Law Society of New South Wales v Brooke

[2001] NSWADT 105

CITATION:	Law Society of New South Wales -v- Brooke [2001] NSWADT 105
DIVISION:	Legal Services Division
PARTIES:	APPLICANT Council of the Law Society of New South Wales RESPONDENT Peter John Newton Brooke
FILE NUMBER:	002014
HEARING DATES:	23/04/2001, 24/04/2001
SUBMISSIONS CLOSED:	04/24/2001
DATE OF DECISION:	06/21/2001
BEFORE:	Vass CB -Judicial Member at 1; Foster GF - Judicial Member at 1; O'Neill A - Member at 1
APPLICATION:	Professional Misconduct - breach of duty - Professional Misconduct - breach of duty of trust - Professional Misconduct - breach of regulation 33 of Legal Profession Act (Trust Accounts and Controlled Money Regulations) 1994 - Professional Misconduct - breach of s. 61 of the Legal Profession Act - Professional Misconduct - fail to comply with s. 152 Notice - Professional Misconduct - party of scheme to bypass rule 86 of Queensland Law Rule 1987 - Professional Misconduct - prefer interests of certain contributors to the interests of others
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Legal Profession Act 1987
CASES CITED:	Law Society of New South Wales v Foreman (1994) 34 NSWLR 408 Re Hodgekiss (1962) 79 WN(NSW) 163
REPRESENTATION:	APPLICANT R Stitt QC, barrister RESPONDENT No appearance
ORDERS:	1 That the name of Peter John Newton Brooke be removed from the roll of legal practitioners; 2 That the solicitor pay the costs of the Law Society of and incidental to the filing and hearing of this information and that such costs be assessed or as agreed.

1 By information filed on 13 September 2000 the Council of the Law Society of New South Wales ("the Society") claimed that Peter John Newton Brooke ("the Solicitor") was guilty of professional misconduct. The information as filed set out 16 grounds upon which the Society relied and the Society contends in the information that each ground is sufficient to constitute professional misconduct.

2 The solicitor did not appear at the hearing and the Tribunal had before it an Affidavit of Louis William Pierotti, sworn on 23 April 2001. That Affidavit annexed various correspondence between the Society and the solicitor. By letter dated 13 February 2001 the Society wrote to the solicitor in the following terms:

"I refer to previous correspondence herein.

As you are aware, this matter was for mention before the Administrative Decisions Tribunal yesterday morning. It was noted there was no appearance by you or on your behalf.

The Deputy President of the Tribunal informed the Society that the Tribunal had received a facsimile transmission from you. The Society was given access to that letter.

I have to inform you that the Deputy President, Ms. Needham, S.C., made the following orders/directions:

1. Matter fixed for hearing on the 23rd and 24th of April 2001.
2. Request the Law Society to inform the legal practitioner by, at least, ordinary post of the orders made today; and
3. Any application by either party must be made in writing, supported by any evidence in affidavit form by the 26th of February 2001."

3 That letter was forwarded to the solicitor care of Post Office Box 1339, Kingscliff, New South Wales 2487, being the address to which the Society has corresponded with the solicitor for some time.

4 By previous facsimile transmission dated 9 February 2001 the solicitor corresponded with the Registrar, Administrative Decisions Tribunal. Relevantly that facsimile transmission provides as follows:

"I request that I be notified of the outcome of the proceedings on the 12/02/01 on the above fax number and care of PO Box 1339, Kingscliff. I request that you put this letter and enclosures with the file papers for the attention of the person presiding."

5 By facsimile transmission dated 18 April 2001 the solicitor once again corresponded with the Registrar, Administrative Appeals Tribunal. That facsimile transmission provides as follows:

"Further to my fax 9.2.01, I note that I have not received a response. Was the matter adjourned sine di or to some fixed date?

I have been corresponding with Mr. Pierotti and others at the Law Society by e-mail in relation to various matters, however, they have not made any mention of this matter at all in such correspondence. Frankly I also cannot understand why I do not receive any formal response from your organization as to my correspondence.

The Law Society is aware of my e-mail address and my United Kingdom postal address which I advise as being [email protected] and PO Box 1374, Doncaster DW11 9YE U.K. I note that there was no response to my previous postal address notified to you in my fax of the 9th of February 2001 nor to the fax number.

I look forward to receiving a response."

6 On the 19th of April 2001 the Deputy Registrar of the Tribunal by e-mail to the e-mail address provided by the solicitor corresponded in the following terms:

"I refer to your facsimile transmission of 18/4/01. Your letter of 9/2/01 received by facsimile transmission on 11/2/01 was put before the Tribunal on 12/2/01.

On 12 February 2001 the Tribunal made the following orders:

1. Fix the matter for hearing for 2 days on 23 April 2001.
2. Request the Law Society to inform the legal practitioner by ordinary post at least of the orders made today.
3. Any application by either party must be made in writing supported by any evidence in affidavit form by 26 February 2001.

In view of the orders made requiring the Law Society to inform you of the orders made on 12/2/01 the Registry did not correspond directly to you following your letter of 9/2/01.

I have spoken to Louis Pierotti of the Law Society who has advised that the Law Society informed you of the orders of 12/2/01 by ordinary mail on 13/2/01 to your postal address of PO Box 1339, Kingscliff, NSW 2487."

7 The Tribunal was not advised as to any further communication from the solicitor.

8 The Tribunal is satisfied that the Society complied with the directions made by the Tribunal on 12 February 2001 by reason of the Society's letter dated 13 February 2001 to the solicitor care of his nominated postal address.

9 The solicitor did not appear at the hearing and the hearing proceeded in the solicitor's absence.

10 Having regard to the number of grounds in the information it is the proposal of the Tribunal to deal with each of the grounds individually.

Background

11 The solicitor was admitted to practice in New South Wales on 18 December 1987 and was employed by Messrs. Bolstr & Co, solicitors at the Kingscliff office from 14 June 1988 to 24 February 1989. From 1 March 1989 the solicitor, having acquired the Kingscliff branch of Messrs. Bolstr & Co commenced practice as a sole practitioner. From 1 July 1989 the firm name was changed to Messrs. Peter Brooke & Company.

12 On 10 September 1998 Ms. Jean Sayer was appointed to investigate the affairs of the solicitor pursuant to the provisions of Section 56 of the Legal Profession Act 1987. On 13 November 1998 by order of the Supreme Court of New South Wales, Ms. Sayer was appointed Receiver to the trust property of the solicitor.

13 Substantial investments funds were arranged for investment on behalf of client/investors through a broker, Mr. Peter Newton, of Financial Wisdom Limited. Mr. Newton has an office at the office premises of the solicitor and attended at the premises on a weekly basis. Financial Wisdom was paid a placement fee of 1% in relation to funds invested. The solicitor received a placement fee in respect of advances arranged and commission of 1% in respect of interest payments made.

14 The solicitor advertised extensively in the media for investment monies using the name "Law Loan" for "First Mortgage Investments". The method of investment adopted by the solicitor included, inter alia, advances made in respect of major mortgages by way of progressive drawn downs pursuant to loan agreements as funds were received from clients for investment. Mainly through brokers, a lender registration form was completed and clients of the solicitor completed either a general lending authority or a specific lending authority depending upon the particular mortgage advance concerned.

15 Mortgages were in favour of the solicitors nominee company, Kingscliff Nominee Mortgages Pty Limited.(“Kingscliff”) A Trust Deed specifying the contributors to the loan was then executed by Kingscliff in relation to each mortgage advance.

16 In circular letters to clients the solicitor advised:

"We will invest, monitor and manage your contribution as part of a registered first mortgage through our solicitors' nominee company Kingscliff Nominee Mortgages Pty Limited which has been specially created for such purpose. This company has been sanctioned by the Law Society and is authorised under New South Wales law."

17 Circular letters were also forwarded by the solicitor to clients indicating that there was some supervision by the Society in the following terms:

"As you are probably aware, the Law Society of New South Wales is responsible for auditing solicitors' accounting records and mortgage investment records. This obviously provides more protection to the consumers of legal services. You may, as part of a routine audit, receive a request for confirmation of this transaction from one of the Law Society's trust account inspectors. If you do receive such a request, we request that you provide whatever assistance is reasonably required by the trust account inspector to carry out his audit."

The Solicitor's General Lending Authority

18 This authority was in accordance with Form 7 as prescribed under the Legal Profession Act 1987. The authority provided, inter alia, the following:

"1. Any mortgage securing a loan, in which any part of my/our money is invested, shall be a first registered mortgage.

2. The total principal sum secured by any mortgage shall not exceed an amount equivalent to 66% of the value of the security.

3. The property comprising the security shall be improved urban or suburban land on which all structures and buildings are satisfactorily completed and capable of immediate use or occupation and no money shall be applied to a loan which is to be advanced by progressive payments."

