The Legal Services Tribunal of New South Wales CITATION : Douglas Alan Perry [1996] NSWLST 9 PARTIES : Douglas Alan Perry FILE NUMBER(S) : of 1995 CORAM: Mr W. M. Macquarie (Chairman) - Ms C.A. Gailey - Dr P.O. Miller A.M. CATCHWORDS: :- Professional misconduct - conflict of interest and preferred interests of the vendor over the purchaser. LEGISLATION CITED: Legal Profession Act 1987 CASES CITED: Walton v Gardiner, Walton v Herron and Walton v Gill 67 ALJR; Allinson v General Council of Medical Education and Registration (1894) 1 QB DATES OF HEARING: 2 and 3 May 1996 DATE OF JUDGMENT: 06/26/1996 LEGAL REPRESENTATIVES: Mr I. Wales of Counsel, instructed by Mr Pierotti, appeared for the Law Society of New South Wales. Mr S. Loomes, instructed by Mr W. Smith, appeared for the solicitor. JUDGMENT: Solicitor acting for both vendor and purchaser. The transaction generated a number of complaints. Tribunal found that in acting for both parties in the transaction the solicitor had a potential conflict of interest and when the actual conflict arose, the solicitor preferred the interests of the vendor over the purchaser. The Tribunal made findings on each matter raised. Tribunal found the solicitor's conduct would reasonably be regarded as disgraceful or dishonourable and constituted professional misconduct. Solicitor fined $1,000.00 and ordered to pay the Society's costs of $4,500.00. The complaint This matter came before this Tribunal as a result of a "Complaint" dated 7 July 1994 made by the Law Society of New South Wales (the Society) pursuant to s.135 Legal Profession Act 1987 (the Act). The "Complaint" was filed in the Tribunal on 15 July 1994 and has been dealt with under the Savings and Transitional Provisions of the Legal Profession Regulation 1994. A complaint about Douglas Alan Perry (the solicitor) had been forwarded to the Society by Hooke & Co. Solicitors of Taree who were then acting for Stanley Desmond Callaghan (Mr Callaghan) on whose behalf the complaint to the Society was made. The cause of the complaint by Mr Callaghan was a conveyancing transaction that was handled by the solicitor in 1983/84 in which the solicitor acted for both Mr Callaghan, as purchaser, and Ian Robert Mackay (Mr Mackay), as vendor in respect of the purchase and sale of an interest in property Lot 7 in Deposit Plan 561971 at Fisherman's Reach in the Shire of Kempsey, Parish Clybucca and County of Dudley, and being the whole of the land in Certificate of Title Volume 12209 Folio 245 (the land) and in connection with a lease of part of the land by Mr Mackay and Mr Callaghan as lessors and Mr Callaghan as lessee, and also in connection with some incidental documents i.e. discharge of mortgage, option for further lease term and partnership agreement. Application for Permanent Stay of Proceedings Before evidence was taken, Mr Loomes submitted that this Tribunal should permanently stay the proceedings against the solicitor because of abuse of process arising from the long delay between the conduct that was alleged to have occurred and the date of the hearing. Mr Loomes referred this Tribunal to the High Court case of Walton v Gardiner, Walton v Herron and Walton v Gill 67 ALJR 485. Mr Loomes submitted that the case for a permanent stay of proceedings would involve substantially the same issues that would be raised in the hearing of the complaint and he did not seek to have this Tribunal determine his application immediately and indicated that he would be prepared for the application to be determined at the conclusion of the hearing of the complaint. If Mr Loomes application was successful then there would be no further need for us to proceed with our determination and orders. Accordingly we will deal with his application at this stage of our determination. The application is rejected for these reasons - 1. Under s.167(1) of the Act the Council of the Society may institute proceedings in the Tribunal with respect to a complaint against a legal practitioner. 2. Under s.167(2) of the Act "The Tribunal is to conduct a hearing into each such complaint." 3. In our opinion this Tribunal has no power to permanently stay proceedings before it and has an obligation to conduct a hearing into each complaint. 4. The Supreme Court, through the Court of Appeal, possesses a supervisory jurisdiction pursuant to its general powers under s.23 of Supreme Court 1970 over proceedings of this Tribunal, which jurisdiction extends to ordering a stay of this Tribunal's proceedings on the grounds of abuse of process. 5. The test for a stay of proceedings by the Supreme Court is whether continuation of the proceedings would constitute unfair and unjustifiable oppression. 