NSW solicitor who didn’t pay counsel’s fees struck back on

Salvatore Russo, a solicitor of 29 years’ standing, was struck off NSW’s roll of solicitors on 16 April 2016 by NCAT.  He had received payment from his client for counsel’s fees but not paid counsel for years. Then he was high-handed in response to the client’s entreaties when counsel sued the client directly.  The Court of Appeal found a denial of procedural fairness by NCAT.  The Tribunal had telescoped the questions of liability and penalty into one hearing.  It had failed to give Mr Russo sufficient notice of the fact it was considering striking him off despite the fact by the end of the trial, the Commissioner was not seeking such an outcome any more. Now he’s been struck back on by the NSW Court of Appeal, a fine of $20,000 substituted for his misconduct: Russo v Legal Services Commissioner [2016] NSWCA 306.  (In fact, the striking off never came into operation, because he got a stay along the way.)

Mr Russo had briefed senior and junior counsel on behalf of an elderly client in a de facto relationships case.  The disciplinary prosecution concerned Mr Russo’s treatment of junior counsel’s fees.  The client paid Mr Russo’s bills, on which junior counsel’s fees were claimed as disbursements, quite promptly.  They were fully paid by August 2009.  But Mr Russo never paid junior counsel his fees.

Junior counsel sued Mr Russo in 2012 for his fees.  He also sued the elderly client who was undergoing heart surgery.  (How junior counsel was entitled to sue the client for fees notwithstanding that he was briefed by Mr Russo as instructing solicitor is unexplained.  To the extent that he did so in contract, the Court made clear that the suit was misconceived at [63].)

Though the client’s son told junior counsel that his father had already paid the fees and would defend the suit, junior counsel entered judgment in default of defence.  For reasons which are unexplained by the judgment, an application to set aside judgment failed and junior counsel executed upon it, seizing the amount standing to the client’s credit in the client’s bank account.

Mr Russo was asked to satisfy the judgment against the client.  He denied any liability to do so and criticised the client’s solicitors for wasting money applying to set aside the judgment.

Nearly four and a half years after the event, after a long period of abject non-cooperation with the Legal Services Commissioner following a complaint by the client, Mr Russo finally admitted having been paid by the client and having failed to pass on payment to junior counsel.  He refunded to the client the amount of the barrister’s fees without interest.  The clients’ solicitors asked Mr Russo to pay the client’s legal costs associated with junior counsel’s suit for fees and indemnify the client for the difference between the amount to which junior counsel had become entitled and the amount refunded by Mr Russo.   When that demand went unmet, the client’s daughter paid out junior counsel who, it may be inferred, was, rather enthusiastically one might say in the circumstances, still enforcing his default judgment.

In February this year, Mr Russo paid an amount in compensation to the client following agreement with the client which was less than the sum of the amount seized by junior counsel from the elderly client’s bank account and the amount paid by the client’s daughter to pay out the judgment in favour of junior counsel.  So it does not seem to have included any allowance for the client’s expenditure on legal fees in the suit brought by junior counsel.

The Tribunal found Mr Russo guilty of misconduct on three bases:

  1. First, Mr Russo breached the obligation to pay trust monies into the trust account.  That part of the payments in respect of the bills which satisfied the bills’ claim for junior counsel’s fees as a disbursement were trust monies, the Tribunal found, citing Council of the Law Society of NSW v Andreone (no.1) [2014] NSWCATOD 49.  The person on whose behalf that part of the monies were received by Mr Russo was counsel.  (This is a different case from that considered by the High Court in Legal Services Board v Gillespie-Jones (2013) 249 CLR 493, where the Court held that no part of monies received by a solicitor were trust monies held on behalf of counsel where they were received on account of fees to be rendered generally in the future by the solicitor, counsel and experts.  Nevertheless, Gillespie-Jones was not considered in Andreone and I am not 100% satisfied that the two decisions are consistent.)
  2. Secondly, Mr Russo deliberately or recklessly failed to pay counsel’s fees.  On appeal, the Court found at [54] that ‘Implicitly, payment of invoices which included a component for counsel’s fees must (in the absence of any instruction to the contrary) have been understood as conveying a direction to pay those fees.’
  3. Thirdly, Mr Russo failed to account to the client.  His bills had claimed one lump sum for disbursements.  In fact that sum claimed counsel’s fees, but the bill did not make that explicit, or state what fee had been charged by which counsel for what work over which period.

