Council of the Law Society of NSW v Hunter

Council of the Law Society of NSW v Hunter - [2021] NSWCATOD 22 - NSWCATOD 2020 case summary — Zoe

Mr David Kevin Hunter ("Mr Hunter" or "the Solicitor") was admitted as a solicitor of the Supreme Court of NSW on 16 December 1981. For some time he has practised as the principal of David Hunter Solicitors in Lismore.
On 30 November 2017 Mr Hunter gave a written undertaking in the terms below to a fellow practitioner in connection with the completion of a conveyancing transaction, in which Mr Hunter was retained by a client ("the vendor") to sell a unit ("Lot 9") in a neighbourhood plan which was under neighbourhood title under the Community Land Management Act 1989.
Mr Hunter's written undertaking was contained in an email to the solicitor for the purchasers in the transaction ("the purchasers") and was in the following terms: "I confirm that you have my undertaking that I will not disburse funds in my trust account to my client until the issue of payment to community is resolved."
The purchasers' solicitor has by affidavit asserted that she understood that undertaking and previous discussions with Mr Hunter to reflect an agreement by Mr Hunter that of the amounts to be paid on completion, $60,000 was to be retained in trust to cover the purchasers' liability to the neighbourhood association for strata levies imposed on Lot 9. Unhelpfully, these liabilities have been described in the proceedings variously as "community association levies", "community levies" , "community fees" and as "strata levies". For clarity we have adopted the term "strata levies".
The strata levies for 2017-18 had not been set at the time of completion because the 2017 annual general meeting of the neighbourhood association had not yet been held. So the strata levies amount to be adjusted on completion was, by agreement, based on the 2016-17 levies. These were certified by the neighbourhood association to have been $340 for the administrative fund levy, $2,846 for the sinking fund levy and $1,117 for the environmental levy; totalling $4,303. On completion, the $4,303 was adjusted as if paid, so the purchaser allowed 208 days out of 365, that is, $2,452.12.
However Mr Hunter has asserted that he understood the words "payment to the community" in his undertaking to refer only to a "community contribution fee" of $2,000 imposed upon Lot 9 by the neighbourhood association, to cover the association's estimated costs of approving the transfer of the lot.
It was uncontested that in the period 12-15 December 2017 Mr Hunter caused the $60,000 held in his trust account to be disbursed as follows:

That left a balance of $2000.40 in the Vendor's trust account ledger.
On 16 July 2018 the current proceedings were set in train. On that date the purchasers' solicitors complained to the Law Society about Mr Hunter's actions, by way of notification. On 14 September 2018 the Law Society received a report under section 165 of the Legal Profession Uniform Law (NSW) ("the Uniform Law") from its trust account inspector. On 29 October 2018 the Society's Director of Professional Standards made a complaint under section 266 of the Uniform Law about the alleged breach of undertaking, which was then notified to the Legal Services Commissioner and on 8 November 2018 the Commissioner referred the complaint to the Law Society for assessment, investigation and determination. The Society's Professional Conduct Committee subsequently resolved (amongst other things) that these proceedings be commenced and on 4 December 2019 the Application was filed in the Tribunal.
By its Application, the Council of the Law Society of New South Wales ("the Law Society" or "the Applicant"), contended that Mr Hunter was guilty of professional misconduct by reason of his breach of an undertaking given to another practitioner.
Until the filing of Mr Hunter's affidavit dated 21 July 2020 on 24 July 2020 (that is, 12 days prior to the hearing), he maintained the position that he had not breached any undertaking and he asked the Tribunal to dismiss the Application and to order the Law Society to pay his costs on an indemnity basis.
However on the basis of that affidavit of 21 July 2020 and his amended submissions received on 28 July 2020 (which were supplemented by answers given by his Counsel to the Tribunal's questions at the hearing) Mr Hunter abandoned his request for the Application to be dismissed and his claim for indemnity costs and admitted that: 1. the undertaking had been breached by reason of the payments from his trust account detailed at [7] above; 2. he had committed that breach; and 3. the undertaking had, in his words, been: "…poorly drawn and insufficient attention (had been) given to that important task".
It was conceded by the Law Society at the hearing that neither the giving of the undertaking nor the failure to honour it involved any dishonesty on Mr Hunter's part.
It fell to us to ascertain, on the basis of the established evidence and concessions, including the uncontested facts described below: 1. whether or not Mr Hunter's conduct constituted professional misconduct or alternatively unsatisfactory conduct; and 2. if it did constitute either professional misconduct or unsatisfactory conduct, what orders we should make.
We decided that Mr Hunter was guilty of professional misconduct, that he should be reprimanded and fined $6000 and that he should pay the costs of the Law Society as agreed or assessed.
These are our reasons for those decisions.

