Law Society of New South Wales v Davidson
[2007] NSWADT 264
•16 November 2007
CITATION: Law Society of New South Wales v Davidson [2007] NSWADT 264 DIVISION: Legal Services Division PARTIES: APPLICANT
Law Society of New South Wales
RESPONDENT
Mark Ronald Frank DavidsonFILE NUMBER: 052030 HEARING DATES: 24 March 2006
9 August 2006
16 November 2006SUBMISSIONS CLOSED: 16 November 2006
DATE OF DECISION:
16 November 2007BEFORE: Karpin A - ADCJ (Deputy President); Currie JS - Judicial Member; Bubniuk L - Non Judicial Member CATCHWORDS: Solicitor – Disciplinary application MATTER FOR DECISION: Principal matter LEGISLATION CITED: Legal Profession Act 1987 CASES CITED: Murray v. Legal Services Commissioner 1999 NSWCA 70
Briginshaw v. Briginshaw (1938) 60 CLR 336
Re Robb & Anor (1996) 134 FLR 294
Johns v. The Law Society of New South Wales [1982] 2 NSWLR 1REPRESENTATION: P Boyd, solicitor
G Walsh, solicitorORDERS: 1. The solicitor is publicly reprimanded ; 2. The solicitor is fined $5,000.00 on each matter of breach of s. 61 LPA; 3. The total fine of $20,000 to be paid by 4 installments each of $5,000, the first not later than 31 January 2008; the second not later than 31 March 2008; the third not later than 31 May 2008; and the fourth not later than 31 July 2008; 4. The solicitor to pay the costs of the Law Society of and incidental to these proceedings, within 6 months of those costs being agreed or assessed; 5. The solicitor’s Trust and Office accounts are to be subject to inspection by an accountant nominated or approved by the Law Society, to ensure that moneys received by the solicitor are dealt with in accordance with the provisions of the Legal Practitioners Act 2004. Such inspections to be carried out as at 30 June 2008; 31 December 2008 and 30 June 2009; 6. Following each such inspection, the accountant is to submit a report to the Law Society of New South Wales. Those reports to be delivered not later than: 31 August 2008; 28 February 2009; 31 August 2009. The costs of such inspections and reports to be paid by the solicitor within 28 days of receiving a Tax Invoice in respect of those services; 7. If the solicitor fails to comply with orders iii, iv, and vi above, his practicing certificate will be immediately suspended until the order is complied with.
REASONS FOR DECISION
1 By information filed on 28 September 2005, the applicant, sought orders that the legal practitioner’s name be removed from the Roll and that he be ordered to pay the applicant’s costs.
2 The information alleged wilful breaches of s. 61 Legal Profession Act 1987 (LPA), and unethical conduct constituted by failure to pay third parties within a reasonable time.
3 Particulars of the alleged breaches of s. 61 :
4 Further particulars in relation to the s. 61 breaches allege that:
A.
B.
(i) On 2 June 2003 the solicitor forwarded to The Mitchell Group (“the client”) a Tax Invoice comprised of:
Costs $13,816.00 Disbursements $32,699.63 GST $4,651.57 $51,167.20 The disbursements were comprised of:
Professional fees – Winnacott $18,927.00 Consultation fees $6,437.50 Counsels fees –Louise Byrne $8,800.00 ii) On 12 June 2003 the client instructed the solicitor in the following terms:
“I refer to your Invoice for May in the sum of $51,167.20. Please find attached a cheque for $22,000 for placement in your trust account…
Would you please pay Mr. Winnacott’s first Invoice of $8,352 (including GST) Louise Byrne’s Invoice of $8,800 (including GST) and the remainder being $4,848 to your company”
iii) On 16 June 2003 the solicitor deposited the cheque for $22,000 to his Trust Account.
iv) On 19 June 2003 the solicitor transferred from his Trust Account to his Office Account the sum of $22,000.
v) On 28 August 2003 the client paid the balance of the 2 June 2003 Tax Invoice ($29,167.20) together with a prior outstanding sum of $2,569.70. The total amount of $31,826.90 was deposited to the solicitor’s Office Account.
vi) On 12 September 2003 the solicitor drew a cheque in favour of Louise Byrne in the sum of $9,075.00 comprised of the amount due in the Tax Invoice with an additional outstanding sum of $275.00.
vii) On the same date the solicitor drew a cheque in the sum of $18,927.00 in favour of Winnacott. That cheque was not forwarded until 2 October 2003, and was presented to the solicitor’s Office Account on 7 October 2003.
viii) On the 12 September 2003 a cheque in favour of Hirst Consulting Services was drawn in the sum of $6,437.50. That cheque was not forwarded until after 9 October 2003.
C.
ix) On 6 January 2003 the solicitor forwarded a Tax Invoice to the client in the sum of $9,320.96 comprised of:
Costs $2,478.00 Disbursements $5,995.60 GST $847.36 $9,320.96 The Invoice showed that Counsels fees due to Tim Robertson SC in the sum of $6,380.00 were included in the disbursements.
x) On 17 February 2003 the client paid to the solicitor the sum of $10,702.30 comprised of payment for the above Tax Invoice together with another in the sum of $1,381.30. These funds were paid into the solicitor’s Office Account.
xi) On 2 May 2003, the solicitor drew a cheque in the sum of $6,380.00 in favour of Tim Robertson SC.
D.
xii) The solicitor’s Debtor’s Ledger shows that on 11 November 2002
D&D Advertising (“client 2”) paid $1,148.00 to the solicitor that he deposited to his Office Account.
xiii) On 1 December 2002, the solicitor rendered an “amended” Tax Invoice to Client 2 comprised of:
Disbursements $5,014.92 GST $377.02 $5,391.94 Counsels fees due to Mr. R.J.Powell in the sum of $3,657.50 were included in the disbursements claimed.
xiv) On 23 December 2002 Client 2 paid the solicitor $14,000 which he deposited into his Office Account on that day, and issued a receipt, No 1893 allocating the monies to various outstanding Invoices, excluding the 1 December Invoice.
xv) On 23 December 2002 a further receipt was issued allocating the same sum of $14,000 to various of Client 2’s outstanding Invoices. Included in those allocations was the sum of $4,243.94 in respect of the 1 December 2002 Invoice, being the total due less the sum of $1,148.00 received from Client 2 on 11 November 2002.
xvi) On 18 February 2003, the solicitor drew a cheque in favour of Mr. Powell in the sum of $3,657.50.
xvii) Mr. Powell presented that cheque on 10 March 2003. It was dishonoured.
xviii) On 26 March 2003 the solicitor drew a further cheque in the same sum in favour of Mr. Powell. That cheque was met upon presentation.
xix) On 21 November 2002, the solicitor received a bank cheque in the sum of $200,000.00 that he deposited to his Trust Account in the ledger designated “Donald v. Adcorp” (“Donald matter”). This was a matter conducted on behalf of Client 2.
xx) On 22 November 2002 the solicitor transferred the sum of $10,000 from his Trust Account to his Office Account, being the balance he then held in his Trust Account in the Donald matter ledger. On that day receipt no. 1852 issued allocating the payment to various outstanding accounts.
xxi) On 22 November 2002 a further receipt was issued, that shows the payment of $10,000 allocated to the Donald matter only, as payment of “costs and disbursements” As at that date, no Tax Invoice had been rendered to Client 2 in respect of the Donald matter.
xxii) On 1 December 2002 the solicitor rendered a Tax Invoice to Client 2 in the Donald matter:
Costs $11,462.50 Disbursements $3,537.25 GST $1,499.99 $16,499.74
Included in the disbursements were counsels fees due to Mr. Christopher Hodgekiss in the sum of $3,240.40.
xxiii) On 28 April 2003 the solicitor drew a cheque in the sum of $3,240.40 in favour of Mr. Hodgekiss which he forwarded to counsel.
