Legal Services Board v Gillespie-Jones
[2012] VSCA 68
•19 April 2012
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2011 0050 | |
| LEGAL SERVICES BOARD | Appellant |
| v | |
| SIMON GILLESPIE-JONES | Respondent |
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| JUDGES | NETTLE, REDLICH and HANSEN JJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 22 February 2012 |
| DATE OF JUDGMENT | 19 April 2012 |
| MEDIUM NEUTRAL CITATION | [2012] VSCA 68 |
| JUDGMENT APPEALED FROM | Gillespie-Jones v Legal Services Board [2011] VCC 223 (Judge Kennedy) |
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LEGAL PRACTITIONERS – Fidelity Fund – Moneys paid to solicitor to be paid into trust account and used for express purpose of paying counsel’s fees – Moneys used by solicitor for own purposes – Whether counsel entitled to claim against Fund – Whether claim barred by lack of costs agreement – Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, applied – Legal Profession Act 2004, ss 1.2.1, 3.1.1, 3.3.1, 3.3.16, 3.3.17 3.3.20, 3.3.34, 3.4.17, 3.4.19, 3.4.39, 3.6.1, 3.6.2, 3.6.7, 3.6.28, 3.6.29.
TRUSTS AND TRUSTEES – Quistclose trust – Whether moneys paid to solicitor for purpose of paying counsel’s fess held on Quistclose trust – Barclays Bank Ltd v Quistclose Investments Ltd [1973] AC 567, applied; In re Australian Elizabethan Theatre Trusts (1991) 30 FCR 491, referred to.
WORDS AND PHRASES – ‘Actual pecuniary loss’; ‘Interests’; ‘On behalf of’.
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| Appearances: | Counsel | Solicitors |
| For the Appellant | Mr Nicholas Green QC with Mr S R Senathirajah | Legal Services Board |
| For the Respondent | Mr M F Fleming SC with Mr B J McCullagh | Billings Cloak |
NETTLE JA
REDLICH JA
HANSEN JA:
This is an appeal from a judgment given in the County Court upholding an appeal by the respondent against the appellant’s disallowance of the respondent’s claim, under s 3.6.6 of the Legal Profession Act 2004 (‘the Act’), for compensation for pecuniary loss suffered by the respondent because of a default by a solicitor in misappropriating to himself funds held in trust.
The facts
In or about 2005 a man whom we shall call ‘the client’ was charged with criminal offences. Acting on the recommendation of an associate whose advice he valued, he retained a solicitor, Mr Michael Grey, to act on his behalf.
When the client first went to see the solicitor at his offices in Springvale, the solicitor did not state the basis on which he would charge for his services. But, during the course of a later telephone conversation, the solicitor asked the client to get $10,000 ready in cash, and the client did so. When the client gave the solicitor the cash, the solicitor gave the client a business card apparently signed by the solicitor, stating: ‘Received $10,000 towards prosecution-receipt to follow’. In fact no receipt ever followed.
Subsequently, between August 2006 and May 2007, the client paid the solicitor further amounts totalling $91,700, comprised in part of a group of ‘cash’ payments including intended payments to a barrister’s clerk; and, in part, of a group of electronic transfers.
The cash payments, which totalled $21,700, were recorded by the client in his records as follows:
a) 09/08/2006, $6,000: ‘Cash Chq Cashed by M Grey, plus the cash below, he signed on the back of his business card.’
b) 09/08/2006 $4,000: ‘Cash paid to him [the solicitor] when he inspected my office when he was nearby, sending his son to football.
c) 15/09/2006 $3,000: ‘Cash Chq Cashed by [the client], plus the amount below. He [the solicitor] said he will give me a receipt later.’
d) 15/09/2006: $7,000: ‘Cash paid to M Grey at his office.’
e) 15/09/2006: $1,700: ‘Cheque to M Grey for some legal fees.’
The payment to the barrister’s clerk was a payment of $15,000 made on 16 September 2006 to Mr Richter QC’s clerk, GW Meldrum, on account of fees that it was anticipated Mr Richter would charge for representing the client at his committal hearing. In fact, Mr Richter charged only $6,600 and so, on 21 September 2006, Mr Meldrum refunded the remaining $8,400 to the solicitor.
Following the committal hearing, the client dispensed with Mr Richter’s services and, at some point after 24 October 2006, the solicitor retained the respondent as barrister to represent the client.
To that point, the client had paid the solicitor amounts totalling $36,700 but none of those amounts had been entered in the solicitor’s trust account.
On 31 October 2006, there was an entry for ‘cheques deposit’ in an amount of $37,500 but, by 16 November 2006, the trust account balance had declined to $1,890.66. The judge found that the solicitor dishonestly misappropriated $30,100 of the trust moneys to his own use, being all of the $36,700 except for the $6,600 paid to Mr Richter’s clerk on account of fees.
Between 19 December 2006 and 24 May 2007, ‘the client’ in addition to the amounts of cash previously paid to the solicitor, made 11 electronic transfers of $5,000 each to the solicitor, as follows:
a) Seven of the 11 transfers were made between 19 December 2006 and 15 January 2007 and were described on the transfers as being to Grey ‘&’ the respondent (variously named as, for example, ‘S Jones’ and ‘Simon’); and
b) Four of the 11 transfers were made between 7 May and 9 May 2007 and described on the transfers as ‘SGJ [scil the respondent] “via” M Grey’.
