Legal Services Commissioner v Jones
[2015] QCAT 84
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- Unreported Judgment
- Legal Services Commissioner v Jones[2015] QCAT 84
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Legal Services Commissioner v Jones[2015] QCAT 84
Legal Services Commissioner v Jones[2015] QCAT 84
CITATION: | Legal Services Commissioner v Jones [2015] QCAT 84 |
PARTIES: | Legal Services Commissioner (Applicant/Appellant) |
| v |
| Warwick Gerard Jones (Respondent) |
APPLICATION NUMBER: | OCR027-13 |
MATTER TYPE: | Occupational regulation matters |
HEARING DATE: | 29 October 2014 |
HEARD AT: | Brisbane |
DECISION OF: | Justice Thomas, President Assisted by: Mrs Joanne Collins Practitioner Panel Member Dr Margaret Steinberg AM Lay Panel Member |
DELIVERED ON: | 19 March 2015 |
DELIVERED AT: | Brisbane |
ORDERS MADE: |
|
CATCHWORDS: | PROFESSIONS AND TRADES – LEGAL PRACTITIONERS – COMPLAINTS AND DISCIPLINE – DISCIPLINARY PROCEEDINGS – UNSATISFACTORY PROFESSIONAL CONDUCT AND PROFESSIONAL MISCONDUCT – where respondent charged with borrowing money from a client, failing to maintain reasonable standards of competence and diligence and failing to deposit trust money into general trust account – where the respondent acted for two clients in family court proceedings – where the respondent decided to financially carry one the client’s matters in circumstances where she was unable to continue the litigation – where respondent asked other client for a personal loan to fund the other’s matter – where the money was transferred to the respondent’s personal account, and paid back to the lending client when requested – whether the loaned money falls within the definition of “trust money” as defined by the Legal Profession Act 2007 – whether the conduct amounts to unsatisfactory professional conduct or professional misconduct – appropriate penalty Legal Profession Act 2007 (Qld), s 237, s 248, s 418, s 419, s 456 Adamson v Queensland Law Society Incorporated [1991] Qd R 498 Attorney-General v Bax [1999] 2 Qd R 9 Legal Services Commissioner v Madden (No 2) 2008 QCA 301 Legal Services Commissioner v Podmore [2006] LPT 005 |
APPEARANCES and REPRESENTATION (if any):
APPLICANT: | Mr D Kent QC, instructed by the Legal Services Commissioner |
RESPONDENT: | Mr J Bell QC, instructed by John Henderson Solicitors |
REASONS FOR DECISION
- [1]The respondent is a solicitor who was admitted on 25 August 1981 and is the managing partner of Jones Mitchell Lawyers at Southport.
- [2]The Commissioner alleges that the following charges constitute professional misconduct and/or unsatisfactory professional conduct.
Charge 1 – borrowing money from a client
The respondent borrowed money from his client in breach of rule 11 of the Legal Profession (Solicitors) Rules 2007.
Charge 2 – failing to maintain the reasonable standards of competence and diligence
The respondent borrowed money from his client for his own benefit, was in independent fiduciary relationships with the clients Smith and Chiu and failed to refer either Smith or Chiu to independent legal advice concerning the making of the loan.
Charge 3 – failing to deposit trust money in the general trust account of the practice
On receipt of the loan money as particularised in charge 1, the respondent breached s 248 of the Legal Profession Act 2007 in that he deposited trust monies (as defined s 237 of the Act), to an account other than a general trust account.
Background
- [3]The respondent’s firm acted for Robyn Smith in Family Court proceedings. The property settlement dispute was settled by September 2007 and Ms Smith received a substantial sum of money. Following the property settlement, the respondent continued to act for Ms Smith in relation to parenting matters.
- [4]The respondent’s firm acted for Ms Chiu in Family Court proceedings from early 2006 until final judgment in December 2009.
- [5]Ms Chiu’s matter was more complex than expected, and she ran out of money 6 months into the proceedings by about the end of 2006. Whilst she managed to borrow some money for legal fees and living expenses, she had limited borrowing capacity which would have enabled her to have funded the completion of the Family Court proceedings.
