Council of the Law Society of the Act v Legal Practitioner 201809 (Occupational Discipline)
[2019] ACAT 11
•25 January 2019
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
COUNCIL OF THE LAW SOCIETY OF THE ACT v LEGAL PRACTITIONER 201809 (Occupational Discipline) [2019] ACAT 11
OR 9/2018
Catchwords: OCCUPATIONAL DISCIPLINE – legal practitioner – characterisation of conduct, whether unsatisfactory professional conduct or professional misconduct – trust journal transfers without written direction – misappropriation of trust funds
Subordinate
Legislation cited: Legal Profession Regulation2007 rr 47, 62
Cases cited:Brereton v Legal Service Commissioner [2010] VSC 378
Briginshaw v Briginshaw (1938) 60 CLR 336
Council of the Law Society of the Australian Capiutal Territory v The Legal Practitioner (Stephen Stubbs) [2010] ACAT 2
White v Shortall [2006] NSWSC 1379
Tribunal:Senior Member G Lunney SC
Member E Trickett
Date of Orders: 25 January 2019
Date of Reasons for Decision: 25 January 2019
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) OR 9/2018
BETWEEN:
COUNCIL OF THE LAW SOCIETY OF THE ACT
Applicant
AND:
LEGAL PRACTITIONER 201809
Respondent
TRIBUNAL: Senior Member G Lunney SC
Member E Trickett
DATE:25 January 2019
ORDER
The Tribunal finds that:
1.Charges 1, 2 and 3 are made out and the conduct is characterised as professional misconduct.
The Tribunal orders that:
2.The matter is to be listed for directions for a hearing on penalty.
………………………………..
Senior Member G Lunney SC
For and on behalf of the Tribunal
REASONS FOR DECISION
1.This is an application for disciplinary action brought by the Council of the ACT Law Society in regard to conduct of a legal practitioner (the respondent). He was advised that there was a potential irregularity in his trust account ledger accounts. He then self-reported to the Law Society, and after some investigations, the Council determined to bring these proceedings. No complaint was made to the Society by his clients.
2.The Council’s application seeks disciplinary orders in relation to three charges preferred against the respondent. He admits the first two charges and does not admit the third. The matter proceeded to hearing on the third charge and for determination of the characterisation of the conduct upon which the charges were based.
Background
3.The respondent held an unrestricted practising certificate at the relevant time and was the director of his incorporated legal practice which employed one other practitioner. The firm’s clients were Mr and Mrs B (the clients). Mr B had run a small to medium business in Canberra through a company which had developed financial difficulties. Security had been given by the company for loans and the clients had guaranteed some debt. Receivers were appointed and litigation commenced.
4.An agreed chronology indicates that the respondent opened two files (amongst others) in the course of the liquidation process in 2014. The first of these was matter 10035 in which the Rural Bank (Rural Bank) was the plaintiff in proceedings 2014/00232306 in the NSW Supreme Court and the clients were defendants. The second was matter 10043 which related to activities by receivers and managers which had been appointed to the company. A Sydney firm, Norton Rose Fulbright (NRF), acted for the creditor, Bankwest.
5.By letter of 30 January 2015, NRF advised the respondent that they would pay $371,603.04 in matter 10043 to his firm, being surplus funds in the receivership, within 2 days of the letter.[1] Receipt of that sum into the trust ledger for that matter (10043) occurred on 4 February 2015.[2] After some minor payments, $363,103.04 stood to the credit of this account until 9 September 2015.
[1] Exhibit RR1 to Exhibit 1 pages 269-270
[2] Exhibit RR1 to Exhibit 1 page 237
6.Commencing in October 2014 a number of tax invoices for professional costs had been rendered by the respondent in matter 10035. As at 18 August 2015, with delivery of account 257, those invoices totalled $386,838.86.[3] The statement of account was rendered to the clients. It seems highly likely that no trust funds stood in credit to this account until 9 September 2015. The clients signed a costs agreement in matter 10035 on or about 12 May 2015 showing them as the clients.
[3] Exhibit RR1 to Exhibit 1 page 99
7.On or about 30 April 2015 the clients signed a costs agreement which purported to combine three existing matters — 10033, 10042, and 10043 — into a single matter: matter 10054. For present purposes there was no difference between the new and the old agreement and it had retrospective effect. The trust account for matter 10043, however, continued as a separate entity after execution of the agreement. For the purposes of these proceedings, matter 10043 and its corresponding trust account were considered a continuing entity with the 10054 document being its applicable costs agreement.
8.The two costs agreements were, for practical purposes, identical. Two clauses related to trust money and termination of the agreement. They were clauses 20 and 21 in the 10035 agreement,[4] and clauses 21 and 22 in the 10043 agreement.[5] Relevant provisions are reproduced below as they appear in the 10035 agreement.
20 Trust monies
Should we receive money into our trust account on your behalf:-
(a) You hereby direct us to withdraw from that money (if applicable) any amount required to pay disbursements in advance, and
(b) You authorise us to withdraw from that money any amounts owing for our professional costs and/or disbursements in this matter, and for which we have given or sent to you (a) an invoice, or (b) request for payment referring to the proposed withdrawal.
21 Termination of this Costs Agreement
(a) You may terminate our services at any time in writing. However, we will be entitled to be paid for work done and disbursements incurred by us up until that time.