Of the $55,000 so transferred, on 8 January 2007, the solicitor paid $4,070 to the respondent and on 25 May 2007, he paid a further $18,000 to the respondent. In the result, the respondent received $22,070 of the $55,000 and the solicitor dishonestly misappropriated the remaining $32,930 to himself.
Consistently with the client’s evidence, the judge found that the client paid the $55,000, as well as the $8,400 which remained of the money paid to Mr Richter’s clerk, to the solicitor ‘on account of any legal costs in relation to his defence, including “everybody that was to come and help him”’. Her Honour also found that, although that might have included the solicitor himself, there was insufficient evidence of the solicitor having undertaken any work to establish an entitlement to legal fees. There was, however, a claim for $16,880 made by a Dr Gibbs, who had been retained as an expert witness, but the client did not admit that any part of it was owing.
Relevant legislative provisions
Section 3.6.1 of the Act, which is the first section in Part 3.6 of the Act (Fidelity Cover), states:
3.6.1 Purpose
The purpose of this Part is to compensate clients for loss arising out of defaults by law practices arising from acts or omissions of associates and defaults by approved clerks.[1]
[1]Emphasis added.
‘Client’ is defined in s 1.2.1 of the Act as follows:
Client includes a person to whom or for whom legal services are provided.
‘Legal services’ is defined in s 1.2.1 of the Act as follows:
Legal services means work done, or business transacted, in the ordinary course of legal practice;
Section 3.6.7, which is within Part 3.6, provides that:
3.6.7 Claims about defaults
(1)A person who suffers pecuniary loss because of a default to which this Part applies may make a claim against the Fidelity Fund to the Board about the default.
(2)A claim is to be made in writing in a form approved by the Board.
(3)The Board may require the person who makes a claim to do either or both of the following—
(a) to give further information about the claim or any dispute to which the claim relates;
(b) to verify the claim or any further information, by statutory declaration.[2]
[2]Emphasis added.
The judgment below
At first instance, the respondent argued that he was a ‘client’ within the meaning of s 3.6.1 of the Act and, therefore, entitled to be compensated for the loss which he suffered by reason of the solicitor’s default. In the alternative, he contended that, if he were not a ‘client’, he was nevertheless a ‘person’ within the meaning of s 3.6.7 of the Act, and thus entitled to make a claim against the Fidelity Fund under that section.
The trial judge rejected the respondent’s first argument. Her Honour held that the respondent was not a ‘client’ within the meaning of s 3.6.1.
We note in passing that neither party has sought to challenge that conclusion in this appeal. We, therefore, do not express a view as to whether, if a solicitor receives funds from a client for the purpose of paying the fees of a barrister retained to represent the client, the barrister thereby becomes a person to whom or for whom the solicitor provides ‘legal services’, and thus a ‘client’ of the solicitor.
The judge, however, accepted the alternative argument. On the basis of the facts earlier set out, her Honour held that the money paid by the client to the solicitor was ‘trust money’ within the meaning of s 3.3.2(a) of the Act, which is to say ‘money received by the practice [of the solicitor] on account of legal costs in advance of providing the services’ and further or alternatively money within the meaning of s 3.3.2(d) of the Act which was ‘received by the practice [of the solicitor] … the subject of a power, exercisable by… an associate of the practice, to deal with … for or on behalf of another person’.
The judge considered that the solicitor had breached s 3.3.14(1)(b) of the Act by disbursing the trust money otherwise than ‘in accordance with a direction given by [the client]’ and thus that the solicitor had committed a ‘default’ within the meaning of s 3.6.2(a)(i) of the Act: by the ‘failure [of the solicitor] to pay or deliver’ the moneys in accordance with the client’s directions, where the failure arose from or was constituted by an act or omission that was dishonest, namely, the misappropriation by the solicitor from the trust account of $30,100 out of the client’s cash payments and the $32,930 out of the client’s electronic transfers.
As her Honour put it:
Given the relevant trust monies effectively disappeared, that money was simply not there so as to be able to meet [the client’s] legal costs including the costs of the [respondent]. Thus, the failure to ‘pay or deliver trust money’ arises from or is constituted by the wrongful acts of [the solicitor] involving dishonesty in appropriating the moneys for himself.
The judge was also satisfied that the respondent suffered pecuniary loss because of the default. Her Honour reasoned that:
The phrase ‘because of’ connotes some causative effect. Using a common sense approach[3] the [respondent] has not been paid his fees because [the solicitor] disbursed money designated for legal costs contrary to [the client’s]
instructions. ‘Because of’ Mr Grey’s acts, the [respondent] was deprived of monies which would otherwise have been available to meet his fees.
Put another way, ‘but for’ the default, there were sufficient funds available to meet all of [‘the clients’] legal costs established on the evidence, below, including [the respondent’s] outstanding fees.
[3]Her Honour cited March v E & M H Stramare Pty Ltd & Anor (1991) 171 CLR 506.
In the result, her Honour, gave judgment for the respondent on his claim under s 3.6.7 for such amount as was determined by the Costs Court, pursuant to Rule 63A.65 of the County Court Rules, to be a ‘”fair and reasonable value” of the legal services that the [respondent] provided to the client in the period December 2006 to 20 April 2007’.
Grounds of Appeal
There are six grounds of appeal but a number of them may be dealt with together. We propose to deal first with Grounds 2, 3 and 4, then Ground 5 and finally with Ground 6. Ground 1 adds nothing to the other grounds and was not pressed as such.
