Jacups v Council of the Law Society of New South Wales

JUDGMENT

1. MEAGHER JA: By a summons filed on 25 June 2021, the appellant (Mr Jacups) appealed to the Supreme Court under Legal Profession Uniform Law (NSW) (Uniform Law), s 247 from the decision of the Fidelity Fund Management Committee as delegate of the Law Society of New South Wales (the FF Committee) wholly disallowing his claim on the Legal Practitioners Fidelity Fund under s 233 of the Uniform Law. The latter section confers a right upon a person who suffers "pecuniary loss as a result of a default by a law practice" to make a claim against the fidelity fund. Mr Jacups' claim related to conduct of his former solicitor, Mr Douglas Knaggs, in 2003 and 2004. Mr Knaggs died in 2016, well before Mr Jacups' claim on the fund was first made in 2020.
2. That claim had two parts. The first was in respect of funds said to have been "obtained by and delivered to the solicitor" totalling $79,900. The second was for "loss arising from… misconduct" and particularised as "loss of [Mr Jacups'] equity of redemption in the Govetts Leap residence" ($750,000), "loss of furniture, professional music equipment including his scoresheets, instruments and paintings" ($200,000) and "consequential loss of earnings" ($80,000), a total of $1,030,000. The residence was on a property at Blackheath and the personal items were, at one time, to be found in that residence.
3. The primary judge (Griffiths AJ) proceeded upon the correct basis that the appeal under s 247 was by way of a de novo hearing, in which in the discretion of the Court the parties were able to adduce additional evidence to that before the FF Committee, and in which the Court would determine for itself what was the correct decision, having regard to the evidence before it (J[113]). As was observed by Bell, Gageler and Keane JJ in Legal Services Board v Gillespie-Jones (2013) 249 CLR 493; [2013] HCA 35 at [111] in relation to the equivalent provisions in s 3.6.23 of the Legal Profession Act 2004 (Vic), the "appeal is by way of a new hearing: the court has jurisdiction to review the merits of the Board's decision and to affirm, vary or set aside the decision of the Board and to make a new decision in substitution".
4. His Honour ordered that Mr Jacups' summons be dismissed, making no order as to costs (Jacups v The Fidelity Fund Management Committee of the Law of Society of NSW (No 2) [2022] NSWSC 1375). Mr Jacups appeals from that order under Supreme Court Act 1970 (NSW), s 101. There are seven grounds of appeal in his amended notice of appeal filed on 3 February 2023. Those grounds fall to be dealt with in the following circumstances, some of which are contested in the appeal. That notice names the FF Committee and Council of the Society as separate respondents, whereas in fact the former is a committee and delegate of the latter. For that reason, an order will be made that the FF Committee be removed as a respondent, leaving the Council as the only respondent to the appeal.

