Kotsifas v The Queen
[2021] VSCA 368
•22 December 2021
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S EAPCR 2020 0153
JAMES JOHN KOTSIFAS Appellant v THE QUEEN Respondent ---
JUDGES: MAXWELL P, KAYE and EMERTON JJA WHERE HELD: MELBOURNE DATE OF HEARING: 4 November 2021 DATE OF JUDGMENT: 22 December 2021 MEDIUM NEUTRAL CITATION: [2021] VSCA 368 JUDGMENT APPEALED FROM: [2020] VSC 347 (Champion J) ---
CRIMINAL LAW – Appeal – Sentence – Appellant solicitor pleaded guilty to 18 charges of causing trust account deficiencies and 5 charges of theft – Repeated offending over 3-year period – Appellant sentenced to 6 years’ imprisonment with 4 years non-parole – Sentencing discretion re-opened due to incorrect calculation of trust account deficiencies and losses provided by prosecution to sentencing judge – No reduction in gravity of offending or culpability – No basis for imposing different sentence – Appeal dismissed – Crimes Act 1958 s 74, Legal Profession Act 2004 s 3.3.21(1), Legal Profession Uniform Law Application Act 2014 s 148, Sentencing Act 1991 s 114, Criminal Procedure Act 2009 s 281.
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APPEARANCES: Counsel Solicitors For the Appellant Mr S J Tovey Stary Norton Halphen For the Respondent Mr B L Sonnet Ms A Hogan, Solicitor for Public Prosecutions MAXWELL P
EMERTON JA:Introduction
1 The appellant (‘JK’) was a solicitor, who operated his own firm. Over a period of almost three years, he misused and misappropriated trust funds for his own private purposes. 16 different clients were affected. The amounts involved totalled more than $314,000.
2 On 4 February 2020, JK pleaded guilty to five charges of theft and 18 charges of causing a deficiency in a trust account without reasonable excuse or authorisation. He was sentenced as follows:
Charges on
Indictment
J12118733
Offence Maximum Sentence Cumulation 1. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 1 year imprisonment Nil 2. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 3. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 1 year and 6 months’ imprisonment Nil 4. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 5. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 1 year imprisonment Nil 6. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 1 year imprisonment Nil 7. Theft (s 74 of the Crimes Act 1958) 10 years’ imprisonment 3 years’ imprisonment 6 months’ imprisonment 8. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 1 year imprisonment Nil 9. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 10. Theft (s 74 of the Crimes Act 1958) 10 years’ imprisonment 4 years’ imprisonment Base 11. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 12. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 13. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 14. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 15. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 16. Theft (s 74 of the Crimes Act 1958) 10 years’ imprisonment 2 years’ imprisonment 6 months’ imprisonment 17. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 1 year and 3 months’ imprisonment Nil 18. Theft (s 74 of the Crimes Act 1958) 10 years’ imprisonment 3 years’ imprisonment 6 months’ imprisonment 19. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 20.
Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 21. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 22. Lawyer cause deficiency in trust account (s 3.3.21(1) of the Legal Profession Act 2004) 15 years’ imprisonment 9 months’ imprisonment Nil 23. Theft (s 74 of the Crimes Act 1958) 10 years’ imprisonment 3 years’ imprisonment 6 months’ imprisonment Total effective sentence: 6 years’ imprisonment, with a non-parole period of 4 years Pre-Sentence detention declaration pursuant to s 18(1) of the Sentencing Act 1991: Nil 6AAA statement: 8 years’ imprisonment, with a non-parole period of 6 years Other relevant orders: Nil 3 JK now appeals, by leave, against his sentence on the ground that the individual sentences imposed on charges 7, 10, 16, 18 and 23 (the ‘theft charges’), the total effective sentence and the non-parole period were manifestly excessive.
Concession of error
4 A question arose during the hearing of the appeal concerning the nature of the offence of causing a trust account deficiency. As already mentioned, JK was charged with 18 such offences (charges 1–6, 8, 9, 11–15, 17, and 19–22) (the ‘trust account deficiency charges’). At the request of the Court, counsel for the respondent filed a supplementary submission, which helpfully elucidated the nature of the offence.
5 In the course of preparing those submissions, counsel for the respondent identified two errors relating to the quantum of monies misappropriated. First, at the plea hearing the prosecutor stated that the aggregate total of the trust account deficiencies was $1,493,236.50. That was an overstatement of $100,000.
6 Secondly, attention was drawn to the reference in the judge’s reasons to the investigation by the Legal Services Board (the ‘Board’) which revealed the deficiencies in the trust account. His Honour said:
Traces conducted on unauthorised transactions from the trust account revealed that at least $372,200.33 was used to pay for [JK’s] personal expenses which were persistently linked to the construction at [his] property at Longview Road, North Balwyn.[1]
The respondent points out that the figure of $372,200.33 encompassed traces on all unauthorised transactions from the trust account but that charges were not brought in respect of all of these transactions.
[1]DPP v Kotsifas [2020] VSC 347, [130] (Champion J) (‘Reasons’).