- [6]The respondent felt obliged to continue with Ms Chiu’s matter because it seemed clear to him that her husband had very substantial assets which he was determined, by fraudulent means, to avoid becoming part of the matrimonial pool and, that Ms Chiu was likely to be denied her entitlements as a result of not being able to continue the litigation.[1]
- [7]The respondent’s firm carried Ms Chiu’s matter, but this was creating a significant financial burden as the firm had to continue to pay wages without corresponding income, to pay outlays for counsel and other external consultants and had to continue paying tax on an accruals basis. The respondent was working very long days and most weekends and becoming increasingly anxious about the firm’s, and his own, financial position.[2]
- [8]The respondent was under such pressure that he had real difficulty dealing rationally with the reality of the firm’s financial position and his own commitment to Ms Chiu’s case. He felt too far into the case, and was convinced that Ms Chiu’s case was a solid one, and so would not consider abandoning it.[3]
- [9]Sometime in late June or early July 2008 the respondent discussed Ms Chiu’s matter in general terms with Ms Smith. The respondent told Ms Smith that he was funding a substantial part of the Chiu litigation himself without receiving fees from her or having any realistic expectation of receiving any monies until after the matter was resolved.[4]
- [10]The respondent suggested to Ms Smith that she could financially assist with a loan to enable him to carry on with Ms Chiu’s case and stay financially afloat. He suggested that, in doing so, she could receive more interest than she was receiving from her bank. It did not occur to him that he should be more cautious about borrowing money from a client or that he should be recommending independent advice.[5]
- [11]Ms Smith recalls that, during a telephone call, the respondent explained to her about another client he had been representing who could not afford to pay her legal fees and had no money to support herself and her son, her wealthy husband having fled the country.[6]
- [12]Ms Smith recalls the respondent asking during the same conversation if he could “borrow $500,000 on behalf of his client” and promising to have the money paid back in the few months along with what Ms Smith recalled was, 10% interest.[7]
- [13]Ms Smith says that she could not recall the exact conversation but understood the respondent as saying the respondent’s client was borrowing the money to pay her legal fees owed to the respondent and her living expenses.[8]
- [14]
- [15]Subsequently, following a conversation with a friend when Ms Smith realised that there was nothing in writing relating to the loan, Ms Smith asked the respondent to provide ‘something in writing about the loan’ and in response, the respondent forwarded an email dated 7 July 2008.[10]
- [16]Relevantly, the letter which was sent on 7 July 2008 read:
The trial of my client’s application is to commence next Monday… her litigation expenses have been and remain extremely high. The amount sought to be borrowed is $500,000.
For the reasons mentioned this morning, my client is not able to borrow funds from the National Australia Bank. In order for me to fund the matter, I need to borrow the funds and in that regard your willingness to assist is very greatly appreciated. I confirm that the amount to be borrowed is $500,000. The term is 6 months, with the interest to be set at 12%.[11]
- [17]The letter provided the account details for the funds transfer as those of the respondent’s personal account.
- [18]The Chiu matter progressed slower than expected and this was discussed by the respondent with Ms Smith a number of times.
- [19]A request for repayment of the loan was made by Ms Smith’s accountant, Mr Webley, sometime after Ms Smith had sought alternative representation with respect to the family matters. His email was sent on 12 November 2010.
- [20]The respondent arranged for payment of the $500,000 plus interest at 12% as quickly as was possible. $400,000 was paid on 12 November 2010 with the remaining $253,594 being paid on 30 November. The respondent paid this money personally and borrowed approximately half of the total from family and the balance from his bank.
The respondent’s position
- [21]The respondent:
- a)Admits charges 1 and 2.[12]
- b)Denies charge 3 on the basis that the loan money did not constitute trust monies as defined by s 237 of the Legal Profession Act 2007 (Act).[13]
- c)Accepts that his conduct comprises unsatisfactory professional conduct within the meaning defined in s 418 of the Act[14] but does not accept that his conduct amounts to “professional misconduct” within the meaning defined in s 419 of the Act.
- a)
Discussion
Unsatisfactory professional conduct or professional misconduct?
- [22]Section 418 of the Act relevantly provides:
Unsatisfactory professional conduct includes conduct of an Australian legal practitioner happening in connection with the practice of law that falls short of the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent Australian legal practitioner.
