Finocchiaro v Law Society of NSW & Anor

Supreme Court of NSW|2002-02-28|Before: Dowd J, Mason P, Meagher JA, Stein JA, Greg James J

CITATION : Finocchiaro v Law Society of NSW & Anor [2002] NSWSC 112 FILE NUMBER(S) : SC 11948/95 HEARING DATE(S) : 16-17/8/2001 JUDGMENT DATE : 28 February 2002

Anthony Finocchiaro PARTIES : Law Society of New South Wales Joseph Aliperti JUDGMENT OF : Dowd J at 1

iN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

Anthony FINOCCHIARO v Law Society of New South Wales & Anor

JUDGMENT 1 HIS HONOUR: By Amended Summons, filed 15 May 2001, the plaintiff sought a number of orders consequent upon a determination by the first defendant ("The Law Society"), disallowing a claim made by the plaintiff on the Solicitors' Fidelity Fund ("The Fund"), determined on 23 March 1995 and 22 February 2001. 2 The relief sought is formulated in various manners, but the substance of the relief sought was that the decision of the Law Society was invalid and of no effect, and that that determination be set aside and the plaintiff's claim of the 16 June 1993 be remitted to the Law Society for further consideration according to law. 3 The plaintiff's claim was made pursuant to s80(1) of the Legal Profession Act 1987 ("The Act"), seeking compensation in respect of a pecuniary loss he had suffered by the failure to account by his then solicitor, the second defendant ("Aliperti"). 4 In the Amended Summons, the plaintiff had originally sought to appeal the decision of the Law Society, disallowing the claim made by the plaintiff, but that claim was not pursued before this Court. 5 The Amended Summons also sought declarations as to the entrustment of funds with Aliperti, and orders for payment of the sum claimed, namely $287,000 together with interest, calculated at some 20% per annum payable on an annual basis. 6 The affidavit material of the solicitor for the plaintiff and the plaintiff were read on the basis that, as the matter proceeded on the basis of Administrative Law, the only material before the Committee itself was the subject of this Summons, and therefore the affidavit evidence, subject to certain objections, was allowed. 7 The Act provides in Pt7 for a Solicitors' Fidelity Fund and permits the Law Society Council to delegate all or any of its functions to a management committee appropriately constituted. Division 3 of Pt7 provides for claims against the Fund, and provides for claims under s80 of the Act for persons who suffer pecuniary loss because of a "failure to account", or a dishonest default. Section 79A of the Act defines a failure to account as applying only to a failure to account that arises from an act or omission of a solicitor for which solicitor has been convicted of a crime or an offence involving dishonesty, or which the Law Society Council has found to be dishonest. 8 It is provided by s79A(3) of the Act: "S79A(3): A finding by the Law Society Council under subsection 2(b) that an act or omission is, or is not, dishonest is final and conclusive".

