Law Society of New South Wales v Cullen
[1999] NSWADT 121
•30 November 1999
CITATION: Law Society of New South Wales -v- Cullen [1999] NSWADT 121 DIVISION: Legal Services APPLICANT: Law Society of New South Wales RESPONDENT: Jeremy James Cullen FILE NUMBER: 9832 HEARING DATES: 09/29/1999 SUBMISSIONS CLOSED: 09/29/1999 DATE OF DECISION:
30 November 1999BEFORE:
J N West QC Presiding Judicial Member
J Currie - Judicial Member
E Hayes - MemberPRIMARY LEGISLATION: Legal Profession Act 1987 APPLICATION: Breach of professional rule; Default error in carrying out clients' instructions; Preferring own or another client's interests; Prescribed statutory/professional rules breach; Professional misconduct - solicitor ; Unsatisfactory professional conduct - solicitor; Wrongful application of trust/controlled money or other valuable property - MATTER FOR DECISION: Principal matter REPRESENTATION: Applicant:
Respondent:
I M Wales S C instructed by R J Collins solicitor
Law Society of New South Wales
R Sofroniou counsel instructed by Jackson Smith, solicitorsORDERS: Orders made on 29 September 1999
1. The name of Jeremy James Cullen be removed from the roll of legal practitioners.
2. Jeremy James Cullen pay the costs of the Law Society of New South Wales of an incidental to these proceedings in such amount as is agreed or, failing agreement, to be determined by the Tribunal, for which purpose the matter will be relisted.
1 By an information filed on 22 September 1998, the Council of the Law Society of New South Wales (the Society) alleges that Jeremy James Cullen (the solicitor) while practising as a solicitor was guilty of two counts of unsatisfactory professional conduct together with some seventeen counts of professional misconduct. The Society moves for this Tribunal to order that the name of the solicitor be removed from the roll of legal practitioners together with consequential orders. 2 These proceedings came before the Tribunal for hearing on 29th September 199, on which occasion the Society was represented by Mr I.M. Wales S.C. and the solicitor by Ms R. Sofroniou of Counsel. The solicitor had caused to be filed on his behalf, and in purported compliance with the rules of the Tribunal, an affidavit sworn at London, United Kingdom, in which he gave his residential address as within Hampstead Garden Suburb, London. The solicitor did not attend the hearing before the Tribunal and, by agreement between Counsel, the Tribunal admitted the affidavit of the solicitor into evidence, its probative value being, in the circumstances, a matter of weight.
3 At the commencement of the hearing the Tribunal raised with Senior Counsel for the Society the fact that the affidavits filed on its behalf, and upon which reliance was seemingly to be placed, contained much material which travelled beyond the matters alleged in the information and of which particulars had been given in detailed form. It appeared that this was a matter which had not escaped the attention of Counsel for the solicitor, who expressed concern at the voluminous yet seemingly irrelevant material. Mr Wales S.C. immediately acknowledged the validity of the concerns expressed by the Tribunal and by Ms Sofroniou and declared himself as having no intention of travelling beyond the evidence to which he was about to take the Tribunal. Mr Wales S.C. had plainly anticipated the concerns just identified, prepared himself to meet them and, we should say did so with precision. In the event, with the express agreement of Mr Wales S.C. and Ms Sofroniou, the Tribunal was able to confine its consideration only to those portions of the material which were identified with precision and to which we were taken. The Tribunal considered that precise material and no other.
4 As it happened, at the conclusion of the presentation of the cases of the Society and of the solicitor, this Tribunal, after retiring briefly, concluded that the orders sought by the Society should be made, and that they ought not be postponed to the delivery of the Tribunal’s reasons.
5 Accordingly, on 29th September 1999, the Tribunal made the following orders and announcements, namely:
6 Our reasons for the making of the orders identified above are as we now set out.
1. We order that the name of Jeremy James Cullen be removed from the roll of legal practitioners.
2. We order that Jeremy James Cullen pay the costs of the Law Society of New South Wales and an incidental to these proceedings in such amount as is agreed or, failing agreement, to be determined by the Tribunal, for which purpose the matter will be relisted. We ask the parties to advise us within seven days in the event that a relisting is required.
3. We announce that we will publish our reasons for these orders as soon as reasonably practicable.
Unsatisfactory Professional Conduct
7 One Vera Fraser (Fraser) commenced proceedings (in 1987) against the body now known as the State Transit Authority in which she claimed damages for personal injuries which were occasioned to her following a fall on a government bus. The solicitor did not come to act for Fraser until April 1991, her case having been handled by some five firms of solicitors prior to that date. In any event, within about one year of having commenced to act for Fraser, the solicitor became aware of an attack upon the originating process was to be made by the defence. That attack ultimately proceeded to success on 27th April 1994. Fraser’s Statement of Claim was struck out. At no stage between the time when he became aware of the alleged defect in the pleading and the occasion of its despatch at the suit of the defendant, did the solicitor inform Fraser of the problem.
8 Further, the pleading having been struck out, at no time did the solicitor advise Fraser of her rights to seek leave to issue a fresh claim or, should she so desire, to proceed against her former solicitors for negligence in their advice to her and in the handling of her case. These allegations are undisputed.
9 The solicitor has however proffered via his affidavit, an explanation for his conduct and lack of action. In short, his explanation is that pressure of work in his criminal law practice drove him to simply off load this case (which he says he had been implored to look after by one of his clients who was at the time imprisoned) to a member of the Bar. The solicitor says that he did not appreciate the legal problem with the case which led to its being struck out. As he puts it: “ … there was no malice intended, it was simply a matter of neglect”.
