Council of the Law Society of New South Wales v Xenos
[2012] NSWADT 283
•17 December 2012
Administrative Decisions Tribunal
New South Wales
Medium Neutral Citation: Council of the Law Society of New South Wales v Xenos [2012] NSWADT 283 Hearing dates: 17 December 2012 Decision date: 17 December 2012 Jurisdiction: Legal Services Division Before: M Chesterman, Deputy President
N Isenberg, Judicial Member
C Bennett, Non-judicial MemberDecision: 1. John Alexander Xenos (the Solicitor) is guilty of professional misconduct and unsatisfactory professional conduct as alleged in the Application.
2. The Solicitor is reprimanded.
3. Within 12 months from the date of first issue to the Solicitor of a fresh Practising Certificate after the making of these orders, the Solicitor is to complete and pass a course in trust accounting as approved by the Applicant Society.
4. Should the Solicitor fail to complete and or pass the course referred to in paragraph 3 within the time stipulated, his Practising Certificate shall be suspended until such course has been completed and passed and no further Practising Certificate is to be issued to the Solicitor until such has occurred.
5. For a period of five years during which the Solicitor next continuously holds a Practising Certificate after the making of these orders, such certificate is to entitle the Solicitor to practice only as a non-principal, that is, to engage in legal practice as a solicitor in the course of employment by a law practice (or government or a prescribing corporation).
6. The Solicitor, within a period of 18 months from when he next holds a Practising Certificate after the making of these orders, shall pay the following amounts:
a) the amount of $12,895 to Mr Todd of Counsel; and
b) the amount of $2,500 plus GST to Mr Strati.
7. Should the Solicitor fail to pay the amounts set out in paragraph 6 within the time stipulated, the Solicitor's Practising Certificate shall be suspended until such payments have been made and no further Practising Certificate is to be issued to the Solicitor until such payments have been made.
8. The Solicitor is to pay the Applicant's costs of and incidental to the Application.
Catchwords: Solicitor - disciplinary application - breaches of trust account requirements - misappropriation - withdrawal of funds to pay costs without due authorisation - failure to pay fees for external examination Legislation Cited: Legal Profession Act 2004
Legal Profession Regulation 2005Cases Cited: Council of the Law Society of New South Wales v Clapin [2011] NSWADT 83
Council of the Law Society of NSW v Nicholls [2012] NSWADT 22
Law Society of New South Wales v Davidson [2007] NSWADT 264
Law Society of New South Wales v McCarthy [2003] NSWADT 198
Re Robb & Anor (1996) 134 FLR 294Category: Principal judgment Parties: Council of the Law Society of New South Wales (Applicant)
John Alexander Xenos (Respondent)Representation: Counsel
C Webster SC (Applicant)
J Kay-Hoyle (Respondent)
Council of the Law Society of New South Wales (Applicant)
Clayton Utz Lawyers (Respondent)
File Number(s): 122026
reasons for decision
Introduction
In an Application filed on 16 October 2012, the Council of the Law Society of New South Wales ('the Law Society') alleged that the Respondent, John Alexander Xenos ('the Solicitor'), had engaged in professional misconduct, on six grounds, and in unsatisfactory professional conduct, on two further grounds.
The Law Society sought six orders by way of penalty under section 562 of the Legal Profession Act 2004 ('the Act') and a costs order under section 566 of this Act.
In a Reply filed on 26 November 2012, the Solicitor stated that he sought a variation of one of the orders under section 562, but otherwise agreed that these orders were appropriate.
The matter came before us for hearing on 17 December 2012. Ms Webster SC appeared for the Law Society and Mr Kay-Hoyle of counsel for the Solicitor.
Ms Webster tendered an affidavit sworn on 11 October 2012 by Ms Anne-Marie Foord, solicitor for the Law Society. A substantial quantity of material was exhibited to it. Ms Webster also tendered an Agreed Statement of Facts signed by or on behalf of each of the parties. These were admitted into evidence without objection.
Mr Kay-Hoyle did not adduce any evidence on behalf of the Solicitor.
Ms Webster advised us, with Mr Kay-Hoyle's concurrence, that the Solicitor now accepted that the orders sought in the Application were appropriate. Both counsel asked us to make those orders forthwith.
In response to a question from the Bench as to why immediate orders were requested, and indeed why these proceedings had been listed for hearing at relatively short notice, Mr Kay-Hoyle advised us that the Solicitor had been both unemployed and impecunious for some years (Further particulars of these matters appear below.) He had, however, been recently offered a position as an employed solicitor, commencing in January 2013. He would not be able to accept this offer so long as these disciplinary proceedings against him remained on foot.
