Council of the Law Society of New South Wales v Webb

Court of Appeal (NSW)|2013-10-18|Before: Meagher JA, Leeming JA, Simpson J

Judgment 1MEAGHER JA: This is an appeal by way of rehearing brought pursuant to s 729A of the Legal Profession Act 2004 (the LP Act). The respondent solicitor acted for the purchasers in ten transactions, undertaken between November 2004 and January 2006, which involved the purchase and mortgage of real property. His conduct when doing so was negligent and the subject of a disciplinary application made by the appellant Law Society under s 551 of the LP Act. It was alleged that this conduct constituted "unsatisfactory professional conduct" or "professional misconduct" as those terms are defined in ss 496 and 497(1). Seven grounds were relied upon. In its decision delivered on 14 June 2012 the Administrative Decisions Tribunal (the Tribunal) held that, taking into account some of the circumstances which formed the basis for the allegations made in grounds 2, 3, 5 and 7, the conduct described in ground 6 constituted unsatisfactory professional conduct: Council of the Law Society of NSW v Webb [2012] NSWADT 114. In doing so it rejected the Law Society's argument that, considered separately, the conduct described in each of grounds 2, 3, 5 and 7 constituted unsatisfactory professional conduct. Grounds 1 and 4 were not pressed before the Tribunal. 2The issue is whether the Tribunal erred in not concluding that the conduct described in ground 6 involved a "consistent failure to reach or maintain a reasonable standard of competence and diligence" so as to require that it be characterised as "professional misconduct". There is no issue on appeal concerning the Tribunal's decision with respect to the conduct separately described by grounds 2, 3, 5 and 7. 3Having concluded that the respondent's conduct constituted unsatisfactory professional conduct, and after hearing further argument, the Tribunal ordered that the respondent be reprimanded and fined the sum of $1,500. It also ordered that he pay 50 per cent of the costs of the Law Society as agreed or assessed: Council of the Law Society of New South Wales v Webb (No 2) [2012] NSWADT 233. The appellant appeals from the making of those orders, but only upon the basis that the Tribunal erred in not finding that the conduct constituted professional misconduct. By its notice of appeal it seeks, in the event that its appeal is successful, an order that the respondent's name be removed from the roll of local lawyers. 4In oral argument the appellant indicated that in the event that its appeal is successful it no longer seeks an order that the respondent's name be removed from the roll. Instead it seeks an order that he be fined $5,000 and ordered to undertake a specified period of practice under supervision. An application was then made for leave to amend the relief sought on appeal so as to claim those orders. The Court refused that application because it was made too late. It was not referred to in the appellant's written or oral argument and only raised, for the first time, during the course of the respondent's oral argument.

Unsatisfactory professional conduct and professional misconduct 5Sections 496 and 497(1) define unsatisfactory professional conduct and professional misconduct as follows: "496 For the purposes of this Act: unsatisfactory professional conduct includes conduct of an Australian legal practitioner occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner." and "497(1) For the purposes of this Act: professional misconduct includes: (a) unsatisfactory professional conduct of an Australian legal practitioner, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence, and (b) conduct of an Australian legal practitioner whether occurring in connection with the practice of law or occurring otherwise than in connection with the practice of law that would, if established, justify a finding that the practitioner is not a fit and proper person to engage in legal practice. (2) For finding that an Australian legal practitioner is not a fit and proper person to engage in legal practice as mentioned in subsection (1), regard may be had to the matters that would be considered under s 25 or 42 if the practitioner were an applicant for admission to the legal profession under this Act or for the grant or renewal of a local practising certificate and any other relevant matters."

