Power v Hamond

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

No. 5134 of 2004

KEVIN JOSEPH POWER AND OTHERS	Plaintiffs
v
KATHERINE DIANE HAMOND	Defendant

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JUDGE:	HARPER J
WHERE HELD:	MELBOURNE
DATE OF HEARING:	21 & 22 SEPTEMBER 2004
DATE OF JUDGMENT:	22 MARCH 2005
CASE MAY BE CITED AS:	POWER & ORS v HAMOND
MEDIUM NEUTRAL CITATION:	[2005] VSC 2

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Legal Practitioners – Office holder with the Law Institute of Victoria appointed a receiver of legal practices - Whether receiver a current practitioner at the time of appointment - Subsequent confirmation of appointment by the court – Whether receiver entitled to delegate performance of duties - Power of Legal Ombudsman to investigate conduct of court appointed receiver and his delegates – Whether court has exclusive jurisdiction to control conduct of receiver - Whether jurisdiction to inquire only where practitioner carrying on legal practice - Whether Legal Ombudsman biased in the conduct of investigations – Little v Lewis [1987] VR 798 applied - Murray v Legal Services Commissioner (1999) 46 NSWLR 224 adopted – Legal Practice Act 1996, Part 2 Division 4, Part 5 Divisions 2 – 4, Part 6 Divisions 1 & 5 and Part 9 Division 2.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr A.J. Myers QC with Mr D. Robertson and Mr M. Moshinsky	Mallesons Stephen Jaques
For the Defendant	Mr P.J. O’Callaghan QC with Mr M. Scott	Allens Arthur Robinson

HIS HONOUR:

Introduction

The plaintiffs - Kevin Power, Steven Sapountsis and Charles Horvath - hold office in the Law Institute of Victoria. The first plaintiff, Mr Power, is General Manager of the Institute's Department of Professional Standards. This department manages and supports the regulatory and disciplinary functions conferred upon the Institute by the Legal Practice Act 1996. It has an annual budget of about $7,000,000 and within its six sections it employs about 45 people.[1] The second plaintiff, Mr Sapountsis, is the manager of the department's receivership section. He reports to Mr Power. The third plaintiff, Mr Horvath, is the solicitor to the section. He therefore reports to Mr Sapountsis.
[1] See affidavit sworn by Mr Power on 5 May 2004, at para. 4

With the exception of s.67 of the Act, its provisions as presently in force came into operation on 1 January 1997. One of its main purposes is “to improve the regulation of legal practice in Victoria”: s.1(a). Those directly affected by the Act in their professional lives are, not surprisingly, legal practitioners; and for the purposes of the Act, “legal practitioner” means a person admitted to legal practice in Victoria, although the expression also encompasses certain interstate and foreign practitioners. As one means of effecting the improvement to which it is directed, the Act established a regime of what may be called "co-regulation" of the legal profession. The office of the Legal Ombudsman is a principal component of that regime. The present Legal Ombudsman (Ms Katherine Hamond) is the defendant. The other principal components are the Legal Practice Board and entities to which the Act refers as “recognised professional associations” or "RPA's".

There are in Victoria two "RPA’s" within the meaning of that expression in s.3 of the Act. The Law Institute of Victoria is one. The Victorian Bar is the other. Each has applied for, and been granted, accreditation as such by the Legal Practice Board. Other associations of legal practitioners could apply; but none have been formed for that purpose, and so no other applications have been made. The result is that the Institute is the RPA that represents the State’s solicitors, or at least the great majority of them. Once accredited, a recognised professional association may have legal practitioners allocated to it by the Board; or the Board may, in certain circumstances not presently relevant, allocate such practitioners to itself. Once allocated, those practitioners become "regulated practitioners" within the meaning of that expression in s.3 of the Act. They accordingly also become subject to the co-regulation regime, under which both the RPA and the Legal Ombudsman share with the Board jurisdiction to receive and deal with complaints about the conduct of a legal practitioner or firm, although the powers and responsibilities of each differ to some extent. For example, the power – indeed, speaking in general terms, the duty - to investigate a complaint extends in the case of the Legal Ombudsman to any legal practitioner: s.145(2)(a). In the case of the other entities, the power is restricted to the investigation of conduct that occurred at a time when the practitioner in question was a regulated practitioner of that entity: s.146(2).

Where no complaint has been made, each RPA and the Board nevertheless has power, but none is obliged, to investigate the conduct of a legal practitioner or firm if the relevant entity has reason to believe that that conduct may amount to "misconduct" or "unsatisfactory conduct".

These expressions are, for the purposes of Part 5 of the Act, defined in s.137. "Misconduct" means, in paragraph (a) of the definition, misconduct by a legal practitioner in the course of engaging in legal practice. It includes wilful or reckless contravention of statutory provisions that relate to legal practice; wilful or reckless failure to comply with a condition or restriction to which a relevant practising certificate is subject; wilful or reckless failure to comply with an undertaking given to a relevant body; unsatisfactory conduct that amounts to a substantial or consistent failure to reach reasonable standards of competence and diligence; and the charging of grossly excessive legal costs. It also includes, by paragraph (b), conduct by a legal practitioner that, although unconnected with legal practice, would justify a finding that the practitioner is not of good character or is otherwise unsuited to engage in legal practice. It is therefore plain that misconduct involves a serious lapse in professional behaviour, or behaviour which reflects very adversely on the character or suitability of the practitioner concerned (or, of course, both).

By contrast "unsatisfactory conduct" means conduct by a legal practitioner in the course of engaging in legal practice that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent lawyer. It also encompasses conduct by a legal practitioner (again, in the course of engaging in legal practice) that would be regarded by practitioners in good standing as being unacceptable. An example, given in the Act itself, is conduct unbecoming a legal practitioner. In addition, unsatisfactory conduct includes (among other things) failure (not amounting to misconduct) to comply with a condition or restriction to which a relevant practising certificate is subject, or failure (again, not amounting to misconduct) to pay a premium due under a contract of professional indemnity insurance.

The role of the Institute as an RPA assumes particular significance for present purposes where the Institute is of the opinion that a defalcation has been, or may have been, committed in relation to any property of one (or more) of those regulated practitioners who have been allocated to it; or where (for example) the Institute is of the opinion that the regulated practitioner has failed, or is unable, to attend to the legal practice; or is unfit to engage in it; or is dead. In any of those circumstances, the Institute may apply to the Court for the appointment of a receiver or receivers in respect of that practitioner or those practitioners: s.249(1)(a). The Court may grant the application if it is satisfied that the applicant has reasonable grounds for making it. If the practice is not to be carried on, then the receiver need not be a “current practitioner”, but may be so. A current practitioner is a legal practitioner who holds a certificate (referred to in the Act as a “practising certificate”) to engage in legal practice in Victoria: s.3. The relevant certificate is issued under Division 4 of Part 2 of the Act.

The position which obtains where the legal practice under receivership is not to be carried on may be contrasted with that which obtains where the practice is to continue. In the latter case, if the receiver appointed is a current practitioner, “the … Court may authorise the receiver to carry on the legal practice of the regulated practitioner”: s.250(2).

Messrs Power, Sapountsis and Horvath are current practitioners. There is a question whether the former has been so at all material times. It is not in dispute that he has held the position of General Manager of the Institute’s Department of Professional Standards since 28 February 1997. On an average of about six occasions each year since then, the Institute has applied for the appointment of a receiver. I do not know whether each such application has been successful. On every occasion that an appointment has been made since the commencement of the Act on 1 January 1997, however, Mr Power has been the appointee. Following his appointment he has on each occasion called upon Messrs Sapountsis and Horvath to administer the day to day affairs of the receivership.

These arrangements have given rise to differences between the Institute and the Legal Ombudsman. I summarise the arguments here, and return to them in more detail later.

For her part, the Legal Ombudsman takes the entirely unexceptional view that a receiver has important responsibilities. There doubtless ought to be, and in any event (she contends) there is, some office of state with power to ensure that, at least when the receiver is a legal practitioner, these responsibilities are properly discharged. Hers is that office. This is not to challenge the authority of the Court, but simply to posit that the Legal Ombudsman and the Court each have a relevant part to play. Hers is essentially an investigative and supervisory role. It is an important one; and she contends that she has the statutory authority to give effect to it in a way that, in the adversarial system, courts cannot do.