Having considered the admitted evidence and the submissions of both counsel, we determined (a) that we did not need to reserve our decision and (b) that the proposed orders were supported by the evidence and appropriate to the occasion.
At the conclusion of the hearing, we made those orders. Subject to some minor linguistic amendments, they are the orders set out on the cover page of this decision.
We also indicated that we would publish our reasons at a later date. The following paragraphs constitute those reasons.
The Grounds of the Application
In the Application, the eight Grounds were stated as follows:-
Professional Misconduct (complaints made by the Law Society arising from s 270 Report of Mr Dunlop; investigations of Mr Partridge and Mr Dunlop)
A. in relation to the Solicitor's clients:
(1) Mohomed Ellaban (see from paragraph 3);
(2) Margaret Kamper (see from paragraph 8); and
(3) Estate Late John Kamper (see from paragraph 17),
i. Failing to comply with s 264 of the Act
ii. Causing deficiency in the trust account
B. in relation to the Solicitor's client Anthony Kamper (see from paragraph 30):
iii. Failing to comply with s 260 of the Act
iv. Failing to comply with s 261(1)(b) of the Act and clause 88 of the Regulation
v. Misappropriating trust monies and monies due to Counsel
C. in relation to the Solicitor's client Margaret Kamper (see from paragraph 48):
vi. Failure to comply with s 256 of the Act (deposit of controlled money)
Unsatisfactory professional conduct (complaints from Domenic Strati)
i. Failure to pay complainant's fees
ii. Breach of s 279 of the Act 2004.
(see from paragraph 51)
The Agreed Statement of Facts
The Agreed Statement of Facts (hereafter 'the Agreed Statement') replicated, with some minor amendments, the Particulars set out in the Application. Subject to the deletion of a number of references to passages in the evidence, the Agreed Statement was as follows:-
In this statement of facts:
"the Act" means the Legal Profession Act 2004
"the Regulation" means the Legal Profession Regulation 2005
"the Society" means The Law Society of New South Wales
"Mr Partridge" means Bruce Leonard Partridge, trust account investigator
"Mr Dunlop" means Ronald Dunlop, trust account investigator
"Mr Kamper" means Anthony Kamper
"Mr Strati" means Domenic Strati on behalf of DA Strati & Associates Pty Ltd
"the Practice" means Xenos Lawyers
1. The Solicitor was admitted to practice on 8 February 1985.
2. The Solicitor was, between 16 October 2003 and 9 February 2009, sole principal and principal (sic) of the law practice Xenos Lawyers.
A. Complaints of professional misconduct (arising from investigation of Mr Partridge)
i. Failing to comply with s 264 of the Act
ii. Causing deficiency in the trust account
(1) Mohomed Ellaban
3. On 7 November 2007 a deposit of $60,000.00 intended to be deposited into the Solicitor's trust account on behalf of Mohomed Ellaban was deposited into the Solicitor's office account with the Laiki Bank.
4. No trust receipt was prepared for this deposit nor was it recorded in the Trust Receipts Cash Book. Although the trust ledger account for this client [in the Solicitor's handwriting] includes a credit entry for the deposit of $60,000.00 it does not include a trust receipt reference number for the entry.
5. Between 15 November 2007 and 5 December 2007 debit entries totalling $28,691.16 were made against the sum of $60,000.00 so that the trust ledger recorded a credit balance of $31,308.84.
6. Although not recorded the true position was that the account was in debit in the sum of $28,691.16 as at that date.
7. The deficiency in this trust account ledger was reported by the Solicitor to the Society's Chief Trust Account lnvestigator orally on 21 December 2007 and in writing on 24 December 2007.
(2) Margaret Kamper
8. In 2006 and 2007 the Solicitor maintained a number of trust ledger accounts for his client Margaret Kamper and related entities.
9. The trust ledger account for matter No. 01118 (trust ledger 01118) related to the lease by Margaret Kamper of various premises. As at 11 December 2006 trust ledger 01118 showed the sum of $66.00 as being held.
10. On 24 December 2007 pursuant to a request from Margaret Kamper a trust account cheque in the sum of $9,578.48 was drawn.
11. That trust cheque was not entered into any trust ledger account or the trust account payments cash book at the time it was drawn or within 5 working days.