7 After consultation with the Board, the respondent has informed the Court that the total amount used by JK for the payment of his personal expenses was $314,867.33. This figure comprises $267,062.33 the subject of the five theft charges and $47,805.00 for the 18 trust account deficiency charges (referable to charge 3 ($2,818.00), charge 14 ($998.00) and charge 17 ($43,989.00)).
8 The effect of these errors, the respondent concedes, is that the sentencing discretion has been re-opened. For his part, JK seeks leave to add a further ground of appeal contending that:
the sentencing discretion miscarried as a result of the learned sentencing judge being provided with the incorrect figures relevant to the offending, namely:
(a)the total quantum with respect to charges 1–6, 8–9, 11–15, 17 & 19–22 (the deficiency in trust account charges); and
(b)the total quantum of funds used by [JK] for personal expenses.
9 We accept the respondent’s concession of error. For the reasons that follow, however, we do not consider that any lesser sentence should be imposed. Accordingly, the appeal will be dismissed.[2]
[2]Criminal Procedure Act2009 s 281(2).
Statutory framework
10 The five theft charges were imposed pursuant to s 74 of the Crimes Act 1958. The maximum penalty for theft is 10 years’ imprisonment.
11 The trust account deficiency charges were brought pursuant to legislation regulating the conduct of legal practitioners. Section 3.3.21(1) of the Legal Profession Act 2004 (the ‘Act’) applied to the charges relating to trust account deficiencies prior to 1 July 2015. Section 3.3.21(1) provided:
An Australian legal practitioner or an approved clerk is guilty of an offence if he or she, without reasonable excuse, causes—
(a) a deficiency in any trust account or trust ledger account; or
(b) a failure to pay or deliver any trust money.
Penalty: Level 4 imprisonment (15 years maximum).
12 On 1 July 2015, the Act was repealed and replaced by the Legal Profession Uniform Law Application Act 2014 (the ‘Uniform Law’). Section 148 of the Uniform Law is in the same form as s 3.3.21(1) of the Act and applies to the charges relating to trust account deficiencies after 1 July 2015. Under the Uniform Law, the offence of causing a deficiency in a trust account carries a maximum penalty of five years’ imprisonment.
13 Section 114 of the Sentencing Act 1991 provides that, for offences occurring before the date of a change of penalty, the sentencing judge must sentence in accordance with any reduction in maximum penalty and must not consider any increase in maximum penalty. Accordingly, the maximum penalty for the trust account deficiency charges is five years’ imprisonment.
Background to the offending
14 JK was admitted to practise as a barrister and solicitor of the Supreme Court of Victoria in 1993. Until December 1998 he held an employee practising certificate and, from January 1999 until October 2015, he held a Victorian principal practising certificate with authorisation to receive trust money.
15 The present offending occurred between January 2013 and October 2015, when JK operated as a sole practitioner at his firm, ‘J Kotsifas & Associate Lawyers and Consultants’, in Northcote, Victoria (the ‘law practice’). He had been a sole practitioner at the law practice since January 2000, save for a two-year period between 2002 and 2004 when he was a partner at another firm.
16 JK first became the subject of disciplinary proceedings in 2006. Most of the relevant matters occurred after 2011, however, at a time when JK was experiencing financial and marital problems. In July 2015, JK pleaded guilty in proceedings brought against him in the Victorian Civil and Administrative Tribunal (‘VCAT’) for causing deficiencies in a trust account,[3] and in October 2015 the Board refused to renew his practising certificate on the basis that he was not a fit and proper person to engage in legal practice. JK was required to cease practising.
[3]Victorian Legal Services Commissioner v Kotsifas (Legal Practice) [2015] VCAT 1117.
17 By that time, the law practice had become insolvent, and the Board placed it under the control of Dr Neil Hannan. Among other things, Dr Hannan identified numerous accounting irregularities. He engaged an independent forensic accountant, who found deficiencies in the law practice’s trust account involving considerable sums of money. In December 2015, on the application of Dr Hannan, the Supreme Court ordered that the $483,859.96 remaining in the law practice’s trust account be distributed to identified clients. Clients who had a positive balance recorded in the trust ledger received 47 cents in the dollar.
18 In December 2015, the Board commenced its own investigation into the law practice which revealed numerous instances of trust account deficiencies in breach of s 3.3.21 of the Legal Profession Act 2004.
19 On 8 August 2018, JK was arrested, interviewed and charged. He was committed to stand trial on 26 August 2019. He pleaded guilty on 4 February 2020.
20 It is convenient at this point to describe JK’s personal circumstances, as they are related to the timing and the nature of his offending. He was born in 1965, after his parents migrated from Greece. He married his first wife in 1996 and they were divorced in 2004. They had a daughter and son who at the time of sentencing were aged 23 and 21 respectively.
21 JK maintained regular contact with his children from his first marriage, and had custody every second weekend and during half of the school holidays while they were of school age. He paid for the children’s schooling and contributed to their care, and he continues to have a close relationship with them now that they are adults.
