More on the need for specific instructions before commencing proceedings on behalf of others

Update: See now Daniel Warents, ‘An Unwarranted Approach: Costs Orders Against Solicitors Acting Without Authority’, a detailed and learned review of the cases: link.

Update: See now Doulman v ACT Electronic Solutions Pty Ltd [2011] FMCA 232.  A solicitor accepted instructions from a fellow solicitor to recover fees allegedly owing by a client.  The proposed plaintiff was a company which the fellow solicitor had until shortly before the retainer been authorised to represent.  The solicitor, acting honestly, accepted these instructions from the fellow solicitor at face value: the proposed plaintiff was well known to him.  He found out only far down the track that the proposed plaintiff had been sold by the fellow solicitor before the instructions were given so that the solicitor had instituted litigation and bankrupted the defendant when he had no instructions to do so from the company.  The proceedings were a nullity.  Everything had to be unravelled.  The solicitor was ordered to pay the costs of this exercise on a party-party basis: he should have done a company search or sought written confirmation of the fellow solicitor’s authority to bind the company. There is a one-paragraph note of the case at ALJ vol 85 no 9 (September 2011) at 537.  Thanks to the Law Institute Library through the LIJ’s ‘In Reference’ page for bringing the case to my attention.

Original post: I had to look hard recently at the cases about lawyers’ obligation to have proper instructions before commencing proceedings on behalf of others. Pretty obvious really, but the grey area exists where lawyers receive instructions from agents of the client, especially where the agent is specifically authorised to retain solicitors, but not specifically authorised to commit their principal to litigation.  Victorian disciplinary tribunals have dealt with such conduct by meting out penalties ranging from a fine of $1,000 in 2011 money to recommending that the practitioner be struck off the rolls.  As this astonishing divergence of dispositions attests, everything depends on the precise facts and the motivations of the practitioners.

Further to this related post, what follows is my case notes of the three Victorian disciplinary decisions I am aware of dealing with this form of conduct warranting discipline.  Are you aware of any similar cases in Victoria or elsewhere?

Legal Services Commissioner v IAB [2011] VCAT 110, (Members Butcher, Shattock and Campbell)

The Legal Practice Act, 1996 applied.  The solicitor was charged with misconduct at common law within the meaning of paragraph (a) of section 137 of the Legal Practice Act 1996’.  Because the matter did not ultimately proceed as a contest, the facts do not emerge from the judgment as clearly as they might otherwise have.

The solicitor commenced proceedings for the recovery of compensation for motor vehicle property damage from the negligent parties on behalf of two clients without speaking to them, writing to them, clarifying what, precisely, their instructions were, obtaining full instructions from them regarding the damage to the motor vehicle or their insurance cover, advising what damages they could recover, giving any advice about the litigation process, the likely cost of it and the likely period of time it would take, advising about their existing rights and obligations to their insurers, or advising them of their possible liability for costs and the risk that they could be found liable to pay costs to other parties.

Ligeti Partners for the defendant specifically enquired of the solicitor whether he had actual instructions from the plaintiff (not the putative client’s claims handler, Elite Claims Management).  The solicitor responded ‘We clarify that we have instructions to act on behalf of the plaintiff to commence proceedings.’  He counsel conceded in VCAT that was an ‘unfrank truth’.  VCAT said it was ‘an outright lie deliberately intended to mislead another legal practitioner’.  The solicitor’s counsel conceded that the solicitor’s motivation was to generate fees for himself.

The solicitor’s scheme was such that ‘had the insurers for the at fault drivers paid without query, the activities would never have been discovered.  In such cases the rights of [the putative clients] would have been used without their knowledge for the financial benefit of the respondent.’

The solicitor requested of Elite Claims Management that they provide him with backdated signed authorities which was obviously very naughty.

The solicitor’s practising certificate was already suspended, and he had a string of ‘priors’.  He was ordered not to apply for a practising certificate for a further period of 5 years after the suspension ended in 2014.  Further he was referred to the Supreme Court with a recommendation that his name be struck off the roll of practitioners, (and was ultimately struck off by consent).

Victorian Lawyers RPA Limited v RABH [2000] VLPT 12 (Full Legal Profession Tribunal presided over by Judge Murdoch, 1 August 2000)

Mrs Chetcuti had a crash in her husband’s car.  She blamed the other driver.  Her husband and the other driver were both insured by RACV.  Her husband only had third party cover, subject to a $400 excess.  RACV said Mrs Chetcuti was to blame, and asked Mr Chetcuti to pay his excess.