12. The copy of trust ledger 01118 received by the Investigator in January 2008 showed:-
(a) as at 24 December 2007 a credit balance of $66.00 instead of a debit balance of $9,512.48.
(b) that clause 70 of the Regulation was not complied with in that details of the cheque were not entered to the trust ledger account within 5 working days.
Further, the trust account payments cash book received at that time did not record the payment of $9,578.48, contrary to clause 69 of the Regulations.
13. On 1 February 2008 the amount held in the trust account [$66.00] was withdrawn.
14. On 31 March 2008 trust ledger 01118 recorded the correct debit balance of $9,578.48.
15. On 4 June 2008 the deficiency in the trust account of $9,578.48 was rectified when a cheque for that amount [originating from trust receipt no. 2560] was deposited to the trust account.
16. No details are recorded on trust receipt no. 2560 which is blank.
(3) Estate Late John Kamper
17. The trust ledger account for this matter consisted of two pages which indicated:-
(a) The sum of $1,622.64 being held as at 15 August 2006 - page 1
(b) The sum of $1,543.64 being held as at 20 September 2006 following a debit of $79.00 on that day - page 2.
18. On 1 February 2008 the amount then held in the trust account [$1,543.64] was transferred on account of costs and disbursements. In addition the further sum of $1,622.64 [reflecting what was shown on page 1 of the ledger] was transferred, in error, from the trust account to the office account thereby creating a deficiency.
19. On 9 May 2008 a deposit was made by the Solicitor to the trust account in the sum of $1,622.64 thereby rectifying the deficiency.
B. Complaints of professional misconduct (arising from investigation of Ron Dunlop)
iii. Failing to comply with s 260 of the Act
iv. Failing to comply with s 261(1)(b) of the Act and clause 88 of the Regulation
v. Misappropriating trust monies and monies due to Counsel
20. The Solicitor acted for Anthony Kamper in a Family Law matter and Mr A Todd of Counsel was briefed.
21. On 31 May 2007 the Solicitor issued a Bill of Costs to Mr Kamper in the sum of $15,400.
22. On 22 June 2007 the Solicitor's trust ledger account for Mr Kamper records the sum of $50,000.00 being received on his behalf.
23. On 22 June 2007 the sum of $23,294.50 was transferred from the Solicitor's trust account for costs although the only Bill issued was for $15,400.00.
24. The Solicitor thereby breached section 260 of the Act by mixing trust money with his own funds.
25. Further, the Solicitor breached section 261(1)(b) of the Act and clause 88 of the Regulation as he had no authority to withdraw the additional sum of $7,894.50 from his trust account.
26. On 27 June 2007 the Solicitor issued a further Bill in the sum of $25,267.00 which included $6,765.00 due to Mr Todd.
27. On 27 June 2007 the sum of $8,800.00 was transferred from the Solicitor's trust account for costs but the amount due to Mr Todd was not paid.
28. On 9 July 2007 Mr Todd issued a further Bill in the sum of $990.00 so that the amount then due to him was $7,755.00.
29. On 11 July 2007 the sum of $9,702.00 was transferred from the Solicitor's trust account for costs. The amount then due to Mr Todd [$6,765.00 plus $990, $7,755.00 in total] was not paid.
30. As at 11 July 2007 the Solicitor had issued Bills for costs & disbursements totalling $40,667.00. On the dates shown the Solicitor withdrew from his trust account and paid to his office account the following amounts:-
22/06/07 $23,294.50
27/06/07 $8,800.00
11/07/07 $9,702.00
$41,796.50
31. The Solicitor was reckless as to the amount of the withdrawals made from the trust account ledger (total of $41,796.50) exceeding the total of bills issued for costs & disbursements ($40,667.00).
32. The Solicitor thereby breached section 260 of the Act by mixing trust money with his own funds.
33. The Solicitor misappropriated to his own use the sum of $1,129.50 being the difference between the figures of $41,796.50 (total of withdrawals from the trust account ledger) and $40,667.00 (total of bills issued for costs & disbursements).
34. Further, the Solicitor breached section 261(1)(b) of the Act and clause 88 of the Regulation as he had no authority to withdraw the additional sum of $1,129.50.
35. On 18 August 2007 the sum of $7,500.00 was paid to Mr Todd by way of a trust account cheque leaving a balance in the trust account of $703.50.
36. Between 27 June 2007 (the date of payment into the office account, as in paragraph 27 above) and 18 August 2007 the Solicitor deliberately, alternatively recklessly, preferred his own interests as to the payment of costs, by transfer into the office
account, in preference to the payment of counsel's fees.