[7]

Standard of proof

Any finding by us of professional misconduct or unsatisfactory professional conduct must be made to the standard recommended in Briginshaw v Briginshaw and Another [1938] 60 CLR 336. In that matter Dixon J (as he then was) expounded what has become known as the "Briginshaw standard": "Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal."
In Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd and others (1992) ALR 449 at 450, the majority of the High Court, led by Mason CJ approved the Briginshaw standard, but noted that: " the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary 'where so serious a matter as fraud is to be found.(Rejfek v McElroy (1965) 112 CLR, at 521). Statements to that effect should not, however, be understood is directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct."
The approach in Neat Holdings was more recently approved by Leeming JA in the NSW Court of Appeal in Bronze Wing International Pty Ltd v SafeWork NSW [2017] NSWCA 41 at [126].

[8]

The Law Society's case

In essence, the Law Society's case was that Mr Hunter's breach of his undertaking in the circumstances of the case constituted professional misconduct by him and that he should be reprimanded and fined and made to pay the Law Society's costs.
The Law Society's case was put to us on the following basis. 1. The meaning of the words of Mr Hunter's written undertaking of 30 November 2017 were clear and unequivocal and there was no basis on which the purchasers and their solicitor were not entitled to rely on them. The words required Mr Hunter not to make the payments from his trust account which he did make during 12-15 December 2017. Moreover, the issue as to payment of the community contribution fee of $2,000 was ongoing when Mr Hunter made those payments. 2. In any case, the evidence of the Purchasers' solicitor was that she understood the undertaking to relate to the strata levies only and that at the time of her receipt of the undertaking she was unaware of the community contribution fee. The Law Society contends that that evidence is corroborated by contemporaneous documents including the Purchasers' solicitor's emails to her clients at relevant times and on that basis should be accepted by us. 3. Any breach by a solicitor of an undertaking is a most serious matter, which may adversely impact the reputation of the profession for integrity. 4. On the basis of the leading authorities and in the absence of countervailing considerations, such as those accepted by the Tribunal in Council of the Law Society of New South Wales v Konstantinidis [2019] NSWCATOD 104 ("Konstantinidis"), Council of the Law Society of New South Wales v Konstantinidis (No.3) [2020] NSWCATOD 91 ("Konstantinidis No.3") and Law Society of New South Wales v Waterhouse [2002] NSWADT 404 ("Waterhouse"), a breach of an undertaking will usually be treated as professional misconduct. 5. No such countervailing considerations are applicable here. On Mr Hunter's own admission the undertaking was poorly drafted. That standard of preparation and drafting and Mr Hunter's subsequent decision to deplete the trust account of the Vendor by the payments made on 12-15 December 2017 reflected reckless carelessness and (for the purposes of s297 of the Uniform Law) a substantial failure to maintain a reasonable standard of competence and diligence. 6. Consequently Mr Hunter's conduct amounted to professional misconduct. 7. He should be reprimanded, he should pay a fine in an amount which would reflect the seriousness of his conduct and mark out the conduct to other members of the profession and should be ordered to pay the Law Society's costs.

