Law Society of New South Wales v Gillroy

[2010] NSWADT 232

CITATION:	Law Society of NSW v Gillroy [2010] NSWADT 232
DIVISION:	Legal Services Division
PARTIES:	APPLICANT Law Society of New South Wales RESPONDENTS Robert Wilcox Gillroy and Loris Hendy
FILE NUMBER:	92015, 92016
BEFORE:	Currie J - Judicial Member; Riordan M - Judicial Member; Fitzgerald R - Non-Judicial Member
LEGISLATION CITED:	Legal Profession Act, 2004 (NSW)
CASES CITED:	NSW Bar Association v Cummins (2001) 52 NSWLR 279 Allinson v General Council of Medical Education and Registration [1894] 1 KB 750 Re a Solicitor [1960] VR 617 at 620
ORDERS:	1.That Robert Wilcox Gillroy be publicly reprimanded 2.That Loris Hendy be publicly reprimanded 3.That Robert Wilcox Gillroy be permitted to continue practising as a Solicitor on the condition that he shall within 28 days of the date of this decision provide the Law Society of New South Wales with the following written undertakings:(a)That he will undertake a course in Practice Management that is approved by the Society, such course to commence prior to 31 March 2011 (or if such a course is unavailable prior to that date, the first course thereafter), and will in any event complete the course to the satisfaction of the Society by 30 June 2011 (b)That he will undertake a course in Ethics that is approved by the Society that commences prior to 31 March 2011 (or if such a course is unavailable prior to that date, the first course thereafter), and will in any event complete the course to the satisfaction of the Society by 30 June 2011 (c)That he will on and from a date 28 days from the date of his undertakings participate in the Senior Solicitors Program or such other program of mentoring by a Solicitor at no less than 15 years admission as is approved by the Law Society, and will accept mentoring by a Solicitor nominated by the Society for that purpose for a period of no less than one (1) year from the date of his undertaking, and will confer and co-operate with that Solicitor in the conduct of that program (d)That he will bear the costs of the courses referred to in paragraphs (a) and (b) and the Program referred to in paragraph (c) 4.That Robert Wilcox Gillroy and Loris Hendy pay the costs of the Applicant and of the Legal Services Commissioner and incidental to the Application, as agreed or assessed.

REASONS FOR DECISION

Preliminary Orders: Joinder of Applications

1 Each of the two Applications commenced with a request for an order that the Applications be joined and that, subject to relevance, evidence in one Application be evidence in the other Application.

2 These requests are granted and orders for joinder are made accordingly, in the terms requested.

3 Accordingly this is a joint Reasons for Judgment.

Summary of the Law Society's Case

4 The Law Society seeks a finding of professional misconduct against Robert Wilcox Gillroy and Loris Hendy on the basis set out below.

5 Ms Hendy and Mr Gillroy were at all relevant times Solicitor Directors of Garrett Walmsley Madgwick Pty Limited, trading as GWM Lawyers at Port Macquarie. (In this judgment that company will be referred to as "GWM" or "the firm".)

6 In June 2007 a former employee of that firm complained to the Law Society that some of his superannuation entitlements had not been paid by the firm since July 2006, he having left the firm in late December 2006. He also complained that superannuation contributions of his former secretary had likewise not been paid after June 2006.

7 As a result of those complaints being received, a Law Society Trust Account Investigator, Mr Leo Gore, conducted an investigation into the affairs of the firm commencing in June 2007. Mr Gore subsequently produced a report pursuant to Section 270 of the Legal Profession Act 2004 dated 24 July 2007 in relation to his inspection. Following consideration of the complaints by the Professional Conduct Committee of the Law Society pursuant to its powers, these proceedings were commenced.

8 In summary the two Applications allege that over a period Ms Hendy and Mr Gillroy as principals of the firm:

i)failed to pay employees' superannuation contributions;
ii)failed to pay employees' Group Tax; and
iii)failed to pay proper amounts of Goods and Services Tax (GST).

9 The Law Society contends that that conduct amounts to professional misconduct.

Substantive Orders sought

10 The Law Society seeks in respect of both Ms Hendy and Mr Gillroy the following substantive orders:

i)an Order that the relevant solicitor be reprimanded.

ii)an Order that the relevant solicitor pay the costs of the Law Society of and incidental to the Application; and

iii)such further Order as the Tribunal deems fit.

Agreed facts

11 By an Agreed Statement of Facts received by the Tribunal the day before the hearing, each of Ms Hendy and Mr Gillroy make certain admissions and otherwise record certain agreed facts.

12 In particular each of Ms Hendy and Mr Gillroy admits that by reason of the failure to pay employees superannuation, Group Tax and GST, they engaged in professional misconduct.