…
[4] Exhibit RR1 to Exhibit 1 pages 280-281
[5] Exhibit RR1 to Exhibit 1 pages 206-207
9.At about the time of the signing of the costs agreements, but apparently before the respondent had received copies signed by the clients, the respondent sent an email to them in the following terms of relevance.[6]
Further to our discussion today I confirm that it is my practice, as you have already experienced, of always requiring a written authority that directs and authorises any payment of monies to be made out of the trust account before any such payment is made.
However, please note that I do reserve my rights pursuant to Regulation 62(4) of Legal Profession Regulation 2007.
…
[6] Exhibit RR1 to Exhibit 1 page 323
Regulation 62 of the Legal Profession Regulation 2007 is reproduced at Appendix A.
10.The clients terminated the respondent’s retainer in matter 10035 on 28 August 2015 and appointed another solicitor, Mr PB, to act for them in the matter. Pursuant to clause 21 of the 10035 costs agreement the costs mentioned above in the statement of account became payable.
11.The clients had given undertakings to the NSW Supreme Court on 14 November 2014 in the Rural Bank matter (10035) not to deal in any way with a number of assets. On 3 June 2015 they issued a Notice of Motion seeking a release from the undertakings. This application was heard on 7 September 2015. The motion was dismissed, but the Court granted leave to the Rural Bank to issue a garnishee order against the respondent. However, the respondent was ordered not to disburse trust money to any person other than the bank or in respect of his lien for unpaid costs until determination of the bank’s garnishee application.[7]
[7] Exhibit RR1 to Exhibit 1 page 23
12.On 7 September 2015 the solicitor acting for the Rural Bank, Mr H, sent a letter by email and spoke to the respondent about the outcome of the proceedings that morning. A copy of the Order made was taken out on 8 September 2015 and emailed to the respondent.
13.On 8 September 2015 at 8:27am, the respondent emailed the clients requesting permission to transfer $68,875.85 from the trust account to Mr PB’s trust account. There was no request to pay any amount for the respondent’s costs. In relation to the amount remaining the email says “I will still hold in trust the sum of $294,227.19 on your behalves, over which I claim a lien on account of unpaid fees in the Rural Bank matter”.[8] At 9:47am that morning Mrs B replied authorising the payment to Mr PB’s trust account.[9]
[8] Exhibit RR1 to Exhibit 1 page 81
[9] Exhibit RR1 to Exhibit 1 page 81
14.At 11:34am on 8 September 2015 the respondent advised Mr H that he intended to disburse $68,875.85 of the money paid to him to Mr PB’s trust account, and $294,227.19 to the respondent’s “general office account on account of [the respondent’s] lien for unpaid costs.”[10] He asked whether there were any reasonable objections to that course.
[10] Exhibit RR1 to Exhibit 1 pages 82-83
15.Mr H responded that his client objected to the payment to Mr PB but not to payment of unpaid costs.[11]
[11] Exhibit RR1 to Exhibit 1 page 82
16.Later on 8 September 2015 the respondent met with his clients. There are references to this meeting given by the respondent in the evidence, including his oral evidence, which will be referred to later. In his first letter to the Law Society of 25 May 2016 his description of it is as follows:
On 8 September 2015, I met with my clients and sought their approval for me to apply the part of the monies claimed by me pursuant to my lien ($295,664.45) to my unpaid costs and disbursements for matter 10035. No approval was provided.[12]
[12] Exhibit RR1 to Exhibit 1 page2
The respondent’s time costing records indicate that the meeting lasted about 52 minutes[13] and disbursement of funds from trust was only one of many issues discussed.
[13] Exhibit RR1 to Exhibit 1 page 111
17.The next day, 9 September 2015, the respondent transferred by journal entry $295,664.45 from trust account 10043 to trust account 10035.[14] The reason shown on the Trust Journal Transfer was “Payment per Lien for part payment of fees.” Prior to the transfer, the trust account for matter 10035 had a nil balance. Apparently fees had been rendered in accounts combined into matter 10054 according to the schedule to it, but no fees were owing on that continuing matter.
[14] Exhibit RR1 to Exhibit 1 page 230
18.The trust ledger for matter 10035 then shows various payments out of the trust account to the respondent’s office account totalling $295,664.45, leaving a nil balance in the account.[15]
The applicant’s application
[15] Exhibit RR1 to Exhibit 1 pages 232-233
19.The charges preferred against the respondent, the characterisation of the conduct and the orders sought are as follows. In the following charges ‘Regulation’ is a reference to the Legal Profession Regulation 2007, and ‘Act’ is a reference to the Legal Profession Act 2006. Regulation 47 is reproduced at Appendix A.
Charge 1
44. The Respondent breached Regulation 47 by transferring the sum of $295,644.45 from trust leger [sic] 10043 to trust ledger 10035 by journal transfer in circumstances where he was not entitled to do so.
Charge 2
45. The Respondent breached section 223(1) of the Act by causing the withdrawal of trust money in the sum of $295,644.45 from the trust account in circumstances where he was not authorised to do so.
