ACT Civil and Administrative Tribunal|2010-08-04

The Applicant has leave to amend the Application for disciplinary orders in the form handed up to the Tribunals on 13 September 2017 and headed Amended Application under s419 of the Legal Profession Act 2008.
The respondent's conduct described in Ground 1 and 2 of the amended Application and paragraphs 1 and 2 of a document handed to the Tribunal on 13 September 2017 and called 'Submissions of the Applicant' constitutes unsatisfactory professional conduct.
The respondent is publically reprimanded pursuant to section 425(3)(e) of the Legal Profession Act 2006.
The respondent is fined $2500.00 pursuant to section 425(5) of the Act.
The respondent is to pay the Council's costs of the application on a party/party basis in accordance with rule 1751 of the Court Procedure Rules 2006 (ACT) pursuant to subsection 433 of the Legal Profession Act and in accordance with following procedure:
- (a) The parties should make an attempt to reach an agreement on costs within 28 days.
- (b) If agreement is not reached within 28 days, the applicant may file and serve a bill of costs using form 2.45 approved under the

The Tribunal was referred to an amended application that deleted a claim that the practitioner was guilty of professional misconduct and instead that he was guilty of unsatisfactory professional conduct. The Tribunal was also handed a document called 'Submissions of the Applicant'. The Tribunal also was provided with a statement from a person we shall refer to as BC an employee of the respondent at the relevant times. We were also informed that we might otherwise take as read the affidavit of the respondent dated 3 August 2017. It was agreed that the matters asserted in the submission document were to prevail and were agreed. We attach a copy of the submissions with the names changed to anonymise them.[1]
In the course of the hearing it was observed that there were some differences in detail between the description of events by the respondent and BC. It was also discussed that some of the conclusions in the submissions document may be inconsistent with the respondent's affidavit. Mr Katekar who appeared for the respondent agreed that we should accept that the submission document was agreed and if there were any inconsistencies it was to be preferred. He explained that the practitioner accepted that he was guilty of the alleged conduct and after the time that had elapsed could not disagree with the information in BC's statement or the submission document. We accepted that explanation. The most important component of this was his acceptance that he was guilty of sharp practice in seeking to use a legal argument that would not have been understood by his ex-client. To compound this, the legal argument was wrong.
The respondent's affidavit accepts that he was guilty of unsatisfactory conduct. He apologised to all affected parties. In an unusually frank statement he conceded that he now realised he was not then equipped to run a law firm and had made many mistakes. It was clear that he was right in his self-assessment and he made clear that he had been derelict in the way he was unaware of matters or had proceeded wrongly to proceed when he should not have done so. The tenor of his affidavit was such that the Tribunal could see that he had learned a hard lesson and had appropriate self-awareness.
We were referred to one past matter where similar conduct but arguably worse had occurred. In that matter on penalty there was no similar indication of remorse or self-awareness. It might be inferred that the accumulation of experiences had served to bring about what penalties are designed to do subjectively.
In respect of penalty, the parties both agreed that he should be reprimanded. Whilst the respondent's counsel initially suggested that perhaps no fine might be added, eventually, he accepted that there should be a fine and the parties agreed as to what it should be.
Having read all the material we are satisfied that the agreed penalty is appropriate. In respect of costs they follow inevitably by reason of section 433 of the Legal Profession Act 2006 and a costs order was agreed to.
Whilst subjectively the respondent had clearly been deterred already and had learned a very hard lesson, objectively the Tribunal agreed that there needed to be a signal that deterred others, made it clear to the public and the profession that the legal profession should be held to high standards and that such conduct was to be seen as unacceptable. We agree also that whilst it was below the standard expected of the profession it was not so serious as to amount to professional misconduct.
For these reasons we made the orders which were by consent.

Council of the Law Society of the ACT v The Legal Practitioner 201705

These are submissions made in relation to an Application for Disciplinary action filed on 10 April 2017 and made under section 419 of the Legal Profession Act 2006 ("the LPA"). The application sought findings of professional misconduct or unsatisfactory professional conduct. The grounds of which those findings are sought were originally particularized as follows:

Ground 1: Breach of Section 298(b) of the Act - commencing proceedings to recover legal costs

1.1 The Respondent on 14 August 2014, deliberately or recklessly commenced, or caused to be commenced, proceedings in the ACT Magistrates Court against DN to recover outstanding legal costs allegedly owed to the Firm and proceeded to enter default judgment against the company at a time when the Respondent knew, or ought to have known, that the outstanding legal costs were the subject of an Application for costs assessment filed in the Supreme Court of the ACT on 9 July 2014 by DB in the circumstances set out in paragraphs 5 to 17 above.

