Robb, Gary Alan v The Law Society of the Australian Capital Territory
[1996] FCA 1131
•24 DECEMBER 1996
CATCHWORDS
LEGAL PRACTITIONERS - whether practitioners dealt with client monies in accordance with client directions - whether sums representing unpaid disbursements could be treated as the practitioners’ own money - delays in paying disbursements where client monies made available for that purpose - delay in paying refunds to clients - whether professional misconduct - particular liens
LEGAL PRACTITIONERS - penalty - matters other than those the subject of charges taken into account - conduct of disciplinary proceedings
Legal Practitioners Act 1970 (ACT) ss67(1), 62, 87(1), 87(5), 94(2), 91, 98(2)(b)
Chamberlain v The Law Society of The Australian Capital Territory (1992) 43 FLR 149 Refd
Guy v Churchill (1887) 35 Ch D 489
Johns v Law Society of New South Wales [1982] 2 NSWLR 1
Re Johnston and re the Legal Practitioners Ordinance 1970 (1979) 32 ACTR 37
Northwest Construction Co Pty Ltd (In Liquidation) v Marian [1965] WAR 205
Worrell v Power & Power (1993) 46 FCR 214
Gary Alan Robb and Gerard Peter Rees v The Law Society of the Australian Capital Territory
No ACT G 34 of 1996
Black CJ, Jenkinson, Sackville, Kiefel, Merkel JJ
Melbourne (Heard in Melbourne)
24 December 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY ) )
GENERAL DIVISION )
No: ACT G 34 of 1996
BETWEEN: GARY ALAN ROBB
and GERARD PETER REES
Appellants
AND:THE LAW SOCIETY OF THE
AUSTRALIAN CAPITAL TERRITORY
Respondent
CORAM: BLACK CJ, JENKINSON, SACKVILLE, KIEFEL, MERKEL JJ
PLACE: MELBOURNE
DATE : 24 DECEMBER 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
The appeal by Gary Alan Robb be allowed in part.
The order suspending the appellant Gary Alan Robb from practice as a barrister and solicitor for a period of 18 months be set aside and that in lieu thereof it be ordered that Gary Alan Robb be suspended from practice for a period of six months with effect from 1 July 1996.
The appeal by Gary Alan Robb be otherwise dismissed.
The appeal by Gerard Peter Rees be allowed in part.
The order imposing a fine of $20,000 on the appellant Gerard Peter Rees be set aside and that in lieu thereof it be ordered that Gerard Peter Rees pay a fine of $6,000.
The appeal by Gerard Peter Rees be otherwise dismissed.
The costs of these appeals be reserved and that the parties have leave to make submissions in writing on the question of costs, as follows:
(a)the appellants' submissions to be filed and served on or before 7 February 1997
(b)the respondent's submission in reply to be filed and served on or before 21 February 1997.
(Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.)
IN THE FEDERAL COURT OF AUSTRALIA )
)
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY )
)
GENERAL DIVISION )
No: ACT G 34 of 1996
BETWEEN:GARY ALAN ROBB and GERARD PETER REES
Appellants
AND:THE LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY
Respondent
CORAM: BLACK CJ, JENKINSON, SACKVILLE, KIEFEL and MERKEL JJ
PLACE: MELBOURNE
DATE : 24 DECEMBER 1996
REASONS FOR JUDGMENT
BLACK CJ and MERKEL J:
We have had the advantage of reading the reasons for judgment prepared by Kiefel J and we agree, for the reasons her Honour gives, that the orders suspending the first appellant from practice and imposing a fine upon the second appellant should be set aside. We also agree with Kiefel J, for the reasons she gives, that there should, instead, be an order that the first appellant be suspended from practice for a period of six months. The suspension should run from 1st July 1996; that was the date from which, by order of the Supreme Court of the Australian Capital Territory, the eighteen month period of suspension was to run. We agree too that a fine of $6,000 should be imposed on the second appellant.
There is one specific matter about which we add some brief observations of our own. It concerns the operation of s87(3) of the Legal Practitioners Act 1970 (ACT) which provides that s87(1) does not apply to moneys received by a solicitor for or on account of
his or her legal costs. In our view, s87(3) had no application to the disbursements for barristers' fees and expert witnesses' fees that were the subject of the standard form authorities given by the clients in this case. Those authorities dealt separately and specifically with the disbursements for such fees which were accordingly not encompassed by the general authority to "also" deduct "your reasonable costs and disbursements". If the latter authority did fall within s87(3), the earlier authority made it plain that the barristers' and expert witnesses' fees were to be dealt with in accordance with a separate instruction which fell within s87(1).
Views may differ about the extent of the benefit derived from the conduct the subject of the present case. The central fact remains, however, that a course of conduct was engaged in that involved moneys which had been held on behalf of clients being dealt with in a manner that was not in accordance with the instructions or directions of those clients. The trust and confidence reposed by clients in legal practitioners representing them is an essential element in the relationship between practitioner and client and the misconduct of the practitioners in the present case had the tendency to undermine that trust and confidence. A period of suspension from practice was called for in the case of the first appellant but in all the circumstances we consider that the period of six months suspension proposed by Kiefel J is appropriate.
I certify that this and the preceding page are a true copy of the reasons for judgment of the Honourable Chief Justice Black and the Honourable Justice Merkel.
Associate
Dated: 24 December 1996
IN THE FEDERAL COURT OF AUSTRALIA )
AUSTRALIAN CAPITAL TERRITORY ) No. ACT G34 of 1996
DISTRICT REGISTRY )
GENERAL DIVISION )
On Appeal from the Supreme Court of the Australian Capital Territory
BETWEEN:GARRY ALAN ROBB and GERARD PETER REES
Appellants
AND:THE LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY
Respondent
CORAM: Black C.J., Jenkinson, Sackville, Kiefel and
Merkel JJ.
PLACE: Melbourne
DATE: 24 December 1996
REASONS FOR JUDGMENT
JENKINSON J.
Appeals from an order of the Supreme Court of the Australian Capital Territory that the appellant Mr. Robb be suspended from practice as a barrister and solicitor for a period of eighteen months and from an order that the appellant Mr. Rees pay a fine of $20,000.
The Full Court of the Supreme Court made the orders in exercise of its inherent power to control by its orders the admission of persons to practise as barristers and solicitors in the Territory and to control and discipline those who have been so admitted in respect of their conduct in that practice. Exercise of the power to discipline a person whose name is on the Roll of Barristers and Solicitors of the Supreme Court is regulated by 67 of the Legal Practitioners Act 1970 (A.C.T.), sub-section (1) of which provides:
"If, on a report under section 62 or otherwise, the Supreme Court is satisfied that a barrister and solicitor is guilty of professional misconduct or unsatisfactory professional conduct, the Court may, by order, do all or any of the following:
(a)direct that his or her name be removed from the Roll of Barristers and Solicitors;
(b)suspend for such period as the Court considers appropriate his or her right to practise in the Territory as a barrister, as a solicitor or as a barrister and solicitor;
(c)impose on him or her a fine not exceeding 200 penalty units;
(d)where the barrister and solicitor is practising solely as a barrister - reprimand him or her."
Sub-section 67(4) provides:
"The Law Society is entitled to be represented in proceedings for an order under this section."
The Law Society of the Australian Capital Territory is by that Act constituted a body corporate and is therein designated "Law Society".
The Law Society formulated allegations against Mr. Robb and his partner Mr. Rees thus:
"1.The solicitors wilfully failed to comply with the Legal Practitioners Act 1970 (ACT) in that:
(a)contrary to s.87(1) and s.94(2), trust moneys of their clients transferred from the trust account of the solicitors to their office account for the payment of accounts of third parties, were not applied by the solicitors within a reasonable time of the transfer to payment of the accounts of the third parties;
(b)contrary to s.87(1) and s.94(2), trust moneys of clients of the solicitors which, according to the instructions of the client, were to be disbursed by the solicitors in or towards payment of fees of third parties, were held by the solicitors, for their own personal benefit, in their office and cash management accounts; and
(c)contrary to s.87 and s.91, the solicitors deposited in their office accounts, moneys which, being refunds by third parties of disbursements paid by the solicitors on behalf of their clients, were trust moneys of the clients.
2.Further, and alternatively to paragraph (1) the solicitors wilfully failed to comply with s.98(2)(b) of the Legal Practitioners Act 1970 in that the accounting records kept by the solicitors pursuant to s.98(1) of the Act did not disclose, in a manner able to be conveniently and properly audited, that:
(a)trust moneys of clients of the solicitors transferred from their trust account to their office account for the purpose of payment of accounts of third parties had not been paid to those third parties; and
(b)further and alternatively to sub-paragraph (a) hereof, trust moneys of clients of the solicitors which had been designated for disbursements by the solicitors in or towards payment of accounts of third parties, were held by the solicitors, for their own personal benefit, in their office and cash management accounts.
3.Further and alternatively to paragraphs 1 and 2, the solicitors were guilty of gross neglect and delay:
(a)in the payment (following receipt by the solicitors of moneys for the purpose of payment) of fees due to barristers and doctors retained by the solicitors; and
(b)further and alternatively to sub-paragraph (a) hereof in the payment (following receipt by the solicitors of moneys for the payment) of refunds of disbursements to their clients."
Two other allegations were found by the Supreme Court to be without substance.
The Supreme Court observed in its reasons for judgment:
"But the court has the inherent power and the responsibility, to initiate such proceedings of its own motion on information brought before it: see for example Re Gruzman (1968) 70 SR (NSW) 316. Whether or not the proceedings have been brought by the Law Society as in the present case, the Court is not restricted to considering the precise allegations as formulated. If the evidence is capable of establishing misconduct other than that alleged, the Court must in the discharge of its duty consider the questions that arise relating to possible misconduct, so long as the practitioner is on notice of the nature of the case and the case proceeds to a determination of those questions without unfairness to the practitioner.
Although it will be necessary in these reasons to return to the nature of the Court's power,
we make these preliminary observations because the evidence compels the Court to consider questions which go well beyond allegations of breaches of particular provisions of the Legal Practitioners Act. There are questions concerning the fiduciary relationship between solicitor and client, the duties that are imposed upon the solicitor in accordance with that relationship, conflicts of interest between those of the client and those of the solicitor and the inevitability of those conflicts in a practice such as that conducted by the solicitors. Those questions were all addressed by Mr. Conti QC, who appeared for the solicitors, and we have no doubt that there is no unfairness to solicitors occasioned by the Court adverting to all those questions, as we believe it must."
