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Supreme Court of the ACT Decisions |
IN THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
MILES CJ, HIGGINS AND MADGWICK JJ
LEGAL PRACTITIONERS - fiduciary duty to clients - particulars of economic
loss in personal injury cases - routine reference
to company controlled by
employee of solicitors - cost of reports charged as disbursements - failure to
inform clients of relationship
between company and solicitors - failure to
recognise conflict of interests - whether professional misconduct or
unsatisfactory professional
misconduct.
LEGAL PRACTITIONERS - fiduciary duty to client - use of in-house counsel -
failure to inform client that practitioner
briefed as barrister was a partner
of solicitors - failure to recognise conflict of interests - whether
professional misconduct or
unsatisfactory professional conduct.
LEGAL PRACTITIONERS - professional misconduct - whether gross overcharging
- agreement
to carry out initial investigations without charging for that work
- client told she would be charged for it if case proceeded to
successful
conclusion - not gross overcharging for solicitor to claim such costs in such
circumstances.
LEGAL PRACTITIONERS
- professional misconduct - whether gross overcharging
- client given warning that unusual expenses may not be recoverable -
one-sixth
rule - no gross overcharging found.
LEGAL PRACTITIONERS - various charges of professional misconduct - failure
to advise
of basis on which matters settled - misleading client as to conduct
of litigation - negligent conduct of litigation - unintentional
overcharging
of travel expenses.
Legal Practitioners Act 1970 (ACT), s. 37, s.67, s.93, s.184, Part XV
Supreme Court
Rule s , 0 65 r 63, O 65 r 75
Ex parte Attorney General for the Commonwealth; Re a Barrister and
Solicitor (1972) 20 FLR
234
Re Guild, and Re Legal Practitioners Ordinance 1970 (1979) 32 ACTR 13
Chamberlain v. The Law Society of the ACT [1993] FCA 527; (1992) 43 FCR 148
Robb and Another v. Law Society of the ACT (1996) 72 FCR 225
Law Society of New South Wales v Foreman
(1994) 34 NSWLR 408
In Re Blyth & Fanshawe; Ex parte Wells (1882) 10 QBD 207
Marks v. National and General Insurance
Co. Ltd. (unreported, Supreme Court
of the ACT, Higgins J, 13 May 1996)
Watkins v. Alcock [1954] Tas SR 63
Commonwealth of
Australia v. Magriplis (1962) 3 FLR 47
O'Reilly v. Law Society of New South Wales (1988) 24 NSWLR 204
Re Veron; Ex parte
Law Society of New South Wales (1966) 84 WN (NSW) 136
Robb and Rees v. The Law Society of the ACT (unreported, Supreme Court
of
the ACT, Miles CJ, Gallop & Higgins JJ, 7 June 1996)
D'Alessandro v Legal Practitioners Complaints Committee (1995) 15
WAR 198
Veghelyi v The Law Society of New South Wales, (Legal Profession
Disciplinary Reports, No.2, 1996, p.9, supplement to
LSJ, August 1996)
The Law Society of the ACT, Guide to Professional Conduct and Etiquette
The Law Society of the ACT,
Ethos , November 1997
CANBERRA, ddmyyyy (hearing), 9 April 1998 (decision)
#DATE 09:04:1998
Appearances
Counsel for the applicant: R. Tracey QC with T. Ginnane
Solicitors for the applicant: Formerly Hill & Rummery and now
Hunt
& Hunt
Counsel for the respondents: C. Porter QC with G. Stretton
Solicitors for the respondents: Barker Gosling
Counsel for ACT Bar Association: D. Bennett QC with R. Livingston
Solicitors for ACT Bar Association: Phelps Reid
Order:
THE COURT:
1. This is an application by the Law Society made in order that the Court
may deal
with allegations of professional misconduct and unsatisfactory
professional conduct against two legal practitioners. The application
is
expressed to be made under s.67 of the Legal Practitioners Act 1970 (the Legal
Practitioners Act), but it is not to be overlooked
that the Court exercises,
in the public interest, an inherent jurisdiction relating to the discipline
and control of persons admitted
to practise as barristers and solicitors.
Subject to what appears below, that jurisdiction is not diminished by any
constraints imposed
by the attitude of the Law Society. The practitioners are
Mr Ernest David Lardner and Mr William Michael Charles Andrews. At all
relevant times they were members of the firm Snedden Hall and Gallop, which is
a firm of long-standing and well known in the Canberra
community. According to
examples of its letterhead in use at relevant times, the firm styled itself as
"Barristers and Solicitors".
It had ten partners and a smaller number of
"associates", who were presumably employees admitted to practise.
2. Mr Lardner
was first admitted to practise in Tasmania on 2 February 1969
and admitted to practise as a legal practitioner in the Territory on
7 January
1972. He was also admitted to practise as a solicitor in New South Wales on 18
May 1990.
3. Mr Andrews was first
admitted to practise as a legal practitioner in the
Territory on 17 July 1974 and admitted to practise as a solicitor in New South
Wales on 26 July 1974.
4. As will be indicated, both men practised in the ACT essentially as
solicitors and not as barristers.
They were not entitled to practise in New
South Wales other than as solicitors.
5. Apart from the matters now before the
Court, the two solicitors were
undoubtedly well respected amongst their professional peers and in the general
community. Mr Andrews,
in particular, was active in charitable organisations
and activities. It is significant that he devoted a substantial proportion
of
his professional time to what is becoming known as "pro bono" work, that is,
professional services rendered free of charge to
persons seeking legal advice
or representation who are unable to afford to pay for it.
6. The complaints made by the Law
Society against the solicitors are of
professional misconduct, or in the alternative, unsatisfactory professional
conduct. Like the
other Supreme Courts in Australia, this Court has, since its
creation, exercised its powers from time to time in relation to legal
practitioners against whom such complaints are alleged. It has sought to
describe professional misconduct for the purposes of the
circumstances of
particular cases and there are a number of pronouncements both reported and
unreported on what does or does not
amount to professional misconduct on the
part of a legal practitioner: see for instance Ex parte Attorney General for
the Commonwealth;
Re a Barrister and Solicitor (1972) 20 FLR 234, Re Guild,
and Re Legal Practitioners Ordinance 1970 (1979) 32 ACTR 13, decisions
of this
Court in which the earlier authorities are collected; see also Chamberlain v
The Law Society of the ACT [1993] FCA 527; (1992) 43 FCR 148 and Robb and Another v Law
Society of the ACT (1996) 72 FCR 225, decisions on appeal to the Full Court of
the
Federal Court in which the jurisdiction of this Court and the nature of
professional misconduct are discussed.
7. There is
little point in repeating what has been said on so many
occasions or in quoting passages from well known judgments. In view of what
has been said so clearly and so often, the Court is confident that persons
admitted to practise as legal practitioners in this Territory
do not lack an
understanding of the concept of professional misconduct and that the standards
of professional propriety in this Territory
will be maintained at a level no
lower than those in the rest of Australia.
8. In the decision of the Federal Court in Chamberlain
it was observed that
there were then no statutory definitions with respect to conduct which might
give rise to disciplinary action
against a legal practitioner. The legislature
of the Territory appears to have responded to this observation and, by Act No.
94 of
1993 commencing 24 December 1993, introduced into the Legal
Practitioners Act provisions relating to the meaning of professional
misconduct on the part of a legal practitioner which, generally speaking, are
to be applied in proceedings to which the Legal Practitioners
Act applies. It
also introduced a new concept of unsatisfactory professional misconduct and
conferred upon the Court certain powers
to deal with the legal practitioner
against whom unsatisfactory professional conduct is proved in such
proceedings. It is unnecessary
to consider whether and how these statutory
provisions apply to the exercise of the Court's inherent jurisdiction.
9. Section
37 of the Legal Practitioners Act now provides that
"professional misconduct" includes: "(a) unsatisfactory professional conduct
of a substantial, recurring or continuing nature;
(b) conduct (whether consisting of an act or omission) occurring otherwise
than in connection with the practice of law that would justify a finding that
its perpetrator is not of good fame and character or
is not a fit and proper
person to remain on the Roll of Barristers and Solicitors; and
(c) conduct that is professional misconduct
by virtue of section 118."
Section 37 also provides that unsatisfactory professional misconduct includes
conduct
"occurring in
connection with the practice of law that falls short of the
standard of competence and diligence that a client is entitled to expect
of a
reasonably competent legal practitioner".
11. The Court proceeds to consider the complaints made against the two
practitioners
in the light of these provisions of section 37, bearing in mind
that they are not true definitions but rather descriptions or examples
of what
is intended to be included within the meaning of the terms used. The Court
heard no submissions on whether the 1993 amendments
are retrospective in
operation, although the conduct in question occurred prior to the date of
commencement of the amendments.
12. The matters alleged against the two solicitors in the present case were
the subject of a report prepared by Ms. Jean Sayer
appointed to investigate
complaints made by a dissatisfied client of the firm, Dr Krimhilde Henderson.
Ms. Sayer was appointed on
24 November 1995. Her report is dated 19 February
1996. The two solicitors were given notice of the contents of the report and
invited
to respond. Their responses were such that some of the matters raised
in the report are not pursued in these proceedings.
13. Some of the complaints by the Law Society in these proceedings are made
against one of the practitioners only. Others are made
against both of them.
Some of the complaints involve conduct that appears to have been in accordance
with the practice of the firm.
No other members of the firm are parties to the
proceedings. No evidence was called from any of them. No findings will be made
against
any of them. However, acquiescence of other partners in the conduct
complained of may be relevant to the orders to be made.
14. There are two groups of allegations against both solicitors arising
from alleged breaches of fiduciary duty. These will be
dealt with before
proceeding to consider the allegations made against the individual
practitioners."Breach of fiduciary duty: Macquarie
Reporting Services" 15. Both solicitors
were engaged mainly in litigation practice, concentrating on claims by
plaintiffs for personal
injuries. These cases were conducted on a speculative
basis, that is, a "no win no fee" arrangement whereby the solicitors promised
to waive their own fees and the firm's fees in the event of not recovering
damages (and presumably costs) on the plaintiff client's
behalf. It is not
clear what arrangements, if any, were made for the payment of disbursements in
the event of not settling or winning
the case. Nor is it clear what advice, if
any, the plaintiff client was given about liability to pay the costs of the
defendant in
the event of losing the case. However, the possible lack of
advice to clients who stood to incur heavy financial liability to third
parties is not part of the Law Society's case against the solicitors.
16. A feature of the firm's practice in plaintiffs'
personal injury claims
was the routine reference of clients to an organisation called Macquarie
Reporting Services for the preparation
of "economic loss reports". These
reports related in the main to assessment of the value of the plaintiff's loss
of earning capacity
and it is not clear to what extent other financial aspects
of the plaintiff's claim, such as the Griffiths v. Kerkemeyer loss, the
Fox v.
Wood component, out-of-pocket expenses and so on were covered. They were not
covered in the case of Dr Henderson (see below).
17. By referring the clients to Macquarie Reporting Services, the cost of
calculating the financial aspect of a plaintiff's
claim was incurred by the
firm as a disbursement. The payment by the firm of the disbursement was
deferred until successful resolution
of the claim. If the defendant agreed, or
was ordered to pay costs, this would be on the usual party and party costs
basis, so that
the client would receive from the defendant less than a full
indemnity only. The "party and party" component of the Macquarie Reporting
Services charges would be met by the defendant. The balance, or the solicitor
and client component, was in such a case passed by
the firm on to the client.
Inevitably, because of the speculative nature of the claim, that solicitor and
client component was paid
out of the damages received by the firm on the
client's behalf. If the plaintiff's claim was the subject of settlement for a
sum
inclusive of costs, the client paid the full extent of all costs and
disbursements, again presumably out of the fund, undifferentiated
between
damages and costs and disbursements, paid by the defendant and received by the
firm on the client's behalf.
