Law Society of New South Wales v Holt

N. Manousaridis (Plaintiff) COUNSEL : R. Lovas (Defendant)

Barrie James Murdoch (Plaintiff) SOLICITORS : Chegwidden Solicitors (Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

10491/02 Law Society of NSW (ACN 000 000 699) v John Colin Holt

JUDGMENT 1 BELL J: The plaintiff, the Law Society of NSW (the Society), moves for summary judgment on the three causes of action pleaded in paragraphs 3 to 13 inclusive of its statement of claim filed on 22 February 2002. The plaintiff does not in this motion seek summary judgment with respect to the balance of the claims pleaded in paragraphs 14-21. 2 The defendant, by motion filed on 3 November 2004, seeks leave to file an amended defence in the form of the draft that is annexed to the motion. 3 The two motions were heard together. The Society read the affidavits of Charles James Cawley, its Secretary, sworn on 25 June 2002, 8 July 2002 and 28 October 2004 and the affidavit of Garry Terence Napper, an investigator in its employ, sworn on 24 November 2004. 4 The defendant adduced no evidence on either motion. 5 The issue for me to determine is whether the plaintiff has established that there is no real question to be tried with respect to each cause of action the subject of this application. 6 The three causes of action are claims of statutory debt brought pursuant to s 55(8) and s 110(1) of the Legal Profession Act 1987 (NSW) (the Act). 7 The defendant was at all material times a solicitor carrying on practice in New South Wales. 8 The first claim is brought under s 55(8) and is for the sum of $21,349.39, being the costs of the investigation of the affairs of the defendant carried out by Warren Gillett and certified by the Council of the Society (the Council) under s 55(8). 9 Warren Gillett has been employed by the Society as an investigator since 17 April 1989. On 13 May 1994 by instrument signed by the Society's President, Mr Gillett was appointed pursuant to s 55(1) of the Act to inspect, either generally or in a particular case, accounts kept under Pt 6 by or on behalf of solicitors or to investigate the affairs, or specified affairs, of a solicitor or solicitors. The instrument of appointment provided that Mr Gillett's power to investigate the affairs of a solicitor or solicitors was only to be exercised at the direction of the Director, Statutory Obligations, the Chief Trust Account Inspector or the Manager, Professional Standards Department. By instrument dated 28 October 1996 the Chief Trust Account Inspector directed Mr Gillett to investigate the affairs of the defendant. 10 On 13 May 1994 the Society's President by instrument appointed Garry Terence Napper pursuant to s 55(1) of the Act to inspect, either generally or in a particular case, accounts kept under Pt 6 by or on behalf of solicitors or to investigate the affairs, or specified affairs, of a solicitor or solicitors. Mr Napper's power to investigate the affairs of a solicitor or solicitors was only to be exercised at the direction of the Director, Statutory Obligations, the Chief Trust Account Inspector or the Manager, Professional Standards Department. 11 A report dated 17 December 1996 relating to the affairs of the defendant, addressed to the Chief Trust Account Inspector and jointly signed by Warren Gillett and Garry Napper, is in evidence. The claim pleaded in paragraphs 3 to 5 of the statement of claim concern the costs of the investigation the subject of this report. 12 No written direction that Garry Napper undertake an investigation into the affairs of the defendant pursuant to s 55(1) is in evidence. Mr Napper in his affidavit states that he does not recall the occasion on which he was directed to undertake the investigation the subject of the joint report with Warren Gillett. He says that it has been his invariable practice not to undertake an investigation into the affairs of a solicitor without first being directed either verbally or in writing to do so by the Chief Trust Account Inspector. 13 An account dated 6 June 1997, addressed to the defendant and signed by the Chief Trust Account Inspector, claims the sum of $21,349.39 in respect of the investigation conducted by Warren Gillett and Garry Napper between 21 October 1996 and 18 December 1996. The account is particularised as being for one hundred and eighty hours of work performed by Warren Gillett at $73.45 per hour, ninety-seven hours of work performed by Garry Napper at $75.26 per hour, travelling expenses for Mr Gillett at $278.77, searches amounting to $417.80 and photocopying in the amount of $131.60.

