Victorian Legal Services Board v Delahunty (No 3)
[2018] VCC 1679
•22 October 2018
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
EXPEDITED LIST
Case No. CI-15-01750
| VICTORIAN LEGAL SERVICES BOARD | Plaintiff |
| v | |
| ROSS DELAHUNTY | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 October 2018 | |
DATE OF JUDGMENT: | 22 October 2018 | |
CASE MAY BE CITED AS: | Victorian Legal Services Board v Delahunty (No 3) | |
MEDIUM NEUTRAL CITATION: | [2018] VCC 1679 | |
REASONS FOR RULING
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Subject:PRACTICE AND PROCEDURE
Catchwords: Summary judgment – whether no real prospect of success – whether matter should proceed to trial – Sections 63 and 64 of the Civil Procedure Act 2010 – Order 22 of the County Court Civil Procedure Rules 2008 – discretion to enable matter to proceed to trial notwithstanding no real prospect of success – overarching purpose
Legislation Cited: Civil Procedure Act2010 (Vic); County Court Civil Procedure Rules2008 (Vic); Legal Profession Act 2004 (Vic); Legal Profession Regulations2005 (Vic)
Cases Cited:Blair v Curran (1939) 62 CLR 464; Legal Services Board v Ross Vincent Delahunty [2011] VSC 453
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | J Kohn | White Cleland |
| For the Defendant | (In person) |
HIS HONOUR:
Nature of application
1 By Summons filed 17 September 2018, the plaintiff (“the LSB”) seeks summary judgment against the defendant (“Delahunty”) pursuant to sections 61 and 63 of the Civil Procedure Act2010 (Vic) (“the CPA”) and Order 22 of the County Court Civil Procedure Rules2008.
2 On 6 July 2018, the Court made orders for, among other things, the filing of affidavit material in opposition to the LSB’s application for summary judgment. Delahunty filed no material in opposition to the affidavit filed by David Forbes, the solicitor acting on behalf of the LSB.
Chronology
3 At all relevant times, Delahunty was an Australian legal practitioner within the meaning of the former Legal Profession Act 2004 (Vic). From 24 November 1998 until 10 October 2011, Delahunty was a sole practitioner in a firm trading under the name “Legal Rite”.
4 By an enduring power of attorney made on 5 January 2001, Marjorie Gray Cook (“Ms Cook”) appointed Peter Drake (“Dr Drake”) and Delahunty as her attorneys to do, on her behalf, anything that she might lawfully authorise an attorney to do. The power of attorney was witnessed by Paul and Craig Delahunty. The power of attorney did not contain a clause expressly authorising either of the attorneys to charge Ms Cook any remuneration, fees or commission in relation to acting as her attorney. Nor did the power of attorney contain a clause expressly authorising either attorney to charge Ms Cook for providing her with any other services or to make payments to themselves, whether prior to the execution of the power of attorney, or subsequently.
5 In 2001, Ms Cook entered an aged care facility.
6 In October 2002, the attorneys sold Ms Cook’s home. The net proceeds of sale amounting to $312,027.54 were deposited into the Legal Rite trust account and recorded in the trust ledger of the firm.
7 Between 25 October 2002 and 1 November 2011, a total amount of $126,548.30 was debited from the trust account ledger in respect of Ms Cook in 84 separate transactions. Each of those transactions bore the narration “to L.R – Costs”.
8 On about 21 June 2011, the LSB filed an application in the Supreme Court of Victoria to appoint a receiver to Legal Rite.
9 On 14 September 2011, Kyrou J of the Supreme Court of Victoria delivered reasons for judgment, in which his Honour decided that James Leach should be appointed as the receiver to Legal Rite.[1]
[1]Legal Services Board v Ross Vincent Delahunty [2011] VSC 453.
10 On about 27 August 2012, the LSB received a letter from the executor of the Estate of Ms Cook, attaching a Fidelity Fund claim form. Pursuant to the claim, the executor claimed the amount of $126,548.30.