Mr. Robb has practised as a solicitor since his admission to practise in August 1976. From July 1988 his professional work was, as a sole practitioner until he took a partner in November 1990, almost exclusively personal injury litigation in which the client was always the plaintiff. Mr. Rees took employment with the firm in 1987 and became a partner in 1990. Having had very little experience in handling clients' money before 1987, Mr. Rees gained that experience under Mr. Robb's guidance. Mr. Robb was treated as the senior partner. Each of Mr. Robb and Mr. Rees had charge of about 300 personal injury claims at any one time during this decade. The claims were undertaken in nearly all cases on terms that profit costs would not be received by the firm unless and until the claim realised money paid by or on behalf of the defendant, and in most cases on terms that disbursements by the firm would not be reimbursed by the client unless and until the claim realised money so paid. The reasons for judgment of the Supreme Court record, without any indication of disbelief, Mr. Robb's estimate that during 1990 the aggregate of the unrecouped disbursements by the firm fluctuated between $500,000 and $750,000. The members of the firm entered into arrangements or understandings with persons to whom disbursements would become due, which may be described in the terms expressed in the reasons for judgment of the Supreme Court:
"Naturally, the solicitors sought to keep to a minimum their indebtedness to third parties for the expenses of the case. To this end, they entered into arrangements with a panel of counsel who accepted briefs to draw pleadings and particulars and to appear at the hearing on a similar speculative basis, that is to say, that counsel did not regard the solicitors as under any obligation to pay counsel's fees unless and until settlement or judgment moneys were received by the solicitors on the client's behalf. There was also an arrangement with some expert witnesses that their fees were not payable until the moneys were received and (possibly, the evidence is not clear) that the expert witnesses would waive the right to their fees unless there was a successful outcome to the plaintiff's claim.
........ ........ ........ ........ ........ .......
The `no win no pay' arrangement with counsel was not in writing. The evidence suggests that it was implied rather than express. It was a term of the arrangement with counsel, whether express or implied, that counsel's entitlement did not arise until there was settlement or judgment in favour of the plaintiff. It is less clear that there was an implied term that the time for payment would be within a reasonable time of the solicitor receiving the settlement or judgment moneys. It is important to recognise that in some cases counsel who had rendered fees for the drawing of statements of claim and particulars would not be aware that there had been settlement, although Mr. Robb said that counsel briefed to appear on the hearing would be actively involved in the settlement process because it was unusual for a case to settle prior to the
day before the date fixed for hearing or at the door of the courtroom on the day of the hearing......... ........ ........ ........ ........ .......
Although there may not have been an implied term in the arrangement that the solicitor would inform counsel of an out of court settlement of a matter in which counsel's fees were owing, the professional obligation to pay counsel was all the stronger because of the agreement by counsel, in accordance with the arrangement, that payment would be postponed until after receipt of settlement or judgment moneys. On the evidence, counsel briefed in accordance with the arrangement must have been so trusting of the solicitors, or so resigned to postponement of payment or so reluctant to antagonise the solicitors, that they never sent accounts rendered."
The appellants' conduct in their performance of the arrangements and understandings with counsel and other third parties provided the principal bases for the Supreme Court's conclusion that each had been guilty of professional misconduct. It is convenient to consider first the factual bases upon which the first three paragraphs of the Law Society's statement of allegations rested.
Many of the personal injury claims in which the appellants' firm was acting were compromised on terms which provided for the payment to the plaintiff of a single specified sum of money, without any apportionment of that sum to which the defendant or his insurer had agreed between the claim and the plaintiff's costs. When that single sum had been paid into the firm's trust account, apportionment having been previously agreed between the plaintiff and the firm, the sum agreed as costs (both profit costs and disbursements) was transferred from the trust account into the firm's office account. But in a number of instances there was a substantial delay in payment of the moneys to be disbursed in respect of the claim to counsel and other third parties who had rendered services in respect of the claim. And because during a certain part of the period under consideration by the Supreme Court the amount standing to the credit of the office account was transferred to an interest bearing cash management account some of the funds held for disbursement to third parties earned interest for the firm. There were also instances of retention for several months of cheques drawn in payment of counsel's fees, with the consequence that the firm's accounting records were not in relation to those cheques kept in such a manner that those accounts could be conveniently and properly audited, contrary to s.98(2)(b) of the Legal Practitioners Act 1970.
The Legal Practitioners Act 1970 includes the following provisions in Part XI thereof:
"87.(1) All moneys received by a solicitor, in connection with the solicitor's practice in the Territory, from, or on behalf of, a client of the solicitor shall, for all purposes, be deemed to be held in trust for that client to be disbursed, or otherwise dealt with, by the solicitor in accordance with the instructions of the client.
........ ........ ........ ........ ........ .......
(3) Subsection (1) does not apply to moneys received by a solicitor for or on account of his or her legal costs, whether already due or
to become due.(4) Subsection (1) does not apply to or in relation to a third party payment.
(5) Nothing in this Part affects a lien that a solicitor would, apart from this Part, have over moneys held by the solicitor."
The expression "third party payment" is defined in s.3 to mean "a payment being a cheque, bank cheque, bank draft or money order -
(a)received by a solicitor from or on behalf of a client with instructions, express or implied, that the payment is to be delivered to -
(i) the person to whom it is expressed to be payable; or
(ii) a person other than the solicitor, a partner of the solicitor or the solicitor's firm; and
(b)made payable otherwise than to the solicitor, a partner of the solicitor or the solicitor's firm."
"90.(1) A solicitor, shall, for the purposes of his or her practice, open and maintain a trust bank account at a bank in the Territory under a title which includes the name or style under which the solicitor practises and words that indicate that it is the general trust bank account of the solicitor.
........ ........ ........ ........ ........ .......91. Subject to section 92, a solicitor shall cause all trust moneys received by the solicitor, in connection with his or her practice in the Territory, from, or on behalf of, a client of the solicitor to be paid -
(a)into the general trust bank account maintained by the solicitor; or
(b)if the solicitor maintains 2 or more such accounts - into 1 of those accounts;
not later than the next day on which the bank at which the account is maintained is open for business after the day on which the money is received by the solicitor."
The expression "trust moneys" is defined in s.3 to mean "moneys that are, by virtue of section 87, to be deemed to be held by a solicitor in trust for a client of that solicitor".
"94.(2) Subject to subsection (3) and to Division 8, a solicitor shall not withdraw any money from a trust bank account except for the purposes of payment to, or disbursement according to the direction of, the person for whom the money is, by virtue of section 87, to be deemed to be held in trust.
(3) Subsection (2) does not prevent a solicitor enforcing any lien held by the solicitor in respect of, or any other lawful claim that the solicitor has against, moneys standing to the credit of a trust bank account maintained by the solicitor for the purposes of this Part."
It was submitted for the appellants that, the amount payable as costs and disbursements out of the settlement money having been authorised, before compromise of the claim, by the client to be deducted from the settlement money, that amount answered the description "moneys received by a solicitor for or on account of his or her legal costs, whether already due or to become due" in s.87(3), and accordingly was not an amount to which s.87(1) applied. And, it was further submitted, the settlement money was subject in the appellant's firm's hands to the particular lien on that money, as money obtained by the firm's exertions on the client's behalf, for payment of the legal costs incurred in obtaining it. That lien ss.87(5) and 94(3) preserve. Its incidents and origins are explained in Worrell v. Power & Power (1993) 118 A.L.R. 237. It attached when the compromise was made, creating at that time an equitable right in the firm to be paid their costs out of the settlement money and a right to retain the amount of those costs out of the settlement money when it should be received by the firm : 118 A.L.R. at 240, 245-246.
These submissions counsel for the appellant supported by reference to observations in Johns v. Law Society of New South Wales [1982] 2 N.S.W.L.R.1. In that case Hope J. observed (at 20-21):
"When a solicitor holds money for a client in his trust account, his entitlement to a general lien for his costs does not mean that the money is not beneficially the money of the client. It is; the solicitor merely has the right to retain the money until his costs are paid, and he cannot pay any part of it to himself : Stewart v Strevens [1976] 2 NSWLR 321. Since the money is held for the client, it must be credited in an account in the trust ledger in the name of the client.
........ ........ ........ ........ ........ .......
If the solicitor has his client's authority to transfer any part of the money for costs, it remains the client's until transferred. When transferred, it should be transferred out of the trust account to the solicitor's general account. In this way the true position will be disclosed, ie, money in the trust account to the credit of a particular client has been used to pay the solicitor's costs. It is no longer trust money; it has been disbursed for costs in accordance with the client's directions and belongs absolutely to the solicitor. If, for whatever reason it may be, the solicitor is not yet entitled to be paid his costs, he cannot remove money from his client's trust ledger account in respect of his prospective claim for costs. He holds the money for his client, and he has no authority, in the events which have
so far occurred, to transfer any part of it from that account.The position of money recovered by a solicitor over which he has a particular lien was not raised in the present case, and need not be considered here. I would merely say that as at present advised the position seems to me to be analogous (so far as relevant to the question now under consideration) to the position where the solicitor has his client's authority to pay himself his costs out of the money he holds for that client. Until the solicitor pays money out of the client's trust account in satisfaction of his costs, the money in that account, although subject to the lien, belongs to the client. When part is paid to the solicitor for costs, that part belongs to the solicitor absolutely.
Reliance was not expressly placed by counsel for the appellants on the latter paragraph, although it is on the particular, not the general, lien that reliance can be placed by the appellants as authority for the transfer from trust bank account to office account. The observations in the last two sentences of the passage quoted would perhaps not be applicable in the Territory, for they are not obviously reconcilable with the provisions of sub-sections 87(1) and 87(3) of the Legal Practitioners Act 1970 (A.C.T.). The wording of the similar provisions of the Legal Practitioners Act (1898 (N.S.W.), as in force in 1979, with which Hope J.A. was concerned, was slightly, but perhaps significantly, different:
"41.(1) All moneys received in New South Wales for or on behalf of any person by any solicitor shall be held by him exclusively for such person, to be paid to such person, or to be disbursed as he directs, and until so paid or disbursed the moneys shall be paid into a bank
in New South Wales to a trust account, whether general or separate......... ........ ........ ........ ........ .......
(3) Nothing in this section or in section 42A shall be construed to take away or affect any just claim or lien which any solicitor may have against or upon any of the moneys, and nothing in this section shall apply to moneys receivable by a solicitor for or on account of legal costs, whether already due or to accrue due."
Reliance was placed by counsel for the appellants on a statement by Higgins and Foster JJ. in Re Nelson and the Legal Practitioner Act 1970 (1991) 106 A.C.T.R.1 at 12 about s.46 of the Legal Practitioners Act 1970 (A.C.T.), which is now s.87 of that Act. The statement is prefaced by the observation that "[i]n the context of this case no reliance was placed on s.46(2) of the Act". The statement reads:
"The section has to do with the identification of trust moneys. In context, it makes it plain that if the solicitor receives moneys which are his or hers because they are for costs incurred or to be incurred they are not trust moneys. However, moneys belonging to a client, even though held awaiting a right thereto arising in the solicitor for costs, are trust moneys until that right has crystallised."
Upon those judicial observations counsel for the appellants based the submission that when the amount for costs was transferred to the office account the client had no further interest in the application of the money in payment of counsel's fees or of other expenses of the prosecution of the claim incurred by the firm. It was entirely a matter, according to the submission, between the firm and those who had provided the services, as counsel or doctor or otherwise for the advancement of the claim. Delay in payment, as distinct from refusal or complete failure to pay, on the part of a solicitor was not according to the submission professional misconduct.
The Supreme Court dealt with the submission thus:
"The attitude of the solicitors was, according to their case, justified by the peculiar nature of the liability of a solicitor to pay counsel's fees. As is well known, the obligation is not that of the client but that of the solicitor. Furthermore, the obligation of the solicitor is not even an obligation owed on behalf of the client, it is a personal obligation. At common law a barrister is not able to sue for fees. The obligation is said to be a professional obligation or an obligation of honour. Nevertheless the obligation is such that wilful or persistent refusal to pay counsel's fees can amount to professional misconduct on the part of a solicitor. We were referred to recent decisions in New South Wales including Carver v. Legal Professional Disciplinary Tribunal (1991) 7 LPDR 8 at 12 and Re Boyne Wood and Radin (unreported, Legal Professional Disciplinary Tribunal, 23 December 1995). It appears that no precedent has been found for the proposition that wilful or persistent delay in paying counsel's fees amounts to professional misconduct.
