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Supreme Court of the ACT Decisions |
COURT
IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORYCATCHWORDS
Legal Practitioners - disciplinary proceedings - fiduciary obligations of solicitors - retention of moneys in solicitors' office account of moneys received for purpose of paying disbursements - whether so authorised by informed consent of client - breach of fiduciary obligation - failure of solicitors to understand and discharge obligation - professional misconduct.
Legal Practitioners - disciplinary proceedings - fiduciary obligations of solicitors - speculative actions for personal injuries - conflict of interests - failure of solicitors to understand and discharge obligations - professional misconduct.
Legal Practitioners - disciplinary proceedings - fiduciary obligations of solicitors - settlement of personal injuries claims inclusive of costs - conflict of interests - failure of solicitors to understand and discharge obligations - professional misconduct.
Legal Practitioners - disciplinary proceedings - solicitors' delay in paying counsel when put in funds for that purpose - whether delay can amount to professional misconduct.
Legal Practitioners - disciplinary proceedings - delay in paying disbursements - withholding cheques drawn for payment of disbursements - failure to keep proper accounting records - professional misconduct.
Legal Practitioners Act 1970 (ACT)
Re Grosse (unreported, 22 February 1996)
Re Gruzman (1968) 70 SR (NSW) 316Tribunal, 23 December 1995)
Meinhard v Salmon (1928) 164 NE 545 at 546 (Cardozo J)
Finn, Fiduciary Obligations 1977, at 4
Carver v. Legal Professional Disciplinary Tribunal (1991) 7 LPDR 8
Re Boyne Wood and Radin (unreported, Legal Professional Disciplinary
Re Nelson [1991] ACTSC 111; (1991) 106 ACTR 1and the Law Society of the Australian Capital Territory [1991] ACTSC 33; (1991) 103 ACTR 1
Re Legal Practitioners Act 1970 and re an application between a solicitor
Barclays Bank Ltd v. Quistclose Investments Ltd [1968] UKHL 4; (1970) AC 567
Clyne v. The New South Wales Bar Association [1960] HCA 40; (1960) 104 CLR 186
Wallersteiner v. Moir (No. 2) (1975) 2 WLR 389
Pittman v. Prudential Deposit Bank Ltd. (1896) 13 TLR 110
New South Wales Practice Note of 13 June 1967
Ritchie's Supreme Court Practice (NSW) at para.8694
McLennan v. Phelps and Another (1967) 86 WN 86 at 88
Beavan v. Pengelley (1967) 86 WN (Pt. 1) NSW) 90
Sztockman v. Taylor (1979) VR 572
Cordery on Solicitors (8th ed) at 99
Hichens, Harrison, Woolston and Co. v. Jackson and Sons (1943) AC 266
Bowstead on Agency, 15th ed. 1985 at 441
Re Hodgekiss (1962) 79 WN (NSW) 163
Re Farman (1883) L.Jo. 352
Re M, a Solicitor (1938) St. R. Qd. 454
HEARING
CANBERRA, 22, 23, 24 and 26 April 1996
Counsel for the applicant: Mr. R.R. Stitt QC
with Mr. G.C. Lindsay SC
Solicitors for the applicant: Phelps Reid
Counsel for the respondents: Mr Conti QC with Mr W. Haffenden
Solicitors for the respondents: Abbott Tout Harper Blain
ORDER
THE COURT ORDERS THAT:DECISION
MILES CJ, GALLOP and HIGGINS JJ Gary Alan Robb and Gerard Peter Rees, legal practitioners admitted to practise by and in this Court come before it in response to an application by the Law Society of the Australian Capital Territory that they show cause why they should not be dealt with for professional misconduct or conduct unbefitting a barrister and solicitor.
2. The formal allegations made on behalf of the Law Society against Messrs
Robb and Rees (the solicitors) were made under three heads
as follows:
1. The solicitors wilfully failed to comply with the Legal3. Particulars of these allegations were furnished and may be dealt with as appropriate during the course of these reasons for judgment.
Practitioners Act 1970 (ACT) in that:
(a) contrary to s.87(1) and s.94(2), trust moneys of their clients
transferred from the trust account of the solicitors to their
office account for the payment of accounts of third parties, were
not applied by the solicitors within a reasonable time of the
transfer to payment of the accounts of the third parties;
(b) contrary to s.87(1) and s.94(2), trust moneys of clients of
the solicitors which, according to the instructions of the client,
were to be disbursed by the solicitors in or towards payment of
fees of third parties, were held by the solicitors, for their own
personal benefit, in their office and cash management accounts;
and
(c) contrary to s.87 and s.91, the solicitors deposited in their
office accounts, moneys which, being refunds by third parties of
disbursements paid by the solicitors on behalf of their clients,
were trust moneys of the clients.
2. Further, and alternatively to paragraph (1) the solicitors
wilfully failed to comply with s.98(2)(b) of the Legal
Practitioners Act 1970 in that the accounting records kept by the
solicitors pursuant to s.98(1) of the Act did not disclose, in a
manner able to be conveniently and properly audited, that:
(a) trust moneys of clients of the solicitors transferred from
their trust account to their office account for the purpose of
payment of accounts of third parties had not been paid to those
third parties; and(b) further and alternatively to sub-paragraph (a) hereof, trust
moneys of clients of the solicitors which had been designated for
disbursements by the solicitors in or towards payment of accounts
of third parties, were held by the solicitors, for their own
personal benefit, in their office and cash management accounts.
3. Further and alternatively to paragraphs 1 and 2, the solicitors
were guilty of gross neglect and delay:
(a) in the payment (following receipt by the solicitors of moneys
for the purpose of payment) of fees due to barristers and doctors
retained by the solicitors; and
(b) further and alternatively to sub-paragraph (a) hereof in the
payment (following receipt by the solicitors of moneys for the
payment) of refunds of disbursements to their clients.
4. The solicitors were guilty of gross neglect and delay in that
(between 5 October 1994 and May 1995 or thereabouts) they failed
to give to Mr. Noel Power an itemised statement of their costs and
disbursements referrable to the memorandum of costs and
disbursements dated 8 September 1992 which they had earlier
delivered to Mr. Power.
5. By a letter dated 8 February 1995 Mr. Rees falsely represented
to the Law Society that the solicitors had forwarded to Mr. Power
an itemised statement of their costs and disbursements referable
to the memorandum of costs and disbursements dated 8 September
1992.
4. By far the most serious of the heads of allegations are those of wilfully
failing to comply with sub-s.87(1), s.91 and sub-s.94(2)
of the Legal
Practitioners Act 1970 (ACT) (the Legal Practitioners Act) in relation to
trust moneys of clients, more specifically,
holding clients' moneys designated
for payment of disbursements. The statutory provisions are as follows:
"Moneys received by solicitor5. The nature of the court's jurisdiction and the power exercisable in relation to the admission, direction and disciplining of persons admitted by it to practise as barristers and solicitors is well known and has been the subject of statements by this Court on many occasions, most recently in Re Grosse (unreported, 22 February 1996). It is an inherent jurisdiction and is circumscribed by the Legal Practitioners Act and other legislation only by express provision or necessary implication. Proceedings for professional misconduct on the part of a solicitor may be brought by the Law Society. Such proceedings are brought and determined in the public interest. But the Court has the inherent power and the responsibility, to initiate such proceedings of its own motion on information brought before it: see for example Re Gruzman (1968) 70 SR (NSW) 316. Whether or not the proceedings have been brought by the Law Society as in the present case, the Court is not restricted to considering the precise allegations as formulated. If the evidence is capable of establishing misconduct other than that alleged, the Court must in the discharge of its duty consider the questions that arise relating to possible misconduct, so long as the practitioner is on notice of the nature of the case and the case proceeds to a determination of those questions without unfairness to the practitioner.
87.(1) All moneys received by a solicitor, in connection with the
solicitor's practice in the Territory, from, or on behalf of, a
client of the solicitor shall, for all purposes, be deemed to be
held in trust for that client to be disbursed, or otherwise dealt
with, by the solicitor in accordance with the instructions of the
client."
"Payment into trust bank account
91. Subject to section 92, a solicitor shall cause all trust
moneys received by the solicitor, in connection with his or her
practice in the Territory, from, or on behalf of, a client of the
solicitor to be paid -
(a) into the general trust bank account maintained by the
solicitor; or
(b) if the solicitor maintains 2 or more such accounts - into 1 of
those accounts;
no later than the next day on which the bank at which the account
is maintained is open for business after the day on which the
money is received by the solicitor."
"Payments from trust bank accounts
94.(1) .....
(2) Subject to subsection (3) and to Division 8, a solicitor shall
not withdraw any money from a trust bank account except for the
purposes of payment to, or disbursement according to the direction
of, the person for whom the money is, by virtue of section 87, to
be deemed to be held in trust."
6. Although it will be necessary in these reasons to return to the nature of the Court's power, we make these preliminary observations because the evidence compels the Court to consider questions which go well beyond allegations of breaches of particular provisions of the Legal Practitioners Act. There are questions concerning the fiduciary relationship between solicitor and client, the duties that are imposed upon the solicitor in accordance with that relationship, conflicts of interest between those of the client and those of the solicitor and the inevitability of those conflicts in a practice such as that conducted by the solicitors. Those questions were all addressed by Mr. Conti QC, who appeared for the solicitors, and we have no doubt that there is no unfairness to solicitors occasioned by the Court adverting to all those questions, as we believe it must.
Background
7. The questions that arise do so against the general background of the
solicitors' practice. There can be no doubt that, like all
solicitors, Mr Robb
and Mr Rees stood in a fiduciary relationship to the clients for whom the firm
acted. Broadly that relationship
meant that they are to be held "to something
stricter than the morals of the market place": Meinhard v. Salmon (1928) 164
NE 545
at 546 (Cardozo J). More particularly for present purposes, they were
obliged not to put themselves in a position where that duty
and their
interests conflicted and not to allow any undisclosed personal interest to
come into conflict with that duty: Finn, Fiduciary
Obligations 1977, at 4.
8. Mr. Robb was admitted as a legal practitioner on 16 August 1976. He has practised exclusively as a solicitor. After some years as an employed solicitor and later as a partner in a Canberra firm (which is not associated with the present case), he spent two years as a sole practitioner from July 1982 to June 1984. He then went into partnership with Mr. Howard Liu, who had a conveyancing and commercial practice. Mr. Robb's field was primarily in litigation. On 1 July 1988 the partnership was dissolved and Mr. Robb continued as a sole practitioner with twelve employees, including two employed solicitors and a law clerk. The evidence suggests that Mr. Robb has held an unrestricted certificate since January 1980. There can be no doubt that by the time of the dissolution of the partnership with Mr. Liu, whether or not his field was exclusively in litigation, Mr. Robb's experience in the practice of a solicitor was such that there was no room for any failure on his part to appreciate the need to deal with clients' moneys and to keep proper books of account in accordance with the requirements of the Legal Practitioners Act. Whether he had then a proper appreciation of the fiduciary duties attaching thereto is another matter.
9. In May 1987 Mr. Rees joined the firm, which was then still Liu and Robb. Mr. Rees' background was somewhat different from that of Mr. Robb. He was admitted to practice by this Court on 10 August 1982. He did not obtain an unrestricted practising certificate until January 1990. In the meantime, from September 1982 to January 1983, he worked as a volunteer with the ACT Legal Aid Office and then as an employed solicitor for that office until May 1987. It does not appear that Mr. Rees was required to deal with clients' moneys during the period of his employment at the Legal Aid Office. He appears not to have gained experience in the keeping of books of account. His knowledge of these matters was presumably confined to what he had been taught during the course of studying for his law degree and completing his practical legal training at the Legal Workshop. After Mr. Rees joined Liu and Robb he remained an employed solicitor until, on 1 January 1990, he became what he called "an equity partner" in the firm, which by then had become Gary Robb and Associates. In his evidence, Mr. Rees described how, when he first joined the firm, he was instructed by Mr. Robb as to the firm's practice as to accounting after settlement of a personal injury action. It is, as we shall indicate, likely that his instruction in this regard was wanting.
10. In November 1990 Mr. William Redpath joined the firm. He already had had about five years experience as an employed solicitor with another firm in Canberra. It appears that Mr. Redpath's experience was more like that of Mr. Robb than that of Mr. Rees and that he did not lack practical experience in the handling of clients' moneys and the keeping of proper books of account. Mr. Redpath became a partner in the firm on 1 January 1994. He gave evidence of the practice which he adopted in relation to dealing with settlement or judgment moneys in personal injury actions. He said that that practice was adopted by him "on the basis of our understanding of the practice of the firm". Mr. Redpath remains a partner in the firm. No allegation of misconduct is made against him.
