A very generous approach to a Hungerfords damages claim tacked onto a misconduct prosecution

Law Institute v KTBH [2006] VCAT 350 (Senior Member Howell)

There were separate disciplinary and negligence proceedings against the solicitor over the same facts. At the end of the disciplinary hearing, and on the basis of the prosecutrix’s submissions, Mr Howell decided to determine the negligence case and get the whole thing over and done with. He found there had been a delay by the solicitor in getting a woman compensation. Though VCAT was not empowered to order interest on the woman’s claim, he gave her Hungerfords damages, that is, damages in the nature of interest, and calculated the damages by reference to the penalty interest rate. This note is critical of that decision.

The client engaged the solicitor in five crimes compensation claims, and a year later to make two more. Nine months after the lodgement of the first five claims, they were struck out for failure to provide documentary evidence in support of them. A year or so after the last two claims, they were struck out for the same reason. Five years after the first retainer, and four years after the first five claims were struck out, the solicitor terminated the retainer. The client hired a new solicitor and four years after the original solicitor terminated his retainer, the client was successful in four of the seven claims, the others being unsuccessful. She was awarded $50,000.

The solicitor said that not much work was done during a period of 15 months commencing about a year into the first retainer: “the files were in limbo”, but he explained the delay on the basis that he wanted to have all seven hearings held together for costs reasons, and that “he did not have all the necessary information in relation to some of the applications, so he did not provide information or seek hearings in relation to any of the applications”. Mr Howell accepted that it was a relatively simple matter to have the applications reinstated. But there was clearly unexplained delay and ill-informed attempts at obtaining the information which was necessary. Mr Howell concluded that the solicitor:

did not use his best endeavours to complete legal work as soon as reasonably possible, and that he contravened rule 3 of the Solicitors’ (Professional Conduct and Practice) Rules, 1984 and its successor rule 3 of the Professional Conduct and Practice Rules 2000. I am also satisfied that [the solicitor] acted wilfully or recklessly in his contravention of the rule and therefore was guilty of misconduct. However, in circumstances where he did carry out some legal work, I will treat the contravention as amounting to unsatisfactory conduct. I am empowered to follow that course by section 161 of the Legal Practice Act, 1996. I find [the solicitor] guilty of unsatisfactory conduct in relation to the first charge.

Mr Howell dismissed the charge of misconduct in the solicitor failing to tell the client that the applications had been struck out, though he was satisfied he failed to do so promptly. He said:

  • “that was a matter of little importance because the applications could be reinstated without much difficulty”,
  • the client knew there had been difficulties in obtaining police reports, partly because of her own inaccurate instructions, and she was well aware at most time of the status of her applications “namely that little had been achieved by [the solicitor] and that her applications were not progressing towards resolution”,
  • at times it was difficult to contact the client.

Mr Howell in fact found that there had been no failure to communicate effectively and promptly with the client, and dismissed the charge altogether.

A third charge of misconduct at common law was dismissed as being in truth an alternative charge to the first two, the same evidence having been relied on for it as in the first two charges.

There followed a claim for compensation, though there was a pending pecuniary loss dispute. It seems that the counsel retained by the Law Institute stepped into the ring as representative of the complainant, shedding her protection of the public hat and becoming a true adversary to the subject of the prosecution. Given that professional indemnity insurance is generally not available in respect of disciplinary hearings, but is required to be taken out by solicitors in private practice for negligence claims, the potential for prejudice to the solicitor in allowing this odd course to be followed is substantial.

The claim was in truth one for Hungerfords damages, that is, damages in the nature of interest for loss of the use of money. The Legal Profession Tribunal had no power to award interest, and so neither did VCAT by virtue of the transitional provisions in the Legal Profession Act, 2004.

Mr Howell noted that as he was considering a compensation application, he should be “as generous as possible” to the solicitor. He found that the solicitor should have finalised the claims within 4 years (a particularly generous conclusion in light of the fact that he had found unsatisfactory conduct in the solicitor’s tardy work which resulted in a failure to complete the last two claims within only about three and a half years).

The solicitor cited High Court authority for what might be thought to be the relatively uncontroversial proposition that damages for pain and suffering are calculated as at the date of judgment, not at the date of the injury (O’Brien v McKean and Johnson v Perez at CLR 545 per Barwick CJ). Nevertheless, Mr Howell was induced to deduce that in fact the Victims of Crime Assistance Tribunal, when applying the Criminal Injuries Compensation Act, 1983, did not follow that injunction from the Chief Justice, and in fact assessed pain and suffering as at the date of the injury, drawing a distinction between compensation under the Act and damages at common law. He drew comfort from the fact that the Act itself did not specify as at what date the compensation was to be assessed, and that during what he described as “the relevant years” the average award for pain and suffering increased only 40% from $9,400 to $15,600. It seems this fact was proved by reference to the annual reports of the Tribunal, an unconventional mode of proof, but one no doubt thought appropriate to a hearing in which the maximum award was $15,000 in which the Tribunal was not bound by the rules of evidence.

Mr Howell found that the first five applications should have been finalised by the end of July 2000, and the last two by the end of June 2001. He said:

“Taking into account:

  • the static nature of the maximum award for pain and suffering [$20,000], [though the awards for pain and suffering were all considerably less than the maximum anyway, namely $12,000, $7,000, $15,000 and $15,000];
  • the relatively static nature of average awards under the 1983 Act in the late 1990s when [the client’s] applications would have been heard but for the inaction of [the solicitor] [though he had found that the time by which the claims ought to have been completed was not until July 2000 and June 2001, and there was a 25% increase in average awards between 1999 and 2001];
  • the diverse factors that could be taken into account in making an awward;
  • the absence of any directions concerning the time at which appropriate compensation should be assessed or as to the payment of interest upon an award;

I am satisfied that the awards made by the Victims of Crime Assistance Tribunal on 21 July 2005 were not greater in amount than they would have been if assessed late in the 1990s. I find that [the client] has not been compensated for being deprived of the use of her compensation until 2005, and that [the solicitor] should pay compensation in the nature of interest.”

Mr Howell then proceeded to calculate interest “at penalty interest rates” rounded down for simplicity to 11%. It is likely that Hungerfords damages have never previously been calculated by reference to penalty interest rates for the simple reason that compensation and penalisation are quite separate categories. Only if there had been evidence that the client would have put her money to a use which would have resulted in 11% returns after tax could such damages have been awarded in line with compensation principles. He gave a nod to this problem by saying “I have considered whether the calculation should be made at … annual or quarterly rates, but the amount involved exceeds the maximum compensation of $15,000 that can be awarded under the Legal Practice Act, 1996 so nothing would be achieved by an exercise of that kind.” But anyone who has a mortgage knows that variable mortgage lending rates have been about half of 11%, and the loss ascertained by reference to 11% rates was $25,802, half of which is signifcantly less than $15,000. Had the client invested the money in a term deposit, the rate of interest would have been less than that charged by mortgage lenders, and she may have had to pay tax. It is interesting that no evidence appears to have been adduced of what the client actually did with the $50,000 or so she ultimately received. That might have provided a relatively reliable indicium of what she would have done with the same money several years earlier.

In light of the use of penal concepts in a compensation hearing, one does wonder whether the Law Institute managed successfully to throw off its prosecutorial hat and don its professional negligence hat when it swapped between the two parts of the one proceeding.

Print Friendly, PDF & Email

Leave a Reply