State of Queensland v Masman
[2009] QSC 430
•23 December 2009
SUPREME COURT OF QUEENSLAND
CITATION:
State of Queensland v Masman & Ors [2009] QSC 430
PARTIES:
STATE OF QUEENSLAND
(applicant)
v
MARK FRANCIS MASMAN
(first respondent)
KYLIE JANE MCGUIGGAN
(second respondent)
NYST LAWYERS
(third respondent)FILE NO/S:
SC No 12125 of 2009
DIVISION:
Trial Division
PROCEEDING:
Application
ORIGINATING COURT:
Supreme Court at Brisbane
DELIVERED ON:
23 December 2009
DELIVERED AT:
Brisbane
HEARING DATE:
16 December 2009
JUDGE:
Chesterman JA
ORDER:
1. Nyst Lawyers be added as the third respondent
2. The third respondent pay the sum forthwith of $95,000 to the Public Trustee of Queensland.
3. The third respondent has liberty to apply to vary the order for payment based on services performed between 3 November 2009 and 12 November 2009, for the first and second respondents, on giving two business days notice to the other parties
4. The respondents’ cross applications are dismissed.
5. The respondents pay the costs of the applicant to be assessed on the standard basis.
CATCHWORDS:
CRIMINAL LAW – PROCEDURE – CONFISCATION OF PROCEEDS OF CRIME AND RELATED MATTERS – RESTRAINING OR FREEZING ORDER – WHAT PROPERTY – where first and second respondent have been charged with drug trafficking – where evidence was placed before the court that the first and second respondent were participants in serious criminal activity – where under s 28 of the Criminal Proceeds Confiscation Act 2002 (Qld) the applicant sought to restrain the first and second respondent from dealing with any property connected with the serious criminal activity – where the first and secondment respondent had paid the sum of $95,000 to the third respondent as a retainer for legal services – whether the money was held by the third respondent on trust for the first and second respondent – whether the money by virtue of the retainer agreement and associated document became property of the third respondent – whether the money could be subject to the previous restraining orders of the court
Drugs Misuse Act 1986 (Qld), s 5, s 9
Criminal Proceeds Confiscation Act 2002 (Qld), s 28, s 32, 33, 50A, s 254, s 255
Legal Profession Act 2007 (Qld)Barclays Bank Ltd v Quistclose Investments Ltd (1970) AC 567, cited
Gilshenan & Luton v Federal Commissioner of Taxation 1984 1 Qd R 199, citedCOUNSEL:
P Freeburn SC for the applicant
P Roney for the first and second respondents
B W Walker SC for the third respondentSOLICITORS:
Director of Public Prosecution (Qld) for the applicant
Nyst Lawyers for the first, second and third respondents
CHESTERMAN JA: The first and second respondents have been charged with trafficking and possessing dangerous drugs, notably cocaine, pursuant to s 5 and s 9 respectively of the Drugs Misuse Act 1986 (Qld). On 29 October 2009 the applicant applied ex parte to the Supreme Court for orders pursuant to s 28 of the Criminal Proceeds Confiscation Act 2002 (Qld) (“the Proceeds Act”) to restrain the disposition of certain property of the first and second respondents. Evidence was put before the court establishing the suspicion of a detective sergeant of police and a senior officer of the Crime and Misconduct Commission that the first and second respondents were participants in serious crime related activity i.e. drug trafficking.
On 29 October 2009 Applegarth J ordered that:
“… none of the (first and second) Respondents’ property stated below … be dealt with by any person:
(a)Betstar Account Client ID … held in the name of Mark Frances MASMAN;
(b)Commonwealth Bank of Australia account number 4483 1036 5377 held in the name of Kylie Jane MCGUIGGAN;
(c)Commonwealth Bank of Australia account number 4486 1015 6948 held in the name of Kylie Jane MCGUIGGAN; and
(d)65 Commonwealth Bank of Australia shares held in the name of Kylie Jane MCGUIGGAN.”
On 12 November 2009 the applicant applied to the court ex parte to vary the previous order by adding to it another category of property. On 12 November 2009 Philippides J varied the previous order by adding to it paragraph 1(e):
“Balance of the proceeds of Westpac Bank Incorporation bank cheque drawn 3 November 2009 in the amount of $95,000 held by Nyst Lawyers in its trust account, general account or an investment account for the benefit of Mark Francis Masman and/or Kylie Jane McGuiggan.”