1.2 On 13 November 2014, the Respondent deliberately or recklessly commenced, or caused to be commenced, proceedings in the Federal Court of Australia to wind up DN pursuant to a Creditor's Statutory Demand issued on 30 September 2014 at a time when the Respondent knew, or ought to have known, that the debt upon which the Creditor's Statutory Demand was based, arose from the outstanding legal costs which were the subject of an Application for costs assessment filed in the Supreme Court of the ACT by DB on 9 July 2014, which proceedings were the subject of a directions hearing before the Deputy Registrar of the Supreme Court on 11 November 2014, in the circumstances as set out in paragraphs 18 to 23 hereof.

2.1 The Respondent on 30 September 2014, deliberately or recklessly, swore an affidavit accompanying a Creditor's Statutory Demand, falsely denying the existence of any dispute about the debt of DN or the quantum of it at a time when the Respondent knew, or ought to have known, that the legal costs out of which the alleged debt arose were the subject of a costs assessment application filed by DB in the Supreme Court of the ACT on 9 July 2014 in the circumstances set out in paragraphs 24 to 28 above.

The Applicant seeks to amend the Grounds by deleting the existing Ground 2 and substituting the following ground:

The Respondent between 10 July 2014 and 5 December 2014 breached his general law ethical duty of professional conduct or the duty owed to DB pursuant to Rule 1.1 of the Legal Profession (Solicitors) Rules 2007 to continue to treat DN fairly and in good faith, and not to treat that entity (DN) otherwise than in an honourable and reputable manner during the dispute over costs owed by DB or DN.

3.1. a legal practitioner and holder of an unrestricted practising certificate; and

3.2. the sole director of the law firm the Firm being an incorporated legal practice within the meaning of Section 101(1) of the Legal Profession Act 2006 (ACT) ("Act"); and

3.3. the legal practitioner director of the Firm for the purposes of sections 107 and 108 of the Act.

The complaint arises from a dispute between DB's company, DN Pty Ltd ("DN"), as builder, and a home owner for the alleged failure of the home owner to pay DN over $300,000 in outstanding building costs for a new home built by DN for the homeowner. DB and his wife DD are the directors of the company. [2]

In January 2013, the Respondent was instructed by DB, on behalf of DN, to act on its behalf in relation to the dispute. A formal retainer and costs agreement was entered into on 14 February 2013.[3] Around the time of entering into the costs agreement DB also entered into a deed of guarantee and indemnity by virtue of which DB indemnified the firm against all loss (including any unpaid monies) that resulted from the failure of DN to pay money owed by it to the firm. The deed was expressed to be unconditional and the obligations of the guarantor were described as "principal obligations" with the firm not required to take action first against DN.

In the period February 2013 to 31 January 2014, the Respondent invoiced DN amounts totalling approximately $117,000.00 of which DB paid the Respondent an amount in excess of $100,000.00.[4]

The Respondent's instructions were subsequently terminated after issues arose about the payment of fees. On 5 January 2014[5] DB sent an email to the Respondent instructing him to cease work on his matter.

On 6 June 2014, the Respondent wrote to DB demanding payment of an overdue account in the sum of $13,368.[6]

On 1 July and 2 July 2014 DE a solicitor employed by the firm prepared an originating claim and statement of claim[7] with respect of the unpaid costs. It is asserted by BC that instructions to do that work were given by the Respondent[8].

On 2 July 2014 DB emailed the firm indicating that he was "arranging for an application for an assessment of your invoices to be filed in the Supreme Court".[9]

On 4 July 2014, a letter prepared by BC, solicitor employed by the firm[10], and signed by the respondent[11], was sent to DB demanding the payment of outstanding fees[12]. It was indicated that the firm will "require a sealed application for costs assessment by Friday 11 July 2014 or we will file a Magistrates Court claim to recover the debt. "[13]

On 11 July 2014 DD personally served at the offices of the firm an unsealed copy of the front page of the Originating Application for Cost Assessment ('the Cost Assessment Application") with a court lodgement date of 9 July 2014.[14] Two weeks or so after that document was received it was given to the respondent.[15]

Following receipt of those documents BC sent an email to the Respondent and DE dated 11 July 2014 stating that "It appears that DB has filed an application for assessment of costs - we only have the front page and a receipt for the filing free, dated 9 July 2014". [16] At that time, the Respondent was on holidays[17]. The actual document filed named DB as the applicant rather than DN[18] a fact apparently noted by BC[19] at the time.