Mrs Chetcuti was at all times her husband’s agent.

The Chetcutis consulted Road Accident Recovery and Settlement Service.  Its people told her on several occasions that there would be no costs payable by her if she won her claim and that if she lost, her costs would be $475.  She executed the following authority:

‘I/we ….. hereby authorise Road Accident Recovery and Settlement Service and solicitors appointed to act as my/our agent in relation to the abovementioned accident, to effect repairs to my/our vehicle and take whatever action necessary to settle my/our loss.

I/we agree to pay any fees and disbursements to Road Accident Reocvery and Settlement Service and/or the appointed solicitors which may be incurred in relation to any claim made on my/our behalf, irrespective of the outcome.’

The Tribunal found:

‘(d) We consider that the authority to act, signed by Mr and Mrs Chetcuti, for the recovery service (as set out in paragraph 3 (vi) above) does not constitute an authority for the commencement of court proceedings by the complainant or her husband. The wording of the relevant parts of the authority is ambiguous in that respect, as we suspect was intended by the draftsman. In our view, for a written authority to commence court proceedings to be valid and effective, a plain statement of authority to commence proceedings should be set out in the authority and not left to a possible implication which might be drawn from the words used.’

But the Tribunal found that the solicitor should be treated as having had authority to commence the proceedings because Mrs Chetcuti said that in engaging the recovery service she understood that court proceedings might be issued, she was not opposed to that course, and upon becoming aware of the proceedings, she cooperated in their prosecution.  By her conduct, she ratified her solicitor agent’s conduct.

When she signed it she did not know there would be a court case.  But she read the document carefully at home, thought the recovery service would fight RACV on her behalf, and go to court if necessary.  A solicitor retained by the recovery service (apparently someone other than the respondent in the disciplinary case) told her it was not worth going to court because of the small amount involved, but the recovery service convinced her that it was.

Five months after the authority had been signed, the recovery service purported to retain the solicitor on behalf of the Chetcutis.  About a fortnight later, the solicitor prepared and filed a Magistrates’ Court complaint naming Mr Chetcuti as plaintiff seeking recovery of $1,342.  The solicitor thought that one of the recovery service’s people had told Mrs Chetcuti about costs, but there is nothing in the reasons to say other than that this was an assumption as opposed to something anyone had told him.  Initially, the solicitor said he did not know what he would have done had Mr Chetcuti lost, but he later said he would have charged his costs to the recovery service.

Almost two and a half months into the proceeding, the solicitor wrote to Mrs Chetcuti on a Tuesday advising her of a trial the following Tuesday. It was by this communication that the solicitor first informed the Chetcutis of his involvement and of the commencement of the proceedings. On Thursday, he had a telephone conversation with her about the need to get an independent witness to court.  After the telephone conversation, the Chetcutis were ignorant of a counterclaim against her and had had nothing explained to them about the solicitor’s costs.  He charged scale on a party party basis.

The matter went to a defended trial. It was there that she learnt of the counterclaim. Mr Chetcuti won and the counterclaim was dismissed.  He was awarded $1,342 plus $938 costs, a total of $2280.  The solicitor took solicitor-client costs of $1,771, and sent the balance of $509 to the recovery service. The recovery service took fees of $100 (a discount of $250 on their normal fee) and sent Mr Chetcuti a cheque for $409.  So Mr Chetcuti was $809 better off, plus the value of the use of $400 for almost 10 months, than he would have been by not litigating, but about $800 short of the money necessary to fix his car.  Plus, if the repair service’s representations had been made good, she would not have had to pay costs and fees of $1,871.

The solicitor gave evidence which was not believed, namely that he telephoned Mrs Chetcuti about a week before commencing proceedings to advise her of that proposal.