18. The
reference to Macquarie Reporting Services had the potential of
reducing the expense of preparing the case and ultimately, whether
the
defendant contributed to the costs or not, reducing the total of fees and
disbursements charged by the firm and paid by the client.
It was not simply a
matter of cost shifting, that is, Macquarie Reporting Services charging, and
the client paying, the equivalent
of what the firm would have charged by way
of profit costs if the financial calculations had been done within the firm.
If the cost
of taking up the time of senior and expensive solicitors with, at
one extreme, simple claims and, at the other extreme, with matters
that
involved time-consuming arithmetical calculation could be avoided by engaging
less expensive but equally if not more competent
specialists in the financial
aspects of such claims, the client stood to benefit by the saving in costs.
But, whether the use of
Macquarie Reporting Services had that effect
generally, or in the matters to which the attention of the Court has been
drawn, is
impossible to determine. Whilst it must be emphasised that it is not
part of the case against the solicitors that the arrangement
with Macquarie
Reporting Services had the effect of over-charging, it must be observed that
personal injury claims frequently do
not require the attention of expert
financial consultants. Most claims for economic loss in personal injury
actions can be prepared
by a clerk or by a junior solicitor acting, if
necessary, under the supervision of a more experienced practitioner. It is
commonplace
that in practice the calculations of financial consultants are of
little or no use at trial because those calculations are based
on assumptions
of facts which are not made out on the evidence at trial. Ultimately, the
arithmetic is done at or after trial, on
the findings of fact based on the
evidence. Solicitors should not incur the expense of financial consultants in
personal injury claims
unless reasonably necessary.
19. Clients of the firm were not told and did not know whether engaging
Macquarie Reporting
Services was likely to increase or save costs. Nor did
they know that Macquarie Reporting Services was a business name registered
by
a company called Khania Holdings Pty Ltd of which the shareholders and
directors were Ms. Claire Davis and her husband, Mr Geoffrey
Davis. The
business of the company was to provide financial and management services,
including services to the firm. The clients
knew Mr Davis. He worked in the
offices occupied by the firm. He was also employed full time as the executive
director of an entity
known as the Snedden Hall and Gallop Trust. The function
of the Trust was to manage the accounting and financial aspects of the firm's
practice. The beneficiaries of the Trust were presumably the partners in the
firm and members of their families.
20. From
April 1989 until June 1994, the company had its registered office
at the offices of the firm. Macquarie Reporting Services carried
on business
within those offices. The company paid the firm a periodic sum by way of
"rental" for the use of part of the offices
as well as for office equipment
and secretarial time. To the extent indicated by the foregoing facts, the firm
had an interest in
the company and in the business of Macquarie Reporting
Services.
21. The firm was the major client and source of income of
Macquarie
Reporting Services although Macquarie Reporting Services did similar work for
other solicitors. After June 1994, when Macquarie
Reporting Services shifted
its place of operation to an address in Barton, the firm remained its major
client.
22. It is
not really disputed that the content of the fiduciary duty owed
by the solicitors to the clients was such that the clients should
have been
told of the close connection between the firm and Macquarie Reporting Services
and of the interest of the members of the
firm in the continuing financial
viability of Macquarie Reporting Services. That duty was well described by
Mahoney JA in Law Society
of New South Wales v Foreman (1994) 34 NSWLR 408 at
435 as requiring, "that there be full and frank disclosure to the client of
all
information known to the solicitor which the client should know".
23. What was in issue was the seriousness of the breach and
whether it
amounted to professional misconduct or unsatisfactory professional conduct on
the part of either or both of the solicitors.
In this regard it is relevant to
look first at the conduct of the case of Dr Krimhilde Henderson.
24. Dr Henderson received
a whiplash-type injury in a motor vehicle
collision on 6 May 1985. She consulted Mr Lardner and he commenced proceedings
on her behalf.
It was not a particularly unusual or difficult claim. Dr
Henderson alleged that she was totally unfit for work. Her claim was prepared
on that basis. Mr Lardner introduced her to Mr Davis in an open area of the
firm's offices. Mr Lardner told her that Mr Davis was
"starting to do these
reports". She assumed that Mr Davis was an employee of the firm. Dr Henderson
and her husband saw Mr Davis
on a number of later occasions, always in the
firm's offices. She supplied Mr Davis at his request with certain
documentation such
as tax returns relating to her claim for economic loss.
That loss included an assessment of the value of her loss of prospects of
promotion. It may be observed that if the loss was to be expressed in
percentage terms, the calculation of that percentage was hardly
a matter for
Macquarie Reporting Services without close consultation with Mr Lardner or
some other experienced legal practitioner
familiar with the principles of
assessment of damages for personal injuries. The selection of an appropriate
percentage of loss of
earning capacity was not a matter of simple arithmetic
but a matter of assessment of a range of factors based on the available (and
admissible) evidence. There was no evidence of what input, if any, came from
Mr Lardner or any other lawyer with experience in the
calculation of an
appropriate percentage of loss of earning capacity on the part of Dr
Henderson.
25. Dr Henderson was dissatisfied
with the quality of Mr Davis'
calculations of the value of her future economic loss, particularly in
relation to the loss of promotion
prospects. Mr Davis initially approached the
calculation of the value of that loss on the basis (whether assumed or arrived
at on
some evidentiary material does not emerge) that the client had a
pre-injury chance of promotion to the Senior Executive Service level
of 12.5
per cent. Dr Henderson considered that her chances of promotion were much
higher and at her insistence Mr Davis recalculated
the figures on a basis of a
19.7 per cent chance, and later on a basis of 26.5 per cent chance. Between 12
September 1990 and 16
September 1992 Macquarie Reporting Services sent no less
than five economic loss reports to the firm. To the extent that later reports
simply recalculated given amounts of periodic loss by reference to different
percentages, they would appear not to have required
great expertise in
mathematics.
26. Dr Henderson's claim was settled by agreement on 24 September 1992, the
second day of
the trial. Senior Counsel, Mr Stanley QC, advised subsequently
that he expected that if the case had proceeded the Master would have
awarded
somewhere between $300,000 and $360,000 for loss of promotional prospects. Dr
Henderson considered that this figure was inconsistent
with the calculations
made in the Macquarie Reporting Services' reports and such perceived
inconsistency was one of the elements
of her dissatisfaction with the way in
which her case had been handled. When the firm's bill arrived on 21 October
1992 she was alarmed
to read of the disbursement of $7,650 from her settlement
monies to Macquarie Reporting Services. She began to question the role
taken
in the case by Macquarie Reporting Services.
27. Dr Henderson gave evidence that until the receipt of the firm's bill
she believed that Mr Davis was an employee of the firm and that Macquarie
Reporting Services was in some way part of the Snedden
Hall and Gallop
organisation. It was submitted on Mr Lardner's behalf that she must have been
aware from the letterhead on the economic
loss report that Macquarie Reporting
Services was a separate entity from the firm. However, her evidence, which was
supported by
that of her husband, is acceptable and her belief both reasonable
and understandable. She was given no information at all about how
the work of
Macquarie Reporting Services would be charged to her and, in particular, given
no intimation that it would cost as much
as $7,650. She was aware that the
assessment of the value of her economic loss was a necessary part of the
preparation of her claim.
She expected that it would be done within the firm
and thought that it was in fact done by Mr Davis as an employee of the firm in
conjunction with her solicitor, Mr Lardner. She disputed then and still does
that the engagement of Macquarie Reporting Services
was, as submitted on
behalf of the solicitors, "an appropriate and cost-effective means of
preparing the necessary evidence" and
that the fees charged by Macquarie
Reporting Services were "reasonable". She may have a justified grievance in
this regard but as
this is not one of the particulars of conduct upon which
the Law Society relies, the Court should refrain from passing judgment on
it.
28. It is clear that to the ordinary client, unaware of the relationship
between the firm and its service providers,
Mr Davis would have appeared to be
employed by the firm much in the role of a managing clerk. If any member of
the firm intended
to make use of Mr Davis' services through engaging Macquarie
Reporting Services and paying for them by way of disbursement, charged
to the
client, the client should have been told so, and express instructions obtained
to that end. It is hardly necessary to add
that the solicitor should not have
accepted such instructions unless the client was told of the firm's interest
in Macquarie Reporting
Services and some explanation of how it was that
engaging Macquarie Reporting Services was reasonably necessary for the conduct
of
the client's case. Nor should such instructions have been accepted without
an indication of the likely costs of engaging Macquarie
Reporting Services and
an explanation of the comparative costs of engaging Macquarie Reporting
Services and doing the work within
the firm or engaging another but unrelated
consultant. As Dr Henderson's case illustrates, the client was entitled to
know in advance
of the potential incurring of a debt on her behalf in a sum of
$7,650 for work that she expected was being done within the firm.
When she
later discovered that the firm itself had an interest in Macquarie Reporting
Services she was entitled to feel that, far
from saving costs to her, the
arrangement with Macquarie Reporting Services was a device designed to advance
the interests of the
firm and not her own.
29. In these circumstances the engagement of Macquarie Reporting Services
was more than a breach of
the duty of a solicitor to warn the client of the
incurring of unusually expensive disbursements. That duty, which is only a
matter
of common sense and fairness, was referred to in Re Blyth &
Fanshawe: Ex parte Wells (1882) 10 QBD 207, and has been recognised
many times
since in this country and elsewhere. Breach of it may amount, in some
circumstances, to professional misconduct.
30. The breach was the more serious because of the interest of the firm in
the company to which the disbursement was paid and
because the work was such
that it might, on the face of it, have been done within the firm and charged
as part of the solicitors'
profit costs. Whilst the practice had the
appearance of saving costs and increasing efficiency in the preparation of
cases, it also
had the capacity to increase costs, unless the solicitors were
astute to ensure that their own profit costs did not include a component
for
the work that was referred and done outside the firm. Profit costs are capable
of more direct scrutiny by a client than is a
fee charged as a disbursement.
31. The solicitors submitted that it should have been apparent to Dr
Henderson and clients
like her that Macquarie Reporting Services was
sufficiently separate from the firm and that the cost of obtaining the
economic loss
reports would be charged as a disbursement and not as part of
the firm's profit costs. That submission is rejected.
32. The
routine referral of clients to Macquarie Reporting Services in the
circumstances amounted to misconduct in the sense of falling short
of the
standards of disclosure and advice that the clients were entitled to expect,
and as such calls for condemnation by the Court.
33. It is necessary to add something about what appears to be a very high
figure for the cost of preparing Dr Henderson's
case on loss of earning
capacity. In principle the case bears some similarity to Law Society of New
South Wales v Foreman in which
Kirby J said at 421: "It is important, in those
circumstances, that this Court should not take into account, as adverse to the
solicitor
(or indeed to her former firm which is not represented in these
proceedings) conclusions of its own about the costs charged."
adding at 422:
"Litigants look to this Court, ultimately, to protect them from
over-charging by legal practitioners where
this is so high as to constitute
professional wrong doing. ...I depart from this case with a real sense of
disquiet that what may
arguably be the most serious issue revealed by it may
not have been fully considered in a way protective of the true standards of
the legal profession and the legitimate expectations of the community".
34. In this case the Court was not urged by the Law Society
to form any
view whether the sum charged by Macquarie Reporting Services was itself
excessive. Consequently, no such finding is made.
However, the Court does have
a "real sense of disquiet" as to the amount charged in this case."Breach of fiduciary duty: in-house
counsel" 35. One of the partners in the firm
was Mr James Constance. He had a distinguished academic background, graduating
from
the Australian National University with the University Medal in Law. He
joined the firm in 1990 after some years of practice in various
jurisdictions.