11 On about 27 August 2013, the LSB sent a letter to Delahunty regarding the Fidelity Fund claim. The letter referred to an affidavit sworn by Delahunty on 13 July 2011, in which he advised that, apart from acting on Ms Cook’s behalf in the sale of her home, he did not perform any legal work for Ms Cook. He also advised that Ms Cook wanted him to be compensated for his assistance as a “carer and administrator” and that he deducted these amounts to meet his costs of administering Ms Cook’s affairs and not for legal costs. The LSB pointed out that Kyrou J found that Delahunty’s files did not contain any documents evidencing the provision of any services which amounted to $102,960.00 in legal costs and, because no bills were rendered, there was a deficiency in the trust account in that amount in respect of the Estate of Ms Cook. The trust account inspectors of the Law Institute of Victoria advised that the difference between the amount of $102,960.00 and the amount claimed against Mr Delahunty of $126,548.30 was because there were additional withdrawals made from the trust account that were not included by the inspectors in their report about Legal Rite. They did not have the relevant information at the time of making their report. The LSB advised Delahunty that the claimants on the Fidelity Fund, namely Peter Craig and Lorraine Tonkes, the executors of Ms Cook’s Estate, advised that no bills had ever been rendered.
12 On about 11 September 2013, Delahunty sent a letter to the LSB regarding the Fidelity Fund claim. In that letter, Delahunty advised that the deficiency of $102,960.00 had been restored and he enclosed a copy of a bill of costs rendered to the executors which (he said) gave effect to that restoration. Delahunty described the services provided in the tax invoice narration as follows:
“My costs of and incidental to dealing with her as her solicitor and adviser from 1995 onwards and as power of attorney for Marjorie Cook from 2001 to 2012.
And more particularly, acting as her attorney and de facto next of kin in dealings with the Nursing Home from time to time, checking ANZ bank accounts for payment of pension, for payment of all accounts and to reconciliation of bank statements, telephone calls from time to time with Nursing Home, telephone attendances on Rachel Craig from time to time, reimbursing of Rachel Craig for money expended by her, attending to Ms Hull from time to time, attendances on Dr Drake regularly, personal and other attendances by the writer and generally dealing with the affairs of the Deceased and keeping records of correspondence and financial records over an 11-year period and for services rendered between 1995 to the date of death on the 19th February, 2012.
Calculations one hour per week at the rate of $150.00 per hour for 17 years.
MY COSTS - $132,000 BUT SAY $102,960.00”
13 On about 25 October 2013, the LSB sent a letter to Delahunty advising him that the Fidelity Fund had accepted the claim made by the executors.
14 On about 14 November 2013, the LSB made payment from the Fidelity Fund in respect of the Estate’s claim in the sum of $126,548.30.
15 In October 2014, the LSB sent a letter of demand to Delahunty requiring payment of the amount paid out from the Fidelity Fund.
16 On 14 April 2015, the LSB filed a writ and statement of claim against Delahunty in the County Court of Victoria requiring payment of the Fidelity Fund claim.
17 In August 2016, after pleadings had closed, the court ordered that there be a trial on the preliminary question of whether the LSB needed to establish that any alleged default to which the claim related, arose from, or was constituted by, an act or omission which involved dishonesty. In December 2016, Judge Macnamara delivered judgment on that preliminary question, in which he held that the LSB did not need to establish that any alleged default to which the claim related arose from, or was constituted by, an act or omission involving dishonesty. Delahunty appealed that decision to the Court of Appeal. In November 2017, the Court of Appeal dismissed the appeal.
18 On 6 July 2018, Judicial Registrar Tran made the following orders:
(a)the proceeding is listed for a Judicial Resolution Conference before a Commercial Division Judicial Registrar at 10.30am on 4 September 2018;
(b)by 4.00pm on 3 August 2018, the defendant is to serve any proposed amended defence;
(c)any application to amend the defence is to be made by email to the Associates to the Judicial Registrars by 4.00pm on 10 August 2018;
(d)the proceeding is listed for a directions hearing at 10.30am on 17 August 2018 for the purposes of determining any application, further discovery or to amend the defence;
(e)any application for summary judgment is to be filed by 4.00pm on 18 September 2018.