6. Even if this Tribunal had jurisdiction to grant a permanent stay of proceedings, as requested, we are of the opinion that determining the proceedings by this Tribunal would not constitute unfair and unjustifiable oppression, having heard the evidence and having considered the documents tendered as exhibits. Claim for Compensation by Stanley Desmond Callaghan By document dated 23 March 1996, filed in the Tribunal on 26 March 1996, Mr Callaghan sought leave to file a claim for compensation. Pursuant to s.169(1)(e) and (2) the "complainant" is entitled to appear but the complainant's entitlement to appear is limited to those aspects of the hearing that relate to the complainant's request for a compensation order. Under s.169(5) a person who appears in this context becomes a party to the hearing. We are of the opinion that, for the purposes of s.169(5), the "complainant" means Mr Callaghan. On the first day of the hearing Mr Callaghan was informed that because of his claim for compensation he was a party to the proceedings insofar as his request for compensation was concerned and he was urged to seek legal advice, particularly in light of s.139(5) of the Act. He was informed that his application for leave to make a claim for compensation would be dealt with the following day. On 3 May 1996 Mr Callaghan appeared and was given an opportunity to address this Tribunal, particularly relating to s.139(5) of the Act. Section 139(5) provides that, in respect of a request for compensation - "(5) Such a request may only be made within 6 years after the conduct which caused the loss is alleged to have occurred." After addressing this Tribunal and considering matters put to him by the Chairman, Mr Callaghan withdrew his claim for compensation. Evidence There was considerable divergence in the oral evidence and it was difficult for us to determine what oral evidence to prefer. This is not surprising because the principal events in this matter occurred in 1983 and 1984. If the only evidence was oral evidence it would have been difficult, if not impossible, to make a determination in this matter. However there was a good deal of documentary evidence and oral evidence that was not in dispute that could be relied on, particularly these documents - 1. An undated letter by Mr Callaghan to Mr Mackay that was written before any documents were prepared, the contents of which were known to the solicitor. In that letter Mr Callaghan set out the terms of "a deal". We are satisfied that the terms of that letter constituted the agreement between Mr Callaghan and Mr Mackay and the basis of the solicitor's instruction. For the sake of completeness, we set out the terms of the letter - "Ian, I've had time to think and discuss the deal you're offering. Anyhow after some consideration I've come up with a deal that might work out better all round and be more in the reach of my finance. What I would like to do is buy a share of around 10% of your land for 12,000 cash. With this I would like a lease of approximately a house block in size. You still lease a share and when your sister comes she could do the same, leaving the land in common for us all to share, to the degree of your share, or % holding. I would like this lease to front the road if possible, obviously because it would be closer to power, phone and an easier access, and therefore a lot cheaper. I don't intend on getting heavily into farming, perhaps a small vegetable plot or something my main ambition is to just have enough room (in good surroundings) for a workshop of some kind and a secure place to live. Anyhow that's about it, if you are interested give me a ring, and I'll come up with 10% dep. + legal costs, (then a cash settlement when the legal jargon is settled) and the mate of mine who's gear I was going to borrow, said he'd come up with me and survey the block etc. so I should still have time to put my plans in before the 17th June to catch this month's Council meeting. I was going to drive up, but it would mean too many up and downs, because its one long drive, its craziness that I didn't think of all this while I was up there. But I guess I had to be down here to review my finances, and sit and figure what I was up for. So if you could ring me as soon as you receive this (reverse charges if you like) and give me your answer, or perhaps what you have in mind, then we could ring the solicitor to get the contracts completed, and we'll be on our way." 2. An agreement for sale of land dated 10 July 1983 in the form of the 1982 edition of the agreement for sale of land published by the Law Society of New South Wales and the Real Estate Institute of New South Wales for the sale by Mr Mackay to Mr Callaghan of an undivided one tenth share in the land for $12,000.00. 3. A transfer dated 25 July 1983 by Mr Mackay to Mr Callaghan of the interest in the land referred to in the agreement for sale. 4. A lease dated 25 July 1983 by Mr Mackay and Mr Callaghan to Mr Callaghan of part of the land referred to in the agreement for sale. The lease was for a period of 5 years. 5. An option agreement dated 25 July 1983 between Mr Mackay and Mr Callaghan as grantors and Mr Callaghan as grantee which purported to give Mr Callaghan an option to take up a further lease of 5 years from 25 July 1988. 6. A partnership agreement (undated and without provision for dating) between Mr Mackay and Mr Callaghan relating to use of the land and containing inter alia clauses 7 and 8 in these terms – "7. In the event of it becoming possible to subdivide the land the partners will do all things and sign all documents to enable subdivision approval by the Kempsey Shire Council and registration by the Registrar General. 