Legal Practitioners Conduct Board v Fardone - [2009] SASC 15

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
LEGAL PRACTITIONERS CONDUCT BOARD v FARDONE
[2009] SASC 15
Judgment of The Honourable Justice Gray
20 February 2009
PROFESSIONS AND TRADES - LAWYERS - COMPLAINTS AND DISCIPLINE
PROFESSIONS AND TRADES - LAWYERS - MISCONDUCT, UNFITNESS AND DISCIPLINE - DISCIPLINARY ORDERS - SUSPENSION
PROFESSIONS AND TRADES - LAWYERS - ACCOUNTS AND TRUST MONEY - STATUTORY PROVISIONS - TRUST ACCOUNTS
PROFESSIONS AND TRADES - LAWYERS - MISCONDUCT, UNFITNESS AND DISCIPLINE - GROUNDS FOR DISCIPLINARY ORDERS - IMPROPER DEALING WITH MONEY, SECURITIES OR PROPERTY
Legal Practitioners Conduct Board applied for order suspending respondent's practising certificate - practitioner acted in breach of trust by using property for own personal advantage - whether practitioner engaged in unprofessional conduct - whether practitioner's practising certificate should be suspended - whether unduly onerous to suspend practitioner - whether Court satisfied that risk to public if defendant continued to practise.
Held: suspending practitioner's practising certificate - function of Court in exercising inherent jurisdiction is to examine relevant material to determine whether practitioner failed to maintain conduct to standard required of a member of the legal profession - protection of public guiding principle - evidence demonstrated serious departure from proper professional standards - order for suspension appropriate.
Legal Practitioners Act 1981 (SA) s 5(1), s 89, s 89(3) and s 89A; Criminal Law Consolidation Act 1935 (SA) s 58(1)(a), referred to.
Re Guild (1979) 32 ACTR 13; Re a Barrister and Solicitor (1979) 40 FLR 1; In re Practitioners (1980) 26 SASR 275; Law Society of South Australia v Jordan (Unreported, Supreme Court of South Australia, Civil, Doyle CJ, 12 February 1998, Judgment No S6552); Law Society of South Australia v Truman [2000] SASC 359; Legal Practitioners Conduct Board v Boylen [2003] SASC 241; Legal Practitioners Conduct Board v Phillips (2002) 83 SASR 467; Legal Practitioners Conduct Board v Hannaford (2002) 83 SASR 277; Harvey v Law Society of New South Wales (1975) 7 ALR 227; Ziems v Prothonotary of the Supreme Court of New South Wales (1957) 97 CLR 279; Butterworths Laws of Australia (1999) [250-1400], considered.

LEGAL PRACTITIONERS CONDUCT BOARD v FARDONE
[2009] SASC 15
Civil
GRAY J.

The Legal Practitioners Conduct Board has applied for an order suspending the legal practitioner’s practising certificate of Enzo Anthony Fardone.
At the time of the hearing of the application, disciplinary action had been taken against the practitioner with respect to his conviction of the criminal offence of indecent behaviour. The Legal Practitioners Disciplinary Tribunal reserved its decision on 26 August 2008. The decision of the Tribunal is yet to be delivered.
Disciplinary action is also proposed in respect of the practitioner’s dealing with matters arising from the estate of Di Salvo. As the conduct complained of commenced more than seven years ago, the Attorney‑General’s consent to the proceedings is required. The Board has sought the Attorney’s consent and a decision is awaited. The practitioner has written to the Attorney opposing the Board’s request.
On 22 January 2009, I made an order that the legal practitioner’s practising certificate of Enzo Anthony Fardone be suspended until further order. I now publish my reasons for that order.
Jurisdiction of the Court
The superior court in each state or territory has an inherent jurisdiction to exercise disciplinary powers over lawyers for the purpose of ensuring the honourable conduct of the profession.[1] The power of the court to discipline lawyers correlates to its authority to admit lawyers to practice.[2]
[1] Legal Practitioner’s Act 1981 (SA) s89(3), In re Practitioners (1981) 26 SASR 275 at 280 per Mitchell J. See also Butterworths Laws of Australia, (1999) [250-1400].
