Law Society of New South Wales v MacDonald

[2002] NSWADT 77

CITATION:	Law Society of New South Wales -v- MacDonald [2002] NSWADT 77
DIVISION:	Legal Services Division
PARTIES:	APPLICANT The Council of the Law Society of New South Wales RESPONDENT Ian Harley Donald MacDonald
FILE NUMBER:	012017
HEARING DATES:	29/10/2001
SUBMISSIONS CLOSED:	10/29/2001
DATE OF DECISION:	05/14/2002
BEFORE:	Gailey C - Judicial Member; Durbach A - Judicial Member; Hoareau D - Member
APPLICATION:	Professional Misconduct - misappropriate trust moneys/moneys
MATTER FOR DECISION:	Principal matter
LEGISLATION CITED:	Legal Profession Act 1987
CASES CITED:	Briginshaw v. Briginshaw (1938) 60 CLR 336 at362: Ex parte Attorney General (Commonwealth) Re a Barrister and Solicitor (1972) 20FLR 234 New South Wales Bar Association v. Livesey [1982] 2NSWLR 231
REPRESENTATION:	APPLICANT R Allaway QC, barrister RESPONDENT G Walsh, solicitor
ORDERS:	Orders Made 29 October 2001: 1. That the name of Ian Harley Donald MacDonald be struck off the Roll of Legal Practitioners in New South Wales; 2. That the Respondent pay the costs of the Applicant of, and incidental to the filing and hearing of the Information to be agreed or as assessed.

1 By Information dated 20 June 2001 the Council of the Law Society of New South Wales (the Law Society) informed the Tribunal that as a result of the Council's investigation of a complaint made under Part 10 of the Legal Profession Act, 1987 against Ian Harley Donald MacDonald (the legal practitioner), a legal practitioner within the meaning of S.128 of the Act, the Council claimed that Ian Harley Donald MacDonald while practising as a solicitor was guilty of professional misconduct on several grounds. The grounds upon which the complaint was made related to several persons and were as follows:
Ground A Eric William Lyndon and Marie Patricia Lyndon
(1) The Solicitor wilfully breached Section 61 of the Legal Profession Act,1987 .
(2) The Solicitor wilfully breached Section 62 of the Legal Profession Act,1987 .
(3) The Solicitor failed to properly secure the advances made by certain contributors.
(4) The Solicitor preferred the interest of the second mortgagee over that of the first mortgagee.
(5) The Solicitor paid moneys received on behalf of the mortgagees to the mortgagor.
(6) The Solicitor wilfully breached Section 61 of the Legal Profession Act, 1987 in the payment of interest on investment funds from moneys held in his Trust Account on behalf of certain clients.
Ground B Jean Jackson
(1) The Solicitor wilfully breached Section 61 of the Legal Profession Act,1987 .
(2) The Solicitor wilfully breached Section 62 of the Legal Profession Act,1987 .
(3) The Solicitor failed to properly secure the advances made by certain contributors.
(4) The Solicitor failed to notify Jean Jackson that her investment funds had been lost.
(5) The Solicitor misled Jean Jackson concerning the reinvestment of her investment funds.
Ground C Roandra Investments Pty Limited
(1) The Solicitor wilfully breached Section 61 of the Legal Profession Act, 1987 .
(2) The Solicitor wilfully breached Section 61 of the Legal Profession Act, 1987 in respect of the funds of John and Joni Kirkland.
(3) The Solicitor wilfully breached Section 62 of the Legal Profession Act, 1987 .
(4) The Solicitor preferred the interest of Harold and Edna Impey over the interest of Roandra Investments Pty Limited and John and Joni Kirkland in paying moneys received on their behalf to Harold and Edna Impey.
(5) The Solicitor failed to inform Roandra Investments Pty Limited and John and Joni Kirkland that their investment funds had been lost.
(6) The Solicitor misled Roandra Investments Pty Limited and John and Joni Kirkland regarding the reinvestment of their funds.
Ground D Catherine MacLarn
(1) The Solicitor wilfully breached Section 61 of the Legal Profession Act, 1987.
(2) The Solicitor wilfully breached Section 62 of the Legal Profession Act, 1987 .
(3) The Solicitor misled Catherine MacLarn in respect of the investment of her investment funds.
(4) The Solicitor failed to secure the investment funds of Catherine MacLarn.
Ground E David Meredith
(1) The Solicitor wilfully breached Section 61 of the Legal Profession Act, 1987 .
(2) The Solicitor wilfully breached Section 62 of the Legal Profession Act, 1987 .
(3) The Solicitor misled David Meredith concerning the reinvestment of his investment funds.
(4) The Solicitor failed to properly secure advances made by David Meredith by Nicholas and Liza Turk.
Ground F Doreen Margaret Maes and Elsie Clare Maes
(1) The Solicitor wilfully breached the provisions of Section 61 of the Legal Profession Act, 1987 .
(2) The Solicitor wilfully breached the provisions of Section 62 of the Legal Profession Act,1987 .The Trust Account records did not show the true position concerning funds of clients deposited to the Savings Bank Account or in respect of moneys withdrawn from that account and deposited to the trust Account.
Ground G Harold and Edna Impey
(1) The Solicitor wilfully breached the provisions of Section 61 of the Legal Profession Act,1987 .
(2) The Solicitor misled Harold and Edna Impey as to particulars relating to their investment funds.
(3) The Solicitor failed to inform Mr.& Mrs. Impey of the shortfall in relation to the repayment by Nicolaou.
(4) The Solicitor released security documents held for M.W. & D.A. Bristow to Mr. & Mrs. Impey.
Ground H John and Joni Kirkland
(1) The Solicitor wilfully breached the provisions of Section 61 of the Legal Profession Act, 1987 .
(2) The Solicitor wilfully breached the provisions of Section 62 of the Legal Profession Act,1987 .
(3) The Solicitor misled Mr. & Mrs. Kirkland as to their investment funds.
Ground I Christian Jaye Monk
(1) The Solicitor wilfully breached Section 61 of the Legal Profession Act, 1987 .
(2) The Solicitor failed to properly secure advances made by certain contributors.
(3) The Solicitor misled Christian Jaye Monk concerning the amount of the second mortgage executed by him.
(4) The Solicitor wilfully breached Section 62 of the Legal Profession Act,1987 .
The particulars relied upon and contained in the Information are:
2 Ian Harley Donald MacDonald ('the legal practitioner') was admitted to practice as a solicitor in New South Wales on 8 November 1974.