19 On 3 September 2018, Judge Marks made the following orders:
(a)the defendant have leave to amend his defence to make the amendments set out in the Proposed Amended Notice of Defence (exhibited as exhibit RVD-2 to the affidavit of Ross Vincent Delahunty sworn 16 August 2018) save for paragraphs 30(I), 34(C) and 36(A);
(b)the defendant’s application for further discovery, subpoenas to be issued, and for leave to file and serve a third party notice is dismissed;
(c)the defendant pay the plaintiff’s costs of the application on the standard basis, to be assessed by the Costs Court in default of agreement.
Legal principles
20 The LSB referred to authorities regarding the principles to be applied in relation to the application of section 63 of the CPA. The main points which I derived from the cases are that:
(a)the power to terminate proceedings summarily should be exercised with great care because a trial is the well-settled approach to the determination of litigation. Accordingly, the discretion should not be exercised unless it is clear that there is no real question to be tried;
(b)the test for summary judgment under section 63 of the CPA is whether the respondent to the application has a “real” as opposed to a “fanciful” chance of success;
(c)the court’s discretion whether to exercise the power of summary dismissal is very broad. In exercising its powers, the court should seek to give effect to the overarching purpose as set out in section 7 of the CPA. In making an order in a civil proceeding, the court is to further the overarching purpose by having regard to the various objects set out in section 9 of the CPA;
(d)the court may be satisfied on an interlocutory application that there is no real prospect of success in a civil proceeding. Nevertheless, the court might consider that the dispute is of such a nature that only a full hearing on the merits is appropriate.
Plaintiff’s submissions
21 The LSB contended that the court should give summary judgment because there were no disputed facts and the doctrine of issue estoppel prevented Delahunty from challenging the factual findings made by Kyrou J when he ordered the appointment of receivers to Delahunty’s practice, Legal Rite.
22 The LSB referred at length to the judgment of Kyrou J. It noted His Honour’s comments that in the matter before him, the underlying facts were not in dispute. The evidence comprised affidavits without any cross-examination of the deponents. His Honour said it was common ground that Delahunty had appropriated funds from his trust account for the payment of legal costs and executor’s commission, either without appropriate authority or in breach of applicable statutory provisions.
23 Kyrou J noted that in September 2010 a delegate of the LSB appointed inspectors to conduct an investigation of the trust accounts and the records relating to trust money received by Legal Rite. The inspectors reviewed twelve files and trust account ledger printouts and prepared a report in which they identified breaches of the trust account provisions of the Legal Profession Act2004 (Vic) and the Legal Profession Regulations2005 (Vic). The inspectors concluded that there were deficiencies in the trust account totalling approximately $268,000 and that Delahunty had not kept records in accordance with the applicable regulations. Although the inspectors examined files in relation to four clients, for present purposes, attention is limited to that of Ms Cook.
24 With respect to His Honour’s findings in relation to Delahunty’s dealings with Ms Cook, I set out the followed excerpt from his Honour’s judgment:
“[73]Mr Delahunty has acted for Ms Cook since 1985. In the late 1990s, Ms Cook’s physical health deteriorated due to old age. On 5 January 2001, Ms Cook executed a joint enduring power of attorney in favour of Mr Delahunty and Ms Cook’s doctor, Peter Drake (‘Cook Power of Attorney’).
[74]The Cook Power of Attorney does not contain a clause authorising the charging of any fees for acting as attorney.
[75]Ms Cook was placed in an aged care facility in 2001. Mr Delahunty sold her home in late 2002 and placed the proceeds of sale in the Trust Account.
[76] Ms Cook’s condition deteriorated and she was subsequently placed in a nursing home.
[77]Ms Cook is currently comatose. She does not have any family. Mr Delahunty pays her accounts on her behalf.
[78] Between 21 January 2003 and 9 April 2010, Mr Delahunty withdrew amounts totalling $102,960 from the proceeds of the sale of Ms Cook’s home that were held in the Trust Account. The withdrawals were generally in round figures such as $1,650, $1,600, $500 and $2,000. The purpose of the withdrawals was described as ‘L.R. – Costs’. However, no bills of costs were rendered.
