Smith v The Legal Contribution Trust - [2024] WASC 454

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION:   SMITH -v- THE LEGAL CONTRIBUTION TRUST [2024] WASC 454
CORAM:   COBBY J
HEARD:   25 JULY 2024
DELIVERED          :   3 DECEMBER 2024
FILE NO/S:   CIV 2247 of 2023
BETWEEN:   VICKI JEANINE SMITH as administrator of the estate of ALLAN WILLIAM BROWN
First Plaintiff
GARY MARSHALL CHIVERS as administrator of the estate of ALLAN WILLIAM BROWN
Second Plaintiff
AND
THE LEGAL CONTRIBUTION TRUST
Defendant

Catchwords:

Application for order permitting plaintiffs to make claim against Solicitors Guarantee Fund - Principles governing exercise of discretion - Evidence required in support of application

Legislation:

Guardian and Administration Act 1901 (WA) s 109
Legal Profession Act 2008 (WA) s 205, s 210(1)(c), s 333(a), s 334, s 336(1), s 351(1), s 358 (1), s 367, s 368(1), s 391(2)
Legal Profession Uniform Law (WA) sch 4, cl 22(2)
Legal Profession Uniform Law Application Act 2022 (WA) s 260(2)(a)

Result:

Application granted

Category: B

Representation:

Counsel:

First Plaintiff	:	PDC Robinson
Second Plaintiff	:	PDC Robinson
Defendant	:	E Lin

Solicitors:

First Plaintiff	:	Williams & Hughes
Second Plaintiff	:	Williams & Hughes
Defendant	:	Jackson McDonald

Case(s) referred to in decision(s):

Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336
Derry v Peek (1889) 14 App Cas 337
Helby v Council for the Law Society (NSW) [2013] NSWSC 1938
Legal Services Board v Gillespie [2013] HCA 35; (2013) 249 CLR 493
Tolhurst Druce & Emmerson v Maryvell Investment Pty Ltd (in liq) [2007] VSC 271

COBBY J:

