Applicant v Respondent

Supreme Court of Victoria|2014-04-29|Before: EMERTON J

LEGAL PRACTITIONERS - Applicant an employee solicitor - Applicant charged with professional misconduct for giving undertakings in circumstances where compliance with the undertakings required the action of third parties which could not be guaranteed - Tribunal found applicant guilty of professional misconduct in that he failed to honour undertakings - Whether the Tribunal erred in finding the applicant guilty of offences with which he was not charged - Application for leave to appeal is granted and the appeal allowed - Proceeding remitted to the Tribunal differently constituted for determination according to law - Legal Profession Act 2004 (Vic) Part 4.4 - Craig v The State of South Australia [1995] HCA 58; (1995) 184 CLR 163.

Ms T Stagliano, Solicitor to the Legal Services Commissioner

1 The applicant has been a solicitor since 1989. In 2008, whilst working as an employee solicitor at law firm Mitcham Whitelaw Pty Ltd ('MW Law'), the applicant had the carriage of files for the firm's clients, Mr David Graham and Mr Kevin Wilson, who were pursuing claims for damages in the County Court of Victoria against the Victorian WorkCover Authority ('VWA').

2 During the course of the proceedings, the applicant referred Mr Wilson and Mr Graham to a money lender, J.P. Finance and Investment Pty Ltd trading as 'JP CreditLine'. Mr Graham and Mr Wilson each borrowed money from JP CreditLine. The loans were 'settlement loans', that is, unsecured loans advanced on the basis that the borrowers would be receiving settlement monies from the VWA by a particular date, out of which the loans (plus a fixed amount representing interest and fees) would be repaid.

3 As a part of the loan application process, Mr Graham and Mr Wilson each signed a document entitled 'Irrevocable Authority'. In each case, the Irrevocable Authority was addressed to the attention of the applicant at MW Law requesting that, upon receipt of settlement monies, the amount owing under the loan be forwarded directly to JP CreditLine.

4 As a corollary to the Irrevocable Authorities, the applicant was asked to and did sign in respect of each of Mr Graham and Mr Wilson a document entitled 'Response from Payor to Irrevocable Authority' (the 'Responses').

5 The Responses, each dated 15 July 2008, read as follows:

We MW Law Barristers & Solicitors hereby acknowledge the irrevocable authority dated Tuesday, July 15, 2008, and signed by David Graham our client and will account to you for the monies being $8500.00.

Total amount owing is for Loan Number 261 for $4250.00 and Loan Number 273 for a further $4250.00.

Payment will be made by 30th September 2008 via cheque.

We MW Law Barristers & Solicitors hereby acknowledge the irrevocable authority dated Tuesday, July 15, 2008, and signed by Kevin Roy WILSON our client and will account to JP CreditLine the monies being $4250.00.

Payment will be made by the 30th September 2008 via cheque.

6 In Mr Graham's case, the applicant also sent JP CreditLine a fax dated 15 July 2008 indicating that he expected the VWA settlement monies to be in excess of $30,000 and to be received before 31 August 2008.

7 JP CreditLine advanced to Mr Graham and Mr Wilson the amounts referred to in the Irrevocable Authorities and the Responses.

8 Mr Graham's WorkCover claim has not been settled and he has not paid the monies owing to JP CreditLine. Like Mr Graham, Mr Wilson has not paid the monies owing to JP CreditLine, although he has received funds from the VWA.

9 On 15 February 2010, JP CreditLine lodged a complaint with the respondent (the 'Commissioner') about the applicant's failure to make payment of the outstanding monies owing to JP CreditLine by Mr Graham and Mr Wilson in accordance with the Responses.

10 On 17 October 2012, the Commissioner applied to the Victorian Civil and Administrative Tribunal seeking orders against the applicant under Division 4 of Part 4.4 of the Legal Profession Act 2004 (the 'Act') in respect of the following charges:

CHARGE 1

Professional misconduct within the meaning of sections 4.4.3(1)(a) of the Act in that the Respondent gave an undertaking to JP CreditLine by letter dated 15 July 2008 regarding the repayment of monies loaned by JP CreditLine to his client Mr David Graham (also known as Mr David Spreckley), compliance with which required the action[1] of a third party (WorkCover) where this third party was not a party to the undertaking and whose action the Respondent could not guarantee.

CHARGE 2

Professional misconduct within the meaning of section 4.4.3(1)(a) of the Act in that the Respondent gave an undertaking to JP CreditLine by letter dated 15 July 2008 regarding the repayment of monies loaned by JP CreditLine to his client Mr Kevin Roy Wilson, compliance with which required the action of a third party (WorkCover) where this third party was not a party to the undertaking and whose action the respondent could not guarantee.

11 The Tribunal's reasons for decision[2] focus on three questions: (a) what the applicant promised; (b) whether the applicant gave undertakings; and (c) whether the applicant's conduct amounted to professional misconduct.