22 In 2010, JK met his second wife. They had two sons together who were aged seven and four at the time of sentencing. JK separated from his second wife in 2017. His two young sons continued to live with their mother, though JK maintained regular contact with them and provided financial support to help with their schooling, when he was able to do so.
23 At the plea hearing, JK submitted that at the time of his offending he was experiencing financial pressure as a result of his second wife’s expectation that he provide a lifestyle that was beyond his means.
24 In 2013, JK bought a property in Longview Road, Balwyn North, for $1.2 million, with plans to renovate the house to accommodate his wife and four children. The renovations commenced in March 2015. JK took out a large mortgage against the property and a second mortgage to pay for renovations. Eventually the interest on the loans compounded to the point that JK was unable to service them and defaulted on the loans. The Longview Road property was sold in 2016.
25 In October 2014, JK bought a property in Salisbury Street, Balwyn, for $2.4 million. Settlement was due to take place in October 2015. JK’s intention was to complete the renovations on the Longview Road property and sell it within the settlement period for the Salisbury Street property. However, he failed to complete settlement on the Salisbury Street property and lost the deposit of $247,000.
26 In addition to the purchase of the two properties, JK was struggling to meet his credit card repayments and car loan debts and to provide financially for his four children. He lost focus on his legal work and his professional responsibilities. His accounting processes fell into disarray, leading to the shortfalls in the trust account and then to the cycle of offending. Following the disciplinary proceedings in VCAT in 2015, JK secured a mentor and the services of a bookkeeper, but by that time most of his offending had already taken place.
27 JK was declared bankrupt in 2016. After losing his practising certificate in 2015, he had actively looked for paid work and had worked in various capacities including limousine-driving, relocating company computers, gardening and other casual labour work.
The offending conduct
28 As already noted, JK pleaded guilty to a total of 23 charges. The five theft charges relate exclusively to unauthorised use of trust monies for his personal expenses. The trust account deficiency charges covered both payments towards the personal expenses and a range of other unauthorised transactions, not all of which resulted in a loss to the client.
29 According to the respondent, the theft charges may be distinguished as follows:
(a) charges 7, 10, 16 and 18 — which reflect payments out of individual client trust ledgers for personal expenses; and
(b) charge 23 — which reflects payments out of trust for personal expenses but which are not attributable to any one client.
30 Charge 23 stands alone and has no relationship to any trust account deficiency charge. Charges 7, 10, 16 and 18 (charged as theft) are based upon conduct which might equally have been charged as causing a trust account deficiency.
31 Counsel for the respondent told the Court that, while there were many possible ways in which the charges on the indictment could have been framed, the Crown had formulated the indictment so as to best reflect the criminality of JK’s conduct.
32 The conduct comprising the theft offences was as follows. JK stole:
(a) $20,000 from the trust account of his client CF, who had retained him to act as a conveyancer for the sale of her property. He used the stolen funds to pay for the construction of a swimming pool at the Longview Road property, and to purchase the Salisbury Street property. This was the basis of charge 7;
(b) an additional $187,500 from CF’s trust account to assist with the purchase of the Salisbury Street property. This was the basis of charge 10;
(c) $4,550.06 from the trust account of a company controlled by GF, who had retained him to act in various real estate conveyances. JK used the stolen funds to pay rent on the Salisbury Street property, which he was leasing prior to settlement. This was the basis of charge 16;
(d) $24,398.94 from the trust account of another company controlled by GF. The stolen funds were used predominantly for the construction of the Longview Road property, and for rental payments for the Salisbury Street property. This was the basis of charge 18; and
(e) $30,613.30 from the trust account of the law practice, not attributed to any one client. The stolen funds were used predominantly for the construction of the Longview Road property. This was the basis of charge 23.
33 The 18 trust account deficiency charges relate to a variety of conduct:
(a) receiving client monies into the trust account but not crediting the amounts to the client’s trust ledger — see, for example, charge 1;
(b) receiving client monies into the trust account, but crediting the amounts to another client’s trust ledger — see, for example, charges 6, 8, and 11;
(c) receiving cash from a client and not banking it into trust — see, for example, charge 1;
(d) receiving trust monies from a client into the law practice’s office account — see, for example, charge 2;
(e) paying client monies out of trust, without authorisation, to unconnected third parties — see, for example, charge 3;
(f) paying client monies out of trust into the law practice’s office account on account of legal costs and disbursements, without authorisation, as the client did not receive an invoice — see, for example charges 3 and 12;
(g) paying client monies out of trust into the law practice’s office account on account of legal costs and disbursements without authorisation, as the client did not receive an invoice (but where an unsigned invoice was located on file) — see, for example, charge 3;
(h) making out trust cheques drawn on client ledgers payable to cash, without client authorisation — see, for example, charge 3;
(i) receiving ‘transit funds’ (which the client had expressly instructed were to be forwarded on to a counter-party) into the law practice’s costs ledger — see, for example, charge 4; and
(j) ‘journal’ transfers of client funds, without authorisation, to another unconnected client of the law practice — see, for example, charge 5.