Acting on that basic premise, Ms Hamond has instituted a number of investigations into the conduct of the plaintiffs. They may be generally described as involving not only the administration by Mr Power and, under him, by the other two plaintiffs, of several receiverships, but also his fitness for appointment as a receiver. The latter point arises because the Legal Ombudsman is concerned at the possibility that Mr Power, at the times of his several appointments as receiver, may not have been a current practitioner. In addition, she contends that the plaintiffs or one or more of them may have been guilty of unsatisfactory conduct or misconduct in their administration of one or more of the receiverships. The Legal Ombudsman also says that none of her investigations are complete. For this very reason, she is entitled - if not bound - to continue them.

The plaintiffs for their part take a very different position. There are, they contend, three bases upon which I should conclude that the investigations are objectionable, and ought to be discontinued. First, it was the Court – not the Legal Ombudsman - which appointed Mr Power to his receiverships, and it is only the Court that may exercise supervisory powers over him and over those whom he appoints to assist in carrying out his responsibilities as receiver. Secondly, the Legal Ombudsman has neither the right nor the duty to investigate their conduct; yet not only has she instigated a series of such investigations, but has pre-judged their outcome. She cannot, therefore, bring an unbiased mind to her endeavours. An unbiased mind would conclude that the plaintiffs have at all times acted in accordance with law: they have done no more and no less than that which the Act, and the orders of the Court, require or permit.

The third plank upon which the plaintiffs seek to build their case involves a more general examination of the role of the Legal Ombudsman. The Institute points out that the Legal Ombudsman has no power to investigate the conduct of a receiver who is not a legal practitioner. It submits that the same is true where the receiver, albeit that he or she is a legal practitioner, is not appointed to carry on the legal practice in receivership. By parity of reasoning, the plaintiffs submit, the Legal Ombudsman similarly has no investigative (or other) role in relation to a receiver where the practice in receivership is not to be wound up forthwith but is to continue in existence at least for some time and where the receiver does not personally engage in legal practice.

The plaintiffs are therefore, they submit, entitled to the relief which they seek; namely, declarations that they were properly authorised to do what they have done, that they have done it lawfully, and that they were and are not required to comply with Part 6 of the Act (which is directed at safeguarding the interest clients have in their own – that is, the clients’ - money). The plaintiffs also seek injunctions restraining the defendant from continuing the impugned investigations.

The plaintiffs more particularly allege that the first plaintiff was on many different occasions appointed by this Court to be the receiver of certain property of the regulated practitioner or regulated practitioners specified in the particulars of the relevant appointment. In some cases, an earlier appointment of a different receiver had been made, but the original appointee had for one reason or another not seen the particular receivership through to completion. Each occasion of Mr Power’s appointment, and the property the subject of each, is identified in a table to the originating motion (which was first issued on 24 March 2004 and amended on 21 September this year) by which this proceeding was instituted. This lists, in all, 83 separate appointments. Of these, 71 included not only an appointment as receiver but also an authorisation to carry on the legal practice of the regulated practitioner or regulated practitioners in question. The twelve appointments that included no such authorisation cannot be the proper subject of investigation by the Legal Ombudsman (or so the plaintiffs assert) for the very reason that, by definition, no legal work was involved in giving effect to them. Indeed (the argument continues) the Legal Ombudsman has no jurisdiction to inquire into Mr Power’s conduct of any receivership.

It is true that on 71 occasions Mr Power’s appointment as receiver included the power to carry on the practice. And one might have thought that investigations into how practitioners exercise that power was central to the Legal Ombudsman’s function. According to the plaintiffs, this is not necessarily so. When carrying on a legal practice the legal practitioner does many things that could be done by a person with no legal qualifications. It is only when engaging in legal practice that one does what only such a practitioner can do. There is thus a clear distinction, or so the plaintiffs assert, between carrying on legal practice on the one hand and engaging in it on the other. It is only when the legal practitioner is acting in the latter role that the Legal Ombudsman can intervene. On this basis the plaintiffs assert that the Legal Ombudsman’s "investigations purport to investigate the plaintiffs' conduct as legal practitioners but go well beyond any activities carried out by the plaintiffs as legal practitioners."[2] They include in their scope "the conduct and management of receiverships, which … is an area entirely outside the powers and jurisdiction conferred upon [her] by the Act.”[3]
[2]Plaintiffs' written submissions dated 20 August 2004 at para 1.6
[3]Ibid

The defendant does not dispute that the appointments were made. Moreover, none have been challenged, let alone set aside or revoked. It follows in each case that everything done by the first (or, for that matter, any) plaintiff, so long as it was pursuant to and within the terms of the relevant appointment (and, where relevant, authorisation) was validly done. So much is trite law; if authority be needed, one need go no further than Little v Lewis[4].
[4][1987] VR 798

The plaintiffs allege that five investigations presently[5] being undertaken by Ms Hamond undermine this fundamental principle. As put in their written submissions, they contend that “Mr Power, as the receiver appointed by the Court to the receiverships, is subject to the exclusive control and jurisdiction of the Court, and any attempt by the Legal Ombudsman to investigate his conduct as receiver is inconsistent with, and indeed derogates from, the jurisdiction conferred upon the Court by Part 9 of the Act.”[6] But an assertion that a court appointee is acting improperly does not necessarily amount to a challenge to the validity of the appointment itself. As with the Legal Ombudsman, however, so with everyone else: what she cannot do is conduct her affairs (in her case as Legal Ombudsman) as if an appointment made by this Court, and the authority conferred by and with it – while these stand as orders of the Court – is, and actions taken in accordance with it are, invalid or ineffectual.
[5]The investigations are suspended pending the outcome of the present proceeding
[6]Plaintiffs’ written submissions dated 20 August 2004 at para. 1.7

The powers and duties of the Legal Ombudsman

In these circumstances, it is necessary to examine in a little detail those powers and duties of the Legal Ombudsman that are relevant to this litigation. By s.145 of the Act, which is to be found in Part 5 (“Disputes with Clients and Discipline”), she must investigate any complaint that is made to her. There are three exceptions. The first is implicit. She has no power to investigate a complaint where the subject of it is not a legal practitioner.

The other two exceptions to the requirement that a complaint be investigated are explicit. They are set out in s.145. First, the Legal Ombudsman need not investigate a complaint that she has already dismissed. Secondly, she need not investigate a complaint that she has referred to an RPA or the Legal Practice Board. She may refer a complaint to the RPA of which the practitioner was, at the time the conduct allegedly occurred, a member: s.143(a). She may also, in certain circumstances, refer a complaint to the Board.

There are, however, occasions when a reference must be made. She must refer a complaint if she considers that it is of a particular kind: that is, that it (a) does not raise a matter of conduct that may amount to misconduct or unsatisfactory conduct by a legal practitioner or (b) raises matters that could constitute a “dispute” as defined in s.122. Such a “dispute” is one in relation to legal costs below a specified level and involving specified categories of disputants; and certain disputes arising out of or in relation to the provision of, or failure to provide, legal services.

In summary, then, the Legal Ombudsman must investigate every complaint made to her about a legal practitioner where the complaint has not been either referred as mentioned in s.145 or dismissed by her. She must also review the decision of an RPA or the Board if a dissatisfied complainant has applied under s.153 for such review: s.154. In addition, she may of her own motion investigate the conduct of any legal practitioner if she has reason to believe that that conduct may amount to misconduct or unsatisfactory conduct: s.145(2).

As an important aspect of her (or his) responsibility to maintain professional standards, a wise legal ombudsman would doubtless be concerned to become familiar with relevant background material. She or he would, for example, ascertain (i) the number - at least in approximate terms - of applications that have been made for the appointment of a receiver, including the number made (a) by the professional association and (b) granted by the Court; (ii) the terms pursuant to which, at least in general, the grants were made; (iii) the length of time during which the professional association’s department of professional standards or like body had been involved with legal practices under receivership; (iv) the experience gained over that period; (v) the number, qualifications and experience of the relevant employees of the department; (vi) the importance of ensuring that that experience benefited consumers of legal services; (vii) the standard of work generally done, and the level of competence generally displayed, in the discharge by the association of its statutory responsibilities following the appointment of a receiver; and (viii) the disadvantages that would follow were there no body of persons experienced in conducting receiverships.