[9]

Mr Hunter's case

As noted above at [12], Mr Hunter has admitted his breach of the undertaking.
In his Outline Submissions filed on 28 July 2020, his case was put in the following terms: "(He) (s)ays that the conduct…does not amount to professional misconduct but rather was negligent conduct that may amount to unsatisfactory professional conduct."
His case as to unsatisfactory professional conduct was put slightly differently at the hearing by his Counsel, Mr Priestley. Unsatisfactory professional conduct was neither denied nor expressly admitted. Instead, Mr Priestley contended that the case was one of "at worst…unsatisfactory professional conduct". He emphasised that the case involved, "at worst", an isolated act of negligence arising from an unfortunate "confluence of events".
We understood that "confluence of events" to comprise the matters leading up to completion of the conveyance and in particular the misunderstanding as to the extent of the undertaking, as noted at [4] and [6] above, combined with what was accepted to have been Mr Hunter's poor drafting and his insufficient attention to the importance of the task.
In relation to the issue of whether a finding of professional misconduct should be made, we understood the case for Mr Hunter to be as follows. 1. In all the circumstances, Mr Hunter's actions and omissions could not properly be assessed as conduct which would reasonably be regarded as disgraceful or dishonourable by professional colleagues of good repute and competency, within the test in Allinson's Case (which is referred to in more detail at [36] below). That is, the common law test of professional misconduct was not satisfied. 2. On a proper analysis and in all the circumstances Mr Hunter's conduct was not statutory professional misconduct under s 297(1)(a) of the Uniform Law because: 1. it did not involve a consistent failure to reach or maintain a reasonable standard of competence and diligence; and 2. in the circumstances and particularly having regard to Mr Hunter's understanding of the conditions on which the monies held on trust were to be retained (as referred to at [6]), the fact that his breach was not deliberate and the absence of any dishonesty, the breach of undertaking was of a narrow compass and was the result of Mr Hunter's genuine belief as to the purpose of retaining the monies in trust. Therefore it did not indicate reckless carelessness or amount to a substantial failure to maintain a reasonable standard of competence and diligence.
Through Counsel, Mr Hunter contended that a reprimand and a costs order would constitute a sufficient penalty, as it would sufficiently mark out the importance of undertakings being strictly adhered to and additionally would amount to a "formal stain" on Mr Hunter's reputation and career.

[12]

Professional misconduct at common law: the Allinson Test

It has been confirmed, in Legal Services Commissioner v Livers [2017] NSWCATOD 117 at [138] and other cases in this Tribunal, that Parliament, in formulating a statutory definition of professional misconduct, nevertheless intended to preserve the common law meaning of the term.
It has been accepted in several cases that professional misconduct is conduct that would be reasonably regarded as disgraceful or dishonourable by professional colleagues of good repute and competency. That is the test, commonly referred to as "the Allinson Test", derived from observations in Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 at [758] ("Allinson").
Although the statutory phrase under consideration in Allinson was "infamous conduct in a professional respect" and it related to a member of the medical profession, the test expounded in that case was later adapted and applied to the conduct of solicitors. A detailed examination of the history of judicial construction of the phrase was undertaken by Spigelman CJ in New South Wales Bar Association v Cummins [2001] NSWCA 284 at [37].
In Kennedy v Council of Incorporated Law Institute of New South Wales (1939) 13 ALJR 563 at 563, Rich J observed that professional misconduct involved conduct which amounted to: " ..a grave impropriety affecting (the practitioner's) professionalism and character and was indicative of a failure either to understand or to practice the precepts of honesty or fair dealing in relation to the courts, his clients or the public.."
More recently, Meagher JA set out the relevant principles with reference to, but not restricted to, trust account obligations in The Prothonotary of the Supreme Court of NSW v Demetrios [2015] NSWCA 258, where he said: "Legal practitioners are expected to act and must act with scrupulous honesty when discharging their obligations generally and specifically with respect to the receipt and payment of monies on behalf of clients. There is an unqualified expectation that they will adhere to those standards."
In Bechara v Legal Services Commissioner (2010) 79 NSWLR 763; [2010] NSWCA 369 at [44] the Court of Appeal noted that: "…there are no fixed categories of professional misconduct. Much depends on whether the conduct falls outside the generally accepted standard[s] of common decency and common fairness."