However, it is not self-evident that such delay can never amount to professional misconduct on the part of a solicitor and it is not necessary to decide one way or the other for present purposes. In the present case, the extent of the delay in paying counsel from the time counsel became entitled to payment according to the terms of the arrangement with the solicitors, namely upon receipt of the settlement or judgment moneys, is only one factor to be taken into a account.
The point is that the delay in paying counsel to be attributed to the solicitors in the present case stems from their assumption that moneys in their office account, received on trust for the client and transferred to the office account for the very purpose of paying counsel, were not affected by their fiduciary duties to the client and were their moneys to pay counsel fees when they chose and that any delay was simply a matter between counsel and themselves.
The assumption was totally unjustified. On the contrary, every day of delay in paying counsel from the time of transferring the moneys from the trust account to the office account, was a day in which the solicitors were in breach of the fiduciary duty to the client. The seriousness of their conduct is not mitigated by their assumption that the money belonged to them. That seriousness is aggravated by other factors to which reference will be made, factors which lead to the conclusion that the solicitors were indifferent to their fiduciary role and to the conflicts between their own interests and those of the client. That indifference and the failure to recognise the conflict between the interests of the client and the interests of the solicitors are part of the total picture in which delay in paying counsel is simply part of the background. It is not part of the background which is in mitigation."
In another passage their Honours said:
"In the present case from the moment the solicitors received verdict or settlement moneys, they were bound to hold them in trust for the client unless relieved from that obligation by the clear instructions of the client. If the instructions from the client are that the solicitor can use the funds for profit costs and disbursements, without accounting to the client to distinguish between the two, there must be disclosure of the solicitors' own interests. Then, and only then, `the costs and disbursements will be merged or integrated with the solicitor's general body of funds to enable the solicitor, inter alia, to pay any outstanding liabilities of the solicitor referrable to the client's
case'(to use the words of Mr. Conti's written submissions). However, these solicitors have not shown that they were so instructed. The onus is on them to show that this was so and they have failed to do so."
In both passages the doctrines on which reliance is apparently placed have as their subject moneys other than the proceeds of litigation won by the exertions of the solicitor who has received the moneys. In my opinion the position is quite different when the moneys are those proceeds, over which the solicitor has a particular lien for his costs of litigation. And the solicitor may in my opinion retain the costs of the litigation out of those moneys, without any authority from the client except the authority he received to conduct the litigation : Watson v. Maskell (1835) 1 Bing N.C. 727 at 728-729; 131 E.R. 1297 at 1298; Worrell v. Power & Power (supra). The agreement of the client on the amount of those costs puts the amount which may be retained out of controversy unless and until the client questions the correctness of the amount, in my opinion.
It is unnecessary, on the view I take, to determine whether, on the proper construction of Part XI of the Legal Practitioners Act 1970 (A.C.T.), the whole of the settlement money is, while in the trust bank account, held in trust for the client, as Hope J.A. was inclined to think, in Worrell v. Power & Power, supra, having regard to the Legal Practitioners Act, 1898 (N.S.W.), or only so much of the settlement money as exceeded the amount agreed as costs, as I should be inclined to think, having regard to s.87 of the A.C.T. Act. When the latter amount is transferred to the office account, it belongs in my opinion to the solicitor absolutely.
That opinion comprehends amounts included in respect of disbursements as well as amounts included in respect of profit costs. Whatever may be the meaning of the expression "legal costs" in sub-section 87(3) - as to which the Supreme Court made some observations, and some explanation of observations by the learned Chief Justice in Re Legal Practitioners Act 1970 and Re an Application between a Solicitor and The Law Society of the Australian Capital Territory (1991) 103 A.C.T.R.1 - there can in my opinion be no doubt that a solicitor's particular lien for his costs extends to disbursements.
In paragraph 1(c) and 3(b) of the statement of the Law Society's allegations are comprehended a small number of refunds by third parties of disbursements to which they were not entitled. In each instance only the client had a right to the money, which nevertheless was paid into the firm's office account and was not paid to the client until after months had elapsed. These were clear breaches of ss. 87(1) and 91 of the Legal Practitioners Act 1970.
One of the "other factors" to which their Honours directed close attention was the practice of compromising a claim for a single amount, without apportionment into claim and costs by the defendant's solicitor. Their Honours observed:
"An example of the solicitors' indifference or failure to understand their fiduciary role and the conflict of interests or even the possibility of a conflict between their own interests and those of the client may be found in Exhibit 3. This document, prepared by the solicitors, constitutes instructions to settle on the part of a client who had brought an action for damages in respect of personal injuries. The relevant paragraphs are as follows:
`2.That the defendant has offered the sum of $110,000.00 inclusive of costs but clear of compensation payments to date in full and final settlement of all claims that I have arising out of the accident. Should I accept this offer, then after the payment of my legal costs, then I will clear at least $85,000.
3.My solicitors have assessed their costs and disbursements in relation to this matter at $25,000.00 and I accept this assessment of costs. I do not require my solicitors to provide me with an itemised account in respect of their costs.'
Although Mr. Rees suggested that the document was drafted in order to meet the circumstances of the particular case, there is no reason to assume that these provisions are not typical of instructions which the solicitors prepared and presented to the clients for execution in cases where the proposed settlement with the defendant was to be inclusive of costs.
There was another example of similar instructions drafted by the solicitors in Exhibit 5. The written instructions authorised the solicitors to,
`...settle my claim for $50,000 inclusive of costs but clear of payments already received. I am aware that out of settlement moneys I will be required to pay my legal costs, disbursements and any outstanding medical expenses which will total approximately $15,000. I am aware that I will nett $35,000 as a result of
settlement.'
Few plaintiffs in actions for personal injuries would be sufficiently informed to understand the implications of these instructions. On the face of the instructions, they purport to be a general authority on the part of the client which allows the solicitors to treat part of the moneys to be recovered on settlement as the solicitors' own moneys, to dispose of as the solicitors please, without accounting in any way to the client. In the case of Exhibit 3 the instructions purport to constitute a waiver of the clients' rights to receive a detailed account of the solicitors' profit costs and disbursements. This may not be what was intended by the solicitors. The purpose of the written instructions in either form may have been confined to giving authority to settle for a particular amount and an acknowledgment by the client of awareness of the minimum net amount that settlement would mean to the client. It may well have been contemplated in every case that the client would receive a proper memorandum of professional costs and disbursements when the settlement moneys were received. If that was the purpose of those instructions they should have been drafted in terms clearly indicating that purpose. Unless the client receives a further statement of the breakdown, the client has no way of knowing what part of the lump sum is referable to the solicitors' profit costs and what part is referable to disbursements which the solicitors have paid or which the solicitors are still to pay. In drawing and proffering instructions in these terms, the solicitors put themselves in the position where their own interests lie in minimising whatever disbursements might be properly incurred in pursuing the client's claim and in effect maximising their share of the total sum payable by the client, undifferentiated as far as the client knows between the solicitors' profit costs on the one hand and disbursements on the other. In our view, without the client being fully informed as to the solicitors' interest in obtaining instructions in these terms, the practice of obtaining them is itself improper and a breach of the fiduciary duty. Whilst it may be proper for a solicitor to have an agreement with a client that the client will pay an overall sum undifferentiated as between profit cost and disbursements, it will only be proper so long as the client is fully informed as to the solicitors' interest in minimising
disbursements and maximising profit costs. The inequality of bargaining power between solicitor and client where the solicitor is acting for an impecunious client on a speculative basis makes it unlikely that a client could make any informed decision about the adequacy of an offer of settlement inclusive of costs. This problem is no doubt avoided as far as it can be by solicitors who are aware of their obligations and carry them out by drafting the instructions in terms which, at the very least, distinguish between profit cost and disbursements and by advising the client of the client's right to a detailed statement of costs and disbursements and to have them taxed.This aspect of the solicitors' practice was not relied upon by the Law Society. It is nevertheless further evidence of the failure of the solicitors to understand their fiduciary role and the conflicts of interest that were bound to arise whilst they follow their practices.
........ ........ ........ ........ ........ .......
In New South Wales it has long been recognised that when advising a plaintiff in respect of the settlement of the plaintiff's claim, the solicitor will be put in a position of a conflict of interest, unless consideration is given to the settlement of the claim itself independently of the claim the plaintiff might have against the other party in respect of costs. Apparently this principle has not fallen for judicial consideration in the Australian Capital Territory previously, but the solicitors, who practise in New South Wales as well as in the Territory, must have been aware of it. It is the basis for the practice followed both here and in New South Wales that such conflict of interest stands in the way of the approval of the court being sought for the settlement of a claim for damages made by an infant or other person under disability, if the agreement reached is for a payment of money by the defendant inclusive of the defendant's liability to pay the plaintiff's costs.
The New South Wales Practice Note of 13 June 1967, reprinted in Ritchie's Supreme Court Practice (NSW) at para. 8694, is as follows:
`The practice according to which a defendant makes an offer of a sum
inclusive of costs in settlement of any action for damages is to be deprecated, as it tends to place the plaintiff's solicitor in a position in which his personal interest conflicts with that of his client. Such settlements should therefore not be entered into by solicitors.
Where the plaintiff is an infant, approval of settlement will be withheld if it is not made clear that the amount of damages was first agreed upon, with costs to be agreed or in default of agreement taxed; and that if, at the time approval is sought, costs have been agreed, that they were the subject of subsequent and independent negotiation.'
It is to be emphasised that the first paragraph of the above is not restricted to negotiation of settlements on behalf of persons under disability, and that it applied to such negotiations in respect of all clients. It does not lay down new law. The underlying principle must be understood and observed by legal practitioners in this Territory.
In McLennan v. Phelps and Another (1967) 86 WN 86 at 88, O'Brien J. stated the principles with utmost clarity and force:
`The practice which is here demonstrated, and which is of recent origin, whereby offers are made by an insurance office to a plaintiff of settlement upon the basis of a lump sum inclusive of costs, seems to me, in the type of litigation with which I am here concerned, to have undesirable features, to some aspects of which I should advert. Whilst it might suit the convenience of the office to engage in settlements on such a basis, it must frequently place a solicitor for a plaintiff in an invidious position, especially when regard is had to recent events and publicity. He is left to extract from the lump sum, exclusively upon his own explanation to his client, a sum representing costs for which the defendant is required to indemnify the plaintiff by reason of his success in the action, but in the assessment of which the solicitor for the office has, in fact, refused to take any part, or refrained from doing so. This, of course, refers to
the assessment of costs on a party and party basis, which will usually form the bulk of costs assessed on a solicitor and client basis. There is thus removed from the case that strong element of assurance of the fair estimation of costs which is normally provided when the assessment is reached of party and party costs between the solicitor for the plaintiff and the solicitor for the defendant whose client is to pay such costs. A fair-minded solicitor is, therefore, prompted by such a form of settlement to understate his proper remuneration and reimbursement in an endeavour to maintain and demonstrate the honourable standards and reputation both of himself and of his profession; or, alternatively, he may be obliged, for the assessment of the proper costs to be charged to his client, and for his own protection, to the necessity which is neither economical in his client's interests nor conducive to the expedition of litigation, to prepare and deliver an itemized bill and to present it for taxation to the proper officers of the court. Perhaps more importantly, there is inherent in such forms of settlement a temptation to that possible small minority of the profession which, recent experience has shown can be prone to a temptation to deduct sums which exceed those properly chargeable for costs; this is the very thing to which the court in recent months and the professional bodies themselves have devoted so much time and anxiety and which has been productive of so much disillusionment and regret.'