The respondent solicitor's conduct 6The relevant facts were the subject of a Statement of Agreed Facts which is set out by the Tribunal in its first decision at [17]. There were also tendered before the Tribunal two reports prepared following investigations of aspects of the respondent's law practice under Division 3, Part 3.1 of the LP Act. Mr Rosier's report dated 27 August 2008 contains a detailed summary of the individual transactions and attaches copies of various documents relating to each transaction. The Tribunal also set out a more detailed description of the third of the transactions at [18]. 7The following summary of the relevant facts is not controversial. The respondent was admitted to practise in August 2000. He first worked as an employed solicitor and commenced to practise on his own account in May 2003. At that time he had only limited experience in conveyancing matters. In August 2003 the respondent was approached by a Mr Graham Lee, who described himself as a mortgage broker and who offered to refer conveyancing clients to him. Mr Lee told the respondent that he had organised a property syndicate with members who would purchase properties using borrowed funds with the respondent acting for the purchasers. Before the ten transactions in question occurred, Mr Lee introduced two transactions in which the respondent proceeded to act for the purchasers. In each he was instructed to act after contracts had been exchanged. In each the respondent was then given a deed of variation, evidently signed by the vendor and purchaser, recording an agreement between them to reduce the purchase price shown in the contracts exchanged between them. In these first two transactions, unlike any of the subsequent ten transactions, the respondent met the purchaser in person. He was advised by each purchaser that he or she was a member of a buyers' syndicate organised by Mr Lee. Each gave him instructions that there would be a surplus of funds available from the bank loan obtained to purchase the property and that those funds would be used for the purposes of Mr Lee's property syndicate. 8These two initial transactions were followed by the ten transactions in question. Before embarking on those transactions the respondent telephoned the Law Society and asked about the propriety of accepting instructions from the agent of a potential client without having any contact with the client. He was told that he did not need to see those clients as long as he ascertained through a process of identification that they were natural persons. It was for this reason that the respondent says that he insisted in his dealings with Mr Lee that he receive copies of documents providing '100-point' identification for each of the purchaser clients. 9The ten transactions involved nine different clients, some of whom were couples. One client purchased two properties. In each case Mr Lee introduced the transaction to the respondent after contracts had been, or were said to have been, exchanged. The respondent did not meet with or have any relevant direct contact with any client involved in the ten transactions. Instead, Mr Lee stated that he was the authorised representative of each client and provided to the respondent a costs agreement purportedly signed by each client, an authority that Mr Lee could act as "Buyer's Agent" and give instructions in relation to the purchase, an authority requesting that all surplus funds be placed into trust on behalf of the client and an authority to release to Mr Lee the balance of any funds held in trust on behalf of the client. The respondent was also provided with copies of documents, such as drivers' licences and birth certificates, which confirmed the identity of each client and contained signatures. In the circumstances he accepted that Mr Lee was authorised to act on each client's behalf. 10In six of the ten transactions the price stated on the contract for sale was later reduced by a deed of variation, purportedly signed by the purchaser and vendor. In each transaction the amount advanced by the lender and incoming mortgagee (which in most cases was the Commonwealth Bank of Australia at its Bankstown branch) exceeded the final purchase price. On settlement of each transaction the surplus funds, after payment of stamp duty, legal fees and other costs, were paid into the respondent's trust account. Those funds were subsequently transferred to Mr Lee. The surpluses in the ten transactions ranged from approximately $35,000 to $70,000. In the period between January 2005 and February 2006 the respondent received into his trust account and paid to Mr Lee $629,039, representing surplus borrowed funds of the ten purchasers. 11Each of the client purchasers was defrauded by Mr Lee. The scheme by which that was achieved was, in general terms, as follows. A purchaser was introduced by Mr Lee to a specific property and told that he could obtain finance sufficient to pay the purchase price and costs of purchase. In some, but not all, cases a price was advised to the purchaser. In those cases a higher price was negotiated with the vendor than had been advised to the purchaser. Where contracts were "exchanged", usually involving a forged signature of the purchaser, a lower price was later negotiated with the vendor, often under the pretext that the purchaser could not obtain finance at the price originally negotiated. That price was also lower than that advised to the purchaser or for which the purchaser otherwise had been led to believe the property was to be purchased. In no transaction was the purchaser aware that there was a higher price at which finance was being arranged or that a lower price than the amount of finance being arranged was to be paid on settlement. 12Each of the purchasers was then advised by Mr Lee that the respondent's firm would act on his or her behalf. Finance was obtained for 100 per cent of the purchase price as advised to or understood by the purchaser. Forged documents were provided to the financiers in support of the loan applications. Authorities were obtained from the purchaser and provided to the respondent. Most clients signed a fee agreement with the respondent. There was no relevant direct contact between the client purchaser and the respondent. Letters written to the clients were not received by them, usually because they were collected or otherwise intercepted by Mr Lee. On completion there were surplus funds which were paid into the respondent's trust account. Those funds were then paid out on Mr Lee's authority to a company controlled by him. The respondent was not involved in or aware of this fraudulent scheme and received no financial benefit from it. He did, however, receive professional fees for acting for the purchasers. In nine of the ten transactions the respondent also acted for the vendor.

The conduct described by ground 6 13Ground 6 relied upon by the Law Society was that the respondent: "6. Transferred to and for the benefit of Graham Lee ("Lee") the excess of funds received on settlement without obtaining instructions from the relevant purchaser in circumstances where: (i) there was no document evidencing either the terms of any agreement between them and Lee or the terms of any purported loan; and (ii) no security was provided by Lee."

