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High Court of Ireland Decisions |
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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Incorporated Law Society of Ireland v. Owens & Ors [1989] IEHC 46 (11 January 1989) URL: http://www.bailii.org/ie/cases/IEHC/1989/46.html Cite as: [1989] IEHC 46 |
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BETWEEN:
Plaintiff
Defendants
Judgment of the President of the High Court delivered on the 11th day of January 1989.
On the 21st day of November 1988 the Plaintiff herein, the Incorporated Law Society of Ireland (hereinafter referred to as "The Law Society") caused to be issued a plenary summons against the Defendants herein in which "The Law Society" sought, inter alia;
(a) A declaration that the sum of £30,874 being portion of the sum of 13l,672.47 paid to the first-named Defendant by the second named Defendant on the 17th day of October 1988 in purported discharge of a judgment of the High Court dated the 27th day of July 1988 in proceedings entitled James Reilly (otherwise O'Reilly) and Edward J. Duffy practising under the style and title of Edward J. Duffy and Company is and was wrongfully paid from monies held by the second-named Defendant on trust for other clients.
(b) An injunction restraining the first-named Defendant, his servants or agents from parting with or in any other manner from dealing in or disposing of the said sum of £30, 874.00 either in whole or in part or from allowing such monies be removed from his control or possession pending further order of this Honourable Court.
(c) A mandatory injunction requiring the first-named Defendant to lodge the said sum of E30,874.00 aforesaid in the designated client account of the second-named Defendant, Account Number 30008548 being No. 2 client account of the practice of Edward J. Duffy and Company at the Bank of Ireland situate at Kingscourt in the County of Cavan.
(d) Further or in the alternative a mandatory injunction directing the first-named Defendant to lodge the said sum of £30, 874.00 in Court pending the hearing of the action."
On the said 21st day of November 1988, Counsel on behalf of "The Law Society" applied to this Honourable Court for and obtained an order restraining the first-named Defendant, his servants or agents from parting with or in any other manner from dealing in or disposing of the said sum of £30,874.00 until after Monday, the 28th day of November 1988 or until further order.
The said application was grounded on the affidavit of Mary Devereux, a Chartered Accountant employed by "The Law Society", sworn on the 18th day of November 1988 and the affidavit of Anna Hegarty, a Solicitor employed by "The Law Society" sworn on the 21st day of November 1988.
By Notice of Motion issued on the 22nd day of November 1988 and made returnable for hearing on Monday, the 28th day of November 1988, "The Law Society" sought inter alia:
(a) "An injunction restraining the first-named Defendant, his servants or agents from parting with or in any other manner from dealing in or disposing of the sum of £30, 874.00 being portion of the sum of £31, 672 .47 paid to the first-named Defendant by the second-named Defendant on the 17th day of October 1988 in purported discharge of a judgment of the High Court dated the 27th day of July 1988 in proceedings entitled James Reilly (otherwise O'Reilly) and Edward Duffy practising under the style and title of Edward J. Duffy and Company either in whole or in part or from allowing such monies to be removed from his control or possession pending further order of this Honorable Court.
(b) Further or in the alternative a mandatory injunction directing the first-named Defendant to lodge the said sum of £30, 874.00 in Court pending the hearing of the action."
The said summons and Notice of Motion was duly served on each of the Defendants.
On the 28th day of November 1988, an affidavit sworn by the first-named Defendant on the 25th day of November 1988 was filed on his behalf he undertaking not to part with the said monies the matter was adjourned. An affidavit sworn by the third-named Defendant on the 30th day of November 1988 was filed in the High Court on the 2nd day of December 1988.
When the Plaintiff's application came for hearing it was agreed between the parties that the hearing of the application would be treated as the hearing of the action as the relevant facts were not in dispute.
The second-named Defendant alleged that monies had been paid by him to the third-named Defendant and that credit had not been given in respect of such payments. It was agreed that this aspect of the matter would be investigated at a later stage.
The Facts
The following facts appear from the affidavits filed in this matter: -
(1) At all times material hereto the second-named Defendant was a solicitor practising under the style or title of Edward J. Duffy and Company at Virginia, Kings court in the County of Cavan.
