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Legislative Council - Fifty-First Parliament, Second Session (51-2)
2008-02-26 Daily Xml
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LEGAL PROFESSION BILL

Committee Stage

In committee (resumed on motion).

(Continued from page 1777.)

Clauses 2 to 300 passed.

Clause 301.

The Hon. P. HOLLOWAY: I move:

Page 155, after line 31—

Clause 301(4)—After paragraph (n) insert:

(na) the costs of exercising a right or remedy subrogated to the society under section 322;

The Law Society has requested an amendment to the bill to permit expenditure from the guarantee fund to allow the society to pursue rights subjugated to it upon payment of a claim out of the fund. The government agrees that there is no specific power of funding for the taking of any action for a recovery. The proposed power to fund the cost of processing claims may not be sufficient. Any money recovered as a result of such recovery action is required to be paid to the fund under clause 301(3)(b) of the bill, and it is therefore appropriate for a specific provision to be included in clause 301 to permit expenditure from the fund for this purpose.

The Hon. R.D. LAWSON: I indicate that Liberal members will be supporting this particular government amendment, because amendments that I will move later in relation to the guarantee fund do provide for subrogation. It is our view that the Legal Practitioners Guarantee Fund should not be a fund of last resort, and that the innocent victim of a solicitor's defalcation should not, as will be indicated later, be required to pursue to the end the solicitor involved, or his or her estate, or the legal practitioner company that has been responsible for the defalcation.

It is our view that such a person ought to be able to make a claim on the fund, and provided the claim is verified, the claim will be paid, and the Law Society will be subrogated to the individual and will be able to pursue the individual solicitor through the courts to obtain judgment the Law Society deems fit. That money recovered from the solicitor, or from his or her estate, will then come back into the guarantee fund. We believe that the society will incur costs in relation to exercising its rights of subrogation. Even under our scheme, which is different from the government's scheme, we will be supporting the allowance for payment out of the guarantee fund of those costs incurred by the society.

Amendment carried.

The Hon. R.D. LAWSON: I move:

Page 156, lines 1 and 2—

Clause 301(7)—Delete subclause (7)

The effect of this amendment is to remove subclause (7) of clause 301. As we have just seen, clause 301 deals with the guarantee fund, and that clause authorises the payment out of various forms of costs. We have just included in the bill by the minister's amendment the cost of exercising right of subrogation. However, as a result of an amendment made in another place, the government has insisted that a court may not make an order requiring, or having the effect of requiring, the payment of costs from the guarantee fund.

This amendment has quite a history to it. In relation to the Magarey Farlam matter, about which there has been some reference made already, an application was made by the Law Society to the Supreme Court for directions as to the way in which the claims were to be handled. The matter was heard by Justice Debelle. A number of representatives of various victims appeared before the judge with his leave. They were invited to make submissions and they had various different positions to put to the court.

After having determined the matter, the judge ruled that those victims should be allowed their costs out of the fund, otherwise they would be double victims in the sense that they would be victims because their money had been taken from them by the defalcation and, secondly, they would be victims in having to incur costs in going to the court to have their position put. The judge took the perfectly reasonable view that their costs ought to be paid out of the fund, otherwise they would be out of pocket.

The Attorney did not like that idea, so he appealed to the Full Court of the Supreme Court. The Attorney lost that case, and the full court ruled that the judge had power in circumstances such as this to authorise the payment of their costs out of the fund. This was a very big application, which was quite expensive, because it went for some time; it was complicated and the like. I think the judge's position was perfectly reasonable in his exercising discretion in favour of those claimants; otherwise, as I said, they would be double victims.

The Attorney and the government have adopted a protective attitude to the fund, saying that we must protect this fund so that we can use the interest of it for things that we would otherwise be spending money on like legal aid and the Law Foundation and the like. So, the Attorney in a fit of pique, having lost the case before Justice Debelle, having lost the case in the Full Court of the Supreme Court which said that the money could be paid, he introduced an amendment to this bill to say that in future the court cannot make an order requiring or having the effect of requiring, the payment of costs from the guarantee fund.

I believe that the Attorney's position is indefensible. The protection here is that a judge will not order that the payment of costs be made out of the fund unless the judge in his discretion thinks it was reasonable for those costs to be incurred, because costs are always at the discretion of the court. The court will not order that your costs be paid out of a fund or paid by somebody else unless you have a meritorious position. That is a principle which ought be followed. I think it is inappropriate that the government of the day should come to the parliament and say it wants authorisation to reverse the decision made by four judges of the Supreme Court and to say that victims who are in the situation of the Magarey Farlam claim have to go to court to defend their position and they have to pay for it themselves.

I seek support for the deletion of that subclause. The deletion will mean that it will still be in the discretion of the court. There is no automatic order for costs. This is not an invitation for people to make claims against the fund or seek legal representation. It simply restores the status quo; namely, that the court can, in appropriate circumstances, order costs out of this fund.

The Hon. P. HOLLOWAY: This clause was inserted as a government amendment in another place. It is designed to ensure that a court cannot make a costs order directly against the Legal Practitioners Guarantee Fund. It was in response to a judgment of the Supreme Court under the present law in which it was held that costs incurred in relation to the application for directions by persons other than a supervisor or manager are payable from the Legal Practitioners Guarantee Fund.

It was held that section 40 of the Supreme Court Act 1935 and rule 101 of the Supreme Court Rules 1987 vest the court with discretion to make orders with respect to the cost of an application for directions pursuant to section 47(2) of the Legal Practitioners Act. The court may order that the cost be paid by one or more participants in a directions hearing and, having regard to the terms of section 47(2), may order that the costs be paid out of the guarantee fund. This would remain the case under the opposition's amendment.

It is important to understand what this means. It means that an order could also be made out of the guarantee fund where the clients of a legal practitioner bring a competing claim asserting entitlements to the residue of any trust fund even though an application for directions has not been sought by a supervisor appointed by the Law Society.

Now, that situation would not be acceptable to the government. The government believes that only official administrative costs should come out of the fund; not the costs of potentially spurious arguments between competing creditors. Nor should the fund be managed to an extent by the Supreme Court when it resources a variety of public purposes that also have a consumer protection aspect.

The Hon. A. Bressington: It has worked well so far.

The Hon. P. HOLLOWAY: Well, there are the conduct board, and the disciplinary tribunal on the supply side and the Legal Services Commission on the demand side. It is important to remember that the fund has those roles as well. Elsewhere the bill provides that the costs of an external intervener are recoverable from the law practice, with the rider that fees, costs and expenses not paid to the external intervener by the law practice are only then payable from the guarantee fund. That is the way it should be and, for those reasons, the amendment is opposed.

The Hon. R.D. LAWSON: The inconsistency of the Law Society's position and the government's position on this is manifest. This clause enables the Law Society to recover its costs of going to court, the costs of the investigation and the audit. I refer to subclause (4)(h). The costs incurred by the Law Society can come out of this fund provided the Supreme Court so orders. However, the poor victim who has to incur costs is not able to get his or her costs out of the fund. The court clearly saw that as an unjust argument which was put on behalf of the government. They ruled against it. I seek support for the proposition that the court should be able to make an order in an appropriate case.

The minister indicated that this might encourage cross-claims and the like that are entirely unmeritorious. If they are unmeritorious, the court will not order that the costs be paid out of the fund. In fact, someone making an unmeritorious claim runs the risk of being ordered to pay the costs. In a sense, this is a little bit of vengeance on the part of the government. It ran an argument before the court: it lost. Now it seeks to reverse the situation.

The Hon. D.G.E. HOOD: I address one of the issues raised by the Hon. Mr Lawson: Family First has no problem at all with the government's proposing to introduce a law that will be contrary to the decision of the courts. That is the role of government and we have no problem with that at all. However, in the case of this clause, Family First believes that it is unfairly stacked and potentially the victims miss out if this clause is not deleted from the bill. For that reason, we will be supporting the amendment.

The Hon. M. PARNELL: The Greens also support this amendment. I make the point that we are not supporting all the Liberal amendments. However, this one makes sense for the reasons explained by the Hon. Robert Lawson. I am very conscious of what the minister put forward in relation to this fund also funding a range of other very useful and important functions within the legal system—as I said in my second reading explanation; the Legal Services Commission, community legal centres and the Law Foundation. However, it seems to me that one of the great injustices of the Magarey Farlam case was the fact that people were out-of-pocket with their legal costs. It seems appropriate to me that the fund should at least be an option for the court when it comes to the reimbursement of those costs. As the honourable mover said, this does not make the guarantee fund an automatic fund for costs, but it does give the judges—who are guided in these matters by matters of equity and fairness—the ability to order costs out of this fund.

It also seems to me that, at the end of the day, with the subjugation rights that are proposed, it may well be that a subsequent insurer will end up picking up the whole of the tab, anyway, and the fund can then be reimbursed. It seems to me that it is adding insult to injury to have the victims not only lose their money but also have no easy way of recovering their legitimate costs, even if that involves going to court seeking declarations of rights. I will be supporting this amendment.

The Hon. P. HOLLOWAY: I put on record what has happened in relation to this case. The government is saying that, if a supervisor is put in to investigate the situation, then I think all of us would agree that it is appropriate that those costs be paid out of the fund, but is it appropriate that a number of people—and we are not talking about the victims—who are joining in this claim should have their claims funded? I draw the committee's attention to clause 319(1) of this bill under 'Costs'. The subclause provides:

If the Society wholly or partly allows a claim, the Society must order payment of the claimant's reasonable legal costs involved in making and proving the claim, unless the Society considers that special circumstances exist warranting a reduction in the amount of costs or warranting a determination that no amount should be paid for costs.