8. The first partner (Mr Mackay) shall be responsible for payment of all subdivision costs and expenses including Council Contributions and shall be entitled to the proceeds of the sale of any land thereby subdivided PROVIDED THAT if possible a 4.8 acre block may be divided off the land for purposes of transfer to the second partner (Mr Callaghan) and in this event the second partner shall be responsible for the cost of subdivision. In the event of other blocks being divided off in this same subdivision then the first partner shall pay a proportion of the subdivision costs equal to the number of blocks divided off less the second partner's block." All of these documents were signed by Mr Mackay and Mr Callaghan but the registrable documents had not been registered by February 1984 when the solicitor's retainer was terminated. We agree with Mr Neville Moses, a solicitor experienced in property matters and who provided a statutory declaration dated 26 April 1996 that was admitted as exhibit 8 in the solicitor's case, and who gave oral evidence where, in his statutory declaration, he stated inter alia, "the documents leave something to be desired by way of drafting". However the quality of the drafting, or the lack of it, is not really in issue here. The events that gave rise to the complaint by Mr Callaghan to the Society occurred before 1 January 1988 and accordingly the offence of unsatisfactory professional conduct did not exist when the events occurred and the statutory definition of professional misconduct now set out in s.127(1) of the Act did not exist. In this matter the offence is professional misconduct or nothing and the issue of professional misconduct must be determined according to the principles in Allinson v General Council of Medical Education and Registration (1894) 1 QB 750, ie. something "which would be reasonably regarded as disgraceful or dishonourable by professional brethren of good repute and competency". Relevant Facts 1. The solicitor acted for both Mr Mackay and Mr Callaghan in a conveyancing transaction that involved an agreement for sale of land, a transfer, a discharge of the vendor's mortgage, a lease and a partnership agreement. 2. Apart from the discharge of mortgage the solicitor prepared the documents and had them signed by the parties. 3. Mr Callaghan paid a deposit of $1,000.00 to the solicitor on 20 June 1983. 4. Mr Callaghan, as purchaser under the agreement for sale dated 10 July 1983, paid to the solicitor the sum of $11,000.00 as balance of purchase money, on 19 July 1983. 5. The agreement for sale contains this special condition - "1. This sale shall be subject to written advice being received from the Kempsey Shire Council that upon submission of required plans specifications and necessary application they will consent to the erection of two (2) dwellings on the subject land for the use of persons involved in agriculture and primary production and in the event of such confirmation not being given by the Council then clause 19 hereof shall apply." Clause 19 sets out the provisions that will apply if the contract is rescinded. 6. The solicitor used the money paid by Mr Callaghan to pay $417.00 required to pay out a mortgage by Mr Mackay and his late father, John Mackay, to John Worthy, upon security of the land. 7. By 25 July 1983 the solicitor had received the certificate of title, mortgage and discharge or mortgage from the solicitors for John Worthy and on that date, settled the purchase by accounting to Mr Mackay for the purchase money. 8. When the solicitor accounted to Mr Mackay for the puchase money - (a) The provisions of special condition 1 to the agreement for sale had not been complied with in that written advice had not been received from Kempsey Shire Council that upon submission of required plans, specifications and necessary application the Council would consent to the erection of 2 dwellings on the land. At the time of the transaction there was only 1 dwelling on the land and it was a condition of the "deal" between Mr Callaghan and Mr Mackay that Mr Callaghan would be able to build a house on the land. The right to build a second house on the land was therefore an essential feature of the transaction. The solicitor had received a letter dated 7 July 1983 from the Council in these terms - "Further to your letter dated 21st June, 1983, Council wishes to advise that Council may approve the construction of one dwelling on the subject land subject to a development application being approved. Before approval can be granted for the second dwelling, the applicant has to convince Council of the need for a worker's dwelling. If Council is convinced of the need for a worker's dwelling, it will then support the application to the Department of Environment and Planning, who are the Authority to issue approval for the second dwelling." This letter from the Council clearly did not comply with the provisions of special condition 1 to the agreement for sale. It was not until 21 September 1983 that the Council informed Mr