Vaughan & Anor v Legal Services Board [2009] VSCA 187

Vaughan & Anor v Legal Services Board [2009] VSCA 187 - VSCA 2009 case summary — Zoe

[68]

I do not think the facts in this case support that contention sufficiently to be upheld. Mrs Laird was a solicitor and was introduced to the plaintiffs as a solicitor by their accountant who had premises nearby. Correspondence to the plaintiffs from her at all times purported to be in her capacity as a lawyer and she purported to undertake various steps for the plaintiffs as lender of a kind ordinarily undertaken by lawyers acting as solicitors for a lender. She described the responsibility of her "firm" to carry out all necessary searches and enquiries on behalf of the lender, to prepare the mortgage and all other necessary documents on behalf of the lender, to ensure that the lender obtained proper and enforceable security, and to arrange the draw down of the loan when the security had been given and that all documents were in order to give the lender proper security. She specifically said that the mortgage transaction would be carried out by her "in my business as a solicitor" and that all funds were to be negotiated through her trust account. In that context she represented that her work as a solicitor was covered by her professional and fidelity insurance. She also said that she would provide a "solicitor's certificate" to the lender confirming that the security was binding and enforceable.

Most, if not all, of what Mrs Laird promised to do was, of course, fictitious and did not occur. However, upon the hypothesis that Mrs Laird was acting as she said, what was offered to the plaintiffs was relevantly in the course of, or at least, in connection with her legal practice. The words "in connection with" in the section are in addition to the words "in the course of" and extend the operation of the section. ... [T]he representations to the plaintiffs were that she had available opportunities arising from the legal practice, and that the transactions were at least connected with her legal practice if not in the course of it. Mrs Laird represented ... that she had investment opportunities in the course of her legal practice which she offered to investors and for whom she would undertake the necessary legal work. The evidence in this case was that the plaintiffs' payment of their money to Mrs Laird was in the course of her legal practice or, at very least, connected with her legal practice.

The parties did not seek to lead any expert evidence of the scope of a legal practice, but it has long been known that solicitors have access to money for investment and that some are commonly approached as a source to borrow funds. ... It may be, as counsel for the Board contended, that the facts in this case look more like Mrs Laird acting as a scrivener; namely, a person to whom money or other property is entrusted for the purpose of lending it out to others at a profit payable to the principal but also at a commission or bonus for the solicitor. It may also be the case that the business of a scrivener is not within "the ordinary scope of the business of a solicitor", but the placement of these moneys was at very least connected with Mrs Laird's legal practice as a solicitor. It was, in my view, also in the course of her legal practice whether or not it might have been in the ordinary scope of a legal practice.[6]

[113]

I am unable to accept this construction of the section as either the natural meaning to be given to the words or as falling within the evident purpose behind their enactment. The words in s 208(3)(b) are simple and clear. They are directed to defalcations arising "out of the investment or reinvestment of any money by", amongst others, people like Mrs Laird. The factual precondition to the operation of the exclusion is that the defalcation arose out of investment or reinvestment by the legal practitioner. There is nothing in the words to suggest that the words should be restricted to circumstances where the client does no more than hand over money to the practitioner without further involvement. Indeed, to restrict the words in that way would create the curious anomaly that the provision might have inconsistent operation as between circumstances that were identical in all respects except that one client was more diligent or curious in knowing how the funds were applied whilst another client was not. In other words that the plaintiffs' claim would have been defeated if, all other things [having] been equal, Mr Vaughan had relied wholly on Mrs Laird and done nothing. The exclusion could also easily be defeated by a legal practitioner (if the construction be correct) by adopting the relatively simple expedient of drawing attention to his or her proposed investments and seeking from the "investor" what may ultimately be little more than formal approval or agreement. The construction urged upon me by the plaintiffs, in my view, is also inconsistent with the inference to be drawn from the very limited exception to the exclusion found in s 208(3)(b)(i). By that provision the exclusion is not made to operate in the case of an investment or reinvestment that was "merely incidental to the legal practice engaged in by the practitioner". That suggests to me that the primary exclusion in s 208(3)(b) was intended to be more broad than the plaintiffs contended. In my view the investment and reinvestment of the plaintiffs' money was undertaken by Mrs Laird as contemplated by the provision. The plaintiffs transferred money to her which she first placed into her trust account and then (as the hypothesis requires) was invested by her in first mortgage loans on their behalf.

In any event, I do not consider the facts to support the plaintiffs' conclusion even if I were to adopt their construction. Essential to their construction is that any investment or reinvestment was not made by Mrs Laird but, rather, that the investment or reinvestment was made by them. They point to what they described as their selection of the loans and their giving of instructions as to whether or not to proceed with the loans; however, the activities constituting "investment or reinvestment" in this case involved much more than that. The effective selection of the loans was by Mrs Laird. It was she who informed Gerald Vaughan of what she had available for them to invest. It was she who said that she would make all necessary searches and enquiries on behalf of the lender and who purported to provide details about the properties including council valuations. The plaintiffs' role was little more than that of giving formal instructions for her to invest or reinvest their money: they undertook no separate checking or verification of the loan, the security or the lender. In addition, and in any event, the construction urged for the plaintiffs proceeds upon the false premise of a necessary dichotomy between an investment or reinvestment by the plaintiffs and one by her: an investment and reinvestment by her might also be capable of description simultaneously as an investment or reinvestment on their behalf by Mrs Laird; as elementary principles in the law of agency shows.[32]

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Judgment (184 paragraphs)

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Legislation Cited (6)

Cases Cited (4)