14 There were a number of challenges to the plaintiff's proof of the debts claimed under s 55(8). With the exception of one matter, none seemed to me to raise a triable issue. 15 In written submissions the defendant put in issue that Warren Gillett and Garry Napper possessed the qualifications for appointment as investigators under s 55(1) of the Act. Section 55(10) provides that a person is not eligible to be appointed as an investigator unless he or she is a solicitor, an accountant or an officer or an employee of the Law Society. The evidence is that Warren Gillett and Garry Napper have at all material times been employed by the Society. 16 The due appointment of Warren Gillett and Garry Napper under s 55(1) was also in issue. The defendant submits that the Act distinguishes between the Society (a corporation) and the Council (its governing forum). In the defendant's submission s 55(1) provides that the Society may, by instrument signed by the President or two or more members of the Council, appoint a person as an investigator. The instruments of appointment of Warren Gillett and Gary Napper state in each case that the appointee is appointed by the Council. They are signed by the President. 17 The plaintiff's Memorandum and Articles of Association relevantly provide: " 10. POWERS AND DUTIES OF THE COUNCIL 10.1 Manage general business of the Society 10.1.1 The business of the Society shall be managed by the Council. 10.1.2 The Council may exercise all powers of the Society and on behalf of the Society do all the acts that may be done and exercise all the powers that may be exercised by the Society and are not required to be exercised by the Society in general meeting by the Corporations Law or by these Articles." 18 Neither the Corporations Law nor the Society's Memorandum and Articles of Association require that the power of appointment under s 55(1) be exercised by the Society in general meeting. In my view the contention that the power of appointment under s 55(1) may only be exercised by the Society through its general meeting and not through its Council is not tenable. 19 The due appointment of Warren Gillett was also questioned on the basis of a contention that John Mitchell, the Chief Trust Account Inspector, had purported to appoint him by the written direction of 28 October 1996, and that the power of appointment under s 55(1) is not subject to delegation. Warren Gillett's appointment under s 55(1) was made by the Society by the instrument dated 13 May 1994. The appointment was subject to the condition that Mr Gillett only exercise the power to investigate the affairs of a solicitor (or solicitors) at the direction of one of the persons named in the instrument. The direction signed by Mr Mitchell on 28 October 1996 did not purport to be an appointment under s 55(1). I do not consider that the challenge to the appointment of Mr Gillett on this ground raises a triable issue. 20 In written submissions the defendant challenged the authority of Garry Napper to investigate his affairs in the absence of evidence that Mr Napper had been directed to do so by one of the person's named in the instrument appointing him. 21 In the Society's submission the fact that Mr Napper carried out work in connection with the investigation of the defendant's affairs, and co-authored the investigation report, evidences that he was directed to undertake the investigation. The Society relies on the rebuttable presumption: "It is a rule of very general application, that where an act is done which can be done legally only after the performance of some prior act, proof of the latter carries with it a presumption of the due performance of the prior act" ( Knox County v Ninth National Bank 147 U.S. 91 at 97 cited by Griffiths CJ in McLean Bros & Rigg Ltd v Grice (1906) 4 CLR 835 at 850). On the assumption that it is necessary for the Society to establish that Mr Napper was directed to undertake the investigation of the defendant's affairs, I consider that in the absence of any material that may rebut the presumption, this ground does not give rise to a triable issue.

22 A further issue that the defendant sought to agitate in written submissions was the validity of the Council's resolution of 11 September 1997 certifying the costs of the investigation into his affairs. The defendant does not admit that the Council was properly constituted by a quorum of its members or that proper notice of the meeting was given to all eligible members of the Council, or that the information that the Act requires the Council to consider was in fact considered. Subject to the matter which I deal with below, these contentions do not give rise to an arguable defence to the plaintiff's claim. The Society adduced evidence both of its Memorandum and Articles of Association and of the Councillors who attended the meetings of the Council on 11 September 1997 and 9 October 1997 (relevant to the second statutory debt claim). On the hearing of the motion, no submission was advanced challenging the constitution of the Council at either meeting. 23 The defendant seeks to contend that the Council, exercising the statutory power under s 55(8) to certify the costs of the investigation, was under a duty to accord him procedural fairness. The content of the duty is said to have required that he be given notice of the proposed resolution and an opportunity to be heard before it was passed. Section 55(8) authorises the Council to certify the costs of an investigation under s 55(1) and to recover the certified costs as a debt. The section makes no provision for notice to the solicitor prior to certification. The evidence is that the costs of the investigation were as certified (subject to a $100 variance that I deal with below). In the event that the Society sought to confer a benefit on itself by certifying the costs of an investigation in an excessive sum (as the defendant submits in his "Chronology & Submissions" at 4) it may be that the solicitor could succeed in a challenge to the resolution on administrative law grounds. There is nothing in the evidence on the application to point to the defendant as having raised an arguable case that the costs certified were excessive. As noted, the account of 6 June 1997 furnished some particulars of how the costs were incurred. The defendant might be expected to have some knowledge of the time spent in the conduct of the investigation, and the report itself provides some basis for assessing the nature and extent of the investigation.