10 The solicitor offers no explanation as to the second count set out above.
11 We find the allegations proved.
12 There are, however, more serious allegations to which we now turn.
Professional Misconduct
13 We shall take each of these allegations seriatim and as they were presented at the hearing.
Anderson
14 In or about July 1993, the solicitor retained the services of an expert in the field of questioned documents and handwriting (Anderson) and gave a letter of 26 July 1993 in which he expressly undertook to meet Anderson’s reasonable fees in relation to certain proceedings.
15 On 5th November 1993 Anderson rendered to the solicitor a note of his fees in the sum of $4,120.00. The solicitor failed and refused to pay the fees, despite the clear terms of his agreement with Anderson. In his affidavit, the solicitor deposes that he disputed the quantum of the fee. He adds his recollection that “the case did not proceed and his evidence was not required”. Quite how that event could have any relevance escapes us. He goes on to say that he was never able to come to an agreement with Anderson as to a “proper fee” and that the client had given him instructions not to pay the fee because the client also took the view that the fee was excessive.
16 The unchallenged evidence of the Society discloses a somewhat different picture – and one which if the facts sworn to by the solicitor were true, is hard to understand.
17 With his efforts to get the solicitor to honour his undertaking having been unsuccessful, Anderson instructed solicitors to sue the solicitor upon the agreement. Default judgment was entered and even though the Court, on application by the solicitor to be let in to defend, found no proper defence had been indicated and even though occasion was provided to the solicitor to be let in to defend the claim, he failed to provide a proper defence or even to attend the Court on the occasion appointed for the hearing of his motion. The Court set aside his motion and the entry of judgment against him concluded the matter.
18 No explanation of any credibility has been attempted by the solicitor before this Tribunal. Indeed, the form of the affidavit which the solicitor has sworn and tendered to us, effectively admits the retainer. Its breach is unexplained – at least in any satisfactory manner.
19 We find this allegation of professional misconduct proved.
Hayes-Costello
20 There are eleven separate counts or grounds of professional misconduct levelled against the solicitor in relation to the Hayes-Costello family matters.
21 The solicitor came to act for the executor of the estate of the late Carmel Beatrice Hayes-Costello, the deceased having died in November 1991 and probate having been granted on 2nd June 1992.
Ground No 1
Failure to advise his client, the executor, of the order of the Supreme Court of New South Wales that Estate Accounts be filed and passed.
22 The Supreme Court of New South Wales ordered that accounts of the estate be filed and passed. The Court issued a reminder notice to that effect on 3 June 1993 and on 5 July 1993 extended time for filing of those accounts. The solicitor failed to inform the executor of those orders. In his affidavit filed in these proceedings the solicitor acknowledges this position.
23 We find this allegation proved.
Ground No 2
“The solicitor wilfully breached section 41 of the Legal Practitioners Act 1898 in failing to invest moneys as directed in that on or about 20 September 19987 the solicitor advanced moneys in the sum of $150,000 on behalf of Carmel Beatrice Hayes-Costello to a corporation, Fairdon Pty Ltd (sic) in the following circumstances:
24 The evidence demonstrates that at the relevant time, Mrs C.B. Hayes-Costello was a client of the solicitor, as he admits. In or about August or September 1987, Mrs Hayes-Costello gave instructions to the solicitor to invest $150,000 on her behalf upon first mortgage security. An epitome of mortgage dated 20 September 1987 was given to Mrs Hayes-Costello purporting to show that the $150,000 had been advanced to Fairdon Corporation Pty Ltd upon security of property described as 33, 35 and 35(a) Sherbrook Road, Hornsby, New South Wales. However, there were just a few problems with this because:
(a) Fairdon was not incorporated at the time of paying the advance;
(b) Fairdon was not the registered proprietor of the purported security property at the time of paying the advance; and
(c) The mortgage was never registered on the title of the security property”.
25 As the solicitor at the time well knew, Fairdon Corporation Pty Ltd did not become incorporated until 24 December 1987 and was a development vehicle for interests associated with himself and one Eric Leeming. The solicitor says in his affidavit that no mortgage could be registered for Mrs Hayes-Costello because the title to the property was otherwise fully encumbered.
i. as at 20 September 1987 Fairdon Corporation Pty Ltd had not been incorporated;
ii. there was no mortgage to Mrs Hayes-Costello on any of the properties; and
iii. Fairdon Corporation Pty Ltd did not become the registered proprietor of the properties until 5 May 1989.
26 The solicitor says that despite the lack of security documentation, he paid Mrs Hayes-Costello monthly interest cheques, at a rate higher than market, and that Mrs Hayes-Costello had been fully informed of the position concerning Fairdon Corporation Pty Ltd. He says that after her death, he paid the interest cheques to Mrs Hayes-Costello’s son – Mr Hayes Daniel Justin Costello.
27 The matter is one of plain failure to comply with the client’s instructions. We are unimpressed by the solicitor’s claims in his affidavit that his client was “fully informed” about Fairdon Pty Limited. Why, one must ask, was it necessary for him to prepare or cause to be prepared and issued to his client an epitome of mortgage dated 20 September 1987 showing the mortgagor as Fairdon Corporation Pty Ltd and the security as the three properties earlier referred to, if he had fully explained to his client that no mortgage could be given? The document is plainly false and must have been so to the knowledge of the solicitor at the time it was issued.
