Victorian Civil and Administrative Tribunal|2013-05-14|Before: Mr P

Legal Services Commissioner v Simon (Legal Practice) [2013] VCAT 736 (14 May 2013)

Michael Keith McGarvie - Legal Services Commissioner

Legal Services Commissioner v Simon (Legal Practice) [2013] VCAT 736

Mr Simon must, within six months of the date of this order, undertake compulsory professional development training in ethics approved by the applicant. That training must be three CPD units as defined in the Law Institute Professional Development Rules 2008. When Mr Simon has completed that training he must provide proof of completion to the applicant.

Mr Simon must pay the applicant's costs of this proceeding on the County Court scale to be agreed and, in default of agreement, to be assessed by the Victorian Costs Court.

This case revolved around two letters written by a solicitor, Paul Simon, to a money lender. The letters gave undertakings that Mr Simon's firm would pay money owed to the lender by Mr Simon's clients. Mr Simon's firm failed to repay the money, the lender complained to the Legal Services Commissioner, and the Commissioner laid charges of professional misconduct against Mr Simon.

Mr Simon has been a solicitor since 1989. In 2008 he was working as an employee solicitor in a firm called MW Law. Two of his clients, Mr Graham and Mr Wilson, were pursuing claims against the Victorian WorkCover Authority. Mr Simon referred both clients to a money lender, J.P. Finance and Investment Pty Ltd, which carried on business as JP CreditLine. JP CreditLine lent money to both Mr Graham and Mr Wilson.
In the case of Mr Graham's loan, on 15 July 2008 Mr Simon sent a fax to JP CreditLine's Managing Director, Delilah John, which referred to "Matter: David Graham" and read:

Please note that our client's Workcover claim is for compensation in excess of $30,000 and that we expect settlement and payment of monies to our client in the next eight weeks before 31 August 2008.

Mrs John then sent Mr Simon an irrevocable authority signed by Mr Graham and a letter for Mr Simon's signature.
The irrevocable authority was dated 15 July 2008, was:
- 〉 from: David Graham
- 〉 to: Paul Simon - MW Law barristers and solicitors

I request that, upon receipt of settlement of the agreement for David Graham you forward JP Finance and Investment Pty Ltd T/A JP CreditLine the sum of $8500.00.

Total amount of $8500.00 is for Loan Number 261 of $4250.00 and Loan Number 273 for a further $4250.00.

This request is irrevocable and can only be withdrawn by the written authority of JP Finance and Investment Pty Ltd.

The letter, which Mrs John sent to Mr Simon, was dated 15 July 2008 was:
- 〉 from: MW Law barristers and solicitors.
- 〉 to: JP CreditLine, attention: Delilah John

We MW Law Barristers & Solicitors hereby acknowledge the irrevocable authority dated Tuesday, July 15, 2008, and signed by David Graham our client and will account to you for the monies being $8,500.00.

Total amount owing is for Loan Number 261 for $4,250.00 and Loan Number 273 for a further $4,250.00.

Payment will be made by 30th September 2008 by cheque.

Mr Simon signed the letter and sent it back to Mrs John.
JP CreditLine then lent Mr Graham $6,000, to be repaid on 30 September 2008 together with fees of $2,500.
Mr Graham's WorkCover claim has not been settled and Mr Graham has not paid the monies owing under his loan agreement with JP CreditLine.
The documents and procedure for JP CreditLine's loan to Mr Wilson were the same as the documents and procedure for Mr Graham's loan, but with three differences:
- 〉 First, there was no initial fax from Mr Simon giving Mrs John an expected date for settlement of Mr Wilson's WorkCover claim.
- 〉 Secondly, while the letter, which Mrs John sent to Mr Simon headed RESPONSE FROM PAYOR TO IRREVOCABLE AUTHORITY was the same as the letter about Mr Graham's loans which she sent for Mr Simon to sign, it differed in that Mrs John left blank the date for payment, in the final paragraph.
- 〉 The third point of difference was that, while Mr Wilson's authority was dated 15 July 2008, the date "16/07/08" appears in hand beneath Mr Wilson's signature, suggesting that Mr Wilson signed the authority on that date.
Mr Simon returned the signed Response from Payor to Irrevocable Authority letter to Mrs John, JP CreditLine lent Mr Wilson $3,000 and Mr Wilson agreed to repay that amount, plus fees of $1,250.
Like Mr Graham, Mr Wilson has not paid the monies owing under the loan agreement although, unlike Mr Graham, Mr Wilson has received settlement monies from the Victorian WorkCover Authority.
On 15 February 2010 Mrs John complained to the Legal Services Commissioner about Mr Simon's failure to make payment of the monies owing to JP CreditLine by his clients.
On 17 October 2012 the Legal Services Commissioner applied to this Tribunal for an order under Division 4 of Part 4.4 of the Legal Profession Act 2004.
At the hearing evidence was given by Mr Simon and by Mrs John.

