PROFESSIONAL LIABILITY AND RESPONSIBILITY
DEALING WITH CLIENTS:
WHAT ARE THE LIMITS?
FUNDAMENTAL CONCEPTS AND ILLUSTRATIVE EXAMPLES
VIRGINIA SHIRVINGTON B.A., LL.B. (SYD)
SENIOR ETHICS SOLICITOR
LAW SOCIETY OF NEW SOUTH WALES
February 2001
Turning a Blind Eye: Professional Liability and Responsibility: Dealing
with Clients
Turning a blind eye to fraudulent activities often occurs through ignorance or
unsuccessful attempts to balance the various duties which the lawyer owes either
because it is too difficult or it conflicts too much with commercial realities.
This paper explores solicitors’ participation in fraudulent activities, assisting
a
client’s or a third party’s fraudulent activities, reporting serious offences including a
discussion of Section 316 of the Crimes Act in the context of the duty of
confidentiality to the client and preventing serious offences.
Professional responsibility involves recognising how to balance the various duties
owed by lawyers: to the administration of justice, to the Court of which practitioners
are officers, to the client, to the public and to the profession.
Professional liability arises from dereliction of any of those duties and may lead to
the possible consequences of being complained about, being subject to disciplinary
action and/or being sued at law by a client or another party.
The problems inherent in the issues referred to above reflect the problem in trying
too hard to look after the client’s interests. Many complaints and actions against
practitioners arise because the opposite has occurred. In the cases we are dealing
with generally the client would not be complaining because the solicitor did
something improper but, it is not entirely unheard of for the client to complain
because the solicitor has
not
done something improper.
What is “fraudulent activity” for the purposes of this paper, how a lawyer might be
described as participating in it, the consequences and what happens where you find
out after the event a client has participated in a fraudulent activity are issues to be
explored in this paper
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The Honourable Profession
“The law should protect the rights and freedoms of members of the community. The
administration of the law should be just.
The lawyer practises law as an officer of the Court. The lawyer’s role is both to uphold
the rule of law and serve the community in the administration of justice.”
These are the opening words of the Statement of Ethics proclaimed by the Council of
the Law Society of New South Wales on 20 November 1994.
Much earlier, Isaacs J made the following statement
in
Incorporated Law Institute of
New South Wales -v- R D Meagher
(1909) 9 CLR 655 at 681
which is important in
understanding the role of the lawyer in society:
“... there is therefore a serious responsibility on the court – a duty to itself, to the rest
of the profession, to it suitors, and to the whole of the community to be careful not to
accredit any person as worthy of public confidence who cannot satisfactorily establish
his right to that credential.”
These comments are mirrored by the later comments of Kirby P speaking of the
barrister’s duty of candour to the courts in
New South Wales Bar Association -v-
Thomas
(No 2) (1989) 18NSWLR 193
, a matter involving a failure of counsel to
disclose during criminal proceedings how certain statements had been obtained.
Kirby P said at p204:
“The rank of barrister is one of status. With it go obligations which cannot be shaken
off or forgotten simply because the holder of the office has not been practising in the
daily work of a barrister. If a person does not wish to assume the obligations to the
Court of the barrister, that person should not seek admission by the Court as such.
Once admitted, the additional duties of invariable candour as well as honesty to a
Court prevail.”
Solicitors, like all members of the community are subject to the law: statute law and
the common law. However, the legal profession is in a different position in a two
fold way: a breach of the law might bring professional as well as legal sanctions but
also, members of the legal profession may be excused from complying with the law
as ordinary members of the community must where that is for the proper protection
of the client eg where legal professional privilege/client legal privilege applies. This
often raises vexed issues and requires lawyers to walk a fine line.
There are many ways in which acting in accordance with the client’s wishes, and
therefore on the face of it in accordance with the client’s interests, will interfere with
the due administration of justice referred to by Lord Reid.