The wise legal ombudsman would, I think, take these considerations into account when assessing (for example) the degree to which the head of the association’s professional standards body ought be involved in the day to day affairs of a receivership, given that that head was the court-appointed receiver. Few receivers could execute their responsibilities without properly and relevantly qualified assistance. If that assistance were provided by persons so qualified who, in addition, had considerable experience in the conduct of receiverships and who had at their disposal the resources of a large and well-resourced professional standards department, the fact that the receiver left much of the work and responsibility to them might be of no concern. But if the facts were otherwise, it might be the duty of a legal ombudsman to put remedial measures in train. And, in order to ascertain the facts, an investigation might be required. Indeed, were a complaint made pursuant to s.145(1) of the Act, an investigation would by that provision be unavoidable.

Once an investigation is completed, it must be dealt with in accordance with s.151 of the Act. The Legal Ombudsman must either bring a charge in the Legal Profession Tribunal against the practitioner the subject of the investigation, or reprimand or caution the practitioner, or take no further action. A charge must be brought if the Legal Ombudsman is satisfied that there is a reasonable likelihood that the Tribunal would find the practitioner guilty of misconduct. Likewise, she may bring a charge in the Tribunal if she is satisfied that there is a reasonable likelihood that that body would find the practitioner guilty of unsatisfactory conduct. By contrast, the power to reprimand or caution may only be exercised with the consent of the practitioner.

In certain circumstances the Legal Ombudsman must not take any further action; in others, she may in her discretion decide upon this course. If she is satisfied that there is no reasonable likelihood of the Tribunal making a finding of guilt, that must be the end of the matter. If, on the other hand, a finding of guilt is open but she is satisfied that the practitioner under investigation is generally competent and diligent and that no substantiated complaint (other than that which led to the investigation) has within the previous five years been made about the conduct of that practitioner, she may decide that nothing further need be done.

It will thus be appreciated that the Legal Ombudsman has no power of her own motion to inflict any prescribed punishment or penalty upon anyone. The bringing of a charge will, however, at least in many cases, carry with it adverse consequences even for an innocent practitioner ultimately so found. It is for this reason now settled law that a person in a position relevantly analogous to that of the Legal Ombudsman is bound to accord procedural fairness to the subjects of her investigations.

An authority in point is Murray v Legal Services Commissioner.[7] It concerned the effect of s.155 of the Legal Profession Act 1987 (NSW). That section has as its close equivalent s. 151 of the Victorian Act. In both enactments, the investigator[8] must on completion of an investigation deal with the matter in accordance with the section: s.155 in the case of NSW, s.151 in the case of Victoria. If satisfied that there is a reasonable likelihood that the Tribunal[9] would find the practitioner guilty of misconduct, the investigator must bring a charge in the Tribunal. If satisfied to the like degree that a finding of unsatisfactory conduct would be made, the investigator may bring a charge in the Tribunal, or may – with the consent of the practitioner – reprimand or caution her or him, or may, if satisfied that the practitioner is generally competent and diligent, and that within the last five years no substantiated complaint has been made about him or her, take no further action (in NSW, dismiss the complaint). Under the Victorian legislation, the Legal Ombudsman must not take any further action if satisfied that there is no reasonable likelihood that that the Tribunal would find the practitioner guilty.
[7](1999) 46 NSWLR 224.
[8]In NSW, the Legal Services Commissioner; in Victoria, the Legal Ombudsman.
[9]In NSW, the Legal Services Tribunal; in Victoria, the Legal Profession Tribunal.

An investigation may, therefore, conclude in a number of different ways. None involves the imposition by the Legal Ombudsman of any penalty save with the consent of the practitioner concerned – and then, the only power the Legal Ombudsman may exercise is that of a reprimand or caution. But gone are the days when procedural fairness could be denied by a person such as the Legal Ombudsman on the ground that no question affecting the rights of the subject was being determined. In any event, the structure of the Act is such that a right to be heard is implicit. In Murray, Sheller JA expressed the position in words which I respectfully adopt (and adapt so as to apply directly to Victoria):

“I find it hard to imagine that the [Legal Ombudsman] would reach the level of satisfaction required without taking account of the legal practitioner's response to the complaint … The duty of the [Legal Ombudsman] to act either by instituting proceedings in the Tribunal or in some other way does not arise on a satisfaction or opinion that a prima facie case had been made out, so that any material favouring the legal practitioner may be ignored … The duty of the [Legal Ombudsman] involves an attempt to predict the outcome of a hearing in the Tribunal … Ordinarily, a factor in this prediction would be the legal practitioner's answer to the complaint, if the legal practitioner gives one, or the failure to answer the complaint, if the legal practitioner gives none. These matters lead me to conclude that the [Legal Ombudsman] can not and does not reach the required satisfaction without providing the legal practitioner with a copy of the complaint and calling upon the legal practitioner to respond to it. Proper performance of the [Legal Ombudsman's] duty preserves … the legal practitioner's 'right to know and to reply'.
If the [Legal Ombudsman] is satisfied that there is a reasonable likelihood that the legal practitioner will be found guilty by the Tribunal of unsatisfactory … conduct, (but not … misconduct), then … the [Legal Ombudsman] may reprimand [or caution] the legal practitioner, if the legal practitioner consents to the reprimand [or caution], or [take no further action] if satisfied that the legal practitioner is generally competent and diligent and that no other material complaints have been made against the legal practitioner. Thus, even if the [Legal Ombudsman is] satisfied that there is a reasonable likelihood that the facts complained of would be made out before the Tribunal, the possible consequences are such that the legal practitioner could reasonably expect the opportunity to advance a case to the [Legal Ombudsman] that [she] should be satisfied only that there was a reasonable likelihood that the legal practitioner would be found guilty by the Tribunal of unsatisfactory … conduct and that the legal practitioner was generally competent and diligent and that no other [substantiated] complaints had been made against the legal practitioner."

The plaintiffs' allegation of bias against the Legal Ombudsman must be considered in the light of these principles. The opportunity to advance a case is of little if any benefit if the mind at which the case is directed is already closed. If and to the extent that her mind is made up, the Legal Ombudsman may be disqualified from continuing with some part or all of her investigations.

The plaintiffs’ allegation that the Legal Ombudsman has not in discharging some aspects of her responsibilities kept an open mind is based upon an affidavit sworn in this proceeding on 24 May 2004. At paragraph 8 of that affidavit, she stated that she had “reason to believe that the Legal Profession Tribunal … might find Mr Power guilty of misconduct or unsatisfactory conduct.”[10] She continued (concluding paragraph 8 and going to paragraph 9):
[10] Affidavit of the Legal Ombudsman sworn 24 May 2004, at para. 8.

"For example … it appears that Mr Power does not supervise employees carrying on legal practice under his control or direction as receiver, and accordingly I consider that might constitute misconduct or unsatisfactory conduct.
Thus, I contend that the investigations ought to continue into Mr Power for reasons including the following:
(a)Mr Power did not hold a valid practising certificate between 1 January 1997 and 28 November 2002 at the earliest;
(b)During that period he held himself out as carrying on legal practices in receivership;
(c)He took no steps to address the invalidity of his practising certificates until 8 November 2002 when he applied to the Board for an exemption from the requirement from professional indemnity insurance;
(d)Mr Power has failed to supervise adequately employees under his control who were responsible for, among other things, the accounting records of the practices over which he was appointed receiver;
(e)Mr Power failed to apply the relevant provision of the Act and the Rules relating to the operation of trust accounts."

The Legal Ombudsman’s investigation into these matters is continuing. Yet it is entirely possible, so the plaintiffs submit, to read these passages as indicating that in the Legal Ombudsman’s concluded opinion Mr Power did not hold a valid practising certificate during the specified period. In addition, he might for that reason be guilty of misconduct and (among other things) for failing to supervise his staff properly.

The Legal Ombudsman’s investigations

For present purposes, there are five relevant investigations on foot. Two of these involve Mr Power directly. Two involve Mr Sapountsis. Mr Horvath is the subject of the remaining inquiry.

