Re McCulloch and McCulloch (a firm); ex parte Dobson

[2001] TASSC 17

[2001] TASSC 17

CITATION:    Re McCulloch & McCulloch (a firm); ex parte Dobson [2001] TASSC 17

PARTIES:  DOBSON, Peter Henry

THE SOLICITORS' TRUST

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  M363/1999
DELIVERED ON:  1 March 2001
DELIVERED AT:  Hobart
HEARING DATES:  15 February 2001
JUDGMENT OF:  Slicer J

CATCHWORDS:

Professions and Trades - Lawyers - Legal practitioners' guarantee funds - Other States or Territories - Claimants require order of court to be paid from the Court fund - Tasmania - Default order - Establishment of Court fund - Right of access to fund.

Re Hurburgh 49/1997, followed.
Legal Profession Act 1993 (Tas), s111
Aust Dig Professions and Trades [103]

REPRESENTATION:

Counsel:
             Applicant Dobson:  C R Doherty
             Respondent Solicitors' Trust:      D J Porter QC
Solicitors:
             Applicant Dobson:  Toomey Manning & Co
             Respondent Solicitors' Trust:      Tony Davis

Judgment Number:  [2001] TASSC 17
Number of Paragraphs:  17

Serial No 17/2001
File No M363/1999

IN THE MATTER OF THE LEGAL PROFESSION ACT 1993 and
IN THE MATTER OF McCULLOCH & McCULLOCH (a firm);
ex parte PETER HENRY DOBSON

REASONS FOR JUDGMENT  SLICER J

1 March 2001

1. On 7 November 1997, upon the application of the Law Society of Tasmania, this Court declared:

"… pursuant to section 111 of the Legal Profession Act 1993 … that the said McCulloch & McCulloch is in default."

and relevantly ordered:

"1 That a Court fund be established in accordance with subsection (2) of Section 111 of the Act.

2   That any money standing to the credit of any trust bank account or trust deposit account of the said firm relating to loans numbered 930221, 930225, 930226 and 950250 in its mortgage register be paid into the said fund."

The declaration and orders were made in relation to a firm of legal practitioners which had been engaged in the management of clients' funds, in particular the lending of those funds secured by mortgage.  The second order identified those loans identified by number corresponding with a mortgage register.

1. On 29 March 1999, again upon the application of the Law Society and with the consent of the Solicitors' Trust, a further order was made in the same matter:

"… that any money standing to the credit of any trust bank account or trust deposit account of McCulloch & McCulloch (a firm) relating to loan number 950251 and loan number 940223 in its mortgage register be paid into the Court Fund established pursuant to the order made by this Court on 7th day of November, 1997 …".

1. On 17 September 1999, the solicitors for the applicant wrote to the Solicitors' Trust seeking to make a claim against the Court fund established by the order made on 7 November 1997.  The applicant had placed money into the trust account of McCulloch & McCulloch ("the firm") which money had been lent on mortgage to the purchaser of real estate.  Default had been made and after the exercise of the power of sale, the applicant was left with a short fall of principal which, together with interest, amounted, as of the date of the letter, to $42,000.  In their letter, the solicitors stated that the applicant had a right to claim damages from the firm "on the basis of negligence and breach of trust".  The Solicitors' Trust rejected the claim on a number of bases, including that:

"… the Trust is of the view that as the Default Order made 7th November 1997 and 29th March 1999 are specific in respect of a number of mortgages, and that in which your client was a contributor is not one of them, it is only those persons who are contributors to the mortgages the subject of the Orders, who have a right to claim against the Court Fund."

By an originating application dated 5 November, the applicant sought orders which included:

"1   An order pursuant to section 115 of the Legal Profession Act 1993 that the decision by The Solicitors' Trust, conveyed to the applicant by letter dated 6 October 1999 to reject the applicant's claim against the court fund established pursuant to an order made by this court on 7 November 1997 be quashed.

2    An order that the Solicitors' Trust accept the applicant's claim annexed to his letter to the Solicitors' Trust dated 17 September 1999."

1. The parties seek determination of the preliminary question of whether, as a matter of statutory interpretation, the course adopted entitles the applicant to be accepted as a claimant to the fund.  Resolution of a second issue, namely whether the loss was occasioned by a breach of fiduciary trust, is dependent on affirmation of a statutory right.

1. The primary contention of the applicant is that the order made on 7 November 1997 created a general Court fund.  Default in a particular transaction or trust affords the Court jurisdiction, with the power to order the establishment of a protective fund referable to the legal firm involved.  Whilst the initial order might confine the protection to identified clients or accounts, the existence of the fund permits another person to have his or her claim admitted to the general Court fund.  The respondent concedes that other financial matters can be included within the general fund, but that any applicant must comply with a statutory scheme and may not simply state the claim and require admission by the Solicitors' Trust.

1. The procedure for the making of applications, the creation of a Court fund and its administration are governed by the Legal Profession Act 1993, ("the Act"), Pt9, Div5.  Primary, but not exclusive, responsibility for the making of applications is entrusted to the Council of the Law Society of Tasmania.  It is entitled to prohibit a dealing with money or property as a protective measure (s109) and may make recommendations to the Court as to the application of the fund (s112(3)).  However, the grant of power is vested in the Court and the category of persons who might seek the exercise of power is not confined to the Society.  Significantly, the Trust has no power independent of the judicial power, except that afforded by the Act, s114(3).