The Solicitor's Specific Lending Authority

19 In addition to the general lending authority referred to above the solicitor also obtained from various clients a specific lending authority. That authority was in accordance with Form 6 as prescribed under the Legal Profession (Trust Accounts and Controlled Money) regulation 1988 pursuant to the Legal Profession Act 1987.

20 The relevant specific lending authorities will be referred to in relation to each matter as applicable.

Professional Misconduct

21 Section 127 of the Legal Profession Act 1987 provides as follows:

"(1) For the purposes of this part, professional misconduct includes:

(a) unsatisfactory professional conduct, where the conduct is such that it involves a substantial or consistent failure to reach reasonable standards of competence and diligence, or
(b) conduct (whether consisting of an act or omission) occurring otherwise than in connection with the practice of law which, if established, would justify a finding that a legal practitioner is not of good fame and character or is not a fit and proper person to remain on the role of legal practitioners, or
(c) conduct that is declared to be professional misconduct by any provision of this act"

22 The reference to "statutory misconduct" is primarily relevant in these proceedings to consideration of the solicitor's conduct pursuant to Section 61 of the Legal Profession Act 1987.

23 Section 61(1) provides:

"A solicitor who, in the course of practicing as a solicitor in this State, receives money on behalf of another person:

(a) must pay the money, within the time prescribed by the regulations, into a general trust account in New South Wales at an approved financial institution and must hold the money in accordance with the regulations relating to trust money or

(b) if the person on whose behalf the money is received directs that it be paid or delivered to a third party free of the solicitor's control, must ensure that the money is paid or delivered


(i) before the end of the next working day or, if that is not practicable, as soon as practicable after the next working day, or
(ii) no later than the day allowed by the solicitor's authority or instructions (if that day is later than the day allowed under subparagraph (i)), or if the person on whose behalf of the money is received directs that it be paid otherwise than into a general trust account or to a third party, must pay the money as directed and (if the money is to be held under the direct or indirect control of the solicitor) must hold the money in accordance with the regulations relating to controlled money."

24 Section 61(2) provides:

"In any of those three cases, the solicitor must hold the money exclusively for, and must disburse the money in accordance with the directions of, the person on whose behalf it is held."

25 Section 61(8) of the Legal Profession Act 1987 provides:

"It is professional misconduct for a solicitor to wilfully contravene subsection 1 or 2."

The Disciplinary Jurisdiction of the Tribunal

26 The applicable principles relating to the disciplinary jurisdiction of the Tribunal are well settled and may be conveniently found in the Law Society of New South Wales v. Foreman (1994) 34 NSWLR 408. Of particular assistance in this case is the passage per Mahony J.A:

"The disciplinary jurisdiction remains one concerned with whether the solicitor is a fit and proper person to be held out by the Court as such … in deciding whether a person is a fit and proper person for this purpose, the Court may, in accordance with the circumstances, take into account matters going beyond the mere protection of the public against similar misconduct. The Court may consider the character of the practitioner, or those aspects of it relevant to the office of a solicitor. It is also, I think, relevant for the Court to take into account the effect which its order will have upon the understanding, in the profession and amongst the public, of the standard of behaviour required of solicitors. The Court will no doubt, where appropriate articulate the standards required and that they are high. However, the Court must, I think, also take into account the effect upon which it has said of, for example, a decision to allow a solicitor guilty of a serious infringement of those standards, to continue to practice. The Court may also have regard to whether, in the light of the offence in question, the solicitor can establish and maintain the kind of relationship which must exist between solicitors."

27 Also per Giles, A.J.A:

"But the object of protection of the public also includes deterring the legal practitioner in question from repeating the misconduct, and deterring others who might be tempted to fall short of the high standards required of them. And the public and professional colleagues who practice in the public interest, must be able to repose confidence in legal practitioners, so an element of deterrence is an assurance to the public that serious lapses in the conduct of legal practitioners will not be passed over or lightly put aside, but will be appropriately dealt with."

Section 61 - "Wilful Contravention"

28 In Re Hodgekiss (1962) 79 WN (NSW) 163 at 172 per Hardy J. the Court said:

"In the instant case the duty of the solicitor to his client is based upon a contractual and fiduciary relationship. Upon that relationship and duty the legislature has superimposed express statutory duties. Breaches of those duties are not made an offence punishable summarily, as are breaches of other sections of the Act. The sanction or penalty provided by the Act is the exposure of the solicitor concerned to the disciplinary and punitive powers of the Court and of the statutory committee in the event of the provisions being breached and such breach or breaches being wilful, and to the exercise by the institute of its power to cancel or to refuse to renew the solicitor's practicing certificate whether - it would seem - the breaches be wilful or not.

The fact that the duties which form the subject matter of Section 43 are statutory does not render inappropriate or inapplicable the principles laid down in the cases already cited for the determination of the question as to whether there has been "wilful failure" on the part of the solicitor to comply with Section 41 or Section 42. Applying those principles, I am of opinion that the Section deals with personal breaches of the statutory provisions in question on occasions when the solicitor knew or believed that he was committing such breaches or was recklessly careless in that regard. It is thus essential in an inquiry as to whether or not there has been wilful breaches by a solicitor of the provisions of Sections 41 to examine the facts and circumstances relevant to his state of mind, knowledge and intention at the material dates."

29 It is with regard to the above principles that the Tribunal has considered the evidence before it in relation to the conduct of the solicitor. The Tribunal will now consider each of the matters complained of.

1. Mortgage Advance to Lawngrove Pty Limited

30 On about 28 November 1996, through financial brokers, Salanor Pty Limited trading as QMF Finance, an application was made to the solicitor's nominee company, Kingscliff Nominee Mortgages Pty Limited, on behalf of Lawngrove Pty Limited for a loan facility of $2,184,000.00.

31 The loan advance was to be for a term of 1 year to 24 December 1997 and it be secured by way of registered first mortgage in favour of Kingscliff Nominee Mortgages Pty Limited ("Kingscliff") over a property known as "Harbour Heights Court" located at Queens Street, Cleveland, Brisbane, being vacant land the subject of a proposed townhouse development and a balance of englobo land.

32 The contributors to the mortgage signed a specific lending authority and in respect to the value of the securities the specific lending authority provided as follows:

"3. The estimated value of the security at completion of the construction will be at least $4,622,000.00. The value will be evidenced by a valuation from Heron Todd White, Valuers.

4. The total principal sum to be lent under the mortgage is $3,234,000.00.

10.Unless otherwise specified in paragraph 17 of this authority I am/we are not entitled to the repayment of my/our contribution until the mortgage is discharged."

33 There was no special condition in paragraph 17 of the authority as to the repayment of contributions prior to the discharge of the mortgage.

34 The terms of the loan agreement were evidenced by a letter from the solicitor to the proposed mortgage dated 28 November 1996. That letter provided, inter alia, as follows:

"Special Conditions (C) Advances shall be as follows-

(i) $605,900.00 on the settlement of the refinance of the land
(ii) $1,578,100.00 in relation to the construction advance
(c) Drawn down in relation to the construction advance and civil works shall be on a cost to complete basis. Pending drawn down of the funds, same will be invested in cash management at Westpac Banking Corporation with accrued interest to go to the benefit of the borrower"

35 Additional security was by way of a floating charge over the assets of Lawngrove Pty Limited.

36 The security documents comprised a registered first mortgage, loan agreement and mortgage debenture. The charge was registered with the Australian Securities Commission over the assets of Lawngrove Pty Limited.

37 The property was valued as at 10 October 1996 at $3,654,000.00. Of that valuation, $890,000.00 represented the land value. The gross realisation of the proposed development was estimated at $2,498.000.00. That gross realisation did not take into account the selling costs, etc., on sale of the development when completed.

38 Accordingly at the commencement of the loan the solicitor was on notice that the value of the security, absent any construction, was at best $890,000.00 representing the land value component of the available valuation. 66% of that land value represented the sum of $587,400.00.

39 Settlement of the advance took place on 24 December 1996 and the initial draw down was $714,000.00. Subsequent to that initial draw down the solicitor was on notice that subsequent drawn downs were to be "on a cost to complete basis" as specified in the loan agreement.

40 Subsequent to the initial advance the solicitor provided to the contributors a copy of the epitome of mortgage and a copy of the trust deed executed by Kingscliff. The epitome of mortgage provided, inter alia, as follows:

"13. Particulars of property comprising security

(i) …
(g) Special conditions as to progress payments: drawn downs based on updated valuations"

41 The epitome was dated 27 May 1997 and signed by the solicitor.

42 A total amount of $2,184,000.00 was advanced progressively increasing by further contributions from investors to cover draw downs as follows:

14 December 1996 first draw down $714,000.00

24 January 1997 second draw down $457,000.00

24 February 1997 third draw down $260,000.00

24 March 1997 fourth draw down $40,000.00

24 April 1997 fifth draw down $585,700.00

24 May 1997 sixth draw down $127,300.00

TOTAL $2,184,000.00

43 Thus a total of $1,470,000.00 was advanced to the mortgagor over a four month period from 24 January 1997 to 24 May 1997. At no time were such draw downs subject to a "cost to complete" analysis nor where the draw downs subject to "updated valuations" as provided for in the relevant epitome.