There were two charges laid by the Legal Services Commissioner. Each has the same terms, the only difference being that one referred to the circumstances of Mr Graham's loan and other referred to the circumstances of Mr Wilson's loan. The charge relating to Mr Graham's loan read as follows:

Professional misconduct within the meaning of section 4.4.3(1)(a) of the Act in that the Respondent gave an undertaking to JP CreditLine by letter dated 15 July 2008 regarding the repayment of monies loaned by JP CreditLine to his client, Mr David Graham (also known as Mr David Spreckley), compliance with which required the co-operation of a third party (WorkCover) where this third party was not a party to the undertaking and whose co-operation the Respondent could not guarantee.

Mr Simon argued that the Response from Payor to Irrevocable Authority letter was merely an acknowledgement that he would comply with the irrevocable authority. Together, he said, his fax and the Response from Payor to Irrevocable Authority letter amounted to no more than a promise to pay if and when settlement monies were paid to MW Law. The settlement monies were never received by MW Law, so Mr Simon could not be criticised for the fact that MW Law did not pay monies to JP CreditLine.
I do not accept Mr Simon's argument. I think that it is clear that Mr Simon promised that the settlements would take place, that the moneies would be paid to MW Law and that MW Law would pay JP CreditLine from those monies.
It is true that Mr Simon did not specifically promise that MW Law would receive settlement monies. He did, however, plainly lead Mrs John to believe that that would happen. Three things are relevant. First, the context. Both Mr Simon and Mrs John well knew that JP CreditLine was planning to lend not insignificant sums on an unsecured basis and that JP CreditLine expected to get its money back from the settlement proceeds. Secondly, the words. In Mr Graham's case the fax of 15 July 2008 said, "... We expect settlement and payment of the monies to our client in the next eight weeks before 31 August 2008". The Response from Payor to Irrevocable Authority letters of 15 July 2008 said, "We MW Law ... will account to you for the monies being $8500.00" and, "Payment will be made by the 30th September 2008 via cheque". Thirdly, what was not said. There was no hint in the irrevocable authority, the fax or the Response from Payor to Irrevocable Authority letters that the settlement monies would not be received.
It is plain, when the fax and the Response from Payor to Irrevocable Authority letters are considered against the factual background, that Mr Simon was telling JP CreditLine that MW Law would receive settlement monies and would pay JP CreditLine from those monies by 30 September 2008. But on 15 July 2008 Mr Simon knew, or ought to have known that it would not be possible for MW Law to pay settlement monies to JP CreditLine. That was because of the operation of section 97(4) of the Accident Compensation Act 1985, which said:

(4) Compensation under this Act is absolutely inalienable whether by way or in consequence of any sale, assignment, charge, execution, bankruptcy, attachment, legal process or by operation of law or any other means, and no claim may be set off against compensation under this Act.