Her Honour further ordered that:
“Pursuant to s 32(2)(a) of the (Proceeds Act) the Public Trustee of Queensland take possession of the restrained property described in paragraph 1(e) above.”
On 29 October 2009 the first and second respondents consulted the third respondent about acting on their behalf with respect to the criminal charges brought against them. On 3 November the first respondent retained the third respondent for that purpose and delivered to it a bank cheque drawn by Westpac Banking Corporation (“Westpac”) on itself in the sum of $95,000 “being for anticipated legal fees.” The designation of the purpose for the payment comes from the affidavit of Ronald Behlau, a solicitor employed by the third respondent. The first respondent had mortgaged real property in favour of Westpac to support a facility on which he could draw cheques, no doubt up to an agreed limit. The first respondent utilised this facility to draw a cheque in favour of Westpac for the purchase of the bank cheque.
Mr Behlau took the delivery of the cheque from the first respondent and caused the proceeds to be banked to the credit of the third respondent’s General Account. Mr Behlau deposed that between 3 November 2009 and the hearing of the applications on 16 December 2009 the “General Account has operated in the normal course of business”. Senior counsel who appeared for the third respondent informed the court that at all times between 12 November and 16 December 2009 the General Account has been in credit and the balance throughout the period exceeded $95,000.
The first and second respondents were not served with the order of Applegarth J until 4 November 2009. The first respondent Westpac’s account from which he drew the funds to buy the bank cheque was not included in the order.
On 12 November 2009 the Director of Public Prosecutions wrote to the third respondent enclosing copies of the orders made by Applegarth J and Philippides J and requested that the fund of $95,000 be paid to the Public Trustee. On 19 November the third respondent replied:
“Nyst Lawyers does not know whether or not the balance of the proceeds of … bank cheque drawn 3 November in the amount of $95,000 is held in our general account. As you would appreciate, a pooling of funds has occurred since depositing … the … cheque … . … Following the depositing of the cheque … such funds ceased being the property of Mr Masman or Ms McGuiggan and were not, are not, never have been held for their benefit. … These monies were deposited into our general account pursuant to a retainer agreement entered into on 3 November 2009 with Mr Masman for the provision of legal services to him. … As such … the $95,000 became the property of Nyst Lawyers who … remains contractually obliged to provide legal services to that dollar value”.
On 23 November 2009 the Director of Public Prosecutions wrote again to the third respondent requesting it to comply with the order made by Philippides J by paying:
“The balance of the $95,000 to the Public Trustee by 4.00 pm Thursday 26 November 2009.”
On 26 November the third respondent wrote that it was of the view that it was not:
“in possession of any items of property … restrained by Justice Philippides’ order”.
On 8 December 2009 the applicant filed an application for an order that pursuant to s 32(2)(a) of the Proceeds Act the third respondent immediately pay $95,000 to the Public Trustee. Alternatively it sought a declaration pursuant to s 255 of the Proceeds Act that the retainer agreement between the first and second respondents and the third respondent made on 3 November 2009 was:
“a scheme carried out for the purpose of directly or indirectly defeating the operation of the … Proceeds … Act”.
On the hearing of the application the first and second respondents were given leave to file an amended application for orders that paragraphs 1 and 2 of the order of Philippides J made on 12 November 2009 be revoked pursuant to s 50A of the Proceeds Act; alternatively a declaration that the $95,000 paid to the third respondent was not within the terms of the order as not being “for the benefit of” the first and/or second respondent.
Nyst Lawyers appeared on the application and sought an order that they be joined as a party to the proceeding. I made the order and gave the third respondent, as it had become, leave to file an amended application which sought declarations in the same terms as those sought by the first and second respondents; alternatively a declaration that if upon the proper construction of the retainer agreement the sum of $95,000 is to be paid to the Public Trustee pursuant to the order of Philippides J that the third respondent be released from any obligation to provide services described in the retainer agreement; and in the further alternative in the event that the money is payable pursuant to the order of 12 November 2009, the court should order the applicant to pay the third respondent “an amount by way of damages of costs sustained by reason of the making of the order of 12 November 2009.” This order was sought pursuant to the undertaking given by the applicant to the court upon the making of the order.
