELAHAN:   Only the circumstantial evidence being the occasions of the payments and the nature of the payments being cash and cheques made out to cash, and contrasting that to say the payment to Mr Richter, which was by cheque to Mr Richter’s clerk.  That is a circumstantial basis to indicate ‑ ‑ ‑

KEANE J:   Your side never sought a finding to that effect from the trial judge.

MR WHEELAHAN:   No.  We did not argue the Quistclose trust before the trial judge.

FRENCH CJ:   It emerged fully formed from the judgment.

HAYNE J:   It suggests a rather sophisticated fraudulent solicitor, does it not?  The fraudulent solicitor whose intention we are searching for or objective intention we are searching for, and said “Yes, I have had enough and my cash moneys, what comes in, that is all to go out in disbursements”.

MR WHEELAHAN:   We are looking at objective intention, not the subjective intention.

BELL J:   Before you leave the facts, Mr Wheelahan, can you explain to me the maths of the agreed facts?  It seems to me your client gets to 13,500 outstanding once the 18,000 payment is taken into account.

HAYNE J:   We have jurisdiction to tax your client’s fees, I think, Mr Wheelahan.

MR WHEELAHAN:   I have prepared a spreadsheet which I could hand to the Court, if that is of assistance.

BELL J:   It is somewhat puzzling that the maths in the agreed facts do not seem to conform with at least the primary judge’s judgment.

MR WHEELAHAN:   Could I just hand some copies of the spreadsheet up?  It might be easier if I direct attention to the figures in the spreadsheet.

BELL J:   Mr Wheelahan, I just thought perhaps you could tell me.  Presumably, there is some simple answer to it.

HAYNE J:   The golden rule used to be never let counsel near a calculator, but with an Excel spreadsheet, Mr Wheelahan ‑ ‑ ‑

KIEFEL J:   It is worse.

MR WHEELAHAN:   The last entry in that spreadsheet is headed “Invoices from Gillespie-Jones” and there are three of them dated 19 February, 23 March and 23 April.  The first one was paid, the second one was paid in part, and the third was unpaid, so one then gets the balance of 31,540.  That figure is agreed between the parties.  I must confess, I had difficulty following the figures ‑ ‑ ‑

BELL J:   If you follow the agreed facts with a calculator you get to a different result, I would suggest, Mr Wheelahan.  That is the only matter I raise with you, though I suppose nothing turns on it.

GAGELER J:   I am sorry to go back to what may be an old point, but by reference to the various dates that are shown on your spreadsheet, at what point was there a failure of the practice to pay or deliver trust money?

MR WHEELAHAN:   There are at least two views one can take.  The first ‑ ‑ ‑

GAGELER J:   Perhaps that which you put as your submission would be the most helpful.

MR WHEELAHAN:   There are two submissions I have put in the alternative.  The first submission is that upon the act of defalcation the solicitor came under an obligation to restore the fund, and so the failure to pay or deliver occurs from that point on.

GAGELER J:   What would be the payment or delivery that should have occurred?

MR WHEELAHAN:   To restore the trust fund – to restore the moneys to the general trust account in accordance with the Act.  That was my first submission.  My second submission, which is an alternative submission, is that if the failure to pay or deliver is a failure to pay the barrister then that failure occurs a reasonable time after the barrister’s accounts are rendered.

FRENCH CJ:   I notice that it is a criminal offence to fail “to pay or deliver any trust money” - section 3.3.21.

MR WHEELAHAN:   That might indicate it requires a more certain answer than the one I have just provided.  Certainly, on the assumption that the trust money has to be kept in the separate general trust account required by the Act it must be the case that as soon as the solicitor unlawfully removes money from that fund dishonestly the solicitor comes under an obligation to restore the fund to that account in accordance with the Act.

GAGELER J:   In accordance with a particular provision of the Act or in accordance with general principles?

MR WHEELAHAN:   No, just general principles.