24 Section 55(8) of the Act provides as follows: "The amount of the costs of an inspection or investigation, as certified by the Law Society Council, is a debt due to the Law Society by the solicitor under inspection or investigation if: (a) in the case of an inspection of accounts kept under Part 6 by or on behalf of the solicitor - a trust account inspector states in his or her report that there is evidence that a breach of this Act or the regulations has been committed and the Law Society Council is of the opinion that the breach was wilful or of a substantial nature, or (b) in the case of an investigation of the affairs of the solicitor - a trust account inspector or an investigator states in his or her report that there are reasonable grounds for suspecting unsatisfactory professional conduct or professional misconduct in relation to the affairs investigated or a breach of this Act or the regulations and the Law Society Council is of the opinion that the conduct or breach was wilful or of a substantial nature, unless payment is waived by the Law Society Council." 25 It is common ground that the debt has not been waived by the Law Society Council. 26 Annexed to the affidavit of Mr Cawley sworn on 25 June 2002 is a copy of a resolution taken from the minutes of the meeting of the Society's Council held on 11 September 1997. It records: " RESOLVED that, in respect of the inspection of John Colin Holt, consultant of Laurence & Laurence - 1.the Council is satisfied that the inspector reported that he had reasonable grounds for suspecting professional misconduct in relation to the affairs investigated and Council is of the opinion that the conduct was wilful; 2. the Council certifies the costs of inspection in the sum of $21,249.39 pursuant to section 55 of the Legal Profession Act 1987 ; 3. demand be made on John Colin Holt for the payment of the said sum of $21,349.39 and, if necessary, proceedings should be commenced to recover." 27 The Council's certification of the costs of the investigation in (2) above is in the sum of $21,249.39, whereas the costs of the investigation claimed in the account dated 6 June 1997 were $21,349.39 (which is the figure that the Council resolved should be demanded from the defendant). This minor variation does not to my mind give rise to an arguable case that the certification is flawed or otherwise does not amount to certification of the costs of the investigation. 28 It is necessary for the plaintiff to establish that each of the requirements of s 55(8)(b) have been met before it may succeed in its claim for summary judgment. The Society acknowledged that Mr Gillett and Mr Napper's investigation report, Exhibit A, does not, in terms, contain a statement by the investigators that there are reasonable grounds for suspecting unsatisfactory professional conduct or professional misconduct. The Society sought to meet this difficulty by submitting that the report, read as a whole, admits of no conclusion other than that the results of the investigation gives rise to reasonable grounds for the relevant suspicion. The debt is one created by operation of the provision. I consider that it is arguable that the terms of the provision must be complied with strictly and that the failure so to do means that the debt does not arise.

29 The Society's second claim, pleaded in paragraphs 6 to 8 of the statement of claim, is also brought pursuant to s 55(8) of the Act and seeks the costs of the investigation conducted by Jean Sayer into the affairs of the defendant, being costs certified by the Society's Council on 9 October 1997. This claim is in the amount of $17,969.70. 30 On 19 December 1996 Jean Sayer, by instrument under the hand of the President of the Society, was appointed pursuant to s 55(1) of the Act to investigate the affairs of the defendant and to furnish a report to the Council. A copy of Ms Sayer's report is in evidence. A copy of the Society's resolution certifying the costs of Ms Sayer's investigation in the amount the subject of the account submitted by Ms Sayer on 14 July 1997 is also in evidence. 31 The defendant challenged Ms Sayer's appointment upon the same basis that I have noted at paragraph [16] above. For the same reasons I reject it. I also reject the contention that the defendant has an arguable case that he has been denied procedural fairness with respect to notice of the resolution certifying the costs of the Sayer investigation for the same reasons as I have given in paragraph [23] above with respect to the first claim. 32 This second s 55(8) claim suffers the same defect as the first in that it was acknowledged that Ms Sayer's report does not, in terms, contain a statement that there are reasonable grounds for suspecting unsatisfactory professional conduct or professional misconduct. It is arguable that, absent the statement of the opinion in the report, a debt under s 55(8) does not arise.