12 The Tribunal did not accept the applicant's argument that the Responses were merely an acknowledgment that he would comply with the Irrevocable Authority. The Tribunal identified the Commissioner's complaint to be that the applicant had created a 'false belief in the mind of Mrs John [of JP CreditLine] that settlement would occur and that MW Law would be able to and would pay JP CreditLine from the settlement monies.'[3] The Tribunal found that the applicant had promised that the settlements would take place and that the monies that flowed from settlement to MW Law would be paid to JP CreditLine.[4]

13 The Tribunal held that the Responses could be characterised as an undertaking. While the word 'undertaking' was not used in the Responses, it did not need to be used in order for an undertaking to be given. Having regard to the dictionary definition of an undertaking as 'a pledge, promise; a guarantee', the Tribunal found that the applicant had made 'promises to pay and, as such, gave undertakings.'[5]

14 The Tribunal next considered whether the applicant was guilty of professional misconduct. It did so by reference to the definition of 'professional misconduct' in s 4.4.3(1) of the Act, the definition of 'unsatisfactory professional conduct' in s 4.4.2 and s 4.4.4(a) of the Act, which identifies a contravention of the legal profession rules as conduct capable of constituting either professional misconduct or unsatisfactory professional conduct. The Tribunal then referred to r 27.1 of the Professional Conduct and Practice Rules 2005 (the 'Rules'), which deals with undertakings given by practitioners and provides:

The practitioner who, in the course of providing legal services to a client, and for the purposes of the client's matter communicates with a third party orally, or in writing, in terms which, expressly, or by necessary implication, constitute an undertaking on the part of the practitioner to ensure the performance of some action or obligation, must honour the undertaking given strictly in accordance with its terms, and within the time promised (if any) or within a reasonable time.

15 The Tribunal proceeded to review the case law regarding breaches of practitioner's undertakings, and said:

In Mr Simon's case, undertakings were given which could never have been complied with. The failures to honour those undertakings were breaches of rule 27.1 of the Professional Conduct and Practice Rules 2005. I am satisfied that Mr Simon's conduct constituted professional misconduct and that the charges are proven.[6]

The Tribunal finds Mr Simon guilty of two charges of professional misconduct in that he failed to honour undertakings given to third parties.
Mr Simon is reprimanded.
Mr Simon must, within six months of the date of this order, undertake compulsory professional development training in ethics approved by the applicant. That training must be three CPD units as defined in the Law Institute Professional Development Rules 2008. When Mr Simon has completed that training he must provide proof of completion to the applicant.
Mr Simon must pay the applicant's costs of this proceeding on the County Court scale to be agreed and, in default of agreement, to be assessed by the Victorian Costs Court.

17 The applicant now seeks leave under s 148 of Victorian Civil and Administrative Tribunal Act 1998 (Vic) to appeal against the Tribunal's order and, if leave is granted, to have the order set aside.

18 The proposed Notice of Appeal contains extensive grounds of appeal. However, the principal error alleged by the applicant is that the Tribunal found him guilty of professional misconduct on the basis that he failed to honour undertakings to a third party, but neither of the charges alleged any such thing. In other words, the Tribunal found the applicant guilty of offences with which he was not charged.

19 The applicant further submits that the Tribunal erred in finding that:

(a) there was an 'undertaking', the undertaking was a 'personal undertaking' and 'undertakings were given that could never have been complied with';

(b) the conduct in question constituted 'professional misconduct';

20 This application and the appeal can be disposed of by reference to the principal ground alone.

21 The applicant was not charged with breaching undertakings given to JP CreditLine. He was charged with giving undertakings in circumstances where compliance with the undertakings required the action of a third party which could not be guaranteed. Nonetheless, the Tribunal found him to be guilty of two charges of professional misconduct in that he failed to honour undertakings given to third parties.

22 There is clearly a major disconnect between the charges that were laid and the charges that were found proven. This constitutes an error of law that would usually amount to a vitiating error. In Craig v The State of South Australia,[7] the High Court confirmed that if an administrative decision-maker makes an error of law which causes it to identify the wrong issue, to ask itself the wrong question, to ignore relevant material, to rely on irrelevant material or, at least in some circumstances, to make an erroneous finding or to reach a mistaken conclusion, and the decision-maker's exercise or purported exercise of power is thereby affected, it exceeds its authority or powers. Such an error of law is a jurisdictional error which will invalidate any order or decision which reflects it.[8]

23 In this case, the Tribunal identified the wrong issue and asked itself the wrong question, namely whether the applicant was guilty of professional misconduct by reason of breaching undertakings given to JP CreditLine. It thereby exceeded its authority or powers and made a jurisdictional error that invalidated its order.