- [23]Section 419 of the Act relevantly provides:
- (1)Professional misconduct includes—
- (a)unsatisfactory professional conduct of an Australian legal practitioner, if the conduct involves a substantial or consistent failure to reach or keep a reasonable standard of competence and diligence;
- [24]As to professional misconduct reference is often made to the decision of the Honourable Justice J Thomas in the case of Adamson v Queensland Law Society Incorporated[15] when he said:
The test to be applied is whether the conduct violates or falls short of, to a substantial degree, the standard of professional conduct observed or approved by members of the profession of good repute and competencies.
- [25]The respondent’s action in borrowing money from his client was in breach of rule 11 of the Legal Profession (Solicitors) Rules 2007 (being the Legal Profession Rules which then applied).
- [26]A failure to comply with legal profession rules is capable of constituting unsatisfactory professional conduct or professional misconduct.[16]
- [27]A legal practitioner must provide independent legal advice to the client. The client is entitled, and must be in a position, to trust and rely upon advice given by the legal practitioner.
- [28]At the core the prohibition in a rule such as rule 11 is the proposition that such an arrangement is inconsistent with the very basis of the legal practitioner/client relationship.
- [29]By engaging in a transaction with the client, the legal practitioner is in a position of a conflict between the practitioner’s interests on one hand and the client’s interests on the other.
- [30]The legal practitioner must positively take all reasonable steps to avoid dealing directly or indirectly with the client.[17]
- [31]In the context of an arrangement where the legal practitioner borrows money from the client the legal practitioner should, at the very least, ensure that the clients obtain independent legal advice and should have no role, and should provide no advice of any kind, in the client’s decision in relation to the transaction. Such steps should be taken with a view to avoiding any dealing with the client in relation to the transaction.
- [32]By breaching rule 11 and not taking steps to ensure that he avoided dealing directly or indirectly with his client (such as ensuring that the client obtain independent legal advice) the respondent has conducted himself in a way which falls short of the standard of competence and diligence that a member of the public is entitled to expect of him, as a reasonably competent Australian legal practitioner.
- [33]That conduct amounts to unsatisfactory professional conduct as the term is defined in s 418 of the Act.
- [34]The applicant asserts that the conduct should properly be characterised as professional misconduct as that term is used in s 419 of the Act.
- [35]In the submissions, the applicant:
- Has asserted that, taken as a whole, the application shows a tendency on the part of the respondent to prefer his own interests to those of his clients, and to disregard his obligations under the relevant provisions of the Act.[18]
- Submits that the breaches, as set out in the discipline application, establish a course of conduct indicating that the respondent is guilty of professional misconduct within the common law meaning of that term and the standards required to establish it.[19]
- Refers to the case of LSC v Podmore[20]. Mr Podmore was found guilty of professional misconduct in circumstances where he failed to advise his client (a Russian businessman with very little English) to obtain independent legal advice in respect of a share allocation of shares in his client’s company to a company controlled by Mr Podmore’s wife. His Honour Chief Justice de Jersey made the following observation:
Mr Podmore exploited, for indirect personal advantage, Mr Eshchemko’s reliance on him and Mr Eshchemko’s need to depend on Mr Podmore because of his lack of familiarity with the English language. The other analysis is that dealing commercially with Mr Eshchemko the respondent overlooked the significance of his being Mr Eshchemko’s solicitor: but I am satisfied it plainly went beyond that.[21]
- Submits that, if the Tribunal were satisfied that the respondent was engaged in a course of conduct by which he deceived his client, for his personal advantage, then the correct way to characterise the conflict alleged is as part of that course of conduct, and therefore, as professional misconduct.[22]
- [36]As to the assertion contained in paragraph 8, that taken as a whole the application shows a tendency on the part of the respondent to prefer his interests to those of his clients, at the hearing Mr Kent QC indicated that the applicant did not ‘particularly seek to maintain that submission with any great force’.[23]
- [37]As to the submission that the respondent was engaged in a course of conduct by which he deceived his client for his personal advantage, Mr Kent QC clarified that the deception alleged was that the money was not all used exactly and solely for the Chiu matter – being the represented purpose. However, Mr Kent QC went on to say that the applicant would ‘gently resile from that submission by saying it’s not something that we maintain with any force’.[24]
- [38]As to the submission that the breaches established a course of conduct (paragraph 10 of the submissions on behalf of the applicant) Mr Kent QC indicated that this submission was directed to the fact that the transaction did not all unfold simply on one day but he accepted that it was really in one instance and, in that sense, was not a course of conduct.[25]
- [39]As to the correct categorisation of the conduct I am satisfied that (and make the following findings):
- Taken as a whole, the application does not show a tendency on the part of the respondent to prefer his own interests over those of his client and to disregard his obligations under the relevant provisions of the Legal Profession Act.