As well as being subject to the general law, solicitors as members of the profession
are subject to:
•
The Legal Profession Act, 1987
“An Act to regulate the admission and practice
of barristers and solicitors” (“the Act”)
•
The Revised Professional Conduct & Practice Rules
made by the Council of the
Law Society of New South Wales on 24 August 1995 pursuant to its power
under Section 57B of
the Legal Profession Act, 1987
(“the Rules”)
•
The
Statement of Ethics
proclaimed by the Law Society of New South Wales in
November 1994, a copy of which is reproduced at the end of this paper
There is a significant body of Common Law authority in relation to the professional
obligations of solicitors.
The Law Society’s Role: The Ethics Section and the Ethics Committee
Ethical dilemmas constantly arise for the profession in dealing with the conflicts
between the various duties owed by solicitors. The Ethics Section of the Professional
Standards Department of the Law Society of New South Wales, for which I am
responsible as Senior Ethics Solicitor, receives well over 2,000 Ethics enquiries per
year. Many of these relate to problems concerning confidentiality. On average one
enquiry per week will be categorised as “Assisting fraudulent activity” and many
others will involve activity which might be described as misleading a client,
misleading the court, misleading another practitioner or misleading a third party.
Therefore, the issue of turning a blind eye in the context of legal practice and bearing
in mind the lawyer’s professional responsibility is very much a live issue.
The functions of the Ethics Section include recognising, considering and acting upon
policy issues involving ethical principles affecting solicitors in New South Wales;
resolution of disputes involving ethical issues; complaint prevention and education.
The Ethics Committee which is a Committee of the Council of the Law Society of
New South Wales basically oversees the work of the Ethics Section and matters
which are particularly contentious or involve policy are referred to the Ethics
Committee. The matters referred from the Ethics Section to the Ethics Committee
comprise a small proportion of the Ethics Section’s work.
Engaging in Personal Illegal Activity
Clearly it is professionally improper to break the law in a personal sense. Section
127(1)(b) of the Act defines professional misconduct as including
“conduct (whether
consisting of an act or omission) occurring otherwise than in connection with the practice of
law which, if established, would justify a finding that a legal practitioner is not of good fame
and character or is not a fit and proper person to remain on the roll of legal practitioners”.
Examples of matters where solicitors’ names have been struck off the Roll of
Solicitors following criminal convictions are:
•
Boland
By order of the Administrative Decisions Tribunal (Legal Services Division) on 22
December 2000 the name of B J Boland was ordered to be removed from the Roll of
Legal Practitioners. He had been convicted of the charge of fraudulent
misappropriation under Section 178A of the Crimes Act, 1900.
•
Hampton
On 19 January 2001 the ADT (LSD) ordered that the name of M J Hampton be
removed from the Roll of Legal Practitioners in New South Wales. He had been
convicted at the Downing Centre Local Court on four charges of dishonesty.
•
Pangallo
The Prothonotary of the Supreme Court of New South Wales commenced
proceedings against the solicitor for a declaration that he had been guilty of
professional misconduct and that his name should be removed from the Roll of
Solicitors on the ground of his conviction of having bribed a public officer.
You may have acted just as improperly as committing an illegal act yourself if you
assist a client or another party to do so.
The Solicitor/Client Relationship
The solicitor/client relationship is the basis of professional practice. It is a
relationship which obviously brings rewards but which also carries with it onerous
responsibilities, risks and pressures.
This paper focuses on the real meaning of the duty to the client, its limitations and
where it fits in with the various duties which practitioners owe
The duty to the client is often described as paramount. This obviously means that in
conducting a matter for a client your primary consideration is the client’s best
interests, not those of the opposing party or anyone else including yourself.
However, the duty to the client cannot override the other duties referred to above.
A forceful commentary on the solicitor/client relationship is found in
Tyrrell -v-
Bank of London
(1862) 10HLC26
where at pp 39-40 Lord Westbury said:
“... there is no relation known to society, of the duties of which it is more incumbent
upon a court of justice strictly to require a faithful and honourable observance, than
the relation between solicitor and client.”