Grounds 2, 3 and 4: Respondent not a client
The gravamen of Grounds 2, 3 and 4 is that the judge erred in holding that, although the respondent was not a client of the solicitor within the meaning of s 1.2.1 of the Act, or, therefore, s 3.6.1 of the Act, he was entitled to succeed in his claim under s 3.6.7 of the Act.
The essence of the appellant’s argument was that, read in context,[4] and having regard to the statement in s 3.1.1 that Part 3.6 establishes a system for compensating ‘clients’, and the statement in s 3.6.1 that the purpose of Part 3.6 is to compensate ‘clients’, the word ‘person‘ in s 3.6.7 should be read as ‘client’, with the result that only a client may make a claim for compensation under the section.
[4]K & S Lake City Freighters Pty Ltd v Gordon & Gotch (1985) 60 ALR 509, 514; Project Blue Sky Inc v ABA (1998) 194 CLR 355, 381–2 [70].
Counsel for the appellant submitted in support of that construction the principle of statutory interpretation adumbrated in Project Blue Sky Inc v Australian Broadcasting Authority[5] that, prima facie, all the words of a statute have some meaning; and counsel contended that to construe s 3.6.7 as contemplating claimants other than clients would deprive the relevant parts of s 3.1.1. and s 3.6.1 of meaning. In counsel’s submission, it was improbable that Parliament intended to insert a provision like s 3.6.1 into the Act and yet that it not have any meaning.[6] The better view, he argued, is that s 3.6.1 was intended to inform and qualify all of the following provisions of Part 3.6.
[5](1998) 194 CLR 355, 382 [71]; see also Dobcol Pty Ltd v Law Institute of Victoria [1979] VR 393, 395.
[6]Minister for Resources v Dover Fisheries Pty Ltd (1993) 43 FCR 565, 574 (Gummow J).
Counsel for the appellant also relied on the fact that, although Part 3.6 was enacted to give effect in Victoria to national model provisions for the establishment and administration of solicitors’ fidelity funds, the Victorian provisions are unique in referring to ‘client’ as opposed to ‘person’ in s 3.6.1. In other States and Territories in which the model provisions have been adopted, the sections corresponding to s 3.6.1 refer to ‘person’.
There is some force in the appellant’s argument. It is to be assumed that Parliament intended s 3.6.1 have some work to do and, unless it is to be taken as limiting the operation of Part 3.6 to claims by ‘clients’, it is difficult to see what work it could do.
As against that, however, there are a number of considerations which point the other way. To begin with, before the coming into force of the subject provisions, the law in this State had long been that claims were not limited to clients. If the effect of s 3.6.7 were to limit claims to clients, it would make a fundamental change to the system. Yet, apart from the words of s 3.6.7, there does not appear to be any indication that Parliament intended to make such a significant change. There is certainly no mention of it in the explanatory memorandum or second reading speech.
Contrary moreover to the appellant’s submissions, the legislative history of the provisions giving rise to an entitlement to make a claim on the fund does not suggest that Parliament intended to restrict the range of persons to ‘clients’. The 1995 and 1998 amendments to the Act specifically excluded only those persons who gave money to a law practice for investment. There was no more general encroachment on the rights of those who could recover from the fund such as could support the appellant’s construction.
Secondly, bearing in mind that the current provisions were avowedly enacted to give effect to model provisions which were designed to be adopted throughout the Commonwealth, it presents as less than likely that Parliament intended by a relatively oblique implication to be derived from s 3.1.1(2) or s 3.6.1 to limit the coverage of the scheme very significantly compared to other States and Territories.
Thirdly, the essence of the regime of Part 3 of the Act is to protect persons for on whose behalf trust moneys are held. It is the means chosen by Parliament to regulate the way in which solicitors deal with trust money. Section 3.3.1(a) provides that the purpose of Part 3.3 is ‘to ensure that trust money is held by a law practice’ in a way that ‘protects the interests of persons for or on whose behalf it is held’.[7]
[7]s 3.3.1.
Trust money is broadly defined and includes money received on account of legal costs and in advance of providing a service,[8] controlled money received by the practice[9] and money received subject to instructions to pay or deliver it to a third party.[10] Trust money for the ‘person’ on whose behalf it is received must be deposited, held, and withdrawn only in the manner stipulated under the Act, and is subject to account.[11] It is the trust money of a ‘person’ that is the subject of these statutory obligations.[12]
[8]s 3.3.2(1) (definition of trust money (a)).
[9]s 3.3.2(1) (definition of trust money (b) and controlled money).
[10]s 3.3.2 (1) (definition of trust money (c) and transit money).
[11]s 3.3.13; 3.3.14; 3.3.14A; 3.3.15; 3.3.15A; 3.3.17.
[12]See also s 3.3.26.
The Act prohibits the use of trust money to pay debts of the law practice or to intermix them with other money.[13] It is not liable to be attached or taken in execution of satisfying a judgment.[14] The Act also provides that trust money held for a ‘person’ may be withdrawn to pay legal costs owing to the practice if the Act is otherwise complied with and it may be subject to a lien for the amount of costs.[15] The Act provides that it is an offence if a practitioner without reasonable excuse causes a deficiency in any trust account[16] and requires that the practitioner report any irregularity in the account to the Board.[17] These further protective prohibitions also relate to the trust money of a ‘person’.
[13]s 3.3.18(1); 3.3.19.
