ACT CIVIL & ADMINISTRATIVE TRIBUNAL

COUNCIL OF THE LAW SOCIETY OF THE ACT v LEGAL PRACTITIONER 12 (Occupational Discipline) [2017] ACAT 52

OR 12/2016

Catchwords: OCCUPATIONAL DISCIPLINE – legal practitioner – Application by Law Society of ACT under S419 of Legal Profession Act 2006 – hearing of 5 allegations of misconduct – submission of ‘no case to answer’ at close of applicant’s case regarding each allegation – May v O’Sullivan [1955] HCA 38 – consideration of evidence – one allegation dismissed

Legislation cited: Legal Profession Act 2006 ss 261 283, 285, 287, 383, 419

Cases cited:Brereton v Legal Services Commissioner [2010] VSC 378Briginshaw v Briginshaw (1938) 60 CLR 336Council of the Law Society of NSW v Simpson [2011] NSWADT 242May v O’Sullivan [1955] HCA 38

Tribunal: Senior Member G Lunney SCMember R Vassarotti

Date of Orders: 7 July 2017Date of Reasons for Decision: 7 July 2017

AUSTRALIAN CAPITAL TERRITORY )CIVIL & ADMINISTRATIVE TRIBUNAL ) OR 12/2016

BETWEEN:

COUNCIL OF THE LAW SOCIETY OF THE ACTApplicant

AND:LEGAL PRACTITIONER 12

Respondent

TRIBUNAL: Senior Member G Lunney SCMember R Vassarotti

DATE: 7 July 2017

ORDER

The Tribunal orders that:

1. Charge 1 is dismissed.

2. Charges 2, 2A, 3, and 3A should be listed for directions including setting

down for continuation of hearing of those charges.

………………………………..Senior Member G Lunney SC

Delivered for and on behalf of the Tribunal

REASONS FOR DECISION

Introduction

1. The Council of the Law Society of the Australian Capital Territory (the

applicant) brought disciplinary proceedings against the legal practitioner (the

respondent) pursuant to section 419 of the Legal Profession Act 2006 (the

LPA). After determination of an application in proceedings, the hearing of the

application for disciplinary orders commenced on 2 March 2017 by the

applicant opening its case, tendering its evidence, and closing its case.

2. At the close of the applicant’s case, the respondent made an oral application, that

“there was no case to answer.” After some discussion regarding the

practicalities of that procedure in disciplinary proceedings in this tribunal, the

hearing of that application was commenced and concluded the next day with

directions being given regarding the filing of written submissions. During the

course of the proceedings it was determined by the Tribunal that the respondent

should not be put to an election as to whether to call evidence prior to making

the application. This decision relates to determination of the ‘no case to answer’

submission made by the respondent.

Background

3. The respondent was an experienced practitioner working for a local firm (the

firm) whose work included personal injury cases. The firm took over work for a

client of another firm (the outgoing firm) and the respondent became the

responsible solicitor acting for him. The client had sustained injury in a motor

vehicle accident which occurred in the course of his employment. Shortly after

taking over, the firm commenced two workers’ compensation proceedings in the

ACT Magistrates Court one of which was settled on a nominal basis.

4. The outgoing firm had a written fees agreement with the client.1 It contained a

term which arguably gave the firm the option to charge on a contingency basis

contrary to section 285 of the LPA. During negotiations to take over the client’s

work, the respondent wrote to the client and told him that he confirmed that the

firm would continue to prosecute the client’s claim on the same basis as the

outgoing firm and that “your matter will be handled on a no-win no-fee basis

1 Court Book volume 1 of 2 filed on 6 December 2016 by the applicant page 17

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and your liability to pay our legal costs will only arise if your matter is

successful.”2

5. The respondent continued to communicate with the client and wrote a long letter

to him on 9 November 2010 setting out the present situation with his claims,

and attaching some authorities for signature, and a copy of the fees agreement

with the outgoing firm. The covering letter included the following statement:

We confirm that we will continue to prosecute your matters on the same basis as [the outgoing firm]. Enclosed is a copy of the costs agreement which you signed with [the outgoing firm] on 9 February 2009. We hereby adopt the terms and conditions of the above retainer.

6. A settlement conference was held on 28 June 2011 where all outstanding matters

were settled either on an inclusive of legal costs basis, or costs agreed basis.

After payment of necessary deductions from the motor vehicle accident

settlement sum, the balance was paid into the firm’s trust account. The firm

agreed to pay the outgoing firm’s legal costs out of the settlement sum, and the

client asked the respondent to attempt to get them to reduce their claim for

costs. They agreed to do so and the costs of the outgoing firm were paid out at

an agreed reduced amount. The firm’s costs were also paid out of the trust

account.