5 The particulars of the allegation of unethical conduct, arise from allegations of failure to pay third parties within a reasonable time are:
i) In each case payments to the solicitor constituted moneys coming under the direct control of the solicitor.
ii) Those moneys were received by the solicitor pursuant to s. 60(4)(a) of the Legal Profession Act 1987 (NSW). (LPA).
iii) The moneys were received by the solicitor on behalf of another person pursuant to s. 61 LPA.
iv) The solicitor failed to disburse the moneys in accordance with the directions of the person on whose behalf the money was held.
v) The solicitor has contravened s. 61(2) LPA and has engaged in professional misconduct.
vi) In the alternative, the applicant pleads its case: “... payment to the solicitor in each of the 4 matters of complaint was money received by the solicitor on behalf of counsel and other third parties. The solicitor by causing the money to be distributed in the manner and amounts particularised, failed to deal with the money in accordance with the provisions of s. 61(1) LPA.
vii) The solicitor has contravened s. 61(2) LPA and has engaged in professional misconduct.
viii) Further, and in the alternative, the solicitor has engaged in professional misconduct.
6 In response to the application the solicitor filed an extensive amended reply on 24 March 2006, the first day of hearing before the Tribunal. The solicitor made a number of admissions in relation to matters of fact. Dealing with each of the grounds of complaint:
i) Re Tax Invoice rendered 2 June 2003:
ii) Re Tax Invoice 6 January 2003:
- Payment to Louise Byrne of Counsel on 30 September 2003 following receipt of payment on 16 June 2003.
- Payment to Lawrence Winnacott on 2 October 2003 following receipt of payment on 16 June 2003.
- Payment to Hirst Consulting on or about 9 October 2003, following receipt of payment on 28 August 2003.
iii) Re Tax Invoice 1 December 2002:
- Payment to Tim Robertson SC on 2 May 2003 following receipt of payment on 17 February 2003.
iv) Re Tax Invoice 1 December 2002:
- Payment of counsel’s fees to RJ Powell on 26 March 2003 following receipt of payment on 23 December 2002.
v) Re Tax Invoice 2 June 2003:
- Payment of counsel’s fees to Christopher Hodgekiss on 28 April 2003 following receipt of payment on 22 November 2002.
- Payment to Tim Robertson SC on 24 December 2003 following payment on 8 August 2003.
7 Section 61 LPA provides:
i) A. The solicitor admits he breached s. 61 LPA but denies that he did so wilfully.
ii) B. The solicitor denies that he breached s 61 LPA.
iii) C. The solicitor denies that he breached s. 61 LPA
iv) D. The solicitor denies that he breached s 61 LPA
v) The solicitor denies that he is guilty of unethical conduct in late payment of third party fees.
8 Section 60(4) (a) of the Legal Profession Act 1987 provides:
Money received by solicitor on behalf of another
(1) A solicitor who, in the course of practising as a solicitor in this State, receives money on behalf of another person:
(2) 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.
(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:
(c) if the person on whose behalf 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.
(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
(3) This section: …
(8) It is professional misconduct for a solicitor to wilfully contravene subsection (1) or (2).
(b) does not prevent a solicitor from withdrawing or receiving, from trust money or controlled money:
so long as the procedure prescribed by the regulations is followed, …
(i) reimbursement for disbursements paid by the solicitor, or
(ii) money for disbursements to be paid by the solicitor, or
(iii) money due, or to accrue due, to the solicitor for costs,
9 Regulation 78 of Legal Profession Regulations 2002 provided:
(4) A reference in this Division to money received by a solicitor includes a reference to:
(a) money coming under the direct control of the solicitor, whether or not by the exercise of an express power or authority or by operation of law,
(b) money paid to an associate of the solicitor on the advice of the solicitor, but only if the money is under the direct or indirect control of the solicitor, and
(c) money in relation to which the solicitor (whether or not through an associate) has a power of disposal exercisable jointly and severally with the person on whose behalf it was received or a nominee of the person.
10 The hearing took place over three days as a consequence of the complexity of the dealings with the matters the subject of complaint. Unfortunately those days were widely separated as the difficulty of the matter had not been appreciated when it was set down for hearing. Following the hearing on 24 March, the matter was again before the Tribunal on 9 August 2006, and 16 November 2006.
78 Receipt and withdrawal of money for costs and disbursements
(1) For the purposes of section 61(3)(b) of the Act, the prescribed procedure to be followed by a solicitor for withdrawing or receiving, from trust money or controlled money:
is the procedure set out in this clause.
(a) reimbursement for disbursements paid by the solicitor, or
(b) money for disbursements to be paid by the solicitor, or
(c) money due, or to accrue due, to the solicitor for costs,
(2) A solicitor who has disclosed information about the costs of legal services in accordance with section 175 of the Act to a person from whom the solicitor has received trust money or controlled money, or who can reasonably claim, in terms of section 180 of the Act, that the disclosure was not required because, in the circumstances, it was not reasonably practicable, may withdraw or receive, from that money, money for a purpose referred to in subclause (1) if any of the following circumstances apply:
(3) In any case other than a case referred to in subclause (2), a solicitor must not withdraw or receive, from trust money or controlled money, money for a purpose referred to in subclause (1) unless a determination of the solicitor’s costs has been made under Part 11, a certificate setting out the determination has been served on the person and all appeal and review rights in relation to the determination have been exhausted or can no longer be exercised.
(a) the solicitor has delivered to the person a bill of costs in accordance with Part 11 of the Act and the person has authorised the withdrawal or receipt,
(b) the solicitor has delivered to the person a bill of costs in accordance with Part 11 of the Act, together with written notice that, unless the person objects, the solicitor intends to withdraw the money and to apply it towards payment of the bill at the expiration of 30 days after the delivery, and that period has expired without an objection being made to the solicitor,
(c) an objection has been made in the circumstances referred to in paragraph (b), neither the person nor the solicitor has referred the bill of costs for assessment within the time limited by section 192 (1) or 201 (2) of the Act and at least 30 days have passed since the objection was made to the solicitor,
(d) a determination of the solicitor’s costs has been made under Part 11, a certificate setting out the determination has been served on the person and all review and appeal rights in relation to the determination have been exhausted or can no longer be exercised.
11 The applicant relied upon the evidence of a Trust Account Inspector, Roger Chapman; and the affidavit of Raymond John Collins, solicitor for the Council of the Law Society of New South Wales.
12 Initially the respondent solicitor filed an affidavit sworn by himself together with character evidence from several deponents. Subsequently, as it became increasingly obvious that the complexities of the solicitor’s dealings with the subject moneys was proving incomprehensible, the solicitor filed an affidavit on 3 October 2006 from a chartered accountant and qualified solicitor, Graeme Gilmore.