Subsection 2(b) relates to a determination by the Law Society that a solicitor was found dishonest. 9 Section 80A of the Act provides for reduction of the amount claimed in certain circumstances. The Act then provides an entitlement on the part of the Law Society Council to give a claimant notice to take steps for the provision of the particulars and documents to support the claim, and provides that the Law Society may disallow a claim or any interest thereon. There is therefore interest payable even when not claimed as here. The Act provides for a ceiling on the amount that may be recovered. Section 90D of the Act provides a right of appeal to this Court against a decision to wholly or partly disallow a claim, and on an appeal under that section, the Supreme Court may make such order as it thinks fit. 10 In Vassiliadis v Law Society of NSW (1997) 41 NSWLR 383, the Court of Appeal approved the decision of Windeyer J in Stego Pty Ltd v Law Society of NSW (1994) 36 NSWLR 466, which held that no appeal under s90D was available against a finding. The Background Facts 11 The plaintiff had first engaged Aliperti as his solicitor in 1982, who continued thereafter to act for the plaintiff. On 31 March 1989, the plaintiff said that he authorised Aliperti to retain the proceeds of sale of the plaintiff's property and to use that for investment. 12 In October 1992, the plaintiff ascertained that Aliperti had closed his business, and in April 1993 he instructed his present solicitor who advised the Law Society and advised the receivers of Aliperti's business, detailing the events that led to the entrusting of the funds to Aliperti. The Law Society was advised of the claim, and after acknowledgment on 7 June 1993 by the Law Society, and the receipt of a claim form from the Law Society, the plaintiff lodged his claim with the Law Society on 16 June 1993. 13 The Law Society requested the plaintiff to contact Detective Barr of the Fraud Squad. His solicitor, Mr Nesci, did so and the plaintiff was interviewed on 11 April 1994, a copy of that police statement being then forwarded to the Law Society. There was then a protracted correspondence and a series of interviews to endeavour to obtain a copy of the cheque for the proceeds of the sale of $287,000, which was unsuccessful, it being found that in fact there were at least two cheques handed over on completion of the sale in terms of the chain of conveyancing transactions. 14 The Law Society was advised of the lack of success of the search for the settlement cheques, and on 23 March 1995 the Fidelity Fund Management Committee disallowed the plaintiff's claim on the grounds: "…. there was insufficient evidence of failure to account". 15 In June 1995, the plaintiff filed a Summons seeking a remedy under s90D(3) of the Act. 16 The Legal Services Tribunal, on 19 August 1996, had before it an information filed by the Law Society against Aliperti alleging a number of failures to account, misappropriation of funds, breaches of ss61 and 62 of the Act, forgeries, preparations of false mortgages, inducements offered to clients to part with monies on the basis of false promises, the purported witnessing of documents wherein the signatures of the parties were not those of the parties named and one occasion of delay on the solicitor's carriage of the client's matter in circumstances arising out of misappropriation of funds upon which resulted in the client incurring expense of a considerable amount . 17 On 19 August 1996, Aliperti's name was removed from the Solicitor's Roll. It is recorded in the Legal Profession Discipline Report of December 1996 that the solicitor was found guilty of failure to account, misappropriation of funds, wilful breaches of ss61 and 62 of the Act, preparation of false Mortgages, purported witnessing of documents where the signatures of the party were not those of the party's named, delay. The Report of that Tribunal inter alia said: "The Tribunal is satisfied on the evidence submitted and to the requisite standard of proof that the solicitor is guilty of professional misconduct in relation to each of the complaints and in relation to the totality of the complaints (Legal Profession Disciplinary Reports No 4, 1996)". 18 On 6 September 1996, Mr Nesci issued a subpoena to Westpac Banking Corporation for the subject cheque, and following further correspondence was finally advised by Westpac Banking Corporation on 27 November 1996, that the cheque had been destroyed. 19 On 3 November 1999, Aliperti was convicted of Dishonestly Obtaining a Valuable Thing by Deception. On sentence, the Crown elected to have taken into account seven charges against Aliperti of the fifty-two, on the basis that the Department of Public Prosecution ("DPP") would take no further proceedings against him. The plaintiff had been subpoenaed to attend to give evidence in respect of his count. Unfortunately for the plaintiff, it was not one of those included on the schedule of offences taken into account by the Court, and thus there was no conviction against Aliperti. 20 On 21 February 2001, in reply to a letter written to the Law Society by Mr Nesci on 3 May 2000, advising of the legal proceedings against Aliperti, the Law Society resolved: "(a) confirm previous finding of 23 March 1995 as to no failure to account; (b) unable to find there was a dishonest act or omission by the solicitor as to the monies involved in this claim".

