Legal Services Commissioner v Hession

Legal Services Commissioner v Hession - [2010] VCAT 1328 - VCAT 2010 case summary — Zoe

[12]

Between 15 March 2005 and 3 October 2005 Mr. Hession transferred various amounts totalling $34,032.81 to his own use, from the monies held by Hardys in trust for the estate, to pay for legal services provided by his firm.
Neither the Will nor the Codicil contained a provision authorising an executor to charge commission.
Between 15 March 2005 and 3 October 2005 Mr. Hession transferred various amounts totalling $109.669.00 to his own use, from the monies held by Hardys in trust for the estate, as executor's commission. The total amount was 5% of the value of the estate, as calculated by Mr. Hession.
Colin and Ann renounced Probate of the Will.
Probate of the Will was granted to Mr. Hession on 9 August 2005. He remains the sole executor of the Will and sole trustee of Mrs. Daley's estate.
Hardys' trust account was inspected on 4, 5 & 6 October 2005 by Mario Appiah, a trust account inspector employed by the Law Institute of Victoria. Mr. Appiah informed Mr. Hession that he was not entitled to charge executor's commission, if not authorised by the Will, unless he obtained the consent of the beneficiaries or an order of the Supreme Court.
As the Will did not authorise the payment of commission, and Mr. Hession did not have the consent of the beneficiaries or an order of the Supreme Court, the appropriation of trust monies as executor's commission caused a deficiency in the trust monies held by Hardys on behalf of the estate.
On 14 October 2005, Mr. Hession paid $125,632.19 into Hardys' trust account to restore the deficiency.
When he gave evidence, Mr. Hession explained why he paid $125,632.19 to restore a deficiency of $109,669.00. On various dates, various amounts of money held by Hardys in trust for the estate were transferred to Mr. Hession. All of the monies transferred were recorded in the trust account ledger for the estate as "Transfer of Costs". The ledger did not record whether the amounts transferred represented executor's commission or legal costs for the provision of legal services to the estate. Mr. Hession said that he had his costs for the provision of legal services assessed by Robin Westacott, a legal costs consultant. Mr. Hession added that he then deducted the amount of the assessment from the total amount transferred as "Transfer of Costs" and repaid the balance of $125,632.19. One consequence, as it appears to the Tribunal, was that an excessive amount previously had been transferred as costs for the provision of legal services. If that was so, it is not relevant in the present proceedings.
On 14 October 2005, being the same day upon which he repaid the $125,632.19, Mr. Hession wrote separate but identical letters to Mrs. Daley's four children. He wrote the letters to them in their capacity as beneficiaries in the estate. He asked them to "give an indication as to whether you agree with the payment of commission and at what rate".

[28]

The third charge states that it is "Further and in the alternative to Charge 1", but was dealt with during this hearing as an alternative to Charge 1.
The charge alleges that Mr. Hession is guilty of misconduct at common law "for engaging in conduct which would reasonably be regarded by legal practitioners of good repute and competence as disgraceful and dishonourable, namely the charging of executor's commission on the Estate of Margaret Elizabeth Daley when you had no entitlement to do so".
Misconduct in a professional capacity, often described as misconduct at common law, has been defined consistently for many years as conduct in a professional capacity which would be reasonably regarded as disgraceful or dishonourable by professional brethren of good repute and competency: see Allinson v General Council of Medical Education and Registration [1894] 1 QB 750 where the definition was formulated in a case involving a medical practitioner; Re a Solicitor: ex parte The Law Society [1912] 1 KB 302 where the definition was adopted in a case involving a solicitor; Myers v Elman [1940] AC 282 where the definition was approved by the House of Lords; and Re a Solicitor [1960] VicRp 96; [1960] VR 617 where the definition was applied in Victoria.
Misconduct at common law continues to apply to Australian legal practitioners in Victoria by virtue of the word "including" in paragraph (a) of the meaning of "misconduct" in s.137 of the Legal Practice Act 1996 (when the conduct occurred prior to 12 December 2005) and by virtue of the word "includes" in the meaning of 'professional misconduct' in s.4.4.3(1) of the Legal Profession Act 2004 (when the conduct occurred on or after 12 December 2005).
The fourth charge states that it is "Further and in the alternative to Charge 2", but was dealt with during this hearing as an alternative to Charge 2. Charge 4 alleges that Mr. Hession is guilty of misconduct at common law for engaging in the same conduct that is alleged in Charge 2.
Counsel for the Commissioner informed the Tribunal that the Commissioner would rely primarily upon the two charges of misconduct at common law.