[2] Re Guild (1979) 32 ACTR 13 at 29, Re a Barrister and Solicitor (1979) 40 FLR 1 at 17. See also Butterworths Laws of Australia, (1999) [250-1400].
The inherent jurisdiction of this court to discipline legal practitioners was considered in In re Practitioners.[3] Although that case dealt with legislation that has subsequently been repealed, the observations of Mitchell J are apposite:
[Counsel] submitted that the jurisdiction of the Court in relation to disciplining practitioners was circumscribed by the provisions of the Legal Practitioners Act and that the Court had no inherent jurisdiction to discipline practitioners. The argument is clearly wrong. The Court has always retained the inherent power to regulate the conduct of practitioners whom it holds out as being fit and proper persons to practise the profession of the law.
…
I have no doubt that the Supreme Court of South Australia retains its inherent jurisdiction to discipline practitioners and that the power includes the power of suspension which the Court has exercised on a number of occasions: see, for example, In re a Practitioner [[1942] SASR 124].[4]
[3] In re Practitioners (1980) 26 SASR 275.
[4] In re Practitioners (1980) 26 SASR 275 at 279 –280.
The powers of the court in sections 89 and 89A of the Act are dependent on the institution of disciplinary proceedings. As earlier observed, at the time of the hearing of the application disciplinary proceedings had been commenced.
Sections 89 and 89A of the Legal Practitioners Act 1981 (SA) relevantly provide:
89.
(1)Where the Tribunal after conducting an inquiry into the conduct of a legal practitioner recommends that disciplinary proceedings be commenced against the legal practitioner in the Supreme Court, the Board, the Attorney-General or the Society may institute disciplinary proceedings in the Supreme Court against the legal practitioner.
(2)In any disciplinary proceedings against a legal practitioner (whether instituted under this section or not) the Supreme Court may exercise any one or more of the following powers:
(a)     it may reprimand the legal practitioner;
(b)     it may make an order imposing conditions on the legal practitioner's practising certificate (whether a practising certificate under this Act or an interstate practising certificate)-
(i)relating to the practitioner's legal practice; or
(ii)requiring that the legal practitioner, within a specified time, complete further education or training, or receive counselling, of a specified type;
(c)     it may make an order suspending the legal practitioner's practising certificate (whether a practising certificate under this Act or an interstate practising certificate) until the end of the period specified in the order or until further order;
(d)     it may order that the name of the legal practitioner be struck off the roll of legal practitioners maintained under this Act or the roll kept in a participating State that corresponds to the roll maintained under this Act;
(e)     it may make any other order (including an order as to the costs of proceedings before the Court and the Tribunal) that it considers just.
(3)This Part does not derogate from the inherent jurisdiction of the Supreme Court to discipline legal practitioners.
…
89A.
If-
(a)     disciplinary proceedings have been instituted against a legal practitioner before the Tribunal or the Supreme Court or a legal practitioner has been charged with or convicted of a criminal offence; and
(b)     the Supreme Court is satisfied that the circumstances are such as to justify invoking the provisions of this section,
the Supreme Court may, of its own motion or on the application of the Board, the Attorney-General or the Society, make an interim order-
(c)     imposing conditions on the legal practitioner's practising certificate (whether a practising certificate under this Act or an interstate practising certificate) relating to the practitioner's legal practice; or
(d)     suspending the legal practitioner's practising certificate (whether a practising certificate under this Act or an interstate practising certificate),
until disciplinary proceedings against the practitioner have been finalised or until further order.
It is to be observed that the inherent jurisdiction of this court has been preserved.