Plaintiff's Submissions 21 The plaintiff, through his Counsel, Mr C M Simpson, submitted that the absence of an appeal on the question of dishonesty can only therefore be reviewable by Administrative Review. As a matter of law, this renders the decision of the Law Society one that must be exercised with the highest standard of care and attention to the matters, the subject of its decision making. It is submitted on behalf of the plaintiff that the finding of Adams J in Laurent v Law Society of New South Wales [2000] NSWSC 1103 and of Bell J in Barber v The Law Society of New South Wales [2000] NSWSC 1164, can be relied on in support of the plaintiff's claim. 22 Justice Bell, at the time of the hearing, had dealt further with the matter. Her Honour's decision on the substantive gearing which was on somewhat different issues being handed down on 2 October 2001. The plaintiff also relies on Whitfield & Anor v Law Society of New South Wales (Unreported, NSWSC, 4 December 1998, Greg James J). 23 In the judgment of Adams J in Laurent, His Honour said that there is no onus upon a complainant to prove an element of failure to act. The only onus is on the Law Society which imposes a duty to "investigate the claim" and His Honour further held at p9: "In conducting that investigation the Law Society is not a judicial tribunal. It is not conducting a criminal or, indeed, any trial. It is not bound by the laws of evidence. It is entitled to have regard to any material which fairly and rationally bears upon the relevant considerations entailed in investigating the claim. That evidence may be hearsay. It may be evidence of similar facts. It may include evidence about other dishonest or improper behaviour by the solicitor in question. These are all questions for the conscientious consideration of the Council. The members of the committee must bring their own judgment, opinions and experience to bear on the issues. Of course a claimant must be given the opportunity to submit such material as he or she believes is relevant to the investigation but hat in no sense delimits the scope of the Society's duty. Of course, it may be that in a rare case, even following a full investigation a determination positively of honesty or dishonesty or any other necessary element of liability may not be able to be made. If that be the case then, of course, there is no finding as to that matter and it follows no claim on the Fund is established". 24 The plaintiff further relied on the decision of Bell J in her first judgment of 12 December 2000. 25 It is further submitted by the plaintiff, that the only material before the Committee of the Law Society. No issue has been taken that the material before the Committee was the material before the Law Society. It was put by the plaintiff that the material before the Committee comprised the declarations of Mr Nesci and the plaintiff, the only other material appears to be the Report of Ann Siddons dated 8 March 1995, the Report of Dorothy Carlin of 15 February 2001 and the advice of a legal nature from Wendy Kain. As a matter of fact, the plaintiff was not informed of the substance of the two Reports that were considered by the Committee, this, it is submitted, means that the plaintiff was denied an opportunity to be heard in relation to the matters raised in those Reports. 26 The contents of the Reports were both factual and raised a number of stated concerns about various deficiencies in the plaintiff's claim. He was not afforded an opportunity to meet those concerns. It was put therefore the determination is vitiated in consequence of that failure and for reasons put in the written submissions.

Wednesbury Unreasonableness 27 It is put on behalf of the plaintiff that the determination reasons were given by the Committee but that the material before it is; 1. The sworn evidence of the plaintiff. 2. The sanction that criminal proceedings available under s314 of the Crimes Act 1900, would be available if false accusations were made. 3. There was evidence of extensive and similar acts of dishonesty committed by this solicitor. 4. There was objective evidence of the existence of the transaction giving rise to the entrustment. 5. There was no evidence to contradict the sworn evidence given by the plaintiff.

