Shalhoub v Law Society of NSW

1. [1]

   In February or March 2014 the Plaintiff made a claim on the Fidelity Fund of the Law Society in relation to properties he had bought and sold in 1997. He had engaged the services at that time of a solicitor Michael Damianos. The Plaintiff claimed that the solicitor failed to account to him in relation to the sale and purchase of the properties.

2. [2]

   On 17 July 2014 the Fidelity Fund Management Committee considered the material provided by the Plaintiff and resolved as follows:

3. [3]

   On 12 August 2015 the Plaintiff filed a Statement of Claim against the Law Society claiming these orders:

4. [4]

   On 3 March 2016 the Law Society filed a Notice of Motion seeking orders that the Statement of Claim be struck out, alternatively, that the proceedings be dismissed pursuant to r 13.4 Uniform Civil Procedure Rules 2005 (NSW). On the same day the Plaintiff filed a Notice of Motion seeking leave to file an Amended Statement of Claim in the form annexed to the Notice of Motion. The relief claimed in the proposed Amended Statement of Claim was as follows:

5. [5]

   This judgment concerns both of those Notices of Motion.

6. [6]

   Subsequent to the filing of the Motions the Plaintiff, in answer to a letter from the Law Society seeking particulars of the proposed Amended Statement of Claim, indicated that further changes were to be made to that document and enclosed a further proposed Amended Statement of Claim. That document, which was an annexure to the affidavit of David Paul Courtenay said to have been sworn on 9 March 2016 but apparently sworn on 11 March 2016, amended the monetary amount in prayer 5 to $943,000 and the date in prayer 6 to 1 January 2000. There were two amendments to the pleading. The second is of some significance for the present Motions. It concerns particular (a) under paragraph 15 and I will mention it when dealing with the pleading.

7. [7]

   Somewhat unsatisfactorily there was no affidavit from the Plaintiff setting out the background to the claim on the Fidelity Fund. The parties appeared content to work on the basis that what was contained in the Statement of Claim and the proposed (further) Amended Statement of Claim (hereafter referred to as “the Amended Statement of Claim”) supplemented by factual material in the Defendant’s submissions formed the basis upon which the Motions were to be determined. In this regard, it should be noted that the proposed Amended Statement of Claim is seriously deficient in a number of respects. It does not clearly set out the factual basis upon which the claim on the Fidelity Fund was made and there is a general vagueness in relation to dates that are of significance for the purposes of the Legal Profession Act 1987 (NSW).

8. [8]

   The background can be summarised as follows.

9. [9]

   In November 1996 the Plaintiff acquired land in Folio Identifier 2/863092 being 17A Beatrice Street, Hurstville for an amount of $105,000. He sold this land on about 17 October 1997 for $320,000.

10. [10]

    On 21 November 1997 Julian Shalhoub purchased the property in Folio Identifier 6/SP55783 being Unit 6, 35 Judge Street, Cronulla for $188,000. At some time it was sold for $210,000.

11. [11]

    On 26 November 1997 Sammy Shalhoub purchased the property in Folio Identifier 15/SP55783 being Unit 15, 35 Judge Street, Cronulla for $188,000. It was sold for $215,000.

12. [12]

    A fourth property being the property in Certificate of Title Volume 5333 Folio 18 was either bought or sold by the Plaintiff or one of his sons. The matter is not made clear in the pleading. It seems that no claim has yet been made on the Fidelity Fund in relation to this property. In the letter earlier referred to at [6] the solicitors for the Plaintiff accepted that a claim must first be made before this property can form part of the present proceedings.

13. [13]

    Mr Damianos is said to have acted for the Plaintiff and his sons in relation to these properties but it is not said on which precise transactions he acted. According to the pleading Mr Damianos was instructed to act and there was one further contact between him and the Plaintiff when he informed the Plaintiff that everything was fine. That was the last contact the Plaintiff had with Mr Damianos. The pleading then says in paragraph 10:

14. [14]

    The pleading then makes reference to the Plaintiff’s limited education and work. It also provides some information about his poor health from 2003 to 2010.

15. [15]

    Paragraph 15 then pleads:

16. [16]

    The particulars under that paragraph relevantly read:

17. [17]

    Subsequent to the service of the Statement of Claim correspondence ensued between the solicitors for the parties. Some matters pointed out by the solicitor for the Law Society appear to have brought about the proposal by the Plaintiff to amend the Statement of Claim. In particular the proposal is that the Plaintiff’s son Julian Shalhoub be added as a second plaintiff, seemingly, because one of the properties was bought and sold by him. On the other hand, there is no explanation for why Sammy Shalhoub has not been added as a Plaintiff when one of the properties was purchased and sold by him.

18. [18]

    The prior explanation for the Plaintiff alone making the claim was that all of the funds were provided by him including for the purchase of properties in the two sons’ names. However, whether because the Plaintiff now accepts that the doctrine of advancement would operate on any resulting trust arising from the provision of funds to the sons or for some other reason, Julian has been added as a Plaintiff. It is hard to see why there is any distinction between Julian and Sammy whereby Julian has been added as a plaintiff but Sammy has not.

