Legal Services Commissioner v Ball [2001] NSWADT 86

CITATION: Legal Services Commissioner v Ball [2001] NSWADT 86 DIVISION: Legal Services Division APPLICANT PARTIES: Legal Services Commissioner RESPONDENT Michael Lee Ball FILE NUMBER: 9813 HEARING DATES: 10/12/1999 , 27/07/2000, 01/09/2000 SUBMISSIONS CLOSED: 09/15/2000 DATE OF DECISION: 05/29/2001

BEFORE: Toomey B QC - Judicial Member at 1; Pheils J - Judicial Member at 1; Sartore G - Member at 1 APPLICATION: Dismissal of information - frivolous, vexatious, misconceived or lacking in substance MATTER FOR DECISION: Preliminary matter Administrative Decisions Tribunal Act 1997 LEGISLATION CITED : Crimes Act 1900 Legal Profession Act 1987 Nagasinghe v Worthington (1994) 53FCR 175 Ebber v Human Rights & Equal Opportunity Commission (1995) 129 ALR 455 CASES CITED: GVR v Department of Health, Housing & Community Services (23 August 1993) State Electricity Commissioner v Rabel (1998) 1 VR 102 Walsh v Law Society (NSW) [1999] 198 CLR 73 Kerridge v Simmonds [1906] 4 CLR 253 APPLICANT REPRESENTATION: W Haylen QC RESPONDENT J Sackar QC ORDERS: 1 Application for summary dismissal granted; 2 Liberty to apply on 7 days notice including the right to the applicant legal practitioner to seek costs under s 171E of the Act

INTRODUCTION 1 Mr Michael Lee Ball ("Ball") is a solicitor and partner in the firm of Allen Allen & Hemsley ("AAH"). He was responsible for giving instructions on behalf of the firm in attempts to settle long standing litigation between Tectran Corporation Pty Ltd ("Tectran") and AAH, and Mr Leszek Rajski ("Rajski") and Raybos Australia Pty Limited ("Raybos"), the circumstances of which will be fully described later in this judgment. 2 On 4 May 1998 the Legal Services Commissioner filed an Information in the Legal Services Tribunal against Ball containing five grounds of complaint of unsatisfactory professional conduct or professional misconduct. Particulars of those complaints were sought and when the answers were deemed by Ball to be unsatisfactory application was made to the Tribunal which on 13 August 1998 ordered further particulars to be provided by the Commissioner. Dispute arose between the parties about the particulars provided in purported satisfaction of that order, and on 29 June 1999 the Tribunal made a further order for the Commissioner to provide the particulars sought by Ball. Those particulars were ultimately provided on 30 July 1999. 3 After consideration of the particulars provided Ball moved the Tribunal for an order that the information should be dismissed on the grounds that "it is frivolous, vexatious, otherwise misconceived or lacking in substance pursuant to s.73(5)(h) of the Administrative Decisions Tribunal Act 1997". It is that application, in effect for summary dismissal of the proceedings, which is the subject of this judgment. BACKGROUND FACTS 4 It is impossible to understand these proceedings without knowledge of the web of civil claim and counterclaim, charges of contempt and of crime which have enmeshed what can compendiously be called the Rajski interests, the AAH interests and the Tectran interests since 1979. A brief summary of the relationships between the parties follows: - (i) In 1979 Rajski and Raybos – a company effectively owned by him – entered into negotiations with Tectran and associated companies concerning a possible joint venture to develop and market computer software known as Raybol, a product developed by Rajski, and on 15 February 1980 an agreement was entered into between the two interests for the development and marketing of the product. AAH were Tectran's solicitors. (ii) Later in 1980 Tectran began proceedings in the Supreme Court of New South Wales claiming damages from the Rajski interests for alleged deficiencies in the product and alleged misrepresentations; the Rajski interests cross-claimed for moneys claimed to be due pursuant to the original agreement. (iii) In 1985 the Rajski interests took action against the Tectran interests and AAH alleging conspiracy and abuse of process in that the 1980 proceedings were commenced by Tectran and its solicitors for an improper purpose and knowing that there was no proper foundation for the proceedings. (iv) An application by the Tectran interests and AAH to strike out the Statement of Claim failed, Miles J holding that a prima facie case existed. AAH thereafter obtained independent representation and Tectran retained Blake Dawson Waldron ("Blakes") to act for its interests. (v) In 1986 the Rajski interests began proceedings against Blakes alleging conduct by that firm in direct continuance of the conspiracy alleged against Tectran and AAH in the 1985 proceedings but occurring since those proceedings had begun. (vi) The three civil actions described above have been referred to as "the main civil proceedings between the parties". There have however been many other proceedings directly or indirectly involving the