WESTON v REGISTRAR GENERAL OF NSW; WESTON v THE LAW SOCIETY OF NSW & ANOR

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20956/97 WESTON v REGISTRAR GENERAL; WESTON v LAW SOCIETY OF NEW SOUTH WALES AND STEPHEN WAYNE BEAUFILS

JUDGMENT 1 HIS HONOUR: The plaintiff entrusted certain real estate and funds to a Mr Stephen Beaufils, then a solicitor. Mr Beaufils allegedly dealt with these assets in an unauthorised, indeed, fraudulent manner as a result of which the plaintiff the property has been lost. He seeks to recover the value of the real estate from the Fidelity Fund administered by the Law Society of New South Wales. The Law Society determined that he was not entitled to recompense. Accordingly, the plaintiff seeks declarations that the property had been entrusted to the solicitor in the course of his practice, that he has suffered pecuniary loss by the solicitor's failure to account and orders that the Law Society determine his claim according to law. Against the Registrar General the plaintiff seeks damages under s 120 of the Real Property Act in respect of one property taken from him by a forged transfer which was ultimately registered. 2 It is convenient first to set out the statutory framework governing claims on the Fidelity Fund. Although the material circumstances took place before the commencement of the Legal Profession Reform Act 1993 (the "Reform Act") which substantially amended the Legal Profession Act of 1987 (so amended, "the Act"), the new definition of "failure to account" applies to the present circumstances: s 79A(5). That section provides -

" Meaning of 'failure to account' 79A. (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."

