Re Magarey Farlam Lawyers Trust Accounts (No 2)

The case of Re Magarey Farlam Lawyers Trust Accounts (No 2) involved the misappropriating of trust monies, leading to an application under section 47(1) of the Legal Practitioners Act 1981. The applicants sought directions regarding the disbursement of the remaining monies in the trust accounts. The Legal Practitioners Act 1981 section 47(2) provides that the costs of the application are to be paid out of the guarantee fund. The court was tasked with determining whether the costs incurred by the claimants on the supervisor's application under section 47(1) should be payable out of the Guarantee Fund.

The legal issues at hand centred on the interpretation of the Legal Practitioners Act 1981 and whether the costs incurred by the claimants in these proceedings were indeed costs of the supervisor's application under section 47(1) and thus payable out of the guarantee fund. The court had to consider the provisions of section 60 of the Act, which provides for claims against the guarantee fund where a person has suffered loss due to a fiduciary or professional default. The court determined that the costs incurred by the claimants in these proceedings, who had moneys in the trust accounts of either Magarey Farlam Lawyers or Gimalo, and the costs incurred by the partners of Magarey Farlam Lawyers in relation to claims arising from the fraudulent activities of William Brenton Willoughby, were costs of the supervisor’s application under section 47(1) and were capable of being paid out of the guarantee fund.

The court concluded that the costs incurred by the claimants in these proceedings were costs of the supervisor’s application under section 47(1) of the Legal Practitioners Act and could be paid out of the guarantee fund. This decision was based on the court's interpretation of the relevant provisions of the Act, particularly section 60, which governs claims against the guarantee fund. The court noted that the tracing claimants, who contended they could trace the whole of the funds deposited into the trust accounts, would incur substantial legal expenses in prosecuting their tracing claim. However, if they succeeded, they would not suffer any loss of the amount held in those accounts. By contrast, the pooling claimants would be entitled to recover their reasonable costs of prosecuting their claims as they would not have been able to recover the full amount of their losses. The court found it inequitable if one group of claimants was entitled to recover their costs while another was not. Therefore, it was appropriate for both classes to recover their costs pursuant to section 47(2).

The court did not make any order as to costs at this stage, as the issues between the parties had not been determined. The question of whether such an order will be made would depend on the outcome of the proceedings. The court's decision clarified that the costs incurred by the claimants were costs of the supervisor’s application under section 47(1) and were capable of being paid out of the guarantee fund.