Star dust

Vic Appeals throws Michael Brereton a lifeline ... Celebrity lawyer did not owe fiduciary duties to clients who lost money in his retirement village scheme ... No beneficial interest in money paid to solicitor ... No misappropriation involved with funds that vanished ... Legal fairy dust 

In proceedings arising from charges of professional misconduct against celebrity Melbourne solicitor Michael Brereton solicitor, VicAppeals upheld the decision of a trial judge and overruled findings of misconduct made by the VCAT on the basis of error of law. 

The Court of Appeal (Tate, Nettle and Ashley agreeing) held that the allegation of misappropriation of trust funds (the most serious of the charges brought) contained an element of dishonesty, which had not been considered by the tribunal. 

The tribunal had originally ordered, on the basis that this misconduct had been established, that Brereton be barred from applying for a ticket to trade before July 1, 2013, and handling trust funds before July 1, 2018. 

The Court of Appeal held that because that charge had not been properly established, the matter should be remitted to the tribunal for the redetermination of penalty. 

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Michael Brereton: celebrity survivor

Brereton had been lawyers to the stars, but his life took a hit over his connection with tax haven advisors Strachans, which was the subject of an enormous fraud and money laundering investigation known as Operation Wickenby. 

There been plenty of accusations against the ducker and weaver, and lots of customers left feeling sore and angry over money they entrusted to him and is now missing. 

This case largely concerned Seachange Management Pty Ltd, a company owned by Brereton. 

It purchased land in Collendina, Victoria to develop into a retirement village. 

The land was then quickly on-sold to Seachange Village Nominees at roughly a third of the purchase price.

The lower price was said to reflect consideration to be paid to Seachange Management to fund the development of the retirement homes. 

Private investors, including people like Tina Arena who had been a client of Brereton's law shop, on behalf of Seachange Village, sank approximately $5.8 million in the scheme.

The funds went to Brereton in his capacity as solicitor for Seachange Management in the on-sell. 

Brereton then paid about 76 percent of the investors' money to others, apparently for the purposes of developing the land, and to himself by way of a $1.15 million retainer. 

Some of these payments were made prior to the execution of a statement authorising release by a vendor of funds deposited by a purchaser, which is a statutory requirement under section 27 Sale of Land Act. 

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The Legal Services Commissioner brought 19 charges against Brereton before VCAT, seven of which related to the retirement village venture. 

The tribunal found Brereton had failed to maintain a separate ledger relating to the purchase and sale of the land by Seachange Management in breach of the Trust Account Practice Rules. 

It also found that the solicitor applied deposit money held by him in trust before the money was released by the purchaser, constituting common law misconduct and willful and reckless contravention of the Legal Profession Act. 

Importantly, in the course of rejecting a charge that Brereton failed to maintain a separate ledger in respect of each separate person who provided money, the V-Catters found that there was no solicitor-client relationship between Brereton and the investors and that the funds provided were not held for the investors, but for Seachange Management. 

These findings significantly undermined attempts by the LS commissioner made throughout subsequent proceedings, to establish that Brereton owed fiduciary duties to the investors, which he had breached. 

The tribunal also found, that Brereton had misappropriated trust money in contravention of his legal and fiduciary responsibilities to the investors. 

This finding was the subject of Brereton's appeal to the Supreme Court. 

The old smoothie appealed on the grounds that the tribunal's finding that he had misappropriated funds was inconsistent with its finding that the money was not held in trust for the investors, and that the investors were not his clients. 

Justice Kevin Bell allowed the appeal in consideration of two factors. 

First, that a charge of misappropriation incorporated an allegation of dishonesty and therefore the tribunal was required to apply the common law test for dishonesty as part of its determination as to whether that charge had been made out. 

The tribunal's failure to do so constituted an error of law. 

Secondly, Dinger held that the tribunal's finding of misappropriation was indeed inconsistent with its characterisation of Brereton's obligations. 

HH held that this conclusion meant the matter could not be remitted to the tribunal for a determination on dishonesty because the conclusions reached about Brereton's obligations meant such a finding was not available. 

The Legal Services Commissioner's appeal to the CA was unanimously dismissed. The appeal concurred with the findings and orders of Bell. 

Tate Modern noted that the commissioner's continued contention that Brereton owed fiduciary obligations to the investors was untenable, both as a matter of law and in view of findings made by the tribunal. 

She rejected the commissioner's submissions on appeal that an express or Quistclose trust (a particular type of resulting trust) had arisen on the fundamental basis that "mere receipt of funds by a solicitor is not sufficient to ground an equitable obligation". 

This failure to establish a fiduciary relationship significantly undermined the commissioner's case on misappropriation of funds. 

Tate also agreed with the trial judge's finding that the tribunal was inconsistent in finding there to be no fiduciary relationship between Brereton and the investors, and yet also holding that the charge of misappropriation funds in breach of fiduciary duty had been made out. 

It was held that latter finding was made in error of law for failing to apply to relevant common law test of dishonesty.

Tate JA doubted whether a legal practitioner can only be guilty of misappropriation if he or she has acted dishonestly, but ultimately considered it unnecessary to reach a conclusion on this point because the commissioner particularised the allegation in such a way as to accuse Brereton of dishonesty. 

Her Honour rejected the LSC's submission he was not required to fully establish dishonesty and that all that was necessary for him was to demonstrate a "wrongful conversion", which once established, would shift the burden to Brereton to prove that he acted with "honest belief". 

Tate Modern found this argument was based on a misinterpretation of The Council of the Law Society of NSW v Doherty and that the decision in that case did not "obviate the need for the party alleging dishonesty to meet the requisite standard." 

Her Honour was critical of the general approach taken by the parties and the tribunal in the initial proceedings, an approach described by VCAT in its reasons as being ... "[that the case] was to be largely decided on the facts and evidence and there was little in the way of legal contention". 

Tate drily pointed out that this approach was "problematic" because there were "core legal questions at the heart of the case that required determination before the charges could be determined on the basis of facts and evidence". 

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The matter was remitted to the tribunal for the purposes of determining penalty.

Tate upheld the trial judge's finding that it was not open to the VCAT to now apply the test for dishonesty and make a fresh finding on that question because the tribunal had already held that the investors did not retain a beneficial interest in the funds they paid to Brereton.

Because the original penalty had been determined on the basis that Brereton was guilty of misappropriation, the most serious of the charges brought, Tate ordered that the penalty be re-determined on the basis of the less serious charges, which had been properly established.