Whilst he was by no means a specialist in advocacy, he had more experience in
that particular field of legal practice
than Mr Lardner or Mr Andrews.
36. During the period in question, at least from time to time, and in a
number of cases to
which the Court was referred, Mr Constance acted as if a
barrister and not as a solicitor. In these instances, the other members
of the
firm followed the practice of sometimes using Mr Constance's services by
briefing him as what is called "in-house counsel",
that is to say, Mr
Constance was not engaged directly by the clients but had matters referred to
him by members of the firm in order
for him to advise or appear as a barrister
instructed by the firm. He rendered a bill not to the client but to the firm.
Mostly he
was briefed to draw pleadings and the like, to appear without a
leader in interlocutory proceedings, and to appear with leading counsel
at
trials.
37. Because legal practitioners in the Territory are admitted as both
barristers and solicitors, there is nothing
inherently improper in the
practice of briefing in-house counsel. However, as there is a difference
between the traditional functions
of barrister and solicitor as those terms
are customarily understood, and, as that difference is built into the regime
of costs charged
to clients for legal services, certain principles need to be
recognised and observed if the practice is not to be abused to the detriment
of clients. In particular, whilst the practice may give the impression that it
reduces costs to the client, the reality may be otherwise.
Solicitors must be
sensitive to the conflict of interests and other issues that arise when
briefing a practitioner who is a partner
or an employee but not when the
solicitor briefs an independent barrister.
38. In Marks v National and General Insurance
Co. Ltd. (unreported, Supreme
Court of the ACT, 13 May 1996) Higgins J remarked that: "The practice in this
Territory has not been
to discourage the use of "in-house" counsel. There is a
public interest, recognised in this Territory at least since 1974, in
supporting
diversity in forms of legal practice". 39. In that case Higgins J
decided that a rule of Court (Order 65 Rule 75) which provides
that "no fee to
counsel shall be allowed on taxation shall be allowed unless vouched by his
[or her] signature" did not apply to
in-house counsel. One of the grounds was
that, according to His Honour's view, in-house counsel were not dependent upon
a solicitor
for recovery of counsel's fee. His Honour considered that the
position in the Australian Capital Territory was no different from
that
provided for by rules of Court in Tasmania when for the purposes of taxation
of costs there is a waiver of the requirement for
a vouched fee note in the
case of a fee to a practitioner acting as both solicitor and counsel; see
Watkins v. Alcock [1954] Tas
SR 63.
40. The complaint to the Law Society in general terms is that the
solicitors failed to ensure that clients of the
firm were fully informed as to
the likely cost to the client and of the financial benefits to the firm in
briefing a partner in the
firm to act as counsel. Further, they did not inform
the client of the alternative course of briefing counsel at the independent
bar.
41. More particularly, it is alleged that the briefing of Mr Constance in a
number of matters had the effect of increasing
the fees payable by the client
to the firm in each matter over and above the fees payable to the firm if
counsel at the independent
bar had been briefed. There is no allegation that
the total costs payable by the client, including both the firm's profit costs
and
fees payable to Mr Constance, were unreasonable or excessive. What is
alleged is that the client should have been advised that there
were competent
members of the private bar who may have been available at a lower fee than
that charged by Mr Constance.
42.
Before returning to the circumstances of the engagement of Mr Constance
in these cases, it is necessary to say something further
about the structure
of the legal profession in the Australian Capital Territory and the respective
functions of barristers and solicitors.
43. The ACT Bar Association was given leave to make submissions of a
general nature to the Court on the matter of in-house
counsel. Mr D. Bennett
QC, the then President of the Australian Bar Association, appeared in that
behalf. The Court was informed
of certain developments in New South Wales
where the Legal Profession Advisory Council has under its active consideration
the formulation
of express rules on disclosure in relation to advocacy
services. The purpose of propounding express rules, so it is said, is, on
the
one hand, to protect the interest of the clients and, on the other hand, to
promote fair competition between barristers and solicitors.
44. Recommendations applicable to the situation in New South Wales (where
there is a formal division between the two branches
of the profession) are not
necessarily suited to the situation where there is already a "fused"
profession, as in the Australian
Capital Territory, and where constraints on
competition between the two branches of the profession are fewer than where
there is
rigid division. Nevertheless, as Mr Bennett submitted, it is the
underlying principles which are important, and, insofar as practitioners
choose to practise in the Australian Capital Territory in one branch of the
profession or the other, the underlying principles as
to disclosure are not
likely to vary in substance among jurisdictions in this country.
45. For the purposes of the present
case there is no need to consider the
relative costs or merits of barristers and solicitors respectively. As Mr
Bennett submitted,
in some cases it will be cheaper to the client for the
solicitor to brief a barrister and in other cases it will be cheaper for the
solicitor to advise or act for the client without briefing a barrister. In
some cases an individual in one branch of the profession
may be more competent
and in other cases an individual in the other branch may be more competent.
Both branches of the profession
include among their members lawyers who are
relatively competent or incompetent, who are relatively cheap or expensive,
and who may
or may not specialise in one area of practice or another.
46. A practitioner practising as a solicitor whose client needs
to be
represented in court (or to receive advice outside the field of competence or
experience of the solicitor) usually has a choice
of three options: to appear
or advise himself or herself, brief a barrister, or to engage a partner or an
employee. (There is a fourth
option, to engage a solicitor from outside the
practice, which to date has been comparatively unusual and may be ignored for
present
purposes.) In making the choice about which option to take, the
solicitor faces a conflict of interests. Most obviously, there is
on the face
of it a direct financial benefit to the solicitor if the solicitor appears
personally or if the solicitor's partner or
employee appears, since the
solicitor, the partner or the employee's fee for appearing can be added to the
costs of preparation.
Furthermore, briefing a junior barrister in a routine
matter may or may not be cheaper than engaging a senior solicitor to appear
or
advise, or may or may not give the client the advantage of greater competence
in advocacy or relevant fields of law.
47.
The relationship of the solicitor to the client brings with it a
fiduciary duty, the discharge of which requires disclosure to the
client of
the solicitor's financial interest in engaging as counsel (as if briefing a
barrister) a partner or employee. It also requires
disclosure to the client of
the existence of any financial and other disadvantages in doing so. The
fiduciary duty is also a professional
duty, breach of which may in a
sufficiently serious case amount to professional misconduct.
48. In civil litigation (and
particularly in the speculative sort of
litigation in which the two solicitors practised) the practice of briefing
in-house counsel
has important consequences as far as the burden of costs is
concerned. The traditional costs structure in place in this Territory,
as in
other parts of Australia, is such that a solicitor may charge the client for
the services which he or she performs and add
to those charges the fees
charged by the barrister, together with any other costs incurred by way of
disbursements in acting for
the client in the litigation. In the event of an
order for costs being made against the opposing party in favour of the client,
the
client is able to recover from the other party costs which are quantified
on a so-called party and party basis. If not agreed with
the other party,
those costs can be fixed, if necessary, by a system of so-called "taxation" (a
sort of assessment) by a court officer.
That system has come to treat it as
normal and proper in civil litigation for a solicitor to "brief out" to a
barrister to appear
at the hearing and to argue the case in court. Normally
the solicitor (or a partner or an employee of the solicitor) will attend
court
to "instruct" counsel, that is to say, to act as an intermediary between
counsel, client, witnesses and court officials, and
otherwise attend to the
many tasks which are incidental to, but not part of, conducting the case in
court. The solicitor's costs
of briefing and instructing counsel will be
claimed in the costs recoverable from the unsuccessful opposing party,
assessed on a
party and party basis. What is not recovered on a party and
party basis is usually recoverable by the solicitor from the client on
what is
called a solicitor and client basis. The barrister's fees for appearing in the
case and rendering other services connected
with the hearing will be charged
by the barrister to the solicitor.
49. The system of a solicitor briefing a barrister, on
the face of it, may
appear to be more costly to the client because it necessarily involves two
professional persons devoting their
time and energy where perhaps one might
seem to suffice. However, the traditional system of charging and recovering
costs for the
service in court of both solicitor and barrister has, until
recently, been assumed to be relatively efficient and cost-effective.
That
system is dependent, in part, on a clear distinction between the functions of
barristers and solicitors. The rigid historically
based distinction in England
(where solicitors until recently did not enjoy right of audience in the
superior courts) was not exported
to most parts of Australia. In this
Territory every person admitted to the legal profession under the Legal
Practitioners Act is
admitted as both barrister and solicitor. Notwithstanding
such admission to both branches, some of the different functions of the
two
branches of the profession receive necessary attention and recognition in the
Legal Practitioners Act and otherwise in legal
practice. For instance, a
person, although admitted to practise, may not practise as a solicitor until
he or she is the holder of
a practising certificate under Part VII of the
Legal Practitioners Act. A person with or without a practising certificate may
practise
as a barrister. However, the independent Bar of the Territory does
not recognise among its members persons who practise as solicitors.
50. The costs regime already explained also recognises that whilst a
solicitor has full right of audience, in all courts
of the Territory, it is
not only permissible for the traditional division of function between
barrister and solicitor to be observed
in civil litigation, but that division
of function has provided a convenient basis for allocating costs as between
parties and as
between solicitor and client and also for determining the
quantum of such costs.
51. Notwithstanding the traditional approach
to solicitors' costs and
barristers' fees, it is now widely recognised that it does not always provide
the most cost-effective method
of cost allocation and assessment. A growing
proportion of legal practitioners who hold practising certificates as
solicitors, and
who do not purport to practise at the separate bar, can claim
sufficient expertise in advocacy, or in specialised areas of law, or
both, to
justify, in the interests of their clients, a practice that they appear to
conduct cases in court without the necessity
for and extra expense of engaging
counsel from the separate bar.
52. In the Northern Territory there is a "fused" profession
with a de facto
division similar if not identical to that in this Territory. The practice in
that Territory of engaging in-house
counsel was approved, and a method of
allocating and assessing the costs of engaging in house counsel was devised,
by Bridge J in
Commonwealth v Magriplis (1962) 3 FLR 47. That method allows on
taxation a fee for a solicitor who "briefs" himself or herself as
counsel or
who briefs a partner as counsel at a proportion of the fee which would be
allowed for an independent barrister. That or
a similar method is followed by
the taxing officers of the Courts of the Australian Capital Territory and has
been so followed for
many years.
53. After referring to the respective and distinct roles of barristers and
solicitors Bridge J said at 48: "Under
such conditions full performance by
each of the professional work within his sphere is essential to co-operation
between both on
the brief involved in their common cause. Work done in this
way is recognised by taxing officers in consistently and properly allowing
each of the two classes of item now under review without qualification by the
other. This type of situation is found also in places
like Victoria as between
those practising exclusively as barristers and others exclusively as
solicitors, the members of both groups
choosing so to confine their
professional activities, although admitted to practice in both capacities. The
same could be said of
particular occasions where two practitioners not usually
associated act together by reason of one solicitor instructing and delivering
a brief on hearing to the other as counsel in some parts of Australia,
including the Northern Territory, where it is permissible
and customary for
most, if not all, members of the legal profession to practise as both
barristers and solicitors.
I now pass
to a comparison in relation to professional work on a brief on
hearing between the conditions just described and those arising where
the
separate parts of barrister and solicitor are performed by the same
practitioner in a place like the Northern Territory allowing
legal practice to
be conducted in that dual form. Such a practitioner, when preparing a brief on
hearing to be later used by himself
as counsel, does not usually escape from
any of the work which would be required of him if the brief were to be
delivered to somebody
else as counsel previously unfamiliar with it. However,
after completion of the brief he as counsel is relieved from the study and
consideration which he would need to give to it if received with no prior
knowledge of it from somebody else who had prepared it.