19. [19]

    One of the matters pointed out in the correspondence by the solicitor for the Law Society concerned s 80(7)(d) of the Legal Profession Act 1987. That appears to have brought about the relief sought in paragraph of the proposed Amended Statement of Claim but not the abandonment of the relief formerly in prayer 1 of the Statement of Claim and now found in prayers 1, 2 and 5 of the proposed Amended Statement of Claim.

Submissions

1. [20]

   The Defendant submitted that the relief sought in the existing Statement of Claim and in all but prayer 7 of the proposed Amended Statement of Claim was misconceived. This was because the Fidelity Fund had not refused or denied the Plaintiff’s claim. Rather, it had refused to allow further time to make the claim pursuant to the provisions of s 80(7) of the Act. The Defendant submitted that all the Plaintiff could seek from this Court at the present time was an order giving leave to make the claim out of time pursuant to s 80(7)(d).

2. [21]

   In relation to the relief sought under s 87(4)(b) or s 88(2)(b) of the Act, the Defendant said that the time for that relief had not yet arrived. Moreover, s 88(2)(b) was concerned with dishonest default and nothing was pleaded to suggest that there was such a default as defined in s 79B of the Act.

3. [22]

   The Plaintiff submitted that the Fidelity Fund had refused the claim giving the Plaintiff the right to appeal to the Supreme Court under s 90D(3). If in fact it was correct to say that the Fidelity Fund had not considered the claim then the Plaintiff’s rights lay under s 90D(3)(c) because of the failure by the Council to determine the claim within the prescribed time.

4. [23]

   The Plaintiff submitted that s 63 of the Supreme Court Act 1970 (NSW) gives power to the Court to enable it to grant the relief that is contained in the proposed Amended Statement of Claim.

Legislation

1. [24]

   Although the Legal Profession Act 1987 (NSW) was repealed by the Legal Profession Act 2004 (NSW) the parties agree that this matter is governed by the 1987 Act because the failure to account is said to have occurred prior to the repeal of that Act. Clause 22A of Schedule 9 (Savings, transitional and other provisions) to the 2004 Act appears to enable the present proceedings to be brought under either Act. The provisions under consideration are relevantly identical. I shall discuss the matter relying on the provisions of the 1987 Act.

2. [25]

   The Act relevantly provides:

Consideration

1. [26]

   The Plaintiff does not seek to maintain the original Statement of Claim filed. The single issue for determination on the Plaintiff’s Motion was whether the Plaintiff or Plaintiffs should be entitled to file an Amended Statement of Claim seeking relief other than an order under s 80(7)(d) of the Act.

2. [27]

   No particular arguments were addressed to the form of the pleading which, as I have noted earlier, is somewhat deficient. Moreover, a number of matters pleaded could not be said to be material facts within the meaning of the Rules. Some of the paragraphs detailing the medical condition of the Plaintiff and others ought to be particulars. On the other hand, dates of notification of the Law Society would seem to me to be material facts if the Plaintiffs are seeking an order under s 80(7)(d) to justify further time being allowed.

3. [28]

   The evidence of what was decided by the Fidelity Fund is clear. It was not a disallowance of the claim. It was a refusal to allow further time after the period of three months to notify the Law Society of the claim.

4. [29]

   Section 80 governs the making of the claim and the basis for allowing and disallowing a claim. The section contains its own limitation provision in sub-s (7). That sub-section is a gateway provision. A claim does not lie against the Fund unless it is made in the time stipulated or in any further period allowed by either the Law Society Council or by this Court.

5. [30]

   The appeal provisions in s 90D(3) are only available where there has been a decision by the Law Society Council to wholly or partly disallow a claim, to reduce the amount allowed by virtue of s 80A or where there is a failure to determine the claim within the time. If a claim does not lie under s 80, there is no claim either to determine or to disallow.

6. [31]

   In Fincorp Investments Limited v Trazmar Pty Limited [2012] NSWSC 506 a claim was made on the Fidelity Fund by Trazmar Pty Ltd but the claim was not made within the statutory time limit. The matter was governed by the Legal Profession Act 2004 (NSW). There was some doubt about whether the 1987 Act or the 2004 Act applied but Schmidt J noted at [6] that it was common ground between the parties that the provisions of the two Acts were relevantly the same. I am satisfied from my examination of the two Acts, as noted earlier, that the provisions of the two Acts are relevantly the same. In that case, Trazmar said that it had a right of appeal under s 452 of the 2004 Act (the equivalent of s 90D of the 1987 Act) because the Law Society had both refused an extension of time under s 439(2)(b) (the equivalent of s 80(7)(c) of the 1987 Act) and also determined the claim on the merits.

7. [32]

   The notification by the Law Society was that the application for the extension of time had been refused. Grounds were given for the refusal of the extension of time. Reasons were then provided which concluded with the following:

8. [33]

   Trazmar pointed to those reasons to argue that the claim had been considered on its merits. It may be seen, therefore, that Fincorp was a stronger case for the claimant to argue that there had been a disallowance of the claim and not just a refusal to permit the claim to be brought out of time.