3 The legal practitioner practised in partnership with Hugh Gordon Phillips (who was admitted to practice as a solicitor in New South Wales on 16 March 1956) under the firm name of Conway McCallum & Co. initially in the City of Sydney and in Manly from 1 July 1981 to 31 December 1986.

4 The legal practitioner continued to practise under the firm name Conway McCallum and Co. at Manly until 31 March 1987, then as Ian MacDonald & Associates until 31 December 1988 and then from that date until 1 April 1991 as MacDonald Fairfield.

5 The legal practitioner and Mr Phillips practised again in partnership from 1 April 1991 to 10 September 1996. The firm name was MacDonald Fairfield with Yeldhams p to 29 February 1992, Yeldhams from 29 February 1992 until 6 March 1995when its name was changed to MacDonald Yeldhams.

6 Many of the investor and borrower clients of Conway McCallum & Co, from 1982 onwards remained clients of the successive practices of the legal practitioner and then of the partnership of the legal practitioner with Hugh Gordon Phillips.

7 On 11 September 1996 by Order of the Supreme Court of New South Wales, Ms. Jean Sayer was appointed the receiver of the trust property of Ian Harley Donald MacDonald. On 13 September 1996 Jean Sayer was appointed the receiver of the trust property of Hugh Gordon Phillips.

8 Ms. Sayer undertook a detailed examination of the trust property of the legal practitioner and subsequently wrote ten reports between 24 July 1997 and 29 October 1998 which reports were annexures 'A' to 'J' to the Affidavit of Jean Sayer dated 21 June 2001 filed in these proceedings. Her conclusion was that the investment practice of the legal practitioner had been managed in the manner as set out in the immediately following six paragraphs.

9 Trust moneys received by the solicitor for the purposes of investment were treated as a general pool of funds which became intermingled in such a way that it was not possible to identify precisely a particular client's money advanced to a number of borrower clients.

10 There were a series of borrowings by certain clients for property development or for the purpose of making a profit on re-sales of properties acquired by the borrowers. In many cases the security given to investor clients proved to be inadequate on the re-sale of the mortgaged properties.

11 Investor clients' moneys generally were moved by Mr MacDonald from one development to the next with any shortfall at the end of a transaction carried forward to the developer's next development.