44 From 24 March 1997, that is by the time of the fourth draw down the loan was in default as interest was then in arrears. From 24 March 1997 until 26 August 1997 interest was paid to the contributors from monies provided by the solicitor by transfers from his own general account totalling $47,585.04 and monies provided by the originating mortgage broker, QMF, totalling $78,500.00. Further the mortgagor, Lawngrove Pty Limited, was placed in liquidation on 15 August 1997 on the application of a creditor for building supplies. Kingscliff entered into possession of the property with a notice of exercise of power of sale dated 16 September 1997.

45 Between 28 May 1998 and 1 June 1998 five contributors had their contributions totalling $220,000.00 repaid. The monies obtained from those repayments were contributed to a loan advance to Reyher Pty Limited. The substitution of contributors at a time when the loan was in default to the knowledge of the solicitor constituted a preference.

46 Of the security 8 townhouses were sold and the total sum realised to 25 August 1998 was $1,220,308.13. There then remained 6 completed townhouses for sale with the balance of the land not developed. From the proceeds of sale of the 8 townhouses at sum of $275,000.00 was paid by the solicitor to solicitors acting for the builders contracted to complete the townhouses being monies due by Lawngrove Pty Limited and not being part of the funding to be provided by Kingscliff. Payment to the builder of that sum of $275,000.00 from the sale proceeds created a further shortfall in funds available to repay contributors. In relation to such payment no authority was sought or received by the solicitors from the various contributors.

47 The solicitor failed to inform any of the contributors of the default of Lawngrove Pty Limited, that Lawngrove Pty Limited had been placed in liquidation or that the nominee company, Kingscliff, had entered into possession of the property. Specifically, clients whose contributions covered the fifth draw down on 24 April 1997 and the sixth draw down on 24 May 1997 were not informed of the position in relation to the loan whereby the mortgagor company was in default in relation to interest.

48 A number of the contributions by the various contributors did not pass through the trust account records of the solicitor nor his controlled money accounts. Section 33 of the Legal Profession regulation 1994 provides as follows:

"(1) A solicitor who receives trust money must pay it into his or her trust bank account

(a) before the end of the next banking day after the day of its receipt, if that is practicable, or
(b) if that is not practicable, as soon as practicable after that day"

49 The provisions of Section 61(1) and Section 61(2) have been set out above, as has the provision of Section 61(8).

50 The Tribunal is satisfied that the solicitor was guilty of professional misconduct in his handling of the matter of Lawngrove Pty Limited in that:

(i) the solicitor wilfully breached regulation 33 of the Legal Profession Act (Trust Accounts and Controlled Money Regulations) 1994;

(ii) the solicitor improperly preferred the interests of certain contributors to the interests of others;

(iii) the solicitor wilfully breached Section 61 of the Legal Profession Act 1987;

(iv) the solicitor breached his duty owed to clients/investors in that he failed to notify contributors that the mortgagor was in default and that the mortgagee had entered into possession.

Mortgage Advance to Reyher Pty Limited

51 Through the brokers, QMF Finance, an application was made to the solicitor for an advance of $4,900,000.00 to Reyher Pty Limited to be secured by a first mortgage over property known as "Reef Oceania Village Resort" Pandanus Drive, Airlie Beach, The Whitsundays, North Queensland.

52 The loan was to purchase the resort the company was acquiring for a consideration of $3,500,000.00. There was a mortgage back to the vendor, K. Fisher of $1.25 million. The company proposed to renovate and strata 64 cabins into 80 units to be sold for approximately $100,000.00 each. The loan from Kingscliff Nominee Mortgages Pty Limited was to be secured over the property which comprised Lot 50 on RP721970, Lot 52 on RP800702 and Lot 53 on RP800703. The loan was in fact secured by a first mortgage over Lots 50 and 53 and the vendor K. Fisher holds a second mortgage over the said lots, together with a first mortgage over Lot 52. The mortgage was guaranteed by the sole director of the company Mr. Judge Christopher Kirk.

53 The loan settled on 19 November 1997 and was due for repayment on 19 November 1998.

54 The loan agreement was entered into by the parties and clause 2 of the schedule to the agreement provided that, on settlement of the loan, a draw down advance sufficient to complete would be paid and that there would be a payment into the solicitor's trust account of $500,000.00 on account of interest payments. Further, that Reyher Pty Limited irrevocably authorised the solicitor to invest that sum in a cash management account and to apply the funds towards monthly interest payments with a benefit of any interest accrued thereon to go to the benefit of Reyher Pty Limited. Finally, that Reyher Pty Limited should not be entitled to the return of any portion of the $500,000.00 unless there was an early discharge of the loan.

55 Clause 6 of the loan agreement provided that draw downs should be released by the solicitor and paid to Reyher Pty Limited as and by way of draw down advance at some stages of construction that might be agreed between Kingscliff Nominee Mortgages Pty Limited and Reyher Pty Limited, or failing agreement, as might be determined by Kingscliff Nominee Mortgages Pty Limited absolutely upon the said company's solicitor receiving notification from Reyher Pty Limited in writing that either whole or part of the invested monies are to be advanced provided that there was receipt of satisfactory evidence by the solicitor as to certain work having been carried out and the provision of a certificate from a registered valuer or quantity surveyor.

56 The terms of the loan agreement were not adhered to in that a cash management account was not ever opened nor was an amount of $500,000.00 ever retained to cover the payment of interest. There was no indication that any evidence as to the loan to value ratio was ever sought or obtained by the solicitor from a registered valuer or quantity surveyor.

57 The solicitor was not able to raise sufficient investment funds from contributors to fund the purchase monies in the sum of $3,500,000.00. Prior to settlement of the purchase negotiations took place for the borrowing by Reyher Pty Limited of an initial amount of $1.25 million, as to $400,000.00 from Globell Glen Pty Limited and $550,000.00 from Burrawong Investments Pty Limited. Parker Simmonds, solicitors at Broadbeach, Queensland, acted for the lenders.

58 The arrangement was that the loans were to be made by these companies on 17 November 1997 and were repayable one month later on 17 December 1997. The loan from Globell Glen Pty Limited carried interest at the rate of 15% per month to be repaid with the principal sum and the loan from Burrawong Investments Pty Limited was to be repaid with interest of 22% per month.

59 A guarantee and indemnity in relation to these loans was given by Mr. J.C. Kirk and also by Kingscliff Nominee Mortgages Pty Limited. Pursuant to the guarantee and indemnity the loan advances by Globell Glen Pty Limited and Burrawong Investments Pty Limited were made by them at the request of Mr. Kirk as an advance to Kingscliff Nominee Mortgages Pty Limited. Kingscliff Nominee Mortgages Pty Limited executed a transfer of mortgage to Globell to be held in escrow and said to be security for the loan of $400,000.00. Kingscliff issued to Globell and Burrawong a Trust Deed evidencing that their loans formed part of the total mortgage advance made by Kingscliff of $4.9 million. Epitomes of mortgage were also issued to Globell and Burrawong dated 18 November 1997.

60 An undertaking by the solicitor was given in the guarantee and indemnity. Paragraph 9 of that undertaking stated:

"Brooke on his own behalf and on behalf of Peter Brooke & Co and Kingscliff undertakes to Globell and Burrawong that none of them will make further advances to Reyher beyond the initial advance until payment of the principal and accrued interest has first occurred to both Globell and Burrawong"

61 The solicitor did not maintain the above undertaking as further advances were made to Reyher from the contributions of clients to the Kingscliff mortgage to Reyher prior to the repayment of all monies due to Globell and Burrawong.

62 Contributors to the advances signed general lending authorities. That authority provided that the total principal sum secured by any mortgage should not exceed an amount equivalent to 66% of the value of the security. A valuation dated 19 September 1997 was prepared for Kingscliff by Conroy & Associates. The valuation comprised of several components and exceeded $20 million. The values shown on the Epitomes of mortgages provided to the various contributors and prepared by the solicitor is the value of the land and existing improvements for mortgage security purposes of $10,250,000.00. On 29 April 1997 QMF had made application to the solicitor for an advance of $3.5 million to be secured on the resort property. The property was then valued at $6,050,000.00. The purchase price on settlement on 19 November 1997 was $3,500,000.00.