[14]s 3.3.18(2).
[15]s 3.3.20.
[16]s 3.3.21.
[17]s 3.3.22.
Under Part 3.6, a default by the law practice arises where by dishonesty there is a fraudulent dealing or failure to pay or deliver trust money that was received by the practice.[18] 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. Were it otherwise, those persons for or on behalf of whom money was received who are not clients within the meaning of s 3.6.1 would have no recourse to the fund in the case of default arising from the failure of the law practice to comply with the statutory regime. Hence it is that s 3.6.7 provides that a ‘person’ who suffers a pecuniary loss may make a claim. The Act defines pecuniary loss as the amount or value of the trust property that is not paid or delivered or is lost to the ‘person’.[19] Section 3.6.15 provides that the amount payable to the ‘person’ in respect of the default must not exceed the actual pecuniary loss of the ‘person’ resulting from the default. Section 3.6.18 reduces the entitlement to claim from the fund where the ‘person’ may receive other benefits.
[18]s 3.6.2 (default).
[19]s 3.6.2 (pecuniary loss).
Fourthly, some of the drafting of this legislation is resistant to conventional canons of construction. Although s 3.1.1, which speaks of ensuring that law practices operate effectively in ‘the interests of justice, their clients and the public interest’, is styled as a ‘Simplified outline of Chapter [3]’ it is really a synopsis of only some of the more populist objectives of the legislation. The outline in s 3.1.1(2), which contains a general outline of each Part of Chapter 3, states that Part 3.3 regulates the ‘receipt, handling of and accounting for client’s money by law practices.’ That is to be contrasted with the purpose of Part 3 stated in s 3.3.1(a) that it is to protect the interests of ‘persons.’ There is a similar disconformity between the outline in s 3.1.1(2) of Part 3.6 and the terms of s 3.6.7. It is not clear to us how or why provisions like s 3.1.1 (1) and (2) are thought to aid in the accurate construction of the operative provisions of Chapter 3. If anything, they tend to obscure the task of construing operative provisions which do not mirror those broadly stated objectives.
Fifthly, on any view of the matter, it is impossible to conceive of an ‘associate’ of a practice as a ‘client’ of the practice. Yet ss 3.6.28 and 3.6.29 expressly provide for claims to be made by associates of a practice who suffer financial loss because of a default by another associate of the practice. To that extent, it is clear that Part 3.6 is not limited to ‘clients’, despite s 3.6.1.
Possibly, ss 3.6.28 and 3.6.29 were intended as exceptions to a general restriction to clients. But, as the judge held, it is just as conceivable that ss 3.6.28 and 3.6.29 were inserted out of an abundance of caution lest it be thought that, despite the apparent generality of Part 3.6, it was not intended to aid innocent associates of defaulting practitioners. One may also wonder why, given that Parliament intended innocent associates of a defaulting solicitor to have the benefit of access to the fidelity fund, Parliament would not also have intended innocent third parties like the respondent to have a right of access to the fidelity fund.
One way of resolving the apparent inconsistency between s 3.6.1 and s 3.6.7 is to read s 3.6.1 as providing that the main or dominant purpose of Part 3.6 is to facilitate claims for compensation by clients. To do so is consistent with ss 3.6.28 and 3.6.29 (as well as the previous law and the law in other States and Territories which have adopted the model provisions). Perhaps, it does not sit particularly well with s 3.1.1, but it is not inconsistent with it. If s 3.6.1 is read as referring to the main purpose of Part 3.6, it is open to read s 3.1.1 as similarly describing the main purpose of Part 3.6. It is also significant that, for the reasons already stated, the uncertainties in s 3.1.1 imply that it should not be regarded as a particularly reliable indicator of what Parliament was seeking to achieve.
Finally, the approach to statutory construction mandated by Project Blue Sky requires that, so far as reasonably possible, the clear terms of s 3.6.7 be given effect according to their natural and ordinary meaning. All things considered, we take the view, like the judge, that the word ‘person’ in s 3.6.7 has its natural and ordinary meaning. As we see it, therefore, the section is not limited to claims by ‘clients’.
Ground 5: Actual pecuniary loss
Under Ground 5, it was contended that the judge erred in holding that a claimant need not have an interest in money or other property the subject of default in order to be entitled to make a claim for compensation for pecuniary loss suffered because of the default.
Counsel for the appellant fixed on s 3.6.15(1), which limits the amount of any claim to the amount of the claimant’s ‘actual pecuniary loss resulting from the default’, and submitted that the adjective ‘actual’ limits recoverable loss to the loss of money or other property in which the claimant has an interest.
In our view, the judge was correct to reject the argument. Although the word ‘actual’ has a limiting effect, the limitation is one which confines recoverable loss to direct loss as opposed to consequential losses. The authorities on which the appellant relied in support of its argument make that clear.[20] There is nothing about the conception of direct loss which ties it to the loss of money or other property in which a claimant has or had an interest.
[20]See Dobcol Pty Ltd v Law Institute of Victoria [1979] VR 393, 395–396 and 398; Ristevski v Kyriacou & Zard Constructions Pty Ltd & Law Institute of Victoria, Unrep 5 August 1997, 17; Schofield v Consolidated Interest Fund (1988) 49 SASR 546, 554–555.