Callaghan that subject to certain conditions being fulfilled the Council would consent to the erection of a second dwelling on the land. This letter probably satisfied the provisions of special condition 1 to the agreement for sale. Completion of the agreement for sale should not have taken place before that letter had been received ie. the solicitor should not have paid out the mortgage to John Worthy and should not have accounted to Mr Mackay for the purchase price. (b) The solicitor had not obtained the consent of the appropriate Minister to the transfer of an interest in the land to Mr Callaghan. The solicitor should have been aware that the land was subject to a restriction on transfer under s.272 Crown Lands Consolidation Act 1913. The solicitor did not have the certificate of title in his possession when he prepared the documents, particularly the agreement for sale and the transfer. The certificate of title came into his possession after the mortgage to John Worthy had been paid out and before the solicitor accounted to Mr Mackay for the purchase money. The certificate of title clearly showed that the property was subject to a restriction on transfer under s.272 Crown Lands Consolidation Act 1913. Apparently the solicitor did not obtain a search of the records of the Land Titles Office. If he had the search would have shown that the land was subject to the restriction on transfer. It seems that it was not until after the solicitor sent the transfer to his Sydney law stationer for registration in November 1983 that he became aware of the necessity for Minister's consent. When the solicitor was informed by his law stationers that the Minister's consent was required he then endeavoured to have his clients sign an application. By letter of 22 December 1983 the solicitor wrote to Mr Mackay in these terms - "We are now required to lodge the above Application with the Crown Lands Office. We have filled it in as far as we can and would be grateful if you would sign where marked and return same to us and have Stan sign on the other side where marked and return to us." Mr Callaghan was "Stan". The application had not been signed by the time the solicitor's retainer was terminated in February 1984 when the solicitor received a letter from Messrs Sheridan & Stubbs, Solicitors of Kempsey requesting Mr Callaghan's file. (c) The solicitor was not in a position to vest in Mr Callaghan the required leasehold interest in part of the land because - (i) title to the property was in the joint names of Mr Mackay and his late father, John Mackay, and the lease purported to be by Mr Mackay and Mr Callaghan as lessors to Mr Callaghan as lessee; (ii) the solicitor was not instructed to act in connection with the estate of his late father and therefore did not have carriage of the application for grant of probate and registration of a transmission application into the names of beneficiaries or the executor. It appears that the solicitor had reason to believe that the late John Mackay had appointed Mr Mackay, his son, as executor of his will but there was no evidence that the solicitor had obtained a copy of the will or had enquired of the solicitor acting in connection with the estate as to the position concerning grant of probate and registration of a transmission application into the name of Mr Mackay. The solicitor was aware of Mr Mackay's sister having an interest in the estate. If the will of the late John Mackay had left his estate to Mr Mackay and his sister then title to the late John Mackay's interest in the land would have been transmitted into the names of Mr Mackay and his sister, as beneficiaries, and it would not have been necessary for Mr Mackay to become registered as proprietor as executor, at all; (iii) even if Mr Mackay became registered as proprietor as executor, of his late father's interest in the land, s.153(1)(c) of the Conveyancing Act 1919 would have prevented him from granting a lease of the deceased's share of the land for a term exceeding 3 years unless he was specifically authorised to do so in the will or by the Supreme Court. There was no evidence before us that the solicitor was aware that Mr Mackay could lease, as executor, for more than 3 years, even if he became registered as proprietor as executor, of his late father's interest in the land. Particulars of Complaint Mr Wales informed the Tribunal that the Society would not be proceeding with Items 5 and 10 of the document referred to as a "Complaint" filed in the Tribunal. We will deal with the other heads of complaint, in order - 1. The solicitor, in acting for both a vendor and a purchaser, placed himself in a position of having a conflict of interest in the transaction, preferred the interests of his vendor client and failed to protect the interests of his purchaser client. We hold that - (a) the solicitor, in acting for both vendor and purchaser, in the transaction, had a potential conflict of interest; (b) when an actual conflict of interest arose the solicitor preferred the interests of the vendor over the interests of the purchaser and failed to protect the interests of the purchaser in that he caused the agreement for sale to be completed when it should not have been completed for the reasons set out in (a) and (b) of Item 8 under the heading "Relevant Facts". (c) the solicitor failed to protect the interests of Mr Callaghan in that he had prepared a lease that could not be effective to vest in Mr Callaghan the required leasehold interest in part of the land when the contract for sale was to be completed. 