Nor has he normally at
that or any later stage any occasion in either one of his two professional
capacities to confer with himself
in his other capacity. In these respects the
combined work of counsel and solicitor is reduced. Reductions of work in the
manner
just described is the ground of the present objection to the two
allowances submitted for my review. That objection does not extend
to the
entirety of either allowance but only to having either or both so restricted
as to exclude any proportion referable to work
saved by the fact that the same
practitioner had acted as both barrister and solicitor. I consider the
objection a sound one, and
disapprove any past practice to the contrary.
.... In addition to the cases where the professional work on a brief on
hearing
is shared between a solicitor and an otherwise dissociated barrister
according to their respective functions and those where the
entire work is
done by the same practitioner, there are cases of a third and intermediate
class which occur in places open to the
combined type of legal practice. Those
are cases where a solicitor briefs his partner in the same legal firm as
distinct from an
independent outsider. That method of briefing was not
followed in the present case, but a consideration of some of its features
helps
to solve the problem before me.
In each of several Australian courts, including this Court, which recognize
a practitioner's
right to act either as a barrister or as a solicitor or as
both, rules providing for taxation of costs have treated self-briefing
and
briefing of a partner as having similar features justifying smaller allowances
than would be justified where a stranger is briefed.
....
.... Court rules of the kind to which I have referred recognise at least
two obvious and just principles - (1) that the
practitioner should be fairly
rewarded for his professional efforts, but (2) that he should not be rewarded
more than once for the
same work. .... Where a solicitor briefs his partner a
similar saving of work may be expected, although perhaps to a smaller degree
than where he briefs himself. Moreover, it should not be overlooked that in a
case of self briefing, the client receives the benefit
of only one legal mind
on his case, whereas the briefing of a partner or a stranger adds the
application of another mind to it. The
combination of two minds should be
better than one."
54. Those remarks are appropriate to the circumstances of legal practice
and cost allocation and assessment in this Territory.
55. It is necessary to return to the facts of the present case. In
general
they are not in dispute. They are illustrated again in the case of Dr
Henderson, although in relation to that matter, it
is necessary to make some
findings of fact.
56. Shortly before 6 May 1992, after the hearing date for Dr Henderson's
case
had been fixed, Mr Lardner recommended to her that the case was deserving
of senior counsel, and warned her that the whole of senior
counsel's fees
might not be recoverable from the defendant. Mr Lardner confirmed that advice
and expanded upon it in a letter of
3 June 1992. He strongly recommended
against any of the senior counsel in Canberra and recommended in favour of Mr
Stanley QC of
the Melbourne Bar as "a QC in whom I have great confidence and
well experienced in your matter". He compared the cost of senior counsel
from
Sydney. In his affidavit sworn 23 September 1997 Mr Lardner stated that it has
not been his practice to advise a client of the
"relative costs of various
counsel" but it appears that he made something of an exception in Dr
Henderson's case. That was a wise
and proper course, since, if there was any
reasonable possibility that any part of the fees of senior counsel, and in
particular
the fees of Mr Stanley QC, were not recoverable from the defendant,
the solicitor had a duty to warn the client of the risk that
she would have to
pay the unrecoverable component herself.
57. However, despite the explicit advice in relation to senior
counsel, Mr
Larder gave no advice at all about junior counsel. He claimed in his affidavit
that, to the best of his knowledge and
belief, his clients were in each case
aware that Mr Constance was associated with the firm and that he believed that
each client
was aware that the briefing of Mr Constance would result in a
financial benefit to the firm upon the payment of counsel's fees. He
also
claimed that he told each client that Mr Constance was an appropriate choice
of junior counsel.
58. Having accepted
the advice Mr Lardner gave her, Dr Henderson instructed
Mr Lardner to brief Mr Stanley. She and her husband went to Melbourne for
a
conference on 10 August 1992. Mr Lardner said in his affidavit that he first
introduced Mr Constance to Dr Henderson immediately
prior to the conference
and that he "probably" introduced Mr Constance as his partner. Both Dr
Henderson and her husband said that
Mr Constance was not introduced at all. Dr
Henderson assumed that Mr Constance was Mr Stanley's clerk. She and her
husband spoke
about the matter immediately after the conference. Later they
saw on the firm's letterhead that Mr Constance was a partner.
59. Dr Henderson also said that the only other time Mr Constance featured
in the case prior to the date of hearing was on 17 September
1994 or when Mr
Lardner told her that "Jim Constance" was impressed with some photographs
which she had provided. She did not know
what role Mr Constance was to play in
the case, if any, until she saw him robed on the day of the hearing and he
took down some details
of her personal particulars in the offices of the firm.
It became clear to her that he was "actively involved" in the matter when
he
attended court on 22 September 1994 (when the case was not reached) and on the
following two days.
60. The Court did not
have the benefit of any evidence from Mr Constance or
from Mr Stanley or any of the clients of Mr Lardner other than Dr Henderson.
It is likely that Dr Henderson's recollection is clear and her evidence
accurate.
61. It was the practice of Mr Constance,
when briefed as in house counsel,
to render a memorandum of fees to the firm in the customary manner in which
such a memorandum is
rendered by an independent barrister to a firm of
instructing solicitors. The fee as rendered would then be drawn by the firm in
favour of Mr Constance, who would then pay the proceeds back into the firm's
account, where they became part of the profit costs
of the firm to be shared
by the partners according to whatever arrangements they had among them.
62. This method of payment
and repayment was a somewhat curious practice
and, in the absence of evidence that it is or was followed by other solicitors
in the
Australian Capital Territory, it must be considered unusual. It was the
more unusual in that, whilst the firm had its offices in
the Law Society
Building, Mr Constance's memorandum of fees bore the address "Law Society
Chambers". This is a fictitious address.
There is no building or suite of
rooms known by that name. The fictitious address is apt to be misleading
because it looks more like
the place of practice of a barrister than the
office of a firm of solicitors. It tends to suggest that the person practising
from
the address practises independently as a barrister and is not in
partnership with other practitioners or in a firm with an established
clientele. A conflict of interests is more likely to arise in the case of a
solicitor who has duties towards other clients and to
partners which do not
arise in the practice of an independent barrister.
63. The Law Society makes no complaint that the
use of the fictitious
address was dishonest. Acquiescence in its use will, therefore, not be
considered as a particular of misconduct
against either of the solicitors.
However, having been appraised of the facts, it is appropriate for the Court
to observe that the
use of a fictitious address was at least unwise,
particularly in the absence of proper disclosure of the relationship between
in-house
counsel and the firm to the clients who were liable to pay for the
engagement by the firm of one of its own members as if he were
an independent
barrister.
64. As already indicated, there is nothing inherently improper about
solicitors engaging partners
or employees to act as counsel, or acting as
counsel themselves. There may be a distinct advantage to the client in doing
so in certain
cases. But because of the conflict of interest on the part of
the solicitor between containing the costs payable by the client and
maximising the costs payable to the solicitor and the solicitor's partners or
firm, the solicitor must consider the position carefully
and make proper
disclosure. If the fee payable to in-house counsel is no less than that which
would be paid by counsel of similar
competence practising at the independent
bar, the solicitor should explain to the client what advantages there may be
in briefing
in-house counsel compared with briefing independent counsel. The
advantages and disadvantages of that choice in terms of both relative
cost and
of competence must in all cases be properly considered and explained.
65. Orders for the recovery of costs particularly
in personal injury
litigation, may tend to obscure the duty of the solicitor. A grateful client
who recovers generous damages, whether
by way of agreed settlement or court
judgment, may overlook being charged costs which are unexpected. A client who
recovers both
damages and costs may not care to give attention to
disbursements that are recovered from the other side. If full counsel's fees
are in fact recovered from the defendant, the plaintiff may not be concerned
about whether they are paid to in-house or independent
counsel. It may be easy
enough for a solicitor in giving an explanation to a client about the cost of
briefing of senior counsel
to overlook telling the client about junior
counsel, particularly if the solicitor is confident about recovering the cost
of junior
counsel from the other side. As the Court was concerned to emphasise
in Robb and Rees, there can be too great a temptation in speculative
litigation to regard the solicitor's interest as co-extensive with the
client's interests. That would be a grave mistake.
66. For the purposes of the present case, the solicitors participated in a
system in which Mr Constance was engaged without any
disclosure to the client
about Mr Constance's position in the firm, or that an independent barrister of
no less competence could
be engaged at no greater expense.
67. The solicitors acquiesced in Mr Constance's practice of rendering fee
notes from a
fictitious address and (unknown to the clients) paying the fees
back into the firm's account in which the solicitors had a direct
interest.
Again there was no sufficient disclosure or advice so as to reveal the
solicitors' interests and obtain the clients' informed
consent.
68. Such a system and the system of routine referrals to Macquarie
Reporting Services without full disclosure and
informed consent call for the
disapproval of the Court. Since it is not alleged that either system resulted
in any increased costs
or any loss by the client, the Court should refrain
from condemning these systems as constituting professional misconduct as now
defined by the Legal Practitioners Act but they are certainly unsatisfactory.
Were such conduct to continue, it would, in the light
of the Court's present
express attitude, be likely to constitute professional misconduct in the
future.
69. Solicitors would
do well to have regard to the decision of the NSW
Court of Appeal in O' Reilly v Law Society of New South Wales (1988) 24 NSWLR
204
and to heed the words of Mahoney J A at 213: "In principle a solicitor
owes to his client the duty to tell him of everything of which
he knows which
will be of assistance to the client in relation to the matters within his
retainer. And, within such limits, he is
to do what he can to further the
client's interests.""Gross Overcharging - Mr Andrews" Originally four matters were the subject of
complaint against Mr Andrews. However, only two were proceeded with on the
hearing. They related to Ms Suzanne Butz and Ms Anita
Hewitt."Ms Suzanne Butz" 71. The matter was commenced in the Supreme Court and settled
after it had been set down for hearing. The
claim for costs was, in October
1995, settled by agreement for $5,247.85, inclusive of disbursements.
72. The client was
charged $8,247.87.
73. The fact that there is a difference between the recovered costs and the
costs charged is not, by itself,
indicative of over-charging, let alone gross
overcharging.
74. It is well recognised that there is a difference, and it may
in some
cases be a considerable difference, between costs recoverable on a "party and
party" basis and those payable by a client
to his or her own solicitor.
75. That is because on the former basis, only those costs will be allowed
which the taxing officer
is satisfied are necessary and reasonable to
prosecute (or defend) the claims and within limits thought appropriate by the
Court
to be visited and the usual care on an unsuccessful party. On the
solicitor/own client basis, all costs incurred for all work properly
done on
the client's behalf are allowable save insofar as the same are shown to be
unreasonable either in amount or extent. That
is, if the charge is
unreasonably high for work performed or if, though the charge is reasonable in
amount, the work done was of
such a character that it is not reasonable to
charge the client for it.
76. In this case, the initial complaint was based
on the fact that the time
costing records of the firm recorded $4,369.10 as the cost attributed to time
spent on the matter. The
profit costs included in the memorandum of costs
rendered to the client were $6,044.87.
77. Time costing, it should be said,
is not a reliable indicator of the
costs a solicitor may properly charge in a contentious matter even assuming,
for this purpose,
that the time cost charge-out rate is in itself set at a
reasonable figure.
78. The figure so set is not directly comparable
to the Supreme Court Scale
against which the reasonableness of charges made for contentious work is, in
the absence of special agreement,
to be tested.
79. That scale allows charges based not only on time spent but also allows
lump sum fees for certain stages
of the matter eg. "instructions to sue" as
well as a discretionary allowance, usually called "instructions for brief".
The latter
reflects not only time spent but also allows a fee for "care, skill
and attention" which will vary with the importance and difficulty
of the
matter as well as the skill and efficiency exhibited by the solicitor.