Circumstances in which the claim on the fidelity fund was made

1. The alleged defaults by Mr Knaggs occurred between 2003 and 2004. From 1996, Mr Jacups was involved in litigation in various courts, including in the Family Court, against his former de facto partner Ms Tesoriero. She was represented by the law firm Barkus Edwards Doolan (BED). Following the settlement of a dispute over property interests, Mr Jacups retained ownership of the property at Blackheath. In the course of the litigation, a number of costs orders were made against Mr Jacups and in favour of Ms Tesoriero. Those costs orders were not satisfied. Writs of execution were issued in respect of the Blackheath property, and two of those writs were renewed on 9 April 2001 and expired on 23 March 2002. Copies of those writs had been served on the Registrar-General as provided by Real Property Act 1900 (NSW), s 105 and recorded in the Register.
2. On 19 November 2001, the Family Court made an order restraining Mr Jacups from selling the Blackheath property until various outstanding costs orders were satisfied. Ms Tesoriero was also appointed trustee for sale of that property, with the proceeds to be applied, after discharge of a mortgage and payment of costs associated with the sale and conveyance, to satisfy at least five costs orders made in her favour. Mr James Richardson, solicitor, was nominated to act for Ms Tesoriero as trustee.
3. In early 2003, BED acting for Ms Tesoriero brought proceedings for possession of the Blackheath property. Mr Knaggs commenced acting for Mr Jacups in relation to those proceedings around this time. On 4 March 2003, the Family Court ordered that a writ of possession issue, but remain in the Registry. On 13 March 2003, a further order was made for the execution of the writ, which happened on 21 March 2003.
4. Mr Jacups vacated the premises, but left goods and chattels which he owned in the residence. Those items are part of the subject-matter of Mr Jacups' claim for consequential loss said to arise from Mr Knaggs' alleged misconduct (see [2] above). On 2 April 2003, Mr Richardson requested that BED seek instructions from Ms Tesoriero to apply to the Family Court for an order for the "disposal" of the items left at the property. On 14 April, an application seeking such an order was filed in the Family Court on behalf of Ms Tesoriero and BED. That application was returnable on 28 April 2003. Earlier, Mr Knaggs had written to Mr Richardson on 10 April advising that an officer of St George Bank had informed him that a loan had been approved up to 65% of the value of the Blackheath property, and that the undertaking of a valuation was being prevented by Mr Richardson and BED.
5. In response to Ms Tesoriero's application, Mr Jacups swore an affidavit on 22 April 2003 in support of a "6 weeks' stay" of the further execution of the Writ of Possession. That stay application was to be heard on 28 April 2003. The affidavit referred to Mr Knaggs' letter of 10 April to Mr Richardson, in which it was also said that the loan sought from St George Bank would "easily support" the amount needed to pay the costs claimed by BED, Mr Knaggs' costs, the costs of the proposed new mortgage and the existing mortgage debt. The affidavit also asserted that no response had been received to Mr Knaggs' letter other than the notice of motion filed on 14 April 2003. Finally, Mr Jacups' affidavit explained that he had not removed all of his possessions from the property because he was "waiting to see" whether he could obtain a "stay of enforcement order as applied for to the Full Court (set down for hearing 29 May 2003) and to the High Court"; and noted that he had instructed Mr Knaggs "to expedite those stay applications".
6. There are in evidence before this Court copies of two "bench sheets" of the Family Court for 28 April 2003. Those records were not in evidence before the primary judge. The first in time indicates that the proceedings were mentioned before the Registrar on three occasions during that day. On each occasion, Mr Barkus of BED appeared for Ms Tesoriero, and Mr Knaggs for Mr Jacups. The outcome of those mentions, none of which lasted for more than eight minutes, was that the Registrar made an order giving leave to both parties to "approach the List Manager and request 2 hours hearing time before a Judge as soon as possible". The second bench sheet records that such leave was exercised and that an "enforcement" matter was listed for hearing on 10 July 2003 with an estimated length of hearing of two hours.
7. There was an issue as to whether the Family Court made any other orders on 28 April 2003. In support of that being the position, Mr Jacups relied upon a copy of a document titled "Consent Orders" for a "Hearing date: 28 April 2003". The copy of that document in evidence bears a stamp (as part of the copy) of the Family Court indicating that it was filed on that day in the Court's Sydney Registry. The footer of the document shows that it was prepared in Mr Knaggs' office. The document names Mr Jacups as applicant, Ms Tesoriero and BED as respondents, and describes Mr Knaggs as "Solicitor for the Applicant for Stay of Enforcement". It is not signed by Mr Knaggs or any representatives of Ms Tesoriero or BED, although it provides for that to occur.
8. The proposed consent orders include: (1) The Respondents and James Richardson, the agent of the Second Respondent, give immediate access of the property to the applicant for the sole purpose of inspection by a valuer nominated by the applicant's proposed lender, St. George Bank. … (3) So long as the applicant is not in breach of these orders the personal property and effects of the applicant may remain in the property until 9 June 2003 or further orders of the Court and shall not in the meantime be disturbed by the respondents. (4) The applicant shall by 11 May 2003 produce to the Respondents as a condition of the making by the Court of these orders, a written approval of a loan of not less than $100,000 by St. George Bank or other lender by 18 May 2003. (5) Upon the settlement of loan upon a successful loan application by the applicant, all funds shall be directed to the payment (subject to paying out any existing mortgages or charges on the property) [of] the costs as directed in the orders of this court dated 17 March 2003. (6) So long as the applicant is not in breach of these orders the Respondents and the Trustee shall not list the property for sale, or proceed with exchange of any contract for sale or take any other action towards a sale of the property pursuant to the court's orders of 13 March 2003, before 9 June 2003. …
9. There is also a question as to the "orders" intended to be referred to in "proposed" order 5 above, which are described as "dated 17 March 2003". It is common ground that there were no relevant orders made by the Family Court on that date. The most recent relevant orders of the Family Court were those made with respect to the Writ of Possession on 4 March and 13 March 2003.
10. There is also in evidence before this Court (but not before the primary judge) a recent email exchange between the solicitor currently acting for Mr Jacups and the Sydney Registry of the Family Court. In response to a request for sealed copies of any orders made by the Family Court on 13 March 2003 and 28 April 2003, the Registry advised that it "has been unable to locate a sealed Order made on 28 April 2003… However, we have located 2 x bench sheets for 28 April 2023 [sic] which are attached."
11. On 15 May 2003, Mr Knaggs issued a costs invoice in relation to work undertaken for Mr Jacups with respect to three matters. They were: "acting on hearing of Writ of Possession application by Tesoriero/Barkus Edwards on 4 March 2003"; "Drawing Application for Writ of Prohibition in High Court and filing"; and "acting on St George Bank advance". The footer of the copy of that document in evidence ends "\150503.doc". The invoice was for $9,900. It does not expressly refer to Mr Jacups. There is a question as to whether Mr Knaggs provided a copy of that invoice to Mr Jacups before 2 June 2003. As will become apparent, it is not necessary to resolve that question.
12. Three days later, on 18 May 2003, Mr Jacups prepared a handwritten note directed to Mr Knaggs. The note has two parts. The first concludes with Mr Jacups' signature and date (which includes his not invariable practice of using Roman numerals to denote the month). The second concerns "cheques at settlement": Payment to: Douglas Knaggs solicitor [Mr Knaggs' address] RE: $195 Dollars being for payment to Land Titles Dpt to lift: Writs x 2 Barkus Edwards : Court Orders of G Jacups thanks Douglas for doing this Graham Jacups 18/V/03 Re: cheques at settlement I suggest 1- for you Douglas 2- the balance into my mortgage with St George Bank as a re-draw facility
13. There is a 'controversy' as to what "settlement" is referred to. Counsel for Mr Jacups submitted that it refers to a settlement of "the debt", being Mr Jacups' outstanding costs liabilities to Ms Tesoriero and BED. The relevant context at the time of this note included that Mr Jacups had applied to St George Bank for a loan for the purposes referred to in his affidavit of 22 April 2003 (see [9] above). The notes which follow "settlement" suggest an event involving the receipt and disbursement of money on the making of such a loan. An event answering that description subsequently occurred, albeit with one exception, being that the balance of the amount received was to be paid into Mr Knaggs' trust account.
14. On 27 May 2003, the bank formally offered to advance $80,000 to Mr Jacups, secured by a mortgage over the Blackheath property. That offer was accepted in writing on 2 June 2003. On 3 June 2023, the net proceeds of that loan ($79,258) were deposited into Mr Jacups' St George Bank account. Those proceeds were used by Mr Jacups to purchase two bank cheques and his account was debited with the amounts of those cheques. One bank cheque was for $9,900 and drawn in favour of "Douglas Knaggs". The other for $70,000 was drawn in favour of "Douglas Knaggs' Trust Account".
15. Between 1 July 2003 and 7 July 2004, the amount in that trust account was paid away, leaving a nil balance as at 7 July 2004. The amounts of payments debited to the trust account in this period are set out by the primary judge in the following table, which appears at J[123]: Date Amount Balance Note 13/6/2003 $70,000.00 $70,000.00 Bank cheque deposited 1/7/2003 -$2,000.00 $68,000.00 Payment for Knaggs' fees 16/12/2003 -$3,000.00 $65,000.00 Payment to BED legal costs 16/12/2003 -$11,442.94 $53,557.06 Child support payment 2/2/2004 -$7,000.00 $46,557.06 Payment to Jacups and for Knaggs' fees 3/3/2004 -$2,500.00 $44,057.06 Payment to BED legal costs 10/05/2004 -$2,900.00 $41,157.06 Payment to BED legal costs 28/05/2004-2/06/2004 -$40,100.00 $1,057.06 Payment for Knaggs' fees 2/06/2004 -$400.00 $657.06 Graham Veitch valuer 7/6/2004-7/7/2004 -$657.06 $ - Payment of Knaggs' fees