13 Mr. Chapman, the solicitor and Mr. Gilmore gave evidence over the course of the hearing.
14 The investigation into these matters was initiated by a complaint from Ms. Louise Byrne of counsel to the Legal Services Commissioner, concerning the solicitor’s failure to pay fees due to her. Ms. Byrne wrote directly to the client on 8 August 2003 seeking an explanation for non-payment of her fees. In response the client sent her a copy of his letter of instructions and cheque sent to the solicitor, both dated 12 June 2003. Ms. Byrne contacted the solicitor’s employed solicitor on 23 August 2003 seeking payment of her fees. When her fees remained unpaid, Ms. Byrne complained to the Legal Service Commissioner (the Commissioner) by letter dated 19 September 2003.
15 By letter dated 26 September 2003, the Commissioner referred the complaint to the Law Society for investigation.
16 On 1 October 2003 Mr Chapman attended the solicitor’s office premises at North Sydney. The solicitor was overseas, nonetheless, Mr Chapman was able to commence his investigation. He attended the office again on 13 October 2003 at which time the solicitor was present. Mr. Chapman’s report under s. 55 LPA is dated 25 November 2003.
17 It is not in dispute that contrary to the usual practise of the Law Society, the solicitor was not given an opportunity to respond to the material contained in the section 55 Report prepared by Mr. Chapman, prior to that report being submitted to the Society. It is unfortunate that normal procedure was not followed, and the Tribunal commends it as an appropriate step in the investigative procedure that should be observed as a matter of procedural fairness.
18 That practice was approved in Murray v. Legal Services Commissioner 1999 NSWCA 70, Sheller JA with whom Stein JA agreed , dealing with an investigation by the Commissioner said:
19 In this instance, however, the Tribunal is of the view that it would have made no difference to the outcome. The explanation that the solicitor proffered in evidence was of such a confused and confusing nature, that it seems unlikely to have altered the course of events had the same explanation been given to Mr. Chapman in response to the material in his draft report. It was only after 2 days of evidence that the solicitor finally took steps to obtain the assistance of Mr. Gilmore to aid the Tribunal in unravelling what had occurred in the subject transactions.
“….proper performance of the duty and proper exercise of the powers conferred…by Section 155 require that before the Commissioner completes the investigation into the complaint against the legal practitioner and decides how…the complaint is to be dealt with the legal practitioner be given an opportunity to see a copy of the complaint and to answer it…”
20 At the close of the solicitor’s cross examination on the first day of hearing, the Tribunal expressed the view that the evidence as it stood, did not permit the Tribunal to understand the relevant transactions. The Tribunal suggested that in order to follow the paper trail and to understand the case being put by the solicitor, it was essential that a chronological schedule of transactions, appropriately cross-referenced, be prepared prior to any re-examination of the solicitor. The matter was stood over to 9 August 2006 to permit such a document to be prepared and served on the applicant.
21 Unfortunately, when the matter resumed before the Tribunal on 9 August, the document that had been prepared together with the further examination of the solicitor, caused the Tribunal to complain that it was “…one of the more nightmarish pieces of bookkeeping…seen.” As a result, the Tribunal was still unable to follow the explanations given by the solicitor.
22 Following further discussions about what was required, the matter was stood over to 16 November 2006 to permit the solicitor to provide comprehensible material to substantiate the explanations he had proffered in evidence.
23 When the matter resumed in November 2006, the solicitor called as a witness, Graeme John Gilmore a chartered accountant and solicitor. He is well acquainted with the accounting system used by the solicitor in his practice. In preparing his report, Mr. Gilmore was given access to all the solicitor’s accounting records and the software used in the solicitor’s practice.
24 Mr. Gilmore annexed to his affidavit, a document headed “Transaction Listings” sorted in order of Process Number. The latter is an embedded number automatically generated by the software program that cannot be entered, edited or altered by the user of the program. Mr. Gilmore was able to use the Process Numbers as an audit trail to check the completeness of ledgers and to verify the chronological sequence of entries into the system. The Process Number does not appear on transactions as they are entered.
25 Using this method, Mr. Gilmore analysed the “timelines” of the relevant transactions and was able to confirm that the details of the transactions were accurately recorded. He cross-checked those details with the bank statements to verify the accuracy of the timelines.
26 Relying on the chronologies Mr. Gilmore was able to confirm through this method, and by cross-checking receipts for unrelated matters, that the reallocation of Receipt No 1852 [dated 22 November 2002 in the sum of $10,000], occurred on 4 December 2002; and the reallocation of Receipt No 1893 [dated 23 December 2002 in the sum of $14,000] occurred on 10 January 2003.
27 From the evidence of Mr. Gilmore, the Tribunal is satisfied that the following occurred:
28 Thus, finally, after 3 days of hearing, and with the assistance of considerable expertise in the form of Mr. Gilmore, who, it became clear from his evidence, had spent a great deal of time unravelling the situation, the Tribunal was able to be satisfied that the allocation of 2 receipts in each of these matters, was not evidence of dishonest dealing with the moneys, but rather, of an incompetent mode of bookkeeping.
i) 22 November 2002 a Trust Account cheque in the sum of $10,000 was deposited to the Office Account under Receipt No. 1852. Those funds were allocated to six matters including an amount of $963.13 to Donald v. Adcorp.
ii) Invoices for the end of November 2002 were prepared including Inv.No.5794 in the matter of Donald v. Adcorp for $16,499.74. Those invoices are dated 1 December 2002 but sent on or after 2 December (the following Monday).
iii) 4 December 2002, $9,068.00 was banked to the Office Account allocated to 5 matters.
iv) 4 December 2002, Receipt No. 1852 reversed at the request of the client. Although dated as occurring on 1 December this transaction occurred on 4 December 2002.
v) Receipt No.1866 issued applying the whole amount of $10,000 [originally receipt no. 1852] to Donald v. Adcorp.
vi) 23 December 2002, $14,000 banked to the Office Account [Receipt No.1893].
vii) 10 January 2003 Receipt No. 1893 reversed at the request of the client. Transaction dated 23 December 2002 .
viii) 10 January 2003 Receipt No. 1903 issued for $14,000 showing that sum allocated to 5 matters.
29 After considering all the evidence from Mr. Gilmore, the Tribunal concurs with his summation that: “ To the extent that there are inconsistencies between the Chronologies and Timelines [put into evidence by the solicitor] and the information contained in Mr. Chapman’s Report, Mr. Chapman’s Report is in error…”
30 In the opinion of the Tribunal, however, the prima facie view arrived at by Mr. Chapman, was consistent with the material he was able to access. The evidence to establish minor error in aspects of his report was only the result of painstaking work carried out by Mr. Gilmore. That was not a course available to Mr. Chapman, nor, clearly, is it one he should have been called upon to undertake in order to understand the complexities of the solicitor’s mode of bookkeeping.
31 The Tribunal makes no criticism of Mr. Chapman. To the extent that he was mislead by the documentation available to him that is entirely understandable. The Tribunal had great difficulty unravelling the material, and was only able to understand what had occurred after hearing evidence from Mr. Gilmore.