34 As discussed, the respondent now says that that charges 3, 14 and 17 are charges involving actual losses to the clients, where monies were plainly directed to the payment of JK’s personal expenses. The quantum involved in these three charges is $47,805.00.
Sentencing reasons
35 The sentencing judge set out the contents of six victim impact statements in which the victims of JK’s offending described the significant emotional and financial toll which his conduct had taken on them. It is clear from the victim impact statements that JK’s offending has caused them great stress and anxiety. Some of them have lost faith in the legal profession as a whole.
36 The sentencing judge found the offending to be inherently serious due to the misuse of the trust account and, in some instances, the loss of monies entrusted to JK. His Honour observed that, as well as causing pain and loss to the victims, JK’s offending had brought the legal profession into disrepute.
37 In his Honour’s view, while the total amount of money lost was not necessarily determinative of the seriousness of the offending, it was nevertheless an important factor to be taken into account. It was significant that the offending involved repeated transactions over a period of years, and that some of the offending involved stealing money from clients, resulting in actual loss to them, as well as causing deficiencies in trust accounts.
38 The sentencing judge found that JK had ‘engaged in significant and sustained acts of betrayal of trust and dishonesty’. In his role as a solicitor he was well aware that his conduct was wrong. The offending ‘was calculated and did not occur on the spur of the moment on one or a handful of occasions’. Additionally, his position as solicitor and confidante meant that he was ‘on friendly terms with some of [the clients] while [he] stole their money or manipulated their money across bank accounts’.
39 In his Honour’s view, this made JK’s conduct all the more reprehensible and increased his moral culpability. The fact that he had applied some of the stolen funds for his own personal benefit further increased his culpability. The judge concluded that JK’s moral culpability for the offending was high. He was unable to discern any redeeming explanation for the offending conduct.
40 His Honour said that the sentence had to give significant weight to general deterrence and community protection, in order to send a clear message that those who contemplate similar conduct should expect stern consequences to follow. There needed to be strong denunciation of JK’s conduct.
41 At the same time, his Honour accepted that JK had good prospects of rehabilitation. He had pleaded guilty and admitted his conduct. He clearly understood the impact of what he had done. His Honour accepted that JK should be regarded as having entered (or at least indicated) an early plea of guilty and that he had demonstrated remorse for his offending. The sentencing judge also noted that JK had retained support from his community, despite his actions.
42 The sentencing judge found, on the material before the Court, that JK was unlikely to offend again in the future, making it less important to pass a sentence with a significant component directed to specific deterrence.
43 The sentencing judge also accepted there had been some delay in the finalisation of JK’s matters and he had experienced the anxiety and burden of having his matters unresolved for a period of almost five years. The judge took into account the increased level of anxiety JK would be exposed to as a result of being in an environment that he was less likely to be able to control and the added stress of his heart condition, as well as the impact that COVID-19 would have on his time in prison.
Submissions
44 On hearing of the appeal, as he had done before the sentencing judge, JK accepted that his offending was objectively serious. The victims were his clients, who trusted him to provide them with legal advice and to act in their best interests. The funds that were the subject of the theft charges were used for JK’s personal purposes, which elevated the seriousness of the offending.
45 JK also acknowledged that he had pleaded guilty in July 2015 at VCAT to causing deficiencies in a trust account and that he was required to comply with conditions in order to continue to practice as a lawyer. The offence the subject of charge 23 took place after July 2015, when JK was subject to conditions on his practice imposed by VCAT. He accepted that general deterrence was an important sentencing factor, as was denunciation, given that his offending brought the reputation of the profession into disrepute.
46 JK relied, however, on a range of factors in mitigation: his early plea of guilty; his remorse; the support available to him in the community; the absence of prior convictions; the fact that he had suffered extra-curial punishment by virtue of the loss of his career as a solicitor; the delay in the finalisation of the matters, between the appointment of a manager to the law firm in October 2015 and his arrest in August 2018; and his good prospects of rehabilitation. He also relied on the added burden of imprisonment, given his former status as a solicitor and given the stress and anguish caused by being unable to have regular contact with and provide for his family and children; and on the risk to his health as a result of the emergence of COVID-19.
47 In respect of the base sentence (charge 10), JK submitted that, having regard to the maximum penalty of 10 years and the mitigating factors, a sentence of four years imprisonment, being 40 per cent of the maximum penalty, was manifestly excessive. The value of the theft on this charge was $187,500. While the quantum was high, it was not as high as in many examples of this offence. JK submitted that four years’ imprisonment for a single charge of theft after a plea of guilty, where the maximum penalty is 10 years, is extremely rare.
48 In respect of the sentences of three years’ imprisonment on each of charges 7, 18 and 23, JK submitted that these sentences — for thefts of $20,000, $24,398.94 and $30,613.30 respectively — had to be regarded, at the very least, as extremely stern. Moreover, the sentence of two years’ imprisonment on charge 16, where the value of the theft was only $4,550.06, was not within range, even accepting the aggravating features of JK’s offending.