3 By virtue of s 79B(5) of the Act, the new Division 3 substituted by the Reform Act does not apply to a "dishonest default" that occurred before the commencement of Sched 4(10) to the Reform Act, namely 1 July 1994. Such a default is irrelevant in the present case as the material acts or omissions occurred before this date. The only basis upon which the plaintiff can make his claim against the Fidelity Fund under s 80 of the Act is by establishing a failure to account under s 79A. Under s 80(3) of the Act, "the Law Society Council may wholly or partly disallow a claim made by a person who knowingly assisted in or contributed towards, or was party or accessory to, the act or omission from which the failure to account…arose". It is obvious that the Society did not need to consider the application of this provision in light of its decision that there had been no failure to account. However, it was submitted by Mr Einfeld QC for the Society that this provision should be applied in the present proceedings, in effect to dismiss the plaintiff's claim, in the event that I conclude that there was a failure to account. The terms of the statute make it clear that this is a matter for the Council. The extent to which the same considerations apply to a court in litigation such as the present is unclear. I deal with this issue below. 4 With some exceptions, to which reference is made in due course, the circumstances giving rise to the plaintiff's claim against the Fund are not in dispute and it is sufficient to refer to them somewhat generally to raise and determine the first substantial legal controversy in the case. 5 For many years, the plaintiff operated a used car business providing substantial income which, for an extended period, he had not disclosed to the Commissioner of Taxation. With some of this concealed income he had also purchased properties in names other than his own, some of which were owned by companies controlled by him. Moreover, where those properties produced rental income that also was concealed from the Commissioner by various, though not sophisticated, subterfuges. Even the slightest investigation would have almost immediately disclosed this state of affairs. The plaintiff said, and I accept, that he grew increasingly concerned about his situation, especially when the Government announced the introduction of the Tax File Number system. Immediately threatened, of course, by this proposal were the bank accounts in names other than the plaintiff's. He described his position in this way - "Once you start that sort of thing it's rather difficult to stop. That was the problem, your Honour. I mean, it's a funny thing in life, you start doing these things, you get away with them and you think, 'I'll put it off'. It's like going to the dentist, whilst you're getting away with it you think it's good. Months go into years and years into decades but I was a bit stupid. See, I was paying capital gains - not capital gains, land tax on all the properties so I really knew that eventually if they cross-indexed that with what I was putting in I would come undone instantly because I paid heaps of land tax but I think that's a State Government, isn't it, and the other was a Federal Government. I was vulnerable there all the time; I knew that. Every time somebody walked in with a briefcase with a suit on I was a nervous wreck because I thought, 'I'm going to come undone here with a big bang'." 6 I think I should state, in fairness to the plaintiff, that generally speaking I found him to be an honest and candid witness, though his recollection in some respects was unreliable, a result, I am satisfied, of some failure or confusion of memory in respect of events which occurred a long time ago. 7 It appears that in mid-1990 the plaintiff decided to purchase a property at 131 Parramatta Road, Homebush (131) for use as another caryard for his business. He intended to use some of the funds, which were then in false names in a number of bank accounts, to pay for it. He asked one Damien Tudehope, solicitor, to act for him in connection with the purchase of 131, telling him that he would pay for it with cheques drawn on bank accounts that were not in his name. Mr Tudehope declined to act for him saying, in effect, that he could not be a party to such a transaction. Although the plaintiff said, in substance, in his evidence before me that he did not understand why Mr Tudehope took this approach since the money was, after all, his, I am satisfied that he was aware, at least, that Mr Tudehope felt that it was improper for him as a solicitor to accept and negotiate cheques in those circumstances. Quite what Mr Tudehope was told by the plaintiff was not explored with any thoroughness in the hearing before me but it seems likely that he was told that the cheques would be in favour of the named holder of the account but deposited in his trust account in the name of the plaintiff. Mr Tudehope's behaviour was not in issue in these proceedings and I hasten to add that it appears to me that he acted with complete, indeed, necessary propriety. 8 Following Mr Tudehope's rebuff, the plaintiff discussed the matter with his partner, Ms Marcelle Beaufils, who suggested that he should consult her nephew, Stephen Beaufils, then a solicitor practising in Sutherland. Accordingly, in late July or early August 1980 the plaintiff went to see Mr Beaufils. He told him that he needed a solicitor to undertake the conveyance of the proposed caryard. He told Mr Beaufils that he intended to pay for it out of funds which were in accounts "in dud names" which, as I understand it, he asked Mr Beaufils to negotiate. Mr Beaufils told him that he had no problem with doing this, that he would put it through with his own banking and that, as the bank staff never checked the drawee's name, the cheques would be negotiated in the normal course. The purchase price for 131 was $850,000 and the plaintiff withdrew funds from his various fictitious accounts and delivered the cheques to Mr Beaufils. As it happened, completion of the purchase was delayed for some months and Mr Beaufils suggested to the plaintiff that, in the meantime, the money be lent to a partnership in which he was involved that had purchased and was renovating a hotel at Coolangatta. The plaintiff agreed to this, providing that the funds were available to settle the purchase of 131 in due course. Several months later the plaintiff, thinking he could trust Mr Beaufils, informed him about what he called "the bigger problem". He told Mr Beaufils that the funds he had so far provided came from rental income that had not been disclosed for tax purposes and which was derived from properties, his ownership of which had also been concealed from the Commissioner of Taxation. The plaintiff asked for Mr Beaufils' advice, including whether he should disclose these matters to the Commissioner. Mr Beaufils, according to the plaintiff (and I accept) advised him not to take this course, pointing out, in effect, that the penalties were very substantial and that he could go to prison. So far as it went, of course, this information was accurate. Shortly after this, Mr Beaufils proposed a scheme, apparently concocted with the assistance of a Mr Brownlee, the essence of which was that he should transfer the properties presently producing income to new companies "which are clean" and which would thereafter disclose the income derived from the properties to the Commissioner. It was a part of the scheme that the plaintiff's name would not appear in any company records but that their shares and the properties in their names would be held in trust for the plaintiff, Mr Beaufils undertaking that if any enquiry was made of him by the Commissioner of Taxation, he would falsely state that he had bought the companies or the property from the plaintiff. The plaintiff agreed to this proposal although it was not only dishonest but, as he well knew, a crime even though the plan envisaged that future income was to be disclosed to the Commissioner and tax paid on it. The true ownership of the properties and the true recipient of the income were to remain concealed. In due course, the deeds were handed over to Mr Beaufils who transferred them to a number of entities and arranged for a number of mortgages. Whether the mortgages were authorised is a matter of controversy in the proceedings but I do not need to deal with that aspect at present. 9 After a number of transactions involving various properties and substantial sums of money, the plaintiff was served with proceedings in this Court taken against him in respect of a mortgage over 131. He has said, and I accept, that he had known nothing whatever of this transaction. He confronted both Messrs Beaufils and Brownlee about it, who gave him a dishonest explanation. The plaintiff insisted that they correct the matter and was told that this had occurred. However, the mortgage was paid out by advances obtained on the security of another of the plaintiff's properties at 1079 Canterbury Road, Punchbowl (1079). This transaction was deceitfully concealed by Messrs Beaufils and Brownlee from the plaintiff. 10 The plaintiff at last realised that he had been the victim of frauds perpetrated by Messrs Beaufils and Brownlee and once more consulted Mr Tudehope. Mr Tudehope's enquiries disclosed the extent of these frauds and the plaintiff confronted Messrs Beaufils and Brownlee about them. As might be expected, he was fobbed off. It was submitted by Mr Einfeld QC for the Law Society that he had acquiesced in the arrangements that were then disclosed to him. However, material facts were significantly concealed and those which were disclosed were distorted. There was no real acquiescence. Eventually, the plaintiff commenced proceedings to recover his property in the Federal Court of Australia in July 1992, in which he succeeded against Messrs Beaufils and Brownlee: see Weston & ors v Beaufils & ors (1994) 122 ALR 240. In the result, on 13 February 1996 judgments were entered in his favour against both Messrs Beaufils and Brownlee for a sum well in excess of $4,000,000. No part of this money has been paid to the plaintiff. Mr Beaufils was a defendant in the present proceedings but did not seek to defend them. 11 Shortly before commencing the Federal Court proceedings, the plaintiff voluntarily disclosed his true financial position to the Australian Tax Office and has paid the resulting assessments and penalties. In October 1994, he was convicted, on his plea of guilty, to a charge of defrauding the Commonwealth under s 29D of the Crimes Act 1914 and was given a bond. 12 On 26 September 1996, the plaintiff's present solicitors made a claim in the appropriate form against the Fidelity Fund. On 18 June 1997, the plaintiff was informed by the Law Society that it had resolved on 22 May 1997, "that this claim be disallowed on the ground that money and other valuable property were not entrusted to the solicitor in the course of his practice as a solicitor". Hence the present proceedings. 13 It will be obvious that the reference to the course of practice in the resolution of the Law Society takes up the language of the definition of "failure to account" set out in s 79A of the Act. As I mentioned above, the plaintiff's claim on the Fidelity Fund is confined to pecuniary loss arising from Mr Beaufils' failure to account in this sense, if any, and thus he must establish that the relevant property was entrusted to or was received by Mr Beaufils in the course of his practice as a solicitor. Because of the circumstances in which the plaintiff approached Mr Beaufils and the nature of the scheme which he agreed that Mr Beaufils should undertake on his behalf, there is a very real question whether there was a relevant entrustment or receipt. 14 The question whether a solicitor has acted in the course of his or her practice has been considered, inter alia, in the context of the application of the rules concerning legal professional privilege. To attract the privilege, the communication in question must take place between client and solicitor and must not only be confidential but be made in the context of the solicitor/client relationship. Such a relationship does not arise simply because someone seeks and obtains legal assistance from a solicitor. In Follett v Jeffryes (1850) 61 ER 1 at 6 Cranworth VC said - "It may not be unfit that I should repeat an observation I made in the course of the argument, namely, that it is not accurate to speak of cases of fraud contrived by the client and solicitor in concert together as cases of exception to the general rule [concerning legal professional privilege]. They are cases not coming within the rule itself; for the rule does not apply to all which passes between a client and his solicitor but only to what passes between them in professional confidence; and no Court can permit it to be said that the contriving of a fraud can form part of the professional occupation of an attorney or solicitor ." (Emphasis added.)

