Queensland Law Society

Solicitors Regulation Authority v Barca (Solicitors Disciplinary Tribunal, Chairman JP Davies, 27 February 2019)

Solicitors Regulation Authority v Barca (Solicitors Disciplinary Tribunal, Chairman JP Davies, 27 February 2019)

Catchwords

Conflict of interest between solicitor and client – professional independence – exploitation of client – lending money to client.

Executive summary

Mr B (‘the respondent’) loaned money to his client, Mrs J, secured by a legal charge over her property and at an annual interest rate of 60%. Mrs J defaulted on the loan repayments, leading the respondent to repossess her property and sell it for a substantial profit. During an investigation into the matter it became apparent that the respondent had claimed in a witness statement that he had not acted for Mrs J in any capacity when he had provided her with the loan.

In a separate matter, the respondent represented another client, Mr K, in litigation without the client’s knowledge of the representation.

The Solicitors Regulation Authority (‘SRA’) subsequently bought proceedings against the respondent, alleging that he acted in conflict of his client’s interests and his own, that he made a misleading claim in a witness statement, and that he acted on the instructions of a third party without confirming those instructions with the client.

The respondent admitted all the allegations and the Tribunal found all allegations had been proven beyond reasonable doubt. Subsequently, the Tribunal concluded that a fine was the appropriate sanction under the circumstances.

Background

Following receipt of a complaint alleging a conflict of interest between the respondent and his client, Mrs J, the SRA carried out an investigation into the respondent’s conduct. An investigation report revealed that the respondent loaned his client a substantial sum of money through his company at a time when he was also defending her in possession proceedings brought by her mortgage lender. The terms of the loan were onerous, at an annual interest rate of 60%, secured by a legal charge over Mrs J’s property. The respondent failed to ensure the Mrs J took independent legal advice in respect of the loan.

Mrs J defaulted on the loan repayments and the respondent repossessed her house as mortgagee in possession. The respondent then sold Mrs J’s house, making a substantial profit on the sale. During the investigation it became apparent that the respondent had claimed in a witness statement that he had not acted for Mrs J in any capacity when he had provided her with the loan.

A second complaint was made against the respondent alleging that the respondent had acted for a client, Mr K, in litigation without his knowledge. The respondent’s representation of Mr K led to a judgment against him and a Charging Order on his house. Only after judgment did Mr K discover the respondent had acted for him. The respondent had taken instructions in respect of the litigation from Mrs P, the respondent’s sister.

The SRA subsequently brought proceedings against the respondent, alleging that:

  1. the respondent acted in conflict of his own interests and that of his client, Mrs J, in circumstances where he loaned his client a substantial sum of money through his own company, at an annual interest rate of 60%, secured by a legal charge over the client’s property. Consequently, the respondent was in breach of Principles 2,[1] 3 [2] and 6[3] of the Solicitors Regulation Authority Code of Conduct 2011 (‘SRA Code’), and Outcome 3.4;[4]
  2. the respondent made a misleading claim in a witness statement which was served in litigation Consequently the respondent acted in breach of Principles 1[5] and 6[6] of the SRA Code; and

the respondent acted on behalf of Mr K in litigation on the instructions of a third party without ever confirming those instructions with Mr K. Consequently the respondent was in breach of Principles 4[7] and 5[8] of the SRA Code.

The respondent admitted all the allegations.

Issues

Were the allegations against the respondent proven beyond reasonable doubt?

What was the appropriate sanction to order under the circumstances?

Issues considered

Proof beyond reasonable doubt

With respect to the first allegation, the Tribunal made a number of findings, ultimately concluding that the allegation had been proven on the respondent’s admission and on the evidence provided.[9]

First, in loaning money at a high rate of interest to Mrs J when she was vulnerable, and in failing to ensure she obtained independent legal advice, the respondent had taken advantage of his client’s financial situation and used it to his own benefit. Subsequently, the Tribunal was satisfied that the respondent had failed to act with integrity and had thereby breached Principle 2 of the SRA Code.[10]

Second, in charging a high rate of interest on the loan, secured against Mrs J’s home, with the knowledge that he would be able to take possession proceedings to recover his funds if necessary, the respondent had acted in his personal interest. Subsequently, the Tribunal was satisfied that the respondent had allowed his independence to be compromised, and had thereby breached Principle 3 of the SRA Code.[11]

Third, as it was not in the interests of Mrs J to take out the loan on the relevant terms, but was in the interest of the respondent, there was a conflict of interest. Subsequently, the Tribunal was satisfied that the respondent had acted where there was a clear conflict of interests between Mrs J and his own, thereby breaching Outcome 3.4 of the SRA Code.