49 In her supplementary submissions, the respondent submitted that the seriousness of the theft offences, and JK’s culpability, were illustrated by the following:
(a) JK had been a practising solicitor for a period of at least 20 years, as a principal authorised to receive trust monies for approximately 14 years and had practised as a sole practitioner for approximately 12 years;
(b) the opportunity to offend only existed because he was in a position of professional trust;
(c) the effect upon the victims was not limited to the financial loss which, in some cases, resulted in significant hardship. A number of victims also keenly felt the breach of trust;
(d) the commission of the offences brought substantial disrepute upon the legal profession;
(e) during the course of the earlier thefts (charges 7 and 10), JK was under investigation by the Legal Services Commissioner for (unrelated) professional misconduct relating to trust monies. At the time of the thefts the subject of charges 16 and 18, a finding of guilt in relation to that earlier misconduct had already been made against JK. Prior to the commission of the final theft (charge 23), a second finding of guilt had been entered against him in relation to further (unrelated) deficiencies in a trust account;
(f) a total quantum of $267,062.84 was stolen, in 15 separate transactions over a 12-month period; and
(g) the monies were applied to JK’s personal expenses.
50 As to the trust account deficiency offences, the respondent submits that they are founded on a breach of trust. The client provides a sum of money to the legal practitioner for the provision of legal services on their behalf, and the legal practitioner abuses that trust by not depositing the funds in the trust account and/or by failing to record the money in the client’s trust ledger. ‘Loss’ in a trust account deficiency charge is therefore best understood as the absence of funds that ought to have been held on trust and in the particular client’s trust ledger. It is not, however, an element of the trust account deficiency offence that the client suffer an actual financial loss.
51 The respondent submits that the state of mind of the legal practitioner is highly relevant to determining culpability. ‘Negligent acts’ sit at one end of the spectrum and ‘intentional acts’ at the other. A practitioner whose conduct is careless or even negligent should be assessed as having lower culpability for the offence than a practitioner like JK, who intentionally causes a trust account deficiency.
52 Further, where the conduct is intentional, an intention to use the trust funds only temporarily for another purpose makes the offending less serious than where the motive is to permanently deprive. Where the conduct is an isolated act, the offence gravity is lessened; but where the practice is systematic, the gravity of the offending is greater. Further, the taking of funds for reasons of personal greed (rather than need) is more serious. In all of these respects, the respondent submits, JK’s conduct was at the more serious end of the scale.
53 Finally, so the respondent submits, offending committed against the backdrop of previous professional misconduct elevates offence gravity. Where an offender has been the subject of a previous intervention by a regulatory body, particularly in relation to managing a trust account, any subsequent deficiency offence should be viewed as more serious as it elevates moral culpability.
54 JK contends that the creation of a trust account deficiency does not depend on the practitioner committing a breach of trust or the client suffering a loss. Unlike a charge of theft, the charge of creating a deficiency in a trust account does not require evidence of an intention to permanently deprive a client of property or evidence of dishonesty. However, the quantum of the deficiency, the duration of the deficiency and any ‘crystallised’ or ‘actual’ loss to the client are relevant matters to be considered.
55 As to state of mind, JK contends that the offence of causing a deficiency does not contain a necessary element of dishonesty or deception. Consideration of whether an offender charged with a deficiency in trust account charge acted dishonestly or had a motive of self-enrichment is potentially fraught, it is said, and a sentencing court must avoid making findings that would give rise to a risk of sentencing the offender for a more serious offence than that to which he or she has pleaded guilty. The gravamen of the offence is the dealing with client funds contrary to or without instructions, and contrary to the interests of persons on whose behalf the money is held.
Discussion
56 We consider that the sentence imposed by the sentencing judge was entirely appropriate and correct. These were extremely serious offences and JK’s moral culpability is high, as the judge correctly found.
57 He took funds which had been entrusted to him for the purpose of providing legal services to his clients and used them instead to acquire and renovate, apparently on a grand scale, the house or houses in which he proposed to reside. The thefts and the trust account breaches were calculated, and the conduct was repeated a number of times over a significant period. JK may have been principally motivated by a need to accommodate his wife’s aspirations but he of course benefited himself.
58 JK engaged in reprehensible conduct against people who had placed their trust in him. Moreover, offending of this kind is damaging to the community, as it brings the legal profession into disrepute and undermines confidence in the legal system more generally. Such offending must be strongly denounced. While the amount of money stolen was significant, the harm caused did not depend on and was not limited to the quantum of the losses sustained by JK’s victims.
59 We respectfully agree with the sentencing judge that, given JK’s privileged position of trust and responsibility, general deterrence, denunciation and punishment are of particular significance. JK’s breach of the trust placed in him by clients was cynical and self-seeking, and he persisted in it despite having multiple opportunities to reflect upon the serious dishonesty of what he was doing.
60 We accept that most of the trust account deficiency charges did not result in actual losses to the clients, and a number of them apparently merely involved poor record keeping. They were nevertheless serious offences, for the reasons spelt out by the respondent in her supplementary submission.