The plaintiffs are the niece and nephew of the late Allan William Brown and the administrators of his estate, having obtained letters of administration on 3 August 2017.
By an originating summons filed 3 November 2023, the plaintiffs seek an order pursuant to s 367(3) of the Legal Profession Act 2008 (WA) (the Act) permitting them to bring proceedings against the Legal Contribution Trust (the Trust) in respect of the Solicitors' Guarantee Fund (the Fund).
The Trust is a body corporate.[1] A person who suffers a pecuniary loss may, in certain circumstances, make a claim to the Trust against the Fund.[2]
[1] Section 391(2). All references to legislation are to the provisions of the Act unless otherwise stated.
[2] Section 351(1).
The plaintiffs seek compensation from the Fund in respect of the alleged defaults of a solicitor, Jarrod Thompson, in the course of his acting or purporting to act as Mr Brown's solicitor. As the Trust has refused the plaintiffs leave to make their proposed claims, the plaintiffs cannot proceed unless the Court makes an order permitting them to do so.
The Trust neither consented to nor opposed the application. It took the position that there was insufficient evidence that the plaintiffs' proposed claims satisfied the requirements of the Act, and otherwise made submissions as to the matters it contended the Court should have regard in determining the application.
For the reasons which follow, I will order that the plaintiffs may institute proceedings against the Trust to pursue their proposed claims.
The Act was repealed on 1 July 2022, upon the commencement of the Legal Profession Uniform Law (WA).[3] The plaintiffs submit that their application and their proposed claims are governed by the provisions of the Act, notwithstanding its repeal. The Trust's submissions proceeded on the basis the Act applied.
[3] Section 260(2)(a), Legal Profession Uniform Law Application Act 2022 (WA).
I am satisfied that the Act governs both the plaintiffs' application and their proposed claims, the effect of cl 22(2) of sch 4 to the Legal Profession Uniform Law (WA) being that a claim made under the Act which was not disposed of before 1 July 2022 is to be dealt with in accordance with the Act by the entity responsible for dealing with it under the Act.
Turning to the application itself, Mr Brown was unmarried and had no children.
Jarrod Thompson was the sole director and principal of Thompson Legal Pty Ltd until 27 September 2016.
Thompson Legal Pty Ltd, through Mr Thompson, acted as Mr Brown's solicitor from late 2010. Mr Thompson has previously asserted that no costs agreement was made between Mr Brown and Thompson Legal Pty Ltd because Mr Brown was a 'sophisticated client'.
On 13 January 2011 Mr Brown was referred to a specialist 'for an opinion and management of his possible dementia' by, I infer, his treating general practitioner.
In April 2011, Mr Brown's physician described him as having a 'moderate cognitive impairment'.
Mr Brown executed a power of attorney prepared by Mr Thompson on 15 April 2011.
That instrument appointed Beryl Drage as Mr Brown's attorney, but also provided that Mr Thompson would be appointed Mr Brown's attorney in the event of her death.
Ms Drage was terminally ill as at 15 April 2011. She died eight days after Mr Brown executed the power of attorney.
On 19 April 2011 Mr Brown executed a new will, also prepared by Mr Thompson. Mr Brown's previous will had been made less than a year previously, on 20 May 2010. The only change to the specific gifts made by the 2011 will was that Ms Drage's son was to receive $10,000. The distribution of the residuary estate remained unchanged.
The earlier will provided, however, that the plaintiffs be appointed as the executors and trustees of Mr Brown's estate. The 2011 will provided that the 'senior director, principal or partner' of Thompson Legal Pty Ltd - that is, Mr Thompson, being the only director of the company - be appointed executor and trustee.
On 18 May 2011 Mr Thompson, as Mr Brown's attorney, instructed Mr Brown's stockbrokers to direct all future correspondence and investment statements to Thompson Legal Pty Ltd.
On 26 August 2013 Mr Thompson acknowledged in correspondence that Mr Brown lacked capacity.
Thompson Legal Pty Ltd was wound up on the application of the Australian Taxation Office on 27 September 2016.
The Legal Practice Board appointed a manager to the practice of Thompson Legal Pty Ltd effective 10 November 2016.
