Harle v Legal Practitioners Liability Committee [2004] HCATrans 351 (10 September 2004)

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Harle v Legal Practitioners Liability Committee [2004] HCATrans 351 (10 September 2004)

Last Updated: 16 September 2004

[2004] HCATrans 351

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M268 of 2003

B e t w e e n -

DOUGLAS JOHN MATTHEW HARLE

Applicant

and

LEGAL PRACTITIONERS LIABILITY COMMITTEE

Respondent

Application for special leave to appeal

GUMMOW J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 10 SEPTEMBER 2004, AT 12.21 PM

Copyright in the High Court of Australia

MR M.W. THOMPSON: May it please the Court, I appear with my learned junior, MR D.G. GUIDOLIN, for the applicant. (instructed by Watkins Boag O’Connor & Dunne)

MR M.CLARKE: If the Court pleases, I appear on behalf of the respondent. (instructed by Hunt & Hunt)

GUMMOW J: Yes, Mr Thompson.

MR THOMPSON: Thank you, your Honour. Your Honours, I have tried to refine down a little the special leave point as it has been referred to in the application and in the summary and can I put it this way, that the special leave point is as to whether a dishonesty exclusion clause in a policy of liability insurance should respond to circumstances where there has been no intention to cause a loss, nor an intention to acquire an unauthorised advantage. The Court will be aware that in England and in particular, since Ghosh, the test for dishonesty - - -

GUMMOW J: We have looked at this.

MR THOMPSON: Yes.

GUMMOW J: This Court has looked at it. That is where you start.

MR THOMPSON: Yes.

GUMMOW J: Do not start in the English Court of Appeal.

MR THOMPSON: All right. Peters effectively adopted Ghosh in this Court.

GUMMOW J: No, Peters made up its mind.

MR THOMPSON: Yes.

GUMMOW J: Now, what do you say about pages 105 and 106 of the respondent’s argument? There was a finding by the trial judge?

MR THOMPSON: Yes.

GUMMOW J: Dishonesty in all forms of that word.

MR THOMPSON: Yes.

GUMMOW J: And you see the point made as to the form of the argument before the trial judge.

MR THOMPSON: Yes.

GUMMOW J: And you see the third point they made.

MR THOMPSON: Yes.

GUMMOW J: Now, why should we take this on?

MR THOMPSON: In our submission, for this reason, your Honour, that the Court of Appeal dealt with the issues by applying McCann but McCann was a case relevantly different on its facts from this case in that in McCann there was a deliberate intention of Mr Powles, the fraudulent partner of the firm, to gain a financial advantage by pocketing $150,000 of his clients’ money.

Therefore, in McCann, the issue did not have to be addressed as to whether or not an intention or otherwise to acquire money improperly by deceit was an element of dishonesty for the purposes of an exclusion clause in a policy of liability insurance. The Court in that case, the majority determined, applying the objective test, that it need only be that having found the necessary intentions or mental processes of the insured, whether or not that breached notions of dishonesty as accepted by ordinary decent persons and found that there was no need for there to be an intention to cause loss as had not been the case in McCann and, indeed, is not the case in the present case.

However, in each of the judgments of the majority in McCann, there was emphasis placed upon the importance of one element of the behaviour of Mr Powles, namely that he set about to gain, in addition to any other benefits, the $100,000 which he misappropriated from his clients. Now, we would wish to put that therefore, this Court in McCann did not have to address that issue as to whether a liability dishonesty exclusion clause of this type ought to respond when there was no such intention.

I concede that that is the only point of distinction where one could say the law may need refinement post McCann but we would wish to submit that if one analyses the reasoning of the majority in McCann absent that element of an intention to take money directly in an unauthorised manner, the exclusion clause ought not to apply, in other words, there should be, to that extent at least, a subjective element in the operation of the exclusion clause. By adopting Peters and referring to Ghosh, one is dealing with dishonesty in a criminal context. Here we are dealing with an
exclusion clause in a policy of liability insurance, necessarily to be read down against the insurer.