The reasoning of the Tribunal 14The Tribunal found that the events within the respondent's knowledge that led to the transfers of the monies to Mr Lee imposed on him "a duty to take reasonable steps to ensure that these transfers genuinely were in accordance with the wishes of the purchaser clients": [88]. That finding is not challenged on appeal. The Tribunal concluded: "[102] In our opinion, the negligence displayed by the Solicitor in failing to take steps such as are outlined in Ground 6 was not 'mere negligence' (to adopt the terminology in Pitsikas), but was sufficiently serious to warrant a 'black mark'. It fell short of 'the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner'. It therefore amounted to unsatisfactory professional conduct under section 496 of the LP Act." 15The reference to Pitsikas is to In the matter of Spero Pitsikas (1995) 1 LPDR 5. In that application the Legal Professional Disciplinary Tribunal emphasised the difference between mere negligence and negligence which was sufficiently serious to warrant some response from a professional body responsible for maintaining standards, so as to constitute unsatisfactory professional conduct; but not of sufficient significance to raise an issue as to the practitioner's competence or fitness to practise. 16The Tribunal then addressed whether the respondent's unsatisfactory professional conduct involved a "substantial" failure to reach or maintain the required standard of competence and diligence. It concluded that it did not on the basis that the conduct was not sufficiently serious or important to call into question his fitness and competence to continue in practice. In the Tribunal's language, the respondent's failures to satisfy himself as to the authenticity of Mr Lee's agency were not failures to meet the required standard in a way which was "meaningful or relevant to the legal practitioner's ability to practise law": [112]. That understanding of the sense in which "substantial" is used in this part of the definition adopts as correct what the Tribunal had earlier said in Council of the New South Wales Bar Association v Asuzu [2011] NSWADT 209 at [40]. This aspect of the Tribunal's reasoning and conclusion is not challenged on appeal. 17The Tribunal also rejected the Law Society's argument that "by failing in not less than ten matters over some twelve months to take the precautions needed to protect his clients' interests", the respondent fell short of the requisite standards in a manner that inevitably attracted the label "consistent". It reasoned: "[114] ... on balance, we consider that what was effectively the repetition of the same error by the Solicitor should not be treated as a 'consistent' course of unsatisfactory professional conduct when nothing was done to draw his attention to the nature and scale of the consequences of his error. This view of the question is in line with the Tribunal's suggestion in Asuzu that there should have to be a 'repeated or persistent failure resulting from the legal practitioner making the same mistakes of principle or acting in the same inappropriate way in a variety of situations (our emphasis)'. There was here no real 'variety of situations'."