12 It was not possible to establish by reference to the Trust Account records maintained by the solicitor the true position concerning the trust funds received from investors and dealt with in the Trust Account.

13 In a number of cases where investor clients' money had been lost by reason of the inadequacy of the security offered for the advances, investor clients were not informed of the loss but were advised that their funds had been reinvested in other mortgage arrangements. In some cases security documents were drawn up and executed and registered against the title of the security properties owned by the borrowers even though the investor clients concerned had never advanced funds to the particular borrower since the investors' funds had been lost in earlier transactions.

14 In other cases certain investor clients were given a preference in repayment of their investment funds or were given security for their funds even though those funds had been lost. Some investor clients invested only on the basis that their funds were advanced on first mortgages and that they held the security documents. The fact that investments had been lost could therefore be concealed over a long period.

15 On 19 October 2000 the Professional Conduct Committee of the Law Society resolved that the grounds of complaint as enumerated in the Affidavit of Raymond John Collins dated 20 June 2001 (Exhibit 'A'), contained in the Information commencing these proceedings and as set out above, involved allegations of professional misconduct that the public interest required to be dealt with, notwithstanding that they related to conduct which had occurred more than three years previously.

16 The grounds of complaint as raised in the Information filed in these proceedings were referred to the legal practitioner by his solicitor for his response but no response was received.

17 On 24 May 2001 the Committee resolved that there was a reasonable likelihood the legal practitioner would be found guilty of professional misconduct by the Administrative Decisions Tribunal and resolved to institute proceedings in the Tribunal under Section 155(2) of the Legal Profession Act, 1987. This resolution was following perusal of the ten Reports of Ms.Sayer relating to the trust property of Ian Harley Donald MacDonald, dated between 24 July 1997 and 29 October 1998,

18 The evidence for the Law Society comprised both oral testimony given by the receiver, Ms. Sayer and a voluminous affidavit sworn by her dated 21 June 2001 (Exhibit 'B'), comprising together with her ten reports referred to above some 700 pages. The Tribunal is indebted to Ms. Sayer for the meticulous detail set out in those reports.

19 The affidavit of Louis William Perotti sworn 31 July 2001 (Exhibit 'C') proved due service of the Information on the legal practitioner on or about 6 July 2001 but the legal practitioner has not filed a Response to the allegations in the Information.

20 On behalf of the legal practitioner, the affidavit of Gregory Alexander Walsh dated 20 October 2001 was tendered. (Exhibit '1'). This affidavit deposed, inter alia, that copies of all Law Society documentation relating to these proceedings had been received by the legal practitioner and discussed by him with the deponent. Mr Walsh swore in his affidavit that at no time had the legal practitioner disputed any of the factual matters raised in the Law Society documentation and that the legal practitioner had indicated to him that he did not oppose his name being removed from the Roll of Legal Practitioners.

21 In that affidavit Mr Walsh also deposed that the legal practitioner had authorised Mr Walsh to disclose that on 29 June 2001, the legal practitioner had been found guilty of charges under the Crimes Act, 1900 involving fraudulently omitting to account, making false statements and obtaining money by deception in relation to his clients' affairs.

22 Exhibit '1' also had attached to it a statement (Annexure 'C'). made by the legal practitioner dated 8 May 2001. This statement purported to give an explanation for a number of the complaints raised by the Law Society. It is not necessary in this judgment to deal with each of the matters raised in the statement as to which the views of Ms.Sayer and the legal practitioner were totally at odds. However two examples of these inconsistencies are provided below.

23 The tribunal had the benefit of oral testimony from Ms. Sayer on a number of the matters raised in the legal practitioner's statement. The tribunal found the testimony of Ms. Sayer, supported by her detailed affidavit very persuasive and considers that such evidence is to be preferred over that set out in the legal practitioner's statement, which was not the subject of any testing in the witness box.

24 The legal practitioner wrote "Normally monies were lent on first mortgage not exceeding 66% of the valuation of the security…. The funds were always lent for a fixed term, at a fixed rate…. Invariably clients would hold the mortgage documents and the title deeds after registration…. Each transaction was entered into a trust account ledger of behalf of the client to enable a trace of the funds. In addition I carried a mortgage register which recorded all of the advances made on behalf of clients" (Exhibit '1', Annexure 'C', paragraph 1.4).