Charge 3
46. The Respondent in withdrawing the sum of $295,644.45 from his trust account in circumstances where he was not authorised to do so either:
a) did so dishonestly with the knowledge and a belief that he should not have withdrawn the funds from the firm’s trust account and, therefore, constitutes misappropriation of trust moneys in breach of the common law; and/or
b) regardless of his mistaken knowledge and belief at the time, consciously intended to transfer the respective funds and such conduct is objectively dishonest by the ordinary standards of reasonable, honest people and, therefore, constitutes misappropriation of trust moneys in breach of the common law.[16]
[16] Exhibit 8 page 12
20.The Council’s application was accompanied by an affidavit by the Society’s Professional Standards Manager, which had the significant documents relating to the offences alleged annexed to it.
21.On 20 August 2018, the respondent filed an affidavit sworn the same date in which it stated that it was filed in response to the application. In that affidavit the respondent admitted Charges 1 and 2. In paragraph 14 of the affidavit, he denied “the allegation that the misappropriation was in breach of the common law.”[17] He also said that he made the withdrawal in the honest and reasonable belief that he was doing so legally, and without knowledge or belief that he should not have done so. He further said that whilst he intended to withdraw the funds, such conduct was not objectively dishonest by the standards of reasonable honest people.
[17] Exhibit 3 page 2 [14]
22.Shortly after that, on 12 September 2018, a joint submission was filed together with an agreed chronology.
23.On 2 July 2018, at a directions hearing, a timetable was ordered for the applicant and respondent to file and serve written submissions as to charges or characterisation of conduct not addressed in the joint submission. The applicant filed submissions dated 14 September 2018. The respondent’s submissions were not delivered until the day of the hearing during the course of the proceedings.
24.The hearing took place on 20 and 21 September 2018, and 6 and 7 November 2018, and dealt with the issues raised in Charge 3 and the characterisation of the conduct. A separate hearing may be conducted in relation to penalty.
The applicant’s case
25.The applicant relied on the admissions made by the respondent in his affidavit of 20 August 2018 in relation to Charges 1 and 2 together with the documentary material contained in Exhibit (annexure) RR1 to Exhibit 1. Particulars of the applicant’s case had been set out in the application, and Counsel for the applicant spoke to that by way of opening.
26.Evidence was called in relation to the two alternatives set out in Charge 3.
The respondent’s case
27.The parties had been directed to file submissions prior to the hearing relating to characterisation of conduct. Those of the respondent generally focussed on, and emphasised, that the respondent denied that the conduct could be characterised as dishonest. It was submitted that at the time of the conduct in question, the respondent had no knowledge that he did not have authority under the professional legislation or the relevant costs agreements to perform the transactions. In paragraph 14 of the affidavit, under the heading “Characterisation of the Conduct – The Subject Conduct” he sets out his state of mind at the time of the transfers as follows:
In reply to Charge 3 in paragraph 46, I deny the allegation that the misappropriation was in breach of the common law. In particular, I say:
(a) In response to paragraph 45(a), that I made the withdrawal of $295,644.45 in the honest and reasonable belief that I was doing so legally, and without knowledge or belief that I should not have done so.
(b) In response to paragraph 45(b), that whilst I intended to withdraw the funds, such conduct is not objectively dishonest by the standards of reasonable, honest people.[18]
[18] Exhibit 3 pages 2-3 [14]
28.In paragraph 20 of the affidavit the respondent says that he believed that the terms of the existing costs agreements entitled him to transfer the subject funds.
29.Counsel acting for the respondent in his address to the Tribunal emphasised the circumstances: that the respondent had self-reported his mistake, and had cooperated with the investigations of the Law Society at all times. In doing so, Counsel quoted from the letter from the respondent to the Law Society of 25 May 2016 which refers to the circumstances in which the irregularity was identified as follows:
The potential irregularity was brought to [the respondent’s] attention by one of [the respondent’s] employees and has been confirmed as a potential irregularity by [the respondent’s] external auditor.[19]
[19] Exhibit RR1 to Exhibit 1 page 1
Consideration
30.Before moving to consider Charge 3 it is necessary to deal with a submission made by Counsel for the applicant at the outset of his submissions which he described as the issue of the respondent’s credibility. This issue arose out of the correspondence by the respondent with the Law Society after the reporting of the irregularity, his affidavit filed in these proceedings, and his evidence in cross‑examination during the hearing. Some of the issues raised by Counsel are issues on which the Tribunal will necessarily need to make a substantive determination. It seems appropriate to deal with these issues at the same time as considering submissions on credit.
31.Counsel said that there were a number of troubling aspects to the respondent’s evidence: sufficiently troubling for the Tribunal to find that he had not given credible and honest evidence. He referred to four instances of this.
32.The first was the respondent’s evidence that he relied on the advice of three barristers for the purpose of authorising the relevant transaction on 9 September 2015. One such statement is found in paragraph 18 of his affidavit of 20 August 2018 filed in the proceedings:
My conduct was not done in secrecy. Instead, the conduct was made in consultation and with the advice of three barristers, one solicitor, with the full knowledge of the clients (albeit without their consent), and the full knowledge of the client’s other solicitors [Mr PB].[20]
[20] Exhibit 3 page 3 [18]
33.Another example is paragraph 11 of the first letter to the Law Society of 25 May 2016 where he refers to “extensive discussions with counsel”.[21]
[21] Exhibit RR1 of Exhibit 1 page 2 [11]
34.There was a further reference to this in his letter to the Law Society of 31 May 2016:
I should say, by way of explanation, that at the time I authorised the withdrawal I believed that the combination of the terms of my costs agreements with [the clients] and section 62(3)(a)(i) of the Regulation permitted me to make it. I discussed what I proposed to do with counsel. I understood from that discussion that there was no impediment to the withdrawal. However, looking back, I acknowledge that this was done on an informal basis. I did not actually brief counsel with copies of my costs agreements, nor did I discuss the procedural details.[22]
[22] Exhibit RR1 to Exhibit 1 page 3 [4]
35.There were no contemporaneous records available except for some time costing records which were not helpful. However, the three barristers were called and although their recollection was not particularly good, it was clear that any advice that they gave the respondent was in relation to his obligations under the order of the NSW Supreme Court and not in relation to his obligations or rights under either the relevant ACT legislation or the costs agreements.