61 The sanctity of a solicitor’s trust account is a matter of fundamental importance. As every solicitor knows, when a client entrusts funds to a solicitor to be used for specific purposes, those funds are impressed with that trust and must not be used for any other purpose without the client’s express consent. Any diversion of trust account funds for an ulterior purpose is a breach of that trust, a breach of the fiduciary duty owed by the solicitor to the client. It is unsurprising, therefore, that the legislature has made it a criminal offence to cause an unauthorised deficiency in a trust account, and that proof of actual loss is not required.
62 In the present case, it is no answer that the moving of money between accounts was in some cases intended to be temporary. The conduct was associated with the theft of funds to pay personal expenses and formed part of a much larger pattern of dishonest and unscrupulous behaviour. The authorities to which we have been referred emphasise the importance of holding lawyers to account for taking their clients’ money otherwise than as authorised.
63 In DPP v Bouhalis,[4] the defendant was a 59 year old lawyer who, over a period of four years, took money from his clients to cover his personal expenses. The defendant’s financial position had become increasingly desperate as a result of a serious eyesight illness which had compromised his working capacity. He withdrew a client’s money from his firm’s trust account to meet his personal debts, believing he would be able to replace it in a short amount of time. Not being able to do so, he replaced that client’s money with money from another client’s funds, hoping again to be able to restore the missing money from his own funds. The defendant repeated the process over and over — ‘robbing Peter to pay Paul’ — and became entrenched in a cycle of offending. To cover up his unauthorised withdrawals, he made false or incomplete entries in his accounting records. The defendant misapplied around $1.47 million of client funds in total.
[4][2019] VSC 684 (‘Bouhalis’).
64 The defendant pleaded guilty to 10 indictable offences, being six counts of false accounting, three counts of theft, and one count of lawyer causing a deficiency in a trust account; and one summary count of lawyer causing a deficiency in a trust account. Most of the indictable offences were continuing criminal enterprise offences and so attracted a higher maximum penalty than what would otherwise have been the case.[5]
[5]The statutory maximum penalty for each of the indictable offences was 10 years’ imprisonment for false accounting, 10 years’ imprisonment for theft, and 15 years’ imprisonment for a lawyer causing a deficiency in a trust account. However, the offences that were continuing criminal enterprise offences attracted a maximum term of imprisonment of 20 years under s 6I of the Sentencing Act 1991.
65 The defendant received a total effective sentence of five years and five months’ imprisonment with a non-parole period of two years and nine months. In sentencing the defendant, Macaulay J placed particular emphasis on considerations of punishment, denunciation and general deterrence. However, he noted that the offending appeared to be motivated by the defendant’s desperation to plug holes in his personal financial position, rather than to obtain quick and easy riches.
66 The defendant had lost his career and reputation, both of enormous personal significance. He had pleaded guilty and shown genuine remorse, and was likely to find imprisonment more onerous than the ordinary prisoner, in part because of his deteriorating eyesight, and in part due to the distress of being unable to support his invalid daughter and frail elderly mother while in custody. At the same time, these were serious dishonesty offences engaged in over a four-year period and the defendant had committed a significant part of his offending either while under a ‘good behaviour condition’ imposed by VCAT or under investigation by the Board, making the offending more serious.[6]
[6]Bouhalis [2019] VSC 684, [77].
67 Bouhalis is the most similar case to the present. The key difference, however, is that the defendant did not spend the stolen funds on indulgences. He was not motivated by greed, but seemingly by the need to retain his business and status in the community.
68 In DPP v Sidaoui,[7] the defendant was a solicitor working as a sole practitioner at his own firm. Over a 10-year period, he took out loans from various financial institutions and private lenders, using certificates of title belonging to his clients and family members as security. He forged signatures and provided false information to facilitate the loans. To conceal the offending, he took out further loans to cover old ones, some at exorbitant rates, and stole money from the trust account. The total quantum of the offending was $16.8 million, of which $15.4 million was fraudulently obtained finance and $1.4 million was stolen funds.
[7][2019] VSC 225.
69 The defendant pleaded guilty to 18 charges of obtaining a financial advantage by deception and 15 charges of theft. He received a total effective sentence of 10 years and one month’s imprisonment with a non-parole period of nine years. In sentencing, Hollingworth J noted that the conduct that was the subject of the deception charges was ‘elaborate and carefully planned’ and occurred over a long period, involving significant breaches of trust which had brought the legal profession into disrepute.[8]
[8]Ibid [16].
70 Her Honour noted, however, that the offending was not motivated by substance abuse or to pursue a lavish lifestyle. Rather, the defendant had found himself on a ‘treadmill’ of offending to service the loans he had taken out. The sentence was also moderated by the defendant’s age (57 at the time of sentencing), his early plea, genuine remorse, cooperation with authorities, as well as considerable delay caused by the prosecution. The judge also took into account the defendant’s poor mental health and chronic health conditions, as well as the worry he would experience due to his inability to care for his elderly mother while in custody.
