THE LEGAL PRACTITIONERS ACT 1981 (SA) RE DUNCAN JAMES FOWLER, A PRACTITIONER - [2019] SASC 64

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
THE LEGAL PRACTITIONERS ACT 1981 (SA) RE DUNCAN JAMES FOWLER, A PRACTITIONER
[2019] SASC 64
Judgment of The Honourable Justice Nicholson
26 April 2019
PROFESSIONS AND TRADES - LAWYERS - PRACTISING CERTIFICATES
The practitioner gave notice of a show cause event pursuant to section 20AH of the Legal Practitioners Act 1981 (SA). The relevant show cause event was the service on him by the Australian Taxation Office of a creditor's petition under the Bankruptcy Act 1966 (Cth). The practitioner subsequently entered bankruptcy and has been an undischarged bankrupt since 5 June 2018.
Each of the practitioner, the Law Society of South Australia and the Legal Profession Conduct Commissioner were represented. The Commissioner and the Law Society argued that the practitioner should only be permitted to continue in practice as an employee. The practitioner contended that he was a fit and proper person to practise as a principal subject to a regime of quite restrictive conditions.
Held:
1. Where, following its consideration of a practitioner's show cause event, the Supreme Court is satisfied of fitness to practice subject to certain conditions, the Court has power to order that the practitioner's practicing certificate be endorsed to that effect.
2. The practitioner is a fit and proper person to hold a practising certificate subject to conditions endorsed on his practising certificate as set out in paragraphs [8] and [114] of the reasons for judgment.
Bankruptcy Act 1966 (Cth); Legal Practitioners Act 1981 (SA) s 5, s 20AH, s 20AI, s 20AJ, referred to.
The Legal Practitioners Act 1981 (SA) re David Peter Andrew Moen [2018] SASC 136; The Legal Practitioners Act 1981 (SA) re Roderic Jason Lindquist [2009] SASC 93; Re Read [2006] SASC 35; Re Jenner [2007] SASC 263; Barakat v Law Society of New South Wales [2013] NSWADT 271; New South Wales Bar Association v Murphy (2002) 55 NSWLR 23, considered.

THE LEGAL PRACTITIONERS ACT 1981 (SA) RE DUNCAN JAMES FOWLER, A PRACTITIONER
[2019] SASC 64
Civil: Application
NICHOLSON J.
Introduction

Duncan James Fowler is a legal practitioner who was admitted to practice in this Court in 2001. On 11 May 2018, the practitioner was served by the Australian Taxation Office (ATO) with a creditor’s petition under the Bankruptcy Act 1966 (Cth). The practitioner had failed to comply with a bankruptcy notice served on 7 March 2018 with respect to a judgment debt in the amount of $226,081.37. A sequestration order was made on 5 June 2018 and from that date the practitioner has been an undischarged bankrupt.
Service of the petition by the ATO constituted a “show cause event” within the meaning of section 5 of the Legal Practitioners Act 1981 (SA) (LPA) and by affidavit affirmed by the practitioner on 16 May 2018, filed in this Court and subsequently served on the Law Society of South Australia (LSSA) and the Legal Profession Conduct Commissioner (the Commissioner), the practitioner provided notification of the show cause event as required by subsections 20AH(2)(a) and (4) of the LPA. On occasion during these reasons I will refer to the Commissioner and the LSSA, collectively, as the interveners.
Upon notice being given of a show cause event, the supervisory jurisdiction of the Supreme Court with respect to an admitted legal practitioner is engaged. In particular, in accordance with the powers conferred by sections 20AI and 20AJ of the LPA and the inherent jurisdiction of the Supreme Court, this Court is obliged to make a determination as to whether the practitioner should remain entitled to practise, that is, whether or not the practitioner’s practising certificate should be suspended or cancelled. If a determination is made that the practitioner remains entitled to practise the Court may impose conditions governing such a continuing right to practise, which conditions are to be endorsed on the practitioner’s practising certificate.
Sections 20AH and 20AI of the LPA are in these terms.
20AH—Holder of practising certificate—show cause event
(1)This section applies to a show cause event that happens in relation to the holder of a practising certificate.
(2)The holder must provide to the Supreme Court both of the following:
(a)     within 7 days after the happening of the event—notice, in the form approved by the Court, that the event happened;
(b)     within 28 days after the happening of the event—a written statement explaining why, despite the show cause event, the person considers himself or herself to be a fit and proper person to hold a practising certificate.
(3)If a written statement is provided after the 28 days mentioned in subsection (2)(b), the Supreme Court may accept the statement and take it into consideration.
(4)A notice and written statement provided to the Supreme Court under this section must be served by the holder on the Commissioner and the Society, each of whom may make written representations to the Court in relation to the holder of the practising certificate within the time, and in accordance with the procedure, prescribed by rules of the Court.
20AI—Refusal, amendment, suspension or cancellation of practising certificate—failure to show cause
(1)The Supreme Court may refuse to issue or renew, or may amend, suspend or cancel, a practising certificate if the applicant or holder—
(a)     is required by section 20AG or 20AH to provide a written statement relating to a matter and has failed to provide a written statement in accordance with that requirement; or
(b)     has provided a written statement in accordance with section 20AG or 20AH but the Court does not consider that the applicant or holder has shown in the statement that, despite the show cause event concerned, he or she is a fit and proper person to hold a practising certificate.
(2)For the purposes of this section only, a written statement accepted by the Supreme Court under section 20AH(3) is taken to have been provided in accordance with section 20AH.
(3)If the Supreme Court makes a determination under this section, the Court must, as soon as practicable, give the applicant or holder written notice of the determination.
I considered the operation of these two sections in The Legal Practitioners Act 1981 (SA) re David Peter Andrew Moen.[1] As to the power of the Supreme Court to impose conditions in a case where a show cause event has been notified, I said this.[2]
Prior to 1 July 2014, section 49 of the Act provided, inter alia, that an undischarged bankrupt could not, without the authority of the Supreme Court, practise the profession of law. Section 49 expressly conferred power on the Supreme Court to grant an authority to practise on such conditions as thought fit. Following amendments which took effect on 1 July 2014, section 49 now only deals with the situation of a legal practitioner who is a director of an incorporated legal practice during its winding up for the benefit of creditors. The Act no longer expressly provides that a practitioner who is an undischarged bankrupt is not, without authority, entitled to practise. Rather, this situation is now regulated by the show cause regime in Part 3, Division 2B (sections 20AG to 20AI) of the Act. Within that regime there is no express conferral of power to impose conditions on the practising certificate of a practitioner who is required to show cause.
.  .  .  .
[1] [2018] SASC 136.
[2]    The Legal Practitioners Act 1981 (SA) re David Peter Andrew Moen [2018] SASC 136 at [24]-[31].
Section 20AI empowers the Supreme Court to, inter alia, “amend … a practising certificate …” but only in the circumstances there outlined, that is, where the practitioner fails to provide a required show cause statement or, having provided such a statement, the court nevertheless is not persuaded that the practitioner is a fit and proper person to hold a practising certificate. For reasons to be explained, I am satisfied that the practitioner in this case is a fit and proper person to hold a practising certificate provided it is subject to certain conditions. A question arises whether, in such a case, section 20AI confers power to impose conditions on the practitioner’s certificate or whether any such power is to be found elsewhere and, if so, where.
I am satisfied that there is power in the Supreme Court to impose conditions on the right of a practitioner, who has been required to show cause, to continue to practise. The situation does not appear to be expressly provided for. However, this conclusion is supported on a number of bases.
First, it makes little sense for section 20AI to give a power to amend where a show cause written statement has not been provided at all or, where provided, it discloses that the practitioner is not a fit and proper person to practise. As a practical matter, the occasion to exercise a power to amend could only arise where the practitioner has complied with his or her show cause obligations and the Court is satisfied of fitness but subject to outstanding concerns that can be satisfactorily addressed by the imposition of appropriate conditions. In other words, paragraph (b) of subsection 20AI(1) should be construed as permitting the Court to amend, that is, impose conditions on, a certificate in the circumstances embraced by paragraph (b) where it is satisfied that the practitioner would be a fit and proper person to practice in accordance with those conditions.
Second, the existence of a power in the Court to make orders endorsing conditions on a practitioner’s practising certificate is to be inferred from section 20AA(1) of the Act. Section 20AA is in the following terms.
20AA—Endorsement of conditions on practising certificates
(1)     If, in accordance with this Act, a regulatory authority of this or any participating State makes a determination or order—
(a)imposing conditions on, or requiring the endorsement of conditions on, a legal practitioner's practising certificate; or
(b)varying or revoking conditions on, or requiring the variation or revocation of conditions on, a legal practitioner's practising certificate,
the Supreme Court may record or give effect to the determination or order by revoking the practising certificate currently held by the legal practitioner and issuing the legal practitioner with a new practising certificate in the appropriate form.
(2)     A regulatory authority must notify the Supreme Court of the making of a determination or order referred to in subsection (1).
(3)     If a determination or order is made imposing, varying or revoking conditions on a practising certificate, the determination or order will be taken to have effect from the date it is made, or from a subsequent date specified in the determination or order, and not from the date of issue of a new practising certificate under this section.