In Russell v Jackson 63 ER 558 at 560 Turner VC said - "Can it then be said that the communication should be protected because it may lead to the disclosure of an illegal purpose? I think that it cannot; and that evidence which would otherwise be admissible cannot be rejected upon such a ground. On the contrary, I am very much disposed to think that the existence of the illegal purpose would prevent any privilege attaching to the communication. Where a solicitor is party to a fraud no privilege attaches to the communications with him upon the subject because the contriving of a fraud is no part of his duty as a solicitor; and I think it can as little be said that it is part of the duty of a solicitor to advise his client as to the means of evading the law …" (Emphasis added.) 15 In the well-known case of The Queen v Cox and Railton (1884) 14 QBD 153 Stephen J, delivering the judgment of the Court of ten Judges, approving the passages which I have set out above, said (at 168) - "In order that the rule [protecting professional legal communications from disclosure] may apply there must be both professional confidence and professional employment, but if the client has a criminal object in view in his communications with his solicitor, one of these elements must necessarily be absent. The client must either conspire with his solicitor or deceive him. If his criminal object is avowed, the client does not consult his adviser professionally, because it cannot be the solicitor's business to further any criminal object. " (Emphasis added.) 16 The Queen v Bell; ex parte Lees (1980) 146 CLR 141 concerned the question whether legal professional privilege applied to prohibit a solicitor from disclosing the address of his client who had retained him for the purpose of litigating property issues in a matrimonial cause but who had obtained physical custody of a child contrary to orders made by the Family Court. The client instructed the solicitor to preserve the confidentiality of her address for the purpose, it was inferred, to assist her in frustrating this order. Stephen J, concluding that the privilege did not apply, approved the statements of principle, which I have set out above. It seems to me that the italicised propositions also apply to the notion of the course of the solicitor's practice as it used in the Act where the retainer is for the purpose of executing a criminal conspiracy between the solicitor and the erstwhile client. 17 There are a number of Australian cases in which it has been said that whether property was entrusted "in the course of the practitioner's practice" is to be tested subjectively, that it to say, from the point of view of what the client believed to be the case: see, for example, Baker v Law Institute of Victoria [1974] VR 388 per Lush J at 395; Heraudeau & Anor v Law Institute of Victoria 1991 VR 518 per Southwell J at 523, 525; Orsi v Legal Contribution Trust 1976 WAR 74 per Wickham J at 77 where his Honour observed, however, that "it is no part of the practice of a legal practitioner to conduct swindles". Mr Rofe QC relied on these authorities, pointing to the plaintiff's evidence that he believed Mr Beaufils was acting as his solicitor. I have no doubt that, indeed, he did think that this was the case but, in my view, the "subjective" test is one that applies only to the innocent client who believes that the dishonest solicitor is acting as his solicitor rather than in another capacity. This was not the situation here. 18 The statutory requirement that the entrustment or receipt be made in the course of the solicitor's practice is no more than a reflection of the function of the Fidelity Fund. The mere fact that the defalcation is the fraudulent act of a solicitor satisfies but one condition of entitlement. The fraudster must not only be a solicitor but, so far as the client is concerned, must be acting as such. This distinction has been made in any number of cases but it is, perhaps, sufficient refer to Francis v Law Society of New South Wales (1982) 2 NSWLR 191 per Yeldham J at 198 and Heraudeau & Anor v Law Institute of Victoria (supra) at 527. For the purpose of considering the insurer's liability under policies of professional indemnity it has been said (and, if I might say so respectfully, rightly) that the scope of a solicitor's practice has widened considerably in recent years for a number of reasons reflecting especially the increased intrusion of government in its various forms into everyday life and occupations, involving solicitors increasingly in their clients' affairs: see Solicitors' Liability Committee v Gray & Anor (1997) 77 FCR 1 per Lockhart J at 14. Even so, as Lockhart J pointed out (at 15) there is a "point reached where the solicitor ceases to engage in his practice as a solicitor and enters other areas of activity, particularly business activity". If a business partnership between a solicitor and the client is outside "the course of the solicitor's practice" it seems to me to follow, a fortiori, that a criminal conspiracy will also be outside "the course of the solicitor's practice". I do not think that, despite the evident and ever increasing decadence of society, we have yet reached the stage where fraud on the revenue can be regarded as part of the course of a solicitor's practice. 19 The distinction between acting as a solicitor on the one hand and acting as an accomplice in crime on the other is fundamental not only to notions of professional capacity and practice but to the purpose and function of the Fidelity Fund itself. It would be contrary to public policy that the solicitors of this State should be required to contribute to a fund which could be used by the lay accomplice of a criminal who happened to hold a practicing certificate as a solicitor to insure against the risk that the solicitor might steal from that accomplice property entrusted to him in furtherance of their criminal enterprise. That the Fund could be used for such a purpose would require language of the clearest and most peremptory character. I do not consider that the Act can be so construed. 