We will come to this argument later in relation to the Magarey Farlam case; that is, we have money provided in a fund that is for a particular purpose. A number of activities are funded out of this fund and I have mentioned those—the conduct board, the disciplinary tribunal and the Legal Services Commission are three. There is a finite amount of money available. If we open the door to a number of other claims which may or may not have merit, then we run the risk of depleting the system. I am not surprised that the Supreme Court believes that it should have more power in relation to these things and interpret the law to open up its control over the fund, but is that really in the public interest? I think members should think long and hard about that.

The Hon. R.D. LAWSON: The minister suggests to the committee that clause 319 actually provides another avenue for getting costs. That is entirely misconceived. Clause 319 gives to the Law Society a discretion to give to a victim—if the Law Society in its generosity decides that it will reimburse somebody who has made a claim—that person's costs. We are not talking about that here. What we are talking about is not somebody who has made a claim to the Law Society in the ordinary course but somebody who has had to go to the court in relation to an application and who has the opportunity to obtain an order for costs out of the fund. Clause 319 deals with, I would suggest, an entirely different situation; it is under Division 5, and it deals with the determination of claims by the Law Society. So, I reject the notion that in some way clause 319 provides sufficient protection for a victim.

I think clause 319 highlights one of the real difficulties about this particular scheme; namely, that we are giving the Law Society the power to make a decision when the Law Society itself has an interest in the subject matter of that decision. The Law Society, like the government, says that it is great that we have this fund which is made up of the interest on clients' money; this fund should be available for the government and the Law Society. That is all very well but, in our view, the principal claim upon this interest should be from the general body of clients for whose protection this guarantee fund was established.

The Hon. A. BRESSINGTON: I rise to indicate that I, also, will be supporting this amendment. Just to reiterate the point that the Hon. Rob Lawson has made over and over again, the source of this money (the guarantee fund) comes from people who have trusted lawyers to put their money into trust accounts and trusted that there would be some level of surety in that; and that, in their time of need, they are unable to access any of that fund to assist with their legal claims or to settle the fraud, or whatever it is that has occurred with this particular trust fund, yet the Law Society is able to dip its finger into the fund over and over again to litigate against the clients who have invested this money. So, I will be supporting the Hon. Rob Lawson's amendment.

Amendment carried; clause as amended passed.

Clauses 302 to 312 passed.

Clause 313.

The Hon. R.D. LAWSON: I move:

Page 161, line 10—

Clause 313(1)—Delete 'all claims to which the notice relates is—' and substitute:

any particular claim to which the notice relates is 30 per cent

This is the first of a series of amendments designed to alter the scheme under which the Legal Practitioners Guarantee Fund operates. I think it is important that I mention at the outset some matters of general importance. I did not mention this particular matter in my second reading speech, so I will do it now. This scheme was introduced in 1969 and, in introducing it in this place, the then minister for local government (Hon. Murray Hill) said—and I think this is important:

This bill—

which introduced the guarantee fund—

is designed to make two very important provisions in respect to the practice of the legal profession in South Australia. One is to provide some recourse for members of the public who may suffer by reason of defalcation or negligence.

The negligence provisions are no longer relevant because all practitioners are required to have negligence insurance. However, right at the forefront was the fact that this fund exists to provide recourse for members of the public who may suffer by reason of a defalcation. The minister went on to say:

The other reason is to provide financial support for the increasing burden on the legal profession of the Legal Assistance Scheme, a scheme which has been voluntarily conducted by the profession since 1933 for persons who cannot afford to pay for legal assistance in the normal way.

That is very interesting. Of course, now the Legal Services Commission is the recipient of those funds, but the purpose originally was to relieve the burden that members of the legal profession were suffering by reason of their providing legal assistance. Further in the speech the minister indicated that the Law Society (which then ran what was called the Poor Persons Legal Scheme, by engaging solicitors to undertake work) was paying only 26.25¢ in the dollar for criminal matters and, for civil matters, 19¢ in the dollar.

That was deemed insufficient (as, indeed, it was) by members of the legal profession. Notwithstanding the fact that it was a great public service that members of the legal profession were providing to the public, there was quite a deal of self-interest in having a fund which would enable the Law Society to reimburse its own members for the work they were doing. The minister mentioned that there were a number of similar schemes in other states, as indeed there were. He said:

Whilst South Australia has been comparatively free of trust account defalcations, the possibility exists, as the profession increases in size in this state, that the risk of defalcations could increase in spite of the rigid precautions taken to obviate this.

He goes on to say:

The maximum amount of the fund is to be the sum of $2,500 multiplied by the number of practising legal practitioners. At the present time, the limit would be about $1.1 million.

That formula of $2,500 multiplied by the number of practising lawyers still remains applicable today. It led to a cap in the original fund of $1.1 million. The current formula—the same formula, which has never been changed—leads to a current fund, according to the letter which has been circulated to members, of $23.3 million. That is the maximum. The interest over and above the amount required to keep the fund at that level is applied to those other good purposes. He continued:

It is further provided that there should be some limit on the size of claims in respect of any particular practitioner who makes a defalcation. This is inserted so that the fund is not rapidly reduced by one huge claim to the detriment of others who may have claims in respect of another practitioner. Basically, the South Australian fund is designed to protect the smaller claimant. To ensure the attainting of these objects it is provided that the total amount of claims in respect of the defalcations of any particular practitioner is limited to 5 per cent of the fund at that time.

At present, if the fund was at its limit, this would provide something in excess of $50,000 in respect of such claims. It is stressed that it could take between five and 10 years before the guarantee fund builds up to the desired limits but, of course, such estimate of time must depend on the size of any claims made in the meantime. This is one reason why a limit on the total size of claims in each case is required. When the fund has reached its desired size, it would be possible at a later stage to review the limit on claims.

The limit on claims was never revised or reviewed. It was 5 per cent and it is 5 per cent and, in the very clause we are now concerned with, it is 5 per cent or such other amount as is prescribed by regulation.

I provide that history so that members know the background. It is important to note that, right at the beginning, this was seen as a protection for members of the public. It was seen that the fund would grow. It was seen that, when the fund had reached its desired size (as it has), it would be possible to review the limit on claims. The limit on claims has not been reviewed, and the Magarey Farlam matter highlights exactly the difficulty with this current limitation.

We have been told all along that the defalcations assessed by the Law Society are $4.5 million. If that be the figure (and let us assume that it is, although there is some suggestion in the correspondence that it has increased), it would mean that only 5 per cent of the $20 million fund would be available—namely, something over $1 million—to meet the claims of $4 million. This means that people would be paid 25¢ in the dollar. That is an injustice and a serious injustice, especially when there is a fund that could comfortably accommodate paying all the claimants their losses. I hasten to say not all their losses, but it would enable them to recover their capital that has been lost.

We envisage that, if a claimant wishes to claim something over and above the capital, that is a matter for the claimant to pursue elsewhere. There will be some claimants who will say, 'I'll take the $100,000 that has been taken out of my trust account but, if I had had that $100,000, I would have invested it in BHP shares, and it would now be worth $200,000. I have lost that opportunity, and I want $200,000.'

It is problematic whether that sort of claim would be allowed by a court in any event. Obviously, there are people who will say, 'If you had not stolen that $10 from me, I would have invested it in a lottery ticket and won $25 million; therefore, my loss is $25 million.' Obviously, that is ridiculous, but there will be people who will say, 'I've lost the opportunity costs of my money.' I want to emphasise that we do not say that the guarantee fund should reimburse people for that sort of loss. It should be for their capital loss.

Because the 5 per cent has not changed, it has meant that we have a large fund ($23 million), and obviously costs are coming out of that. As I illustrated earlier, when you look at the record of the fund, there have been only very small payments out of the fund over recent years. I do not think that the government can point to any larger claim ever being made in the past. It has never jeopardised the fund in any way, so that it would be appropriate to increase the 5 per cent maximum, and what we are saying is 30 per cent. For example, in the Magarey Farlam case, up to $7 million could be paid. That would be far more than is necessary to meet the claims.

As to the specifics of my amendment, I will explain the situation. The scheme of the act requires the society to advertise for claims. So, the process actually begins when they advertise. The society did not advertise for claims until, I think, October or November last year. It said that all claims had to be in by 31 January. A number of claims have been made. There is a time limit for making claims, and there are requirements about the advertising for claims. Clause 313, which is the clause we are dealing with, provides that there is a cap on payment following advertisements. The advertisements have gone out in this claim. So, the clause reads:

If a notice is published by the society under section 311(1)(c), the maximum amount that may be applied towards satisfaction of all claims to which the notice relates is—

(a) if a percentage is prescribed by regulation—the prescribed percentage; or

(b) if no percentage is prescribed by regulation—5 per cent.

My amendment is to delete the words 'all claims to which the notice relates' and to say 'any particular claim to which the notice relates is 30 per cent' (of the total).

It is a matter of judgment as to what is an appropriate limit. It is presently 5 per cent, as I said. When it was introduced in 1969 it was thought that when the fund had reached a size they would actually make some adjustment. You might say that 5 per cent would be appropriate if it was any one particular claim, but here we have got all of the claims adding up to far more than 5 per cent, and under the scheme of this act all claims are lumped in together. So, I seek support for the amendment as moved.