Counsel for the appellant stressed the observation of Smith J in Eumeralla Finance Co Pty Ltd v Law Institute of Victoria[21] that:
It will be observed that in order to establish a claim on the fund a claimant must prove that a criminal act of a particular kind or a criminal failure to account has been committed in relation to some money or property which was entrusted or received. Proof, merely, of a general deficiency in the solicitor's trust account, though in criminal proceedings under s42 it would, if unexplained, call for a conviction, would not satisfy this requirement. Furthermore, the claim on the fund is confined to the actual pecuniary loss resulting from the particular crime or crimes proved in relation to the particular sum of money or particular piece of property entrusted or received. The legislation does not purport to provide for the payment out of the fund of a balance found on the taking of an account of dealings with trust money, whether as between the claimant and the solicitor, or as between the claimant or other clients of the solicitor.
[21][1973] VR 98, 99.
We do not think that takes the matter much further. As it appears to us, Smith J was simply making the point that, perforce of the terms of the statute with which his Honour was concerned, the claimant was only entitled to make a claim for loss arising from a defalcation in respect of a particular amount of money or property. It was not enough only to show that the solicitor had a general deficiency in his trust account. But there was nothing in what Smith J said which required the claimant to demonstrate that she or he had ‘an interest’ in the money or property in respect of which the defalcation was committed.
The position under s 3.6.7 is similar. Arguably, a claimant must be able to point to a particular sum of money or property in respect of which there has been a default productive of actual pecuniary loss. But there is nothing about the conception of ‘actual pecuniary loss’ which of itself requires the claimant to demonstrate that he or she has or had a legal or equitable interest in the money or property in question.
‘For or on behalf of’ the respondent
Counsel for the appellant argued that, even if there be nothing about the concept of actual pecuniary loss which limits it to money in which the claimant has or had a legal or equitable interest, it is necessary as part of the process of construing the Act as a whole to interpret Part 3.6 in light of Part 3.3, and particularly s 3.3.1, with the effect that the entitlement to claim under s 3.6.7 is to be seen as limited by implication derived from s 3.3.1 to the interests of persons for or on whose behalf trust money or trust property was held by the defaulting solicitor. For the purpose of advancing this ground the appellant acknowledged that the provisions of Part 3.6 should be construed having regard to other Parts of the Act which inform their meaning.[22]
[22] Ironically, the appellant was resistant to such an approach when advancing its submissions under Grounds 2, 3 and 4 that only a ‘client’ can have recourse to the fund.
The argument cannot be accepted in the broad terms in which it was stated. Part 3.3 is limited to providing for the way in which ‘trust money’ is to be held in order to protect the interests of persons for or on whose behalf trust money is held. In contrast, Part 3.6 applies to both ‘trust money’ and ‘trust property’. ‘Trust property’ is defined in s 1.2.1 to mean any property entrusted to a law practice in the course of or in connection with the provision of legal services by the practice, other than trust money. There is nothing in those definitions which necessarily implies that the protection afforded by Part 3.6 to persons who suffer pecuniary loss because of a default in respect of trust property is limited to the interests of persons for or on whose behalf the trust property was held.
Insofar, however, as Part 3.6 is concerned with providing compensation to persons who suffer pecuniary loss because of a default in relation to trust money, the protection afforded by Part 3.6 is logically to be seen as limited to the interests of persons for or on whose behalf the trust money the subject of the default was held. More precisely, as we have already said, Part 3.3 is the means chosen by Parliament to regulate the way in which solicitors deal with trust money in order to protect the interests of persons for or on whose behalf it is held; and, to the extent that Part 3.6 is concerned with trust money, it is the means chosen by Parliament to compensate persons who suffer pecuniary loss because of a default in relation to trust money for or on whose behalf it was held.
The question then is whether the respondent was a person ‘for or on whose behalf’ the money the subject of default was held by the solicitor.
Counsel for the appellant argued that the respondent was not such a person because the respondent had no interest in the funds at the time of the default. It followed, counsel said, that the solicitor was under no obligation to pay that money to the respondent. Counsel contended that her Honour’s reliance upon the decisions of Law Institute of Victoria v Cowan[23] and Baker v Law Institute of Victoria[24] was misplaced, inasmuch as the claimant in each of those cases had a beneficial interest in the moneys in question. Counsel also emphasised the need for contemporaneity between the act or omission constituting the default and a failure to pay or deliver the trust money to the respondent. In the appellant’s submission, the money was held by the solicitor on trust for the client to be applied by the solicitor in accordance with the client’s directions in payment or satisfaction of legal costs generated by the solicitor in defending the client or incurred by counsel and expert witnesses or other consultants engaged by the solicitor to assist in the client’s defence. As the appellant would have it, the client could have called for the repayment of the money to him at any time until it was applied in accordance with his instructions and, therefore, there was no possibility of the respondent acquiring an interest in it before the solicitor’s default. After that, counsel said, it was too late for the appellant to acquire an interest in the money because the fund had been dissipated and there was no fund to which the interest could attach.
[23][1973] VR 293.
[24][1974] VR 388.
That submission is not persuasive. We allow that the word ‘interests’ in s 3.3.1 is coordinate with the expression ‘for or on whose behalf’ the property is held. But it does not follow that ‘interests’ is to be interpreted as limited to legal or equitable beneficial interests. The phrase ‘on behalf of’ does not have strict legal meaning.[25] As the majority of the High Court said in R v Toohey; Ex parte Attorney-General (Northern Territory),[26] it may be used in conjunction with a wide range of relationships in some way concerned with the standing of one person as auxiliary to or representative of another person or thing. The context of the term determines its meaning[27] and so, depending on the context, it may import the relationship of trustee and cestui que trust or it may mean no more than ‘in the interests of’. The phrase ‘for or on behalf of’ conveys a similarly protean connotation.[28]
[25]Rv Portus; Ex parte Federated Clerks Union of Australia (1949) 79 CLR 428, 435 (Latham CJ).