The plaintiff submitted that the decision of the Committee was so unreasonable as to require it to be set aside. 28 Unreasonableness is an independent ground using the principles in Wednesbury Corporation where there is such a degree of unreasonableness to lead to the conclusion that there has been a misdirection by the tribunal in law or consideration of irrelevant matters of failure to take relevant considerations into account or a denial of natural justice. 29 The plaintiff relied on and adopted Professor Aronson and Bruce Dyer (2nd Edition of "Judicial Review of Administrative Action"), to set out Wednesbury unreasonableness and relied on Minister for Aboriginal Affairs v Peko Wallsend Ltd (1986) 162 CLR 24 and Chan v Minister for Immigration and Ethnic Affairs (1989) 169 CLR 379. The plaintiff also relied on the decision of Barber (2000) and the fact that a determination that there was no dishonesty where there was evidence that there was dishonesty and heard evidence to the contrary is one which is not properly open to be found and thus vitiates the determination (see Bruce v Cole (1989) 45 NSWLR 163 at 189 D-E) 30 The Chief justice in Bruce reviewed the authorities of Azzopardi v The Tasman UEB (1985) 4 NSWLR 139 at 156 and the finding of Glass JA with whom Samuel JA agreed which he set out at p188. However the Chief Justice said at 189: "Azzopardi and subsequent cases involved the proper construction of a statutory formula which limits appeals to "errors of law". The issue turned on the intention of parliament. Different considerations arise in the development and application of common law principles identifying the proper basis for judicial review of administrative action . In my opinion, at common law, a decision-maker who acts without probative evidence- to which conduct the word "perversely" has appropriately been attached- does not make a valid decision. It is the equivalent of acting without evidence. I accept that a finding of primary fact by the Conduct Division will be vitiated if there is no probative evidence to support it. Similarly an inference of fact is vitiated if it is not open on the primary facts properly so found. In this case the finding of continued incapacity was an inference". And on the same page: "Furthermore, the statutory context suggests that the common law principle, that an illogical inference does not in itself constitute an error of law, does not apply. As Chief Justice Mason put it in Autralian Broadcasting Tribunal v Bond (at 356): "So long as there is some basis for an inference - in other words, the particular inference is reasonably open - even if that inference appears to have been drawn as a result of illogical reasoning, there is no place for judicial review because no error of law has taken place".". 31 The denial of procedural fairness had been referred to earlier by the plaintiff, as a failure to provide the Reports of Siddons and Carlin, but the plaintiff further relied in Kioa v West (1985) 159 CLR 550, and it is put that the determination of the nature of that carried out by the Law Society attracts a duty for the decision maker to act fairly in the decision making process and the plaintiff in that respect, further relied on Whitfield v Law Society of New South Wales (Unreported, 4 December 1998) per Greg James J. 32 The case for the Law Society is that there is no issue that the contended failure to account did not arise from either an offence for which the solicitor was convicted, or for which the Law Society has found him to be dishonest, and that the finding by the Law Society on dishonesty is final and conclusive. 33 The Law Society relies on Vassiliadis v Law Society of New South Wales (1997) 41 NSWLR 383, and that Vassiliadis has been applied in Laurent v Law Society of New South Wales [2000] 1103, Whitfield & Anor v Law Society of New South Wales (Unreported, NSWSC, 4 December 1998, Greg James J), and in both cases no appeal on the merits can be heard because there has been no failure to account within the meaning of the Act, and there is no appeal on the Law Society's finding, and therefore no appeal lies, and the Court ought not deal with any of the other matters. 34 The Law Society's submission is that it is appropriate to determine the judicial review challenge, and if the plaintiff fails, the proceedings against the Law Society should be dismissed, and that if the plaintiff succeeds in his judicial review challenge, the matter ought to be remitted to the Law Society and ought not to deal with the other elements of s79A. 35 It is then put that the Law Society's determination is immune from judicial review, and that the Law Society's determination is conclusive. The Legislature has set out in s90D the only matters which can be raised by way of proceedings against the Law Society, and that s90D of the Act immunises the Law Society from proceedings in the nature of judicial review, except for issues which raise absence of bona fides or excess of jurisdiction. Neither of these issues is argued or suggested here. The Law Society relies on The King v Hickman; Ex Parte Fox and Clinton (1945) 70 CLR 598 at 615. 36 It is further put by the Law Society that the use of the word "action" in s90D of the Act does not lie, and that the "word action" is a generic term of wide import, which includes every sort of legal proceeding. 37 The Law Society asserts that s90D of the Act had identified the only actions that can be brought against the Law Society. Legislative intent is manifest that no other actions are permitted, and actions include judicial review. 38 It is conceded that this is contrary to the decision of Bell J in Barber v Law Society of New South Wales [2000] NSWSC 1164. 39 It is further put by the Law Society that if judicial review were available, it is necessary to determine the extent of the nature of that review, and the findings of the Law Society which are the subject of challenge are factual findings, particularly so in the nature of dishonesty per se. 40 It is put by the Law Society that Wednesbury unreasonableness is unavailable in respect of factual findings: Minister for Immigration v Eshetu (1999) 197 CLR 611 per Gleeson CJ and McHugh J at paragraphs 40; 44 and 45, and given the Law Society's findings as to dishonesty, that is not a jurisdictional fact which is one that can be found by a Superior Court, which Court determines the matter de novo. 41 It is further put that if the Law Society's determination is to be vitiated, the plaintiff must establish an error of law, and it is put, applying Sean Investments Pty Limited v MacKeller (1981) ALR 363 at 375, and Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24. It is further put that relying on Peko-Wallsend at p41 that it is for the decision-maker and not for the Court to determine weight to be given to the matter. 42 It is further put by the Law Society that the requirement to provide procedural fairness is controlled by the empowering legislation. The Law Society does not and is not obliged to conduct hearings for the Court to infer that the Law Society did not do anything other than consciously consider the material and submissions put by the plaintiff. 43 It is further put that ay error of law is on the face of the record. That record simply consists of the resolutions. The Law Society cites Waterford v Commonwealth (1987) 163 CLR 54 at 77, and relies on Glass JA referred to earlier in Azzopardi, and cites McHugh J in Re Minister for Immigration & Multicultural Affairs; Ex Parte Cohen (2001) 177 ALR 473 to assert that the Law Society misconceived its duty or exceeded its jurisdiction. McHugh J states at paras 34-36: "Courts should be slow to find that an erroneous finding of fact or an error of reasoning in finding a fact, made in the course of making a decision demonstrates that an administrative tribunal so misunderstood the question it had to decide that its error constituted a jurisdictional error…. Questions of fact are ordinarily for an administrative tribunal to determine and so are the reasoning processes employed to make such findings. Disagreement with a finding of fact or the reasoning process used to find it is usually a slender grounds for concluding that a tribunal misconceived its duty". 44 Finally, the Law Society said that it has not made any error of law, and relies on what is said in Peko-Wallsend about the exercise of administrative discretion. 45 Although the claim here was brought out of time, there is no issue raised by the Law Society to the determination of this matter. No issue had been raised as to the determination power of the Management Committee on behalf of the Law Society.

