Council of the Law Society of NSW v Doherty

Court of Appeal (NSW)|2011-09-14

reasons for decision 1This is the third decision to be delivered by the Tribunal in relation to proceedings against the Respondent, Peter John Doherty, and it is made in relation to a claim for compensation brought by the Complainant against the Respondent. 2The Tribunal's first decision was delivered on 23 June 2009 and it addressed issues of liability in relation to a Disciplinary Application brought against the Respondent by the Council of the Law Society of New South Wales (see: The Council of the Law Society of NSW v Doherty [2009] NSWADT 155). It found, relevantly, that the Respondent was guilty of professional misconduct in terms of paragraph B of the Second Amended Application for Original Decision, in that in relation to his client Geoffrey Rafter ("Rafter") the solicitor: a.Breached Section 255 of the Legal Profession Act 2004; b.Misappropriated the sum of $35,000.00 belonging to Rafter ("Rafter's funds"); c.Knowingly misled Rafter in that having applied Rafter's funds to discharge obligations imposed upon the solicitor's company, Lloyd Lancaster Pty Limited, he failed to promptly inform Rafter that he had done so; and d.Unreasonably delayed in advising Rafter that he had applied Rafter's funds to discharge obligations imposed upon the solicitor's company Lloyd Lancaster Pty Limited. e.Failed to account to Rafter in respect of Rafter's funds. f.Acted in conflict of interest and preferred his own interest to those of his client Rafter. 3The Tribunal conducted a further hearing regarding the issue of dispositive orders and its second decision was published on 30 November 2009 (see: The Council of the Law Society of NSW v Doherty (No. 2) [2009] NSWADT 296). 4After reviewing the evidence and hearing submissions on behalf of both parties in these proceedings, the Tribunal determined that: 1.The practicing certificate of the Respondent Peter John Doherty be cancelled for a period of twelve (12) months from 25 September 2009, concluding 25 September 2010. 2.During the period of such cancellation the Respondent is to attend (and pass if appropriate) appropriate courses in trust accounting and ethics. 3.At the end of the period of cancellation, and subject to compliance with Order 2 above, the Respondent is to be issued with a practicing certificate that would entitle him to practice as a employed solicitor only for a period of six (6) years commencing 26 September 2010, with such additional restrictions as to areas of practice as may be agreed between the Law Society and the Respondent or, failing agreement, determined by this Tribunal. 4.The Law Society is directed to bring forward appropriate conditions that may be imposed consistent with the terms of this decision. The Law Society is to provide those conditions to the Respondent with a view to the Law Society and the Respondent agreeing to the terms thereof. In the case of agreement the Tribunal should be moved to make final orders consistent therewith. In the case of non-agreement the terms of conditions can be the subject of a further decision and liberty is granted to apply 5.The Respondent is to pay the costs of the Law Society as assessed or as agreed. 5The Tribunal notes that The Council of the Law Society of NSW appealed to the NSW Court of Appeal and that the Court of Appeal dismissed the Appeal, with costs (see: The Council of the Law Society of NSW v Doherty [2010] NSWCA 177). 6On 14 September 2011 we conducted a hearing in relation to a compensation claim made by Mr Rafter on 2 October 2009 (hereafter "the Complainant") pursuant to Part 4.9 of the Legal Profession Act 2004. The Complainant was represented by Mr Vindin and Mr Lee and Mr Bliim appeared for the Respondent. At earlier directions hearings, the Law Society had been excused from attending. 7The Complainant sought the following orders against the Respondent:

Relevant aspects of the evidence and submissions made on behalf of the parties 11The Tribunal heard oral arguments from the parties. 12Mr Vindin stated that the Complainant sought compensation totalling $27,874.06, being the total of the bills of costs issued to him by his Solicitors, and which he had paid. These costs had been reduced to exclude costs incurred after the commencement of the principal disciplinary proceedings against the Respondent, but they included an Application to the Fidelity Fund and costs associated with the Complainant's Company (which was incorporated for the purposes of the Joint Ventures and maintained in case it needed to be substituted as the Applicant in the claim to the Fidelity Fund). 13Mr Vinden submitted that while the Complainant's solicitors had offered him an indemnity in relation to the costs order made by the Supreme Court, on the basis that the order resulted from their failure to prosecute those proceedings, he nevertheless sought relief against those costs against the Respondent. 14Mr Vinden further indicated that the Respondent now conceded that the Complainant was entitled to interest on the misappropriated sum of $35,000, in the amount claimed, but that he had not paid it. 15Mr Bliim confirmed that the Respondent did not dispute that the Complainant was entitled to interest in the sum claimed, but argued that the Respondent had not paid this to the Complainant as he believed that he was entitled to set-off that sum against the costs that the Complainant was ordered to pay to him by under the order by the Supreme Court of New South Wales. 16Mr Bliim stated that the Respondent disputed that the complainant was entitled to compensation with respect to any costs incurred in an Application to the Fidelity Fund and argued that the Respondent should be entitled to recover the costs associated with the enforcement of a Summons to produce documents, which were reserved following an interlocutory hearing and determination by Molloy JM.

Relevant Statutory Provisions 17The following provisions of the Legal Profession Act 2004 ("the 2004 Act") regulate the making of orders for compensation by the Tribunal. 495 Definitions In this Chapter: "compensation order" means an order under Part 4.9 (Compensation). "complaint" means a complaint under this Chapter. "conduct" means conduct whether consisting of an act or omission. "loss" means loss of a pecuniary nature, but does not include non-economic loss within the meaning of the Civil Liability Act 2002 . 503 Complaints (1) A complaint may be made under this Part about an Australian legal practitioner's conduct. (2) A complaint may be made under this Part about the conduct of an Australian legal practitioner occurring outside this jurisdiction, but the complaint must not be dealt with under this Part unless this Part is or becomes applicable to it. (3) A complaint that is duly made is to be dealt with in accordance with this Part. 504 Making of complaints (1) A complaint about an Australian legal practitioner may be made by: (a) a client of the practitioner, or (b) a Council, or (c) the Commissioner, or (d) any other person. (2) A complaint must... (c) describe the alleged conduct the subject of the complaint. 570 Request by complainant for compensation order (1) A complainant may request a compensation order in respect of loss suffered by: (a) the complainant, or (b) another person who is a client of the law practice to which the Australian legal practitioner concerned belongs, (or both) because of the conduct the subject of the complaint. The complainant, or other person, suffering the loss is referred to in this Part as an "aggrieved person". 2) A complainant who makes such a request must describe the loss suffered by the aggrieved person and the relevant circumstances. (3) Such a request may be made in the complaint. The request may also be made, by notice in writing to the Commissioner or the relevant Council, at any time after the making and before the disposal of the complaint. 571 Compensation orders (1) A compensation order is an order, made in respect of a complaint against an Australian legal practitioner, to compensate the aggrieved person for loss suffered because of conduct that is the subject of the complaint. (2) A compensation order consists of one or more of the following...: (a) an order that the practitioner cannot recover or must repay the whole or a specified part of the amount charged to the aggrieved person by the practitioner in respect of specified legal services, (c) an order that the practitioner pay to the aggrieved person, by way of monetary compensation for the loss, a specified amount. (3) A compensation order under subsection (2) (a) preventing recovery of an amount is effective even if proceedings to recover the amount (or any part of it) have been commenced by or on behalf of the practitioner. (4) A compensation order under subsection (2) (a) requiring repayment of an amount is effective even if a court has ordered payment of the amount (or an amount of which it is part) in proceedings brought by or on behalf of the practitioner. 572 Prerequisites to making of compensation orders (1) Unless the complainant and the Australian legal practitioner concerned agree, a compensation order is not to be made unless the person or body making it is satisfied: (a) that the aggrieved person has suffered loss because of the conduct concerned, and (b) that it is in the interests of justice that the order be made. (2) A compensation order is not to be made in respect of any loss for which the aggrieved person has received or is entitled to receive: (a) compensation received or receivable under an order that has been made by a court, or (b) compensation paid or payable from a Fidelity Fund of any jurisdiction, where a relevant claim for payment from the Fund has been made or determined. 573 Making of compensation orders (1) If the Tribunal has found that an Australian legal practitioner has engaged in unsatisfactory professional conduct or professional misconduct in relation to a complaint, the Tribunal may: (a) make a compensation order, or (b) refer the matter to the Commissioner for the making of a compensation order. (7) A compensation order may specify the person to whom monetary compensation is payable, whether to the aggrieved person or to another person on behalf of the aggrieved person. 18Further, in relation to the issue of costs, Sections 566 (1) and 566(5) of the 2004 Act, respectively, provide: (1) The Tribunal must make orders requiring an Australian legal practitioner whom it has found to have engaged in unsatisfactory professional conduct or professional misconduct to pay costs (including costs of the Commissioner, a Council and the complainant), unless the Tribunal is satisfied that exceptional circumstances exist. (5) The Tribunal may make orders requiring a person to pay costs (including, as appropriate, the costs of the Commissioner, a Council, the complainant and the Australian legal practitioner against whom the complaint was made), if satisfied that: (a) the person, whether before or during the proceedings, failed to produce or delayed in producing any document required or requested to be produced, and (b) the failure or delay contributed to delay in commencing, conducting or concluding the proceedings in such a way as to warrant the making of the orders.