parties including numerous applications by the Rajski interests for judges to disqualify themselves on the ground of apprehended bias or alternatively for decisions of judges to be set aside on the basis of failure to disqualify themselves for apprehended or actual bias. There have been defamation proceedings between Rajski and a partner in Blakes and at least seven attempts by the Rajski interests to have lawyers and others associated with the Tectran interests dealt with for alleged contempt of court. (vii) In 1988 charges of perjury were laid by the police against one Yerushalmy and one Cowper, officers in Tectran, based on allegedly false evidence given by them before Justice Yeldham in the Supreme Court in 1981 during an interlocutory hearing relating to the first civil proceedings. On application by the defendants to those charges the hearing of the committal proceedings was adjourned until after the determination of the civil proceedings which have been compendiously referred to above. The perjury proceedings have continued to be adjourned from time to time and have still not been heard twenty years after the impugned evidence was given. (viii) As well as the various proceedings specified or generally described above there have been myriad interlocutory proceedings in the various matters over the years. We think it not unfair to say that Rajski has devoted himself almost obsessively to what he perceives as the vindication of his rights. (ix) The civil proceedings have not been brought on for hearing to this date and no evidence was placed before the Tribunal which suggested that that might happen at any particular time or indeed at all. (x) In August 1994 AAH reached agreement with Lawcover that the latter would indemnify AAH to a limited extent in respect of the proceedings. At some time which is not precisely revealed by the material before the Tribunal but probably in early 1993 discussions had begun between AAH, Blakes and Tectran on the one side and the Rajski interests on the other with the intention of settling at least all the civil proceedings. In those negotiations AAH were represented by Mr David Hill, of Minter Ellison Morris Fletcher, solicitors ("Hill" and "Minters" respectively), and the partner who had the conduct of the matter and who gave instructions to Hill on behalf of AAH was the present respondent, Mr Michael Lee Ball ("Ball"). (xi) The first draft Deed of Settlement appears to have been prepared in September 1994. The terms of that Deed are not before the Tribunal, but a Deed bearing a heading "Draft 2 29.9.94" contains what has been treated as the basis of continuing negotiations between the parties. Clause 2 of the draft provided for the termination of all civil proceedings among all the parties to the Deed and is not controversial. Clause 3 provided for the parties to join in seeking orders from the Court of Appeal for dismissal of all contempt proceedings before that Court, and no issue has arisen about that Clause. Clause 4 was in the following form:- "Raybos and Rajski shall join in representations to the Attorney General, the Director of Public Prosecutions and/or the Commissioner of Police to have them withdraw or not pursue further the criminal proceedings and agree not to bring further criminal charges against any person in any way arising out of the product or agreement or any of the Schedule 3 proceedings." – ("Schedule 3 proceedings" are all the proceedings among and concerning the parties, civil, criminal and for contempt of court). Clause 5 of the Deed provided that the settlement should be given effect to "upon the termination, in accordance with Clauses 2-4 inclusive above, of all of the Schedule 3 proceedings …". (xii) Upon receipt of this draft Mr John Basten QC ("Basten") who represented the Rajski interests in the negotiations wrote to Hill on 14 October 1994 raising one objection to the machinery suggested for the settlement and several substantive objections to the proposal relating to the attempted termination of the criminal proceedings. Two objections were that it was not appropriate that the payment of money to his clients under the settlement be conditioned upon termination of criminal proceedings and that it was inappropriate "to accept such a payment conditioned upon seeking to have criminal proceedings terminated" (sic). In respect to the representations to be joined in by his clients under Clause 4 Basten said: "Whilst my clients would not oppose or take any steps to hinder the presentation and consideration of such representations, they could not in all honesty join in them. However, in so far as the representations to be made are simply based upon the settlement of the disputes between the parties in the civil proceedings, my clients would of course be happy to confirm that such an agreement has been reached." (xiii) On or about 1 December 1994 a further draft of the Deed was presented to Basten on behalf of the AAH and Tectran interests. The new draft omitted the old Clause 4 (see paragraph (xi) above) and in its place substituted the following:- "[The criminal proceedings]". 