BELL J:   Mr Wheelahan, just to complete the mystery, the document that you handed up, the spreadsheet, if I understand it, the 49,540 figure is the addition of the 14,790, the 7900 and the 26,850 from which the 18,000 is deducted?

MR WHEELAHAN:   Yes.

BELL J:   So you get double payments in relation to the 14,790 and half of the 7900, being roughly that?

MR WHEELAHAN:   Your Honour said double payments?

BELL J:   Well, it is common ground that the whole of the 14,790 was repaid and that 3200 of the 7900 was paid.

MR WHEELAHAN:   Yes.

BELL J:   Well, if you do the maths, Mr Wheelahan, the figure cited as the total, 49,540, seems to add up all those figures.  Is that the ‑ ‑ ‑

MR WHEELAHAN:   That is correct, yes, but then less pay and ‑ ‑ ‑

BELL J:   Less the 18,000 that was a payment on a later date.

MR WHEELAHAN:   Yes.

BELL J:   You are double dipping in relation to the 14,790 and to the extent of 3,210 from the second invoice.

CRENNAN J:   I think the figure of 79 is apt to mislead unless one reads paid as to 3,210.

MR WHEELAHAN:   Yes.

BELL J:   Yes.  My point is there is double dipping as to 3,210 and 14,790.  Is not that the ‑ ‑ ‑

MR WHEELAHAN:   If those figures are added together one gets 18.

BELL J:   But if you go to your agreed facts on page 96 the 14,790 was paid on 25 May 2007.

MR WHEELAHAN:   Yes.

BELL J:   I understand; that is the 18,000.

CRENNAN J:   Yes.

MR WHEELAHAN:   Yes.

BELL J:   I am sorry, I had not understood.

MR WHEELAHAN:   I, myself, did not understand the figures which is why I did this spreadsheet to put it on paper.

BELL J:   But the simple answer is, though one goes through the agreed facts seeing the payments in paragraphs 13 and 14 and 21, 21 is simply a summary of the two earlier payments, that is the answer to it.

MR WHEELAHAN:   Yes, that is correct.

BELL J:   Yes, all right.  I understand.

MR WHEELAHAN:   Could I turn then to section D.2 of my speaking note and I will seek to deal with this fairly briskly.  Paragraph 10 requires no elaboration.  In relation to paragraph 11 there is a suggestion that in order for there to be a Quistclose trust money must be held exclusively for a particular purpose.  In our submission a Quistclose trust is not a separate form of trust, it is just a label for what in most cases is an express trust.  It is true enough that in Quistclose itself and also in Twinsectra v Yardley there was correspondence between relevant parties which referred to money being capable of being used only for a particular purpose or solely for a particular purpose but the facts of those two cases do not drive the principle.  There is no principle which requires that the purpose of the trust be for a sole purpose.

KEANE J:   Except that the real point of Quistclose Investments was that you were able to say that the purpose for which the money had been paid, the initial purpose, had failed and until you could say that you could not say that the secondary purpose had sprung up so it has to be clear enough because that is what makes Quistclose trusts an exotic because it contemplates successive beneficiaries so you do have to be able to say that at some point the primary purpose has failed.

MR WHEELAHAN:   In Quistclose itself there were successive beneficiaries but it does not need to be successive beneficiaries.  Another significance of the sole purpose for the use of the funds in Quistclose, in addition to the one which your Honour Justice Keane has mentioned, is it had the consequence that the borrower was not beneficially entitled to the money and that is really the ratio of Quistclose, the borrower had no beneficial entitlement to the money and therefore that the two arms of the trust arose.

Now, Justice Gummow in fact suggests in the Australian Elizabethan Theatre Trust Case that the lender retained a beneficial interest in the fund which certainly at some stage was concurrent with the interest of the shareholders who were entitled to the dividend.  It does not necessarily follow that the only way of analysing Quistclose is that there were two sequential trusts.  Our learned friends have made the submission that because the ‑ ‑ ‑

KEANE J:   Are there any cases in this line of country that have the trustee in the position of holding at the same time for different beneficiaries, so that the trustee is held, as a result of the finding of the Quistclose trust, to be in a situation of conflict of duty and duty?

