Council of the Law Society of the Australian Capital Territory v Legal Practitioner 201907 (Darren Carden) (Occupational Regulation)

[2019] ACAT 76

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

COUNCIL OF THE LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY v LEGAL PRACTITIONER 201907 (Darren Carden) (Occupational Regulation) [2019] ACAT 76

OR 7/2019

Catchwords:                OCCUPATIONAL REGULATION – legal practitioner – conflict of interest – lack of competency – conflict between clients’ interest and interests to conflict with clients – discourteous communication – consent orders – professional misconduct – public reprimand – fine – supervision of practice – costs

Legislation cited:        ACTCivil and Administrative Tribunal Act 2008 s 55

Legal Profession Act 2006 ss 387, 419, 425, 433

Subordinate

Legislation cited:        Legal Profession (Solicitors) Rules 2007 rr 1.1, 1.2, 7.2, 7.3, 8.1, 8.2

Legal Profession (Solicitors) Conduct Rules 2015 r 4

Cases cited:Council of the Law Society of the ACT v Legal Practitioner 201818 [2019] ACAT 12

Council of the Law Society of the ACT v Legal Practitioner ‘P4’ (No 2) [2015] ACAT 35
Council of the Law Society of the ACT v Legal Practitioner RN [2016] ACAT 122

Council of the Law Society of NSW v Doherty (No 2) [2009] NSWADT 296

Law Society of New South Wales v Moulton [1981] 2 NSWLR 736
LSC v Timothy John McQuaid [2018] QCAT 342
O’Reilly v Law Society of NSW (1988) 24 NSWLR 204
Re Fabricius and Mclaren and Re Legal Practitioners Ordinance 1970 (1989) 91 ACTR 1

Tribunal:Presidential Member G McCarthy

Date of Orders:  15 August 2019

Date of Reasons for Decision:     15 August 2019

AUSTRALIAN CAPITAL TERRITORY  )

CIVIL & ADMINISTRATIVE TRIBUNAL       )          OR 7/2019

BETWEEN:

COUNCIL OF THE LAW SOCIETY OF THE AUSTRALIAN CAPITAL TERRITORY

Applicant

AND:

LEGAL PRACTITIONER 201907 (DARREN CARDEN)

Respondent

TRIBUNAL:Presidential Member G McCarthy

DATE:15 August 2019

CONSENT DECISION PURSUANT TO SECTION 55 OF THE ACT CIVIL AND ADMINISTRATIVE TRIBUNAL ACT 2008

The parties have reached an agreement as to the terms of a decision of the Tribunal in response to the application for disciplinary action dated 17 April 2019. The terms of the agreement were reduced to writing, signed by or on behalf of the parties and lodged with the Tribunal. The Tribunal is satisfied that a decision consistent with those terms is within the power of the Tribunal and is appropriate.

By consent, the Tribunal makes the following orders:

1.Pursuant to subsection 425(1) of the Legal Profession Act 2006 (the Act), the respondent is guilty of professional misconduct.

2.Pursuant to subsection 425(3)(e) of the Act, the respondent is publically reprimanded.

3.Pursuant to subsection 425(5)(c) of the Act, the respondent undertake a period of eighteen (18) months' practice under supervision as follows:

(a)a supervisor (the Supervisor) determined by the applicant be appointed to supervise the respondent's Law Practice (meaning Carden & Co Pty Ltd, operating under the name of Eastwoods Legal);

(b)the Supervisor will attend the respondent's Law Practice as considered necessary in the discretion of the Supervisor. It is anticipated that the attendances will be more frequent at the commencement of the period of supervision;

(c)the Supervisor will supervise the respondent by doing the following:

(i)     convening regular meetings with the respondent;

(ii)     reviewing procedures of the respondent's Law Practice in relation to conflict checking, client retainers, cost disclosure and file handling generally;

(iii)     physically reviewing files of the respondent's Law Practice (including requiring the production of documents by the respondent and his staff);

(iv)    reviewing outgoing correspondence; and

(v)     anything else considered necessary by the Supervisor;

(d)the respondent will do all things necessary to assist the Supervisor;

(e)the Supervisor will render accounts for the performance of his or her supervision, calculated at the rate of $375 per hour;

(f)the Supervisor will provide monthly reports to the applicant regarding his or her supervision of the respondent and the respondent's Law Practice;

(g)the Supervisor can seek guidance from the applicant;

(h)the fees of the Supervisor referred to in paragraph 3(e) are payable by the respondent. To that end, the Supervisor will submit monthly accounts to the applicant which will be paid by the respondent within twenty eight (28) days of being submitted by the applicant to the respondent for payment; and

(i)the applicant may recover any unpaid Supervisor's fees from the respondent.

4.Pursuant to subsection 425(5)(a) of the Act, the respondent is fined in the sum of $15,000, payable as follows;

(a)$7,500 payable within twenty eight (28) days of the date of these orders; and

(b)$7,500 payable by 15 October 2019.

5.Pursuant to section 433(1) of the Act, the respondent pay the applicant's costs fixed in the sum of $80,000 over a period of three (3) years in equal monthly instalments (of $2,222.22) payable on the first day of each month commencing on 1 October 2019. If the respondent defaults in relation to a payment, without prior approval of the applicant, the applicant may recover the whole of the costs outstanding.

…………………………..

Presidential Member G McCarthy

REASONS FOR DECISION

Introduction

1.By application dated 14 April 2019 the applicant brought occupational discipline proceedings against the respondent under section 419 of the Legal Profession Act 2006 (the Act).

2.On 12 July 2019 the parties filed a Joint Submission with the Tribunal to assist it in determining the matter by consent pursuant to section 55 of the ACTCivil and Administrative Tribunal Act 2008 (the ACAT Act).

3.The Joint Submission set out the parties' agreed position on the relevant facts, the charges, the characterisation of the charges and the agreed sanction. It also identified disagreement about some facts, the respondent’s submissions in mitigation and joint submissions on the appropriateness of the agreed sanction.

4.On 15 July 2019, after hearing from the parties in response to the Joint Submission, I was satisfied pursuant to section 55 of the ACAT Act that the substance of the proposed orders are within power and appropriate for the Tribunal to make.

5.I should however record my reservations. At the hearing on 15 July 2019, the respondent did not resile from the Joint Submission but characterised the events giving rise to the charges as just a “business deal that went wrong”. In my view, for the respondent to view the matter in that way displays a worrying failure to recognise his error. Whether “the deal” was a success or a failure is irrelevant. The substance of the respondent’s wrongdoing was to place himself in a position of serious and irreconcilable conflict between his professional responsibilities as a legal practitioner and his significant commercial interests in “the deal”. For the respondent apparently still not to appreciate the conflict or its significance, notwithstanding the disciplinary proceedings that have occurred stemming from a complaint made in March 2016, is a significant concern. I can only hope that over the course of 18 months’ supervision of his practice, which he has agreed to undertake as part of the agreed sanction, the respondent will come to appreciate the importance of avoiding conflicts of interest in the discharge of his professional responsibilities as a legal practitioner.

6.After clarifying details regarding the ambit of some of the proposed consent orders, on 5 August 2019 the Tribunal sent draft orders to the parties, and requested any comment about them by 5:00pm on 8 August 2019. Neither party had any objection to the draft orders. I will therefore make orders in those terms.

7.The second order, made by consent, is that the respondent be publicly reprimanded. In my view, a public reprimand entails disclosure of the respondent’s name and the conduct for which he is publicly reprimanded.

8.The parties have detailed that conduct, by agreement, in the Joint Submission. I have no cause to disagree. Out of respect for the parties’ agreement, my reasons for making the orders in large part therefore replicate the Joint Submission save for some minor stylistic changes. I have however deleted some personal factual matters and anonymised some of the persons involved in the events giving rise to the charges laid against the respondent. In the context of a regulatory disciplinary proceeding involving the respondent only, I see no reason why these personal details need be published. Without those details, it is still possible to understand what occurred and the conduct for which the respondent is publicly reprimanded.

Background

9.The respondent:

(a)was admitted as a barrister and solicitor of the Supreme Court of South Australia on 9 February 2009;

(b)held a restricted practising certificate issued by the Law Society of the ACT from 29 September 2011 to 30 June 2014; and

(c)held an unrestricted practising certificate issued by the Law Society of the ACT from 1 July 2014.

10.The respondent was employed by a Canberra law practice, which I will refer to as ‘LP1’, from around September 2011 until September 2012. From about October 2012 until 30 May 2014 the respondent was an employee of another Canberra law practice, which I will refer to as ‘LP2’. The respondent contends that his supervision at LP2 was limited, having regard to his level of experience at the time. From 1 July 2014 to about June 2016 the respondent was the principal of the law practice formerly carrying on practice under the name of Carden & Co. From about June 2016 the respondent has been the principal of the law practice, Carden & Co Pty Ltd, carrying on practice under the name of Eastwoods Legal.