The Tribunal's characterisation involved no error 18The interests of the administration of justice include maintaining proper standards of competence, diligence and fitness in members of the legal profession. The Act does that in two principal ways. First, by Part 2.3 it imposes eligibility and suitability requirements for admission to practice. The stated purpose of that Part is "in the interests of the administration of justice and for the protection of clients of law practices, to provide a system under which only applicants who have appropriate academic qualifications and practical legal training and who are otherwise fit and proper persons become qualified for admission and are admitted": s 22(1). Eligibility is concerned with a person having attained the appropriate academic qualifications and satisfactorily completed practical legal training requirements: s 24. Suitability is concerned with a range of matters relevant to whether a person otherwise is a "fit and proper person" to be admitted. A lawyer may not be admitted unless the Admission Board considers the applicant is eligible for admission and a fit and proper person to be admitted: s 31(2). In deciding whether the second requirement is satisfied the Board must consider the "suitability matters" set out in s 9: s 25. Those matters include whether the person is of "good fame and character", the person's past record in relation to the practice of law either in Australia or in a foreign country and whether the person is unable to carry out the inherent requirements of practice due to some infirmity, injury or mental or physical illness, impairment or disability. 19Secondly, in Chapter 4 it provides for the making of complaints as to the conduct of lawyers and the taking of disciplinary proceedings with respect to those complaints. The purposes of those provisions include, by s 494(1): "(a) to provide a nationally consistent scheme for the discipline of the legal profession in this jurisdiction, in the interests of the administration of justice and for the protection of clients of law practices and the public generally, (b) to promote and enforce the professional standards, competence and honesty of the legal profession." 20The Legal Profession Act 1987, as originally enacted, contained an inclusive definition of "professional misconduct" which was in substantially the same terms as the definition of "unsatisfactory professional conduct" in the current Act. It also drew a distinction between "minor" and "serious" professional misconduct. Neither of those words was the subject of further definition. A complaint which after investigation was considered to involve a question of minor professional misconduct could be dealt with by the relevant professional body or referred to a Professional Standards Board; whereas a complaint involving a question of serious professional misconduct was required to be determined by the Disciplinary Tribunal. If a determination of serious professional misconduct was made the Tribunal could terminate the lawyer's right to practise or impose a fine; whereas in the case of a determination by the Board of minor professional misconduct, orders could be made reprimanding the lawyer or requiring further legal education or imposing conditions upon the terms of practice or a minor fine. 21By the Legal Profession (Amendment) Act 1987, that distinction between minor and serious professional misconduct was replaced with one between unsatisfactory professional conduct and professional misconduct; the latter including unsatisfactory professional conduct which involves a substantial or consistent failure to reach or maintain the required standard of competence and diligence. As defined (see [5] above), professional misconduct includes by paragraph (b) conduct which, if established, would justify a finding that the legal practitioner is not a fit and proper person to engage in legal practice. In this context, and having regard to the history of these provisions, particularly the distinction drawn in the 1987 Act as originally enacted, it is plain that paragraph (a) of the definition describes serious misconduct which calls into question the lawyer's competence and diligence and, in those respects, his or her fitness to continue in practice. 22The distinction made by that definition is between conduct which involves a "substantial" failure to reach or maintain the required standard and conduct which involves a "consistent" failure to do so. The former directs attention to the nature and consequences of the failure, which may be sufficiently serious to raise questions as to the lawyer's competence and diligence and thereby warrant the description "substantial". The reference to a "consistent failure" is to ongoing or persisting acts of failing on different occasions to reach or maintain the required standard. The same or similar failures which occur on a series of related occasions and are explained by an overarching error of judgment on the part of the lawyer (which is not itself the or a relevant failure which is the subject of complaint) do not involve a "consistent failure" in the sense in which that expression is used in this definition. 23In Xu v Council of the Law Society of NSW [2009] NSWCA 430, Handley AJA (Tobias and Basten JJA relevantly agreeing) described the reference to a "consistent failure" as being to acts or omissions involving failures to comply with the requisite standard which occur in a number of transactions. There Mr Xu had witnessed his client's signature as purchaser on a contract for sale. The client subsequently added his wife's signature to the contract as a co-purchaser by forging it. He represented to Mr Xu that his wife had signed the contract. Mr Xu subsequently completed a Certificate under s 66W of the Conveyancing Act 1919 which was incomplete because it had a blank where the names of the purchasers should have been inserted. That certificate was provided to the vendor's solicitor in circumstances which conveyed that it was given in respect of both purchasers. Handley AJA considered that the solicitor's conveyancing work, and the signing of the incomplete s 66W Certificate, constituted unsatisfactory professional conduct. The acts or omissions were "momentary and isolated lapses": [42]. Although they did not constitute professional misconduct, his Honour considered that repeated acts of the same character in other transactions "would properly be characterised in that way": [59]. 24The Law Society does not take issue with the correctness of these obiter observations of Handley AJA. It says that the respondent's failures to obtain instructions from his clients before paying away trust funds to Mr Lee were not momentary or isolated but repeated in each of the ten transactions. It argues that the Tribunal proceeded on the basis that for conduct to involve a "consistent failure" there must be a repeated or persistent failure of the same kind which occurs in a "variety of situations", and that it erred in doing so. 25In my view, the Tribunal's reasons are not to be understood as suggesting that for there to be a "consistent failure" there must not only be repeated acts of the same character but also that those repeated acts must occur in a variety of situations. The Tribunal's reference in [114] to a "variety of situations" is to what was said in Asuzu at [43]. There, having referred to two dictionary definitions of "consistent", it was observed: "[43] These definitions of "consistent" and the scope and purpose of the section suggest that for a failure to fall within this aspect of s 497(1)(a) there would need to be repeated or persistent failure resulting from the legal practitioner making the same mistakes of principle or acting in the same inappropriate way in a variety of situations." 26This passage is not to be understood as saying that the relevant expression is to be understood in a sense which is different from that suggested by Handley AJA in Xu. The references to the need for the failures or mistakes to occur in a "variety of situations" or for them to be "repeated in other transactions" emphasise that it is the persistent occurrence of the same or similar failures to reach or maintain a reasonable standard of competence and diligence on separate occasions which gives them the quality of being "consistent". The fact that they have that quality makes it likely that the explanation for the conduct is a want of fitness or competence rather than a series of casual or uncharacteristic lapses or, as in this case, a single overarching mistake made in the context of related transactions. 27The repeated failure of the respondent to seek confirmatory instructions from his clients in ten transactions in which he was taking instructions from the same person was explained by the fact that he believed and trusted Mr Lee and considered, at least partly in reliance on his earlier telephone inquiry to the Law Society, that he was justified in acting on Mr Lee's instructions without having any direct contact with the clients. The Tribunal was justified in concluding that "the repetition of the same error by the Solicitor should not be treated as a 'consistent' course of unsatisfactory professional conduct"; and is not shown to have erred in not characterising that conduct as professional misconduct.

Conclusion 28In view of this conclusion, it is not necessary to consider the appellant's appeal as to the disciplinary orders made by the Tribunal. The Law Society's appeal should be dismissed with costs. 29LEEMING JA: I agree with Meagher JA. 30SIMPSON J: I agree with Meagher JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 December 2013

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