These remarks were supported by Moffit J. in Beavan v. Pengelley (1967) 86 WN (Pt.1) (NSW) 90, who did so with the comment at 93 that their full significance might not have come to the attention of all members of the profession.
In Victoria it has been said that there is no reason why in an appropriate case the plaintiff's legal adviser should not negotiate a settlement in respect of costs as well as in respect of damages, provided that regard is had to the interests of the plaintiff. What is in general to be avoided is an attempt to determine the amount payable for costs before a compromise has been reached and approved in relation to the claim itself. Once a compromise has been reached, there is no reason
why the parties should not agree upon the amount of costs in order to avoid the delay and expense of taxation: Sztockman v. Taylor (1979) VR 572.Fortunately in the case of Messrs Rees and Robb there is no allegation of overcharging. The principles, however, remain to be recognised and observed.
The solicitors displayed no understanding or even recognition of these principles. Their ignorance in that respect underlines their failure to understand that moneys received on a client's behalf following settlement of the client's claim are received in trust and that the fiduciary duty owed to the client in respect of those moneys remains until such time as they are dealt with in accordance with the client's instructions given by the client unequivocally and after being fully informed by the solicitor as to the proposed dispersal."
The citation of Sztockman v. Taylor [1979] V.R. 572 is in the context curious. Like the two New South Wales judgments cited, Sztockman's Case was an application for approval of a compromise of the claim of a person under disability. After setting out the New South Wales Practice Note, Brooking J. observed ([1979] V.R. at 575-576):
"In so far as this Practice Note deals with any action for damages, I would, with the utmost respect, take leave to doubt whether any such general condemnation is appropriate. In this State the practice of effecting settlements on an `all in' basis, as compromises for the payment of a sum certain inclusive of costs are invariably called, is inveterate. The Victorian practice, by making certain what would otherwise be a matter for estimation, has the beneficial effect of facilitating the settlement of disputes, and nothing that I say is intended to cast doubt on the propriety or desirability of the existing practice in this State where no party is under disability. Where the plaintiff is under disability, however, the practice of negotiating
settlements which fix the amounts to be paid for claim and costs is subject to the objections to which judges of the Supreme Court of New South Wales drew attention in McLennan v. Phelps (1967), 86 W.N. (Pt. 1) (N.S.W.) 86, and Beavan v. Pengelley (1967), 86 W.N. (Pt. 1) (N.S.W.) 90, in the second of which cases Moffitt, J., as his Honour then was, at p. 93 spoke of the universal objection to the practice from the members of the bench.The reasoning in McLennan v. Phelps, supra, and Beavan v. Pengelley, supra, is based, not upon the provisions of s.7 of the Act to which I have referred, but upon general considerations of equity, fairness, and convenience. The Practice Note which I have mentioned is plainly not founded upon the legislative provisions.
I would distinguish between settlements of claims by persons under disability and settlements of what might be called ordinary litigation. While it is true that in any litigation the plaintiff's solicitor owes duties to his client and may be called upon to advise him concerning a proposed settlement, the solicitor acting for a plaintiff under disability stands in a special position with regard to a compromise. The court has always looked to the legal advisers of such a plaintiff for their opinion on whether the compromise is for the plaintiff's benefit: In Re Birchall 1880, 16 Ch. D. 41. For reasons given in the two decisions of the Supreme Court of New South Wales to which I have referred, it is in general undesirable that a solicitor charged with the duty of considering whether a proposed compromise is in the interests of a person under disability should be concerned in attempts to determine at one and the same time the amount to be paid for claim and the amount to be paid for costs; for in general this tends to place the solicitor in a position in which his personal interest conflicts with that of his client: cf. Supreme Court Practice 1979, Pt. 1, p. 1265. To say this is to do no more than lay down a general rule. The circumstances may be such that it is in the plaintiff's interests to embark upon and conclude negotiations for a settlement which fixes the amount payable for costs. Moreover, in cases falling within the general rule I see no reason why, in an appropriate case, the plaintiff's legal advisers should not negotiate a settlement whereby certain concessions are made by the defendant in relation to costs,
provided that proper regard is had to the interest of the plaintiff. What is in general to be avoided is an attempt to determine the amount payable for costs before a compromise has been arrived at and approved in relation to the claim. Once a compromise has been approved, there is no reason why the parties should not agree upon the amount of costs to avoid the delay and expense of taxation: cf. Beavon v. Pengelley, supra, at p.92. Settlements which determine the amount payable for costs as well as for claim not only may tend to embarrass the plaintiff's solicitor in the discharge of his duties, but also may tend to embarrass the Court, for, as has been observed in the decisions from New South Wales to which reference has been made, the judge in satisfying himself that the terms of settlement are proper in the interests of the plaintiff must give consideration to the amount agreed upon for costs, but is not equipped to perform the functions of the taxing master."
Moffitt J., as he then was, observed in Beaven v. Pengelley (1967) 86 W.N. (Pt. 1) (N.S.W.) 90 at 92:
"What is occurring, I think it is fair to say, is not the fault of the solicitors for the plaintiffs and it has been apparent to me in this and in other cases that this has not been of their making and in some cases it has been against their objection. They have settled cases in this way in the bona fide attempt to take a settlement which appears to them to be in the interests of the infant and what happens appears to arise from the insistence of the Government Insurance Office on a practice which no doubt has some administrative conveniences, but which has already been criticized by numerous members of the Bench and which has been dealt with in the considered judgment of O'Brien J. some months ago. I think it is regrettable that that body, which occupies a somewhat public position, has persisted in this course in disregard of what numerous members of this Bench have said."
The Supreme Court did not remark upon the doubt expressed by Brooking J. concerning the unqualified terms of the first paragraph of the Practice Note, which their Honours had themselves emphasised. Nor is there any reference in the reasons for judgment of the Supreme Court to the question whether defendants' solicitors had declined to formulate for the appellants offers of settlement in two amounts, one for the claim and one for costs. Where a settlement must receive a court's approval, that court is in a position easily to compel such a formulation. In other cases resort to disciplinary action is the only means of securing compliance with the precept expressed in the first paragraph of the Practice Note. If it were the defendant's solicitor who refused to formulate an offer in accordance with that precept, no doubt the Supreme Court would have condemned him as roundly as it condemned the appellant.
In my opinion the Supreme Court was correct in regarding a solicitor who communicates to his client an offer to compromise the client's claim for unliquidated damages for a specified sum from which the solicitor's costs of the claim will have to be deducted as under an obligation to explain to the client that the amount of those costs will be an aggregate of what the solicitor thinks to be his own reasonable remuneration and the amounts disbursed or owed to other persons for services rendered in respect of the prosecution of the claim, and an obligation to inform the client of the client's right, conferred by Part XV of the Legal Practitioner's Act 1970, to an itemised statement of the remuneration claimed and the disbursements made or to be made, and of the client's right to have the amount payable by the client determined by taxation in the court, and an obligation to point out to the client that, because the specified sum offered will, if the offer to compromise be accepted, be the fund to which each of them must resort to satisfy their claims, the interest of the solicitor may be thought to conflict with the interest of the client, and an obligation to give to the client, before taking the client's instructions concerning the offer, as complete a statement of each item of costs and disbursements claimed by him as circumstances permit. The Supreme Court's finding that the appellants complied with only the first of those obligations was not challenged. (Such itemised statements as were given to the clients - and they did not identify each item - were given after the compromise had been effected and the specified sum had been received by the appellants' firm.) It is not clear to me that the Supreme Court regarded the findings as in themselves establishing professional misconduct. After their Honours had dealt in their reasons for judgment with the allegations which they found unsubstantiated they concluded, under the heading "Generally", thus:
"In our view the solicitors were in breach of sub-s.87(1), s.91 and sub-s.92(2) of the Legal Practitioners Act. [The reference to sub-section 92(2) seems to be a misprint of 94(2).] The breach was not wilful in the sense that they acted knowing that they were in such breach of those express provisions. But whilst the obligations set out in the statute are strictly to be observed and failure to comply is not lightly to be excused, the statutory
provisions are all predicated upon the particular nature of the relationship between solicitor and client, which is one of trust at all times. Once the solicitor allows a conflict of interest to develop, the solicitor must be scrupulous in ensuring that the conflict of interest does not lead to breach of the fiduciary duty. Where the solicitor has a financial stake in the outcome of a case and the quantum of the monetary recovery on behalf of the client, the solicitor's interest and that of the client may overlap but the conflict continues. The present solicitors have shown by their past conduct that they did not appreciate or were indifferent to that simple truth. In the case of Mr. Robb, there were several aggravating factors to which we have made reference. The propriety of a solicitor's conduct is not to be measured solely by the results obtained for clients or by the esteem in which he or she is held by other practitioners. The efficiency of the solicitors in obtaining money for injured plaintiffs is undoubted, but it is also clear that they tended to allow the practice to become a litigation factory, oblivious to the true nature of the duty to the clients and to counsel and others on whose forbearance they relied for the very success of their venture. Their conduct was not based on any positive but mistaken belief that they were acting in accordance with the Legal Practitioners Act. They assumed all too readily that because recovery of their profit costs and disbursements depended upon their obtaining a successful result for the client, the interests of the client and of themselves coincided. It is clear that insofar as they did not direct their minds to their fiduciary position and to the conflicts of interests, their conduct was wilful in the sense that it was done with reckless indifference to the obligations of which they should have been aware: see Re Hodgekiss (1962) 79 WN (NSW) 163, 171-172. Insofar as the conduct persisted over a period of time and was deliberate, the fact that particular failures have not been shown to have occurred in more than a small proportion of cases, does not justify the Court taking other than a serious view of their misconduct.The solicitors have relied on evidence contained in affidavits from a large number of legal practitioners in Canberra and elsewhere who know the solicitors personally and who have had professional dealings with them. The
evidence attests to what the deponents believe to be the honesty and efficiency of the solicitors and to their good works in the community. It needs to be said once again that evidence of this nature can be of only limited assistance unless the writers address the question of the solicitors' misconduct.An omission from the evidence of the numerous and experienced legal practitioners who have furnished affidavits in support of the solicitors is of some eloquence. Not one of the practitioners has deposed to following the practice of the solicitors which is at the heart of the allegations against them, namely, retention in the office account of moneys transferred from the trust account to the office account for the purpose of paying outstanding disbursements. Despite the submission on behalf of the solicitors that the practice is justified because it is followed by numerous other solicitors, there is not a word of evidence to support that submission in fact, nor, in our view, to support any such practice in principle. The silence of the evidence in this respect tends to support Mr. Walmsley's statement in his letter of 30 August 1993 that there was unanimity in the profession that as soon as money for unpaid disbursements goes into the office account, cheques must be drawn and sent.