Mr Brown died on 1 January 2017. His death certificate recorded '[d]ementia (5 years)' as being a contributory cause of his death, suggesting that Mr Brown suffered from dementia from approximately January 2012.
Mr Brown's assets exceeded $1.5 million as at 20 January 2017.
Mr Thompson therefore had access to, and apparent control of, Mr Brown's bank accounts and other property for approximately 6 years, in circumstances where there is reason to think Mr Brown may have been mentally impaired or incapable for much, if not all, of that period.
Following Mr Brown's death, Mr Thompson purported to act as the executor and trustee of his estate, and purported to act as solicitor for the estate. No grant of probate was made to Mr Thompson.
The plaintiffs allege that, amongst other things, Mr Thompson:
(a)raised invoices, often for large sums of money, in connection with work, which was in some cases wholly unitemised, and in other cases plainly disproportionate to the fees charged. They point, as an example, to Mr Thompson having raised an invoice for $20,000 (inclusive of GST) in 2016 in respect of work they characterise as the payment of six invoices on Mr Brown's behalf;
(b)raised unitemised invoices in the name of Thompson Legal Pty Ltd for $10,000.00 (inclusive of GST) each on 31 December 2016 (the day prior to Mr Brown's death) and 27 February 2017, both of which Mr Thompson then caused to be paid from Mr Brown's bank account to Mr Thompson's personal account;
(c)took various personal possessions belonging to Mr Brown with him to Queensland in or around July 2016, which Mr Thompson refused to return to the plaintiffs, both before and after orders were made by this Court requiring him to do so.
Each of the two invoices in the amount of $10,000 purported to have been issued by Thompson Legal Pty Ltd were dated after a liquidator had been appointed to that company and a manager appointed to its legal practice. It is therefore highly probable Mr Thompson was not authorised to issue those invoices, and knew that to be the case when he did so. In the absence of explanation, his payment of those amounts to his personal account constitutes some evidence that he acted dishonestly in dealing with Mr Brown's assets, both for those reasons and because, in the case of the later invoice at least, he should be taken to have known that the power of attorney granted by Mr Brown terminated upon Mr Brown's death.
That conduct occurred, however, at the very end of Mr Brown's life. It does not necessarily give rise to the inference that Mr Thompson acted dishonestly in his dealings with Mr Brown and his assets at an earlier point in time.
On 8 May 2018, the plaintiffs notified the Trust of a potential claim against it pursuant to s 351 of the Act.
The plaintiffs commenced proceedings in this Court against Mr Thompson on 23 May 2018.
Although the plaintiffs submitted that on 9 February 2021 Mr Thompson's professional indemnity insurer, Law Mutual, declined to indemnify Mr Thompson in respect of the 2018 proceedings on the ground that the fraud exclusion in his policy was likely to apply, it appears from the correspondence provided by the solicitors for Law Mutual to the plaintiffs' solicitors that Law Mutual reserved its rights in relation to Mr Thompson having caused payments to be made to his own account in respect of the two $10,000 invoices on the basis that the fraud exclusion was likely to apply to those claims, and reserved the grant of indemnity in relation to claims that Mr Thompson had arranged for amounts to be paid from Thompson Legal Pty Ltd's trust account for the purposes of making payment to himself or that company on the basis that those claims might involve the repayment of money comprising fees or disbursements, which was the subject of a separate exclusion under the policy.
Mr Thompson declared bankruptcy on his own petition on 16 May 2021, with the consequence that the 2018 proceedings were stayed by order made 30 July 2021. On 1 December 2021 the Australian Financial Services Authority advised the plaintiffs' solicitors, in essence, that no dividend was expected to be paid in Mr Thompson's bankruptcy.
On 5 August 2021, the plaintiffs submitted to the Trust a claim for compensation from the Fund.
The Fund was established pursuant to s 336(1) of the Act. The purpose of the Fund was (and remains, to the extent that a claim was made prior to 1 July 2022) to provide a source of compensation for pecuniary loss caused by a default by a law practice.[4]
[4] Section 333(a).
A 'default' is defined by s 334 to mean:
(a) a failure of the practice to pay or deliver trust money or trust property that was received by the practice in the course of legal practice by the practice, where the failure arises from an act or omission of an associate that involves dishonesty; or
(b)a fraudulent dealing with trust property that was received by the practice in the course of legal practice by the practice, where the fraudulent dealing arises from or is constituted by an act or omission of an associate that involves dishonesty…
Mr Thompson was an associate of Thompson Legal Pty Ltd at all relevant times by virtue of s 6(1)(iii).
Claims made be made against the Fund pursuant to s 351(1) of the Act. A claim against the Fund is made to the Trust.[5] The Trust may determine a claim by wholly or partly allowing or disallowing it.[6]
[5] Section 351(1).
[6] Section 358(1).
By letter to the solicitors for the Trust dated 8 May 2023, the plaintiffs' solicitors asked the Trust to advise whether the plaintiffs' claim for compensation had been formally refused, and that the Trust grant the plaintiffs leave to commence proceedings against the Trust pursuant to s 367(1).
On 18 May 2023, the Trust confirmed the claim for compensation had been denied.
Section 367(1) provides that a claimant may not bring proceedings against the Trust in respect of the Fund unless, relevantly for present purposes, the Trust gives the claimant leave to institute proceedings. The Trust has declined to do so.
Section 367(2) provides that a person who has been refused leave to proceed by the Trust may apply to this Court for an order enabling the claimant to bring proceedings against the Trust.
Section 367(3) provides that the Court may, as it thinks fit, grant an application for leave to proceed against the Trust, either on conditions or otherwise, or dismiss it.
Section 367(2) and s 367(3) do not identify the factors to be considered by the Court in determining whether to grant an application enabling a person to bring proceedings against the Trust.
Section 368(1) provides:
Where, in any proceedings brought to establish a claim against the Trust, in respect of the Guarantee Fund, the Supreme Court is satisfied that the default to which the claim relates is a default which in fact occurred and to which this Division applies and that the claimant has a valid claim, it must, by order -
(a)declare the occurrence, and the date of the occurrence, of the default and the amount of the pecuniary loss sustained by the claimant; and
(b)direct the Trust to deal with the claim in accordance with the provisions of this Division; and
(c)award such costs and direct the payment of interest on the claim in accordance with sections 360 and 361, as it thinks fit.
The nature of the discretion to be exercised by the court pursuant to s 367(2) and the factors to be considered in doing so are to be discerned from the subject matter, scope and purpose of the provisions of the Act. Importantly, an order allowing a claimant to proceed against the Trust is required only where the Trust has both refused a claim against the Fund and refused to permit a claimant to pursue a claim against the Trust in respect of the Fund.
In considering an application under s 367(2) the Court is therefore performing a supervisory function, acting as a filter to prevent the commencement of unmeritorious claims against the Trust, whilst ensuring that a claimant with a reasonably arguable claim is not prevented from pursuing it by an arguably erroneous decision on the part of the Trust.
The Court's task of considering whether to make an order pursuant to s 367(2) allowing a claimant to make a claim against the Trust therefore does not involve the detailed consideration and determination of the merits of the plaintiff's proposed claims. Nor is it a review of or appeal from the Trust's decisions to refuse a claim and to refuse leave to bring that claim. Instead, the Court is to determine whether the claimant has a reasonably arguable claim, with the determination of arguable questions of law and fact being resolved in the proceedings to be commenced by the claimant.[7]
[7] See, by way of loose analogy, the approach taken in respect of applications for leave to proceed against companies in liquidation: Tolhurst Druce & Emmerson v Maryvell Investment Pty Ltd (in liq) [2007] VSC 271 [157] - [164].
That is made clear, in my view, by s 368(1), which prescribes what the Court is to do where it is satisfied that that a default has occurred and that the claimant has a valid claim. The Act therefore distinguishes between the application for the making of an order allowing a claimant to bring proceedings under s 367(2) and the determination of the proceedings instituted pursuant to that order. The institution of proceedings pursuant to an order made under s 367(2) would otherwise be otiose.