25 Ms Sayer gave evidence that her investigations showed that in many cases the amounts advanced on the security of a particular property were well in excess of 66% of the value of those properties. In some cases up to 120% of the value of the security was advanced. She stated that she also found advances which were not made as first mortgages, in direct contravention of both the lender's instructions and the legal practitioner's statement. She also gave evidence that documentation she had examined rarely provided for advances to be made for a fixed term. Rather her inquiries showed that most loans were rolled over as convenient to the borrower with few maturity dates being given in the mortgage documentation. She stated that few lenders required to hold the security documents for their advances, the only lenders who required this appeared to be Harold and Edna Impey (Ground G) and John and Joni Kirkland (Ground H). Further she found no evidence that each lending transaction was separately entered in the trust account ledger but rather monies were paid into a single pool where they became impossible to trace. She stated that she had never sighted a mortgage register although she had asked for it on several occasions.

26 Further on in his statement the legal practitioner wrote "In relation to the transactions referred to… concerning ….Roandra Investments, Company Share Register Pty Limited and Eric and Patricia Lyndon at no time, other than legal fees which were charged to the firm, did I personally receive any of the moneys belonging to those persons" (Exhibit '1', Annexure 'C' paragraph 2.12). He further wrote "At no stage, in respect of the funds referred to in the police evidence relating to…. Maes did I, apart from legal costs receive any monies referred to whatsoever" (Exhibit '1', Annexure 'C' paragraph 2.15).

27 Ms. Sayer's reports annexed to her Affidavit (Annexure 'E' regarding Roandra Investments Pty Limited; Annexure 'H' regarding Company Share Register Pty Limited-Kirkland and Annexure 'B' regarding Lyndon) amply demonstrated the misappropriation of trust moneys drawn improperly from the funds of these investor clients, including payments described as 'on account of costs and disbursements due to the firm' which did not represent costs due by the clients concerned.

28 Ms. Sayer gave evidence of misappropriation of trust moneys where funds totalling $253,733.34 were transferred from the trust account to the Savings Account of Doreen Margaret Maes and Elsie Claire Maes (Ground F) with Commonwealth Bank. Report 'J' listed these amounts for which Ms. Sayer stated in evidence she had been unable to find any authorities at all for these transfers. Subsequently four bank cheques each for $10,000 were drawn from this account and paid to the account of I H D MacDonald with Westpac Manly without instructions from and unbeknown to Doreen Margaret Maes and Elsie Claire Maes. A further bank cheque for $22,080.00 had been drawn from this account and applied to pay interest due by Mrs E.H. MacDonald , the wife of the legal practitioner.

29 It is the opinion of the Tribunal that the breaches of Sections 61& 62 as set out below for each of the individual grounds, establish that the legal practitioner is guilty of professional misconduct within the meaning of that term and the standards required to establish it as set out in the various cases:- See Briginshaw v. Briginshaw (1938) 60 CLR 336 at362: Ex parte Attorney General (Commonwealth) Re a Barrister and Solicitor (1972) 20FLR 234 at 246 and New South Wales Bar Association v. Livesey [1982] 2NSWLR 231 at 238. The Tribunal has further noted the criterion of professional misconduct referred to in Law Society of New South Wales v. Foreman (1994) 34NSWLR 408 at 444 , namely that the solicitor has been guilty of behaviour that would reasonably be regarded as disgraceful and dishonourable by his professional brethren of good repute and competency. The Tribunal is of the view that the findings relative to the legal practitioner set out below fall within the parameters of this principle.

30 It was submitted on behalf of the Law Society that the fact that on 29 June 2001 the legal practitioner was sentenced following a plea of guilty in respect of charges under the Crimes Act also amounts to professional misconduct under Section 127 of the Legal Profession Act, 1987. This complaint was not formally pleaded and the Tribunal prefers to make no specific finding thereon.

31 Accordingly, in respect of each of the grounds the Tribunal found as follows.

Ground A Eric and Maie Lyndon
32 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 on several counts in that he failed to invest monies paid to him by the Lyndons in accordance with their instructions; contrary to their instructions he transferred their funds to the credit of the trust accounts of other clients of the firm; he failed to account to the Lyndons for their investment funds and misappropriated those funds, and he paid interest due to them on their funds from trust funds belonging to other clients to maintain the charade that he had invested their funds in accordance with their instructions.