[79] The Inspectors asked Mr Delahunty to explain the withdrawals from the Trust Account in the absence of any bills of costs. In his letter dated 1 November 2010 to the Inspectors, Mr Delahunty stated that, as Ms Cook did not recognise anyone, he did not see ‘any point in providing accounts to her’. He added that the ‘monies taken from [Ms Cook’s] account represent costs and expenses and/or commission that I have taken from time to time in respect of work undertaken over the last 20 years’. He did not say that the payments were not for legal costs.
[80]In his affidavit of 13 July 2011, Mr Delahunty said that, apart from acting in the sale of her home, he had not performed any legal work for Ms Cook. When Ms Cook’s physical health deteriorated in the late 1990s, she decided to appoint him and Dr Drake as her attorneys under power to look after her affairs rather than have her affairs managed by State Trustees. At the time that the power of attorney was executed, Ms Cook told Mr Delahunty that she wanted him to be compensated for the work that he had done and the friendship that he had offered to her since 1985 and for the work that he would carry out as her attorney. He had provided assistance as a ‘carer and administrator’ and the amounts deducted were to meet his costs of administering Ms Cook’s affairs and not for legal costs.
[81] Mr Delahunty’s files do not contain any documents evidencing the provision of any services for which amounts totalling $102,960 were charged.
Conclusion on Trust Account deficiency relating to the Cook Power of Attorney
[82]The question of whether the withdrawals of amounts totalling $102,960 from funds belonging to Ms Cook in the Trust Account constitute deficiencies depends on whether those amounts were appropriated in the capacity of a legal practitioner for the payment of legal costs, or in the capacity of an attorney providing non-legal services and meeting the costs of administering Ms Cook’s affairs.
[83] In my opinion, the best evidence of the purpose of the withdrawals of the funds is Mr Delahunty’s contemporaneous records. Where those records conflict with Mr Delahunty’s current version of events, I prefer the contemporaneous records. The records indicate that the purpose of the withdrawals was ‘costs’. As the term ‘costs’ is used by solicitors to refer to their legal costs, I infer that this was the intended meaning of the expression.
[84]Accordingly, I find that the amounts totalling $102,960 were withdrawn for the payment of legal costs for the purported provision of legal services by the Practice. As no bills of costs were rendered, there is a deficiency in the Trust Account in the amount of $102,960 in relation to Ms Cook.”
25 His Honour referred further in the judgment to Delahunty’s actions in relation to Ms Cook’s funds as follows:
“[109]At [84] above, I concluded that the amount of $102,960 that was withdrawn from Ms Cook’s funds in the Trust Account constitutes a deficiency in the Trust Account. Even if the amount of $102,960 does not constitute a deficiency, the withdrawals totalling $102,960 represent egregious breaches of fiduciary duty by Mr Delahunty. He took advantage of Ms Cook’s vulnerability and helped himself to her money without maintaining any records in relation to the payments and without considering himself accountable for the payments.
[110]For Mr Delahunty to say that there was no point accounting to Ms Cook for the withdrawals he had made because of her comatose state suggests an appalling indifference to Ms Cook’s interests. At the very least, Mr Delahunty should have retained accurate and comprehensive records for the services he allegedly provided to Ms Cook, provided those records to Dr Drake and sought Dr Drake’s authority for the withdrawals.
[111] Mr Delahunty’s conduct in relation to the persons affected has involved a breach of s 3.3.21 of the LP Act and various other provisions of the LP Act and the LP Regulations. It is an understatement to say that his conduct constituted serious breaches of trust. He withdrew at will from the funds held on trust for Ms Cook, the Smith Estate and the Ladd Estate without seeking the prior consent of those entitled to those funds and without at any time providing a full and frank explanation for his actions.
[112]There are two possible explanations for Mr Delahunty’s actions. The first explanation is that he was ignorant of his legal obligations. The second explanation is that he acted dishonestly. As the Board has not sought to establish dishonesty for the purposes of this case, I find that Mr Delahunty’s actions are explicable by his ignorance of his legal obligations. Such ignorance in a lawyer who has practised on his own account for 40 years is most disturbing.
[113] In making the above findings against Mr Delahunty, I have taken into account the importance of the evidence relating to those findings and the gravity of the matters alleged against Mr Delahunty, as required by s 142(2) of the Evidence Act 2008.”