13 They admit that the payment of superannuation entitlements of a number of employees of the relevant firm, including those of the solicitor who made the initial complaint to the Law Society, were in arrears, and that they on behalf of the firm had failed to remit the relevant payments to the Australian Taxation Office for Group Tax and GST.

14 It is further admitted that as at 30 June 2006 the firm had failed to pay Group Tax (pay-as-you-go tax withheld) in the sum of $27,782; as at 30 June 2007 the firm had failed to pay further Group Tax in the sum of $86,007; as at 30 June 2007 the firm had failed to pay Superannuation Guarantee Contribution in the sum of $34,101.81; and as at 30 June 2007 the firm had failed to remit GST in the sum of $65,962.

15 Accordingly the total amount unpaid or unremitted as at 30 June 2007 was $213,852.81.

16 The Agreed Statement of Facts goes on to outline the steps that each of the solicitors took to cause these balances to be repaid. These contentions are dealt with in more detail below.

Law Society's Grounds and Allegations

17 The Law Society sets out in its Application for Original Decision certain particulars of Grounds of Complaint. Largely these expand upon the allegations outlined at paragraph 8 above.

18 The Law Society's Grounds are supplemented by a substantial affidavit sworn on 29 June 2009 by Raymond John Collins the Solicitor for the Council of the Law Society which annexes all relevant correspondence relating to the complaints. That affidavit was admitted into evidence.

19 The Trust Account Inspector Mr Leo Sydney Gore also swore an affidavit dated 29 June 2009 which was admitted into evidence. Mr Gore's affidavit annexes the report produced as a result of his investigation, that report being dated 24 June 2007.

Response by the solicitors

20 The solicitors concede that they have engaged in activities which amount to professional misconduct. In particular they concede the particulars of professional misconduct as pleaded by the Law Society and set out in items (i), (ii) and (iii) in paragraph 8 above.

21 The essence of the solicitors' case (and the two solicitors' cases are identical on this respect) is the allegation that the solicitors were forced by the substantial deterioration of the financial performance of the firm, and its loss of clients and work to undertake remedial steps. Significantly the two solicitors say they made a decision to postpone the relevant statutory payments as referred to in paragraph 8 above.

22 Mr Gillroy's affidavit sworn on 16 December 2009 sets out in some detail the history of the deterioration of the financial position of the firm between about 2002 and 2006. These factors included a reduction in personal injury work, the financial collapse of a major client, what Mr Gillroy alleges was poor performance on the part of individual solicitors and competition from a former principal of the firm who had established his own practice in the area.

23 The solicitors say that, in essence, a management decision was taken to preserve the firm at its existing size and state of operation in light of these disrupting factors and the fact that, in Mr Gillroy's view:

"Professional staff, particularly commercial staff did not or could not lift their game to compensate for the loss of the substantial corporate client."

24 The solicitors say that they took steps to attempt to redress this position including reducing practice overheads, reducing the number of employees slightly, streamlining office procedures and obtaining external financial advice.

25 However it would appear that these steps were not sufficient to reverse the decline in the financial performance of the firm. The solicitors were reluctant to terminate further staff. Accordingly, the solicitors allege, decisions were taken by the solicitors which form the basis of the pleaded particulars of professional misconduct, namely decisions to defer the statutory payments by way of superannuation contributions, Group Tax and GST.

26 The solicitors say, and it appears to be accepted by the Law Society, that they opened a course of correspondence with the Australian Taxation Office at an early stage, and were negotiating a settlement of the arrears in Group Tax with the Australian Taxation Office at the time that the Law Society Investigator commenced his investigation of the practice.

27 The solicitors say that notwithstanding their failure to make the statutory payments and remittances in the relevant period they continued throughout that time to lodge Business Activity Statements (BAS Statements) and taxation returns with the Australian Taxation Office including whilst negotiating with the Australian Taxation Office.

28 Significantly the solicitors say that they notified relevant staff of their firm of the non-payment of their compulsory superannuation contributions.

29 Ms Hendy in her affidavit of 20 October 2009 alleges (and it appears to be accepted by the Law Society) that she had the Australian Taxation Office apply her personal tax refund for 3 years in the sum of approximately $12,000 towards reduction of the firm's outstanding tax debt.

30 Ms Hendy also alleges (and again it appears to be accepted by the Law Society) that for extended periods during the 4 years between 2005 and late 2009 neither she nor Mr Gillroy had drawn income from the practice.

31 It is conceded by both solicitors however that they failed to take the fundamental necessary management and financial actions necessary to redress the reduced financial success of the practice. In particular, the concede now that perhaps they should have taken the morally difficult step of considering and implementing a reduction in staff numbers.

32 It is conceded by both solicitors that their actions in deferring the statutory payments, well-intentioned as they might have been, resulted in a serious breach not only of their statutory obligations to the Commonwealth, but also a serious breach of their professional obligations, and that these failures amounted to professional misconduct.