[26](1980) 145 CLR 374, 386 (Stephen, Mason, Murphy and Aickin JJ).
[27]Ibid 381 (Barwick CJ) (in diss, but not in point of principle).
[28]Jennings Construction Ltd v Burgundy Royale Investments Pty Ltd (No 2) (1987) 162 CLR 153, 165.
In this case, as the judge found, the client paid the moneys to the solicitor to be held by the solicitor to satisfy legal costs to be charged by the solicitor and to pay counsel and other persons retained to assist with the defence. Her Honour, however, did not go on to characterise the nature of the relationship thus constituted. It is convenient now to do so.
The fact that the client paid the money to the solicitor to be applied to a particular purpose appears to us to imply that the relationship thereby established was a Quistclose trust[29] creating an interest by the respondent in the trust money. As Lord Wilberforce observed in Barclays Bank Ltd v Quisclose Investments Ltd:[30]
That arrangements of this character for the payment of a person’s creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondly, if the primary trust fails, of the third persons, has been recognised in a series of cases over some 150 years.
[29]Barclays Bank Ltd v Quistclose Investments Ltd [1973] AC 567.
[30]Ibid 580.
Critical to the establishment of the trust is an intention that the moneys are advanced for an exclusive and specific purpose[31] and that those funds are not to form part of the assets of the trustee. Such a dealing between parties may give rise to equitable rights which fall short of those of a beneficiary against a trustee, such as equitable liens, charges, obligations and interests.[32] As is pointed out in Jacobs,[33] therefore, the facts are all important. In some cases, a client may pay money to a solicitor as express trustee for the client but with a mandate to use the moneys to pay the solicitor or counsel as required. In such a case, neither the solicitor nor counsel would acquire any beneficial interest in the fund. Contrastingly, a client may put a solicitor in funds with a specific instruction that the funds be applied to the satisfaction of a particular obligation then owing to counsel. That might well create an immediately vested beneficial interest in counsel. A third possibility is that the client may assign his rights as against the solicitor to counsel, just as the debt was assigned in Eumeralla Finance Co Pty Ltd v Law Institute of Victoria,[34] which would make the solicitor accountable to counsel. Depending on the facts, counsel might acquire an immediate interest in the trust fund thereby created,[35] or alternatively not acquire an interest in the fund until work is performed and an account rendered in acceptable form, or alternatively never acquire an interest in the fund.
[31]In Re Australian Elizabethan Theatre Trusts (1991) 30 FCR 491, 502 (Gummow J); George v Webb & Ors [2011] NSWSC 1608, [197]; Legal Services Commissioner v Brereton [2011] VSCA 241, [97].
[32]In Re Australian Elizabethan Theatre Trusts (1991) 30 FCR 491, 682.
[33]Heydon and Leeming, Jacobs Law of Trusts in Australia, 7th Ed, [216].
[34][1973] VR 98.
[35]Re Barrington and Associates Pty Ltd (In Liq) [1989] VR 940, 943–9.
Here, it appears to have been implicit in the client’s arrangement with the solicitor that the respondent’s and other persons’ rights to receive payments out of the fund were conditional upon the respondent and those other persons having a present right to payment. If so, it would follow that, since the amount of the obligation owed to the respondent was not determined or agreed before the solicitor misappropriated the fund, the respondent did not acquire a vested equitable interest in the fund. To that extent, the appellant’s argument is sound. To say so, however, does not mean that the fund was not held for or on behalf of the respondent within the meaning of s 3.3.1.
Presumably, the purpose of the arrangement was to persuade the solicitor to retain counsel and thereby to expose the solicitor to a liability to pay counsel. Possibly, it was also to enable the solicitor to assure counsel that the funds to pay counsels’ fees were safely in hand. Either way, the purpose would have been defeated if the client could have demanded the return of the moneys at will. In the reality of the circumstances which obtained, 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 other persons retained to assist in the defence.[36] The factual matrix which supported that conclusion included the series of electronic transfers to which we have referred[37] in which the respondent was designated and which impressed those transactions with the specific purpose that those moneys were for the payment of the respondent’s fees.
[36]See and compare General Communications Ltd v Development Finance Corporation of New Zealand [1990] 3 NZLR 406, 418–419 (Tompkins J).
[37][5]–[6] above.
Under the terms of the trust so constituted, the solicitor had an obligation to pay the respondent out of the fund when and if the respondent rendered a memorandum of fees in enforceable form. But the respondent’s ‘interest’ did not depend upon the existence of a present unfulfilled obligation to pay and deliver the money. Even before his fees fell due, the respondent had a contingent interest in the fund, in that it was held on trust for payment to him when his fees became due. The respondent, therefore, had an enforceable right to due administration of the fund and, ultimately, to have the solicitor account to the respondent out of the fund for the amount found to be due upon a memorandum of fees being rendered in enforceable form.[38]
[38]Parkes Managements Ltd v Perpetual Trustee Co Ltd (1977) 3 ACLR 303, 313 (Hope JA); Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (in Liq) (1999) 96 FCR 217, 221 [53]–[55]; Heydon and Leeming, Jacobs Law of Trusts in Australia, 7th Ed, [2303].