7. The client (hereafter called the complainant) complained that he was charged

more than the amount of costs which he had agreed with a partner of the firm.

The complaint was investigated by the applicant and referred to the tribunal.

When the application was first made, there were three charges. Two of these

were modified in the course of the hearing.

The proceedings

8. Proceedings were originally commenced by the applicant on 20 July 2016. The

application has been amended since with the last amendment being dated

7 March 2017 and filed on the same date.

9. The application sets out the facts and circumstances said to give rise to the

application, which is made pursuant to section 419 of the LPA. That statement

of the factual basis of the claim is set out in a series of numbered paragraphs

2 Court Book volume 1 page 50

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which form a preamble to the charges said to arise out of the factual material.

Originally it concluded with three allegations of conduct which are termed

charges in the application, but which now number five, after two of the original

charges were each divided into two charges in order to avoid the possibility of

duplicity.

10. The five charges are set out in paragraphs [12]-[15] below. The paragraphs of the

preamble preceding the charges are numbered and references to that numbering

appears in the body of the charges. The relevant parts of the preamble are

referred to in more detail later in this decision.

Charge 1: Entering into a contingency fee agreement

11. By reason of the matters pleaded in paragraphs 16 to 29 (of the preamble) the

respondent, who had carriage of (the complainant’s) matter (and by reason of

the matters in paragraphs 1 to 3 and 17 above) breached his duty to ensure that

he was satisfied that the terms of a costs agreement under which the amount

payable by (the complainant) to (the firm) was not an agreement made in breach

of the Act, relevantly in this case, section 285(1) of the Act, by entering into

(the CFCA as defined in paragraph [22] following) that included clauses 5(a)(i)

and 6(2) of that agreement, which provided that (the firm) was entitled to elect

to charge as the amount payable to (the firm) an amount worked out by

reference to the amount of any award or settlement that may be recovered in any

proceeding to which the agreement related.

Charge 2: Disbursing trust money in breach of (the complainant’s) direction

12. By reason of the matters pleaded in paragraphs 30 to 52 the respondent breached

section 223 of the Act by causing the disbursement of trust money from the trust

account contrary to (the complainant’s) instructions by causing (the firm) to

withdraw $22,378.14 on 30 August 2011 from the trust account on account of

(the firm’s) costs.

Charge 2A: Disbursing trust money in breach of (the client’s) direction

13. By reason of the matters pleaded in paragraphs 30 to 52 the respondent breached

section 223 of the Act by causing the disbursement of trust money from the trust

account contrary to (the complainant’s) instructions by causing (the firm) to

withdraw a total of $47,096.78 for (the firm’s) and (the outgoing firm’s) costs,

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and disbursements when the client had only authorised the withdrawal by (the

firm) from its trust account the total sum of $42,000.00 for all costs and

disbursement inclusive of (the outgoing firm’s) costs.

Charge 3: Misappropriating $5096.78 from the trust account

14. By reason of the matters pleaded in 30 to 53 the respondent breached section 223

of the Act by causing (the firm) to misappropriate from the client the sum of

$5093.78 from the trust account by causing (the firm) to withdraw $22,278.14

on 30 August 2011 from the trust account on account of (the firm’s) costs.

Charge 3A: Misappropriating $5096.78 from the trust account

15. By reason of the matters pleaded in 30 to 53 the respondent breached section 223

of the Act by causing (the firm) to misappropriate from the client the sum of

$5096.78 for (the firm) and (the outgoing firm’s) costs, and disbursements when

the client had only authorised the withdrawal by (the firm) from the trust

account the total sum of $42,000.00 for all costs and disbursements inclusive of

(the outgoing firm’s) costs.

16. The application came on for hearing on 2 March 2017. The applicant called its

evidence, closed its case, and at that time the respondent made his submission of

‘no case to answer’.

17. The issues involved when an application for ‘no case to answer’ is made were

referred to by the High Court in the 1955 case of May v O’Sullivan [1955] HCA

38. It was an appeal against a conviction in a criminal case. An issue in the case

was whether upon the prosecution establishing a prima facie case, an

evidentiary burden passed to the defendant to explain or answer the case at that

stage established by the prosecution. It was found that it did not. However, the

Court referred to and explained the process of the submission of ‘no case to

answer’ made at the close of the prosecution case.