Before rehearsing the parties’ submissions it is convenient to set out some relevant sections from the Proceeds Act. Section 28 provides:
“Application for restraining order
(1) The State may apply to the Supreme Court for an order (restraining order) restraining any person from dealing with property stated in the order (the restrained property) other than in a stated way or in stated circumstances;
(2) The application –
(a)must be supported by an affidavit of an authorised commissioned officer or a police officer; and
(b) may be made without notice … .
(3) The application may relate to all or any of the following
property –(a)for property of a person suspected of having engaged in 1 or more serious crime related activities (a prescribed respondent) -
… .”
By section 16 and 17 any indictable offence for which the maximum penalty is five years imprisonment or more is a “serious crime related activity.” Drug trafficking is, obviously, such an offence.
Section 32 provides:
“Conditions of restraining order:
(1)It is a condition of every restraining order that the person whose property is restrained under the order must preserve the property.
(2)The Supreme Court may impose the other conditions the court considers appropriate, including, but not limited to, the following –
(a)a condition about who is to have possession of the property;
(b)a condition of a kind mentioned in s 33 or 34.”
Section 33 empowers the court to impose conditions to allow for the disposal of restrained property to satisfy certain debts. Section 34 allows the imposition of conditions for the payment out of restrained property the property owner’s or his dependants’ living expenses but, perhaps significantly, subsection 4 forbids the application of restrained property for the payment of legal expenses of persons resisting proceedings under the Proceeds Act or defending criminal proceedings.
Section 50A provides:
“(1)A person whose property is the subject of a restraining order and who was not given notice of the application for the restraining order may apply to the Supreme Court to revoke the order.
(2) The application must be made within 28 days …
(3)The applicant must give … written notice of the … application and the grounds for the application.
…
(6) After considering the application, the court may revoke the
restraining order if satisfied, on the facts before the court, there would be no basis for making a restraining order in relation to the property.”
The last section to mention is s 255, which is headed “Arrangements to defeat operation of Act”, and provides:
“(1)The State may apply to the Supreme Court for an order declaring that a scheme carried out by a particular person was carried for the purpose of directly or indirectly defeating the operation of this Act.
(2)The State must give written notice of the application to the person against whom the order was sought and anyone else … (who) has an interest in the property to which the scheme relates.
(3)… .”
By s 254 “defeat” is defined to include “avoid … and impede”. “Scheme” means:
“(a) any agreement, arrangement, promise, understanding, or undertaking … ; or
(b)any action, course of action, course of conduct, plan or proposal.”
The respondents argue that the order made on 12 November 2009 did not extend to the $95,000 paid by the first and second respondents to the third respondent. They submit that there is no sum in the third respondent’s General Account recognisable as the balance of the proceeds of the bank cheque and that there are no monies in the General Account held “for the benefit of” the first and/or second respondents.
The respondents’ point is that the $95,000 was paid to the third respondent pursuant to the terms of a contract of retainer as consideration for the obligations it imposed on the third respondent. Their argument is that when the proceeds of the cheque were collected and credited to the third respondent’s General Account the funds became its funds mixed with others in the General Account and were not held for the benefit of the first and/or second respondent, and did not constitute an identifiable fund to which the order of 12 November 2009 could attach. The respondents further submitted that the money was paid free of any trust resulting in favour of the first and/or second respondent. The submissions pointed out that the contract pursuant to which the money paid contained no reference to any trust. The terms of the agreement were said to be inconsistent with the existence of any trust.
The application thus turns upon the character of the moneys paid on 3 November, whether they were in fact subject to a trust for the benefit of the first and/or second respondent or whether they were paid to the third respondent in its own right as consideration for its contractual promises.
The question is answered by a consideration of the terms of the contract. It was given to the first respondent under cover of a letter dated 3 November 2009 from the third respondent. The letter said:
“We are pleased that you want to retain our services to act on your behalf. We have agreed to accept your Instructions on a RETAINER BASIS. This means that you will provide us with money and in exchange … we will agree to provide you with legal services to the extent set out … in the … client retainer agreement.
…
We will not become a creditor of you and we will not be put into a position where you might owe this firm money. Once we have provided legal services to the extent … set out in the … retainer agreement, no further work would be performed until a new contract … is entered into … .