The first of the investigations into Mr Power is designated LOV/00/1607. It concerns his conduct of the receivership of a solicitors’ mortgage practice formerly carried on under the name "Young Hubbard & Co." The second investigation is designated LOV/03/73. It is directed to four issues:

(i)whether Mr Power held a valid practising certificate between 1 January 1997 and 28 November 2002 or thereabouts;
(ii)whether and if so to what extent Mr Power carried on legal practice during that period;
(iii)whether Mr Power has failed to apply those provisions of the Act and the Trust Account Practice Rules that govern the handling of trust money; and
(iv)whether Mr Power has failed adequately to supervise employees under his control.

The two investigations involving Mr Sapountsis are designated, respectively, LOV/00/6184 and LOV/04/664. The first of these is concerned with whether Mr Sapountsis acted properly in relation to the "Young Hubbard" receivership. The second seeks to explore the following issues:

(i)whether Mr Sapountsis has been carrying on legal practice without proper authority;
(ii)whether, insofar as he has handled trust money, Mr Sapountsis has done so in compliance with the Act and the Rules;
(iii)whether, insofar as he has signed bills of costs for legal work, Mr Sapountsis has done so in compliance with s.107 of the Act.

The investigation in respect of Mr Horvath is designated LOV/04/665. It seeks to explore in relation to him the same issues that investigation LOV/04/664 raises in relation to Mr Sapountsis.

Mr Power’s practising certificate

Before commencing to engage in legal practice in Victoria, legal practitioners must – unless exempted by the Board – obtain professional indemnity insurance: ss.224-226. A current practitioner seeking to extend his or her right to practice beyond 30 April next must on or before that date apply to the relevant RPA or to the Board for a new practising certificate: s.23. Then, on or before 31 May, the applicant must give to the RPA or to the Board satisfactory evidence that he or she has professional indemnity insurance: s.23(3A). Unless the applicant intends to act only as a barrister, a class of practitioner into which Mr Power did not fall, this insurance (as ss.224-226 make clear) “must be obtained with the Legal Practitioners' Liability Committee.” If, as at 31 May, an applicant has not complied with this requirement or obtained an exemption from the Board, the RPA or the Board (as the case requires) must give notice to the applicant on or before 15 June of the failure to comply: s.23(3B). In those circumstances, any practising certificate issued to the applicant does not take effect until the failure to comply has been remedied: s.23(3C)(a).

Each year, Mr Power applied to his employer - which of course was also his RPA - for a practising certificate. Each year, his application was granted. But he did not obtain professional indemnity insurance. Each year, therefore, in breach of s.23(3A) of the Act, he failed to give the Institute satisfactory evidence that he had the professional indemnity insurance that the legislation required. His evidence is that he believed he was covered by the Institute's internal professional indemnity insurance policy.

I proceed on the basis that the Institute’s policy was not issued by the Legal Practitioners' Liability Committee.[11] If it was not, one would have to query the foundation of Mr Power's belief. In the unlikely event that the Committee was the Institute’s professional indemnity insurer, and even if Mr Power’s belief that he was covered by it was therefore well-based, his subsequent attempts to sort things out demonstrate that the belief was too comfortably held. The head of the Institute’s Department of Professional Standards, and the Institute itself, ought not to leave such things to chance. It might be said that Mr Power did not himself carry on a legal practice, or engage in legal practice. Indeed, such things have been said and, because their accuracy is under challenge by the Legal Ombudsman, the propositions embodied in them will have to be examined in this judgment. But the fact is that Mr Power held himself out, to the Court and to others, as a current practitioner. He was unwise to have done so without being certain that he had met all the necessary conditions.
[11]Nothing in the submissions put on Mr Power’s behalf in the hearing before me suggests that the Institute had taken out a policy with the Committee, still less that it was thereby believed that Mr Power was covered by that policy. Moreover, in written submissions dated 10 September 2004 made on her behalf, counsel for the Legal Ombudsman state that “[i]t is not disputed that between the commencement of the Act … and 5 December 2002 Mr Power had not obtained the required professional indemnity insurance.” Counsel for the plaintiffs put in written submissions, dated 17 September 2004, in response. They did not in those later submissions challenge the “there is no dispute” proposition.

In any event, the Institute failed to give Mr Power notice, by 15 June or at all, of any failure on his part to comply with the insurance requirements.[12] On this basis, counsel briefed by Mr Power to advise him on the point has expressed the view that his practising certificate took effect by default even if he had not complied with the insurance requirements of the Act. I disagree. The validity of a practising certificate cannot depend upon a failure compounded by a failure.
[12]Indeed, the Institute’s “computer system which handled the issue of practising certificates had been programmed by the [Institute] to issue a practising certificate to [Mr Power] without requiring evidence of professional indemnity insurance”: para. 6(a) of Exhibit KJP-39 to the affidavit of Mr Power sworn 24 March 2004.

Mr Power himself perhaps had no doubt that counsel was correct. If so, it was nothing more than an excess of caution that led him on or about 8 November 2002 to seek from the Legal Practice Board an exemption from the requirement that he be covered by professional indemnity insurance. The relevant power is to be found in s. 229A of the Act:

"The Board may exempt legal practitioners, firms or interstate practitioners or classes of legal practitioners, firms or interstate practitioners from the requirement to obtain or maintain professional indemnity insurance."

There is a question whether by this provision the Board may retrospectively sanction an earlier failure to obtain or maintain professional insurance. What is not in doubt is that prospective approval was granted. It is equally certain that on 5 December 2002 the Board purported to confer its retrospective approval as well; and not just from 16 December 1997, when s.229A came into force, but back to 1 January that year, the date of commencement of all but a few of the sections of the Legal Practice Act itself.

Thus doubts remain about the validity, before December 2002, of Mr Power’s practising certificate. It seems that the Legal Ombudsman is determined, as a matter of principle, to clear those doubts up. Provided that the pursuit of principle does not gather around it a patina of zealotry, that is all to the good. If any legal practitioners must conduct their professional (and, to the extent that it is relevant to their professional duties, their private) lives with meticulous observance of the proprieties, it is those whose task it is to ensure the maintenance of professional standards by others. A legal ombudsman or person holding a like office therefore ought to do what she (or he) can, acting always within such powers (if any) as she may have, to ensure that the professional standards of a professional standards department or like entity are maintained at the highest level. In this, firmness must be allied with tact – and with a mind that remains open until procedural fairness has been accorded to all to whom it is owed.

At one level, the allegation of misconduct in relation to Mr Power’s practising certificate could be seen as entirely justified. It will be remembered that, putting aside for the present the charging of grossly excessive costs, “misconduct” encompasses either certain wilful or reckless behaviour, or unsatisfactory conduct that amounts to a substantial or consistent failure to reach reasonable standards of competence and diligence. In these circumstances, the fact that a senior member of the profession held himself out as a current practitioner at a time when, through a failure to obey the statutory requirements, he did not hold a valid practising certificate could amount to misconduct on his part.

At another level, however, the Legal Ombudsman’s attitude to this issue gives rise to the concern about zealotry to which I referred in paragraph [44] above. Some information about the relevant background is necessary. On 29 May 2003, the Institute issued a summons in this Court. It was made returnable, in the Practice Court, the following day. It was one of a total of 21 similarly returnable in which like relief was sought. By the summons in the particular instance in question which, because it is typical of them all will serve as an example of them all, the Institute applied ex parte for an order that Mr Power “be authorised to carry on the practice of Daniel Sydney Slattery”.

By order made by this Court on 20 August 2002, Mr Power had been appointed “receiver of all or any property as defined by s.248 of the Act which belongs to or is held by the defendant Daniel Sydney Slattery”. It was also ordered that Mr Power be authorised to carry on Mr Slattery’s legal practice. Given the provisions of s.250(2) of the Act, to which I referred in paragraph [8] above, that latter order could not and would not have been made had the Court known (assuming it were the fact) that Mr Power, who for the purposes of the application held himself out as a current practitioner, was not in fact so. Thus the order of 20 August 2002 in the matter of Daniel Sydney Slattery itself refers at paragraph 4 to Mr Power as “a current practitioner”.