1. The primary judge found that each of those nine payments out of the account were made with the instructions or authority of Mr Jacups, and that none involved any failure to pay or deliver which constituted a "default" (J[122]).
2. The first such payment of $2,000 was made to Mr Knaggs for legal fees incurred up to 1 June 2003. Mr Jacups' signature on a document dated 1 July 2003 purporting to acknowledge that payment was said to be a forgery. There are two other documents which Mr Jacups says he did not sign. They relate to the payment of $7,000 on 2 February 2004 and the payment of $40,100 in the period from 28 May to 2 June 2004. His Honour's findings in relation to the payment of those three amounts are the subject of challenge by grounds of appeal 4(f) and 6.
3. On 10 July 2003, Mr Knaggs and Mr Jacups signed undertakings to Ms Tesoriero and the Family Court. That was the date fixed on 28 April 2003 for the further "enforcement" hearing. Mr Knaggs undertook that he would "not withdraw from the present balance held for Mr Jacups in my trust account namely $68,000 without the consent of the wife or further order of the Court". Immediately below that undertaking, Mr Jacups agreed that he would not "seek to instruct Mr Knaggs, my Solicitor, to act in any way contrary to the above undertaking". The authenticity of this signature of Mr Jacups is not questioned. At the time that undertaking was given, the balance in the account was $68,000.
4. In October 2003, the Blackheath property was offered for sale, and was sold by auction on 13 December 2003. The settlement of that sale occurred on 21 May 2004. The payment of the proceeds of that sale to BED and Ms Tesoriero in accordance with the orders of 19 November 2001 resulted in a claimed shortfall of $13,076.77 in the amount outstanding to them. By letter dated 28 May 2004, BED requested a payment from Mr Knaggs' trust account in that amount. Mr Knaggs disputed Ms Tesoriero's entitlement to payment of any amount from the trust account on the basis that by an earlier exchange of correspondence between 2 January and 2 February 2004, it had been agreed by BED and Ms Tesoriero that on the settlement of the sale, the balance of the funds in Mr Knaggs' trust account would be released to Mr Jacups. Ultimately, BED and Ms Tesoriero did not contest the existence of that agreement. However, on 9 August 2004, Mr Knaggs made an inquiry which was referred to the Law Society of New South Wales' Ethics Department. In his subsequent letter to BED of 12 August 2004, Mr Knaggs maintained that in accordance with their arrangement he had "fully disbursed my Trust Account according to the directions of Mr Jacups". The Law Society's later inquiries of BED confirmed that no further claim was made by BED to money in that account.