[47]

Mr. Hession gave evidence that he had acted as executor of a Will on one prior occasion. He had not acted as both the executor of a Will and solicitor for the estate on any prior occasion.
Mr. Hession was asked why he took the commission. He said that Mr. Westacott came to his office and costed the file. He said that he was advised by Mr. Westacott that an executor is entitled to commission, and can take the commission "as you go".
Mr. Hession was asked whether he considered Mr. Westacott to be "experienced". He said that Mr. Westacott was an elderly lawyer who did part time work costing conveyancing files. He said that Mr. Westacott appeared on taxations of costs. He said that he considered Mr. Westacott to be an expert.
Mr. Hession said that he became aware that he was not entitled to commission when told by Mr. Appiah that he needed either the consent of the beneficiaries or an order from the Supreme Court. Mr. Hession said that he was "mortified" by what he was told by Mr. Appiah. He added that "I acted in the belief that I could do it".
As to the letters of 14 October 2005, Mr. Hession said that he believed that the statement of funds was sent with the letters.
Mr. Hession was asked why he said in the letter that the fact that the Will did not provide for the payment of commission "may well have been an oversight on the part of the Solicitors who prepared the Will". He said that Mrs. Daley told him that he "could be an executor". He said that it was "true" that Mrs. Daley also told him that he would be paid commission. She told him that when Sandra made the application to VCAT for the appointment of a guardian to look after Mrs. Daley's affairs. He added that Mrs. Daley also told him that he would "need all the luck in the world".
Mr. Hession was asked about his reference in the letter to "the guidelines of the Supreme Court". He replied that he had not seen any guidelines, but that he had been told that "Supreme Court cases showed that an executor could get commission".
Mr. Hession was asked about the statement in the letter that commission "can be payable at a rate up to 7%." He said that Mr. Appiah told him that the rate was "up to 5%". He said that the 7% was a "mistake" and a "typographical error".
Mr. Hession was asked why the letter did not inform the beneficiaries that he had taken commission, and then refunded it. His response was to refer to various telephone discussions.
He referred to a telephone discussion with Colin on 18 October 2005, four days after the letter was sent. He said that he told Colin that he had taken commission, but had refunded it. He said Colin agreed to the payment of commission at the rate of 5%. Colin told him that he was aware that his mother had agreed to the payment of commission. Colin also told him that it would have been impossible for Colin and Ann to have handled the estate. Mr. Hession produced a brief file note, which was consistent with his evidence.
Mr. Hession also referred to a telephone discussion with Ann, which took place on either 21 or 29 October 2005. He said that they discussed the payment of commission at a rate up to 5%, and that Ann agreed to the payment of commission in an amount that her siblings "think fair". He said that Ann told him that her mother had agreed to the payment of commission. Mr. Hession produced a brief file note, which was consistent with his evidence.
Mr. Hession acknowledged that he received the letter of 4 November 2005 from Ann. His first response was to telephone Colin on 7 November 2005. He said that he told Colin that there was a problem with commission. Mr. Hession produced a brief file note, which recorded that "Siblings are bluing", "Whatever is fair" and "He's happy @ 5%".
Mr. Hession said that he telephoned Ann on 9 November 2005. He said that he told Ann that he had taken commission, but had refunded it. He said that he told Ann that he would not pursue his claim for commission. Mr. Hession produced a brief file note, which was consistent with his evidence. The file note also recorded that "If they thought it was fine, then I was happy to accept it obviously but if they're not, I'm not going to create an issue out of it".
Mr. Hession said that he also had a telephone discussion with John on 9 November 2005. He said that he told John that he had taken commission, but had refunded it. He said that he told John that he would not pursue his claim for commission. Mr. Hession produced a brief file note, which was consistent with his evidence.
In cross-examination, Mr. Hession said that Mr. Westacott was experienced in costing. He agreed that costing was a different field to probate, but said that Mr. Westacott claimed to be an expert in probate.
Mr. Hession said that he was told by Mr. Westacott that he was entitled to a commission up to 5%. Counsel for the Commissioner produced a letter from Mr. Westacott to the Law Institute dated 1 October 2009, in which Mr. Westacott said that he advised Mr. Hession that he was entitled to "between 2% - 5% commission". Mr. Hession said that was incorrect, as Mr. Westacott told him "up to 5%".
Reference was made to the relevant part of s.65 of the Administration and Probate Act 1958, namely:

[49]