28 We find this ground of professional misconduct proved.
Ground No 3
“The solicitor fraudulently altered copies of certificates of title folio identifiers 3/527717, 4/527717 and 2/512353 by adding the words ‘2 Mortgage Carmel Hayes-Costello’ in the second schedule, or, in the alternative, propounded the certificates of title, knowing that they had been fraudulently altered in the manner described and caused those certificates to be delivered to the client on whose behalf he had invested the money.”
29 The uncontested evidence is that the son of Mrs Carmel Beatrice Hayes-Costello provided to the Receiver of the property of the solicitor (Mr D.J.F. Lombe, Chartered Accountant) appointed pursuant to s.92 of the Legal Profession Act 1987, copies of the Certificates of Title to each of the properties referred to above. We have photocopies of these documents in evidence before us. As the Receiver in his affidavit points out, the photocopies reveal that the Certificates of Title of which they are copies have been altered by the addition of information which is plainly false. On each of the documents of which these are photocopies, there has been added to the Second Schedule a second item, being:
“2. MORTGAGE: CARMEL HAYES-COSTELLO”
30 There were no such mortgages. The type font used to create these entries is plainly different from that used on the balance of particulars in the documents. The Receiver in his affidavit suggested that the Certificates of Title had been “tampered with by the solicitor”.
31 Mr Wales S.C. invites the Tribunal’s attention to the fact that the type font used for the false entries is identical with that used by the solicitor in the documents which he prepared, for example, the Epitome of Mortgage a copy of which is at page 253 of the affidavit of the Receiver. Senior Counsel points out that there is no other person likely to have forged the Certificates of Title and that they clearly enough come from the records once retained by the deceased and ultimately after her death, from the possession of her son. In a letter sent by the solicitor to the son in November 1993 there is reference to inclusion therewith of an Epitome of Mortgage and while this Epitome was not able to be produced by the son to the Receiver, it is apparent that it was issued following a “top up” of one of the mortgages as part of the investment in Fairdon Corporation Pty Ltd and the rolling-over or extension of the mortgages from time to time. After the death of Mrs Carmel Beatrice Hayes-Costello, her son, Mr H.D.J Costello, was the sole beneficiary in the estate and subsequently became “mortgagee” in respect of the properties and their non-existent mortgages. It is plain enough that the solicitor in issuing the Epitomes of Mortgage must have known that they were false.
32 The allegation which the Society makes, namely that the solicitor fraudulently altered the Certificates of Title so as to make it appear that the mortgage to Mrs Hayes-Costello had been registered upon the title of each of the properties when he knew that such was not the case, is difficult to resist. And it is one which the solicitor in his affidavit does not traverse. Rather, he says that he did not intend to cheat the Hayes-Costello family and that it was his intention to repay the investment from the sale of the Hornsby property.
33 The solicitor has provided no evidence to contradict the specific allegations which the Society has made and to which its evidence is directed. Yet, the facts are peculiarly within his knowledge.
34 We are reminded of the judgment of members of the New South Wales Court of Appeal (Herron CJ, Sugerman and McLelland JJ.A) in Re Veron; Ex parte Law Society of New South Wales [1966] 84 W.N. (Part 1) NSW 136 at 141 to 142 where the following passages appear:
“As we have said, no affidavit as to the facts was filed by the respondent or on his behalf despite the fact that we repeatedly drew counsel’s attention to the omission. Eventually Mr Gruzman stated that he had with his junior considered the matter carefully with his client and had decided not to file any affidavit of the respondent. He also stated that his client would not offer to give oral evidence in the witness box. This course, we think, was irregular. The respondent is an officer of the court. The Full Court of the Supreme Court held in November 1965 that on the material presented to it by the Law Society a prima facie case of misconduct was made out and called upon the respondent to show cause why he should not be dealt with. The matter arises within the disciplinary jurisdiction of the Court and if the respondent after consideration declines to give his account on oath of the matters charged he cannot complain if the Court holds against him that the facts as deposed to by Mr Wilson and other witnesses are substantially true. From the earliest times, and as far back as the recollection of the individual judges of this Court goes, disciplinary proceedings in this jurisdiction in this State have always been conducted upon affidavit evidence and not otherwise. They are not conducted as if the Law Society (the successor to the Law Institute) was a prosecutor in a criminal cause or as if we were engaged upon a trial of civil issues at nisi prius. The jurisdiction is a special one and it is not open to the respondent when called upon to show cause, as an officer of the Court, to lie by and engage in a battle of tactics, as was the case here, and to endeavour to meet the charges by mere argument. We are well aware that if a solicitor is called upon to show cause he may do so in several ways. He may (a) argue that the material before the court discloses no evidence of misconduct; (b) argue that the facts adduced in evidence do not warrant a finding of misconduct; (c) meet the situation by a denial or explanation, in either case upon oath, of the truth or of the significance of the facts deposed to. It is the last alternative in the main with which the respondent was faced here. Yet, as we have said, no denial or explanation was forthcoming, the respondent having sought what refuge was available in argument from the Bar table. His counsel elected to cross-examine only nine of the twenty-five deponents.