11. The dissolution of the partnership between Mr. Robb and Mr. Liu was of more than passing significance. It meant, first, that Mr. Robb became a sole practitioner, a development hardly noteworthy in itself, but one that deprived him of the professional support, advice and counselling that solicitors in partnership provide to one another. No legal practitioner has a perfect understanding of the law or of the appropriate response to any one of the myriad of problems that beset a solicitor's practice from day to day. The mutual support of partners can be invaluable in general, but, most importantly, in relation to the handling of clients' moneys, the awareness of partners that they are all jointly responsible (Legal Practitioners Act, s.88) tends to ensure the close scrutiny of trust accounts and any matters at all relating to clients' moneys which the proper conduct of a solicitor's practice must require. If any question arises as to whether particular moneys in the bank account of a firm of solicitors are held in trust or not, the question can and should be discussed and resolved between the partners.
12. Furthermore, with the departure of Mr. Liu, the practice of Gary Robb and Associates became almost exclusively a personal injury practice. It became a very busy personal injury practice. The caseload doubled in two or three years. Why the practice expanded so rapidly is not explained, but from about the time Mr. Rees became a partner until 25 March 1996, 4938 files were completed and closed. Mr. Robb and Mr. Rees each handled about 300 claims at any one time. Mr. Robb said that there was a turnover of about $2 million per year, and although it was not clear whether he was talking about profit costs alone, it appears to have been a very profitable practice. Mr. Robb acknowledged that it was the biggest personal injury practice for plaintiffs in the ACT. Given that claims for personal injuries in this Court are more numerous than claims in respect of any other subject matter, it seems that by the time of the hearing Gary Robb and Associates had the biggest caseload of any litigation practice in the Territory.
13. It was also significant that the firm acted for plaintiffs only. Solicitors who act only for clients in a special interest group are at risk of becoming restricted in their perspective of legal practice. Furthermore, as the firm's clients were in no position to finance litigation out of their own pocket, the solicitors found it necessary, in order to attract and keep the clients and to finance the disbursements and out-of-pocket expenses of litigation such as court filing fees and doctors' reports, that they conduct the practice on a speculative basis. The exact terms of their instructions to act are unclear as there does not appear to have been a standard form of written instructions of retainer or to commence proceedings. In general, the solicitors had a "no win no fee" arrangement with their clients. In other words, unless there were moneys forthcoming from the defendant, or more usually, the defendant's insurer, by way of settlement by agreement or judgment for damages in the plaintiff's favour, the solicitors waived their right to be paid by the client in respect of the solicitors' profit costs. The liability of the client to pay the solicitors may be said to have been truly contingent, although the term "contingent fee" has come to mean a fee dependant not only on success but on the size of the sum recovered, and is best avoided at this stage of the discussion.
14. In relation to the disbursements of litigation, in contrast with the solicitors' profit costs, the arrangement between the solicitors and their clients, at least in most cases, appears to have been that the solicitors would not require to be put in funds by the client unless and until settlement or judgment moneys were received by the solicitors on the client's behalf.
15. Because the solicitors themselves in effect financed the litigation disbursements, they were necessarily out of pocket until the final and successful resolution of the plaintiff's claim. Mr. Robb estimated that in 1990 the total of "unbilled disbursements" paid on behalf of all clients at any time fluctuated between $500,000 and $750,000.
16. Naturally, the solicitors sought to keep to a minimum their indebtedness to third parties for the expenses of the case. To this end, they entered into arrangements with a panel of counsel who accepted briefs to draw pleadings and particulars and to appear at the hearing on a similar speculative basis, that is to say, that counsel did not regard the solicitors as under any obligation to pay counsel's fees unless and until settlement or judgment moneys were received by the solicitors on the client's behalf. There was also an arrangement with some expert witnesses that their fees were not payable until the moneys were received and (possibly, the evidence is not clear) that the expert witnesses would waive the right to their fees unless there was a successful outcome to the plaintiff's claim.
17. Without the liability to pay counsel's fees contingent, and liability to pay some expert witnesses at least deferred, the solicitors would have been out of pocket with regard to disbursements to a much greater amount than $500,000 to $750,000. As it was, their turnover was so high that they needed to draw on their bank overdraft facility only rarely.
18. It is plain from the foregoing that the solicitors had a substantial personal interest in the successful outcome of their clients' cases and in the moneys that thereby became payable to the clients. Whether they were aware of it or not, a crucial matter to which we shall return, it is also obvious that there was conflict between their interests and the interests of the clients in being properly advised in relation to settlements and the profit costs and disbursements. With the solicitors acting under considerable pressure as far as the workload was concerned, it was almost inevitable that, unless they were fully aware of their responsibilities and particularly astute to discharge them, trouble would arise. Trouble emerged first in relation to the timely payment of counsel's fees and that, in turn, exposed difficulties in relation to trust moneys.
Payment of counsel's fees: Mr. Steven Walmsley
19. Mr. Conti submitted that the case against the solicitors was simply about
delay in paying counsel. However, it must go much further
than that. The
attitude of the solicitors, particularly Mr. Robb, to the matter of paying
counsel is illustrative of their attitude
to clients' moneys.
20. The "no win no pay" arrangement with counsel was not in writing. The evidence suggests that it was implied rather than express. It was a term of the arrangement with counsel, whether express or implied, that counsel's entitlement did not arise until there was settlement or judgment in favour of the plaintiff. It is less clear that there was an implied term that the time for payment would be within a reasonable time of the solicitor receiving the settlement or judgment moneys. It is important to recognise that in some cases counsel who had rendered fees for the drawing of statements of claim and particulars would not be aware that there had been settlement, although Mr. Robb said that counsel briefed to appear on the hearing would be actively involved in the settlement process because it was unusual for a case to settle prior to the day before the date fixed for hearing or at the door of the courtroom on the day of the hearing. (It is hard to see how the charging of a full brief fee on hearing would be justified unless counsel did something in the case, although the conventional rule is that acceptance of a brief on hearing entitles counsel to the full brief fee, regardless of whether the case settles or not.)
21. Although there may not have been an implied term in the arrangement that the solicitor would inform counsel of an out of court settlement of a matter in which counsel's fees were owing, the professional obligation to pay counsel was all the stronger because of the agreement by counsel, in accordance with the arrangement, that payment would be postponed until after receipt of settlement or judgment moneys. On the evidence, counsel briefed in accordance with the arrangement must have been so trusting of the solicitors, or so resigned to postponement of payment, or so reluctant to antagonise the solicitors, that they never sent accounts rendered. Mr. Steven Walmsley was, in the end, the exception, and, what was exceptional conduct on his part has brought the solicitors before the Court.
22. Mr. Walmsley was a barrister who practised from chambers in Canberra from 1970 to 1988. Since then he has practised from chambers in Sydney. By the time of his departure from Canberra, he had developed an extensive practice in the drawing or settling of pleadings and particulars and in appearing for clients of the solicitors. He was married to a sister of Mr. Rees. He was party to the arrangement that in personal injury cases, the solicitors would pay his fees only when money was received on settlement or judgment. He said in an affidavit that he was dependent upon the solicitors to "advise me when compensation moneys had been received by the firm in matters in respect of which we had performed work" in order that he would know "of the fact and timing of my fees becoming due for payment".
23. There was a close personal relationship between Mr. Walmsley and Mr. Robb and more particularly between Mr. Walmsley and Mr. Rees. They often met socially as well as professionally. When Mr. Walmsley moved to Sydney their meetings continued but less frequently. The solicitors continued to brief Mr. Walmsley, it seems as a matter of routine, to draw statements of claim, but they began briefing other counsel to appear at the hearing. Mr. Walmsley's dependence upon the solicitors to inform him when payment for his fees fell due by reason of settlement or judgment did not diminish. He began sending statements in the nature of accounts rendered.
24. Mr. Robb said that in 1990 Mr. Walmsley increased his fees, claiming that as he had to wait up to two years for payment, he would bill "an interest component" into those fees. Mr. Robb appears to have acquiesced in Mr. Walmsley's change of practice. There is no evidence that Mr. Robb informed his clients, or considered informing them, that the fees payable when Mr. Walmsley was briefed would contain this margin, which itself derived from the speculative nature of the solicitors' practice.
25. According to Mr. Robb, by 1993 Mr. Walmsley was being paid more than $150,000 per year, mostly for statements of claim and particulars. The standard fee for statements of claim appears to have been $400.
26. In February 1993 there was an incident when Mrs. Patricia Worthy, at that time an employed managing law clerk, informed Mr. Robb that Mr. Walmsley had expressed concern about the high level of charges being made by the firm for solicitor and client costs (costs unrecoverable from the defendant and beyond the party and party costs recoverable by an order for costs in favour of the plaintiff). Mr. Robb expressed his displeasure at Mr. Walmsley discussing such matters with an employee. An apology was not called for although Mr. Walmsley may have been understandably embarrassed. As settlement for a figure inclusive of costs, including party and party costs, appears to have been the rule rather than the exception, the solicitors were bound to advise the client of the total costs which the solicitors would charge and for which the client's settlement moneys would provide the source. If it appeared to counsel that the level of costs proposed to be charged by the solicitors was unusually high, it was more than proper that counsel express a view to whoever was handling the case. It hardly mattered that the person was an employee and not a partner. Nevertheless, Mr. Walmsley apologised.
27. Towards the middle of 1993 Mr. Walmsley had not been paid in a number of matters in which he had rendered a memorandum of fees, mostly for settling statements of claim and particulars. He considered that he had reason to believe that many of these matters had been "settled and/or finished". He caused his secretary to make inquiry by telephone to the office of the solicitors. The results caused him to write letters on 16 August 1993 to the three partners and one solicitor employed by the firm. In those letters he set out the details in respect of the matters handled by the particular partner or solicitor and sought payment within seven days. He sent a copy also to Mr. Tandy, the accountant employed by the firm. The matters were 30 in number and involved a total sum of $35,815 claimed to be due. As we understand it, it is not disputed on the solicitors' behalf that a sum of that order was due to Mr. Walmsley in respect of matters in which settlement or judgment moneys had been received by the solicitors prior to 16 August 1993, although there were several errors in the details.
28. Mr. Robb and Mr. Rees discussed Mr. Walmsley's letter of 16 August. Mr. Rees, in his evidence, described Mr. Robb's reaction as emotional. Mr. Robb wrote to Mr. Walmsley on 24 August accusing Mr. Walmsley of improper and unprofessional conduct. The letter asserted that Mr. Walmsley was in breach of an undertaking to deal direct with himself or Mr. Rees in relation to fees. It is not clear whether Mr. Walmsley had given such an undertaking. The letter continued in strong language. It called for the return of all briefs held and the rendering of accounts for any work done in the previous week. It concluded with a statement of intention to continue "to pay your accounts as matters are settled and costs received".
29. In the meantime Mr. Walmsley had become concerned about the fact that he
had been receiving cheques drawn on the solicitors'
office account. It was
obvious that, in accordance with the arrangement, the solicitors would not
have drawn the cheques at all unless
they had received settlement or judgment
moneys on behalf of their clients. In some cases, the cheques were months old.
He made inquiries
of solicitors in New South Wales and the ACT as to the
propriety of delay in sending cheques drawn from the office account presumably
put in funds by a transfer from the trust account. A senior solicitor in
Canberra advised Mr. Walmsley that if he were a member of
the Law Society he
would be bound to report what he knew to the Law Society. He was advised on
behalf of the ACT Bar Association
that it was proper to refer the matter to
the Law Society. There can be no doubt that Mr. Walmsley received sound advice
from both
quarters. Acting on that advice, by letter of 30 August 1993 he
wrote to the Law Society and sent a copy to Mr. Robb with a covering
letter of
the same date. The letter to the Law Society contained the following
paragraphs:
"I feel obliged however to report to you my concern that there may30. The letter to Mr. Robb was a lengthy letter. Amongst its contents was the following:
possibly have been breaches of Section 46 (sic) of the Legal
Practitioners Act by that firm. The substance of the complaint is
that money authorised by the firm's clients to be transferred to
the office account for the payment of disbursements namely my
fees, has not been so used, but has been systematically used in
the firm's office account, and paid to me, the beneficial owner,
sometimes months after its receipt by that firm.