33 The third claim is pleaded in paragraphs 10 to 13 of the statement of claim. This is a claim brought pursuant to s 110(2) of the Act. Section 110(2) makes provision for the Society to recover as a debt owed to it by the solicitor so much of the expenses of receivership as have been paid to the receiver by the Fidelity Fund.

34 The evidence in support of the third claim is that Jean Sayer was appointed by this Court as a receiver of the property of the defendant pursuant to s 92 of the Act. She rendered accounts in respect of her professional services as receiver for the defendant for the period 19 May 1997 to 30 June 2001. She was paid by the Society's Fidelity Fund in respect of these accounts in an amount of $61,826.20.

35 By the proposed amended defence the defendant seeks to contend that the receiver's fees were excessive. No particulars of this assertion are given. 36 It is necessary to set out s 110 and s 111 of the Act: " 110 Payment of expenses of receivership

(1) So much of the expenses of receivership as have not otherwise been paid to the receiver shall be paid to the receiver by the Law Society from the Fidelity Fund. (2) An amount paid under subsection (1) is recoverable by the Law Society as a debt owed by the relevant solicitor. (3) If the Law Society Council and a receiver fail to agree upon the remuneration to be paid to the receiver, the Supreme Court shall, on the application of the Law Society or the receiver, determine the amount to be paid. (4) The Supreme Court may, on application by the relevant solicitor: (a) re-open any agreement by the Law Society Council for remuneration of the receiver, and (b) determine the amount to be paid.

111 Supreme Court may review expenses of receivership (1) This section applies to a receivership if the Supreme Court is satisfied: (a) by evidence given in proceedings (whether or not in the Supreme Court) under section 110 (2) for recovery by the Law Society of the expenses of receivership, or (b) on application by the relevant solicitor, that the expenses of the receivership are excessive. (2) If this section applies to a receivership, the Supreme Court may order the taking of an account between the Law Society and the receiver and: (a) relieve the relevant solicitor from payment of any amount in excess of that determined by the Supreme Court to be fairly payable, or (b) if the receiver has been paid, or allowed on account, an amount that includes such an excess - order the receiver to repay the excess." 37 By letter dated 15 January 1998, the Society wrote to the defendant demanding payment both of the costs of the investigation undertaken by Warren Gillett and of that undertaken by Jean Sayer, together with Ms Sayer's receivership fees to date. At the date of that letter, fees were said to have been paid to Ms Sayer in respect of the receivership for the period 19 May 1997 to 30 September 1997 in an amount of $14,379.05. A copy of her accounts were attached to that letter. On 9 January 2002 the Society wrote to the defendant claiming Ms Sayer's fees in relation to her receivership in the sum of $61,340.65. A further letter dated 7 February 2002 written by the Society to the solicitors then acting for the defendant enclosed copies of the receiver's accounts paid to that date by the Society. In that letter reference was made to the previous demand upon the defendant for the sum of $61,340.65 with respect to the receiver's fees. It was noted that further fees had now been paid and that the Society's demand was in the amount of $61,826.20. 38 The defendant has not moved that this Court order a review of receivership expenses pursuant to s 111 of the Act. No application has been made on the defendant's behalf pursuant to s 110(4). 39 The defendant submits that while s 110(2) operates to make the amount paid by the Fidelity Fund to the receiver recoverable as a debt owed to the Society by the solicitor, the reasonableness of the receiver's fees are open to examination in the recovery proceedings. So much is said to follow having regard to the terms of s 111(1)(a). 40 In the defendant's submission, he has not been able to give particulars of his claim that the receiver's fees were excessive since he has not had access to the primary materials. The defendant served a subpoena on Ms Sayer seeking the production of her records of the receivership. Ms Sayer successfully moved to have the subpoena set aside. The defendant has not pursued an appeal against this determination since the defence filed does not put in issue the reasonableness of the receiver's fees. This is sought to be addressed by the draft amended defence. If the amended defence is allowed I am informed that the defendant will issue a further subpoena seeking the production of the receiver's working papers. 41 It is relevant to note the history of these proceedings. The Society's motion for summary judgment was listed for hearing on 21 September 2004. On 13 September the defendant moved to vacate that date. His application came on before Wood CJ at CL. The defendant appeared in person on that occasion and told his Honour that he was unable to continue with the legal representation that he had had for the past two years. He said that he had received advice that there were good grounds to amend his defence. His Honour vacated the date, observing: "The Court will need to have very clear indication that there appears to be a dispute because you are at risk of having the summary judgment determination determined that day." 42 The proceedings were stood over to 29 October for further mention with a view to refixing the hearing of the Society's motion. The motion came on for hearing before me on 12 November 2004. At the conclusion of the hearing on that day the parties were given leave to file supplementary written submissions. In light of the Society's further submissions the defendant sought to have the proceedings listed for further oral argument. The resumed hearing took place on 4 March 2005. 43 In the course of submissions on 4 March, counsel, when pressed on the absence of particularisation of the assertion that the receiver's fees were excessive, stated: "The defendant is confronted with a quantum after these people have gone into his practice physically, so he was able to observe their workings, or at least some of them, and he is prepared to verify that it is excessive. Now in my submission, that assertion itself is sufficient and it is really all he can produce" (T 33.46-52).