18. Being a criminal case, it did not deal with the issue of whether a party making a

‘no case to answer’ submission should be put to an election in relation to calling

evidence in civil proceedings. The Tribunal determined in the course of the

proceedings that the respondent should not be put to such an election, taking the

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view that to do so was not consistent with the general procedures and purposes

of the Tribunal.

19. At paragraph 7 of the reported decision, the Court said the following:

7. When, at the close of the case for the prosecution, a submission is made that there is “no case to answer”, the question to be decided is not whether on the evidence as it stands the defendant ought to be convicted, but whether on the evidence as it stands he could lawfully be convicted. This is really a question of law. Unless there is some special statutory provision on the subject, a ruling that there is a "case to answer" has no effect whatever on the onus of proof, which rests on the prosecution from beginning to end. After the prosecution has adduced evidence sufficient to support proof of the issue, the defendant may or may not call evidence.

20. The task for the Tribunal is therefore to determine whether on the evidence led by

the applicant, the charges proffered by the applicant could be made out.

Charge 1

21. In the preamble to the charges it was alleged that the complainant and the

outgoing firm entered into a costs agreement on or about 22 January 2009. It

was alleged that it was a contingency fee agreement which contained a clause

which allowed the outgoing firm to charge a sum worked out by reference to the

amount of any award or settlement in breach of section 285(1) of the LPA

which prohibits contingency fee agreements.

22. The preamble went on to allege that the firm entered into a new contract relating

to fees with the complainant which will be referred to in this decision as ‘the

Complainant/Firm Conditional Costs Agreement’ (CFCA). That agreement

contained the same terms as the previous complainant/outgoing firm costs

agreement. It alleged that the CFCA contravened or was entered into in

contravention of section 285 of the LPA and was void.3

23. The preamble continued to assert that the respondent had a duty to ensure that he

was satisfied that the terms of a costs agreement under which the amount

payable by the complainant to the firm was not an agreement made in breach of

the LPA, relevantly section 285.

3 Section 287 of the LPA

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24. The evidence called by the applicant included the two letters referred to above, a

copy of the executed fees agreement with the outgoing firm, evidence of the

respondent’s qualifications and experience, and the firm’s file which contained

copies of correspondence and accounting records.

25. At the close of the applicant’s case, the respondent’s counsel commenced his ‘no

case’ submission. At the outset4 he submitted that a conditional costs agreement

could not have been created as asserted because of the provisions of section 283

of the LPA requiring such an agreement to be in writing and signed by the

client. A new costs agreement could not have been created in the same terms as

the previous one.

26. The applicant submitted that it did not allege that the agreement formed was a

valid conditional costs agreement, but a purported costs agreement which did

not have to comply with the provisions of section 283 of the LPA, but complied

with section 282 of that Act. It was not alleged that it was a valid costs

agreement, but an invalid one which was a contingency agreement for the

purposes of section 285 of the Act.

27. Counsel for the respondent provided an outline of the no case submission on

3 March 2017. In relation to charge 1, the outline was brief and referred to the

duty set out as having two elements: the duty and the breach. Counsel submitted

as follows:

In respect of the first element, the law knows no such duty. It is not apparent on the face of any statute, legal professional rules or regulations (see in particular that referred to (in) paragraph 54 of the Amended Application) and it does not exist at common law. Element 1 cannot be made out.

In respect of the second element, as there is no Duty there can be no breach. Element 2 cannot be made out.

28. It was also submitted by the respondent that in the outgoing firm’s costs

agreement. the payment of costs was conditional on the successful outcome of

the litigation, and for it to be imported into another and new agreement between

the complainant and the firm, the formal requirements of section 283(3)(c)

would have had to have been complied with and this had not been done. The

4 Transcript of Proceedings 2 March 2017 page 52

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evidence was therefore incapable of establishing that a costs agreement in the

terms alleged was entered into, and therefore charge 1 was not made out.

29. In submissions by counsel during the hearing on 3 March 2017, the submission

that there was no duty was repeated. The following was said:

Now if that proposition is correct then obviously if there’s no such duty there can be no breach and it’s as simple as that. And it can’t be met by a proposition that - well, somehow or other, we really didn’t mean it that way. We meant that you needed to infer there is such a duty from the existence of other duties. That’s not the charge and one would have to identify the existence of a duty and then identify how it was breached.5

30. Counsel expanded on the submission that the respondent purportedly adopted the

agreement made with the outgoing firm and its conditional nature attracted the

provisions of section 283 and these were not complied with, and counsel

concluded his submissions of this topic with the following:

So the evidence adduced by the applicant is incapable of proving that a costs agreement in the terms alleged - and the terms alleged are a conditional costs agreement in the form of the [outgoing firm’s] costs agreement was entered into. The evidence is simply incapable of establishing that the relevant clauses complained of formed part of the agreement into between [the complainant] and the respondent for and on behalf of his firm. That doesn’t mean there wasn’t an agreement of some kind but it did not – the agreement did not contain any allegedly offensive term 6

31. He went on to concede that there was some kind of fees agreement.

32. The respondent filed further submissions in reply dated 24 March 2017, however

these did not deal with charge 1.