Mr. Hession agreed that he did not read the Act before taking the commission. When asked when he last read s.65, Mr. Hession replied "Probably 30 years ago", which we take to mean when he was a law student 30 years ago.
Mr. Hession agreed that he commenced to take commission before Colin and Ann renounced Probate. He agreed that he took commission before he obtained a grant of Probate. He agreed that he did not confer with Colin or Ann before taking commission. He agreed that Colin and Ann might also have been entitled to commission.
In a letter of explanation written by Mr. Hession to the Law Institute on 14 February 2007, he stated that "When the auditor attended at the office the transactions were transparent and readily recognisable". Mr. Hession agreed that he recorded the taking of commission in his trust account ledger as "Transfer of Costs". He said, in substance, that the taking of commission was transparent because it was apparent from his ledger that his legal costs were too high, and therefore apparent that "Costs" must include commission. He said that his calculations of the various amounts transferred as "Transfer of Costs" were based upon the advice of Mr. Westacott that he was entitled to a commission of 5%, and an estimate given by Mr. Westacott that his legal costs would be about $50,000.00. He agreed that he did not have any written record of his calculations.
Mr. Hession agreed that he advised Colin and Ann to renounce Probate; in Colin's case because Colin worked long hours and in Ann's case because she lived in New South Wales. Mr. Hession denied that he advised them to renounce Probate so that he would not have to share commission. He said it was "not a motive".
Mr. Hession agreed that he did not read any cases or commentary on executor's commission before writing the letter of 14 October 2005. He said that he relied upon the advice of Mr. Appiah.
As to the statement of funds referred to in the letter, Mr. Hession said that he believed that the statement was enclosed because it was his practice to check. The statement is in evidence. It bears the same date as the letter, 14 October 2005. It shows that Hardys had charged legal costs of $4,275.20 in respect of the sale of Mrs. Daley's house, and legal costs of $29,757.61 in respect of the grant of Probate [and presumably the administration of the estate] by that date.
As to the claim in the letter that there may have been an "oversight" on the part of the solicitors who prepared the Will in 1998, Mr. Hession accepted that the Codicil prepared by Hardys in 2003 also did not include provision for the payment of commission. He said that instructions for the Codicil were taken by Ms Meg Griffin, a member of his staff. Mr. Hession said that he did not realise at the time that he could have included an entitlement to commission in the Codicil.
Mr. Hession said that Mrs. Daley came to his office with Colin, and informed him in Colin's presence that he would be paid commission. Mr. Hession said that Mrs. Daley did not nominate a rate of commission. Mr. Hession agreed that he did not make a note of the discussion. He could not remember when the discussion took place.
As to the "guidelines of the Supreme Court" referred to in the letter, he agreed that there were no guidelines.
As to the figure in the letter "up to 7% of the realizable value of the Estate", Mr. Hession agreed that he had not told the Legal Services Commissioner before he gave evidence at this hearing that the 7% was a "mistake" or a "typographical error". He added that he did not mention it because he had withdrawn his claim for commission, so the issue was "done and dusted".
As to the figure in the letter "between 3% and 5% on the income received from the Estate", Mr. Hession said that he could not explain the figure, so he must have got it from Mr. Westacott. He agreed that he did not carry out any research into the payment of a commission in respect of income.
Mr. Hession agreed that he did not tell the beneficiaries that the full amount of commission could not be determined until the work required to administer the estate had been carried out.
It was put to Mr. Hession that he might not be entitled to both legal costs and commission. He replied that "costs would be offset against commission". He agreed that he received $34,032.81 as legal costs before he wrote the letter. He agreed that he did not tell the beneficiaries, before he gave evidence, that the legal costs might be offset against commission.
As to the costs involved in making an application to the Supreme Court, Mr. Hession said that the figure of "between approximately $5,000.00 and $7,000.00" was a "guestimate". When asked why the estate should bear the costs of an application to the Supreme Court, Mr. Hession replied that it was because costs follow the event and because he had suggested to the beneficiaries that they obtain independent advice.