In Law Society of South Australia v Jordan[5] Doyle CJ considered the inherent and statutory jurisdictions of the court to suspend a practitioner’s right to practise. Proceedings had been brought by the Society seeking an order that the practitioner’s name be removed from the roll of practitioners. In that case the practitioner did not oppose a suspension order being made. Doyle CJ referred to In re Practitioners as authority for the court’s power to make suspension orders and observed:
Assuming, as I am prepared to do for the present, that the court has the power to make the order sought, I consider that I can make the orders sitting as a single judge. In that respect I rely upon the r95.12 and the fact that in this particular case the practitioner does not oppose the making of the order.
As to the merits of the matter, in view of the fact that the respondent does not oppose the making of the order, I am prepared to do so. I merely record that I have not had to decide whether such an order should be made if it were opposed by the respondent. In broad terms, the basis for the making of the order rests on the disarray in which the practitioner’s practice is, and his unfitness to practise for the time being, for medical reasons.
Should the respondent apply to have the suspension lifted, the matter would have to be considered afresh.[6]
[5] Law Society of South Australia v Jordan (Unreported, Supreme Court of South Australia, Civil, Doyle CJ, 12 February 1998, Judgment No S6552).
[6] Law Society of South Australia v Jordan (Unreported, Supreme Court of South Australia, Civil, Doyle CJ, 12 February 1998, Judgment No S6552). See also Law Society of South Australia v Truman [2000] SASC 359.
The present application proceeded on affidavit evidence. As the application is interlocutory in nature, it is not appropriate to make other than tentative findings of fact. However, in this particular case there is minimal dispute with respect to the primary facts.
Before embarking on an analysis of the evidence it is convenient to refer to relevant provisions of the Legal Practitioners Act 1981 (SA). Unprofessional conduct is defined by section 5(1) of the Legal Practitioners Act as follows:
unprofessional conduct, in relation to a legal practitioner, means—
(a)an offence of a dishonest or infamous nature committed by the legal practitioner in respect of which punishment by imprisonment is prescribed or authorised by law; or
(b)any conduct in the course of, or in connection with, practice by the legal practitioner that involves substantial or recurrent failure to meet the standard of conduct observed by competent legal practitioners of good repute;
Fiduciary or professional default is defined as:
fiduciary or professional default in relation to a legal practitioner means—
(a)any defalcation, misappropriation or misapplication of trust money received in the course of legal practice by the legal practitioner or a firm of which the legal practitioner is a member; or
(b)any wrongful or negligent act or omission occurring in the course of the practice of the legal practitioner, or a firm of which the legal practitioner is a member,
whether committed by the legal practitioner, an employee of the legal practitioner or any other person.
Trust money is defined as:
trust money means money received by a legal practitioner to which the practitioner is not wholly entitled both at law and in equity, but does not include money received by a practitioner in the course of mortgage financing.
Unsatisfactory conduct is defined as:
unsatisfactory conduct, in relation to a legal practitioner, means conduct in the course of, or in connection with, practice by the legal practitioner that is less serious than unprofessional conduct but involves a failure to meet the standard of conduct observed by competent legal practitioners of good repute.
The Board’s case was that the practitioner had acted and continues to act in gross breach of trust with respect to the estate of Di Salvo. In 2000, Probate was granted to the practitioner and Elvira James, as executors and trustees of the estate. In accordance with the terms of the will, a bequest of approximately $90,000 had been left to an infant beneficiary. That beneficiary will attain her majority in June 2009. Of the amount of $90,000, it appears that $50,000 was advanced by way of loan to Empros Pty Ltd from the practitioner’s trust account. It has transpired that Empros Pty Ltd ran a nightclub or entertainment business. At the time of the advance, the practitioner was the sole director and secretary of Empros Pty Ltd. He held a one-third share in the company. The practitioner’s brother, Anthony Fardone, held another one-third share.
The documentation that surrounds the transaction is unclear, inadequate, confused and contains material inconsistencies. There is no record of a payment by the trustees to Empros Pty Ltd, of $50,000. The practitioner’s records only disclose separate advances that total $40,029. On the other hand, Empros Pty Ltd, under the hand of the practitioner, appears to acknowledge a loan to it of $50,000. There are documents that are said to evidence payments of principal and interest, but they too are incomplete and inconsistent. Counsel for the practitioner acknowledged that the records were totally inadequate and could not be reconciled.
