Epic battle re trust monies results in misconduct finding against barrister

Victorian Bar Inc v DAP No. 6 [2006] VCAT 1226

A barrister banked $50,000 into his personal account, arguing that it was a “retainer” and not monies held on account of future fees. VCAT found that it could not have been a retainer because that is a modest fee paid to a barrister to prevent them from acting against the payer, and the barrister already could not act against the complainant at the time of the payment because of his close involvement as his counsel over many years prior to the payment. The difference between “wilful” and “reckless” breach of the Legal Practice Act, 1996 or rules of conduct was explained. The interlocutory decisions in this matter were digested earlier.

The charge was heard by Judge Bowman, Tony Southall QC and T Harper. It was one of misconduct under limb (a)(i) of the definition in s. 137, that is, a wilful or reckless breach of the Legal Practice Act, 1996, namely s. 178’s prohibition against banking trust money otherwise than into a trust account. Such a breach is in fact a criminal offence justifying up to 2 years’ imprisonment.

The barrister did a lot of work for the complainant at the rate of $250 per hour and, a few thousand dollars short of $50,000 worth, but before rendering a bill for the work, received $50,000 from the complainant which he banked into his personal account (like most barristers, he had no trust account, though his clerk presumably did).

Some of the money went to pay work done after the receipt and was therefore prima facie “trust money” as defined by s. 3 of the Legal Practice Act, 1996 (relevantly: “money given or paid to … a legal practitioner … on account of legal costs in advance of legal services to be provided in the course of legal practice in Victoria”). The Tribunal appears oddly enough to have relied at [5(ix)] on certain work done in England as making out the charge.

The barrister argued the money was a retainer which compelled him to take the matter to trial on behalf of the complainant and that if the complainant won at trial, the barrister could charge additional amounts. That argument was rejected at 21(g) for the reason mentioned above:

“We do not accept [the barrister’s] argument that the payment was a ‘retainer’, or that it should be characterised as such so as to remove it in some way from the concept of trust money as defined, and even if part of the payment covered services not yet provided. It is certainly not a ‘retainer’ in the sense traditionally used at the Bar. Such a ‘retainer’ is normally constituted by a back sheet delivered by a solicitor to a barrister, usually marked at a modest fee, and intended to secure the services of that barrister on behalf of a particular client. The intended effect is that the barrister will not appear against that client. The fee attached to it is not in respect of, or off set against, future legal services to be provided by the barrister. The present situation is quite different. On behalf of Anderson, [the barrister] had long been involved in the matter. As submitted by Mr Pitt, he could not then accept a brief against Anderson in the litigation because of the obvious conflict situation which would arise. In any event, there is no suggestion that the payment was made in order to ensure that [the barrister] did not appear in the matter against Anderson. There is no suggestion that it was designed to ensure that [the barrister] abstained from involvement in the matter. The direct opposite is the truth. By reason of the payment, [the barrister] was to remain in the matter, continue to do work in relation to it, and, if necessary, run the matter to judgment. Therefore, it was a payment on account of legal costs in advance of legal services to be provided, and falls within the definition of ‘trust money’ contained in s.3 of the Act. The Act requires that such payment be paid into a trust account or given to an authorised or approved person. That did not happen.”

VCAT explained the relevant part of the definition of misconduct and applied it at [21(v)ff] like this:

“In order for the contravention of s.178 of the Act to constitute misconduct as defined in s.137, the contravention must be wilful or reckless. …

(vi) We are not satisfied that the conduct engaged in by [the barrister] represents wilful contravention of the Act. The meaning of the words “wilful or reckless” in the context of misconduct by a solicitor received careful attention from J.D. Phillips J in Zaitman v Law Institute of Victoria (delivered 9 December 1994). … His Honour pointed out that the words “wilful” and “reckless” are both used, and some meaning must be imported to each of them. In relation to the word “wilful” he stated:-

‘… the word “wilful” … should surely be taken to make it an offence for a solicitor, who knows that it is a contravention of the Act (or the rules or regulations, as the case may be) for him to do or to fail to do some particular thing, intentionally to do that thing or fail or omit to do it.’