The Hon. P. HOLLOWAY: As the Hon. Robert Lawson says, this amendment alters the provision that sets a cap on the guarantee fund claims. At present the total of all claims arising from one default, or a series of defaults, is subject to a cap of 5 per cent of the balance of the fund at the last audit. For example, if the fund holds $20 million, the cap on the particular group of claims would be $1 million altogether.

The bill proposes a similar rule, except that the cap applies only if the society advertises that it does. I also note that under clause 313(2) it states:

...the society may authorise payment of a larger amount if satisfied that it would be reasonable to do so after taking into account the position of the guarantee fund and the circumstances of the particular case.

This amendment would propose a different rule; that is, that the cap per claim would be 30 per cent of the balance of the fund. Thus, if there were three claims then 90 per cent of the balance of the fund would be available to meet them. If there were more than three claims then the society would need to use its powers under clause 330 to make part payments, postpone payments or impose a levy.

These and the next two amendments moved by the Hon. Mr Lawson are exactly the same as those defeated in another place. If they become law it would mean that a substantial defalcation may wipe out the fund. Substantial defalcations do occur. Not that long ago two partners in a New Zealand law firm were responsible for a $29 million defalcation and practitioners were levied $10,000 each, I understand, over a period of time. That would severely jeopardise the operations of aspects of the legal profession in this state.

Under the bill, as under the present act, there are many other calls on the guarantee fund besides claims arising from defaults. The fund is applied to meet the expenses of regulatory institutions, such as the conduct board, the tribunal and the Legal Practitioners Education and Admissions Council, all of which serve consumer protection functions. The fund is also used to support legal aid and public legal education. That has been the case for many years and the former Liberal government made no attempt to change that.

The government's position is that this amendment will put the funding of those institutions and purposes substantially at risk. For that reason we oppose it and will oppose it very strongly, even if, as I said, it means the end of the bill.

The Hon. R.D. LAWSON: I make a couple of points in relation to the minister's response. First, if there is some calamitous claim, clause 302 of the bill does enable the society to arrange for insurance. It is possible to arrange insurance for claims over a certain amount. They would not insure their liability in respect of up to $24 million, but it would be possible for them—and to use the money in the guarantee fund for this very purpose—to insure their liability for catastrophic claims in the event that they were made. So, that is one alternative that is available.

The guarantee fund itself is not for the provision of legal aid and the like. It is certainly true that when interest on the guarantee fund has reached the maximum that excess provision is available; the other one-half of the interest stream is available for those purposes. Bear in mind that there are two revenue streams. We developed this during the second reading stage of the bill and I will not go back into it—although perhaps I should just reassure members on this particular point.

The interest on the solicitors' trust account goes into what is called the statutory interest account: three-eighths of that is paid into the guarantee fund and I think five-eighths is paid into the Legal Services Commission. So, the statutory interest account—which is not the same as the guarantee fund—is the substantial fund into which the interest is paid. Five-eighths of that already goes to the Legal Services Commission, and that would not be jeopardised by the fund being exhausted.

I want to reassure members that, in our view, the likelihood that the 30 per cent would wipe out the fund is not manifest. The fact that there were was $29 million paid in one catastrophic claim in New Zealand (and I am not entirely sure of the nature of the scheme they had) should not deter us from increasing the miserly 5 per cent to what I regard as a reasonable 30 per cent in respect not of one claim but of a group of claims.

The Hon. P. HOLLOWAY: I want to make one brief point in relation to insurance. Yes of course one can insure, but if the Hon. Robert Lawson's amendment is carried and up to 30 per cent can be wiped out, if the risk is such that the fund could well be wiped out, who will provide insurance and at what premiums?

The point is that the premiums and the ability to get insurance depends on the risk, and what the Hon. Robert Lawson is doing is massively increasing the risk to insure. Even if one could get insurance I would assume, with that there, that the premiums would be massive and therefore unlikely to be taken up.

The Hon. A. BRESSINGTON: Just on the Hon. Paul Holloway's comments just then about the rise in insurance premiums should one of these huge claims need to be paid out of this, we have had a situation in South Australia over probably the past five years where non-government organisations have had to bear that huge rise in insurance premiums, and whatever else. There has been no sympathy from this government for their plight at all, yet we see this concern expressed for the Law Society when, as the Hon. Robert Lawson has just said, one of those funds will not be affected at all by this 30 per cent increase.

I just find it somewhat hypocritical and ironical for this government to be so concerned about the good old Law Society which to date has done pretty well out of this whole Magarey Farlam thing and which raised this issue of increased insurance premiums when, as I said, for the past five or six years now non-government organisations have had to bear huge increases in their insurance premiums for no reason, for no claims being made against them, just because this is the state of public liability now in this state and in this country. I will be supporting the Hon. Rob Lawson's amendment, and good luck to the Law Society.

The Hon. P. HOLLOWAY: I raise a couple of points on which the Hon. Ann Bressington should reflect. First, with respect to the premiums for any insurance they will come out of the fund. There is a risk that they will have to pay a lot more, and presumably that will affect the fund and the capacity to pay, anyway. I cannot accept that comment that this government has done nothing in relation to insurance. We initiated a series of reforms (the Ipp reforms), which we passed through this parliament in an attempt to try to reduce the risk and to try to get those insurance premiums down, and I think we have been successful. In terms of cooperating with the former federal government and other state governments, we have taken a number of decisions to reduce risk to get insurance premiums down.

The Hon. A. Bressington interjecting:

The Hon. P. HOLLOWAY: That was a small part of the suite of reforms. You must cut risks. The insurance aspect is just one part. We should not lose sight of the fundamental issue here, which is that there has been this cap on this fund for many years. As I said, since 1969 the former Liberal government made no attempt to change that, but if we do change that there is no doubt that the solvency of the fund will be more at risk. Again, I make the point that there are a number of other purposes to which that fund is applied.

The Hon. R.D. LAWSON: I should mention for the benefit of some members who were not here in a previous parliament that a similar defalcation occurred in relation to mortgage brokers. The firm Growdens, as a result of defalcations, left some $13 million of claims against the fund that was then under the equivalent of the Land Agents Act. There was, I think, some $26 million in its fund, and I would have to say that governments of both persuasions said, 'Well, no, we can't allow them access to this fund for various technical reasons. However, if we were to wipe out half the fund that would put the whole fund in serious jeopardy and the sky would fall in.' Eventually, because of the political composition of the parliament at the time, there was agreement that we could take some $13 million, halve the fund and pay out those people who had been waiting for years, some of whom had died.

There were tragedies and there were family break-ups and misery for many years (longer than the Magarey Farlam people have had to put up with). The Hon. Iain Evans was responsible for getting through the parliament—because of the situation of the parliament at that time—this particular amendment, and the sky has not fallen in with respect to that fund. It is still there. The $13 million has been able to build up.

I think we ought to be bold in relation to this. As the Attorney mentioned, all sorts of measures can be taken into account. I have mentioned one, that is, insurance. That may not be appropriate, but there are other ways in which, if there is a catastrophic claim, it can be dealt with. Ultimately, it could be dealt with by a levy (as it was in New Zealand) against the legal profession itself. I urge support for this amendment.

The Hon. D.G.E. HOOD: A fundamental principle is at play here with respect to this guarantee fund, that is, the purpose of the fund itself. Whilst it is true that the earnings from it fund a range of worthwhile activities, including legal aid and the like, the reality is that the purpose of the fund is to protect people who essentially are done wrong when their money is held in lawyers' trust accounts. The absolute fundamental question is: if that is the purpose of the fund, why should people not have access to the money when exactly that happens? It begs the question why 30 per cent is not enough; perhaps it should be higher than that. Family First will support the amendment.

The Hon. P. HOLLOWAY: The purpose of the fund is set out in clause 301(4) paragraphs (a) to (p). Other states have funds which are called a public purposes fund. This legislation is not unique to South Australia. Certainly, most other states—probably all other states—have similar legislation, and the funds are used for a range of purposes. I point out that in none of the cases in other states is this a fund of first resort, which is not what this amendment but, rather, the other amendment we will be dealing with shortly—and the government will be opposing—suggests. I wish to make that point.

The Hon. M. PARNELL: When I spoke most recently with government advisers about this bill, I made the point that I thought 5 per cent seemed low. I do not know what a better figure than 5 per cent is because, to a certain extent, it is a circular argument. How much money is in the fund? How many other hands are calling for a piece of that pie? I am nervous about the two impacts of the Hon. Robert Lawson's amendment: first, to increase the amount or cap from 5 per cent to 30 per cent; and, secondly, to make it apply to each claim rather than each event that gives rise to a claim.

I take it that the Hon. Robert Lawson is saying that at present we have five-eighths of the statutory interest account going to the Legal Services Commission and only three-eighths going into the Legal Practitioners Guarantee Fund. His point is that it is only the three-eighths about which we are worried. I am nervous that those proportions are not set in concrete and could change. Therefore, the balancing act of which we are invited to be part is to ask whether the rights of these victims to early compensation are greater than the needs of other parts of the legal system. I have a particular concern about people who cannot afford private legal services and who, therefore, go to Legal Services Commission or community legal centres.

I have a question that the minister or the mover might be able to answer. The Hon. Robert Lawson talked about insurance and said that the Law Society under clause 302 can insure its guarantee fund. The other form of insurance that we have is the professional indemnity insurance that all lawyers are required to take out, as well. My question is whether or not any part of that insurance comes into play in situations of defalcation. For example, once it is shown that a partner of a law firm was negligent in allowing a staff member to misappropriate money, is that compulsory existing insurance fund able to step in or is the guarantee fund the only avenue by which people can receive compensation for their loss? I would be interested in the answer to that question before I proceed.