MR WHEELAHAN:   That conflict might arise where there is more than one creditor.

KEANE J:   It is an odd thing that equity that abhors conflicts of duty or conflicts of duty and duty, conflicts of duty and interest, would actually create such a situation, or would impute it to a trustee.  Is it not because equity abhors that situation that it insists that it be possible to say that the moneys pay for an exclusive purpose or is exclusively held for the benefit of the beneficiary?

MR WHEELAHAN:   The exclusive purpose might simply be a purpose that is exclusive of the interests of the trustee.  That might be one way of looking at it, but it is exclusive of the trustee having an immediate beneficial entitlement to the fund.  I was searching for the citation to Carreras Rothmans which is in our list of authorities [1985] 1 Ch 207. In that case the persons entitled to the benefit of the fund were creditors, plural, of an advertising agency. There was one purpose for the establishment of the fund, that is the payment of the advertising agency’s creditors, which I should add were identified because the payments were made after the liabilities had been ascertained.

GAGELER J:   This is the case that Lord Millett criticised in his article.

MR WHEELAHAN:   Yes, that is correct.  Lord Millett appeared in Carreras Rothmans and his argument that the creditor obtained no beneficial interest in the fund was rejected by his Honour.

GAGELER J:   So, just interpreting your paragraph 12, you have got some bracketed words, “(to the extent of any balance remaining)”.  Is that remaining at some point in time?  Are you really just constructing a Quistclose trust here with sequential beneficial interest or is there something different about it?

MR WHEELAHAN:   It is reflective of the way that the Court of Appeal viewed the nature of the trust, that is, if there were funds left over, they were then held for the benefit of the client, that is after payment of the fees for the barrister and the expert medical practitioner.

GAGELER J:   So you have a trust where the initial beneficiaries are the barrister and the expert medical practitioner and if there is anything left after paying them, then the client is the beneficiary of the remainder.  Is that the way it works?

MR WHEELAHAN:   In my submission, each is a beneficiary from the outset but the nature of the interests are different.  So the client’s interest is contingent upon there being moneys remaining after the barrister and the medical practitioner’s fees have been paid.  Should there be no moneys after those fees have been paid, then the interest would be extinguished.

KEANE J:   In terms of the Quistclose analysis and the creditors in Carreras v Freeman Mathews, the expectant creditors in Carreras and the expectant shareholders in Quistclose, they stood in relation to the person with the money in those cases in the same relation as your client stands to Mr Grey.  No one has ever suggested that those creditors had any interest in the money.

MR WHEELAHAN:   In Carreras Rothmans Mr Justice Peter Gibson decided that the creditors did have an interest in the moneys and, similarly, in a case of ‑ ‑ ‑

KEANE J:   That would seem to be quite contrary to the approach in Quistclose Investments v Rolls Razor itself, because once the dividend could not be paid the beneficial interest reverted back to the lender, rather than being held to be held for the shareholders. 

MR WHEELAHAN:   In our submission, it turns on the facts and the principle is that in each case the starting point is to determine what the manifestation of objective intent is, and if the settlor’s intent is that the trust is to be enforceable by the creditor, the court will so find. 

KEANE J:   Could I just ask you – I know you want to move on - but in this case if at some point in early 2007 your client had said, “Well, some of that money is mine”, how would that claim have been vindicated?

MR WHEELAHAN:   The starting point is that the claim would become vested only after an account or a fee slip was rendered.  Prior to that, the interest would not be vested, as the Court of Appeal found, but even then there would at least be a right to administration of the trust.  But thereafter the barrister as a beneficiary creditor would have the ability to seek relief from a court of equity to have the trustee perform his duty to pay the creditor from the trust fund.

KEANE J:   That duty would have been performed without the necessity for observance of the various restrictions in the Act on payment?

