Victorian Legal Services Board v Delahunty (No 4)
[2019] VCC 1381
•30 August 2019
| 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: | 4, 5, 6 and 24 June 2019 | |
DATE OF JUDGMENT: | 30 August 2019 | |
CASE MAY BE CITED AS: | Victorian Legal Services Board v Delahunty (No 4) | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 1381 | |
REASONS FOR JUDGMENT
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Subject:ISSUE ESTOPPEL – TRUSTS – POWER OF ATTORNEY – LEGAL PRACTITIONERS
Catchwords: ISSUE ESTOPPEL – whether issue estoppel applied to Supreme Court’s findings regarding trust account deficiencies – whether Supreme Court and County Court proceedings involved same question – whether Supreme Court decision was final – whether same parties in both proceedings
TRUSTS – deficiencies in trust account – misappropriation of trust funds – breach of trust in absence of informed consent given by client
POWER OF ATTORNEY – right to remuneration as attorney where no agreement between attorney and client for remuneration – right to remuneration in face of attorney misconduct
LEGAL PRACTITIONERS – whether plaintiff needed to plead and prove dishonesty – whether court should allow value of services provided as attorney where defendant found to have charged fees as a solicitor
Legislation Cited: Civil Procedure Act2010 (Vic); County Court Civil Procedure Rules2008 (Vic); Evidence Act 2008 (Vic); Legal Profession Act 2004 (Vic); Legal Profession Uniform Law Application Act 2014 (Vic); Legal Profession Regulations2005 (Vic); Powers of Attorney Act 2014 (Vic)
Cases Cited:Blair v Curran (1939) 62 CLR 464; Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2) [1967] 1 AC 853; Delahunty v Victorian Legal Services Board [2017] VSCA 327; Deutsch v Deutsch [2012] VSC 227; Dobcol v Law Institute ofVictoria [1979] VR 393; Forster v Legal Services Board [2013] VSCA 73; Keppel v Wheeler [1927] 1 KB 577; Kuligowski v Metrobus (2004) 220 CLR 363; Legal Services Board v Delahunty [2011] VSC 453; Maguire v Makaronis (1997) 188 CLR 449; Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd [2017] VSCA 256; Murphy v Abi-Saab (1995) 37 NSWLR 280; Ramsay v Pigram (1968) 118 CLR 271; Tomasevic v State of Victoria [2018] VSCA 325; Tomlinson v Ramsey Food Processing Pty Ltd (2015) 256 CLR 517
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Kohn | White Cleland |
| For the Defendant | Matthew Delahunty |
HIS HONOUR:
Summary
1 The plaintiff, the Victorian Legal Services Board (“the Board”), made a payment from the Legal Practitioner’s Fidelity Fund in the sum of $126,548.30 to the Estate of Marjorie Gray Cook (“Mrs Cook”). The critical question is whether the Board is entitled to recover that money from the defendant, Ross Delahunty (“Delahunty”).
Background
2 At all relevant times, Delahunty was an Australian legal practitioner within the meaning of the Legal Profession Act 2004 (Vic) (“the Act”). From 24 November 1998 until 10 October 2011, Delahunty was a sole practitioner in a firm trading under the name “Legal Rite”.
3 On 21 July 1994, Mrs Cook made a will in which she appointed as executors her god-children, Peter Craig and Lorraine Tonks, and, apart from a specific bequest regarding her jewellery, personal effects, and household contents, divided her estate between Craig, Tonks, and Gail Morrisroe.
4 By an enduring power of attorney made on 5 January 2001, Mrs Cook appointed Peter Drake (“Dr Drake”) and Delahunty jointly as her attorneys to do, on her behalf, anything that she might lawfully authorise an attorney to do. Dr Drake was Mrs Cook’s doctor for many years. Mrs Cook was keen, in circumstances where she had no children or other close family, that her attorneys were people she knew well and was comfortable to appoint to such a position. The power of attorney was witnessed by Paul and Craig Delahunty, sons of Delahunty.
5 The power of attorney did not contain a clause expressly authorising either of the attorneys to charge Mrs 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 Mrs 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.
6 In early 2001, Mrs Cook initially went into aged care at the Kingston Centre. Around June that year, Dr Drake was able to relocate Mrs Cook to Ripplebrook Aged Care Facility. He regarded this as a better place for Mrs Cook.
7 In October 2002, the attorneys sold Mrs 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.
8 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 Mrs Cook in 84 separate transactions. Each of those transactions bore the narration “to L.R – Costs”. The trust ledger contained no references to reimbursement or compensation for time spent providing services as the attorney for Mrs Cook. Nor was there any reference to the withdrawal of $150 per week for services provided.
9 After the payment into the firm trust account of the proceeds of sale from Mrs Cook’s house, Delahunty did not make a lump sum payment for his historical costs or commission. Delahunty said that he deducted money from the trust account in order to be recompensed.[1] He accepted that he did not use time sheets and maintained no record of the specific work he did on a daily basis. Delahunty agreed that it was not possible to reconcile the amounts withdrawn from the trust account to any particular number of weeks for which he said he provided services. Delahunty also acknowledged that he never sought Dr Drake’s permission to withdraw the payments marked “L.R – Costs” from Mrs Cook’s funds. Nor did he send Dr Drake written correspondence or discuss with him those withdrawals from the trust account.
[1]T 264/15.
10 In about September 2010, the Law Institute of Victoria appointed Aruna Colombathantri and Ronald Pata to conduct an investigation into the trust account of Legal Rite. The Board delegated power to the Law Institute of Victoria for this purpose.
11 On 4 October 2010, Pata and Colombathantri attended at Legal Rite and examined various files including that of Mrs Cook. Colombathantri said in evidence that none of the files inspected contained any documents evidencing the services allegedly rendered by Delahunty to Mrs Cook. He said that whatever files the inspectors collected, they returned to Delahunty.
12 On 1 November 2010, Delahunty sent a letter to Pata and Colombathantri which said, inter alia:[2]
“I have been dealing with Mrs Cook for over 20 years. I am a joint power of attorney of hers. My joint attorney is Dr Peter Drake her physician, Ripplebrook, where she resides, contact me as her next kin.
Mrs Cook is presently comatose. Accordingly, she does not recognize anyone and I do not see any point in providing accounts to her as she is in that state. I deal with her income that is paid into her account and with trust monies from the sale of her property.
Money taken from her account represents costs and expenses and/or commission that I have taken from time to time in respect to work undertaken over the last 20 years.”
[2]Plaintiff’s closing submissions dated 17 June 2019 at paragraph 22.
13 I note that in the letter, Delahunty did not refer to the Cook agreement alleged in his defence or Mrs Cook’s intention or wish that Delahunty be remunerated or reimbursed for any assistance he rendered her after Mrs Cook’s assets were sold or she died.
14 On 9 December 2010, the inspectors sent Delahunty a letter advising him that they had determined that there was a deficiency in the trust ledgers. This constituted a breach of the Act. The letter asked Delahunty to restore the deficiencies within seven days. Delahunty did not do so.
15 In April 2011, Pata and Colombathantri completed their report setting out the details of their investigation.
16 On 9 June 2011, Pata and Colombathantri sent Delahunty a letter noting that he had failed to restore the deficiencies in the trust account and asking that this matter be attended to immediately. Again, Delahunty failed to restore the deficiencies in the trust account.
17 On about 21 June 2011, the Board filed an originating motion and summons in the Supreme Court of Victoria (“the receivership proceeding”) seeking, among other things, the appointment of a receiver to the firm, Legal Rite.
18 After a hearing in September 2011, Justice Kyrou delivered judgment on 14 September 2011. His Honour appointed James Leach as receiver to the Legal Rite practice.
19 On 19 February 2012, Mrs Cook died.
20 On 23 March 2012, after Leach had been appointed as receiver to the practice, Delahunty sought to rectify the trust account deficiencies by sending a letter and tax invoice to Mrs Cook’s executors. Delahunty, in effect, sought to justify the earlier withdrawals he had made from the trust account. The letter did not refer to the Cook agreement alleged in Delahunty’s defence, nor to Mrs Cook’s intention or wish that Delahunty be remunerated or reimbursed for assistance rendered after her assets were sold or when she died.
21 On about 27 August 2012, the Board received a letter from Mrs Cook’s executors attaching a Fidelity Fund (“the Fund”) claim form. Pursuant to the claim, the executor claimed the amount of $126,548.30. This was the total of funds withdrawn from Legal Rite’s trust account marked “L.R – Costs”.
22 On about 27 August 2013, the Board 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 Mrs Cook’s behalf in the sale of her home, he did not perform any legal work for Mrs Cook. He also advised that Mrs 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 Mrs Cook’s affairs and not for legal costs. The Board 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 Mrs 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 Board advised Delahunty that the claimants on the Fidelity Fund, the executors of Mrs Cook’s Estate, advised that no bills had ever been rendered.
23 On about 11 September 2013, Delahunty sent a letter to the Board 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”
24 By letter dated 11 September 2013, Delahunty wrote to the Board stating, inter alia:
“I am by occupation a Solicitor. The amounts deducted were paid into my legal practice and therefore they can properly be described as Solicitor’s fees earned in my occupation as a Solicitor”.
The statement by Delahunty that the amounts deducted were solicitors’ fees is consistent with the findings made by Kyrou J in his judgment. The admission is inconsistent with the argument which Delahunty advanced at the hearing to the effect that the services he rendered to Mrs Cook and for which he sought reimbursement were services provided in his capacity as one of her joint attorneys rather than as her solicitor. I note that Delahunty does not refer in the letter to any agreement with Mrs Cook whereby he could charge $150 per week for services rendered or that there was any other agreement that Delahunty be compensated.