The Hon. P. HOLLOWAY: Perhaps I can help by indicating that some of the later amendments the government will be moving (in particular, amendments Nos 2 and 3 to clause 321) will be coming up shortly. I indicate that the claimant has to pursue reasonable avenues first. I think that will be a sensible amendment, so that those claimants do have to at least take that course of action first.

The Hon. M. PARNELL: I might have to pursue that a little further. Maybe this is a very basic point that perhaps I should have got my head around earlier. I do understand the nature of the amendments that the scheme envisages, that is, that a person will pursue these other avenues. I guess my question is quite basic, that is, does the compulsory insurance paid by all lawyers under their professional indemnity policy cover things like theft from trust accounts?

The Hon. R.D. LAWSON: It is my understanding that professional negligence insurance invariably excludes defalcation or fraud of the person insured. There might be a negligence claim against a legal practitioner (for example, for employing an employee who is not properly supervised or the like), but there will always be arguments about that as to whether the claim is covered by professional negligence insurance when what is being dealt with is not negligence but fraud on the part of some person.

Ordinarily, one has to rely on the guarantee fund in relation to defalcations, because it is not possible to insure oneself against one's own fraud. So, the consumer protection that the Legal Practitioners Act offers is that all lawyers must have professional indemnity insurance against negligence, and there is a Legal Practitioners Guarantee Fund to cover defalcations.

The Hon. M. PARNELL: I was just going to say that that is my understanding, that is, that you do not insure against your own crimes. However, it seem to me, if I understand the Magarey Farlam situation, that the allegations are that it was not a partner of the firm—it was not an insured person—but it was someone else (an employee, for example), in which case I would have thought a negligence claim in relation to the level of supervision of the insured partners over how their employees were able to have, for example, unfettered access to trust funds, would be a relevant consideration for that other fund.

What I am trying to work out is whether, when we are talking about the guarantee fund, we are just talking about a question of timing and the location of ultimate liability. If, at the end of the day, all these people are going to get their money from one place or another, some of the things we are talking about, whilst important, are less important than if the conversation is about how much money they will get at the end of the day, full stop.

The Hon. P. HOLLOWAY: In relation to Magarey Farlam, as I understand it, the issue of whether the legal partners are negligent is currently before the courts, as indeed the criminal charges against the alleged defalcation are also before the courts. I suppose, in that sense, as I indicated earlier, we probably have to be a bit careful what we say before we reach any conclusions. I think the point the Hon. Mark Parnell has made is essentially correct. But, no doubt to the frustration and dismay of those people who lost money in the Magarey case, obviously these important legal questions have to be settled first.

The Hon. M. PARNELL: The final point I make is that I note in clause 313 that there is that ability for the society to increase the rate and also to authorise additional payments. However, ultimately, that then puts the society in the difficult position of deciding the relative merits, as I said before, of legal aid recipients or the victims of defalcation. At the end of the day (and maybe it is academic, having heard the other contributions to this debate), I am more worried about the other services losing funding. However, I accept what the Hon. Dennis Hood and others say; that it might not be a logical consequence and that we should be looking at it from a position of principle.

I agree with the minister that we are very hung up on the title of this fund being the guarantee fund, and that has us thinking that that is the only purpose of the fund. I think the point is well made that similar funds derived from similar sources in other states are called multipurpose funds, in recognition of the fact that they serve multiple purposes: they are not just an indemnity for the victims of defalcation. So, on balance, whilst I was prepared to support the opposition's earlier amendment in relation to the discretion of the court to order costs against the fund, I will not be supporting this amendment.

The Hon. D.G.E. HOOD: Whilst I agree with the Hon. Mark Parnell with respect to the other purposes that are funded from the fund, and that it is not exclusively a guarantee fund, the bottom line for Family First—or for me, if you like—is that, at the end of the day, they are the people who put the money into the fund: why should they not be the people who are able to get their money out of the fund?

The Hon. R.D. LAWSON: I entirely support the Hon. Dennis Hood's argument in relation to this matter. It is called the guarantee fund. Lawyers are able to say to their clients, 'If there is a defalcation here, there is a guarantee fund. It is called the Legal Practitioners Guarantee Fund. It exists for the purpose of ensuring that you will not lose money if you go to a lawyer. If you go to an accountant, you will not get the same protection: there is no thing called the accountant's guarantee fund. If you go to some other professional, you will not get the benefit of this.' So, the legal profession is quite happy to say, 'We have the benefit of a statutory Legal Practitioners Guarantee Fund.'

For the minister to raise the argument that, if you look at the purposes of the fund, it is really not for the benefit of consumers, if you look at the purposes, you cannot make any argument in relation to that. Is the minister trying to suggest that the primary purpose of this fund is the first thing that is mentioned, namely, meeting the expenses incurred by the LPEAC (Legal Practitioners Education and Admission Council) and costs incurred by the society? It is a weakness in the drafting of this section that it does not put the primary purpose of the fund as the protection of the community. Perhaps it should have done so. However, it is rather assumed, because the section begins with, 'The society must continue to maintain the Legal Practitioners Guarantee Fund', which was established in 1969 for the very purposes that were mentioned by the minister, namely, for the protection of clients.

The committee divided on the amendment:

AYES (12)

Bressington, A. Darley, J.A. Dawkins, J.S.L.
Evans, A.L. Hood, D.G.E. Lawson, R.D. (teller)
Lensink, J.M.A. Lucas, R.I. Ridgway, D.W.
Schaefer, C.V. Stephens, T.J. Wade, S.G.

NOES (9)

Finnigan, B.V. Gago, G.E. Gazzola, J.M.
Holloway, P. (teller) Hunter, I.K. Kanck, S.M.
Parnell, M. Wortley, R.P. Zollo, C.


Majority of 3 for the ayes.

Amendment thus carried.

The Hon. R.D. LAWSON: I move:

Page 161—

Lines 11 and 12—Clause 313(1)(a) and (b)—Delete paragraphs (a) and (b)

Line 15—Clause 313(1)—Delete 'claims' and substitute 'claim'

These amendments are both consequential upon the previous amendment which has been carried. The purpose of amendment No. 3 is self-evident, namely, to delete the reference to prescribed percentages and 5 per cent, given that the committee has resolved to adopt 30 per cent. Previously, the language related to all claims. Ours relates now to any particular claim. Accordingly, the word 'claims', the final word in subclause (1), should be in the singular.

The Hon. P. HOLLOWAY: Because they are consequential, the government will not divide.

Amendments carried; clause as amended passed.

Clauses 314 to 318 passed.

Clause 319.

The Hon. R.D. LAWSON: I move:

Page 163, lines 17 to 19—Clause 319(1)—Delete ', unless the Society considers that special circumstances exist warranting a reduction in the amount of costs or warranting a determination that no amount should be paid for costs'.

As I mentioned earlier, this division relates to the way in which the society, having advertised for claims, determines those claims and, in this clause, the costs which the society may allow. The clause presently provides that, if the society does allow wholly or partly a claim, the society must order payment of the claimant's reasonable legal costs involved in making and proving the claim, and it goes on to say:

...unless the society considers that special circumstances exist warranting a reduction in the amount of costs or warranting a determination that no amount should be paid.

We do not believe that the Law Society ought have any discretion to make a judgment in its own interests in relation to costs and say that special circumstances exist and that therefore, although the victim of this claim will get compensation, they will not be paid their reasonable legal costs. I emphasise that the clause as it will stand, if my amendment is successful, limits a claimant to reasonable costs and the determination of whether those costs are reasonable rests with the Law Society.

In our view it simply gives the Law Society too much power in these circumstances to deprive a victim of their reasonable legal costs. In a subsequent amendment the costs will be limited not to what are called solicitor and client costs, which is the most generous scale of costs (one in which a client is reimbursed all the costs they incurred), but on the less generous scale of party and party costs. We are not proposing carte blanche for victims; we believe they should only be entitled to reasonable costs on a lower scale of costs, but we do not believe the Law Society should have the discretion to deprive them of those reasonable costs.

The Hon. P. HOLLOWAY: The government opposes this amendment, which would alter the rule proposed in the bill about the payment of a claimant's costs. The bill proposes that, if the claim is wholly or partly allowed, the society must also order payment of the reasonable legal costs, unless special circumstances exist, warranting a reduction or non-payment of costs.

The amendment proposes that, if the claim is either wholly or partly allowed, the cost must also be paid. In some cases the special circumstance warranting a reduction in or refusal of costs might be that the available funds are sufficient only to pay the claim and not the costs. In that case, the amendment will result in the full payment of costs at the expense of the full payment of the claim. The costs will be payable to the lawyers concerned, so one could argue that the amendment prefers the interests of the lawyers over that of the claimants.

The provision in its current form derives from the national model where the clause is core non-uniform. That means that the substance should be adopted, although the wording may differ. The provision in the form in which it appears in the bill is the same as that adopted in New South Wales, Victoria, Queensland, the Northern Territory and the ACT, and that is yet another reason why we oppose the amendment. Also, the point needs to be made: if the society partly allows a claim, why should it necessarily follow that 100 per cent of the legal costs is paid? Presumably, if it is only partly allowed, it is not 100 per cent meritorious.