In the Legal Practitioners Act 1981 (SA) Re Roderic Jason Lindquist,[3] I made the following remarks as to the operation of s 20AA of the Act.[4]
Section 20AA contains machinery provisions. It empowers the Supreme Court to record or give effect in certain ways to the making of a determination or order by a regulatory authority of South Australia or of any participating state which serves, inter alia, to impose conditions on or to vary or revoke conditions on a legal practitioner’s practising certificate. The assumption underlying the powers conferred on the Supreme Court by section 20AA is that a regulatory authority has made, “in accordance with this Act”, a determination or an order imposing, varying or revoking practising certificate conditions. It does not, itself, confer power on a regulatory authority to impose conditions or to vary or revoke them.
It is to be observed that the definition of regulatory authority in section 5 of the LP Act includes, in relation to the State of South Australia, the Supreme Court.[5] It follows that the machinery provisions in section 20AA apply where the Supreme Court has made a determination or order imposing, varying or revoking conditions. It is to be inferred from the existence and terms of section 20AA that there is a power, to be found elsewhere, conferred on the Supreme Court, as a regulatory authority, to impose, vary or revoke conditions.
Finally, a power in the Supreme Court to impose conditions on a practising certificate in the circumstances under consideration will fall within the Court’s inherent jurisdiction, essentially for reasons analogous to those I gave with respect to a related issue in Lindquist.[6]
(footnotes in original)
[3] [2016] SASC 134.
[4] [2016] SASC 134 at [14]-[15].
[5]    Together with the Legal Practitioners Education and Admission Council (LPEAC), the Law Society, the person holding or acting in the Office of Legal Profession Conduct Commissioner in accordance with the provisions of the Act and the Legal Practitioners Disciplinary Tribunal established under Part 6 of the LP Act.
[6]    The Legal Practitioners Act 1981 (SA) Re Roderic Jason Lindquist [2016] SASC 134 at [16]-[27].
In the present case, neither the Commissioner nor the LSSA has sought an order suspending or cancelling the practitioner’s practising certificate. However, both have proposed conditions which would have the effect of permitting the practitioner to practise only as an employee[7] and prohibiting the practitioner from having access to or capacity to deal in any way with a trust account. However, the practitioner, having an extant and longstanding practice as a sole practitioner, maintains that he should be entitled to continue as a sole practitioner and to continue to operate and manage a trust account for that purpose. It is common ground that the Court has the power to permit the practitioner to continue to practise and to impose conditions on any continuing right to practise. The dispute, as just summarised, has focussed on the nature of the conditions that ought to be imposed.
[7] Whilst no condition expressly requiring formal supervision has been sought by the Commissioner and the LSSA, in the event that the practitioner were to practise as an employee of a firm of legal practitioners (but not necessarily so if employed as a legal officer in a business) some de facto level of supervision or oversight might be expected.
The conditions that the Commissioner and the LSSA would have the Court impose
The interveners maintain that the practitioner should be restricted to practising as an employee only and should have no involvement with a trust account. The Commissioner, with the agreement of the LSSA, has proposed by way of draft minutes of order that the following conditions be endorsed on the practitioner’s practising certificate, to remain in force until further order.
1.From the date of this order until further order of this Court conditions be imposed upon the Legal Practitioner’s current practising certificate and on any subsequent certificate that may be issued to him as follows:
1.1     The Practitioner must not practise as a principal and may only practise as an employed practitioner.
1.2 The Practitioner must not operate a trust account or a controlled money account as defined in Part 1 of Schedule 2 to the Legal Practitioners Act, 1981.
1.3     The Practitioner must not receive, hold, handle or deal in any way with trust monies as defined by the Legal Practitioners Act, 1981.
1.4     The Practitioner must notify the Court, the Legal Profession Conduct Commissioner and the Law Society of South Australia in writing if he commences employment as an employed legal practitioner, and of changes in such employment, such notification to be provided within seven (7) days of the commencement of or changes in employment.
1.5     The Practitioner must provide such information in relation to his employment and practice of the law as may be reasonably required from time to time by the Law Society of South Australia and the Legal Profession Conduct Commissioner.
1.6     The Practitioner must notify the Court, the Legal Profession Conduct Commissioner and the Law Society of South Australia in writing if the period of his bankruptcy is extended or shortened, stating the reason(s) why. Such notification is to be provided within seven (7) days of the date on which the bankruptcy period is extended or shortened.
2.Any application by the Legal Practitioner to discharge or vary the conditions imposed by this order must be made with notice to the Legal Profession Conduct Commissioner and the Law Society of South Australia and must be supported by affidavit.
Conditions that the practitioner would have the Court impose
As earlier indicated, the practitioner wishes to continue to practise on his own account and to continue to manage and operate a trust account for that purpose. As such, the practitioner has offered to be subjected to a detailed regime of conditions which the practitioner submits would offer appropriate protection to his clients and to the public generally. The practitioner proffered draft minutes of order in the following terms.
Note:the Practitioner became bankrupt by Sequestration Order dated 5 June 2018. The Practitioner provided a Notice of a “show cause event” pursuant to s 20AH of the Legal Practitioners Act 1981. The Court is satisfied that the Practitioner is a fit and proper person to hold a practising certificate subject to the conditions the subject of the order below.
The Court orders:
That from the date of this order until the date upon which the practitioner is discharged from bankruptcy, or until earlier order, the following conditions are to be endorsed upon the practitioner’s current practising certificate, and on any subsequent certificate that may issue to the practitioner:
1.The practitioner shall not employ any staff.
2.The practitioner shall not change the structure of his business (whether by going into partnership or establishing an incorporated legal practice, or otherwise).
3.The practitioner shall advise any barristers he proposes to instruct of his bankrupt status.
4.The practitioner shall meet the following criteria to the satisfaction of the supervisor:
a.     That all Business Activity Statements (BASs) and income tax returns are lodged on time;
b.     That all tax liabilities are paid on time;
c.     That the practitioner retain in his office account sufficient funds to pay his accrued and unpaid tax liabilities at any given point in time; and
d.     That all other business liabilities of the practitioner are paid on time;
5.The practitioner shall be subject to general supervision and monitoring by Franco Camatta, legal practitioner (the supervisor), and for that purpose, the practitioner shall provide him with unfettered access to the practitioner’s:
a.     client files;
b.     business and taxation records; and
c.     online internet banking in relation to the practitioner’s trust account and office account (read only);
6.The practitioner shall ensure that the future applications for a practising certificate and professional indemnity insurance are lodged in a timely and compliant manner with the Registrar of Legal Practitioners at the Law Society of South Australia in accordance with the prescribed time for doing so;
7.The practitioner shall comply with the reasonable directions of his Trustee in Bankruptcy;
8.The practitioner shall retain Mr Brett Wiseman (Fellow, IPA; registered tax agent) (the accountant) to monitor his financial affairs and assist him in ensuring compliance with his financial and tax obligations, in accordance with the scope of work detailed in the second affidavit of Jonathon Craig McKay, filed herein on 21 March 2019;
9.The practitioner shall co-operate with the accountant and provide him with all documentation sufficient to enable the timely filing within prescribed periods of all future BAS and income tax returns with the Australian Taxation Office (ATO);
10.Subject to the operation of the Bankruptcy Act 1966, the practitioner shall pay all amounts self-assessed or assessed by the ATO as payable as and when such payments fall due;
11.The practitioner shall co-operate with the accountant to ensure that payment for future applications for practising certificates and professional indemnity insurance are made within the prescribed time frame;
12.The accountant shall assist the supervisor, and report fortnightly to the supervisor on the practitioner’s compliance with his obligations under these Conditions;
13.The practitioner shall retain Mr Simon Smith (Chartered accountant, Fellow of CPA Australia, Associate Member of the Institute of Internal Auditors Australia) (the auditor) to monitor his Trust Account, and to assist him in ensuring compliance with Schedule 2 of the Legal Practitioners Act 1981.
14.Subject to the supervision and direction of the auditor, the practitioner shall operate the Trust Account (TA) in the following manner:
14.1   Subject to paragraph 14.2 below, the practitioner may draw and sign TA cheques (or otherwise draw on funds held in the TA) as may be required for any particular transaction in which he holds instructions, and in respect of which he holds or receives funds in the TA for that purpose.
14.2   In respect of each and every such TA cheque drawn and signed by him (or other withdrawal) the practitioner shall, every week, provide to the auditor evidence in the TA books and records of the withdrawals with respect to his operation of the TA in respect thereof as the auditor may put to him.
14.3   The practitioner shall only draw and sign TA cheques payable to him or his office account (or otherwise transfer funds in the TA to him or his office account) in discharge of client-approved fee invoices under the supervision of the auditor, who shall attest to the same by endorsement on the office copy of the fee invoice.
15.The auditor shall provide the supervisor with the following trust account reports for the previous month within 7 days from the end of each month:
i.      Trust Bank Reconciliation;
ii.     Trust Trial Balance;
iii.    Trust Account Receipts Cash Book; and
iv.    Trust Account Payments Cash Book.
16.The supervisor is to satisfy himself that the practitioner is meeting his professional and business obligations in a timely manner and shall provide a written report to the Law Society of South Australia and the Legal Profession Conduct Commissioner on a 6-monthly basis during the period of the order.
