180212 LAWS551 Participation PDF

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180212 LAWS551 Participation...

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LAWS551 S3 2019

I.

Participation Exercise 2

Ms. van Houten’s Trust Account Regulation

The Legal Profession Uniform Law 2015 (NSW) (‘LPUL’) pt 4.2 imposes trust account duties on law practices in new south wales1 to account for trust money, defined as money received in the process of or concerning the practice’s provision of legal services.2 Relevantly, LPUL s 128(1) defines transit money as money received with instructions detailing payment or delivery to a third party3 and LPUL s 129(1) specifies transit money constitutes trust money4 that is to be held exclusively on behalf of its intended recipient5 subject being disbursed as per set instructions,6 or as soon as practicable upon its receipt.7 Accordingly, the settlement fund from Ms. van Houten’s family law property dispute is transit money exclusively held for her 8 and is to be disbursed by Mr. Nailer as soon as practicable once received unless specified otherwise.9 While LPUL s 144 dictates that trust money may be withdrawn to pay for legal costs owed to the law practice, no facts indicate Mr. Nailer’s transfer of an amount for invoiced legal fees from Ms. van Houten’s settlement funds into his office account was done so following r 42 of the Legal Profession Uniform General Rules 2015 (‘LPUGR’)10 as required by LPUL s 144.11Furthermore, while LPUL s 129(2)(a) specifies the provision of money concerning a bill given to a client for legal services provided by a law practice12 is not trust money, Mr. Nailer is advised his withdraw of Ms. van Houten’s transit money for payment of his legal fees remains trust money and breaches LPUL s 128(1) as it was not held exclusively for Ms. van Houten but improperly withdrawn as for payment of legal costs and used by Mr. Nailer to fund his overseas holiday, LPUL s 129(1) is also breached as the payment to Ms. van Houten was delayed to disbursement on Thursday rather than as soon as practicable upon its receipt on Tuesday in this process.

LPUL s 146 is further breached as its express proscription of the intermixing of trust money unless otherwise permitted by the designated authority, and in compliance with conditions set by such authority, was contravened by Mr. Nailer’s intermixing of settlement funds and non-trust money in the form of legal fees later disbursed to Ms. van Houten.13

1

Legal Profession Uniform Law 2015 (NSW) s 130(1) (‘LPUL’). Ibid s 129(1). 3 Ibid s 128(1). 4 Ibid s 129(1)(c). 5 Ibid s 138(1)(a). 6 Ibid s 138(1)(b). 7 Ibid s 140(1). 8 Ibid s 128(1). 9 Ibid s 129(1). 10 Legal Services Council, Legal Profession Uniform General Rules 2015 (NSW) (at 1 July 2015) r 42 (‘LPUGR’). 11 LPUL (n 1) s 144(2)(b). 12 Ibid s 129(2)(a). 13 Johns v Law Society of New South Wales [1982] 2 NSWLR 1. 2

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LAWS551 S3 2019

II.

Participation Exercise 2

Blue & Co.’s Trust Account Regulation

Settlement funds from Blue & Co.’s contractual dispute is transit money exclusively held by Mr. Nailer for Ms. Blue, the owner and managing director of the proprietary company as per LPUL s 128(1) and is to be disbursed as soon as practicable to her once received unless specified otherwise by Ms. Blue as per LPUL s 129(1). Despite absence of a formal cost disclosure withdrawal for legal costs owing from the settlement fund as per the fixed fee arrangement between Mr. Nailer and Ms. Blue’s company, Blue & Co., may be permitted under LPUL s 144. However, no facts indicate transfer of an amount owing for legal fees from Blue & Co.’s settlement funds, as a commercial client, was done so following r 42(6) of the LPUGR14 as required by LPUL s 144.15 Mr. Nailer is advised that the proscriptive fiduciary duty arising from his lawyer-client relationship16 with Blue & Co. imposes a no-profit duty concerning trust account obligations unless the client’s informed consent is first provided. In addition to being potentially held liable for breach of fiduciary duty, Mr. Nailer is further advised his withdraw of Blue & Co.’s transit money to profit from the shortterm investment opportunity presented by Mr. Drumf breaches LPUL s 128(1) as the trust money was not held exclusively for Blue & Co. but improperly withdrawn for Mr. Nailer’s own benefit. Such contravention of trust account obligations also breaches LPUL s 129(1) as disbursement of settlement funds to Ms. Blue will be delayed until the investment is expected to pay off rather than as soon as practicable upon its receipt on Thursday in this process, and further breaches LPUL s 146 if Mr. Nailer intermixes settlement funds and non-trust money in connection with the investment opportunity to refund the amount withdrawn from Blue & Co.’s settlement fund to be disbursed to Ms. Blue.17

III.

Disciplinary Consequences for Trust Account Irregularities

As put in R v Howse18 a defalcation by a solicitor-trustee has the potential to undermine the security provided by the integrity of the legal profession on which the public is dependent. Accordingly, LPUL s 298(a) stipulates that irregularities arising from a Mr. Nailer’s failure to execute trust account obligations owed to both Ms. van Houten and Blue & Co. in compliance with the LPUL or LPUGR

14

LPUGR (n 10) r 42(6). LPUL (n 1) s 144(2)(b). 16 Breen v Williams (1996) 186 CLR 71. 17 Johns v Law Society of New South Wales [1982] 2 NSWLR 1. 18 R v Howse [2002] VSC 197.

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LAWS551 S3 2019

Participation Exercise 2

may constitute conduct that is in contravention of the LPUL,19 or the LPUGR,20 irrespective of whether or not Mr. Nailer has been convicted of an offence in connection to the trust account irregularities.

Mr. Nailer is advised if misappropriation of trust money owed to either client results in a loss, he may be civilly liable to compensate for breach of trust at general law. Furthermore, if the trust money owing to Blue & Co. specifically is converted into his property to the effect that Ms. Blue is permanently deprived of the settlement funds should the investment fail to pay off in future, he may be criminally liable under the Crimes Act 1900 (NSW).21 As per Law Society of New South Wales v Hussain,22 Mr. Nailer is further advised disciplinary sanctions may be imposed where his breaches constitute dishonest conduct that is rendered to be either professional misconduct 23 or unsatisfactory professional conduct. 24 Indeed, as in Kumar v Legal Services Commissioner,25 such dishonest breaches may justify the disciplinary sanction of a strike-off order. As asserted in R v Smith26 the severity of such disciplinary consequences imposed on solicitortrustees like Mr. Nailer is necessary, given where the community questions the trustworthiness of solicitors, the integrity of the entirety of the legal profession may also fall into question.

19

LPUL (n 1) s 298(a). Ibid s 298(c). 21 Crimes Act 1900 (NSW) s 192C. 22 Law Society of New South Wales v Hussain [2005] NSWADT 28. 23 LPUL (n 1) s 297. 24 LPUL (n 1) s 296. 25 Kumar v Legal Services Commissioner [2015] NSWCA 161. 26 R v Smith [2000] NSWCCA 140. 20

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