The Hon. R.D. LAWSON: The minister has given one example of special circumstances, namely, where there are insufficient funds to pay all the claims and also the costs. I believe that can be covered under the abating clause which appears later on. What other special circumstances does the minister envisage? Frankly, where you have a clause that provides that the society must order the payment of costs unless special circumstances exist, I would like to have some idea of what those circumstances are.

The Law Society is the same judge and jury in this matter; it can determine the special circumstances. We simply have a policy that we want to keep $2 million in the fund; therefore, there is not enough and you are not going to get your costs. It is, in our view, too wide and, given the somewhat conflicted position of the Law Society in relation to these issues, that particular provision ought to be removed.

The Hon. M. PARNELL: To assist the committee, because otherwise we are guaranteed a division without knowing where people stand, my main concern about this clause relates to the prospect of over-servicing and whether or not it is likely that people would use legal services more than necessary on the basis that, if their claim is wholly or partly allowed, they will get those costs back.

It is a difficult position with the words 'special circumstances' in the clause as it is that the opposition's amendment seeks to strike out. As the minister said, the main special circumstance is likely to be that there is not enough money. At the end of the day, I imagine that whether or not costs are awarded the particular clients will still be liable for their lawyers' costs, and whether they will be paying them out of the funds that they receive from the guarantee fund or whether they pay them out of their own pocket, the lawyers will get paid and the clients will get proportionately less. On balance, I am not inclined to support the amendment, but I am inclined to support the foreshadowed amendment in relation to limiting costs to party-party costs.

The Hon. P. HOLLOWAY: To put it on the record, I would like to draw the committee's attention to clause 317(5), which gives three reasons for which the society may reduce the amount otherwise payable on a claim. They are:

(a) if satisfied the claimant assisted in or contributed towards, or was a party or accessory to, the act or omission giving rise to the claim; or

(b) it is satisfied the claimant unreasonably failed to mitigate losses arising from the act or omission giving rise to the claim; or

(c) if satisfied the claimant has unreasonably hindered the investigation of the claim.

I think they are three good reasons why all of the costs may not be allowed.

The Hon. D.G.E. HOOD: Family First will support the amendment. The primary reason, I think, is the argument Mr Lawson outlined very succinctly; that is, in this case we see no reason why the Law Society should be the judge, jury and, dare I say it, the executioner. It has too much of a rein, if you like, in determining the outcome of the situation.

The Hon. P. HOLLOWAY: We do not have the numbers. I will not divide on it; however, I remind the committee that we oppose it. Obviously, this bill will need some further form of negotiation and/or a conference, so this matter will be one that can be considered there.

Amendment carried.

The Hon. R.D. LAWSON: I move:

Page 163, line 23—

Clause 319(3)—After 'guarantee fund' insert:

on a party and party basis

The purpose of this amendment, as previously explained, is to ensure that costs are paid on what is called the party and party, or lower scale of costs, bearing in mind that the costs are being paid from the guarantee fund.

The Hon. P. HOLLOWAY: The government does not support the amendment but, given the other similar amendments, in many ways this is linked to the amendment we had earlier, so I will not divide on it. As I said, we can consider all of these issues when the bill goes back to the other house.

Amendment carried; clause as amended passed.

Clause 320 passed.

Clause 321.

The Hon. R.D. LAWSON: I move:

Page 164, lines 1 to 5—

Clause 321(c) and (d)—Delete paragraphs (c) and (d)

This amendment is the first which deals with the issue of the fund not being (as it is now) a fund of last resort but a fund that is available to be pursued as a fund of first resort. The way in which the fund is established as a fund of last resort is as stated in this clause 321, as follows:

(1) A person is not entitled to recover from the guarantee fund any amount equal to or to the value of other benefits—

(a) that have been paid to or received by the person—

and we certainly agree with that—

(b) that have already been determined and are payable to or receivable—

and we certainly agree that that should stand, but then it goes on to state:

(c) that (in the opinion of the Society) are likely to be paid or received by the person; or

That is obviously in futurity. The clause continues:

(d) that (in the opinion of the Society) might, but for neglect or failure on the person's part, have been paid or payable to or received or receivable by the person,

from other sources...

The effect of clause 321 as it stands is that any claimant upon the guarantee fund must first pursue all other avenues that in the opinion of the Law Society the person ought to pursue. This leaves a victim in an invidious position. The victim must obtain legal advice and very often examine whom he will take expensive legal proceedings against; for example, in the Magarey Farlam case, whether it be the solicitors who ran the firm, the auditors who audited the firm's accounts, or whether it be some other person, or the person now charged and said to be responsible for the defalcation.

That is a very difficult and onerous position for any claimant to be in. Under the current scheme, every Magarey Farlam client had to undertake that task; that is, determine whether to sue and who to sue, and you are required to do it unless the Law Society—once again in that conflicted position—says, 'No, don't bother.'

It is a conflicted position because the sort of people who are giving the advice are usually members of the Law Society who it might be said—perhaps unfairly—have a pecuniary interest in whether to pursue one avenue which might lead to greater fees than another. We believe that, given the fact that this is a fund for the benefit of the consumer, it ought to be available to the consumer. An ordinary client should not have cast upon him or her the burden of chasing the defalcator or person responsible: it might be the auditor or some other banker.

We propose that it is the Law Society that will be subrogated to the rights of any person who is paid and the Law Society can make the decision whether it will spend funds—admittedly, it will be money from the guarantee fund—to pursue the person responsible. It is appropriate that the Law Society has that responsibility. It has the resources and the funds. Its members are the experts in these fields. It has committees, for example, that examine law claims.

That is the one organisation in the state that actually has the resources to make decisions about whether or not it is appropriate to pursue particular claims. People tend to forget the personal strain that undertaking legal proceedings has on people and their families: to go to a solicitor; to ask for advice; and to be told you have to put money in the trust account to enable the funds to be pursued. We think it would be better, in the first place, if the solicitor says, 'What you have to do is actually make your claim on the Law Society, provided we can prove that it is a bona fide defalcation.'

They will consider the claim; they will pay it. They will pursue the wrongdoer, rather than 10 or 15 people all going off to their various lawyers, all pursuing every rabbit down every burrow and suffering the very considerable financial strain that involves—bearing in mind that these people have already lost money or might have lost all their money in the defalcation—and the strain of putting their houses on the line to pursue someone.

We think it is only reasonable that that burden ought to be put on the Law Society, bearing in mind that it has got the expertise and it will not be suffering financially because it will be reimbursed out of the fund. Members of the society certainly will not waste money out of the fund because, as we know, they see themselves as the guardian of the fund. In our view, it is an entirely just situation that the society pursues the defalcators, many of whom might have been members of the Law Society, in any event.

We say that the fund should not be a soft touch but a first place to obtain relief. It will be suggested to the committee that a better system is to follow the government's formula, that is, you have to pursue such remedies which, in the opinion of the society, are reasonably available to a litigant. Once again, that puts it back on the opinion of the society. Why should it be at the discretion of the society? In our view, this fund does not exist for its benefit: it exists for the benefit of the client. If you have a client-focused fund it would say, 'The client has an opportunity to put in a claim and, if it is proven, be reimbursed.'

The other factor favouring our proposal is time. Magarey Farlam has illustrated how long it takes to resolve these matters. Under the current system, we have not yet resolved the Magarey Farlam matter, but if the Magarey Farlam claimants are now told, 'Go off and pursue your claims'—a class action or whatever against people—it will involve further time, further trauma and further distress. As we learnt in Growdens, the stress of litigation can be quite devastating to people. We believe they ought be relieved of it.

The Hon. P. HOLLOWAY: The Hon. Robert Lawson's amendment would make the guarantee fund a first resort for claimants, even though they have some other resource to make good any shortfall, unless they have received or stand to receive funds from that other source. As a result, the cost of pursuing any other entitlements that claimants may have will fall on the fund rather than the claimants. This is a substantial departure both from the present law and the model bill. Under the present law, a person cannot make a valid claim on the fund until other avenues have been exhausted. That is the effect of section 60 of the Legal Practitioners Act which permits a claim only where there is no other reasonable prospect of recovering the full amount of the loss.

In other words, the fund is intended as a backup for claimants who have no enforceable legal entitlements to recover their losses. That has been the law since 1981. The first recourse is the wrongdoer. The fund is the backup for when there is no reasonable prospect of recovering the money from those who should, by rights, pay. The national model takes the same approach. The provisions sought to be amended here are core, non-uniform provisions of the model. They have been adopted in New South Wales, Victoria, Queensland, the Northern Territory and the ACT. If anything, the national model is more generous than the present law because a claim can be made and, in a situation of hardship, be paid, despite the likelihood of recovery from other sources.

The society accepts the claim and then forms a view on whether it is likely that other benefits will be paid or received, or whether, but for the claimant's failure to take action, other payments might be recovered. If the society is persuaded that there is no likelihood of other recovery, then it may pay the claim, but the proposed amendment would go even further. It transfers a substantial new cost to the fund, that is, the cost of litigation to pursue the wrongdoers. Eventually some of that cost will be recoverable from the wrongdoers or their insurers, although it will probably not be recovered in full, and certainly there will be a delay of months or years between the date of payment of the claim and the date of recovery of the costs from litigation on the subrogated rights.