Delay or failure by a solicitor to pay counsel is of course not a new phenomenon and will probably occur from time to time so long as there is a divided procession, as there is to some extent in this Territory. There will no doubt often be reasons advanced in order to justify such delay or failure. But where the solicitor holds a client's funds for the very purpose and uses them for the solicitor's own ends, then the solicitor's conduct is such that the Court must take steps to ensure that the solicitor concerned and other members of the profession who might act likewise, whether through indifference or ignorance, understand the seriousness of their breach of duty. The breach was condemned in round terms over a century ago by Manisty J. in Re Farman (1883) L.Jo. 352, cited in Re M, a Solicitor (1938) St.R.Qd. 454 at 462 and is still worth repeating:
`...and then the solicitor went on to say that [the clients] no doubt were aware that even large firms left counsel's fees
for long periods after having received the moneys from their clients - sometimes for years. This he appeared to consider a sort of excuse for his conduct. But if there were any in the profession who considered that they were justified in receiving money for the payment of counsel's fees and keeping it in their pockets, the sooner those persons were disabused of that notion the better for themselves and their clients.'
It is necessary then that the order of the Court, although not punitive in character, deliver the message that no matter how efficient, eminent or popular the practitioner, conduct like that in the present case must be understood by all practitioners to amount to professional misconduct. It is unacceptable to the Court that those who are guilty of it put at jeopardy the privilege conferred upon them of conducting litigation for profit within the Court, and within any other court in the Territory. In the case of Mr. Robb, the only appropriate order of the Court is that he forfeit his privilege of practice. In the case of Mr. Rees we take the view that it is appropriate to impose a substantial fine.
The Court orders that Gary Alan Robb be suspended from practice as a barrister and solicitor for a period of eighteen (18) months, and that Gerard Peter Rees pay a fine of twenty thousand dollars ($20,000)."
That passage makes it clear, in my opinion, that what attracted the Supreme Court's judgment that serious professional misconduct had been disclosed was "retention in the office account of moneys transferred from the trust account to the office account for the purpose of paying outstanding disbursements".
It was submitted for the appellants that the passage disclosed error of law on the part of the Supreme Court. Because the onus of proving professional misconduct lay on the Law Society, not on either appellant, the Supreme Court erred, it was submitted, in attributing significance to the absence, in the affidavits of legal practitioners filed on behalf of the appellants, of evidence that the practice followed by the appellants of delaying payment of "outstanding disbursements" was not reprobated by legal practitioners of good repute and competency.
There are in my opinion two answers to the submission. If it be assumed that in order to show conduct in the practice of law to be professional misconduct the conduct must be shown, either by evidence or, in an obvious case, by judicial notice, to be conduct which would reasonably be regarded as disgraceful or dishonourable by legal practitioners of good repute and competency, the observations by their Honours are in my opinion explicable as an example of the application of the so-called rule in Jones v. Dunkel. As their Honours observe in the paragraph impugned in the submission, there was evidence, adduced by the Law Society, on which to base a finding that the conduct was reprobated by legal practitioners of good repute and competence, evidence which those representing the appellants failed to have other practitioners of like repute and competence contradict.
The other answer to the submission is that the assumption I made in the preceding paragraph is incorrect. The provenance of the assumption is perhaps curious. In an unreserved judgment the members of the Court of Appeal, in Allinson v. General Council of Medical Education and Registration [1894] 1 Q.B. 750 at 760-761, 763, 765, adopted as a "definition" of the phrase "infamous conduct in any professional respect" in s.29 of the Medical Act (21 & 22 Vict.c.90) a form of words which the draftsman of the "definition", Lopes L.J., declined to "propound ... as an exhaustive definition":
"`If it is shewn that a medical man, in the pursuit of his profession, has done something with regard to it which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency,'then it is open to the General Medical Council to say that he has been guilty of `infamous conduct in a professional respect.'"
When in In re A Solicitor; Ex parte The Law Society [1912] 1 K.B. 302 the Divisional Court was considering the report of the Committee under the Solicitors Act 1888 that the solicitor had been guilty of professional misconduct within the meaning of that Act, Darling J. observed (at 311-312):
"That is found by the Committee of the Incorporated Law Society to be professional misconduct. I do not think I need attempt to add anything to the definition which was given in Allinson v. General Council of Medical Education and Registration. [1894] 1 Q.B. 750. In that case Lopes L.J. said: `the Master of the Rolls has adopted a definition which, with his assistance and that of my brother Davey, I prepared. I will read it again. `If it is shewn that a medical man, in the pursuit of his profession, has done something with regard to it which would be reasonably regarded as disgraceful or dishonourable by his professional brethren of good repute and competency,' then it is open to the General
Medical Council to say that he has been guilty of `infamous conduct in a professional respect.' A definition could not be more authoritative than one drawn after careful consideration by each of those three learned judges. It was read by Mr. Paine in his argument and is set out at p. 763 of the report of Allinson v. General Council of Medical Education and Registration [1894]1 Q.B. 750 in the Law Reports. The Law Society are very good judges of what is professional misconduct as a solicitor, just as the General Medical Council are very good judges of what is misconduct as a medical man."
Neither of the other two judges of the Court, Hamilton and Bankes JJ. (as each then was) made any reference to Allinson's Case. In Myers v. Elman [1940] A.C. 282 at 288-289 Viscount Maugham observed:
"Apart from the statutory grounds it is of course true that a solicitor may be struck off the rolls or suspended on the ground of professional misconduct, words which have been properly defined as conduct which would reasonably be regarded as disgraceful or dishonourable by solicitors of good repute and competency: In re a Solicitor. Ex parte The Law Society. [1912] 1 K.B. 302."
None of the other four members of the House referred to that case or to Allinson's Case.
The formula thus derived from Allinson's Case may often, perhaps nearly always, afford a useful yardstick, and has been cited in the Australian Capital Territory (see Ex parte Attorney-General for the Commonwealth; Re a Barrister and Solicitor (1972) 20 F.L.R. 234 at 242-243) and in the States of the Commonwealth. But it has the disadvantage that it distracts the mind from a fundamental characteristic of the disciplinary jurisdiction of a superior court charged with the responsibility of determining what persons may practise the law in a State or Territory. The responsibility is that of the court and the standards of conduct required of such persons are those which that court must set, not those observed by any description of practitioners in that State or Territory. If the Supreme Court judges conduct to be unacceptable in persons admitted or to be admitted to practise in the Australian Capital Territory, the circumstance that the conduct is engaged in, or approved by, members of the legal profession of good repute and competency will no doubt give the Supreme Court cause to consider most carefully its decision about the conduct. But the Court is obliged ultimately to form its own decision about the conduct, in my opinion, and may not temper the exercise of its jurisdiction in compliance with accepted practice.
This conception of its function the Supreme Court gave several indications in its reasons for judgment, as I think, to have had clearly in mind. In times of rapid change in the patterns of legal practice the need to keep that conception in mind is in my opinion very great.
I think that undue delay in paying those entitled to moneys, the only claim of the appellants' firm to possession of which derives from that entitlement, may properly be characterised as professional misconduct, without recourse to conceptions of trust, fiduciary duty or other legal obligation. Simple honesty requires a professional man to abstain from keeping what is due to another, except for good cause. The convenience of the professional man is not good cause.
There is in my opinion only one basis for concern that the decisions of the Supreme Court may have been affected by error. Their Honours' opinion that only "the clear instructions of the client" could authorise withdrawal of money from the firm's trust bank account for costs and disbursements is in my opinion not correct in respect of money gained by the exertions of the firm on the client's behalf and paid into the trust bank account. Out of money so gained the firm may take out of the trust bank account so much as equals the costs (including disbursements) incurred in gaining the money, in my opinion, without any instruction by the client except the instruction to prosecute the claim in respect of which the money was gained. That right of the firm s.94(3) of the Legal Practitioner's Act 1970 recognises and preserves from extinction by s.94(2), in my opinion.
The influence which their Honours' opinion on that point had on their decision is, I think, impossible to measure. But on a reading of the whole of their reasons for judgment I think it ought to be judged to have been not insignificant in relation to the determination of the period of Mr. Robb's suspension. In those circumstances I consider that this Court should determine for itself the appropriate period of suspension. Such a determination is ordinarily a matter peculiarly for the discretionary judgment of the judges of the Supreme Court, whose understanding of the profession under its supervision this Court could hardly hope to emulate. But this Court may perhaps enjoy two advantages which the Supreme Court lacked when its orders were made in June of this year. In the first place the reasons for judgment of the members of this Court have confirmed to the appellants and to the legal practitioners of the Territory that the Supreme Court's condemnation of the practices under consideration was in all essential respects correct. And the appellant Mr. Robb has now experienced for more than half a year the bitterness of deprivation of his right to practise his profession, so that he may now be expected carefully to discharge all the duties which membership of that profession entails, when he resumes practice. In all the circumstances I would order that the period of suspension be varied to 6 months. I do not consider that the circumstances require any interference with the amount of the fine Mr. Rees was ordered to pay. The appellants should pay the respondent's costs to be taxed as between solicitor and client.
I certify that this and the 35 preceding pages are a true copy of the Reasons for Judgment of the Honourable Justice Jenkinson.
Associate
Dated: 24 December 1996
IN THE FEDERAL COURT OF AUSTRALIA )
AUSTRALIAN CAPITAL TERRITORY ) No. ACT G 34 of 1996
DISTRICT REGISTRY )
GENERAL DIVISION )
BETWEEN:GARY ALAN ROBB
and GERARD PETER REES
Appellants
AND:THE LAW SOCIETY OF THE
AUSTRALIAN CAPITAL
TERRITORYRespondent
CORAM: Black CJ, Jenkinson, Sackville, Kiefel, Merkel JJ
PLACE: Melbourne
DATE: 24 December 1996
REASONS FOR JUDGMENT
SACKVILLE J:
Introduction
This appeal has presented some difficulties, for two main reasons. First, the judgment of the Supreme Court appears to rely on a number of different, albeit, related grounds for concluding that the appellants' conduct, in delaying the payment of barristers' fees and other disbursements from the funds transferred to the office account, constituted professional misconduct. Secondly, their Honours identify several "aggravating factors" which, although not forming part of the formal allegations made by the Law Society, are said to have warranted the appellants receiving more severe penalties than
otherwise would have been the case.
The judgment of the Supreme Court does not state in summary form the precise basis for concluding that the appellants breached the relevant provisions of the Legal Practitioners Act 1970 (ACT). As I read the judgment, their Honours rely on five grounds although, as I have said, these overlap to a considerable extent. The five grounds are as follows:
•The appellants breached fiduciary duties owed to their clients, by transferring into the office account funds received on behalf of the clients in respect of disbursements, but then failing to pay promptly counsel and others the fees due to them.
•The appellants treated what was "essentially the clients' money" as their own.
•The appellants' failure to pay promptly fees and disbursements breached the terms of the authority executed by their clients, which required moneys received on the clients' behalf to be disbursed in payment of barristers' fees and other expenses.
•The appellants' conduct, in retaining for their own purposes funds received by them for the very purpose of paying fees and disbursements, was a departure from the practice adopted uniformly by the legal profession.