63 Subsequent to settlement the loan advances from Globell and Burrawong were due for repayment on 17 December 1997. On 18 December 1997 the sum of $425,000.00 was paid to the solicitors for Globell and Burrawong and which sum represented payment of the principal sum due to Globell of $40,000.00 and the payment of $25,000.00 in relation to the Burrawong advance.

64 The loan advanced by Burrawong was not repaid on the due date. Various amounts were paid from the proceeds of advances made by contributors from 18 December 1997 until the loan was basically repaid on 19 May 1998. During that time the solicitors for Burrawong advised that their clients intended to commence proceedings against Reyher and against the solicitor pursuant to the personal guarantee that he had provided.

65 Repayments to Globell and Burrawong were funded by further contributions to the Kingscliff mortgage and to the extent of $400,000.00 by a loan to Reyher from Felix Holdings Pty Limited of 2 May 1998. The terms of the loan from Felix were specified in a letter from the solicitor to Felix dated 7 April 1998 which provided as follows:

"Further to the above matter we confirm the following:

1. You will be a contributory mortgagee in the fund in the amount of $700,000.00.
2. The term of the advance is to be for three months.
3. Out of the undrawn amount (approximately $1.5 million) we give our undertaking that you will receive reimbursement of your principal plus interest calculated at 5% per month in arrears. The interest is to be calculated on the balance owing at the commencement of each month (a 30 day period) and from the date of the initial advance.
We fax herewith a pro forma of the trust document that will be on-forwarded to you upon payment of the monies and general lending authority for execution and return."

66 The loan from Felix was not repaid within three months. Between 28 May 1998 and 1 June 1998 the sum of $235,000.00 was repaid, which represented the repayment of principal of $200,000.00 and $35,000.00 interest. The repayments of $235,000.00 were covered by further contributions to the loan to Reyher.

67 As at 14 September 1998 a total sum of $6,439,600.00 had been advanced to Reyher by contributors to the Kingscliff mortgage or others. On 6 August 1998 the mortgage which secured the sum of $4.9 million was varied and an amendment to the bill of mortgage and variation of loan agreement were executed by Kingscliff and Reyher. The mortgage was amended as and from 19 July 1998. The loan was increased to $7.5 million repayable on or before 19 November 1998.

68 The contributions in excess of $4.9 million were not secured until 4 August 1988, although the amendment to the bill of mortgage was amended as and from 19 July 1998.

69 An updated valuation dated 29 August 1998 was obtained. This valuation valued the resort on an "as is" basis at $16,250,000.00. In his letter dated 29 August 1998 the valuer advised that he understood that $900,000.00 had been spent on upgrading the property, of which $480,000.00 had been apportioned to the accommodation units. At that time in excess of $6 million had been advanced to Reyher. The value of the undeveloped land of $4,696,000.00 is the same as the value placed on this land in the valuation of 19 November 1997.

70 Between 15 September 1998 and 13 November 1998 a further net amount of $901,800.00 was advanced to Reyher. Of this sum only $130,000.00 was paid to Reyher. Between 16 September 1998 and 26 October 1998 $620,950.00 was paid to Salanor Pty Limited a company of a Mr. John O'Toole.

71 The vendor's second registered mortgage on the resort property was in place before the first mortgage was increased from $4.9 million. The monies in excess of this amount would be secured not as part of the first registered mortgage but subject to the rights of the second registered mortgage.

72 On 4 September 1998 a further loan advance was made to Reyher in the sum of $230,000.00. The loan advance was repayable on 4 October 1998. The solicitor provided to the solicitors for the lender a Trust Deed purporting that the security for this last loan advance was a contribution to the first mortgage over the resort. The loan advance was further guaranteed by the solicitor and by Mr. Kirk.

73 The mortgage was registered on 12 February 1999 and is a third mortgage on the resort property. The mortgage is in default and on 28 April 1999 a claim relating to the guarantee against the solicitor was filed in the Supreme Court of Queensland in the sum of $411,700.00.

74 The mortgage advance of $230,000.00 to Reyher was not disclosed by the solicitor to the Receiver. The Receiver was informed of the advance by the solicitors for the lender, Messrs. Parker & Simmons of Queensland on 30 April 1999.

75 In relation to this matter the Tribunal is satisfied that the solicitor was guilty of professional misconduct in the following matter:

(i) the solicitor breached the duty owed to the client/investors in that he acted in breach of the loan agreement in that he:

(a) failed to retain the sum of $500,000.00 for the payment of interest; and
(b) failed to ensure that prior to any draw down being made against the loan advance, appropriate certificates as to valuation were received;
(ii) the solicitor breached the duty owed to client/investors in that he failed to properly protect the interests of contributors by releasing without authority security which had been provided for the loan advance;

(iii) the solicitor breached the duty owed to the client/investors in that he allowed further contributions to be made to Reyher when he was not able to provide security for such advances;

(iv) the solicitor breached the duty owed to client/investors in that he allowed the property the subject of the security for the advance to Reyher to be further encumbered without the authority of the contributors to the initial loan advance;

(v) the solicitor breached the duty owed to client/investors in that he allowed the security for the loan advance to Reyher to be compromised by allowing additional borrowings to be secured thereover;

(vi) the solicitor wilfully breached Section 61 of the Legal Profession Act 1987;

(vii) the solicitor by providing for increased rates of interest payable in respect of advances to Reyher subsequent to the initial advance breached his duty of trust to the earlier contributors.

Mortgage to Willgold Pty Limited

76 Willgold Pty Limited ("Willgold") is a company owned by Mr. Jude Christopher Kirk ("Kirk"). Kirk also owns Reyher.

77 An application was made to the solicitor by QMF on behalf of Willgold for a loan advance to develop a cluster housing and residential estate at 87 Chubb Street, Leichhardt, Queensland ("the Chubb property") and to be secured by a first mortgage. The Chubb property was contained on 3 lots. The first lot was to be developed as to 31 multiple residential houses, the second lot as to 25 group title houses and the third lot into 41 residential allotments.

78 The total funds required were $615,000.00 with an initial advance of $350,000.00 and a second advance on the availability of funds of $265,000.00.

79 Pursuant to the terms of the loan agreement $80,000.00 of the loan advance was to be lodged on deposit for the first 12 months to cover interest payments to the contributors.

80 A valuation of $1,065,000.00 in support of the loan advance made by LA Crane, a registered valuer, and dated 7 April 1997 was submitted to the solicitor. The valuation was based on the gross realisation value of the completed complex less various development expenses.

81 The contributors to the loan executed a general lending authority which in paragraph 3 thereof stated that the property comprising the security "must be improved urban or suburban land on which all structures and buildings are satisfactorily completed and capable of immediate use or occupation and no monies are to be applied to a loan that is to be advanced by progressive payments".

82 Of the monies which were ultimately retained for interest ($73,500.00) there remained a net amount in the cash management account on 11 September 1997 of $60,972.87.

83 Despite the terms of the loan agreement and the authority and direction dated 7 August 1997 the monies deposited to the cash management account were not held and applied solely in the payment of interest. Between 29 September 1997 and 24 October 1997 $49,700.00 was withdrawn and paid to QMF.

84 As and from 30 July 1998 the mortgage securing the loan advance was varied to increase the amount of the loan to $710,000.00 and the due date was extended to 8 August 1999. By further advance made on 20 February 1998 the total advance made in respect of the loan was $660,000.00. By 2 further advances in the sum of $40,000.00 and $5,000.00 respectively on 19 May and 19 August 1998 the total drawings on the mortgage were $705,000.00. It would appear that the loan was increased relying on the existing valuation.

85 In respect of this matter the Tribunal is satisfied that the solicitor was guilty of professional misconduct in that:

(i) the solicitor wilfully breached Section 61 of the Legal Profession Act 1987;

(ii) the solicitor breached the duty owed to client/investors in that he acted in breach of the loan agreement by failing to retain the sum of $80,000.00 for the payment of interest and failed to ensure that prior to any draw down being made against the loan advance appropriate certificates as to valuation were received.

Mortgage Advance to Nexdale Pty Limited

86 In February 1997 QMF on behalf of Nexdale Pty Limited ("Nexdale") made application to the solicitor to borrow the sum of $1,245,000.00.

87 Approval for the loan to be made available by Kingscliff with an initial draw down of $635,000.00 increasing to $1,245,000.00 was given in a letter from the solicitor addressed to Nexdale dated 25 February 1997.

88 The security for the advance was a first mortgage over Lot 2, Clifford Beach, Airlie Beach ("the Clifford property"). An application for a loan had previously been made on 19 July 1996 by Private Mortgage Finance Pty Limited on behalf of Nexdale for a loan of $560,000.00 to be secured over Lot 2 and Lot 3. A valuation then described as a "mortgage valuation" valued Lot 2 at $270,000.00.

89 The Clifford property was vacant land and an application to subdivide the land into 10 residential allotments was approved by Whitsunday Shire Council in February 1996.