32 In the course of his investigation, Mr. Chapman was advised by the solicitor’s bookkeeper that there was an overdraft limit on the Office Account of $70,000. The solicitor maintained in evidence that he had an “informal” agreement with the bank to allow an overdraft limit of $80,000. There was no formal application to increase his overdraft from $70,000 to $80,000, nor was there any written approval. He says that he was told: “You can go to $80,000”.
33 A number of bank statements are annexed to Mr. Chapman’s report. It is obvious from a perusal of those statements that the solicitor was regularly charged a “payment honour fee”(PHF) of $38.00 when payment of a cheque took the debit balance in his Office Account over $70,000. For example only: a cheque in the sum of $5,936.70 was honoured on 7 August 2003. A PHF was debited to the account on the following day; on 11 August 2003 a payment in the same amount again took the debit balance over $70,000. A PHF was debited on the following day; on 22 November 2003 a PHF was charged when a cheque in the sum of $5,000 was honoured taking the debit balance in the account to $71,206.62; on 27 March 2003 a cheque in the sum of $3,172.77 was paid taking the debit balance to $72,480.22. On the following day a PHF was debited to the account. In the statement for the period 3-15 January 2003, there is no occasion when the debit balance reaches $80,000. There are, however, five PHF charges in relation to various cheques paid by the bank taking the debit balance to a figure in excess of $70,000.
34 The Tribunal is satisfied that the available bank statements clearly disclose that when the debit balance exceeded $70,000, but did not exceed $80,000, and cheques were honoured, a PHF of $38.00 was charged by the bank on numerous, although not all such transactions. That is quite inconsistent with the solicitor’s evidence that his arrangement with the bank provided him with an overdraft limit of $80,000. The Tribunal is satisfied that the information originally given to Mr. Chapman by the office bookkeeper, to the effect that there was a $70,000 overdraft limit, was an accurate reflection of the situation. The Tribunal rejects the solicitor’s evidence to the contrary, and finds that at all relevant times the approved overdraft limit on the solicitor’s Office Account was $70,000.
35 In relation to the first complaint, [Ground A], the solicitor admits that he breached the provisions of s. 61 LPA but denies that such breach was wilful. In his amended reply, the solicitor says that he received instructions to act for the client in a Land and Environment Court application. Mr. T. Robertson SC and Ms. Louise Byrne of counsel were retained in the matter.
36 The solicitor rendered a Tax Invoice to the client on 2 June 2003, in the sum of $53,826.00. On 12 June 2003 the client forwarded him a cheque in the sum of $22,000 made payable to the solicitor’s Trust Account under cover of a letter, the relevant part of which provided:
37 The letter is unequivocal in its terms. It directs that the cheque be paid into the solicitor’s Trust Account and that outstanding disbursements be paid, including Louise Byrne’s Invoice of $8,800, and $8,352 due to Mr. Winnacott. A balance of $4,848 was to be paid to the solicitor. That cheque was paid into the solicitor’s Trust Account.
“I refer to your Invoice for May in the sum of $51,167.20. Please find attached a cheque for $22,000 for placement in your trust account…
Would you please pay Mr. Winnacott’s first Invoice of $8,352 (including GST) Louise Byrne’s Invoice of $8,800 (including GST) and the remainder being $4,848 to your company.”
38 The solicitor admits that on 19 June 2003 he transferred the full amount from his Trust Account to his Office Account. He further admits that he delayed paying disbursements contrary to his client’s instructions.
39 The solicitor was entitled to transfer the sum of $4,848 on account of his costs in accordance with the instructions he had received from the client. In also transferring the fees due to Ms Byrne and to Mr. Winnacott, the solicitor was in clear breach of his fiduciary duty to deal with those funds in accordance with his instructions, and in breach of s. 61 LPA. As a result, he had in his Office Account $17,152 to which he had no entitlement. In so doing he mixed trust moneys with his own funds.
40 The solicitor admits that in transferring the whole amount into his Office Account he breached s.61 LPA in that he was not acting in accordance with the express instructions received from his client. He denies, however, that his breach was wilful.
41 It is submitted on behalf of the solicitor that at the time of this transaction, he held an honest belief that having rendered a Tax Invoice to the client that included the subject disbursements, he was entitled to place the moneys into his Office Account and to pay the disbursements from that account within a “reasonable” time which in his opinion was 14 days.
42 It was argued that a Tax Invoice, including disbursements, having been issued, the solicitor, being liable to pay those disbursements, receives payment on his own behalf and not as trust moneys pursuant to s.61. Further it was argued that the solicitor held a belief that he had no obligation to pay the disbursements as directed until such time as the totality of his Tax Invoice in this matter had been paid.
43 The solicitor says in relation to the Tax Invoice rendered 2 June 2003 in the sum of $51,167.20, that when the cheque for $22,000 was received from the client together with a letter of instructions directing him to place the money in his Trust Account and to pay disbursements as instructed, it also advised “A cheque for the remaining sum of $29,167.20 will soon be forwarded.”
44 The solicitor concedes that contrary to his client’s instructions, the $22,000 was transferred from his Trust account to his Office Account on 19 June 2003, and that payment of disbursements was not attended to until September and October of that year, after the balance of the Tax Invoice had been received from the client on 28 August 2003.
45 In explanation the solicitor says that he believed the $22,000 should have been paid into his Office Account upon receipt. The cheque was payable to his Trust Account. In those circumstances, he says, he should have contacted the client and made arrangements for a cheque payable to his Office Account. He did not, however, provide a satisfactory explanation as to his failure to pay the disbursements as directed within a reasonable time after receipt of the money, either from the Trust Account in accordance with his client’s unequivocal instructions, or from the Office Account.
46 In answer to questions put in cross-examination the solicitor conceded that he had acted contrary to his client’s instructions contained in the letter dated 12 June 2003. As at 24 March 2007 [the date he was giving evidence] the solicitor said he had come so realise “…maybe a year ago after talking to many practitioners…” that he should have dealt with the $22,000 in accordance with his client’s instructions.
47 The Tribunal is concerned that the solicitor did not appreciate at the time of these transactions that he had an obligation to deal with the sum of $22,000 in accordance with his client’s instructions. The Tribunal does not accept that he was entitled to await payment of the balance of the Tax Invoice before attending to payment of the disbursements whether he retained them in his Trust Account in accordance with his statutory obligations, or, if contrary to those obligations and his client’s instructions, he transferred the moneys to his Office Account.
48 The solicitor appears to be have been under the illusion that by transferring the moneys from his Trust Account to his Office Account, he thereby changed the nature of those moneys and evaded his obligation to deal with trust moneys in accordance with his statutory obligations, and in compliance with his client’s instructions.
49 The solicitor submits that whilst he concedes that he breached the provisions of s. 61 LPA, the Tribunal should find that it was not a wilful breach as he held a belief that where he had rendered a Tax Invoice to the client, payment received was properly payable to his Office Account, on the basis that as a matter of contract he had an obligation to pay the disbursements.