[15]

The importance of solicitors' undertakings

As confirmed in the relevant cases, professional rules and academic commentary, the reliance which can be placed on a solicitor's undertaking is of fundamental importance to the proper functioning of the legal system and the obligation of any solicitor to perform his or her undertaking is a most serious professional obligation, which will be strictly enforced.
In Vincent Cofini [1994] NSWLST 25 the Tribunal observed that: "Undertakings are given by legal practitioners for the specific purpose of enabling legal activities to be carried out. Other persons rely on those undertakings. The undertakings are personal to the legal practitioner and bind that practitioner, not as a matter of contract but as a matter of professional conduct and comity and will be enforced by the Courts because legal practitioners ate officers of the Court and because without enforcement undertakings would be worthless, persons and Courts would be unable to rely on the word of a legal practitioner and this aspect of legal practice, that demands compliance for legal efficacy, would collapse."
In Council of the New South Wales Bar Association v Davison [2005] NSWADT 252 at [143], the giving of an undertaking by a solicitor was described as: "..one of the cornerstones of our profession as lawyers and it is a very serious matter."
In Riley's New South Wales Solicitors' Manual, at paragraph 20,005, it was said that : "..(i)t is of fundamental importance to the administration of justice and to the orderly transaction of their clients' business affairs, that legal practitioners can trust one another and that they can be relied upon to do what they say they will do."
Rule 6.1 of the Legal Profession Uniform Australian Solicitors' Conduct Rules ("the Uniform Conduct Rules") is in the following terms: "6.1 A solicitor who has given an undertaking in the course of legal practice must honour that undertaking and ensure the timely and effective performance of the undertaking, unless released by the recipient or by a court of competent jurisdiction."
In the Western Australian Court of Appeal decision of Legal Profession Complaints Committee v Detata [2012] WASCA 214 ("Detata"), Martin CJ said at [52] "It is…vital that legal practitioners perform their undertakings, regardless of whether the undertaking was proffered in error or oversight, irrespective of any change of circumstances, no matter how radical and irrespective of any hardship to the legal practitioner concerned.
In Law Society of New South Wales v Waterhouse [2002] NSWADT 204, the Tribunal (on which the Presiding Member was Mr RBS Macfarlan QC as he then was, later Macfarlan JA of the NSW Court of Appeal) confirmed that the recipient of a solicitor's undertaking is entitled to assume that the solicitor has taken all steps necessary to ensure that he will be in a position to comply with the undertaking when the time arrives to do so.
In that case the Tribunal also confirmed, at [14], that the position in New South Wales had been accurately stated in the Guide to the Professional Conduct of Solicitors published by the Law Society of England and Wales in 1990 and in particular the following Principle and Commentary: "17.06 Principle. An undertaking is still binding even if it is outside the solicitor's control. Commentary 1.Before giving any undertaking a solicitor must carefully consider whether he will be able to implement it. It is no defence to a complaint of professional misconduct that the undertaking was to do something outside of the solicitor's control."

[17]

Was there professional misconduct at common law?