•There was a conflict between the interests of the clients and those of the appellants. The clients had an interest in being properly advised in relation to settlements and, in particular in relation to the amount of profit costs and disbursements to be charged by the appellants. On the other hand, the appellants had an interest in benefiting from the sums paid in settlement of the clients' claims. The failure to recognise this conflict meant that the appellants did not explain to the clients that delays in payment of disbursements would or might take place.
The factors identified by the Supreme Court as aggravating conduct include the following:
•The appellants' indifference to the obligation to pay counsel promptly from settlement moneys "spill[ed] over and infect[ed] their attitude to their obligations in other matters where no special arrangements with counsel had been entered into".
•The appellants mistakenly assumed that, by transferring moneys from the trust account to the office account, they were free to deal with the funds as their own. This assumption reflected a failure to appreciate the nature of their fiduciary duties and
that the delays in paying the fees due to counsel and others breached those duties.
•The appellants had adopted a practice of obtaining instructions from their clients acknowledging that a global sum was due to the appellants in respect of professional costs and disbursements. The appellants had not fully informed the clients of the breakdown of costs and disbursements; nor had they disclosed their own interest in "minimising disbursements and maximising profit costs". This was improper and a breach of the fiduciary duties owed to their clients. While the Law Society had not relied upon these matters, they constituted evidence of the failure of the appellants to understand their fiduciary role.
•The appellants displayed no understanding of the dangers of determining the amount payable in respect of solicitor-client costs before a compromise of the client's claim had been reached. This ignorance "underlined" their failure to understand their fiduciary responsibilities.
•The appellants tended to allow their practice to become a "litigation factory", oblivious to the true nature of the duty as owed both to their clients and to counsel and others on whose forbearance they relied for the success of their venture.
I agree with Kiefel J that the Supreme Court's finding of professional misconduct was ultimately based on the appellants' dealings with moneys transferred to their office account in contravention of the instructions given to them by their clients. I also agree that it was open to the Court to make that finding. I wish only to add two comments.
First, s. 87(5) of the Legal Practitioners Act 1970 (ACT) does not alter the conclusion that the appellants infringed s. 87(1) of the Act, by failing to disburse moneys received on behalf of their clients in accordance with the instructions of those clients. Section 87(5) provides that nothing in Part XI (including s. 87(1)) affects a lien that a solicitor would, apart from that Part, have over moneys held by the solicitor. It is true that a solicitor has a particular lien over a judgment or compromise for the payment of money, obtained as the result of legal proceedings in which the solicitor has acted for the client: Ex parte Patience; Makinson v The Minister (1940) 40 SR (NSW) 96 (SCt NSW/FC) at 100, per Jordan CJ; Re Johnston and Re Legal Practitioners Ordinance 1970 (1979) 32 ACTR 37 (SCt ACT/FC), at 49; Worrell v Power & Power (1993) 46 FCR 214 (FCA/FC), at 218 ff. But the particular lien, assuming it extends to disbursements not yet paid by solicitors, does not entitle the solicitors simply to retain for their own benefit funds which they have agreed, in accordance with instructions received from the clients, to disburse to third parties such as counsel or expert witnesses: compare Johns v Law Society of New South Wales [1982] 2 NSWLR 1 (NSW CA), at 21 per Hope JA. The
rationale underlying the particular lien is that the client should not obtain the benefit of the solicitor's exertions without paying for them: Guy v Churchill (1887) 35 ChD 489 (CA), at 491 per Cotton LJ; Northwest Construction Co Pty Ltd (In Liquidation) v Marian [1965] WAR 205 (SCt WA), at 210-212, per Nevile J.
Secondly, while it is true that a court hearing disciplinary proceedings is not necessarily restricted to the allegations made and particularised by the Law Society (or other complainant), some care must be exercised before making adverse findings in relation to allegations which have not been precisely formulated in writing: see Johns v Law Society, at 6. Unless the conduct complained of is formulated in this way, there is a danger, as the Supreme Court recognised, of procedural unfairness. There is also a danger that the basis for a finding of professional misconduct by the court may not be entirely clear.
On the question of penalty, I agree with Kiefel J that the Supreme Court took into account conduct which extended beyond that identified in the accountant's report and relied upon by the Law Society. I also agree with her Honour's reasons for concluding that each of the disciplinary orders should be set aside and with the orders proposed by her.
As Kiefel J has said, it is not necessary to consider the correctness of the Supreme Court's views on the broader questions related to the conduct by the appellants of their
practice. Nonetheless, I should note that the Supreme Court's observations concerning contingency fee arrangements appear to assume that such arrangements are based on a United States model, in which the fee charged to the client represents a proportion of the sum recovered. This is not the case: see Access to Justice Advisory Committee, Access to Justice: An Action Plan (1994), Ch. 6.
I agree with the orders proposed by Kiefel J.
I certify that this and the preceding six (6) pages are a true copy of the reasons for judgment herein of the Honourable Justice Sackville.
Associate:
Date: 24 December 1996
Heard: 11 October 1996
Place: Melbourne
Decision: 24 December 1996
Appearances: Mr R A Conti QC with Mr M J Steele appeared for the appellants, instructed by Abbott Tout Harper and Bain.
Mr R R Stitt QC with Mr G C Lindsay SC appeared for the respondent, instructed by Phelps Reid.
IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY
DISTRICT REGISTRY
GENERAL DIVISION
No ACT G 34 of 1996
ON APPEAL FROM THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
BETWEEN:
GARY ALAN ROBB and GERARD PETER REES
Appellants
AND:
THE LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY
Respondent
CORAM: Black CJ, Jenkinson, Sackville, Kiefel, Merkel JJ
DATE: 24 December 1996
PLACE: Melbourne (Heard in Melbourne)
REASONS FOR JUDGMENT
KIEFEL J:
On 7 June 1996 the Supreme Court of the Australian Capital Territory ordered that Gary Alan Robb be suspended from practice as a barrister and solicitor for a period of eighteen months and that his partner, Gerard Peter Rees, pay a fine of $20,000 and that each of them pay the costs of the Law Society of the Australian Capital Territory on a solicitor and client basis. Those orders were made following the consideration of a report prepared by the Law Society with respect to certain conduct engaged in by the practitioners and a hearing at which evidence was adduced. Each of the practitioners appeals from the Supreme Court’s findings as to the conduct in question and the disciplinary orders made.
Section 67(1) of the Legal Practitioners Act 1970 (A.C.T.) (“the Act”) provides
as follows:“67.(1) If, on a report under section 62 or otherwise, the Supreme Court is satisfied that a barrister and solicitor is guilty of professional misconduct or unsatisfactory professional conduct, the Court may, by order, do all or any of the following:
(a)direct that his or her name be removed from the Roll of Barristers and Solicitors;
(b)suspend for such period as the Court considers appropriate his or her right to practise in the Territory as a barrister, as a solicitor or as a barrister and solicitor;
(c) impose on him or her a fine not exceeding 200 penalty units;
(d)where the barrister and solicitor is practising solely as a barrister - reprimand him or her.”
Orders were made after the Supreme Court had declared itself satisfied that the practitioners had been guilty of professional misconduct.
Section 62 provides for the preparation of a report by the Professional Conduct Board of the Law Society, where it is considered that the matter ought to be dealt with by the Supreme Court. And it is relevant, to later discussion, that the proceedings in the Supreme Court were conducted upon such a report.
The conduct to which their Honours principally referred in reaching their decision was that engaged in in breach of the Act and in particular ss 87(1) and 94(2) which, stated shortly, require a solicitor to retain client monies as trust monies and to deal with them only as directed by the client. I shall consider later the question whether their Honours took into account other conduct. The practitioners had, in their Honours’ view, failed to pay disbursements and outlays as their instructions required and to pay them timeously. At the same time they obtained advantages from late payment, to which they
were not entitled. The disbursements and outlays which ought to have been paid promptly were, for the most part, counsel’s fees and expert witnesses’ fees. The conduct, upon which the Law Society had reported, also involved the retention of some refunds from third parties, which ought to have been paid to clients. It was at no time however suggested that the practitioners had not intended making payment, but rather that it was not open to them to choose some later time to do so. The argument for the practitioners was, essentially, that the monies in question ought to be regarded not as client monies but those to which the practitioners were entitled.
Their Honours also stated that s 91 of the Act had been breached. It provides that a solicitor is to cause all trust monies received by the solicitor from or on behalf of a client to be paid into a general trust bank account maintained by the solicitor within a stated period of time. Whilst the section was not specified in the Law Society report, there was reference to payment of the refunds due to clients to the office account of the practitioners and not the trust account.
Another aspect of the conduct which had been relied upon by the Law Society and which was referred to in the report by it to the Court, was that the practitioners were also guilty of gross neglect and delay in making the payments. This was not the subject of any express finding by the Supreme Court.
The Statutory Provisions
Sections 87(1) and 94(2) provide as follows:
“87.(1) All moneys received by a solicitor, in connection with the solicitor’s practice in the Territory, from, or on behalf of, a client of the solicitor shall,
for all purposes, be deemed to be held in trust for that client to be disbursed, or otherwise dealt with, by the solicitor in accordance with the instructions of the client.”
¼
“94. ¼
(2)Subject to subsection (3) and to Division 8, a solicitor shall not withdraw any money from a trust bank account except for the purposes of payment to, or disbursement according to the direction of, the person for whom the money is, by virtue of section 87, to be deemed to be held in trust.”
The expression “trust moneys” is defined in s 3 to mean: “moneys that are, by virtue of section 87, to be deemed to be held by a solicitor in trust for a client of that solicitor”.
It may be observed that the provisions operate together, the former confirming the existence of a trust with respect to monies held for or on behalf of the client and, therefore, the need for instructions as to the use to which they may be put, and the latter containing a prohibition against the use of those monies other than as authorised. For present purposes it is clear from these provisions that monies to which the client would otherwise be entitled to be paid (“client monies”) but which are intended to be utilised in meeting expenses incurred on that client’s behalf (or “disbursed”) are to be put to that use alone. The question whether there has been any misconduct because, relevantly, the obligations cast by the statute have been breached, would then likely fall to be determined simply by a consideration of the terms of the authority. Further qualification or description of the duty owed to the client was not relied upon by the Law Society and, in light of the statutory provisions, would not seem to take the matter further.
The Conduct Identified
Mr Robb was admitted as a legal practitioner on 16 August 1976 and received an unrestricted practising certificate in January 1980. He carried on practice either on his own behalf or in partnership from 1984. In May 1987 Mr Rees joined the firm commenced by Mr Robb. He had been admitted on 10 August 1982 and received an unrestricted practising certificate in January 1990. His experience with respect to the keeping of accounts and the handling of client money was more confined, as he had not worked in a private firm. He became an equity partner in January 1990. Another person later joined the partnership but he was not made the subject of any complaint or charges.
The practice of the firm largely concerned personal injury litigation for plaintiffs. The practitioners usually acted on a speculative basis, so that payment of the firm’s fees was dependant upon success in the client’s action. To facilitate this style of litigation the practitioners had made arrangements with a number of barristers, and some expert witnesses, whereby payment of their fees was also postponed to judgment or settlement. There was no fixed time within which counsel or those witnesses were to be paid and, as their Honours observed, counsel who had not been involved in final negotiations or the trial of the action were necessarily reliant upon the practitioners to advise them when payment could be made. The practice also paid some litigation expenses on behalf of these clients, on the basis that it would be refunded at the conclusion of the action.