Retainer agreements are different to usual solicitor/client fee agreements.
Generally in solicitor/client agreements, your original solicitor or firm may charge to cover fees and costs from you … before notice is given that your instructions are to be withdrawn. Under the usual client fee agreement, once notice is given and fees and costs are recovered … the balance of trust moneys are held … on the client’s behalf. However, because you are entering into a retainer agreement with this firm, no moneys will be returned to you if you elect to change solicitor or firm because the only obligation of this firm is to provide you with legal services to the extent of moneys paid by you under this retainer agreement”.
Also enclosed with the letter was a disclosure notice. It was given, as the notice itself acknowledged, to discharge the obligation contained in s 308 of the Legal Profession Act 2007 (Qld) (“the Profession Act”) by which a solicitor must disclose to a client “the basis on which legal costs will be calculated …”, and the client’s right to negotiate costs and receive itemised bills. The disclosure notice included the following:
“2. How this firm charges
There are several bases by which legal practices calculate professional services. These may include an itemised scale of fees, statutory scales, task based fees, fixed fees and conditional fee arrangements which may include an uplift fee. This firm’s professional fees will be charged as a lump sum amount and the firm agrees to provide legal services and incur costs on your behalf to the extent of the retainer sum as follows:-
(a)In exchange for the retainer sum the firm will provide a number of hours of legal services to be determined by the following calculation:-
No. of hours = (retainer sum) – (costs plus GST)
Hourly rate.
(There followed a schedule of hourly rates of practitioners of varying degrees of experience and competence).
…
3. Estimate of your costs
The firm estimates that the total of all retainer sums required to complete the work on this matter will be between $15,000 to $95,000.
…
7. Ending arrangements
You may end our engagement by written notice, however you remain liable for the legal costs up until that time. If you do not pay moneys in accordance with the retainer agreement, this firm may suspend work and may cease acting for you.”
The retainer agreement itself (“the agreement”) was made between the third respondent and the first respondent who contracted for himself and the second respondent. The relevant terms were:
“2. Acceptance of offer
This document is an offer to enter into a retainer agreement with you. If you accept this offer you will be regarded as having entered into a retainer agreement. This means you will be bound by the terms and conditions … in this document.
…
We will provide you with the legal services performed with professional skill and diligence that are set out in this document and will keep you informed of the progress of the matter.
You must:-
(a)provide us with timely accurate and proper instructions …
(b)act reasonably … to protect your own interests …
…
The work we are instructed to do is:-
·Criminal defence work – the provision of legal services as requested from time to time to represent your interests throughout the duration of this client agreement in relation to any criminal prosecution ….
·General services – the provision of legal services as requested from time to time to generally represent your interests throughout the duration of this client agreement.
3.Charges for professional fees …
4.Retainer statements.
Under a retainer agreement no accounts will be rendered.
The firm will issue a retainer statement when significant hours of legal services have been provided. …5.…
6. Termination of agreement
You may terminate this agreement at any time. If this agreement is terminated, the firm is entitled to retain all moneys that have been paid by you under this agreement and the firm is not required to perform further services.
If you do not pay moneys in accordance with your retainer agreement we may suspend work … . We will not continue to work and may terminate the agreement:-
(a) If you fail to provide … instructions …
(b) If you give instructions that are … false …(c)If you fail to accept an offer of settlement which we think is reasonable;
(d) If you fail to accept … advice we … give you
(e) …
(f) …
(g) …
(h) …”
Clause 3 was essentially the same as clause 2 in the disclosure notice. It will be noted that the agreement did not quantify the “retainer sum” nor did it even require the first respondent to pay any money, despite the assertion in clause 6. However on 3 November 2009 the third respondent delivered a tax invoice to the first respondent:
“To the provision of legal services pursuant to a retainer agreement dated 3 November 2009 $86,363.64
GST $ 8,636.36
Total $95,000.00.”
At the time the “invoice” was delivered, and payment made on it, the third respondent had not provided any services at all to the first and second respondents. The invoice does not identify the sum of $95,000 as the retainer sum under the agreement though the argument proceeded on the basis that it was indeed that sum.