11.On or about 7 March 2016, the applicant received a complaint from a person who I will refer to as ‘A’ in relation to a joint-venture (JV) between four participating parties, namely, the respondent, A, and two other persons who I will refer to as ‘B’ and ‘C’. The joint venture related to the purchase and development of land at Amaroo in the ACT to be used as a childcare centre.

12.Details of those involved in the JV are as follows:

(a)A is an architect by formal training and a JV partner.

(i)      As at 21 May 2014 A was the sole Trustee of the AAA Family Trust (AAA).

(ii)      A was also the sole director and shareholder of Amaroo Early Learning Centre Pty Ltd ACN 169 025 156 (AELC). An Administrator was appointed to AELC on 17 March 2016. A Liquidator was appointed to AELC on 28 April 2016.

(iii)     A’s single share in AELC was transferred to ACT Early Learning Pty Ltd (ACTEL) on 21 February 2016.

(iv)     ACTEL is the sole shareholder in AELC.

(b)     The respondent is a practising legal practitioner and a JV partner.

(i)      The respondent was the sole director of Katherine Avenue Pty Ltd (KAPL).

(ii)      KAPL was incorporated by B on 25 November 2013.

(iii)     KAPL was Trustee initially of the Katherine Avenue Unit Trust and later of the Rabbit and Hound Family Trust.

(iv)     KAPL was the buyer of the land from the Land Development Agency on 27 November 2013.

(v)     The respondent was a director of Zhihong Nominees Pty Ltd. Zhihong Nominees Pty Ltd is the sole shareholder of KAPL.  It is also the Trustee of the MW Superannuation Fund.

(c)B appears to operate in the building industry and is a JV partner.

(i)      B was the sole director and shareholder of BBB Nominees Pty Ltd (BBB Nominees).

(ii)      BBB Nominees is Trustee of the BBB Family Trust.

(iii)     B was also the sole director and shareholder of CCC Pty Ltd (CCC).

(d)C held her partnership interest in the JV on trust for B’s brother, who I will refer to as ‘D’, by virtue of D’s bankruptcy.

(e)D had experience in the child care centre industry having previously owned a child care centre and provided advice to the JV.

(f)E is a shareholder of DDD Pty Ltd (DDD). It was incorporated on 2 April 2014.

(g)F, the wife of E, is the director and a shareholder of DDD.

13.DDD purchased the land from KAPL on or shortly after 23 May 2014 and that day entered into an agreement with AELC to lease the land for 25 years (Agreement for Lease). E and F wanted to develop, through their company DDD, a childcare centre on the land from which AELC would own and operate a child care business either for the full term of 25 years or a shorter term.  In the event of AELC operating the childcare business for a shorter term, it would be able to sell the rights to operate the business for the residue of the lease at the point of sale.

14.As a result of litigation involving, inter-alia, the respondent and A, AELC was put into voluntary administration, resulting in the termination of the Agreement for Lease.

Aims of JV partners

15.It was the intention of the four JV partners:

(a)to buy a block of land from the Land Development Agency (the LDA) at Amaroo ACT (the Amaroo Land), at auction on 27 November 2013. The ultimate aim was to obtain Development Application (DA) approval to allow the construction of a childcare centre and permit the conduct of a childcare business on the Amaroo Land;

(b)to have a purchaser entity in the joint venture (Purchaser Entity) complete the acquisition from the LDA through the vehicle of a jointly owned company with the four JV partners holding 25% each of the equity in the company (D would have a 25% interest held on trust);

(c)to take advantage of the delayed settlement the LDA accorded to bidders at the November 2013 auction and allow the Purchaser Entity until May 2014 to come up with the purchase price and further to bid on the basis of only a 5% deposit;

(d)to get DA approval as early as possible to allow the development and use of the Amaroo Land as a childcare centre, then on-sell the land to a builder/developer (Builder Co);

(e)to reach an agreement with Builder Co so that Builder Co would:

(i)      take title to the Amaroo Land;

(ii)      at the simultaneous settlement of the purchase by the Purchaser Entity from the LDA and on sale by the Purchaser Entity to Builder Co, come up with the purchase price, less the deposit, due to the LDA as a result of the auction;

(iii)     build a childcare centre on the Amaroo Land; and

(iv)     give a 25-year leaseback to a leasing entity again jointly owned by the four JV partners (Leasing Entity) as to proportions of 25% each to permit it to operate the childcare business and/or on sell the rights under that leaseback to a third-party operator; and

(f)through the vehicle of the Leasing Entity, to meet the set up costs to make the childcare centre operational and then run it for a period before selling the rights to operate the centre under the balance of the term of the lease from Builder Co and thereby share the profit in proportions of 25% each by the four JV partners.

16.The steps above to the point at subparagraph 15(e)(iv) (save for 15(e)(iii)), were completed by 23 May 2014 in the following manner:

(a)at the LDA auction on 27 November 2013, the Amaroo Land was purchased by KAPL;

(b)KAPL however was not an entity in which all four JV partners were recorded as having a legal interest. It was registered on 27 November 2013. The respondent was the sole director and Zhihong Nominees Pty Ltd was the sole share owner. The share owner of Zhihong Nominees Pty Ltd was the respondent’s wife, who I will refer to as ‘G’. The respondent contended that from 13 December 2013 the JV partners had a beneficial interest in the Amaroo Land by virtue of the Katherine Avenue Unit Trust being established (discussed below);

(c)to try to ameliorate the circumstances at subparagraphs 16(a) and (b), on instructions from D, a week or so after the auction the respondent approached the LDA to enter into a fresh contract. The LDA agreed to do so and the fresh agreement is dated 23 December 2013. The respondent entered the description of the purchaser on the contract as “Katherine Avenue Pty Ltd ATF Katherine Avenue Unit Trust” and also as “Darren Michael Carden as trustee for the Katherine Avenue Unit Trust”;

(d)the respondent did not prepare a Unit Holders’ Agreement recording the JV partners’ rights and obligations in relation to the Katherine Avenue Unit Trust;

(e)between 28 February 2014 and 12 May 2014 the JV partners worked on the DA. That work included the respondent attending on the ACT Government with A in relation to the design of the centre. The respondent and his wife, G, provided the funds to lodge the DA with the ACT Government;

(f)in and after April 2014 A sought out and secured agreement from Builder Co to accept an on-sale from the Purchaser Entity (KAPL) and enter into a 25 year leaseback with the Leasing Entity; and

(g)Builder Co came to be DDD owned and controlled by E and F. The Leasing Entity came to be AELC.

Intended contributions of the four Joint Venture partners

17.The intended contributions of the JV partners were described by A in her initial complaint as follows:

(a)the respondent – legal work and the respondent also undertook work in relation to selling the Amaroo Land and dealing with the DA and licensing;

(b)B – loan money for deposits and other expenses;

(c)A – architectural design services; and

(d)D (represented by C) – consultancy advice.

18.The land was sold at the LDA auction to KAPL. CCC (a company controlled by B) provided the 5% deposit. The respondent and A were required to reimburse CCC in proportion to their unit holdings.

19.Additionally, there was a mutual expectation between the four JV partners that they would equally contribute to the start-up costs to run the childcare business from the Amaroo Land.

Events between November 2013 and 19 February 2014

19.In or about November 2013, A, B and D undertook the due diligence of the Amaroo Land site and confirmed with the ACT Government that off-site parking was permissible, thus allowing for a greater capacity of places within the childcare centre (120 places rather than the 88 advertised by the LDA).

20.In November 2013, the respondent was asked by B to be part of the joint venture.

21.B had known the respondent for a period of approximately 20 months before the auction of the Amaroo Land. B knew the respondent because B was a client of LP1 when the respondent was an employed solicitor. B and the respondent became friends. When the respondent left LP1 and joined LP2, B became a client of LP2.

22.In or around November 2013, B met with the respondent at a café and said to the respondent words to the following effect:

I am looking to invest in the establishment of a childcare centre in Amaroo. We have found a parcel of land with the appropriate community use zoning. The basic proposal would be that there would be four of us each holding 25% shares in an entity that purchases the land. Then we would work to obtain the DA. Once that is achieved then we can sell the land to a developer to undertake the construction, but we would look to enter into an agreement setting out that the four investors would retain the rights to a 25 year lease to operate the childcare centre. I have seen the value that is in leases of this sort and know that, if we appoint someone to operate the centre for one or two years, then we can sell the lease for many times what the investment will cost.[1]

[1] Joint submission filed 12 July 2019 at [12]

23.The respondent expressed enthusiastic support for becoming involved in the JV and said to B words to the effect of “That sounds like something I would like to invest in.”[2] B then said words to the effect:

Great news, we will need you to invest in the land and also to assist with setting up the structures and obtaining the DA. We have already commenced negotiations with the ACT about the size of the childcare centre that can be established, as well as details such as the amount of car parking that is required, I will talk to the other two Investors, [A] the architect and [D’s] girlfriend [C], to make sure all of this is clear.[3]

[2] Joint submission filed 12 July 2019 at [13]

[3] Joint submission filed 12 July 2019 at [13]

24.On 21 November 2013, the respondent sent B the following email:

Hi [B],

Okay to make the purchase we require a corporate trustee and Unit Trust i.e. Amaroo ELC (Early Learning Centre) Pty Ltd (ABN TBC)-then the Amaroo ELC Trust. The trust will be divided into four units of 25% each-100 shares issued in first instance-the partners can purchase the shares in the trust, i.e. DCs SMF purchasing 25% of trust for costs of 25% of 5% deposit on land (if successful).