50 Mr. Walsh, appearing for the solicitor, points to a line of cases that establish that a solicitor is only entitled to draw payment for costs from Trust moneys, after a Tax Invoice has been rendered, or with the express or implied authority of the client. That, however, is not authority for the proposition that once a Tax Invoice has been rendered by the solicitor that includes unpaid disbursements, such as counsel’s fees, the solicitor is entitled to treat those money as his own and pay them into his Office Account.
51 The Tribunal does not accept the propositions put by the solicitor, nor that had he turned his mind to the relevant law, he could reasonably have held the belief he asserts.
52 In paragraph 46 of his affidavit the solicitor says: “…In early August 2003, I was contacted by [the client] who requested that I pay the entire amount owing to Mr. Winnacott in the sum of $18,927.00. I told [him] that I had been awaiting the balance of the Tax Invoice for two months and I would pay Mr. Winnacott as soon as the final payment was received.”
53 On 28 August the client paid the balance of the 2 June 2003 Tax Invoice in the sum of $29,167.20 together with an amount of $2,569.70 outstanding from a previous Tax Invoice. The total sum of $31,836.90 was deposited to the solicitor’s Office Account.
54 The position was then that as at 28 August the solicitor had paid into his Office Account the whole amount comprised in the Memorandum of Fees submitted to the client on 2 June 2003.
55 Having transferred the $22,000 to his Office Account on 19 June 2003, no cheques were drawn in payment of the outstanding disbursements until September 2003. At the time the $22,000 was transferred to the solicitor’s Office Account, the debit balance exceeded the approved overdraft limit of $70,000.
56 On 12 September 2003, the solicitor drew a cheque in favour of Louise Byrne in the sum of $9,075.00; a cheque in favour of Lawrence Winnacott in the sum of $18,927.00, that was sent to Mr. Winnacott on 2 October 2003; and a cheque in favour of Hirst Consulting that was sent after 9 October 2003.
57 The date upon which Ms Byrne’s fees were forwarded to her is not disclosed. It may, however, be inferred, that she had not received them by 19 September 2003, the day upon which she wrote a letter of complaint to the Commissioner. Mr. Chapman was informed by the bookkeeper that the cheque drawn on 12 September was “later sent” to Ms. Byrne.
58 The solicitor chose to ignore his client’s instructions. The Tribunal does not accept that the solicitor reasonably believed that he was entitled to deal with the funds in the manner in which he did. Nor that he held an honest belief that he was entitled so to do. He transferred the funds into his Office Account and there they remained for some considerable time, thus reducing his indebtedness to the bank over that period.
59 The Tribunal is not persuaded by the evidence of the solicitor to the effect that he believed he was entitled to deal with the funds paid into his Trust Account by transferring them to his Office Account and delaying payment of disbursements in breach of instructions from his client, until such time as the entire Tax Invoice had been paid.
60 The Tribunal, in determining whether or not the solicitor’s conduct was wilful is mindful of the principle that in order to so find, the Tribunal must be comfortably satisfied that in the acts or omissions the subject of complaint, the solicitor was conscious that he was committing a breach of his duty or was recklessly careless as to whether or not he was breaching his duty.
61 Some reliance is sought to be placed on the decisions in Law Society of New South Wales v. Hill [2002] NSWADT 190 and Law Society of New South Wales v. Lukas [2004] NSWADT 231 on the issue of wilfulness.
62 In Lukas the Tribunal held that there was “…no evidence …that the solicitor’s conduct amounts to a substantial and consistent failure to reach reasonable standards of competence and diligence in the practice of law” The facts in that case do not require to be set out. Suffice to say they are not comparable with the facts in this matter.
63 In Hill the Tribunal referred to the decision of Hardie J. in Re Hodgekiss 1962 62 SR NSW 340 at 353:
64 Sections 41 and 42 are the precursors to ss. 61 and 62 in the LPA 1987.
I am of the 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 enquiry as to whether there have been wilful breaches by a solicitor of the provisions of ss.41 and 42 to examine the facts and circumstances relevant to his state of mind, knowledge and intention at the material dates.
65 The Tribunal is satisfied that no solicitor with any knowledge of the relevant provisions of the LPA, or an understanding of his fiduciary duty could reasonably hold the views expressed by the solicitor as to his right to deal with the moneys in the manner he did. Especially is that so given the unequivocal instructions received from his client.
66 In the circumstances of this allegation the Tribunal is satisfied that the solicitor made a deliberate decision to transfer the funds into his Office Account in breach of his client’s instructions.
67 The Tribunal is satisfied to the requisite standard [Briginishaw] that on the first ground there has been a clear breach of s. 61 (1), and that such breach was wilful.
68 The second complaint [Ground B], relates to a Tax Invoice in the sum of $9,320.96 rendered to the client on 6 January 2003. The solicitor’s costs were $2725.80. Apart from some very minor disbursements, the principal disbursement was $6,380 counsels fees due to Mr T. Robertson SC. The invoice was paid on 17 February 2003 together with another invoice. A total of $10,702.96 was paid into the solicitor’s Office Account. The greater portion of that payment comprised fees due to counsel.
69 It is argued by the applicant that this cheque should have been paid into the solicitor’s Trust Account, pursuant to the provisions of s. 61(1)(a) LPA and distributed from that account in accordance with the rendered Tax Invoice. The applicant submits that in placing the money into his Office Account, the solicitor wilfully breached s. 61(1) LPA in that the sum of $6,380.00 was held on behalf of the client for payment out to counsel and should have been paid into the Trust Account.
70 The solicitor admits that on 17 February 2003 he received payment of the 6 January invoice in full, including the sum of $6,380, and admits that cheque was paid into his Office Account. He admits that counsel’s fees due to Mr Robertson SC were not paid until 2 May 2003.
71 The solicitor denies that he breached s. 61 LPA either wilfully or at all. He denies that moneys received in payment of the Tax Invoice were paid. "on behalf of another person." within the meaning of s. 61(1) LPA. He says that he was entitled to pay the moneys into his Office Account as moneys paid by a debtor client and received by the solicitor as creditor.
72 The solicitor argued that having rendered a Tax Invoice, including disbursements, he was entitled to bank payment received from the client into his Office Account, and “...then disbursements are paid within a reasonable time from the office account where the liability for them has been incurred.”
73 It was submitted on behalf of the solicitor that upon rendering the Tax Invoices to the client, the solicitor became indebted in contractual terms to the barrister, and was liable to be sued by the barrister for unpaid counsel’s fees.
74 Reliance for this proposition was placed upon the changes effected by the Legal Profession Act 1994, pursuant to which barristers became entitled to take action for recovery of their outstanding fees, ending the traditional Common Law position.
75 Further it was submitted that the provisions of s. 61(3) (a) – (f) LPA qualify the general duty to hold trust money exclusively for the person on whose behalf it is received.
76 Contrary to the argument mounted on behalf of the solicitor it appears to the Tribunal that s. 61(3) contemplates that where money received from a client is comprised of a mixture of costs due to the solicitor and unpaid disbursements, those funds should be paid into the Trust Account and dealt with in accordance with the provisions of s. 61 LPA. The amount attributable to counsel’s fees is money received on behalf of the client and should be paid into the solicitor’s Trust Account for payment out to counsel in accordance with the terms upon which it was paid by the client.