In
Rondel -v- Worsley
[1969] 1 AC 191 at 227; [1967] All ER 993 at 998 Lord Reid
put
the duty to the client and to the Court in perspective:
“Every Counsel has a duty to his client fearlessly to raise every issue, advance every
argument and ask every question, however distasteful, which he thinks will help his
client’s case. But, as an officer of the Court concerned in the administration of justice,
he has an overriding duty to the Court, to the standards of his profession, and to the
public, which may and often does lead to a conflict with his client’s wishes or with
what the client thinks are his personal interests. Counsel must not mislead the court,
he must not lend himself to casting aspersions on the other party or witnesses for
which there is no sufficient basis in the information in his possession, he must not
withhold authorities or documents which may tell against his clients but which the
law or the standards of his profession require him to produce.”
The crucial points in the Statement of Ethics and its acknowledgment of the lawyer’s
role of upholding the rule of law and serving the community in the administration
of justice vis-Ã -vis the solicitor/client relationship are that lawyers should:
•
Serve their clients’ interests competently.
•
Communicate clearly with their clients.
•
Keep the affairs of clients confidential, unless otherwise required by the law.
Maintain and defend the rights and liberty of the individual.
•
Avoid any conflict of interest.
Importantly, in terms of the “balancing act” which must be observed in putting the
lawyer’s duties into context, the Statement of Ethics says:
“In fulfilling this role, lawyers are not obliged to serve the client’s interests alone, if
to do so would conflict with the duty which lawyers owe to the Court and to serving
the ends of justice.”
The Rules deal in discrete chapters with: relations with clients; practitioner’s duties
to the Court; relations with other practitioners and relations with third parties.
Section 38H of the Act provides that practice as a solicitor is subject to the Rules.
Section 57D(4) provides that while a breach of the Rules may not necessarily involve
a breach of the Act it may amount to professional misconduct or unsatisfactory
professional conduct.
The chapter on relations with clients deals with acceptance of retainer,
confidentiality, conflict of interest (acting against a former client, acting for more
than one party and avoiding a conflict of interest yourself with the client),
termination of retainer, ownership of client’s documents, receiving a benefit under a
will or other instrument, borrowing transactions and some more practical provisions
relating to file registers etc.
The need for the lawyer to advise the client objectively is reflected in the Advocacy
Rules which are part of Rule 23 of the Rules. Rule A18 under the heading
“Independence
– Avoidance of personal bias” saysA practitioner must not act as the
mere mouthpiece of the client or of the instructingpractitioner and must
exercise the forensic judgments called for uring the case
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independently, after appropriate consideration of the client’s and the instructing
practitioner’s desires where practicable.”
Rule A20 says that:
“A practitioner must not make submissions or express views to a Court on any
material evidence or material issue in the case in terms which convey or appear to
convey the practitioner’s personal opinion on the merits of that evidence or issue.”
The Advocacy Rules touch upon the possible conflicts between a practitioner’s duty
to the client, the Court and to other parties. They demonstrate that while you are the
client’s professional agent and adviser, you play an individual/independent role.
This is particularly important where the client may feel that it is in his or her
interests to take a step which might be illegal or involve the solicitor in a breach of
ethical duties.
It is particularly problematic and increasingly prevalent where a client wishes to
mislead another party to secure a benefit.
Blindly following the client’s instructions is fraught with risk. This may seem trite to
say but observing that in the face of a client exerting significant pressure is not
always as simple as it might seem or should be.
As between the solicitor and the outside world the solicitor almost becomes the alter
ego of the client but as between solicitor and client there obviously must be a
separation of identities.
Street C J in
Law Society of New South Wales -v- Harvey
[1976] 2NSWLR154
said
of the fiduciary nature of a solicitor’s duty to clients:
“An appreciation of that duty depends not upon some technical construction but upon
applying the ordinary concepts of fair dealing between honourable men
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There is a significant body of case law including “disciplinary” judgments in relation
to assisting a client’s fraudulent activity.
Assisting Fraudulent or Improper Activity
The first general point before dealing with this issue is to emphasise that a problem
which can generally be described as
“assisting fraudulent activity”
is not confined to
being a party together with the client or advising a client how to commit fraud but
rather any illegal or improper activity.