MR WHEELAHAN:   That is our principal submission.  Our alternative submission is that the duty requires that those procedures be complied with.  So a court of equity might, for instance, if the solicitor had failed to render a bill, order the solicitor to render a bill so as to perfect the obligation, and ultimately the court might direct the prothonotary to send the bill so that the Act is complied with.

Could I hand to the Court Lord Millett’s article?  We provided copies earlier in the day.  I just want to take the Court to the last page of the article for the statement of principle upon which we rely.  It is the paragraph numbered 1 in the lower half of the last page of the article.  So, despite Lord Millett’s criticisms of Mr Justice Megarry and Mr Justice Peter Gibson, ultimately Lord Millett concedes that if the settlor intends that the creditor is to have a beneficial interest in the fund, then the creditor may do so.

GAGELER J:   So in this case C is the doctor, C is the barrister?

MR WHEELAHAN:   Yes, B is the solicitor, A is the client.

GAGELER J:   The problem is that you leave out the solicitor as one of the potential beneficiaries.  How can you do that?

MR WHEELAHAN:   I want to come to that point.  That is a submission which our learned friends make.  Our learned friends say that if the trustee is a potential beneficiary, one cannot have a so‑called Quistclose trust.

CRENNAN J:   Do not have the exclusivity of purpose; I think that is how it is put, is it not?

MR WHEELAHAN:   Yes, but our submission is that, just looking at the law of trusts generally – and we have referred in our list of authorities to a passage from Scott on Trusts, also a passage from Lewin on Trusts and a passage from Jacobs on the Law of Trusts in Australia, a trustee may be a beneficiary of the trust provided that the trustee is not the sole beneficiary.  Of course, if the trustee were the sole beneficiary, there would be no trust; there would be a merger of the two estates.  But provided there is more than one beneficiary, there is no reason why the trustee cannot be a beneficiary of a trust and a Quistclose trust is just a trust like any other trust.

In the Re Australian Elizabethan Theatre Trust Case, one detects that Justice Gummow was cautious about giving labels to trusts suggesting that they were particular species of trusts.  Quistclose is just a label and like any other trust there is no reason in principle why, subject to terms, the trustee may not be entitled to the benefit of the trust thereby established.  It just so happens that in Quistclose itself and the other cases, including Carreras Rothmans and also the New Zealand Court of Appeal’s decision in General Communications, it was not intended by the settlor in any of those cases that the trustee have a beneficial interest.  But there is no reason in principle why the trustee could not.

GAGELER J: How would that work then with section 3.3.14(a) and (b)?

MR WHEELAHAN:   The person giving the direction – where there are a number of persons entitled to the benefit of the trust money must be read as the person or persons authorised to give that direction, that is, those persons with sufficient authority to give the direction which the section contemplates.

GAGELER J:   Is not the person in (b) the person in (a)?

MR WHEELAHAN:   That is the difficulty with the section.  It contemplates that, to use Lord Millett’s terminology, (a) and (c) are the same person.  Because it is a penal provision and it has to have a practical operation in our submission it has to be read such that the section is sufficiently complied with if that person or those persons who are empowered to give the relevant direction do so.

We have referred in our list of authorities to GeneralCommunicationsv Development Finance Corporation of New Zealand [1990] 3 NZLR 406. Our learned friends refer to it. I will not take the Court to it but it is cited by the Court of Appeal and, in our submission, whilst it is simply an example of the application of principle and, in particular, that one looks at the objective intention of the settlor it shows that in circumstances where the settlor, that is A, pays money to B with the objective intent that there is no recourse to the money, in other words, the arrangement is irrevocable, the court will more likely infer that the trust is in favour of C, the creditor, and therefore enforceable by C and it is necessary to read, in particular, the reasons in the Court of Appeal of Mr Justice Hardie Boys at page 434, lines 10 to 53 and 435, line 25 and line 53.