24 The Commissioner submits that in paragraphs 16 and 20 to 26 of the Reasons, the Tribunal exhibits an understanding of the charges brought against the applicant, the Commissioner having submitted to the Tribunal that the essence of the charges was that the applicant should never have signed the Responses. He submits that the Tribunal made all the findings of fact required to find the charges proven, namely that:

(a) As at 15 July 2008, the applicant was acting for both Mr Graham and Mr Wilson in respect of their claims against the VWA;

(b) The applicant referred Mr Graham and Mr Wilson to JP CreditLine so they could obtain loans;

(c) The loans were 'settlement loans', meaning they were unsecured loans advanced on the basis that Mr Graham and Mr Wilson would each be receiving settlement monies from the VWA by a particular date, out of which the loans plus a fixed amount representing interest and fees could be paid;

(d) In Mr Graham's case, the applicant also sent JP CreditLine a fax 2008 indicating that he expected the VWA settlement monies to be in excess of $30,000 and to be received before 31 August 2008;

(e) JP CreditLine provided two loans to Mr Graham, each for $3,000 to be repaid along with a fixed amount of $1,250 for interest and charges by 30 September 2008;

(f) Mr Graham signed the Irrevocable Authority addressed to the applicant instructing the applicant to repay the loans out of his VWA settlement funds when they were received;

(g) The applicant signed the Response in respect of Mr Graham acknowledging the Irrevocable Authority and stating that MW Law 'would account' to JP CreditLine for the loan monies, and that 'payment will be made by 30 September 2008 by cheque';

(h) JP CreditLine lent Mr Wilson $3,000, with repayment to include a fixed amount of $1,250 for interest and charges. Mr Wilson signed an Irrevocable Authority and the applicant signed a Response and filled in the repayment date as '30 September 2008', being the date that he expected to receive from the VWA payment of settlement monies for Mr Wilson;

(i) For the purposes of the loans to Mr Graham and Mr Wilson JP CreditLine relied upon the applicant, as solicitor for each of the borrowers, giving an indication as to when VWA settlement monies would be received and signing the Responses; and

25 The Commissioner concedes that the Tribunal's order should not have been 'worded' inconsistently with the charges that were brought. However, he submits that the signing of the Responses can be 'equated in seriousness' with a breach of undertaking and that the Court should simply vary the Tribunal's order 'so as to be consistent with the charges that are found proven'.

26 This, as I understand it, would involve the Court varying the Tribunal's order so that the applicant is found guilty of charges of professional misconduct by reason of having given undertakings that should not have been given, rather than by reason of failing to honour the undertakings.

27 I reject the Commissioner's submission and the proposed 'fix'. The Tribunal's error cannot be remedied by the Court varying the Tribunal's order under s 148(7)(a) of the VCAT Act to reflect a finding of guilt that the Tribunal did not in fact make. Such a variation of the Tribunal's order is not permissible having regard to the way in which the Tribunal approached its task. Nor, in my view, should the Court exercise its power under s 148(7)(b) to make an order that the Tribunal could have made in the proceeding and find the applicant guilty of the charges on the basis of the factual findings made by the Tribunal. In XYZ v State Trustees Ltd,[9] Cavanough J observed that, generally speaking, it would not be appropriate to substitute a new decision for the Tribunal's decision unless it were the only decision open to the Tribunal as a matter of law. I am not persuaded that this is the case.

28 The Tribunal's reasoning was based on the promises in the Responses constituting undertakings that were not honoured by the applicant. The form of professional misconduct found by the Tribunal involved a breach of r 27.1 of the Rules, which deals with the need for practitioners to honour undertakings strictly in accordance with their terms. The Tribunal reviewed at length the authorities on the subject of broken undertakings and concluded that 'breach by a solicitor of an undertaking is "a matter of the greatest concern"'.[10] It based its decision that the applicant's conduct constituted professional misconduct on the finding that, although the applicant's breaches were not trifling, 'Mr Simon's failure is not the worst type of breach undertaking.'[11]

29 Whether signing the Responses is as serious as a breach of an undertaking and whether it constituted professional misconduct is a matter for the Tribunal, not the Court on appeal under s 148 of the VCAT Act. It was for the Tribunal to determine what was given by the applicant and whether the giving in the circumstances alleged constituted professional misconduct. The Tribunal has not considered this question.

30 Leave to appeal is granted, the appeal is treated as having been instituted and heard instanter and the appeal is allowed. The Tribunal's order must be set aside and the proceeding remitted to the Tribunal to be heard and determined according to law.

31 The Tribunal considering the charges afresh should be differently constituted, given the (unnecessary but damaging) findings made by the learned member concerning breaches of undertakings.

[1] The charges originally filed were amended by order of the tribunal dated 17 January 2013 so that the word 'action' replaced the word 'co-operation' wherever occurring.

[2] Legal Services Commissioner v Simon (Legal Practice) [2013] VCAT 736 ('Reasons').

[8] Craig 179. Nothing said by the High Court of Australia in Kirk v Industrial Court of New South Wales (2010) 239 CLR 531 detracts from this, although the High Court observed (at [73]) that the reasoning in Craig was not to be seen as providing a rigid taxonomy of jurisdictional error.

Professional Conduct and Practice Rules 2005

Institute Professional Development Rules 2008