33. The respondent filed written submissions in reply on 13 April 2017 after the

applicant’s written submissions were filed on 4 April 2017. Those submissions

related to the duty alleged in charge 1, and did not repeat or refer to the

argument based on section 283 of the LPA.

34. The applicant had filed an outline of argument in response to the respondent’s no

case argument dated 3 March 2017. It was very brief in dealing with charge 1. It

identified that the respondent was arguing that the 9 November 2010 letter from

5 Transcript of Proceedings 3 March 2017 page 906 Transcript of Proceedings 3 March 2017 page 93

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the firm to the complainant proposing to adopt the terms and conditions of the

outgoing firm’s costs agreement, was not capable of meeting the formal

requirements of a conditional costs agreement and as such no conditional costs

agreement had been entered into. They pointed out that the respondent in

submissions had not addressed the allegation in the charge that the

complainant/firm costs agreement was a contingency agreement.

35. The applicant filed further written submissions in response to the respondent’s no

case argument dated 3 April 2017 on 4 April 2017. The submissions included a

further explanation of the duty, and emphasised a practitioner’s duty to obey the

law; and a duty of loyalty to his or her client.

Charge 1 consideration

36. The Tribunal does not find the charge easy to interpret, but does so as follows.

(a) The respondent was under a duty to the complainant to be satisfied that

the fees agreement entered into between the complainant and the firm was

not in breach of the LPA.

(b) That fees agreement would be in breach of section 285 of that Act if it

contained terms the same as clauses 5(a)(i) and 6(2) of the outgoing firm’s

agreement that he had previously signed.

(c) The respondent had caused the complainant and the firm to enter into a

new contract which incorporated those terms.

(d) The respondent had breached the duty referred to by doing so.

37. The respondent raises section 283(3) of the LPA. Section 283 is reproduced in full

below.

283 Conditional costs agreements (1) A costs agreement may provide that the payment of some or all of the legal

costs is conditional on the successful outcome of the matter to which the costs relate.Note 1 This is a conditional costs agreement (see s 261, def conditional costs

agreement).

Note 2 The Civil Law (Wrongs) Act 2002, pt 14.1 (Maximum costs for certain personal injury damages claims) and pt 14.2 (Costs in damages claims if no reasonable prospects of success) contain limitations on legal costs.

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(2) A conditional costs agreement may relate to any matter, except a matter that involves a criminal proceeding or a proceeding under the Family Law Act 1975 (Cwlth).

(3) A conditional costs agreement—(a) must set out the circumstances that constitute the successful outcome

of the matter to which it relates; and(b) may provide for disbursements to be paid irrespective of the outcome

of the matter; and(c) must be—

(i) in writing; and(ii) in clear plain language; and

(iii) signed by the client; and(d) must contain a statement that the client has been told of the client’s

right to seek independent legal advice before entering into the agreement; and

(e) must contain a cooling-off period of not less than 5 business days during which the client may, by written notice, terminate the agreement.

(4) Subsection (3) (c) (iii), (d) and (e) do not apply to a conditional costs agreement made under section 282 (1) (c) (which are costs agreements between law practices).

(5) Subsection (3) (c) (iii), (d) and (e) also do not apply to a conditional costs agreement made with a sophisticated client.

(6) If a client terminates a conditional costs agreement within the period mentioned in subsection (3) (e), the law practice—(a) may recover only the legal costs in relation to legal services

performed for the client before the termination that were performed on the instructions of the client and with the client’s knowledge that the legal services would be performed during the period; and

(b) without limiting paragraph (a), may not recover the uplift fee (if any).

38. Charge 1 alleges that a new fees agreement was formed when the respondent

wrote to the complainant enclosing a copy of the original fees agreement and

purported to incorporate the terms and conditions of it and then continued to act

for the complainant.7 It is directly alleged that the contract that was then formed

incorporated the terms of the previous contract which included terms identifying

it as a conditional fees agreement. The evidence may establish that there was a

new fees agreement as defined by section 261 formed at some time. However,

the charge is not only specific as to the method of formation, but also as to the

formal terms incorporated into it.

