Re Read - [2006] SASC 35

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
In the Matter of ROSE-MARIE ALEXANDRA READ
Judgment of The Honourable Justice Besanko
8 February 2006
PROFESSIONS AND TRADES - LAWYERS - PRACTISING CERTIFICATES - OTHER STATES OR TERRITORIES
Application pursuant to s 49 of Legal Practitioners Act 1981 for authority to practise profession of law as declared bankrupt – nature of inquiry under s 49 – whether applicant fit and proper person to practise profession of law – protection of public relevant consideration – relevance of circumstances surrounding bankruptcy – application granted subject to conditions.
Legal Practitioners Act 1981 s 49, referred to.
Law Society (SA) v Rodda (2002) 83 SASR 541; Reynolds v Law Society of South Australia [2002] SASC 223; Re Legal Practitioners Act 1981 (SA); Re Jordan [2005] SASC 367, considered.

In the Matter of ROSE-MARIE ALEXANDRA READ
[2006] SASC 35
Civil

BESANKO J: Rose-Marie Alexandra Read is a solicitor who was declared bankrupt on 19 December 2005. By reason of s 49 of the Legal Practitioners Act 1981 (“LPA”), she may not practise the profession of the law without the authority of this Court. Section 49 is in the following terms:
49. (1) A legal practitioner—
(a) who has become bankrupt or subject to a composition or deed of arrangement or assignment with or for the benefit of creditors; or
(b) who is or has been a director of an incorporated legal practitioner during the winding up of the company for the benefit of creditors,
must not, without the authority of the Supreme Court, practise the profession of the law.
Maximum penalty: $10,000.
(1a) Authority may be granted under this section on the application of a legal practitioner who is or is about to become bankrupt or subject to a composition or deed of arrangement or assignment with or for the benefit of creditors or who is or has been a director of an incorporated legal practitioner that is being or is about to be wound up for the benefit of creditors.
(2) The Supreme Court may grant an authority under this section on such conditions as it thinks fit.
(3) A legal practitioner must not contravene or fail to comply with any condition of an authority granted by the Supreme Court under this section.
Maximum penalty: $10,000.
By ex parte summons issued on 6 January 2006, Ms Read seeks the authority of this Court to practise the profession of the law. The Law Society of South Australia (“the Society”) has been served with the application and it appeared by counsel before me. It does not oppose a grant of authority subject to conditions. Certain conditions have been proposed by the applicant, and the Society has indicated that it agrees with the proposed conditions.
The facts
A number of affidavits were put before me, including a detailed affidavit of the applicant. The relevant events extend over a period of nearly ten years (ie, 1996-2005), and, although a good deal of information was put before me, in some areas the information is not in a form that enables me to make precise findings. However, the picture that emerges is sufficiently clear for me to determine this application.
On 2 October 1978, the applicant was admitted to practise in South Australia. She had completed articles of clerkship with the Aboriginal Legal Rights Movement in 1977 and 1978.
After practising in partnership for two to three years, the applicant commenced practise as a sole practitioner under the firm name R-M.A. Cadd & Associates. From March 1982 she practised from premises in Salisbury and she continued to practise as a sole practitioner until the date upon which she was declared bankrupt.
The applicant was married in 1984. There were no children of the marriage. The applicant employed her husband in her firm as the office manager and as a paralegal. The marriage did not last and the applicant separated from her husband in 1993 and they were divorced in 1994. The property at Salisbury from which the applicant practised was in her husband’s name and the applicant paid rent to him.
In September 1995, the applicant re-married and, in 1997, she gave birth to a boy. The applicant was required to work up to and immediately after the birth of her son, as her second husband had resigned from his employment with the intention of carrying out further study.
At the time of her second marriage, the applicant’s first husband, after a short break, was again working in the practice as the office manager and as a paralegal. From about 2002 onwards, the applicant began experiencing difficulties working with her first husband. It seems that, as office manager of the practice, he had failed in his duty to prepare, or assist in the preparation of, six Business Activity Statements for the financial quarter ending 30 June 2002. In March 2005, he left his employment with the applicant because their relationship had become unworkable.
