Liability of directors of incorporated legal practitioners for wrongdoing of fellow directors

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.

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WA disciplinary tribunal says it’s misconduct for a doctor passing a crash not to stop and offer assistance

Update: This decision was reversed on appeal: Dekker v Medical Board of Australia [2014] WASCA 216.  The Court of Appeal did not find that there was no duty to assist.  Rather, they found that there was insufficient evidence before the disciplinary tribunal for it to find the existence and acceptance in the profession of such a duty, because the existence of such a duty was never put to the doctor by the tribunal and because the tribunal failed to take into account on the question of liability (as opposed to penalty) all the surrounding circumstances, including that the doctor was in a state of shock.

Original post: Eleven and a half years after a 2002 car accident south of Port Headland a radiologist has been found guilty of the Westralians’ version of professional misconduct (‘improper professional conduct’) but not of conduct which peers would regard as disgraceful or dishonourable, for failing to render medical assistance.  The decision is Medical Board of Australia v Dekker  [2013] WASAT 182.  It makes a bold assertion of general application without identifying or discussing any authority about the factual scenario in question, which must surely occur regularly all over the world and — one would have thought — be much pondered:

’39 It is improper conduct in a professional respect for a medical practitioner who is aware that a motor vehicle accident has or may have occurred in their vicinity and that anyone involved has or may have suffered injury not to make an assessment of the situation, including the nature of any injuries and needs of persons involved, and render assistance, by way of first aid, when the practitioner is physically able to do so, notwithstanding that the practitioner immediately reports the matter to police or other emergency services. It matters not that there is no existing professional relationship between a medical practitioner and the persons involved in the accident. Because saving human life and healing sick and injured people is a core purpose and ethic of the medical profession, and because members of the profession have the knowledge and skills to do so, the failure by a medical practitioner to make an assessment and render assistance when he or she is aware that a motor vehicle accident has or may have occurred in their vicinity and that people have or may have been injured, when the practitioner is physically able to do so, would, notwithstanding that the practitioner reports the matter immediately to police or other emergency services, reasonably be regarded as improper by medical practitioners of good repute and competency, and there is a sufficiently close link or nexus with the profession of medicine.’

Civil liability in tort has been imposed on a doctor who refused to attend upon an emergency involving a non-patient: Lowns v Woods [1996] Aust Torts Reports 81-376 (NSWCA).  But in that case the then proximity-based test for establishment of a duty of care was satisfied by a number of factors which included that:

  • a request was made for assistance in respect of what the doctor understood to be a medical emergency which he was willing to provide (but only on the condition that the patient be brought by ambulance to his practice);
  • he was specifically told that ‘We need a doctor.  We have already got an ambulance’;
  • he was able to do so: he was at work, available, competent at administering the requisite treatment, and could have done so promptly being only 300 m away from the patient;
  • to attend involved no threat to his person;
  • he was not incapacitated so as to make giving treatment more difficult: he was not drunk, or ill, or tired; and
  • there were statutory provisions which made it misconduct to fail to render assistance to a person in urgent need of medical attention without reasonable excuse.

See Kylie Day’s ‘Medical Negligence – the Duty to Attend Emergencies and the Standard of Care: Lowns v Woods(1996) 18(3) Sydney Law Review 386.

The tortious duty was squarely founded on the fact of a request in a professional context for treatment of the kind in which the doctor practised. Public policy was expressly acknowledged as relevant to the determination of the tortious liability. Since the existence of a professional obligation was a matter that told in favour of the development of a new category of duty of care, civil lawyers ought not be entirely blase about the latest apparent development of the disciplinary law courtesy of the Westralians.

