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The obligation not to allege ‘fraud’ without an appropriate evidentiary foundation: what is ‘fraud’?

January 27th, 2010 · 1 Comment

Solicitors and barristers are obliged not to make allegations of criminality, fraud or other serious wrongdoing in ‘court documents’ without an adequate factual foundation. The rule for Victorian barristers is rule 34. This post explores what ‘court documents’ are, what ‘fraud’ means in this context, and what an adequate factual foundation is, in part by looking again at AM v Legal Practitioners Disciplinary Authority [2010] NTSC 02, treated in the previous post, a decision of the Full Court of the Supreme Court of the Northern Territory.  It also notes a bizarre anomaly between the rules which govern Victorian and other states’ solicitors and between the rules which govern Victorian solicitors and Victorian barristers in this regard.

Rule 16 of the Professional Conduct and Practice Rules, 2005 (Vic) says:

‘16.2    A practitioner must not draw or settle any court document alleging criminality, fraud or other serious misconduct:

16.2.   the factual material available to the practitioner does not provide a proper basis for the allegation;

16.2.2 if the evidence by which the allegation is to be made, will be inadmissible in the case;

16.2.3 unless the client wishes the allegation to be made, after having been advised of the seriousness of the allegation and of the possible consequences for the client and the case if it is not made out.’

(For Victorian barristers, rule 32 also says:

‘When drawing or settling a pleading or affidavit, a barrister shall not include an allegation which is not supported by facts contained in instructions or by facts which the barrister otherwise reasonably believes to exist.’)

What is a ‘court document’?

‘Court’ is given the following definition by the Victorian rules, and similar definitions are found in other rules:

‘(a) any body described as such;

(b) any tribunal exercising judicial, or quasi-judicial, functions;

(c) a professional disciplinary tribunal;

(d) an industrial tribunal;

(e) an administrative tribunal;

(f) an investigation or inquiry established or conducted under statute or by a Parliament;

(g) a Royal Commission;

(h) an arbitration or mediation or any other form of dispute resolution.’

By virtue of para (c), those who draw charges in professional disciplinary proceedings against lawyers are obliged to have an admissible evidentiary framework for them.  There may be some species of unsatisfactory conduct which would not be regarded as ‘serious misconduct’, but everything else to be found in charges would likely be caught by the rule.

What about disciplinary complaints though?  They don’t immediately leap to mind as a classic ‘court document’, or the kind of thing regulated by this rule, do they? In AM v Legal Practitioners Disciplinary Authority [2010] NTSC 02, Darwin’s Bureau de Spanque had found that disciplinary complaints were ‘clearly’ court documents, perhaps by reference to para (f) of the definition.  While the Supreme Court did not exactly embrace the reasoning at [142] to [144], nor did it comment adversely on it.

What is ‘fraud’?

Darwin’s Bureau de Spanque just looked up the Macquarie Dictionary, and applied its broad definition of ‘fraud’ to ascertain the meaning of ‘fraud’ in the rule.  It said:

‘[147]     The fourth finding involves two aspects.  First, that the allegations were to “accuse the three solicitors of a very serious breach of ethical conduct”.  In my opinion, that conclusion is correct.  The breach of ethical conduct alleged was the use of confidential information gained from one client, not only to the disadvantage of that client, but to the benefit of the solicitor and another client.  An allegation that a solicitor “used” information in this way could not reasonably bear any meaning other than that the solicitor intentionally or deliberately used information in this way.  Such an allegation is an allegation of a “very serious breach of ethical conduct”.

[148]     As to whether it amounts to an allegation of fraudulent conduct, the Tribunal accepted that it was an allegation of fraud in the following senses derived from the Macquarie Dictionary:

  • “deceit, trickery, sharp practice, or breach of confidence, by which it is sought to gain some unfair or dishonest advantage.”
  • “(in common law) advantage gained by unfair means, as by a false representation of fact made knowingly, or without belief in its truth, or recklessly, not knowing whether it is true or false.”
  • “(in equity) violation, intentional or otherwise, or the rules of fair dealing.”

[149]     In the sense in which the Tribunal was using the expression “fraudulent conduct”, in my view the Tribunal correctly characterised the allegation as an allegation of conduct amounting to “fraudulent conduct”.  Whether it amounted to an allegation of fraud in the context of the criminal law is not the issue.  At the least it was an allegation of “sharp practice” or a “breach of confidence”, by which the solicitor sought to gain some “unfair advantage”.  It was also an allegation that fitted the common law definition of gaining an advantage by unfair means and the equitable definition of a violation of the rules of fair dealing.’

What is an adequate factual foundation?

AM v Legal Practitioners Disciplinary Authority [2010] NTSC 02 was a case about an allegation of acting in the face of a conflict between a duty of confidentiality to one client and a duty to put at the disposal of a client with competing interests all of the firm’s information.  The solicitor argued that the Law Society had not excluded the possibility that she did have a factual foundation for the allegation that the firm misused the confidential information of one client (the Church) to the benefit of the other (Randazzo).  Her argument was that there was evidence that the firm acted for both clients and from the solicitor’s obligation to disclose everything it knew which would assist Randazzo, it followed that it must have done so, including the information which it was obliged to keep confidential on behalf of the Church.  The Supreme Court said, at [102]:

‘The submission ignores the fact that to do so would amount to a breach of a fiduciary duty owed to the Church.  The fact that Cridlands was in a position of conflict of interest did not support an inference that Cridlands would have breached the duty owed to the Church in the manner asserted in the practitioner’s correspondence.’

and at [235]

‘However, as Mr Walsh QC for the Law Society submitted, there was no evidence that the appellant drew any such inference, or that this was the evidentiary basis upon which she relied.  Furthermore, there were a number of possible explanations which would have had to have been considered before such an inference could have been drawn.  For example, Cridlands may have informed Randazzo of the conflicting duties, and obtained an agreement from that client that it would not have to perform the full duties of disclosure. [footnote: Moody v Cox & Hatt [1917] 2 Ch.71 at 81.] Further, the matters upon which Cridlands were acting for Randazzo may not have required any disclosure at all if the matters which it undertook bore no relationship to the interests of the [the Church].’

So there is one example of factual foundation which was inadequate.

The bizarre anomaly

In the Northern Territory, and in other states — I checked NSW and Queensland — the solicitors’ rule is very different from Victoria’s. Rule 34 of Victorian barristers’ conduct rules is different in the same way. The usual rule, exemplified by these jurisdictions, says that a lawyer needs an appropriate factual foundation based on admissible evidence and informed consent of the client.  Informed consent of the client is a third condition of making serious allegations, not an exception the satisfaction of which dispenses with the need for compliance with the positive conditions. Why the comparative enthusiasm for allegations of fraud made by Victorian solicitors?

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Tags: Alleging fraud & misconduct · Ethics · litigation ethics · Vic Solis' Conduct Rules