35 We are satisfied that the Society has made good the allegations in Ground 3.
“In civil litigation the election of the defendant to call no evidence may have special significance, depending on the circumstances. That it may have significance is well established : May v. O’Sullivan (1). The silence of a party cannot fill the place of actual evidence on an issue but it may serve to resolve a doubt or ambiguity, especially where the facts as here are peculiarly within the knowledge of the silent party : Tozer Kemsley & Millbourne (A/Asia) Pty Ltd v Collier’s Interstate Transport Service Ltd. (2)”
Ground No 4
“The solicitor wilfully breached s.61 of the Legal Professional Act in banking a cheque drawn by Mr Costello in the sum of $15,000 on 16 June 1993 to his National Australia Bank general account.”
36 Following upon the death of Mrs Hayes-Costello, the sole beneficiary (Mr H.D.J Costello) gave instructions to the solicitor to add to the balance of funds in the estate (85,000) invested upon “mortgage security” an amount of $15,000. This was the “top up” referred to in relation to the allegations in Ground 3 above.
37 The solicitor, however, paid the $15,000 cheque into his general account and appears to have used the moneys for his own purposes. Senior Counsel for the Society candidly informs us that in truth the Society does not know what happened to the moneys which went into that general account. The solicitor’s response is to say that when he received the moneys he “simply put them into my office account because I took the view that Mr Costello was investing with me personally”.
38 A perusal of s.61 Legal Profession Act reveals that this response does not come to grips with the particularised allegation. Quite why the moneys were paid into the solicitor’s general account and not his trust account, absent any evidence of any instruction from his client to that effect, is just not explained.
39 We are satisfied that the Society has made good its allegation.
Ground No 5
“The solicitor wilfully breached Clause 27(2) of the Legal Profession Regulations 1987 in advancing moneys in the sum of $100,000 (comprising extensions of the balance of the advance originally given by Carmel Beatrice Hayes-Costello together with $15,000 paid by Hayes Daniel Justin Costello to the solicitor on 16 June 1993) to Fairdon Limited (sic) of which he was a director and shareholder.”
40 This allegation relies upon the facts mentioned with respect to Ground 4 together with some further material.
41 It is established by the historical company extract annexed to the Receiver’s affidavit (Annexure 19-2, 19-3) that the solicitor had been appointed a director of Fairdon Pty Ltd on 19 January 1990 and remained so at all relevant times thereafter and that he was also owner of half of the issued capital in that company.
42 The Society submits that we should infer that the solicitor did not make full disclosure of his or the company’s interest in the borrowings made from the deceased, and rolled-over by her son and beneficiary. Such a finding is said to be available by reason of inference from objective, unchallenged facts. In a letter which the solicitor wrote on 12 October 1992 to Mr Barry Hayes, the Executor of the Estate of Mrs Hayes-Costello, he discloses the “current situation with the mortgage” ie, a reference to the non-existent mortgage over the three properties referred to above to “secure” the borrowings by the solicitor’s investment vehicle, Fairdon Corporation Pty Ltd. The solicitor refers to Fairdon Corporation Pty Ltd as “he” rather than “my company” or “a company in which I am a director and own 50% of the equity”. Further the Receiver gives unchallenged evidence that in his investigation, he spoke with Mr Costello who said to him:
“The name of the mortgagor was Fairdon Corporation Pty Ltd, a company which I later discovered the solicitor was a director. I was not aware of the solicitor’s association with Fairdon Corporation at the time…”
43 The solicitor admits in his affidavit that he did not advise either Mrs Hayes-Costello or Mr H.D.J. Costello to obtain independent advice in relation to the transactions.
44 Clause 27(2) of the Legal Profession Act 1987 - Regulation contains the following presently relevant provisions:
“A solicitor shall not borrow any money, nor permit an associate of the solicitor to borrow any money, from a client of the solicitor –
45 It is patently obvious that Mr Costello was a client of the solicitor, that Fairdon Corporation Pty Limited was an associate of the solicitor which at all relevant times had proved a relevant borrowing and that none of the obligations imposed upon the solicitor by clause 27(2) were discharged.
(a) unless the solicitor’s client is a person, corporation, institution or authority of the kind described in the Table of this clause or is within any category of person which may be stipulated by the Council;
(b) unless the solicitor does not act for the client in relation to the borrowing transaction and the client is represented by another solicitor, unrelated to, and acting independently of any party to that transaction; or
(c) unless –
(i) the solicitor has made full disclosure of the interest in the proposed borrowing of the solicitor or any associate of the solicitor;
(ii) the client is given independent advice by a solicitor who is unrelated to and acts independently of any party to the borrowing transaction, prior to the payment of any part of the proposed loan, as to the terms of the borrowing transaction, the nature of the transaction and the type and value of the security, if any, and;
(iii) the solicitor giving the advice, at the same time, or as soon as practicable thereafter, completes and signs a certificate of independent advice in Form 2 and delivers that certificate to the solicitor seeking the loan, who shall retain in.
46 We find the allegations proved.
Ground No 6
“The solicitor preferred the interest of himself and his client and business associate, Mr Eric Leeming, (both being directors and shareholders of Fairdon Corporation Pty Ltd) to that of Mrs Hayes-Costello and later Mr Costello.”
47 The Society relies upon the material facts proven in relation to Ground No 2 above, in relation to the instructions given to the solicitor by Mrs Hayes-Costello with respect to the investment of the sum of $150,000.
48 The Society asks us to draw the inference and find, that the solicitor did not make a full disclosure of his interest or that of Fairdon Corporation Pty Ltd in the proposed borrowing. Further, the Society asks that we find that Mrs Hayes-Costello was given no independent advice by a solicitor unrelated to and independent of any party to the transaction and that no certificate of independent advice was completed and delivered to the solicitor.
