The Law Society of New South Wales v William Daniel Clapin

The Law Society of New South Wales v William Daniel Clapin - [2007] NSWSC 1096 - NSWSC 2007 case summary — Zoe

[4]

Council, having become aware that one or more of the circumstances referred to in Section 615 of the Legal Profession Act 2004 ["the Act"] exist in relation to the law practice known as W D Clapin ["the Law Practice"] and having decided that external intervention with respect to the Law Practice is warranted and having formed an opinion under Section 616(2)(c)(i) of the said Act, determines to apply for the appointment of a Receiver for the Law Practice;" 2 Thereafter on 14 September 2007 the plaintiff applied by summons for an order pursuant to the provisions of s 630(2) of the Legal Profession Act 2004 ("the Act") appointing Jean Sayer as receiver of the defendant's law practice. On 21 September 2007 the matter came before me on an urgent basis for final hearing. Mr Stitt QC appeared for the plaintiff. Mr Lynch of counsel appeared for the defendant. Background 3 The defendant is a solicitor practising as W D Clapin from Level 8, 309 Pitt Street, Sydney. On 30 August 2007, Mr Fred House prepared a report pursuant to s 270 of the Legal Profession Act 2004 ("the Act") relating to certain aspects of the defendant's law practice. That report became Exhibit B to the affidavit of Raymond John Collins sworn 14 September 2007. That affidavit was read in support of the summons. 4 Mr House's report reveals that on 17 May 2007 the plaintiff received a notification under s 263 of the Act from Mr J Maguire of Harrington, Maguire and O'Brien on behalf of Mr G Cannon, an accountant, who was the executor of the estate of Mary Lillian Pugliese who died on 4 June 2004. The notification was in relation to the defendant's bill of costs in the estate in the amount of $63,571.28. The executor had objected to this amount and terminated the defendant's instructions. Mr Maguire was instructed in his stead. The defendant agreed to reduce his costs to $30,000. Mr House was assigned to investigate the defendant's practice on 28 May 2007. 5 The matters contained in Mr House's report formed the basis of the plaintiff's resolutions and for its claims for relief. 6 Following his investigation, Mr House came to the conclusion that the defendant had committed a number of breaches of the Act and Regulations. He set out in his report in considerable detail the results of his investigation and the reasons for his conclusions. He noted that the defendant had cooperated fully with him in his investigation. A summary of some of Mr House's conclusions is as follows: - 6.1 There was evidence that one or more defaults had occurred in that the defendant had "failed to pay or deliver trust money . . . that was received by the practice . . . where the failure arises from . . . an act or omission . . . that involves dishonesty" as defined in s 419 of the Act.

[9]

6.6 The irregularities extended over a considerable period spanning the operation of the Legal Profession Acts 1987 and 2004 and the regulations thereunder. 7 Mr House set out his conclusions and recommendations. In his opinion, further investigation was needed into unauthorised withdrawals of trust monies for costs, particularly where these withdrawals were not supported by the work carried out according to the firm's time records. The provision to clients of misleading "trust statements" was considered by Mr House to be the reason, at least in part, why previous complaints had not been received. Mr House was of the view that there may have been other matters where time had been duplicated in the records, or where clients were charged amounts in excess of the time recorded as having been spent on their matter. Mr House emphasised that the defendant's clients had been overcharged even in terms of his own costs disclosure document. 8 Mr House said he noted several instances where trust statements issued to clients had been false. The statements were false in that they did not show the timing or the amount of individual withdrawals from trust. He concluded that the purpose of the statements was to conceal from the particular clients the way in which withdrawals from their trust accounts had been made without their knowledge or authority. Mr House concluded that in the case of two particular matters, the defendant used unauthorised journal entries, and failed to provide trust statements, in order to conceal, from the Trustees of the Congregation of the Holy Family of Nazareth, the taking of unauthorised sums from trust. 9 Mr Collins was not required for cross-examination. No part of his affidavit was the subject of objection. 10 The defendant provided the plaintiff with an unsworn response to Mr House's report upon which he (the defendant) sought to rely. The document is in the form of a twenty-two page signed statement written by the defendant in the first person. It is dated 19 September 2007. It has a number of annexures. The defendant tendered it in evidence. The plaintiff objected to this course. I admitted the document. One of the bases for doing so was that Mr Stitt made reference to some of the material that it contained and relied upon it in the course of his submissions. That material included so-called "admissions". The following paragraphs of the document are particularly instructive: - "The regulation of solicitors generally and specifically in relation to the treatment of trust moneys has become much more detailed and demanding over the years. I realise that [my] practice which has developed did not comply with the regulations currently in force, and generally those which have been in force since the major reforms of about 1988.