The practitioner, by his counsel, acknowledged that he had acted, and continued to act, in gross breach of trust. He accepted that he had used trust property for his own personal advantage. He advanced the monies to Empros Pty Ltd without security. This was a high risk investment. In the event, Empros Pty Ltd was deregistered in 2005 as a result of the failure to pay certain fees. Shortly before deregistration, its assets were sold and $35,000 was recouped.
The practitioner asserted that the balance of the monies due to the infant beneficiary formed part of the sum of $35,000. The practitioner then elected to advance the $35,000 to an entity, Quick Fix Loans Pty Ltd. Although it was asserted by the practitioner on the hearing of the application that Quick Fix Loans Pty Ltd was an entity of substance and that the loan was secured, there is no evidence to support those assertions and, to the contrary, the evidence suggests that Quick Fix Loans Pty Ltd may not be of substance.
The gravamen of the practitioner’s conduct in respect of the estate of Di Salvo may be summarised as follows:
-The practitioner applied trust monies for his own personal benefit in his business activities in the operating of a nightclub.
-The practitioner, in so doing, acted in gross breach of duty as a trustee.
-Apparently the practitioner obtained his co-trustee’s agreement to the transaction without explaining to her that the transaction involved a breach of trust and without advising her to take independent legal advice.
-The monies applied by the practitioner in breach of trust were monies held in trust for an infant beneficiary of the estate.
-Totally inadequate records were kept with respect to the transaction.
-The advance was made without any form of security and without any independent appraisal of an appropriate interest return in such circumstances.
-The practitioner’s breach of trust has continued to the present time, a period of almost nine years. This is notwithstanding the practitioner being on notice of the allegations for some years.
-In 2005, Empros Pty Ltd, the company to whom the practitioner had made the advance and in which, as earlier observed, he was the sole director and company secretary and held a third interest, was deregistered through non-payment of fees. Apparently, prior to deregistration its assets were liquidated producing, it is said, $35,000. Instead of repaying immediately the balance of the loan into an appropriate trust investment, the practitioner elected to have the monies from the proceeds of the sale paid to another entity, Quick Fix Loans Pty Ltd. Apparently, the controller of that entity is the owner of the premises from which the practitioner conducts his legal practice.
-There was no appropriate loan documentation with respect to the advance of $35,000 to Quick Fix Loans. The loan was expressed to be repayable from a deposit to be returned on a real property transaction. That did not occur. The loan has remained outstanding for almost four years. There has been no repayment of interest or principal. There is no documentation as to the terms of the loan.
-Apparently, it is said, the practitioner in about 2007 made enquiries of his landlord, the controller of Quick Fix Loans Pty Ltd, as to whether Quick Fix Loans could repay the debt. Repayment did not eventuate but instead the practitioner was relieved from paying rent in respect of his office premises for a substantial period.
At the time of the hearing the balance of the monies has not been paid into an appropriate trust investment. It was submitted by counsel for the practitioner that a family member, his brother, was able to provide some of the money to meet the practitioner’s obligation with respect to the monies to be repaid.
The accounting records relating to the dealings with this trust asset do not allow any proper reconciliation of amounts advanced and monies paid. It is not possible, through an appropriate analysis of records, to determine the amount due and owing. The trustee has the obligation to restore the trust property and in particular to account for benefits received as a result of the breaches of trust. Issues as to whether compound interest is payable may arise.
As earlier observed, it is not appropriate at this time to make other than tentative findings. What is clear and is acknowledged is that the practitioner has acted in gross breach of trust for almost a decade, and continues to do so notwithstanding his awareness of complaint. The most rudimentary advice, once he was aware of a complaint, would have revealed his breach of trust and called for immediate action to remedy the breach. Instead the practitioner has continued to act in breach of trust and, at the time of the application, had still taken few or no steps to remedy the position. Undertakings have been foreshadowed but no action has been taken.