80. That method of assessment allows for efficiency
to be recognised
favourably, whereas a time charge alone may well reward inefficiency. Further,
the process of "taxing", ie reviewing
costs, usually undertaken by an officer
of the relevant court, will disallow costs if unnecessarily, incompetently or
inefficiently
incurred.
81. So far as the Court is concerned, time costing provides no more than a
useful check on the time actually spent
on the matter and the reason for it if
file notes are not adequate. It may also indicate to the firm the value of the
time its members
have invested in the matter, or have other utility as a
management tool.
82. On the hearing of this matter, no doubt realising,
albeit belatedly,
that mere disparity between time costing and the charge to the client would
not support overcharging, further evidence
was presented by the Society.
83. It involved an affidavit from Mr John McDonald, a solicitor and costs
consultant. He had
perused the solicitor's file relating to Ms Butz and noted
that on 14 January 1993 Andrews had written to Ms Butz in the following
terms,
"We confirm that we would be pleased to carry out these initial investigations
[into whether there was a good cause of action]
on the basis that we will not
charge you for the professional work associated with it, however we expect you
to pay for Dr Adams'
initial report and other disbursements incurred during
the course of these preliminary discussions". 84. Subsequently, the solicitor
advised that there appeared to be a good cause of action and the matter
proceeded to a successful conclusion.
85. A charge
for the preliminary investigation was included in the claim
for costs made on behalf of Ms Butz against the Commonwealth.
86. However, it was Mr McDonald's view that the costs associated therewith,
which he assessed at about $500, although recovered
at least to the extent
allowable on a party and party basis, should not have been charged to the
client.
87. It appears that
Mr McDonald took the view that it was a term of the
solicitors' retainer that they would not charge for the preliminary work
although
it would otherwise have been proper to do so.
88. Many solicitors do offer preliminary consultations and investigations
on
the basis that if no reasonable cause of action appears to exist, the
client will not be charged for the work done. Some solicitors
even include in
that offer disbursements incurred. As noted in Robb's case (supra), many
solicitors, if they do thereafter offer
to proceed with such cases, adjudging
them to have reasonable prospects for success, do so on a "no win, no fee"
basis. Again, some
solicitors will even then bear the risk of non-recovery of
disbursements as between themselves and the client.
89. In such
cases settlement offers place on solicitors a higher than usual
duty to recognise and avoid the inevitable conflict of interest that
their
stake in a successful outcome to the litigation imposes, but that burden is
readily and properly discharged by practitioners
of good repute and standing.
Such contingent-fee conduct and litigation is subject to the proper discharge
of that duty, a commendable
practice giving many deserving cases access to
justice which might otherwise be denied without calling on or committing
scarce legal
aid funds. It would indeed be contrary to the public interest if
solicitors were to be dissuaded against offering such a service
to persons who
need legal services but who are without adequate means to pay for them.
90. However, it would be an unusual
arrangement for a solicitor proceeding
with such a matter to a successful conclusion, thereby entitling the client to
a substantial
verdict and costs, to agree to make a gift to the client of
costs properly recoverable from the other party. Such costs are, of course,
when recovered, monies belonging to the client and, unless or until the
solicitor is authorised otherwise to deal with it, must be
treated
accordingly. That may, of course, be subject to the operation in some cases of
a solicitor's lien.
91. No issues
of that kind arise in the present case. It is simply a
question of the terms of the retainer.
92. Certainly, the letter referred
to by Mr McDonald is capable of
ambiguous interpretation. It does not expressly address the question of what
would happen if the
action proceeded and was successful. However, it is
reasonable to infer an implied term that the solicitor would be entitled to be
paid for the preliminary investigative work if the action proceeded
successfully thereafter.
93. However, there is more.
Mr Andrews says that he did address that issue
in conference with Ms Butz. He told her she would be charged for the initial
investigative
work if the case proceeded to a successful conclusion. Ms Butz
could not recall being expressly so told. However, she does agree
that Mr
Andrews' statement reflects accurately her understanding of the basis upon
which the initial work was undertaken.
94. In those circumstances it was reasonable and proper for the solicitor
to charge the client for the initial work. As a result
it is not even
seriously arguable that there had been any overcharging by the solicitors in
this instance, let alone gross overcharging.
Indeed, unless the Society was to
contend that both Ms Butz and the solicitor were inaccurate as to the terms of
the retainer, the
allegation to the contrary must be categorised as lacking
any reasonable foundation."Mrs Anita Hewitt" 95. This was another personal
injury claim. It was settled,
ultimately, for a figure plus costs. The sum payable by the defendant for
costs, apart from disbursements,
was $7,732.54.
96. The charge made to the client was $19,203.17 plus disbursements.
97. Mr McDonald gave evidence
supporting the Society's complaint in
relation to that matter. He regarded the compensation case as warranting a
charge of no more
than $12,500.00. He agreed that another cost consultant had
drawn a detailed bill of costs and that the bill was properly drawn.
It
assessed profit costs at $17,066.41. However, Mr McDonald was of the view that
two particular series of charges should not have
been included in that Bill.
One related to work done concerning a dispute with the St George Bank, a
matter not directly related
to the personal injury claim. The second was a
charge made by Mr Andrews for travel to Melbourne to accompany the client to a
medico-legal
consultation.
98. As to the first point, it is a valid point that the work done regarding
the St George Bank matter should
have been separately charged for. That would
have been imperative if the bill in question had been a party and party bill.
However,
it was not. There had been a withdrawal of retainer in relation to
the St George matter and then a resumption of the retainer, though
that
resumption was not clearly marked by a written record. Nevertheless, it is not
reasonable to suggest that Mr Andrews was not
entitled to charge for the work
recorded as having been done in relation to the St George matter. It is,
therefore, appropriate in
determining whether the client has been overcharged,
to include a charge attributable to such work, though it would have been
better
to have separated that work more clearly, even if only to avoid
confusing a person called upon to examine the bill, such as Mr McDonald.
It
was not, however, likely to have caused confusion as between Mr Andrews and
his client.
99. The second series of items
related to the trip to Melbourne. It is
charged for in accordance with the Court's scale. Mr McDonald rightly
characterises it as
an unusual item. Indeed, it would not be the kind of
charge recoverable on a party and party basis. However, the fact that the
client
insisted upon Mr Andrews accompanying her on the trip, despite his
advice that it would not be recoverable was not challenged. Mr
Andrews'
assertion was not contradicted by Ms Hewitt.
100. Mr Andrews impressed as a truthful witness. His statement that
he had
warned Ms Hewitt that the costs in question would not be recoverable was based
by him on his usual practice rather than his
direct recollection. However, it
is consistent with the reluctance he expressed in correspondence with the
client concerning undertaking
the trip. He did seek to minimise costs, if he
could, by combining the trip with other professional business but he could not
find
any on the day.
101. The Court is satisfied therefore that the costs associated with the
Melbourne trip were properly authorised
by Ms Hewitt after proper and adequate
disclosure and warning. It is, therefore, work properly to be charged to the
client. It is
charged out at a reasonable rate.
102. It follows that a proper sum for costs payable by Ms Hewitt can be
accepted as being
$17,066.41.
103. However, the figure actually charged was $19, 203.17. That is
$2,136.76 too high.
104. Whether that
"overcharging" is "gross overcharging" plainly imports a
question of degree.
105. The process of assessment of costs, particularly
in contentious
matters based on traditionally constructed scales, such as the Supreme Court
Scale, was described by Mr Andrews in
his evidence as more of an "art" than a
calculation.
106. It is true that an assessment of costs involves elements of judgment.
The more familiar the solicitor is with the matter, the more experienced in
taxing costs he or she is, the more likely it is that
the estimate will be
accurate. "Accuracy" in that context can only be measured against an itemised
bill taxed by a taxing officer.
As in all things to do with a client it would
be expected that a solicitor in good standing would be concerned to prefer a
lesser
estimate than a greater one if in doubt as to the sum which could be
justified. However, it is apparent that some solicitors will
do better than
others at such a task.
107. In this instance Mr Andrews had taken over the matter from another
solicitor.
That solicitor had estimated the costs attributable to his work at
$10,000.00. However, the solicitor/client bill as drawn would
suggest that
this estimate should have been no more than $8,000.00.
108. Accuracy is, as has been noted, only able to be
judged against a fully
detailed Bill of Costs. That of itself involves not only a great deal of work
but the exercise of judgment.
For many items there is applied an allowance for
"care, skill and attention". Normally, that would comprise one-third of the
total
allowance ultimately so made for those items but it could be more or
less depending on the judgment made as to the degree of care,
skill and
attention which had been directed to the matter or required by it.
109. There is room in that area for genuine
differences of opinion.
110. In this case, if allowance for the $8,000.00 found attributable to the
work of the previous
solicitor is deleted, Mr Andrews' estimate of costs for
the work he did equates, as he claims, very closely with the solicitor/client
costs calculated by reference to the detailed bill of costs drawn by the costs
consultant.
111. That, of course, does not
mean that the solicitor is not responsible
for an overcharge if it has happened. He cannot simply accept a predecessor's
estimate
of costs without satisfying himself that it was proper. However, it
is less reprehensible to have failed to notice an overcharge
if it resulted
from accepting an apparently valid estimate by another solicitor which, though
excessive, could not have been accurately
checked without a detailed bill of
costs.
112. It was a case where the client had asked for services beyond the
usual. That
was exemplified by her need to have Mr Andrews accompany her to a
medico-legal appointment. That would make it the more difficult
to infer from
a disparity, even a large one, between party and party and solicitor/own
client costs that there has been deliberate
or gross overcharging.
113. Mr McDonald was asked what he considered to be "gross overcharging".
He referred, by way of answer,
to the "one-sixth" rule. That is a reference to
Order 65 Rule 63 of the ACT Supreme Court Rules. It is a common provision in
costs rules. It provides, "If on the taxation of a bill of costs payable out
of a fund or estate (real
or personal), or out of the assets of a company in
liquidation, the amount of the professional charges contained in the bill is
reduced
by a 6th part, no costs shall be allowed to the solicitor leaving the
bill for taxation for drawing and copying it, or for attending
the taxation."
That rule is applied to solicitor/own client taxations by s 184 of the Legal
Practitioners Act in the following terms,
"(1) Where the amount claimed in a statement delivered under this Part
[i.e. a detailed bill of costs] is reduced on taxation
by a sixth part or
more, the solicitor who delivered the statement is liable to pay to the person
to whom the statement was delivered
that person's costs of the taxation."
Conversely, under s 184(2), the solicitor will receive the costs of the
taxation if the
one-sixth disallowance is not exceeded. 116. The classic case
in relation to, inter alia, "grossly excessive costs" is Re Veron;
Ex parte
Law Society of New South Wales (1966) 84 WN (NSW) 136. In that case, the
solicitor had, arbitrarily, added 1,000/-/- to
each memorandum of fees in
personal injury matters and deducted that sum from the verdict monies over and
above the party and party
costs recovered. The Court approached the matter by
applying the following principle at 142:
"The charges against the respondent
go far beyond any question of merely
exceeding the statutory scales of charges for they allege disgraceful and
dishonourable conduct.
The Court does not sit as taxing officers dealing with individual items of
costs. Nor is such an approach realistic in the present
circumstances. We are
guided by experience and a broad sense of what is reasonable and fair and not
by any narrow approach to questions
of mere overcharging. Even if it could be
said that the existing scales for litigious work need revision by the judges,
such an inquiry
stands far outside the scope of these proceedings."
(at 144) "... it is not in every case where a solicitor agrees with a
client
a fee which is substantially larger than the fee which would be allowed
on taxation that he is guilty of conduct unbefitting a solicitor".
