Law Society of New South Wales v Malouf [2007] NSWADT 54

CITATION: Law Society of New South Wales v Malouf [2007] NSWADT 54

DIVISION: Legal Services Division

APPLICANT PARTIES: Council of the Law Society of New South Wales RESPONDENT Gerard Francis Malouf

FILE NUMBER: 062015

HEARING DATES: 29 November 2006

SUBMISSIONS CLOSED: 29 November 2006

EXTEMPORE DECISION DATE: 29 November 2006

DATE OF DECISION: 9 March 2007

BEFORE: Karpin A - ADCJ (Deputy President); Clisdell RJ - Judicial Member; Fitzgerald R - Non Judicial Member

CATCHWORDS: Solicitor – Disciplinary application

MATTER FOR DECISION: Principal matter

LEGISLATION CITED : Legal Profession Act 1987

Bechara v. Atie [2004] NSWCA 268 CASES CITED: Kennedy v. Council of the Incorporated Law Institute of New South Wales (1939) 13 ALJR 563 Law Society of New South Wales v. Waterhouse [2002] NSWADT 204

APPLICANT L Pierotti, Solicitor REPRESENTATION: RESPONDENT G Barry Hal QC with M Maxwell

ORDERS: 1. Application dismissed.; 2. Each party to pay their own costs

REASONS FOR DECISION 1 This a matter in which the Tribunal gave an extempore decision at the close of submissions on 29 November 2006. The parties were advised that written reasons would be provided at a later stage. The Tribunal now provides those reasons. 2 By application filed 23 June 2006 the applicant sought the following orders: 1. That the Solicitor will be fined. 2. That the Solicitor be publicly reprimanded. 3. That failing the solicitor's compliance with his undertaking within 30 days of the Tribunal's judgment, the solicitor's practising certificate be suspended until such time as he complies with his undertaking and that on expiry of that practising certificate, no further practising certificate to be issued by the Law Society of New South Wales until such time as the Solicitor has complied with his undertaking. 4. That the Solicitor pay the informant's costs of the proceedings. 3 The applicant contended that the respondent was guilty of professional misconduct in that he had failed to honour an undertaking. 4 The respondent admitted that he had failed to comply with the undertaking. 5 The particulars of grounds of complaint were as follows: 6 Heazelwoods, solicitors ["Heazlewoods"] acted for Mrs McBain, and her infant son ["SM"] in a medical negligence case. On 22 August 2003 the proceedings were adjourned, and SM through his mother and tutor instructed Messrs. Gerard Malouf & Partners ["Malouf's"] to take over conduct of the matter. Mrs McBain also instructed Malouf's to act for her. 7 On 27 August 2003 the respondent, who was then the sole partner in Malouf's, wrote to Heazlewood's advising that Malouf's had received instructions to act for Mrs McBain, and SM. 8 By letter dated 29 August 2003 Heazlewood's wrote to Malouf's advising that, upon receipt of that firm's undertaking in respect of costs and disbursements the files would be forwarded to it. In that letter, Heazlewood is set out the terms of the undertaking it required, in part in the following terms: " reasonable costs and disbursements incurred in these matters to date will be paid by your firm upon the successful completion of the matters. Our costs are to be agreed or assessed. Further, we also require an undertaking from your firm that you will not release the file, including the documentation provided by us to another firm of solicitors, prior to obtaining an undertaking from such solicitors in the same terms as that provided by your firm to us. We also require an undertaking from your firm that you will not release the settlement, award or verdict monies to the plaintiffs until you have paid our reasonable costs and disbursements as agreed or assessed." ["the undertaking"]. 9 On 3 September 2003 the respondent wrote to Heazlewood's advising: " we refer to your letter of 29 August 2003 and agree to its contents, re: the undertakings." 10 Heazlewood's transferred the matter files to Malouf's and on 4 November 2003 wrote advising that they assessed their costs and disbursements in the matter of Mrs McBain at $12,030.39, and in the SM matter at $38,694.29. On 13 November 2003 Heazlewood's again wrote to Malouf's seeking an additional sum of $3080 for Counsel's fees. 11 On 4 January 2004 the respondent wrote to Heazlewood's advising that he did not anticipate a hearing date until the end of 2004. 12 On 14 December 2004 a settlement conference was held. At the request of Malouf's, Heazlewood's forwarded a copy of their letters of 4 and 13 November 2003 and further quantified their costs and disbursements, in respect of Mrs McBain in the sum of $13,570.39, and in respect of SM in the sum of $40,234.29. 13 The proceedings involving Mrs McBain settled on or about 14 December 2004. 14 On 3 February 2005 Heazlewood's wrote to Malouf's confirming the respondents advice that he had received the settlement proceeds in respect of Mrs McBain, and requesting that he discuss payment of their costs with Mrs. McBain. In part that letter said: "we found as a result the instructions we were being provided with, that we were placed in an impossible position, and could not continue to act for these plaintiffs,… "Having regard to the erratic instructions that were being provided with. (sic) We required and obtained an undertaking from you that the settlement monies would not be released until our costs and disbursements have been agreed to or assessed. "The undertakings we sought and obtained were done specifically because of the particular circumstances that arose in this particular matter." 