20 Mr Rofe QC argued that the crucial issue was whether the acts or omissions from which the failure to account arose - here, the dishonest acts by which Mr Beaufils deprived the plaintiff of his property, mostly comprising the giving of mortgages to third parties and the stealing of the proceeds - were performed by the solicitor without the knowledge or authority of the plaintiff. The difficulty with this argument is that "failure to account" bears the special meaning attributed to it by s 79A(1) of the Act, which specifies the requirement that the relevant property has been entrusted to or received by the solicitor in the course of his or her practice. He also, as an alternative argument, submitted that the crucial time to consider the "entrustment" or "receipt" was at the moment of the dishonest act or omission, at which time Mr Beaufils was not acting pursuant to the agreement with the plaintiff, be it in other respects ever so criminal, but was committing independent crimes. Consequently, it was argued, his relationship with the plaintiff in respect to these receipts was not outside the course of his practice as a solicitor. Rather, the funds were provided to him as a solicitor in circumstances where he was bound to account for them to the plaintiff. Moreover, Hill J in the Federal Court proceedings to which I have referred held that he was, indeed, bound to account to the plaintiff. However, as the only retainer (with one exception, as to which see below) of Mr Beaufils was the criminal conspiracy which I have described, when he received the proceeds of the mortgages, he was no more acting on the plaintiff's behalf in the course of his practice as a solicitor than if he had broken into the plaintiff's home and stolen his watch, even if the law required him to "account" (one way or another) to the plaintiff for the stolen watch. In other words, as I see the position, as to all but one of the properties the unauthorised acts of Mr Beaufils, though they occurred whilst Mr Beaufils happened to be a solicitor, did not occur when he was acting as the plaintiff's solicitor with respect either to the properties or the proceeds of the mortgages. 21 At the same time, it is necessary to bear in mind that "entrustment" is a continuing circumstance. So that, even where property is initially entrusted to a solicitor in furtherance of a criminal conspiracy between a claimant and a solicitor (such as occurred here, on the plaintiff's own admission) if that conspiracy is terminated in respect of that property before its purpose has been effected, its continued entrustment might no longer be for the purposes that take the arrangement out of the course of the solicitor's practice. Furthermore, it may be that certain property is entrusted to the solicitor for a legitimate purpose, although other property has been entrusted for a criminal purpose or for as yet indeterminate purposes but with an intention that the nature and scope of the criminal purpose will, in due course, be defined. These situations could well lead to a change in the capacity in which the property has come to be entrusted, so that its entrustment, though initially outside the solicitor's practice, might come within in the course of the solicitor's practice and its theft by him or her fall to be the subject of a proper claim against the Fidelity Fund. Leaving entrustment aside, the receipt may occur when, in respect of the property received, the solicitor is acting for the client in the course of his or her practice as a solicitor because as to that property there is no criminal purpose even though other property is subject to such a purpose. This situation may have arisen in relation to two items of property fraudulently dealt with by Mr Beaufils, namely 1079 Canterbury Road, Punchbowl (1079) and Seacrest Court, Raby Bay (Raby Bay). 22 Wan-Chi Pty Limited, a company owned and controlled by the plaintiff, had been the registered proprietor of 1079 since September 1980. The plaintiff's evidence (though somewhat confused as to dates) is, and on this point was not sought to be controverted, that his beneficial ownership of and income from this property were at all material times disclosed to the Australian Tax Office. I am satisfied that, nevertheless, the plaintiff was or would have been agreeable to transferring this property to other entities as part of the general scheme concocted with Messrs Beaufils and Brownlee had they so advised. However, this was not done because it was agreed at an early stage that 1079 should be transferred into the plaintiff's name as (in substance) theretofore in order that it could be surrendered to the Commissioner for Taxation if the scheme as to the concealment of his tax liability unravelled. The motive for this plan was unworthy in the sense that it was hoped that, thus satiated, the Commissioner would be content and not press further claims against the plaintiff. That the plaintiff accepted such a scenario as remotely possible is a mark of his ignorance and naiveté. In the result, for the purpose of having an asset with which to pay any tax liability, the property was transferred back into Mr Weston's name as registered proprietor in December 1991. In the circumstances, this appears to have been an entirely unnecessary conveyance but it certainly, to my mind, demonstrates its essential lawfulness. I infer that the rents which had hitherto been declared were to continue being declared as part of the plaintiff's income. Accordingly, although Mr Beaufils was in possession of the certificate of title, it was for the sole purpose of registering the transfer to Mr Weston. I consider that in relation to this transaction, including holding the deed for safekeeping, Mr Beaufils was, indeed, acting in the course of his practice as a solicitor. Mr Einfeld QC submitted that there was no such relationship because the fundamental or overarching reason that Mr Beaufils' was retained by the plaintiff was to create a scheme to avoid paying tax that was due and frustrate or delay any investigation that might be made by the Commissioner. However, the relevant question is whether the particular entrustment or receipt in issue occurs in the course of the solicitor's practice. For the reasons already given, I do not consider that at the material time any agreed dealings with 1079 were unlawful in any relevant sense. It would be no different, in my view if, say, the plaintiff had given Mr Beaufils from lawfully dealt with funds a cheque for $100,000 to be paid to the Commissioner, even if it were in the hope of fending the Commissioner off. If Mr Beaufils stole that money he would have both received it and stolen it in the course of his practice as a solicitor. And the mere fact that the plaintiff had entrusted the funds to the solicitor with the initial purpose, say, of concealing them from the Commissioner but later agreed that they should be paid does not mean that they have not come to be entrusted to that solicitor in the course of his or her practice. As I have said, I consider the notion of entrustment to be a continuing one. Here, I think that the fact was that the certificate of tile was initially given to Mr Beaufils as a precursor to devising a plan for concealing from the Commissioner the plaintiff's frauds on the revenue which had led to the accumulation of funds in the "dud" cheque accounts and the use of false names to disguise the ownership of properties acquired with undisclosed income and a mode by which, for the future, tax could be paid in a way that did not excite the Commissioner's suspicions. 