37. The Solicitor misappropriated to his own use the sum of $7,500.00 due to Mr Todd between 27 June 2007 and 18 August 2007.
38. Mr Todd issued further Bills to Solicitor between 30 July 2007 and 31 October 2007 which were not paid. The amount due to Mr Todd was $13,895.00.
39. On 4 September 2007 the Solicitor issued a further Bill in the sum of $8,250.00 which did not include further fees then due to Mr Todd.
40. On 18 December 2007 the Solicitor issued a further Bill in the sum of $19,584.50 which included a total of $13,936.00 in fees due to Mr Todd.
41. On 1 February 2008 the Solicitor issued a further Bill in the sum of $7,478.90.
42. On 1 February 2008 the Solicitor withdrew the balance remaining in the trust account namely $703.50.
43. In so doing the Solicitor breached section 261(i)(b) of the Act and clause 88 of the Regulation as he had no authority to withdraw the sum of $703.50.
44. On 18 November 2008 Mr Todd met with the Solicitor. The Solicitor did not comply with the terms of the agreement reached that day.
45. Following a payment [$1,000.00] by the Solicitor to Mr Todd on 11 December 2008 the amount due to him is $12,895.00.
46. By letter to Clayton Utz, the Solicitors for the Solicitor, dated 24 February 2012, the Society enquired as to whether any payment had been made to Mr Todd of counsel and Mr Strati (as to which see from paragraph 61).
47. In a letter to the Society dated 14 March 2012, Clayton Utz stated, in part, that the Solicitor had been unable to make those payments for reasons set out, but despite there being no legal requirement to pay Messrs Todd and Strati, on becoming a discharged bankrupt, the Solicitor intends to source third-party funds to pay each of them, and would to agree to a condition that he pay Messrs Todd and Strati if a Practising Certificate were issued to him.
C. vi. Failure to comply with s 256 of the Act (deposit of controlled money)
48. The Solicitor had invested the sum of approximately $1.2 million on behalf of Margaret Kamper.
49. On 3 and 8 October 2008 the Solicitor was requested by the Investigator to produce the Controlled Money Register. He was unable to produce any Controlled Money Register.
50. The Solicitor failed to maintain records of his deposit of the sum invested as controlled monies, and withdrawals from that sum, as required by section 256 of the Act.
Unsatisfactory professional conduct - complaint from Domenic Strati [DA Strati & Associates Pty Ltd]
i. Failure to pay complainant's fees
ii. Breach of s 279 of the Act 2004
51. On 2 June 2008 the Solicitor agreed to retain DA Strati & Associates Pty Ltd (DA Strati) as auditor of the Practice's trust account for the purposes of the external examination of the trust account records required by Chapter 3, Part 3.1, Division 4 of the Act.
52. On 28 May 2008 Mr Strati forwarded a letter to the Solicitor on behalf of the Practice which said in part:-
We consent to our appointment as auditor of Xenos Lawyers Trust Account and set out below our understanding of the terms of this engagement.
Audit of Trust Account
The responsibility for maintaining the trust account records is that of the practitioner...... These duties are imposed upon the practitioner by the Legal Profession Act 2004 and corresponding Legal Profession Regulation 2005.
Management Letters
Upon completion of the audit in each year we will forward to the practitioner a management letter reporting material weaknesses in the trust account's systems of administration, accounting and internal controls, and any significant matters of concern that have come to our notice during the audit.
......
Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the arrangements for our engagement.
53. The letter was signed by the Solicitor and dated 2 June 2008.
54. The Practice was liable to pay the fees of the external examination pursuant to the retainer letter referred to in paragraph 52 and under s. 279 of the Act.
55. On 4 June 2008 D A Strati issued a Tax Invoice to the Solicitor in the sum of $4,950.00 including GST.
56. On 10 June 2008 the Solicitor sent a letter to Mr Strati which said in part:-
.....
You will recall that when you initially attended with Ms Hobbs, I asked for an estimate of fees in order to complete the work and you advised it would be in the order of $2,000-$2,500.
Although your estimate was four to five times higher than the amount I had paid in the past, I agreed to instruct you to proceed with the audit in view of the urgency surrounding the matter, and the fact that you have not previously audited my accounts. I do not wish to interfere with your professional responsibilities....
I find your fees in the amount of $4,950.00 completely unacceptable and I will not pay that amount.
