Shalhoub v Law Society of NSW

Legislation

Although the Legal Profession Act 1987 (NSW) was repealed by the Legal Profession Act 2004 (NSW) the parties agree that this matter is governed by the 1987 Act because the failure to account is said to have occurred prior to the repeal of that Act. Clause 22A of Schedule 9 (Savings, transitional and other provisions) to the 2004 Act appears to enable the present proceedings to be brought under either Act. The provisions under consideration are relevantly identical. I shall discuss the matter relying on the provisions of the 1987 Act.
The Act relevantly provides: 79A Meaning of "failure to account" (1) In this Division, a reference to a failure to account is a reference to a failure by a solicitor to account for, pay or deliver money or other valuable property received by, or entrusted to, the solicitor or an associate in the course of the solicitor's practice (in the case of an associate, being money or valuable property under the direct or indirect control of the solicitor). (2) This section applies only to a failure to account that arises from an act or omission of the solicitor or associate: (a) for which the solicitor or associate has been convicted of a crime or an offence involving dishonesty, or (b) which the Law Society Council has found to be dishonest. (3) A finding by the Law Society Council under subsection (2) (b) that an act or omission is, or is not, dishonest is final and conclusive. (4) This section applies whether the money or other property was received by the solicitor or associate as trustee, agent, bailee or stakeholder or in any other capacity. (5) This section applies whether the failure to account, or the act, omission, conviction or finding of dishonesty, took place before or after the commencement of this Act. 79B Meaning of "dishonest default" (1) In this Division, a reference to a dishonest default is a reference to a dishonest act or omission (other than a failure to account) by the solicitor in the course of the solicitor's practice, but only if: (a) a final judgment debt has been obtained against the solicitor as a result of the dishonest act or omission, and (b) the judgment debt is not fully satisfied. (2) A dishonest act or omission is an act or omission: (a) for which the solicitor has been convicted of a crime or an offence involving dishonesty, or (b) which a State or Commonwealth Court has, in the course of delivering a final judgment, found to be dishonest, or (c) which the Tribunal has found to be dishonest in connection with a final determination of the Tribunal. (3) A judgment debt is fully satisfied if the solicitor provides adequate security to cover the relevant judgment debt or pays the relevant judgment debt by agreed instalments. (4) This division does not apply to a dishonest default unless the relevant judgment debt remains unsatisfied for at least 3 months after it was obtained (or an agreed instalment remains unpaid for at least 3 months after it was due to be paid). … 80 Claims against Fidelity Fund (1) The Fidelity Fund is held, and is to be applied, by the Law Society for the purpose of compensating persons who suffer pecuniary loss because of a failure to account or a dishonest default. (1A) Without limiting subsection (1), a claim lies against the Fidelity Fund for the purpose of compensating persons who suffer pecuniary loss: (a) occurring wholly in this State from a failure to account or a dishonest default (whether or not in the course of practising in this or another State) of a solicitor who is a local legal practitioner or a contributing interstate legal practitioner, or (b) occurring both in this State and in another State or a Territory from a failure to account or a dishonest default (whether or not in the course of practising in this or another State) of a solicitor who is a local legal practitioner, or (c) occurring both in this State and in another State or a Territory from a failure to account or a dishonest default (in the course of practising in this State) of a solicitor who is a contributing interstate legal practitioner, or (d) occurring in this State or another State or a Territory, or both, in circumstances in which it cannot be determined precisely where the loss occurred, from a failure to account or a dishonest default (whether or not in the course of practising in this or another State) of a solicitor who is a local legal practitioner, or (e) occurring in this State or in another State or a Territory, or both, in circumstances in which it cannot be determined precisely where the loss occurred, from a failure to account or a dishonest default (in the course of practising in this State) of a solicitor who is a contributing interstate legal practitioner, or (f) in any other circumstances in which an agreement or arrangement under section 48ZC provides that a claim is payable. (1B) Without limiting subsection (1), a claim lies against the Fidelity Fund for the purpose of compensating persons who suffer pecuniary loss occurring wholly in this State from a failure to account or a dishonest default (whether or not in this State) of a locally registered foreign lawyer who has paid a contribution required to be paid in accordance with regulations under section 78A. (2) A claim against the Fidelity Fund is to be made in writing in the form approved by the Law Society. (3) If a claim is made against the Fidelity Fund, the Law Society Council must: (a) investigate the claim, and (b) determine the claim by wholly or partly allowing, compromising, settling or disallowing it. (4) If a solicitor has failed to account or made a dishonest default, the Law Society Council may wholly or partly disallow a claim: (a) if satisfied that the claim does not have sufficient connection with practice as a New South Wales solicitor in Australia (for example, because the claim arises from the receipt