7 Further amended application filed by the respondent on 7 March 2017 (FAA) at [18] to [20]

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39. The respondent in his letter of 9 November 2010 attempted by a short cut method

to incorporate the terms of the previous fees agreement into a new agreement

between the firm and the complainant. In order to do that, the terms of section

283 of the LPA had to be complied with. The preamble paragraphs 16 to 29

referred to in charge 1 and charge 1 itself are specific as to the method of

formation and terms of the new agreement alleged. There was no evidence that

sub-section 283(3)(c) had been complied with in formation of the agreement

alleged. Absent that evidence formation of the contract alleged cannot be

established. Charge 1 on the applicant’s evidence is not capable of being proven

and the charge must be dismissed.

40. For the purposes of the ‘no case’ submission it is unnecessary to investigate

whether and what fees agreement existed between the complainant and the firm.

In relation to the respondent’s submissions relating to duty, the applicant’s

submissions indicate there is evidence and legal submissions based on that

evidence which indicate the issue should be dealt with at a final hearing.

Therefore, the Tribunal concludes that the ‘no case’ submission would not be

upheld on that issue.

Charges 2 and 2A

41. Charges 2 and 2A were formulated in the FAA of 7 March 2017 after the hearing

on 2 and 3 March 2017 when the respondent alleged that the then charges were

duplicitous.

42. The respondent made his first submissions relating to the split charges in the

written submissions of 24 March 2017.

43. In relation to charge 2 the respondent8 noted that the complainant wanted to have

the outgoing firm reduce its costs by $5,000.00. The agreement referred to in

the letter of 19 July 2011 authorised the withdrawal of $42,000.00 being costs

and disbursements in respect of the motor vehicle accident claim. The

submission continues that $22,378.14 was withdrawn on 30 August 2011 which

was in accordance with the authority to disburse $42,000.00, and the applicant’s

evidence at its highest is incapable of making out charge 2 since the amount

withdrawn for costs was covered by the amount of the authority.

8 Respondent’s submissions dated 24 March 2017 at [10]

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44. In relation to charge 2A, the respondent refers to NSW authority and to

regulations 57 and 58 of the ACT Workers’ Compensation Regulation 2002 and

submits that the firm was entitled to be paid the workers’ compensation agreed

costs. In particular he submits that by virtue of the NSW authorities and in

particular clause 57 of the Workers Compensation Regulation 2002, the

workers’ compensation costs paid into the trust account were a debt payable by

the insurer to the firm. They trace the payments to and from the trust account to

the final payment of $20,149.22 to the complainant on 14 September 2011, and

submit that the evidence is incapable of establishing charge 2A.

45. The respondent returned to the same topic in the submissions filed 13 April 2017.

They repeat the interpretation of the 19 July 2011 agreement in strong terms.

Consideration

46. In relation to charges 2 and 2A, the following evidence was given in the

applicant’s case.

(a) There were settlement instructions signed by the complainant on 5 July

2011 relating to a motor vehicle claim and a workers’ compensation claim

as described there. The authority refers to legal costs for the two matters

amounting to $47,000.00 including all disbursements paid, counsel fees,

the firm’s fees, and the outgoing firm’s fees.

(b) There were telephone conversations between the complainant and a

partner in the firm at which an agreement regarding costs payable by the

complainant was made. This agreement was confirmed by the partner in a

letter of 19 July 2011 from the firm to the complainant. The letter refers to

an agreement that all legal costs and disbursements would be $42,000.00.

(c) The firm’s trust ledger9 is evidence that $225,246.00 was received into the

trust account on 23 August 2011, being the residue of the settlement

monies after some necessary repayments. From that amount, $180,000.00

was paid out to the complainant on 24 August 2011. Thereafter on

30 August 2011 $8,318.64 was paid out for disbursements and $22,378.14

to the firm’s office account for costs, and on 14 September 2011 the

9 Court Book volume 2 of 2 filed 6 December 2016, page 390

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outgoing firm’s costs of $16,400.00 was paid out, which amounts total

$47,096.78.

(d) The trust ledger10 shows the receipt into the trust account of the

$12,000.00 workers’ compensation costs on 6 September 2011 and

$10,000.00 settlement proceeds on 9 September 2011 from the insurer.

Those amounts were disbursed with the then residue of the account to

meet the outgoing firm’s costs and the residue was paid to the

complainant leaving a nil balance.