1079 had not been purchased with such funds and income derived from it had always been disclosed. The mere fact that taxes are paid for unworthy motives is immaterial. Many citizens who pay every cent they owe in tax no doubt do so in whole or in part because of the sanctions contained in the tax legislation. That is why the sanctions are there. Furthermore, as I think is obvious, the plaintiff's entrustment or Mr Beaufils' receipt in these circumstances does not involve assistance or contribution or complicity in Mr Beaufils' theft in the sense meant by s 80(3) of the Act. 23 It is necessary, however, to consider the effect, if any, of subsequent transactions relating to 1079. On 2 April 1992, an agreement for sale of 1079 purportedly signed by the plaintiff as vendor to Jenfre (Nominees) Pty Limited (Jenfre) and Anthony Dupont (Dupont) was drawn up by Mr Beaufils. Whether his signature on the contract was a forgery or Mr Beaufils had procured part of another contract for sale in respect of another property which was in fact signed by the plaintiff and substituted it for the original page is uncertain. However, I have no doubt that the plaintiff did not execute this contract and knew nothing about it. (I hasten to add that there is no suggestion that either Jenfre or Dupont acted other than with propriety and in ignorance of Mr Beaufils' fraud.) A memorandum of transfer in registrable form, also bearing the plaintiff's forged signature, dated 2 April 1992 was in due course registered on the relevant certificate of title. The consideration of $330,000 for the purchase of the property by Jenfre and Dupont was, in fact, the price of discharging two mortgages which had been fraudulently granted to Jenfre and Dupont by Beaufils on other properties of the plaintiff's, the titles of which had been entrusted to Mr Beaufils pursuant to the tax avoidance scheme. The plaintiff became aware that, somehow, Jenfre and Dupont were asserting ownership of 1079 and he demanded an explanation from Mr Beaufils. It is evident from the affidavit of the plaintiff and his cross-examination in these proceedings that quite what he appreciated of Mr Beaufils' attempts to explain the transaction is unclear. Its substance seems to be that Mr Beaufils suggested that the property either had been or should be put in the names of Jenfre and Dupont subject to an option for its repurchase. That option was never exercised and I think that it was never intended that it would be exercised although it is not necessary for present purposes for me to decide this matter. However, it seems that Mr Beaufils put it to the plaintiff that either what had been done or what would be done was to bring 1079 into the scheme and conceal its existence from the Commissioner of Taxation, Mr Beaufils' proposition to the plaintiff being summed up in the memorable but offensive words "why let those bastards have a good property like that". Not surprisingly, the plaintiff did not understand what Mr Beaufils was putting to him. It was patent nonsense. I interpolate here that part of my difficulty in appreciating precisely what the plaintiff's evidence is about this matter, is that Mr Einfeld's cross-examination put to the plaintiff transactions which, I am satisfied, never either occurred or were contemplated although they are somewhat sketchily referred to in the plaintiff's affidavit. The account in the plaintiff's affidavit, so far as the supposed mortgages in respect of 1079 are concerned, is also confused. Affirmative answers given by the plaintiff under cross-examination by Mr Einfeld QC, which depended upon an acceptance of the accuracy of that account, further obscure the matter. The plaintiff gave contradictory answers as to what he understood to be the thrust of Mr Beaufils' proposal but ultimately agreed with the suggestion put by Mr Einfeld that he was "prepared to accept the concept that this property would be removed from the grasp of the Taxation Commissioner if in fact it had been dealt with in the way Mr Beaufils described". Having observed the demeanour of the witness carefully over the lengthy period of time that he was pressed in cross-examination by Mr Einfeld, the lapse of time since the transactions in question, the mistaken assumptions concerning the existence of mortgages affecting 1079, the complexities of the transactions overall, and the evident difficulty that the plaintiff had in appreciating a number of the concepts being dealt with, I am not satisfied that this agreement was truly responsive to the point Mr Einfeld was seeking to make. In coming to this judgment about the plaintiff's evidence I do not, of course, intend to reflect in any way on Mr Einfeld's cross-examination which was conducted with complete fairness and propriety. I conclude that the answer at one point given by the plaintiff that what he wanted from Mr Beaufils was what he described as his "deeds" relating to 1079 back safely in his possession and the property unaffected by any other transaction was indeed the case. At all events, on a careful re-examination of this part of the plaintiff's cross-examination, and subsequent questioning by Mr Wales of Senior Counsel for the Registrar General, I think that the substance of the plaintiff's agreement with Mr Einfeld as I have above described it was that he had expressed to Mr Beaufils nominal agreement with what Mr Beaufils' had done and that this acquiescence was not at all genuine, being given as a holding tactic whilst he worked out how he could get the property out of Mr Beaufils' clutches. For that matter, his acquiescence was based upon lies told to him by Mr Beaufils. Despite some initial ambiguity as to time in the plaintiff's evidence, I have no doubt that the crucial conversation with Mr Beaufils occurred after the unauthorised transactions had occurred. By this time, the plaintiff wanted to get back such of his property as he could from Mr Beaufils and was not in the slightest interested in continuing the scheme into which he had so foolishly been inveigled. He shortly after took steps through Mr Tudehope (as I have earlier briefly attempted to describe) to correct the position. 24 Mr Rofe QC submitted that the same analysis applied to the proceeds of sale of a property in Seacrest Court, Raby Bay (Raby Bay) which had been acquired by Mr Weston in the name "Laurie Weston" on 17 May 1989. It was not submitted on behalf of the Law Society that this purchase was in fraud of the revenue. However, the plaintiff delivered the certificate of title to Mr Beaufils sometime before 19 November 1990 as part of the original scheme to evade income tax. The property was sold on 23 November 1990 by Queensland agents for Mr Beaufils and the proceeds banked into Mr Beaufils' general account and thence transferred to the hotel in Coolangatta. This transfer was contrary to the plaintiff's instructions to Mr Beaufils to keep them in his trust account and leave them there until he, the plaintiff, decided what to do with them. It was submitted by Mr Rofe QC that this theft was simply the dishonest defalcation by Mr Beaufils of monies that came to him in the course of an ordinary transaction in which he acted, conventionally as it were, as the plaintiff's solicitor. The plaintiff's evidence on cross-examination as to the funds is as follows - "Q As appears from the documents do you agree the balance of the proceeds of the net balance of proceeds of sale was a touch over 203,000? A. Some like that 200 and something. Q That transaction took place on 30 November 1990 as appears from pages 201 and 202 of Exhibit A and you say you asked Mr Beaufils to keep the money, that's right, for you? A I said to put in a trust account until I decided what to do with it, yes.