49 The solicitor for his part admits each of the latter two aspects but attempts to meet the allegation of failure to make full disclosure by saying that:
“I suggested to her that if she invested in the company that I was involved in with Eric Leeming, she would receive monthly interest cheques and the rate would be higher than the market.”
50 Even this response by the solicitor hardly goes far enough. It is not possible for this Tribunal to discern precisely what the solicitor says he told the deceased. Yet even if he said no more than he presently suggests, it hardly satisfies his obligation. In view of this limited answer and the failures which are admitted, we are satisfied that the solicitor did prefer his own interests and those of his business associate to those of Mrs Hayes Costello.
51 On the same reasoning in light of our conclusion on Ground No 5, we are satisfied that the solicitor likewise preferred his own interests over those of his client, Mr H.D.J. Costello.
Ground No 7
“By a letter dated 12.10.92 the solicitor gave advice to his client, Mr Costello, to commit a fraud on the revenue.”
52 Once again, we visit the letter of 12 October 1992 written by the solicitor to the Executor of the Estate of the late Mrs Hayes-Costello.
53 This time we are invited to focus upon advice given in that letter to his immediate client, Mr Barry Hayes in respect of investments in the Estate and in respect of the position which the beneficiary (Mr H.D.J. Costello) should adopt in respect of the incidence of taxation upon the payments of interest which he was to receive. The solicitor said:
“So far the client has been able to maintain the monthly payments without any difficulties and he is happy to proceed to arrange it so there is no tax payable …… I have told my client that under no circumstances will we be disclosing that the repayments have been made in cash. He is agreeable to and will honour this commitment …”
54 In the above quote, “the client” and “my client” and “he” is Fairdon Corporation Pty Ltd – the company jointly owned by the solicitor and his entrepreneur colleague, Mr Leeming.
55 There seems little doubt that the intended beneficiary of the advice contained in the letter is Mr H.D.J. Costello. The whole structure of the document is to discuss what is best for Mr Costello – the beneficiary in the Estate of which Mr Hayes is the Executor.
56 No directly responsive answer is given by the solicitor. The best he manages is to assert that he “has no present recollection of writing to Mr Barry Hayes on 12 October 1992 in relation to interest not being taxable”.
57 We are satisfied that the allegation is made out.
Ground No 8
“With respect to the proceeds of sale of property at Lot 19, The Esplanade, Coomera, Queensland, the solicitor misled the beneficiary of the estate in a memorandum dated 3 August 1993 and a letter dated 5 October 1993, by indicating that the sale of the property had not settled when the sale had settled on 7 April 1993.”
58 An asset in the Estate of Mrs Hayes-Costello was Lot 19 The Esplanade, Coomera in Queensland which the evidence demonstrates was sold and the transaction settled on or about 7 April 1993. The sale price was $63,000 which, after payment of adjusting items, became a nett figure of $61,764.66. The solicitor represented to Mr H.D.J. Costello in early August 1993 that by that date the sale had not settled. By a letter of 5 October 1993 the solicitor represented that the sale still had not settled.
59 The solicitor knew that each of these statements was false. He admits as much by swearing to the statement that:
“This was done to gain time.”
60 The allegation is proved.
Ground No 9
“The solicitor wilfully breached Section 61 of the Legal Profession Act 1987 in
The Evidence
(a) delaying accounting for the proceeds of the sale of property at Lot 19, The Esplanade, Coomera, Queensland to the beneficiary;
(b) failing to account for the sum of $1,764.66 being proceeds of sale of property at Lot 19, The Esplanade, Coomera, Queensland recent on or about 8 April 1993;
(c) failing to account for the sum of $44,000 (also being proceeds of sale) paid to Eric Leeming by cheque drawn on 13 April 1993 endorsed to Leeming without instructions;
(d) failing to account for a further sum of $17,500.00 paid without instructions to Eric Leeming on 7 May 1993;
(e) paying to the solicitor’s general account on 12 December 1993 a cheque dated 9 November 1993 in the sum of $45,000 received on behalf of Mr Hayes Costello; and
(f) failing to invest the sum of $100,000 on security of a mortgage as instructed.”
61 The allegations in (a) are proven by the matters referred to in relation to Ground No 8 together with the evidence that it was not until 6 December 1993 that the solicitor provided any accounting to Mr Costello in respect of the proceeds of sale.
62 The solicitor offers nothing further in his defence. The allegation is made good.
63 The allegations in (b) are made good when it is realised that in the memorandum to Mr Costello of 6 December 1993 in which be purported to account for a transaction which had in fact settled in April of that same year, he accounted for only $60,000 of the proceeds of sale – saying nothing of the remaining $1,764.66.
64 No defence is even remotely suggested. We find the allegations proved.
65 The allegations in (c) again stem from the sale of the property at Coomera. This time the solicitor simply drew a trust account cheque for $44,000 which was met from the proceeds of the sale and although the cheque was payable to the Estate of the late Mrs Hayes-Costello, he simply endorsed the cheque without instructions or any authority to his business associate and fellow co-owner of Fairdon Corporation Pty Ltd, Mr Eric Leeming.
66 The solicitor offers no explanation or justification – no doubt for the good reason that there is not an acceptable one.