Grounds of appeal

1. There are seven grounds of appeal. The respondent justifiably submits that each of grounds 2 and 5 is without foundation.
2. Ground 2 is that the primary judge "erred in failing to conduct a hearing de novo". That is plainly not the case, as his Honour's reasons at J[111]-[118] show.
3. Ground 5 is that his Honour erred in holding there was no failure to account that falls within ss 79A(1) and (2) of the Legal Profession Act 1987 (NSW). There was no such error. These provisions did not apply to Mr Jacups' claim for the reasons explained by the primary judge at J[3] and [6]-[12]. The relevant provisions were ss 129(1), 219, 233 and 241 of the Uniform Law. The critical expressions "default" and "pecuniary loss" are defined in s 219 and dealt with by the primary judge at J[16]-[26].
4. For the same reasons, ground 3(e) is without foundation. It is that the primary judge also erred in not finding that Mr Knaggs failed to comply with Legal Profession Act 1987, s 61.
5. Ground 3(d) is not pressed. As the primary judge held, the issue of "default" turned on whether there had been a failure to pay or deliver trust money, not whether that trust money answered the description of "controlled money" (J[121]).
6. Grounds 3(f) and (g) are not directed to factual or legal issues which are raised in the appeal. Ground 3(f) maintains that a Law Society investigator erred in failing to treat the moneys held by Mr Knaggs as subject to a duty of account; and ground 3(g) is that Mr Knaggs gave wrong information and advice to Mr Jacups concerning the filing of proceedings in the High Court. The primary judge made no relevant findings about either of these subjects.
7. Grounds 1 and 3(c) are directed to Mr Jacups' claim to recover $1,030,000 from the fund. They are dealt with immediately below.
8. The remaining grounds 3(a), (b), 4, 6 and 7 are directed to Mr Jacups' claims in respect of the disbursement of the net proceeds of the St George Bank loan, namely $79,900. These grounds are also dealt with below.

The claim for $1,030,000 as consequential loss (grounds 1 and 3(c))

Uniform Law, ss 129(1), 219, 233, 241

1. As the primary judge held (J[26]), the maximum amount payable from the fidelity fund (excluding costs and interest payable under ss 242 and 243 of the Uniform Law) in respect of a "default" by a law practice in relation to "trust money" must not exceed the "pecuniary loss" resulting from that default (s 241(1)).
2. For the purposes of the Uniform Law, the expression "trust money" is defined as "money entrusted to a law practice in the course of or in connection with the provision of legal services by the law practice" (s 129(1)). There follow in ss 129(1)(a)-(d) descriptions of circumstances in which money received is taken to be "trust money"; and in ss 129(2)(a)-(f) descriptions of circumstances in which money received is taken not to be "trust money".
3. The exhaustive definitions of "default" and "pecuniary loss, in relation to a default" are set out in s 219: default means - (a) in relation to trust money or trust property received by a law practice in the course of legal practice by the law practice - a failure of the law practice to pay or deliver the trust money or trust property, where the failure arises from an act or omission of an associate that involves fraud or other dishonesty; or (b) in relation to trust property received by a law practice in the course of legal practice by the law practice - a fraudulent dealing with the trust property, where the fraudulent dealing arises from or is constituted by an act or omission of an associate that involves fraud or other dishonesty; … pecuniary loss, in relation to a default, means - (a) the amount of trust money, or the value of trust property, that is not paid or delivered; or (b) the amount of money that a person loses or is deprived of, or the loss of value of trust property, as a result of a fraudulent dealing; …
4. Addressing first the definition of "default", a failure to pay or deliver trust money or trust property, where the failure arises from any act or omission involving fraud or other dishonesty is a "default" under par (a). In relation to par (b) of that definition, the "default" is a fraudulent dealing with trust property, where the dealing arises from or is constituted by an act or omission involving fraud or other dishonesty. Under each limb of this definition, trust money or trust property must be "received by a law practice in the course of legal practice by the law practice". Accordingly, the subject-matter of a "default" under par (a) is either trust money or trust property. The subject-matter of a "default" under par (b) is only trust property.
5. Turning to the definition of "pecuniary loss", pars (a) and (b) describe such loss by reference to whether the "default" is a failure to pay or deliver trust money or trust property in the case of par (a); or a fraudulent dealing with trust property in the case of par (b). The reference in par (b) to the "the amount of money that a person loses or is deprived of" is to money lost as a result of a fraudulent dealing with trust property. It is not a reference to trust money or money lost as a result of a failure to pay or deliver trust money.
6. Thus, par (a) of the definition of "pecuniary loss" addresses the subject-matter of par (a) of the definition of "default", and the same applies to par (b) of each definition; with the result that where a claim is made in respect of a failure to pay or deliver trust money within par (a) of the definition of "default", the pecuniary loss in relation to that default is only as described in par (a) of the definition of "pecuniary loss". Section 241(1) provides that the amount payable "in respect of a default must not exceed the pecuniary loss resulting from the default".
7. Accordingly, where, as in this case, a client of a law practice claims an amount from the fidelity fund in respect of a failure of that law practice to pay or deliver trust money in accordance with that person's instructions, the maximum amount payable from the fund in respect of the default is the amount of the trust money not paid or delivered.