An order allowing a claimant to proceed will therefore not be made when it appears that the claimant has no reasonable prospect of successfully prosecuting the whole or some part of the proposed claim, since there will be no utility in allowing such a claim to proceed, but it will not be necessary that the claimant prove every aspect of the claim that it wishes to make in the course of the s 367(2) application.
Here, the plaintiffs relied upon an account provided by Mr Thompson in the 2018 proceedings in support of their claim against the Fund. There is evidence that Mr Thompson intended to rely upon that document in the taking of an account in those proceedings. The account was not taken due to Mr Thompson's bankruptcy.
There are 111 transactions identified in the account, totalling $154,493.72. The plaintiffs contend that a number of debit items in the account are not supported by invoices, and that other invoices caused to be paid by Mr Thompson were unitemised. The plaintiffs maintain that the document was and is deficient, in part because it was confined to transactions involving the Thompson Legal Pty Ltd trust account, and does not make any reference to any dealings Mr Thompson may have had with Mr Brown's property more generally.
As noted above, in order to establish their claims against the Fund, the plaintiffs must establish that the loss of each amount they claim was caused by a 'default' on the part of Thompson Legal Pty Ltd. That in turn requires that they show that each claimed loss arose from an act or omission on the part of Mr Thompson which involved dishonesty in respect of trust money or trust property.[8] The Act defined dishonesty to include fraud.[9]
[8] By reason of the definition of 'default' in s 334. See also Legal Services Board v Gillespie [2013] HCA 35; (2013) 249 CLR 493 [12] - [18].
[9] Section 334.
I consider that there is presently insufficient evidence before the Court to enable a finding to be made that Mr Brown lacked capacity when he granted the enduring power of attorney to Mr Thompson. It is possible that expert evidence could be obtained as to that issue, and whether, if Mr Brown was mentally impaired, that would have been apparent to persons dealing with him, but evidence to that effect was not adduced by the plaintiffs for the purposes of the application.
The evidence that was adduced by the plaintiffs that Mr Thompson acted dishonestly in relation to each of the 111 transactions was scant. The plaintiffs relied to a large degree on Mr Thompson's conduct in relation to the two $10,000 invoices issued without authority. As I have already said, Mr Thompson's conduct in relation to those invoices does not necessarily establish that he acted dishonestly at an earlier point in time in dealing with Mr Brown's affairs.
The plaintiff also identified an invoice from Thompson Legal Pty Ltd to Mr Brown dated 28 June 2016, totalling exactly $20,000 (inclusive of GST). It appears that Mr Brown was living in residential care at that time. The invoice identified the work said to have been performed as follows:
To our professional charges for the period commencing 11 December 2015 and including 28 June 2016 and including receipt and payment of bills; receipt and review of correspondence; attending to taxation matters; monitoring and investments and bank accounts; dealing with residential care and management and maintenance of property; reviewing investments and quarterly reports; general management of your affairs (well exceeding, but say):
Assuming a charge rate of $400 an hour,[10] the $18,181.82 charged in that invoice represented over 45 hours of professional time. It is apparent that Mr Thompson charged professional rates for what would appear, based on the description of the work performed, to have been, at least in part, administrative tasks.
[10] Which Mr Thompson is said to have previously stated to have been the hourly rate charged for work performed for Mr Brown.
There also appears to be some duplication in that account of the work performed - for example, it was said that the relevant work included both monitoring investments and reviewing investments and quarterly reports, and there was also some limited evidence to suggest that a stockbroker managed Mr Brown's share portfolio on his behalf during the relevant period, such that Mr Thompson's review or monitoring of Mr Brown's investments may have been unjustified.