Mitigation and contrition

33 Despite the solicitors' admission of professional misconduct, and of most of the Law Society's central allegations, a clear expression and contrition for that conduct is somewhat difficult to ascertain from the affidavit sworn by Mr Gillroy.

34 Mr Gillroy's affidavit of 16 December 2009 does, it is true, contain detailed explanation of the managerial reasons for certain financial actions being taken, but that affidavit is decidedly "light" and vague as to contrition. Whilst Mr Gillroy makes it clear that he understands that the management actions undertaken resulted in a breach of statutory obligations and that this was wrong, the Tribunal has had greater difficulty in perceiving any clear statement that Mr Gillroy is sorry for his breach of his professional obligations. For example in paragraph 10 of that affidavit Mr Gillroy says that:

"It is clear that the decisions that I have made are financially disadvantageous at a personal level but am I (sic) still of the view that they were morally correct."

35 Mr Gillroy's concluding paragraph in the affidavit is significant in this regard. It says:

"I am proud of the achievements of both Ms Hendy and this Firm. I believe that we have met our obligations to all parties and we have, in an era where "corporate downsizing" is the quick fix managed to protect staff."

36 Without more, the Tribunal was left wondering whether Mr Gillroy fully comprehended the substantial departure from expected professional standards constituted by his conduct, the effects of that departure, and whether he actually had any genuine contrition for this.

37 However in giving his oral evidence at the hearing, and following introduction of the subject of contrition by Mr Gillroy's solicitor Mr Geikie in his examination in chief, Mr Gillroy made it clear that he now recognises that a statutory obligation needed to be complied with, and that its breach in this case led to a serious breach of his professional obligations.

38 Although it required some further prompting, by way of detailed questioning of Mr Gillroy from Members of the Tribunal in order to achieve this, Mr Gillroy did, in the end, express what appeared to be genuine contrition for his "error of judgment" in this regard and was "deeply regretful" that he did not meet his professional obligations. Mr Gillroy said he was sorry that things had developed as they did and acknowledged an error of judgment.

39 Ms Hendy's affidavit, sworn on 20 October 2009, indicates much more clearly a degree of contrition by her. She says that she sincerely regrets the non-payment particularly of the employment superannuation contribution. She says that the proceedings have caused her shame and embarrassment. She says that a finding of professional misconduct will be "deeply regrettable".

Findings

40 By a document titled "Instrument of Consent under Section 564 of the Legal Profession Act 2004", filed with the Tribunal on 9 April 2010, the parties in essence, consented to a finding of professional misconduct and to specified penalty orders.

41 However, at the commencement of the hearing, the Tribunal indicated to the parties that it would exercise the discretion available to the Tribunal, inherently, under Section 564; that is whilst it would take note of the Instrument of Consent, the Tribunal would not make the orders proposed in the Instrument of Consent without conducting or completing a hearing in relation to the complaint.

42 The hearing having been conducted and completed, the Tribunal has no difficulty in finding that the allegation of professional conduct against each of the solicitors is well founded.

43 Each of the solicitors was clearly guilty of a breach of very important and basic statutory obligations as particularised in the Law Society's Application namely a failure to pay employees' superannuation contributions; a failure to pay employees' Group Tax and a failure to pay GST.

44 The conduct of the solicitors was conduct which clearly occurred in the course of the legal practice conducted by the firm, of which the solicitors were principals. It has not been submitted on behalf of the solicitors that the conduct somehow involved an offence in a personal rather than a professional capacity, even although it may be open to argument that the conduct here involved administration of the business of the firm rather than legal professional work as such. Be that as it may, it is recognised by the authorities, for example the discussion in Riley at paragraph [36,000] and in the definition of "professional misconduct" in s497(1)(b) of the Legal Profession Act 2004 [NSW], that the notion of professional conduct extends to conduct of an Australian legal practitioner which occurs otherwise than in connection with the practice of the law. As is stated in Riley at paragraph [36,000]:

"It stands to reason, therefore, that conduct by a lawyer that is unrelated to his or her professional practice can amount to professional misconduct. Spigelman CJ so explained the circumstances where this may be in New South Wales Bar Association v Cummins" (2001) 52 NSWLR 279 .

45 The conduct of the solicitors clearly falls within the concept of professional misconduct which is understood at common law in accordance with the well known test articulated in the case of Allinson v General Council of Medical Education and Registration [1894] 1 KB 750, and which has been endorsed by Australian courts, for example in the case of Re a Solicitor [1960] VR 617 at 620, and the other authorities cited at note 2 of Riley at page 90, 260. The test inquires as to whether the lawyer has behaved in a manner that would reasonably be regarded as disgraceful or dishonourable by his or her professional brethren of good repute and constancy.

46 It is clear to the Tribunal that the conduct of the solicitors is professional conduct within that common law meaning.