[65]

13.2 Can I be satisfied that the Council had a proper evidentiary basis for forming such a belief. 14 I was referred to the decision of Yeldham J in The Law Society of New South Wales v Dennis (New South Wales Supreme Court, 20 December 1978, unreported). At page 13 of his judgment, his Honour referred to s 71 of the Legal Practitioners Act 1898, which dealt with the circumstances in which the Council could refuse to issue or to cancel a practising certificate. His Honour continued: - "Mr Staff further submitted that for the cancellation to be effective one or more of the various grounds contained in paragraphs (a) - (e) of s.71 must be affirmatively shown to exist. If it is not shown, he submitted, the cancellation is void. However, in my opinion, the functions of this Court, on an application for the appointment of a receiver, are limited (apart from discretionary factors) to the requirement that the court must be satisfied that the Council had reasonable grounds for the cancellation (s.65B (2))." 15 Mr Stitt contended that I was bound to apply the same test by analogy in my consideration of the two questions that he submitted I was required to answer. By way of example, therefore, according to this submission, the plaintiff was not required affirmatively to demonstrate that the defendant or his practice was in fact not dealing adequately with trust money or trust property contrary to s 615(d)(i), or that he had committed a serious irregularity, or a serious irregularity had occurred, in relation to trust money or trust property contrary to s 615(d)(ii) of the Act. According to this argument, I am only required to be satisfied that the Council had before it appropriate and adequate material upon which it could reasonably form a belief ("a belief on reasonable grounds") about such matters and that the Council had a proper evidentiary basis for forming its belief. 16 I was also referred to the decision of the Court of Appeal in Law Society of New South Wales v Foreman (1994) 34 NSWLR 408, in support of the proposition that, in the exercise of the discretion to which Yeldham J referred, one of the relevant considerations to which I should have regard included the very important function performed by the Law Society in the protection of the public against similar conduct. Indeed, s 616(2)(c)(i) of the Act, dealing with the determination of the Council to apply for the appointment of a receiver for a law practice, refers in terms to the formation of an opinion "that the appointment is necessary to protect the interests of clients in relation to trust money or trust property". 17 Significant among the matters to which I should have regard in the exercise of my discretion is the fact that, even though the report of Mr House, upon which the Council relied, had been prepared in consultation with the defendant, and contained explanatory statements by him, he had not in any accepted sense been given an opportunity to be heard or to make any representations to it. In addition, it is important to have regard to the fact that the appointment of a receiver will or may affect the personal capacity of the defendant to practise, as well as his proprietary interest in his practice as a solicitor. The terms of s 630(4) would appear clearly to be sympathetic to such concerns. Finally, it seems inevitable or at least highly likely that the making of such an order will adversely affect the reputation and standing of the defendant as a solicitor, even if in due course the appointment of a receiver were shown to have been unnecessary or unwarranted. This has the potential to have a significant impact on the defendant having regard to the fact, described in his unsworn response, that his wife and three of his children are dependent upon him and that his only source of income is from his practice as a solicitor. 18 Mr Lynch, on behalf of the defendant, raised three principal arguments in opposition to the present application. First, he argued that the terms of the resolution that was passed were such as to make it ineffective on its face. The resolution did not disclose which of the s 615(d) factors were actually considered by the Council so that one could not be satisfied that a majority of councillors who voted upon it considered, or were satisfied about, any one or more of those particular matters. However, this argument can be disposed of simply. The terms of the resolution recite that the Council had "become aware that one or more of the circumstances referred to in Section 615 . . . exist". A majority vote in favour of the resolution must by definition have been a majority vote in favour of the existence of at least one of the circumstances referred to in s 615, even if the terms of the resolution do not specify it, or do not bespeak a majority vote in favour of the existence of all the circumstances contemplated by it. 19 Mr Lynch conceded that, in the event that his first point did not succeed, and subject to his second and third points, no challenge was made either to the existence of at least some of the circumstances listed in s 615 (d), which would otherwise support the need for one of the forms of external intervention referred to in s 616(2) or, as I understand it, to the appropriateness in such circumstances of the test applied by Yeldham J in Dennis (supra). 20 Secondly, however, Mr Lynch strongly opposed the present application on the basis that unless the Court is persuaded that ". . . it [is or] may be appropriate that the provision of legal services by the [defendant's] practice be wound up and terminated . . .", the application "must be refused". This submission proceeded upon the basis that that result necessarily flowed from s 616(2)(c)(ii). I disagree. The Council need only have formed the opinion that the appointment was "necessary to protect the interests of clients in relation to trust money or trust property": s 616(2) (c)(i). The terms of the Council's resolution reflects this. Sub-cll (i) and (ii) are clearly alternatives. 21 Thirdly, however, Mr Lynch argued that I should refuse to make the orders sought as a matter of discretion. Principal among his submissions in this regard was that the response of the Council was an over-reaction and therefore excessive. He submitted that the evidence does not establish that there has been a true deficiency in the defendant's trust account and, although he did not himself use the term, that the defendant's admitted breaches were no more than "technical". This submission was based upon the proposition that the evidence established that any breaches committed by the defendant were temporary and were ultimately corrected. According to this submission, none of the defendant's clients was left out of pocket or without finally receiving a proper statement of account. Even though the circumstances may have warranted external intervention within the terms of s 615(d), when one has regard to the interests of the clients of the practice and to other appropriate matters, the plaintiff could and should have determined only to take action pursuant to s 616(2)(a) or (b), but not (c).