Consideration of Unreasonableness 46 In addition to those matters referred by the plaintiff in terms of examining the reasonableness of the determination, that the Law Society itself failed to take into account a relevant consideration within its own knowledge, that is, the fact that on its own information asserting a number of offences, whether they include the plaintiff's claim or not, on which the Legal Services Tribunal has made a finding in respect of all matters of sufficient derelict of duty to the requisite standard to strike off Aliperti. Its finding specifically dealt with all matters before it. The Law Society, whether delegating its function or not, must have imputed to it and must take into account such a consideration. 47 The Reports to which the Law Society had regard, were presented in terms of argument and took into account a number of matters that were logically "straw men". The Carlin Report talked of the "claimant" and "his claims". The fact is that there was evidence sworn on oath as to the facts that carry criminal sanctions and a charge against him, if his statement be false. He was prepared to give evidence. There is an assertion by Dorothy Carlin that there was no documentation. It is painfully obvious that a fraudulent solicitor in the nature of Aliperti did not necessarily keep mortgages and, in any event, the mortgagee does not have to execute mortgages personally. The giving of an epitome is good practice, but not essential. 48 The fact that what happened to the balance of the purchase money is not known is irrelevant, and the fact that the cheques are not available to show any endorsement is a side issue, since if they were bearer cheques they can be banked without endorsement, but in any event may be endorsed by an agent with the apparent authority of the owner of the cheque, in negotiating such cheque. 49 It must be again clear that there was a dishonest course of action over a protracted period of time by Aliperti. It should be remembered that the Law Society had not attempted to obtain evidence from Aliperti. It cannot be assumed that he would not assist. The fact is that the plaintiff did not have access to the Reports of Siddons and Carlin until the Monday before the hearing of these proceedings, certainly not at the time of the determination. 50 It is asserted as an argument rather than a fact, in Dorothy Carlin's Report that: "The claimant did not actively pursue the appeal".

