SUPREME COURT OF QUEENSLAND CITATION: PARTIES: FILE NO/S: DIVISION: PROCEEDING: ORIGINATING COURT: Jensen v Queensland Law Society Incorporated [2006] QSC 027 PETER JENSEN (applicant) v QUEENSLAND LAW SOCIETY INCORPORATED (respondent) BS134/06 Trial Division Application Supreme Court of Queensland DELIVERED ON: 17 February 2006 DELIVERED AT: Brisbane HEARING DATE: 3 February 2006 JUDGE: ORDER: CATCHWORDS: McMurdo J The application is dismissed. INCORPORATED ASSOCIATION MANAGEMENT AND ADMINISTRATION COMMITTEES MEETINGS MEETINGS OF MEMBERS PROCEDURES AT MEETING where four members of the Executive Committee of the Queensland Law Society passed resolutions without physically meeting where a quorum of three Executive Committee members was required by the Queensland Law Society Rules 1987 whether the Executive Committee held a valid meeting whether it should be declared that resolutions passed by the Executive Committee to suspend the applicant s practising certificate and appoint a receiver were invalid PROFESSIONS AND TRADES LAWYERS ACCOUNTS AND TRUST MONEY STATUTORY PROVISIONS APPOINTMENT OF RECEIVER where a resolution was passed by the Executive Committee of the Queensland Law Society to appoint a receiver of certain property belonging to the applicant whether it should be declared that the appointment of a receiver was invalid whether an account should be taken of all money and other property received by the receiver Queensland Law Society Act 1952 (Qld), s 5A, s5(7) s 11A,
2 s 11A(2A), s 41B Queensland Law Society Rules 1987, r 70, r 71 Legal Profession Act 2004 (Qld), s 522(6) Trade Practices Act 1974 (Cth), s 52 COUNSEL: Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649, discussed Northside Developments Pty Ltd v The Registrar General (1990) 170 CLR 146, discussed R v Byrnes (1996) 20 ACSR 260, discussed Re: Bonellis Telegraph Co, Collie s Claim (1871) LR 12 Eq 246, cited Re: Charles Atkins & Co Ltd [1929] SASR 129, cited The applicant appeared on his own behalf M Martin for the Respondent [1] McMURDO J: The applicant is a former solicitor. In May 2003 he was sentenced to ten years imprisonment for defrauding clients. The respondent, Queensland Law Society Incorporated, has paid in excess of $1.3 million to them from the Legal Practitioners Fidelity Guarantee Fund. In March 2002 it sued the applicant in this court for some of those monies, and on 20 March 2003 it was given judgment in the amount of $589,772.88. [2] The Law Society issued a bankruptcy notice upon that judgment. The applicant applied to set it aside, upon the basis that he had a counterclaim, set off or cross demand. His case was (and is) that the Law Society s suspension of his practising certificate and its appointment of a receiver, in each case on 25 July 2001, were invalid because there had been no proper resolution for either. In that application he claimed that the Law Society had contravened s 52 of the Trade Practices Act 1974 (Cth) by representing that it had duly taken those steps, and that he was entitled to damages for that breach. He further claimed to be entitled to damages, including exemplary damages, for trespass to land, trespass to goods, conversion, deceit and injurious falsehood by the Law Society. And he proposed to seek an order for the taking of an account of all money and other property received by the Law Society in his case. [3] The Federal Magistrate upheld a preliminary point taken by the Law Society, which was that any such counterclaim is one which could have been prosecuted by the applicant in this court, in the action in which the Law Society obtained judgment, and was therefore no answer to a bankruptcy notice based on that judgment. From that decision an appeal to the Federal Court was dismissed on 14 December 2004, and the High Court refused the applicant special leave to appeal on 6 October 2005. But in none of these judgments was it necessary for the merits of the applicant s case to be investigated. [4] The Law Society has applied to the Federal Magistrates Court to bankrupt the applicant. Apparently that application was heard on 24 January 2006 and the applicant says that the decision will be given on 24 February.