Whilst I understand that you were concerned to thoroughly fulfil your obligations as auditors, l am of the view that the amount you have charged amounts to overservicing and is certainly inappropriate in the circumstances.
.....
I write to request that you reconsider the amount that you propose to charge and to render an amended tax invoice to fall within the range that I agreed at first instance.
57. On 11 June 2008 Mr Strati sent a letter to the Solicitor which said in part:-
.....
I find it difficult to understand why you would consider engaging our services at a cost of up to 5 times higher than you paid previously. As a matter of fact you engaged our services knowing our estimate and without question. To me this seems unusual and would suggest that you were aware of the difficulties that we would encounter during the conduct of our audit.
In regards to my initial estimate of between $2,000.00 and $2,500.00 to complete the examination, I advised John Xenos Jnr that our fees were charged at $150 per hour and estimated that the work would take approximately 15 hours based on the information provided at that time. I also advised that this was not a fixed fee quote and that the fee would vary in line with hours spent.... John Jnr advised that he would discuss our fees with you and get back to us. Given that you know what our estimate was I presume you were provided with the other details of the meeting including our hourly rate.
When I provided the estimate, I was not aware of the number of breaches already investigated and reported on by the NSW Law Society. In addition I did not envisage the poor record keeping of trust ledgers which had resulted in the over drawing of trust money, the extent to which was evidenced by the breaches discovered during our examination.
The aforementioned issues significantly increase the audit risk....
Notwithstanding any of the above, in an effort to settle this matter, I am prepared to meet you half way and discount the fee to 75% of the costed time, being $3,700 before GST. This represents a discount of $1,300.
You will appreciate that my report is overdue and that this matter needs to be resolved within 7 days.
58. On 3 July 2008 Gaynor Hobbs of DA Strati forwarded an email to the Chief Trust Account Investigator and Supervisor John Mitchell enclosing correspondence between D A Strati and the Solicitor. The email said:-
We would like to make a complaint about the conduct of Xenos Lawyers in relation to this matter and note that non payment of our fee for preparation of the External Examiner's Report places the firm in breach of section 279.
59. The complaint was referred by Mr Mitchell to the Manager of the Society's Professional Standards Department who referred it to the Office of the Legal Services Commissioner ("OLSC").
60. On 10 July 2008 the OLSC referred the complaint to the Society to investigate.
61. On 23 October 2008, following a letter from the Society to the Solicitor, he forwarded a letter to the Society which said in part:-
I was later advised by Ms Hobbs that her firm would agree to accept an amount of $4,000.00 in settlement of the matter and I refused to pay that amount and I certainly have no intention of doing so. I am willing to pay an amount up to $2500.00 in full and final settlement of Ms Hobbs' fees.
....
Please note the comments made above are without reference to the copy of the complaint made against me and I look forward to receipt of that copy at your convenience at which time I expect I will be in a position to further advise.
62. On 4 November 2008 the Society sent the Solicitor's letter of 23 October 2008 to Mr Strati under cover of a letter wrongly dated 4 November 2007.
63. On 26 November 2008 Mr Strati sent a letter to the Society which said in part:-
After reviewing the letter received from yourself and Mr John Xenos, I have agreed to accept the amount of $2,500.00 + GST, being $2,750.00 as full and final payment of the outstanding Invoice 3649.
64. On 2 December 2008 the Society sent Mr Strati's letter of 26 November 2008 to the Solicitor.
65. On 11 April 2009 the Solicitor sent a letter to the Society which said in part:-
I refer to your letter of I0 February 2009.
I have been unable to reply earlier due to illness which left me incapacitated for some time and in relation to which I continue to obtain treatment. I ceased practice on 9 February 2009 and I have been not able to work since that date.
....
To the best of my recollection, I have not sighted a letter from you dated 2 December 2008, although I cannot recall if your letter predated our conversation.
....
66. On 23 April 2009 the Society sent a letter to the Solicitor which said in part:-
... It is confirmed that on 15 December 2008, I advised you that D A Strati & Associates had notified the Law Society that Ms Gaynor Hobbs no longer worked there. It is noted, however, that the complaint is still on foot and that it is now conducted by Mr Domenic Strati.
I enclose a copy of your letter dated 23 October 2008 to the Law Society noting that you remain willing to pay $2,500 in full and final settlement of the fees outstanding. l enclose a copy of the response from Mr Strati dated 26 November 2008. This letter was forwarded to you by the Law Society on 2 December 2008.
.....