47. The parties have pressed competing interpretations on the agreement confirmed in

the letter of 19 July 2011. The applicant in paragraph 33 of the FAA refers to

total costs, and the respondent in the submissions filed on 27 March refers to

costs and disbursements of the motor vehicle accident claim. However, on the

threshold issue of whether there is evidence which could establish the charge, it

is the Tribunal’s view that the evidence referred to above, if accepted, could

establish either of the charges 2 or 2A on the basis that the 19 July 2011

agreement related to total costs and disbursements together with the outgoing

firm’s costs. The respondent’s submissions relating to the entitlement to pay out

the costs as at the 30 August 2011 is controversial because of interpretation of

the letter of 19 July 2011 and the contingent outstanding costs at the time.

Submissions by the respondent and answered by the applicant relating to the

status of the workers’ compensation costs including analysis of NSW authorities

are controversial issues of law. These issues should, if pressed, be dealt with at

an eventual hearing. Depending on the determination of those issues the

evidence could support a finding that either of the two charges is made out.

48. The respondent’s submission is rejected in relation to charges 2 and 2A.

Charges 3 and 3A

49. Paragraphs 30 to 52 of the preamble to the application are the paragraphs said to

give rise to charges 2 and 2A and appear under the heading: ‘Part 2: Withdrawal

of monies in breach of Trust’. The paragraphs set out the history of receipt and

disbursement of funds into and from the firm’s trust account. Paragraph 53 is

the sole paragraph which deals with charges 3 and 3A. It reads as follows:

10 Court Book volume 2 of 2 filed 6 December 2016, page 390

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53. Further, by reason of the matters pleaded in paragraphs 36 to 45 above the respondent caused [the firm] to misappropriate from the client the sum of $5096.78 from [the firm’s] general trust account.

50. Submissions from both parties concentrated on the meaning of ‘misappropriate’

and the evidence required to demonstrate it.

51. The respondent in his submissions of 3 March 2017, prepared before the charges

were amended in response to the duplicity allegation, submitted that

misappropriation connoted intentional wrongdoing, and referred to Brereton v

Legal Services Commissioner [2010] VSC 378 (Brereton), a case he returns to

in later submissions. He also referred to Council of the Law Society of NSW v

Simpson [2011] NSWADT 242 where Brereton is discussed. He submitted that

there was no evidence of intentional wrongdoing. Counsel further suggested that

(the then charge 3) was predicated on charge 2 which when not made out

prevented charge 3 being so too. This assertion was repeated in his submissions

of 24 March 2017.

52. In the applicant’s submissions of 3 March 2017, counsel dealt with charges (as

they then were) 2 and 3 together but did not deal with the ‘misappropriation’

issue.

53. However, in the applicant’s submissions filed on 4 April 2017 case of Brereton

was also referred to. The applicant submitted that it was not necessary to prove

intentional wrongdoing. Rather “what must be proven is that the conduct is

objectively dishonest”11; and, “objective dishonesty involves an assessment of

the whole of the evidence.”

54. The submissions continued, commencing at paragraph 90, to refer to the evidence

which it was submitted was capable of establishing charges 3 and 3A. This

commenced with the $42,000.00 costs conversation and confirmation of 19 July

2011; followed by a conversation between the complainant and the respondent

on about 12 August 2011 referred to in the affidavit of the complainant of

12 September 2016 in which the complainant said that he would not agree to a

total costs amount of $47,000.00; and, then the chronology of payments out of

the trust account previously referred to. The applicant submitted that this

11 Applicant’s submissions dated 3 April 2017 at [81]

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evidence was capable of establishing that the respondent’s conduct in disbursing

$5,000.00 more than agreed was objectively dishonest.

55. The respondent filed submissions in reply on 13 April 2017 answering those of

the applicant just referred to. The submissions then referred to Brereton, a

decision of Bell J in the Victorian Supreme Court in 2010. The respondent’s

submissions quoted from the judgment, and the Tribunal will enlarge the

quotation referred to by the respondent because it found it helpful in its

expanded form.

56. The practitioner in that case had been charged by the commissioner with

misappropriating trust money.

57. The following is taken from the judgment of Bell J:

WHAT IS MISAPPROPRIATION?

47. A term like misappropriation can have a particular meaning depending on the context. In the present case, the term was used in charge 5 by which the commissioner alleged that Mr Brereton, a practising lawyer, had committed misconduct at common law in that he had ‘misappropriated trust moneys’. Misappropriation has been used here to describe the legal character of conduct which, because it had that character, allegedly constituted misconduct at common law. The term is not used here in any special sense. No statutory definition of the term applies. Thus ‘misappropriated’ here refers to what would be misappropriation according to the ordinary meaning of that word.