or entrustment of money or valuable property that was received by or entrusted to a solicitor outside Australia and the act or omission giving rise to the claim occurred outside Australia), or (b) if the person who made the claim knowingly assisted in or contributed towards, or was a party or accessory to, the act or omission from which the failure to account or dishonest default arose, or (c) if satisfied that the negligence of the person who made the claim contributed to the loss, or (d) if satisfied that the conduct of the transaction with the solicitor was illegal, and the person who made the claim knew or ought reasonably to have known of that illegality, or (e) if satisfied that proper and usual records were not brought into existence during the conduct of the transaction (or were destroyed), and the person who made the claim knew or ought reasonably to have known that such records would not be kept or would be destroyed. (4A) Subsection (4) does not limit the Law Society Council's power to otherwise disallow a claim. (5) A person is not prevented from making a claim just because, after the act or omission by a solicitor from which the failure to account or the dishonest default arises, the solicitor: (a) being a natural person, dies or ceases to be a legal practitioner or interstate legal practitioner, or (b) (Repealed) (c) ceases to practice as a solicitor, or (d) ceases to hold a current practising certificate or interstate practising certificate. (6) If the amount of a claim against the Fidelity Fund does not exceed $2,500 or such other amount as may be prescribed, the Law Society Council may allow the claim after waiving compliance with such of the provisions of this Division as it thinks fit. (7) A claim does not lie against the Fidelity Fund unless the prospective claimant notifies the Law Society of the failure to account or dishonest default: (a) in the case of failure to account - not later than 3 months after the prospective claimant becomes aware of the failure, or (b) in the case of dishonest default - not later than 3 months after the prospective claimant becomes aware that there has been a failure to satisfy the relevant judgment debt for the period required before a claim can be made, or (c) if the Law Society Council allows further time after the period of 3 months referred to in paragraph (a) or (b) - within the further time allowed, or (d) if the Supreme Court allows further time after the Law Society Council refuses to do so - within the time allowed by the Supreme Court. Note. There are constraints on the making of claims against the Fidelity Fund in respect of certain mortgage work carried out by solicitors. See Part 9. … 87 Final date for making claim on failure to account (1) If the Law Society Council considers that there has been, or may have been, a failure to account by a solicitor, it may publish a notice in the form approved by the Attorney General that fixes a final date on or before which claims relating to the failure to account must be made. (2) The final date fixed by the notice for making a claim must be a date that is at least 3 months later than the first or only publication of the notice. (3) The notice must be published: (a) in a newspaper published and circulating in the district in which the solicitor is, or was, practising or carrying on business, and (b) in a newspaper published and circulating in Sydney. (4) A claim arising from a failure to account and made after the final date fixed by the notice is barred unless: (a) the Law Society Council allows further time, or (b) the Supreme Court allows further time, if the Law Society Council refuses to do so. (5) … (6) The Law Society may, after such date as it may fix in each case, pay from the Fidelity Fund successful claims arising from a failure to account. 88 Final date for making claim on dishonest default (1) If the Law Society Council considers that there has been, or may have been, a dishonest default by a solicitor, it may give to any prospective claimant a copy of the approved claim form and notification of the date (being not less than 3 months) by which the claim must be made. (2) A claim arising from dishonest default by a solicitor and made after the date so notified to the claimant is barred unless: (a) the Law Society Council allows further time, or (b) the Supreme Court allows further time, if the Law Society refuses to do so. (3) The Law Society may, after such date as it may fix in each case, pay from the Fidelity Fund successful claims arising from a dishonest default. … 90D Proceedings against Law Society (1) An action does not lie against the Law Society in relation to the Fidelity Fund except: (a) with the leave of the Law Society Council, or (b) as provided by this section. (2) If the Law Society Council wholly or partly disallows a claim, it must (without delay) give written notice of the disallowance to the claimant. (3) A claimant may appeal to the Supreme Court against: (a) a decision by the Law Society Council to wholly or partly disallow a claim, or (b) a decision by the Law Society Council to reduce the amount allowed in respect of a claim, by virtue of section 80A, or (c) a failure by the Law Society Council to determine a claim within such period as is prescribed by the regulations. (4) On an appeal under this section, the Supreme Court may make such order as it thinks fit. (5) If the Law Society Council wholly or partly disallows a claim relating to a failure to account in respect of which a solicitor or an associate has been convicted of an offence involving dishonesty: (a) the claimant may take proceedings in the Supreme Court as for a debt due by the Law Society, and (b) in any such proceedings, the defences that would have been available to the solicitor are available to the Law Society. Any such claimant may take proceedings instead under subsection (3).