It is requested that you consider this enclosed correspondence and provide your formal written response within 14 days of the date of this letter, with regard to your payment of the fees outstanding to Mr Strati.
67. No monies were paid by the Solicitor to Mr Strati.
68. On 13 July 2011 the Society sent to Clayton Utz on behalf of the Solicitor copies of correspondence including the letters referred to in paragraphs 61 to 66.
69. In a letter to the Society dated 7 October 2011 Clayton Utz stated in part that the Solicitor had not been aware of Mr Strati's offer of settlement until notified of the complaint against him on 13 July 2011.
70. Paragraphs 46 to 47 are repeated.
The parties' submissions
Ms Webster made the following observations about specific aspects of the Agreed Statement and the admitted evidence:-
(1) The Law Society did not allege that the Solicitor's breaches of trust account requirements in the matter of Mohomed Ellaban were deliberate. It accepted that the deposit of the cheque into the Solicitor's office account instead of his trust account (see paragraph 3 of the Agreed Statement) occurred because of a mistake by one of his employees.
(2) The Solicitor, in a statement sent to the Law Society on 8 December 2008 and annexed to Ms Foord's affidavit, explained that the withdrawal of funds to pay costs referred to in paragraph 18 of the Agreed Statement was authorised in writing by Ms Margaret Kamper. The Law Society accepted this explanation.
(3) The allegation of misappropriation in Ground B (v) and paragraphs 33 and 37 of the Agreed Statement did not include an allegation that the Solicitor acted dishonestly. In so formulating its case against the Solicitor, the Law Society relied on a ruling given by the Tribunal in Council of the Law Society of NSW v Nicholls [2012] NSWADT 22, in the course of a discussion of a number of authorities at [9 - 35]. This was to the effect that misappropriation, being the wrongful conversion of the property of another person, does not necessarily connote dishonesty and that at least where trust funds are involved, it may be committed inadvertently. Because the Law Society did not allege dishonesty, it followed that the Solicitor did not admit that he had acted dishonestly.
(4) A copy of the letter of 14 March 2012 from Clayton Utz to the Law Society, referred to in paragraph 47 of the Agreed Statement was annexed to Ms Foord's affidavit. In that letter, Clayton Utz gave the following explanation of the Solicitor's inability to pay the amounts that he owed to Mr Todd and Mr Strati:-
(a) since voluntarily handing in his practising certificate in February 2009 he has been unable to find employment, despite his best efforts; and
(b) our client was declared bankrupt on 6 March 2009 and payment to creditors could only be made by the Trustee from the bankrupt estate; and
(c) he (and his family) is solely reliant on his wife's income, a teacher on a modest salary.
(5) The Solicitor had authority from Ms Margaret Kamper to invest her money as indicated in paragraph 48 of the Agreed Statement.
Ms Webster submitted that this was not a case calling for an order removing the Solicitor's name from the Roll and that the lesser orders being proposed were sufficient to serve the primary purpose of protecting the public. A reprimand (Order 2) was, she said, a serious penalty; Orders 3 and 4, requiring the Solicitor to complete and pass a course in trust accounting, reflected the Law Society's belief that he had insufficient knowledge of the statutory requirements relating to trust accounts; the stipulation in Order 5 that for a period of five years he should be permitted to practise only as an employed solicitor would enable him to acquire the knowledge and experience that he needed in order to practise as a principal; the payments described in Orders 6, 7 and 8 were clearly obligations that the Solicitor must meet, but were not imposed in such a manner that he would prove unable to discharge them due to his straitened circumstances; and by virtue of these circumstances the Law Society did not press for a fine.
Mr Kay-Hoyle drew our attention to the following correspondence annexed to Ms Foord's affidavit:-
(a) A letter dated 12 January 2011 from the Solicitor to the Law Society, enclosing a certificate (dated 21 December 2010) from a medical practitioner (Dr Patrick Toohey) stating the Solicitor had consulted him on three occasions since 8 November 2010 and that 'from a psychiatric point of view' he could not 'find any reason for [the Solicitor] to return to work as a legal practitioner'.
(b) A letter dated 7 October 2011 from Clayton Utz to the Law Society. Relevantly, this stated that the Solicitor had been diagnosed in 2007 with 'Bipolar II' disorder, but that in view of the certificate from Dr Toohey and of the Solicitor's own feeling of being 'much improved', he was 'no longer impaired by the significant health issue that impacted and impaired his ability to adhere to the professional standards required by the Legal Profession Act'.