The Tribunal found that the solicitor:

(i) did not confer with the complainant (Mrs Chetcuti) or her husband;

(ii) did not attempt to clarify precisely what instructions (if any) that he had from the complainant or her husband;

(iii) did not advise the complainant or her husband of their rights;

(iv) did not advise the complainant or her husband of their obligations relative to insurance with RACV;

(v) did not advise the complainant or her husband of the implications of commencing court proceedings for recovery of damages where there was an insurance company involved and where there may be a counterclaim;

(vi) did not bring the fact that he was commencing the proceeding in the name of the complainant’s husband to the knowledge of the complainant or her husband;

(vii) did not give any advice to the complainant or to her husband that explained the nature of his retainer by the recovery service or the costs that may be incurred and deducted from any monies recovered;

(viii) did not explain to the complainant or her husband the implication of costs to them arising from the fact that the amount of the claim ($1341.78) meant that even if that amount were recovered, it would be reduced substantially by actual costs to him not recovered by any possible court order;

(ix) made admissions of ownership and agency without instructions from Mr Chetcuti; and

(x) failed to provide costs disclosure statements.

Accordingly, it found that the solicitor had engaged in professional misconduct at common law, pursuant to the following charge:

‘purporting to act as the legal practitioner for the complainant and her husband and commencing civil legal proceedings in the Heidelberg Magistrates’ Court –

(a)	without first speaking to the complainant and her husband;
(b)	without clarifying his instructions;
(c)	without obtaining full instructions from the complainant and her husband relating to the collision;
(d)	without advising the complainant and her husband what damages would be likely to be recovered;
(e)	without advising the complainant and her husband in any way about the nature of the litigation process and the likely amount that could be recovered weighed against the costs involved;
(f)	without advising the complainant and her husband in any way of the consequences to them of embarking upon litigation, especially as to their rights and obligations vis a vis the insurer, namely RACV;
(g)	without advising the complainant and her husband as to their liability for costs either to himself or as to the risk that the named plaintiff faced as to costs should he not succeed with the proceeding.’

 The solicitor was also found guilty of misconduct in the form of a substantial or consistent failure to reach a reasonable standard of competence and diligence, and of misconduct constituted by failing to give costs disclosures in wilful or reckless disregard of s. 86 of the Legal Practice Act, 1996.  I have been told by a barrister retained by the Legal Services Commissioner in a similar case that the disposition was a penalty of $15,000 and an order to pay the RPA’s costs of $5,000.

Legal Ombudsman v DB & Co Pty [1999] VLPT 6 (a full Legal Profession Tribunal presided over by Judge Murdoch)

10 days after an accident which was clearly the fault of the other driver, the complainant signed a form prepared by Accident Cost Recovery Service Pty Ltd.  It referred to the complainant’s comprehensive insurance policy held by the complainant and said:

‘I hereby authorise Accident Cost Recovery Service Pty Ltd to arrange for an assessment of damage to the above vehicle arising from this collision, to negotiate the settlement of my claim and enter into correspondence on my behalf in relation to this matter and where necessary instruct solicitors on my behalf for the purpose of negotiation of settlement of my claim, provided that no legal costs are incurred without my prior knowledge…’

Two months later, the solicitor received instructions from the Cost Recovery Service to issue straight away.  A fortnight later, the solicitor issued.  Concurrently with sending it by post to the Court for issue, the solicitor wrote to the complainant care of the Cost Recovery Service though he had her residential address.  She did not receive it.

A defendant contacted the solicitor a fortnight after issue and almost a fortnight later again, the defendant’s solicitor served a defence.  More than three weeks later – almost 2 months after the receipt of instructions to issue proceedings – the solicitor spoke to the complainant for the first time.  He did not tell her that proceedings had been issued. It appears the solicitor had got the name of the owner defendant wrong and advised it would apply to amend the name at hearing.  The solicitor notified the client of the 24 October 1997 trial on 2 October 1997. This was the first letter she received from him. ‘She sought an explanation from the practitioner’s office and she was told that it would not cost her any money.  She was not told that the proceeding had been commenced in her name and she believed that it was merely a procedure to find out who was responsible for the damage to her car.

Three days before trial, the owner defendant’s solicitors advised they intended to seek the striking out of the claim against it. The solicitor did not tell the complainant that the proceedings were being defended and would have to be adjourned.  Two days before the trial, on 22 October 1997, the solicitor wrote to the owner defendant’s solicitor and said ‘we have received instructions to seek an adjournment of this matter to enable our client to involve her insurer’, knowing that the statement was false in that he had received no such instructions.  On trial eve, the solicitor obtained the adjournment by an application which the complainant did not authorise, but with costs against the complainant of $644.  A week later, on 30 October 1997, the solicitor wrote advising of the Court’s orders, and demanded that she pay him the adverse costs.  He asked the repairer to pay the adverse costs, but the repairer refused.  He asked FAI to pay the costs, the complainant having made a belated claim on her policy.