67 We find the allegations proved.
68 The allegations in (d) again suggest that the solicitor dipped into other people’s money and paid it out to his business associate. In particular, this time we are satisfied that on or about 7 May 1993 he drew a cheque on his trust account for $17,500, such sum to be met from the balance of sale proceeds of the Coomera property. Without instructions or authority he made this trust account cheque payable to Mr Leeming.
69 Whilst the solicitor makes a general statement that “the payment of $17,500 was under the direction of Mr Costello jnr” we are not persuaded that we should accept this assertion and we do not. The Receiver gives evidence in his affidavit of Mr Costello’s denial of the propriety of this payment. That evidence, as with other relevant evidence of the Receiver is not objected to and we accept it.
70 As to the allegation in (e), the evidence demonstrates that on 9 November 1993 Mr H.D.T. Costello drew a cheque for $45,000 in favour of the solicitor for the purpose of topping up a “mortgage” to $100,000. Indeed it seems clear enough that the solicitor was instructed to invest the money on the security of first mortgage. The cheque was deposited into the solicitor’s general account at the ANZ Bank on 12 November 1993 without any instructions to do other than pay the cheque into his trust account.
71 The solicitor does not traverse this allegation in any relevant way.
72 We are satisfied that it is made out.
73 The allegations in (f) are simply a repetition of the obvious and are in any event admitted.
74 We find the allegations proved.
Ground No 10
“The solicitor breached Clause 27(2) of the Legal Profession Regulations 1987 in accepting instructions from Mr Hayes Costello to invest the sum of $45,000 on a mortgage to Fairdon Corporation Pty Ltd.”
75 It is plain that in relation to this transaction, earlier referred to, Mr Costello was a client of the solicitor within the meaning of Clause 27(2) of the Regulations. Equally, given the solicitor’s involvement in Fairdon Corporation Pty Ltd as a director and shareholder, it is plain that the company was an associate of the solicitor within the meaning of the Regulations.
76 We are asked to infer, and we do so that the solicitor did not make full disclosure of his interest or that of Fairdon Corporation Pty Ltd in the proposed borrowings.
77 The solicitor does not dispute that Mr Costello was given no independent advice by a solicitor unrelated to and independent from any party to the transaction. Nor does the solicitor dispute that no certificate of independent advice was completed and delivered to the solicitor.
78 Again we are satisfied that the allegation is made good.
Ground No 11
“The solicitor wilfully breached Section 61 of the Legal Profession Act by
79 The evidence shows that as Mr Costello was the sole beneficiary of his mother’s estate, be became entitled to property being 67 Wharf Road, Gladesville. He instructed the solicitor to act for him upon the sale of that property. Exchange of contracts occurred on 20 December 1993 and the purchaser’s cheque dated 8 December 1993 for the deposit of $42,500 was banked by the solicitor to the credit of his general account on 24 December 1993.
(a) paying the deposit of $42,000.00 paid by the purchaser on exchange on 20 December 1993 to the solicitor’s ANZ general account on 24 December 1993; and
(b) paying the sum of $2,500.00 to his general account on 24 December 1993; and
(c) failing to invest the moneys as directed in relation to the $100,000 advanced to Leeming on 23 February 1994.”
80 There is no evidence of any authority or instruction for those moneys to be deposited to other than the solicitor’s trust account.
81 Similarly, the cheque for $2,500 drawn by Mr Costello was deposited to the credit of the solicitor’s general account – not his trust account.
82 There is no basis upon which such cheque could have been so deposited.
83 The solicitor plainly enough failed to invest any of the moneys so deposited to his general account upon first mortgage. Rather, despite instructions from his client to invest the sum of $100,000 on first mortgage, the solicitor paid moneys to Mr Leeming at least in the amount of $55,000 from the solicitor’s trust account but no such mortgage was ever obtained. Indeed, the Epitomes of Mortgage dated 7 August 1995 and 4 December 1995 arising from this transaction show that the transaction was first made on 7 August 1995 and rolled-over on 4 December 1995 until 1 April 1996. Yet no mortgages were ever obtained, despite the moneys having been paid out to Mr Leeming.
84 Again, there is no substantive defence.
85 We find the allegations proved.
Dwyer
“The solicitor breached Clause 27(2) of the Legal Profession Regulations on or about 27 October 1992 in permitting an associate Fairdon Corporation Pty Ltd to borrow money in the sum of $100,000 from a client (within the meaning of Clause 27) Delphine Dwyer, without the solicitor making full disclosure of his association with Fairdon Corporation Pty Ltd and without obtaining a certificate of independent advice.”
86 The evidence demonstrates that Ms Dwyer was indeed a client of the solicitor – the solicitor does not contend to the contrary. The solicitor advised Ms Dwyer of an investment opportunity with Fairdon Corporation Pty Ltd and that she should invest moneys from the estate of her late husband in the company. Ms Dwyer made a loan to Fairdon Corporation Pty Ltd in the sum of $100,000 but no documents evidencing the existence of any security for this investment was ever produced. No security was put in place.
87 The Receiver’s evidence is that one of his associates (Mr McLeod) was told by Ms Dwyer that she was not told at the time of the solicitor’s involvement in Fairdon Corporation Pty Ltd nor of that of Mr Eric Leeming. That evidence is not objected to.
88 While the solicitor in his affidavit asserts that Ms Dwyer was “fully aware of the relationship between myself, Eric Leeming and Fairdon Pty Ltd”, he does not say how this was so. We are not satisfied that Ms Dwyer was so aware.