At that
time party and party costs for such matters were usually between 80/-/- and
200/-/-. Compared against that standard, the
additional fee of 1,000/-/-
charged by Veron was, not surprisingly, adjudged at 145,
"... exorbitant and grossly excessive and
his general course of conduct in
relation to them such as would be regarded as dishonourable by his
professional brethren of good
repute and competency." 119. In no way, quite
apart from whether the overcharging in this case was due to an isolated but
genuine
error, can the overcharge in this instance be described as having
resulted in an "exorbitant and grossly excessive" claim.
120. Of course there can be gross overcharging in circumstances less
dramatic than those in Veron's case. Charges based on time
spent where there
has been over-servicing or inefficiency may be grossly excessive. Fee
agreements, though contractually valid, may
also be so unreasonable as to
result in gross overcharging.
121. In Law Society of New South Wales v Foreman allegations
of gross
overcharging were dismissed. Nevertheless, Kirby P found it "impossible to
credit" that a matrimonial dispute over property
could properly run up costs
of about half a million dollars. As to overcharging, his Honour (omitting case
references) at 422 observed
as follows, "No ... discussion with vulnerable
clients can excuse unnecessary ... over-charging where it goes beyond the
bounds of
professional propriety. Time charges have a distinct potential to
result in overcharging." 122. An example of that may be found in
D'Alessandro
v Legal Practitioners Complaints Committee (1995) 15 WAR 198.
123. In the latter case the complaint was of grossly
excessive charges in
relation to seven personal injuries claims. It seemed that the charges made
were in accordance with costs agreements
into which the clients had entered.
The agreements had expressly reserved to the client the right to request an
itemised account
and to require taxation of it by the Court.
124. Ipp J pointed out that there is a difference between the legal rules
governing
the determination of costs payable to legal practitioners and the
ethical rule that excessive overcharging may be professional misconduct.
Thus
in his Honour's words at 209-210: "The standards applied under the court's
duty to monitor the taxation of bills of costs and
costs agreements, and the
court's duty to supervise the disciplining of legal practitioners are not
necessarily the same and do not
serve identical purposes. A fee that a
solicitor may seek to charge by way of a bill of costs may, upon taxation, be
found to be
unreasonable and therefore subject to appropriate reduction. It
does not, however, necessarily follow that the fees so charged by
the bill of
costs are so excessive as to constitute a breach of ethics. The test for
determining whether excessive or unreasonable
overcharging constitutes
professional misconduct would generally be more stringent than that which is
applied when determining whether
the amount claimed under a bill of costs or
under a s 59(1) costs agreement should be reduced, or whether the costs
agreement should
be cancelled. What is lawful may not necessarily be ethical,
and, indeed, what is unethical, may not necessarily be unlawful." 125.
It
follows that a costs agreement, even if legally valid, may result in excessive
overcharging which in turn, may support a finding
of professional misconduct.
Ipp J also noted, however, that to claim a fee on a reasonably arguable basis,
albeit wrongly, cannot
be characterised as unprofessional. Mere lack of
success on a solicitor/client taxation, therefore, will not necessarily
establish
unprofessional conduct though it may establish the fact of
overcharging.
126. Veghelyi v The Law Society of New South Wales
(Legal Profession
Disciplinary Reports, No.2, 1996, p.9, supplement to LSJ, August 1996) is
another example. As Mahoney JA pointed
out in that case, a solicitor is in a
position of undue influence relative to a client. That imposes a duty to
charge fees that are
fair and reasonable in the circumstances. If the charge
levied is grossly disproportionate then that may involve professional
misconduct.
However, the care and skill of the solicitor, the resources his or
her firm may be able to bring to bear on the matter could make
what might be a
grossly excessive charge from one practitioner, fair and reasonable from
another. The presence or otherwise of informed
consent of the client to be
charged a higher fee will be an important consideration.
127. As Mahoney JA put it at 14, "A
client who is able to form an informed
judgment may agree to fees calculated on a time basis and may, for example,
contemplate that
the solicitor may spend upon his matter time far in excess of
what ordinarily would be spent. In such a case, what would ordinarily
be a
grossly excessive charge may not be such." 128. The first observation to be
made is that the test adopted by Mr McDonald to
determine when an overcharge
made by a solicitor is "gross" is inappropriate. Failure to avoid a one-sixth
reduction on taxation,
per se, might indicate no more than a legitimate and
reasonable difference of opinion between the taxing officer and the solicitor.
The second is that in this case the costs claimed by the solicitor compared
with those assessed by the costs consultant do not vary
by as much as
one-sixth, in any event. One-sixth is 16.67%. Had the sum claimed by the
solicitor been taxed down to the sum assessed
by the costs consultant, only
11.13% would have been taxed off.
129. Further, not only is the overcharge not "gross" even
on the basis
adopted by Mr McDonald, it was not the result of any decision to charge more
than was fair and reasonable. There was
no pattern or practice of assessing
costs arbitrarily or unfairly so as to exceed a reasonable fee.
130. Further, insofar
as there was an overcharge of 12.5%, the percentage
by which the costs exceeded the sum assessed by the costs consultant, it seems
that it was almost entirely the result of an overestimate of costs made by the
previous solicitor not by Mr Andrews. There is no
evidence to suggest that Mr
Andrews should have noticed that his predecessor's estimate was too high.
131. For all those
reasons, no finding of gross overcharging should be made
against the solicitor."Trust account obligations - Mr Andrews" 132. There
was no dispute concerning
the duties of a solicitor in dealing with clients' money. The Legal
Practitioners Act and The Law Society
of the ACT's Guide to Professional
Conduct and Etiquette address that obligation in general terms. Apart from the
keeping of accounts
which are in such a form as may conveniently be audited,
the implicit obligation is that a solicitor should deal fairly and honestly
with trust monies. A solicitor must also fairly and honestly reflect those
dealings in the accounts kept whether those accounts are
trust account records
or office general account records. A solicitor must not deal with client funds
in such a way as to prefer the
solicitor's interests to those of the client.
133. The complaint concerning the disposition of trust monies in this case
related to three matters:"Ms Georgiana O'Brien" 134. Ms O'Brien was a client of Mr Constance in relation
to a claim for damages for
personal injury arising out of a motor vehicle
accident occurring on 11 March 1990. Conduct of the matter was transferred to
Mr Andrews
on 24 May 1994.
135. The matter was settled and the agreed proceeds received on 16 August
1994. The solicitor prepared a
memorandum of costs and disbursements and a
settlement statement. Monies were transferred to the firm's general account to
pay disbursements
then payable or expected soon to be payable and to reimburse
the firm for disbursements paid and to pay the costs then rendered.
136. Some monies so transferred were intended to meet the anticipated
claims of various witnesses for expenses, including,
and for most part being,
stand-by fees for medical witnesses.
137. The sum so retained was $505.00. That balance remained
unchanged as at
13 March 1995 after all other monies had been accounted for to Ms O'Brien.
138. The solicitor's account of
his reasons for allowing the $505.00 to
remain as a credit in the general account was not challenged and the Court
accepts it as
truthful.
139. The credit balance was retained and not expended because no claims for
expenses were received from the witnesses
who had been expected to make such
claims.
140. The solicitor has no precise recollection as to how the credit balance
came
to be dealt with as it thereafter was. He accepts that the credit balance
of $505.00 was "written off" on 16 June 1995, pursuant
to his instructions, as
"unrecouped p1". That entry, apparently, indicates that those funds were
characterised as monies expended
by the firm on client matters for legitimate
disbursements but not charged out. The credit balance was as a result
transferred to
another ledger in which disbursements incurred by the firm but
not recouped from or billed to particular clients were recorded.
141. Those entries, the solicitor accepts, were both misleading and wrong.
The balance should have been paid to the client
once it was clear that no
claim for witness expenses was to be made. The monies were and remained monies
entrusted by the client
to the solicitor to pay disbursements and, unless and
until so expended, remained the client's monies.
142. The solicitor
also deposes that, had he checked the ledger more
carefully, he would have noticed that he had been entitled, in fact, to charge
the client additional sums totalling $1,144.29 representing disbursements
which had been legitimately incurred but had not been included
in the
memorandum of costs and disbursements forwarded to the client.
143. Nevertheless, once alerted by Ms Sayer's report
to the fact that he
had made an error, the solicitor promptly paid to Ms O'Brien the sum of
$505.00 representing the credit balance
as at 16 June 1995. He did not attempt
to charge out to her the disbursements he had omitted earlier to note and
charge."Mr Rodney
Edward Kerr" 144. Mr Kerr made a claim for damages for personal
injury out of a motor vehicle accident on 11 November 1982.
145. In 1990 Mr Andrews took over the carriage of the matter. In April
1993, the matter was settled. As with the O'Brien matter,
a memorandum of
costs and disbursements and a settlement statement were then sent to the
client.
146. Again, a sum of money
in excess of disbursements then paid or
immediately payable was transferred from the trust account to the general
account of the
firm to meet anticipated claims.
147. There were also a number of minor errors in the memorandum of costs
and disbursements.
That appears from a perusal of the ledger card.
148. Mr Andrews deposes that these latter errors were inadvertent. That was
not challenged and appears to be a truthful statement having regard to the
trivial nature of them.
149. Apart from the minor
credit balance arising from those inadvertent
errors there was also a sum of $1,000.00 transferred to pay the account of the
plaintiff's
previous solicitor. A cheque requisition was raised to pay the
account. There is a receipt for that sum from that solicitor on the
file.
150. However, a perusal of the ledger reveals that no cheque was in fact
drawn on the general account to pay the previous
solicitor's costs. Thus the
general account ledger credit balance includes that sum. Mr Andrews has no
precise recollection as to
how that situation came to be. Nevertheless,
reconstructing the matter from the file, it appears that Mr Kerr must have
paid the
previous solicitor directly and provided the receipt to Mr Andrews.
Thereafter, Mr Andrews assumed, without checking the file as
carefully as he
should, that the previous solicitor had been paid from the general account in
accordance with the cheque requisition.
151. Mr Andrews had also transferred $850.00 to cover stand-by fees for
various medical witnesses. Five of the latter witnesses
had said that they
were intending to send bills for stand-by fees. None ever did.
152. On 25 June 1993 the credit balance
of $1,850.69, representing those
various amounts above referred to were written off. The reason for that
action, shown on the ledger
card, was, "TRANSFERRED - DISBURSEMENTS UNRECOUPED
TO CLOSE". That caused the credit balance to be transferred to the unrecouped
or unbilled disbursement ledger account referred to previously.
153. Again, Mr Andrews has no recollection of this transaction
but accepts
that this "write-off" was done on his instructions. Again, this transaction
was misleadingly and incorrectly described.
154. The solicitor accepts that he did not properly turn his mind to the
significance of this transaction. He did not appreciate
that he was then
appropriating to the use of his firm a sum of money belonging to the client.
When this was pointed out to him as
a result of Ms Sayer's report, he caused
that sum to be refunded to the client. That was done on 12 June 1996."Mr Stuart Donnelly"
155. This was a similar matter to the preceding two
matters. Mr Andrews received instructions on about 18 June 1991, to act for Mr
Donnelly. The matter was settled on 11 February 1994. Settlement monies were
received on 3 March 1994. Apparently in anticipation
thereof, the solicitor
had prepared a memorandum of costs and disbursements.
156. After disbursement of all relevant fees
and charges, however,
including those ascertained after 3 March 1994, there was a credit balance of
$1,452.15 left unaccounted for
on the client's general account ledger. It
should have been characterised as monies due to the client and dealt with
accordingly.
157. Instead it was, on 31 May 1994, written off with the explanation
"TRANSFERRED - DISBURSEMENTS UNRECOUPED TO CLOSE".