[75]

24 Taking these matters into account, I consider that there was material before the Council upon the basis of which it could form a belief on reasonable grounds that the defendant had failed in one or more of the respects enumerated in s 615(d) of the Act and that it had a proper evidentiary basis for forming such a belief. I also consider that the Council's determination pursuant to s 616(2)(c)(i) was appropriate. 25 I am fortified in these views by the candid and helpful admissions made by the defendant referred to in par [10] above. Unfortunately, they lend support to the plaintiff's concern that the defendant has knowingly disregarded the regulations applying to him, apparently on the basis that such conduct was relatively innocuous and presumably permissible, or at least excusable, provided that no dishonesty was involved and no clients or third parties were disadvantaged. The plaintiff, however, is in no position to countenance or condone such conduct. The application for the appointment of a receiver is not, in my view, unwarranted. 26 Furthermore, not only do the defendant's admissions lend support to the proposition that the Council had reasonable grounds for forming its belief, but in a secondary sense, they are relevant to the exercise of my discretion, in that they ameliorate the harshness of the perception that the Council's decision may theoretically have been made without affording the defendant procedural fairness. They put for present purposes beyond controversy some of the matters listed in s 615(d) upon which the Council is required to form a belief on reasonable grounds. They enable me to have regard to the fact that in forming the view that it formed, the Council did not rely, or did not only rely, upon facts that are wholly contested by the defendant. 27 Finally, as Mr Lynch quite properly conceded, there is "a serious problem" in the defendant's practice. The significant collection of wisdom in Foreman (supra) concerning the role of the plaintiff in the supervision of solicitors and the protection of the public must be given full weight. This includes the effect that orders of this Court will have upon the understanding in the profession and amongst the public of the standard of behaviour and conduct required of solicitors. Orders 28 In these circumstances I make the following order: - ORDER that pursuant to s 630(2) of the Legal Profession Act , 2004 Jean Sayer be appointed receiver of the Law Practice known as W D Clapin, Level 8, 309 Pitt Street, Sydney. 29 I will hear submissions from the parties concerning such further or other orders as may be appropriate.

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