Disposition of grounds 1 and 3(c)

1. By ground 3(c) and the last part of ground 1, it is contended that the primary judge erred in rejecting Mr Jacups' claim against the fidelity fund for compensation in respect of alleged breaches of fiduciary duty by Mr Knaggs.
2. Mr Jacups' claim for losses said to total $1,030,000 is not a claim in respect of "trust property" having that value received by Mr Knaggs and the subject of a fraudulent dealing. Accordingly, it is not a "default" within par (b) of that term as defined. Rather, Mr Jacups' claim is that Mr Knaggs received "trust money" in the amount of $79,900, which he then failed to pay or deliver in accordance with the trusts on which he held that money. As a result of Mr Knaggs' failure to pay or deliver this "trust money", Mr Jacups claims to have suffered consequential losses totalling $1,030,000.
3. In the language of counsel for Mr Jacups, this claim was for consequential loss as follows: … because instructions to pay the former wife, Ms Tesoriero, the costs, her costs, and to release the residential property that Mr Jacups and his invalid son were living in the Blue Mountains [were not complied with, a] breach or… failure to follow, pay or deliver occurred, [resulting in the loss of] the house, he lost his tools of trade.
4. Any such losses were not "pecuniary loss" in relation to the alleged "default" in not paying or delivering the proceeds of the loan to Ms Tesoriero or BED. The loss recoverable for that alleged default was limited to $79,900, the amount of the alleged trust money.
5. To the extent that Mr Jacups made such a claim, the FF Committee rejected it as being for "consequential losses in the nature of damages, not money or property received by Mr Knaggs for which there was a failure to account". Although no such claim was pressed in Mr Jacups' appeal before the primary judge, his written submissions sought an award of equitable compensation of $1,030,000 for breaches of fiduciary duty by Mr Knaggs. The primary judge rejected that claim, noting that the Supreme Court's jurisdiction was limited to hearing and determining an appeal under Uniform Law, s 247, which was relevantly concerned with "pecuniary loss" in relation to a failure of the law practice to pay or deliver trust money (J[23], [26] and [125]-[127]).
6. The primary judge correctly rejected this part of Mr Jacups' claim for that reason. It follows that these grounds must be rejected.

The claim for $79,900 as trust money not paid or delivered as instructed (grounds 3(a), (b), 4 and 6)

Overview

1. The remaining claim concerns the amount of $79,900, the sum of the two bank cheques. Mr Jacups' case was that the whole of this amount was to be paid in satisfaction of costs orders of the Family Court, which were (or were intended to be) the subject of consent order 5 (see [12] above). As at 26 July 2002, those costs orders together with interest were said by BED to require a total payment of $70,852. Those orders included the five orders made between September 1997 and August 2001 referred to in the order for the sale of the Blackheath property made on 19 November 2001. By April 2003, at least two further costs orders had been made in favour of Ms Tesoriero with the consequence that the outstanding costs orders at that time were likely to have exceeded $80,000.
2. In argument before this Court, it was accepted that to establish a "failure to pay or deliver trust money", it was necessary "to establish non-compliance with an instruction to pay or deliver trust money to another person", as the plurality (French CJ, Hayne, Crennan and Kiefel JJ) explained in Legal Services Board v Gillespie-Jones at [16]. It was submitted by counsel for Mr Jacups that he had given an instruction to Mr Knaggs that both cheques were entrusted to him to be applied in payment of the unsatisfied costs orders.
3. The primary judge found that the $9,900 was not paid to Mr Knaggs to be held and applied in accordance with any instruction of Mr Jacups. It was not "trust money" because the bank cheque was delivered in satisfaction of the liability claimed by Mr Knaggs' invoice dated 15 May 2003 (J[53]-[57]).
4. The primary judge also found, it not being controversial between the parties, that the second bank cheque for $70,000 was to be deposited into Mr Knaggs' trust account, and accordingly was "trust money" within the definition of that term in the opening words of s 129(1) (J[59]). However, his Honour found that those funds were not subject to any overarching instruction or Family Court order that they be paid in satisfaction of Ms Tesoriero's costs orders. They were to be disbursed and were paid away in accordance with Mr Jacups' instructions.
5. Each of these findings is challenged.
6. Accordingly, the following questions arise in respect of the moneys paid to Mr Knaggs: (1) was the amount of $9,900 "trust money"; (2) if so, was the use of that money subject to an order of the Family Court or instruction from Mr Jacups that it be paid in satisfaction of costs orders in favour of Ms Tesoriero; (3) was the use of the amount of $70,000 subject to an order of the Family Court or instruction from Mr Jacups, in either case in the same terms; (4) if not, was that amount disbursed by Mr Knaggs in accordance with Mr Jacups' instructions?

Was the amount of $9,900 trust money?