3 [5] By this originating application, he seeks certain summary relief, seemingly apprehending that a trustee in bankruptcy would not pursue the causes of action he claims to have. He now seeks a declaration that there was no resolution to suspend his practising certificate or appoint a receiver, together with orders that an account be taken of all money and other property received by the respondent as supposed receiver of the applicant s property and judgment for the balance found due to the applicant on the taking of the account. Within these proceedings there is no claim for damages, either under the Trade Practices Act 1974 or in tort, as he had foreshadowed when applying to set aside his bankruptcy notice. He says that this is due to the need as he sees it to obtain some relief in advance of the imminent decision upon the application to bankrupt him. [6] As I will discuss, his argument that the Law Society s actions were invalid has substance. But its resolution has no utility, at least within these proceedings. That is because the Law Society has already accounted for its receivership, and the applicant raises no matter of substance to doubt that account in any respect or to show any prospect that the Law Society owes him money. [7] On 25 July 2001, the Law Society faxed a letter to the applicant which said that the Executive Committee of the Law Society, at its meeting on (that day) had passed resolutions to suspend his practising certificate and to appoint the Society as receiver of his trust property. In fact, there had been no meeting. Each member of the Committee had been sent a summary of the relevant facts and circumstances of the applicant s case and had been asked to send a written response that he agreed or disagreed to these steps. Four members gave a written response agreeing to the steps, and the other member, who was apparently unavailable, did not respond at all. The applicant does not suggest that the circumstances did not justify the urgent suspension of his right to practise or the appointment of a receiver. His case is simply that the Executive Committee had to meet, and it was only by a resolution duly passed at a meeting that it was authorised to do either of these things. [8] The steps were purportedly taken under the then terms of the Queensland Law Society Act 1952 (Qld). Section 41B empowered the council of the Law Society to suspend a practising certificate. Section 11A empowered the council to appoint a receiver of certain property belonging to or held by the relevant practitioner. The property of which a receiver could be appointed was defined by s 11A(2A) as follows: (2A) (a) (b) The property referred to in subsection (2) is moneys in a trust account in any financial institution in the name or firm name of the former practitioner or in the name of the former practitioner s personal representative and, except in the case of a former practitioner who has died, other property, whether moneys or not, including a chose in action, held by the former practitioner in trust for another person; money, including interest, dividends or other income, received by the receiver during a receivership and arising from property held by the receiver pursuant to this section;
4 (c) ledgers, books of account, vouchers, records, deeds, wills, files, and other documents and writings of any description. [9] Any property within paragraph (a) was, by definition, trust property. Speaking generally, that may not have been the case for all property within paragraph (c), and accordingly for all property within paragraph (b). For example, a practitioner s files might have been, in part, his or her own property, so that income in the nature of fees from those files was money which was within (b). As I will discuss, some fees were received but they have been accounted for in this case. But with the exception of any property which is a practitioner s own property within paragraph (c), and money from that property, the subject matter of any receivership under this provision would be property which is beneficially that of someone other than the practitioner. That distinction seems to be overlooked in much of the applicant s argument. The applicant is apparently asking for an account of property which was not his own property but the property of others for whom he was once a trustee. That is a further reason why these proceedings lack utility. [10] In the present case, it was the Executive Committee, not the council, which took the purported steps. By s 5A, the council was authorised to make rules to give effect to the Society s objects, and by s 5(7) such rules could authorise the council to delegate any of its powers to committees. Rule 71 of the Queensland Law Society Rules 1987 provided that the council might appoint committees for such purposes as the council thought fit and might prescribe the quorum of any such committees. Pursuant to that rule the council appointed the Executive Committee, with a prescribed quorum of three members, with authority to exercise amongst others the council s powers to suspend a practising certificate and appoint a receiver. The rules contained little provision for the procedures to be followed by any committee. Rule 70 did provide that minutes of the proceedings of every meeting of the council and the proceedings of any committee thereof should be taken and recorded in a certain way. But neither the Act nor the Rules contained any provision which in terms required the committee to act only by a