Consideration

The Plaintiff does not seek to maintain the original Statement of Claim filed. The single issue for determination on the Plaintiff's Motion was whether the Plaintiff or Plaintiffs should be entitled to file an Amended Statement of Claim seeking relief other than an order under s 80(7)(d) of the Act.
No particular arguments were addressed to the form of the pleading which, as I have noted earlier, is somewhat deficient. Moreover, a number of matters pleaded could not be said to be material facts within the meaning of the Rules. Some of the paragraphs detailing the medical condition of the Plaintiff and others ought to be particulars. On the other hand, dates of notification of the Law Society would seem to me to be material facts if the Plaintiffs are seeking an order under s 80(7)(d) to justify further time being allowed.
The evidence of what was decided by the Fidelity Fund is clear. It was not a disallowance of the claim. It was a refusal to allow further time after the period of three months to notify the Law Society of the claim.
Section 80 governs the making of the claim and the basis for allowing and disallowing a claim. The section contains its own limitation provision in sub-s (7). That sub-section is a gateway provision. A claim does not lie against the Fund unless it is made in the time stipulated or in any further period allowed by either the Law Society Council or by this Court.
The appeal provisions in s 90D(3) are only available where there has been a decision by the Law Society Council to wholly or partly disallow a claim, to reduce the amount allowed by virtue of s 80A or where there is a failure to determine the claim within the time. If a claim does not lie under s 80, there is no claim either to determine or to disallow.
In Fincorp Investments Limited v Trazmar Pty Limited [2012] NSWSC 506 a claim was made on the Fidelity Fund by Trazmar Pty Ltd but the claim was not made within the statutory time limit. The matter was governed by the Legal Profession Act 2004 (NSW). There was some doubt about whether the 1987 Act or the 2004 Act applied but Schmidt J noted at [6] that it was common ground between the parties that the provisions of the two Acts were relevantly the same. I am satisfied from my examination of the two Acts, as noted earlier, that the provisions of the two Acts are relevantly the same. In that case, Trazmar said that it had a right of appeal under s 452 of the 2004 Act (the equivalent of s 90D of the 1987 Act) because the Law Society had both refused an extension of time under s 439(2)(b) (the equivalent of s 80(7)(c) of the 1987 Act) and also determined the claim on the merits.
The notification by the Law Society was that the application for the extension of time had been refused. Grounds were given for the refusal of the extension of time. Reasons were then provided which concluded with the following: The Committee indicated, for the benefit of the claimants, that had it allowed further time, it would, nevertheless, have wholly disallowed the claim. While the Committee may have concluded that there had been failure to account or default in relation to the title deeds in question, the following matters would have lead the Committee to disallow the claim:- …
Trazmar pointed to those reasons to argue that the claim had been considered on its merits. It may be seen, therefore, that Fincorp was a stronger case for the claimant to argue that there had been a disallowance of the claim and not just a refusal to permit the claim to be brought out of time.
Justice Schmidt said: [33] … The reasons given included an explanation that one of the reasons for the refusal of the extension application, was the view reached as to the merits of the claim. That was plainly a relevant consideration. After all, there would be no point in granting an extension in respect of a potentially worthless application. There was, nevertheless, neither a decision, nor even a purported decision made by the Law Society, as to the merits of Trazmar's claim. Nor was it advised that such a decision had been made. [34] That approach was consistent with the statutory scheme, which did not empower the Law Society to determine the merits of a claim which was time barred. [35] On the face of the relevant minutes recording the Law Society's decision, no decision was purported to be made as to the merits of the claim. The reasons given as to the merits, supported the decision to refuse the extension of time application. That approach is consistent with the scheme of the Act. At the time that Trazmar first approached the Law Society in 2009, a claim did not lie under the 2004 Act in respect of the alleged default, because: Firstly, it had not made a claim within the time specified in s 437 and had sought no extension of that time, with the result that the claim was barred (see s 439 (2)) ; and Secondly, it had not made a claim within the extended period which flowed from the operation of s 439, given the Law Society's advertisement