1. The primary judge found at J[57] and [120] that it was more probable than not that the payment of $9,900 was made "in response to [Mr Knaggs'] invoice dated 15 May 2003". That this was to be understood as a finding that Mr Jacups had received a copy of Mr Knaggs' costs invoice before he received payment of this amount on about 3 June 2003 is made plain by the first sentence of J[58], which holds that s 129(2)(a) was satisfied so that the money received was "not trust money" for the purposes of the Uniform Law. Section 129(2)(a) provides that "money received by a law practice for legal services that have been provided and in respect of which a bill has been given to the client" is not trust money for the purposes of the Uniform Law.
2. Mr Jacups challenges this finding. According to his evidence, the invoice was not seen by him until sometime in 2009 when a copy was given to him by a Law Society investigator. The primary judge did not accept that evidence in the face of the contemporaneous documents and probabilities (J[53]-[57]).
3. It was not necessary for the primary judge to rely upon s 129(2)(a) to justify his conclusion that the $9,900 was not trust money.
4. Mr Knaggs' invoice is dated 15 May and was followed by Mr Jacups' note of 18 May (reproduced at [16] above). The first part of that note, as the respondent submits, is most likely a reference to the making of an application under Real Property Act, s 105D to cancel the record of the two writs of execution on the title to the Blackheath property. By this time, those writs had expired. The reference to a payment of $195 to "Land Titles Dpt" to lift "writs x 2 Barkus Edwards" is wholly consistent with Mr Knaggs having made such an application to the Department and incurred such a payment. The words which follow, "thanks Douglas for doing this", acknowledge his having done so.
5. The second part of the note is concerned with the disbursement of an amount to be received by Mr Jacups. The note proposed that an unspecified amount be paid to Mr Knaggs and that the "balance" be paid into an account of Mr Jacups. The bank cheque drawn in favour of Mr Knaggs answers the former description. Each of the bank cheques was purchased using funds from Mr Jacups' bank account. An amount of $79,258 was credited to that account on 3 June 2003. As the primary judge found (J[57]), Mr Jacups must have been involved in the withdrawal of $9,900 from that account to fund the purchase of the bank cheque in favour of Mr Knaggs. The fact that the cheque was for the same amount as Mr Knaggs' costs invoice made it likely that Mr Jacups would have authorised the withdrawals, knowing that the purpose of the first cheque was to pay outstanding costs of Mr Knaggs in the amount of $9,900. It follows that the purchase and delivery of the bank cheque to Mr Knaggs was not a payment of moneys which were to be held on trust. That is so, irrespective of whether Mr Jacups had seen or received a copy of the costs invoice. Nevertheless, the invoice having been prepared, the probabilities were that more likely than not it was provided to Mr Jacups in the context of Mr Knaggs acting for him in relation to the loan from the bank. His Honour did not err in so finding. It follows that the amount of $9,900 was not "trust money" for the purposes of the Uniform Law.

Were the amounts of $9,900 and $70,000 paid to Mr Knaggs with instructions that they be applied to pay costs orders in favour of Ms Tesoriero?

1. It was found by the FF Committee that the amount of $70,000 was held on trust by Mr Knaggs to be paid away in accordance with Mr Jacups' instructions. Mr Jacups did not accept that conclusion, maintaining that this amount and the amount of $9,900 were paid to Mr Knaggs to be applied in satisfaction of the outstanding costs orders. Before this Court, it was contended that the primary judge erred in not so holding. It was said that orders to that effect had been made by the Family Court on 28 April 2003 and that Mr Jacups had given those instructions to Mr Knaggs before the payments were made on 3 June 2003.
2. The respondent's position before his Honour was that there had been no orders in terms of the "Consent Orders" made by the Family Court on 28 April 2003. However, it did not also contend that there was not at that time any agreement between the parties in the terms of those orders. The primary judge did not find that the or any consent orders were made. His Honour did, however, find or accept that the document recording the proposed orders evidenced an agreement that was conditional upon Mr Jacups producing by 11 May 2003 a written approval of a loan for not less than $100,000. In that event, the proceeds of that loan were to be applied in accordance with proposed order 5, which was that "upon settlement of the loan" the funds should be directed to the payment of the costs identified in "the orders of this court dated 17 March 2003". As that condition had not been satisfied, there was no binding obligation on Mr Jacups in the terms of that proposed order. The primary judge's conclusion to that effect meant that it was not necessary to resolve the difficulty as to whether the agreement was void.
3. In the appeal to this Court, the respondent's position was that no consent orders were made and that the "Consent Orders" did not evidence any agreement between the parties. If there was such an agreement, three further submissions were made. First, the condition upon which it was to become operative was not satisfied. Secondly, any agreement as to the use of the borrowed funds was void for uncertainty because the costs orders to be satisfied could not be identified. Finally, and more fundamentally, it was said that the terms on which moneys were paid to and held by Mr Knaggs depended upon his dealings with and instructions received from Mr Jacups.
4. Turning first to whether the consent orders were made, the copy of the document in evidence is stamped as filed, but is not signed by the parties and not sealed as constituting an order of the Court. Nor do the Court's records indicate that any such orders were made. The two bench sheets show that the only relevant order made on 28 April 2003 was that the parties have leave to obtain a further hearing date. This evidence overwhelmingly justifies a finding that consent orders were not made.
5. The remaining question is whether there was any agreement in the terms of those proposed orders. The events of 28 April 2003 and subsequently are not consistent with the parties having reached any agreement in the terms of the consent orders on that day. First, at the conclusion of the third mention on 28 April 2003, a July 2003 date was given for the hearing of an "enforcement" matter. Ms Tesoriero's application answered that description. Had the parties reached agreement, there would have been no reason to request that hearing date because that application would have been dismissed with costs as provided by orders 8 and 9. Secondly, Mr Jacups' handwritten note of 18 May 2003 is not consistent with his then believing that orders made on 28 April 2003 required that the loan funds be applied to discharge his obligations under the costs orders. Thirdly, order 6 contemplated that Mr Jacups would satisfy the outstanding costs orders before 9 June 2003. That he would have agreed to do so was inconsistent with his conduct after 28 April 2003 in persisting with his applications for a stay of enforcement of those costs orders, both before the Full Court of the Family Court and in the High Court, as foreshadowed in his affidavit of 22 April 2003.
6. There remains Mr Jacups' submission that he had given instructions to Mr Knaggs that the proceeds of the loan were to be held and applied in discharge of his costs liabilities. The following documents were relied on as supporting such a finding: BED's letter of 29 July 2002 identifying Mr Jacups' outstanding costs liability on 26 July 2002 as being $79,862; orders for the issue and enforcement of the writ of possession made on 4 or 13 March 2003; Mr Knaggs' letter to Mr Richardson dated 10 April 2003; Mr Jacups' affidavit of 22 April 2003; the proposed "Consent Orders"; Mr Knaggs' invoice of 15 May 2003; the St George Bank loan offer dated 27 May 2003; the bank statements showing the deposit of the loan proceeds into Mr Jacups' account; the bank cheques for $9,900; and Mr Knaggs' handwritten trust ledger. With the exception of this trust ledger, which is sufficiently dealt with by the primary judge at J[58], the effect of each of these documents is stated in the narrative at [6]-[17] above. None record or describe the giving of any such instructions.
7. In oral argument, counsel submitted that these documents were "consistent with our case that Mr Knaggs had written instructions upon receipt of those funds to pay the wife those moneys". The written instructions were said to be those in Mr Jacups' handwritten note of 18 May 2003 (extracted at [16] above and dealt with at [54]).
8. That any such instruction was given to Mr Knaggs in relation to the proceeds of the loan funds was inconsistent with their disbursement as suggested in Mr Jacups' note of 18 May 2003. It was also inconsistent with Mr Jacups' subsequent acknowledgement on 10 July 2003 that the funds in the trust account could be applied for his benefit or at his direction with the consent of Ms Tesoriero or an order of the Court.
9. For these reasons, the primary judge did not err in finding that the $9,900 was not "trust money", and that, although the $70,000 was "trust money", it was not subject to any overarching agreement, or instruction to Mr Knaggs, that the whole of the proceeds of the loan or the moneys deposited into the trust account were to be applied in payment of outstanding costs orders in favour of Ms Tesoriero.