resolution passed at a meeting. [11] The applicant s case is then that the rules, by necessary implication, required the committee to act only in that way. He argues that the council was required to decide matters at a meeting and that it could not authorise any committee appointed by it to act otherwise. But assuming that the council could then resolve matters only at a meeting, it would not follow that the council s power to delegate to a committee was thereby limited so that the committee would have to exercise the relevant power at a meeting. [12] The question is one of the proper interpretation of r 71, in the context of any other relevant rules and of the Act. Relevant to but not determinative of that question is the common law requirement, if any, for the governing body of a corporation to decide matters only by a meeting of its members. In Northside Developments Pty Ltd v The Registrar General (1990) 170 CLR 146 at 205, Dawson J said that directors can act only collectively as a board and the function of an individual director is to participate in decisions of the board. But as to whether that participation must be in the context of a meeting, and what constitutes a meeting for this purpose, has been the subject of varying opinion. In Re: Bonellis Telegraph
5 Co, Collie s Claim (1871) LR 12 Eq 246 at 259-260, Bacon VC thought that in many circumstances directors could act with a combined wisdom without having to meet. Some other cases to that effect are referred to by Dr Mann in (1991) 9 CSLJ 85 at 88. But the contrary view was expressed in, for example, Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1990) 3 ACSR 649 at 672, Re: Charles Atkins & Co Ltd [1929] SASR 129, 134 and by Olsson J (with whom Bollen and Prior JJ agreed) in R v Byrnes (1996) 20 ACSR 260 at 270-271. Olsson J there said: The concept involved is that matters important enough for board decision ought only to be decided after all directors have been given the opportunity to attend a proposed meeting and to participate in a debate as to the business sought to be conducted. The passing of an ultimate resolution represents the net impact of the considered views of at least a majority of the directors, at a duly convened meeting, in light of all of the opinions and arguments exchanged at the relevant board meeting. When all directors agree to conduct business without a formal notice of meeting, such a situation is merely indicative that there is a consensus of all directors which constitutes a waiver of the need for the usual requirement of notice. Moreover (the situation in that case) is a far cry from even obtaining separate informal approval without the conduct of an actual meeting, a process which is generally invalid. This is, of course, not to deny the capacity of a corporation to include in its articles a provision that a resolution in writing agreed by all directors may be deemed to have been passed as a duly constituted board meeting. To the extent that, absent such a provision, this may still be done, as seems to be suggested by McGarvie J in J W Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd [1985] VR 891, is, with respect, contrary to both authority and principle. [13] Although none of these authorities was cited, the applicant would rely in particular upon those statements in R v Byrne, and argue that there was an implicit requirement that this Executive Committee act collectively so that its decisions represented the net impact of the considered views expressed by its members to one another. And although he did not refer to r 70, the applicant would no doubt wish to rely upon its requirement for minutes to be kept of the proceedings of the committee as a further indication of the requirement for a meeting. [14] To those arguments, it would not be a sufficient answer for the Law Society to say, as it does, that this is the way in which the committee often acted, or that in this case, more than the quorum of three members expressed their approval of these steps. Nor would the question be affected by the terms of the (since enacted) Legal Profession Act 2004 (Qld), and in particular s 522(6) which provides that the council might pass a resolution, if not at a council meeting, by the written agreement of a majority of council members. Nor is it sufficient answer that the Executive Committee resolved subsequently to ratify the purported resolutions of July 2001, as the Committee did at its meeting of 20 February 2003. That ratification would not validate the 2001 resolutions and any step taken pursuant to
6 them but prior to the ratification. But beyond those matters, I did not have the benefit of argument as to why the acts of the Society, as at May 2001, were valid. [15] The present question is not whether according to the common law, company directors must meet (absent a provision in the company s constitution). As I have said, it is a question of the interpretation of this Act and the rules, and specifically whether by implication they limit a committee s delegated authority to actions the subject of a resolution at a meeting. It is not obvious that such an implication should be made, when it is considered that at least one purpose for the process of delegation of powers to this committee must have been to promote expedition in steps to protect the interests of clients and the public. [16] The question then is arguable either way. But in the circumstances of this case, there is no utility in answering it. This is because the declaration