More on solicitors’ obligations to pay counsel’s fees

Council of the Law Society of New South Wales v JAX [2012] NSWADT 283 is a case in which the solicitor was disciplined for paying himself out of fees provided to him by his client for payment of counsel’s fees.  Ultimately he went bankrupt and did not pay the fees. See also this earlier post on this subject.  The decision also represents yet another admonition to pleaders of disciplinary charges to plead dishonesty expressly if they intend to allege it.

There were the following agreed facts:

’20. The Solicitor acted for [a client] in a Family Law matter and Mr A Todd of Counsel was briefed.

 26. On 27 June 2007 the Solicitor issued a further Bill in the sum of $25,267.00 which included $6,765.00 due to Mr Todd.

27. On 27 June 2007 the sum of $8,800.00 was transferred from the Solicitor’s trust account for costs but the amount due to Mr Todd was not paid.

28. On 9 July 2007 Mr Todd issued a further Bill in the sum of $990.00 so that the amount then due to him was $7,755.00.

29. On 11 July 2007 the sum of $9,702.00 was transferred from the Solicitor’s trust account for costs. The amount then due to Mr Todd [$6,765.00 plus $990, $7,755.00 in total] was not paid.

30. As at 11 July 2007 the Solicitor had issued Bills for costs & disbursements totalling $40,667.00. On the dates shown the Solicitor withdrew from his trust account and paid to his office account the following amounts:-

22/06/07 $23,294.50

27/06/07 $8,800.00

11/07/07 $9,702.00

$41,796.50

31. The Solicitor was reckless as to the amount of the withdrawals made from the trust account ledger (total of $41,796.50) exceeding the total of bills issued for costs & disbursements ($40,667.00).

32. The Solicitor thereby breached section 260 of the Act by mixing trust money with his own funds.

33. The Solicitor misappropriated to his own use the sum of $1,129.50 being the difference between the figures of $41,796.50 (total of withdrawals from the trust account ledger) and $40,667.00 (total of bills issued for costs & disbursements).

34. Further, the Solicitor breached section 261(1)(b) of the Act and clause 88 of the Regulation as he had no authority to withdraw the additional sum of $1,129.50.

35. On 18 August 2007 the sum of $7,500.00 was paid to Mr Todd by way of a trust account cheque leaving a balance in the trust account of $703.50.

36. Between 27 June 2007 (the date of payment into the office account, as in paragraph 27 above) and 18 August 2007 the Solicitor deliberately, alternatively recklessly, preferred his own interests as to the payment of costs, by transfer into the office account, in preference to the payment of counsel’s fees.

37. The Solicitor misappropriated to his own use the sum of $7,500.00 due to Mr Todd between 27 June 2007 and 18 August 2007.

The Tribunal discussed the agreed facts as follows:

  1. Having regard to common usage, to the considerations spelt out in the passage in Council of the Law Society of NSW v Nicholls [2012] NSWADT 22 mentioned above and to the authorities cited in that passage, we agree with Ms Webster that an allegation of misappropriation against a legal practitioner does not necessarily connote dishonesty on the part of the practitioner. We would observe, however, that this term may often be interpreted by a respondent practitioner, by the Tribunal or by a third party as involving dishonesty. For this reason, an applicant in disciplinary proceedings such as these should bear in mind the danger of alleging misappropriation without also indicating what form of culpability is alleged against the respondent – i.e., whether it be outright dishonesty, mere inadvertence or some intermediate degree of fault. If no such indication is given, the respondent may well be entitled to maintain that the case being brought against him or her has not been defined with sufficient precision.
  1. In the present proceedings, we are satisfied that the two acts of the Solicitor claimed to amount to misappropriation – i.e. those described in paragraphs 33 and 37 of the Agreed Statement – did merit this label. As Ms Webster made clear, neither of them was alleged to involve dishonesty on the Solicitor’s part.
  1. At first sight, the conduct described in paragraph 37 – i.e., the Solicitor’s transfer into his office account of an amount of $7,500 held in trust for [the client], at a time when this amount was due to be paid by him to Mr Todd of counsel – might seem to involve no more than deferral by him of the discharge of his obligation to pay a debt. But a passage in the Tribunal’s decision in Law Society of New South Wales v Davidson [2007] NSWADT 264 is useful in demonstrating that unjustified delay by a solicitor in paying counsel’s fees from funds received for that purpose constitutes a breach of a fiduciary duty to the client. In consequence, the transfer of such funds into the solicitor’s office account, for the benefit of the solicitor, can properly be characterised as misappropriation of them.
  1. The relevant passage in Davidson (paragraphs [123] to [130]) is as follows:-