17.The accountant shall provide a written report to the Law Society of South Australia on a quarterly basis as to the practitioner’s compliance with his financial, taxation and Trust Account obligations, the first report to be provided by [date] in respect of the quarter ending [date];
18.The practitioner shall forthwith advise the Law Society of South Australia should he cease to practise in the manner provided in this order;
19.Liberty to apply generally to both the practitioner, the Legal Profession Conduct Commissioner and the Law Society of South Australia;
20.The Law Society of South Australia or the Legal Profession Conduct Commissioner may apply for further orders if any non-compliance with these conditions is reported by the supervisor or if for any other reason they have concerns about the practitioner’s practice.
The evidence relied on

The practitioner and the interveners filed and served the following affidavits which were read on the application before the Court.
(i)Affidavit of the practitioner affirmed 16 May 2018 comprising notice of the show cause event as required by subsection 20AH(2)(a).
(ii)Second, third, fourth and fifth[8] affidavits of the practitioner affirmed 31 May 2018, 4 March 2019, 21 March 2019 and 27 March 2019 comprising the practitioner’s written statement explaining why, despite the show cause event, the practitioner considers himself to be a fit and proper person to hold a practising certificate as required by subsection 20AH(2)(b) and also addressing criticisms raised by the interveners in their affidavit evidence and during submissions.
(iii)First and second affidavits of the practitioner’s solicitor, Jonathon Craig McKay, affirmed 13 March 2019 and 21 March 2019.
(iv)First and second affidavits by Gregory Mornington May (the Commissioner) sworn 19 June 2018 and sworn 8 August 2018, comprising written representations to the Court proffered by the Commissioner pursuant to subsection 20AH(4).
(v)Affidavits by Werner Van Wyk (Deputy Director, Ethics and Practice of the LSSA) sworn 20 June 2018 and 24 September 2018, comprising written representations to the Court proffered on behalf of the LSSA pursuant to subsection 20AH(4).
[8] The fifth affidavit was received after the completion of the oral submissions by the interveners on 22 March 2019 and in support of the written reply provided by the practitioner on 29 March 2019.
Also tendered by the practitioner was a series of trust account audit reports for the financial years ending 30 June 2011 to 30 June 2018 inclusive. The burden of these reports relied on by the practitioner is that there have been no trust accounting concerns of any significance raised on audit over this period, which period largely coincides with the period during which the practitioner has been under sustained financial pressure.
Without purporting to be comprehensive at this stage concerning the submissions by the interveners in support of the position they have taken, I observe that a central concern of the interveners is that the practitioner’s indebtedness to the ATO is substantial which of itself, together with the circumstances in which it arose, raises a serious question as to the competence of the practitioner to practise. The Commissioner put the submission in these terms.
It points to either serious financial incompetence or an inability to keep a proper oversight of his financial affairs or both. His income tax liability suggests a lack of financial judgment as well as lack of legal judgment. However, there is no suggestion there was dishonesty in any of his financial dealings.
Further background and other matters raised in the evidence
It is convenient to move to a summary of the practitioner’s professional background since his admission to practice in 2001, the circumstances in which the debt to the ATO arose and some of the matters raised by the evidence, material to the practitioner’s fitness to practice.
After admission in 2001, the practitioner commenced practising as an employed solicitor with a Port Lincoln firm of solicitors. He became a partner of the firm in May 2002. The practitioner practised mainly in the areas of property, wills and estates and commercial law and deposes to having built a substantial client base within the Port Lincoln community.
On 1 July 2007, the practitioner commenced practising on his own account in Port Lincoln by way of an incorporated practice, Duncan Fowler & Associates Pty Ltd. He closed the practice in March 2009 and advised the LSSA that he was doing so because of accrued debts. On 22 June 2009, with the consent of the practitioner, the LSSA resolved to appoint a supervisor to the practice to facilitate its proper closure on the grounds, as expressed in the notice of appointment, that:
(i)the practitioner was not attending properly to the affairs of the practice;
(ii)the practitioner had committed a serious irregularity in the course of practise; and
(iii)other proper cause existed for the appointment of a supervisor.
It should be noted that the practitioner was not subjected to disciplinary proceedings and no findings in terms of (i), (ii) or (iii) were made. These represent a description of the LSSA’s concerns following an internal review. The practitioner welcomed the LSSA’s intervention and assistance with the orderly closing of the practice.
In his second affidavit, the practitioner asserted that he has never breached his trust account obligations. However, in his third affidavit he acknowledged that there had been irregularities in his trust account in 2009 and gave explanations endeavouring to suggest that the irregularities were not of particular significance. The Commissioner does not accept this characterisation.[9] The practitioner’s mental state, on the practitioner’s own assessment, was “fragile” in the early part of 2009.
[9] The practitioner maintained that the irregularities occurred after the practice had been closed and suggested that a number of factors had affected his ability to operate the trust account. The practitioner was under the belief, now understood to be erroneous, that he was unable to access his trust account at the time because it had been frozen by the bank. The Commissioner makes the submission that a simple enquiry of the bank or the LSSA would have clarified this.
Between March 2009 and June 2010, the practitioner was employed by a former client to provide commercial and legal advice. He maintained a current practising certificate. However, on 1 July 2010 the practitioner resumed practise on his own account from a residential address in Adelaide with a majority of his clients at that time being in Port Lincoln. Until 2018 the practitioner practised as a sole practitioner both under his own name and under a company structure.
From soon after his return to private practice in 2010, the practitioner began to default in meeting his taxation obligations to the ATO. The practitioner commenced to make modest periodic payments towards his ATO debt as he understood it to be, but thereafter failed to meet future taxation debts as they accrued. The practitioner asserted that during this period he did not have a full appreciation of the extent of his debt to the ATO. Nevertheless, with knowledge of the fact that he was in debt, he took on further liability by employing a member of staff in 2013.
By July 2016, the practitioner’s debt to the ATO had increased to more than $190,000. Notwithstanding having a debt of this magnitude, the practitioner established a new practice in partnership with the junior lawyer, NI, whom he had employed in 2013. The practitioner referred to this as a partnership but noting that they operated under a company structure. In 2016, this new practice purchased a legal practice in Port Augusta for the sum of $30,000 which was financed by way of vendor finance.
The practitioner maintains that he was genuinely unaware of the extent of his liability to the ATO at this time. However, even on the practitioner’s admitted understanding, he was aware that he owed at least $120,000 to the ATO but nevertheless proceeded to incur the further liabilities involved in acquiring the new practice.
The practitioner has stated that he acquired this practice as a means of increasing his income, to better manage his cash flow and to address his outstanding tax liabilities. Nevertheless, it is accepted by the practitioner that the new practice, in fact, generated only a modest income and that the practitioner had relied upon the advice of his accountants that the business was a profitable one.
Almost immediately, the new practice incurred further liabilities, it being necessary to employ more staff when it became part of the wider practice operated by the practitioner and NI which already was facing financial liabilities. During 2016, according to the practitioner, the new practice “struggled along”. The wider practice was often behind in paying its bills and had entered into payment arrangements with the ATO.
In June 2017, NI resigned as a director of the practice. The practitioner accepts that this was as a result of the practitioner’s problematic financial situation. The practitioner also acknowledges that, at this time, the wages expense for his practice was high and changes needed to be made.
In October 2017, the practitioner terminated the employment of his two remaining employees. They were paid their accrued entitlements when they left although outstanding superannuation entitlements were not met until 30 July 2018.
The practitioner maintains that his continuing failure to pay the ATO debt was a result of his not focussing on his finances generally and that he “probably let [his] tax debt get out of control because [he] felt too optimistic about being able to get it under control at some later time”. The practitioner also maintained that he was confused or unclear about the extent of the ATO debt and that he believed the amount was manageable.
The practitioner engaged in a number of personal activities which the interveners submit would have occupied a considerable amount of time being time not devoted to his practice. In 2012/2013, the practitioner ran a marathon in every capital city throughout Australia and entered a cycling race or fun run every weekend in 2015. These activities occurred during the period in which the practitioner was in debt to the ATO. The interveners submit that there would have been expenses associated with these activities and that this was not a sensible or practical use of time and money given the difficult financial circumstances the practitioner was in.
Something more needs to be said about the accrual of the ATO debt. The practitioner has provided a detailed account of the circumstances surrounding the accrual of the tax debt which lead to the insolvency. There is a level of apparent ingenuousness and insouciance about aspects of the practitioner’s explanations and attitudes which, of itself, is a matter of concern. Without staying to set out that account in full, I provide the following summary and observations.
The practitioner’s explanation commenced by reference to statement 29 received from the ATO in August 2010, being the first statement received after resuming practice on his own account. Statement 29 showed an amount owing of $3,910.25. The practitioner had only received $4,786.83 in gross income for the two month period 14 July 2010 to 14 September 2010 and had no capacity to meet the tax debt. According to the practitioner, “this didn’t concern [him] at the time” because he was in the process of re-establishing himself as a sole practitioner. The practitioner noted that he “assume[d]” there had been previous ATO statements but because he had been practising in Port Lincoln under a company structure at the time he was “not clear on what the previous statements were for”.