71 The large amount of money stolen was described by the sentencing judge as a significant, but not determinative, factor in sentencing.[9] In her Honour’s view, quantum was relevant insofar as it provided ‘some real indication of the measure of loss and damage, both financial and psychological, caused to the victims of the frauds’.[10] It was also unclear how much the defendant had personally gained from the offending, it being somewhere between $4.1 million and $6.6 million. Hollingworth J considered it unnecessary to determine the precise amount as, based on any figure within that range, the defendant’s offending was ‘extremely serious’ and involved a ‘large personal benefit [obtained] through breaching the trust of [his] clients and family members’.[11]
[9]Ibid [11].
[10]Ibid.
[11]Ibid [12]–[14].
72 In R v Munt,[12] the defendant was a 61 year old solicitor who had operated a ‘Ponzi’ scheme over an 11-year period, and misappropriated almost $5 million. The victims included the solicitor’s clients, family and friends. He pleaded guilty to 27 charges, including nine charges of theft, eight charges of obtaining property by deception, eight charges of causing a deficiency in a trust account, and two charges of obtaining financial advantage by deception.
[12]R v Munt [2015] VSC 132.
73 The defendant was sentenced to eight years and six months’ imprisonment with a non-parole period of five years and six months. King J described the offending as ‘appalling’, and ‘predatory, manipulative and scheming, being carried out upon people who knew, liked, trusted, respected and indeed, even cared about [the defendant]’.[13] The offences were serious, the amounts involved were in the millions of dollars, and involved a large number of victims over a lengthy period of time. The breaches of trust meant that general deterrence was an important sentencing consideration. In mitigation, the judge took into account that defendant’s plea of guilty, his co-operation with authorities and his genuine remorse, as well as the significant delay involved in the prosecution.
[13]Ibid [13].
74 In R v Linacre,[14] the defendant solicitor, under significant financial pressure, deceived a client into providing money under the pretext that it was a high-yield investment, and showed the client a fake mortgage document to indicate the investment was secured. The defendant repeatedly engaged in the same conduct over the following 12 years, deceiving clients into believing that they were lending money secured by mortgages, and using the money to pay the interest accruing on other clients’ loans. Some of the money was transferred to a separate account which the defendant used to run his practice or for his own personal benefit. The total funds received were in excess of $12 million.
[14][2014] VSC 615.
75 The defendant pleaded guilty to 21 counts of dishonesty and five counts of causing a deficiency in a trust account. He received a total effective sentence of 12 years’ imprisonment with a non-parole period of eight years.
76 In sentencing, Warren CJ identified the aggravating features as the particularly serious nature of the offences, the large quantum of offending, that the offending was elaborate and calculated and occurred over significant period of time, and the debilitating impact on the victims, many of whom had sought the defendant’s assistance in difficult times. Mitigating factors included the defendant’s voluntary disclosure of his dishonest conduct to the Board and return of his practising certificate, his cooperation with the authorities, his age (62 at the time of sentencing), his low chance of reoffending, his loss of career, shame and disgrace, the substantial delay in bringing the charges, and the fact that the defendant’s mental health would make his time in custody more onerous. Her Honour also placed significant emphasis on the need for general deterrence, denunciation and community protection and the defendant’s strong prospects of rehabilitation.
77 In R v Maloney,[15] the defendant was a 59 year old solicitor who faced cumulative financial pressures because of poor financial and legal practice decisions, exacerbated by external circumstances and the ill health of his wife. He used false documents to deceive one of his clients into providing funds under the pretence of an investment. The money was used to pay the defendant’s personal and business expenses. In total, the defendant misappropriated $1,758,300 from the client, of which $1,099,824 was repaid. He pleaded guilty to 16 charges, including multiple counts of obtaining financial advantage by deception, theft, causing a deficiency in a trust account, and failure to deliver trust money. He received a total effective sentence of five years’ imprisonment with a non-parole period of three years.
[15][2014] VSC 641.
78 In sentencing, Warren CJ emphasised the importance of general deterrence, just punishment and denunciation. In mitigation, her Honour acknowledged the defendant’s good prospects of rehabilitation, that his major depressive illness would make his time in prison more arduous, his genuine shame and remorse, the loss of his career, and his plea of guilty. Aggravating factors included that the defendant had breached a position of special trust and responsibility as a solicitor, the significant amount stolen, the prolonged and persistent nature of the breaches over a period of six years, and the ‘devastating’ impact on the victim.
79 A number of principles emerge from these cases:
(a) because the solicitor is in a special position of trust, misappropriating funds advanced to the solicitor for the provision of legal services must be viewed as serious offending;
(b) the amount stolen, misappropriated or misapplied is not determinative of the seriousness of the offending;
(c) culpability is heightened where the misconduct is systematic and deliberate, and occurs over a period of time;
(d) in every case, however, it is important to consider the individual circumstances of the offender; and
(e) general deterrence, just punishment and denunciation will usually be important sentencing considerations.