There subsequently arose the doubts about Mr Power’s practising certificate to which I have referred. With those doubts there also arose the question whether Mr Power had been correct in holding himself out to the Court as a current practitioner on each of the occasions on which the Institute had applied to have him appointed receiver with authority to carry on the practice in question. Hence the applications of 29 May 2003 for orders that Mr Power “be authorised to carry on the practice” of the regulated practitioner or firm the subject of the application.

That in relation to Mr Slattery is supported by an affidavit sworn by Mr Power on 30 May 2003. He there deposes to the fact that he succeeded Mr Gerry Glennen as head of that part of the Institute’s structure that is now known as the Department of Professional Standards. Other matters are dealt with in paragraphs that it is convenient to set out in full ( the numbers preceding each paragraph being those of the affidavit itself):

"6.Under the 1958 Act, it had been the LIV's usual practice, when applying to this Honourable Court for the appointment of a receiver in respect of property held by a solicitor, for the LIV to seek the appointment of Mr Glennen as receiver. The LIV also sought orders that Mr Glennen be appointed by the Court as a solicitor to conduct the practices placed in receivership. I believe that Mr Glennen held a current valid practising certificate at all material times to enable him to undertake this function.
7.After the commencement of the Act and my appointment as General Manager the plaintiff applied to this Honourable Court on 28 February 1997 to substitute me for Mr Glennen as receiver in relation to all existing receiverships. The Court made those orders and also ordered that as a current practitioner I continue the conduct of those practices which had been placed in receivership.
8.Since 28 February 1997, I have also been the person appointed as receiver by the Court in all receivership applications made by the plaintiff under Division 2 of Part 9 of the Act. As in the case of Mr Glennen, it has invariably been ordered that I continue the conduct of those practices as a current practitioner …
9.The form of order which has been made in this and other like cases authorises me to carry on the relevant practice. In cases where the legal practice of a firm under receivership has been continued during the receivership, the legal work has been carried out by solicitors employed by the plaintiff acting on my behalf as receiver, rather than by me personally.
…
36.In the light of [a difference of opinion between counsel asked to advise on the point] there is doubt about whether I was a 'current practitioner' as at 19 August 2002, as deposed to in my affidavit of that date filed in support of the plaintiff's original application in this proceeding.
37.At all material times since 1 January 1997 I have believed that I have held a valid current practising certificate under the Act … If … I have misled the Court by deposing that I was a current practitioner, that error was inadvertent. I swore my affidavit in this and my affidavits in other like proceedings in good faith and in the belief that the matters deposed to therein were true and correct."

At paragraphs 34-35 of the affidavit of 30 May, Mr Power set out in detail the concern which the Legal Ombudsman had expressed about his position. He also exhibited to the affidavit much relevant correspondence. He mentioned Ms Hamond’s dual concerns (a) that he did not hold professional indemnity insurance over the period in question, and (b) that any purported exemption granted by the Legal Practice Board was ineffective. As far as I know, it is fair to say that by this means Mr Power put before the Court most (but, as I state in paragraph [55] below, not all) of the relevant background. He certainly made the Court aware of at least the general nature of the Legal Ombudsman's disquiet at the situation as she saw it.

The orders sought by the summons of 29 May were granted. In acceding to the application, Cummins J said, among other things (the paragraph numbers being those of the judgment):

"4.… Mr K.J. Power is the General Manager of the Department of Professional Standards of the plaintiff and as such acts as receiver and manager pursuant to orders of the Court. He has been so appointed in this and the 20 other matters before me.
5.It has come to Mr Power's and the plaintiff's notice that at relevant times Mr Power did not have professional indemnity insurance which may have been required under the Act. Mr Power himself did not have such insurance. He and the plaintiff had acted under the belief that the plaintiff's professional indemnity insurance properly comprehended him. The question arose whether it did. In order to bring certainty to the situation the summonses in these matters were filed.
…
7.It is plain that the plaintiff, and Mr Power, had acted in good faith at all times. The error, if it be such, was honest and inadvertent. In all the circumstances I considered it was wholly appropriate to make the orders sought. It was proper and appropriate to exercise the Court's power under s.250(2) and I did so."

Although they were not parties to the proceedings before Cummins J, the Legal Ombudsman, the Legal Practice Board and the Legal Profession Tribunal must in my opinion accept that, in relation to the 21 matters before the Court on 30 May 2003, Mr Power - on the material available to the Judge – “acted in good faith at all times” and that, if he made an error, it “was honest and inadvertent”. In these circumstances a legal ombudsman could come to only one conclusion: that there was no “reasonable likelihood that the tribunal would find the practitioner … guilty of misconduct” within s.151(2) of the Act if the “misconduct” consisted of not being insured at the material times. If, despite this, a legal ombudsman were to bring a charge of misconduct in the Tribunal, the latter would be constrained to dismiss it.

The operative principle here is not quite the same as that upon which the Court acted in Little v Lewis. In bringing a charge in the Tribunal, a legal ombudsman would not, in the circumstances postulated, be conducting her or his affairs as if the appointment of the receiver (and the authority conferred by and with that appointment, and actions taken in accordance with it) were invalid or ineffectual. But, as the Act defines the word, “misconduct” encompasses (among other things) either certain wilful or reckless behaviour, or unsatisfactory conduct that amounts to a substantial or consistent failure to reach reasonable standards of competence and diligence. Thus in finding, as Cummins J did, that Mr Power acted in good faith at all times; and that, if he made a mistake, he was in so doing honest and inadvertent; and that it remained wholly appropriate for the Court to confirm each of the 21 appointments then before it – the Court, in effect, cleared him of misconduct. As a matter of comity as between entities all of which are charged with the proper administration of the law embodied in the Legal Profession Act 1996, the Legal Ombudsman and the Tribunal are constrained from coming, on the same material, to a conclusion inconsistent with that result.

In my opinion it is therefore wrong for the Legal Ombudsman, on the material presently available, to hold the belief (to which I referred in paragraph [33] above) that the Tribunal might find Mr Power guilty of misconduct in relation to his practising certificate. But that conclusion presupposes that the information presently available does not materially differ from that put before Cummins J in May 2003. If the Legal Ombudsman has new and relevant material, then of course the position would change. There are, after all, many cases in which the Tribunal has found misconduct where the practitioner engaged in legal practice without a practising certificate.[13] In one of them, the practitioner had misunderstood the requirements of the Act.[14]
[13] Victorian Lawyers RPA Limited v Kingdon (Legal Profession Tribunal 11 October 1999)
[14] Victorian Lawyers RPA Limited v Healy (Legal Professional Tribunal 5 June 2000)

I do not know whether any of these precedents were put before Cummins J on 30 May 2003. If they were not, I think that they should have been. Those applications were ex parte. As the practitioners who were involved in them would know, there is a duty on such occasions to put before the court all relevant material, whether helpful to the applicant or not. Had Cummins J been aware that the Tribunal had found misconduct where the practitioner misapprehended the requirements of the Act, he might have thought it proper to consider whether his findings precluded the Tribunal hearing a charge or charges based on the same material. In other words, he could then have done that which I now cannot. He could have made it clear, had he been of the requisite opinion, that further investigations by the Legal Ombudsman would not create the want of comity about which I must be concerned.

I return at paragraph [61] below to the lawfulness of the investigations by the Legal Ombudsman into the conduct of the plaintiffs. Before doing so, however, I examine in more detail the allegation of bias.

The allegation of bias

The basis, or at least one of the bases, for this allegation is that the language adopted in paragraphs 8-10 of the Legal Ombudsman’s affidavit of 24 May 2004 bespeaks a mind made up. It is true that at paragraph 8 of her affidavit, Ms Hamond says that she has “reason to believe” that the Tribunal “might” find Mr Power guilty of misconduct. This is not the language of certainty. On the other hand, it reflects - even if it does not mirror - the language of the Act, and (it might be argued) the Legal Ombudsman is therefore bound to use it, whatever the degree of her conviction. At other times what she says is consistent with the settled conclusion that certain things have been done, and certain other things have not been done, and the only question is whether the particular act or omission amounts to misconduct or unsatisfactory conduct. Thus paragraph 10 of Ms Hamond’s affidavit may reasonably be read, it seems to me, as positing that each of Messrs Sapountsis and Horvath have not only carried on legal practice without due authorisation, but have also operated trust accounts without complying with the Act and the Trust Account Practice Rules; and in those circumstances the Legal Ombudsman has reason to believe that there has been conduct by each which might amount to misconduct or unsatisfactory conduct. For this reason, the affidavit continues, her investigations ought to proceed.