2. The solicitor failed to ensure that his purchaser client had separate legal advice in the transaction. We hold that - Even now in 1996 a solicitor is not obliged to ensure that in acting for both vendor and purchaser in a transaction, one or both of them should have separate legal advice. A solicitor can properly advise both parties to a transaction. It is only when an actual conflict of interest arises that the solicitor must consider independent legal advice for one or both of the parties. It should have been apparent to the solicitor that when the time came for completion of the agreement for sale, there was a conflict of interest between the parties and accordingly between himself and each of the parties. At that stage he should have referred each of the parties to other solicitors for independent advice. In 1983 it was much more common for a solicitor to act for more than one party to a property transaction but the frequency of the event does not diminish the solicitor's responsibility in a conflict situation. There was clearly a conflict situation in this matter. 3. The solicitor failed to include a zoning certificate under Section 149 of the Environmental Planning and Assessment Act with the contract. We hold that - The agreement for sale dated 10 July 1983 entered into by the parties, purported to have a certificate under s.149 of the Environmental Planning and Assessment Act 1979 annexed to it. The certificate was not annexed. The solicitor had obtained a s.149 certificate dated 6 June 1983 from the Council of the Shire of Kempsey, apparently before the agreement for sale was signed by the parties on 10 July 1983. The s.149 certificate obtained by the solicitor revealed that the land was zoned 1(a) Non Urban (A) and that there were certain restrictions on the construction of "residential buildings" on the land. The special agreement in the agreement for sale was intended to protect the purchaser and made the agreement for sale conditional on Council agreeing to consent to the erection of 2 dwellings on the land. In 1983 the present vendor disclosure requirements of s.52A Conveyancing Act 1919 did not apply and it was not uncommon for s.149 certificates not to be attached to contracts but in that case certain parts of the agreement for sale were deleted. That was not the case here. 4. The solicitor failed to make any title search on behalf of his purchaser client. We hold that - It was and still is proper practice of solicitors, when acting for a purchaser, to obtain a search of the records of the Land Titles Office. Failure to do so would amount to a failure to protect the interests of the purchaser. In this case, if a search had been obtained, it would have been apparent that the Minister's consent to the transfer was required and that the late John Mackay was still registered as one of the proprietors of the land. 5. The Society did not proceed with this head of the complaint. 6. The solicitor failed to make written requisitions on title to the vendor and obtain the vendor's written replies to such requisitions on title. We hold that - The solicitor should have obtained answers to requisitions on title from the vendor because clause 6 of the conditions of the agreement gave the purchaser the right to raise requisitions within 21 days after service of the vendor's statement of title on the purchaser. The solicitor's failure to obtain answers to requisitions on title would amount to a failure to protect the interests of the purchaser. In this case if the solicitor had obtained answers from the vendor to the usual requisitions on title it is possible that the necessity for the Minister's consent to the transfer might have been revealed. The requisitions would not have related to the leasehold interest that the purchaser was to acquire. The agreement for sale was not subject to it and accordingly the answers to requisitions on title, as to the interest in the land that was being sold, would probably not have revealed the problems relating to the lease ie. absence of the lessor's right to lease. 7. The solicitor completed the transaction and accounted to the vendor notwithstanding that title was not in order to enable the negotiated lease to the purchaser to be registered. We hold that - The agreement for sale and the lease were concurrent for the purposes of protecting the interests of the purchaser. The agreement for sale and the lease should have been capable of being completed at the same time. The agreement for sale was not made conditional on the lease being granted on completion. Accordingly the solicitor had placed Mr Callaghan in a position that he had to complete the purchase when special condition 1 to the agreement for sale was complied with, whether or not the lease could be properly granted at that time. In doing so, the solicitor failed to protect the interest of Mr Callaghan. 