(2) By order of the High Court made on the 27th day of July 1987 in proceedings entitled:-
"In the matter of the Attornies and Solicitors Act, 1870 Between:
James Reilly (otherwise O'Reilly)
Plaintiff
and
Edward J. Duffy practising under the
style and title of Edward J. Duffy and Company
Defendant"
it was ordered that the Defendant therein named, being the second-named Defendant herein,
"1. Do forthwith deliver up to the Plaintiff all deeds, documents,'' papers, correspondence, attendances, pleadings and papers of any description in his possession or in his control or power relating to the Plaintiff's affairs and in particular to
(a) the sale in 1978 by the Plaintiff to Bernard Campbell of the lands of the Plaintiff at Lisnaclay, Co. Cavan.
(b) Proceedings taken by the Plaintiff against the said Bernard Campbell resulting from the failure of the said Bernard Campbell to pay the full purchase price for the said lands.
(c) Proceedings taken by the Plaintiff against Denis Farrelly, Auctioneer, Main Street, Kingscourt, Co. Cavan.
(d) The purchase by the Plaintiff of lands and premises situate in the town of Kingscourt, Co. Cavan.
2. Do forthwith give a full and detailed cash account to the Plaintiff in relation to monies received by the Defendant on behalf of the Plaintiff in relation to the said sale.
3. Do forthwith pay to the Plaintiff the sum of £19,000.00 together with interest representing the balance of the said monies received by the Defendant on behalf of the Plaintiff in relation to the said sale.
4. Do forthwith deliver up to the Plaintiff the bank deposit book relating to the bank deposit account opened by the Defendant with the Northern Bank of Kingscourt with the monies received by the Defendant on behalf of the Plaintiff in relation to the said sale.
5. Do forthwith pay to the Plaintiff the sum of £6,000.00 representing the balance of the monies due in respect of the sale in 1978 of stock and cattle on the Plaintiff's premises at Lisnaclay, Cabra, Kingscourt, Co. Cavan.
And it is ordered that the Plaintiff do recover against the Defendant his costs of these proceedings when taxed and ascertained. "
(3) On the 31st day of May 1988 a certificate of taxation in respect of the costs awarded by the aforesaid order was issued.
(4) On the 12th day of October 1988, a fi.fa. of the High Court was lodged with the first-named Defendant in his capacity as County Registrar for the County of Cavan, by Messrs. McEntee & O'Doherty, Solicitors for the Plaintiff in the proceedings referred to herein and the third-named Defendant in the above entitled proceedings together with a certificate of sum due demanding execution for the sum of £26,696.06 together with interest as set out in the said fi. fa. The said fi. fa. was dated the 30th day of September 1988.
(5) At the time of the lodgment of the said fi.fa. the first-named Defendant was acquainted with the execution creditor of the second-named Defendant and was aware that over a number of years there were difficulties in the practice of the second-named Defendant and that he had been before the Law Society on a number of occasions and also before the President of the High Court.
(6) The first-named Defendant decided to execute the said fi.fa. against the second-named Defendant on the 17th day of October 1988 but prior to doing so he did on the 14th day of October 1988 inform the Director General of "The Law Society" that he had a fi.fa. against the second-named Defendant and that he intended executing it on Monday, the 17th day of October 1988.
(7) In his affidavit, the first-named Defendant stated that his reason for so doing was that he considered that in a case where he was levying execution against a solicitor it would be proper to inform "The Law Society" because he would be putting the Court messenger, his assistants and bailiffs into an office which would contain, apart from goods and chattels, the confidential files of clients.
The Director General of the Law Society raised no objection to the proposed action by the first-named Defendant.
(8) And on the 17th day of October 1988, the first-named Defendant by signed warrant appointed Mr. Paul Comiskey and others named in the said warrant to execute the said fi.fa.
(9) On that date, Mr. Paul Comiskey, Court Messenger put the Assistant Court Messenger and bailiffs into the possession of the goods and chattels in the house and family home of the second-named Defendant at Virginia in the County of Cavan, the solicitor's office at Kingscourt in the County of Cavan.
(10) The said Court Messenger then reported to the first-named Defendant by telephone that he had carried out his instructions and arrangements were to be made for the removal of any seizable goods and chattels in any of the three premises.
(11) At approximately 11.30 a. m. on the said date, the second-named Defendant telephoned the office of the first-named Defendant and asked for a couple of days grace so that he could raise the money. He was informed that the first-named was not in a position to withdraw from possession of goods and chattels once he had gone into possession of such goods and chattels in due course of levying execution except on the instructions of the solicitors for the execution creditor.