5 Clause 5 provides for the settlement to be effected "upon determination, in accordance with Clauses 2 and 3, of the 1980 proceedings, all of the other civil proceedings and the contempt proceedings …". It would thus appear that the AAH and Tectran interests had abandoned their precondition for settlement that the criminal proceedings as well as the other proceedings should have been terminated. 6 However, the recitals to the draft included references to the criminal proceedings which were set out in Part D of Schedule 3 of the draft after the 1980 proceedings, the civil proceedings and the contempt proceedings in Parts A, B and C of Schedule 3. The recitals included the following: "G. The parties have agreed to settle the claims made in, and resolve, the proceedings referred to in Schedule 3 (all of which proceedings are together referred to as 'the Schedule 3 proceedings') and all differences and disputes between them arising out of or in anyway connected with the product, the agreement and the Schedule 3 proceedings. That settlement and resolution is without admission of liability by any party. H. It is the intention of all parties to this Deed that the settlement recorded in this Deed is to be a complete and comprehensive settlement of all disputes and allegations between the parties hereto and that following settlement, and except as may be expressly provided for herein, there will be no further public airing by any person in any forum or by any means of any such disputes and allegations." 7 It appears from what follows that Basten must have read the draft as perpetuating the termination of the criminal proceedings as a condition for payment of the settlement moneys. The Tribunal is of the view that such a reading is unsustainable. (xiv) On 7 December 1994 Basten wrote to Hill a letter which set out detailed concerns Basten had with the 1 December 1994 draft. It included the following paragraph: "Criminal Proceedings I refer to my previous letters of 14 October, 7 November and 22 November 1994. I confirm my advice in conference that I do not think it possible to make a payment of a sum of money under the settlement contingent upon termination of the criminal proceedings." 8 As we have said, this suggests that Basten was of the view that the requirement for termination of the criminal proceedings before payment of the settlement moneys was still to be found in the draft Settlement Deed of 1 December 1994. With his letter of 7 December 1994 Basten annexed his own draft Deed which incorporated changes made to the draft provided to him and, of course, omitted any reference to termination of the criminal proceedings. On 9 December 1994 Hill replied to Basten's letter of 7 December, answering in detail the objections and suggested changes raised by Basten in his letter. Point 9 of Hill's letter said: "Some arrangement needs to be made and included in the Deed in relation to the criminal proceedings even if payment is not made contingent upon such termination. This needs to be discussed. Craig [Craig Murray – "Murray" – the Blakes solicitor acting for Tectran] should produce for consideration the clauses he suggests in relation to the criminal and contempt proceedings." 9 It is not clear what Hill meant by the words "such termination". In Point 8 he had referred to "termination of the proceedings … by verdict in favour of the defendants in each case". No like termination of the criminal proceedings could ever have happened. Putting that aside, it became apparent from Hill's letter that despite the lack of inclusion of the clause relating to termination of the criminal proceedings in the 1 December 1994 draft the AAH and Tectran interests were still propounding it to some limited and undefined extent. (xiv) While these negotiations had been going on and in anticipation of a completed agreement AAH had informed Lawcover on 16 September 1994 of the terms of the agreement in principle and of the amount which would have to be contributed by each of AAH and Lawcover towards the total settlement sum. Without going into detail it can then be said that on 22 November 1994 Lawcover provided the underwriters' cheque for its agreed part of the settlement sum to AAH, AAH added its share of the settlement to the moneys received from Lawcover and provided those combined funds to Blakes on 12 December 1994. Blakes added to those funds the contribution to be made to the settlement by the Tectran interests and on the same day – 12 December 1994 – paid the total moneys into an interest bearing controlled moneys account with BankWest. On 20 October 1995 those funds were transferred to a Commonwealth Bank account on more or less the same terms. On 31 October 1996, after all hope of settlement had been lost, the