Now, for those reasons, it is our submission that the Court of Appeal in this case was correct in finding that the objective intention of the parties was to create a trust which was enforceable by the barrister.  The idea that the client was not to have recourse to the trust fund accords with general practice.  It accords with everyday practice of solicitors that when they request moneys from clients the money is paid on terms that the client is not free to revoke the arrangement and seek return of the money.

GAGELER J:   That is because of the solicitor’s lien?

MR WHEELAHAN:   That assumes a lien which, as I submitted earlier, is not created by section 3.3.20.  It must arise by general law.  But that again must rest upon the party’s objective or imputed intention.

CRENNAN J:   Well, the lien is consonant, is it not, with a settlor client intending the barrister creditor to have an interest in the trust account funds?

MR WHEELAHAN:   Yes, it is, and the creditor could not enforce the lien unless there was some other arrangement by which the creditor was subrogated to the solicitor’s rights.  For those reasons we submit that the Court of Appeal was correct to characterise the arrangement as a trust enforceable by the barrister as a beneficiary.  If the Court pleases, they are our submissions.

FRENCH CJ:   Yes, thank you, Mr Wheelahan.  Yes, Mr Young.

MR YOUNG:   Your Honours, there are a few points.  Our learned friend contends that if any trust is to be found, the beneficiaries are the respondent, expert medical practitioners or other experts – two were mentioned – and the client in respect of any money left over, but excluding the solicitor.  All of the objective evidence is to the contrary of that.  My learned friend said there was no mention of the solicitor’s own costs in the evidence at page 62.  That is not correct.  There are two references to Mr Grey’s costs, including the reference at line 50 our learned friend did not mention:

So who did he say he was going to pay?---I would say then Simon and –

This is obviously a reference to the solicitor –

keeps some – what – document fees or whatever” –

It is clear looking at all the evidence, including the notations on the electronic transfers, all of which mention Mr Grey, that the money was paid on account of all legal costs, including the solicitor’s costs.  There is no reason for leaving the solicitor out of the equation of any trust in terms of being a beneficiary ‑ ‑ ‑

HAYNE J:   That is, do you accept that at the point of receipt the money was received to pay whatever costs and disbursements were properly incurred in the defence of the client, including the solicitor’s own costs and the solicitor’s disbursements?

MR YOUNG:   Not quite, your Honour.  We submit that at the point of receipt the money was held exclusively for the client and he had made it clear that the money was to be available in accordance with the Act to pay all legal costs.

HAYNE J:   A very sophisticated client that injects the Act into it, Mr Young.

MR YOUNG: Well, one is looking at objective manifestations of intention. The Act is there, that is part of the framework within which costs are paid. Do you impute to the client an intention to exclude himself from the safeguards of the Act? Objectively, there is no reason to do that, we would submit. Can I add this? Our learned friend contends that from the moment of receipt the barrister was a beneficiary and, as we understood what he submitted in relation to section 3.3.14, it was this.

The money, at least in part, was held exclusively for the barrister, to the extent to which it was received on his behalf, and in respect of that money the barrister himself could give a direction to the solicitor to disburse the trust money.  That must be his reading because, as Justice Gageler observed, “the person” referred to in (a) is the same person as (b).  We submit that this refers to the client in its application to these facts.  The moneys were deposited and were then held exclusively for the person on whose behalf the money was received, the client.  Who could give directions as to the disbursement of the money, the client.

If one takes a contrary interpretation and asserts the moneys are held for a number of parties, then it follows, necessarily and logically, that under (b) those other parties could give directions to the solicitor as to the disbursement of the moneys.  That is in complete conflict with the protections that follow in the Act.

Our learned friend submitted that you can have trusts in which a trustee is one of the beneficiaries provided there are other beneficiaries.  Every Quistclose trust case which is concerned with a direction to pay a third party have been cases in which there have been communications between the holder of the money and the payer under which they agree to apply the money to a specific individual beneficiary, or class of individual beneficiaries in the case of the shareholders, and in every circumstance the holder of the money, the trustee, has had no interest in the trust fund and the courts have stipulated that that is a requirement for this kind of trust.  Now, in our submission, there is no reason to depart from that requirement and in this case the solicitor on all of the objective evidence did have an interest in the moneys that he was holding on account of all legal costs.