I say at once that we have no evidence that any client has
suffered. However, we have observed on a number of occasions in
the past few years that when we have been paid fees, which have
mostly come from settlements of accident cases, the cheques have
been office account cheques which have been at times months old.
The most recent examples occurred when we was paid some fees in
July/August of this year."
"It has been of concern to me for some little time now that31. It is not clear what action, if any, the Law Society took at this stage, but there is no doubt that Mr. Robb was aware that Mr. Walmsley had drawn attention to what he considered to be impropriety in relation to the handling of clients' moneys.
cheques sent to me by your firm had been drawn on your office
account and were at times many months old. That suggests that the
moneys from settlements had gone into your trust account and then
been transferred on the rendering of an account, to your office
account. Whilst my enquiries of members of the solicitors'
profession in New South Wales and the ACT suggests to me that
there is a dichotomy of views about whether or not it is proper
conduct to transfer money for disbursements not yet paid from the
trust account to the office account, there is unanimity of opinion
amongst those solicitors we have sought advice from that proper
conduct dictates that as soon as money for unpaid disbursements
goes into the office account, cheques must be drawn and sent."
32. Mr. Robb, as he acknowledged, reacted emotionally to the steps that Mr.
Walmsley had taken. He felt that Mr. Walmsley, in view
of the past
association, had betrayed him and was acting vindictively for no reason. On 22
October 1993 Mr. Robb sent a letter to
Mr. Walmsley which contained the
following passages:
"In relation to those memoranda for matters which have not settled33. By 12 January 1994 the solicitors paid Mr. Walmsley a total of $25,875 on account of the outstanding fees in the matters about which he had complained. They regarded that sum as discharging their liability to Mr. Walmsley in respect of those matters. In a letter dated 26 May 1994 Mr. Walmsley made a formal complaint to the Law Society regarding those fees mentioned in his earlier letter which remained unpaid and other fees which he considered were owing to him by the solicitors. He stated that he estimated that there was a total of $169,720 outstanding for which fee notes had been rendered and that of that total a sum between $50,000 and $75,000 had come into the solicitors' trust account for his fees which had thereupon become due but remained unpaid.
or come to trial as at the date of this letter, the amount you
have charged is not in accordance with any agreement or
understanding between this firm and yourself and is excessive by
both reference to both the amount allowable on taxation and the
usual fees charged by counsel for such work.
I remind you that the range of fees which you charged and were
paid, for your written work, (usually pleadings) was expressly
agreed to by this firm on the basis that you were prepared to wait
until the matter was either settled or a judgment sum was to hand
before you demanded payment. This was, for a number of years, the
basis of this firm's arrangement with you.
In the light of your recent conduct, it is clear that you are no
longer prepared to treat the outstanding memorandum of fees on the
basis of payment to you when settlement or judgment moneys are to
hand.
Acting on that assumption, this firm is no longer prepared to
agree to the amount that you have charged. Because you have
unilaterally altered the basis of the agreement as to the timing
of payment of your fees, then Mr. Rees and we are of the view that
the amount payable to you ought to be in accordance with the
"scale" in the ACT and in accordance with the usual practice.
It is therefore this firm's intention to reduce by one half your
outstanding fees for pleadings and advices to bring your memoranda
into line with the ACT scale and the amount which is normally
recoverable on taxation."
34. At about this time Mr. Robb learned that Mr. Walmsley had, in addition to writing to the Law Society, "complained to the ACT Bar Association". He instructed his own solicitors to make an application for preliminary discovery in this Court with a view to suing Mr. Walmsley for defamation. Mr. Robb stated in his affidavit sworn 17 April 1996 that when it appeared that the application would be resisted on Mr. Walmsley's behalf, he instructed his solicitor to take no further action. He further stated that he abandoned the application when it appeared that the matter was to be conducted by Mr. Walmsley's insurer. In cross-examination, he agreed that that was a "fake explanation" of why the proceedings were discontinued, although he denied instituting those proceedings with a view to putting pressure on Mr. Walmsley to withdraw the complaint. Even accepting his denial, his conduct does him no credit. It is not necessary to decide whether it involved an abuse of the process of the Court.
35. On 21 June 1994 Mr. Robb sent cheques totalling $64,840 "in relation to matters which had been finalised". The cheques were sent under cover of a letter of that date which set out details of how the total was constituted. The letter ended with a provocative and deceitful note "cc: Commissioner of Taxation".
36. Mr. Robb denied that the marking of this letter as if a copy had been sent to the Commissioner of Taxation was intended to convey any threat to Mr. Walmsley. He said that the intention was simply "to make sure that the fees were included for that financial year". That explanation we find unconvincing. More candidly, Mr. Robb was prepared to concede that his conduct in marking the letter was "childish". It was more than that. Like the unilateral and arrogant step of purporting to reduce counsel's fees owing by half, it was as vindictive as it was foolish.
37. The Executive of the Law Society considered Mr. Walmsley's complaint at a meeting on 30 August 1994. The Executive resolved to recommend to Council the appointment of an investigator under s.114 of the Legal Practitioners Act. In the meantime the solicitors made all files and relevant documents available to the Law Society through their own solicitors. Ultimately, on 25 October 1994 Ms. Jane Sayer, a chartered accountant, was appointed to inspect the files and documents made available. Ms. Sayer proceeded to carry out the investigation. It is not clear whether or not she was appointed formally under the provisions of s.114. She reported to the Law Society on 2 March 1995. The factual basis of her report is not seriously disputed.
Delay in paying counsel: the Sayer Report
38. It is unnecessary to set out all the relevant matters in the Sayer Report.
39. For present purposes, one of the most important parts of the report is annexure J1. It sets out in detail, in relation to some 21 clients, the delay between the dates on which settlement or judgment moneys were transferred from the solicitors' trust account to their office account and the dates on which payment of disbursements was made, mainly to counsel but in some instances to doctors (presumably as expert witnesses) and others. The period covered is from 4 July 1991 to 18 July 1994. The delays in the matters listed range from 47 days to 595 days, the average appearing to be about 150 days or about five months. Ms. Sayer described the matters referred to as random samples. However, it appears that the list is neither truly random nor a comprehensive list of every instance of delay in paying disbursements.
40. The solicitors did not seek to make out a case that these were the only examples of delay in paying disbursements once the settlement or judgment moneys were in hand, and it is likely that there were many others. As will be indicated below, it was part of the solicitors' case that delays from the time of settlement or judgment to payment of counsel in the order of some two to four months were both typical as far as the solicitors were concerned and acceptable as far as counsel were concerned. Whilst on the one hand the solicitors claimed in general terms that there was no undue delay from the time of receipt by them of the settlement or judgment moneys to the time of payment, their case relied upon a more fundamental proposition, namely that there was no impropriety between them and their clients in delaying the payment of unpaid disbursements, particularly the payment of counsel's fees.
41. The most serious example of delay in annexure J1, having regard both to the amounts involved and the time elapsed, was in the matter of plaintiff Giszek. In that matter Messrs Murray QC, Walmsley and Parker of counsel were owed a total of $7,900 which was transferred from the trust account into the solicitors' office account on 2 August 1991 and remained there until 15 January 1992, a period of some 166 days. In the matter of plaintiff Brown, Mr. Gray of counsel was owed only $200, but the moneys received were transferred from the trust account to office account on 30 September 1991 and remained there until counsel was paid on 17 November 1992, after a delay of well over a year.
42. The greatest delay was in the case of client Cooper where Mr. J. H. Brewster of counsel was owed $1,000. It took from 10 December 1991, when the solicitors appropriated the client's moneys to their office account, in order to cover counsel's fees, until 28 July 1993 for the solicitors to make payment to counsel. In a matter of client Castro, Mr. Brewster rendered a memo of fees on 23 May 1991. The solicitors transferred the client's money from trust account to office account to cover the liability to counsel on 11 November 1991 but they did not pay Mr. Brewster until 10 July 1992. These two matters in which Mr. Brewster was briefed were, significantly, different types of cases from those ordinarily handled by the firm. They were not personal injury actions. Giszek was a criminal matter and Castro was a family law matter. The liability to pay counsel was not subject to any arrangement whereby counsel accepted a brief on a "no win no fee" basis. The solicitors' obligation to pay counsel did not even depend upon obtaining funds from their clients. The explanation offered for the appalling delay in paying Mr. Brewster is inefficiency and, it seems, the fact that Mr. Brewster took no steps to obtain payment apart from rendering the original memorandum of fees.
43. In a matter concerning Galnom Pty Limited, which was not a personal injury case, Mr. Walmsley complained that he had been briefed in November 1992 on Mr. Robb's assurance that his fees were in the trust account. When, in April 1993 he raised the non-payment of his fees with whoever it was that was handling the matter, he was informed that the moneys had been transferred out of the trust account into the office account. There was no other evidence about this matter before the Court.
44. What these three examples demonstrate, in our opinion, is that the indifference displayed by the solicitors in relation to their obligations to pay counsel from settlement or judgment moneys received in speculative personal injury actions was allowed to spill over and infect their attitude to their obligations in other matters where no special arrangements with counsel had been entered into. Clearly, they failed to appreciate that their general obligation to pay counsel was absolute, and, if not to pay forthwith upon receipt of a memorandum of counsel's fees, then to pay within a reasonable time of being put in funds for the purpose of paying counsel. But their obligation to pay counsel was not the only obligation which attached to the receipt of clients' moneys for that purpose. Their fiduciary relationship to the clients meant that they were in breach of the duties owed to the client once they transferred the funds from their trust accounts to their office account but neglected to pay counsel the fees that were owing.
45. Mr. Conti relied upon a number of factors which he submitted went to reduce the culpability of the solicitors in relation to the delay in paying counsel. It is true that the matters in which there has been shown positively to have been delay were a very small proportion of the numerous matters that passed through the solicitors' hands to completion. It is true also that, whatever the delay, the disbursements were all paid eventually. It is true also that (apart from the matter of the solicitors' cash management account, as to which see later) no client is shown to have suffered pecuniary loss. It is true again that until 1993 not even Mr. Walmsley complained about delays in respect of payment of counsel's fees. Indeed there is no evidence of any other barrister complaining of delay on the part of the solicitors in payment of his or her fees at any time.
46. Mr. Brewster was called to be cross-examined. But if the cross-examination was intended to suggest that Mr. Brewster was party to a practice whereby the solicitors were free to delay payment of his fees, it failed. It showed only that he was somewhat relaxed about keeping records or chasing up people who owed him money.
47. Mr. F.M.G. Parker, a barrister with many years experience in personal injury litigation, furnished an affidavit. He was called to give further oral evidence for the solicitors and was cross-examined. His evidence established that Mr. Parker, and to his knowledge other counsel, consider as acceptable a delay of some two to four months between the rendering of a memorandum of fees for a brief on hearing for the plaintiff and payment to counsel of those fees. Mr. Parker, prior to giving his evidence, had not addressed the question whether during the delay the solicitor had transferred moneys representing the fees owing to counsel from the trust account to the solicitors' office account. Mr. Parker said that he had not practised as a solicitor and did not fully appreciate accounting procedures within solicitors' offices. He made the point that he had always been paid by the solicitors within a time which he regarded as acceptable and appropriate and had never had occasion to send accounts rendered or any form of reminder for fees, even in relation to fees for statements of claim which would have been billed to the solicitors years before the case was settled or heard. Mr. Parker was not aware of any instances in which the solicitors settled cases without informing him. This may have been because, as indicated elsewhere in these reasons, few of the cases conducted by the solicitors settled earlier than on the day of hearing or the day before and Mr. Parker would have been actively involved in the negotiating.
48. Mr. Parker said that he had not until just before the hearing had occasion to look to see whether cheques received from solicitors were drawn on office or trust account. He produced at the hearing two cheques which he had recently received from other solicitors. Both were drawn on office account.
49. Mr. Conti sought to emphasise that nothing adverse could be inferred against a solicitor because counsel's fees were drawn against an office account. He submitted that it would be difficult for accounting or bookkeeping purposes for solicitors, who were put in funds for the purpose of paying disbursements, to be required to pay those disbursements out of the trust account into which the solicitors were obliged under s.87 of the Legal Practitioners Act (if not under the general law) to pay the funds received. Mr. Conti submitted that hundreds of solicitors, whether in Sydney or in Canberra, would not be able to conduct their practices unless they paid disbursements out of clients' funds which they had transferred into their office accounts.