The practitioner next advised that he entered into a repayment arrangement with the ATO of $200.00 per week for the period 26 August 2011 to 8 June 2012. The letter from the ATO, dated 4 August 2011 and exhibited to the practitioner’s affidavit, sets out a schedule of 42 weekly payments of $200.00 together with a 43^rd and last in time (15 June 2012) payment of $126.64. The page of the letter exhibited[10] does not record the total amount due, as at the date of the letter (4 August 2011), to which the repayment schedule was directed. Nevertheless, I infer from the repayment schedule that the total due and to be discharged by the repayments as at 4 August 2011 (and including any interest component) was $8,526.64.[11]
[10] The exhibit appears to comprise the first page only of a 17 page document.
[11] Calculated by reference to 42 payments of $200 plus a 43^rd payment of $126.64.
The practitioner has not provided any information explaining how the debt had increased from $3,910.25 as at the end of August 2010 (statement 29) to $8,526.64, some 11 or so months later, nor concerning any interactions he may have had with the ATO during that period.
The practitioner exhibited additional ATO statements (although not a comprehensive bundle) which demonstrate the extent of his attempt to observe the repayment schedule agreed to. A relatively small number of weekly payments of $200.00 were made but, as the practitioner lamented,
while I thought I was doing the right thing by sticking to the payment arrangement, the problem with these payments is that I wasn’t paying my future lodgement obligations.
In fact, and contrary to the practitioner’s assertion of “sticking to the payment arrangement”, he failed to do so. On 10 May 2012, before the expiration of the repayment schedule period, the ATO sent to the practitioner a “Warning of intended recovery action” letter. According to this letter, the debt on the “Integrated Client Account” had reached $13,202.97.
According to the practitioner, he was able to immediately renegotiate the repayment arrangement. On 12 May 2012, the ATO issued a new repayment schedule listing 72 weekly repayments, each of $200.00, but for the last one of $74.28, to commence 18 May 2012 and finish on 27 September 2013 ($74.28) totalling $14,274.28 (presumably including an interest component).
On 13 June 2012, the practitioner received from his accountant a “notice of assessment” for the financial year ended 30 June 2011 which showed a taxable income of $58,967.00 and a tax assessment of $13,545.25. This was for the financial year 12 months past and represented a liability in addition to that to which the repayment schedule was directed. This appears to have come as a surprise to the practitioner. His ATO debt had, in effect, doubled overnight. Further, the close of the next financial year (ending 30 June 2012) with its inevitable further tax assessment was imminent.
At this point in the practitioner’s account, he exhibited ATO statements 43 and 44 which disclose a payment of $110.00 made on 30 April 2012 and payments of $200.00 made on 18 May 2012 and 8 June 2012, the latter two payments being the first and fourth required under the new schedule. The practitioner stated in his affidavit that he had exhibited these two ATO statements:
which show that I was continuing to make regular payments of $200.00 per week.
Again, this was not so. By the time ATO statement 45 was issued on 21 July 2012 the debt had increased to $18,578.61. Further, on 16 August 2012, only a matter of three months after the start of the new repayment schedule, the ATO issued a “payment demand” for $13,664.10. With reference to this, the practitioner deposed.
I didn’t have the funds to pay this amount at this time. I did not bother too much about it, and just thought that I would get around to paying it when I had funds to do so.
On 7 November 2012, the ATO sent a “Warning of intended debt collection action” letter, claiming an amount due of $38,781.20. From this point on the debt kept climbing and notwithstanding that the practitioner periodically made lump sum repayments (sometimes as much as $1,500 and $2,000) as and when he could. By 4 March 2015, the overdue amount claimed in a letter “Warning of intended debt collection action” was $83,414.35. By 5 September 2016, the total debt due was in the order of $190,000. This, together with interest and costs, comprised the judgment debt of $226,081.37 the subject of the bankruptcy notice earlier referred to.
The practitioner first notified the Law Society of his tax difficulties on 5 September 2016. He was referred to a legal practitioners support group and a senior legal practitioner thereafter assisted the practitioner in his dealings with the ATO. The ATO filed a statement of claim in the District Court on 1 August 2017. Negotiations were unsuccessful and, ultimately, the practitioner consented to judgment. As from November 2017, the LSSA, being on notice of the practitioner’s tax problems, required the practitioner to provide it with monthly trust account reports which he has done since then. There has been no suggestion of anything adverse arising from those reports.
The practitioner has attempted to explain how or why the rapid and substantial increases in the tax debt came about. However, the information available to the Court is not adequate to permit a complete understanding of this. For the purposes of this matter it is not necessary for the Court to have such a complete understanding. Nevertheless, and of significance is my clear impression that, at no time, has the practitioner, himself, had any such clear understanding.
The practitioner’s own account of his behaviour and thinking with respect to his taxation problems that persisted over the many years prior to the issue of the bankruptcy notice illustrate the following.
(i)The practitioner at no time sought to evade his taxation obligations; there was no dishonesty in this sense.
(ii)Nevertheless, the practitioner displayed a serious level of incompetence in managing his taxation affairs and managing his income in a way that would permit him to meet his debts as they fell due.[12]
(iii)The taxation debt appears to have arisen from incompetence at assessing, and making provision in advance for, taxation liabilities incurred but to be finally assessed and to fall payable at a future time.
(iv)The practitioner lacked insight into the seriousness of his predicament.
(v)The practitioner, throughout, demonstrated a failure to attend to the obvious, that is, that his position would only worsen over time, unless he obtained professional assistance.
[12] To the extent he was able to meet his general debts in a timely manner (about which there is limited evidence) he was only able to do so at the expense of not meeting his taxation liabilities.
The matters deposed to by the practitioner in his affidavits are extremely wide ranging and detailed. He has endeavoured to provide a history of his practice experience and of his financial circumstances at various points throughout that history. It is unnecessary to canvas all of that evidence in these reasons. I have had regard to that material and to the extensive submissions made on behalf of the practitioner and the interveners based on the affidavit evidence.
The practitioner was not cross-examined on his affidavits. To a substantial degree, the factual matters deposed to by the practitioner have not been challenged. Nevertheless, a number of criticisms of the practitioner’s evidence were advanced by the interveners directed at asserted: inconsistencies; unsupported propositions; and lack of appropriate detail. Submissions were put as to adverse inferences that might be drawn. A number of the interveners’ criticisms have been adequately answered by the practitioner by way of reference to aspects of the affidavit evidence not referred to by the Commissioner or the LSSA when making the criticism. Other criticisms, on their face, would appear to carry some force. However, the fact that the practitioner has pointed to other evidence which serves to put in context or explain a number of the criticised or impugned statements elsewhere made by the practitioner in his affidavit evidence and the fact that the practitioner has not been cross-examined, render it unsafe for the Court to draw adverse inferences from the practitioner’s affidavit evidence bearing on his intentions and motivations. In general, I accept the practitioner’s evidence of factual matters to which he has deposed.
Without attempting to be comprehensive, there are other matters to which the practitioner has deposed that ought to be mentioned.
The practitioner provided a “snapshot” of his current practice. In early June 2018 and before entering into bankruptcy, he transferred the practice from the corporate entity under which he had been practising to his own name as a sole trader.

The practitioner made a number of changes to the practice during and after July 2017, including terminating the employment of two remaining staff members. Whilst there were residual debts owed by the company practice as at June 2018, the practitioner paid them from his own funds. He has deposed to the fact that they were all paid by September or October 2018. The practitioner continues to work from a home office in the central business district of Adelaide but visits Port Lincoln on one day every two or three weeks and Port Augusta on one day during the weeks he is not visiting Port Lincoln.
The practitioner estimates that, since July 2018, 52 per cent of fees generated relate to work from the Adelaide office, 27 per cent of fees generated relate to work from the Port Lincoln office and 21 per cent of fees generated relate to work from the Port Augusta office. The practitioner has approximately 600 will packets in his safe. The practice includes a substantial number of long standing regional clients.
As far as the trust account is concerned, the practitioner has deposed to having learnt a lesson from the difficulties experienced in 2009. He has paid close attention to the correct trust accounting procedures to be followed. He has deposed, in some detail, to the manner by which he now manages his trust account on a day to day basis with the assistance of computer software with the operation of which he has familiarised himself. The same auditor or external examiner has conducted trust account audits and examinations from and including the financial year ending 30 June 2011 and no irregularities of significance concerning the operation of and recording requirements relating to the trust account have been identified.
Being able to operate a trust account is of central importance to the viability of the practitioner’s practice which has embraced, since 1 July 2018, property law and conveyancing files (38 per cent), wills and estate planning files (22 per cent), family law files (11 per cent), general commercial files (11 per cent), deceased estates files (9 per cent) and civil disputes files (9 per cent). Most, if not all, of these practice areas will require access to a trust account from time to time.
The practitioner deposed to his current financial position as at the date of swearing his third affidavit on 4 March 2019. His forecast earnings for the current financial year are $48,575 based on an actual net profit to 2 February 2019 of $27,724. However, according to the practitioner, this is an artificially reduced net profit as a result of having incurred, during the period, some significant one off expenses. When these are taken out, his estimate of net profit for the current financial year is in the order of $75,000. The practitioner estimates his unpaid tax liability for the 2017/2018 financial year at zero and has deposed to being up to date with his Business Activity Statements (BAS) payments. The practitioner at present is drawing only $500 per week to cover his living expenses.