On receipt of the 30 October 1997 letter, ‘she telephoned him and told him that she had not asked him to do anything for her.  She told him that she would make a claim on her insurance policy and he agreed that she should do so.’

Ultimately, FAI accepted the claim, agreed to pay the cost of repairs, but not legal costs.  Though the complainant never instructed FAI to pay her damages to the solicitor, they did so.  The solicitor gave $644 back to the complainant, illegally appropriated $1050 for his fees without authority, and after 16 months disbursed the balance of $1342 to the repairer.

The solicitor’s evidence at the hearing was not accepted, suggesting that he lied.  The Tribunal found:

‘We are satisfied from the evidence of the complainant and from the admissions of the practitioner that he issued the proceeding without instructions from the complainant to do so and that he never advised her with regard to costs of the proceeding or at all in relation to the proceeding. Furthermore he did not give her any advice with regard to the comprehensive insurance policy held by her and the possible effect upon it of the proceeding which he proposed to issue and did issue. We are also satisfied that there was no sound or proper basis for him to assume, as he asserted he did, that the complainant had been informed of his involvement by ACRS.

We accept the complainant’s evidence that she did not at any time instruct the practitioner to act as her solicitor in connection with the proceeding or in respect of any matter arising from the proceeding. In particular we are satisfied that she did not instruct the practitioner to apply for the adjournment of the proceeding on 24 October 1997 and that he did so of his own volition, having informed the complainant of the need to adjourn the matter as he was aware that the complainant could not prove her claim against the second named defendant.’

He was found guilty of 5 counts of professional misconduct (apparently at common law):

1. Purporting to act, and commencing proceedings without any or any proper instructions;
2. Doing those things without:

(a) first speaking to her;
(b) clarifying with her precisely what his instructions were;

(c) obtaining full instructions from her relating to the collision, the damage to her motor vehicle or her insurance cover;
(d) advising her what damages she could recover;
(e) advising her in any way about the nature of the litigation process, the likely cost of it, the likely period of time it would take;
(f) advising her in any way of the consequences to her of embarking upon litigation, especially as to her rights and obligations vis a vis her insurer, FAI;
(g) advising her of liability for costs to him and the risk that she could be found liable to pay costs to other parties.

3. Carrying on his practice with deliberate or reckless disregard for the rights and obligations of the complainant and with deliberate or reckless disregard for his professional responsibilities and duties to her as her supposed legal adviser and solely for the purpose of generating profit for himself.  The particulars were:

(a) the practitioner acted upon the referral of ACRS and upon the contents of the form (document D) knowing that if the proceeding was issued in the name of the complainant that she would be at risk for costs;

(b) he knew or ought to have known that if the complainant signed the form (which she did) then she would do so without legal advice and with the advice of a panel beater;

(c) he knew or ought to have known that when the complainant signed the form it was unlikely that she intended it to convey instructions to him to issue legal proceedings in her name on the basis of the form;

(d) he knew or ought to have known on any proper reading of the form it did not provide the basis of any instruction to him to issue proceedings in the name of the complainant;

(e) he knew or ought to have known that if the complainant signed the form when she was comprehensively insured then the complainant would prejudice her rights pursuant to her policy of insurance with FAI, yet he proceeded nonetheless;

(g) having commenced proceedings in the name of the complainant he sought an adjournment of a hearing of the proceedings and purported to do so on the instructions of the complainant;

(h) having commenced proceedings in the name of the complainant he sought an adjournment of a hearing of the proceedings without instructions from the complainant and subjected her to an inevitable order to pay the other party’s costs of the adjournment; and

(i) he deducted his profit costs and disbursements from moneys received by him and held in his trust account in her name knowing that he had no instructions to do so.

4.  Continuing to act for the Costs Recovery Service and/or the repairer and purporting to act for the complainant when it was clear there was a conflict or potential conflict of interest between the two.  (What the conflict was is not described in the reasons.)

5.  Knowingly misleading the owner defendant’s lawyer by the letter saying he had instructions to apply for an adjournment.

I am told by one of the counsel who appeared in the matter that the penalty was a $25,000 fine.  That was a pretty significant penalty 11 years ago.