Between 1996 and 2004, the applicant also experienced a number of medical and other problems, including a miscarriage in January 1996, an undiagnosed stomach illness in 2003 and 2004, and a motor vehicle accident in 2004. It seems that she also experienced difficulties associated with her second husband’s drug addiction, which, as far as I can see, continued from December 1996 to August 2000, and her son’s learning and social problems at school, which also appear to have continued over a substantial period of time.
During the same period, the applicant found herself under considerable financial strain. The applicant had agreed to pay substantial debts of her first husband at the time of their divorce in 1994. Although the applicant received substantial assistance from her parents in terms of the care of her son, by 2001 she had taken on the role of primary carer for her son and step-daughter. In addition, between 2001 and 2004, she was financially supporting her second husband, who had returned to study. His drug addiction placed additional financial demands on the applicant. In 2004, he gained part-time employment and became financially self-supporting, although he did not make financial contributions to the relationship.
I turn now to the causes of the applicant’s bankruptcy.
The applicant failed to comply with Commonwealth taxation legislation in that:
1She failed to lodge returns of income for the financial year 1996 and thereafter until sometime in about September or October 2005, when she lodged returns of income for the financial years 1996 to 2005.
2She failed to lodge six Business Activity Statements for the financial quarter ended 30 June 2002. These were finally lodged and brought up to date by July 2005.
In February 2005, the applicant was told that she would be charged in relation to the above breaches and she was subsequently charged, although, with respect to her failure to lodge returns of income, she was charged only for the financial years 2001, 2002 and 2003. The charges against the applicant have come on in the Magistrates Court on four occasions between August and December 2005, but have not yet been disposed of.
The applicant’s accountant estimated a liability in relation to the returns of income for the financial years 1997 to 2005 of about $102,000. In addition to that liability, there was a liability of about $62,000 in relation to the assessed tax for the 1996 financial year and the six Business Activity Statements. The Commissioner of Taxation lodged a creditor’s petition in 2005 and the applicant was unable to meet her liabilities as they fell due. As I have said, she was declared bankrupt on 19 December 2005. The major creditors were the Commissioner for Taxation and the Australian Credit Union.
The affidavits as to the applicant’s character show her to be an experienced legal practitioner who is well regarded by other members of the profession. There is no suggestion that the applicant has ever dealt with her clients or her clients’ monies in a manner which could be described as dishonest or fraudulent. The applicant’s failure to comply with her taxation obligations was not motivated by greed or financial ambition, nor done with an intention to evade her legal obligations. Rather, her failure to comply with her taxation obligations is a result of a combination of factors.
The first factor is that the applicant seems, to some extent at least, to lack the necessary skills to attend to the financial and administrative aspects of her legal practice. The applicant’s lack of skill in this respect is further evidenced by the fact that due to what appear to be poor trust account procedures, the applicant was reported by the Society to the Legal Practitioners Conduct Board, and conditions were imposed on the applicant’s practising certificate in July 2005. The conditions require the applicant to engage a qualified accountant to ensure compliance in terms of the keeping of the firm’s trust account records.
The second factor is the applicant’s personal circumstances throughout the relevant nine-year period. As I have already explained, the applicant experienced a series of personal difficulties which contributed to the fact that she developed what might be called a “mental block” in terms of attending to her taxation obligations. At regular intervals, the applicant attempted to attend to her taxation obligations, seeking assistance from her office manager, her husband and her accountant. However, the ongoing personal difficulties experienced by the applicant, combined with the time spent attending to her clients, resulted in her placing the financial and administrative aspects of her legal practice in the background. In saying this, I do not mean to minimise the seriousness of the non-compliance with the taxation legislation, which extended over a long period of time. Furthermore, there is evidence that the applicant has difficulty complying with trust account rules and regulations.