Further, in the case of Mr Graham, on 15 July 2008 his claim had not been settled, so the Victorian WorkCover Authority had not even promised to make payment.
The vice, then, was to create in Mrs John's mind the belief that MW Law would be receiving settlement monies and would be able to pay part of those settlement monies to JP CreditLine. In Mr Wilson's case Mr Simon did so when he knew, or ought to have known that that would not happen. In Mr Graham's case, there is the additional element that Mr Graham's claim was not even settled.
Mr Simon also argued that the fact that the Response from Payor to Irrevocable Authority letters were written by Mrs John meant that "JP CreditLine were the authors of their own woes". I disagree. The authorship of the letters is not material; it is Mr Simon's adoption of the letters by signing them and, in Mr Wilson's case, by inserting the payment date of 30 September 2008, which are significant.
In evidence Mr Simon stressed that when he said in his fax of 15 July 2008 that "... We expect settlement and payment of the monies to our client in the next eight weeks before 31 August 2008", he was merely giving an estimate. Perhaps the time frame was an estimate, but that has no bearing on what is complained of by the Legal Services Commissioner, namely the creation of a false belief in the mind of Mrs John that settlement would occur and that MW Law would be able to and would pay JP CreditLine from the settlement monies.

The charges against Mr Simon allege that Mr Simon was guilty of professional misconduct by giving undertakings to JP CreditLine. Mr Simon did not use the word "undertaking", but the word does not need to be used in order for an undertaking to be given; an undertaking is simply a promise, although the word does come loaded with implications of solemnity. The Shorter Oxford English Dictionary defines an undertaking as:

Clearly, in the Response from Payor to Irrevocable Authority letters of 15 July 2008 Mr Simon made promises to pay and, as such, gave undertakings.

The charges laid by the Legal Services Commissioner assert that Mr Simon's behaviour constituted professional misconduct, while Mr Simon argued that, at most, his behaviour only constituted unsatisfactory professional conduct.
The Legal Profession Act 2004 defines professional misconduct in section 4.4.3(1):

For the purposes of this Act - professional misconduct includes -

(a) unsatisfactory professional conduct of an Australian legal practitioner, where the conduct involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence.

The Act defines unsatisfactory professional conduct in section 4.4.2 as follows:

unsatisfactory professional conduct includes conduct of an Australian legal practitioner occurring in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner.

Section 4.4.4(a) of the Act identifies breach of the legal profession rules as conduct capable of constituting either professional misconduct or unsatisfactory professional conduct. The Professional Conduct and Practice Rules 2005 have this to say about undertakings:

27.1 The practitioner who, in the course of providing legal services to a client, and for the purposes of the client's matter communicates with a third party orally, or in writing, in terms which, expressly, or by necessary implication, constitute an undertaking on the part of the practitioner to ensure the performance of some action or obligation, must honour the undertaking given strictly in accordance with its terms, and within the time promised (if any) or within a reasonable time.

Breach by a solicitor of an undertaking is "a matter of the greatest concern" - Macnamara DP in Legal Services Commissioner v Johnston [2011] VCAT 1366. Mr Simon argued that, while his behaviour may have been imprudent, it was neither professional misconduct nor unsatisfactory professional conduct. This was so, he said, because his breach was not substantial as he "had not set the fundamental premise on which the whole thing was constructed". In saying this, Mr Simon was referring to the fact that Mrs John had drawn both the irrevocable authorities signed by Mr Simon's clients and the Response from Payor to Irrevocable Authority letters which Mr Simon signed. As I observed above, the authorship of the documents is irrelevant, as is the identity of the person who proposed the arrangements. What is significant is that part which Mr Simon chose to play.
As Professor Dal Pont observed:

Because the courts, and the lawyers and third parties must rely on the representations and assurances of lawyers in the course of their practice, the law expects strict compliance with lawyers' undertakings.

"Lawyers' Professional Responsibility" fifth edition at page 724.