funds together with interest were repaid to the AAH interests and the Tectran interests. It is important to note that understanding had been reached among all the parties that if settlement had been reached the amount to be paid to the Rajski interests would have been not only the settlement amount but all the interest accrued between the date of initial deposit of the funds on 12 December 1994 and whatever was the date of final payment of the settlement moneys. (xv) In the meantime settlement negotiations dragged on. On 2 May 1995 in a memo to Rajski Basten summarised the progress of the matter to that date and noted that agreement had not been reached in part because of the clause conditioning payment on determination of the criminal proceedings and in part "because of a significant variation required by the Tectran/Allens parties, being a departure from the express term of the in-principle agreement of 16 September 1994." It is not easy to isolate the issues at this remove – although no doubt they were crystal clear to the parties at the time – but it seems that Basten was referring to a term concerning software of which he had complained in his letter to Hill of 7 December 1994. In any event, it became apparent that so far as Basten was concerned the reasons for failure to reach final agreement lay with disputes between the Rajski interests and the Tectran interests, not involving AAH. Accordingly, on 14 July 1995 Basten wrote to Hill a letter containing the following passage:- "Further, there have been now some two years of mediation and negotiations. The vast bulk of this time has been devoted to solving issues relevant to Tectran or Blake Dawson Waldron interests, and having no direct concern for Allens. Further, it is understood that of the [settlement moneys] placed on deposit following the in-principle agreement in September 1994, the bulk comes from Lawcover or Lawcover and Allens partners. On that assumption, my instructions are to seek a separate settlement with Allens for that amount. Obviously, my clients would need to be satisfied by documentary material as to the amount deposited from those sources." 10 The fact is that the understanding referred to by Basten was wrong. Substantially more had been deposited towards the settlement moneys by the Tectran interests than had been by the AAH interests including Lawcover. (xvi) Not surprisingly, AAH appear to have taken no steps to correct Basten's misapprehension as to the relative size of the contributions made to the settlement moneys. Nothing seems to have come from another suggestion Basten had made in his letter of 14 July 1995 – "… if there are any issues concerning the basis on which Lawcover moneys were paid on behalf of Allens, or the amount thereof, we would ask for a representative of Lawcover to attend any future meetings." It can only be said that there is no evidence that any Lawcover representative did attend any future meetings. Basten's letter concluded: "We do not intend that a copy of this letter be provided to the other parties. If you feel that the letter or its contents should be revealed to them, could you please advise me prior to taking that step." 11 There is nothing in the material before the Tribunal which suggests one way or the other whether the letter was given to the Tectran interests and whether Basten was informed before that was done, if it was done. (xvii) Nothing seems to have arisen out of Basten's suggested attempt to resolve the matter between the AAH interests and Rajski interests alone although it was renewed on 5 October 1995 in another Basten letter to Hill, and overall settlement attempts continued at least until the moneys which had been deposited on 12 December 1994 were withdrawn and repaid to the Tectran interests and the AAH interests on 31 October 1996. It was then more than two years since agreement in principle had been arrived at on 16 September 1994. A substantial and unavoidable part of the delay between mid-1995 and late 1996 was occasioned by the unavailability of Rajski by reason of sickness. It appears from the documents before the Tribunal that when the settlement moneys were withdrawn on 31 October 1996 a further settlement meeting among the parties was planned for 22 November 1996, but there is no evidence of what happened on that date. That it failed, however, is certain. It also seems certain that failure of the settlement negotiations had been anticipated before August 1996, since part of the material before the Tribunal is a memorandum from Basten to Rajski dated 17 December 1996 referring to a conference between Basten and Detective Senior Sergeant Eric Grimmond of the Fraud Enforcement Agency on 29 August 1996. Basten's memorandum refers to Sergeant Grimmond showing him a copy of a statement taken from Rajski and a copy of Basten's memorandum of 2 May 1995 to Rajski, from which it seems to us it must be inferred that the Police had been approached by Rajski. Basten's memorandum continues: "Sergeant Grimmond asked me to read paragraphs 30-33 and 35 of the statement, which included conversations at meetings with Mr David Hill and Mr Craig Murray on 1 and 3 March 1995 and with Messrs Hill and Murray and Mr Michael Ball on 10 April 1995. I read each paragraph of the statement and confirmed to Sergeant Grimmond that the discussions which occurred on those dates were substantially to the effect of the words in the statement, according to my recollection and my notes." 