48. The ordinary meaning of ‘misappropriate’ is to ‘appropriate to wrong uses; chiefly, to apply dishonestly to one’s own use (money belonging to another)’ (OED). Likewise, ‘misappropriation’ is appropriation to wrong uses (OED).

49. The legal dictionaries define ‘misappropriation’ consistently with that ordinary meaning. According to Jowitt’s Dictionary of English Law, misappropriation is:

the misdemeanour which is committed by a banker, factor, agent, trustee, etc., who fraudulently deals with money, goods, securities, etc., entrusted to him, or by a director or public officer of a corporation or company who fraudulently misapplies any of its property.

In Stroud’s Judicial Dictionary of Words and Phrases, ‘misappropriate’ is defined to mean ‘the wrongful conversion of or dealing with anything by the person to whom it was entrusted‘.

It follows that the word ‘misappropriation’ in its ordinary sense involves a mental element. Misappropriation is dishonestly misapplying property,

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including money, held on behalf of another. In the criminal context, misappropriation by and to the trustee personally is not a crime at common law because the trustee already has the property; but it is conduct which, but for that, would be theft. It is ‘stealing’ in another guise because it is wrongful appropriation by the trustee of property being held for another.

Because dishonesty is a mental element of misappropriation in its common law sense, it is necessary to consider what dishonesty means, remembering here we will be doing so in a civil context. The Court of Appeal examined what dishonesty meant in that context in Harle v Legal Practitioners Liability Committee. At issue was whether a solicitor was entitled to indemnity under an insurance policy which did not cover the ‘dishonesty or fraudulent act or omission of any insured’.

52As to the meaning of ‘dishonesty’, Chernov JA (Callaway and Buchanan JJA agreeing) held:

It seems clear enough that where, as here, dishonesty is not used in a special sense in relation to statutory offences, it is not a term of art and is to be given its ordinary meaning. It embraces deliberate conduct which is considered to be dishonest by the standard of ordinary decent people, or, put another way, the ordinary standards of reasonable and honest people. Whether particular conduct amounts to dishonesty involves the consideration of the mental state – the knowledge, belief or intention - of the person whose conduct is impugned.

While an allegation of dishonesty requires consideration of the person’s mental state, in neither the criminal nor the civil context is it necessary to establish that the person subjectively knew or believed that the actions concerned were dishonest. What must be established is that the person subjectively intended to do the acts which are said to be objectively dishonest by the ordinary standards of reasonable and honest people. Thus the course to be adopted in determining whether conduct is dishonest was explained by Toohey and Gaudron JJ in Peters v R as follows:

In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest … If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people.

The steps involved in this formulation are: (1) identify the knowledge, belief or intent which is said to render the acts dishonest; (2) determine

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whether the accused (or defendant in the civil context) subjectively had that knowledge, belief or intent; and (3) determine whether, on that account, the acts were objectively dishonest according to the standards of ordinary and decent (that is reasonable and honest) people.

When applying these principles in a civil case, the civil standard of proof on the balance of probabilities applies. Of course, where the allegation in a civil case is of misappropriation, a high standard of probability is required, due to the gravity of the allegation. In a criminal case, the criminal standard of proof beyond reasonable doubt applies.

This approach to identifying whether alleged conduct was dishonest was applied by the Court of Appeal in the civil insurance context in Harle v Legal Practitioners Liability Committee and by Layton J in the Supreme Court of South Australia in the lawyers’ disciplinary context in Legal Practitioners Conduct Board v Jones.

In the present case, the tribunal did not address the dishonesty issue. It did not identify the knowledge, belief or intent said to render the making of the payments by Mr Brereton dishonest. It did not determine whether he subjectively had that knowledge, belief or intent. It did not judge his actions in making the payments against the objective standard of dishonesty of reasonable and honest people. It found that Mr Brereton was guilty of misconduct at common law by having ‘misappropriated trust moneys’ and that he ‘well knew (or ought to have known)’ what his responsibilities were. It is the alternative state of mind – ‘ought to have known’ – that is the problem.

Generally, professional misconduct at common law is conduct which ‘would reasonably be regarded as disgraceful or dishonourable by solicitors of good repute and competency … Mere negligence, even of a serious character, will not suffice.’ Therefore the tribunal could not have found Mr Brereton guilty of misconduct at common law because he had failed to act in accordance with what he ‘ought to have known’. There had to be more than that. Yet the tribunal did not base its misconduct finding only on what Mr Brereton ‘well knew’, but on that and the alternative finding about what he ‘ought to have known’.