90 On 5 February 1997 a further valuation was provided indicating that for mortgage purposes the value of the Clifford property was $1,100,000.00. That valuation was made on the basis of a hypothetical subdivision and sale method.

91 In respect of the contributors there were several general lending authorities and specific lending authorities. The specific lending authority described the value of the security at $2.155 million. The amount of $2.155 million was the gross realisation figure in the hypothetical subdivision and sale method adopted by the valuer but with no deduction for selling and development costs.

92 A first registered mortgage securing the sum of $1.245 million was registered on the Clifford property on 1 May 1997. The loan agreement executed by the parties shows that the guarantor to the mortgage as being Anthony Stephen Brickell ("Mr. Brickell") Director and owner of Nexdale.

93 An amount of $65,000.00, forming part of the advance of $635,000.00 was placed in a cash management account from where it covered interest payments up to 27 January 1998. The term of the loan was extended for a further 12 months to 27 March 1999.

94 On 27 February 1998 a valuation was obtained from valuers after which it appears in lieu of the proposed development an application had been made to develop the property into a resort development. The valuation 1 year after the previous valuation indicates that the land was vacant. No development on the land had taken place as at 27 February 1998. The new valuation was for $2.3 million.

95 Under cover of a letter dated 5 August 1998 an update to the valuation was provided by the valuer and in line with the conditions relative to the development approval granted by the Whitsunday Shire Council on 26 February 1998 and which were amended on 7 July 1998. As a result of that amendment the valuer reduced the development costs and arrived at an increased valuation of $2,430,000.00. The updated valuation does not disclose that the development had commenced. The valuation estimates development costs at approximately $4.5 million.

96 The loan agreement entered into by the parties provided:

"Draw downs shall be released by the solicitors for the lender and paid to the borrower as and by way of draw down advances at such stages of subdivision as might be agreed to between the lender and the borrower or failing agreement as might be determined by the lender absolutely upon the lender's solicitor receiving notification from the borrower in writing that either the whole or part of the invested monies are to be advanced provided the following is received by the lender's solicitor:

(i) receipt of satisfactory evidence being provided to the lender of the stage of subdivision that has been completed. This must be supplied by way of a certificate from the registered valuer or quantity surveyor which must certify the work completed at the time of request for further advances and the estimated sum required to be expended to complete the subdivision. The lender will provide further advances as and by way of subdivision finance on the basis of the costs to complete the subdivision and such further advances will be at such stages of subdivision as might be agreed to between the lender and the borrower or failing agreement as might be determined by the lender absolutely. The lender shall always be entitled to retain sufficient monies to complete the subdivision.

97 Nexdale did not fulfil the necessary conditions precedent for the release of the draw downs. No appropriate certification was provided under the above provision.

98 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that he:

(i) breached the duty owed to client/investors in that he acted in breach of the loan agreement in that he failed to ensure that prior to any draw down being made against the loan advance appropriate certificates under the agreement were received;

(ii) by allowing the loan advance to exceed $1.1 million breached his duty of trust to the client/contributors.

Advance to Nexdale Pty Limited (Second Loan)

99 On 6 May 1997 QMF on behalf of Nexdale applied to the solicitor for a loan advance of $1,795,000.00 with an initial advance of $870,000.00 in relation to a construction/development advance drawn down on a cost to complete basis.

100 The loan advance was required to pay out an existing mortgage and provide construction funding on a staged basis. An amount of $140,000.00 was to be retained from the initial advance for interest payments.

101 The loan advance was to be secured by a mortgage over Lot 3 RP840155 being a property at Clifford Beach, Airlie Beach ("the second Clifford property") and a guarantee by Mr. Brickell. The second Clifford property is the allotment adjacent to the property which was security for the first advance made to Nexdale dealt with above.

102 QMF submitted to the solicitors a valuation dated 22 April 1997 in the amount of $2 million. The valuation was based on a hypothetical subdivision and sale method. The land had thereon a residential dwelling used for residential purposes and it was proposed with an approval in principle by the Council that the land be developed as a residential/commercial/marine facility.

103 An application for a loan advance had previously been made on 19 July 1996 by Private Mortgage Finance Pty Limited on behalf of Nexdale for a loan of $560,000.00 to be secured over both Lots 2 and 3 for a period of 12 months.

104 A valuation then described as a "mortgage valuation" had valued the property and improvements on Lot 3 at $575,000.00. That loan did not proceed.

105 The mortgage from Nexdale to Kingscliff in the sum of $1,795,000.00 commencing on 25 June 1997 was registered on 12 August 1997. That mortgage was due for payment on 25June 1998.

106 The majority of contributors to the mortgage came from Financial Wisdom and signed lender registration forms and specific lending authorities. The specific lending authorities showed the value of the property "at the completion of construction/subdivision" at $3,125,000.00.

107 On 25 June 1997 a loan agreement was entered into between Nexdale and Mr. Brickell as guarantor and Kingscliff as the mortgagee. The schedule to the lending authority provided, inter alia, that the loan to value ratio would not exceed 57.5% and that on settlement of the loan a draw down advance of $870,000.00 would be paid of which $140,000.00 would be retained by the solicitor and be invested in a cash management account and used for the payment of interest.

108 The proceeds of the loan were not applied to complete a purchase contract as indicated by a loan agreement as the property had already been purchased by Nexdale. To the extent of $303,725.00 the loan advance was applied to discharge an existing mortgage.

109 Two sums totalling $75,277.69 were withdrawn between 15 and 24 October 1997 from the monies retained for the payment of interest and for purposes other than the payment of interest. At 9 March 1998 there were no monies remaining in the cash management account into which the sum of $140,000.00 was deposited to cover interest payments.

110 The loan was extended for a further year to 25 June 1998 and the mortgage and loan agreement were varied accordingly. By letter dated 5 August 1998 the valuers had written to Mr. Brickell and a copy of the letter had been supplied to the solicitor. The valuation of the second Clifford property had been increased to $3,100,000.00. The valuation at this time also indicated that development costs, including interest, would amount to $10,691,507.00. The company would require substantial funding to complete the development to achieve the projected figures shown in the valuation.

111 As at 16 September 1998 the total sum advance was $1,293,000.00. No development had yet been commenced on the second Clifford property.

112 Clause 6 of the loan agreement entered into by the parties provided that:

"6.Draw downs shall be released by the solicitors for the lender and paid to the borrower as and by way of draw down advances at such stages of subdivision as might be agreed to between the lender and the borrower or failing agreement as might be determined by the lender absolutely upon the lender's solicitor receiving notification from the borrower in writing that either whole or part of the invested monies are to be advanced provided the following is received by the lender's solicitor:

(i) receipt of satisfactory evidence being provided to the lender at the stage of subdivision that has been completed. This must be supplied by way of a certificate from a registered valuer or quantity surveyor which must certify the work completed at the time of request for further advance and the estimated sum required to be expended to complete the subdivision. The lender will provide further advances as and by way of subdivision finance on the basis of the cost to complete subdivision and such further advances will be at such stages of subdivision as might be agreed to between the lender and the borrower or failing agreement as might be determined by the lender absolutely. The lender shall always be entitled to retain sufficient monies to complete the divisions"

113 Nexdale did not fulfil the necessary conditions precedent for the release of the draw downs. No appropriate certificates under clause 6 were provided by the mortgagor.

114 In respect of this matter the Tribunal is satisfied that the solicitor was guilty of professional misconduct in that he:

(i) breached the duty owed to client/investors in that he acted in breach of the loan agreement in that he:

(a) failed to ensure that prior to any draw down being made against the loan advance appropriate certificates under clause 6 were received;
(b) failed to retain the sum of $140,000.00 for the payment of interest;

(ii) wilfully breached Section 61 of the Legal Profession Act 1987.

Advance to Perdon Pty Limited

115 The solicitor acted for Perdon Pty Limited ("Perdon") on the purchase by it of a property at Tyalgun ("the Tyalgun property") for a consideration of $45,000.00. That purchase was by way of contract dated 1 February 1996.

116 Perdon's intention was to build a residence on the property and to subdivide the balance of land into a further 4 lots. The solicitor arranged an advance of $100,000.00 to be made to Perdon by a client of the firm, Methams Motors Pty Limited ("Methams"). The solicitor had been appointed a director of Methams on 1 July 1994. The other director of the company is Mr. Metham. The solicitor is not a shareholder in the company. The shares are held by Mr. Metham.

117 Valuation reports dated 4 January 1995 valued the Tyalgun property at $45,000.00 and in respect of the proposed development $25,000.00 for each lot and $100,000.00 for the dwelling when complete.

118 The solicitor maintained a cash management account styled "Peter Brooke & Company at Metham Motors" ("the account"). From August 1995 the account had been used to deal with monies invested on the authority and direction of Mr. Metham.