The plaintiff had submitted that he was awaiting the criminal charges to be resolved. This is a fairly sensible and obviously course of action to adopt and should not be criticised by the pejorative "did not actively pursue". The argument put forward, that there was usually more than provided in this matter, notwithstanding there is little documentation provided in support of the successful claims, it is put as a criticism of the plaintiff's claim whereas in fact it is supported by the settlement instructions as to applications of the monies but is not inconsistent with a whole course of action dealing with a very large amount of money. 51 It has not been put, on behalf of the plaintiff, that in fact he lent, without documentation, additional monies to Aliperti to assist him when asked, he thus been fairly close to Aliperti in that respect. The whole of the Report, including the material dealing with the income tax returns is slanted against the plaintiff. The Report in fact indeed suggests that the question of further investigation may arise but then proposed on the evidence available, dishonesty cannot be found. The argument about income tax puts the plaintiff, as though he were a sophisticated business man with an understanding of income tax, ignoring the fact that as a matter of common sense most people who do not receive interest, don't show it as been paid and pay tax on it, irrespective of the law. 52 The Report of Ann Siddons similarly is slanted very strongly against the plaintiff, it being remembered both of these solicitors are not independent solicitors but solicitors for the Fund. That is not to reflect on the character of either but it is simply to note the fact that subconsciously they will react with a different perception to persons who are completely independent. Again Anne Siddons said that there is concern regarding the income tax issue, ascribing to the plaintiff a level of sophistication that is not available on the documents. 53 In my view, the whole of the evidence before the Management Committee is overwhelming and is capable of satisfying a Court or a jury to a criminal standard. The inferences that ought to be drawn show a overwhelming case in favour of the solicitor being found dishonest and in my view the Committee failed to take into account the findings of the Legal Services Tribunal and failed to give proper weight to the unchallenged plaintiffs evidence which is part corroborated by the solicitor's directions as to payment of cheques on settlement. 54 I reject the argument put in terms of Eschetu of the Chief Justice as being an authority against the use of Wednesbury Unreasonableness. They are but two of the seven Judges that heard that matter and in my view with respect, quite correctly at p628 of the Report said it was not a case of Wednesday Unreasonableness, and that case demonstrated a number of competing factors the Tribunal had to weigh up. Here all the evidence is in fact very strongly one way and in my view come within the criteria contemplated as Wednesbury unreasonableness. I consider the Law Society Committee ignored relevant matters and failed to take into account relevant matters. I further find that there was a clear denial of natural justice in a failure to make available to the plaintiff the very slanted Reports put in by the two solicitors and the legal advice tendered does not fairly put the argument objectively for the plaintiff. 55 An argument which is prejudicial to the plaintiff that the amount of interest might be very large if calculated at the proposed twenty percent, is a misunderstanding of what occurred. Aliperti clearly obtained the funds on a promise of setting up a mortgage arrangement. He did not assert that he would pay the twenty percent. There is therefore no evidence of any mortgage contract coming into existence which attracts interest at the very high rate, That was just simply the story that Aliperti put, as is common in such matters, to attract the handing over of the monies. The monies once handed over do not attract a high interest rate, since clearly the debt owing at that time is the amount misappropriated of $287,000, and only with such interest as maybe determined under the Act. 56 I consider that the plaintiff has been denied procedural fairness and clearly no determination should be made unless all of the material to be put before the Committee, is made available for comment or counter-argument by the plaintiff. That leaves aside questions of privilege in the determination of legal advice, but the argument clearly were put by the two solicitors involved were as arguments designed to thoroughly influence the Committee and the plaintiff was deprived of his procedural fairness, no been able to answer them.

57 With respect, I agree with the determination of Bell J in Barber v Law Society of New South Wales [2000] NSWSC 1164 as set out in paragraph 43: "Bearing in mind the principles of construction to which I have made reference in paragraphs 19 & 20 (to which might be added the statement of Mason P in Water Administration Corporation v Puntoriero (unreported) NSWCA 21 November 1997, "A Provision exempting or limiting liability in respect of the exercise of a statutory function is to be construed narrowly against the interests of the relevant authority: Board of Fire Commissioners (NSW) v Ardouin (1961) 109 CLR 105 at 116)" I consider there is force to the submissions advanced by Mr Higgs as to why the opening words of s90D(1) should not be read to include proceedings by way of judicial review. To which may be added the consideration that prior to the introduction of s90D into the Act the use of a provisions couched in terms that "no action…. Shall lie…." Had been held not to exclude the granting of declaratory relief" 58 Her Honour reviewed the authorities at paragraphs 19-42, and as Her Honour set out in paragraphs 44 and 45 (page 7): "To my mind the terms of s 90D(1) do not evince a clear and unambiguous intention to oust the jurisdiction of this Court to entertain proceedings by way of judicial review in respect of determinations made by the Society pursuant to Part 7 Division 3 of the Act relating to the Fund. I consider that I have jurisdiction to entertain the plaintiff's proceedings as pleaded in his further amended summons".

59 I agree and consider I also have that power. 60 I consider therefore that for the reasons that I have set out, that the decision of the Law Society made on 22 February 2001 is invalid and of no effect, and that the determinations of the Law Society should be set aside, and that the plaintiff's original claim dated 16 June 1993 should be remitted to the Law Society for further consideration according to law. 61 I grant the parties liberty to formulate appropriate forms of order to embody the determinations that I have made. oOo

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