25 At its meeting on 24 October 2013, the Board resolved to:
(a) wholly allow the executors’ claim on the fund in the amount of $126,548.30;
(b) pay interest in full pursuant to section 3.6.17 of the Act in calculating the pecuniary loss suffered by the claimants. Interest applied to the period from when the claim was made until 25 October 2013 when the Board notified the claimants of its decision to allow the claim;
(c) pay the reasonable costs of the claimants in making and proving their claim.
26 On the following day, the Board notified Delahunty of its decision.
27 On about 14 November 2013, the Board paid $126,548.30 from the Fidelity Fund to Mrs Cook’s executors in satisfaction of their claim.
28 By letter dated 14 November 2013, Delahunty wrote to the Board in response to its letter. He raised various matters in his correspondence, including an assertion that he was denied due process and not given proper details of the claim or the opportunity to respond to the application.
29 The Board responded by letter dated 28 November 2013. It noted the issues raised by Delahunty and referred him to section 3.6.23 of the Act which provided for a claimant’s appeal against a Board’s decision to wholly or partly disallow a claim. The letter went on to say:
“There are no appeal provisions in the Act allowing an associate of a Law Practice responsible for a default to appeal the Board’s decision of a claim.
You may wish to obtain your own legal advice with respect to your appeal rights pursuant to Administrative Law.”
30 On 14 October 2014, the Board sent a letter of demand to Delahunty requiring payment of the amount paid out from the Fidelity Fund.
31 On 14 April 2015, the Board filed a writ and statement of claim against Delahunty in the County Court of Victoria requiring payment of the Fidelity Fund claim.
32 In August 2016, after pleadings had closed, the court ordered that there be a trial on the preliminary question of whether the Board 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 a judgment on that preliminary question in which he held that the Board 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.
33 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.
34 On 3 September 2018, Judge Marks ordered that:
(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.
35 The matter came before me in October 2018 at which time I dismissed the Board’s application for summary judgment and set the matter down for trial.
Relevant statutory provisions
Provisions dealing with trust funds
36 Part 3.3 of the Legal Profession Act 2004 (“the LP Act”) is headed “Trust Money and Trust Accounts”. One of the purposes of Part 3.3 is “to ensure that trust money is held by law practices … in a way that protects the interests of persons for or on whose behalf money is held”.[3]
[3]LP Act, s 3.3.1(a).
37 Section 3.3.2(1) of the LP Act defines “trust money” as follows:
trust money, in relation to a law practice, means money entrusted to the 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; and
…
(d)money received by the practice, that is the subject of a power, exercisable by the practice … to deal with the money for or on behalf of another person.
38 Section 3.3.14 of the LP Act provides for the holding, disbursing and accounting of trust money as follows:
(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 in accordance with a direction given by the person.
Penalty:120 penalty units.
(2)Subsection (1) applies subject to an order of a court of competent jurisdiction or as authorised by law.
(3)A law practice … must account for the trust money as required by the regulations.
Penalty:60 penalty units.
39 Section 3.3.20 of the LP Act provides for the payment of legal costs from funds held in trust as follows:
(1) A law practice may do any of the following, in relation to trust money held in a general trust account or controlled money account for a person –
…
(b) withdraw money for payment to the practice’s account for legal costs owing to the practice if the relevant procedures or requirements prescribed by this Act and the regulations are complied with; …
40 Section 3.3.21 of the LP Act provides for deficiencies in a trust account as follows:
(1)An Australian legal practitioner … is guilty of an offence if he or she, without reasonable excuse, causes –
(a)a deficiency in any trust account or trust ledger account; or
(b) a failure to pay or deliver any trust money.
Penalty: Level 4 imprisonment (15 years maximum)
…
(3) In this section –
cause includes be responsible for;
deficiency in a trust account or trust ledger account includes the non-inclusion or exclusion of the whole or any part of an amount that is required to be included in the account.
41 Section 3.3.25 of the LP Act deals with the keeping of trust records as follows:
(1)A law practice … must keep in permanent form trust records in relation to trust money received by the practice …
Penalty: 60 penalty units.
(2) The law practice … must keep the trust records –
(a) in accordance with the regulations; and
(b)in a way that at all times discloses the true position in relation to trust money received for or on behalf of any person; and
(c)in a way that enables the trust records to be conveniently and properly investigated or externally examined; and
(d)for a period determined in accordance with the regulations.
Penalty: 60 penalty units.
Provisions dealing with receivers
42 Chapter 5 of the LP Act is headed “External Intervention”. The purposes of Chapter 5 include:
(a)to ensure that an appropriate range of options is available for intervention in the business and professional affairs of law practices …for the purpose of protecting –
(i) the interests of the general public; and
(ii)the interests and the trust money and property of clients; and
(iii)the interests of lawyers, including the owners and employees of law practices, so far as their interests are not inconsistent with those of the general public and clients; …[4]
[4]LP Act s 5.1.1(a)
43 Section 5.1.2 of the LP Act defines “external intervener” as “a supervisor, manager or receiver”. It defines “regulated property” as follows:
Regulated property, in relation to a law practice, means the following –
(a)trust money or trust property received, receivable or held by the practice;
(b)interest, dividends or other income or anything else derived from or acquired with money or property referred to in paragraph (a);
(c)documents or records of any description relating to anything referred to in paragraph (a) or (b);
(d)any computer hardware or software, or other device, in the custody or control of the practice … by which any records referred to in paragraph (c) may be produced or reproduced in visible form.
44 Section 5.2.1 of the LP Act sets out the circumstances warranting external intervention. It relevantly provides:
External intervention may take place in relation to a law practice in any of the following circumstances –
…
(d)in any case – where the Board forms a belief on reasonable grounds that the practice … –
(i)is not dealing adequately with trust money or trust property or is not properly attending to the affairs of the practice; or
(ii)has committed a serious irregularity, or a serious irregularity has occurred, in relation to trust money or trust property or the affairs of the practice; or
(iii)has failed properly to account in a timely manner to any person for trust money or trust property received by the practice for or on behalf of that person; or
(iv)has failed properly to make a payment of trust money or a transfer of trust property when required to do so by a person entitled to that money or property or entitled to give a direction for payment or transfer; or
(v)is in contravention of the regulations or legal profession rules with the result that the record keeping for the practice’s trust account is inadequate; or
(vi)has been or is likely to be found guilty of an offence relating to trust money or trust property; …
(e) where any other proper cause exists in relation to the practice.
45 Section 5.2.2(2)(c) of the LP Act provides as follows:
The Board may determine –
...
(c)to apply to the Supreme Court for the appointment of a receiver for the law practice, if the Board is of the opinion –
(i)that the appointment is necessary to protect the interests of clients in relation to trust money or trust property; or
(ii)that it may be appropriate that the provision of legal services by the practice be wound up and terminated.
46 Section 5.5.1(2) of the LP Act provides that the Supreme Court may, on the application of the Board, appoint a person as receiver for a law practice. Section 5.5.1(5)(a) states that the appointee must be “an Australian legal practitioner who holds a practising certificate as a principal authorising the receipt of trust money … and may (but need not) be an employee of the Board”.
47 The appointment of a receiver has the consequences set out in s 5.5.3 of the LP Act. Pursuant to s 5.5.3(1), a legal practitioner must not participate in the affairs of the practice until the appointment of the receiver is terminated. Under s 5.5.3(3), while the receiver’s appointment subsists, persons that are notified of the receiver’s appointment must not deal with any of the practice’s trust money.
48 The role of the receiver is set out in s 5.5.4(1) of the Act as follows:
The role of a receiver for a law practice is –
(a)to be the receiver of regulated property of the practice; and
(b) to wind up and terminate the affairs of the practice.
Legal Profession Regulations 2005
49 Regulation 3.3.34 of the Legal Profession Regulations 2005 (“LP Regulations”) provides as follows:
3.3.34 Withdrawing trust money for legal costs – law practices
(1) This regulation prescribes, for the purposes of section 3.3.20(1)(b) of the Act, the procedure for the withdrawal of trust money held in a general trust account or controlled money account of a law practice for payment of legal costs owing to the practice by the person for whom the trust money was paid into the account.
(2)The trust money may be withdrawn in accordance with the procedure set out in either subregulation (3) or (4).
(3)The law practice may withdraw the trust money—
(a) if—
(i)the money is withdrawn in accordance with a costs agreement that complies with the legislation under which it is made and that authorises the withdrawal; or
(ii)the money is withdrawn in accordance with instructions that have been received by the practice and that authorise the withdrawal; or
(iii)the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person; and
(b)if, before effecting the withdrawal, the practice gives or sends to the person—
(i)a request for payment, referring to the proposed withdrawal; or
(ii) a written notice of withdrawal.
(4)The law practice may withdraw the trust money—
(a)if the practice has given the person a bill relating to the money; and
(b) if—
(i)the person has not objected to withdrawal of the money within 7 days after being given the bill; or
(ii)the person has objected within 7 days after being given the bill but has not applied for a review of the legal costs under the Act within 60 days after being given the bill; or
(iii) the money otherwise becomes legally payable.
(5)Instructions mentioned in subregulation (3)(a)(ii)—
(a)if given in writing, must be kept as a permanent record; or
(b)if not given in writing, must be confirmed in writing either before, or not later than 5 working days after, the law practice effects the withdrawal and a copy must be kept as a permanent record.