The practitioner, in his fourth affidavit, has provided an estimate of income and expenses for the next 12 months. This estimate is based on projected fee income and expenses for the current financial year. The practitioner has estimated client fees of $158,709, non-supervision practice expenses of $73,040 and supervision expenses of $28,344 (discussed below) leaving a net profit anticipated for the ensuing 12 month period of $57,325. This projection does not appear to have allowed for a taxation expense. If the net profit of $57,325 were to represent the practitioner’s taxable income for the next 12 months he would be left with an after tax income of approximately $46,500. This is to be compared with his current drawings of approximately $25,000 per annum which, as the interveners submit, are extremely modest. It is questionable that the practitioner will be able to maintain such a level of austerity over the longer term.
The purport of the practitioner’s affidavit evidence on this topic is that, notwithstanding the relatively modest returns from his sole practice, he has managed to re-organise his financial affairs such that by taking a low weekly income he is now able to manage all practice expenses and tax liabilities as they accrue. In this respect, it has not been overlooked by the practitioner that the practising certificate conditions he has proposed necessarily will result in a substantial abnormal practice expense. The conditions to which the practitioner would agree envisage assistance being obtained on a regular basis from a supervising solicitor, an accountant to monitor the practitioner’s financial affairs and to assist him in ensuring compliance with his financial and tax obligations and an accountant/auditor to regularly monitor the practitioner’s trust account and assist the practitioner in ensuring he complies with the requirements of the LPA.
The practitioner’s solicitor, in his second affidavit, has provided an estimate, together with supporting documentation, of the additional cost that the practitioner is likely to incur in these respects. The total estimated cost is between $25,944 and $28,344 for the first year of operation and between $24,844 and $27,244 for the second year of operation.
Applicable legal principles
The parties referred to a number of decisions in this jurisdiction which have dealt with the issue of whether or not or on what conditions a practitioner who has become a bankrupt should be permitted to continue to practise.[13] I was also referred to a number of interstate authorities[14] and some text and academic literature bearing on the issue. In this latter respect, the parties provided extensive submissions concerning an article entitled: Reinforcing Stigma or Delivering a Fresh Start: Bankruptcy and Future Engagement in the Workforce.[15]
[13] The leading authorities appear to be Re Lindquist [2009] SASC 93; (2009) 262 LSJS 182, Re Jenner [2007] SASC 263; (2007) 250 LSJS 74, Re Moen [2018] SASC 136 and Re Read [2006] SASC 35; (2006) 243 LSJS 368.
[14] Including Barakat v Law Society of New South Wales [2013] NSWADT 271 and New South Wales Bar Association v Murphy [2002] NSWCA 138; (2002) 55 NSWLR 23.
[15] Nicola Howell and Professor Rosalind Mason, ‘Reinforcing Stigma or Delivering a Fresh Start: Bankruptcy and Future Engagement in the Workforce’ (2015) 38(4) UNSW Law Journal 1529.
My attention has not been drawn to any decision in this State involving a contested dispute as to whether or not a practitioner should remain entitled to practise on his or her own account with responsibility for and access to a trust account in circumstances where that practitioner has been made bankrupt. By way of generalisation, the authorities in this state to which my attention has been drawn have concerned either an application by a practitioner to practise only as a barrister with no question of having access to a trust account arising[16] or an application that a practitioner be permitted to practise but only as an employed solicitor and without access to a trust account.[17]
[16] For example, Re Jenner [2007] SASC 263; (2007) 250 LSJS 74.
[17] See for example, Re Lindquist [2009] SASC 93; (2009) 262 LSJS 182, Re Read [2006] SASC 35; (2006) 243 LSJS 368 and Re Moen [2018] SASC 136.
I am not aware of what may have informed the confined nature of the applications in these cases, that is, whether it was only such a limited form of practice that the practitioner in question genuinely wished to engage in or whether the form of application was strategic. It would be fair to say that the general thinking has been that, ordinarily, it would be difficult to obtain the Court’s imprimatur for a practitioner who has become bankrupt to continue to practise as a sole practitioner with responsibility for a trust account. Nevertheless, there is no authority of which I am aware that directly precludes this.
A helpful exposition of relevant principles, in this jurisdiction, is that by Debelle J in Re Jenner.[18]
The jurisdiction of the court to permit a bankrupt to practise must be exercised with considerable circumspection. The overriding consideration must be the public interest, that is to say, the protection of the public. The public confidence in the administration of justice must be maintained. The court must have regard to the interests of those members of the public whose clients will consult the legal practitioner. The court must ensure so far as lies within its power that the practitioner is a fit and proper person to practise notwithstanding the bankruptcy or intended bankruptcy. There is another aspect of the public interest to consider. It is to do what is reasonably possible for the purpose of enabling the practitioner to earn an income so that the practitioner may be in a better financial position to discharge the debts due to creditors.
The fact that a legal practitioner has become bankrupt raises real concerns as to whether that practitioner is a fit and proper person to practise. At the same time, it must be remembered that bankruptcy may result from a wide variety of circumstances ranging from dishonesty through incompetence to simple misfortune. It is necessary, therefore, to examine the circumstances in which the person has become bankrupt for the purpose of determining whether those circumstances disclose conduct which is inconsistent with fitness to practise. The purpose of an inquiry under s 49 is not to discipline the practitioner. The Legal Practitioners Act makes separate provision for discipline of a legal practitioner. The purpose of an inquiry under s 49 is to determine whether, notwithstanding the bankruptcy or intended bankruptcy, the legal practitioner is a fit and proper person to practise.
In re Read (2006) 243 LSJS 368 at [20] Besanko J said that the question whether an order should be made under s 49 will have to be decided in the context of proposed conditions that will limit the way in which the applicant is to practise. I respectfully agree. However, the court must take care not to rely unduly on conditions. It must first decide whether the applicant is, notwithstanding the bankruptcy, a fit and proper person. The primary consideration should be whether the legal practitioner has the qualities which equip the practitioner to provide sound legal advice and proper legal representation to members of the public. The conditions may relate to such issues as assistance or supervision of the legal practitioner in relation to his financial affairs or the management of his practice.
. . . .
The indebtedness of the applicant is so substantial that it raises a serious question as to his competence to practise. It points to either serious financial incompetence or an inability to keep a proper oversight of his financial affairs or both. His income tax liabilities suggest a lack of financial judgment as well as lack of legal judgment. However, there is no suggestion there was dishonesty in any of his financial dealings. The fact that he has a substantial liability on credit cards indicates a disposition to live at a level beyond his means.
[18] [2007] SASC 263; (2007) 250 LSJS 74 at [2]-[4], [16].
In Re Jenner, Debelle J was only called upon to determine whether the practitioner was a fit and proper person, notwithstanding his bankruptcy and the circumstances giving rise to that bankruptcy, to practise as a barrister. His Honour found that he was and provided an authorisation for the practitioner to practise as a barrister but on conditions which included: regular supervision and monitoring by a nominated senior counsel; that the practitioner was not to receive or handle monies directly from clients; and that he was to retain a certified practising accountant who would manage the practitioner’s financial affairs and assist him in ensuring compliance with his financial and taxation obligations.
Prior to 1 July 2014, section 49 of the LPA provided, inter alia, that an undischarged bankrupt could not, without the authority of the Supreme Court, practise the profession of law. Section 49 expressly conferred power on the Supreme Court to grant an authority to practise on such conditions as sought fit. Debelle J’s comments in Re Jenner (and the decisions in Re Lindquist and Re Read) arose in the context of this earlier regime. The decision I have been called upon to make arises in the context of the “show cause” regime as now provided for in Part 3, Division 2B of the LPA as explained earlier in these reasons. Nevertheless, the principles governing the task that is before me remain the same as those that governed the task before Debelle J. I provide the following summary of relevant principles.
(i)The Court must decide whether the practitioner, notwithstanding the show cause event, is a fit and proper person to practise law. However, this is to be determined within the context of the power to impose conditions that may limit the manner by which the practitioner is to practise.
(ii)The purpose of the exercise is not to discipline the practitioner; the LPA makes separate provision for this.
(iii)The jurisdiction to permit a bankrupt to practise must be exercised with considerable circumspection with the overriding consideration being the protection of the public and public confidence in the administration of justice being maintained.
(iv)The fact that a legal practitioner has become bankrupt, prima facie, raises a concern as to whether the practitioner is a fit and proper person to practise at all.
(v)It is necessary to examine the circumstances in which the person has become bankrupt for the purposes of determining whether those circumstances disclose matters inconsistent with fitness to practise.
(vi)It may be that an indebtedness of an applicant is so substantial that it raises a serious question as to competence to practise. It may point to either serious financial incompetence or an inability to keep a proper oversight of financial affairs or both. It may suggest a lack of financial judgment as well as a lack of legal judgment. In this respect, a question might arise as to the practitioner’s ability to exercise sound judgment in advising others on financial or legal matters.
(vii)An assessment of the practitioner’s honesty or dishonesty is a paramount consideration; not only as to whether or not the practitioner is a fit and proper person to practise, but also when assessing the risk that the practitioner might misappropriate trust account funds or might be tempted to overcharge clients or overwork files.
(viii)Even where a practitioner has not acted dishonestly, the financial circumstances of the practitioner both leading up to and contributing to the bankruptcy and as they may stand thereafter will be a material consideration when assessing the risk of the practitioner bowing to the temptations referred to in (vii) above in order to alleviate an ongoing difficult financial position.