The applicant was declared bankrupt because she was unable to meet her financial commitments. The financial commitments were primarily commitments under Commonwealth taxation legislation. On the evidence, it appears the applicant has had substantial financial commitments over the years, but it is not possible for me to say with certainty what would have happened had the applicant lodged her returns of income and Business Activity Statements at the proper times. However, on the balance of probabilities, I find that it was the fact that tax liabilities for a number of years were demanded at the one time which led to her bankruptcy.
Issues on the application
A refusal of an authority under s 49 will “punish” an applicant because he or she will be unable to practise. However, the process under s 49 of the LPA is not an alternative to the disciplinary procedure in the LPA or this Court’s power to discipline legal practitioners in the exercise of its inherent jurisdiction. The disciplinary procedure ensures that charges are clearly formulated, and the inquiry directed to the establishment or otherwise of those charges. In considering charges of unprofessional or unsatisfactory conduct, the Court acts in the public interest and the ultimate question is whether the practitioner is a fit and proper person to remain a legal practitioner: Law Society (SA) v Rodda (2002) 83 SASR 541.
The inquiry under s 49 is whether the applicant is a fit and proper person to practise the profession of the law, having regard to the fact that he or she has become a bankrupt. The relevant consideration is the protection of the public: Reynolds v Law Society of South Australia [2002] SASC 223. Often, the question is to be decided in the context of proposed conditions that will limit the way in which the applicant is to practise. A consideration of the circumstances under which the applicant has become bankrupt may reveal conduct which is or which may be unprofessional or unsatisfactory, and to that extent the distinction between proceedings under s 49 and disciplinary proceedings may not be a neat and clearly defined one. However, the purpose of an inquiry under s 49 is not to discipline a practitioner: see Re Legal Practitioners Act 1981 (SA); Re Jordan [2005] SASC 367. That is not to say that should evidence of unprofessional or unsatisfactory conduct emerge during the course of an inquiry under s 49, a Court must ignore it or is powerless to act. In the case of what seems to be serious misconduct, the Court may consider it appropriate to adjourn, or perhaps dismiss, the application pending the outcome of disciplinary proceedings.
This is not a case in which the possibility of disciplinary proceedings should affect the course of the proceedings under s 49. At the same time, I am not to be taken to be expressing any view which might affect possible disciplinary proceedings against the applicant. If they are taken, they will be dealt with in accordance with the proceedure in the LPA or the procedure of this Court.
Having regard to the facts of this case and the fact that the authority will be subject to the conditions set out below, I think it is appropriate to grant an authority under s 49 of the LPA.
Conclusion
I will grant an authority under s 49 of the LPA subject to the following conditions:
1The practitioner’s right of practice be limited to that of an employed solicitor in the employ of and under the supervision of Brett Jonathan Dixon and Phillip David Gallasch or such other legal practitioner of no less than ten years’ standing as may from time to time be approved by the court with no right of private practice;
2the practitioner must forthwith advise the Law Society of South Australia should she cease to be so employed;
3the practitioner must not receive or deal with money paid by her employer’s clients;
4the practitioner must not render any bill for professional fees other than practice taxation invoices for the legal practice of Dixon Gallasch Pty Ltd or such other practitioner as may from time to time be approved by the court;
5the practitioner must not establish or maintain a solicitor’s trust account in her own name, nor operate upon the trust account of Dixon Gallasch Pty Ltd;
6the practitioner must comply with the reasonable directions of her trustee in bankruptcy;
7the practitioner must pay within the prescribed periods any contributions to her bankrupt estate assessed against her income;
8the practitioner must lodge her future income tax returns within the prescribed time periods and pay any income tax assessed thereon as required by the Australian Taxation Office;
9the practitioner must retain the services of Grant Stephens of HLB Mann Judd Stephens, Chartered Accountants to manage her financial affairs while she remains an undischarged bankrupt.
In his affidavits, Mr Brett Dixon has offered a number of undertakings in terms of the supervision of the applicant and those undertakings should be identified in the minutes of the order.