50. Indeed it was submitted during counsel's opening address that if the solicitors were using the funds after they had been transferred from trust account into office account and before they were spent on disbursements, that was something that "always happens, even for a short period of time". There is no evidence to support the submission, and we bear in mind that numerous legal practitioners have furnished affidavits in the solicitors' case. Whilst we accept that solicitors might prefer to avoid complicated operations on their trust accounts (for fear of error and over-drawing the trust account), we do not see why it is necessarily difficult or unacceptable for solicitors to pay counsel's fees (or any disbursements of a substantial amount) out of their trust account if they are put in funds for that purpose. We simply do not see the need to transfer funds from trust account to office account as a preparatory step to paying counsel. Ms. Sayer, herself an accountant and with many years of experience examining the trust account records of solicitors in this Territory and in New South Wales, said that she saw no reason why disbursements could not be paid from amounts held in the trust account.
51. In any event, this aspect should not be seen in isolation. Solicitors are under an obligation to pay counsel regardless of whether they are put in funds by their clients, unless they have some particular and special arrangement with counsel. The fact that a solicitor pays counsel out of an office account does not or should not occasion the slightest surprise in ordinary circumstances. When, however, the office account is credited with an amount transferred from the solicitors' trust fund which amount is paid by the client for the purpose of the solicitor paying counsel, then any delay on the part of the solicitor in paying counsel once the transfer is effected, must mean that the solicitor is in breach of the solicitor's fiduciary duty to the client. The solicitor is, during the period of delay, treating what is essentially clients' money as the solicitor's own money.
52. Insofar as Mr. Conti's submission implies that there is no obligation to pay counsel or it is impractical to do so unless the solicitor is using client's funds which have been transferred from trust account to office account, it must be rejected. If it means that by simply transferring the funds from trust account to office account they cease to be affected by the solicitor's fiduciary duty to the client, the submission must be rejected likewise.
The Sayer Report: Retention in office account of moneys received fo r
disbursements
53. The practice adopted by the solicitors after receipt of moneys on
settlement of the client's claim for damages including party
and party costs
was as follows. The moneys were banked to the solicitors' trust account, as
they had to be in accordance with s.87
of the Legal Practitioners Act. Within
a very short space of time, usually a day or two, the solicitors sent to the
client what has
been referred to as a "bill of costs" but which would appear
to be simply a letter containing some details of what the solicitor
was
charging the client. This document set out in a lump sum the solicitors'
profit costs and a list of disbursements. The disbursements
were set out in
some detail, but not complete detail. For instance, counsel's fees were shown
as a lump sum without distinguishing
between the fees for drawing pleadings
and fees for brief on hearing. Some items, for example, photocopying, were not
on the face
of it disbursements at all but part of the solicitors' overheads,
although the client would be unlikely to know that to be the case.
Overall the
letter was not cast in sufficient detail to allow the client, or any
practitioner from whom the client might seek independent
advice, to form any
judgment except by way of intuitive reaction about whether the profit costs or
disbursements were within the
limits of what was proper and whether the client
should or should not seek an itemised bill from their solicitors. Furthermore,
the
letter did not distinguish between disbursements already paid and
disbursements to be paid.
54. According to the solicitors' practice, at about the same time as the dispatch of the letter to the client (usually on the same day) the solicitors transferred from the trust account at their bank to their general office account at the same bank, the total sum of profit costs and disbursements as were shown in the letter to the client. What occurred then is of central importance in the case.
55. Upon receipt of the settlement moneys the solicitors had at their disposal a fund from which to pay any disbursements which still remained unpaid. In respect of disbursements they had already paid, and on the assumption that they had authority, they were free to treat the moneys transferred as their own. The solicitors claim that it was impractical for unpaid disbursements to be paid out of the moneys received whilst those moneys remained in their trust account. Their preference was to transfer the total sum of profit costs and disbursements to their office account and then pay any outstanding disbursements from the office account. At the end of each day, the amount standing to the credit of their office account was transferred to a cash management account at the same bank. The cash management account attracted interest in their favour.
56. The preferred practice of the solicitors in relation to the payment of outstanding disbursements might have been proper if it had been carried out having due regard to the purpose of the transfer as it related to unpaid disbursements. It was conceded by Mr. Robb that there was nothing to stand in the way of an office procedure by which payment of all outstanding disbursements was made at the same time, or at least on the same date, as the date of transfer of the costs and disbursements from the trust account to the office account. Indeed Mr. Robb claimed that that was the usual procedure. It may well have been in relation to most disbursements. But on the very case presented by the solicitors, that procedure was subject to a number of exceptions. Just as the payment of various items of general office expense such as telephone and electricity accounts was postponed until the last day nominated in the bill (generally a day at the end of the month), so, it was thought, payment of certain disbursements could be postponed, notably the amounts owing to counsel and some expert witnesses.
57. As indicated earlier, the solicitors had come to an arrangement with certain counsel and certain expert witnesses, to be spelled out by conduct rather than by words, that the fees of counsel or the witnesses in personal injury cases would not be payable unless the plaintiff was successful in recovering in the proceedings, and that the time for payment would be postponed until after the receipt by the solicitors of money representing the proceeds of successful action or settlement. Although this arrangement by its nature was imprecise as to detail, it seems to have been accepted as between the solicitors and counsel that counsel fees would be paid within reasonable time of receipt of the settlement moneys or judgment sum. However the arrangement between the solicitor and counsel did not of itself affect the rights and obligations as between the solicitors and the client. The duty to the client required the solicitor to pay counsel upon receipt of the settlement monies. If the settlement moneys, having been paid into the trust account as they had to be, remained there, it is arguable that there would have been no breach of the obligation to the client so long as the solicitors, within a reasonable time, used the funds for the purposes for which they were received. But once the moneys were transferred to the solicitors' office account, there was an immediate risk of a breach of the obligation not to use them otherwise than as authorised. The obligation was not discharged by allowing them to remain in the office account or to provide a fund for further transfer to the solicitors' cash management account.
58. We were not convinced by the evidence of either solicitor that he acted in the positive belief that the moneys transferred from the trust account to the office account representing unpaid disbursements had lost the character of trust moneys. Neither of them said anything about any discussion that they had had between themselves on this matter. Mr. Rees had learned his office accounting procedures from Mr. Robb. We can see little difference in the minds or attitudes of the two solicitors in this regard. The state of mind of each is best characterised, in our view, as an assumption that simply by transferring the money from trust to office account, after sending a letter to the client of the nature already referred to, the money became the property of the solicitors to treat as they wished. On this approach they took the view that the client no longer had any interest in what happened to the moneys and, that if the solicitors neglected to pay the outstanding disbursements, then that was simply a matter between the solicitor and the third party creditor and had nothing to do with the client. Both solicitors seemed to recognise, however, that if the letter to the client had mistakenly overstated the amount of disbursements or if for any reason disbursements believed to be outstanding could not be paid or were not to be paid, then they were obliged to make refund to the client.
59. The attitude of the solicitors was, according to their case, justified by the peculiar nature of the liability of a solicitor to pay counsel's fees. As is well known, the obligation is not that of the client but that of the solicitor. Furthermore, the obligation of the solicitor is not even an obligation owed on behalf of the client, it is a personal obligation. At common law a barrister is not able to sue for fees. The obligation is said to be a professional obligation or an obligation of honour. Nevertheless the obligation is such that wilful or persistent refusal to pay counsel's fees can amount to professional misconduct on the part of a solicitor. We were referred to recent decisions in New South Wales including Carver v. Legal Professional Disciplinary Tribunal (1991) 7 LPDR 8 at 12 and Re Boyne Wood and Radin (unreported, Legal Professional Disciplinary Tribunal, 23 December 1995). It appears that no precedent has been found for the proposition that wilful or persistent delay in paying counsel's fees amounts to professional misconduct.
60. However, it is not self-evident that such delay can never amount to professional misconduct on the part of a solicitor and it is not necessary to decide one way or the other for present purposes. In the present case, the extent of the delay in paying counsel from the time counsel became entitled to payment according to the terms of the arrangement with the solicitors, namely upon receipt of the settlement or judgment moneys, is only one factor to be taken into account.
61. The point is that the delay in paying counsel to be attributed to the solicitors in the present case stems from their assumption that moneys in their office account, received on trust for the client and transferred to the office account for the very purpose of paying counsel, were not affected by their fiduciary duties to the client and were their moneys to pay counsel fees when they chose and that any delay was simply a matter between counsel and themselves.
62. The assumption was totally unjustified. On the contrary, every day of delay in paying counsel from the time of transferring the moneys from the trust account to the office account, was a day in which the solicitors were in breach of the fiduciary duty to the client. The seriousness of their conduct is not mitigated by their assumption that the money belonged to them. That seriousness is aggravated by other factors to which reference will be made, factors which lead to the conclusion that the solicitors were indifferent to their fiduciary role and to the conflicts between their own interests and those of the client. That indifference and the failure to recognise the conflict between the interests of the client and the interests of the solicitors are part of the total picture in which delay in paying counsel is simply part of the background. It is not part of the background which is in mitigation.
Fiduciary duty to pay disbursements once client's money is received for
that purpose
63. Mr. Robb, in his oral evidence, showed that he had given no thought at any
time to the fiduciary duty attached to the handling
of his clients' money nor
to the conflict of interests that arose in the sort of practice he conducted.
Mr. Rees' evidence showed
that he similarly failed to have regard to his
duties at the time of the conduct in question but has begun to come to some
appreciation
of them since that time.
64. An example of the solicitors' indifference or failure to understand their
fiduciary role and the conflict of interests or even
the possibility of a
conflict between their own interests and those of the client may be found in
Exhibit 3. This document, prepared
by the solicitors, constitutes instructions
to settle on the part of a client who had brought an action for damages in
respect of
personal injuries. The relevant paragraphs are as follows:
"2. That the defendant has offered the sum of $110,000.0065. Although Mr. Rees suggested that the document was drafted in order to meet the circumstances of the particular case, there is no reason to assume that these provisions are not typical of instructions which the solicitors prepared and presented to the clients for execution in cases where the proposed settlement with the defendant was to be inclusive of costs.
inclusive of costs but clear of compensation payments to date in
full and final settlement of all claims that I have arising out of
the accident. Should I accept this offer, then after the payment
of my legal costs, then I will clear at least $85,000.
3. My solicitors have assessed their costs and disbursements in
relation to this matter at $25,000.00 and I accept this assessment
of costs. I do not require my solicitors to provide me with an
itemised account in respect of their costs."
66. There was another example of similar instructions drafted by the
solicitors in Exhibit 5. The written instructions authorised
the solicitors
to,
".... settle my claim for $50,000 inclusive of costs but clear of67. Few plaintiffs in actions for personal injuries would be sufficiently informed to understand the implications of these instructions. On the face of the instructions, they purport to be a general authority on the part of the client which allows the solicitors to treat part of the moneys to be recovered on settlement as the solicitors' own moneys, to dispose of as the solicitors please, without accounting in any way to the client. In the case of Exhibit 3 the instructions purport to constitute a waiver of the clients' right to receive a detailed account of the solicitors' profit costs and disbursements. This may not be what was intended by the solicitors. The purpose of the written instructions in either form may have been confined to giving authority to settle for a particular amount and an acknowledgement by the client of awareness of the minimum net amount that settlement would mean to the client. It may well have been contemplated in every case that the client would receive a proper memorandum of professional costs and disbursements when the settlement moneys were received. If that was the purpose of those instructions they should have been drafted in terms clearly indicating that purpose. Unless the client receives a further statement of the breakdown, the client has no way of knowing what part of the lump sum is referable to the solicitors' profit costs and what part is referable to disbursements which the solicitors have paid or which the solicitors are still to pay. In drawing and proffering instructions in these terms, the solicitors put themselves in the position where their own interests lie in minimising whatever disbursements might be properly incurred in pursuing the client's claim and in effect maximising their share of the
payments already received. I am aware that out of settlement
moneys I will be required to pay my legal costs, disbursements
and any outstanding medical expenses which will total
approximately $15,000. I am aware that I will nett $35,000 as
a result of settlement".
total sum payable by the client, undifferentiated as far as the client knows between the solicitors' profit costs on the one hand and disbursements on the other. In our view, without the client being fully informed as to the solicitors' interest in obtaining instructions in these terms, the practice of obtaining them is itself improper and a breach of the fiduciary duty. Whilst it may be proper for a solicitor to have an agreement with a client that the client will pay an overall sum undifferentiated as between profit cost and disbursements, it will only be proper so long as the client is fully informed as to the solicitors' interest in minimising disbursements and maximising profit costs. The inequality of bargaining power between solicitor and client where the solicitor is acting for an impecunious client on a speculative basis makes it unlikely that a client could make any informed decision about the adequacy of an offer of settlement inclusive of costs. This problem is no doubt avoided as far as it can be by solicitors who are aware of their obligations and carry them out by drafting the instructions in terms which, at the very least, distinguish between profit cost and disbursements and by advising the client of the client's right to a detailed statement of costs and disbursements and to have them taxed.