Was the amount of $70,000 disbursed in accordance with Mr Jacups' instructions?

1. The payments made from the trust account between 1 July 2003 and 7 July 2004 are summarised at [19] above. As the respondent contends, Mr Jacups' submissions do not engage with his Honour's reasoning for concluding that each of those payments, with the exception of those made on 1 July 2003 ($2,000), 2 February 2004 ($7,000) and between 28 May and 2 June 2004 ($40,100), were authorised by him.
2. The payment made on 1 July 2003 was purportedly authorised by a handwritten note of Mr Knaggs which includes a signature purporting to be that of Mr Jacups and dated "1/VII/03". Mr Jacups denied signing that note. The primary judge found that it was more probable than not that the signature on this document was that of Mr Jacups, especially in the absence of any expert evidence that it was a forgery (J[98]). His Honour was justified in not accepting Mr Jacups' evidence to that effect. On 10 July 2003, he had signed the undertaking referred to in [22] above. His signature on that document was not challenged. As his Honour observed, at the time that undertaking was given, Mr Jacups "must have been aware that $2,000 had been withdrawn from the original amount of $70,000 to give a present balance of $68,000 as referred to in the undertakings" (J[122(1)]). His signing that undertaking was wholly consistent with his having authorised the payment of $2,000. The primary judge did not err in so reasoning. Accordingly, grounds 4(f) and (g) should be rejected.
3. The primary judge found that on 2 February 2004, Mr Knaggs received a payment of $3,000 on account of unpaid fees from Mr Jacups. The circumstances in which that occurred were as follows.
4. On 22 January 2004, in the context of the "upcoming settlement date" for sale of the Blackheath property, BED sought Mr Jacups' consent in advance to the payment from the proceeds of sale of $11,661.90 on account of their client's costs in the High Court. By his letter of 28 January 2004, Mr Knaggs responded saying that his client would agree to the retention of that amount provided Mr Knaggs could "immediately disburse to Mr Jacups or as he may direct, $7,000.00 from the balance held for him in my trust account". By their letter of 29 January 2004, BED agreed to that proposal.
5. On 2 February 2004, $7,000 was withdrawn from the trust account, $4,000 paid to Mr Jacups and $3,000 retained by Mr Knaggs on account of fees for which Mr Knaggs submitted an account on that day for $8,393. There was also in evidence a copy of a handwritten note of 2 February purportedly signed by Mr Jacups. The signature was similar to his other signatures and the primary judge again found that it was signed by Mr Jacups, not accepting his evidence that it was not his signature (J[122(4)]). Having regard to Evidence Act 1995 (NSW), s 140(2) and the principle in Plunkett v Bull (1915) 19 CLR 544; [1915] HCA 14, in circumstances where Mr Knaggs had died in 2016, well before the claim on the fund was made, the primary judge did not err in not being satisfied that Mr Jacups' signature was a forgery absent expert evidence to that effect and no other evidence corroborative of Mr Jacups' assertion. Although it is self-serving, Mr Knaggs' note of 10 September 2003 provided to the Law Society for the purpose of its investigation initiated by him (see [23] above), refers to his having received $3,000 and to there being a receipt from Mr Jacups.
6. The evidentiary position is the same with respect to the nine payments totalling $40,757.06 made from Mr Knaggs' trust account between 28 May 2004 and 7 July 2004. There were in evidence copies of a tax invoice from Mr Knaggs to Mr Jacups dated 27 May 2004. That invoice was for an amount of $51,667.00. Each of the copies in evidence contains the word "approved" followed by a signature purporting to be that of Mr Jacups and a date "27/05/04". There were also in evidence two copies of a letter from Mr Jacups to Mr Knaggs dated 27 May 2004, which described as "herewith" Mr Knaggs' invoice "signed as approved". The letter also instructed Mr Knaggs to "apply the whole of the balance in your Trust Account" to those costs. The copies of each of those letters contain a signature purporting to be and similar to the signature of Mr Jacups and below that signature "27/05/04". For the same reasons as appear above, the primary judge did not err in finding that Mr Jacups had signed those copy documents. It follows that the nine payments made after 27 May 2004 totalling $40,757, which reduced the balance in the trust account to nil, were authorised, as his Honour held.
7. For these reasons grounds 3(a) and (b), 4(a), (d), (e), (f) and (g), and 6 are not made out.