The respondent’s case was not that the $95,000 was paid for services rendered. The case was that the money was paid in consideration of the third respondent’s promise to perform legal services to a value of $95,000. The consideration was said to be executory, but nonetheless valuable. Pursuant to conventional notions of the law of contract the money was paid as the price for the third respondent’s promise and on receipt became the third respondent’s money. In the event that the third respondent did not perform its promise the first and second respondents’ remedy was the recovery of damages for breach of contract, not the recovery of the monetary consideration as an item of property.
The applicant disputes this categorisation of the agreement and the payment. It submits that the payment was made on account of professional fees and costs to be charged by the third respondent in the discharge of its retainer with the first and second respondents. The money being held on account of those fees yet to be incurred, the third respondent held it as trustee.
The respondents’ analysis of the agreement, and the consideration payable under it, is flawed. The retainer sum, $95,000 was not paid, obviously, for legal services that had been provided. Nor was it paid as consideration for the promise to provide $95,000 worth of legal services. Although the agreement is quite poorly drafted it is apparent that it provides for the giving of instructions by the first and second respondents and the performance of the necessary legal work to execute those instructions on the basis that the third respondent would charge at specified hourly rates for the performance of the retainer. The third respondent was to be paid as and when it performed the retainer in accordance with the instructions given from time to time. The third respondent might never perform $95,000 worth of work. It is clear from clause 3 that work is to be valued and charged in accordance with the time it took and the level of expertise of the persons performing the work. The agreement was not an entire contract for the payment of $95,000 regardless of the extent of legal services provided.
It must follow that if the first and second respondents gave instructions, and the third respondent performed services, to a value of less than $95,000 the balance would not be an amount to which the third respondent was entitled. This appears from clause 3 of the disclosure notice, that the estimate of the fees was between $15,000 and $95,000. The retainer could be performed by services to the lower value. The charges might be withdrawn, or an early plea to a lesser charge accepted. The larger sum was paid but if the retainer were completed by the performance of work worth only $15,000 the agreement does not, as I read it, oblige the first and second respondents to pay the whole of the larger sum, nor entitle the third respondent to retain it. Very clear words indeed would be required to achieve such a result and they do not appear in the agreement.
A similar indication appears in the terms of clause 6 of the agreement and in clause 7 of the disclosure statement. The latter provides that the first and second respondents could terminate the agreement by written notice but be liable for the legal costs “up until that time”. The implication is that the first and second respondents were required to pay only the amount of fees and costs incurred in the performance of the retainer to the date of its determination. The balance must be refundable.
Clause 6 of the retainer agreement is ambiguous but must, I think, have the same meaning. It provides:
“If this agreement is terminated, the firm is entitled to retain all moneys that have been paid by you under this agreement and the firm is not required to perform further services.”
The agreement does not identify what is meant by “all moneys … paid by you under this agreement”. The agreement does not, as I noted, require the payment of any money. The phrase might mean the whole of the retainer sum or it might mean, as clause 7 of the disclosure statement clearly means, moneys paid or appropriated from the retainer sum for legal services actually performed. The clause must mean the latter, although the explanatory letter of 3 November asserts the former meaning. The other construction is too outrageous to be acceptable. It would mean, for example, that if on the first occasion that the client attended to give instructions the solicitor was drunk and obnoxious and the client politely declined to entrust his affairs to the solicitor for want of confidence in the latter’s professionalism the whole of the sum (in this case) $95,000 would be the solicitors’. One imagines such a clause would be unenforceable as a penalty, notwithstanding the sum was payable otherwise than for a breach of contract. If it were not a penalty, the agreement could not withstand an application for an order that it be set aside pursuant to s 328 of the Profession Act. (The agreement is clearly “a costs agreement” as defined by s 300 of the Profession Act). A third consequence would be that the disclosure notice was deficient and, indeed, misleading by indicating that upon termination of the retainer the client had only to pay for work done to that date.
Adopting what I regard as the proper construction of the agreement it can be seen that the payment of the retainer sum was not the consideration for the third respondent making the agreement. The third respondent did not promise to perform $95,000 worth of services. The first and second respondents did not promise to instruct the performance of services to such a value. The money was paid in advance, on account of fees which might, or might not, be incurred depending upon whether and to what extent the first and/or second respondents gave instructions for the performance of legal services. The first and second respondents’ obligation was to pay for services performed at specified hourly rates. They did not become obliged to pay, and did not pay, $95,000 as the price for the third respondents making the retainer agreement with them. The payment was not made for an executory consideration. It was made on account of fees the amount of which was unascertained and, at the time, unascertainable.