1. The Act, s111(1), confines the category of person who may seek a declaration that a firm or legal practitioner is in default to:

"111 ¾ (1) …

(a)the Society;

(b)a person who claims to have suffered loss or incurred liability of a kind referred to in section 112 as a result of a fiduciary default;

(c)a firm or legal practitioner corporation who ¾  

(i)   has paid money to a person referred to in paragraph (b); or

(ii)  has incurred liability as a result of a fiduciary default."

1. The right of the Society to make application is not confined by the requirement that there has been a "fiduciary default" either because Parliament assumed that the Society would not act capriciously or because of the need for protective action before the Society had an opportunity to determine whether the default was fiduciary in nature.  Upon a declaration of default:

"… a Court fund is to be established in the Supreme Court." [section 111(2)].

1. In the case of an order being made at the behest of a person defined by s111(1)(b), it is not part of the statutory scheme that all of the trust moneys, property or financial transactions of the firm or legal practitioner become susceptible to inclusion within the Court fund or that other persons of the same category could seek to become admitted to the fund without further court process.  The Court fund would be confined to that property or moneys connected with the loss or incurred liability of a person claiming loss "as a result of a fiduciary default".  In the case of an application made by the Society, it is entitled to specify which dealings, moneys or property are at risk or which have been lost and in relation to which a protective order is sought.  Whilst other applications might be made, the Court fund is limited to those identified moneys or property which are the subject of the application.  In this case, the applicant has not sought to make an application in accordance with the Act, s111(1)(b).

1. In one respect the Court fund is general in nature in that other claims and property can be added to it, but only in accordance with the statutory scheme. That course has been adopted in the making of the order of 29 March 1999.

1. The Act, s111(3) provides:

"(3)  If a Court fund is established in respect of a firm or legal practitioner corporation, a right to claim against the firm or legal practitioner corporation is a right to claim against that Court fund."

The effect of that provision was considered by Zeeman J in Re Hurburgh 49/1997.  As his Honour stated at 3:

"By s111(3), once a Court fund is established, a right to claim against the firm or legal practitioner corporation in respect of whom the relevant default declaration has been made is converted into a right to claim against the fund. Whilst the expression "right to claim" is not defined or limited, the context would appear to require that it be construed as being limited to a right to claim compensation or for the exoneration of property in respect of which the Court fund may be applied under s112(1)."

1. But the claim must relate to a matter connected with the money or property which has been transferred into the Court fund.  Transfer can be made in relation to all the moneys held in a firm's trust account (s111(5)(a)) or of such sums as are needed for the purposes provided for by the Act, s112 (s111(5)(b)).  The special status of moneys paid into the general fund is recognised by the Act, s111(11).

1. Each step requires a court order.  The scheme is one completely within the province of the court.  Rights and interests of any person who has suffered loss are confined to the matters or transactions which were the subject of the declaration of default or which have been affected by the operation of the Act, s111(5).

1. There are circumstances when it is not appropriate to confine the moneys, property or assets to specific identified transactions.  It might be impossible to quarantine the particular matters from the activities of the firm at large.  In such circumstances, the court may, upon application or by its own motion, direct that all prospective claimants are entitled to identify the claim for loss and to apply for redress as against the Court fund.  In such a case, an order would be required transferring all of the trust moneys and property of the particular firm into the Court fund.  The Act, s114, provides:

"114 ¾ (1)  If a Court fund is established, the Supreme Court may order the Trust ¾  

(a)to advertise in such manner as the Supreme Court directs for claims to be made against the Court fund within such period as the Supreme Court may specify; and

(b)to ascertain any prospective claimants and notify them that claims may be made against the Court fund.

(2)   A claim is to be lodged with the Trust.

(3)   On receipt of a claim, the Trust may ¾ 

(a)accept the claim; or

(b)reject the claim in part or in whole.

(4)   If the Trust rejects a claim, it must notify in writing the person lodging the claim of the grounds of the rejection."

1. A person aggrieved by a decision of the Trust to reject a claim has the right of review (s115).  However, unless and until the Court makes an order pursuant to s114, a potential claimant has no right to seek redress by means of the Court fund, unless loss is referable to the property or transaction which has already been the subject of a default order.  Such a person could seek redress by the making of an application permitted by the Act, s111(1)(b) or (c).  It is not necessary for the purpose of this decision to determine whether such a person has standing to seek an enlargement of the original order by means of the Act, s111(5).  However, an applicant successful by means of the Act, s111(1)(b) or (c) would be entitled to the protection of joinder with the fund.

1. The scheme of the protective legislation can be summarised in the following terms:

·   The Law Society of Tasmania has the right to seek a default order for wide and varying reasons.

·   Persons who claim to have suffered a particular loss (identified by the Act, s112) as a result of a fiduciary default have the right to seek such an order.

·   A legal firm has a right to make application in respect of a particular form of loss.

·   Upon a declaration of default, the Court is required to create a Court fund which might encompass all of the dealings of the particular firm or limit transfer to specified matters. 

·   The Court might enlarge those specified matters. 

·   The Court has power to invite all persons to submit claims, but until it does, only persons who have an interest in the particular property which has been the subject of a default order is entitled to seek joinder.

·   The scheme is at all times subject to the jurisdiction of the Court (Re Hurburgh (supra)) and the Trust has limited powers of discretion (s114(3)(a)).  It has no power to enlarge the category of persons or permit a prospective claimant, except by reference to the property which has been the subject of a default order or which has been identified by an order made in accordance with the Act, s111(5).

1. The orders sought in the application numbered 1 - 2 will not be granted and those applications are dismissed.