The government is committed to the national model. Where a provision is a core, non-uniform provision, there is room for some change in the wording, but not for a complete reversal of the policy. Having signed the intergovernmental agreement, the Attorney-General is bound to use his best endeavours to see that the substance of the core, non-uniform provisions are retained, even though there may be changes in the detail or the wording. A better solution would be the government's proposed amendments to the ability to claim on the fund. The government should not and does not support this amendment. I move:

Page 164, lines 1 to 5—

Clause 321(1)(c) and (d)—Delete paragraphs (c) and (d) and substitute:

(c) that (in the opinion of the society) are reasonably available to the person,

During the debate in the other place, much attention focused on the guarantee fund provisions. The opposition's amendment seeks to make the fund a fund of first resort, instead of requiring claimants to seek other recourse first.

It also seeks to lift the cap on payments from 5 per cent of the amount in the fund to 30 per cent. They further seek to allow claimants' costs in all successful cases payable on a party-party basis. The member for Davenport and the member for Enfield each suggested a compromise solution would be to include in the bill a method of deciding whether potential claimants should seek other avenues of address before claiming on the fund. This amendment would provide that a person is not entitled to recover amounts that, in the opinion of the Law Society, are reasonably available to the person.

This amendment goes hand in hand with the government's amendment No. 3, which introduced a test as to what 'reasonably available' means. The test would oblige the Law Society, upon receipt of a claim, to consider whether an ordinarily prudent self-funded litigant would pursue a particular course of action to get their money back. If so, he or she should not be able to claim on the fund for the time being and, if not, they should be able to claim. This test is similar to that applied by the Legal Services Commission when deciding on the merit of an application for legal aid.

If a default occurs, the society would apply this test and communicate its reasons for the determination by way of the new information notice that the bill provides for. If the claimant is aggrieved, he may appeal to the Supreme Court to review the determination. This would at least let the claimant know where he or she stands, unlike the present system under which the society declines to accept a claim and formal reasons need not be given. This is the effect of this amendment as well as amendment Nos 3, 4 and 5. They are a package and an improvement on the present situation, and I commend them to the committee.

The Hon. R.D. LAWSON: The minister says that this is a core non-uniform provision and he suggests that we in South Australia are required to follow the national model. The fact is that, when this model was developed, the Magarey Farlam situation was not in the forefront of our minds; we were not aware of it. For years, the law societies in the various states have been going along, adopting the existing system—it is all fine, it has always worked very well, and why should we do anything to change it? But we now know, from our own experience in South Australia, that the system does not work.

The Hon. P. Holloway: There's never been a default before?

The Hon. R.D. LAWSON: Well, there have been defaults before, but perhaps not of this magnitude. Members would be personally aware, I am sure; and most members would have received correspondence from people (families) who have suffered grievously as a result of the way in which this fund has worked in a real-life situation. They are in the middle of it right now.

This having now been brought to the attention of the parliament, I think that we ought to be proactive and ensure that, in future, people are not put through the sorts of hoops they are being put through at the moment under the current scheme. It is incumbent upon us to develop a better scheme, if possible. A better scheme is that we leave all litigation to the Law Society; it is the expert, so it can chase the wrongdoers. But, provided somebody has a valid claim and has actually lost their money as a result of defalcation, their first port of call is to the fund.

This is a concept entirely known to everybody. You would not expect your insurer, when your house has burnt down, to say to you, 'Don't come to us. Chase the arsonist; he is the person who's responsible for this. We are only your fund of last resort. We suggest that you chase the arsonist, and we'll give you his address and help you with a private investigator, or whatever.' It is a well understood concept that, if you have a right of recovery, you ought be able to pursue it rather than be fobbed off and told, 'You chase the wrongdoer; you suffer the inconvenience, the delays and the trauma. We, on the other hand—in the comfort of our offices in the Law Society—will wait until you've done that'; or, as the government is mollifying its position by modifying its position, it says, 'Well, we'll leave the judgment to the Law Society as to whether it is reasonable for you to have to pursue that person.'

We know the attitude of the Law Society and we know the attitude of the government; namely, that this is a multipurpose fund and it is not available. It is not a right that you have; it is some sort of privilege. You are not going to get all your money; it is only to give you a bit of a hand-out. With that attitude, manifested in the way in which the Law Society has resisted the amendments proposed and the way in which the government has backed it up, I think it is entirely appropriate that we adopt our proposal which avoids the pitfalls that have been demonstrated to exist in Magarey Farlam.

The Hon. M. PARNELL: This is probably an appropriate time to talk about the concept of a fund of first resort, compared to the current situation. I enjoyed the honourable member's analogy in relation to insurance. However, I would like to make a couple of points. The first point is that an insurance company is only answerable to two main parties: its customers, clients or policyholders, and it is also answerable to its shareholders to make a profit. It has, at its disposal, a great deal of actuarial knowledge, and also even meteorological knowledge and data if it is insuring against flood and storm risk and things like that. The problem with this situation is that the defalcations are completely unpredictable in timing and in amount, and so I think there is a difference between a regular insurance policy and the fund that we are talking about.

The opposition's amendments calling for this to be a fund of first resort are very attractive because none of us likes to see people who have suffered misfortune be treated other than with fairness and compassion, and preferably receive all their just rewards. We have, for example, schemes of insurance for people who are injured at work and we want to see people compensated and sent back to work. It is a very attractive option to say, 'Leave it to the Law Society and they will fix it up.' I notice that, in clause 322, there are subrogation rights, and they make sense. It does make sense for the Law Society to stand in the shoes of the victim and do the chasing for them. However, I guess the difference between that as an option and what the honourable member is proposing is that, if it is a fund of first resort, then that subrogation model would occur in all cases, rather than just in some cases.

We have all seen, for example, asbestos victims on television who appear to be led along until their last dying days before, finally, they get their payment. We look at it and think it is terrible that they are being strung along. Perhaps people may want to use that analogy and say, 'Well, we are stringing along the victims. We are making them jump hoops. We are making them sue everyone else and only at the very end will the Law Society come to their aid.' The system in this bill is better than the current system. There is flexibility for the Law Society to step in earlier. The question for us is whether we need to go that one step further and make them step in at a very early stage, or whether the model that is currently proposed, about requiring the victims to pursue their own rights, is the model to be adopted.

At the end of the day, looking at the way all these amendments have been going, the government is on notice that we need to have this system fixed up. It looks as if these amendments are likely to get up and we are going to have to spend some time, perhaps in another forum, trying to sort it out. For the record, I was not inclined to support the amendment making this a fund of first resort, but I guess that what we are collectively doing is putting the government on notice that, unless the whole of the bill is to be lost, we do need to come up with a better system.

The Hon. A. BRESSINGTON: It never ceases to amaze me that the Greens and Democrats come into this place and squawk about the rights of animals and the environment, telling us that we must care about all of this, otherwise, 'What will we be leaving our children?' However, when it comes to bills dealing with humanity they go for the capitalist side of it almost every time. How could the Hon. Mark Parnell possibly sit in his own skin and say that the Law Society's needs and wants somehow take precedence over these victims—250 of them. As I said in my speech, some of them are students with $2,000 locked in, while others may be people who have, say, $40,000 of an inheritance locked away in order to look after a disabled husband.

This is the real face of this issue. I just cannot believe that there are members in here who would dare to preference the Law Society with endless resources and expect these people, who are already under pressure without these circumstances applying, to do as the Hon. Rob Lawson has said—to inspect and investigate every avenue open to them before they can access this fund.

I am shocked, but I suppose that I will get used to it after a while. I indicate that I will be supporting this amendment. I agree with the Hon. Mark Parnell (and it is probably the only thing I agree with him on) that we are putting this government on notice. The system does need a serious overhaul, and just because it is not in line with the other states does not mean that it is not better.

The Hon. P. HOLLOWAY: South Australia has 8 per cent of the population. Again, the Legislative Council is doing its usual trick of saying that everyone else in the country is out of step. At what point do we come to the conclusion that we, in one of the smallest mainland states in the country, can be different from everywhere else? There is actually national legislation everywhere else in the country. Eventually, it will start to cost the state dearly.

Sure, we can be different from everywhere else. We can change our legal system and make it different, but we are suffering and we will suffer. Why is it that every other state has seen fit to do this? Why is it that every other state says that we should not have—

The Hon. S.G. Wade interjecting:

The Hon. P. HOLLOWAY: Of course they happen all the time. Do you think that this is the first? Do you think this will be the last? If you want to make a fund of first resort, why not open up consolidated revenue? Why not open up the entire budget? All sorts of victims are suffering all sorts of things. Why not open up the entire budget and sack ourselves, sack the Public Service and just give all the money to all the victims of the world? Why stop at South Australia? Where do you draw the line?

The fact is that there have to be structures in place. It is all very well to pick one particular case where there are victims. We all feel sorry for them, and their needs must be addressed, and we are seeking to have them addressed. However, there have to be structures. You cannot just have systems that take away all the protections that eventually could put the whole structure in jeopardy. That is what we are saying. With the totality of the amendments that have been moved, there is a risk that ultimately the whole fund might collapse; in which case, where are we then? Where will future victims be then?

All we are saying is that these sorts of funds should not be funds of first resort. They were never intended to be that. It is what every other jurisdiction in the country has done. If we want to make this some sort of victim support fund, there are other ways of doing that. As I indicated in answer to a question yesterday on a different bill, there was a series of instances where ex gratia payments were made to victims of crime.

We are talking here about the guarantee fund for the legal profession that has a number of purposes. Obviously, we will have to iron this out, but one should not brush off the idea that we can afford to be different from the rest of the country on every issue just because we feel like it. You can do that, but you will pay a big price for it in the end.