To bid at auction we require that the corporate trustee be registered, all partners can be directors of the corporate trustee - can you arrange to register the corporate trustee today? You will need all partner details for ASIC registration.

There will also have to be heads of agreement in place prior to the auction-l can prepare this document, along with a unit trust (I can prepare this document) the trust will have to have an ABN/TFN-1 think I can also arrange this.[4]

[4] Joint submission filed 12 July 2019 at [14]

25.The proposal in the respondent’s email of 21 November 2013 was to create a Unit Trust with a corporate trustee. There would be four unit holders equally holding 25 units. The purchase price of each parcel of units would be equal to one quarter of the deposit required to secure the successful bid for the Amaroo Land. The applicant accepts that the respondent was relatively inexperienced at the time and, arguably, unduly influenced by B as to the legal and financial structure to be put in place. Hence, for reasons the respondent only appreciated later, and notwithstanding his advice that all JV parties should be directors of the corporate trustee, the corporate trustee (Katherine Avenue Pty Limited) was incorporated by B with the respondent appointed as the sole director and secretary. The apparent reason for this simplified corporate structure was due to the alleged bias the LDA had, or might have evinced, against the other JV participants. Accordingly, the JV used the respondent in his sole capacity as director of KAPL to register and bid on behalf of the JV as its nominee without the LDA knowing that D, A and B had any interest in the purchase of the Amaroo Land.

26.On or about 21 November 2013, the respondent opened and introduced into the filing system of LP2 a file that identified the client as Katherine Avenue Pty Ltd and the relevant transaction as “Purchase of Block 1 Section 112 Amaroo.”

27.On 27 November 2013, the respondent was successful at the LDA auction in bidding for the Amaroo Land. The contract stated the respondent’s home address on the contract and noted he was the solicitor for the buyer and worked at LP2. The respondent’s home address was the registered address of KAPL as entered into the ASIC records for KAPL by B.

28.The respondent contends that he prepared a Trust Deed for the Katherine Avenue Unit Trust on 6 December 2013 (as reflected in LP2’s invoice issued in relation to the Katherine Avenue file) and that the Katherine Avenue Unit Trust Deed was executed by the parties in LP2’s boardroom on Saturday, 13 December 2013, to establish the Katherine Avenue Unit Trust and to reflect the trustee status of Katherine Avenue Pty Limited. To the best of the respondent’s recollection, the unit holders in the Katherine Avenue Unit Trust were:

(a)100 Units – BBB Nominees Pty Ltd for the BBB Discretionary Trust (holding D’s and B’s units);

(b)50 Units – a self-managed superannuation fund associated with A; and

(c)50 Units - Zhihong Nominees Pty Ltd for the MW Superfund.

29.The respondent understands that the signed document was held by B.

30.The Deed has not been produced to the applicant or to the Tribunal. Importantly, the parties agree that the Deed was not in existence as at 27 November 2013, when the respondent purchased the Amaroo Land at auction.

31.A week or so after the auction the respondent approached the LDA to enter into a fresh contract. The LDA agreed to do so and the fresh agreement was dated 23 December 2013. The respondent:

(a)entered the description of the purchaser on the contract as “Katherine Avenue Pty Ltd ATF Katherine Avenue Unit Trust” and not as “Katherine Avenue Pty Ltd” as had been previously recorded; and

(b)executed the fresh contract on behalf of the buyer by the descriptor “Darren Michael Carden as trustee for the Katherine Avenue Unit Trust” when the trustee at all times was in fact Katherine Avenue Pty Ltd. This was a handwritten error on the contract. It should have read “Darren Michael Carden as sole director/secretary of Katherine Avenue Pty Ltd ATF Katherine Avenue Unit Trust.”

32.By 19 February 2014, the JV partners had not agreed on the identity of the builder/developer who was to construct the childcare centre as contemplated by the JV partners as set out in paragraph 15(e) above. On 1 February 2014 the respondent, on behalf of the JV partners, had received an offer to purchase the Amaroo Land from a person, ‘H’, for $2 million. The respondent and A had also met with two other persons, who I will refer to as ‘I’ and ‘J’, as persons interested in the purchase of the Amaroo Land. Neither prospective sale eventuated.

33.The events of 19 February 2014 are in contention.

34.The applicant contends that on or around 19 February 2014:

(a)LP2 learned or formed the opinion that the respondent appeared to have created, or was at risk of creating, a conflict of interest in undertaking legal work in respect of a transaction involving KAPL and the Katherine Avenue Unit Trust in circumstances where he was involved in the transaction as the sole director of KAPL which was the purchasing entity and corporate trustee of the Katherine Avenue Unit Trust; and

(b)LP2 arranged for a senior legal practitioner employee and former partner of the firm to counsel, advise and caution the respondent in relation to the situation of risk he could create and had created in the circumstances referred to in subparagraph (a) above.

35.The applicant further contends that, at a meeting between the former partner of LP2 and the respondent on or about 19 February 2014 the former partner advised, counselled and cautioned the respondent that conflict issues had arisen, or were at risk of arising, for the respondent and LP2 while he continued to act in respect of any transaction or transactions involving KAPL in circumstances where he was involved in the transaction as the sole director of KAPL which was the purchasing entity and corporate trustee of the Katherine Avenue Unit Trust.

36.The respondent contends that:

(a)two senior personnel of LP2 and the former partner were aware that from about November 2013, the respondent had purchased a block of land from LDA for use as a childcare centre and that B was a partner in that transaction along with D; and

(b)the former partner spoke with the respondent on 14 February 2014, however the former partner did not ‘advise, counsel or caution’ the respondent in relation to the risk or conflict. The respondent’s recollection of his relevant dealings with the former partner are as follows:

(i)      the conversation between the former partner and the respondent focussed solely on clause 10 of the Project Delivery Agreement (PDA), whereby KAPL would have received in excess of $1 million profit in a sale to H (which was not permitted under the PDA which requires the purchaser to account to the LDA for such profits);

(ii)      the former partner and the respondent discussed who would be a suitable solicitor to conduct the sale of the Katherine Avenue Unit Trust (a unit sale and transfer of the corporate trustee).

(iii)     the former partner advised the respondent that he “must have another solicitor sign off on that $1M deal, you simply can’t take that risk yourself;”

(iv)     the former partner only ever identified any conflicts to the respondent in a perfunctory manner and did not provide any advice in relation to the professional conduct rules, or otherwise assist the respondent in identifying his professional obligations under the Rules; and

(v)     the former partner advised him to “get another practitioner to sign off on that $1M deal,” noting that the respondent and the former partner had discussed the operation of clause 10 of the PDA on various other occasions prior to that meeting.

37.By email of 19 February 2014 the respondent wrote to the JV partners expressing the following concerns:

(a)the respondent was “personally exposed as trustee to the LDA”, and as a legal practitioner the consequences for him were “great;”

(b)the expectations set by the JV partners were constantly changing between leasing back the Amaroo Land from the developer, or owning the Amaroo Land outright;

(c)the respondent had located interested purchasers;

(d)the respondent had no capacity to be a part of the purchase or development of the Amaroo Land; and

(e)the JV partners either had to find $940,000 to settle the purchase and a further $1.8 million to develop and establish the child care centre, or on-sell the Amaroo Land.

38.At the time he sent the email, the respondent:

(a)had become frustrated with the JV partners, in particular D, in relation to the sale and lease back to I and J; and

(b)was not prepared to finance the completion of the purchase of the whole of the Amaroo Land from the LDA.

39.The respondent did not, at the time, turn his mind to the fact that there was a conflict in continuing to act for the JV in relation to any on-sale. He now accepts that he should have considered this issue.

40.By further email dated 19 February 2014 to his JV partners, the respondent said: “it is getting to the point where I cannot be solicitor and client”[5] and indicated that he had approached another solicitor in a different law practice, LP3, to deal with the proposed on-sale to H. D emailed back concurring.

Events from 19 February to 30 May 2014

[5] Joint submission filed 12 July 2019 at [22]

41.After 19 February 2014, the JV partners appointed LP3 to act for them in relation to the proposed on-sale to H which did not proceed.

42.In April 2014, the respondent was asked by D to cease negotiations with H on the basis that A and D had spent considerable time negotiating the terms of a deal with E.

43.In or around April 2014, A had discussions with E and F in relation to purchasing the Amaroo Land and entering into an Agreement for Lease of the Amaroo Land (after development by DDD) to AELC.