The last sentence is important. There is no point in continuing an investigation if all the conclusions that require investigation have already been reached – leaving, in this case, as the only remaining task, the assessment of the Tribunal’s likely finding. Once the other issues have been investigated, this latter task may be completed without further ado. In evincing a desire to take her investigations further, the Legal Ombudsman has therefore, I think, demonstrated that she does not have a closed mind. Indeed, as the evidence discloses, she has on many occasions insisted that this is the case. The plaintiffs in response point to what they assert are numerous other indicia, apart from the doubts attributable to the phraseology employed in paragraphs 8-10 of the affidavit of 24 May 2004, of a mind that has been prematurely closed. I have taken their submissions, and the evidence upon which they rely, into account.

It is nevertheless my opinion that a fair-minded lay observer would not find bias. He or she would, I think, conclude that the Legal Ombudsman would bring to the resolution of the questions she is required to decide a mind sufficiently impartial properly to discharge her duty – that is, in the words of Sheller JA quoted in paragraph [30] above, “to attempt to predict the outcome of a hearing in the Tribunal.”

Relevant to this conclusion is the plaintiffs’ own assertion that initially “the parts of investigation number LOV/03/73 relating to the validity or otherwise of Mr Power’s practising certificate were specifically excluded from the scope of the originating motion.” Despite the indicia to which I refer in paragraph [60] above, it was not until they read the Legal Ombudsman’s affidavit that the plaintiffs decided to include in their summons a complaint that “notwithstanding the fact that these issues were still subject to investigation, she had prejudged them.”

The lawfulness of the Legal Ombudsman’s investigations into the plaintiffs’ conduct

Much of the plaintiffs’ concern in this proceeding has centred upon what they claim to be the Legal Ombudsman’s wrongful insistence that she investigate matters that are outside the proper bounds of her authority. I have already referred to the two bases of this concern.[15] I now turn to examine them in more detail. First, in carrying out his duties under Part 9 of the Act (“Receivers and Managers”) Mr Power did not personally engage in legal practice. He delegated the immediate responsibility for those tasks to Messrs Sapountsis and Horvath, while he remained ultimately responsible to the Court. Even the second and third plaintiffs, however, spent significant proportions of their time discharging duties that did not amount to "engaging in legal practice”. The plaintiffs contend that, to this extent at least, the Legal Ombudsman has no power to investigate their conduct.
[15] These are the first and third issues as so designated in, respectively, paras. [13]and [14]above

In my opinion, the plaintiffs’ position cannot be supported. Division 3 of Part 5 of the Act is headed “Investigation of practitioners’ and firms’ conduct.” The first section under that heading is s.145. It identifies what the Legal Ombudsman must, and also what she may, investigate. It is clear that the subject of an investigation must be the conduct of a legal practitioner. But there is nothing to suggest that the conduct must be that which is part of carrying on a legal practice, still less (if there is any difference) that it must be that which is part of engaging in legal practice. I have already noted that, by s.137(b) of the Act, conduct by a legal practitioner that is unconnected with legal practice may amount to misconduct. Section 145(1) of the Act provides that the Legal Ombudsman must investigate a complaint about conduct of this kind. There will therefore be occasions where she has no choice but to do that which the plaintiffs claim she must never do. If, in the unlikely event that they or any of them are appointed as receivers but without power to carry on the practice in receivership, and a complaint is made that they have as receivers engaged in conduct that would justify a finding that they or one or other of them is or are not of good character, then it would be the Legal Ombudsman’s obligation to investigate the matter subject always to the over-arching jurisdiction of the Court to supervise its appointees.

Exactly the same is true of a complaint made about the conduct of a receiver of a legal practice who is authorised under s.250(2) to carry on the practice. If the complaint has not been dismissed under s.141, or referred to an RPA or the Board under s.142 or s.143, the Legal Ombudsman is obliged by s.145(1) to investigate it. If (i) no misconduct is involved; (ii) the particular conduct the subject of the complaint was not undertaken in the course of engaging in legal practice; and (iii) no contravention or failure of the kind referred to in sub-paragraphs (b), (c) or (d) of the definition of “unsatisfactory conduct” has occurred – then the Legal Ombudsman would be obliged, after her investigations have established that that is so, to take no further action. Until then, or until the Court intervenes, the investigation must continue.

One must also, in this context, consider investigations that the Legal Ombudsman may undertake of her own initiative. All that is required is that she have reason to believe that the conduct of any legal practitioner or firm may amount to misconduct or unsatisfactory conduct. If the latter, a reason to believe that the conduct occurred “in the course of engaging in legal practice” is a necessary criterion only in relation to misconduct of the kind described in paragraphs (a) and (ab) of s.137 of the Act. It is not necessary under paragraphs (b), (c) or (d). And in my opinion the expression “in the course of engaging in legal practice” does not only encompass, as the plaintiffs submit, conduct which occurs while actually engaging in “a professional function capable of only being provided by legally qualified persons for or on behalf of a client”[16] or “the provision of legal services to clients”.[17]
[16] Plaintiffs’ written submissions dated 20 August 2004 at para. 4.8
[17] Ibid., at para.4.11

That approach is, I think, too narrow. In a judgment cited by the plaintiffs, J. D. Phillips J widened it to include, among the “acts or practices” of a solicitor, the “doing [of] something which, though not required to be done exclusively by a solicitor, is usually done by a solicitor and by doing it in such a way as to justify the reasonable inference that the person doing it is a solicitor.” [18] Even that is not wide enough to cover “conduct by a legal practitioner or firm in the course of engaging in legal practice” as that phrase is employed in the definition of “unsatisfactory conduct” in s.137 of the Act. In my opinion it there covers any conduct, whether or not being “capable of only being provided by legally qualified persons for or on behalf of a client” that is intimately connected with the practitioner’s practice as such. If a client attends upon a legal practitioner for the purpose of using his or her services as such in the practitioner/client relationship then almost anything, if not everything, done by the practitioner pursuant to and in the course of that attendance would be encompassed by the phrase “in the course of engaging in legal practice”. It therefore covers, for example, aberrant behavior such as the wrongful or unjustifiable abuse of a client in front of other clients in the place where the practice is carried on. If the abused client were to complain to the Legal Ombudsman that he or she had been subjected to such behaviour, the latter would in my opinion be bound to investigate the complaint; and if, following that investigation, the Legal Ombudsman were satisfied that there was a reasonable likelihood that the Tribunal would find the practitioner guilty of unsatisfactory conduct, she would be bound to proceed in accordance with s.151(3) of the Act.
[18]Cornall v Nagle [1995] 2 VR 188 at 210

In many instances it will only be possible after careful investigation to ascertain whether or not the conduct in question occurred in the course of engaging in the practitioner’s legal practice – and whether or not it might on that ground be classified as misconduct. It is the function, and it may be the duty, of the Legal Ombudsman to carry out such investigations. In other instances, it will not matter whether the conduct did or did not occur in that context. Where a complaint alleges conduct which, if it occurred, would justify a finding that the practitioner was not of good character, or was otherwise unsuited to legal practice, any connection of the conduct to such practice would be irrelevant to the question whether the conduct amounted to misconduct.

Among the things that a receiver authorised to carry on the practice in receivership may do is to retain any property held in connection with the practice for so long as it is necessary or desirable to carry on the practice properly and efficiently.[19] There may be reason to suspect that a receiver who retained property did so not for this purpose but (for example) so as to gain an illegitimate advantage for a third party. If the plaintiffs are correct, the Legal Ombudsman would be precluded from investigating the matter even if a complaint were made to her about it. This, the plaintiffs would contend, necessarily followed from the fact that, in acting as he or she did, the receiver was not engaged in legal practice.
[19]Legal Practice Act 1996 s.252(1)(a)(v).

I think that the plaintiffs are incorrect. In the example given, the receiver was carrying on the practice in receivership. Section 252 says as much. He or she was authorised to carry it on only because he or she was a current practitioner. As a current practitioner, he or she fell within the scope of the Legal Ombudsman’s authority.