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Professionals’ duties of care to subsequent purchasers of commercial buildings

My fellow barrister Andrew Kincaid has written a useful summary of that thorny part of the law of negligence which regulates in what circumstances builders owe a duty to people who buy buildings from the original owner to avoid them suffering pure economic loss when a latent defect becomes patent. Although we (or I at any rate) usually think about this problem in terms of builders, Andrew points out for readers of this blog that President Maxwell’s decision in Moorabool Shire Council v Taitapanui [2006] VSCA 30 suggests at [24] that desk-workers like engineers and designers might also owe these kinds of duties.  Here it is: Continue reading “Professionals’ duties of care to subsequent purchasers of commercial buildings”

The disgruntled beneficiary and the executor’s lawyer

Imagine this.  A beneficiary thinks a trustee is diminshing the trust estate by spending too much on lawyers. They have no standing to seek a taxation of the trustee’s solicitor’s bill, and the trustee’s solicitor’s file is unavailable to them by virtue of legal professional privilege enjoyed by the trustee.  The beneficiary has no contractual or equitable relationship with the solicitor.  You might think they’re rooted.  But you would be wrong, for the beneficiary may apply to VCAT’s Legal Practice List for an order that the solicitor pay to the disgruntled beneficiary that beneficiary’s share of so much of the fees properly and reasonably charged by the solicitor on instructions as represents the difference between what a reasonable trustee would have spent and what the trustee, perhaps over-anxious by disposition, in fact spent.  So says VCAT’s Legal Practice List’s decision in Sinni v DO [2009] VCAT 135.  I should disclose that I appeared in a directions hearing in this matter. Continue reading “The disgruntled beneficiary and the executor’s lawyer”

2nd edition of Professional Liability in Australia reviewed

I was already a fan of the first edition of Judge Stephen Walmsley SC, Alister Abadee, and Ben Zipser‘s excellent Professional Liability in Australia, published by Thomson, and had been waiting for the new edition with interest. I got myself a copy the other day. It’s good, and there are substantial additions since the first edition, including a lot on expert evidence, a new bit on professional discipline, analysis of the Financial Services Reform Act, 2001, analysis of the cases on the civil liability acts and a good analysis of proportionate liability.

It is a text which delves into all of the legislation which clusters around professional liability these days and grapples with it, a thankless task for an Australian text writer compelled to read and understand all of the states’ and territories’ regimes and then synthesise them. So the availability of compensation in professional discipline regimes is treated properly, as is the effect of professional standards legislation, which caps liability for scheme mebers. The research is wide-ranging and thorough: a VCAT decision is cited. It is written from a practical perspective rather than a theoretical perspective. There is not the over-reliance on English authority which sometimes characterises texts in this area. The writing tends to take positions rather than carrying on at great length about parallel or divergent lines of authorities without suggesting which is to be preferred. One suspects that bad decisions have simply been ignored in the hope that they will be forgotten. If only more text writers would operate in this fashion.

Professional negligence is one of those areas of law in which everyone claims to be a specialist. There are, for example, 387 barristers at the Victorian Bar who claim on their web profile to practise in professional negligence. Then there are undoubtedly many others, like me, who haven’t listed their practice areas using the scheme which allows for searching like that.

Thomson has kindly offered a 10% discount for readers of this blog if you go to their bookshop at 160 William St, Melbourne. Alternatively, the book can be purchased online, for $220 inclusive of postage and handling.

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English cases on auditors’ liability to third parties and on architects’ liability

England’s CMS Cameron McKenna, whose free ‘Law Now’ service is well worth subscribing to, have a couple of interesting articles on their website about auditors’ liability to third parties. Apparently, England has devised legislation, the Company Law Reform Bill, providing for ‘Liability Limitation Agreements. The big new auditors’ liability case discussed is MAN Nuzfahrzeuge AG v Freightliner Ltd [2007] EWCA Civ 910, a decision of the Court of Appeal upholding the decision at first instance ([2005] EWHC 2347). They assert the following elements are required in England before an auditor will owe a duty of care to a third party:

‘i)      the loss must be foreseeable;

ii)    there must be a relationship of considerable proximity;

iii)   it must be fair, just and reasonable in all the circumstances to impose a duty of care;

iv)   the auditor must be expressly made aware of the third party’s likely reliance on the accounts for the particular purpose; and

v)    the auditor should have intended that the third party rely on the accounts for that purpose; absent intention an auditor may still, viewed objectively, be found to have assumed responsibly to a third party.’

And there is a discussion of a new English Court of Appeal decision about architects’ duties to subsequent purchasers of buildings they design, Pearson Education Limited v. Charter Partnership Limited [2007] EWCA Civ 130, and of an earlier case raising similar issues, Baxall v. Sheard Walshaw Partnership [2002] BLR 100 (CA).