12 There is nothing before the Tribunal to suggest that the AAH and the Tectran interests were informed of the approach to the Police authorities. In circumstances where professional probity is brought into question by Rajski with the support of Basten we feel we must make the comment that the approach to the Police on the one hand while purporting to continue to negotiate on the other does not demonstrate good faith. (xviii) On 20 January 1997 a solicitor from Lawcover wrote to Ball to confirm "my oral advice that officers of the Fraud Enforcement Agency of the New South Wales Police Service attended at these offices during the afternoon of 17 January 1997 to execute a search warrant, a copy of which I enclose for your records." Effectively, the search warrant was directed to documents, files, computer records and the like relating to payments made by Lawcover to AAH in respect of the litigation between AAH and Tectran and Rajski and Raybos. Again, there is no evidence before the Tribunal of what arose out of the warrant, although the letter from Lawcover stated that a claim for legal professional privilege had been made. On 20 February 1997 Rajski complained to the Legal Services Commissioner about the matters which are the subject of the present information. THE DEALINGS WITH THE LAWCOVER FUNDS 13 The first three grounds of complaint are as follows:- a. That the legal practitioner, on behalf of AAH, sought and obtained the Lawcover settlement funds, under the terms of AAH's insurance cover with Lawcover, for the purpose of payment to Raybos and Rajski in respect of the settlement of the claim by Raybos and Rajski against AAH (the 1985P) by deception, in that the legal practitioner did not disclose to Lawcover, at any time, that payment of the Lawcover settlement funds to Raybos and Rajski was contingent upon termination of the criminal proceedings. b. That the legal practitioner, on behalf of AAH, retained for two years the Lawcover settlement funds obtained under the terms of AAH's insurance cover with Lawcover for the purpose of payment to Raybos and Rajski in respect of the settlement of the claim by Raybos and Rajski against AAH (the 1985P) by deception, and that the legal practitioner did not disclose to Lawcover, at any time, that payment of the Lawcover settlement funds to Raybos and Rajski was contingent upon termination of the criminal proceedings. c. That the legal practitioner, on behalf of AAH, sought and obtained the Lawcover settlement funds under the terms of AAH's insurance cover with Lawcover on terms requiring it (AAH) to pay the Lawcover settlement funds to Raybos and Rajski in respect of the settlement of the claim by Raybos and Rajski against AAH (the 1985P), whereby the legal practitioner misappropriated the Lawcover settlement funds by using those funds in breach of the terms of upon which the moneys were received. 14 It will be seen that the first two complaints allege the obtaining of funds by deception and the retention of those funds by deception and the third complaint alleges the misappropriation of the funds once they had been obtained by deception. They are extremely serious charges and on the face of it the deception charges would fall within s.178BA of the Crimes Act 1900 (as amended) and the misappropriation charge would fall within s.178A of that Act. Indeed in his letter to Ball of 21 February 1997 informing him of Rajski's complaints the Commissioner said it was alleged that Ball's action "constituted a criminal offence under S178A of the Crimes Act…". They are the most serious charges that can be laid against a solicitor in the course of his practice, since they allege criminal breach of trust, and they were in this case laid by a public official whose duty it must be to ensure that no such charges, with the possibly catastrophic consequences which might ensue to a practitioner, are laid without proper basis. In our judgment the Legal Services Commissioner had no basis for bringing these charges, nor for persisting in them as it became more and more clear that they were without foundation. 