The practitioner has emphasised that the imposition of conditions as sought by the intervener would be extremely damaging to his practice and to his future as a legal practitioner. According to the practitioner, this would lead to a loss of the practice and client base that he has built up over many years with little or no prospect of ever being able to recover the same or similar. He has submitted, to the effect, that the conditions sought by the interveners would lead to a result wholly disproportionate to the risks the practitioner might properly be seen to pose if allowed to practise on his own account with access to a trust account.
Whilst these are matters to be taken into account, they cannot prevail if the protection of the public or the wider public interest requires otherwise. The exercise before the Court does not involve a conventional discretionary decision arrived at after weighing the advantages and disadvantages of different courses of conduct. An evaluative judgment is called for. The focus must be on a proper assessment of that which the public interest requires. If it be the case that the protection of the public and the ensuring of public confidence in the administration of justice requires the imposition of conditions in the nature of those propounded by the interveners, then so be it and notwithstanding that this might cause significant hardship to the practitioner.
As already observed, the interveners do not contend that the practitioner is not a fit and proper person to practise as a solicitor or that his practising certificate should be cancelled or suspended. As such, the question is what does the public interest require for its protection whilst the practitioner is to continue to hold a practising certificate.
The written and oral submissions by all parties were extensive and in the next two sections I provide only a summary or identification of the major contentions.
The submissions by the practitioner
The practitioner accepts that between 2009 and 2016, whilst in sole practice, and 2016-2018 whilst practising by way of an incorporated practice, he failed to give proper attention to the “varying expense demands” of his practice and to the management of his personal affairs. However, the practitioner’s ability to serve his clients competently and efficiently and to operate his trust account in accordance with statutory requirements was not thereby affected. The practitioner has now simplified his practice by no longer employing anyone and he proposes to maintain this type of practice for the indefinite future. He has thereby reduced his expenses and undertaken a far more careful monitoring of his practice.
The practitioner contends that to deny him the right to practice on his own account which, given the nature of his practice, inevitably would require the operation of a trust account, would be wholly disproportionate to the identified risks and would not in fact address them. The bankruptcy arose from a failure to give priority to tax liabilities in the distribution of the available income and a failure to attend to tax liabilities in a timely fashion. The practitioner contends that the risks exposed by his bankruptcy or arising from its underlying causes are not such as would entail any risk of future mishandling of a trust account or mishandling of his law practice so as to put at risk the proper and efficient handling of client affairs.
There is no evidence that the practitioner, at any time, has put at risk client monies held in his trust account or otherwise taken improper advantage of his clients or their affairs in order to assist him with his financial difficulties. The administration of his trust account since he took personal control of it after 2010 cannot be criticised.
The practitioner services both city clients and country clients. He has established a special relationship with a number of clients in Port Lincoln and Port Augusta and he has a long history of serving such clients since his admission in 2001. The ability of the practitioner to serve the interests of such clients has not been compromised.
The practitioner has accepted responsibility for his bankruptcy and for the need to ensure the protection of the public interest. The conditions he proposes provide for the supervision of the practitioner’s legal work by a senior legal practitioner, periodic monitoring of and reporting on the practitioner’s finances and periodic monitoring of and reporting on the operation of the practitioner’s trust account. The presumption underlying the conventional concern that where a practitioner has become bankrupt his or her trust account may become vulnerable to exploitation is without basis in the circumstances of this case. Yet, and notwithstanding this, the practitioner has proposed conditions that will assist in the protection of the trust account.
The practitioner maintains that the conditions proposed by the interveners are not only unnecessary but will lead to extreme hardship. The practitioner has posited a number of consequences that he says will or are likely to follow to his detriment, in the event that he were to be restricted to practising only as an employee. It is unnecessary to set out these contentions in detail. However, they include: a number of suggested reasons why the practitioner believes he is unlikely to obtain employment; the assertion that, in any event, he will lose his client base and in circumstances where he may not in the foreseeable future be able to recover it; and other matters suggestive of significant professional and financial hardship, as the practitioner would apprehend.

There developed a contest during the submissions, involving competing predictions, as to whether the practitioner would be financially better off operating as an employee or continuing to operate his own practice. In my view it is neither possible nor necessary to resolve this type of issue. Whether or not the practitioner might be financially better of is not to the point. The practitioner has practised either as a principal in a firm or on his own account in one form or another since 2002 and has developed a practice of substance with a not insignificant client base comprising both country and city clients. He very much wishes to continue to practise the law in this way and not as an employee. He sees value in retaining his own practice and detriment in giving it up with all the risks and difficulties that would entail for re-establishing such a practice in the future.
As I have said earlier, the loss of the practice and the potential financial ramifications of this or, indeed, the risk that the practitioner might fail to obtain employment and thus be prevented from practising at all, are matters to take into account. They are material insofar as they might contribute to a consideration of what will serve to protect the public interest in all of the circumstances. However, this question needs to be addressed whether or not the consequences for the practitioner on the interveners’ case might be seen as disproportionate to the nature or extent of the risk to the public interest that has been posed.
The practitioner contends that should the feared consequences ensue they, of themselves, would be inimical to the public interest which should be seen as including the retention of the status quo where the practitioner, with suitable protections in place, can continue with the important work of servicing country clients in regional areas in South Australia.
The submissions of the interveners
Whilst each of the interveners made separate submissions they, by and large, traversed similar territory and, in effect, adopted each other’s submissions. They focussed on a number of criticisms of the practitioner’s conduct during the period from 2009 until becoming bankrupt.
The fact that the practitioner required the assistance of the LSSA and, in particular, a supervisor appointed by the LSSA to ensure an orderly closure of his practice in 2009 and transfer of files to another firm is a concern. Whilst there was no suggestion of dishonesty at this time, the practitioner did fail to properly attend to his trust account obligations at or around and following the closure of the practice. No client lost money but there were difficulties in identifying the proper owner of some relatively small sums of money held in the trust account. Ultimately, these problems were resolved with the assistance of the supervisor. Further, there appeared to be monies in trust not properly accounted for which turned out to be monies due to the practitioner. Again this was sorted out with the assistance of the supervisor. Whether or not the irregularities are properly to be characterised as serious, they should not have occurred and served to demonstrate a level of incompetence and lack of attention to detail by the practitioner, relevant to a fundamental aspect of a sole practitioner’s practice, at least as at 2009.
The longstanding and consistent problems that the practitioner had from 2010 onwards in meeting his tax obligations have served to demonstrate an inability to run a business, in particular, the business of a legal practitioner.
The practitioner’s explanations as to how the tax debt got out of control and as to his lack of understanding of his taxation obligations at the time indicate a lack of appreciation or understanding of the seriousness of these events. The practitioner demonstrated a quite blasé or untroubled attitude to what objectively was a very serious situation being one where a legal practitioner, of all people, had not observed his taxation obligations over a very lengthy period.
Various assertions put by the practitioner as part of his explanation for how the tax debt came about such as: that from time to time he was genuinely unaware of the extent of his liability to the ATO; that he did not understand how his taxation liability was made up; that he was not, at times, troubled by the debt being of the belief that in due course he would be able to manage it; and that he let the tax debt get out of control because he was optimistic about being able to get it under control at some later time, all suggest a cavalier and irresponsible attitude to financial risk and risk management with no real understanding of his predicament.
Further, even while, as the practitioner asserted, he did not appreciate the extent of his debt, he nevertheless took on additional financial liability by employing a member of staff in 2013; demonstrating again the same cavalier attitude.
In the same vein, the practitioner is to be criticised for taking on, in 2016, yet more substantial financial responsibilities by establishing a new practice in partnership with his employed solicitor. The purchase of the Port Augusta practice for $30,000 occurred in circumstances where the practitioner’s debt to the ATO had increased to more than $190,000. At this point, whilst the practitioner may not have been aware that the debt was that high, he was aware that it was at least $120,000. This underscores, according to the interveners, the practitioner’s lack of business competence and cavalier attitude to the assumption of financial responsibilities.
The interveners also criticised the practitioner for engaging in the various personal activities deposed to (running marathons in every capital city throughout Australia and cycling races and fun runs every weekend in 2015) on the basis that, in the circumstances, these would have involved unnecessary and imprudent expenses incurred at a time when the practitioner should have been more clearly focussed on the financial difficulties he was facing.
As to the practitioner’s current position, the interveners submitted: that the practitioner was struggling financially; that projections with respect to income and expenses in the future were not sufficiently supported by reliable documentary evidence but were merely projections; that historically, the practitioner had, at all times, struggled financially and had experienced difficulty in managing his practice debts, as evidenced by the substantial tax debt that accumulated over the years; and that the viability of the practitioner’s practice, which was tenuous even according to his own account, would be further challenged by the conditions of practise that the practitioner sought to have imposed including a restriction that he not employ anybody and the imposition of further practice costs exceeding $25,000 per year to deal with supervision matters. The Commissioner made the following submission:
The practitioner has provided little evidence as to his expenses for the practice to support the assertions that he makes. He currently bears the responsibility for rent on two premises, in Port August and in Adelaide. The Adelaide premises also comprises the practitioner’s residence. Rent alone amounts to in the region of $43,000 per annum. The practitioner’s forecast earnings for the current financial year are not supported by evidence. It is not sustainable to run the practice from two premises with the associated expenses of operating those premises plus the cost of the practitioner travelling between the two. The practitioner states that the majority of the rent for the Carrington Street premises is tax deductable but he does not specify the amount claimed or the proportion claimed. Nor does he provide any information about utilities or other expenses associated with running the two premises. The practitioner invites the Court to accept that he is able to meet his own personal requirements on drawings of only $500 per week.