The balance was transferred
to the ledger recording outstanding debits attributed to expenses either not
recouped from, or not chargeable
to, particular clients.
158. Mr Andrews says that, minor discrepancies aside, the sum of $1,452.15
had been transferred from
the trust account in anticipation of receipt of
accounts for stand-by and witness fees from medical witnesses. An account for
$215.00
for one such expense was received in August 1994 and paid. However, it
was not debited to the client's ledger as the ledger had by
then been closed.
Further contributing to the erroneous state of the ledger, one of the cheques
previously drawn for disbursements
and recorded on the ledger, in the sum of
$200.00, had in fact been cancelled, but the debit had not been reversed.
159.
On further checking the file and ledger cards following Ms Sayer's
report, Mr Andrews has ascertained that he overlooked charging
for
disbursements actually incurred in the sum of $1,114.68. The sum of $1,700.29
was refunded to the client. That sum did not take
account of all the
disbursements Mr Andrews had then found he could have charged but did take
account of the payment of the sum of
$215.00 referred to above and FID paid in
the sum of $258.71. He also adjusted the sum due to reverse the $200.00 error
referred
to above.
160. Mr Andrews concedes that the credit balance in the general account
should not have been written off as it
was. He stated that he did not intend
to misappropriate monies which should have been refunded to the client."The consequences and
issues" 161. It is accepted that in none of the three
instances referred to above did the solicitor act with dishonest intent.
162. However, it appears that the solicitor did follow a practice of
transferring out of the Trust account to the firm's general
account monies not
immediately required either to reimburse the firm for disbursements it had
paid or to enable it to pay disbursements
then due and payable but unpaid.
163. The risk inherent in that practice, was that, as in the three
instances referred to
above, a credit balance would be left in the client's
ledger. No doubt in other cases where there had been a credit balance awaiting
claim for payment, it would have soon been reduced or eliminated by
disbursement of the funds represented by that balance to pay
the anticipated
disbursements or by payment of that balance to the client.
164. There is no evidence of any practice of delaying
payment of
disbursements incurred but unpaid after transfer of funds for payment of those
disbursements from trust account to the
general account.
165. However, the effect of transferring funds to pay disbursements which,
although they were expected to
soon become payable, were not yet payable was
that funds representing monies due to the client were held in the solicitor's
office
or general account, benefiting the solicitor and his firm, until the
payment was in fact made. If no claim was made by the person
or persons from
whom a claim was expected then that benefit would remain until the solicitor
noticed it and paid the unclaimed balance
out to the client.
166. It is true that there would have been little or no corresponding
detriment to the client who would
not in any event have received interest on
funds held in the firm's general trust account. However, it amounted to an
interest-free
loan to the solicitor's firm by the client with no express
authorisation from the client or any advice, independent or otherwise,
as to
the effect of the transaction. It was not for so short a time as to be
disregarded as trivial.
167. As was pointed
out in the matter of Robb and Rees there is nothing
wrong with a solicitor transferring in one transaction funds from a trust
account
to the office or general account of the solicitor to pay disbursements
then payable.
168. However, the solicitor must recognise
that the funds so transferred
are subject to a fiduciary duty to the client to apply those funds promptly to
the purposes for which
the transfer was made. That duty is the more pressing
given that delay in carrying it out has the effect of advancing the
solicitor's
personal financial interests, if only to a minor extent.
169. Section 93 of the Legal Practitioners Act provides: "Where
-
(a) a solicitor receives from, or on behalf of, a client trust moneys that
exceed $1,000 or that, together with other trust
moneys held by the solicitor
for or on behalf of that client, exceed $1,000;
(b) at the time when those trust moneys are received,
the solicitor has
reason to believe that, having regard to the disbursements likely to be made
in accordance with the directions
of the client out of those trust moneys in
the period of 3 months next ensuing, the amount of the trust moneys held on
behalf of
the client by the solicitor at the end of that period will be not
less than $1,000,
the solicitor shall request the client to
furnish the solicitor with
instructions whether the client desires that those trust moneys or any part of
those trust moneys be paid
by the solicitor into a special trust bank account
maintained or to be maintained by the solicitor for the client or be otherwise
invested." 170. That section emphasises the need for solicitors to be aware
that trust funds remain the property of the client and
are to be dealt with in
the client's interests and not in the interests of the solicitor whether or
not they are transferred out
of the trust account.
171. In this case, in the three instances referred to above, the solicitor
when first made aware that
there was an unexplained credit balance on a client
general account ledger did not appropriately correct the situation either by,
* Transferring the funds represented by the credit balance back into the
general trust account to the credit of the client, pending
the client's
instructions,
* Paying the funds forthwith to the client, or
* Seeking instructions as to whether a special
trust investment account
should be established to receive the funds in the case of balances over
$1,000.00. 172. Instead, the credit
balances were transferred to a general
ledger recording unrecovered expenses. It may be assumed that those expenses
were tax deductible.
The "write-off" assumed that the credit balance so
written off represented reimbursement of some of those expenses. It had the
effect
of reducing the level of deductible expenses, as indeed, it should
have. However, the main effect was that the solicitor gained,
not only the
temporary benefit of the credit balance in the client's ledger, but also the
benefit of those funds on an indefinite
basis. Effectively, the funds were
misappropriated to the use of the solicitor and his firm.
173. The solicitor concedes
this breach of obligation to the clients
concerned. He asks the Court to accept that it was unintentional albeit a
result of carelessness.
It may be added there was an element of risk-taking
which led to that carelessness. There was not, as there should have been, a
"fail-safe"
mechanism in place to prevent such a breach. The practice of
transferring funds in anticipation of a claim rather than to satisfy
existing
claims exacerbated the risk of a failure promptly to expend monies transferred
from the trust account.
174. The
conclusion is that solicitors, (i) Should not transfer trust
monies to their general account to meet disbursements unless the same
have
been paid or are then and there due and payable.
(ii) Should have a system requiring credit balances on their general
account
to be reported to the solicitor whose matter it is and should not
permit the same to be "written off" without a memo explaining the
same as
being due to arithmetic error, omission to pay a disbursement or otherwise.
(iii) Unless otherwise dealt with, on discovery
of such a credit balance
the solicitor should deal with it promptly by way of transferring it to or in
trust for the client. 175.
Solicitors should regard the presence of a credit
balance on a client's office account ledger as seriously as a debit balance
appearing
on a trust account ledger. If that had been done in this case, it is
unlikely that, given his general good character and competence,
Mr Andrews
would have acted as he did."The Court's response" 176. The quality of the solicitor's conduct does depend
on whether it
was, so far as it breached proper standards, the result of mere
oversight, of carelessness, of failure to appreciate ethical standards
or of a
deliberate decision to contravene acceptable standards.
177. Mistakes happen, even with the best of intentions and
the most
adequate of systems. With trust accounts, this is usually dealt with in
practice by the solicitor reporting the error to
the Law Society and, of
course, correcting it at the earliest opportunity. It would be prudent for
solicitors finding that a credit
balance in their office account client ledger
has led to a misapplication of client's funds to make a similar disclosure.
178. In the present case, the solicitor did not act in deliberate disregard
of his duty. He was not acting out of any conscious
disregard of his client's
interests. Indeed, his transference of funds in advance of receipt of claims
for stand-by and witness fees
was probably due to a desire to finally account
to the client as efficiently as possible rather than to financially benefit
himself
or his firm. In that endeavour he was overenthusiastically mistaken.
However, it was an error made in good faith.
179. The
same cannot be said of the write-offs. They represented a degree
of lack of advertence and of carelessness which was reprehensible.
They were,
apparently, isolated instances. It seems that the solicitor had considerable
personal pressures which tend to explain
his oversight and to indicate that it
does not reflect a general lack of appreciation of his duty to his clients.
Nevertheless, his
conduct fell short of proper standards in this regard and
amounts to unsatisfactory professional conduct."Failure to advise as to
the basis upon which matters were settled" 180. The Law
Society alleges that in two instances Mr Andrews failed to ensure that his
clients were fully informed as to the basis upon which their actions for
damages for personal injury were settled. In the case of
Mr O'Mullane, Mr
Andrews advised the client that his case had been "settled in accordance with
your instructions for [a figure] .
. . plus costs. All legal costs incurred in
connection with the action will be paid by the defendants in addition to the
settlement
sum." In the case of Mr Harmond, Mr Andrews wrote to the client
stating that the action had been
"finalised after the hearing
commenced . . . in the sum of [a figure] clear
of all payments and costs . . ." 182. The gravamen of the complaint is that
there
was a concealment from the clients of the fact that the client's costs,
and particularly the solicitor-client element of them, were
to be paid
directly out of the client's settlement monies, rather than in a more
transparent way which would maximise the client's
opportunity of exercising
his right to obtain an itemised bill of costs under the Legal Practitioners
Act to have the costs taxed
by the Court's officer. In that way, it is said
that Mr Andrews preferred his firm's interests to those of his client.
183.
However, in each case, once Mr Andrews had attended to payment of
disbursements, he again wrote to the clients giving them a full
"settlement
statement" and a "memorandum of professional costs and disbursements". In each
case, the statement disclosed that a single
stated amount had been received
for "compensation" (or "settlement") and "professional costs" and the
memorandum itemised the disbursements
and stated the amount of the firm's own
(or "profit") costs. Also, Mr Andrews had orally informed each client of the
real nature
of the offer made, before sending the letters of which the Society
complains. In the case of Mr Harmond, the client contemporaneously
acknowledged so much in writing and it has not been suggested that this
acknowledgment was obtained by any overbearing conduct by
or on behalf of Mr
Andrews.
184. In the light of these matters, there is no evidence to suggest any
wish or intention by
him to mislead his clients. We accept that he had no such
improper intent.
185. At the time, it was common practice for defendants,
by their
solicitors, to offer to settle such actions for sums "inclusive of costs".
However convenient this is for defendants, it
necessarily puts the plaintiff
and his/her solicitor in the position that their financial interests are, to a
greater extent than
normal, opposed. It is to be observed that, in any case,
on the question at least of the solicitor-client component of such costs,
the
financial interests of the solicitor and the client are, to an extent,
opposed: it is to the solicitor's immediate financial
interest that they be
maximised, to the client's that they be minimised. Longer-term competitive
considerations, to say nothing of
a proper professional attitude, operate, in
most cases, to reduce this opposition of interests to a level which is
sufficiently controlled
by the availability of adjudication by the Court on
any claim that a solicitor's charges are unduly high. Nevertheless, in the
case
of a greedy solicitor (and that is not the case here), there is both an
opportunity and temptation presented by costs-inclusive offers
to give undue
weight to his/her own interests.
186. The matter was fully discussed in Robb and Rees by this Court in terms
which were approved on appeal by Jenkinson J and implicitly accepted by the
other members of a Full Court of the Federal Court. The
point was made that,
as long ago as 1967, a practice note of the Supreme Court of NSW had stated:
"The practice according to which
a defendant makes an offer of a sum inclusive
of costs 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." The Full Court said at 239:
"It is to be emphasised that [that
deprecation] 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 . . . The underlying
principle must be understood and observed by legal practitioners in this
Territory."