Counsel for the practitioner suggested that undertakings would suffice as an interim measure. Those undertakings that were said would be proper were as follows:
-The practitioner agreeing not to act for children.
-The practitioner agreeing not to see children in any capacity as a lawyer without an adult present at all times. (It is expected that sometimes, albeit rarely, persons under the age of 18 might be witnesses or support persons for clients that are of age. In family court matters, even involving the contact or residence of a child (ren) it is unnecessary for a lawyer acting for a parent or other party to need to see or speak with children. Children are not permitted to give evidence in those proceedings.)
-The practitioner would agree not to operate his trust account. The practitioner is able to act without operating such an account. The contributions required to be paid by legally aided clients can be waived by him; all personal injury work can be referred to other lawyers (at present the practitioner has only one such client whose matter settled on the 19^th January 2009 and the practitioner will make arrangements for another solicitor to take over conduct of the file for the purpose of receiving monies into trust and paying disbursements and making payment to the client); the practitioner can charge clients for whom he appears for in criminal matters who are not subject to a grant of aid after he completes the work and such monies do not go through his trust account.
-The practitioner would agree not to act in any wills or estate matters. The practitioner has no such files apart from the subject file at the moment.
-The practitioner would not act as a trustee or agree to be a trustee for any matters.
-The practitioner would comply with any requests made in relation to the subject estate file. No actions have been lodged by the complainant to remove the practitioner as a trustee; such role will expire mid 2009 in any event. The practitioner still holds the view, until otherwise directed, that he had an ongoing responsibility in his capacity as a trustee.
-The practitioner undergoes a further period of supervision (the practitioner was supervised for about 6 months in 1993).
-The practitioner undergoes psychological assessment and treatment for a specified period as recommended by Mr. Balfour in his report annexed to the affidavit of Strain.
-The practitioner undertakes to write to the Attorney‑General withdrawing his opposition to the Attorney-General consenting to charges being laid outside the 7 year period. This may have an effect of expediting the consent of the Attorney‑General.

Counsel for the practitioner submitted that it would be unduly onerous to suspend the practitioner because it would effectively bring about the end of his practice. It was pointed out he had been in practice for the best part of thirty years and that, apart from the present matters he had only had the one occasion of a finding made against him in respect of unprofessional conduct. That finding was in 1993 and related to a misleading of the Court.
Upon close analysis it would appear that the practitioner’s legal practice is not extensive. He has less than 15 current files and when pressed for more detail, he maintained that only 12 are active. Eight relate to criminal matters, all presently in the Magistrates Court although some are likely to lead to committal to the District Court. There are four Family Court matters, none of which are presently listed for trial. The criminal and Family Court matters with possibly one or two exceptions are all legally funded files. There is one personal injury file that apparently has concluded as the process had been finalised. The practitioner also has a role to play from time to time with Guardianship Board matters. In the event that the practitioner is suspended, he would have to make arrangements for those files to be taken over by other firms or alternatively the Law Society would act to see that the files were appropriately handled.
The other matter that was raised on the application was the practitioner’s conviction for the offence of committing an act of gross indecency in the presence of a person under the age of 16 years contrary to section 58(1)(a) of the Criminal Law Consolidation Act 1935 (SA). This matter concerned the practitioner masturbating in front of a young woman in his office. At the time the young woman was aged under 16 years. She had earlier attended the practitioner’s office as a work experience student. Although that particular role had concluded she had continued to undertake part-time clerical work at the practitioner’s office and was there in such a capacity when the incident occurred. The practitioner pleaded guilty to the offence in the Magistrates Court. Psychological evidence suggested that although the practitioner was not suffering from any psychological disorder at the time, he did have an undiagnosed condition of Diabetes that could provide some explanation for his conduct. The reporting experts were confident that he would not re‑offend. As earlier observed, this is a matter that is currently before the Disciplinary Tribunal and their decision is reserved. In considering the Conduct Board’s present application to suspend the practitioner, this is a relevant circumstance to be bought to account.