“Fraud” by its dictionary definition means
“criminal deception, dishonest artifice or
trick”
and therefore might relate to any form of deception. I am not limiting this
discussion to matters involving what technically might be classed as “fraud” at law.
The second general point is that each situation must be considered according to its
own special set of facts.
Abuse of process/spurious cases
Assisting a client by bringing a spurious case or a case brought to achieve an ulterior
purpose is professional improper and there is an emerging body of case law dealing
with costs orders being made personally against practitioners. A good example of
these is
Levick -v- Deputy Commissioner of Taxation
, a judgment of the Full Court
of the Federal Court of Australia N1466 of 1999 delivered on 23 May 2000 which
summarises earlier authorities. In that case a costs order was made against a solicitor
acting for a debtor who raised unarguable points in a Notice of Opposition filed in
bankruptcy proceedings and the case deals fully with circumstances in which costs
may properly be ordered against a solicitor. The judgment quotes favourably the
following comment of Hill J in the original proceedings from which the appeal was
brought:
“It is not as if these arguments would have originated from the client. They clearly
originated with the lawyers. It is obvious enough that they were intended to delay as
long as possible the making of a sequestration order against Mr Quinn. But it is not
necessary to go that far to justify the making of an order that the solicitor pay the
costs of the Deputy Commissioner on an indemnity basis occasioned by the raising of
these matters. There is, as well, an ethical question which arises where a solicitor or
counsel advised their clients to pursue spurious arguments before the Courts.”
The Full Court quoted the following comment of the Sachs J in
Edwards -v-
Edwards
[1958] P
235
speaking of the jurisdiction to award costs against a solicitor
“No definition or list of classes of improper acts which attract the jurisdiction can, of course,
be made; but they certainly include anything which can be termed an abuse of the process of
the Court and oppressive conduct generally. It is also from the authorities clear, and no
submission to the contrary is made, that unreasonably to initiate or continue an action when
it has no or substantially no chance of success may constitute conduct attracting an exercise
of the above jurisdiction.”
Hill J had said
“the jurisdiction is, I think, one that must be exercised sparingly, having
regard to all the circumstances of a particular case. It is clear enough that a litigant is
entitled to representation to vindicate a particular legal right, or to maintain a legal defence.
Should it turn out that the litigation is decided adversely to the litigant it does not follow that
costs should, in consequence, be ordered against the legal adviser, be he or she a solicitor or a
barrister. Were that the case those seeking to advance legitimate claims, or to pursue
legitimate defences might well be deprived of legal representation and access to justice, in
consequence, would be impeded.n
White Industries (QLD) Pty Limited -v- Flower and Hart
(1998) 156 ALR 169 at
236
, Goldberg J, dealing with abuse of process by bringing or maintaing
proceedings on behalf of a client with no or substantially no prospect of success said:There must be something more namely, carrying on that conduct unreasonably. It inot clear what is encompassed by “unreasonably” initiating or continuing
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proceedings if they have no or substantially no chance of success. It seems to me that
it involves some deliberate or conscious decision taken by reference to circumstances
unrelated to the prospects of success with either a recognition that there is no chance
of success but an intention to use the proceedings for an ulterior purpose or with a
disregard of any proper consideration of the prospects of the success.”
In that case Goldberg J also quoted a decision of the English Court of Appeal in
Ridehalgh -v- Horsefield
[1994] Ch. 205:
“It is, however, one thing for a legal representative to present, on instructions, a case
which he regards as bound to fail; it is quite another to lend his assistance to
proceedings which are an abuse of the process of the Court. Whether instructed or not,
a legal representative is not entitled to use litigious procedures for purposes for which
they were not intended, as by issuing or pursuing proceedings for reasons
unconnected with success in the litigation or pursuing a case known to be dishonest,
nor is he entitled to evade rules intended to safeguard the interests of justice, as by
knowingly failing to make full disclosure on ex parte application or knowingly
conniving at incomplete disclosure of documents. It is not entirely easy to distinguish
by definition between the hopeless case and the case which amounts to an abuse of
process, but in practice it is not hard to say which is which and if there is doubt the
legal representative is entitled to the benefit of it.”