Although there was debate about the length of time taken to pay counsel, it seemed that it was not the practice of counsel on the firm’s panel to send accounts rendered. There are a number of reasons why this might be so and their Honours did not express
any conclusion upon it. There was apparently no objection to the delay in payment by counsel regularly retained by the practitioners. The complaint concerning non-payment of fees in circumstances where client monies had been made available for that purpose and which led to the report to the Court was instigated by one person, Mr Walmsley, a barrister who had been briefed by the firm for many years and who had enjoyed a close social relationship with the two practitioners, especially Mr Rees. He had acted extensively for the practitioners and derived a substantial income from the practice. He was also generally aware of delays in receiving payment and had earlier taken the step of raising the level of his fees to hedge against it. For reasons not presently relevant, he wrote to the partners on 16 August 1993 detailing the fees he considered to be due to him. Relations between Mr Walmsley and the practitioners deteriorated from that point. By the end of August he had lodged a complaint with the Law Society concerning money authorised by some of the firm’s clients to be transferred from the trust account to the office account for disbursement, and in particular for payment of his fees, but which had, to the contrary of those instructions, been retained by the firm for many months prior to payment. Payment of over $25,000 was made by the firm to Mr Walmsley in January 1994 and some further payments were made thereafter. However a further complaint was lodged by him with the Law Society in May 1994.
It is necessary then to turn to the procedures employed by the practitioners. The starting point is of course the client instruction.
Where a settlement was proposed, which was the more common occurrence by dint of the nature of the practice, the practitioners obtained an authority from the client to
settle the action for a specified sum “inclusive of costs”. It recorded the client’s understanding that the amount of costs and disbursements was expressed as a lump sum and that these sums were to be paid. It concluded by nominating the net sum which was to be paid to the client after these payments. In some cases the instruction would also contain an acceptance of the solicitor’s lump sum assessment and would disclaim any requirement for an itemised account. An additional authority, obtained from the client about the same time, was in standard form and provided:“I hereby authorise GARY ROBB & ASSOCIATES, Barristers and Solicitors, to disburse or otherwise deal with all monies received by them from me on my behalf in relation to the above matter in accordance with my instructions, express or impliled (sic) for, but not limited to the following purposes/expenses¼”.
There was then set out a comprehensive list which included barrister’s fees and court fees, those for medical reports, telephone calls and other disbursements usual in litigation. With respect to payments to be made on the client’s behalf it went on:
“This authority extends to all monies received relating to this matter including monies received after the initial amount.
I also authorise you to deduct your reasonable costs and disbursements from the funds held in the Trust Account”.
What was later provided to the client as a “bill of costs” provided a little more information concerning costs and disbursements, but the Supreme Court was of the view that they were not itemised.
The submissions made for the practitioners contended that they believed and were entitled to believe that the sum representing unpaid disbursements, which was to be taken from the trust account according to the authority, assumed the same status as their fees. That is to say, the monies were no longer the client’s but could be deducted by the solicitors from the client monies and dealt with as their own. But the reference to the deduction of funds for disbursements from the trust account must be read with the other express instruction that they in fact be disbursed. There is absent any authority that the practitioners might have the benefit of monies to be used for payment of expenses, but not yet put to that purpose. To the contrary, the client’s instruction was that any dealing had to be on the client’s behalf. No different view is gained by reference to the client’s acknowledgment that disbursements had to be paid. It did not, relevantly, amount to any kind of concession on the part of the client that the solicitors were themselves liable for the disbursements or were entitled to the trust monies as their own.
It follows, in my view, that the authorities executed by the clients, properly construed, permitted the solicitors to deduct from client monies a sum representing their fees and disbursements which they had already paid, and to retain those monies. It also permitted them to lawfully transfer from the trust account to the office account a sum representing unpaid expenses incurred by or on behalf of the client. But that transfer was only for the purpose of attending to payment of those expenses. That was the extent of the client instruction.
On receipt of the settlement monies the practitioners would, as the Act required, pay them to the trust account. They would then send a document to the client which specified the lump sum said to be the solicitors’ costs and the total amount of disbursements of which, as I have said, some detail was provided. Once rendered, and in purported compliance with the instructions previously given, the total amount of the disbursements which had been shown on the face of that bill was credited to the office
ledger in the name of the client. This was in addition to the transfer of the practitioners’ own costs in the matter. Disbursements which were not paid remained in the office account. In respect of a period described as from at least July 1992 a “cash management account” was conducted by the practitioners in conjunction with the office account, the latter effectively operating on an imprest system. The surplus standing in the office account, and which was in part made up of unpaid client disbursements, was paid to the cash management account from time to time. An amount was periodically transferred back to the office account to meet cheques drawn in payment of expenses. Whilst the terms of the report imply some earlier commencement of this practice, none other was identified by the investigating accountant. This system was discontinued from about December 1993. In January 1994 a new office account was opened when the additional partner joined the firm and the practice was not thereafter reverted to.
It is necessary then to turn to the delay which occurred in payment of the disbursements and the steps which were undertaken with respect to the fund held in the practitioners’ office account for the purpose of payment. These were dealt with in the report of the Law Society’s accountant.
From January 1993 accounts were opened for four barristers and some doctors in the books of the firm (the “creditors’ accounts”). Mr Walmsley was one of those persons. Fees due to the barristers, or the doctors, were transferred, by journal entry, from the office account to the particular creditor’s account. Any cheques then drawn would be shown as a debit in the creditor’s account. To this point the appearance of payment is created. However, the investigating accountant found a series of cheques
which had been written back, by credit reversal, into the office account without a cheque having been drawn. It is of some importance that on the Society’s evidence this practice could only be said to relate to Mr Walmsley. The accountant’s searches revealed that fees rendered by Mr Walmsley, totalling almost $72,000, were posted to his creditor’s account prior to June 1993 but that a sum in excess of $63,000 was later transferred back to the office account. These earlier entries were, it appears to have been conceded, made for tax purposes. It needs also be noted here that, in an endeavour to obtain this taxation advantage, some entries were effected prior to settlement so that, whatever else one might say of the propriety of the procedure, the entries in question did not on every occasion relate to client monies. Further, the transfer for tax purposes was not itself relied upon by the Society as a ground for a finding of misconduct. The conduct upon which the Society relied concerned the failure to pay fees and expenses in accordance with their authority.
The report was inconclusive as to the actual delay in the payment of fees. What was however discovered, in the process, was that some cheques drawn in favour of Mr Walmsley, in a particular period, had been kept in a folder and sent out to him at intervals determined by the office manager in consultation with the practitioners. Mr Walmsley had been alerted to the practice because of the date appearing on some cheques.
The Society, in its report, identified and relied upon the retention of these cheques as showing wilfulness. However the accountant’s evidence only justified a finding of wilfulness in relation to delays in the payment of Mr Walmsley’s fees. The other
barristers, for whom these accounts were also created, appear to have been paid about two months after receipt of the client funds into the office account. And whilst the accountant’s evidence might support a finding of “wilfulness”, in the sense that the solicitors determined not to pay Mr Walmsley immediately, it did not show that, as between themselves and the client, they understood the monies to be the client’s. The question of their state of mind assumes some importance in connection with penalty, to which I shall subsequently refer.
With respect to the barristers whose fees were not shown in a separate account, the accountant found a number of cases where there were long delays. These were set out in an annexure to the report, which was referred to by the Supreme Court, which traced the funds to payment. The annexure dealt with the period from April 1991 to January 1994 and concerned twenty one matters which appeared, as their Honours found, to be neither a random selection nor a complete list. Nevertheless that was all that was disclosed by the investigation. For the most part the delays were approximately five months but, more typically, two to four months. On two occasions however there were delays in payment of counsel’s fees of 241 and 595 days.
Apart from the delay occasioned in paying out fees and expenses on behalf of the clients, the solicitors also received refunds which were to be paid to clients. The accountant found several examples of lengthy delay in refunding those sums and that they had remained, in the interim, in the office account. There was, however, no suggestion that this was deliberate and there was no finding to that effect by the Court. In these instances oversight, consistent with inefficient procedures, appears to have been accepted
as the explanation.
The conduct identified by the Law Society as amounting to misconduct on the part of the practitioners, and which contravened sub-sections 87(1) (referred to in the grounds of misconduct, in error, as s 89(1)) and s 94(2) of the Act, in summary, involved the following: failures to apply client monies to the payment of accounts within a reasonable time, when the monies had been transferred from the trust account to the office account for that purpose; failures to carry out the instructions of the client to disburse those sums and in breach of the instructions using the funds for their own benefit either by retaining them in the office account or in their cash management account; and the retention of refunds made by third parties due to clients. The particulars provided in the report limited the relevant conduct to a period of something under three years. How widespread the practice may otherwise have been and whether any other substantial delays had been incurred in payment was not dealt with in the allegation.
The Findings of the Supreme Court and Submissions as to them.
For the present I shall confine the discussion of the approach taken by the Supreme Court to the breaches of statutory obligation, the subject of the Law Society’s report and, in effect, the charges the practitioners had to meet. The Court was of the view that the practitioners were in breach of their duty to the client once they transferred the funds from their trust account to the office account, but did not then attend to payment of fees and other expenses owing.
As I have earlier observed, the principal submission for the practitioners was that the monies received into the office account were not then affected by any obligation to the client. There were a number of aspects to this contention, the nub of which seemed to be that monies transferred with the client’s authority to the office account became the solicitors’ or were no longer those in which the client retained an interest. This submission was not accepted by the Supreme Court and in my respectful view correctly so. What it ignores is the terms of the instructions, which were to disburse the monies received in payment of the specified fees and expenses. And it would follow from that instruction, by implication, that payment was to be made as soon as reasonably practicable. Indeed the practitioners did not submit, as I understood their argument, to the contrary of the proposition that it was intended that the monies were to be utilised to pay fees and any other disbursements. Rather they sought to address the delay in doing so, and the use made of the money in the meantime, by reference to some entitlement they had to treat the monies as their own and therefore to pay entirely at their discretion. There is, however, no basis for such an assertion.
Reliance was sought to be placed upon the practitioners’ own liability to the barristers they had retained for payment of their fees. By this means, it was argued, one could see that the monies were transferred to the office account for the purpose of exonerating the practitioners against their own liability to pay disbursements incurred on the clients behalf. Such an approach would, of course, place monies provided to a practitioner to meet unpaid disbursements in the same category as those already paid by the practitioner and in respect of which the solicitor was presently entitled to a refund.