15 In a summary of the case of the Legal Services Commissioner provided to the Tribunal on 13 September 2000 Mr Haylen QC summarised the Commissioner's complaint on grounds 1-3 as follows:- "6. In each ground the essential complaint is that the practitioner was not open and honest with Lawcover. The practitioner did not indicate to Lawcover that an important, indeed essential, purpose was to settle the separate criminal proceedings; further the practitioner failed to inform Lawcover that the major sticking point in settlement was the contingent term yet was asked and otherwise informed Lawcover what were other sticking points preventing settlement. The conduct involved misappropriation in the sense that the funds were appropriated for the purpose of settling Rajski's civil claims yet a substantial purpose was to have withdrawn or terminated separate criminal proceedings when this was not a purpose for which the funds were appropriated. 7. The ethical duty to act honestly required the practitioner to inform the professional indemnity insurer, Lawcover, in obtaining and retaining the funds for settlement of the civil litigation, that the funds were being used for the settlement of separate criminal proceedings (which were not covered by the Lawcover Indemnity) and in circumstances where the civil litigation would not be settled until the separate criminal proceedings had been withdrawn or terminated. 8. The gravamen of the allegations in grounds 1 and 2 is that the legal practitioner engaged in deceptive conduct; as in other areas of the law it is not necessary to show that anybody was in fact deceived or misled. The act of deception alone is sufficient. 9. In relation to ground 3, the terms upon which the practitioner received the Lawcover settlement funds were that the funds were to be used for the purposes of settling the civil claim – no other legal proceedings including the separate criminal proceedings were ever mentioned to Lawcover …" 16 In the opinion of the Tribunal the passage just quoted includes a number of insupportable propositions which are crucial to the Legal Services Commissioner's defence of the information. The first proposition is that: "The practitioner did not indicate to Lawcover that an important, indeed essential, purpose was to settle the separate criminal proceedings … ". 17 The first objection to this statement is that it grossly misstates what was intended to be done about the criminal proceedings – that is, by legitimate means to attempt to persuade the DPP not to proceed. The second objection is that it is no more true to say that the money was sought from Lawcover "to settle the separate criminal proceedings" than it would be true to say that a person borrowing money to buy a property subject to easements who had the intention of stipulating that the easements be removed as a condition of the purchase is "borrowing the money for the purpose of removing the easements". 18 The next proposition which the Tribunal thinks cannot be supported is that:- "The conduct involved misappropriation in the sense that the funds were appropriated for the purposes of settling Rajski's civil claims yet a substantial purpose was to have withdrawn or terminated separate criminal proceedings when this was not a purpose for the which the funds were appropriated." 19 Again, it seems clear to the Tribunal that the Commissioner has confused a condition upon which payments will be made with the purpose for which the payments will be made. It is also to be remembered that the perjury charges did not affect the AAH interests, and as appears from all the material before the Tribunal the Tectran interests were those insisting upon the inclusion of the termination of the criminal proceedings as a precondition for payment of the settlement moneys. At the most, AAH acquiesced in the inclusion of the term. The AAH interests were caught in that situation whether they liked it or not, since the only practical approach to settlement of the web of litigation which had ensnared AAH and Tectran was to reach an overall settlement involving every party. After all, the allegations against AAH and Tectran in the 1985 proceedings were that they had conspired together to commence proceedings for an improper purpose; had AAH settled separately they must still, from the very nature of allegations of conspiracy, have been targets in any continuing proceedings between the Rajski interests and Tectran. Although the parties are entitled to have the amount of the proposed settlement kept confidential it needs to be said that the amount to be contributed by the AAH interest was less than 40% of the total, and half of the AAH contribution was provided by Lawcover. It is clear that the Tectran funds came from private sources and the material before the Tribunal, inferences from that material and commonsense all suggest that the Tectran interests would have had the final say on terms of settlement. 20 The further statement that: "The ethical duty to act honestly required the practitioner to inform the professional indemnity insurer, Lawcover, in obtaining and retaining of funds for settlement of the civil litigation, that the funds were being used for the settlement of separate criminal proceedings",