- The actions of the respondent were not repetitive. There was just one instance which happened in a very short timeframe. There was no course of conduct in which the respondent was involved.
- The respondent was not engaged in a course of conduct by which he deceived his client for his personal advantage. The respondent overlooked the significance of his being Ms Smith’s solicitor, but his conduct did not go beyond that. In this sense the conduct of the respondent is to be contrasted from the conduct of Mr Podmore as identified by his Honour Chief Justice de Jersey.
- [40]In the circumstances, the conduct falls within the definition of “unsatisfactory professional conduct” as is contemplated by s 418 of the Act but not professional misconduct as is contemplated by s 419 of the Act.
Trust money?
- [41]The applicant asserts that at least some of the funds should have been deposited to the firm’s trust account because of the fact that the funds fall within the definition of “trust money” as defined in the Act. The applicant points to the following definitions:
- Money received by the practice on account of legal costs in advance of providing the services.
- Money received by the practice that is the subject of a power exercisable by the practice or an associate of the practice to deal with the money for another person.[26]
- [42]On the evidence, the commissioner asserts that:
- At least part of the money was received by the practice on account of legal costs to be incurred and so falls within (a) of the definition.
- The money was received by the practice subject to a specific purpose namely to use the funds for legal fees in the Chiu matter, and so was subject to a power.
- [43]Mr Kent QC submitted that the impact of the trust issue was to advance the seriousness of the position more than the 2 charges which were admitted. Further, the trust aspect should have turned the practitioner’s mind to the problems associated with dealing with clients particularly in the absence of independent legal advice.
- [44]The applicant also points to the communications from Mr Bartley,[27] who, when acting at the time for the respondent indicated that:
- Mr Jones agreed that in July 2008 he proposed to Ms Smith that she advance the sum of $500,000 to Ms Chiu for the purpose of enabling Ms Chiu to fund ongoing legal costs.
- Mr Jones accepted that he was in error in that he did not pay the monies into his trust account but rather to a Westpac account in his name.
- [45]The respondent has asserted:
- The money was not trust money. Trust means “money entrusted”. Entrusted means that it must have been in Ms Smith’s mind that she was providing the money for Ms Chiu and for no other purpose and so it was entrusted for that specific purpose. For the Act to apply the money must be paid with intent for it to be received in trust for Ms Chiu.[28]
- The particulars of the charge make the assertion that the respondent borrowed money from his client. This is the only contention before the Tribunal.[29] It is alleged that the respondent borrowed money from his client for his own benefit.[30] In line with authorities such as Legal Services Commissioner v Madden[31] the Tribunal must deal with the assertions made against the practitioners which should be framed precisely and which define the limit in relation to the findings which are available to the Tribunal.[32]
- The Tribunal must look to the Commissioner’s case to determine whether the money was in fact trust money.
- The Commissioner’s case is referable to the letter from the respondent dated 7 July 2008.[33] The letter refers expressly to the borrowing of the money by the respondent and not by Ms Chiu and requests that the monies be paid into a personal account not either the firm account or the firm trust account.[34]
- Moreover, Mr Jones evidence[35] is consistent with the terms of the letter. In the affidavit Mr Jones swears that he suggested Ms Smith could financially assist with a loan to enable him to carry on with Ms Chiu’s case and stay financially afloat.[36]
- In short, the most compelling evidence is the contemporaneous document, namely the letter dated 7 July 2008, which is supported by the evidence from Mr Jones and is the assertion made by the applicant concerning charge 1 and 2.[37]
- In relation to the evidence of Ms Smith the evidence is not sufficiently certain to result in the creation of any trust.