The Hon. R.D. LAWSON: The minister made a Freudian slip when he said that this is a fund for the legal profession. It is not a guarantee fund for the legal profession: it is actually a guarantee fund for the clients of the legal profession whose moneys provide the income to feed the fund. I do not believe that, given the fact that the Magarey situation has brought this matter to the attention of all of us in South Australia, we should be meek and say that we will simply follow the leader and allow injustice to be done because we want to put uniformity above justice.

We have an issue in South Australia. We have a capacity now to resolve it. Once this bill is passed there will be no capacity at all to resolve this issue. The government will never bring the Legal Profession Bill back into the parliament. This is an opportunity that we have, and it is not irresponsible. It is a fund that is quite substantial. Few claims have been made upon it. The suggestion of the minister that the sky is going to fall in and we are going to bankrupt the state by reason of making this a fund of first resort is, frankly, ridiculous.

The Hon. D.G.E. HOOD: The issue at play here is a very simple one. I put it very simply: should the average person who puts their money into a lawyer's care and then finds that that money has disappeared for whatever reason be able to get it back quickly, reasonably and without incurring extra expense through employing other solicitors to chase their money in every possible way? The simple answer is yes. For that reason we support the amendments.

The Hon. P. HOLLOWAY: I make the point: why don't we just open up the consolidated revenue, because there are a lot of victims out there, there are not just victims of legal firms? I am no champion of the legal profession, as people would know, but it is rather ironic that in this case the allegations relate to, I believe, an accountant. That is now before the courts and that will be determined and whether the legal professionals were negligent will also be determined by the matter before the court. To use one case to determine principle is not necessarily a very sensible thing to do.

The CHAIRMAN: I understand that the Hon. Mr Hood supports the amendments. Is that correct?

The Hon. D.G.E. HOOD: We support the amendments.

The Hon. A. BRESSINGTON: I make the point that the Hon. Paul Holloway said that it is quite ironic that we have members of the legal profession now taking an opposite view to the government on this. I think that is, in itself, an indication that there are, thank God, some within the legal profession who see the inequity in this. I think that is even more of a statement as to why these amendments should be carried, if we have a QC here who is arguing the point in favour of victims having to be less traumatised, having to go through less stress and strain to get their money back from a guarantee fund.

If I put my money into a bank account and the bank gets robbed or whatever, am I actually entitled to claim that money back from the bank? They have an insurance company, I would imagine, or an insurance arrangement that would cover my savings in the bank. I would imagine that most people who have put their money into this trust account have done so with the utmost faith that their money would be managed and looked after well. As I said, because the Hon. Rob Lawson is here arguing this case, and some of it may be party politics, who knows, the fact is that he is making valid points and points that, I think, needed to be made on behalf of the victims.

In the briefing with the Attorney-General, we were told that these victims are not victims: they are investors. They are investors to the point where they invested their money in good faith. They are victims after the fact that their money has disappeared, or been ripped off. That then changes their position in this entirely from investor to victim, and justly so.

The Hon. M. PARNELL: I have one further brief comment in response to the Hon. Ann Bressington's remarks. What I do look forward to from the honourable member is a suite of legislation so that everyone who ever gives money to a real estate agent, plumber, builder, travel agent—any time anyone else handles someone's money—we must establish a fund where people can, without having to take any other steps other than an application, get their money back.

It is difficult when people find that they have been ripped off or stolen from. The legal profession has in place an imperfect but a partial mechanism for resolving those things; in other areas there is no recourse at all. A lot of the Magarey Farlam victims have written to me; I know their stories and they are terrible ones, as are the stories of people who have put deposits on world trips, or money into real estate, or deposits on goods that have not turned up. Sometimes those sums are much smaller and so the damage may be smaller, but they can be considerable sums as well. I am not defending this system or saying that it is perfect, but I think it is incorrect to say that anyone who supports the government on this particular point lacks compassion for all victims of financial fraud, because I do not think that is the case.

The Hon. P. HOLLOWAY: I thank the Hon. Mark Parnell for putting the point far more elegantly than I tried to do a few minutes ago.

The CHAIRMAN: The first question is: that paragraphs (c) and (d), as proposed to be struck out by the Hon. Mr Lawson and the Minister for Police, stand as printed.

Question negatived.

The CHAIRMAN: The next question is: that new paragraph (c), as proposed to be inserted by the Minister for Police, be so inserted.

The committee divided on the question:

AYES (9)

Finnigan, B.V. Gago, G.E. Gazzola, J.M.
Holloway, P. (teller) Hunter, I.K. Kanck, S.M.
Parnell, M. Wortley, R.P. Zollo, C.

NOES (12)

Bressington, A. Darley, J.A. Dawkins, J.S.L.
Evans, A.L. Hood, D.G.E. Lawson, R.D. (teller)
Lensink, J.M.A. Lucas, R.I. Ridgway, D.W.
Schaefer, C.V. Stephens, T.J. Wade, S.G.


Question thus negatived.

The Hon. R.D. LAWSON: I move:

Page 164, lines 7 to 9—Delete subclause (2)

This amendment is basically consequential. Bear in mind that we have now made the fund a fund of first and not last resort. In those circumstances, it is appropriate that the limitation on the Law Society under the rights of subrogation is removed. That limitation is removed so that the society can proceed against an associate.

The Hon. P. HOLLOWAY: Clause 321(2) was the subject of a government amendment in the other place. It effectively brought the bill back into line with the national model when it comes to hardship payments. It provides that the society may, in its absolute discretion, make a hardship payment from the guarantee fund even though the claimant is not entitled to recover from it because, in the opinion of the society, he is likely to be paid from another source. The government initially changed the model provisions because we thought that the second form of payment is not payment of a claim but prepayment of an amount expected to be recovered from somewhere else and therefore not a payment that the guarantee fund really ought to make.

Instead, we opted subtly to amend the provision dealing with advance payments which are possible where a claim on the guarantee fund is likely to be allowed and provided that they can be made even if there is some prospect of recovery from another source. Bringing the bill back into line with model provisions was a compromise position and would allow the Law Society to make a hardship payment, first, where the claim on the fund is likely to be allowed; and, secondly, at the absolute discretion of the society where the payment is warranted due to circumstances of hardship and the society is of the opinion that the person is likely to receive funds from another source entirely. That gives the society more scope to make hardship payments, not just when there is some prospect of recovery from another source but even when it is likely that a person will recover it. The opposition's amendments would confine hardship payments to those situations where a claim is likely to be allowed and is opposed.

The Hon. R.D. LAWSON: I regret that I gave an incorrect explanation when moving this amendment. The reason we seek to remove this particular provision is that it is a provision dependent upon subclause (1)(c), which has been removed. Given that it will be a fund of first resort in accordance with previous amendments, it is unnecessary to have this particular provision, which is designed to alleviate a hardship that might be done with a fund of last resort. It is for those reasons that we believe this is unnecessary—not that we believe the Law Society in the case of hardship should pay people, but it will not be necessary in light of the amendments made. That is why we seek its deletion.

The Hon. M. PARNELL: I seek guidance from the minister, but it seems to me that, if this subclause refers to a paragraph that no longer exists, the current wording cannot stand. I would think that either the paragraph has to go or it must be reworded to remove the reference to subclause (1)(c).

The Hon. P. HOLLOWAY: Certainly, the honourable member has moved a package of amendments. I do not intend to divide on this amendment. The bill as it will now come out of this council is not acceptable to the government, so it will either lapse (and we will go back to the old scheme) or another solution will be negotiated between the houses. I guess that can come out in the wash. It is not very profitable to waste too much time on it. We can sort out the technicality of it later. I do not propose to divide on it. It will have to be part of considerations in the future anyway.

Amendment carried; clause as amended passed.

Clause 322.

The Hon. R.D. LAWSON: I move:

Page 164, lines 19 to 21—Delete subclause (3).

This is a consequential amendment upon making the fund a fund of first resort. It removes an impediment by simply deleting the provision which prevents the Law Society from exercising a right of subrogation. I will check that with parliamentary counsel. I am reminded by parliamentary counsel that this amendment will remove a limitation from the Law Society's right of subrogation. Bearing in mind that we have now a fund of first resort, there should not be limitations on the society's rights of subrogation.

The Hon. P. HOLLOWAY: The bill following the model would permit an innocent associate to claim on the fund for the loss of his money and would protect him from a subrogated action by the society. The amendment proposes to remove that provision so that a subrogated right can be exercised against an innocent associate of the practice. Again, this is a departure from the model. The provision as it stands in the bill has been adopted interstate.

The government is bound to oppose any amendment that makes a substantial change to the operation of the core non-uniform provisions of the model, but, given that now, under these amendments, this is now a fund of first resort, it is obvious that the Hon. Robert Lawson's amendment is consistent with that, but it is quite contrary to the government's position. Again, I will not bother to divide on the amendment, but we do strongly oppose it.

Amendment carried; clause as amended passed.

Clauses 323 to 325 passed.

Clause 326.

The Hon. P. HOLLOWAY: Amendments Nos 4, 5 and 6 are essentially consequential to my second amendment, which was lost, so I will not bother to pursue them.

The Hon. R.D. LAWSON: I move:

Page 165, lines 30 to 36—Clause 326(3)—Delete subclause (3)

This is a consequential amendment and consequential upon the amendments to make this a fund of first resort. I mentioned previously that the procedure adopted in relation to claims is that a claimant makes the initial claim to the Law Society. If the society refuses the claim, either wholly or in part, the claimant may appeal to the Supreme Court under this clause.