Now, can I address Justice Keane’s point that the notion of a trust that has costs paid into a trust fund and then the money in the trust fund is held for a number of potential beneficiaries, a barrister who might be engaged, experts who might be engaged, service suppliers who might be engaged, the solicitor himself, that puts the solicitor in a position of conflict of duty and duty.  He has a limited fund, he has unknown at that stage expenses, he has a number of potential claimants, according to our learned friend’s argument, on the fund, yet our learned friend asserts they all have a right of enforcement to claim a share of that particular fund.

In our submission, that proposition is at odds with the way in which equity has approached this kind of trust.  It is at odds with the provisions of the Act, and might I add it would create great difficulties for the fidelity fund.

Under section 3.6.14 in determining claims the Board deals with a claim one by one and they must specify the amount payable so it is quite possible on day 1 a claimant, a barrister against funds held on account of legal costs may come forward with a claim for $100,000 on a $150,000 fund, the Board in dealing with that fund has to specify the amount payable.  Now, the next month someone else may come forward with another claim of $100,000, an expert witness.

The Board is required to specify the amount payable, but in answering the first claim or dealing with the first claim it may have exhausted the fund.  So, this notion that in the ordinary case where moneys are paid to a solicitor on account of future legal costs the potential providers of services to the barristers all can claim against the fund can occasion real difficulty for the administration of the fund.  That is a point we have made in our written submissions.  Our learned friend dismissed it on the basis that the fund was a matter of last resort.

In our submission, it does not answer the potential difficulties of laying open the fund to multiple claims from multiple different parties who it is said acquired an interest at a point of time when the amounts in question are quite uncertain.

KEANE J:   Or of laying the clients open to the kind of proceedings that Mr Wheelahan suggested might be taken to vindicate the claims of various claimants, various creditors on the money in the solicitor’s trust account.

MR YOUNG:   Yes, which, according to the Act, is held exclusively for the person on whose behalf it was received.  These difficulties follow if a broad view, leaving aside Quistclose trusts, is taken of the requirement that the moneys are there, or the fidelity fund is there for the protection of persons on whose behalf the money is held.  It is a reason, in our respectful submission, for construing those words as requiring a legal entitlement to the moneys of some kind.

There are just a couple of other very brief points.  Our learned friend dismissed regulation 3.3.34 as mere procedures that do not interfere with rights.  That regulation feeds into both sections 3.3.18 and 3.3.20, and the entitlement that must exist before moneys become available to pay a barrister retained by a solicitor as principal require the satisfaction of those procedures.  They are not mere procedures; they are given teeth by those provisions of the statutory scheme.

Our learned friend referred to regulation 3.3.35.  We only mentioned that to point up an anomaly in our learned friend’s argument.  The point we made was that the case mounted for the respondent is that a barrister is entitled to payment from a solicitor’s trust fund in circumstances where the solicitor has not complied with requirements for drawing upon that trust fund.  That corner can be cut according to our learned friend.

That sits oddly with the requirements of regulation 3.3.35 which apply to moneys in the trust account of a barrister’s clerk.  A barrister’s clerk cannot make those moneys available to the barrister for the payment of his fees unless the very same requirements are met.  So why should the requirements be bypassed in the case of a barrister owed a debt by a solicitor who wants to claim on the solicitor’s trust account and then say, well, the procedures the solicitor has to comply with are mere procedures, they have nothing to do with my entitlement.  It creates a real anomaly in the scheme of the Act.

Our learned friend at one point said that the earlier payments can be assumed to be for the solicitor’s costs.  As your Honour Justice Crennan observed, there is not a shred of evidence anywhere to support that proposition.  It is clear on all of the evidence and the objective facts that the earlier payments were made to the trust fund to be held for the client but in respect of legal costs of all kinds that would be incurred in the future, including the solicitor’s own costs but not limited to those matters.