89 Further, we note that the solicitor admits that no independent advice was given by a solicitor unrelated to and independent of any party to the transaction and that no certificate of independent advice was completed and delivered to the solicitor.
90 We are satisfied that the Society’s allegations are correct.
Warnock
“The solicitor wilfully breached Section 41 of the Legal Practitioners Act 1898 in failing to invest moneys in a mortgage as directed and showed reckless disregard for the client’s interests in failing to obtain proper security for the advance.”
91 In or about December 1983, the solicitor came to act for Mr and Mrs K. Warnock as clients on the sale of their home unit at Rockdale New South Wales. In about March or April 1984 the Warnocks instructed the solicitor to invest some $60,000 from the proceeds of sale of the home unit upon first mortgage security. Each of Mr and Mrs Warnock have given Statutory Declarations to the Receiver in which they say quite clearly that the investment was to be made on security of a first mortgage yet they were never shown any document evidence such as security nor, indeed, were they ever shown any loan contract. They say that they were advised by the solicitor that the money was to be lent to a client company of his, Resmona Pty Ltd.
92 The solicitor swears that Mr and Mrs Warnock “and another employee of my father-in-law, Mr Sermon, decided to invest money in the business … by putting the money into Resmona Pty Ltd”. He then says “I facilitated that transaction”.
93 Plainly, the clients say that they were advised by the solicitor to put the money into Resmona Pty Ltd. It is also clear that no security was given for the transaction contrary to instructions. The solicitor does not deal with that aspect.
94 We are satisfied that the allegation made by the Society is proved.
Other Trust Account Matters
“In relation to ANZ Bank Account No 199592372 maintained as a trust account by the solicitor, the solicitor wilfully breached sections 61 and 2 of the Act.”
95 The Society formally alleges that in respect of this trust account which was maintained by the solicitor from 21 January 1994 to 21 July 1994 at the Burwood New South Wales Branch of the ANZ Bank, there were maintained “no records, ledgers, cash books or receipt books in respect of the account”. Mr Wales S.C. concedes that the allegation is not accurate, for the actual position appears from the evidence of the Receiver, namely that:
“… The Trust records maintained for this Trust account included a Collins journal cashbook for receipts and payments for the months of January 1994 to April 1994. No cash book exists for the months of May, June and July 1994 nor did the solicitor maintain a client Trust ledger card system.”
96 However, that state of affairs demonstrates a relevant failure to comply with the obligations created by sections 61 and sections 62 of the Legal Profession Act 1987 in that although trust moneys were paid into the Trust Account No 199592372 the necessary accounting records required by the Act and the Regulations were not kept. The receipt of moneys in the course of practice as a solicitor where those moneys are on behalf of another person triggers the obligations in section 61. The provisions relevantly are:
s.61 “(1) If a solicitor, in the course of practising as a solicitor, receives money on behalf of another person, the solicitor shall:
(a) hold the money exclusively for the other person; and
(b) ensure that subsection (2) and the Regulations are complied with in relation to the money.
(2) Money received on behalf of another person by a solicitor, in the course of practising as a solicitor
(a) shall, except where the person on whose behalf the money is received otherwise directs, be paid, within the prescribed time, to the credit of a general trust account at a bank in New South Wales and be held in accordance with such regulations as may be in force in relation to trust money;
………”
97 The relevant provisions of section 62 are:“(1) A solicitor shall keep:
(a) in the case of trust money (within the meaning of section 61) accounting records, or
(2) The accounting records referred to in sub-section (1) shall be kept in a manner that enables them to be conveniently and properly audited.
(b) … … …(3) Without limiting the generality of sub-section (2) the accounting records referred to in sub-section (1) shall, if the Regulations so require, be kept in such a manner as the Regulations prescribe.”
98 The relevant provisions relied upon by the Society appear to be that found in the Legal Profession Regulation 1994, and in particular Clause 3 which required that:“(1) A solicitor must keep a record of daily receipt and payment transactions.
(2) The records must be in the nature of a cashbook the pages of which are consecutively numbered and on the respective pages of which are shown the consecutive numbers of receipts issued or cancelled or cheques drawn or cancelled or in the case of money received or disbursed by means of electronic funds transfer, the reference number or other means of electronic funds transfer the reference number of other means of identification of the transfer.
(3) The solicitor must:
99 The Receiver gives the unchallenged evidence that the solicitor has failed relevantly to prepare a cashbook for his ANZ Trust Bank Account No 199592372 for the period May 1994 to July 1994. The Review appears to believe that such facts constitute a breach of the 1994 Regulations. However, those Regulations did not come into force until 1 July 1994 and thus in so far as that conduct is concerned, would only apply to so much of it as occurred after 1 July 1994, ie until the closure of the account on 21 July 1994. We have no doubt however that even for that period, the conduct is in breach of the Regulations. That is enough. Whether or not such conduct would have breached the provisions of the Trust Account Regulations in force prior to the 1994 Regulations coming into effect, we were not invited to consider and we do not do so.
(a) in respect of receipt of money – enter in the cashbook the particulars required by Clause 34(2) to be entered in a receipt for the money together … … …
(b) in respect of a payment of money enter in the cashbook the particulars required by Clause 35(2) to be recorded … …”
100 In his Affidavit, the solicitor does not effectively traverse these allegations. Rather he says in part that there were “only one or two transactions and no more than about 6 or 8 payments through his trust account. Money was disbursed in accordance with directions received from the client”.
