Attorney-General v Delaney [2000] QCA 504

SUPREME COURT OF QUEENSLAND CITATION: A-G v Delaney [2000] QCA 504 PARTIES: THE HONOURABLE THE ATTORNEY-GENERAL AND MINISTER FOR JUSTICE (appellant) v GREGORY WILLIAM DELANEY (respondent) FILE NO/S: Appeal No 3514 of 2000 Charge Nos 25 and 32 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Solicitors Complaints Tribunal DELIVERED ON: 12 December 2000 DELIVERED AT: Brisbane HEARING DATE: 8 November 2000 JUDGES: McMurdo P, Davies JA and Byrne J Separate reasons for judgment of each member of the Court, each concurring as to the order made. ORDER: Appeal dismissed with costs to be assessed CATCHWORDS: PROFESSIONS AND TRADES – LAWYERS – MISCONDUCT, UNFITNESS AND DISCIPLINE – DISCIPLINARY PROCEEDINGS – STATUTORY PROCEEDINGS – QUEENSLAND – practitioner pleaded guilty before Solicitors’ Complaints Tribunal to charges of unprofessional conduct – practitioner fined $15,000 and ordered to pay compensation – whether penalty manifestly inadequate - whether practitioner should have been struck off roll – where practitioner failed to ensure clients of private mortgage lending business obtained independent legal advice – where practitioner failed to maintain reasonable standards of competence or diligence – where practitioner failed to adequately supervise office staff Queensland Law Society Act 1952 (Qld), s 6Z Attorney-General and Minister for Justice v Gregory [1998] QCA 409, Appeal No 5511 of 1998, 4 December 1998, referred to -- 1 of 8 -- 2 Attorney-General and Minister for Justice v Kehoe [2000] QCA 222, Appeal No 7011 of 1999, 6 June 2000, referred to COUNSEL: P A Keane QC with G Cooper for the appellant C E K Hampson QC for the respondent SOLICITORS: Crown Law for the appellant Hopgood Ganim Lawyers for the respondent [1] McMURDO P: I have read the reasons of Byrne J in which the relevant facts and issues are set out. I agree with his proposed order and reasons, and wish only to add the following. [2] The respondent pleaded guilty to three charges of unprofessional conduct before the Solicitors Complaints Tribunal ("the Tribunal"). The Tribunal accepted those pleas on the following basis. [3] The first charge involved the respondent mixing his clients' affairs with his own in a substantial way; in obtaining first mortgage loans from clients for XL Properties Pty Ltd, a company in which he effectively had an interest, he failed to ensure the lenders had independent legal advice. The respondent believed his staff had arranged for the firm Proctor Kehoe to provide independent advice and inadequately supervised his staff to ensure this occurred. [4] The second charge, failing to maintain reasonable standards of competence or diligence, was in two parts. First, in a mortgage lending brochure he failed to inform his clients about the costs and risks involved in such loans. The brochure was in a form which was "relatively common" amongst firms conducting mortgage lending practices. The respondent did not intend the brochure be construed as a guarantee and admitted it did not provide advice as to risk in the event of default. Second, the respondent represented to his mortgage lending clients that they were entitled to rely on a valuation which was not provided for the purposes of mortgage lending. The respondent instructed his staff that assignments of such valuations should be routinely obtained in circumstances such as this; he was unaware that an assignment had not been obtained. [5] The third charge, also one of failing to maintain reasonable standards of competence or diligence, involved his failure to ensure first mortgage loans were insured for the full period of the mortgage. Money was retained by the respondent's firm to pay the yearly premium but unknown to the respondent his employee used some of that money to pay other fees. The insurance premium was paid for the first six months but despite a request from his employee to the insurance brokers for a reminder notice, no reminder notice was sent to his firm. The respondent was unaware that insurance had not been obtained for the full 12 months. [6] The facts accepted by the Tribunal were generous to the respondent but it has not been submitted that such findings were not reasonably open. [7] Upon the respondent's undertaking that he will not be involved in any further contributory mortgage transactions and upon other related undertakings, the -- 2 of 8 -- 3 Tribunal fined the respondent $15,000 and ordered he pay costs to be taxed or assessed. He was also ordered to pay compensation to three complainants totalling $21,000 by 20 July 2000. At the time of the hearing of this appeal, the respondent had not paid that compensation but we have since been informed payment was made on 9 November 2000. [8] Counsel in this appeal have pointed out that the factual basis upon which the respondent was dealt with by the Tribunal on charge 1 differed from that upon which Mr Kehoe, a principal of Proctor Kehoe, was dealt: see Attorney-General v Kehoe.1 Where practitioners are charged with similar or related matters it is desirable that, where at all possible, they are dealt with by the same Tribunal on a consistent factual basis. It is regrettable that did not happen here. There is no doubt, however, that the respondent in this case must be dealt with by this Court on the basis of the facts accepted by the Tribunal at first instance; the adverse findings of fact against this respondent in Kehoe,2 where he was not a party, must be disregarded for present purposes. I also note that new material has been placed before this Court which may throw doubt on those findings in Kehoe, but it is unnecessary to determine that question here. [9] The Solicitor-General Mr Keane QC, who appears for