119 By letter dated 13 March 1996 the solicitor wrote to Mr. Metham confirming the loan advance and enclosing valuation reports. A mortgage from Perdon to Methams dated 14 March 1996 securing the sum of $100,000.00 repayable on 14 March 1997 was registered on the Tyalgun property. The advance to Perdon was made direct from the account.

120 Contrary to the terms of the solicitor's letter to Mr. Metham of 13 March 1996 which stated "We confirm that in relation to the construction phase of the finance, the matter will proceed on the usual cost to complete basis, that is or as retaining sufficient monies in trust for the building to be completed on certificates received from the valuer, Robert Mudge". The whole of the loan monies had been advanced by 14 March 1996 and without any certificates issued by the valuer.

121 No interest was paid by Perdon and a Section 57(2)(b) notice of default was issued by the solicitor on Perdon on behalf of Methams on 25 October 1996.

122 By 18 November 1996 the solicitor arranged for a further advance of $160,000.00 to Perdon to discharge the mortgage to Methams. The advance was to be made by Kingscliff as trustee for contributors to the loan in the sum of $160,000.00. The loan was for a term of 1 year repayable on 29 November 1997.

123 Perdon was required to obtain from a valuer a valuation of $232,000.00 to be assigned to the benefit of Kingscliff. The valuation provided to Kingscliff is dated 1 August 1996 and assesses the market value of the Tyalgun property for mortgage purposes at $145,000.00. On request of the solicitor the valuer gave an updated valuation on 17 September 1996. The valuer confirmed the valuation of $145,000.00.

124 The loan advance to Kingscliff of $160,000.00 was made on 29 November 1996 when a discharge of the mortgage to Methams was executed by the solicitor pursuant to a Power of Attorney dated 10 January 1996. Methams received a full discharge of its mortgage advance including arrears of interest.

125 A mortgage in favour of Kingscliff in the sum of $160,000.00 was registered and secured on the title of the Tyalgun property. No interest was paid on the mortgage by Perdon to Kingscliff.

126 Epitomes of mortgage issued to contributors indicated the value of the property as $232,000.00 "as per a valuation made by the valuer dated the 1st of August 1996".

127 Specific lending authorities provided by three of the incoming contributors indicated that the value of the property was $232,000.00 "the value will be evidenced by a valuation by Robert Mudge Valuations Pty Limited dated the 1st of August 1996". The valuation of 1 August 1996 is in the sum of $145,000.00 which was subsequently reconfirmed by letter dated 17 September 1996.

128 A notice pursuant to Section 57(2)(b) in respect of the default by Perdon under the mortgage to Kingscliff was issued on 5 February 1997. By letter dated 3 June 1997 letters were written to the contributing mortgagees advising of the default by Perdon and that Kingscliff had entered into possession of the Tyalgun property.

129 The same letter indicated that the property had been listed for sale at auction on 28 June 1997. The auction on 28 June 1997 did not proceed, apparently for lack of interest.

130 None of the incoming contributors were aware that Perdon had already been in default in relation to the prior mortgage to Methams.

131 On 27 October 1997 one of the original contributors, Joan Ridgeway, who had contributed $45,000.00 required repayment of her funds. Her investment was repaid and such was substituted by 5 further contributors ("the Ridgeway contributors").

132 The Ridgeway contributors were not informed that Perdon was in default and that Kingscliff was in possession. Epitomes of mortgage issued to the Ridgeway contributors indicated the same value of the security as the epitomes issued to the initial contributors, namely $232,000.00.

133 On 18 June 1997 prior to the proposed auction on 28 June 1997 the solicitor sought a further valuation for the purposes of setting a reserve price. By letter dated 9 July 1997 the valuer confirmed the value of the property at $145,000.00.

134 On 4 September 1997 QMF, having been advised by the solicitor of the default by Perdon, advised that it acted with Willgold and that Willgold was interested in purchasing the property and completing the development.

135 Contracts for sale were exchanged between Kingscliff and Willgold on 14 April 1998 in the sum of $230,000.00 subject to a number of conditions. No deposit was payable on the exchange. The matter did not proceed.

136 Outstanding interest had as at the date of exchange been paid by the solicitor from funds from his general account. As at 28 August 1998 the solicitor had paid interest in the sum of $18,245.53.

137 In relation to this matter the Tribunal is satisfied that the solicitor was guilty of professional misconduct in that he:

(i) by allowing the loan monies to be used contrary to the terms of his letter to Mr. Metham of 13 March 1997 breached his duty of trust to his client;

(ii) improperly and in breach of the duty to client/investors preferred the interests of Methams to those of the incoming contributors to the loan by Kingscliff to Perdon of 29 November 1996;

(iii) breached his duty to client/investors when he failed to ensure that the loan advance to Kingscliff of 29 November 1996 was properly secured;

(iv) misled the contributors to the mortgage advance by Kingscliff to Perdon and hence was in breach of the duty owed to the contributors;

(v) wilfully breached Section 61 of the Legal Profession Act 1987;

(vi) improperly and in breach of duty preferred the interests of Joan Ridgeway, one of the contributors to the loan by Kingscliff to Perdon, to the interests of other contributors to that advance;

(vii) by allowing the funds of the Ridgeway contributors to be used to repay Joan Ridgeway when the mortgagee was in default breached his duty of trust to the Ridgeway contributors.

The Estate of the Late John David Rees

138 John David Rees ("Rees") died on 1 November 1997. The solicitor acted in obtaining a Grant of Probate of the estate which probate was granted to the executor Mr. N.H. McCarthy on 3 April 1998.

139 Prior to his death, there were monies totalling $100,000.00 held for investment on behalf of Rees. Those monies were invested as to $70,000.00 to Nexdale (second advance) on 10 June 1997, $20,000.00 Willgold on 5 September 1997 and $10,000.00 to Perdon on 30 August 1997.

140 The loan advance to Nexdale was pursuant to a specific lending authority dated 23 June 1997. The loan was repayable on 25 June 1998 but was extended for a further year to 25 June 1999. there was no consent given by the Executor to extend the loan advance to Nexdale for the additional period.

141 The loan advance to Willgold was pursuant to a general lending authority signed on 11 August 1997. The authority limited the term of the advance to 12 months. The loan was extended in August 1998 for a further period to 8 August 1999. There was no consent given by the Executor to extend the loan advance to Willgold.

142 The loan advance to Perdon was pursuant to a general lending authority dated 11 September 1997. The authority restricted the advance to a period of 12 months and provided that repayments should be no later than 30 September 1998. The loan advance to Perdon was applied towards part-repayment of the Ridgeway investment despite the fact that Perdon was then in default and Kingscliff had entered into possession.

143 The solicitor wrote to Rees on 5 November 1997 (several days after his death) advising that the amount of $10,000.00 had been advanced to Perdon on 29 October 1997. That letter did not disclose the then true position in relation to Perdon.

144 On 24 March 1998 the solicitor wrote to the Executor. In that letter the solicitor did not refer to the loan advances made on behalf of Rees nor of the extensions which had been made.

145 The Tribunal is satisfied in this matter that the solicitor was guilty of professional misconduct in that he:

(i) by allowing the extension of the repayments due to the estate by Nexdale, Willgold and Perdon, breached his duty of trust to the Executor and to the estate;

(ii) wilfully breached Section 61 of the Legal Profession Act 1987.

Advance to White Street Properties Pty Limited

146 White Street Properties Pty Limited ("White Street") is a company owned by one of the partners and an employee of Messrs. Elliott and Harvey, Solicitors of Queensland ("Messrs. Elliott and Harvey").

147 White Street sought to borrow the sum of $230,000.00 to be secured over property known as 14 White Street, Nerang, Queensland. The sum of $230,000.00 was advanced by Kingscliff. The contributor to that loan by Kingscliff was Gerdham Pty Limited ("Gerdham"). Gerdham is a company in which an employee of Messrs. Elliott and Harvey, Mr. Duncan Smith, is a director. The loan advance was settled on 23 June 1998.

148 Correspondence in the matter emanated from Messrs. Elliott and Harvey who had in their possession letterhead of the solicitor's firm. On settlement the sum of $230,000.00 was forwarded by telegraphic transfer to the credit of the solicitor's trust account. On the same day, a trust account cheque was drawn payable to the trust account of Messrs. Elliott and Harvey.

149 Under cover of a letter dated 7 August 1998 Messrs. Elliott and Harvey wrote to the solicitor and forwarded to him the Certificate of Title, the stamped Deed of Guarantee and photocopy duplicate stamped mortgage.

150 The solicitor's bill of costs was prepared by Messrs. Elliott and Harvey and is in the sum of $1,261.00. The bill includes stamp duty of $920.00 and various registration fees. Those disbursements were paid by Messrs. Elliott and Harvey.