The plaintiffs contend that Mr Power’s appointment by the Supreme Court as a receiver, certainly when allied to the circumstances under which he gave effect to that appointment, rendered him immune from the Legal Ombudsman’s jurisdiction. First, he was and is answerable only to the Court. Secondly, he did not as receiver himself engage in legal practice: he left that to Messrs Sapountsis and Horvath.

In my opinion, the argument fails on both counts. The Court’s over-arching supervision of a receivership is one thing. Investigations by the Legal Ombudsman are another. The latter do not necessarily interfere with or adversely impact upon the first. Of course findings by the Court, in the exercise of its supervisory jurisdiction over receivers appointed by the Court, would be binding on the Legal Ombudsman – and everyone else. Of course, no finding of the Legal Ombudsman could affect the fact of a Court appointment, or the validity of anything done in accordance with its terms. But to say this is not to provide a reason why the Legal Ombudsman should otherwise place receivers who are legal practitioners in a different category to such practitioners generally. Once she is satisfied that there is no reasonable likelihood that the Tribunal would find a receiver/practitioner guilty of misconduct (as in relation to the material put before Cummins J on the question of Mr Power’s practising certificate), she must put misconduct aside. Once she is satisfied that there is no reasonable likelihood that the Tribunal would find the receiver/practitioner guilty of either misconduct or unsatisfactory conduct, her investigations must cease. If misconduct is ruled out; and if the conduct in question could only qualify for the purposes of the Act as “unsatisfactory” if it occurred in the course of engaging in legal practice; and if it did not so occur – then again, as soon as that is seen to be the position, the Legal Ombudsman must take no further action. Until then she is either free or, depending on the circumstances bound, to continue.

The plaintiffs, as I understand their position, argue that in any event the point has been reached where no reasonable Legal Ombudsman could be satisfied that there was a reasonable likelihood that the Tribunal would find the plaintiffs guilty of anything. In my opinion, this is so to a limited extent only. For reasons already given, I do not think that a finding of misconduct is open on the material put before Cummins J in relation to Mr Power’s practising certificate. I have an allied concern in relation to another matter under investigation. The Legal Ombudsman suggests that Messrs Sapountsis and Horvath may have been carrying on legal practice without proper authority. As I understand her position, it is that it is they, and not Mr Power, who have been in effective control of the receiverships to which Mr Power has been appointed as receiver with authority to carry on the legal practice. So it is they who have exercised that authority, in place of Mr Power. But they have never had the Court’s authority to do so.

If the Legal Ombudsman is right, Messrs Sapountsis and Horvath are between a rock and a hard place. They are employees of the Institute. They are subordinate to, and answerable to, Mr Power. They are employed to assist Mr Power to carry on the legal practices that, as receiver, he is authorised by the Court to carry on. Because they are current practitioners, they have the necessary qualifications to do just that. How could they disobey instructions to that effect? As the plaintiffs correctly assert, Mr Power cannot be expected to carry on a practice in receivership all by himself. Of course he must be entitled to call upon others to assist him, while never delegating to another his ultimate responsibility to answer to the Court. So Messrs Sapountsis and Horvath, as employees of the Institute, have no choice but to provide that assistance. How are they to identify the moment at which their giving assistance to Mr Power becomes their wrongful assumption of authority to carry on legal practice? It would in my opinion be unjust to place upon them blame for assuming an authority that was thrust upon them by others.

It might be said that Messrs Sapountsis and Horvath, by accepting from Mr Power a general delegation of authority to carry on a legal practice in receivership, knowingly joined with him in nullifying the Court’s conferral of that authority on Mr Power alone. There is no evidence to substantiate such a claim. And the logic of the position in which Messrs Sapountsis and Horvath are placed makes it unlikely that such evidence exists. Even if they devoutly wished to assume for themselves the authority which the Court had conferred exclusively upon another, they could not, and they would know that they could not, give effect to that wish. Whatever the arrangements between them and Mr Power, in the end the latter would remain the person who the Court would hold responsible for the conduct of the receivership.

Nothing put before me suggests a reasonable likelihood that the Tribunal would find either Mr Sapountsis or Mr Horvath guilty of either misconduct or unsatisfactory conduct because they assumed an authority they did not have. I accept that in the first instance this is an assessment which it is the Legal Ombudsman’s, and not the Court’s, to make. But, on the evidence known to me, the Tribunal would in my opinion itself be guilty of an act of injustice were it to find either plaintiff guilty of carrying on legal practice without proper authority. In these circumstances, the Legal Ombudsman acting reasonably could not be satisfied in the terms required by sub-s.(2) and (3) of s.151 of the Act, and must be satisfied in the terms of sub-s.(5) of that section. Her investigations into this issue must therefore cease.

The position of Mr Power is different. The Court has authorised him to carry on certain legal practices. He alone has that authority. He may of course obtain the assistance of adequately qualified people. But if in so doing he divorces himself from the activities necessary to give effect to that authority, and for that reason fails to discharge the responsibilities which the Court has entrusted to him, then he may be guilty of misconduct or unsatisfactory conduct. This might be the result if, for example, Mr Power failed to fulfil any role at all in the conduct of a particular receivership.

I referred in paragraph [24] above to some of the considerations which in my opinion ought to inform the approach of a wise legal ombudsman to an investigation into such matters as the distribution of responsibility among members of a professional standards department. Mr Power may well be justified in leaving a large share of responsibility to experienced and properly qualified employees in whom he has adequately-based confidence and trust. It is a question of degree. Investigators should be slow to condemn a state of affairs that has worked well in the past and which has no realistic likelihood of going wrong in the future.

Against this is the position held by the Institute in the legal profession. It is the peak body representing Victorian solicitors. It has commensurate responsibilities. And Mr Power himself has claimed that he did not personally carry on the legal practice of any practice in receivership. In these circumstances, there may be a basis for concern. In my opinion it is within the scope of the Legal Ombudsman’s role to investigate whether such concern is justified. The Court may be assisted in fulfilling its own supervisory function by being presented with the results of her work.

The Legal Ombudsman claims that she is concerned that Mr Power has failed adequately to supervise employees under his control who were responsible for, among other things, the accounting records of the practices over which he was appointed receiver. She also claims that all three plaintiffs have failed to handle trust moneys in the manner required by law. The plaintiffs in reply assert that Part 6 of the Act does not apply to receivers. Its object is to prevent unauthorised dealings, including defalcations. But once a defalcation has occurred, a receiver is appointed to clear up the resultant difficulties. Accordingly, the argument appears to conclude, receivers ought not be required to observe the provisions of that Part, including those that apply to the administration of trust accounts.

The logic of this argument is, I think, unattractive. It assumes that those who are appointed to remedy the faults of others will either never themselves commit the misdeeds they are appointed to rectify or, in the case of receivers appointed by the Court, will furnish to the Court reports which will reveal any breaches of duty. That is a dangerously false assumption. I do not think that Parliament has made it. I accept, as the plaintiffs have correctly pointed out, that s.287 of the Act provides that Part 6 applies to trust accounts kept by a manager appointed by an RPA or the Board for the legal practice of a regulated practitioner. There is no equivalent provision for receivers. A receiver who is also a legal practitioner and who, as such, operates a trust account, is nevertheless caught by the section, because it states that Part 6 applies alike to trust accounts kept by managers and “by any other legal practitioner.” Moreover, s.251(5), having permitted the receiver to open special accounts in the receiver’s own name, then proceeds – in effect - to limit any additional permission. Such further permission can extend only to dealings “with any such special account in the same manner and to the same extent as the regulated practitioner might have done … in respect of the trust account.”

In my opinion, the plaintiffs are to this extent at least bound by Part 6. Depending on the applicability of s.145, the Legal Ombudsman may, and in some circumstances must, investigate such conduct of the plaintiffs as may amount to misconduct or unsatisfactory conduct in breach of that Part. She may in the course of a particular investigation form the opinion that the relevant provision of Part 6 does not apply to the plaintiffs. If so, she will tailor her investigation accordingly.

It is I think undesirable for me to state that a receiver is bound by all the provisions of Part 6. I have not been taken to them all, and am not familiar with them all. It may be that some are inapplicable to the plaintiffs. In these circumstances, sweeping pronouncements from me would be less than helpful.