the Attorney-General, emphasises the absence of any explanation from the respondent, an experienced practitioner, of his failure to satisfactorily supervise and control his own staff such that the respondent is not a fit and proper person to be entrusted with the duties and responsibilities of a solicitor; he submits the need to protect both the public and the profession requires that the respondent's name be struck from the Roll of Solicitors of the Supreme Court of Queensland. [10] I note that order was not sought by the Queensland Law Society who submitted to the Tribunal "that having regard to the absence of any circumstances of dishonesty on the part of the practitioner and the fact that the borrowing transaction in relation to XL Properties was one isolated transaction, rather than a series of transactions the Society would take the view that ordinarily, the range of penalty would include a heavy fine and would also include possibly a period of suspension." The Attorney-General is, of course, not bound by that submission. [11] There is considerable merit in Mr Keane's argument. The public has a right to expect more from an experienced practitioner; some of the respondent's clients lost substantial sums through his grossly negligent commercial advice and lack of supervision of his employees. [12] It is, however, significant that the respondent's conduct related wholly to first mortgage lending, an area in which he no longer practices and has undertaken not to practise in the future. No other complaint has been made against him in his 29 years of practice. He has pleaded guilty, shown remorse and apologised. Although his conduct in charge 1 involved a personal benefit, no fraud or dishonest intent was involved in any of the charges on the accepted facts. Importantly, the penalty imposed protects the public from any further risk from the respondent's 1 [2000] QCA 222; CA 7011 of 1999, 6 June 2000. 2 Ibid at [18] and [20]. -- 3 of 8 -- 4 mismanagment of mortgage loans. The penalty was open on the facts accepted by the Tribunal. I would dismiss the appeal with costs to be assessed. [13] DAVIES JA: I agree with the orders proposed by Byrne J and with his reasons. I wish only to add a comment with respect to the way in which these proceedings came before the Tribunal. [14] As Byrne J has pointed out the matter proceeded before the Tribunal on agreed facts. However there had been an earlier hearing before a differently constituted Tribunal, upon different facts involving a charge against Mr Kehoe of Proctor Kehoe arising out of the matters the subject of the XL charge, charge 1 against the respondent. [15] It is, to say the least, unfortunate that that should have been permitted to occur. It can create an impression of undue leniency being accorded to practitioners where, it appearing that one or other of them may be at fault, proceedings against each are conducted before differently constituted Tribunals on different agreed facts. It is to be hoped that steps are taken to ensure that that will never again occur. [16] However on the agreed facts by which this Court is bound I agree that the conclusion reached by the Tribunal was reasonably open. [17] BYRNE J: Before the Solicitors Complaints Tribunal (“the Tribunal”), Mr Delaney entered pleas of guilty to charges of unprofessional conduct brought by the Queensland Law Society Inc (“the Society”). The pleas were accepted. The Tribunal fined the solicitor $15,000 and required that he pay the Society’s costs of the proceedings.3 In this appeal under s 6Z of the Queensland Law Society Act 1952 (“the Act”), the Attorney-General contends that the Tribunal, instead of imposing the fine, should have ordered the solicitor be struck off the roll. All facts agreed [18] To inform its deliberations concerning appropriate orders, the Tribunal was presented with a statement of agreed facts. This, rather terse, account was supplemented, without objection, by additional written information from the solicitor, and by material orally adduced for the Society and the solicitor. No doubt this, apparently uncontroversial, information provided the basis for the Tribunal’s conclusions and orders.4 [19] The charges arose out of a mortgage lending and management business undertaken by Delmoor Pty Ltd, a company in which Mr Delaney was a 50 per cent shareholder. 3 Orders for compensation were also made in favour of persons who suffered financial loss in connection with the solicitor’s conduct. 4 Section 6V(1)(b) of the Act required that the Tribunal’s order “state the tribunal’s findings in relation to the facts of the case”. See also R 14(h) of the Queensland Law Society (Solicitors Complaints Tribunal) Rule 1997, which stipulates that the findings must include “the reasons for making the orders”. The reasons were not full. -- 4 of 8 -- 5 XL charge [20] The solicitor was a director of XL Properties Pty Ltd (“XL”) and, through Delmoor’s stake in that corporation, effectively a minority shareholder in XL. XL bought land for subdivisional purposes for $350,000. To facilitate the acquisition, and presumably for purposes related to its development, XL borrowed, in aggregate, $620,000 from Mr Delaney’s clients on the security of a mortgage over the property. A roughly contemporaneous valuation estimated the worth of the land at more than $850,000. The gravamen of the charge was that “the lenders were not advised by another practitioner independently employed and instructed in respect of the transaction”. The facts presented to the Tribunal reveal that the absence of such advice was attributable to oversight, not design. [21] The mortgage manager told the lenders of Mr Delaney’s interest in XL, and that Proctor Kehoe, solicitors, would act for them