But again, the submission ignores the terms of the authority, which is not an acknowledgment that the practitioner is liable to pay the disbursements and therefore may take funds as his own and deal with them in his own time. The authority is to take, from the monies held in trust for the client, sums to meet disbursements incurred on the client’s behalf and to pay them. And as I have earlier observed, the payment would need be attended to as soon as practicable, to prevent any claim being brought by persons to whom the obligation to pay had arisen because settlement monies had been received. This is consistent with the requirement that any dealings be on the client’s behalf. The retention of those monies in either the office account or the cash management account was obviously not for the client’s benefit but for the practitioners’. It was, in this connection, that their Honours in the Supreme Court observed that the practitioners seemed oblivious to the conflict as between their interests and their duties to the clients. Their Honours said:
“However the arrangement between the solicitor and counsel did not of itself affect the rights and obligations as between the solicitors and the client. The duty to the client required the solicitor to pay counsel upon receipt of the settlement monies. If the settlement moneys, having been paid into the trust account as they had to be, remained there, it is arguable that there would have been no breach of the obligation to the client so long as the solicitors, within a reasonable time, used the funds for the purposes for which they were received. But once the moneys were transferred to the solicitors’ office account, there was an immediate risk of a breach of the obligation not to use them otherwise than as authorised. The obligation was not discharged by allowing them to remain in the office account or to provide a fund for further transfer to the solicitors’ cash management account.”
In the conclusions stated, the Supreme Court did not advert to a breach of s 98(2)(b) of the Act. Nevertheless the Court had earlier made a finding to that effect. Section 98(2)(b) provides that a solicitor must keep accounting and other records as disclose particulars of all trust monies received or paid and keep those records in such a manner that they can be conveniently and properly audited. The particulars given of the
conduct relied upon by the Law Society, in this connection, were as to the cheques drawn by the solicitors in favour of Mr Walmsley, but withheld. Their Honours found that this practice was not justified and was in breach of the section. Their Honours made other findings concerning the solicitors’ duty to counsel for payment of fees. I shall refer in more detail to them, and the part they may have played in the ultimate orders made by the Supreme Court, later in these reasons.
Whether Professional Misconduct/Penalty
The Act was the subject of substantial amendment in 1993 and after the decision in Chamberlain v The Law Society of the Australian Capital Territory (1992) 43 FCR 148, where it had been observed that there were no definitions with respect to conduct which might give rise to disciplinary action. Section 37 of the Act now provides that “professional misconduct” includes:
“(a)unsatisfactory professional conduct of a substantial, recurring or continuing nature;
(b)conduct (whether consisting of an act or omission) occurring otherwise than in connection with the practice of law that would justify a finding that its perpetrator is not of good fame and character or is not a fit and proper person to remain on the Roll of Barristers and Solicitors; and
(c)conduct that is professional misconduct by virtue of section 118”.
(Section 118 is not here relevant). The section also defines “unsatisfactory professional conduct” as including:
“¼conduct (whether consisting of an act or omission) occurring in connection with the practice of law that falls short of the standard of competence and diligence that a client is entitled to expect of a reasonably competent legal practitioner.”
It is these two terms which are referred to in s 67(1) (set out above) as warranting disciplinary action ranging from reprimand to removal from the Roll of Barristers and Solicitors.
Their Honours did consider, at some length, the style and manner of the conduct of litigation by the practitioners and expressed opinions as to aspects of them. That relating to the duty owed to counsel concerning payment of their fees was one such topic. The propriety of obtaining instructions on an “all-up” basis was another. Whilst these matters appear to have been influential in another respect, namely in determining the appropriate disciplinary action, their Honours, it seems to me, did not venture beyond the conduct prescribed in the Law Society’s report in determining that there had been professional misconduct, at least by reference to its nature. Their Honours were concerned, in this connexion, with conduct constituted by an unauthorised dealing with client monies. What is not entirely clear is whether their Honours proceeded upon the basis that the conduct had been more extensively undertaken by the practitioners than the Society’s evidence disclosed. At one point in the reasons the Court said:
“¼the solicitors did not seek to make out a case that these were the only examples of delay in paying disbursements once the settlement or judgment moneys were in hand, and it is likely that there were many others”.
It was not necessary for the solicitors to disavow conduct occurring other than as specified by the Society and it does not seem to me to be a necessary inference, from what was disclosed by a relatively limited investigation, that there had been a substantial number of other delays in payment or that the delays were necessarily great.
Nevertheless, a conclusion that the appellants had engaged in professional misconduct was open to the Supreme Court, having regard to the conduct which was detailed in the report. Once it is accepted that the conduct involved unauthorised dealings with client monies it is clearly in a different, and more serious category than that which might be explained by lack of competence. It involved not a few isolated incidents, but a course of conduct. And that conduct was “substantial”, because it concerned breaches of statute relating to fundamental obligations owed to a client. That explains why it was not appropriate simply to deal with it on the basis of the practitioners’ lack of understanding. I should add, with respect to a submission made for the practitioners in argument, that it was not in my view, incumbent on the Supreme Court to require evidence of other practitioners before concluding, in circumstances such as these, that professional misconduct was involved. The nature of the obligations in question rendered such a course unnecessary.
It does not, however, follow from that conclusion that the disciplinary orders imposed, and in particular that suspending the practitioner from practice for eighteen months, were justified having regard to the conduct the subject of the report.
Their Honours observed, prior to making the orders in question, that it was desired to make it clear to the profession that such breaches of obligation were to be treated as professional misconduct and that a strong message to that effect was necessary. That is clearly a matter relevant to the Court’s consideration of an appropriate order. However, with respect to their Honours, the severity of the orders is such that I am obliged to conclude that, having regard to the matters referred to by their Honours, they proceeded upon a basis which extended beyond the conduct identified in the report and
relied upon by the Law Society. That conclusion is reinforced by the absence of any finding of knowledge of wrongdoing on the part of the practitioners.
It will be recalled that the only “wilfulness” imputed to the practitioners by the Law Society concerned the retention of cheques drawn in favour of Mr Walmsley. Their Honours, in their stated conclusions, observed that the practitioners could not rely upon any misapprehension arising by reason of any ambiguity in the terms of the statute. That must be so. The problems which arose stemmed from their lack of knowledge generally but, perhaps more particularly, from a lack of understanding of what the authorities given to them conveyed. But, more relevantly, as I have said, nowhere was it found by the Court that the practitioners acted in the knowledge that they were using client monies. The relatively minor benefit gained from the cash management account, or from the credit balance from time to time in the office account, was not the result of any conscious wrongdoing but of ordinary management of monies which were thought, wrongly, to be their own. One might expect that cases involving a lack of understanding of the terms of the practitioners’ own authorities will be rare. In this case however it appears to have been the only conclusion which could be reached.
The explanation for the severity of the orders imposed, in my respectful view, must then be gleaned from the wider review undertaken by the Supreme Court of the mode of litigation and from the views formed, in the process, of a number of undesirable aspects to it. What this did was to highlight the indifference of the solicitors to potential conflicts and to their obligations, as their Honours at various points observed. In so doing, it seems to me, it has also likely operated as influential when the Court came to
consider the extent to which they ought to be held responsible.
At an early stage in their reasons their Honours said, whilst explaining certain preliminary observations, that because the evidence compelled the Court to consider questions which “go well beyond allegations of breaches of particular provisions of the Legal Practitioners Act” it was necessary to discuss aspects such as the fiduciary duty owed by the practitioners in question to their clients. The Court considered that to do so involved no real unfairness, since senior counsel for the practitioners, Mr Conti QC, had been in a position to make submissions upon these topics. As I have earlier observed, the Law Society did not place reliance upon any such additional quality the conduct may have, beyond that contained in the Act. Nor does it seem to me to add anything to what the Act provides. However it is likely that the Supreme Court considered that it added to the gravity of the matter rather than provide the context in which the matter was to be considered.
There were also a number of instances where it likewise appears that their Honours took a serious view of aspects of the manner in which litigation was conducted by the practitioners. In the way in which these concerns are expressed it is also likely, in my view, that they operated as influential with respect to the Court’s view of the practitioners and their conduct. Their Honours commenced by observing that the fact that the practice was confined to plaintiffs was a relevant one and that the personal interest in the outcome rendered the possibility of potential conflicts of interest ever present. And, at one point it seems, their Honours considered the whole style of the litigation, which had assumed the proportions of what was described as a “litigation factory”, played a part
in the indifferent attitude which the solicitors came to have as to their obligations to clients and others. Such a conflict did arise, in their Honours’ view, when the practitioners sought instructions to settle on a lump sum basis. Not only did the Court deprecate this practice, it expressed the view that it was improper and in breach of duty. I have not here dealt with the correctness of these opinions, for the relevant question which arises, in my view, is whether they ought to have been relied upon in imposing the suspension and fine.
The question of the practitioners’ obligation to counsel also assumed considerable importance with the Court, for their Honours expressed views that the delay in payment involved impropriety, that the obligation to pay counsel was absolute and that it might itself qualify as professional misconduct.
The duty to pay counsel retained by a solicitor did not form any basis of the Law Society’s report. It focused upon the duties to the client under the Act. And, similarly, the Law Society’s case did not relate to aspects of the litigation practice which caused the Court much concern. In this respect it was submitted, for the practitioners, that had they been forewarned of the potential importance of the issue of instructions from the client they would have produced further evidence and explanation. It was not otherwise suggested by the Society that the practitioners ought to have been alert to the possibility that the Court would come to hold views about other aspects of their practice and it does not seem to me that it could do so. What occurred does not appear to have been contemplated by either party.
To these observations, concerning the matters which may have influenced the Court in determining what orders were appropriate, ought be added that relating to the extent of other delays which the Court seems to have accepted as likely to have occurred but which, as I have earlier observed, must involve speculation. In my respectful view these were matters which went beyond those which might be treated as aggravating factors with respect to the relevant conduct , that set out in the report. They were species of conduct and breaches of obligation different from that the subject of complaint and report. They could not render more serious the action necessary with respect to the more limited conduct upon which these proceedings in the Supreme Court were based and of which the practitioners had notice. It follows, in my respectful view, that each of the disciplinary orders made was disproportionate to the conduct in question.
Whilst I would not interfere with the finding of professional misconduct, in connection with the conduct the subject of the report, it is necessary in my respectful view that the orders of suspension and fine be set aside. In the case of the former, a period of suspension is appropriate but it ought to be limited to six months. The fine imposed ought, in the absence of any real pecuniary benefit received, to be reduced to $6,000.
I regard the reduced penalties as appropriate to give effect to the findings made as to the gravity of the professional misconduct engaged in by the practitioners. That misconduct involved a clear breach by the practitioners of the obligation imposed by statute to only deal with moneys which they had held on behalf of a client in accordance with the instruction or direction of the client. The existence of a misconceived and unjustified,
albeit honest, claim for an entitlement to do so does not detract from that conclusion. Had the practitioners acted in the knowledge that they were dealing with money which they had held on behalf of clients contrary to the instructions or directions of the clients then a more severe penalty might have been appropriate.
On the basis that the finding as to misconduct has remained undisturbed I do not consider there is warrant in interfering with the orders made as to costs of the hearing before the Supreme Court. It is appropriate that the parties have an opportunity to file written submissions on the issue of the costs of the appeal.
I certify that this and the preceding twenty one pages are a true copy of the reasons for judgment herein of the Honourable Justice Kiefel.
Associate
Date: 24 December 1996
Counsel for the appellants: Mr R A Conti QC and MJ Steele
Solicitors for the appellants: Abbott Tout Harper & Blain
Counsel for the respondent: Mr RR Stitt QC and Mr GC Lindsay SC
Solicitors for the respondent: Phelps Reid
Date of Hearing: 11 October 1996
Place of Hearing: Melbourne
Place of Judgment: Melbourne
Date of Judgment: 24 December 1996
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