Mr Kay-Hoyle also stated that the Solicitor recognised the significance and seriousness of his past errors, that these errors were a matter of great regret to him and that he did not try to hide behind any excuse.
By way of supplementation of Ms Webster's submissions regarding the proposed orders, Mr Kay-Hoyle made the following points: (a) dishonesty on the Solicitor's part had not been alleged or (for that reason) admitted; (b) he had not acted with a view to personal gain; and (c) according to the medical evidence, a significant psychiatric illness from which he had suffered during the period of the conduct described in the Application no longer affected him.
Our conclusions
Having perused relevant parts of the evidence, we are satisfied that it substantiates the factual matters set out in the Agreed Statement.
We are also satisfied that the Solicitor contravened the numerous statutory provisions referred to in the Agreed Statement (sections 256, 260, 261, 262, 264 and 279 of the Act; clauses 69 and 88 of the Legal Profession Regulation 2005) in the ways identified in this Statement. It is not necessary to reproduce any of these provisions, as the Statement sufficiently indicates the nature of the requirements relevantly imposed by them.
Having regard to common usage, to the considerations spelt out in the passage in Council of the Law Society of NSW v Nicholls [2012] NSWADT 22 mentioned above and to the authorities cited in that passage, we agree with Ms Webster that an allegation of misappropriation against a legal practitioner does not necessarily connote dishonesty on the part of the practitioner. We would observe, however, that this term may often be interpreted by a respondent practitioner, by the Tribunal or by a third party as involving dishonesty. For this reason, an applicant in disciplinary proceedings such as these should bear in mind the danger of alleging misappropriation without also indicating what form of culpability is alleged against the respondent - i.e., whether it be outright dishonesty, mere inadvertence or some intermediate degree of fault. If no such indication is given, the respondent may well be entitled to maintain that the case being brought against him or her has not been defined with sufficient precision.
In the present proceedings, we are satisfied that the two acts of the Solicitor claimed to amount to misappropriation - i.e. those described in paragraphs 33 and 37 of the Agreed Statement - did merit this label. As Ms Webster made clear, neither of them was alleged to involve dishonesty on the Solicitor's part.
At first sight, the conduct described in paragraph 37 - i.e., the Solicitor's transfer into his office account of an amount of $7,500 held in trust for Mr Kamper, at a time when this amount was due to be paid by him to Mr Todd of counsel - might seem to involve no more than deferral by him of the discharge of his obligation to pay a debt. But a passage in the Tribunal's decision in Law Society of New South Wales v Davidson [2007] NSWADT 264 is useful in demonstrating that unjustified delay by a solicitor in paying counsel's fees from funds received for that purpose constitutes a breach of a fiduciary duty to the client. In consequence, the transfer of such funds into the solicitor's office account, for the benefit of the solicitor, can properly be characterised as misappropriation of them.
The relevant passage in Davidson (paragraphs [123] to [130]) is as follows:-
123 The second complaint against the solicitor is one of unethical conduct relating to the failure to pay third parties within a reasonable time. The solicitor is charged with unethical conduct in relation to late payment of disbursements in the nature of fees due to third parties...
124 At all relevant times the solicitor was a sole practitioner with employed staff. He operated a Trust Account in respect of which he was the sole signatory...
125 In Re Robb & Anor (1996) 134 FLR 294, the Supreme Court of the ACT, noting that wilful or persistent failure to pay counsel's fees could amount to professional misconduct, said:
The point is that the delay in paying counsel to be attributed to the solicitors in the present case stems from their assumption that moneys in their office account, received on trust for the client and transferred to the office account for the very purpose of paying counsel, were not affected by their fiduciary duties to the client and were their moneys to pay counsel fees when they chose and that any delay was simply a matter between counsel and themselves.
That assumption was totally unjustified. On the contrary, every day of delay in paying counsel from the time of transferring the moneys from the trust account to the office account, was a day in which the solicitors were in breach of their fiduciary duty to the client.
126 The solicitor's evidence on this issue was that it was his "policy" not to pay disbursements until the client had paid the whole amount due on a tax invoice.
127 The solicitor's view of the matter was that:
"If an invoice has been rendered to the client, the client pays your invoice,...I've always believed you can pay that money to your office account and then you have the obligation to pay the disbursements that are included in that invoice."
"The disbursements are incurred by me solely. I have the liability to pay them whether the client pays me or not... the money can be banked to the office account and then the disbursements are paid within a reasonable time..."