(6)For the purposes of subregulation (3)(a)(iii), money is taken to have been paid by the law practice on behalf of the person when the relevant account of the practice has been debited.
Issues
50 At the commencement of the trial, the parties had not agreed upon the issues which the court had to decide. During the hearing of the trial, the situation changed so that, by the conclusion of the hearing, both parties were permitted to submit a list of the critical issues.
51 By email dated 7 June 2019, the Board submitted the following as the critical issues for decision:
(1)Is Mr Delahunty precluded or estopped from disputing or raising an issue in this proceeding as to the following matters which the Board asserts were finally decided in the judgment of Kyrou J in Supreme Court Number SCI 2011 0314:
(a)That the deficiencies in the Legal Rite Trust Account amount to a breach of section 3.3.21 of the Legal Profession Act 2004?
(b)That the deficiencies in the Legal Rite Trust Account represent a breach of fiduciary duty owed by Mr Delahunty?
(c)That the deficiencies in the Legal Rite Trust Account constitute a serious breach of trust?
(2)If yes, what is the quantum of the compensation that Mr Delahunty ought to pay the Board?
(3) If no:
(a)Did Mr Delahunty breach:
(i)the Legal Profession Act 2004?
(ii)his fiduciary duties?
(iii)his trust duties?
(b)What loss and damage has been suffered by the Claimants?
52 In his final submissions, Delahunty submitted that the court had to decide the following issues:
(1)Where the Defendant has pleaded there is no pecuniary loss, must the Board establish that the claimants suffered pecuniary loss?
(2)In order to establish whether the rights and remedies which the Board seeks to enforce in this proceeding are rights and remedies to which the Board is subrogated, is the Board required to identify the default to which the claim relates?
(3)Is the Defendant precluded or estopped from disputing or raising an issue in this proceeding as to the following matters which the Board asserts were finally decided in the judgment of Kyrou J in Supreme Court Number SCI 2011 0314:
(a)That the deficiencies in the Legal Rite Trust Account amount to a breach of section 3.3.21 of the Legal Profession Act 2004?
(b)That the deficiencies in the Legal Rite Trust Account represent a breach of fiduciary duty owed by Mr Delahunty?
(c)That the deficiencies in the Legal Rite Trust Account constitute a serious breach of trust?
(4)If yes, what is the quantum of the compensation that Mr Delahunty ought to pay the Board?
(5)If no, did Mr Delahunty breach:
(i)his fiduciary duties to Mrs Cook?
(ii)the relevant trust?
(6) What loss has been suffered by the Claimants? As part of that assessment, is that loss reduced by any entitlement of the Defendant in equity for his remuneration of acting as Mrs Cook’s attorney?
53 It appears from a comparison of the two proposed lists of issues that the Board’s issues correspond in substance with issues (3), (4), (5), and (6) of Delahunty’s list. Accordingly, I will deal with those issues first before addressing the extra matters raised by Delahunty.
Is Delahunty precluded or estopped from disputing matters decided by Kyrou J in the receivership proceeding?
54 The Board relied upon the doctrine of issue estoppel to argue that Delahunty was precluded and estopped from disputing or raising in this proceeding certain matters finally decided by Kyrou J in the receivership proceeding: namely, the deficiencies in the Legal Rite trust account breached section 3.3.21 of the Act, represented a breach of fiduciary duty by Delahunty, and constituted a serious breach of trust. Delahunty denied that the issue estoppel doctrine had any application in the present case.
Legal principles[5]
[5]This subsection relies upon the judgment of Santamaria JA in Milfoil Pty Ltd v Commonwealth Bank of Australia Ltd [2017] VSCA 256.
55 An issue estoppel is a final judgment by a competent tribunal that forever binds the parties in respect of any issue of fact or law legally indispensable to that decision.[6]
[6]Blair v Curran (1939) 62 CLR 464, 531.
56 An issue estoppel operates to preclude a party from disputing in a subsequent proceeding an ultimate issue of fact or law which was necessarily resolved as a step in reaching a determination made in the judgment of an earlier proceeding between the same parties.[7]
[7]Tomasevic v State of Victoria [2018] VSCA 325 at [46].
57 In Tomlinson v Ramsey Food Processing Pty Ltd, French CJ, Bell, Gageler and Keane JJ described the three forms of estoppel that have been “recognised by the common law of Australia as having the potential to result from the rendering of a final judgment in an adversarial proceeding”.[8] They referred to the “second form of estoppel”, namely issue estoppel. They said:[9]
“Estoppel in that form operates to preclude the raising in a subsequent proceeding of an ultimate issue of fact or law which was necessarily resolved as a step in reaching the determination made in the judgment. The classic expression of the primary consequence of its operation is that a ‘judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies’”
[8](2015) 256 CLR 517 at [22].
[9]Ibid.
58 In Blair v Curran, Dixon J said:[10]
“A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. The distinction between res judicata and issue estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived.”
[10](1939) 62 CLR 464, 531-532.
59 Dixon J then considered the distinction between factual findings that are “fundamental to the decision arrived at”, which may give rise to an issue estoppel, and factual findings that are “subsidiary or collateral” or concern only “evidentiary facts and not ultimate facts forming the very title to rights”, which do not give rise to an issue estoppel.[11]
[11]Ibid, 532.
60 The difficulty lies in applying these principles. As Dixon J observed in Blair v Curran, that depends on distinguishing two types of matters:[12]
“the matters fundamental or cardinal to the prior decision or judgment, decree or order or necessarily involved in it as its legal justification or foundation from matters which even though actually raised and decided as being in the circumstances of the case the determining considerations, yet are not in point of law the essential foundation or groundwork of the judgment, decree or order”
[12]Ibid, 533.
61 Dixon J said that there were two questions to be asked. The first is whether the ultimate decision necessarily involves the issue that was determined. In other words, is “the determination … so fundamental to the decision that the latter cannot stand without it”?[13] The second question is whether the determination of the issue is the “immediate foundation” of the decision, “as opposed to a proposition collateral or subsidiary only, that is, no more than part of the reasoning supporting the conclusion”.[14]
[13]Ibid.
[14]Ibid.
62 In Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2),[15] Lord Wilberforce confronted the question of how one decides what issues of fact and law are “involved” in a determination and the material to which one may have regard. He said:[16]
“One way of answering this is to say that any determination is involved in a decision if it is a ‘necessary step’ to the decision or a ‘matter which it was necessary to decide, and which was actually decided, as the groundwork of the decision’. And from this it follows that it is permissible to look not merely at the record of the judgment relied on, but at the reasons for it, the pleadings, the evidence and if necessary other material to show what was the issue decided”.[17]
[15][1967] 1 AC 853.
[16]Ibid, 965; citations omitted.
[17]Gleeson CJ, with whom Kirby P and Rolfe AJA agreed, made a similar point in Murphy v Abi-Saab (1995) 37 NSWLR 280.
63 In Tomasevic v State of Victoria,[18] the Court of Appeal referred to the principal requirements for the establishment of an issue estoppel as set out by Lord Guest in Carl Zeiss Stiftung v Rayner & Keeler Ltd (No 2).[19] His Lordship said that for the doctrine to apply, it must be demonstrated that the same question has been decided; the judicial decision which is said to create the estoppel was final; and that the parties to the judicial decision (or their privies) were the same persons as the parties to the proceedings in which the estoppel was raise (or their privies).[20]
Parties’ submissions
[18][2018] VSCA 325.
[19][1967] 1 AC 853.
[20]Ibid, 935.
64 The Board contended that Delahunty was estopped from arguing that the deficiencies in the Legal Rite trust account did not constitute a breach of the Act, a breach of duty, and a breach of trust. The estoppel was said to arise from the decision of Kyrou J in the receivership proceeding.
65 The defendant accepted in its final submissions that the receivership proceedings involved an application for the appointment of a receiver to the practice of Legal Rite due to deficiencies in the firm’s trust account. Delahunty did not dispute the finding made by Kyrou J that there were deficiencies in the trust account.[21] However, Delahunty contended that there was no estoppel because the same question did not arise in this proceeding. According to Delahunty, an application to appoint a receiver and findings in respect of deficiencies did not involve the same questions as those in the present case regarding claims for breach of fiduciary duty and breach of trust.[22]
[21]Defendant’s outline of closing submissions dated 17 June 2019 at paragraph 46.
[22]Ibid at paragraph 48.
66 The Board, for its part, accepted that the cause of action in the receivership proceeding concerned whether the requirements of the Act justifying the appointment of a receiver to the practice were satisfied. This was different from the cause of action in the present proceeding, where the main issue was whether the Board was properly subrogated to the rights of the executors of Mrs Cook’s estate and was entitled to recover compensation from Delahunty. However, the Board said that the ultimate factual question on several important matters regarding the existence of trust account deficiencies, breaches of the Act and regulations, and fiduciary and trust duties owed by Delahunty, was authoritatively determined by Kyrou J in the receivership proceeding.
Judgment in the receivership proceeding
67 Early in his judgment, Kyrou J noted that the underlying facts were not in dispute in the receivership proceeding.[23] His Honour said that 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.[24] Although Delahunty did not concede that there was a deficiency in the trust account, he acknowledged that, in the absence of fully informed consent by the persons affected, or a court order, he was obliged to repay some amounts which were appropriated by him.[25] He also acknowledged that his financial position (at least in September 2011) rendered him unable to repay any amount.[26]
[23]Legal Services Board v Delahunty [2011] VSC 453 at [2].
[24]Ibid.
[25]Ibid at [3].
[26]Ibid.