(vii) In the present case, there is no evidence which establishes that, at the relevant time, [the barrister] knew that what was occurring was a contravention of the Act, but intentionally proceeded to do that thing (permit, or organise, for the money to be paid otherwise than into a trust account), or that he intentionally omitted doing what had to be done (paying the money into a trust account or giving it to an authorised or approved person). We accept that he was quite aware of, and indeed organised, requested, or demanded, what occurred. However, as was said in Zaitman, it is the contravention itself that must be wilful, and not the conduct. Thus, whilst we find that [the barrister’s] conduct was deliberate and intentional, the evidence does not establish that his contravention of the Act was deliberate and intentional. Accordingly, we are not satisfied that any misconduct was constituted by the wilful contravention of s.178 of the Act.

(viii) We are satisfied that his contravention was reckless, and that the charge of misconduct is made out accordingly. In Zaitman, J.D. Phillips J stated the following in relation to the meaning of the word “reckless”:-

‘On the other hand, the word “reckless” should be taken as requiring no more than that the solicitor be shown to have acted, not in the knowledge just described, but with reckless indifference, not caring whether what he does, or fails or omits to do (as the case may be) is a contravention of the Act, the rules or the regulations. The solicitor must, I think, have appreciated the possibility that his conduct (whether it be act or omission) might amount to a breach of the Act, the rules or the regulations …’

It is hard to believe that there would be any legal practitioner, however newly admitted, who was not conscious, at least in a general way, of the importance of trust accounts, the significance attached to trust money, and the fact that there is, and basically always has been, a keen regulatory interest and statutory provisions concerning such things. It is hard to believe that, for any legal practitioner, however recently admitted, some alarm bells would not ring in a situation where money on account of costs, particularly in relation to work which has not yet been performed, is handed over by a client or paid directly into the practitioner’s private bank account. [the barrister] is not newly admitted. He has been a legal practitioner for decades. It strains the bounds of credibility that, as an experienced legal practitioner, he did not appreciate that there was a risk that having a client pay money directly into his private bank account, where at least part of such money was for work not yet done, might be a contravention of the Act. We do not accept this. In our opinion, [the barrister], being aware of the possibility that what he was doing or failing to do might be a contravention of the Act, then proceeded with reckless indifference as to whether it was or was not such a contravention.

Furthermore, as stated in Zaitman, there is a professional duty cast upon practitioners to keep abreast of the rules, at the very least in a general way. It is not desirable to put ‘a premium on ignorance’, to use the terminology employed by J.D. Phillips J in Zaitman.

(ix) Needless to say, the approach adopted in Zaitman has been followed over the years by the Legal Profession Tribunal. One example of this, and a case involving s.178 of the Act, is Law Institute of Victoria Limited v Stapleton [2005] VLPT 11. Indeed, in addition to following the approach employed in Zaitman in relation to the word ‘reckless’, the decision in Stapleton contains a very useful and pithy summary of the requirements of s.178. It is as follows:-

‘There are two fundamental requirements relating to the conduct of trust accounts that are relevant in matters of this kind. The first is that money received from a client for work yet to be done is trust money. The second is that trust money deposited into a trust account must not be applied to the practitioner’s own account as costs until a bill of costs, or a statement of account, or a tax invoice or an appropriate statement of some other kind is delivered to the client.’

(x) … In Stapleton, the Tribunal found that the legal practitioner received trust monies when he did not hold a practising certificate authorising him to receive trust monies, and that the monies were paid for work yet to be done, or for work only partly completed, and were deposited into an office account. In relation to the legal practitioner’s state of mind in the context of the meaning of the word “reckless”, the Tribunal found as follows:-

‘Mr Lovegrove, who appeared for Mr Stapleton, informed me that Mr Stapleton did not appreciate that monies paid by way of retainer for work yet to be done are trust monies … I accept that Mr Stapleton believed that the monies he received were not trust monies. On the other hand, it appears to me that Mr Stapleton did not carefully turn his mind to that issue, despite the fact that he received relatively large amounts of money by way of retainer for work yet to be done or only partly done. I am satisfied that Mr Stapleton must have been aware that he did not hold a practising certificate that authorised him to receive trust monies. It is a specific condition forming part of a practising certificate. Furthermore, I am satisfied that Mr Stapleton was ‘reckless’, as that word is explained in the authorities, in not making proper enquiry when he received large amounts of money as to whether those monies were trust monies. Instead, he simply deposited the trust monies into his own account.'”

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