8. The solicitor failed to obtain the Minister's consent to transfer prior to settlement of the transaction. We hold that - The solicitor had a duty to the purchaser to obtain a search of the Land Titles records concerning the land, at the least before completion of the agreement for sale, and if he had done so the requirement for obtaining Minister's consent would have been apparent. The necessity to obtain the Minister's consent would also have been apparent if the solicitor had properly examined the certificate of title that he received from the solicitors for the mortgagee, after paying out the mortgage to John Worthy. The agreement for sale contained this provision - "15. Where the title to the land is under any Act relating to Crown Lands or is affected by any provision of any such Act; (a) ...; (b) ...; (c) unless the contrary intention appears in this agreement the provisions of "Clause 15A (Crown Lands)" in the form last published by the Law Society of New South Wales and the Real Estate Institute of New South Wales as at the date of this agreement shall apply; (d) ...; (e) ..." Clause 15A which was not attached to the contract but which nevertheless applied to the transaction provides, inter alia - "15A (a) The property (whether still under Crown tenure or not) is sold subject to any necessary consent of the Minister for Lands or other authority to the transfer of the property or any part thereof. (b) Subject as herein provided, the Vendor shall apply for any such consent and shall pursue such application and shall pay all costs and fees (other than those of the Purchaser's solicitors) in respect thereof. (c) The Purchaser shall join in and forward such application to the Vendor at the time of making this agreement or with seven (7) days thereafter and shall supply such further information as may be reasonably required in support of such applications. (d) If consent to the transfer is refused, either party may rescind this agreement, but not earlier than 14 days after receipt of such refusal and provided there is not then subsisting any other application or request under this clause. ..... " The vendor had obligations under clause 15A and the solicitor should, in the interests of the purchaser, have ensured that the vendor discharged these obligations. The purchaser had obligations under clause 15A and the solicitor should, in the interests of the purchaser, have ensured that the purchaser discharged those obligations. Failure to ensure that the vendor and the purchaser complied with their obligations under clause 15A amounted to a failure to protect the interests of the purchaser. 9. The solicitor delayed in paying his purchaser client the sum of $3,000.00 being part of the District Court verdict obtained by the client against the solicitor. We hold that - The solicitor's delay in paying part of a judgment debt, even if he did deliberately delay payment, could not amount to professional misconduct in the circumstances of this matter. 10. The Society did not proceed with this head of the complaint. Determination We find the solicitor guilty of professional misconduct because the solicitor, in acting for both parties, preferred the interests of Mr Mackay and failed to protect the interests of Mr Callaghan in that - (a) The solicitor completed the agreement for sale and accounted to the vendor for the purchase money before the vendor was entitled to the purchase money, under the contract. (b) Completion of the agreement for sale and the lease should have been concurrent and the solicitor placed himself in a position where he was unable to cause the required leasehold interest in the land to be vested in Mr Callaghan on completion of the agreement for sale. (c) The solicitor failed to - (i) make a title search of the property, on behalf of the purchaser; (ii) obtain answers to requisitions on title from the vendor; and (iii) obtain the Minister's consent to the transfer. We are of the opinion that when regarded as a whole the solicitor's conduct would be reasonably regarded as disgraceful or dishonourable by solicitors of good repute and competency. Orders 1. The solicitor pay a fine of $1,000.00 within 6 months from the date of this determination. 2. The solicitor pay to the Society an amount of $4,500.00 by way of costs, to be paid within 6 months from the date of this determination. Note: This Tribunal has taken into account that - 1. The events that led to our determination occurred in 1983/84. 2. The formal complaint was not made to the Society until November 1991 when Messrs Hooke & Co. Solicitors of Taree wrote to the Society on behalf of Mr Callaghan although Mr Callaghan claimed to have made a complaint much earlier. 3. The complaint was not filed in this Tribunal until 15 July 1994. 4. The solicitor has already been penalised to the extent that he had to pay $3,000.00 which was part of a District Court judgment against him in favour of Mr Callaghan. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.