(12) Shortly afternoon on the same date, the Court Messenger informed the first-named Defendant that the second-named Defendant was making arrangements to pay the money.
(13) Shortly before 12.30 on that date the second-named Defendant went to the Bank of Ireland in Kingscourt and obtained in the said Bank a draft for the sum of E30,874.47 and paid to Mr. Paul Comiskey, the Court Messenger a total sum of £31,672.47 which was made up of £30,874.47 being the said bank draft drawn on the Bank of Ireland in Kingscourt and the sum of 1798.00 cash.
(14) The Bank Draft was drawn on the Bank of Ireland, Kingscourt, County Cavan and was payable to Mr. Thomas P. Owens, the first-named Defendant herein.
(15) On receipt of the monies, the first-named Defendant paid the sum of £790.19 being in respect of various expenses incurred in the course of the seizure and transferred a sum of £758.18 being fees to be remitted to the Department of Justice. He then wrote a cheque in favour of the solicitors for the execution creditor in the sum of £30,124.10 but did not post same because he states that "the present practise since the passing of the Bankruptcy Act, 1988 is to retain all cheques for 21 days in order to avoid any liability to the Official Assignee in the event of the execution debtor being adjudicated a bankrupt".
(16) In his affidavit, the first-named Defendant avers that:-
"I was aware during this period that efforts were being made by the second-named Defendant to dispose of his practice and I was conscious at all times that the bank draft and monies given to me might have been monies or part of '' monies held by the second-named Defendant on behalf of his clients. On the day the bank draft was offered but before it was given I consulted with my present solicitors and after consultation I took the view that if I was offered a bank draft or cash it was not open to me to enquire into the origin of the money. It further appeared to me that once the amount of my demand was tendered to me I had to accept the money and withdraw, otherwise I would have been a trespasser."
(17) The first-named Defendant still retains possession of the said monies subject to the order of this Court.
(18) Payment for the said draft No. 12880 in favour of the first-named Defendant was made to the Bank of Ireland, Kingscourt in the County of Cavan by cheque No. 1127 in the amount of B0,874.00 drawn on the client account of the second-named Defendant on the 17th day of October 1988 with the sum of 47p in cash.
(19) There was a minimum deficit on the client account of the second-named Defendant's solicitors practice in the sum of £106,666.61 as at the 31st October 1988 and the ledger account of one Reverend Peter Connolly, deceased, was debited with a cheque in the sum of £30, 872.47 in late October 1988.
On the basis of these facts, I am satisfied that the second-named Defendant was indebted to the third-named Defendant in the sum of £30,124.10 by virtue of the terms of the order of the High Court made on the 27th day of July 1987 and that when the first-named Defendant executed the fi.fa. which he received on the 12th day of October 1987 the second-named Defendant drew a cheque for £30,874.00 on his client account and payable to the Bank of Ireland in consideration for the issue by the said Bank of a Bankers Draft for £30,874.47 payable on demand to the first-named Defendant.
I am further satisfied that the amount thereby paid out of the second-named Defendant's client account was not the property of the third-named Defendant and that there was at the time when the said cheque was drawn on the said client account namely the 17th day of October 1988, a substantial deficit in the said account.
I am further satisfied that the monies in the second-named Defendant's client account were held by him in trust for his clients, that he was not beneficially entitled thereto and that he was not entitled to draw a cheque on the said account for the purpose of discharging the amount found to be due by him to the third-named Defendant.
It has not been shown that the Bank of Ireland was aware of the fact that there was a deficit in the second-named Defendant's account. As appears from the Bank statement exhibited in Miss Devereux's affidavit there was at the time the cheque was drawn thereon the sum of 167,312.55 in the said account.
Though the first-named Defendant has stated in his affidavit that at the relevant period he was aware of the fact that efforts were being made by the second-named Defendant to dispose of his practice and he was conscious at all times that the Bank draft and monies given to him might have been monies or part of monies held by the second-namec Defendant on behalf of his client, it has not been shown that the first-named Defendant was aware of the fact that there was a deficit in the second-named Defendant's client account and that the cheque payable to the Bank of Ireland, which provided the consideration for the issue of the Banker's Draft payable to him, was drawn on the the first-named Defendants client account. In fact, the first-named Defendant behaved at all times in a perfectly correct and proper manner.