44.On 9 April 2014, AELC was incorporated. A was the sole shareholder in AELC. A ultimately consented to a transfer of the share to ACTEL, however, this did not occur until on 21 February 2016. A, at all material times, remained the sole director. The respondent contends that DDD would only do business with A and, as a result, she was appointed as the sole director of AELC. The respondent further contends that A consented to being so appointed with full knowledge of the risks involved. Importantly, the respondent did not provide any written advice to A (and the other JV partners) regarding those risks or advise that A (and the other JV partners) should obtain independent legal advice in relation to the structure of the Leasing Entity.

45.By email of 11 April 2014, the respondent advised the JV partners that he had spoken with AGS[6] that morning in relation to the PDA. He advised that the deed was still with the LDA and that AGS would call him later in the day with further advice. He added that: “as soon as we get the approval we can provide the contract to the buyer’s solicitors.”[7]

[6] The identity of ‘AGS’ was not disclosed in the Joint Submission.

[7] Joint submission filed 12 July 2019 at [27]

46.Notwithstanding the advice from the former partner of LP2 (on 19 February 2014), from about 11 April 2014 the respondent recommenced negotiations as the solicitor acting for and on behalf of the JV partners (and on his own behalf as a JV partner) with the directors of DDD and subsequently with their solicitors, LP4, and further with the solicitors for the LDA in respect of the following matters:

(a)terms of an agreement for lease as between DDD and AELC and supporting a guarantee for that transaction to be executed by A;

(b)the exchange of the transaction whereby KAPL was to pass title to the Amaroo Land to DDD on settlement; and

(c)exchange of executed copies of the agreement for lease referred at (a) above.

47.The respondent also gave advice to the JV partners on the terms of the proposed agreement for lease as between DDD and AELC as referred to in (a) above.

48.The respondent says that he continued acting because he did not turn his mind to the conflict that had arisen between the JV partners and also because the JV partners encouraged him to continue acting.

49.The respondent contends that he operated the file in accordance with LP2’s firm practice and did not conceal the file from his employer. He accepts that he did not actively make his employer aware from 11 April 2014 that he was still acting for the JV.

50.On 12 May 2014, A received formal notification from the ACT Planning and Land Authority (ACTPLA) that planning approval had been given on the DA she had lodged on 28 February 2014 to erect a childcare centre and to conduct a childcare business from the Amaroo Land.

51.On 19 May 2014, the respondent emailed the parties a “proposed ownership structure mud-map.”[8] It disclosed that a trustee for B would have 100 units in a unit trust with trustees for the respondent and A to have 50 units each. C was omitted from the arrangements. That proposed scheme was, however, effectively ignored and the arrangements made on 21 May 2014 (the original arrangement of having four JV partners each with a 25% beneficial interest in the JV scheme) was adopted (see paragraphs 52 to 54 and 67 below).

[8] Joint submission filed 12 July 2019 at [30]

52.On 21 May 2014, D emailed A and B and the respondent and attached:

(a)a unit trust deed obtained through Cleardocs; and

(b)a fresh diagram of the ownership structure showing the original four-way beneficial interest with each JV partner having the beneficial interest of one hundred units each of $1.00.

53.On 21 May 2014, ACTEL was registered. It came to be nominated as trustee of the “ACT Early Learning Unit Trust” as disclosed by a document styled “Unit Trust-Fixed Deed ACT Early Learning Unit Trust.”

54.On 21 May 2014, the trust deed for the ACT Early Learning Unit Trust was apparently executed according to the sworn evidence of A.

55.A became the sole director and shareholder of ACTEL, upon registration.

56.On 22 May 2014, the respondent wrote to A urging her to effect the exchange with DDD to give the JV partners time to get Minister’s Consent to the transfer in order to comply with the timeframe for settlement so the JV partners could benefit from a $100,000 incentive to settle on time.

57.On the mid-morning of 23 May 2014, the respondent provided A with a copy of the ‘final lease document’ that would form part of the sale transaction of the Amaroo Land to DDD. A attended the premises of LP2 and, in the presence of the respondent’s assistant and a junior lawyer (but not the respondent), she executed the Agreement for Lease.

58.A says that she had little idea of what she was signing. The respondent denies this as A and E had spent considerable time negotiating the terms of the deal, including the commercial lease terms.

59.On 23 May 2014, exchange of contracts for the on-sale of the Amaroo Land to DDD and the Agreement for Lease took place. This was subject to the approval by the LP2 partners because the respondent was absent from the office on 23 May 2014 and the partners’ attention was drawn to the exchange by another staff member.

60.On 24 May 2014, the respondent emailed A thanking her for signing the Agreement for Lease. He also advised her that the share transfer had been attended to (presumably referring to a transfer of the shareholding in AELC from A to ACTEL). This was not correct. The company extract for ACTEL shows that the share transfer did not occur until 21 February 2016.

61.In the same email of 24 May 2014, and apparently for the first time, the respondent referred to an estimate of his costs for acting. He stated that “given the negotiations with the lessor’s solicitors, the matter may be more expensive…”.[9] This occurred because LP2 required payment.

[9] Joint submission filed 12 July 2019 at [40]

62.In another email also on 24 May 2014 from ‘K’ (an assistant to the respondent at LP2) to A, K attached an LP2 retainer agreement and trust account authority for A to execute.

63.On 26 May 2014, A emailed K attaching the signed retainer and trust account authority.

64.On 27 May 2014, the respondent wrote to A by email stating that:[10]

…I will have a chat to you today about the lease and the advice – there is a conflict issue and [LP2] have hit the roof – I don’t see it as a big deal but the owners have gone nuts…

[10] Joint submission filed 12 July 2019 at [43]

65.On 30 May 2014, the respondent’s employment with LP2 was terminated by his employers due to his ongoing involvement in the JV and the fact that he continued to act for the JV after 19 February 2014.

Status of documentation executed as at 23 May 2014

66.As at 23 May 2014 the position with the relevant transactions was:

(a)KAPL had on that date exchanged title to the Amaroo Land (settlement occurred on 13 June 2014);

(b)the four JV partners had executed on 21 May 2014 a deed of trust for the ACT Early Learning Unit Trust;

(c)A had executed on 23 May 2014, as sole shareholder and director of AELC, the Agreement for Lease with DDD in relation to a leaseback of the Amaroo Land from DDD to AELC;

(d)on executing the Agreement for Lease, A became bound as sole guarantor of the performance of the obligations of AELC under the Agreement for Lease.

67.The deed of trust for the ACT Early Learning Unit Trust of 21 May 2014 nominated ACTEL as the trustee of the trust. Each of the JV partners had a 25% beneficial interest in the ACT Early Learning Unit Trust either directly as being a named unit holder in the trust or indirectly through their respective trustee being a unit holder in the trust.

68.What had not been executed as at 23 May 2014 was any form of documentation as between the four JV partners:

(a)binding themselves, each to the other, to contribute to the:

(i)      fit out costs or “Tenant’s Fit out” as they are described in clause 4.2 the Agreement for Lease; or

(ii)      the start-up costs of getting the childcare business operational once the four JV partners had been given access to the Amaroo Land with the childcare centre constructed pursuant to the Agreement for Lease;

(b)committing themselves, each to the other, to the completion of the JV project or putting in place any sort of backup plan or dispute resolution mechanism in the event that any one of the four JV partners did not have the funds or the will to contribute to the outlays at paragraph 68(a);

(c)granting the three JV partners other than A any security interest of any kind in, or over, either AELC or ACTEL; and

(d)creating a deed of cross-guarantee or indemnity or similar instrument from the three JV partners, other than A, in A’s favour in respect of her guarantee of the performance of the obligations of AELC under the Agreement for Lease.

Summary of relevant events from 30 May 2014

69.Settlement occurred on 13 June 2014 with the purchase price of the Amaroo Land (less the deposit of $44,100 paid on 27 November 2013) being paid by E and F to the LDA on the simultaneous settlement of the on-sale from KAPL to DDD.

70.On 16 June 2014 the respondent prepared a draft Unit Holders’ Agreement. The parties communicated that they did not wish to sign the Unit Holders’ Agreement.  In his capacity as the solicitor acting for the JV partners, the respondent did not:

(a)advise all the parties to obtain independent legal advice in relation to the draft Unit Holders’ Agreement before deciding not to sign it; or

(b)provide written advice to all the parties in relation to their risks if the JV agreement was not documented by signing a Unit Holders’ Agreement (for example, on one hand, that A had complete control over AELC and ACTEL which exposed the other three parties to a risk and, on the other hand, that A was the only personal guarantor to the Lease Agreement which exposed her to a risk).

71.In about July 2014, the respondent commenced practice as the principal of Carden & Co. The respondent, in the course of his practice as “Carden & Co,” continued to provide legal work in and after July 2014 to the JV partners.

72.In and after 2015, E and F through their company DDD proceeded with the construction of a childcare centre on the Amaroo Land.