15 On or about 20 February 2005 Heazlewood's ascertained that the respondents firm had, on 10 February 2005, released the settlement monies to Mrs McBain, and that Malouf's retained a sum representing Heazlewood's claimed costs and disbursements as amended by the letter of 13 November 2003. 16 On 28 February 2005 Heazlewood's complained by letter to the Legal Services Commissioner, that the solicitor had breached his undertaking of 3 September 2003 and had paid no monies to them. Included in that complaint was a reference to a previous matter of dispute between Heazlewoods and the respondent regarding payment of fees allegedly due to Heazlewoods. The relevance of that material escapes the Tribunal. 17 In response to a request, on 1 April 2005, an itemised account was provided by Heazlewood's. At the time the application was filed, there had been no assessment sought of that itemised account, neither had the costs been paid. 18 It was common ground at the commencement of the Tribunal hearing that the costs and disbursements due to Heazlewood's in respect of Mrs McBain's matter were ultimately agreed and paid on the instructions of Mrs. McBain. It was also common ground that the costs and disbursements in respect of SM had been agreed and paid and did not form part of this application. 19 The Legal Services Commissioner referred Heazlewood's complaint to the Law Society, which by letter 16 March 2005 advised the respondent of the complaint. 20 On 8 April 2005 the respondent wrote at length to the Law Society admitting that the costs and disbursements claimed by Heazlewoods had not been paid and that the settlement funds had been paid to the client in breach of the undertaking; that he had been instructed to release the settlement monies urgently due to the client's extreme financial hardship; that the amount sought by Heazlewood's had been retained in trust; and that the respondent made a decision "…which he considers to be correct and fair under the circumstances." He also advised the Law Society that the client continued to dispute Heazelwood's entitlement to the costs claimed. 21 On 9 June 2005 the respondent wrote to Heazlewood's acknowledging his failure to honour the undertaking and apologising for that failure. The respondent gave an undertaking that should the costs payable to Heazlewood's be assessed at more than the amount held in his trust account, he would personally pay the outstanding balance. He offered to make the matter file available to Heazlewood's should that be necessary in order to prepare a bill in assessable form. 22 Despite that apology and undertaking, on 8 August 2005 Heazlewood's wrote to the Law Society, setting out its view of the matter and noting: " We are happy for the Professional Conduct Committee to proceed as it sees fit." 23 There is no dispute that the respondent breached the undertaking given on 3 September 2003. The issues before the Tribunal are, whether that breach constitutes professional misconduct; and, if so, what is the appropriate penalty. 24 The matter was dealt with under the Legal Profession Act 1987. Section 127 of that act defines professional misconduct as follows: (1)For the purposes of this Part, professional misconduct includes: (a) unsatisfactory professional conduct, where the conduct is such that it involves a substantial or consistent failure to reach reasonable standards of competence and diligence, or (b) conduct (whether consisting of an act or omission) occurring otherwise than in connection with the practice of law which, if established, would justify a finding that a legal practitioner is not of good fame and character or is not a fit and proper person to remain on the roll of legal practitioners, or (c) conduct that is declared to be professional misconduct by any provision of this Act, or (d) a contravention of a provision of this Act or the regulations, being a contravention that is declared by the regulations to be professional misconduct. 25 Compliance with undertakings given by a lawyer in the course of his or her professional practice is an important component of the trust reposed in a legal practitioner when admitted to practise. A member of the profession should be confident that reliance can be placed upon an undertaking given by a fellow practitioner. In the ordinary course of dealing, it will frequently be necessary, for one practitioner to give, and another practitioner to receive, an undertaking. The giving of an undertaking is a matter of weight and gravity, not to be undertaken lightly. 26 There is abundant authority for the proposition that a legal practitioner's breach of an undertaking is to be regarded as a serious breach of professional standards. In Kennedy v. Council of the Incorporated Law Institute of New South Wales [(1939) 13ALJR 563] Rich J. dealing with the definition of Professional Misconduct said: "… need not fall within any legal definition of wrong-doing. It need not amount to an offence under the law. It was enough that it amount to grave impropriety affecting a professional character and was indicative of a failure either to understand or to practice the precepts of honesty or fair dealing in relation to the courts, clients or the public." 