I also note that Thompson Legal Pty Ltd's bank records suggest that $7,500 of the amount invoiced on 28 June 2016 was transferred from Mr Brown's ledger account to Thompson Legal Pty Ltd's general account the day before the invoice was issued.
The invoice for $10,000 dated 31 December 2016 contains a similar description of the work performed, the amount charged being equivalent to nearly 23 hours of professional time over the period 24 September to 31 December 2016 - a period for which Thompson Legal Pty Ltd was in liquidation for all but three days, and a manager appointed to the practice for more than half of the period to which the invoices related.
In my view, a claimant may be able to establish the dishonesty required by the definition of 'default' in s 334 where a practitioner has raised an invoice fraudulently, including where the practitioner has raised the invoice recklessly, without regard to whether the amount charged truly represents the cost of the work performed on behalf of the client.[11]
[11] As to which see Derry v Peek (1889) 14 App Cas 337, 374.
That view is supported by the decision of Bellew J in Helby v Council for the Law Society (NSW),[12] where the court considered whether the practitioner had had regard to the work done before issuing an invoice, whether the practitioner had deliberately misrepresented the work he had purportedly performed in raising the invoice, and the scope of the practitioner's responsibilities (for example, whether the practitioner's responsibilities in administering an estate were essentially limited to administrative duties) in determining the question whether a practitioner had acted dishonestly by representing in an invoice that work had been done when it had not, or by otherwise engaging in gross overcharging.[13]
[12] Helby v Council for the Law Society (NSW) [2013] NSWSC 1938.
[13] At [85] - [89].
In order for the plaintiffs' proposed claims to succeed in full, they would have to establish that Mr Thompson acted dishonestly in relation to each transaction identified in the account. Allegations of that nature would ordinarily require proof to the Briginshaw standard.[14]
[14] See Briginshaw v Briginshaw [1938] HCA 34; 60 CLR 336.
The evidence adduced in the present application was insufficient to allow an assessment to be made as to whether the plaintiffs can presently do so in respect of each transaction.
However, I consider that there was sufficient evidence to indicate that the plaintiffs may be able to establish that at least portions of the invoices Mr Thompson caused to be issued were issued dishonestly. Further, the plaintiffs may be able to obtain further evidence in support of their claims through the use of the Court's processes if they are permitted to commence proceedings.
I am therefore not satisfied that the plaintiffs' claims are unarguable, or otherwise doomed to fail, for lack of evidence of dishonesty, although I am concerned, given the time which has passed since Mr Thompson was appointed Mr Brown's attorney and the fact that a liquidator was appointed to Thompson Legal Pty Ltd in September 2016, that the plaintiffs will be unable to obtain the evidence necessary to establish their claims if they do not already possess it.
In this regard, the Trust pointed to other procedural steps the plaintiffs might have taken to obtain evidence in support of their proposed claims, including seeking leave to proceed with the earlier proceedings for an account, taxing the invoices issued by Thompson Legal Pty Ltd, and seeking a review of Mr Thompson's conduct as Mr Brown's attorney pursuant to s 109, Guardian and Administration Act 1901 (WA). I doubt that the taking of any of those steps is likely to advance the plaintiffs' position, given the lapse of time since the events in question and the insolvency of both Thompson Legal Pty Ltd and Mr Thompson, and I accordingly consider that the plaintiffs' failure to pursue them does not militate against the grant of their application.
The second issue requiring consideration is the requirement that the default giving rise to the claim involve a failure of the legal practice 'to pay or deliver trust money or trust property', or a 'fraudulent dealing with trust property that was received by the practice in the course of legal practice by the practice'.
The Trust submitted that the plaintiffs' proposed claims may not arise from a default as defined by the Act, because those claims could be said to arise from Mr Thompson's alleged misuse of Mr Brown's power of attorney, rather than his conduct as a legal practitioner.
In my view, fraudulent or gross overcharging by a practitioner could properly be characterised as conduct in the course of legal practice but in any event the term 'trust money' is defined by s 205 to mean money entrusted to a law practice in the course of or connection with the provision of legal services by the practice, and to include, relevantly, 'money received by the practice that is the subject of a power, exercisable by the practice or an associate of the practice, to deal with the money for or on behalf of another person'.
Section 210(1)(c) provides that, for the purposes of the Act, a law practice receives money when 'the practice, or an associate of the practice (otherwise than in a private and personal capacity), is given a power to deal with the money for or on behalf of another person'.
The plaintiffs contend that the power of attorney held by Mr Thompson conferred power, exercisable by an associate of the practice, to deal with money for or on behalf of Mr Brown, and that therefore the practice received the funds held in Mr Brown's personal bank accounts from time to time from the date of Mr Thompson's appointment as attorney as 'trust money'.
The plaintiffs further contend that it is reasonably arguable that Mr Thompson held the power of attorney other than in a private and personal capacity. They say, in effect, that because Thompson Legal Pty Ltd had acted for Mr Brown prior to the grant of the power of attorney, it is to be inferred that Mr Thompson did not hold the power of attorney in a private and personal capacity.
There was little, if any, evidence before me of the circumstances in which Mr Brown came to grant power of attorney to Mr Thompson, other than that Thompson Legal Pty Ltd had acted for Mr Brown from about late 2010, prior to the execution of the instrument. Evidence of how that came to pass is likely to be determinative of the question as to the capacity in which Mr Thompson held the power of attorney.
As the matter currently stands, I consider that the argument that Mr Thompson was granted power of attorney other than in his personal or private capacity is weak, but not unarguable.
As noted above, in my opinion the Court is not required to reach a concluded view as to the merits of the plaintiffs' claims at this stage. At this stage, the task of the court is to determine whether those claims may have merit, such that they should be permitted to proceed against the Fund.
Although I consider that I am not presently able to determine that the claims the plaintiffs wish to pursue are unarguable, I am concerned that the evidence presently available to the plaintiffs will be insufficient to make them out.
I have therefore considered whether the better course is to dismiss the plaintiffs' application. There is, however, nothing to suggest that the plaintiffs will be unable to meet an order for costs should any part of their proposed claims prove unsuccessful, and it is possible that they will be able to obtain further evidence to support them.
On balance, I have determined that an order should be made permitting the plaintiffs to pursue their proposed claims against the Trust in respect of the Fund.
I will hear the parties as to the form of the orders to be made to give effect to these reasons, and as to the costs of the application.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
VR
Associate to the Hon Justice Cobby
3 DECEMBER 2024