The matter in question, Legal Services Commissioner v Nichols, centers around a bitter family battle which saw George Nichols issue a complaint to the LSC about alleged misconduct carried out by his now ex-daughter-in law Melinda Nichols’ two lawyers, whose names have been removed from any official court documents.

The misconduct claims stem back from 2010 when George Nichols transferred $270,000 to now-liquidated company, Asden Developments, for which Ms Nichols was a director. The transfer came after a request was made by Ms Nichols, who said that the money would be utilised to pay Asden’s creditors. Asden was responsible for paying the suppliers to the Nichols’ family’s property development projects.

Not long after that, Ms Nichols’ then-husband, Phillip Nichols, sued her following their marriage breakdown, and George Nichols demanded the $270,000 to be repaid on the basis that it had not been used towards the cost of construction of the property development.

The entitlement to repayment of the $270,000 was said to be based upon the existence of a resulting, or, Quistclose trust in favour of George Nichols, given that the specific purpose for which the money had been supplied to Ms Nichols, for payment of Asden's creditors, had not eventuated.

Thereafter, between 8 February and 11 May 2011, $173,831.53 was transferred from the bank account in the name of TGI Investments to Ms Nichols’ solicitors. The sum of $30,000 was deposited on 8 February 2011 and $143,831.53 on 11 May 2011, court documents show. 

Following this, approximately $92,000 was transferred from the trust account to the solicitors’ firm in payment of Ms Nichols’ legal fees.

In May 2012, the matrimonial proceedings of Ms Nichols and Phillip Nichols came on trial before Federal Magistrate Michael Jarrett, who later ruled that the initial $270,000 transferred to Asden had the character of a Quistclose trust. This effectively meant the solicitors were not entitled to apply it to the payment of their fees, Justice Jarrett noted.

As a result, the solicitors in question withdrew from the matrimonial proceedings and in 2013 consented to judgment against them.

Then, in the August that same year, is when George Nichols lodged the complaint with the LSC, specifically surrounding alleged misconduct conducted by the two lawyers, in relation to applying the funds towards payment of legal fees when they knew, or should have known, that the funds had been provided to pay creditors of Asden as part of the trust.

The complaint was investigated and in December 2014 the LSC advised George Nichols that no further action would be taken against the solicitors over their alleged misconduct of misappropriating trust monies.

In April 2015, George Nichols applied to have the decision by the LSC reviewed, which a senior LSC investigator then undertook. The investigator came to the same conclusion and notified Mr Nichols that the complaint lodged didn’t warrant further follow-up and that no further action would be taken with respect to his complaint.

However, the senior investigator’s report to the court surrounding the matter failed to take into account that Federal Magistrate Michael Jarrett ruled the $270,000 paid to Ms Nichols, by George Nichols, was trust property. Instead, the investigator incorrectly stated there had been no determination made by the court as to whether or not the moneys paid to Ms Nichols were “impressed with a trust” or formed part of the “matrimonial” property.

The LSC then attempted to refute its inaccurate statement, arguing that the investigator’s conclusions were justified because Justice Jarrett’s reasons weren’t available to the investigator.

However, the court upheld that it should have been apparent that the reasons were available and that the claims made by George Nichols should have been investigated more thoroughly to ensure that the inquiry was completed satisfactorily.

Consequently, the Supreme Court ruled that the LSC had committed jurisdictional error warranting prerogative relief by dismissing the complaints made against the two lawyers.

The LSC appealed on the grounds that the primary judge had erred in finding jurisdictional error and in ordering reconsideration of the complaint.

In dismissing the appeal, the Court of Appeal held that the LSC had “misapprehended [its] statutory function. By accepting the recommendations of the senior investigator, [the LSC] impermissibly imposed requirements in exercising statutory function”.

“By limiting the exercise of his statutory function, the [LSC] has not actually exercised [its] statutory function. [It] has not formed the opinion required [by legislation] that there is no reasonably likelihood of a finding by a disciplinary body of either unsatisfactory professional conduct or professional misconduct”.

Further, the LSC’s discretionary power “to dismiss the complaint could only be exercised if [the LSC] was of the opinion that there was no reasonably likelihood of a finding by a disciplinary body of unsatisfactory professional conduct or professional misconduct”.

“The requisite opinion was never formed,” the Court of Appeal held.

The LSC’s appeal was dismissed with costs ordered.

A cross-appeal from the respondent, George Nichols, seeking indemnity costs on the basis that the LSC had been unreasonable in its dismissal of the complaint, was also dismissed with costs to be paid by Mr Nichols.