Q That was because you didn't want to keep the money in your own account in your own name wasn't it? A Possibly, I didn't think about it at the time. I said keep it in your trust account.

Q Not possibly, definitely you didn't want to put the money in an account of your own? A Fair enough, okay.

Q That's correct, it is not a matter of okay? A Trying to think at the time when I said to him he was having the money sent to him. Rather than give it to me I told him to put it in a trust account.

Q You knew that it wasn't earning interest in his trust account whereas in your own account it would earn interest and you would have expected to have paid tax? A Yes you have to pay tax.

Q If the money was in an account in your own name you obviously contemplated you ran the risk of it being grabbed by the tax authorities if they found out about it, correct? A Yes I suppose that's right I suppose yes.

Q That was why you asked Mr Beaufils to keep the money, that's right isn't it? A I didn't think at the time - the money is being sent to him from the other solicitor. I said keep it in your trust account until I tell you if I want to put it to use, use it for something.

Q I am suggesting to you the reason you asked him to keep it rather than you keeping it until you wanted it so it wasn't grabbed by the taxation authorities in the event they undertook an investigation? A Fair enough, I don't know whether it passed through my mind. In conversation I said keep it in the trust account. I knew I was keeping it. I said keep it in the trust account.

Q Let me ask you, keeping your money out of your name and in someone else's name you would agree was entirely consistent with the underlying purpose of the scheme into which you entered with Mr Beaufils, correct? A Keeping money out of my name.

Q Yes? A Yes get the assets out of my name yes that's right.

Q You would agree with me won't you that the probable reason that you asked Mr Beaufils to hold on to the money instead of you keeping it in an account in your name was to ensure it wasn't available to the tax authorities to grab? A I thought it would be safe, he was a solicitor.

Q Wasn't a matter of being safe with him, it was being safer with him than if held in your own name, that's true? A Okay, fair enough.