68 For the purposes of the receivership proceeding, the parties focused on four matters which were the subject of the inspector’s report – the Estate of Neal Smith, the Estate of Barry Ladd, Marjorie Cook, and Josephine McCorquodale. The key facts relating to each of these files were largely undisputed.[27] As to each of these matters, the trial judge reached a number of conclusions:
[27]Ibid at [41].
(a) Smith Estate: Delahunty could not demonstrate that he rendered accounts to the Smith Estate in relation to his legal costs or that he obtained the fully informed consent of the residuary beneficiaries to the payment of any legal cost to himself or executor’s commission to Ronald Smith.[28] Accordingly, there was a deficiency in the trust account of approximately $73,650. His Honour commented that Delahunty’s conduct indicated that he was ignorant of his most basic obligations as a fiduciary.[29]
[28]Ibid at [54].
[29]Ibid at [107].
(b) The Ladd Estate: Because Delahunty could not show that he had rendered accounts to the Ladd Estate in relation to his legal costs or that he obtained the fully informed consent of the principal beneficiaries to the payment of executor’s commission, there was a deficiency of approximately $66,094 in the trust account.[30] His Honour said that Delahunty had no legal authority to charge executor’s commission.[31]
[30]Ibid at [71].
[31]Ibid at [120].
(c) Mrs Cook: Delahunty withdrew amounts totalling $102,960 from the trust account for the purported payment of legal fees for services said to have been rendered by Legal Rite. Because Delahunty sent no bills to Cook or her attorneys, there was a deficiency in the trust account of $102,960. Also, Delahunty’s files did not contain any documents evidencing the provision of any services for which amounts totalling $102,960 were charged.[32]
[32]Ibid at [81].
(d) McCorquodale: The court accepted that the $12,400 which Delahunty took to meet his expenses in administering Ms McCorquodale’s affairs as her attorney were not referable to the provision of legal services. Ms McCorquodale’s funds were not held in the Legal Rite trust account, but in her own account at Westpac Banking Corporation. Under the power of attorney and related documentation executed by Ms McCorquodale, Delahunty was authorised to charge for work done as her attorney. In the circumstances, the court said that the taking of the $12,400 did not constitute a deficiency in the firm’s trust account.[33]
Same issue decided
[33]Ibid at [93]-[94].
69 As Kyrou JA noted in Forster v Legal Services Board,[34] authorities such as Blair v Curran[35] and Ramsay v Pigram[36] make clear that the expression “same question” in the first component of the doctrine of issue estoppel does not refer to the ultimate question. Rather, the first component refers to an issue which established the legal foundation or justification for the judicial decision. His Honour commented that in relation to matters of fact, issue estoppel is confined to the ultimate facts which form the ingredients in the cause of action.[37] This includes any matter which it was necessary to decide and which was actually decided as the groundwork of the decision, though not then directly the point in issue. Only that which is legally indispensable to the conclusion is finally closed or precluded.
[34][2013] VSCA 73 at [102].
[35](1939) 62 CLR 464.
[36](1968) 118 CLR 271.
[37][2013] VSCA 73 at [106].
70 It is apparent from the judgment in the receivership proceeding that Kyrou J, when appointing James Leach as receiver, took into account each of the three matters in which there was a deficiency of funds. His Honour stated that the court’s primary consideration was the public interest and the interests of the persons affected.[38] Because of the irregularities with the trust account and Delahunty’s inability to remedy the deficiencies, Kyrou J concluded that it was “necessary to appoint a receiver in order to protect the interests of the clients – especially Mrs Cook – in relation to trust money”.[39]
[38]LSB v Delahunty [2011] VSC 453 at [120].
[39]Ibid at [121].
71 Thus, in reaching his decision, the examination which Kyrou J undertook of the Cook file was influential. Arguably, it was the file which had the greatest impact on the judge’s determination to appoint a receiver because it represented the greatest deficiency. His Honour made some specific findings about Delahunty in relation to Mrs Cook and her affairs:
· Between 21 January 2003 and 9 April 2010, Delahunty withdrew amounts totalling $102,960 from the trust account which held the proceeds of sale arising from the sale of Mrs Cook’s home. The withdrawals were generally in round figures. Although Delahunty rendered no bills of costs to Mrs Cook (or her attorneys) the purpose of the withdrawals was described as “L.R – Costs”.[40]
[40]Ibid at [78].
· Delahunty’s files relating to Mrs Cook did not contain any documents evidencing the provision of services for which an amount of $102,960 was charged.[41]
[41]Ibid at [81].
· The best evidence of the purpose for which Delahunty withdrew funds was his contemporaneous records.[42] Those records showed the purpose to be “costs” – in the context, the court inferred this was legal costs owing to the Legal Rite practice.[43] Accordingly, the judge found that Delahunty withdrew $102,960 from the trust monies to pay legal costs.[44] Because the monies were withdrawn to pay legal costs and Delahunty rendered no bills of costs, the withdrawal of funds constituted a deficiency in the trust account.
[42]Ibid at [83].
[43]Ibid.
[44]Ibid at [84].
· Even if the withdrawal of funds totalling $102,960 from the trust account did not constitute a deficiency, the withdrawal of that money represented a serious breach of fiduciary duty. In so acting, Delahunty took advantage of Mrs Cook’s vulnerability and took her money without maintaining any or any proper records regarding the payments.[45]
[45]Ibid at [109].
· Delahunty’s attitude of not accounting to Mrs Cook because she was comatose suggested a grave indifference to her interests. Delahunty should have at least retained accurate and comprehensive records about the services provided to Mrs Cook, given those records to his joint attorney, Dr Drake, and sought Dr Drake’s authority for the withdrawals.[46]
· Delahunty’s conduct towards Mrs Cook and the other clients, insofar as it concerned the trust account holding the clients’ funds, involved breaches of the Act and Regulations and constituted serious breaches of trust.[47]
[46]Ibid at [110].
[47]Ibid at [111].
72 I infer from the defendant’s closing submissions that he contends there is no issue estoppel because the same question is not decided in both cases and because the parties are not relevantly the same.
73 Delahunty argued that the findings made by the trial judge in the receivership proceeding were too different from the issues regarding breaches of trust and fiduciary duty to constitute the same matter. Also, Delahunty argued that Kyrou J did not provide any sufficiently precise identification of matters such as the fiduciary relationship, the duties to Mrs Cook which were owed and allegedly breached, the term of the trust allegedly breached, and the elements of the breach of trust. Hence, it was submitted that the comments in paragraphs 109-111 of Kyrou J’s judgment could not amount to adverse findings against Delahunty regarding breaches of fiduciary duty and trust.[48]
[48]Defendant’s outline of closing submissions at paragraph 52.
74 In my view, the receivership proceeding dealt with the same issues as are raised in this case. In deciding to appoint a receiver, Kyrou J plainly relied upon the conduct of Delahunty in which he:
· contravened section 3.3.21 of the Act;
· failed to have a costs agreement with Mrs Cook;
· failed to give Mrs Cook or either of her attorneys a bill of costs and hence, rendered himself unable to comply with Regulation 3.3.4;
· did not show that he obtained the fully informed consent of Mrs Cook, her attorneys, or executors to the payment of legal costs to himself from the Cook trust monies; and
· took money from Cook’s funds in the firm’s trust account to pay legal fees notwithstanding the absence of a costs agreement, the failure to render a bill of costs, and the failure to obtain the informed consent of Mrs Cook, her attorneys or executors.
I consider that Kyrou J necessarily found these facts in arriving at his decision and that these facts were fundamental to the decision.
75 His Honour determined that the appointment was warranted under section 5.2.1(d)(i)(ii)(vi) and (e) of the Act.[49] The other basis relied upon was Delahunty’s inability to remedy the deficiency.[50]
[49]LSB v Delahunty [2011] VSC 453 at [121].
[50]Ibid.
76 In reaching my view of the matter, I note the decision of the Court of Appeal in Forster.[51] This was an appeal from an order made by Ross J in his capacity as president of the Victorian Civil and Administrative Tribunal (‘VCAT’) in which he dismissed an application for review of a decision by the Board. The Board refused to renew Forster’s practising certificate on the ground that he was not a fit and proper person to continue holding such a certificate. Forster, at the time, was the principal of a firm of solicitors which acted on a “no win, no fee” basis for former members of the Royal Australian Navy who claimed compensation from the Commonwealth for injuries allegedly suffered in a collision between two Australian warships in 1964. The Commonwealth settled many of the sailors’ claims in 2008 and made compensation payments to the law firm acting for the clients.
[51][2013] VSCA 73.
77 In deciding not to renew Forster’s practising certificate, the Board relied significantly upon findings made by Emerton J in a proceeding in which the Board applied successfully for the appointment of a receiver to the law firm. Her Honour found that there were deficiencies in the trust account relating to the sailors seeking compensation. Her Honour decided that those deficiencies and related breaches of the LP Act and Regulations required the appointment of a receiver to the law practice.
78 When the matter came before VCAT for review, Ross J ruled that issue estoppel applied to findings made by Emerton J that necessarily established the legal foundation or justification for her decision regarding the appointment of the receiver. Although Ross J referred to the findings made concerning trust account deficiencies, his Honour’s decision regarding Forster’s unfitness to hold a practising certificate was based on separate matters which his Honour determined.
79 In giving the judgment of the Court of Appeal, Kyrou JA, with whom Weinberg and Harper JJA agreed, accepted that the cause of action in the proceeding before Emerton J concerned whether the requirements of the Act justifying the appointment of a receiver were satisfied and that the cause of action in the VCAT proceeding was different, namely, whether Forster was a fit and proper person to hold a practising certificate. However, the court found that such a difference did not determine whether or not the doctrine of issue estoppel was applicable.