- It was not funds impressed with an obligation that they be used exclusively for legal fees in the Chiu matter but rather to enable the respondent to carry on with Ms Chiu’s case and stay financially afloat.[38] There is nothing in the letter which would contradict that position.
- [46]The evidence in relation to the purpose for the deposit of the funds is in very general terms and is unsatisfactory. The level of confusion is created by the lack of documentation and the unacceptably informal and vague way in which the arrangements were concluded. It underlines the very serious issue which arises when a legal practitioner deals, directly or indirectly, with the client. The confusion would likely had been avoided had independent legal advice been obtained.
- [47]Neither side required cross-examination of any witnesses which may have clarified some of these issues.
- [48]The letter dated 7 July 2008 was sent at the request of Ms Smith to clarify the arrangements and the funds were advanced after receipt of that letter. The terms of the letter are, on that basis, the best evidence. In her statement Ms Smith says that she cannot recall the exact conversation with the respondent.[39] Her statement talks of the broad background to the making of the loan and also talks in terms of her loan to the respondent for his client.[40]
- [49]The letter is in terms of a loan to the respondent and the respondent’s sworn evidence (which was not tested in cross examination) was consistent with that position. On balance that evidence is to be preferred over whatever might be made of the communications from Mr Barley.
- [50]Based upon those findings in relation to the evidence I conclude that the monies were loaned by Ms Smith to the respondent personally to be used by him for purposes which included enabling him to carry on with the Chiu litigation and generally to stay financially afloat.
- [51]It follows the funds were not monies received by the practice on account of legal costs in advance of providing the services nor were they monies received by the practice which were the subject of a power exercisable by the practice or an associate of the practice to deal with the money for another person.
Penalty
- [52]It is common ground that:
- Having been admitted to practice in 1981 the respondents had, prior to the events which gave rise to the charges, a previously unblemished professional record.
- The respondent has admitted the allegations against him, frankly acknowledged his errors and cooperated with the Law Society and the applicant.
- The respondent has only contested the charges against him to the limited extent that he did not consider the monies borrowed from Ms Chiu was “trust money”.
- The respondent is remorseful and has gained certain insight into the impropriety of his conduct. The respondent repaid the loan in full with interest from his own funds prior to any disciplinary action being taken in other words, no under any compulsion due to disciplinary proceedings.
- At the time he sought the loan, he was suffering a major anxiety and depressive disorder affecting his capacity to make rational decisions.[41]
- [53]The respondent also points to the fact that he sought and undertook appropriate treatment for the major anxiety and depressive condition indicating a responsible and reliable appreciation of his need for help.
- [54]There was no element of dishonesty or greed in the actions of the respondent and, it might be said, he was motivated by a desire to assist a client (Ms Chiu) in the context of matrimonial proceedings in circumstances where the client would otherwise likely have been denied of her entitlements, as a result of not being able to continue with the litigation.
- [55]All monies were repaid by the respondent personally to Ms Smith with interest of $153,594 when Ms Smith sought payment and before any disciplinary investigation was commenced.
- [56]The respondent submits that the case is exceptional and that there is no need for a penalty including a public reprimand.
- [57]If the Tribunal is satisfied that the practitioner has engaged in unsatisfactory professional conduct the Tribunal may make any order as it thinks fit.[42] A number of possible penalties are set out in s 456 of the Act.
- [58]The penalty which is imposed must, of course, reflect the nature of the conduct which has been the subject of the disciplinary action. It is well accepted that disciplinary orders are protective and punitive in nature.[43]
- [59]In this case, because of the circumstances, particularly the factors which motivated the respondent, a punitive order would not, in any event, be appropriate.
- [60]Being protective in nature, principles of general and personal deterrence are relevant.[44]
- [61]Again because of the nature of the conduct of the respondent, no question of personal deterrence becomes relevant in these proceedings.
- [62]In a very unfortunate coincidence of circumstances, the respondent conducted himself in a way which was out of character.[45] This coincidence of circumstances is unlikely to be repeated.