188. The practice of a defendant's solicitor offering or a plaintiff's
solicitor accepting a sum inclusive of costs does not
of itself amount to
professional misconduct or unsatisfactory professional conduct as was made
clear in Robb and Rees in this Court
(and, specifically by Jenkinson J in the
Federal Court). An offer to settle a plaintiff's claim for damages for a
specified sum "inclusive
of costs" brings with it an obligation on the part of
the plaintiff's solicitor to explain to the client: (1) that the amount of
those costs will be the sum of (a) what the solicitor regards as his/her own
reasonable remuneration and (b) the disbursements;
(2) the client's right to an itemised bill of costs pursuant to Part XV of
the Legal Practitioners Act;
(3) the client's right
to have the amount payable taxed in the Court;
(4) that there may be thought to be a conflict between the interests of the
solicitor
and the client; and
(5) what are the disbursements (with such reasonable particularity as
circumstances will permit). We acknowledge
the accuracy of the view of the Law
Society expressed in an article by Mr David Harper in Ethos, November 1997, at
16 published by
the Law Society:
"The view of the Society in the light of the judgments is that inclusive
settlements in personal injury actions
are not prohibited, but practitioners
have a fiduciary duty as well as a professional responsibility to ensure that
clients are fully
informed so that there can be no suggestion that the
solicitor's interests have been preferred to those of the client. The advice
to the client should be in writing, translated into the client's native
language if necessary, to ensure that it is understood by
the client." 190. Mr
Andrews did not initially give the necessary explanation to the clients in
question. That, however, was not
the nature of the Law Society's complaint
against him. The complaint is that he misled them as to the basis of the
settlement, which
he ultimately did not.
191. Although the initial letters to the clients were misleading, we think
that no finding either
of professional misconduct or unsatisfactory
professional conduct should be made in these matters."Misleading a client and negligence"
192. As to this matter, Mr Andrews properly
admits wrongdoing and has apologised to the Court for it. The question is one
of characterisation
of its seriousness.
193. In August 1991, Mr Andrews received instructions from a client, Dr
Clark, to defend an action brought
against him in the ACT Magistrates Court
for damages for breach of a contract to do with the leasing of a racing car to
Dr Clark.
The plaintiff was claiming $15,000.
194. Mr Andrews had a proper concern to try to minimise costs. He thought
that, for that
and other reasons, the best way to proceed was to seek the
plaintiff's agreement to have the matter referred for arbitration by a
person
with experience in the car racing industry. He so advised Dr Clark by letter
on 26 August. Dr Clark accepted the suggestion
in a letter to Mr Andrews of 12
September, which repeatedly drew attention to his own earnest desire to keep
costs down, on account
of his limited means.
195. In October, Mr Andrews sought the plaintiff's agreement. On 30
October, the plaintiff's solicitors
refused. Mr Andrews sought advice from a
solicitor employee of his firm. The latter advised that the relevant Act gave
the Magistrates
Court no power to order a reference of the matter to
arbitration, but that the Court might have a common law power so to do.
196. On 4 November Mr Andrews instituted a proceeding in the Court asking
that it hear an application on Dr Clark's behalf that
an arbitrator be
appointed to hear the case on 10 December. By letter of 27 November he
reported to Dr Clark that he had done this.
He told the client that: "the
Court merely has a discretion - it is entirely within the Magistrate's control
whether he exercises
that discretion or not. We have advised you that in our
view we have a better than 50% chance of succeeding . . . if we are
unsuccessful,
the has a discretion to order costs [against Dr Clark]." 197. On
3rd December, the plaintiff's solicitors very properly advised Mr
Andrews that
their view was that the Magistrates Court had no jurisdiction and why; they
invited Mr Andrews to review the matter
and, in effect, gave him the
opportunity to withdraw the application without their seeking the costs of it.
What the plaintiff's
solicitors were saying was clearly right.
198. By the time the matter was ready for hearing, Mr Andrews had received
further
advice from his partner, Mr Constance, that absent consent, his
application could not succeed.
199. Nevertheless, he pursued
it to the door of the Court. He had had the
experience, in a large commercial matter, of an eleventh hour change of heart
by a previously
intransigent party. He was hopeful that his powers of
persuasion might bring about a similar result. His hopes were dashed. Mr
Andrews
was forced to concede to the Court that his application could not
succeed. The learned Magistrate ordered that Dr Clark pay the costs
of the
application.
200. Upon being apprised of the order made by the Magistrate of the amount
of costs sought by the plaintiff
under that order, Dr Clark complained by
letter of 10 January 1992 that he had not known that the costs might be so
high and, if
he had known, he would not have agreed to the "gamble"
constituted by the 50/50 chance of success he had been told he had. On account
of that consideration, he asked Mr Andrews to waive his own fees for the work
undertaken for the "arbitration gambit".
201.
Mr Andrews then wrote the letter of 4 February 1992 which constitutes
his principal wrongdoing. He disputed that Dr Clark had not
been adequately
warned of the costs risk and continued: "It is unfortunate that the decision
of the Court, in the exercise of its
discretion was against the application
for arbitration however, in the absence of . . . later instructions we are
entitled to proceed
on the basis of your early instructions to continue with
your application for arbitration.
If there is any misunderstanding about
this issue, then we strongly suggest
that you review your decision to instruct this firm and obtain alternate legal
representation
with a firm you might have more confidence in.
. . . we do not propose to waive our own fees in relation to the
application for
arbitration . . " 202. By this letter, Mr Andrews told his
client a deliberate untruth about why the application had failed. The
deception was likely to have the effect that the client would not pursue his
claim to have Mr Andrews waive his own fees in relation
to the application.
The proper course would, of course, have been for Mr Andrews straightforwardly
to tell his client that he had,
in good faith, mistaken the law; to offer not
only to waive his own costs of the application, but to pay the other party's,
and to
advise Dr Clark that he might wish to seek other legal advice about Mr
Andrews' error.
203. Mr Andrews says that he did not
advert to the possibility that Dr
Clark might have rights against him for his negligence and that the motive for
his misleading Dr
Clark was not to avoid the possibility of such action by Dr
Clark. In many a case, such an explanation would not be credible, but
there
are special circumstances here which make it so.
204. In the first place, Mr Andrews invited Dr Clark to go elsewhere
for
legal advice if he was unhappy. Had Mr Andrews turned his mind to the matter,
he must have realised that another solicitor would
see that his explanation as
to why the arbitration application had failed was, in terms of the law,
nonsense, and would likely discover
that what Mr Andrews had told Dr Clark was
a deliberate untruth. To suggest that Dr Clark consult another solicitor is
inconsistent
with Mr Andrews' motive having been to avoid a negligence action
against him.
205. In the second place, the evidence as a
whole compels another
conclusion. Mr Andrews' conduct in relation to this matter borders on the
irrational. It was quite out of character
for him. He was generally a
hard-working and highly skilled litigation solicitor, compassionate,
solicitous of his client's welfare
and not greedy at their expense. He was
also a person who gave impressive amounts of time and energy to worthy
community projects
of no material benefit to himself. He had been regarded by
his peers over a long time as an honest and honourable man. At the time
of
this affair, he was grieving his mother's recent death and this was aggravated
by family dissension about the estates of his deceased
parents. He appears to
have been under pressure of overwork. He offers the explanation that, for a
period, the strains upon him,
to some extent, overcame his ability to cope. We
formed a favourable view of his sincerity. His explanation seems to us to
account
for his conduct and not to require any inference that he acted as he
did in order to avoid the unpleasantness of an action for negligence
against
him.
206. Nevertheless, Mr Andrews deliberately lied to his client and in
circumstances such that, among other things,
he should have realised that the
lie would likely disadvantage his client as against him. There is no doubt
that that is serious
misconduct constituting "professional misconduct" on the
part of a solicitor. So much, as we understand the course of proceedings,
was
rightly conceded.
207. Mr Andrews was also negligent, in the sense that a solicitor
moderately competent in commercial
litigation would not have made, or failed
to withdraw, the arbitration application as Mr Andrews did. That is a matter
less serious
of course, than outright dishonesty. Not all negligence will
amount to unsatisfactory conduct, but we think this does. Mr Andrews
played a
game of bluff when it was his client who held no cards and stood to lose. The
negligent conduct was persisted in despite
a plain indication from his
opponent that the latter was not to be bluffed. No separate formal finding
need however be made. It will
be appropriate to consider the negligence as a
factor aggravating, to an extent, the lie."Charging of travel expenses" 208. It was
alleged that in four instances Mr
Andrews obtained a financial benefit in claiming from the client, and being
paid for, travelling
expenses which were not in fact incurred, and failed to
ensure that the clients were fully informed as to the circumstances
surrounding
the charging of those expenses.
209. Ultimately, the allegation was not pressed as to one of the four
instances. We deal
with the other three."Ms O'Brien"
210. $1,060.75 was charged to Ms O'Brien as travelling expenses upon
settlement of her action
for damages for personal injuries. Mr Andrews
concedes that no travel expenses were properly chargeable. He had drawn
$200.00 from
the firm's trading account to cover anticipated expenses of a
trip to Melbourne for a conference, but that travel was cancelled.
We accept
that Mr Andrews was, at the relevant times, often travelling on business and
it is probable that the $200.00 and the constituent
debits to Ms O'Brien's
account in the ledger which made up the other $860.75 were expended for
business trips unrelated to her case.
211. The matter is therefore one of accounting errors in a system which was
not set up to minimise, so far as possible, the
prospect of such mistakes
occurring, and to retrieve and rectify them if they did occur. The accounting
system was as capable of
disadvantaging the firm as well as clients and may
have done so: upon checking, Mr Andrews found that certain apparently properly
chargeable disbursements had never been charged to Ms O'Brien.
212. Upon reading the report of the Law Society's investigator,
Ms Sayers,
Mr Andrews refunded the $1,060.75 to the client. No effort was made, nor is it
now intended, to pursue any uncharged disbursements."Mr
Rodney Kerr"
213. Upon conclusion of his case, Mr Kerr was charged, among other things,
$1,280.60 for travelling expenses. This
was made up of an alleged cash expense
of $100.00 on 27 April 1993 and two larger non-cash amounts paid on 5 May 1993
and 3 June
1993. Mr Andrews is able to account well enough, from a file note,
for the $100.00 as having been expended on taxis and meals over
two days spent
in Sydney for lengthy conferences with counsel. From credit card records, a
further $622.90 may be attributed to airline
travel and accommodation for the
same trip. $657.90 cannot be accounted for and $658.00 has therefore been
refunded to the client.
As to such excess, Mr Andrews surmises that this was
either expended on other items to do with Mr Kerr's case or debited to the
incorrect
file. Having regard to Mr Andrews' generally undoubted honesty apart
from these matters and the absence of any pattern of padding
expenses, this
may be accepted as the probable explanation.
214. The defaults here are to be characterised in the same way
as in the
O'Brien matter just dealt with."Mr Stuart Donnelly"
""215. In this case two items ("cash $150.00" and "Amex $243.00")
totalling
$393.00 were debited to the client's ledger but not charged out to the client.
They were shown as having been so debited
after the case settled. Mr Andrews
therefore accepts that they were so debited in error. While Mr Andrews has no
recollection of
the matter, it is possible that the error was detected during
the preparation of Mr Donnelly's account.
216. There is no
reason to assume that this is not a case of simple error.
It did not result in any detriment to the client. While the accounting
system
should have seen to the reversal of the mistaken entries, the Law Society
(rightly, we think, in the overall setting of this
case) does not press that
as a matter as requiring intervention by the Court."Charging of travel expenses : Conclusion" 217. Mr Andrews
is responsible for
using (or mis-using) an accounting system which enabled two clients to be
overcharged by significant amounts,
but there was no dishonesty. We think that
is unsatisfactory conduct but, in the absence of wilful or at least reckless
conduct,
not more than that."Outcome"
""
218. For the reasons above mentioned we are of the opinion that
professional misconduct, in
the sense in which that term was used prior to
amendments to the Legal Practitioners Act coming into operation on 24 December
1993,
has been proved against both practitioners.
219. We have been requested in the event of a finding adverse to either of
the practitioners
to hear further submissions and possibly further evidence in
relation to what orders should be made consequent upon such finding
and in
relation to costs. We have taken a provisional view on these matters and we
will express it if the parties wish.
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