27 Although the applicant sought an order that the Tribunal find the respondent guilty of professional misconduct, it was conceded in submissions that it was open to the Tribunal to make a finding of unsatisfactory professional conduct. Law Society of New South Wales v. Waterhouse [[2002] NSWADT 204] Nonetheless, the applicant submitted that the respondent's failure constituted a breach of a fundamental obligation, and that his failure to comply with his undertaking, in all the circumstances, amounted to professional misconduct. 28 The respondent gave evidence and was cross-examined at some length. Two of the numerous character witnesses gave evidence, as did two solicitors employed in Malouf's at the relevant time. 29 Based upon the documentary evidence and that which emerged at hearing, the Tribunal finds that at the time the respondent took over the matters from Heazlewoods, the principal of that firm was of the view that Heazlewoods could no longer continue to act for the plaintiffs due to the disputes which had arisen, and the dissatisfaction the plaintiffs had expressed in relation to Heazlewoods conduct of their matters. Heazelwoods anticipated that there would be difficulty in obtaining costs and disbursements from the clients. 30 The Tribunal finds that the undertaking submitted by Heazlewoods to Maloufs, was not in a form designed merely to ensure that upon completion of the matters, Maloufs retained sufficient funds to cover the reasonable, or, indeed, claimed costs and disbursements of Heazlewoods. It included a requirement that the balance settlement monies not be paid to the clients until such time as Heazelwoods had received their claimed costs and disbursements. 31 The Tribunal views this latter clause as an onerous requirement and one which has the underlying purpose of putting pressure on the client to agree to payment of the claimed costs. It goes beyond that which was required to ensure that the claimed costs and disbursements be secured pending agreement or assessment of those costs. 32 The Tribunal is of the view that an undertaking of that nature is not one, which would likely be enforced in the Supreme Court. 33 The lien, which Heazelwoods held over the clients' documents, was a lien, which entitled them to recover their reasonable costs. The nature of the undertaking sought by Heazlewoods should have been no more than is encompassed by such a lien, namely the protection of Heazelwoods claim for its costs and disbursements. Rule 29.4 of the Solicitors Rules provides: 29.4 If the first practitioner has terminated the retainer and the client's documents are essential to the defence or prosecution of proceedings which are continuing before a Court, the practitioner must surrender possession of the documents to the client, upon the terms prescribed in Rule 8.4.2 or to the second practitioner, if so directed by the client, and, provided that the second practitioner - 29.4.1 holds the documents subject to the first practitioner's lien, if that is practicable, and ensures the first practitioner's costs are satisfactorily secured; or 34 McColl JA with whom Ipp and Tobias JJA agreed, said in Bechara v. Atie [2004] NSWCA 268: 61 The Solicitors Rules reflect the authorities dealing with possessory liens. They are expressed to be subject to s 209C the Legal Profession Act 1987. They provide a framework for the steps solicitors must observe where a former client seeks access to their documents. They direct a practitioner who claims to exercise a lien for unpaid costs over a client's documents, which are essential to the client's defence or prosecution of current proceedings, to deal with the documents in accordance with r 29 (which applies where the client has instructed another solicitor) or, if the client has not retained a new solicitor, to deliver the documents to the client "upon the practitioner's costs being satisfactorily secured": r 8.4. 35 Following settlement of the matter, Maloufs received instructions from Mrs. McBain that Heazlewoods were not to be paid. The respondent was aware that she was suffering financial hardship. Accordingly, he secured Heazlewoods claimed costs and disbursements by retaining them in his trust account. He paid the balance of settlement monies to Mrs. McBain in breach of the undertaking, which he had signed. 36 The provisions of the Legal Profession Act 1987 dealing with the obligations of a solicitor receiving trust monies, were not raised in the course of argument. Accordingly, and without deciding the issue, the Tribunal merely questions whether a clause requiring a solicitor to agree to deal with trust monies contrary to the instructions of the client on whose behalf those monies are held, would involve the solicitor in a breach of the act. Prima facie that would appear to be the case, however, as the matter was not argued, the Tribunal makes no finding on that issue. 