36.Counsel for the applicant cited the following example from the transcript of one of the counsel, Mr Fernan, in support of his submission:
At no stage were you asked by [the respondent] to give advice of that nature? as in ‘by that nature’ I mean the relevant law which applied to dealing with trust money?--- That’s correct.[23]
[23] Transcript of proceedings 7 November 2018 page 13, line 40
37.Mr Farland gave evidence as follows:
COUNSEL FOR THE APPLICANT: So would it be fair to say this: the advice which you gave was limited to the effect of the order which had been made by the Court?---Yes, that was the scope of the discussion.[24]
[24] Transcript of proceedings 6 November 2018 page 67, lines 26-28
38.Mr Erskine SC says that had he been asked by the respondent for advice whether the respondent could withdraw money held on trust to pay costs he would certainly have wanted to consider his costs agreements for the purposes of giving that advice.[25] He said that his “hazy” recollection was of discussion of the meaning of orders made in a NSW court.[26]
[25] Transcript of proceedings 7 November 2018 page 6, line 9
[26] Transcript of proceedings 7 November 2018 page 6, line 2
39.In the Tribunal’s view, this description by the barristers of the limited extent of advice given by themselves was contrary to the meaning conveyed by the respondent in the quotations referred to in paragraphs 32 to 34 above — that meaning being that the respondent sought and received counsel’s advice not only on the effect of the NSW Supreme Court order, but also on his intended use of the funds initially held in account 10043, including a journal transfer followed by a transfer from trust to office, to pay costs outstanding in another account.
40.In the Tribunal’s view, the respondent has overstated the extent and nature of the advice he received from counsel. He has done this on more than one occasion, which includes his primary evidence in these proceedings, and this does not stand well to the respondent’s credit.
41.Counsel submitted that the second troubling aspect of the respondent’s evidence was his failure to give evidence in his affidavit about the meeting of 8 September 2015. It was an important meeting and there was limited material relating to it in the evidentiary material that the applicant had access to. Counsel pressed the respondent on why he had not included greater detail of the 8 September 2015 meeting in his affidavit given its significance,[27] to which the reply was it was adequately covered in the time costing notes.[28]
[27] Transcript of proceedings 6 November 2018 page 17
[28] Exhibit RR1 to Exhibit 1 pages 111-112
42.In the Tribunal’s view, detail of what was said in the time costing notes was a minimal reference to the meeting which lasted nearly an hour. It was perhaps adequate for time costing purposes, but was clearly not an adequate description of what was said at the meeting. The Tribunal also finds the respondent’s dogged denial of the inadequacy of the time costing notes as a record of the 8 September 2015 meeting during cross-examination quite unusual and adverse to his credibility.[29]
[29] Transcript of proceedings 7 November 2018 pages 17-20
43.The third matter which Counsel described as troubling consisted of evidence given by the respondent which was evidence that had not been given before and which was exculpatory. This was done on three separate occasions.
44.The first exchange commences during cross-examination, in which the respondent claims that he would have explained the need to transfer funds from 10043 to 10035 at the 8 September 2015 meeting. The transcript reads as follows:
COUNSEL FOR THE APPLICANT: It’s clear from what you have said in this statement that you said to [the clients] “I want your authority to access funds claimed under my lien to pay your costs.” It’s clear that you put that to them. Do you accept that?---Yes.
And they declined to give you that authority?---Yes.
You accept that?---Yes.
You didn’t explain to them … that in order to pay your costs in matter 10035 you needed to transfer funds which were held on their behalf in matter 10043 to matter 10035. That’s the case, isn’t it?---I would have explained that to them because that was the only place the money was.
Well … do you accept that you are giving this evidence for the first time?---This is the first time I’ve given evidence on this matter.
Well, no, that’s not correct … You’ve prepared two affidavits in respect of this matter. That’s the case, isn’t it?---Well, I’ve given a lot of evidence prior … to today. ‑ ‑ ‑
Can you answer my question? You have prepared two affidavits in respect of this matter. That’s the case, isn’t it?---Yes.
And in neither of those affidavits do you say that you explained to [the clients] at the meeting on [8] September 2015 that to pay your costs in matter 10035, you needed to transfer funds held on their behalf in matter 10043 to matter 10035. You don’t say in those affidavits that you gave that explanation to them, do you?---No.[30]
[30] Transcript of proceedings 6 November 2018 page 23-24
45.In that quotation there is reference to the swearing of two affidavits in the proceeding. One of those was not relied on by the respondent.