Ground B Jean Jackson
33 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 on several counts in that he failed to re-pay Ms. Jackson any of the funds advanced by her on her initial investment (which funds were repayable to her on the sale of the security property) paying them instead to the borrower; he failed to advise Ms. Jackson of the loss of her investment funds but falsely represented to her on two further occasions that her funds had been re-invested in further mortgage advances; he failed to register any security documentation in respect of either the initial advance or subsequent advances to protect her investment funds; and he paid interest due to her on her funds from trust funds belonging to other clients to maintain the charade that he had invested those funds in accordance with Ms. Jackson's instructions on three separate occasions

Ground C Roandra Investments Pty Limited ('Roandra').
34 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 on several counts in that he failed to re-pay to Roandra the company's funds which had been invested in a first mortgage, preferring instead to re-pay a second mortgage of whose existence he had failed to advise Roandra; he failed to advise Roandra that the security for its investment funds had been sold and that those funds had been lost, and he paid interest due to Roandra on its funds from trust funds belonging to other clients to maintain the charade that he had invested Roandra's funds on the security of a mortgage over real estate.

Ground D Catherine MacLarn
35 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 in that he failed to invest Ms. MacLarn's funds on the security of a mortgage advance over real property as he represented to her he had done and failed to secure her funds in any way, but instead paid those funds to another client of the firm intermingling them with that other client's investment funds.

Ground E David Meredith
36 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 on several counts, in that he failed to invest portion of Mr. Meredith's funds on the security of a mortgage advance over real property as he represented he had done but instead misappropriated those funds by paying them to the credit of the trust account of other clients of the firm while misappropriating part of those funds for legal costs to which he was not entitled.; on an advance of further funds invested by Mr. Meredith, he misled Mr. Meredith as to the amount invested, subsequently released Mr. Meredith's security for that investment in favour of another client of the firm without obtaining Mr. Meredith's consent and failed to re-secure the investment funds.

Ground F Doreen and Elsie Maes
37 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 on several counts, in that over a period of almost six years he caused monies to be withdrawn from trust funds held by his firm on behalf of various clients (and without the authority of those clients) and deposited into a savings account in the name of Doreen and Elsie Maes; he failed to maintain trust account records showing the true position regarding funds of clients deposited in that savings account or withdrawn from that account and re-deposited in the trust account; subsequently he withdrew various amounts from this account including five amounts withdrawn by bank cheque which were paid into personal accounts conducted by himself or his wife; and the legal practitioner misappropriated the funds deposited in the savings account, apart from a small amount paid to Doreen and Elsie Maes

Ground G Harold and Edna Impey
38 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 on several counts, in that he failed to account to the Impeys for a shortfall on repayment of a mortgage advance received on their behalf; he misled the Impeys regarding the amount of monies available for investment, loan repayment dates and interest earned on loans; he ignored the Impeys' instructions regarding investment of their funds and instead advanced their funds to other clients of the firm without authority; he misled the Impeys regarding funds by releasing to them documents the legal practitioner should have retained as security for other clients of the firm and he paid interest to the Impeys from funds held for other clients of the firm to maintain the charade that he had invested their funds as instructed.

Ground H John and Joni Kirkland
39 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 on several counts, in that he misappropriated monies he received on behalf of the Kirklands in respect of which he had specific instructions regarding their investment, by advancing those funds to other clients of the firm without the Kirklands' authority and misled the Kirklands regarding their investment funds.

Ground I Christian Jaye Monk
40 The legal practitioner is guilty of professional misconduct by reason of breaching Sections 61 & 62 of the Legal Profession Act, 1987 on several counts, in that he misappropriated cash payments received from Mr Monk and failed to establish accounting records by which those payments could be traced; he made payments from the trust funds he held on behalf of other clients of the firm to meet those payments for which Mr Monk had given him cash; he misled Mr Monk concerning the amount of the second mortgage executed by him and failed to secure advances made by certain clients of the firm to Mr. Monk.

41 The tribunal concludes that the proper determination to make in respect of the legal practitioner's proven and admitted professional misconduct on the grounds of complaint listed in the Information is that the name of the legal practitioner be removed from the Roll of Legal Practitioners

Orders made on 29 October 2001
42 The Tribunal orders:

(1) That the name of Ian Harley Donald MacDonald be struck off the Roll of Legal Practitioners in New South Wales.
(2) That the Respondent pay the costs of the Applicant of and incidental to the filing and hearing of the Information to be agreed or as assessed.