Subclause (3) reinforces the previous provision that this is a fund of last resort by providing that the claimant who is making the appeal must satisfy the court that other avenues of recourse are not reasonably available and also gives the court the power, on the application of the society, to stay an appeal pending further action being taken by the claimant against the auditor or whoever. So, it is a consequential amendment to ensure that the fund of first resort status remains through the appeal process.

The Hon. P. HOLLOWAY: Again, this is, I suppose, consequential on the earlier amendments moved by the honourable member to make it a fund of first resort. We oppose the amendment, but we will not waste any further time by dividing on it.

Amendment carried; clause as amended passed.

Clause 327.

The Hon. R.D. LAWSON: I move:

Page 166, lines 17 to 23—Clause 327(3)—Delete subclause (3)

This is a similar provision in relation to an appeal to the Supreme Court against the failure of the Law Society to determine a claim within the 12 month limitation period. Once again, on an appeal of this kind, as the bill currently stands, the appellant would have to satisfy the court that other avenues were not reasonably available, and the court could also stay the appeal to ensure that the claimant pursued other avenues. This provision is inconsistent with the fund of first resort status, and it is really consequential upon the scheme that the committee has already accepted.

The Hon. P. HOLLOWAY: As it is consequential, we will not divide on it, but we again oppose this move to make the fund a fund of first resort.

Amendment carried; clause as amended passed.

Clauses 328 to 330 passed.

Clause 331.

The Hon. P. HOLLOWAY: I move:

Page 168—

Lines 8 to 10—Clause 331(2)—Delete subclause (2) and substitute:

(2) A levy is to be of such amount as the society determines and may differ according to factors determined by the society.

Line 11—Clause 331(3)—Delete 'Attorney-General' and substitute:

society

After line 18—Clause 331—After subclause (4) insert:

(5) However, a levy may not be imposed under this section without the written authorisation of the Attorney-General.

These three amendments give the profession, through the medium of the Law Society, more of a say in how any levy on the profession would be determined. The levy power exists to ensure that the guarantee fund has sufficient resources. All other jurisdictions around the country, except for Tasmania, have similar provisions in their legislation. If the council of the society sees fit to levy practitioners, for example, because there is a collective sense of responsibility in the particular circumstances or a collective compassion for the wrong claimants, why should it not be able to do so? The joint role of the society and the Attorney-General in setting the levy should ensure that it is applied only in appropriate cases and at an appropriate level. The mechanism contains its own checks and balances.

The Hon. R.D. LAWSON: The Liberal opposition will be supporting these amendments. They improve the scheme of levies by requiring that the society makes the initial determination that a levy is required. Given that it is a levy on members of the legal profession, it is appropriate that the society have that initial function, given its extensive responsibilities in relation to the fund. It is also appropriate that the Attorney-General retains a residual right of veto, because a levy cannot be made without his authorisation.

The Hon. M. PARNELL: If the levy is initially to be determined by the Law Society (I note that not all practitioners are members of the Law Society), is there any mechanism for non-members of the Law Society, such as employed solicitors with community legal centres (many of whom did not join the Law Society because they had no appropriate rate that was low enough that those poorly paid lawyers could afford to join), to have input into the question of a levy?

The Hon. P. HOLLOWAY: I do not believe it matters whether or not someone is a member of the Law Society. With the amendment, section 331(3) reads:

(3) Without limiting subsection (2), the society may determine that the amount of the levy is to differ according to whether a practitioner is practising—

(a) on his or her own account or in partnership; or

(b) as an employee of another solicitor; or

(c) as an employee of a person who is not a solicitor, or of a corporation; or

(d) as an employee of the Crown.

So the society may determine it and, of course, then we have the new clause which provides that the levy may not be imposed without the written authorisation of the Attorney-General.

Amendments carried; clause as amended passed.

Clauses 332 to 513 passed.

New clause 513A.

The Hon. P. HOLLOWAY: I move:

Page 249, after line 34—After clause 513 insert:

513A—Rules of Supreme Court may assign functions or powers

(1) The Supreme Court may, by rules of court, assign to a specified person or body, or to a person occupying a specified office or position, any functions or powers conferred on or vested in it under—

(a) Chapter 2 Part 4 or 5; or

(b) Part 1 of this chapter; or

(c) any other provision of this act prescribed by regulation for the purposes of this section.

(2) The rules of the Supreme Court may specify that an assignment of functions or powers under this section is subject to conditions and limitations.

As noted in the second reading explanation, the bill continues the present regulatory framework for the profession. Under that framework the Supreme Court has the ultimate responsibility for the profession in many areas but it delegates some of the day-to-day operations to the Law Society. The society has discovered a technical anomaly in the bill. It is concerned that the Supreme Court's powers of delegation in clause 54 of the bill are not wide enough. It currently reads:

54—Rules of Supreme Court may assign functions or powers

(1) The Supreme Court may, by rules of court, assign any functions or powers conferred on or vested in it under this Part—

(a) to a specified person or body; or

(b) to a person occupying a specified office or position.

The part in question deals only with legal practice by Australian legal practitioners, essentially covering the grant, renewal, amendment, suspension and cancellation of local practising certificates. The clause is not part of the model provisions but is copied from the present act, and the relevant part in the present act deals with the wider field of the practice of law, covering not only practising certificates but also the regulation of company practitioners, trust accounts and the professional indemnity insurance scheme.

Should the wording of the clause stand, the society fears that it will not have the power to perform its current functions such as the regulation of trust accounts and their audit. The society states that it will also result in the denial of power to take action regarding matters new to the regulatory framework, specifically, notifications of interstate and foreign regulatory action and the regulation of the new business structures of incorporated legal practices and multidisciplinary partnerships. The society has also called for the delegation to cover matters dealing with public notaries. This is not presently within the court's power to delegate.

The relevant rule of court assigning functions to the society (rule 14 of the Admission Rules 1999) only speaks to matters dealing with practising certificates, the regulation of company practitioners and the provisions dealing with trust accounts and audit. However, the government believes that the present extent of the court's power to assign functions should be preserved and expanded to include interstate and foreign regulatory matters, the regulation of the new business structures, and that of public notaries.

The Hon. R.D. LAWSON: Can the minister indicate to whom it is envisaged that those functions will be deputed?

The Hon. P. HOLLOWAY: All this amendment would do is simply give the Supreme Court the power to delegate if the Supreme Court so wishes. It does not require it to delegate.

The Hon. R.D. LAWSON: But is it envisaged that the Supreme Court will exercise these powers in favour of the Law Society, or some other body or bodies?

The Hon. P. HOLLOWAY: The Law Society has proposed it because it has a concern that the power of delegation may not be wide enough. Currently, I understand the Supreme Court, which has ultimate responsibility for the profession, delegates some of its day-to-day operations to the Law Society. I am not sure it would delegate them to anyone else. The Law Society would be the only body, presumably, to which the powers would be delegated so, given that the Law Society has raised these concerns, presumably it would expect that if the Supreme Court so wished they would be delegated to the Law Society.

I am also informed that some power is delegated to the Legal Practitioners Conduct Board, but presumably in relation to matters like foreign regulatory action and the like it will come under the Law Society.

The Hon. R.D. LAWSON: We will support the amendment.

New clause inserted.

Remaining clauses (514 and 515) passed.

Schedule 1.

The Hon. R.D. LAWSON: I move:

Page 253, lines 14 to 17—Schedule 1, clause 13(1)(b)—delete paragraph (b) and substitute:

(b) a claim in respect of a default (within the meaning of that Part) occurring before the commencement of this clause if the claim had not been determined under Part 5 of the repealed Act before the commencement of this clause.

This amendment is to the transitional provisions and is designed to ensure that claims on the guarantee fund, which will be dealt with in accordance with the new scheme, apply to any claims that have not yet been determined. Our purpose in moving this amendment is to ensure that the Magarey Farlam claimants will be entitled to claim under the new regime.

The Hon. P. HOLLOWAY: Essentially Rob Lawson is seeking to bring the Magarey Farlam cases under the first resort provisions. The amendment would alter the transitional provisions so that any pending claims that had not been determined by the time the new law starts will become claims under the new law. Other claimants whose matters have been completed would not have this benefit.

Presumably the claims affected by this provision will need to be started all over again, and any time limits that formally apply to them will be overcome. A fairer approach would be to treat all transitional claimants the same, as the bill aims to do. For that reason we oppose the amendment, but, given that it is tied up with other measures which ultimately will have to be negotiated, I will not call a division at this late hour but simply indicate that we oppose it.

The Hon. M. PARNELL: Does this provision enshrine a stand off where, if the government does not accept the amendments of the Legislative Council and does not pass the bill, the claimants will not want their claims settled? If the bill does not go through there is no great incentive for the claims to settle.

The Hon. R.D. LAWSON: We do not quite see it having that effect. The amendment was originally proposed at a time before the time for the serving of notices. The notices of claim have now been served on the Law Society and it may not be necessary for this claim, which shifts the date from date of service to determination.

We are not moving our amendments with the intention of not having this bill brought forward. We hope the national legal profession is embraced and commences on 1 July. Nothing in our amendments is designed to prevent that occurring. I do not believe the evil to which the honourable member is referring will be realised. The claims are in and are being pursued, but they can be dealt with more expeditiously under the new scheme than the old.

Amendment carried; schedule as amended passed.

Title passed.

Bill reported with amendments.

Third Reading

Bill read a third time and passed.

At 22:21 the council adjourned until Wednesday 27 February 2008 at 14:15.

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