46.After further questioning, the respondent agreed that there was no record of his having explained to the clients the need to transfer funds from 10043 to 10035 in his affidavits or the time costing records commencing at page 111 of Exhibit RR1 of Exhibit 1.[31]
[31] Transcript of proceedings 6 November 2018 page 24
47.His reporting of his actions is conditional —for example, ‘I would have’[32] — and is recorded as a conclusion which is unsupported by any previous statement by the respondent. In the Tribunal’s view, his statement is incompatible with the ‘surprise’ expressed by Mrs B in her email of 22 September 2015.[33] Having regard to those matters, the sudden appearance of this information, its conditional nature, and the previous criticism of the scant recording of the content of the meeting of 8 September 2015 by the respondent, the Tribunal considers it highly unlikely that the claimed disclosure was made to the clients, and that the respondent’s evidence in this regard should be rejected.
[32] Transcript of proceedings 6 November 2018 page 35, line 41; page 57, line 28
[33] Exhibit RR1 of Exhibit 1 page 126
48.The next time the respondent referred to previously undisclosed evidence is during cross-examination when he is asked whether he had warned the clients he would withdraw trust funds to pay costs regardless of their refusal to agree. The transcript reads:
COUNSEL FOR THE APPLICANT: The authority which you sought from the clients on 8 September 2015 was to withdraw funds held on trust for them to pay legal costs which you claimed against them. Correct?---Yes.
And they declined to provide you with that authority. Correct?---Yes.
After they declined to provide that authority you didn’t say to them that you were going to go ahead regardless and withdraw funds held on trust for them to pay your legal costs. That’s the case, isn’t it?---No.
You didn’t say that to them. Is that correct?---No.
You didn’t say it. Sometimes less confusion as to whether you’re denying the proposition or, so let me be clear about it. What I’m putting to you, [the respondent], is that at that meeting you asked for authority to pay your costs from funds held on trust for [the clients]. We’ve already established that. Correct?---Yes.
That authority was declined. Correct?---Yes.
You did not say to [the clients] regardless of your refusal to give me authority I am still going to withdraw funds on trust to pay legal costs. You didn’t say that to them, did you?---I did.
[To the respondent], you haven’t set this out in either of your affidavits, have you, sir?---No.[34]
[34] Transcript of proceedings 6 November 2018 page 27, lines 20-45
49.Further cross-examination established that the respondent had not disclosed the information in correspondence with the Law Society, nor in the time costing records. The respondent agreed that he was giving that evidence for the first time that day.[35]
[35] Transcript of proceedings 6 November 2018 page 29, line 20
50.The matters put in cross-examination reduce the credibility of the respondent’s evidence regarding the warning he claims to have delivered. It is also incompatible with the email by Mrs B of 22 September 2015,[36] in which she says that the clients were “surprised when you called to advise that [the respondent] had transferred the funds.” The Tribunal rejects this evidence from the respondent.
[36] Exhibit RR1 of Exhibit 1 page 126
51.Counsel then referred to a third occasion on which the respondent had given new evidence related to advice received from Mr Erskine SC who had been briefed to advise Mr and Mrs B and evidently did some reasonably extensive work for them. During cross-examination, the respondent said that he had passed on advice from Mr Erskine to Mr and Mrs B at the meeting of 8 September 2015 that Mr Erskine approved the trust transactions that the respondent intended to carry out.[37]
[37] Transcript of proceedings 6 November 2018 page 54, lines 44-47
52.The relevant cross-examination is from the third day of the hearing:
COUNSEL FOR THE APPLICANT: And at the time that you had these discussions with Mr Erskine, Mr Erskine was briefed on behalf of [the clients], correct?---Yes.
And if he had given advice in relation to how you could deal with their trust money, that was advice which they were entitled to have the benefit of, correct?---Yes.
But you never gave them this advice which you say you received from Mr Erskine, correct?---No.
Did you give them the advice?---Yes.
When did you give them the advice?---At the meeting that we had at – on the evening of Tuesday the – the 8 September.
… do you say that at that meeting you told [the clients] that Mr Erskine had given you advice approving of your proposal to transfer money from [trust] to pay your costs, is that what you are saying?---Yes.
And you haven’t set out in either of your affidavits … that you told them that. That’s the case, isn’t it?---I don’t recall stating in my affidavit that I had received Mr Erskine’s advice.[38]
[38] Transcript of proceedings 6 November 2018 page 55
53.The evidence of Mr Erskine relating to advice he had given about using trust money to pay legal costs has already been referred to. The Tribunal has determined that Mr Erskine did not give advice to the respondent approving of his proposal to transfer money from trust to pay costs and therefore the reporting of having done so must be in error. This evidence, referred to above, is rejected by the Tribunal.
54.In the course of making submissions relating to the above three items of new evidence, Counsel for the applicant handed up copies of a case from the NSW Supreme Court of White v Shortall [2006] NSWSC 1379. Counsel relied on paragraph 71 of Campbell J’s judgment which is reproduced below:
Frequently, it is very damaging to the credibility of a plaintiff’s case if important evidence relating to it emerges only late in the course of evidence. The reason for this is that the Court is usually justified in assuming that the legal representatives of a plaintiff embarking on something as significant and potentially expensive as Supreme Court litigation will properly proof their client, obtain from their client all relevant details of the story relevant to the case, and include that material in affidavits in chief.
55.In conclusion, in relation to these areas of concern, Counsel submitted that the importance of the evidence given by the respondent in cross-examination was such that it was implausible that he did not refer to it in his affidavit evidence. The only explanation was that when confronted in cross-examination with difficult questions he gave dishonest answers to those questions.