Your Honours this morning asked me a question about the time limit for the making of claims.  It is addressed in section 3.6.8.  There is a six month limit but it can be extended both by the Board and then by the Supreme Court on an appeal in that respect from the Legal Services Board.  Your Honour Justice French asked me a question about fraudulent dealing this morning.  I must say I had difficulty with the question.  It seemed to me over lunch that your Honour had looked at a sub‑provision of section 3.6.2 concerned with the position of an approved clerk.  In that context there is a reference to fraudulent dealing with trust money but in the context of a solicitor’s practice ‑ ‑ ‑

FRENCH CJ:   I think I was looking at the definition of “default”, (a) (ii), “in the case of a law practice”, then there is a separate under (b) “in the case of an approved clerk”.

MR YOUNG:   Yes, but that is a fraudulent dealing with trust property.

FRENCH CJ:   With “trust money or trust property”.

HAYNE J:   “Money or”.

MR YOUNG:   My print must be in error, your Honour.  My print refers to “a fraudulent dealing with trust property”.

GAGELER J:   Trust property includes trust money, does it not?

MR YOUNG:   No, they are mutually exclusive under the definitions.

HAYNE J:   We have got “trust money or”.

GAGELER J:   Well, I am not sure that is right.

MR YOUNG:   Yes, all right.

GAGELER J:   “Trust property” is defined in 1.2.1.

FRENCH CJ:   This must be covered – I noticed the difference comes in in the later print, so this must have been introduced as a change to the definition with effect from 9 May 2007.

MR YOUNG:   It must have been.  It is the print I have been given.  I apologise, your Honour.

FRENCH CJ:   So what is your answer for the earlier?

MR YOUNG:   Yes, if your Honour please.  Those are the matters we have in reply.  The fact is that no payment was made, your Honour, but no payment was due or required to be made.

HAYNE J:   That is a temporally based answer, is it not?  Is it not accepted that counsel but for bankruptcy would now have a claim against the practice for the fees that were reasonably charged?

MR YOUNG:   Yes, your Honour.  The barrister would have a claim against the solicitor ‑ ‑ ‑

HAYNE J:   Yes, I understand that.

MR YOUNG:   ‑ ‑ ‑ but it does not follow that he has a claim against the trust fund.

HAYNE J:   I am not suggesting that does follow, Mr Young, please.

MR YOUNG:   No, your Honour.

HAYNE J:   The practice did not pay the disbursement.  Is that right?

MR YOUNG:   Your Honour, that is where I have difficulty because the solicitor was not in a position where he could draw upon the solicitor’s trust fund to meet that disbursement because any such drawing was precluded by the provisions of the Act.

CRENNAN J:   These are the protective provisions requiring notice and so on?

MR YOUNG:   Yes, your Honour, no more than ‑ ‑ ‑

CRENNAN J:   What about the subsection which refers to payment on a quantum meruit basis which seems to be an alternative to all the notice provisions ‑ ‑ ‑

MR YOUNG:   No, your Honour, it is not just the provisions concerned with notice.  It is section 3.3.18, which says the money is not available for payment unless the legal practice has an entitlement to be paid money in respect of that disbursement.  So the money is not available for payment of that disbursement.  It was not available in the circumstances that prevailed here because the solicitor never complied with the requirements.

HAYNE J:   That is, there was dishonesty?

MR YOUNG:   Yes, there was dishonesty by the solicitor.  It does not follow, your Honour, that there was an entitlement by the solicitor to draw down to pay this prospective disbursement, or that the barrister had an interest that allowed him to make a claim against the trust fund or against the fidelity fund.  I know I have said these matters earlier, I am repeating myself.  If the Court pleases, those are our submissions.

FRENCH CJ:   Thank you, Mr Young.  Subject to the filing of the further written submissions as indicated earlier, the Court will reserve its decision.  The Court adjourns until 9.45 tomorrow morning for pronouncement of orders.

AT 4.07 PM THE MATTER WAS ADJOURNED