77 The arguments mounted on behalf of the solicitor in reliance on the decision in Robb and the provisions of s. 61(3)(b), (c) & (d), overlook the fact that in Robb, Jenkinson J, speaking of the decision of the Supreme Court holding that only “the clear instruction of the client” could authorise withdrawal of money from the Trust Account for costs and disbursements, said:
78 Similarly, s. 61(3) contemplates the withdrawal of funds from the Trust Account for reimbursement of disbursements paid by the solicitor or to be paid by the solicitor. Neither contemplate the payment into a solicitor’s Office Account of a payment of a Tax Invoice substantially comprised of counsel’s fees.
…is in my opinion not correct in respect of money gained by the exertions of the firm on the client’s behalf and paid into the trust bank account. Out of monies so gained, the firm may take out of the trust bank account so much as equals the costs (including disbursements) incurred in gaining the money…
79 This second complaint again demonstrates the evil associated with paying such moneys into the Office Account. Despite being put in funds to pay counsel’s fees on 17 February 2003, no cheque was drawn in payment of those fees for approximately 11 weeks, during which time the solicitor reduced his indebtedness to the bank through the presence of those funds, and for that period mixed trust moneys with his own funds.
80 The solicitor was reluctant to concede the obvious proposition that delay in paying disbursements after being put in funds by the client, when those funds had been deposited to his Office Account, had a beneficial effect on his overdraft situation.
81 It is self-evident that failing to pay disbursements in those circumstances, would reduce the overdraft and, in some circumstances, would ensure that the debit in the account did not exceed the overdraft limit, thus avoiding the possibility of cheques being dishonoured, alternatively, of those cheques attracting a “cheque payment honour” bank fee upon being honoured.
82 Even were the Tribunal persuaded by the argument mounted by the solicitor, which it is not, that lapse of time cannot, on any argument, be regarded as “reasonable”. On his own evidence, the solicitor regarded a period of 2 weeks between being put in funds and paying the disbursements, as a “reasonable” period. The Tribunal does not accept that a delay of 2 weeks or at all, is reasonable. The obligation of the solicitor was to pay the money into his Trust Account in compliance with the provisions of s. 61 LPA.
83 The Tribunal does not accept that the mere fact that the day to day carriage of the matter was in the hands of an employed solicitor, relieved the respondent solicitor of his obligation to deal with moneys paid to his firm in accordance with the general law and the provisions of the relevant legislation.
84 The obligation of the solicitor is to have office procedures that ensure compliance with the legislation relating to trust funds received by a solicitor.
85 The Tribunal is satisfied that in paying the money into his Office Account, in accordance with a deliberate policy decision pursued by the solicitor, he wilfully breached the provisions of s. 61 LPA.
86 The solicitor is guilty of professional misconduct in respect of this complaint.
87 In relation to the third complaint [Ground C], the solicitor admits that on 11 November 2002 he received an amount of $1,148.00 from his client D & D Advertising in respect of payment of an outstanding disbursement. On 1 December 2002 he forwarded to the client a Tax Invoice in the sum of $5,391.94, that included a disbursement in the sum of $3,657.50 for counsel’s fees payable to Mr R. J. Powell, barrister.
88 The solicitor admits that on 23 December 2002 he received a cheque from the client in the sum of $14,000 that was paid into his Office Account. He avers that this cheque represented payment for outstanding invoices rendered to the client.
89 The solicitor admits that he drew a cheque on his Office Account in payment of Mr. Powell’s fees on 18 February 2003 which when presented on 10 March 2003 was not honoured. He says, however, that when he drew the cheque there were sufficient funds in the account to meet the cheque upon presentation. On 4 March 2003 he drew a cheque in favour of the Australian Taxation Office in the sum of $28,578.00 that caused the account to exceed the overdraft limit, which, he says, was $80,000.00.
90 As previously noted the Tribunal is satisfied that at all relevant times the approved limit was $70,000.
91 The solicitor denies that the admitted facts of Ground C. establish that he breached s. 61 LPA either wilfully or at all.
92 The evidence of Mr. Gilmore, which the Tribunal accepts, provides an explanation for the apparent double attribution of $14,000 received by the solicitor and paid into his Office Account on 23 December 2002. It also provides a timeline that was not available to Mr. Chapman at the time of his investigations.
93 The initial receipt [No.1893] allocated the $14,000 to 5 matters. There is no evidence that the solicitor was not entitled to pay that cheque into his Office Account. Whilst the solicitor’s records show that the reversal of that receipt and the reallocation of the entire sum of $14,000 occurred on 23 December 2002, the timeline established by Mr. Gilmore’s evidence proves that the reallocation actually occurred on 10 January 2003 [Receipt No.1903].
94 The reallocation of the $14,000 included allocation of $4,243.94 being balance of the 1 December invoice. Consequently, counsel’s fees due to Mr. R. J. Powell became due for payment by the solicitor on 10 January 2003.
95 The Tribunal accepts that given the circumstances in which the solicitor received the payment of $14,000, the applicant has not proved that sum should have been paid into the Trust Account when it was received on 23 December 2002.
96 The Tribunal is satisfied that as at the date of re-allocation, the solicitor had complied with his obligations pursuant to regulation 78. Further, that the moneys having previously been paid into his Office Account in circumstances that did not constitute a breach of s. 61 LPA, the solicitor, as at 10 January 2003, was not immediately in breach of s. 61(1)(a). Arguably, at that point, he held the moneys pursuant to the provisions of s. 61(3)(b). Thereafter, however, every day of delay in paying counsel, was a day in which the solicitor was in beach of his fiduciary duty to the client.
97 The solicitor became liable to pay Mr. Powell, as at 10 January 2003, at which time he held in his Office Account $3,657.50 trust funds with which he was bound to deal in accordance with the provisions of the LPA. That duty required him to do one of two things: either immediately draw a cheque in favour of Mr.Powell and forward the fees to Mr.Powell; in the alternative, if for some reason he wished to delay payment of counsel’s fees, he should have paid those trust moneys into his Trust Account pending payment out to counsel. He did neither.
98 A cheque was drawn on 18 February 2003, well outside the solicitor’s own estimation of “reasonable” delay in meeting such obligations. That cheque was dishonoured and a replacement cheque not paid until 26 March 2003.
99 Thus for approximately 11 weeks the solicitor mingled trust moneys with his own moneys, and enjoyed the benefit of trust funds standing to his credit in his Office Account.
100 The Tribunal does not accept that the solicitor was entitled to delay payment of counsel’s fees for a “reasonable” period. At the time of the re-allocation the client’s cheque had cleared. The sum of $3, 657.50 due to Mr. Powell, as at that date, became trust moneys with which the solicitor was obliged to deal in accordance with his fiduciary duty.
101 The explanation proffered by the solicitor as to the effect of the Christmas holiday period and the fact that other cheques were drawn and presented, thus leaving the account with insufficient funds to meet the cheque when presented, is not a satisfactory explanation. In the opinion of the Tribunal, monthly bank reconciliations would readily have disclosed the outstanding cheque and funds should have been retained to meet it upon presentation. That procedure is a normal and minimal requirement of standard bookkeeping.
102 The solicitor appears not to have appreciated the conflict of interest arising in circumstances where his financial position was such that upon trust moneys being disbursed from his Office Account, the cheque was not met upon presentation.