151 On 13 November 1998 Jean Sayer was appointed Receiver to the trust property of the solicitor. On 13 November 1998 the Supreme Court of New South Wales made orders requiring the solicitor to have transfers of mortgages executed by Kingscliff transferring all mortgages held in trust for contributors to Jean Sayer, the Receiver.

152 On 23 November 1998 Mr. Duncan Smith wrote to the solicitor as a director of Gerdham and advised that Gerdham required the mortgage to be registered in its name. Mr. Smith requested the return of the security documents.

153 Rule 86 of the "Rules of the Queensland Law Society Incorporated", provides:

"86(1) A practitioner shall not borrow money from a client unless such client is -

(i) a person or company listed in subclauses (a) to (i) inclusive of sub-rule (iii) of the preceding rule
(ii) a member of the family of the practitioner or any corporation, partnership, syndicate, joint venture or trust in which the shares in which the whole of the beneficial interest is presently vested or is capable only of being vested in the practitioner or one or more members of the family of such practitioner or in a person or company to whom or to which sub-rules (i) or (iii) of this rule apply; or
(iii) such other person or categories of persons as the Council may determine from time to time …

96(3) A practitioner must not act for a client who wants to invest an amount if -

(a) the amount to be invested is to be borrowed by a related person; or
(b) without the Council's consent, a related person is to guarantee the performance of a third party's obligation in relation to an amount."

154 For the purposes of the rule related to the "related person" means:

(a) the practitioners' employee (employer or partner); or

(b)a member of -

(i) the practitioner's family; or
(ii) the family of a person mentioned in paragraph (a); or

(c) a corporation, joint venture, partnership, syndicate or trust in which the person mentioned in paragraph (a) or (b) has shares or has a beneficial interest whether or not vested in the person.

155 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that he was a party to a scheme to bypass the provisions of rule 86 of the Queensland Law Society Rule 1987.

Advance to Upper Mt Gravatt Legal Services Pty Limited

156 Upper Mount Gravatt Legal Services Pty Limited ("Mt Gravatt") is a company owned by the partners of Messrs. Elliott and Harvey. On 3 November 1997 Mt Gravatt received a loan advance of $390,000.00 from Kingscliff. The net funds amount to $386,914.00 were forwarded by the solicitor to the trust account of Messrs. Elliott and Harvey.

157 The security for the loan from the contributors to the mortgage from Kingscliff to Mt Gravatt was Unit 4, 1953 Logan Road, Upper Mt Gravatt, being a strata title commercial unit.

158 The loan advance was guaranteed by Michael James Harvey and Kerrill Marie Ma who are partners of Messrs. Elliott and Harvey and who practice at the Mt Gravatt branch of the firm.

159 All contributors to the loan by Kingscliff were approached by Messrs. Elliott and Harvey either directly or using the letterhead of the solicitor which was provided by the solicitor. Subsequent to settlement of the loan advance, the security documents were returned by the solicitor to Messrs. Elliott and Harvey to enable that firm to register a second mortgage on the title.

160 Messrs. Elliott and Harvey on the letterhead of the solicitor, advised the contributors to the loan advance of the settlement.

161 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that he was a party to a scheme to bypass the provisions of rule 86 of the Queensland Law Rule, 1987.

BHG Investments Pty Limited

162 Michael James Harvey and Kerrie Dawn Guy ("the directors"), respectively a partner and an employee of Messrs. Elliott and Harvey. They are also the shareholders and directors of BHG Investments Pty Limited ("BHG").

163 BHG purchased a property known as 249-259 Lindsay Road, Buderim ("the Buderim property") and sought a loan from Kingscliff of $350,000.00 in order to finance the purchase.

164 The directors obtained a valuation as at 1 April 1997 which assessed the value of the Buderim property at $588,500.00. The solicitor through Mr. P. Newton of Financial Wisdom, sought contributors to the loan advance to BHG.

165 Mr. Newton was able to arrange for investment funds of $306,000.00 to be invested in the loan advance and most of the funds advanced were either already held by the solicitor or were remitted to him to settle the loan on 8 September 1996.

166 Documentation in respect of the loan advance was prepared by Messrs. Elliott and Harvey purportedly as agents for the solicitor.

167 The loan advance was settled on 4 September 1997 at which time $308,599.86 was forwarded by the solicitor direct to the vendor's solicitors and the balance of $41,440.14 was remitted to the trust account of Messrs. Elliott and Harvey. The original security documents were retained by Messrs. Elliott and Harvey and copies forwarded to the solicitor by letter dated 8 September 1997.

168 BHG obtained an easement granted by a third party and prepared the necessary documentation which was then forwarded to the solicitor by Messrs. Elliott and Harvey for signature. The mortgage was registered and the security documents were on 16 October 1997 forwarded by Messrs. Elliott and Harvey to the solicitor. The mortgage was subsequently extended for a further 6 month period to 5 March 1999 and on 23 September 1998 the solicitor wrote to Messrs. Elliott and Harvey requesting that firm as agents prepare variation documents and arrange for execution of same by BHG.

169 The position was that Elliott and Harvey as agents for the solicitor were acting in an advance made by clients of Financial Wisdom/the solicitor to a company in which they had a financial interest.

170 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that he was party to a scheme to bypass the provisions of rule 86 of the Queensland Law Rule, 1987.

Advance to Mark James McDonald

171 In November 1996 Mark James McDonald ("McDonald") applied through the solicitor for an advance of $25,000.00 for a period of 12 months.

172 The solicitor arranged for a loan to McDonald in the sum of $24,500.00 secured on property known as 25 Leeward Terrace, Tweed Heads ("the Tweed Heads property"). Security was to be by way of mortgage to Kingscliff as nominee for contributors. A Statutory Declaration made by McDonald on 6 December 1996 indicated there were no prior encumbrances on the property. At that time the property was encumbered by a first mortgage dated 29 November 1995 securing the sum of $260,000.00 and a further mortgage to Kingscliff securing a sum of $50,000.00.

173 There were two contributors to the mortgage each of whom received a letter dated 11 November 1996 indicating that settlement of the loan advance had occurred on 6 December 1996 and that mortgage documents had been forwarded to Sydney for registration.

174 The mortgage from McDonald securing the sum of $24,500.00 was never registered.

175 McDonald had on 1 February 1996 borrowed a sum of $50,000.00 from Kingscliff secured by way of second mortgage. The mortgage securing the advance of $50,000.00 was registered on 19 February 1996 and remained on the title to the Tweed Heads property as at 6 December 1996.

176 One month's interest was deducted from the proceeds of the loan advance on settlement and thereafter interest was paid by McDonald up to and including 14 July 1997.

177 In August 1997 McDonald was in default in respect of the mortgage advance of $260,000.00 and the Tweed Heads property was to be auctioned by the mortgagees pursuant to the first mortgage, being Dunvegan Holdings Pty Limited ("Dunvegan") and Hanifan Pty Limited ("Hanifan").

178 On 21 August 1997 an agreement was entered into between Kingscliff as second registered mortgagee and Robert Harold Charles Large ("Large") who then wished to purchase the Tweed Heads property. That agreement provided that Kingscliff would release its second mortgage over the property and that Large within 18 months from the date of agreement would repay all monies due to Kingscliff by McDonald.

179 At the same time as the agreement of 21 August 1997 a mortgage was entered into between Kingscliff and Large dated 21 August 1997. That mortgage advance was in the sum of $24,500.00 repayable on 6 February 1999. That mortgage although stamped was not registered. Large has not ever paid any interest on the mortgage. Since July 1997 interest was paid by cheques drawn on the solicitor's general account. No interest payments had been made subsequent to 10 November 1998.

180 The solicitor failed to inform the contributors to the loan advance of McDonald of $24,500.00 that the mortgage had never been registered and that McDonald had defaulted. Further, contrary to the contributors' instructions, the mortgagor was subsequently changed and the term of the mortgage was extended.

181 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that:

(i) the solicitor wilfully breached Section 61 of the Legal Profession Act, 1987 in that the terms upon which the contributors gave the solicitor $24,500.00 were that there founds were to be advanced to Mr. M.J. McDonald;

(ii) the solicitor breached the duty owed to the contributors in that he failed to secure the advance by the contributors to the loan advance of 6 December 1996.

Kentward Pty Limited

182 The solicitor acted for Kentward Pty Limited ("Kentward") and arranged for a loan of $40,000.00 from Kingscliff to Kentward.

183 Kentward is owned and controlled by Large who guaranteed the advance.

184 The loan advance of $40,000.00 to Kentward was to be secured over property at Urbanville ("the Urbanville property") in New South Wales by way of second mortgage.

185 The monies invested were from monies received and held by the solicitor for investment on behalf of Mr. Athol Robinson. The amount of $40,000.00 was credited to the solicitor's trust account on 14 August 1998 and aside from certain payments drawn as to $35,336.18 to FAHB Pty Limited ("FAHB") and described in the trust account as a "draw down".