Q Is that true? A I suppose if you put it that way. At the time I said keep it, when I want to use it I will get it back." 25 It seems to me that the sense of this evidence is that the plaintiff was uncertain as to what he wished to do with the proceeds of sale although he wanted the funds readily available to him in Mr Beaufils' trust account and not under the control of the partnership managing the hotel. I infer, from the circumstances as a whole, that he expected to use the funds in a transaction which would not disclose their existence to the Commissioner. There is no evidence that Raby Bay had been purchased with what might conveniently be called "black money", nor that its sale (in the plaintiff's mind) gave rise to assessable income although it seems likely that it would have. The evidence about the plaintiff's motives, therefore, goes only so far as an intention to avoid paying the proceeds to the Commissioner, if possible, in the event that the Commissioner discovered the plaintiff's other tax avoidance and sought to recover the proceeds of sale of Raby Bay to pay outstanding tax and penalties. The sale of Raby Bay, as the plaintiff admitted, "was entirely consistent with the underlying purpose of the scheme" of "keeping money out of my name … [and] get the assets out of my name". This consistency does not justify the conclusion that the plaintiff had actually decided the funds should remain in the trust account as a mode of concealment from the Commissioner. It was not suggested to him, for example, that he asked that the funds were to be held in a name other name than his own. The acquiescence expressed to Mr Einfeld QC's questions as set out above goes no further than agreement that the course of action, objectively considered, could fairly be interpreted as characterised in the questions. However, the conspiracy between Mr Beaufils and the plaintiff was still on foot and the certificate of title had been entrusted for the purpose of its fulfilment, the first step being the sale of the property. There is no reason for inferring that there was any change so far as the proceeds of sale were concerned, indeed, all the circumstances suggest the opposite. I do not consider that it is part of a solicitor's practice to receive funds upon the basis that they are to be held whilst the client decides whether they are to be dealt with criminally, where there is on foot a criminal conspiracy to defraud the revenue. This is very different, in my view, from the termination of a criminal purpose as to particular property, as was the case with 1079. That being so, I consider that the proceeds of sale of the Raby Bay property were not entrusted to Mr Beaufils in the course of his practice as a solicitor within the meaning of s 79A of the Act. 26 Against the possibility that my view of the definition of "failure to account" as prescribed in s 79A of the Act does not ultimately prevail, I think it is desirable that I should consider further factual issues arising in the case which, if I am right as to the character of the course of a solicitor's practice, would otherwise be unnecessary. 27 A number of the transactions entered into by Mr Brownlee with the plaintiff's property involved the use of them to secure by way of mortgage substantial funds which were dishonestly used by Mr Beaufils and Mr Brownlee in various ways for their own benefit. These funds have never been properly accounted for. It was conceded by the plaintiff that he contemplated the possibility that the giving of mortgages to various third parties would potentially form part of the scheme being constructed by Messrs Beaufils and Brownlee to avoid his tax obligations. However, it is obvious that he had a very limited understanding of the nature and possible significance of such transactions. In substance, it was unnecessary that he should do so since, if his evidence be accepted, the only mortgages contemplated by him were "small" and were only going to be entered into on his specific authorization. The plaintiff accepted that Mr Beaufils or Mr Brownlee or both had proposed using mortgages to reduce his equity in the properties against the event that the Commissioner exposed the scheme and identified them as available assets and that negative gearing would, at all events, reduce his assessable income. Whilst, of course, in general terms these results might follow from using the properties to secure loans, the purpose of the loans required that the funds be used to produce assessable income. Moreover, the problem would only recede by one step unless, inconsistent with this primary purpose, the loan proceeds or the assets into which they were translated were not ultimately identified with the plaintiff. The discussion about mortgages was, therefore, obvious flim flam. I am entirely satisfied that the plaintiff, as he asserted, did loathe the notion of mortgages and that, although he was prepared to contemplate "small mortgages", they were not to be entered into without his specific authority, which he never gave. It was submitted by Mr Einfeld QC for the Law Society that the plaintiff had given either Mr Beaufils or Mr Brownlee carte blanche in respect of any dealings with the properties by the companies into the names of which the properties were transferred on the basis that the less he knew about these transactions the better. I do not accept that this is a fair characterisation of the plaintiff's agreement. In my view, the plaintiff authorised the transfers to the companies but no other transactions with regard to them except that his beneficial ownership of them was to be concealed by deceit if necessary and the income derived from them was to be disclosed to the Commissioner. Thus, none of the mortgages in issue were authorised by the plaintiff except those which secured $475,000 for the purchase of a property at Runaway Bay against properties in the name of Riverward Pty Limited which had been transferred to that company pursuant to the avoidance scheme. These mortgages were certainly authorised by the plaintiff. The Runaway Bay property was placed in Mr Beaufils' name for the purpose, Mr Beaufils said, of saving stamp duty. The plaintiff agreed with this course, though he only knew about it after the event, as he thought it would only be a short term arrangement since it was his intention to sell the property a month or two later when, it was expected, its value would have risen. However, in January 1991, Mr Beaufils used the property by way of collateral security for advances by the Commonwealth Development Bank to the company owning the hotel at Coolangatta. The Bank thereafter exercised its power of sale to recover its funds. I am satisfied that the plaintiff did not know of or authorise the mortgage of this property to the Bank, either expressly or implicitly. 28 It was submitted for the Law Society, in effect, that relief should be denied the plaintiff on the ground that, for the purpose of defrauding the Commonwealth the plaintiff had "armed Beaufils with complete power to deal with the properties". As already mentioned, I do not accept that the plaintiff gave Mr Beaufils such a plenary authority. He certainly agreed that the properties were to be placed in the names of entities with which he had no apparent connection. Absent any illegal purpose, a retainer for such transactions falls well within conventional legal practice and a claim against the Fidelity Fund in the event of the solicitor's theft of the property could not be defeated merely because the connection between the client and the properties in question was not to be a matter of public record. It is not a material contributing factor to his or her loss that the innocent (on this hypothesis) client trusted the solicitor. Such trust is the essence of the solicitor/client relationship. The purpose of the Fidelity Fund is to compensate such clients where their solicitor abuses their trust and causes loss. In the end, the Society's submissions on this point amounted to no more than a reiteration of the argument that the whole of the relationship between the plaintiff and Mr Beaufils was tainted by illegality. For the reasons already given, I do not accept that this was the case as to 1079. 29 I should briefly deal with the submission made on the plaintiff's behalf as to the effect of the decision of Hill J in the Federal Court of Australia, mentioned briefly above. 