103 The Tribunal is satisfied that as at 10 January 2003, the solicitor was in breach of s. 61 LPA, and that such breach was wilful, in the sense that he behaved with reckless disregard for his statutory and fiduciary obligations as a legal practitioner, and that in mixing Trust moneys with his own in his Office Account he was pursuing a policy that was contrary to his obligations.
104 The solicitor is guilty of professional misconduct in respect of this complaint.
105 In relation to the complaint Ground D., the solicitor admits that on 22 November 2002 he received a cheque in the sum of $200,000 which he deposited into his Trust account in the ledger styled “Donald v. Adcorp”. He says, however, that the moneys should have been credited to the ledger styled “Donald v. Boyle”.
106 He says further that he had previously rendered a number of Tax Invoices to the client, and that on 22 November 2002 he transferred $10,000 from his Trust Account to his Office Account in accordance with his client’s instructions and in order to reduce the client’s indebtedness to him. He says that no part of the $10,000 transferred related to the Donald v. Adcorp matter. Receipt No. 1852 issued, allocating that payment to various outstanding tax invoices.
107 On 1 December 2002 the solicitor issued a Tax Invoice, bearing Reference No. 020595 in the matter of Donald v. Adcorp in the sum of $16,499.73, including counsel’s fees in the sum of $3,240.40 due to Mr. Hodgekiss. The relevant invoice, No 5794 is annexed to Mr. Chapman’s affidavit. Under the heading “Disbursements” the following appears: “(‘*’ indicates a disbursement paid as your agent)”. The only disbursement marked with an asterisk, are the fees due to Mr. Hodgekiss. Those fees had not been paid by the solicitor.
108 On 4 December at the request of the client, the original invoice of 22 November, 2002 [No.1852] was reversed. A fresh invoice issued [No.1866] applying the whole sum of $10,000 to the Donald v. Adcorp matter. The receipt which is dated 22 November 2002, but which the evidence of Mr. Gilmore establishes should bear date 4 December 2002, bears Reference No. 020595.
109 Thus as at 4 December 2002 the Tax Invoice rendered on 1 December 2002 in the sum of $16,499.73 had been paid to the extent of $10,000, leaving an unpaid balance of $6,499.73.
110 The solicitor admits the matters set out in Para.3 D xxii to xxiii above. He says that the invoice rendered on 1 December 2002 was paid by instalments over a number of months. Following receipt of the last such payment, in March 2003, counsel’s fees due to Mr. Hodgekiss were paid on 28 April 2003.
111 The applicant submits that as at 4 December the solicitor had been put in funds in the Donald v. Adcorp matter and should have paid counsel’s fees. Those fees were not paid until 28 April 2003, almost 5 months after the reallocation of the $10,000.
112 The solicitor’s explanation was to the effect that the delay in paying disbursements, particularly counsel’s fees was occasioned by his “policy” requiring that a Tax Invoice should be paid in full before he attended to payment of disbursements. The solicitor accepted that he was liable for the disbursements whether or not he received them from the client. Ultimately he agreed that the delay in paying disbursements should not have occurred.
113 The solicitor’s affidavit evidence is that sometime in December 2002 he was informed by his bookkeeper that the client was seeking a re-allocation of the whole $10,000 payment to the Donald v. Adcorp matter. The solicitor says he advised the bookkeeper this could not be done because “…the money had come from trust and he wanted to reallocate it to an invoice that didn’t exist when the money was paid into our office account.”
114 The Statutory Declaration of the bookkeeper, Julius Obungen dated 26 November 2004, says in part:
115 The reallocation resulted in a further receipt No. 1866 being issued. In cross-examination the solicitor conceded that this had occurred with his knowledge. Further, that on the state of the records, he was unable to say when the reallocation had occurred except by reference to the fact that the funds were reallocated to an invoice issued on 1 December 2002, accordingly it must have occurred after that date.
“2. On about 4 December 002 I was contacted by…and requested to reallocate a payment received from the client on 22 November 2002 in the sum o $10,000-00. I processed the reallocation as requested and noted this on the original receipt for the payment…”
116 When the solicitor sought to explain this transaction in evidence, by reference to the Debtors Ledger Cards, the difficulties accumulated. A debit balance of $7,462.87 in the Donald v. Adcorp matter, should have been $17,462.87. The solicitor said:
117 The solicitor says that he received written instructions from the client to allocate $10,000 to various outstanding tax invoices. Annexed to Mr. Collins’ affidavit is an undated, unsigned handwritten note on plain paper, allocating the sum of $200,000, including an amount of $10,000 allocated to the solicitor. There is no indication in that note of the matters to which the $10,000 was allocated.
“I say the $10,000 credit should not appear on this ledger at all. It’s clearly an error.
118 The Tribunal is not satisfied that at the time the solicitor transferred the sum of $10,000 from the Trust Account to his Office Account, on 22 November 2002, he was in breach of his obligations under the LPA. The 1 December Tax Invoice comprised costs due to the solicitor in excess of $10,000. He had no instructions from his client to attend to payment of counsel’s fees from that sum.
119 The balance of the Donald v. Adcorp Tax Invoice rendered on 1 December 2002 was paid as follows: $6,037.27 on 23 December 2002; $3,375.00 on 27 February 2003; and $3,000.00 on 25 March 2003.
120 The Tribunal is satisfied that following payment on 27 February 2003, and payment of the balance of the account on 25 March 2003, the solicitor was in breach of s. 61 LPA as he held in his Office Account the whole or part of trust moneys in the sum of $3,240.40 that should have been paid out to counsel or into the solicitor’s Trust Account. He remained in breach of his statutory obligations until Mr. Hodgekiss’ fees were paid on 28 April 2003.
121 The Tribunal has determined that although there was a breach of the LPA in relation to this transaction, the Tribunal cannot be satisfied to the requisite standard, that given the circumstances of this breach that the solicitor was knowingly in breach in February, but is satisfied that following payment of the final instalment in March 2003, he wilfully breached the LPA.
122 The solicitor is guilty of professional misconduct in relation to this fourth ground of complaint.
123 The second complaint against the solicitor is one of unethical conduct relating to the failure to pay third parties within a reasonable time. The solicitor is charged with unethical conduct in relation to late payment of disbursements in the nature of fees due to third parties. The applicant relies upon the evidence adduced in relation to the grounds A-D above
124 At all relevant times the solicitor was a sole practitioner with employed staff. He operated a Trust Account in respect of which he was the sole signatory. Since 1999 he had used a time recording and accounting system in the practice known as the “Perfect Balance” system.
125 In Re Robb & Anor (1996) 134 FLR 294, the Supreme Court of the ACT, noting that wilful or persistent failure to pay counsel’s fees could amount to professional misconduct, said:
126 The solicitor’s evidence on this issue was that it was his ”policy” not to pay disbursements until the client had paid the whole amount due on a tax invoice.
The point is that the delay in paying counsel to be attributed to the solicitors in the present case stems from their assumption that moneys in their office account, received on trust for the client and transferred to the office account for the very purpose of paying counsel, were not affected by their fiduciary duties to the client and were their moneys to pay counsel fees when they chose and that any delay was simply a matter between counsel and themselves.