Neither has it been shown that the third-named Defendant was aware of the fact or had any reason to believe that there was a deficit in the second-named Defendant's client account or that the cheque which was drawn for the purpose of obtaining the Bank Draft was drawn from the second-named Defendant's client account.
Due to inadequate records, the exact position with regard to the third-named Defendant dealing with the second-named Defendant is impossible to ascertain.
It appears, however, from a memorandum prepared by Mr. David Gardiner, an Accountant employed by the Law Society as a result of a brief examination of the second-named Defendant's file relating to the third-named Defendant on the 12th day of December 1988, that the sum of £37,974.25 was, between the 29th day of June 1978 and the 26th day of September 1986 lodged to the client account as shown in the summary of client ledger account in the name of James Reilly annexed to the said memorandum. Payments out of the said account between the 18th day of August 1981 and the 12th day of June 1986 amounted to £4,669.25.
The opening statement in this ledger reads:-
| Balance | Debit | Credit |
| Transferred from | £33,515.50 | £34,000.00 Ledger No. 6, Page 68 |
The said £34,000.00 undoubtedly related to monies received by the second-named Defendant on behalf of the third-named Defendant on the 29th day of June 1978 as the balance of the purchase money payable in respect of the sale of certain lands situate at Lisnaclay and Drumpeake, Cabra, Kingscourt in the County of Cavan, the property of the third-named Defendant.
In his affidavit sworn on the 8th day of July 1987 and exhibited in Miss Hegarty's affidavit, the third-named Defendant stated that out of this 34,000 pounds the sum of 15,000 pounds was paid to a third party on his behalf and no portion of the balance of £19,000 was paid to him.
He further averred that the second-named Defendant received on his behalf the sum of 16,500 in respect of the sale of stock and cattle and retained 16,000 in respect thereof.
These are the two sums referred to in the Order of the High Court made on the 27th day of July 1987. However, a further sheet attached to the said memorandum would appear to show further payments amounting in all to £20,651.50 leaving a balance due or to the said £34,000 of £13,348.50 exclusive of the £6,000 alleged to be due in respect of the sale of stock and cattle.
I refer to these matters to illustrate the difficulties created in this matter by reason of the failure of the second-named Defendant to keep proper accounts, which has led to the situation where "The Law Society" have not shown that there was no money belonging to the third-named Defendant in the second-named Defendant's client account.
"The Law- Society's" claim. On the basis of these facts, "The Law Society" claims to be entitled to a declaration:-. That the sum of 130,874 being portion of the sum of 13l,672.47 paid to the first-named Defendant by the second-named Defendant on the 17th day of October 1988 in purported discharge of a judgment of the High Court dated the 27th day of July 1988 in proceedings entitled James Reilly (otherwise O'Reilly) and Edward J. Duffy practising under the style and title of Edward J. Duffy and Company is and was wrongfully paid from monies held by the second-named Defendant on trust for other clients, and the ancillary relief hereinbefore referred to.
"The Law Society" submit that as the body invested with the responsibility for maintaining high standards of probity and honesty on the part of its members and as the Body responsible for the maintenance and administration of "The Compensation Fund" in accordance with the provisions of Section 21 and 22 of the Solicitors (Amendment) Act, 1960 and the Third Schedule to the said Act, it is entitled to the relief which they seek and has the "locus standi" to maintain these proceedings.
Sub-section 4 of Section 21 of the Solicitors (Amendment) Act, 1960 provides that:-
"Where it is proved to the satisfaction of the Society that any person has sustained loss in consequences of dishonesty on the part of any solicitor or any clerk or servant of a solicitor in connection with that solicitor's practise as a solicitor or in connection with any trust of which that solicitor is a trustee, then, subject to the provisions of this Section, the Society shall make a grant to that person out of the Fund and the amount of the grant shall be such as represents in the opinion of the Society full indemnity for that loss."
Sub-section 8 of Section 21 of the said Act provides, inter alia, that:-
"On the making of any grant to any person (in this sub-section referred to as the grantee) in respect of any loss.
(1) The Society shall, to the amount of the grant, be subrogated -
(i) to any rights or remedies to which the grantee was entitled on account of the loss against the solicitor or any other person or against the estate of such solicitor or other person,
(iii) to all other rights and remedies (if any,) of the grantee of such solicitor, clerk or servant in respect of the loss."
Oral evidence was given by Mr. David Gardiner on behalf of "The Law Society" that as of the date of the hearing of this action notification of three claims against the Compensation Fund had been received; that the claim of one John Cunningham in the sum of 18,500 was admitted; that the claim of one Mr. Price was rejected and that further information is being awaited in respect of the third-named claimant.