30 This judgment resolved litigation brought between the plaintiff and his interests against Messrs Beaufils and Brownlee and other parties who had come into ownership of the plaintiff's property through the frauds which I have described. It was argued on the plaintiff's behalf by Rofe QC that certain findings made by Hill J gave rise to estoppels upon which the plaintiff was entitled to rely against the Law Society in the present litigation. Mr Wales SC for the Registrar General gave muted support to these submissions. The crucial finding upon which reliance is placed is that, despite the illegality affecting the purpose for which Mr Beaufils was retained by the plaintiff as his solicitor, the plaintiff and Mr Beaufils were not, in truth, in pari delicto so far as the transactions which brought about transfers of property were concerned and hence the plaintiff's claim was not adversely affected by the agreement that Mr Beaufils was to undertake transactions on his behalf for the purpose of defrauding the revenue. His Honour also considered that, as in the circumstances the plaintiff did not need, as a matter of pleading, to rely on the illegal purpose to make good his claim against Messrs Beaufils and Brownlee and those obtaining their interests through them, the Court would not refuse relief to him on the grounds that, as it happened, the questioned transactions happened to be undertaken pursuant to an arrangement that was otherwise illegal. I should say at once that the Law Society, opposing the argument that any estoppel applied, did not seek to take issue with anything that fell from Hill J in connection with the issues litigated before him. Nor do I see anything in what I have said as to the interpretation of s 79A of the Act as qualifying, let alone contradicting, any conclusion of his Honour on the question of illegality. The crucial finding of his Honour in this respect is (122 ALR at 267) - "In recommending as a solicitor to Mr Weston, that monies be paid to the Coolangatta Hotel Company in which Mr Beaufils had an interest, and that assets be transferred to companies under the control of Mr Beaufils, the latter stood in a fiduciary relationship to his client. That relationship he breached by putting himself in a position where his duty and his interest conflicted. Mr Weston acted upon Mr Beaufils' advice. It would be unconscionable now for Mr Beaufils to be in a position to defend the present proceedings and thus be enriched by his own breach of duty on the basis that there was an illegal arrangement to which both he and Mr Weston were parties and that accordingly the loss should remain where it lay (i.e. on Mr Weston, not Mr Beaufils). In truth, there was no equality in the illegal participation, Mr Weston and Mr Beaufils were not in pari delicto. For this reason, I am of the view that the defence of Mr Beaufils should fail." 31 It is important to be precise about the actual finding of his Honour concerning the relationship between the plaintiff and Mr Beaufils giving rise to the fiduciary relationship. This is made clear (at least for present purposes) by the paragraph in his Honour's judgment immediately following that which I have set out above - "I will deal hereafter with the circumstances surrounding Mr Brownlee's involvement in the transactions. Suffice it to say that he, too, as the business and taxation adviser of Mr Weston, owed a fiduciary duty to Mr Weston, which fiduciary duty he breached. He also should not now be allowed to profit from that breach of fiduciary duty when the illegal transactions were brought about by his advice". 32 It seems to be to be clear therefore, that in referring to Mr Beaufils as "a solicitor to" the plaintiff, Hill J meant merely to refer to the former's position as legal adviser on whom the plaintiff relied. The fact that Mr Beaufils was a solicitor was happenstance. His Honour found that the circumstances gave rise to a fiduciary duty in breach of which Mr Beaufils acted. That is not the same as considering whether Mr Beaufils acted in the course of his practice as a solicitor within the meaning of the definition of a "failure to account" defined in s 79A of the Act and I do not read his Honour's judgment as suggesting that it did. For the estoppel to arise, there must be a "judicial determination directly involving an issue of fact or of law [that] disposes once and for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion …": Blair v Curran (1939) 62 CLR 464, per Dixon J at 531. In holding that the relationship between Mr Beaufils and the plaintiff was such as to make it unconscionable that Mr Beaufils should be able to take advantage of the criminal purpose of that relationship, Hill J did not need to consider whether Mr Beaufils was entrusted by the plaintiff with his property in the course of his practice as a solicitor, as distinct from in the course of a relationship that gave rise to a fiduciary duty. The existence of a fiduciary duty, which undoubtedly happens to arise where property is entrusted to a solicitor acting in the course of his or her practice, is immaterial to the issues arising under s 79A of the Act. It is worth noting that, although there must be an entrustment of property in the course of the solicitor's practice and a failure to account in respect of it, the liability of the Fund to the client is direct and is not derived through the solicitor in any sense. 33 I have concluded, therefore, that the issues both of fact and law that were determined by Hill J differ in significant respects from those it is necessary to determine in the litigation before me. 34 I must say (with unfeigned respect) that, in the circumstances, were I uninstructed by Hill J's view, I would find it difficult to accept that an accomplice, such as Mr Beaufils was of the plaintiff, who was engaged in a joint criminal enterprise could be considered to be in a fiduciary relationship with his co-offender, whether he was a solicitor or not and even though his part of that enterprise was limited to giving legal advice and undertaking legal work. It is somewhat surprising to discover - due no doubt to the ignorance of a common lawyer - that, if there is no honour between thieves, there may yet be a fiduciary relationship between them. Be that as it may, as I have said, I do not consider that Hill J either considered or determined the question whether Mr Beaufils was acting in the course of his practice as a solicitor within the meaning of that phrase as it is used in the Act. 35 At all events, I accept the submission on behalf of the Law Society that it was not a party to the proceedings in the Federal Court, nor was it the privy of Mr Beaufils, claiming or defending through him. That this is an essential requirement is not controversial. Section 88(2) of the Act as it stood before 1 July 1994 ("the original Act"), which is relevant here: s79B(5) of the Legal Profession Reform Act 1993; now see s 90D) permits a claimant, in respect to a relevant failure to account where the solicitor has been convicted of an offence involving dishonesty, to take proceedings in the Supreme Court as for a debt due by the Law Society, in which event, the defences that would have been available to the solicitor are available to the Law Society. Mr Beaufils was convicted of relevant offences concerning 1079 and a (Progressive Finance) mortgage over two other properties. None of the other transactions are affected by this factor. Except so far as 1079 and the Progressive Finance mortgage is concerned, it was an essential pre-requisite to entitlement that the Law Society Council should find that Mr Beaufils had acted dishonestly. In my opinion, such a finding is inevitable in all the circumstances but, even so, has not yet been made. When the Law Society pays a claim, it "is subrogated to all the rights and remedies of the claimant" against the solicitor who failed to account: s 89(2) of the original Act. Of course, leaving aside the consideration that the claim was not yet made and the processes of the Law Society as prescribed by the Act not undertaken, the plaintiff was unable to sue the Law Society in respect of Mr Beaufils' defalcation except in respect of 1079. Section 88 of the original Act, which permits an action against the Law Society in certain specified circumstances, makes available to the Society any defences that would have been available to the solicitors but that applies only in proceedings in the Supreme Court as for a debt due by the Law Society in respect of defalcations which had been the subject of the solicitor's conviction of an offence involving dishonesty. Broadly speaking, the liability of the Law Society in respect of its administration of the Fidelity Fund under the Act, if it attributes any liability, arises strictly for the purposes of the Act, to adopt the distinction made in Ramsay v Pigram (1967-1968) 118 CLR 271 at 283. To my mind, the nature of the Law Society's liability under both the Act and the original Act is so different from that of Mr Beaufils as he defended the proceedings in the Federal Court that there is no privity of interest between them. It is unnecessary for me to form a final view about this matter since, as is mentioned above, I have concluded that there is no relevant identity of issues between the Federal Court and the present proceedings. 36 So far as the claim against the Registrar General is concerned, this is limited to the loss of 1079. I have already held that, at the relevant time, this property was entrusted to Mr Beaufils in the course of his practice as a solicitor and that his failure to account arose from an act, namely the mode by which Mr Beaufils stole the property, in respect of which he has been convicted. Accordingly, the Fidelity Fund is obliged to compensate the plaintiff in respect of the ensuing pecuniary loss. As the action against the Registrar General is one of last resort, the claim against the Registrar General must be dismissed. 37 I defer making final orders pending further submissions as to interest and costs. ***********

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