What is the scope of the "loss" for which compensation is payable? 19This issue was recently considered by the Tribunal in the matter of Council of the Law Society of New South Wales v Vaughan (No. 2) [2011] NSWADT 260 (decision dated 11 November 2011), as follows: "38 As just indicated, sections 570(1) and 571(1) describe the 'loss' for which a complainant may claim compensation under the former provision as the loss suffered by the complainant, or by another 'aggrieved person', because of 'conduct that is the subject of the complaint'. In addition, the phrase 'conduct the subject of the complaint' appears in section 504(3)(c). 39 According its natural interpretation, this phrase identifies the scope of the loss for which a complainant may seek compensation as any loss caused by the conduct of the relevant legal practitioner about which the complainant has complained in his or her complaint, made under section 503(1). This conduct may differ materially from such conduct of the practitioner that the Tribunal subsequently finds to have been alleged in the disciplinary application and established by the evidence, and to amount to professional misconduct and/or unsatisfactory professional conduct. Typically, as in this case, the conduct of a practitioner about which a complainant complains covers a wider range of acts and/or omissions than the conduct that is ultimately alleged, proved and held to constitute either or both of these forms of improper conduct. 40 In section 171D of the Legal Profession Act 1987 ('the LP Act 1987'), which contained provisions similar in general terms to sections 571 and 573(1)(a) of the LP Act 2004, the conduct of the respondent practitioner in relation to which a compensation could be made was defined in a significantly different way. The relevant parts of section 171D stated:- (1) If, after it has completed a hearing relating to a complaint against a legal practitioner, the Tribunal is satisfied that the legal practitioner is guilty of unsatisfactory professional conduct or professional misconduct and that the complainant has suffered loss because of the conduct concerned (emphasis added), the Tribunal may do any one or more of the following to compensate the complainant:... (d) order that the legal practitioner pay to the complainant by way of monetary compensation for the loss the amount specified in the order. 41 In Law Society of New South Wales v Hill [2002] NSWADT 190 at [83] and [88 - 90], the Tribunal made the following observations regarding these provisions:- 83 Under Section 171D(1) the Tribunal has to find as a threshold issue that the complainant has suffered loss because of the conduct concerned before it may do any one or more of the four nominated orders to compensate the complainant.... 88 The Tribunal was concerned as to whether the matters complained of by Mesdames Vuic and Anon actually fell within the complaints particularised by the Society. The Tribunal did not have the assistance of any guidance from Counsel in relation to the compensation matters. The Tribunal is aware of only two reported matters in recent times dealing with compensation under the Act. The most recent of these is Legal Services Commission -v- Musgrave [2000] NSW ADT 149 where an order for payment of $10,000.00 compensation was made. That decision did not assist the Tribunal as the order was made by consent. 89 The other matter was a matter of Radin [1993] NSWLST 19. The Tribunal in that matter found in considering the prior equivalent of S171D [that is, the old S163] "Before it can make an order for compensation against the solicitor it [the Tribunal] must be satisfied: (1) that the legal practitioner has been guilty of unsatisfactory professional conduct or professional misconduct in relation to the subject of the claim for compensation and (2) that the complainant has suffered loss arising out of this conduct." 90 The Tribunal adopts that same view as it did in Radin and finds that the conduct giving rise to the claim for compensation must be conduct that is both particularised in the complaint and found to constitute unsatisfactory professional conduct or professional misconduct by the Tribunal. 42 In relation to Radin , the following phrase within 'the old section 163' should be quoted:- (3) If after it has completed a hearing into a complaint the Tribunal is satisfied that the legal practitioner is guilty of unsatisfactory professional conduct or professional misconduct and the complainant has suffered loss as a consequence of the conduct or misconduct (emphasis added)... 43 As far as we are aware, none of the comparatively few decisions that have been given on compensation orders under the LP Act 2004 has examined the implications of this change in the statutory definition of the 'loss' for which a complainant may compensation. We see no reason to doubt the Tribunal's ruling, in paragraph [90] of its decision in Hill , that the 'loss' for which a complainant could obtain compensation under section 171D(1) of the LP Act 1987 was confined to his or her loss caused by 'conduct that is both particularised in the complaint and found to constitute unsatisfactory professional conduct or professional misconduct by the Tribunal'. But the phrase used to define compensable 'loss' in the LP Act 2004 - namely, the loss suffered by the complainant (or another 'aggrieved person') 'because of the conduct the subject of the complaint' - has in our opinion the different, and normally wider, connotation that we have endeavoured to formulate above at [39]. It is, as we said there, 'any loss caused by the conduct of the relevant legal practitioner about which the complainant has complained in his or her complaint'. 20In the current matter, the conduct that was the subject of the Complaint against the Respondent was proven and determined as constituting professional misconduct. On that basis, we are satisfied that the Complainant is entitled to an order for compensation.