As we understood the submissions made on Mr Hunter's behalf, he contended that a number of factors in this case support a finding of unsatisfactory professional conduct only and not of professional misconduct. 1. Firstly, it had been conceded by the Law Society that there was no element of dishonesty in Mr Hunter's conduct. But dishonesty is not a pre-requisite to a finding of professional misconduct. 2. Secondly, there was no intention by Mr Hunter to breach the undertaking. While he accepted that intention is not a necessary element in such a breach, he contended (as we understood it) that the unintentional nature of his breach justified a conclusion that his conduct amounted only to unsatisfactory professional conduct. We address that contention further below. 3. A related contention was that the undertaking was of a "narrow compass, based on a genuine belief" and so should be treated less seriously and as unsatisfactory professional conduct. We understood Counsel for Mr Hunter to observe that he was not aware of any cases where there had been a finding of professional misconduct in circumstances where there was no element of deliberate action by the practitioner. That is not the position. Firstly, there have been cases involving a solicitor's breach of an undertaking to complete a prescribed course of continuing legal education where there was no express finding of deliberate action (as opposed to forgetfulness) and yet a finding of professional misconduct was made: see for example Law Society of NSW v Webb [2018] NSWCATOD 55; Council of the Law Society of NSW v Kim [2012] NSWADT 45. Secondly there are other cases where professional misconduct was found, but there was no deliberate action or omission. They include: Council of the Law Society of New South Wales v Spinak [2017] NSWCATOD 184 and Law Society of New South Wales v Webb [2018] NSWCATOD 55. 4. Finally, Counsel for Mr Hunter pointed to cases where the Tribunal has found a breach of an undertaking to constitute unsatisfactory professional conduct only. The cases most commonly cited in that context are Council of the Law Society of New South Wales v Konstantinidis [2019] NSWCATOD 104 and Council of the Law Society of New South Wales v Konstantinidis No 3 [2020] NSWCATOD 91 (collectively "Konstantinidis") and Law Society of New South Wales v Waterhouse [2002] NSWADT 204 ("Waterhouse"). But in our view those decisions rested on the particular facts and on ameliorating circumstances which are not present here. In Konstantinidis the Tribunal found that at the time of giving the undertakings the solicitor could reasonably have relied upon the likelihood that the appropriate steps to honour them would be taken by his managing clerk. 5. In Waterhouse, the Solicitor asserted and the Tribunal accepted, at least as an arguable proposition, that the undertaking in question was procured from him by deceit, being the assertion by his clients' opponents that the substantial land tax liability on a property had been fully paid.
Here, Mr Hunter's breach of his undertaking may not have been deliberate, but the terms of the written undertaking of 30 November 2017, even if they did not have the effect intended by Mr Hunter, were clear. He was, as a matter of fundamental and critical professional importance to his role as a solicitor as explained in the authorities cited at [46]-[53] above, required to comply with those terms. He failed to do so. The terms were unequivocal. Until a few weeks before the hearing he maintained that he was not required to comply with the undertaking as given and he sought dismissal of the Law Society's application with indemnity costs. Significantly, his breach of undertaking resulted in an inequitable result for the purchasers, because the strata levies were adjusted as paid, and that meant that the Purchasers allowed the Vendor on completion $2,425.12. But that was not paid on to the neighbourhood association by the Vendor or by Mr Hunter. Additionally the neighbourhood association then sought to recover the whole of the 2017-2018 strata levies from the Purchasers.
We are satisfied that Mr Hunter's conduct in breaching his undertaking would be regarded as disgraceful and dishonourable by members of the New South Wales profession of good repute and competency.
We find therefore that he is guilty of professional misconduct at common law.

[20]