123 The second complaint against the solicitor is one of unethical conduct relating to the failure to pay third parties within a reasonable time. The solicitor is charged with unethical conduct in relation to late payment of disbursements in the nature of fees due to third parties…

124 At all relevant times the solicitor was a sole practitioner with employed staff. He operated a Trust Account in respect of which he was the sole signatory…

125 In Re Robb & Anor (1996) 134 FLR 294, the Supreme Court of the ACT, noting that wilful or persistent failure to pay counsel’s fees could amount to professional misconduct, said:

The point is that the delay in paying counsel to be attributed to the solicitors in the present case stems from their assumption that moneys in their office account, received on trust for the client and transferred to the office account for the very purpose of paying counsel, were not affected by their fiduciary duties to the client and were their moneys to pay counsel fees when they chose and that any delay was simply a matter between counsel and themselves.

That assumption was totally unjustified. On the contrary, every day of delay in paying counsel from the time of transferring the moneys from the trust account to the office account, was a day in which the solicitors were in breach of their fiduciary duty to the client.

126 The solicitor’s evidence on this issue was that it was his “policy” not to pay disbursements until the client had paid the whole amount due on a tax invoice.

127 The solicitor’s view of the matter was that:

“If an invoice has been rendered to the client, the client pays your invoice,…I’ve always believed you can pay that money to your office account and then you have the obligation to pay the disbursements that are included in that invoice.”

“The disbursements are incurred by me solely. I have the liability to pay them whether the client pays me or not… the money can be banked to the office account and then the disbursements are paid within a reasonable time…”

128 The Tribunal does not agree that the solicitor’s “policy” accords with his obligations as a solicitor to deal with moneys received from a client in accordance with the relevant legislation.

129 The Tribunal does not accept that the solicitor was entitled to act upon his “policy” of withholding payment of outstanding disbursements until such time as his client had paid the whole amount of a Tax Invoice. The obligation to pay such sums arose upon the solicitor being put in funds by the client for that purpose.

130 As was held in Re Robb, where a solicitor holds clients funds for the purpose of paying counsel and other persons, and transfers those funds to an office account, any delay in so paying the moneys amounts to professional misconduct, for during the period of delay the solicitor is treating clients’ funds as the solicitor’s own money.

  1. The conduct amounting to misappropriation described in paragraph 33 of the Agreed Statement – i.e., withdrawing funds from a trust account in order to pay costs – has been held more than once to amount to professional misconduct. The decision in Council of the Law Society of New South Wales v Clapin [2011] NSWADT 83 (see at [206 – 208]) provides an example.
  1. The conduct amounting to misappropriation described in paragraph 35 of the Agreed Statement – i.e., payment of a solicitor’s own costs in lieu of counsel’s fees, using funds furnished for the latter purpose – has also been held to amount to professional misconduct. As the extract quoted above demonstrates, this was the case in Law Society of New South Wales v Davidson [2007] NSWADT 264. A further example is provided by Law Society of New South Wales v McCarthy [2003] NSWADT 198. Here the facts on which the Tribunal based its finding of professional misconduct were summarised as follows at [2 – 3]:-

2 The conduct in question involves one transaction. The following facts are not disputed. In 1999 the practitioner was practising as a solicitor, but (as is permitted) did not operate a trust account. He received a payment in settlement of a client’s case which related to costs and disbursements incurred by him on the client’s behalf. The amount of the payment was $4200, of which it was said by the practitioner and not disputed, that $3000 was in respect of counsel’s fees and $1200 was in respect of his costs. A cheque for $4200 was drawn in favour of the practitioner. It was deposited into the practitioner’s personal account on 24 June 1999.

3 The matter of non-payment of counsel’s fees was drawn to the attention of the Law Society by the client on 8 March 2000. Counsel’s fees were paid on 28 June 2000.’

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