68. This aspect of the solicitors' practice was not relied upon by the Law Society. It is nevertheless further evidence of the failure of the solicitors to understand their fiduciary role and the conflicts of interest that were bound to arise whilst they follow their practices.
69. It was submitted on behalf of the solicitors that, in accordance with the decision of this Court in Re Nelson [1991] ACTSC 111; (1991) 106 ACTR 1, so long as a transfer of trust moneys from the trust account to the office account falls within the scope of an "existing general authority", then the solicitor is not obliged to render a bill of costs before transferring the money. However, in Re Nelson there was no issue whether the authority, which was not in writing, was wide enough for the solicitor to appropriate client's money from time to time on account of work done. On the facts it was assumed that the authority was sufficiently wide but as a guide to the Court's attitude in the future, it was stated that the authority should whenever possible be obtained in writing and, further, that if a bill of costs is not furnished to the client before the appropriation of costs or disbursements or both, then the client should be informed of the appropriation within a reasonable time thereafter.
70. In the majority judgment in Nelson there is a statement at 12 that sub-s.46(2) of the Legal Practitioners Act (now sub-s.87(3)) "makes it plain that if the solicitor receives moneys which are his or hers because they are for costs incurred or to be incurred they are not trust moneys". That statement contains the assumption that the moneys received are identifiable as the moneys of the solicitor. The decision in the case, however, makes it clear that where the solicitor is unable to show what part of the moneys is the client's and what part is the solicitor's, then the solicitor is in breach of duty.
71. Mr. Conti submitted that, in accordance with the headnote to in Re Legal Practitioners Act 1970 and re an application between a solicitor and the Law Society of the Australian Capital Territory [1991] ACTSC 33; (1991) 103 ACTR 1 the term "legal costs" now in sub-s.87(3) does not extend to disbursements. However, the decision in that case did not lay down such a general proposition. That was a case where the solicitor transferred from his trust account into his office account the whole of the proceeds of a litigation loan which had been advanced by a bank. The solicitor relied on the nature of the funds advanced to bring them all within the operation of sub-s.87(3), the total of the advances going beyond the solicitor's costs and being sufficient to cover disbursements of court filing fee, postage and other sundry items as well. It was held, however, that the authority had not specified how much was to be payable by way of profit costs and how much by way of disbursements and that it was impossible to distinguish between what part of the loan proceeds was to be treated as trust moneys under sub-s.87(1) and what part was to be treated as available to the solicitor under sub-s.87(3). The onus was on the solicitor to show what part of the moneys received by him were received "for and on account of his legal costs" and he failed to discharge that onus.
The Quistclose Principle
72. This needs brief mention only. It was submitted that the solicitors were
entitled to rely on a principle that when money is advanced
to a debtor there
may be created a trust in favour of the creditor. The once commonly held view
that the categories of debt and trust
were mutually exclusive was revised by
the House of Lords in Barclays Bank Ltd v. Quistclose Investments Ltd [1968] UKHL 4; (1970)
AC 567, where it was held, on the facts of the case, that a bank, advancing
funds to a customer on loan on terms that the
loan be applied towards the
payment of the customer's debt to third parties, acquired an equitable right
to see that the loan was
used for the designated purpose.
73. But the Quistclose decision, in our view, is of no assistance in the present case, because the fiduciary duty of the solicitors to the client was present at all times and continued beyond the time of the transfer of the money from the trust account to the office account. In contrast, a bank does not stand in a fiduciary relationship to a client to whom the bank lends money, unless there is something in the circumstances to give rise to such a relationship. In the present case from the moment the solicitors received verdict or settlement moneys, they were bound to hold them in trust for the client unless relieved from that obligation by the clear instructions of the client. If the instructions from the client are that the solicitor can use the funds for profit costs and disbursements, without accounting to the client to distinguish between the two, there must be disclosure of the solicitors' own interests. Then, and only then, "the costs and disbursements will be merged or integrated with the solicitor's general body of funds to enable the solicitor, inter alia, to pay any outstanding liabilities of the solicitor referrable to the client's case" (to use the words of Mr. Conti's written submissions). However, these solicitors have not shown that they were so instructed. The onus is on them to show that this was so and they have failed to do so.
Conflict of interests in speculative actions
74. The solicitors claim, with justification, that the nature of their
practice was such that it afforded to their clients a means
of recovering
damages for personal injuries which would not have been available to those
clients otherwise. It may be accepted that
the clients with few exceptions
would have lacked means to pay the solicitors' costs and disbursements except
out of moneys recovered
from the defendants' insurer, or in cases against the
Commonwealth or against the Australian Capital Territory directly from the
government concerned. Many of the clients (exactly what proportion it is
impossible to say) were probably ineligible for legal aid.
75. The means by which the solicitors were able to offer their services to persons injured in the workplace or on the roads was the speculative action. Speculative actions in respect of personal injuries have now become common. The market appears to be competitive. Many solicitors, quite properly, according to present day standards, advertise their services literally on a "no win no fee" basis. The solicitors in the present case had the advantage of trade union connections. No example of the solicitors' instructions or retainer in writing was put into evidence. The Court is reliant upon the evidence of the solicitors and that evidence is only as to the effect of their agreement with their clients. There is no evidence, for instance, as to whether the clients agreed in the event of success to pay costs at a higher level than would have been the case if they had advanced moneys on account of costs at the commencement of, or from time to time during the litigation. There is no evidence that successful clients paid higher fees in order to subsidise unsuccessful clients. However, overcharging is not part of the case against the solicitors and there is no evidence that they charged excessive profit costs. Mr. Walmsley's comments in this regard must be put aside. However, it does appear that Mr. Walmsley himself charged unusually high fees because of the speculative nature of the arrangement he had with the solicitors and there is no evidence that the clients were informed that, as part of the service provided by the solicitors, the fees to counsel were higher than they would have been otherwise. The clients should have been so informed.
76. As indicated previously, from about the time Mr. Rees joined the firm, there was a sudden and very steep increase in the number of claims processed by the practice. There is no doubt that the partners and staff were all very busy. The solicitors sought to explain some of what they admitted to be matters of neglect and delay on the sheer workload that they undertook. But it is not to be overlooked that they undertook the workload voluntarily and, as already suggested, in a competitive market. Whilst the success of the practice guaranteed profitability to the partners, it raised, on the other hand, the risk that they would not be able to bring to every matter in the practice the attention that it deserved.
77. Despite all the inquiries and reports in recent years relating to cost and delay in litigation, the most influential of which appears to be the 1994 Access to Justice Report commissioned by the Commonwealth Attorney-General, there has been very little recognition in the reports and recommendations of the role played by the legal profession in providing the public with the unofficial and informal type of legal aid that is provided in the speculative action for personal injuries. Anyone acquainted with the way in which the courts and the legal profession have conducted their business in recent decades knows that no one with a claim for personal injuries which is remotely arguable will lack for representation by lawyers, and experienced lawyers at that, who will not charge the client unless they win and recover money for the injured client. Many such lawyers, including the solicitors now before the Court, do not even require those claiming damages for their injuries to contribute to the out-of-pocket disbursements until moneys are recovered from the defendant.
78. Actions for personal injuries constitute a large proportion of the caseload of this and other courts and it is surely true that almost all of them are speculative actions. Why access to justice requires a new system of contingency fees based on what happens in the United States with a completely different historical and legal cultural background is puzzling to say the least. The conflicts of interest that are generated by the speculative action would be exacerbated substantially in a system where the fee represents a proportion of the sum recovered.
79. It is also puzzling why there is a widespread reluctance in the legal community to recognise, if not to commend the speculative action. This may be because until relatively recently it was not quite professionally respectable even in Australia. In England it was unlawful until 1974. No doubt there was a time when agreements whereby a solicitor agreed to be remunerated only out of money recovered on behalf of the client were regarded as giving the solicitor such an interest in the outcome of the case that it was seen as inconsistent with the duty of the solicitor to advise the client impartially and inconsistent also with the solicitor's duty as an officer of the court not to win the client's case at any cost but only in accordance with professional standards of integrity and honesty with the court and other practitioners. However, with the immense increase in deaths and injuries in the workplace and on the roads, the need to provide persons so injured with a means of recovering damages to which they might by law be entitled became so clear that it became recognised that lawyers might properly act on a "no win no fee" basis so long as they did so without infringing proper standards.
80. In Clyne v. The New South Wales Bar Association [1960] HCA 40; (1960) 104 CLR 186 at
203, the High Court said:
"..... a solicitor may with perfect propriety act for a client who81. However, the recognition by the courts and by the legal profession itself of the propriety of the speculative action by no means requires or justifies a relaxation of the standards of professional conduct on the part of lawyers who are prepared to act for plaintiffs on a speculative basis. The conflicts of interest remain, and the need for the solicitor to act, aware of the conflicts and astute to the fiduciary role, is not diminished.
has no means, and expend his own money in payment of counsel's
fees and other outgoings, although he has no prospect of being
paid either fees or outgoings except by virtue of a judgment or
order against the other party to the proceedings. This, however,
is subject to two conditions. One is that he has considered the
case and believes that his client has a reasonable cause of action
or defence as the case may be. And the other is that he must not
in any case bargain with his client for an interest in the
subject-matter of litigation, or (what is in substance the same
thing) for remuneration proportionate to the amount which may be
recovered by his client in a proceeding: see Fleming, The Law of
Torts (1957) p.638, where it is pointed out that the position in
the United States is different."
82. In practice, for reasons which need not be discussed, the speculative
action for damages has not as yet extended much beyond
the area of personal
injury litigation. Whether it is desirable in the public interest for
solicitors to take on claims for damages
for defamation, racial and other
discrimination, or sexual and other forms of assault in which they have a
pecuniary interest in
the outcome is not a matter that needs to be addressed.
But the extent to which the solicitor's own interest in a speculative claim
may interfere with the duties to the client and the solicitor's professional
duties must be considered. In Wallersteiner v. Moir
(No. 2) (1975) 2 WLR 389,
Buckley LJ in the Court of Appeal, after observing that "maintenance and
champerty have ceased to be either
criminal or tortious but without prejudice
to questions of public policy" (at 405) went on to refer to the abiding duty
of a lawyer
to advise the client with a clear eye and unbiased judgment and
the further duty as an officer of the court, to conduct the case
not only with
the utmost care to the client's interest, but also to ensure that the case is
conducted with scrupulous fairness and
integrity. Reference was made to
Pittman v. Prudential Deposit Bank Ltd. (1896) 13 TLR 110, in which Lord Esher
MR said at 111:
"In order to preserve the honour and honesty of the profession itThese are words of considerable wisdom and practitioners would do well to heed them.
was a rule of law which the Court had laid down and would always
insist upon that a solicitor could not make an arrangement of any
kind with his client during the litigation which he was conducting
so as to give him any advantage in respect of the result of that
litigation. That might be said to be on account of the fiduciary
relation between the solicitor and the client. But the doctrine
was founded upon a higher rule. The responsibility of persons
engaged in the profession of the law was very great, and their
conduct must be regulated by the most precise rules of honour. The
Court thought that, unless the rule was carried out to its fullest
extent, there would be a temptation to solicitors which they
should not be subjected to. It was useless to say that in the
particular case the solicitor was not tempted and that he acted
from the most honourable motives. The law was universal that,
without considering the motives of the particular solicitor, a
solicitor must not persuade his client, or indeed accept from his
client a voluntary offer, so as to obtain any advantage dependent
upon the result of the litigation which he was then conducting."
Conflict of interest where settlement inclusive of costs
83. In New South Wales it has long been recognised that when advising a
plaintiff in respect of the settlement of the plaintiff's
claim, the solicitor
will be put in a position of a conflict of interest, unless consideration is
given to the settlement of the
claim itself independently of the claim the
plaintiff might have against the other party in respect of costs. Apparently
this principle
has not fallen for judicial consideration in the Australian
Capital Territory previously, but the solicitors, who practise in New
South
Wales as well as in the Territory, must have been aware of it. It is the basis
for the practice followed both here and in New
South Wales that such conflict
of interest stands in the way of the approval of the Court being sought for
the settlement of a claim
for damages made by an infant or other person under
disability, if the agreement reached is for a payment of money by the
defendant
inclusive of the defendant's liability to pay the plaintiff's costs.