73.By email dated 19 August 2015 D drew to the attention of the JV partners that A remained the sole shareholder of AELC. In an apparent response to D’s email by email of 19 August 2015 the respondent responded by noting:[11]

(a)“As I understand, just before I went from [LP2] there was a draft resolution to change the trustee of the trust. Given my untimely departure from [LP2] and handover of files, I may have to draft new resolutions over the weekend, however, I have requested the archived file from [LP2] this morning.”;

(b)“It’s important that the above be resolved, particularly if any of us want to transfer our interest in the centre. There has been various discussions regarding people selling their interest in the centre recently, in this regard, unless a secure deal can be worked out, then there is no point any of us taking that path right now, regardless, we need to resolve the trustee formally and then consider a unit holder agreement (discussed below)”;

(c)“I have also raised this before, we need to put in place a unit holder agreement between the unit holders, I will forward a draft unit holder agreement for review over the weekend, this agreement can also indemnify the trustee and the guarantor of the lease.”;

(d)“In regard to the 75K contribution per unit holder, if we can put a budget in place for commencement, we can clearly define what cash sums will be required to be injected. As I understand, [B] is also willing to provide any required funds, however, you will have to confirm the same with him”.

[11] Joint submission filed 12 July 2019 at [50]

74.As noted, the respondent submits that he took steps to advise the JV partners to enter into an agreement which would create binding terms between them, however, he did not tell the parties to obtain independent advice or provide sufficient advice to the parties as to their respective risks. Such steps as the respondent took were not effective.

75.Following the signing of the Agreement for Lease, the working relationship between the JV partners steadily deteriorated and communications between A, B and the respondent became more difficult. The working relationship between A, D and B deteriorated by virtue of their interest in two other development projects.

76.Instead of an amount of $75,000 as proposed as the capital contribution for each of the four JV partners (or a total of $300,000) towards the fit out and start-up costs for the childcare centre, by letter dated 20 November 2015 to her three JV partners A advised a figure of $763,000 inclusive of GST would be required. She indicated the figures had been prepared in consultation with a firm of accountants.

77.By Originating Application dated 3 March 2016 Katherine Avenue Pty Ltd and BBB Nominees, each in their alleged capacity as trustee, brought proceedings in the ACT Supreme Court against ACTEL and against A and C (the Supreme Court Proceedings). The Originating Application sought orders for the winding up of ACTEL and/or its removal and replacement as the trustee of the ACT Early Learning Unit Trust. As sole director of Katherine Avenue Pty Ltd, the respondent was the controlling mind of one of the plaintiffs in the Supreme Court Proceedings. This effectively meant that the respondent instituted proceedings against his clients, or former clients, in respect of a corporate entity which he had caused to be incorporated while acting as a solicitor in and about the affairs of the JV partners and for the purpose of such corporate entity being appointed trustee of the ACT Early Learning Unit Trust. The Originating Application was brought by the respondent and B on independent legal advice.

78.As at 15 March 2016, A, in her affidavit of that date [paragraph 16] filed in the Supreme Court Proceedings, deposed that:

(a)the childcare centre had been built (but not completely fitted out) and was not operational at that point;

(b)once the landlord (DDD) had complied with its obligations under the Agreement for Lease, the landlord would grant the contemplated lease for a term of 25 years to AELC;

(c)the obligations of AELC under the Agreement for Lease and lease would commence; and

(d)the landlord was indicating to her (A), as a director of AELC, that the building was due to be completed towards the end of March 2016.

79.By paragraph 36 of her Affidavit, A stated that:

(a)on 15 February 2016 she had received an email from DDD asking for an update on AELC’s plans for the fit out, the application for the childcare provider license and the various insurances and the bank guarantee required to commence the childcare centre;

(b)DDD had further indicated that the building was due to be completed in three to four weeks and the program attached to its email indicated that the tenant fit out works were due to commence on 23 March 2016; and

(c)on 21 February 2016 she initiated further correspondence with the other three JV partners again seeking financial assistance from them.

80.In paragraph 26 of his affidavit made on 2 March 2016 and filed in the Supreme Court Proceedings, the respondent deposed that there was a dispute between the parties as to:

(a)the costings proposed by A for the fit-out work to the childcare centre on the Amaroo Land; and

(b)the extent of the fit-work which was to be performed by AELC to the childcare centre pursuant to the Agreement for Lease.

81.As at March 2016, A, as sole guarantor of the obligations of AELC under the Agreement for Lease, faced alone out of the four JV partners the demands of DDD to meet the fit-out commitments and operational costs that she had estimated at $763,000. Further, there was no agreement binding on the JV partners which provided for a dispute resolution mechanism in respect of any dispute between the JV partners as to the extent and costings of the fit-work to be performed pursuant to clause 4.2 of the Agreement for Lease and how such work was to be funded.

82.A faced her liability as guarantor under the Agreement for Lease without the benefit of any:

(a)binding agreement on the part of her three JV partners to contribute towards meeting AELC’s liabilities under the Agreement for Lease; or

(b)cross guarantees or indemnities in her favour from her three JV partners,

by which she might have sought to limit or indemnify her exposure to DDD under the Agreement for Lease.

As noted above, the respondent contends that A knowingly elected to take control of the JV to assist with the childcare centre deal with interests associated with E because he would not transact with any of the other parties.

83.The plaintiff companies in the Supreme Court Proceedings, on independent legal advice, sought orders inter-alia for the winding up of ACTEL and for the appointment of a provisional liquidator.

84.By consent of the parties, the Supreme Court made final orders on 21 March 2016 on the Originating Application including orders that:

(a)the application to wind up ACTEL and for the appointment of a provisional liquidator be dismissed;

(b)ACTEL be removed as trustee for the ACT Early Learning Unit Trust; and

(c)new trustees be appointed.

Wash-up from that litigation

85.On 17 March 2017, after taking advice from her solicitors, LP5, A caused an administrator (‘L’) to be appointed to AELC. The applicant contends that this was the result of the pressure A was under in terms of her exposures to DDD under the Agreement for Lease and the further risk she faced as a sole director of AELC. The respondent contends that A, while the sole director and personal guarantor, faced no such pressure as she had negotiated a replacement lease arrangement between E and ‘M’, a known associate and joint venture partner of D. The respondent further contends that the lack of pressure is evidenced in the fact that A’s personal guarantee was never called upon.

86.Four days later, on 21 March 2016 KAPL and BBB Nominees procured orders, inter-alia, appointing two partners of a firm of Chartered Accountants that I will refer to as ‘CA1’, as replacement trustees of the ACT Early Learning Unit Trust, in place of ACTEL.

87.Following the appointment of L as administrator to AELC, on 28 April 2016 the creditors resolved to wind up the company and appoint L as liquidator. The respondent contends that the creditors were limited in number. At no material time did DDD form part of the creditor’s list or seek to enforce any personal guarantees against A.

88.These steps led to AELC, and ultimately the ACT Early Learning Unit Trust, effectively losing its only asset, that is, its rights to enforce the Agreement for Lease so as to allow it to operate the childcare centre and/or sell the rights to operate the childcare centre. The respondent contends that A deliberately failed to advise the liquidator that the company held rights to the lease. The lease was the only asset that had any value.

89.The four JV partners made no profit out of the joint venture project and particularly in the case of A on the one hand, and B and the respondent on the other, incurred significant losses through legal costs and disbursements in the Supreme Court litigation referred to above. The respondent took out a personal loan to pay his share of the Trustee’s costs.

90.On 7 March 2016, A made a complaint against the respondent to the applicant in consequence of which it brings the present application against him. This was referred to the respondent by letter of 11 March 2016.

91.At a point when the respondent was on notice of the complaint, he emailed both B and another person who I will refer to as ‘N’ on 23 March 2016. The email reads as follows:[12]

[A] is going to be living on the street when I bankrupt her, I’ll be standing at the front of her house cheering on the removalists when they collect her crap.

We are going to un-wind that VA, and I am going to ensure that piece of shit pays every last dollar it costs us.

[N], your “friends” are a fucking disgrace!

[12] Joint submission filed 12 July 2019 at [68]

92.This was sent after an extended period of harassment and apprehended harm, which was symptomatic of the dispute between the parties in relation to the Amaroo Land. The respondent sincerely regrets the expressions he used in that email and acknowledges that they were inappropriate.  However, for context and by way of explanation, the respondent submitted the following background information:

(a)In February 2016 A contacted ‘I’ (the respondent’s wife’s employer) and sought to make defamatory accusations about the respondent’s wife. This caused ‘I’ to contact the respondent and enquire who this [A] person was calling him making various allegations about the respondent’s wife’s conduct and that she should be fired and lose her job.

(b)In February 2016 D contacted the offices of ‘I’ and became hostile and abusive towards staff making various false allegations about the respondent’s wife to the staff.

(c)On various dates in December 2015, ‘P’ (a brother of D and B) made continuing threats towards the respondent and his staff causing the respondent to lock all doors to the offices of the firm and advise that the staff should not let P into the building and should hang up on further telephone calls. This threatening behaviour continued for approximately one week.

(d)On Friday 21 December 2015 P attended the residential home of the respondent and his wife, noting that their son was at home, made various threats towards the respondent and smashed glass panes in the front door of the respondent’s home. The Police were called to attend the home of the respondent, and the respondent took out an apprehended violence order against P.