37 The Tribunal is satisfied that the respondent was careless, in that he failed to give adequate consideration to the undertaking submitted by Heazlewoods. In keeping with the obligations imposed upon a solicitor called upon to give an undertaking, it was incumbent upon the respondent to have proper regard to the onerous nature of the undertaking sought. It is clear that at the time he signed the undertaking, he did not turn his mind to the full ramifications of that document. 38 At hearing before the Tribunal it was submitted that one option open to the respondent, was to make an application to the Supreme Court to be relieved of his obligation to retain the clients' money pending resolution of Heazlewoods costs claim. It seems clear, however, that by the time the respondent appreciated the true nature of the undertaking that he had given, and breached, it was too late. 39 It was submitted on behalf of the respondent, that the actions of the respondent in retaining in trust Heazlewoods claimed costs and disbursements, pending the resolution of the dispute between Heazlewoods and Mrs. McBain (in which the respondent declined to act for Mrs. McBain), ensured that Heazlewoods received their costs and disbursements at the conclusion of that dispute. Thus, it is argued, the respondent fulfilled his obligation to protect Heazlewoods lien. In this respect he complied with his obligation, albeit he failed to comply with the requirement not to pay the settlement monies to which the client was entitled, until such time as Heazlewoods had been paid their costs and disbursements. 40 In the opinion of the Tribunal, an undertaking that requires the whole of the settlement monies to be retained in trust, and withheld from the client until such time as the lien acknowledged by the undertaking, has been satisfied, is too wide, contrary to public policy and unenforceable. The purpose of an undertaking in these circumstances, is to protect the lien properly exercised by the practitioner handing over client files to another practitioner. It is not designed to relieve the practitioner in whose favour the undertaking is given, from the obligation to have claimed costs assessed or agreed in the event that the client disputes the claim. 41 The Tribunal is satisfied that the respondent was careless in failing to appreciate the wide ambit of the undertaking. In considering whether or not that carelessness amounts to professional misconduct, or unsatisfactory professional conduct, the Tribunal has taken into account the fact that the respondent was admitted on 8 July 1983, and has practiced as a solicitor since that date. He became a partner in Malouf Solicitors in 1988 where he remained until he set up his present practice in 1995. He conducts a substantial personal injury practice and at the time of these events employed 10 legal practitioners and 28 other staff. There were a substantial number of character references tendered to the Tribunal from members of both branches of the profession each of whom had known the respondent for a considerable period in the course of their professional lives. Their evidence attests to his character, reputation and competence as a practitioner. 42 In the circumstances of this case, the Tribunal finds that the conduct of the respondent was neither disgraceful nor dishonourable, and would not warrant a finding of professional misconduct. 43 The Tribunal was of the view that prima facie, carelessness of this nature in giving an undertaking, could well warrant a finding of unsatisfactory professional conduct, or, in some circumstances, professional misconduct. In the particular circumstances of this matter, having regard to the fact that the respondent complied with that part of the undertaking which, in the opinion of the Tribunal, was enforceable, and was in accordance with the law and with public policy, the Tribunal has come to the view that this is a rare case when a failure to fully comply with an undertaking should not lead to a finding of professional misconduct or unsatisfactory professional conduct. 44 The mere fact that an undertaking entered into by a practitioner offends public policy, or is for any reason unenforceable, will not, without more, excuse the practitioner who fails to comply with his or her undertaking. The obligation of a practitioner who enters into an undertaking, is to ensure a full understanding of the obligations imposed by that undertaking. A practitioner called upon to give an undertaking in terms that are too wide, offend public policy, or are objectionable for any other reason, should decline to give such an undertaking, and bring to the attention of the practitioner seeking it, the proper purpose of undertakings between practitioners. The respondent failed to meet his professional responsibilities to the extent that he did not turn his mind to the full ramifications of the undertaking he signed. To that extent he came perilously close to a finding by this Tribunal of unsatisfactory professional conduct. For the reasons given he has escaped such a finding, but practitioners should be aware of the grave obligations consequent upon the giving of undertakings, and the risk to professional reputation of those who give them lightly or thoughtlessly. Orders 1. Application dismissed. 2. Each party to pay their own costs