On or about 14 August 2014 BC reviewed and amended the draft Originating Claim and Statement of Claim that had been drafted by DE and sent to the Respondent to sign.[20]They were signed by him and filed in the Magistrates Court on 14 August 2014[21].

The sealed court documents were served on DB on 18 August 2014. Service by post (to an old residential address and the notified business office) and (apparently) by email[22]. DB states that he did not receive those applications.[23] The claim was not dealt with by DN contrary to its interests.[24] If it had appeared it is assumed the Court would have been made aware of the Application for Cost Assessment that had been lodged.

On 22 September 2014 BC states that he was instructed by the Respondent to prepare and file an application for default. The affidavit in support for the Default Judgement Application was signed by the Respondent on or about 22 or 24 September 2014. [25] The Respondent to that application was DN.

After default judgment was entered by the Court on 24 September 2014 [26] BC was instructed by the Respondent to draft a creditor's statutory demand addressed to DN[27]. That demand and the supporting affidavit[28] were signed respectively by BC and the Respondent on 30 September 2014. The affidavit contained the assertion

"There is no genuine dispute about the existence, or amount, of the debt"[29].

On 22 October 2014, the firm received a folder of documents from DB including an ACT Supreme Court originating process for the cost assessment and supporting documents[30]. The following day BC and the Respondent met to discuss the Cost Assessment Application[31].

On 11 November 2014, the Cost Assessment Application came before Deputy Registrar Kennealy. DE attended on behalf of the firm. At that hearing DE informed the Court that the firm "never entered into any agreement with DB personally".[32] Directions were given that gave DB as the Applicant in those proceedings leave to file and serve an Amended Originating Application in the name of DN.[33]The outcome of the Directions Hearing was notified to the Respondent by email[34] and possibly in person[35] on that day.

The Respondent's representative at the directions hearing on 11 November 2014 did not inform the Deputy Registrar of the entry of default judgment in the Magistrates Court on 24 September 2014 nor the issue of the Creditor's Statutory Demand on 30 September 2014 both of which related to the legal costs which were the subject of the Costs Assessment Application then before the Deputy Registrar[36].

An application to the Federal Court for the winding up of DN was commenced by the firm on 11 November 2014[37]. The documents were prepared by BC on the instruction of the Respondent.[38] The application relied on the affidavit sworn by the Respondent on 30 September 2014. The Respondent swore an affidavit verifying that DN had failed to comply with the demand of 30 September 2014[39]. Other documents including affidavits that were filed in those proceedings were prepared and signed by others in the firm.

On 18 November 2014 DD personally served the amended Cost Assessment Application at the offices of the firm. In the days after receiving that application further documents were filed by the firm in the Federal Court in support of the Winding up Application[40].

On 18 November 2014, an application was made by DN to set aside the default judgment. That application was opposed by the firm. BC appeared. The matter was adjourned to a date in early 2015.

On 30 November 2014 DB wrote to the Law Society to complain about the conduct of the Respondent. On 9 December 2014 Mr Travers, on behalf of DB, wrote to the Respondent seeking to settle both the Cost Assessment Application and the proceedings regarding unpaid fees. A meeting between BC and Mr Travers occurred on 18 December 2014 to discuss that settlement proposal.[41] The terms of settlement proposed by Mr Travers were rejected by the Respondent.[42]

In February 2015, the arbitration proceedings were resolved in favour of DN.

On 31 March 2015, the default judgment was set aside by consent.

On 12 May 2015, the Magistrates Court claim for unpaid costs was discontinued by consent. Costs of $1000 were ordered against the firm.

Section 298(b) of the LPA provides:

Consequences of application for costs assessment

If an application for a costs assessment is made in accordance with this division -

(a) the costs assessment must take place without any money being paid into court on account of the legal costs the subject of the application; and

(b) the law practice must not start a proceeding to recover the legal costs until the costs assessment has been completed.

Section 294A of the LPA relevantly provides:

Application by client or third party payer for costs assessment

(1) A client may apply to the Supreme Court for an assessment of all or any part of legal costs.

(2) A third party payer may apply to the Supreme Court for an assessment of all or any part of legal costs payable by the third party payer.