84. The New South Wales Practice Note of 13 June 1967, reprinted in Ritchie's
Supreme Court Practice (NSW) at para. 8694, is as follows:
"The practice according to which a defendant makes an offer of a85. It is to be emphasised that the first paragraph of the above is not restricted to negotiation of settlements on behalf of persons under disability, and that it applies to such negotiations in respect of all clients. It does not lay down new law. The underlying principle must be understood and observed by legal practitioners in this Territory.
sum inclusive of costs in settlement of any action for damages is
to be deprecated, as it tends to place the plaintiff's solicitor
in a position in which his personal interest conflicts with that
of his client. Such settlements should therefore not be entered
into by solicitors.
Where the plaintiff is an infant, approval of settlement will be
withheld if it is not made clear that the amount of damages was
first agreed upon, with costs to be agreed or in default of
agreement taxed; and that if, at the time approval is sought,
costs have been agreed, that they were the subject of subsequent
and independent negotiation."
86. In McLennan v. Phelps and Another (1967) 86 WN 86 at 88, O'Brien J stated
the principles with utmost clarity and force:
"The practice which is here demonstrated, and which is of recent87. These remarks were supported by Moffit J in Beavan v. Pengelley (1967) 86 WN (Pt. 1) NSW) 90, who did so with the comment at 93 that their full significance might not have come to the attention of all members of the profession.
origin, whereby offers are made by an insurance office to a
plaintiff of settlement upon the basis of a lump sum inclusive of
costs, seems to me, in the type of litigation with which I am here
concerned, to have undesirable features, to some aspects of which
I should advert. Whilst it might suit the convenience of the
office to engage in settlements on such a basis, it must
frequently place a solicitor for a plaintiff in an invidious
position, especially when regard is had to recent events and
publicity. He is left to extract from the lump sum, exclusively
upon his own explanation to his client, a sum representing costs
for which the defendant is required to indemnify the plaintiff by
reason of his success in the action, but in the assessment of
which the solicitor for the office has, in fact, refused to take
any part, or refrained from doing so. This, of course, refers to
the assessment of costs on a party and party basis, which will
usually form the bulk of costs assessed on a solicitor and client
basis. There is thus removed from the case that strong element of
assurance of the fair estimation of costs which is normally
provided when an assessment is reached of party and party costs
between the solicitor for the plaintiff and the solicitor for the
defendant whose client is to pay such costs. A fair-minded
solicitor is, therefore, prompted by such a form of settlement to
understate his proper remuneration and reimbursement in an
endeavour to maintain and demonstrate the honourable standards
and reputation both of himself and of his profession; or,
alternatively, he may be obliged, for the assessment of the proper
costs to be charged to his client, and for his own protection, to
the necessity, which is neither economical in his client's
interests nor conducive to the expedition of litigation, to
prepare and deliver an itemized bill and to present it for
taxation to the proper officers of the court. Perhaps more
importantly, there is inherent in such forms of settlement a
temptation to that possible small minority of the profession
which, recent experience has shown, can be prone to a temptation
to deduct sums which exceed those properly chargeable for costs;
this is the very thing to which the court in recent months and the
professional bodies themselves have devoted so much time and
anxiety and which has been productive of so much disillusionment
and regret."
88. In Victoria it has been said that there is no reason why in an appropriate case the plaintiff's legal adviser should not negotiate a settlement in respect of costs as well as in respect of damages, provided that regard is had to the interests of the plaintiff. What is in general to be avoided is an attempt to determine the amount payable for costs before a compromise has been reached and approved in relation to the claim itself. Once a compromise has been reached, there is no reason why the parties should not agree upon the amount of costs in order to avoid the delay and expense of taxation: Sztockman v. Taylor (1979) VR 572.
89. Fortunately in the case of Messrs Rees and Robb there is no allegation of overcharging. The principles, however, remain to be recognised and observed.
90. The solicitors displayed no understanding or even recognition of these principles. Their ignorance in that respect underlines their failure to understand that moneys received on a client's behalf following settlement of the client's claim are received in trust and that the fiduciary duty owed to the client in respect of those moneys remains until such time as they are dealt with in accordance with the client's instructions given by the client unequivocally and after being fully informed by the solicitor as to the proposed dispersal.
Agency
91. It was submitted on behalf of the solicitors that it was relevant for the
Court to take into account the consideration that the
disbursements paid by
the solicitors out of their office account in respect of personal injury
litigation (whether paid before or
after the receipt of settlement or judgment
moneys) were the liability of the solicitors and not of the client. The
significance
of the consideration is that if the liability were not that of
the client, then the client had no interest in whether or not the
solicitors
discharged their liabilities to third parties in respect of expenses run up in
the conduct of the litigation. With particular
regard to the liability to pay
counsel's fees, there was of course never any responsibility on the part of
the client to make the
payment to counsel and that responsibility always
remained with the solicitor.
92. In our view, there is no general principle that a client is not liable
for the debts incurred by a solicitor in respect of the
conduct of litigation
on the client's behalf. The question is essentially one of the ordinary law of
agency. In some situations the
client may be liable to the third party, in
others not. Cordery on Solicitors (8th ed) at 99 puts it thus:
"In general a third person who has contracted with a solicitor93. Mr. Conti QC for the solicitors cited Hichens, Harrison, Woolston and Co. v. Jackson and Sons (1943) AC 266 in which it was held that where solicitors instructed stockbrokers to sell stock belonging to the client, and enclosed a blank transfer signed by the client, the instructions to sell were given by the solicitors as principals so that they were liable for non-performance. The case is given as an example in Bowstead on Agency, 15th ed. 1985 at 441 in an illustration of the general principle that an agent who makes a contract on the principal's behalf is liable to the third party in accordance with the terms of any contractual arrangement with the third party, whether upon the same contract or upon some independent contract, into which the agent has entered with the third party. But, in our view, whilst there can be no doubt about the general principle, each case will turn upon its facts. Ultimately, it is not necessary, for the purpose of evaluating the conduct of the solicitors, to decide whether the disbursements incurred by the solicitors in respect of the litigation conducted by them on behalf of their plaintiff clients were enforceable against them alone or against the clients as well. Again, it is to the fiduciary duty and conflict of interest to which regard should be had. If the client had been fully informed that the solicitors were assuming liability to the third party for disbursements incurred, and that the clients need not concern themselves with the liabilities to third parties, then the conflict, or some of it, might have been avoided. But no assurance was given or even attempted. Nor could it be given unless the arrangements made by the solicitors with the third parties was such that the third parties contracted with the solicitors as principals and not as agents on behalf of the clients. In our view, the evidence in this case did not go so far. In the hypothetical scenario of the solicitors refusing to pay their expert witnesses, for instance, or going bankrupt, it seems to us that there would be nothing to prevent the expert witnesses recovering from the client.
knowing that the solicitor was acting on behalf of an existing
client whose name was disclosed, must sue the client and not the
solicitor, but in certain exceptional cases the solicitor may be
personally liable on the contract ...."
94. There is abundant authority to the effect that solicitors should be careful when charging costs to clients to distinguish between the ordinary office expenses, such as rent, cleaning and so on, which are the responsibility of the solicitor and are to be absorbed into the solicitor's profit costs, and the expenses which are incurred for the purpose of conducting a particular matter on behalf of the client, which are the responsibility of the client. That there may be grey areas, such as long-distance telephone calls, costs of courier dispatched correspondence and the like, does not obscure the fundamental distinction and the need to recognise that whilst the use of a client's money to pay the expenses incurred on behalf of the client will not of itself involve breach of fiduciary duty if the solicitor is so authorised to expend the client's moneys, the solicitor may not properly use the client's moneys to pay the solicitor's expenses without clear authority. Again in the present case, the practice of the solicitors with regard to the liability for disbursements and payment in discharge of that liability displayed a lack of awareness of the conflict between their own interests and the interests of the client. Furthermore, whatever state of mind underlay the practice at the time, they continued through the conduct of their defence to the proceedings to seek to justify the practice. They offer no reason to justify the practice except their own belief that they were acting on the authority of the client. There was no such authority and, in our view, the practice cannot be justified.
Payment of disbursements and withholding of cheques drawn for disbursements
95. The practice of the solicitors of writing cheques for counsel and then
retaining those cheques often for several months before
sending them to
counsel, in the circumstances of the case, amounts to professional misconduct
because the proceeds of the cheques
represented funds which belonged to the
client until the cheques were met on presentation. The practice is
illustrative of the indifference
shown by the solicitors to their fiduciary
duties. So long as they delayed in paying counsel once they had transferred
moneys for
that purpose from their trust account to their office account, they
were in breach of that duty. Their practice of writing cheques
in advance of
receipt of settlement or judgment in order to minimise their tax liability for
the current tax year, whilst itself
perhaps not in breach of their fiduciary
duty, was entirely consistent with their attitude that once the moneys were
recovered by
them and transferred from trust to office account, those moneys
were theirs to dispose of as they liked.
96. The practice of having the office accountant hold cheques for counsel in a folder but not to be paid to counsel until authorised by a partner was not justified for any reason advanced by the solicitors themselves or by counsel on their behalf. Their conduct went beyond simply holding the cheques for Mr. Walmsley as a matter of convenience until the cheques were handed over to him in a batch at a meeting. The practice in some instances amounted to a manipulation of the relationship which had been built up with Mr. Walmsley. It was in breach of the fiduciary duty to the client. It gave rise to a breach of para.98(2)(v) of the Legal Practitioners Act, in that while cheques were "prepaid" in respect of disbursements for which the time of payment had not yet arrived, and while cheques drawn remained undelivered to the payee for periods exceeding a month, the accounting records kept by the solicitors were not able to be conveniently and properly audited and did not disclose the true position in relation to trust moneys.
Cash management account
97. What is important again is not the relatively small profit made by way of
interest which should have gone not to the solicitors
but to their clients.
What is significant is the ignorance or the indifference of the solicitors to
the interests of the client in
what they were doing with moneys which had been
removed from the client's trust account into their own office account and then
into
the cash management account for the purpose of collecting interest.
Refund of disbursements
98. Ms. Sayer discovered that in some matters refunds were due to clients in
respect of disbursements that apparently had been over-estimated
by the
solicitors when they had originally given the client a letter summarising
their profit costs and disbursements. In most cases
referred to there had been
delay of at least months and in some cases of over a year before the
solicitors refunded the client's
money to the client. These matters are of
importance because they show that although the solicitors had the use of the
money in the
meantime, they ultimately acknowledged that they had to account
to the client for moneys which had never lost the quality of trust
moneys.
99. There were also examples of moneys being paid to the solicitor by Comcare, being refunds of disbursements overpaid by the solicitors. There were three examples where the solicitors paid these amounts directly to their office account, which was in clear breach of their duty to hold the money in their trust account under s.87 of the Legal Practitioners Act. Although there was comparatively little delay (some weeks in each case) in forwarding these moneys on to the clients by drawing a cheque in the clients' favour on the office account, the solicitors nevertheless used the moneys as theirs in the meantime. The breach is therefore more than a technical breach, even though it may have resulted from inadvertence. It was a failure to be diligent as to whether clients' funds were being used for their own purposes rather than in accordance with their fiduciary duty.
Credit balances in office account
100. There may, of course, be many reasons for such a result. It should be
emphasised that there is no good reason for an office account
ledger being in
credit. If it is, it stands as much as a warning sign to the solicitor as does
a trust account ledger showing a debit
balance.
101. A diligent solicitor will have scrutinised office account ledgers, or caused them to be, so as to know, within a short time, of positive balances.
102. A credit balance will indicate a sum due to, instead of from, the client. It is a situation which requires attention out of duty to the client. It may indicate funds which the solicitor is under a fiduciary duty to refund to the client.
103. Failure to notice and attend to such credit balances is further illustrative of the solicitors' ignorance of, or indifference to, their proper responsibilities.
Allegations concerning Mr. Noel Power
104. The facts were not disputed. The solicitors had taken over a partially
completed matter from a Mr. Tantala, a solicitor whose
name was subsequently
removed from the Roll of Barristers and Solicitors. The work remaining to be
done was, essentially, the taxation
of the party/party costs in relation to
Mr. Power's third party claim.
105. By letter dated 8 September 1992 (Exhibit 7), Mr. Robb wrote to Mr.
Power reporting the result of the taxation of costs. All
that then remained to
be done was recovery of interest on the sum allowed for costs and a final
accounting to Mr. Power. There is
an erroneous statement in Mr. Robb's letter.
