Legislation regulating lawyers typically deals with directors of incorporated legal practices like Victoria’s Legal Profession Act 2004’s s. 2.7.11 as follows:
‘Each of the following is capable of constituting unsatisfactory professional conduct or professional misconduct by a legal practitioner director–
(a) unsatisfactory professional conduct or professional misconduct of an Australian legal practitioner employed by the incorporated legal practice;
(b) conduct of any other director (not being an Australian legal practitioner) of the incorporated legal practice that adversely affects the provision of legal services by the practice’.
A recent decision from Sydney illustrates how disciplinary tribunals approach applications to discipline innocent co-directors of wrongdoer-directors in incorporated legal practices. Trusted non-legal practitioner directors do not necessarily need to be supervised in everything they do by legal practitioner directors unless there is a special reason to.
In the NSW case, there was a special reason: the co-director did not renew his practising certificate which lapsed on 30 June 2011. He had failed (to the innocent co-director’s knowledge) to comply with earlier disciplinary orders requiring that he be mentored. Contrary to his promises to the by-then-sole-legal-practitioner-director, he caused the firm to incur an unfunded liability to a valuer retained on behalf of a client in litigation. The valuer was instructed by the wrongdoer director in August 2011. The Tribunal found the remaining legal practitioner director guilty of unsatisfactory professional conduct, but on the basis that her failure to supervise the by-then non-legal practitioner director caused the firm to incur a debt which it was unlikely to be able to pay if the litigation in respect of which it was incurred did not succeed. The decision is Council of the Law Society of New South Wales v Loris Hendy [2016] NSWCATOD 20.
One thing which is puzzling is exactly on what basis it was said that a firm contracting personally to pay valuers, and then not paying them because it did not have the money to do so, was said to be conduct warranting discipline which the practitioner had an obligation to prevent by supervision. After all, had the firm caused the client to contract directly with the valuers, or made clear to them that the firm would not be personally liable, they presumably still would not have been paid. Presumably the client was always up for the disbursements, whether there was a successful outcome or not, since that is fairly standard. And so, presumably, if the client had any money, the firm would have sued the client. And presumably the firm believed on the basis of senior counsel’s advice that the client would succeed in the litigation and that the valuer would get paid out of the favourable costs award, and that, even if that did not occur, the firm would be in a position to meet the valuer’s fees. Certainly, there was no finding to the contrary.
In the Victorian solicitors’ conduct rules in place from 2005 until recently, r. 26 said:
‘A practitioner who deals with a third party on behalf of a client for the purpose of obtaining some service in respect of the client’s matters, must inform the third party when the service is requested, that the practitioner will accept personal liability for payment of the fees to be charged for the service or, if the practitioner is not to accept personal liability, the practitioner must inform the third party of the arrangements intended to be made for payment of the fees.’
Compare r. 35 of the Legal Profession Uniform Law Australian Solicitors’ Conduct Rules 2015. To similar effect was r. 35 of the New South Wales Professional Conduct and Practice Rules 2013 (Solicitors’ Rules). None of those were in force, of course, in NSW in 2011 when the non-legal practitioner director of the firm caused it to incur the fees, and I do not know what the rules which were in force in NSW at that time said. At any rate, there was no reference to any such conduct rule in the Tribunal’s reasons. Assuming some similar rule was in place, it is notable that the legal practitioner director was not apparently disciplined for allowing the firm to contract the liability, but for not meeting it, or perhaps for allowing it to be contracted in circumstances where there was no guarantee that it could be satisfied if things went pear-shaped.
There are numbers of cases about the misconduct of solicitors who fail to pay counsel’s fees for no particularly good reason. I have listed them at the end of this post. It seems to be well established by authority that such conduct is misconduct at common law or pursuant to the generally worded statutory definitions of unsatisfactory professional conduct and professional misconduct. Couldn’t agree more, and long may such cases accumulate. But this was a bit different.
Continue reading “Liability of directors of incorporated legal practitioners for wrongdoing of fellow directors”