"The Law Society" submits that:-
(1) As there was a minimum deficit in the second-named Defendant's client account of £106,661.61 as at the 31st day of October 1988 it is probable that such deficit or a substantial portion thereof is due to dishonesty on the part of the solicitor and that "The Law Society" will be obliged to make grants out of the Compensation Fund to former clients of the second-named Defendant who have suffered loss and to provide full indemnity for such loss and have already made provision for a grant to one client of the second-named Defendant.(2) As the Body which has to bear responsibility for loss sustained by clients of the second-named Defendant as a consequence of the dishonesty of the said second-named Defendant, it should be subrogated to all the rights and remedies of the second-named Defendant's clients who suffered loss, including the right to the equitable remedy of tracing and recovering monies paid out of trust funds.
I am satisfied that the only right of subrogation enjoyed by "The Law Society" is that conferred by sub-section 8A of Section 21 of the Solicitors (Amendment) Act, 1960 and it is limited to the amount of the grant made in accordance with the provisions of sub-Section 4 of the said Section, namely, £8,500 paid to one John Cunningham.
The said John Cunningham had an equitable interest in the sum of £8,500 being portion of the monies in the second-named Defendant's client account and though it was mixed with other monies held by the second-named Defendant is entitled to trace that property for so long as it continues to exist and even though it may have been mixed with other property, into the hands of anyone in a fiduciary relationship with him and into the hands of any third party, except a bona fides purchaser for value without notice of the fiduciary relationship.
"The Law Society" is now subrogated to that right to the extent of the grant made by it to John Cunningham and consequently is entitled to maintain these proceedings to that extent.
"The Law Society" further submits that:-
(1) Money held by a solicitor on behalf of a client is held by him in trust for that client;
(2) The Solicitor has no beneficial interest in the said monies and is not entitled to use such monies or any portion thereof to satisfy any personal debts.
I accept these submissions made by "The Law Society" and as portion of the said monies held by the second-named Defendant in his client account was utilised to purchase the bankers draft payable to the first-named Defendant, I am satisfied that "The Law Society" is entitled to the declaration sought by it.
This does not however entitled "The Law Society" to the other relief which it seeks.
I accept the submissions made by Miss Finlay on behalf of the third-named Defendant and by Mr. Charleton on behalf of the first-named Defendant that the right to trace ends with a purchaser for value who has no notice of the circumstances which have given rise to the right to trace.
I have already held that it has not been established that either the first-named Defendant or the Bank of Ireland had any notice of the circumstances which had given rise to the right to trace, namely, the deficit in the second-named Defendant's client account.
In the course of her judgment In the Matter of Irish Shipping Ltd. (in liquidation) reported at 1986 I.L.R.M. at Page 518, Miss Justice Carroll having recited a number of cases, including Clarke v. Ulster Bank Ltd. (1950 Northern Ireland 132) and Thompson -. v. Clydesdale Bank Ltd. (1893) Appeal Cases 282 stated that:-
"The principle behind those cases is summed up in the Clydesdale Bank case in Lord Watson's judgment:
"When a broker or other agent entrusted with the possession and apparent ownership of money, pays it away in the ordinary course of his business, for onerous consideration, I regard it as settle . law that a transaction which is fraudulent as between the agent and his employer will bind the latter, unless he can show that the recipient of the money did not transact in good faith with his agent".
In this instant case, the second-named Defendant appears to have acted dishonestly in drawing a cheque on his client's account to purchase a bankers draft payable to the first-named Defendant who was acting in the course of his duties as County Registrar, in levying execution in respect of an amount due on foot of a judgment of the High Court in favour of the third-named Defendant.
The Bank of Ireland received the money and gave consideration in respect thereof, namely, the issue of a bankers draft and it has not been established that the Bank of Ireland did not act in good faith when receiving the cheque and issuing the bankers draft.
I am further satisfied that the first and third-named Defendants acted in good faith and that the money paid on foot of the bankers draft was money due on foot of a valid judgment of the High Court in favour of the third-named Defendant.
Consequently, I will refuse the application made by "The Law Society" for the injunctions and declare that the first-named Defendant is obliged to pay the sum held by him to the third-named Defendant in accordance with the terms of the fi.fa. issued by the High Court.