186 The second mortgage on the Urbanville property was never registered.

187 The Urbanville property had been purchased by Kentward on 2 March 1998 for the sum of $180,000.00 and subject to a mortgage of $110,000.00 to Mr. Vincent James O'Malley ("O'Malley") and which mortgage was repayable on 2 September 1998. The transfer and mortgage to O'Malley were registered on 6 April 1998 and on 28 April 1998 a variation of mortgage (registered 18 May 1998) increased the mortgage advance to $150,000.00.

188 On 8 March 1998 a valuation obtained by the solicitor valued the Urbanville property at $272,000.00.

189 The second mortgage on the Urbanville property was due for repayment on 14 February 1999. No interest has been paid by Kentward on the second mortgage on the Urbanville property subsequent to 13 October 1998.

190 A Caveat lodged by Kingscliff on the Urbanville property was registered on 4 September 1998.

191 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that he breached the duty owed to contributors in that he failed to properly secure the loan advance of $40,000.00 made to Kentward.

Advance to Pydde

192 The solicitor is the Executor in the Will of the estate of the late George Edgar Poole ("Poole") who died on 23 March 1996. Grant of Probate in respect of the Will of the late George Edgar Poole had not been applied for.

193 The residue of the estate was bequeathed equally to the son and daughter-in-law and the two grandchildren of the deceased. The grandchildren were minors and were not entitled to their share in the estate until they had attained the age of 25.

194 The Will of Poole empowered the Executor, the solicitor, to invest the funds of the estate in certain authorised ways.

195 The share of the minor beneficiaries in the estate of $24,000.00 each was advanced on 7 March 1997 to Mr. and Mrs. Pydde. The loan advance was said to be secured by a second mortgage over property owned by Mrs. Pydde at 20 Flinders Avenue, Ashmore, Queensland ("the Ashmore property") and was to be repaid on 7 March 1998.

196 On settlement of the loan advance the bulk of that advance, $45,058.00 was paid to Hollydene Enterprises Pty Limited.

197 On 7 March 1997 Mrs. Pydde made a Statutory Declaration prepared by the solicitor which indicated, in part, that the Ashmore property the subject of the security was free from encumbrances and caveats. The Ashmore property was encumbered by a first mortgage to the National Australia Bank in the sum of $50,000.00.

198 A notice of default was issued by the National Australia Bank on 21 January 1999 and showed an amount due on the mortgage to it at that date as being $115,460.61.

199 The mortgage in respect of the loan advance through Kingscliff was entered into on 7 March 1997 and purportedly signed by Mrs. Pydde as the mortgagor. The mortgage was registered on 16 November 1998. As at 3 March 1997 the value of the property was in the sum of $165,000.00.

200 Interest on the Kingscliff loan was paid from the date of the advance up to 7 July 1997. No interest was paid beyond that date and the mortgage has been in default. The interest on the Kingscliff loan received by the solicitor was to be paid into a cash management account kept by him for each of the minor beneficiaries.

201 By letter dated 30 June 1998 the solicitor informed Mr. and Mrs. Pydde that he was prepared to extend the time for repayment of the monies advanced by Kingscliff until the end of December 1998. The mortgage was not repaid by the due date.

202 There is no indication that the parents of the minor beneficiaries have been aware that the monies retained on behalf of their children were invested on 7 March 1997 and until on 16 November 1998 were unsecured and that from July 1997 the mortgagor was in default and no interest had been received since 7 July 1997.

203 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that he:

(i) by advancing the sum of $48,000.00 which was held by him on behalf of minor beneficiaries and as Executor of the estate of Poole to Mrs. Pydde did so without ensuring that there was adequate security for such advance and breached his duty of trust to the minor beneficiaries;

(ii) breached his duty owed to contributors in that he failed to properly secure the loan advance to Pydde.

Colleen Jane Garratt

204 The solicitor acted for Mrs. Colleen Jane Garratt ("Mrs. Garratt") in respect of her purchase from Nowland of a property at Banora Point. The purchase had been settled on or about 29 January 1998.

205 The solicitor rendered a bill of costs to Mrs. Garratt on 19 January 1999 in the total sum of $6,347.15 which bill included stamp duty on the contract of $5,424.00.

206 A cheque for the total of the bill was received from Mrs. Garratt and deposited by the solicitor direct to his general account on 9 February 1999 and covered by a receipt issued on 8 February 1999.

207 A cheque was drawn on the solicitor's general account on 5 February 1999 in the sum of $5,424.00 payable to Messrs. Morris Hayes & Edgar to cover the payment of stamp duty. On 5 February 1999 the solicitor addressed a letter to Messrs. Morris Hayes & Edgar enclosing the contract and transfer for stamping and the Certificate of Title for registration, together with the cheque in the sum of $5,424.00.

208 On 1 March 1999 Messrs. Morris Hayes & Edgar received the solicitor's letter dated 5 February 1999 together with the documents and the cheque. The general account cheque in the sum of $5,424.00 received by Messrs. Morris Hayes & Edgar on 1 March 1999 was dishonoured by the solicitor's bank on 2 March 1999 because the solicitor's bank account exceeded the overdraft limit.

209 The solicitor subsequently replaced the dishonoured cheque with another cheque in the same amount. This further cheque was presented on 8 March 1999 and subsequently paid on presentation.

210 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that he wilfully breached Section 61 of the Legal Profession Act 1987 in relation to stamp duty monies received by him from the client.

Patricia May McGee

211 The solicitor acted for Mrs. Patricia May McGee ("Ms. McGee") in respect of her purchase from Bowman of a property at Kingscliff by contract dated 12 February 1999. Settlement of the purchase was arranged for 19 February 1999 and Ms. McGee was requested by the solicitor to provide cheques for settlement which included a cheque in the sum of $5,191.15, being to the solicitor's firm on account of costs and disbursements. The solicitor's costs and disbursements included the sum of $4,199.00 for the payment of stamp duty on the contract.

212 The solicitor received a bank cheque from Ms. McGee in the sum of $5191.15 and banked same to his general account on 22 February 1999.

213 A cheque was drawn on the general account by the solicitor payable to Messrs. Morris Hayes & Edgar on 19 February 1999 in the sum of $4,199.00 for the payment of stamp duty. The solicitor addressed a letter dated 22 February 1999 to Messrs. Morris Hayes & Edgar forwarding the documents for stamping and registration together with the cheque for stamp duty. Messrs. Morris Hayes & Edgar did not receive the solicitor's letter of 22 February until 15 March 1999. The cheque covering the stamp duty was presented against the general account on 16 March 1999 and was met.

214 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that he wilfully breached Section 61 of the Legal Profession Act, 1987.

Section 152 - Failure to Reply

215 The legal practitioner, without reasonable excuse, failed to comply with a Council requirement under Section 152(1) of the Legal Profession Act 1987 of which the practitioner was notified by letter dated 30 October 1998.

216 On 29 October 1998 the Council of the Law Society of New South Wales resolved with respect to the solicitor:

"That pursuant to Section 152 of the Legal Profession Act 1987 the legal practitioner is required:

(a) to provide, verified by statutory declaration the information set out in schedule 1 hereto to the Manager of the Professional Standards Department, Law Society of New South Wales by 9.30 a.m. on the 9th day of November 1998;

(b) to produce by 9.30 a.m. on the 9th of November 1998 the documents specified in schedule 1 hereto the Manager of the Professional Standards Department of the office of the Department, 7th Floor, Law Society Building, 170 Phillip Street, Sydney"

217 By letter dated 30 October 1998 the Society served upon the solicitor a notice dated 30 October 1998 pursuant to Section 152 of the Legal Profession Act 1987 and directed to the solicitor, advising of the above resolution.

218 No response was received from the solicitor within the time specified in the notice.

219 Section 152(4) of the Legal Profession Act 1987 provides:

"A legal practitioner who, without reasonable excuse, fails to comply with such a requirement is guilty of professional misconduct."

220 The Tribunal is satisfied that in this matter the solicitor was guilty of professional misconduct in that the legal practitioner, without reasonable excuse, failed to comply with a Council requirement under Section 152(1) of the Legal Profession Act 1987 of which the practitioner was notified by letter dated 30 October 1998.

Orders of the Tribunal

221 The Tribunal is of the view that having regard to the findings set out above, that the conduct of the solicitor has displayed both a wilful and reckless disregard for the interests of his clients.

222 It is the view of the Tribunal that the only course for the Tribunal is to order that the name of the solicitor be removed from the roll.

223 Accordingly the Tribunal orders as follows:

(a) that the name of Peter John Newton Brooke be removed from the roll of legal practitioners;

(b) that the solicitor pay the costs of the Law Society of New South Wales of and incidental to the filing and hearing of this information and that such costs be either as assessed or as agreed.