I raised with counsel that the Society's motion had been on foot for some time and that the defendant had elected not to lead any evidence. Counsel asserted, for the first time, that the defendant was in a position to raise an issue as to the reasonableness of Ms Sayer's fees. Counsel responded: "I don't even go so far as to say that he noted hours other than perhaps in his head. I don't pretend it was anything as formal as that. It is just that he underwent this experience and he wishes to challenge the quantum because on his assessment it is excessive and I don't pretend it is any more than that" (T 34.45-50).

The burden of counsel's submission is that the defendant has been deprived of the opportunity to investigate whether the fees were excessive. 44 I have concluded that I should reject this submission. While it is the case that the defendant has not had access to detailed records with respect to the conduct of the receivership, the evidence is that he has Ms Sayer's accounts. She rendered thirteen accounts in the period of her receivership. The accounts contain a description of the nature of the work performed together with a statement of the hours recorded by her and her staff. The hourly rates charged out for Ms Sayer as principal and her staff are stated. In the absence of any evidence that the agreement between the Society and Ms Sayer permitted her to charge at an excessive rate or that the hours worked, given the nature of the work recorded, appears excessive, I consider that the defendant has failed to raise a triable issue with respect to the reasonableness of the receiver's expenses. 45 The plaintiff has established the elements of its claim under s 110(2) with respect to the recovery of the sum paid by the Fidelity Fund to the receiver and I am satisfied that the defendant has no defence to the claim. 46 The verified defence filed on 5 April 2002 does not admit the matters pleaded in paragraphs 3 to 8 of the statement of claim (which plead the two claims under s 55(8)). In written submissions counsel for the defendant stated, "the proposed amended defence does not set any new positive defence but rather particularises (in considerable detail) the facts in issue". The defendant does not raise a defence but seeks to put the Society to proof of these two claims. The only tenable issue that he has raised is proof of the statement of the opinion required by s 55(8)(b). On the material before me on this application, I am not persuaded that the elements of the two claims pleaded in counts 3 - 8 have been established and, accordingly, I decline to enter summary judgment in respect of them. 47 I refuse leave to the defendant to file the proposed amended defence with respect to the claims pleaded in paragraphs 3 - 8 since it articulates no defence other than the non-admission upon which he has already joined issue with the Society. The proposed amended defence does not raise any new matters with respect to the causes of action pleaded in paragraphs 14 to 21 of the statement of claim. It repeats the assertions made in the defence that has been filed. In these circumstances I propose to dismiss the defendant's motion for leave to file the amended defence in the form of the draft. 48 The plaintiff has had a substantial measure of success on its motion. The time taken up on the point upon which the defendant succeeded was relatively short. I consider an appropriate order for costs to be that the defendant pay seventy five percent of the Society's costs with respect to the motion for summary judgment. ORDERS

1. Dismiss the Society's motion for summary judgment on the causes of action pleaded in paragraphs 3 to 8 of the statement of claim;
2. Verdict and judgment for the plaintiff against the defendant on the cause of action pleaded in paragraphs 10 to 13 of the statement of claim in the sum of $61, 826.20;
3. Dismiss the defendant's motion for leave to file an amended defence in the form of the draft annexed to the motion;

4. The defendant is to pay seventy-five per cent of the Society's costs of its motion for summary judgment as agreed or assessed.
5. The defendant is to pay the Society's costs of his motion to file an amended defence as agreed or assessed.

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