Law Society of Tasmania v Turner and Kench [2001] TASSC 129

Law Society of Tasmania v Turner and Kench [2001] TASSC 129 - TASSC 2001 case summary — Zoe

[53]

30 On or about 6 November 1998, the firm sent a notice to those investors who had funds secured by mortgages to borrowers who were in default with their interest payments. It explained that interest on their investment would ordinarily be paid on 20 November 1998, but the firm had reason to believe that the borrowers might not make the payment of interest which was due on 16 November. It further stated that although in the past it had been the practice of the firm to advance unpaid interest to investors and to then seek to recover the unpaid amount from the borrower (there is no reason for me to think that the investors had previous knowledge of such a practice), advice had been received from the firm's accountants that, "given the present economic climate, the practice is not commercially realistic" and the practice would cease. The investors were advised that they would not receive interest unless and until it had been paid by the borrower. The notice went on to explain steps the firm was taking to review loans where there had been default and to consider whether mortgage properties should be sold or whether instead particular borrowers should be allowed additional time within which to either refinance or bring the loan into order. Finally, the notice explained that so long as interest payments on any loan were in arrears, the firm was unable to substitute other investors' funds, which, in turn, meant that current investors would not be able to withdraw their funds until either the firm was satisfied that the borrower had and would continue to meet its obligations under the loan or until the mortgaged property or properties securing the loan had been sold. On 10 November 1998, the Society was advised by the firm of what it had done, including that it had briefed Mr Wells to prepare a report in relation to security properties, together with recommendations as to their realisation. I was advised by the Society's counsel, without objection, that some action had already been taken to sell some of the properties, but there were many in respect of which no action had been taken in that regard.

[83]

51 Counsel for Mr Kench submitted that notwithstanding that s56 includes within the definition of unprofessional conduct what is contained in par(a), that is to say "professional conduct that falls short of a standard of conduct that a member of the public is entitled to expect of a practitioner of good repute and competency", in a case in which no iniquity or moral turpitude or obliquity is involved, if the conduct does not amount to professional misconduct it is impossible for it to amount to unprofessional conduct, because practitioners of good repute and competency could not possibly regard the conduct as falling short of a standard the public are entitled to expect. I reject that submission because the definition of unprofessional conduct says no such thing. In my view par(a) should be given its literal meaning and that professional conduct that falls short of a standard of conduct that a member of the public is entitled to expect of a practitioner of good repute and competency amounts to unprofessional conduct under the Act. I am mindful that the literal meaning of the words may mean that all manner of human errors, mistakes and shortcomings on the part of practitioners in the course of their professional work may render them liable to disciplinary proceedings. However, if complaints are made alleging unprofessional conduct of a relatively trivial or minor character so far as gravity is concerned, then the consequence may only be one of admonishment or reprimand by the Council under s61(2)(a), or reprimand, caution or determination that the practitioner should apologise by the Council under s65B(2)(a), (b) or (f), dismissal of the complaint, admonishment or reprimand by the Disciplinary Tribunal under s76(1)(a) or (b), or dismissal of the complaint, admonishment or reprimand by the Court under s81(b). Although there is merit in an argument that only relatively serious transgressions should render legal practitioners liable to complaints and disciplinary proceedings, it is, in my view, one better addressed to Parliament, rather than by the Court adding words by implication to the statutory definition of unprofessional conduct.

[93]

56 Nevertheless, I am not persuaded that the respondents are guilty of professional misconduct, as opposed to unprofessional conduct, within the meaning of those expressions as I have determined them to be. I have not reached a state of satisfaction that, without the benefit of hindsight, legal practitioners of good repute and competency would have regarded the respondents' conduct as disgraceful or dishonourable. Insofar as their conduct amounted, as I have said, to a consistent and substantial failure to reach reasonable standards of competence and diligence, I place it in a lesser degree of seriousness than professional misconduct and determine it to be unprofessional conduct. My reasons are various and essentially the following. The basic system of operating the mortgage fund was not designed by the respondents and was put in place by legal practitioners of good reputation and inherited by them. Other reputable firms had in the past commonly engaged in the same conduct without any expression of disapproval by the Society, which was the regulator of such mortgage funds. I have no evidence of how many, but assume it was a not insignificant number of such firms. The Society has not suggested otherwise. There is no evidence that there were practitioners of good repute and competency who regarded such practices as disgraceful or dishonourable. The evidence tends to suggest that a not insignificant number of members of the profession regarded it as acceptable until this sorry story became public knowledge. It is an unfortunate human tendency to come to a conclusion, particularly over a period of time, that if other, and importantly in the circumstances of this case, reputable people engage in a practice, it is acceptable. Further, the Society's trust account inspectors and the firm's auditors had regularly inspected the firm's records and books and made no adverse comment concerning the system and the practices in which the firm engaged with respect to its mortgage register. By advancing interest to clients, which borrowers had not paid, the firm may be said to have been acting generously towards the clients. At the date of the hearing of the applications, it was out of pocket as a result to the extent of some $1.4m. The respondents did not act dishonestly. I am not persuaded that they acted with wilful and reprehensible disregard for the interests of their clients or that they deliberately departed from what they understood to be accepted standards. Notwithstanding what occurred with the Turner moneys, and the firm's superannuation funds, I do not see this as a case which can fairly be described as one where the respondents preferred their own interests to those of their clients. Certainly they did not do so knowingly.

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Law Society of Tasmania v Turner and Kench [2001] TASSC 129 (8 November 2001)

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