Contrary to the appellant’s argument, it is not to the point that the solicitor misappropriated the trust fund before the respondent’s contingent interest could mature into a vested interest. Inasmuch as the respondent had a contingent interest in the fund with the consequent rights to which we have referred, the fund was held for or on behalf of the respondent within the meaning of s 3.1.1.
In the result, the judge was correct to hold that the failure of the solicitor to pay the respondent’s fees due out of the fund was a default within the meaning of s 3.6.2 – a failure of the solicitor to pay or deliver to the respondent trust money that was received by the solicitor in the course of legal practice and held for or on behalf of the respondent – and the default arose from an act or omission of the solicitor that involved dishonesty, namely, the earlier misappropriation by the solicitor of the trust fund for his own purposes.
Equally, the judge was correct that the solicitor’s failure to pay counsel out of the fund in accordance with the terms of the trust caused counsel loss equal to the amount of the fees which were due, and that it was ‘actual pecuniary loss’ within the meaning of s 3.6.7. To adopt and adapt the language of the Full Court in Law Institute of Victoria v Cowan Investment Survey Pty Ltd,[39] the respondent suffered a pecuniary loss because of the default because the value of his right to be paid for fees out of the fund was reduced in pecuniary value to the extent of the misappropriation of the fund.
[39][1973] VR 293, 298.
Ground 6: Immediate right to payment
Under the heading of Ground 6, counsel for the appellant argued that the respondent never had an immediate right to payment out of the trust fund because the solicitor did not comply with s 3.3.20 and Regulation 3.3.34; and that, because the respondent did not have an immediate right to payment, the solicitor did not default by not making payment.
We do not accept that submission. On the facts found by the judge (which are not disputed), the contract of retainer of the respondent was entered into by the solicitor as principal, not as agent for the client,[40] and, therefore, there was no contractual relationship between the client and the respondent. Section 3.3.20 and Regulation 3.3.34 are concerned with a law practice (solicitor) withdrawing money from trust money held in a general trust account or in a controlled money account for a person in order to pay legal costs owing to a legal practice (solicitor) by the client who paid the money into trust. As we see it, 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. Payments by a solicitor out of moneys received on trust subject to instructions to deliver the moneys to a barrister (transit money), or out of moneys received on trust subject to a power, are governed by ss 3.3.16 and 3.3.17, and those provisions require only that the moneys be dealt with in accordance with the instructions or the power as the case may be.
[40]Reasons, [136].
Here, given that the solicitor retained the respondent as principal rather than as agent for the client, it is to be inferred that the terms of the Quistclose trust on which the solicitor received the moneys from the client were that the solicitor would hold the moneys on trust for payment therefrom to the respondent of what was due by the solicitor to the respondent on account of the respondent’s defence of the client.
Claim not barred by lack of costs agreement
Counsel for the appellant argued that, because the respondent did not have a costs agreement with the solicitor and further or alternatively because the client did not receive the memoranda of fees rendered by the respondent’s clerk, or receive any other request for payment of the respondent’s fees, the solicitor was not under any obligation to pay the respondent’s fees either at the time the solicitor misappropriated the trust moneys or at all.
In our view, that submission is also misplaced. Section 3.4.17(5) provides that, if a solicitor retains counsel on behalf of a client, and the solicitor fails to disclose to the client information which the barrister was required but failed to disclose to the solicitor under Division 3 of Part 3, neither the client nor any third party payer need pay the barrister’s fees; and the barrister may not maintain proceedings against the client or third party payer to recover fees unless and until the fees have been reviewed under Division 7 of Part 3. There is nothing in s 3.4.17, however, or indeed elsewhere in the Act which provides that, if a barrister is retained by a solicitor as principal, the barrister’s failure to disclose to the solicitor anything required by Division 3 of Part 3 relieves the solicitor of the obligation of paying the barrister’s fees, or which prevents the barrister maintaining proceedings against the solicitor to recover fees, unless and until the fees have been reviewed under Division 7 of Part 3. Hence, in this case the solicitor was liable to pay the respondent’s fees and the respondent was entitled to maintain proceedings against the solicitor as he did in fact.
Admittedly, it may have been an implied term[41] of the Quistclose trust that the solicitor would hold the moneys on trust to pay out to the respondent in satisfaction of the respondent’s fees only so much as the respondent might lawfully have charged the client if the solicitor had retained the respondent on behalf of the client as agent for the client: in other words, that the solicitor should not pay out to the respondent any more than might be found upon review under Division 7 of Part 3 to be a fair and reasonable amount of legal costs.[42] Such an implication might be thought to arise from the solicitor’s obligations to the client as the residuary or ‘secondary’ beneficiary of the Quistclose trust and from s 3.4.19, which provides that legal costs are recoverable (and, implicitly, recoverable only) under a costs
agreement or in accordance with an applicable practitioner remuneration order or according to the fair and reasonable value of the legal services provided.
[41]Mutual Life Insurance Company of New York v Pechotsch (1905) 2 CLR 823, 831; Gumala Investments Pty Ltd v Lethbridge [2007] FCA 934, [38].
[42]See s 3.3.4(2).