He stated,
"We confirm that we are entitled to interest on the taxed costs106. Any interest payable and recovered belonged to Mr. Power, not the solicitor. It must be emphasised that such funds, when received, are moneys of the client, as much as any other part of the verdict and recoverable costs. They could only be appropriated by the solicitors pursuant to a proper authority of the client.
and we have requested the defendant to pay this."
107. However, nothing turns on that misstatement. It is, however, indicative of the attitude otherwise displayed by Mr. Robb towards moneys received on account of party/party costs and disbursements.
108. The letter went on,
"We confirm that any money which we recover from the defendant109. There was then enclosed a document described as a "memorandum of costs and disbursements" (the Memorandum). It was said to embrace,
will be absorbed in the costs and that you are not entitled to any
further refund. Indeed, given the fact that the party/party Bill
was drawn in excess of $30,000.00, there will be a significant
shortfall between the amount which we recover and the amount which
is properly payable to you."
"... the professional costs in relation to the running of your110. The solicitors had, with Mr. Power's consent, taken over the matter from Mr. Tantala in August 1990. They had paid a sum to Mr. Tantala representing his then outstanding costs and disbursements. It was one of a number of matters similarly taken over from Mr. Tantala.
third party claim and does not take into account the disbursements
which were paid by Mr. Tantala on your behalf. We will leave the
balance of the account in abeyance until we have finalised the
question of interest with the defendant."
111. As a result of that transaction, of course, the solicitors became entitled to be paid by Mr. Power a fee representing a fair charge for the work done not only by them but also by Mr. Tantala.
112. The solicitors then proceeded to finalise the matter. They entered into negotiations with the solicitors for the defendant in the third party action, no doubt hoping to avoid a taxation of the party/party costs.
113. Those solicitors, in January 1991, tendered $20,000.00, contending that to be sufficient to satisfy the costs order in favour of Mr. Power after offset of some smaller costs orders in favour of the defendant.
114. That sum was initially invested on Mr. Power's behalf. In June 1991 it was forwarded to him together with interest of $860.00.
115. A Bill of Costs (the Bill) was then professionally drawn. It details work done and disbursements incurred in the action up to the date of preparation of the Bill, including costs usually claimed as consequential to the taxation of costs. It does not appear whether it included costs and disbursements which would unarguably have been recoverable only on a solicitor/client basis.
116. The Bill, as drawn, claimed $30,940.89 for costs and $29,832.50 for disbursements. In March 1992, it was taxed by the Deputy Registrar of this Court and allowed, as against the defendant, at $21,246.73 for costs and $22,590.50 for disbursements.
117. Thus the defendant was required to pay a further sum of $23,837.23. That was done on 17 March 1992. The Memorandum sent to Mr. Power on 8 September 1992 claimed $30,000.00 for costs and $29,832.50 for disbursements. After credit for sums received and retained, a balance of $10,768.50 was claimed as due from Mr. Power. A further sum of $4,426.19 was received in January 1993 representing the difference between interest payable by the defendant upon the order for costs and the costs payable by Mr. Power to the defendant under previous costs orders.
118. Thus the claim by the solicitors for costs was reduced to $6,342.31 as at January 1993.
119. The solicitors took the view that the Memorandum represented less than might have been recovered had the Bill, as drawn, been taxed on a solicitor/client basis. They, therefore, looked to Mr. Power to pay to them the sum of $6,342.31.
120. However, Mr. Power did not accept that position.
121. He complained to the Law Society in March 1994. His complaint, however, was not as to the lack of detail in the Memorandum. It was that he had been led to expect that he would not have to pay anything to the solicitors for their work in finalising the matter over and above the moneys recovered by the solicitors.
122. The Law Society responded to Mr. Power's complaint. There were informal
discussions with Mr. Rees by telephone on 23 May 1994
and 2 June 1994. The
Professional Standards Director (the Director) wrote to the solicitors on 6
June 1994 (Exhibit 7) formally requesting
a response in the following terms,
"Answer how your professional costs of $30,000.00 in your123. Mr. Rees responded on behalf of the solicitors by letter dated 20 July 1994.
account dated 8 September 1992 were calculated and to which work
this was referable.
Advise why there is no reference made to the fact that
Mr. Tantala had already costed in his account of 24 July 1990,
the professional costs of handling Mr. Power's third party
claim. These costs (and disbursements) totalling $22,000.00
were deducted from the moneys received on behalf of Mr. Power.
Mr. Tantala also retained $15,000.00 to cover anticipated
disbursements for counsel's fees and the accountant's costs.
Provide to the Committee a copy of the accounting to Mr. Power
for all damages awarded, costs ordered, and paid, and moneys
paid for and on his behalf."
124. He acknowledged that Mr. Tantala had previously charged Mr. Power for costs and disbursements in the matter. That had been an interim account only. The sums retained by Mr. Tantala to cover those costs had, in fact, already been refunded to Mr. Power. He referred to the sum of $20,860.00 already paid out to Mr. Power and pointed out that that sum covered the costs actually appropriated by Mr. Tantala.
125. He then detailed the sums received for party/party costs and interest thereon. He referred to the costs orders against Mr. Power.
126. It was clearly stated by Mr. Rees that the Memorandum was intended to cover all the costs of the proceedings referred to in the party/party Bill as well as any work undertaken by the solicitors to finalise the matter and not included in it.
127. As to the costs and disbursements claimed, he said,
"You will note therefore that even having regard to the128. It is true that it was more likely than not that the party/party Bill, supplemented by items of work either not claimed in it or occurring following the taxation of it, as the case may be, could well have exceeded the balance claimed in the Memorandum. However, it was not entirely accurate to assert that less than the party/party costs had been received.
party/party costs a Bill that was drawn in this matter (sic), this
office has received an amount even on a party/party basis of less
than what we are entitled to. Mr. Power has in fact not paid any
amount for solicitor/client costs and it is also clear that if we
were to tax the file again in relation to solicitor/client costs
we would be entitled to a substantial amount from the plaintiff in
addition to the amount still owed in respect of our Memorandum of
Costs of the 8th September 1992."
129. A sum of $21,246.73 had been allowed on taxation for party/party costs. The solicitors claimed $30,000.00 in the Memorandum. They had received $19,231.50 for costs as at the date of the Memorandum. They thereafter received the surplus of interest over costs owed to the defendant of $4,426.19. Thus they received a total of $23,657.69 for costs which does exceed the sum allowed for party/party costs on taxation.
130. Nevertheless, nothing turns on this inaccuracy.
131. Following receipt of this detailed explanation from Mr. Rees, the Society did not respond until 7 October 1994. In that response, the Director noted that Mr. Power had, on 5 October 1994, requested the solicitors, purportedly pursuant to s.179 of the Legal Practitioners Act, to provide an itemised statement of the costs and disbursements claimed in the Memorandum of 8 September 1992.
132. Mr. Rees failed to respond to this request immediately. His failure to respond was drawn to his attention by the Director in a letter dated 20 January 1995. Mr. Rees was requested to comply with Mr. Power's request within 14 days.
133. Mr. Rees did so by letter dated 8 February 1995. It stated,
"We herewith enclose itemised memorandum of costs. We note that134. This letter, to a litigation solicitor familiar with the background of the matter, might well have conveyed the meaning Mr. Rees no doubt intended. That is, that the Bill as drawn would stand as his firm's solicitor/client bill without further addition and that if it was to be taxed on a solicitor/client basis, a sum of $16,936.16 at least would be found to be due from Mr. Power. What Mr. Power would have understood of it, however, can only be guessed at. It does not stand as a good example of clear communication.
this has previously been forwarded to you and had been taxed in
March 1992. Could you please advise whether you require a further
taxation in relation to this itemised bill or whether you are
prepared to accept the former assessment.
We believe that this office is entitled to the sum of $16,936.16
plus any additional interest as part of solicitor/client costs and
if this matter proceeds to taxation and the taxing officer agrees
that this amount is owing, we will be seeking recovery from you of
this sum.
We look forward to hearing from you as to whether you require the
itemised bill of costs which has previously been taxed to again be
taxed."
135. Further, there were some details which were inaccurate. It is not clear whether a copy of the Bill of Costs had previously been sent to Mr. Power. Nor is there any provision we know of to enable a taxing officer, absent a specific fees agreement, allowing a solicitor "additional" or, indeed, any interest on a sum found to be due on a solicitor/client taxation. This, perhaps, is another illustration of the misconception the solicitors entertained in relation to recovery of party/party costs and disbursements and of interest on costs orders.
136. Further, the difference of $16,936.16 between the Bill as drawn and the costs and disbursements allowed on taxation was not automatically identical to the entitlement of the solicitor to costs and disbursements after credit for party/party costs received. The balance due from Mr. Power would have to have been reduced not only by the sum of $4,426.19 received as the balance of interest on the costs order, but also by the sums by which the accountant and barrister had reduced their fees below those claimed in the Bill. The accountant, for example, had charged $12,474.00. A sum of $4,500.00 only was allowed on taxation. He agreed to accept $8,000.00. The barrister rendered a claim for fees in the sum of $12,045.00. $9,500.00 was allowed on taxation. Mr. Rees did not expressly say whether the barrister had agreed to forgo the difference, but having regard to the firm's practice as outlined in the evidence, we would assume it was. Whether this was simply overlooked, or whether Mr. Rees considered the difference between the disbursements originally claimed and the sums accepted by the accountant and the barrister to be the solicitors' money if paid by Mr. Power on taxation, is not clear. Any such reduction of disbursements is for the benefit of the client, not the solicitor.
137. Mr. Rees wrote to the Society on the same date stating,
"We advise that an itemised memorandum of costs has been forwarded138. When he sent the letter, Mr. Rees said he believed he had stated the truth. In fact he did. In any event, we accept his evidence that he believed that his statement was true.
to Mr. Power and we are awaiting his response as to whether he
requires his bill of costs to be taxed."
139. The Director responded on 24 February 1995. No doubt Mr. Power had
sought from her an interpretation of what Mr. Rees had written.
Unfortunately,
her understanding of it appears to have been insufficient to enable her
correctly to do so. This appears from her
comment in her letter,
"It does not appear that you have provided the itemised bill140. The Director then advised Mr. Rees that Mr. Power had been referred to another solicitor for independent legal advice.
sought by Mr. Power, namely in respect of your account dated
8 September 1992."
141. The matter of Mr. Power's complaint then seems to have been once more referred to the Society's Complaints Committee.
142. On 6 April 1995 the Director wrote again to the solicitors. She noted that she had received no response to her letter of 24 February 1995.
143. In truth, her letter had not called for a response. It foreshadowed Mr. Power obtaining further legal advice. Mr. Rees no doubt would have assumed that Mr. Power would consult a solicitor experienced in litigation practice who would be able to interpret his letter to Mr. Power as he had intended it to be understood and who would then discuss the merits of the solicitors' claim for the balance of their costs.
144. The Director went on to advise the solicitors that both the Committee and the Executive considered that there had been a failure to meet Mr. Power's request and that the matter would be referred to the Council of the Society.
145. Surprisingly, no member of the Committee, the Executive or, ultimately, the Council, appears to have correctly interpreted Mr. Rees' letter to Mr. Power.
146. On 7 April 1995, Messrs Abbott Tout Russell Kennedy wrote to the Director on behalf of the solicitors. The author, Mr. Harper, was an experienced litigation solicitor, practising mainly in the personal injury area.
147. Mr. Harper first raised an issue as to whether it was fair to pursue the complaint by Mr. Power further whilst the matters referred to in Ms Sayer's report were also before the Council.
148. The letter concluded,
"A secondary issue, which we hope we can deal with later, relates149. Mr. Robb and Mr. Rees each wrote to the Director on 7 April 1995. Mr. Robb pointed out that, apart from the perceived unfairness of pursuing the Power matter along with the other matters, there had been discussions with Gillespie-Jones and Co, solicitors acting for Mr. Power, which had yet to conclude. However, he denied the allegation that no itemised statement had been forwarded to Mr. Power.
to the substance of the Power complaint. Having read the
correspondence, we submit that the Society has not spelt out the
complaint ... we are not able to identify the alleged misconduct
from the correspondence."
150. Mr. Rees, in his letter, set out, this time with clarity, the proposition that the 'itemised bill' meeting Mr. Power's request was the same Bill as that which had been taxed in March 1992.