- [63]Each of the references speak of the respondent’s enviable reputation amongst his peers, his honest and fair dealings with other practitioners and clients, and the high regard in which the respondent is held in the legal profession on the Gold Coast and by Judges of the Family Court.
- [64]The penalty imposed is not intended to reflect upon or diminish any of those observations.
- [65]Close dealings between legal practitioners and their clients (including borrowing money from clients) without proper safeguards, such as independent legal advice, are contrary to the relationship of trust which is the underpinning of the relationship between a client and the legal practitioner. By way of general deterrence, some penalty must be imposed so as to make it clear to the profession that such conduct will not be permitted in this most important area.
- [66]The penalty which the Tribunal considers appropriate is that the respondent be publically reprimanded. The Tribunal has decided not to impose any fine due to the particular circumstances of this case.
Costs
- [67]The applicant has sought an order for costs fixed in the amount of $1,500 and the respondent consents to that order.
- [68]The Tribunal orders that the respondent pay the applicant’s costs fixed in the sum of $1,500 within 30 days.
Footnotes
[1] Affidavit of Warwick Gerard Jones sworn 13 February 2014, [6].
[2] Ibid [7].
[3] Ibid [9].
[4] Ibid [12].
[5] Ibid [13].
[6] Affidavit of Robyn Gayle Smith sworn 1 March 2012, [12].
[7] Ibid [13].
[8] Ibid [14].
[9] Ibid [15].
[10] Ibid [18].
[11] Letter from Jones Mitchell Lawyers to Ms Robyn Smith dated 7 July 2008.
[12] Details of response to the application filed 13 May 2013, [15A].
[13] Ibid [15B].
[14] Respondent’s written submissions filed 20 March 2014, [2].
[15] [1990] 1 Qd R 498.
[16] Act s 227(2).
[17]Law Society of New South Wales v Harvey [1976] 2 NSWLR 154 at 171 per Street CJ.
[18] Submissions on behalf of the applicant filed 26 February 2014, [8].
[19] Ibid [10].
[20] [2006] LPT 005.
[21] Ibid [35].
[22] Submissions on behalf of the applicant filed 26 February 2014, [23].
[23] Transcript of proceedings dated 29 October 2014, page 8, lines 24 – 30.
[24] Ibid, page 9, lines 4 – 9.
[25] Ibid, page 9, lines 20 – 24.
[26] Act s 237(1) definitions for Pt 3.3 paragraphs (a) and (d) of the definition of “trust money”.
[27] Letter from Brian Bartley & Associates to the Manager, Investigations, Professional Standards, Queensland Law Society dated 16 March 2012.
[28] Transcript of proceedings dated 29 October 2014, page 17, lines 19 – 25.
[29] Ibid, page 17, lines 28 – 35.
[30] Ibid, page 17, line 39.
[31](No 2) [2008] QCA 301.
[32] Transcript of proceedings dated 29 October 2014, page 18, lines 2 – 7.
[33] Letter from Jones Mitchell Lawyers to Mrs Robyn Smith dated 7 July 2008.
[34] Discussion at page 18 of the transcript of proceedings dated 29 October 2014.
[35] Affidavit of Warwick Gerard Jones sworn on 13 February 2014.
[36] Transcript of proceedings dated 29 October 2014, page 19, lines 38 – 40. Affidavit of Warwick Gerard Jones sworn on 13 February 2014, [13].
[37] Transcript of proceedings dated 29 October 2014, page 20, lines 5 – 9.
[38] Ibid, page 21, lines 34 – 39.
[39] Statement by Robyn Gaye Smith made on 1 March 2012, [14].
[40] Ibid [15].
[41] See Mr Jones affidavit at [10] – [13], Mr Bottrell’s affidavit and reports of Dr Yelland and Mr Neophyton.
[42] Act s 456(1).
[43]Legal Services Commissioner v Madden (No 2) [2008] QCA 301.
[44]Attorney-General v Bax [1999] 2 Qd R 9 at 21 per Pinkas J.
[45] Reference dated 24 October 2014 from Robbie Bradkin. Reference from Graham Page QC dated 20 October 2014. Reference from the Honourable Brian Jordan dated 20 October 2014.