If that were so, however, it would not follow that there was nothing due to the respondent and that there could not have been a default by the solicitor unless and until the respondent’s fees had been reviewed under Division 7 of Part 3. To the contrary, upon the respondent completing the work which he had been retained to perform and rendering an account of his fees, the solicitor would have come under an immediately binding obligation to pay the respondent out of the trust moneys not less than the fair and reasonable value of the work so completed and charged for. It is true that the fair and reasonable value would not then have been determined by review under Division 7 of Part 3. But the obligation to pay would still be both debitum in prasenti and solvendum in praesenti;[43] just as an obligation to pay as upon a quantum meruit a fair and reasonable amount for work and labour done constitutes a debt or liquidated demand due and payable upon performance of the work and labour done.[44] The fact that the fair and reasonable value of the work and labour done may be a matter of contention which awaits determination by a court or other tribunal does not make that cease to be so. Interest runs from the date of demand because the obligation is then due, and the amount due may be sued for and recovered in an action in which, failing agreement, the fair and reasonable value will be determined by the court.
[43]Trade Practices Commission v Tooth & Co Ltd (1979) 142 CLR 397, 454.
[44]Alexander v Ajax Insurance [1956] VLR 436, 443 (Sholl J).
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. It is not necessary to imply in order to give the trust business efficacy.[45] If the solicitor were to pay out more to the barrister by way of fees than the fair and reasonable value of the work done, the excess would remain recoverable following review under s 3.4.39. And, in the absence of contrary evidence, it is readily appreciable that the client might have wished the solicitor to have the flexibility to pay out sums to the respondent from time to time without requiring precise determination by review of the fair and reasonable value of the work for which payment was made; provided that ultimately the solicitor preserved the capacity to review the totality and recover any overspend.
[45]Clay & Ors v James [2001] WASC 18, [18].
Trust did not fail for lack of corpus
Counsel for the appellant advanced a further argument that the respondent could not have suffered an actual pecuniary loss, either because at the time of the solicitor’s misappropriation of the trust fund the respondent was not a beneficiary of the trust, or because the trust had failed for lack of a corpus (consequent upon the solicitor’s misappropriation of the trust fund) before the respondent was retained.
The first aspect of that argument adds nothing to the submissions which we have already considered. For the reasons we have explained, the fund was held for or on behalf of the respondent within the meaning of s 3.3.1 because he had a contingent interest in the fund, with a consequent right to due administration of the fund and to have the solicitor account for payment out of the fund for the fees that were due. Hence, the misappropriation of the fund caused the respondent to suffer loss to the extent of the fees unpaid.
The second aspect of the argument is untenable. As was found by the judge (and the finding is not disputed), all of the moneys which the client paid to the solicitor were paid on implied terms that the solicitor would hold the moneys for the purpose of paying out to counsel and other consultants what was due to them from time to time. Thus was the trust constituted. Thereafter, the solicitor misappropriated a large part of the trust fund. But the trust did not fail because of the solicitor’s misappropriation (and it would not have failed even if the solicitor had misappropriated all of the trust fund). All that happened was that the solicitor acted in breach of the terms of trust and, therefore, was accountable to the primary beneficiaries of the trust, as they might become and be from time to time, and ultimately to the client as secondary or residuary beneficiary of the trust, for any loss caused by the breach.
Of course, it may be as a matter of practical reality that, even before the respondent acquired a contingent interest in the fund, as he did upon his engagement as counsel, the prospects of him ever getting anything out of the trust fund were bleak. One just does not know what were the solicitor’s financial resources. But it remains that, if the solicitor had abided by the terms of the trust, as he was bound to do, there would have been additional sums of $30,100 and $32,930 in the trust fund when the fees charged by the respondent became due; and it remains that the respondent had a contingent interest in the trust fund sufficient to have the solicitor account to him for so much of those moneys as was requisite to pay or satisfy the debt for fees. The fact that the solicitor is or was unable or unwilling to repair the breach of trust is not to the point. Rather, it demonstrates the fact, as the judge found, that the solicitor’s default in failing to pay out of trust to the respondent what was due was a default which arose from the solicitor’s dishonest act in misappropriating the $30,100, and, therefore, a default within the meaning of s 3.6.2 which caused the respondent actual pecuniary loss equal in amount to the fees which were due.
Other claims upon the fund
Finally, counsel for the appellant argued that, because the trust was for the purposes of paying not only the respondent what was due to him but also other consultants engaged for the defence of the client, it could not be said that the solicitor’s misappropriation of the $30,100 and $32,930 caused the respondent the pecuniary loss which he claimed.
We reject that argument, too, just as the judge did below. As her Honour observed, the only evidence of any other consultant with a claim on the fund was of Dr Gibbs’ claim for $16,880, and it was clear that, if the solicitor had not misappropriated the sums which he did, there would have been an adequate amount in the fund to satisfy not only the respondent’s claim but also Dr Gibbs’ account (assuming it were due).[46]
[46]Reasons, [131].
The judge determined that the amount of actual pecuniary loss suffered by the respondent by reason of the solicitor’s default was the fair and reasonable value of the work performed by the respondent and her Honour gave judgment for that amount to be determined by the Costs Court in accordance with Division 7. In our view, her Honour was right to do so. It was not suggested by either party, and therefore there is no need to consider, whether the question of quantum was foreclosed by a Magistrates’ Court judgment which the respondent obtained against the solicitor for the amount of the respondent’s fees before lodging a claim against the Fund.
Conclusion
It follows that the appeal should be dismissed.
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