The conclusion which the Full Court reached in
Levick
was that
“What constitutes
unreasonable conduct must depend upon the circumstances of the case; no comprehensive
definition is possible. In the context of instituting or maintaining a proceeding or defence, we
agree with Goldberg J that unreasonable conduct must be more than acting on behalf of a
client who has little or no prospect of success. ... We agree it was not necessary in the present
case that the lawyers be satisfied that the points
would
succeed; but it was necessary they
be
satisfied there was a rational basis upon which they might succeed.”
In
Anstis and Anstis; and Hill, Doyle & Teague Trading as Turnbull Hill Lawyers
[1999] FamCa 842
(judgment delivered on 3 June 1999) a case in which solicitors
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were joined as respondent with their client following their refusal on behalf of the
wife in a Family Law matter to hand over passports belonging to the husband
Mullane J ordered that the solicitors pay on an indemnity basis a (large) proportion
of the husband’s costs noting that they
“had knowingly engaged in unlawful and
apparently criminal behaviour in withholding the husband’s passports”.
His Honour noted
“The solicitor has a duty to the Court to promote the interests of justice whilst at the same
time attending to the needs of the solicitor’s client.”
Defrauding the Revenue
Defrauding the revenue or at least attempting to defraud the revenue was “flavour
of the month” some years ago. This involved a “side agreement” between a vendor
and purchaser that the purchaser would pay the vendor a sum of money (sometimes
a significant sum of money) over and above the consideration stated in the contract,
thereby reducing the amount which would attract stamp duty.
Alternatively, there might have been an attempt to cloak that sort of transaction in a
veil of disclosure by splitting the contract into property and chattels. In the English
case of
Saunders -v- Edwards
[1987] 2 ALL ER 651
a solicitor assisted a client by
falsely apportioning the consideration between a house and chattels described in a
contract for the sale of land to avoid stamp duty thereby defrauding the revenue.
The solicitor was found guilty of professional misconduct.
Defrauding the Mortgagee
Recently there has been what can be described as a spate of matters involving the
inclusion in contracts for the sale of land of special conditions as to the payment of a
lower figure on settlement within a particular period (usually the normal period
between exchange and settlement) and not really an inducement to settle within a
particular time but perhaps a clumsy attempt to defraud the mortgagee who would
not normally be told of the
special condition.
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Both the solicitors for the vendor and the solicitors for the purchaser might be said
here to be assisting a fraudulent activity although it may be less direct on the part of
the vendor’s solicitor.
Example 1
A solicitor acted for the vendor of a property being sold to the present tenant. On
returning the duly signed contract to the solicitor the vendor informed the solicitor
that although the consideration noted on the contract was $290,000.00 the real
amount she had agreed the purchaser should pay was $203,000.00 which the vendor
described as being to “help [the purchaser] with her bank”. The solicitor formed the
view that she could not continue to act as this would be assisting a fraudulent
activity in that the purchaser’s incoming mortgagee would not be informed of the
true purchase price. Her real problem was whether she should disclose it to the
purchaser’s solicitor should the vendor wish to proceed on that basis. The solicitor
obviously owed a duty of confidentiality to the vendor but not to the purchaser. As
the information the solicitor obtained from her client related to the agreement
between vendor and purchaser it seemed it was appropriate and not prohibited for
the solicitor to inform the purchaser’s solicitor, first notifying her client of her
intention to do so. The solicitor could not, without the client’s instructions, however
inform the purchaser’s solicitor of the precise terms of her conversation with her
client.
Example 2
A solicitor acting for a vendor was confronted with a request from the purchaser’s
solicitor that the contract show a purchase price of $745,000.00 with a special
condition for vendor rebate of $225,000.00. The broker/agent had suggested that a
clause could be inserted in the contract (following concern expressed by the solicitor
and also his client, the vendor) that the vendor could rescind the contract if it were
found that the purchaser had not informed the mortgage of the special condition nor
provided any reason which would indicate that the rebate is ethical. The latter