151. Subsequently, in an endeavour to end the dispute with Mr. Power, Mr. Rees wrote to Mr. Gillespie-Jones on 3 May 1995 and, whilst reiterating the basis for his firm's claim to further costs from Mr. Power, waived any claim for any balance then due. In fact, if Mr. Rees had adverted to the need to allow credit for fees waived by the accountant and the barrister, together with the interest payment received, there would, in fact, have been a refund of $462.91 to Mr. Power. However, we are prepared to accept that Mr. Rees had not adverted to that matter when he corresponded with Mr. Gillespie-Jones. Indeed, neither did the latter, although Mr. Rees had quite openly drawn the Society's attention to the fact that credits had been negotiated with the accountant and, by inference, the barrister.
152. There was then a conference with Mr. Gillespie-Jones, the content of which was confirmed by letter written by Mr. Rees on 19 May 1995. That letter confirms that Mr. Gillespie-Jones had had all relevant matters fully explained to him.
153. As a result of that conference, Mr. Gillespie-Jones advised the Society that he was satisfied that there had been no apparent overcharging of Mr. Power by the solicitors. The Bill was not then re-taxed.
154. According to a letter from the solicitors for the Society dated 11 July 1995, however, Mr. Power remained dissatisfied and the Society sought to press the complaint in relation to 'other issues'. It did not identify what those 'other issues' were.
155. It was not until 4 August 1995 that the Society was able to formulate what it was in relation to Mr. Power's complaint that gave rise to an allegation of unsatisfactory professional conduct or of professional misconduct which might be dealt with pursuant to s.67 of the Legal Practitioners Act.
156. That was expressed by the Director in a letter of that date as follows,
"... the alleged delay in failing to give Mr. Power an itemised157. During the course of the hearing before the Court, realisation dawned on those representing the Society, that the document forwarded by Mr. Rees to Mr. Power on 8 September 1992 was indeed an itemised statement of the only costs and disbursements the solicitors had proposed to claim from Mr. Power. The term 'itemised statement' is defined in s.177 of the Legal Practitioners Act. That provides,
account of costs and disbursements and a representation by
Mr. Rees on 8 February 1995 that Mr. Power had been provided with
an itemised statement of costs and disbursements referrable to the
firm's memorandum of costs and disbursements dated 8 September
1992."
"'itemised statement', in relation to a solicitor's costs and158. The Bill and accompanying letter of 8 February 1995 satisfied this definition. Thus, any foundation for complaint concerning Mr. Rees' representation to the Law Society of the same date, fell away.
disbursements, means a statement -
(a) showing each item of costs or disbursements claimed by the
solicitor; and
(b) signed by -
(i) the solicitor; or
(ii) another solicitor who is -
(A) a partner of;
(B) the employer of; or
(C) employed by;
the first-mentioned solicitor;"
159. That left the question of delay to be addressed.
160. Section 178(1) of the Legal Practitioners Act limits the right of a solicitor to sue for recovery of costs or disbursements. No such proceedings can be taken until one month after an itemised statement thereof has been delivered to the person from whom the costs and/or disbursements are otherwise recoverable.
161. The intention behind s.178 is to give a fair opportunity to have a solicitor's claim for costs and disbursements taxed before the person liable to pay is sued for them. Section 179(1) enables persons to request, in writing, an itemised statement in respect of any costs and disbursements paid or payable by them to a solicitor irrespective of whether the solicitor has commenced, or desires to commence, proceedings to recover costs or disbursements from them.
162. Section 179(1A) provides:
"A request under subsection (1) shall be made -163. Section 179(3) refers to the response to such a request required from a solicitor. It provides:
(a) in the case of a person who has not paid a solicitor's costs
or disbursements - within 3 months after receiving a written
account of those costs or disbursements;
(b) in the case of a person who has paid a solicitor's costs or
disbursements - within 3 months after paying those costs or
disbursements; or
(c) within such further time as the Registrar allows."
"Where -164. The other provisions are not relevant for present purposes.
(a) a solicitor receives a request pursuant to subsection (1) from
a person who has paid the costs and disbursements to which the
request relates; and
(b) the solicitor does not, within 3 months of the date of
receiving the request or within such further time as the Registrar
allows, give to the person an itemised statement of the costs and
disbursements;
the solicitor is liable to repay the amount of the costs and
disbursements to the person."
165. It will be observed that, in fact, s.179 requires of a solicitor the delivery of an itemised statement in question within three months only in respect of costs and disbursements which have been paid by the client. There is no such requirement imposed on a solicitor who is seeking to recover costs or disbursements from a client who has not paid them. In this case, Mr. Power was not seeking to pay less than the party/party costs and disbursements recovered. He was seeking an explanation for the claim to the balance claimed in the Memorandum.
166. In any event, the only consequence of delay as prescribed by s.179 is that the solicitor will be obliged to refund the costs paid and will be unable to proceed to sue to recover fees until the expiry of the time referred to in s.178(1) of the Legal Practitioners Act.
167. In any event, the response is only required following a request from a person made pursuant to s179(1A).
168. Mr. Power's request was, in fact, well outside the time referred to in s.179(1A). He would have needed an extension of time from the Registrar for the request to have carried any statutory consequence.
169. That does not mean, of course, that the solicitors were entitled to disregard Mr. Power's request. Even though Mr. Power's third party claim had been finalised and the final accounting done, the solicitors had a duty to respond to requests for clarification or explanation from him. Apart from their general professional duty, the solicitors had a duty to facilitate a possible decision by Mr. Power as to whether or not he should seek to exercise such rights as he might have had under Part XV of the Legal Practitioners Act to tax the costs and disbursements charged to him.
170. It should be emphasised that recovery of party/party costs and disbursements and of any interest thereon does not affect or qualify the rights of a client under Part XV to have his or her costs and disbursements taxed as between himself/herself and the solicitor.
171. It does not automatically follow that a solicitor is entitled as against a client to payment of the difference between a Bill of Costs as drawn and the amount allowed on a party/party taxation. Absent any other reasonable fees agreement, a solicitor is only entitled as against the client to a fair fee assessed by reference to the scale set under the Rules of Court. It would not be unusual for costs and disbursements assessed on that basis to exceed the sum allowed on a party and party taxation in the same matter. Further, if the Bill, as drawn, had not claimed items allowable only on a solicitor/client basis, it would be likely that a proper solicitor/client bill would exceed the amount at which a party/party Bill had been drawn. However, it is theoretically possible for items claimed in a party/party Bill to be disallowed even on a solicitor/client basis.
172. Even if the three month time period referred to in s.179 be accepted as a general guide to what is a reasonable period within which a solicitor should provide an "itemised statement" of costs and disbursements, to exceed that time by one month as has occurred in this case, given the other professional issues with which the solicitors had to contend over that period, does not seem to me to be such as could be described as 'gross' or even unreasonable. This is the more so when, to decide whether the party/party Bill of Costs should stand as the itemised statement or whether it needed revision or supplementation was a relatively complex question particularly having regard to the fact that the matter had then been completed for more than two years. In any event, that time constraint is itself capable of extension by the Registrar in a proper case.
173. This complaint was misconceived. It is apparent that, but for the other matters of complaint, it would not have been referred to the Court. No action in relation to Mr. Rees is called for.
Generally
174. In our view the solicitors were in breach of sub-s.87(1), s.91 and
sub-s.92(2) of the Legal Practitioners Act. The breach was
not wilful in the
sense that they acted knowing that they were in such breach of those express
provisions. But whilst the obligations
set out in the statute are strictly to
be observed and failure to comply is not lightly to be excused, the statutory
provisions are
all predicated upon the particular nature of the relationship
between solicitor and client, which is one of trust at all times. Once
the
solicitor allows a conflict of interest to develop, the solicitor must be
scrupulous in ensuring that the conflict of interest
does not lead to breach
of the fiduciary duty. Where the solicitor has a financial stake in the
outcome of a case and the quantum
of the monetary recovery on behalf of the
client, the solicitor's interest and that of the client may overlap but the
conflict continues.
The present solicitors have shown by their past conduct
that they did not appreciate or were indifferent to that simple truth. In
the
case of Mr. Robb, there were several aggravating factors to which we have made
reference. The propriety of a solicitor's conduct
is not to be measured solely
by the results obtained for clients or by the esteem in which he or she is
held by other practitioners.
The efficiency of the solicitors in obtaining
money for injured plaintiffs is undoubted, but it is also clear that they
tended to
allow the practice to become a litigation factory, oblivious to the
true nature of the duty to the clients and to counsel and others
on whose
forbearance they relied for the very success of their venture. Their conduct
was not based on any positive but mistaken
belief that they were acting in
accordance with the Legal Practitioners Act. They assumed all too readily that
because recovery of
their profit costs and disbursements depended upon their
obtaining a successful result for the client, the interests of the client
and
of themselves coincided. It is clear that insofar as they did not direct their
minds to their fiduciary position and to the conflicts
of interests, their
conduct was wilful in the sense that it was done with reckless indifference to
the obligations of which they
should have been aware: see Re Hodgekiss (1962)
79 WN (NSW) 163, 171-172. Insofar as the conduct persisted over a period of
time
and was deliberate, the fact that particular failures have not been shown
to have occurred in more than a small proportion of cases,
does not justify
the Court taking other than a serious view of their misconduct.
175. The solicitors have relied on evidence contained in affidavits from a large number of legal practitioners in Canberra and elsewhere who know the solicitors personally and who have had professional dealings with them. The evidence attests to what the deponents believe to be the honesty and efficiency of the solicitors and to their good works in the community. It needs to be said once again that evidence of this nature can be of only limited assistance unless the writers address the question of the solicitors' misconduct.
176. An omission from the evidence of the numerous and experienced legal practitioners who have furnished affidavits in support of the solicitors is of some eloquence. Not one of the practitioners has deposed to following the practice of the solicitors which is at the heart of the allegations against them, namely, retention in the office account of moneys transferred from the trust account to the office account for the purpose of paying outstanding disbursements. Despite the submission on behalf of the solicitors that the practice is justified because it is followed by numerous other solicitors, there is not a word of evidence to support that submission in fact, nor, in our view, to support any such practice in principle. The silence of the evidence in this respect tends to support Mr. Walmsley's statement in his letter of 30 August 1993 that there was unanimity in the profession that as soon as money for unpaid disbursements goes into the office account, cheques must be drawn and sent.
177. Delay or failure by a solicitor to pay counsel is of course not a new
phenomenon and will probably occur from time to time so
long as there is a
divided profession, as there is to some extent in this Territory. There will
no doubt often be reasons advanced
in order to justify such delay or failure.
But where the solicitor holds a client's funds for the very purpose and uses
them for
the solicitor's own ends, then the solicitor's conduct is such that
the Court must take steps to ensure that the solicitor concerned
and other
members of the profession who might act likewise, whether through indifference
or ignorance, understand the seriousness
of their breach of duty. The breach
was condemned in round terms over a century ago by Manisty J in Re Farman
(1883) LJo. 352, cited
in Re M, a Solicitor (1938) St R Qd 454 at 462 and is
still worth repeating:
"..... and then the solicitor went on to say that (the clients)178. It is necessary then that the order of the Court, although not punitive in character, deliver the message that no matter how efficient, eminent or popular the practitioner, conduct like that in the present case must be understood by all practitioners to amount to professional misconduct. It is unacceptable to the Court that those who are guilty of it put at jeopardy the privilege conferred upon them of conducting litigation for profit within the Court, and within any other court in the Territory. In the case of Mr. Robb, the only appropriate order of the Court is that he forfeit his privilege of practice. In the case of Mr. Rees we take the view that it is appropriate to impose a substantial fine.
no doubt were aware that even large firms left counsel's fees for
long periods after having received the moneys from their clients -
sometimes for years. This he appeared to consider a sort of excuse
for his conduct. But if there were any in the profession who
considered that they were justified in receiving money for the
payment of counsel's fees and keeping it in their pockets, the
sooner those persons were disabused of that notion the better for
themselves and their clients."
179. The Court orders that Gary Alan Robb be suspended from practice as a barrister and solicitor for a period of eighteen (18) months, and that Gerard Peter Rees pay a fine of twenty thousand dollars ($20,000). We adjourn the proceedings until Wednesday, 12 June 1996 at 9.30 a.m. for any submissions on the date of commencement of the order for suspension, employment during the period of suspension and time to pay the fine.
180. We order the respondents to pay the costs of the Law Society on a solicitor and client basis.
181. The order of the Court prohibiting publication of anything to identify the respondents is vacated.
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