The state of knowledge, belief or intent associated with being negligent, incompetent and in reckless disregard of professional responsibilities is less than, and does not amount to, dishonesty, and is not sufficient to establish that a lawyer is guilty of misappropriation. Therefore, to find Mr Brereton guilty of misconduct based on misappropriation, the tribunal had to be satisfied to a high standard of proof that he knew he did not have authority to make the relevant payments, even assuming for present purposes that he did not have that authority. The tribunal did not do so, which was an error of law. In fact the reasoning of the tribunal under charge 4 compels the conclusion that he did have that authority, but I will deal with that under the next heading.

WHAT ORDERS SHOULD BE MADE ON APPEAL?As the tribunal erred in law in finding Mr Brereton guilty of misconduct at

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common law under charge 5, the tribunal’s orders in regard to that charge must be set aside. The parties are not in dispute about that issue. The parties are in dispute about the other orders which should be made. (footnotes omitted)

58. The respondent took issue with the applicant’s description of ‘objective

dishonesty’ and referred back to Peters v R quoted in Brereton where Bell J

referred to what must be established being “that the person subjectively

intended to do the acts which are said to be objectively dishonest by the

ordinary standards of reasonable and honest people.” The respondent also

alleged that the applicant had not formulated a charge as contemplated by

section 419(3) of the LPA which in the view of the Tribunal is an issue which if

the respondent wishes to pursue it should be raised formally at an eventual

hearing.

Consideration Charges 3 and 3A

59. The evidence which is relevant is:

(a) Evidence relating to the settlement conference culminating in the signed

‘Settlement Instructions’ of 5 July 2011.12

(b) Evidence relating to telephone conversations between the partner and the

complainant resulting in costs being agreed at $42,000.00 confirmed by

letter of 19 July 2011.13

(c) Evidence relating to a conversation between the respondent and the

complainant in which the complainant says the respondent asked him to

agree to costs of $47,000.00 which the complainant refused.

(d) Evidence of the general trust account ledger of the firm showing receipt of

balance of settlement monies of $225,246.00 on 23 (or 24) August 2011;

payment of part to the complainant; payment of disbursements and the

firm’s fees of $22,378.14; receipt of workers’ compensation proceeds

including costs; payment of the outgoing firm’s costs; and payment of the

balance of the settlement monies to the complainant.

60. The Tribunal’s task is to determine on the above evidence whether either of the

two charges could be made out. If the answer is ‘yes’ then at some stage a

12 Court Book 1, page 22113 Court Book 1, page 238

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decision will have to be made as to whether the charge should be found proven.

In doing so the Tribunal will have to attend to the standard of proof and the

decision in Briginshaw v Briginshaw (1938) 60 CLR 336, 361-363 per Dixon J.

61. In coming to its decision on this aspect of the application the Tribunal notes the

differing interpretations of the authorities taken by the parties in their

submissions. The Tribunal has set out a sizable quotation from the judgment of

Bell J in Brereton and has found guidance from the passages there. It is evident

from the submissions of the parties that there is controversy about the

interpretation of Brereton and other authorities referred to.

62. Whether or not either charge 3 or 3A is found made out will depend on

interpretation of the meaning and application of ‘misappropriation’ in the

circumstances found to exist, including the issues involved in charges 2 and 2A.

Depending on resolution of those issues, the evidence called by the applicant is

capable of establishing each charge.

63. The Tribunal finds that either of charges 3 and 3A could be found established on

the evidence led by the applicant and the respondent’s submission fails.

Orders

64. Charge 1 is dismissed.

65. Charges 2, 2A, 3, and 3A should be listed for directions including setting down

for continuation of hearing of those charges.

………………………………..Senior Member G Lunney SC

Delivered for and on behalf of the Tribunal

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HEARING DETAILS

FILE NUMBER: OR 12/2016

PARTIES, APPLICANT: Council of the Law Society of the ACT

PARTIES, RESPONDENT: Legal Practitioner 12

COUNSEL APPEARING, APPLICANT Mr Beaumont SC

COUNSEL APPEARING, RESPONDENT Mr Menzies QC

SOLICITORS FOR APPLICANT McInnis Wilson Lawyers

SOLICITORS FOR RESPONDENT Capital Lawyers

TRIBUNAL MEMBERS: Senior Member G Lunney SC, Member R Vassarotti

DATES OF HEARING: 2 March 2017

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