Justice Kirby in McCann noted in passing that he did not necessarily accept that dishonesty in a criminal context ought to be the same test as that in a civil context, or more particularly, in respect of a policy of insurance. I will have to concede his Honour made that aside to the effect that the test may be stricter in a criminal case but, as I say, we are here dealing with an exclusion clause rather than an operative provision.

GUMMOW J: Well, it is put against you that the stricter benchmark has been met here?

MR THOMPSON: Yes, that is put, and I accept that that is a difficulty we face but we would wish to submit on merit that that was an error and we would wish to say that if the Court of Appeal had applied what we would deem a qualified subjective/objective test, then it would be open to argue on the facts that applying that test to the facts as found there had been nothing more than gross negligence on the part of the applicant. Now, your Honour, I can put it no higher than that. I think on all the facts and as the application is put it would be wrong of me to try to do so but that is basis on which the application is put.

GUMMOW J: Yes. Thank you Mr Thompson.

MR THOMPSON: Thank you, your Honours.

GUMMOW J: Yes, Mr Clarke.

MR CLARKE: If the Court pleases. What my learned friend – and I must say the application is somewhat different from what is set out in the outline – but in relation to how he regards McCann - - -

GUMMOW J: That is why we are going to be assisted by what you say.

MR CLARKE: Yes, what he says about McCann is that emphasis was placed on the Court that one of the relevant elements was that he set about gaining a $100,000 commission or, as he described as a misappropriation. What in effect was found, and can I refer your honours to some passages out of McCann’s Case, we say similarly in this case what was found in that was that he referred - - -

GUMMOW J: McCann is the case numbered 1 in the folio we have?

MR CLARKE: Yes, it is case no 1. At page 588 in a passage of Justice Gaudron - in fact, I should refer to the full paragraph, paragraph 17 commencing the last line of page 587 deals with both the first point and the second point my learned friend raises:

The same can be said of the present case. Mr Powles did not intend that the Nauru Trust should lose the $US8.55 million. But he paid it away, in breach of his fiduciary responsibilities, without proper (or any) security, knowing there was a risk of its loss, and impelled by his own need for money. He preferred his personal interests to those of his client. He permitted his urgent need to make a secret commission to prevail over his duty to protect his client’s funds. The Court of Appeal was right to find that his conduct in relation to the entire $US8.7 million was obviously dishonest and probably fraudulent.

Again in paragraph 19, halfway down the page, her Honour states:

The misapplication of the money by Mr Powles placed it at risk.

Again, if I could refer the Court to paragraph 21:

Solicitors and other fiduciary agents who fraudulently misapply moneys of their clients often expect, or hope, that no loss will ultimately result to the client. If loss results, that places them at risk of exposure.

And again at page 589, the last line of paragraph 21 just above paragraph 22, her Honour states:

And the solicitor would rarely intend that loss should result.

That is a matter that has been addressed by the Court of Appeal both, it is not necessary subjectively to intend to cause loss to a third party and, quite clearly, just as it was a feature of McCann’s Case, personal interests were preferred. The personal interest in this particular case was that if the thousand per cent return which was the predicted return that Mr Harle hoped for eventuated then he would receive a 10 per cent portion of that so that constitutes his personal interest.

That is no different, we would suggest, to McCann’s Case, but in any event intention is all but one of the elements that was considered in the test in Peters. One only needs to establish intent or knowledge and that was a matter which we say is prevalent here. What is dishonest is the dishonest knowledge and the test to be applied is an objective test. One does not need to establish that there is a - - -

GUMMOW J: Yes, we do not need to hear you any more, Mr Clarke.

MR CLARKE: If your Honour pleases.

GUMMOW J: Mr Thompson, anything in reply?

MR THOMPSON: No, your Honour.

GUMMOW J: We are not satisfied that there are sufficient prospects of success in any appeal to warrant grant of special leave in this matter. Accordingly, special leave is refused with costs.

We will adjourn to reconstitute.

AT 12.34 PM THE MATTER WAS CONCLUDED