under s 438. … [39] It follows that, despite the advice Trazmar received from the Law Society as to its views of the merits of the claim, the fact remains that on the proper construction of the 2004 Act, the Law Society had no power to make any decision as to the merits of Trazmar's claim, the application for an extension of time having been refused. In the result, there can be no appeal brought to this Court under s 452 in respect of the merits of the claim. Such an appeal depends on the Law Society having made a decision under s 442, either to wholly or partly disallow Trazmar's claim, or to reduce the amount allowed in respect of its claim. Under this statutory scheme, a decision which rests on other grounds, such as those provided in s 456, for example, does not give rise to a right to appeal (see s 456(5)). [40] The Law Society having refused to exercise the discretion it was given by s 439(2)(b) to allow Trazmar further time to bring its claim, it has no power to determine the merits of the claim, unless its refusal is successfully appealed to this Court under s 439(2)(c). Until that occurs, Trazmar's claim is barred. It is not entitled to have the claim investigated by the Law Society under s 436; to have it determined by the Law Society under s 442; or to have any payment made to it out of the Fidelity Fund. Such payments are governed by the provisions of s 455, which provides: 455 Payments for defaults (1) The Fidelity Fund is to be applied by the Law Society Council for the purpose of compensating claimants in respect of claims allowed under this Part in respect of defaults to which this Part applies. (2) An amount payable from the Fidelity Fund in respect of a claim is payable to the claimant or to another person at the claimant's direction. [41] To construe s 436 of the Act as obliging the Law Society to investigate a claim which is barred, does not accord with the purpose of the Act. If the claim is barred, it is one which an applicant has no right to pursue under s 436. On the proper construction of this statutory scheme, only claims in respect of alleged default which are not time barred, need be investigated by the Law Society.
I entirely agree, with respect, with the reasons of Schmidt J. Further, they are entirely applicable to the statutory scheme under the 1987 Act which is relevantly the same as that under the 2004 Act.
The Plaintiff submitted, however, that Schmidt J's attention had not been drawn to s 63 of the Supreme Court Act nor to the first instance decision of Greg James J in Glenorcy Pty Limited v Law Society Of New South Wales [2004] NSWSC 464.
Section 63 provides: 63 Final determination The Court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided.
Glenorcy concerned an appeal under s 90D of the 1987 Act from a disallowance of claims made by the Fidelity Fund. At issue was the nature of the appeal under s 90D - see at [28] and [31]. One part of that dispute concerned whether, if error was demonstrated, the matter should be remitted to the Law Society or whether the Court could make a decision on the material before it.
Greg James J said at [32]: [32] Section 90(4) (scil, s 90D(4)) confers full power on the court, just as is conferred elsewhere in the Act where similar words are used and is conferred under other Acts, again where similar words are used. I do not see that there is any reason, having regard to my view of the proper construction of s.80(4) and my view that the concept of insufficiency to which it refers involves a matter of fact rather than a matter of subjective opinion why I should not decide the question. All the necessary materials are before me. For the court to determine the matter accords with the principles in House (supra), accords with the general law relating to review of an administrative decision and accords with s.63 of the Supreme Court Act 1970 which provides:-:- The court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided.
The Plaintiff in the present case sought to rely on that passage to argue that s 63 empowered the Court in the present case to consider the merits of the claim by construing s 90D as permitting a challenge to what was said to be the disallowance by the Fidelity Fund of the Plaintiff's claim.
In my opinion, what is said in Glenorcy is of no assistance to the Plaintiff in the present case. There was a properly brought appeal under s 90D in that case. Section 63 is a facilitative provision to prevent formalities and failures to adhere strictly to procedures from inhibiting the final determination of claims so that all necessary orders can be made. So, for example, the section would allow in Family Provision proceedings orders and declarations about the proper construction of a will: Langley v Langley (1974) 1 NSWLR 46 at 48. Similarly, the section provides jurisdiction in simple cases to enforce a settlement or compromise by motion in the original proceedings: Kevern v Marshall [2004] NSWSC 300 at [4].