in relation to the loans. Mr Delaney did retain Proctor Kehoe for those lenders. Unfortunately, his secretary, despite having been instructed to do so, did not give Proctor Kehoe the addresses or telephone numbers of the lenders, with the result that those solicitors did not give advice about the loans. Because the total amount lent far exceeded the price of the secured asset, this omission was not without potential importance. Moreover, the lenders would not have necessarily appreciated the absence of Proctor Kehoe’s intervention because, on Mr Delaney’s instructions, his secretary, by arrangement with Proctor Kehoe, prepared the mortgage documents and investment authorities; and Proctor Kehoe letterhead was used by Mr Delaney’s firm in connection with the mortgage documentation. [22] As the case was put to the Tribunal, the material neglect was the solicitor’s omission to ensure that Proctor Kehoe was effectively retained.5 Mr Delaney acknowledged that his failure to detect his secretary’s mistake meant that he had inadequately supervised his staff, and that, in consequence, Proctor Kehoe was not properly instructed. Sapiecha charges [23] In admitting a different charge concerning another advance, Mr Delaney acknowledged a failure to maintain “reasonable standards of competence or diligence” in relation to loans totalling $490,000 made by clients to a Mr Sapiecha on the security of a mortgage over land. As the particulars of the charge put it, the solicitor (i) gave advice to prospective lenders in relation to loans of the type proposed to be made to Sapiecha emphasizing the safety and security of such loans; and (ii) failed to provide any advice as to the chances that lenders may not recover all outstanding interests and costs or might suffer a loss of capital should the secured property prove to be of insufficient value to enable recovery of all principal, interest and costs in the event of the borrower’s default. The complaints relate to a brochure distributed to prospective lenders. [24] The brochure contained “answers to the questions mostly asked by investors”. “First mortgage investment” was said to be “one of the most secure forms of 5 The solicitor also accepted that he had breached R 86 of the Society’s Rules, which relates to the borrowing of clients’ moneys. -- 5 of 8 -- 6 investment available”. Potential lenders were told that they would “generally be lending to a maximum of …70% … of the conservative value of the property”, and that “the valuation is carried out by a recognised Registered Valuer”. The brochure contained such further comforting assurances as that if the borrower made late payments “as your solicitor we commence proceedings to sell the secured property”, and that “once the property is sold, you are repaid your original investment, plus any interest outstanding ... with our expenses … deducted from the remainder of the sale proceeds”. No mention was made of lenders paying costs should the borrower default. Nor did the brochure canvass the risks often associated with such loans. The Society’s justified complaint was that the solicitor, in facilitating distribution of the document, had been more concerned to market a product than to advise his clients prudently. [25] Another charge of failing to maintain reasonable standards of competence or diligence concerned the Sapiecha mortgage: that Mr Delaney had informed his clients that his firm had received a $700,000 valuation and thereby misrepresented to lenders that they were entitled to rely upon that valuation. The representation was inaccurate: although Mr Delaney had such a valuation, the valuer had not provided it for his use or for use by his clients. As the charge described the position, the valuers did not “'assign' the valuation” or otherwise undertake responsibility in respect of it to the solicitor or his clients. [26] This error was also the result of an oversight. Mr Delaney maintained that he had instructed his staff that “assignments of valuation should be obtained” where, as with the Sapiecha transaction, an “acceptable valuation was obtained for other purposes”. The Tribunal was also told that the solicitor was “unaware that an assignment … was not obtained in this case”. Staff were said to have overlooked a standing instruction to see to it that the valuers assumed responsibility to investors for valuations upon which clients were invited to rely. The reason for this failure in the solicitor’s system was not explored. A fourth mistake [27] The last charge also concerned a failure to maintain reasonable standards of competence or diligence. It too related to large loans made on the security of a mortgage over real estate. On this occasion, the default lay in the solicitor’s failure to arrange insurance for the one year duration of the loan. [28] The commendatory brochure mentioned earlier stated that security property was always insured for its replacement value. And the solicitor accepted that he was to arrange for cover in respect of the land in question for the period of the loan: 12 May 1998 to 12 May 1999. In fact, this was not achieved. [29] Shortly before settlement of the advance, the solicitor’s firm wrote to insurance brokers requesting cover for the year, advising that a nominated amount (somewhat more than $1,500) would be retained from settlement moneys to pay the premium. The amount was collected and retained in the firm’s trust account. An epitome of mortgage was prepared in the solicitor’s office which stated that the property was insured under a policy expiring on 8 May 1999. -- 6 of 8 -- 7 [30] The day after a trust cheque account was drawn in favour of the brokers for the arranged premium, the cheque was cancelled. This happened because, some time