The interveners accept that there has been no evidence of dishonesty by the practitioner at least with respect to the circumstances giving rise to the accumulation of the tax debt and with reference to the practitioner’s management and conduct of his trust account. Nevertheless, the interveners maintain that an important consideration for the Court, even in a case such as this, is the avoidance of the risk to the public that would arise in circumstances where this practitioner were to continue to practise on his own account and maintain a trust account. The risk that the trust account might be misused or, for example, that clients might be overcharged or files overworked in order to assist with the practitioner’s financial commitments in the event that the practice were to struggle, cannot be dismissed.
According to the interveners, the effect of the show cause event and the ensuing investigation of the underlying circumstances has been to demonstrate that the practitioner lacks the competence necessary to manage a legal practice on his own in a manner that would provide adequate protection to the public and in particular to clients. That is not to say that he is not competent to act as a legal practitioner provided that he were to act as an employee with the additional protections available to the public and the prospect of supervision that such would entail.
Ultimately, the interveners would have the Court characterise the circumstances that brought about the practitioner’s bankruptcy as being not dishonesty and not simple misfortune but incompetence. Further, the case is one where, as Debelle J observed in Re Jenner.[19]
The indebtedness of the applicant is so substantial that it raises a serious question as to his competence to practise. It points to either serious financial incompetence or an inability to keep a proper oversight of his financial affairs or both. His income tax liability suggests a lack of financial judgment as well as a lack of legal judgment.
[19] [2007] SASC 263; (2007) 250 LSJS 74 at [16].
The interveners raised a number of criticisms concerning the conditions as proposed by the practitioner. It was submitted that a number achieve no more than already is required of the practitioner in any event pursuant to his tax obligations and trust accounting requirements. In addition, the interveners characterised the regime proposed by the practitioner as impracticable and onerous for the third parties involved as well as costly. Further, the practitioner’s proposal looks to what is necessary to meet the interests of the practitioner rather than those of his clients.
The interveners contend that the public interest as described or characterised by Debelle J in Re Jenner would only be served by allowing the practitioner to practise as an employee. This would remove all risk to the public, or at least significantly limit the risk to the public arising from the demonstrated incompetence of the practitioner. It also would enable the practitioner to earn an income which might put him in a better financial position to contribute to his bankrupt estate.
Consideration and conclusion
The practitioner was made bankrupt on 5 June 2018. This event bookended (but has not necessarily brought to an end) a period of constant financial difficulty commencing in 2010. It is expected that, in the ordinary course of affairs, the practitioner will be discharged from bankruptcy in early June 2021, approximately two years hence.
Initially, the interveners submitted that any conditions restricting the practitioner’s right of practise should be imposed until the practitioner was discharged from bankruptcy. However, as the argument progressed the position of the interveners changed to one where any conditions imposed should be “until further order”. On one view, the latter approach is faithful to a situation where, as here, the concern is as much the underlying causes of or circumstances revealed by the bankruptcy and what they indicate about the practitioner’s competence to conduct a legal practice, as it is the fact of bankruptcy itself.
In a show cause case, the Court is being asked by the practitioner, in effect, to make a finding that the practitioner is a fit and proper person to hold a practising certificate. If such a finding were to be made unconditionally, that would be the end of the matter. Neither the mere fact of discharge from bankruptcy in the future nor the mere fact of when in the future that were to occur, would be of any moment. However, the position is different if the finding were to be that the practitioner is a fit and proper person to practise but only subject to conditions. In such a case, the practitioner’s rights will have been restricted for a particular reason and it is only when that reason no longer pertains that the position should change. The fact of bankruptcy coming to an end, ordinarily, will not of itself address the underlying reason for the restriction.
Orders in the form of “until further order” are not necessarily prejudicial to the practitioner. Whatever the form of the conditions, whether those proposed by the practitioner or by the interveners or some other as fixed by the Court, the practitioner would be at liberty in the future, and even before any discharge from bankruptcy, to seek their amendment or complete removal if the underlying rationale for the conditions were to change.
The practitioner submitted that in the circumstances of this case, to make an order “until further order” rather than until discharge from bankruptcy in June 2021, so as to tie it to the show cause event, would be to effect “a purpose extraneous to the power, namely a purpose for which the [LPA] makes separate and express provision”.[20] For the reasons just given, I do not agree that such an order would effect a purpose extraneous to the power. The fact that there are other provisions in the LPA specifically directed at assisting and protecting the public with respect to failed or failing legal practices does not mean that such a risk cannot or ought not inform the exercise of the Court’s supervisory jurisdiction, in response to a show cause event such as bankruptcy, as to the nature and duration of any conditions to be imposed.
[20] Citing sections 44 (Law Society Supervision), 45 (Law Society Manager), 46 (Right of Appeals) and 47 (Supreme Court Directions) of the LPA.
Authorities in this State have adopted each type of formulation and also, no express form of limitation at all.[21] The effect of the latter is to render the conditions imposed to be in place indefinitely, that is, until further order. In Re Lindquist an application was brought quite some years after the imposition of conditions for their removal which was successful.[22] In none of the cases just referred to does it appear that the issue was discussed. The proposed form of order, in each case, was effectively by agreement.
[21] “From date of order until date of discharge …” (Re Moen); “until further order” (Re Jenner) and no express limitation (Re Read and Re Lindquist).
[22] The Legal Practitioners Act 1981 (SA) re Roderic Jason Lindquist [2016] SASC 134.
I will return to this question of the duration of the conditions to be imposed in due course.
The overarching requirement is for the Court to be satisfied that the public (particularly clients) will be adequately protected and public confidence in the administration of justice adequately maintained. In this respect, this matter raises three primary considerations. The first is whether the circumstances are such as to call into question the practitioner’s honesty. The second is whether the Court can be satisfied that the practitioner is competent to manage, on his own, a legal practice and, in particular, its financial aspects. The third is whether the Court can be satisfied that the practitioner is competent to practice on his own account as a legal practitioner, that is, to properly conduct client legal affairs, in the absence of the supervision or assistance that might be expected when practising as an employee.
I turn to the issue of honesty. The practitioner has to date practised as a principal and deployed a trust account for the whole of the period since 2010, including almost one year as an undischarged bankrupt, without any suggestion let alone allegation that he has acted dishonestly. During this lengthy period he has been subjected to significant financial pressures. It cannot be said, categorically, that the practitioner has not acted dishonestly at any time during this period. The evidence does not go so far. However, it is difficult, if not impossible, for the practitioner to prove the negative. There is no evidence of any dishonesty. In particular, there is no evidence of any dishonest dealings with the trust account or in handling client files.
Furthermore, and notwithstanding the criticisms properly directed to the practitioner’s conduct and attitude throughout the period of his dealings with the ATO, the practitioner has endeavoured to be fulsome and frank in the information and explanations provided to the interveners and the Court.
It is readily apparent that the practitioner was ill equipped to properly comply with his trust accounting obligations in and probably prior to 2009. However, that was almost ten years ago now. The LSSA became involved and the problems, such as they were, were resolved without loss to any person. After 2009, the LSSA did not need to involve itself again until the practitioner voluntarily disclosed to the LSSA in late 2016 that he was experiencing taxation difficulties. As a consequence, the LSSA in late 2017 instituted a regime of regular trust account reporting. Nothing arising from this regime or from the unqualified or qualified, but in only very minor respects, audit reports for the financial years from 2011 to date has caused the LSSA to take any action with respect to the practitioner’s trust account.
This is consistent with the practitioner’s evidence to the effect that when he resumed practise on his own account in 2010 he took personal control on a day to day basis of his trust account operations and, in effect, re-educated himself as to his trust account obligations and means of satisfying them.
The matters raised to this point are such as to engender the belief, with some confidence, that honesty is an enduring feature of the practitioner’s character.
A resolution of the practitioner’s major financial problem to date – his substantial ATO debt – has, to a substantial degree, been assisted by his entering into bankruptcy. Further, the practitioner’s ongoing taxation obligations are, on the evidence, being managed appropriately. As such, there is now less incentive for the practitioner to behave dishonestly than there may have been for the whole of the eight years or so between 2010 and the issue of the sequestration order in 2018.
The practitioner’s long history during which no dishonesty has been identified, the current state of there being less incentive to behave dishonestly than before and the imposition of appropriate conditions requiring supervision of, auditing of and reporting on the practitioner’s financial and trust account affairs, in combination, would support a conclusion that the risk of trust account defalcation or other financial dishonesty by the practitioner in the future is low.
It follows from the foregoing that, on the facts of this case, the practitioner does not, by reason of his long term failure to meet his taxation obligations and his bankruptcy per se, present an appreciable risk that he would act dishonestly if permitted to continue to practise as a principal subject to appropriate conditions. A finding that a practitioner has not in the past acted dishonestly is important to a determination that the practitioner is a fit and proper person to continue to practise in any manner.[23]
[23] Cf; Debelle J in Re Jenner [2007] SASC 263; (2007) 250 LSJS 74 at [19].