80 The court found that Ross J correctly concluded that, while the ultimate issue in the receivership proceeding was not the same as the ultimate issue in the VCAT proceeding, the factual question relating to the existence of trust account deficiencies and consequential breaches of the Act and its regulations – which Forster sought to agitate in the VCAT proceeding – had been determined by Emerton J in the case which she heard. It also held that Ross J was correct to conclude that the factual findings made by Emerton J on this question necessarily established the legal foundation or justification for the order appointing the receiver. If Ross J had permitted Forster to reagitate this question before him, there was a risk that there may have been two inconsistent decisions on the same factual matter. The Court of Appeal said that this was “precisely the type of result that the doctrine of issue estoppel seeks to avoid”.[52]
[52]Ibid at [109].
81 In this case, I understood Delahunty sought to argue that he had an entitlement to remuneration arising from services he provided as Mrs Cook’s attorney and/or he was entitled to recover legitimate expenses which he met on her behalf. To that extent, his submissions were contrary to the findings made in the receivership proceeding by Kyrou J, who said that the moneys taken from Mrs Cook’s trust funds were for the payment of legal expenses which Delahunty charged her. The court cannot allow Delahunty to raise this argument again because it would create the risk of two inconsistent findings on the same matter. This is the kind of situation which the issue estoppel doctrine is designed to prevent.
Final judgment
82 The High Court held in Kuligowski v Metrobus[53] that a final decision is one which is not of an interlocutory character but is completely effective unless and until rescinded, altered, or amended.[54]
[53](2004) 220 CLR 363.
[54]Ibid, 375 and 377.
83 The Board submitted that the seriousness of a court deciding to appoint a receiver to a solicitor’s practice, the gravity of the consequences of such an order, and the process which must be followed before such an order can properly be made suggested that such an order was not to be made on an interim or provisional basis. The Board contended that when Kyrou J appointed Leach as the receiver to the Legal Rite practice, he relied upon the various factual findings regarding the trust account deficiencies, breaches of the Act, and breaches of fiduciary and trust duties set out earlier in this judgment. It was said that those findings were final and made only after the court had considered extensive affidavit material and submissions.
84 I note that Delahunty made no specific submissions on this particular issue of whether the order made in the receivership proceedings was final.
85 Again, in Forster’s case, the Court of Appeal said that Emerton J decided to appoint a receiver to the solicitor’s practice on the basis of the factual findings she made regarding trust account deficiencies and breaches of the Act and Regulations. Those findings were said to be final and were made after her Honour heard extensive evidence and submissions during a lengthy trial and after taking time to consider her decision.[55]
[55]Forster v Legal Services Board [2013] VSCA 73 at [117].
86 The Court of Appeal concluded that the trial judge’s decision made final findings on those issues which necessarily established the legal foundation or justification for her decision to appoint a receiver.[56] Her Honour’s findings were not tentative or provisional in any sense. They were unlike the findings which are sufficient to make an interim order, such as an interlocutory injunction. The findings were not made merely to the standard of a prima facie case or whether the matters were arguable. Her Honour made, on the balance of probabilities, factual findings which warranted the appointment of a receiver under section 5.5.1 of the Act.
[56]Ibid at [125].
87 In my view, the same position applies in the present case. The findings made by Kyrou J in the receivership proceeding were not provisional or tentative. They were not made on the basis that they were arguable. His Honour was aware that they involved serious matters and, in making his findings against Delahunty, took into account the importance of the evidence in relation to the findings and the gravity of the matters alleged, as required by section 142(2) of the Evidence Act 2008 (Vic).[57]
[57]LSB v Delahunty [2011] VSC 453 at [113].
88 I consider that I should treat the decision of Kyrou J as a final decision in the same way that the decision of Emerton J in Forster’s case was treated as final by the Court of Appeal.[58]
Same parties
[58]Forster v LSB [2013] VSCA 73.
89 The third and final element that must be satisfied in order to found an estoppel is that “the parties to the judicial decision or their privies were the same persons as the parties to the proceeding in which the estoppel is raised.”[59]
[59]Carl Zeiss Stifung v Rayner & Keeler Ltd [No 2] [1967] 1 AC 853, 935.
90 In the receivership proceeding before Kyrou J, it was the Board who brought proceedings against Delahunty.
91 The Board, pursuant to section 6.2.1 of the Act, is a body corporate that may sue and be sued.
92 In 2014, the Board underwent a name change to the Victorian Legal Services Board. Pursuant to section 28(1) of the Legal Profession Uniform Law Application Act 2014 (Vic), the Board continues to operate in its original capacity.
93 Where the Board accepts a claim and makes a payment out of the Fidelity Fund, the Board is subrogated to the rights and remedies of the claimant against any person in relation to the default to which the claim relates. Further, the Board may exercise its subrogation rights and remedies in its own name or in the name of the claimant.[60] Thus, the claimants themselves need not have been parties to the 2011 proceeding.
[60]Section 3.6.19(4) of the Legal Profession Act 2004 (Vic).
94 Delahunty conceded that the parties to this proceeding are the same as those in the 2011 proceeding, but submitted that the claimants, in whom the present claims originated, were not parties to the 2011 proceeding and did not make any allegations or claims of breach of trust.
95 The point Delahunty appears to be making here is that the issues the subject of this proceeding were not raised in the prior proceeding. My findings on this argument have more appropriately been dealt with under the first element needed to establish an issue estoppel, that is, that the same question has been decided.
96 I am therefore satisfied that the parties to the earlier Supreme Court proceeding are the same as those in the present matter.
97 In summary, on this aspect of the case I am satisfied that the doctrine of issue estoppel applies. As a result, Delahunty is estopped from disputing, inter alia, that:
(a) the deficiencies in the Legal Rite trust account constituted a breach of section 3.3.21 of the Act;
(b) the deficiencies in the Legal Rite trust account constituted a breach of fiduciary duty; and
(c) the deficiencies in the Legal Rite trust account constituted a serious breach of trust.
If yes to issue one, what is the quantum of compensation which Delahunty should pay the Board?
98 The Board contends that it is entitled to recover from Delahunty the amount of $126,548.30 which it paid to Mrs Cook’s executors as the claimants on the Fund. The Board appointee, Ned Roach, investigated the claim by the executors and prepared a report which was presented to the Board at its meeting on 7 October 2013. He concluded that the loss was the amount debited to Mrs Cook’s trust account as “L.R. – Costs”.
99 On 24 October 2013, the Board resolved to adopt the recommendation to pay the executors’ claim and found that:
· Delahunty failed to pay or deliver trust money that was received by the practice in the course of legal practice where the failure arose from, or was constituted by, an act or omission that involved dishonesty;
· the pecuniary loss, which represented the money which was not paid to the claimants as a result of the default, was $126,548.30; and
· it would pay interest in full pursuant to section 3.6.17 of the Act on the monies payable to the claimants.
100 The Board wrote to Delahunty and the executors’ solicitor, Matthew Shaw, the following day to advise of its decision. On 14 November 2013, the Board sent a cheque to Shaw for $130,883.74, being the amount of the deficiency plus interest.
101 Delahunty argued that the executors’ quantum of pecuniary loss dictated the limits of the Board’s right of subrogation where the Board sued in its own name. He submitted that the Board could not be subrogated to any amount greater than the pecuniary loss suffered by the claimants. This was because:
(a) the purpose of subrogation was to replenish the Fund for any compensation for pecuniary loss paid pursuant to Part 3.6 of the Act; and
(b) the amount which the Board could pay from the Fund to a claimant must not exceed the claimant’s actual pecuniary loss – section 3.6.15 of the Act.
102 Delahunty submitted that actual pecuniary loss means the pecuniary loss actually incurred by a claimant, not necessarily the amount claimed, as a result of the default. The term “actual pecuniary loss” was analysed in Dobcol v Law Institute ofVictoria,[61] and was said to be authority for the proposition that a claimant is not entitled to be paid anything more than the Act permits.
[61][1979] VR 393.
103 Because the amount payable to a claimant by the Board must not exceed the claimant’s actual pecuniary loss, Delahunty argued that the Board’s right of subrogation was limited to the actual pecuniary loss and not necessarily the extent of the payment made to the claimant. So, if the Board paid the claimant an amount greater than the actual pecuniary loss, the Board was not subrogated for that excess sum. The excess was to be treated as a voluntary payment by the Board and the Board was not entitled to recover that excess sum from the solicitor.
104 The critical aspect of Delahunty’s argument was that if, which he denied, there were a deficiency in the trust account in relation to Mrs Cook, it was proper to set off against the amount to be repaid to the trust account:
(a) the reasonable remuneration to which Delahunty was entitled as an attorney engaged by a client in a professional capacity; or
(b) the monies taken by Delahunty due to his implied right of reimbursement based on a quantum meruit; or
(c) Delahunty’s equitable debt comprising his entitlement to remuneration for services provided to Mrs Cook.
105 On Delahunty’s argument, the claimants could not be said to have sustained actual pecuniary loss unless and until they showed that the amount removed from the Cook trust account was greater than the amount to which Delahunty was entitled or to which any third party would have been entitled had Mrs Cook engaged that third party as her attorney rather than engaging Dr Drake and Delahunty.