In Mr Simon's case, the two undertakings given were personal ones. His failure to honour them does not stem from neglect or refusal to do something which was within his power to do. It stems from factors beyond his control and as such, Mr Simon's failure is not the worst type of breach of undertaking. Nevertheless, Mr Simon's breaches are not trifling. Mr Simon conceded that his actions may have been imprudent and may have shown a lack of judgement, but argued that they were no more than that. They did not, he said, amount to either professional misconduct or to unsatisfactory professional conduct.
The evidence of Mrs John, however, gives the lie to that argument. Mrs John, whose evidence was not challenged, said that the fact that the letters were signed by a solicitor who had the carriage of the claims of Messrs Graham and Wilson was the reason for JP CreditLine's making the loans. Mr Simon's actions were imprudent and they did reveal a lack of professional judgement, but they resulted in JP CreditLine's lending money which has still not been repaid.
Mr Simon submitted that the classical definition of professional misconduct was: that which would be considered disgraceful or dishonourable by the solicitor's professional brethren of good repute and competency. That, known as the Allinson test, is the common law test for misconduct (Allinson v General Council of Medical Education and Registration [1894] 1 KB 750). But the common law is not the prism through which Mr Simon's actions must be viewed. Rather, the test to be applied is the one prescribed by section 4.4.3(1)(a) of the Legal Profession Act 2004; it is that section which the Commissioner says that Mr Simon has breached.
Ordinarily, non-compliance with an undertaking will constitute professional misconduct. Thus in Law Society of New South Wales v Martin [2002] NSWADT 27, breach of a solicitor's undertaking "to provide evidence of payment" of accounts by the solicitor's client was found to be professional misconduct, even though the solicitor argued that the undertaking was conditional on his client's paying the accounts. In that sense, the case resembles the present one, although, unlike Mr Simon, the solicitor had expressed contrition and had compensated the third party.
Again in New South Wales, the case of Law Society of New South Wales v Hinde [2005] NSWADT 199 dealt with an undertaking which was that, "We undertake and confirm your commission to be 2.5% plus GST will be paid on settlement". The solicitor's client did not pay the commission; ultimately the solicitor paid the commission from his own pocket. The Tribunal noted that:

The practitioner admitted the foolishness of giving an undertaking but once it was given in unconditional terms his obligation was to honour the undertaking at settlement of the sale. He gave the undertaking; he should have ensured it was satisfied by himself or one of the parties at the settlement of the conveyancing matter.

The Tribunal found that the solicitor was guilty of professional misconduct.

In this Tribunal breaches of undertakings have been viewed as professional misconduct on a number of occasions. Thus, in Legal Services Commissioner v Johnston (ibid.), Macnamara DP approved orders finding professional misconduct for breach of an undertaking. In that case, the solicitor's undertaking was to not part with proceeds of a sale. The undertaking was frustrated by the solicitor's client withdrawing the solicitor's instructions to act.
In Legal Services Commissioner v Sapoutzis [2010] VCAT 1124 a solicitor had given an undertaking to her client's former solicitor that "we" would pay the former solicitor's costs. The solicitor ultimately paid those costs, as she had undertaken to do. The Tribunal found the solicitor guilty of professional misconduct.
In relation to Mr Simon's argument that his conduct at worst amounted to unsatisfactory professional conduct, the Queensland case of Legal Services Commissioner v McColm [2000] QLPT 14 is instructive. In that case, the day before settlement of the sale of a business, the solicitor wrote to the solicitors for the purchaser, undertaking "to hold the sum of $70,000 of the purchase Price pursuant to the terms of special condition 10 of the contract of sale". Subsequently, and as a result of what was accepted as being human error, the $70,000 was paid out to the vendor. The Tribunal concluded that:

... this conduct fell just short of the level of professional misconduct and that it should be characterised as unsatisfactory professional conduct.

McColm's case is in marked contrast to the case of Mr Simon. In the former, the undertaking was breached through sheer inadvertence. In Mr Simon's case, undertakings were given which could never have been complied with. The failures to honour those undertakings were breaches of rule 27.1 of the _Professional Conduct and Practice Rules_2005. I am satisfied that Mr Simon's conduct constituted professional misconduct and that the charges are proven.
In relation to penalty, while the misconduct is serious it is, as was the case in Law Society of New South Wales v Hinde (ibid.), "a one-off transgression and, on its own, does not call into question the fitness to practice issue ". I have, however, noted Mr Simon's apparent lack of contrition. The Legal Services Commissioner urged that in Mr Simon's case the appropriate penalty would be a reprimand and the requirement that Mr Simon should undertake compulsory professional development study. I think that the course urged by the Commissioner is reasonable. I will adopt it and will also order that Mr Simon pay the Commissioner's costs.

Legal Services Commissioner v Simon

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Judgment (41 paragraphs)

Legal Services Commissioner v Simon (Legal Practice) [2013] VCAT 736 (14 May 2013)

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