56.The Tribunal has rejected this evidence given on the above occasions for the reasons given, and considers that the giving of the evidence reflects adversely on the respondent’s credit.
57.The fourth and final aspect of the respondent’s evidence referred to by the applicant as troubling was the respondent’s responses in cross-examination relating to his letter to the Law Society of 31 May 2016.[39]
[39] Exhibit RR1 of Exhibit 1 pages 3-4
58.In paragraph 5 of that letter, the respondent referred to having emailed Mr PB on 9 September 2015 advising of the transfer of funds after which followed the following sentence: “Since then [the clients] have not objected to the withdrawal of the trust money to pay costs and disbursements.”
59.In cross-examination, Counsel for the applicant put a number of occasions on which Mr or Mrs B clearly showed displeasure at the transfer of funds by the respondent to pay costs between 9 September 2015 and 31 May 2016. They were:
(a)An email of 18 September 2015 from the respondent to Mr B[40] after a meeting with him the same day in which Mr B had said he was looking at taking legal action against the respondent’s firm in relation to the transfers of the trust money.
(b)An email of 22 September 2015 from Mrs B[41] expressing surprise “that you had transferred the funds and did not need our authority to do so, even though you had earlier clearly advised that no funds could be withdrawn without written authority from both of us.”
(c)A letter of 23 October 2015 from the respondent to the clients[42] in which the respondent refers to “various and repeated allegations” made by Mr B that “he disputes [the respondent’s] decision to transfer the money”[43] from trust. The letter also refers to Mr B’s “various, repeated and hurtful allegations that [the respondent has] somehow tricked him [Mr B]”[44] by the decision to make the transfer.
[40] Exhibit RR1 of Exhibit 1 page 122
[41] Exhibit RR1 of Exhibit 1 page 126
[42] Exhibit RR1 of Exhibit 1 pages 164 to 166
[43] Exhibit RR1 of Exhibit 1 page 164 [3d]
[44] Exhibit RR1 of Exhibit 1 page 164 [3e]
60.It is unnecessary to detail the cross-examination on this fourth aspect; however, the Tribunal finds the respondent’s, again dogged, refusal to recognise during cross-examination the inconsistency between the statement of 31 May 2016 and the clearly expressed displeasure of his clients prior to that time as bordering on the bizarre.
61.The Tribunal’s opinion is that the statement by the respondent in the letter of 31 May 2016 to the Law Society is clearly incorrect given the evidence referred to above. The letter was an important letter and the author was under a duty to provide accurate information in a matter which was of importance to sender and recipient. That the Tribunal has found it inaccurate against a background of the respondent’s stubborn denials reflects poorly on the credit of the respondent.
62.In the course of his submissions dealt with above, Counsel for the applicant relied on a part of paragraph 18 of the affidavit of the respondent sworn 20 August 2018.[45] Because of the status of this affidavit as evidence in the consideration of the issues in this case, the Tribunal now notes two concerns of its own with paragraph 18 of this affidavit. These are firstly the statement “the conduct was made … with the full knowledge of the clients”; and secondly, “[with] the full knowledge of the client’s other solicitors [Mr PB].” [46]
[45] Exhibit 3 page 3 [18]
[46] Exhibit 3 page 3
63.Previous findings explain the Tribunal’s concern about the accuracy of the respondent’s assertion that the clients had full knowledge of the respondent’s conduct in transferring the funds. It is also clear from the email exchanges between the relevant solicitors that Mr PB became aware of the transfer after it was effected. The inaccuracy of the statements in paragraph 18 of the respondent’s affidavit are of particular concern because they appear in an affidavit filed in these proceedings.
64.Consideration of Charge 3 requires reference to a statement by Bell J in the Victorian Supreme Court case of Brereton v Legal Service Commissioner [2010] VSC 378 where he says:
50.It follows that the word ‘misappropriation’ in its ordinary sense involves a mental element. Misappropriation is dishonestly misapplying property, including money, held on behalf of another. In the criminal context, misappropriation by and to the trustee personally is not a crime at common law because the trustee already has the property; but it is conduct which, but for that, would be theft. It is ‘stealing’ in another guise because it is wrongful appropriation by the trustee of property being held for another.
…
53.While an allegation of dishonesty requires consideration of the person’s mental state, in neither the criminal nor the civil context is it necessary to establish that the person subjectively knew or believed that the actions concerned were dishonest. What must be established is that the person subjectively intended to do the acts which are said to be objectively dishonest by the ordinary standards of reasonable and honest people. Thus the course to be adopted in determining whether conduct is dishonest was explained by Toohey and Gaudron JJ in Peters v R as follows:
In a case in which it is necessary for a jury to decide whether an act is dishonest, the proper course is for the trial judge to identify the knowledge, belief or intent which is said to render that act dishonest and to instruct the jury to decide whether the accused had that knowledge, belief or intent and, if so, to determine whether, on that account, the act was dishonest … If the question is whether the act was dishonest according to ordinary notions, it is sufficient that the jury be instructed that that is to be decided by the standards of ordinary, decent people.
54.The steps involved in this formulation are: (1) identify the knowledge, belief or intent which is said to render the acts dishonest; (2) determine whether the accused (or defendant in the civil context) subjectively had that knowledge, belief or intent; and (3) determine whether, on that account, the acts were objectively dishonest according to the standards of ordinary and decent (that is reasonable and honest) people.