9. [34]

   Justice Schmidt said:

10. [35]

    I entirely agree, with respect, with the reasons of Schmidt J. Further, they are entirely applicable to the statutory scheme under the 1987 Act which is relevantly the same as that under the 2004 Act.

11. [36]

    The Plaintiff submitted, however, that Schmidt J’s attention had not been drawn to s 63 of the Supreme Court Act nor to the first instance decision of Greg James J in Glenorcy Pty Limited v Law Society Of New South Wales [2004] NSWSC 464.

12. [37]

    Section 63 provides:

13. [38]

    Glenorcy concerned an appeal under s 90D of the 1987 Act from a disallowance of claims made by the Fidelity Fund. At issue was the nature of the appeal under s 90D – see at [28] and [31]. One part of that dispute concerned whether, if error was demonstrated, the matter should be remitted to the Law Society or whether the Court could make a decision on the material before it.

14. [39]

    Greg James J said at [32]:

15. [40]

    The Plaintiff in the present case sought to rely on that passage to argue that s 63 empowered the Court in the present case to consider the merits of the claim by construing s 90D as permitting a challenge to what was said to be the disallowance by the Fidelity Fund of the Plaintiff’s claim.

16. [41]

    In my opinion, what is said in Glenorcy is of no assistance to the Plaintiff in the present case. There was a properly brought appeal under s 90D in that case. Section 63 is a facilitative provision to prevent formalities and failures to adhere strictly to procedures from inhibiting the final determination of claims so that all necessary orders can be made. So, for example, the section would allow in Family Provision proceedings orders and declarations about the proper construction of a will: Langley v Langley (1974) 1 NSWLR 46 at 48. Similarly, the section provides jurisdiction in simple cases to enforce a settlement or compromise by motion in the original proceedings: Kevern v Marshall [2004] NSWSC 300 at [4].

17. [42]

    Section 63 cannot be construed as overriding or removing limitations in other specific provisions providing an appeal to this Court.

18. [43]

    The Defendant submitted that it would be inappropriate, in any event, for the Court to exercise any jurisdiction in respect of the claim other than an extension of time, having regard to the definition of “failure to account” in s 79A(2)(b). The starting point for this is s 80 which provides that the Fidelity Fund is to be held and applied by the Law Society for the purpose of compensating persons who suffer pecuniary loss because of a “failure to account” or a “dishonest default”. The definition of “failure to account” is contained in s 79A. The only failure to account that is compensable is one that arises from an act or omission of the solicitor for which the solicitor has been convicted of a crime or an offence involving dishonesty (not the position in the present case) or which the Law Society Council has found to be dishonest. Sub-section (3) then goes on to provide that a finding by the Law Society Council that an act or omission is, or is not, dishonest is final and conclusive.

19. [44]

    The other way a person can be compensated is if there is a dishonest default but that requires, as s 79B makes clear, a final judgment against the solicitor as a result of the dishonest act or omission, and the judgment debt is not fully satisfied. That is not the position in the present case.

20. [45]

    In Vassiliadis v Law Society of NSW (1997) 41 NSWLR 383 the alleged failure by the solicitor was not one that fell within the definition in s 79A nor the definition in s 79B. That is, the solicitor had not been convicted of an offence involving dishonesty and the Law Society had not found the act to be dishonest. In that case the Law Society informed the claimant that it had disallowed the claims on the ground that there was insufficient evidence and documentation produced to establish entrustment of the monies, that the solicitor failed to account and that the solicitor was dishonest. An appeal was brought under s 90D of the Act.

21. [46]

    Sheller JA (with whom Dunford and Sperling AJJA agreed) said (at 387):

22. [47]

    In the present case there has been no finding by the Law Society Council of dishonesty. In those circumstances any appeal under s 90D would be doomed to fail: Whitfield v The Law Society of New South Wales (Unreported – 4 December 1998, Greg James J); Barber v The Law Society of New South Wales [2000] NSWSC 1164 at [9]; Law Society of New South Wales v Glenorcy Pty Ltd [2006] NSWCA 250; (2006) 67 NSWLR 169 at [14].

23. [48]

    No basis has been pleaded to justify relief under s 87 of the Act. Although sub-s (4) appears to permit a claim within three months of the date of publication of the notice referred to, it is not alleged anywhere in the pleading that such a notice has been published In any event, the claim that may be made is one that arises from a failure to account. Reliance on s 87 contains the same difficulties as has just been discussed in relation to s 90D because of the requirement by the Law Society Council to make a finding of dishonesty.

24. [49]

    The relief sought under s 88(2)(b) is similarly misconceived because there has been no dishonest default within the definition of that term in s 79B and no pleading of any factual matters concerning Mr Damanios as are contained in s 79B.

25. [50]

    The result is that the only relief which may be sought by the Plaintiff in the present circumstances is relief by way of an extension of time under s 80(7)(d) of the Act.

26. [51]

    The existing Statement of Claim should be struck out. Leave should be refused to the Plaintiff to file the proposed Amended Statement of Claim. However, the Notice of Motion should be adjourned to permit the Plaintiff, if he so desires, to amend that Motion to file an Amended Statement of Claim in accordance with these reasons.