(e)On various dates during December 2015, P attended the residential home of another person, ‘Q’, and B, leaving threatening messages on the vehicle of Q. This resulted in B lodging apprehended violence orders in the Magistrates Court in relation to D.

(f)On various other dates prior to March 2016, the respondent was threatened by D that he would receive nothing from the childcare deal.

(g)On dates during March 2016, D contacted the offices of the respondent, made various threats towards staff and behaved in an offensive manner. He was then blocked on the respondent’s email server.

93.Later in his response to the applicant, the respondent by email of 29 July 2016 commented:[13]

[13] Joint submission filed 12 July 2019 at [70]

You should also understand that there was another pty ltd company used by the group during the transaction Katherine Avenue (Aus) Pty Ltd I must admit I had no real understanding of buying land and then on-selling the same with a DA in place before being involved in this transaction, however, this company was set up to contract with the consultants and to deal with the DA application.

Charges

Charge 1- Treatment of clients

Breach of Rules 1.1 and 1.2 of the Legal Profession (Solicitors) Rules 2007 (ACT)

94.These rules are as follows:

RELATIONS WITH CLIENTS

Practitioners should serve their clients competently and diligently. They should be acutely aware of the fiduciary nature of their relationship with their clients, and always deal with their clients fairly, free of the influence of any interest which may conflict with a client's best interests. Practitioners should maintain the confidentiality of their clients' affairs, but give their clients the benefit of all information relevant to their clients' affairs of which they have knowledge. Practitioners should not, in the service of their clients, engage in, or assist, conduct that is calculated to defeat the ends of justice or is otherwise in breach of the law.

1.      Acceptance of Retainer -
(Instructions to Act or Provide a Legal Service)

1.1A practitioner should treat his or her client fairly and in good faith, giving due regard to the client’s position of dependence upon the practitioner, his or her special training and experience and the high degree of trust which a client is entitled to place in a practitioner.

1.2A practitioner must act honestly, fairly, and with competence and diligence in the service of a client, and should accept instructions, and a retainer to act for a client, only when the practitioner can reasonably expect to serve the client in that manner and attend to the work required with reasonable promptness.

95.The respondent’s conduct outlined above constituted breaches of rule 1.1 for the reason that the respondent failed to treat his three JV partners and clients fairly and in good faith in the period from November 2013 to 30 May 2014 in the following respects:

(a)accepting instructions to act in circumstances where his own interests had the potential to conflict with those of his three clients and JV partners by virtue of he himself participating and investing in the JV;

(b)accepting instructions to act in and about the affairs of the individual interests of the four JV partners when the separate interests of each of those partners had the potential to come into conflict;

(c)accepting instructions to act in circumstances where due to his lack of experience and understanding of buying land and then on-selling the same with a DA approval in place, he was not competent without adequate supervision to properly carry out his instructions and protect the interests of his clients;

(d)during the events described at sub-paragraphs (a), (b) and (c) above, from at least 19 February 2014, not advising the principals of his employer firm of the fact that he had continued to accept instructions to so act in and about the affairs of the individual interests of the four JV partners in circumstances where he himself was participating and investing in the JV, such that he had a business, financial and/or beneficial interest in the affairs of the JV, and was thereby preventing himself from receiving adequate and necessary supervision in relation to the instructions and such that his employer discovered on or around 23 May 2014 that he was so acting (and terminated his employment as a result);

(e)attending the auction of the Amaroo Land on 27 November 2013 representing the vehicle of KAPL, a company of which he had sole control and in respect of which the three other JV partners were not recorded as having a legal or beneficial interest as at 27 November 2013;

(f)as solicitor for each of the JV partners, causing and committing himself, his three JV partners and KAPL at the auction for the purchase of the Amaroo Land on 27 November 2013 (the Initial Purchase) to enter into onerous obligations in circumstances where there had not been executed by and between the four JV partners an agreement:

(i)      setting out the terms of the contract between the four JV partners;

(ii)      binding each of the JV partners to the performance of the terms of that contract; and

(iii)     putting in place any sort of backup plan or dispute resolution mechanism in the contract in the event that any one of the four JV partners did not have the funds or the will to see the terms of the contract completed to fruition;

(g)through lack of experience and a lack of adequate and necessary supervision, failing to appreciate at the time of him so acting that in the circumstances outlined above he was acting as a solicitor on his own behalf, on behalf of his three JV partners and on behalf of KAPL;

(h)through lack of experience and a lack of adequate and necessary supervision, failing to appreciate at the time of him so acting that in the circumstances outlined at paragraphs 95(a) to (g) he faced a conflict of interest in terms of:

(i)      his own interests coming into conflict with those of one or more his three JV partners; and

(ii)      the prospect of the interests of one or more of the four JV partners and/or that of KAPL coming into conflict with one or more of the other partners;

(i)through the terms of his responses to AA’s complaint to the Law Society, maintaining, on legal advice, the position that in the circumstances at paragraph 95(a) to (h) above he was not acting as a solicitor on his own behalf, on behalf of his three JV partners, and/or on behalf of KAPL; and

(j)through the terms of his responses, on legal advice, to AA’s complaint to the Law Society, has maintained the position that in the circumstances at paragraph 95(a) to (i) above there was no conflict or potential conflict of interest or if there was that each of the relevant parties knowingly consented to him continuing to act as solicitor in the face of the potential or an actual conflict when no proper explanation had been given by him to the other parties as to the essential elements and significance of any conflict.

96.The respondent’s conduct outlined above constituted breaches of rule 1.2 in that the respondent failed to act honestly, fairly and with competence and diligence in the service of his JV partners and clients and, further, accepted instructions and a retainer to act for those clients in circumstances where he could not reasonably expect to serve the clients in the latter manner for the following reasons:

(a)the matters referred to in subparagraphs 95(a) to (j) above apply equally to the respondent’s breaches of rule 1.2;

(b)having by his emails of 21 November 2013, referred to in paragraph 24 above and 17 August 2015, referred to in paragraph 73 above, acknowledged the need for a heads of agreement or unit holder agreement between the unit holders, the respondent failed to:

(i)      have the parties execute such a document on a timely basis or at all;

(ii)      advise the parties about the risks if they did not enter into an agreement;

(iii)     advise the parties to obtain independent legal advice in relation to the draft agreement.

(c)by allowing, without providing written advice to the all parties in relation to the risks and the need to obtain independent legal advice, A to become the sole director and shareholder of ACTEL with the consequence that by her decision and resolution alone the company might be put into administration by resolution carried under section 436A of the Corporations Act 2001 (Cth);

(d)by allowing, without providing written advice to all the parties in relation to the risks and the need to obtain independent legal advice, AELC to enter into the Agreement for Lease of 23 May 2014 with DDD in circumstances where A was the sole director and shareholder of AELC with the consequence that at all times on and after 23 May 2014 until 16 February 2016 the single asset of the joint venture, being the rights under the Agreement for Lease of that date, vested solely in her effective care and control;

(e)in the circumstances at sub-paragraph (d), by allowing, without providing written advice to all the parties in relation to the risks and the need to obtain independent legal advice, A through and by AELC to obtain the effective sole ownership and control of the single asset of the joint venture when there had not been executed by and between AELC and the four JV partners any agreement:

(i)      setting out the terms of the agreement between the four JV partners as to how the rights to lease the Amaroo Land and operate the childcare centre pursuant to the Agreement for Lease were to be exercised;

(ii)      binding each of the JV partners to the performance of the terms of that contract;

(iii)     putting in place any sort of backup plan or dispute resolution mechanism in the contract in the event that any one of the four JV partners did not have the funds or the will to see the terms of the contract completed to fruition;

(iv)     permitting the four JV partners to take any kind of security interest in and over AELC and its assets and undertaking; and

(f)by allowing, without providing written advice to all the parties in relation to the risks and the need to obtain independent legal advice, A as sole director of AELC to enter into the Agreement for Lease of 23 May 2014 and accompanying guarantee with DDD so that she as the single director and guarantor assumed:

(i)      sole liability for the performance of AELC of its obligations under the Agreement for Lease; and

(ii)      the guarantee liability without any security from or recourse to her three JV partners by means of cross guarantees, indemnity or other security from them; and

(g)by allowing, without providing written advice to all the parties in relation to the risks and the need to obtain independent legal advice, A alone to assume the exposure to liability identified in sub-paragraph (f) above in circumstances where this was contrary to her interests but favourable to the interests of the other JV partners, including the respondent himself, as they had a business and/or beneficial interest in the rights to lease the Amaroo Land and operate the childcare centre pursuant to the Agreement for Lease as it was the common intention and expectation of the JV partners that they would share equally in any profits from operating the childcare centre and/or the sale of any such rights.