26 In the circumstances set out above, the LSB submits that Delahunty is estopped from disputing or raising issues which it says Kyrou J finally decided, namely, that an amount of $102,960 was withdrawn by Delahunty for the payment of legal costs for the purported provision of legal services by Legal Rite. Since Delahunty did not render any bills of costs, there was a deficiency in the trust account for Ms Cook in the sum of $102,906 and this deficiency involved a breach of section 3.3.21 of the Legal Profession Act 2004 (Vic). Alternatively, the LSB submitted that even if the withdrawal of that amount of money did not constitute a deficiency, the withdrawals represented breaches of fiduciary duties and a serious breach of trust by Delahunty.
Defendant’s submissions
27 As I understand his argument, Delahunty contends that there should not be an immediate final judgment against him for several reasons. First, as a friend and one of the joint attorneys for Ms Cook, Delahunty attended to her needs and provided substantial assistance to Ms Cook over a lengthy period, especially after she went into residential care at Ripplebrook. This assistance included obtaining or paying for goods or services required by Ms Cook; managing her financial and legal affairs; and liaising with Ripplebrook as and when issues affecting Ms Cook arose.
28 Secondly, there was an alleged agreement between Ms Cook and Delahunty whereby Ms Cook said that she did not want Delahunty to be out of pocket for helping her and that he was to be properly paid for work done for Ms Cook.
29 Thirdly, the LSB is subrogated to the rights of Ms Cook in making its claim. In order to accurately reflect Ms Cook’s position, there should be due allowance made for the benefits she received in order to assess whether the payments from the trust account were reasonably made to obtain goods and services requested by or on behalf of Ms Cook.
30 Fourthly, if by reason of the agreement alleged between Delahunty and Ms Cook, Ms Cook could not justifiably complain about the expenditure undertaken on her behalf and the time and attention spent by Delahunty regarding her needs, then the LSB should not be able to claim that Delahunty is obliged to repay the whole of the amount said to be missing from Ms Cook’s trust account. Delahunty contended that this followed from the stipulation in section 3.6.15 that:
“The amount payable to a person in respect of a default must not exceed the amount of the person’s actual pecuniary loss resulting from the default.”
Delahunty also referred to sections 3.6.18 and 3.6.19. He argued that there was no pecuniary loss when Ms Cook received value for the expenditure.
31 Finally, Delahunty disputed that any estoppel arose against him by virtue of the decision of Kyrou J. He argued that issue estoppel could not arise unless:
· the later case involved the same question as the first case;
· the initial decision was final; or
· the parties to the initial decision were the same as those in the later case.
Here, he said that there were different questions raised in the two cases and the parties were not identical.
Consideration
32 A threshold difficulty facing Delahunty is that he has not filed any, or any detailed, affidavit evidence in this court to provide a factual foundation for his submissions. It seems that some material might have been filed in the Supreme Court hearing before Kyrou J. I note that exhibit DJF-7 to the affidavit of David Forbes sworn 14 September 2018 includes correspondence from Delahunty which, though not an affidavit, provides some support for matters which Delahunty raised in this court.
33 It seems to me that there might well be substance in the LSB’s submission that the proposed defence has only a fanciful rather than a real chance of success, at least on the present material. The judgment of Kyrou J indicates that the court considered evidence put forward by Delahunty about the assistance he gave as a carer and administrator to Ms Cook.[2] However, in circumstances where the notations in the trust ledger referred to “L.R. – Costs”, the court chose to prefer the contemporaneous evidence to the evidence which Delahunty gave at the hearing. Thus, His Honour found that the reference to costs was a reference to a solicitor’s legal costs.
[2]Delahunty [2011] VSC 453 at [80].
34 One part of Justice Kyrou’s judgment which puzzled me was paragraph 79, where His Honour stated that Delahunty “did not say that the payments were not for legal costs”. However, in the sentence immediately before this, the judge said that in evidence Delahunty commented that the monies taken from Ms Cook’s account “represent costs and expenses and/or commission that I have taken from time to time in respect of work undertaken over the last 20 years”. It appears to me that in that statement, Delahunty categorises the monies used as falling into one of three potential categories. In my view, neither expenses, nor commission, are identical to legal costs. Therefore, implicitly at least, Delahunty did say that the payments were not all for legal costs.