after settlement, the solicitor’s secretary discovered that her earlier estimates of stamp duty and registration fees were too little. So she used part of the retained money to pay the additional duty and fees. A cheque for about $800 for cover until 3 November 1998 was sent to the brokers with a letter that recorded an understanding that the “balance payment would be due in November 1998”, and which looked “forward to receiving a reminder at that time”. The brokers did send a reminder notice. Unfortunately, it was despatched to the mortgagor, who failed to pay the premium to extend the cover until May 1999. So the property was not insured for the second half of the term. [31] The solicitor was unaware that insurance cover had not been arranged for the whole year. The deficiency, he told the Tribunal, was not brought to his attention. This, he implied, was abnormal; it was, he claimed, standard office procedure for staff to confer with him “in relation to any problems whatsoever”. Protection of the public [32] A point that assumed significance in the submissions for the Attorney-General is the absence of explanations for the solicitor’s omissions to check that his secretary had (i) complied with his instructions to send the lenders’ contact details to Proctor Kehoe; and (ii) seen to it that the secured asset mentioned in the last charge was appropriately insured. Without satisfactory explanations, it is said, the Tribunal should not have concluded (as implicitly it must have done) that the solicitor was a fit and proper person to remain upon the roll. [33] Sometimes a failure to explain unsatisfactory supervision might, for example, suggest unsuitability to practise as a principal or in partnership.6 In particularly bad cases7 posing unacceptable risks to the interests of clients or the public, removal from the roll might be required. This is not such a case. The complexion put upon the oversights by the Society did not suggest grave or persistent incompetence or otherwise indicate that the protection of the public called for removal from the roll. The Society did not suggest, nor did the charges or the pertinent facts demonstrate,8 that the omissions were but particular incidents of generally bad practice management. [34] Apart from attaching significance to the absence of explanations for the acknowledged supervision adequacies, the submissions for the Attorney-General were principally directed to the seriousness of the conduct, including a potential to cause clients financial loss.9 The argument emphasizes the brochure’s potential to mislead prospective lenders into underestimating the nature and extent of the risks 6 cf. The Tribunal’s power under s 6R(1) to suspend from practice “with or without conditions”. 7 For example, habitual neglect of supervisory responsibilities, or serious systemic inadequacies in practice management. 8 The Tribunal could have indicated a desire to consider whether the omissions truly bore the character suggested: that is to say, unusual events in the administration of the solicitor’s practice. But in this case the Tribunal did not err in declining to tell the solicitor that it might be disposed to draw adverse inferences concerning his fitness to practice in the absence of material from him tending affirmatively to establish that the omissions were not the result of often desultory staff supervision. 9 At least three client investors did lose money on the Sapiecha loans. -- 7 of 8 -- 8 inherent in the lendings proposed, the implied misrepresentation that valuers had consented to assume responsibility to the lenders for the valuation, and the absence of insurance for the latter period of the loan mentioned. It was submitted that, all considered, the conduct was so unprofessional as to constitute a serious dereliction of duty, involving a manifest failure to act in the interests of his clients. By concluding that the solicitor was fit to remain upon the roll, the Tribunal, so it is said, failed to give sufficient weight to the gravity of the charges. A manifestly inadequate penalty? [35] The conduct under consideration by the Tribunal was most unsatisfactory. But, as the facts emerged, no moral turpitude was involved. And there are considerations indicating that a substantial fine was not outside the range of acceptable responses to the proved departures from the standards ordinarily to be expected of a solicitor. [36] The solicitor had practised for almost 30 years without a complaint about him to the Society. References from clients and practitioners spoke highly of him. He was remorseful. And his contrition was evidenced by an undertaking to the Tribunal, if he were to be permitted to continue to practise, not to engage in contributory mortgage work again.10 [37] In deciding that a fine11 was sufficient, the Tribunal recorded it had considered the undertaking, as well as the solicitor’s “long and unblemished record, his co- operation with the Society in its investigations” and “his apology to the profession”. In all the circumstances, that view was reasonably open, and this Court’s interference is not warranted.12 [38] The appeal should be dismissed with costs to be assessed. 10 The solicitor, who had guaranteed repayment of the XL borrowings, unconditionally undertook to the Tribunal that interest would continue to be paid to the lenders, and that they would be repaid their principal. Other undertakings, which it is not necessary to discuss, were also given with respect to contributory mortgage transactions. 11 No point is made about the fact that the one aggregate penalty was imposed for the four charges. 12 cf Attorney-General and Minister for Justice v Gregory [1998] QCA 409, 4 December 1998 per White J at par 13. -- 8 of 8 --