55.When applying these principles in a civil case, the civil standard of proof on the balance of probabilities applies. Of course, where the allegation in a civil case is of misappropriation, a high standard of probability is required, due to the gravity of the allegation. In a criminal case, the criminal standard of proof beyond reasonable doubt applies.
65.The last paragraph refers to an important principle for consideration in disciplinary cases in the Tribunal regarding standard of proof. It is based on a statement of principle by Rich J in the High Court case of Briginshaw v Briginshaw (1930) 60 CLR 336. It was applied by the tribunal in Council of the Law Society v The Legal Practitioner [2010] ACAT 2 as follows:
12. Rich J’s test of “comfortable satisfaction” provides a succinct description of the standard to be applied in such cases. Proof beyond reasonable doubt is not required; but the standard requires more than a mere balancing of the scales. The evidence must be weighed, according to the gravity of the facts to be proved, to the extent that a conclusion is reached about those facts with a feeling of comfortable satisfaction that it is just and correct.
66.The Tribunal will apply that statement of principle in considering the evidence in this case.
Charge 3
67.The three charges are set out in the amended application for disciplinary action dated 7 November 2018 at the end of a statement of facts, a statement of applicable legislation, and a statement of contentions. The contentions set out the basis of the three ‘statutory’ charges. It is paragraph 43 which sets out the basis for Charge 3: the misappropriation charge. Paragraph 43 reads as follows.
The Applicant contends that the Respondent’s conduct at the time of the transfer of 9 September 2015 was deliberate. He was aware of a pending Garnishee Order (issued in favour of Rural Bank). On the next day [8 September 2015] he sought authority to pay the sum of $295,644.45 from trust for costs and disbursements. In transferring the funds to matter 10035 by unilateral journal transfer on 9 September 2015 (noting the client’s refusal to allow use of the funds under matter 10043) the Respondent did not act in the best interests of his clients and preferred his own interests to those of his clients. The journal entry and subsequent withdrawal was either performed by the Respondent dishonestly with the knowledge and a belief that he should not have transferred the funds to matter 10035 and then withdrawn the funds from the firm’s trust account or, alternatively, such conduct is objectively dishonest by the ordinary standards of reasonable, honest people, irrespective of whether the Respondent had a subjective dishonest intention to misappropriate the funds.
68.Paragraph 43 of the amended application indicates that Charge 3 relates to a complex activity which in the circumstances alleged consisted of transfer of the sum from account 10043 to 10035 by journal entry and then a further transfer from trust to office in account 10035. However, it is convenient to examine the actions of the respondent firstly in effecting the journal entry, and then undertaking or authorising the trust to office transfer.
Journal Transfer
69.The respondent sent an email to Mr PB after making the transfer from 10043 to office in the following terms indicating his basis for belief that the transfer was justified:
I have relied on clause 19 of my Cost Agreement with [the clients] dated 13 August 2014, and I have transferred the funds subject to my lien to my office account this morning. I intend to disburse these funds on account of my unpaid costs and disbursements in the usual manner.[47]
[47] Exhibit RR1 of Exhibit 1 page 91
70.The existence of that belief is confirmed in the respondent’s affidavit of 20 August 2018:
My motivation for the journal transfer was that the client’s owed me money for legal costs and disbursements, and I believed that the terms of the existing cost agreements entitled me to transfer the subject funds. This belief was based on the advice I sought from Mr Andrew Fernon, Mr Geoff Farland, Mr Chris Erskine SC, and my employed solicitor prior to performing the transactions.[48]
[48] Exhibit 3 page 3 [20]
71.The Tribunal has previously found that the three barristers did not deliver advice to the respondent about the ACT legislation relating to trust accounts nor did they advise on the effect of the costs agreements. To the extent that the above statement of belief relies on that advice, its existence and accuracy must be regarded as being weakened.
72.In cross-examination Counsel for the applicant established that the respondent was aware that he had neither verbal nor written authority from his clients to make the journal transfer at the time it was made;[49] and that he knew that the legislation only permitted a journal transfer if there was entitlement to do so.[50] The following exchange then occurred:
prior to you [the respondent] authorising this transfer you looked at your costs agreements in matter 10035 and matter 10043. Is that correct?---Yes.
You knew … that there was nothing in either of those costs agreements that dealt specifically with the transfer of funds from one trust ledger account to another. That’s the case, isn’t it?---Correct.[51]
[49] Transcript of proceedings 6 November 2018 page 26, lines 18-20
[50] Transcript of proceedings 6 November 2018 page 15, lines 33-35
[51] Transcript of proceedings 6 November 2018 page 26, lines 22-26
73.It is the Tribunal’s view that these answers are directly incompatible with the existence of an honestly held belief that the respondent’s costs agreements justified the journal transfer that he was proposing to do. The Tribunal infers from the material just referred to that, at the time of making the journal entry, the respondent, knew that there was nothing which constituted entitlement to undertake the journal transfer to be found in the costs agreements. In those circumstances the Tribunal is unable to accept the respondent’s answer to the next question which was put by Counsel for the applicant:
… when you authorised this transfer … you did not honestly believe that you had any entitlement to authorise it. That’s the case, isn’t it?---No.[52]
[52] Transcript of proceedings 6 November 2018 page 26, lines 29-31
74.The Tribunal assesses that answer in the context of the cross-examination of the respondent referred to above and its views regarding the respondent’s credibility previously referred to, and concludes that at the time of making the journal transfer there was no justification for making the journal transfer to be found in his costs agreements and that was known to the respondent. The Tribunal is therefore comfortably satisfied that the respondent at the time of making the journal transfer did not honestly hold the claimed belief that the costs agreements entitled the transfer to be made and consequently the transfer was done dishonestly.