47 Accordingly the Tribunal finds that the conduct of each of the solicitors as particularised in paragraph 42 above constituted professional misconduct.

Penalty

48 It is contended on behalf of the solicitors and accepted by the Tribunal that in all the circumstances their conduct was not such as to require protection of the public by way of an order removing the names of the solicitors from the roll or suspension from practice.

49 This is particularly so because the solicitors' conduct in breach of the statutory obligations was revealed to relevant staff and at an early stage negotiations were opened with the Australian Taxation Office in respect of the failure to make the appropriate payments and remittances.

50 It is accepted that the conduct of the solicitors involves no dishonesty and no breach of obligations to the Court.

51 However, in the Tribunal's view, the conduct of the solicitors is clearly such as to require a public marking of their conduct as not only inappropriate in all the circumstances, but seriously in breach of basic professional standards. The Tribunal therefore believes that a public reprimand is appropriate in respect of each of the solicitors.

52 The Tribunal has also given consideration as to whether a fine would be appropriate in respect of either solicitor. The Tribunal takes into account that although their failure to reach an appropriate standard of professional conduct was a substantial one, they did not act dishonestly.

53 An additional factor pertinent to whether a fine should be imposed is that the solicitors made a full and early disclosure to the relevant employees and to the Australian Taxation Office of their actions and entered into early negotiations with the Australian Taxation Office for a final settlement and indeed these negotiations had commenced by the time that the Law Society's Investigator had commenced his work.

54 In considering whether a fine should be imposed, the Tribunal also takes into account that the solicitors now appear to have full comprehension of their misconduct and the seriousness of it and the effect of that misconduct on others. Subject to the remarks made in paragraphs 33 to 36 above as to Mr Gillroy's delay in clearly expressing contrition, it does appear that both solicitors are contrite as to their conduct.

55 The Tribunal also takes into account the effect that a public reprimand will have on the solicitors in the country community in which they practice, and also the effect of the costs order which will be made.

56 In all these circumstances the Tribunal will not impose a fine on the solicitors.

57 A costs order will be made against the solicitors.

Further remedial order

58 The issue arises as to whether the Tribunal should impose some further sanction as part of its educative and protective role.

59 Mr Geikie on behalf of the solicitors has submitted that if the Tribunal does wish to impose such a further sanction it would be appropriate to require Mr Gillroy to undertake a course in practice management, or bookkeeping and ethics for solicitors, or a similar course that the Tribunal deeds appropriate, to be completed to the satisfaction of the Law Society within 12 months of the date of the orders.

60 The Tribunal has taken certain factors relating to Mr Gillroy into account in deciding whether he should be made the subject of any additional sanction of this sort. An additional sanction has been requested by Ms Muston on behalf of Legal Services Commissioner in her closing submissions. The Tribunal also takes into account the fact that although Mr Gillroy has expressed contrition, that expression of contrition was enunciated somewhat late in the piece and its emergence only followed direct questions being put to Mr Gillroy at his examination in chief, and follow up questions by members of the Tribunal.

61 The Tribunal also takes into account the fact that Mr Gillroy in his evidence overlooked one previous reprimand which related in part to his non-issue of accounts statements.

62 In all the circumstances it appears to the Tribunal that it would be appropriate to impose an additional practice management and mentoring order on Mr Gillroy. The Tribunal sees no need to impose such additional order on Ms Hendy.

Orders

63 Accordingly the Tribunal orders as follows:

1. That Robert Wilcox Gillroy be publicly reprimanded.
2. That Loris Hendy be publicly reprimanded.
3. That Robert Wilcox Gillroy be permitted to continue practising as a Solicitor on the condition that he shall within 28 days of the date of this decision provide the Law Society of New South Wales with the following written undertakings:
(a) That he will undertake a course in Practice Management that is approved by the Society, such course to commence prior to 31 March 2011 (or if such a course is unavailable prior to that date, the first course thereafter), and will in any event complete the course to the satisfaction of the Society by 1 July 2011.
(b) That he will undertake a course in Ethics that is approved by the Society that commences prior to 31 March 2011 (or if such a course is unavailable prior to that date, the first course thereafter), and will in any event complete the course to the satisfaction of the Society by 1 July 2011.
(c) That he will on and from a date 28 days from the date of his undertakings participate in the Senior Solicitors Program or such other program of mentoring by a Solicitor of no less than 15 years admission as is approved by the Law Society, and will accept mentoring by a Solicitor nominated by the Society for that purpose for a period of no less than one (1) year from the date of his undertaking, and will confer and co-operate with that Solicitor in the conduct of that program.
(d) That he will bear the costs of the courses referred to in paragraphs (a) and (b) and the program referred to in paragraph (c).

4. That Robert Wilcox Gillroy and Loris Hendy pay the costs of the Applicant and of the Legal Services Commissioner of and incidental to the Application, as agreed or assessed.