What are the categories of "loss" for which compensation is payable? 21By operation of Section 495 of the 2004 Act, "loss" is defined for the purposes of Chapter 4 of the Act to mean 'loss of a pecuniary nature. This accurately describes the "loss" claimed by the Complainant and we are satisfied that the matters specified in Section 572(1) of the 2004 Act, namely that the Complainant sustained this loss and that it is in the interests of justice that a compensation order should be made.

Interest 22There is no dispute between the parties that the Complainant is entitled to interest of $4,671 in respect of the misappropriated sum of $35,000 or that the period for which he is entitled to interest commences on 18 October 2006 and ends on 8 July 2009. 23We therefore order that t he Respondent is to pay the Complainant interest totalling $4,761 to the Complainant within 14 days of this determination, pursuant to Section 271(2)(a) of the 2004 Act.

Legal Costs 24The Complainant also claims legal costs and disbursements (inclusive of GST) in the sum of $27,874.06, in relation to the following matters:

The proceedings that were commenced in the Supreme Court of New South Wales, Equity Division, 4085/07 ("the Equity Proceedings");
The complaint to the Law Society that led to the disciplinary proceedings before the Tribunal; and
The demand for payment and subsequent correspondence and dealings, including an Application to the Fidelity Fund;

The Equity proceedings 25The evidence indicates that the Respondent did not submit to orders for an account, but rather defended the proceedings and that the proceedings were later dismissed (with costs) when Mr Cunio (of David Landa Stewart) failed to attend a Directions hearing. 26The Respondent's costs were assessed (see: Costs Assessment number 2008/00009221) and these are the costs with respect to which David Landa Stewart has agreed to indemnify the Complainant in the event that his claim for compensation under section 571(2)(a) of the 2004 Act fails. 27We have summarised the Complainant's arguments as follows:

In view of the Tribunal's findings regarding the principal sum of $35,000, namely that this was misappropriated by the Respondent, the Respondent should have been refunded it at the outset.
If the principal sum had been refunded at the outset the Equity proceedings would not have been commenced.
If the Equity proceedings had continued, rather than being dismissed (effectively for want of prosecution) the Court was unlikely to have made findings that were contrary to those ultimately made by the Tribunal.
Therefore, it is inequitable for the Respondent to have his costs of defending the Equity proceedings while the Complainant should have to bear his own costs of attempting to recover his money. 28Prima facie, there is some merit to the Complainant's arguments. However, we are not persuaded that if the Equity proceedings had continued that the Complainant would necessarily have been wholly successful and/or that the Court would necessarily have made findings consistent with those made by the Tribunal. While this was a possible outcome, the Complainant has not established this outcome to the required standard. 29In reality, the proceedings were dismissed essentially for want of prosecution by the Complainant's Solicitors and the Complainant's liability for costs therefore results from his Solicitors' actions (or rather, the lack thereof). 30In giving effect to the legislative scheme governing compensation, we are comforted by the fact that the Complainant's solicitors have agreed to indemnify him in respect of his liability for costs in respect of these proceedings and we regard this as the appropriate outcome in all of the circumstances. We do not believe that it is appropriate to order that the Respondent pay the Complainant's costs of those proceedings and we decline to make that order.

Costs charged by the Respondent in relation to the Joint Venture Agreements 31The Complainant seeks an order that the Respondent not be entitled to recover against him the whole of the amount charged to him in relation to the Joint Venture Agreements, which were the subject of the disciplinary proceedings against the Respondent. 32These legal services were specified in the Complainant's Application for Costs Assessment No. 2007/0001109. They were the subject of a determination by Costs Assessor Stern on 29 October 2008 and a review by a Review Panel on or about 12 February 2009. 33We are satisfied that this is a 'loss' for the purposes of Section 571(2) of the 2004 Act and that the interests of justice require that a compensation order be made. 34We therefore order that the Complainant is entitled to relief against the Respondent concerning all costs charged to him in respect to the Joint Venture Agreements, which were the subject of an Application for Assessment and Review.

Costs incurred with respect to the Application for Compensation 35We are satisfied that the Complainant is entitled to recover against the Respondent his costs in relation to his Application for Compensation, including: (1)the reasonable costs of giving initial instructions and obtaining legal advice in relation to his dealings with the Law Society of New South Wales before the suspension of the Respondent's Practising Certificate and before the commencement of the disciplinary proceedings against the Respondent; and (2)the reasonable costs in relation to his Application to the Fidelity Fund for Interest. 36It appeared to be the position of both counsel that a separate costs order would be necessary to cover these matters. To put the matter beyond doubt, accordingly, we order that the Respondent pay the Complainant's costs in relation to both the Application for Compensation and the Application to the Fidelity Fund, as agreed or assessed.

Reserved costs 37Molloy JM reserved the issue of costs following an interlocutory hearing in relation to a Summons to produce documents, which was filed by the Respondent and which the Complainant sought to set aside or, alternatively, have significantly read down on the basis, inter alia, that it was too onerous.. 38The evidence indicates that the Respondent drafted and issued the Summons himself and that he sought production of a large volume of documents, essentially in the nature of documents that would be required by a Costs Assessor for the purposes of an Application for Assessment, but without first seeking informal discovery from the Complainant's solicitors. 39The evidence indicates that following the interlocutory hearing, Molloy JM significantly narrowed the scope of the Summons. This has properly been conceded by Mr Bliim. However, it also indicates that the Respondent experienced significant difficulty in obtaining the production of documents from the Complainant's solicitors, as many of the documents that had been in existence could not be located. 40Based on the evidence as a whole, we have determined that the appropriate order is that each party pay its own costs of the interlocutory proceedings that were determined by Molloy JM.

Costs relating to the incorporation and maintenance of the Complainant's company 41In our view, the costs claimed under this heading do not properly fall within Section 571(2) of the 2004 Act and we decline to make any order for compensation under this heading.

Costs of the current proceedings 42Section 566(1) of the 2004 Act requires us to order that the Respondent, whom we have found to have engaged in unsatisfactory professional conduct or professional misconduct, is to pay costs (including costs of ... the complainant) unless we are satisfied that exceptional circumstances exist. 43There is no evidence of special circumstances and we therefore order that the Respondent pay the Complainant's costs of the Application for Compensation, as agreed or assessed.

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: 06 December 2011

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