It is imperative that practitioners maintain high professional standards in order to maintain public trust and confidence in the legal profession. In Legal Practitioners Conduct Board v Boylen[7] it was observed:
It is of the utmost importance that public confidence in the legal profession be maintained. Legal practitioners play an integral part in the administration of justice. The obligations which accompany their position are commensurate with the responsibility involved. The duties of legal practitioners include the duty to uphold the law, the duty to the court, the duty to their clients and the more general duty to members of the public. The court and the public demand high standards from practitioners. This is reflected in the legislative processes that regulate the admission of practitioners and govern their conduct.
[7] Legal Practitioners Conduct Board v Boylen [2003] SASC 241 at [110]-[111].
In Legal Practitioners Conduct Board v Phillips the court was asked to consider the conduct of a practitioner who was suffering from a mental illness. Although a practitioner’s personal antecedents may assist the court in understanding the reasons behind the practitioner’s conduct, they do not constitute an excuse for unprofessional conduct. It was observed:[8]
Medical and other expert reports were placed before the Tribunal in an attempt to explain the practitioner’s conduct. This material established that the practitioner suffered from a permanent borderline personality disorder. The effects of this disorder have been ameliorated by treatment.
Such a disorder may explain but does not excuse the practitioner’s inappropriate attitude toward his client. The evidence provided did nothing to explain other aspects of the practitioner’s misconduct, namely, his dishonesty and lack of candour and frankness with the tribunal and the court. It does not explain his manipulation of the court process to obtain a personal advantage. It does little to explain why he retained a charge over his client’s property when he was not entitled to do so. The practitioner’s conduct at best results from a fundamental misunderstanding of his obligations as a practitioner and at worst a deliberate breach of those obligations.[9]
[8] Legal Practitioners Conduct Board v Phillips (2002) 83 SASR 467.
[9] Legal Practitioners Conduct Board v Phillips (2002) 83 SASR 467 at 475.
In Legal Practitioners Conduct Board v Hannaford[10] the following observations were made:
While the medical condition of the practitioner’s partner may go some way to explaining his conduct it can provide no excuse. Many practitioners are subjected to stress in their working lives. This is part of professional life. Practitioners must understand that personal stressors cannot ameliorate the seriousness with which professional obligations are viewed and the need for strict compliance at all times. A practitioner’s professional standards must not be compromised or eroded.
[10] Legal Practitioners Conduct Board v Hannaford (2002) 83 SASR 277 at 281.
When exercising its inherent jurisdiction the function of the court is to examine the relevant material to determine whether the practitioner has failed to maintain his or her conduct to the standards required of a member of the legal profession.[11] In cases involving breaches of professional standards, the guiding principle is the protection of the public and the standing of the profession, rather than punishment of the practitioner.[12]
[11] Harvey v Law Society of New South Wales (1975) 7 ALR 227 at 230 per Barwick CJ. See also Butterworths Laws of Australia, (1999) [250-1400].
[12] Ziems v Prothonotary of the Supreme Court of New South Wales (1957) 97 CLR 279 at 286 per Dixon J. See also Butterworths Laws of Australia, (1999) [250-1400].
The evidence before this Court, together with the practitioner’s acknowledgments, establishes serious departures from proper professional standards. It is appropriate that an order for suspension be made immediately. This order is necessary to protect the public. In this way public confidence in the profession can be maintained. As the matter has proceeded on an interlocutory basis it is appropriate that the practitioner and the Conduct Board be at liberty to apply to vary the orders if circumstances change. The interlocutory order may need to be re‑visited upon the resolution of the disciplinary proceedings that have been the subject of the reserved decision.
For these reasons, the legal practitioner’s practising certificate of Enzo Anthony Fardone was suspended until further order.