[50]

Charge 3 is the charge of misconduct at common law arising from the taking of executor's commission from monies held by Mr. Hession in trust for the beneficiaries of the estate.
As we have mentioned, Mr. Hession gave evidence that he took the commission because he was advised by Mr. Westacott that an executor is entitled to commission, and can take commission "as you go". There is in evidence a letter dated 1 October 2009 from Mr. Westacott to the Law Institute which states that "I wish to advise that I advised Mr. Hession that as executor of the Estate of Daley, he was entitled to between 2%-5% commission". Neither the Commissioner nor Mr. Hession called Mr. Westacott to give evidence.
If Mr. Westacott gave advice in the terms indicated by his letter, namely that an executor has an unqualified right to commission, then it is common ground that the advice given by Mr. Westacott was incorrect. Stated briefly, in the absence of a provision in a Will directing that the executor be paid a commission, an executor is entitled to commission only if all the beneficiaries have full capacity and give informed consent to the payment of commission, or if an order for the payment of commission is made by the Supreme Court.
It is necessary for the Tribunal to determine whether the conduct of Mr. Hession in taking executor's commission would be reasonably regarded as disgraceful or dishonourable by legal practitioners of good repute and competency. In making that determination the evidence of Mr. Hession and the letter from Mr. Westacott will be taken into account.
Counsel for the Commissioner placed considerable reliance upon the decision of the NSW Court of Appeal in Law Society of NSW v Moulton [1981] 2 NSWLR 736. Mr. Moulton was a solicitor. He regularly borrowed money from his clients, without giving his clients sufficient information to enable them to make informed decisions as to their investments. He used the money to trade in land and develop real property. In one case, he was the executor of a Will and held legacies in trust for infant beneficiaries. He borrowed the legacies for the same purpose, not being an authorised trustee investment.
Moulton's Case and the present case have factual similarities. In both cases, the solicitor was the executor of a Will and held monies in trust for beneficiaries in the estate. In both cases, the solicitor contended that he was not aware of legal restrictions placed upon the use of trust monies. In both cases, the conduct of the solicitor as trustee was of financial benefit to the solicitor. In both cases, there was no allegation that monies were lost. Bearing in mind these similarities, the following passages in Moulton's Case are pertinent:

[56]

Charge 4 is the charge of misconduct at common law arising out of the letter sent by Mr. Hession to Mrs. Daley's children on 14 October 2005.
The letter provided information about executor's commission, and then asked the recipients to "give an indication as to whether you agree with the payment of commission and at what rate".
The thrust of Charge 4 is that some of the information set out in the letter was false, and that the letter omitted relevant information. The conduct of Mr. Hession in sending the letter in that form is alleged to be disgraceful or dishonourable.
The letter is alleged to have been deficient in five respects. First, it is alleged that the letter falsely represented that the Supreme Court had formulated guidelines for the payment of executor's commission. Secondly, it is alleged that the letter falsely represented that commission can be payable at a rate up to 7% of the realizable value of the estate. Thirdly, it is alleged that the letter omitted to mention that Mr. Hession had received advice from Mr. Westacott in relation to executor's commission. Fourthly, it is alleged that the letter omitted to mention the provisions of s.65 of the Administration and Probate Act. Fifthly, it is alleged that the letter asserted that an executor is entitled to commission of between 3% and 5% on the income earned by an estate, but omitted to set out the basis for that assertion.
Counsel for the Commissioner drew three cases to the attention of the Tribunal. In each case a legal practitioner was both the executor of a Will and the solicitor handling the administration of the estate. In each case the practitioner wrote a letter to the beneficiaries seeking their consent to the payment of commission. In each case it was submitted that the letter was ineffective because it failed to provide all of the information required to enable the beneficiaries to make an informed decision about the payment of commission.
In Patterson and Woodhouse v Sharkeys [1998] VLPT 11 the beneficiaries had signed a form of consent. Their consent was set aside for two reasons. The first reason was that the executor had failed to provide full and accurate information to the beneficiaries, in breach of his fiduciary obligations, with the result that the consent of the beneficiaries was not an informed consent. The second reason was that the letter attempted to persuade the beneficiaries to consent to the payment of commission, and the executor had not rebutted the presumption of undue influence.
In Walker v D'Alessandro [2010] VSC 15 the beneficiaries again had signed a form of consent. Their consent was set aside because the executor had failed to provide full and accurate information to the beneficiaries, in breach of his fiduciary obligations, with the result that the consent of the beneficiaries was not an informed consent. The breach included a false representation that an interim distribution to the beneficiaries would need to be delayed if the beneficiaries did not consent to the payment of commission [33]. T Forrest J described the fundamental obligation of an executor seeking consent to the payment of commission at [27]:

At a glance

Court

Decision date

Source

Judgment (97 paragraphs)

Legal Services Commissioner v Hession (Legal Practice) [2010] VCAT 1328 (11 August 2010)

Legal Services Commissioner v Hession (Legal Practice) [2010] VCAT 1328 (11 August 2010)

Parties