80 In this case, although the amount of money involved in the offending was lower than it was thought to be at the time of sentencing, the conduct was the same. JK carried out the same number of transactions, of the same kind, over the same period of time, for the same purpose or purposes. He did so with a complete understanding of the wrongfulness of what he was doing. The adjustment in quantum does not, in our view, reduce the gravity of the offending or JK’s culpability.
Disposition
81 JK is granted leave to add ground 2 to the notice of appeal.
82 Although the respondent conceded specific error, no different sentence should be imposed.
83 The appeal must therefore be dismissed.
KAYE JA:
84 I have had the opportunity to read in draft the reasons of Maxwell P and Emerton JA. For the reasons that follow, I agree that the appeal should be dismissed.
85 The starting point, in considering ground 1, is that the offending by the appellant was by its nature particularly serious. The legislative provisions, that impose obligations, in respect of the disposition of trust monies by legal practitioners, are long–standing and are well understood by members of the profession. Those provisions are directed to ensuring that members of the public may have implicit confidence that any funds that they entrust to their legal practitioner are accounted for with absolute probity and in strict compliance with the legal requirements. The obligations, imposed by the applicable provisions, are thus important to the maintenance of public trust in the legal profession, which is an integral element in the proper functioning of our legal system.
86 Each of the offences committed by the appellant — both the thefts and the trust account deficiencies — constituted conduct which breached the trust reposed by the client in him. As such, it was conduct which was of a kind which undermines public faith in the profession and in the law. In a case such as the present, it is important that the sentence imposed by the court be sufficient to act as a general deterrent to such offending by other members of the profession, and that it adequately express the condemnation by the Court, and by the community, of the appellant’s wrongdoing.
87 The amounts involved in four of the theft charges — charges 7, 16, 18 and 23 — might not be characterised as substantial in comparison with other cases of theft which come before the courts. However, those charges concerned monies entrusted to the appellant by his client in good faith in the legitimate expectation that they would be dealt with in proper compliance with his legal obligations to the client. Each of the thefts constituted a flagrant breach by the appellant of his legal and ethical duties to his client.
88 In addition, at the time at which the appellant committed the thefts that were the subject of charges 7 and 10, he was under investigation by the Legal Services Commissioner for unrelated professional misconduct that concerned his trust monies. At the time at which he committed the thefts that were the subject of charges 16 and 18, a finding of guilt had been made in relation to that conduct. The theft that was the subject of charge 23 was committed by the appellant after he had been the subject of a second finding of guilt in relation to further and unrelated deficiencies in his trust account.
89 The appellant did have available a number of relevant mitigating factors, including his early plea of guilty, his remorse, the delay in finalisation of the matter, and his good prospects of rehabilitation. Nevertheless, giving those factors full weight, it has not been demonstrated that the individual sentences imposed in respect of each of the charges of theft were wholly outside the range of sentences available to the judge. Further, it was appropriate that the judge order a measure of cumulation in respect of each of the theft charges, in order to properly reflect the additional criminality involved in each of those offences. The degree of cumulation directed by the judge was, in the circumstances, reasonably moderate.
90 As Maxwell P and Emerton JA have discussed, the nature of the various deficiencies in the trust account, that were the subject of the remaining 18 charges, was quite varied. However, each charge was concerned with a clear failure by the appellant, as a legal practitioner, to comply with the long–established requirements concerning the disposition of trust monies. While some of the deficiencies appear to have been the result of a lack of proper attention by the appellant to due compliance with the applicable legal requirements concerning trust monies, at least three of the deficiency charges (charges 3, 14 and 17) were more significant, involving the use by the appellant of funds for his own purposes. The appellant was not to be sentenced on those charges on the basis that the appropriation by him of the monies was an aggravating factor.[16] However, that circumstance was relevant because it demonstrated the reason and motivation for the deficiencies in question.
[16]R v De Simoni (1981) 147 CLR 383, 389 (Gibbs CJ); [1981] HCA 31; R v Newman [1997] 1 VR 146, 150–1 (Winneke P).
91 The sentences imposed in respect of the deficiency charges are not the subject of an appeal under ground 1. In any event, those sentences were quite moderate. The judge did not direct any cumulation in respect of the deficiency charges, no doubt with a view to giving appropriate weight to the principle of totality.
92 For those reasons I am not persuaded that the sentences imposed on the five theft charges, the orders for cumulation, or the total effective sentence, are manifestly excessive. Accordingly, ground 1 must fail.
93 In respect of ground 2, I am not satisfied that the apparent errors in the computation of the deficiency charges and in the amount attributable to the payment of the appellant’s personal expenses were such that a different sentence should be imposed pursuant to s 281(1)(b) of the Criminal Procedure Act 2009. In the context of the actual total amount of the deficiencies ($1,393,236.50) and the total amount attributable to payment of the appellant’s personal expenses ($314,867.33), the amounts involved, in the particular errors conceded by the respondent, are relatively insignificant. Accordingly, ground 2 does not succeed.
94 For those reasons, I agree that the appeal should be dismissed.
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