Section 63 cannot be construed as overriding or removing limitations in other specific provisions providing an appeal to this Court.
The Defendant submitted that it would be inappropriate, in any event, for the Court to exercise any jurisdiction in respect of the claim other than an extension of time, having regard to the definition of "failure to account" in s 79A(2)(b). The starting point for this is s 80 which provides that the Fidelity Fund is to be held and applied by the Law Society for the purpose of compensating persons who suffer pecuniary loss because of a "failure to account" or a "dishonest default". The definition of "failure to account" is contained in s 79A. The only failure to account that is compensable is one that arises from an act or omission of the solicitor for which the solicitor has been convicted of a crime or an offence involving dishonesty (not the position in the present case) or which the Law Society Council has found to be dishonest. Sub-section (3) then goes on to provide that a finding by the Law Society Council that an act or omission is, or is not, dishonest is final and conclusive.
The other way a person can be compensated is if there is a dishonest default but that requires, as s 79B makes clear, a final judgment against the solicitor as a result of the dishonest act or omission, and the judgment debt is not fully satisfied. That is not the position in the present case.
In Vassiliadis v Law Society of NSW (1997) 41 NSWLR 383 the alleged failure by the solicitor was not one that fell within the definition in s 79A nor the definition in s 79B. That is, the solicitor had not been convicted of an offence involving dishonesty and the Law Society had not found the act to be dishonest. In that case the Law Society informed the claimant that it had disallowed the claims on the ground that there was insufficient evidence and documentation produced to establish entrustment of the monies, that the solicitor failed to account and that the solicitor was dishonest. An appeal was brought under s 90D of the Act.
Sheller JA (with whom Dunford and Sperling AJJA agreed) said (at 387): However, whatever may be the ambit of the appeal, the ultimate question remains the same, namely whether the claimant is entitled to compensation from the Fund having suffered "pecuniary loss because of a failure to account". The Act stated clearly what was meant by failure to account. Relevantly, it could only be a failure arising from an act or omission of the solicitor or associate which the Law Society Council had found to be dishonest. A challenge on appeal to such a finding would have led nowhere. If the Council had not found the act or omission to be dishonest, the fact that the Court did so find would not bring the failure within the definition of failure to account. Equally, if the Council had found that the act or omission was dishonest, the fact that the Court found otherwise would not take it outside the definition. In short, the Fidelity Fund could only be applied for the purpose of compensating persons who suffered pecuniary loss "because of a failure to account". Unless that definition was satisfied there was no basis upon which the Court could intervene to uphold a claim.
In the present case there has been no finding by the Law Society Council of dishonesty. In those circumstances any appeal under s 90D would be doomed to fail: Whitfield v The Law Society of New South Wales (Unreported - 4 December 1998, Greg James J); Barber v The Law Society of New South Wales [2000] NSWSC 1164 at [9]; Law Society of New South Wales v Glenorcy Pty Ltd [2006] NSWCA 250; (2006) 67 NSWLR 169 at [14].
No basis has been pleaded to justify relief under s 87 of the Act. Although sub-s (4) appears to permit a claim within three months of the date of publication of the notice referred to, it is not alleged anywhere in the pleading that such a notice has been published In any event, the claim that may be made is one that arises from a failure to account. Reliance on s 87 contains the same difficulties as has just been discussed in relation to s 90D because of the requirement by the Law Society Council to make a finding of dishonesty.
The relief sought under s 88(2)(b) is similarly misconceived because there has been no dishonest default within the definition of that term in s 79B and no pleading of any factual matters concerning Mr Damanios as are contained in s 79B.
The result is that the only relief which may be sought by the Plaintiff in the present circumstances is relief by way of an extension of time under s 80(7)(d) of the Act.
The existing Statement of Claim should be struck out. Leave should be refused to the Plaintiff to file the proposed Amended Statement of Claim. However, the Notice of Motion should be adjourned to permit the Plaintiff, if he so desires, to amend that Motion to file an Amended Statement of Claim in accordance with these reasons.

At a glance

Court

Decision date

Before

Source

Judgment (6 paragraphs)

Parties

Legislation Cited (5)

Cases Cited (8)