106 When the Victorian Court of Appeal heard Delahunty’s appeal from the decision of Judge Macnamara in September 2017,[62] the Court commented on the Board’s subrogation claims. It said that when one read section 3.6.19(1) of the Act in context, the subrogation right was triggered when the Board paid a claim from the Fund. The subrogation provision was not pre-conditioned on there being a default. Rather, its operation began upon a payment being made out of the Fund. It was enough that the payment was connected to a claim on the Fund which the Board had seen fit to determine or settle in favour of a claimant. The Court of Appeal said that, bearing in mind the context of section 3.6.19 as a whole, the other legislative provisions and the purpose of the legislation, the correct construction was that the Board’s subrogated rights must be connected to a claim which was related to a default but was not pre-conditioned on proof of a default.[63] Once the Board and the claimants settled, and the Board compensated the claimants, the Board stood in the shoes of the claimants and was entitled to pursue the legal practitioner.
[62]See paragraph 32 above.
[63]Delahunty v Victorian Legal Services Board [2017] VSCA 327 at [30].
107 The Board argued that, consistent with the decision of the Court of Appeal, it did not need to prove any default under the Act or that it was correct or justified in allowing the claim on the Fund. According to the Board, it had only to prove:
(a) the breach of duties and trust alleged in the statement of claim to the same standard as if it were the claimant suing Delahunty and not claiming on the Board;
(b) the claimants suffered a pecuniary loss because of those breaches;
(c) the pecuniary loss was the subject of a claim against the Fund; and
(d) in satisfaction of that claim, the Board made a payment out of the Fund.
The Board maintained that it proved each of these elements and, accordingly, it was entitled to recover payment of $126,548.30 from Delahunty.
108 In my opinion, the prima facie position is, as argued by the Board, that Delahunty should pay the Board the sum of $126,548.30, being the amount which he took from the firm trust account and which would otherwise have been available to Mrs Cook’s estate. However, before finally resolving this point, I need to address questions which Delahunty has raised about the alleged entitlement to remuneration as an attorney and the application of the set-off doctrine. Delahunty contended that these matters must be taken into account in determining what, if any, amount should be paid to the Board.
Is Delahunty entitled to remuneration for work performed as an attorney?
109 In the receivership proceeding, Kyrou J effectively found that Delahunty provided services to Mrs Cook as her solicitor rather than her attorney. He inferred this largely from Delahunty’s conduct and contemporaneous written records. Although the issue estoppel doctrine operates to prevent Delahunty from relitigating the point, I will briefly consider it.
110 Delahunty claimed that, notwithstanding the deficiencies in his trust account, he was entitled to be remunerated for the services he provided to Mrs Cook.
111 Delahunty argued that he was entitled to be paid from the trust account due to an agreement he made with Mrs Cook around the time he drafted the power of attorney. The gist of the agreement was that he would provide services for Mrs Cook into the future and look after her affairs until she died. He said that Mrs Cook did not want him to be out of pocket in providing assistance in the management of her affairs. As part of the agreement, Delahunty submitted that his entitlement to payment arose as a result of his actions as an attorney and not a lawyer. In his evidence, Delahunty said that he acted as a solicitor when dealing with the estate of Mrs Cook’s late husband around 1985. He also acted as a solicitor subsequently in 1995 in preparing Mrs Cook’s will. Apart from these matters and preparing the power of attorney, Delahunty’s case was that he performed no legal work for Mrs Cook. Thus, he contended that, in assisting her, he acted as her attorney.
112 Alternatively, he argued that if the court did not accept there was such an express agreement, there was an implied agreement between himself and Mrs Cook.
113 Delahunty submitted that, prior to the enactment of the Powers of Attorney Act 2014 (Vic), there was no requirement for a charging clause in the document appointing the attorney. As the terms of the power of attorney authorised the attorney to do anything on the donor’s behalf that she may lawfully authorise an attorney to do, Delahunty argued that any claim for monies had and received based upon the non-existence of a charging clause was misconceived.[64]
[64]Defendant’s outline of closing submissions at paragraph 59.
114 The Board, in reply, submitted that Delahunty was estopped from challenging the findings of Kyrou J that the funds withdrawn from the trust account were for the payment of legal costs rather than attorneys’ fees.
115 In the event that the court found Delahunty was not estopped from challenging those findings, the Board made the following alternative submissions:
(a) Delahunty had no right to be remunerated as an attorney because there was no agreement that he be paid for his work;
(b) the nature of the work undertaken by Delahunty on behalf of Mrs Cook was more akin to the acts of a gratuitous attorney, rather than a professional attorney; and
(c) despite being appointed as a joint attorney with Dr Drake, Delahunty never sought Dr Drake’s permission to charge for attorney services or to be reimbursed for attorney expenses. In circumstances where Delahunty withdrew trust money without approval from Dr Drake, the Board argued that Delahunty could not lawfully be remunerated for his services.
116 Given the familial circumstances in which many attorneys are appointed, acting without charge is commonplace and, as a result, little case law has developed regarding an attorney’s right to remuneration without a specific charging or commission clause in the power of attorney document.
117 While there is possibly some scope to imply an intention to remunerate in a situation like the present, Dal Pont has commented that, where the attorney is a lawyer, such scope is premised upon compliance with the costs disclosure requirements and, since the introduction of the Powers of Attorney Act 2014 (Vic), a relevant charging clause.[65] It is clear that Delahunty failed to comply with his obligations regarding the charging of legal fees.
[65]G E Dal Pont, Powers of Attorney (2nd ed) LexisNexis Butterworths, Australia, 2015, [8.88]. As the Powers of Attorney Act 2014 (Vic) was not in force during the relevant time period, it is not necessary to consider the consequences of the absence of a charging clause.
118 Even if I were to accept that there was some form of agreement as to Delahunty’s remuneration, the existence of a contractual entitlement to remuneration may not assist Delahunty in overcoming the consequences of attorney misconduct.
119 As a power of attorney creates a principal-agent relationship, the relationship is generally subject to the laws of agency.
120 Where in the course of employment or engagement an agent breaches his or her fiduciary duty to the principal, in practically every case, the agent would forfeit any right to remuneration.[66]
[66]Keppel v Wheeler [1927] 1 KB 577, 592 per Atkin LJ; and G E Dal Pont, Law of Agency (3rd ed) at paragraph 15.70.
121 Moreover, whether any right to remuneration survives Delahunty’s breach of his fiduciary duty is of little practical consequence in circumstances where it is difficult to quantify the appropriate amount of remuneration payable. Delahunty did not keep records of the time spent in assisting Mrs Cook. Also, there was no evidence about what was a reasonable rate of remuneration for the provision of assistance to a person in Mrs Cook’s position (assuming such assistance was to be paid for).
122 In final address, Delahunty for the first time argued that, if he were entitled to receive reasonable remuneration due to an implied agreement on a quantum meruit basis, the remuneration should be calculated on the basis of one hour per week pursuant to Schedule 1 of the Practitioner Remuneration Order for solicitors in Victoria.[67] For the period from 5 January 2001 to 19 February 2012, this amounted to $156,756.80. Apart from the problem caused by introducing this aspect of the case only in final submissions, it seemed ironic that Delahunty, while seeking to claim moneys allegedly owing to him as an attorney and not as a solicitor, would invoke the Practitioner Remuneration Order as the basis of payment.
[67]Defendant’s outline of closing submissions at paragraph 70.
123 I do not accept that there was an agreement between Mrs Cook and Delahunty to pay him $150 per week for services provided to her. I have reached this view for several reasons.
124 First, Delahunty’s evidence at trial about the alleged agreement was unsatisfactory. His recounting of the conversation he relied upon for his argument was unimpressive and far from clear. It struck me as unpersuasive.
125 Secondly, there was no reference in the trust ledger to any agreement for Delahunty to withdraw $150 per week. The amounts withdrawn were often a round number and it is not apparent from the ledger how the individual sums withdrawn were calculated or arrived at, what period they covered, or why, for example, two withdrawals of $1,500 and $4,500 were made on the same day, namely 23 December 2002.
126 Thirdly, there was no mention in the trust ledger that Delahunty withdrew monies as he did for providing attorney services to Mrs Cook. He agreed that there was nothing to prevent him from including such a descriptive notation in the trust ledger.
127 Fourthly, Delahunty did not send Dr Drake any correspondence advising him that he was withdrawing funds from Cook’s trust account to pay himself for services rendered. Delahunty gave Dr Drake no such details and did not seek Dr Drake’s consent or approval for those withdrawals.
128 Fifthly, by letter dated 23 March 2012, Delahunty wrote to the executors purporting to explain his conduct and, in particular, to justify his action in taking more than $100,000 from Mrs Cook’s trust funds. In that letter, Delahunty said that:
· he had never discussed the payment of his fees with Mrs Cook but she said that she wanted to ensure Delahunty was not out of pocket and properly remunerated for the work which he undertook; and
· he decided to charge Cook $150 per week after speaking to an accountant who told him that the cost of servicing Mrs Cook would be about $160-$200 per week.
Delahunty also enclosed a tax invoice for $102,960 which said in part:
“My costs of and incidental to dealing with her as her solicitor and Advirsor (sic) from 1995 onwards and as Power of Attorney for Marjorie Cook from 2001 to 2012” (my emphasis)
The letter made no reference to any agreement with Mrs Cook that Delahunty be paid $150 per week and that he recover such payment from either the proceeds of sale of her house or her estate upon her death.
129 Sixthly, in his correspondence with the investigators and the Board, Delahunty did not anywhere state that:
· there was an agreement that Delahunty be paid $150 per week for providing services to Mrs Cook as her attorney;
· Mrs Cook waived the need to receive bills of costs in relation to such service and assistance as he provided; or
· there was an agreement that Delahunty could pay himself compensation from Cook’s trust funds.