Finally, as the public can expect a solicitor not to act where there is a conflict of interest, and certainly not where a solicitor benefits financially to the detriment of the client, it was held that the respondent’s conduct did not maintain, and was likely to diminish, the public trust and confidence in the legal profession. Subsequently, the Tribunal was satisfied that the respondent breached Principle 6 of the SRA Code.[12]

With respect to the second allegation, the Tribunal found that the allegation had been proven on the respondent’s admission and on the evidence provided.[13] The Tribunal was satisfied that the respondent, in making a misleading claim in a witness statement sent to the Court, had failed to uphold the rule of law and the proper administration of justice. Subsequently, the respondent breached Principle 1 of the SRA Code.[14] Further, as members of the public would expect a solicitor to make accurate statements, particularly during the course of litigation, the respondent’s failure to do so diminishes the public’s confidence in the respondent’s provision of legal services, and breaches Principle 6 of the SRA Code.[15]

With respect to the third allegation, the Tribunal found that the allegation had been proven on the respondent’s admission and on the evidence provided.[16] In taking instructions from Mrs P without consulting or confirming those instructions with Mr K, and by filing a witness statement on behalf of Mr K without checking the content of that statement with him, the Tribunal found that the respondent had not acted in the best interests of Mr K and had failed to provide him with a proper standard of service. Subsequently, the Tribunal was satisfied that the respondent was in breach of Principles 4 and 5 of the SRA Code.[17]

Sanction

With respect to determining the appropriate sanction to be ordered, the Tribunal first considered the respondent’s culpability.

In relation to the first allegation, the Tribunal noted that although the respondent’s conduct was motivated by helping Mrs J to retain possession of her property, he also had a strong financial motivation for providing her with the loan. The Tribunal was satisfied that the respondent’s conduct was not planned, however, as the respondent was an experienced practitioner at the time the events took place, he should have known better. Subsequently, the Tribunal found the respondent’s culpability to be high.[18]

In relation to the second allegation, the Tribunal noted that the respondent had not acted deliberately in making a misleading claim in the witness statement. Rather, the respondent’s conduct was spontaneous and careless. Subsequently, the Tribunal found the respondent’s culpability to be low.[19]

In relation to the third allegation, the Tribunal noted that the respondent had genuinely believed that Mrs P had been authorised to give him instructions on behalf of Mr K, however, he did have control over the circumstances in that he should have contacted Mr K direct. Again, the Tribunal noted that the respondent was an experienced practitioner at the time and should have known that it was not acceptable to take instructions from a third-party without any direct instructions from the client. Subsequently, the Tribunal found the respondents culpability to be high.[20]

Second, the Tribunal considered the harm caused by the respondent’s actions.

With respect to the first allegation, the Tribunal concluded that while Mrs J gained an immediate short-term benefit with respect to the loan, her overall and ongoing financial situation worsened. Subsequently, the Tribunal found that the level of harm caused was high.[21]

With respect to the second allegation, the Tribunal conclude that the respondent had caused harm, as the other party in the proceedings had incurred costs as a result of the respondent’s misleading information.[22]

With respect to the third allegation, the Tribunal concluded that the respondent had also caused harm to Mr K by dealing with the litigation against him without taking instructions directly from him.[23]

Ultimately, the Tribunal conclude that the respondent’s conduct was too serious for either no order or a reprimand. However, the Tribunal was satisfied that the respondent was not a risk to the public, and therefore it was not necessary to interfere with his ability to practice. The Tribunal concluded that a fine of £20,000 and payment of costs of £26,000 was the appropriate sanction in the case and would reflect the seriousness of the misconduct and maintain public confidence in the profession.[24]

Liam O'Shaughnessy

Ethics Clerk

As approved by Stafford Shepherd, Director, QLS Ethics and Practice Centre



[1] Equivalent to Rule 4.1.4 of the Australian Solicitors Conduct Rules 2012 (‘ASCR’).

[2] Equivalent to Rule 4.1.4 of the ASCR.

[3] Equivalent to Rule 5.1 of the ASCR.

[4] Equivalent to Rule 12.1 of the ASCR.

[5] Equivalent to Rule 3 of the ASCR.

[6] Equivalent to Rule 5.1 of the ASCR.

[7] Equivalent to Rule 4.1.1 of the ASCR

[8] Equivalent to Rule 4.1.3 of the ASCR.

[9] Solicitors Regulation Authority v Barca (Solicitors Disciplinary Tribunal, Mr JP Davies, 27 February 2019) 12 [85.1].

[10] Ibid 12-13 [85.2].

[11] Ibid 13 [85.3].

[12] Ibid [85.5].

[13] Ibid 14 [86.1].

[14] Ibid [86.2].

[15] Ibid.

[16] Ibid [87.1].

[17] Ibid [87.2].

[18] Ibid 17-18 [106]-[107].

[19] Ibid 18 [108].

[20] Ibid [109].

[21] Ibid [110].

[22] Ibid [111].

[23] Ibid.

[24] Ibid 20 [118].