is sought as a stepping stone to an order for an account, in circumstances where the Law Society has already accounted, there is no serious prospect of the applicant being entitled to be paid anything and the receivership was valid at least from February 2003. [17] On October 2004, Mr Forster, an accountant employed by the Law Society, swore an affidavit in the bankruptcy proceedings which summarised the state of the receivership and details such of the property received as might be considered to be that of the applicant as distinct from his clients. The truth of that evidence is again sworn to by Mr Forster in his affidavit in this application. I accept the evidence, seeing no reason to doubt it in any respect. [18] According to that evidence, in the period from 14 September 2001 to about 23 October 2003, former clients of the applicant made claims against the Fidelity Guarantee Fund for monies which they had paid to the applicant s trust account but which he had applied to his own use or the use of someone else, other than the relevant client, in amounts which total $1,355,809.22. In response, the sum of $1,317,126.22 was paid out of the fund. That included $519,772.88, which was the amount paid out to clients at the time of the commencement of the Law Society s proceedings against Mr Jensen on 14 March 2002. It was for that amount, together with interest of $70,000, that judgment was given. [19] The Law Society received $29,351.25 in October 2001 and $1,099.56 in August 2001 for professional fees to the applicant. Those funds were paid to the practitioner s trust account. Other monies were also credited to that trust account by the Society as receiver, being in respective amounts of $5,525.48, $109,867.94, $1,192.00 and $400.00. The Society has not been able to obtain any information about those payments. Because of the debit balance otherwise in the trust account ($115,034.64) and the statutory deposit account ($1,500), these credits to the trust account have resulted in an overall credit balance of but $30,901.59. Then there have been some further payments, totalling $1,634.49, received by the Society in relation to real property which it considers to be trust property. Therefore, there is an amount of about $32,000 representing the credit balance of the trust account. But because of its payments from the fund, the Law Society is subrogated to the rights and remedies of the former clients against the applicant to the extent of more
7 than $1.3 million dollars. Even assuming then that the applicant was entitled to the credit balance in the trust account, because it represents his professional fees and other amounts which were in some way his own property, his overall position is that he still owes the Law Society something approaching $1.3 million. [20] An affidavit of Mr Hughes, another accountant employed by the Society, was tendered to the Federal Magistrate in response to a document signed by Mr Jensen on 10 August 2004. Mr Jensen there asserted that he had been owed about $100,000 by a certain person for money lent since 1994 and another amount of $500,000 by certain others to whom he had lent over the same period. In his affidavit responding to this, Mr Hughes pointed out that the property over which the Law Society was the receiver was trust property, so that it was not its responsibility to call up any debts owing to the applicant in his personal capacity. Mr Hughes says that these debts (if they existed) were not demanded and there was no receipt by the Society of any amount attributable to them. In his statement the applicant had referred also to a house property at Hope Island which he owned and which was occupied by tenants. He complained that the Society did not account to him for rent which he suggests the Society must have received, and that in consequence the mortgagee had exercised its power of sale. In response, Mr Hughes said, by reference to a contemporaneous document, that the rent was forwarded by the letting agent directly to the mortgagee at its request so that the Law Society received none of it. Again, Mr Hughes has confirmed the accuracy of what he there said by an affidavit in this proceeding and I do not understand the applicant to challenge it. Apart from what I have mentioned, there is no evidence suggesting that any property beneficially belonging to the applicant has not been accounted for. And as discussed, Mr Forster has identified anything received by the Society which could have been his. [21] There is no substantial basis then for querying the accounting which the Society has already given of its receivership. And giving credit for everything which it has received which is or might be the applicant s own property, it remains the case that it is the applicant which is the debtor, and in a large amount. [22] As I have mentioned, the present proceedings do not seek any relief in the nature of damages. There would be many difficulties for the applicant in such claims, not the least being in showing that he was worse off by the cessation of a legal practice which both he, in a belated discharge of his fiduciary duty to his clients, and in any case the Society, should have terminated in the circumstances which he had created. [23] If and when a tenable damages claim is made, the question for which he seeks a declaration would have to be decided. But within these proceedings the relief which is sought has no utility and the application will be dismissed. [24] I shall hear the parties as to costs.