The consequence is that the third respondent received the money on the usual terms which solicitors retain money as security for their fees for work to be done in the future, i.e. on trust for the payment of fees as incurred pursuant to the agreement and as to any balance for the first respondent. See Gilshenan & Luton v Federal Commissioner of Taxation 1984 1 Qd R 199 at 204-5. Given the absence of an express trust, as is usual in such cases, the trust was of the kind described in Barclays Bank Ltd v Quistclose Investments Ltd (1970) AC 567 (see at 581).
If this conclusion does not follow from the terms of the agreement and the circumstance of the payment then it does so as a consequence of some provisions of the Profession Act.
“Trust money” is defined by s 237(1) to mean:
“money entrusted to a law practice in the course of or in connection with the provision of legal services by the practice, and includes –
(a)money received by the practice on account of legal costs in advance of providing the services; …”
The retainer sum falls exactly within the definition.
Section 248 provides:
“(1) … as soon as practicable after receiving trust money, a law practice must deposit the money in a general trust account of the practice unless –
(a) the practice has a written direction by an appropriate person to deal with it otherwise than by depositing it in the account; …”
Section 249 provides:
“(1) A law practice must –
(a)hold trust money deposited in a general trust account of the practice exclusively for the person on whose behalf it is received; and
(b)disburse the trust money only under a direction given by the person.”
The first respondent would, I think, be “an appropriate person” for the proposes of s 248(1)(a) but there is nothing in the agreement which amounts to a written direction to the third respondent to deal with the retainer sum otherwise than by paying it into its trust account. As I have noted, the agreement says nothing at all about the payment of money by the first respondent to the third respondent. There is no reference to the sum of $95,000 or, any other sum.
These sections of the Profession Act make it clear that the retainer sum should have been paid by the third respondent into its trust account and held there as security for the payment of its fees when rendered in accordance with the terms of the agreement and the Profession Act. That fact that the money was not so dealt with is not relevant to this application though it may have other ramifications. The money paid to the General Account was still trust money held for the benefit of the first respondent. It is therefore within the terms of the order made by Philippides J on 12 November 2009. The General Account has always been in credit to a greater value than $95,000. There may not be an identifiable fund into which the proceeds of the bank cheque can be traced but if and to the extent that the trust fund which the third respondent should have maintained, but did not, is deficient the third respondent must make good the deficiency and reinstate the trust fund.
The applicant is entitled to an order that the third respondent immediately pay the sum of $95,000 to the Public Trustee. The respondents should pay the applicant’s costs of the application on the standard basis.
The conclusion to which I have come makes it unnecessary to consider the applicant’s alternative case under s 255 of the Proceeds Act. It would, in any event, be inappropriate to determine such an application on a summary basis relying on affidavits only and without the benefit of any cross-examination.
The respondents’ cross applications should all be dismissed. There is no basis for revoking the order made by Philippides J on 12 November 2009. There was, contrary to the respondents’ submissions, a sound basis for making the order.
There is no utility in making the first order sought by the third respondent, that it is not obliged to perform legal services for the first and second respondents in the event that it pay the $95,000 to the Public Trustee. There is in the material no hint of any dispute between the respondents as to the meaning of the agreement or the obligation of the third respondent in the event that it is not put in funds by its clients. Declarations are not to be made in the absence of disputes.
The second order sought by the third respondent was also unsupported by any evidence. If it has suffered loss by reason of the orders of 29 October and/or 12 November which the applicant should pay pursuant to its undertaking the third respondent did not bother to prove the existence or quantum of the loss.
There should, though, be liberty to apply. Although the matter was not addressed in evidence or argument it is possible that between 3 November, when the agreement was made, and 12 November when the third respondent was given notice of Philippides J’s order, the third respondent did perform services for which it is entitled to be paid from the retainer sum. In that case the balance of the sum, and not the whole amount, should be paid to the Public Trustee. If that is the case the parties can depose to it by affidavit and the order can be adjusted.
I give the third respondent liberty to apply to vary the order for payment, on giving two business days notice to the other parties.
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