Ground 7

1. This ground is that the primary judge erred in not "admitting [into] evidence and/or in reading or referring to" a report of an officer of the Law Society, Ms Moffitt, dated 13 August 2004. That document was in evidence before the primary judge, although it was not referred to by Mr Jacups' counsel in argument before his Honour. The document refers to Mr Knaggs' inquiry to the Ethics Section, originally made by fax dated 9 August 2004 (see [23] above). That inquiry was the subject of a final report by Ms Moffitt dated 13 September 2005, which concluded that the funds in Mr Knaggs' trust account were disbursed "in accordance with the agreement reached between the solicitor and Mr Barkus as at 28 January 2004". It also records that the payments totalling $40,757 were in part payment of "tax invoices, delivered to and authorised by his client Jacups". The document has no other relevance in the appeal. The ground does not identify any material error of fact or law in the primary judge's reasons.

Whether the primary judge should have remitted the proceedings to the FF Committee to be determined under the Uniform Law

1. There remains Mr Jacups' submission that as the FF Committee had mistakenly proceeded under the Legal Profession Act 1987, its decision should have been set aside and Mr Jacups' claims remitted to that committee to be determined under the applicable provisions of the Uniform Law (J[107]).
2. As the primary judge recorded at the outset of his reasons, although Mr Knaggs' defaults were said to have occurred in 2003 and 2004, when the Legal Profession Act 1987 was in force, his claims on the fund were not made until 2020, when the Uniform Law was in force (J[5]-[12]). As his Honour then noted, it remained to determine whether any legal significance attached to the FF Committee's error in applying the 1987 Act (J[13]).
3. Whilst there are significant differences in the language of the provisions of the Legal Profession Act 1987 (ss 79A, 79B, 79C and 80) and Uniform Law (ss 129, 219, 233, 241), insofar as they apply in the present case the only difference of substance is confined to how the dishonesty requirement in relation to a failure to account may be established.
4. Under the Legal Profession Act 1987, the requirement of dishonesty was satisfied if the "failure to account arose from an act or omission… (a) for which the solicitor… had been convicted of a crime or an offence involving dishonesty, or (b) which the Law Society Council has found to be dishonest" (s 79A(2)); where under the Uniform Law (ss 223, 233, 240) the presence or absence of "fraud or other dishonesty" was to be determined by the FF Committee as a delegate of the Law Society Council, which in turn is the "fidelity authority" for the purposes of the Uniform Law as it applies in New South Wales (Legal Profession Uniform Law Application Act 2014 (NSW), ss 16, 119(1)).
5. By the time of the hearing before the primary judge, it was common ground that the FF Committee had erred in applying the Legal Profession Act 1987. In that circumstance, the primary judge addressed whether the parties would be prejudiced if the Court proceeded to undertake a full review of the merits in the exercise of its appellate jurisdiction. His Honour concluded at J[116]: The parties agree that the relevant provisions of the Uniform Law apply. The Court also has before it a considerable volume of evidence adduced by all the parties. Mr Jacups' complaints have been exhaustively investigated by the Law Society. It is difficult to see any practical advantage in remitting the matter to it for a fresh determination. The matter is already affected by the lengthy passage of time since the relevant events occurred, coupled with the significant fact that Mr Knaggs is now deceased. The interest and importance of finality as itself an element of justice is an important consideration here.
6. His Honour did not err in so proceeding. Counsel for Mr Jacups had submitted that, as the FF Committee mistakenly proceeded under the Legal Profession Act 1987 and, in doing so, had not found it necessary to consider any question of fraud, the Court should remit the matter to that committee so that it had the 'benefit' of that committee's findings on that question. It was not suggested that Mr Jacups would be prejudiced in any way if the Court nevertheless proceeded to assess the merits of the committee's decision, dealing with the issue of fraud if it became necessary. In those circumstances, there was no reason why the Court should not conduct a full merits review. Indeed, the Court would have been in exactly the same position had the FF Committee applied the Uniform Law and concluded that there had been no failure to account, making it unnecessary for the committee to consider whether there was fraud.

Conclusion

1. In the result, the following orders should be made: 1. That the Fidelity Fund Management Committee be removed as a respondent to the appeal so that the only named respondent is the Council of the Law Society of New South Wales. 2. The appellant's notice of appeal be dismissed with costs.
2. GLEESON JA: I agree with Meagher JA.
3. MITCHELMORE JA: I agree with Meagher JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 June 2023