(3) An application for a costs assessment may be made even if the legal costs have been completely or partly paid.

(4) If any legal costs have been paid without a bill, the client or third party payer may nevertheless apply for a costs assessment.

Section 261A provides relevantly:

(a) a person is a "third party payer", in relation to a client of a law practice if the person -

(A) is under a legal obligation to pay all or any part of the legal costs for legal services provided to the client; or

(B) being under that obligation, has paid all or a part of the legal costs; and

The Applicant asserts that DB was not the client of the Respondent firm but a third party payer by virtue of the guarantee that had been entered into between them. DB was relevantly an individual under a legal obligation to pay the legal costs provided to the client DN. That being so, the Respondent was enjoined by section 298(b) not to commence proceedings to recover costs after DB, acting as a third party payer, had brought the Application for Costs Assessment that was lodged in the Supreme Court on 9 July 2014. Similarly, the Respondent, by the same process of reasoning, was enjoined not to bring proceedings in the Federal Court.

The applicant submits that the Respondent should be taken to have known that section 298 was relevant in the circumstances of the case. Reported authority suggests that the firm and the Respondent had previously been involved in litigation where issues concerning section 298 arose: [citation omitted].

It is clear that the Respondent was reckless in that he failed to appreciate that section 261A of the LPA would have application in the circumstances of the case. That lack of diligence caused disadvantage to DN in that a solicitor had to be engaged to prosecute the case against its former solicitor. The proceedings in the Federal Court also caused reputational damage to DN and DB.

The withdrawal of the retainer by DB did not bring to an end the duty of good faith owed to DN. The Respondent was entitled to seek to recover what was alleged by him to be monies owed by DN. He was aware that the company was, for all intents and purposes, the manifestation of the economic interests of DB and his wife. The lodging of the Cost Assessment Application by DB indicated a clear intent on the part of DB to challenge the liability for the further costs that DN (and effectively he) allegedly owed.

The Respondent and the firm were of the view (a view which was wrong in law) that the Application had been brought in the wrong name. This seems clear from the email that was sent by DE to the Respondent and BC on 11 November 2014 and from BC's statement. If the Respondent had been diligent in ensuring he understood the effect of the LPA, he would not have caused the proceedings in the Magistrates Court and Federal Court to have been brought.

However, even within the litigation paradigm created by his lack of diligence, the Respondent chose to effectively take advantage of the mistake he assumed DB had made in bringing those proceedings in the wrong name. Further still, given DN through its director DB had manifested an intention to challenge the costs allegedly owed, the Respondent owed a duty of good faith to DN. This included not unreasonably taking advantage of the mistake it appeared to have made in filing the Cost Assessment Application in the name of DB and not "DN". Given that the Respondent understood that the amount of costs was in reality in dispute, he should have either refrained from bringing the debt recovery proceedings or, in the alternative, ensured that DN were given the opportunity and be informed they had the opportunity to put a point of view to the court. The failure of DN to enter an appearance in the Magistrates Court should have been taken as a signal either that service had not in fact been effective or that there was a misunderstanding on the client's part as to the import of those proceedings (which was more than a possibility given the way the client's approach to the making and serving of the Costs Assessment Application).

Given the contact details that were on file (email, phone and (up to date) home address[43]) more should have been done to contact and inform an unsophisticated client of the (supposed) error that had been made and how it may allow the firm to pursue its costs without resistance. The behaviour of the Respondent constituted "sharp practice". The representation made by the Respondent in the affidavit supporting the Statutory Demand was legally incorrect. On the Respondent's understanding of the law he may have believed it to be literally true. However, it had the potential to mislead given that DB had attempted, by instituting proceedings in the Supreme Court, to put the quantum of the debt in issue. The attempt to wind up the company had the potential, at the very least, to jeopardise DN's capacity to favourably resolve the litigation it had engaged the Respondent to prosecute on its behalf. The winding up application had the potential to be disastrous both for the company and its directors and those who relied on the company for their employment and livelihood.

More should have been done by the Respondent in the proceedings in the Magistrates Court and the Federal Court to paint a realistic picture of the position of DN in respect of the debt that was allegedly owed. The Respondent did not discharge the duty it owed to its former client, nor perhaps his duty as an officer of the Court. That latter issue is complicated somewhat by the role that others played in that litigation. Nevertheless, as principal of the firm, he owed a duty to ensure that litigation under his general supervision was conducted in a manner that accorded with the law and did not tend to be misleading.