130 Next, in a letter dated 14 March 2003, Delahunty wrote to a financial planner seeking advice about investment options for the proceeds of sale for Mrs Cook’s house in Bentleigh. Delahunty said in the letter that the aim was to keep pace with inflation and provide some income, but there was no particular need for an income stream because Mrs Cook’s needs were minimal so far as income was concerned. Again, Delahunty made no reference to any agreement with Mrs Cook whereby he was to be paid $150 per week and allowed to pay himself from trust funds held on behalf of Mrs Cook. Also, the letter made no reference to outstanding debts owing to Delahunty from the period before Mrs Cook went into care and sold her home.
131 Finally, there was no written agreement between Mrs Cook and Delahunty regarding his retainer, the work or services he was to provide, and the fees he would charge. Nor was there any written agreement with Mrs Cook about Delahunty charging commission or expenses as her attorney. In short, if Delahunty made any agreement with Mrs Cook around the time of drawing the power of attorney, under which he was entitled to charge Mrs Cook $150 per week for services rendered, then I would have expected Delahunty to make reference to it in his dealings with the other attorney, Dr Drake, or the executors of Mrs Cook’s estate or the investigators or the Board, before it appeared in Delahunty’s amended defence in September 2018.
132 Even if there were no estoppel and I found that Delahunty acted as an attorney, I remain unconvinced about the existence of an agreement between Delahunty and Mrs Cook under which he was to be paid for services rendered. Because of Delahunty’s breaches of duty to Mrs Cook, I consider that an attorney in his position would not be entitled to payment in any event.
133 As to the implied agreement which Delahunty contends for, my view is that no such agreement should be implied. I was not satisfied there was an express agreement and the evidence does not warrant the finding of an implied agreement.
134 Had I not found that Delahunty is estopped from challenging the findings of Kyrou J that the funds withdrawn from the trust account were for the payment of legal costs and not attorneys’ fees, I would find it difficult to accept Delahunty’s argument that he acted not as Mrs Cook’s lawyer but as her attorney and was entitled to be paid in that capacity. Although Delahunty argued the lawyer/attorney distinction before Kyrou J in the receivership proceeding, his position was inconsistent with:
(a) the tax invoice sent to Mrs Cook’s executors for “costs of and incidental to dealing with her as her solicitor and Advirsor” (sic);
(b) the letter to the Board dated 11 September 2013 where he said the “amounts deducted were paid into my legal practice and therefore they can properly be described as Solicitor’s fees earned in my occupation as a Solicitor”; and
(c) the unexplained 84 entries in the trust account with the notation “to L.R. – Costs”.
These were documents which Delahunty created before he issued this proceeding. They give a more accurate picture of the position than the assertions made years later.
135 In summary, my view is that:
· Delahunty provided a variety of services for Mrs Cook including friendship and advice after the death of her husband, examining her bills and drawing and posting cheques, and dealing with the management at Ripplebrook;
· there was no agreement between Delahunty and Mrs Cook that he charge her $150 per week and be paid from the proceeds of sale of her house or her estate after her death. Even if not estopped by the findings of Kyrou J in the receivership proceeding, Delahunty breached both his fiduciary duty and his duty as trustee to Mrs Cook;
· Delahunty cannot rely upon equity or equitable compensation to obtain payment for services rendered to Mrs Cook. Much of what he did was gratuitous. Even if Mrs Cook derived a benefit, Delahunty nonetheless breached his duties to her. He could easily have rectified the situation, either by obtaining approval from Dr Drake as the joint attorney, or complying with his obligations under the Act as a solicitor.
Set-off
136 Although I have found Delahunty is not entitled to remuneration for services rendered as Mrs Cook’s attorney, I will briefly address the question of set-off.
137 Delahunty submitted that if the court accepts that he is entitled to be remunerated for the work he performed as an attorney, then equity must intervene to set-off that amount or, alternatively, the amount that Mrs Cook’s estate would have otherwise incurred for payment of professional attorney services.
138 Where a breach of trust or fiduciary duty is established, Delahunty acknowledged the beneficiary’s entitlement to compensation for any loss the estate would not have suffered but for the breach.[68]
[68]Defendant’s outline of closing submissions at paragraph 79.
139 Thus, Delahunty submitted, it follows that his entitlement to remuneration must be deducted from the equitable debt suffered by the estate as a result of his withdrawal of funds from the Cook trust in violation of section 3.3.20 of the Act.
140 Delahunty further submitted that the claimants have not suffered a loss because any funds withdrawn from the Cook trust were funds to which the estate had an equitable duty to pay to him as remuneration for providing financial or other assistance to Mrs Cook. Delahunty argued that the estate is not entitled to benefit from the proceeds of the trust account without first meeting its obligations to remunerate Delahunty for acting as Mrs Cook’s attorney.
141 The Board denied that Delahunty is able to set-off the alleged services provided against the money contained in the Cook trust account. It submitted that the benefit or burden of credits, claims, and dealings must not only be between the same persons but also be between them in the same interests. This lack of mutuality was, the Board said, fatal to any alleged set-off.
142 The Board also submitted that Delahunty is prevented from setting off any claim for remuneration against the money held in the firm’s trust account as any such claim would be beyond the relevant limitation period.
143 In any event, the Board argued that Delahunty is estopped from raising set-off as a defence. The issue was previously agitated before her Honour Judge Marks in an application by Delahunty to amend his defence. At that time, Delahunty conceded he could not seek to set off the claim that the Board has against him with a claim he says he has against the executors of the Cook estate. Judge Marks refused his application for leave to amend the defence.
144 At trial, Delahunty did not address the court on why he was not, or should not be, bound by the orders of Judge Marks. The Board, in its reply submissions, contended that, aside from the limitations issue, Delahunty could not set off the claim for remuneration against the money held in the firm’s trust account because of the concession by Delahunty and the adverse ruling by Judge Marks. I note, however, there were times where it appeared Delahunty was attempting to circumvent the orders by discussing the set-off point in the context of the amount that the claimants are entitled to receive by way of compensation.
145 In circumstances where this Court has already considered and denied an application by Delahunty to amend his defence to include a claim for set-off and there was no appeal against that refusal, it is not open to Delahunty to argue that the debt owed by him to the estate should be reduced to take into account the costs or expenses Mrs Cook incurred through her attorney, Delahunty, or would have incurred through a different attorney if she had not appointed Delahunty.
146 Thus, regardless of whatever merits such a claim might have (about which I make no comment), in the absence of a successful application for leave to further amend his defence, any claim for set-off by Delahunty is in violation of the orders made in September 2018 by Judge Marks. Accordingly, I do not propose to examine the arguments regarding mutuality and limitations.
147 I note that the defendant relies upon cases such as Maguire v Makaronis[69] and Deutsch v Deutsch[70] to argue that, notwithstanding the breach of trust in taking trust moneys from Mrs Cook’s account, the court can do justice by making proper allowance for the value of the services provided by Delahunty to Mrs Cook. So, for example, when the solicitors in Maguire breached the duty to the client by becoming the mortgagee without informing the client, the mortgage transaction was set aside on condition that the client repay the loan funds provided. In my view, the difficulty in the present case is that Kyrou J found that the defendant was charging fees as a solicitor without meeting his obligations under the Act. Because Delahunty was found to provide assistance to Mrs Cook as a lawyer and not an attorney, there is a public policy issue about requiring lawyers to comply with the law. If the court gave credit to Delahunty for the value of services rendered to Mrs Cook on the basis of the alleged agreement of $150 per week, or used that figure as the notional rate of payment for a different attorney, this would effectively circumvent those provisions of the Act dealing with a solicitor’s ability to recover legal costs. In any case, the above discussion assumed that Delahunty should have been paid.
[69](1997) 188 CLR 449.
[70][2012] VSC 227.
Did the defendant breach the Act, and his fiduciary and trustee duties?
148 For the purposes of this part of the judgment, I assume, contrary to my earlier findings, that the doctrine of issue estoppel does not apply to Delahunty.
149 In circumstances where it is unarguable that Mrs Cook’s money in Delahunty’s trust account was trust money, the Act will be applicable. Part 3.3 of the Act is headed “Trust Money and Trust Accounts”. One of the purposes of Part 3.3 is “to ensure that trust money is held by law practices…in a way that protects the interests of persons for or on whose behalf the money is held”.[71]
[71]Section 3.3.1(a) of the Act.
150 Subject to some specific exceptions, when a law practice receives trust money, it must as soon as practicable thereafter deposit it in a general trust account.[72] A law practice must hold such trust money in a general trust account exclusively for the person on whose behalf it was received and disburse it only in accordance with a direction given by that person.[73] Further, the practice must account for the trust money as required by the Regulations to the Act.[74]
[72]Section 3.3.31(1) of the Act.
[73]Section 3.3.14(1) of the Act.
[74]Section 14(3) of the Act.
151 A law practice may in relation to trust money held in a general trust account withdraw the money for payment to the practice’s account for legal costs owing if the procedure prescribed in the Regulations is complied with.[75]
[75]Section 3.3.20(1)(b) of the Act.
152 If an Australian legal practitioner or approved clerk without reasonable excuse causes a deficiency in any trust account or trust ledger account, or fails to pay or deliver any trust money, then they are guilty of an offence. The penalty is a maximum of 15 years imprisonment: section 3.3.21(1) of the Act. In this section, “cause” includes being responsible for and “deficiency” includes the non-inclusion or exclusion of the whole or any part of an amount that is required to be included in the account.[76]
[76]Section 3.3.21(3) of the Act.