101 We find the allegations in relation to the failure to keep the cashbook proved.
102 We note the allegation of the Society that the solicitor “failed to maintain a client trust ledger card system”. However there is no direct evidence before us from the Receiver on this precise question – but rather on a different question, namely, failure to provide a ledger trial balance for the ANZ Bank Trust Account for the period May 1994 to July 1994. It is not clear to us that the failure to keep the card system as opposed to another system of ledger records is a separate default.
103 In the circumstances, we are not prepared to accept any specific default in relation to the ledger card system.
Misleading the Law Society
“In his application for his 1994-1995 practising certificate, the solicitor endeavoured to mislead or did mislead, the Society by declaring that he had not received, held or disbursed trust or controlled money when, to the knowledge of the solicitor, the declaration was false.”
104 In his “Application for Renewal of a Practising Certificate 1994/95”, the solicitor made the following declaration:
“I have not since my last application for a practising certificate received, held or disbursed trust money or controlled money within the meaning of Section 61(8) of the Legal Profession Act 1987 on behalf of any other person.”
105 In his Affidavit tendered in the proceedings Mr Frederick John Smith, solicitor, who was appointed by the Society to investigate the affairs of the solicitor, says that the declaration was signed by the solicitor and dated 16 June 1994. He goes on to say:
106 The solicitor offers no explanation to us. We agree with the opinion expressed by Mr Smith and are prepared to accept that the reasonable inference is that the solicitor was intending to deceive the Law Society.
“Mr Cullen operated the ANZ Trust Account throughout this period and that Declaration is false.
… … …
“In the course of my investigation I spoke to the solicitor about the Declaration on the application for Practising Certificate and he drew my attention to the fact that the Declaration was executed in London and apparently faxed on the 17th June 1994 (well out of time) from London … … …
“The solicitor indicated to me that he had forgotten about the existence of the ANZ Trust Account as the Trust Account had not been used by him for a considerable amount of time. The Declaration is dated 16th June 1994, and statements were still received by the solicitor in relation to the ANZ Trust Account until late July 1994 when the account was closed.
“Further, the solicitor received correspondence dated 13th May 1994, noting that the Trust Account had been in debit since 24th February 1994. … … … Subsequent to this letter a small deposit placed the account back into a $11.04 credit as at the start of July 1994.
“As reported above, only two transactions took place in the ANZ Trust Account and the solicitor indicated that all activity in the account had finished by approximately April or May 1994. The solicitor further indicated that he had gone overseas on or about the 15th May 1994 where he was heavily tied up in a United Kingdom matter involving Peter Foster, this resulted in a considerable amount of pressure on him, which led to the false declaration.
“It is difficult to accept the solicitor’s explanation in relation to the declaration having regard to the continual activity, though small, on the account and the bank correspondence with him.”
107 We find the allegation proved.
Peter Kent Searle
“The solicitor failed to comply with an undertaking to pay Counsel’s fees to Mr Searle in relation to the matters of Cullen v Royal Bank of Melbourne and Federal Commissioner of Taxation v Poletti.
108 Mr Searle, of Counsel, had been retained by the solicitor to act in the proceedings mentioned and in that connection forwarded fee notes to the solicitor in about mid-1994, for the sum of $8.600.
109 On or about 6 November 1995 solicitors acting for Mr Searle sent a letter of demand to the solicitor and to the solicitor (Mr Pollock) who was apparently (so says the solicitor in his affidavit) to “sort out” the matter with Mr Searle. In this letter, Mr Searle’s solicitors also drew attention to the fact that they were on notice that the Commissioner of Taxation was intending to proceed against the solicitor on 10 November 1995 and they duly informed the solicitor that their client would be appearing as a supporting creditor.
110 This seemingly stung the solicitor into action and on 9 November 1995 he undertook in writing to Mr Searle to pay his fees in three instalments.
111 The solicitor failed to pay Mr Searle any of the moneys.
112 The solicitor, in his Affidavit, says that when he gave the undertaking he was in London and
“had been arrested by the Fraud Squad. I was reporting to the police twice a day and was not coping well with the stress of my circumstances. A solicitor that I knew, Mr Phillip Pollock, said to me that I should simply sign the undertaking and he would sort out Mr Searle”.
113 The solicitor in effect admits his failure to pay fees in breach of his undertaking to counsel.
114 We are unimpressed with his response.
115 We find the allegation proved.
Conclusion
116 We find the Society’s case for the removal of the solicitor’s name from the roll of legal practitioners to be a strong one. Indeed it is overwhelming.
117 The evidence reveals a tragic story of neglect of professional responsibility, deception of and disregard for clients and their rights and a lamentable approach to responsibility in the conduct of practice as a solicitor.
118 In all, the evidence demonstrates in a clear and palpable fashion conduct in a solicitor which simply cannot be excused let alone tolerated.
119 Counsel for the solicitor very properly conceded that on the evidence the outcome was in effect inevitable and that the orders sought by the Society would be made. Especially, so said Counsel, was this so in light of the failure of the solicitor to traverse so many of the grounds of complaint. That said, Ms Sofroniou sought to put the solicitor’s conduct in a light which might, so it was submitted on one view, lead us to take a less critical view of his failures especially because his conduct was not directed to the public at large but rather was confined to persons known to him through associations. We cannot do that. We are satisfied that his conduct was reprehensible and that it demonstrates his unfitness to remain on the roll of legal practitioners. We have made the Orders accordingly.
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