Charge 2- Conflicts between clients’ interests

Breach of Rules 7.2 and 7.3 of the Legal Profession (Solicitors) Rules 2007 (ACT)

97.Rule 7.2 of the Legal Profession (Solicitors) Rules 2007 provides as follows:

7.     Acting for more than one party

7.2    A practitioner who intends to accept instructions from more than one party to any proceedings or transaction must be satisfied, before accepting a retainer to act, that each of the parties is aware that the practitioner is intending to act for the others and consents to the practitioner so acting in the knowledge that the practitioner:

(a)may be, thereby, prevented from:

(i)disclosing to each party all information, relevant to the proceedings or transaction, within the practitioner's knowledge; or

(ii)giving advice to one party which is contrary to the interests of another; and

(b)will cease to act for all parties if the practitioner would, otherwise, be obliged to act in a manner contrary to the interests of one or more of them.

98.The conduct of the respondent outlined above constituted a breach of rule 7.2 for the following reasons:

(a)The respondent failed to satisfy himself before accepting a retainer to act for the other three JV partners that each of the other three JV partners was adequately informed and aware of the matters in rules 7.2(a) and 7.2(b) such that each of the other three could give informed consent to the respondent acting in and about the affairs of the individual interests of all four JV partners.

(b)By his email of 19 February 2014, referred to in paragraph 37 above, the respondent, albeit obliquely, drew attention to the conflict issues he faced but gave no, or no adequate, explanation as to the content and extent of the conflict or of rule 7 notwithstanding that he was instructed by his principals at LP2 of the existence of a conflict or the real prospect of a conflict.

99.Rule 7.3 of the Legal Profession (Solicitors) Rules2007 provides as follows:

7.     Acting for more than one party

7.3    If a practitioner, who is acting for more than one party to any proceedings or transaction, determines that the practitioner cannot continue to act for all of the parties without acting in a manner contrary to the interests of one or more of them, the practitioner must thereupon cease to act for all parties.

100.The conduct of the respondent outlined above constitutes a breach of rule 7.3 for the following reasons:

(a)The respondent should have been alerted prior to issuing his email of 19 February 2014 of an actual conflict or the real prospect of a conflict.

(b)By his email of 19 February 2014, as referred to in paragraph 37 above, the respondent, albeit obliquely, drew attention to the conflict issues he faced but, notwithstanding his awareness of a conflict, he continued acting for all JV partners including himself because they encouraged him to do so.

(c)Following the termination of his employment at LP2 on 30 May 2014 due to the conflict issue, he continued acting for all JV partners including himself because they encouraged him to do so.

Charge 3- Allowing own interests to conflict with clients

Breach of Rules 8.1 and 8.2 of the Legal Profession (Solicitors) Rules 2007 (ACT)

101.Rule 8.1 of the rules above provides as follows:

Avoiding Conflict of Interest (where practitioner's own interest involved)

8.1    A practitioner must not, in any dealings with a client:

(a)     allow the interests of the practitioner or an associate of the practitioner to conflict with those of the client.

102.The conduct of the respondent outlined above breached rule 8.1 for the following reasons:

(a)by effecting the purchase of the Amaroo Land at auction on 27 November 2011 through the vehicle of Katherine Avenue Pty Ltd, a company in his sole control;

(b)as solicitor for each of the four JV partners, by committing himself and Katherine Avenue Pty Ltd at the auction for the purchase of the Amaroo Land on 27 November 2013 to enter into contractual arrangements ostensibly for the benefit of all four JV partners in circumstances where no agreement had been executed between the four JV partners as at 27 November 2013:

(i)      setting out the terms of the contract between the four JV partners;

(ii)      binding each of the JV partners to the performance of the terms of that contract; and

(iii)     by not putting in place any sort of backup plan or dispute resolution mechanism in the contract in the event that any one of the four JV partners did not have the funds or the will to see the terms of the contract completed to fruition;

(c)where, by his email of 19 February 2014 as referred to in paragraph 37 above the respondent drew attention to the conflict he faced, the respondent should have withdrawn from the matter but failed to do so; and

(d)as the solicitor for A, without providing advice to her as to the risks and the need to obtain independent legal advice, by permitting her to alone assume the exposure to liability as the guarantor of the performance of the obligations of AELC under the Agreement for Lease (without the benefit of any cross guarantee, indemnity or other security from the respondent). This was contrary to the interests of A but favourable to the interests of the respondent in circumstances where he as a JV partner had a business and/or beneficial interest in the rights to lease the Amaroo Land and operate the childcare centre pursuant to the Agreement for Lease. This business and/or beneficial interest arose from the common intention and expectation of the JV partners, including the respondent, that they would share equally in any profits from operating the childcare centre and/or the sale of any such rights. The effect of this was that the respondent stood to benefit from any profits derived from the operation of the childcare centre while the risks of operating the childcare centre pursuant to the Agreement for Lease were borne by A alone.

103.Rule 8.2 of the Rules above provides as follows:

Avoiding Conflict of Interest (where practitioner's own interest involved)

8.2    A practitioner must not accept instructions to act for a person in any proceedings or transaction affecting or related to any legal or equitable right or entitlement or interest in property, or continue to act for a person engaged in such proceedings or transaction when the practitioner is, or becomes, aware that the person's interest in the proceedings or transaction is, or would be, in conflict with the practitioner's own interest or the interest of an associate.

104.The conduct of the respondent outlined above breached rule 8.2 for the following reasons:

(a)By accepting instructions to act in circumstances where his own interests had the potential to conflict with those of his three client JV partners;

(b)being advised by his principals on or before 19 February 2014 of a conflict or the real prospect of conflict, by continuing to act for all four JV partners notwithstanding such advice because he understood that advice to be limited to the on-sale of the Amaroo Land to H;

(c)by his email of 19 February 2014, referred to in paragraph 37 above, the respondent, albeit obliquely, drew attention to the conflict issues he faced and, notwithstanding that he was aware of the conflict, but continued acting for all four JV partners because they encouraged him to do so;

(d)being aware of a conflict or real prospect of conflict between his interests and those of his clients, the respondent continued to act as the solicitor for A in circumstances where he permitted her alone to assume the exposure to liability as the guarantor of the performance of the obligations of AELC under the Agreement for Lease (without the benefit of any cross guarantee, indemnity or other security from the respondent) without providing written advice to A as to the risks and recommending that she obtain independent legal advice. While this was contrary to the interests of A, it was favourable to the interests of the respondent.  The respondent’s interests were favoured because, as a JV partner, he had a business and/or beneficial interest in the rights to lease the Amaroo Land and operate the childcare centre pursuant to the Agreement for Lease as it was the common intention and expectation of the JV partners, including the respondent, that they would share equally in any profits from operating the childcare centre and/or the sale of any such rights.

Charge 4- Discourteous communication

Breach of Rule 4.1.2 of the Legal Profession (Solicitors) Conduct Rules 2015 (ACT)

105.The 2015 Rules commenced on 1 January 2016.

106.Rule 4.1.2 provides as follows:

4.     OTHER FUNDAMENTAL ETHICAL DUTIES

4.1    a solicitor must also:

4.1.2 be honest and courteous in all dealings in the course of legal practice

107.By the use of the language in his email of 23 March 2016 the respondent engaged in conduct in breach of rule 4.1.2.

Characterisation of conduct

108.Considered globally,[14] the conduct in the charges constitutes professional misconduct within the meaning of section 387(1) of the Act, being unsatisfactory professional conduct of an Australian legal practitioner that involves a substantial or consistent failure to reach or maintain a reasonable standard of competence and diligence.

Matters in mitigation

[14] The charges can be dealt with globally as has been done in previous cases: Council of the Law Society of the ACT v Legal Practitioner RN[2016] ACAT 122 at [40]; Council of the Law Society of the ACT v Legal Practitioner ‘P4’ (No 2) [2015] ACAT 35 at [6]-[7]; and Council of the Law Society of the ACT v Legal Practitioner 201818 [2019] ACAT 12 at [17]

109.The respondent submitted the following:

(a)He was a relatively inexperienced solicitor at the time of the alleged breaches and was subject to limited supervision. 

(b)He undertook the work to assist his JV partners, each of whom were experienced professionals who, it was agreed between them, would contribute ‘in kind’ professional services to the JV.

(c)He undertook this work in good faith, and in the belief that it was within the bounds of his professional competence and with the intention that he would undertake it with diligence.

(d)He did not realise the inherent conflict of interest in this arrangement on his part until he reviewed the Professional Conduct Rules in detail after taking further legal advice and after responding to the complaint.

(e)He undertook the work as an employed solicitor under the auspices of his employment at LP2 with their knowledge and with their support, which included the review of the transactions prior to exchange of contracts by the partners of the firm, further supervision and the billing of his work in regard to the matters.

(f)LP2’s supervision only highlighted to the respondent a potential conflict with respect to the sale of Unit Trust to Fuchon,[15] which he understood to be acting for himself and having an interest in the matter.

[15] The Joint Submission does not disclose the identity of “Fuchon”.

(g)When drawn to the respondent’s attention, alternative representation was arranged for that aspect.

(h)At no other time did any person at LP2 identify to the respondent any further or overarching conflict of interest.