153 Regulation 3.3.4 of the Act governs and sets out the procedure for the withdrawal of trust money for legal costs for the purposes of section 3.3.20(1)(b). In essence, the law practice can withdraw trust monies:
(a) if:
(i) the money is withdrawn in accordance with a compliance costs agreement which authorises the withdrawal;
(ii) the money is withdrawn in accordance with instructions received by the practice which authorise the withdrawal. These instructions, if given in writing, must be retained as a permanent record. If not in writing, the instructions must be confirmed in writing before, or no more than five days after, the law practice effects the withdrawal and the practice must retain the written confirmation as a permanent record;
(iii) the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person, and
(b) if, before effecting the withdrawal, the practice gives or sends to the person a request for payment in reference to the proposed withdrawal or a written notice of withdrawal.
154 Alternatively, the practice may withdraw the trust money if:
(a) it has given the person a bill relating to that money, and
(b) if:
(i) the person has not objected to the withdrawal within seven days of receipt of the bill; or
(ii) the person has objected within seven days after receipt of the bill but has not applied for a review of the legal costs under the Act within 60 days of receipt of the bill; or
(iii) the money otherwise becomes legally payable.
155 In the present case, there was no evidence of:
· A cost agreement between Delahunty and Cook
· A written direction to pay or written confirmation of authority to withdraw the money by or on behalf of Mrs Cook
· A bill of costs being sent to Mrs Cook or her attorneys
Accordingly, I find that Delahunty has prima facie breached, or not complied with, the Act. He has caused a deficiency in the trust account. He has taken money without authority and failed to pay or deliver to Mrs Cook’s estate the full amount of trust money which ought properly to have been in the trust account.
Fiduciary duty
156 Because Delahunty held a joint power of attorney from Mrs Cook, his relationship with her was fiduciary in nature. To the extent that there existed a solicitor/client relationship between them, it was also fiduciary in nature. It is commonly accepted that trustees cannot place themselves in a position where they have interests which conflict, or might possibly conflict, with the duties which they are required to discharge towards the beneficiaries of the trust unless they have the fully informed consent of the beneficiaries, the sanction of the court or the transaction is authorised by the terms of the trust instrument. Trustees who place themselves in a position of conflict must account for any profit which is made therefrom or from any property thereby acquired.
157 Similarly, fiduciaries cannot make a profit by reason of holding a position of trust without disclosure to, and consent from, the beneficiary, the sanction of the court, or the authorisation of the trust instrument. A trustee who derives a benefit from the trusteeship will be liable to account to the beneficiary for the benefit received.
158 Here, the evidence disclosed that:
· The power of attorney document contained no clause authorising Delahunty or Drake to transfer money held on trust to their own individual benefit
· There was no written document signed by or on behalf of Mrs Cook authorising Delahunty or Drake to transfer money held on trust to their own individual benefit
· There was no written agreement between Delahunty and Mrs Cook setting out his role and responsibilities as an attorney and the rates which he would charge to perform that role
· There was no written document seeking authority from, or the fully informed consent of, Mrs Cook or her attorneys to the transfer of funds to Delahunty
· Delahunty sent to Mrs Cook and Dr Drake as the other joint attorney no tax invoice or memorandum setting out precisely the work done, time spent, and costs to be paid for the services he rendered to Mrs Cook
159 On these facts, I find that Delahunty prima facie breached his fiduciary duty to Mrs Cook and is liable to account for the funds which he impermissibly took from the trust account.
Breach of trust
160 As a trustee, Delahunty was subject to the same duties as a fiduciary to avoid conflicts of interest with Mrs Cook and not to profit from his position as trustee. Delahunty could not take money from the trust account without the fully informed consent of Mrs Cook or her attorneys. Again, for the reasons already given, due to the absence of informed consent given by or on behalf of Mrs Cook, Delahunty acted in breach of trust in taking the trust funds and is obliged to account for the money taken.
161 I have set out in detail above why I do not accept there was an express or implied agreement for Cook to pay Delahunty $150 per hour, per week.[77] However, with respect to Delahunty’s breaches of the Act and Regulations, fiduciary duties and trust duties, I note the following relevant observations.
[77]See paragraphs 118 to 127.
162 First, it was open to Delahunty to explain the situation to the joint attorney, Dr Drake, and obtain his informed consent to Delahunty paying himself from the funds in the trust account. There was no evidence from either Delahunty or Dr Drake to the effect that Delahunty sought to do this.
163 Dr Drake’s evidence, which I accept, was that when a medical decision involving expenditure had to be made regarding Mrs Cook, he would discuss the need to spend money with Delahunty, and once Delahunty informed him about Mrs Cook’s financial position, they would decide whether to proceed with the treatment or therapy. Dr Drake did not say that the same procedure was followed by Delahunty in relation to non-medical expenditure. Dr Drake did not have any interest or involvement in the administration of Mrs Cook’s financial affairs other than when consulting with Delahunty about aspects of Mrs Cook’s medical condition. Dr Drake said he could not recall ever being asked to sign an authority for Delahunty to withdraw funds from the trust account. He said that he did not inquire about Delahunty’s remuneration for acting as an attorney. Dr Drake said that Delahunty never sent him any correspondence asking for approval for the payment of expenses or reimbursement of expenses to him, advising him that Delahunty was withdrawing money from the trust account, or stating that Mrs Cook agreed to pay him $150 per week for services rendered.
Other matters
Defendant’s allegation of pleading default
164 A consistent theme in Delahunty’s case was that the Board’s pleadings and case were flawed because the Board failed to plead and prove a pecuniary loss arising from a default as defined in the Act. Delahunty submitted that unless the Board identified a default, it was impossible for the court to determine whether the rights and remedies claimed in paragraphs 11-36 of the Amended Statement of Claim were in relation to a claimed default or something else. Delahunty made much of the Board’s failure to allege dishonesty against him and referred to the comments of Kyrou J in the receivership proceeding that he found Delahunty’s actions explicable by his ignorance of his legal obligations. The judge did not find him to be dishonest.
165 The Court of Appeal in Delahunty v Victorian Legal Services Board,[78] dealt with Delahunty’s appeal from the decision of Judge Macnamara, who determined a preliminary question adversely to Delahunty. The question was:[79]
[78][2017] VSCA 327.
[79]Ibid at [15].
In this proceeding where the Board:
(a)alleges the claimants [viz the executors of Ms Cook’s Estate] (as defined in paragraph 4 of the Statement of Claim) made a claim on the Fidelity Fund in respect of pecuniary loss arising from the acts or omissions of the defendant (‘the claim’); and
(b)asserts that it has been subrogated under s 3.6.19(1) of the Legal Profession Act 2004 (Vic) (‘the Act’) to the rights and remedies of the claimants against any person in relation to the default to which the claim relates;
does the Board need to establish that any alleged default to which the claim relates arose from or was constituted by an act [or] omission that involved dishonesty (as referred to in the definition of ‘default’ in s 3.6.2 of the Act)?
166 Judge Macnamara rejected Delahunty’s contention that there must be symmetry between the proofs necessary on the one hand, to establish a claim for payment out of the Fund and, on the other hand, to make good a claim against a practitioner involved under the Board’s power of subrogation and answered the question in the negative.
167 The Court of Appeal, after examining Delahunty’s contentions in some detail, concluded that, in exercising rights of subrogation under the Act, it was unnecessary for the Board to allege and prove as an element of the claim against Delahunty any dishonesty on his part.[80]
[80]Ibid at [34].
168 In the circumstances, I consider there is no substance in Delahunty’s argument that the Board in this case needed to plead and prove a dishonest act or omission by Delahunty.
Court Book dispute
169 At the conclusion of Delahunty’s evidence, and prior to final submissions, I raised the issue of the contents of the Court Book. I noted that a large part of the Court Book consisted of the “Cook No 2 file”, namely the file kept by Delahunty between 2003 and 2012 in relation to work he did for Mrs Cook. The Cook No 2 file comprised page numbers 321 to 1159, over a third of the total 2,098 pages of the Court Book.
170 Delahunty’s lawyer said initially that, although he had not intended to take his client to every document in the Cook No 2 file, the file was tendered as a whole to represent the “body of work”, and accordingly, should stand as a record of the work Delahunty undertook as attorney for Mrs Cook.
171 I asked Delahunty’s lawyer what the point was of having documents in the Court Book that I did not need to consider. Matthew Delahunty said that the documents in the Cook No 2 file were relevant in determining whether Delahunty did the work as attorney during the relevant timeframe. I then asked the parties whether it was disputed that Delahunty did the work he claimed. Counsel for the Board replied that it was not disputed that Delahunty did certain things, but what those things were and how they should be categorised were in issue in the proceeding.
172 After further clarification of both parties’ positions on this issue, Delahunty’s lawyer conceded, in circumstances where there was no actual challenge to the proposition that Delahunty performed certain work, only those documents that were expressly referred to should remain.
173 Following closing submissions, I directed Delahunty’s lawyer to send to the Court by 4:00pm the following day a reference to any other pages of the Cook No 2 file that he considered should be included in the evidence. In accordance with that direction, Delahunty’s lawyer sent by email a list agreed between the parties of the documents in the Cook No 2 file that should remain in the Court Book.
174 Accordingly, the contents of the Court Book said to comprise the evidence in the proceeding was ultimately agreed upon by the parties.
Conclusion
175 Having regard to the above matters, subject to hearing from the parties, I propose to order that the Board is entitled to judgment. I will hear the parties on the form of final order and costs.
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