Fine

We have considered whether a fine should be imposed and the quantum of any fine in light of the fundamental importance of reliable solicitors' undertakings, the authorities on which are discussed at [46]-[53] above.
As was recognized by Beazley JA (as she then was) of the Court of Appeal in Law Society of New South Wales v Walsh [1997] NSWCA 185 at 40 ("Walsh"), the purpose of a fine is to mark the disapproval by the Tribunal of the practitioner's conduct and the tribunal is not exercising a jurisdiction which is aimed at punishing the practitioner but which rather seeks to protect the public and that extends to protecting the public from similar defaults by other practitioners. As Her Honour went on to say: "Thus, it is relevant to take into account the effect the order will have upon the understanding in the profession and amongst the public of the standard of behaviour required of solicitors."
That must involve an assurance to the public that lapses from the standard of conduct required of legal practitioners will not be passed over lightly but will be dealt with appropriately: Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 at 470 ("Foreman")
In this way, the quantum of any fine must appropriately "mark out" to the profession and, equally importantly, to the general public of New South Wales the seriousness with which this Tribunal regards the relevant practitioner's conduct.
In our view, given the fundamental importance of a solicitor's obligation to honour his or her undertakings, the seriousness of a breach of undertaking will not be sufficiently marked out in most cases by the imposition of a fine which is minimal or nominal.
Of course appropriate allowance must be made for matters such as the recognition by the solicitor of the failure to reach the appropriate standard of behaviour, the effect of his or her conduct and his or her contrition for it and special circumstances such as those which arose in Waterhouse and Konstantinidis, as noted at 58 above. But even when all those matters are given some weight, if the resulting fine does not adequately and properly mark out the seriousness of the conduct, the Tribunal will have failed its responsibility to the public and the profession as explained in Walsh and Foreman.
In light of these principles we were not inclined to impose a merely nominal or low range fine and had initially considered a substantial fine.
The imposition of a substantial fine would be consistent with some of the cases, including two interstate decisions which appear to have involved undertakings to another member of the profession to retain funds. They are the Detata decision cited at [51]above, where the Western Australian Court of Appeal concluded that a breach of undertaking should attract a fine of $10,000 and Legal Services Commissioner v Kaine [2013] VCAT 1077 where, on facts not dissimilar to those in the present case, the Tribunal imposed a fine of $10,000.
However, we have also taken into account the following matters: 1. A tendency in this Tribunal, at least in those cases which involve a breach of an undertaking to the Law Society to attend continuing legal education, to impose fines of a lesser scale. For example in Council of the Law Society of New South Wales v Lewis [2019] NSWCATOD 100, a fine of $4000 was imposed for breach of such an undertaking, in Council of the Law Society of NSW v Powell [2019] NSWCATOD 24 the fine for breach of such an undertaking was only $1000 and in Law Society (NSW) v Hinde [2005] NSWADT 199 (where the undertaking was to retain real estate agent's commission) the fine was $3000. Of course, consideration of the amount of the fine in Hinde should take into account the rise in the value of the dollar since 2005. 2. Mr Hunter's previous good conduct. It was submitted by Counsel on his behalf and not contested that he has not been found to have committed any act of professional misconduct or unsatisfactory conduct in 38 years of continuous practice. We do take that into account. At the same time we express some surprise that notwithstanding the benefit of 38 years' professional experience Mr Hunter was unable or unwilling to accept that he was strictly bound by the terms of his undertaking the subject of these proceedings between 30 November 2017 and 21 July 2020 (the latter being the date of his second affidavit). 3. Mr Hunter's acknowledgment at the hearing that he had failed by his conduct to reach acceptable professional standards and his acceptance, albeit at a relatively late stage, that he had breached his undertaking. At the conclusion of the hearing Mr Hunter told us that he had, in his words: "learnt a salutary lesson."
Having taken all those matters into account, we have decided that the imposition of a fine of $6,000 is appropriate.

[34]

The fundamental importance of solicitor's undertakings

At [46] to [53] above we have cited authorities which recognise the fundamental importance of a solicitor's undertaking. The principle which emerges from Waterhouse (cited at [52]) is also important: the recipient of an undertaking is entitled to assume that the solicitor has taken all steps necessary to ensure that he is in a position to comply with his undertaking.
Waterhouse also confirmed the equally important principle that an undertaking remains binding even if its performance is outside the solicitor's control; the law in New South Wales in this regard being as stated in the Guide to the Professional Conduct of Solicitors issued by the Law Society of England and Wales (see [53] above).
In light of that authoritative recognition of the extent of a solicitor's obligations regarding undertakings we are not persuaded by the contention by Counsel for Mr Hunter that: "..it would have been unlawful for Mr Hunter to comply with his undertaking unless he was instructed to do so" (Our emphasis : Respondent's submissions (27.01.21) at [16]).
The very effect of an undertaking not to disburse money is that another party can rely on that undertaking regardless any instructions which client concerned may (or may not) give to the solicitor holding the money. The reliability such an undertaking would be substantially undermined if was in every case qualified by the possibility of the client changing its mind.
We are not persuaded that the principles enunciated in Carr were intended to have that effect or to make the enforceability of a solicitor's undertaking to forbear from disbursing trust moneys conditional in every case upon the existence of an authorizing direction from the person on whose behalf the moneys had been received.
It seems to us that that would dilute the strict obligations imposed on solicitors to be bound by their undertakings and that if the Court of Appeal had intended such a dramatic change, it would have made its intention clear. We did not understand it to do so.
On that basis we confirm the orders proposed above.

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