128 The Tribunal does not agree that the solicitor's "policy" accords with his obligations as a solicitor to deal with moneys received from a client in accordance with the relevant legislation.
129 The Tribunal does not accept that the solicitor was entitled to act upon his "policy" of withholding payment of outstanding disbursements until such time as his client had paid the whole amount of a Tax Invoice. The obligation to pay such sums arose upon the solicitor being put in funds by the client for that purpose.
130 As was held in Re Robb, where a solicitor holds clients funds for the purpose of paying counsel and other persons, and transfers those funds to an office account, any delay in so paying the moneys amounts to professional misconduct, for during the period of delay the solicitor is treating clients' funds as the solicitor's own money.
We agree with the contention of the Law Society, which the Solicitor did not oppose, that the matters claimed to amount to professional misconduct (see Grounds (i) - (vi), under headings A, B and C, and paragraphs 3 to 50 of the Agreed Statement) did indeed warrant this characterisation.
Most of these matters took the form of breaches of statutory provisions relating to the maintenance of trust accounts and the withdrawal of funds from such accounts in order to pay costs. Under section 498(1)(a) of the Act, any such breaches are 'capable of being... professional misconduct'.
The conduct amounting to misappropriation described in paragraph 33 of the Agreed Statement - i.e., withdrawing funds from a trust account in order to pay costs - has been held more than once to amount to professional misconduct. The decision in Council of the Law Society of New South Wales v Clapin [2011] NSWADT 83 (see at [206 - 208]) provides an example.
The conduct amounting to misappropriation described in paragraph 35 of the Agreed Statement - i.e., payment of a solicitor's own costs in lieu of counsel's fees, using funds furnished for the latter purpose - has also been held to amount to professional misconduct. As the extract quoted above demonstrates, this was the case in Law Society of New South Wales v Davidson [2007] NSWADT 264. A further example is provided by Law Society of New South Wales v McCarthy [2003] NSWADT 198. Here the facts on which the Tribunal based its finding of professional misconduct were summarised as follows at [2 - 3]:-
2 The conduct in question involves one transaction. The following facts are not disputed. In 1999 the practitioner was practising as a solicitor, but (as is permitted) did not operate a trust account. He received a payment in settlement of a client's case which related to costs and disbursements incurred by him on the client's behalf. The amount of the payment was $4200, of which it was said by the practitioner and not disputed, that $3000 was in respect of counsel's fees and $1200 was in respect of his costs. A cheque for $4200 was drawn in favour of the practitioner. It was deposited into the practitioner's personal account on 24 June 1999.
3 The matter of non-payment of counsel's fees was drawn to the attention of the Law Society by the client on 8 March 2000. Counsel's fees were paid on 28 June 2000.
We agree with the contention of the Law Society, which the Solicitor did not oppose, that the two matters claimed to amount to unsatisfactory professional misconduct (see Grounds (i) and (ii) under the heading 'Unsatisfactory professional conduct and paragraphs 51 to 70 of the Agreed Statement) warranted this characterisation. His conduct fell clearly short of 'the standard of competence and diligence that a member of the public is entitled to expect of a reasonably competent legal practitioner' (see section 496 of the Act). Under section 498(1)(a) of the Act, his breach of section 279 was 'capable of being unsatisfactory professional conduct...'
We should add that we were concerned that in view of the obdurate way in which he refused to discharge his obligation, both statutory (under section 279) and contractual, to pay the fees due to DA Strati, this conduct on his part might have been more appropriately characterised as professional misconduct. But in the absence of any evidence as to the reasonableness of the fees being charged, and taking into account the evidence (albeit scanty) as to the Solicitor's health and financial situation during the relevant period (June 2008 to April 2009), we conclude that unsatisfactory professional conduct is the correct characterisation.
As to the suitability of the orders proposed by the Law Society and consented to by the Solicitor, it is sufficient for us to say that we agree with the submissions advanced on behalf of both parties.
The Solicitor's past and present behaviour is not such as to warrant a finding of probable permanent unfitness to practise. Accordingly, an order removing his name from the Roll is not warranted.
The proposed orders are sufficient, in our opinion, to serve three purposes. They signify the seriousness of the Solicitor's misconduct; they ensure that he will not practise on his own account until he has had the benefit of further instruction and of experience as an employed solicitor; and they require him to discharge important financial obligations relating to his former practice that have remained unfulfilled for a substantial period of time.
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Decision last updated: 27 March 2013
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