Then, to everyone’s surprise by the sound of it, the Tribunal struck him off. The Commissioner’s application to the Tribunal had originally sought that sanction but the Commissioner contended by final submissions that such a sanction was unnecessary.  The Tribunal did indicate that it did not intend to hold a second hearing to determine penalty, and did make oblique references to the possibility of striking off.  But Mr Russo did not adduce character evidence, probably because all the Commissioner was seeking was a reprimand and a fine and perhaps also because his representatives had assumed (reasonably enough) that there would be a second hearing to deal with penalty.

The Court did not refer to the Victorian Court of Appeal’s erudite survey, just a couple of weeks ago, of the authorities on the circumstances in which it constitutes appellable error not to hold two separate hearings, one to determine whether there has been conduct warranting discipline and the other to determine what that discipline should comprise: Pham v Legal Services Commissioner [2016] VSCA 256.  Had it done so it might have found a failure to accord procedural fairness in the very circumstance of telescoping liability and penalty into one hearing.

It is of interest to me that the Tribunal wasted little ink on its reasoning in favour of the ultimate sanction.  Certainly, it did not grace readers with any analysis of why some lesser sanction was not apt to achieve the protective purpose of the disciplinary jurisdiction (e.g. removing Mr Russo’s entitlement to receive trust monies).  The public policy in favour of the law relating to the adequacy of reasons is generally said to be so that the parties can understand why the decision was made, so that they can decide whether to appeal, and so that the appeal court can understand, and if necessary find the fault in, the reasoning.  But there is surely another reason.  The requirement to articulate and explain reasoning tends to enhance it.  Sometimes an absence of reasons is indicative of absence of conscientious reasoning.  One could not safely advance that hypothesis in this case, because substantial fresh evidence was received on appeal, such that the appeal Court did not disapprove of the Tribunal’s reasoning on the evidence before it (rather, it disapproved of the procedure by which the evidence was got in).  Nevertheless, the quality of reasoning in relation to the penalties imposed in disciplinary sanctions frequently compares unfavourably with the quality of reasoning in criminal sentencing where the sanctions are commensurate, and varies greatly between decision makers.  The Victorian Court of Appeal has introduced new rigour into the process over the last decade and has several times reversed VCAT for erroneous and inadequate reasoning in relation to disciplinary sanctions.

The Court found at [47] that:

‘In circumstances where the Commissioner had clearly taken the position before the Tribunal that removal from the Roll was not pressed, and it may be accepted that Mr Russo did not seek to adduce character evidence or otherwise make submissions at that stage as to his fitness to continue to practise as a solicitor on the assumption that that was not an order that was being sought against him, the complaint as to denial of procedural fairness is made out.’

Having decided to set aside NCAT’s decision, the Court decided it was appropriate to re-exercise the discretion in relation to penalty rather than remit the matter to a differently constituted NCAT for re-consideration.  That is a modern approach, especially since the Court made different findings of fact based on fresh evidence given on affidavit by Mr Russo without having seen him cross-examined at first instance.  The Court gave leave to Mr Russo to adduce evidence which he would have adduced had he appreciated that striking off was on the cards (character evidence) and evidence to rebut an inference which the Tribunal had drawn based on an absence of evidence to the contrary (that, based on the daily balances in Mr Russo’s office account, financial pressure gave him a motive to act as he did).  Having heard the fresh evidence, the Tribunal did not draw that same inference.  Mr Russo also gave evidence as to how he had turned over a new leaf in his accounting practices in relation to counsel’s fees.

The Court requested submissions in relation to the history of fines in cases about the discipline of lawyers over the preceding 12 years.  It engaged in a diligent analysis of that history in a manner which is commendable but rare in disciplinary decisions (with the result that fines are all over the place both within and between jurisdictions and so difficult to predict). I have set out the review of fines in this post. For present purposes, it suffices to note that the lowest fine was $2,000 and the highest $48,000.  The parties agreed that the maximum fine should be treated as still being $75,000 (though it is now $100,000 for professional misconduct and $25,000 for unsatisfactory professional conduct).  Though there were some cases with similarities in which fines of $5,000 to $10,000 had been issued, the fact that this former client was ‘elderly and unwell’ seems to have been seen as justifying, in combination with all the other factors, a fine of $20,000.

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