I have given my reasons for concluding that the Legal Ombudsman may not continue her investigation into Mr Power’s professional indemnity insurance arrangements, or the lack of them, insofar as these may lead to action by her under s.151(2) of the Act based only upon the material available to Cummins J on 30 May 2003. I have also given my reasons for concluding that she may not continue her investigations into whether or not Messrs Sapountsis and/or Horvath carried on legal practice without proper authority. Should the plaintiffs press the matter, I will consider making declarations to that effect, and will hear counsel about the form those declarations should take. I expect, however, that the Legal Ombudsman will indicate that she will not pursue her inquiries in this regard. In that case, declarations would not be necessary.

I should say a word about the declarations sought by the plaintiffs in their originating motion. Ten such declarations are listed in paragraph 1. A further declaration is sought by paragraph 2.

I do not think that any of the first six should be made in the terms of the originating motion. I have, I hope, made clear in this judgment my views about the legal issues sought to be addressed by the first three. To go further and actually make those declarations in those terms would be to express the legal position more broadly than can be justified.

The first proposed declaration illustrates the point. It is to the effect that Mr Power was authorised by the Court “to carry on the receivership practices whether or not he was a current practitioner at the relevant times”. Given that, by s.250(2) of the Act, the Court may authorise the receiver to carry on the legal practice only if the appointee is a current practitioner, a declaration in the terms put forward by the plaintiffs is not within my power to make. Nor would it accurately reflect the position created by the orders made by Cummins J on 30 May 2003. Paragraph 2 of the orders in the matter of Slattery, for example, provides that “Kevin Joseph Power a current practitioner … is authorised to carry on the practice of Daniel Sydney Slattery”. It therefore addresses the present and the future. It says nothing about the past; and in particular it says nothing to suggest that Mr Power’s authority is unaffected by his status as a practitioner (whether with or without a valid practising certificate).

The second and third of the declarations sought by the plaintiffs are to be read together. They are to the combined effect that, by reason of the authority thus conferred on him, it was (a) lawful for Mr Power to engage the other two plaintiffs “to perform legal work on his behalf to carry on the receivership practices” and (b) lawful for the other two plaintiffs to do that work. Such declarations might, however, be taken as meaning that Mr Power was entitled to delegate all his responsibilities as receiver so long only as any work subsequently performed by his delegates was done “on his behalf” and “to carry on the partnership practices”. For the reasons I have given, Mr Power was not so entitled. There was a limit beyond which those responsibilities could not be divested.

The fourth, fifth and sixth proposed declarations are to the effect that the plaintiffs, either (in the case of Mr Power) as receiver or (in the case of the other two) as his agents, are not required to comply with certain provisions of Part 6 of the Act. In my opinion, however, much if not all of Part 6 is binding on them. The fourth declaration is illustrative. As sought by the plaintiffs, it is to the effect that Mr Power is not bound to comply with Part 6 in relation to any special account established by him pursuant to s. 251 of the Act. But, as I have already observed, by s.251(5) Mr Power must deal with such an account “in the same manner and to the same extent as the regulated practitioner might have done so in respect of [that practitioner’s] trust account”. The regulated practitioner was obliged to deal with his or her trust account in accordance with Part 6. Mr Power must do the same. The fourth proposed declaration should not be made.

The fifth such declaration is that, as a receiver, Mr Power was not required to comply with the provisions of Part 6 in relation to the trust accounts of the practice in receivership and, in particular, was not required to cause those accounts to be audited under that Part. But Mr Power’s practising certificate is one which authorises him to receive trust money. A legal practitioner who is authorised to receive trust money must before such receipt establish a trust account in an authorised deposit-taking institution: s.173(1). A legal practitioner who is required to maintain a trust account must have it audited annually: s.183(1). For his part, Mr Power may withdraw all the money in the trust account of the practice in receivership and pay it into a special account in his own name. After that, his right to deal with the funds in the special account is, as I have noted above, limited. It is restricted to dealings “in the same manner and to the same extent as the regulated practitioner might have done”: s.251(5). That may well incorporate the s.183 audit. The issue was not argued before me sufficiently to enable me to decide the point. I am for this reason likewise not in a position to make the declaration sought.

This brings me to the sixth declaration. It is in the same form as the fifth, except that it is directed to Messrs Sapountsis and Horvath “as agents of the first plaintiff”. It requires from me a like response.

The remaining declarations sought by the plaintiffs by paragraph 1 of the originating motion go to the lawfulness of certain of the things done by them in the course of conducting receiverships to which Mr Power had been appointed. Insofar as they concern the conduct of Mr Power himself, they are directed (in the case of the seventh declaration) to his operation of the trust accounts of practitioners for the purpose of paying trust moneys to the persons lawfully entitled to them, and for the purposes of carrying on the receivership practices. In the case of the tenth declaration, the conduct in question is the lawfulness of his signing (a) “notices to pay on behalf of a mortgagee in respect of a mortgage arranged by a contributory mortgage practice being a receivership practice” and (b) a statutory declaration, contract of sale transfer of land or statement under s.32 of the Sale of Land Act 1962 in respect of a mortgage similarly arranged.

In my opinion, the necessary authority was in each case conferred by the Court upon Mr Power on the occasion of his appointment as receiver. The Legal Ombudsman cannot, for the reasons given in this judgment, go behind the orders the Court then made. The plaintiffs are entitled to these declarations.

They are also entitled to those sought as the eighth and ninth declarations. The eighth concerns the operation by Messrs Sapountsis and Horvath of trust accounts as “agents” of the first plaintiff. The Legal Ombudsman does not, in the absence of any question about Mr Power’s standing, suggest any wrongdoing. For presently relevant purposes, the issue of that standing was settled when the Court appointed Mr Power as receiver. In those circumstances, the plaintiffs are entitled to this declaration.

The ninth declaration sought by the plaintiffs would, if made, be to the effect that it was lawful for the second and third plaintiffs to sign bills of costs expressed to be on behalf of the first plaintiff for legal work done by them in the course of carrying on the receivership practices, or for legal work done by the relevant practitioner before Mr Power’s appointment as receiver. The only reason why Messrs Sapountsis and/or Horvath ought not to have signed would be the first plaintiff’s failure to procure professional indemnity insurance and the consequential doubt about his status as a current practitioner. Given the orders of Cummins J, and given the innocence of Messrs Sapountsis and Horvath in this matter, this declaration should also be made.

The declaration sought by the plaintiffs in paragraph 2 of their originating motion goes to the Legal Ombudsman’s right to continue to investigate Mr Power’s conduct as receiver of the Young Hubbard & Co contributory mortgage practice. In my opinion, the application for this declaration must be refused. The genesis of the investigation was in a complaint made to the Institute. Fortunately, and wisely, it did not respond by asserting that, because Mr Power was not at any material time engaged in, or carrying on, a legal practice it was unable to act upon the complaint. An investigation by the Institute therefore took place. The complainant being nonetheless dissatisfied with the outcome, the matter was referred to the Legal Ombudsman. In my opinion, she thereafter had and has no choice but to undertake an investigation of her own. Even had her hands not been tied, but she had merely on her own instigation commenced an investigation pursuant to s.145(2), she would have been entitled to continue it - no matter that the conduct complained of did not occur in the course of engaging in legal practice – so long as there remained a reasonable likelihood that the Tribunal would find that that conduct might amount to misconduct under paragraph (b) of the definition in s.137, or if paragraphs (b) – (d) of the definition of “unsatisfactory conduct” applied.

The plaintiffs seek certain injunctions to restrain the Legal Ombudsman from continuing any of the five investigations that she is presently undertaking. The Court has a discretion, to be exercised judicially, whether or not to grant applications of this kind. I have no reason to think that the Legal Ombudsman will continue any investigation to the extent that I have in this judgment indicated that it should not proceed. In these circumstances, the applications for injunctive relief will be refused.

In the result, the first six and the last of the total of eleven declarations requested by the plaintiffs will not be made. I will make the remaining four. Otherwise, the Legal Ombudsman’s investigations may continue. They ought not become a crusade. The application for injunctions is refused. I will hear the parties on the question of costs.

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[2005] VSC 2

22 March 2005