That assumption was totally unjustified. On the contrary, every day of delay in paying counsel from the time of transferring the moneys from the trust account to the office account, was a day in which the solicitors were in breach of their fiduciary duty to the client.
127 The solicitor’s view of the matter was that:
128 The Tribunal does not agree that the solicitor’s “policy” accords with his obligations as a solicitor to deal with moneys received from a client in accordance with the relevant legislation.
“If an invoice has been rendered to the client, the client pays your invoice,…I’ve always believed you can pay that money to your office account and then you have the obligation to pay the disbursements that are included in that invoice.”
“The disbursements are incurred by me solely. I have the liability to pay them whether the client pays me or not… the money can be banked to the office account and then the disbursements are paid within a reasonable time…”
129 The Tribunal does not accept that the solicitor was entitled to act upon his “policy” of withholding payment of outstanding disbursements until such time as his client had paid the whole amount of a Tax Invoice. The obligation to pay such sums arose upon the solicitor being put in funds by the client for that purpose.
130 As was held in Re Robb, where a solicitor holds clients funds for the purpose of paying counsel and other persons, and transfers those funds to an office account, any delay in so paying the moneys amounts to professional misconduct, for during the period of delay the solicitor is treating clients’ funds as the solicitor’s own money.
131 In his submissions on behalf of the solicitor, reliance was placed upon the words of Jenkinson J in Johns v. Law Society of New South Wales [1982] 2 NSWLR 1 referring to the decision in Robb “… the firm may take out of the trust bank account so much as equals the costs (including disbursements) incurred in gaining the money…”. That was, however, dealing with cases taken on a speculative basis.
132 It was submitted that the solicitor could not be responsible for all the matters being conducted by employees, and any delay occurring in payment in those matters. The Tribunal is not persuaded by that argument. As principal of the firm, it was the solicitor’s obligation to ensure that procedures were in place that ensured his compliance with the relevant legislation. He cannot evade that responsibility.
133 The written submissions submit that the general duty to hold trust money exclusively for the person on whose behalf it is received is qualified by s.61(3)(a)-(f) LPA. That submission seems to overlook the proposition advanced by the solicitor, that he was entitled to pay cheques that consisted of a mixture of costs and outstanding disbursements, into his Office Account.
134 Some comfort was sought to be derived by the solicitor from the provisions of s.264(4) Legal Profession Act 2004. That was not the legislation in force at the relevant time, nor had it been in force would it assist the solicitor. It merely legislatively confirms the view that moneys received for a solicitor’s costs are not trust moneys.
135 The delay resulted in the solicitor having use of funds that he held on behalf of his clients, in circumstances where he was bound to deal with those funds in accordance with his fiduciary duty to those clients.
136 The solicitor delayed in making the following payments:
137 The Tribunal finds that these delays were not a mere matter of oversight or misapprehension as to the solicitor’s obligation to pay those disbursements. The Tribunal finds that there was a deliberate policy of delay in paying disbursements.
Ms. Byrne, barrister between12 June and 12 September 2003;
Mr. Winnacott between 12 June and 2 October 2003;
Hirst Consulting between 28 August and 9 October 2003;
Mr. T. Robertson SC between 17 February and 2 May 2003;
Mr. R.J. Powell barrister between 10 January and 26 March 2003;
Mr. C. Hodgekiss barrister between 25 March and 28 April 2003.
138 The solicitor denied that the delay was occasioned by a desire to maintain his Office Account overdraft within bounds. The Tribunal has found that the overdraft limit in place throughout the relevant period was $70,000. The Tribunal is not, however, prepared to find as a matter of fact that the solicitor’s conduct was the result of a deliberate policy to withhold payment of disbursements in order to maintain his overdraft balance within the $70,000 limit.
139 The Tribunal is satisfied that unacceptable delay occurred in the payment of disbursements in each of the matters of complaint. The Tribunal does not accept the various explanations advanced by the solicitor. Once the solicitor was put in funds by the client, whether by way of payment to his Trust Account or his Office Account, he had an obligation to pay fees due to counsel or other persons retained by the solicitor on behalf of his client. The solicitor failed to make those payments in accordance with his obligations and accordingly failed to pay third parties within a reasonable time.
140 The Tribunal finds that persistent delay in the payment of moneys due to third parties constitutes professional misconduct and finds the solicitor guilty of professional misconduct on each matter the subject of this ground of complaint.
141 References: The solicitor tendered a number of references from members of the profession, business associates, a clergyman and others. Each of those persons had been made aware of the matters that bring the solicitor before the Tribunal. None were required to attend for cross-examination. The Tribunal accepts that the assessments made by those persons as to the solicitors honesty and integrity, represents opinions honestly held by each of them, and has taken those into account in assessing the solicitor’s evidence and in determining the penalty to be imposed upon the solicitor.
142 The solicitor’s conduct demonstrates a woeful lack of knowledge of his obligations pursuant to the provisions of the LPA, and in general in relation to his fiduciary duty in the handling of trust moneys. That lack of knowledge cannot be a defence to these complaints. The obligation of a solicitor is to be cognizant of the requirements of the legislation and the law in respect of the handling of trust moneys. In the opinion of the Tribunal, the ignorance asserted by the solicitor can only arise from wilful blindness or reckless carelessness in making himself aware of his obligations.
143 There was a substantial period during which, as a consequence of the solicitor intermingling trust moneys with his own in the Office Account, he had the benefit of moneys that should have been paid into his Trust Account in accordance with the requirements of s. 61 LPA. That constitutes a gross breach of his fiduciary duty that must result in a finding of professional misconduct in respect of each breach established by the applicant.
144 The Tribunal finds that the solicitor is guilty of professional misconduct in respect of each of the 5 matters alleged by the Law Society.
145 The Tribunal is of the view that each of these matters warrant public reprimand and the imposition of a fine in respect of each of the breaches of s. 61 LPA.
146 The Tribunal is of the view that a procedure should be implemented the purpose of which is to ensure that the solicitor complies with his obligations in relation to Trust Account monies.
Orders
1. The solicitor is publicly reprimanded.
2. The solicitor is fined $5,000.00 on each matter of breach of s. 61 LPA.
3. The total fine of $20,000 to be paid by 4 installments each of $5,000, the first not later than 31 January 2008; the second not later than 31 March 2008; the third not later than 31 May 2008; and the fourth not later than 31 July 2008.
4. The solicitor to pay the costs of the Law Society of and incidental to these proceedings, within 6 months of those costs being agreed or assessed.
5. The solicitor’s Trust and Office accounts are to be subject to inspection by an accountant nominated or approved by the Law Society, to ensure that moneys received by the solicitor are dealt with in accordance with the provisions of the Legal Practitioners Act 2004. Such inspections to be carried out as at 30 June 2008; 31 December 2008 and 30 June 2009.
6. Following each such inspection, the accountant is to submit a report to the Law Society of New South Wales. Those reports to be delivered not later than: 31 August 2008; 28 February 2009; 31 August 2009. The costs of such inspections and reports to be paid by the solicitor within 28 days of receiving a Tax Invoice in respect of those services.
7. If the solicitor fails to comply with orders iii, iv, and vi above, his practicing certificate will be immediately suspended until the order is complied with.
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