The applicant asserts that the Respondent did not act in accordance with its statutory responsibility under section 298 of the LPA. It is said that this conduct was reckless. It appears that a lack of diligence meant that the Respondent was not cognisant of the third party payer provisions of the LPA.

In respect of the amended Ground 2 the Applicant asserts that the conduct of the Respondent did not amount to dishonesty. The Respondent was entitled to pursue the costs he was owed by the corporate entity. Notice of those proceedings was given in accordance with the law and the corporate entity had the opportunity to appear and put its case. However, the Respondent sought to exploit a tactical advantage it perceived it had derived from the error he thought that DN (through DB) had made in framing the Costs Assessment Application in the way it did and by the surprising failure of the company or DB to respond to the notices that were sent to it. He did not do what he was obliged to do to ensure that the dispute that had arisen was litigated in an honourable and reputable manner.

The Applicant urges the Tribunal to find the Respondent behaved in a manner that amounts to unsatisfactory professional conduct.

[1] This decision was previously anonymised and cited as Council of the Law Society of the ACT v LP 201705 [2017] ACAT 74 pursuant to section 423A of the Legal Profession Act 2006. As the appeal period has ended, the practitioner has now been identified in the citation of this decision. The reasons for decision otherwise remain unchanged from the date of publication

[8] Statement of BC 11 September 2017 paragraph 14

[9] DB June 2017 Annexure "E", Statement of BC 11 September 2017 paragraph 15

[10] Statement of BC 11 September 2017 paragraph 7

[11] LP 201705 2 August 2014 paragraph 11.

[12] ibid paragraph 9, DB 20 June 2017 paragraph 15

[13] Statement of BC 11 September 2017 paragraph 15

[14] DB 20 June 2017 paragraph 16, Reis 22 June 2017 Annexure RAR 297,298

[15] Statement of BC 11 September 2017 paragraph 13

[16] Statement of BC 11 September 2017 paragraph 11 and Attachment BC 1

[17] Affidavit of the Respondent, Paragraph 12

[18] Reis 22 June 2017 Annexure RAR 298

[19] Statement of BC 11 September 2017 paragraph 10

[20] Statement of BC 11 September 2017 paragraph 116

[21] Reis 22 June 2017 Annexure RAR 302-307

[22] Reis 22 June 2017 Annexure RAR 308-309

[23] DB August 2017 paragraph 7, DB 20 June 2017 paragraph 23

[24] Reis 22 June 2017 Annexure RAR 283

[25] Statement of BC 11 September 2017 paragraph 18, Reis 22 June 2017 Annexure RAR 313

[26] Reis 22 June 2017 Annexure RAR 332

[27] Statement of BC 11 September 2017 paragraph 19, Reis 22 June 2017 Annexure RAR 313

[28] Reis 22 June 2017 Annexure RAR 327-30

[29] Reis 22 June 2017 Annexure RAR 330

[30] Statement of BC 11 September 2017 paragraph 20. DB 20 June 2014 paragraph 18

[31] Statement of BC 11 September 2017 paragraph 20

[32] Statement of BC 11 September 2017 paragraph 21 Annexure BC 2

[33] Statement of BC 11 September 2017 paragraph 21 and HJK 2.

[37] Statement of BC 11 September 2017 paragraph 22, Reis 22 June 2017 Annexure RAR 407, 437

[38] Statement of BC 11 September 2017 paragraph 22

[39] Reis 22 June 2017 Annexure RAR 448

[40] Reis 22 June 2017 Annexure RAR 448

[41] Statement of BC 11 September 2017 paragraph 23

[42] Statement of BC 11 September 2017 paragraph 24-25

Procedure Rules 2006

Profession (Solicitors) Rules 2007

COUNCIL OF THE LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY v THE LEGAL PRACTITIONER (Stephen Stubbs) (Occupational Discipline) [2010] ACAT 45 (4 August 2010)

COUNCIL OF THE LAW SOCIETY OF THE ACT v LP 201705 (Steven Gavagna) [2017] ACAT 74

COUNCIL OF THE LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY v THE LEGAL PRACTITIONER

At a glance

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Judgment (97 paragraphs)

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Legislation Cited (4)

Cases Cited (2)

COUNCIL OF THE LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY v THE LEGAL PRACTITIONER (Stephen Stubbs) (Occupational Discipline) [2010] ACAT 45 (4 August 2010)