I turn to consider the second primary consideration. Does the practitioner have the competence to manage a legal practice including, in particular, to properly conduct and manage a trust account in accordance with statutory obligations.
A number of factors relevant to this consideration have been addressed during the earlier discussion concerning the risk of future dishonest conduct. I am satisfied, notwithstanding problems in the past, that the practitioner has now acquired the requisite understanding and ability to operate and to record the operation of his trust account in accordance with statutory requirements. He has an unbroken history over many years of his trust account having been satisfactorily audited. Apart from the problems of 2009, there have been no concerns raised from any quarter, including clients, since the practitioner commenced practising on his own account in 2002. The fact that the practitioner was unable to comply with his taxation obligations and the conduct engaged in by the practitioner which resulted in the accrual of the taxation debt was quite unrelated to his management of his trust account obligations over that period.
Finally with respect to this consideration, to the extent that there were to be any residual concerns about the practitioner’s capacity to operate a complying trust account, such would carry little weight in the event that the added protections afforded by the practitioner’s proposed conditions 13 to 15 were to be in place.
The third primary consideration, is whether the practitioner has sufficient competence to conduct a legal practice on his own account, that is, to properly manage his client’s legal affairs. This issue is made more complex by the concession by the interveners that the practitioner is a fit and proper person to practise law, albeit provided certain restrictions are in place.
It is convenient to set out again part of the passage taken from the judgment of Debelle J in Re Jenner.[24]
In re Read (2006) 243 LSJS 368 at [20] Besanko J said that the question whether an order should be made under s 49 will have to be decided in the context of proposed conditions that will limit the way in which the applicant is to practise. I respectfully agree. However, the court must take care not to rely unduly on conditions. It must first decide whether the applicant is, notwithstanding the bankruptcy, a fit and proper person. The primary consideration should be whether the legal practitioner has the qualities which equip the practitioner to provide sound legal advice and proper legal representation to members of the public. The conditions may relate to such issues as assistance or supervision of the legal practitioner in relation to his financial affairs or the management of his practice.
. . . .
The indebtedness of the applicant is so substantial that it raises a serious question as to his competence to practise. It points to either serious financial incompetence or an inability to keep a proper oversight of his financial affairs or both. His income tax liabilities suggest a lack of financial judgment as well as lack of legal judgment. However, there is no suggestion there was dishonesty in any of his financial dealings. The fact that he has a substantial liability on credit cards indicates a disposition to live at a level beyond his means.
[24] [2007] SASC 263; (2007) 250 LSJS 74 at [4], [16].
It must be accepted that: the size of the ATO debt; the large number of years over which the practitioner allowed it to accumulate; the circumstances in which the practitioner allowed it to accumulate; and the somewhat desultory, and ultimately ineffectual, actions taken by the practitioner in response, were indicative of serious incompetence in the practitioner’s management of his personal and business finances over the pertinent period. These matters do raise a serious question not just as to the practitioner’s financial judgment but as to a potential lack of legal judgment.
However, the following matters are also of relevance.
(i)The practitioner’s past problems were essentially the result of financial mismanagement in his personal affairs. As earlier discussed he has taken steps to remedy that mismanagement.
(ii)Apart from an apparent abject lack of understanding of the law of taxation administration, there is no evidence of inability to properly manage client legal affairs in the areas in which the practitioner practises.
(iii)No complaints concerning the legal competence of the practitioner have been drawn to the Court’s attention.
(iv)The matters in (ii) and (iii) do not of themselves prove the positive. However, they are to be weighed in the context that the practitioner has been in practice since 2001 (almost all of that time as a principal) servicing both city and country clients across a wide range of general practice areas. If there had been client complaints of significance one would expect something of this nature to have emerged.
(v)Legal advice concerning taxation matters is an area that, these days, is very much the domain of specially trained or experienced lawyers and some appropriately qualified accountants and financial planners. Many lawyers with general practices steer clear of this and other areas of specialised work and refer such matters to other properly qualified practitioners. I note that tax is not one of the areas of current practice identified by the practitioner. If I might offer some gratuitous advice, he would be most unwise to do such work without further specialist training.
I am satisfied, that the practitioner remains capable of properly managing his client’s legal affairs in the areas of practice he has identified notwithstanding his bankruptcy. To the extent that his bankruptcy and its underlying causes may have exposed a lack of legal as well as financial judgment, this risk would be substantially ameliorated by the practitioner’s proposed condition 5. Proposed condition 5 provides for a level of supervision by a very experienced legal practitioner that is likely to replicate, if not exceed, that which might ordinarily be expected in the case of an employee. Further, it is not as if the practitioner, were he to obtain employment, would likely be employed as a junior practitioner subject to intensive training and supervision. Much more likely is that he would be employed in a senior role with significant autonomy and expected to take responsibility for (or to supervise others with respect to) clients and client files.
The interveners have submitted that the very restrictive regime of conditions proposed by the practitioner may prove counter-productive. For example, the restriction not to employ any staff might, over time, itself cause practical difficulties for the practitioner. This may be so, although other sole practitioners manage to operate without employees. Further, in the event of difficulty such that the condition proves unworkable, the practitioner can apply for and seek to justify an amendment to the condition. The condition serves the purpose of simplifying and perhaps limiting the size of the practice to a degree manageable by the practitioner. It also ensures that the practitioner will take day to day responsibility for all aspects of the practice.
The interveners are concerned about the extent of supervision and consequent cost to the practitioner. For a practice that already might be considered financially marginal, an additional expense in the order of $25,000 per annum must be seen as significant and as imposing further financial pressure on the practitioner which he may be ill-equipped to manage. There is force in this concern. However, the question before the Court is whether the practitioner is a fit and proper person to practice under appropriate conditions. It is not for the Court to form a concluded view as to the future financial success or otherwise of the practice. On the financial information presently available and provided the practitioner’s assumption as to future earnings is made good, the practice as presently structured would appear capable of absorbing the estimated costs of supervision. Beyond that observation, I cannot go.
I accept the submission of the practitioner that the conditions proposed by the interveners do not properly identify or address the nature of the risk to the public presented by this practitioner. On balance, I am satisfied that the practitioner is a fit and proper person to practise law on the conditions as proposed by the practitioner. To the extent that the practitioner poses a risk to the public, in particular, to his clients or to the maintaining of public confidence in the administration of justice, I am satisfied that the proposed conditions adequately address those risks. The conditions should operate until further order. It is important that the conditions should only end when it is apparent that they are no longer necessary in order to protect the public. This may or may not be so once the bankruptcy comes to an end. However, it is important that the Court, in exercise of its supervisory jurisdiction, has oversight of any variation to or removal of the conditions. Each of the practitioner and the interveners will have liberty to apply in this respect.
The interveners have submitted that if the practitioner were to be permitted to practise on his own account, there should be an additional condition obliging him to notify existing and new clients of his status as an undischarged bankrupt. The practitioner opposes the imposition of such a condition. In none of the reported cases in this State, earlier referred to, was this made a requirement or, apparently, considered. However, in none of those cases was the practitioner permitted to have access to client funds, although the risk of overworking client files or overcharging clients remained. On one view, the question of whether a practitioner should notify clients of his undischarged bankrupt status is a matter for the practitioner to determine according to his understanding of his professional obligations which ordinarily require honesty and candour in a practitioner’s dealings with his or her clients.
Nevertheless, if the practitioner is to be permitted, unusually in a case of this nature, to receive client money and to control trust account funds, clients should be entitled to know of the practitioner’s personal financial status and to be in a position to assess for themselves such residual risks with respect to their particular matter as may subsist. In addition, and bearing in mind the need to protect public confidence in the administration of justice, the practitioner should also advise that the Supreme Court has granted him permission to continue to practise subject to conditions. Whether or not the practitioner also advises existing and new clients of the conditions under which he is required to practice and of these reasons for judgment can be left to the practitioner to decide.
Final orders
For the above reasons I am satisfied, on the evidence before the Court, that the practitioner is a fit and proper person to hold a practising certificate subject to conditions to be endorsed on his practising certificate, being the conditions proposed by the practitioner save for the amendments I now set out.
The orders I make are in the terms as set out in paragraph [8] of these reasons with the following amendments.
(i)The phrase, in the chapeau to the orders, “until the date upon which the practitioner is discharged from bankruptcy or until earlier order” is deleted and replaced with the phrase “until further order”.
(ii)Condition 17 shall be amended to read as follows:
The accountant shall provide a written report to the Law Society of South Australia on a quarterly basis and within 14 days of the expiration of each quarter as to the practitioner’s compliance with his financial, taxation and Trust Account obligations, the first such report to be in respect of the quarter ending 30 June 2019.
(iii)Conditions 18, 19 and 20 are re-numbered as 19, 20 and 21, respectively, and a new condition 18 in the following terms is added.
18. The practitioner is to notify all existing and new clients of his status as an undischarged bankrupt and of the fact that, notwithstanding this status, the Supreme Court has given its permission for him to continue to practise as a sole practitioner subject to conditions.
I will hear the practitioner and the interveners on the question of costs.