Transfer from trust to office
75.Furthermore, in relation to the remainder of the transaction, the transfer from trust in matter 10035 to office to pay costs, the Tribunal rejects the respondent’s claim that he honestly believed that the transaction was authorised by the costs agreements. He knew that the transfer to account 10035 had been made without entitlement and the funds were not properly standing to the credit of that account. In addition to that, irrespective of his claimed belief, the transfer having been made in breach of the representation to the clients in the email of 6 May 2015, ordinary decent people would regard it as having been done dishonestly.
76.The Tribunal finds that Charge 3 is established.
Characterisation
77.Dishonesty having been found in the handling of trust funds in the circumstances established, the Tribunal is satisfied that conduct must be characterised as professional misconduct and such a finding is made.
………………………………
Senior Member G Lunney SC
For and on behalf of the Tribunal
78.
Appendix A
Legal Profession Regulation 2007
47Journal transfers
1)Trust money may be transferred by journal entry from 1 trust ledger account in a law practice’s trust ledger to another trust ledger account in the trust ledger, but only if—
(a)the law practice is entitled to withdraw the money and pay it to the other trust ledger account; and
(b)subsection (2) is complied with.
2)The transfer must be authorised in writing—
(a)by an authorised principal of the law practice; or
(b)if a principal mentioned in paragraph (a) is not available—
(i) by an authorised legal practitioner associate; or
(ii) by an authorised Australian legal practitioner who holds an unrestricted practising certificate authorising the receipt of trust money; or
(iii) by 2 or more authorised associates jointly; or
(c)by an external intervener for the practice.
3)A law practice must keep a trust account transfer journal if it transfers trust money by journal entry.
4)The following particulars must be recorded in the trust account transfer journal in relation to each transfer of trust money by journal entry:
(a)the date of the transfer;
(b)the trust ledger account from which the money is transferred (including its identifying reference);
(c)the trust ledger account to which the money is transferred (including its identifying reference);
(d)the amount transferred;
(e)particulars sufficient to identify the purpose for which the transfer is made, the matter reference and a short description of the matter.
5)Journal pages or entries must be consecutively numbered.
6)A law practice must keep particulars of the authorisation for each transfer of trust money by journal entry, whether in the trust account transfer journal or in some other way.
7)In this section:
associate means an associate of the law practice.
authorised means authorised by the law practice or an external intervener for the practice to effect, direct or give authority for the transfer of trust money by journal entry from 1 trust ledger account in the practice’s trust ledger to another trust ledger account in the trust ledger.
external intervener—see the Act, section 473 (1).
62Withdrawing trust money for legal costs—Act, s 229 (1) (b)
1)This section prescribes, for the Act, section 229 (1) (b) the procedure for the withdrawal of trust money held in a general trust account or controlled money account of a law practice for payment of legal costs owing to the practice by the person for whom the trust money was paid into the account.
2)The trust money may be withdrawn as set out in subsection (3) or (4).
3)The law practice may withdraw the trust money—
(a)if—
(i) the money is withdrawn in accordance with a costs agreement that complies with the legislation under which it is made and that authorises the withdrawal; or
(ii) the money is withdrawn in accordance with instructions that have been received by the practice and that authorise the withdrawal; or
(iii) the money is owed to the practice by way of reimbursement of money already paid by the practice on behalf of the person; and
(b)if, before effecting the withdrawal, the practice gives or sends to the person—
(i) a request for payment, referring to the proposed withdrawal; or
(ii) a written notice of withdrawal.
4)The law practice may withdraw the trust money—
a.if the practice has given the person a bill relating to the money; and
b.if—
(i) the person has not objected to withdrawal of the money not later than 7 days after being given the bill; or
(ii) the person has objected not later than 7 days after being given the bill but has not applied for a review of the legal costs under the Act not later than 60 days after being given the bill; or
(iii) the money otherwise becomes legally payable.
5)Instructions mentioned in subsection (3) (a) (ii)—
a.if given in writing—must be kept as a permanent record; or
b.if not given in writing—either before, or not later than 5 working days after, the law practice effects the withdrawal, must be confirmed in writing and a copy kept as a permanent record.
6)For subsection (3) (a) (iii), money is taken to have been paid by the law practice on behalf of someone if the relevant account of the practice has been debited.
HEARING DETAILS
FILE NUMBER:
OR 9/2018
PARTIES, APPLICANT:
Council of the Law Society of the ACT
PARTIES, RESPONDENT:
LP 201809
COUNSEL APPEARING, APPLICANT
Mr D Moujalli
COUNSEL APPEARING, RESPONDENT
Mr G Stretton SC
SOLICITORS FOR APPLICANT
McInness Wilson Lawyers
SOLICITORS FOR RESPONDENT
N/A
TRIBUNAL MEMBERS:
Senior Member G Lunney SC Member E Trickett
DATES OF HEARING:
20 September 2018
21 September 2018
6 November 2018
7 November 2018
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