35 Counsel for the LSB referred to Blair v Curran, especially part of the judgment of Dixon J.[3] For present purposes, I am prepared to accept that the doctrine of issue estoppel poses a problem for Delahunty. Nonetheless, due to several aspects of the case which trouble me, I consider that the interests of justice are best served by the matter undergoing a full hearing on the merits.
[3](1939) 62 CLR 464, 531-33.
36 First, counsel for the LSB confirmed its position was that, if it were the case that Delahunty had not taken or applied Ms Cook’s trust funds for his own use but applied the money to meet various needs or desires of Ms Cook or otherwise used the funds for her benefit, he should nonetheless bear that cost personally by reimbursing the trust fund – in effect because his recording of expenditure and compliance with specified procedures was defective. On this hypothesis, Delahunty himself would bear the cost of providing goods, services and other benefits to Ms Cook and the trust funds held for Ms Cook would not be called upon for this purpose.
37 A related concern is whether, if the trust monies were applied properly to meet Ms Cook’s needs, she can truly be said to have suffered a loss. The fact that Delahunty’s record keeping was defective and in breach of procedures mandated by statute does not necessarily mean that he used the trust funds inappropriately or that Ms Cook sustained a loss due to the poor record keeping.
38 Secondly, on the LSB’s case, it is impermissible for Delahunty to be paid or derive a financial benefit for providing services to Ms Cook. However, the other attorney, Dr Drake, allegedly did charge for medical services rendered even though he had no greater entitlement than Delahunty pursuant to the terms of the power of attorney. Even though it was alleged that Medicare paid Dr Drake’s bills and no recourse was had to Ms Cook’s trust funds, Dr Drake nonetheless benefited financially from providing medical services to Ms Cook.
39 Thirdly, Delahunty explained that, after the receivers were appointed to his practice, he never again saw the Cook No 1 file which he held at his office. This was a file in which Delahunty said that he recorded matters pertaining to his work for, and involvement with, Ms Cook. Mr Forbes, the plaintiff’s solicitor, has sworn an affidavit in which he denied that the plaintiff now had or had ever had the Cook No 1 file in its possession or custody. When I asked Delahunty if he had subpoenaed the receivers to produce the file, he said that he had sought to but that Judge Marks had refused him permission to do so. Examination of the file revealed that on 3 September 2018, Her Honour made various orders including one dismissing Delahunty’s application to issue subpoenas.
40 Fourthly, with the appointment of the receivers to Legal Rite, Delahunty lost his only substantial asset and his main source of income.[4] Delahunty began practice as a solicitor in 1971 and commercial practice as Legal Rite in 1998. Not only has Delahunty effectively lost his livelihood, he has also lost his business and suffered the ignominy of being closed down by the legal regulatory authorities.
[4]Delahunty [2011] VSC 453 at [34].
41 I understood Delahunty to say that he was shaken and financially drained by the events associated with the trust account investigation, the appointment of the receivers to his legal practice, and the attendant litigation. It is not unrealistic to think that the toll taken on Delahunty was significant.
Conclusion
42 Given these matters and the grave personal and professional consequences for Delahunty resulting from his public fall from grace, I consider it preferable that this matter proceed to trial rather than grant summary judgment against Delahunty. In so deciding, I exercise the discretion I have under section 64 of the CPA while being mindful of other matters including sections 7 to 9 inclusive of the CPA. I expect that this could well be Delahunty’s last opportunity to adduce proper evidence in order to try and avoid the financial consequences of the Fidelity Fund’s acceptance of the claim made by Ms Cook’s estate. Accordingly, Delahunty should obtain the best advice he can so as to conduct his defence on the strongest grounds available, with appropriate pleadings and having attended diligently to all the requisite preparatory measures required. As noted, I think Delahunty is most likely to fail as things stand. But, nevertheless, I consider the circumstances are such that he should have the opportunity to go to trial.
43 Unless agreed, I will hear the parties on the form of order and costs.
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