(i)On the opening of his own practice the respondent continued to undertake services for the JV under the assumption that it was permissible to do so, and on the basis that the JV partners agreed and encouraged him to continue to act in the matter when he asked if they would like LP2 to continue to act in the matter. Further, LP2 had not only allowed him to act, but issued a tax invoice for the work that their firm had undertaken on the matter. This attitude is evident also in his initial responses to the applicant.

(j)He now realises the inherent conflict of interest involved in his providing legal advice to the JV and accepts charges 2 and 3 in the manner indicated in his responses to those charges above. Consequently, he acknowledges that by breaching the Rules as alleged in charges 2 and 3 he engaged in unsatisfactory professional conduct.

(k)On or about 11 March 2016 the respondent attended on representatives of the applicant to discuss the possibility of the complaint being lodged against him. At that meeting he was advised of the nature of the conflicts that can occur in the circumstances, including ‘direct conflict of interests’ and ‘indirect conflict of interests’. That was the first and only time a practitioner had advised the respondent what particular conflicts could have arisen. At that meeting, after some time discussing the issues, the applicant’s representatives confirmed that a complaint had been lodged against the respondent, with the complaint dated 7 March 2016 being provided by email to him thereafter.

(l)With respect to Charge 1, the respondent accepts, in hindsight, that there were instances where he would have acted differently had he been aware of the conflict of interest. However, throughout his involvement in the venture, he believed he acted honestly, competently, diligently and in good faith and attempted at all times to treat the other JV partners fairly and was not aware at that time of the existence of any conflict of interest with respect to them.

(m)With respect to Charge 4, the respondent submitted that he did not send the email to N in the role of a solicitor, and when viewed in light of the surrounding circumstances it was the product of ill-judged frustration. It was, nevertheless, inexcusable. The respondent is resolved never to send such an email or communication again, either in a professional or private context.

(n)The respondent is a legal practitioner who is generally competent and diligent and is a fit and proper person to engage in legal practice.

(o)The respondent’s acknowledged breaches of the Rules are not of the degree of seriousness that would warrant removal of his name from the roll of legal practitioners or suspension of his practising certificate, however, with the benefit of independent legal advice, and having participated in the mediation conference, and upon reflection, the respondent agrees to the proposed sanctions as properly marking the seriousness of his misconduct set out above.

Consideration

110.The parties submitted, and I accept, that the authorities are clear that a solicitor has a professional obligation to avoid conflicts between their personal interests and their duty to their clients. While there is no absolute prohibition on a solicitor (personally or through an associated company), for their own advantage, entering a transaction with a client or former client who does, or may, rely upon them for advice, where there is an apparent conflict between a solicitor's interests and duty, the solicitor bears a heavy burden to establish that the client has given their fully informed consent to the transaction.[16] The best and easiest way to achieve this result is to insist that the client have independent and informed advice. If this does not happen, a heavy burden lies upon the solicitor to show that they have done everything in their power to protect the interests of their client and to ensure that the client is aware of every circumstance that is or might be relevant to their decision.[17]

[16] O’Reilly v Law Society of NSW (1988) 24 NSWLR 204

[17] Law Society of New South Wales v Moulton [1981] 2 NSWLR 736 at [740]

111.Generally, a solicitor owes a duty to their client to:

(a)make full disclosure to the client;

(b)tell the client of everything they know which will be of assistance to the client in relation to matters within their retainer;

(c)within such limits, to do what they can to further the client's interests;

(d)where they are retained for such a purpose, to advise upon the different ways in which the client's objective may be attained and their economic advantages and disadvantages;[18] and

(e)‘insist’ that the client gets independent advice.[19]

[18] O’Reilly v Law Society of NSW (1988) 24 NSWLR 204 at [205]

[19] Law Society of New South Wales v Moulton [1981] 2 NSWLR 736 at [740]

112.In relation to the final requirement, “it will be a rare case when he should not at least advise his client to take independent legal advice.”[20] Some judges have gone so far as to say that the solicitor must advise the client to obtain independent legal advice and, in addition, “facilitate provision of such advice.”[21]

[20] Re Fabricius and Mclaren and Re Legal Practitioners Ordinance 1970 (1989) 91 ACTR 1 at [7]

[21] O’Reilly v Law Society of NSW (1988) 24 NSWLR 204 at 209 (Kirby P and Mahoney JA)

113.I accept the position of the parties in their Joint Submission that the authorities regarding solicitor-client borrowing transactions, while not directly on point, indicate that the agreed sanctions are appropriate. In Re Fabricius and Mclaren and Re Legal Practitioners Ordinance 1970 (1989) 91 ACTR 1 two solicitors borrowed $20,000 from a client. They did not suggest that the client seek independent legal advice, nor did he do so. The Court decided that the solicitors should not have entered into a borrowing transaction without ensuring that the client obtained independent advice. The Court determined that strike off was not an appropriate order and, instead, suspended the practitioners for two years and recommended that they not be issued with unrestricted practising certificates for a further period of two years. The Court found that the solicitors did not act disgracefully or dishonourably. Instead, “[T]he errors arose from inexperience and a general lack of understanding of a solicitor’s duties to his client. They showed a lack of knowledge of the law and of good practice. They are not matters calling for action by this court, but they do serve to underline the danger in solicitors setting up practice after limited relevant experience.”[22] This is similar to the circumstances of the respondent at the time of the relevant conduct.

[22] Re Fabricius and Mclaren and Re Legal Practitioners Ordinance 1970 (1989) 91 ACTR 1 at [10]

114.In their Joint Submission, the parties referred to Council of the Law Society of NSW v Doherty (No 2) [2009] NSWADT 296, where a solicitor entered into a joint venture with his client and, as a result of the solicitor’s lack of understanding of the relationship, misappropriated $35,000 from his trust account without the client’s authority. The Court determined that strike off was not an appropriate order and, instead, suspended the practitioner for twelve months and ordered that he not be issued with an unrestricted practising certificate for a further period of six years.

115.Relevantly, the Court opined that the solicitor was “a novice when it came to joint venture agreements [and]… he was well out of his depth.”[23] The Court determined the sanction on the basis that the misunderstandings arose as a ‘one off’ commercial venture in circumstances where

…the Respondent was overwhelmed by the commercial aspects of the matters; that he exhibited a degree of arrogance and somehow convinced himself that he could use Mr Rafter’s money… He clearly failed to recognise his relationship with Rafter, not only as a co-joint venturer but also as a client – a conclusion which, if he had paused to think about it, had clearly arisen by the terms of the joint venture agreements which he, the Respondent, had himself drafted.

[23] Council of the Law Society of NSW v Doherty (No 2) [2009] NSWADT 296 at [137]

116.Finally, the Court was satisfied that:

…it is unlikely – extremely unlikely – that this Respondent will offend again; and it is likely – extremely likely – that this Respondent, with appropriate conditions, can resume his place in the legal profession with the public being assured that his professional conduct can be relied upon.[24]

[24] Council of the Law Society of NSW v Doherty (No 2) [2009] NSWADT 296 at [140]

117.The parties submitted, and I accept, that this is similar to the circumstances of the respondent in this case.

118.In their Joint Submission, the parties referred to a decision of the Queensland Civil and Administrative Tribunal, LSC v Timothy John McQuaid [2018] QCAT 342, where QCAT considered the conduct of a solicitor who entered into a joint venture with his client and, as a result, breached his duties as a solicitor by allowing his interests to conflict with the interests of his client. In that case, QCAT determined that the conduct was unsatisfactory professional conduct only and ordered that the practitioner receive a public reprimand and pay the LSC’s costs. The parties submitted, and I accept, that the facts in that case are different to the respondent’s circumstances. Importantly, QCAT determined there was “no evidence to suggest that the transaction was not in Mr Messer’s best interests…the respondent obtained the land valuation to ensure the transaction was fair and he encouraged Mr Messer to take independent advice, but Mr Messer refused to do.”[25] By contrast, the respondent’s failures in this case to fully advise his clients regarding the respective risks of the purchase of the Amaroo Land and the Lease Agreement (and, in particular, A’s risk in relation to the lease), the need to properly document the joint venture, and the need to obtain independent legal advice are outlined in the particulars of the charges above.

Agreed sanction

[25] LSC v Timothy John McQuaid [2018] QCAT at [23]

119.In their Joint Submission, the parties agreed upon sanctions that now form the orders made. In accordance with section 55 of the ACAT Act, I accept that the proposed orders are within the Tribunal’s power and are appropriate.

………………………………..

Presidential Member G McCarthy

HEARING DETAILS

FILE NUMBER:	OR 7/2019
PARTIES, APPLICANT:	The Council of the Law Society of the Australian Capital Territory
PARTIES, RESPONDENT:	LP 201907 (Darren Carden)
COUNSEL APPEARING, APPLICANT	Mr J Buxton
COUNSEL APPEARING, RESPONDENT	Ms L Morris
SOLICITORS FOR APPLICANT	McInnes Wilson
SOLICITORS FOR RESPONDENT	Morris Legal Group
TRIBUNAL MEMBERS:	Presidential Member G McCarthy
DATE OF HEARING:	15 July 2019